Dear Honorable Shareholders,

On behalf of the Board of Directors of Shougang Fushan Resources Group Limited (“Shougang Res” or the “Company”), I hereby present the annual results of the Company and its subsidiaries (collectively referred to as the “Group”) for the year ended 31 December 2010 (the “Review Year”).

2010 had marked another strong year in China as the GDP rose to 10.3% when compared against 9.2% in 2009. China had literally overtook Japan as the second largest economy in the world. The strong growth in China’s economy drove crude steel production to rise by 10.4% from 2009 to 627 million tonnes in 2010. Chinese government realised that fast economic growth had led to environmental issues, therefore, they strengthened efforts in energy saving and emission reduction policy in the fourth quarter. As a result coking coal production in the Mainland was also adversely affected. Management discreetly dealt with these challenges and took decisive measures to rectify these matters. Be committed to our long term policy, we expanded our clean coking coal operation and enhanced our coal processing capacity. As a result, we managed to achieve our production targets for 2010 with 6.23 million tonnes of raw coking coal and 1.6 million tonnes of clean coking coal. Moreover, both our revenue and profit recorded double-digit growth when compared to that in the preceding year.

The Group was able to quickly recognise the signs of a slow season in China’s steel production in April last year, we responded by taking advantage of this opportunity to upgrade the long wall of our coal mines in April and May. This production efficiency enhancement enabled us to capture the rise in market demand in the second half of 2010 and to deliver persistent growth in our business.

During the Review Year, we expanded our clean coking coal operation and successfully raised its contribution to the Group and implemented tight cost control. Together with the drastic increment in the selling price, operating profit increased substantially to HK$2,977 million in the Review Year from HK$2,271 million in 2009. The coal preparation plant at Zhaiyadi Coal Mine had commenced trial-run in the second half of last year, laying a solid foundation for further development of our clean coal business. When it comes into full operation, our clean coking coal business is set to experience phenomenal growth.

The Chinese government has recently announced the blueprint of the “Twelfth Five-year Plan”, the next five years, the drive for China’s social and economic development will come from infrastructure projects. Investment on railway construction alone is estimated to be RMB3.5 trillion, which is over RMB1 trillion higher than the expenditure made in the “Eleventh Five-year Plan”. About half of this investment is earmarked for the development of the 16,000 km-long national express rail network. In addition, the government is planning to launch 36 million units of social housing in the “Twelfth Five-year Plan”. These massive construction works will generate robust demand for steel. Management believes that coking coal especially premium coking coal which is an essential raw material for steel production, will face a strong demand in the foreseeable future, creating a favorable environment for our business.

According to the “Steel Industry Development Policy”, China will proceed with the policy of energy saving and emission reduction for the steel sector. Blast furnaces with capacity of less than 1,000 m3 will gradually be replaced and only large blast furnaces are allowed to be built in the future. These large blast furnaces require premium coke as ingredient in order to make their production run smoothly, however domestic supply of premium coking coal is tight and mainly comes from Shanxi Province. As a result attracted a lot of these potential prestige customers to purchase premium clean coking coal from mines in Shanxi. Recently the government has stepped up measures to restructure the coking coal sector, the objective is to eliminate obsolete producers and hence improve the market structure and make the sector more competitive and create a better environment for living. We believe as domestic steel mills continues to integrate, the supply of premium coking coal will become tighter. Our three premium coking coal mines in Shanxi Province are set to benefit from such market conditions.

China relies more on import in recent years as domestic supply of premium coking coal is scarce. International prices of premium coking coal went up drastically as Australia, one of the world’s largest coal exporter suffered from severe floods wrecked havoc during the fourth quarter of 2010 and January this year, it will take an extensive period of time for Australia’s mines to resume normal production. This will further drive up the imbalance between the supply and demand. As a result, the international coking coal prices are expected to remain at a high level for a while. The domestic coking coal producers will hence have greater room to increase their prices.

Shougang Res as a leading coking coal producer in central-western China, will closely monitor market developments and take appropriate actions to respond to this situation. We will take advantage of our economies of scale and competent management to further strengthen our clean coal operation. In the coming year, we will continue to strengthen our long-term strategic cooperation with major domestic steelmakers including Shougang Group, Hebei Iron and Steel Group and Inner Mongolia Baosteel Group while we will extend our business to other steel mills by providing them with premium coking coal.

With solid financial strengths and ample cash flow as well as strong support from our largest shareholder, Shougang Group, the Group is in good position for continuing growth. We aim at developing a complete value chain and expanding our production capacity to reinforce our leading position in China’s coking coal sector and pave the way for our business to thrive. In addition to organic growth, we actively look for suitable acquisition opportunities within and outside China to increase and secure premium resources. We are fully confident about our future development and are determined to work hard to generate maximum value to our shareholders.

Last but not least, on behalf of the Board of directors of Shougang Res, I would like to express my heartfelt gratitude to shareholders, management team, staff and business partners for their continued support to the Group over the past years.

Wang Pingsheng
Chairman
29 March 2011