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ANNUAL REPORT 2004

PADAENG INDUSTRY PUBLIC COMPANY LIMITED


Contents General Information Message from the Board of Directors Highlights for the Year 2004 Key Figures and Ratios The Year in Review Conditions of the Industry Operations • Mining • Raw Materials • Calcine Plant • Zinc Smelter Mineral Resources and Exploration Environment, Safety, Personnel and Community Relations Management Report and Analysis on Financial Status and Operating Performance Risk Factors Board of Directors, Strategic Committee and Audit Committee 2004 Audit Committee's Statement Financial Statements Compliance to the Principles of Good Corporate Governance Shareholders and Management

1-7 8-9 10 11 12-17

18-23 24 25 26-28 29 30-61 62-65 66-73


General Information

Background Padaeng Industry was established on April 10, 1981 with the original registered capital of Baht 20 million invested by Thai public (Ministry of Finance), private investors and a private Company from Belgium. The company has since‚ engaged in mining and refinery business with the objective to produce zinc metal and zinc alloys to serve the demand of our customers. The company's mine is located in Mae Sot district, Tak province. The zinc smelter is located in Muang district of the same province and the roaster is located in Rayong. The company also has engaged in zinc ore exploration programs both in Thailand and in neighboring countries. The company was listed on the Stock Exchange of Thailand on July 21, 1987 and was converted into a public Company limited on February 4, 1994. In 1996, the Company increased its registered capital to Baht 2,260 million which was fully paid in year 2000.

Vision PDI will be a low cost producer of high quality zinc, able to compete in its markets with world class producers, providing valued services to customers and giving great importance to the environment.


Product and their uses Products of Padaeng Industry consist of special high-grade zinc metal and value added zinc alloys. Their main applications are described as follows : SHG Zinc Metal It is used predominantly in the field of corrosion protection. Steel is galvanized to obtain a zinc coat on its surface. Subsequently the zinc layer protects the steel substrate in two different ways. First, when the coating is intact, zinc forms a barrier engulfing steel to shun it from corrosive media and hence offers ''barrier protection'' to steel. Second, having a lower electrochemical potential than steel, zinc behaves as anode while steel assumes the role of cathode. When the coating is damaged, zinc will corrode preferentially to steel. This interaction is call ''cathodic protection''. This phenomenon thereby offers a better protection than painting which bring only ''barrier protection''. Galvanized steel will offer long term and maintenance free corrosion resistance to infrastructures.

2 Padaeng Industry Public Company Limited Annual Report 2004

Zinc Galvanized Products


Concourse building of Suvarnabhumi Airport has main structures in duplex coating system (painting steel that has been hot-dip galvanized, while the roofs are glass and teflon canvas which are fixed with galvanized cables.

Suvarnabhumi Airport

The new Bangkok international airport


Zinc Alloys Pressure die-casting zinc alloys are used to produce near finish cast products for industries of construction, automotive, toy and audiovisual appliances. In zinc-aluminium-magnesium alloys, aluminium helps to increase tensile and creep strength as well as toughness and castability, while magnesium provides intergranular corrosion protection. Zinc die-casting products require minimum finishing step and may be further subjected to painting and baking as well as to electroplating.

Zinc Die-Casting Products 4 Padaeng Industry Public Company Limited Annual Report 2004


Zinc Die-Casting Products

Other Applications of

Zinc Zinc Chemicals While different grades of zinc powder are used in batteries and zinc rich primers, zinc oxide finds its application in vulcanization, ceramics, paints, animal feed and even in medical ointments.

Brasses By combining zinc with copper in different proportions, various grades of brass are obtained for many varied applications. These include bathroom accessories, valves, decorative statues and brass tubes.

5 Padaeng Industry Public Company Limited Annual Report 2004


Revenue Structure The company's total revenue for the consolidated financial statement can be classified by type of product (2002-2004)

Products

2004 Revenue Million Baht

% of Total Revenues

2003 Revenue Million Baht

% of Total Revenues

2002 Revenue Million Baht

% of Total Revenues

Zinc Metal (SHG)

3,129.73

54.76

2,720.67

55.16

2,803.24

63.62

Zinc Alloy

2,262.72

39.59

1,822.62

36.95

1,370.66

31.11

Sulphuric Acid

187.91

3.29

100.67

2.04

67.98

1.54

Other Revenue

134.66

2.36

288.18

5.85

164.08

3.73

Total Revenues

5,715.02

100.00

4,932.14

100.00

4,405.96

100.00

Investment Policy in Subsidiary Companies To be consistent with its business goal, the company develops only the subsidiaries related to zinc, such as joint investments in exploration and mining projects in Thailand and in ASEAN. The other subsidiaries will continue to operate their daily businesses as usual and independently from the company. At the moment the proportion of total investment in subsidiaries is 7.2% of total assets.

6 Padaeng Industry Public Company Limited Annual Report 2004


Overall Business Operations of Subsidiary and Affiliated Companies The company holds shares in the following groups of companies :

Subsidiary Companies

Nature of Business

1. Padaeng Properties Co.,Ltd. 2. Puthep Co.,Ltd.

- Land development and real estate - Exploration and mining of copper and other base metals - Exploration and mining of base metals in Laos - Investing in exploration and mine development projects in Vietnam - Production and marketing of aggregate limestone - Ceased business operations

3. Padaeng Industry (Laos) Co.,Ltd. 4. Padaeng International Mining Co.,Ltd. 5. Sila Enterprise Co.,Ltd. 6. Padaeng Poongsan Metals Co.,Ltd.

Paid up Capital Shareholding % (Baht) 80,000,000 145,584,804

100.00 100.00

5,000,000

100.00

100,000

100.00

9,000,000

55.00

250,000,000

61.98

200,000,000

100.00

Other Affiliated Companies 1. South East Asia Matals Co.,Ltd.

- Distributing base metals and other by-products

Future Projects Striving for continuous improvement, the company invests essentially in projects aiming at reducing the costs or at increasing the efficiency of the processes. Though, in the current context of shortage and soaring costs of foreign concentrates, the priority will also be given to further exploration of the local potential for mining and to diversification projects in the ASEAN region such as joint-investments in mining and exploration.

7 Padaeng Industry Public Company Limited Annual Report 2004


Message from the Board of Directors

8 Padaeng Industry Public Company Limited Annual Report 2004


2004 was a rebound year for Padaeng Industry Public Company Limited. The company's operating performance rallied dramatically over the previous year primarily due to a stronger world zinc price and steady demand, particularly in the domestic zinc consuming market. Sustained growth in the domestic steel galvanizing and automotive parts industries led to increased sales volume of zinc metal and generated greater revenues from sales of goods and services. The company takes much pride in this year's accomplishments considering the many unexpected and uncontrollable factors that were overcome. The company was able to maintain its position in a highly competitive marketplace with a quality product and expert technical support and service. Soaring freight costs, which affected import of concentrates was another uncontrollable factor that might have slowed the company's momentum. Other obstacles met with during this year were national circumstances including higher electricity costs, which registered far above that of competitors and the reduction of import duties on zinc metal by 2.25% as a result of trade liberalization policies issued by the Thai government. This gradual tariff reduction will continue to be a matter of concern for the company as it directly affects its competitiveness against better protected competitors. The projects developed in 2004 were a continuation of the strategy put in place two years ago. Of particular importance is the full-scale flotation unit that was commissioned at Mae Sot. With this full-scale flotation plant, the company now has the capacity to economically mine lower grade ores and transform them into high grade concentrates to complement the demand at the Smelter. Throughout this past year the company also proceeded with plans for continuous improvement in terms of safety and the environment. Unfortunately, the discovery of the presence of an abnormal level of cadmium in the soil in areas near the Mae Sot mine has brought the company an unexpected concern. Upon learning of this matter, the company took immediate action with local and provincial government offices to address the situation. The company has commissioned an independent study to determine the cause and find constructive ways in which to resolve the contamination problem. Whatever the outcome reveals, the company is committed to continue to help restore the normal conditions of life for the community and will devote the necessary resources to that end. As 2004 has indeed been a spectacular year for the company, with impressive gains in revenue and profit, the overall accomplishments are a combined effort by the hard work of our employees, support from our customers, loyalty of shareholders,and confidence shown by financial institutions,press and media and government agencies. It is to each and every one of these individuals and organizations that the Board of Directors would like to extend its sincere gratitude and appreciation for a job well done.

Mr. Bernard Tonnon

Mr. Pinit Vongmasa

Mr. Arsa Sarasin

‚Managing Director

Chief Executive Officer

Chairman

9 Padaeng Industry Public Company Limited Annual Report 2004


Highlights for the Year 2004 • Average LME price of zinc metal equaled USD 1,048 per mt, an increase of 26.5% from the average

of USD 828 per mt in 2003 • Import duties on zinc metal stood at 7.75% during the year, a reduction of 10% compared to 2003 • Sales of zinc metal reached 113,708 mt • Domestic sales of zinc metal increased by 6.9% • EBIT of Baht 248 million compared to Baht 38.7 million in 2003 • Consolidated net profit of Baht 217 million • Equity increased from Baht 2,835 million to Baht 3,053 million while total liabilities decreased

by Baht 438 million • The Calcine plant at Rayong received first recertification of ISO 14001 and achieved zero accidents

for five consecutive years • Cadmium contamination found in villages around the Mine • Exploration lease applications are still undergoing consideration by government agencies in 2004

10 Padaeng Industry Public Company Limited Annual Report 2004


Key Figures and Ratios

Consolidated End of Year Sales Total Revenues Gross Profit Net Profit (Loss) Net Profit (Loss) Per Share Net Profit (Loss) Per Total Revenue Total Assets Total Liabilities Shareholders' Equity Return on Assets Return on Equity Debt to Equity Ratio Book Value Per Share Dividend Per Share

(million baht) (million baht) (million baht) (million baht) (baht) % (million baht) (million baht) (million baht) % % (times) (baht) (baht)

2004

2003

2002

5,674 5,715 769 217 0.96 3.83 4,905 1,852 3,053 4.33 7.11 0.61 13.51 0.40

4,836 4,932 430 0 0.00 0.00 5,125 2,290 2,835 0.00 0.00 0.81 12.54 -

4,390 4,406 466 (29) (0.13) (0.66) 4,562 1,725 2,838 (0.63) (1.02) 0.61 12.56 -

11 Padaeng Industry Public Company Limited Annual Report 2004


The Year in Review

Conditions of the Industry In 2004, the average LME price of zinc metal increased by USD 220 per mt, up from USD 828 per mt in 2003, to USD 1,048 per mt, or an increase of 26.5%. This was due to a recovery in the world economy, which enhanced the demand of zinc especially in the US and China while several zinc refinery plants tended to reduce production capacity due to a shortage of zinc ores. As a result, it was anticipated that there would be a deficit in the supply of zinc metal along with a sharp drop in LME stocks. All base metal prices have fluctuated due to funds buying whereby zinc has surged to a 7-year high record of USD‚ 1,270 per mt at the end of Q4. It was foreseen that the world demand of zinc metal would reach 10.34 million mt, an increase by 4.8% from 2003, and would continue to grow by 4.3% to 10.78 million mt in 2005.

Zinc Sales Volume In 2004 the company's sales of metal were comparable to 2003 with a total volume of 113,708 mt. The total revenue of sales and services was Baht 5,674 million. Domestic sales accounted for 96,863 mt, or an increased of 6.9% from 2003. On the domestic market, the zinc related industries continued to rise despite the slight slowdown of the economy during the second half of the year. Total zinc metal consumption rose by 11.6% to 125,900 mt with a growing demand, particularly in the sectors of steel galvanizing, zinc oxide and automobile parts. In 2004, the company also exported 16,845 mt of zinc, accounting for 15% of the total sales. The reduced exports were a consequence of the higher demand on the local market. China, Taiwan and Vietnam were the main export markets. FIGURE 1 : LME ZINC PRICES AND STOCK LEVELS DURING THE PAST 10 YEAR (USD)

(Metric Ton)

1,500

800,000 700,000

1,350 600,000 1,200 500,000 1,050

400,000 300,000

900 200,000 750 100,000 0

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

LME Stock (Metric Ton) Average LME Price (USD)

12 Padaeng Industry Public Company Limited Annual Report 2004


Competition in the Industry Market competition is still a reality in Thailand. Smelters in Australia, Korea and China remain active in exporting their products to Thailand. Due to the trade liberalization policies, the competitive pressure is expected to increase in the future. However, the company is confident that it will remain a leader on the local market thanks to its continued policy of product quality, which meets the world-class standard, of speedy delivery, which reduces customers' stock burden and of customers' satisfaction with its efficient and expert technical services. The presence of a local smelter in Thailand supports the government's agenda of reducing the country's trade deficit. It also brings maximum profit to the local end-users who receive the benefit of the company's technical knowledge in order to improve their production process or product quality and take advantage of reliable, fast and competitive deliveries. The company, being the sole manufacturer of high quality zinc metal among ASEAN member countries and enjoying a prime geographic location, will also keep developing exports while focusing on value-added products.

FIGURE 2 : ZINC CONSUMPTION IN THAILAND 2000 - 2004

FIGURE 3 : SALES VOLUME OF ZINC METAL AND ALLOYS 2000 - 2004

(Metric Ton)

(Metric Ton) 120,000

130,000

100,000

120,000

80,000 60,000

90,000

40,000 20,000

60,000

Year 2000

2001

2002

2003

2004

Year

0 2000

2001

2002

2003

2004

Zinc Metal (SHG) Zinc Alloy

13 Padaeng Industry Public Company Limited Annual Report 2004


FIGURE 4 : SALES VALUE OF ZINC METAL AND ALLOYS 2000 - 2004

FIGURE 5 : SALES VOLUME OF ZINC 2000 - 2004

(Million Baht) 6,000

(Metric Ton) 100,000

5,000

80,000

4,000 60,000 3,000 40,000 2,000 20,000

1,000 Year

0 2000

2001

2002

Zinc Metal (SHG) Zinc Alloy

2003

2004

• •••

0 2000

2001

2002

2003

2004

• •• ••••••• •••• • ••••••• ••••

Operations Mining In 2004, the Mae Sot mine produced a total of 167,024 dmt of zinc silicate ore, with average zinc content of 26%, to feed to the Smelter in Tak province. Next to the existing flotation plant, The mine commissioned successfully a full-scale flotation plant which upgrades the low grade ores to concentrates. It allowed the production to be increased up to 96,832 dmt. The mine has been in operation for 21 years and currently holds ore reserves of 3,554,000 dmt, 12.7% zinc.

14 Padaeng Industry Public Company Limited Annual Report 2004


Raw Materials In 2004 the company purchased a total of 105,881 dmt of zinc concentrates(mainly zinc sulphides) sourced from South America, Australia and North America and delivered to the Roaster in Rayong province. In addition to the above procured zinc ore, the Smelter at Tak took in 185,537 dmt of zinc silicate ore and concentrates from the Mae Sot mine. A marginal tonnage of silicate ores and oxide materials that were not produced at the Mae Sot mine was sourced in the neighboring countries. During 2004, the cost of impor ted zinc concentrates increased significantly because of two major factors. First, the availability of zinc concentrates in the global market declined due to mine closures and lower levels of production than expected. Secondly, the cost of freight increased as well following a general shortage of ships and increased oil price. As a consequence, the company will continue in 2005 to search for less remote sources of concentrates.

Calcine Plant At the Calcine plant in Rayong province, zinc sulphide concentrate is converted into calcine prior to being sent to the Tak smelter for further processing together with zinc silicate ore to produce zinc metal. Calcine production level in 2004 was comparable to the production of 2003 with a total of 98,773 mt. In addition 101,994 mt of sulphuric acid was produced as a byproduct, generating an additional income of Baht 188 million compared to Baht 101 million in the previous year.

Calcine (mt) Acid (mt)

2004

2003

2002

98,773 101,994

98,743 98,063

113,764 116,722

Zinc Smelter In 2004 a total of 108,577 mt of cathode zinc was produced accounting for 97.8% of the total capacity (111,000 mt). A total of 13,744 mt of zinc ingot was imported to be refined into value added zinc alloys. Total production of metal amounted 115,112 mt including 68,285 mt of SHG products and 46,827 mt of alloys. Significant endeav ors to improv e production efficiency in 2004 are as follows: • A modification of the existing process with a loading and pre-washing unit to remove chloride and fluorine from oxide ores or secondary raw materials. This investment will allow the use of cheaper and more diversified raw materials. • An existing transfo-rectifier 20 kA was added to the circuit of the cellhouse resulting in a small production increase of approximately 150 mt per month. • A furnace was installed in the casting plant in order to recycle the skims produced during the casting operation. The recovered metal will be recycled in the production. • In 2004 the company also extended its range of alloys by starting the production of alloys, with high content of aluminium (up to 10%) for the galvanizing industry.

15 Padaeng Industry Public Company Limited Annual Report 2004


2.

Hualon Mine Hualon, Mining Lease Application number 1/2547, is a re-applied mining lease separated from Padaeng Mine. On December 31, 2004 the total mineral resource of the Hualon Mine at Mae Sot was 295,000 dmt @ 6% of zinc sulphide. An additional secondary zinc resource of 44,000 dmt @ 7.1% zinc have been discovered.

Exploration •

Mineral Resource and Exploration Padaeng Mineral Resources 1.

Padaeng Mine On December 31, 2004 the total mineral resource of Padaeng Mine at Mae Sot was 4,357,000 dmt @ 12.2% zinc. The mineral resource was calculated using a cut off gradeof 3% zincas shownin Table 1. Table 1 : Mineral Resources at Padaeng Mine (December 31st 2004) Category Dry Metric Tons Zinc Grade (dmt) (%) Low Grade Ore Stockpile 482,000 6.9 High Grade Ore Stockpile 26,000 24.8 Measured Resource 1,629,000 13.0 Indicated Resource 1,858,000 12.6 Inferred Resource 362,000 13.0 Total 4,357,000 12.2 The mineral resource can be converted to reserves of about 3,554,000 dmt @ 12.7 % zinc. Padaeng Mine now has sufficientmining resourceto sustainan expanded mining operation of over 400,000dmt of ore per year for the next 9 yearswhileadditional ore resources are being explored.

16 Padaeng Industry Public Company Limited Annual Report 2004

Mae Sot Area 1. Existing Mining Leases During 2004 exploration within the existing pit was successful in finding additional zinc mineral resources and extending the zones of zinc ore. Thirteen diamond drill-holes, were drilled at the north edge within the exiting mining leases. A total of 1,551 meters were drilled. Nine holes intersected ore grade zinc mineralization and additional new resource of 69,000 dmt was delineated with an average grade of 14.3% zinc. Since the existing mining leases still have high potential for additional zinc silicate, additional exploration drilling will be carried in future. 2. Special Prospecting Licenses Area Exploration within the SPL's during the year 2004 has been progressive. Deep soil samplingwas undertaken. An initial diamond drilling programmed testing targets has been encouraging in some areas. Additional infill diamond drilling especially zinc sulphide targets will be followed up in 2005. •

Regional Exploration

1.

Exploration in Thailand

Because it is critical for the long term sustainability of the company, Padaeng maintained a sustained effort of exploration in Thailand while facing increasing administrative delay. Most of the identified areas with potential are presently awaiting the approval of the lease applications.


2.

Loei Copper Project Puthep Company Limited, one of our affiliates has joined efforts with the Australian mining company, Pan Australian Resources, in order to develop the copper deposits at PUT1 and PUT2 near Loei province. At PUT 1 the current resource is 80 million dmt @0.5% Copper at a cut-off grade of 0.1% Copper. At PUT 2 the current resourceis 32 milliondmt @ 0.4% Copperat 0.1%Copper cut-off. The Cabinet has granted access since June 2004 to 1A water shed for the feasibility study and given in-principle approval for mining application but subject to some conditions that have not been finalized yet. 3.

Kaiso Project - Lao People's Democratic The Kaiso Mining Lease expired on June 2004. The proposal for extension of ML has been made for another 3 years. Laos Government has approved it since September 2004. Padaeng (Laos) has applied to expand the current exploration area to be 800 square kilometers for another five years. Table 2: Summary of Mae Sot Mining and Exploration Tenements License Number

Type

Area (Ha)

Date Granted

Expiry Date

20780/13286 20781 /13285 20782/13287 25697/14388 30769/15525 1/2547 1/2545 2/2545 3/2545 1/2545 2/2545 3/2547

ML ML ML ML ML MLA SPL SPL SPL SPLA1 SPLA1 SPLA2

14.36 11 .46 14.22 0.89 39.38 47.77 1,600.00 1,120 .00 1,600.00 786,72 1,487.68 900.00

18/10/1982 18/10/1982 18/10/1982 30/04/1991 11/07/2002 On going 25/03/2002 25/03/2002 25/03/2002 09/2004 09/2004 11/2004

17/10/2007 17/10/2007 17/10/2007 29/04/2008 10/07/2017

* Note : ML MLA SPL SPLA1 SPLA 2

24/03/2004 24/03/2004 24/03/2004

= = = =

Mining Lease Mining Lease Application at Hualon, applied since March 2004 Special Prospecting License Re-applied New Special Prospecting Licenses since October 2002 Approved by the Mineral Act Committee since June 2004 = Re-applied New Special Prospecting License since April 2004 Approved by the Mineral Act Committee since October 2004

17 Padaeng Industry Public Company Limited Annual Report 2004


Environment, Safety, Personnel and Community Relations

Environment and Safety The company has a strong commitment to encompass continuous improvement of its management systems for environment, health and safety. The Calcine plant has received the first recertification of ISO 14001 on January 2004 and is going to upgrade to the new version of ISO 14001:2004 and will integrate the three systems of ISO ‹9001, TIS/OHSAS‹ 18001 and ISO‹ 14001 into a single management system within year 2005. The Smelter will finalize the implementation of ISO 14001 by end 2005 while the Mine will launch the process this year. After the heavy investments of 2003, Baht 53 million were invested again in 2004 in environment related projects, mainly for the decommissioning of the ponds at the smelter. The company has repeatedly provided seminars and training courses in health, safety and the environment to educate employees about accident prevention and safe working practices, including emergency response procedures and loss prevention. It is to be stressed that the Calcine plant achieved zero accidents for five consecutive years.

18 Padaeng Industry Public Company Limited Annual Report 2004


The Cadmium Issue at Mae Sot Early 2004, a study revealed high levels of cadmium contamination in the rice crops from two villages in the Mae Sot district. The company commissioned the National Research Center for Environmental and Hazardous Waste Management at Chulalongkorn University to investigate the causes of the cadmium presence in the environment and observe its potential effect on the community. Findings are expected by early March 2005. In parallel, the company has tightened measures to protect against pollution, ensuring that all treated water emissions from the mine concession are harmless even during times of heavy rainfall In addition, the company has committed to participate to the search of solutions and participated actively to all study groups concerned . It has proposed that the Faculty of Medical Science at Chulalongkorn University conduct a joint study with the Mae Sot Hospital in Tak province to study further the extent and mechanism of kidney disease among the villagers of the area, in order to protect and treat them against the illness. (More information can be found on our website)

19 Padaeng Industry Public Company Limited Annual Report 2004


Personnel Staff training and development continued at all level, emphasizingknowledge,skills and efficiency to ensure sufficient capabilityin responseto changingcircumstancesand competitive conditions. With the acknowledgement that human resources are the most importance factor in maintaining continuing growth, programs are underway to develop leaders at various levels, especially for supervisor and above. In parallel, the employees were encouraged to develop their capabilities through in-house training courses and on the job training program. The company's total workforce consists of 746 employeesof which89 employeesat Bangkokoffice,423 employees at Tak smelter,144 employeesat Mae Sot mine and 90 employees at the Calcine plant at Rayong. The average age of employees is 39 years, while average tenure of service with the company is 13 years. In 2004, the employee turnover rate equaled 3.08%.

20 Padaeng Industry Public Company Limited Annual Report 2004


Community Relations To be successful in business means more than merely providing a high quality product and satisfying the customers. Helping to build a strong society and providing a secure livelihood, education and health to the community are both societal objectives that the company believes are just as important as business objectives. For this reason, the company initiates and participates in numerous community assistance and development activities each and every year. These activities include those specified in the annual work plan as well as those made necessary or crucial for the the community by unexpected natural disasters In 2004, the company allocated approximately Baht 4 million towards community assistance programs and development activities.

Education • Awarding annual academic scholarships, student uniforms and school

materials totaling Baht 1.5 million • Donating 12 sets of computers to local schools in Tak province • Constructing an audio-visual room in the Knowledge Development Project

at the Padoong Panya School in Tak province • Providingfunding for various School Lunch Projectsincludingthe Vegetable Garden and the Poultry Farm Projects at 12 area schoolsin Tak province

21 Padaeng Industry Public Company Limited Annual Report 2004


Public Health and Public Welfare • Providing funding to renovate 2 intensive care units at the King Taksin

Maharaj Hospital in Tak province • Supporting projects to develop agricultural careers in Pratad Padaeng sub-district of Tak province by contributing to the farming materials fund for planting soybeans of the local women's farmers groups in the Mae Tao Mai village and Pa Dae village • Supporting fund to the Mae Tau MetropolitanPolice Station in Tak province. • Company employees, as members of the “Padaeng Volunteer Group” worked with local residents to renovate classrooms and playground at various schools in Tak province • Mobilizedassistance,heavy machineryand manpower to transport wreckage and aid residents in Mae Ramat district of Tak province, who suffered as a result of flooding and mudslides, with coordination efforts totaling over Baht 600,000 • Donating Baht 200,000 to the Ministry of Industry to aid in relief efforts for victims of the Tsunami disaster in 6 southern provinces of Thailand

22 Padaeng Industry Public Company Limited Annual Report 2004


Indicator

Measurement

SAFETY INDICATORS Frequency rate Severity rate No of employees

Zinc Smelter

Calcine Plant

Unit

2004

2003

2002

2004

2003

2002

accidents/million working hours lost days/ million working hours number

3.36 24.35 559

2.54 24.55 542

0.84 9.22 559

0 0 90

0 0 93

0 0 111

metric tons/y gigajoule 1,000 m3/y

305,247 1,966,306 1,638

310,270 1,973,251 1,597

290,001 1,807,424 1,628

111,463 19,546 215

109,377 20,721 204

132,496 28,252 209

wet metric tons/y %

600,779 100

635,688 99.997

591,222 100

571 91.8

464 83

661.57 6.8

1,000 m3 /y kg/y toxic unit kg

180 43 1,566

786 117 6,620

751 125 5,423

54 84 1,493

41 83 1,493

49 18 545

kg/y toxic unit kg metric tons/y 103 acid equivalents

1,362 1,375 344 11,726

612 623 280 11,644

3,041 3,053 311 na

18 55 181 6

127 145 165 5

25 110 218 7

2 0

1 0

0 0

1 0

0 0

1 1

100 38.25

100 32.42

100 20.78

0 0

0 0

0 0

0 0 0

0 1 1

0 0 0

0 0 0

0 0 0

0 1 0

52 92

29 80

46 75

0.9 8.9

0 12

2 9

INPUT INDICATORS Total materials used Total energy consumption Total water consumption OUTPUT INDICATORS Produced waste Total waste produced Disposal Emissions to water Total emitted process waters Total emitted metals Total metal toxic unit load Emissions to air Total emitted metals Total metal toxic unit load Total emitted SOx Total acid deposition emissions

ENVIRONMENTAL PERFORMANCE INDICATORS Compliance & incidents Violations number Reported incidents number Landfills Landfill covered / landscaped in reporting year % Cumulative landfill covered / landscaped % SOCIETAL INDICATORS Complaints about noise Complaints about odour Total nuisance complaints

number number number

FINANCIAL INDICATORS Environmental investment and operating costs Total environmental investment costs (million baht) Total environmental operating costs (million baht) na : not available

0 : measured or calculated 23 Padaeng Industry Public Company Limited Annual Report 2004


Management Report and Analysis of Financial Status and Operating Performance The company's operating result improv ed significantlyin 2004 despite higher costs of raw materials, freight, electricity and the reduction of duties. Not only did the company bank on the production of its mine that was sustained by the recent investment in a flotation plant but it also benefited from the increasing demand on the local market.

Revenue from Sales While the overall sales in volume changed slightly to 113,708 mt, the domestic share increased to 96,863 mt or 85% (vs 80% in 2003). Marketing of high value products increased to 40% of the total sales (vs 38% in 2003). Acid sales progressedby 20%,‚ reaching98,773 mt. Total revenues from sales improved 17% to Baht 5,674 million.

Profitability The company's operating profit totaled Baht 248 millionfrom Baht 39 millionone year earlier.The company's net profit for the year reached Baht 217 million compared to a quasi breakeven performance on the previous year. The consolidatedprofit after attributionto minorities is Baht 217 million or Baht 0.96 per share.

Balance Sheet Assets & Liabilities The company's assets totaled Baht 4,905 million or a 4.3 % decrease compared to 2003. These amounts are in line with lower inventories of raw material and reduced requirement for new fixed assets. Total liabilities decreased by Baht 438 million to Baht 1,852 million with the major changes being an increase of Baht 88

24 Padaeng Industry Public Company Limited Annual Report 2004

million in long term debts and a Baht 427 million contraction of the short term debts together with a reduction of trade payables and intercompanies. Shareholder's Equity Net equity of the company progressed by Baht 218 million to Baht 3,053 million (Baht 3,058 million company). After Baht 10 million appropriation to the legal reserve, retained earnings are above Baht 177 million (Baht 186 million company). Cash Flow & Capital Expenditure Consolidated cash flow from operations before changes in assets and liabilitiesreached Baht 618 million, from Baht 337 million in 2003. Total net cash provided by operating activitieshas a Baht 672 million contribution at Companylevel and Baht 750 millionin the consolidated accounts. Baht 231 million have been paid for purchase of fixed assets and mining intangibles. Main investments in fixed assets related to the proper ties, plants and equipmentsmaintenance,some expansion of the Smelter as well as further improvement of the flotation plant.


The company makes every effort to conduct its business thoroughly and efficiently so as to protect itself from internal and external factors, which may affect operations or financial status.

Changes in Zinc Price and Exchange Rate Any change in zinc price, as quoted daily on the London Metal Exchange (LME), and exchange rate will have an impact on the company's revenues since both purchase and selling prices are linked to the LME price and expressed in USD currency. As such the fluctuations in LME zinc price and the USD/Baht exchange rate can be considered as the main structural risk of the company. In order to reduce the impact of such factors the company is hedging the purchases and sales in dollar terms and has been studying transactional hedging for the metal risk. On the other hand, the company benefits for a good part of a maximum usage of unpaid concentrates from the Mae Sot Mine.

Safeguarding Our Competitiveness Until recently, the Thai government imposed an import duty of 10% on zinc, protecting the company to some degree from foreign competitors who have a lower cost base than Thailand. However, current government implementation of further market liberalization measures in this sector reduced the import duty on zinc metal to 7.75% during the year and 5.50% at the beginning 2005, causing a significant drop in the company's revenue. This measure will weaken our protection against better protected Asian producers. Nevertheless, the company has the ambition to maintain a leader position on the domestic market and to keep growing its market share in the region. It will therefore take advantage of its own raw material source and of its customer driven marketing.

Risk Involved in The Investment in Subsidiaries The company has one significant investment in a subsidiary under a Participation Agreement with an Australian company. As of last year, the project was pending most of the year waiting for the approval for land access for further ore sampling prior to a feasibility study. The study will determine if the resource are economically recoverable.

Environmental Risk Following the historical Cd-contamination at Mae Sot, future exploration projects will take into account the control of sediments when performing an industrial activity in a highly Cd/Zn-mineralized area. It is likely that the feasibility of future mining projects will be impacted and the projects restricted to large orebodies justifying the costly waste management as done at the Mae Sot Mine.

25 Padaeng Industry Public Company Limited Annual Report 2004


Board of Directors Strategic Committee and Audit Committee 2004

Current Position

Mr. Arsa Sarasin Chairman Education •

B.A. (Business Administration), Boston University, U.S.A.

Training •

Director Accreditation Program (DAP), Thai Institute of Directors Association

• Chairman, Padaeng Industry Public Company Limited • Chairman, Thai Asia Pacific Brewery Company Limited • Chairman, Siam Makro Public Company Limited • Chairman, Amata City Company Limited • Chairman of Advisor, Thai-Lao Association for Friendship • The Honorable Chairman of the TOA Group of Companies • Director, Thai Pure Drinks Company Limited • Director, Thai Tapioca Development Institute • Director and Member of the Governance and Nomination Committee, The Siam Cement Public Company Limited • Independent Director and Audit Committee Member of Charoen Pokphand Foods Public Company Limited • Advisor to the Board of Directors of Bangkok Bank Public Company Limited

Working Experience • Chief Executive Officer, Padaeng Industry Public Company Limited • Director - General, Department of Political Affairs, Ministry of Foreign Affairs • Director - General, Department of Economic Affairs, Ministry of Foreign Affairs • Thai Ambassador to Belgium & Chief of Mission to the European Community • Thai Ambassador to the U.S.A • The Permanent Secretary of the Ministry of Foreign Affairs • The Minister of Foreign Affairs • Chairman of the Asia-Europe Business Forum II • Vice Chairman of the Board of Directors, Bangkok Bank Public Company Limited • Member of the Board of Director, Vinythai Public Company Limited • Co-Chairman of the Thai-Lao Association

Mr. Pinit Vongmasa Director, Chief Executive Officer and Strategic Committee Member Education •

M.S. (Ind. Mgt.), Oklahoma State University, U.S.A. • Advance Management Program, Harvard University, U.S.A.

Training •

Directors Certification Program 2001, Thai Institute of Directors Association

Current Position •

Chief Executive Officer, Padaeng Industry Public Company Limited

Working Experience • President and Chief Executive Officer, Padaeng Industry Public Company Limited • President, The Siam Kubota Industry Company Limited • Managing Director, The CPAC Concrete Products Company Limited

Mr. Bernard Tonnon Director, Managing Director and Strategic Committee Member Education •

26 Padaeng Industry Public Company Limited Annual Report 2004

Master's Degree in Mining Engineering, Universite Libre de Bruxelles, Belgium

Current Position •

Managing Director, Padaeng Industry Public Company Limited

Working Experience • Business Line Manager, Umicore, Angleur, Belgium • Head of Activity Zn Wire & Dust, Umicore, Angleur, Belgium


Training • The Board's Role in Setting Effective Compensation Policy, Thai Institute of Directors Association • The Audit Committee... The Expectation Increase and The Responsibility Expansion, Stock Exchange of Thailand • Director Accreditation Program (DAP), Class 4/2003, Stock Exchange of Thailand and Thai Institute of Directors Association

Current Position

Mr. Paron Israsena Independent Director and Audit Committee Member Education •

Master of Science (M.E.), Massachusetts Institute of Technology (MIT), U.S.A.

Mr. Kosit Panpiemras Director Education •

M.A. (Economics), University of Maryland, U.S.A.

• Director, Member of the Audit Committee and Chairman, The Governance and Nomination Committee, The Siam Cement Public Company Limited • Director and Chairman of the Audit Committee, Summakorn Public Company Limited • Chairman, Shin Satellite Public Company Limited • Member, Thailand Industrial Standard Institute Ministry of Industry • Director, The National Competitiveness Development Board • Academic Director, The National Economic and Social Development Board • Academic Director, Thailand Productivity Institute

Working Experience • President, The Siam Cement Public Company Limited • Chairman, The Federation of Thai Industries • Senator and Member of National Legislative Assembly • Chairman, Committee on Economics & Industry of the Senate

Current Position • Director and Executive Chairman, Bangkok Bank Public Company Limited • Member of the National Economic and Social Development Board

Working Experience •

The Minister of Finance • The Minister of Industry

Training

Mr. Vinai Vamvanij Independent Director, Audit Committee Chairman and Strategic Committee Member Education •

Professional Accountancy, CPA, Australia

• Thai Institute of Directors Association - Directors CertificationProgram2001 - Chairman 2000 - Creating a Strategic Direction

Current Position • Independent Director and Audit Committee, Christiani & Nilsen (Thai) Public Company Limited • Director, Continental Petrochemical (Thailand) Co., Ltd.

Working Experience • Executive Director, Thonburi Automotive Assembly Plant Company Limited • President, Continental Petrochemical (Thailand) Co., Ltd. • Chief Executive Officer, Aquastar Group

Training • Banff School of Advanced Management, Alberta, Canada • The National Defend Course for the Joint State - Private Sectors, Class 6, National Defend College • Directors Certification Program, Class 11/2001, Thai Institute of Directors (IOD) and Australian Institute of Company Directors (AICO) • Chairman 2000, Class 5/2001, Thai Institute of Directors (IOD) and Australian Institute of Company Directors (AICO)

Current Position

Mr. Aswin Kongsiri Independent Director and Audit Committee Member Education •

B.A. (Hons.) in Philosophy, Politics and Economics, Oxford University, England

• Director and Chairman of the Executive Committee, Electricity Generating Public Company Limited

Working Experience • Director and Executive Director, The Industrial Finance Corporation of Thailand Director and Executive Director, Siam Commercial Bank Public Company Limited • Chairman, Bangkok Commercial Asset Management Company Limited • Executive Chairman, Bangkok Bank of Commerce Public Company Limited • President, The Industrial Finance Corporation of Thailand •

27 Padaeng Industry Public Company Limited Annual Report 2004


Board of Directors Strategic Committee and Audit Committee 2004

Mrs. Sirinuj Bisonyabut Director Education • • •

MBA., Thammasart University B. Sc., Chulalongkorn University Certificate of Senior Executive of Office of the Civil Service Committee (Class 28) • Certificate of National Defense College (Class 44) • Certificate of King Prajadhipok's Institute (Class 3)

Current Position • Inspector of Ministry of Finance Company Limited

Board of CAT Telecom Public

Working Experience • Deputy Director - General, Excise Department • Director, Office of Tax Administration 2, Excise Department • Senior Tax Technical Officer, Bureau of Tax Administration 1 and 2, Excise Department

Mr. Karel Vinck Director Education

Current Position

Master's Degree in Electrical and Mechanical Engineering, Katholieke Universiteit Leuven (KUL), Belgium • Master of Business Administration, Cornell University, U.S.A.

Chairman, Umicore, Belgium

Working Experience • Chief Executive Officer, Eternit, Belgium • Chief Executive Officer, Bekaert Group, Zwevegem • Chief Executive Officer, Union Miniere, Belgium Executive Officer, NMBS/SNCB (Belgian Railways), Belgium

• Chief

Dr. Jean-Luc Deleersnyder Director and Strategic Committee Member Education •

Master's Degree in Electromechanical Engineering and Ph.D. in Operations Management, Rijksuniversiteit Gent. (RUG), Belgium

Current Position •

Executive Vice President (Zinc), Umicore, Belgium

Working Experience • Corporate Vice - President HR & Strategy, Umicore, Belgium • Management Consultant, McKinsey & Company, Belgium

Mr. Michel Moser Director Education •

Master's Degree in Commercial Engineering, Ecole de Commerce Solvay (ULB), Belgium • Post graduat en commerce international, Ecole de Commerce Solvay (ULB), Belgium • Finance for Executives, INSEAD, Fontainebleau

Current Position • Member of the Umicore Executive Committee, Belgium • Vice President Corporate Development, Umicore, Belgium

Working Experience • Managing Director, Sogemin Metals Ltd., London, England • Chief Financial Officer, Sogem s.a., Brussels, Belgium • Managing Director, Sogem Far East Ltd., Hong Kong • Executive Vice-President, Sogem Afrimet Inc., New York, U.S.A.

Board of Directors (Resigned during the year) 1. Mr. Andre R. van der Heyden Director, Managing Director and Strategic Committee Member

2. Mrs. Naengnoi Na Ranong Director

Education • Master's Degree in Metallurgical

Engineering, Universite Catholique de Louvain (UCL), Belgium

Education • B.Sc. (Economics), Chulalongkorn University

Training • Director Accreditation Program (DAP),

Thai Institute of Directors Association • Customs International Executive Management

28 Padaeng Industry Public Company Limited Annual Report 2004

Programme 1999, Australia • Executive Training Course, Class 30, Office of the Civil Service Commission

Working experience • Managing Director, Padaeng Industry Public Company Limited • Senior Vice President Zinc, Union Miniere, Belgium

Current Position • Deputy Secretaries-General to the Prime Minister for Administer Affairs,

The Secretariat of the Prime Minister

Working experience • Deputy Director-General, Customs Department • Director of Human Resources Management Bureau, Customs Department • Committee to the AD HOC Committee on "Customs Cooperation

Council Protection Law B.E. 2542, The House of Representative • Director of Policy and Planning Bureau, Customs Department • Minister Counselor (Customs), Royal Thai Embassy, Brussels, Belgium


Audit Committee's Statement Dear Shareholders, The Audit Committee comprises three independent directors, Mr. Vinai Vamvanij as Chairman, Mr. Aswin Kongsiri and Mr. Paron Israsena. In 2004, the Audit Committee has met quarterly with the external auditor, the internal auditor and the management to review the consolidated and company financial statements to ensure conformity with the regulations of SEC, SET and with the generally accepted accounting principles of Thailand before submission to the board. The Audit Committee has also held the meeting with the internal auditor and the management to assess the company's internal control and risk management with emphasis on such issues as connected parties transactions and proper disclosure of information in such area for transparency and good corporate governance. In this respect, the Audit Committee is of the opinion that the company's operations have been appropriate and has found no significant weaknesses in its conduct of business. In 2005 the company will continue striving for improvement of the internal control system with the aim to boost efficiency, effectiveness and identifying of weakness in the system and implementation of solution to eliminate them. The Audit Committee has recommended to the Board of Directors to propose to the shareholders to reappoint Certified Public Accountants of PricewaterhouseCoopers ABAS Ltd. to conduct the audit of financial statements for the company and its subsidiaries for the year 2005.

(Mr. Vinai Vamvanij) Chairman of the Audit Committee 25 February 2005

29 Padaeng Industry Public Company Limited Annual Report 2004


Auditor's Report

To the Shareholders and the Board of Directors of Padaeng Industry Public Company Limited I have audited the accompanying consolidated and company balance sheets as at 31 December 2004 and 2003 and the related consolidated and company statements of income, changes in shareholders' equity and cash flows for the year then ended of Padaeng Industry Public Company Limited and its subsidiaries, and of Padaeng Industry Public Company Limited, respectively. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the consolidated and company financial statements referred to above present fairly, in all material respects, the consolidated and company financial position as at 31 December 2004 and 2003, and the consolidated and company results of operations, and cash flows for the year then ended of Padaeng Industry Public Company Limited and its subsidiaries, and of Padaeng Industry Public Company Limited, respectively, in accordance with generally accepted accounting principles.

Suchart Luengsuraswat Certified Public Accountant (Thailand) No. 2807 PricewaterhouseCoopers ABAS Limited Bangkok 4 February 2005

31 Padaeng Industry Public Company Limited Annual Report 2004


Balance Sheets As at 31 December 2004 and 2003

Notes

Consolidated 2004 2003 Baht Baht

Company 2004 2003 Baht Baht

Assets Current assets Cash and cash equivalents 3 441,677,104 231,267,799 325,879,711 194,553,781 Trade accounts receivable - net - other parties 4 235,095,679 237,569,591 228,096,854 233,382,326 - related parties 24 (iv) 22,578,804 27,333,269 23,168,198 28,029,827 Short‚ - ‚term loans and advances to related parties - net 24 (v) - 10,934,667 10,605,002 Inventories - net 5 1,344,873,736 1,532,783,426 1,344,780,013 1,532,703,980 Withholding tax 47,680 449,364 47,680 193,483 Account receivable - revenue department 80,710,480 106,322,079 80,679,318 106,187,492 Other receivables 35,077,973 6,823,153 35,077,973 6,823,153 Other current assets 27,895,507 49,737,363 27,620,862 49,603,405 Total current assets 2,187,920,963 2,192,286,044 2,076,285,276 2,162,082,449 Non - current assets Investments in subsidiaries - net Property, plant and equipment - net Exploration and acquisition costs Other non - current assets Total non - current assets Total assets

6, 24 (i) 7 2,427,094,495 2,602,511,407 8 277,032,327 306,344,039 9 12,983,853 24,193,654 2,717,110,675 2,933,049,100

358,934,364 357,093,647 2,429,905,770 2,605,151,642 113,114,836 142,426,548 12,928,853 24,138,654 2,914,883,823 3,128,810,491

4,905,031,638 5,125,335,144 4,991,169,099 5,290,892,940

Mr. Pinit Vongmasa Chief Executive Officer

32

The notes to the consolidated and company financial statements on pages 40 to 61 are integral part of these financial statements.

Padaeng Industry Public Company Limited Annual Report 2004


Balance Sheets Continue As at 31 December 2004 and 2003

Notes

Liabilities and shareholders' equity Current liabilities Loans from financial institutions Trade accounts payable - other parties - related paries Current portion of payable for concession assets acquired Current portion of payable for land use compensation Current portion of long‹-‹term loans Current portion of hire purchase payable Short - term loans from related parties Accrued interest expenses - other paries - related paries Accrued electricity expenses Other current liabilities Total current liabilities Non‹‹ ‹-‹ ‹current liabilities Long‹‹ ‹-‹ ‹term payable for land use compensation Long‹-‹term loans Hire purchase payable Deferred gain on hire purchase Provisions for restoration expense Total non‹‹ ‹-‹ current liabilities Total liabilities

Consolidated 2004 2003 Baht Baht

Company 2004 2003 Baht Baht

10 283,819,241 813,105,370 283,819,241

813,105,370

412,997,555 508,147,871 412,984,821 813,981 10,863,543 923,691

507,805,765 94,837,458

24 (iv) 12

-

13 11,061,405 14 102,500,000 1,893,022 24 (vi)

-

19,451,288

-

19,451,288

11,061,405 11,061,405 - 102,500,000 - 1,893,022

11,061,405 -

-

90,000,000

90,000,000

1,864,844 2,088,984 1,864,844 2,088,984 24 (vi) 157,808 236,712 184,626,172 164,452,697 184,626,172 164,452,697 11 276,766,424 255,655,320 267,503,505 245,817,873 1,276,342,644 1,784,826,478 1,357,334,509 1,948,857,552

13 - 11,061,405 14 547,500,000 450,000,000 547,500,000 3,866,978 - 3,866,978 2,679,459 4,210,578 2,679,459 15 21,543,364 40,148,165 21,543,364 575,589,801 505,420,148 575,589,801

11,061,405 450,000,000 4,210,578 40,148,165 505,420,148

1,851,932,445 2,290,246,626 1,932,924,310 2,454,277,700

The notes to the consolidated and company financial statements on pages 40 to 61 are integral part of these financial statements.

33

Padaeng Industry Public Company Limited Annual Report 2004


Balance Sheets Continue As at 31 December 2004 and 2003

Notes

Shareholders' equity Share capital Authorized share capital‹ 226,000,000 ordinary shares of Baht 10 each Issued and paid‹ - ‹up share capital 226,000,000 ordinary shares of Baht 10 each, fully paid Premium on share capital Retained earnings (deficit) Appropriated - legal reserve Unappropriated retained earnings (deficit) Total company shareholders' equity Minority interest Total shareholders' equity Total liabilities and shareholders'‹e‹quity

34

Company 2004 2003 Baht Baht

16 2,260,000,000 2,260,000,000 2,260,000,000 2,260,000,000 2,260,000,000 2,260,000,000 2,260,000,000 2,260,000,000 602,413,600 602,413,600 602,413,600 602,413,600 17

9,791,560 9,791,560 177,051,291 (30,183,840) 186,039,629 (25,798,360) 3,049,256,451 2,832,229,760 3,058,244,789 2,836,615,240 3,842,742 2,858,758 3,053,099,193 2,835,088,518 3,058,244,789 2,836,615,240 4,905,031,638 5,125,335,144 4,991,169,099 5,290.892,940

The notes to the consolidated and company financial statements on pages 40 to 61 are integral part of these financial statements.

Padaeng Industry Public Company Limited Annual Report 2004

Consolidated 2004 2003 Baht Baht


Statements of Income For the years ended 31 December 2004 and 2003

Notes

Consolidated 2004 2003 Baht Baht

Company 2004 2003 Baht Baht

Revenues from sales‹ and‹ services Cost of sales‹ and‹ services‹ Gross profit

26 5,673,814,586 4,835,856,148 5,663,727,552 4,827,968,779 (4,904,783,584)(4,406,103,502)(4,900,113,919) (4,405,359,704) 769,058,002 429,752,646 763,613,633 422,609,075

Selling and administrative expenses Profit from sales

18 (532,903,358) (467,241,510) (525,459,725) (449,668,844) 236,154,644 (37,488,864) 238,153,908 (27,059,769)

Other revenues Gain (loss) on exchange rate Inventory revaluation loss Early retirement expense Impairment expenses Directorsû remuneration Other expenses Profit from operations Share of gain (loss) from subsidiaries on equity method Profit before finance costs and income tax Finance costs - net Income tax Profit before minorities

5 7,‹18

6 19

(Profit) attributable to minorities Net profit for the year Earnings per share Net profit for the year

18,854,234 27,482,280 15,808,313 18,252,913 67,141,038 18,296,547 207,492 (207,492) 207,492 - (13,694,401) (21,218,479) 293,597 (21,218,479) (3,593,913) (3,790,000) (3,593,913) (447,831) (1,073,105) (447,831) 248,209,060 38,663,053 247,206,307 248,209,060

- 1,840,717 38,663,053 249,046,754

1,360,845 41,701,290

(26,525,533) (38,121,600) (27,417,205) (3,672,852) (358,522) 218,010,675 182,931 221,629,549

(38,903,401) 2,797,889

(983,984) 217,026,691 20

18,064,710 67,806,905 (207,492) (13,694,401) 293,597 (3,790,000) (1,073,105) 40,340,445

0.96

(180,090) 2,841 221,629,549 0.00

0.98

2,797,889 0.01

35 The notes to the consolidated and company financial statements on pages 41 to 61 are integral part of these financial statements. Padaeng Industry Public Company Limited Annual Report 2004


36

Padaeng Industry Public Company Limited

Annual Report 2004

602,413,600 602,413,600

24‚(i)

2,260,000,000 2,260,000,000

602,413,600 602,413,600

Issued and Premium paid up on share capital share capital Notes Baht Baht

2,260,000,000 17 2,260,000,000

(30,183,840) (9,791,560) 217,026,691 177,051,291

-

Baht

Minority interest

2,858,758 983,984 3,842,742

Baht

Minority interest

(30,186,681) 5,378,668 - (2,700,000) 2,841 180,090 (30,183,840) 2,858,758

Retained earnings (deficit) Appropriated Unappropriated legal reserve Baht Baht

Consolidated

9,791,560 9,791,560

Retained earnings (deficit) Appropriated Unappropriated legal reserve Baht Baht

2,837,605,587 (2,700,000) 182,931 2,835,088,518

Total Baht

2,835,088,518 218,010,675 3,053,099,193

Total Baht

The notes to the consolidated and company financial statements on pages 40 to 61 are integral part of these financial statements.

Beginning balance 2003 Decrease in share capital‚ Net profit Ending balance 2003

Beginning balance 2004 Appropriated legal reserve Net profit Ending balance 2004

Issued and Premium paid up on share capital share capital Notes Baht Baht

Consolidated

Statements of Changes in Sharehoders' Equity For the years ended 31 December 2004 and 2003


2,260,000,000 2,260,000,000

602,413,600 602,413,600

2,260,000,000 2,260,000,000

602,413,600 602,413,600

Issued and Premium paid up on share capital share capital Notes Baht Baht

17

(25,798,360) (9,791,560) 221,629,549 186,039,629

-

(28,596,249) 2,797,889 (25,798,360)

Retained earnings (deficit) Appropriated Unappropriated legal reserve Baht Baht

Company

9,791,560 9,791,560

Retained earnings (deficit) Appropriated Unappropriated legal reserve Baht Baht

Baht

Minority interest

Baht

Minority interest

-

-

2,833,817,351 2,797,889 2,836,615,240

Total Baht

2,836,615,240 221,629,549 3,058,244,789

Total Baht

The notes to the consolidated and company financial statements on pages 40 to 61 are integral part of these financial statements.

Beginning balance 2003 Net profit Ending balance 2003

Beginning balance 2004 Appropriated legal reserve Net profit Ending balance 2004

Issued and Premium paid up on share capital share capital Notes Baht Baht

Company

Statements of Changes in Sharehoders' Equity For the years ended 31 December 2004 and 2003

Continue

Padaeng Industry Public Company Limited

37

Annual Report 2004


Statements of Cash Flows For the years ended 31 December 2004 and 2003

Notes

Cash flows from operating activities Net profit (loss) Items to reconcile net income to net cash: Share of (gain) loss from subsidiaries Provision for doubtful debts - other trade account receivable (reversal) Provision for doubtful debts - short - term loans and advances to related companies (reversal) Allowance for obsolete inventories Allowance for diminution of inventories Amortization of deferred gain on hire purchase Withholding tax written - off Other current assets written - off and amortization expenses Depreciation (Gain) loss on disposal of property, plant and equipment Provision for impairment released Property, plant and equipment written - off Other assets written - off Other assets written - down (reverse) Other assets amortization expenses Provisions for restoration expense increase Unrealized exchange loss (gain) Minority interest in net profit of subsidiary Cash flows from operations before changes in operating assets and liabilities Operating assets (increase) decrease Trade accounts receivable - other parties - related parties Short - term loans to related companies Inventories Withholding tax Accounts receivable - revenue department Other receivables Other current assets Other non - ‚current assets

38

217,026,691 6

Company 2004 2003 Baht Baht

2,841 221,629,549

2,797,889

-

-

(1,840,717)

(1,360,845)

(512,421)

417,011

-

-

- (20,728,771) 5,500,088 2,336,014 (207,492) 207,492 (1,531,119) (382,780) 440,540 128,773

5,500,088 (207,492) (1,531,119) 224,485

(20,728,771) 2,336,014 207,492 (382,780) -

12,090 7 337,724,334 315,255,107 337,453,734

‚314,263,751

18 5

929,243 21,218,479 1,941,652 38,512,731 (10,877,389) 12,619,575 15 10,702,136 (17,824,250) 983,984

(510,096) 929,243 (293,597) 21,218,479 564,505 1,941,652 - 38,512,731 6,000,000 (10,877,389) 28,929,915 12,619,575 11,793,292 10,702,136 (6,685,461) (17,824,250) 180,090 -

(510,096) (293,597) 564,505 6,000,000 28,929,915 11,793,292 (6,685,461) -

616,646,782 337,226,425 618,450,705

336,931,308

7

3,045,100 4,754,465 182,653,093 (440,540) 25,611,599 (28,254,820) 21,024,380 11,209,801

(20,758,251) 5,344,239 (21,244,548) (8,266,477) 4,861,629 (7,976,556) (329,665) (242,313) (450,065,514) 182,631,370 (450,036,292) 6,302,078 (224,485) (7,982) (17,589,793) 25,508,174 (17,597,785) (3,342,554) (28,254,820) (3,342,554) 241,514 20,909,187 295,367 (10,621,717) 11,209,801 (10,681,337)

The notes to the consolidated and company financial statements on pages 40 to 61 are integral part of these financial statements.

Padaeng Industry Public Company Limited Annual Report 2004

Consolidated 2004 2003 Baht Baht


Statements of Cash Flows Continue For the years ended 31 December 2004 and 2003

Notes

Operating liabilities increase (decrease) Trade accounts payable - other parties - related parties Accrued interest expenses Accrued electricity expenses Other current liabilities Provision for restoration expense (use of) 15 Net cash provided by operating activities Cash flows from investing activities Cash received from investment Cash paid for purchase of property,‹ plant and equipment Cash received‹from sales of property,‹ plant and equipment Exploration and acquisition costs (increase) Net cash used in investing activities Cash flows from financing activities Loans from financial institution increase (decrease) Short - term loans from related parties increase Proceeds from long - term borrowings 14 Payment on long - term borrowings 14 Account payable hire purchase Cash paid to minorities for‹capital reduction Net cash (used in)/from financing activities Effects from changes in exchange rate for cash and‹cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

Consolidated 2004 2003 Baht Baht

Company 2004 2003 Baht Baht

(88,312,034) (10,049,562) (224,140) 20,173,475 22,356,544 (29,306,937) 750,887,206

217,677,472 345,533 (5,663,892) 12,261,363 143,931,731 (12,568,303) 189,109,615

(87,982,662) (93,913,767) (303,044) 20,173,475 22,931,071 (29,306,937) 671,704,271

216,519,292 (5,061,426) (5,427,180) 12,261,363 137,781,595 (12,568,303) 169,602,649

-

-

-

3,300,000

(189,653,571) (396,515,255) (189,554,011) (396,248,860) 3,256,776 720,955 3,256,776 720,955 (41,445,899) (64,079,149) (41,455,899) (64,079,149) (227,852,694) (459,873,449) (227,753,134) (456,307,054) (517,961,223) 475,502,836 (517,961,223)

475,502,836

- 90,000,000 200,000,000 450,000,000 200,000,000 450,000,000 - (690,000,000) - (690,000,000) 5,760,000 5,760,000 - (2,700,000) (312,201,223) 232,802,836 (312,201,223) 325,502,836 (423,984) (25,929) (423,984) 210,409,305 (37,986,927) 131,325,930

(25,929) 38,772,502

231,267,799 269,254,726 194,553,781 441,677,104 231,267,799 325,879,711

155,781,279 194,553,781

Supplementary information for statements of cash flows Cash paid during the year: Interest paid 21,042,539 Income tax paid 2,889,038 Non - cash items Hire purchase payable 5,760,000

60,664,125 304,258

26,091,805 78,682

61,453,783 97,358

-

5,760,000

-

The notes to the consolidated and company financial statements on pages 40 to 61 are integral part of these financial statements.

39

Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

1.

General information Padaeng Industry Public Company Limited (the ''Company'') was established on April 10, 1981 and has been listed on the Stock Exchange of Thailand since July 21, 1987. The Company's head office is at CTI Tower, 26th-27th floor, 191/18-25 Rachadaphisek Road, Khlong Toei District,‹Bangkok. The Company operates a silicate mine and a zinc smelter located in Tak Province and a calcine‹‹ plant located in Rayong Province. The principal business operations of the Company and its subsidiaries are summarised as follows: Company Principal activities Padaeng Industry Public Company Limited Mining and refining of zinc, the main products are zinc ingot and zinc alloy Subsidiaries Principal activities Padaeng Properties Co., Ltd. Providing services Puthep Co., Ltd. Copper exploration Padaeng Industry (Laos) Co., Ltd. Zinc exploration and mining in Laos Padaeng International Mining Co., Ltd. Minerals exploration in Vietnam Sila Enterprise Co., Ltd. Distribution of limestones South East Asia Metals Co., Ltd. Distribution of various base metals and their by products During the year 2004, the Company employed 746 employees (2003 : 745 employees). 2.

Significant accounting policies The principal accounting policies adopted in the preparation of these consolidated and company financial statements are set out below. 2.1 Basis of preparation The consolidated and company financial statements have been prepared in‹‹ accordance with Thai Generally Accepted Accounting Principles under the Accounting Act B.E. 2543 being those Thai Accounting Standards issued under the Accounting Profession Act B.E. 2547 and the financial reporting requirements of the Securities and Exchange Commission under the Securities and Exchange Act B.E. 2535. The accounting principles applied may differ from Generally Accepted Accounting Principles adopted in other countries and jurisdictions. The accompanying consolidated and company financial statements are therefore not intended to present the financial position and results of operations and cash flows in accordance with jurisdictions other than Thailand. The consolidated and company financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below. For the convenience of the user, an English translation of the consolidated and company financial statements has been prepared from the statutory financial statements that are issued in the thai language for domestic purposes. 2.2 Use of estimates The preparation of financial statements in conformity with Thai Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses in the reported periods. Actual results may differ from those estimates. 40 Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

2.

Significant accounting policies (Cont没d) 2.3 Revenue recognition Sales are recognised when title to the goods sold passes to the buyer, which is at the time when the goods are delivered to the customer or as contractually agreed. 2.4 Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. Cash and cash equivalents denominated in foreign currencies are translated at the exchange rate ruling at the end of the year. Cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments, and bank overdrafts. 2.5 Trade receivables Trade receivables are carried at anticipated realisable value. An estimate is made for doubtful receivables based on a review of all outstanding amounts at the year-end. Bad debts are written off during the year in which they are identified. 2.6 Inventories Inventories are stated at the lower of cost or net realisable value. Cost is calculated on the weighted average cost basis. The cost of work in progress and finished goods comprises raw materials cost (zinc sulphide concentrates and zinc silicates), direct conversion costs, and a proportion of manufacturing overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business less estimated conversion costs and the estimated costs incurred to make the sale. Where net realisable value is less than cost, an allowance for the diminution in value of inventories has been provided. Spares and consumables are valued on the weighted average cost basis. Provision is made, where necessary, for obsolete, slow moving and defective inventories based on a review of all outstanding amounts at the year-end. 2.7 Investments in subsidiaries Investments in subsidiaries are accounted for in the Company (non-consolidated) financial statements by the equity method of accounting. Subsidiaries are those over which the Company has over 50 % of the voting rights, or over which the Company exercises control. When necessary, provisions are recorded for any impairment in value of these investments. Equity accounting involves recognising in the income statement the Company没s share of the subsidiary没s profit or loss for the year. The Company没s interest in the subsidiary is carried in the balance sheet at an amount that reflects its share of the net assets of the subsidiary and includes goodwill, if any, on acquisition. Additionally, all intercompany transactions, balances and unrealized gains are eliminated unless the loss cannot be recovered. 2.8 Consolidation Subsidiary undertakings (see Note 24(i)), which are those companies in which the Company, directly or indirectly, has over 50 % of the voting rights or otherwise has power to exercise control over the financial and operating policies, have been consolidated. Subsidiaries are consolidated from the date on which effective control is transferred to the Company and are no longer consolidated from the date control ceases. All intercompany transactions, balances and unrealised surpluses and deficits on transactions between companies have been eliminated. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Company. Separate disclosure is made for minority interests in the consolidated balance sheet and consolidated income statement.

41 Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

2.

Significant accounting policies (Contรปd) 2.8 Consolidation (Contรปd) In the Company (non-consolidated) financial statements, the Companyรปs share of losses in a subsidiary is generally recognized only to the extent of the amount of the investment in the subsidiary except where the Company has a commitment and/or guarantees on behalf of the subsidiary. The resumption of recognition of the Companyรปs equity in profit will begin when the profit in such subsidiary exceeds the Companyรปs share of previously unrecognized losses in excess of investment. 2.9 Related companies Related companies are holding companies, subsidiaries, fellow subsidiaries, associates and other companies that are in the same company, including companies that are related by way of common directors, key management or shareholders. Transactions with related companies have been disclosed in Note 24. 2.10 Property, plant and equipment Carrying value: Property, plant and equipment are recorded at cost. Cost is measured by the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use. In the case of self-constructed assets, the cost of construction consists of the materials, direct labour and other expenses attributable to the construction which are allocated to the assets on a systematic basis. Property, plant and equipment, except land, are presented in the balance sheet at cost less accumulated depreciation. Land is not depreciated. Depreciation is calculated on a straight line method to write off the cost of each asset, or its revalued amount, to their residual values over their estimated useful life as follows: years Land improvement 5-20 Building 20-25 Machinery and heavy equipment 8-20 Equipment, furniture and fixtures and vehicles 5 Mining concession fees and expenses 5-16 Other structures 8-25 Residue ponds brought into operation after 1 January 2001 are amortised on a units of production basis using the capacity volume of the residue ponds. Finance lease assets are recorded as assets and depreciated over their estimated useful life. When the Company disposes of property, plant and equipment, the Company will write-off both the asset and its related accumulated depreciation, and recognise any gain or loss from disposal of the asset through the statement of income. Capital expenditures which result in the acquisition of assets, or results in an increase in capacity, useful life or improves the operating efficiency of existing assets and that are expected to provide future economic benefits, are capitalised. Where the carrying amount of an asset exceeds its estimated recoverable amount, it is written down immediately to its recoverable amount through recording an impairment charge. 2.11 Exploration costs Exploration is accumulated separately for each area of interest and accounted using the successful efforts basis of accounting for such costs. Under this basis, accumulated costs of exploration are capitalized and carried forward on the balance sheet where one or more of the following conditions are met: 42 Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

2.

Significant accounting policies (Contûd) 2.11 Exploration costs (Contûd) - Costs are expected to be recouped through successful development and exploitation of each area of interest or by sale of the area of interest; and/or - Exploration activities in the area of interest have not yet reached a stage that permits a reasonable assessment of the existence of economically recoverable reserves and exploration activities are continuing in the area of interest. Upon commencement of development and production, these costs are amortised using the straight line basis over the period that it is expected to provide economic benefits. Expenditure which no longer satisfies the above policy is written-off or allowance raised against such expenditure where management is of the opinion that the carried forward net cost may not be recoverable. 2.12 Environmental restoration costs Expenditures relating to ongoing environmental restoration programs are charged against earnings as incurred. Where future costs relating to environmental liabilities have arisen as a result of past events, the Company establishes a provision over the period in which the obligation is incurred, which is over the useful life of the related asset. These provisions are made on an undiscounted basis. Hence, the estimated restoration costs of the Mae Sot mine are accrued over the life of the Mine. The estimated restoration costs for the residue ponds located at the Tak zinc smelter facility are accrued over the useful life of the residue ponds. 2.13 Provisions Provisions are recognised when the Company has a present legal or constructive obligation as a result‹‹ of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. 2.14 Deferred income taxes The Company does not recognise income taxes payable or receivable in future periods in respect of temporary differences arising from differences between the tax base of assets and liabilities and their carrying amounts in the financial statements. The accounting standard for deferred income taxes is currently not in effect in Thailand. 2.15 Foreign currency transactions Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions. Such balances are translated at year-end exchange rates. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets, and liabilities denominated in foreign currencies, are recognised in the statement of income. 2.16 Financial instruments Financial assets and liabilities carried on the balance sheet include cash and cash equivalents, trade accounts receivable, related party receivables and payables, bank overdraft, trade accounts payable, accrued expenses and loans. The Company is also party to derivative financial instruments that reduce its exposure to fluctuations in foreign currency exchange rates with respect to recognised foreign currency assets or liabilities. The derivative instruments comprise forward foreign exchange contracts, protecting the Company from movements of foreign currency exchange rates by establishing the rate at which the foreign currency asset or liability will be realised or settled. Such forward contracts are recorded initially on the balance sheet at cost. Subsequently they are measured at fair value and gains or losses on these derivatives are recognised in current period income. The fair values are based on closing exchange quotations. 43 Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

2.

Significant accounting policies (Contûd) 2.16 Financial instruments‹ (Contûd) The Company has also entered into forward derivative contracts to protect the Company from movements in zinc metal prices and foreign exchange rate changes related to forecasted sales and purchases of zinc in a future period. Those instruments comprise forward contracts for the sale and purchase of zinc and forward contracts for the purchase of foreign currencies in substance establishing the prices at which the forecasted zinc purchases will be carried out. Such derivatives are not recognised on balance sheet at inception, since they relate to future transactions which are not yet reflected in the financial statements. Gains and losses on those derivative contracts are recognised in the financial statements upon settlement of the transactions. The fair values of those unrecognised forward contracts are disclosed in Note 27.1. 2.17 Leases - where a group company is the leassee Leases of property, plant or equipment which substantially transfer all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair‹‹ value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated to the principal and to the finance charges so as to achieve a constant rate on the finance balance outstanding. The outstanding rental obligations, net of finance charges, are included in other ‹long-term payables. The interest element of the finance cost is charged to the statement of income over the lease period so as to achieve a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant or equipment acquired‹ under finance leases is depreciated over the shorter of the useful life of the asset or the lease term. Leases not transferring a significant portion of the risks and rewards of ownership to the lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of income on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. 3.

Cash and cash equivalents Cash and cash equivalents as at 31 December 2004 and 2003 comprise: ‹ ‹‹ ‹ ‹ ‹ ‹ Consolidated‹ ‹ ‹ Company 2004 2003 2004 2003 Baht Baht Baht Baht Cash on hands and deposits with banks 333,677,104 181,267,799 220,879,711 144,553,781 Promissory note/Bill of exchange 105,000,000 50,000,000 105,000,000 50,000,000 Total 441,677,104 231,267,799 325,879,711 194,553,781 The average interest rates on deposits and short-term investments are in the range of 0.25% - 1.65%.

4.

Trade accounts receivable, net ‹ Trade accounts receivable Less: Allowance for doubtful‹‹ accounts Trade accounts receivable, net

‹ Consolidated‹ ‹ ‹ ‹ ‹Company 2004 2003 2004 2003 Baht Baht Baht Baht 238,081,163 241,067,496 228,212,752 233,498,224 (2,985,484) (3,497,905) (115,898) (115,898) 235,095,679 237,569,591 228,096,854 233,382,326

As at 31 December 2004 and 2003 the following accounts receivables were past due more than three months. 44 Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

4.

Trade accounts receivable, net (Contûd) No. Trade accounts receivable - Other companies Current to 3 months 3 to 6 months 6 to 12 months More than 12 months Less: Allowance for doubtful ‹ accounts Trade accounts receivable - other companies, net

5.

Consolidated 2004 2003 Baht No. Baht No.

Company 2004 2003 Baht No. Baht

73 233,460,831 67 235,414,995 41 228,096,854 37 233,382,326 8 918,611 14 1,610,674 - 4 499,348 3 812,739 - 11 3,202,373 15 3,229,088 1 115,897 1 115,898 238,081,163 241,067,496 228,212,751 233,498,224 (2,985,484)

(3,497,905)

(115,897)

(115,898)

235,095,679

237,569,591

228,096,854

233,382,326

Inventories - net

Raw materials Spares and consumables Goods in transit Work in process Finished Goods Less : Allowance for obsolete and slow moving inventories Inventory revaluation loss Inventories, net

Consolidated 2004 2003 Baht Baht 253,334,062 536,427,811 232,605,769 192,722,456 368,091,494 436,190,447 286,353,641 268,444,348 241,097,701 130,350,698 1,381,482,667 1,564,135,760

Company 2004 2003 Baht Baht 253,334,062 536,427,811 232,605,769 192,722,456 368,091,494 436,190,447 286,353,641 268,444,348 241,039,978 130,271,252 1,381,424,944‹ ‹ 1‹ ,564,056,314

(36,644,931) (31,144,842) (36,644,931) (207,492) 1,344,837,736‹‹ 1,532,783,426‹‹ ‹ ‹ ‹ 1,344,780,013‹‹

(31,144,842) (207,492) 1,532,703,980

Inventory revaluation loss is computed based on an analysis of the cost of inventory and its net realisable value based on current market prices of product less applicable selling costs. 6.

Investments in subsidiaries‹‹ -‹‹ net Subsidiaries Opening net book amount Share of results before tax Share of tax Net share of results Reduction in share capital (Note 24 (i)) Closing net book amount

2004 Baht -

Consolidated 2003 Baht -

-

-

Company 2004 2003 Baht Baht 357,093,647 359,032,802 5,513,569 1,719,367 (3,672,852) (358,522) 1,840,717 1,360,845 358,934,364

(3,300,000) 357,093,647

Net equity in principal subsidiary companies are shown in Note 24 (i). 45 Padaeng Industry Public Company Limited Annual Report 2004


46

Padaeng Industry Public Company Limited

Annual Report 2004

Building Baht

- (18,496,817) 626,603,845 1,226,066,188

46,664,269 2,602,511,407

Total Baht

9,699,847

- (167,113,357) 49,431,030 2,427,094,495

- (4,622,291,672)

49,431,030 7,216,499,524

- (21,218,479) 49,431,030 2,427,094,495

27,229,398 14,791,498 46,664,269 2,602,511,407 - 187,509,556 189,653,571 17,858,668 - (184,742,795) (1,224,160) (13) - (4,186,018) (4) - (1,941,652) 43,863,902 14,791,485 49,431,030 2,786,037,308 (8,408,216) (5,091,638) - (337,724,334)

(2,721,662) 32,549,376 35,455,686

695,453,849 1,310,721,335 52,262,915 2,144,015 4,423,525 138,329,517 7,164,602 (5,278) (2,862,955) (93,612) (1,932,964) (8,684) 699,872,096 1,444,254,933 61,469,236 (73,268,251) (199,691,928) (26,198,198)

52,262,915 27,229,398 14,791,498

Building and equipment Other under Vehicles structures construction Baht Baht Baht

At 31 December 2004 Cost 662,548,792 1,560,485,736 4,388,097,390 348,958,063 176,085,818 30,892,695 Less: Accumulated depreciation (211,951,525) (933,769,505) (3,002,760,976) (312,169,808) (140,447,010) (21,192,848) Accumulated provision for impairment (3,308,744) (112,386) (159,270,226) (4,238,879) (183,122) Net book amount 447,288,523 626,603,845 1,226,066,188 32,549,376 35,455,686 9,699,847

Year ended 31 December 2004 Opening balance 455,388,143 Additions Transfers 16,966,483 Disposals Write - offs Closing book amount 472,354,626 Less: Depreciation expense (25,066,103) Provision for impairment (formed) released Net book amount 447,288,523

Consolidated Machinery Equipment, and heavy furniture equipment and fixtures Baht Baht

455,388,143 695,453,849 1,310,721,335

Land and land improvement Baht

Property, plant and equipment - net

At 31 December 2003 Net book amount

7.

Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003


Building Baht

- (18,496,817) 626,603,845 1,226,066,188

46,664,269 2,605,151,642

Total Baht

9,699,847

- (21,218,479) 49,431,030 2,429,905,770

26,613,443 14,791,498 46,664,269 2,605,151,642 - 187,509,556 189,554,011 17,858,668 - (184,742,795) (1,224,160) (13) - (4,186,018) (4) - (1,941,652) 43,247,947 14,791,485 49,431,030 2,788,577,983 (8,215,780) (5,091,638) - (337,453,734)

(2,721,662) 32,274,232 35,032,167

695,453,849 1,310,721,334 52,009,168 2,044,455 4,423,525 138,329,517 7,164,602 (5,278) (2,862,955) (93,612) (1,932,964) (8,684) 699,872,096 1,444,254,932 61,115,929 (73,268,251) (199,691,927) (26,120,035)

52,009,168 26,613,443 14,791,498

Building and Other under Vehicles structures construction Baht Baht Baht

At 31 December 2004 Cost 666,058,730 1,560,485,736 4,388,097,390 347,366,654 174,394,950 30,892,695 49,431,030 7,216,727,185 Less: Accumulated depreciation (211,951,525) (933,769,505) (3,002,760,976) (310,853,543) (139,179,661) (21,192,848) -(4,619,708,058) Accumulated provision for impairment (3,308,744) (112,386) (159,270,226) (4,238,879) (183,122) - (167,113,357) Net book amount 450,798,461 626,603,845 1,226,066,188 32,274,232 35,032,167 9,699,847 49,431,030 2,429,905,770

Year ended 31 December 2004 Opening balance 458,898,081 Additions Transfers 16,966,483 Disposals Write - offs Closing book amount 475,864,564 Less: Depreciation expense (25,066,103) Provision for impairment (formed) released Closing net book amount 450,798,461

Company Machinery Equipment, and heavy furniture equipment and fixtures Baht Baht

458,898,081 695,453,849 1,310,721,334

Land and land improvement Baht

Property, plant and equipment - net (Cont没d)

At 31 December 2003 Net book amount

7.

Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

Padaeng Industry Public Company Limited

47

Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

7.

Property, plant and equipment - net (Cont没d) Provision for asset impairment Asset impairment charges represent the write-down in book value of assets whose book values exceeded the estimated recoverable amount based on a review of the asset没s respective value in use. Changes in impairment provision movement are shown as follows: Consolidated

Company

2004 2003 2004 2003 Baht Baht Baht Baht Opening balances 145,894,878 146,188,475 145,894,878 146,188,475 Provision for impairment reclassified/formed 21,846,336 - 21,846,336 Reversal from disposals/write-off没s (627,857) (293,597) (627,857) (293,597) Ending Balance 167,113,357 145,894,878 167,113,357 145,894,878 8.

Exploration and acquisition costs Exploration and acquisition costs balance comprise: Consolidated

2004 Baht Exploration costs Opening balances of the year Expenditure incurred during the year Expenditure charged to income statement Expenditure transferred to mine properties Expenditure written-down Ending Balance of the year (Note 8 (i)) Mining acquisition costs Capitalized deferred cost Acquisition cost Acquisition cost write-off Accumulated depletion Ending balanse for the year Special prospect license fee Land use compensation Other capitalized expenditure Ending balance for the year Total

2003 Baht

178,599,198 172,939,688 30,551,531 24,437,374 (21,136,981) (7,429,632) - (5,348,232) (12,879,069) (6,000,000) 175,134,679 178,599,198

Company

2004 Baht

2003 Baht

31,668,217 26,008,707 30,551,531 24,437,374 (21,136,981) (7,429,632) - (5,348,232) (12,879,069) (6,000,000) 28,203,698 31,668,217

100,900,000 100,900,00 100,900,000 (40,900,000) - (40,900,000) (6,666,672) (26,143,726) (6,666,672) 53,333,328 74,756,274 53,333,328 16,986,510 16,986,510 11,434,795 13,123,062 11,434,795 20,143,015 22,878,995 20,143,015 101,897,648 127,744,841 84,911,138 277,032,327 306,344,039 113,114,836

100,900,000 (26,143,726) 74,756,274 13,123,062 22,878,995 110,758,331 142,426,548

i) Exploration costs Exploration costs are mainly related to those incurred by Puthep Co., Ltd., a wholly owned subsidiary. At the date of these statements, exploration activities had not established whether economically recoverable resources existed in the area. In accordance with the Company没s accounting policy for exploration, such costs will remain capitalized until final determination of whether economically recoverable resource exists. 48 Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

8.

Exploration and acquisition costs (Contûd) On 21 August 2000, the Company and Puthep Co., Ltd. entered into a Participation Agreement (the "Agreement") with Pan Australian Resources N.L. and PNA (Puthep) Pty Limited of Australia ("PNA") to undertake exploration and mining of Puthep Copper Project. Under the Agreement, PNA has the right to a 50 % working interest in the Puthep Project in north-east Thailand by completing a feasibility study to a bankable standard. The Agreement also includes further options for PNA to acquire a total interest of either 60% or 70%. PNA must spend a further US$ 1 million to attain approximately a further 15% interest in Puthep Co., Ltd. As at 31 December 2004, PNA has expended US$ 470,277 (2003: US$ 214,730). 9.

Other non - current assets Other non - current assets as at 31 December 2004 and 2003 comprise: Consolidated

Deposits Others Deposits and installment payments for condominium units Less : Allowance for doubtful accounts Total

Company

2004 2003 Baht Baht 1,230,509 3,146,177 11,698,344 21,047,477 12,928,853 24,193,654

2004 Baht 1,175,511 11,753,342 12,928,853

2003 Baht 3,091,177 21,047,477 24,138,654

74,932,723 74,932,723 (74,932,723) (74,932,723) 12,928,853 24,193,654

-‹‹ 12,928,853

‹ ‹-‹ 24,138,654

Deposits and installment payment for condominium units A subsidiary has provided an allowance of Baht 75 million with respect to deposit and installment payments for certain condominium units whose construction was suspended due to unfavorable economic conditions. Other The Company has long-term investments in the amount of Baht 14,451,626 that have been fully written‹‹ down in value. 10.

Loans from financial institutions Loans from financial institutions as at 31 December 2004 and 2003 comprise: Consolidated

Promissory notes Trust receipts Total

2004 2003 Baht Baht - 350,000,000 283,819,241 463,105,370 283,819,241 813,105,370

Company

2004 2003 Baht Baht - 350,000,000 283,819,241 463,105,370 283,819,241 813,105,370

49 Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

10.

Loans from financial institutions (Cont'd) The Company has entered into short-term financing arrangements to fund its operations with various financial institutions. The interest rates, the Company is paying on the promissory notes and trust receipts, are in the range of 1.8% 3.8% and 1.5% - 2.4% respectively. 11.

Other current liabilities Other current liabilities as of 31 December 2004 and 2003 comprise: Consolidated

Royalty payables Accrued expenses Accrued inventory price adjustment Other Total

2004 2003 Baht Baht 122,108,581 69,497,923 26,934,993 26,613,018 65,942,840 92,151,954 61,780,010 67,392,425 276,766,424 255,655,320

Company

2004 2003 Baht Baht 122,108,581 69,497,923 26,934,993 19,379,289 65,942,840 92,151,954 52,517,091 64,788,707 267,503,505 245,817,873

Accrued inventory price adjustment represents changes in liability for unpriced inventory shipments due to fluctuations in the quoted market price of the inventory. 12.

Payable for concession assets acquired The Company has entered into an agreement with the previous holders of mining rights under Concession No. MLA 1/2541 to compensate those previous holders an amount of Baht 60 million for relinquishing their rights under the concession. Payments under the agreement are being made over a term of 24 equal monthly installments commencing January 2003 and includes the settlement of certain outstanding obligation between the two parties. At 31 December 2004 and 2003 amounts outstanding comprise: Consolidated

Due within one year More than one year Total

2004 2003 Baht Baht 19,451,288 19,451,288 Consolidated

Payable for concession assets acquired Less: Payment during the year Total

50 Padaeng Industry Public Company Limited Annual Report 2004

2004 2003 Baht Baht 19,451,288 45,000,000 (19,451,288) (25,548,712) - 19,451,288

Company

2004 Baht -

2003 Baht 19,451,288 19,451,288

Company

2004 2003 Baht Baht 19,451,288 45,000,000 (19,451,288) (25,548,712) - 19,451,288


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

13.

Payable for land use compensation The Company is required to compensate the Department of Forestry an amount of Baht 58 million as compensation for the use of forest areas. An amount of Baht 25 million was paid during the year 2002. The outstanding balance of Baht 33 million is being repaid annually since January 2003, with the final payment due in January 2005. As at 31 December 2004 and 2003 outstanding amounts due for land use compensation comprise: Consolidated

Due within one year More than one year Total

2004 2003 Baht Baht 11,061,405 11,061,405 - 11,061,405 11,061,405 22,122,810 Consolidated

Payable for land use compensation Less: Payment during the year Total 14.

2004 2003 Baht Baht 22,122,810 33,184,214 (11,061,405) (11,061,404) 11,061,405 22,122,810

Company

2004 Baht 11,061,405 11,061,405

2003 Baht 11,061,405 11,061,405 22,122,810

Company

2004 2003 Baht Baht 22,122,810 33,184,214 (11,061,405) (11,061,404) 11,061,405 22,122,810

Long‹‹ -‹‹ ‹Term Loans Long‹‹ -‹‹ term loans as at 31 December 2004 and 2003 comprise: Consolidated

Due within one year More than one year Total

2004 2003 Baht Baht 102,500,000 547,500,000 450,000,000 650.000,000 450,000,000

Company

2004 2003 Baht Baht 102,500,000 547,500,000 450,000,000 650,000,000 450,000,000

The movements in the borrowings can be analyzed as follows: For the year ended 31 December 2004 Consolidated‹‹

Opening amount New loan agreements Closing amount

Company

Baht Baht 450,000,000 450,000,000 200,000,000 200,000,000 650,000,000 650,000,000

In August 2003, the Company entered into unsecured 3 year bill of exchange agreements for amount of Baht 200 million through a local bank. In November 2003, the Company entered into 2 unsecured loan agreements for a total amount of Baht 600 million with two local banks to refinance existing long-term loans. The repayment schedules are up to 3 years from the drawdown date. These new facilities have been contracted at a market rate of interest which is in the range of 2.5 % to 3 %.

51 Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

14.

Long‹‹ -‹‹ term loans (Contûd) i) Financing arrangements available Consolidated

Bank overdraft Trust receipts / promissory notes Bank guarantee Packing credit Bank loan Total

2004 Baht 90,000,000 2,069,050,000 573,810,000 60,000,000 1,089,202,500 3,882,062,500

Company

2003 2004 2003 Baht Baht Baht 110,000,000 90,000,000 110,000,000 1,672,115,800 2,069,050,000 1,672,115,800 450,640,200 573,810,000 450,640,200 60,000,000 60,000,000 60,000,000 800,000,000 1,089,202,500 800,000,000 3,092,756,000 3,882,062,500 3,092,756,000

ii) At balance sheet date, the following had been drawn down under the above facilities: Consolidated

Promissory notes Trust receipts Bank loan Total 15.

2004 Baht 283,819,241 650,000,000 933,819,241

2003 Baht 350,000,000 463,105,370 450,000,000 1,263,105,370

Company

2004 2003 Baht Baht - 350,000,000 283,819,241 463,105,370 650,000,000 450,000,000 933,819,241 1,263,105,370

Provisions for restoration expense Consolidated

Balance at the beginning of the year Additional provisions charged to the statement of income Amounts utilised Balance at the end of the year

2004 Baht 40,148,165

2003 Baht 40,923,176

10,702,136 11,793,292 (29,306,937) (12,568,303) 21,543,364 40,148,165

Company

2004 Baht 40,148,165

2003 Baht 40,923,176

10,702,136 11,793,292 (29,306,937) (12,568,303) 21,543,364 40,148,165

The provision for restoration costs represents amounts provided for the estimated costs of restoration of residual ponds in Tak and the tailing dam and rehabilitation mined area at the Mae Sot mine in accordance with government regulations.

52 Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

6.

Share capital and premium on share capital Number of shares

As at 31 December 2003 Movement during the year As at 31 December 2004

Ordinary shares Baht 226,000,000 2,260,000,000 226,000,000 2,260,000,000

Shares premium Baht 602,413,600 602,413,600

Total Baht 2,862,413,600 2,862,413,600

As at 31 December 2004, the total authorized number of ordinary shares is 226,000,000 shares‚‚ (2003 : 226,000,000 shares) with a par value of Baht 10 per shares (2003 : Baht 10 per share). All issued shares are fully paid. 17. Legal reserve Consolidated

As at 31 December 2003 Appropriation during the year As at 31 December 2004

2004 Baht 9,791,560 9,791,560

2003 Baht -

Company

2004 Baht 9,791,560 9,791,560

2003 Baht -

Under the Public Companies Act.,B.E.2535, the company is required to set aside as a legal reserve at least 5 % of its net profit after accumulated deficit brought forward (if any) until the reserve reaches 10 % of the registered capital. 18.

Selling and administrative expenses The following expenditures, classified by nature, have been charged against the selling and administrative expenses: Consolidated

Depreciation on property, plant and equipment (Note 7) Impairment expenses (reversal) (Note 7) Bad debt expense (reversal)

Company

2004 Baht

2003 Baht

2004 Baht

2003 Baht

337,724,334

315,255,107

337,453,734

314,263,751

21,218,479 -

(293,597) (20,728,771)

21,218,479 -

(293,597) (20,728,771)

The reversal of doubtful accounts relates to the collection of previously written off receivables from a subsidiary.

53 Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

19.

Finance costs - net Finance costs relate to the following: Consolidated

For the year ended 31 December Interest income Interest expense Total finance costs - net

2004 Baht 4,088,462 (30,613,995) (26,525,533)

Company

2003 2004 2003 Baht Baht Baht 1,659,608 4,078,691 1,904,177 (39,781,208) (31,495,896) (40,807,578) (38,121,600) (27,417,205) (38,903,401)

20.

Basic earning (loss) per share Basic earnings (loss) per share is calculated by dividing the net profit (loss) attributable to shareholders by the weighted average number of ordinary shares in issue during the year. Consolidated

For the year ended 31 December Net profit (loss) attributable to common shareholders (Baht) Weighted average number of ordinary shares on issue (shares) Basic earnings (loss) per share (Baht)

Company

2004 Baht

2003 Baht

2004 Baht

2003 Baht

217,026,691

2,841

221,629,549

2,797,889

226,000,000 0.96

226,000,000 0.00

226,000,000 0.98

226,000,000 0.01

There are no potential dilutive ordinary shares in issue for the years presented and no diluted earning per share is presented. 21.

Bank guarantee issued by banks As at 31 December 2004, the Company and subsidiaries have given letters of guarantee in the ordinary course of business issued by banks of approximately Baht 231.36 million (2003 : Baht 211.24 million). 22.

Capital expenditure and commitments As at 31 December 2004 and 2003, the Company has the following commitments for the acquisition of plant and equipment that have been contracted but not recorded as liabilities: Consolidated

Not later than 1 year Later than 1 year Total

2004 Baht 52,375,405 52,375,405

2003 Baht 25,500,901 25,500,901

Company

2004 Baht 52,375,405 52,375,405

2003 Baht 25,500,901 25,500,901

As at 31 December 2004 and 2003, the Company has the following commitments for the purchase of raw materials have been contracted but not recorded as liabilities: Consolidated

Not later than 1 year Later than 1 year Total 54 Padaeng Industry Public Company Limited Annual Report 2004

Company

2004 2003 2004 2003 Baht Baht Baht Baht 1,578,974,225 1,211,179,414 1,578,974,225 1,211,179,414 573,220,954 323,192,852 573,220,954 323,192,852 2,152,195,179 1,534,372,266 2,152,195,179 1,534,372,266


Carrying value Baht

At an extraordinary shareholdersû meeting, Sila Enterprise Co.,Ltd. passed a special resolution to‹decrease its registered‹‹ share from Baht 15 million to Baht 9 million‹‹ ‹ by reducing 40% of par value from Baht 150,000 each to Baht 90,000 each‹‹ for 100 shares. The Company registered the special resolution with the Registrar ‹of Partnerships and Companies on 10 July 2003. As a result, the carrying value of the Companyûs investment in Sila Enterprise Co., Ltd. has been reduced by 40 %. The impact to minority shareholders was Baht 2,700,000.

100 80,000,00 35,565,546 100 145,584,742 159,669,021 100 5,000,000 100 100,000 55 4,950,000 3,494,038 100 200,000,000 158,365,042 435,634,742 357,093,647

Cost Baht

Company 31‹ D‹ ecember‹‹ 2003

Paid up % capital Ownership Baht investment

100 80,000,000 33,050,737 80,000,000 100 145,584,742 161,926,604 145,584,742 100 5,000,000 5,000,000 100 100,000 100,000 55 4,950,000 4,696,684 9,000,000 100 200,000,000 159,260,339 200,000,000 435,634,742 358,934,364

Carrying value Baht

All subsidiaries are incorporated in Thailand except Padaeng Industry (Laos) Co., Ltd.

80,000,000 145,584,742 5,000,000 100,000 9,000,000 200,000,000

Cost Baht

Company 31‹‹ D‹ ecember‹‹ 2004

Paid up % capital Ownership Baht investment

i) Investments in subsidiaries Details of investments in subsidiaries are as follows:

Related party transactions The Company is controlled by Umicore incorporated in Belgium which owns significance of the company's shares. The remaining of the shares is widely

Subsidiaries Padaeng Properties Co., Ltd. Puthep Co., Ltd. Padaeng Industry (Laos) Co., Ltd. Padaeng International Mining Co., Ltd. Sila Enterprise Co., Ltd. South East Asia Metals Co., Ltd.

held.

24.

Segment information The Company produces a single product produced in Thailand for both domestic and export markets, utilizing the same assets. The Company does not present segment information as it considers its business operations tobe in one segment.

23.

Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

Padaeng Industry Public Company Limited

55

Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

24.

Related party transactions (Cont没d) ii) Sales of goods Consolidated

2004 Baht Sales of goods: Sila Enterprise Co., Ltd. Umicore Umicore Marketing Services (Far East) Ltd. Umicore Marketing Services (Thailand) Co.,Ltd. Umicore Malaysia SDN BHD Umicore Precious Metal (Thailand) Co.,Ltd.

Company

2003 Baht

402,547,355 348,296,798

2004 Baht

2003 Baht

8,536,508 6,799,348 402,547,355 348,296,796

31,876,530 18,155,130

31,876,530

18,155,130

68,267,322 39,126,956 - 1,608,147

68,267,322 -

39,126,956 1,608,147

1,283

-

1,283

-

Sales to related companies are based on industry market price. iii) Purchases of goods and services Consolidated

2004 Baht Purchases of goods and services: Padaeng Industry (Laos) Co., Ltd. Padaeng Properties Co., Ltd. Umicore Umicore Marketing Services (Far East) Ltd. Umicore Marketing Services (Thailand) Co., Ltd.

2003 Baht

677,921 114,069,912

Padaeng Industry Public Company Limited Annual Report 2004

2004 Baht

2003 Baht

2,956,839 4,334,691 1,524,141 1,325,765 677,921 114,069,912

1,154,474 2,178,885

1,154,474

2,178,885

22,441,907 15,346,358

22,441,907

15,346,358

Purchases from the subsidiary company are based on industry market price.

56

Company


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

24.

Related party transactions (Cont没d) iv) Outstanding balances arising from sales/purchases of goods and services Consolidated 2004 2003 Baht Baht

2004 Baht

2003 Baht

Receivables from related parties: Sila Enterprise Co., Ltd. Umicore 9,786,330 25,619,450 Umicore Marketing Services (Far East) Ltd. 12,792,474 Umicore Marketing Services (Thailand) Co.,Ltd. - 1,713,819 Total 22,578,804 27,333,269

589,394 9,786,330 12,792,474 23,168,198

696,558 25,619,450 1,713,819 28,029,827

Consolidated 2004 2003 Baht Baht

2004 Baht

2003 Baht

109,710 418,682 395,299 923,691

79,769,552 4,096,350 108,013 7,014,374 1,156,517 2,692,652 94,837,458

Payables to related parties: South East Asia Metals Co., Ltd. Padaeng Industry (Laos) Co., Ltd. Padaeng Properties Co., Ltd. Umicore Umicore Marketing Services (Far East) Ltd. Umicore Marketing Services (Thailand) Co.,Ltd. Total

418,682 395,299 813,981

7,014,374 1,156,517 2,692,652 10,863,543

Company

Company

v) Short - term loans and advances to related parties, net

Padaeng Industry (Laos) Co., Ltd. Puthep Co., Ltd. Padaeng International Mining Co., Ltd. Less: Allowance for doubtful accounts Short - term loans and advances to related parties, net

Consolidated 2004 2003 Baht Baht -

-

Company 2004 Baht 9,012,962 1,723,505 244,800 10,981,267 (46,600)

2003 Baht 8,768,297 1,723,505 159,800 10,651,602 (46,600)

10,934,667

10,605,002

The outstanding balance from Padaeng Industry (Laos) Co., Ltd. totalling Baht 9 million mainly comprises a Baht 5 million loan which bears an interest rate of MLR plus 5 %. The remaining Baht 4 million comprises advances and accrued interest.

57 Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

24.

Related party transactions (Contûd) vi) Loans from related companies Consolidated‹ 2004 2003 Baht Baht

‹ ‹Company 2004 2003 Baht Baht

South East Asia Metals Co., Ltd. Beginning balance of the year Loans increase (decrease) during the year Ending balance of the year

-

-

90,000,000 90,000,000

90,000,000 90,000,000

Accrued interest expenses

-

-

157,808

236,712

As at 31 December 2004, the above mentioned loan from South East Asia Metals Co., Ltd. is an unsecured 3 months term promissory note at an interest rate of 0.25 % over fixed deposit rate per annum. 25.

Investment promotion certificates The Company has been granted certain rights and privileges as a promoted industry under the Investment Promotion Act of B.E. 2520 (1977). Under these privileges, the Company has received exemption from certain taxes and duties as detailed in the certificates including exemption from corporate income tax for a period of 8 years from the commencement of commercial operations or as specified in the certificate. The following certificates are in force : Zinc Ingot Investment Promotion certificate No. 1575/2539 (1996) As a promoted industry, the Company must comply with the terms and conditions as specified in the promotion certificates. Shareholders of the Company will be exempt from tax on the dividends received during the period in which the Company is granted exemption from corporate income tax. 26.

Revenue reporting of a promoted industry Based on the Announcement of the Board of the Investment No. PO 14/2541 (1998) dated December 30, 1998 regarding revenue reporting of a promoted industry, the Company is required to report revenue from local sales and export sales separately and to report separately promoted and non-promoted business. The required information is as follows: For the year ended December 31, 2004

Income Income from export sales Income from local sales Total income from sales Interest income Other income Total income 58 Padaeng Industry Public Company Limited Annual Report 2004

Company Promoted Non-promoted business business Baht Baht

Total Baht

125,904,670 631,722,595 757,627,265 861,008,834 4,045,091,453 4,906,100,287 986,913,504 4,676,814,048 5,663,727,552 4,078,691 4,078,691 17,649,030 17,649,030 986,913,504 4,698,541,769 5,685,455,273


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

26.

Revenue reporting of a promoted industry (Contûd) For the year ended December 31, 2003

Company Promoted Non-promoted business business Baht Baht

Income Income from export sales Income from local sales Total income from sales Interest income Other income Total income 27.

Total Baht

202,377,277 794,056,246 996,433,523 778,403,638 3,053,131,618 3,831,535,256 980,780,915 3,847,187,864 4,827,968,779 1,904,177 1,904,177 19,425,555 19,425,555 980,780,915 3,868,517,596 4,849,298,511

Risk management policy for assets and liabilities in foreign currencies 27.1 Significant assets and liabilities in foreign currencies As at 31 December 2004 :

Cash at banks Accounts receivable - foreign Forward contract receivable Forward contract payable Trust receipts Accounts payable For off balance sheet contract Forward contract receivable for zinc metal price, Note 27.2 Forward contract payable for zinc metal price, Note 27.2

Term of receipt/ payment (days) 15 30-180 10-180 30-130 30-90 42-378 42-456

Consolidated Amount USD Baht 5,765 224,920 926,633 36,152,309 5,014,455 195,896,842 2,540,812 99,202,872 7,239,825 283,819,240 8,330,752 326,586,305 748,800

29,168,824

35,363,864 1,378,323,121 Consolidated

Forward contract receivable

Term of receipt 1-30

Amount EUR 107,168

Baht 5,696,224

Accounts payable

Payment (days) 30-90

SEK 110,880

Amount Baht 652,751

Company Amount USD Baht 5,765 224,920 926,633 36,152,309 5,014,455 195,896,842 2,540,812 99,202,872 7,239,825 283,819,240 8,330,752 326,586,305 748,800

29,168,824

35,363,864 1,378,323,121 ‹ ‹ Company Amount EUR Baht 107,168 5,696,224 Amount SEK 110,880

Baht 652,751

59 Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

27.

Risk management policy for assets and liabilities in foreign currencies (Contûd) 27.1Significant assets and liabilities in foreign currencies (Contûd) As at 31 December 2003:

‹ ‹ Term of receipt /payment (days) Cash at banks Accounts receivable-foreign 15 Forward contract payable 30 Trust receipts 30-60 Accounts payable 30-90

USD 101,531 1,675,838 3,878,110 10,564,964 9,614,872

‹Consolidated‹‹ ‹ ‹ ‹ ‹Company Amount Amount Baht USD Baht 4,040,916 101,531 4,040,916 66,260,101 1,675,838 66,260,101 154,107,542 3,878,110 154,107,542 419,796,798 10,564,964 419,796,798 382,073,856 9,614,872 382,073,856 Amount

Payment (days) Forward contract receivable 30 Accounts payable 30-90

EUR 315,257 357,054

Baht 15,621,529 17,888,382

Amount EUR 315,257 357,054

Baht 15,621,529 17,888,382

Foreign currency amounts are translated by using the reference rate quoted by the Bank of Thailand‹‹ as at 31 December 2004 and 2003, respectively. 27.2‹‹ Risk management ‹ The Company has both local and foreign sales in U.S. dollars, which result in revenues and accounts receivable in U.S. dollars. In addition, the Company has accounts payable and loans from banks in the same currency. Thus, the Company' s management is able to manage currency exchange risk by matching cash receipt from receivables with the debts and payment in foreign currencies. The Companyûs policy on risk management of payables denominated in foreign currencies is to use financial instruments purchased in the financial markets. For hedging purposes, the Company has entered into forward exchange contracts to cover commitments denominated in foreign currencies and for the purchase of capital equipment, raw materials, consumables and spare parts. In addition, the Company has also entered into forward contracts to sell foreign currencies in order to hedge revenues and accounts receivable arising from sales of goods in U.S. dollars. The Company has also entered into forward contracts for the sale of zinc metal and related U.S. dollars representing approximately 45 % of the totel 2005 exposure to hedge against fluctuations in the price of zinc. Accordingly, 30,000 mt of zinc have been sold forward over 2005 at an average price of Baht 46,955 per ton. 27.3Fair values The carrying amounts at the balance sheet date of cash and cash equivalents, trade accounts receivable, short-term loans and advances to related parties, withholding tax, account receivable-revenue department, other receivables, other current assets, investment and certain other assets, loans from financial institutions, trade‹‹ accounts payable, short-term loans from related parties, payable for concession assets acquired, payable for land use compensation, accrued interest expenses, accrued electricity expenses, other current liabilities, hire qurchase payable‹‹ and provision for restoration expense approximate their fair values.

60 Padaeng Industry Public Company Limited Annual Report 2004


Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2004 and 2003

27.

Risk management policy for assets and liabilities in foreign currencies (Cont没d) 27.4 Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a financial loss to the Company. As a general rule, the Company has a credit risk management policy to obtain collateral from the customers before commencing trade. The collateral may include bank guarantees or cash guarantees. The Company's credit risk is spread amongst several customers and is not limited to a few customers. 27.5 Interest rate risk Interest rate risk in the balance sheet arises from the potential for a change in interest rates to have an adverse effect on the net interest earnings of the Company in the current reporting period and in future years. Management believes that these risks are acceptable. In 2003, the Company obtained financing facilities in the amount of Baht 800 million at a fixed rate of interest for a period of 3 years. As of December 31, 2004, the Company has drawndown Baht 650 million (see note 14). 28.

Provident funds The Company established a registered contributory provident fund in accordance with the Provident Fund Act B.E. 2530. Under the plan, the Company and employees contribute to the fund at a certain percentage of the employees basic salary. Contributions to the provident fund are charged to the statement of income in the year to which they related. 29.

Reclassification Certain items in the balance sheet as at 31 December 2003 and statements of income for the year then ended have been reclassified for comparative purpose to coincide with balance sheet as at 31 December 2004 and statements of income for the year then ended.

61 Padaeng Industry Public Company Limited Annual Report 2004


Compliance to The Principles of

Good Corporate Governance 1.

Policy on Corporate Governance The Board of Directors recognizes the importance of Good Corporate Governance and as such established a policy for achieving it, with emphasis on internal controls and internal auditing. The policy is based on principles of transparency, disclosure, risk management, adhering to laws and government regulations, minimizing problems of conflict of interest, taxation issues and ensuring efficient management of operations in the best interest of company shareholders and other stakeholders for the long run. 2.

Rights of Shareholders In 2004 the company held one annual shareholder's meeting on April 23, 2004 at the Queen Sirikit National Convention Center. An invitation letter and agenda of the meeting and related documents were sent to shareholders 7 days prior to the meeting. Topics on the agenda included the opinion of the Board of Directors and a complete report or minutes of the meeting were recorded in order to allow shareholders ample time and opportunity to review and consider the topics. In addition, the company made every effort to accommodate shareholders by arranging the meeting in a convenient location with an appropriately sized meeting space and permitted shareholder proxies in the event some shareholders were unable to attend. In addition to the annual shareholders' meeting, the company will call additional shareholders' meeting, if necessary, in the event that specific emergency agenda topics, which are vital to the shareholders' interests or relate to by-laws or regulations require shareholders' approval. 3.

Rights of Stakeholders The company places much significance upon the rights of every group of stakeholders, particularly the local community, our customers and our employees. Unwavering commitment is given to environmental protection and conservation measures, more specifically protecting and treating conditions in water, air and soil to ensure maximum safety of nature and the local community. Throughout this past year the company also proceeded with plans for continuous improvement in terms of safety and the environment. Unfortunately, the discovery of the presence of an abnormal level of cadmium in the soil in areas near the Mae Sot mine has brought the company an unexpected concern. Immediately the company took action with local and provincial government offices to address the situation. The company has also commissioned an independent study to determine the cause and find constructive ways in which to resolve the contamination problem. The company is committed to continue to help restore the normal conditions of life for the community and will devote the necessary resources to that end. Furthermore, the company has complied with laws and regulations set by government agencies including the Department of Industrial Works, Ministry of Industry. In this respect, both the Calcine plant and Tak smelter was certified with TIS/OHSAS 18001 standard. Moreover the Calcine plant has also received the ISO 14001 certification. In addition, the company is concerned for and is responsible to our customers. We provide a standardized and quality product, maintain confidentiality of our customers and have a customer relations division, which provides technical advice to customers‚ ‚r‚elations division, which provides technical advice to customers. Furthermore, the company promotes a good working environment and encourages teamwork and offers training and skills enhancement for our employees in an effort to best take advantage of human resources.

62 Padaeng Industry Public Company Limited Annual Report 2004


Compliance to

The Principles of Good Corporate Governance

4.

Meeting of Shareholders In holding the shareholders meeting, the company considers each shareholder as an equal and stipulates procedures for the meeting according to the law and in compliance with guidelines of the Stock Exchange of Thailand. During the 2004 annual shareholders' meeting, a total of 6 directors attended, including the Chairman of the Audit Committee. The Chairman of the meeting allowed equal opportunity for all shareholders to question, comment or give suggestions regarding conduct of company operations. Notable inquiries and opinions were recorded in the minutes of the meeting. 5.

Leadership and Vision The Board of Directors has played a part in establishing the vision, mission, strategy, objectives, business plans and budget of the company with effectiveness and efficiency. In addition the Board‹ensures that the management team conducts operations in accordance with the company's business plan, to‹‹ add value to our business and ensure maximum stability for our shareholders. 6.

Conflict of Interest To protect against conflict of interest, the Board of Directors investigates any instance which may lead to a dispute and has established a policy and guidelines to prevent executives and related persons from using internal company information for personal gains. Further details are stipulated in Section‹‹ Controlling the Use of Internal Information. 7.

Business Ethics It is the company's philosophy to conduct business with honesty, righteousness, and ethics, with responsibility towards all stakeholders, namely, our customers, shareholders, employees, society and our country. The company has issued a Code of Ethics, which are guidelines for work conduct and employee conduct. All related persons are to use this manual as a reference for carrying out duties according to the mission of the company. 8.

Balance of Power for Non-Executive Directors The company's Board of Directors consists of qualified directors with a broad realm of experience, totaling 11 members as follows: - Executive Directors 2 members - Directors representing major shareholders 6 members (Umicore of Belgium holds 4 seats Ministry of Finance holds 1 seat Bangkok Bank Public Co., Ltd. holds 1 seat‹) - Directors on the Audit Committee 3 members The company's Board of Directors is responsible for acting in compliance with by-laws, objectives and guidelines of the company and resolutions of the shareholders meeting, with honesty and prudence in the best interests of the company. Company directors have fixed terms according to company guidelines, which state that at every annual meeting 1 in 3 director(s) will resign.

63 Padaeng Industry Public Company Limited Annual Report 2004


Compliance to

The Principles of Good Corporate Governance

9.

Aggregation or Segregation of Positions The position of the Chairman of the Board of Directors and the position of the Chief Executive Officer are kept separate as to ensure a clear distinction between authorities, that of policy making and day to day operations, respectively. The company has clearly defined the authorities and responsibilities of management on every level. 10.

Remunerations for Directors and Management Remuneration for Directors- Remuneration for company directors has been determined in a clear manner and is comparable to that of similar companies in the industry. The amount of remuneration has been approved by shareholders. Directors who have been selected to sit on the Audit Committee and Strategic Committee receive additional remuneration reflective of the added work responsibility. Remuneration for Top Executives- Remuneration for top executives has been determined in accordance with the principles and policy set by the Board of Directors and correspond with overall company performance and that of each individual executive. The management submits remuneration of executives to the Board of Directors for consideration and final approval. Remuneration for Directors in 2004 is detailed in Section Remuneration for Executives. 11.

Meetings of the Board of Directors The Board of Directors has regular meetings held every 3 months and may call additional special meetings as needed. Clear agenda topics and agenda minutes of the meetings are prepared in advance of each meeting and the Board Secretary sends out an invitation letter and relevant documents to board members prior to the meeting, so as to allow sufficient time for review, During 2004, the Board of Directors met 4 times with records of attendance as follows: Name

1. Mr. Arsa Sarasin 2. Mr. Paron Israsena 3. Mr. Kosit Panpiemras 4. Mr. Vinai Vamvanij 5. Mr. Aswin Kongsiri 6. Mrs. Naengnoi Na Ranong 7. Mrs. Sirinuj Bisonyabut 8. Mr. Karel Vinck 9. Mr. Jean-Luc Deleersnyder 10. Mr. Michel Moser 11. Mr. Pinit Vongmasa 12. Mr. Andre R. van der Heyden 13. Mr. Bernard Tonnon

64 Padaeng Industry Public Company Limited Annual Report 2004

Term Appointed ‹to Office No.of Meetings

23 Apr.04 - 30 Apr.06 22‹ Apr.03 - 30 Apr.06 26 Apr.05 - 30 Apr.07 23 Apr.04 - 30 Apr.06 23 Apr.04 - 30 Apr.06 22 Apr.03 - 03 Nov.04 26 Apr.05 - 30 Apr.07 26 Apr.05 - 30 Apr.07 22 Apr.03 - 30 Apr.06 23 Apr.02 - 26 Apr.05 23 Apr.04 - 30 Apr.06 22 Apr.03 - 30 Sep.04 10‹ Nov.04 - 30 Apr.06

4 4 4 4 4 3 1 4 4 4 4 3 1

Excused

Attendance (times)

1 2 1 2 2 3 -

4 3 2 4 3 1 1 2 4 1 4 3 1


Compliance to

The Principles of Good Corporate Governance

12.

Committees The Board of Directors has established the Audit Committee and the Strategic Committee to help in supervising company operations. Each committee has its own members, scope of work and responsibilities, which are detailed in section Management Structure. The establishment of the Nomination & Remuneration committee is in the final stage and will be submitted to the board for approval in the first quarter of 2005. 13.

Internal Controls The company recognizes the importance of internal control systems on both management and operational levels and has created an authority manual as the definitive reference. An independent internal audit department, reporting directly to the Audit Committee, works as an internal checks and balances and conducts audits as needed. The company also pays a great deal of attention to the risk management of the company. The company has set up a currency hedging program to minimize risk arising from the fluctuation of foreign exchange. The company also provides a framework to ensure the compliance with laws & regulations and taxation issue. 14.

Report of the Board of Directors The Board of Directors is responsible for the financial statements of the company and its subsidiaries and the financial information disclosed in the annual report. These financial statements are prepared in accordance with generally accepted accounting principles in Thailand. Important information is sufficiently disclosed in the notes to the financial statements. The Board of Directors has set up the Audit Committee, made up of independent directors, to supervise and be responsible for the integrity of the financial statements and internal control system. The opinions of the Audit Committee are written in the annual report. The Board of Directors has the opinion that the company maintains adequate internal controls and can reasonably show credibility towards its financial statements as of December 31, 2004. 15.

Investor Relations The Board of Directors has called for the disclosure of company information in an accurate, complete, transparent and widespread manner. Financial information as well as general information about the company, which might impact the value of company stock, is readily available. Shareholders and other interested parties may locate any such information through the various Stock Exchange of Thailand media outlets or from the company's website. Although a specific investor relations division has not yet been established, potential investors may obtain information by contacting the company directly at Tel: 02-661-9900 or at www.padaeng.co.th and www.padaeng.com or e-mail inquiries to info@padaeng.co.th.

65 Padaeng Industry Public Company Limited Annual Report 2004


Shareholders Structure The company没s shareholders are comprised of 51% Thai nationals and 49% foreign nationals. The company has Baht 2,260 million registered capital, which is fully paid up. It is divided into 226,000,000 ordinary shares at Baht 10 per share. a) List of the top 12 shareholders of Padaeng Industry Public Co., Ltd. as of 2 April 2004, which is the latest date of the close of the Shareholders没 Register is as follows: Name 1. 2. 3. 4. 5. 6. 7. 8. 9.

Umicore Ministry of Finance Thai NVDR Co., Ltd. Mr. Anan Utharntharm Bangkok Bank Public Company Limited Mr. Cheewin Chaicheewinlikit HSBC (Singapore) Nominees Pte Ltd. Thailand Securities Depository Company Limited for Depositors SCB Securities Company Limited by Hunters Assets Management Co., Ltd. 10. Gerlach&Co-Dimensional Emerging Markets Value Fund, Inc. 11. Mitsiam International Ltd. 12. Thailand Iron Works Public Company Limited

No. of Shares % of Total Shares 106,002,442 31,200,000 13,774,971 7,380,800 7,301,070 2,997,050 1,970,213 1,795,135

46.90 13.81 6.10 3.27 3.23 1.33 0.87 0.79

1,710,000 1,600,800 1,220,000 1,170,000

0.76 0.71 0.54 0.52

b) Major Shareholders Name 1. Umicore 2. Ministry of Finance

No. of Shares % of Total Shares 106,002,442 31,200,000

46.90 13.81

Policy for payment of dividends Under normal circumstances an amount of at least 5 % of profits after corporate taxes must be put in reserve, until the total amount in reserve equals at least 10 % of the company's authorized share capital, the company will then pay dividends in the amount of 50 % of profits after corporate taxes. An exception can be made if it is necessary for the company to use this amount for investment in future business expansion. A subsidiary will pay dividends only from profits generated by the subsidiary company. Each time the subsidiary company pays a dividend; an amount of at least 5 % of profits after corporate taxes must be put in reserve, until the total amount in reserve equals at least 10 % of the subsidiary company's authorized share capital. There is no fixed dividend payment policy for the subsidiary.

66 Padaeng Industry Public Company Limited Annual Report 2004


Organization Chart of Padaeng Industry Public Company Limited Board of Directors

Audit Committee

Strategic Committee

Chief Executive Officer

Managing Director

Internal Audit

Advisor

Board Secretary

Technical Services

Mining & Exploration Calcine Plant (Rayong) (Mae Sot)

Zinc Plant (Tak)

Finance & Accounting (Bangkok)

Marketing (Bangkok)

Human Resources & Corporate Admin. (Bangkok)

Procurement (Bangkok)

67 Padaeng Industry Public Company Limited Annual Report 2004


Management

Padaeng Industry Public Company Limited is made up of 3 committees. The Board of Directors The duties and responsibilities of the company's Board of Directors are as follows: 1. Manage company operations according to the law, rules and regulations, mission of the company and resolutions of the company shareholders 2. Determine the amount of dividend to be paid to shareholders 3. Determine the amount of compensation or bonus to be awarded to officers or employees or other staff working for the company (permanent or temporary employees), not including pension benefits or other remuneration paid to directors 4. Review the company's strategic work plan and assessment of operations as submitted by the Strategic Committee In carrying out its duties and responsibilities, the Board of Directors may authorize Chief Executive Officer, Managing Director, any director or any other individual to take action on its behalf. 1)

The company's Board of Directors consists of 11 members as follows: No. Name Title 1. Mr. Arsa Sarasin Chairman 2 Mr. Paron Israsena Independent Director* 3. Mr. Kosit Panpiemras Director 4. Mr. Vinai Vamvanij Indendent Director 5. Mr. Aswin Kongsiri Independent Director 6. Mrs. Sirinuj Bisonyabut Director 7. Mr. Karel Vinck Director 8. Dr. Jean-Luc Deleersnyder Director 9. Mr. Michel Moser Director 10. Mr. Pinit Vongmasa Director and Chief Executive Officer 11. Mr. Bernard Tonnon Director and Managing Director and Dr. Surin Tanticharoenkiat Secretary to the Board of Directors Remark : During the year 2004, Mrs. Naengnoi Na Ranong and Mr. Andre van der Heyden have resigned from PDI's directors and the Board have appointed Mrs. Sirinuj Bisonyabut and Mr. Bernard Tonnon to replace their term respectively. * The Definition of Independent Director 1. Holding shares not more than 5 percent of paid-up capital of the company, affiliated company, associated company or related company, which shall be inclusive of the shares held by related persons. 2. Being a director who does not take part in the management of the company, affiliated company, associated company, related company or majority shareholder of the company. Not being a employee, staff member or advisor who receives a regular salary from the company, affiliated company, associated company, related company or majority shareholder of the company; for example, the chief Executive Officer of the company may not be a member of the Audit Committee because he is directly responsible for the management etc.

68 Padaeng Industry Public Company Limited Annual Report 2004


Management

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3. Being a director who has no direct of indirect benefit or interest in finance and management of the company, affiliated company, associated company or majority shareholder of the company. ‹Being a director who has no benefit or interest of the said nature during the period of 1 year before his appointment as a director except where the Board of Directors has carefully considered tha‹t such previous benefit or interest does not affect the performance of duties and the giving of‹independent opinions. 4. Being a director who is not a related person or close relative of any management member or majority shareholder of the company. 5. Being a director whom is not appointed as a representative to safeguard interests of the company's directors, majority shareholders of shareholders who are related to the company's majority shareholders. 6. Being capable of performing duties, giving opinions or reporting the results of performance of work according to the duties delegated by the Board of Directors free and clear of the management or t‹ he majority shareholders of the company including related persons or close relatives of the said persons. The authorized directors consist of Mr. Arsa Sarasin and Mr. Pinit Vongmasa and Mr. Bernard Tonnon who shall be two directors jointly sign with the company seal's affixed. 2)

Audit Committee The Audit Committee has been established on 22 December 1998 and at present consists of 3 directors as follows: No. 1. 2. 3. and

Name Mr. Vinai Vamvanij Mr. Paron Israsena Mr. Aswin Kongsiri Dr. Surin Tanticharoenkiat

Title Chairman of the Audit Committee Audit Committee Member Audit Committee Member Secretary to the Audit Committee

In 2004 the committee met 5 times and reported to the Board of Directors. The Audit Committee's scope of authority is as follows: 1. The Audit Committee shall have the authority to request any information it sees relevant to its activities from the director or any managers of the company. 2. The Audit Committee may seek independent professional advice as it considers necessary. 3. The Audit Committee will have no executive powers with regard to its findings and recommendations. 3)

Strategic Committee The Strategic Committee has been established on 13 July 2000 and at present consists of 4 members as follows: No. 1. 2 3. 4. and

Name Mr. Vinai Vamvanij Mr. Pinit Vongmasa Dr. Jean-Luc Deleersnyder Mr. Bernard Tonnon Dr. Surin Tanticharoenkiat

Title Member Member Member Member Secretary to the Strategic Committee

In 2004 the committee held 4 meetings and reported to the Board of Directors.

69 Padaeng Industry Public Company Limited Annual Report 2004


Management

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The Strategic Committee is responsible for preparing and providing the company's strategic work plan and assessment for consideration by the Board of Directors, as well as giving recommendations to the Board of Directors. All matters regarding strategy and planning should be channeled through the Strategic Committee for presentation and/or recommendation to the Board of Directors for consideration. Moreover, the Strategic Committee acts as an advisor to the Board of Directors, but does not have decision-making authority. The Executives No. Name 1. Mr. Arsa Sarasin 2. Mr. Pinit Vongmasa 3. Mr. Bernard Tonnon 4. Mr. Chaiyan Roojnawate 5. Dr. Kitisil Kalayanakoul 6. Mr. Somluck Toonkumtornchai 7. Mr. Philippe Salmon

Title Chairman Chief Executive Officer Managing Director Senior Vice President - Zinc Plant Operations Senior Vice President - Calcine Plant Senior Vice President - Marketing Senior Vice President - Finance & Accounting

The Selection of Company Directors and Executives The company is in the final stage of setting up the Nomination & Remuneration committee which will be submitted to the board for approval in the first quarter of 2005. Of all the company's directors, six are representatives from the top shareholders. Umicore of Belgium holds a total of 4 seats, the Ministry of Finance holds 1 seat and the Bangkok Bank Public Co., Ltd. holds 1‹‹ seat on the Board of Directors. The appointment of a director requires a majority vote from the eligible voting shareholders present at the shareholder's meeting. Voting shall be according to the following guidelines: 1. Each shareholder shall have one vote for each share. 2. Each shareholder must exercise all the votes he has under item (1) to elect one or several persons to be directors but cannot divide his votes to any person particularly. 3. The candidates shall be ranked in order descending from the highest number of votes received to the lowest, and shall be elected as directors equivalent to the number of directors who are to be elected. 4. If there is a tie in the last to be elected and this exceeds the said number of directors, the presiding‹ Chairman shall have an additional casting vote. Presently, the Board of Directors as a whole submits to the shareholder's meeting the candidates to replace any director whom has completed a term on the Board. Remuneration for Executives consists of: 1. In the form of cash a) In the year 2004 the company paid a total of ‹Baht‹‹ 4,517,090.50 to 13 Directors (2 Directors have resigned during the year 2004), 4 Strategic Committee Members and 3 Audit Committee Members‹ ‹ as directors' fees and directors' remunerations, detail as follows:

70 Padaeng Industry Public Company Limited Annual Report 2004


Management

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Directors

1. Mr. Mr. Arsa Sarasin 2. Mr. Paron Israsena 3. Mr. Kosit Panpiemraj 4. Mr. Vinai Vamvanij 5. Mr. Aswin Kongsiri 6. Mrs. Naengnoi Na Ranong (Until 3 November 2004) 7 Mrs. Sirinuj Bisonyabut (Since 10 November 2004) 8. Mr. Karel Vinck 9. Dr. Jean-Luc Deleersnyder 10. Mr.Michel‹Moser 11. Mr. Pinit Vongmasa 12. Mr. Andre van der Heyden (Until 31 September 2004) 13. Mr. Bernard Tonnon (Since 10 November 2004)

Position

Chairman Independent Director Member of Audit Committee Director Independent Director Audit Committee Chairman Strategic Committee Member Independent Director Member of Audit Committee Director Director Director Director Strategic Committee Member Director Director and Chief Executive Officer Strategic Committee Member Director and Managing Director Strategic Committee Member Director and Managing Director Strategic Committee Member

Remuneration (Bath)

‹ ‹Director‹‹ ‹Bonus * For 2004 (Bath)

280,000.00 245,000.00 200,000.00 230,000.00 260,000.00 200,000.00 80,000.00 245,000.00 200,000.00 215,000.00

150,000.00 100,000.00 100,000.00 100,000.00 100,000.00 -

42,717.39

13,888.73

230,000.00 260,000.00 80,000.00 200,000.00

100,000.00 100,000.00 100,000.00

260,000.00 80,000.00 195,000.00 60,000.0 42,717.39 20,000.00

100,000.00

3,593,313.04

977,777.46

75,000.00 13,888,73

Remark: Director Bonus will be proposed to the 2005 Shareholders' Meeting for approval. b) The company paid a total of Baht 29,877,730 to the 7 executives in the year 2004, as salaries‹‹ and bonuses. 2 In other forms: The company contributed to employees' provident fund savings, as a percentage of salary and period of time enrolled in the fund, ranging from 5 to 10%. Corporate Governance The company conducts business in conformity with guidelines of the Code of Best Practices for Directors of Listed Companies, as set out by the Stock Exchange of Thailand. By doing so, the company demonstrates our commitment to standards and conduct in building confidence of our shareholders, investors and other related entities or persons. Moreover, the Audit Committee, through the internal audit department, supervises financial statements, internal control, and practices of good corporate governance to ensure compliance to policies. The company has also announced the enactment of the company's Code of Ethics‹‹ ‹by‹‹ ‹which‹‹ all‹‹ executives‹‹ and employees are expected to ad‹‹here to in conducting bussiness. in addition to ensure efficient and productive business operations as planned, a ‹ 71 Padaeng Industry Public Company Limited Annual Report 2004


Management

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Strategic Committee has been established with the responsibility of forming the company's strategic plan for proposal to the Board of Directors. Along with the mechanisms described above, the company has taken steps in other areas as well, in an effort to be accepted by our stakeholders and other related entities, as having good corporate governance as called for by the Stock Exchange of Thailand. Controlling the Use of Internal Information During each Board of Director's meeting, a summary of company holdings by executives is submitted for review, as a mean of monitoring any use of inside information for gains by executives. Personnel At year end, the total number of company employees stood at 746, consisting of 89 employees at the Bangkok office, 423 employees at the Smelter plant in Tak province, 144 employees at the Mae Sot mine and 90 employees at the Calcine plant in Rayong province. In year 2004, compensation paid to employees as salaries and bonuses totaled Baht‚‚ 228,132,137. In addition, the company contributed funds to employees' provident fund savings, determined as a percentage of salary and period of time enrolled in the fund, ranging from 5-10 %. The company's total workforce consists of 746 employees. Approximately 22 % of employees have earned at least a bachelor's level degree, while 40 % have earned an Associate's or Vocational level degree. The remaining employees have studied at less than vocational level. The majority of company employees reside in Tak province and the northern region of the country, where the smelter plant and mine is located. The average age of employees is 39 years, while average tenure of service with the‚company is 13 years. For the year, employee turnover rate equaled 3.08 %. Internal Control During the Board of Director's meeting, No. 01-2005, held on Friday 25 February, 2005, the Board assessed the system of internal control, the organization and external conditions, risk management, method of disseminating, communicating and monitoring information, it was determined that the company employs an adequate system of internal control regarding transactions with major shareholders, directors, management and related persons, as well as internal control in other areas. Following is an opinion of the auditor, Suchart Luengsuraswat, Certified Public Accountant, Registration No. 2807, PricewaterhouseCoopers ABAS Ltd.: In planning and performing our audit of the financial statements of Padaeng Industry Public Company Limited for the year-ended 31 December 2004, we obtained an understanding of the internal control system in order to determine the nature, timing and extent or our audit procedures, for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control system. The management of Padaeng Industry Public Company Limited are responsible for establishing and maintaining an internal control system to assist in achieving management's objective of ensuring, as far as practicable, the orderly and efficient conduct of its business, including adherence to management policies, the safeguarding of assets, the prevention and detection of fraud and error, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. Because of inherent limitations in any internal control system, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the internal control system to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. are the weaknesses in internal control that could have a material effect on the financial statements. 72 Padaeng Industry Public Company Limited Annual Report 2004


Management

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However, after consideration of the internal control system, we noted no matters involving the internal control system and its operation that we consider to be material weaknesses under Thai Auditing Standard 400 "Risk assessments and internal control". Material weaknesses as defined in the Auditing Standard are the weaknesses in internal control that could have a material effect on the financial statements. Related Transactions Look for details of related transactions in Notes to Financial Statement on pages 40 - 61 The company's policy on related transactions is based on the principles of free trade, using the world price as a reference, and is conducted in the best interest of the company. In this respect, the internal audit department has also carried out an audit on the related parties transaction in year 2004. Audit Fee 1. Audit Fee The company and its subsidiaries has paid audit fees to audit companies, individual auditors or other businesses relating to the auditors and auditing companies during the previous fiscal year totaling Baht 3,500,000. 2. Non-audit Fee The company and its subsidiaries has paid non-audit fees, which include services such as auditing of financial statements prepared under guidelines other than generally accepted accounting principles and other legal and tax related services, to audit companies, individual auditors or other businesses relating to the auditors and auditing companies during the previous fiscal year totaling Baht‚‚ ‚219,905. An additional nonaudit fee will be paid in the future for services previously agreed upon but not yet provided totaling Baht 450,000.

73 Padaeng Industry Public Company Limited Annual Report 2004


Structure of

Corporate Shareholding Number and types of all the share held by the company

Number and types of all the share issued and paid up

Name

Address

Nature of Business

No. of Par Value No. of % Ordinary Each Ordinary of Total Shares (Baht) Shares Shares 226,000,000

10

-

-

3,200,000

25

3,200,000

100

2,348,141

62

2,348,141

100

10,000,000

25

6,197,746

61.98

USD. 200,000

-

-

100

5. Padaeng International‹ 191/18-25 CTI Tower, 26th-27th Floor, Investing in exploration and mine‹ Mining Company Ratchadaphisek Road, development project in Vietnam Limited Khlong Toei district, Bangkok 10110‹ Tel. 0-2661-9900 Fax : 0-2261-1108-10

1,000

100

1,000

100

68/5-68/6 Asia Highway, Mae Sot district, Tak Tel. 0-5553-3777 Fax 0-5554-7285

Marketing of aggregate limestone‹

100

90,000

55

55

16th Floor, SG Tower, 161/1 Soi Mahadlekluang 3, Rajdamri Rd., Lumpini, Pathumwan, Bangkok 10330 Tel. 0-2650-2711 Fax 0-2650-2715

Potash mining operation

12,870,000

100

100,100

0.78

(A) Padaeng Industry Public Company

Limited

191/18-25 CTI Tower, 26th-27th Floor, Mining and smelting of zinc ore and Ratchadaphisek Road, concentrate as well as marketing of Khlong Toei district, Bangkok 10110 zinc metal and other by-products Tel. 0-2661-9900 Fax : 0-2261-1108-10

(B) Affiliated Companies 1. Padaeng Properties 191/18-25 CTI Tower, 26th-27th Floor, Land development and real estate Company Limited Ratchadaphisek Road, Khlong Toei district, Bangkok 10110 Tel. 0-2661-9900 Fax : 0-2261-1108-10 2. Puthep Company Limited

191/18-25 CTI Tower, 26th-27th Floor, Prospecting and mining for Ratchadaphisek Road, copper and other base metals Khlong Toei district, Bangkok 10110 Tel. 0-2661-9900 Fax : 0-2261-1108-10

3. Padaeng Poongsan Metals Company Limitedÿ N.B. Ceased operation since‹ February 1999.

191/18-25 CTI Tower, 26th-27th Floor, Manufacturing of copper and Ratchadaphisek Road, brass sheet/strip coin blank and Khlong Toei district, Bangkok 10110 case cup Tel. 0-2661-9900 Fax : 0-2261-1108-10

4. Padaeng Industry ‹ (Laos) Company Limited

49 Ban Dongmieng, Khum 1, Unit 6, Chanthabuli, Vientiane, Laos

6. Sila Enterprise Company Limited

(C) Other Companies 1. ASEAN Potash Mining Punblc CompanyLimited

74 Padaeng Industry Public Company Limited Annual Report 2004

Prospecting and mining for base metals in Laos

Preference Share 1


Other References Registrar

Thailand Securities Depository Company Limited The Stock Exchange of Thailand Building, 4, 6-7 Floor, 62 Ratchadaphisek Road, Khlong Toei, Bangkok 10110, Thailand Tel. 0-2229-2800, 0-2654-5599 Fax. 0-2359-1259

Auditor

Mr.Suchart Luengsurasaswat or Ms.Somsri Dhanyacheevee, Ms.Wimon Chiamchittrong or Mrs.Anothai Leekitwattana Certified Public Accountant Registration Nos.2807, 1905, 3365 and 3442 respectively PricewaterhouseCoopers ABAS Ltd. 15 th floor Bangkok City Tower 179/74-80 South Sathorn Road, Bangkok 10120 Tel. 0-2286-9999 , 0-2344-1000 Fax. 0-2286-5050 P.O.Box 800 Bangkok 10500

Legal Adviser Dr. Prajit & Suchinda International Law Office 1793/16 Sirinthon Road, Bangplad, Bangkok 10700, Thailand Tel. 0-2424-5693 Fax. 0-2435-8644 Adviser or contractor under management agreement

- None -

75 Padaeng Industry Public Company Limited Annual Report 2004


SEC contents in accordance with form 56-2 1. General information 1.1 The company 1.2 Juristic persons in which the company holds more then 10% of shares 1.3 References 2. Statement by the Chairman of the Board or Board of Directors 3 Statement by the Audit Committee 4 Summary of the company's financial data 4.1 Data from financial statements 4.2 Financial ratios 5. Nature of business 5.1 Business in brief 5.2 Structure of revenues 5.3 Changes during the past year 6. Factors of risk 7. Shareholders and management 7.1 Shareholders 7.2 Management structure 7.3 Selection of directors and executives 7.4 Remuneration for executives 7.5 Other terms of remuneration 7.6 Corporate governance 7.7 Controlling the use of internal information 7.8 Internal control 8. Connected persons and connected transactions 9. Management discussion and analysis 10. Financial statements

76 Padaeng Industry Public Company Limited Annual Report 2004

1-7 74 75 8-9 29 11 11 7 6 12-23 25 66 67-69 70 71 71 62-65 72 72 73 24 30-61


Padaeng Industry Public Company Limited BANGKOK OFFICE CTI Tower, 26th-27th Floor, 91/18-25 Ratchadaphisek Road, Khlong Toei district, Bangkok 10110, Thailand Telephone : +66 (0) 2661-9900 Fax : +66 (0) 2261-1108-10, +66 (0) 2661-9490 E-mail : info@padaeng.co.th Website : www.padaeng.com, www.padaeng.co.th TAK OFFICE 94 Moo 1, Ban Klonghuaysai Asian Highway 409-410, Nongbuatai subdistrict, Muang district, Tak 63000, Thailand Telephone : +66 (0) 5551-7444, +66 (0) 5555-8500 Fax : +66 (0) 5551-7440, +66 (0) 5555-8511 MAE SOT OFFICE 13 Moo 4 Phratad Padaeng subdistrict, Mae Sot district, Tak 63110, Thailand (P.O.Box 29 Amphoe Mae Sot Tak 63110) Telephone : +66 (0) 5553-3016-7, +66 (0) 5553-3019 Fax : +66 (0) 5553-3018 RAYONG OFFICE Padaeng Industrial Estate 15 Padaeng Road, Maptaphut subdistrict, Muang district, Rayong 21150, Thailand Telephone : +66 (0) 3868-3318-20 Fax : +66 (0) 3868-3321, (0) 3868-3361

77 Padaeng Industry Public Company Limited Annual Report 2004


E-mail : info@padaeng.co.th, Website : www.padaeng.com, www.padaeng.co.th


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