To enhance the overall iron ore resource reserves of publicly listed firms, Baodi Mining plans to acquire Congling Energy for 685 million yuan

Baodi Mining announced in an evening announcement on June 19 that the company intends to acquire an 82% stake in Xinjiang Congling Energy Co., Ltd. from Kizilsu Kirgiz Autonomous Prefecture Congling Industrial Co., Ltd. through the issuance of shares and payment in cash, and a 5% stake in Congling Energy from JAAN INVESTMENTS CO. LTD. through payment in cash. Additionally, the company plans to issue shares to raise supporting funds from no more than 35 specific investors who meet the conditions set by the China Securities Regulatory Commission (CSRC), including Xinjiang Geology and Mineral Investment (Group) Co., Ltd.

According to Baodi Mining's announcement, this transaction consists of two parts: the acquisition of assets through the issuance of shares and payment in cash, and the raising of supporting funds. The company intends to issue shares and pay in cash to Congling Industrial, the counterparty, to acquire its 82% stake in Congling Energy, and pay in cash to JAAN, the counterparty, to acquire its 5% stake in Congling Energy. Upon completion of this transaction, Congling Energy will become a wholly-owned subsidiary of the company.

The company plans to issue shares to raise supporting funds from no more than 35 qualified specific investors, including Xinjiang Mining Group. The total amount of supporting funds raised will not exceed 100% of the transaction price for the acquisition of assets through the issuance of shares, and the number of shares issued will not exceed 30% of the company's total share capital before the completion of the acquisition of assets through the issuance of shares. The final number of shares issued will be subject to the number approved by the Shanghai Stock Exchange and registered by the CSRC. After deducting issuance expenses and related fees of intermediary agencies, the supporting funds raised are intended to be used for paying cash consideration, project construction of the target company, supplementing working capital for the publicly listed firm and the target company, repaying debts, etc. The acquisition of assets through the issuance of shares and payment in cash is not contingent upon the successful implementation of the raising of supporting funds. The success or failure of the final raising of supporting funds will not affect the implementation of the acquisition of assets through the issuance of shares and payment in cash. The effectiveness and implementation of the raising of supporting funds are contingent upon the effectiveness of the acquisition of assets through the issuance of shares and payment in cash. If the raising of supporting funds fails to be implemented or is not fully raised, the company will resolve the issue through self-financing or other means.

Regarding the impact of this transaction on the publicly listed firm, Baodi Mining's announcement stated:

(I) Impact of this transaction on the main business of the publicly listed firm

1. Enhancing the overall reserve of iron ore resources of the publicly listed firm. Prior to this transaction, the publicly listed firm owned four mining areas: Songhu Iron Mine, Baoshan Iron Mine, Haxiyatu Iron Polymetallic Mine, and Beizhan Iron Mine (including the former Chahanwusu Iron Mine). Mineral resources are mainly distributed in regions such as Yili, Hami, and Bayingolin Mongolian Autonomous Prefecture in Xinjiang, as well as Golmud in Qinghai Province. As of December 31, 2024, the publicly listed firm controlled a total of 380 million mt of iron ore resources in the aforementioned mines. Congling Energy owns the Ziluoyi North Iron Mine in Akto County, Xinjiang, with a proven reserve of 82.6611 million mt. Through this transaction, the publicly listed firm's iron ore resources will reach approximately 460 million mt, with reserves increasing by about 21.75%, further enhancing the company's sustainable operational capabilities.

2. Strengthening the Industrial Layout of the Publicly Listed Firm

Prior to this transaction, the publicly listed firm had no related business presence in the Kashgar and Kizilsu Kirgiz Autonomous Prefecture regions of Xinjiang. Through this transaction, the company will gain control of the Ziluoyi North Iron Mine in Akto County, Xinjiang, by acquiring a controlling stake in Congling Energy, thereby adding mineral resources in the Kizilsu region and further extending its influence to surrounding areas such as Kashgar and Hotan. This will strengthen the company's industrial layout across Xinjiang and enhance its regional influence.

3. Enhancing the Core Business Competitiveness of the Publicly Listed Firm

The core business of the publicly listed firm involves the mining, beneficiation, and sales of iron ore concentrates. Congling Energy shares the same core business and owns the Ziluoyi North Iron Mine, which boasts favorable resource endowments, abundant reserves, a single ore type, and excellent beneficiation properties. It is one of the few high-quality mines in China capable of producing iron ore concentrates with a grade above 68%. Congling Energy is currently developing a 3.2 million mt/year mining project. Upon completion, the company will rely on its high-grade iron ore concentrates to become a highly competitive iron ore supplier in the region. After this transaction, the scale of the publicly listed firm's iron ore mining and beneficiation operations, as well as its iron ore concentrate sales, will further expand, significantly increasing the supply of high-grade iron ore concentrates. This will strengthen the company's core business competitiveness, improve its risk resilience, and enhance its industry influence.

(II) Impact of the Transaction on the Shareholding Structure of the Publicly Listed Firm As of the signing date of this report, the total share capital of the publicly listed firm is 800,000,000 shares. The proposed share issuance for the asset purchase amounts to 116,528,117 shares. Excluding the consideration of fundraising, the total share capital will increase to 916,528,117 shares upon completion of the transaction. The specific impact on the shareholding structure is shown in the table below:

Under the above assumptions, the publicly listed firm's share capital will be 916,528,117 shares after the transaction, with the public float remaining above 10%, ensuring compliance with stock listing requirements.

Before and after the transaction, the controlling shareholder of the publicly listed firm remains Xinjiang Mining Group, and the actual controller remains the State-owned Assets Supervision and Administration Commission of Xinjiang. The transaction will not result in any changes to the company's control structure.

(III) Impact of the Transaction on the Key Financial Metrics of the Publicly Listed Firm

According to the Pro Forma Review Report issued by Dahsin Certified Public Accountants (Special General Partnership) for this transaction, the comparison of key financial data and metrics before and after the transaction is as follows:

Assuming the transaction was completed on January 1, 2024, under the pro forma consolidated financial statements, the publicly listed firm's asset scale, revenue, and net profit attributable to the parent company are expected to improve, further enhancing the company's performance and aligning with the interests of the company and all shareholders.

Regarding the purpose of this transaction, Baodi Mining's announcement stated:

1. Increase the overall iron ore resource reserves of the publicly listed firm

Prior to this transaction, the publicly listed firm owned four mining areas: Songhu Iron Mine, Baoshan Iron Mine, Haxiyatu Iron Polymetallic Mine, and Beizhan Iron Mine (including the original Chahanwusu Iron Mine). The mineral resources are mainly distributed in regions such as Yili, Hami, Bayingolin Mongolian Autonomous Prefecture in Xinjiang, and Golmud in Qinghai Province. As of December 31, 2024, the publicly listed firm controlled a total iron ore resource volume of 380 million mt from these mines. Congling Energy owns the Ziluoyi North Iron Mine in Akto County, Xinjiang, with retained reserves of 8,266,100 mt. Through this transaction, the publicly listed firm's iron ore resource volume will reach approximately 460 million mt, representing an increase of about 21.75%, further enhancing the firm's sustainable operational capabilities.

2. Strengthen the industrial layout of the publicly listed firm

Before this transaction, the publicly listed firm had no related business presence in the surrounding areas of Kashgar and Kizilsu Kirgiz Autonomous Prefecture in Xinjiang. Through this transaction, the publicly listed firm will gain control of the Ziluoyi North Iron Mine in Akto County, Xinjiang, by acquiring a controlling stake in Congling Energy, thereby adding mineral resources in the Kizilsu Kirgiz Autonomous Prefecture region and further extending its influence to neighboring areas such as Kashgar and Hotan. This will strengthen the firm's industrial layout across Xinjiang and enhance its regional influence.

3. Enhance the competitiveness of the publicly listed firm's core business

The core business of the publicly listed firm involves the mining, beneficiation, and sales of iron ore concentrates. Congling Energy shares the same core business and owns the Ziluoyi North Iron Mine, which boasts favorable resource endowment, abundant reserves, uniform ore types, and excellent beneficiation properties. It is one of the few high-quality mines in China capable of producing iron ore concentrates with a grade above 68%. Congling Energy is currently working on a 3.2 million mt/year mining project. Upon completion, Congling Energy will rely on its high-grade iron ore concentrates to become a highly competitive iron ore supplier in the region. After the completion of this transaction, the scale of iron ore mining and beneficiation, as well as iron ore concentrate sales, will further increase for the publicly listed firm. The supply of high-quality iron ore concentrates will significantly expand, thereby strengthening the competitiveness of the firm's core business, improving its risk resilience, and enhancing its industry influence.

On June 19, Baodi Mining announced its responses to investor questions raised during a survey:

Question 1: How many mines are currently under the company's consolidated scope? What is the annual mining volume?

Baodi Mining responded: The company has four mining areas under its consolidated scope: Haxiyatu Iron Polymetallic Mine, Baoshan Iron Mine, Songhu Iron Mine, and Beizhan Iron Mine (merged and integrated with the development of Chahanwusu Iron Mine). Among them, upon reaching full production, the Haxiyatu Iron Polymetallic Mine can achieve an annual mining capacity of 1.44 million mt (including 1.2 million mt of iron ore and 240,000 mt of gold, zinc, and copper ore per year). The Baoshan Iron Mine currently has an annual mining capacity of 500,000 mt. After the completion of the expansion project at the Songhu Iron Mine, its capacity will reach 2 million mt per year. Following the integrated integration of Beizhan Mining and the Chahanwusu Iron Mine, the combined annual capacity will reach 10 million mt.

By the end of 2024, the company's cumulative iron ore reserves had reached 3.8 billion mt, representing a 31.03% increase compared to 2023. The approved mining scale for iron ore is 13.7 million mt per year, and for gold, zinc, and copper ore, it is 240,000 mt per year.

Question 2: What progress has been made on several key ongoing projects?

Baodi Mining responded: (1) The construction of the 1.44 million mt per year project at the Haxiyatu Iron Polymetallic Mine was completed and put into trial operation by the end of 2024, with gradual achievement of full and stable production expected in 2025. Upon reaching full production, it is estimated that the annual capacity will be 1.44 million mt, including 1.2 million mt of iron ore and 240,000 mt of gold, zinc, and copper ore. The specific products will be based on actual output after production begins.

(2) The company has increased the construction scale of the renovation and expansion project of the Songhu Iron Mine, which is funded by the raised capital, from 1.5 million mt per year to 2 million mt per year. The total estimated investment is 980.1861 million yuan, and it is expected to reach the intended operational state by 2027.

(3) The company is actively promoting the integrated integration and development of the Beizhan Iron Mine and the Chahanwusu Iron Mine, undertaking the construction of a 10 million mt per year mining and beneficiation project. The infrastructure construction period for the project is four years, and the production period is 26 years, with a total estimated investment of 5,233.9821 million yuan for the construction. According to the feasibility study report, upon reaching full production, the estimated annual output of iron ore concentrates from Beizhan Mining will be 4.9813 million mt (with a TFe grade of 65%). Beizhan Mining has already obtained a mining license for 10 million mt per year.

(4) The company plans to acquire Xinjiang Congling Energy Co., Ltd. through the issuance of shares, payment in cash for asset acquisition, and raising of supporting funds. Congling Energy is currently working on the construction of a 3.2 million mt per year mining, beneficiation, and tailings project. Upon completion of the project, Congling Energy will become a highly competitive iron ore supplier in the region by relying on its high-grade iron ore concentrates. If the acquisition is successful, the company will add mineral resources in the Kizilsu Kirgiz Autonomous Prefecture, further expanding its influence to the neighboring Kashgar and Hotan regions, strengthening its industrial layout across the entire Xinjiang region, and enhancing its influence.

Question 3: What are the main potential growth points for the company's future performance?

Baodi Mining responded: The company's main future growth will come from iron ore concentrates, gold concentrates, and other minerals after the Haxiyatu Iron Polymetallic Mine is completed and put into operation. Upon reaching full production at the Beizhan Iron Mine, the estimated annual output of iron ore concentrates will be 4.9813 million mt. Meanwhile, the Ziluoyi North Iron Mine boasts favorable resource endowments, abundant reserves, a single type of ore, and good washability. It is a high-quality mine in China that can produce iron ore concentrates with a grade exceeding 68%. If the acquisition of Congling Energy is successfully completed, the additional 3.2 million mt/year capacity from Congling Energy will serve as a good increment, further enhancing the company's production scale and market share.

Question 4: How will the company further reduce costs and increase efficiency?

Baodi Mining responded: The company has established a sound performance appraisal management system, which evaluates employee compensation in conjunction with individual work performance and corporate performance. The formulation of the company's compensation and appraisal system is based on relevant state-owned asset regulations and requirements, taking into account various factors such as industry standards and the company's development stage, in order to effectively save on various labour costs and expenses. In recent years, the company has continuously strengthened the intelligent construction of its mines. By utilizing intelligent, mechanized, and automated equipment, it has replaced dangerous and arduous positions in the mines, promoting the transformation of the mining industry towards intelligence and reduced manpower. This not only ensures the safety of mine production but also improves production efficiency, ultimately achieving the goal of cost reduction and efficiency enhancement.

Question 5: Does the company have a clear dividend distribution plan?

Baodi Mining responded: The company places great emphasis on shareholder returns and has consistently implemented a stable and proactive cash dividend policy since its listing. On the premise of meeting the company's normal production and operation capital needs, it ensures the continuity of cash dividends, fully safeguarding the basic interests of all shareholders with a good, sustainable, and stable level of cash returns. A cash dividend of 30 million yuan (tax included) for 2024 has been distributed recently. Since its listing, the company has accumulated a total of 266 million yuan in dividends. The company will continue to focus on production and operation while flexibly utilizing various capital operation tools, including cash dividends, for market value management, striving to maximize the conversion of the value created by the company's production and operation into investment returns for shareholders.

Question 6: How does the company intend to manage its market value?

Baodi Mining responded: Market value management is a systematic task that involves multiple aspects and is influenced by various factors such as policy and capital. The company will continue to focus on improving its operating performance. By continuously expanding industrial scale, expanding market share, strengthening cost control, and conducting mergers and acquisitions, it will consolidate the company's fundamentals, strengthen mineral species development and scale expansion, strive to achieve the dual goals of cost reduction and quality improvement, and continuously enhance the company's market competitiveness and profitability, providing solid performance support for the stock price. The company will also enhance communication and interaction with investors, promptly, accurately, and comprehensively conveying the company's strategic plans, operating results, and development prospects to the market through various channels and methods, thereby enhancing the company's market recognition and deepening investors' understanding and recognition of the company's value.

The Q1 report for this year released by Baodi Mining shows that the company achieved operating revenue of 305 million yuan in Q1 2025, up 24.79% YoY. Net profit attributable to shareholders of the publicly listed firm was 20.042 million yuan, down 50.29% YoY. Basic earnings per share were 0.025 yuan. The decline in the company's net profit was mainly due to the decrease in the unit selling price of iron ore concentrates.

The 2024 annual report released by Baodi Mining shows that in 2024, the company produced 1.9354 million mt of iron ore concentrates, up 75.87% from the previous year, and sold 1.673 million mt of iron ore concentrates, up 32.29% from the previous year. In 2024, the company achieved operating revenue of 1.196 billion yuan, up 38.07% YoY. Net profit attributable to shareholders of the publicly listed firm was 138 million yuan, down 25.9% YoY. Baodi Mining's main business is the mining, beneficiation, and processing of iron ore, as well as the sale of iron ore concentrates. Its main product is iron ore concentrates produced from the beneficiation of ROM iron ore, and its main customers are large steel producers in Xinjiang and surrounding regions.

The 2024 annual report of Baodi Mining shows that operating revenue increased by 38.07% from the previous year, mainly due to the increase in sales volume and the unit selling price of iron ore concentrates compared to the previous year. Net profit attributable to shareholders of the publicly listed firm, excluding non-recurring gains and losses, increased by 36.30% from the previous year, mainly due to the increase in sales volume and profit of iron ore concentrates.

Baodi Mining also announced its 2025 business plan in its 2024 annual report:

2025 marks the final year of the "14th Five-Year Plan" and the 70th anniversary of the establishment of the Xinjiang Uyghur Autonomous Region. The company will actively integrate into the construction of the autonomous region's "Ten Major Industrial Clusters," focus on enhancing its core functions, deepen reform and innovation, comprehensively strengthen its strategic support capabilities, maintain a good momentum of production, operation, and development, and continuously promote the company's high-quality development. 1. Implement the "Resources + Capital" strategy with greater intensity to continuously consolidate the foundation for development. Continuously consolidate and enhance the advantages of the main business of iron ore mining and beneficiation, leverage the company's experience in iron ore exploration and development, and continuously increase the company's iron ore resource reserves. Properly plan and construct existing mines to enhance the region's self-sufficiency in iron ore and take multiple measures to ensure the completion and production of the Hasiyatu Iron Polymetallic Mine with an annual capacity of 1.44 million mt. Accelerate the construction of the expansion project of the Songhu Iron Mine to an annual capacity of 2 million mt and advance the construction of the Beizhan Iron Mine with an annual mining and beneficiation capacity of 10 million mt. Strictly comply with legal and regulatory requirements to complete the acquisition of an 87% stake in Congling Energy Company and raise matching funds. Strengthen the overall coordination and linkage among various mines to enhance product competitiveness and market share, and continuously expand industrial scale and profitability. 2. Expand mineral types with a broader perspective to continuously optimize the industrial development landscape. Actively explore and demonstrate new ore types, optimize the industrial layout, and strive to achieve breakthroughs in ore types with strong profitability and sustainable development capabilities, accelerating the construction of a multi-ore development pattern. Further consolidate the core business of mining and excavation, integrate into the upstream and downstream industry chains of mineral resource exploration and development, seek breakthroughs in mechanical manufacturing for mines and beneficiation plants, as well as in the application of information technology and intelligence, and enhance the company's development vitality and resilience. 3. Take more practical measures to promote scientific and technological innovation and drive the construction of intelligent mines. 4. Enhance management and control levels through refined management to improve the company's core competitiveness. 5. Adopt more flexible strategies for market capitalization management to continuously enhance investment value. 6. Strengthen the construction of the talent team through better mechanisms to continuously enhance the company's development vitality. 7. Implement stricter requirements for safety and environmental protection work to continuously improve the levels of safe and green development.