SUBSCRIPTION OF NEW SHARES BY TIGER CAPITAL FUND SPC - TIGER GLOBAL SP AND GRANT OF SHARE OPTIONS

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1 Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement. The information set out below in this announcement is provided for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for shares in the Company. LR13.52 Note 5 (Incorporated in the Hong Kong with limited liability) (Stock code: 1029) LR13.51A SUBSCRIPTION OF NEW SHARES BY TIGER CAPITAL FUND SPC - TIGER GLOBAL SP AND GRANT OF SHARE OPTIONS This announcement is made by the Company pursuant to Rule of the Listing Rules and the Inside Information Provisions under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). SUBSCRIPTION AGREEMENT On 30 November 2016 (after trading hours), the Company entered into the Subscription Agreement with the Investor, pursuant to which the Investor has conditionally agreed to subscribe for and the Company has conditionally agreed to allot and issue 937,500,000 new Shares in the amount of HK$196,875,000 at the Subscription Price of HK$0.21 per Subscription Share. In consideration for the Subscription, subject to Completion occurring, the Company has also agreed to grant to the Investor (who has nominated that this be assigned to the Proposed Director to exercise in his own name) a right to subscribe for a maximum of 60,000,000 Shares. Please refer to the section headed Share options below for further details. The Subscription Price and the exercise price in respect of the Option Shares was determined after arm s length negotiations between the Company and the Investor with reference to the recent trading performance of the Shares. The Directors consider that the Subscription Price, the exercise price in respect of the Option Shares and the terms of the Subscription Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. 1

2 The Subscription Shares represent 15.23% of the existing issued share capital of the Company and approximately 13.22% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares. The gross proceeds of the Subscription of HK$196,875,000 will be used towards servicing the Project Finance Facility and for working capital for K&S. The Option Shares (if issued) represent 0.97% of the existing issued share capital of the Company, approximately 0.85% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares and approximately 0.84% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares and the Option Shares in full. The net proceeds of the allotment of the Option Shares (if issued) will be used for general working capital purposes. An application has been made by the Company to the Stock Exchange for a waiver from Listing Rule 13.36(5) permitting the Company to create, allot and issue securities under the General Mandate without obtaining the consent of Shareholders in an extraordinary general meeting for the issue of the Subscription Shares and the Option Shares at a price which represents a discount of greater than 20% to the benchmarked price of its Shares, on the grounds that the Company is in a serious financial position. If the Stock Exchange does not grant its consent pursuant to Listing Rule 13.36(5), the allotment and issue of the Subscription Shares and, if required by the Stock Exchange, the grant of the right to subscribe for the Option Shares, will be subject to Shareholders approval at the EGM. As part of the terms of the Subscription, the Company has also agreed to invite the Proposed Director, who is a representative of the Investor, to become a non-executive director of the Company from Completion, subject to approval by the Company s nomination committee. Please refer to the section headed Proposed change of Board composition below for further details. REASONS FOR THE SUBSCRIPTION With reference to the 2016 Third Quarter Trading Update of the Company announced on 25 October 2016, K&S is required to make payments of principal and interest on 20 December 2016 in the amount of approximately US$26 million under the Project Finance Facility. The Group s current cash balance is not adequate to service the Project Finance Facility. Accordingly, in the absence of either an amendment to or waiver of the Project Finance Facility or alternative fundraising, K&S will be unable to service the Project Finance Facility on a timely basis and ICBC will be able to accelerate the facility as a result of such event of default. If ICBC accelerates the Project Finance Facility in full, the entire principal amount of the Project Finance Facility plus accrued interest will become repayable immediately, which the Group has no means of servicing its obligations. The Investor is willing to make a strategic long-term investment in the Company, assisting the Company to overcome its present cashflow issues and provide working capital for K&S as it ramps up its mining project to full commercial production. The Subscription therefore represents the most attractive and viable option to secure financing in the time available to avoid a default under the Project Finance Facility and an opportunity to form a strategic partnership with the Investor. 2

3 As at the date of this announcement, the market capitalisation of the Company amounted to approximately US$302 million and the size of the fundraising represents approximately 8% of the market capitalisation. The Company has limited the fundraising size with a view of minimising the dilution effect to the existing Shareholders while taking into consideration the going concern position of the Group. EGM If a waiver from Listing Rule 13.36(5) is not granted, the Company will convene the EGM which will be held for the Shareholders to consider and, if thought fit, approve the ordinary resolution in respect of (i) the Subscription Agreement and the transactions contemplated thereunder; and (ii) the allotment of the Subscription Shares and, if required by the Stock Exchange, the grant of the right to subscribe for the Option Shares under the Specific Mandate. As no Shareholder has an interest in the Subscription Agreement that is materially different from the other Shareholders, no Shareholder is required to abstain from voting at the EGM in respect of the Subscription Agreement. GENERAL Completion of the Subscription is subject to the satisfaction of the conditions precedent to the Subscription Agreement. As the Subscription may or may not proceed, Shareholders and potential investors are advised to exercise caution when dealing in the Shares. THE SUBSCRIPTION AGREEMENT On 30 November 2016 (after trading hours), the Company entered into the Subscription Agreement with the Investor, pursuant to which the Investor has conditionally agreed to subscribe for and the Company has conditionally agreed to allot and issue 937,500,000 new Shares in the amount of HK$196,875,000 at the Subscription Price of HK$0.21 per Subscription Share. The Subscription Agreement Date: 30 November 2016 Parties: (i) the Company as issuer; and LR13.28(1) (ii) the Investor as subscriber. LR13.28(7) Number of Subscription Shares: 937,500,000 new Shares LR13.28(2) Pursuant to the Subscription Agreement, the Investor has conditionally agreed to subscribe for a total of 937,500,000 new Shares at the Subscription Price of HK$0.21 per Subscription Share. LR13.28(4) 3

4 The allotment and issue of the Subscription Shares is conditional upon the satisfaction of certain conditions precedent. Please refer to the section headed Conditions precedent to the Subscription Agreement below for further details. The Investor will pay to the Company a subscription amount upon Completion of HK$196,875,000, being the total consideration for all the 937,500,000 new Shares at the Subscription Price. LR13.28(5) The percentage of issued share capital of the Company represented by the Subscription Shares as at Completion is set out in detail in the section headed Change of Shareholding Structure below. Option Shares In consideration for the Subscription, subject to Completion occurring, the Company has also agreed to grant to the Investor (who has nominated that this be assigned to the Proposed Director to exercise in his own name) a right to subscribe for a maximum of 60,000,000 Shares ( Option Shares ). LR13.28(2) (b) LR13.28(2) (a) The first tranche of 30,000,000 Option Shares will have an exercise price set at a 10% premium to the closing price on the Completion Date and will be exercisable immediately on the Completion Date for a period of five years ( Tranche 1 Option ). The second tranche of 30,000,000 Option Shares will have an exercise price set at a 10% premium to the closing price on the first anniversary of the Completion Date, and will be exercisable from the first anniversary of the Completion Date for a period of five years ( Tranche 2 Option ), provided that the Tranche 2 Option will only be granted by the Company if, on the date which is the first anniversary of the Completion Date, the Investor holds at least 10% of the total issued Shares of the Company ( Exercise Condition ). Other than the Exercise Condition, the ability to exercise the Option Shares will not be subject to other performance conditions. For the avoidance of doubt, the Investor is only required to hold at least 10% of the total issued share capital of the Company on the first anniversary of the Completion Date and is not required to maintain this holding in order to exercise the Tranche 2 Option once granted. The Option Shares (if issued) represent 0.97% of the existing issued share capital of the Company, approximately 0.85% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares and approximately 0.84% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares and the Option Shares in full. The net proceeds of the allotment of the Option Shares (if issued) will be used for general working capital purposes. Save as disclosed in this announcement, there are no other arrangements between the Investor, the Proposed Director and the Company and its connected persons and, so far as the Company is aware, neither the Investor nor the Proposed Director is currently in possession of potential deals or information about the Company that might crystallize over the exercise periods in respect of the Option Shares. 4

5 Conditions precedent to the Subscription Agreement Completion is conditional upon and subject to the fulfilment of the following: LR13.28(14) (a) (b) (c) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the Subscription Shares and, when issued, the Option Shares; the Stock Exchange approving the grant of the right to subscribe for the Option Shares pursuant to Listing Rule 15.02; and either: (i) the Shareholders having approved at the EGM by ordinary resolution: (A) the issue of the Subscription Shares at the Subscription Price pursuant to the Subscription Agreement in accordance with applicable requirements of the Listing Rules; and (B) if required by the Stock Exchange, the grant of the right to subscribe for the Option Shares at the relevant exercise price pursuant to the Subscription Agreement; or (ii) the Stock Exchange granting a waiver from Listing Rule 13.36(5) permitting the Company to create, allot and issue the Subscription Shares at the Subscription Price and to grant the right to subscribe for the Option Shares without obtaining the consent of Shareholders in general meeting prior to issuing the Subscription Shares or granting the right to subscribe for the Option Shares. In the event that any of the conditions of the Subscription Agreement listed above have not been fulfilled by the Long Stop Date in accordance with the Subscription Agreement, the Subscription Agreement shall terminate and, save as set out below under the heading Deposit, neither party shall have any claim against the other for costs, damages, compensation or otherwise. An application has been made by the Company to the Stock Exchange for a waiver from Listing Rule 13.36(5) permitting the Company to create, allot and issue securities under the General Mandate without obtaining the consent of Shareholders in an extraordinary general meeting for the issue of the Subscription Shares and the Option Shares at a price which represents a discount of greater than 20% to the benchmarked price of its Shares, on the grounds that the Company is in a serious financial position. If the Stock Exchange does not grant its consent pursuant to Listing Rule 13.36(5), the allotment and issue of the Subscription Shares and, if required by the Stock Exchange, the grant of the right to subscribe for the Option Shares will be subject to Shareholders approval at the EGM. Please refer to the sections headed Application for the Stock Exchange s consent pursuant to Listing Rule 13.36(5) and Mandate to allot and issue the Subscription Shares and Option Shares below for further details. An application will also be made by the Company to the Stock Exchange for the listing of, and permission to deal in, the Subscription Shares and, when issued, the Option Shares. 5

6 Deposit No later than five Business Days following the date of the Subscription Agreement, the Investor is required to pay an amount equal to HK$19,687,500 to the Company as a deposit (Deposit) in respect of its obligation to pay the aggregate Subscription Price on Completion. In the event that the Investor does not fulfil its obligations in respect of Completion pursuant to the terms of the Subscription Agreement, it shall forfeit the Deposit and, without prejudice to the Company s other rights and remedies in respect of the failure by the Investor to comply with its obligations under the Subscription Agreement, the Company shall be entitled to retain the Deposit. In the event that the conditions to Completion listed in the section headed Conditions precedent to the Subscription Agreement above are not fulfilled on or before the Long Stop Date, and the Subscription Agreement terminates as a result thereof, the Company shall return the Deposit to the Investor. In addition, if the Company does not recommend to the Shareholders in the EGM Circular (to the extent that an EGM is required) that they should vote in favour of the Subscription and/or the Company fails to use reasonable endeavours to fulfil the conditions precedent to the Subscription Agreement, then the Company shall pay an amount equal to the Deposit (in addition to the repayment of the Deposit) to the Investor. Completion Upon Completion, the Subscription Shares will, in aggregate, represent approximately 13.22% of the issued share capital of the Company as enlarged by the Subscription (assuming that there is no change in the issued share capital of the Company other than the issue of the Subscription Shares between the date of the Subscription Agreement up to Completion). The Company will make appropriate adjustments (if any) to outstanding and unexercised share options granted under the Company s share option scheme in accordance with its terms as a result of the issue of the Subscription Shares to the Investor and any subsequent issue of any Option Shares to the Proposed Director. Subscription Price for the Subscription Shares LR13.28(4) The Subscription Price for each Subscription Share is HK$0.21. This represents: (a) (b) (c) a discount of approximately 44.7% to the closing price of HK$0.380 per Share as quoted on the Stock Exchange on the Last Trading Day; a discount of approximately 44.0% to the average closing price of HK$0.375 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to and including the Last Trading Day; a discount of approximately 36.6% to the average closing price of HK$0.331 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days immediately prior to and including the Last Trading Day; 6 LR13.28(8)

7 (d) (e) (f) (g) (h) (i) a discount of approximately 12.1% to the average closing price of HK$0.239 per Share as quoted on the Stock Exchange for the last 30 consecutive trading days immediately prior to and including the Last Trading Day; a discount of approximately 0.5% to the average closing price of HK$0.211 per Share as quoted on the Stock Exchange for the last 60 consecutive trading days immediately prior to and including the Last Trading Day; a premium of approximately 7.1% to the average closing price of HK$0.196 per Share as quoted on the Stock Exchange for the last 90 consecutive trading days immediately prior to and including the Last Trading Day; a premium of approximately 17.3% to the average closing price of HK$0.179 per Share as quoted on the Stock Exchange for the last 6 months immediately prior to and including the Last Trading Day; a premium of approximately 28.8% to the average closing price of HK$0.163 per Share as quoted on the Stock Exchange for the last year immediately prior to and including the Last Trading Day; and a premium of approximately 46.9% to the Company s published consolidated net asset per Share (excluding non-controlling interests) as at 30 June 2016 of approximately HK$0.143 per Share (based on a total of 6,155,886,381 Shares as at the date of the Subscription Agreement). As can be seen from the above, the market price of the Shares has consistently been below the Subscription Price for most of the last year, and the closing price of the Shares did not exceed the Subscription Price at any time from 10 December 2015 until 11 November The Subscription Price was determined after arm s length negotiations between the Company and the Investor, taking into consideration the market price of the Shares over the previous 12 months. In particular, given the fact that the Share price has been below HK$0.21 for almost all of the last 12 months and has only recently increased, the Investor informed the Company that it was not prepared to invest at a subscription price representing a discount of less than 20% to the current Share price. Accordingly, the Subscription Price, while representing a discount of greater than 20% to the Share price on the Last Trading Day and the average of the last ten consecutive trading days immediately prior to and including the Last Trading Day, is at a discount of less than 20% to the average closing price for the last 60 consecutive trading days and is at a premium to the average closing price for the last 12 months immediately prior to and including the Last Trading Day. The Company is not aware of any reason behind the unusual market movements in the last three weeks which have led to an unexpectedly high market price for the Shares. The Directors consider that the Subscription Price, the exercise price in respect of the Option Shares and the terms of the Subscription Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. 7

8 Application for the Stock Exchange s consent pursuant to Listing Rule 13.36(5) (i) Serious financial position In order to effect the Subscription at the Subscription Price, the Company is required to satisfy the Stock Exchange pursuant to Listing Rule 13.36(5) that it is in a serious financial position and that the only way it can be saved is by an urgent rescue operation which involves the issue of new securities at a price representing a discount of 20% or more to the benchmarked price of the securities or that there are other exceptional circumstances. On 6 December 2010, the Company announced that the Group had entered into a contract with CNEEC, a major Chinese state-owned contractor, for the construction of the mining and processing operation at its principal mine, the K&S Mine (EPC Contract). The EPC Contract was conditional upon the entry into a project finance facility between the Company s wholly-owned subsidiary, Kimkano-Sutarsky Mining and Beneficiation Plant LLC (K&S) and ICBC in respect of a US$340,000,000 facility to be made available to the Group, which was entered into on 13 December 2010 (Project Finance Facility). The K&S Mine has been under construction from shortly after the Company s initial public offering in 2010 to date, with initial sales starting during Full commercial production is expected to be achieved in the early part of Due to delays in the construction under the EPC Contract, the K&S Mine has been significantly slower to reach commercial production than expected. Consequently, positive cashflows from mining operations are coming on-stream slower than anticipated when the Project Finance Facility was entered into, and accordingly, the revenues from operations have not been sufficient to meet the Group s obligations under the Project Finance Facility as originally expected. As detailed in its announcement made on 19 April 2016, the Group negotiated a series of waivers from the Project Finance Facility which meant that (a) it is not required to comply with certain financial covenants that would otherwise be likely to have been breached (resulting in an event of default), for the period until 31 December 2017; and (b) it was no longer required to maintain a cash balance equivalent to the next six months debt service in a Debt Service Reserve Account with ICBC for the period until 30 June Accordingly, when the first instalment of principal due following such waiver was required to be paid on 20 June 2016, it was able to utilise the amount then standing to the credit of the Debt Service Reserve Account to meet the repayment obligations, without any obligation to reinstate the minimum cash balance. The amount outstanding under the Project Finance Facility is currently US$255 million. The next instalment of principal and interest of approximately US$26 million is due for payment by K&S to ICBC on 20 December

9 The Group s current cash balance is not adequate to service the Project Finance Facility. Accordingly, in the absence of either a further amendment to or waiver of the Project Finance Facility or alternative fundraising, K&S will be unable to service the Project Finance Facility on a timely basis and ICBC will be able to accelerate the facility as a result of such event of default. If ICBC accelerates the Project Finance Facility in full, the entire principal amount of the Project Finance Facility plus accrued interest will become repayable immediately, which the Group would have no means of repaying. The obligations of K&S under the Project Finance Facility are the subject of a guarantee in favour of ICBC from Petropavlovsk. Petropavlovsk currently holds approximately 35.83% of the Shares, but at the time of entry into the Project Finance Facility held more than 65% of the Company. Petropavlovsk is a party to the Recourse Agreement with the Company, entered around the time of the original Project Finance Facility, under which Petropavlovsk is indemnified by the Company in respect of any monies advanced by it under the guarantee if called, and it also has the right to require the Company to accept a loan on terms to be proposed by Petropavlovsk in order to meet payment obligations under the Project Finance Facility or in respect of amounts advanced by Petropavlovsk on the Group s behalf to meet those obligations. Accordingly, even if the guarantee under the Project Finance Facility was called, the Company itself would be in severe financial hardship as it would immediately owe the same amount to Petropavlovsk (and such payment would not have cured the earlier breach by K&S under the Project Finance Facility). (ii) Fundraising attempts The Company has during the latter half of 2016 been exploring the following possibilities to avoid default under the Project Finance Facility: (a) (b) ICBC waiver: Negotiations have been ongoing with ICBC to agree to a restructuring, amendment or waivers under the Project Finance Facility. The Company has been in dialogue with ICBC during the second half of 2016 on the possibility of further waivers. These discussions are ongoing, however, as of the date of this announcement, there is no certainty that they will result in an amendment or waiver to the Project Finance Facility before 20 December CNEEC: As disclosed by the Company in its recent announcements, the Company has been in continuous dialogue with its EPC contractor, CNEEC, in order to agree the terms on which CNEEC will finalise the construction of the mine and processing plant and hand over to K&S. K&S has identified a number of potential claims against CNEEC under the EPC Contract including liquidated damages relating to a delay in completing the works (Delay Penalties) and further claims in respect of defective works which require further remedial work. Pursuant to the EPC Contract, there is a performance bond in place with ICBC which K&S may call on in respect of Delay Penalties and certain other claims. The Company is of the view that it is not in its interests or the interests of its shareholders to immediately make a claim under the performance bond while it is still in discussions with CNEEC and ICBC but it is considering its options in this regard prior to the expiry of the performance bond on 31 December

10 (c) (d) (e) Third parties: During the second half of 2016, the Company has been in discussions with a number of separate interested parties on potential fundraisings. However, other than with the Investor, none of these discussions have given rise to a binding agreement, either because the potential investors in question require further waivers to be obtained under the Project Finance Facility as a condition precedent to their investment, or because the Company did not consider the potential investor capable of delivering the required funding, or because the proposed terms were not considered commercially viable or capable of execution. Petropavlovsk: Whilst Petropavlovsk remains a significant Shareholder, it has reduced its stake in the Company in recent years as it focuses on its own core gold mining business, and has ceased to consolidate the Company in its accounts. When the Company raised funds by way of open offer in 2015, Petropavlovsk did not take up its entitlements and chose to be diluted. Moreover, Petropavlovsk s ability to provide financial assistance to the Company is restricted due to certain covenants imposed by its creditors. Accordingly, the Company does not believe Petropavlovsk has the appetite to make any further investment in the Group, unless forced into that position in the absence of any alternative to support its guarantee. For the reasons given above, under the Recourse Agreement, any emergency loan made to the Company by Petropavlovsk if its guarantee was called upon by ICBC would potentially carry serious adverse consequences for the Company. General Nice: In 2013, the Company entered into the General Nice Subscription Agreement under which General Nice agreed to invest approximately US$103.3 million by way of equity investment and was granted an option to invest a further US$104.7 million. That option was exercised and General Nice has now invested approximately US$170 million in total; however, it remains in default in respect of the outstanding balance of approximately US$38 million. During discussions between the Company and General Nice to secure the outstanding funding, the chairman of General Nice (who was appointed to the Company s board in relation to General Nice s investment) entered into a personal guarantee in favour of the Company to secure the outstanding balance and General Nice agreed to make interest payments; however, no such interest payments have been paid despite the Company s efforts. The Company has made repeated attempts to require General Nice to advance the outstanding balance, but the directors (excluding the General Nice representatives) believe that General Nice is itself in financial difficulties and that attempts to enforce the outstanding balance (and the personal guarantee given by the chairman of General Nice) will be expensive, slow and ultimately may not be fruitful. In any case, the Company believes that securing the outstanding balance before 20 December 2016 is highly unlikely. 10

11 The Company has also explored whether a pre-emptive offering (such as a rights issue or open offer) could be executed in the time available. Whilst the Company raised funds in 2015 through an open offer which was underwritten by a consortium of new investors (with Petropavlovsk committing not to take up its rights), the Investor has informed the Company that it is not prepared to agree to a structure where it does not get certainty over the amount of the investment it will be making and the size of the shareholding being subscribed. Accordingly, an open offer underwritten by the Investor is not a viable structure. Furthermore, the Company does not believe that there is sufficient time prior to 20 December 2016 to put in place any other form of pre-emptive capital raising, whether underwritten by a third party or non-underwritten. (iii) Reasons for seeking the Stock Exchange s consent Based upon the above, the Directors consider that the Subscription represents the most attractive and viable option to secure financing in the time available to avoid a default under the Project Finance Facility. An application has been made to the Stock Exchange for its consent pursuant to Listing Rule 13.36(5) on the following grounds: (a) (b) (c) (d) the Company is in severe financial hardship and faces the prospect of insolvency if it cannot either restructure its existing Project Finance Facility or raise alternative funds by the 20 December 2016 deadline; whilst the Company has pursued other avenues for raising funds and continues to believe that some of these avenues may be viable, it believes there is a low prospect of securing these funds prior to the deadline for payment under the Project Finance Facility; the Directors believe the Company s financial hardship is essentially short term in nature and the Subscription should provide a rescue to its financial situation. The mine and processing plant are nearing completion and a ramp up to commercial production is close to being realised; when significant revenues from operations are in place, the options available to the Company will expand significantly; whilst theoretically the Company could conduct the Subscription under a specific mandate rather than a general mandate, this would involve calling the EGM and there is now insufficient time to do this in time to raise funds prior to the 20 December 2016 deadline. This is in the context that, from the beginning of 2016 until 14 November 2016, its share price had been consistently trading at or below HK$0.19, and the benchmarked average price would have enabled an issuance under the general mandate at or around HK$0.21 until recently. Given the issues which the Company has detailed in announcements regarding the delays to the completion of its processing plant, the Company did not expect the Share price increase to occur or to be sustained. Accordingly, it is only recently that a Share placement at HK$0.21 would not have been possible without the Stock Exchange s consent; 11

12 (e) (f) furthermore, two of the Company s major Shareholders, Petropavlovsk and General Nice, have each expressed their support for the Subscription at the Subscription Price notwithstanding the dilutive effect, and these Shareholders represent over 50% of the Shares in issue. Accordingly, the calling of the EGM would be of limited benefit since the two major Shareholders have informed the Company that they intend to vote in favour of the Subscription (and therefore pass the resolution), but by the time that could be achieved, the 20 December 2016 would have been missed; and were the Company to miss the 20 December 2016 payment deadline and default under the Project Finance Facility, the effect on the market price of the shares would likely be materially adverse and any further equity issuance by way of rescue operation would likely take place at a significantly greater dilutive price. Mandate to allot and issue the Subscription Shares and Option Shares LR13.28(12) If the Stock Exchange grants its consent pursuant to Listing Rule 13.36(5), the Subscription Shares and any Option Shares (if exercised) will be allotted and issued to the Investor and the Proposed Director, respectively pursuant to the General Mandate granted to the Directors at the AGM held on 29 June Under the General Mandate, the Company is authorised to issue up to 1,231,177,276 Shares (equal to 20% of the number of Shares in issue as at the date of AGM) until the revocation, variation or expiration of the General Mandate. The Company has not exercised the power to allot and issue any new Shares pursuant to the General Mandate prior to the date of the Subscription Agreement. The General Mandate is sufficient for the allotment and issue of the Subscription Shares and the Option Shares. If the Stock Exchange does not grant its consent pursuant to Listing Rule 13.36(5), the Subscription Shares and any Option Shares (if exercised) will be allotted and issued to the Investor and the Proposed Director, respectively pursuant to the Specific Mandate to allot, issue and deal with Shares by ordinary resolution(s) to be proposed for passing by the Shareholders at the EGM in accordance with the Listing Rules. If the Specific Mandate is granted, the General Mandate will not be used for the issue of the Subscription Shares and the Option Shares. If the Stock Exchange does not grant its consent pursuant to Listing Rule 13.36(5), the EGM Circular containing, among other things, (i) further details of the Subscription Agreement; and (ii) a notice convening the EGM will be despatched to the Shareholders as soon as practicable in accordance with the Listing Rules. 12

13 Ranking of Subscription Shares and Option Shares The Subscription Shares, when issued and fully paid, will rank pari passu in all respects among themselves and with all the Shares in issue at the date of allotment and issue of the Subscription Shares, including the right to any dividends or distributions made or declared on or after the date of their allotment. If and to the extent the Options are exercised by the Proposed Director, the Option Shares, when issued and fully paid, will rank pari passu in all respects among themselves and with all the Shares in issue at the respective dates of allotment and issue of the Option Shares, including the right to any dividends or distributions made or declared on or after the date of their respective allotment. Restrictions on issue of new Shares by Company and disposals by the Investor LR13.28(15) The Company has undertaken to the Investor that from the date of the Subscription Agreement to the date which is 90 days from the Completion Date, it will not, without prior written consent of the Investor (such consent not to be unreasonably withheld), issue any Shares or any interests in Shares except for: (a) (b) (c) the Subscription Shares to be allotted and issued pursuant to the Subscription Agreement; the grant of the right to subscribe for and issue of the Option Shares; and the grant of any options and/or the issue of any Shares pursuant to any employee share option scheme of the Company. The Investor has undertaken to the Company that from the date of the Subscription Agreement to the date which is 90 days from the Completion Date, it will not sell, transfer, grant options over or otherwise dispose of (either conditionally or unconditionally, or directly or indirectly, or otherwise) any Subscription Shares or any interests therein without the prior written consent of the Company. Proposed change of Board composition Pursuant to the terms of the Subscription Agreement, after Completion, the Company shall take all necessary steps to invite the Proposed Director to become a non-executive director of the Board as soon as possible, subject to the approval of the Company s nomination committee and in accordance with the corporate governance code as stated in Appendix 14 of the Listing Rules. The Proposed Director, if appointed, shall receive a fee of US$79,560 per annum, and which may be varied from time to time by the Company s remuneration committee having regard to the level of remuneration being paid to other non-executive directors of the Company from time to time. The invitation by the Company to the Proposed Director to become a non-executive director of the Board is subject to the Investor holding at least 10% of the total issued Shares of the Company after Completion. 13

14 Right of first refusal For so long as the Investor holds at least 10% of the issued shares of the Company, pursuant to the terms of the Subscription Agreement, the Company has agreed that if it proposes to allot, issue or grant Shares, securities convertible into Shares, or options, warrants or similar rights to subscribe for Shares or securities convertible into Shares, in circumstances other than a pro rata offer made to all eligible Shareholders (New Securities Issue), the securities to be issued by the Company pursuant to the New Securities Issue must be offered to the Investor in at least its Pro-Rata Portion with the other Shareholder(s) who is/are offered securities under the New Securities Issue by the Company (Participating Shareholders). For these purposes, the Investor s Pro-Rata Portion is calculated as follows: Pro-Rata Portion = A B Where A = the number of Shares held by the Investor immediately prior to the New Securities Issue. B = the number of Shares held by all Participating Shareholders (including the Investor) immediately prior to the New Securities Issue. For example, if the Investor held 100 Shares immediately prior to the New Securities Issue, and the Participating Shareholders (including the Investor) in aggregate held 500 Shares immediately prior to the New Securities Issue, the Investor s Pro-Rata Portion = = 0.2 (20%). Accordingly, for every security offered to any other Participating Shareholder, the Investor must be offered at least 0.2 securities (rounded to the nearest whole security). LR13.28(6) REASONS AND BENEFITS FOR THE SUBSCRIPTION AND USE OF PROCEEDS With reference to the 2016 Third Quarter Trading Update of the Company announced on 25 October 2016, K&S is required to make payments of principal and interest on 20 December 2016 in the amount of approximately US$26 million under the Project Finance Facility. The Group s current cash balance is not adequate to service the Project Finance Facility. Accordingly, in the absence of either an amendment to or waiver of the Project Finance Facility or alternative fundraising, K&S will be unable to service the Project Finance Facility on a timely basis and ICBC will be able to accelerate the facility as a result of such event of default. If ICBC accelerates the Project Finance Facility in full, the entire principal amount of the Project Finance Facility plus accrued interest will become repayable immediately, which the Group has no means of servicing its obligations. However, as stated in the section Subscription Price for the Subscription Shares above, the Investor is willing to make a strategic long-term investment in the Company, assisting the Company to overcome its present cashflow issues and provide extra working capital to K&S as it ramps up its mining project to full commercial production. The Subscription therefore represents the most attractive and viable option to secure financing in the time available to avoid a default under the Project Finance Facility and an opportunity to form a strategic partnership with the Investor. 14

15 As at the date of this announcement, the market capitalisation of the Company amounted to approximately US$302 million and the size of the fundraising represents approximately 8% of the market capitalisation. The Company has limited the fundraising size with a view of minimising the dilution effect to the existing Shareholders while taking into consideration the going concern position of the Group. Upon Completion, the Subscription will raise HK$196,875,000 for the Company, and such proceeds would be used towards servicing the Project Finance Facility if either amendments or waiver in respect of the Project Finance Facility is not granted in a timely manner, and funding the working capital for K&S as it ramps up to full capacity. LR13.28(3) CHANGES OF SHAREHOLDING STRUCTURE The changes of the shareholding structure of the Company as a result of the Subscription are as follows: Shareholders At the date of this announcement and immediately before Completion Number of Shares Approximate percentage Immediately after Completion Number of Shares Approximate percentage Substantial Shareholders Petropavlovsk 2 2,205,900, % 2,205,900, % General Nice 1,263,174, % 1,263,174, % Total Substantial Shareholders 3,469,074, % 3,469,074, % Directors 3 George Jay Hambro 34,732, % 34,732, % Yury Makarov 30,911, % 30,911, % Raymond Kar Tung Woo 7,435, % 7,435, % Total Directors 73,079, % 73,079, % The Investor 0.00% 937,500, % Other public shareholders 2,613,733, % 2,613,733, % Total 6,155,886, % 7,093,386, % 15

16 Notes: 1. Certain figures included in the table have been subject to rounding adjustments. Accordingly, figures shown as totals may not be an arithmetic aggregation of the figures preceding them. 2. These Shares are held by Cayiron Limited, a wholly owned subsidiary of Petropavlovsk. 3. The table does not include the interests of Mr Cai Sui Xin, who is deemed to be interested in the Shares held by General Nice under Part XV of the SFO. The table also does not include the effect of the conversion of share options granted by the Company on 20 November FUNDRAISING ACTIVITIES IN THE PAST 12 MONTHS LR13.28(9) The Company has not raised funds by any issue of equity securities during the 12 months immediately preceding the date of this announcement. INFORMATION ON THE INVESTOR The Investor is an exempted company incorporated with limited liability and registered as a segregated portfolio company under the laws of the Cayman Islands participating in Tiger Global SP, a segregated portfolio of such company. The Investor is wholly owned by A Plus Capital Management Limited (an exempted company incorporated in the Cayman Islands), which itself is wholly owned by an individual, Chi Yung Wan. LR13.28(7) LR13.29(1) To the best of the Company s knowledge and belief, the Investor and its ultimate beneficial owners are third parties independent of the Company and not connected persons (as defined in the Listing Rules) of the Company, and not acting in concert with any of the Company s connected persons. INFORMATION ON THE GROUP The Company is headquartered in Hong Kong and listed on the Stock Exchange. It is an established explorer, developer and producer of iron ore and other industrial commodities products in the Russian Far East, taking advantage of superior road infrastructure to deliver its projects and products quickly and at lower cost to its customer base, predominantly in China. EGM If the Stock Exchange does not grant its consent pursuant to Listing Rule 13.36(5), the EGM will be held for the Shareholders to consider and, if thought fit, approve the ordinary resolution in respect of (i) the Subscription Agreement and the transactions contemplated thereunder; and (ii) the allotment of the Subscription Shares and, if required by the Stock Exchange, the grant of the right to subscribe for the Option Shares under the Specific Mandate. As no Shareholder has an interest in the Subscription Agreement that is materially different from the other Shareholders, no Shareholder is required to abstain from voting at the EGM in respect of the Subscription Agreement. 16

17 GENERAL Completion of the Subscription is subject to the satisfaction of the conditions precedent to the Subscription Agreement. As the Subscription may or may not proceed, Shareholders and potential investors are advised to exercise caution when dealing in the Shares. DEFINITIONS AGM Board Business Day CNEEC Company Completion Completion Date Delay Penalties Deposit Directors the annual general meeting of the Company held on 29 June 2016 at which, among other things, the General Mandate was granted to the Directors the board of directors of the Company any day (excluding a Saturday or Sunday) on which banks are generally open for business in Hong Kong China National Electric Equipment Corporation IRC Limited, a company incorporated in Hong Kong whose Shares are listed on the main board of the Stock Exchange the completion of the subscription for and issuance of the Subscription Shares in accordance with the Subscription Agreement the Business Day after the date upon which the last of the conditions set out in the section headed Conditions precedent to the Subscription Agreement shall have been satisfied or such later time and/or date as the Company and the Investor may agree in writing, and which shall not be earlier than 14 December 2016 and provided at least 3 Business Days notice is given to the Investor for the Completion Date if the condition set out in paragraph (c)(ii) under the heading Conditions precedent to the Subscription Agreement is satisfied potential claims against CNEEC under the EPC Contract including liquidated damages relating to a delay in completing the works an amount in the sum of HK$19,687,500, which is equal to 10% of the aggregate Subscription Price the director(s) of the Company 17

18 EGM EGM Circular EPC Contract Exercise Condition General Mandate General Nice General Nice Subscription Agreement Group HK$ Hong Kong Investor K&S the extraordinary general meeting of the Company to be convened for the purpose of considering, and if thought fit, approving the ordinary resolution in respect of (i) the Subscription Agreement and the transactions contemplated thereunder; and (ii) the allotment of the Subscription Shares and, if required by the Stock Exchange, the grant of the right to subscribe for the Option Shares under the Specific Mandate the circular to be despatched to the Shareholders containing, among other things, (i) further details of the Subscription Agreement; and (ii) a notice convening the EGM the agreement entered into between K&S and CNEEC, a major Chinese state-owned contractor, for the construction of the mining and processing operational at its principal mine, known as the K&S Mine the Investor holding, at the time of grant of the Tranche 2 Option, at least 10% of the total issued Shares of the Company the general mandate granted to the Directors by the Shareholders at the AGM to allot, issue or deal with up to 20% of the issued share capital of the Company as at the date of AGM General Nice Development Limited, a limited liability company incorporated under the laws of Hong Kong the subscription agreement dated 17 January 2013 entered into between General Nice and the Company the Company and its subsidiaries Hong Kong dollars, the lawful currency of Hong Kong the Hong Kong Special Administrative Region of the People s Republic of China Tiger Capital Fund SPC - Tiger Global SP, an exempted company incorporated with limited liability and registered as a segregated portfolio company under the laws of the Cayman Islands participating in Tiger Global SP, a segregated portfolio of Tiger Capital Fund SPC Kimkano-Sutarsky Mining and Beneficiation Plant LLC, a wholly-owned subsidiary of the Company 18

19 Last Trading Day Listing Rules Long Stop Date New Securities Issue Option(s) Option Shares Participating Shareholders Petropavlovsk Project Finance Facility Proposed Director Recourse Agreement SFO Share(s) Shareholder(s) 30 November 2016, being the last trading day of the Shares on the Stock Exchange prior to the publication of this announcement the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited 16 January 2017 or such later date as may be agreed between the parties the allotment, issue or grant of Shares, securities convertible into Shares, or options, warrants or similar rights to subscribe for Shares or securities convertible into Shares, in circumstances other than a pro rata offer made to all eligible Shareholders Tranche 1 Option and/or Tranche 2 Option, as the context requires Shares to be issued pursuant to the Tranche 1 Option, or the Tranche 2 Option, as the context requires Shareholder(s) (including the Investor) who is/are offered securities under the New Securities Issue by the Company Petropavlovsk PLC, a public company incorporated in England and Wales with registered number and listed on the Main Market of the London Stock Exchange the US$340,000,000 facility to be made available to the Group pursuant to an agreement between K&S and ICBC dated 13 December 2010 Mr. Cheng Chi Kin the agreement entered into between the Company and Petropavlovsk around the time of the original Project Finance Facility the Securities & Futures Ordinance (Chapter 571 of the Laws of Hong Kong) ordinary share(s) of the Company registered holder(s) of the Share(s) 19

20 Specific Mandate Stock Exchange Subscription Subscription Agreement Subscription Share(s) Subscription Price Tranche 1 Option Tranche 2 Option if the EGM is required, the specific mandate to be granted to the Directors to issue, allot and deal with the Subscription Shares and, if required by the Stock Exchange, to grant the right to subscribe for the Option Shares The Stock Exchange of Hong Kong Limited the subscription by the Investor of the Subscription Shares pursuant to the Subscription Agreement the subscription agreement dated 30 November 2016 entered into between the Company and the Investor in respect of the Subscription 937,500,000 new Shares to be issued to the Investor pursuant to the Subscription Agreement HK$0.21 per Subscription Share the right to subscribe for up to 30,000,000 Shares at the price which is 110% of the closing price for a Share on the first day of the 60-month exercise period commencing on the Completion Date (or, if that date is not a trading day, the closing price for the Shares on the trading day immediately prior to that date), exercisable by the Proposed Director at any time during the period of 60 months commencing on the Completion Date the right to subscribe for up to 30,000,000 Shares at the price which is 110% of the closing price for a Share on the first day of the 60-month exercise period commencing on the first anniversary of the Completion Date (or, if that date is not a trading day, the closing price for the Shares on the trading day immediately prior to that date), exercisable by the Proposed Director at any time during the period of 60 months commencing on the first anniversary of the Completion Date % per cent. Note: In this announcement, the exchange rate of US$1 to HK$7.75 has been used for conversion into the relevant currencies for illustrative purposes only. Hong Kong, People s Republic of China Thursday, 1 December 2016 By Order of the Board IRC Limited Yury Makarov Chief Executive Officer 20