Mr. Song Zhiping Presented a Speech at Morgan Stanley China Summit 2008

Investors from International Organizations Showed Full Confidence in CNBM Cement Business

Morgan Stanley held China Summit 2008 “Dancing with the Dragon” in Beijing on June 17th -19th. Mr. Song Zhiping, Chairman of CNBM and CNBM Group, attended China`s Natural Resources Strategy Panel and made a speech. CNBM held 12 one-on-one meetings, and talked with 14 investment organizations and 25 investors concerning local cement market development, trends of cement price, impact of increasing material and strategies. They also had an in-depth discussion about consolidation and restructuring of CNBM. The organizational investors highly appreciated the development strategy, consolidation and restructuring, and development of management of CNBM cement business. They are also fully confident in the future profitability of the cement business.

Mr. Song Zhiping presented the speech concerning the industry policies, market situation, and risk of investment of the cement industry. He believed that China cement industry is experiencing its golden season. First of all, there is great demand for cement in China. The fast national economy growth leads to cement demand increasing with a yearly rate of 10%. In 2007, national output amounted to 1.36 billion tonnes, represented 9.9% higher than 2006, remaining stable and steady increase trend. Output of cement in 2008 is estimated to be 1.45 billion tonnes by NDRC. In the coming years, demand for cement is going to remain steady due to the snow disaster, post-quake reconstruction, accelerating new countryside construction and urban construction and Shanghai World Expo.

Secondly, market situation is turning better due to the greater efforts imposed on cement industrial structure adjustment and the intensified industrial consolidation. In 2007, China`s large-scaled new dry cement has accounted for 55% of the cement output. As top ten cement groups` output taking 18% of national cement output, 5% higher than that in 2006, they could generate greater influence to the market and domestic prices will steadily increase. Thirdly, the government`s policy of phasing out outdated capacity works effectively. China`s government accelerate the elimination the vertical kiln and underperforming capacities of 87 million tonnes were demolished，which means more spaces for NSP cement development. M&A led by state-owned enterprises engines cement industry`s pace from large to powerful. Although China is a large cement production and consumption country with 50% of the world cement capacity, she is not a powerful cement country. The current situation of "large but not strong" is a development opportunity for China`s large building material enterprises. Especially, in 2007 the government released a serial of policies to give priority to investments, merger and acquisition project approvals, land approvals, credit loans of large-scale cement enterprises fully supported by the state. The government is going to support powerful cement enterprises` consolidation to enlarge the industrial consolidation and vitalize the whole industry. Fifthly, average cement price in international cement market is around 100 Dollars per tonne currently while that is 25 Dollars per ton in China. In addition, comparing the steel price, the cement price compared with steel price is 1:3 in international market, and that in China is 1:10-15. Therefore, the cement price in China has a long way to go.

Mr. Song said, CNBM has grasped the opportunity in cement industry and made a rapid development., CNBM has continued local strategy in recent two years. Under the principle of M&A with local strategy, good profit, local synergy and risk control, CNBM grasped the features of strong demand, highly fragmented in Huaihai and Southeast Economic Zones, promoted M&A rapidly and enlarged capacity scale. CNBM also implemented central procurement, price consolidation, and residual heat power. increased profitability and created great returns to investors

Investors expressed highly appreciated to Mr. Song`s speech.

CNBM has enhanced consolidation management since the beginning of this year. CUCC, one of the core enterprises of CNBM in cement business, implemented central procurement. South Cement gradually implemented central procurement of raw materials, such as coal. And CNBM also lowered cost by using residual heat power and power difference, promoted the recovery increase of cement price by fully using of the leading place in Huaihai and Southeast Economic Zone. It is said that subsidiaries of South Cement will promote “Three 5” management mode in the second half of this year.

International investors highly appreciated CNBM`s business strategy of cement business and various actions of increasing benefit. UBS analyst believed that the market under-valued CNBM and prospects of cement industry in Zhejiang. The increase of average price in our market, gross margin continuously improving, better cost transfer ability, and M&A speed up are important factors for CNBM`s future increase of profitability. Currently, UBS has raised CNBM target price from HKD 26.4 to HKD 30.6 in its recent research report.