The operation of the Portland Aluminium Smelter which sources alumina and produces aluminium ingots; coal mines and the sale of coal; import and export of commodities segment represents the export of various commodity products such as aluminium ingots, iron ore, alumina, coal and steel; and the import of other commodities and manufactured goods such as vehicle and industrial batteries, tyres, alloy wheels and various metals such as steel and aluminium extrusion products in Australia; operation of manganese mining and the sale of refined manganese products in the PRC, and the exploration of manganese mining in Gabon; operation of oilfields and the sale of crude oil and related products in Indonesia, the PRC and Kazakhstan.

Business Review - For the year ended December 31, 2009

The Group’s operations faced many challenges due to the global financial and economic crisis which pushed energy and commodities prices in the first quarter of 2009 to their lowest levels in recent years. However, as global markets began a recovery in the second quarter of 2009, the Group’s businesses also began to improve in the second half of the year.

Oil exploration and production remains the Group’s largest business. Oil prices were weak at the beginning of 2009 but started to recover subsequently in the second quarter. However, the Group still suffered an overall drop of 35%, as compared to 2008, in respect of the average selling prices of oil from the Karazhanbas oilfield. The deployment of cyclic steam stimulation and steam flooding at the Karazhanbas oilfield continues with the aim of achieving oil production at more efficient and sustainable rates. It is expected that operations at the Karazhanbas oilfield will contribute more to the Group’s return as oil prices recover to a reasonable level.

The performance from the Group’s interest in the Seram Island Non-Bula Block fell short of expectations. The Group is carrying out necessary repairs to existing wells where production has fallen as a result of their natural decline and will re-enter two exploration wells.

The construction of foundations for oil drilling and the pre-drilling preparation on the first artificial island at the Hainan-Yuedong Block has been completed. At the end of 2009, drilling of ten wells was completed. In the second half of 2010, pilot production at four wells will commence. It is anticipated that approval of the overall development plan will be obtained in the second quarter of 2010.

Increase in production capacity from the Group’s oil interests has been a principal objective. The Group will continue to direct efforts to improve oil production and cost efficiency to maximise the return from the Group’s oil business.

The coal business contributed to the Group’s profits in 2009. The Group’s coal business included its 17.01% interest in Macarthur Coal Limited (“Macarthur Coal”) which is listed on the Australian Stock Exchange and its direct interest in the Coppabella and Moorvale coal mines joint venture (the “CMJV”) (owned and operated principally by Macarthur Coal). The coal business mainly benefited from the increase in demand for both low volatile pulverized coal injection coal and thermal coal, re-stocking at steel mills as well as spot sales to nontraditional customers by Macarthur Coal.

In December 2009, the Company announced that it had conditionally agreed to, amongst other things, sell its interest in the CMJV to Macarthur Coal. The Group will receive newly issued shares of Macarthur Coal as consideration. This transaction will facilitate the continued development of Macarthur Coal to become one of the largest independent coal producers in Australia. The Group believes that Macarthur Coal has great development potential and will bring extra economic benefits to the Group with its diverse investments in coal.

The Group’s manganese business was affected in the first half of 2009 as a result of a contraction in demand in the steel market. The demand for manganese products improved in the second half of 2009 and the prices also gradually increased. During the year, the Group increased its equity interest in 中信大錳礦業有限責任公司 (CITIC Dameng Mining Industries Limited) (“CITIC Dameng JV”) from 48% to 52.4% which increased the Group’s influence over its manganese business and reflected the Group’s confidence in the manganese business.

The Group continues to monitor the potential spin-off of its manganese business through a separate listing on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) to ensure compliance with the listing requirements, including the obtaining of approval of the Listing Committee of the Stock Exchange and shareholders of the Company.

In January 2009, the Group completed the privatisation and delisting of CITIC Australia Trading Limited (“CATL”). The Group can now operate CATL with greater flexibility to compete with other trading companies. Though commodity prices generally fell following the onset of the global financial crisis, the Group has been able to take advantage of efforts by the Chinese Government to boost the economy by expanding its export business in the PRC. Through its broad selling channels, the Group has experienced an increase in profit in respect of the import and export business in adverse market conditions.

The Group’s aluminium smelting operations recorded its first ever loss as a result of a combination of weak selling prices, a drop in demand and a relatively strong Australian dollar. It is expected that as the global economy recovers in 2010, the pressure on the commodity prices will be alleviated which will improve the prospects of the Group’s aluminium smelting business.

Source: CITIC Resources (01205) Annual Results Announcement