THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to any aspect of this circular, you should consult a stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your securities of Angang Steel Company Limited* ( ) (the Company ), you should at once hand this circular, together with the form of proxy, to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. (Stock Code: 0347) CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF THE SECOND EXTRAORDINARY GENERAL MEETING OF 2015 Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders TC Capital Asia Limited A letter from the Board is set out on pages 1 to 24 of this circular. A letter from the Independent Board Committee is set out on pages 25 to 26 of this circular. A letter from TC Capital Asia Limited is set out on pages 27 to 49 of this circular. A notice to convene the EGM of the Company to be held at the Conference Room, Dongshan Hotel, 108 Dongfeng Street, Tie Dong District, Anshan City, Liaoning Province, the PRC, at 2 p.m. on Monday, 12 October 2015 together with the proxy form and reply slip were dispatched to the Shareholders on 24 August The notice convening the EGM is set out on pages 55 to 56 of this circular for your ease of reference. Whether you are able to attend the EGM or not, please complete and return the proxy form in accordance with the instructions printed thereon as soon as possible and in any event not later than 24 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish. 22 September 2015 * For identification purpose only

2 CONTENTS Page DEFINITIONS... ii LETTER FROM THE BOARD... 1 LETTER FROM THE INDEPENDENT BOARD COMMITTEE LETTER FROM TC CAPITAL ASIA LIMITED GENERAL INFORMATION NOTICE OF EGM i

3 DEFINITIONS In this circular, unless the context otherwise requires, the following expressions have the following meanings: Angang Group Angang Group Company and its subsidiaries from time to time Angang Group Company Angang Group Company* ( ), a company incorporated in the PRC with limited liabilities, the ultimate controlling shareholder of the Company Angang Holding Anshan Iron & Steel Group Complex* ( ), a wholly-owned subsidiary of Angang Group Company and the immediate holding company of the Company, which currently holds approximately 67.29% equity interest in the Company and a major enterprise in the iron and steel industry of the PRC Anqian Mining Angang Group Anqian Mining Company Limited* ( ), a company incorporated in the PRC and a whollyowned subsidiary of Pangang Vanadium & Titanium associate has the meaning ascribed thereto under Chapter 14A of the Listing Rules Board the board of Directors of the Company Company Angang Steel Company Limited* ( ), a joint stock limited company incorporated in Anshan, Liaoning province, the PRC, the H shares of which are listed on the Hong Kong Stock Exchange and the A shares of which are listed on the Shenzhen Stock Exchange connected person(s) has the meaning ascribed thereto under Chapter 14A of the Listing Rules controlling shareholder has the meaning ascribed thereto under Chapter 1 of the Listing Rules Director(s) the director(s) of the Company EGM the extraordinary general meeting of the Company to be convened and held on 12 October 2015, for the purpose of considering and, if thought fit, approving, the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement, and the transactions contemplated thereunder, or any adjournment thereof ii

4 DEFINITIONS Group the Company and its subsidiaries from time to time Hong Kong Stock Exchange The Stock Exchange of Hong Kong Limited Independent Board Committee Independent Shareholders an independent committee of the Board comprising all of the independent non-executive Directors of the Company the Shareholders other than Angang Group Company and any of its associates (including Angang Holding) Karara Karara Mining Limited, a joint venture company incorporated with limited liability in the state of Western Australia, Australia, directly or indirectly owned (through a wholly-owned subsidiary company) as to 69.33% by Pangang Vanadium & Titanium Latest Practicable Date 16 September 2015, being the latest practicable date before printing of this circular for ascertaining information contained herein Listing Rules the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited Mineral Ore Purchase and Agency Service Agreement the agreement entered into between the Company and Angang Group International Economic and Trading Corporation* ( ) on 11 August 2014, pursuant to which the Company has agreed to purchase, and Angang Group International Economic and Trading Corporation has agreed to supply, magnetite for (i) the period commencing from the effective date of the agreement until the end of 2014 and (ii) the year of 2015 Pangang Group Company Pangang Group Company Limited* ( ), a company incorporated in the PRC with limited liabilities, a major enterprise in the iron and steel industry of the PRC and a wholly-owned subsidiary of Angang Group Company Pangang Vanadium & Titanium Pangang Group Vanadium & Titanium Resources Co., Ltd.* ( ), a company incorporated in the PRC with shares listed on the Shenzhen Stock Exchange, owned as to approximately 10.81% (through direct equity interest) by Angang Holding and approximately 47.87% (through direct and indirect equity interest) by Pangang Group Company iii

5 DEFINITIONS Pangang Vanadium & Titanium Group Pangang Vanadium & Titanium and its subsidiaries from time to time Pellet Distribution Agreement the agreement entered into between the Company and Angang Group Company on 11 August 2014, pursuant to which Angang Group Company has agreed to purchase, and the Company has agreed to supply, iron ore pellets for (i) the period commencing from the effective date of the agreement until the end of 2014 and (ii) the year of 2015 Platts Fe 65% (CFR) the price of grade 65% iron ore concentrates for delivery to Qingdao Port in north China on the basis of the Platts index PRC the People s Republic of China (for the purpose of this circular, excluding Hong Kong and Macau Special Administrative Regions) RMB Renminbi, the lawful currency of the PRC SFO Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) Share(s) the ordinary share(s) in the registered share capital of the Company with a par value of RMB1.0 per share, including the H shares listed on the Hong Kong Stock Exchange and the A shares listed on the Shenzhen Stock Exchange Shareholder(s) the shareholder(s) of the Company State Prices the prices as mandatorily stipulated by the National Development and Reform Commission of the PRC and the State Pricing Bureau at provincial and municipal level which are applicable to certain support services, comprehensive services and electricity and water to be provided to the Group/Angang Group (as the case may be) Supplemental Agreement the supplemental agreement to the Supply of Materials and Services Agreement ( ) dated 6 January 2014 entered into between the Company and Angang Group Company in respect of the supply of steel products by the Angang Group to the Group for the two years ending 31 December 2015 iv

6 DEFINITIONS Supply of Materials Agreement ( ) the supply of materials agreement dated 11 March 2013 entered into between the Company and Pangang Vanadium & Titanium in respect of the supply of raw materials by Pangang Vanadium & Titanium Group to the Group for the two years ending 31 December 2015 Supply of Materials and Services Agreement the supply of materials and services agreement dated 7 August 2015 entered into between the Company and Angang Group Company in respect of the cross-provision of materials, products and services between the Group and Angang Group for the three years ending 31 December 2018 Supply of Materials and Services Agreement ( ) the supply of materials and services agreement dated 11 March 2013 entered into between the Company and Angang Group Company in respect of the cross-provision of materials, products and services between the Group and Angang Group for the two years ending 31 December 2015 Supply of Raw Materials Agreement the supply of raw materials agreement dated 7 August 2015 entered into between the Company and Pangang Vanadium & Titanium in respect of the supply of raw materials by Pangang Vanadium & Titanium Group to the Group for the three years ending 31 December Agreements the Supply of Materials Agreement ( ), the Supply of Materials and Services Agreement ( ), the Mineral Ore Purchase and Agency Service Agreement and the Pellet Distribution Agreement, collectively % per cent * For identification purpose only v

7 LETTER FROM THE BOARD (Stock Code: 0347) Executive Directors: Yao Lin Wang Yidong Zhang Lifen Zhang Jingfan Registered Office: Production Area of Angang Steel Tiexi District Anshan City, Liaoning Province the PRC Independent Non-executive Directors: Chen Fangzheng Qu Xuanhui Liu Zhengdong Chau Chi Wai, Wilton Head Office and Principal Place of Business in Hong Kong: 33/F, Edinburgh Tower The Landmark 15 Queen s Road Central Hong Kong 22 September 2015 Dear Shareholders, I. INTRODUCTION The Board refers to the announcement of the Company dated 7 August 2015 in relation to the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement. The purpose of this circular is to provide you with information which will help you to make an informed decision on whether to vote for or against the resolutions to be proposed at the EGM in relation to (i) the Supply of Materials and Services Agreement and (ii) the Supply of Raw Materials Agreement, and the proposed annual monetary caps under each agreement for the years of 2016, 2017 and * For identification purpose only 1

8 LETTER FROM THE BOARD II. CONTINUING CONNECTED TRANSACTIONS (1) Background Information The Board refers to the announcement of the Company dated 11 March 2013 and circular dispatched to the Shareholders on 15 April 2013 in relation to certain continuing connected transactions between the Group and each of Angang Group and Pangang Vanadium & Titanium Group under the Supply of Materials and Services Agreement ( ) and the Supply of Materials Agreement ( ), respectively. These agreements will expire on 31 December Further reference is made to the announcement of the Company dated 6 January 2014 and circular dispatched to the Shareholders on 14 February 2014 in relation to the Supplemental Agreement pursuant to which the annual monetary cap and pricing standard for the supply of steel products under the Supply of Materials and Services Agreement ( ) were amended and supplemented. Reference is also made to the announcement of the Company dated 11 August 2014 and circular dispatched to the Shareholders on 22 September 2014 in relation to the continuing connected transactions contemplated under (i) the Mineral Ore Purchase and Agency Service Agreement and (ii) the Pellet Distribution Agreement. Pursuant to the Mineral Ore Purchase and Agency Service Agreement, the Company has agreed to purchase, and Angang Group International Economic and Trading Corporation* ( ) has agreed to supply, magnetite produced by Karara. Pursuant to the Pellet Distribution Agreement, Angang Group Company has agreed to purchase, and the Company has agreed to supply, iron ore pellets. These agreements will also expire on 31 December The Board is pleased to announce that on 7 August 2015, in order to continue the ongoing cross-provision of materials, products and services with Angang Group and Pangang Vanadium & Titanium Group under the 2014 Agreements, and to facilitate the Group s production and operations upon the expiration of the 2014 Agreements, the Company entered into (i) the Supply of Materials and Services Agreement with Angang Group Company and (ii) the Supply of Raw Materials Agreement with Pangang Vanadium & Titanium, respectively, to set out the terms of the continuing connected transactions and the annual monetary caps of the transactions contemplated thereunder for the three years ending 31 December

9 LETTER FROM THE BOARD (2) Supply of Materials and Services Agreement The Company and Angang Group Company have entered into the Supply of Materials and Services Agreement to govern the ongoing cross-provision of materials, products and services for the three years ending 31 December The principal terms of the Supply of Materials and Services Agreement are summarized below: Date: 7 August 2015 Parties: (i) The Company; and (ii) Angang Group Company. Subject matter: (i) Supply of raw materials, steel products, ancillary materials and spare parts, energy and power from Angang Group to the Group; (ii) Supply of finished products, scrap steel, abandoned material and other materials from the Group to Angang Group; (iii) Provision of support services from Angang Group to the Group; and (iv) Provision of comprehensive services from the Group to Angang Group. Term: Subject to approval by the Independent Shareholders, the agreement shall be effective from 1 January 2016 to 31 December Payment: In lump sums or by installments. The time of the payments is to be agreed with reference to customary business practices. The payment method varies with different types of services, materials and products. The payment terms shall not be less favourable than those available from or offered to independent third parties. The payments for the transactions contemplated under the Supply of Materials and Services Agreement will be made through internal resources of the Group. 3

10 LETTER FROM THE BOARD Historical Figures under the Supply of Materials and Services Agreement ( ) The following tables set out certain information regarding the amount of historical transactions under the Supply of Materials and Services Agreement ( ) for the year of 2014 and the six months ended 30 June 2015: Annual monetary cap Actual transaction amount Annual monetary cap Actual transaction amount as of 30 June 2015 (RMB million) (RMB million) (RMB million) (RMB million) From Angang Group to the Group Principal Raw Materials (i) Iron ore concentrate (ii) Pellet (iii) Sinter ore (iv) Scrap steel (v) Billets (vi) Alloy and non-ferrous metal Total 17,466 13,583 19,212 4,933 Steel Products Steel products (Note) 3, , Note: Annual monetary caps as amended by the Supplemental Agreement. 4

11 LETTER FROM THE BOARD Annual monetary cap Actual transaction amount Annual monetary cap Actual transaction amount as of 30 June 2015 (RMB million) (RMB million) (RMB million) (RMB million) Ancillary Materials (i) Lime stone (ii) Lime powder (iii) Refractory material (iv) Spare parts (v) Coke (vi) Other ancillary materials Total 2,326 2,326 2,712 1,206 Electricity and Water (i) Electricity (ii) Water (iii) Steam Total 2,287 1,826 2,

12 LETTER FROM THE BOARD Annual monetary cap Actual transaction amount Annual monetary cap Actual transaction amount as of 30 June 2015 (RMB million) (RMB million) (RMB million) (RMB million) Support Services (i) Railway transportation & road transportation (ii) Agency services for: import of raw materials, equipment, spare parts, and ancillary materials export of products (iii) Equipment examination, repair and maintenance (iv) Design and engineering (v) Educational facilities, occupational technical education, on-job training and translation (vi) Newspaper and other publications (vii) Telecommunication business, telecommunication services and information systems (viii) Production assistance and maintenance (ix) Welfare assistance and maintenance (x) Employee transportation (xi) Environmental protection and security monitoring (xii) Business reception and meeting (xiii) Supply of heating (xiv) Landscaping services (xv) Security (xvi) Material processing Total 6,526 5,104 7,179 2,170 6

13 LETTER FROM THE BOARD Annual monetary cap Actual transaction amount Annual monetary cap Actual transaction amount as of 30 June 2015 (RMB million) (RMB million) (RMB million) (RMB million) From the Group to Angang Group Finished Products (i) Steel products (ii) Molten iron (iii) Billet (iv) Coke (v) Chemical by-products Total 18,372 3,884 20,209 1,059 Scrap Steel and Other Materials (i) Scrap steel (ii) Abandoned materials (iii) Minus sieve powder (iv) Obsolete or idle assets Total

14 LETTER FROM THE BOARD Annual monetary cap Actual transaction amount Annual monetary cap Actual transaction amount as of 30 June 2015 (RMB million) (RMB million) (RMB million) (RMB million) Comprehensive Services (i) Power (ii) Fresh water (iii) Recycled water (iv) Soft water (v) Gas (vi) Blast furnace gas (vii) Steam (viii) Nitrogen (ix) Oxygen (x) Argon (xi) Compressed air (xii) Hydrogen (xiii) Residual heat water (xiv) Product testing service (xv) Transportation service (xvi) Lease of production lines (xvii) Agency service Total

15 LETTER FROM THE BOARD Historical Figures under the Mineral Ore Purchase and Agency Service Agreement and the Pellet Distribution Agreement (1) The following table sets out certain information regarding the amount of historical transactions under the Mineral Ore Purchase and Agency Service Agreement for the year of 2014 and the six months ended 30 June 2015: Actual transaction Annual monetary cap Actual transaction amount Annual monetary cap amount as of 30 June 2015 (RMB million) (RMB million) (RMB million) (RMB million) Mineral ore from Karara (including any import agency service commission) 1, , (2) Pursuant to the Pellet Distribution Agreement, the annual monetary caps for the supply of iron ore pellet by the Company to Angang Group Company (including any distribution commission) for the years of 2014 and 2015 are RMB100 million and RMB400 million, respectively. As of 30 June 2015, the parties have not carried out any transaction under the Pellet Distribution Agreement. 9

16 LETTER FROM THE BOARD Proposed Annual Caps under the Supply of Materials and Services Agreement The following tables set out the category of raw materials, products and services, pricing standards and the proposed annual monetary caps of the continuing connected transactions contemplated under the Supply of Materials and Services Agreement for the three years ending 31 December 2018: Monetary Cap For the year ending 31 December Item Pricing Standard (RMB million) (RMB million) (RMB million) From Angang Group to the Group Principal Raw Materials (i) Iron ore concentrate (1)(2) Not higher than the monthly average value of the medium price of Platts Fe 65% (CFR) for Northern China (Qingdao port) as published daily by the SBB Steel Markets Daily Briefing (4) for the preceding month (T-1) plus the freight cost from Bayuquan port to the Company. Price adjustments for mineral grades shall be made to the price in accordance with iron content calculated based on the average value of Platts Fe 65% index for the preceding month (T-1). Using this as the basis, a further discount equal to 3% of the average value of Platts Fe 65% index for the preceding month (T-1) shall be applied. (ii) Pellets (3) Market price (iii) Sinter ores (1) The price of iron concentrate plus the processing costs for the preceding month (T-1) (in particular such processing costs shall not be higher than the processing costs of the products of the same category produced by the Company). (iv) Mineral ore from Karara (2) Premium products (iron grade 67.2%): Not higher than the average monthly price of such product sold to independent third parties in Mainland China for the corresponding period (i.e. the month in which freight was loaded at the port of origin). The sales volume of premium products made by Karara to independent third parties in Mainland China shall not be less than 30% of the total sales volume of premium products of Karara for a given period. Standard grade products (67.2%>iron grade 65%): The price is calculated based on the monthly average value of the medium price of Platts Fe 65% (CFR) for Northern China (Qingdao port) as published daily by the SBB Steel Markets Daily Briefing for the month in which the freight was loaded at the port of origin plus the freight cost differential for each dry metric tonne from Qingdao port to Bayuquan port, Liaoning, divided by 65 and multiplied by the actual product grade. 10

17 LETTER FROM THE BOARD Monetary Cap For the year ending 31 December Item Pricing Standard (v) Scrap steel (5) Market price (vi) Steel billets (6) Market price (vii) Alloy and non-ferrous Market price metal (7) Low grade products (65%>iron grade 59%): The price is calculated based on the monthly average value of the medium price of Platts Fe 62% (CFR) for Northern China (Qingdao port) as published daily by the SBB Steel Markets Daily Briefing for the month in which the freight was loaded at the port of origin plus the freight cost differential for each dry metric tonne from Qingdao port to Bayuquan port, Liaoning, divided by 62 and multiplied by the actual product grade. (RMB million) (RMB million) (RMB million) Total 18,300 19,800 21,200 Notes: (1) T refers to the relevant month in which the transactions take place. (2) The grade ( ) refers to the quality of the iron concentrate and mineral ore, which is usually denoted by percentage point. The grade of the iron concentrate and mineral ore is determined by the quality inspection departments of both parties after testing of the iron concentrate and mineral ore. In case of any discrepancy or dispute over the testing results of the quality inspection departments of the parties, the parties will determine by negotiation or will appoint an independent third party to conduct testing. A higher percentage point of the iron concentrate and mineral ore represents a better quality as such iron concentrate and mineral ore contains a higher amount of iron. Difference in the grade of the iron concentrate and mineral ore will in turn affect their pricing. (3) Market price is determined on the basis of quotations of the average purchase price of pellets published by the China Iron and Steel Association. (4) SBB Steel Markets Daily publishes the Platts iron ore index, a benchmark assessment of the spot price of physical iron ore. The Platts iron ore index is the pricing basis for the world s top three miners quarterly and spot transaction clearing, and has become an official index for the determination of the price of iron ore. The Group therefore makes references to the quotations of the SBB Steel Markets Daily in order to align the pricing standard of its transactions with the pricing standard used in the international market. (5) Market price is determined by checking prices quoted on specialized websites and journals in the steel industry such as and Metallurgy Price News* ( ). (6) Market price is determined on the basis of price of steel billets as quoted on the open market obtained through public bidding. (7) Market price is determined on the basis of price of alloy and non-ferrous metal as quoted on the open market obtained through public bidding. 11

18 LETTER FROM THE BOARD Monetary Cap For the year ending 31 December Item Pricing Standard (RMB million) (RMB million) (RMB million) Steel Products Steel products The price is determined based on the selling price of the Company to third parties after deducting a consignment fee of RMB20 35 per tonne Ancillary Materials (i) Limestone Not higher than the selling price quoted by the relevant member company of Angang Group to independent third parties (ii) Lime powders Not higher than the selling price quoted by the relevant member company of Angang Group to independent third parties (iii) Refractory materials Not higher than the selling price quoted by the relevant member company of Angang Group to independent third parties (iv) Spare parts Not higher than the selling price quoted by the relevant member company of Angang Group to independent third parties (v) Coke Not higher than the selling price quoted by the relevant member company of Angang Group to independent third parties (vi) Other ancillary Not higher than the selling price quoted by the relevant member materials (vii) Renewable resources company of Angang Group to independent third parties Not higher than the selling price quoted by the relevant member company of Angang Group to independent third parties Total 2,815 2,915 3,015 Energy and Power (i) Electricity State Prices (ii) Water State Prices (iii) Steam (1) Production costs plus a gross profit margin of 5% (iv) Gas products (2) Market price Total 2,500 2,805 2,855 Notes: (1) In the absence of an active market, the price of steam cannot be determined by reference to market price. Therefore, the price is determined on the basis of cost of production plus reasonable profit. A 5% profit margin has been mutually deemed as reasonable by the Company and Angang Group Company. (2) Market price is determined on the basis of prices of gas products as quoted on the open market obtained through public bidding. 12

19 LETTER FROM THE BOARD Monetary Cap For the year ending 31 December Item Pricing Standard Supporting Services (i) Railway transportation State Prices (ii) Road and pipeline Market price transportation services (1) (iii) Agency services: Import of raw materials, equipment, spare parts and ancillary materials (2) (iv) Export of finished products (2) Bidding and invitations for tenders (2) Examination, repair and maintenance of equipment and other relevant services (1) (v) Design and engineering services (1) (vi) Educational facilities, occupational technical education, on-the-job training and translation services (3) (vii) Newspapers and other publications (viii) Telecommunications business, telecommunications services and information systems A commission of not higher than 1.5% (not to exceed the commission charged by major state-owned import and export companies in the PRC). Market price Market price Market price State Prices State Prices or the sum of depreciation expenses and maintenance fees. (ix) Production support and maintenance (1) Costs of labour, materials and maintenance as paid according to their market price. (x) Welfare support and maintenance (1) Costs of labour, materials and maintenance as paid according to their market price. (xi) Employee transportation (4) Market price (xii) Environmental protection and State Prices security monitoring (xiii) Business reception and Market price meetings (5) (xiv) Supply of heating State Prices (xv) Landscape services (1) Costs of labour, materials and maintenance as paid according to their market price. (xvi) Security services (6) Costs of labour, materials and maintenance as paid according to their market price. (xvii) Port agency services (1) Market price (RMB million) (RMB million) (RMB million) Total 5,500 6,000 6,500 13

20 LETTER FROM THE BOARD Notes: (1) Market price is determined on the basis of price of services as quoted on the open market obtained through public bidding. (2) A commission at no higher than 1.5% is the market price typically charged for trade agency services. (3) Market price is determined on the basis of price of services as quoted on the open market obtained through enquiries with relevant training organizations in the Anshan region. (4) Market price is determined on the basis of price of employee transportation services as quoted on the open market obtained through enquiries in the market. (5) Market price is determined on the basis of price of business reception and meetings services charged by hotels in the Anshan region. (6) Market price is determined on the basis of the unit cost of labour in the Anshan region multiplied by the number of hours of security services supplied. Monetary Cap For the year ending 31 December Item Pricing Standard From the Group to Angang Group Finished Products (i) Steel products The selling price of the Group to independent third parties; where (ii) Molten iron the finished products are supplied for counterparties to develop (iii) Iron billets new products, the pricing will be based on the market price; in (iv) Coke the absence of the market price, the cost plus a reasonable profit (v) Chemical by-products margin, provided, however, that such profit margin shall not exceed the average gross profit margin of the supplier of the relevant finished product. (vi) Pellets The price is determined based on the selling price of the Group to third parties after deducting a consignment fee at a rate of no higher than 1.5%. (vii) Gas products (Note) Market price (RMB million) (RMB million) (RMB million) Total 4,810 5,050 5,310 Note: Market price is determined on the basis of prices of gas products as quoted on the open market obtained through public bidding. 14

21 LETTER FROM THE BOARD Monetary Cap For the year ending 31 December Item Pricing Standard Minus Sieve Powders, Scrap Steel and Abandoned Materials (i) Scrap steel (1) Market price (ii) Abandoned materials (2) Market price (iii) Minus sieve powders The base price of sinter ore for the current period minus the sintering costs of Angang Group. (iv) Obsolete or idle assets (2) Market price or appraised price (RMB million) (RMB million) (RMB million) Total Notes: (1) Market price is determined by checking prices quoted on specialized websites and journals in the steel industry such as and Metallurgy Price News* ( ). (2) Market price is determined on the basis of prices of abandoned materials and obsolete or idle assets as quoted on the open market obtained through public bidding. Comprehensive Services (i) Electricity and fresh water State Prices (ii) Recycled water, soft water, gas, blast furnace gas, steam, nitrogen, oxygen, argon, compressed air, hydrogen, residual heat water, liquefied oxygen, liquefied nitrogen and liquefied argon (1)(2) Market price or production costs plus a gross profit margin of not less than 5% (iii) Product testing services (3) Market price (iv) Transportation services (1) Market price (v) Lease of production lines (1) Market price (vi) Agency services (4) A commission of not higher than 1.5% (vii) Assets entrusted management (5) Market price Total 1,270 1,450 1,500 15

22 LETTER FROM THE BOARD Notes: (1) Market price is determined on the basis of price of services as quoted on the open market and recognized by the parties following negotiation and as confirmed by the parties with reference to such market price as obtained through public bidding, thus ensuring that the final price as recognized and confirmed by the parties are on normal commercial terms and fair and reasonable. (2) If the market price cannot be determined due to the absence of an active market, the price will be determined on the basis of cost of production plus reasonable profit. A profit margin of not less than 5% has been mutually deemed reasonable by the Company and Angang Group Company. (3) Market price is determined based on the price of product testing services that the Group charges third parties. (4) A commission at no higher than 1.5% is the market price typically charged for trade agency services. (5) Market price is determined based on the unit cost of labour in the Anshan region multiplied by the number of hours of assets entrusted management services supplied. (3) Supply of Raw Materials Agreement The Company and Pangang Vanadium & Titanium have entered into the Supply of Raw Materials Agreement to govern the supply of raw materials for the three years ending 31 December The principal terms of the Supply of Raw Materials Agreement are summarized below: Date: 7 August 2015 Parties: (i) The Company; and (ii) Pangang Vanadium & Titanium. Subject matter: Term: Payment: Supply of iron ore concentrate and alloys by Pangang Vanadium & Titanium and its subsidiaries (including Anqian Mining) to the Group. Subject to approval by the Independent Shareholders of the Company and Pangang Vanadium & Titanium, the agreement shall be effective from 1 January 2016 to 31 December By monthly installments payable on the last day of each calendar month. The payments for the transactions contemplated under the Supply of Raw Materials Agreement will be made through internal resources of the Group. 16

23 LETTER FROM THE BOARD Historical Figures under the Supply of Materials Agreement ( ) The following table sets out certain information regarding the amount of historical transactions under the Supply of Materials Agreement ( ) for the year of 2014 and the six months ended 30 June 2015: Raw Materials (i) Iron ore concentrate (ii) Alloys Actual transaction Annual monetary cap Actual transaction amount Annual monetary cap amount as of 30 June 2015 (RMB million) (RMB million) (RMB million) (RMB million) Total 2,437 1,490 3, Proposed Annual Caps under the Supply of Raw Materials Agreement The following table sets out the category of raw materials, pricing standards and the proposed annual monetary caps of the continuing connected transactions contemplated under the Supply of Raw Materials Agreement for the three years ending 31 December 2018: Monetary Cap For the year ending 31 December Item Pricing Standard From Pangang Vanadium & Titanium Group to the Group Raw Materials (i) Iron ore concentrate (1)(2) No higher than the monthly average value of the medium price of Platts Fe 65% (CFR) for Northern China (Qingdao port) as published daily by the SBB Steel Markets Daily Briefing for the preceding month (T-1) plus the transportation cost from Bayuquan port to the Company. Price adjustments for the mineral grades shall be made to the price in accordance with iron content calculated based on the average value of Platts Fe 65% index for the preceding month (T-1). Using this as the basis, a further discount equal to 3% of the average value of Platts Fe 65% index for the preceding month (T-1) shall be applied. (ii) Alloys (3) Market price (RMB million) (RMB million) (RMB million) Total 1,780 1,890 2,100 17

24 LETTER FROM THE BOARD Notes: (1) T refers to the relevant month in which the transactions take place. (2) The grade ( ) refers to the quality of the iron concentrate, which is usually denoted by percentage point. The grade of the iron concentrate and mineral ore is determined by the quality inspection departments of both parties after testing of the iron concentrate and mineral ore. In case of any discrepancy or dispute over the testing results of the quality inspection departments of the parties, the parties will determine by negotiation or will appoint an independent third party to conduct testing. A higher percentage point of the iron concentrate represents a better quality as such iron concentrate contains a higher amount of iron. Difference in the grade of the iron concentrate will in turn affect their pricing. (3) Market price is determined on the basis of price of commodities as quoted on the open market obtained through public bidding. (4) Basis for the Monetary Caps of the Transactions Contemplated Under the Supply of Materials and Services Agreement and Supply of Raw Materials Agreement The Directors (including all the independent non-executive Directors) consider that it is in the interests of the Company to enter into the transactions under the terms and conditions set out in the Supply of Materials and Services Agreement and Supply of Raw Materials Agreement. The Directors have determined the proposed annual monetary caps of the transactions contemplated thereunder for the three years ending 31 December 2018 on the basis of the following factors: (i) the volume of historical transactions for the supply of materials and products, provision of services under the 2014 Agreements and previous transactions; and (ii) the anticipated changes in the demand and/or prices of certain materials and/or products, in particular, the price fluctuations in iron ore concentrate, steel products and related materials. Such changes include: (i) a 10% to 30% increase in the price of principal raw materials; (ii) an increase in the price of steel products; (iii) an increase in the demand for ancillary materials; (iv) an increase in demand for energy and power due to the purchase of special gases from the newly established Angang Gas Company Limited* ( ), (v) an increase in the demand for supporting services resulting from the addition of new services such as port agency services, pipeline transportation services and bidding agency services, as well as the increase in price resulting from the low consumer price index in China; (vi) an increase in the price of finished products; (vii) an increase in the demand for minus sieve powders, scrap steel and abandoned materials as a result of the sale of recyclable materials by the Group; and (viii) an increase in the demand for comprehensive services due to the sale of lowtemperature liquids to the newly established Angang Gas Company Limited* ( ). Such anticipated changes were taken into account by the Directors in determining the increase in the proposed annual monetary caps. 18

25 LETTER FROM THE BOARD The proposed annual monetary caps have also taken into account the estimated inflation at the rate of 2%, determined based on the inflation rate in China from 2013 to August 2015 (Note), applicable pricing guidelines of the PRC government, and comparable market prices. The State Prices are determined with reference to guidelines set by the relevant government authorities of the PRC for electricity and water, and the relevant services. In case where the pricing is determined based on cost price plus an agreed profit margin, the margin was determined with reference to margins set by independent providers for similar materials, products and services on a comparable scale and on similar terms. In comparison with the Supply of Materials and Services Agreement ( ), the scope of the transactions under the Supply of Materials and Services Agreement has been extended to incorporate the transactions previously contemplated under the Mineral Ore Purchase and Agency Service Agreement and the Pellet Distribution Agreement which will both expire on 31 December (5) Internal Control Measures for the Continuing Connected Transactions In order to ensure that the pricing standards under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement are effectively implemented from time to time, the transactions will be executed with reference to the Procedures for Administration of Continuing Connected Transactions ( ) of the Company (the Procedures ). In accordance with the Procedures, when specific contracts are entered into pursuant to framework agreements for continuing connected transactions (including the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement) by the various operating divisions of the Group, the price for the services, materials or products thereunder must be determined based on the pricing standards stipulated under such framework agreements. In order to ensure that specific contracts are effectively executed by the various operating divisions in accordance with the Procedures and the framework agreements for continuing connected transactions, the Company has designated department responsible for monitoring the Group s continuing connected transactions. There are also designated teams within the relevant departments to continuously monitor the market prices, State Prices and selling prices to independent third parties for the various materials, services and products, thereby enabling the Company to accurately assess the price payable or receivable by the Company under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement. If the price offered by Angang Group is inconsistent with the pricing standards stipulated under the agreements, the relevant departments will inform the management of the Company and actively negotiate with Angang Group. The designated teams will also obtain not less than three quotations from both Angang Group and independent third party suppliers or purchasers through tender, and such quotations from independent third parties will be compared against the quotations from Angang Group. Note: The inflation rate in China is obtained from information published on websites such as 19

26 LETTER FROM THE BOARD (6) Reasons for and Benefits of the Agreements The Group has been carrying out transactions with Angang Group Company and its subsidiaries to facilitate its production and operations under the 2014 Agreements and other previous supply agreements since The terms of the Supply of Materials and Services Agreement and Supply of Raw Materials Agreement have been agreed upon arm s-length negotiations between the Company and each of Angang Group Company and Pangang Vanadium & Titanium, respectively. The pricing standard for the supply of iron ore concentrate by Angang Group and Pangang Group under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement, respectively, are based on the Platts Fe index which is the customary pricing reference in the international market. Therefore, the price payable by the Company will closely track the price of iron ore concentrate in the international market. In order to nurture a long term cooperation relationship, Angang Group and Pangang Group will provide a 3% discount (based on the price of iron ore concentrate determined by the Platts Fe index), to the Group. Also, the subsidiary companies of Angang Group and Pangang Group to supply iron ore concentrate to the Group are located within the same region as the Company, thus the geographical proximity can effectively shorten the raw materials procurement cycle and reduce the stock level of raw materials. Further, in comparison with the price of iron ore concentrate calculated based on the pricing standard under the Supply of Materials and Services Agreement ( ), the price of iron ore concentrate payable by the Group for the period from January to July 2015, when calculated based on the pricing standard stipulated under the Supply of Materials and Services Agreement, would be reduced by RMB11 per tonne. This results from a change in the pricing standard used under the Supply of Materials and Services Agreement and Supply of Raw Materials Agreement as compared with the pricing standard used under the 2014 Agreements. For iron ore concentrate: (i) the pricing standard has been changed from the average import price reported to the PRC customs to the Platts Fe 65% index, as the Platts index has been extensively used and recognized in recent years and reflects the price for bulk purchase of iron ore, as well as to align with the pricing standard used for Karara products; (ii) the pricing period has been shortened from T-2 to T-1 to better reflect price fluctuations in the market; (iii) the discount price has been changed from 5%, which is based on the average import price reported to the PRC customs, to 3%, which is based on the Platts index, mainly due to the changes in the benchmark for determining the discount. The 5% discount is based on the average monthly import price reported to the PRC customs, which comprise the prices of both the bulk procurement and purchases of small amount, while the 3% discount is based on the Platts index that primarily reflects the price of bulk procurement; and (iv) price adjustments for mineral grades is now to be made to the price in accordance with iron content calculated based on the average value of Platts Fe 65% index for the preceding month (T-1), instead of under the previous adjustment mechanism of an increase or decrease of RMB10/tonne for every 1% increase or decrease of mineral grade. For sinter ore, the pricing period has also been shortened from T-2 to T-1 to align with the pricing period for iron ore concentrate. The above changes are based on the Platts index and are adopted so that the pricing standard used under the Supply of Materials and Services Agreement and Supply of Raw Materials Agreement are in line with the pricing standard used in the international market. Except for iron ore concentrate and sinter ore, the pricing standards for other products under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement are the same as under the 2014 Agreements. 20

27 LETTER FROM THE BOARD In view of (i) the long-established relationship between the Group, Pangang Vanadium & Titanium and Angang Group Company; (ii) the stability and reliability of (a) the supply of raw materials and provision of products and services by Angang Group and (b) the supply of raw materials by Pangang Vanadium & Titanium Group; (iii) the extensive domestic sales and distribution network of the Company for steel products; (iv) the operational integration and the geographical convenience (as the units of Angang Group and Pangang Group which provide materials and services to the Group are located in close proximity to the Group s operational facilities); and (v) that the Company s business operations would be adversely affected if the cross-provision of these materials, products and services were to be terminated, the Directors (including members of the Independent Board Committee after taking into account the advice of TC Capital Asia Limited) are of the view that (i) the continuing connected transactions contemplated under the Supply of Materials and Services Agreement and Supply of Raw Materials Agreement will be carried out in the ordinary and usual course of business of the Group; (ii) the terms of the Supply of Materials and Services Agreement and Supply of Raw Materials Agreement are normal commercial terms, fair and reasonable, and in the interests of the Company and the Shareholders as a whole; and (iii) the proposed annual monetary caps of the transactions contemplated under the Supply of Materials and Services Agreement and Supply of Raw Materials Agreement are fair and reasonable, and in the interests of the Company and the Shareholders as a whole. To the best knowledge of the Directors, the Directors are not aware of any reason not to enter into the Supply of Materials and Services Agreement and Supply of Raw Materials Agreement. (7) Listing Rules Implications Angang Group Company indirectly holds, through Angang Holding, an approximate 67.29% equity interest in the Company and hence, is the ultimate controlling shareholder of the Company and a connected person of the Company as defined under Chapter 14A of the Listing Rules. As an ultimate subsidiary of Angang Group Company, Pangang Vanadium & Titanium is a connected person of the Company as defined under Chapter 14A of the Listing Rules. As such, the transactions contemplated under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement constitute continuing connected transactions of the Company. As the proposed transactions under the Supply of Raw Materials Agreement concern the supply of raw materials, it is similar in nature with certain transactions under the Supply of Materials and Services Agreement, and therefore they are aggregated pursuant to Rule 14A.81 of the Listing Rules. Based on the applicable percentage ratios, the proposed annual monetary caps for transactions contemplated under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement (as aggregated with the Supply of Materials and Services Agreement) constitute non-exempt continuing connected transactions that are subject to the reporting, annual review, announcement and Independent Shareholders approval requirements under Chapter 14A of the Listing Rules. 21

28 LETTER FROM THE BOARD Mr. Yao Lin, a Director of the Company who also holds the position of vice-general manager of Angang Group Company, is considered to have a material interest in the transactions under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement due to his senior management position in Angang Group Company. He has abstained from voting on the resolutions in relation to the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement proposed to the Board. Save as disclosed above, none of the Director who attended the Board meeting has a material interest in the aforementioned agreements. (8) General Information of the Parties Angang Group Company is a company incorporated in the PRC. It was established by the State-owned Assets Supervision and Administration Commission of the State Council ( ) (as the representative of the State Council of the PRC) on 28 July 2010 as a holding company to hold the entire equity interest in Angang Holding and Pangang Group Company pursuant to the joint restructuring of the two companies. Angang Holding is a wholly-owned subsidiary of Angang Group Company. It is a major enterprise in the iron and steel industry of the PRC engaged in a wide range of iron and steelrelated business activities including mining, iron manufacturing, machinery manufacturing, metallurgical construction project, research and development, trading in iron and steel products and providing relevant transportation, construction, utilities and other support services. It directly holds an approximate 67.29% equity interest in the Company. The Company is a major steel manufacturing enterprise in the PRC. It is principally engaged in the production and sale of hot-rolled sheets, cold-rolled sheets, galvanized steel sheets, colour coating plates, silicon steel, medium and thick plates, wire rods, large steel products and seamless steel pipes. Pangang Group Company is a wholly-owned subsidiary of Angang Group Company. It is also a major enterprise in the iron and steel industry of the PRC engaged in a wide range of iron and steel-related business activities. It is the controlling shareholder of Pangang Vanadium & Titanium, directly and indirectly, holding an approximate 47.87% equity interest in Pangang Vanadium & Titanium. 22

29 LETTER FROM THE BOARD Pangang Vanadium & Titanium is a company controlled by Pangang Group Company and ultimately by Angang Group Company. It is incorporated in the PRC and its shares are listed on the Shenzhen Stock Exchange. It is primarily engaged in the extraction and dressing of iron ore and the smelting and production of iron, steel, vanadium and titanium products. It directly holds the entire equity interest of Anqian Mining. Anqian Mining is a wholly-owned subsidiary of Pangang Vanadium & Titanium incorporated in Liaoning province, the PRC. It is primarily engaged in iron ore extraction and dressing and is a major supplier of iron ore concentrate to the Group. III. RECOMMENDATION Based on its views set out above, the Board recommends that the Independent Shareholders vote in favour of the resolutions concerning the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement, and the proposed annual monetary caps of transactions contemplated thereunder for the years of 2016, 2017 and Your attention is drawn to the letter from the Independent Board Committee to the Independent Shareholders set out on pages 25 to 26 of this circular. The Independent Board Committee, having taken into account the advice of TC Capital Asia Limited, considers that (i) the transactions contemplated under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement will be carried out in the ordinary course of business of the Group; (ii) the terms of the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement are normal commercial terms, fair and reasonable, and in the interests of the Company and the Shareholders as a whole; and (iii) the proposed annual monetary caps under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement for the years of 2016, 2017 and 2018 are fair and reasonable, and in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions concerning the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement, and the proposed annual monetary caps of transactions thereunder for the years of 2016, 2017 and 2018 to be proposed at the EGM. 23

30 LETTER FROM THE BOARD IV. THE EGM AND SHAREHOLDERS APPROVAL The EGM will be held at 2 p.m. on Monday, 12 October 2015 at the Conference Room, Dongshan Hotel, 108 Dongfeng Street, Tiedong District, Anshan City, Liaoning Province, the PRC. The notice convening the EGM together with the proxy form and reply slip were dispatched to the Shareholders on 24 August The notice convening the EGM is set out on pages 55 to 56 of this circular for your ease of reference. At the EGM, ordinary resolutions will be proposed to approve (i) the Supply of Materials and Services Agreement and the transaction contemplated thereunder, including the annual monetary caps of transactions for the years of 2016, 2017 and 2018 and (ii) the Supply of Raw Materials Agreement and the transactions contemplated thereunder, including the annual monetary caps of transactions for the years of 2016, 2017 and Angang Holding and its associates will be required to abstain from voting at the EGM with respect to the ordinary resolutions concerning the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement. As of the Latest Practicable Date, Angang Holding directly holds 4,868,547,330 A Shares in the Company, representing approximately 67.29% of the total issued share capital of the Company. In order to determine the list of Shareholders who are entitled to attend and vote at the EGM, the register of the H Shareholders of the Company will be closed from Sunday, 13 September 2015 to Monday, 12 October 2015 (both days inclusive), during which period no transfer of Shares will be registered. H Shareholders whose names appear on the register of the H Shareholders of the Company as on Sunday, 13 September 2015 are entitled to attend and vote at the EGM. In order to attend and vote at the EGM, any H shareholder whose transfer has not been registered shall lodge the transfer documents together with the relevant share certificates with the Company s H share registrar, Computershare Hong Kong Investor Services Limited at Shops , 17th Floor, Hopewell Centre, 183 Queen s Road East, Wanchai, Hong Kong, by no later than 4:30 p.m. on Friday, 11 September Voting at the EGM will be taken by poll in accordance with the requirements of the Listing Rules. V. FURTHER INFORMATION Your attention is also drawn to the additional information set out on pages 50 to 54 of this circular. Yours faithfully, By Order of the Board Yao Lin Executive Director and Chairman of the Board 24

31 LETTER FROM THE INDEPENDENT BOARD COMMITTEE (Stock Code: 0347) 22 September 2015 To the Independent Shareholders Dear Sir or Madam, CONTINUING CONNECTED TRANSACTIONS We refer to the circular of the Company (the Circular ) dated 22 September 2015 and despatched to the Shareholders which this letter forms part. Unless the context requires otherwise, terms and expressions defined in the Circular shall have the same meanings in this letter. We have been appointed to form the Independent Board Committee to advise the Independent Shareholders in respect of the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement, and the transactions contemplated thereunder, details of which are set out in the section headed Letter from the Board in the Circular. TC Capital Asia Limited ( TC Capital ) has been appointed to advise the Independent Shareholders and us in this regard. Details of the advice and the principal factors and reasons which TC Capital has taken into consideration in rendering its advice, are set out in the section headed Letter from TC Capital Asia Limited in the Circular. Your attention is also drawn to the additional information set out in the Circular. Having taken into account the terms of the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement, the transactions contemplated thereunder and the advice of TC Capital, we are of the opinion that (i) the transactions contemplated under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement will be carried out in the ordinary course of business of the Group; (ii) the terms of the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement are normal commercial terms, fair and reasonable, and in the interests of the Company and the Shareholders as a whole; and (iii) the proposed annual monetary caps under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement for the years of 2016, 2017 and 2018 are fair and reasonable, and in the interests of the Company and the Shareholders as a whole. * For identification purpose only 25

32 LETTER FROM THE INDEPENDENT BOARD COMMITTEE We, therefore, recommend that you vote in favour of the resolutions to be proposed at the EGM to approve the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement. Yours faithfully, For and on behalf of the Independent Board Committee Chen Fangzheng Qu Xuanhui Liu Zhengdong Chau Chi Wai, Wilton Independent Non-executive Directors 26

33 LETTER FROM TC CAPITAL ASIA LIMITED The following is the full text of the letter of advice to the Independent Board Committee and the Independent Shareholders from TC Capital Asia Limited dated 22 September 2015 prepared for incorporation in this circular. 22 September 2015 The Independent Board Committee and the Independent Shareholders Angang Steel Company Limited* (the Company ) Dear Sirs, CONTINUING CONNECTED TRANSACTIONS INTRODUCTION We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement (collectively, the 2016 Agreements ). The details of the terms and the proposed annual monetary caps for each of the transactions for the three financial years ending 31 December 2018 (the Annual Caps ) have been described in the letter from the Board (the Board Letter ) in the circular to the Shareholders dated 22 September 2015 despatched by the Company (the Circular ). Our letter is made for incorporation into the Circular. Capitalized terms used in this letter have the same meanings as those defined in the Circular unless the context otherwise requires. Angang Group Company indirectly holds, through Angang Holding, an approximate 67.29% equity interest in the Company and hence, is the ultimate controlling shareholder of the Company and a connected person of the Company as defined under Chapter 14A of the Listing Rules. As an ultimate subsidiary of Angang Group Company, Pangang Vanadium & Titanium is a connected person of the Company as defined under Chapter 14A of Listing Rules. As such, the transactions contemplated under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement constitute continuing connected transactions of the Company. 27

34 LETTER FROM TC CAPITAL ASIA LIMITED As the proposed transactions under the Supply of Raw Materials Agreement concern the supply of raw materials, it is similar in nature with certain transactions under the Supply of Materials and Services Agreement, and therefore they are aggregated pursuant to Rule 14A.81 of the Listing Rules. Based on the applicable percentage ratios, the proposed annual monetary caps for transactions contemplated under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement (as aggregated with the Supply of Materials and Services Agreement) constitute non-exempt continuing connected transactions that are subject to the reporting, annual review, announcement and Independent Shareholders approval requirements under Chapter 14A of the Listing Rules. We have been appointed by the Company to advise (i) the Independent Board Committee and the Independent Shareholders as to whether or not the terms of the 2016 Agreements and the Annual Caps are on normal commercial terms, in the ordinary and usual course of business of the Company, fair and reasonable insofar as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole; and (ii) whether the Independent Shareholders should vote in favour of the 2016 Agreements and the transactions contemplated thereunder. As at the Latest Practicable Date, we did not have any relationships or interests with the Company or any other parties that could reasonably be regarded as relevant to the independence of us. In the last two years, we have acted as an independent financial adviser to the then independent board committee and independent shareholders of the Company in relation to three occasions as detailed in the circulars of the Company dated 16 November 2013, 14 February 2014 and 22 September 2014 respectively. Given (i) our independent role in these three engagements; and (ii) our fees for these three engagements represented an insignificant percentage of our revenue, we consider these three engagements would not affect our independence to form our opinion in respect of the 2016 Agreements. BASIS OF OPINION In putting forth our recommendation, we have considered, amongst other things, (i) the 2016 Agreements; (ii) the annual report of the Company for the year ended 31 December 2014 (the 2014 Annual Report ); (iii) the interim report of the Company for the six months ended 30 June 2015 (the 2015 Interim Report ); and (iv) other information as set out in the Circular. We have also relied on all relevant information, opinions and facts supplied and representations made to us by the Directors and the representatives of the Company. We have also studied the relevant market information and trends of the related industry. We have assumed that all such information, opinions, facts and representations, which have been provided to us by the Directors or the representatives of the Company, for which they are fully responsible, are true, accurate and complete in all respects. The Company has also confirmed to us that no material facts have been omitted from the information supplied and we have no reason to suspect that any material information has been withheld by the Company or is misleading. 28

35 LETTER FROM TC CAPITAL ASIA LIMITED We consider that we have sufficient information to reach an informed view and to provide a reasonable basis for our recommendation. We have not, however, carried out any independent verification of the information provided by the Directors and the representatives of the Company, nor have we conducted any independent investigation into the business, affairs, operations, financial position or future prospects of each of the Group, Angang Group Company, Angang Group, Pangang Vanadium & Titanium and Pangang Vanadium & Titanium Group. PRINCIPAL FACTORS AND REASONS In considering whether the entering into of the 2016 Agreements are in the ordinary and usual course of business of the Company and in the interests of the Company and the Shareholders as a whole and the terms of the continuing connected transactions are on normal commercial terms and the annual monetary caps are fair and reasonable so far as the Company and the Shareholders are concerned, we have taken into account the following principal factors and reasons: 1. Background of and reasons for entering into of the 2016 Agreements As mentioned in the Board Letter, Angang Group Company is a company incorporated in the PRC. It was established by the State-owned Assets Supervision and Administration Commission of the State Council ( ) (as the representative of the State Council of the PRC) on 28 July 2010 as a holding company to hold the entire equity interest in Angang Holding and Pangang Group Company pursuant to the joint restructuring of the two companies. Angang Holding is a wholly-owned subsidiary of Angang Group Company. It is a major enterprise in the iron and steel industry of the PRC engaged in a wide range of iron and steel-related business activities including mining, iron manufacturing, machinery manufacturing, metallurgical construction project, research and development, trading in iron and steel products and providing relevant transportation, construction, utilities and other support services. It directly holds an approximate 67.29% equity interest in the Company. The Company is a major steel manufacturing enterprise in the PRC. It is principally engaged in the production and sales of hot rolled sheets, cold rolled sheets, galvanized steel sheets, colour coating plates, silicon steel, medium and thick plates, wire rods, large steel products and stainless steel pipes. Pangang Group Company is a wholly-owned subsidiary of Angang Group Company. It is also a major enterprise in the iron and steel industry of the PRC engaged in a wide range of iron and steelrelated business activities. It is the controlling shareholder of Pangang Vanadium & Titanium, directly and indirectly, holding an approximate 47.87% equity interest in Pangang Vanadium & Titanium. 29

36 LETTER FROM TC CAPITAL ASIA LIMITED Pangang Vanadium & Titanium is a company controlled by Pangang Group Company and ultimately by Angang Group Company. It is incorporated in the PRC and its shares are listed on the Shenzhen Stock Exchange. It is primarily engaged in the extraction and dressing of iron ore and the smelting and production of iron, steel, vanadium and titanium products. It directly holds the entire equity interest of Anqian Mining. Anqian Mining is a wholly-owned subsidiary of Pangang Vanadium & Titanium incorporated in Liaoning province, the PRC. It is primarily engaged in iron ore extraction and dressing and is a major supplier of iron ore concentrate to the Group. According to the 2014 Annual Report, under the 2014 Agreements, supply of principal raw materials, steel products, ancillary products, energy and power, and support services from Angang Group to the Company represent approximately 48.34%, 100%, 33.36%, 32.23% and 51.64%, respectively as a percentage of the amount of similar transactions. On the other hand, the provision of finished products, scrap steel and abandoned materials and comprehensive services from the Group to Angang Group amounted to approximately 5.42%, 94.64% and 38.36%, respectively. Supply of iron ore concentrate and alloys by Pangang Vanadium & Titanium Group to the Group represents approximately 7.48% as a percentage of the amount of similar transactions. There is indication that the operation between the Group and each of Angang Group and Pangang Vanadium & Titanium Group is strongly integrated. We concur with the Directors view that by entering into the 2016 Agreements, the Group can take advantages of (i) the long-established relationship between the Group and each of Angang Group and Pangang Vanadium & Titanium Group; (ii) the stability and reliability of (a) the supply of raw materials and provision of services by Angang Group; and (b) the supply of raw materials by and Pangang Vanadium & Titanium Group; (iii) the extensive domestic sales and distribution network of the Company for steel products; (iv) the operational integration and the geographical convenience (as the units of Angang Group which provide materials and services to the Group are located in close proximity to the Group s operational facilities); and (v) the Company s business operations would be adversely affected if the cross provision of these materials products and services were to be terminated. Therefore we concur with the Directors view that the entering into of the 2016 Agreements is in the ordinary and usual course of the business of the Company and is in the interests of the Company and the Shareholders as a whole. 30

37 LETTER FROM TC CAPITAL ASIA LIMITED 2. Key terms of continuing connected transactions a. Supply of Materials and Services Agreement Key terms of the Supply of Materials and Services Agreement are summarized below: Date : 7 August 2015 Parties : (i) The Company; and (ii) Angang Group Company Subject matter : (i) Supply of raw materials, steel products, ancillary materials and spare parts, energy and power from Angang Group to the Group; (ii) Supply of finished products, scrap steel, abandoned material and other materials from the Group to Angang Group; (iii) Provision of support services from Angang Group to the Group; and (iv) Provision of comprehensive services from the Group to Angang Group. Term : Subject to approval by the Independent Shareholders, the agreement shall be effective from 1 January 2016 to 31 December Payment : In lump sums or by installments. The time of the payments is to be agreed with reference to customary business practices. The payment method varies with different types of services, materials and products. The payment terms shall not be less favourable than those available from or offered to independent third parties. 31

38 LETTER FROM TC CAPITAL ASIA LIMITED Pricing mechanism : Details of the pricing mechanism are set out in the Board Letter. As a summary, the prices of various products and services provided under the 2016 Supply of Materials and Services Agreement will be determined according to the following manners: (i) State Prices Energy and Power Electricity and water Supporting Services Railway transportation, newspapers and other publications, telecommunications business, telecommunications services and information systems (Note), environmental protection and security monitoring, and supply of heating Comprehensive Services Electricity and fresh water Note: In respect of telecommunication services and information systems services, State Prices or the sum of depreciation expense and maintenance fee is charged. (ii) Market Price Principal Raw Materials Pellets, scrap steel, steel billets, alloy and non-ferrous (Note 1) metal Premium products (iron grade 67.2%) of mineral ore from Karara (price should not be higher than the average monthly price of such product sold to independent third parties in Mainland China for the corresponding period (i.e. the month in which freight was loaded at the port of origin)) 32

39 LETTER FROM TC CAPITAL ASIA LIMITED (Note 2) Steel Products Steel products Energy and Power (Note 3) Gas products (Note 3) Supporting Services Road and pipeline transportation services, examination, repair and maintenance of equipment and other relevant services, design and engineering services, educational facilities, occupational technical education, on-the-job training and translation services, production support and maintenance, welfare support and maintenance, employee transportation, business reception and meetings, landscape services, security services and port agency services Finished Products Steel products, molten iron, iron billets, coke, chemical by-products (Note 4), pellets (Note 5) (Note 3) and gas products Minus Sieve Posders, Scrap Steel and Abandoned Materials Scrap steel (Note 1), abandoned materials (Note 1) and obsolete (Note 6) or idle assets (Notes 1&7) Comprehensive Services Recycled water, soft water, gas, blast furnace gas, steam, nitrogen, oxygen, argon, compressed air, hydrogen, residual heat water, liquefied oxygen, liquefied nitrogen, liquefied argon, product testing services, transportation services, lease of production lines and assets entrusted management 33

40 LETTER FROM TC CAPITAL ASIA LIMITED Notes: 1. Market price of pellets is determined on the basis of quotations of the average purchase price of pellets published by China Iron and Steel Association. Market price of scrap steel is determined by checking prices quoted on specialized websites and journals in the steel industry such as and Metallurgy Price News* ( ). Market prices of steel billets, alloy and non-ferrous metal, abandoned materials and comprehensive services are determined on the basis of prices of the relevant products or services as quoted on the open market obtained through public bidding. 2. In respect of steel products, the price is determined based on the selling price of the Company to third parties after deducting a consignment fee of RMB20 35 per tonne. 3. Market price is determined on the basis of prices of the respective products or service as quoted on the open market obtained through public bidding. In respect of educational facilities, occupational technical education, on-the-job training and translation services, market price is determined on the basis of price of services as quoted on the open market obtained through enquires with relevant training organizations in the Anshan region. In respect of employee transportation, market price is determined on the basis of price of employee transportation services as quoted on the open market obtained through enquires in the market. In respect of business reception and meetings, market price is determined on the basis of price of business reception and meetings services charged by hotels in the Anshan region. In respect of security services, price is determined based on costs of labour, materials and maintenance as paid according to the unit cost of labour in the Anshan region multiplied by the number of hours of security services. 34

41 LETTER FROM TC CAPITAL ASIA LIMITED 4. In respect of steel products, molten iron, iron billets, coke, chemical by-products, the price is determined based on the selling price of the Group to independent third parties. Where the finished products are supplied for counterparties to develop new products, the pricing will be based on the market price. In the absent of the market price, the cost plus a reasonable profit margin, provided, however, that such profit margin shall not exceed the average gross profit margin of the supplier of the relevant finished product. 5. In respect of pellets, price is determined based on the selling price of the Group to third parties after deducting a consignment fee at a rate of no higher than 1.5%. 6. In respect of obsolete or idle assets, market price or appraised price is charged. Market price of obsolete or idle assets is determined on the basis of price of obsolete or idle assets as quoted on the open market obtained through public bidding. 7. In respect of recycled water, soft water, gas, blast furnace gas, stream, nitrogen, oxygen, argon, compressed air, hydrogen, residual heat water, liquefied oxygen, liquefied nitrogen and liquefied argon, if the market price cannot be determined due to the absence of an active market, the price is determined on the basis of cost of production plus reasonable profit. A profit margin of not less than 5% has been mutually deemed reasonable by the Company and Angang Group Company. In respect of product testing services, the price is determined based on the price of product testing services that the Group charges third parties. In respect of assets entrusted management, the price is determined based on the unit cost of labour in the Anshan region multiplied by the number of hours of assets entrusted management services supplied. (iii) Not higher than the selling price quoted by the relevant member company of Angang Group to independent third parties Ancillary Materials Limestone, lime powders, refractory materials, spare parts, coke, other ancillary materials and renewable resources 35

42 LETTER FROM TC CAPITAL ASIA LIMITED (iv) Commission Supporting Services Agency services for (i) import of raw materials, equipment, spare parts, and ancillary materials; (ii) export of finished products; and (iii) bidding and invitations for tenders (a commission of not higher than 1.5 % and not to exceed the commission charged by major state-owned import and export companies in the PRC) (Note) Comprehensive Services Agency service (a commission of not higher than 1.5 %) (Note) Note: a commission of no higher than 1.5% is the market price typically charged for trade agency services. (v) Cost of production plus gross profit margin of 5% Energy and Power Steam (as the price of steam cannot be determined by reference to market price due to in the absence of an active market, the price is determined on the basis of cost of production plus reasonable profit. A 5% profit margin has been mutually deemed as reasonable by the Company and Angang Group Company) (vi) Market price of similar products with adjustments Principal Raw Materials Iron ore concentrate (the price shall not be higher than the monthly average value of the medium price of Platts Fe 65% (CFR) for Northern China (Qingdao port) as published daily by the SBB Steel Markets Daily Briefing for the preceding month (T-1) plus the freight cost from Bayuquan port to the Company. Price adjustments for mineral grades shall be made to the price in accordance with iron content calculated based on the average value of Platts Fe 65% index for the preceding month (T- 1). Using this as the basis, a further discount equal to 3% of the average value of Platts Fe 65% index for the preceding month (T-1) shall be applied) 36

43 LETTER FROM TC CAPITAL ASIA LIMITED Sinter ores (the price is determined based on the price of iron concentrate plus the processing costs for the preceding month (T-1) (in particular such processing costs shall not be higher than the processing costs of the products of the same category produced by the Company) Standard grade products (67.2%>iron grade 65%) of mineral ore from Karara (price is calculated based on the monthly average value of the medium price of Platts Fe 65% (CFR) for Northern China (Qingdao port) as published daily by the SBB Steel Markets Daily Briefing for the month in which the freight was loaded at the port of origin plus the freight cost differential for each dry metric tonne from Qingdao port to Bayuquan port, Liaoning, divided by 65 and multiplied by the actual product grade) Low grade products (65%>iron grade 59%) of mineral ore from Karara (price is calculated based on the monthly average value of the medium price of Platts Fe 62% (CFR) for Northern China (Qingdao port) as published daily by the SBB Steel Markets Daily Briefing for the month in which the freight was loaded at the port of origin plus the freight cost differential for each dry metric tonne from Qingdao port to Bayuquan port, Liaoning, divided by 62 and multiplied by the actual product grade) Minus Sieve Posders, Scrap Steel and Abandoned Materials Minus sieve powders (the price is determined based on the base price of sinter ore for the current period minus the sintering costs of Angang Group) 37

44 LETTER FROM TC CAPITAL ASIA LIMITED We are of the view that the above pricing principles are fair and reasonable so far as the Independent Shareholders are concerned as: (i) prices are determined according to the State Prices if available, in which the State price are public information and therefore reflect the pricing mechanism which the Group has to abide by; (ii) if State Prices is not available, price is determined based on market price or market price with adjustment. Market price are public information therefore reflect the fair value of the products and services. The adjustment is determined with reference to consignment fee set by the independent providers or the connected persons to the independent third parties for similar transactions on comparable scales and similar terms, which are in line with the normal commercial practice of the industry; (iii) if State Prices or market price is not available, price is determined based on (a) commission, which is determined with reference to commission set by the independent providers for similar transactions on comparable scales and similar terms, which are in line with the normal commercial practice of the industry; or (b) cost plus gross margin, which is mutually deemed reasonable by the Company and Angang Group Company; (iv) for iron ore concentrate, sinter ores, standard grade products and low grade products of mineral ore from Karara, in the absent of market of identical products, prices is determined with reference to the market price of similar products with adjustment, which reflects the difference in quality and location; and (v) the payment terms offered to the Company are not less favourable than those available from or offered to independent third parties. The pricing mechanism under the Supply of Materials and Services Agreement is similar to that under the Supply of Materials and Services Agreement ( ), the Supplemental Agreement, the Mineral Ore Purchase and Agency Service Agreement and the Pellet Distribution Agreement. The pricing of iron ore concentrate and sinter ores under the Supply of Materials and Services Agreement is changed to make the prices are in line with the pricing standard used in the international market (as Platts iron ore index is the pricing basis for the world s top three miners quarterly and spot transaction clearing, and has become an official index for the determination of the price of iron ore) and reflects the change in pricing period of iron ore concentrate (as the index published daily by the SBB Steel Markets Daily Briefing is for the preceding month) respectively. Details of the change is mentioned in the Board Letter. Given that the price after the change is in line with the pricing standard used in the international market and align with the pricing period, we are of the view that the new pricing standard of iron ore concentrate and sinter ores is on normal commercial term, fair and reasonable and in the interest of the Company and the Shareholders as a whole. 38

45 LETTER FROM TC CAPITAL ASIA LIMITED We have obtained and reviewed a number of contracts and invoices in respect of the transactions between the Group and each of independent third parties and the Angang Group and we note that the terms of the contracts with the Angang Group, in particular the pricing of products and services and settlement terms are no less favourable to the Group than the terms offered to or available from independent third parties which we consider fair and reasonable and on normal commercial terms and in the interests of the Company and its Shareholders as a whole. b. Supply of Raw Materials Agreement Key terms of the Supply of Raw Materials Agreement are summarized below: Date : 7 August 2015 Parties : (i) The Company; and (ii) Pangang Vanadium & Titanium Subject matter : Supply of iron concentrates and alloys by Pangang Vanadium & Titanium and its subsidiaries (including Anqian Mining) to the Group. Term : Subject to approval by the Independent Shareholders of the Company and Pangang Vandadium & Titanium, the agreement shall be effective from 1 January 2016 to 31 December Payment : By monthly installments payable on the last day of each calendar month. 39

46 LETTER FROM TC CAPITAL ASIA LIMITED Pricing mechanism : Details of the pricing mechanism are set out in the Board Letter. As a summary, the prices of various products and services provided under the Supply of Raw Materials Agreement will be determined according to the following manners: In respect of iron ore concentrate, the price shall not be higher than the monthly average value of the medium price of Platts Fe 65% (CFR) for Northern China (Qingdao port) as published daily by the SBB Steel Markets Daily Briefing for the preceding month (T (Note) -1) plus the transportation cost from Bayuquan port to the Company. Price adjustments for the mineral grades shall be made to the price in accordance with iron content calculated based on the average value of Platts Fe 65% index for the preceding month (T-1). Using this as the basis, a further discount equal to 3% of the average value of Platts Fe 65% index for the preceding month (T-1) shall be applied. In respect of alloy, market price shall be referred to. As advised by the Company, market price is determined on the basis of price of commodities as quoted on the open market obtained through public bidding. Note: T refers to the month that the transactions take place. The grade ( ) refers to the quality of the iron concentrate which is usually denoted by percentage points. The grade of the iron concentrate and mineral ore is determined by the quality inspection departments of both parties after testing of the iron concentrate and mineral ore. In case of any discrepancy or dispute over the testing results of the quality inspection departments of the parties, the parties will determine by negotiation or will appoint an independent third party to conduct testing. A higher percentage point of the iron concentrate represents a better quality as such iron concentrate contains a higher amount of iron. Difference in the grade of the iron concentrate will in turn affects their pricing. The pricing mechanism under the Supply of Raw Materials Agreement is similar to that under the Supply of Materials Agreement ( ). The pricing of iron ore concentrate under the Supply of Raw Materials Agreement is changed to make the prices are in line with the pricing standard used in the international market as Platts iron ore index is the pricing basis for the world s top three miners quarterly and spot transaction clearing, and has become an official index for the determination of the price of iron ore. Details of the change is mentioned in the Board Letter. Given that the price after the change is in line with the pricing standard used in the international market, we are of the view that the new pricing standard of iron ore concentrate is on normal commercial term, fair and reasonable and in the interest of the Company and the Shareholders as a whole. 40

47 LETTER FROM TC CAPITAL ASIA LIMITED The pricing mechanism above is mainly based on or relative to the market pricing. Having considered that, according to the Company, the monetary amount of increase or decrease with respect to iron grade is within the ballpark to the observed price variation with change in grade as reported by Platt, a global information provider that provides, among others, information on metal including prices, we are of the view that the price adjustment is fair and reasonable so far as the Independent Shareholders are concerned. We are also given to understand the average monthly index can be obtained after the close of that month. Accordingly, we concur with the Company that the T-1 pricing is practicable, timely and fair and reasonable so far as the Independent Shareholders are concerned. We have obtained and reviewed a number of contracts and invoices in respect of the Group s purchase of materials from each of independent third parties and Pangang Vanadium & Titanium and its subsidiaries (including Anqian). We note that the terms of the contracts with the Pangang Vanadium & Titanium and its subsidiaries (including Anqian), in particular, the pricing of materials and settlement terms are no less favourable to the Company than the terms available from independent third parties. Consequently, we consider that the terms of the Supply of Raw Materials Agreement are fair and reasonable and on normal commercial terms and in the interests of the Company and its Shareholders as a whole. The representative of the Company advised that it is the market practice that (i) prices of iron ore concentrates and mineral ore are based on global indexes (such as Platts Fe 65% (CFR) as published by SBB Steel Markets Daily Briefing) while prices of pellets, scrap steel, steel billets, alloy, non-ferrous metal are based on price quotations from steel industry associations in the PRC or obtained through public bidding; and (ii) the grade of the iron concentrate and mineral ore is assessed by equipment. The assessment of grade will be conducted by the quality inspection departments of both parties using equipment to assess the iron ore concentrate and mineral ore. According to an article namely (the introduction on the global index of iron ore) dated 10 October 2013 published on the website of Dalian Commodity Exchange, the leading global indexes of iron ore concentrates are Platts (based on transactions at the port of Qingdao), The SteeI Index (based on transactions at the port of Tianjin) and Metal Bulletin Iron Ore Indices (based on transactions at ports of Qingdao ( ), Rizhao ( ) and Lianyunggang ( )) and Platts iron ore index is the pricing basis for the world s top three miners quarterly and spot transaction clearing, and has become an official index for the determination of the price of iron ore. Platts and Metal Bulletin Iron Ore Indices are used for assessment of the spot price of physical iron ore while The SteeI Index are used for settlement of ferrous derivatives/futures. The Group therefore makes references to the quotations of the SBB Steel Markets Daily in order to align the pricing standard of its transactions with the pricing standard used in the international market. Given iron ore concentrates used by the Group is at spot, the production 41

48 LETTER FROM TC CAPITAL ASIA LIMITED of the Company is located near the port of Qingdao and Platts is used by the world s top three miners, we are of the view that the price determination of iron ore concentrate is in line with the normal practice. The representatives of the Company advised that grade of iron concentrate and mineral ore transactions with third parties in the Anshan region are also assessed by the quality inspection department of both parties. Thus we are of the view that the determination process of grade of iron ore concentrate and mineral ore transaction with Angang Group is in line with the normal practice. 3. Internal control measures for the continuing connected transactions In order to ensure that the pricing standards under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement are effectively implemented from time to time, the transactions will be executed with reference to the Procedures for Administration of Continuing Connected Transactions ( ) of the Company (the Procedures ). In accordance with the Procedures, when specific contracts are entered into pursuant to framework agreements for continuing connected transactions (including the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement) by the various operating divisions of the Group, the price for the services, materials or products thereunder must be determined based on the pricing standards stipulated under such framework agreements. In order to ensure that specific contracts are effectively executed by the various operating divisions in accordance with the Procedures and the framework agreements for continuing connected transactions, the Company has designated department responsible for monitoring the Group s continuing connected transactions. There are also designated teams within the relevant departments to continuously monitor the market prices, State Prices and selling prices to independent third parties for the various materials, services and products, thereby enabling the Company to accurately assess the price payable or receivable by the Company under the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement. If the price offered by Angang Group is inconsistent with the pricing standards stipulated under the agreements, the relevant departments will inform the management of the Company and actively negotiate with Angang Group. The designated teams will also obtain not less than three quotations from both Angang Group and independent third party suppliers or purchasers through tender, and such quotations from independent third parties will be compared against the quotations from Angang Group. 42

49 LETTER FROM TC CAPITAL ASIA LIMITED 4. Historical transactions and the Annual Caps and the basis in determining the Annual Caps The table below sets out the historical amounts, existing annual caps under the Supply of Materials and Services Agreement ( ), the Supplemental Agreement, the Mineral Ore Purchase and Agency Service Agreement and the Supply of Materials Agreement ( ) and the Annual Caps: Actual amount for the year ended 31 December Monetary Cap For the year ending 31 December (RMB million) (RMB million) (RMB million) (RMB million) % increase of annual caps 2018 compared with 2014 actual amounts Average annual growth rate of annual cap 2018 to annual cap 2016 From Angang Holding Group to the Group Principal Raw Materials (including mineral ore from Karara) 14,134 18,300 19,800 21, % 7.63% Steel Products % 9.54% Ancillary Materials 2,326 2,815 2,915 3, % 3.49% Energy and Power 1,826 2,500 2,805 2, % 6.86% Support Services 5,104 5,500 6,000 6, % 8.71% From the Group to Angang Group Finished Products 3,884 4,810 5,050 5, % 5.07% Scrap Steel and Other Materials % 8.56% Comprehensive Services 750 1,270 1,450 1, % 8.68% From Pangang Vanadium & Titanium to the Group Raw Materials 1,490 1,780 1,890 2, % 8.62% 43

50 LETTER FROM TC CAPITAL ASIA LIMITED 5. Basis in determining the Annual Caps As disclosed in the Board Letter, the Annual Caps are determined with reference to (i) the volume of historical transactions for the supply of materials and provision of services under the 2014 Agreement and previous transactions; (ii) the anticipated changes in the demand and/or prices of certain materials and/or products, in particular, the price fluctuations in iron ore concentrate, steel products and related materials; and (iii) the production plan of the Group in 2016 to Production plan of the Group in 2016 to 2018 According to the 2014 Annual Report, for the year ended 31 December 2014, the Group produced approximately million tonnes of iron, million tonnes of steel and million tonnes of steel products, representing a year-on-year growth of approximately 0.7%, 3.05% and 3.51%, respectively; sale of steel products amounted to approximately million tonnes, representing an increase of approximately 5.12% as compared with The Group also realized a 99.70% sale-to-production ratio for steel products. The Company dedicated to strengthen the organization of production, communication and coordination among various production bases, comprehensively improve the operation quality, cost reduction and efficiency enhancement. The Company also adopted a series of measures such as optimizing the blending of coal and ores, reducing the cost prior to iron making, contacting the volume of inventories, improving the efficiency of energy utilization, enhancing recycling and management over scrap steel as well as reducing management costs, in order to lower the costs and boost profitability of the Company. It was also mentioned in the 2014 Annual Report, the Group s operating revenue from the sales of principal steel products dropped and operating revenue from main business decreased by approximately 1.71% as compared with the same period of 2013 to approximately RMB million. The decrease in revenue was mainly attributable to the decrease in steel product prices. According to the representatives of the Company, the amounts of steel produced and sold from 2011 to 2014 are summarized in the following table: Steel production ( 000 tonnes) 19,783 19,629 20,817 21,450 Growth rate N/A -0.78% 6.05% 3.05% Steel product sold ( 000 tonnes) 18,838 18,876 19,018 19,990 Growth rate N/A 0.20% 0.75% 5.12% From the above table, it is noted that the Company s steel production dropped in 2012 by approximately 0.78% and increased by approximately 6.05% and 3.05% in 2013 and 2014, respectively. We note also from the above table that the volume of steel sold by the Company generally increased, and particularly significant in

51 LETTER FROM TC CAPITAL ASIA LIMITED As mentioned in the 2015 Interim Report, in the first half of the year, the Company achieved net profit attributable to the Shareholders of approximately RMB155 million, representing a decrease of approximately 73.14% as compared with the corresponding period of the previous year. Basic profit per share was RMB0.021, representing a decrease of approximately 73.75% as compared with the corresponding period of the previous year. We have discussed the production plan with the Company. As mentioned in the Interim Report, in face of the challenging market conditions, the Company optimized its production structure, accelerated the development of new products, put efforts into market expansion, and continuously strived for cost reduction and efficiency enhancement to achieve actual profitability of the Company under the adverse circumstances. Thus the representatives of the Company advised that the production capacity of the Group in 2016 to 2018 will maintain at the production capacity of the Group in According to an article namely Steelmakers braced for China slowdown dated 20 April 2015 published on the website of Financial Times, due to the continuing economic slowdown in China, the world s biggest buyer of the metal, the global steel demand is expected to be largely flat in According to the World Steel Association (the WSA ), as a result of the decline in construction activity in China, Chinese demand for steel fell 3.3% last year to 710 million tonnes, which is the first negative growth since 1995, and it is expected that Chinese steel demand will further contract by 0.5% in Besides, the director-general of WSA said that the Chinese steel demand is likely to remain flat at around 700 million tonnes to 720 million tonnes for the next 5 years. After considering the above, we concur with the Company s view that the production capacity of the Group in 2016 to 2018 will maintain at production capacity of the Group in

52 LETTER FROM TC CAPITAL ASIA LIMITED Prices of iron ore and steel in the PRC According to Bloomberg, the PRC s iron ore prices saw a decreasing trend from 17 September 2014 with rebounds for the period from April 2015 to June 2015 and the period from July to 15 September The PRC s iron ore prices directly affect the total amounts of principal raw materials under the 2016 Agreement and there is uncertainty in the PRC s iron ore prices which may go up or down and is not in the control of the Company. The following chart depicts the PRC s iron ore prices for the period from 17 September 2014 to the 15 September Source: Bloomberg 46

53 LETTER FROM TC CAPITAL ASIA LIMITED Apart from the decrease in PRC s iron ore prices as discussed above, it is also noted that, according to Bloomberg, the PRC s steel prices have recorded a decreasing trend since 16 September 2014 with a rebound for the period from July 2015 to 15 September The PRC s steel prices directly affect the total amount of products under the 2016 Agreement and there is uncertainty in the PRC s steel prices which may go up or down and is not in the control of the Company. In determining the Annual Caps, it is prudent for the Company to set annual caps to allow for prices going up. The following chart depicts the hot rolled steel prices of the PRC for the period from 16 September 2014 to 15 September Source: Bloomberg In determining the Annual Caps, we concurred with the Company s view that setting the Annual Caps in allowing prices going up of approximately 10% per annum could sustain the flexibility and stability of the Group as the purchase or provision of goods and services from/to the connected persons under the 2016 Agreements will be made after comparing the market price with that of the connected person and on terms no less favourable than those available with independent third parties. Although the prices of iron ore and steel prices show a decreasing trend, there were rebounds in prices throughout the period. As shown in the above charts, prices of iron ore increased approximately 10% for the period from 27 August 2015 to the 15 September 2015 while prices of steel prices increased approximately 5% for the period from July 2015 to August Thus we are of the view that it is fair and reasonable to set the Annual Caps with a buffer. 47

54 LETTER FROM TC CAPITAL ASIA LIMITED Volume of historical transactions for the supply of materials and provision of services under the 2014 Agreement and previous transactions As advised by the representatives of the Company, the Annual Caps are determined based on the volume of transactions in 2014, an increase in the prices of raw materials and products in 2016 to 2018 and the production plan of the Group in 2016 to The Directors also take into account of the following specific factors in determining the respective Annual Caps: in determining the caps of purchase of principal raw materials, steel products, ancillary materials from Angang Holding Group and/or Pangang Vanadium & Titanium to the Group and sale of finished products to Angang Group by the Group, the Group plans to increase the respective volume if, after comparing the market price with that of the connected person, the prices of the connected person are on terms no less favourable than those with independent third parties; in determining the caps of purchase of energy and power from Angang Holding Group to the Group and the provision of comprehensive services by the Group to Angang Group, the Group plans to purchase energy and power from a newly formed gas company of Angang Holding Group, which develops a higher quality energy and power, instead of independent gas companies which the Company used to purchase energy and power from, and provide comprehensive services to that newly formed gas company if, after comparing the market price with that of the connected person, the prices of the connected person are on terms no less favourable than those with independent third parties. As energy and power from the newly formed gas company is at a higher quality and the purchase will be made after comparing the market price with that of the connected person and on terms no less favourable than those with independent third parties, we are of the view that it is beneficial to the Group to purchase energy and power from a newly formed gas company of Angang Holding Group; in determining the caps of provision of support services from Angang Holding Group to the Group, the Group takes into account of (i) the increase in scope of service, such as pipeline transportation services, agency services for bidding and invitations for tenders and port agency services; (ii) the trend of low consumer price index growth rate in China which affects the extent of increase in price; and in determining the caps of sale of scrap steel and other materials from the Group to Angang Group, the Group plans to increase volume of scrap steel and other materials sold as the Group has formed a resources management centre to collect and process scrap and then sell to Angang Group. 48

55 LETTER FROM TC CAPITAL ASIA LIMITED We have reviewed the amount of port agency services from independent third parties for the year ended 31 December 2014 and the amount of scrap steel and other materials from the Group to Angang Group to be sold to Angang Group for the three years ending 31 December 2018, and taking into account of additional purchase of principal raw materials, steel products, ancillary materials from Angang Holding Group and/ or Pangang Vanadium & Titanium to the Group and sale of finished products to Angang Group by the Group and purchase of energy and power from a newly formed gas company of Angang Holding Group and provision of comprehensive services to that newly formed gas company will be made after comparing the market price with that of the connected person and on terms no less favourable than those with independent third parties, we are of the view that it is reasonable to take into account of the above specific factors in determining the respective Annual Caps. In light of the above, we are of the view that the Annual Caps are determined based on reasonable estimation and after due and careful consideration and they are fair and reasonable so far as the Company and the Independent Shareholders are concerned. RECOMMENDATION Having taken into account the principal factors and reasons set out above, we are of the opinion that: (i) it is in the Company s ordinary and usual course of business to enter into the 2016 Agreements; (ii) (iii) (iv) the 2016 Agreements would provide the Company with the benefits set out above and in the interests of the Company and Shareholders as a whole; the terms of the 2016 Agreements are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole; and the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we would recommend that the Independent Shareholders vote, and that the Independent Board Committee advise the Independent Shareholders to vote, in favour of the ordinary resolutions to be proposed at the upcoming EGM to approve the 2016 Agreements. Yours faithfully, For and on behalf of TC Capital Asia Limited Edward Wu Managing Director Note: Mr. Edward Wu of TC Capital Asia Limited is a responsible officer licensed under the SFO to engage in Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities having over 13 years of experience in investment banking and corporate finance. * For identification purpose only 49

56 GENERAL INFORMATION I. RESPONSIBILITY STATEMENT This circular, for which the Directors of the Company collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this document misleading. II. DISCLOSURE OF INTERESTS (1) As at the Latest Practicable Date, the interests and short positions of the Directors or chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO which were required to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in which they were deemed or taken to have under such provisions of the SFO), or which were required pursuant to section 352 of the SFO to be entered in the register referred to therein, or pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the Model Code ) set out in Appendix 10 to the Listing Rules as adopted by the Company, to be notified to the Company and the Hong Kong Stock Exchange were as follows: Director Number of Shares Percentage of shareholding in the registered A share capital of the Company Percentage of shareholding in the total registered share capital of the Company Yao Lin 10,000 A Shares % % Wang Yidong 7,650 A Shares % % Zhang Lifen 8,250 A Shares % % Total 25,900 A Shares % % The Shares are held by the persons mentioned above as the beneficial owners. 50

57 GENERAL INFORMATION Save as disclosed herein, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including the interests and short positions in which they were deemed or taken to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or pursuant to the Model Code. (2) Save as disclosed below, the Directors, supervisors and chief executive of the Company are not aware of any other person who, as at the Latest Practicable Date, had an interest or short position in the Shares, convertible securities, warrants, options or derivatives of the Company, the underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who will be interested, directly or indirectly, in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company: Percentage of Percentage of shareholding Name of the Shareholders Number of H Shares interested (Note) shareholding in the registered H share capital of the Company in the total registered share capital of the Company Invesco Asset Management Limited 111,936,527 (L) 10.31% (L) 1.55% (L) JPMorgan Chase & Co. 98,397,205 (L) 9.06% (L) 1.36% (L) 270,000 (S) 0.02% (S) 0.004% (S) 45,599,096 (P) 4.20% (P) 0.63% (P) Investec Asset Management Limited 57,338,000 (L) 5.28% (L) 0.79% (L) Note: (L) - Long Position, (S) - Short Position, (P) - Lending Pool 51

58 GENERAL INFORMATION Percentage of Percentage of shareholding in shareholding in the registered A the total registered Name of the Number of share capital of the share capital of the Shareholders Shares interested Company Company Angang Group Company 4,868,547,330 A Shares (Note) 79.18% 67.29% Angang Holding 4,868,547,330 A Shares (Note) 79.18% 67.29% Note: Angang Holding directly holds 4,868,547,330 A Shares (in the form of state-owned Shares) representing approximately 67.29% of the total issued share capital of the Company. Angang Holding is a direct wholly-owned subsidiary of Angang Group Company. Therefore, Angang Group Company is interested in such 4,868,547,330 A Shares through Angang Holding. III. DIRECTORS SERVICE CONTRACTS As at the Latest Practicable Date, none of the Directors or supervisors of the Company has entered or proposed to enter into a service contract with any member of the Group other than contracts expiring or determinable by the relevant employer within one year without payment of compensation (except statutory compensation). IV. COMPETING INTERESTS As at the Latest Practicable Date, none of the Directors or their respective close associates was considered by the Company to have interests in businesses which compete with, or might compete with, either directly or indirectly, the businesses of the Group, other than those businesses where such Directors had been appointed to represent the interests of the Company and/or other members of the Group. V. DIRECTORS AND EXPERT S INTEREST IN THE TRANSACTION OR THE GROUP S ASSETS OR CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP Save as disclosed above, as at the Latest Practicable Date, none of the Directors or expert who are named herein had any interests, either directly or indirectly, in the transaction or any assets which had been, since 31 December 2014 (being the date to which the latest published audited financial statements of the Company were made up), acquired or disposed of or leased to any member of the Group, or were proposed to the acquired or disposed of or leased to any member of the Group. 52

59 GENERAL INFORMATION VI. OTHER ARRANGEMENTS INVOLVING DIRECTORS As at the Latest Practicable Date, there was no contract or arrangement subsisting in which any of the Directors was materially interested and which was significant in relation to the business of the Group. VII. MATERIAL ADVERSE CHANGE As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2014, being the date to which the latest published audited financial statements of the Company were made up. VIII. EXPERT (1) The following are the qualifications of the expert who has given its opinion or advice which is contained in this circular: Name Qualification TC Capital Asia Limited Independent financial adviser and a licensed corporation to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) of the regulatory activities under the SFO (2) As at the Latest Practicable Date, the above expert did not have any shareholding directly or indirectly in any member of the Group or any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group. (3) As at the Latest Practicable Date, the above expert had no direct or indirect interest in any assets which had been, since 31 December 2014 (being the date to which the latest published audited financial statements of the Company were made up), acquired, disposed of by, or leased to any member of the Group, or were proposed to be acquired, disposed of by, or leased to any member of the Group. (4) The above expert has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and the reference to its name included herein in the form and context in which it appears. 53

60 GENERAL INFORMATION IX. MISCELLANEOUS (1) The registered office of the Company is at Production Area of Angang Steel, Tiexi District, Anshan City, Liaoning Province, PRC and the principal place of business of the Company in Hong Kong is at 33/F Edinburgh Tower, The Landmark, 15 Queen s Road Central, Hong Kong. (2) The branch share registrar and transfer office of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited at Shops , 17th Floor, Hopewell Centre, 183 Queen s Road East, Wanchai, Hong Kong. (3) In the event of inconsistency, the English version of this circular shall prevail over the Chinese version to the extent of such inconsistency. X. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the following documents will be made available for inspection during normal business hours at the offices of Morrison & Foerster at 33/F Edinburgh Tower, The Landmark, 15 Queen s Road Central, Hong Kong from the date of this circular up to and including 6 October 2015: (i) the Supply of Materials and Services Agreement; (ii) the Supplemental Agreement; (iii) the Supply of Raw Materials Agreement; and (iv) the 2014 Agreements. 54

61 NOTICE OF EGM (Stock Code: 0347) NOTICE OF EXTRAORDINARY GENERAL MEETING NOTICE IS HEREBY GIVEN that the second extraordinary general meeting of Angang Steel Company Limited (the Company ) for the year of 2015 (the EGM ) will be held at the Conference Room of Dongshan Hotel, 108 Dongfeng Street, Tiedong District, Anshan City, Liaoning Province, the People s Republic of China, at 2 p.m. on Monday, 12 October 2015 for the purpose of considering and, if thought fit, approving the following matters. Unless otherwise defined, capitalised terms used herein shall have the same meanings as ascribed to them in the announcement of the Company dated 7 August 2015: AS ORDINARY RESOLUTIONS 1. To consider and approve the Supply of Materials and Services Agreement and the transactions contemplated thereunder, including the proposed annual monetary caps of transactions for the years of 2016, 2017 and (1) 2. To consider and approve the Supply of Raw Materials Agreement and the transaction contemplated thereunder, including the proposed annual monetary caps of transactions for the years of 2016, 2017 and (1) By Order of the Board ANGANG STEEL COMPANY LIMITED* Yao Lin Executive Director and Chairman of the Board Anshan City, Liaoning Province, the PRC 24 August 2015 As at the date of this notice, the Board comprises the following Directors: Executive Directors: Yao Lin Wang Yidong Zhang Lifen Zhang Jingfan Independent Non-executive Directors: Chen Fangzheng Qu Xuanhui Liu Zhengdong Chau Chi Wai, Wilton * For identification purpose only 55

62 NOTICE OF EGM Notes: (1) For details of the Supply of Materials and Services Agreement and the Supply of Raw Materials Agreement, and the continuing connected transactions contemplated thereunder, including the proposed monetary caps of transactions for the years of 2016, 2017 and 2018, please refer to the announcement of the Company dated 7 August (2) In order to determine the list of shareholders who are entitled to attend and vote at the EGM, the register of H shareholders of the Company will be closed from Sunday, 13 September 2015 to Monday, 12 October 2015 (both days inclusive), during which period no transfer of shares will be registered. H shareholders whose names appear on the register of H shareholders of the Company as on Sunday, 13 September 2015 are entitled to attend and vote at the EGM. In order to attend and vote at the EGM, any H shareholder whose transfer has not been registered shall lodge the transfer documents together with the relevant share certificates with the Company s H share registrar, Computershare Hong Kong Investor Services Limited at Shops , 17th Floor, Hopewell Centre, 183 Queen s Road East, Wanchai, Hong Kong, by no later than 4:30 p.m. on Friday, 11 September (3) Voting at the EGM will be taken by poll. (4) Any shareholder entitled to attend and vote at the EGM is entitled to appoint one or more proxies to attend and vote on his/her/its behalf. A proxy need not be a shareholder of the Company. Where a shareholder has appointed more than one proxy, each of his proxies may only vote on a poll in respect of the shares actually held by him. (5) The instrument appointing a proxy must be in writing under the hand of the appointer or his/her/its attorney duly authorised in writing. If that instrument is signed by an attorney of the appointor, the power of attorney authorising that attorney to sign, or other documents of authorisation, must be notarially certified. To be valid, the notarially certified power of attorney, or other documents of authorisation, and the form of proxy must be delivered to the Company s H share registrar, Computershare Hong Kong Investor Services Limited at Shops , 17th Floor, Hopewell Centre, 183 Queen s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 24 hours before the time appointed for holding of the EGM or any adjournment thereof. (6) Any shareholder who intends to attend the EGM in person or by proxy shall, for information purposes only, return the reply slip (which will be dispatched to the shareholders together with this notice) to the Secretary Office to the Board on or before 21 September 2015 in person or by hand, post or fax. Failure to return the reply slip will not affect a shareholder s rights to attend the EGM or any adjournment in person. (7) The address and contact details of the Secretary Office to the Board are as follows: Production Area of Angang Steel Tiexi District, Anshan City Liaoning Province The People s Republic of China Post Code: Tel: / Fax: (8) In accordance with the Articles of Association of the Company, where two or more persons are registered as the joint holders of any share, only the person whose name appears first in the register of members shall be entitled to receive this notice, to attend and exercise all the voting powers attached to such share at the EGM, and this notice shall be deemed to be given to all joint holders of such share. (9) The EGM is expected to be concluded within half a day. Shareholders (in person or by proxy) attending the EGM are responsible for their own transportation and accommodation expenses. Shareholders or their proxies attending the EGM shall produce valid identity documents. 56