THE STOCK EXCHANGE OF HONG KONG LIMITED
(A wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited)

The GEM Listing Committee of The Stock Exchange of Hong Kong Limited (the "GEM Listing Committee") censures the following parties for breaching the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”): 

1.	Sanmenxia Tianyuan Aluminum Company Limited (the “Company”);
2.	Mr Li Yong Zheng, a former executive director of the Company resigned effective 28 November 2005 (“Mr Li”);
3.	Mr Tan Yu Zhong, an executive director of the Company (“Mr Tan”); and
4.	Mr Xiao Chong Xin, an executive director of the Company (“Mr Xiao”).

Further, the GEM Listing Committee criticises the following parties for breaching the GEM Listing Rules:

1.	Ms Yang Chun Lian, a former non-executive director of the Company resigned effective 12 August 2005 (“Ms Yang”); and
2.	Mr Zhu Qiang, a former non-executive director of the Company resigned effective 12 August 2005 (“Mr Zhu”).

On 22 November 2005, the GEM Listing Committee conducted a hearing into the conduct of the Company, Mr Li, Mr Tan, Mr Xiao, Ms Yang and Mr Zhu (collectively, the “Relevant Directors”) in respect of certain transactions disclosed in the Company’s announcement dated 25 May 2005 (the “Announcement”).  

Relevant Provisions of the GEM Listing Rules:

The Company is required under:           

-	Rule 17.15 of the GEM Listing Rules to disclose the relevant advance to an entity where any of the percentage ratios as set out in Rule 19.04(9) exceeds 8 per cent;
-	Rules 19.34 and 19.40 of the GEM Listing Rules to notify the Exchange of a major transaction, publish an announcement, issue a circular to shareholders and obtain approval of the shareholders; and
-	Rules 20.18, 20.19, 20.34, 20.35, 20.47 and 20.48 to notify the Exchange the terms of a connected transaction or a continuing connected transaction and publish an announcement (the announcement requirements), issue a circular to shareholders within 21 days after the publication of the announcement, obtain independent shareholders’ approval (the independent shareholders’ approval requirements) and disclose the particulars of the connected transaction in its annual report and accounts (the reporting requirements).

Facts:

At the material time, Sanmenxia Tianyuan Aluminum Group Limited (“Tianyuan Group”) held 67 per cent of the Company’s issued share capital and was the controlling shareholder of the Company. Accordingly, Tianyuan Group and its subsidiaries were connected persons of the Company under the GEM Listing Rules.

The Listing Division alleged that the Company breached the GEM Listing Rules in relation to the following transactions:

Financial Assistance
1.	The Company provided unsecured, interest free loans to Tianyuan Group on 20 occasions in the sums of approximately RMB134.5 million and RMB77.9 million for the periods from 9 July 2004 to 31 December 2004 and from 1 January 2005 to 31 March 2005 respectively. These loans constituted connected transactions and a major transaction; however, the Company failed to comply with the reporting, announcement and independent shareholders’ approval requirements under Rules 19.34, 19.40, 20.18, 20.19 and 20.48 of the GEM Listing Rules;
Unreported transactions with connected persons
2.	The Company purchased bus bar scrap and other ancillary materials from Tianyuan Group; sold aluminum alloy ingots to Sanmenxia Jiashi Wheel Hubs Co, Ltd (“Jiashi”), which was owned as to 48 per cent by Tianyuan Group and a connected person of the Company; and purchased aluminum filings, ashes and other ancillary materials from Jiashi in the aggregate sums of RMB103,150,000 for the year ended 31 December 2004 and RMB11,531,000 between 1 January 2005 and 31 March 2005 respectively. These sales and purchases constituted connected and major transactions; however, the Company had failed to comply with the reporting, announcement and independent shareholders’ approval requirements under Rules 20.18, 20.35 and 20.48 of the GEM Listing Rules;
3.	The Company sold aluminum ingots to Baiyin Fluoride Salt Limited, a promoter and a connected person of the Company; and purchased fixed assets from a subsidiary of Tianyuan Group in the sums of RMB1,701,000 and RMB1,445,000 respectively for the year ended 31 December 2004 . These sales and purchases constituted connected transactions; however, the Company failed to comply with the reporting and announcement requirements under Rules 20.34 and 20.47 of the GEM Listing Rules;
Disclosure of trade receivables
4.	The trade receivables of the Company due from each of Jiashi as at 13 July 2004 and LG International Corporation (an independent third party) as at 31 December 2004 amounted to approximately RMB27.9 million and RMB28.9 million respectively which resulted in their respective consideration ratios exceeded 8 per cent. Pursuant to Rule 17.15, the Company should have disclosed the details of the trade receivables, however, the Company failed to do so; and
Exceeding the cap of the waiver on a non-exempt continuing connected transaction
5.	The Company’s purchase of pre-baked carbon anode from Jiaozuo City Dongxing Carbon Company Limited (“Dongxing”), a connected person of the Company, for the year ended 31 December 2004 exceeded the maximum annual cap of a waiver granted by the Exchange by RMB0.8 million. As a result, the waiver ceased to be effective and the purchase from Dongxing during the first two months of 2005 in the sum of approximately RMB5.2 million constituted continuing connected transactions; however, the Company failed to comply with the reporting, announcement and independent shareholders’ approval requirements under Rules 20.47 and 20.48 of the GEM Listing Rules.

The Company admitted the breaches of the GEM Listing Rules in the Announcement.

Decision:

The GEM Listing Committee concluded that:

1.	The Company breached Rules 17.15, 19.34, 19.40, 20.18, 20.19, 20.34, 20.35, 20.47 and 20.48 of the GEM Listing Rules; and
2.	Each of the Relevant Directors breached his or her obligations under the Declaration and Undertaking and Acknowledgement as set out in Appendix 6B to the GEM Listing Rules (the “Director’s Undertaking”) to comply with the GEM Listing Rules to the best of his or her ability and to use his or her best endeavours to cause that the Company also complies.

The GEM Listing Committee decided to impose the following sanctions on the parties:

-	a public censure on the Company for the said breaches;
-	a public censure on each of Mr Li, Mr Tan and Mr Xiao for their respective breaches of the Director’s Undertaking; and
-	a public statement which involves criticism on each of Ms Yang and Mr Zhu for their respective breaches of the Director’s Undertaking.

Richard Williams, Head of Listing commented: “The GEM Listing Rules contain safeguards for the benefit of minority shareholders to protect them from prejudice as a result of transactions executed with connected parties. This case demonstrates once again that the Exchange views seriously any failure by an issuer to obtain independent shareholder approval prior to providing connected persons and in particular controlling shareholders with material financial assistance.  The regulatory implications of a transaction where the parties are connected have particular significance where the counterparty is the controlling shareholder of the listed company, and are rendered more acute as in this case where the listed issuer and the controlling shareholder shared some of the same directors.  The facts of this matter show that at the material time, the Executive Directors and two Non-executive Directors had full knowledge of the breach of the rules and allowed the breaches to continue and persist for 8 months without taking effective remedial action.  Generally conduct of this type is regarded by the Exchange as seriously prejudicial to the interest of the minority shareholders.”