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Dear Shareholder,

The global economy has generally remained weak, and we have delivered a net loss attributable to shareholders of the Company of HK$318,547,000 mainly driven by the non-cash impairment of our investment in Mount Gibson and a non-cash fair value adjustment for our investment in Metals X.

Global markets have anticipated a recession in 2023 given the inversion in the US government yield curve and ongoing weakness in PMIs in both Western developed markets and China. While the timing of a recession has been pushed out and we acknowledge that the US economy has performed better than expected in the last six months, we remain cautious on the near term outlook.

The US Federal Reserve increased interest rates by roughly 500bp in the last twelve months in an attempt to cool inflation, and a significant portion of developed market central banks have followed suit. In March 2023 we saw the early impact from the rapid rate increases as it caused turmoil in for several regional US banks, and the risk on commercial real estate and overall consumer strength is still elevated.

While we have seen inflation come off its highs, the most recent data shows it is still higher than central bank targets, and so we expect that rates will remain elevated in the medium term, and markets are pricing in the potential for one more rate hike in 2H CY2023, particularly as labor and employment levels remain stronger than expected.

Separately the EU is already in a recession, and the manufacturing sector continues to struggle particularly given weak demand for goods, although this has been partially offset by strong services demand, particularly in tourism. Sticky wages means that Europe and British central banks are unlikely to cut rates in the short term.

We were surprised to see China abruptly end its zero covid policy in late 2022 and while the economy benefitted initially from a rally as the country re-opened, it has underperformed market expectations, and we have seen growth moderate since early 2023. The Chinese economy has been mainly impacted by weakness in China’s key property sector exacerbated by weak global demand for goods which impacts China’s exports and has the potential to worsen as the US slows further. We can see ongoing weakness in China’s youth unemployment numbers, low manufacturing PMI and low housing demand.

So far, the Chinese government has been cautious with its use of stimulus, with a focus on cutting rates rather than its historical use of fiscal spending. Chinese consumption is muted, and at the time of writing, concerns about refinancings for property developers and shadow banking including local government financing vehicles is an overhang. We cannot rule out the potential for a large stimulus package and we are already starting to see measures to support the property sector, which would be a positive for commodities.

We are cautious on the outlook for commodity prices given the previously discussed issues. Of course there is always a chance that the US is able to deliver a soft landing, but nonetheless slowing global growth will not be supportive of most commodities. We expect to see investment opportunities in the short term as the market speculates on the potential for central bank rate cuts and there are select commodities that remain supported by strong demand related to energy transition trends.

Despite weakness in the broad commodity sector, we are pleased that our Resource Investment segment has generated a segment profit of HK$92,801,000 for the year ended 30 June 2023. Our Strategic Investment in Mount Gibson and Metals X resulted in material non-cash impairment of HK$267,769,000 and a non-cash fair value loss of HK$77,575,000 respectively, which offset the previously mentioned segment profit, leading to an overall net loss of HK$318,547,000 attributable to shareholders of the company.

It is our long held belief that shareholders should receive a return, as such we are pleased to declare an interim dividend of HK10 cents per share for the year with an option to receive the interim dividend wholly or partly in the form of new fully paid shares in lieu of cash. We will continue to reassess our dividend policy based on our expectations of the economic outlook. As ever, I would like to thank you all for your continued support for, and faith in APAC Resources.

Andrew Ferguson

Chief Executive Officer

26 September 2023

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