SEC Company Response from CHINA NATURAL RESOURCES INC (CHNR) (CIK 0000793628) (CHNR) — Aug 30, 2010
CHINA NATURAL RESOURCES INC (CHNR) (CIK 0000793628)
Date: Aug. 30, 2010 · CIK: 0000793628 · Accession: 0000943440-10-000515
AI Filing Summary & Sentiment
Reasoning
Referenced dates: July 30, 2010
Letter
Response Letter
CHINA NATURAL RESOURCES, INC.
Room 2205, 22/F, West Tower, Shun Tak Centre
168-200 Connaught Road Central
Sheung Wan, Hong Kong
August 30, 2010
VIA EDGAR
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Attn:
Chris White, Branch Chief
Donald F. Delaney, Staff Accountant
George Schuler, Mining Engineer
H. Roger Schwall, Assistant Director
Parker Morrill
Laura Nicholson
Re:
China Natural Resources, Inc.
Form 20-F for the Year Ended December 31, 2009
Staff Letter of Comment dated July 30, 2010
SEC File No. 0-26046
Ladies and Gentlemen:
We are writing to respond to the Staff’s letter dated July 30, 2010 relating to our Annual Report on Form 20-F for the year ended December 31, 2009 (the “Annual Report”).
We respond to the Staff’s comments as follows:
Form 20-F for the Fiscal Year Ended December 31, 2009
General
1.
Please provide the disclosure required by Item 16G (Corporate Governance) of Form 20-F.
Response to Staff Comment 1:
While the Company believes that the requested disclosure is included under Item 6.C – “Board Practices; NASDAQ Requirements” beginning on page 54 of the Form 20-F, the Company proposes to include the following disclosure under Item 16.G of Form 20-F:
Our Common Shares are currently listed on the NASDAQ Capital Market and, for so long as our securities continue to be listed, we will remain subject to the rules and regulations established by the NASDAQ Stock Market as being applicable to listed companies. NASDAQ rules include various corporate governance requirements applicable to listed securities. While all NASDAQ-listed companies are subject to certain of these corporate governance requirements, foreign private issuers such as our company are exempt from other corporate governance requirements if the laws of their home jurisdiction do not
United States Securities and
Exchange Commission
August 30, 2010
Page 2 of 35
otherwise require compliance. Since our home jurisdiction does not mandate compliance with some of these NASDAQ rules, we have opted out of compliance with them. A more detailed description of the NASDAQ requirements that we are not subject to is contained elsewhere in this report under Item 6.C – “Board Practices; NASDAQ Requirements.”
Risk Factors, page 3
2.
We note that the report from your auditors states that you have significant transactions and relationships with affiliated companies, and that because of these relationships, it is possible that the terms of these transactions may not be the same as those that would result from transactions among unrelated parties. Please add related risk factor disclosure. See Item 3.D of Form 20-F. In addition, please clarify whether your audit committee or your independent directors approve your related party transactions.
Response to Staff Comment 2:
While the Company believes that the risk factor requested by the Staff is specifically covered by the risk factor entitled “As a ‘foreign private issuer’ we are not subject to certain rules promulgated by NASDAQ that other NASDAQ-listed issuers are required to comply with, some of which are designed to provide information to and protect investors” appearing on page 9 of the Form 20-F, we propose to include the following risk factor in Item 3.D of Form 20-F:
As a foreign private issuer, we are exempt from certain NASDAQ rules, including those relating to the review of related party transactions. As a result, related party transactions may not receive the type of independent review process that other NASDAQ-listed companies receive, and the terms of these transactions may not be as favorable as could be obtained from unrelated parties.
We have historically engaged in a substantial number of transactions with related parties, predominantly with our Chairman and Chief Executive Officer and/or companies that he owns or controls. These transactions are described in greater detail elsewhere in this report. In general, NASDAQ rules require that related party transactions be reviewed by an audit committee or other committee comprised of independent directors. However, under NASDAQ rules applicable to Foreign Private Issuers such as our company, we are exempt from certain NASDAQ requirements, including the requirement applicable to independent director review of related party transactions. This exemption is available to us because the laws of the British Virgin Islands, our home jurisdiction, do not require independent review of related party transactions.
Notwithstanding the foregoing, non-recurring related party transactions (i.e., related party transactions that are not in the ordinary course of business) are approved by our board of directors, following disclosure of the related party’s interest in the transaction, and, in all cases, board approval has historically included the unanimous approval of our independent directors. In addition, our annual audited financial statements, including the related party transactions reported therein, are approved by our audit committee, which is comprised solely of independent directors. However, except to the limited extent described above, these transactions are not individually reviewed or approved solely by independent directors, and our Chairman and Chief Executive Officer is often present during the approval process and is permitted to cast a vote as a
United States Securities and
Exchange Commission
August 30, 2010
Page 3 of 35
Board member. While management believes that related party transactions are on terms at least as favorable to the company as could be obtained from unrelated parties, there is no assurance that such is the case, or that shareholders would not be better protected if we were not exempt from, or we voluntarily complied with, the NASDAQ rule.
We also propose to modify the language elsewhere in the Form 20-F to the extent necessary to be consistent with the foregoing.
Wuhu Feishang depends on a single customer for its zinc production…, page 6
3.
We note your disclosure that the loss of your single customer for your zinc production would materially and adversely affect your results of operations, and we note your reference to a sales contract with such customer. Please tell us why you have not filed such contract as an exhibit to your filing. See the Form 20-F Instructions as to Exhibits.
Response to Staff Comment 3:
The Company reviewed the requirements of Form 20-F relating to the filing of exhibits and concluded that the sales agreement with Huludao Zinc Industry Co., Ltd. was not material to an investor’s understanding of the Company or its business. While the loss of Huludao would materially and adversely affect the Company, the sales agreement merely sets out commercial terms and does not impose any purchase obligation on the part of the purchaser. However, in view of the Staff’s comment, the Company proposes to file the sales agreement with Huludao with its next periodic report.
Item 4. Information and Development of the Company, page 11
4.
We note that you have described the information on your company and discussed operating and financial review and prospects information based on your legal entity structure. Please tell us your consideration of providing this information based on your reportable segments as disclosed in the notes to your financial statements. We refer you to Items 4.B and 5 of Form 20-F.
Response to Staff Comment 4:
It appears that Item 4.B suggests, but does not mandate, presentation consistent with segment disclosure. Although the Form 20-F discusses the operating and financial review and prospects information based on our legal entity structure in Item 4.B, we did segregate major categories “Mining of Zinc, Iron and Other Non-ferrous Metal” on page 13, “Discontinued Operations/ Disposal Activities” on page 25, and “Coal Mining and Development” on page 27. These primarily correspond to the disclosure under “Exploration and Mining – Non-ferrous Metal”, “Copper Smelting” and “Exploration and Mining – Coal” in note 16 to the audited financial statements. Notwithstanding the foregoing, we propose to provide a more transparent presentation and discussion in our future filings that more clearly identifies which legal entities are included in each segment.
United States Securities and
Exchange Commission
August 30, 2010
Page 4 of 35
Business Overview, Page 13
5.
Please clarify in this section the business of Yangpu Lianzhong Mining Co., Ltd.
Response to Staff Comment 5:
We propose to add the following disclosure under “Yangpu Lianzhong and China Coal” on page 20 of the Company’s Form 20-F:
In addition to holding a 48% interest in Hainan Non-ferrous Metal, until the third quarter of 2009, Yangpu Lianzhong also engaged in certain trading activities of blister copper. For the years ended December 31, 2008 and 2009, the only supplier of blister copper to Yangpu Lianzhong was Feishang Copper, a subsidiary of the Company until the third quarter of 2009. During the years ended December 31, 2008 and 2009, Yangpu Lianzhong sold blister copper to Wuhu Hengxin and Wuhu Hengchang, both of which are related parties, amounting to RMB26.21 million (US$3.84 million) and RMB63.03 million (US$9.23 million), respectively. The sales price was determined based on the average price per tonne of cathode copper over the five consecutive trading days subsequent to the delivery date, as published on the website of the Shanghai Future Exchange (http://www.shfe.com.cn), less RMB1,050. The Company believes that the terms of the related party transaction are consistent with customary commercial terms and are at least as favorable to the Company as could have been obtained from an unrelated party.
6.
Please discuss your sales to related parties in the context of your disclosure regarding your products at page 16 and your disclosure regarding your customers at page 19. In addition, please disclose how sales prices are determined with respect to the sale of your products to related parties.
Response to Staff Comment 6:
Please see response to Staff Comment 5.
United States Securities and
Exchange Commission
August 30, 2010
Page 5 of 35
Organizational Structure, page 36
7.
Please revise your chart at page 36 to reflect the abbreviated terms that you use for your references to your subsidiaries and affiliates, as described on pages (i)-(iii).
Response to Staff Comment 7:
The Company proposes to replace the chart on page 36 of the Company’s Form 20-F with the following:
United States Securities and
Exchange Commission
August 30, 2010
Page 6 of 35
Operating and Financial Review and Prospects, page 38
Operating Results, page 39
8.
We note your disclosure at page 16 regarding your sales of copper concentrate. Please tell us why you do not discuss such sales in connection with your operating results.
Response to Staff Comment 8:
We have not included the discussion of copper concentrates on page 39 of the Company’s Form 20-F because there were no such sales in 2009. In addition, sales of copper concentrates in 2008 were only seven tonnes (approximately RMB338,000 or US$49,510), which was considered immaterial.
9.
Please clarify, if true, that the sales of blister copper discussed at page 40 were made to related parties.
Response to Staff Comment 9:
The Company proposes to modify the fourth paragraph on page 40 of Form 20-F as follows:
Sales generated by Yangpu Lianzhong consisted of blister copper sold to Wuhu Hengchang, a related party. Sales of blister copper increased by RMB36.82 million (US$5.39 million), or 140.46%, from RMB26.21 million (US$3.84 million) in 2008 to RMB63.03 million (US$9.23 million) in 2009. The increase was contributed to by the increase of sales volume of blister copper, which was partly offset by a decrease in the selling price of blister copper. In 2009, we sold 1,669 tonnes of blister copper, representing an increase of 1,093 tonnes, or 189.77%, from 576 tonnes in 2008. The selling price of blister copper in 2009 decreased by RMB7,741 (US$1,134), or 17.01%, from RMB45,497 (US$6,664) in November 2008 to RMB37,756 (US$5,530) in August 2009.
Selling, General and Administrative Expense, page 41
10.
In each of your year-over-year comparative explanations, you state the change in SG&A was partially due to an increase or decrease in depletion of mining rights. Please tell us why you included depletion of mining rights in SG&A, and not as component of cost of sales in determining your gross profit measures presented in your statements of operations. Refer to SAB Topic 11:B, which states, “depreciation, depletion and amortization should not be positioned in the income statement in a manner which results in reporting a figure for income before depreciation.” If you have improperly excluded depletion from cost of sales, please explain to us how you plan on correcting this error.
Response to Staff Comment 10:
The Company’s accounting policy is to include depreciation, amortization and depletion of its mining rights and mining related capital assets in cost of sales. Depreciation and amortization related to corporate facilities and operations (non-mining related) are included in general and administrative expense. The
United States Securities and
Exchange Commission
August 30, 2010
Page 7 of 35
2008 statement of operations includes approximately US$600,000 of amortization in general and administrative expense, which represents an adjustment posted to correct accumulated amortization in 2008. This adjustment was considered to be an immaterial correction and was not specifically related to 2008 sales; therefore, the amount was recorded to general and administrative expense. In addition, in accordance with SAB Topic 11:B, to avoid placing undue emphasis on “cash flow”, amortization and depreciation was not positioned in the income statement in a manner which resulted in reporting a figure for income before depreciation. The Company proposes in future filings to enhance its discussion and analysis regarding this specific change, and to clarify in the statements of operations’ line items where depreciation, depletion and amortization are presented, if other than in cost of sales.
Discontinued Operations, page 42
11.
Your disclosure on page 42 states that the decrease in other income (expense) for the nine months ended September 29, 2009 was “partially offset by the written back of inventory provision amounting to RMB 16.30 million (US$2.39 million).” Please explain how your accounting related to marking up the inventory value is consistent with the interpretive response in SAB Topic 5:BB.
Response to Staff Comment 11:
The discussion on page 42 of the Form 20-F describes the Company’s discontinued operation of Mark Faith Development Limited (“Mark Faith”). The purpose of this limited discussion was to provide certain information relating to the operations of Mark Faith up to the time of sale. The discussion regarding changes in sales, gross profit, SG&A expenses, other income and net income, all refer to components of Income From Discontinued Operations.
The discussion of the changes in other income (expense) and the reference to a change in the inventory reserve was intended to describe inventory that was recorded at its net carrying value (LCM) and was sold for greater than its carrying value. This discussion was not intended to imply that any inventory that had been previously marked down to the lower of cost or market was being adjusted to a greater amount.
We propose to clarify this disclosure in future filings.
Trend Information, page 45
12.
We note your disclosure that prior to the commencement of commercial operations at Guizhou Yongfu Mining Co. Limited or Guizhou Dayun Mining Co. Ltd., it is believed that the iron and zinc business of Wuhu Feishang Mining Development Co. Ltd. woul
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Response Letter
CHINA NATURAL RESOURCES, INC.
Room 2205, 22/F, West Tower, Shun Tak Centre
168-200 Connaught Road Central
Sheung Wan, Hong Kong
August 30, 2010
CORRESP
VIA EDGAR
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Attn:
Chris White, Branch Chief
Donald F. Delaney, Staff Accountant
George Schuler, Mining Engineer
H. Roger Schwall, Assistant Director
Parker Morrill
Laura Nicholson
Re:
China Natural Resources, Inc.
Form 20-F for the Year Ended December 31, 2009
Staff Letter of Comment dated July 30, 2010
SEC File No. 0-26046
Ladies and Gentlemen:
We are writing to respond to the Staff’s letter dated July 30, 2010 relating to our Annual Report on Form 20-F for the year ended December 31, 2009 (the “Annual Report”).
We respond to the Staff’s comments as follows:
Form 20-F for the Fiscal Year Ended December 31, 2009
General
1.
Please provide the disclosure required by Item 16G (Corporate Governance) of Form 20-F.
Response to Staff Comment 1:
While the Company believes that the requested disclosure is included under Item 6.C – “Board Practices; NASDAQ Requirements” beginning on page 54 of the Form 20-F, the Company proposes to include the following disclosure under Item 16.G of Form 20-F:
Our Common Shares are currently listed on the NASDAQ Capital Market and, for so long as our securities continue to be listed, we will remain subject to the rules and regulations established by the NASDAQ Stock Market as being applicable to listed companies. NASDAQ rules include various corporate governance requirements applicable to listed securities. While all NASDAQ-listed companies are subject to certain of these corporate governance requirements, foreign private issuers such as our company are exempt from other corporate governance requirements if the laws of their home jurisdiction do not
United States Securities and
Exchange Commission
August 30, 2010
Page 2 of 35
otherwise require compliance. Since our home jurisdiction does not mandate compliance with some of these NASDAQ rules, we have opted out of compliance with them. A more detailed description of the NASDAQ requirements that we are not subject to is contained elsewhere in this report under Item 6.C – “Board Practices; NASDAQ Requirements.”
Risk Factors, page 3
2.
We note that the report from your auditors states that you have significant transactions and relationships with affiliated companies, and that because of these relationships, it is possible that the terms of these transactions may not be the same as those that would result from transactions among unrelated parties. Please add related risk factor disclosure. See Item 3.D of Form 20-F. In addition, please clarify whether your audit committee or your independent directors approve your related party transactions.
Response to Staff Comment 2:
While the Company believes that the risk factor requested by the Staff is specifically covered by the risk factor entitled “As a ‘foreign private issuer’ we are not subject to certain rules promulgated by NASDAQ that other NASDAQ-listed issuers are required to comply with, some of which are designed to provide information to and protect investors” appearing on page 9 of the Form 20-F, we propose to include the following risk factor in Item 3.D of Form 20-F:
As a foreign private issuer, we are exempt from certain NASDAQ rules, including those relating to the review of related party transactions. As a result, related party transactions may not receive the type of independent review process that other NASDAQ-listed companies receive, and the terms of these transactions may not be as favorable as could be obtained from unrelated parties.
We have historically engaged in a substantial number of transactions with related parties, predominantly with our Chairman and Chief Executive Officer and/or companies that he owns or controls. These transactions are described in greater detail elsewhere in this report. In general, NASDAQ rules require that related party transactions be reviewed by an audit committee or other committee comprised of independent directors. However, under NASDAQ rules applicable to Foreign Private Issuers such as our company, we are exempt from certain NASDAQ requirements, including the requirement applicable to independent director review of related party transactions. This exemption is available to us because the laws of the British Virgin Islands, our home jurisdiction, do not require independent review of related party transactions.
Notwithstanding the foregoing, non-recurring related party transactions (i.e., related party transactions that are not in the ordinary course of business) are approved by our board of directors, following disclosure of the related party’s interest in the transaction, and, in all cases, board approval has historically included the unanimous approval of our independent directors. In addition, our annual audited financial statements, including the related party transactions reported therein, are approved by our audit committee, which is comprised solely of independent directors. However, except to the limited extent described above, these transactions are not individually reviewed or approved solely by independent directors, and our Chairman and Chief Executive Officer is often present during the approval process and is permitted to cast a vote as a
United States Securities and
Exchange Commission
August 30, 2010
Page 3 of 35
Board member. While management believes that related party transactions are on terms at least as favorable to the company as could be obtained from unrelated parties, there is no assurance that such is the case, or that shareholders would not be better protected if we were not exempt from, or we voluntarily complied with, the NASDAQ rule.
We also propose to modify the language elsewhere in the Form 20-F to the extent necessary to be consistent with the foregoing.
Wuhu Feishang depends on a single customer for its zinc production…, page 6
3.
We note your disclosure that the loss of your single customer for your zinc production would materially and adversely affect your results of operations, and we note your reference to a sales contract with such customer. Please tell us why you have not filed such contract as an exhibit to your filing. See the Form 20-F Instructions as to Exhibits.
Response to Staff Comment 3:
The Company reviewed the requirements of Form 20-F relating to the filing of exhibits and concluded that the sales agreement with Huludao Zinc Industry Co., Ltd. was not material to an investor’s understanding of the Company or its business. While the loss of Huludao would materially and adversely affect the Company, the sales agreement merely sets out commercial terms and does not impose any purchase obligation on the part of the purchaser. However, in view of the Staff’s comment, the Company proposes to file the sales agreement with Huludao with its next periodic report.
Item 4. Information and Development of the Company, page 11
4.
We note that you have described the information on your company and discussed operating and financial review and prospects information based on your legal entity structure. Please tell us your consideration of providing this information based on your reportable segments as disclosed in the notes to your financial statements. We refer you to Items 4.B and 5 of Form 20-F.
Response to Staff Comment 4:
It appears that Item 4.B suggests, but does not mandate, presentation consistent with segment disclosure. Although the Form 20-F discusses the operating and financial review and prospects information based on our legal entity structure in Item 4.B, we did segregate major categories “Mining of Zinc, Iron and Other Non-ferrous Metal” on page 13, “Discontinued Operations/ Disposal Activities” on page 25, and “Coal Mining and Development” on page 27. These primarily correspond to the disclosure under “Exploration and Mining – Non-ferrous Metal”, “Copper Smelting” and “Exploration and Mining – Coal” in note 16 to the audited financial statements. Notwithstanding the foregoing, we propose to provide a more transparent presentation and discussion in our future filings that more clearly identifies which legal entities are included in each segment.
United States Securities and
Exchange Commission
August 30, 2010
Page 4 of 35
Business Overview, Page 13
5.
Please clarify in this section the business of Yangpu Lianzhong Mining Co., Ltd.
Response to Staff Comment 5:
We propose to add the following disclosure under “Yangpu Lianzhong and China Coal” on page 20 of the Company’s Form 20-F:
In addition to holding a 48% interest in Hainan Non-ferrous Metal, until the third quarter of 2009, Yangpu Lianzhong also engaged in certain trading activities of blister copper. For the years ended December 31, 2008 and 2009, the only supplier of blister copper to Yangpu Lianzhong was Feishang Copper, a subsidiary of the Company until the third quarter of 2009. During the years ended December 31, 2008 and 2009, Yangpu Lianzhong sold blister copper to Wuhu Hengxin and Wuhu Hengchang, both of which are related parties, amounting to RMB26.21 million (US$3.84 million) and RMB63.03 million (US$9.23 million), respectively. The sales price was determined based on the average price per tonne of cathode copper over the five consecutive trading days subsequent to the delivery date, as published on the website of the Shanghai Future Exchange (http://www.shfe.com.cn), less RMB1,050. The Company believes that the terms of the related party transaction are consistent with customary commercial terms and are at least as favorable to the Company as could have been obtained from an unrelated party.
6.
Please discuss your sales to related parties in the context of your disclosure regarding your products at page 16 and your disclosure regarding your customers at page 19. In addition, please disclose how sales prices are determined with respect to the sale of your products to related parties.
Response to Staff Comment 6:
Please see response to Staff Comment 5.
United States Securities and
Exchange Commission
August 30, 2010
Page 5 of 35
Organizational Structure, page 36
7.
Please revise your chart at page 36 to reflect the abbreviated terms that you use for your references to your subsidiaries and affiliates, as described on pages (i)-(iii).
Response to Staff Comment 7:
The Company proposes to replace the chart on page 36 of the Company’s Form 20-F with the following:
United States Securities and
Exchange Commission
August 30, 2010
Page 6 of 35
Operating and Financial Review and Prospects, page 38
Operating Results, page 39
8.
We note your disclosure at page 16 regarding your sales of copper concentrate. Please tell us why you do not discuss such sales in connection with your operating results.
Response to Staff Comment 8:
We have not included the discussion of copper concentrates on page 39 of the Company’s Form 20-F because there were no such sales in 2009. In addition, sales of copper concentrates in 2008 were only seven tonnes (approximately RMB338,000 or US$49,510), which was considered immaterial.
9.
Please clarify, if true, that the sales of blister copper discussed at page 40 were made to related parties.
Response to Staff Comment 9:
The Company proposes to modify the fourth paragraph on page 40 of Form 20-F as follows:
Sales generated by Yangpu Lianzhong consisted of blister copper sold to Wuhu Hengchang, a related party. Sales of blister copper increased by RMB36.82 million (US$5.39 million), or 140.46%, from RMB26.21 million (US$3.84 million) in 2008 to RMB63.03 million (US$9.23 million) in 2009. The increase was contributed to by the increase of sales volume of blister copper, which was partly offset by a decrease in the selling price of blister copper. In 2009, we sold 1,669 tonnes of blister copper, representing an increase of 1,093 tonnes, or 189.77%, from 576 tonnes in 2008. The selling price of blister copper in 2009 decreased by RMB7,741 (US$1,134), or 17.01%, from RMB45,497 (US$6,664) in November 2008 to RMB37,756 (US$5,530) in August 2009.
Selling, General and Administrative Expense, page 41
10.
In each of your year-over-year comparative explanations, you state the change in SG&A was partially due to an increase or decrease in depletion of mining rights. Please tell us why you included depletion of mining rights in SG&A, and not as component of cost of sales in determining your gross profit measures presented in your statements of operations. Refer to SAB Topic 11:B, which states, “depreciation, depletion and amortization should not be positioned in the income statement in a manner which results in reporting a figure for income before depreciation.” If you have improperly excluded depletion from cost of sales, please explain to us how you plan on correcting this error.
Response to Staff Comment 10:
The Company’s accounting policy is to include depreciation, amortization and depletion of its mining rights and mining related capital assets in cost of sales. Depreciation and amortization related to corporate facilities and operations (non-mining related) are included in general and administrative expense. The
United States Securities and
Exchange Commission
August 30, 2010
Page 7 of 35
2008 statement of operations includes approximately US$600,000 of amortization in general and administrative expense, which represents an adjustment posted to correct accumulated amortization in 2008. This adjustment was considered to be an immaterial correction and was not specifically related to 2008 sales; therefore, the amount was recorded to general and administrative expense. In addition, in accordance with SAB Topic 11:B, to avoid placing undue emphasis on “cash flow”, amortization and depreciation was not positioned in the income statement in a manner which resulted in reporting a figure for income before depreciation. The Company proposes in future filings to enhance its discussion and analysis regarding this specific change, and to clarify in the statements of operations’ line items where depreciation, depletion and amortization are presented, if other than in cost of sales.
Discontinued Operations, page 42
11.
Your disclosure on page 42 states that the decrease in other income (expense) for the nine months ended September 29, 2009 was “partially offset by the written back of inventory provision amounting to RMB 16.30 million (US$2.39 million).” Please explain how your accounting related to marking up the inventory value is consistent with the interpretive response in SAB Topic 5:BB.
Response to Staff Comment 11:
The discussion on page 42 of the Form 20-F describes the Company’s discontinued operation of Mark Faith Development Limited (“Mark Faith”). The purpose of this limited discussion was to provide certain information relating to the operations of Mark Faith up to the time of sale. The discussion regarding changes in sales, gross profit, SG&A expenses, other income and net income, all refer to components of Income From Discontinued Operations.
The discussion of the changes in other income (expense) and the reference to a change in the inventory reserve was intended to describe inventory that was recorded at its net carrying value (LCM) and was sold for greater than its carrying value. This discussion was not intended to imply that any inventory that had been previously marked down to the lower of cost or market was being adjusted to a greater amount.
We propose to clarify this disclosure in future filings.
Trend Information, page 45
12.
We note your disclosure that prior to the commencement of commercial operations at Guizhou Yongfu Mining Co. Limited or Guizhou Dayun Mining Co. Ltd., it is believed that the iron and zinc business of Wuhu Feishang Mining Development Co. Ltd. woul