2017.11 CH NONFERROUS

Company Name: China Nonferrous Metals Company Limited
Stock Code: 08306
Year end: December 31, 2016

Basis for disclaimer of opinion

1 OPENING BALANCES AND CORRESPONDING FIGURES

The consolidated financial statements of the Group for the year ended 31 December 2015 which form the basis for the corresponding figures presented in the current year’s consolidated financial statements were not audited by us. There were no satisfactory audit procedures for us to ascertain the existence, accuracy, presentation and completeness of certain opening balances, corresponding figures and other related disclosures (as further explained in the following paragraphs) shown in the current year’s consolidated financial statements.

2 PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

We have been unable to obtain sufficient appropriate audit evidence in respect of the cost of property, plant and equipment and intangible assets of approximately RMB491,440,000 (2015: RMB467,191,000) and RMB1,123,998,000 (2015: RMB1,123,998,000), respectively. In addition, as at the end of the reporting period, the management’s assessment of the recoverable amount of the cash generating unit of the Group’s mining business did not take into account that (i) the mining right will expire in 2019 and is subject to approval for renewal by the local authorities; and (ii) the mining right has been subject to a frozen order by court since January 2016 and the Group may lose the mining right. Accordingly, we have been unable to obtain sufficient appropriate audit evidence in respect of the carrying amount of property, plant and equipment and intangible assets of approximately RMB98,096,000 (2015: RMB92,400,000) and RMB252,704,000 (2015: RMB260,191,000), respectively, in the consolidated statement of financial position as at 31 December 2016. There were no other satisfactory audit procedures that we could perform to satisfy ourselves whether the aforesaid balances were fairly stated as at 31 December 2016 and 2015 and the related depreciation, amortisation and provision for impairment losses for the years ended 31 December 2016 and 2015 were properly recorded.

3 ACCRUALS AND OTHER PAYABLES

As at 31 December 2016, included in accruals and other payables is payable to Ruffy Investment Limited (“Ruffy”), the Company’s immediate and ultimate holding company, of approximately RMB322,051,000 (2015: RMB281,356,000) and the related accrued interest of approximately RMB14,796,000 (2015: RMB4,795,000) resulted from the convertible bonds issued by the Company to Ruffy in 2008 which were matured in July 2015. In addition, a gain on settlement of convertible bonds to Ruffy of approximately RMB37,956,000 was recognised as 16 other income for the year ended 31 December 2015 and interest on payable to Ruffy of approximately RMB29,828,000 (2015: RMB12,833,000) was recognised as finance costs for the year ended 31 December 2016. We have been unable to obtain sufficient appropriate audit evidence in respect of the aforesaid balances. There were no other satisfactory audit procedures that we could perform to satisfy ourselves whether the aforesaid balances of payable to Ruffy and the related accrued interest were fairly stated as at 31 December 2016 and 2015 and the aforesaid balance of other income for the year ended 31 December 2015 and the aforesaid balances of finance costs for the years ended 31 December 2016 and 2015 were properly recorded.

4 DEFERRED AND CURRENT INCOME TAXES

We have been unable to obtain sufficient appropriate audit evidence in respect of the deferred tax assets, deferred tax liabilities and current tax liabilities of approximately RMB55,377,000 (2015: RMB54,950,000), RMB53,171,000 (2015: RMB55,050,000) and RMB84,309,000 (2015: RMB84,309,000), respectively, in the consolidated statement of financial position as at 31 December 2016 and in respect of the income tax credit of approximately RMB2,306,000 (2015: RMB152,959,000) for the year ended 31 December 2016. There were no other satisfactory audit procedures that we could perform to satisfy ourselves whether the balances of deferred tax assets and deferred and current tax liabilities were fairly stated as at 31 December 2016 and 2015 and the balances of income tax credit were properly recorded for the years ended 31 December 2016 and 2015.

5 PROVISIONS AND CONTINGENT LIABILITIES ARISING FROM ALLEGED GUARANTEE

As at 31 December 2016, included in accruals and other payables is provision for litigation liabilities of approximately RMB1,234,768,000 in respect of its writs and arbitration cases in which the Group is the defendant as detailed in note 34 to the consolidated financial statements. However, we have been unable to obtain sufficient appropriate audit evidence for the provision for litigation liabilities of approximately RMB1,234,768,000 in the consolidated statement of financial position as at 31 December 2016 and the related expenses of the same amount recognised for the year then ended. There were no other satisfactory audit procedures that we could perform to satisfy ourselves whether the aforesaid balances were fairly stated as at 31 December 2016 and for the year then ended.

In addition, as disclosed in note 34 to the consolidated financial statements, the Group had contingent liabilities of approximately RMB133,078,000 (2015: RMB1,152,898,000) as at 31 December 2016 in respect of a legal case arising in 2015. However, the directors of the Company have not provided us with sufficient documentary evidence to enable us to assess whether it is appropriate for not making provision for the Group’s obligation under the case. There were no alternative audit procedures that we could perform to obtain sufficient appropriate audit evidence in this respect.

6 COMPLETENESS OF PENDING LITIGATIONS, PROCEEDINGS, HEARINGS OR CLAIMS

In 2016 and 2017, the Group made several announcements regarding writs received, and arbitration cases heard and associated claims judged. These writs and arbitration cases relate to transactions conducted with related parties. The Group’s internal procedures could not enable it to properly identify on a timely basis the writs, arbitration cases and associated claims arising in 2014 and 2015. We have not been able to obtain sufficient appropriate audit evidence therefore concerning the completeness and assessment of related consequential impact of pending litigations, proceedings, hearings or claims against the Group. Accordingly, we are unable to determine whether all provisions and contingent liabilities have been properly accounted for and disclosed in the consolidated financial statements in accordance with International Accounting Standard 37 “Provisions, Contingent Liabilities and Contingent Assets”.

7 RECOVERABILITY OF TRADE RECEIVABLES AND OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

As at 31 December 2016, the Group’s trade receivables and other receivables, deposits and prepayments included past due balances of approximately RMB124,336,000 (2015: RMB116,290,000) and RMB395,281,000 (2015: RMB354,324,000), respectively. As at the date of this report, these balances have not been settled. We were not provided with sufficient appropriate audit evidence to satisfy ourselves as to the recoverability of the balances. Accordingly, we are unable to determine whether the Group’s trade receivables and other receivables, deposits and prepayments were fairly stated as at 31 December 2016 and 2015 and the related provision for impairment losses were properly recorded for the years ended 31 December 2016 and 2015.

8 RELATED PARTY TRANSACTIONS

As described in point 6 above, the Group’s internal procedures in 2015 did not enable it to properly identify and disclose on a timely basis all material related party transactions that occurred during the year. We have not been able to obtain sufficient appropriate audit evidence therefore concerning the completeness of related parties as at 31 December 2015 and related party transactions for the year then ended presented and disclosed in the consolidated financial statements. Accordingly, we have not been able to satisfy ourselves that all related party balances and transactions have been properly presented and disclosed as required by the International Accounting Standard 24 “Related Party Disclosures”.

Any adjustments to the figures as described from points 1 to 8 above might have significant consequential effects on the Group’s results and cash flows for the years ended 31 December 2016 and 2015 and the financial position of the Group as at 31 December 2016 and 2015, and the related disclosures thereof in the consolidated financial statements.

9 MATERIAL UNCERTAINTY RELATED TO GOING CONCERN

As at 31 December 2016, there were conditions which indicate the existence of material uncertainty which may cast significant doubt on the Group’s ability to continue as a going concern and therefore the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

(a) Default of bank loan with mining right pledged as security

As disclosed in note 26 to the consolidated financial statements, the Company’s subsidiary, 巴盟烏中旗甲勝盤鉛鋅硫鐵礦業開發有限責任公司 (“Jiashengpan”), was in default on repayments of the entrusted loan with principal amount of RMB150,000,000, together with accrued interests and penalties of approximately RMB53,889,000 as at 31 December 2016. Jiashengpan’s mining right of carrying amount of approximately RMB252,704,000 as at 31 December 2016 has been pledged as security of the entrusted loan. The entrusted loan was also secured by guarantees given by the Company’s controlling shareholder (the “Controlling Shareholder”) and by a company controlled by the Controlling Shareholder (the “Corporate Guarantor”). In January 2016, a court order was issued to impound, freeze and distress the assets of Jiashengpan, the Controlling Shareholder and the Corporate Guarantor of value equivalent to approximately RMB176,002,000. The management of Jiashengpan believes that the mining right is subject to the frozen order and the Group may lose the mining right.

(b) Loss for the year and the net current liabilities and net liabilities position

The Group incurred a loss of approximately RMB1,303,943,000 for the year ended 31 December 2016 and as at 31 December 2016, it had net current liabilities and net liabilities of approximately RMB1,304,411,000 and RMB949,650,000, respectively.

(c) Contingent liabilities

The Group had contingent liabilities of approximately RMB133,078,000 as at 31 December 2016 as detailed in note 34 to the consolidated financial statements.

In forming our opinion, we have considered the adequacy of the disclosures made in note 2 to the consolidated financial statements which explains that a proposal for the resumption of trading in the Company’s shares and the proposed restructuring of the Group has been submitted to The Stock Exchange of Hong Kong Limited to pursue a restructuring of the Group.

The consolidated financial statements have been prepared on a going concern basis on the assumption that the proposed restructuring of the Group will be successfully completed, and that, following the restructuring, the Group will continue to meet in full its financial obligations as they fall due in the foreseeable future. The consolidated financial statements do not include any adjustments that would result from a failure to complete the restructuring. We consider that the disclosures are adequate. However, in view of the extent of the uncertainty relating to the completion of the restructuring, we disclaim our opinion in respect of the material uncertainty relating to the going concern basis.