RNS Release - Interim Results

Prosperity Minerals Holdings Limited

("Prosperity" or "the Company")

Financial results for the first half ended 30 September 2011

Prosperity Minerals Holdings Limited (PMHL.L) is an iron ore trading business serving the People's Republic of China (PRC) and a specialised real estate owner and developer in the same market. It is also an investor in two cement manufacturers, also in the PRC. Today, the Company announces its unaudited results for the six months ended 30 September 2011. All figures are expressed in US dollars unless otherwise stated.

Financial highlights for the first half year of trading:

·      Revenue up 17% to $507.8m (2010: $433.1m)

·      EBITDA up 867% to $8.7m (2010: $0.9m)

·      Net profit less losses before taxes up 436% to $8.4m (2010: loss of $2.5m)

·      The Company's 33.06% investment in Anhui Chaodong Cement Company is currently valued at $172 
million

·      No interim dividend was declared (2010: nil); a final dividend will be considered at the time of the Company's full year results announcement

Group financial summary

To present a more useful comparison table, the figures for EBITDA and net profit less losses before taxes for 2010 have been adjusted to exclude a one-off gain of $237 million from the disposal of the cement operations in April 2010 

Management review and analysis

I.    Iron ore trading

       * Segment results: operating profit before taxation

¹ Re-stated following the disposal of the cement operations in the previous fiscal year. Some companies were reclassified into different segments plus there were some adjustments to administrative expenses and Pro-Rise was previously included in the iron ore trading segment.

·      In the six months ended 30 September 2011, Prosperity shipped 2.8 million tonnes of iron ore (2010: 2.7 million tonnes)

·      Revenue for the period increased due to higher average selling prices compared to the same period last year. Segment results per tonne, however, is lower as margins continue to come under pressure due to the abandonment of the industry's annual price fixing and greater direct trade between miners and steel mills     

·      In the six months ended 30 September 2011, Prosperity shipped 159,000 tonnes of Brazilian iron ore from United Goalink Limited ("UGL"), in which the Company holds an effective 35% interest

·      On 10 May 2011, Prosperity Materials Macao Commercial Offshore Limited ("PMMC"), a wholly owned subsidiary of the Company, entered into an off-take agreement with Nanjing Iron and Steel Group International Trade Co., Limited and Grace Wise Pte Limited ("Grace Wise"). PMMC will act as exclusive agent to Grace Wise in respect of all transactions under the agreement and provide Grace Wise with administrative services such as handling shipping documents and liaising with payment banks. For these services, Grace Wise will pay PMMC a commission of $2 per dry tonne of iron ore shipped  

·      On 27 July 2011, Prosperity exercised its option under the off-take agreement with Blackrock Metals Inc. ("Blackrock") to pay a further deposit of $32 million to secure a total of 4 million tonnes of iron ore over a four year period from Blackrock's mining project located in the Chibougamau area, Québec, Canada. This followed the initial deposit of $8 million which was provided to Blackrock on 24 March 2011 to secure 800,000 tonnes of iron ore. These deposits (in total $40 million) have been provided to Prosperity by an advance from Industrial and Commercial Bank of China (Asia) Limited

II.    Real estate development projects

·      Revenue under the real estate segment represents rental income from SilverBay Plaza in Guangzhou. Until revenue from Oriental Landmark,  Dongfang Wende Plaza in Chinese, is recognised upon completion in fiscal 2012-13, the segment will continue to report a loss due to administrative expenses

Guangzhou City, Guangdong Province, PRC

·      Prosperity holds interests in an existing commercial building and a new commercial and residential development, both located in downtown Guangzhou City, through its wholly-owned subsidiary, Bliss Hero HK

·      Bliss Hero HK owns approximately 11,472 square metres of office and commercial space in SilverBay Plaza which had 97% occupancy at 30 September 2011

·      Bliss Hero HK also holds a 55 per cent interest in a commercial and residential development project named Oriental Landmark which is currently under construction

·      The presale process for the first phase of residential units in Oriental Landmark commenced in early October 2011. The Company began receiving presale deposits from potential buyers in mid November 2011 and will commence presales in December 2011 or January 2012

Changzhou City, Fujian Province, PRC

·      Prosperity holds a 50% interest in a joint venture with a local party to develop a combined recreational, commercial and residential project in Changzhou City, Fujian Province, in the south eastern PRC

·      The development will offer high end accommodation and hot spring resort facilities

·      Development of the first phase, including 50 low rise residential units and the clubhouse, is underway

·      The Company will continue to review the market to determine the best timing for presales

·      Up to 30 September 2011, the Company had made a total investment of $38 million 

Hangzhou City, Zhejiang Province, PRC

·      The Company holds a 50% interest in a joint venture with a local party to develop a commercial property comprising both office and retail space

·      A preliminary development plan remains subject to government approval although construction is expected to commence in 2012

·      Up to 30 September 2011, the Company had made a total investment of $31.8 million

III.   Cement operations

Anhui Chaodong Cement Company Limited ("ACC"); 33.06% owned

·     For the six months ended 30 September 2011, ACC contributed an attributable profit of $8.5 million (2010: loss of $0.6 million) which is included within Associates

·      ACC produced and sold more cement and clinker in the six months to end September than in the first half of fiscal 2010-11 as the second new clinker line commenced operation at the end of last year, lowering average production cost

·      Demand in ACC's region was strong and average selling prices were higher

·      ACC is listed on the Shanghai Stock Exchange (600318) and Prosperity's 33.06% interest in ACC's market capitalisation is currently RMB1,096 million (approximately $172 million); note, too, that at this time, the market capitalisation of Prosperity Minerals Holdings is $184 million  

·      The Company's investment in ACC, which was made in 2007, is a good example of how it identifies opportunities and then enhances returns. In this case, too, Prosperity's leadership led to ACC's successful rationalisation and expansion 

TCC Liaoyang Cement Company Limited ("TCC Liaoyang"); 16.11% owned

·      During the period under review, TCC Liaoyang recorded an operating profit of $0.2 million. However, a share issuance in August 2011 caused dilution of Prosperity's shareholding and 'a loss on deemed disposal' of $2.1 million. This meant that TCC Liaoyang incurred an attributable loss of $1.9 million for the period (2010: profit of $0.04 million) which is also included in Associates

·      Following the completion of the share issuance, Prosperity's interest in TCC Liaoyang was diluted from 25% to 16.11%, with Prosperity's partner, TCC International, holding the balance

·      At the same time, the name of the cement plant was changed from Liaoning Changqing Cement Company Limited to TCC Liaoyang Cement Company Limited

Overall, the Company's cement plants performed in line with management's expectations during the period under review.

Current trading and prospects

·      On 31 October 2011, Prosperity announced that it had made a loan of $10 million to Globest Participaceos Ltda ("GPL") at an interest rate of 8 per cent per annum. GPL is an indirect subsidiary of UGL, the joint venture company engaged in the exploration and production of iron ore in Brazil - in which Prosperity holds an effective 35% interest. The loans are to be used by the joint venture company to fund an iron ore processing plant, upgrade facilities as well as pay other operating expenses. These upgrades are expected to increase production volume and quality, bringing enhanced profit and cash flow to the Company

·      On 15 November 2011, PMMC entered into an agency agreement with Jiangsu Prosperity Steel Co. Limited ("Jiangsu Steel") to supply up to 1.81 million tonnes of iron ore to Jiangsu Steel over a 14 month period. Jiangsu Steel will pay PMMC a commission of $2 per dry metric tonne of iron ore plus a handling charge of $2 per dry tonne of iron ore if the letter of credit, in relation to shipment, includes payment terms of 90 days

·      Prosperity strongly believes in the long term sustainability of the Chinese iron ore import market. Iron ore prices in China experienced a significant fall of around 30% in October 2011 due to a combination of China's austerity measures to rein in inflation, continued rationalisation and iron ore de-stocking by Chinese steel mills together with continuing global economic uncertainties. Nonetheless, in November 2011 there was a sharp rebound in prices, which industry commentators say underlines the Chinese steel industry's resilience. Similarly, substantial industry-wide changes have led to iron ore trading being more capital intensive and higher risk. However, Prosperity's policy of  securing long term sources and supplies of iron ore tonnage for future shipments puts it in a strong position

·      The Chinese Government's efforts to cool economic growth and lower property prices continue to have an effect on sales volumes and property prices throughout the country. That said, Prosperity's real estate development project, Oriental Landmark, is located in a prime location in central Guangzhou City where demand for high quality residential property and retail space remains high and which has been least affected by these Government policies   

·      Taking account of enquiries and visits of potential buyers together with the prevailing market dynamics in similar locations in Guangzhou City, the Company believes that the presale price and results at Oriental Landmark will be in line with its expectations

·      Similarly, the real estate development projects in Changzhou City and Hangzhou City are in good locations and are being developed at low cost which provides the Company with a buffer against any potential weakness in selling prices. Management is confident that both of these development projects will be successful

Corporate update

·      On 26 October 2011, Prosperity announced that it had entered into a Relationship Deed with its controlling shareholder, Prosperity International Holdings (H.K.) Limited ("PIHL"), to ensure the independent operation of the Company. PIHL became the controlling shareholder of Prosperity in August 2009 and currently holds a 64.07% interest in Prosperity 

David Wong, Chairman and CEO, said:

"I remain confident that the Company will continue to trade well in both iron ore and real estate despite challenging market conditions brought about by an unsettled iron ore market and Chinese government policy, together with continuing global economic uncertainties."

Notes:

(i)     The average exchange rates for the six months ended 30 September 2011, and the six months ended 30  

        September 2010 were $1 = RMB 6.4658 and 1$ = RMB 6.8071 respectively

(ii)    The exchange rate on 30 September 2011 was $1 = RMB 6.3760

Further enquiries:

Prosperity Minerals Holdings Limited                                      +852 3187 2618

Patrick Li

Neelke Kruger-Logan

Citigate Dewe Rogerson                                         &# 160;                +44 (0) 20 7638 9571

Martin Jackson

Kate Lehane

Daniel Stewart & Company plc                                          ;       +44 (0) 20 7776 6550

Corporate Finance: Paul Shackleton, Noelle Greenaway

Corporate Broking: Martin Lampshire

Notes to Editors:

Prosperity (AIM: PMHL) is:

 - an iron ore operator serving the PRC;

 - a specialised real estate owner and developer in the same market; and

 - an investor in two cement plants, also in the PRC.

Prosperity's iron ore business has been operating since 1992 and sources iron ore, for shipment and use in the PRC, from major international iron ore producers in South Africa, Brazil and Australia, as well as from South East Asia, Thailand and Malaysia in particular. The majority of the Company's iron ore is sold to large steel manufacturers in the PRC. In the fiscal years ended 31 March 2010 and 2011, Prosperity shipped 7.9 million tonnes and 6.3 million tonnes of iron ore respectively. In December 2010, Prosperity acquired a 35% effective interest in a Brazilian mining operation which owns approximately 602 square kilometres of exploration rights and 3.01 square kilometres of mining concession in the State of Ceara. The first shipment of 51,000 tonnes was made in March 2011.

Prosperity has operated a real estate investment and development division since February 2010 which is focused on creating a portfolio of PRC property and development assets with good upside potential and manageable risk. The Company has entered into a number of agreements with its partners to develop recreational, commercial and residential projects in Guangzhou City and Changzhou City in the southern PRC and Hangzhou City in the east. Prosperity also acquired interests in an existing commercial building in Guangzhou which is the largest city in the southern PRC and the third largest in the Country (after Beijing and Shanghai). It has a population in excess of 12 million people and is located in the Pearl River Delta, the foremost economic zone in the southern PRC.

In April 2010, Prosperity disposed of its cement business in the PRC but retained its 33.06% interest in Anhui Chaodong Cement Company Limited (ACC). ACC is located in Anhui Province in the eastern PRC. The designed sellable output capacity of ACC is 5.1 million tonnes of cement and clinker per annum. On 1 September 2010, Prosperity acquired a 25% equity interest in Liaoning Changqing in Liaoning Province, in the northern PRC. Liaoning Changqing completed construction of a new 2 million tonnes per annum cement and clinker production line in April 2010 and normal production commenced on 2 July 2010. Following the completion of a share issuance in August 2011, Prosperity's interest in Liaoning Changqing was diluted to 16.11%.

The PRC is the World's second largest economy (behind the US) and the biggest buyer of iron ore; it is also the largest producer and consumer of cement. 

Prosperity Minerals Holdings Limited

Interim financial report

Consolidated income statement for the six months ended 30 September 2011

The accompanying notes form part of this interim financial report.

Consolidated statement of comprehensive income for the six months ended 30 September 2011

Note: There is no tax effect relating to the above components of other comprehensive income

Consolidated statement of financial position as at 30 September 2011

The accompanying notes form part of this interim financial report.

Consolidated statement of changes in equity for the six months ended 30 September 2011 - Unaudited

Consolidated cash flow statement for the six months ended 30 September 2011

Prosperity Minerals Holdings Limited

Notes to the interim financial report

1        Background

Prosperity Minerals Holdings Limited ("the Company" or "the Group"), was incorporated and registered in Jersey on 26 January 2006 as a limited liability company with registered number 92284 under the Companies (Jersey) Law 1991.    

2       Basis of preparation

The interim financial report has been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") and in accordance with International Accounting Standards ("IAS") 34, Interim Financial Reporting.

The accounting policies and the method of computation applied to this interim financial report are consistent with those disclosed in the Company's Annual Report dated 30 June 2011. 

The preparation of the interim financial report in conformity with IAS 34, Interim Financial Reporting, requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

The interim financial report contains consolidated financial statements and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance since the annual financial statements for the twelve months period ended 31 March 2011. The interim financial report and notes thereon do not include all of the information required for full annual financial statements prepared in accordance with IFRS.

This interim financial report for the six months ended 30 September 2011 is unaudited but has been reviewed by the Audit Committee and approved by the Board on 28 November 2011.

The interim financial report is presented in United States dollars, rounded to the nearest thousand. It is prepared on the historical cost basis except for derivative financial instruments, investment properties and investment properties under development.

3       Segment reporting

The Group manages its business by business lines.  In a manner consistent with the way in which information is reported internally to the Group's chief operating decision makers ("CODM") for the purposes of resources allocation and performance assessment, the Group has identified the following three reportable segments:

-    Trading of iron ore,

-    Real estate investment and development; and

-    Other segments

Other segments which do not meet the quantitative thresholds prescribed by IFRS 8 for determining reportable segments and combined as "unallocated segments". Such operating segments generate profit/(loss) mainly from the equity investment holding business and fair value adjustment of the financial derivatives.

(a)     Segment results, assets and liabilities

In accordance with IFRS 8, segment information disclosed in the interim financial report has been prepared in a manner consistent with the information used by the Group's CODM for the purposes of assessing segment performance and allocating resources between segments. In this regard, the Group's CODM monitors the results, assets and liabilities attributable to each reportable segment on the following bases:

Revenue and expenses are allocated to the reportable segments with reference to sales generated by those segments and the expenses incurred by those segments. The measure used for reporting segment profit/(loss) is net profit after taxation, adjusted for head office or corporate administration costs which are not specifically attributable to individual segments. Inter-segment revenue is priced with reference to price charged to external parties for similar transactions.

(b)     Reconciliation of reportable segment revenue, profit, assets and liabilities:

(c)     Information about major customers

Revenue from major customers, each of them amounted to 10% or more of the Group's revenue, are set out below:

4        Other operating income

5        Finance income

6        Income tax

(i)      No provision for Hong Kong Profits Tax has been made for both periods as the Group did not earn any income, which is subject to the Hong Kong Profits Tax.

(ii)      Basis of taxation for the individual companies within the Group is as follows:

Prosperity Minerals Macao Commercial Offshore Limited ("PMMCO")                         0%

Yingde Dragon Mountain Cement Co., Ltd. ("YDM")                                                     25%

PMMCO was incorporated in Macao as an offshore limited company and is exempted from income tax in Macao under Decree Law No. 58/991M.

Pursuant to the New Tax Law and its Implementation Rules, dividends payable to foreign investors are subject to a 10% withholding tax, which may be reduced if the foreign jurisdiction of incorporation has a tax treaty with the PRC that provides for a different withholding arrangement.  Pursuant to a tax treaty between the PRC and Hong Kong and the grandfathering arrangement, an investment holding company established in Hong Kong will be subject to a reduced withholding tax rate of 5% on dividends received from its PRC subsidiaries. Dividends receivable by the Group from subsidiaries established in the PRC in respect of their undistributed profits prior to 31 December 2007 are exempted from withholding tax.

7        Dividends

Dividends attributable to the interim period

8        Earnings per share

(a)  Basic earnings per share

The calculation of basic earnings per share is based on the profit attributable to equity shareholders of the Company of US$5,963,000 (2010: US$232,785,000) and the weighted average number of ordinary shares of 142,323,795 (2010: 136,235,876) in issue during the six months ended 30 September 2011.

(b)  Diluted earnings per share

The calculation of diluted earnings per share is based on theprofit attributable to equity shareholders of the Company of US$5,963,000 (2010: US$232,785,000) and the weighted average number of ordinary shares of 145,069,462 (2010: 145,124,240) in issue during the six months ended 30 September 2011.

9        Restricted deposits

Restricted deposits represent the cash margin placed in banks to secure letters of creditfacilities of the Group.

10      Bank loans

The analysis of the carrying amount of interest bearing loans and borrowings is as follows:

11      Equity settled share-based transactions

The Company has a Share Option Scheme whereby the Directors of the Company are authorised, at their discretion, to invite employees of the Group, to take up options at nil consideration to subscribe for the shares of the Company.

On 9 October 2007, certain Directors and employees of the Company have been granted options over ordinary shares of 1p each. In total, 8,230,000 options were granted for nil consideration with an exercise price of 160p. All these options are exercisable from 9 October 2009 to 9 October 2017 and are subject to certain performance conditions agreed and promulgated by the Company's remuneration committee.

On 9 July 2009, in order to re-introduce the incentive value to the options granted to certain Directors and employees of the Company, under the Company's Shares Option Scheme, the Board has authorised the exercise price of the subsisting options to be adjusted from GBP1.60 to GBP0.62 (equivalent to US$1.06).

On 28 October 2009, certain employees of the Group have been granted 5,820,000 share options over its ordinary shares of GBP0.01 each. The options granted were for nil consideration with an exercise price of GBP0.70 each and are exercisable from 28 October 2011 to 27 October 2013.

(a)     The terms and conditions of the grants that existed during the period are as follows, whereby all options are settled by physical delivery of shares:

(b)     The number and weighted average exercise price of share options are as follows:

The options outstanding at 30 September 2011 had an exercise price of GBP0.70 (2010: GBP0.62 to GBP0.70) and a weighted average remaining contractual life of 2 years (2010: 3.8 years).

12      Reserves

(a)  Share premium

The application of the share premium account is governed by Article 39 of Companies (Jersey) Law 1991, as amended. 

(b)  Merger reserve

The excess of the consolidated net assets represented by the shares in subsidiaries acquired over the nominal value of the shares issued by the Company in exchange under the combination was transferred to merger reserve.

(c)  Treasury reserves

The application of the treasury reserve is governed by Article 58A of Companies (Jersey) Law 1991, as amended.

(d)  Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations.

(e)  Fair value reserve

The fair value reserve comprises the cumulative net change in the fair value of available-for-sale investments until the investments are derecognised or impaired.

(f)   Capital reserve