SVM Shareholder Class-Action - Amended Complaint - June 11, 2013

Case 1:12-cv-09456-JSR Document 35
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I. 1.
NATURE OF THE ACTION
This is a federal securities class action brought on behalf of a class consisting of
all persons and entities, other than defendants and their affiliates, who purchased the publicly traded common stock of Silvercorp Metals, Inc., from May 20, 2009, to September 13, 2011, inclusive (the Class Period). 2. Silvercorp is a British Columbia, Canada, corporation, engaged in the business of
mineral mining with operations located principally in China. Its shares trade on the New York Stock Exchange (the NYSE) and the Toronto Stock Exchange. 3. Throughout the Class Period, Silvercorp made a litany of materially false and
misleading statements in three key areas. First, in Form 6-K and 40-F filings with the SEC, Silvercorp materially misrepresented three important metrics at its flagship Ying mine (which accounts for the vast majority of its reported revenues): (1) the mines silver, lead, and zinc resource (i.e., the amount in the mine, what had been removed, and what remained), (2) the mines production level (i.e., how much silver, lead, zinc, and total ore was produced in 2010), and (3) the grade (i.e., quality) of the silver, lead, and zinc taken from the mine. Second, in various filings with the SEC, Silvercorp materially misrepresented its compliance with applicable legal and regulatory requirements. Third, in its Form 6-K and 40-F filings, and in violation with applicable Canadian GAAP and International Financial Reporting Standards, Silvercorp reported its financial results without making required related party disclosures about its largest customer, which accounted for nearly 30 % of its 2010 sales. 4. The truth was exposed when an investor report raising significant concerns about
these and other issues was made public on September 13, 2011 (9/13/2011 Carnes Report). Silvercorps stock price immediately dropped, damaging Co-Lead Plaintiffs and the other Class 2
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members, who had purchased Silvercorp stock on the New York Stock Exchange at inflated prices and were damaged by Defendants misconduct as alleged herein. 5. Events following these revelations have only served to buttress the already strong
inference of Silvercorps scienter. In violation of Canadian law, Silvercorp paid Chinese police to arrest a Canadian national who had investigated the Company in support of the 9/13/2011 Carnes Report. That individual remains incarcerated in China, having not yet been charged with any crime. Amid allegations that Silvercorps Chinese financial reports were surreptitiously changed, it hid behind a forensic accounting report, which it refused to release publicly, that itself was based on the accountants review of the Companys financial reports on file with Chinese regulators at the time of the [forensic accountants] visit. It has been revealed that three of the Companys top 14 customers in 2010 were registered in the final four months of 2009 with minimal capitalization. Two of them have since cancelled their registration. The Company now faces a Corruption of Foreign Public Officials Act investigation by the Royal Canadian Mounted Polices Anti-Corruption Unit and a subpoena from the SEC. II. 6. JURISDICTION AND VENUE
The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of
the Exchange Act (15 U.S.C. 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder (17 C.F.R. 240.10b-5). 7. This Court has jurisdiction over the subject matter of this action pursuant to
Section 27 of the Exchange Act (15 U.S.C. 78aa) and 28 U.S.C. 133l. 8. Venue is proper in this Judicial District pursuant to Section 27 of the Exchange
Act (15 U.S.C. 78aa) and 28 U.S.C. 1391(b) as a substantial part of the conduct complained of herein occurred in this District. 3
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9.
In connection with the acts, conduct and other wrongs alleged herein, Defendants
either directly or indirectly used the means and instrumentalities of interstate commerce, including but not limited to the United States mails, interstate telephone communications and the facilities of the national securities exchange. III. 10. PARTIES
Co-Lead Plaintiff Charles A. Burnes, Jr., as set forth in his Certification and loss
chart previously submitted to the Court (see Docket No. 18, Exhibits 2-3), purchased Silvercorp stock on the NYSE at artificially inflated prices during the Class Period and has been damaged thereby. 11. Co-Lead Plaintiff Dale Hachiya, as set forth in his Certification and loss chart
previously submitted to the Court (see Docket No. 18, Exhibits 2-3), purchased Silvercorp stock on the NYSE at artificially inflated prices during the Class Period and has been damaged thereby. 12. Defendant Rui Feng (Feng) has been Silvercorps Chief Executive Officer and
the Chairman of its Board of Directors since September 4, 2003. Defendant Feng is a citizen of Canada. 13. Defendant Meng Maria Tang (Tang) has been Silvercorps Chief Financial
Officer since October 1, 2008. Defendant Tang is a citizen of Canada. Prior to joining the Company, Defendant Tang had five years audit experience, most recently with Ernst & Young LLP, where she focused on public company audits with China operations and was in charge of Sarbanes-Oxley audits for U.S. public companies. 14. Defendants. 4 Defendants Feng and Tang are sometimes referred to herein as the Individual
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15.
Defendant Silvercorp Metals, Inc. is a Canadian corporation with a head office,
principal address and registered and records office of the Company is located at 1378-200 Granville Street, Vancouver, British Columbia, V6C 1S4. The Companys shares are listed for trading on the Toronto Stock Exchange and New York Stock Exchange (the NYSE) under the symbol SVM, it is an SEC reporting company, and it is a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia and New Brunswick. Substantially all of its operations take place in China. IV. BACKGROUND FACTS
Silvercorps Business and Operations 16. As described in its annual reports, Silvercorp was formed as Spokane Resources
Ltd. pursuant to an amalgamation of two entities under the Company Act (British Columbia) on October 31, 1991. On October 5, 2000, it consolidated its share capital and changed its name to SKN Resources Ltd. On October 20, 2004, its shareholders adopted new Articles of
Incorporation consistent with the transition of the Business Corporations Act (British Columbia) and approved another name change. Silvercorp Metals, Inc. 17. During the Class Period, through subsidiaries, Silvercorp engaged in mining On May 2, 2005, it officially changed its name to
operations based in China, in accordance with the following corporate structure:
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18.
Most pertinent to the instant action is Silvercorps 100% stake in Victor Mining
Ltd. (Victor Mining) and, through it, Silvercorps 77.5% stake in Henan Found Mining Co. Ltd. (Henan Found) and the Companys primary revenue generating asset, the Yuelianggou Ab-Pb-Zn mine, a/k/a the Ying Mine, the SGX Mine, and/or the Ying Project. The other 22.5% stake in the Ying mine was, as of the beginning of the Class Period, owned by Silvercorps formal cooperative joint venture partner Henan Non-Ferrous Geological and Mineral Resources Co. Ltd. (HNGMR). The Ying mine is located in Lyoning County, Henan Province, China.
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19.
On March 30, 2006, Henan Found received a mining permit issued by the Chinese
Department of Land and Resources of Henan Province. Pursuant to this permit, production from the Ying mine began on April 1, 2006. During the Class Period, the Ying mine alone accounted for approximately 90% of Henan Founds silver production in the year ended March 31, 2010 and 80% of Henan Founds silver production in the year ended March 31, 2011. 20. All told, Silvercorp operates four silver, lead, and zinc mines in China, and it
purports to be Chinas largest primary silver producer. During the Class Period, Silvercorp operated its only revenue-generating activities through its subsidiaries Henan Found and Henan Huawei Mining Co., Ltd. (Henan Huawei). As such, Silvercorps Class Period revenues should never exceed the combined revenues of Henan Found and Henan Huawei. Chinese Laws, Regulations, and Rules Governing Silvercorps Mining Operations 21. Under the well-developed legal and regulatory regimes established by the Chinese
central government and by Henan province, which are strictly implemented, Silvercorp is required to report to the relevant governmental supervisory departments, inter alia, its true annual mine production for the entirety of the Ying mine and any newly discovered resource veins that affect original resource reserve estimates for the Ying mine as a whole. 22. In 1994, the Chinese State Council issued an administrative regulation entitled
Implementary Rule of the PRC Mineral Resources Law, whose provision 31 specified that [mining rights owners] are required to be supervised and administered by geology and mineral resources departments, prepare and file mineral resources reserve forms and mineral resources exploration and utilization statistical report. 23. In 2005, due to then-existing problems in mineral resources mining, the Chinese
State Council issued Rules on Overall Rectification and Standardization of Mineral Resources 7
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Mining Order [Guofa [2005]28].
It specified that [land and resources departments] shall
proactively explore effective ways to monitor reserve dynamically; strictly examine performance of mineral resources development and utilization plan; improve the annual reporting system; effectively improve the level of mineral resources development and utilization. 24. To implement this mandate, and for protection and rational utilization of
resources, the PRC Ministry of Land and Resources (PRC L&R Ministry) implemented a system of comprehensive supervision and management of mine reserves dynamics and, on May 10, 2006, issued the Circular of the Land and Resources Ministry on Comprehensive Dynamic Supervision and Management of Mine Reserves (No. [2006] 87 of the MLR) (2006 L&R Ministry Circular. See Exhibit 1 (Chinese) and 2 (English translation) hereto. 25. In China, such a Circular or Measure issued by the PRC L&R Ministry or the
Henan Provincial Land and Resources Department (Henan L&R Dept) are considered administrative regulative documents, administrative rules, and/or administrative normative documents. They are comparable to U.S. federal administrative rules, in that they are of legal binding force on relevant parties absent any conflict with superior laws, regulations or rules. 26. The 2006 L&R Ministry Circular requires annual reports on Silvercorps Ying
mine to provide accurate, current information on the mine as a whole, including any changes to the mine reserves. In particular, it requires, inter alia (with emphasis added) that: Mine enterprises shall conduct geological survey on mine reserves as required, shall submit the changes in mine reserves to the land and resources administration departments in accordance with laws and regulations. Those failing to conduct geological survey according to laws and regulations and to submit annual reports on mine reserves shall not pass through the annual inspection of mineral resources development and utilization. *** 8
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Annual reports on mine reserves shall include: available and cumulative identified reserves, basic reserves and quantity of resources; exploited and wasted reserves of the reporting year; explored and calculated changes to resource reserves of the reporting year; reserves planned to be used in next year; other information related to the management of mineral reserves. 27. As required by the 2006 L&R Ministry Circular, on August 8, 2006, the Henan
L&R Dept issued Interim Measures of Henan for the Dynamic Supervision and Management on the Mineral Reserve (Yu Guotuzifa (2006)109) (2006 Henan L&R Dept Measure). See
Exhibit 3 (Chinese) and 4 (English translation) hereto. Article 22 mandates that annual mineral reserve dynamic reconnaissance reviews and approvals shall include, inter alia, the annual increase and decrease of reserves caused by recalculation and exploration; degree of accuracy and reliability of reserves calculation result. 28. This requirement mirrors that set forth in Measures of Henan Province for
Implementation of the Mineral Resources Law of the Peoples Republic of China (revised in 2004), Provision 42 of which also specified that Mining right owners are required to report increased mineral reserves to land and resources bureaus for check and approval. See Exhibit 5 (Chinese) and 6 (English translation) hereto. 29. Moreover, as confirmed by Henan L&R Dept staff, in applying the foregoing
requirements, the Henan L&R Dept requires disclosure in each mines annual reserve dynamic reconnaissance report whenever a mines resource reserve is increased due to newly found veins. If a new vein is comprised of the same minerals as are currently being mined, the mine is required to conduct exploration and reserve evaluation, to pay an additional fee, and to amend both its production proposal and its mining permit. Failure to comply with these required steps would render a mines dynamic reports to the Henan L&R Dept legally non-compliant, would
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render any production on the new veins illegal, and would expose a mine operator to significant risks, liabilities, and penalties, including potentially the revocation of the mining permit. Chinese Oversight and Enforcement 30. All of the foregoing legal and regulatory requirements are strictly enforced. Both
the Henan L&R Dept and local land and resource bureaus are required to supervise and monitor the mine reserve dynamic reporting strictly, to ensure its compliance. 31. For instance, the 2006 L&R Ministry Circular mandates enforcement as follows
(with emphasis added): Land and Resources authorities shall carefully fulfill the function of supervision and management. Mineral resources reserves statistical registration, collection of mineral resources compensation fees and mining right evaluation must be based on mine reserves annual report that has been reviewed. For mines with unclear resources and fraudulent mine reserves, land and resources authorities shall urge mine enterprises to do additional geological work to verify resource reserves and perform the filing and registration process of reserves evaluation. Mine enterprises shall conduct geological survey on mine reserves as required, shall submit the changes in mine reserves to the land and resources administration departments in accordance with law and regulations. Those failing to conduct geological survey according to regulations and to submit annual reports on mine reserves shall not pass through the annual inspection of mineral resources development and utilization. 32. Likewise, the 2006 Henan L&R Dept Measure specifies how enforcement is to
proceed, stating in Article 5, Mineral reserve dynamic reconnaissance shall be undertaken by geological survey institutions with relevant qualifications. It shall be conducted in accordance with the Technical Manual of Henan for the Dynamic Reconnaissance on the Mineral Reserves. 33. That Manual (the Henan Technical Manual) sets forth survey techniques, report
forms, and other information to facilitate enforcement and provides, inter alia: Annual report of mine reserves dynamic reconnaissance is the annual achievement of dynamic reconnaissance of mining resources reserves, which shall be reviewed, scrutinized and opined by technical expert team organized by the 10
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land and resources administration departments of province-governed municipality, city and county level. Small size and above mines dynamic reconnaissance reports shall be reviewed by a team consisted majorly by appraisers. See Exhibit 7 (Chinese) and 8 (English translation) hereto. 34. Similarly, in March 2008, the Henan L&R Dept issued a Circular for
Strengthening the Dynamic Supervision and Management on Mine Reserves (the 2008 Henan L&R Dept Circular). See Exhibit 9 (Chinese) and 10 (English translation) hereto. It contains extensive provisions requiring the implementation and enforcement of the foregoing legal requirements, to ensure, inter alia, effective enforcement by Chinese taxation authorities, assessment and collection of all applicable costs and fees, and proper registration and transfer of mining rights. It contains the following provisions, among others (with emphasis added): (a) Provision 1.1 states:
Mine enterprises holding mining permits and mining shall perform the mineral reserves dynamic supervision and management system, and shall report the annual utilization plan, conduct the reserves dynamic reconnaissance, assess the reported reserves losses, submit the annual report and etc. according to the Interim Measures of Henan for the Dynamic Supervision and Management on the Mineral Reserve. If mine enterprises fail to make dynamic supervision on the mineral reserves as per the above rules, the annual report of mine reserves dynamic reconnaissance shall be determined as unqualified, and the annual inspection of mineral resources development and utilization shall be determined to be unqualified too. (b) Provision 1.2 states that data concerning changes in the mine reserves dynamic
reconnaissance annual report, as approved by authorities, is the basis for registered mineral reserves that serve as the basis for the extension, amendment and transfer of mining rights. (c) Provision 1.3 states:
Reserves verification reports submitted by mine enterprises shall have a specific chapter describing in details about reserves utilization during the period between this verification and the previous one, as recorded by the reserves dynamic 11
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reconnaissance. Results of each years reserves dynamic reconnaissance is the basis for reserve changes in the reserves verification report. For the mine enterprise that failed to conduct reserves dynamic reconnaissance in accordance with laws and regulations, or whose reserves verification report lacked of relevant contents, reviewing institutions shall not accept their submitted reserves verification report, neither shall land and resources authorities permit filing of such verification report. (d) Provision 2 states, inter alia:
Mine reserves dynamic reconnaissance shall be conducted according to laws and regulations. During the process of onsite reconnaissance, ledger recording and report drafting, they shall reflect the true utilization of the mine, and are prohibited from making fraud. It adds that geological survey institutions that fail to perform mine reserves dynamic reconnaissance up to these standards, they face serious sanction, including a potential bar from working on reconnaissance reports and potential revocation of their licenses. (e) Provision 3 sets forth various verification processes to be employed by land and
resources authorities, including regular and irregular inspections, supervision of survey institutions reconnaissance work, operation of a database, and peer review. It adds, For mine enterprises discovered of serious problems with dynamic reconnaissance, authorities shall check the problems and report to the Department of Land and Resources of Henan Province. 35. Henan L&R Dept staff confirm that both the Henan L&R Dept and lower level
land and resource bureaus began mineral resources reserve dynamic monitoring in 2007 and that, by 2009, they had ramped up such activities to cover the entirety of Henan Province, thereby fully effectuating the foregoing legal regime by that time. 36. By way of example as to such layered enforcement during the Class Period, the
Luanchuan County Land and Minerals Bureau (the LC L&M Bureau) issued on October 18, 2010 an official announcement regarding the 2010 mineral resources reserve dynamic 12
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monitoring and reporting work entitled Notification of Launching Mine Reserves Dynamic Reconnaissance Work in 2010 (the 2010 LC L&M Bureau Notice). See Exhibit 11 (Chinese) and 12 (English translation) hereto. Luanchuan is a neighbor city of Luoning, and both were under the Lyoyang Citys administration. It states, All mining rights owners within our county shall conduct mine reserves dynamic reconnaissance, prepare the reserves dynamic reconnaissance report and accept supervision and management of geology and mining authorities. Id., Provision A. Any entities refusing to do so shall be refused to be accepted or deemed as disqualified for submission of mining permits extension, amendment, transfer and annual check. Id., A.2. Governmental oversight bodies shall establish and improve the working system, implement strictly the requirements in the technical specifications and technical guide, conduct carefully the mine reserves on-site reconnaissance and establish and improve the ledger for the reserves dynamic reconnaissance work. Id., C.1. Importantly, The survey institutions shall report truly the current production situation of mine enterprise, and, in particular, mines conducting unlawful act[s]shall report the situation carefully, minutely, objectively and fairly. Id., C.2. (emphasis added). 37. All Chinese dynamic reports are prepared by government-approved professional
geographic institutions, based on exacting inspection standards and through independent survey, which are reviewed and approved by professional appraisals. Such dynamic reports serve a litany of important governmental functions, including ensuring that each mine is operated safely, legally, and in compliance with its permit and that each mine is assessed all applicable costs, fees, and taxes. They also serve important private interests, including accurate description and recordation of mineral resource and mining rights, which among other things, ensures effective transfer of title in the event of sales or other dispositions. 13
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38.
Silvercorp was not and is not legally entitled to any special exemption from the
foregoing legal obligations or compliance duties, the totality of which required it to annually report updated and current data on the reserves and production of the entire Ying mine. For Silvercorp to have operated the Ying mine legally during the Class Period, it must have adhered to all the foregoing requirements. If it failed to do so, then Silvercorp operated the Ying mine illegally during the Class Period. Silvercorps Ying Mine Permit Imposed Strict Production Limits 39. Pursuant to and subject to all of the foregoing, Silvercorp operates its Ying mine
pursuant to permit # C4100002009093210038549, which was amended on September 30, 2009 and which provides for an annual production capacity of 198,000 tons per year (or roughly 542.5 tons per day). See Exhibit 13 (Chinese) and 14 (English translation) hereto (information
obtained from PRC L&R Ministry official website). 40. This mining production capacity limit set forth in the permit, which was in place
throughout the Class Period, is a strict limit on the Ying mines production level. If Silvercorp desired to increase its production, it was legally obligated to apply for and obtain approval of an amendment to its permit. This requirement is set forth in applicable Chinese regulations, as well as prior statements prepared and issued on behalf of the Company itself. 41. For instance, in July 2010, the Chinese State Council issued a Circular of the
State Council on Strengthening Safe Production of Enterprises (Guofa [2010] 23), which governed the Ying mines operations during the latter Class Period. See Exhibit 15 (Chinese) and 16 (English translation) hereto. It states, Enterprises organizing production with
overcapacity, over-intensification and over-authorized strength shall be ordered to stop
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production and shut down for rectification, and economic punishment with upper limits shall be imposed to enterprises and their principals in accordance with laws. Id., Provision II.3. 42. Indeed, the Technical Update 2006 For Silvercorp Metals Inc. On The Ying
Silver-Lead-Zinc Project, Henan Province, Peoples Republic of China, dated April 18, 2006, which was prepared by (among others) Chris Brioli of BK Exploration Associates, Silvercorps purported independent qualified person, describes a similar limitation on the original permit of the Ying mine. That report, in Section 17.2, states (with emphasis added): As reported on March 30, 2006, [Henan] Found has been issued a mining permit by the Department of Land and Resources of Henan Province, covering the 9.945 square kilometres SGX area within the Ying Silver Project, where Found has focused its major exploration effort. The permit was issued on the terms applied for. It allows operation of a 600 tonne per day underground mine within the permit area to produce silver, lead and zinc ores. The production rate can be increased in the future by amending the existing mining permit once expanded resource estimates have been filed with the Department of Land and Resources of Henan. 43. Moreover, Henan L&R Dept staff independently confirm that governmental
authorities do not allow production beyond the annual capacity approved in a mining permit and that, if mining capacity is changed, mines are required to apply for an amendment to their permit. 44. In light of the foregoing, Silvercorps production at the Ying mine during the
Class Period, in order to be legally compliant, was limited to 198,000 tons per year. Official Chinese Dynamic Reports Evidence Silvercorps Actual Mining Activities 45. A Report of the 2010 Dynamic Reconnaissance on the Reserve of Yuelianggou
Lead-Zinc-Silver Mine in Luoning County, Henan Province (the 2010 Dynamic Report) concerning the Ying mine is attached as Exhibits 17 (Chinese) and 18 (English translation).
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46.
The 2010 Dynamic Report is a report on the full reserves and production of the
entire Ying mine, with updated data through 2009 and for 2010. It is not a report on only a lesser segment or portion of the mine. 47. alia: (a) The entire body of Chinese laws, Circulars, Measures, and other regulations, as This conclusion is supported by numerous pieces of evidence, including inter
described in great detail supra, required the 2010 Dynamic Report to report to the relevant governmental supervisory departments, inter alia, the true annual mine production for the entirety of the Ying mine and any newly discovered resource veins that affect original resource reserve estimates for the Ying mine as a whole. If it did not do so, Silvercorp would be operating the Ying mine illegally, and thereby would risk revocation of its mining permit and effective termination of its only revenue-generating activities. (b) The text of the 2010 Dynamic Report itself evidences compliance with this legal
and regulatory regime. Specifically, it states: This report has reflected the entire geological results of the reconnaissance, and is in accordance with the relevant regulations and requirements. It contains the complete text, graphs, tables, and attachments, and has reached the aim of this reconnaissance. (c) The layers of oversight and enforcement by Chinese governmental authorities, as
described in great detail supra, ensured that the 2010 Dynamic Report set forth the Ying mines true production and resource reserves, based on the most current and updated information. This multi-tiered oversight and enforcement regime served to ensure, among other things, that Silvercorp would be assessed all applicable costs, fees, and taxes.
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(d)
Again, the text of the 2010 Dynamic Report itself illustrates that this multi-
layered oversight and enforcement machinery indeed worked. The report concludes by stating, It is therefore recommended to approve the review report. There is no dissension among the appraisers and experts at the review conference. In addition: (a) a Review Expert signed and dated the report; (b) an official at the municipal and county level bureau signed and dated the report, signifying agreement with the Review Experts, and this signature was verified by another individual; (c) a Bureau Chief signed and dated the report to signify consent; and (d) the Luoyang City Land & Resource Bureau certified its approval with a dated and sealed signature. This is the precise process outlined in the 2006 Henan L&R Dept Measure, Article 21, and in the Henan Technical Manual, as discussed supra. (e) The 2010 Dynamic Report reports a total resource drawdown of 534,831 tons, out
of a total resource reserve of 1.4639 million tons, during the period 2005-2009. Mining activities at the Ying mine first began on April 1, 2006, after which a period of time elapsed before they ramped up to full capacity. As such, the 534,831 ton figure is consistent with the mines full capacity production level of roughly 200,000 tons/year, assuming that the mine ramped up production during 2006-2007 and then operated at full capacity during 2008-2009. (f) The 2010 Dynamic Report also reports 207,037 tons of resource drawdown for
2010, which is corroborated by the total reported ore mined for calendar 2010 (as separately reported in the Companys four quarterly 6-K filings made with the SEC within calendar 2010), which was 310,749 tons, inclusive of the zero grade dilution material. (g) The 207,037 tons of reported resource drawdown in the 2010 Dynamic Report is
also corroborated by the reported resource drawdown rates for the entire mine during the threeyear period 2009-2011, which were 639,312 tons (or just over 213,000 tons on average), as set 17
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forth in the Technical Report for Ying Gold-Silver-Lead-Zinc Property, Henan Province, China prepared by AMC Mining Consultants (Canada) Ltd (AMC) on June 13, 2012, as revised April 30, 2013 (the 2012 AMC Technical Report). (h) The 207,037 tons of reported resource drawdown in the 2010 Dynamic Report is
also consistent with (though slightly in excess of ) the Ying mines permitted production level under Silvercorps operative mining permit, which set a production limit of 198,000 tons per year during the Class Period. If Silvercorp exceeded this permitted production rate by any material degree, it would be operating the Ying mine illegally, and thereby would risk revocation of its mining permit and effective termination of its only revenue-generating activities. Silvercorps Substantial Stock Offering 48. On December 7, 2010, Silvercorp filed a Prospectus Supplement with the SEC to
register 9,200,000 shares to be sold for $116,840,000, including underwriters over-allotment option, in a bought deal (i.e., firm-commitment) offering (the December 2010 Offering). The Prospectus Supplement, which was signed by Defendants Feng and Tang, incorporated by reference Managements Discussion and Analysis from Silvercorps 2010 40-F (defined below). 49. 50. The December 2010 Offering closed on December 14, 2010. For purposes of its SEC filings, Silvercorp uses a fiscal year that ends on March
31st of the same calendar year. For instance, Silvercorps fiscal 2009 ended on March 31, 2009. V. 51. DEFENDANTS MISCONDUCT
As discussed in greater detail infra, Defendants made false and misleading
statements and omitted material facts from the following Silvercorp filings with the SEC: (a) its form 6-K for the quarter and fiscal year ended March 31, 2009, filed with the SEC on May 20, 2009 (the 3/31/2009 6-K); 18
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(b) its Form 40-F for the fiscal year ended March 31, 2009 (fiscal 2009), filed with the SEC on June 8, 2009 (the 2009 40-F), signed by Feng, which included (as exhibits) certifications signed by Feng and Tang pursuant to Sarbanes-Oxley Act 302 and 906 certifying that the 2009 40-F did not contain materially false and misleading statements; (c) its Form 6-K for the quarter ended June 30, 2009 (Q1 of fiscal 2010), filed with the SEC on August 14, 2009 (the 6/30/2009 6-K); (d) its Form 6-K for the quarter ended September 30, 2009 (Q2 of fiscal 2010), filed with the SEC on November 12, 2009 (the 9/30/2009 6-K), which was accompanied by Form 52109F2 certifications signed by Feng and Tang (separately filed with the SEC on February 16, 2010 as an exhibit to a 6-K) certifying that the financial statements did not contain materially false and misleading statements; (e) its Form 6-K for the quarter ended December 31, 2009 (Q3 of fiscal 2010), filed with the SEC on February 16, 2010 (the 12/31/2009 6-K), which included (as exhibits) unaudited financial statements signed by Feng, and Form 52-109F2 certifications signed by Feng and Tang certifying that the financial statements did not contain materially false and misleading statements; (f) a letter from Silvercorp to the SEC, signed by Tang, dated February 23, 2010 filed with the SEC the same day; (g) its form 6-K for the quarter and fiscal year ended March 31, 2010, filed with the SEC on May 13, 2010 (the 3/31/2010 6-K); (h) its Form 40-F for the fiscal year ended March 31, 2010 (fiscal 2010), filed with the SEC on June 24, 2010 (the 2010 40-F) signed by Feng, which included (as exhibits) audited financial statements signed by Feng and Tang, and certifications signed by Feng and Tang 19
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pursuant to Sarbanes-Oxley Act 302 and 906 certifying that the Form 40-F did not contain materially false and misleading statements; (i) its Form 6-K for the quarter ended June 30, 2010 (Q1 of fiscal 2011), filed with the SEC on August 16, 2010 (the 6/30/2010 6-K), which included (as exhibits) unaudited financial statements signed by Feng, and Form 52-109F2 certifications signed by Feng and Tang certifying that the financial statements did not contain materially false and misleading statements; (j) a Management Circular, signed by Feng, dated August 26, 2010, filed with the SEC as an attachment to a Form 6-K on September 1, 2010, as well as the Companys Code of Business Conduct and Ethics which it referenced; (k) its Form 6-K for the quarter ended September 30, 2010 (Q2 of fiscal 2011), filed with the SEC on December 6, 2010 (the 9/30/2010 6-K); (l) an Underwriting Agreement dated December 7, 2010, signed by Feng, which was filed with the SEC as an attachment to a Form 6-K on December 8, 2010; (m) its Form 6-K for the quarter ended December 31, 2010 (Q3 of fiscal 2011), filed with the SEC on February 10, 2011 (the 12/31/2010 6-K), which included (as exhibits) unaudited financial statements signed by Feng, and Form 52-109F2 certifications signed by Feng and Tang certifying that the financial statements did not contain materially false and misleading statements; (n) its form 6-K for the quarter and fiscal year ended March 31, 2011, filed with the SEC on May 12, 2011 (the 3/31/2011 6-K); (o) its Form 40-F for the fiscal year ended March 31, 2011 (fiscal 2011), filed with the SEC on June 3, 2011 (the 2011 40-F) signed by Feng, which included (as exhibits) audited 20
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financial statements signed by Feng and Tang, and certifications signed by Feng and Tang pursuant to Sarbanes-Oxley Act 302 and 906 certifying that the Form 40-F did not contain materially false and misleading statements; and (p) its Form 6-K for the quarter ended June 30, 2011 (Q1 of fiscal 2012), filed with the SEC on August 11, 2011 (the 6/30/2011 6-K) which included (as exhibits) unaudited financial statements signed by Feng, and Form 52-109F2 certifications signed by Feng and Tang certifying that the financial statements did not contain materially false and misleading statements. 52. Defendants false and misleading statements and omissions during the Class
Period predominantly concerned three key topical categories: (1) Silvercorps mining operations at the Ying mine regarding in particular the Ying mines resource, head grade and productivity; (2) Silvercorps legal compliance with U.S. and Chinese laws; and (3) related party transactions with Silvercorps largest customer. Each category is alleged in detail below. Defendants False And Misleading Statements About Silvercorps Mining Operations 53. As compared to the 2010 Dynamic Report, the data Silvercorp reported in its SEC
filings dramatically and materially overstated three key metrics concerning the Companys allimportant Ying mine: (1) its silver, lead, and zinc resource (i.e., (i) the total amounts of silver, lead, and zinc in the mine, (ii) silver, lead, and zinc already removed, and (iii) silver, lead, and zinc remaining); (2) its production level (i.e., how much total ore, silver, lead and zinc was produced in 2010); and (3) its silver, lead, and zinc run-of-mine ore head grade (i.e., the measured grade of the silver, lead, and zinc actually taken from the mine, inclusive of minor stockpile adjustments).
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54.
First, as regards the Ying mines silver, lead, and zinc resource, the Company
made material misstatements in its 2010 40-F and its 2011 40F. In both, Silvercorp represented the total resource remaining to be 4,801,139 tonnes of reserve, including 3,553 tonnes of silver, 765,940 tonnes of lead, and 292,946 tonnes of zinc. In both, Silvercorp represented the resource grades to be 740 g/t (silver), 16.0 % (lead), and 6.1 % (zinc). 55. These statements were materially false and misleading when made, because the
2010 Dynamic Report, which accurately describes the resources and reserves of the entire Ying mine as discussed supra, stated that: (a) in 2005, the Ying mine had a resource reserve of 1.4639 million tons, including 324.76 tons of silver, 65,359.96 tons of lead, and 37,778.84 tons of zinc; (b) by the end of 2009, 534,831 tons had been mined from the Ying mine, leaving a resource of 929,069 tons, including 198.31 tons of silver, 41,208.30 tons of lead, and 23,111.95 tons of zinc; and (c) in 2010, 207,037 tons was mined from the Ying mine, including 32.17 tons of silver, 5,911.40 tons of lead, and 5,162.80 tons of zinc, leaving 722,032 tons in the resource, including 166.14 tons of silver, 35,296.90 tons of lead, and 17,949.15 tons of zinc. 56. Source Date Resource reserve Silver reserve Lead reserve Zinc reserve The following chart summarizes the differences at issue: 2010 Dynamic Report 2005 1,463,900 tons 324.76 tons 65,359.96 tons 37,778.84 tons 2005-2009 929,069 tons 198.31 tons 41,208.30 tons 23,111.95 tons 2010 722,032 tons 166.14 tons 35,296.90 tons 17,949.15 tons 40-F filings 2010 and 2011 4,801,139 tonnes 3,553 tonnes 765,940 tonnes 292,946 tonnes
22
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57.
Second, Silvercorp misrepresented the Ying mines production of ore, silver lead,
and zinc in 2009 and 2010 (as discussed in terms of either total ore mined or run-of-mine ore, two figures that are generally track very closely to one another). 58. Silvercorps 6-K filings in calendar 2009 stated that the Company produced: (a)
313,421 total tonnes of ore mined (57,842 tons reported in the 3/31/2009 6-K, 86,248 tonnes reported in the 6/30/2009 6-K, 83,263 tonnes reported in the 9/30/2009 6-K, and 86,068 tonnes reported in the 12/31/2009 6-K), (b) 145 run-of-mine ore tonnes of silver in total (31 tonnes reported in the 3/31/2009 6-K, 40 tonnes reported in the 6/30/2009 6-K, 38 tonnes reported in the 9/30/2009 6-K, and 36 tonnes reported in the 12/31/2009 6-K), (c) 26,596 run-of-mine ore tonnes of lead in total (5,723 tonnes reported in the 3/31/2009 6-K, 7,380 tonnes reported in the 6/30/2009 6-K, 6,821 tonnes reported in the 9/30/2009 6-K, and 6,672 tonnes reported in the 12/31/2009 6-K), and (d) 9,288 run-of-mine ore tonnes of zinc in total (1,950 tonnes reported in the 3/31/2009 6-K, 2,514 tonnes reported in the 6/30/2009 6-K, 2,526 tonnes reported in the 9/30/2009 6-K, and 2,298 tonnes reported in the 12/31/2009 6-K). Its 2010 Form 40-F stated that the total ore mined at the Ying mine for fiscal 2010 (the last three quarters of calendar 2009 and the first quarter of calendar 2010) was 312,171 tonnes, with 145 run-of-mine ore tonnes of silver and 26,596 run-of-mine ore tonnes of lead. 59. All of these figures were materially false and misleading, because the 2010
Dynamic Report, which accurately describes production at the entire Ying mine as discussed supra, reported that Silvercorp produced only 534,831 tons of ore, including 126.45 tons of silver, 24,151.65 tons of lead, and 14,666.89 tons of zinc from the Ying mine during the entire period 2005-2009. 60. The following chart summarizes the differences at issue: 23
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Source Date Total Production
2010 Dynamic Report 2005-2009 534,831 tons
6-K filings Calendar 2009 313,421 tonnes ore
2010 40-F Fiscal 2010 mined 312,171 tonnes ore mined
Silver Production
126.45 tons
145 run-of-mine ore 145 run-of-mine ore tonnes tonnes 26,596 run-of-mine 26,596 run-of-mine ore tonnes ore tonnes 9,288 run-of-mine ore 9,674 run-of-mine ore tonnes tonnes
Lead Production
24,151.65 tons
Zinc Production
14,666.89 tons
61.
Silvercorps 6-K filings in calendar 2010 stated that the Company produced: (a)
310,749 total tonnes of ore mined (56,592 tonnes reported in the 3/31/2010 6-K, 83,212 tonnes reported in the 6/30/2010 6-K, 85,204 tonnes reported in the 9/30/2010 6-K, and 85,741 tonnes reported in the 12/31/2010 6-K), (b) 152 run-of-mine ore tonnes of silver in total (31 tonnes reported in the 3/31/2010 6-K, 40 tonnes reported in the 6/30/2010 6-K, 38 tonnes reported in the 9/30/2010 6-K, and 43 tonnes reported in the 12/31/2010 6-K), (c) 26,065 run-of-mine ore tonnes of lead in total (5,520 tonnes reported in the 3/31/2010 6-K, 6,904 tonnes reported in the 6/30/2010 6-K, 6,558 tonnes reported in the 9/30/2010 6-K, and 7,083 tonnes reported in the 12/31/2010 6-K), and (d) 9,220 run-of-mine ore tonnes of zinc in total (2.034 tonnes reported in the 3/31/2010 6-K, 2,387 tonnes reported in the 6/30/2010 6-K, 2,324 tonnes reported in the 9/30/2010 6-K, and 2,475 tonnes reported in the 12/31/2010 6-K). Its 2011 40-F stated that the total ore mined at the Ying mine for fiscal 2011 (Q2-Q4 of calendar 2010 and Q1 of calendar 2011) was 316,522 tonnes, with 149 run-of-mine ore tonnes of silver produced, 25,716 run-ofmine ore tonnes of lead produced, and 8,889 run-of-mine ore tonnes of zinc produced.. 24
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62.
All of these figures were materially false and misleading, because the 2010
Dynamic Report, which accurately describes production at the entire Ying mine as discussed supra, reported that Silvercorp produced just 207,037 tons of ore, containing 32.17 tons of silver, 5,911.4 tons of lead, 5,162.8 tons of zinc from the Ying mine in 2010. 63. Source Date Total Production The following chart summarizes the differences at issue: 2010 Dynamic Report 2010 207,037 tons 6-K filings Calendar 2010 310,749 tonnes ore 2011 40-F Fiscal 2011 mined 316,522 tonnes ore mined
Silver Production
32.17 tons
152 run-of-mine ore 149 run-of-mine ore tonnes tonnes 26,065 run-of-mine 25,716 run-of-mine ore tonnes ore tonnes 9,220 run-of-mine ore 8,889 run-of-mine ore tonnes tonnes
Lead Production
5,911.4 tons
Zinc Production
5,162.8 tons
64.
Third, the Company misstated the Ying mines run-of-mine ore head grade for
silver, lead, and zinc. Silvercorp represented that the run-of-mine ore head grade for the silver, lead, and zinc produced at the Ying mine was as follows for each quarter of calendar 2010: (a) 429.3 g/t (silver), 7.6 % (lead), and 2.8 % (zinc) for the quarter ended March 31, 2010 (Q4 of fiscal 2010), as stated in the 3/31/2010 6-K; (b) 470.5 g/t (silver), 8.1 % (lead), and 2.8 % (zinc) for the quarter ended June 30, 2010, as stated in the 6/30/2010 6-K; (c) 461 g/t (silver), 7.9 % (lead), and 2.8 % (zinc) for the quarter ended September 30, 2010, as stated in the 9/30/2010 6K; and (c) 499 g/t (silver), 8.3 % (lead), and 2.9 % (zinc) for the quarter ended December 31, 2010, as stated in the 12/31/2010 6-K. Silvercorps 2011 40-F, which spans essentially the same 25
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time period (save for the substitution of the quarter ended March 31, 2011 (Q4 of fiscal 2011) for the quarter ended March 31, 2010)), represented that the run-of-mine ore head grade for the silver produced at the Ying mine was 470 g/t (silver), 8.1 % (lead), and 2.8 % (zinc). 65. All of these figures are materially false and misleading, because the 2010
Dynamic Report, which accurately provides full-mine data for the Ying mine as described supra, from which its entire head grade can be calculated, reveals reported resource drawdown grades at the entire Ying mine during 2010 of roughly 155 g/t for the silver produced (as calculated based on the 207,037 tons of resource drawdown and 32.17 tons of silver produced), 2.9 % for the lead produced (as calculated taking the lead tons produced divided by the total ore produced and multiplied by 100 to get a percent figure), and 2.5 % for the zinc produced (same calculation as lead). 66. These figures are absolutely irreconcilable with the run-of-mine ore grade figures
that Silvercorp set forth in its SEC filings, as discussed above. Because the run-of-mine ore would include waste rock (called dilution) that is excluded from the resource drawdown ore, the run-of-mine ore should yield a lower, not a higher, grade. In other words, for silver the run-ofmine ore figure in Silvercorps SEC filings should be less than, not greater than, the 155 g/t resource drawdown grade that derives from the 2010 Dynamic Reports data. For lead, the runof-mine ore grade figure in the Companys SEC filings should be less than, not greater than, the 2.9% resource drawdown grade figure that derives from the 2010 Dynamic Reports data. For zinc, the run-of-mine ore grade figure in the Companys SEC filings should be less than, not greater than, the 2.5% resource drawdown grade figure that derives from the 2010 Dynamic Reports data. Indeed, by using the dilution data in the AMC Technical Report, the difference between the run-of-mine ore grade figures reported by Silvercorp in 2009 and 2010 and the 26
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resource drawdown grade figures reported in the 2010 Dynamic Report can be calculated. Such calculations reveal that the reported run-of-mine ore grade figure should have been about 40% lower than the resource drawdown grade figures from the 2010 Dynamic Report. 67. Source The following chart summarizes the differences at issue: 2010 Dynamic Report 2010 155 g/t Calendar Year 2010 6-Ks 2011 40-F
Date Silver ROM ore head grade * Lead ROM ore head grade * Zinc ROM ore head grade *
Q1 2010 429.3 g/t
Q2 2010 470.5 g/t
Q3 2010 461 g/t
Q4 2010 499 g/t
Fiscal 2011 470 g/t
2.9%
7.6%
8.1%
7.9%
8.3%
8.1%
2.5%
2.8%
2.8%
2.8%
2.9%
2.8%
* ROM = run-of-mine
68.
As further evidence that the data set forth in Silvercorps SEC-filed Forms 6-K
and 40-F are materially false and misleading, they also do not agree with the figures set forth in the Companys technical reports, prepared by outside qualified persons, covering the same time periods. For instance, the 2012 AMC Technical Report (as revised) reported 2010 run-of-mine ore tonnage, produced silver tonnage, run-of-mine ore grade, and resource drawdown grade figures for the Ying mine that also differed from those set forth in the Companys SEC filings.
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Defendants False And Misleading Statements About Silvercorps Compliance With The U.S. Federal Securities Laws And Chinese Mining Laws, Regulations And Rules 69. During the Class Period, Silvercorp also made materially false and misleading
statements regarding its compliance with applicable laws, rules, and regulations, including both the U.S. federal securities laws and the Chinese legal and regulatory regime regarding mining discussed supra. For instance: (a) In a letter to the SEC dated February 23, 2010, which Silvercorp filed with the
SEC the same day, the Company stated: We operate all four of our mines, i.e. the Ying, HPG, TLP and LM mines, in China. Our permitting and commissioning process are undertaken in accordance with the Chinese mining law and regulations. The process is rigorous. (b) In a Management Information Circular dated August 26, 2010, which was filed
with the SEC as an attachment to a form 6-K on September 1, 2010, the Company touted the fact that its board of directors had approved a formal Code of Business Conduct and Ethics. It added (with emphasis added): The Code [of Business Conduct and Ethics] is applicable to all employees, consultants, officers and directors, regardless of their position with the Company, at all times and everywhere the Company does business. The Code provides that the Companys employees, consultants, officers and directors will uphold its commitment to a culture of honesty, integrity and accountability. The Board has not granted any waiver of the Code in favor of a director or executive officer, and no material change report has been required or filed in connection with the Code. (c) The Companys Code of Business Conduct and Ethics, available on the
Silvercorp website, in turn states as follows (with italicized emphasis added): We require high standards of professional and ethical conduct from our employees. Our reputation with our shareholders, business partners, prospective investors and other stakeholders for honesty and integrity is key to the success of our business. No employee will be permitted to achieve results through 28
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violations of laws or regulations, or through unscrupulous dealings. We intend that the Corporations business practices will be compatible with the economic and social priorities of each location in which we operate. Although customs vary by country and standards of ethics may vary in different business environments, honesty and integrity must always characterize our business activity. If a law conflicts with a policy in this Code, you must comply with the law; however, if a local custom or policy conflicts with this Code, you must comply with the Code. If you have any questions about these conflicts, you should ask your supervisor how to handle the situation. This Code reflects our commitment to a culture of honesty, integrity and accountability and outlines the basic principles and policies with which all employees are expected to comply. Please read this Code carefully and sign at the bottom to acknowledge it has been read and that you will undertake to comply with the Code at all times. *** Those who violate the standards set forth in this Code will be subject to disciplinary action up to and including dismissal. *** Compliance with the letter and spirit of all laws, rules and regulations applicable to our business is critical to our reputation and continued success. All employees must respect and obey the laws of the cities, provinces, states and countries in which we operate and avoid even the appearance of impropriety. (d) In connection with the Companys December 2010 Offering, the Company filed a
Form 6-K with the SEC on December 8, 2010 that attached the Underwriting Agreement dated December 7, 2010, in which it represented and warranted as follows (with emphasis added): 5.1 The Company represents and warrants to the Underwriters, and acknowledges that the Underwriters are relying upon such representations and warranties in entering into this Agreement, that: *** (aa) other than as disclosed in the Continuous Disclosure Materials, there are no material actions, suits, judgments, investigations or proceedings of any kind whatsoever outstanding or, to the Companys knowledge, pending, threatened against or affecting the Company or the Material Subsidiaries, or to the Companys knowledge, their respective directors or officers at law or in equity or before or by any federal, provincial, state, municipal or other governmental department, commission, board, bureau or agency of any kind whatsoever and, to the Companys knowledge, there is no basis therefor; 29
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*** (dd) none of the Company nor the Material Subsidiaries and to the Companys knowledge their respective directors, officers are in breach of any law, ordinance, statute, regulation, by-law, order or decree of any kind whatsoever where non-compliance would have a material adverse effect on the Company or the Material Subsidiaries; 70. These statements were materially false and misleading when made, because in
actuality, the Companys Forms 6-K and 40-F during the Class Period, as described supra, contained extensive false and misleading statements regarding Silvercorps mining operations and its customer sales, as set forth in detail herein, in violation of U.S. federal securities laws. 71. In addition, the Companys 2010 production at the Ying mine 207,037 tons as
stated in the 2010 Dynamic Report exceeded the production limit (198,000 tons) set by the Ying mines permit. As such, in 2010, the Company operated the Ying mine in violation of its permit, and by extension, in violation of the Chinese legal and regulatory regime described supra. This is an additional reason why the Companys statements regarding legal compliance, as described above, were materially false and misleading. Defendants False And Misleading Statements About Silvercorps Largest Customer 72. During the Class Period, Silvercorps reported financial results were materially
misleading due to a disclosure failure, in violation of Canadian GAAP, regarding its largest customer, Yongning Smelting Co. Ltd. (Yongning). In 2010 alone, Yongning accounted for at least 28.2% of Henan Founds sales (at least 272,154,827 RMB out of 964,812,316 RMB). 73. Yongning was in a construction phase through Q2 of fiscal 2010 (the quarter
ended September 30, 2009) and commenced trial production during Q3 of fiscal 2010 (the
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quarter ended December 31, 2009). Silvercorp made sales to Yongning as early as Q3 of fiscal 2010, thereby triggering the disclosure obligations discussed below. 74. During the Class Period, Silvercorps ownership interest in Yongning fluctuated
between 11.75 % and 18 %, becoming 15 % as of Q2 of fiscal 2011 (the quarter ended September 30, 2010). 75. As such, as explained below, under Canadian GAAP and International Financial
Reporting Standards (IFRS), Silvercorp was required to make related party disclosures regarding its sales to Yongning. 76. Canadian GAAP makes clear that [i]nformation about related party transactions
is often of more significance to a financial statement user than information about unrelated party transactions, regardless of the size of such transactions. See Canadian Institute of Chartered Accountants Handbook (CICA HB) 3840 48. 77. Under Canadian GAAP, [r]elated parties exist when one party has the ability to
exercise, directly or indirectly, control, joint control or significant influence over the other. Two or more parties are related when they are subject to common control, joint control or common significant influence. See CICA HB 3840 3 (g). Silvercorps 15 % ownership stake and its representation on Yongnings board of directors enabled Silvercorp to exercise joint control over Yongning. Joint control of an economic activity is the contractually agreed sharing of the continuing power to determine its strategic operating, investing and financing policies. See CICA HB 3840 3(e). Ownership interest and joint control are examples of some of the most commonly encountered related party relationships to which Canadian GAAP applies. See CICA HB 3840 4. Thus, Yongning was a related party to Silvercorp under Canadian GAAP.
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78.
As such, for all periods through the end of fiscal year 2011 (year ended March 31,
2011), the Company was subject to extensive disclosure requirements under Canadian GAAP regarding its sales to Yongning. These included, among others, disclosure describing the
relationship between Silvercorp and Yongning, a description of the sale transaction, and the recognized amount of the sale transaction. See CICA HB 3840 46. 79. In violation of these Canadian GAAP standards, the Companys 12/31/2009 6-K,
its 3/31/2010 6-K, its 2010 40-F, its 6/30/2010 6-K, its 9/30/2010 6-K, its 12/31/2010 6-K, its 3/31/2011 6-K, and its 2011 40-F all made materially false and misleading statements and omissions in reporting financial results while failing to disclose related party sales to Yongning in conformance with and with the level of detail required by Canadian GAAP, including in particular CICA HB 3840 46. 80. During fiscal 2012, Silvercorp was subject to IFRS reporting standards. Under
these standards as well, Silvercorp was obligated to make related party disclosures regarding Yongning, because the related party definition was met. See International Accounting Standard No. 24 (IAS 24), 9. 81. As such, Silvercorp was required under IFRS to not only make disclosures about
its sales to Yongning, but to also disclose information about its relationship with Yongning, irrespective of whether there have been any transactions with Yongning. See IAS 24 13. In addition, the Company was required to disclose the nature of its relationship with Yongning, the amount of the sale transaction, and its terms and conditions. See IAS 24 18-19. 82. In violation of these IFRS standards, the Companys 6/30/2011 6-K made
materially false and misleading statements and omissions in reporting financial results while
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failing to disclose related party sales to Yongning in conformance with and with the level of detail required by IAS 24 13, 18 and 19. 83. The foregoing allegations regarding Yongning are buttressed by those regarding
the problems and concerns regarding several other of Silvercorps customers, as discussed infra. VI. 84. THE TRUTH CONCEALED BY DEFENDANTS MISCONDUCT IS REVEALED, CAUSING INVESTORS LOSSES On September 13, 2011, investor Jon Carnes published a report on alfredlittle.com
(the 9/13/2011 Carnes Report) that revealed the truth about the matters alleged herein, by raising significant concerns regarding aspects of Silvercorps business and operations. It
attached copies of the 2010 Dynamic Report, in both Chinese and English translation, among other documents. It questioned, inter alia, the veracity of the Companys publicly reported resource, production, and grade data for its Ying mine and the Companys nondisclosures regarding related party customer Yongning. 85. In the wake of the revelations in the 9/13/2011 Carnes Report, Silvercorps stock
price fell $1.54 per share or nearly 20%, on heavy trading volume, to close at $6.30 per share on September 13, 2011. 86. In its response to the 9/13/2011 Carnes Report, set forth in a pair of Canadian and
Chinese press releases dated September 14, 2011, Silvercorp told a series of falsehoods that served to temporarily mute the stock price effect of the preceding days revelations. Notably, the Company did not refute the accuracy of the figures set forth in the 2010 Dynamic Report. Instead, Silvercorp merely asserted that the 2010 Dynamic Report: (a) was not a full-mine report, (b) was based solely on limited pre-May 2005 exploration results, (c) was not reviewed and checked by an independent qualified person, (d) does not include production figures from veins 33
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discovered and explored post-May 2005, and (e) need not be updated until renewal of the mining permit for the Ying mine in September 2014. These were false exculpatory statements. Each of these contentions runs directly afoul of the extensive body of Chinese laws, Circulars, Measures, regulations, and rules described supra and, as such, lacks merit for that reason and others. The Company also asserted that neither Canadian GAAP nor IFRS standards considered the Companys sales to Yongning to be a related party transaction. This contention runs directly afoul of the Canadian GAAP and IFRS provisions described supra, and, as such, lacks merit. VII. ADDITIONAL FACTS PROBATIVE OF SCIENTER 87. Defendants had a strong motive to inflate the price of the Companys stock during
the Class Period, in the form of the nearly $117 million December 2010 Offering. 88. In addition, events following the revelations in the 9/13/2011 Carnes Report have
only served to buttress the already strong inference of Defendants scienter. In particular, Silvercorps conduct has flagrantly violated laws, common sense, and common human decency, lashing out at anyone who dares question the irreconcilable discrepancies between its reported data in China and the U.S. To quote Shakespeare, The lady doth protest too much, methinks. 89. Retribution. Silvercorps aggression has targeted the investor who authored the
9/13/2011 Carnes Report, suing him in U.S. court. As reported by The Globe and Mail (TGM) on September 8, 2012, the Company also targeted the reports author through those he employed to assist in the reports preparation. TGM stated it had obtained documents, including receipts for police expenses, showing that Silvercorp worked with local Chinese authorities and paid for an investigation that led to the arrest and long-term detention of Huang Kun (a Canadian citizen) and the arrest and interrogation of two of his associates. Mr. Huang has been interrogated, held without charge, had his personal property (phone, laptops, glasses, passport) confiscated, and has 34
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been forced to pay a $32,000 unofficial bail (only to be re-imprisoned). TGM reported that Mr. Huang had reason to believe that Silvercorp provided interrogation instructions and a company car (in which Mr. Huang was transported 150 km) to assist the police. Such conduct would violate both Canadian and Chinese law. Defendant Feng virtually admitted the Companys involvement, telling TGM that The police sometimes do contact me and We are big taxpayers in the Luoyang County. Mr. Huang remains jailed and has yet to be charged. 90. Switched Chinese Financial Reports. On the heels of the 9/13/2011 Carnes
Report, another investor, Anthion Management LLC, published a report on September 14, 2011, raising similar concerns about the Company. Among other things, this report stated that the investor had previously obtained financial statements filed by Silvercorp with the Chinese State Administration for Industry & Commerce (SAIC) for the years 2008 and 2009, which indicated a substantial conflict with the Companys reported financial results in its SEC filings. However, a second version of Silvercorps SAIC financials was later delivered to the investor, unsolicited, reporting financial results that were different from, and higher than, those it had previously pulled. Later, the Company addressed concerns about discrepancies between its SAIC and its SEC filings by relying on a commissioned report by KPMG Forensic, Inc. (KPMG). However, Silvercorp did not release a copy of the KPMG report, instead providing only a press release summary. Moreover, its summary described KPMGs work as being based in part on KPMGs on-site review of the Companys audited financial statements filed with the SAIC at the time of the KPMG visit. (Emphasis added.) Silvercorp sued this investor, too. 91. Knowing Complicity In A Purported Government Fraud. On September 20,
2011, yet another investor, Adam Gefvert, published an evaluation of Silvercorp. He had sought to investigate the claim that the sale, at auction, by the Companys joint venture partner of a 5 % 35
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stake in Henan Found for $7 million implied a very low total value for Henan Found of $140 million. Specifically, he sought to challenge the Companys assertion that the sale was to an affiliate of the joint venture partner, which is a Chinese government entity, such that it should not be the basis of a full-Company valuation. When the investor highlighted that the sale was the result of an auction, the Companys investor relations staff told him that the auction was a hoax by the Chinese government, to create the appearance of a free society, but that things are done differently in China as compared to the West. In other words, Silvercorps investor relations staff asserted that the Company knowingly bore witness to a government-sanctioned fraud. 92. Shaky Customer Base. In addition to the Companys false and misleading
statements and omissions regarding the Companys largest customer, Yongning, its roster of largest customers is replete with questionable entities. The Companys # 5 customer in 2010 (accounting for sales of RMB 62,795,754, or roughly $9.2 million, equating to 6.5 % of 2010 sales), Jiyuan Zhongse Mining Co., Ltd. (JZM), was registered on September 9, 2009. In September 2011, the author of the 9/13/2011 Carnes Report raised concerns about JZM, given that he could not locate a valid phone number or registered address for it. Three months later, JZM cancelled its registration. The Companys # 12 customer in 2010 (accounting for sales of RMB 8,229,438, or roughly $1.2 million), Luoyang Linggang Minerals Trading Co., Ltd. (LLMT) was registered just over a month later, on October 15, 2009. LLMT likewise
\cancelled its registration, on December 20, 2012. The Companys # 14 customer in 2010 (accounting for sales of RMB 5,680,711, or roughly $839,100), Luoyang Tonggang Trading Co., Ltd. (LTT), was formed just a month after the similarly named LLMT. All three of these entities were created with registered capital of just RMB 500,000 (roughly $73,206).
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93.
In the wake of all the foregoing, the Company now faces a Corruption of Foreign
Public Officials Act investigation by the Royal Canadian Mounted Polices Anti-Corruption Unit related to the arrest and detention of Mr. Huang and his associates and a subpoena from the SEC related to the concerns raised by various investors. VIII. CO-LEAD PLAINTIFFS CLASS ACTION ALLEGATIONS 94. Co-Lead Plaintiffs bring this action as a class action pursuant to Federal Rules of
Civil Procedure 23(a) and (b)(3) on behalf of a Class consisting of all persons who purchased the common stock of Silvercorp during the Class Period and who were damaged thereby. Excluded from the Class are Defendants, the present and former officers and directors of Silvercorp and any subsidiary thereof, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which defendants have or had a controlling interest. 95. The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Silvercorps stock was actively traded on the NYSE. 96. While the exact number of Class members is unknown to Co-Lead Plaintiffs at
this time and can only be ascertained through appropriate discovery, Co-Lead Plaintiffs believe that there are at least hundreds, if not thousands, of members in the proposed Class. Class members may be identified from records maintained by Silvercorp or its transfer agent and may be notified of the pendency of this action by mail and/or publication, using a form of notice customarily used in comparable securities class actions. 97. Co-Lead Plaintiffs claims are typical of the claims of Class members, as all
members of the Class are similarly affected by Defendants wrongful conduct in violation of the federal securities laws that is complained of herein.
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98.
Co-Lead Plaintiffs will fairly and adequately protect the interests of the members
of the Class and have retained counsel competent and experienced in class and securities litigation. 99. Common questions of law and fact exist as to all Class members and predominate
over any questions solely affecting individual Class members. Among the questions of law and fact common to the Class are: a. alleged herein; b. whether statements made by Defendants to the investing public during the whether the federal securities laws were violated by Defendants acts as
Class Period misrepresented material facts about the business, and financial performance of Silvercorp; and c. to what extent the Class members have sustained damages and the proper
measure of damages. 100. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all Class members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for Class members to redress individually the wrongs done to them. There will be no difficulty in the management of this action as a class action. IX. 101. NO SAFE HARBOR
The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint. Many of the specific statements pleaded herein were not identified as forward-looking 38
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statements when made. To the extent there were any forward-looking statements, there were no meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the purportedly forward-looking statements. Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein, Defendants are liable for those false forward-looking statements because at the time each of those forward-looking statements were made, the particular speaker knew that the particular forward-looking statement was false, and/or that the forward-looking statement was authorized and/or approved by an executive officer of Silvercorp who knew that those statements were false when made. X. 102. 103. THE CLAIMS ARE TIMELY
The claims set forth herein are timely filed. The market was not aware until September 13, 2011 that the resource, production,
and grade of Silvercorps mineral production at its flagship Ying mine had been materially misrepresented, or that it had significant issues regarding its legal and accounting compliance. 104. It likewise was not until September 13, 2011 that Co-Lead Plaintiffs were first
presented with credible evidence of the probability that Defendants had made materially false and misleading statements to investors during the Class Period. In the absence of publicly available information prior to that date suggesting that Silvercorps mineral production data included in its SEC filings during the Class Period were materially false and/or misleading or that it had significant problems with its legal and accounting compliance, Co-Lead Plaintiffs were not under any duty to inquire as to the truthfulness of the Companys public statements. Therefore, Co-Lead Plaintiffs duty in that regard first arose on September 13, 2011.
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105.
Prior to September 13, 2011, Co-Lead Plaintiffs and Class Members were not on Co-Lead Plaintiffs
inquiry notice of possible claims under the Securities Exchange Act.
Securities Exchange Act claims against Defendants are brought within two years of discovery of the probability that statements made by Defendants during the Class Period contained materially false and/or misleading statements. requirements of 28 U.S.C. 1658(b). XI. 106. LOSS CAUSATION/ECONOMIC LOSS Therefore, Co-Lead Plaintiffs have complied with the
During the Class Period, as detailed herein, Defendants engaged in a scheme to
deceive the market and a course of conduct that artificially inflated the prices of Silvercorp common stock and operated as a fraud or deceit on Class Period purchasers of Silvercorp common stock by misrepresenting the material facts detailed herein. When Defendants prior misrepresentations and fraudulent conduct were revealed to the market, the price of Silvercorp common stock fell precipitously as the prior artificial inflation came out. As a result of their purchases of Silvercorp common stock during the Class Period, Co-Lead Plaintiffs and the other Class members suffered economic loss, i.e., damages, under the federal securities laws. 107. During the Class Period, Defendants presented a misleading picture of
Silvercorps business and prospects, financial position, and results of operations. Defendants false and misleading statements had the intended effect and caused Silvercorp common stock to trade at artificially inflated levels throughout the Class Period, reaching as high as $16.32 per share on April 8, 2011. 108. In response to the issuance of the investor report on September 13, 2011, the price
of Silvercorp common stock dropped dramatically, declining from its closing price of $7.84 per share on September 13, 2011, to $6.30 per share on September 14, 2011 a loss of nearly 20%, 40
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on heavy trading volume. This drop removed the inflation from the price of Silvercorp common stock, causing real economic loss to investors who had purchased Silvercorp common stock during the Class Period. 109. The decline was a direct result of the nature and extent of Defendants fraud
finally being revealed to investors and the market. The timing and magnitude of the price decline in Silvercorp common stock negates any inference that the loss suffered by Co-Lead Plaintiffs and the other Class members was caused by changed market conditions, macroeconomic or industry factors or Company-specific facts unrelated to Defendants fraudulent conduct. The economic loss, i.e., damages, suffered by Co- Lead Plaintiffs and the other Class members was a direct result of Defendants fraudulent scheme to artificially inflate the prices of Silvercorp common stock and the subsequent significant decline in the value of Silvercorp common stock when Defendants prior misrepresentations and other fraudulent conduct were revealed. XII. RELIANCE PRESUMPTION 110. At all relevant times, the market for Silvercorp common stock was an efficient
market for the following reasons, among others: a. Silvercorp stock met the requirements for listing, and was listed and
actively traded on the NYSE under ticker symbol SVM. The NYSE is a highly efficient and automated market; b. Silvercorp had issued and outstanding approximately 162,287,528
common shares as of December 31, 2010; c. On average, over 6% of Silvercorps 162,287,528 outstanding shares were
traded on the NYSE on a weekly basis during the Class Period.
41
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d.
As a regulated issuer Silvercorp filed with the SEC periodic public reports
and was eligible to file F-3 registration statements with the SEC during the Class Period; e. Silvercorp regularly communicated with public investors via established
market communication mechanisms, including regular disseminations of press releases on the national circuits of major newswire services and other wide-ranging public disclosures, such as communications with the financial press and other similar reporting services; and f. Silvercorp was followed by several securities analysts employed by major
brokerage firms who wrote reports that were distributed to the sales force and certain customers of their respective brokerage firms during the Class Period. 111. As a result of the foregoing, the market for Silvercorp common stock promptly
digested current information regarding Silvercorp from all publicly available sources and reflected such information in the prices of the stock. Under these circumstances, all purchasers of Silvercorp common stock during the Class Period suffered similar injury through their purchase of Silvercorp common stock at artificially inflated prices and a presumption of reliance applies. FIRST CAUSE OF ACTION Violation of Section 10(b) of The Exchange Act and Rule 10b-5 Promulgated Thereunder Against All Defendants 112. 113. Co-Lead Plaintiffs incorporate all paragraphs above as if fully set forth herein. During the Class Period, Defendants carried out a plan, scheme and course of
conduct which was intended to, and throughout the Class Period, did: (1) deceive the investing public, including Co-Lead Plaintiffs and other Class members, as alleged herein; and (2) cause 42
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Co-Lead Plaintiffs and other Class members to purchase and/or sell Silvercorps securities at artificially inflated and/or distorted prices. In furtherance of this unlawful scheme, plan and course of conduct, Defendants, individually and as a group, took the actions set forth herein. 114. Defendants, individually and in concert, directly and indirectly, by the use, means
or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a continuous course of conduct to conceal adverse material information about the business, operations and future prospects of Silvercorp as specified herein. 115. Defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a course of conduct as alleged herein in an effort to assure investors of Silvercorps value and performance and continued substantial growth, which included the making of, or the participation in the making of, untrue statements of material facts and omitting to state material facts necessary in order to make the statements made about Silvercorp and its business operations and financial condition, in light of the circumstances under which they were made, not misleading, as set forth more particularly herein, and engaged in transactions, practices and a course of business that operated as a fraud and deceit upon the purchasers of Silvercorp securities during the Class Period. 116. Each of the Defendants primary liability, and controlling person liability, arises
from the following: (a) Defendants each made materially false and misleading statements during the Class Period, as set forth above; (b) Defendants were high-level executives, directors, and/or agents at the Company during the Class Period and members of the Companys management team or had control thereof; (c) by virtue of their responsibilities and activities as senior officers and/or directors of the Company, were privy to and participated in the creation, development and 43
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reporting of the Companys internal budgets, plans, projections, operations, results, and/or reports; (d) Defendants enjoyed significant personal contact and familiarity with the other members of the Companys management team, internal reports and other data and information about the Companys operations, and/or (e) Defendants were aware of their and the Companys dissemination of information to the investing public which they knew or recklessly disregarded was materially false and misleading. 117. Defendants had actual knowledge of the misrepresentations and omissions of
material facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were available to them. Defendants material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing Silvercorps true operations and financial condition from the investing public and supporting the artificially inflated price of its securities. As demonstrated by Defendants false and misleading statements during the Class Period, Defendants, if they did not have actual knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain such knowledge by failing to take steps necessary to discover whether those statements were false or misleading. 118. As a result of the dissemination of the materially false and misleading information
and failure to disclose material facts, as set forth above, the market price for Silvercorps securities was artificially inflated during the Class Period. 119. In ignorance of the fact that market prices of Silvercorps publicly-traded
securities were artificially inflated or distorted, and relying directly or indirectly on the false and misleading statements made by defendants, or upon the integrity of the market in which the Companys securities trade, and/or on the absence of material adverse information that was 44
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known to or recklessly disregarded by Defendants but not disclosed in public statements by Defendants during the Class Period, Co-Lead Plaintiffs and the other Class members acquired Silvercorps securities during the Class Period at artificially high prices and were damaged thereby. 120. At the time of said misrepresentations and omissions by Defendants, Co-Lead
Plaintiffs and other Class members were ignorant of their falsity, and believed them to be true. Had Co-Lead Plaintiffs and the other Class members and the marketplace known the truth regarding Silvercorps business and operations, financial results, and condition, which were not disclosed by Defendants, Co-Lead Plaintiffs and other Class members would not have purchased or otherwise acquired Silvercorp securities, or, if they had acquired such securities during the Class Period, they would not have done so at the artificially inflated prices or distorted prices at which they did. 121. By virtue of the foregoing, the defendants have violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder. 122. As a direct and proximate result of the Defendants wrongful conduct, Co-Lead
Plaintiffs and the other Class members suffered damages in connection with their respective purchases and sales of the Companys securities during the Class Period. 123. This action was filed within two years of discovery of the fraud and within five
years of each Co-Lead Plaintiffs purchases of securities giving rise to the cause of action. SECOND CAUSE OF ACTION Violation of Section 20(a) of The Exchange Act Against the Individual Defendants 124. Co-Lead Plaintiffs incorporate all paragraphs above as if fully set forth herein. 45
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125.
The Individual Defendants acted as controlling persons of Silvercorp within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions, agency, and their ownership and contractual rights, participation in and/or awareness of the Companys operations and/or intimate knowledge of aspects of the Companys revenues and earnings and dissemination of information to the investing public, the Individual Defendants had the power to influence and control, and did influence and control, directly or indirectly, the decision-making of the Company, including the content and dissemination of the various statements that Co-Lead Plaintiffs contend are false and misleading. The Individual Defendants were provided with or had unlimited access to copies of the Companys reports, press releases, public filings and other statements alleged by Co-Lead Plaintiffs to be misleading prior to and/or shortly after these statements were issued, and had the ability to prevent the issuance of the statements or to cause the statements to be corrected. 126. In particular, each of these Defendants had direct and supervisory involvement in
the day-to-day operations of the Company and, therefore, is presumed to have had the power to control or influence the particular transactions giving rise to the securities violations as alleged herein, and exercised the same. 127. Moreover, each of these Defendants made the material misrepresentations in the
Companys 2010 40-F and 2011 40-F, as described above. 128. As set forth above, Silvercorp violated Section 10(b) and Rule 10b-5 as alleged in
this Complaint. 129. By virtue of their positions as controlling persons, the Individual Defendants are
liable pursuant to Section 20(a) of the Exchange Act as they culpably participated in the fraud alleged herein. As a direct and proximate result of Defendants wrongful conduct, Co-Lead 46
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Plaintiffs and other Class members suffered damages in connection with their purchases of the Companys common stock during the Class Period. 130. This action was filed within two years of discovery of the fraud and within five
years of each Co-Lead Plaintiffs purchases of securities giving rise to the cause of action. XIII. JURY TRIAL DEMANDED 131. Co-Lead Plaintiffs hereby demand a trial by jury.
WHEREFORE, Co-Lead Plaintiffs pray for relief and judgment, as follows: a. Determining that this action is a proper class action and certifying Co-Lead
Plaintiffs as class representatives under Rule 23 of the Federal Rules of Civil Procedure and their choice of counsel, Lead Counsel, as Class Counsel; b. Awarding compensatory damages in favor of Co-Lead Plaintiffs and the other
Class members against all Defendants, jointly and severally, for all damages sustained as a result of Defendants wrongdoing, in an amount to be proven at trial, including interest thereon; c. Awarding Co-Lead Plaintiffs and the Class their reasonable costs and expenses
incurred in this action, including counsel fees and expert fees; d. Awarding Co-Lead Plaintiffs equitable/injunctive and further relief under Section
20A of the Exchange Act; and e. Awarding Co-Lead Plaintiff such other and further relief as the Court may deem
just and proper.
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47
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Dated: May 24, 2013
Respectfully submitted, POMERANTZ GROSSMAN HUFFORD DAHLSTROM & GROSS, LLP ~~ Marc 1. Gross Jeremy A. Lieberman Matthew L. Tuccillo 600 Third Avenue, 20th Floor New York, New York 10016 Telephone: (212) 661-1100 Facsimile: (212) 661-8665 migross@pomlaw.com jalieberman@pomlaw.com mltuccillo@pomlaw.com Patrick V. Dahlstrom POMERANTZ GROSSMAN HUFFORD DAHLSTROM & GROSS, LLP 10 South La Salle Street, Suite 3505 Chicago, Illinois 60603 Telephone: (312) 377-1181 Facsimile: (312) 377-1184 pvdahlstrom@pomlaw.com Lead Counsel
Laurence Rosen Phillip Kim THE ROSEN LAW FIRM P.A. 275 Madison Avenue, 34th Floor New York, NY 10016 Telephone: (212) 686-1060 Facsimile: (212) 202-3827 lrosen@rosenlegal.com William B . Federman FEDERMAN & SHERWOOD 10205 North Pennsylvania Avenue Oklahoma City, Oklahoma 73120 Telephone: (405) 235-1560 Facsimile: (405) 239-2112 wbf@federmanlaw.com Other Plaintiffs' Counsel 48
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EXHIBIT 1
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2006.05.10 [2006]87 2006.05.10
[2006]4 [2005]28 2007 12 31 1
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6 30 2006 5 10
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EXHIBIT 2
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Circular of the Land and Resources Ministry on Comprehensive Dynamic Supervision and Management on Mine Reserves
Issued by: Land and Resources Ministry Date of Promulgation: May 10, 2006
Article No.: (No. [2006] 87 of the MLR) Date of Implementation: May 10, 2006
Land and Resources Departments of All Provinces, Autonomous Regions and Municipalities (Land Environmental and Resources Department, Land and Resources Bureau, and Land Resources and Housing Administration Bureau): To implement the Decision of State Council on Strengthening Geological Work (No. [2006] 4 of GuoFa) and the Circular of the State Council for Comprehensive Rectification and Regulation on the Exploitation Order of Mineral Resources (No. [2005] 28 of GuoFa) and strongly promote the protection and rational utilization of resources, on the basis of summarizing the pilot experiences, the Ministry has decided to carry out the comprehensive dynamic supervision and management on mine reserves. The relevant matters are notified as follows: I. Fully Recognize the Significance of Dynamic Supervision and Management on Mine Reserves
Geological survey on mine reserves is an important groundwork for mastering the changes in the geological condition and the mine reserves. Fostering mine geological survey institutions according to laws, supervising mine enterprises to carry out the geological survey on mine reserves and using a combination of legal, economic and necessary administrative means to strengthen the dynamic supervision and management of mineral reserves in the whole process of mineral exploitation is of great significance for encouraging mine enterprises to value and reasonably develop and utilize resources, promoting the role of land and resources management to be fully in place and constructing a resource-conserving society. II. General Requirements on the Dynamic Supervision and Management on Mine Reserves
(1) A clear segregation of duties and implementation of responsibility. The Land and Resources Ministry shall be responsible for the dynamic supervision and management on the reserves of oil, natural gas (CBM), radioactive minerals, among which the dynamic supervision and management on the radioactive mineral reserves is entrusted to China Nuclear Industry Corporation. The Land and Resources Departments of all provinces (autonomous regions and municipalities) shall be responsible for the dynamic supervision and management on other mineral reserves.
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Land and resources authorities shall carefully fulfill the function of supervision and management. Mineral resources reserves statistical registration, collection of mineral resources compensation fee and mining right evaluation must be based on mine reserves annual report that has been reviewed. Application for reserves reimbursing and writing-off and mine closing down must be made by mine enterprises in accordance with the Interim Measures for the Supervision and Management on Mineral Resources. For mines with unclear resources and fraudulent mine reserves, land and resources authorities shall urge mine enterprises to do additional geological work to verify resource reserves and perform the filing and registration process of reserves evaluation. Mine enterprises shall conduct geological survey on mine reserves as required, shall submit the changes in mine reserves to the land and resources administration departments in accordance with laws and regulations. Those failing to conduct geological survey according to laws and regulations and to submit annual reports on mine reserves shall not pass through the annual inspection of mineral resources development and utilization. Mine geological survey institutions shall strengthen self-construction, improve staff quality, employ advanced technology and methods, standardize services, operate honestly and trustworthily, and provide services such as survey and report preparation independently, objectively and impartially. (2) Careful deployment and Solid Progress. The supervision and management as prescribed herein shall be implemented in the pilot provinces (autonomous regions and municipalities) who have better condition; other provinces, autonomous regions and municipalities shall put emphasis on the dynamic supervision and management on the reserve of coal, iron, copper, aluminum and other important minerals this year, based on which experience shall be summed up and system shall be perfected. By the end of 2007, all provinces (autonomous regions and municipalities) shall establish the system for dynamic supervision and management on mine reserves. Mine enterprises shall complete the geological survey on its utilization, consumption and losses of resource reserves by December 31 of each year, set up the technical filing and the mine reserves ledger, and submit the annual report on mine reserves to the land and resources authorities before the end of January of next year. Annual reports on mine reserves shall include: available and cumulative identified reserves, basic reserves and quantity of resources; exploited and wasted reserves of the reporting year; explored and calculated changes to resource reserves of the reporting year; reserves planned to be used in next year; other information related to the management of mineral reserves. (3)To foster institutions and normalize services. Encourage to establish mine geological survey institutions as independent third parties. Encourage those mine enterprises with better conditions to establish its own mine geological survey institutions. Regulate the activities of all kinds of mine geological survey institutions, raise clear requirements and manage the qualifications of such institutions strictly in accordance with the laws. Mine enterprises shall select mine geological survey institutions based on the principle of
2
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equality, voluntariness and paid-service. Both parties shall conclude and strictly perform the contract for geological survey. Land and resources authorities shall not interfere in the choice of or specify the mine geological survey institutions in principle. For concentrated areas of mine spread, in order to limit the cost of the mine geological survey into reasonable scope, land and resources authorities may guide and coordinate work of combined survey. Mine geological survey institutions shall take advantage of its technical expertise, provide normalized technical advisory services and guide scientific mining, from which mine enterprises may get benefits. (4) Improve the system and strict the procedures. The land and resources authorities of all provinces (autonomous regions and municipalities) shall formulate specific implementation plan according to requirements herein and the local practice. Such plan shall be submitted and reported to the Ministry on or before June 30. The Ministry will timely organize investigation and survey, conduct supervision and inspection, and summarize experience so as to guide the normal work of the dynamic supervision and management on mine reserves nationwide. The land and resources authorities shall review the annual reports on mine reserves through self-examination by mine geological survey institutions, mutual examinations and experts selective examinations. III. Guarantee the Implementation and Pursue to Actual Effectiveness (1) To deepen understanding and to strengthen the leadership. Dynamic supervision and management on mine reserves involves a wide range and enormous amount of work, of strong policy nature and technical color. The land and resources authorities of all provinces (autonomous regions and municipalities) shall strengthen the leadership, meticulously deploy and carefully organize related work, commit responsibility and establish evaluation system. Specific works related to dynamic supervision and management on mine reserves shall be entrusted to all the land and resources authorities of the lowest level, giving full play to the role of the land and resources authorities of prefecture-level cities and counties. (2) Extensive publicity and training. Land and resources authorities shall intensify propaganda and training, to make the managerial personnel of land and resources reserves, practitioner of mine geological survey institutions, related personnel of mine enterprises fully understand the importance of the dynamic supervision and management on mine reserves, meet the job requirements and technical requirements, and clarify their respective responsibilities, rights and obligations. (3) Allocation of fund and pursuit of actual effectiveness. Dynamic supervision and management on mine reserves is a day-to-day work, land and resources authorities shall arrange necessary funds to ensure the work proceed smoothly and to obtain actual effect, shall sum up experience in time and timely report important information to the Ministry.
May 10, 2006

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Land and Resources Ministry
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EXHIBIT 3
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2006 109
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: 12 31 ()
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( )
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()
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EXHIBIT 4
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Document of Land and Resources Department of Henan Province
(No. [2006] 109 of Yu GuoTuZiFa)
Land and Resources Department of Henan Province Circular for Strengthening the Dynamic Supervision and Management on Mines Reserve
Land and Resources Bureau of each Province-governed Municipality: The Measures of Henan for the Dynamic Supervision and Management on the Mineral Reserve is printed and distributed to you, please implement it conscientiously. If any problems happen during the implementation, please report to Land and Resources Department in time.
Attachment: Measures of Henan for the Dynamic Supervision and Management on the Mineral Reserve
August 8, 2006
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Interim Measures of Henan for the Dynamic Supervision and Management on the Mineral Reserve CHAPTER ONE GENERAL PROVISIONS Article 1 This Measures are enacted in accordance with Mineral Resources Law and accompanying laws and regulations, with a purpose to safeguard state ownership of mineral resources and the legitimate rights and interests of mining-right owners, to implement supervision and management on the mineral reserve, and to strengthen protection and rational utilization of mineral resources. Article 2 Any mine enterprise mining resources (except petroleum, natural gas and radioactive minerals), and any geological survey institution and reserves monitoring and supervision management personnel within this province shall observe this Measures. Article 3 Land and Resources Department of Henan Province shall be in charge of the whole provinces dynamic supervision and management on mines reserve. Land and Resources administrative department of province-governed municipality and county (city and district) shall be in charge of the dynamic supervision and management on mine reserve within its jurisdiction. Article 4 Dynamic supervision and management on mine reserves refers to land and resources administrative departments dynamic supervision and management on mining and use of reserves, as well as review, verification and approval of mine enterprises mining plan and written-off and damage of the reserves, in accordance with mineral resources management laws and rules, geological technical specifications and standards, and based on the mines mineral resources reserves registration. During the mining process, mine enterprise shall carry out reserve management well, improve material recovery rate, implement dynamic reconnaissance on the mineral reserve utilization, and fulfill mining-right owners obligations. Article 5 Mineral reserve dynamic reconnaissance shall be undertaken by geological survey institutions with relevant qualifications. It shall be conducted in accordance with the Technical Manual of Henan for the Dynamic Reconnaissance on the Mineral Reserves. Article 6 Reserve is the main basis for mining wells design, expanding and reconstructing, developing and deepening, and arranging continuing production. Annual mine reserve utilization and annual change to the utilization/reserve ratio shall be based on statistics proposed and approved by geographic measuring institution. The annual review conclusion of mine reserve utilization and dynamic Reconnaissance shall be the basis for reserve verification during mine enterprises reserve registration statistic and mining rights extension, amendment and transfer. CHAPTER TWO MINERAL RESERVE DYNAMIC RECONNAISSANCE
2
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Article 7 Annual mine reserves utilization plan is of registration system. Within its mining scope, mine enterprise shall report its annual mine reserve utilization plan to land and resource administrative department, confirming mining block, exploitation quantity and mining recovery rate, based on its mineral resources reserve registration and mines exploitation plan and design capacity. Article 8 Annual mine reserve utilization plan registration shall include following materials: 1) Registration application form of annual mine reserve utilization plan; 2) Last years Annual Report of Mine Reserve Dynamic Reconnaissance 3) Mining engineerings planar graph 4) Mineral reserves calculation chart 5) Mineral reserves basic statistics table Article 9 Registration procedures for annual mine reserve utilization plan 1) Before December 31 of each year, mine enterprise shall apply with the local land and resource administrative department for the next years mineral reserve utilization plan: small-size and above (including small-size) mines mineral reserve utilization plan shall be filed in province-governed municipalitys land and resource administrative department, while under small-size mineral reserve utilization plan shall be filed with counties (cities and districts) land and resource administrative department. 2) Land and resource administrative department of province-governed municipality, county (city and district) shall examine and register according to mineral reserve utilization plan and registered mineral resource distribution, current mining situation, mines designed production capacity and etc. Article 10 Mine enterprise must mine strictly in accordance with mineral reserve utilization plan registered with the land and resource administrative department. If mines need to adjust, expand mining blocks and increase mineral resources reserve utilization, they should apply for new registrations. Article 11 During mining process, mine enterprises own or entrusted geological survey institutions shall make the reconnaissance on the reserve utilization, set up reserve utilization technical profile and reserve reconnaissance ledger, and prepare Annual Report of Mine Reserve Dynamic Reconnaissance on schedule. Article 12 Annual Report of Mine Reserve Dynamic Reconnaissance is a comprehensive report of the mine enterprises whole years reserve dynamic reconnaissance. It shall be prepared by geological survey institutions providing the reserve reconnaissance service, and stamped with the institutions and the mining-right owners seal. The Annual Report of Mine Reserve Dynamic Reconnaissance shall be drafted according to requirement of Mine Reserves Dynamic Reconnaissance Reports Compiling Outline. Article 13 Mineral reserve utilization and reserve dynamic reconnaissance shall implement annual review and approval system. During the annual review, mine enterprises are
3
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required to submit following materials: 1) Annual Report of Mine Reserve Dynamic Reconnaissance and attached figures and charts; 2) Mineral reserves basic statistics table; 3) Sample test analysis report, or photocopy of cited test results in previous geological report, and sample test data promised by mining-right owners; 4) Reserves reconnaissance ledger; 5) Other materials needed for the review (such as last years Annual Report of Mine Reserve Dynamic Reconnaissance, previous geological data, maps and etc.) Article 14 Lost and written-off reserves in the mines annual reserve utilization shall be reviewed and approved by different levels of land and resources departments. Mineral reserve lose shall be calculated in accordance with the Guideline for Dynamic Reconnaissance Technology of Mine Resource Reserves in Henan Province. Article 15 Reasonable lost mineral resources reserves shall be written off one-time after the review and approval of the mines reserve dynamic annual reconnaissance. Unreasonable lost mineral resources reserves shall be of written application, submitted together with the mine reserve dynamic reconnaissance report, and written off after review and approval. Article 16 Application for writing-off mineral reserves shall include following information: 1) Comparison materials of written off reserves block mining situation and geological exploration; 2) Materials explaining tunnel or fields falling down, water bursting and other situation causing reserves written off. 3) Written analysis of reasons causing mineral reserve lose; 4) Reserves plane and profile section calculation chart, and other relevant maps and charts; 5) Calculation chart for the applied written-off mineral resources reserves. Article 17 Lose caused by mining-right owners mining in violation of mining process or design, unauthorized and wasting mining, and disposal of mineral reserves without good reasons cannot be treated as lose. CHAPTER THREE SUPERVISION AND MANAGEMENT RESPONSIBILITY Article 18 Land and Resources Department of the province will be in charge of policy formulation, work arrangement and guide practice of the whole provincial mineral reverse dynamic reconnaissance management; will arrange mineral reserve dynamic reconnaissances check plan, organize key mines check, will examine and approve written-off of small-size and above (including small-size) mines abnormal reserve lose. Article 19 Land and resources administrative department of province-governed municipality
4
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will be in charge of supervision and management of mine enterprises reserve dynamic reconnaissance in this area, including the following: 1) Uniformly arrange mine enterprises reserve dynamic reconnaissance and supervision, and supervise the review; 2) Be in charge of annual review of mineral reserve dynamic reconnaissance reports; 3) Enjoin the original geological survey institutions to resurvey, supplement survey, edit and revise the Annual Report of Mine Reserve Dynamic Reconnaissance if the reserve dynamic reconnaissance is not qualified; 4) Write off mine enterprises reasonable lost reserve, review and approve small size and below mines unreasonable lost reserve, verify and calculate mines annual utilized reserves. 5) Provide preliminary examination opinions for small-size and above (including small-size) mine enterprises abnormal reserves lose. 6) Other relevant supervision and management matter of reserve dynamic reconnaissance deployed by superior land and resource administrative department. Article 20 Land and resources administrative department of county (city) will be in charge of supervision and management of mine enterprises reserve dynamic reconnaissance in its jurisdiction, including following: 1) Supervise and check mineral reserve dynamic reconnaissance progress and reserve reconnaissance ledger; 2) Investigate and penalize mining rights owners who are in violation of reserves dynamic inspection laws and rules; 3) Supervise and manage geological survey institutions activities in reserves dynamic reconnaissance within its jurisdiction; 4) Set up dynamic supervision and management profiles of mine enterprises reserve in its jurisdiction; 5) Other relevant supervision and management matter deployed by superior land and resource administrative departments. Article 21 Annual mineral reserve dynamic reconnaissance shall be examined and approved by technical experts team consisting majorly by mineral reserves evaluators. After the expert team proposed review opinion, land and resource administrative department of province-governed municipality will organize joint hearing and approval review. Such joint review shall be participated by relevant reserve evaluation and management staff. The joint review shall come into conclusion such as approved, re-inspect (re-survey) and etc. Article 22 Annual reviews and approval shall include followings: 1) Annually utilized resources reserve and types, remained resources reserves, explored quality, lost amount, cumulatively identified resources reserves and cumulative utilized resource reserves; 2) Annually mined blocks engineering plane coordinate, areas and mine block number;
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3) 4) 5) 6) 7)
Ore body of the utilized reserves, degree of accuracy and reliability of survey engineering control in the mine field, actual change of ore body and ore; Annual increase and decrease of reserves caused by recalculation and exploration; degree of accuracy and reliability of reserves calculation result; Ore grade, type and quality change; Comprehensive mining and recycle utilization of coexisted and associated minerals that are of industrial value; Reporting status of annual mineral resources reserve and utilization calculation.
Article 23 Province-governed municipalitys land and resource administrative department can arrange selective examination and peer examination in accordance with annual review, approval, supervision and management need. Article 24 For those mines whose resources reserve is found to be of significant problem during the annual review and approval, the province-governed municipalitys land and resource administrative department shall organize verification of such mines reserve dynamic reconnaissance, prepare mines reserve dynamic reconnaissance verification report. After review and approval, mining-rights owners shall adjust reserve statistic numbers based on the verification result. Article 25 If mine enterprises fail to conduct mineral reserve reconnaissance and fail to submit the Annual Report of Mine Reserve Dynamic Reconnaissance, deny supervision and inspection (selective examination), or be involved in fraud, they will be penalized in accordance with national and provincial rules. Article 26 If geological survey institutions violate relevant rules for technical operations, provide false information and poor quality of the technical services during mineral reserve dynamic reconnaissance work, they will be penalized in accordance with relevant rules. Article 27 If reserve evaluators and reserve supervision and management staff abuse their power, neglect their duty, practice favorites and engage malpractice during mineral reserve dynamic reconnaissance work, they will be charged of criminal liability if a crime is constituted; or will be given disciplinary sanction if no crime is constituted. CHAPTER FOUR SUPPLEMENTARY PROVISIONS Article 28 The Annual Report of Mine Reserve Dynamic Reconnaissance, the Verification Report of Dynamic Reconnaissance on the Mineral Reserve and annual review and approval materials shall be archived in accordance with relevant geological measures. Article 29 This Measures shall be explained by the Land and Resources Department of Henan Province. Article 30 This Measures shall come into force from the date of its issuance.
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EXHIBIT 5
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(2004 )
28
(1998 5 22 2004 11 26 )
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()()( )
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() ()
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() () () () ()()
() ()()()
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3 2 1
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() () () () ()
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() () () ()
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() () () () ()
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()
1998 7 1
1988 10 15
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EXHIBIT 6
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Measures of Henan Province for Implementation of the Mineral Resources Law of the Peoples Republic of China (2004 version) Contents Chapter I General Provisions Chapter II Exploration of Mineral Resources Chapter III Exploitation of Mineral Resources Chapter IV Transfer of Right of Exploration and Right of Exploitation Chapter V Supervision and Administration of the Exploration and Exploitation of Mineral Resources Chapter VI Legal Liability Chapter VII Supplementary Provisions (Adopted at the 3rd Meeting of the Standing Committee of the 9th People's Congress of Henan Province on May 22,1998 and amended on the basis of the Decision, on Amending the Measures of Henan Province for the Implementation of the Mineral Resources Law of the Peoples Republic of China adopted at the 12th Meeting of the Standing Committee of the 10th People's Congress of Henan Province on November 26, 2004) Chapter I General Provisions Article 1 This Measures is enacted in accordance with the Mineral Resource Law of the Peoples Republic of China combining the practical situation of Henan Province with a view to developing the mining industry, and promoting the exploration, exploitation, utilization and protection of mineral resources Article 2 These Measures must be obeyed in exploring and exploiting mineral resources within the administrative region of this province. Article 3 Mineral Resources belong to the State. State ownership of mineral resources, either near the earth's surface or underground, shall not change with the alteration of ownership or right to the use of the land which the mineral resources are attached to. People's governments at various levels must make serious efforts to protect mineral resources. Appropriating or destroying mineral resources by any organization or individual shall be prohibited. Article 4 With regard to the exploration and development of mineral resources, this province applies the principles of unified planning, rational distribution, comprehensive prospecting
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and exploration, rational exploitation, integrated utilization and effective protection. The provincial competent department of geology and mineral resources shall organize the relevant departments to work out a provincial mineral resources developing planning in each district in accordance with related department for the national mineral resource planning to be reported to the provincial peoples government for approval and then put into implementation. Article 5 Anyone who wishes to explore or develope mineral resources shall separately make applications according to the law and shall register after obtaining the rights of exploration or/and exploitation upon approval, with the exception of the mining enterprises that have, in accordance with the law, applied for and obtained the right of exploitation and are conducting exploration within the designated mining area for the purpose of their own production. Anyone engaged in exploring and exploitation of mineral resources shall meet the prescribed qualifications. Exploring or mining mineral resources without license shall be prohibited. Article 6 The obtaining and transfer of exploration right and exploitation right with compensation shall be carried out in accordance with national regulations. Anyone who exploits mineral resources must pay resource tax and resource compensation in accordance with relevant regulations of the State and this province. Article 7 The provincial competent department of geology and mineral resources shall be responsible for supervision and administration of the exploration and exploitation of the mineral resources within this administrative region. Other relevant departments in this province shall assist the competent department of geology and mineral resources in supervising and administering the exploration and exploitation of the mineral resources. Other relevant department under the peoples government of cities (districts), county (city, district) in charge of the administration of geology and mineral resource (hereinafter referred to as administrative department of geology and mineral resources shall be responsible for the supervision and administration of the exploration and exploitation of the mineral resources within their respective administrative areas. And other relevant department shall assist the administrative department of geology and mineral resources at the corresponding levels in supervising and administering the exploration and exploitation of the mineral resources. Article 8 Encourage investors both at home and abroad to invest in exploration and exploitation of mineral resources in accordance with the provisions of the state within the administrative region of this province and the legal interests of investors shall be guaranteed from infringement.
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Article 9 Any units or individuals shall have the right to report and accuse the appropriation and destruction to mineral resources and other conducts violating laws and regulations of the administration of mineral resources. Chapter II Exploration of Mineral Resources Article 10 The registration and management for exploration of mineral resources shall be carried out in accordance with the Measures for Regional Registration of Exploration of Mineral Resources by the State Council. Article 11 The provincial competent department of geology and mineral resources shall be responsible for the management of the registration of the exploration of mineral resources within the administrative region of this province according to its limits of authority and the authorization of competent department of geology and mineral resources of the State Council. Article 12 All enterprises, public institutions, other economic organization and individual can invest in the exploration of mineral resources according to national regulations. The contributor of a certain exploration project shall be the applicant of the exploration right. Where the capital is contributed by the State, the unit entrusted by the State for the exploration shall be the applicant for the exploration right; where the exploration of mineral resources is founded by joint capital or cooperation, the applicant for the exploration right shall be agreed by contract. Article 13 The applicant for the exploration right will become an exploration licensee when the exploration license is registered and approved and granted. Article 14 The unit engaged in operation of exploration of mineral resources shall be provided with a qualification certificate of exploration issued by national or provincial competent department of geology and mineral resources. Where the applicant for the exploration right possesses the qualification certificate of exploration, it can explore the mineral resources by itself; where the applicant for the exploration right is not provided with a qualification certificate of exploration, it shall entrust a unit with the qualification certificate of exploration to carry out the exploration. Article 15 The exploration licensee shall complete the minimum exploration investment according to
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national regulations, report annual investment in exploration and the progress of exploration to the provincial competent department of geology and mineral resources and make a copy for the local administrative department of geology and mineral resources. The exploration licensee shall not arbitrarily expand its scope of exploration operation and carry out mining operation without authorization. Article 16 No new exploration right and exploitation right shall be set within the scope of exploration operation zone, of which the exploration right has been obtained. Within the scope of the region set for the exploration right, the exploitation right which has been set shall still be effective. Article 17 The exploration licensee shall work out a geological survey report after its exploration project has been completed. The general exploration reserves reports of large, medium-sized and small mineral deposit for mine construction and exploration reserves reports of groundwater for large, medium-sized and small water source construction shall be reviewed and approved by the provincial administrative department of examination and approval of mineral reserves. An official reply shall be made within 3 months after the competent department of examination and approval of mineral reserves receives the exploration reserve report. Article 18 The exploration licensee shall submit its archival data of geological exploration results to the national and provincial authority in charge of the management of geological data in accordance with relevant national regulations. The geological exploration report and other valuable exploration data shall be provided for using with compensation in accordance with relevant regulations. Chapter III Exploitation of Mineral Resources Article 19 The mining of mineral resources shall be applied and registered according to the laws to obtain a mining license to obtain the exploitation right. Matters concerned the registration when an applicant for exploitation right applies for exploitation right shall be carried out in accordance with Measures for Administration of Registration of Exploitation of Mineral Resources by the State Council (). The administrative department of geology and mineral resources above the county level shall be the administrative authority of the registration of exploitation right. Article 20 The exploitation of the following mineral resources shall be reviewed and approved by the provincial competent department of geology and mineral resources and a mining license shall be issued:
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(I) Mineral resources in addition to the first and second items of Article XVI of the Mineral Resources Law of the People's Republic of China with a medium-sized reserves scope; (II) Mineral resources reviewed, approved and registered under the authorization of department in charge of geology and mineral resources under the State Council; (III) Mineral resource with its mine field spanning over different administrative regions such as cities and districts. Article 21 Anyone who wishes to develop the following mineral resources shall be subjected to examination and approval by the administrative department for geology and mineral resources under the municipality (local), which shall also issue a mining license: 1 The mineable mineral reserves shall be of a small quantity for anyone who wishes to exploit except provision of Article 20 herein. 2 Mineral resources which provincial competent department of geology and mineral resources is authorized to examine and approve to register. 3 Mineral resources of limits of mining areas crossing county (municipality, district) administrative area. Article 22 Anyone who wishes to mine the scattered and dispersed mineral resources, as well as sand, stone and clay that can only be used as ordinary building materials except provisions of Article 20 and Article 21 shall be subjected to examination and approval by the administrative department for geology and mineral resources under the county (municipality, district), which shall also issue a mining license. Article 23 The standards for small quantities of mineral reserves and fragmental and dispersive mineral reserves shall be formulated by the provincial competent department of examination and approval of mineral reserves. Article 24 Individual may mine scattered and dispersed mineral resources, as well as sand, stone and clay that can only be used as ordinary building materials upon approval. The standards and minerals for scattered and dispersed mineral resources which individuals are allowed to develop shall be formulated by provincial competent department of geology and mineral reserves. No need for mining registration of mining small amounts of sand, stone and clay forpersonal use in daily life. Article 25 Where mining licenses are issued under the administrative department for geology and mineral reserve under municipality (local), county (municipality, district), municipal (local)
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administrative departments for geology and mineral resources shall collect the cases and submit to the provincial competent department of geology and mineral resources in regular period. Article 26 Anyway profiteering in conducting mining or partaking in conducting mining by state departments and other units and their functionaries implementing in accordance with the system of public service shall be prohibited. Article 27 Any applicants for rights of exploitation who wishes to develop mineral resources under provision of Article 20 and Article 21 shall apply for delimiting the limits of mining areas in registration and management departments with geological exploration reserves report under legal approval before making an application for the right of exploitation. Where there is no dispute over application for limits of mining areas, administrative department for geology and mineral resources shall delimit the limits of mining areas in 30 days in accordance with principles that mine construction scale shall be suitable to deposit reservers. Anyone who needs to apply for project approval and establishment of mining enterprises shall complete the formalities under limits of mining areas in accordance with national regulations. Article 28 Administrative department for geology and mineral resources in this area shall not accept new application and maintain certain limit for applicants for rights of mining after delimiting limits of mining area. Retention period of limits of mining areas shall not exceed 3 years for large miner, 2 years for medium mine and 1 year for small mine. Failure to register for mining within the prescribed term shall be deemed as abandoned automatically. Article 29 Any applicant for right of exploitation who applies for privately-owned mining undertakings shall apply and register directly in local county-level administrative department for geology and mineral resources with application, satisfactory mining areal map, corresponding geology materials, mining and utilizing plan of mineral resources, proof of qualifications, safety production condition and environment protection scheme and conduct mining license. Article 30 The administrative department for geology and mineral resources at a higher level shall comprehend setting-up situation of the right of exploration and exploitation of applied limits of mining area upon receipt of registration application for mining, which shall also need solicit opinions of administrative department for geology and mineral resources at a
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lower level. Article 31 The mining license which is obtained by deception means is null and void, which shall be revoked by departments who originally issued the mining license. The mining license which is issued by the administrative department for geology and mining resources due to misuse of authority and exceeding provision is null and void, which shall be revoked by administrative department for geology and mining resources at a higher level. Article 32 Applicants for right of exploitation who conduct formalities of mining registration shall pay registration fee in accordance with regulations of the State. Article 33 After the mining registration of applicants for right of exploitation, county-level administrative department for geology and mining resources in the mining area shall specify the limits of mining and announce in accordance with the notice in writing and mining limits map issued by the departments of mining license or the entrusting departments, and organize to embed boundary posts or set up surface mark according to the application of applicants for right of exploitation.
Chapter IV Transfer of Right of Exploration and Right of Exploitation Article 34 The exploration licensees, after fulfilling the specified minimum input to exploration and obtaining approval in accordance with law, may transfer the exploration right to others by selling and investment. A mining enterprise that has obtained the mining right but needs to change the subject of the mining right, because of merger, division, forming of an equity joint venture or contractual joint venture, sale of its assets, or change of ownership of its assets in other manners, may transfer mining right to another by selling and investment, subject to approval in accordance with law. The transference of exploration right and exploitation right shall be subject to Administrative Measures for the Transfer of Exploration Right and Mining Right of the State Council Article 35 Where the state-owned and collectively-owned mining enterprises sale and transfer the exploration right and exploitation right, or develop mineral resources by means of commercial lease and contracting, biding shall be adopted. Mining in the mining areas confirmed by mining license shall not be leased and contracted to two or more than two management bodies, with the exception of the fragmentary mining on the verge of the mining areas that large-scale mining enterprise mines by means of lease and contracting.
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Article 36 Mining-right owners who mine mineral resources by means of lease and contracting shall sign a written contract. After the lease contract and contract agreement are signed, it shall report to administrative department of the geology and mining that issues the mining license for approval. Administrative department of the geology and mining shall issue approval or rejection within 30 days. The lease contract and contract agreement shall take effect as of the date of approval. Mining-right owners that are unauthorized to mine mineral resources by means of lease and contracting shall be deemed to transfer mining right without authorization. Article 37 Contractor and lessee shall mine mineral resources in accordance with provisions of laws and regulations. Anyone in violation of the provisions shall bear corresponding legal liability. Contractor and lessee shall not sub-contract and sub-lease. Article 38 Mining enterprises that mine mineral resources by means of lease and contracting shall meet the following criteria: (I) Within the valid term of the mining license (II) Non-controversial mining right (III)Contractor and license shall have corresponding capital and technical specifications with the mining mineral resources and mining scale. (IV) Mining-right owner shall be engaged in mine production for one year. (V) Other terms provided by laws and regulations. Article 39 It is required to sign mortgage contract when mortgaging mining right. Both parties of the mortgage contract shall hold mining license and mortgage contract and go through the formalities of mortgage of exploitation right of the registration at the original administrative department of the geology and mining issuing the mining license. Mining facilities in the mining areas shall be mortgaged along with the mortgage of mining right. Article 40 Upon the modification, recession and termination of the mortgage contract, both parties of the mortgage contract shall report to the original mortgage registration authority in writing within ten days of the occurrence of the fact. Chapter V Supervision and Administration of the Exploration and Exploitation of Mineral Resources Article 41 Exploration and exploitation of mineral resource shall accept the supervision and management of administrative department of the geology and mineral resources. When administrative department of the geology and mining conducts researches on input to
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exploration, development of exploration or supervise and inspect on the mining of mineral resources of enterprise and privately-owned mining undertakings in its jurisdiction areas, exploration licensee or Mining-right owner shall provide true information and relevant materials in accordance with the regulations and shall not refuse the inspection, provide false or inadequate information and pose the barrier. Exploration licensee or Mining-right owner shall fill in statistical material in accordance with relevant provisions of state statistical laws and regulations and submit the annual statistics of the exploration and mining of mineral resources to local administrative department of the geology and mineral resources. Article 42 Mining-right owners are required to report newly increased mineral reserves to land and resources bureaus for check and approval. The Mining-right owners shall, in accordance with relative regulations, report any abnormal consumption plan of mineral reserves to the provincial competent geological and mineral administration and the provincial mineral reserves administration for approval and corresponding reserves cancellation. Mining enterprise shall not subtract the mineral reserves without permission. Article 43 Enterprises that mine mineral resources shall meet the following criteria: (I)Construct in accordance with authorized development and utilization plan and design requirements for mineral resources exploration (II)Adopt proper exploration order, exploration method and mining processing technology; (III) The recovery rate, impoverishment rate in mining and recovery rate in ore-dressing meet the design requirements or meet the standards approved by administrative department of the geology and mineral resources. It is forbidden to develop rich minerals, abandon the poor minerals and discard minerals without authorization; (IV) Associated and coexisted minerals with industrial values must be recycled when feasible technology and adequate capital are available. Effective protective measures shall be adopted for the minerals that cannot be recycled comprehensively temporarily. It is forbidden to adopt destructive mining methods to mine mineral resources. Article 44 In the process of exploring and developing mineral resources, laws and rules on environmental protection and mine safety must be observed by to avoid environment pollutions and accidents. The exploration licensee s and the Mining-right owners should take measures to manage and recover the polluted and damaged mine environment, and for those who cause damages to others, should take necessary remedial measures to compensate for loss. Ore, slag and tailings should be stacked according to the approved design requirements to ensure stability of slope. The Ore, slag and tailings are prohibited to be packed or stored in ravines, beaches and bank slope for flood discharge. Reserved safety pillars or rock pillars are prohibited to exploit or damage.
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Producing and processing minerals by the way of serious pollution, high energy consumption, waste of resources and lots of potential risk are prohibited. Article 45 For cultivated land, grassland, forest land and soil and water conservation facilities which are damaged by mining, the mining unit or individual should adjust to local conditions to take some measures, such as backfilling reclamation, planting trees and grasses and so on; for losses to the production and life of others, in accordance with relative laws and regulations, the mining unit or individual should be responsible for management and give corresponding compensation. Article 46 When mining is completed in mine, middle section, mining area or the whole mining area, mine enterprises must timely close pits according to the relevant provisions of the state. Mine enterprises must submit pit-closing report to the agency issuing mining license or its authorized agency before closing pits. After it is reviewed and approved, mine enterprises can closing pits. Article 47 Before building railways, factories, reservoirs, oil pipelines, transmission lines, important highways and all kinds of large buildings or building groups, construction unit must know the mineral resources distribution and mining situation in the area of the proposed project through provincial competent departments of geology and mineral resources. For the construction project pressing and covering ore deposit, when it is reported for approval, the design specification of its construction project should contain the review opinions of administrative department for geology and mineral resources about the mine pressed situation of construction project. Article 48 According to the needs, provincial competent departments of geology and mineral resources can dispatch mining inspector to the key mine enterprises or the concentrated area of mine enterprises to supervise and examine how mine enterprises and individual mine develop and use the mineral resources. Article 49 The minerals which are regulated by the State Council and Provincial Peoples Government to be purchased uniformly by designated units must be sold to the designate units. Any other units and individuals should not purchase. The miner should not sell privately. Article 50 Superior administrative department for geology and mineral resources has right to change and cancel the illegal or improper administrative behaviors of subordinate administrative
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department for geology and mineral resources. Article 51 Cultivate and develop the intermediary service organization of mineral resources. Chapter VI Legal liability Article 52 If a person, in violation of the provisions of this law, explores and mines the mineral resources, and Mineral Resource Law and relevant laws and regulations have made the penalty provisions, the person shall be punished in accordance with its provisions. Article 53 If a person resells exploration right and exploitation right for making profit, the exploration license and mining license shall be withdrawn, the illegal gains shall be confiscated, and the person shall be imposed a fine of more than ten thousand yuan and less than one hundred thousand yuan. Article 54 If a person does not obtain the mining license for mining with authorization, the person shall be ordered to stop mining and shall compensate for losses, and the minerals and illegal gains shall be confiscated. And the person shall be imposed a fine of below 50% of the illegal gains. If the case constitutes a crime, the criminal liabilities shall be investigated. If a person surpasses the approved mining area for mining, the person shall be ordered to go back to mining area range for mining and compensate for losses, and the minerals and illegal gains cross the border shall be confiscated. And the person shall be imposed a fine of below 30% of the illegal gains. If the case constitutes a crime, the criminal liabilities shall be investigated. If a person has the behavior of item one and two, and does not have the illegal gains, the person shall be imposed a fine of more than ten thousand yuan and less than one hundred thousand yuan. Article 55 Where the mining-right owner reduce the mineral reserves voluntarily without approval, he shall be ordered to correct his behavior by the administrative department for geology and mineral resources with a penalty of no less than 1,000 yuan but no more than 5,000 yuan. Article 56 If the mining-right owner fails to shut the pit subject according to regulations, he shall be ordered to correct his behaviors within a specific time limit. And if he also fails the correction, he shall be fined not less than 5,000 yuan but not more than 30,000 yuan. For which the case is serious, his mining license shall be revoked. Article 57 If state organs and units or staffs who are regulated refer to the system of public service
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establish mines or get involved in the business alike so as to make profit, they shall be ordered to correct their behaviors and their investments and unlawful proceeds shall be confiscated. Moreover, administrative penalties shall also be meted out to principals as well as directly responsible personnel by their competent authorities or the supervisory organ. If their act constitutes a crime, they shall be investigated for criminal responsibility. Article 58 Administrative penalties prescribed in article 53, article 54, article 55 and article 56 of this regulation shall be meted out in accordance with the respective function and power of administrative department for geology and mineral resources above the county level. Article 59 If a department fails to impose administrative penalties that should be imposed in accordance with the provision of this regulation, the administrative department for geology and mineral resources at a higher level shall have the authority to order a correction of such failure or impose the relevant administrative penalties directly by itself. Article 60 If a party refused to accept the decision on administrative penalty, it may, in accordance with law, apply for reconsideration or file a suit with the Peoples Court directly. If a party, within the time limit neither applies for reconsideration nor files a suit with the Peoples Court, or complies with the decision on punishment, the department that made the decision shall request the Peoples Court to enforce the decision. Article 61 The personnel of the administrative department for geology and mineral resources shall be meted out administrative penalties by its higher authority of the organ or the supervisory organ if he has any of the following behaviors; and for which constitute a crime, he shall be investigated for criminal responsibility: (I) abuse their power, play favoritism and commit irregularities; (II) seek private gain through power, solicit and accept bribes; (III) misconduct in office and seriously neglect their duties; (IV) approve exploration and mining of mineral resources or issue exploration or mining licenses in violation of regulations; (V) impose fines or charges in violation of regulations; (VI) does not stop illegal mining activities and punish illegal miners. If the exploration or mining license is issued in violation of regulations, the administrative department for geology and mineral resources at a higher level shall have the authority to revoke. Chapter VII Supplementary Provisions Article 62 This regulation becomes effective at the date of July 1, 1998.
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The Measures for the Implementation of Mineral Resources in Henan Province approved in the sixth conference of the seventh session of the National Peoples Congress Standing Committee of Henan Province in Oct.15, 1988 is terminated at the same time. If any former relevant regulation concerning mineral resources management of the province is contradictory with this regulation, it shall be executed in accordance with this version.
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EXHIBIT 7
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EXHIBIT 8
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Technical Manual of Henan for the Dynamic Reconnaissance on the Mineral Reserves
Chapter I General Provisions Section I Legal basis for dynamic monitoring work of mine resource reserves 1. Article 14 of Mineral Resource Law of the Peoples Republic of China prescribes the uniform management sy stem for fi les of mi neral resource survey achievements and various statistical data of mineral resource reserves, which shall be submitted or reported as stipulated by the State Council. Article 15 stipulates that the competent geological and mineral de partment, geological work u nit an d st ate-owned mining en terprises sh all provide geological data and technical service to collective mining enterprises and mining individuals based on the principle of active support and paid service. Article 23 stipulates that th e coll ective mining en terprises must draw the sur face-underground en gineering contrast plan. 2. A rticle 3 2 of Rules fo r Implementation o f Mineral R esources L aw o f the P eople's Republic o f China prescribes t hat the mi ning-right ow ner shal l ...complete the fol lowing upon the expiration of or within the validity period of mining permit: (1) to prepare mining status re port a nd measured drawings; (2 ) to ap ply for re imbursement of re serves consumed in accordance with relevant provisions. 3. Article 4 of Interim Measures for Supervision and Management of Mineral Resources by State Council (1987) prescribes that the provincial-level land and resource administration department shall be r esponsible for su pervision, management an d gui dance to the mineral resources devel opment a nd protection of mining ent erprises in th e province, responsible for the min eral resource reserve mana gement of mi ning e nterprises and strictly im plement the app roval provisions fo r reduc tion of mineral r eserves. Article 14 prescribes: Mining enterprises must mine the resources as designed and are not allowed to abandon the ore body at will. It is required to strengthen supervision and inspection to the mining to strictly prevent the unnecessary loss. 4. Several Opi nions o n Promoting t he So und Development of Coal In dustry by State Council (20 05): Est ablish stri ct coal resource utilization and supervision system, adopt annual exa mination a nd dynamic supervision t o t he recovery ra tio of co al resources, . ..research the pr oposal o f cha nging the collection of coal resource t ax a nd expense with out put a nd sales in come as the b ase numb er to collection with resource reserves a s th e b ase n umber, improve r esource reserve management institutions of coal pr oduction e nterprises, im plement the re serve ma nagement re sponsibility, perfect coal reserve management a rchives an d syste m an d strictly implement the pr oduction technology and management procedures. 5. Notice o n Man aging an d Ar ranging Mi neral Resources Exp loration Or der by S tate
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Council (2005): "Co mprehensively strengthen the super vision to e ach link of mineral resources exploration and undertake the corresponding responsibilities. ... it is required to strengthen the su pervision f unctions of m unicipal a nd co unty-level land and resources management departments, strengthen supervision, ... actively explore effective measures for d ynamic sup ervision and management of reserves, ... stri ctly in spect the implementation of mineral re sources expl oration an d util ization proposal a nd perfect annual report system". 6. Article 4 of Interim Procedures of Municipal (Prefecture) and County (Prefecture-level City) o n S upervision a nd Man agement o f Mineral R esources by L and and R esources Ministry (2 003) prescribes that t he mu nicipal and county-level l and a nd re sources competent d epartments sh all supervise and m anage t he mineral resources r eserves in their administrative regions in accordance with the provisions of mineral resources laws and r egulations and f or t he vi olation of pr ovisions by the mining-right owner, appoint qualified geological measuring institutions to conduct geological measuring to the change of mi neral reserves occupied every year and submit relevant re ports an d drawings t o investigate an d treat th e unlawful act. 7. [2006] No .87 Notice on Comprehensively Carrying out Dynamic Supervision and Management of Mining Reserves by the Land and Resources Ministry prescribes that the mineral resources reserves registration statistics, collection of mineral resources compensation and mining right evaluation etc. must be on the basis of annual report of mining reserves reviewed. The mining enterprises shall carry out th e geological sur vey o f mining reserves as required, sub mit th e chan ge of mi ning reserves to the land and resource management departments in accordance with the law, failure to conduct g eological survey a s sti pulated a nd failure t o su bmit a nnual re port of mining reserves shall not pass "annual inspection of mineral resources development and utilization". Section II References of technical specifications in this technical guideline 1. Classification f or Resources/Reserves of S olid Fuels a nd Mineral Co mmodities (GB/T17766-1999); General Requirements for Solid Mineral Exploration (GB/T13908-2002); Specifications of Survey for Geol (GB/T18341-2001); ogical a nd Min eral R esources Exploration
2. 3.
4.
Exploration Specifications of Hydrogeology and Engineering Geology in Mining Areas (GB/T12719-1991); Specifications for Exploration of Minerals (DZ/T0l99-2002, DZ/T0209-2002); Specifications t o Write Geological Report of S olid M ineral S urvey/Mine Cl osure (DZ/T0033-2002): Interim Me asures of Hen an fo r Dyna mic Supervision and Ma nagement of M ining
5. 6.
7.
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Reserves (Y.G.T.Z.F. [2006] No.109); 8. 9. Dynamic Management Requirements of Mining Reserves (G.T.Z.F. [2008] No.163); Other rel evant pro cedures and specifications on ca taloging, sam pling a nd comprehensive data sorting of solid mineral resources.
Section II I Pu rpose and t ask o f d ynamic r econnaissance and su pervision a nd management of mining resources reserves (I) Purpose of dynamic monitoring of mining resources reserves: 1. T o implement the requirements of the ce ntral go vernment on e stablishing a resource-saving society and establish new system for mineral resources management of Henanwhich is adaptable to the requirements of socialist market economy. 2. T o provide corresponding management d ata for g overnments and l and re sources management departments of various levels, master the detailed information and current situation of mining resources reserves to serve the macro economic control; 3. To serve the mi ning-right ow ner, gu arantee th e re asonable development and comprehensive utilization of the mining-right owner to the mineral resources and improve the utilization rate of mineral resources. 4. To provide basis for the mineral resources reserves registration statistics, collection of mineral resources compensation and mining right evaluation etc., promote the reasonable development and effective protection of mineral resources and regulate the development order of mineral resources; 5. To provide basis for mining investment and expansion of reproduction. (II) Tasks of dynamic reconnaissance of mining resources reserves 1. Mining enterprises shall perform the obligations to carry out dynamic reconnaissance of mining resources reserves, establish and perfect mining geological technological archives and the resources reserves utilization ledger on the basis of dynamic reconnaissance. 2. T he mining e nterprises shall report the mineral re sources r eserves occupied by t he mines and the utilization, exploration and loss of annual mineral resource reserves to the land resources a dministration department i n accordance w ith t he law w ithin t he mining area specif ied in the mining p ermit, a ccording to t he format a nd fil ling requirements of Statistical Form and based on the principle of one form for one permit. 3. T he land an d resources a dministration d epartment shall s upervise and manage t he utilization an d dy namic r econnaissance c ondition o f mining resources re serves a nd, conduct annual examination to the mineral resources occupied, explored, consumed and retained by the mining enterprises, write-off and reimburse relevant resources reserves.
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4. The reconnaissance institution shall provide geological survey and relevant technical services for the mining enterprises to utilize the resource reserves. 5. Analyze the condition of mineral resources reserves occupied by the mining enterprises, provide warning geological technical data for mining enterprises to close the pit before pit closing. 6. Pr opose opi nions and suggestions to the mai n pro blems e xisting i n t he pr ocess of mining, guide the mining ent erprises to r easonably de velop, use and save mineral resources and improve the economic benefit of mining enterprises. Section IV Organization form and man agement o f min eral re sources r eserves dynamic reconnaissance 1. The dynamic reconnaissance institutions of mining resources can b e divided into two categories: social mining resources reserves d ynamic r econnaissance i nstitution and mine r esource r eserves dynamic r econnaissance instit ution established by the mi ning enterprises themselves, the former can serve mining enterprises of the whole province or the mun icipality an d county wher e it is located; th e l atter only ser ves t he mi ning enterprises where it i s l ocated (i f conditions p ermit, i t c an also serve other mi ning enterprises up on approval). So cial m ining resources reserves dynamic re connaissance institution is a social intermediate technical organization of paid service, which shall obtain the corresponding operation rig ht, und ertake ci vil and cri minal r esponsibilities independently in accordance with the law. 2. T he l and an d resources a dministration d epartment o f each city and county (prefecture-level city) sh all be responsible for inspecting and supervising the institutions engaging mining resources reserves dynamic reconnaissance within the jurisdiction of the city and county, it shall have the responsibility to protect the legal rights and interests of the mining-right owner a nd m ining r esources r eserves dynamic reconnaissance institutions. In addition to ur ging t he min ing-right ow ner t o carr y out t he dynamic reconnaissance of mining resources reserves, it shall inspect and assess the work quality of mining resources reserves dynamic reconnaissance institution irregularly. 3. Mineral resources reserves appraisers and evaluators are the important supervision technical expe rts of mining resources r eserves dy namic supe rvision and management, each municipal l and and resour ces administration de partment un der t he province sh all organize technical experts composed of appraisers and evaluators to supervise and audit the dynamic reconnaissance work of mining resources reserves and annual report of mine reserves dynamic reconnaissance. Section V Acceptance of technical d ata fo r dy namic recon naissance of mining resources reserves 1. Annual Report of Mine Reserves Dynamic Reconnaissance is the annual achievement of dyn amic recon naissance of mi ning resources reserves, whi ch shall b e reviewed,
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scrutinized a nd o pined by technical expert te am organized by the la nd a nd resources administration departments of province-governed municipality, city and county level. Small size a nd a bove mi nes dynamic r econnaissance rep orts sh all b e r eviewed by a t eam consisted majorly by appraisers. 2. The technical standard for a cceptance of A nnual R eport of Mine R eserves Dy namic Reconnaissance sh all be implemented in accord ance with r elevant pr ovisions o f the "technical guidance" and relevant specifications, the key points for acceptance are textual report, relevant drawings, tables and quality etc. Section VI Use s cope and k eeping of annual report of mine reserves dynamic reconnaissance and other relevant data (I) After acceptance, Annual R eport of Mi ne R eserves D ynamic Re connaissance a nd other relevant data can be used in the following scope: 1. Used as the basis for the resource reserves registration statistics of mining enterprises; 2. Used as the basis for handling the extension, change and transfer of mining right; 3. Used as the basis for change of resource reserves in the verification report of resource reserves; 4. Used as the important basis for collection of compensation of mineral resources; 5. Technical data for issuing of Resource Reserves Registration Certificate. (II) Keeping of dynamic reconnaissance data of mining resource reserves 1. The dynamic reconnaissance data of mine resource reserves shall be mainly kept by the l and and resources administration departments of mu nicipality directly u nder t he province and county (prefecture-level city, prefecture). 2. Annual Report of Mine Reserves Dynamic Reconnaissance shall be made in 4 copies, 1 for the mining-right owner, 1 for municipal land and resources administration department and 2 for county land and resources administration department. 3. T he dyn amic r econnaissance i nstitution of r esources sha ll properly keep the ori ginal data o f dyn amic reconnaissance of the mi nes it serv es, without permission, i t i s not allowed to destroy relevant ori ginal d ata; without p ermission of th e mi nes, the data mastered may not be provided to the third party. Chapter II Technical Points for Dynamic Reconnaissance of Mine Resource Reserves Section I Applicable scope (I) The t echnical guideline i s t he technical r equirements of t he mi ning e nterprises f or
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dynamic reconnaissance of mineral resource reserves. (II) Th e tech nical g uideline sh all not r eplace t he t echnical requirements f or production geological survey and resource reserves estimation of the mines. Section II Reconnaissance task (I) Fully collect and use various existing geological data of the mines and adopt geological measuring me ans a nd methods to me asure and estimate th e resources reserves employed i n t he mi nes and t heir c hange, e valuate the utilization of mi neral re source reserves and propose reasonable suggestions to use the mineral resource reserves. (II) Make r econnaissance on the r eserves, e xploration quantity, l oss a mount of mineral resources employed in the mines and the resource reserves increased or decreased in production and survey. (III) Investigate and evaluat e the pr oblems existing i n util ization of mineral r esource reserves and propose corresponding suggestions. Section III Reconnaissance content It is required to co llect, sort out an d use the e xisting d ata and th en su pplement th e necessary survey work. During survey, it is required to use the original mining engineering as far as possible. Circle the goaf (those that cannot be measured at one time can also be tracked and measured by stage as the specific mining conditions may be, the starting and ending points of mine roadway tunneling and working face extraction of the year shall be accurately measured) and the reserved safety pillars, mark the proposed mining area in the next year; estimate the exploration quantity and loss amount, verify and evaluate the mineral resource reserves and their change; investigate the geological conditions newly reveled i n t he mining engineering and problems i nfluencing mining; evaluate the reasonableness f or utilization of mineral r eserve r esources, evaluate the qu ality and problems of o riginal d ata of th e mines an d compile Ann ual Rep ort of Mine Reserves Dynamic Reconnaissance. Section IV Technical methods and quality requirements (I) Surface geological survey of opencast mine 1. If th ere is geologic map of mine terrain, geological mapping may not be needed, but necessary measuring revision is required and its quality shall be evaluated; if there is no geological map of mi ne terrain, it is re quired to co nduct n ecessary compl ementary measuring. 2. The base map used for the geological mapping in the mine terrain shall be topographic map o f t he sa me scale ( or l arger scal e), t he important geological points shall be positioned w ith th eodolite; the mi nes w ith condition s hall b e p ositioned with th eodolite totally. The mapping quality shall conform to the precision requirements of corresponding
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scale. 3. There shall be 2-3 measured geological profile maps with scale not less than 1/500 in the mine area. 4. In geological survey, it is required to reasonably divide and determine the mapping unit. Combine sear ching and crossi ng methods. The stratum bo undary, se am crop line and fault li ne in th e geological map m ust be con nected on si te an d the measur ing and presumption shall be marked. 5. Th e ori ginal data shal l be of th e unified format. The posi tion l ocation, point characteristic, outcrop and lithology shall be recorded completely and shall be clean and beautiful. (II) Mining engineering survey of underground mine 1. T he mine pithead and ve ntilating shaft position sh all be p ositioned i n all -instrument method, the original p ithead coordinate sh all be cal ibrated a nd h andholding GPS positioning is not allowed. 2. The production sh aft of mines s hall b e measured in w hole-instrument m ethod, each measuring point drawn shall be marked permanently. 3. The key measuring target of production shaft is the shaft for which the mining range can be controlled. For ore-drift channel, it is required to observe the seam thickness, structure, occurrence and their changes and make record of the seam characteristics and mark the small histogram on the drawing; for transverse-drift roadway, it is required to continuously observe and record the lithology and its change, when reaching the ore spot, it is required to make a detailed record and description to the characteristics of roof; for the accurate mining cut roadway and connection roadway, it is required to investigate the arrangement, length of the mining area and range of goaf and record the place where the safety pillar is marked. 4. For the seam occurrence change, blind fault and crushed zone found in the roadway, it is required to make a detailed observation, recording and marking, to describe the stratum and investigate the influence on mining area arrangement and recovery. 5. Collect the water bust method and water yield in the roadway, collect mine gas and heat damage data etc. (III) Acquisition or collection of necessary samples 1. In order to meet the ore quality evaluation, expand the quality ore reserves and circle the estimation, it is required to conduct geological sampling and chemical analysis in the process of mining. The ch emical analysis sampli ng sh all be based on th e principle of being along the d irection w ith t he m aximum change of ore body quality, ge nerally the vertical dir ection al ong th e ore body. According t o different or e bed type s a nd
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mineralization characteristics, determine the reasonable sampling quantity, specification, space or me sh si ze thr ough te st, meanwhile, con sider the n atural types and g rade of cores to divide the samples. 2. The internal and external inspection pr oportion and examination allowable error of the ore sam ples sha ll be subject t o t echnical sp ecifications and requirements o f the same type of ore. Section V Data sorting and estimation of resource reserves 1. The data collected shall be comprehensively sorted and classified in time to ensue that the data are complete, real and reliable. The original data shall be signed by the operator, collator and relevant participants. 2. The mine resource reserves shall be estimated according to the ore variety, type, grade, middle part of ore body (vein) a nd o re bl ock (stop). D uring e stimation, i t is r equired to consider t he g eological structure, ore bo dy t hickness, o ccurrence and other natural factors of t he well, use exploration li ne, ja mb boundary l ine, fi eld a nd mi ning area boundary li ne, horizontal e levation li ne an d baseboard contour li ne to m ake the b lock shape simple and estimation convenient. 3. T he ge neral principle for mi ne re source re serves sh all be subject to the geological survey sp ecifications of corresponding ore typ e. The e stimation method shall be determined accor ding to t he ori ginal a pproved industrial i ndicators a nd resources reserves estimation method based on the requirements of relevant specifications. 4. T he cla ssification and coding of mineral re source r eserves shall be subj ect to Classification for Resources/Reserves of Solid Fuels and Mineral Commodities. Through productive exploration, for the section (block) with control degree improved, the resource type and code shall be redefined according to the requirements for specifications of the same ore type. Section VI Achievement preparation and submission (I) The achievement submission shall be composed of report, attached figures, attached tables and annexes. (II) Th e r econnaissance r eport i s r equired to be of i ntact sections, complete cont ents, simple test, regulated format and full of text, picture and tables. (III) T he attached fi gures an d t ables of the report shall be charted with computer digitalization, the ch arts shall be g uaranteed to b e cl ean an d be autiful w ith accuracy meeting the requirements. The drawings shall be marked with the following: 1. C oordinate gri d (h orizontal projection drawing) or e xploration line a nd el evation horizontal line (vertical project drawing) and range of mine boundary;
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2. Cropline and number of ore body (seam), structural line and fault number, profile line and borehole number, m ain l ane w orks, g oaf r ange a nd mi ning tim e, i mportant surface buildings, unrecoverable range and safety pillar; 3. Ore spot thickness, grade, resource reserve estimation section boundary line, express the number, code, seam thickness, inclination angle, area, ore quantity and metal quantity or mineral quantity of the estimation section in reserve circular or table form; 4. For t he th in ore seam an d coal seam wi th complex structure, it is required to draw 1/50-1/200 small histogram of ore seam or coal seam near each ore spot. 5. When the re are above tw o o re bodies ( seams) or different ore bodies (seams), i t is required to prepare estimation diagram respectively. 6. Other elements related with the estimation of resource reserves. 7. The report shall be bound as required for filing. Section VII Resource reserves reimbursement According to the classification of resource reserves, the resource reserves reimbursement is classified into normal reimbursement and abnormal reimbursement. 1. The r esource r eserves o f n ormal reimbursement means t hat the mi ning l oss r ate i n mining area is less than the loss index for mining design. For the normal loss of resource reserves for mining, mining enterprises shall make reconnaissance in time and report to the competent department for verification. 2. The resource reserves of abnormal reimbursement means that the mining loss rate in mining area is greater than the loss index for mining design. For the resource reserves of abnormal reimbursement, mi ning e nterprises shall ma ke the spe cial mi ning l oss report according to the rules, staged mine pit-closing report or mine pit-closing report, which are agreed to be reimbursed after evaluation, where the reimbursement of special mining loss re port means t hat the mi ning enterprises irr egularly make r eimbursement f or t he large loss of mine in some mining sections or middles; staged mine pit-closing report means that the mining area closes pits by stage and the resource reserves for abnormal loss are settled and reimbursed by stage; mine pit-closing report means that after the resource reserves occupied by mining enterprises are mined completely or basically, the mining enterprises close the pits all at one time and make settlement and reimbursement for the occupied resource reserves. 3. T he co vered reso urce reser ves in min e safety p illars, jambs i n the salt-mining a rea, mine industrial square, buildings and dwellings shall not be reimbursed annually, because some of the resource reserves also can be recycled, which shall be reimbursed when the pits are closed in the mine. Section VIII Quality assurance measures
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The dyn amic r econnaissance w ork of mi ne r esource r eserves shall be undertaken by dynamic r econnaissance instit ution of mine re source r eserves wi th co rresponding qualification. Th e reconnaissance i nstitution shall tim ely make arr angement a nd do comprehensive re search. Mi ning-right o wner shall be resp onsible fo r th e authenticity o f raw material pro vided by them selves and t he r econnaissance i nstitution shall be responsible f or t he authenticity of raw material f ormed by i tself. T he author mu st m ake 100% of self-testing for the field data and again make 100% of mutual testing, then project leader checks 1 00%. T he re ports an d the compr ehensive di agrams can be copied for review and se nt to th e cli ent after the te chnical director of recon naissance institution reviewing and signing. Chapter II I Pr eparation of A nnual R eport o f Min e R eserves D ynamic Reconnaissance Section I Cover, title page (1) Report name: T he r eport name i s comp osed of D ynamic reconnaissance r eport of resource reserves of XX mine XX County of XX Province in the year of XX (2) Report submitting unit shall be consistent with the name of mining-right owner in the mining permit and shall reflect the legal representatives of mine and the technical director of unit; writing unit of report shall be consistent with the name of organization responsible for the dynamic reconnaissance; besides, the main reconnaissance, the writing staff, the reviewers, the technical directors and the legal representatives shall be all recorded. (3) Text catalog, illustrated catalog directory, schedule list, and attachment catalogue o f the report Section II Text requirements The text is compiled by chapters, including the introduction, review of mining work in this year, the est imation of t he u se of resource reserves, change of resource r eserves a nd conclusion. (1) Introduction 1. Introducing mi ne creation, d evelopment history, exi sting staff, m ain technical a nd economic parameters, production operation and enterprises development prospects. 2. Bri efly d escribing ge ological working si tuation of dif ferent per iods, submitted results, reviewed document numbers and approved resource reserves. 3. Briefly describing location, range, coordinate, area and el evation allowed mining, the designing proposal and mining situation, and the utilization of mineral resource reserves. (2) Annual reconnaissance work
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1. Methods of reconnaissance work, including input work quantity (listed in detail, relevant measuring da ta sha ll be l isted as attachments), qua lity condition and application of predecessors materials. 2. Briefly d escribing th e ba sic g eological si tuation of the mine i n ann ual recovery a rea, including bri ef d escription of morphology of or e body, occurrence an d its cha nges, t he formation newly found and influence between arrangement of working face and stop; also including the change of top and base board, hydrogeology, gas etc. 3. Briefly d escribing the dynamic recon naissance resource r eserves l edger, an d spatial location, m orphology, sca le, occurrence a nd or e quality reflected by th e standing b ook; besides, the details of working face (including the recovery length, cut lane length (width), seam inclination angle, average thickness, and inflection point coordinates range, a rea, elevation etc.) 4. Briefly describing the mining technical conditions in the mining area and exploiting area. 5. The unlocked goaf formed in the past years shall also be locked. (3) The content of estimation of utilized resource reserves 1. Br iefly i ntroducing the e stimation method, parameters and i ndustrial i ndicators of resource reserves. 2. Estimating annual utilized resource reserves, produced quantity and loss quantity, there must be estimating process. 3. The changes of annual utilized resource reserves compared with the original report in the same range and the reasons for change 4. Problems needed to be explained for utilization of resource reserves in the mining block segment 5. The covered resource reserves of mine safety pillars, jambs between the mining area of coal mi ne or salt mine, min e industrial square, b uildings and dwel lings ca nt b e incorporated into the a nnual use, because thi s part of resource reserves ca n also b e recycled and shall be handled uniformly when the pits are closed. (4) The content of estimation of mine resource reserves changes 1. According to original identified resource reserves and the mobilized resource reserves over the years (exploitation quantity, loss quantity, plus and minus quantity for exploration and so on), estimating the accumulative i dentified re source r eserves a nd re served resources and i ts distribution (the re source r eserves i n the m ining ar ea is regarded as invariant beyond the mining block segment, except otherwise explored and verified). 2. For additional exploration and verification of the mine, the reviewed and filed reserves
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together w ith t he change of r esource reserves in mi ning ar ea block segment this ye ar shall be reflected in the annual accumulative identified reserves, reserved resources and the mine distribution. 3. Problems needed to be explained for the change of mine resource reserves (5) Use plan of the next year It sh all in clude planned use l ocation, ori ginal bl ock segment number, ty pe of reso urce reserves, resource reserves, area, inflection coordinates, elevation, main parameters of ore body etc. (6) The content of conclusion 1. Brie fly d escribing th e reconnaissance results of re source reserves, i ncluding accumulatively identified, utilized and reserved resource reserves as well as the employed resource reserves, produced quantity, loss quantity etc. 2. Existing problems and suggestions of dynamic reconnaissance. Section III Requirements for attached figure, tables and annexes (1) Attached figures 1. Main maps (1) S tripping (o pencast working) or digging (un derground mining) situation ma p; (2 ) surface-underground contrast plan; (3) pr ojection drawing for r esource r eserves estimation; (4) profile map of resource reserves estimation. 2. Main content (able to be adjusted correspondingly by reference to relevant technical specifications for geological survey of different types of ores) (1) Coordinate grid (horizontal projection) or exploration line and elevation horizontal line (vertical pr ojection), and b oundary ran ge; ( 2) Or e b ody ( seam) cr op li ne and number, tectonic line and number, section line and hole number, main roadway engineering, scope of goaf and exploiting time, the important buildings on surface, unrecoverable scope and the safety pillar; (3) the thickness and grade seeing mines, block segment boundaries of reserves e stimation, i ndicating the number of estimated bl ock segm ent, coding, seam thickness, angle, area and the amount of mineral, metal or ore body in the form of reserve garden or tabular form; (4) for the thin and complex ore bed and coal bed, shall attach a small histogram with 1/50-1/200 of ore bed or coal bed in each mine engineering point; (5) when t here ar e mor e th an two ore bo dy (seam) or di fferent or e bo dy (seam) in the exploiting ar ea, shall r espectively m ake estimated fi gure; (6) o ther m aps r elated to resource reserves estimation. (2) Attached tables
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1. Mine testing results table, sampling testing report and other relevant raw data; 2. Tables related to the resource reserves estimation: tables of the first year shall include the block segment resource reserves estimation table in the original survey or verification report, bl ock se gment r esource reserves esti mation t able l ast year, block segm ent resource reserves estimation table this year and those in the following years shall include the block segment r esource re serves e stimation t able l ast y ear and block segm ent resource reserves estimation table this year; 3. Mineral base table for registration and statistics in current year; 4. D ynamic reconnaissance ledger of mi ning enterprises re source re serves in current year; 5. An nual report reviewing t able fo r dynamic reconnaissance of mi ning enterprises resource reserves. (3) Annex 1. A nnouncements o f r esource re serves dynamic reconnaissance in stitution agreed by the provincial department; 2. Copies of legal persons business license of the dynamic reconnaissance institution of mine resource reserves; 3. E ntrusting contract or agreement of dynamic r econnaissance of reserves 4. Copy of mining permit; 5. Letter of commitment of both parties; 6. Dynami c recon naissance review acce ptance opinion of t he previous year or copy of filing certificate of the latest verification (exploration). Chapter IV Filing Requirements for Annual Utilization of Mineral Resource Reserves by Mining Enterprises Filing of annual employment of mineral resource reserves by mining enterprises shall be implemented in accor dance wit h th e Interim Mea sures o f H enan for the D ynamic Supervision and Management on the Mineral Reserves. mine r esource
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EXHIBIT 9
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2006 2006 88
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EXHIBIT 10
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Land and Resources Department of Henan Province Circular for Strengthening the Dynamic Supervision and Management on Mine Reserves
Land and Resources Bureau of each Province-governed Municipality: After the Circular of the Land and Resources Ministry on Comprehensive Dynamic Supervision and Management of Mine Reserves (No. [2006] 87 of the MLR) and the Notice for Strengthening the Collection and Management on Mineral Resources Compensation Fees to Raise the Recovery Rate of the Coal Mine (No. [2006]88 of the MLR) being issued by the Land and Resources Ministry of the Peoples Republic of China (the MLR), our province immediately promulgated a batch of important rules, including the Interim Measures of Henan for the Dynamic Supervision and Management on the Mineral Reserve and the Measures of Henan for Assessment, Supervision and Management on the Mineral Reserves, which have advanced our provinces dynamic supervision and management on the mineral reserve. The Land and Resources Bureau of each Province-governed Municipality also has established detailed working system and implementation rules, and have made preliminary achievements. However, when reviewing the whole province, developments in different areas are not balanced, as in certain areas the situations such as not making efforts in fear of difficulties, not fully understanding the rules, inefficient management and input still exists. In order to further implement our provinces dynamic supervision and management on the mineral reserves, we hereby give the notice as follows regarding relevant matters: 1. Promote the link between dynamic supervision and management of mineral reserves and relevant mineral administrative management 1.1 Link with the annual inspection of mineral resources development and utilization. Mine enterprises holding mining permits and mining (except petroleum, natural gas, radioactive minerals and others provided for by the State) shall perform the mineral reserves dynamic supervision and management system, and shall report the annual utilization plan, conduct the reserves dynamic reconnaissance, assess the reported reserves losses, submit the annual report and etc. according to the Interim Measures of Henan for the Dynamic Supervision and Management on the Mineral Reserve. If mine enterprises fail to make dynamic supervision on the mineral reserves as per the above rules, the annual report of mine reserves dynamic reconnaissance shall be determined as unqualified, and the annual inspection of mineral resources development and utilization shall be determined to be unqualified too. 1.2 Link with the mineral resources reserves registration statistics. The data concerning
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the reverse changes in the mine reserves dynamic reconnaissance annual report reviewed and approved by the province-governed municipalities and counties land authorities shall be deemed as basis of the mineral resources reserves registration statistics. The registered mineral reserves are the basis for the extension, amendment and transfer of mining rights. 1.3 Link with the review and filing work of mineral reserves. Reserves verification reports submitted by mine enterprises shall have a specific chapter describing in details about reserves utilization during the period between this verification and the previous one, as recorded by the reserves dynamic reconnaissance. Results of each years reserves dynamic reconnaissance is the basis for reserve changes in the reserves verification report. For the mine enterprise that failed to conduct reserves dynamic reconnaissance in accordance with laws and regulations, or whose reserves verification report lacked of relevant contents, reviewing institutions shall not accept their submitted reserves verification report, neither shall land and resources authorities permit filing of such verification report. 1.4 Link with the collection of the mineral resources compensation fees. Registered annual utilization reserve in the dynamic reconnaissance annual reportthat has been reviewed and approved by authorities shall be the basis of mineral resources compensation fees collection . 2. Strengthen performance evaluation and qualification management of the geological survey institutions. The geological survey institutions are technical supports and technical services providers to mine enterprises. They shall perform the mine reserves dynamic reconnaissance proactively, and develop survey skills in order to serve the mine enterprises better. Mine reserves dynamic reconnaissance shall be conducted according to laws and regulations. During the process of onsite reconnaissance, ledger recording and report drafting, they shall reflect the true utilization of the mine, and are prohibited from making fraud. If the survey institution are involved in fraud, the survey institution shall be circularized a criticism within Henan province, and it will be barred from working on reconnaissance if the violation is serious . Survey institutions will be reviewed annually. If a survey institution missed two-year performance, not suitable for the mine reserves dynamic reconnaissance work, or seriously violate the regulations concerning the mine reserves dynamic reconnaissance, such institutions licenses shall be revoked. 3. Strengthen the supervision and management function of the land authorities of province-governed municipalities and counties The land authorities of the municipalities and the counties shall strengthen the supervision and management function of the land authorities of the province-governed municipalities and the counties, and shall recognize the supervision and management on the mineral reserve as an important groundwork to implement. We shall give full play to the role of mining inspectors, reserve evaluators and supervision and law enforcement personnel.
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The land and resources authority in each county shall strengthen their work to make sure each mine is aware of its obligation and each personnel is aware of his liabilities. Land and resources authorities shall also conduct regular and irregular supervision and inspections of dynamic reconnaissance progress, quality and ledger of mines in its jurisdiction, shall supervise survey institutions reconnaissance activities in its jurisdiction, and shall set up database of reserves dynamic reconnaissance supervision and management to master and report reserves utilization changes in time. Land and Resources Bureau of each province-governed municipality shall uniformly arrange inspection and supervision on the mineral reserves within its jurisdictions (random reconnaissance and peer review), do good jobs in examination on utilized reserve and on annual report for the mine reserves dynamic reconnaissance, verify the big problems of the mine enterprises in the course of the dynamic reconnaissance and report to the Land and Resources Department of Henan Province. For mine enterprises discovered of serious problems with dynamic reconnaissance, authorities shall check the problems and report to the Department of Land and Resources of Henan Province.
March 10, 2008
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EXHIBIT 11
2010 Case 1:12-cv-09456-JSR Document 35
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2011 2010 01
http://www.lcdk.gov.cn/Info_Readpage.asp?NewsID=351
5/3/2013
2010 Case 1:12-cv-09456-JSR Document 35
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http://www.lcdk.gov.cn/Info_Readpage.asp?NewsID=351
5/3/2013
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EXHIBIT 12
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Notification of Launching Mine Reserves Dynamic Reconnaissance Work in 2010
Each mine administration station and mine reserves dynamic reconnaissance unit: In accordance with Interim Measures of Dynamic Supervision and management of Henan Mine Reserve, and the mine reserves dynamic supervision and management work in 2010 arrangement and deployment made by Land and Resources Department of Henan Province and land and resources bureau of municipality, after research by Party group, it is decided to raise the following requirements on mine reserves dynamic reconnaissance work. A. Scope for dynamic reconnaissance and its requirements All mining-rights owners within our county shall conduct mine reserves dynamic reconnaissance, prepare the reserves dynamic reconnaissance report and accept supervision and management of geology and mining authorities. 1. The mine enterprise who has been verified in the current year may be waived from conducting the reconnaissance, but must file to the geology and mining authorities by the end of December, 2010 (verification report, file certificate, drawings, and electronic documents). Otherwise it shall conduct the reconnaissance. For mine enterprise participating in the industry integration, if it has been granted mining permit after integration, it shall conduct dynamic reconnaissance in accordance with the new mining permit, and if it has not been granted mining permit, it shall conduct dynamic reconnaissance in accordance with the original mining permit; the newly granted mining rights mines must conduct dynamic reconnaissance if any reserve was used; and if no reserve was used, it may conduct dynamic reconnaissance based upon zero used reserve, provided that it prepares an application and submits it to resources environment security division after mining administration station issuing opinion. 2. Mining rights owners who did not conduct dynamic reconnaissance shall be refused to be accepted or deemed as disqualified for submission of mining permits extension, amendment, transfer and annual inspection. Mining rights owners who did not submit the mine reserves dynamic reconnaissance report in time will be penalized by our bureau according to relevant rules. 3. Each mining administration station shall, in compliance with this Notice, strengthen propaganda and deliver notice to every entity holding mining rights; shall check strictly the zero report (zero report must be together with a written application, stating reasons and accompanied opinions by mining administration station). Zero report shall be treated as disqualified if there is no reasonable cause. Each mining administration station shall supervise, urge and check the progress of mine reserves dynamic reconnaissance work in its jurisdiction, ensure the work be completed within
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schedule for final review at the year end. B. Time Limit By the end of December 2010, 3 copies of dynamic reconnaissance reports and the electronic documents shall be delivered and filed to the security division of Luanchuan County Land and Mining Bureau for pre-examination. Overdue filing will be refused to be accepted and reviewed. C. Requirements for survey institutions 1. In accordance with the Interim Measures of Dynamic Supervision and management of Henan Mine Reserve, and the 2010 mine reserves dynamic supervision and management work arrangement and deployment made by the Land and Resources Department of Henan Province, and of each municipality and county land and resources bureaus, the survey institutions shall establish and improve the working system, implement strictly the requirements in the technical specifications and technical guide, conduct carefully the mine reserves on-site reconnaissance and establish and improve the ledger for the reserves dynamic reconnaissance work. 2. The survey institutions shall report truly the current production situation of mine enterprise, and, in particular, mines conducting unlawful acts such as overstepping the layer and boundaries or changing the type of minerals exploited, shall report the situation carefully, minutely, objectively and fairly in order to provide scientific premise for mine administration. 3. The survey institutions shall instruct the enterprise to conduct scientific, normal and safe production and promote the mine enterprise to cherish, develop and exploit the resources reasonably. 4. The survey institutions shall provide mine reserves dynamic reconnaissance report in time and with good quality and be responsible for review and filing. 5. The survey institutions shall conduct work strictly in compliance with the requirements of Luanchuan County Minerals Resources Reserves Dynamic Reconnaissance System. Attachment: 1. 2. Luanchuan County Minerals Resources Reserves Dynamic Reconnaissance System Conclusion Table of Mine Reserves Dynamic Reconnaissance Report Joint Checkup and Acceptance Luanchuan County Land and Minerals Bureau October 18, 2010
2
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EXHIBIT 13
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C4100002009093210038549
3JJV
http://xkzph.mlr.gov.cn/MiningLicenseInspect/(S(hrzk5s45osw2x345ffyhnk45))/Minin... 5/11/2013
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EXHIBIT 14
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Verification for Mining Permit number Please enter Mining Permit number: C4100002009093210038549 Please enter check code: 3JJV 7FVK Check
Permit number Mining-right owner Mine name Project type Major mining mineral Mining method Production capacity Mine areas Valid period Issuing authority
C4100002009093210038549 41108761 Henan Found Mining Co., Ltd Luoning County Yuelianggou Lead-Zinc-Silver mine Amendment Lead mine Underground mining 198000 ton/year 19.8301 km2 2009-9-30 to 2014-9-30 Henan province
Note: Because there are delays in information collection and data update, the search result is only for reference. If you have any question, information on the Mining Permit issued by mining-right registration authority shall prevail.
530 searches have been made today
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EXHIBIT 15
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201023 1. 2.
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3. 4. 5. 6. 7.
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8. 9. 3 2 10. 20062020 11.
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12. 13. 14. 15. 7
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16. 17. 18. 19. 20.
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21. 22. 23. 2011 1 1 20 24. 25.
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26. 27. 28. 29. 30. 2
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31. 32.
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EXHIBIT 16
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Circular of the State Council on Strengthening Safe Production of Enterprises (Guo Fa (2010) No. 23) To Peoples Governments of Various Provinces, Autonomous Regions, Municipalities directly under Central Government, Ministries and Commissions and Organizations directly under the State Council: In recent years, the number of production safety accidents has decreased nationwide, and the safety production, in general stable condition, has turned around. However, the situation is still very tough with large number of accidents, serious illegal production, and high frequency of major accidents, imposing heavy losses to peoples life and property and exposing such prominent problems as the enterprises priority to production over safety, weakness in safety management and failure in fulfilling the responsibilities of the entity, and the lack of safety control from some governments and departments. For the purpose of strengthening the safety production and improving the enterprise safety production, hereby the following issues are notified: I. General Requirements 1. Job Requirements. Thoroughly apply the Scientific Outlook on Development; put the people first, firmly establish safe development idea, transform the economic development pattern in real terms, adjust industrial structure, improve quality and efficiency of economic development and develop economy on the premise of reliable guarantee for safe production; follow the guiding principle of safety first, prevention-oriented and comprehensive treatment, strengthen the enterprise safety management in an all around way, improve rules and regulations, perfect safety standards, enhance enterprise skills, consolidate the safety production basis; start production and operation in accordance with laws and rules, earnestly tighten the safety control, reinforce the fulfillment of enterprise safety production entity responsibilities and facilitate a radical turnaround in our safety production. 2. Main Tasks. We shall improve the enterprise safety production in an all around way by putting focus on coal-mining, non-coal mine, transportation, building operations, hazardous chemicals, fireworks and crackers, civil explosives, metallurgy and other industries (fields). By increasing efforts in objective assessment and responsibility investigation, and in adoption of effective management means and policies, we shall focus on governing and punishing illegal productions and resolutely curb occurrence of major accidents; we shall move quick to build a complete national safety production emergency rescue system and forcibly introduce safe and applicable technical equipments and production facilities to high-risk industries, reducing the losses from accidents to the largest extent; we shall further improve the technical standard system and further the safety production technical equipments to meet the national and industrial standards completely, enhancing national safety technology; we shall make a further step in restricting the industry, actively promote the enterprise restructuring, and development
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and integration of mineral resources, completely eliminate outdated capacity of poor safety performance jeopardizing safe production; we shall build the long-term mechanism of safe production with more forcible policy guide. II. Tighten Enterprise Safety Management 3. Further regularize the production and operation of enterprises. Enterprises shall improve the strict safety production regulations and promise no production without safety guarantee. We shall strengthen the supervision and inspection of production field and strictly investigate and punish three rule-against activities, namely commanding against rules, operating against rules and behaviors against work rules. Enterprises organizing production with overcapacity, over-intensification and over-authorized strength shall be ordered to stop production and shut down for rectification, and economic punishment with upper limits shall be imposed to enterprises and their principals in accordance with laws. Mines, organizing production illegally in the name of integration and technological innovation, failing to start the innovation within prescribed time limit or delay the construction purposefully will be shut down by local governments by laws. We shall strengthen the instruction and management over the safety production of China-invested enterprises overseas and strictly fulfill the responsibility for monitoring the safety production of investment subject in China and of dispatched enterprises. 4. Timely investigate and treat the potential safety hazard. The enterprises shall investigate the potential hazards frequently and earnestly ensure the five elements including rectification measure, responsibilities, capitals, time limit and plan. The safety production professional-oriented potential hazard rectification effect assessment system shall be built to ensure the due effect of rectification. Enterprises and related principals shall be held responsible for the accidents caused by failure in potential hazard rectification in accordance with laws. The shut-down enterprises failing to be rectified within due time shall not restart their production. 5. Intensify the leaders responsibilities in production management. The principals and leaders of enterprises shall take charge of the shift on field. Leaders shall shift in coal mines and non-coal mines and descend and hoist the well with workers. Principals in absence of due shift in descending the well shall be deemed unauthorized departure and treated with economic punishment with upper limit. The economic punishment with upper limit shall be imposed to enterprises where the accident happens without leaders shift on field and the enterprise principals shall be held responsible. 6. Intensifying safety training for employees. The enterprises principals, safety production managements and staff engaging in special type of work shall be strictly assessed and take the job with professional certificate in accordance with national regulations; employees shall be trained and qualified for their positions. The enterprises shall employ the works in strict accordance with Labor Contract Law and sign the labor contract with employees. Any enterprises with untrained employees or unlicensed employees shall stop production for rectification. Enterprise of gross violation in employing safety education-free workers in underground coal mines or license-free workers of
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special type shall be shut down. 7. Comprehensively implement safety standards. We shall carry out safety production standardization construction including post standard, professional standard and enterprise standard. Enterprises failing to meet the standards within specified period shall be ordered to stop production for rectification with production license and work safety license withheld in accordance with laws; enterprises failing to meet standards after rectification within due time shall be shut down by local governments in accordance with laws. III. Build Firm Technical Support System 8. Tighten enterprise production technology management. We shall intensify the safety function of enterprise technical management organizations and assign the technicians as specified, earnestly fulfilling accountability of principals over safety production technical management and enhancing the technical decision-making and commanding rights of key technical principals. The principals of enterprises, major technical principals and related persons shall be punished where the major potential hazards happen due to unsolved safety production technical problems; their responsibilities shall be investigated if accident happens. 9. Introduce advanced and applicable technical equipments forcibly. The standards for production technical equipments shall be formulated and implemented in coal mines and non-coal mines where the technical equipments like measuring and monitoring system, location system for underground workers, urgent danger prevention system, air-compressed and self-rescued system, water rescue system and liaison system shall be installed and finished within 3 years. The safety production license and production license shall be withheld for any overdue installation. Special vehicles for transporting hazardous chemicals, fireworks and crackers and civil explosives, travel cars and passenger cars of over 3 kinds of routes shall be installed with drive-recording satellite positioning device, which shall be finished within 2 years; we shall encourage potential fishing boats to install crash-proof automatic identification system. We shall install on-line monitoring system for entire process on large tailings pond and install safety monitoring management system on large hoisting machinery; actively promote informatization and endeavor to enhance the enterprise safety protection. 10. Accelerate the safety production technology research and development. Enterprises shall decide on the necessary safety input in the yearly financial budget. The nation encourages enterprises to conduct safety technology research and development and to update the key technical equipments to safety production. Further following National Outline for Medium and Long-term S&T Development (2006-2009), the nations shall increase its support in research and development of safety technology, equipment, process and products in high-risk industries; lead high-risk industries to enhance mechanized and automated production and make determination on production line employees rationally. In the Twelfth Five-Year Plan, we shall continue to organize and develop key technology and equipment programs to improve the safety production
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guarantee capability in key industries. IV. Implement more powerful supervision and management 11. Put more efforts in safety supervision and management. Intensify the safety production supervision departments comprehensive monitoring over safety production; fully fulfill the safety production supervision and management of police security, traffic, land resources, construction, industry and commerce, quality testing and other departments as well as the safety production guiding role of industrial management department; form the work mechanism with combination of safety production comprehensive supervision and industrial supervision instruction; enhance collaboration to make joint effort. Under the unified leadership of governments at various levels, behaviors jeopardizing safety production such as illegal production, operation and construction shall be cracked down on; the safety production comprehensive supervision and industry management departments shall enforce the law along with judicial office and the illegal enterprises shall be investigated and banned forcibly. The major potential danger to safety shall be listed for level to-level supervision and public announcement. The treatment over major hidden danger shall be listed for supervision by provincial safety production supervision department or industry management department and relevant national departments shall put more efforts in supervising the inspection. Enterprises refusing to follow the supervisory and inspective directives shall be given heavier punishment in accordance with laws and regulations. Further strengthen supervision force, improve professional qualities and the level of technical equipment of supervisors, enhance supervision over primary site and enhance the on-site supervision and technical instruction over enterprise safety production. 12. Reinforce the local management over enterprise safety production. The safety production supervision and monitoring department, related departments in charge of safety production supervision and industry management department shall play their roles based on their duties to exert strict safety production supervision and management over local enterprises including central and provincial enterprises; to organize safety standardized grading assessment on enterprise safety production, and publicize the assessment results to the society and report the results to the competent departments including banking, securities industry, insurance and guarantee industry as the important reference for enterprise credit rating. 13. Strengthen the safety management of the construction project. Intensify the project safety facility approval and daily safety supervision over construction project; strictly fulfill the responsibility for approval and supervision. The safety facilities for newly-built, rebuilt or extension project of enterprises include safety monitoring facilities, facilities for preventing poisonous gas like gas, dust, fire and explosion and facilities for drainage. These facilities shall be designed, constructed, input into production and use along with main work. No approval shall be given to safety facilities designed at different time from building main work of project; failure in simultaneous construction shall be ordered to stop, and failure in putting into use at the same pace shall end the access to
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work safety license and the related department principals shall be investigated given the specific case. Strictly fulfill the safety responsibilities of building, design, construction, supervision and management and monitoring. The production and operation units for project construction where illegal subcontracting or outsourcing found shall shut down and stop production for rectification in accordance with laws, and the project owner and contractor shall be withheld responsible. 14. Intensify the social supervision and supervision by public ideas. Fully play the role of labor union, the communist youth league and the women federation organization; safeguard and ensure the participation and monitoring rights of enterprise employees over safety production in accordance with laws; encourage employees to monitor and report any hidden dangers and grant rewards for informants. The relevant and local governments should open the channel wider for social monitoring over safety production, prepare informants letterbox, publicize informants hotline phone and take the public monitoring from the masses. Fully play the role of monitoring by public opinions through news media and thoroughly investigate the reasons for objective problems reported from public opinions and rectify them in real terms. V. Build more efficient emergency rescue system 15. Step up building the national safety production emergency rescue basis. Supported by large enterprises based on industrial categories and regional distribution and sponsored by central governmental budgetary capital investment, in the early phase 7 national coal mines emergency rescue teams shall be built with facilities; equipments of reliable performance and strong mobility shall be provided and operating and maintenance fees shall be ensured. Advance the building of national rescue basis and team in the fields of highway traffic, railway transport, maritime search and rescue, ships oil spill, oil and gas field and dangerous chemicals. Encourage and support the regions, departments and industries to strengthen regional emergency rescue capability building in neighborhood by relying on large enterprises and professional rescue team. 16. Build and improve enterprise safety production early warning mechanism. The enterprise shall build and improve the safety production mobile monitoring and early monitoring system, and have a safety production risk analysis each month. Once any sign of accident shows, the prevention and emergency disposal measure shall be implemented. The major source of danger and hidden troubles shall be reported to the local safety production monitoring and supervision department, relevant departments in charge of safety production supervision and industrial management departments for record. Where state secret involves, the relevant provisions shall be referred to. 17. Improve enterprise contingency plan. The contingency plan of enterprise shall be connected with that of the government and rehearsed regularly. The enterprise production site personnel shifts, team leaders and schedulers shall be granted with direct decision-making rights and commanding rights for stopping production and organizing retreat immediately where the danger occurs. The relevant personnel are held responsible for casualty resulting from late retreat.
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VI. Strictly follow industry safety access 18. Speed up improving safety production technical standards. Management departments of various industries and relevant departments in charge of safety production monitoring shall speed up enacting and revising production and safety technical standards, and enacting and carrying out qualification certification standards for workers in high-risk industries in accordance with technical progress in industries and request for industrial upgrade. Special safety technology operating procedures and post safety operation standards shall be enacted and implemented in hazardous operations in which the license management system is employed. 19. Impose higher requirements for precondition for safety production access. The precondition for access to high-risk industries and enterprise shall be to meet the safety production standards, strictly implementing safety standards approval system. Coal mine projects and construction projects for producing and storing hazardous articles shall have safety condition demonstration and safety assessment as national provisions specified separately before the safety production access is approved. Any case found out of line with safety production conditions or illegal construction shall be stop building and the case of aggravation shall be shut down and banned by corresponding local government or supervision departments. The relevant personnel and principles shall be held responsible for potential troubles caused by lower standards. 20. Give a role to special service institution for safety production. Relied on scientific research institutions and combined with system reform in institutions, promote the standard development of service institutions including safety production assessment, technical support, safety training and technical renovation. Enact and improve safety production special service institution management provisions to ensure the professional, independent and objective working behaviors. The special service institutions bear legal responsibility for relevant evaluation and expert conclusion. Relevant people and institutions shall be investigated on their legal responsibility for violation of laws and regulations and falsification and fraud and the related qualification of concerning people shall be decreased or cancelled. VII. Tightening Policy Guidance 21. Enact industrial policies to promote the development of safety technical equipments. Encourage and lead the enterprises to research and develop and adopt advanced and applicable safety technology and products; encourage the wide application of technology and new equipment, new skills and new standards applicable to safety production. The research and manufacture of special equipments for safety production like safety inspection and monitoring, safety self-rescue, self-protection, disaster monitoring, special safety facilities and emergency rescues shall be developed as safety industry and included in policy support for the nations reinvigoration of equipment manufacturing. Strive to develop finance lease of safety equipment and facilitate the improvement in safety equipment level in high-risk industries and enterprises.
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22. Increase input in safety. Earnestly make good use of funds from central governments for treating tailing ponds, supporting the coal mine safety technical reform, gas prevention and rectification and shut-down of small coal mines, implement the local and enterprise supporting funds. Reinforce the monitoring and inspection over the withdrawal and use management of safety production fees in high-risk industries and enterprises, further improving financial management system on safety production fee in high-risk industries and enterprises, raising the floor standards for safety production fee withdrawal and expanding the scope of application properly. Strengthen the road traffic accident social rescue funding system and step up the building of maritime search and rescue awards and compensation mechanism in accordance with laws. High-risk industries and enterprises try to pursue safety risk deposit system for all workers in high-risk industries and enterprises. Perfect and implement industrial injury insurance system and actively yet prudently promote the safety production responsibility insurance system. 23. Raise the lump-sum compensation standard for employees died from industrial accidents. In accordance with Regulations on Workers Compensation Insurance, since January 1, 2011, the lump-sum compensation for death from industrial accident have been raised to 20 times of urban residents per capital disposable income nationwide last year and sent to the deaths immediate families. Meanwhile, the funeral grants and pensions raising families shall be paid in lump-sum in accordance with laws. 24. Encourage to make greater efforts in professional skills and technical talents. Improve policies of building institutions in joint effort of schools and enterprises, specific-oriented recruitment and tailored training mode to encourage higher institutions and vocational institutions to enlarge the scale for training talents in mining, electromechanics, geology, ventilation and safety year by year and step up producing professional talents in high-risk and dangerous industries and skilled talents urgently needed by production line. VIII. Put more focus on transformation of economic development pattern 25. Make and implement safety production plan. The regions and departments shall include safety production in the overall pattern of economic and social development. Alongside with making national and regional development plan, the safety production goal and special plan shall be made clear. The enterprises shall implement the various requirements in enterprise development and daily work. The safety production shall be focused on and safety input and various safety measures shall be ensured in making enterprise development plan and yearly production and operation plan. 26. Force to eliminate the outdated technical products. Outdated technology, process and equipments out of line with safety standard and with poor safety performance, serious danger in professional and safety production shall be listed in national restructuring catalogue and eliminated forcibly. The peoples governments at provincial levels shall make the corresponding catalogue and measure in the technical innovation and relocation project for effectively removing major potential safety hazards to curb the construction and
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expansion of projects with low safety level and guarantee capability. The enterprises with outdated technical equipments or major potential safety hazards shall be announced and order to rectify within specified time, and no rectification within specified time shall result in the shutdown of concerned enterprises. 27. Step up the reorganization of industries. Give the role of industrial policy orientation and market mechanism to the full, increase efforts in reorganizing enterprises in high-risk industries, further integrate or eliminate backward capacity with waste of resources or poor safety guarantee and improve basic safety guarantee capability. IX. Implement stricter assessment and responsibility investigation 28. Strictly implement safety goal assessment. Exert strict assessment on yearly production safety accident control indicators and build incentive and restraint mechanism. Increase the effort in assessing the major accidents. The leaders at prefecture-level or key leaders shall be held responsible based on the seriousness of the case once the extremely grave safety accident happens; the leaders at provincial level shall be investigated and held responsible for cases of special seriousness and extremely bad effect. Strengthen the assessment on basic work of safety production, speed up building the long-term mechanism of safety production and firmly curb the occurrence of major or grave accidents. 29. Increase efforts in investigating the responsibilities of enterprise principals. The enterprise principals shall be investigated once the major production safety responsibility accident happens. Violation of the law involved the principals or actual controller of the concerned enterprises being investigated and affixed with legal responsibility. Besides principals and actual controllers of enterprises, the principals of superior leaders shall be investigated on extraordinarily serious accidents; principals, actual controller of enterprises and principals of superior enterprises shall be held accountable for legal responsibility in accordance with laws once the violation of law is involved. The principals of enterprise holding primary liabilities for major, extraordinary serious accidents shall never undertake the leader (director or manager) of the coal mining in their industries. The casualty resulted from illegal production, concealed report on accidents, running away from accident and other accidents of wicked circumstances shall incur heavier punishment by laws. 30. Increase the punishment on the accident-concerned enterprises. Enterprise where major or extraordinary serious production safety responsibility accidents happen or relatively major production safety responsibility accident happens more than twice within a year and it proves to bear main responsibilities or poor rectification of hidden hazards exist shall be publicized by the safety supervision and monitoring organizations at provincial or above levels and relevant departments, and report to investment, land resource, construction, banking, securities and other competent departments to restrict its new project approval, land use approval and security financing within a year as the key reference for bank loan.
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31. Strict investigation shall be imposed to regions with poor job in cracking down on illegal production. The main leaders and relevant principals at country-(city-, district-) and town-levels shall be reduced in rank, dismissed or imposed with disciplinary sanction based on the seriousness of cases, should illegal production enterprise remain due to their dismissal of report of people in their jurisdiction, supervision and urgent request from superior level and daily inspection of illegal production enterprise without taking any effective measure. Where the criminal involves, criminal sanction shall be given by laws. Otherwise specific provisions of the state given shall be applied. 32. Set up accident investigation and monitoring system. Investigate the accident in accordance with laws and accidents shall be listed for level-to-level monitoring and handing of safety production committees at various local levels; and the grave accident shall be listed for investigation and handing of the safety production committee of the State Council. At the close of the case, it shall be informed immediately for social monitoring. Various regions, department and relevant organizations shall do a good job in strengthening the organization and implementation of enterprise safety production, enact and lay out the specific measures for the local region and concerned industry to pursue, intensify the monitoring & inspection and guidance, studied, coordinated and solved prominent problems timely in implementation. The State Council safety production committee office and relevant departments of the State Council shall tighten the work supervision and examination, handling the progress of various regions, departments and concerned industries timely, and ensure the implementation of various rules and measures. Peoples governments at provincial level and State Council-related departments shall strengthen the inspection over enterprise safety production work and report it timely to the State Council safety production committee office. The State Council July 19, 2010
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EXHIBIT 17
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EXHIBIT 18
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A Report of the 2010 Dynamic Reconnaissance on the Reserve of Yuelianggou Lead-Zinc-Silver Mine in Luoning County, Henan Province
Opinions and Conclusion from the Review Experts: This report has reflected the entire geological results of the reconnaissance, and is in accordance with the relevant regulations and requirements. It contains the complete text, graphs, tables and attachments, and has reached the aim of this reconnaissance. The original detailed 2005 Reconnaissance Report about the mine has shown that it has a reserve of 1,463,900 tons of (111b)+(331)+(332)+(333), including 65,359.96 tons of lead, 37,778.84 tons of zinc and 324.76 tons of silver. The 2009 Dynamic Reconnaissance Report estimated that the reserve of (111b)+(331)+(332)+(333) was about 1,463,900 tons, of which the 534,831 tons of (111b) has been used; the 929,069 tons of (331)+(332)+(333) are reserved, including 41,208.30 tons of lead, 23,111.95 tons of zinc and 198.31 tons of silver. This report of the dynamic reconnaissance (as of 2010 year end) estimates that it has a reserve of 1,463,900 tons of (111b)+(331)+(332)+(333), of which the 207,037 tons of (111b) are used during this year, including 5,911.40 tons of lead, 5,162.80 tons of zinc and 32.17 tons of silver. Up to date, a total 741,868 tons of (111b) have been used, including 30,063.06 tons of lead, 19,829.69 tons of zinc and 158.62 tons of silver. 722,032 tons of (331)+(332)+(333) are reserved, including 35,296.90 tons of lead, 17,949.15 tons of zinc and 166.14 tons of silver. It is therefore recommended to approve the review report. There is no dissension among the appraisers and experts at the review conference. Review Expert: Jianshe Lan (Signature) April 15, 2011 Opinion of municipal, county level Bureau: Agreed with the Review Experts Huiqiong Wang (Signature) Verified Liang Suo (Signature) May 13, 2011 Consented Shaobo Sun, Bureau Chief (Signature) May 17, 2011 Opinion from the organizing Land & Resource Administrative Agency: Approved Luoyang City Land & Resource Bureau (Seal) May 19, 2011

SVM Shareholder Class-Action - Amended Complaint - June 11, 2013

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Case 1:12-cv-09456-JSR Document 35

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NATURE OF THE ACTION

This is a federal securities class action brought on behalf of a class consisting of

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Defendant Silvercorp Metals, Inc. is a Canadian corporation with a head office,

operations based in China, in accordance with the following corporate structure:

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Mining Order [Guofa [2005]28].

It specified that [land and resources departments] shall

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overcapacity, over-intensification and over-authorized strength shall be ordered to stop

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As discussed in greater detail infra, Defendants made false and misleading

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Source Date Total Production

2010 Dynamic Report 2005-2009 534,831 tons

6-K filings Calendar 2009 313,421 tonnes ore

2010 40-F Fiscal 2010 mined 312,171 tonnes ore mined

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