Huatai United Securities Co., Ltd
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Sichuan development Tianrui Mining Co., Ltd
Special verification opinions on impairment of construction in progress (Revised Version)
Huatai United Securities Co., Ltd. (hereinafter referred to as “independent financial consultant”) is entrusted by Sichuan Development Lomon Co.Ltd(002312) (hereinafter referred to as ” Sichuan Development Lomon Co.Ltd(002312) ” and “listed company”) to act as the independent financial consultant for the listed company to issue shares to purchase 100% equity of Sichuan development Tianrui Mining Co., Ltd. (hereinafter referred to as “Tianrui mining” and “target company”) (hereinafter referred to as “this transaction”).
In accordance with the relevant requirements of the measures for the administration of major asset restructuring of listed companies and the notice on the second feedback on the examination of administrative licensing projects of CSRC (No. 220395), the independent financial consultant conducted special verification on the impairment of 2 million T / a phosphate rock mining and beneficiation project of Tianrui mining and issued a special verification report.
1、 Construction in progress and impairment of 2 million T / a phosphate rock mining and beneficiation project of the target company
(I) construction of 2 million T / a phosphate rock mining and beneficiation project of the target company during the reporting period
The mining and beneficiation project of 200000t / a phosphate ore (including Xiarui mining project). The specific conditions of 2 million T / a phosphate rock mining and beneficiation project are as follows:
Unit: 10000 yuan
Total 2 million T / a phosphate rock mining and beneficiation of the project 2 million T / a phosphate rock mining and beneficiation
Project – mining project – beneficiation project
Construction period 20092016 20112021——
Construction method: self construction——
Investment of each period 2019 – 179051179051
Amount 2020 – 412778
Total 2 million T / a phosphate rock mining and beneficiation of the project 2 million T / a phosphate rock mining and beneficiation
Project – mining project – beneficiation project
2021 – 316078316078
Source of funds: self owned funds + special loan funds——
On April 26, 2013, Tianrui mining signed the fixed assets loan contract with Bank Of Chengdu Co.Ltd(601838) Jinjiang sub branch, and obtained a long-term loan of 600 million yuan for the construction of phosphate mining and beneficiation projects. The loan term is 8 years, and the loan interest rate is 20% higher than the benchmark loan interest rate published by the people’s Bank of China. By the end of 2021, Tianrui mining has repaid the above loans.
The subject company’s 2 million T / a phosphate rock mining and beneficiation project – mining project was fixed in December 2016. Therefore, the 2 million T / a phosphate rock mining and beneficiation project mentioned below does not include mining project, and all refer to 2 million T / a phosphate rock mining and beneficiation project – beneficiation project. The project includes two beneficiation projects: beneficiation and tailings pond.
The beneficiation and tailings pond project was put into trial operation at the end of 2016. During the trial operation, there were two leaks in the tailings pond project, during which Tianrui mining repaired the tailings pond; In April 2021, the tailings pond was accepted by Mabian Emergency Management Bureau, and the beneficiation project was put into trial operation again; In August 2021, the trial operation of beneficiation project reached the standard and was carried forward to fixed assets.
(II) provision for impairment of 2 million T / a phosphate rock mining and beneficiation project and tailings pond construction in progress of the target company during the reporting period
Tianrui mining is engaged in the mining, washing and sales of phosphate rock. For the phosphate rock with high mining grade, Tianrui mining is directly sold to the outside world. For the low-grade phosphate rock, it is sold to the outside world after washing out the high-grade concentrate. Tailings will be produced in the process of phosphate rock beneficiation, and the tailings will be discharged into the tailings pond. According to the production technology and production process of Tianrui mining during the reporting period, the beneficiation tailings can only be discharged into the tailings pond for stacking. Leaving the tailings pond, Tianrui mining concentrator will not be able to produce independent production and generate economic benefits. Therefore, the tailings pond is the supporting auxiliary facilities of the concentrator. Tianrui mining takes the concentrator and tailings pond as an asset group to judge the impairment as a whole.
In 2021, Tianrui mining made provision for impairment of 2 million T / a phosphate ore mining and dressing project and tailings pond construction in progress, totaling 2719843 million yuan. The sub items are listed as follows:
Unit: 10000 yuan
Increase or decrease in recoverable amount of book balance before project impairment
Construction in progress – 2 million T / a 3273 Sichuan Zigong Conveying Machine Group Co.Ltd(001288) 2110 – 390892 phosphate ore mining and beneficiation project – beneficiation
Construction in progress – 2 million T / a 2902309573357 – 2328951 phosphate mining and beneficiation project – tailings pond
Total 61753103455468 -2719843
2、 Verification on the time point of occurrence and withdrawal of impairment signs of 2 million T / a phosphate rock mining and beneficiation project
(I) check the change of temporary land use policy and the acquisition of temporary land use permit during the construction of tailings pond
1. Evolution process of temporary land use policy
Before 2021, according to the relevant provisions of Article 28 of the regulations for the implementation of the land administration law of the people’s Republic of China (revised on July 29, 2014), it is only clear that the land user should restore the planting conditions within one year from the expiration of the temporary land use, and does not restrict the temporary land user from reasonably renewing the temporary land use license.
The relevant provisions of the regulations for the implementation of the land administration law of the people’s Republic of China in 2014 (revised on July 29, 2014) are as follows:
“Article 28 If the construction of a construction project and geological survey need to temporarily occupy cultivated land, the land user shall restore the planting conditions within one year from the date of expiration of the temporary land use.”.
After the introduction and renewal of relevant policies in 2021, it is clearly stipulated that the use period of temporary land is generally no more than two years, and the use period of temporary land for energy, transportation, water conservancy and other infrastructure construction with a long construction cycle is no more than four years. The user of temporary land shall complete land reclamation within one year from the date of expiration of the temporary land.
The relevant provisions of the regulations for the implementation of the land administration law of the people’s Republic of China (revised on April 21, 2021), as amended in 2021, are as follows:
“Article 20 where land needs to be temporarily used for construction projects and geological exploration, it shall occupy as little or as little cultivated land as possible.
Temporary land use shall be approved by the Department in charge of natural resources of the people’s government at or above the county level, and the time limit shall generally not exceed two years; Temporary land for energy, transportation, water conservancy and other infrastructure construction with a long construction period shall not exceed four years; Unless otherwise provided by laws and administrative regulations.
The land user shall complete the land reclamation within one year from the expiration of the temporary land use period to make it available for use. Among them, if the cultivated land is occupied, the planting conditions shall be restored “.
The relevant provisions of the notice on regulating the management of temporary land use issued by the Ministry of natural resources in 2021 (issued and implemented on November 4, 2021) are as follows:
“The term of temporary land use shall generally not exceed two years. The term of temporary land use for the construction of infrastructure construction projects such as energy, transportation and water conservancy with a long construction period shall not exceed four years. The term of planning permission for temporary construction land and planning permission for temporary construction projects within the urban development boundary shall be connected with the term of temporary land use. The term of temporary land use shall be calculated from the date of approval”.
“The temporary land user shall complete the land reclamation within one year from the date of expiration of the temporary land. If the reclamation is affected by climate, disasters and other force majeure factors, the reclamation period may be appropriately extended with approval”.
2. Temporary land use permit for tailings pond obtained during the mining period
Tianrui mining tailings pond occupies temporary land for construction. The list of temporary land acquisition of tailings pond during the construction period is as follows:
Validity period of temporary land use permit
number
1. No. 01 (2015) of meizima Guotu linxu, Yanfeng town; March 3, 2015 – March 2, 2017; Gtlx (2017) No. 04, group 5, Wancun village, 2017 continued from June 30, 2017 to June 29, 2019
2 Yanfeng town Meizi maguanglxu (2015) No. 002 June 4, 2015 – June 3, 2017 No. 5, Wancun Village
3 Yanfeng town meizima Guotu linxu (2016) No. 01 January 19, 2016 – January 18, 2018 group 5, Wancun Village
4 Yanfeng town meizima Guotu linxu (2017) No. 03 June 29, 2017 to June 28, 2019
Group 5, Wancun Village
During the construction period, Tianrui mining tailings pond applied for and obtained relevant temporary land use permits, and some temporary land use permits were renewed after expiration. From 2019 to 2020, the subject company did not obtain a new temporary land use permit. During this period, the subject company was not punished by relevant competent authorities for failing to obtain a temporary land use permit. According to the certificate issued by the natural resources bureau of Mabian Yi Autonomous County on January 6, 2022, “Sichuan development Tianrui Mining Co., Ltd. (hereinafter referred to as” the company “) is an enterprise within the jurisdiction of our bureau. This is to certify that since January 1, 2019, the company has complied with national and local laws, administrative regulations, departmental rules and normative documents on Land Management (hereinafter referred to as “laws and regulations”) in its jurisdiction. The use of mines and land in production and operation activities meets the requirements of national planning and the specified mine and land use, and there is no serious violation of laws and regulations on mines and land management, No administrative punishment due to violation of laws and regulations related to mines and land “.
In September 2021, Tianrui mining obtained two temporary land use licenses (Mabian natural resources linxu (2021) Zi No. 015 and Mabian natural resources linxu (2021) Zi No. 016) issued by the natural resources bureau of Mabian Yi Autonomous County, both of which are valid from September 6, 2021 to September 5, 2023. Before 2021, the subject company will renew the temporary land use license in accordance with the land administration law of the people’s Republic of China, the regulations on the implementation of the land administration law of the people’s Republic of China (revised on July 29, 2014) and relevant laws and regulations.
3. Verification process and conclusion
The independent financial adviser inquired about the specific provisions of the temporary land use policy at different time points by querying the laws and regulations, consulting the relevant competent authorities and official websites, and believed that the temporary land use policy issued and updated by the relevant government authorities in 2021 would restrict the temporary land users from renewing the temporary land after the expiration of the temporary land use period.
The independent financial consultant consulted and copied the temporary land use permit during the construction period and the reporting period of the subject company, verified the validity period specified in the temporary land use permit, and obtained the relevant certificate issued by the natural resources bureau of Mabian Yi Autonomous County. It is considered that the tailings pond of the subject company applied for and obtained the relevant temporary land use permit during the construction period, After the expiration of some temporary land use permits, corresponding renewal procedures have been carried out. There is no serious violation of laws and regulations on mine and land management, and there is no administrative punishment for violation of laws and regulations on mine and land management.
(II) check the depreciation withdrawal time point of the construction in progress of Tianrui mining
1. Relevant provisions of accounting standards for business enterprises and impairment test policies of the target company
(1) Relevant provisions of accounting standards for business enterprises
According to Article 4 of the accounting standards for Business Enterprises No. 8 – asset impairment, “an enterprise shall judge whether there are signs of possible impairment of assets on the balance sheet date”.
Article 6 Where an asset shows signs of impairment, its recoverable amount shall be estimated. The recoverable amount shall be determined according to the higher of the net amount of the fair value of the asset minus the disposal expenses and the present value of the expected future cash flow of the asset.
Article 5 “the following signs indicate that the assets may be impaired:
(I) the market price of the assets falls sharply in the current period, and the decline is significantly higher than the expected decline due to the passage of time or normal use.
(II) the economic, technological or legal environment in which the enterprise operates and the market in which the assets are located will undergo significant changes in the current period or in the near future, which will have an adverse impact on the enterprise.
(III) the market interest rate or other market return on investment has increased in the current period, which affects the enterprise’s calculation of the expected future cash flow of assets
