Company Name:

Shenzhen Cuilu Gold Refinery Co., Ltd.

Location:

No. 2 Factory Building, Huangshengfa Industrial Zone, Baida Street, Xikeng Village, Henggang Street, Longgang District, Shenzhen City, Guangdong Province, China

Reporting year-end:

31 December 2021

Date of Report

18 January 2022

Senior management responsible for this report

Name: Mr. Wenju Li, Title: Deputy General Manager

E-Mail: [email protected]

Phone: +86-(0) 13823183165

Audit Team

Team Leader:

Team Member:

Li ZHANG (Lead Auditor)

Nil

Table 2:

Summary of activities undertaken to demonstrate compliance

Step 1: Establish strong company management systems

Compliance Statement with Requirement:

We have fully complied with the requirement of Step 1: Establish strong company management systems.

Has the Refiner adopted a company policy regarding due diligence for supply chains of silver?

Comments and Demonstration of Compliance:

The company issued the "silver supply chain due diligence management system" and "silver Supply Chain Risk Mitigation Management Measures" on July 1st, 2021, updated on July 1st, 2021. Our silver supply chain policy strictly prohibits silver suppliers from the following behavior:

1. Systematic or widespread human rights abuses associated with the extraction, transport or trade of silver, including worst forms of child labour, any forms of torture, inhuman and degrading treatments, widespread sexual violence or other gross human rights violation forced or compulsory labour, war crimes, crimes against humanity or genocide;

2. Direct or indirect support to illegitimate non-state armed groups, public or private security forces which illegally control mines sites, traders, others intermediaries, transport routes through the supply chains or illegally tax or extort money or minerals through the supply chains;

3. Bribery and fraudulent misrepresentation of the origin of silver;

4. Non-compliance with taxes, fees and royalties due to Governments related to mineral extraction, trade and export from conflict affected and high-risk areas;

5. Money laundering or terrorism financing;

6. Contribution to conflict;

7. Higher-risk business activity such as arms, gaming and casino industry, antiques and art, sects and their leaders;

8. Upstream companies or their beneficial owners with significant influence are PEPs;

The “silver supply chain due diligence management system” stipulates the internal organizational structure and responsibilities, silver supply chain due diligence methods, silver supply chain risk identification methods and judgment standards, transaction monitoring, document storage, training and reporting mechanisms.

In 2021, our company completed the due diligence of all silver suppliers in strict accordance with the requirements of the system, and conducted risk identification and evaluation to effectively control the risks of the silver  supply chain.

At the meanwhile, the company also posted the policy on the official website at http://www.cl-silver.cn/article-item-24.html

Has the Refiner set up an internal management structure to support supply chain due diligence?

Comments and Demonstration of Compliance:

The company established an internal management system in accordance with the " silver Supply Chain Due Diligence Rules", clarified management positions and corresponding responsibilities, and the company set up a compliance risk control director, one compliance manager and four compliance officers.

The company's compliance director is Mr. Huang Ke (General Manager), the compliance manager is Mr. Li Wenju (Factory Manager), the production department compliance officer is Ms. Lu chuanmin (Production Manager), the laboratory department compliance officer is Ms. Tu qin (Testing Manager), Mr. Huang yunguang (Business Manager) is the compliance officer of the Business Department, and Ms. Zhang Hong (Finance Manager) is the compliance officer of Finance department.

The Compliance Director is the company's senior management personnel and is responsible for the review and approval of cooperation contracts with suppliers, including whether to cooperate with high-risk suppliers.

The compliance manager shall assist senior management personnel to be fully responsible for the due diligence of the silver supply chain, to be responsible for everything in the  silver  supply chain, to ensure that the company's entire silver supply chain complies with risk management regulations, and can effectively identify risks and avoid risks.

Responsible for  silver supply chain due diligence and risk control training, drafting and updating silver supply chain policies, and providing accurate information for senior managers.

The Business Department is responsible for the procurement of raw materials to ensure the long-term, stability and safety of the supply of  silver-containing materials, and refuse to cooperate with relevant enterprises, organizations or countries in high-risk areas.

The responsibility of the financial compliance officer is to keep all transaction documents intact.

The refiner compliance officer organizes the production of  silver input materials and makes a record of input materials. A closed process is used in the production process to ensure the safety and traceability of silver production and processing.

In 2021, the company strictly implemented the "Silver Supply Chain Due Diligence Management System" and conducted risk due diligence on all suppliers. Monitor all transactions to avoid establishing relationships with high-risk suppliers. At the same time, compliance officers review all due diligence findings and results, and all silver material procurement contracts have been approved by the compliance director.

Has the Refiner established a strong internal system of due diligence, controls and transparency over silver supply chain, including traceability and identification of other supply chain actors?

Comments and Demonstration of Compliance:

According to the requirements of the management system, the company has established a supply chain traceability system to collect and maintain each batch of supply chain information, including assigning a separate reference number for each input and output:

Silver  product traceability (silver -> Raw material)

   -Types of silver-bearing materials (mineral silver/recycled silver);

   -Storage weight and analysis report;

   -Raw material storage date and finished product storage date;

Silver product traceability (Silver-> Customer)

   -Customer information;

   -Transaction weight and analysis report;

   -Date of delivery;

According to all the records kept, traceability can be completed from finished product to raw materials, from raw materials to finished products, and can be traced to the purchase contract of each supplier and each batch of products. According to the content of the contract, the traceability includes the type of precious metal, purchase weight, analysis report and related information such as due diligence documents.

Has the Refiner strengthened company engagement with silver supplying counterparties, and where possible, assisted silver supplying counterparties in building due diligence capabilities?

Comments and Demonstration of Compliance:

When signing a contract with a supplier, according to the requirements of the management systems, the business personnel of the domestic and international business departments signed the “LBMA Compliance Commitment” with all counterparties of the silver  supply contract, and conducted a “questionnaire survey” to ensure suppliers understand the company's LBMA management requirements, supply chain policies and required commitments.

In the commitment, the counterparty of the silver  supply contract shall commit in writing and acknowledge that there are no serious human rights violations related to mineral extraction, transportation or trade, no direct or indirect support for non-state armed organizations, and no direct or indirect support for public or private security forces, did not bribe or falsely misreport mineral sources, and did not launder money. In addition, the government is also paid taxes and royalties related to mineral extraction, trade and export in conflict-affected areas and high-risk areas.

In 2021, All suppliers have signed the commitments.

Has the Refiner established a company-wide communication mechanism to promote broad-based employee participation and risk identification to management?

Comments and Demonstration of Compliance:

The company has established a grievance mechanism. The email and contact information of the compliance officer are posted on the official website athttp://hunterzhu.cn/article-item-24.html

, and the grievance mechanism is carried out with suppliers during the procurement of silver-bearing materials, internal and external stakeholders can anonymously report violations in the silver transaction process. The factory has set up a suggestion box as a way for internal employees to report, and related personnel regularly open the box to check and summarize the content of the report. There was no reporting in the year of 2021.

In addition, the company has also established a whistleblower protection system to prevent retaliation against whistleblowers and effectively protect the rights of whistleblowers.

Step 2: Identify and assess risks in the supply chain

Compliance Statement with Requirement:

Does the Refiner have a process to identify risks in the supply chain?

Comments and Demonstration of Compliance:

The Silver Supply Chain Due Diligence Rules specifies the supplier risk identification method, covering all risks of silver-bearing materials from the origin to the refinery. The following risks are identified through the "Supplier Due Diligence Form", such as supplier basic information, beneficiaries, origin information, responsible precious metal supply chain policy, transportation process, anti-money laundering and anti-financing terrorism, bribery and fraud, human rights violations, transaction monitoring, support for non-governmental armed organizations, etc.

Identification method including, Establishing supply chain customer files, including: company name, legal representative, address, contact information, operation method, production method, transaction contract, etc.; Existing supply chain customers need to be checked regularly. If there are new or any changed, we need to check their archives in time to keep the archives database up to date. Identify each customer, business and business owner, and use reliable independent source documents, data or information to verify their identity. Make sure that every customer, business and business owner in the supply chain is not on any government money laundering, fraud or terrorism wanted list. Regularly obtain the commercial and financial details of customers in the supply chain, the purpose of engaging in silver transactions, and the status of commercial operations.

Does the Refiner assess risks in light of the standards of their due diligence system?

Comments and Demonstration of Compliance:

Before the business relationship with the supplier is established, the business department needs to fill out the "Silver Supply Chain Due Diligence Form" and conduct a risk assessment of all Silver-containing materials in accordance with the "Silver Supply Chain Due Diligence Rules".

Mineral Silver: Suppliers need to provide information on the origin of Silver-bearing materials, mining licenses, import and export licenses, mining information certifications, due diligence documents, in addition to collecting business licenses, beneficiaries, credit, financial information, whether it is in the government In the list of money laundering, known fraudsters or terrorists, some suppliers are inspected by the compliance officer to verify the authenticity of the information on the spot to ensure that the assessment is accurate and reliable.

The evaluation criteria of the high-risk supply chain are as follows:

1. Mineral silver or reclaimed silver originates from, transits through, or passes through conflict-affected or high-risk areas that violate human rights.

2. Mineral silver claims to originate from a country with known limited reserves, limited resources, or limited silver production.

3. Recycled silver comes from a known high-risk area affected by conflicts and human rights violations, or there is reason to suspect a transit through this area.

4. Companies in the silver supply chain or other known upstream companies are located in a country with a high risk of money laundering, crime and corruption.

5. The owners of the companies in the silver supply chain or other known upstream companies are politically sensitive figures.

6. Companies in the silver supply chain or other known upstream companies are actively involved in high-risk business activities such as weapons, gambling, gambling, antiques and artwork, diamonds, religion and religious leaders.

7. From and passing through high-risk countries and regions, including conflict and war countries and regions announced by CFSP, countries or regions sanctioned by the United Nations, and high-risk money laundering countries and regions announced by FATF.

Evaluation method: Based on the content of the due diligence form, combined with the actual data received from the suppliers and customers, the evaluation is scored according to the evaluation criteria of each item, and the risk level is finally determined.

In 2021, all of 32 silver-containing suppliers were evaluated, they were domestic and no oversea supplier. According to the assessment results, all suppliers were assessed at low-risk level.Among all. the 32 silver suppliers, 16 are personal and 16 are corporate. All the 32 silver suppliers come from silver exhibition halls, stores and jewelry factories in Luohu District and Longgang District of Shenzhen. At present, the only way we can conduct business with all suppliers is to purify silver on behalf of suppliers. That is, the old silver jewelry provided by the supplier whose color is less than 99.99% is purified to more than 99.99%, and then cast into 15Kg/ piece of silver plate and returned to the supplier for silver jewelry production raw materials.

Does the Refiner report risk assessment to the designated manager?

Comments and Demonstration of Compliance:

The Compliance officer provides a commentary report to compliance director and senior management on a quarterly basis, senior management retains the ultimate control and responsibility for the silver supply chain, if any high risk suppliers, it must be approved by senior management and stop the business immediately.

Step 3: Design and implement a management system to respond to identified risks

Compliance Statement with Requirement:                        

We have fully complied with Step 3: Design and implement a management system to respond to identified risks.

Has the Refiner devised a strategy for risk management of an identified risk by either (i) mitigation of the risk while continuing to trade, (ii) mitigation of the risk while suspending trade or (iii) disengagement from the risk?

Comments and Demonstration of Compliance:

(I) Mitigating risks when continuing to trade: when the evaluation of the supplier is at low risk, we continue to purchase the silver raw materials from the supplier, and in the meanwhile, we will gradually improve the investigation data during the cooperation process, and gradually assist the supplier to establish their due diligence system, help them establish and improve their deficiencies in risk management and control.

(Ii) Mitigating risks when trading is suspended: When the evaluation result is medium risk, the cooperation is suspended and the suspicious risk is investigated until the supplier is determined to be a low-risk supplier. Also isolate incoming materials. The company's silver warehouse has a high-risk incoming material isolation area to cope with unexpected situations. Within 6 month period, the supplier rectifies the risk item and removes the risk, then resumes the transaction. If the rectification fails to meet the requirements or the risk cannot be removed, the cooperation with the supplier is stopped.

(Iii) Stop trading out of risk: the supplier is evaluated as high risk, or if a high-risk item is found when working with the supplier, then stop the cooperation, report the evaluation report and high-risk items to the top management, and add it to the company's blacklist, stop the trading within 3 years.

Where a management strategy of risk mitigation is undertaken, it should include measureable steps to be taken and achieved, monitoring of performance, periodic reassessment of risk and regular reporting to designated senior management.

Comments and Demonstration of Compliance:

If the result of due diligence is low risk, the company has adopted an improvement strategy with clear performance goals within the specified time frame, we will continue to obtain silver raw materials. If the silver supply chain due diligence results are medium risk or high risk, it indicates that there may be money laundering, terrorist financing, conflict promotion, human rights violations, or the probability of high-risk, we will immediately stop obtaining silver raw materials until the evidence submitted by suppliers indicate its low risk level.

According to the results of the due diligence in 2021, no supplier needs a risk mitigation management strategy.

Regular re-evaluation and continuous monitoring: 1. Every year, the Compliance officer of the raw material procurement department organizes personnel to collect all changes in supplier information, continuously monitor the transaction results and conduct an annual supply chain due diligence re-evaluation to decide whether to continue cooperation. 2. Each batch of purchased silver raw materials is monitored by a compliance officer during the transportation, storage, production, and payment process.

Periodic report: Every quarter, the compliance officer submits reports to the compliance director and top management according to the actual situation of LBMA management. The report summarizes the quarterly operation of the LBMA management system, proposes deficiencies and improvement measures.

In 2021, our company took a quantitative approach to score management of suppliers, and conducted an annual supplementary risk assessment of all suppliers except new ones. The compliance director has reviewed the evaluation results. And every quarter to submit a report to the top management.

Step 4: Arrange for an independent third-party audit of the supply chain due diligence

Compliance Statement with Requirement:

We have fully complied with Step 4: Arrange for an independent third-party audit of the supply chain due diligence.

Comments and Demonstration of Compliance:

This is the primary audit of silver responsible for LBMA, the audit report has been uploaded to the company's website： http://www.cl-gold.cn/

We have prepared the annual compliance report before December 31, 2021. And request Bureau Veritas (Beijing) Co., Ltd. for reasonable verification base on ISAE3000.

Step 5: Report on supply chain due diligence

Compliance Statement with Requirement:

We have fully complied with Step 5: Report on supply chain due diligence

[Comments]

Further information and specific details of how to perform due diligence systems for supplier chains, procedures, processes and controls have been implemented to align to the specific requirements in the LBMA Responsible Silver Guidance have been set out in our silver supply chain policy, which is available on our company website http://www.cl-gold.cn/