20-F

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended DECEMBER 31, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number 001-14714

(Exact name of Registrant as specified in its charter)

Yanzhou Coal Mining Company Limited

(Translation of Registrant’s name into English)

People’s Republic of China

(Jurisdiction of incorporation or organization)

298 South Fushan Road

Zoucheng, Shandong Province

People’s Republic of China

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class	Name of each exchange on which registered
American Depositary Shares	New York Stock Exchange
H Shares, par value RMB1.00 each*	The Stock Exchange of Hong Kong Limited

* Not for trading in the United States, but only in connection with the listing of the American Depositary Shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

2,960,000,000 Domestic Shares, par value RMB1.00 per share

1,958,400,000 H Shares, par value RMB1.00 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the

Securities Act.    Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

¨  Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x                    Accelerated filer  ¨                    Non-accelerated filer  ¨

Indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ¨    Item 18  x

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

¨  Yes    ¨  No

TABLE OF CONTENTS

CAUTIONARY STATEMENT		1
CERTAIN DEFINITIONS AND SUPPLEMENTAL INFORMATION		2
EXCHANGE RATES		3
PART I
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.	4
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE.	4
ITEM 3.	KEY INFORMATION.	4
ITEM 4.	INFORMATION ON THE COMPANY.	13
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS.	31
ITEM 6.	DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES.	47
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.	57
ITEM 8.	FINANCIAL INFORMATION	61
ITEM 9.	THE OFFER AND LISTING	63
ITEM 10.	ADDITIONAL INFORMATION.	66
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	83
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.	84
PART II
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.	85
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	85
ITEM 15.	CONTROLS AND PROCEDURES	85
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	85
ITEM 16B.	CODE OF ETHICS	86
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	86
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	86
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	87
PART III
ITEM 17.	FINANCIAL STATEMENTS.	88
ITEM 18.	FINANCIAL STATEMENTS.	88
ITEM 19.	EXHIBITS.	88
SIGNATURES

i

CAUTIONARY STATEMENT

Certain information contained in this annual report, which does not relate to historical financial information may be deemed to constitute forward-looking statements. The words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “believe” or similar expressions are intended to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, or the Exchange Act. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those presently anticipated or projected. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. These forward-looking statements include, without limitation, statements relating to:

• future prices and demand for our products and demand for our customers’ products;

• future PRC tariff levels and export quotas for coal;

• sales of our products;

• the amount and nature of, and potential for, future development;

• coal mine reserves potential;

• production forecasts of coal;

• trends in the coal industry and domestic and international coal market conditions;

• the effectiveness of our cost-saving measures;

• future expansion plans and capital expenditures;

• expected production capacity increases;

• competition;

• changes in legislation, regulations and policies;

• estimates of proven and probable coal mine reserves;

• our research and development plans; and

• our dividend policy.

These statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in particular circumstances. However, whether actual results and developments will meet our expectations and predictions depends on a number of risks and uncertainties, which could cause actual results to differ materially from our expectations. These risks are more fully described in the section entitled “Item 3. Key Information – Risk Factors.”

Consequently, all of the forward-looking statements made in this annual report are qualified by these cautionary statements. We cannot assure you that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us or our business or operations.

Unless otherwise indicated, statistical and market trend information, as well as statements related to market position and competitive data, are based on our internal statistics and/or estimates gathered from our own research and/or various publicly available sources.

1

CERTAIN DEFINITIONS AND SUPPLEMENTAL INFORMATION

As used herein, references to “we”, “our”, “our Company” or “us” refer to Yanzhou Coal Mining Company Limited, unless the context indicates otherwise. References to the “Parent Company” include references to Yankuang Group Corporation Limited (formerly known as Yanzhou Mining (Group) Corporation Limited) and, in respect of references to any time prior to our incorporation, are to the businesses, assets and liabilities of the Predecessor that were not transferred to us in the Restructuring and, where the context requires, includes our subsidiaries, and references to the “Predecessor” mean the entity that held all our assets and liabilities as well as the assets and liabilities of the Parent Company prior to the Restructuring.

As used herein, “Restructuring” means our incorporation on September 25, 1997 and the transfer to us, effective as of September 25, 1997, of the principal coal mining businesses of the Predecessor and certain assets and liabilities of the Predecessor relating thereto, together with certain other businesses, assets and liabilities of the Predecessor.

References to Shares herein refer to our (i) domestic invested shares held by the Parent Company on behalf of the State, RMB1.00 par value each (the “State Legal Person Shares”), (ii) domestic invested shares other than those held by the Parent Company, RMB1.00 par value each (the “A Shares”), (iii) overseas listed foreign invested shares issued and traded in HK dollars, par value RMB1.00 each (the “H Shares”), and (iv) American Depositary Shares (“ADSs”), each of which represents 50 H Shares, collectively. The ADSs are evidenced by American Depositary Receipts (“ADRs”).

References to the “Domestic Shares” herein refer to the State Legal Person Shares and A Shares collectively.

References to the “Combined Offering” herein refer to (i) our offering of H Shares in Hong Kong in an offer for subscription, (ii) our offering of ADSs in a public offering initially in the United States and Canada, and (iii) our offering of ADSs outside the United States, Canada and the PRC and to certain professional investors in Hong Kong that purchased ADSs or H Shares other than in the Hong Kong offering. The Combined Offering was completed by us in April 1998 and resulted in the issuance by us of 850,000,000 H Shares, held in H Share and ADS form.

References to the “Directors, Supervisors and Executive Officers” herein refer to our directors, supervisors and executive officers as discussed in Item 6 herein.

References to the “Articles of Association” herein refer to our articles of association, as amended from time to time.

As used herein, “Eastern China” includes Shandong Province, Jiangsu Province, Anhui Province, Zhejiang Province, Fujian Province, Jiangxi Province and Shanghai municipality.

As used herein, “PRC Government” or “Government” or “State” means the central government of the People’s Republic of China (the “PRC” or “China”), including all political subdivisions (including provincial, municipal and other regional or local governmental entities) and instrumentalities thereof.

As used herein, “tonne” means metric tonne, equal to 1,000 kilograms or approximately 2,205 pounds in weight.

Certain mining terms used herein are defined in the “Glossary of Mining Terms” annexed as Appendix B to the registration statement on Form F-l forming part of the registration statement filed with the U.S. Securities and Exchange Commission, a copy of which may be obtained upon request.

We publish our financial statements in Renminbi yuan, the official legal tender currency of the PRC. Except as otherwise stated herein, all monetary amounts in this Form 20-F have been presented in RMB.

Our audited financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), which differ in certain material respects from generally accepted accounting principles in the United States (“U.S. GAAP”). Note 47 to our audited financial statements provides a reconciliation of our financial statements to U.S. GAAP in accordance with Item 18 of Form 20-F.

2

References to the “Financial Statements” herein refer to the Financial Statements in Item 18 of this Form 20-F annual report.

EXCHANGE RATES

Unless otherwise specified, references in this Form 20-F to “U.S. dollars” or “U.S.$” are to United States dollars, references to “HK dollars” or “HK$” are to Hong Kong dollars and references to “Renminbi” or “RMB” are to Renminbi yuan.

Solely for the convenience of the reader, certain items in this Form 20-F contain translations of Renminbi amounts into U.S. dollars. All such Renminbi translations of amounts from Renminbi to U.S. dollars have been made, except as otherwise noted, at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) on December 31, 2005 of U.S.$1.00 = RMB8.0702. No representation is made that the Renminbi amounts could have been or could be converted into U.S. dollars at that rate or at any other rate.

3

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

Historical Financial Information

The following tables present our consolidated summary income statement data, balance sheet data and cash flow data as of and for the years ended December 31, 2001, 2002, 2003, 2004 and 2005. The summary balance sheet data as of December 31, 2004 and 2005 and income statement and cash flow data for the years ended December 31, 2003, 2004 and 2005 have been derived from, and should be read in conjunction with, the audited financial statements included elsewhere in this report. The summary balance sheet data as of December 31, 2001, 2002 and 2003 and income statement and cash flow data for the years ended December 31, 2001 and 2002 have been derived from our audited financial statements as of and for such dates and are not included in this annual report. Unless otherwise indicated, the financial statements are prepared and presented in accordance with International Financial Reporting Standards, also known as “IFRS”. For a reconciliation of our net income and owner’s equity to generally accepted accounting principles in the United States, also known as “U.S. GAAP”, see Note 47 to the Financial Statements. In 2005, the International Accounting Standards Board issued a number of new or revised IFRS which are effective for accounting periods beginning on or after January 1, 2005. We have adopted these new IFRS in the financial statements and changed our accounting policies accordingly. See Note 47 to the Financial Statements included in Item 18.

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	As of and For the Year Ended December 31,
	2001		2002		2003		2004		2005		2005
	RMB		RMB		RMB		RMB		RMB		U.S.$
	(Amounts in millions except numbers of Shares and ADSs, and per Share, per ADS and operating data)
INCOME STATEMENT DATA
IFRS
Net Revenue
Net sales of coal
Domestic	2,599.8		3,414.0		4,337.1		7,407.0		8,421.5		1,043.5
Export(2)	2,276.2		2,799.9		2,457.2		2,947.3		2,932.0		363.3
Railway transportation service income	—		142.5		154.6		220.8		163.4		20.2
Total net revenue(3)	4,876.0		6,356.4		6,948.9		10,575.1		11,516.9		1,427.1
Gross profit	2,063.4		2,993.5		3,193.9		6,023.4		6,228.3		771.8
Interest expenses	(61.5	)	(117.9	)	(60.0	)	(35.9	)	(24.6	)	(3.0	)
Income before income taxes	1,360.2		1,748.2		1,974.9		4,673.3		4,420.0		547.7
Net income attributable to equity holders of the Company	970.9		1,222.0		1,386.7		3,154.3		2,881.5		357.1
Net income/Earnings per Share	0.35		0.43		0.30		0.66		0.59		0.07
Net income/Earnings per ADS	17.29		21.29		15.1		33.25		29.29		3.63
Operating income per Share	0.51		0.65		0.44		0.99		0.90		0.11
Income from continuing operation per ADS	25.32		32.51		22.16		49.64		45.18		5.60
U.S. GAAP
Net income(4)	1,227.6		1,325.7		1,499.2		3,263.9		2,994.7		371.1
Net income per Share	0.44		0.46		0.33		0.69		0.61		0.08
Net income per ADS	21.86		23.10		16.32		34.40		30.44		3.77
CASH FLOW DATA
IFRS
Net cash provided by operating activities	1,610.2		2,239.7		2,701.2		4,418.4		3,939.3		488.1
Depreciation	819.6		851.1		920.5		958.7		952.1		118.0
Net cash used in investing activities	(1,948.2	)	(2,165.5	)	(1,310.3	)	(2,300.8	)	(2,262.5	)	280.4
Net cash (used in) provided by financing activities	618.0		345.2		(911.4	)	1,075.4		(1,009.3	)	(125.1	)
OTHER FINANCIAL DATA
Income before income tax	1,360.2		1,748.2		1,974.9		4,673.3		4,420.0		547.7
Add: Interest expenses	61.5		117.9		60.0		35.9		24.6		3.0
Less: Interest income	39.9		30.2		17.8		92.7		91.7		11.4
Add: Depreciation and amortisation	827.0		858.5		950.1		994.3		971.9		120.4
EBITDA(5)	2,208.8		2,694.4		2,967.2		5,610.8		5,324.8		659.7
EBITDA margin(6)	45.3	%	42.4	%	42.7	%	53.1	%	46.2	%	46.2	%
OPERATING DATA
Raw coal production (‘000 tonnes)	34,018		38,435		43,279		39,146		34,655		N/A
Net sales (‘000 tonnes)
Domestic	18,369		20,582		25,776		27,988		25,234		N/A
Export	12,666		14,466		13,632		10,016		7,251		N/A
Total	31,035		35,048		39,408		38,004		32,485		N/A
BALANCE SHEET DATA
IFRS
Total current assets	3,221.7		3,873.4		4,430.5		8,319.6		10,951.1		1,357.0
Total current liability	2,047.6		1,662.7		2,372.0		2,545.1		3,429.0		424.9
Net current assets	1,174.1		2,170.7		2,058.5		5,774.5		7,522.1		932.1
Property, plant and equipment	7,479.8		8,276.9		8,616.4		8,537.2		9,318.5		1,154.7
Total assets	11,182.6		12,924.0		13,909.9		18,336.7		21,254.4		2,633.7
Total long-term borrowings	72.5		1,261.3		650.9		441.1		231.8		28.7
Equity attributable to equity holders of the Company	9,060.0		9,995.0		11,083.2		15,523.8		17,618.6		2,183.2
U.S. GAAP
Property, plant and equipment and prepaid lease payment, net	7,176.7		7,271.4		7,785.8		8,073.7		8,851.5		1,096.8
Total assets	11,071.0		11,787.5		12,845.8		17,379.1		20,189.4		2,501.7
Equity attributable to equity holders of the Company	7,668.9		8,858.5		10,019.2		14,519.3		16,699.8		2,069.3
Number of Shares
Domestic Shares	1,850.0		1,850.0		1,850.0		1,850.0		2,960.0		2,960
H Shares (including H Shares represented by ADS)	1,020.0		1,020.0		1,020.0		1,224.0		1,958.4		1,958.4
ADS	20.4		20.4		20.4		24.5		39.2		39.168
Dividend per
Domestic Share/H Share(7)	0.082		0.100		0.104		0.164		0.260		0.032
ADS(8)	4.10		5.00		5.20		8.20		13.00		1.611

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(1) The above financial highlights as of and for the year 2005 represent the data resulting from the consolidation of the financial statements of Yankuang Heze Power Chemical Company Limited (“Heze Nenghua”), Shandong Yanmei Shipping Co. Ltd. (“Yanmei Shipping”), Yanzhou Coal Yulin Power Chemical Co. Limited, Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited. The gross profit, taxes and surcharges resulting from the principal businesses of Yanmei Shipping are calculated as the transportation cost of coal of us. As the sales income, operation results, and assets of Yanmei Shipping have only limited impact on us, they are not separately set out and analyzed in this report. Heze Nenghua, Yanzhou Coal Yulin Power Chemical Co. Limited, Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited are currently in the preparation stage or in the construction stage and have limited impact on our financial results, and hence are not separately set out and analyzed in this report.

(2) Export sales constituted 46.7%, 44.0%, 35.4%, 27.9% and 25.5% of total net revenue in 2001, 2002, 2003, 2004 and 2005, respectively.

(3) Total net revenue is the sum of net sales of coal and railway transportation service income.

(4) The net income for the year ended December 31, 2001 under U.S. GAAP included the loss of Jining III acquired in 2001 using the pooling of interest method. The net income for the years ended December 31, 2001 under U.S. GAAP included the profit of Railway Assets using the pooling of interest method. The net income for the year ended December 31, 2004 and the total assets value and owners’ equity as at December 31, 2004 under U.S. GAAP included the loss and net assets of Heze Nenghua acquired in 2005 using the pooling of interest method.

(5) EBITDA refers to earnings before interest income, interest expense, taxes, depreciation and amortization. EBITDA should not be construed as an alternative to operating income or any other measure of performance or as an indicator of our operating performance, liquidity or cash flows generated by operating, investing and financing activities. The items of net income excluded from EBITDA are significant components in understanding and assessing our financial performance, and EBITDA does not take into account capital expenditures or changes in working capital, which could have a material impact on our operating cash flow. Our computation of EBITDA may not be comparable to other similarly titled measures of other companies. We have included the information concerning EBITDA because management believes it is a useful supplement to cash flow data as a measure of our performance.

(6) EBITDA margin represents EBITDA as a percentage of our total net revenue.

(7) The calculation of Dividend per Domestic Share/H Share is based on the dividend paid in the relevant year and total number of Domestic Shares and H Shares ranking for the dividend.

(8) Dividend per ADS is calculated at 50 times Dividend per Domestic Share/H Share based on one ADS being equivalent to 50 H Shares.

Exchange Rate Information

The following table sets forth, for the periods indicated, the noon buying rates for U.S. dollars in New York for cable transfers payable in Renminbi as certified for customs purposes by the Federal Reserve Bank of New York expressed in Renminbi per U.S. dollar:

	Noon Buying Rate
Period	Period End	Average(1)	High	Low
	(expressed in RMB per U.S.$)
2000	8.2781	8.2784	8.2799	8.2768
2001	8.2766	8.2772	8.2786	8.2709
2002	8.2800	8.2772	8.2800	8.2700
2003	8.2767	8.2771	8.2800	8.2765
2004	8.2765	8.2768	8.2774	8.2764
2005	8.0702	8.1826	8.2765	8.0702
December	8.0702	8.0755	8.0808	8.0702
2006
January	8.0608	8.0654	8.0702	8.0596
February	8.0415	8.0512	8.0616	8.0415
March	8.0167	8.0350	8.0505	8.0167
April	8.0165	8.0143	8.0248	8.0040
May	8.0215	8.0131	8.0300	8.0005
June (through June 22, 2006)	7.9963	8.0060	8.0225	7.9963

Source: The Noon Buying Rate in New York for cable transfers payable in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.

(1) Determined by averaging the rates on the last business day of each month during the respective period, except for monthly averages, which are determined by averaging the rates on each business day of the month.

On June 28, 2006, the noon buying rate for Renminbi was U.S.$1.00 = RMB7.997.

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B. Capitalization and Indebtedness

Not applicable.

C. Reason for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Our business and results of operations are dependent on coal markets, which may be cyclical.

As the majority of our revenue is derived from sales of coal and coal-related products, our business and operating results are substantially dependent on the domestic and international demand for coal. The domestic and international coal markets are cyclical and exhibit fluctuation in supply and demand from year to year and are subject to numerous factors beyond our control, including, but not limited to, the economic conditions in the PRC, the global economic conditions and fluctuations in industries with high demand for coal, such as the power and steel industries. Fluctuations in supply and demand for coal have effects on coal prices which in turn affect our operating and financial performance. We have experienced substantial price fluctuations in the past and believe that such fluctuations will continue. The average selling price of our coal products per tonne was RMB172.4 in 2003, RMB272.3 in 2004 and RMB349.5 in 2005. The demand for coal is primarily affected by the overall economic development and the demand for coal from the electricity generation, steel and construction industries. The supply of coal on the other hand, is primarily affected by the geographical location of the coal supplies, the volume of coal produced by the domestic and international coal suppliers, and the quality and price of competing sources of coal. Alternative fuels such as natural gas, oil and nuclear power, alternative energy sources such as hydroelectric power, and international shipping costs also have effects on the market demand for coal. Excess supply of coal or significant reduction in the demand for our coal by the foreign or domestic electricity generation or steel industries may have an adverse effect on coal prices which would in turn cause a decline in our profitability. In addition, any significant decline in domestic or export coal prices could also materially and adversely affect our business and result of operations.

Our business relies on our major customers.

Prior to 2004, Shandong Power and Fuel Company was our largest domestic customer. For the year ended December 31, 2003, our sales to Shandong Power and Fuel Company accounted for 11.3% of our total net sales in 2003. The Shandong Power and Fuel Company had in the past purchased coal on behalf of several electric power plants in Shandong Province, including Zouxian Electric Power Plant. The Shandong Power and Fuel Company ceased to act as the central procurement center for coal on behalf of Zouxian Electric Power Plant and other electric power plants in Shandong Province after its restructuring at the end of 2003 and ceased to be our largest domestic customer.

For the year ended December 31, 2004 and 2005, Huadian Power International Corporation Limited (“Huadian”) replaced Shandong Power and Fuel Company and became our largest domestic customer. For the years ended December 31, 2004 and 2005, we supplied a total of 4.9 million and 5.6 million tonnes, representing 9.2% and 13.4% of our total net sales in 2004 and 2005, to our largest domestic customer. A substantial portion of Huadian’s coal purchases was supplied to Zouxian Electric Power Plant. Our sales of coal to Zouxian Electric Power Plant accounted for 9.6%, 9.5% and 13.2% of our total net sales in 2003, 2004 and 2005, respectively.

The Zouxian Electric Power Plant’s total coal requirements were approximately 6.6 million tonnes in 2005. We estimated that we supplied approximately 77.0%, 92.3% and 83.6% of the Zouxian Electric Power Plant’s coal requirements in 2003, 2004 and 2005, respectively. We believe we are likely to remain the

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Zouxian Electric Power Plant’s principal coal supplier because (i) we are located within close proximity to the Zouxian Electric Power Plant, (ii) the Zouxian Electric Power Plant is unable to receive railway shipments of coal other than through our own railway network and (iii) the Zouxian Electric Power Plant’s boilers were designed to use our coal. Given the large percentage of our revenues derived from the supply of coal to the Zouxian Electric Power Plant, any adverse developments at the Zouxian Electric Power Plant could have an adverse impact on our results of operations.

We do not have direct export rights.

Currently, we do not have direct export rights. As a result, all of our export sales must be made through intermediary export sales companies. We use export sales service provided by the following three companies: China Coal Energy Group Company, China National Minerals Import and Export Company Limited and Shanxi Coal Import and Export Group Company (collectively, the “Export Sales Companies”). The quantity, quality, prices and final customer destination of our export sales are determined by us, the Export Sales Companies and overseas coal purchasers. As a result, we do not directly control matters such as port storage, loading, unloading and shipping processes. Although we are in the process of applying to the PRC central government, with the assistance of the Shandong provincial government, for direct export rights, there can be no assurance that we can obtain such rights. If we cannot obtain such direct export rights, we will have to continue reply on the intermediary export sales companies to export our coal. In addition, as export sales represent a significant percentage of our total sales, any material changes in the international coal market could adversely affect our export sales and results of operations.

Our business relies on short-term sales contracts and letters of intent.

The PRC government undertook measures in recent years to introduce market-oriented mechanisms to the coal sale and purchase process, including for example, abolishing government-devised pricing guidance for thermal coal and other temporary price intervention measures and permit the suppliers and buyers to determine pricing through discussions. Major domestic coal suppliers and coal purchasers attend the Annual National Coal Trading Convention to negotiate and discuss the price and quantity of coal to be supplied and purchased for the coming year through the signing of letters of intent and short- and long-term supply contracts. Approximately 86.0%, 88.5% and 87.0% of our sales in 2003, 2004 and 2005, respectively, were derived from such sales contracts and letters of intent. These sales contracts and letters of intent generally specify the quantities and timing of purchases planned over a time period generally no longer than one year. Prices with respect to purchases made under the letters of intent are generally determined at the time of sale based on mutual agreement between us and the relevant customers. Such letters of intent may not be enforceable due to their omission of certain material terms. In addition, the PRC government also adopted measures to ensure adequate allocation of railway transportation capacity to major coal suppliers and buyers and to improve market efficiency by permitting direct negotiation between the suppliers and buyers.

In the past, we and our customers have completed the majority of the transactions contemplated under such letters of intent. However, a sudden and significant increase in the proportion of unrealized sales could have a material adverse impact on our results of operations. Furthermore, as the price of coal sold pursuant to such letters of intent is generally determined at the time of sale, any significant downturn in the market price of coal could have an immediate and adverse impact on our results of operations.

Our product delivery relies on the PRC’s railway transportation system.

Approximately 60.1%, 60.0% and 53.6% of our total net sales in 2003, 2004 and 2005, respectively, were derived from sales of coal transported by the PRC’s national railway system (excluding coal sold to the Zouxian Electric Power Plant, which were transported entirely by and within our own railway network). As the railway system has limited transportation capacity and cannot fully satisfy coal transportation requirements, discrepancies between capacity and demand for transportation exist in certain areas of the PRC. Currently, our domestic customers are mainly located in Eastern China, where the railway system is relatively advanced. We generally utilize the national rail system to transport coal to our customers as well as major coal shipping ports in the eastern coast of China for transshipping to customers in the coastal region of China and overseas. No assurance can be given that we will continue to be allocated adequate railway transport capacity or acquire adequate rail cars, or that we will not experience any material delay in transporting our coal as a result of insufficient railway transport capacity or rail cars.

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The coal reserve data in this annual report are only estimates.

The coal reserve data provided by us are only estimates which may differ materially from the actual in-place proven and probable reserves. Our reserves estimates may change substantially if new information subsequently becomes available. There are inherent uncertainties in estimating reserves, including many factors, assumptions and variables involved in estimating reserves that are beyond our control. Our actual results of operations may differ materially from our long-term business and operational plans derived based on the estimated coal reserve data. We can not assure you that we will not adjust our coal reserve estimates in the future, and in such event, our results of operations may be materially and adversely affected.

Competition in the PRC and the international coal industry is increasing and our business and prospects will be adversely affected if we are not able to compete effectively.

We face competition in all areas of our business. Competition in the coal industry is based on many factors, including price, production capacity, coal quality and characteristics, transportation capability and costs, blending capability and brand name. Our coal business competes in the domestic and international markets with other large domestic coal producers and certain major international coal mining companies. Some of our overseas competitors may have greater financial, marketing, distribution and other resources than we do, and more well-known brand names in the international markets. We currently compete favorably on the quality of our coal products. However, there can be no assurance that we will continue to compete favorably due to quality improvements by our competitors. Although we believe that we compete favorably with respect to transportation capability and costs, due to insufficient rail capacity for the transportation of coal from Shanxi Province and the Inner Mongolia Autonomous Region (where our principal competitors are located) to Eastern China (where demand for coal has been most strong) and the significant costs incurred in transporting coal from these regions to Eastern China, improvements in the PRC national rail network will reduce our competitive advantage in transportation. For example, the PRC Government is planning to construct additional railways to transport coal from Northern and Northwestern China to Eastern China. Accordingly, the completion of these projects may increase the supply of coal available to customers in Eastern China, which may have a material adverse impact on our results of operations.

Our operations may be affected by uncertain mining conditions.

As with all underground coal mining companies, our operations are affected by mining conditions such as a deterioration in the quality or thickness of faults and/or coal seams, pressure in mine openings, presence of gas and/or water inflow and propensity to spontaneous combustion, as well as operational risks associated with industrial or engineering activity, such as mechanical breakdowns. Although we have conducted geological investigations to evaluate such mining conditions and adapt our mining plans to address them, there can be no assurance that the occurrence of any adverse mining conditions would not result in an increase in our costs of production, a reduction of our coal output or the temporary suspension of our operations.

Underground mining is also subject to certain risks such as methane outbursts, and accidents caused by roof weakness and groundfalls. There can be no assurance that the occurrence of such events or conditions would not have a material adverse impact on our business and results of operations.

Results of our operations depend on our ability to acquire or develop new coal mines or coal reserves.

Our recoverable coal reserves decline as we produce coal. As we can only increase our existing production capacity by a limited amount, the future increase in our coal production will depend on our acquisition of new coal reserves, development of new mines or the expansion of our existing coal mines.

We acquired Jining III Coal Mine and Southland Colliery in 2001 and 2004, respectively. In 2005, we further acquired 95.67% of the equity interest in Heze Nenghua from our Parent Company and are currently developing Zhaolou Coal Mine in Juye Coal Field and other new mining projects in Shaanxi Province. However, we can not give any assurance that we will be able to continue identifying suitable targets in the PRC or abroad for acquisition or acquire suitable targets on competitive terms. Nor can we assure you that we will be able to successfully develop new coal mines or expand our existing ones in accordance with our development proposal or at all. Our failure to timely or successfully acquire suitable target on competitive terms, or to successfully complete the development of new coal mines or to expand our existing coal mines could have an adverse effect on our financial condition and results of operation.

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The acquisition and/or the development of new mines in the PRC and overseas requires approval of the PRC government. Delay or failure in securing the relevant PRC government approvals or permits as well as any adverse change in government policies may cause a significant adjustment to our development and acquisition plans, which may materially adversely affect our profitability and growth prospects. In addition, we could encounter unforeseen problems due to our unfamiliarity with local laws and regulations, or suffer foreign exchange losses in connection with overseas investments. We cannot assure you that our overseas expansion or investments will be successful.

We may suffer losses resulting from industry-related accidents and lack of insurance.

We operate coal mines and related facilities that may be affected by water, gas, fire or structural problems. As a result, we, like other coal mining companies, have experienced accidents that have caused property damage and personal injuries. Although we have implemented safety measures for our production facilities and provided on-the-job training for our employees, and, we have in accordance with relevant laws set aside approximately 2.0% of employees’ total remuneration for employees’ injury insurance, there can be no assurance that industry-related accidents will not occur in the future.

We do not currently maintain fire, casualty or other property insurance covering our properties, equipment or inventories, other than with respect to vehicles. In addition, we do not maintain any business interruption insurance or any third party liability insurance to cover claims in respect of personal injury, property or environmental damage arising from accidents on our properties, other than third party liability insurance with respect to vehicles. Any uninsured losses and liabilities incurred by us could have a material adverse effect on our financial condition and results of operations.

We may be required to allocate additional funds for land subsidence.

A consequence of the underground mining methods used at our mines is land subsidence above underground mining sites. Depending on the circumstances, we may relocate inhabitants from the land above the underground mining sites prior to mining those sites or we may compensate the inhabitants for losses or damages from land subsidence after the underground sites have been mined. We may also be required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined. An estimate of such costs is recognized in the period in which the obligation is identified and is charged as an expense in our income statement in proportion to the coal extracted. The payment for such costs is funded from working capital. The amount charged to income statements in 2005 amounted to RMB636.6 million. The provision for land subsidence, restoration, rehabilitation and environmental costs has been determined by the directors based on the past occurrences of land subsidence. However, the provision is only an estimate. The estimate of the costs for restoration, rehabilitation or environmental protection of the land may be subject to change in the future as the actual costs become apparent and standards established by the PRC Government change from time to time. Therefore, there can be no assurance that such estimates are accurate or that our restoration, rehabilitation and relocation costs will not substantially increase in the future or that the PRC Government will not impose new fees in respect of land subsidence. Any such substantial increases or new fees could have a material adverse effect on our results of operations.

Our business operations may be adversely affected by present or future environmental regulations.

As a producer of coal products, we are subject to significant, extensive, and increasingly stringent environmental protection laws and regulations in China. These laws and regulations:

• impose fees for the discharge of waste substances;

• require the establishment of reserves for reclamation and rehabilitation;

• require the payment of fines for serious environmental offences; and

• allow the PRC Government, at its discretion, to close any facility that fails to comply with orders requiring it to correct or stop operations causing environmental damage.

Our coal mining operations produce significant amounts of waste water, gas and solid waste materials. Currently, the PRC Government is moving toward more rigorous enforcement of applicable laws and regulations as well as the adoption and enforcement of more stringent environmental standards. Our budgeted amounts of capital expenditure for environmental regulatory compliance may not be sufficient and we may need to allocate additional funds for such purpose. If we fail to comply with current or future

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environmental laws and regulations, we may be required to pay penalties or fines or take corrective actions, any of which may have a material adverse effect on our business operations and financial condition.

In addition, China is a signatory to the 1992 United Nations Framework Convention on Climate Change and the 1997 Kyoto Protocol, which are intended to limit emissions of greenhouse gases. Efforts to control greenhouse gas emission in China could result in reduced use of coal if power generators switch to sources of fuel with lower carbon dioxide emissions, which in turn could reduce the revenues of our coal business and have a material adverse effect on our results of operations.

New quotas for coal exports in the PRC may adversely affect the amount of our coal exports.

Export sales of coal accounted for 36.2%, 28.5% and 25.8% of our net sales of coal in 2003, 2004 and 2005, respectively. Average selling prices for export coal sales are generally higher than average selling prices for domestic sales. In 2005, average selling prices for export sales were RMB404.3 per tonne, compared to average selling prices for domestic sales of RMB333.7 per tonne.

In January 2004, the PRC Government promulgated new regulations, entitled “Measures for the Administration of Quotas for Coal Export,” which take effect on July 1, 2004. Under the new regulations, the National Development and Reform Commission and the Ministry of Commerce will be responsible for determining the total volume of the PRC’s export quota of coal and allocating the quota among the authorized coal exporters. Under the regulations, the National Development and Reform Commission and the Ministry of Commerce are required to announce the total export quota available for each fiscal year by not later than October 31 of the prior year. After the total available export quota has been announced, the National Development and Reform Commission and the Ministry of Commerce will accept written applications from authorized coal exporters for allocation of specific export quotas for the following year.

The new regulations did not have a material adverse effect on our export sales in 2004 and 2005 as our export agents have consistently receive export quota sufficient to satisfy our export volume. However, we are unable to predict what impact, if any, they may have on the level of our export coal sales for 2006 and later years. Article 10 of the regulations provides that, in determining the allocation of specific quotas to authorized coal exporters, the National Development and Reform Commission and the Ministry of Commerce will refer to the exporters’ respective coal export performances in the previous year. We have been one of the largest coal exporters in China. For the years ended December 31, 2003, 2004 and 2005, our export sales of coal accounted for approximately 14.5%, 11.6% and 10.2%, respectively, of the total coal export sales in China during the same period. Although our export sales have not been affected by the new regulations, if national coal exports are reduced, the level of our export sales in future periods could be affected, which in turn could adversely affect our results of operations.

Our Parent Company may have a significant influence on us.

As at March 31, 2006, the Parent Company owned 52.86% of our outstanding shares. Our Articles of Association provide that, in addition to any obligation imposed by law, a controlling shareholder shall not exercise its voting rights in a manner prejudicial to the interests of the shareholders generally, including voting with respect to certain enumerated matters of fundamental importance to shareholders.

In addition to being our majority shareholder, the Parent Company also provides certain materials, utilities and services to us pursuant to the materials and services supply agreement dated October 17, 1997 between us and the Parent Company (as amended by supplemental agreements dated October 30, 2001 and May 29, 2003). Pursuant to the regulations of Hong Kong Stock Exchange and Shanghai Stock Exchange on on-going connected transactions and the operation developments of us and the Parent Company, we completed the review of its on-going connected transactions as required by law and entered into six new on-going connected transaction agreements (“New On-going Connected Transaction Agreements”) with the Parent Company in the first quarter 2006. It also determined the caps on the connected transactions for each New On-going Connected Transaction Agreements in each year (“the Annual Caps”) from 2006 to 2008. For details of the New On-going Connected Transactions, please see “Item 7 — Related Party Transaction.” Any material financial or operational problems experienced by the Parent Company leading to disruption of its operations could materially affect our operations and future prospects.

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Our operations are subject to a number of risks relating to the PRC.

We are also subject to a number of risks relating to the PRC, including the following:

• The central and local PRC governments continue to support the development and operation of coal industry in China. If the PRC Government changes its current policies that are currently beneficial to us, we may face significant constraints on our flexibility and ability to expand our business operations or to maximize our profitability.

• Under current PRC regulatory requirements, our projects for the development of new coal mines require PRC Government approval. If any of our important projects required for our growth or cost reduction are not approved, or are not approved on a timely basis, our financial condition and operating performances could be adversely affected.

• The PRC Government has been reforming, and is expected to continue to reform its economic system. Many of the reforms are unprecedented or experimental, and are expected to be refined and improved. Other political, economic and social factors can also lead to further readjustment of the reform measures. This refining and readjustment process may not always have a positive effect on our operations. Our operating results may be adversely affected by changes in the PRC’s economic and social conditions and by changes in policies of the PRC Government such as changes in laws and regulations (or the interpretation thereof), imposition of additional restrictions on currency conversion and reduction in tariff protection and other import restrictions.

• Since 1994, the conversion of Renminbi into foreign currencies, including Hong Kong and U.S. dollars, has been based on rates set by the People’s Bank of China, or PBOC, which are set daily based on the previous day’s PRC interbank foreign exchange market rate and current exchange rates on the world financial markets. Since 1994, the official exchange rate for the conversion of Renminbi to U.S. dollars has generally been stable. On July 21, 2005, however, PBOC announced a reform of its exchange rate system. Under the reform, Renminbi is no longer effectively linked to US dollars but instead is allowed to trade in a tight 0.3% band against a basket of foreign currencies. Any further appreciation of Renminbi in the future will increase the cost of our export sales, reduce our account receivables denominated in foreign currencies and adversely affect our financial condition and results of operations. On the other hand, any devaluation of the Renminbi may adversely affect the value of, and dividends payable on, our H shares and ADSs in foreign currencies since we receive our revenues and denominate our profits in Renminbi. Our financial condition and operating performance may also be affected by changes in the value of certain currencies other than Renminbi in which our earnings and obligations are denominated. In particular, a devaluation of the Renminbi is likely to increase the portion of our cash flow required to satisfy our foreign currency-denominated obligations.

• Since 1997, many new laws and regulations covering general economic matters have been promulgated in the PRC. Despite this activity to develop the legal system, PRC’s system of laws is not yet complete. Even where adequate law exists, enforcement of existing laws or contracts based on existing law may be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of PRC’s judiciary in many cases creates additional uncertainty as to the outcome of any litigation. In addition, interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes.

Our coal operations are extensively regulated by the PRC Government and government regulations may limit our activities and adversely affect our business operations.

Our coal operations, like those of other PRC energy companies, are subject to extensive regulation established by the PRC Government. Central governmental authorities, such as the National Development and Reform Commission, the State Environmental Protection Administration, the Ministry of Land and Resources, the State Administration of Coal Mine Safety, the and the State Bureau of Taxation, and provincial and local authorities and agencies exercise extensive control over various aspects of China’s coal mining and transportation (including rail and sea transport). These controls affect the following material aspects of our operations:

• exploration, exploitation and mining rights and licensing;

• rehabilitation of mining sites after mining is completed;

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• recovery rate requirements;

• pricing of our transport services;

• industry-specific taxes and fees;

• target of our capital investments;

• export quotas and procedures;

• pension funds appropriation;

• waivers of certain import tariffs on our supplies; and

• environmental and safety standards.

We may face significant constraints on our ability to implement our business strategies or to carry out or expand our business operations. Our business may also be materially and adversely affected by future changes in certain regulations and policies of the PRC Government in respect of the coal industry. New legislation or regulations may be adopted that may materially and adversely affect our coal operations, our cost structure or the demand for our products. In addition, new legislation or regulations or different or more stringent interpretation of existing laws and regulations may also require us to substantially change our existing operations or incur significant costs.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

We, Yanzhou Coal Mining Company Limited, were established on September 25, 1997 as a PRC joint stock company with limited liability under the Company Law of the PRC (the “Company Law”). The Predecessor, formerly known as Yanzhou Mining Bureau, was established in 1973. In 1996, upon receipt of approval from the former State Economic and Trade Commission and the former Ministry of Coal Industry (“MOCI”), the Predecessor was incorporated and renamed Yanzhou Mining (Group) Corporation Limited and subsequently renamed as Yankuang Group Corporation Limited after reorganization in 1999.

In April 2001, we were approved by the Minister of Foreign Trade and Economic Cooperation, the predecessor of the Ministry of Commerce, to convert from a joint stock company with limited liability to a Sino-foreign joint stock company with limited liability under the Company Law and the Sino-Foreign Joint Venture Law of the PRC. Our H Shares accounted for 39.82% of our outstanding shares as of December 31, 2005.

Our contact information is:

• Business address:        298 Fushan South Road, Zoucheng, Shandong Province, PRC

• Telephone number:    (86) 537 538 2319

• Website:                     http://www.yanzhoucoal.com.cn/mygsbak/index.asp

We principally engage in underground mining, preparation and sale of coal, and railway coal transportation. We were one of the largest coal producers in Eastern China with raw coal production of approximately 34.7 million tonnes in 2005. We were also one of the largest coal exporters in the PRC in terms of sales volume with approximately 7.3 million tonnes in export sales in 2005.

We have six coal mines located in China: Nantun Mine, Xinglongzhuang Mine, Baodian Mine, Dongtan Mine, Jining II Mine and Jining III Mine, which commenced production in 1973, 1981, 1986, 1989, 1997 and 2000, respectively. As of December 31, 2005, our six domestic coal mines had a total in-place proven and probable reserve of approximately 1968.4 million tonnes.

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In 2004, we acquired the entire interest in the Southland coal mine located in New South Wales of Australia (“Southland”) from independent third parties and completed the transfer on December 24, 2004. We subsequently renamed Southland coal mine as Austar Coal Mine. We have also established two wholly-owned subsidiaries in Australia, namely Yancoal Australia Pty Limited (“Yancoal”) and Austar Coal Mine Pty Limited (“Austar”), in 2004 for our future operations of Southland. We expect to complete the upgrade of the coal mining and production system as well as the testing and commissioning of the relevant coal mining and production system in Austar Coal Mine and to begin production in the third quarter of 2006.

In 2005, we acquired 95.67% equity interest in Yankuang Heze Power Chemical Company Limited (“Heze Nenghua”) from the Parent Company. The principal activities of Heze Nenghua are to conduct the initial mining preparation of the Zhaolou, Wanfu and other coal mines at the Juye Coalfield including obtaining the approvals for the coal mine projects, applying for the necessary exploration rights for coal and preparing for the construction of the coal mines. As at December 31, 2005, Heze Nenghua has commenced construction works for the Zhaolou coal mine. Pursuant to a supplemental agreement dated June 28, 2005 entered between us and the Parent Company, the Parent Company irrevocably undertook that we shall have the right to acquire the mining rights of Zhaolou coal mine and Wanfu coal mine from the Parent Company within twelve months from the respective dates on which such mining rights are obtained by the Parent Company for a consideration to be determined based on valuations conducted by independent qualified PRC valuers. The valuations should also be endorsed by the applicable PRC government authorities.

We have successfully developed a mechanized comprehensive caving method and have developed mining equipment suitable for medium to thick coal seam extraction. The patented mechanized comprehensive caving method is one of the most advanced mining technologies in the world. We continue to improve our proprietary caving method for internal use or license to third party mining companies.

The location of a coal mine affects its competitiveness due to the significant costs of coal transport. We believe that our mines are well-situated given the rapid economic growth of Eastern China, the insufficient supply of coal produced in this region and the substantial costs involved in transporting coal to Eastern China from major coal-producing provinces such as Shaanxi Province, Shanxi Province and Inner Mongolia Autonomous Region. In 2003, 2004 and 2005, 35.2%, 47.4% and 49.5%, respectively, of our total net sales were derived from sales to customers within Shandong Province. Our largest end-user, Huadian’s Zouxian Electric Power Plant, accounted for 9.6%, 9.5% and 13.2% of our total net sales in 2003, 2004 and 2005, respectively. Net sales to customers located in the rapidly growing Yangtze delta region, encompassing Shanghai Municipality, Jiangsu Province and Zhejiang Province, were 20.3%, 16.9% and 15.1% of our total net sales in 2003, 2004 and 2005, respectively. Exports, principally to Japan, accounted for 35.4%, 27.9% and 25.5% of our total net sales in 2003, 2004 and 2005, respectively. We did not record any sales from Austar Coal Mine for this reporting period as it was still under reconstruction and upgrade.

The principal coal reserves in our mines consist of prime quality, low-sulphur coal, capable of yielding a product with an ash content as low as 6%. We sell thermal coal, which is suitable for large-scale electric power generation, as well as semi-soft coking coal, which is used in metallurgical production. Our primary customers include electric power plants and metallurgical mills located in Eastern China and the areas along the Beijing-Hangzhou Grand Canal, which are generally more economically developed than other areas of China, and foreign enterprises located in East Asia. Of our total net sales in 2003, 2004 and 2005, 20.5%, 20.1% and 20.4%, respectively, were sales to PRC electric utility customers, with the remainder representing sales principally to metallurgical companies, chemical manufacturing companies and fuel supply companies. Our major domestic customers include Huadian, Shandong Luneng, Shanghai Baosteel Group Corporation and Dongguan Shijie Fuel Company. Relationships between us and our key customers are stable.

In 2005, we generated total net sales and net income attributable to equity holders of the Company of RMB11,516.9 million and RMB2,881.5 million, respectively.

Share Reform Plan

As background, beginning in May 2005, the PRC government and the PRC securities regulatory and supervisory authorities started to implement share reforms for shares of domestically listed companies in the PRC in order to eliminate the split share treatment of shares of listed companies in the PRC. Under such split share system, domestic shares are either tradable or non-tradable. In adopting the share reforms, the PRC government and the PRC securities regulatory and supervisory authorities have implemented an interest-balanced mechanism between the holders of non-tradable shares and tradable shares. Pursuant to the share reform policies in the PRC, holders of non-tradable shares could, subject to approvals by the relevant government authorities and consents by the holders of domestically listed and tradable shares, convert their non-tradable shares into shares freely tradable on the domestic stock exchanges in the PRC. In return for approving such share conversion, the holders of the tradable shares will receive certain numbers of shares and relevant commitments made by holders of non-tradable shares. Upon consummation of the share reforms, all non-tradable shares, issued in the PRC, of PRC domestically listed companies will be freely tradable on the PRC domestic stock exchanges.

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We have tradable shares issued in the PRC, or A Shares, which are listed on the Shanghai Stock Exchange as well as non-tradable shares which are held by our Parent Company, our controlling shareholder. We also have overseas listed foreign invested shares, or H Shares, which are listed on the Hong Kong Stock Exchange as well as ADSs, representing the H Shares, which are listed on the New York Stock Exchange. At present or under the PRC government policies, the A Shares and the non-tradable shares issued in the PRC are a separate class of shares and at present are not freely convertible into H Shares or ADSs. Pursuant to relevant regulations relating to share reforms in the PRC and the relevant securities laws and regulations, the share reform plan only involves the tradability of non-tradable shares into tradable shares in the PRC and the only shareholders who are entitled to participate in the shareholders’ meeting to approve the proposed share reform plan proposed by our Parent Company are the Holders of A shares and our Parent Company.

Our share reform plan was implemented on March 31, 2006. Our Parent Company paid a consideration of 2.5 non-tradable shares to each Holder of A Shares for every ten A Shares held by such Holder of A Shares whose name appeared on the register of member of A Shares on March 30, 2006 in exchange for the right to list and trade the non-tradable shares of the Parent Company on the Shanghai Stock Exchange. Our Parent Company did not offer similar consideration to the Holders of H Shares and Holders of ADSs of the Company. For more details of the changes of our shareholding structure as a result of implementation of the share reform plan, see “Item 9 – Offering and Listing.”

In addition to the statutory undertakings, our Parent Company also undertook that (1) the original non-tradable Shares held by the Parent Company would be subject to a trading moratorium of 48 months from the date of the implementation of the share reform plan; (2) it will, in accordance with the relevant governmental procedures, assign part of its operations including coal and electricity operations together with new projects which are in line with our Company’s development strategies to us in 2006 and support our Company in the implementation of such assignment to enhance the operational results of the Company and to minimize the connected transaction and competition between Yankuang Group and us. We will be invited to invest in the coal liquefaction project which is being developed by Yankuang Group for co-development; and (3) all related expenses arising from the share reform plan would be borne by our Parent Company.

Our assets, liabilities, ownership interest, total share capital and net profit remain unchanged upon implementation of the share reform plan.

Capital Expenditures / Recent Developments

Our principal sources of cash have been cash from operations, the proceeds from issuance of new Shares and bank loans. Our principal capital expenditures have been for the acquisition of property, plant and equipment. During 2003, 2004 and 2005, our total capital expenditures were RMB1,328.1 million, RMB1,057.5 million and RMB1,290.5 million, respectively. For more information, please see “Item 5 – Operating and Financial Review and Prospects – B. Liquidity and Capital Resources.”

We commenced the reconstruction, expansion of production capacity and technology upgrade at Austar Coal Mine in 2005 and we expect to resume production at the Austar Coal Mine in the third quarter of 2006. The reconstruction, expansion and technology upgrade at the Austar Coal Mine is expected to cost approximately AUD161.0 million. As of December 31, 2005, we have spent an aggregate total of approximately AUD76.6 million on the reconstruction, expansion and technology of Austar Coal Mine. For more details of Austar Coal Mine, see “– D. Property, Plants and Equipment – Austar Coal Mine.” On December 31, 2005, the noon buying rate for AUD was U.S.$1.00 = AUD0.7342.

We also commenced the construction at Zhaolou Coal Mine in 2004 and we expect to complete the construction of the Zhaolou Coal Mine in December 2007. The construction at the Zhaolou Coal Mine is expected to cost approximately RMB 2,364.7 million and we have spent an aggregate total of approximately

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RMB476.6 million on the construction and development of Zhaolou Coal Mine as at December 31, 2005. For more details of Zhaolou Coal Mine, see “—D. Property, Plants and Equipment—Zhaolou Coal Mine.”

B. Business Overview

Principal Products and Services

We are engaged in underground mining, preparing and selling coal and provision of railway transportation services.

Coal Production

We produce prime quality, low-sulphur coal capable of yielding a product with an ash content as low as 6%. Our products consist principally of thermal coal, which is suitable for large-scale electric power generation, as well as semi-soft coking coal, which is used in metallurgical production. The following table sets out the ash and sulphur content, calorific value and principal applications of the various types of coal produced by us:

	Sulphur content	Ash Content	Calorific Value	Washed	Principal Application
	%	%	(megajoule/ kilogram)
No.1 Clean Coal	0.4	7-8 average 7.6	26-28 average 27.6	Yes	High-quality metallurgical production
No.2 Clean Coal	0.5	8-10 average 9.6	26-28 average 26.8	Yes	Metallurgical production; construction; production of liquidize coal
No.3 Clean Coal	0.6	9-16 average 13	24-26 average 25.3	Yes	Metallurgical production; electric power generation; coal chemical production
Lump Coal	0.6	12-14 average 13	25-26 average 25.5	Yes	Construction; power generation; coal for oven application
Screened Raw Coal	0.6	18-27 average 20.3	24-26 average 25.3	No	Power generation
Mixed Coal	0.6	22-30 average 29.3	18-22 average 20.1	Yes	Power generation

The following table sets out our principal coal products based on sales volume and net coal sales in the years ended December 31, 2003, 2004 and 2005.

	Year Ended December 31,
	2003		2004		2005
	Sales Volume	Net Sales	Sales Volume	Net Sales	Sales Volume	Net Sales
	(‘000 tonnes)	(RMB million)	(‘000 tonnes)	(RMB million)	(‘000 tonnes)	(RMB million)
No. 1 Clean Coal	513.8	128.2	631.3	220.5	773.9	398.0
No. 2 Clean Coal	6,729.2	1,287.6	6,329.2	2,013.5	5,084.5	2,499.1
No. 3 Clean Coal	11,952.7	2,126.3	11,861.9	3,484.0	11,183.0	4,143.8
Lump Coal	583.4	130.3	752.3	284.3	485.5	209.9
Screened Raw Coal	13,937.5	2,499.4	14,936.6	3,867.5	10,805.4	3,478.1
Mixed Coal and others	5,690.9	622.5	3,492.6	484.5	4,152.1	624.7
Total	39,407.5	6,794.3	38,003.9	10,354.3	32,484.5	11,353.5

Our coal production in 2005 was approximately 34.7 million tonnes, a decrease of 4.5 million tonnes or 11.5%, as compared with our production for the same period in 2004. The decrease was mainly due to the delay in relocation of certain villages located within the coal fields of our Company. Because we had to relocate these 6 villages, 6 of our 12 coal production systems including long-wall workfaces and other mining equipment did not maintain normal productivity in the third quarter of 2005. Upon the relocation of 2 villages in the fourth quarter of 2005, 3 coal production systems have resumed normal productivity. The remaining 4 villages were relocated in the first quarter of 2006, 6 of our coal production systems have resumed their normal productivity in April 2006.

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Railway Transportation Services

Our local railway transportation network (the “Railway Assets”) consists of a total of 184 kilometers of track connecting our coal mines with the national railway system, nearby distribution points and in some cases, directly with large customers’ facilities. Ownership of the railway network enables us to charge customers for transportation, and thereby achieve a return on our investment in the Railway Assets; to enhance cost controls by increasing coordination of coal production, transportation and sales; and to assume a greater degree of control over transportation of our coal, which is especially important during the peak seasons.

We offer railway transportation services to third parties, including the Parent Company. In 2005, we transported a total of 20.2 million tonnes of goods, representing an decrease of 10.1 million tonnes, or 33.4%, as compared with that of 2004. External sales of our railway transportation services represent the amount charged to customers for the transportation of coal purchased on an ex-mine basis, where the customer pays the cost of transportation. External sales from our railway transportation service in 2005 was RMB163.4 million, representing an decrease of RMB57.3 million, or 26%, as compared with that of 2004 due primarily to decrease in total coal sales.

Sales and Marketing

Consistent with PRC coal industry practice, a substantial portion of our sales is made pursuant to sales contracts and letters of intent signed during the annual national coal trading convention. These sales contracts and letters of intent generally specify the quantities and timing of purchases planned over a time period generally no longer than one year. Prices with respect to purchases made under the letters of intent are generally determined at the time of sale. The remaining portion of our sales are made to customers who have further demand.

We have a flexible credit policy for different categories of customers. Depending upon the customer, we may allow open accounts, or require acceptance bills, and delivery against cash. Generally, we extend credit (generally for periods not exceeding 180 days) to major customers with long-term relationships and require other customers to pay for their products before delivery.

Most of our domestic coal sales are made to electric power plants, metallurgical mills, chemical engineering companies, and fuel trading companies. Over the years, we have established long-term and stable relationships with many of these companies. In addition, we sell some of our coal to overseas customers. Our export sales are made through Export Sales Companies. According to the export sales agency contracts, we pay agency fees to the agents, who in turn enter into export sales contracts on our behalf with foreign customers. We are currently in the process of applying to the PRC central government, with the assistance of the Shandong provincial government, for direct export rights. If we are successful in securing direct export rights, we will be able to negotiate and reach agreements directly with foreign customers.

Effective from January 1, 2004, the VAT export refund for export sales of our coal products decreased to 11% from 13%. The VAT export refund further decreased to 8% effective from May 1, 2005. The decrease in VAT export refund for export coal sales will in turn increase the cost of our export sales.

Net coal sales represent the invoiced value of coal sold and is net of returns, discounts, sales taxes and transportation costs if the invoiced value includes transportation costs to the customers. Sales taxes consist primarily of a resource tax, which was increased to RMB3.60 from RMB2.40 per tonne of the imputed quantity of raw coal sold effective from May 1, 2005. Sales taxes are paid to the local tax bureau.

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The following table sets out our net coal sales by our customers’ industries for the years ended December 31, 2003, 2004 and 2005:

	Year Ended December 31,
	2003		2004		2005
	Net Sales	% of Net Coal Sales	Net Sales	% of Net Coal Sales	Net Sales	% of Net Coal Sales
	(RMB million)		(RMB million)		(RMB million)
Domestic Sales
Electric power plant	1,421.4	20.9	2,121.5	20.5	2,357.6	20.8
Metallurgical mills	294.9	4.3	656.9	6.3	811.4	7.1
Construction material and chemical manufacturers	329.8	4.9	784.1	7.6	686.2	6.0
Fuel trading companies and others	2,291.0	33.7	3,844.5	37.1	4,566.2	40.3
Subtotals of Domestic Sales	4,337.1	63.8	7,407.0	71.5	8.421.5	74.2
Exports
Electric power plant	1,226.6	18.1	1,683.8	16.3	967.6	8.5
Metallurgical mills	1,135.8	16.7	1,208.1	11.7	1,952.0	17.2
Others	94.8	1.4	55.4	0.5	12.4	0.1
Subtotals of Exports	2,457.2	36.2	2,947.3	28.5	2,932.0	25.8
Total	6,794.3	100.0	10,354.3	100.0	11,353.4	100.0

Our domestic coal sales are concentrated in Eastern China, particularly in Shandong Province. The following table sets out our net coal sales by geographic region for the years ended December 31, 2003, 2004 and 2005:

	Year Ended December 31,
	2003		2004		2005
	Net Sales	% of Net Coal Sales	Net Sales	% of Net Coal Sales	Net Sales	% of Net Coal Sales
	(RMB million)		(RMB million)		(RMB million)
Domestic Sales
Eastern China
Shandong Province	2,443.7	36.0	5,014.4	48.4	5,697.4	50.2
Jiangsu Province	546.6	8.0	738.1	7.1	674.7	5.9
Zhejiang Province	495.6	7.3	700.6	6.8	536.3	4.7
Shanghai	365.5	5.4	351.6	3.4	528.8	4.7
Other provinces in the region(1)	86.9	1.3	316.8	3.1	560.8	4.9
Subtotal	3,938.3	58.0	7,121.5	68.8	7,998.0	70.4
Southern China(1)	398.8	5.8	285.5	2.7	423.5	3.7
Exports	2,457.2	36.2	2,947.3	28.5	2,932.0	25.8
Total	6,794.3	100.0	10,354.3	100.0	11,353.5	100.0

(1) Other provinces in Eastern China include Anhui Province, Fujian Province and Jiangxi Province whereas Southern China includes Guangdong Province, Hainan Province and Hunan Province.

The following table sets out our major domestic and overseas customers:

Domestic	Overseas+
Huadian Power International Corporation Ltd.	Sumitomo Metallurgy, Inc.
Shanghai Baosteel Corporation Ltd.	Idemitsu
Dongguan Shijie Fuel Company	Nippon Steel Corporation
Jinin Hongyun Materials Ltd	Kyushu Electric Power
Shanghai Electric Fuel Ltd	JFE Steel Corporation

+ Through Export Sales Companies

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As of December 31, 2005, Huadian was our largest domestic customer. For the year ended December 31, 2005, we supplied a total of 5.6 million, representing 13.4% of our total net sales in 2005, to our largest domestic customers. A substantial portion of Huadian’s coal purchases was supplied to Zouxian Electric Power Plant. Our sales of coal to Zouxian Electric Power Plant accounted for 9.6%, 9.5% and 13.2% of our total net sales in 2003, 2004 and 2005. The Zouxian Electric Power Plant’s total coal requirements were approximately 6.6 million tonnes in 2005. We estimated that we supplied approximately 77.0%, 92.3% and 83.6% of the Zouxian Electric Power Plant’s coal requirements in 2003, 2004 and 2005, respectively.

In 2003, 2004 and 2005, net sales to our five largest domestic customers accounted for 18.5%, 15.3% and 20.0%, respectively, of our total net sales.

We exported 13.6 million, 10.0 million and 7.3 million tonnes of coal in 2003, 2004 and 2005, respectively, accounting for approximately 14.5%, 11.6% and 10.2% of the PRC’s total coal export sales in the respective periods. Export sales primarily consist of sales of our No. 2 and No. 3 Clean Coal to Japan. Our net export sales in 2005 decreased from 27.9% of total net sales in 2004 to 25.5% because we sold more coal domestically due to higher domestic coal pricing compared to export coal pricing. Most of our major overseas end-users are located in East Asian countries and regions, such as Japan and Korea, with Japan being the largest market. We have established close relationships with overseas customers, notwithstanding that all export sales were made through the Export Sales Companies.

Our sales and marketing department conducts routine customer visits and customer satisfaction surveys. In addition, we hire independent market consultants throughout the Eastern China and Southern China regions to collect market information. Information gathered from these sources, together with general market information from other sources, is included in our market data center.

Product Pricing

The prices for our products are generally based on market price or are determined on a contract basis. However, the price for certain thermal coal used for power generation is determined among coal suppliers and power plant buyers in accordance with the pricing guidance published by the PRC Government.

Currently, we make pricing decisions taking into account: (i) prices in the relevant local coal markets (inclusive of transportation costs); (ii) grade and quality of the coal; and (iii) relationships with customers. Most of the transportation costs for domestic sales of our products are borne by the customers. Our sales and marketing department has access to domestic and international market information through our data center, enabling us to closely monitor pricing developments in our principal markets. Although we do not have direct export rights, export prices are ultimately determined among us, our agents, and our customers through negotiation.

Product Delivery

Most of our major domestic customers are located in Eastern China and, to a lesser extent, in Southern China. We principally use railways to transport our coal. We also use, to a lesser extent, road transport and river transport.

We use our railway network to deliver coal products directly to our largest end-user customer, Zouxian Electric Power Plant. Our railway network also connects to the national railway to deliver products directly to other customers.

We also deliver our coal products through the national railway to Rizhao, Qingdao or Lianyungang ports from which we transship coal products to customers. Rizhao port is our main port for shipping.

We also use the Beijing-Hangzhou Grand Canal to ship coal on barges to customers located in the area serviced by the canal. In 2003, we funded the construction of the Jining Siheco Coal Port to develop the market near the Beijing – Hangzhou Grand Canal. Jining Siheco Coal Port came into operation in the first quarter of 2004.

Mining Processes

Our mining operations involve four main processes: tunneling, extracting, conveying and coal preparation. The tunneling process is necessary for the construction of conveyors, underground roadways and longwall work-faces. A majority of our tunneling is conducted by high-powered heading machines where conditions permit tunnels to be driven within the coal seam. When the geological conditions do not

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permit the use of heading machines, we use explosives to dig tunnels. All the coal extracted from these tunnels is sent to our underground storage bunkers to be stored together with the coal extracted from the longwall coal faces. The rock produced from the development roadways is segregated and conveyed out of the mine separately.

The extracting process is conducted by a standard, fully mechanized longwall system, which includes a coal-cutting machine that cuts and transports the coal away from the longwall work-faces. When the thickness of the coal seams is less than 3.5 meters, we use a shearer with rotating drums to extract coal from the face of the longwall work-face. When the coal seams are thicker than 3.5 meters, we use the caving method, which collects the coal from the caved areas behind the hydraulic roof supports. Coal is then transported away from the longwall work-faces by a conveyor located at the rear of the roof supports. The hydraulic roof supports provide continuous support and cover along the length of the face and also facilitate the advance of the face conveyor through operating horizontal hydraulic rams positioned in the base of each support. These longwall hydraulic roof supports are manufactured in China.

The shaft hoist system we use at most of our mines is imported. Coal is conveyed from the coal shaft either to the ground storage or to the respective coal preparation plant via an overland conveyor system. In addition to the main coal shaft, each mine also has a service shaft, which elevates equipment and workers into and out of the mines. There are roadway and railway systems that provide underground transportation for workers and equipment.

After the raw coal is brought to the ground, it undergoes a simple selection process to separate coal from rocks and other impurities. A portion of such selected coal is directly sold to customers and the remainder is processed by our coal preparation plants for further purification and classification. Each of our six mines has a coal preparation plant. In general, the coal-washing processes conducted by our coal preparation plants comprise a water bed washing and separation process by jig machines, a sink-and-float separation process and a final floating separation process. With the exception of the equipment in the Xinglongzhuang coal preparation plant, most of the equipment used in our coal preparation plants is manufactured in the PRC. Most of the equipment used in our coal preparation plants is automated, which enables our personnel to exercise precise control over the ash content and grades of the coal. The aggregate recovery rate of our coal preparation plants was 88.5%, 77.9% and 72.9% in 2003, 2004 and 2005, respectively.

Materials, Water and Energy Supply

We purchase certain materials to conduct our coal mining and processing operations, consisting principally of: (i) steel for support of the work-faces and underground tunnels, and (ii) cement for the underground tunnels and ground structures. We source our steel principally from Shanghai Baosteel Corporation Ltd and Anhui Maanshan Iron & Steel Co. Ltd. We source our cement principally from the Parent Company pursuant to the Materials and Services Supply Agreement and the supplemental agreements thereto. There is no governmental regulation of the price of materials. The prices are set at market rate or through negotiations. We believe that we have established stable cooperative relationships with our suppliers, which enable us to obtain a reliable supply of most of the materials required in our production process. We believe that many alternative suppliers exist for most of the materials we purchase, and, therefore, we do not foresee any difficulty in obtaining an adequate supply of these materials.

In 2003, 2004 and 2005, 4.6%, 6.0% and 1.8%, respectively, of our total cost of sales were attributable to purchases from our largest supplier. In 2003, 2004 and 2005, 12.3%, 11.2% and 7.5% respectively, of our total cost of sales were attributable to purchases from our five largest suppliers.

We use electricity in our operations. Electricity prices in China are under governmental control. The total costs of electricity amounted to RMB291.7 million, RMB307.4 million and RMB294.8 million (inclusive of the electricity power used in the operation of our railway network) in 2003, 2004 and 2005, respectively. We have not experienced any material disruption in electricity supply in recent years.

The main source of our water is underground water. Each of our mines has obtained a license to use underground water. We have not experienced any material disruption in water supply in recent years.

Our costs for materials, water and electricity supplies amounted to a total of RMB1,441.5 million in 2005, representing an increase of RMB41.5 million, or 3.0%, from RMB1,400.0 million in 2004. Our costs for materials, water and electricity supplies in 2005 accounted for 27.3% of our total cost of sales, decreased from 30.8% in 2004.

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Quality Control

Coal Production

We have implemented a quality assurance program pursuant to which we exercise strict quality control throughout the production and transportation processes. Utilizing advanced processing technology and management techniques, our coal preparation plants are able to separate both metal impurities, such as blasting caps, and non-metal impurities, such as scraps of wood and plastic, from the coal. Our sales and marketing department has a quality inspection division, which conducts random inspections of our coal and provides the information collected from the inspections to our production units and management to facilitate quality improvement.

Nantun, Xinglongzhuang, Baodian, Dongtan, Jining II, Jining III mines have obtained ISO 9002 quality recognition and ISO 14000 environmental management recognition.

Railway network

We endeavor to ensure that the quality of our railway network is consistent with the quality of our coal production. Our railway network has obtained ISO 9001 quality accreditation and ISO 14001 environmental management recognition.

Safety Control

We have implemented a safety control program based on our specific requirements and in compliance with the Coal Law, the National Mining Safety Law and safety regulations promulgated by relevant governing authorities. The safety records of our administrative or production division directly affect the compensation levels of the officers and managers of such division. Each of our mines has a safety inspection unit which is responsible for the supervision and inspection of our mining activities. We also use the Parent Company’s safety training center to provide systematic training to our personnel. We provide rewards to employees who report potential unsafe conditions to us so as to prevent potential accidents.

As a result of our safety control program, we have been able to maintain a good safety record. The workers’ fatality rate for our mines was 0.077 fatalities per million tonnes of raw coal produced in 2004, and 0.087 fatalities per million tonnes of raw coal produced in 2005. These rates are substantially lower than the average rate for coal mines in the PRC.

Environmental Protection

We are subject to PRC environmental protection laws and regulations which currently impose fees for the discharge of waste substances, require the payment of fines for serious pollution and provide for the discretion of the PRC Government to close any facility which fails to comply with orders requiring us to cease or cure operations causing environmental damage. We believe all of our facilities are in compliance with the requirements of the relevant environmental protection laws and regulations.

Each of our mines has an underground water processing station. In the aggregate, we can process 18.7 million tonnes of underground water each year. Such underground water, after processing, is used for production, coal washing and landscape maintenance. We also have six waste water treatment plants, which have an aggregate annual waste water treatment design capacity of 10.5 million tonnes. The rocks produced during our production are mainly used for landfill and to produce construction materials.

In the years ended December 31, 2003, 2004 and 2005, we spent RMB4.8 million, RMB3.8 million and RMB4.8 million for environmental protection, respectively. These expenses consisted principally of capital expenditures, equipment operating expenses and discharge fees paid to the PRC Government.

Insurance

In accordance with what we believe is the customary practice for PRC coal mining entities, we do not currently maintain fire, casualty or other property insurance covering our properties, equipment or inventory other than with respect to vehicles. In addition, we do not maintain any business interruption insurance or any third party liability insurance to cover claims in respect of personal injury, property or environmental damage arising from accidents on our properties or relating to our operations, other than third party liability insurance with respect to vehicles. We do not maintain any insurance policy to cover our railway network or its operation. We have, in accordance with relevant laws, set aside approximately 2.0% of employees’ total remuneration for employees’ injury insurance. We currently maintain personal injury insurance for our employees.

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Competition

Coal Production

China’s coal industry is characterized by the uneven distribution of coal reserves and the existence of a large number of enterprises. However, the number of large scale coal producing production enterprises is limited. According to the China Coal News published on April 3 April, 2006, there were 5,206 coal producing production enterprises were considered as to be above-average enterprises that and had an annual coal sales revenues of over RMB5.0 million as of December 31, 2005. Of these, only 31 of those enterprises had an annual output of more than 10 million tones tonnes with and a total an aggregate production volume close to 900.0 million tonnes, accounting for 42.3% of the total coal production in China.

We principally compete in two markets: the PRC domestic market and the East Asian export market. The PRC domestic coal market is characterized by a very large number of coal suppliers, with no individual dominant nationwide supplier. The domestic coal market is segmented principally by: (i) location, given the significant costs associated with coal transport, and (ii) coal quality, which includes ash and sulphur levels, calorific value and degree of washing. We compete principally on the basis of price, coal quality, availability and costs of transportation, reliability of delivery and payment terms.

Our domestic competitors primarily include a number of coal mines located in Shanxi Province, Shaanxi Province and Inner Mongolia Autonomous Region. Certain of our competitors from these regions have substantial reserves and favorable geological conditions. However, these competitors encounter high transportation cost as they are farther away from the end customers located in Eastern China. In addition to coal mines located in Shanxi Province, Shaanxi Province and Inner Mongolia Autonomous Region, we also compete to a certain extent with local mines located in proximity to our customers.

The following table sets out the top ten coal producers in China in 2005, their 2005 production and principal seaports:

	Provinces	2005 Production(1)	Principal Seaport
	(’000 tonnes)
Shenhua Group	Beijing	149,683	Huanghua, Tianjin and Qinhuandao
ChinaCoal Group	Beijing	71,858	Qinhuangdao and Lianyungang
Shanxi Coking Coal Group Company	Shanxi	60,809	Qinhuangdao
Datong Coal Mining Group Company	Shanxi	56,684	Qinhuangdao
Longmay Coal Group Co.	Heilongjiang	48,070	Tianjin and Jinzhou
Yankuang Group Company.	Shandong	33,455	Rizhao
Yangquan Coal Group Co.	Shanxi	32,451	Huanghua and Qinhuandao
Huainan Mining Group Co.	Anhui	32,405	Not applicable
Pingdingshan Coal Group Co.	Henan	32,060	Not applicable
Jincheng Wuyan Group Co.	Shanxi	30,060	Not applicable

(l) China Coal Industry Association

Coal mining companies generally have long-term, established relationships with their customers, particularly in the case of electric power plants. PRC electric power plants typically specify their future coal suppliers in their feasibility study, with their power generation equipment usually designed based on the type and quality of coal sourced from a particular supplier. A change in coal suppliers may require the power plant concerned making additional expenditures to modify its power generation equipment, thereby raising the costs associated with a change in suppliers.

We export coal to several countries in East Asia, including Japan and Korea. These countries are generally characterized by high energy consumption levels and limited coal reserves, creating a significant demand for imported coal. With respect to export sales, we compete with certain major overseas coal mining companies, most of which are located in Australia and Indonesia.

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Railway Operation

Our railway network is connected to the major national railway system and to the Zouxian Electric Power Plant, our largest end-user customer, to provide railway transportation services for our internal use, the Parent Company and other customers. We do not encounter any material competition from other railway operators. However, we may compete with other surface transportation services.

Seasonality

Our business is not seasonal.

Regulatory Overview

Coal Law

On August 29, 1996, the PRC Government promulgated the Coal Law, which became effective on December 1, 1996. The Coal Law sets forth requirements for all coal mines, from State-owned mines to township mines, regarding planning for resource exploitation, approval of new mines, the issuance of mining and production permits, implementation of safety standards, processing of coal, business management, protection of mine areas from destructive exploitation, protection for miners and administrative supervision.

Entities seeking to establish mining enterprises must apply to the relevant government office and obtain all necessary approvals. Upon obtaining such approvals, the entities concerned will be granted a mining permit from the Ministry of Land and Resources. Thereafter, an entity must obtain a coal production permit and a coal operation permit in order to commence coal production and sell coal products in the PRC. Mining activities in the PRC are also subject to the Mineral Resources Law, which was promulgated by the PRC Government on March 19, 1986 and amended on August 29, 1996.

We are principally subject to governmental supervision and regulation by two agencies of the PRC Government:

• the National Development and Reform Commission (the “NDRC”), which sets and implements the major policies concerning China’s economic and social development policies, approves development projects exceeding certain capital expenditure amounts, including approval of Sino-foreign joint venture projects, coordinates economic development of State-owned enterprises and oversees their reform, formulates industrial policies and investment guidelines for all industries, including the coal industry; and

• the Ministry of Land and Resources, which has the authority to grant land use licenses and mining right permits.

The following is a brief summary of the principal laws, regulations, policies and administrative directives to which we are subject.

Pricing

In China, the prices of coal products, excluding prices of thermal coal used in electricity generation, are determined by the market.

Until 2002, the production and pricing of coal have largely been subject to close control and supervision by the PRC government, which centrally manages the production and pricing of coal. Previously, the price of coal was determined based on a government-devised pricing guideline which set out the suggested prices for coal. However, in order to effectuate the transform from planned economy to market economy practices, China eliminated from 1 January 2002 the State guidance price for coal and left the determination of prices for all types of coal largely to the market forces However, as the PRC government continues to maintain control over the national railway system, which is the primary means for coal transportation in China, the Chinese government still may exert influence over the pricing of coal through its allocation of railway transportation capacity for coal.

In addition, under the Price Law of the People’s Republic of China, promulgated on 29 December 1997, effective from 1 May 1998, in the event of an actual increase or potential increase in the prices of important

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merchandise such as coal, the State Council and the provincial governments, autonomous regions and municipalities directly under the central government may adopt intervention measures for some prices, such as restricting the ratio of price differentials or of profits, and imposing price limits, etc. In August 2004, the NDRC issued a notice setting forth temporary measures to be imposed on thermal coal prices for certain regions. In December 2004, the NDRC issued a notice setting forth guidelines for pricing of thermal coal sales in 2005. Under these guidelines, the coal suppliers and their customers may not negotiate for the sale of coal at prices exceeding the government suggested price range.

On May 1, 2005, the PRC Government implemented a policy to associate coal prices with electricity price, allowing electricity prices to be adjusted on the fluctuation in coal prices. Factors affecting the fluctuations in coal prices include the overall performance of the Chinese economy, business cycles in the power industry, the availability of alternative energy sources, and coal production and transportation capacities. Currently, the price of thermal coal used in electricity generation and the market price are not in line. On December 27, 2005, the PRC Government issued a notice to (i) cancel the 2004 NDRC notices regarding temporary measures and pricing limitation imposing on thermal coal prices and (ii) allow the prices of thermal coal used in electricity generation to be negotiated by coal suppliers and their customers. However, the PRC Government may adopt temporary intervention measures in the event of an actual increase or potential increase in the prices of thermal coal for electricity generation pursuant to the Price Law. In the next five-year plan period (2006-2010), the PRC Government will gradually adjust prices of thermal coal used in electricity generation in accordance with the market price of coal.

Similar to coal pricing, the production and supply of coal, which was dictated by the PRC government’s annual state coal allocation plan, has been gradually liberalized and largely subject to market forces. Major domestic coal suppliers and coal purchasers attend the Annual National Coal Trading Convention to negotiate and discuss the price and quantity of coal to be supplied and purchased for the coming year through the signing of letters of intent and short- and long-term supply contracts.

Fees and Taxes

PRC coal mining entities are subject to certain mining fees and taxes, including a resource tax and resource compensation fee.

Under the Mineral Resources Law, if mining results in damage to arable land, grasslands or afforested areas, the mining enterprise must take effective measures to return the land to an arable state, plant trees or grass or take other measures. The Mineral Resources Law and other applicable laws and regulations also state that anyone who causes others to suffer loss in terms of production or in terms of living standards is held liable for the loss under the law and is required to compensate the persons affected and to remedy the situation. In addition, the Mineral Resources Law also provides for (i) regulations concerning labor safety and hygiene and (ii) environmental protection.

All coal producers are subject to PRC environmental protection laws and regulations which currently impose fees for the discharge of waste substances, require the payment of fines for serious pollution and provide for the discretion of the PRC Government to close any facility which fails to comply with orders requiring it to cease or cure operations causing environmental damage. All environmental protection facilities must be inspected and certified by relevant governmental authorities as being in compliance with PRC environmental protection laws and regulations.

Regulations Concerning Imports and Exports of Coal

In the PRC, the import and export of goods and technologies and the provision of international trade services are governed by the Foreign Trade Law, which was promulgated on May 12, 1994 and amended on April 6, 2004 with an effective date of July 1, 2004. Imports of coal into China are subject to import tariffs. Pursuant to China’s commitment under its World Trade Organization agreement, tariff rates for coal imports will be reduced.

Under the amended Foreign Trade Law and other relevant regulations, coal exports remain subject to State control and require governmental approval. Currently, there are only four authorised coal exporters, Shenhua Coal Trading Company Limited, China Coal Energy Group Company, China National Minerals Import and Export Company Limited and Shanxi Coal Import and Export Group Company.

Pursuant to regulations promulgated in January 2004, China’s coal and coke exports have been subject to a government approval system since 1 July 2004, under which the NDRC and the Ministry of Commerce are responsible for determining China’s total coal and coke export quota and for allocating the quota among

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the authorized coal and coke exporters. The total quota will take into consideration China’s economic needs, the rational use of coal resources, the PRC government’s economic policy and the dynamics of the domestic and international coal and coke markets. Each year, after the NDRC publishes the total coal and coke export quota for the following year, authorized coal and coke exporters are required to submit written applications for the following year’s quota to the NDRC. The NDRC and the Ministry of Commerce then allocate the annual quota for the following year among the authorized coal exporters. Each year’s quota expires on December 31. Upon receiving quota approval, authorized coal and coke exporters may apply for coal and coke export permits to the relevant authority designated by the MOFCOM. Authorized coal and coke exporters are also required to report their monthly quota usage to the NDRC.

The regulations provide that quotas may be adjusted in the event of:

• a major change in the international market;

• a major change in domestic coal resources;

• an imbalance in the usage of the coal export quota by an authorized coal exporter compared to its allocation of the coal export quota; and

• other circumstances which require an adjustment to the coal export quotas.

The total national quota approved for 2005 and 2006 was 80 million tonnes, respectively.

The PRC Government grants VAT refund to coal producers for the export of coal. In January 2004, the PRC Government announced with immediate effect, reduction of export VAT refund for thermal coal exports from 13.0% to 11.0%. The export VAT refund was further reduced to 8.0% in May 2005.

Environmental Protection Laws and Regulations

The State Administration for Environmental Protection is responsible for uniform supervision and control of environmental protection in China. It formulates national environmental quality and discharge standards and monitors China’s environmental system. Environmental protection authorities are responsible for environmental protection within their areas of jurisdiction.

Environmental regulations require companies to file an environmental impact report with the relevant environmental authority for approval before undertaking the construction of a new production facility or any major expansion or renovation of an existing production facility. New facilities built pursuant to this approval are not permitted to operate until the relevant environmental authority has performed an inspection and is satisfied that the facilities are in compliance with environmental standards.

The Environmental Protection Law requires any facility that produces pollutants or other hazards to incorporate environmental protection measures in its operations and establish an environmental protection responsibility system. Such system includes adoption of effective measures to control and properly dispose of waste gases, waste water, waste residue, dust or other waste materials. Any entity that discharges pollution must register with the relevant environmental protection authority.

Remedial measures for violations of the Environmental Protection Law include a warning, payment of damages or imposition of a fine. Any entity undertaking a construction project that fails to install pollution prevention and control facilities in compliance with environmental standards for a construction project may be ordered to suspend production or operations and may be fined. Criminal liability may be imposed for a material violation of environmental laws and regulations that causes loss of property or personal injuries or death.

Mineral Resources Laws and Regulations

All mineral resources in China are owned by the State under the current Mineral Resources Law. Exploration, exploitation and mining operations must comply with the relevant provisions of the Mineral Resources Law and are under the supervision of the Ministry of Land and Resources. Exploration and exploitation of mineral resources are also subject to examination and approval by the Ministry of Land and Resources and relevant local authorities. Upon approval, a mining permit is issued by the relevant administrative authorities, which are responsible for supervision and inspection of mining exploitation in their jurisdiction. Annual reports are required to be filed by the holders of mining rights with the relevant administrative authorities.

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The Mineral Resources Law governs, among other things, the assignment of mining rights. If the entity holding the mining rights is to be changed, due to a sale of enterprise assets or other circumstances that may cause a change in the property rights to the assets of the enterprise, the enterprise may assign its mining rights, subject to approval according to the Coal Law, the Mineral Resources Law and other laws and regulations.

The PRC Government permits mine operators of collectively owned mines to exploit mineral resources in designated areas and individuals to mine scattered mineral resources. Such mine operators and individuals are subject to government regulation. Mining activities by individuals are restricted. Individuals are not permitted to exploit mineral reserves allocated for exploitation by a mining enterprise or company or protected reserves. Indiscriminate mining that damages mineral resources is prohibited.

If mining activities result in damage to arable land, grassland or afforested areas, the mining operator must take measures to return the land to an arable state within the prescribed time frame. Any entity or individual which fails to fulfill its remediation obligations may be fined and denied application for land use rights for new land by the relevant land and natural resources authorities.

It is unlawful for an entity or individual to conduct mining operations in areas designated for other legal mining operators. A mining operator whose exploitation causes harm to others in terms of production or in terms of living standards is liable for compensation and is required to take necessary remedial measures. When a mine is closed, a mine closure report and information concerning the mining facilities, hidden dangers, remediation and environmental protection must be submitted for examination and approval in accordance with the relevant law.

The mineral products illegally extracted and the income derived from such activities may be confiscated and may result in fines, revocation of the mining permit and, in serious circumstances, criminal liability.

Coal Classification

Based on carbon content and heat value, coal can be classified into four major categories: anthracite, bituminous coal, sub-bituminous coal and lignite. Anthracite contains the highest level of carbon, least moisture and highest heat values, and generates little flame and smoke when burned. Bituminous coal is a high-grade coal with heat values typically ranging from 23Mj/Kg to over 30Mj/Kg. Bituminous coal burns with a smoky flame and is used for utility and industrial steam purposes as well as for making the coke necessary for steel production. All coal produced by our mines is bituminous coal. Sub-bituminous coal has a carbon content between bituminous coal and lignite and has a heat value generally ranging from over 19 to 22 Mj/Kg. This type of coal is used mainly by electric utilities. Lignite is the lowest ranking coal. It generally has a heat value of about 15Mj/Kg and is used to fuel electric power plants.

Coal is also commonly described by its sulphur content due to the importance of sulphur in environmental regulations. “Low-sulphur coal” typically is used to describe coal with a sulphur content of 1% or less. Our in situ coal in the No. 3 Seam (the most important coal seam in the Yanzhou and Jining coalfields which our six mines exploit) has sulphur contents generally ranging from 0.39% to 0.75% and therefore is a type of low-sulphur coal.

C. Organizational Structure

In 2005, we had 14 departments, namely the Secretariat of the Board of Directors, Audit Department of the Board of Directors, Department of Coordination, Department of Human Resources, Department of Financial Planning, Department of Production Technology, Department of Safety Inspection, Electrical Engineering and Power Department, Ventilation and Dust Elimination Department, Geological Survey Department, Department of Enterprise Management, Project Department, Community Relationship Office and Technical Center.

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Our shareholding and organizational structure as at March 31, 2006 are illustrated by the diagram below:

D. Property, Plants and Equipment

Real Property and Leasehold Property

As of December 31, 2005, the net book value of our property, plant and equipment was RMB9,318.5 million. Our corporate headquarters and production and ancillary facilities mainly in Shandong Province occupy an area of 16,863,316 square meters, of which 88,090 square meters are used as stations, offices, warehouses and other facilities for our railway services. Yancoal in Australia occupies an area of 16,179,838 square meters. The total gross floor area of our production and other facilities in PRC is 595,388 square meters. Heze Nenghua and Yulin are in the process of applying for the necessary land use rights to their production areas. Under PRC law, we have freely transferable land use rights for a term of 50 years commencing from the respective dates when we acquired such land use rights in the PRC. In addition, land ownership held by Yancoal is not subject to expiration pursuant to Southland Property Law in 1900.

Coal Mines and Production Facilities

Existing mines

The six domestic coal mines currently operated by us are all located in the southwestern part of Shandong Province. All of these mines are connected by our railway network, which provides access to our customers either directly or through the PRC national railway or highway system. We completed the acquisition of assets of Austar Coal Mine on December 24, 2004. In 2005, we acquired 95.67% equity interest in Heze Nenghua from the Parent Company. The principal activities of Heze Nenghua are to conduct the initial preparation of the Zhaolou , Wanfu and other coal mines at the Juye Coalfield including (i) obtaining the approvals for the coal mine projects, (ii) applying for the necessary exploration rights for coal, and (iii) preparing for the construction of the coal mines. As at December 31, 2005, Heze Nenghua has commenced construction works for the Zhaolou coal mine. Pursuant to a supplemental agreement dated June 28, 2005 entered between us and the Parent Company, the Parent Company irrevocably undertook that we shall have the right to acquire the mining rights of Zhaolou coal mine and Wanfu coal mine from the Parent Company within twelve months from the respective dates on which such mining rights are obtained by the Parent Company for a consideration to be determined based on valuations conducted by independent qualified PRC valuers. The valuations should also be endorsed by the applicable PRC government authorities.

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The locations of our domestic six coal mines in Shandong Province and the connection of the railway system are shown on the map below:

The location of Austar Coal Mine is shown on the map below:

Our six domestic coal mines and our Austar Coal Mine are all underground coal mines.

The following table sets out detailed information for each of our mines:

	Nantun	Xinglong- Zhuang	Baodian	Dongtan	Jining II		Jining III	Austar		Total
Background data:
Start of construction	1966	1975	1977	1979	1989		1993	1998		N/A
Start of commercial production	1973	1981	1986	1989	1997		2000	2000		N/A
Coalfield area (square kilometers)	35.2	59.81	36.4	60.0	87.1		105.1	63.0		446.6
Reserve data: (millions tonnes as of December 31, 2005)
Total in-place proven and probable reserves(1)	132.85	356.57	310.83	487.32	429.50		251.37	N/A		1968.44
Proven and probable reserves recoverable by longwall mining methods(2)	28.17	97.78	77.51	104.97	164.36		89.37			562.16
Depth of mine (meters underground)	397.0	429.2	474.7	710.0	593.0		556.0	N/A		N/A
Average thickness of main coal seam (meters)	8.60	8.29	8.88	8.41	6.78		7.00	N/A		N/A
Production data: (million tonnes)
Designed raw coal production capacity	2.4	3.0	3.0	4.0	4.0		5.0	2.0		23.4
Designed coal preparation input capacity	1.8	3.0	3.0	4.0	3.0		5.0	2.0		22.8
Raw coal production
1994	2.9	3.9	3.3	3.5	—		—	—		13.6
1995	3.6	3.8	3.6	3.8	0.2	(2)	—	—		15.0
1996	4.0	4.0	4.1	4.9	0.4	(2)	—	—		17.4
1997	3.9	4.1	4.0	4.9	0.8	(2)	—	—		17.7
1998	4.2	5.0	4.3	5.4	1.8		—	—		20.7
1999	4.0	6.1	4.7	6.1	3.2		—	—		24.1
2000	4.5	6.2	5.3	6.7	4.8		—	N/A		27.5
2001	4.9	6.6	6.2	7.1	4.1		5.1	N/A		34.0
2002	3.6	7.1	6.4	8.1	5.2		8.0	N/A		38.4
2003	4.7	7.0	7.3	8.2	6.0		10.1	N/A		43.3
2004	4.1	7.4	7.0	8.5	4.9		7.3	N/A		39.2
2005	4.0	6.6	5.0	7.5	4.5		7.0	N/A	(3)	34.6
Cumulative raw coal production as of December 31, 2005	48.4	67.8	61.2	74.7	35.9		37.5	N/A		325.5

(1) The reserve data (except for Austar Coal Mine) including (i) total in-place proven and probable reserves, (ii) proven and probable reserves recoverable by longwall mining methods, (iii) depth of mine and (iv) average thickness of main coal seam, is based on the relevant information from Report of independent mining consultants, after deduction of actual production volume and non-accessible reserves up to December 31, 2005. Non-accessible reserve is defined as the portion of identified resources estimated to be not accessible by application of one or more accessibility factors within an area. The report of the independent mining consultants for Nantun, Xinglong Zhuang, Baodian, Dongtan and Jining II was prepared by International Mining Consultants Limited Nottinghamshire, United Kingdom (“IMC”) on February 16, 1998, and the Report for Jining III was prepared by SRK Consulting in August 2000.

(2) Produced during trial production period.

(3) The mine was shut down in January 2004.

Nantun Mine. Nantun is located in the south of our coalfield. Nantun began its commercial production in 1973 with original designed annual output of 1.5 million tonnes of coal. In 1993, the designed annual output for Nantun was increased to 2.4 million tonnes after the completion of a renovation project. The main coal seam of Nantun is divided into two leaves. The thickness of the upper leaf averages 5.35

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meters and the thickness of the lower leaf averages 3.21 meters. We generally use the longwall caving mining method to extract coal from the upper layer of the coal seam and use mechanized longwall faces to mine the lower layer of the coal seam. Currently, Nantun produces coal from two longwall faces.

The Nantun coal preparation plant produces mainly No. 2 and No. 3 Clean Coal and employs only jig machines. Most equipment used in the Nantun coal preparation plant was manufactured in the PRC.

Xinglongzhuang Mine. Xinglongzhuang is located in the north of our coalfield. The main coal seam of Xinglongzhuang is concentrated in one leaf with an average thickness of 8.29 meters. We principally use the longwall caving mining method to mine Xinglongzhuang. Currently, Xinglongzhuang operates one longwall face.

The Xinglongzhuang coal preparation plant produces mainly No. 1, No. 2 and No. 3 Clean Coal. The Xinglongzhuang coal preparation plant’s principal equipment, including the jig machines, sink-and-float separation machines and floating separation machines, was imported.

Baodian Mine. Baodian is located in the west central area of our coalfield. Certain sections of the main coal seam of Baodian are concentrated in one leaf, with an average thickness of 8.81 meters, and the remaining sections are divided into two leaves with average thickness of 5.74 meters for the upper leaf and 3.38 meters for the lower leaf. We generally use the longwall caving mining method to extract coal from the concentrated layer and the upper leaf of the divided sections of the main coal seam. Currently, Baodian operates two longwall faces.

The original design of the Baodian coal preparation plant was identical to that of the Nantun coal preparation plant. Subsequently, we remodeled the jig machines and added a number of sink-and-float machines and floating separation machines in the Baodian coal preparation plant. Most equipment used in the Baodian coal preparation plant was manufactured in the PRC. The principal product of the Baodian coal preparation plant is No. 2 and No. 3 Clean Coal.

Dongtan Mine. Dongtan is located in the east central area of our coalfield. Certain sections of the main coal seam of Dongtan are concentrated in one leaf, with an average thickness of 8.41 meters, and the remaining sections are divided into two leaves, with average thickness of 5.38 meters for the upper leaf and 3.22 meters for the lower leaf. We generally use the longwall caving mining method to extract coal from the concentrated leaf and the upper leaf of the divided sections of the main coal seam. Currently, Dongtan operates two longwall faces.

Most equipment used in the Dongtan coal preparation plant, including the jig machines, the sink-and-float separation machines and the floating separation machines, was manufactured in the PRC. The principal product of the Dongtan coal preparation plant is No. 2 and No. 3 Clean Coal.

Jining II. Jining II is located in the north of the Jining coalfield, the quality of coal reserves of which is similar to that in our coalfield.

Certain sections of the main coal seam of Jining II are concentrated in one leaf, with an average thickness of 6.78 meters, and the remaining sections are divided into two leaves, with an average thickness of 2.1 meters for the upper leaf and an average thickness of 4.68 meters for the lower leaf. We use mainly longwall mining methods at Jining II. Currently, Jining II operates three longwall faces.

The main equipment used in Jining II are jig machines, most of which are manufactured in the PRC. The principal product of the Jining II coal preparation plant is No. 2 and No. 3 Clean Coal.

Jining III. Jining III is located in the south of the Jining coalfield and covers an area of 110.0 square kilometers. Jining III commenced commercial production on December 28, 2000, having a designed annual raw coal production capacity of five million tonnes. The average thickness of the main coal seam of Jining III is 6.2 meters. Currently, Jining III operates two longwall faces.

The main equipment used in Jining III are jig machines, which are imported from Germany. The principal product of the Jining III coal preparation plant is No. 2 and No. 3 Clean Coal.

Austar Coal Mine. Austar Coal Mine is an underground longwall mine located in Hunter Valley, New South Wales, Australia. Austar Coal Mine covers an area of 63.0 square kilometers. Austar Coal Mine was constructed in 1998 and it commenced commercial production in 2000, having a designed annual raw coal production capacity of two million tonnes. Austar Coal Mine produces hard coking coal and semi-soft

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coking coal. The average thickness of the main coal seam of Austar Coal Mine is 5.3 meters. According to the Information Memorandum – Southland Coal Pty Ltd. provided by the vendor of the coal mine at the time of the acquisition, Austar Coal Mine has a proven and probable reserve of approximately 41 million tonnes.

Austar Coal Mine was formerly owned and operated by Southland Coal Pty Limited. In December 2003, an underground fire occurred at Austar Coal Mine. The mine was shut down in January 2004. In 2004, we acquired the entire interest in the Austar Coal Mine from independent third parties including Southland Coal Pty Limited and completed the transfer on December 24, 2004. We have also established two wholly-owned subsidiaries in Australia, Yancoal and Austar, in 2004 for our operations at Austar Coal Mine.

We commenced the reconstruction, expansion of production capacity and technology upgrade at Austar Coal Mine in 2005 and plan to begin production at Austar Coal Mine in the third quarter of 2006.

The main equipment to be used in Austar Coal Mine is heavy-medium cyclone machines, which are manufactured in Australia. Austar Coal Mine will operate 1 longwall face upon operation. The designed coal production capacity of Austar Coal Mine after the reconstruction, expansion and technology upgrade is 2.0 million tonnes per annum. We planned to spend a total of approximately AUD161.0 million on Austar Coal Mine and we have incurred AUD76.6 million as at December 31, 2005.

Mines under development

Zhaolou Coal Mine is an underground longwall mine located in central of Juye Coal Field. Zhaolou Coal Mine covers an area of 145.0 square kilometers. We commenced the construction of Zhaolou Coal Mine in 2004 and we plan to complete the construction of Zhaolou Coal Mine in December 2007. Zhaolou Coal Mine has a designed annual raw coal production capacity of three million tonnes. Zhaolou Coal Mine produces 1/3 coking coal and steam coal. The average thickness of the main coal seam of Zhaolou Coal Mine is 7 to 9 meters. According to Zhaolou Coal Mine Reserve Report attached as Exhibit 14.1, the total proven and probable reserve of Zhaolou Coal Mine was 105.9 million as at December 31, 2005.

The construction at the Zhaolou Coal Mine is expected to cost approximately RMB2,364.7 million and we have spent an aggregate total of approximately RMB476.6 million on the construction and development of Zhaolou Coal Mine as at December 31, 2005.

Railway Network

In 2002, we acquired our railway network from the Parent Company. Currently, the railway network consists of 27 locomotives, 359 railcars, and special purpose coal transportation railway tracks of approximately 184 kilometers in length, which link most of our coal mines and production units of the Parent Company and our largest end-customer, the Zouxian Electric Power Plant. As of December 31, 2005, our Railway Asset Department employed approximately 3,401 employees. The railway network connects to two of the major national railways, namely, the Beijing-Shanghai Railway and Yanzhou-Shijiugang Railway.

After the acquisition, we and the Parent Company entered into a supplemental agreement on October 30, 2001. The Supplemental Agreement amended the Materials and Services Supply Agreement dated October 17, 1997 which provided that the Parent Company would provide us with railway transportation services. According to the supplemental agreement, (i) the Parent Company and/or its subsidiaries no longer provide railway transportation services to us; and (ii) we will provide the Parent Company and/or its subsidiaries railway transportation services.

Mining Rights

The Parent Company and we have entered into a mining rights agreement dated October 17, 1997 (the “Mining Rights Agreement”) pursuant to which we agreed to pay to the Parent Company an annual fee (the “Annual Fee”) of approximately RMB13.0 million as compensation for the Parent Company’s agreement to relinquish the mining rights associated with five of our mines in China (Nantun Mine, Xinglongzhuang Mine, Baodian Mine, Dongtan Mine and Jining II). The terms of the mining rights are 67 years for Baodian, 70 years for Dongtan, 45 years for Nantun, 80 years for Xinglongzhuang and 64 years for Jining II. All such terms commenced on October 14, 1997, the date on which the mining rights permits were issued. The Annual Fee is fixed for a period of 10 years (the “Initial Period”) commencing from 1997, after which the Annual Fee will be revised if new national legislation is passed in respect thereof. The Parent Company and we also entered into a compensation agreement dated October 17, 1997 (the “Compensation Agreement”) whereby

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the Parent Company has agreed to compensate us in respect of any amounts in excess of the Annual Fee which we may, following the Initial Period, be required to pay as a result of any such new national legislation. For payment information, see “Item 5. Operating and Financial Review and Prospects – F. Contractual Obligations”.

Jining III Mining Rights

Pursuant to the Jining III Coal Mine Acquisition Agreement dated August 4, 2000 entered into between us and the Parent Company, the consideration of the mining right of Jining III coal mine is approximately RMB132.5 million, which shall be paid to the Parent Company in ten equal annual interest free installments commencing from 2001. During 2005, we paid RMB13.248 million to the Parent Company.

Austar Coal Mine Mining Rights

We obtained a exploration license for Austar Coal Mine from the NSW Department of Primary Industries on April 5, 2005. In accordance with the Asset Sale Agreement, we are obligated to pay the vendor AUD4,000,000 upon our successful procurement of exploration license to the new exploration site adjacent to the Austar Coal Mine. We are in the process of obtaining the exploration license to the new exploration site adjacent to the Austar Coal Mine and expect to complete the process by June 2006.

Zhaolou Coal Mine Mining Rights

Pursuant to a supplemental agreement dated June 28, 2005 entered between us and the Parent Company, the Parent Company irrevocably undertook that we shall have the right to acquire the mining rights of Zhaolou coal mine and Wanfu coal mine from the Parent Company within twelve months from the respective dates on which such mining rights are obtained by the Parent Company for a consideration to be determined based on valuations conducted by independent qualified PRC valuers. Our Parent company is in the process of obtaining the mining rights of Zhaolou Coal Mine and we plan to acquire such mining rights from the Parent Company within 12 months upon its availability.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in conjunction with the information set forth in the Financial Statements. The differences between IFRS and U.S. GAAP that would have had an impact on our equity attributable to equity holders of the Company and net income attributable to equity holders of the Company as of December 31, 2004 and 2005 and net income attributable to equity holders of the Company for the years ended December 31, 2003, 2004 and 2005 are set forth in Note 47 to the Financial Statements.

A. Operating Results

We are engaged in the underground mining of prime quality, low-sulphur coal from our mines for sale to electric power plants, metallurgical producers and other customers located principally in the economically developed eastern provinces in the PRC and for export to customers located in East Asia. Our raw coal production was 34.7 million tonnes in 2005, and our total coal sales volume was 32.5 million tonnes in 2005. Domestic coal sales accounted for 62.4%, 70.0% and 73.1% of our total net sales during 2003, 2004 and 2005, respectively, and export coal sales through export sales agent accounted for 35.4%, 27.9% and 25.5%, respectively, of our total net sales for such periods. We started to operate Yanmei Shipping in 2004.

In 2002 we acquired our local railway transportation network from the Parent Company, and began to provide rail transportation services both for our own coal sales and for the Parent Company, its subsidiaries and other third parties. In 2005, we transported a total of 20.2 million tonnes of goods, compared to 30.3 million tonnes in 2004.

Sales of the railway transportation services segment consist of two components, namely (i) amount charged to customers for the transportation of coal purchased on an ex-mine basis, where the customer pays the cost of transportation; and (ii) transportation services provided to third parties for the transport of goods via our railway network. External sales are recorded as our revenues for the period, and the costs of providing these services are recorded as our cost of transportation services. For a presentation of segment revenues, results, and inter-segment eliminations and segment balance sheet items, see Note 6 to the Financial Statements.

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Pursuant to the Restructuring, we assumed certain assets and liabilities from the Predecessor, including Nantun, Xinglongzhuang, Baodian and Dongtan mines, as well as certain other facilities necessary for us to carry out our business. We acquired Jining II mine, Jining III mine, our railway network from the Parent Company in 1998, 2001 and 2002, respectively. On December 24, 2004, we completed the transfer of all assets of Southland Colliery, which we subsequently renamed as Austar Coal Mine. We acquired 95.67% of equity interest in Heze Nenghua from our Parent Company on December 7, 2005. Heze Nenghua is responsible for the construction of Zhaolou Coal Mine in the Juye Coal Field.

Overview

In 2005, we produced 34.7 million tonnes of raw coal, representing a 11.5% decrease compared to 2004 and sold 32.5 million tonnes of coal, representing a 14.5% decrease compared to 2004, among which sales of export coal were 7.3 million tonnes, representing a decrease of 27.6% compared to 2004. Our total net revenue was RMB11,516.9 million in 2005, representing an increase of 8.9% compared to 2004, while our net income attributable to the equity holders of the Company was RMB2,881.5 million in 2005, representing a decrease of 8.6% compared to 2004. The following table sets forth our sales and sales volumes classified according to our principal products and services sales:

	Historical Sales Data by Product and Service
	2003			2004				2005
	Sales Volume	Net Sales	% of Total Net Sales	Sales Volume	Net Sales	% of Total Net Sales		Sales Volume	Net Sales	% of Total Net Sales
	(‘000 tonnes)	(RMB million)		(‘000 tonnes)	(RMB million)			(‘000 tonnes)	(RMB million)
Clean Coal
No. 1 Clean Coal	513.8	128.2	1.8	631.3	220.5	2.1		773.9	398.0	3.5
No. 2 Clean Coal	6,729.2	1,287.6	18.5	6,329.2	2,013.50	19.0		5,084.5	2,499.1	22.0
Domestic Sales	636.5	151.8	2.2	2,326.7	805.4	7.6		2,981.3	1,531.4	13.3
Export	6,092.7	1,135.8	16.3	4,002.5	1,208.10	11.4		2,103.2	967.7	8.5
No.3 Clean Coal	11,952.7	2,126.3	30.6	11,861.9	3,484.00	33.0		11,183.0	4,143.8	36.0
Domestic Sales	4,858.3	899.7	12.9	6,027.9	1,800.20	17.0		6,066.8	2,191.9	19.0
Export	7,094.4	1,226.6	17.7	5,834.0	1,683.80	15.9		5,116.2	1,951.9	17.2
Lump Coal	583.4	130.3	1.9	752.3	284.3	2.7		485.5	209.9	1.8
Domestic	138.8	35.4	0.5	572.7	228.9	2.2		454.0	197.4	1.7
Export	444.6	94.8	1.4	179.6	55.4	0.5		31.5	12.5	0.1
Subtotal	19,779.1	3,672.4	52.8	19,574.7	6,002.30	56.8		17,527.0	7,250.7	63.8
Domestic Sales	6,147.4	1,215.2	17.5	9,558.6	3,055.00	28.9		10,276.2	4,318.7	38.0
Export	13,631.7	2,457.2	35.3	10,016.1	2,947.30	27.9		7,250.8	2,932.0	25.8
Screened Raw Coal	13,937.5	2,499.4	36.0	14,936.6	3,867.5	36.5		10,805.4	3,478.1	30.6
Mixed Coal and Others	5,690.9	622.5	9.0	3,492.6	484.5	4.6		4,152.1	624.7	5.5
Net Coal Sales	39,407.5	6,794.3	97.8	38,003.9	10,354.3	97.9		32,484.5	11,353.5	98.6
Railway Transportation Services Revenue	—	154.6	2.2	—	220.8	2.1		—	163.4	1.4
Total	39,407.5	6,948.9	100.0	38,003.9	10,575.1	100.0	%	32,484.5	11,516.9	100.0	%

Net coal sales represent the invoiced value of coal sold and is net of returns, discounts, sales taxes and transportation costs if the invoiced value includes transportation costs to the customers. Sales taxes consist primarily of a resource tax calculated at the rate of RMB2.40 per tonne of the imputed quantity of raw coal sold, which was increased to RMB3.60 effective from May 1, 2005 and are paid to the local tax bureau.

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The following table sets forth our principal operating revenues, costs and expenses, and such items as expressed as percentages of total net sales:

	2003		2004		2005
	RMB	% of Total Net Sales	RMB	% of Total Net Sales	RMB	% of Total Net Sales
Net sales
Net sales of coal	6,794.3	97.8	10,354.3	97.9	11,353.5	98.6
Railway transportation service revenue	154.6	2.2	220.8	2.1	163.4	1.4
Total net sales	6,948.9	100.0	10,575.1	100.0	11,516.9	100.0
Cost of sales and services provided
Materials	899.6	12.9	1,088.7	10.3	1,147.6	10.0
Wages and employee benefits	863.7	12.4	1,022.6	9.7	1,258.3	10.9
Electricity	278.5	4.0	298.3	2.8	282.5	2.5
Depreciation	836.1	12.0	918.4	8.7	891.6	7.7
Repairs and maintenance	374.9	5.4	455.8	4.3	351.0	3.0
Land subsidence, restoration, rehabilitation and environmental costs	264.2	3.8	323.2	3.1	636.6	5.5
Mining right expenses	19.6	0.3	19.6	0.2	19.6	0.2
Other transportation fee	48.2	0.7	119.7	1.1	98.8	0.9
Others	170.2	2.5	305.4	2.8	602.6	5.2
Total cost of sales and services provided	3,755.0	54.0	4,551.7	43.0	5,288.7	45.9
Selling, general and administrative expenses	1,264.9	18.2	1,479.9	14.0	1,918.8	16.7
Total cost of sales and operating expenses	5,019.9	72.2	6,031.6	57.0	7,207.4	62.6

The discussion and analysis have been based upon financial statements prepared in accordance with the IFRS, which differs in certain respects from U.S. GAAP. For a further discussion on the differences between IFRS and U.S. GAAP, see Note 47 to our financial statements included elsewhere in this annual report.

Year Ended December 31, 2005 Compared with Year Ended December 31, 2004

Our net sales increased by RMB941.8 million, or 8.9%, to RMB11,516.9 million in 2005 from RMB10,575.1 million in 2004, due primarily the increases of revenue from sales of coal. Net sales of coal increased by RMB999.1 million, or 9.6%, to RMB11,353.5 million in 2005. The increase was primarily due to an increase of average coal sales prices of 28.3%, which resulted in an increase of net sales of coal by RMB2,502.9 million, partially offset by a decrease of coal sales volume of 14.5%, which resulted in the decrease of net sales of coal by RMB1,503.8 million.

The increase in the average selling price of our coal was primarily due to improved market conditions which resulted in increase in coal prices in both the domestic and the export markets as well as the increase in net sales price primarily due to the implementation of the “Four Optimizations” strategy. Our average sales price per tonne for coal increased 28.3% from RMB272.3 for the year ended 31 December 2004 to RMB349.5 for the year ended 31 December 2005.

In 2005, we produced 34.7 million tonnes of raw coal, representing a 11.5% decrease compared to 2004 and sold 32.5 million tonnes of coal, representing a 14.5% decrease compared to 2004, primarily due to decrease in our raw coal production. Our domestic sales of coal in 2005 were 25.2 million tonnes, representing an decrease of 9.9% compared to 2004. Our export sales of coal in 2005 were 7.3 million tonnes, representing a decrease of 27.6% compared to 2004. The change in sales structure was primarily due to our timely adjustment of product mix in light of the market needs.

Our net income from railway transportation service was RMB163.4 million, representing a decrease of RMB57.3 million, or 26.0%, from RMB220.8 million in 2004. Such decrease was principally due to the decrease in the sales volume of coal resulting from decreased production volume as well as the decrease in coal deliveries made by our railway network for coal sales where transportation expenses were charged on ex-mine basis to the customers.

Our cost of sales and services (including railway transportation service) increased by RMB736.9 million, or 16.2%, to RMB5,288.6 million in 2005, as compared to RMB4,551.7 million in 2004. The cost of coal sales was RMB5,184.8 million, representing an increase of RMB722.5 million, or 16.2%, as

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compared to RMB4,462.3 million in 2004, principally due to (i) the increase in commodity prices, (ii) the increase in employees’ wages, (iii) the reduction of the rate of export VAT rebate and (iv) the increase in expenditures on safety measures . The unit cost of coal sales was RMB159.6 per tonne of coal in 2005, representing an increase of RMB42.2, or 36.0%, as compared to RMB117.4 in 2004.

Of the RMB42.2 increase in unit cost of coal sales per tonne of coal we sold in 2005, RMB15.8 was attributable to external factors beyond our control, including (i) an increase of RMB2.6 in unit cost of coal sales resulting from the reduction of export VAT rebate; (ii) an increase of RMB2.1 resulting from the increase in cost of raw materials; and (iii) an increase of RMB11.1 resulting from the increase in subsidence fees to relocate villages above our coal mines. Of the reminder of the RMB42.2 increase in unit cost of our coal sales in 2005, RMB9.4 was attributable to increase in employee wages, RMB2.9 was attributable to the increase of expenses as a result of the implementation of measures designed to (i) increase pricing through optimizing our product- and customer-mix; (ii) optimize transportation and port flow structures to reduce cost of sales; (iii) stragically allocate coal sales to more profitable markets; and (iv) increase product sales to major customers (“Four Optimizations”), RMB1.2 was attributable to the increase in safety inputs and RMB14.7 was attributable to increased fixed costs resulting from the decrease in sales volumes by 5.5 million tonnes in 2005 compared to 2004.

Our selling, general and administrative expenses were RMB1,918.8 million in 2005, representing an increase of RMB438.9 million, or 29.7%, from RMB1,479.9 million in 2004. This increase was primarily due to (i) an increase in retirement benefits scheme contributions of RMB114.2 million; (ii) an increase in employee wages and benefits of RMB114.3 million; (iii) an increase in start-up cost incurred by Yancoal Australia Pty Ltd. of RMB121.8 million; and (iv) an increase of foreign exchange loss of RMB98.7 million.

Our other operating income decreased by RMB30.7 million, or 18.5%, to RMB135.0 million in 2005 from RMB165.7 million in 2004. The decrease was primarily due to a decrease in interest income of RMB16.1 million and a decrease in the release of negative goodwill of RMB 27.6 million as compared to 2004 resulting from the revised IFRS adopted in 2005. For the information about the revised IFRS, see “-G-Critical Accounting Policies”.

Our interest expenses decreased by RMB11.3 million, or 31.5%, to RMB24.6 million in 2005 from RMB35.9 million in 2004. The decrease was primarily due to the partial repayment of bank loans by the Company.

As a result, our income before taxes decreased by RMB253.3 million, or 5.4%, to RMB4,420.0 million in 2005 from RMB4,673.3 million in 2004.

Our income tax expenses increased by RMB19.2 million, or 1.3%, to RMB1,538.0 million in 2005 from RMB1,518.8 million primarily due to an under-provision of income tax from prior years.

Our net income attributable to equity holders of the Company decreased by RMB226.7 million, or 7.2%, to RMB2,927.6 million in 2005 from RMB3,154.3 million in 2004.

Year Ended December 31, 2004 Compared with Year Ended December 31, 2003

Our net sales increased by RMB3,626.2 million, or 52.2%, to RMB10,575.1 million in 2004 from RMB6,948.9 million in 2003, due primarily to the increased revenue from sales of coal. Net sales of coal increased by RMB3,560.0 million, or 52.4%, to RMB10,354.3 million in 2004. The increase was primarily due to an increase of average selling price of coal by 57.9%, which resulted in an increase of net sales of coal by RMB3,796.6 million, partially offset by a decrease of coal sales volume of 3.6%, which resulted in the decrease of net sales of coal by RMB242.1 million.

The increase in the average selling price of our coal was primarily due to improved market conditions which resulted in increase in coal prices in both the domestic and the export markets as well as the increase in net sales price primarily due to the implementation of the “Four Optimizations” strategy. Our average sales price per tonne for coal increased 57.9% from RMB172.4 for the year ended 31 December 2003 to RMB272.3 for the year ended 31 December 2004.

In 2004, we produced 39.1 million tonnes of raw coal, representing a 9.5% decrease compared to 2003 and sold 38.0 million tonnes of coal, representing a 3.6% decrease compared to 2003, primarily due to decrease in our raw coal production resulted from the adjustment of coal mine production system layout and the frequent assembly and disasssembly of workface in 2004 for the purpose of stablizing the coal output in future. Our domestic sales of coal in 2004 were 28.0 million tonnes, representing an increase of 8.6%

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compared to 2003. Our export sales of coal in 2004 were 10.0 million tonnes, representing a decrease of 26.5% compared to 2003. The change in sales structure was primarily due to our timely adjustment of product mix in light of the market needs.

Our net income from railway transportation service was RMB220.8 million, representing an increase of RMB66.2 million, or 42.8%, from RMB154.6 million in 2003. Such increase was principally due to the increase in the volume of coal deliveries made by our railway network for coal sales transactions where transportation expenses were charged on ex-mine basis to the customers.

Our cost of sales and services increased by RMB796.7 million, or 21.2%, to RMB4,551.7 million in 2004, as compared to RMB3,755.0 million in 2003. The cost of coal sales was RMB4,462.3 million, representing an increase of RMB774.9 million, or 21.0%, as compared to RMB3,687.4 million in 2003, principally due to (i) the increase in commodity prices, (ii) the increase in employees’ wages, (iii) the reduction of the rate of export tax rebate and (iv) the increase in safety inputs. The unit cost of coal sales was RMB117.4 per tonne of coal we sold in 2004, representing an increase of RMB23.8, or 25.4%, as compared to RMB93.6 in 2003.

Of the RMB23.8 increase in unit cost of coal sales per tonne of coal we sold in 2004, RMB8.1 was attributable to external factors beyond our control, namely, reduction of export tax rebate and increase in cost of raw materials, RMB4.9 was attributable to the increase of safety inputs, RMB4.1 was attributable to the increase in employee wages resulting from our payment of employee performance bonus, RMB4.1 was attributable to the increase of expenses as a result of the implementation of our “Four Optimizations” measures, and RMB2.8 was attributable to the increase in unit fixed costs resulting from the decrease of 141 million tonnes coal sales in 2004. Our cost control measures have to a certain extent off-set portion of the overall increase in unit cost of coal sales.

Our selling, general and administrative expenses were RMB1,479.9 million in 2004, increased by RMB215.0 million, or 17.0%, from RMB1,264.9 million in 2003. This increase was mainly due to (i) an increase in retirement benefits scheme contributions of RMB59.1 million; (ii) an increase in employee’s wages and employee’s benefits of RMB40.0 million; (iii) an increase in resources compensation fees of RMB26.0 million; and (iv) a loss of RMB104.6 million from the sales of properties, plant and equipment.

Our other operating income increased by RMB59.9 million, or 56.6%, to RMB165.7 million in 2004 from RMB105.8 million in 2003. The increase was mainly due to the increase of interest on bank deposits.

Our interest expenses decreased by RMB24.0 million, or 40.1%, to RMB36.0 million in 2004 from RMB60.0 million in 2003. The decrease was principally due to the partial repayment of bank loans in the principal amount of RMB200.0 million.

As a result, our income before taxes increased by RMB2,698.4 million, or 136.6%, to RMB4,673.3 million in 2004 from RMB1,974.9 million in 2003.

Our income tax expenses increased by RMB931.1 million, or 158.4%, to RMB1,518.8 million in 2004 from RMB587.7 million in 2003 primarily due to the increase in income before tax and a deferred tax charge.

Our net income attributable to equity holders of the Company increased by RMB1,767.6 million, or 127.5%, to RMB3,154.3 million in 2004 from RMB1,386.7 million in 2003.

B. Liquidity and Capital Resources

In 2005, our principal source of cash was cash flow from operations. Principal uses of cash in 2005 were operating working capital, purchase of property, plants and equipment, repayment of shareholders’ dividends and increase in term deposits.

As at December 31, 2005, the balance of bills and accounts receivable were RMB2,224.8 million, representing an increase of RMB1,001.0 million, or 81.8%, from RMB1,223.8 million as at December 31, 2004. Bills receivable increased by RMB1,202.9 million, or 135.2%, to RMB2,092.9 million from RMB890.0 million as at December 31, 2004, principally due to the increase in bank bills received from certain major customers in connection with sales of coal. We accepted a higher percentage of bank bills from certain major and credit-worthy customers in part to facilitate sales in light of the rising coal prices. Accounts receivable decreased by RMB201.8 million, or 60.5%, to RMB131.9 million from RMB333.7 million as at December 31, 2004, principally due to the reduction of new accounts receivable and improvement of our collection of sales proceeds represented by accounts receivable.

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An analysis of the allowance for doubtful debts for bills and accounts receivable for 2003, 2004 and 2005 is as follows:

	2003		2004	2005
	RMB’000		RMB’000	RMB’000
Balance at January 1	76,083		100,627	126,700
Additional allowance charged to income	71,125		26,073	—
Direct write-off charged against allowance	(46,581	)	—	—
Balance at December 31	100,627		126,700	126,700

Our inventories decreased by RMB14.9 million, or 3.1%, to RMB470.5 million as at December 31, 2005, from RMB485.4 million as at December 31, 2004.

Other loan receivable decreased by RMB210.0 million, or 24.7%, to RMB640.0 million as at December 31, 2005, from RMB850.0 million as to December 31, 2004, principally due to the collection of outstanding entrusted bank loans amounting to RMB160.0 million from Shandong Longxiang Industry Company Limited and RMB50.0 million from Shandong Cement Company Limited.

Prepayment and other current assets increased by RMB14.1 million, or 7.5%, to RMB202.4 million as at December 31, 2005, from RMB188.3 million as at December 31, 2004. The increase was primarily due to the increase in advances to suppliers, prepayment of freight and related transportation charges.

As at December 31, 2005, total bills and bills payable increased by RMB19.4 million, or 4.1%, to RMB497.7 million from RMB478.3 million as at December 31, 2004.

Other accounts payable and provisions increased by RMB238.3 million, or 17.8%, to RMB1,575.9 million as at December 31, 2005 from RMB1,337.6 million as at December 31, 2004, principally due to increases of accounts receivable in advance, wages payable, fund payable for the purchase of properties, machinery and equipment and raw materials, and accounts payable to the Parent Company.

Long-term liabilities decreased by RMB86.1 million, or 32.6%, to RMB178.1 million as at December 31, 2005 from RMB264.2 million as at December 31, 2004. This was principally due to the repayment of RMB200.0 million in long-term bank loans, partially offset by the increase in deferred tax liabilities accrued from the provisioning of land subsidence fees and safety production expenses of RMB123.2 million.

Our principal capital expenditures have been for the acquisition of property, plant and equipment. During 2003, 2004 and 2005, our total capital expenditures were RMB1,328.1 million, RMB1,057.5 million and RMB1,303.7 million, respectively. Our capital expenditure for the purchase and construction of property, machinery and equipment was RMB830.2 million and RMB1,290.5 million in 2004 and 2005, respectively. According to the Jining III Acquisition Agreement, we have paid the Parent Company RMB13.2 million for mining right during this reporting period. For information about our contractual commitments for capital expenditures, see “ – F. Contractual Obligations”.

Equity attributable to equity holders of the Company increased by RMB2,094.8 million, or 13.5%, to RMB17,618.6 million at December 31, 2005 compared to December 31, 2004, principally due to increase in profit realized from operating activities. We paid dividends of RMB298.5 million, RMB470.7 million and RMB799.2 million in 2003, 2004 and 2005, respectively. As at December 31, 2005, our debt to equity ratio was 1.3%, which was calculated based on the equity attributable to the equity holders of the Company and total amount of bank loan amounting to RMB17,618.6 million and RMB231.8 million, respectively.

Net cash provided by operating activities decreased by RMB479.1 million, or 10.8% from RMB4,418.4 million in 2004 to RMB3,939.3 million in 2005. The decrease was mainly due to the decrease of our operating income, increase in bills and accounts receivable from certain major and credit-worthy customers through extending the payment period for purpose of facilitating sales, increase in advances to suppliers and prepayments for freight and related charges.

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Net cash used in investing activities decreased from RMB2,300.8 million in 2004 to RMB2,262.5 million in 2005. Net cash used in investing activities primarily reflected (i) an increase in term deposits of RMB1,326.3 million in 2005, (ii) an increase in capital expenditures for purchase of property, plant and equipment of approximately RMB572.4 million from RMB743.0 million in 2004 to RMB1,315.4 million in 2005, and (iii) increase in restricted cash of RMB5.3 million in 2005. The decrease in net cash used in investing activities was partially offset by decrease in other loans receivable of RMB210.0 million, increased bank balance and cash resulting from acquisition of Heze Nenghua of RMB170.2 million and proceeds from disposal of property, plant and equipment of RMB4.4 million.

Net cash used in financing activities in 2005 was RMB1,009.3 million, reflecting primarily (i) the payment of dividends of RMB799.2 million and (ii) repayment of bank borrowings of RMB200.0 million. Net cash provided by financing activities was RMB1,075.4 million in 2004, reflecting primarily the net proceeds of RMB1,756.9 million from the H shares placement, partially offset by the payment of dividends of RMB470.0 million.

Our estimated capital expenditure for year 2006 is RMB4,817 million which mainly consists of : (1) approximately RMB1,262 million for the purchase of property, machinery and equipment for the six operating coal mines and railway assets; (2) approximately RMB3,555 million for the development of external projects, including: approximately RMB1,513 million in the reconstruction and upgrade of Austar Coal Mine in Australia; approximately RMB1,352 million in the investment of 600,000 tonnes methanol project and a new coal mine project in Shanxi Province; and approximately RMB690 million in the investment of Heze Zhaolou Coal Mine. The capital resource for the above capital expenditure is mainly from our cash in hand.

We believe that cash on hand, cash from operations, available banking facilities and other sources of financing will be sufficient for our operational requirements and capital expenditure need.

C. Research and Development, Patents and Licenses, Etc.

We have a team of specialized technicians which is responsible for research and development of new mining and processing technology. Our expenditures for research and development were RMB46.1 million, RMB24.9 million and RMB45.0 million, in the years ended December 31, 2003, 2004 and 2005, respectively, accounting for 0.7%, 0.2% and 0.4%, respectively, of our total net sales for such periods. In addition to our own research and development program, we have also established long-term cooperative relationships with a number of research institutes such as the China Coal Science Research Institution, Coal Mine Design Institution, a number of coal machinery and equipment manufacturers and a number of educational institutions to conduct special research projects.

Our research and development efforts have contributed to increases in production in recent years. The Predecessor began to use the longwall caving mining method in 1992. Thereafter, our research and development personnel concentrated on modifying such method, taking into account the special geological conditions of our mines, in order to maximize our production. In addition, largely because of our research and development personnel’s efforts, we have been able to:

• increase production efficiency by utilizing mining extracting equipment with improved technology;

• extend the length of certain longwall work-faces to approximately 300 meters, thereby reducing costs for tunneling and supports;

• minimize the number of coal pillars required to support the mining areas, enabling the extraction of a greater proportion of coal;

• improve the roof support and auxiliary transportation systems to reduce costs; and

• complete the two national projects regarding the research on “equipment coordination and technology for 6Mt/a complex-mechanized top coal caving workface” and the research on “high-efficient intensive complex-mechanized top coal caving technology and its key equipment” to successfully develop the two-pillar hydraulic shield support for top coal caving.

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We are one of the world’s leading suppliers of coal products utilizing longwall caving extracting technology as the principal mining method. The longwall caving extracting technology is patented in the PRC and Australia. The Parent Company granted DBT an exclusive license to develop the longwall caving extracting technology in Australia and South Africa. We believe production costs of coal products can be reduced by utilizing longwall extracting technology.

Upgrading and improving longwall caving extracting technology and equipment as well as mining methods for medium and thick coal seam are our principal business strategies. With regard to upgrading longwall caving extracting technology, we focus on further improving relevant existing technology and replacing outdated equipment. We are currently focusing on the research and development of the complete set of equipment and technology for full-automatic complex-mechanized top coal caving workface and the complete set of equipment and technology for fast tunneling of coal headings in order to further strengthen our competitive advantage in core technologies.

D. Trend Information

The domestic and export demand for coal in 2006 is expected to remain stable.

The domestic demand is expected to remain in equilibrium with a shortage of coal supplies in certain regions in China, with respect to certain type of coal. As the Chinese economy continues to grow in 2006, industries with substantial coal consumption requirements such as power generation and metallurgical industries are expected to increase coal consumption. Although newly established coal miners and imported coal will contribute to increase in supplies of coal, domestic consumption of coal is expected to exceed domestic supply of coal due to the PRC government’s policy to shut down small coal miners which are not operated in compliance with relevant laws and regulations. The demand for railway transportation services is expected to increase and we may encounter insufficient railway transport capacity or rail cars. However, increased railway transportation capacity is expected to alleviate such insufficiency. The Chinese government’s policy encouraging development of large coal companies and the government-driven initiative to implement a price-linking mechanism between the price for electricity and coal will facilitate the long term development of the coal industry and improve the competitiveness of the large coal companies.

The international demand for coal in 2006 is expected to be strong. As the economy continues to grow in the U.S., Japan and other countries in Asia, there is an increased demand for energy generation resources such coal. Countries in the Asia Pacific region are expected to increase their import of coal by more than 3% in 2006, which will be higher than the rate of growth of coal imports in other countries around the world. The export of coal from China is expected to decrease due to the strong domestic demand that causes reduced export quota set by the PRC government, that from Indonesia is expected to increase and that from Australia is expected to remain at the same level. The supply of coal in the East Asian market is expected to increase in 2006. The international oil prices and the coal prices in Europe and South Africa are expected to remain high. Increased supply and demand of coal in Asia is expected to stabilize coal prices in 2006. On April 20, 2006, the Australian Barlow Jonker Coal spot price was US$52.9 per tonne, which increased by 39.4% compared to the lowest price of US$37.95 per tonne in 2005. The contract price for coal in 2006 is expected to be higher than the spot price for coal.

The average coal sales prices is expected to decrease in 2006 compared to that of 2005. We are in the process of negotiations for domestic and export coal sales contracts for 2006. It is expected that the contract price of domestic power coal will increase and the domestic contract prices of other coal sales are expected to remain stable. However, export coal price is expected to decrease and the amount of price decrease in semi-soft coking coal will be greater than that of steam coal. It is expected that our contract price of export coal will be higher than the current spot price.

E. Off-balance Sheet Arrangements

As of December 31, 2005, other than capital expenditure commitments, discussed in “B. Liquidity and Capital Resources” above, and contractual obligations, discussed in “F. Contractual Obligations” below, we did not have any off-balance sheet arrangements.

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F. Contractual Obligations

The following table summarizes our contractual obligations and commercial commitments at December 31, 2005:

	Payments due by period
	Total	Less than 1 Year	1-3 years	3-5 years	More than 5 years
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Contractual Obligations
Unsecured bank borrowings	200,000	200,000	—	—	—
Capital commitments for the acquisition of property, plant and equipment(2)	920,907	920,907	—	—	—
Capital commitments for the development of new coal mines	1,900,000	1,900,000	—	—	—
Amounts due to Parent Company and its subsidiaries	540,081	508,254	16,870	14,957	—
Total	3,560,988	3,529,161	16,870	14,957	—

Acquisition of Jining III

We acquired Jining III on January 1, 2001 pursuant to the Jining III Acquisition Agreement entered into between the Parent Company and us on August 4, 2000. Pursuant to the Jining III Acquisition Agreement, we agreed to pay approximately RMB132.5 million as total consideration for the mining rights associated with Jining III. This amount is to be paid to the Parent Company in 10 equal annual interest free installments commenced in 2001. As at December 31, 2005 we have paid total of RMB66.2 million to the Parent Company for mining rights to Jining III.

Loan Agreement

We entered into a long-term loan agreement with the Bank of China on December 3, 2001 and borrowed a total of RMB1.2 billion from the Bank of China on January 4, 2002. The initial interest rate of the loans was 6.21% per annum, subject to adjustment in accordance with statutory interest rate or changes by the State in the method of calculating interest during the term of the loan agreement. The interest rate of the loans was adjusted to 5.76% first in 2003 and then to 6.12% in 2004. The loan is repayable in six annual installments of RMB200.0 million each over a period of 96 months, commencing August 2004. Interest is payable on a quarterly basis. We made a partial repayment of RMB600.0 million in June 2003. According to the terms of the loan agreement, the balance of the loan is repayable in three annual installments of RMB200 million, i.e. on August 25, of each year beginning 2004 to 2006.

Mining Rights

Pursuant to the Mining Rights Agreement dated October 17, 1997, we have agreed to pay to the Parent Company an annual fee (“Annual Fee”) of approximately RMB13.0 million as compensation for the Parent Company’s agreement to relinquish the mining rights associated with our mines (other than Jining III). The terms of the mining rights are 67 years for Baodian, 70 years for Dongtan, 45 years for Nantun, 80 years for Xinglongzhuang and 64 years for Jining II. All such terms commenced on October 14, 1997, the date on which the mining rights permits were issued. It has been agreed that the Annual Fee will be fixed for a period of ten years (the “Initial Period”), after which the Annual Fee will be revised if new national legislation is passed in respect thereof. The Parent Company and we have also entered into the Compensation Agreement on October 17, 1997 whereby the Parent Company has agreed that, following the Initial Period, if we request a re-calculation of the amount of Annual Fee payable, the parties shall engage a qualified asset appraisal agency to appraise the value of the relevant mining rights and submit the appraised value to the relevant government authorities for verification and confirmation, before making any adjustment to the Annual Fee.

We entered into the Asset Sale Agreement with the receivers and managers and the liquidators of Southland Coal Pty Limited in October 2004, pursuant to which we acquired the entire assets of Southland

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Colliery previously owned by Southland Coal Pty Limited in liquidation. For more details, please see “ Item 4 – Information of the Company – History and Development of the Company” and “Item 4 – Information of the Company – D. Property, Plants and Equipment.”

G. Critical Accounting Policies

We prepare our consolidated financial statements in accordance with International Financial Reporting Standards. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to impairment, inventories, allowance for doubtful debts, income taxes, land subsidence, restoration, rehabilitation and environmental costs, and depreciation of mining structure. We base our estimates and judgments on historical experience and on various other factors that we believe are reasonable. Actual results may differ from these estimates.

The following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Goodwill

Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over our interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognized as an asset and is subsequently measured at cost less any accumulated impairment losses. Any impairment is recognized immediately in income statement and is not subsequently reversed.

For previously capitalized goodwill arising on acquisitions after January 1, 2001, we have discontinued amortization from January 1, 2005 onwards, and such goodwill is tested for impairment annually, and whenever there is an indication that the cash generating unit to which the goodwill relates may be impaired.

For the purposes of impairment testing, goodwill is allocated to each of our cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually and whenever there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. As at December 31, 2005, the carrying amount of goodwill is RMB153,037,000.

Goodwill arising on the acquisition of businesses or subsidiaries is presented separately in the balance sheet.

On disposal of a business or subsidiary, the attributable amount of goodwill is included in the determination of the gain or loss on disposal.

Through December 31, 2005, we recorded a RMB153.0 million goodwill resulting from the acquisition of Heze, Jining II, Yanmei Shipping and Railway Assets.

Impairment other than goodwill

At each balance sheet date, we review the carrying amounts of tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, we estimate the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

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If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized as income immediately.

At December 31, 2005, we have not recorded an impairment charge for our assets.

Income taxes

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Our liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries, except where we are able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realized. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and we intend to settle its current tax assets and liabilities on a net basis.

Through December 31, 2005, we have recognized deferred tax liabilities for the tax consequence of temporary differences on the additional provision for land subsidence, restoration, rehabilitation and environmental costs as management believes that its realization is probable. A change in management’s belief resulting from anticipated levels of profitability would result in adjustment to the amount of deferred tax assets recognized and further impact our earnings in the year this change occurs. We have also recognized the deferred taxation for the tax effect on the provision for work safety costs in 2005.

Land subsidence, restoration, rehabilitation and environmental costs

One consequence of coal mining is land subsidence caused by the resettlement of the land above the underground mining sites. Depending on the circumstances, we may relocate inhabitants from the land above the underground mining sites prior to mining those sites or we may compensate the inhabitants for

41

losses or damages from land subsidence after the underground sites have been mined. We may also be required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined.

An estimate of such costs is recognized in the period in which the obligation is identified and is charged as an expense in proportion to the coal extracted.

Depreciation of mining structure

The mining structure includes the main and auxiliary mine shafts and underground tunnels. Depreciation is provided to write off the cost of the mining structure using the units of production method based on the estimated production volume for which the structure was designed. Production volumes over the lives of these assets which differ from management’s estimates will impact future operating results.

For a detailed discussion of critical accounting policies, see Note 4 to our Financial Statements.

Estimated impairment on trade receivables

We regularly review the recoverability and age of the trade receivables. Impairment on trade receivables is made based on the estimation of the future cash flow discounted at an effective interest rate to calculate the present value.

Mining Rights

Mining rights are amortized on a straight line basis over the shorter of the contractual period and their useful lives estimated based on the total proven and probable reserves of coal mine. We exercise our judgment in estimating the total proven and probable reserves of coal mine.

Recent Changes in Accounting Pronouncements

In 2005, the International Accounting Standards Board issued a number of new or revised IFRS which are effective for accounting periods beginning on or after January 1, 2005. We have adopted these new IFRS in the financial statements for the year ended December 31, 2005.

We have considered these new IFRS and identified a number of these new IFRS that may have a material effect on how the results of our operations and financial position are prepared and presented as described below:

• goodwill (IFRS 3); and

• excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost of acquisition (previously known as negative goodwill) (IFRS 3);

The impact of these changes in accounting policies is discussed in detail below. The impact on basic earnings per share is disclosed in note 16 to the financial statements included in Item 18.

At the date of authorization of these financial statements, the following standards and interpretations were in issue but not yet effective:

IAS 1 (Amendment)	Presentation of Financial Statements Added disclosures about an entity’s capital1
IAS 19 (Amendment)	Employee Benefits2
IAS 39 (Amendment)	Financial Instruments: Recognition and Measurement Amendment for hedges of forecast intragroup transactions2
IAS 39 (Amendment)	Financial Instruments: Recognition and Measurement Amendment for fair value option2
IAS 39 (Amendment) & IFRS 4	Financial Instruments: Recognition and Measurement Amendment for financial guarantee contracts2

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IFRS 6	Exploration for and Evaluation of Mineral Assets2
IFRS 7	Financial Instruments: Disclosures1
IFRIC 4	Determining whether an Arrangement Contains a Lease2
IFRIC 5	Rights to Interests Arising from Decommissing, Restoration and Environmental Rehabilitation Funds2
IFRIC 6	Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment3
IFRIC 7	Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies4
IFRIC 8	Scope of IFRS 25
IFRIC 9	Reassessment of Embedded Derivatives6

¹ Effective for annual periods beginning on or after January 1, 2007.

² Effective for annual periods beginning on or after January 1, 2006.

³ Effective for annual periods beginning on or after December 1, 2005.

⁴ Effective for annual periods beginning on or after March 1, 2006.

⁵ Effective for annual periods beginning on or after May 1, 2006.

⁶ Effective for annual periods beginning on or after June 1, 2006.

We are evaluating the impact of the adoption of these standards and interpretations but have not yet determined the effect on the adoption on our financial position and results of operations.

IFRS 3 “Business Combinations”

Goodwill

IFRS 3 “Business Combinations” has been adopted for business combinations for which the agreement date is on or after March 31, 2004. The option of limited retrospective application of the Standard has not been taken up, thus avoiding the need to restate past business combinations. The principal impact of the new standard on the accounting for that transaction has been the recognition of contingent liabilities that would not have been recognized separately from goodwill under the predecessor Standard, IAS 22. The recognition of these liabilities has had no material impact on the results for the year.

After initial recognition, IFRS 3 requires goodwill acquired in a business combination to be carried at cost less any accumulated impairment losses. Under IAS 36 “Impairment of Assets” (as revised in 2004), impairment reviews are required annually, or more frequently if there are indications that goodwill might be impaired. IFRS 3 prohibits the amortization of goodwill. Previously, under IAS 22, we carried goodwill in its balance sheet at cost less accumulated amortization and accumulated impairment losses. Amortization was charged over the estimated useful life of the goodwill, subject to the rebuttable presumption that the maximum useful life of goodwill was 20 years.

In accordance with the transitional rules of IFRS 3, we have applied the revised accounting policy for goodwill prospectively from the beginning of its first annual period beginning on or after March 31, 2004, i.e. January 1, 2005, to goodwill acquired in business combinations for which the agreement date was before March 31, 2004. Therefore, from January 1, 2005, we have discontinued amortizing such goodwill and has tested the goodwill for impairment in accordance with IAS 36. At January 1, 2005, the carrying amount of amortization accumulated before that date of RMB29.3 million has been eliminated, with a corresponding decrease in the cost of goodwill.

Because the revised accounting policy has been applied prospectively, the change has had no impact on amounts reported for the year ended December 31, 2004 or prior periods. No amortization has been charged in the current year. Under the previous accounting policy, RMB15.8 million would have been charged to income statement during the year ended December 31, 2005, leaving a balance of goodwill of RMB137.2 million at December 31, 2005.

No impairment loss has been recognized in the current period in accordance with IAS 36.

Excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost” (previously known as negative goodwill)

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IFRS 3 requires that, after reassessment, any excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the business combination should be recognized immediately in profit or loss. IFRS 3 prohibits the recognition of negative goodwill in the balance sheet.

Previously, under IAS 22 (superceded by IFRS 3), negative goodwill was released to income over a number of accounting periods, based on an analysis of the circumstances from which the balance resulted. Negative goodwill was reported as a deduction from assets in the balance sheet.

In accordance with the transitional rules of IFRS 3, the revised accounting policy has been applied prospectively from January 1, 2005. Therefore, the change has had no impact on amounts reported for the year ended December 31, 2004 or prior periods.

The carrying amount of negative goodwill at January 1, 2005 has been derecognized at the transition date. Therefore, an adjustment of RMB27.6 million is made to opening retained earnings and negative goodwill at January 1, 2005.

Under the previous accounting policy, RMB27.6 million of negative goodwill would have been released to income during the year ended December 31, 2005, leaving zero balance of negative goodwill at December 31, 2005. Therefore, the impact of the change in accounting policy in 2005 is a reduction in other operating income of RMB27.6 million and no financial impact on net assets at December 31, 2005.

Recent Pronouncements in the US GAAP

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 123 (revised 2004) (“SFAS No. 123-R”). “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123-R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. Generally, the approach in SFAS No. 123-R is similar to the approach described in SFAS No. 123. However, SFAS No. 123-R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on the grant-date fair values. Pro forma disclosure previously permitted under SFAS No. 123 is no longer an alternative. The new standard, as recently amended, will be effective for the Group in the annual reporting period beginning after January 1, 2006. Under SFAS No. 123-R, the Group could elect the modified prospective or modified retroactive option for transition on the adoption of this new standard. Under the modified retroactive option, prior periods are adjusted on a basis consistent with the pro forma disclosures previously required for those periods by SFAS No. 123. Under the modified prospective option, compensation expense for all unvested stock options must be recognized on or after the required effective date based on the grant-date fair value of those stock options. The Group does not issue stock options and therefore the adoption of SFAS No. 123-R did not have material impact on the Group’s financial statements.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4”. SFAS No. 151 clarifies the accounting that requires abnormal amounts of idle facility expenses, freight, handling costs, and spoilage costs to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective for inventory costs incurred on or after July 1, 2005. The Group adopted SFAS No.151 on July 1, 2005 and it did not have a material effect on the Group’s financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets — an amendment of APB Opinion No. 29” (“SFAS 153”), which amends Accounting Principles Board Opinion No. 29, “Accounting for Nonmonetary Transactions” to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for nonmonetary assets exchanges occurring in fiscal periods beginning after June 15, 2005. The Group does not anticipate that the adoption of this statement will have a material effect on the Group’s financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”) which replaces Accounting Principles Board Opinions No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements — An Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Group does not anticipate that the adoption of this statement will have a material effect on the Group’s financial position or results of operations.

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Reconciliation and Summary of Differences between IFRS and U.S. GAAP

The consolidated financial statements are prepared in accordance with IFRS, which differ in certain significant respects from US GAAP. The significant differences relate principally to the accounting for the acquisitions of Jining II, Jining III and Railway Assets, the cost bases of property, plant and equipment and land use rights and related adjustments to deferred taxation.

Under IFRS, the acquisitions of Jining II, Jining III and the Railway Assets have been accounted for using the purchase method which accounts for the assets and liabilities of Jining II, Jining III and the Railway Assets at their fair value at the date of acquisition. Any excess of the purchase consideration over the fair value of the net assets acquired is capitalized as goodwill. Prior to January 1, 2005, such goodwill was amortized over a period of ten to twenty years. Subsequent to January 1, 2005, such goodwill is tested for impairment at least annually. Prior to January 1, 2005, any excess of the fair value of the net assets acquired over the purchase consideration is recorded as negative goodwill, which was presented as a deduction from the assets of the Group in the consolidated balance sheet. Such negative goodwill was released to the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets. The carrying amount of negative goodwill has been de-recognized and adjusted to the opening retained earnings at January 1, 2005.

Under US GAAP, as the Group, Jining II, Jining III, the Railway Assets and Heze Nenghua are entities under the common control of the Parent Company, the assets and liabilities of Jining II, Jining III, the Railway Assets and Heze Nenghua are required to be included in the consolidated balance sheet of the Group at historical cost. The difference between the historical cost of the assets and liabilities of Jining II, Jining III, the Railway Assets and Heze Nenghua acquired and the purchase price paid is recorded as an adjustment to shareholders’ equity.

In applying the pooling of interest method, the financial statement items of the combining enterprises for the period in which the combination occurs and for any comparative periods disclosed should be included in the financial statements of the combined enterprises as if they had been combined from the beginning of the earliest period presented. The effect of accounting for the acquisition of Heze Nenghua using the pooling of interest method on the net income under US GAAP for the year ended December 31, 2004 and 2003 is as follows:

	Year ended December 31,
	2004		2003
	RMB’000		RMB’000
Net income
As previously reported	3,272,478		1,499,249
Pooling of interest adjustment
Net loss from Heze Nenghua	(8,586	)	—
As restated	3,263,892		1,499,249

Under IFRS, the mining rights of Jining III are stated at purchase consideration less amortization. Mining rights are amortized on a straight line basis over twenty years, being the useful life estimated based on the total proven and probable reserves of the coal mine. Under US GAAP, as both the Group and Jining III are entities under the common control of the Parent Company, the mining rights have to be restated at nil cost and no amortization on mining rights will be recognized. However, a deferred tax asset relating to the capitalization of mining rights is required to be recognized under US GAAP as a higher tax base resulting from the capitalization is utilized for PRC tax purposes.

Under IFRS, property, plant and equipment and prepaid lease payments have been stated based on their respective fair values at the date of acquisition even for cases involving transaction between entities under common control. The fair value amount becomes the new cost basis of the assets of the Company formed from the reorganization and depreciation is based on such new basis. Under US GAAP, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity

45

that receives the net assets or equity interests shall initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer. Accordingly, property, plant and equipment and prepaid lease payments are restated at the historical cost and no additional depreciation on the fair value amounts will be recognized under US GAAP. However, a deferred tax asset relating to the difference in cost bases between the fair value at the date of acquisition and historical cost is required to be recognized under US GAAP and the tax bases of the assets are the fair value amount at the date of acquisition.

Under IFRS, the acquisition of Yanmei Shipping has been accounted for using purchase method which accounted for the assets and liabilities of Yanmei Shipping at their fair value at the date of acquisition. The excess of the purchase consideration over the value of the net assets acquired is capitalized and amortized over a period of ten years prior to January 1, 2005. No further difference in this treatment of goodwill are identified from January 1, 2005 onwards. Under US GAAP, goodwill is not amortized but instead tested for impairment at least annually

The adjustments necessary to restate net income and shareholders’ equity in accordance with U.S. GAAP are shown in the tables set out below.

	Year ended December 31,
	2005		2004		2003
	RMB’000		RMB’000		RMB’000
Income attributable to the equity holders of the Company as reported under IFRS	2,881,461		3,154,317		1,386,686
U.S. GAAP adjustments:
Additional depreciation charged on fair valued property, plant and equipment and prepaid lease payments	187,885		187,418		188,191
Additional deferred tax charge due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and prepaid lease payments and capitalization of mining rights	(64,188	)	(64,034	)	(64,389	)
Amortization of negative goodwill on acquisition of of Jining III	—		(27,620	)	(27,620	)
Amortization of mining rights of Jining III	6,624		6,624		6,624
Amortization of goodwill arising on acquisition of Jining II	—		777		777
Amortization of goodwill arising on acquisition of the Railway Assets	—		13,880		8,880
Amortization of goodwill arising on acquisition of Yanmei Shipping	—		1,116		—
Loss of Heze Nenghua included in the Group using the pooling of interest method	(17,071	)	(8,586	)	—
Income under U.S. GAAP	2,994,711		3,263,892		1,499,249
Earnings per share under U.S. GAAP, Basic and diluted	RMB0.61		RMB0.69		RMB0.33
Earnings per ADS under U.S. GAAP, Basic and diluted	RMB30.44		RMB34.40		RMB16.32

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	At December 31,
	2005		2004
	RMB’000		RMB’000
Equity attributable to the equity holders of the Company as reported under IFRS	17,618,577		15,523,751
U.S. GAAP adjustments:
Difference in cost bases of property, plant and equipment and prepaid lease rights	(2,561,032	)	(2,561,032	)
Additional depreciation/amortization charged on fair valued property, plant and equipment and prepaid lease payments	1,500,823		1,312,938
Additional deferred tax asset due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and prepaid lease payments	349,869		411,871
Goodwill arising on acquisition of Jining II	(10,106	)	(10,106	)
Negative goodwill arising on acquisition of Jining III, net	—		27,621
Mining rights of Jining III	(99,359	)	(105,983	)
Additional deferred tax asset due to a higher tax base resulting from capitalization of mining rights	32,788		34,974
Goodwill arising on acquisition of Railway Assets	(97,240	)	(97,240	)
Amortization of goodwill arising on acquisition of Yanmei Shipping	1,116		1,116
Net assets of Heze Nenghua incorporated under pooling of interest
— current assets	—		442,355
— property, plant and equipment, net	—		192,963
— current liabilities	—		(44,292	)
— minority interests	—		(25,592	)
	—		565,434
Consideration payable on acquisition of Heze Nenghua	—		(584,008	)
Goodwill arising on acquisition of Heze Nenghus	(35,645	)	—
Shareholders’ equity under U.S. GAAP	16,699,791		14,519,336

ITEM 6. DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Director, Supervisors and Senior Management

The following table sets forth certain information concerning our board of directors (“Board of Directors”), board of supervisors (the “Board of Supervisors”) and executive officers as of June 30, 2006. Based on our articles of association (“Articles of Association”), our Board of Directors currently consists of 13 directors, with one Chairman, two Vice Chairmen, four independent directors, and one employee director. All Directors serve a term of three years since their respective election dates or until the election of their respective successors. The current Directors were elected in the shareholders’ meeting held on June 28, 2005. As more than 50% of our voting power is held by the Parent Company, we are not required to have a majority of independent directors in reliance on the exemption provided under Section 303A.00 of the NYSE Listing Rules.

Name	Age	Position at the Company	Date Term of Office Expires	Share Ownership As of December 31, 2005*
Directors
WANG Xin	47	Chairman	June 28, 2008	0
GENG Jiahuai	55	Vice Chairman	June 28, 2008	0
YANG Deyu	57	Vice Chairman and General Manager	June 28, 2008	16,000
SHI Xuerang	51	Director	June 28, 2008	0
CHEN Changchun	53	Director	June 28, 2008	0
WU Yuxiang	44	Director and Chief Finance Officer	June 28, 2008	16,000
WANG Xinkun	53	Director and Deputy General Manager	June 28, 2008	0

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Name	Age	Position at the Company	Date Term of Office Expires	Share Ownership As of December 31, 2005*
CHEN Guangshui	40	Director and Secretary of the Board of Directors	June 28, 2008	1,600
DONG Yunqing	50	Director	June 28, 2008	0
Independent Non-executive Directors
PU Hongjiu	69	Director	June 28, 2008	0
CUI Jianmin	73	Director	June 28, 2008	0
WANG Xiaojun	51	Director	June 28, 2008	0
WANG Quanxi	50	Director	June 28, 2008	0
Supervisory Committee
MENG Xianchang	58	Chairman of Supervisory Committee	June 28, 2008	16,000
SONG Guo	51	Vice Chairman of Supervisory Committee	June 28, 2008	0
ZHANG Shengdong	49	Supervisor	June 28, 2008	0
LIU Weixin	55	Supervisor	June 28, 2008	0
XU Bentai	47	Supervisor	June 28, 2008	0
Executive Officers
JIN Tai	54	Deputy General Manager	—	0
ZHANG Yingmin	52	Executive Deputy General Manager	—	0
HE Ye	48	Deputy General Manager	—	0
TIAN Fengze	49	Deputy General Manager	—	0
SHI Chengzhong	43	Vice General Manager	—	0
LAI Cunliang	45	Vice General Manager	—	0
NI Xinghua	49	Chief Engineer	—	0

* In the form of A Shares. Aggregate ownership less than 1% of the outstanding Shares.

Executive Directors

WANG Xin, aged 47, an engineering technique application researcher, doctor of engineering technology, is the chairman of the Board and the vice chairman of the board of directors and the general manager of the Parent Company. Mr. Wang joined the predecessor of the Company in 1982 and became the vice general manager of the Parent Company in 2000. He was appointed as the director of the board of directors and vice general manager of the Parent Company in 2002, and promoted to be the vice chairman of the board of directors and the general manager of the Parent Company in 2003. In 2004, he became a director and the chairman of the Board of the Company. He graduated from China University of Mining and Technology.

GENG Jiahuai, aged 55, an engineering technique application researcher, is the vice chairman of the Board and the chairman of the board of directors and the party committee secretary of the Parent Company. During the period from 1985 to 2002, Mr. Geng successively acted as the deputy director of Zibo Mining Bureau, the Director of the Safety and Supervision Bureau and the director general of Zibo Mining Bureau. Mr. Geng joined the Parent Company in 2002 and became the general manager, the vice chairman of the board of directors and the party committee deputy secretary of the Parent Company. Mr. Geng became the chairman of the board of the directors and the party committee secretary of the Parent Company in 2003. Mr. Geng became a director of the Company in 2002 and the vice chairman of the Company in 2004. He graduated from Shandong Mining Institute.

YANG Deyu, aged 57, an engineering technique application researcher, is the vice chairman of the Board and the general manager of the Company, and a director of the board of the Parent Company. Mr. Yang joined the Predecessor in 1968 and became the deputy director of Yanzhou Mining Bureau in 1994, and the deputy general manager of the Predecessor and the Director of the Safety and Supervision Bureau in 1996. Mr. Yang became an executive director and the general manager of the Company in 1997 and the vice chairman of the Board and the general manager of the Company in 2002. Mr. Yang became a director of the board of directors of the Parent Company in 2004. He graduated from Shandong Mining Institute.

SHI Xuerang, aged 51, a senior engineer, is a director of the Company and deputy general manager of the Parent Company. From 2001 to 2003, Mr. Shi has successively acted as the deputy general manager of

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Xinkuang Group. He joined the Parent Company as the deputy general manager of the Parent Company in 2003 and became a director of the Company in 2005. He graduated from Shandong Mining Institute.

CHEN Changchun, aged 53, a senior accountant, is a director of the Company and a director and the chief accountant of the Parent Company. Mr. Chen joined the Predecessor in 1984 and became the chief accountant of the Parent Company in 1998 and became a director of the Parent Company in 2004. Mr. Chen became a director of the Company in 2005. He graduated from Beijing Coal Cadre Institute.

WU Yuxiang, aged 44, a senior accountant, is a director and the chief financial officer of the Company. Mr. Wu joined the Predecessor in 1981 and became the chief accountant of the finance department of the Predecessor in 1996. Mr. Wu became the Manager of the finance department of the Company in 1997, and was promoted to be a director and the chief financial officer of the Company in 2002. He graduated from Shandong TV University.

WANG Xinkun, aged 53, a senior economist, is a director and the deputy general manager of the Company. Mr. Wang joined the Predecessor in 1977. Mr. Wang became the manager of the coal transportation and sales department of the Company in 2000, and the deputy general manager of the Company in 2002. He became a director of the Company in 2004. He graduated from Tianjin University.

CHEN Guangshui, aged 40, a senior economist, is a director, the secretary to the Board. Mr. Chen joined the Predecessor in 1990. He became the secretary to the Board and the head of the Secretariat of the Board of the Company in 1997. Mr. Chen became a director of the Company in 2005. He graduated from Fuxin Mining Institute.

DONG Yunqing, aged 50, a senior administrative officer, is a director and the chairman of labor union of the Company. Mr. Dong joined the Predecessor in 1981 and was the vice chairman of labor union of the Parent Company from 2001 to April 2003. Mr. Dong became a director and the chairman of labor union of the Company in 2002. He graduated from Shandong Mining Institute.

Independent Non-executive Directors

PU Hongjiu, aged 69, professor-level senior engineer, is an independent non-executive director of the Company. He is the first vice chairman of the China Coal Industry Association, the chairman of Coal Industry Association of China International Association, the board chairperson of China Coal Academy. Mr. Pu was a party group member and the head of disciplinary inspection group in State Administration of Work Safety and State Administration of Coal Mine Safety in 2001. He has been the board chairperson of China Coal Academy since 2001, the first vice chairman of the China Coal Industry Association since 2003 and the board chairperson of China Miner Pneumoconiosis Treatment Foundation since 2004. He became an independent non-executive director of the Company in 2005. He graduated from Hefei Mining Institute. He also acts as an independent non-executive director in Shanghai Datun Energy Company Limited and Shenhua Ningxia Coal Mining Group Corporation Limited.

CUI Jianmin, aged 73, a senior auditor and certified accountant, is a consultant for China Tax Expert Association, and part-time professor for colleges such as Central Finance and Economics University. Mr. Cui had previously been the deputy chief auditor of National Audit Office of the PRC, the chairman of the Association of China Certified Accountant, and a committee member of the 8th National Committee of the Chinese People’s Political Consultative Conference. Mr. Cui became an independent non-executive director of the Company in 2002 and he has been a consultant in China Tax Expert Association since September 2004. Mr. Cui graduated from People’s University of China. Mr. Cui also acts as an independent non-executive director both in China Power Co., Ltd and CITIC Guoan Information Industry Co., Ltd.

WANG Xiaojun, aged 51, admitted as a solicitor in England and Wales and Hong Kong, is an independent non-executive director and a partner of the Wang & Co., X. J. in Hong Kong and is an independent non-executive director of the Company. He has practiced PRC law in Beijing, and was admitted in the PRC, Hong Kong and England and Wales in 1988, 1995 and 1996, respectively. Mr. Wang has worked as a legal adviser in the Hong Kong Stock Exchange and Richards Bulter. He became an independent non-executive Director of the Company in 2002. He graduated from the People’s University of China and the Graduate School of the Chinese Academy of Social Sciences and holds a bachelor degree in laws and a master degree in laws. Meanwhile, he also acts as independent non-executive director of the Guangzhou Guangchuan International Company Limited and Hong Kong Zhengqi Investment Company Limited.

WANG Quanxi, aged 50, professor of Nankai University, is an independent non-executive director of the Company. He is the director of financial management department of Nankai University, the director of

49

Enterprise Research Center of Nankai University, the vice director of MBA Center of Nankai University, and the secretary-general of Association of Management of Tianjin City. Mr. Wang became the independent non-executive director of the Company in 2004. He graduated from Tianjin Finance and Economics University. Meanwhile, he also acts as independent non-executive director of YinzuoBohai Group Co., Ltd.

Board of Supervisors

MENG Xianchang, aged 58, a senior administrative officer, is the chairman of the supervisory committee of the Company and party committee deputy secretary of the Parent Company. Mr. Meng joined the Predecessor in 1981 and was promoted as party committee deputy secretary and a supervisor of the Predecessor in 1996, and became the chairman of the supervisory committee of the Company in 1997. He graduated from Shandong Mining Institute.

SONG Guo, aged 51, a senior administrative officer, is the vice chairman of the supervisory committee of the Company, and the party committee deputy secretary and the secretary of disciplinary inspection committee of the Parent Company. Mr. Song was the director of the office of Coal Management Bureau of Shandong Province in 2002. He joined the Parent Company as secretary of the disciplinary inspection committee in 2002, and became the deputy secretary of party committee of the Parent Company. He became the vice chairman of the supervisory committee of the Company in 2005. He graduated from Shandong University.

ZHANG Shengdong, aged 49, a senior accountant, is a supervisor of the Company and the deputy chief accountant of the Parent Company. Mr. Zhang joined the Predecessor in 1981 and became the deputy chief accountant in 1997. He became a supervisor of the Company in 2002. He graduated from China University of Mining and Technology.

LIU Weixin, aged 55, a senior accountant, is a supervisor of the Company and the vice director of the audit department of the Parent Company. Mr. Liu joined the Predecessor in 1971, and became the vice director of the audit affair office of the Parent Company in 2001, the chief of audit department of the Parent Company in 2003, and the deputy director of audit department of the Parent Company in 2005. Mr. Liu became a supervisor of the Company in 2002. He graduated from Shandong Youth Cadre Institute.

XU Bentai, aged 47, a senior administrative officer, is an employee supervisor of the Company and the chairman of Jining III Coal Mine’s labor union. Mr. Xu joined the Predecessor in 1978 and became the chairman of Jining III Coal Mine’s labor union in 1999. He became an employee supervisor of the Company in 2002. He graduated from the Central Communist Party School Correspondence Institute.

Other Executive Officers

JIN Tai, aged 54, a senior engineer, is the deputy general manger of the Company. Mr. Jin joined the Predecessor in 1968. He became the director of the dispatching office of the Predecessor in 1996, and became the head of Xinglongzhuang coal mine in 1998, and became the deputy general manager of the Parent Company in 2000. Mr. Jin became the deputy general manager of the Company in 2004. He graduated from China University of Mining and Technology.

ZHANG Yingmin, aged 52, an engineering technology application researcher, is the executive deputy general manager of the Company and a director of the Parent Company. Mr. Zhang joined the Predecessor in 1971. He became the head of Baodian coal mine in 2000. Mr. Zhang became the executive deputy general manager of the Company in 2002 and the deputy general manager of the Parent Company in 2003. Mr Zhang became a director of the board of directors of the Parent Company in 2004. He graduated from Tianjin University.

HE Ye, aged 48, a senior engineer, is a deputy general manager of the Company. Mr. He joined the Predecessor in 1993. He became the head of Jining II Coal Mine in 1999, and became the executive deputy general manager of an industrial company subordinated to the Parent Company in 2002. Mr. He was promoted to be a deputy general manager of the Company in 2002. He graduated from Guizhou Institute of Technology.

TIAN Fengze, aged 49, a senior economist, is a deputy general manager of the Company. Mr. Tian joined the Predecessor in 1976. He became the head of Beixu coal mine in 1991. Mr. Tian became a deputy general manager of the Company in 2002. He graduated from Beijing Coal Cadre Institute.

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SHI Chengzhong, aged 43, a senior engineer, is a deputy general manager of the Company. Mr. Shi joined the Predecessor in 1983 and became a deputy chief engineer of the Parent Company in 2000 and a deputy general manager of the Company in 2002. He graduated from Shandong Mining Institute. Mr. Shi also acts as a director of Guizhou Panjiang Coal Power Company Limited.

LAI Cunliang, aged 45, a senior engineer, master of mining engineer, is a deputy general manager of the Company. Mr. Lai joined the Predecessor in 1980 and became the head of Xinglongzhuang coal mine of the Company in 2000. Then he became a director and the general manager of YanCoal Australia Pty Limited in 2004. And he became a deputy general manager of the Company in 2005. He graduated from China University of Mining & Technology.

NI Xinghua, aged 49, an engineering technology application researcher, is the chief engineer of the Company. Mr. Ni joined the Predecessor in 1975 and became the deputy chief engineer of the Parent Company in 2000. He was promoted to be the chief engineer of the Company in 2002. He graduated from Tianjin University.

B. Compensation

The Directors, Supervisors and Executive Officers who are our employees receive compensation in the form of salaries, housing allowances, other allowances and benefits in kind, including our contribution to the pension plan for our Directors and Supervisors. The aggregate amount of cash remuneration paid by us to the 15 Directors (including a former independent non-executive director who retired from the Board of Directors on June 28, 2005), Supervisors and Executive Officers during the year ended December 31, 2005 was RMB2.5 million. The aggregate amount of cash remuneration paid by us to the five highest-paid individuals in the Company (including two Directors) in 2005 was RMB1.1 million. In addition, Directors and Supervisors receive certain other benefits in kind, such as subsidized or free health insurance and transportation, customarily provided by enterprises in the PRC to their employees. Details of the directors’ and supervisors’ emoluments on a named basis are as follows:

	For the year ended December 31, 2005
	Fees	Salaries, allowance and other benefits in kind	Retirement benefit scheme contribution	Discretionary bonus	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Independent non-executive directors
Pu Hongjiu	43	—	—	—	43
Cui Jianmin	81	—	—	—	81
Wang Xiaojun	98	—	—	—	98
Wang Quanxi	81	—	—	—	81
Fan Weitang	39	—	—	—	39
	342				342
Executive directors
Wang Xin	—	—	—	—	—
Geng Jiahuai	—	—	—	—	—
Yang Deyu	—	—	—	—	—
Shi Xuerang	—	—	—	—	—
Chen Changchun	—	—	—	—	—
Wu Yuxiang	—	144	65	—	209
Wang Xinkun	—	144	65	—	209
Chen Guangshui	—	144	65	—	209
Dong Yunqing	—	144	65	—	209
	—	576	260	—	836
Supervisors
Meng Xianchang	—	—	—	—	—
Song Guo	—	—	—	—	—
Zhang Sheng Dong	—	—	—	—	—
Liu Wei Xin	—	—	—	—	—
Xu Bentai	—	160	72	—	232
	—	160	72	—	232

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	For the year ended December 31, 2005
	Fees	Salaries, allowance and other benefits in kind	Retirement benefit scheme contribution	Discretionary bonus	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Other management team
Jin Tai	—	—	—	—	—
Zhang Yingmin	—	—	—	—	—
He Ye	—	144	65	—	209
Tian Fengze	—	144	65	—	209
Shi Chenzhong	—	145	65	—	210
Lai Cunliang	—	190	86	—	276
Ni Xinghua	—	144	65	—	209
	—	767	364	—	1,113

C. Board Practices

Board of Directors

Directors are elected by shareholders at a general meeting. Directors are elected for a term of three years. We adopt a cumulative voting rights system for the election of Board of Directors.

According to our Articles of Association, the Board of Directors is accountable to the shareholders in general meeting and exercises the following functions and powers:

(i) to be responsible for the convening of shareholders’ meetings and reporting on its work to the shareholders at such meetings;

(ii) to implement the resolutions passed by the shareholders in general meetings;

(iii) to determine our business plans and investment proposals;

(iv) to formulate our annual preliminary and final budgets;

(v) to formulate our profit distribution proposal and loss recovery proposals;

(vi) to formulate proposals for the increase or reduction of our registered capital and the issuance of our debentures or other forms of securities;

(vii) to draw up plans for our merger, division, dissolution or change of corporate structure;

(viii) to decide on our internal management structure;

(ix) to appoint or remove our general manager and to appoint or remove the deputy general manager(s) and other senior officers (including the financial controller), based on the recommendation of the general manager, and to decide on their remuneration;

(x) to formulate our basic management system;

(xi) to formulate proposals for any amendment of the Articles of Association;

(xii) to decide on our business involving overseas investments, acquisition and disposal of assets, mortgages of assets and other guarantees, financial management and connected transactions within the authority conferred by the general meeting;

(xiii) to manage disclosure of our information;

(xiv) to recommend to shareholders at shareholders’ general meetings the appointment or replacement of the independent auditors;

(xv) to receive the working report from our management and examine their performance; and

(xvi) to approve an aggregate amount of provision for impairment of assets not more than 10% of our latest audited consolidated net asset value, to clear an amount of provision for impairment of assets not more than 5% of our latest audited consolidated net asset value, and to execute in compliance with the relevant regulations on connected transactions of any provision and clearance of impairment of assets involving any connected transactions.

(xvii) to exercise any other powers conferred by the shareholders in general meeting.

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Except for items (vi), (vii) and (xi), which require the affirmative vote of more than two-thirds of all of the Directors, resolutions on any other items may be approved by the affirmative vote of a simple majority of Directors.

In addition to obligations imposed by laws, administrative regulations or the listing rules of the stock exchanges on which our Shares are listed, the Articles of Association place on each Director, Supervisor, general manager, deputy general manager and any other senior officer a duty to each shareholder, in the exercise of our functions and powers entrusted to such person:

• not to cause us to exceed the scope of business stipulated in our business license;

• to act honestly in our best interests;

• not to expropriate our property in any way, including (without limitation) usurpation of opportunities which benefit us; and

• not to expropriate the individual rights of shareholders, including (without limitation) rights to distributions and voting rights, save and except pursuant to our restructuring which has been submitted to the shareholders for their approval in accordance with the Articles of Association.

The Articles of Association further place on each Director, Supervisor, general manager, deputy general manager and senior officer:

• a duty, in the exercise of such person’s powers and discharge of such person’s duties, to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances;

• a fiduciary obligation, in the exercise of our powers entrusted to him or her, not to place himself or herself in a position where his or her duty to us and his or her interests may conflict; and

• a duty not to direct a person or entity related or connected to the Director, Supervisor, general manager, deputy general manager or senior officer in certain relationships enumerated in the Articles of Association to act in a manner which such Director, Supervisor, general manager, deputy general manager or senior officer is prohibited from doing.

Subject to compliance with relevant laws and administrative regulations, the shareholders in general meeting may by ordinary resolution remove any Director before the expiration of his term of office. Subject to certain qualifications, a Director, Supervisor, general manager, deputy general manager or other senior officer of the Company may be relieved of liability for a specific breach of his or her duties by the informed consent of shareholders in a general meeting.

As approved by our shareholders in the 2004 annual shareholders general meeting held on June 28, 2005, we established a Directors’ Decision Making Risk Fund (“Risk Fund”) to compensate the Directors, Supervisors, Executive Officers and other applicable personnel for personal economic losses resulted from their performance of duties in accordance with the laws, regulations or our Articles of Association or while attempting to procure legitimate benefits for our company. According to the “Management Measures for the Directors’ Decision Making Risk Fund of Yanzhou Coal Mining Company Limited” which was filed with the Commission as an exhibit to our annual report on Form 20-F for the fiscal year ended December 31, 2004, with effective from January 1, 2005, RMB100,000 for each incumbent Director and RMB50,000 for each incumbent Supervisor, Executive Officer and other applicable personnel will be drawn annually to form the Risk Fund. The compensation paid from the Risk Fund will only be granted upon the Board’s approval.

Audit Committee of the Board of Directors

Pursuant to a resolution passed on October 29, 2002, our Board of Directors established an audit committee and an audit department as the audit committee’s execution body. The audit committee comprised three independent non-executive directors, namely, Mr. Cui Jianmin (being the chairman of the audit committee), Mr. Fan Weitang and Mr. Wang Xiaojun, and two non-executive directors, namely, Mr. Wang Bangjun and Mr. Dong Yunqing. As approved by the Board of Directors on June 28, 2005, we elected a new audit committee which is consisted of six members, including four independent non-executive directors, one affiliated director and one employee representative. Mr. Cui Jianmin, who is a financial expert, was elected again as the chairman of the audit committee. Mr. Cui has extensive experience in financial accounting and audit management. Mr. Cui is a senior auditor and certified accountant and is the chairman of the Association of China Certified Accountants. The primary duties of our audit committee as set out in the committee charter include (i) the engagement or replacement of external independent auditors, (ii) review and audit of our accounting policies and system, disclosure of financial information and financial reporting channels, (iii) review and audit our internal control system and risk management system. Details of the duties of our audit committee are available on our company website.

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Currently, the members of our audit committee of the Board of Directors are:

Name	Age	Position	Ownership of Shares
CUI Jianmin	73	Independent non-executive director	0
PU Hongjiu	69	Independent non-executive director	0
WANG Xiaojun	51	Independent non-executive director	0
WANG Quanxi	50	Independent non-executive director	0
CHEN Changchun	53	Affiliated Director	0
DONG Yunqing	50	Employee director	0

As a foreign private issuer, we rely on the exemption under Section 303A.00 of the NYSE Listed Company Manual as well as affiliated director and employee director exemptions as provided under Rule 10A-3 of the Securities Exchange Act of 1934 to be in compliance with the audit committee standards set out in Section 303A.06 of the NYSE Listed Company Manual.

Supervisory Committee

We have a supervisory committee comprising five members, one of whom is an employee representative. Supervisors serve a term of three years. The supervisory committee shall be accountable to the shareholders in a general meeting and shall exercise the following functions and powers in accordance with law:

• to review our periodic reports as prepared by the Board of Directors and to provide written comments;

• to review our financial position;

• to supervise the Directors, general manager, deputy general managers and other senior officers to ensure that they do not act in contravention of any law, regulation or our Articles of Association and to recommend for the dismissal of the Directors, general manger, deputy general managers and other senior officers for the breach of law, regulation or our Articles of Association when necessary;

• to demand any Director, general manager, deputy general manager or any other senior officer who acts in a manner which is harmful to our interest to rectify such behavior;

• to verify such financial information as financial reports, business reports and profit distribution plans to be submitted by the Board of Directors to shareholders’ general meetings and to authorize, in our name, publicly certified and practicing accountants to assist in the re-examination of such information should any doubt arise in respect thereof;

• to propose to convene shareholders’ extraordinary general meetings and extraordinary board meetings;

• to make proposals at the shareholders’ general meetings;

• to represent us in negotiations with or in bringing actions against a Director or senior officers; and

• other functions and powers specified in our Articles of Association.

Supervisors shall attend meetings of the Board of Directors.

Compensation Committee

Pursuant to a resolution passed on June 28, 2005, our Board of Directors approved and established a compensation committee. The compensation committee is consisted of three members, including two independent non-executive directors and one employee director. Mr. Wang Quanxi was elected to serve as the chairman of the compensation committee. The primary duties of our compensation committee as set out in the committee charter include (i) the drafting and establishment of the compensation policies for the Directors, Supervisors, and the senior officers of the Company and (ii) the recommendation of

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compensation proposals for the Directors, Supervisors and the senior officers of the Company to the Board of Directors. Further details on the responsibilities of the compensation committee can be found on our website.

Nomination / Corporate Governance

As at December 31, 2005, the Parent Company held 2,672,000,000 Shares in the form of Legal Person Shares, representing 54.33% of our total Shares on the same day. As more than 50% of our voting power is held by the Parent Company, we are a “controlled company” under NYSE Listing Rules 303A.00. As a result, we are not required to establish a Nomination Committee or Corporate Governance Committee under Sections 303A.04 and 303A.05 of the NYSE Listing Rules. As such, we currently do not have any such committees.

Arrangement to Purchase Equity or Debt Securities and Other Arrangements

At no time during the year ended December 31, 2005, were we, our Parent Company or any of our fellow subsidiaries a party to any arrangement to enable our Directors or Supervisors to acquire benefits by means of the acquisition of our equity or debt securities or any other body corporate with the exception of the A Shares issued to our Directors, Supervisors and senior management.

There is no arrangement or understanding between any Director and any major shareholder, customer or supplier in connection with the selection of such Director.

Service Contracts of Directors and Supervisors

Each of the Directors and Supervisors has entered into a service contract with us. Under such contracts, each executive director will receive a salary and a discretionary year-end bonus, at such levels as are proposed by the Board of Directors and approved by the shareholders of our company in general meetings, provided that the discretionary year-end bonuses paid to our Executive Directors and other employees (including, but not limited to, our other Directors, Supervisors and executive officers) do not, in aggregate, exceed 1% of the net profit after taxation and extraordinary losses but before extraordinary gains for that year.

Save as disclosed herein, no Director or Supervisor has entered into any service contract with our company which is not terminable by us within one year without payment other than statutory compensation.

D. Employees

General

The table below sets forth the number of our employees by function as of the period indicated:

	As of December 31,
	2003	2004	2005
Coal Production employees	21,419	22,369	23,060
Engineers and technicians	923	1,023	1,069
Management and administrative personnel	1,847	2,055	1,995
Support staff	3,772	3,819	3,939
Total	27,961	29,266	30,063

The table below sets forth the number of our employees by locations as of December 31, 2005:

Location	Employees	% of Total
PRC
Shandong	29,990	99.7	%
Shanxi	58	0.2	%
Australia	15	0.1	%
Total	30,063	100.0	%

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The total remuneration of our employees includes wages and bonuses. We paid our employees an aggregate of approximately RMB875.7 million, RMB1,051.7 million and RMB1,278.1 million in wages and bonuses in the years ended December 31, 2003, 2004 and 2005, respectively. The compensation of an employee directly involved in underground mining is based on the production of such employee, as well as the production of the employee’s mining team. Employees and their families also receive certain social welfare benefits and education and health services from the Parent Company. These benefits are provided in some cases by the Parent Company, as required by PRC laws and rules and regulations. We in turn pay the Parent Company for all such benefits.

The Parent Company is responsible for the administration of our employee pension fund and for the provision of retirement benefits to our retirees. According to the Pension Fund Agreement entered into between the Parent Company and us, we are obligated to set aside the pension fund which equals 45% of the total remuneration paid to our employees, for the Parent Company to pay the local pension fund authority for and on behalf of our employees and to pay for employee retirement benefits. The welfare of retired employees is administrated by the Parent Company. The Pension Fund Agreement was renewed in 2002. We and the Parent Company agreed that the foregoing pension fund scheme will be continuously applied from 2002 to 2006. Pursuant to the approval of the Board of Directors on January 6, 2006, we and the Parent Company entered into a new Agreement for the Administration of Pension Fund and Retirement Benefit on January 10, 2006 ,(“Pension Fund and Retirement Benefit Agreement”), to continue the administration of the foregoing pension fund scheme. The Pension Fund and Retirement Benefit Agreement is for a term of three years. We further carry personal injury insurance for employees.

Our subsidiaries are participants in a State-managed retirement scheme pursuant to which the subsidiaries pay a fixed percentage of their qualifying staff’s wages as a contribution to the scheme. The subsidiaries’ financial obligations under this scheme are limited to the payment of the employer’s contribution. In 2005, contributions payable by the subsidiaries pursuant to this arrangement were insignificant.

In 2003, 2004 and 2005, total contributions paid by us for our Directors, Supervisors, Executive Officers and senior management to the pension fund were approximately RMB0.1 million, RMB0.5 million and RMB0.7 million, respectively. In addition, each employee of ours currently pays a percentage of his or her salary as an additional contribution. Upon retirement, our employees are entitled to the payment of a pension from the scheme.

Currently, all of our employees are employed under employment contracts which specify the employee’s position, responsibilities, remuneration and grounds for termination. We have a labor union that protects employees’ rights, aims to assist in the fulfillment of our economic objectives, encourages employee participation in management decisions and assists in mediating disputes between us and union members. Each of our operating units has a separate branch of the labor union. We have not experienced any strikes or other labor disturbances which have interfered with our operations, and we believe that our relations with our employees are good.

All employees who are unable to work due to illness or disability are entitled to receive certain benefits during the period of their absence from the workplace. In addition, the PRC Government requires us to provide casualty and life insurance for each of our employees who work in the underground mining areas. The premium is 2.0% of the total remuneration of the employees.

Medical Insurance Scheme

In accordance with the relevant regulations of the Shandong Provincial People’s Government, since January 1, 2002, we have established and commenced implementing a basic medical insurance scheme for employees, which comprises basic medical insurance and supplementary medical insurance schemes. The schemes are described below.

• basic medical insurance scheme – we have set aside 8% of the total wages of employees as basic medical insurance fund, which was charged to “Wages and Employee Benefits” under “Cost of Sale and Services Provided” and “Selling, General and Administrative Expenses” in our statement of income; and

• supplementary medical insurance scheme – we have set aside a supplementary medical insurance fund of 4% of the total wages of employees to “Supplementary Medical Insurance” under “Selling, General and Administrative Expenses” in our statement of income.

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We also carry personal injury insurance for our employees.

Housing Scheme

Under the Materials and Services Supply Agreement, and its Supplemental Agreement, entered into between the Parent Company and us, the Parent Company is responsible for providing accommodation to our employees. We and the Parent Company share the incidental expenses relating to the provision of such accommodation on a pro-rata basis based on our respective number of employees and mutual agreement. Such expenses amounted to RMB37.2 million for 2003, 2004 and 2005, respectively.

Commencing from 2002, we have paid to our employees a housing allowance, which is based on a fixed percentage of employees’ wages, for the purchase of residential housing. In 2003, 2004 and 2005, housing allowances paid by us to employees amounted to RMB136.5 million, RMB137.3 million and RMB1.369 million, respectively.

E. Share Ownership

No Director, Supervisor or member of senior management who received compensation as described in subsection B above owns more than one percent of our outstanding Shares. See “ — A. Director and Senior Management”.

We have not granted and have no plan to grant options to our employees for our Shares or other equity-linked securities. We have not and have no plan to implement any share bonus scheme for employees.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

As of December 31, 2005, the Parent Company owned 54.33% of our share capital (see table below). As a majority shareholder, the Parent Company is able to make most of the decisions adopted by us. Currently, all of our ordinary shares enjoy equal voting rights.

The following table sets forth certain information regarding ownership of our capital stock as of December 31, 2005 and as of March 31, 2006 upon implementation of the share reform plan by all persons who are known by us to own beneficially more than 5% of our capital stock and by the Directors, Supervisors and Executive officers. For details of the share reform plan, see Item 9 – “Share Reform Plan”. As of December 31, 2005 and March 31, 2006, the Directors, Supervisors and Executive Officers own, as a group, 49,600 A Shares and 62,000 A Shares, representing 0.001% and 0.0013% of our share capital.

Identity of Person or Group	Title of Class	Shares Owned as of December 31, 2005	Percentage of Capital Stock as of December 31, 2005
Parent Company	Ordinary Shares in the form of Legal Person Shares, par value RMB1.00 each	2,672,000,000	54.33%
HKSCC Nominee Limited*	Ordinary Shares in the form of H Shares, par value RMB1.00 each	1,953,593,196	39.72%
Directors, Supervisors and Executive Officers	Ordinary Shares in the form of A Shares, par value RMB1.00 each	49,600	0.001%

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Identity of Person or Group	Title of Class	Shares Owned as of March 31, 2006	Percentage of Capital Stock as of March 31, 2006
Parent Company	Ordinary Shares in the form of Legal Person Shares, par value RMB1.00 each	2,600,000,000	52.86%
HKSCC Nominee Limited*	Ordinary Shares in the form of H Shares, par value RMB1.00 each	1,954,965,596	39.75%
Directors, Supervisors and Executive Officers	Ordinary Shares in the form of A Shares, par value RMB1.00 each	62,000	0.0013%

* As the nominee of the clearing and settlement agent for our H Shares, HKSCC Nominee Limited is the record holder of our H Shares.

Our major shareholders do not have different voting rights from other shareholders.

To our knowledge, other than the Parent Company, which owns 54.33% of our Shares, we are not owned or controlled, directly or indirectly, by any other corporation, by any government, or by any other natural or legal person or persons, severally or jointly.

To our knowledge, there are no arrangements the operation of which may at a subsequent date result in us undergoing a change in control.

B. Related Party Transactions

The on-going connected transactions between the Company and the Parent Company for the year 2005 including the following three aspects:

1. On-going Supply of Materials and Services:

The connected transactions of on-going supply of materials and services between us and the Parent Company were carried out in accordance with The Materials and Services Supply Agreement signed on 17th October, 1997 and its subsequent supplemental agreement, as approved by independent shareholders.

The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”) has granted a conditional waiver (the “Waiver”) to our company on July 11, 2003 from strict compliance with the requirements of disclosure and approval as stipulated in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) in respect of the connected transactions under the above agreements between us and the Parent Company for a period of three financial years ending December 31, 2005. The upper limits of the Waiver were as follows: the value of connected transactions relating to the provision of materials and services by us to the Parent Company shall not exceed 13% of our audited consolidated net sales in the immediately preceding financial year, and the aggregate value of connected transactions relating to the provision of materials and services by the Parent Company to us shall not exceed 26% of our company’s audited consolidated net sales in the immediate preceding financial year.

For the year ended December 31, 2005, the value of connected transactions relating to the provision of materials and services by us to the Parent Company was RMB1,255.4 million and accounted for 11.87% of our audited consolidated net sales in the year ended December 31, 2004, and the value of connected transactions relating to the provision of materials and services by the Parent Company to us was RMB1,293.2 million and accounted for 12.23% of our audited consolidated net sales in the year ended December 31, 2004.

2. Mining Rights Fee

During 2005, pursuant to the Mining Rights Agreement dated October 17, 1997 and its supplemental agreement dated February 18, 1998 entered into between the Parent Company and us, we paid RMB12.98 million to the Parent Company.

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3. Payment of Endowment Insurance Fund

Pursuant to Agreement of Endowment Insurance Fund entered into between us and the Parent Company dated October 17, 1997, the Parent Company undertakes to be responsible for the management of the insurance fund to our employees and payments of the pension and other benefits to our retirees (the “Endowment Insurance Fund”) on a free of charge basis. During 2005 and pursuant to the Agreement of Endowment Insurance Fund, we have paid the Endowment Insurance Fund of RMB522.7 million.

Our independent non-executive Directors have reviewed the on-going connected transaction in the year 2005 and confirmed that: (1) all such connected transactions have been: (a) entered into by us in the ordinary and usual course of our business; (b) conducted either on normal commercial terms, or where there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to us than terms available to or from independent third parties; and (c) entered into in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole; (2) the value of the connected transaction in respect of the on-going supply of materials and services have not exceeded the cap under the Waiver granted by the Hong Kong Stock Exchange.

Our auditors has submitted the report to the Board confirming that the above on-going connected transactions between us and the Parent Company (a) have received the approval by the Board; (b) are in accordance with our pricing policies; (c) have been entered into in accordance with the relevant agreement governing the connected transactions, and (d) have not exceeded the cap disclosed in the previous announcement.

For the years ended December 31, 2003, 2004 and 2005, we had the following on-going connected transactions with the Parent Company and/or its subsidiary companies:

	Year ended December 31,
	2003	2004	2005
	(RMB’000)	(RMB’000)	(RMB’000)
Income
Sales of coal	229,730	523,015	856,580
Sales of auxiliary materials	472,899	350,873	369,855
Utilities and facilities	29,000	29,000	29,000
Railway transportation services	66	—	—
Expenditure
Utilities and facilities	285,166	354,424	355,953
Annual fee for mining rights	12,980	12,980	12,980
Purchases of supply materials and equipment	373,710	303,549	341,935
Repair and maintenance services	225,408	222,949	197,624
Social welfare and support services	188,825	207,062	242,952
Technical support and training	15,130	15,130	15,130
Road transportation services	17,216	63,478	53,346
Construction services	507,824	160,342	—

Approval of New On-going Connected Transaction Agreements and the Annual Caps for Year 2006 to 2008

Pursuant to the regulations of Hong Kong Stock Exchange and Shanghai Stock Exchange on on-going connected transactions and the operation developments of us and the Parent Company, we completed the review of its on-going connected transactions as required by law and entered into six New On-going Connected Transaction Agreements with the Parent Company in the first quarter 2006. It also determined the Annual Caps on the connected transactions for each New On-going Connected Transaction Agreements in each year from 2006 to 2008.

The New On-going Connected Transaction Agreements and the Annual Caps were approved by the independent shareholders on March 24, 2006. The term for each of the New On-going Connected Transaction Agreements is from January 1, 2006 until December 31, 2008. The Materials and Services Supply Agreement and its supplementary agreement and the Agreement of Endowment Insurance Fund originally entered into between us and the Parent Company have been terminated. The English translation of the New On-going Connected Transaction Agreements are attached as Exhibit 4.4.

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Acquisition of connected assets

1. Acquisition of Equity Interest of Heze Nenghua and Payments to the Parent Company

The 2005 first extraordinary general meeting of the Company was held on August 19, 2005, in which the “Equity Transfer Agreement between our Parent Company and us” and its “Supplemental Agreement” (collectively the “Heze Nenghua Acquisition Agreement”) were approved. According to the Heze Nenghua Acquisition Agreement, we have acquired 95.67% equity interest in Heze Nenghua at the consideration of RMB584.01 million on December 7, 2005. Heze Nenghua is responsible for coal development in Juye Coal Field in Shandong province for us. As of 31 December 2005, we have fully paid RMB584.1 million to the Parent Company for the acquisition of the Parent Company’s equity interest in Heze Nenghua. The English translation of the Heze Nenghua Acquisition Agreement are attached as Exhibit 4.5.

2. Mining Right Consideration of Jining III Coal Mine and Amount due to the Parent Company and its Subsidiaries.

Pursuant to the Jining III Coal Mine Acquisition Agreement dated August 4, 2000 entered into between us and the Parent Company, the consideration of the mining right of Jining III coal mine is approximately RMB132.5 million, which shall be paid to the Parent Company in ten equal annual interest free installments commencing from 2001. For the years ended December 31, 2005, we paid RMB13.248 million to the Parent Company.

The amounts due to the Parent Company and its subsidiary companies are non-interest bearing and unsecured. The amounts due to the Parent Company and its subsidiary companies as at December 31, 2005 included the present value of the outstanding balance that arose from the funding of the acquisition of the mining right of Jining III as of January 1, 2001 discounted using the market rate of bank borrowings. The following table sets forth the amounts due to the Parent Company and its subsidiary companies as at December 31, 2004 and 2005:

	As at December 31,
	2004	2005
Term for Repayment	RMB’000	RMB’000
Within one year	—	508,254
More than one year, but not exceeding two years	9,230	8,689
More than two years, but not exceeding five years	24,574	23,138
Exceeding five years	7,253	—
Total due	41,057	540,081
Less: amount due within one year	—	508,254
Amount due after one year	41,057	31,827

Except for the payments disclosed above, there are no amounts due to the Parent Company and/or its subsidiary companies that have specific terms for repayment.

Expenditures for social welfare and support services (excluding medical and child care expenses) of RMB63.5 million, RMB63.3 million and RMB63.4 million for the year ended December 31, 2003, 2004 and 2005, respectively, and for technical support and training of RMB15.1 million for the three years ended December 31, 2003, 2004 and 2005, have been charged to us by the Parent Company at a negotiated amount per annum, subject to changes every year.

The above transactions were charged either at market prices or based on terms agreed by both parties.

Interest of Management in certain transactions

None of the Directors or Supervisors or Executive Officers had, either directly or indirectly, any material interest in any significant material contract to which we were a party during the year ended December 31, 2005.

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ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

The selected income statement data and cash flow data for the five years ended December 31, 2005 and the selected balance sheet data as of December 31, 2001, 2002, 2003, 2004 and 2005 set forth below are derived from, and should be read in conjunction with, and are qualified in their entirety by reference to the Financial Statements, including the notes thereto. The Financial Statements are prepared and presented in accordance with IFRS. For a discussion of certain differences between IFRS and U.S. GAAP, see Note 47 to the Financial Statements. For full consolidated statements and other financial information, see pages F-1 to F-71 following Item 19. In 2005, the International Accounting Standards Board issued a number of new or revised IFRS which are effective for accounting periods beginning on or after January 1, 2005. We have adopted these new IFRS in the financial statements for the year ended December 31, 2005. See Note 3 to the Financial Statements.

	As of and For the Year Ended December 31,
	2001		2002		2003		2004		2005		2005
	RMB		RMB		RMB		RMB		RMB		U.S.$
	(Amounts in millions except numbers of Shares and ADSs, and per Share, per ADS and operating data)
INCOME STATEMENT DATA
IFRS
Net Revenue
Net sales of coal
Domestic	2,599.8		3,414.0		4,337.1		7,407.0		8,421.5		1,043.5
Export(2)	2,276.2		2,799.9		2,457.2		2,947.3		2,932.0		363.3
Railway transportation service income	—		142.5		154.6		220.8		163.4		20.2
Total net revenue(3)	4,876.0		6,356.4		6,948.9		10,575.1		11,516.9		1,427.1
Gross profit	2,063.4		2,993.5		3,193.9		6,023.4		6,228.3		771.8
Interest expenses	(61.5	)	(117.9	)	(60.0	)	(35.9	)	(24.6	)	(3.0	)
Income before income taxes	1,360.2		1,748.2		1,974.9		4,673.3		4,420.0		547.7
Net income attributable to equity holders of the Company	970.9		1,222.0		1,386.7		3,154.3		2,881.5		357.1
Net income/Earnings per Share	0.35		0.43		0.30		0.66		0.59		0.07
Net income/Earnings per ADS	17.29		21.29		15.1		33.25		29.29		3.63
Operating income per Share	0.51		0.65		0.44		0.99		0.90		0.11
Income from continuing operation per ADS	25.32		32.51		22.16		49.64		45.18		5.60
U.S. GAAP
Net income(4)	1,227.6		1,325.7		1,499.2		3,263.9		2,994.7		371.1
Net income per Share	0.44		0.46		0.33		0.69		0.61		0.08
Net income per ADS	21.86		23.10		16.32		34.40		30.44		3.77
CASH FLOW DATA
IFRS
Net cash provided by operating activities	1,610.2		2,239.7		2,701.2		4,418.4		3,939.3		488.1
Depreciation	819.6		851.1		920.5		958.7		952.1		118.0
Net cash used in investing activities	(1,948.2	)	(2,165.5	)	(1,310.3	)	(2,300.8	)	(2,262.5	)	280.4
Net cash (used in) provided by financing activities	618.0		345.2		(911.4	)	1,075.4		(1,009.3	)	(125.1	)
OTHER FINANCIAL DATA
Income before income tax	1,360.2		1,748.2		1,974.9		4,673.3		4,420.0		547.7
Add: Interest expenses	61.5		117.9		60.0		35.9		24.6		3.0
Less: Interest income	39.9		30.2		17.8		92.7		91.7		11.4
Add: Depreciation and amortisation	827.0		858.5		950.1		994.3		971.9		120.4
EBITDA(5)	2,208.8		2,694.4		2,967.2		5,610.8		5,324.8		659.7
EBITDA margin(6)	45.3	%	42.4	%	42.7	%	53.1	%	46.2	%	46.2	%
OPERATING DATA
Raw coal production (‘000 tonnes)	34,018		38,435		43,279		39,146		34,655		N/A
Net sales (‘000 tonnes)
Domestic	18,369		20,582		25,776		27,988		25,234		N/A
Export	12,666		14,466		13,632		10,016		7,251		N/A
Total	31,035		35,048		39,408		38,004		32,485		N/A
BALANCE SHEET DATA
IFRS
Total current assets	3,221.7		3,873.4		4,430.5		8,319.6		10,951.1		1,357.0
Total current liability	2,047.6		1,662.7		2,372.0		2,545.1		3,429.0		424.9
Net current assets	1,174.1		2,170.7		2,058.5		5,774.5		7,522.1		932.1
Property, plant and equipment	7,479.8		8,276.9		8,616.4		8,537.2		9,318.5		1,154.7
Total assets	11,182.6		12,924.0		13,909.9		18,336.7		21,254.4		2,633.7

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	As of and For the Year Ended December 31,
	2001	2002	2003	2004	2005	2005
	RMB	RMB	RMB	RMB	RMB	U.S.$
	(Amounts in millions except numbers of Shares and ADSs, and per Share, per ADS and operating data)
Total long-term borrowings	72.5	1,261.3	650.9	441.1	231.8	28.7
Equity attributable to equity holders of the Company	9,060.0	9,995.0	11,083.2	15,523.8	17,618.6	2,183.2
U.S. GAAP
Property, plant and equipment and prepaid lease payment, net	7,176.7	7,271.4	7,785.8	8,073.7	8,851.5	1,096.8
Total assets	11,071.0	11,787.5	12,845.8	17,379.1	20,189.4	2,501.7
Equity attributable to equity holders of the Company	7,668.9	8,858.5	10,019.2	14,519.3	16,699.8	2,069.3
Number of Shares
Domestic Shares	1,850.0	1,850.0	1,850.0	1,850.0	2,960.0	2,960
H Shares (including H Shares represented by ADS)	1,020.0	1,020.0	1,020.0	1,224.0	1,958.4	1,958.4
ADS	20.4	20.4	20.4	24.5	39.2	39.168
Dividend per
Domestic Share/H Share(7)	0.082	0.100	0.104	0.164	0.260	0.032
ADS(8)	4.10	5.00	5.20	8.20	13.00	1.611

(1) The above financial highlights as of and for the year 2005 represent the data resulting from the consolidation of the financial statements of Yankuang Heze Power Chemical Company Limited (“Heze Nenghua”), Shandong Yanmei Shipping Co. Ltd. (“Yanmei Shipping”), Yanzhou Coal Yulin Power Chemical Co. Limited, Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited. The gross profit, taxes and surcharges resulting from the principal businesses of Yanmei Shipping are calculated as the transportation cost of coal of us. As the sales income, operation results, and assets of Yanmei Shipping have only limited impact on us, they are not separately set out and analyzed in this report. Heze Nenghua, Yanzhou Coal Yulin Power Chemical Co. Limited, Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited are currently in the preparation stage or in the construction stage and have limited impact on our financial results, and hence are not separately set out and analyzed in this report.

(2) Export sales constituted 46.7%, 44.0%, 35.4%, 27.9% and 25.5% of total net revenue in 2001, 2002, 2003, 2004 and 2005, respectively.

(3) Total net revenue is the sum of net sales of coal and railway transportation service income.

(4) The net income for the year ended December 31, 2001 under U.S. GAAP included the loss of Jining III acquired in 2001 using the pooling of interest method. The net income for the years ended December 31, 2001 under U.S. GAAP included the profit of Railway Assets using the pooling of interest method. The net income for the year ended December 31, 2004 and the total assets value and owners’ equity as at December 31, 2004 under U.S. GAAP included the loss and net assets of Heze Nenghua acquired in 2005 using the pooling of interest method.

(5) EBITDA refers to earnings before interest income, interest expense, taxes, depreciation and amortization. EBITDA should not be construed as an alternative to operating income or any other measure of performance or as an indicator of our operating performance, liquidity or cash flows generated by operating, investing and financing activities. The items of net income excluded from EBITDA are significant components in understanding and assessing our financial performance, and EBITDA does not take into account capital expenditures or changes in working capital, which could have a material impact on our operating cash flow. Our computation of EBITDA may not be comparable to other similarly titled measures of other companies. We have included the information concerning EBITDA because management believes it is a useful supplement to cash flow data as a measure of our performance.

(6) EBITDA margin represents EBITDA as a percentage of our total net revenue.

(7) The calculation of Dividend per Domestic Share/H Share is based on the dividend paid in the relevant year and total number of Domestic Shares and H Shares ranking for the dividend.

(8) Dividend per ADS is calculated at 50 times Dividend per Domestic Share/H Share based on one ADS being equivalent to 50 H Shares.

Export Sales

Please see “Item 4 – Information on the Company – B. Business Overview – Sales and Marketing.”

Legal Proceedings and Arbitration

In the past we have entered into lending transactions wherein we make loans through PRC financial institutions to unrelated third-party corporate borrowers, and for which guarantees are provided by other unrelated third-party corporate entities. On January 19, 2005, Shandong Xinjia Industry Co., Ltd. (“Shandong Xinjia”), the borrower under one such loan (the “Defaulted Loan”) defaulted on the payment of principal of RMB640 million and interest. Payment of the Defaulted Loan is guaranteed by Lianda Group

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Co., Ltd. (“Lianda”) and secured by pledges of the following shares owned by Lianda: (i) 170 million state legal person shares of Huaxia Bank Company Limited (“Huaxia Bank”), a PRC banking company whose shares are listed on the Shanghai Stock Exchange; and (ii) controlling equity interests in an unlisted PRC company (together, the “Pledged Shares”).

At our request, the People’s High Court of Shandong Province (the “High Court”) granted an order sequestering a total of 289 million Huaxia Bank shares owned by Lianda, including the 170 million shares pledged to us, and on January 22, 2005 we filed an application with the High Court for execution of the court order. On March 28, 2005, the High Court issued judgment allowing for the auction of the sequestered Huaxia Bank shares, with the auction proceeds to be used among others to pay outstanding principal, interest and premium on the Defaulted Loan. On September 6, 2005, the High Court appointed Shandong Yinxing Auction Company Limited and auctioned the 289 million Huaxia Bank shares owned by Lianda in accordance with the relevant PRC laws and regulations. The final auction price is RMB3.5 per Pledged Share and the total proceeds from the auction is RMB1,011.5 million.

The transfer of the Pledge Shares are subject to the approval of the China Banking Regulatory Commission (“CBRC”). Upon receiving the approval from the CBRC and the completion of the transfer procedures, the successful bidder of the Pledged Shares will remit the full auction amount, which will be administered by the High Court. We expect to receive the principal, interest, penalty interest and relevant expenses associated with the Defaulted Loan upon the completion of all necessary legal procedures. As at the date of this annual report, the legal procedures have not been completed yet.

Save as disclosed above, we were not involved in other significant litigation and arbitration in 2005.

Dividends Policy

According to our Articles of Associations, the shareholders shall by way of an ordinary resolution authorize our Board of Directors to declare and pay the interim and final dividends. Dividend shall be paid once a year. We may distribute dividends in the form of cash or shares. Pursuant to the amended Articles of Association as approved during the annual shareholders general meeting on June 28, 2006, our after-tax profit shall be allocated in accordance with the following order: (1) compensation of losses; (2) allocation to the statutory common reserve fund; (3) allocation to the discretionary common reserve fund upon approval by resolution of the shareholders’ general meeting; (4) payment of dividends in respect of ordinary shares. If our statutory common reserve fund is not sufficient to compensate our losses from the previous year, we shall utilize our after-tax profit to compensate our losses before we make any provision for the statutory common reserve fund.

B. Significant Changes

On June 28, 2005, our shareholders approved a special resolution granting the Board of Directors an unconditional general mandate to issue and allot additional H Shares in our capital in an amount up to 20% of the aggregate nominal amount of H Shares in issue.

Other than events disclosed above and elsewhere in this annual report, there have been no significant changes since the date of the financial statements attached to this Form 20-F .

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

The issuance history of our shares is as follows:

	H Shares			A Shares
	Initial offering	Second offering	Third offering	Initial offering	Second offering
Time of issue	March 1998	May 2001	July 2004	June 1998	January 2001
Issue amount	850,000,000	170,000,000	204,000,000	80,000,000	100,000,000

As at December 31, 2005, we have 2,672,000,000 state-owned shares all of which were held by our Parent Company.

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Capitalization of capital reserve and our capital structure as of December 31, 2005:

Pursuant to the resolutions of our annual general meeting held on June 28, 2005, the shareholders approved that the issuance of bonus shares by us through capitalization of the capital reserve on the basis of six bonus shares for every ten existing shares for the year ended December 31, 2004. After the issuance of the bonus shares, our total share capital increased from 3,074,000,000 shares (our share capital for the year ended December 31, 2004) to 4, 918, 400,000 shares, out of which 2,246,400,000 shares were listed shares starting from July 28, 2005. During 2005, our share capital has been changed as follows:

Type	Amount of shares as at January 1, 2005	Increase of shares as a result of capitalization of the capital reserve	Amount of shares as at December 31, 2005
State legal person shares	1,670,000,000	1,002,000,000	2,672,000,000
A Shares	180,000,000	108,000,000	288,000,000
H Shares	1,224,000,000	734,400,000	1,958,400,000
Total	3,074,000,000	1,844,400,000	4,918,400,000

Implementation of share reform plan

Our share reform plan was implemented on March 31, 2006. Our Parent Company has paid a consideration of 2.5 non-tradable shares for every 10 A Shares held by each holder of A shares whose name appears on the register of member of A share on March 30, 2006 in exchange for the right to list and trade the non-tradable shares of the Parent Company on the Shanghai Stock Exchange. Our Parent Company did not offer similar consideration to the Holders of H shares and Holders of our ADSs. Our shareholding structure before and after the implementation of finalized share reform plan was as follows:

Before the Implementation of the Share Reform Plan				After the Implementation of the Share Reform Plan
	Number of shares	Percentage of the registered share capital			Number of shares	Percentage of the registered share capital
1.      Total of unlisted tradable shares State-owned shares	2,672,000,000	54.33	%	1.      Total of tradable shares with trading moratorium State-owned shares	2,600,000,000	52.86	%
2.      Total of listed tradable shares          A Shares          H Shares	2,246,400,000 288,000,000 1,958,400,000	45.67 5.85 39.82	% % %	2.      Total of tradable shares without trading moratorium          A Shares          H Shares	2,318,400,000 360,000,000 1,958,400,000	47.14 7.32 39.82	% % %
3.      Total of shares	4,918,400,000	100.00	%	3.      Total number of shares	4,918,400,000	100.00	%

Set out below is certain market information relating to the H Shares, ADSs and A Shares in respect of 2001, 2002, 2003, each quarterly period within the fiscal years ended December 31, 2004 and 2005 and each monthly period ended May 31, 2006:

	Price per H Share (HK$)		Price per ADS (U.S.$)		Price per A Share (RMB)
	High	Low	High	Low	High	Low
2001	3.95	1.90	24.65	12.60	13.10	8.28
2002	3.55	2.40	22.30	15.80	11.10	8.00
2003	8.20	2.625	53.20	17.80	11.29	7.53
2004
First quarter	9.70	6.50	60.65	42.00	15.30	10.88
Second quarter	9.85	5.20	62.80	33.25	15.82	12.38
Third quarter	10.25	7.55	66.28	50.86	15.50	12.00
Fourth quarter	12.45	9.40	79.50	61.18	15.55	11.65

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	Price per H Share (HK$)		Price per ADS (U.S.$)		Price per A Share (RMB)
	High	Low	High	Low	High	Low
2005
First quarter	12.30	10.30	78.95	66.00	14.09	11.25
Second quarter	11.20	5.90	71.86	61.10	12.98	9.52
Third quarter	6.95	5.55	71.78	35.50	10.30	6.08
Fourth quarter	6.35	4.75	40.95	30.70	7.08	4.92
December	5.35	4.875	35.18	31.00	6.02	5.16
2006
January	5.95	5.00	38.90	32.43	6.78	5.91
February	6.60	5.75	41.74	37.22	7.79	6.99
March	6.90	6.10	44.14	40.18	—	—
April	7.50	6.25	48.80	41.22	7.12	6.00
May	7.30	5.55	48.00	35.91	8.90	6.58
June (through June 22)	5.70	4.575	36.01	29.31	8.04	6.75

Notes:

1. In 2005, we carried out a resolution approved at the 2004 annual general meeting in relation to issuance of bonus shares through capitalization of the capital reserve. Based on the total share capital of 3,074,000,000 shares of the Company as at December 31, 2004, six bonus shares were issued for every ten existing shares. As a result of capitalization of capital reserve, our share capital has been changed as follows: i) number of state legal person shares increased from 1,670,000,000 shares to 2,672,000,000 shares; ii) number of A shares increased from 180,000,000 shares to 288,000,000 shares; iii) number of H shares increased from 1,224,000,000 shares to 1,958,400,000 shares.

2. On March 31, 2006, we implemented the Share Reform Plan, pursuant to which, Yankuang Group, our Parent Company which held non-tradable shares of the Company, has paid a consideration of 2.5 non-tradable shares for every 10 shares held by each holder of A shares whose name appear on the register of members of A share on March 30, 2006 in exchange for the right to list and trade the non-tradable shares of the Parent Company. The non-tradable shares held by Yankuang Group were granted the right to listing and trading on the Shanghai Stock Exchange and our Parent Company also undertook that the original non-tradable Shares held by the Parent Company would be subject to a trading moratorium of 48 months from the date of the implementation of the share reform plan. Upon the implementation of the Share Reform Plan, state legal person shares changed from unlisted to tradable shares subject to a trading moratorium and our share capital has been changed as follows: i) number of state legal person shares decreased from 2,672,000,000 shares to 2,600,000,000 shares; ii) number of A shares increased from 288,000,000 shares to 360,000,000 shares; iii) number of H shares remains 1,958,400,000 shares.

As of December 31, 2005, a total of 1,958,400,000 H Shares were outstanding, 92,298,700 Shares of which, representing 4.7% of the outstanding H Shares, were held in the form of ADSs (a total of 1,845,974 ADSs). The outstanding ADSs were held by 16 holders of record on May 31, 2006.

B. Plan of Distribution

Not applicable.

C. Markets

Our Shares are currently listed on the Shanghai Stock Exchange under the approval of the China Securities Regulatory Commission. The principal trading market for the H Shares is the Hong Kong Stock Exchange. The ADSs have been issued by The Bank of New York as Depositary and are listed on the New York Stock Exchange under the symbol “YZC”. Prior to the initial public offering and subsequent listings on the Hong Kong and New York Stock Exchanges on April l, 1998 and March 31, 1998, respectively, there was no market for the H Shares or the ADSs. For market price information for the exchanges our securities are listed, see “Item A – Offer and Listing Details.”

D. Selling Shareholders

Not applicable.

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E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

General

Since our Articles of Association took effect on September 25, 1997, the PRC Government and other regulatory authorities have promulgated various rules, regulations and opinions which primarily include The Securities Laws of the PRC, the General Meeting Opinions, the Independent Director Guiding Opinions, Regulations in connection with Protection of Public Shareholders, and the Guide for Articles of Association of Listed Companies, as amended in 2006. The supervisory authorities require listed companies to incorporate such rules, regulations and opinions into their articles of associations as appropriate.

A copy of the English translation of our Articles of Association was filed with the Commission as an exhibit to the registration statement on Form F-1 under the Securities Act in connection with a global offering of our H shares and related American depositary shares on October 17, 1997. We amended our Articles of Association at an extraordinary general meeting on April 22, 2002, and the full text of the English translation of the Revised Articles of Association was filed with the Commission on our 2001 Form 20-F filed on June 27, 2002. We further revised our Articles of Association at an annual general meeting held on June 25, 2004, and the full text of the English translation of the amended Articles of Association was filed with the Commission on our 2003 20-F. We subsequently revised our Articles of Association at the shareholders meeting held on July 8, 2004 and June 28, 2005, and the full text of the English translation of the amended Articles of Association are filed with 2004 Form 20-F. For this reporting period, we revised our Articles of Association at the shareholders meeting held on August 22, 2005 and June 28, 2006, and the full text of the English translation of the amended Articles of Association are filed with this Form 20-F as Exhibit 1.1.

Selected Summary of the Articles of Association

We are a joint stock limited company established in accordance with the “Company Law of the People’s Republic of China” (the “Company Law”), “State Council’s Special Regulations Regarding the Issue of Shares Overseas and the Listing of Shares Overseas by Companies Limited by Share” (the “Special Regulations”) and other relevant laws and regulations of the State. We were established by way of promotion with the approval of the former State Commission for Restructuring the Economic System on 24 September 1997, as evidenced by approval document Ti Gai Sheng (1997) no. 154 of 1997. We were registered with and have obtained a business license from China’s State Administration Bureau of Industry and Commerce on September 25, 1997. Our business license number is: Qi Gu Lu Zong Fu Zi No. 003929-1/1.

Our scope of business includes: mining, selection and the sale of coal; transportation of cargo; the production, sale and leasing of machinery equipments and parts, electronic products; the sale of metal materials, chemical products, construction materials, timber, flammable materials, grease and rubber products; the production and sale of other mining materials; the production and sale of knitted products; composite of mining, science and technology services; property development within the mining areas; the provision of dining, accommodation and tourist services; the storage and discharge of coals at sea ports; the provision of inland water transports; the provision of commodity logistics services; and the provision of ships repairing work.

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Board of Directors

Directors who are not staff representative shall be elected or removed at the shareholders’ general meeting. The staff directors shall be elected by the staff in the staff representative meeting or by other ways democratically. Directors shall be elected for a term of three years. At the expiry of the term, it shall be renewable upon re-election. A director may not be removed by the shareholders in a general meeting without any reason before his term of office expires. The Board of Directors is accountable to the shareholders in general meeting.

We have established a system of independent Directors and currently have four independent Directors. The independent Directors do not hold any positions in our company other than as director and do not maintain with us and our substantial shareholders a connection which may hamper their independent and objective judgment. Apart from the powers granted to directors by the Company Law and other relevant laws, regulations and the Articles of Association, the independent Directors shall have the following special powers:

• Substantial connected transactions (determined in accordance with the standard promulgated from time to time by the regulatory organizations of the place where the Company’s shares are listed), and engaging or ceasing to engage an accounting firm, shall be agreed by more than one-half of the independent Directors before submitting to the Board of Directors for discussion;

• The independent Directors may request the Board of Directors to convene an extraordinary general meeting, and suggest the convening of a board meeting , and publicly collect voting rights from the shareholders before the shareholders’ general meeting, which shall all be agreed by more than one-half of the independent Directors;

• With the consent of all the independent Directors, the independent Directors may engage external audit institutions or consultative institutions independently to provide audit and consultation for specific matters of the Company, the relevant costs of which shall be undertaken by the Company.

If the above recommendation are not accepted or the above powers can not be exercised ordinarily, the Company shall disclose the circumstances accordingly

The Articles do not contain any requirement for (i) the Directors to retire by a specified age, or (ii) the Directors to own any or a specified number of our shares.

Our Articles provide that when passing a resolution in relation to connected transaction at a board meeting, or where any Director or any of its Associates (as defined under the Listing Rules of the Stock Exchange of Hong Kong) is connected with such resolution, such connected director shall excuse himself from the Board of Directors’ meeting, shall not have any voting rights in respect thereof , shall not exercise any voting rights on behalf of other Directors and shall not be counted as part of the quorum of the Board of Directors’ meeting. A quorum is formed when majority of the non-connected Directors attended and the resolution can be passed when majority of the non-connected Directors approve such transaction. If less than three non-connected Directors attended at the Board of Directors’ meeting as a result of the absence of the connected Director, such transaction shall be submitted for resolutions at a shareholders’ general meeting of the Company.

With the approval of over two-thirds of all Directors, the Board of Directors may make decisions on the following matters:

(1) Transactions falling within the following limit with respect to purchase or sale of assets, foreign investment (including entrusted financial management and entrusted loans), provision of financial assistance, entrusted or trusted asset or business management, entering of licence agreement, transfer or accept the transfer of research and development projects:

• The total assets involved in a single transaction with amount more than 5% and below 25% of our Company’s latest audited total asset value;

• A single investment more than 5% and below 25% of our Company’s latest audited net asset value;

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• The subject of a single transaction accounted for more than 5% and less than 25% of our Company’s latest audited income from principal operations for the latest financial year;

• The subject of a single transaction accounted for more than 5% and less than 25% of our Company’s latest audited net profit for the latest financial year;

The above transactions which involve public offer of securities that requires the approval of the China Securities Regulatory Commission shall be subject to approval of the shareholders’ general meeting.

(2)        a single loan of less than 10% of our Company’s latest audited net asset value and the debt ratio to our Company’s assets remains under 60% after such financing;

(3) mortgages or pledges of assets the cumulative outstanding amount of which is less than 30% of our Company’s latest audited net asset value;

(4) external guarantees not within the approval limit of the shareholders’ general meeting as provided in our Articles of Association;

(5) transactions involving connected transactions, which have to be conducted in accordance with the relevant regulations of competent securities authorities and the listing rules of the stock exchanges.

The transactions referred to in (1) of the first paragraph involving the provision of financial assistance and entrusted financial management, shall be calculated on accrued basis for twelve consecutive months according to the transaction categories and applicable approval limit proportion of the board of directors. When our Company conducts other transactions apart from the provision of financial assistance and entrusted financial management, applicable approval limit proportion of the board of directors regarding each transaction which is under the same category shall be calculated on the principle of accrued basis for twelve consecutive months. Transactions already approved by our Company in accordance with the principle of accrued basis shall not be included in the scope of accrual calculation.

Provision of regulatory authorities our Company is subject to within and outside the PRC that is of a stricter standard than this Article of Association shall apply accordingly.

Description of the Shares

As at December 31, 2005, our share capital structure is as follows: 4,918,400,000 ordinary shares, of which (a) 2,672,000,000 shares, which represent 54.33% of our share capital, are held by Yankuang Group Corporation Limited as domestic legal person shares; (b) 1,958,400,000 shares, which represent 39.82% of our share capital, are held by the H Shares shareholders; and (c) 288,000,000 shares, which represent 5.85% of our share capital, are held by the A Shares shareholders.

Upon implementation of the our share reform plan on March 31, 2006, our share capital structure is as follows: 4,918,400,000 ordinary shares, of which (a) 2,600,000,000 shares, which represent 52.86% of our share capital, are held by Yankuang Group Corporation Limited as domestic legal person shares; (b) 1,958,400,000 shares, which represent 39.82% of our share capital, are held by the H Shares shareholders; and (c) 360,000,000 shares, which represent 7.32% of our share capital, are held by the A Shares shareholders. For details of our share reform plan, see “Item 9 - Offer and Listing.”

Our ordinary shareholders shall enjoy the following rights:

• the right to receive dividends and other distributions in proportion to the number of shares held;

• the right to demand for the convening of a shareholders’ meeting, convene a shareholders’ meeting, attend or appoint a proxy to attend shareholders’ meetings and to vote thereat;;

• the right of supervisory management over our business operations and the right to present proposals or to raise queries;

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• the right to transfer, grant or pledge shares so held in accordance with laws, administrative regulations and provisions of our Articles of Association;

• the right to obtain relevant information in accordance with the provisions of our Articles of Association;

• in the event of our termination or liquidation , the right to participate in the distribution of our surplus assets in accordance with the number of shares held;

• for shareholders who disagree with the resolutions for the merger and separation of the Company made in a general meeting, they may demand the Company to purchase their shares; and

• other rights conferred by laws, administrative regulations and our Articles of Association.

A shareholder (including a proxy), when voting at a shareholders’ general meeting, may exercise such voting rights as are attached to the number of voting shares which he represents. Each share shall have one vote. Shares held by our Company do not have voting rights and these shares will not count as the total number of shares entitled to voting rights. Resolutions of shareholders’ general meetings shall be divided into ordinary resolutions and special resolutions. An ordinary resolution must be passed by votes representing more than one-half of the voting rights represented by the shareholders (including proxies) present at the meeting. A special resolution must be passed by votes representing more than two-thirds of the voting rights represented by the shareholders (including proxies) present at the meeting. Our ordinary shareholders are entitled to dividends and other distributions in proportion to the number of shares held, and they are not liable for making any further contribution other than the subscription amount. Our Articles provide that a controlling shareholder (as defined in the Articles) shall not approve certain matters which will be prejudicial to the interests of all or some of other shareholders by exercising his/her voting rights.

The Listing Agreement between us and the Hong Kong Stock Exchange further provides that we may not permit amendments to certain sections of the Articles of Association subject to the Mandatory Provisions. These sections include provisions relating to (i) varying the rights of existing classes of shares; (ii) voting rights; (iii) the power of us to purchase our own shares; (iv) rights of minority shareholders; and (v) procedures upon liquidation. In addition, certain amendments to the Articles of Association require the approval and assent of relevant PRC authorities.

Shareholders’ Meeting

Shareholders’ general meetings are divided into annual general meetings and extraordinary general meetings. Shareholders’ general meetings shall be convened by the Board of Directors. Annual general meetings are held once every year and within six months from the end of the preceding financial year. The Board of Directors shall convene an extraordinary general meeting within two (2) months of the occurrence of any one of the following events:

• where the number of Directors is less than the number stipulated in the Company Law or two-thirds of the number specified in our Articles of Association;

• where our unrecovered losses amount to one-third of the total amount of our share capital;

• where shareholder(s) singly or jointly holding 10% or more of our issued and outstanding voting shares request(s) in writing for the convening of an extraordinary general meeting;

• whenever the Board of Directors deems necessary or the supervisory committee so requests;

• other cases as provided in laws, administrative regulations and these Articles of Association; or

• whenever more than a half of the independent Directors so request.

When we convene a shareholders’ general meeting, written notice of the meeting shall be given 45 days before the date of the meeting (when calculating the 45 days’ period, the date on which the meeting is held shall not be included) to notify all of the shareholders whose names appear in the share register of the matters to be considered and the date and place of the meeting, along with the matters to be resolved in the meeting. A shareholder who intends to attend the meeting shall deliver to us his written reply concerning his attendance at such meeting 20 days before the date of the meeting. When we convene an annual general

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meeting, a shareholder singly or shareholders jointly holding 5% or more of the voting shares of the Company may propose new motions in writing, and we shall include in the agenda those issues in the motions which are within the functions of the general meeting.

When we convene a shareholders’ general meeting, the board of directors, the supervisory committee and shareholder(s) individually and jointly holding more than 5% of our shares have the right to propose resolutions to the Company. Shareholder(s) individually and jointly holding more than 5% of our shares may propose special resolutions in writing to the convenor 20 days before the shareholders’ general meeting is convened. The convenor shall issue a supplementary notice of the general meeting within two days after receiving the resolutions to announce the contents of the resolutions. Apart from the above, no amendment to the resolutions as set out in the notice of general meeting or proposal of new resolutions shall be made after the convenor has issued the notice of general meeting. The resolutions not set out in the notice of general meeting or failing to comply with Article 79 of these Articles of Association shall be not voted and resolved in the shareholders’ general meeting.

Set forth below is certain information relating to the H Shares, including a brief summary of certain provisions of the Articles, and selected laws and regulations applicable to us.

Sources of Shareholders’ Rights. The rights and obligations of holders of H Shares and other provisions relating to shareholder protection are principally provided in the Articles of Association and the PRC Company Law. The Articles of Association incorporate mandatory provisions in accordance with the Mandatory Provisions for the Articles of Association of Companies Listed Overseas promulgated by the State Council Securities Commission and the State Restructuring Commission on August 27, 1994 (the “Mandatory Provisions”). We are further subject to management ordinances applicable to the listed companies in Hong Kong SAR and the United States, as our H Shares are listed on the Hong Kong Stock Exchange and the New York Stock Exchange (in the form of ADSs).

In addition, for so long as the H Shares are listed on The Hong Kong Stock Exchange, we are subject to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “HKSE Rules”), the Securities and Futures Ordinance of Hong Kong (the “SFO”) and the Hong Kong Code on Takeovers and Mergers and Share Repurchases.

Unless otherwise specified, all rights, obligations and protections discussed below derived from the Articles of Association, the PRC Company Law and abovementioned laws and regulations.

Significant Differences in the H Shares and A Shares. Holders of H Shares and Domestic Shares, with minor exceptions, are entitled to the same economic and voting rights. However, the Articles of Association provide that holders of H shares will receive dividends in HK dollars while holders of Domestic Shares will receive dividends in Renminbi. In addition, the H Shares can be traded only by investors of Taiwan, Hong Kong, Macau and any country other than the PRC, while A Shares may be traded only by PRC investors and qualified foreign institutional investors (“QFII”). The state-owned Legal Person Shares are not transferable without the approval of the PRC Government.

Restrictions on Transferability and the Share Register. H Shares may be traded only by investors from Taiwan, Hong Kong and Macau and any country or territories other than the PRC and may not be sold to PRC investors. The Articles of Association provide that PRC investors are not entitled to be registered as holders of H Shares. The consequences under PRC law of a purported transfer of H Shares to PRC investors are unclear.

Pursuant to the Articles of Association, we may refuse to register a transfer of H Shares unless (i) any relevant transfer fee and stamp duty is paid; (ii) the instrument of transfer is only in respect of H Shares; (iii) share certificates or such other evidence is given as may be reasonably necessary to show the right of the transferor to make the transfer; (iv) if it is intended that the shares be transferred to joint owners, the maximum number of joint owners shall not be more than four; and (v) we do not have any lien on the relevant shares.

Merger and Acquisition

In the event of the merger or division of our company, a plan shall be presented by our Board of Directors and shall be approved in accordance with the procedures stipulated in our Articles of Association. We shall then go through the relevant approval process. A shareholder who objects to the plan of merger or division shall have the right to demand us or the shareholders who consent to the plan of merger or division to acquire such dissenting shareholders’ shareholding at a fair price. The contents of the resolution of merger or division of our company shall constitute special documents which shall be available for inspection by our shareholders.

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Repurchase of Shares

We may repurchase shares in one of the following ways, with the approval of the relevant governing authority of the State:

(i) by making a general offer for the repurchase of shares to all our shareholders on a pro rata basis;

(ii) by repurchasing shares through public dealing on a stock exchange;

(iii) by repurchasing shares outside of the stock exchange by means of an off-market agreement; and

(iv) by other means as authorized by the competent securities authorities under the State Council.

Interested Shareholders

Articles 140 and 141 of our Articles of Associations provide the following:

Article 140:

The following circumstances shall be deemed to be variation or abrogation of the rights attaching to a particular class of shares:

(i) to increase or decrease the number of shares of that class, or to increase or decrease the number of shares of a class having voting or equity rights or privileges equal or superior to those of shares of that class;

(ii) to exchange all or part of the shares of that class for shares of another class or to exchange or to create a right to exchange all or part of the shares of another class for shares of that class;

(iii) to remove or reduce rights to accrued dividends or rights to cumulative dividends attached to shares of that class;

(iv) to reduce or remove preferential rights attached to shares of that class to receive dividends or to the distribution of assets in the event that we are liquidated;

(v) to add, remove or reduce conversion privileges, options, voting rights, transfer or pre-emptive rights, or rights to acquire our securities attached to shares of that class;

(vi) to remove or reduce rights to receive payment payable by us in particular currencies attached to shares of that class;

(vii) to create a new class of shares having voting or equity rights or privileges equal or superior to those of the shares of that class;

(viii) to restrict the transfer or ownership of shares of that class or to increase the types of restrictions attaching thereto;

(ix) to allot and issue rights to subscribe for, or to convert the existing shares into, shares in our company of that class or another class;

(x) to increase the rights or privileges of shares of another class;

(xi) to restructure our company in such a way so as to result in the disproportionate distribution of obligations between the various classes of shareholders;

(xii) to vary or abrogate the provisions of this Chapter.

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Article 141:

Shareholders of the affected class, whether or not otherwise having the right to vote at shareholders’ general meetings, have the right to vote at class meetings in respect of matters concerning sub-paragraphs (2) to (8), (11) and (12) of Article 140, but interested shareholder(s) shall not be entitled to vote at such class meetings.

(An) interested shareholder(s)”, as such term is used in the preceding paragraph, means:

(i) in the case of a repurchase of shares by way of a general offer to all our shareholders or by way of public dealing on a stock exchange pursuant to Article 32, a “controlling shareholder” within the meaning of Article 61;

(ii) in the case of a repurchase of shares by an off-market agreement pursuant to Article 32, a holder of the shares to which the proposed agreement relates;

(iii) in the case of our restructuring, a shareholder who assumes a relatively lower proportion of obligations than the obligations imposed on shareholders of that class under the proposed restructuring or who has an interest in the proposed restructuring different from the general interests of the shareholders of that class.

Ownership Threshold

There are no ownership thresholds above which shareholder ownership is required to be disclosed.

Changes in Capital

Article 107 provides that the increase or reduction in share capital shall be resolved by a special resolution at a shareholders’ general meeting.

Changes in Registered Capital

The Company may reduce its registered share capital. In so doing, it shall act according to the Company Law, other relevant provisions and these Articles of Association.

C. Material Contracts

Placing and Underwriting Agreement for new H Shares in July 2004

We entered into a Placing and Underwriting Agreement with BNP Paribas Peregrine Capital Limited on July 7, 2004, pursuant to which we placed 204,000,000 new H shares, par value RMB1.00 each, at a price of HK$8.30 per share (the “Placing”). The net proceeds of the Placing were HK$1,656.3 million (approximately RMB1,756.9 million). The new H Shares were placed to more than six independent professional and institutional investors located in Hong Kong, Europe and the United States. We used the net proceeds to invest in two new coal mine projects in Shandong Province and Shaanxi Province, and the methanol project in Shaanxi Province. The Placing shares were listed on the Hong Kong Stock Exchange on July 15, 2004. Our total share capital increased to 3,074 million shares from 2,870 million shares, and the percentage of our listed share capital to our total share capital increased from 41.81% to 45.67%. The Placing and Underwriting Agreement is filed with this Form 20-F as Exhibit 4.1.

Asset Sale Agreement

We entered into the Asset Sale Agreement with the receivers and managers and the liquidators of Southland Coal Pty Limited in Australia in October 2004, pursuant to which we acquired the entire assets of Southland Colliery previously owned by Southland Coal Pty Limited in liquidation. The aggregate consideration for the acquisition is AUD32.0 million. We completed the acquisition of Southland Colliery assets on December 24, 2004. Please see “ Item 4. Information of the Company - D. Property, Plants and Equipment,” for more details of Austar Coal Mine. The Asset Sale Agreement is filed with this Form 20-F as Exhibit 4.2.

Jining III Mining Rights

Pursuant to the Jining III Coal Mine Acquisition Agreement dated August 4, 2000 entered into between us and the Parent Company, the consideration of the mining right of Jining III coal mine is approximately RMB132.5 million, which shall be paid to the Parent Company in ten equal annual interest free installments commencing from 2001. During 2005, we paid RMB13.248 million to the Parent Company.

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Loan Agreement

We entered into the Loan Agreement with Bank of China Jining Branch, Shandong Xinjia and the Lianda Group on December 13, 2004 to provide a RMB640.0 million loan to Shandong Xinjia. The loan was guaranteed by Lianda Group and secured by pledges. The annual interest rate of the loan is 7%. The period of the loan was from December 20, 2004 to January 19, 2005. Shandong Xinjia defaulted on the payment of principal of RMB640 million and interest. The English translation of the summary of the Loan Agreement is filed with this Form 20-F as Exhibit 4.3.

Mining Rights

The Parent Company and we have entered into a mining rights agreement dated October 17, 1997 (the “Mining Rights Agreement”) pursuant to which we agreed to pay to the Parent Company an annual fee (the “Annual Fee”) of approximately RMB13.0 million as compensation for the Parent Company’s agreement to relinquish the mining rights associated with five of our mines in China (Nantun Mine, Xinglongzhuang Mine, Baodian Mine, Dongtan Mine and Jining II). The terms of the mining rights are 67 years for Baodian, 70 years for Dongtan, 45 years for Nantun, 80 years for Xinglongzhuang and 64 years for Jining II. All such terms commenced on October 14, 1997, the date on which the mining rights permits were issued. The Annual Fee is fixed for a period of 10 years (the “Initial Period”) commencing from 1997, after which the Annual Fee will be revised if new national legislation is passed in respect thereof. The Parent Company and we also entered into a compensation agreement dated October 17, 1997 (the “Compensation Agreement”) whereby the Parent Company has agreed to compensate us in respect of any amounts in excess of the Annual Fee which we may, following the Initial Period, be required to pay as a result of any such new national legislation. For payment information, see “Item 5. Operating and Financial Review and Prospects - F. Contractual Obligations”.

Approval of New On-going Connected Transaction Agreements and the Annual Caps for Year 2006 to 2008

Pursuant to the regulations of Hong Kong Stock Exchange and Shanghai Stock Exchange on on-going connected transactions and the operation developments of us and the Parent Company, we completed the review of its New On-going Connected Transactions as required by law and entered into six New On-going Connected Transaction Agreements with the Parent Company on January 28, 2005. It also determined the Annual Caps on the connected transactions for each New On-going Connected Transaction Agreements in each year from 2006 to 2008.

The New On-going Connected Transaction Agreements and the Annual Caps were approved by the independent shareholders on March 24, 2006. The term for each of the New On-going Connected Transaction Agreements is from January 1, 2006 till December 31, 2008. The Materials and Services Supply Agreement and its supplementary agreement and the Agreement of Endowment Insurance Fund originally entered into between us and the Parent Company have been terminated. The New On-going Connected Transaction Agreements are filed with this annual report as Exhibit 4.4.

Acquisition of Equity Interest of Heze Nenghua and Payments to the Parent Company

The 2005 first extraordinary general meeting of the Company was held on August 19, 2005, in which the “Equity Transfer Agreement between our Parent Company and us” dated November 16, 2004 and its “Supplemental Agreement” (collectively the “Heze Nenghua Acquisition Agreement”) dated June 28, 2005 were approved. According to the Heze Nenghua Acquisition Agreement, we have acquired 95.67% equity interest in Heze Nenghua at the consideration of RMB584.01 million. Heze Nenghua is responsible for coal development in Juye Coal Field in Shandong province for us. As of 31 December 2005, we have fully paid RMB584.1 million to the Parent Company for the acquisition of the Parent Company’s equity interest in Heze Nenghua. The Heze Nenghua Acquisition Agreement is filed with this annual report as Exhibit 4.5.

Save for the foregoing and except as disclosed in our 2003 and 2004 Form 20-F, we were not a party to any material contract during the two years preceding the date of this annual report.

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D. Exchange Controls

Our Articles of Association require that we shall pay dividends and other amount to holders of Foreign-Invested Shares in accordance with the relevant foreign exchange control regulations. If there is no applicable regulation, the applicable exchange rate shall be the average exchange reference rate of Renminbi to the relevant foreign currency announced by the Bank of China during five working days prior to the announcement of the payment of dividends and other amounts.

Renminbi currently is not generally a freely convertible currency. The PRC State Administration of Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of Renminbi into foreign currency. In general, under existing foreign exchange regulations, unless otherwise approved by the State Administration of Foreign Exchange or exempted by relevant regulations, PRC enterprises must price and sell their goods and services in the PRC in Renminbi. We have established a limited independent foreign currency account since 2001. The primary sources of our foreign currency are the U.S. dollar revenues from sales of coal products. Our foreign currency is mainly used for the settlement of equipment and machinery purchases and payment of cash dividends in connection with our H Shares (in HK dollars). We have not experienced any shortage of foreign currency. In addition, we are entitled to exchange Renminbi for additional foreign currency from designated banks for current account transactions by presenting relevant documents to evidence foreign currency requirements in accordance with relevant regulations. We do not intend to hedge exchange rate fluctuations between Renminbi and HK dollars.

The existing foreign exchange regulations have significantly reduced government foreign exchange controls for transactions under the current account, including trade and service related foreign exchange transactions and payment of dividends. We may undertake current account foreign exchange transactions without prior approval from the State Administration of Foreign Exchange by producing commercial documents evidencing such transactions, provided that they are processed through Chinese banks licensed to engage in foreign exchange transactions. However, we cannot predict whether the PRC Government will continue its existing foreign exchange policy and when the PRC Government will allow free conversion of Renminbi to foreign currency.

Foreign exchange transactions under the capital account, including principal payments in respect of foreign currency-denominated obligations, are subject to significant foreign exchange controls and require the approval of the State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange through debt or equity financing, or to obtain foreign exchange for capital expenditures.

E. Taxation

China Taxation

The following discussion summarizes the material PRC tax provisions relating to the ownership and disposition of H shares or ADSs purchased in connection with the global offering and held by the investor as capital assets.

Dividends Paid to Individual Investors

Under the Provisional Regulations of China Concerning Questions of Taxation on Enterprises Experimenting with the Share System (the “Provisional Regulations”) and other applicable tax laws and regulations, dividends paid by Chinese companies to individuals are generally subject to a PRC withholding tax of 20%. However, on July 21, 1993, the PRC State Administration of Taxation issued the Notice Concerning the Taxation of Gains on Transfer and Dividends from Shares (Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and Foreign Individuals (the “Tax Notice”). Under the Tax Notice, dividends paid by a Chinese company to foreign persons with respect to shares listed on an overseas stock exchange, or Overseas Shares, including the H shares and ADSs, are exempt from PRC withholding taxes for the time being. However, if the Tax Notice is withdrawn, we will withhold such taxes as required by law.

The Individual Income Tax Law of China was amended effective January 1, 1994 and states that it supersedes any contradictory prior administrative regulation concerning individual income tax. The amended Individual Income Tax Law can be interpreted as providing that all non-PRC individuals are subject to the 20% withholding tax on dividends paid by a Chinese company on its Overseas Shares unless specifically exempted by the financial authority of the State Council of the PRC. However, in a letter dated July 26, 1994 to the former State Commission for Restructuring the Economic System, the former State Council Securities Committee and the CSRC, the PRC State Administration of Taxation restated the exemption. In the event that the letter is withdrawn, a 20% tax may be withheld on dividends paid to

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non-PRC individual holders of H Shares or ADSs, subject to reduction by an applicable tax treaty between China and the country where such holders reside. To date, the relevant tax authorities have not collected withholding tax from dividend payments on such shares exempted under the Tax Notice.

Dividends Paid to Non-PRC Enterprises

According to the Provisional Regulations and other applicable tax laws and regulations, dividends paid by Chinese companies to non-PRC enterprises are ordinarily subject to a China withholding tax levied at a flat rate of 20%. However, according to the Tax Notice, a non-PRC enterprise with no permanent establishment in China receiving dividends paid on Overseas Shares is currently exempt from the 20% withholding tax. If the Tax Notice is withdrawn and such withholding tax becomes applicable in the future, such rate may still be reduced under relevant tax treaties, if applicable.

Tax Treaties

Non-PRC shareholders who are residents or citizens of a country that has entered into a double-taxation treaty with China may be entitled to a reduction in the amount of tax withheld, if any, imposed on the payment of dividends. China currently has such treaties with a number of countries, including:

• the United States;

• Australia;

• Canada;

• France;

• Germany;

• Japan;

• Malaysia;

• Singapore;

• the United Kingdom; and

• the Netherlands.

Under each one of such treaties, the rate of withholding tax imposed by China’s taxation authorities is generally reduced. For example, under the double taxation treaty between China and the United States, China may tax dividends paid by us to an eligible U.S. holder up to a maximum of 10% of the gross amount received by such person. Under the treaty, an eligible U.S. holder is a person who, by reason of domicile, residence, place or head office, place of incorporation or any other criterion of similar nature is subject to taxation in the United States, as applicable under the treaty’s “treaty shopping provisions”.

Capital Gains

The Tax Notice provides that gains realized by non-PRC enterprises upon the sale of Overseas Shares which are not held by entities established by such enterprises in China and gains realized by non-PRC individuals upon the sale of Overseas Shares are not subject to withholding tax for the time being. However, as far as individuals are concerned, the Individual Income Tax Law of China, as amended on October 31, 1993 and effective on January 1, 1994, provides for a capital gains tax of 20% on individuals. On January 28, 1994, the Provisions for Implementing the Individual Income Tax Law of China was promulgated which provides that the measures to levy individual income tax on the gains realized on the sale of shares will be made in the future by the Ministry of Finance and subject to the approval of the State Council. On June 20, 1994, February 9, 1996 and March 30, 1998, the Ministry of Finance and the State Administration of Taxation issued notices providing that temporarily no capital gains tax will be imposed on gains from the sale of shares by individuals. However, it is uncertain whether the above exemption for non-PRC enterprises and non-PRC individuals will continue to apply or to be renewed in the future. If such exemption does not

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apply or is not renewed, and the Tax Notice is found not to apply, holders of H shares or ADSs might be subject to a 20% tax on capital gains, unless reduced by an applicable double taxation treaty.

Under the Tax Reduction Notice, beginning from January 1, 2001, enterprise income tax at a reduced 10% rate will apply to interest, rental, license fees and other income obtained in China by non-PRC enterprises without agencies or establishments in China or by non-PRC enterprises of which such incomes do not have any substantive relationship with their agency or establishment in China. Therefore, if the exemption as described in the preceding paragraph does not apply or is not renewed, and the Tax Reduction Notice is found not to apply, a non-PRC enterprise shareholder might be subject to a 20% tax on capital gains, unless reduced by an applicable double taxation treaty.

Additional China Tax Considerations

Under the Provisional Regulations of the PRC Concerning the Stamp Duty, a stamp duty is not imposed by China on the transfer of shares, such as the H shares or ADSs, of Chinese publicly traded companies that take place outside of China.

United States Federal Income Taxation

Each potential investor is strongly urged to consult his or her own tax advisor to determine the particular United States federal, state, local, treaty and foreign tax consequences of acquiring, owning or disposing of the H shares or ADSs.

U.S. Holders

The following is a general discussion of material United States federal income tax consequences of purchasing, owning and disposing of the H shares or ADSs if you are a U.S. holder, as defined below, and hold the H shares or ADSs as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”). This discussion does not address all of the tax consequences relating to the purchase, ownership and disposition of the H shares or ADSs, and does not take into account U.S. holders who may be subject to special rules including:

• tax-exempt entities;

• partnerships or other entities treated as partnerships for United States federal income tax purposes

• certain insurance companies;

• financial institutions;

• regulated investment companies;

• real estate investment trusts;

• broker-dealers;

• traders in securities that elect to mark to market;

• U.S. holders liable for alternative minimum tax;

• U.S. holders that own, actually or constructively, 10% or more of our voting stock;

• banks;

• grantor trusts;

• dealers or traders in securities or currencies;

• persons who receive the H shares or ADSs as compensation for services;

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• U.S. holders that hold the H shares or ADSs as part of a straddle or a hedging or conversion transaction; or

• U.S. holders whose functional currency is not the U.S. dollar.

Moreover, this description does not address United States federal estate and gift taxes or any state or local tax consequences of the acquisition, ownership and disposition of the H shares or ADSs.

This discussion is based on the Code, its legislative history, final, temporary and proposed United States Treasury regulations promulgated thereunder, published rulings and court decisions as in effect on the date hereof, all of which are subject to change, or changes in interpretation, possibly with retroactive effect. In addition, this discussion is based in part upon representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreements will be performed according to its terms.

You are a “U.S. holder” if you are:

• a citizen or resident of the United States for United States federal income tax purposes;

• a corporation or other entity treated as a corporation for United States federal income tax purposes created or organized under the laws of the United States or any political subdivision thereof;

• any entity created or organized in or under the laws of any other jurisdiction if treated as a United States corporation pursuant to United States federal income tax laws;

• an estate the income of which is subject to United States federal income tax without regard to its source; or

• a trust:

– subject to the primary supervision of a United States court and the control of one or more United States persons; or

– that has elected to be treated as a United States person under applicable United States Treasury regulations.

If a partnership (including any entity treated as a partnership for United States federal tax purposes) is a beneficial owner of the H shares or ADSs, the treatment of the partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. If an investor is a partner in a partnership that holds H shares or ADSs, such investor should consult its tax advisor.

We urge you to consult your tax advisors regarding the United States federal, state, local and non-United States tax consequences of the purchase, ownership and disposition of the H shares or ADSs.

In general, if you hold ADRs evidencing ADSs, you will be treated as the owner of the H shares represented by the ADSs. The following discussion assumes that we are not a passive foreign investment company, or PFIC, as discussed under “PFIC Rules” below.

Distributions on the H Shares or ADSs

The gross amount of any distribution (without reduction for any Chinese tax withheld) we make on the H shares or ADSs out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) will be includible in your gross income as ordinary dividend income when the distribution is actually or constructively received by you, or by the depositary in the case of ADSs. Distributions that exceed our current and accumulated earnings and profits will be treated as a return of capital to you to the extent of your basis in the H shares or ADSs and thereafter as capital gain. Any dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from United States corporations. The amount of any distribution of property other than cash will be the fair market value of such property on the date of such distribution.

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Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual, trust or estate prior to January 1, 2009 with respect to the H shares or ADSs will be subject to taxation at a maximum rate of 15% if the dividends are “qualified dividends.” Dividends paid on H shares or ADSs will be treated as qualified dividends if either (i) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service, or IRS, has approved for the purposes of the qualified dividend rules, or (ii) the dividends are with respect to ADSs readily tradable on a U.S. securities market, provided that we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a PFIC. The income tax treaty between China and the United States has been approved for the purposes of the qualified dividend rules, and we expect to qualify for benefits under the income tax treaty between China and the United States. Moreover, the ADSs are currently traded on the NYSE. Finally, based on our audited financial statements and relevant market data, we believe that we did not satisfy the definition for PFIC status for U.S. federal income tax purposes with respect to our 2005 taxable year. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market data, we do not anticipate becoming a PFIC for our 2006 taxable year or any future year. However, our status in future years will depend on our income and assets (which for this purpose depends in part on the market value of the H shares or ADSs) in those years. See the discussion of the PFIC rules below.

The U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of common stock and intermediaries through whom such stock is held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is not clear whether we will be able to comply with them. Holders of H shares or ADSs should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of their own particular circumstances.

If we make a distribution paid in HK dollars, you will be considered to receive the U.S. dollar value of the distribution determined at the spot HK dollar/U.S. dollar rate on the date such distribution is received by you or by the depositary, regardless of whether you or the depositary convert the distribution into U.S. dollars. Any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in your income to the date you or the depositary convert the distribution into U.S. dollars will be treated as United States source ordinary income or loss.

Subject to various limitations, any Chinese tax withheld from distributions in accordance with the Agreement Between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income will be deductible or creditable against your United States federal income tax liability. For foreign tax credit limitation purposes, dividends paid on the H shares or ADSs will be foreign source income, and generally will be treated as “passive income” or, in the case of some U.S. holders, “financial services income” for taxable years ending on or before December 31, 2006, and “general category income” for subsequent taxable years. You may not be able to claim a foreign tax credit (and instead may claim a deduction) for non-United States taxes imposed on dividends paid on the H Shares or ADSs if you (i) have held the H shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss with respect to such shares, (ii) are obligated to make payments related to the dividends (for example, pursuant to a short sale) or (iii) hold the H shares or ADSs in an arrangement in which your expected economic return, after non-United States taxes, is insubstantial.

Sale, Exchange or Other Disposition

Upon a sale, exchange or other disposition of the H shares or ADSs, you will generally recognize capital gain or loss for United States federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized and your tax basis, determined in U.S. dollars, in such H shares or ADSs. Any gain or loss will generally be United States source gain or loss for foreign tax credit limitation purposes. Capital gain of certain non-corporate U.S. holders, including individuals, is generally taxed at a maximum rate of 15 percent where the property has been held more than one year. Your ability to deduct capital losses is subject to limitations.

If you are paid in a currency other than U.S. dollars, any gain or loss resulting from currency exchange fluctuations during the period from the date of the payment resulting from sale, exchange or other disposition is made to the date you convert the payment into U.S. dollars will be treated as United States source ordinary income or loss.

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PFIC Rules

In general, a foreign corporation is a PFIC for any taxable year in which, after applying relevant look-through rules with respect to the income and assets of subsidiaries:

• 75% or more of its gross income consists of passive income, such as dividends, interest, rents and royalties; or

• 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income.

We believe that we will not meet either of the PFIC tests in the current or subsequent taxable years and therefore will not be treated as a PFIC for such periods. However, there can be no assurance that we will not be a PFIC in the current or subsequent taxable years.

If we were a PFIC in any taxable year that you held the H shares or ADSs, you generally would be subject to special rules with respect to “excess distributions” made by us on the H shares or ADSs and with respect to gain from your disposition of the H shares or ADSs. An “excess distribution” generally is defined as the excess of the distributions you receive with respect to the H shares or ADSs in any taxable year over 125% of the average annual distributions you have received from us during the shorter of the three preceding years, or your holding period for the H shares or ADSs. Generally, you would be required to allocate any excess distribution or gain from the disposition of the H shares or ADSs ratably over your holding period for the H shares or ADSs. The portion of the excess distribution or gain allocated to a prior taxable year, other than a year prior to the first year in which we became a PFIC, would be taxed at the highest United States federal income tax rate on ordinary income in effect for such taxable year, and you would be subject to an interest charge on the resulting tax liability, determined as if the tax liability had been due with respect to such particular taxable years. The portion of the excess distribution or gain that is not allocated to prior taxable years, together with the portion allocated to the years prior to the first year in which we became a PFIC, would be included in your gross income for the taxable year of the excess distribution or disposition and taxed as ordinary income.

The foregoing rules with respect to excess distributions and dispositions may be avoided or reduced if you are eligible for and timely make a valid “mark-to-market” election. If your H shares or ADSs were treated as shares regularly traded on a “qualified exchange” for United States federal income tax purposes and a valid mark-to-market election was made, in calculating your taxable income for each taxable year you generally would be required to take into account as ordinary income or loss the difference, if any, between the fair market value and the adjusted tax basis of your H shares or ADSs at the end of your taxable year. However, the amount of loss you would be allowed is limited to the extent of the net amount of previously included income as a result of the mark-to-market election. The NYSE in which the ADSs will be traded is a qualified exchange for United States federal income tax purposes.

Alternatively, a timely election to treat us as a qualified electing fund under Section 1295 of the Code could be made to avoid the foregoing rules with respect to excess distributions and dispositions. You should be aware, however, that if we become a PFIC, we do not intend to satisfy record keeping requirements that would permit you to make a qualified electing fund election.

If you own the H shares or ADSs during any year that we are a PFIC, you must file IRS Form 8621. We encourage you to consult your own tax advisor concerning the United States federal income tax consequences of holding the H shares or ADSs that would arise if we were considered a PFIC.

Backup Withholding and Information Reporting

In general, information reporting requirements will apply to dividends in respect of the H shares or ADSs or the proceeds of the sale, exchange, or redemption of the H shares or ADSs paid within the United States, and in some cases, outside of the United States, other than to various exempt recipients, including corporations. In addition, you may, under some circumstances, be subject to “backup withholding” with respect to dividends paid on the H shares or ADSs or the proceeds of any sale, exchange or transfer of the H shares or ADSs, unless you

• are a corporation or fall within various other exempt categories, and, when required, demonstrate this fact; or

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• Provide a correct taxpayer identification number on a properly completed IRS Form W-9 or a substitute form, certify that you are exempt from backup withholding and otherwise comply with applicable requirements of the backup withholding rules.

Any amount withheld under the backup withholding rules generally will be creditable against your United States federal income tax liability provided that you furnish the required information to the IRS in a timely manner. If you do not provide a correct taxpayer identification number you may be subject to penalties imposed by the IRS.

Hong Kong Taxation

The following discussion summarizes the material Hong Kong tax provisions relating to the ownership of H shares or ADSs purchased in connection with the global offering and held by you.

Dividends

Under current practice, no tax will be payable in Hong Kong in respect of dividends paid by us.

Taxation of Capital Gains

No tax is generally imposed in Hong Kong in respect of capital gains from the sale of property (such as the H shares). Trading gains from the sale of property by persons carrying on a trade, profession or business in Hong Kong, where such gains are derived from or arise in Hong Kong from such trade, profession or business, will be chargeable to Hong Kong profits tax, which is currently imposed at the rate of 17.5% on corporations and at a maximum rate of 16.0% on individuals. Gains from sales of the H shares effected on the Hong Kong Stock Exchange will be considered to be derived from or arise in Hong Kong. Liability for Hong Kong profits tax would thus arise in respect of trading gains from sales of H shares realized by persons carrying on a business of trading or dealing in Hong Kong in securities.

There will generally be no liability for Hong Kong profits tax in respect of profits from the sale of ADSs, where purchases and sales of ADSs are effected outside Hong Kong, e.g. on the NYSE.

Hong Kong Stamp Duty

Hong Kong stamp duty will be payable by each of the seller and the purchaser for every sale and purchase, respectively, of the H shares. Stamp duty is charged at the rate of 0.2% of the value of the H shares transferred (the buyer and seller each paying half of such stamp duty). In addition, a fixed duty of HK$5 is currently payable on an instrument of transfer of H shares. If one of the parties to a sale is a non-resident of Hong Kong and does not pay the required stamp duty, the duty not paid will be assessed on the instrument of transfer (if any), and the transferee will be liable for payment of such duty.

The withdrawal of H shares when ADSs are surrendered, and the issuance of ADSs when H shares are deposited, may be subject to Hong Kong stamp duty at the rate described above for sale and purchase transactions, unless the withdrawal or deposit does not result in a change of beneficial ownership under Hong Kong law. The issuance of ADSs for deposited H shares issued directly to the depositary or for the account of the depositary should not lead to a Hong Kong stamp duty liability. You are not liable for the Hong Kong stamp duty on transfers of ADSs outside of Hong Kong so long as it does not result in a change of beneficial interest in the H shares.

Hong Kong Estate Duty

Hong Kong estate duty was abolished with effect from February 11, 2006.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

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H. Documents on Display

In accordance with the Exchange Act, we are obligated to file reports, including annual reports on this Form 20-F, and other information with the Commission. The reports and other information we have filed under the Exchange Act and the Registration Statement and exhibits thereto we have previously filed with the Commission may be inspected and copied by the public at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, U.S.A. and will also be available for inspection and copying at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048, U.S.A. and at Northwest Atrium Center, 500 Madison Street (Suite 1400), Chicago, Illinois 60661, U.S.A. Copies of such material may also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington D.C. 20549, U.S.A. at prescribed rates. The Form 20-F and other information filed with the Commission are also available at the Commission’s website at www.sec.gov. Such reports and other information may also be inspected at the office of the New York Stock Exchange, 11 Wall Street, New York, New York 10005, U.S.A.

I. Subsidiaries

Name of Subsidiary	Country of incorporation/ registration and operation	Issued and fully paid capital/ registered capital	Proportion of registered capital/issued share capital held by the Company				Proportion of voting power held		Principal activities
			Directly		Indirectly
Austar	Australia	AUD30,000,000	—		100	%	100	%	Coal mining business
Heze Nenghua	PRC	RMB600,000,000	95.67	%	—		95.67	%	Development of ancillary projects
Yancoal	Australia	AUD30,000,000	100	%	—		100	%	Investment holding
Yanmei Shipping	PRC	RMB5,500,000	92	%	—		97	%	Transportation via rivers and lakes and the sales of coal and construction materials
Yulin	PRC	RMB800,000,000	97	%	—		97	%	Development of 600,000 tonnes Methanol Project
Zhongyan Trade Co., Ltd. (“Zhongyan”)	PRC	RMB2,100,000	52.38	%	—		52.38	%	Trading and processing of mining machinery

In 2005, we acquired a 95.67% equity interest in Yankuang Heze Power Chemical Company Limited from the Parent Company. The projects developed by Yankuang Heze Power Chemical Company Limited, Yanzhou Coal Yulin Power Chemical Co., Limited and Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited are currently in construction or preparation.

J. Compliance and Exemption of Corporate Governance Standards Imposed by the New York Stock Exchange

New York Stock Exchange (“NYSE”) has based on its listing rules imposed a series of corporate governance listing standards for companies listed in the NYSE (Section 303A). However, NYSE provides that listed companies that are foreign private issuers, subject to certain limitations and conditions, are permitted to follow “home country” practice in lieu of the provision of Section 303A. One of the conditions is that a listing foreign private issuer must disclose any significant ways in which their corporate governance practices differ from those followed by U.S. companies under NYSE listing standards.

As of the date of this annual report, 52.86% of our voting rights are vested in the Parent Company. We therefore are exempt from certain requirements of Section 303A of the NYSE Listed Company Manual: (i) we are not required to comply with Section 303A.01’s requirements to form a Board with the majority of independent directors, (ii) we are not required to comply with Section 303A.04’s requirements to form a nominating/corporate governance committee entirely consisted of independent directors, and (iii) we are not required to comply with Section 303A.05’s requirements to form a compensation committee entirely consisted of independent directors, and disclose herein.

We have established an audit committee pursuant to the requirements of Section 303A.06 of the NYSE Listed Company Manual. As a foreign private issuer, we rely on the exemption under Section 303A.00 of the NYSE Listed Company Manual as well as affiliated director and employee director exemptions as provided under Rule 10A-3 of the Securities Exchange Act of 1934 to be in compliance with the audit committee standards set out in Section 303A.06 of the NYSE Listed Company Manual.

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As a foreign private issuer, we set out below material differences between our corporate governance practices and the NYSE’s corporate governance requirements as set out in Section 303A of the Listed Company Manual:

	NYSE Listed Company Manual Requirements on Corporate Governance	Company’s Practices
Non-management directors must meet at regularly scheduled executive sessions without management	Section 303A.03 of the NYSE Listed Company Manual requires non-management directors of each listed company to meet at regularly scheduled executive sessions without management participation.	There is no identical corporate governance requirement in the PRC. We have established a reporting system to the Board to ensure that the Directors are informed of the our business and operations. We believe that the convening of Board meetings on a regularly basis offers the non-management Directors a well-established communication forum to voice their concerns and engage in full and open discussions regarding our business affairs.
Corporate Governance Guidelines	Section 303A.09 of the NYSE Listed Company Manual requires that a listed company must adopt and disclose corporate governance guidelines. In addition, Section 303A.09 lists out matters that must be addressed in the guidelines: •      Director qualification standards; •      Director responsibilities; •      Director access to management and independent advisors; •      Director compensation; •      Director orientation and continuing education; •      Management succession; and •      Annual performance evaluation of the Board.	Although we have not adopted a separate set of corporate governance guidelines encompassing all corporate governance requirements required by the NYSE, our shareholders has approved relevant corporate rules and measures to address issues pertaining to: the operations, powers and responsibilities of the Shareholders, the Board, the Board of Supervisors, and the independent Directors; the disclosure of information; and connected transactions. We believe that collectively, the aforementioned rules and measures have adequately addressed the corporate governance requirements required by the NYSE and provide wider, more detailed corporate governance requirements that can further facilitate the effective operation of the Company.
Code of Business Conduct and Ethics	Section 303A.10 of the NYSE Listed Company Manual requires that a listed company must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. Topics must be addressed in the a code of business conduct and ethics: *       Conflicts of Interest *       Corporate Opportunities; *       Confidentiality; *       Fair dealing; *       Protection and proper use of company assets; *       Compliance with laws, rules and regulations (including insider trading laws); and *       Encouraging the reporting of any illegal or unethical behavior.	We have adopted a Code of Ethics in compliance with PRC laws and regulations as well as the rules of the relevant listing stock exchanges. The Code of Ethics is published on the our website. Although our current Code of Ethics as adopted does not completely conform to the NYSE rules, we believe that the existing Code of Ethics can adequately protect the interests of the Company and the Shareholders.

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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. As a global concern, we face exposure to adverse movements in foreign currency exchange rates, interest rates and commodity price risk. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results.

Interest Rate Risk. We are exposed to interest rate risk resulting from fluctuations in interest rates on our debt, primarily on long-term debt obligations. We undertake debt obligations to support general corporate purposes including capital expenditures and working capital needs. Upward fluctuations in interest rates increase the cost of new debt and the interest cost of outstanding variable rate borrowings. Fluctuations in interest rates can also lead to significant fluctuations in the fair values of our debt obligations. We do not currently use any derivative instruments to modify the nature of our debt so as to manage the interest rate risk.

We entered into a long-term loan agreement with the Bank of China on December 3, 2001 and borrowed a total of RMB1.2 billion from the Bank of China on January 4, 2002. The initial interest rate of the loans was 6.2% per annum, subject to adjustment in accordance with statutory interest rate or changes by the State in the method of calculating interest during the term of the loan agreement. The interest rate of the loans was adjusted to 5.76% first in 2003, then to 6.12% on October 29, 2004 and recently adjusted to 6.39% on April 28, 2006. The loan is repayable in six installments of RMB200.0 million each over a period of 96 months, commencing August 2004. Interest is payable on a quarterly basis. We made a partial repayment of RMB600.0 million in June 2003. According to the terms of the loan agreement, the balance of the loan is repayable in three annual installments of RMB200 million, i.e. on August 25, of each year beginning 2004 to 2006. We have paid RMB200 million on August 2004 and 2005, respectively, and we plan to repay the balance of the loan, RMB200 million, on August 2006.

We have prepared a sensitivity analysis to assess the impact of interest rate fluctuations on our 2005 operating results. Based on this analysis, we estimate that an increase in the interest rate to 1% would have decreased our reported net income attributable to the equity holders of the Company for 2005 by approximately RMB3.6 million.

Foreign Currency Exchange Rate Risk. Since July 21, 2005, the PRC Government has announced a reform of its exchange rate system. Under the reform, the Renminbi would no longer be effectively linked to the U.S. dollars but instead would allow to fluctuate within a narrow and managed band against a basket of foreign currencies. The PRC Government may adopt further reforms of its exchange rate system, including making the Renminbi freely convertible in the future.

The foreign exchange fluctuations mainly affect (i) exported coal product sales, quoted in U.S. dollars, (ii)imported machinery and equipment purchases and (iii) foreign currency deposits. We have not entered into any material foreign exchange contracts to minimize or mitigate the effects of foreign exchange fluctuations on our operations. Most of our sales are domestic and as such we have a limited amount of foreign currency denominated accounts receivable. In 2005, our sales of exported coal products accounted for 25.5% of our total revenue. Our export sales agents exchange 70% of the export sales proceeds from foreign currency to RMB and remit RMB and foreign currency to us. In addition, we purchased only small amount of machinery and equipment in the past years. A substantial portion of our imported machinery and equipment purchases were made by us in foreign currencies. As of December 31, 2005, we had Renminbi, U.S. Dollar, Euro, Australian Dollar Hong Kong Dollar and Pound denominated savings accounts of RMB4,516.0 million, U.S.$1,74.4 million, EUR28.4 million, AUD15.1 million HK$950.1 million and £ 0.2 million.

We have prepared a sensitivity analysis to assess the impact of exchange rate fluctuation on our 2005 operating results. Based on this analysis, we estimate that a 10% decrease in the exchange rate for the U.S. dollar to RMB would have decreased our reported net income attributable to the equity holders of the Company for 2005 by approximately RMB255.5 million.

Commodity Price Risk. Coal prices are subject to cyclical fluctuations from time to time due to imbalances between demand and supply. Fluctuations in prices directly affect our operating and financial performance. We have experienced substantial price fluctuations in the past and believe that such fluctuations will continue. The average selling price of our coal products was RMB172.4 per tonne in 2003, RMB272.5 in 2004, and RMB349.5 in 2005. As certain portion of our total sales are derived from export coal sales, any significant changes in the international coal industry may have a material adverse effect on our export sales and results of operations.

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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

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PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

As of December 31, 2005, we were not in default in the payment of principal or interest of any lenders.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15. CONTROLS AND PROCEDURES

As of the end of the period covered by this annual report, our management carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002). Based on this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information about us required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, and effectively ensure the recording, processing, summarizing and reporting of such material information in accordance with the rules and forms of the Securities and Exchange Commission.

There have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation, although we are committed to ongoing periodic review and enhancement of our existing controls and expect to consider from time to time making changes we believe will increase the efficiency and reliability of our controls in the future.

During the period covered by this Annual Report, no significant change has occurred in our internal controls over financial reporting that has materially affected, or reasonably likely to materially affect, our internal controls over financial reporting. We are required under Section 404 of the Sarbanes-Oxley Act to complete an assessment of the effectiveness of our internal controls over financial reporting by the end of 2006. We have set up a special panel and a project management committee to consider the design, implementation and testing of a comprehensive system of internal controls, including, among others, the introduction and implementation of risk management programs. We are in the process of identifying and correcting the deficiencies and weaknesses existing in our internal control, including the effectiveness of our information system, the efficiency of our audit committee and the efficiency of our internal control department. In the event that necessary improvements in our internal control system cannot be fully completed by the end of 2006, there may be matters which could constitute material weaknesses in our internal control over financial reporting, and we would be required to disclose any material weakness in our internal control over financial reporting in accordance with applicable laws and regulations.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our audit committee members are Cui Jianming, Pu Hongjiu, Wang Xiaojun, Wang Quanxi, Chen Changchun and Dong Yunqing with Mr. Cui Jianming, who is a financial expert, serving as the chairman of the committee. Mr. Cui has extensive experience in financial accounting and audit management. Mr. Cui is a senior auditor and certified accountant and is a consultant for the Association of China Certified Accountant. See “Item 6. Directors, Supervisors, Senior Management and Employees.”

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ITEM 16B. CODE OF ETHICS

We have adopted a Code of Ethics that applies to our Chairman, Vice Chairman, chief executive officer, chief financial officer, Board Secretary, chief engineer, controller and other senior officers of the finance and audit department. Our Code of Ethics is subject to review by the Board of Directors from time to time and is subject to amendment. Our Code of Ethics has been posted on our corporate website: http://www.yanzhoucoal.com.cn/mygsbak/index.asp. A copy of this Code of Ethics is available to any person, without charge, upon request to the address on the cover of this Form 20-F.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Deloitte Touche Tohmatsu Certified Public Accountants and Deloitte Touche Tohmatsu Certified Public Accountants Ltd. (collectively, “Deloitte Touche Tohmatsu”) served as our international and domestic independent registered accounting firms for the 2005 fiscal year. A description of the fees billed to us by Deloitte Touche Tohmatsu for professional services in each of the last two fiscal years is set forth below:

	Year ended December 31,
	2004	2005
	(thousands)
Audit fees	RMB5,000	RMB9,229
Audit-related fees	—	—
Tax fees	—	—
All other fees	—	—

“Audit Fees” are the aggregate fees billed by Deloitte Touche Tohmatsu for the audit of our consolidated and annual financial statements, review of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. “Audit-Related Fees” are fees charged by Deloitte Touche Tohmatsu for services that are reasonably related to the performance of the audit or review of our financial statements but are not reported under “Audit Fees.” We have not paid Deloitte Touche Tohmatsu any Audit-Related Fees for 2004 and 2005 fiscal years.

Audit Committee Pre-Approval Policies and Procedures

The audit committee of our Board of Directors is responsible, among other things, for the recommendation or termination of external auditor subject to the requirements of applicable domestic and overseas listing rules and regulations. Before we can engage external auditors to perform audit or non-audit services, we must obtain the necessary pre-approval from the audit committee. For 2005, all of the audit services provided by Deloitte Touche Tohmatsu were pre-approved by our audit committee. As of the date of this report, we did not engage any accounting firms to provide non-audit services.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Our audit committee consists of four independent non-executive directors, namely, Mr. Cui Jianming, Pu Hongjiu, Wang Xiaojun and Wang Quanxi; one affiliated director, Mr.Chen Changchun; and one employee director, namely, Mr. Dong Yunqing. As a foreign private issuer, we rely on the exemption under Section 303A.00 of the NYSE Listed Company Manual as well as affiliated director and employee director exemptions as provided under Rule 10A-3 of the Securities Exchange Act of 1934 to be in compliance with the audit committee standards set out in Section 303A.06 of the NYSE Listed Company Manual.

The affiliated director meets the requirements of independence requirement under Rule 10A-3(b)(1)(ii)(A) of the Securities Exchange Act of 1934 because, except in his capacity as a member of the Company’s Board of Directors and audit committee, he does not receive, directly or indirectly, any consulting, advisory or other compensatory fee from us or any of our subsidiaries. In addition, the affiliated director is not a voting member or the chairman of the audit committee pursuant to our audit committee charter. The affiliated director is not our executive officer. Accordingly, we believe the affiliated director qualifies for the exemption under Rule 10A-3(b)(1)(iv)(D).

Rule 10A-3(b)(1)(iv)(C) of the Securities Exchange Act of 1934 provides an exemption to the independence requirement and permits an employee director of a foreign private issuer, who is not an executive officer of that foreign private issuer to serve as a member of the audit committee if such employee director is elected or named to the

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board of directors or audit committee of the foreign private issuer pursuant to the issuer’s governing law or documents, an employee collective bargaining or similar agreement or other home country legal or listing requirements.

The employee director qualifies for the exemption under Rule 10A-3(b)(1)(iv)(C) of the Securities Exchange Act of 1934 because he is not our executive officer and is elected to the Board of Directors of the Company pursuant to the Advisory Opinion Regarding the Establishment of Sound Corporate Procedures for Company Employee Directors and Supervisors, promulgated by the Shandong Economic and Trade Commission on July 20, 2000 (“Shandong Advisory Opinion”). The employee director is not a voting member or the chairman of the audit committee pursuant to our audit committee charter. Accordingly, we believe that the employee director is exempt from the independence requirement pursuant to Rule 10A-3(b)(1)(iv)(C) of the Securities Exchange Act of 1934.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

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PART III

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide the Financial Statements and related information specified in Item 18 in lieu of Item 17.

ITEM 18. FINANCIAL STATEMENTS

References are made to pages F-1 to F-71 for year-end financial statements.

ITEM 19. EXHIBITS

Documents filed as exhibits to this annual report:

Exhibit Number	Description
1.1	-	Amended Articles of Association of Yanzhou Coal Mining Company Limited as approved by the Shareholders on July 8, 2004 and June 28, 2005, respectively (English translation)
4.1	-	Placing and Underwriting Agreement between us and BNP Paribas Peregrine Capital Limited dated July 7, 2004 (English original)
4.2	-	Southland Colliery Asset Sale Agreement by and among us, the receivers, managers and the liquidators of Southland Coal Pty Limited dated October 5, 2004 (English original)
4.3	-	Loan Agreement by and among us, Bank of China Jining Branch, Shandong Xinjia and the Lianda Group dated December 13, 2004 (English translation summary)
4.4	-	The New On-going Connected Transaction Agreements dated (English translation)
4.5	-	Heze Nenghua Acquisition Agreement (including Supplemental Agreement) (English translation)
7.1	-	Statement explaining how certain ratios were calculated in annual report
8.1	-	List of subsidiaries of Yanzhou Coal Mining Company Limited
12.1	-	Certification of chief executive officer pursuant to Rule 13a-14(a) promulgated under the U.S. Securities Act of 1934
12.2	-	Certification of chief financial officer pursuant to Rule 13a-14(a) promulgated under the U.S. Securities Act of 1934
13.1	-	Certification of chief executive officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002
13.2	-	Certification of chief financial officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002
14.1	-	Zhaolou Coal Mine Coal Reserve Report
99.1	-	Statement explaining how earnings per share information was calculated in this annual report

88

SIGNATURES

The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

YANZHOU COAL MINING COMPANY LIMITED

(Registrant)

Date: June 29, 2006 By: /s/ YANG Deyu

YANZHOU COAL MINING COMPANY LIMITED

Consolidated Financial Statements

For the years ended December 31, 2005, 2004

and 2003 and Report of

Independent Registered

Public Accounting Firm

YANZHOU COAL MINING COMPANY LIMITED

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003 AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONTENTS	PAGE(S)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2
CONSOLIDATED STATEMENTS OF INCOME	F-3
CONSOLIDATED BALANCE SHEETS	F-4
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY	F-5
CONSOLIDATED STATEMENT OF CASH FLOWS	F-6
NOTES TO THE FINANCIAL STATEMENTS	F-7 - F-71

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS OF YANZHOU COAL MINING COMPANY LIMITED

(A joint stock company with limited liability established in the People’s Republic of China)

We have audited the accompanying consolidated balance sheets of Yanzhou Coal Mining Company Limited and its subsidiary as of December 31, 2005 and 2004 and the related statements of income, changes in shareholders’ equity, and cash flows for the three years in the period ended December 31, 2005, all expressed in Renminbi. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Yanzhou Coal Mining Company Limited and its subsidiary as of December 31, 2005 and 2004, and the results of their operations and their cash flows for the three years in the period ended December 31, 2005 in conformity with International Financial Reporting Standards.

International Financial Reporting Standards vary in certain significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of net income for each of the three years in the period ended December 31, 2005 and the determination of shareholders’ equity and financial position at December 31, 2005 and 2004, to the extent summarized in note 47.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

April 21, 2006

F-2

YANZHOU COAL MINING COMPANY LIMITED

CONSOLIDATED STATEMENTS OF INCOME

		Year ended December 31,
	NOTES	2005			2004			2003
		RMB’000			RMB’000			RMB’000
RAILWAY TRANSPORTATION SERVICE INCOME			163,437			220,771			154,585
GROSS SALES OF COAL	7		12,283,588			11,757,052			8,386,629
			12,447,025			11,977,823			8,541,214
TRANSPORTATION COSTS OF COAL	7		(930,103	)		(1,402,715	)		(1,592,294	)
COST OF SALES AND SERVICE PROVIDED	8		(5,288,588	)		(4,551,703	)		(3,755,023	)
GROSS PROFIT			6,228,334			6,023,405			3,193,897
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	9		(1,918,788	)		(1,479,863	)		(1,264,858	)
OTHER INCOME	10		135,038			165,732			105,845
INTEREST EXPENSE	11		(24,611	)		(35,942	)		(59,966	)
INCOME BEFORE INCOME TAXES			4,419,973			4,673,332			1,974,918
INCOME TAXES	12		(1,538,036	)		(1,518,762	)		(587,710	)
INCOME FOR THE YEAR	13		2,881,937			3,154,570			1,387,208
Attributable to:
Equity holders of the Company			2,881,461			3,154,317			1,386,686
Minority interest			476			253			522
			2,881,937			3,154,570			1,387,208
APPROPRIATIONS TO RESERVES			755,530			737,782			425,566
DIVIDEND	15		799,240			470,680			298,480
EARNINGS PER SHARE, BASIC	16	RMB	0.59		RMB	0.66		RMB	0.30
EARNINGS PER ADS, BASIC	16	RMB	29.29		RMB	33.25		RMB	15.10

F-3

YANZHOU COAL MINING COMPANY LIMITED

CONSOLIDATED BALANCE SHEETS

		At December 31,
	NOTES	2005	2004
		RMB’000	RMB’000
ASSETS
CURRENT ASSETS
Bank balances and cash		5,885,581	5,216,738
Term deposits	17	1,326,335	—
Restricted cash	17	30,505	24,877
Bills and accounts receivable	18	2,224,836	1,223,788
Inventories	19	470,501	485,429
Other loans receivable	20	640,000	850,000
Amounts due from Parent Company and its subsidiary companies	39	—	213,871
Prepayments and other current assets	21	202,417	188,296
Prepaid lease payments	23	13,465	13,171
Prepayment for land subsidence, restoration, rehabilitation and environmental costs	33	157,511	103,407
TOTAL CURRENT ASSETS		10,951,151	8,319,577
MINING RIGHTS	22	153,265	138,617
PREPAID LEASE PAYMENTS	23	579,773	578,547
PROPERTY, PLANT AND EQUIPMENT, NET	24	9,318,486	8,537,150
GOODWILL	25	153,037	117,392
NEGATIVE GOODWILL	26	—	(27,621	)
INVESTMENTS IN SECURITIES	28	62,181	62,181
RESTRICTED CASH	17	36,551	36,854
DEPOSIT MADE ON INVESTMENT	29	—	574,000
TOTAL ASSETS		21,254,444	18,336,697
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Bills and accounts payable	31	497,660	478,281
Other payables and accrued expenses	32	1,575,869	1,337,565
Amounts due to Parent Company and its subsidiary companies	39	508,254	—
Unsecured bank borrowing - due within one year	34	200,000	200,000
Taxes payable		647,247	529,265
TOTAL CURRENT LIABILITIES		3,429,030	2,545,111
AMOUNTS DUE TO PARENT COMPANY AND ITS SUBSIDIARY COMPANIES - DUE AFTER ONE YEAR	39	31,827	41,057
UNSECURED BANK BORROWING - DUE AFTER ONE YEAR	34	—	200,000
DEFERRED TAX LIABILITY	30	146,279	23,104
TOTAL LIABILITIES		3,607,136	2,809,272
COMMITMENTS	40
CAPITAL AND RESERVES
SHARE CAPITAL	35	4,918,400	3,074,000
RESERVES		12,700,177	12,449,751
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY		17,618,577	15,523,751
MINORITY INTEREST		28,731	3,674
TOTAL EQUITY		17,647,308	15,527,425
TOTAL LIABILITIES AND EQUITY		21,254,444	18,336,697

F-4

YANZHOU COAL MINING COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	Share capital	Share premium		Future development fund	Statutory common reserve fund	Statutory common welfare fund	Translation reserve		Retained earnings		Attributable to equity holders of the Company		Minority interest		Total
	RMB’000	RMB’000		RMB’000	RMB’000	RMB’000	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
				(note)	(note 35)	(note 35)
Balance at January 1, 2003	2,870,000	3,272,527		855,237	388,201	194,141	—		2,414,927		9,995,033		4,937		9,999,970
Net income and total recognized income and expenses for the year	—	—		—	—	—	—		1,386,686		1,386,686		522		1,387,208
Appropriations to reserves	—	—		259,674	110,580	55,312	—		(425,566	)	—		—		—
Dividends	—	—		—	—	—	—		(298,480	)	(298,480	)	(1,765	)	(300,245	)
Acquisition of a subsidiary	—	—		—	—	—	—		—		—		46		46
Balance at December 31, 2003	2,870,000	3,272,527		1,114,911	498,781	249,453	—		3,077,567		11,083,239		3,740		11,086,979
Balance at January 1, 2004	2,870,000	3,272,527		1,114,911	498,781	249,453	—		3,077,567		11,083,239		3,740		11,086,979
Net income and total recognized income and expenses for the year	—	—		—	—	—	—		3,154,317		3,154,317		253		3,154,570
Appropriations to reserves	—	—		331,548	270,812	135,422	—		(737,782	)	—		—		—
Dividends	—	—		—	—	—	—		(470,680	)	(470,680	)	(319	)	(470,999	)
Share issued at premium	204,000	1,591,977		—	—	—	—		—		1,795,977		—		1,795,977
Share issue expenses	—	(39,102	)	—	—	—	—		—		(39,102	)	—		(39,102	)
Balance at December 31, 2004	3,074,000	4,825,402		1,446,459	769,593	384,875	—		5,023,422		15,523,751		3,674		15,527,425
Balance at January 1, 2005	3,074,000	4,825,402		1,446,459	769,593	384,875	—		5,023,422		15,523,751		3,674		15,527,425
Effect of change in accounting policy	—	—		—	—	—	—		27,621		27,621		—		27,621
As restated	3,074,000	4,825,402		1,446,459	769,593	384,875	—		5,051,043		15,551,372		3,674		15,555,046
Exchange difference arising on translation of foreign operations recognized directly in equity	—	—		—	—	—	(15,016	)	—		(15,016	)	—		(15,016	)
Net income	—	—		—	—	—	—		2,881,461		2,881,461		476		2,881,937
Total recognized income and expenses for the year	—	—		—	—	—	(15,016	)	2,881,461		2,866,445		476		2,866,921
Appropriations to reserves	—	—		381,208	249,548	124,774	—		(755,530	)	—		—		—
Bonus issue of shares	1,844,400	(1,844,400	)	—	—	—	—		—		—		—		—
Dividends	—	—		—	—	—	—		(799,240	)	(799,240	)	(237	)	(799,477	)
Acquisition of a subsidiary	—	—		—	—	—	—		—		—		24,818		24,818
Balance at December 31, 2005	4,918,400	2,981,002		1,827,667	1,019,141	509,649	(15,016	)	6,377,734		17,618,577		28,731		17,647,308

Note:

According to a clarification of the relevant regulations obtained from the Ministry of Finance during the year 2002, Yanzhou Coal Mining Company Limited (the “Company”) is required to transfer annually an amount to the future development fund at RMB6 per tonne of raw coal mined. The fund can only be used for the future development of the coal mining business and is not available for distribution to shareholders.

Pursuant to the relevant regulations of the Shandong Province Finance Bureau, State-owned Assets Supervision and Administration Commission of Shandong Province and Shandong Province Coal Mining Industrial Bureau, the Company is required to transfer an additional amount at RMB5 per tonne of raw coal mined from July 1, 2004 to the future development fund for the future improvement of the mining facilities and is not distributable to shareholders.

F-5

YANZHOU COAL MINING COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year ended December 31,
	NOTES	2005		2004		2003
		RMB’000		RMB’000		RMB’000
OPERATING ACTIVITIES
Income for the year		2,881,937		3,154,570		1,387,208
Adjustments to reconcile income for the year to net cash from operating activities:
Depreciation of property, plant and equipment		952,096		958,667		920,533
Amortization of prepaid lease		13,171		13,194		13,294
Amortization of goodwill		—		15,773		9,657
Release of negative goodwill to income		—		(27,620	)	(27,620	)
Amortization of mining rights		6,624		6,624		6,624
Recognition (utilization) of deferred tax asset		44,436		44,436		(65	)
Recognition of deferred tax liability		78,739		67,540		—
Impairment loss on accounts receivables		—		49,104		80,272
Loss (gain) on disposal of property, plant and equipment		527		104,597		(6,872	)
Gain on disposal of investments in securities		—		—		(1,424	)
(Increase) decrease in assets:
Bills and accounts receivable		(1,001,048	)	(10,437	)	(506,885	)
Inventories		59,989		27,129		93,153
Prepayment for land subsidence, restoration, rehabilitation and environmental cost		(53,377	)	—		—
Prepayments and other current assets		(17,261	)	324,273		224,674
Amounts due from Parent Company and its subsidiary companies		213,871		(213,871	)	—
Prepaid lease payment		(14,691	)	—		—
Increase (decrease) in liabilities:
Bills and accounts payable		19,379		50,673		(175,117	)
Other payables and accrued expenses		157,833		(13,333	)	569,651
Provision for land subsidence, restoration, rehabilitation and environmental costs		—		(178,361	)	(2,194	)
Amounts due to Parent Company and its subsidiary companies		479,067		(368,939	)	58,794
Taxes payable		117,982		414,362		57,553
NET CASH FROM OPERATING ACTIVITIES		3,939,274		4,418,381		2,701,236
INVESTING ACTIVITIES
Increase in term deposits		(1,326,335	)	—		—
Purchase of property, plant and equipment		(1,315,431	)	(743,022	)	(1,317,856	)
Decrease (increase) in other loans receivable		210,000		(750,000	)	(100,000	)
Acquisition of Heze	36	170,247		(574,000	)	—
(Increase) decrease in restricted cash		(5,325	)	(44,210	)	34,240
Proceeds on disposal of property, plant and equipment		4,378		17,009		34,399
Acquisition of Southland	37	—		(136,302	)	—
Acquisition of Yanmei Shipping	38	—		—		(11,186	)
Proceeds on disposal of investments in securities		—		—		90,126
Acquisition of Railway Assets		—		(40,000	)	(40,000	)
Acquisition of investment in securities		—		(30,283	)	—
NET CASH FLOW USED IN INVESTING ACTIVITIES		(2,262,466	)	(2,300,808	)	(1,310,277	)
FINANCING ACTIVITIES
Dividend paid		(799,240	)	(470,680	)	(298,480	)
Repayments of bank borrowings		(200,000	)	(200,000	)	(600,000	)
Repayment to Parent Company and its subsidiary companies in respect of consideration for acquisition of Jining III		(9,802	)	(10,483	)	(11,115	)
Dividend paid to a minority shareholder of a subsidiary		(237	)	(319	)	(1,765	)
Issues of shares, net of share issue expenses		—		1,756,875		—
NET CASH FLOW FROM (USED IN) FINANCING ACTIVITIES		(1,009,279	)	1,075,393		(911,360	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		667,529		3,192,966		479,599
CASH AND CASH EQUIVALENTS, BEGINNING		5,216,738		2,023,772		1,544,173
EFFECT OF FOREIGN EXCHANGE RATE CHANGES		1,314		—		—
CASH AND CASH EQUIVALENTS, ENDING, REPRESENTED BY BANK BALANCES AND CASH
		5,885,581		5,216,738		2,023,772
Additional cash flow information:
Cash paid during the year for
Interest		24,199		34,157		56,838
Income taxes		1,296,879		992,424		530,222

F-6

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL

Organisation and principal activities

Yanzhou Coal Mining Company Limited (the “Company”) is established as a joint stock company with limited liability in the People’s Republic of China (the “PRC”). The addresses of the registered office and principal place of business of the Company are 298 Fushan South Road, Zoucheng, Shandong Province.

The Company operates six coal mines, namely the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine, Dongtan coal mine, Jining II coal mine (“Jining II”) and Jining III coal mine (“Jining III”) as well as a regional railway network that links these mines with the national railway grid. These six coal mines and the railway were originally divisions of the Company’s ultimate holding company, Yankuang Group Corporation Limited (the “Parent Company”), a state-owned enterprise in the PRC. The Parent Company contributed the assets and liabilities of the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine and Dongtan coal mine into the Company upon its formation.

The Company acquired from the Parent Company Jining II, Jining III and the assets of the special purpose coal railway transportation business (“Railway Assets”) in 1998, 2001 and 2002, respectively.

In April 2001, the status of the Company was changed to that of a sino-foreign joint stock limited company.

The Company’s A shares are listed on the Shanghai Securities Exchange (“SSE”), its H shares are listed on The Stock Exchange of Hong Kong (the “SEHK”), and its American Depositary Shares (“ADS”, one ADS represents 50 H shares) are listed on the New York Stock Exchange, Inc.

Acquisitions and establishment of subsidiaries

The Group represents the Company and its consolidated subsidiaries.

At December 31, 2003, the Company acquired a 92% interest in the registered capital of Shandong Yanmei Shipping Co., Ltd. (formerly known as Zoucheng Nanmei Shipping Co., Ltd.) (“Yanmei Shipping”) for a cash consideration of RMB11,692,000. Yanmei Shipping is a limited liability company established and operated in the PRC and is principally engaged in the transportation business via rivers and lakes and sale of coal and construction materials.

In 2004, the Company established Yanzhou Coal Yulin Power Chemical Co., Ltd. (“Yulin”), a 97% owned subsidiary, for the future development of the methanol projects of the Group in the Shaanxi Province in the PRC.

F-7

YANZHOU COAL MINING COMPANY LIMITED

1. GENERAL - continued

In 2004, the Company acquired the entire interest in the Southland coal mine located in New South Wales of Australia (“Southland”) from independent third parties at an aggregate cash consideration of AUD28,000,000 (equivalent to RMB187,312,000). See note 37 for further details. The Company has also established two wholly-owned subsidiaries in Australia, namely Yancoal Australia Pty Limited (“Yancoal”) and Austar Coal Mine Pty Limited (“Austar”), in 2004 for the Group’s future operations in Southland.

In 2005, the Company acquired a 95.67% equity interest in Yankuang Heze Power Chemical Company Limited (“Heze”) from the Parent Company at cash consideration of RMB584,008,000. See note 36 for further details. The principal activities of Heze are to conduct the initial preparation of the coal mines at the Juye coalfield which includes obtaining the approvals for the coal mine projects, applying rights to explore for coal and preparing the construction work of the coal mines. At December 31, 2005, Heze has commenced construction works for the Zhaolou coal mine and it has no significant impact on the Group’s results for the year.

2. BASIS OF PRESENTATION

The accompanying financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The Company also prepares a set of financial statements in accordance with the relevant accounting principles and regulations applicable to PRC enterprises (“PRC GAAP”).

The financial statements reflect additional disclosures to conform with the disclosure requirements of the Hong Kong Companies Ordinance.

The presentation currency of the Group is Renminbi, which is same as the functional currency of the Group.

3. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

In the current year, the Group has adopted all of the new and revised standards and interpretations issued by the International Accounting Standards Board (the “IASB”) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on January 1, 2005. The adoption of these new and revised standards and interpretations has resulted in changes to the Group’s accounting policies in the following areas that have affected the amounts reported for the current or prior periods:

F-8

YANZHOU COAL MINING COMPANY LIMITED

3. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS - continued

• goodwill (IFRS 3); and

• excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost of acquisition (previously known as negative goodwill) (IFRS 3);

The impact of these changes in accounting policies is discussed in detail later in this note. The impact on basic earnings per share is disclosed in note 16.

At the date of authorization of these financial statements, the following standards and interpretations were in issue but not yet effective:

IAS 1 (Amendment)	Presentation of Financial Statements
	Added disclosures about an entity’s capital1
IAS 19 (Amendment)	Employee Benefits 2
IAS 39 (Amendment)	Financial Instruments: Recognition and Measurement Amendment for hedges of forecast intragroup transactions 2
IAS 39 (Amendment)	Financial Instruments: Recognition and Measurement Amendment for fair value option 2
IAS 39 (Amendment) & IFRS 4	Financial Instruments: Recognition and Measurement Amendment for financial guarantee contracts 2
IFRS 6	Exploration for and Evaluation of Mineral Assets2
IFRS 7	Financial Instruments: Disclosures1
IFRIC 4	Determining whether an Arrangement Contains a Lease2
IFRIC 5	Rights to Interests Arising from Decommissing, Restoration and Environmental Rehabilitation Funds2
IFRIC 6	Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment3
IFRIC 7	Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies 4
IFRIC 8	Scope of IFRS 2 5
IFRIC 9	Reassessment of Embedded Derivatives6

¹ Effective for annual periods beginning on or after January 1, 2007.

² Effective for annual periods beginning on or after January 1, 2006.

³ Effective for annual periods beginning on or after December 1, 2005.

⁴ Effective for annual periods beginning on or after March 1, 2006.

⁵ Effective for annual periods beginning on or after May 1, 2006.

⁶ Effective for annual periods beginning on or after June 1, 2006.

The directors are evaluating the impact of the adoption of these standards and interpretations but have not yet determined the effect on the adoption on its financial position and results of operations.

F-9

YANZHOU COAL MINING COMPANY LIMITED

3. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS - continued

IFRS 3, “Business Combinations”

Goodwill

IFRS 3 “Business Combinations” has been adopted for business combinations for which the agreement date is on or after March 31, 2004. The option of limited retrospective application of the Standard has not been taken up, thus avoiding the need to restate past business combinations. The principal impact of the new standard on the accounting for that transaction has been the recognition of contingent liabilities that would not have been recognized separately from goodwill under the predecessor Standard, IAS 22. The recognition of these liabilities has had no material impact on the results for the year.

After initial recognition, IFRS 3 requires goodwill acquired in a business combination to be carried at cost less any accumulated impairment losses. Under IAS 36 “Impairment of Assets” (as revised in 2004), impairment reviews are required annually, or more frequently if there are indications that goodwill might be impaired. IFRS 3 prohibits the amortization of goodwill. Previously, under IAS 22, the Group carried goodwill in its balance sheet at cost less accumulated amortization and accumulated impairment losses. Amortization was charged over the estimated useful life of the goodwill, subject to the rebuttable presumption that the maximum useful life of goodwill was 20 years.

In accordance with the transitional rules of IFRS 3, the Group has applied the revised accounting policy for goodwill prospectively from the beginning of its first annual period beginning on or after March 31, 2004, i.e. January 1, 2005, to goodwill acquired in business combinations for which the agreement date was before March 31, 2004. Therefore, from January 1, 2005, the Group has discontinued amortizing such goodwill and has tested the goodwill for impairment in accordance with IAS 36. At January 1, 2005, the carrying amount of amortization accumulated before that date of RMB29.3 million has been eliminated, with a corresponding decrease in the cost of goodwill.

Because the revised accounting policy has been applied prospectively, the change has had no impact on amounts reported for the year ended December 31, 2004 or prior periods. No amortization has been charged in the current year. Under the previous accounting policy, RMB15.8 million would have been charged to income statement during the year ended December 31, 2005, leaving a balance of goodwill of RMB137.2 million at December 31, 2005.

No impairment loss has been recognized in the current period in accordance with IAS 36.

Excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost (previously known as negative goodwill)

IFRS 3 requires that, after reassessment, any excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the business combination should be recognized immediately in profit or loss. IFRS 3 prohibits the recognition of negative goodwill in the balance sheet.

F-10

YANZHOU COAL MINING COMPANY LIMITED

3. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS - continued

Previously, under IAS 22 (superceded by IFRS 3), the Group released negative goodwill to income over a number of accounting periods, based on an analysis of the circumstances from which the balance resulted. Negative goodwill was reported as a deduction from assets in the balance sheet.

In accordance with the transitional rules of IFRS 3, the Group has applied the revised accounting policy prospectively from January 1, 2005. Therefore, the change has had no impact on amounts reported for the year ended December 31, 2004 or prior periods.

The carrying amount of negative goodwill at January 1, 2005 has been derecognized at the transition date. Therefore, an adjustment of RMB27.6 million is made to opening retained earnings and negative goodwill at January 1, 2005.

Under the previous accounting policy, RMB27.6 million of negative goodwill would have been released to income during the year ended December 31, 2005, leaving zero balance of negative goodwill at December 31, 2005. Therefore, the impact of the change in accounting policy in 2005 is a reduction in other operating income of RMB27.6 million and no financial impact on net assets at December 31, 2005.

4. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments which are stated at fair value. The principal accounting policies adopted are set out below.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All significant intra-group transactions, balances, income and expenses are eliminated on consolidation.

F-11

YANZHOU COAL MINING COMPANY LIMITED

4. SIGNIFICANT ACCOUNTING POLICIES - continued

Basis of consolidation - continued

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable for goods and services provided in the normal courses of business, net of discounts and sales related taxes.

Sales of goods are recognized when goods are delivered and title has passed.

Service income is recognized when services are provided.

Interest income from a financial asset accrued on a time basis by reference to the principal outstanding and at the interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial assets to that asset’s net carrying amount.

Dividend from investments is recognized when the shareholders’ rights to receive payments have been established.

Mining rights

Mining rights of Jining III and Southland are stated at cost less accumulated amortization and are amortized on a straight line basis over the shorter of their useful life estimated based on the total proven and probable reserves of the coal mine or contractual period from the date of commencement of commercial production.

Prepaid lease payments

Prepaid lease payments represents land use rights which are stated at cost less accumulated amortization and identified impairment losses.

Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and accumulated impairment losses.

Depreciation is charged so as to write off the cost of items of property, plant and equipment, other than construction in progress, over their estimated useful lives and after taking into account their estimated residual value, using the straight line method or units of production method.

F-12

YANZHOU COAL MINING COMPANY LIMITED

4. SIGNIFICANT ACCOUNTING POLICIES - continued

Property, plant and equipment - continued

Construction in progress is stated at cost less any identified impairment loss. Cost comprises construction expenditure and other direct costs attributable to such projects, including borrowing costs, if the amount of capital expenditures and the time involved to complete the construction are significant. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policies.

Assets under construction are not depreciated until they are completed and put into commercial operation.

Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the income statement.

Impairment other than goodwill

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized as income immediately.

Goodwill

Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognized as an asset and is subsequently measured at cost less any accumulated impairment losses. Any impairment is recognized immediately in income statement and is not subsequently reversed.

F-13

YANZHOU COAL MINING COMPANY LIMITED

4. SIGNIFICANT ACCOUNTING POLICIES - continued

Goodwill - continued

For previously capitalized goodwill arising on acquisitions after January 1, 2001, the Group has discontinued amortization from January 1, 2005 onwards, and such goodwill is tested for impairment annually, and whenever there is an indication that the cash generating unit to which the goodwill relates may be impaired.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually and whenever there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

Goodwill arising on the acquisition of a subsidiary is presented separately in the balance sheet.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the gain or loss on disposal.

Inventories

Inventories of coal are physically measured and are stated at the lower of cost and net realizable value. Cost, which comprises direct materials and, where applicable, direct labor and overheads that have been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average method. Net realizable value represents the estimated selling price less all further costs to completion and costs to be incurred in selling, marketing and distribution.

Inventories of auxiliary materials, spare parts and small tools expected to be used in production are stated at weighted average cost less allowance, if necessary, for obsolescence.

Income taxes

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

F-14

YANZHOU COAL MINING COMPANY LIMITED

4. SIGNIFICANT ACCOUNTING POLICIES - continued

Income taxes - continued

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Research and development

Expenditure on research activities is recognized as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development expenditure is recognized only if it is anticipated that the development costs incurred on a clearly-defined project will be recovered through future commercial activity. The resultant asset is amortized on a straight line basis over its useful life.

Where no internally-generated intangible asset can be recognized, development expenditure is recognized as an expense in the period in which it is incurred.

No development expenditure has been deferred.

F-15

YANZHOU COAL MINING COMPANY LIMITED

4. SIGNIFICANT ACCOUNTING POLICIES - continued

Land subsidence, restoration, rehabilitation and environmental costs

One consequence of coal mining is land subsidence caused by the resettlement of the land above the underground mining sites. Depending on the circumstances, the Group may relocate inhabitants from the land above the underground mining sites prior to mining those sites or the Group may compensate the inhabitants for losses or damages from land subsidence after the underground sites have been mined. The Group may also be required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined.

An estimate of such costs is recognized in the period in which the obligation is identified and is charged as an expense in proportion to the coal extracted.

Capitalization of borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of those assets. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowings costs are recognized as in profit or loss in the period in which they are incurred.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Company (i.e. Renminbi) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

F-16

YANZHOU COAL MINING COMPANY LIMITED

4. SIGNIFICANT ACCOUNTING POLICIES - continued

Government grants

Government grants are recognized as income over the periods necessary to match them with the related costs. If the grants do not relate to any specific expenditures incurred by the Group, they are reported separately as other operating income. If the grants subsidise an expense incurred by the Group, they are deducted in reporting the related expense. Grants relating to depreciable assets are presented as a deduction from the cost of the relevant asset.

Retirement benefit costs

Payments to defined contribution retirement benefit plans are charged as expenses as they fall due.

Financial instruments

Financial assets and financial liabilities are recognized on the balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Loan and receivables

Loan and receivables (including bills and accounts receivables, other loan receivable) are subsequently measured at amortized cost using the effective interest rate method. An impairment loss for estimated irrecoverable amounts are recognized in profit or loss when there is objective evidence that the asset is impaired. The impairment loss recognized is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

Investments

Investments are recognized and derecognized on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus directly attributable transaction costs.

Investments other than held-to-maturity debt securities are classified as either investments held for trading or as available-for-sale, and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognized directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in the profit or loss for the period. Available-for sale equity investments that do not have quoted market prices in an active market and those fair value can not be reliably measured are measured at cost less impairment after initial recognition. Impairment losses recognized in profit or loss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss.

F-17

YANZHOU COAL MINING COMPANY LIMITED

4. SIGNIFICANT ACCOUNTING POLICIES - continued

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial liabilities and equity

Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.

Bank borrowings

Interest-bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognized over the term of the borrowings.

Bills and accounts payable, other payables and accrued expenses and amounts due to Parent Company and its subsidiary companies

Bills and accounts payable, other payables and accrued expenses and amounts due to Parent Company and its subsidiary companies are subsequently measured at amortized cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

F-18

YANZHOU COAL MINING COMPANY LIMITED

5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINAITY

In the process of applying the Group’s accounting policies, which are described in note 4, management has made the following judgments that have the most significant effect on the amounts recognized in the financial statements.

Depreciation

The cost of mining structures is depreciated using the units of production method based on the estimated production volume for which the structure was designed. The management exercises their judgment in estimating the useful lives of the depreciable assets and the production volume of the mine.

Mining rights

Mining rights are amortized on a straight line basis over the shorter of the contractual period and their useful lives estimated based on the total proven and probable reserves of coal mine. The management exercises their judgment in estimating the total proven and probable reserves of coal mine.

Estimated impairment on trade receivables

The management regularly reviews the recoverability and age of the trade receivables. Impairment on trade receivables is made based on the estimation of the future cash flow discounted at an effective interest rate to calculate the present value.

Provision for land subsidence, restoration, rehabilitation and environmental costs

The cost of relocation of inhabitants from the land in preparation for mining activities is charged to statement of income when incurred. The provision is reviewed regularly to verify that it properly reflects the remaining obligation arising from the current and past mining activities. Provision for land subsidence, restoration, rehabilitation and environmental costs are determined by the management based on their best estimates of the current and future cost and past experiences.

Estimated impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. As at December 31, 2005, the carrying amount of goodwill is RMB153,037,000.

F-19

YANZHOU COAL MINING COMPANY LIMITED

6. SEGMENT INFORMATION

The Group is engaged primarily in the coal mining business and the Group is also engaged in the coal railway transportation business. The Company does not currently have direct export rights in the PRC and all of its export sales must be made through China National Coal Industry Import and Export Corporation (“National Coal Corporation”), Minmetals Trading Co., Ltd. (“Minmetals Trading”) or Shanxi Coal Imp. & Exp. Group Corp. (“Shanxi Coal Corporation”). The final customer destination of the Company’s export sales is determined by the Company, National Coal Corporation, Minmetals Trading or Shanxi Coal Corporation. Certain of the Company’s subsidiaries are engaged in trading and processing of mining machinery and the transportation business via rivers and lakes in the PRC. No separate segment information about these businesses is presented in these financial statements as the underlying gross sales, results and assets of these businesses, which are currently included in the coal mining business segment, are insignificant to the Group.

Business segments

For management purposes, the Group is currently organized into two operating divisions—coal mining and coal railway transportation. These divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows:

Coal mining                            - Underground mining, preparation and sales of coal

Coal railway transportation    - Provision of railway transportation services

Segment information about these businesses is presented below:

INCOME STATEMENT

	For the year ended December 31, 2005 Coal railway
	Coal mining	transportation	Eliminations		Consolidated
	RMB’000	RMB’000	RMB’000		RMB’000
GROSS REVENUE
External	12,283,588	163,437	—		12,447,025
Inter-segment	—	226,852	(226,852	)	—
Total	12,283,588	390,289	(226,852	)	12,447,025

Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority.

F-20

YANZHOU COAL MINING COMPANY LIMITED

6. SEGMENT INFORMATION - continued

	For the year ended December 31, 2005
	Coal mining	Coal railway transportation	Eliminations	Consolidated
	RMB’000	RMB’000	RMB’000	RMB’000
RESULT
Segment results	4,601,715	67,381	—	4,669,096
Unallocated corporate expenses				(320,692	)
Unallocated corporate income				96,180
Interest expenses				(24,611	)
Income before income taxes				4,419,973
Income taxes				(1,538,036	)
Income for the year				2,881,937

BALANCE SHEET

	At December 31, 2005
	Coal mining	Coal railway transportation	Consolidated
	RMB’000	RMB’000	RMB’000
ASSETS
Segment assets	12,139,834	1,031,347	13,171,181
Unallocated corporate assets			8,083,263
			21,254,444
LIABILITIES
Segment liabilities	2,584,110	29,500	2,613,610
Unallocated corporate liabilities			993,526
			3,607,136

OTHER INFORMATION

	For the year ended December 31, 2005
	Coal mining	transportation		Coal railway and others	Corporate Consolidated
	RMB’000	RMB’000		RMB’000	RMB’000
Capital additions	1,828,130	23,710		5,531	1,857,371
Amortization of prepaid lease payments	7,983	5,188		—	13,171
Depreciation of property, plant and equipment	867,210	77,412		7,474	952,096
Amortization of mining rights	6,624	—		—	6,624
(Gain) loss on disposal of property, plant and equipment	—	(13	)	540	527

F-21

YANZHOU COAL MINING COMPANY LIMITED

6. SEGMENT INFORMATION - continued

INCOME STATEMENT

	For the year ended December 31, 2004
	Coal mining	Coal railway transportation	Eliminations		Consolidated
	RMB’000	RMB’000	RMB’000		RMB’000
GROSS REVENUE
External	11,757,052	220,771	—		11,977,823
Inter-segment	—	380,535	(380,535	)	—
Total	11,757,052	601,306	(380,535	)	11,977,823
Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority.
RESULT
Segment results	4,642,234	284,147	—		4,926,381
Unallocated corporate expenses					(314,283	)
Unallocated corporate income					97,176
Interest expenses					(35,942	)
Income before income taxes					4,673,332
Income taxes					(1,518,762	)
Income for the year					3,154,570

BALANCE SHEET

	At December 31, 2004
	Coal mining	Coal railway transportation	Consolidated
	RMB’000	RMB’000	RMB’000
ASSETS
Segment assets	10,923,609	1,083,502	12,007,111
Unallocated corporate assets			6,329,586
			18,336,697
LIABILITIES
Segment liabilities	1,669,373	23,747	1,693,120
Unallocated corporate liabilities			1,116,152
			2,809,272

F-22

YANZHOU COAL MINING COMPANY LIMITED

6. SEGMENT INFORMATION - continued

OTHER INFORMATION

	For the year ended December 31, 2004
	Coal mining		Coal railway transportation	Corporate and others		Consolidated
	RMB’000		RMB’000	RMB’000		RMB’000
Capital additions	1,009,788		66,036	18,458		1,094,282
Amortization of goodwill	777		13,880	1,116		15,773
Release of negative goodwill to income	(27,620	)	—	—		(27,620	)
Depreciation of property, plant and equipment	879,260		74,635	4,772		958,667
Amortization of prepaid lease payments	8,006		5,188	—		13,194
Amortization of mining rights	6,624		—	—		6,624
Loss (gain) on disposal of property, plant and equipment	104,759		272	(434	)	104,597
Impairment losses on accounts receivable	49,104		—	—		49,104

INCOME STATEMENT

	For the year ended December 31, 2003
	Coal mining	Coal railway transportation	Eliminations		Consolidated
	RMB’000	RMB’000	RMB’000		RMB’000
GROSS REVENUE
External	8,386,629	154,585	—		8,541,214
Inter-segment	—	400,048	(400,048	)	—
Total	8,386,629	554,633	(400,048	)	8,541,214
Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority.
RESULT
Segment results	2,013,688	245,041	—		2,258,729
Unallocated corporate expenses					(246,469	)
Unallocated corporate income					22,624
Interest expenses					(59,966	)
Income before income taxes					1,974,918
Income taxes					(587,710	)
Income for the year					1,387,208

F-23

YANZHOU COAL MINING COMPANY LIMITED

6. SEGMENT INFORMATION - continued

BALANCE SHEET

	At December 31, 2003
	Coal mining	Coal railway transportation	Consolidated
	RMB’000	RMB’000	RMB’000
ASSETS
Segment assets	10,440,480	1,115,491	11,555,971
Unallocated corporate assets			2,353,833
			13,909,804
LIABILITIES
Segment liabilities	1,818,585	11,929	1,830,514
Unallocated corporate liabilities			992,311
			2,822,825

OTHER INFORMATION

	For the year ended December 31, 2003
	Coal mining		Coal railway transportation	Corporate and others	Consolidated
	RMB’000		RMB’000	RMB’000	RMB’000
Capital additions	1,255,070		82,616	14,144	1,351,830
Amortization of goodwill	777		8,880	—	9,657
Release of negative goodwill to income	(27,620	)	—	—	(27,620	)
Depreciation of property, plant and equipment	842,975		74,170	3,774	920,919
Amortization of prepaid lease payments	8,019		5,275	—	13,294
Amortization of mining rights	6,624		—	—	6,624
(Gain) loss on disposal of property, plant and equipment	(7,113	)	185	56	(6,872	)
Impairment losses on accounts receivables	80,272		—	—	80,272

The number of employees in each of the Group’s principal divisions are as follows:

	At December 31,
	2005	2004	2003
Coal mining	26,662	25,892	24,810
Coal railway transportation	3,401	3,374	3,151
	30,063	29,266	27,961

F-24

YANZHOU COAL MINING COMPANY LIMITED

6. SEGMENT INFORMATION - continued

Geographical segment

The Group’s operations are primarily located in the PRC. In December 2004, the Group acquired Southland which is located in Australia. Analysis of the Group’s gross sales and carrying amount of assets by geographical area is not presented in the financial statements as over 90% of the amounts involved are in the PRC.

The following is an analysis of the additions to property, plant and equipment and intangible assets analysed by the geographical area in which the assets are located:

	Additions to property, plant and equipment and intangible assets Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
The PRC	1,599,372	869,957	1,351,830
Australia	257,999	224,325	—
	1,857,371	1,094,282	1,351,830

7. NET SALES OF COAL

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
Domestic sales of coal, gross	8,689,496	7,841,328	4,840,317
Less: Transportation costs	268,034	434,340	503,228
Domestic sales of coal, net	8,421,462	7,406,988	4,337,089
Export sales of coal, gross	3,594,092	3,915,724	3,546,312
Less: Transportation costs	662,069	968,375	1,089,066
Export sales of coal, net	2,932,023	2,947,349	2,457,246
Net sales of coal	11,353,485	10,354,337	6,794,335

Net sales of coal represents the invoiced value of coal sold and is net of returns, discounts, sales taxes and transportation costs if the invoiced value includes transportation costs to the customers.

F-25

YANZHOU COAL MINING COMPANY LIMITED

8. COST OF SALES AND SERVICE PROVIDED

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
Materials	1,147,572	1,088,683	899,602
Wages and employee benefits	1,258,333	1,022,614	863,707
Electricity	282,492	298,274	278,507
Depreciation	891,640	918,360	836,120
Land subsidence, restoration, rehabilitation and environmental costs	636,590	323,240	264,158
Repairs and maintenance	350,953	455,782	374,855
Annual fee and amortization of mining rights (note 22)	19,604	19,604	19,604
Transportation costs	98,787	119,737	48,231
Others	602,617	305,409	170,239
	5,288,588	4,551,703	3,755,023

9. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
Retirement benefit scheme contributions (note 41)	523,324	408,462	349,377
Wages and employee benefits	271,213	155,500	115,456
Additional medical insurance	46,458	35,912	27,814
Staff training costs	32,553	28,762	26,780
Depreciation	73,627	53,501	44,339
Amortization of goodwill	—	15,773	9,657
Distribution charges	35,626	43,639	37,779
Impairment loss on accounts receivables	—	49,104	80,272
Resource compensation fees (note)	117,228	110,959	84,941
Repairs and maintenance	17,012	18,753	13,918
Research and development	45,009	24,934	46,144
Freight charges	19,256	9,801	14,862
Loss on disposal of property, plant and equipment	527	104,597	—
Others	736,955	420,166	413,519
	1,918,788	1,479,863	1,264,858

Note: In accordance with the relevant regulations, the Group pays resource compensation fees (effectively a government levy) to the Ministry of Geology and Mineral Resources at the rate of 1% on the imputed sales value of raw coal.

F-26

YANZHOU COAL MINING COMPANY LIMITED

10. OTHER INCOME

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
Dividend income	4,465	4,465	4,810
Gain on sales of auxiliary materials	36,749	33,878	35,197
Gain on disposal of property, plant and equipment	—	—	6,872
Government grants (note)	—	—	8,194
Interest income from bank deposits	85,971	70,885	13,631
Interest income on other loans receivable	5,744	21,826	4,183
Release of negative goodwill to income	—	27,620	27,620
Others	2,109	7,058	5,338
	135,038	165,732	105,845

Note: Government grants represented the amount received by the Group in respect of its export sales activities.

11. INTEREST EXPENSE

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
Interest expenses on:
- bank borrowings wholly repayable within 5 years	20,753	31,392	53,682
- bills receivable discounted without recourse	—	—	1,023
Deemed interest expenses in respect of acquisition of Jining III	3,858	4,550	5,261
	24,611	35,942	59,966

No interest was capitalized during each of the years presented.

12. INCOME TAXES

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
Income taxes:
Current taxes	1,372,398	1,390,767	587,775
Underprovision in prior years	42,463	16,019	—
	1,414,861	1,406,786	587,775
Deferred tax charge (credit) (note 30)	123,175	111,976	(65	)
	1,538,036	1,518,762	587,710

F-27

YANZHOU COAL MINING COMPANY LIMITED

12. INCOME TAXES - continued

The Company and its subsidiaries in the PRC are subject to a standard income tax rate of 33% on its taxable income.

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

The total charge for the year can be reconciled to the accounting profit as follows:

	Year ended December 31,
	2005		2004		2003
	RMB’000		RMB’000		RMB’000
Standard income tax rate in the PRC	33	%	33	%	33	%
Standard income tax rate applied to income before income taxes	1,458,591		1,542,200		651,723
Reconciling items:
Transfer to future development fund deductible for tax purposes but not charged to income under IFRS	(68,618	)	(109,411	)	(85,692	)
Release of negative goodwill not subject to tax	—		(9,115	)	(9,115	)
Deemed interest not deductible for tax purposes	1,273		1,502		1,736
Impairment loss on doubtful debts not deductible for tax purposes	—		16,187		25,731
Loss on disposal of property, plant and equipment not deductible for tax purposes	836		8,273		—
Government grants received not subject to tax	—		—		(2,704	)
Tax effect of tax losses not recognized	42,151		—		—
Underprovision in prior years	42,463		16,019		—
Write off deferred tax asset	44,436		44,436		—
Others	16,904		8,671		6,031
Income taxes	1,538,036		1,518,762		587,710
Effective income tax rate	35	%	32	%	30	%

The subsidiaries acquired during the years ended December 31, 2005, 2004 and 2003 did not have any significant impact on the income taxes provided for the years ended December 31, 2005, 2004 and 2003.

F-28

YANZHOU COAL MINING COMPANY LIMITED

13. INCOME FOR THE YEAR

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
Income for the year has been arrived at after charging:
Amortization of mining rights	6,624	6,624	6,624
Amortization of goodwill	—	15,773	9,657
Amortization of prepaid lease payment	13,171	13,194	13,294
Depreciation of property, plant and equipment	952,096	958,667	920,533
Total depreciation and amortization	971,891	994,258	950,108
Auditors’ remuneration	9,229	5,000	5,000
Staff costs, including directors’ and supervisors’ emoluments	2,164,616	1,682,240	1,437,682
Cost of inventories	5,144,888	4,460,844	3,687,433
Exchange loss	98,681	—	—
and crediting:
Gain on disposal of investments in securities	—	—	1,424
Exchange gain	—	5,507	116

14. DIRECTORS’ AND SUPERVISORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS

(a) Directors’ and supervisors’ emoluments

Details of the directors’ and supervisors’ emoluments are as follows:

	For the year ended December 31, 2005
	Fees	Salaries, allowance and other benefits in kind	Retirement benefit scheme contribution	Discretionary bonus	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Independent non-executive directors
Pu Hongjiu	43	—	—	—	43
Cui Jianmin	81	—	—	—	81
Wang Xiaojun	98	—	—	—	98
Wang Quanxi	81	—	—	—	81
Fan Weitang	39	—	—	—	39
	342	—	—	—	342

F-29

YANZHOU COAL MINING COMPANY LIMITED

14. DIRECTORS’ AND SUPERVISORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS - continued

(a) Directors’ and supervisors’ emoluments - continued

Details of the directors’ and supervisors’ emoluments are as follows:

	For the year ended December 31, 2005
	Fees	Salaries, allowance and other benefits in kind	Retirement benefit scheme contribution	Discretionary bonus	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Executive directors
Wang Xin	—	—	—	—	—
Geng Jiahuai	—	—	—	—	—
Yang Deyu	—	—	—	—	—
Shi Xuerang	—	—	—	—	—
Chen Changchun	—	—	—	—	—
Wu Yuxiang	—	144	65	—	209
Wang Xinkun	—	144	65	—	209
Chen Guangshui	—	144	65	—	209
Dong Yunqing	—	144	65	—	209
	—	576	260	—	836
Supervisors
Meng Xianchang	—	—	—	—	—
Song Guo	—	—	—	—	—
Zhang Sheng Dong	—	—	—	—	—
Liu Wei Xin	—	—	—	—	—
Xu Bentai	—	160	72	—	232
	—	160	72	—	232
Other management team
Jin Tai	—	—	—	—	—
Zhang Yingmin	—	—	—	—	—
He Ye	—	144	65	—	209
Tian fengze	—	144	65	—	209
Shi Chenzhong	—	145	65	—	210
Lai Cunliang	—	190	86	—	276
Ni Xinghua	—	144	65	—	209
	—	767	364	—	1,113

F-30

YANZHOU COAL MINING COMPANY LIMITED

14. DIRECTORS’ AND SUPERVISORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS - continued

(a) Directors’ and supervisors’ emoluments - continued

Details of the directors’ and supervisors’ emoluments are as follows:

	For the year ended December 31, 2004
	Fees	Salaries, allowance and other benefits in kind	Retirement benefit scheme contribution	Discretionary bonus	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Independent non-executive directors
Fan Weitang	77	—	—	—	77
Cui Jianmin	77	—	—	—	77
Wang Xiaojun	93	—	—	—	93
Mang Quanxi	77	—	—	—	77
	324	—	—	—	324
Executive directors
Mo Liqi	—	—	—	—	—
Yang Deyu	—	—	—	—	—
Geng Jiahuai	—	—	—	—	—
Wang Bangjun	—	—	—	—	—
Yang Jiachun	—	—	—	—	—
Wu Yuxiang	—	98	44	—	142
Dong Yunqing	—	124	56	—	180
Wang Xin	—	—	—	—	—
Wang Xinkun	—	118	53	—	171
	—	340	153	—	493
Supervisors
Meng Xianchang	—	—	—	—	—
Xiao Shuzhang	—	—	—	—	—
Zhang Sheng Dong	—	—	—	—	—
Liu Wei Xin	—	—	—	—	—
Xu Bentai	—	126	57	—	183
	—	126	57	—	183
Other management team
Jin Tai	—	—	—	—	—
Zhang Yingmin	—	—	—	—	—
He Ye	—	121	54	—	175
Tian Fengze	—	119	54	—	173
Shi Chenzhong	—	97	44	—	141
Ni Xinghua	—	103	46	—	149
Chen Guangshui	—	123	55	—	178
	—	563	253	—	816

F-31

YANZHOU COAL MINING COMPANY LIMITED

14. DIRECTORS’ AND SUPERVISORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS - continued

(a) Directors’ and supervisors’ emoluments - continued

Details of the directors’ and supervisors’ emoluments are as follows:

	For the year ended December 31, 2003
	Fees	Salaries, allowance and other benefits in kind	Retirement benefit scheme contribution	Discretionary bonus	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Independent non-executive directors
Fan Weitang	77	—	—	—	77
Cui Jianmin	77	—	—	—	77
Wang Xiaojun	93	—	—	—	93
	247	—	—	—	247
Executive directors
Mo Liqi	—	—	—	—	—
Yang Dayu	—	—	—	—	—
Geng Jiahuai	—	—	—	—	—
Yu Xuezhi	—	—	—	—	—
Wang Bangjun	—	—	—	—	—
Yang Jiachun	—	—	—	—	—
Wu Yuxiang	—	29	13	—	42
Dong Yunqing	—	29	13	—	42
	—	58	26	—	84
Supervisors
Meng Xianchang	—	—	—	—	—
Xiao Shuzhang	—	—	—	—	—
Zhang Sheng Dong	—	—	—	—	—
Liu Wei Xin	—	—	—	—	—
Xu Bentai	—	80	36	—	116
	—	80	36	—	116
Other management team
Zhang Yingmin	—	38	17	—	55
Wang Xinkun	—	29	13	—	42
Tian fengze	—	29	13	—	42
Shi Chenzhong	—	29	13	—	42
Ni Xinghua	—	29	13	—	42
Chen Guangshui	—	29	13	—	42
	—	183	82	—	265

F-32

YANZHOU COAL MINING COMPANY LIMITED

14. DIRECTORS’ AND SUPERVISORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS - continued

(a) Directors’ and supervisors’ emoluments - continued

No directors waived any emoluments in each of the year ended 31 December 2005, 2004 and 2003.

(b) Employees’ emoluments

The five highest paid individuals in the Group in 2005 included one director for the year ended December 31, 2005 (2004: four; 2003: five), details of whose emoluments are included in the disclosures in note 14(a) above. The emoluments of the remaining four individual for the year ended December 31, 2005 (2004: one; 2003: Nil) were as follows:

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
Salaries, allowance and other benefits in kind	3,690	224	—
Retirement benefit scheme contributions (note 41)	365	101	—
Discretionary bonuses	—	—	—
	4,055	325	—

Emoluments of each of these employees were all within the band of Nil to HK$1,000,000 for the year ended December 31, 2005.

15. DIVIDEND

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
2004 Final dividend, RMB0.260 per share (2004: 2003 final dividend RMB0.114; 2003: 2002 final dividend RMB0.104)	799,240	327,180	298,480
2004 Special dividend RMB0.050 per share	—	143,500	—
	799,240	470,680	298,480

F-33

YANZHOU COAL MINING COMPANY LIMITED

15. DIVIDEND - continued

In the annual general meeting held on June 27, 2003, a final dividend in respect of the year ended December 31, 2002 was approved by the shareholders and paid to the shareholders of the Company.

In the annual general meeting held on June 25, 2004, a final dividend and a special dividend in respect of the year ended December 31, 2003 was approved by the shareholders and paid to the shareholders of the Company.

In the annual general meeting held on June 28, 2005, a final dividend and a bonus issue to the shareholder through the capitalization of share premium of the Company on the basis of six shares for every ten existing shares in respect of the year ended December 31, 2004 were approved by the shareholders and paid and issued to the shareholders of the Company.

The board of directors proposes to declare a final dividend and a special divided of approximately RMB737,760,000 and RMB344,288,000 calculated based on a total number of 4,918,400,000 shares issued at RMB1 each, at RMB0.15 per share and RMB0.07 per share respectively, in respect of the year ended December 31, 2005. The declaration and payment of the final dividend needs to be approved by the shareholders of the Company by way of an ordinary resolution in accordance with the requirements of the Company’s Articles of Association. A shareholders’ general meeting will be held for the purpose of considering and, if thought fit, approving this ordinary resolution.

16. EARNINGS PER SHARE AND PER ADS

The calculation of the earnings per share attributable to the equity holders of the Company for the years ended December 31, 2005, 2004 and 2003 is based on the income attributable to the equity holders of the Company for the year of RMB2,881,461,000 RMB3,154,317,000 and RMB1,386,686,000 and on the weighted average number of 4,918,400,000 shares, 4,743,606,557 shares and 4,592,000,000 shares in issue, respectively, during the years.

The weighted average number of ordinary shares for the purpose of calculating basic earnings per share for all the period presented has been adjusted for the bonus issue of the Company on July 27, 2005.

The earnings per ADS have been calculated based on the net income for the relevant periods and on one ADS being, equivalent to 50 shares, which has been adjusted for the bonus issue of the Company on July 27, 2005.

No diluted earning per share has been presented as there are no dilutive potential shares in issue during the years ended December 31, 2005, 2004 and 2003.

F-34

YANZHOU COAL MINING COMPANY LIMITED

16. EARNINGS PER SHARE AND PER ADS - continued

Impact of changes in accounting policies

Changes in the Group’s accounting policies during the year are described in details in note 3. To the extent that those changes have had an impact on results reported for the years ended December 31, 2005, 2004 and 2003, they have had an impact on the amounts reported for earnings per share. The following table summarizes that impact on basic earnings per share:

	Impact on basic earnings per share				Impact on earnings per ADS
	2005		2004	2003	2005		2004	2003
	RMB		RMB	RMB	RMB		RMB	RMB
Non-amortisation of goodwill (replaced by impairment loss)	0.003		—	—	0.16		—	—
Negative goodwill no longer released to income	(0.006	)	—	—	(0.28	)	—	—
Total impact of changes in accounting policies	(0.003	)	—	—	(0.12	)	—	—

17. TERM DEPOSITS AND RESTRICTED CASH

At the balance sheet dates, the short-term restricted cash represents the bank deposits pledged to certain banks to secure banking facilities granted to the Group. The long-term amount represents the bank deposits placed as guarantee for the future payments of rehabilitation costs of Southland as required by the Australian government. The long-term deposits carry interest at rate of 5.16% per annum.

The term deposits carry fixed interest rate of 0.72% to 2.70% per annum. The fair value of term deposit and restricted cash at December 31, 2005 approximates to its carrying amount.

18. BILLS AND ACCOUNTS RECEIVABLE

	At December 31,
	2005		2004
	RMB’000		RMB’000
Total bills receivable	2,092,949		890,046
Total accounts receivable	258,587		460,442
Less: Impairment loss	(126,700	)	(126,700	)
Total bills and accounts receivable, net	2,224,836		1,223,788

Bills receivable represents unconditional orders in writing issued by or negotiated from customers of the Group for completed sale orders which entitle the Group to collect a sum of money from banks or other parties.

The fair value of bills and accounts receivable at December 31, 2005 approximates to their carrying amount.

F-35

YANZHOU COAL MINING COMPANY LIMITED

18. BILLS AND ACCOUNTS RECEIVABLE - continued

An analysis of the impairment loss on bills and accounts receivable is as follows:

	2005	2004
	RMB’000	RMB’000
Balance at January 1	126,700	100,627
Additional impairment loss	—	26,073
Balance at December 31	126,700	126,700

According to the credit rating of different customers, the Group allows a range of credit periods to its trade customers not exceeding 180 days.

The following is an aged analysis of bills and accounts receivable at the reporting date:

	At December 31,
	2005	2004
	RMB’000	RMB’000
1 - 180 days	2,245,170	1,233,248
181 - 365 days	6,014	654
1 - 2 years	19	3,913
2 - 3 years	—	32,407
Over 3 years	100,333	80,266
	2,351,536	1,350,488

19. INVENTORIES

	At December 31,
	2005	2004
	RMB’000	RMB’000
COST
Auxiliary materials, spare parts and small tools	256,755	226,271
Coal products	213,746	259,158
	470,501	485,429

F-36

YANZHOU COAL MINING COMPANY LIMITED

20. OTHER LOANS RECEIVABLE

At the balance sheet dates, the amounts consist of loans granted to the independent third parties. The amounts are guaranteed by other independent third parties and bear interest at 5.04% - 7.00% per annum. Included in the total amount is a loan of RMB640,000,000 (the “Default Loan”) which is secured by certain state legal person shares of a company listed on the SSE (“the Secured Shares”) and certain equity interest in another unlisted company held by the guarantor. The Default Loan was defaulted in January 2005 and the Company had applied to the People’s Supreme Court of the Shangdong Province (the “Court”) to freeze the Secured Shares. The Company has also applied to the Court to dispose the Secured Shares by way of a public auction and the proceed would be applied to repay the Default Loan and the associated interests to the Company. The public auction was held successfully in September 2005. Up to the date of the report, the legal procedure for the transfer of ownership of the Secured Shares has not yet been completed. In the opinion of the directors, based on the result of the auction, the proceeds net of relevant expense would be sufficient to cover the principal and interest of the Default Loan.

21. PREPAYMENTS AND OTHER CURRENT ASSETS

	At December 31,
	2005	2004
	RMB’000	RMB’000
Advances to suppliers	69,605	56,707
Prepaid freight charges and related handling charges	62,445	58,623
Others	70,367	72,966
	202,417	188,296

The directors consider that the carrying amount of other current assets approximates their fair value.

Included in the above balances as of December 31, 2005 is impairment loss of RMB35,717,000 (2004: RMB35,717,000). During the year ended December 31, 2005, the Group did not made any additional impairment on doubtful debts (2004: RMB23,031,000; 2003: RMB:9,147,000).

F-37

YANZHOU COAL MINING COMPANY LIMITED

22. MINING RIGHTS

	RMB’000
COST
At January 1, 2004	132,479
Acquisition of Southland	32,634
At December 31, 2004	165,113
Exchange re-alignment	(2,372	)
Addition	23,644
At December 31, 2005	186,385
AMORTIZATION
At January 1, 2004	19,872
Provided for the year	6,624
At January 1, 2005	26,496
Provided for the year	6,624
At December 31, 2005	33,120
NET BOOK VALUES
At December 31, 2005	153,265
At December 31, 2004	138,617

In addition, the Parent Company and the Company have entered into a mining rights agreement pursuant to which the Company has agreed to pay to the Parent Company, effective from September 25, 1997, an annual fee of RMB12,980,000 as compensation for the Parent Company’s agreement to give up the mining rights associated with the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine, Dongtan coal mine and Jining II. The annual fee is subject to change after a ten-year period.

Mining rights is amortized, on a straight-line basis, over the useful life of twenty years from the date of commencement of commercial production.

23. PREPAID LEASE PAYMENTS

	RMB’000
COST
At January 1, 2004 and December 31, 2004	658,549
Addition	14,691
At December 31, 2005	673,240
AMORTIZATION
At January 1, 2004	53,637
Provided for the year	13,194
At December 31, 2004	66,831
Provided for the year	13,171
At December 31, 2005	80,002
NET BOOK VALUES
At December 31, 2005	593,238
At December 31, 2004	591,718

F-38

YANZHOU COAL MINING COMPANY LIMITED

23. PREPAID LEASE PAYMENTS - continued

Analysis for reporting purposes as:

	At December 31,
	2005	2004
	RMB’000	RMB’000
Current portion	13,465	13,171
Non-current portion	579,773	578,547
	593,238	591,718

The amounts represent prepaid lease payment for land use rights which are situated in the PRC and have a term of fifty years from the date of grant of land use rights certificates.

The land use rights of Railway Assets were acquired from the Parent Company during the year ended December 31, 2002. The registration process in respect of the land use rights of the Railway Assets has not yet been completed at December 31, 2005.

24. PROPERTY, PLANT AND EQUIPMENT, NET

	Freehold land in Australia		Buildings		Harbor works and crafts	Railway structures	Mining structures	Plant, machinery and equipment		Transportation equipment		Construction in progress		Total
	RMB’000		RMB’000		RMB’000	RMB’000	RMB’000	RMB’000		RMB’000		RMB’000		RMB’000
COST
At January 1, 2004	—		2,052,927		250,231	720,484	3,904,460	7,314,574		281,744		85,748		14,610,168
Acquisition of Southland	57,195		5,377		—	—	—	128,833		—		—		191,405
Additions	—		—		—	—	—	18,791		5,922		805,530		830,243
Transfers	—		76,541		—	7,190	—	690,072		30,970		(804,773	)	—
Disposals	—		—		—	—	—	(862,057	)	(33,003	)	—		(895,060	)
At December 31, 2004 and January 1, 2005	57,195		2,134,845		250,231	727,674	3,904,460	7,290,213		285,633		86,505		14,736,756
Exchange re-alignment	(4,164	)	(392	)				(9,381	)	(21	)	—		(13,958	)
Acquisition of Heze	—		—		—	—	—	35,103		201		472,292		507,596
Additions	—		1,689		—	—	—	71,578		25,258		1,191,961		1,290,486
Transfers	—		34,447		—	2,115	—	823,315		—		(859,877	)	—
Disposals	—		(597	)	—	—	—	(20,175	)	(8,115	)	—		(28,887	)
At December 31, 2005	53,031		2,169,992		250,231	729,789	3,904,460	8,190,653		302,956		890,881		16,491,993
ACCUMULATED DEPRECIATION
At January 1, 2004	—		797,845		—	106,903	1,408,418	3,545,719		134,910		—		5,993,795
Provided for the year	—		97,878		6,068	54,498	97,866	693,886		29,069		—		979,265
Eliminated on disposals	—		—		—	—	—	(748,503	)	(24,951	)	—		(773,454	)
At December 31, 2004 and January 1, 2005	—		895,723		6,068	161,401	1,506,284	3,491,102		139,028		—		6,199,606
Provided for the year	—		124,340		6,068	54,568	86,638	684,913		41,356		—		997,883
Eliminated on disposals	—		(511	)	—	—	—	(17,046	)	(6,425	)	—		(23,982	)
At December 31, 2005	—		1,019,552		12,136	215,969	1,592,922	4,158,969		173,959		—		7,173,507
NET BOOK VALUES
At December 31, 2005	53,031		1,150,440		238,095	513,820	2,311,538	4,031,684		128,997		890,881		9,318,486
At December 31, 2004	57,195		1,239,122		244,163	566,273	2,398,176	3,799,111		146,605		86,505		8,537,150

F-39

YANZHOU COAL MINING COMPANY LIMITED

24. PROPERTY, PLANT AND EQUIPMENT, NET - continued

The following estimated useful lives are used for the depreciation of property, plant and equipment, other than construction in progress:

Buildings	15 to 35 years
Harbour works and crafts	40 years
Railway structures	15 to 25 years
Plant, machinery and equipment	5 to 15 years
Transportation equipment	6 to 18 years

Transportation equipment includes vessels which are depreciated over the estimated lives of 18 years.

The mining structures include the main and auxiliary mine shafts and underground tunnels. Depreciation is provided to write off the cost of the mining structures using the units of production method based on the estimated production volume for which the structure was designed and the contractual period of the relevant mining rights.

25. GOODWILL

	2005		2004
	RMB’000		RMB’000
COST
At January 1	146,707		106,707
Subsequent adjustment to contingent consideration payment in respect of the acquisition of Railway Assets	—		40,000
Elimination of amortization accumulated prior to the adoption of IFRS 3 (note 3)	(29,315	)
Acquisition of Heze (note 36)	35,645		—
At December 31	153,037		146,707
AMORTIZATION
At January 1	29,315		13,542
Elimination of amortization accumulated prior to the adoption of IFRS 3 (note 3)	(29,315	)	—
Charge for the year	—		15,773
At December 31	—		29,315
NET BOOK VALUE
At December 31	153,037		117,392

On January 1, 2002, the Company acquired the Railway Assets from its Parent Company for an original consideration of RMB1,242,586,000. Pursuant to the terms of the acquisition agreement, the consideration was adjusted to RMB1,282,586,000, RMB1,322,586,000 and RMB1,362,586,000 as the annual transportation volume of the Railway Assets reached the volume milestone targets of 25,000,000 tonnes, 28,000,000 tonnes and 30,000,000 tonnes for the years ended December 31, 2002, 2003 and 2004, respectively. The contingent consideration resulted in additional goodwill.

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YANZHOU COAL MINING COMPANY LIMITED

25. GOODWILL - continued

Prior to January 1, 2005, goodwill was amortized over its estimated useful life, ranging from 10 to 20 years. No amortization was made on goodwill from January 1, 2005 in accordance with the Group’s accounting policy.

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units that all expected to benefit from that business combination. Before recognition of impairment losses, the carrying amount of goodwill had been allocated as follows:

	2005	2004
	RMB’000	RMB’000
Coal mining
- Jining II	10,106	10,106
- Yanmei Shipping	10,046	10,046
- Heze	35,645	—
Coal Railway transportation
- Railway Assets	97,240	97,240
	153,037	117,392

The recoverable amounts of goodwill have been determined on the basis of value in use calculations. Their recoverable amounts are based on certain similar key assumptions on discount rates, growth rates and expected changes in selling prices and direct cost. All value in use calculations use cash flow projections based on financial budgets approved by management covering a 5 year period, and a discount rate of 5%. During the year ended December 31, 2005, management of the Group determines that there are no impairments of any of its CGU containing goodwill.

26. NEGATIVE GOODWILL

	2005		2004
	RMB’000		RMB’000
COST
At January 1	138,101		138,101
Derecognized upon the application of IFRS 3 (note 3)	(138,101	)	—
At December 31	—		138,101
RELEASED TO INCOME
At January 1	110,480		82,860
Released for the year	—		27,620
Derecognized upon the application of IFRS 3 (note 3)	(110,480	)	—
At December 31	—		110,480
NET BOOK VALUE
At December 31	—		27,621

As explained in note 3, all negative goodwill arising on acquisition prior to January 1, 2005 was derecognized as a result of the application of IFRS 3.

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YANZHOU COAL MINING COMPANY LIMITED

27. SUBSIDIARIES

Details of the Company’s subsidiaries at December 31, 2005 are as follows:

Name of subsidiary	Country of incorporation/ registration and operation	Issued and fully paid capital/ registered capital	Proportion of registered capital/ issued share capital held by the Company				Proportion of voting power held		Principal activities
			Directly		Indirectly
Austar	Australia	AUD30,000,000	—		100	%	100	%	Coal mining business
Heze (note)	PRC	RMB600,000,000	95.67	%	—		95.67	%	Development of ancillary projects
Yancoal	Australia	AUD30,000,000	100	%	—		100	%	Investment holding
Yanmei Shipping (note)	PRC	RMB5,500,000	92	%	—		97	%	Transportation via rivers and lakes and the sales of coal and construction materials
Yulin (note)	PRC	RMB800,000,000	97	%	—		97	%	Not yet commenced operations
Zhongyan Trade Co., Ltd. (“Zhongyan”) (note)	PRC	RMB2,100,000	52.38	%	—		52.38	%	Trading and processing of mining machinery

Note: Yanmei Shipping, Yulin, Zhongyan and Heze are established in the PRC as limited liability companies.

28. INVESTMENTS IN SECURITIES

The amounts represent cost of available-for-sale equity investment of the Group. The amount at December 31, 2005 principally includes an unlisted investment of RMB60,421,000 in the form of state legal person shares of Shenergy Company Limited, a company listed on the SSE. These shares are not tradable on the SSE.

They are stated at cost less impairment at each balance sheet date because the range of reasonable fair value estimates is so significant that the directors of the Company are of the opinion that their fair value cannot be measured reliably.

29. DEPOSIT MADE ON INVESTMENT

The amount in 2004 represented the payment made by the Company to the Parent Company in relation to the transfer of 95.67% equity interest in Heze owned by the Parent Company. The principal activity of Heze is the development of ancillary projects of Wangfu Coal Mine and Zhaolou Coal Mine in Shangdon Province in the PRC. During the year ended December 31, 2005, the acquisition was completed and Heze became a subsidiary of the Company.

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YANZHOU COAL MINING COMPANY LIMITED

30. DEFERRED TAX LIABILITY

	Provision for land subsidence, restoration, rehabilitation and environmental costs		Accelerated tax depreciation		Total
	RMB’000		RMB’000		RMB’000
Balance at January 1, 2004	88,872		—		88,872
(Charge) for the year (note 12)	(44,436	)	(67,540	)	(111,976	)
Balance at January 1, 2005	44,436		(67,540	)	(23,104	)
(Charge) credit for the year (note 12)	(44,436	)	(78,739	)	(123,175	)
Balance at December 31, 2005	—		(146,279	)	(146,279	)

At the balance sheet date, the Group has unused tax losses of AUD24 million, equivalent to RMB140million (2004: Nil) contributed by the Australian subsidiaries available for offset against future profits. No deferred tax asset has been recognized in respect of such losses due to the unpredictability of future profit streams. Such tax losses may be carried forward indefinitely.

There was no other material unprovided deferred tax for the year or at the balance sheet date.

31. BILLS AND ACCOUNTS PAYABLE

	At December 31,
	2005	2004
	RMB’000	RMB’000
Bills payable	136,779	—
Accounts payable	360,881	478,281
	497,660	478,281

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YANZHOU COAL MINING COMPANY LIMITED

31. BILLS AND ACCOUNTS PAYABLE - continued

The following is an aged analysis of bills and accounts payable at the reporting date:

	At December 31,
	2005	2004
	RMB’000	RMB’000
1 - 180 days	361,680	360,684
181 - 365 days	96,397	85,714
1 - 2 years	39,583	31,883
	497,660	478,281

The fair value of the Group’s bills and accounts payable at December 31, 2005 approximates to their carrying amount.

32. OTHER PAYABLES AND ACCRUED EXPENSES

	At December 31,
	2005	2004
	RMB’000	RMB’000
Customers’ deposits	475,333	426,877
Accrued wages	135,375	80,242
Other taxes payable	249,955	255,711
Payables in respect of purchases of property, plant and equipment and construction materials	216,250	173,093
Accrued freight charges	39,342	51,685
Accrued repairs and maintenance	22,829	47,895
Accrued utility expenses	4,120	7,672
Staff welfare payable	69,372	41,376
Accrued land subsidence, restoration, rehabilitation and environmental costs	196	8,592
Resource compensation fees payable	100,886	83,658
Consideration payable on acquisition of Southland	47,299	51,010
Payable in respect of purchase of mining rights in Southland (note 37)	23,644	—
Others	191,268	109,754
	1,575,869	1,337,565

The fair value of the Group’s other payables and accrued expenses at December 31, 2005 approximates to their carrying amount.

F-44

YANZHOU COAL MINING COMPANY LIMITED

33. (PREPAYMENT) PROVISION FOR LAND SUBSIDENCE, RESTORATION, REHABILITATION AND ENVIRONMENTAL COSTS

	2005		2004
	RMB’000		RMB’000
Balance at January 1	(103,407	)	85,022
Additional provision in the year	635,863		313,172
Ultization of provision	(689,967	)	(501,601	)
Balance at December 31	(157,511	)	(103,407	)

The provision for land subsidence, restoration, rehabilitation and environmental costs has been determined by the directors based on their best estimates. The payment during both years included mainly rehabilitation costs paid on mining areas in relation to mining activities in the future periods and therefore the balances are presented as prepayment at the balances sheet dates. However, in so far as the effect on the land and the environment from current mining activities becomes apparent in future periods, the estimate of the associated costs may be subject to change in the near term.

34. UNSECURED BANK BORROWING

In 2002, the Group obtained a new bank loan in the amount of RMB1,200,000,000, of which the repayment is guaranteed by the Parent Company. The loan bears interest at 6.21% per annum and is repayable by instalments over a period of 7 years, the first repayment instalment of which was due in August 2004. The proceeds were used to finance the acquisition of the Railway Assets.

In 2003, the interest rate of the bank loan was adjusted to 5.76% per annum, pursuant to the terms of the loan agreement. The loan is arranged at fixed interest rates and expose the Group to fair value interest rate risk. The Group has made a partial repayment of RMB600,000,000 during that year and according to the terms of the loan agreement, an early settlement would be deemed to settle the latest instalments due. The balance of the loan was therefore repayable in instalments over the following 3 years, the first repayment instalment of which was due and repaid in August 2004. Interests are payable quarterly over the terms of the loan.

The above loan is repayable as follows:

	At December 31,
	2005		2004
	RMB’000		RMB’000
Within one year	200,000		200,000
More than one year, but not exceeding two years	—		200,000
	200,000		400,000
Less: Amount due within one year and included in current liabilities	(200,000	)	(200,000	)
Amount due after one year	—		200,000

F-45

YANZHOU COAL MINING COMPANY LIMITED

35. SHAREHOLDERS’ EQUITY

Share capital

The Company’s share capital structure at the balance sheet date is as follows:

	Domestic inveted shares		Foreign invested shares
	State legal person shares (held by the Parent Company)	A shares (Note 1)	H shares (including H share represented by ADS (Note 1)	Total
Number of shares
At January 1, 2004	1,670,000,000	180,000,000	1,020,000,000	2,870,000,000
Issue of shares	—	—	204,000,000	204,000,000
At January 1, 2005	1,670,000,000	180,000,000	1,224,000,000	3,074,000,000
Bonus issue of shares	1,002,000,000	108,000,000	734,400,000	1,844,400,000
At January 31, 2005	2,672,000,000	288,000,000	1,958,400,000	4,918,400,000
	Domestic inveted shares		Foreign invested shares
	State legal person shares (held by the Parent Company)	A shares (Note 1)	H shares (including H share represented by ADS (Note 1)	Total
	RMB’000	RMB’000	RMB’000	RMB’000
Registered, issued and fully paid
At January 1, 2004	1,670,000	180,000	1,020,000	2,870,000
Issue of shares	—	—	204,000	204,000
At January 1, 2005	1,670,000	180,000	1,224,000	3,074,000
Bonus issue of shares	1,002,000	108,000	734,400	1,844,400
At January 31, 2005	2,672,000	288,000	1,958,400	4,918,400

Each share has a par value of RMB1.

At July 27, 2005, a bonus issue of six bonus shares for every ten shares in issue resulted in an increase in issued share capital of RMB1,844,400,000, and an equivalent reduction in the share premium account.

On July 15, 2004, the Company issued an aggregate of 204,000,000 H shares to independent investors upon private placement. The net proceeds of approximately RMB1,756,875,000 will be used for the investments in the proposed development of coal mines in Shandong Province and the coal-methanol project in Shaanxi Province. These new H shares were issued under the general mandate granted to the directors at the 2004 annual general meeting of the Company held on June 28, 2005 and these shares rank pari passu with other H shares in issue in all respects.

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YANZHOU COAL MINING COMPANY LIMITED

35. SHAREHOLDERS’ EQUITY - continued

Reserves

The Company has to set aside 10% of its net income for the statutory common reserve fund (except where the fund has reached 50% of the Company’s registered capital) and 5% to 10% of its net income for the statutory common welfare fund. The statutory common reserve fund can be used for the following purposes:

• to make good losses in previous years; or

• to convert into capital, provided such conversion is approved by a resolution at a shareholders’ general meeting and the balance of the statutory common reserve fund does not fall below 25% of the registered capital.

The statutory common welfare fund, which is to be used for the welfare of the staff and workers of the Company, is of a capital nature.

In accordance with the Company’s Articles of Association, the net income for the purpose of appropriation will be deemed to be the lesser of the amounts determined in accordance with (i) PRC accounting standards and regulations and (ii) IFRS or the accounting standards of the places in which its shares are listed.

The Company can also create a discretionary reserve in accordance with its Articles of Association or pursuant to resolutions which may be adopted at a meeting of shareholders.

The Company’s distributable reserve as at December 31, 2005 is the retained earnings computed under PRC GAAP which amounted to approximately RMB5,844,289,000 (2004: RMB4,522,369,000).

F-47

YANZHOU COAL MINING COMPANY LIMITED

36. ACQUISITION OF HEZE

The net assets of Heze acquired, and the goodwill arising, are as follows:

	Fair value
	RMB’000
Bank balances and cash	180,255
Prepayments and other current assets	1,150
Property, plant and equipment	507,596
Other payables and accrued expenses	(86,061	)
Amounts due to Parent Company and its subsidiary companies	(29,759	)
Minority interest	(24,818	)
Total net assets acquired	548,363
Goodwill arising on acquisition	35,645
	584,008
Total consideration satisfied by:
Deposit made on investment in 2004	574,000
Cash consideration paid on acquisition	10,008
	584,008
Net cash outflow arising on acquisition:
Cash paid on acquisition	(10,008	)
Bank balances and cash acquired	180,255
	170,247

Heze did not contribute significantly to the Group’s turnover and profit before profit for the year ended December 31, 2005.

If the acquisition had been completed on January 1, 2005, the Group’s revenue and the Group’s profit for the year ended December 31, 2005 would have been RMB12,447,025,000 and RMB2,864,866,000, respectively.

On November 16, 2004, the Company entered into an equity transfer agreement (“Acquisition Agreements”) with the Parent Company and conditionally agreed to purchase the 95.67% equity interest in Heze held by the Parent Company. As at December 31, 2004, a deposit of RMB574,000,000 was paid to the Parent Company.

F-48

YANZHOU COAL MINING COMPANY LIMITED

36. ACQUISITION OF HEZE - continued

On June 28, 2005, a supplemental agreement (the “Supplemental Agreement”) was entered between the Company and the Parent Company, pursuant to which the consideration of the acquisition of 95.67% equity interest in Heze has been determined to be RMB584,008,000. Under the Supplemental Agreement, the Parent Company has irrevocably undertaken that the Group shall have the right to purchase the mining rights of Zhaolou coal mine and Wanfu coal mine from the Parent Company within twelve months from the respective dates on which such mining rights are obtained by the Parent Company, based on valuations conducted by independent qualified PRC valuers which should also be endorsed by the applicable PRC government authorities.

In December 2005, the acquisition was completed and the Company paid the remaining consideration of RMB10,008,000 to the Parent Company. The Company then holds 95.67% equity interest in Heze. The net assets acquired were included in the coal mining segment. Heze did not have any significant impact on the Group’s results or cash flows for the year ended December 31, 2005.

Pursuant to the Acquisition Agreement and the Supplemental Agreement, should certain situations arise, including but not limited to failure of Heze to obtain the land use rights or failure of the Parent Company to obtain the mining rights of the Zhaolou coal mine by June 30, 2006, the Company shall have the right to transfer the 95.67% equity interest in Heze back to the Parent Company, and the Parent Company will be obligated to refund the purchase consideration to the Company, within 30 days from the date of the issue of notice by the Company for such transfer.

The carrying amount of Heze’s net assets approximates to its fair value at date of acquisition.

The goodwill arising on the acquisition is attributable to the anticipated profitability of the sales of coal products.

F-49

YANZHOU COAL MINING COMPANY LIMITED

37. ACQUISITION OF SOUTHLAND

In December 2004, the Group acquired a 100% interest in Southland for a cash consideration of RMB187,312,000, of which RMB136,302,000 was paid upon acquisition and RMB51,010,000 (equivalent to AUD8,000,000) was payable upon the production of the initial 4 million tonnes of saleable coal by the Group in Southland. Pursuant to the agreements in relation to the acquisition, the Company has an obligation to acquire further coal mines and land adjacent to Southland at AUD4,000,000 when the sellers obtain the exploration license under the Mining Act of Australia for such coal mines. During the year, the Group successfully obtained the exploration licences for the adjacent mines. Accordingly, consideration amounted to RMB 23,644,000 (equivalent to AUD 4,000,000) was payable upon the completion of registration process. In the opinion of directors, the registration process will be completed by June 2006.

	Carrying value and fair value
	RMB’000
The net assets of Southland acquired in the transaction were as follows:
Mining rights	32,624
Property, plant and equipment	191,405
Other payables and accrued expenses	(36,727	)
Total net assets acquired	187,312
Satisfied by:
Cash consideration paid on acquisition	187,312

Southland did not contribute significantly to the Group’s turnover and profit before income taxes for the year ended December 31, 2004.

If the acquisition had been completed on January 1, 2004, the Group’s revenue and the Group’s profit for the year ended December 31, 2004 would have been RMB 11,977,823,000 and RMB3,154,570,000, respectively.

F-50

YANZHOU COAL MINING COMPANY LIMITED

38. ACQUISITION OF YANMEI SHIPPING

	Fair value
	RMB’000
The net assets of Yanmei Shipping acquired in the transaction, and the goodwill arising, were as follows:
Bank balances and cash	506
Bills and accounts receivable	735
Inventories	1,254
Prepayments and other current assets	16,423
Property, plant and equipment, net	12,551
Other payables and accrued expenses	(4,259	)
Amounts due to Parent Company and its subsidiaries	(26,151	)
Taxes payable	(483	)
Minority interest	(46	)
Total net assets acquired	530
Goodwill arising on acquisition	11,162
	11,692
Consideration satisfied by cash	11,692
Net cash outflow arising on acquisition:
Cash consideration paid	(11,692	)
Bank balances and cash acquired	506
	(11,186)

On December 31, 2003, the Group acquired 92% of the issued share capital of Yanmei Shipping for a cash consideration of RMB11,692,000. The net assets acquired were included in the coal mining segment. Yanmei Shipping did not have any significant impact on the Group’s results or cash flows for the year ended December 31, 2003.

The carrying amount of Yanmei Shipping’s net assets approximates to its fair value at date of acquisition.

The goodwill arising on the acquisition is attributable to the anticipated future operating synergies from the combination.

Yanmei Shipping did not contribute significantly to the Group’s turnover and profit before income taxes for the year ended December 31, 2003.

If the acquisition had been completed on January 1, 2003, the Group’s revenue and the Group’s profit for the year ended December 31, 2003 would have been RMB8,542,214,000 and RMB1,385,573,000, respectively.

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YANZHOU COAL MINING COMPANY LIMITED

39. RELATED PARTY BALANCES AND TRANSACTIONS

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed. Details of balance and transactions between the Group and other related parties are disclosed below.

Related Party Balances

The amounts due from Parent Company and its subsidiary companies were non-interest bearing, unsecured and repayable on demand.

The amounts due to the Parent Company and its subsidiary companies are non-interest bearing and unsecured.

The amounts due to the Parent Company and its subsidiary companies as at December 31, 2005 and 2004 included the present value of the outstanding balance that arose from the funding of the acquisition of the mining rights of Jining III as of January 1, 2001 discounted using the market rate of bank borrowings.

The consideration for the cost of the mining rights of approximately RMB132,479,000 is to be settled over the 10 years by equal installments before December of each year, commencing from 2001.

	At December 31,
	2005		2004
	RMB’000		RMB’000
Amounts due to Parent Company and its subsidiary companies
Within one year	508,254		—
More than one year, but not exceeding two years	8,689		9,230
More than two years, but not exceeding three years	8,181		8,689
More than three years, but no exceeding four years	7,704		8,181
More than four years, but not exceeding five years	7,253		7,704
Exceeding five years	—		7,253
Total	540,081		41,057
Less: amount due within one year	(508,254	)	—
Amount due after one year	31,827		41,057

F-52

YANZHOU COAL MINING COMPANY LIMITED

39. RELATED PARTY BALANCES AND TRANSACTIONS - continued

Except the amounts disclosed above, the amounts due to the Parent Company and/or its subsidiary companies have no specific terms of repayments.

Related Party Transactions

During the periods, the Group had the following significant transactions with the Parent Company and/or its subsidiary companies:

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
Income
Sales of coal	856,580	523,015	229,730
Sales of auxiliary materials	369,855	350,873	472,899
Utilities and facilities	29,000	29,000	29,000
Railway transportation services	—	—	66
Expenditure
Utilities and facilities	355,953	354,424	285,166
Annual fee for mining rights	12,980	12,980	12,980
Purchases of supply materials and equipment	341,935	303,549	373,710
Repair and maintenance services	197,624	222,949	225,408
Social welfare and support services	242,952	207,062	188,825
Technical support and training	15,130	15,130	15,130
Road transportation services	53,346	63,478	17,216
Construction services	—	160,342	507,824

During the periods, the Group had the following significant transactions with a related party, certain management members of which were also management members of the Group:

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
Sales of coal by the Group	—	—	77,155
Transaction services provided to the Group	—	—	74,783

Certain expenditure for social welfare and support services (excluding medical and child care expenses) of RMB63,361,000, RMB63,275,000 and RMB63,530,000 for each of the three years ended December 31, 2005, 2004 and 2003, respectively, and for technical support and training of RMB15,130,000 for each of the three years ended December 31, 2005, 2004 and 2003, have been charged by the Parent Company at a negotiated amount per annum, subject to changes every year.

The above transactions were charged either at market prices or based on terms agreed by both parties.

F-53

YANZHOU COAL MINING COMPANY LIMITED

39. RELATED PARTY BALANCES AND TRANSACTIONS - continued

During the year, the Company acquired Heze from the Parent Company. Details of this acquisition are set out in note 36.

In addition to the above, the Company participates in a multi-employer scheme of the Parent Company in respect of retirement benefits (see notes 8 and 41).

Transactions/balances with other state-controlled entities in the PRC

The Group operates in an economic environment currently predominated by entities directly or indirectly owned or controlled by the PRC government (“state-controlled entities”). In addition, the Group itself is part of a larger group of companies under the Parent Company which is controlled by the PRC government. Apart from the transactions with the Parent Company and fellow subsidiaries and other related parties disclosed above, the Group also conducts business with other state-controlled entities. The directors consider those state-controlled entities are independent third parties so far as the Group’s business transactions with them are concerned.

In establishing its pricing strategies and approval process for transactions with other state-controlled entities, the Group does not differentiate whether the counter-party is a state-controlled entity or not.

Material transactions with other state-controlled entities are as follows:

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
Trade sales	3,855,545	4,466,519	3,941,149
Trade purchases	1,607,729	1,541,147	1,760,528

Material balances with other state-controlled entities are as follows:

	At December 31
	2005	2004
	RMB’000	RMB’000
Amounts due from other state-controlled entities	350,688	400,603
Amounts due to other state-controlled entities	270,559	303,103

In addition, the Group has entered into various transactions, including deposits placements, borrowings and other general banking facilities, with certain banks and financial institutions which are state-controlled entities in its ordinary course of business. In view of the nature of those banking transactions, the directors are of the opinion that separate disclosure would not be meaningful.

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YANZHOU COAL MINING COMPANY LIMITED

39. RELATED PARTY BALANCES AND TRANSACTIONS - continued

Except as disclosed above, the directors are of the opinion that transactions with other state-controlled entities are not significant to the Group’s operations.

Compensation of key management personnel

The remuneration of directors and other members of key management was as follows:

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
Directors’ fee	342	324	247
Salaries, allowance and other benefit in kind	1,503	1,029	321
Retirement benefit scheme contribution	678	463	144
	2,523	1,816	712

The remuneration of directors and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends.

40. COMMITMENTS

	At December 31,
	2005	2004
	RMB’000	RMB’000
Capital expenditure contracted for but not provided in the financial statements in respect of acquisition of property, plant and equipment	920,907	12,872
Capital expenditure authorized but not contracted for in respect of development of new coal mines	1,900,000	2,100,000
	2,820,907	2,112,872

In accordance with the regulations of the State Administration of Work Safety, the Group has a commitment to incurre RMB8 per tone of raw coal mined from May 1, 2004 aggregating to RMB91,462,000 (2004: RMB5,848,000) on enhancement of safety production environment and facilities (“Work Safety Cost”)

F-55

YANZHOU COAL MINING COMPANY LIMITED

41. RETIREMENT BENEFITS

Qualifying employees of the Company are entitled to a pension, medical and other welfare benefits. The Company participates in a multi-employer scheme of the Parent Company and pays a monthly contribution to the Parent Company in respect of retirement benefits at an agreed contribution rate based on the monthly basic salaries and wages of the qualified employees. The Parent Company is responsible for the payment of all retirement benefits to the retired employees of the Company.

The monthly contribution rate was set initially at 45% of the aggregate monthly basic salaries and wages of the Company’s employees, and was fixed until December 31, 2001. Upon expiration of the initial period, the Company and the Parent Company determined that the contribution rate should remain at 45% for the period from January 1, 2002 to December 31, 2006.

The amount of contribution paid to the Parent Company were RMB522,650,000, RMB408,462,000 and RMB349,377,000 for the years ended December 31, 2005, 2004, and 2003.

The Company’s subsidiaries are participants in a state-managed retirement scheme pursuant to which the subsidiaries pay a fixed percentage of its qualifying staff’s wages as a contribution to the scheme. The subsidiaries’ financial obligations under this scheme are limited to the payment of the employer’s contribution. During the year, contributions payable by the subsidiaries pursuant to this arrangement were insignificant to the Group.

During the year and at the balance sheet date, there were no forfeited contributions which arose upon employees leaving the above schemes available to reduce the contributions payable in future years.

42. HOUSING SCHEME

The Parent Company is responsible for providing accommodation to its employees and the employees of the Company. The Company and the Parent Company share the incidental expenses relating to the accommodation at a negotiated amount for each of the three years ended December 31, 2005, 2004 and 2003. Such expenses, amounting to RMB37,200,000 for each of the three years ended December 31, 2005, 2004 and 2003, have been included as part of the social welfare and support services expenses summarized in note 39.

The Company currently makes a fixed monthly contribution for each of its qualifying employees to a housing fund which is equally matched by a contribution from the employees. The contributions are paid to the Parent Company which utilizes the funds, along with the proceeds from the sales of accommodation and, if the need arises, from loans arranged by the Parent Company, to construct new accommodation. Starting from 2002, the Parent Company intends to sell the new accommodation by reference to market prices instead of cost. Accordingly, the Company paid an additional housing allowance to the employees at a percentage of their wages.

F-56

YANZHOU COAL MINING COMPANY LIMITED

43. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of bank balances and cash, bills and accounts receivable, bills and accounts payables, other payables and accrued expenses and variable debts approximate their fair value because of the short maturity of these amounts or because they are stated at present value discounted using market rates. In addition, the carrying amount of bank borrowing approximates its fair value as the interest rate approximates the market rate.

44. CONCENTRATION OF CREDIT RISK

The Group maintains its cash and cash equivalents with banks in the PRC.

The Group generally grants the long-term customers credit terms with a range from one to four months, depending on the situations of the individual customers. For small to medium sized new customers, the Group generally requires them to pay for the products before delivery.

Most of the Group’s domestic sales are sales to electric power plants, metallurgical companies, construction material producers and railway companies. The Group generally has established long-term and stable relationships with these companies. The Group also sells its coal to provincial and city fuel trading companies.

As the Group does not currently have direct export rights, all of its export sales must be made through National Coal Corporation, Shanxi Coal Corporation or Minmetals Trading. The quality, prices and final customer destination of the Group’s export sales are determined by the Group, National Coal Corporation, Shanxi Coal Corporation or Minmetals Trading. The Group intends to apply for direct export rights although there can be no assurance that such rights will be obtained on a timely basis.

For the years ended December 31, 2005, 2004 and 2003, net sales to the Group’s five largest domestic customers accounted for approximately 20.0%, 15.3% and 18.5%, respectively, of the Group’s total net sales. Net sales to the Group’s largest domestic customer accounted for 13.4%, 9.2% and 11.3% of the Group’s net sales for the years ended December 31, 2005, 2004 and 2003, respectively. The Group’s largest domestic customer was the Huadian Power International Corporation Limited (“Huadian”) for the year ended December 31, 2005 (2004: Huadian; 2003: the Shandong Power and Fuel Company). The Shandong Power and Fuel Company purchases coal on behalf of several power plants in Shangdong Province, the largest of which, the Zouxian Electric Power Plant, alone accounted for 9.6% of the Group’s net sales for the years ended December 31, 2003.

Details of the amounts receivable from the five customers with the largest receivable balances at December 31, 2005 and 2004 are as follows:

	Percentage of accounts receivable
	At December 31,
	2005		2004
Five largest receivable balances	66	%	75	%

F-57

YANZHOU COAL MINING COMPANY LIMITED

45. SUBSEQUENT EVENT

Pursuant to a meeting for the holders of A shares of the Company held on March 6, 2006, the share reform plan (“Share Reform Plan”) was approved by the relevant shareholders. Under the Share Reform Plan, 2.5 A shares for every existing 10 A shares would be offered by the Parent Company and the non-tradable legal person shares held by the Parent Company would then be converted to tradable shares in 4 years time according to formula. The Share Reform Plan has been further approved by the Ministry of Commerce of the PRC on March 21, 2006.

46. SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP

The consolidated financial statements prepared under IFRS and those prepared under PRC GAAP have the following major differences:

(i) adjustment of future development fund, which is charged to income before income taxes under PRC GAAP, to shareholders’ equity;

(ii) reversal of the Work Safety Cost provided but not yet ultizing for the enhancement of safety production environment and facilities (see note 40), which is charged as expenses when provided under PRC GAAP;

(iii) negative goodwill arising under IFRS for the acquisition of Jining III was recognized as income in the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets prior to January 1, 2005. No negative goodwill is recognized under PRC GAAP;

(iv) the installments payable to the Parent Company for the acquisition of Jining III have been stated at present value discounted using market rates under IFRS while under PRC GAAP, the installments payable are stated at gross amounts. Accordingly, deemed interest expense arises on the installments payable to the Parent Company under IFRS and no such interest expenses are recognized under PRC GAAP;

(v) write off pre-operating expenses capitalized in a subsidiary of the Company as a long term asset under PRC GAAP.

(vi) reversal of amortization of goodwill under PRC GAAP, which is not amortized but instead tested for impairment at least annually under IFRS from January 1, 2005 onwards; and

(vii) recognition of a deferred tax asset/liability under IFRS for the tax consequence of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.

F-58

YANZHOU COAL MINING COMPANY LIMITED

46. SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP - continued

The following table summarizes the differences between IFRS and PRC GAAP:

	Net income attributable to the equity holders of the Company for the year ended December 31,						Net assets attributable to equity holders of the Company as at December 31,
	2005		2004		2003		2005		2004
	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
As per consolidated financial statements prepared under IFRS	2,881,461		3,154,317		1,386,686		17,618,577		15,523,751
Impact of IFRS adjustments in respect of:
- transfer to future development fund which is charged to income before income taxes under PRC GAAP	(381,208	)	(331,548	)	(259,674	)	(269,945	)	(96,669	)
- reversal of Work Safety Cost	(238,600	)	(204,668	)	—		(443,268	)	(204,668	)
- release of negative goodwill to income	—		(27,620	)	(27,620	)	(138,101	)	(110,480	)
- deemed interest expenses	3,858		4,550		5,261		113,220		109,362
- write-off of pre-operating expenses of a subsidiary	121,801		—		—		121,801		—
- reversal of goodwill amortisation	(15,006	)	—		—		(15,006	)	—
- deferred tax effect on temporary differences not recognized under PRC GAAP	123,175		111,976		(65	)	146,279		23,104
- others	—		778		777		8,070		8,071
As per consolidated financial statements prepared under PRC GAAP	2,495,481		2,707,785		1,105,365		17,141,627		15,252,471

Note:  There are also differences in other items in the consolidated financial statements due to differences in classification between IFRS and PRC GAAP.

F-59

YANZHOU COAL MINING COMPANY LIMITED

47. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP

The consolidated financial statements are prepared in accordance with IFRS, which differ in certain significant respects from US GAAP. The significant differences relate principally to the accounting for the acquisitions of Jining II, Jining III and Railway Assets, the cost bases of property, plant and equipment and land use rights and related adjustments to deferred taxation.

Under IFRS, the acquisitions of Jining II, Jining III and the Railway Assets have been accounted for using the purchase method which accounts for the assets and liabilities of Jining II, Jining III and the Railway Assets at their fair value at the date of acquisition. Any excess of the purchase consideration over the fair value of the net assets acquired is capitalized as goodwill. Prior to January 1, 2005, such goodwill was amortized over a period of ten to twenty years. Subsequent to January 1, 2005, such goodwill is tested for impairment at least annually. Prior to January 1, 2005, any excess of the fair value of the net assets acquired over the purchase consideration is recorded as negative goodwill, which was presented as a deduction from the assets of the Group in the consolidated balance sheet. Such negative goodwill was released to the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets. The carrying amount of negative goodwill has been de-recognized and adjusted to the opening retained earnings at January 1, 2005.

Under US GAAP, as the Group, Jining II, Jining III, the Railway Assets and Heze are entities under the common control of the Parent Company, the assets and liabilities of Jining II, Jining III, the Railway Assets and Heze are required to be included in the consolidated balance sheet of the Group at historical cost. The difference between the historical cost of the assets and liabilities of Jining II, Jining III, the Railway Assets and Heze acquired and the purchase price paid is recorded as an adjustment to shareholders’ equity.

In applying the pooling of interest method, the financial statement items of the combining enterprises for the period in which the combination occurs and for any comparative periods disclosed should be included in the financial statements of the combined enterprises as if they had been combined from the beginning of the earliest period presented. The effect of accounting for the acquisition of Heze using the pooling of interest method on the net income under US GAAP for the year ended December 31, 2004 and 2003 is as follows:

	Year ended December 31,
	2004		2003
	RMB’000		RMB’000
Net income
As previously reported	3,272,478		1,499,249
Pooling of interest adjustment
Net loss from Heze	(8,586	)	—
As restated	3,263,892		1,499,249

F-60

YANZHOU COAL MINING COMPANY LIMITED

47. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP- continued

Under IFRS, the mining rights of Jining III are stated at purchase consideration less amortization. Mining rights are amortized on a straight line basis over twenty years, being the useful life estimated based on the total proven and probable reserves of the coal mine. Under US GAAP, as both the Group and Jining III are entities under the common control of the Parent Company, the mining rights have to be restated at nil cost and no amortization on mining rights will be recognized. However, a deferred tax asset relating to the capitalization of mining rights is required to be recognized under US GAAP as a higher tax base resulting from the capitalization is utilized for PRC tax purposes.

Under IFRS, property, plant and equipment and prepaid lease payments have been stated based on their respective fair values at the date of acquisition even for cases involving transaction between entities under common control. The fair value amount becomes the new cost basis of the assets of the Company formed from the reorganization and depreciation is based on such new basis. Under US GAAP, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or equity interests shall initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer. Accordingly, property, plant and equipment and prepaid lease payments are restated at the historical cost and no additional depreciation on the fair value amounts will be recognized under US GAAP. However, a deferred tax asset relating to the difference in cost bases between the fair value at the date of acquisition and historical cost is required to be recognized under US GAAP and the tax bases of the assets are the fair value amount at the date of acquisition.

Under IFRS, the acquisition of Yanmei Shipping has been accounted for using purchase method which accounted for the assets and liabilities of Yanmei Shipping at their fair value at the date of acquisition. The excess of the purchase consideration over the value of the net assets acquired is capitalized and amortized over a period of ten years prior to January 1, 2005. No further difference in this treatment of goodwill are identified from January 1, 2005 onwards. Under US GAAP, goodwill is not amortized but instead tested for impairment at least annually.

F-61

YANZHOU COAL MINING COMPANY LIMITED

47. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued

The adjustments necessary to restate net income and shareholders’ equity in accordance with US GAAP are shown in the tables set out below.

	Year ended December 31,
	2005			2004			2003
	RMB’000			RMB’000			RMB’000
Income attributable to the equity holders of the Company as reported under IFRS		2,881,461			3,154,317			1,386,686
US GAAP adjustments:
Additional depreciation charged on fair valued property, plant and equipment and prepaid lease payments		187,885			187,418			188,191
Additional deferred tax charge due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and prepaid lease payments and capitalization of mining rights		(64,188	)		(64,034	)		(64,289	)
Amortization of negative goodwill on acquisition of Jining III		—			(27,620	)		(27,620	)
Amortization of mining rights of Jining III		6,624			6,624			6,624
Amortization of goodwill arising on acquisition of Jining II		—			777			777
Amortization of goodwill arising on acquisition of the Railway Assets		—			13,880			8,880
Amortization of goodwill arising on acquisition of Yanmei Shipping		—			1,116			—
Loss of Heze included in the Group using the pooling of interest method		(17,071	)		(8,586	)		—
Income under US GAAP		2,994,711			3,263,892			1,499,249
Earnings per share under US GAAP, Basic and diluted	RMB	0.61		RMB	0.69		RMB	0.33
Earnings per ADS under US GAAP Basic and diluted	RMB	30.44		RMB	34.40		RMB	16.32

F-62

YANZHOU COAL MINING COMPANY LIMITED

47. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued

	At December 31,
	2005		2004
	RMB’000		RMB’000
Equity attributable to the equity holders of the Company as reported under IFRS	17,618,577		15,523,751
US GAAP adjustments:
Difference in cost bases of property, plant and equipment and prepaid lease payments	(2,561,032	)	(2,561,032	)
Additional depreciation/amortization charged on fair valued property, plant and equipment and prepaid lease payments	1,500,823		1,312,938
Additional deferred tax asset due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and prepaid lease payments	349,869		411,871
Goodwill arising on acquisition of Jining II	(10,106	)	(10,106	)
Negative goodwill arising on acquisition of Jining III, net	—		27,621
Mining rights of Jining III	(99,359	)	(105,983	)
Additional deferred tax asset due to a higher tax base resulting from capitalization of mining rights	32,788		34,974
Goodwill arising on acquisition of Railway Assets	(97,240	)	(97,240	)
Amortization of goodwill on acquisition of Yanmei Shipping	1,116		1,116
Net assets of Heze incorporated under pooling of interest
- current assets	—		442,355
- property, plant and equipment, net	—		192,963
- current liabilities	—		(44,292	)
- minority interests	—		(25,592	)
	—		565,434
Consideration payable on acquisition of Heze	—		(584,008	)
Goodwill arising on acquisition of Heze	(35,645	)	—
Shareholders’ equity under US GAAP	16,699,791		14,519,336

F-63

YANZHOU COAL MINING COMPANY LIMITED

47. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued

A reconciliation of certain significant financial statement line items to the approximate amounts determined under US GAAP is as follows:

	At December 31,
	2005		2004
	RMB’000		RMB’000
Total current assets
As reported under IFRS	10,951,151		8,319,577
US GAAP adjustments:
Net assets of Heze incorporated under pooling of interest
- current assets	—		442,355
Consideration payable on acquisition of Heze	—		(584,008	)
As adjusted under US GAAP	10,951,151		8,177,924
Mining rights
As reported under IFRS	153,265		138,617
US GAAP adjustment:
Mining rights of Jining III	(99,359	)	(105,983	)
As adjusted under US GAAP	53,906		32,634

F-64

YANZHOU COAL MINING COMPANY LIMITED

47. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued

	At December 31,
	2005		2004
	RMB’000		RMB’000
Prepaid lease payments
As reported under IFRS
- Current portion	13,465		13,171
- Non-current portion	579,773		578,547
	593,238		591,718
US GAAP adjustments:
Difference in cost bases of land use rights	(550,634	)	(550,634	)
Additional depreciation charged on land use rights	64,261		53,248
As adjusted under US GAAP	106,865		94,332
Analysis as:
Current	13,465		13,171
Non-current	93,400		81,161
	106,865		94,332
Property, plant and equipment
As reported under IFRS	9,318,486		8,537,150
US GAAP adjustments:
Difference in cost bases of property, plant and equipment	(2,010,398	)	(2,010,398	)
Additional depreciation charged on property, plant and equipment	1,436,562		1,259,690
Net assets of Heze incorporated under pooling of interests
- Property, plant and equipment	—		192,963
As adjusted under US GAAP	8,744,650		7,979,405

F-65

YANZHOU COAL MINING COMPANY LIMITED

47. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued

	At December 31,
	2005		2004
	RMB’000		RMB’000
Goodwill
As reported under IFRS	153,037		117,392
US GAAP adjustments:
Goodwill arising on contingent payment for acquisition of Railway Assets, net	(97,240	)	(97,240	)
Goodwill arising on acquisition of Jining II, net	(10,106	)	(10,106	)
Goodwill arising on acquisition of Heze	(35,645	)	—
Amortization arising on acquisition of Yanmei Shipping	1,116		1,116
As adjusted under US GAAP	11,162		11,162
Negative goodwill
As reported under IFRS	—		(27,621	)
US GAAP adjustment:
Negative goodwill arising on acquisition of Jining III, net	—		27,621
As adjusted under US GAAP	—		—
Deferred tax assets/(liability)
As reported under IFRS	(146,279	)	(23,104	)
US GAAP adjustments:
Additional deferred tax asset attributable to differences in cost bases of property, plant and equipment	189,366		247,734
Additional deferred tax asset attributable to differences in cost bases of land use rights	160,503		164,137
Additional deferred tax asset attributable to capitalization of mining rights	32,788		34,974
As adjusted under US GAAP	236,378		423,741

F-66

YANZHOU COAL MINING COMPANY LIMITED

47. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued

	At December 31,
	2005	2004
	RMB’000	RMB’000
Current liabilities
As reported under IFRS	3,429,030	2,545,111
US GAAP adjustment:
Net assets of Heze incorporated under pooling of interest	—	44,292
As adjusted under US GAAP	3,429,030	2,589,403
Minority interest
As reported under IFRS	28,731	3,674
US GAAP adjustment:
Net assets of Heze incorporated under pooling of interest	—	25,592
As adjusted under US GAAP	28,731	29,266

	Year ended December 31,
	2005		2004		2003
	RMB’000		RMB’000		RMB’000
Cost of sales and service provided
As reported under IFRS	5,288,588		4,551,703		3,755,023
US GAAP adjustments:
Additional depreciation charged on property, plant and equipment	(165,677	)	(164,169	)	(163,459	)
Amortization of mining rights of Jining III	(6,624	)	(6,624	)	(6,624	)
As adjusted under US GAAP	5,116,287		4,380,910		3,584,940

F-67

YANZHOU COAL MINING COMPANY LIMITED

47. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued

	Year ended December 31,
	2005		2004		2003
	RMB’000		RMB’000		RMB’000
Selling, general and administrative expenses
As reported under IFRS	1,918,788		1,479,863		1,264,858
US GAAP adjustments:
Additional depreciation charged on:
- property, plant and equipment	(11,105	)	(12,236	)	(13,719	)
- land use rights	(11,103	)	(11,013	)	(11,013	)
Amortization of goodwill arising on acquisition of Railway Assets	—		(13,880	)	(8,880	)
Amortization of goodwill arising on acquisition of Jining II	—		(777	)	(777	)
Amortization of goodwill arising on acquisition of Yanmei Shipping	—		(1,116	)	—
Loss of Heze included in the Group using the pooling of interest method	17,071		8,586		—
As adjusted under US GAAP	1,913,651		1,449,427		1,230,469
Other Operating income
As reported under IFRS	135,038		165,732		105,845
US GAAP adjustments:
Amortization of negative goodwill on acquisition of Jining III	—		(27,620	)	(27,620	)
Reclassification of interest income from bank deposits and investments in securities to other income	(91,715	)	(92,711	)	(17,814	)
Reclassification of dividend income to other income	(4,465	)	(4,465	)	(4,810	)
As adjusted under US GAAP	38,858		40,936		55,601

F-68

YANZHOU COAL MINING COMPANY LIMITED

47. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued

	Year ended December 31,
	2005	2004	2003
	RMB’000	RMB’000	RMB’000
Other income
As reported under IFRS	—	—	—
US GAAP adjustment:
Reclassification of interest income from bank deposits and investments in securities to other income	91,715	92,711	17,814
Reclassification of dividend income to other income	4,465	4,465	4,810
As adjusted under US GAAP	96,180	97,176	22,624
Income taxes
As reported under IFRS	1,538,036	1,518,762	587,710
US GAAP adjustments:
Additional deferred tax charges attributable to differences in cost bases of property, plant and equipment and prepaid lease payments	62,002	61,848	62,103
Additional deferred tax charges attributable to capitalization of mining rights	2,186	2,186	2,186
As adjusted under US GAAP	1,602,224	1,582,796	651,999

F-69

YANZHOU COAL MINING COMPANY LIMITED

47. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued

The following US GAAP condensed consolidated balance sheets and statements of income have been derived from the financial statements prepared in accordance with IFRS and reflect the adjustments and reclassifications presented above to conform to US GAAP.

CONSOLIDATED BALANCE SHEETS

	At December 31,
	2005	2004
	RMB’000	RMB’000
Assets
Current assets	10,951,151	8,177,924
Mining rights	53,906	32,634
Prepaid lease payment	93,400	81,161
Property, plant and equipment	8,744,650	7,979,405
Goodwill	11,162	11,162
Deferred tax assets	236,378	423,741
Other non-current assets	98,732	673,035
	20,189,379	17,379,062
Liabilities and shareholders’ equity
Current liabilities	3,429,030	2,589,403
Non-current liabilities	31,827	241,057
Shareholders’ equity	16,699,791	14,519,336
Minority interest	28,731	29,266
	20,189,379	17,379,062

CONSOLIDATED STATEMENTS OF INCOME

	Year ended December 31,
	2005		2004		2003
	RMB’000		RMB’000		RMB’000
Railway transportation service income	163,437		220,771		154,585
Gross sales of coal	12,283,588		11,757,052		8,386,629
Transportation costs of coal	(930,103	)	(1,402,715	)	(1,592,294	)
Cost of sales and service provided	(5,116,287	)	(4,380,910	)	(3,584,940	)
Selling, general and administrative expenses	(1,913,651	)	(1,449,427	)	(1,230,469	)
Other operating income	38,858		40,936		55,601
Interest expenses	(24,611	)	(35,942	)	(59,966	)
Other income	96,180		97,176		22,624
Income before income taxes	4,597,411		4,846,941		2,151,770
Income taxes	(1,602,224	)	(1,582,796	)	(651,999	)
Income before minority interest	2,995,187		3,264,145		1,499,771
Minority interest	(476	)	(253	)	(522	)
Net income	2,994,711		3,263,892		1,499,249

F-70

YANZHOU COAL MINING COMPANY LIMITED

47. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued

Details of effect of recent accounting pronouncements in the US GAAP are as follows:

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 123 (revised 2004) (“SFAS No. 123-R”). “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123-R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. Generally, the approach in SFAS No. 123-R is similar to the approach described in SFAS No. 123. However, SFAS No. 123-R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on the grant-date fair values. Pro forma disclosure previously permitted under SFAS No. 123 is no longer an alternative. The new standard, as recently amended, will be effective for the Group in the annual reporting period beginning after January 1, 2006. Under SFAS No. 123-R, the Group could elect the modified prospective or modified retroactive option for transition on the adoption of this new standard. Under the modified retroactive option, prior periods are adjusted on a basis consistent with the pro forma disclosures previously required for those periods by SFAS No. 123. Under the modified prospective option, compensation expense for all unvested stock options must be recognized on or after the required effective date based on the grant-date fair value of those stock options. The Group does not issue stock options and therefore the adoption of SFAS No. 123-R did not have material impact on the Group’s financial statements.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4”. SFAS No. 151 clarifies the accounting that requires abnormal amounts of idle facility expenses, freight, handling costs, and spoilage costs to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective for inventory costs incurred on or after July 1, 2005. The Group adopted SFAS No.151 on July 1, 2005 and it did not have a material effect on the Group’s financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets — an amendment of APB Opinion No. 29” (“SFAS 153”), which amends Accounting Principles Board Opinion No. 29, “Accounting for Nonmonetary Transactions” to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for nonmonetary assets exchanges occurring in fiscal periods beginning after June 15, 2005. The Group does not anticipate that the adoption of this statement will have a material effect on the Group’s financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”) which replaces Accounting Principles Board Opinions No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements — An Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Group does not anticipate that the adoption of this statement will have a material effect on the Group’s financial position or results of operations.

F-71

EX-1.1

EXHIBIT 1.1

ARTICLES OF ASSOCIATION

OF

YANZHOU COAL MINING COMPANY LIMITED

(Amended Articles of Association of Yanzhou Coal Mining Company Limited as approved by the shareholders on July 8, 2004 and June 28, 2005, respectively)

ARTICLES OF ASSOCIATION

OF YANZHOU COAL MINING COMPANY LIMITED

Chapter 1	General Provisions
Chapter 2	The Company’s Objectives and Scope of Business
Chapter 3	Shares and Registered Capital
Chapter 4	Reduction of Capital and Repurchase of Shares
Chapter 5	Financial Assistance for Acquisition of Shares
Chapter 6	Share Certificates and Register of Shareholders
Chapter 7	Shareholders’ Rights and Obligations
Chapter 8	Shareholders’ General Meetings
Chapter 9	Special Procedures for Voting by a Class of Shareholders
Chapter 10	Board of Directors
Chapter 11	Secretary of the Board of Directors
Chapter 12	General Manager and Senior Officers etc
Chapter 13	Supervisory Committee
Chapter 14	The Qualifications and Duties of the Directors, Supervisors and Senior Officers of the Company
Chapter 15	Financial and Accounting Systems, Profit Distribution and Internal Audit
Chapter 16	Appointment of Auditors
Chapter 17	Insurance
Chapter 18	Labour and Personnel Management Systems
Chapter 19	Trade Unions
Chapter 20	Merger and Division of the Company
Chapter 21	Dissolution and Liquidation
Chapter 22	Procedures for Amendment of the Company’s Articles of Association
Chapter 23	Dispute Resolution
Chapter 24	Supplementary

ARTICLES OF ASSOCIATION OF

YANZHOU COAL MINING COMPANY LIMITED

CHAPTER 1: GENERAL PROVISIONS

Article 1.	These Articles of Association are drawn up in accordance with the “Company Law of the People’s Republic of China” (the “Company Law”), the “Securities Law of the People’s Republic of China”, the “Mandatory Provisions for the Articles of Association of the Company to be Listed Overseas” (“Mandatory Provisions”) and other relevant laws and regulations with the aims of protecting the legitimate interests of Yanzhou Coal Mining Company Limited (the “Company”) and its shareholders and creditors, and regulating the organization and conducts of the Company.			Guide 1
Article 2.	The Company is a joint stock limited company established in accordance with the Company Law, “State Council’s Special Regulations Regarding the Issue of Shares Overseas and the Listing of Shares Overseas by Companies Limited by Share” (the “Special Regulations”) and other relevant laws and regulations of the State.			MP1
	The Company was established by way of promotion with the approval of the People’s Republic of China’s State Commission for Restructuring the Economic System on 24 September 1997, as evidenced by approval document Ti Gai Sheng [1997] no. 154 of 1997. It is registered with and has obtained a business licence from China’s State Administration Bureau of Industry and Commerce on 25 September 1997. The Company’s business licence number is: Qi Gu Lu Zong Zi No. 003929.
	The promoter of the Company is: Yankuang (Group) Corporation Ltd.
Article 3.	The Company’s registered Chinese name:			MP2
	The Company’s registered English name:	Yanzhou Coal Mining Company Limited
Article 4.	The Company’s address	:	298 South Fushan Road	MP3
			Zoucheng
			Shandong Province
			China
	Telephone number	:	0537-5383310
	Facsimile number	:	0537-5383311
	Postal code	:	273500
Article 5.	The Company’s legal representative is the Chairman of the board of directors of the Company.			MP4
Article 6.	The Company is a joint stock limited company which has perpetual existence.			MP5

Article 7.	The Company’s Articles of Association shall take effect from the date of incorporation of the Company.		MP6
	From the date on which these Articles of Association come into effect, this Articles of Association shall constitute a legally binding document regulating the Company’s organisation and activities, and the rights and obligations between the Company and each shareholder and among the shareholders inter se.
Article 8.	These Articles of Association are binding on the Company and its shareholders, directors, supervisors, general manager, deputy general managers and other senior officers of the Company; all of whom are entitled, according to these Articles of Association, to make suggestions in respect of rights concerning the affairs of the Company.		MP7
	A shareholder may take action against the Company pursuant to these Articles of Association and vice versa. A shareholder may also take action against another shareholder, the directors, supervisors, general manager, deputy general managers and other senior officers of the Company pursuant to these Articles of Association.
	The actions referred to in the preceding paragraph include court proceedings and arbitration proceedings.
Article 9.	All assets of the Company are divided into shares of equal value. The shareholders are liable for the Company up to the amount of shares they subscribed and all the Company’s assets are made liable for its debts.		MP8
	The Company may invest in other limited liability companies or limited stock companies. The Company is liable for an invested company up to the amount of capital it contributes to the invested company.
Article 10	Senior officers of the Company refer to the Company’s general manager, deputy general manager, financial controller, chief engineer and secretary to the board of directors.		Guide 11
	CHAPTER 2: THE COMPANY’S OBJECTIVES AND SCOPE OF BUSINESS
Article 11.	The Company’s objectives are:		MP9
	(a)	To comply with the laws and regulations in the market;
	(b)	To continue to explore business opportunities which are suitable for the Company;

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	(c)	To fully utilise every resource of the Company;
	(d)	To place emphasis on the training of its employees and technological development;
	(e)	To provide the society with products which are competitive; and
	(f)	To use its best endeavours to maximise its profits.
Article 12.	The Company’s scope of business shall be consistent with and subject to the scope of business approved by the authority responsible for the registration of the Company.		MP10
	The Company’s scope of business includes: The business scope of the company includes: mining, selection and the sale of coal; transportation of cargo; the production, sale and leasing of machinery equipments and parts, electronic products; the sale of metal materials, chemical products, construction materials, timber, flammable materials, grease and rubber products; the production and sale of other mining materials; the production and sale of knitted products; composite of mining, science and technology services; property development within the mining areas; the provision of dining, accommodation and tourist services; the storage and discharge of coals at sea ports; the provision of inland water transports; the provision of commodity logistics services; and the provision of ships repairing work.
	Subject to compliance with applicable laws and administrative regulations of the People’s Republic of China (“PRC”) the Company has the power to raise and borrow money which power includes (without limitation) the issue of debentures, the charging or mortgaging of part or whole of the Company’s business or properties and to provide guarantees or mortgages for the debts of third parties (including, without limitation, the subsidiaries or associated companies of the Company) in all types of circumstances.
	CHAPTER 3: SHARES AND REGISTERED CAPITAL
Article 13.	There must, at all times, be ordinary shares in the Company. Subject to the approval of the companies approving department authorised by the State Council, the Company may, according to its requirements, create different classes of shares.		MP11
Article 14.	Shares of the Company are in the form of share certificates.		Guide 14

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Article 15.	The issue of shares by the Company shall adhere to the principles of openness, fairness and equitable. Every share of the same class shall rank pari passu to every other share of the same class.	Guide 15
	Shares of the same class issued at the same time shall have the same terms and price. The same amount of money is payable by a unit or an individual subscribing the share.
Article 16.	The shares issued by the Company shall each have a par value of Renminbi one yuan. “Renminbi” means the legal currency of the PRC.	MP12
Article 17.	Subject to the approval of the State Council Securities Policy Committee, the Company may issue shares to Domestic Investors and Foreign Investors.	MP13
	“Foreign Investors” mean those investors who subscribe for the Company’s shares and who are located in foreign countries and in the regions of Hong Kong, Macau and Taiwan. “Domestic Investors” mean those investors who subscribe for the Company’s shares and who are located within the territory of the PRC.
Article 18.	Shares which the Company issues to Domestic Investors for subscription in Renminbi shall be referred to as “Domestic-Invested Shares”. Shares which the Company issues to Foreign Investors for subscription in foreign currencies shall be referred to as “Foreign-Invested Shares”. Foreign-Invested Shares which are listed overseas are called “Overseas-Listed Foreign-Invested Shares”. “Foreign currencies” mean the legal currencies of countries or districts outside the PRC which are recognised by the foreign exchange authority of the State and which can be used to pay the share price to the Company.	MP14, App.3 9
	Domestic-Invested Shares issued by the Company shall be referred to as “A Shares”. Overseas-Listed Foreign-Invested Shares issued by the Company and which are listed in Hong Kong shall be referred to as “H Shares”. H Shares as shares which have been admitted for listing on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”), the par value of which is denominated in Renminbi and which are subscribed for and traded in Hong Kong dollars. H Shares can also be listed on a stock exchange in the United States in the form of American Depository Receipts.
Article 19.	Subject to the approval of the companies approving department authorised by the State Council, the Company has issued a total of 4,918,400,000 ordinary shares, of which 1,670,000,000 ordinary shares were issued to the promoters at the time of establishment.	MP15, App.3 9

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Article 20.	The share capital structure of the Company is as follows: 4,918,400,000 ordinary shares, of which (a) 2,600,000,000 shares, which represent 52.86% of the Company’s share capital, are held by Yankuang (Group) Corporation Ltd. as domestic legal person shares; (b) 1,958,400,000 shares, which represent 39.82% of the Company’s share capital, are held by the H Shares shareholders; and (c) 360,000,000 shares, which represent 7.32% of the Company’s share capital, are held by the A Shares shareholders.		MP16, App. 3 9
Article 21.	The Company’s board of directors may take all necessary action for the issuance of Overseas-Listed Foreign-Invested Shares and Domestic-Invested Shares after proposals for issuance of the same have been approved by the State Council’s securities authorities.		MP17
	The Company may implement its proposal to issue Overseas-Listed Foreign-Invested Shares and Domestic-Invested Shares pursuant to the preceding paragraph within fifteen (15) months from the date of approval by the State Council’s securities authorities.
Article 22.	Where the total number of shares stated in the proposal for the issuance of shares include Overseas-Listed Foreign-Invested Shares and Domestic-Invested Shares, such shares should be fully subscribed for at their respective offerings. If the shares cannot be fully subscribed for all at once due to special circumstances, the shares may, subject to the approval of the State Council’s securities authorities, be issued in separate branches.		MP18
Article 23.	The registered capital of the Company shall be RMB4,918,400,000. The Company shall register its registered capital with the state industry and commerce department and make the necessary filings with the companies approving department authorised by the State Council and the State Council’s securities authorities.		MP19
Article 24.	The Company may, based on its operating and development needs, authorise the increase of its capital pursuant to these Articles of Association.		MP20
	The Company may increase its capital in the following ways:
	(1)	by offering new shares for subscription by specified or unspecified investors;
	(2)	by issuing new shares to its existing shareholders;
	(3)	by allotting bonus shares to its existing shareholders;
	(4)	by transferring from reserve;	Guide 21
	(5)	by any other means which is permitted by law and administrative regulation.

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	After the Company’s increase of share capital by means of the issuance of new shares has been approved in accordance with the provisions of these Articles of Association, the issuance thereof should be made in accordance with the procedures set out in the relevant laws and administrative regulations.
Article 25.	Unless otherwise stipulated in the relevant laws or administrative regulations, shares in the Company shall be freely transferable and are not subject to any lien.	MP21, App.3 1(2)
Article 26	The Directors, Supervisors and Senior Officers of the Company shall declare to the Company their holdings in the Company’s shares and inform the same if there are any changes in their holdings subsequently. During their terms of office, shares being transferred every year must not exceed 25% of their holdings in the Company’s shares. No transfer of their holdings shall be made within one year after the Company’s shares were listed. No transfer of their holdings in the Company’s shares shall be made within six months after they cease to hold their respective offices.	Guide 28
Article 27	When Directors, Supervisors or Senior Officers of the Company or shareholders holding more than 5% of the shares of the Company sell their shares within six months after they are acquired or purchase shares within six months after they are disposed of, the board of directors shall repatriate any profits derived from such dealings and the profits derived shall belong to the Company. However, for securities companies which have acquired shares underwritten and become shareholders having more than 5% of the shares of the Company shall not be restricted by the six-month restriction mentioned above when they sell their shares.	Guide 29
	If the board of directors fails to enforce the provisions as set out above, the shareholders are entitled to request the board of directors to enforce them within thirty days. If the board of directors still fails to enforce within the said timeline, the shareholders are entitled to commence legal proceeding at the People’s Court directly in their own names in the interests of the company.
	If the board of directors fails to enforce the first clause, the directors responsible shall be liable pursuant to the laws.
Article 28	The Company shall not accept the Company’s shares as the object of a pledge.

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CHAPTER 4: REDUCTION OF CAPITAL AND

REPURCHASE OF SHARES

Article 29.	The Company may reduce its registered share capital. In so doing, it shall act according to the Company Law, other relevant provisions and these Articles of Association.		Guide 22
Article 30.	The Company must prepare a balance sheet and an inventory of assets when it reduces its registered capital.		MP23, App.3 7(1)
	The Company shall notify its creditors within ten (10) days of the date of the Company’s resolution for reduction of capital and shall publish an announcement in a newspaper at least three (3) times within thirty (30) days of the date of such resolution. A creditor has the right within thirty (30) days of receipt of the notice from the Company or, in the case of a creditor who does not receive such notice, within ninety (90) days of the date of the first public announcement, to require the Company to repay its debts or to provide a corresponding guarantee for such debt.
	The Company’s registered capital may not, after the reduction in capital, be less than the minimum amount prescribed by law.
Article 31.	The Company may, in accordance with the procedures set out in these Articles of Association and with the approval of the relevant governing authority of the State, repurchase its issued shares under the following circumstances:		MP24
	(1)	cancellation of shares for the purposes of reducing its capital;
	(2)	merging with another company that holds shares in the Company;
	(3)	granting the shares as incentives to the Company’s staff;	Guide 23
	(4)	shareholders who disagree with the resolutions for the merger and separation of the Company made in a general meeting may demand the Company to purchase their shares;
	(5)	other circumstances permitted by laws and administrative regulations.
	The Company shall not repurchase its issued shares except under the circumstances stated above.
Article 32.	The Company may repurchase shares in one of the following ways, with the approval of the relevant governing authority of the State:		MP25
	(1)	by making a general offer for the repurchase of shares to all its shareholders on a pro rata basis;
	(2)	by repurchasing shares through public dealing on a stock exchange;

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	(3)	by repurchasing shares outside of the stock exchange by means of an off-market agreement;
	(4)	by other means as authorized by the competent securities authorities under the State Council.	Guide 24
Article 33.	The Company must obtain the prior approval of the shareholders in a general meeting (in the manner stipulated in these Articles of Association) before it can repurchase shares outside of the stock exchange by means of an off-market agreement. The Company may, by obtaining the prior approval of the shareholders in a general meeting (in the same manner), release, vary or waive its rights under an agreement which has been so entered into.		MP26
	An agreement for the repurchase of shares referred to in the preceding paragraph includes (without limitation) an agreement to become liable to repurchase shares or an agreement to have the right to repurchase shares.
	The Company may not assign an agreement for the repurchase of its shares or any right contained in such an agreement.
Article 34	The Company must obtain the prior approval of the shareholders in a general meeting before it can repurchase shares pursuant to the reasons set out in these Articles of Association 31 (1) to (3). Following shares being repurchased by the Company pursuant to the provisions in Article 31, in the case of (1), the shares repurchased shall be cancelled within 10 days of the completion of the repurchase. In the case of (2) and (4), the shares repurchased shall be transferred or cancelled within six months of the completion of the repurchase.		MP27 Guide 25
	The aggregate par value of the cancelled shares shall be deducted from the Company’s registered share capital.
	The shares the Company repurchases in accordance with the provisions in Article 31(3) shall not be more than 5% of the total issued shares of the Company. The funding for the repurchase shall be provided from the profit after tax. The shares repurchased shall be transferred to the staff within one year.
Article 35.	Unless the Company is in the course of liquidation, it must comply with the following provisions in relation to repurchase of its issued shares:		MP28
	(1)	where the Company repurchases shares at par value, payment shall be made out of book surplus distributable profits of the Company or out of proceeds of a new issue of shares made for that purpose;

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	(2)	where the Company repurchases shares of the Company at a premium to its par value, payment up to the par value may be made out of the book surplus distributable profits of the Company or out of the proceeds of a new issue of shares made for that purpose. Payment of the portion in excess of the par value shall be effected as follows:
		(i)	if the shares being repurchased were issued at par value, payment shall be made out of the book surplus distributable profits of the Company;
		(ii)	if the shares being repurchased were issued at a premium to its par value, payment shall be made out of the book surplus distributable profits of the Company or out of the proceeds of a new issue of shares made for that purpose, provided that the amount paid out of the proceeds of the new issue shall not exceed the aggregate amount of premiums received by the Company on the issue of the shares repurchased nor shall it exceed the book value of the Company’s capital common reserve fund account (including the premiums on the new issue) at the time of the repurchase;
	(3)	the Company shall make the following payments out of the Company’s distributable profits:
		(i)	payment for the acquisition of the right to repurchase its own shares;
		(ii)	payment for variation of any contract for the repurchase of its shares;
		(iii)	payment for the release of its obligation(s) under any contract for the repurchase of shares;
	(4)	after the Company’s registered capital has been reduced by the aggregate par value of the cancelled shares in accordance with the relevant provisions, the amount deducted from the distributable profits of the Company for payment of the par value of shares which have been repurchased shall be transferred to the Company’s capital common reserve fund account.
		CHAPTER 5: FINANCIAL ASSISTANCE FOR ACQUISITION OF SHARES
Article 36.	The Company and its subsidiaries shall not, at any time, provide any form of financial assistance to a person who is acquiring or is proposing to			MP29

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	acquire shares in the Company. This includes any person who directly or indirectly incurs any obligations as a result of the acquisition of shares in the Company (the “Obligor”).
	The Company and its subsidiaries shall not, at any time, provide any form of financial assistance to the Obligor for the purposes of reducing or discharging the obligations assumed by such person.
	This Article shall not apply to the circumstances specified in Article 38 of this Chapter.
Article 37.	For the purposes of this Chapter, “financial assistance” includes (without limitation) the following:		MP30
	(1)	gift;
	(2)	guarantee (including the assumption of liability by the guarantor or the provision of assets by the guarantor to secure the performance of obligations by the Obligor), compensation (other than compensation in respect of the Company’s own default) or release or waiver of any rights;
	(3)	provision of loan or any other agreement under which the obligations of the Company are to be fulfilled before the obligations of another party, or the change in parties to, or the assignment of rights under, such loan or agreement;
	(4)	any other form of financial assistance given by the Company when the Company is insolvent or has no net assets or when its net assets would thereby be reduced to a material extent.
	For the purposes of this Chapter, “assumption of obligations” includes the assumption of obligations by way of contract or by way of arrangement (irrespective of whether such contract or arrangement is enforceable or not and irrespective of whether such obligation is to be borne solely by the Obligor or jointly with other persons) or by any other means which results in a change in his financial position.
Article 38.	The following actions shall not be deemed to be activities prohibited by Article 36 of this Chapter:		MP31
	(1)	the provision of financial assistance by the Company where the financial assistance is given in good faith in the interests of the Company, and the principal purpose of which is not for the acquisition of shares in the Company, or the giving of the financial assistance is an incidental part of some larger purpose of the Company;

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	(2)	the lawful distribution of the Company’s assets by way of dividend;
	(3)	the allotment of bonus shares as dividends;
	(4)	a reduction of registered capital, a repurchase of shares of the Company or a reorganisation of the share capital structure of the Company effected in accordance with these Articles of Association;
	(5)	the lending of money by the Company within its scope of business and in the ordinary course of its business, where the lending of money is part of the scope of business of the Company (provided that the net assets of the Company are not thereby reduced or that, to the extent that the assets are thereby reduced, the financial assistance is provided out of distributable profits);
	(6)	contributions made by the Company to the employee share ownership schemes (provided that the net assets of the Company are not thereby reduced or that, to the extent that the assets are thereby reduced, the financial assistance is provided out of distributable profits).
	CHAPTER 6: SHARE CERTIFICATES AND REGISTER OF SHAREHOLDERS
Article 39.	Share certificates of the Company shall be in registered form.		MP32
	The share certificate of the Company shall, aside from matters required by the Company Law and the Special Regulations, also contain other matters required to be stated therein by the stock exchange(s) on which the Company’s shares are listed.
Article 40.	Share certificates of the Company shall be signed by the Chairman of the Company’s board of directors. Where the stock exchange(s) on which the Company’s shares are listed require other senior officer(s) of the Company to sign on the share certificates, the share certificates shall also be signed by such senior officer(s). The share certificates shall take effect after being sealed or imprinted with the seal of the Company. The share certificate shall only be sealed with the Company’s seal under the authorisation of the board of directors. The signatures of the Chairman of the board of directors or other senior officer(s) of the Company may be printed in mechanical form.		MP33, C.1 Zheng Jian Hai Han [1995] No. 1 App.3 2(1)
Article 41.	The Company shall keep a register of shareholders based on the evidence provided by the share registration institution which shall contain the following particulars:		MP34 Guide 30
	(1)	the name (title) and address (residence), the occupation or nature of each shareholder;

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	(2)	the class and quantity of shares held by each shareholder;
	(3)	the amount paid-up on or agreed to be paid-up on the shares held by each shareholder;
	(4)	the share certificate number(s) of the shares held by each shareholder;
	(5)	the date on which each person was entered in the register as a shareholder;
	(6)	the date on which any shareholder ceased to be a shareholder.
	Unless there is evidence to the contrary, the register of shareholders shall be sufficient evidence of the shareholders’ shareholdings in the Company.
Article 42.	The Company may, in accordance with the mutual understanding and agreements made between the State Council Securities Policy Committee and overseas securities regulatory organisations, maintain the register of shareholders of Overseas-Listed Foreign-Invested Shares overseas and appoint overseas agent(s) to manage such register of shareholders. The original register of shareholders for holders of H Shares shall be maintained in Hong Kong.		MP35, C.2 Zheng Jian Hai Han [1997] No. 1 App.13 Pt.D 1(b)
	A duplicate register of shareholders for the holders of Overseas-Listed Foreign-Invested Shares shall be maintained at the Company’s residence. The appointed overseas agent(s) shall ensure consistency between the original and the duplicate register of shareholders at all times. If there is any inconsistency between the original and the duplicate register of shareholders for the holders of Overseas-Listed Foreign-Invested Shares, the original register of shareholders shall prevail.
Article 43.	The Company shall have a complete register of shareholders which shall comprise the following parts:		MP36
	(1)	the register of shareholders which is maintained at the Company’s residence (other than those share registers which are described in sub-paragraphs (2) and (3) of this Article);
	(2)	the register of shareholders in respect of the holders of Overseas-Listed Foreign-Invested Shares of the Company which is maintained in the same place as the overseas stock exchange on which the shares are listed; and

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	(3)	the register of shareholders which are maintained in such other place as the board of directors may consider necessary for the purposes of the listing of the Company’s shares.
Article 44.	Different parts of the register of shareholders shall not overlap. No transfer of any shares registered in any part of the register shall, during the continuance of that registration, be registered in any other part of the register.		MP37
	Amendments or rectification of the register of shareholders shall be made in accordance with the laws of the place where the register of shareholders is maintained.
Article 45.	All Overseas-Listed Foreign-Invested Shares listed in Hong Kong which have been fully paid-up may be freely transferred in accordance with these Articles of Association. However, unless such transfer complies with the following requirements, the board of directors may refuse to recognise any instrument of transfer and would not need to provide any reason therefor:		C.12 Zheng Jian Hai Han [1995] No. 1
	(1)	a fee of HK$2.50 per instrument of transfer or such higher amount as may be agreed by the Stock Exchange has been paid to the Company for registration of the instrument of transfer and other documents relating to or which will affect the right of ownership of the shares;	App.3 1(1)
	(2)	the instrument of transfer only relates to Foreign-Listed Foreign-Invested Shares listed in Hong Kong;
	(3)	the stamp duty which is chargeable on the instrument of transfer has already been paid;
	(4)	the relevant share certificate(s) and any other evidence which the board of directors may reasonably require to show that the transferor has the right to transfer the shares have been provided;
	(5)	if it is intended that the shares be transferred to joint owners, the maximum number of joint owners shall not be more than four (4);	App.3 1(3)
	(6)	the Company does not have any lien on the relevant shares.	App.3 1(2)
	If the Company refuses to register any transfer of shares, the Company shall within two (2) months of formal application for the transfer provide the transferor and transferee with a notice of refusal to register such transfer.

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Article 46.	No change may be made in the register of shareholders as a result of a transfer of shares within thirty (30) days prior to the date of a shareholders’ general meeting or within five (5) days before the record date for the Company’s distribution of dividends.		MP38 Guide 28, 29
Article 47.	The board of directors or the convenor of the general meeting shall decide on a date for the determination of rights attaching to shares in the Company when the Company convenes a shareholders’ meeting, distributes dividend, liquidates or engages in activities that required the determination of rights attaching to shares in the Company. The shareholders of the Company shall be such persons who appear in the register of shareholders at the close of such determination date.		MP39 Guide 31
Article 48.	Any person aggrieved and claiming to be entitled to have his name (title) entered in or removed from the register of shareholders may apply to a court of competent jurisdiction for rectification of the register.		MP40
Article 49.	Any person who is a registered shareholder or who claims to be entitled to have his name (title) entered in the register of shareholders in respect of shares in the Company may, if his share certificate (the “original certificate”) relating to the shares is lost, apply to the Company for a replacement share certificate in respect of such shares (the “Relevant Shares”).		MP41, App.3 7 (1)
	Application by a holder of Domestic-Invested Shares, who has lost his share certificate, for a replacement share certificate shall be dealt with in accordance with Article 144 of the Company Law.		Amendments in the Company Law
	Application by a holder of Overseas-Listed Foreign Shares, who has lost his share certificate, for a replacement share certificate may be dealt with in accordance with the law of the place where the original register of shareholders of holders of Overseas-Listed Foreign-Invested Shares is maintained, the rules of the stock exchange or other relevant regulations.
	The issue of a replacement share certificate to a holder of H Shares, who has lost his share certificate, shall comply with the following requirements:
	(1)	The applicant shall submit an application to the Company in a prescribed form accompanied by a notarial certificate or a statutory declaration (i) stating the grounds upon which the application is made and the circumstances and evidence of the loss; and (ii) declaring that no other person is entitled to have his name entered in the register of shareholders in respect of the Relevant Shares.

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	(2)	The Company has not received any declaration made by any person other than the applicant declaring that his name shall be entered into the register of shareholders in respect of such shares before it decides to issue a replacement share certificate to the applicant.
	(3)	The Company shall, if it intends to issue a replacement share certificate, publish a notice of its intention to do so at least once every thirty (30) days within a period of ninety (90) consecutive days in such newspapers as may be prescribed by the board of directors.
	(4)	The Company shall, prior to publication of its intention to issue a replacement share certificate, deliver to the stock exchange on which its shares are listed, a copy of the notice to be published and may publish the notice upon receipt of confirmation from such stock exchange that the notice has been exhibited in the premises of the stock exchange. Such notice shall be exhibited in the premises of the stock exchange for a period of ninety (90) days.
		In the case of an application which is made without the consent of the registered holder of the Relevant Shares, the Company shall deliver by mail to such registered shareholder a copy of the notice to be published.
	(5)	If, by the expiration of the 90 day period referred to in paragraphs (3) and (4) of this Article, the Company has not have received any challenge from any person in respect of the issuance of the replacement share certificate, it may issue a replacement share certificate to the applicant pursuant to his application.
	(6)	Where the Company issues a replacement share certificate pursuant to this Article, it shall forthwith cancel the original share certificate and document the cancellation of the original share certificate and issuance of a replacement share certificate in the register of shareholders accordingly.
	(7)	All expenses relating to the cancellation of an original share certificate and the issuance of a replacement share certificate shall be borne by the applicant and the Company is entitled to refuse to take any action until reasonable security is provided by the applicant therefor.
Article 50.	Where the Company issues a replacement share certificate pursuant to these Articles of Association and a bona fide purchaser acquires or becomes the registered owner of such shares, his name (title) shall not be removed from the register of shareholders.		MP42

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Article 51.	The Company shall not be liable for any damages sustained by any person by reason of the cancellation of the original share certificate or the issuance of the replacement share certificate unless the claimant is able to prove that the Company has acted in a deceitful manner.					MP43
	CHAPTER 7: SHAREHOLDERS’ RIGHTS AND OBLIGATIONS
Article 52.	A shareholder of the Company is a person who lawfully holds shares in the Company and whose name (title) is entered in the register of shareholders.					MP44, App.3 9
	A shareholder shall enjoy rights and assume obligations according to the class and amount of shares held by him; shareholders who hold shares of the same class shall enjoy the same rights and assume the same obligations.
Article 53.	The ordinary shareholders of the Company shall enjoy the following rights:					MP45
	(1)	the right to receive dividends and other distributions in proportion to the number of shares held;
	(2)	the right to demand for the convening of a shareholders’ meeting, convene a shareholders’ meeting, attend or appoint a proxy to attend shareholders’ meetings and to vote thereat;
	(3)	the right of supervisory management over the Company’s business operations and the right to present proposals or to raise queries;
	(4)	the right to transfer, grant or pledge shares so held in accordance with laws, administrative regulations and provisions of these Articles of Association;				Guide 35(5)
	(5)	the right to obtain relevant information in accordance with these Articles of Association, including:
		(i)	the right to obtain a copy of these Articles of Association, subject to payment of costs;
		(ii)	the right to inspect and copy, subject to payment of a reasonable fee:
			(a)	all parts of the register of shareholders;
			(b)	personal particulars of each of the Company’s directors, supervisors and other senior officers, including:
				(aa)	present and former name and alias;

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				(bb)	principal address (place of residence);
				(cc)	nationality;
				(dd)	primary and all other part-time occupations and duties;
				(ee)	identification documents and the numbers thereof;
			(c)	report on the state of the Company’s share capital;
			(d)	reports showing the aggregate par value, quantity, highest and lowest price paid in respect of each class of shares repurchased by the Company since the end of the last accounting year and the aggregate amount paid by the Company for this purpose;
			(e)	minutes of shareholders’ general meetings;
			(f)	the copies of the Company’s debentures, resolutions of the meetings of the board of directors, resolutions of the meetings of the Supervisory Committee, financial and accounting reports		Guide 32
	(6)	in the event of the termination or liquidation of the Company, the right to participate in the distribution of surplus assets of the Company in accordance with the number of shares held;
	(7)	for shareholders who disagree with the resolutions for the merger and separation of the Company made in a general meeting, they may demand the Company to purchase their shares.				Guide 32
	(8)	other rights conferred by laws, administrative regulations and these Articles of Association.
Article 54	Shareholders proposing to inspect the relevant information as set out in the previous Articles or collect information shall produce the relevant proofs of the type and quantity of shares that they are holding to the Company. The Company shall provide the shareholders such information as required after verification of the identities of the shareholders.					Guide 33
Article 55	In the event that the resolution of a shareholders’ meeting or a board meeting is against the law or administrative rules and has infringed the legitimate interest of a shareholder, the shareholder shall have the right to submit to the People’s Court to declare the resolution invalid.					Guide 34

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	In the event the procedures for convening the shareholders’ meeting and the board of directors meeting and voting thereat violate the law, administrative regulations or the provisions of these Articles, or the content resolved being in contrary to these Articles, the shareholder shall have the right to submit to the People’s Court to rescind the resolution within 60 days after the resolution is made.
Article 56	In the event the directors and senior officers violate the law, administrative regulations or the provisions of these Articles in performing the Company’s duties, and incur a loss to the Company, shareholder(s), either individually or jointly holding more than 1% of the Company’s shares for more than 180 consecutive days shall have the right to submit a written request to the Supervisory Committee for commencing legal proceedings in the People’s Court. In the event the Supervisory Committee violates the law, administrative regulations or the provisions of these Articles in performing the Company’s duties, and incur a loss to the Company, the shareholders shall have the right to submit a written request to the board of directors for commencing legal proceedings in the People’s Court.		Guide 35
	In the event the Supervisory Committee or the board of directors refuses to commence legal proceedings after receiving the written request from the shareholders as provided in the paragraph above, or has not commenced legal proceedings 30 days after receiving the written request, or in case of emergency, without commencing legal proceedings forthwith will result in damages in the interests of the Company considerably difficult to rectify, the shareholders as provided in the paragraph above shall have the right to commence legal proceedings directly in the People’s Court in their own names for the interests of the Company.
	In the event the legal interests of the Company are being violated by other parties and incur a loss to the Company, the shareholders as provided in the first paragraph of this Article shall commence legal proceedings in the People’s Court in accordance with the provisions in the earlier two paragraphs.
Article 57	In the event the directors and senior officers violate the law, administrative regulations or the provisions of these Articles, and the rights of shareholders are prejudicially affected, the shareholders shall have the right to commence legal proceeding in the People’s Court.		Guide 36
Article 58.	The ordinary shareholders of the Company shall assume the following obligations:		MP46
	(1)	to comply with these Articles of Association;

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	(2)	to pay subscription monies according to the number of shares subscribed and the method of subscription;
	(3)	no return of capital is allowed apart from those as provided in the laws and regulations;	Guide 37
	(4)	The right of the shareholder shall not be abused to infringe the interests of the Company or other shareholders. The independent status of corporate legal person and the limited liabilities of the shareholder shall not be abused to infringe the interests of the Company’s creditors;
		The Company’s shareholder who abuses his rights and result in losses to the Company or its other shareholders shall assume indemnity liabilities pursuant to the laws.
		The Company’s shareholder who abuses the independent status of corporate legal person and the limited liabilities of the shareholder to avoid debts and seriously infringe the interests of the Company’s creditors shall assume incidental liabilities to the Company’s debts.
	(5)	other obligations imposed by laws, administrative regulations and these Articles of Association.
	Shareholders are not liable to make any further contribution to the share capital other than according to the terms which were agreed by the subscriber of the relevant shares at the time of subscription.
Article 59.	Shareholder holding more than 5% of the shares with voting right in the Company shall submit a written report to the Company when creating a pledge over its shares on the date the same is effected.		Guide 38
Article 60.	In addition to the obligations imposed by laws and administrative regulations or required by the listing rules of the stock exchange on which the Company’s shares are listed, a controlling shareholder (as such term is defined in the following Article) shall not exercise his voting rights in respect of the following matters in a manner prejudicial to the interests of all or part of the shareholders of the Company:		MP47
	(1)	to relieve a director or supervisor of his duty to act honestly in the best interests of the Company;
	(2)	to approve the expropriation by a director or supervisor (for his own benefit or for the benefit of another person) of the Company’s assets in any way, including (without limitation) opportunities which are beneficial to the Company;

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	(3)	to approve the expropriation by a director or supervisor (for his own benefit or for the benefit of another person) of the individual rights of other shareholders, including (without limitation) rights to distributions and voting rights (save pursuant to a restructuring which has been submitted for approval by the shareholders in a general meeting in accordance with these Articles of Association).
Article 61.	For the purpose of the foregoing Article, a “controlling shareholder” means a person who satisfies any one of the following conditions:		MP48
	(1)	a person who, acting alone or in concert with others, has the power to elect more than half of the board of directors;
	(2)	a person who, acting alone or in concert with others, has the power to exercise or to control the exercise of 30 % or more of the voting rights in the Company;
	(3)	a person who, acting alone or in concert with others, holds 30 % or more of the issued and outstanding shares of the Company;
	(4)	a person who, acting alone or in concert with others, has de facto control of the Company in any other way.
Article 62.	The controlling shareholders of the Company and persons in actual control of the Company shall not damage the lawful rights of the Company and the public shareholders by means of connected transaction.		Guide 39
	Those who violate the provisions in the paragraph above resulting in loss on the Company shall assume indemnity liabilities.
	The controlling shareholders of the Company and persons in actual control of the Company have fiduciary duties towards the Company and the public shareholders. The controlling shareholders shall exercise his rights as investors strictly in accordance with the laws. The controlling shareholders shall not damage the lawful rights of the Company and the public shareholders by means of profit distribution, assets restructuring, external investment, use of capital and loan guarantee etc and shall not take advantage of its controlling position to damage the interest of the Company and the public shareholders.
Article 63.	A sound investor relationship management working system shall be established, and the communication and interaction with the shareholders especially the public shareholders shall be initiated and strengthened through various ways.

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CHAPTER 8: SHAREHOLDERS’ GENERAL MEETINGS
Section 1 General Rules for Shareholders’ General Meetings
Article 64.	The shareholders’ general meeting is the organ of authority of the Company and shall exercise its functions and powers in accordance with law.		MP49
Article 65.	The shareholders’ general meeting shall have the following functions and powers:		MP50
	(1)	to decide on the Company’s operational policies and investment plans;
	(2)	to elect and replace directors who are not staff representatives and to decide on matters relating to the remuneration of directors;	Guide 40
	(3)	to elect and replace supervisors who represent the shareholders and to decide on matters relating to the remuneration of supervisors;
	(4)	to examine and approve the board of directors’ reports;
	(5)	to examine and approve the supervisory committee’s reports;
	(6)	to examine and approve the Company’s proposed annual preliminary and final financial budgets;
	(7)	to examine and approve the Company’s profit distribution plans and loss recovery plans;
	(8)	to decide on the increase or reduction of the Company’s registered capital;
	(9)	to decide on matters such as merger, division, dissolution, liquidation or amendment to the method of operation of the Company;	Guide 40
	(10)	to decide on the issue of debentures by the Company;
	(11)	to decide on the appointment, dismissal and non-reappointment of the accountants of the Company;
	(12)	to amend these Articles of Association;
	(13)	to consider and approve issues of guarantee as provided in Article 66;	Guide 40

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	(14)	to consider issues on acquisitions and disposals of assets during a year which exceeds 30% of the latest audited total assets of the Company;
	(15)	to consider and approve issues on the change in use of proceeds;
	(16)	to consider share incentive schemes;
	(17)	other matters to be decided in shareholders’ general meeting as provided by the laws, administrative regulations, departmental rules or these Articles of Association
Article 66	The provision of guarantees by the Company to its shareholders, persons in actual control of the Company and their associates shall be considered and approved by the shareholders in a general meeting.		Guide 41
	The provision of guarantee by the Company to its subsidiaries shall be subject to consideration and approval by the shareholders in a general meeting if:
	(1)	the provision of any guarantee where the amount of the external guarantee by the Company and its subsidiaries reaches or exceeds 50% of the latest audited net assets;
	(2)	the provision of any guarantee where the amount of the external guarantee by the Company reaches or exceeds more than 30% of the latest audited net assets;
	(3)	the provision of any single guarantee in which the amount exceeds 10% of the latest audited net assets.
	The Company shall not provide guarantee to any natural person, legal person, institutions and other entities not referred to in (1) and (2) above.
Article 67.	Shareholders’ general meetings are divided into annual general meetings and extraordinary general meetings. Annual general meetings are held once every year and within six months from the end of the preceding financial year.		Guide 46, 47, 48 MP52
	The Company shall convene an extraordinary general meeting within two (2) months of the occurrence of any one of the following events:		Guide 43
	(1)	where the number of directors is less than the number stipulated in the Company Law or two-thirds of the number specified in the Company’s Articles of Association;	Guide 44 IDGO5(1)

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	(2)	where the unrecovered losses of the Company amount to one-third of the total amount of its share capital;
	(3)	where shareholder(s) singly or jointly holding 10 % or more of the Company’s issued and outstanding voting shares request(s) in writing for the convening of an extraordinary general meeting;	Guide 46
	(4)	whenever the board of directors deems necessary or the supervisory committee so requests;
	(5)	other cases as provided in laws, administrative regulations and these Articles of Association.
		More than half of the independent directors shall have the right to request the board of directors to convene the extraordinary general meeting.
Article 68.	The shareholders’ general meeting will be held at a location for meeting with the presence of those who are entitled to attend. The location where the Company convenes its shareholders’ general meeting will be the registered address of the Company or other places as set out in the notice convening the meeting.		Guide 44
Article 69	At a shareholders’ general meeting, the Company shall retain legal advisers and obtain legal advice in relation to the following issues which shall be incorporated into the shareholders’ resolutions for announcement purpose:		Guide 45
	(1)	Whether the procedures for convening and holding a general meeting comply with the requirements of the laws, administrative regulations and these Articles of Association;
	(2)	Whether attendees or the convenor of a general meeting meet the requisite legal requirements;
	(3)	Whether the voting procedures for and the voting results of the general meeting are lawful and valid; and
	(4)	Issuance of legal opinions on other relevant issues at the request of the Company.
Article 70.	The Company shall formulate rules of the shareholders’ general meeting, which shall be drawn up by the board of directors and be considered as well as approved in the shareholders’ general meeting.

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	Section 2 Calling for Shareholders’ General Meetings
Article 71.	The board of directors, Supervisory Committee and qualified shareholders as provided in these Articles of Association shall have the right to convene the shareholders’ general meeting in accordance with the relevant laws, regulations and the provisions of these Articles of Association.		Guide 46-48
	The board of directors shall timely convene the shareholders’ general meeting within the timeframe as provided in Article 67 of these Articles of Association.
Article 72.	Pursuant to the stipulation under the laws, administrative rules and these Articles of Association, the board of directors shall give a written feedback on whether to approve or disapprove of the convening of the extraordinary general meeting within 10 days after the receipt of the independent directors’ proposal.		Guide 46
	If the board of directors agrees to convene the extraordinary general meeting, a notice for convening the shareholders’ general meeting shall be issued within 5 days after the resolution of convening the extraordinary general meeting has been made by the board of directors; an announcement with relevant explanation shall be made if the board of directors does not agree to convene the extraordinary general meeting.
Article 73.	The supervisory committee may propose to the board of directors in writing for convening the extraordinary general meeting. Pursuant to the stipulation under the laws, administrative regulations and these Articles of Association, the board of directors shall give a written feedback on whether to approve or disapprove of the convening of the extraordinary general meeting within 10 days after the receipt of the supervisory committee’s proposal.		Guide 47
	If the board of directors agrees to convene the extraordinary general meeting, a notice for convening the extraordinary general meeting shall be issued within 5 days after the decision has been made by the board of directors. Consent of the supervisory committee has to be obtained for making any alternation on the original proposed resolution in the notice.
	If the board of directors does not agree to convene the extraordinary general meeting, or no feedback is given within 10 days after receiving the request, it will be deemed that the board of directors is unable to fulfill or fails to fulfill its responsibilities to convene the shareholders’ general meeting. The Supervisory Committee hereby can convene and preside the meeting by itself.
Article 74.	The necessary costs for convening the shareholders’ general meeting by the supervisory committee shall be borne by the Company.		Guide 51
Article 75.	Shareholders who request for the convening of an extraordinary general meeting or a class meeting shall comply with the following procedures:		MP72 Guide 54
	(1)	two or more shareholders holding 10% or more of the shares carrying the right to vote in the meeting to be held shall sign one (1) or more counterpart requisitions stating the object of the meeting and requiring the board of directors to convene a shareholders’ extraordinary general meeting or a class meeting thereof. The board of directors shall as soon as possible proceed to convene the extraordinary general meeting of shareholders or a class meeting thereof after receipt of such requisition(s). The amount of shareholdings referred to above shall be calculated as at the date of deposit of the requisition(s).

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	(2)	If the board of directors does not issue a notice convening the meeting within 30 days after receiving the written request as referred to above, the shareholders making such request may convene the meeting by themselves within 4 months after the board of directors has received the request. The procedures for convening the meeting shall as much as practicable be the same as the procedures for the board of directors to convene the shareholders’ general meeting.
	Any reasonable expenses incurred by the requisitionists by reason of failure by the board of directors to duly convene a meeting shall be repaid to the requisitionists by the Company and any sum so repaid shall be set-off against sums owed by the Company to the defaulting directors.
Article 76.	If the Supervisory Committee or the shareholders decides/decide to convene the shareholders’ general meeting by itself/themselves, a written notice shall be given to the board of directors and in the meantime report shall be made to the local representative office of the competent securities authorities under the State Council and the stock exchange for record.		Guide 49
	The convening shareholder(s) shall submit the relevant documents to the local representative office of the competent securities authorities under the State Council and the stock exchange before issuing the notice for convening of the shareholders’ general meeting and the announcement on resolution proposed to the shareholders’ general meeting.
Article 77.	The Board and the secretary to the board of directors should accommodate to the shareholders’ general meeting convened by the Supervisory Committee or the shareholders. The board of directors shall provide the list of shareholders on the record day.		Guide 50

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Section 3 Proposing Resolutions for and Notices of Shareholders’ General Meetings

Article 78.	When the Company convenes a shareholders’ general meeting, the board of directors, the supervisory committee and shareholder(s) individually and jointly holding more than 5% of the Company’s shares have the right to propose resolutions to the Company.		Guide 53
	Shareholder(s) individually and jointly holding more than 5% of the Company’s shares may propose special resolutions in writing to the convenor 20 days before the shareholders’ general meeting is convened. The convenor shall issue a supplementary notice of the general meeting within two days after receiving the resolutions to announce the contents of the resolutions.
	Apart from the above, no amendment to the resolutions as set out in the notice of general meeting or proposal of new resolutions shall be made after the convenor has issued the notice of general meeting.
	The resolutions not set out in the notice of general meeting or failing to comply with Article 79 of these Articles of Association shall be not voted and resolved in the shareholders’ general meeting.
Article 79.	The contents of the resolutions shall fall within the scope of authority of the shareholders’ general meeting, with questions defined and specific issues to be resolved, and shall also comply with the laws, regulations, administrative regulations and relevant provisions of these Articles of Association.		Guide 52
Article 80.	At the annual shareholders’ general meeting, the board of directors and the supervisory committee shall report on their work for the previous year.		Guide 69
Article 81.	The board of directors must explain to the shareholders in the shareholders’ general meeting when a registered accountancy firm issues a qualified audit opinion in respect of the Company’s financial statements.		Guide 108
Article 82.	The candidates for the directors and supervisors shall submit to the shareholders’ general meeting for voting by way of resolutions.		Guide 82
Article 83.	When the Company convenes a shareholders’ general meeting, written notice of the meeting shall be given forty-five (45) days before the date of the meeting (when calculating the 45 days’ period, the date on which the meeting is held shall not be included) to notify all of the shareholders whose names appear in the share register of the matters to be considered and the date and place of the meeting. A shareholder who intends to attend the meeting shall deliver to the Company his written reply concerning his attendance at such meeting twenty (20) days before the date of the meeting.		MP53
Article 84.	A notice of a meeting of the shareholders of the Company shall satisfy the following criterion:		MP56
	(1)	be in writing;

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(2)	specify the place, date and time of the meeting;
(3)	state the matters to be discussed at the meeting;
(4)	provide such information and explanation as are necessary for the shareholders to make an informed decision on the proposals put before them. Without limiting the generality of the foregoing, where a proposal is made to amalgamate the Company with another, to repurchase the shares of the Company, to reorganise its share capital, or to restructure the Company in any other way, the terms of the proposed transaction must be provided in detail together with copies of the proposed agreement, if any, and the cause and effect of such proposal must be properly explained;
(5)	contain a disclosure of the nature and extent, if any, of the material interests of any director, supervisor and senior officer in the proposed transaction and the effect which the proposed transaction will have on them in their capacity as shareholders in so far as it is different from the effect on the interests of shareholders of the same class;
(6)	contain the full text of any special resolution to be proposed at the meeting;
(7)	contain a conspicuous statement that a shareholder entitled to attend and vote at such meeting is entitled to appoint one (1) or more proxies to attend and vote at such meeting on his behalf and that a proxy need not be a shareholder;
(8)	specify the time and place for lodging proxy forms for the relevant meeting;
(9)	state the registration date of the shares of shareholders who are entitled to attend the general meeting;	Guide 48
(10)	state the name and telephone number of the contact person for the meeting.
If a resolution proposed for a shareholders’ meeting requires the independent directors to express their opinion, such opinion and reasons shall also be disclosed in the notice or supplemental notice of the general meeting.

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Article 85.	Notice of shareholders’ general meetings shall be served on each shareholder (whether or not such shareholder is entitled to vote at the meeting), by personal delivery or prepaid airmail to the address of the shareholder as shown in the register of shareholders. For the holders of Domestic-Invested Shares, notice of the meetings may also be issued by way of public announcement.		MP57, App.3 7 (1) & 7 (3)
	The public announcement referred to in the preceding paragraph shall be published in one (1) or more national newspapers designated by the State Council Securities Policy Committee within the interval of forty-five (45) days to fifty (50) days before the date of the meeting; after the publication of such announcement, the holders of Domestic-Invested Shares shall be deemed to have received the notice of the relevant shareholders’ general meeting. Such public announcement shall be published in Chinese and English in accordance with Article 292.
Article 86.	If matters relating to election of directors and supervisors are proposed to be discussed at a shareholders’ general meeting, detailed information concerning the candidates shall be fully disclosed in the notice of the general meeting, which shall at least include the following:		Guide 56
	(1)	Personal information relating to the candidates, including educational background, work experience and all other positions undertaken on a part-time basis;
	(2)	Whether the candidates are connected with the Company, its controlling shareholders or de facto controllers;
	(3)	The candidates’ shareholding in the Company;
	(4)	Whether the candidates have been subject to any punishment by the competent securities authorities under the State Council or other relevant department or to any sanction by any stock exchange.
Article 87.	After the issue of the notice of general meeting, the shareholders’ general meeting shall not be postponed or cancelled or the resolutions set out in the notice of general meeting shall not be cancelled without any proper reason. In the event that there is any delay or cancellation, the convenor shall announce the reasons for such delay or cancellation at least two business days before the date the general meeting is originally scheduled to be held.		Guide 57
Article 88	The Company shall, based on the written replies which it receives from the shareholders twenty (20) days before the date of the shareholders’ general meeting, calculate the number of voting shares represented by the shareholders who intend to attend the meeting. If the number of voting shares represented by the shareholders who intend to attend the meeting		MP55

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	amount to more than one-half of the Company’s total voting shares, the Company may hold the meeting; if not, then the Company shall, within five (5) days, notify the shareholders by way of public announcement the matters to be considered at, and the place and date for, the meeting. The Company may then hold the meeting after publication of such announcement.
Section 4 Qualifications of Shareholders Attending Shareholders’ General Meeting
Article 89	All shareholders or their proxies who are named in the shareholders’ register on the record date shall have the right to attend the shareholders’ general meeting, and exercise their voting rights in accordance with the laws, regulations and these Articles of Association.		Guide 59
Article 90	An individual shareholder who attends the shareholders’ general meeting in person shall produce his identification documents or other valid document or certificate which can prove his identity and his stock account card. Where a proxy is appointed to attend the meeting, the proxy shall produce his own identification documents and the proxy form. A legal person shareholder shall attend the meeting by its authorized representative or the attorney as appointed by such authorized representative. An authorized representative who attends the shareholders’ general meeting in person shall produce his identification documents, valid certificate which can prove his identity. Where an attorney is appointed to attend the meeting, the attorney shall produce his own identification documents and the relevant power of attorney executed by such authorized representative pursuant to the laws.		Guide 60
Article 91.	Any shareholder who is entitled to attend and vote at a general meeting of the Company shall be entitled to appoint one (1) or more persons (whether such person is a shareholder or not) as his proxies to attend and vote on his behalf, and a proxy so appointed shall be entitled to exercise the following rights pursuant to the authorisation from that shareholder:		MP59
	(1)	the shareholders’ right to speak at the meeting;
	(2)	the right to demand or join in demanding a poll;
	(3)	the right to vote by hand or on a poll, but a proxy of a shareholder who has appointed more than one (1) proxy may only vote on a poll.
Article 92.	The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney duly authorised in writing, or if the appointor is a legal entity, either under seal or under the hand of a director or a duly authorised attorney.		MP60

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Article 93.	The proxy form appointing a proxy of a shareholder shall be in writing. Such written form shall state the following:		Guide 61
	(1)	The name of the proxy;
	(2)	Whether or not the proxy has any voting right;
	(3)	An indication to vote for or against each and every matter included in the agenda, (except the proxy of H Shareholders);
	(4)	The date of issue and the valid period of the proxy form;
	(5)	The signature (or seal) of the principal; if the principal is a legal person, supplemented with the seal of the legal person.
Article 94.	The proxy form shall state clearly if the proxy is entitled to vote at his discretion in the absence of specific instruction from the principal.		Guide 62
Article 95.	The instrument appointing a voting proxy and, if such instrument is signed by a person under a power of attorney or other authority on behalf of the appointor, a notarially certified copy of that power of attorney or other authority shall be deposited at the residence of the Company or at such other place as is specified for that purpose in the notice convening the meeting, not less than twenty-four (24) hours before the time for holding the meeting at which the proxy propose to vote or the time appointed for the passing of the resolution.		MP61
	If the appointor is a legal person, its legal representative or such person as is authorised by resolution of its board of directors or other governing body may attend any meeting of shareholders of the Company as a representative of the appointor.
Article 96.	Any form issued to a shareholder by the directors for use by such shareholder for the appointment of a proxy to attend and vote at meetings of the Company shall be such as to enable the shareholder to freely instruct the proxy to vote in favour of or against the motions, such instructions being given in respect of each individual matter to be voted on at the meeting. Such a form shall contain a statement that, in the absence of specific instructions from the shareholder, the proxy may vote as he thinks fit.		MP62
	The Company has the right to request a proxy who attends a shareholders’ meeting to provide evidence of his or its identity.

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	If a shareholder which is a legal person appoints its legal representative to attend a meeting on its behalf, the Company has the right to request such legal representative to produce evidence of his or its identity and a notarially certified copy of the resolutions of such shareholder’s board of directors in respect of the appointment of the proxy or the power of attorney executed by such other organisation which has the capacity to appoint the proxy.
Article 97.	A vote given in accordance with the terms of a proxy shall be valid notwithstanding the death or loss of capacity of the appointor or revocation of the proxy or the authority under which the proxy was executed, or the transfer of the shares in respect of which the proxy is given, provided that the Company did not receive any written notice in respect of such matters before the commencement of the relevant meeting.	MP63
Section 5 Convening Shareholders’ General Meetings
Article 98.	The board of directors of the Company together with other convenors shall adopt necessary measures to maintain the normal order of the shareholders’ general meeting. Measures shall be taken to stop any act which interferes with or causes nuisance at a general meeting and any act which infringes the lawful interests of the shareholders. Timely report of these acts shall be made to the relevant authority for investigation.	Guide 58
Article 99.	The Company shall prepare a log book to record the parties attending the shareholders’ general meeting. The log book shall set out the name of the person or unit attending the meeting, their identification document numbers, resident address, the number of voting shares they have and the name of the principals (if the parties attending the meeting is a proxy/attorney).	Guide 64
Article 100.	The convenor and the legal advisers retained by the Company shall jointly verify the eligibility of the shareholders to vote based on the Company’s shareholder register provided by the securities registration and clearing authority and shall register the name of the shareholders together with the numbers of voting shares they have. Registration shall come to a close before the chairman of the meeting announces the number of shareholders and proxies physically present at the meeting as well as the total number of voting shares represented by the shareholders who are entitled to vote.	Guide 65
Article 101.	When convening shareholders’ general meeting, all directors, supervisors and the secretary to the board of directors of the Company shall attend the meeting. The senior officers shall attend the meeting as participants.	Guide 66
Article 102.	The chairman of the board of directors shall chair every shareholders’ general meeting. If the chairman is unable to attend the meeting for any reason, the vice-chairman of the board of directors appointed by the	MP73

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	chairman of the board of directors shall chair the meeting. If the vice-chairman of the board of directors is unable or fail to perform his duty, then a director may be nominated by more than half of all the directors to chair the meeting. If no director is nominated to chair the meeting, shareholders present shall choose one (1) person to act as the chairman of the meeting. If for any reason, the shareholders shall fail to elect a chairman, then the shareholder (including a proxy) holding the largest number of shares carrying the right to vote thereat shall be the chairman of the meeting.
	The chairman of the Supervisory Committee shall chair shareholders’ general meeting being convened by the Supervisory Committee and act as the chairman of the meeting. If the chairman of the Supervisory Committee is unable to attend the meeting for any reason, the vice-chairman of the Supervisory Committee shall chair the meeting. If the vice-chairman of the Supervisory Committee is unable or fail to perform his duty, then a Supervisor may be nominated by more than half of all Supervisors to chair the meeting.	Guide 67
	The convenor of a shareholders’ general meeting being convened by the shareholders shall nominate a representative to chair the meeting.
	During the shareholders’ general meeting is being held, in the event the chairman of the meeting violates the proceedings of the meeting such that the shareholders’ general meeting is unable to proceed, the shareholders’ general meeting may nominate one person which is agreed by the shareholders attending the meeting and carrying more than half of the voting rights in the shareholders’ general meeting to be the chairman and proceed to transact business in the meeting.
Article 103.	Except for trade secrets of the Company which cannot be disclosed at the general meeting, the board of directors, the Supervisory Committee and the senior officers should make an explanation or statement regarding the shareholders’ queries and suggestions.	Guide 70
Article 104.	The convenor shall ensure that a shareholders’ general meeting is held on a continuous basis until a final resolution is adopted. If a general meeting is suspended or no resolution can be adopted due to force majeure or other exceptional reasons, necessary measures shall be taken so as to promptly re-convene the general meeting or to directly terminate the then general meeting, and public announcement relating thereto shall also be made on a timely basis. At the same time, the convenor shall report the same to the local office of the competent securities authorities under the State Council and to the relevant stock exchanges.	Guide 74

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Section 6 Voting in and Resolutions of Shareholders’ General Meeting

Article 105.	Resolutions of shareholders’ general meetings shall be divided into ordinary resolutions and special resolutions.		MP64
	An ordinary resolution must be passed by votes representing more than one-half of the voting rights represented by the shareholders (including proxies) present at the meeting.
	A special resolution must be passed by votes representing more than two-thirds of the voting rights represented by the shareholders (including proxies) present at the meeting.
Article 106.	The following matters shall be resolved by an ordinary resolution at a shareholders’ general meeting:		MP70
	(1)	work reports of the board of directors and the supervisory committee;
	(2)	to decide on the Company’s operational policies and investment plans;”	Guide 40
	(3)	profit distribution plans and loss recovery plans formulated by the board of directors;
	(4)	removal of members of the board of directors and members of the supervisory committee, their remuneration and manner of payment;	App.3 4 (3)
	(5)	annual preliminary and final budgets, balance sheets and profit and loss accounts and other financial statements of the Company;
	(6)	the Company’s annual report;	Guide 64
	(7)	matters other than those which are required by the laws and administrative regulations or by these Articles of Association to be adopted by special resolution.
Article 107.	The following matters shall be resolved by a special resolution at a shareholders’ general meeting:		MP71
	(1)	the increase or reduction in share capital and the issue of shares of any class, warrants and other similar securities;
	(2)	the issue of debentures of the Company;
	(3)	the division, merger, dissolution and liquidation of the Company, as well as the alteration of the form of the Company;	Company Law 104

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	(4)	the amendment of the Company’s Articles of Association;
	(5)	the repurchase of the Company’s shares;
	(6)	the Company’s significant acquisition or disposal of material assets or provision of guarantees conducted within the period of one year with a value exceeding 30% of the latest audited total assets of the Company;	Guide 77
	(7)	share incentive schemes;
	(8)	other matters which are provided by the laws, administrative regulations or these Articles of Association, and resolved by shareholders by ordinary resolution and are considered by the shareholders to be material to the Company and are required to be passed by special resolution.
Article 108.	Unless otherwise under special emergency circumstances, and with prior approval of shareholders in the form of a special resolution obtained in a general meeting, the Company shall not enter into any contract with any person other than the directors and senior officers of the Company pursuant to which such person shall be responsible for the management and administration of the whole or any substantial part of the Company’s business.		Guide 81
Article 109.	A shareholder (including a proxy), when voting at a shareholders’ general meeting, may exercise such voting rights as are attached to the number of voting shares which he represents. Each share shall have one (1) vote.		MP65
	The Company’s shares held by the Company do not carry any voting rights, and shall not be counted into the total number of shares carrying voting rights in the shareholders’ general meeting.		Guide 78
Article 110.	When connected transactions are voted at the general meeting, the interested shareholders shall not participate in voting. The voting shares represented by them shall not be counted in the total number of shares validly voted. The announcement on the resolutions passed by the general meeting should fully disclose the details of voting by unconnected shareholders.
Article 111.	Where any shareholder is, under the Hong Kong Listing Rules, required to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any vote cast or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted.

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Article 112.	The board of directors, independent directors and shareholders qualified under the relevant regulation may also collect from other shareholders of the Company the rights to vote in a shareholders’ general meeting.
Article 113.	At any shareholders’ general meeting, a resolution shall be decided on a show of hands unless a poll is demanded:		MP66
	(1)	by the chairman of the meeting;
	(2)	by at least two (2) shareholders present in person or by proxy entitled to vote thereat;
	(3)	by one (1) or more shareholders present in person or by proxy and representing 10 % or more of all shares carrying the right to vote at the meeting,
	before or after a vote is carried out by a show of hands.
	Unless a poll is demanded, a declaration by the chairman that a resolution has been passed on a show of hands and the record of such in the minutes of the meeting shall be conclusive evidence of the fact that such resolution has been passed. There is no need to provide evidence of the number or proportion of votes in favour of or against such resolution.
	The demand for a poll may be withdrawn by the person who demands the same.
Article 114.	A poll demanded on the election of the chairman of the meeting, or on a question of adjournment of the meeting, shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairman of the meeting directs, and any business other than that upon which a poll has been demanded may be proceeded with, pending the taking of the poll. The result of the poll shall be deemed to be a resolution of the meeting at which the poll was demanded.		MP67
Article 115.	On a poll taken at a meeting, a shareholder (including a proxy) entitled to two (2) or more votes need not cast all his votes in the same way.		MP68
Article 116.	Election of directors of the Company (including independent directors but not staff representatives) and Supervisors (who are not staff representatives) shall take place in the form of cumulative voting system.
	When electing directors at the shareholders’ general meeting, the independent directors shall be elected separately with other members of the board of directors. Each share having voting rights held by a shareholder has the number of votes equal to the number of nominated directors. A shareholder may freely allocate his votes among the nominated directors, either to allocate to a number of persons, or to vote all his/her votes in favour of one person.

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	When electing supervisors at the shareholders’ general meeting, each share having voting rights held by a shareholder has the number of votes equal to the number of nominated supervisors. A shareholder may freely allocate his votes among the nominated supervisors, either to allocate to a number of persons, or to vote all his/her votes in favour of one person.
Article 117	Except for the cumulative voting system, each of the proposed resolution shall be decided by the voting in the shareholders’ general meeting in sequence. Should there be more than one resolution on the same issue, voting shall be conducted according to the chronology of the resolutions proposed. No proposed resolution should be set aside or remained undecided unless the shareholders’ general meeting is terminated or resolutions cannot be made due to exceptional reasons including force majeure.	Guide 83
Article 118	No amendment shall be made to the resolutions being considered by the shareholders’ general meeting. Otherwise, the relevant amendments shall be treated as a new resolution and shall not be voted in the prevailing shareholders’ general meeting.	Guide 84
Article 119	Prior to voting, the chairman of the meeting shall announce the number of shareholders and proxies physically present at the meeting as well as the total number of voting shares represented by shareholders who are entitled to vote. The number of shareholders and proxies physically present at the meeting as well as the total number of voting shares represented by the shareholders who are entitled to vote shall be determined in accordance with those registered during the meeting.	Guide 71
Article 120	When considering the resolutions being submitted for voting, shareholders attending the meeting shall deliver their opinion in respect of approval or objection to such motions or abstention from voting. (Voting by H Shareholders may not include abstention from voting.)	Guide 89
	Failure to or wrongly complete the ballot paper, or the ballot paper being illegible, and ballot paper not voted shall be deemed as the voter abstaining from voting. The votes represented by such shares shall be counted as “abstention”.
Article 121.	In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded shall be have a casting vote.	MP69

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Article 122	Each vote can only be exercised once either physically at a meeting, via Internet or through other permitted means. If the same vote is exercised more than once, only the first vote will be accounted for.	Guide 85
Article 123	Before a resolution is decided on a motion at a shareholders’ general meeting, two representatives of the shareholders shall be nominated to participate in counting the votes as well as supervising the counting process. If a shareholder is interested in the matters under consideration, the relevant shareholders and his proxies shall not participate in counting the votes or supervising the counting process.	Guide 87
	At the time of deciding on a motion by voting at a general meeting, legal advisers, representatives of shareholders and representatives of supervisors shall participate in counting the votes as well as supervising the counting process. They shall announce the voting results at the meeting. The voting results in connection with the resolution shall be recorded in the minutes.
	Shareholders of the Company or their proxies who cast their votes via Internet or through other permitted means shall have the right to monitor the voting results by the corresponding voting platform.
Article 124	A shareholders’ general meeting shall not be declared closed for shareholders who attend in person at a time earlier than for those shareholders who attend via Internet or other permitted means. The chairman of the meeting shall announce at the meeting the voting details and results of each motion and shall declare whether or not a motion is adopted on the basis of relevant voting results.	Guide 88
	The Company, persons responsible for counting the votes, persons responsible for supervising the counting process, Internet service providers and other relevant parties shall have the obligation to keep matters related to voting confidential.
Article 125	If the chairman of the meeting has any doubt as to the result of a resolution which has been put to vote at a shareholders’ meeting, he may have the votes counted. If the chairman of the meeting has not counted the votes, any shareholder who is present in person or by proxy and who objects to the result announced by the chairman of the meeting may, immediately after the declaration of the result, demand that the votes be counted and the chairman of the meeting shall have the votes counted immediately.	MP75
Article 126	If votes are counted at a shareholders’ general meeting, the result of the count shall be recorded in the minute book.	MP76 Guide 91
Article 127	The chairman of the meeting shall be responsible for determining whether a resolution has been passed. His decision, which shall be final and conclusive, shall be announced at the meeting and recorded in the minute book.	MP74

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Article 128	Resolutions of the shareholders’ general meeting shall be announced timely. The announcement shall state the number of the shareholders and proxies present at the meeting, the total number of shares carrying the right to vote held by them and the percentage of such shares out of the total number of shares carrying the right to vote of the Company, the method of voting, the voting result of each motion and details of each resolutions passed in the meeting.
	When the five issues set out in paragraph 2 of Article 136 of the Articles of Association are proposed to be considered at the shareholders’ general meeting of the Company, the announcement of the resolutions of the shareholders’ general meeting shall set out the number of public shareholders voting, the total number of shares held by them and the proportion in the total number of shares held by them and disclose the shareholdings of the 10 largest public shareholders voting as well as the result of their votes.
Article 129	Where a resolution of the meeting is not adopted, or a resolution passed at the previous shareholders’ general meeting is changed at the current shareholders’ general meeting, specific note shall be given in the announcement for the resolutions passed in the shareholders’ general meeting.	Guide 92
Article 130	The motion for the new session of the board of directors and the Supervisory Committee being passed by the shareholders’ general meeting shall commence office after the resolution being passed by the shareholders’ general meeting.	Guide 93
	In the event the election of the staff representative (hereinafter referred to as the “Staff director”) in the new session of the board of directors and the staff representative (hereinafter referred to as the “Staff Supervisor”) in the new session of the Supervisory Committee by the staff is earlier than the terms the new session of the board of directors and the Supervisory Committee commence, their offices will commence when the terms of the new session of the board of directors of director and the supervisory committee commence. If the election by staff is later than the terms of the new session of the board of directors and the Supervisory Committee commence, their offices will commence on the date when they are elected by the staff.

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Article 131	If a motion in respect of the distribution of cash or bonus shares, or in connection with the capital increase by conversion from common reserve funds, is adopted at a shareholders’ general meeting, the Company shall implement such distribution within two months of the relevant general meeting.		Guide 94
Article 132	Minutes of a shareholders’ general meeting shall be kept and such minutes shall be prepared by the Secretary to the board of directors. Minutes of the shareholders’ general meetings should set out the following:		MP76 Guide 74 and 75
	(1)	the date and venue for convening the meeting, meeting agenda and the name of the convenor;
	(2)	the name of the chairman of the meeting as well as those of the directors, supervisors and senior officers who attend the meeting as attendees and participants;
	(3)	the number of shareholders and proxies attending the meeting, the total number of voting shares represented by the shareholders who are entitled to vote; the proportion of the number of voting shares represented by the shareholders who are entitled to vote out of the total number of shares of the Company;
	(4)	a description of the considerations taken for each motion, the main points put forward by each speaker relating thereto and the voting results thereof;
	(5)	details of queries and recommendations of the shareholders and the corresponding response or explanation in relation thereto;
	(6)	the names of the legal advisers and persons responsible for counting the votes and for supervising the counting process; and
	(7)	other contents which should be recorded in the minutes as provided for in these Articles of Association.
Article 133	The convenor shall ensure that the content of the minutes shall be true, accurate and complete. Minutes shall be signed by attendees of the meeting, including the directors, supervisors, secretary to the board of directors, the convenor or its representative and the chairman of the meeting. Minutes shall, together with the register relating to the		Guide 73

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	shareholders present at the meeting in person and the proxy form if present by proxy, or via Internet or other permitted means be kept by the Company for a period of not less than ten years.
Article 134.	Copies of the minutes of proceedings of any shareholders’ meeting shall, during business hours of the Company, be open for inspection by any shareholder without charge. If a shareholder requests for a copy of such minutes from the Company, the Company shall send a copy of such minutes to him within seven (7) days after receipt of reasonable fees therefor.		MP77
Section 7 Voting platform through internet
Article 135	The Company shall, with its priority to ensure that the shareholders’ general meeting is legal and effective, enlarge the proportion of public shareholders participating in the shareholders’ general meeting through various manner and means including providing modern information technological means such as voting platform through internet. Attendance shall be accepted for shareholders who attend the general meeting through the above means.		Guide 44
	When the five issues set out in paragraph 2 of Article 136 of the Articles of Association are proposed to be considered at the shareholders’ general meeting of the Company, domestic shareholders shall be given an online voting platform in addition to live meetings.
	Online voting access for domestic shareholders shall be provided through internet service providers designated by China Securities Regulatory Commission and Shanghai Stock Exchange. The holders of Overseas Listed Foreign Invested Shares will not be provided with online voting access.
	Upon completion of the voting process at the shareholders’ general meeting, the Company shall consolidate, in respect of each proposal, the voting results of live meeting, online voting and other forms of voting in accordance with the relevant regulation before making any announcement.
Article 136.	The Company shall establish and perfect the voting system for public shareholders in respect of significant issues.
	The following issues or the relevant applications in relation to such issues proposed to the shareholders’ general meeting shall be only carried out upon approval at the shareholders’ general meeting and approval by the public shareholders representing more than half of the votes cast by the public shareholders present at the shareholders’ general meeting:
	(1)	Any issue of new shares by the Company to the public (including issue of Overseas Listed Foreign Invested Shares or other equity securities), issue of convertible debentures, placing of shares to existing

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		shareholders (except those for which the controlling shareholders have undertaken to fully subscribe in cash before the shareholders’ general meeting is convened);
	(2)	Substantial assets restructuring of the Company where the total consideration for the assets proposed to be acquired is or higher than 20% of the audited net book value of such assets;
	(3)	Repayment of debts owing to the Company by any shareholder by means of his/her equity interests in the Company;
	(4)	Overseas listing of any subsidiaries of the Company which have a significant impact on the Company;
	(5)	Other relevant issues which may have a significant impact on the interests of the public shareholders in respect of the development of the Company.
Article 137.	Under circumstances as prescribed in the above article, after the Company making public announcement of the notice of shareholders’ general meeting, the notice of the shareholders’ general meeting shall be published once again within 3 days after the share registration day.
CHAPTER 9: SPECIAL PROCEDURES FOR VOTING BY A CLASS OF SHAREHOLDERS
Article 138.	Those shareholders who hold different classes of shares are class shareholders.		MP78
	Class shareholders shall enjoy rights and assume obligations in accordance with laws, administrative regulations and these Articles of Association.
Article 139.	Rights conferred on any class of shareholders (“class rights”) may not be varied or abrogated save with the approval of a special resolution of shareholders in a general meeting and by holders of shares of that class at a separate meeting conducted in accordance with Articles 141 to 145.		MP79
Article 140.	The following circumstances shall be deemed to be variation or abrogation of the rights attaching to a particular class of shares:		MP80
	(1)	to increase or decrease the number of shares of that class, or to increase or decrease the number of shares of a class having voting or equity rights or privileges equal or superior to those of shares of that class;

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	(2)	to exchange all or part of the shares of that class for shares of another class or to exchange or to create a right to exchange all or part of the shares of another class for shares of that class;
	(3)	to remove or reduce rights to accrued dividends or rights to cumulative dividends attached to shares of that class;
	(4)	to reduce or remove preferential rights attached to shares of that class to receive dividends or to the distribution of assets in the event that the Company is liquidated;
	(5)	to add, remove or reduce conversion privileges, options, voting rights, transfer or pre-emptive rights, or rights to acquire securities of the Company attached to shares of that class;
	(6)	to remove or reduce rights to receive payment payable by the Company in particular currencies attached to shares of that class;
	(7)	to create a new class of shares having voting or equity rights or privileges equal or superior to those of the shares of that class;
	(8)	to restrict the transfer or ownership of shares of that class or to increase the types of restrictions attaching thereto;
	(9)	to allot and issue rights to subscribe for, or to convert the existing shares into, shares in the Company of that class or another class;
	(10)	to increase the rights or privileges of shares of another class;
	(11)	to restructure the Company in such a way so as to result in the disproportionate distribution of obligations between the various classes of shareholders;
	(12)	to vary or abrogate the provisions of this Chapter.
Article 141.	Shareholders of the affected class, whether or not otherwise having the right to vote at shareholders’ general meetings, have the right to vote at class meetings in respect of matters concerning sub-paragraphs (2) to (8), (11) and (12) of Article 140, but interested shareholder(s) shall not be entitled to vote at such class meetings.		MP81
	“(An) interested shareholder(s)”, as such term is used in the preceding paragraph, means:
	(1)	in the case of a repurchase of shares by way of a general offer to all shareholders of the Company or by way of public dealing on a stock exchange pursuant to Article 32, a “controlling shareholder” within the meaning of Article 61;

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	(2)	in the case of a repurchase of shares by an off-market agreement pursuant to Article 32, a holder of the shares to which the proposed agreement relates;
	(3)	in the case of a restructuring of the Company, a shareholder who assumes a relatively lower proportion of obligation than the obligations imposed on shareholders of that class under the proposed restructuring or who has an interest in the proposed restructuring different from the general interests of the shareholders of that class.
Article 142.	Resolutions of a class of shareholders shall be passed by votes representing more than two-thirds of the voting rights of shareholders of that class represented at the relevant meeting who, according to Article 141, are entitled to vote thereat.		MP82
	Where any shareholder is, under the Hong Kong Listing Rules, required to abstain from voting any particular resolution in a class meeting or restricted to voting only for or only against any particular resolution in a class meeting, any vote cast or on behalf of any shareholder in contravention of such requirement or restriction shall not be counted.
Article 143.	Written notice of a class meeting shall be given to all shareholders who are registered as holders of that class in the register of shareholders forty-five (45) days before the date of the class meeting. Such notice shall give such shareholders notice of the matters to be considered at such meeting, the date and the place of the class meeting. A shareholder who intends to attend the class meeting shall deliver his written reply in respect thereof to the Company twenty (20) days before the date of the class meeting.		MP83
	If the shareholders who intend to attend such class meeting represent more than half of the total number of shares of that class which have the right to vote at such meeting, the Company may hold the class meeting; if not, the Company shall within five (5) days give the shareholders further notice of the matters to be considered, the date and the place of the class meeting by way of public announcement. The Company may then hold the class meeting after such public announcement has been made.
Article 144.	Notice of class meetings need only be served on shareholders entitled to vote thereat.		MP84
	Class meetings shall be conducted in a manner which is as similar as possible to that of shareholders’ general meetings. The provisions of these Articles of Association relating to the manner for the conduct of shareholders’ general meetings are also applicable to class meetings.

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Article 145.	Apart from the holders of other classes of shares, the holders of the Domestic-Invested Shares and holders of Overseas-Listed Foreign-Invested Shares shall be deemed to be holders of different classes of shares.		App. 13 Pt. D 1(f)
	The special procedures for approval by a class of shareholders shall not apply in the following circumstances:		MP85 C.3 Zheng Jian Hai Han [1995] No. 3
	(1)	where the Company issues, upon the approval by special resolution of its shareholders in a general meeting, either separately or concurrently once every twelve (12) months, not more than 20% of each of its existing issued Domestic-Invested Shares and Overseas-Listed Foreign-Invested Shares; or	App.13 Pt.D 1f(i)
	(2)	where the Company’s plan to issue Domestic-Invested Shares and Overseas-Listed Foreign-Invested Shares at the time of its establishment is carried out within fifteen (15) months from the date of approval of the State Council’s securities authorities.	App.13 Pt.D 1f(ii)
CHAPTER 10: BOARD OF DIRECTORS
Section I Directors
Article 146	Directors who are not staff representative shall be elected or removed at the shareholders’ general meeting. The staff directors shall be elected by the staff in the staff representative meeting or by other ways democratically.		MP87, C.4 Zheng Jian Hai Han [1995] No. 1 Guide 96
	Directors shall be elected for a term of three years. At the expiry of the term, it shall be renewable upon re-election. A director may not be removed by the shareholders in a general meeting without any reason before his term of office expires.
	The Chairman and Vice-chairman shall be elected and removed by more than one-half of all members of the board of directors. The term of office of the Chairman and Vice-chairman shall be three (3) years respectively, which is renewable upon re-election.		Guide 85
	The directors shall not be required to hold qualifying shares.
	If a director fails to attend the two consecutive board meetings in person or by another director appointed as his representative (an independent director shall comply with the provisions in “Section II Independent Directors”),

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	he shall be deemed to be in default of performing his duty. The board of directors should recommend his removal to a shareholders’ general meeting.
Article 147	The tenure of a director shall commence from the date when he takes office until the end of the tenure of the existing board of directors. If an election is not conducted before the termination of the tenure of a director, the original director(s) shall continue to assume the responsibilities in accordance with the laws, administrative regulations, departmental rules and these Articles of Association before the new director(s) take office.	Guide 96
Article 148.	A director may submit his resignation before the expiry of his term. He should deliver a written resignation letter to the board of directors. The board of directors shall disclose such resignation within two days	Guide 86 Guide 100
Article 149.	If a director’s resignation will result in the number of directors falling below the legally prescribed minimum, his resignation shall not come into force until his vacancy is filled by another person. The original director(s) shall continue to assume the responsibilities in accordance with the laws, administrative regulations, departmental rules and these Articles of Association before the new director(s) take office.	Guide 87 Guide 100
	Apart from the above, the resignation of a director shall become effective when the written resignation letter is submitted to the board of directors	Guide 88
Article 150.	When a director resigns or his term of office expires, his obligation of confidentiality relating to the Company’s trade secrets remains in force after the end of his office until such secrets become public information.	Guide 89
Article 151.	A director whose term of office has not expired shall be held responsible for the Company’s loss due to his departure without permission.	Guide 67
Article 152.	Under normal circumstances, the board of directors will nominate candidates for directors who are not staff representative who shall be voted on at a shareholders’ general meeting. The Company’s shareholders and the supervisory committee may nominate candidates for directors who are not staff representative in accordance with these Articles of Association.	App.3 4(3)-4(5)
	A shareholder’s written notice of the intention to nominate a person for election as a director who are not staff representative and a notice in writing by that person indicating his acceptance of such nomination shall have been given to the Company seven (7) days before the date of such shareholders’ general meeting. Such written notice(s) by the shareholder(s) of the Company shall be made no earlier than the day after the despatch of the notice of the general meeting appointed for election of directors who are not staff representative and no later than 7 days prior to the date of such meeting.

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	Where a person is proposed for election as a director who are not staff representative by the board of directors, a written notice of the intention to nominate a person for election as a director who are not staff representative and a notice in writing by that person indicating his acceptance of such nomination by board of directors shall have been given to the Company seven (7) days prior to the date of the board meeting appointed for determining the proposed directors who are not staff representative.
	Under the premises of complying with the relevant laws and administrative regulations, the general meeting of the shareholders may remove any director who are not staff representative before his term expires by way of ordinary resolution provided that the claims that may be proposed pursuant to any contract shall not be affected therefrom.
	Section II Independent Directors
Article 153.	Independent Directors are directors who do not hold any positions in the Company other than as director and do not maintain with the Company and its substantial shareholders a connection which may hamper their independent and objective judgments.		IDGO 1(1)
Article 154.	The independent directors should possess the following basic qualifications:		IDGO 2
	(1)	having the qualifications to assume the office of a director in a listed company according to the laws, administrative rules and other relevant provisions;
	(2)	being independent as specified in Article 155 of these Articles of Association;
	(3)	having the basic knowledge of the operation of a listed company and being familiar with relevant laws, administrative rules and regulations;
	(4)	having not less than five years’ working experience in the legal or economic field or other experiences required for performing the duty of an independent director;
	(5)	other qualifications specified by these Articles of Association.
Article 155.	An independent director should be independent. The following persons shall not act as independent directors:		IDGO 3
	(1)	persons working in the Company or its subsidiaries, as well as their spouses, parents, children, siblings, parents-in-law, sons or daughters-in-law, spouses of their siblings and siblings of their spouses;

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	(2)	natural person shareholders who directly or indirectly hold more than 1% of the issued shares of the Company or who rank in the top ten shareholders of the Company, as well as their spouses, parents and children;
	(3)	persons who work in entities being shareholders who directly or indirectly hold more than 5% of the issued shares of the Company who rank in the top five shareholders of the Company, as well as their spouses, parents and children;
	(4)	persons who fell within the above three categories within the past year;
	(5)	persons who provide financial, legal and consulting services to the Company or its subsidiaries or persons who work in the relevant organisations;
	(6)	other people specified in these Articles of Association;
	(7)	other people specified by the China Securities Regulatory Commission.
Article 156.	The board of directors, the supervisory committee, and the shareholders who hold more than 1% issued shares individually or jointly may nominate candidates for independent directors to be elected at the shareholders’ general meeting.
	More than one third of the members of the board of directors shall be independent directors, and at least one of the independent directors shall have accounting expertise.
Article 157.	The term of office of the independent directors is the same with that of the other directors of the Company. The term is renewable upon re-election after expiry, but shall not be more than six (6) years.
	Any independent director shall not be removed before the expiry of his term of office without appropriate reason. Any removal before the expiry of term shall be disclosed by the Company as a special discloseable matter.
Article 158.	Apart from the powers granted to directors by the Company Law and other relevant laws, regulations and these Articles of Association, the independent directors shall have the following special powers:		IDGO 5(1) to (3)
	(1)	Substantial connected transactions (determined in accordance with the

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		standard promulgated from time to time by the regulatory organizations of the place where the Company’s shares are listed), and engaging or ceasing to engage an accounting firm, shall be agreed by more than one-half of the independent directors before submitting to the board of directors for discussion.
	(2)	The independent directors may request the board of directors to convene an extraordinary general meeting, and suggest the convening of a board meeting, and publicly collect voting rights from the shareholders before the shareholders’ general meeting, which shall all be agreed by more than one-half of the independent directors.
	(3)	With the consent of all the independent directors, the independent directors may engage external audit institutions or consultative institutions independently to provide audit and consultation for specific matters of the Company, the relevant costs of which shall be undertaken by the Company.
	If the above recommendation are not accepted or the above powers can not be exercised ordinarily, the Company shall disclose the circumstances accordingly.
Article 159.	Apart from exercising the above powers, the independent directors shall express their independent views to the board of directors or the shareholders’ general meeting in respect of :		IDGO 6
	(1)	nomination, appointment and dismissal of directors;
	(2)	appointment or dismissal of senior management personnel;
	(3)	remuneration of the Company’s directors and senior management personnel;
	(4)	existing or new loans or other transactions involving funds which are substantial (determined in accordance with the standard promulgated from time to time by the regulator organizations of the place where the Company’s shares are listed) between the Company and the Company’s shareholders, persons in actual control of the Company and their affiliates, and whether the Company has taken effective measures to recover the moneys owed to it;
	(5)	a plan of profit distribution in cash which has not yet been formulated by the board of directors of the Company;
	(6)	actions which, in the opinion of the independent directors, may prejudice the interests of minority shareholders;

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	(7)	other matters specified by these Articles of Association.
	The independent directors should express one of the following views on the above-mentioned issues: consent; reservation with the reasons thereof; objection with the reasons thereof; inability to express their opinions and the impediments thererto.
	In case of matters requiring disclosure, the Company should make a public announcement of the independent directors’ opinion. If the independent directors fail to reach a consensus in their opinions, the board of directors should disclose each independent director’s respective opinion.
Article 160.	Independent directors shall attend the meetings of the board of directors on time understand the production business and operation of the Company, and initiate investigation to gain information required for making decision.
	Independent directors shall submit an annual report for at the annual general meeting of the Company providing explanation in respect of the performance of their duties.
Article 161.	The independent directors shall perform their duties honestly and faithfully, and protect the Company’s interests, especially paying attention to the protection of the legal rights of public shareholders.
	The independent directors shall perform his duties independently, without being affected by major shareholders of the Company, persons in actual control or other entities or individuals which have conflicting interest with the Company, its major shareholders and persons in actual control.
Article 162.	If an independent director fails to attend three consecutive board meeting in person, the board of directors shall recommend his removal to a shareholders’ general meeting.		IDGO 4(5)
Article 163.	The Company shall set up a work system for the independent directors, ensuring that they have the same right of being informed as the other directors. The Company shall promptly provide the independent directors with relevant materials and information, regularly notify them of the operation of the Company, and organise on-site visit by the independent directors if necessary.
Article 164.	An independent director may tender his resignation before the expiry of his term of office. He should deliver a written resignation letter to the board of directors, which explains any circumstances that are relevant to his resignation or that he considered necessary for the shareholders and creditors to pay attention.

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	If an independent director’s resignation results in the number of independent directors or member of the board of directors falling below the legally prescribed minimum or the minimum under these Articles of Association, before the appointment of a new independent director, the independent director shall perform his duties according to the laws, administrative regulations and requirements under this Article of Association. The board of directors shall convene a shareholders’ general meeting within two months to elect a replacement. If not within two months, the independent director may not continue to perform his duties.
Article 165.	Matters relating to the system of independent directors which have not been set out in this section shall be handled according to the relevant laws and regulations.
Section III The Board of Directors
Article 166.	The Company shall have a board of directors consisting of thirteen (13) directors, of which is one shall be a staff representative, with one (1) chairman and two (2) vice-chairmen		MP86 Guide 96
Article 167.	The board of directors is accountable to the shareholders in general meeting and exercises the following functions and powers:		MP88 Guide 94
	(1)	to be responsible for the convening of the shareholders’ general meeting and to report on its work to the shareholders in general meetings;
	(2)	to implement the resolutions passed by the shareholders in general meetings;
	(3)	to determine the Company’s business plans and investment proposals;
	(4)	to formulate the Company’s annual preliminary and final financial budgets;
	(5)	to formulate the Company’s profit distribution proposal and loss recovery proposal;
	(6)	to formulate proposals for the increase or reduction of the Company’s registered capital and for the issuance of the Company’s debentures;
	(7)	to draw up plans for the substantial acquisition, repurchase of shares, merger, division or dissolution of the Company;

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(8)	to decide on the Company’s internal management structure;
(9)	to appoint or remove the Company’s general manager and secretary of the board and to appoint or remove the deputy general manager(s) and other senior officers (including the financial controller(s) of the Company) based on the recommendations of the general manager, to decide on their remuneration and matters relating to awards and penalty;
(10)	to formulate the Company’s basic management system;
(11)	to formulate proposals for any amendment of these Articles of Association;
(12)	to decide on matters relating to foreign investment, purchase or sale of assets, mortgage of assets, provision of guarantees, entrusted assets management and connected transactions by the Company within the scope of authority conferred by the general meeting;
(13)	to manage disclosure of the Company’s information;
(14)	to recommend to the shareholders’ general meeting the appointment or replacement of the Company’s accounting firm;
(15)	to receive the working report by the Company’s management and examine their performance;
(16)	to approve an aggregate amount of provision for impairment of assets not more than 10% of the latest audited consolidated net asset value of the Company, to clear an amount of provision for impairment of assets not more than 5% of the latest audited consolidated net asset value of the Company, and to execute in compliance with the relevant regulations on connected transaction if any provision and clearance of impairment of assets involves any connected transactions.
(17)	to exercise any other powers specified by the law, administrative regulations, departmental rules, these Articles of Association and as authorised by the shareholders’ general meeting.
Except as otherwise provided in these Articles of Association, other than the board of directors’ resolutions in respect of the matters specified in sub-paragraphs (6), (7) and (11) of this Article which shall be passed by the affirmative vote of more than two-thirds of all the directors, the board of directors’ resolutions in respect of all other matters may be passed by the affirmative vote of a simple majority of the directors.

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Article 168	The board of directors shall lay down strict procedures to inspect and decide on the approval limit for foreign investment, purchase or sale of assets, mortgage of assets, provision of guarantees, entrusted assets management and connected transactions. For major investment projects, the board of directors shall organize the relevant experts and professional officers to conduct assessment for approval of the shareholders in a general meeting.
Article 169.	With the approval of over two-thirds of all directors, the board of directors may make decisions on the following matters:		Guide 97
	(1)	transactions falling within the following limit with respect to purchase or sale of assets, foreign investment (including entrusted financial management and entrusted loans), provision of financial assistance, entrusted or trusted asset or business management, entering of licence agreement, transfer or accept the transfer of research and development projects:
	1.	the total assets involved in a single transaction with amount more than 5% and below 25% of the Company’s latest audited total asset value;
	2.	a single investment more than 5% and below 25% of the Company’s latest audited net asset value;
	3.	the subject of a single transaction accounted for more than 5% and less than 25% of the Company’s latest audited income from principal operations for the latest financial year;
	4.	the subject of a single transaction accounted for more than 5% and less than 25% of the Company’s latest audited net profit for the latest financial year;
	The above transactions which involve public offer of securities that requires the approval of the China Securities Regulatory Commission shall be subject to approval of the shareholders’ general meeting;
	(2)	a single loan of less than 10% of the Company’s most recently audited net asset value and the debt ratio to the Company’s assets remains under 60% after such financing;

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	(3)	mortgages or pledges of assets the cumulative outstanding amount of which is less than 30% of the Company’s most recently audited net asset value;
	(4)	external guarantees not within the approval limit of the shareholders’ general meeting as provided in the Articles of Association;
	(5)	transactions involving connected transactions, which have to be conducted in accordance with the relevant regulations of competent securities authorities and the listing rules of the stock exchanges.
	The transactions referred to in (1) of the first paragraph involving the provision of financial assistance and entrusted financial management, shall be calculated on accrued basis for twelve consecutive months according to the transaction categories and applicable approval limit proportion of the board of directors. When the Company conducts other transactions apart from the provision of financial assistance and entrusted financial management, applicable approval limit proportion of the board of directors regarding each transaction which is under the same category shall be calculated on the principle of accrued basis for twelve consecutive months. Transactions already approved by the Company in accordance with the principle of accrued basis shall not be included in the scope of accrual calculation.
	Provision of regulatory authorities the Company is subject to within and outside the PRC that is of a stricter standard than this Article of Association shall apply accordingly.
Article 170	The directors of the Company shall ensure that the information disclosed by the Company is true, accurate and complete.
	The directors of the Company shall sign a written confirmation of opinion in connection with the regular report of the Company.
Article 171.	The Company has established a strict internal control system over external guarantee. The whole board of directors shall cautiously handle and strictly control the risk of debt created by external guarantee. In connection with the losses resulting from an inappropriate external guarantee or an external guarantee given not in compliance with the relevant laws and regulations the directors who shall be held responsible shall bear joint and several liabilities.
	(I)	Review on guarantee and decision limitation
	Before making any decision on external guarantee, the Company shall understand the creditability of the debtor and make a thorough analysis on the benefit and risk of such guarantee.

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	Any external guarantee given by the Company shall be approved by two-thirds of the board of directors or by the shareholders in a general meeting. Any connected director(s), shareholder(s) or shareholders controlled by de facto controllers being interested in a guarantee shall excuse himself from voting on resolution relating to such guarantee.
	The approval limit of the Company for an external guarantee shall be executed in accordance with (13) in the first paragraph of Article 65, Article 66 and (6) in the first paragraph of Article 107.		Guide 41, 77
	(II)	Management in guarantee procedures
	The external guarantee of the Company shall be made in form of written contract, and at the same time the supervisory committee, the secretary to the board of directors and the financial department shall be notified.
	The external guarantee of the Company shall be arranged under risk avoidance measures such as a counter guarantee given by the guaranteed party, and the party giving the counter guarantee shall have actual ability to perform its obligation under the counter guarantee.
Article 172	The board of directors shall not, without the prior approval of shareholders in a general meeting, dispose or agree to dispose of any fixed assets of the Company where the aggregate of the amount or value of the consideration for the proposed disposition, and the amount or value of the consideration for any such disposition of any fixed assets of the Company that has been completed in the period of four (4) months immediately preceding the proposed disposition, exceeds 33 % of the value of the Company’s fixed assets as shown in the latest balance sheet which was tabled at a shareholders’ general meeting.
	For the purposes of this Article, “disposition” includes an act involving the transfer of an interest in assets but does not include the usage of fixed assets for the provision of security.
	The validity of a disposition by the Company shall not be affected by any breach of the first paragraph of this Article.
Article 173	The Chairman of the board of directors shall exercise the following powers:
	(1)	to preside over shareholders’ general meetings and to convene and preside over meetings of the board of directors;
	(2)	to check on the implementation of resolutions passed by the board of directors at directors’ meetings;

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	(3)	to sign the securities certificates issued by the Company;
	(4)	to sign the important documents of the board and other documents which should be signed by the Company’s legal representative;
	(5)	to exercise the rights of the legal representative;
	(6)	in the event of emergency situations such as the occurrence of large-scale natural disasters, to take special steps in handling the Company’s business according to the laws and the Company’s interest; and to report to the Company’s board of directors and shareholders’ general meeting afterwards;
	(7)	to exercise other powers conferred by the board of directors.
Article 174	The vice chairman shall assist the chairman in his work. Where the chairman is unable to or does not perform the duty, the vice chairman shall preside the meeting. Where the vice chairman is unable to or does not perform the duty, a director nominated by more than one-half of the directors shall perform the duty.		Guide 113
Article 175	Meetings of the Board shall be held at least three times every year and shall be convened by the chairman of the board of directors. All of the directors and supervisors should be notified about the meeting fourteen (14) days beforehand. An extraordinary meeting of the board of directors may be held under the following circumstances:.		Guide 114
	(1)	when the Chairman thinks it is necessary;
	(2)	Shareholders carrying voting rights of more than 10%;	Guide 115
	(3)	when more than one-third directors so request;
	(4)	when the supervisory committee so requests;
	(5)	when the general manager so requests;
	(6)	when more than a half of the independent directors so request.
Article 176	Notice of meetings and extraordinary meetings of the board of directors shall be delivered in person, by facsimile, by express delivery service and by registered mail. The time limits for the delivery of such notices are: for a board meeting, at least fourteen (14) days before the meeting; and for an extraordinary meeting, at least three (3) days before the meeting.

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	A notice of meetings shall contain the following contents: (1) date and place of the meeting; (2) duration of the meeting; (3) business to be discussed; and (4) date of notice.
Article 177	Notice of a meeting shall be deemed to have been given to any director who attends the meeting without protesting against, before or at its commencement, any lack of notice.
Article 178	Resolution of the board of directors may be decided on a poll or show of hands.	Guide 120
	As long as all directors can fully express their opinions, a board meeting or an extraordinary meeting of the board of directors may be held by way of facsimile, during which resolutions may be passed and signed by participating directors. All such directors shall be deemed to be present in person at the meeting. When the number of directors who have signified their consent to a resolution reaches the number set out in Article 179, a valid resolution shall be deemed to have been passed.
Article 179	Meetings of the board of directors shall be held only if more than half of the directors (including any alternate director appointed pursuant to Article 180 of the Company’s Articles of Association) are present.	Guide 118
	Each director shall have one (1) vote. A resolution of the board of directors must be passed by more than half of all of the directors of the Company.
	Where there is an equality of votes cast both for and against a resolution, the Chairman of the board of directors shall have a casting vote.
	When passing a resolution in relation to connected transaction at a board meeting, or where any director or any of its Associates (as defined under the Listing Rules of the Stock Exchange of Hong Kong) is connected with such resolution, such connected director shall excuse himself from the Board meeting, shall not have any voting rights in respect thereof, shall not exercise any voting right on behalf of other directors and shall not be counted as part of the quorum of the board meeting. Such board meeting can be convened where not less than half of the disinterested directors of the Company attend the meeting and any such resolutions shall be passed by at least half of the disinterested directors of the Company. If the number of disinterested directors present at is less than 3, the matter shall be presented to the shareholders for consideration at a general meeting.	Guide 119
Article 180	Directors shall attend the meetings of the board of directors in person. Where a director is unable to attend a meeting for any reason, he may by a written power of attorney appoint another director to attend the meeting on his behalf. The power of attorney shall set out the name of the attorney, issues under authorisation, scope of authorisation and valid period, which will be signed or sealed with the chop by the appointing director.	Guide 121

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	A Director appointed as a representative of another director to attend the meeting shall exercise the rights of a director within the scope of authority conferred by the appointing director. Where a director is unable to attend a meeting of the board of directors and has not appointed a representative to attend the meeting on his behalf, he shall be deemed to have waived his right to vote at the meeting
Article 181.	The board of directors shall keep minutes of resolutions passed at meetings of the board of directors. The minutes shall be signed by the directors present at the meeting, the board’s secretary and the person who recorded the minutes. The directors shall be liable for the resolutions of the board of directors. If a resolution of the board of directors violates the laws, administrative regulations or the Company’s Articles of Association and the Company suffers serious losses as a result thereof, the directors who participated in the passing of such resolution are liable to compensate the Company therefor. However, if it can be proven that a director expressly objected to the resolution when the resolution was voted on, and that such objection was recorded in the minutes of the meeting, such director may be released from such liability.
	The minutes of the board meeting shall include the following contents: (1) date and place of the meeting and name of the convener; (2) names of participating directors and proxies; (3) agenda; (4) main points of directors’ speeches; (5) voting method for each matter and its result (the voting result should specify the number of votes for and against and abstentions).
	Minutes of the board meeting shall be kept as the Company’s record for a period of not less than ten years.	Guide 122
Article 182	The board of directors shall formulate its rules of meetings to ensure its working efficiency and scientific decision.
	The rules of meetings of the board of directors shall be drafted by the board of director of the Company and be considered and approved at the shareholders’ general meeting.
CHAPTER 11: SECRETARY OF THE BOARD OF DIRECTORS
Article 183.	The Company shall have one (1) secretary to the board of directors. The secretary shall be a senior officer of the Company, who is nominated by the chairman of the board of directors, appointed or removed by the board of directors and accountable to the board of directors.	MP96 Guide 113

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Article 184.	The secretary of the Company’s board of directors shall be a natural person who has the requisite professional knowledge and experience, and shall be appointed by the board of directors. His primary responsibilities are as follows:		MP97 Guide 115
	(1)	to prepare and deliver the board’s and general meeting’s reports and documents required by competent authorities in China;
	(2)	to prepare and organise board meetings and shareholders’ general meetings; to take minutes of the meetings and to keep the meetings’ documents and records;
	(3)	to be responsible for the Company’s information disclosure and to ensure the timeliness, accuracy, legality, authenticity and completeness of the Company’s disclosure;
	(4)	to be responsible for the Company’s management for investors relation;
	(5)	to actively co-operate with the independent directors in performing their duties;
	(6)	to ensure that the Company’s registers of members are properly established, and that persons entitled to receive the Company’s records and documents are furnished therewith without delay;
	(7)	other responsibilities specified in these Articles of Association and the listing rules of the stock exchanges where the Company’s shares are listed.
Article 185.	A director or senior officer of the Company may also act as the secretary of the board of directors. The certified public accountancy firm which has been appointed by the Company to act as its auditors shall not act as the secretary of the board of directors.		MP98
	Where the office of secretary is held concurrently by a director, and an act is required to be done by a director and a secretary separately, the person who holds the office of director and secretary may not perform the act in a dual capacity.
CHAPTER 12: GENERAL MANAGER AND SENIOR OFFICERS ETC
Article 186.	The Company shall have a general manager who shall be appointed or dismissed by the board of directors. The Company shall have six to ten deputy general managers who will assist the general manager in his work, a financial controller and a chief engineer.		MP99 Guide 118 and 120

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	The board of directors may decide to appoint a member of the board of directors to act concurrently as the senior officers. However, the number of directors and staff director who act concurrently as the senior officers shall not exceed one half of the total number of directors. Any person serving as officers (excluding directors) at the Company’s controlling shareholder and de factor controller unit shall not act as the senior officer of the Company.		Guide 96, 126
	The senior officers shall serve for a term of three (3) years. The term is renewable upon re-election.		Guide 127
	The tenure of a senior officer shall commence from the date when he takes office until the end of the tenure. If an appointment is not made in time upon the termination of the tenure of the senior officer, the original senior officer(s) shall assume the responsibilities in accordance with the laws, administrative regulations, departmental rules and these Articles of Association before the new senior officer(s) take office.
Article 187.	The general manager shall be accountable to the board of directors and shall exercise the following functions and powers:		MP100 Guide 121
	(1)	to be in charge of the Company’s production, operation and management, to organise the implementation of the resolutions of the board of directors and report to the board of directors;	Guide 128
	(2)	to organise the implementation of the Company’s annual business plan and investment proposal;
	(3)	to draft plans for the establishment of the Company’s internal management structure;
	(4)	to draft the Company’s basic management system;
	(5)	to formulate basic rules and regulations for the Company;
	(6)	to propose the appointment or dismissal of the Company’s senior officers;
	(7)	to appoint or dismiss management personnel other than those required to be appointed or dismissed by the board of directors;
	(8)	to draw up a package of staff’s salary, benefits, awards and penalty, as well as to decide the appointment and dismissal of the staff of the Company;

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	(9)	to request the convening of an extraordinary meeting of the board;
	(10)	other powers conferred by these Articles of Association and the board of directors.
Article 188.	The general manager may, by means such as through the manager’s meeting of the Company, make decisions on the following operational matters:
	(1) transactions falling within the following limit with respect to purchase or sale of assets, foreign investment (including entrusted financial management and entrusted loans), provision of financial assistance, entrusted or trusted asset or business management, entering of licence agreement, transfer or accept the transfer of research and development projects:
	1. the total assets involved in a single transaction with amount more than 5% and below 25% of the Company’s latest audited total asset value;
	2. a single investment more than 5% and below 25% of the Company’s latest audited net asset value;
	3. the subject of a single transaction accounted for more than 5% and less than 25% of the Company’s latest audited income from principal operations for the latest financial year;
	4. the subject of a single transaction accounted for more than 5% and less than 25% of the Company’s latest audited net profit for the latest financial year;
	The transactions referred to in (1) of the first paragraph involving the provision of financial assistance and entrusted financial management, shall be calculated on accrued basis for twelve consecutive months according to the transaction categories and applicable approval limit proportion of the board of directors. When the Company conducts other transactions apart from the provision of financial assistance and entrusted financial management, applicable approval limit proportion of the board of directors regarding each transaction which is under the same category shall be calculated on the principle of accrued basis for twelve consecutive months. Transactions already approved by the Company in accordance with the principle of accrued basis shall not be included in the scope of accrual calculation.
	The above transactions which involve public offer of securities that requires the approval of the China Securities Regulatory Commission shall be subject to approval of the shareholders’ general meeting of shareholders.
	(2)	a loan with a single amount of less than 5% of the Company’s latest audited net asset value and, after such financing, the asset-liability ratio of the Company remains under 50%;

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		(3)    security or pledges of assets, a single amount of which is less than 5%, and a cumulative amount of which is less than 20%, of the Company’s latest audited net asset value.
	Where decisions on operational matters involve connected transactions, such decisions shall be implemented in accordance with the relevant requirements of connected transactions.
	Provision of regulatory authorities the Company is subject to within and outside the PRC that is of a stricter standard than this Article will be applicable accordingly.
Article 189.	The general manager shall attend meetings of the board of directors. The general manager, who is not a director, does not have any voting rights at board meetings.		MP101
Article 190.	The general manager shall, upon requests of the board of directors or supervisory committee, report to the board of directors or the supervisory committee on the signing and implementation of the Company’s material contracts, usage of capital and profit and loss. The general manager shall ensure authenticity of the reports.		Guide 123
Article 191.	Before drawing up a package concerning staff’s immediate interests, such as staff’s salary, benefits, safe production and labour, labour insurance, and dismissal of staff, the general manager should consult the trade union and the meeting of staff representatives.		Guide 124
Article 192.	The general manager shall formulate working rules of general manager and submit them to the board of directors for approval.		Guide 125
Article 193.	The general manager’s working rules shall include the following: (1) conditions and procedures of convening a general manager’s meeting, as well as the participants; (2) specific duties and division of labour among the senior officers; (3) the Company’s usage of funds and assets, limits on signing of material contracts and reporting system to the board of directors and supervisory committee; and (4) other matters which the board considers necessary.		Guide 126
Article 194.	The general manager and deputy general managers, in performing their functions and powers, shall act honestly and diligently and in accordance with laws, administrative regulations and these Articles of Association.		MP102
Article 195	The senior officers of the Company shall ensure that the information disclosed by the Company is true, accurate and complete.
	The senior officers of the Company shall sign a written confirmation of opinion in connection with the regular report of the Company.

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Article 196	The fiduciary duties concerning the directors in Article 215 and the duties of diligence in Article 216 (4) - (6) are also applicable to the senior officers.
Article 197	A senior officer may submit his resignation before the expiry of his term. The specific procedures and measures for resignation by the senior officers shall be governed by the labour contract being entered into by the senior officer and the Company.
CHAPTER 13: SUPERVISORY COMMITTEE
Article 198.	The Company shall have a supervisory committee. Each supervisor shall serve for a term of three (3) years, which term is renewable upon re-election and re-appointment.	MP103
Article 199.	The supervisory committee shall have one chairman and one vice chairman. The election or removal of the chairman and vice chairman of the supervisory committee shall be determined by two-thirds or more of the members of the supervisory committee. The chairman and vice chairman shall serve for a term of three (3) years, which term is renewable upon re-election and re-appointment.	MP104, C.5 Zheng Jian Hai Han [1995] No. 1 App.13 Pt.D 1(d)(i), Guide 143
Article 200	The tenure of a supervisor shall commence from the date when he takes office until the end of the tenure. If an appointment is not made in time upon the termination of the tenure of the senior officer so that a quorum of the supervisory committee is not met, the original senior officer(s) shall assume the responsibilities in accordance with the laws, administrative regulations, departmental rules and these Articles of Association before the new senior officer(s) take office.	Guike 138
Article 201	The supervisors of the Company shall ensure that the information disclosed by the Company is true, accurate and complete.	Guide 139
Article 202.	The supervisory committee shall comprise of five supervisors. Supervisors representing the shareholders shall be elected or removed by the shareholders in general meetings. Supervisors representing the employees of the Company shall be elected or removed democratically thereby.	MP105 Guide 149
Article 203	Under normal circumstances, the Company’s supervisory committee shall submit a list of candidates for supervisors (except for staff candidates for supervisors) to the shareholders’ general meeting. The Company’s shareholders and board of directors may nominate the candidates for supervisors according to these Articles of Association.

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Article 204.	The directors and senior managers shall not act concurrently as supervisors.	MP106, Guide 135
Article 205.	Meetings of the supervisory committee shall be held at least once every six months, and shall be convened by the chairman of the supervisory committee. The supervisors may propose to convene the extraordinary meeting of the supervisory committee.	MP107 Guide 132, Guide 145
	Where the chairman of the supervisory committee is unable to or does not perform the duty, the vice chairman of the supervisory committee shall preside the meeting. Where the vice chairman of the supervisory committee is unable to or does not perform the duty, a supervisor nominated by more than one-half of the supervisors shall perform the duty.
	If a supervisor fails to attend two consecutive meetings of supervisory committee, he shall be deemed to have failed to discharge his duties. The shareholders’ general meeting or staff representatives’ meeting shall replace him.
Article 206.	The supervisory committee shall be accountable to the shareholders in a general meeting and shall exercise the following functions and powers in accordance with law:	MP108 Guide 102, Guide 143
	(1) to review the regular reports of the Company prepared by the board of directors and give its opinion of review;
	(2) to inspect the Company’s financial position;
	(3) to supervise the directors and senior officers and to propose removal of a director or a senior officer who has contravened any law, administrative regulation, these Articles of Association or resolutions passed at a shareholders’ general meeting;
	(4) to demand any director or senior officer who acts in a manner which is harmful to the Company’s interest to rectify such behaviour;
	(5) to check the financial information such as the financial report, business report and plans for distribution of profits to be submitted by the board of directors to the shareholders’ general meetings and to authorise, in the Company’s name, publicly certified and practising accountants to assist in the re-examination of such information should any doubt arise in respect thereof;

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	(6) to propose to convene a shareholders’ extraordinary general meeting and an extraordinary board meeting. Where the board of directors fails to convene or hold the general meeting of shareholders in accordance with the provisions of the Company Law, to convene and hold the shareholders’ general meeting;
	(7) to propose resolutions to the shareholders’ general meeting;
	(8) to initiate proceedings against the directors and senior officers in accordance with section 152 of the Company Law;
	(9) to conduct investigation into any identified irregularities in the Company’s operations;
	(10) other functions and powers specified in these Articles of Association.	Guide 140
	Supervisors shall attend meetings of the board of directors, and make queries or recommendations to the matters resolved by the board of directors.
Article 207.	Notices of meetings and extraordinary meetings of the supervisory committee shall be delivered in person, by facsimile, by express delivery service or by registered mail. The time limits for the delivery of such notices are: for a supervisory meeting, at least five (5) days before the meeting; and for an extraordinary supervisory meeting, at least two (2) days before the meeting.	MP109, C.6 Zheng Jian Hai Han [1995] No. 1 App.13Pt.D 1(d)(ii)
	Resolutions of the supervisory committee shall be passed by the affirmative vote of more than two-thirds of all of its members. Resolutions may be passed by a show of hands or by poll.	Guide 139 and 142, 145
	Notice of meetings shall contain the following contents: date and place of meeting; duration of meeting; business to be discussed; and date of notice.
	Minutes shall be taken of the meetings of the supervisory committee. The participating supervisors and the person who records the minutes should sign the minutes. The supervisors shall have the right to request the record of his speech in the meeting for a particular illustrative description. The minutes of the meetings of the supervisory committee shall be kept as the Company’s record for at least ten years.	Guide 147

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Article 208.	All reasonable fees incurred in respect of the employment of professionals (such as, lawyers, certified public accountants or practising auditors) which are required by the supervisory committee in the exercise of its functions and powers shall be borne by the Company.		MP110
Article 209	The supervisory committee shall formulate its rules of meetings to ensure its working efficiency and scientific decision.
	The rules of meetings of the supervisory committee shall be drafted by the supervising committee of the Company and be considered and approved at the shareholders’ general meeting.
CHAPTER 14: THE QUALIFICATIONS AND DUTIES OF THE DIRECTORS, SUPERVISORS AND SENIOR OFFICERS OF THE COMPANY
Article 210.	A person may not serve as a director, supervisor or senior officer of the Company if any of the following circumstances apply:		MP112 Guide 78
	(1)	a person who does not have or who has limited capacity for civil conduct;
	(2)	a person who has been sentenced for corruption, bribery, infringement of property or misappropriation of property or other crimes which destroy the social economic order, where less than a term of five (5) years has lapsed since the sentence was served, or a person who has been deprived of his political rights and not more than five (5) years have lapsed since the sentence was served;
	(3)	a person who is a former director, factory manager or manager of a company or enterprise which has been dissolved or put into liquidation as a result of mismanagement and who was personally liable for the winding up of such company or enterprise, where less than three (3) years have elapsed since the date of completion of the insolvent liquidation of the company or enterprise;
	(4)	a person who is a former legal representative of a company or enterprise the business licence of which was revoked due to violation of law and who are personally liable therefor, where less than three (3) years have elapsed since the date of the revocation of the business licence;
	(5)	a person who has a relatively large amount of debts which have become overdue;
	(6)	a person who is currently under investigation by judicial organs for violation of criminal law;

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	(7)	a person who, according to laws and administrative regulations, cannot act as a leader of an enterprise;
	(8)	a person other than a natural person;
	(9)	a person who has been convicted by the competent authority for violation of relevant securities regulations and such conviction involves a finding that such person has acted fraudulently or dishonestly, where not more than five (5) years have lapsed from the date of such conviction;
	(10)	a person who has been restricted to enter the market by the China Securities Regulatory Commission and such restriction has not been lifted.
	(11)	a person who has been declared by a Stock Exchange in less than 2 years as an unsuitable candidate.
Article 211.	The validity of an act carried out by a director and senior officer of the Company on its behalf shall, as against a bona fide third party, shall not be affected by any irregularity in his office, election or any defect in his qualification.		MP113
Article 212.	In addition to the obligations imposed by laws, administrative regulations or the listing rules of the stock exchange on which shares of the Company are listed, each of the Company’s directors and senior officers owes a duty to each shareholder, in the exercise of the functions and powers of the Company entrusted to him:		MP114
	(1) to act honestly and in the best interests of the Company;		Guide 98
	(2) not to expropriate the Company’s property in any way, including (without limitation) usurpation of opportunities which benefit the Company;
	(3) not to expropriate the individual rights of shareholders, including (without limitation) rights to distribution and voting rights, save and except pursuant to a restructuring of the Company which has been submitted to the shareholders for approval in accordance with these Articles of Association.
Article 213.	Each of the Company’s directors, and senior officers owes a duty, in the exercise of his powers and in the discharge of his duties, to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.		MP115
Article 214.	Each of the Company’s directors, supervisors and senior officers shall exercise his powers or perform his duties in accordance with the fiduciary		MP116

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principle; and shall not put himself in a position where his duty and his interest may conflict. This principle includes (without limitation) discharging the following obligations:
(1)	to act honestly in the best interests of the Company;
(2)	to act within the scope of his powers and not to exceed such powers;
(3)	to exercise the discretion vested in him personally and not to allow himself to act under the control of another and, unless and to the extent permitted by laws, administrative regulations or with the informed consent of shareholders given in a general meeting, not to delegate the exercise of his discretion;
(4)	to treat shareholders of the same class equally and to treat shareholders of different classes fairly;
(5)	unless otherwise provided for in these Articles of Association or except with the informed consent of the shareholders given in a general meeting, not to enter into any contract, transaction or arrangement with the Company;
(6)	not to use the Company’s property for his own benefit, without the informed consent of the shareholders given in a general meeting;
(7)	not to exploit his position to accept bribes or other illegal income or expropriate the Company’s property in any way, including (without limitation) opportunities which benefit the Company;
(8)	not to accept commissions in connection with the Company’s transactions, without the informed consent of the shareholders given in a general meeting;
(9)	to comply with these Articles of Association, to perform his official duties faithfully, to protect the Company’s interests and not to exploit his position and power in the Company to advance his own interests;
(10)	not to release any confidential information which he has obtained during his term of office, without the informed consent of the shareholders in a general meeting; nor shall he use such information otherwise than for the Company’s benefit, save that disclosure of such information to the court or other governmental authorities is permitted if:		Guide 97
		(i)     disclosure is made under compulsion of law;

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		(ii)	public interests so warrants;
		(iii)	the interests of the relevant director, supervisor, general manager, deputy general manager or other senior officer so requires.
Article 215	The fiduciary duties to be discharged by directors in complying with the laws, administrative regulations and these Articles are as follows:			Guide 97
	(1) not to misappropriate the Company’s funds;
	(2) not to use the Company’s assets or funds to set up deposit accounts in his own name or in the any other name;
	(3) not to violate the provisions of these Articles and lend the Company’s funds or to use the Company’s assets to guarantee the debts of others with the approval of the shareholders’ general meeting or the board of directors;
	(4) not to abuse his positions to obtain business opportunities for himself or others which should belong to the Company, to engage in same business of the Company by himself or for others;
	(5) not to hamper the Company’s interests through its connected relationships;
	(6) to perform other fiduciary duties as required by the laws, administrative regulations, departmental rules and these Articles of Association.
	The income derived by the directors in violating this Article shall belong to the Company. Any loss incurred by the Company as a result of violating this Article shall be indemnified by the directors.
Article 216	The duties of diligence to be discharged by directors in complying with the laws, administrative regulations and these Articles of Association are as follows:			Guide 98
	(1) to exercise the rights conferred upon them in a prudent, serious and diligent manner so as to ensure that the commercial activities carried out by the Company are in compliance with the laws and administrative regulations, as well as the requirements of various economic policies of the State and falls within the scope of business provided for in the business license;

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	(2) to treat all shareholders equally;
	(3) to keep informed of the business operation and management of the Company is a timely manner;
	(4) to sign a written confirmation or opinion in connection with the regular reports of the Company and to ensure that the information disclosed by the Company is true, accurate and complete;
	(5) to inform the supervisory committee of the relevant circumstances and information that is in accordance with the facts, and shall not impede the supervisory committee or a supervisor from exercising their powers;
	(6) to perform other fiduciary duties as required by the laws, administrative regulations, departmental rules and these Articles of Association.
Article 217.	Each director, supervisor and senior officers of the Company shall not direct the following persons or institutions (“associates”) to do which he is prohibited from so doing:		MP117
	(1)	the spouse or minor child of the director, supervisor or senior officer;
	(2)	the trustee of the director supervisor or senior officer or of any person described in sub-paragraph (1) above;
	(3)	the partner of that director, supervisor or senior officer or any person referred to in sub-paragraphs (1) and (2) of this Article;
	(4)	a company in which that director, supervisor or senior officer, whether alone or jointly with one (1) or more of the persons referred to in sub-paragraphs (l), (2) and (3) of this Article and other directors, supervisors, general manager, deputy general managers and other senior officers, has de facto controlling interest;
	(5)	the directors, supervisors and senior officers of a company which is being controlled in the manner set out in sub-paragraph (4) above.
Article 218.	The fiduciary duties and duties of diligence of the directors, supervisors and senior officers may not necessarily be discharged by the resignation of the directors, supervisors, and senior officers of the Company becoming effective or expiry of the term with the procedures for handover having been duly completed. The duty of confidentiality in respect of trade secrets of the Company survives the termination of their tenure. Other duties may continue for such period as the principle of fairness may require depending		MP118, Guide 101

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	on the amount of time which has lapsed between the termination and the act concerned and the circumstances and the terms under which the relationship between the relevant director, supervisor, general manager, deputy general manager and the senior officer on the on hand and the Company on the other hand was terminated.
Article 219.	Subject to Article 50, a director, supervisor or senior officer of the Company may be relieved of liability for specific breaches of his duty with the informed consent of the shareholders given at a general meeting, except in the circumstances as provided under Article 60.	MP119
Article 220.	Where a director, supervisor or senior officer of the Company is in any way, directly or indirectly, materially interested in a contract, transaction or arrangement or proposed contract, transaction or arrangement with the Company (other than his contract of service with the Company), he shall declare the nature and extent of his interests to the board of directors at the earliest opportunity, whether or not the contract, transaction or arrangement or proposal therefor is otherwise subject to the approval of the board of directors.	MP120
	Unless the interested director, supervisor or senior officer discloses his interests in accordance with the preceding sub-paragraph of this Article and the contract, transaction or arrangement is approved by the board of directors at a meeting in which the interested director, supervisor or senior officer is not counted as part of the quorum and refrains from voting, a contract, transaction or arrangement in which that director, supervisor, or senior officer is materially interested is voidable at the instance of the Company except as against a bona fide party thereto who does not have notice of the breach of duty by the interested director, supervisor or senior officer.
	For the purposes of this Article, a director, supervisor or senior officer of the Company is deemed to be interested in a contract, transaction or arrangement in which his associate is interested.
Article 221.	Where a director, supervisor or senior officer of the Company gives to the board of directors a notice in writing stating that, by reason of the facts specified in the notice, he is interested in contracts, transactions or arrangements which may subsequently be made by the Company, that notice shall be deemed for the purposes of the preceding Article to be a sufficient declaration of his interests, so far as the content stated in such notice is concerned, provided that such notice shall have been given before the date on which the question of entering into the relevant contract, transaction or arrangement is first taken into consideration by the Company.	MP121

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Article 222.	The Company shall not pay taxes for or on behalf of a director, supervisor or other officer in any manner.		MP122
Article 223.	The Company shall not directly or indirectly make a loan to or provide any guarantee in connection with the making of a loan to a director, supervisor or senior officer of the Company or of the Company’s holding company or any of their respective associates.		MP123
	The foregoing prohibition shall not apply to the following circumstances:
	(1)	the provision by the Company of a loan or a guarantee in connection with the making of a loan to its subsidiary:
	(2)	the provision by the Company of a loan or a guarantee in connection with the making of a loan or any other funds available to any of its directors supervisor and senior officers to meet expenditure incurred or to be incurred by him for the purposes of the Company or for the purpose of enabling him to perform his duties properly, in accordance with the terms of a service contract approved by the shareholders in a general meeting;
	(3)	if the ordinary course of business of the Company includes the lending of money or the giving of guarantees, the Company may make a loan to or provide a guarantee in connection with the making of a loan to any of the relevant directors, supervisor and senior officers or their respective associates in the ordinary course of its business on normal commercial terms.
Article 224.	Any person who receives funds from a loan which has been made by the Company acting in breach of the preceding Article shall, irrespective of the terms of the loan, forthwith repay such funds.		MP124
Article 225.	A guarantee for the repayment of a loan which has been provided by the Company acting in breach of Article 223(1) shall not be enforceable against the Company, save in respect of the following circumstances:		MP125
	(1)	the guarantee was provided in connection with a loan which was made to an associate of any of the directors, supervisor and senior officers of the Company or of the Company’s holding company and the lender of such funds did not know of the relevant circumstances at the time of the making of the loan; or
	(2)	the collateral which has been provided by the Company has already been lawfully disposed of by the lender to a bona fide purchaser.
Article 226.	For the purposes of the foregoing provisions of this Chapter, a “guarantee” includes an undertaking or property provided to secure the obligor’s performance of his obligations.		MP126

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Article 227.	In addition to any rights and remedies provided by the laws and administrative regulations, where a director, supervisor or senior officer of the Company breaches the duties which he owes to the Company, the Company has a right:		MP127
	(1)	to demand such director, supervisor or senior officer to compensate it for losses sustained by the Company as a result of such breach;
	(2)	to rescind any contract or transaction which has been entered into between the Company and such director, supervisor or senior officer or between the Company and a third party (where such third party knows or should have known that such director, supervisor or senior officer representing the Company has breached his duties owed to the Company);
	(3)	to demand such director, supervisor or senior officer to account for profits made as result of the breach of his duties;
	(4)	to recover any monies which should have been received by the Company and which were received by such director, supervisor or senior officer instead, including (without limitation) commissions; and
	(5)	to demand repayment of interest earned or which may have been earned by such director, supervisor or senior officer on monies that should have been paid to the Company.
Article 228.	The Company shall, with the prior approval of shareholders in a general meeting, enter into a contract in writing with a director or supervisor wherein his emoluments are stipulated. The aforesaid emoluments include:		MP128
	(1)	emoluments in respect of his service as director, supervisor or senior officer of the Company;
	(2)	emoluments in respect of his service as director, supervisor or senior officer of any subsidiary of the Company;
	(3)	emoluments in respect of the provision of other services in connection with the management of the affairs of the Company and any of its subsidiaries;
	(4)	payment by way of compensation for loss of office, or as consideration for or in connection with his retirement from office.

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	No proceedings may be brought by a director or supervisor against the Company for anything due to him in respect of the matters mentioned in this Article except pursuant to the contract mentioned above.
Article 229.	The contract concerning the emoluments between the Company and its directors or supervisors should provide that in the event that the Company is acquired, the Company’s directors and supervisors shall, subject to the prior approval of shareholders in a general meeting, have the right to receive compensation or other payment in respect of his loss of office or retirement. For the purposes of this paragraph, the acquisition of the Company includes any of the following:		MP129
	(1)	an offer made by any person to the general body of shareholders;
	(2)	an offer made by any person with a view to the offeror becoming a “controlling shareholder” within the meaning of Article 61.
	If the relevant director or supervisor does not comply with this Article, any sum so received by him shall belong to those persons who have sold their shares as a result of such offer. The expenses incurred in distributing such sum on a pro rata basis amongst such persons shall be borne by the relevant director or supervisor and shall not be paid out of such sum.
Article 230	Without lawful authorization of these Articles or the board of directors, a director of the Company may not act personally on behalf of the Company or the board of directors. If he acts personally, he shall declare his own position and identity in advance where the acting would cause a third party to believe reasonably that he is acting on behalf of the Company or the board of directors.		Guide 102
Article 231	Any loss incurred by the Company as a result of the violation of laws, administrative regulations, departmental rules and these Articles of Association by the directors, supervisors and senior officers in performing the Company’s duties shall be indemnified by the directors, supervisors and senor officers.		Guide 103
	CHAPTER 15: FINANCIAL AND ACCOUNTING SYSTEMS, PROFIT DISTRIBUTION AND INTERNAL AUDIT
Article 232.	The Company shall establish its financial and accounting systems in accordance with laws, administrative regulations and PRC accounting standards formulated by the finance regulatory department of the State Council.		MP130
Article 233.	At the end of each fiscal year, the Company shall prepare a financial report which shall be examined and verified in a manner prescribed by law.		MP131

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Article 234.	The board of directors of the Company shall place before the shareholders at every annual general meeting such financial reports which the relevant laws, administrative regulations and directives promulgated by competent regional and central governmental authorities require the Company to prepare.	MP132
Article 235.	The Company’s financial reports shall be made available for shareholders’ inspection at the Company twenty (20) days before the date of every shareholders’ annual general meeting. Each shareholder shall be entitled to obtain a copy of the financial reports referred to in this Chapter. The Company shall deliver or send to each shareholder of Overseas-Listed Foreign-Invested Shares by prepaid mail at the address registered in the register of shareholders the said reports not later than twenty-one (21) days before the date of every annual general meeting of the shareholders.	MP133, C.7 Zheng Jian Hai Han [1995] No. 1 App.3 5
Article 236.	The financial statements of the Company shall, in addition to being prepared in accordance with PRC accounting standards and regulations, be prepared in accordance with either international accounting standards, or that of the place outside the PRC where the Company’s shares are listed. If there is any material difference between the financial statements prepared respectively in accordance with the two accounting standards, such difference shall be stated in the financial statements. In distributing its after-tax profits, the lower of the two amounts shown in the financial statements shall be adopted.	MP134
Article 237.	The Company shall publish or disclose and prepare its half year status or financial report according to the Chinese, as well as the overseas, accountancy and legal principles.	MP135
Article 238.	The Company shall submit its annual financial reports, interim financial report and quarterly financial report to the competent securities authorities under the State Council and relevant stock exchange within four months after the expiration of each fiscal year, within two months after the expiration of the first six months of each fiscal year and within one month after the expiration of the first three (3) months and the first nine (9) months of each fiscal year, respectively. The above financial reports shall be prepared and announced in accordance with the provisions of the law, administrative regulations and departmental rules.	MP136 Guide 150
Article 239.	The Company shall not keep accounts other than those required by law. No assets of the Company shall be used to set up deposit accounts in any other name.	MP137 Guide 151

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Article 240.	In the distribution of after-tax profits of a financial year, 10% of the profits shall be allocated to the statutory common reserve. No further allocation to the statutory common reserve is required where such reserve exceeds 50% of the registered capital of the Company.		Guide 152
	Where the statutory common reserve is insufficient to make up losses of the previous financial year, the profits of a financial year shall be applied to make up such losses before allocation to the statutory common reserve shall be made in accordance with the above provision.
	Upon the approval of the shareholders in general meeting, where the Company has made allocation to the statutory common reserve from the profits after tax, the Company may make allocation to the discretionary common reserve.
	Any surplus of profits after the Company has made up losses and made allocations to the statutory common reserve may be distributed as dividends to shareholders in proportion to their shareholdings.
	Where the Company or the board of directors, in breach of the above provisions, distribute dividends to shareholders before the Company has made up losses and made allocations to the statutory common reserve, such dividends distributed in breach of the above provisions shall be returned to the Company.
	No profits shall be distributed in respect of the shares held by the Company.
Article 241.	Capital common reserve fund includes the following items:		MP138
	(1)	premium on shares issued at a premium price;
	(2)	any other income designated for the capital common reserve fund by the regulations of the finance regulatory department of the State Council.
Article 242.	The common reserve fund of the Company shall be applied for the following purposes:		Guide 153
	(1) to compensate losses;
	(2) to expand the Company’s production and operation;
	(3) to convert the common reserve fund into share capital in order to increase its capital. The Company may convert its common reserve fund into share capital with the approval of shareholders in a general meeting.

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	When such conversion takes place, the Company shall either distribute new shares in proportion to the existing shareholders’ number of shares, or increase the par value of each share, provided, however, that when the statutory common reserve fund is converted to share capital, the balance of the statutory common reserve fund may not fall below 25 % of the registered capital before the conversion.
	Capital reserve fund shall not be used to make up losses of the Company.
Article 243.	Dividend shall be paid once a year. The shareholders shall by way of an ordinary resolution authorise the board of directors to declare and pay the interim and final dividends of the Company.
Article 244.	The Company may distribute dividends in the form of:		MP139
	(1)	cash;
	(2)	shares.
Article 245.	Dividends of the Company to be distributed in the form of cash shall account for certain percentage of the Company’s net profit after statutory reserve for the corresponding accounting year.
Article 246.	The Company shall calculate, declare and pay dividends and other amounts which are payable to holders of Domestic-Invested Shares in Renminbi. The Company shall calculate and declare dividends and other payments which are payable to holders of Overseas-Listed Foreign-Invested Shares in Renminbi, and shall pay such amounts in the local currency of the place in which such Overseas-Listed Foreign-Invested Shares are listed (if such shares are listed in more than one place, then the currency of the principal place on which such shares are listed as determined by the board of directors).
Article 247.	The Company shall pay dividends and other amounts to holders of Foreign-Invested Shares in accordance with the relevant foreign exchange control regulations of the State. If there is no applicable regulation, the applicable exchange rate shall be the average exchange reference rate of Renminbi to the relevant foreign currency announced by the Bank of China during five (5) working days prior to the announcement of payment of dividend and other amounts.
Article 248.	The Company shall appoint receiving agents for holders of the Overseas-Listed Foreign-Invested Shares. Such receiving agents shall receive dividends which have been declared by the Company and all other amounts which the Company should pay to holders of Overseas-Listed Foreign-Invested Shares on such shareholders’ behalf.		MP140, C.8 Zheng Jian Hai Han [1995] No. 1 App.13 Pt. D 1(c)

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	The receiving agents appointed by the Company shall meet the relevant requirements of the laws of the place at which the stock exchange on which the Company’s shares are listed or the relevant regulations of such stock exchange.
	The receiving agents appointed for holders of Overseas-Listed Foreign-Invested Shares listed in Hong Kong shall each be a company registered as a trust company under the Trustee Ordinance of Hong Kong.
Article 249.	In case of any use of the Company’s capital not in compliance with the relevant laws and regulations by any shareholder, the cash dividends to be distributed to such shareholder shall be deducted by the Company in compensation for the shareholder’s use of the Company’s capital.
Article 250.	The Company implements an internal audit system. Special audit personnel will conduct internal audit supervision on the Company’s income and expenditure and economic activities.	Guide 152
Article 251.	The internal audit system and the duties of the audit personnel shall take effect upon approval by the board of directors. The person in charge of the audit shall be accountable and report to the board of directors.	Guide 153
	CHAPTER 16: APPOINTMENT OF AUDITORS
Article 252.	The Company shall appoint an independent firm of accountants which is qualified under the relevant regulations of the State with relevant qualifications in securities affairs to audit the Company’s annual report and review the Company’s other financial reports.	MP141 Guide 158
	The first auditors of the Company may be appointed before the first annual general meeting of the Company at the inaugural meeting. Auditors so appointed shall hold office until the conclusion of the first annual general meeting.
	If the inaugural meeting does not exercise the powers under the preceding paragraph, those powers shall be exercised by the board of directors.
Article 253.	The auditors appointed by the Company shall hold office from the conclusion of the annual general meeting of shareholders at which they were appointed until the conclusion of the next annual general meeting of shareholders.	MP142

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Article 254.	The auditors appointed by the Company shall enjoy the following rights:		MP143
	(1)	a right to review to the books, records and vouchers of the Company at any time, the right to require the directors or senior officers of the Company to supply relevant information and explanations;
	(2)	a right to require the Company to take all reasonable steps to obtain from its subsidiaries such information and explanation as are necessary for the discharge of its duties;
	(3)	a right to attend shareholders’ general meetings and to receive all notices of, and other communications relating to, any shareholders’ general meeting which any shareholder is entitled to receive, and to speak at any shareholders’ general meeting in relation to matters concerning its role as the Company’s accountancy firm.
Article 255.	The Company shall ensure the provision of true and complete accounting evidences, accounting books, financial statements and other financial information to the accounting firm it has engaged with withheld, omission and fraud.		Guide 160
Article 256.	If there is a vacancy in the position of auditor of the Company, the board of directors may appoint an accountancy firm to fill such vacancy before the convening of the shareholders’ general meeting. Any other accountancy firm which has been appointed by the Company may continue to act during the period during which a vacancy arises.		MP144
Article 257.	The shareholders in a general meeting may by ordinary resolution remove the Company’s auditors before the expiration of its term of office, irrespective of the provisions in the contract between the Company and the Company’s auditors. However, the accountancy firm’s right to claim for damages which arise from its removal shall not be affected thereby.		MP145
Article 258.	The remuneration of an accountancy firm or the manner in which such firm is to be remunerated shall be determined by the shareholders in a general meeting. The remuneration of an accountancy firm appointed by the board of directors shall be determined by the board of directors.		MP146
Article 259.	The Company’s appointment, removal or non-reappointment of an accountancy firm shall be resolved by the shareholders in a general meeting. Such resolution shall be filed with the State Council. The removal or non-reappointment of an accountancy firm shall be notified to the accounting firm seven days in advance.		MP147, C.9 Zheng Jian Hai Han [1995] No. 1 App.13   Pt.D 1(e)(i) Guide 162

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Where a resolution at a general meeting of shareholders is passed to appoint as auditor a person other than an incumbent auditor, to fill a casual vacancy in the office of auditor, to reappoint as auditor a retiring auditor who was appointed by the board of directors to fill a casual vacancy or to remove an auditor before the expiration of his term of office, the following provisions shall apply:
(1)	A copy of the appointment or removal proposal shall be sent (before notice of meeting is given to the shareholders) to the firm proposed to be appointed or proposing to leave its post or the firm which has left its post in the relevant fiscal year (leaving includes leaving by removal, resignation and retirement).
(2)	If the auditor leaving its post makes representations in writing and requests the Company to give the shareholders notice of such representations, the Company shall (unless the representations have been received too late) take the following measures:
	(a)	in any notice of the resolution given to shareholders, state the fact of the representations having been made; and
	(b)	attach a copy of the representations to the notice and deliver it to the shareholders in the manner stipulated in these Articles of Association.
(3)	If the Company fails to send out the auditor’s representations in the manner set out in sub-paragraph (2) above, such auditor may (in addition to his right to be heard) require that the representations be read out at the meeting.
(4)	An auditor which is leaving its post shall be entitled to attend the following shareholders’ general meetings:
	(a)	the general meeting at which its term of office would otherwise have expired;
	(b)	the general meeting at which it is proposed to fill the vacancy caused by its removal; and
	(c)	the general meeting which convened as a result of its resignation,
and to receive all notices of, and other communications relating to, any such meeting, and to speak at any such meeting which it attends on any part of the business of the meeting which concerns it as former auditor of the Company.

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Article 260.	Prior notice should be given to the accountancy firm if the Company decides to remove such accountancy firm or not to renew the appointment thereof. Such accountancy firm shall be entitled to make representations at the shareholders’ general meeting. Where the accountancy firm resigns from its position as the Company’s auditors, it shall make clear to the shareholders in a general meeting whether there has been any impropriety on the part of the Company.		MP148, C.10 Zheng Jian Hai Han [1995] No. 1 App.13   Pt.D 1(e)(ii)- (e)(iv)
	An accountancy firm may resign its office by depositing at the Company’s legal address a resignation notice which shall become effective on the date of such deposit or on such later date as may be stipulated in such notice. Such notice shall contain the following statements:
	(1)	a statement to the effect that there are no circumstances connected with its resignation which it considers should be brought to the notice of the shareholders or creditors of the Company; or
	(2)	a statement of any such circumstances.
	Where a notice is deposited under the preceding sub-paragraph, the Company shall within fourteen (14) days send a copy of the notice to the relevant governing authority. If the notice contains a statement under the preceding sub-paragraph (2), a copy of such statement shall be placed at the Company for shareholders’ inspection. The Company should also send a copy of such statement by prepaid mail to every shareholder of Overseas-Listed Foreign Shares at the address registered in the register of shareholders.
	Where the auditor’s notice of resignation contains a statement in respect of the above, it may require the board of directors to convene a shareholders’ extraordinary general meeting for the purpose of receiving an explanation of the circumstances connected with its resignation.
	CHAPTER 17: INSURANCE
Article 261.	The different types or items of the Company’s insurance shall be insured in accordance with the relevant insurance law in China.
	CHAPTER 18: LABOUR AND PERSONNEL MANAGEMENT SYSTEMS
Article 262.	The Company may at its discretion employ and dismiss employees and enter into employment contracts with all employees based on the business development needs of the Company and in accordance with the requirements of the laws and administrative regulations of the State.

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Article 263.	The Company may formulate its labour and payroll systems and payment methods in accordance with the relevant laws and regulations of the State and the economical benefits of the Company.
Article 264.	The Company shall endeavour to improve its employee benefits and to continually improve the working environment and living standards of its employees.
Article 265.	The Company shall provide pension, medical, educational, occupier disability and unemployment insurance for its employees and put in place a social security system, in accordance with the relevant laws and regulations of the State.
	CHAPTER 19: TRADE UNIONS
Article 266.	The Company’s employees may form trade unions, carry on trade union activities and protect their legal rights. The Company shall provide the necessary conditions for such activities.
	CHAPTER 20: MERGER AND DIVISION OF THE COMPANY
Article 267.	In the event of the merger or division of the Company, a plan shall be presented by the Company’s board of directors and shall be approved in accordance with the procedures stipulated in these Articles of Association. The Company shall then go through the relevant approval process. A shareholder who objects to the plan of merger or division shall have the right to demand the Company or the shareholders who consent to the plan of merger or division to acquire such dissenting shareholders’ shareholding at a fair price. The contents of the resolution of merger or division of the Company shall constitute special documents which shall be available for inspection by the shareholders of the Company.	MP149
	Such special documents shall be sent by mail to holders of Overseas-Listed Foreign-Invested Shares.
Article 268.	The merger of the Company may take the form of either merger by absorption or merger by the establishment of a new company.	MP150, App.3 7(1)
	A company that absorbs other company is known as merger by absorption whereby the company being absorbed shall be dissolved. The merger of two or more companies by the establishment of a new company is known as merger by the establishment of a new company, whereby the merged companies shall be dissolved.	Guide 171

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	In the event of a merger, the merging parties shall execute a merger agreement and prepare a balance sheet and an inventory of assets. The Company shall notify its creditors within ten (10) days of the date of the Company’s merger resolution and shall publish a public notice in a newspaper at least three (3) times within thirty (30) days of the date of the Company’s merger resolution. Within thirty days the creditors receive the notice, or within forty-five days the notice is announced, the creditors may demand the Company to settle its debts or to provide corresponding guarantee.		Guide 172
	At the time of merger, rights in relation to debtors and indebtedness of each of the merged parties shall be assumed by the company which survives the merger or the newly established company.
Article 269.	Where there is a division of the Company, its assets shall be divided up accordingly.		MP151, App.3 7(1)
	In the event of division of the Company, the parties to such division shall execute a division agreement and prepare a balance sheet and an inventory of assets. The Company shall notify its creditors within ten (10) days of the date of the Company’s division resolution and shall publish a public notice in a newspaper at least three (3) times within thirty (30) days of the date of the Company’s division resolution.
	Debts of the Company prior to division shall be assumed incidentally by the companies which exist after the division, except those debts that have otherwise separately agreed by the Company with the creditors in writing for the settlement of the debts before the division.		Guide 175
Article 270.	The Company shall, in accordance with law, apply for change in its registration with the companies registration authority where a change in any item in its registration arises as a result of any merger or division. Where the Company is dissolved, the Company shall apply for cancellation of its registration in accordance with law. Where a new company is established, the Company shall apply for registration thereof in accordance with law.		MP152
	When there is increase or reduction in the share capital of the Company, the Company shall apply for change in its registration with the company registration authority in accordance with the law.		Guide 177
	CHAPTER 21: DISSOLUTION AND LIQUIDATION
Article 271.	The Company shall be dissolved and liquidated upon the occurrence of any of the following events:		MP153
	(1)	a resolution for dissolution is passed by shareholders at a general meeting;

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	(2)	dissolution is necessary due to a merger or division of the Company;
	(3)	the Company is legally declared insolvent due to its failure to repay debts as they become due; and
	(4)	the Company is ordered to close down because of its violation of laws and administrative regulations.
	Sub-paragraphs (1) and (2) of the above shall be approved by the State Council’s foreign trade and economic authorities.
	(5) shareholders holding at least 10% of the shares of the Company may apply to the People’s Court to dissolve the Company if the Company experiences extreme difficulties in respect of its operation and management, which cannot otherwise be resolved, such that if the Company continues to operate, its shareholders will suffer significant losses.		Guide 178
Article 272.	A liquidation committee shall be set up within fifteen (15) days of the Company being dissolved pursuant to sub-paragraph (1) of the preceding Article, and the composition of the liquidation committee of the Company shall be determined by an ordinary resolution of shareholders in a general meeting. If a liquidation committee is not set up within the specified time limit, the creditors of the Company may apply to the people’s court to appoint designated persons to carry out the liquidation.		MP154 Guide 180
	Where the Company is dissolved under sub-paragraph (3) of the preceding Article, the People’s Court shall in accordance with the provisions of relevant laws organise the shareholders, relevant organisations and relevant professional personnel to establish a liquidation committee to carry out the liquidation.
	Where the Company is dissolved under sub-paragraph (4) of the preceding Article, the relevant governing authorities shall organise the shareholders, relevant organisations and professional personnel to establish a liquidation committee to carry out the liquidation.
Article 273.	Where the board of directors proposes to liquidate the Company for any reason other than the Company’s declaration of its own insolvency, the board shall include a statement in its notice convening a shareholders’ general meeting to consider the proposal to the effect that, after making full inquiry into the affairs of the Company, the board of directors is of the opinion that the Company will be able to pay its debts in full within twelve (12) months from the commencement of the liquidation.		MP155

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	Upon the passing of the resolution by the shareholders in a general meeting for the liquidation of the Company, all functions and powers of the board of directors shall cease.
	The liquidation committee shall act in accordance with the instructions of the shareholders’ general meeting to make a report at least once every year to the shareholders’ general meeting on the committee’s income and expenses, the business of the Company and the progress of the liquidation; and to present a final report to the shareholders’ general meeting on completion of the liquidation.
Article 274.	The liquidation committee shall, within ten (10) days of its establishment, send notices to creditors and shall, within sixty (60) days of its establishment, publish a public announcement in a newspaper at least three (3) times.		MP156, App.3 7(1)
	A creditor shall, within thirty (30) days of receipt of the notice, or for creditors who have not personally received such notice, within forty five (45) days of the date of the first public announcement, report its rights to the liquidation committee. When reporting his rights, the creditor shall provide an explanation of matters which are relevant thereto and shall provide evidential material in respect thereof. The liquidation committee shall register the creditor’s rights.		Guide 182
	No repayment shall be made by the liquidation committee during the period of reporting creditors’ rights.
Article 275.	During the liquidation period, the liquidation committee shall exercise the following functions and powers:		MP157
	(1)	to sort out the Company’s assets and prepare a balance sheet and an inventory of assets respectively;
	(2)	to send notify the creditors or to publish public announcements;
	(3)	to dispose of and liquidate any unfinished businesses of the Company;
	(4)	to pay all outstanding taxes and taxes incurred in the process of liquidation;	Guide 181
	(5)	to settle claims and debts;
	(6)	to deal with the surplus assets remaining after the Company’s debts have been repaid;
	(7)	to represent the Company in any civil proceedings.

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Article 276.	After it has sorted out the Company’s assets and after it has prepared the balance sheet and an inventory of assets, the liquidation committee shall formulate a liquidation plan and present it to a shareholders’ general meeting or to the relevant governing authority or the people’s court for confirmation.	MP158 Guide 183
	The company’s assets shall be distributed in accordance with law or regulation. If there is no applicable law, such distribution shall be carried out in accordance with a fair and reasonable procedure determined by the liquidation committee.
	Any surplus assets of the Company remaining after its debts have been repaid in accordance with the provisions of the preceding paragraph shall be distributed to its shareholders according to the class of shares and the proportion of shares held.
	During the liquidation period, the Company subsists but shall not commence any business activities not related to liquidation. Prior to the repayment in accordance of the previous paragraphs, the Company’s assets shall not be distributed to the shareholders.
Article 277.	If after putting the Company’s assets in order and preparing a balance sheet and an inventory of assets in connection with the liquidation of the Company, the liquidation committee discovers that the Company’s assets are insufficient to repay the Company’s debts in full, the liquidation committee shall immediately apply to the People’s Court for a declaration of insolvency.	MP159
	After a Company is declared insolvent by a ruling of the People’s Court, the liquidation committee shall transfer all matters arising from the liquidation to the People’s Court.
Article 278.	Following the completion of the liquidation, the liquidation committee shall prepare a liquidation report, a statement of income and expenses received and made during the liquidation period and a financial report, which shall be verified by a Chinese registered accountant and submitted to the shareholders’ general meeting or the relevant governing authority or the people’s court for confirmation.	MP160 Guide 185
	The liquidation committee shall, within thirty (30) days after such confirmation, submit the documents referred to in the preceding paragraph to the companies registration authority and apply for cancellation of registration of the Company, and publish a public announcement relating to the termination of the Company.

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Article 279	The members of the liquidation committee shall act fiducially and perform the obligations of liquidation pursuant to the law.		Guide 186
	The members of the liquidation committee shall not take advantage of his office power, taking bribes or other illegal income or illegally taking possession of the assets of the Company.
	The members of the liquidation committee shall indemnify the loss incurred by the Company or the creditors as a result of his willful act or serious misconduct.
Article 280	Where the Company is declared bankrupt pursuant to the law, bankruptcy liquidation shall be implemented pursuant to the relevant enterprise bankruptcy law.		Guide 187
	CHAPTER 22: PROCEDURES FOR AMENDMENT OF THE COMPANY’S ARTICLES OF ASSOCIATION
Article 281.	The Company may amend its Articles of Association in accordance with the requirements of laws, administrative regulations and the Company’s Articles of Association.		MP161 Guide 188
	The Company shall amend these Articles of Association on the occurrence of any of the following events:
	(1) The Company Law or the relevant laws or administrative regulations are amended and these Articles are in conflict with the amended laws or administrative regulations;
	(2) There is change to the Company which makes it not consistent with these Articles of Association;
	(3) It has been approved by the shareholders in a general meeting to amend these Articles.
Article 282.	The Company’s Articles of Association shall be amended in the following manner:		Guide 53
	(1)	The board of directors, supervisory committee and shareholders who individually or jointly hold 5% or more of the Company’s voting shares shall propose the manner in which the Company’s Article of Association shall be amended;
	(2)	The foregoing proposal shall be furnished to the shareholders in writing and a shareholders’ meeting shall be convened;
	(3)	The amendments shall be approved by votes representing more than two-thirds of the voting rights represented by the shareholders present at the meeting.

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Article 283.	Amendment of the Company’s Articles of Association shall become effective upon receipt of approvals from the State Council’s foreign trade and economic authorities. Amendment involving the contents of the Mandatory Provisions of Overseas-Listed Companies’ Articles of Association shall become effective upon receipt of approvals from the State Council’s securities authorities and the companies approving department authorised by the State Council. If there is any change relating to the registered particulars of the Company, application shall be made for change in registration in accordance with law.		MP162
Article 284.	The board of directors shall amend these Articles of Association pursuant to the resolutions of shareholders in a general meeting for amendment of these Articles and the approval opinions of the competent authority.		Guide 190
Article 285.	If the amendment to the Articles of Association is a matter which is required by the relevant laws and regulations to be disclosed, an announcement shall be made in accordance with the provisions of those laws and regulations.		Guide 191
	CHAPTER 23: DISPUTE RESOLUTION
Article 286.	The Company shall abide by the following principles for dispute resolution:		MP163
	(1)	Whenever any disputes or claims arise between: holders of the Overseas-Listed Foreign-Invested Shares and the Company; holders of the Overseas-Listed Foreign-Invested Shares and the Company’s directors, supervisors or senior officers; or holders of the Overseas-Listed Foreign-Invested Shares and holders of Domestic-Invested Shares, in respect of any rights or obligations arising from these Articles of Association, the Company Law or any rights or obligations conferred or imposed by the Company Law and special regulations (including other relevant laws) or any other relevant laws and administrative regulations concerning the affairs of the Company, such disputes or claims shall be referred by the relevant parties to arbitration.
		Where a dispute or claim of rights referred to in the preceding paragraph is referred to arbitration, the entire claim or dispute must be referred to arbitration, and all persons who have a cause of action based on the same facts giving rise to the dispute or claim or whose participation is necessary for the resolution of such dispute or claim, shall, where such person is the Company, the Company’s shareholders, directors, supervisors or senior officers of the Company, comply with the arbitration.	C.11 Zheng Jian Hai Han [1995] No. 1

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		Disputes in respect of the definition of shareholders and disputes in relation to the register of shareholders need not be resolved by arbitration.
	(2)	A claimant may elect for arbitration to be carried out at either the China International Economic and Trade Arbitration Commission in accordance with its Rules or the Hong Kong International Arbitration Centre in accordance with its Securities Arbitration Rules. Once a claimant refers a dispute or claim to arbitration, the other party must submit to the arbitral body elected by the claimant.
		If a claimant elects for arbitration to be carried out at Hong Kong International Arbitration Centre, any party to the dispute or claim may apply for a hearing to take place in Shenzhen in accordance with the Securities Arbitration Rules of the Hong Kong International Arbitration Centre.
	(3)	If any disputes or claims of rights are settled by way of arbitration in accordance with sub-paragraph (1) of this Article, the laws of the PRC shall apply, save as otherwise provided in the laws and administrative regulations.
	(4)	The award of an arbitral body shall be final and conclusive and binding on all parties.
Article 287.	Definitions:		Guide 192
	(1) de facto controller means a party that is not a shareholder of the company, but shall be capable to control the act of the Company through investment relationship, agreement or other arrangements.
	(2) Connected relationship means the relationship between the controlling shareholder of the Company, its de facto controller, directors, supervisors, senior officers and enterprises directly or indirectly controlled by it, as well as other relationships that may result in the transfer of the Company’s interests. However, state-owned enterprises do not have connected relationship solely as a result of being controlled by the State.

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	CHAPTER 24: SUPPLEMENTARY
Article 288.	The rules of meetings of the shareholders’ general meeting, the board of
	directors and the supervisory committee are attached as Appendices to these Articles. In the event that the rules of meetings of the shareholders’ general meeting, the board of directors and the supervisory committee are in conflict with these Articles, these Articles shall prevail.
Article 289.	If a notice of the general meeting of shareholders, board meeting or meeting of the supervisory committee is issued by hand, the date when the recipient signed or stamped to acknowledge receipt of the same shall be regarded as the date of service of the notice. If the notice is issued by post, the seventh day from the date it is delivered to the post office shall be regarded as the date of service of the notice. If a notice of the Company is issued by public announcement, it shall be deemed received by the relevant officers once announced.	Guide 168
Article 290.	If a notice of meeting is accidentally omitted to be sent to any person who is entitled to receive pursuant to Article 168 of these Articles or that person has not received such a notice of meeting, it will not cause the meeting and any resolution made therein to be void.
Article 291.	Unless otherwise provided, the Company shall, where it is making a public announcement in the prescribed or approved manner, issue or deliver any notice or announcement in at least one (1) national newspaper which has been approved by the State Council Securities Policy Committee. And, where possible, to publish such notice or announcement in English and in Chinese on the same day in a major Chinese and a major English newspaper in Hong Kong respectively.
Article 292.	In these Articles of Association, references to “accountancy firm” shall have the same meaning as “auditors”.	MP165
Article 293.	These Articles of Association are written in Chinese and English. Both text shall be equally valid. If there is any discrepancy between the two versions, the Chinese version of the Articles of Association most recently filed at the Shandong Administration of Industry and Commence shall prevail.	Guide 194
Article 294	The expressions of “above”, “within” and “below” shall include the figures mentioned whilst the expression of “less than” shall not include the figures mentioned.	Guide 195
Article 295	These Articles of Association shall be interpreted by the Company’s board of directors.

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EX-4.1

Exhibit 4.1

Dated 7 July, 2004

Placing and Underwriting Agreement

between

Yanzhou Coal Mining Company Limited

as the Company

and

BNP Paribas Peregrine Capital Limited

as Underwriter

relating to

new H Shares in the capital of

Yanzhou Coal Mining Company Limited

INDEX

CLAUSE		PAGE NO.
1.	DEFINITIONS AND INTERPRETATION	2
2.	CONDITIONS	5
3.	APPOINTMENT OF THE PLACING AGENT	6
4.	COMPLETION OF THE PLACING	8
5.	COMMISSIONS AND EXPENSES	8
6.	REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS	9
7.	INDEMNITY AND LIMITATION ON CLAIMS	10
8.	PLACING ANNOUNCEMENT, ADVERTISEMENT AND CONFIDENTIALITY	11
9.	RESTRICTIONS ON DISPOSAL OF SHARES	11
10.	FURTHER ASSURANCE	12
11.	TERMINATION	12
12.	OVER-ALLOTMENT OPTION	13
13.	GENERAL	14
14.	NOTICES	16
15.	GOVERNING LAW AND JURISDICTION	16

SCHEDULE
SCHEDULE 1	WARRANTIES	17
SCHEDULE 2	SELLING RESTRICTIONS	24
SCHEDULE 3	PURCHASER’S LETTER	26

THIS AGREEMENT is dated 7 July, 2004 and made

BETWEEN:

(1) Yanzhou Coal Mining Company Limited, whose legal address is at 40 Fushan Road, Zoucheng, Shandong Province 273500, PRC (the “Company”); and

(2) BNP Paribas Peregrine Capital Limited, whose registered office is at 36/F., Asia Pacific Finance Tower, Citibank Plaza, 3 Garden Road, Central, Hong Kong (“BNP Peregrine” or “Placing Agent”);

RECITALS:

(A) The Company is a limited company incorporated in the People’s Republic of China as a joint stock limited company in accordance with the provisions set out in the PRC Company Law.

(B) As at the date hereof, the Company has a registered share capital of RMB2,870,000,000 made up of 1,850,000,000 Domestic Shares (including 180,000,000 A Shares) of nominal value of RMB1.00 each and 1,020,000,000 H Shares of nominal value RMB1.00 each, all of which have been issued and are fully paid up.

(C) All of the issued H Shares are listed on the Main Board of the Stock Exchange (as defined below) and the ADRs of the Company are listed on the New York Stock Exchange.

(D) The directors of the Company were granted a general mandate on 25 June 2004 to allot and issue and otherwise deal with up to 204,000,000 new H Shares, which mandate is in force and has not been amended or revoked.

(E) On 19 May 2004, a document titled 2004 [20] was issued by the China Securities Regulatory Commission, granting approval to the Company for the issue of up to 204,000,000 new H Shares.

(F) The Company has agreed to appoint the Placing Agent and the Placing Agent has agreed to act as the sole placing agent and underwriter for the purpose of procuring, as agent of the Company, purchasers for, or failing which, to purchase itself as principal the Placing Shares (as defined below) on terms and subject to conditions set out in this Agreement.

(G) The Company has also agreed to grant the Over-allotment Option in favour of the Placing Agent on terms and conditions herein to require the Company to issue up to 51,000,000 additional new H Shares.

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THE PARTIES HEREBY AGREE THAT:-

1. DEFINITIONS AND INTERPRETATION

1.1 In this Agreement (including the Recitals above) , the following expressions have the following meanings:-

“Accounts”	means the audited consolidated balance sheet and profit and loss account of the Group for the year ended 31 December 2003
“Agreement”	means this placing agreement as amended from time to time by agreement in writing duly executed by the Parties;
“A Shares”	means PRC domestically listed Shares in the share capital of the Company;
“Business Day”	means any day, excluding Saturdays, on which banks in Hong Kong are generally open for business;
“CCASS”	means the Central Clearing and Settlement System established and operated by Hong Kong Securities Clearing Company Limited;
“Completion”	means completion of the Placing in accordance with Clause 4;
“Completion Date”	means the second Business Day immediately after the date of the written notice from the Company to the Placing Agent referred to in Clause 2.3(b) or such other date as the Company and the Placing Agent may agree in writing;
“Companies Ordinance”	means the Companies Ordinance (Cap.32, Laws of Hong Kong), as amended from time to time;
“Conditions”	means the conditions of the Placing set out in Clause 2.1 hereof;
“Domestic Shares”	means PRC domestic Shares, including A-Shares;
“Expenses”	means the expenses relating to the Placing referred to in Clause 5.1(b) hereof;
“Group”	means the Company and its Subsidiaries and the expression “member of the Group” shall be construed accordingly;

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“HK$”	means Hong Kong Dollars, the lawful currency of Hong Kong;
“H Shares”	means overseas listed foreign Shares in the share capital of the Company;
“Hong Kong”	means the Hong Kong Special Administrative Region of the PRC;
“Listing Rules”	means the Rules Governing the Listing of Securities on the Main Board of the Stock Exchange;
“NYSE”	means the New York Stock Exchange, Inc.;
“Parties”	means the parties to this Agreement;
“Placees”	means the subscribers of the Placing Shares pursuant to the Placing and includes, where the context so requires, the subscribers for the Over-allotment Option Shares;
“Placing”	means the offer by way of a private placing of the Placing Shares by or on behalf of the Placing Agent to selected Placees upon the terms and subject to the conditions set out in this Agreement;
“Placing Announcement”	means the press announcement on the agreed form proposed to be issued by the Company immediately following the execution of this Agreement;
“Placing Period”	means the period commencing upon the execution of this Agreement and terminating on the Completion Date or where the context so requires, the last date for the exercise of the Over-allotment Option unless terminated earlier pursuant to this Agreement;
“Placing Price”	means the price of HK$8.3 per Placing Share;
“Placing Proceeds”	means the sum of the number of the Placing Shares multiplied by the Placing Price;
“Placing Shares”	means initially 153,000,000 new H Shares to be placed pursuant to the Placing representing approximately 15% of the H Shares currently in issue or approximately 13% of the H Shares in the Share capital as enlarged after the Placing and where the context so requires, such new H Shares together with the Over-allotment Option Shares;

3

“PRC”	means the People’s Republic of China;
“Over-allotment Option ”	means the option granted by the Company in favour of the Placing Agent in Clause 12;
“Over-allotment Option Shares”	means up to 51,000,000 additional new H Shares which may be required to be issued by the Company pursuant to the Over-allotment Option;
“Over-allotment Placing Proceeds”	means the sum of the number of the Over-allotment Option Shares in respect of which the Over-allotment Option has been exercised by the Placing Agent multiplied by the Placing Price;
“Regulation S”	means Regulation S under the Securities Act;
“RMB”	means Renminbi, the lawful currency of the PRC;
“SEC”	means the United States Securities and Exchange Commission;
“SFC”	means the Securities and Futures Commission of Hong Kong;
“Shares”	means shares in the capital of the Company with RMB denominated par value of RMB1.00 each;
“Stock Exchange”	means The Stock Exchange of Hong Kong Limited;
“Subsidiary”	bears the same meaning set out in Section 2 of the Companies Ordinance as at the date hereof;
“Unplaced Shares”	means (i) such of the 153,000,000 Placing Shares which have not been placed to the Placees by or on behalf of the Placing Agent under this Agreement as at the end of the Placing Period and (ii) such of the 51,000,000 Over-allotment Option Shares as to which the Placing Agent has exercised the Option which have not been placed to Placees by or on behalf of the Placing Agent.

1.2 In this Agreement:-

(A) References to Recitals, Clause and Schedules are to the clauses and sub-clauses of, and the recitals and schedules to, this Agreement;

(B) References to any statutory provision or any rule or regulation (whether or not having the force of law) shall be construed as references to the same as amended, varied, modified, consolidated or re-enacted from time to time and to any subordinate legislation made under such statutory provision;

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(C) References to holding companies and subsidiaries are to the same as defined in Section 2 of the Companies Ordinance;

(D) Words importing the singular include the plural and vice versa, words importing one gender include every gender, and references to persons include bodies corporate and unincorporated; and

(E) Headings are for ease of reference only and shall not affect the interpretation of this Agreement.

1.3 The Recitals and Schedules form part of this Agreement and shall have the same force and effect as if expressly set out in the body of this Agreement and any reference to this Agreement shall include the Recitals and the Schedules.

2. CONDITIONS

2.1 Conditions

Completion of this Agreement is conditional upon:

(a) the Listing Committee of the Stock Exchange granting or agreeing to grant listing of and permission to deal in the Placing Shares and the Over-allotment Option Shares (subject only to the allotment and issue of such shares and/or despatch of the relevant share certificates);

(b) such listing approval not being subsequently revoked or suspended at any time prior to 9:30 a.m. on the Completion Date;

(c) trading in the H Shares on the Stock Exchange not being suspended for any single period of more than 2 consecutive Business Days during any time after the publication of the Placing Announcement but prior to the Completion Date; and

(d) there being no material breach of any of the warranties, representations and undertakings given by the Company under this Agreement.

2.2 Failure to Fulfil

If any of the Conditions has not been fulfilled on or before 21 July 2004 (or such other date as the Placing Agent may agree in writing with the Company), the obligations of the Parties under this Agreement shall ipso facto cease and determine and no party shall have any claim against any other party in respect of any matter or thing arising out of or in connection with this Agreement except in accordance with Clause 11.2.

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2.3 Fulfilment of the Conditions

(a) the Company agrees to use its best endeavours to procure the fulfilment of the Conditions in accordance with Clause 2.1; and

(b) the Company shall immediately give written notice to the Placing Agent of the fulfilment of the Condition in Clause 2.1(a) and attach to such notice a copy of the letter from the Stock Exchange granting listing of and permission to deal in the Placing Shares.

3. APPOINTMENT OF THE PLACING AGENT

3.1 Appointment

Subject to the provisions of this Agreement, the Company hereby appoints the Placing Agent as the sole placing agent to the exclusion of all others and the Placing Agent, relying on the representations, warranties and undertakings herein contained and subject to the conditions as hereinafter mentioned agrees to act as agent for the Company during the Placing Period to procure subscribers for, or failing which itself to subscribe as principal, 153,000,000 Placing Shares (not including those in the Over-allotment Option) at the Placing Price (together with such Stock Exchange trading fee, SFC transaction levy and SFC investor compensation levy as may be payable by the Placees).

3.2 Placing

The Placing Agent shall be entitled to conduct and undertake the Placing in such manner as it thinks fit including, without prejudice to the generality of the foregoing, the manner of reporting the transaction to the Stock Exchange and the SFC and the choice of Placees, subject to the requirements of the Listing Rules and other applicable laws and regulations. In particular, the Placing Agent will use its reasonable endeavours to ensure that (i) each Placee is a third party that is independent of and not connected with the Company, any promoter, director, supervisor, chief executive or substantial shareholder of the Company or any of its Subsidiaries, or any of their respective associates (as defined in the Listing Rules) and (ii) the Placing Shares will not be offered or sold in the United States or to U.S. Persons unless the Placing Shares are registered under the Securities Act, or an exemption from the registration requirements of the Securities Act is available. Placees purchasing Placing Shares pursuant to the private placement exemptions from registration under the Securities Act shall complete a purchaser’s letter substantially in the form set forth in Schedule 3. The Placing Agent shall promptly provide to the Stock Exchange all information concerning itself and the Placees in accordance with the relevant provisions of the Listing Rules and as the Stock Exchange may reasonably require.

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3.3 Powers

The Company hereby confirms that this appointment confers on the Placing Agent:-

(a) all powers and authorities to issue any placing letter to, and to enter into contracts on behalf of the Company (subject to and in accordance with the terms and conditions described herein) with, prospective Placees, and on behalf of the Company to execute and deliver any and all documents and generally to do all such other lawful and proper acts and things as the Placing Agent may consider necessary or desirable to effect the Placing and issue of the Placing Shares to the Placees thereof and the registration thereof in their names (or as they may direct); and

(b) all other powers, authorities and discretions on behalf of the Company which are necessary for, or reasonably incidental to, the lawful making of the Placing and the due performance of this Agreement,

and the Company hereby agrees to ratify and confirm everything which the Placing Agent shall lawfully and reasonably do on its behalf in the exercise of such appointment, powers, authorities and discretions or otherwise pursuant to or in anticipation of the terms of this Agreement.

3.4 Undertaking

The Placing Agent confirms, acknowledges and undertakes to the Company in the terms of Schedule 2 hereto.

3.5 Agency

Any transaction properly carried out by the Placing Agent (or a sub-placing agent or sub-underwriting agent) under and in accordance with this Agreement shall constitute a transaction carried out at the request of the Company and the Company agrees that the Placing Agent shall not be responsible for any loss or damage (except for any loss or damage arising out of any gross negligence, wilful default, non-compliance with its material obligations under this Agreement or fraud on the part of any Placing Agent or any of its sub-placing agents) suffered by or caused to the Company arising from or in connection with any transaction or matter pursuant to or relating to this Agreement and the performance of the terms hereof or from any alleged insufficiency of the Placing Price.

3.6 Sub-Agents

The Company hereby acknowledges that the Placing Agent, in performing its functions under this Clause 3, is authorised to appoint one or more sub-placing or sub-underwriting agents (“Sub-Agents”) and that such Sub-Agents shall be the agents of the Placing Agent relating to the Placing on the terms of and subject to the provisions of this Agreement and the Company hereby authorises and confirms that it will, forthwith upon request by the Placing Agent, ratify and approve all actions legally and properly taken or to be taken by such Sub-Agents in connection with the Placing in

7

accordance with the terms of this Agreement. The Company further acknowledges that such Sub-Agents shall be entitled to rely on the representations, warrants and undertakings contained in this Agreement. The Placing Agent confirms and undertakes that it shall require the Sub-Agents to observe the selling restrictions set out in Schedule 2 of this Agreement.

3.7 Unplaced Shares

In the event that, as at the Completion Date, there are any Unplaced Shares, the Placing Agent shall on the Completion Date subscribe the Unplaced Shares at the Placing Price less the amounts referred to in Clause 5. If there are no Unplaced Shares as at the end of the Completion Date, the obligations of the Placing Agent under this Clause shall cease.

4. COMPLETION OF THE PLACING

Subject to fulfilment of the Conditions, Completion shall take place in the following manner: -

(a) on or before 11:00 a.m. on the Completion Date, the Company shall allot and issue all Placing Shares and deposit all Placing Shares into the CCASS Participant Account designated by the Placing Agent; and

(b) on or before 11:00 a.m. on the Completion Date, the Placing Agent shall pay or procure payment to the Company in HK$ the Placing Proceeds less the Expenses and the placing commission payable to it pursuant to Clause 5.1(a) by cheque (crossed “account payee only”) or cashier’s order drawn on a licensed bank in Hong Kong and payable to the Company or, if the Company so requests in writing, by transfer to such bank account as the Company may have nominated in writing or by such other means as the Company and the Placing Agent may agree.

5. COMMISSIONS AND EXPENSES

5.1 Fees, Commissions and Expenses

In consideration of the services of the Placing Agent, the Company shall pay to the Placing Agent:-

(a) provided that Completion occurs, a placing commission in HK$ dollars of 2% of the Placing Proceeds (out of which the Placing Agent will pay any placing commissions payable by them to any Sub-Agents in respect of the Placing) plus any sum payable pursuant to Clause 12.3 which the Placing Agent shall, without prejudice to the Company’s obligations herein provided, be at liberty to deduct from the amount of the Placing Proceeds payable by it to the Company as provided in Clause 4 (b); and

(b) SFC transaction levy, Stock Exchange trading fee, SFC investor compensation levy as may be payable by the Company in respect of the Placing Shares and

8

the Placing Agent’s legal fees, costs, disbursements and other expenses incurred in connection with this Agreement, the Placing, and all matters and documentation relating thereto, which the Placing Agent shall, without prejudice to the Company’s obligations herein provided be at liberty to deduct from the amount of the Placing Proceeds payable by it to the Company as provided in Clause 4(b).

5.2 Brokerage

The Company hereby acknowledges that, in addition to the commission, costs, charges and expenses referred to in Clause 5.1, the Placing Agent shall be entitled to keep for its own account any brokerage that it may receive from the Placees.

5.3 Payment

Save as expressly provided in this Agreement, all costs, charges and expenses of or incidental to this Agreement and the Placing shall be paid by the party incurring those expenses. All payments to be made by the Company pursuant to this Clause 5 shall be made in full without any set-off, deduction or withholding whatsoever. The Company shall be liable for the costs and expenses of its own legal and other professional advisers and out-of-pocket expenses incurred in connection with the Placing.

6. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS

6.1 Representations and Warranties

In order to induce the Placing Agent to enter into this Agreement and to perform its obligations hereunder, the Company represents, warrants and undertakes to the Placing Agent, for itself and as agent for each of the Placees, in the terms of Schedule 1.

6.2 Period

The representations, warranties and undertakings contained in this Clause 6 are given as at the date of this Agreement and will be deemed to be repeated at completion of the Placing and at the allotment of any Over-allotment Option Shares pursuant to the exercise of the Over allotment Option and on each day between with reference to the facts and circumstances then subsisting.

6.3 Notification of Breach

The Company undertakes to notify the Placing Agent of any matter or event which becomes known to it prior to completion of the Placing and of the allotment of the Over-allotment Option Shares pursuant to the exercise of the Over-allotment Option which would or would reasonably be considered to render or have rendered any representation or warranty given by it to be or to have been untrue, inaccurate or misleading in any respect.

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6.4 Breach

If prior to Completion it becomes known to the Placing Agent that any of the representations or warranties given by the Company in Clause 6.1 is untrue, inaccurate or misleading which is material in the context of the Placing, the Placing Agent may by notice to the Company terminate this Agreement, whereupon this Agreement shall terminate and Clause 11.2 shall apply.

6.5 New Factors

Without prejudice to Clause 6.3, the Company shall immediately procure that particulars of every significant new factor known to it which is capable of affecting assessment of the Placing Shares in the context of the Placing which arises between the date hereof and the last date for exercise of the Over-allotment Option pursuant to Clause 12 hereof shall be promptly provided to the Placing Agent.

7. INDEMNITY AND LIMITATION ON CLAIMS

7.1 The Company hereby undertakes to the Placing Agent (for itself and as trustee for each of its subsidiaries and holding companies and subsidiaries of such holding companies and each of their respective officers, employees and agents) and each sub-placing agent or sub-underwriter (each, together with the relevant Placing Agent, an “Indemnified Person”) appointed under this Agreement to indemnify and hold indemnified each Indemnified Person against any and all liabilities, losses, claims, costs, charges and expenses of any nature whatsoever (including, without limitation, all costs, charges and expenses which any Indemnified Person may incur or bear in disputing or defending any such claim made against it or establishing any claim on its part under this Clause 7) arising from or in respect of any investigation actions, claims, demands, proceedings or judgements which may be instituted or brought or threatened by any person or governmental or regulatory agency or authority against any such Indemnified Person (whether or not the same is successful, compromised or settled) in each case arising out of, in relation to or in connection with the performance by the Placing Agent of its obligations hereunder, or any Placee or other acquirer of any of the Placing Shares or any subsequent purchaser or transferee thereof or any other person claiming that he has suffered loss in respect of such shares, or otherwise as a result of or in connection with:-

(a) the placing of the Placing Shares;

(b) any material breach of any of the representations, warranties and undertakings in this Agreement; or

(c) otherwise in connection with the Placing and the Over-allotment Option and this Agreement

(all of the above, together “Liabilities”).

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7.2 No claim shall be made against the Placing Agent or any person, appointed as a sub-underwriter or sub-placing agent pursuant to this Agreement by the Company to recover any damage, cost, charge or expense which the Company may suffer or incur by reason of or arising from the carrying out by the Placing Agent of the work to be done by it pursuant hereto or the performance of its obligations hereunder or otherwise in connection with the Placing (except for any loss or damage arising out of any gross negligence, wilful default, non-compliance with its obligations under this Agreement or fraud on the part of the Placing Agent).

7.3 The foregoing provisions of this Clause 7 shall remain in full force and effect notwithstanding completion of the Placing.

8. PLACING ANNOUNCEMENT, ADVERTISEMENT AND CONFIDENTIALITY

8.1 The Company shall cause the Placing Announcement in the form agreed by it and the Placing Agent and initialled by them or on their behalf, subject to such modifications as they may agree to be published in English and in Chinese on the first Business Day after the date of this Agreement, and shall cause a similar announcement to be filed with the SEC and the NYSE. Subject only thereto, the Company and its Subsidiaries shall save as required by law or relevant requirements of the Stock Exchange, NYSE or the Shanghai Stock Exchange, keep the contents of this Agreement confidential and shall not make any public announcement or communication regarding the Placing or concerning the Company or any of its Subsidiaries which is material in relation to the Placing at any time before completion thereof without prior written approval from the Placing Agent (which consent not to be unreasonably withheld or delayed). Thereafter, no such announcement or communication shall be made by the Company or the Placing Agent for the period of one week after the Completion Date without the party in question consulting the other party and taking into account that party’s reasonable request in relation to content, timing and manner of the making thereof.

9. RESTRICTIONS ON DISPOSAL OF SHARES AND RIGHT OF FIRST REFUSAL

9.1 The Company undertakes to the Placing Agent that (except for (i) the allotment and issue of the Placing Shares pursuant to this Agreement and (ii) any H Shares or other securities or rights issued or granted to shareholders by way of bonus or under any scrip dividend or similar arrangement providing for the allotment of shares in lieu of the whole or part of a dividend on shares of the Company in accordance with its Articles of Association or on the exercise of rights existing at the date of this Agreement) for the period of three months from Completion Date it will not (otherwise than pursuant to the Over-allotment Option), allot or issue, or agree to allot or issue H Shares or other securities of the Company or grant or agree to grant any options, warrants or other rights to subscribe for or convertible or exchangeable into H Shares or other securities of the Company or repurchase H Shares or other securities of the Company (either conditionally or unconditionally, or directly or indirectly, or otherwise) or announce any intention to do so during the three months immediately following the Completion Date unless the prior written consent of the Placing Agent have been obtained (such consent not to be unreasonably withheld or delayed).

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10. FURTHER ASSURANCE

10.1 The Company shall execute and perform (and procure that there are executed and performed) such further documents and acts as the Placing Agent may reasonably require to give effect to the provisions of this Agreement and, in particular, to vest the beneficial and registered ownership of the Placing Shares in the Placees, and to give effect to the provisions of this Agreement.

10.2 The Company undertakes to the Placing Agent to take all action necessary to procure that the Placees are registered as shareholders, and that they are duly issued with share certificates (if requested by the Placees and/or the Placing Agent), in respect of the Placing Shares as soon as reasonably practicable after Completion.

10.3 The Company shall not, and shall procure that no member of the Group shall at any time prior to or in the Completion Date do or omit to do anything which may cause any of the representations and warranties made by it and set out in this Agreement to be untrue or misleading in any material respect.

11. TERMINATION

11.1 Events

Notwithstanding any other provision of this Agreement, if at any time on or prior to 9:30 a.m. on the Completion Date:

(a) there develops, occurs or comes into effect:

(i) any event, development or change (whether or not local, national or international or forming part of a series of events, developments or changes occurring or continuing before, on and/or after the date hereof), including an event or change in relation to or a development of an existing state of affairs of a political, military, industrial, financial, economic, fiscal, regulatory or other nature, whether or not ejusdem generis with any of the foregoing, resulting in an adverse change in, or which might be expected to result in a material adverse change in, political, economic, fiscal, financial, regulatory or stock market conditions;

(ii) the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange due to exceptional financial circumstances or otherwise

(iii) any material adverse change in conditions of local, national or international securities markets

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(iv) any new law or regulation or material change in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority in Hong Kong or any other jurisdiction relevant to the Group;

(v) a material change or development involving a prospective change of taxation or exchange control (or the implementation of exchange control) in Hong Kong or elsewhere; or

(vi) the instigation of any litigation or claim of material importance by any third party against any member of the Group, and which, in the opinion of the Placing Agent after such consultation with the Company as is reasonably feasible in the circumstances is or is likely to be materially adverse to the Group or would materially prejudice the success of the Placing; or

(vii) any event, a series of events beyond the reasonable control of the Placing Agent (including acts of government, strikes, lock-outs, fire, flooding, acts of God, outbreak of diseases); or

(b) it comes to the notice of the Placing Agent that any of the representations, warranties or undertakings of the Company contained in this Agreement is untrue or inaccurate, or has been breached or not complied with in any respect considered by the Placing Agent to be material or any event occurs or any matter arises on or after the date hereof and prior to the Completion Date which if it had occurred or arisen before the date hereof would have rendered any of the representations and warranties untrue or incorrect in any material respect or there has been a material breach by the Company of any other provision of this Agreement; or

(c) it comes to the notice of the Placing Agent that there has been any change in the business or financial or trading position of the Group considered by the Placing Agent after such consultation with the Company as is reasonably feasible in the circumstances to be material and adverse then and in any such case, the Placing Agent may by written notice to the Company terminate this Agreement whereupon clause 11.2 shall apply.

11.2 Effect of Termination

If this Agreement terminates or is terminated in accordance with its terms, then the provisions of this Agreement shall (save for Clauses 5, 6, 7 and 8) cease to have any force or effect and no party hereto shall have any claim against any other party hereto, but without prejudice to the then accrued rights and obligations of the parties in respect of any antecedent breaches of any obligations under this Agreement and to the continued application of all provisions hereof relating to the interpretation or enforcement of such provisions.

12. OVER-ALLOTMENT OPTION

12.1 The Company hereby grants the Over-allotment Option to the Placing Agent exercisable at any time during the period commencing from the date of this

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Agreement and ending at 4:30 p.m. of the 3^rd Business Day after the date of this Agreement (“Over-allotment Option Period”) to require the Company to issue the Over-allotment Option Shares in such numbers and to such persons as the Placing Agent shall in its absolute discretion direct, at the Placing Price per Over-allotment Option Share.

12.2 The Over-allotment Option will be exercisable in whole or in part and from time to time, during the Over-allotment Option Period for the purposes of:

(a) covering over-subscriptions in connection with the Placing; and/or

(b) covering over-allocations which may be made in connection with the Placing.

The Over-allotment Option shall be exercisable by written notice served by the Placing Agent on the Company at any time during the Over-allotment Option Period setting out the number of the Shares as to which the Placing Agent is then exercising the Over-allotment Option. Upon the exercise of the Over-allotment Option, the Placing Agent shall be obliged to procure subscribers for, or failing which itself to subscribe as principal, such number of Over-allotment Option Shares specified in the written notice above. Payment and delivery shall be simultaneous and time and date of payment and delivery shall be at the same time as the Completion of the Placing.

12.3 The Company acknowledges and agrees that the amount payable by the Placing Agent to the Company with respect to the Over-allotment Option Shares in respect of which the Over-allotment Option has been exercised by the Placing Agent shall be the aggregate Placing Price for such Over-allotment Option Shares less a placing commission in HK dollars of 2% of the Over-Allotment Placing Proceeds (out of which the Placing Agent will pay any placing commissions payable to Sub-Agents). The Company shall pay the relevant brokerage, and if required by the Stock Exchange, the SFC Transaction levy, Stock Exchange trading fee and SFC investor compensation levy for such Over-allotment Option Shares and such out-of-pocket and other expenses as may be reasonably incurred by the Placing Agent in relation to the exercise of the Over-allotment Option. Such amounts may be deducted by the Placing Agent from the Over-Allotment Placing Proceeds prior to payment to the Company.

12.4 On and subject to the terms of this Agreement, the Company hereby undertakes that it will after receipt of the notice referred to in Clause 12.2 above from the Placing Agent duly allot and issue such number of Over-allotment Option Shares as set out in the notice to such person(s) as the Placing Agent may request in such notice.

13. GENERAL

13.1 Variation

Any variation to this Agreement shall be binding only if recorded in a document signed by each of the parties hereto.

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13.2 Time of Essence

Any time, date or period mentioned in this Agreement may be extended by mutual agreement between the Company and the Placing Agent but as regards any time, date or period originally fixed or any date or period so extended as aforesaid, time shall be of the essence of this Agreement.

13.3 Waiver and Indulgence

The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law and shall survive and not be affected by completion of the Placing or the allotment of the Over-allotment Option Shares pursuant to the exercise of the Over-allotment Option. No failure by any party to exercise, and no delay on its part in exercising, any right power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right power or remedy or prejudice or affect any right against any person under the same liability whether joint, several or otherwise. Without limiting the foregoing, no waiver by any party of any breach of any provision hereof shall be deemed to be a waiver of any subsequent breach of that or any other provision hereof.

13.4 Agreement Binding and Assignment

This Agreement shall be binding on and enure for the benefit of each party’s respective successors and permitted assigns. None of the parties may assign or transfer any of their rights or obligations under this Agreement, save that the Placing Agent may assign the benefit of the representations warranties and undertakings contained herein (in whole or in part) to the Indemnified Parties or the Placees and their respective successors (or any one or more of them).

13.5 Counterparts

This Agreement may be executed in any number of counterparts, and by the Parties on separate counterparts, but shall not be effective until each party has executed at least one counterpart.

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14. NOTICES

14.1 Addresses

All notices delivered hereunder shall be in writing in the English Language or the Chinese Language and shall be communicated to the address and/or to the facsimile number of the party specified herein, or to such other address and/or facsimile number as the relevant party shall have notified to the other parties hereto in accordance with the terms hereof:

If to the Company, to:

Address	:	40 Fushan Road, Zoucheng, Shandong Province 273500, PRC
Fax Number	:	(537)538 3311
Attention	:	Mr. Wu Yuxiang/ Mr. Chen Guangshui

If to the Placing Agent, to:

BNP Paribas Peregrine Capital Limited:

Address	:	36/F Asia Pacific Finance Tower, 3 Garden Road, Central, Hong Kong
Fax Number	:	2845-3664
Attention	:	Gilbert Wong

14.2 Service

Any such notice shall be served personally by hand or by post or by facsimile. Any notice shall be deemed to have been given, if served personally by hand during normal business hours, when delivered and if sent by post, 3 days after posting or 7 days after posting in the case of air mail and if sent by facsimile, upon receipt of confirmation of transmission. Any notice received on a day which is not a Business Day shall be deemed to be received on the next Business Day.

15. GOVERNING LAW AND JURISDICTION

This Agreement shall be governed by and construed in accordance with the laws of Hong Kong and the parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of the Hong Kong courts in connection herewith.

IN WITNESS whereof the Parties hereto have caused this Agreement to be duly executed on the date first above written.

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SCHEDULE 1

WARRANTIES

1. The Company is duly incorporated and is validly existing under the laws of the place of its incorporation with power to conduct its business in the manner presently conducted and the information contained in the recitals to this Agreement is true and accurate.

2. The Company has the full right, power and authority to enter into and perform its obligations under this Agreement and to allot and issue the Placing Shares and all necessary authorisations, approvals, consents and licences relating to the same have been unconditionally obtained and are in full force and effect, and this Agreement is duly authorised and when executed is a legal, valid and binding agreement of the Company, enforceable in accordance with its terms.

3. The execution and delivery of, and the performance by the Company of its obligations under, this Agreement and the creation, allotment and issue of the Placing Shares have been duly authorised and do not and will not:

(a) result in a violation or breach of and will comply with the provisions of the articles of association or the constitutive documents of the Company and all relevant applicable provisions of the Companies Ordinance, the Listing Rules, the Hong Kong Code on Takeovers and Mergers and all other applicable laws, rules and regulations; or

(b) result in a breach of, or constitute a default under, or result in the creation or imposition of any lien, charge, encumbrance or claim pursuant to, any instrument, agreement or arrangement to which any member of the Group is a party or by which any member of the Group or any of their respective assets are bound; or

(c) result in a breach of any laws to which any member of the Group is subject or by which any member of the Group or any of their respective assets are bound; or

(d) require any sanction or consent of the Company’s shareholders which has not been obtained as at the date hereof.

4. All approvals, sanctions, consents, permissions and authorisations from any relevant governmental or other authority or any other person required for the creation, allotment and issue of the Placing Shares have been or will (prior to the commencement of the Placing) be validly obtained.

5. All of the Placing Shares will, when allotted and issued, be properly allotted and issued and will:

(a) be duly and validly authorised and issued and will be fully paid up;

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(b) have attached to them the rights and benefits specified in the articles of association of the Company and in particular, with all rights attaching thereto as at the Completion Date, including the right to dividend or distribution declared, made or paid on or after the Completion Date;

(c) rank pari passu in all respects with the H Shares in issue as at the date of this Agreement;

(d) not be subject to any pre-emptive or other similar rights in relation to the transfer thereof;

(e) be free from any mortgage, charge, pledge, lien, option, third party right or interest or other encumbrances, security interests or claims of any nature whatsoever; and

(f) be evidenced by share certificates which will be in a form which complies with all applicable laws and which certificates will constitute good evidence of title in respect of the Placing Shares.

6. All of the existing issued H Shares are listed on the Stock Exchange and will continue to be so listed at completion of the Placing and the allotment of the Over-allotment Option Shares pursuant to the exercise of the Over-allotment Option and there are no circumstances whereby such listing may be suspended (other than suspension resulting from any delay in clearance of the Placing Announcement in connection with the Placing by the Stock Exchange), cancelled or revoked. The Company is not in breach of any rules, regulations or requirements of the Stock Exchange, the SFC, the NYSE, the SEC or any other regulatory authority or governmental agency.

7. The Company is not aware of any circumstances whereby the listing of the Placing Shares will be suspended (other than suspension resulting from any delay in clearance of the Placing Announcement in connection with the Placing by the Stock Exchange), cancelled or revoked.

8. The Company will promptly provide the Placing Agent, at its reasonable request, with all such information known to it or which on reasonable enquiry ought to be known to it relating to the Group as may be required by the Placing Agent in connection with the Placing for the purpose of complying with any applicable law, regulation or direction (including the establishment of any defense to any action under any of the same, whether relating to due diligence or otherwise) or any requirement of the Stock Exchange, the NYSE, the SFC, the SEC or any other applicable regulatory body.

9. The Company shall not, and shall procure that no connected person (as defined in the Listing Rules) of the Company shall, subscribe or agree to subscribe any of the Placing Shares.

10. All information supplied or disclosed by or on behalf of the Company or any director of the Company to the Placing Agent or its respective legal and other professional advisers for the purposes of the Placing is true and accurate in all respects and not misleading.

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11. The Company does not have actual knowledge of any matter: -

(a) which has not been disclosed to the public;

(b) which is not otherwise in the public domain;

(c) of which the Placing Agent is unaware; and

(d) which has arisen otherwise than in the ordinary course of the business of the Group (or any member thereof)

and which is material in the context of the Placing and could, reasonably be regarded as making it inadvisable or inexpedient to proceed with the Placing.

12. The recitals of this Agreement and all facts and information contained in the Placing Announcement to be published in accordance with Clause 8 concerning the Company are and will at the date of issue thereof be true, correct and complete in all respects and not misleading in the form and context in which they appear.

13. Save for this Agreement, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Placing Agent for any brokerage, commission, finder’s fee or other like payment in connection with the Placing.

14. The Accounts:-

(a) have been prepared in accordance with all applicable laws and regulations and on a basis consistent with previous audited accounts of the Group in respect of the immediately preceding financial years and in accordance with generally accepted accountancy principles, standards and practices in Hong Kong as at the date of the Accounts;

(b) give a true and fair view of the state of affairs of the Group as at, and its results for the financial period ended on, 31 December 2003 and correctly set out the issued share capital, assets, liabilities and reserves of the Group as at such date; and

(c) make full provision for all actual liabilities (including without limitation in respect of taxation) and contain proper provision for or notes of all contingent and prospective liabilities (including without limitation in respect of taxation) and capital commitments.

15. Since the date of the Accounts:

(a) each member of the Group has carried on its business in the ordinary and usual course so as to maintain it as a going concern and in the same manner as

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previously carried on and since such date has not entered into any material contract, transaction or commitment outside the ordinary course of business or of an unusual or onerous nature;

(b) there has been no material adverse change in the condition, financial, trading or otherwise of the business or prospects of the Group taken as a whole nor has there been any development involving a prospective material adverse change in or affecting the general affairs, management, financial position, prospects, shareholders’ equity or results of operations of the Group taken as a whole;

(c) each member of the Group has continued to pay its creditors in the ordinary course of business;

(d) each member of the Group has not to any material extent acquired, sold, transferred or otherwise disposed of any assets of whatsoever nature or cancelled, waived, released or discounted in whole or in part any debts or claims, save in transactions involving only members of the Group;

(e) each member of the Group has not taken on or become subject to any material contingent liability, save in respect of obligations of other members of the Group.

16. There are no circumstances relating to the Group or its financial or trading position or prospects which are not generally known but, if they were known to a potential acquirer of the Placing Shares might affect the decision of such person to acquire the Placing Shares on the terms of this Agreement or might affect the willingness of the Placing Agent

17. No event or circumstance has occurred which constitutes or could constitute an infringement or default, or could result in the acceleration of any obligation, under any agreement, undertaking, instrument or arrangement to which any member of the Group is a party or by which any member of the Group or any of its properties, revenues and assets are bound, and no member of the Group has received notice to repay under any agreement relating to any borrowing or indebtedness in the nature of borrowing on the part of any member of the Group which is repayable on demand, or to perform any guarantee or indemnity given by any of them in relation to the indebtedness or obligations of any person, and to the knowledge of the Company there are no circumstances which might lead to any of the aforesaid events, matters or circumstances arising or occurring.

18. No member of the Group is in breach of or in default (nor has any event occurred which, with the giving of notice or the lapse of time or both would result in a default) under any law, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease, licence, certificate or authorisation or other agreement or instrument to which it is a party or which is binding upon or affects it or any of its assets or revenues or the operation of its business, or is in breach or violation of its business licence, memorandum and articles of association, bye-laws or other constitutive documents, to an extent which is material in the context of the Group as a whole.

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19. No member of the Group has taken any action, nor have any other steps been taken, or any legal proceedings been started or threatened, by any person against any member of the Group, or for its winding up or dissolution, or for it to enter into any arrangement or composition for the benefit of creditors, or for the appointment of a receiver, trustee, administrator or similar officer of any of them, or any of their respective properties, revenues or assets, and each member of the Group can pay its debts as and when they fall due for payment.

20. No member of the Group is engaged or involved directly or indirectly in any litigation, arbitration, governmental or administrative proceeding or investigation, claim or dispute which individually or collectively is or may have a material adverse effect on the Company or any other member of the Group or on the financial position of the Group taken as a whole or is or may otherwise be of material importance in the context of the Placing and so far as the Company is aware, having made all due and reasonable enquiries, no such litigation, arbitration, proceeding, investigation, claim or dispute is threatened or pending nor are there any circumstances which are likely to give rise to any such litigation, arbitration, governmental or administrative proceeding, investigation, claim or dispute.

21. All applicable returns, reports or filings which ought to have been made by or in respect of each member of the Group for taxation purposes have been made and all such returns are up to date, correct and on a proper basis and are not the subject of any dispute with the relevant revenue or other appropriate authorities and to the knowledge of the Company, there are no present circumstances likely to give rise to any such dispute.

22. The Company is not in breach in any material respect in the context of the Placing of any rules, regulations or requirements of the Stock Exchange or any applicable law, decree, judgement, legislation, order, regulation, statute, ordinance, treaty or other legislative measure;

23. Until the expiration of 40 days after the Completion Date, the Company will not deposit any of its securities with the depositary administering the Company’s American Depositary Receipts program.

24. The Company will be responsible for any Stock Exchange trading fee, SFC transaction levy and SFC investor compensation levy payable (insofar as they are payable by the Company pursuant to the Listing Rules) by the Company and will indemnify the Placing Agent against any liability, claim, cost, charge or expense in respect thereof or in connection therewith;

25. Otherwise than in the ordinary course of business, none of the Company or its Subsidiaries has entered into a material contract or commitment of an unusual or onerous nature which, in the context of the Placing might be material for disclosure and each such company has carried on its business in the ordinary and usual course;

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26. Neither the Company nor any of its affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act) nor any person acting on its or their behalf (1) has, directly or indirectly, made offers or sales of any security, or solicited offers to buy, or will do so, or otherwise negotiated in respect of, any security, under circumstances that would require the registration of the Placing Shares under the Securities Act or (2) has engaged, or will engage, in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with any offer or sale of the Placing Shares in the United States;

27. Neither the Company nor any of its affiliates (as defined in Rule 405 under the Securities Act) nor any person acting on its or their behalf (other than the Placing Agent or any of its affiliates as to which no representation is made) has engaged, or will engage, in any directed selling efforts (as defined in Regulation S) with respect to the Placing Shares;

28. Neither the Company nor any of its affiliates (as defined in rule 501(b) of Regulation D under the Securities Act) nor any person acting on its or their behalf has taken or will take, directly or indirectly, any action designed to cause or result in, or that has constituted or which might reasonably be expected to cause, or to result in, the stabilisation in violation of applicable laws or manipulation of the price of any securities of the Company to facilitate the sale or resale of the Placing Shares;

29. There is no substantial US market interest (as defined in Rule 902(j) of Regulation S under the Securities Act) in the Company’s securities;

30. The Company is a foreign private issuer (as defined in Rule 405 under the Securities Act);

31. The Placing Shares are not of the same class (within the meaning of Rule 144A under the Securities Act) as securities listed on a national securities exchange registered under section 6 of the Exchange Act or quoted in a United States automated inter-dealer quotation system;

32. The Company is not, and as a result of the offer and sale of the Placing Shares will not, be a foreign personal holding company or a passive foreign investment company for the purposes of the United States Internal Revenue Code of 1986, as amended;

33. Within the six months preceding the date of this Agreement, neither the Company nor any person acting on its behalf has offered or sold to any person any H Shares or any securities of the Company of the same or a similar class as the Placing Shares. The Company will take reasonable precautions designed to ensure that any offer or sale, direct or indirect, in the United States or to any US person (as defined in Rule 902 under the Securities Act) of any H Shares or any substantially similar securities issued by the Company, within six months subsequent to the date on which the distribution of the Placing Shares has been completed, is made under restrictions and other circumstances reasonably designed to ensure that any such offer or sale will not affect the status of the sale of the Placing Shares in the United States and to US persons contemplated by this Agreement as transactions exempt from the registration provisions of the Securities Act; and

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34. The Company is not, and as a result of the offer and sale of the Placing Shares will not, be an “investment company” registered or required to be registered under the US Investment Company Act of 1940, as amended.

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SCHEDULE 2

SELLING RESTRICTIONS

The Placing Agent confirms and undertakes to the Company that:-

1. General :- The Placing Agent has not and will not, directly or indirectly, offer, sell or deliver any Placing Shares or distribute or publish any documents in relation to the Placing (including without limitation to the foregoing, any prospectus, form of application, offering circular, advertisement or other offering material or any report or other document intended to invite or lead to offers or agreements being made to subscribe the Placing Shares) or make any representations or statements in relation to the Placing) in any country or jurisdiction except in accordance with the provisions of this Agreement under circumstances that will not result in the breach of any applicable laws and regulations or give rise to a requirement for any prospectus to be published or filed or any registration or qualification to be made or obtained, and all offers, sales and deliveries of the Placing Shares will be made on such terms.

2. Hong Kong :- The Placing Agent represents and agrees that (i) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Placing Shares other than to persons whose ordinary business is to buy or sell shares or debentures, whether as personal or as agent, or otherwise in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance and (ii) the Placing Agent has not issued or caused to be issued and will not issue any documents in relation to the Placing in Hong Kong (unless permitted to do so under the securities laws of Hong Kong) other than with respect to the Placing Shares intended to be disposed of to persons outside Hong Kong or only to “professional investors” which the meaning of the Securities and Futures Ordinance and any rules made thereunder.

3. Terms used in this Section shall have the meanings ascribed to them in Regulation S.

The Placing Shares have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, US persons except pursuant to an exemption from the registration requirements of the Securities Act. The Placing Agent further confirms and undertakes that it has offered and sold the Placing Shares and agrees that it will offer to sell the Placing Shares, only (i) outside the United States, in offshore transactions as defined in, and in accordance with, Rule 903 of Regulation S or (ii) within the United States, to institutional “accredited investors” within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act that have completed a purchaser’s letter in the form set forth in Schedule 3. Neither the Placing Agent nor its affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act) nor any person acting on its or their behalf has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with any offer or sale of the Placing Shares in the United States. All offers and sales of the Placing Shares shall only be made under restrictions and other circumstances designed to preclude a distribution that would otherwise require registration of the Placing Shares under the Securities Act and in all

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cases in compliance with the Securities Act, the U.S. Securities Exchange Act of 1934 and applicable United States laws. The Placing Agent will not deposit the Placing Shares, or cause Placing Shares to be deposited into any unrestricted depositary receipt facility established or maintained by a depositary bank unless and until such time as the Placing Shares are no longer “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act. The Placing Agent agrees that, at or prior to the Completion Date, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Placing Shares from it during the distribution compliance period a confirmation or notice to substantially the following effect:

“The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and may not be offered, sold or resold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date of the offering, except in either case (1) outside the United States in offshore transactions in accordance with Regulation S under the Securities Act or (2) within the United States in accordance with Rule 144 under the Securities Act (if available). In such case, such offer or sale must be made in accordance with any applicable securities laws of any state of the United States. Terms used above have the meanings given to them by Regulation S under the Securities Act.”

4. United Kingdom :- The Placing Agent has not offered or sold and will not offer any Placing Shares in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purpose of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995. Each Placing Agent has not communicated or caused to be communicated any invitation or inducement to engage in investment activity (using the meaning of Section 21 of the Financial Services Act 2000) received by it in connection with the issue or sale of any Placing Shares except in circumstances in which Section 21(1) of the Financial securities and Markets Act 2000 does not apply to the Company. Each Placing Agent has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 with respect to anything done by it in relation to the Placing Shares in, from or otherwise involving the United Kingdom. Each Placing Agent has issued or passed on and will issue or pass on in the United Kingdom any publication or document received by it in connection with the Placing only to and are directed at persons who have professional experience in matters relating to investment falling within Article 19(1) of The Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (the “Order”) or high net worth entities, and other persons to whom it may otherwise lawfully be communicated falling within Article 49(1) of the Order (all such persons together being referred to as “relevant persons”). The Placing Shares are available only to, and any institutions, offer or agreement to subscribe purchase or otherwise acquire such will be engaged in only with, relevant persons who is a person to whom the publication or document may otherwise lawfully be issued or passed on.

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SCHEDULE 3

PURCHASER’S LETTER

BNP Paribas Peregrine Capital Limited, 36/F., Asia Pacific Finance Tower Citibank Plaza 3 Garden Road Central, Hong Kong Yanzhou Coal Mining Company Limited 40 Fushan Road Zoucheng, Shandong Province 273500 People’s Republic of China

Ladies and Gentlemen:

Re: Yanzhou Coal Mining Company Limited

We are delivering this letter in connection with the placing of up to 204,000,000 newly issued overseas listed foreign shares (the “Placing Shares”) of the Yanzhou Coal Mining Company Limited, a limited company incorporated in the People’s Republic of China as a joint stock limited company in accordance with the provisions set out in the PRC Company Law (the “Company”).

We hereby confirm that:

(i) we are an institutional “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the United States Securities Act of 1933, as amended (the “Securities Act”), or an entity in which all of the equity owners are accredited investors within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act (an “Institutional Accredited Investor”);

(ii) (A) any purchase of the Placing Shares by us will be for our own account or for the account of one or more other Institutional Accredited Investors or as fiduciary for the account of one or more trusts, each of which is an “accredited investor” within the meaning of Rule 501(a)(7) of Regulation D under the Securities Act and for each of which we exercise sole investment discretion; if we are purchasing for the accounts of other Institutional Accredited Investors, (1) we reasonably believe that each such Institutional Accredited Investor can bear the economic risk of its investment in the Placing Shares and (2) we have all necessary authority to make the foregoing representations on behalf of, and to act for, each such Institutional Accredited Investor, or (B) we are a “Bank” within the meaning of Section 3(a)(2) of the Securities Act or a “Savings and loan association” or other institution described in Section 3(a)(5)(A) of the Securities Act that is acquiring the Placing Shares as fiduciary for the account of one or more institutions for which we exercise sole investment discretion;

(iii) we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing the Placing Shares, and if we are purchasing the Placing Shares for our own account, we can bear the economic risk of our investment in the Placing Shares;

(iv) we are not acquiring the Placing Shares with a view to distribution thereof or with any present intention of offering or selling any of the Placing Shares; and

(v) we acknowledge that we have had access to such financial and other information and have been afforded the opportunity to ask such questions of representatives of the Company and received answers thereto, as we deem necessary in connection with our decision to purchase the Placing Shares; and we are not relying on any information other than the results of our independent investigation of the Company.

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We understand that the Placing Shares are being offered in a transaction not involving any public offering within the United States within the meaning of the Securities Act and that the Placing Shares have not been and will not be registered under the Securities Act, and we agree, on our own behalf and on behalf of each account for which we acquire any Placing Shares, that, if in the future we decide to resell, pledge or otherwise transfer such Placing Shares, such Placing Shares may be offered, resold, pledged or otherwise transferred only (A) by an initial investor (i) in an offshore transaction meeting the requirements of Rule 903 or 904 of Regulation S under the Securities Act or (ii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available) (resales described in subclauses (i) and (ii) of this clause (A) are referred to herein as the “Safe Harbor Resales”), or (B) by a subsequent investor, in a Safe Harbor Resale or pursuant to any other available exemption from the registration requirements under the Securities Act (provided that Rule 144A is not an available exemption under the Securities Act and that as a condition to the registration of transfer of any Placing Shares otherwise than in a Safe Harbor Resale, the Company may require delivery of any documents or other evidence (including, but not limited to, an opinion of counsel) that it, in its sole discretion, may deem necessary or appropriate to evidence compliance with such exemption), or (C) pursuant to an effective registration statement under the Securities Act, and in each of such cases in accordance with any applicable securities laws of any state of the United States. We will notify any purchaser of Placing Shares from us of the foregoing resale restrictions, if then applicable; and we acknowledge that no representation has been made to us as to the availability of the exemption provided by Rule 144 under the Securities Act for resales of the Placing Shares.

We acknowledge that you will rely upon our confirmation, acknowledgments, representations and agreements set forth herein, and we agree to notify you promptly in writing if any of our representations or warranties herein ceases to be accurate and complete. We hereby agree that this letter or a copy hereof may be produced to any interested party in any administrative or legal proceeding or official enquiry with respect to the matters covered hereby.

We hereby certify that all necessary action has been taken to authorise the purchase of the Placing Shares and the execution of this letter.

This letter shall be governed by, and construed in accordance with, the laws of the State of New York.

Yours faithfully,

For and on behalf of

(Company name)

By:

Title:

Address:

Date:

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SIGNATURE PAGE

SIGNED by Wu Yuxiang		)
		)
for and on behalf of		)	(Signed) Wu Yuxing
Yanzhou Coal Mining Company Limited		)
in the presence of:		)
Witness’ signature	:		(Signed) P.H. Chik
Witness’ name	:		CHIK PUI HONG
Witness’ occupation	:		SOLICITOR
Witness’ address	:		14/F., HUTCHISON HSE
			10 HARCOURT ROAD
			CENTRAL
			HONG KONG
SIGNED by Gilbert Wong		)
		)	(Signed) Gilbert Fong
for and on behalf of		)
BNP Paribas Peregrine Capital Limited		)
in the presence of:		)
Witness’ signature	:		(Signed) Zhu Dong
Witness’ name	:		Zhu Dong
Witness’ occupation	:
Witness’ address	:		Unit 1418, South Tower, Beijing Kerry Center, Guang Hua Road, Chuo Yang District, Beijing, PRC

28

EX-4.2

Exhibit 4.2

SOUTHLAND COAL PTY LTD

(RECEIVERS AND MANAGERS APPOINTED)

(LIQUIDATORS APPOINTED)

ACN 000 077 225

(“Vendor”)

AND

ANDREW JOHN LOVE

(“Receiver”)

AND

YANZHOU COAL MINING COMPANY LIMITED

ASSET SALE AGREEMENT

HENRY DAVIS YORK

Lawyers

44 Martin Place

Sydney NSW 2000

DX: 173 Sydney

TeL (02)9947 6000

Fax: (02) 9947 6999

www.hdy.com.au

Ref: RJT/SARI3 101686

TABLES OF CONTENTS

1.	DEFINITIONS AND INTERPRETATIONS	1
2.	INTERDEPENDENT CONTRACTS AND CONDITIONS PRECEDENT	8
3.	BUSINESS ASSETS TO BE SOLD	13
4.	PURCHASER	14
5.	PURCHASE PRICE AND PAYMENT	14
6.	GST	17
7.	VALUATION OF PLANT AND EQUIPMENT	18
8.	COMPLETION	19
9.	PAYMENTS IN ADVANCE OR ARREARS	20
10.	ACKNOWLEDGMENTS BY PURCHASER	22
11.	COMPUTER LICENCES, PROPERTY LEASES, PERMITS TO OPERATE AND CONTRACTS	22
12.	MINING TENEMENTS AND ENVIRONMENTAL PROTECTION LICENCES	24
13.	TITLE & RISK	25
14.	OBLIGATIONS BEFORE AND AFTER COMPLETION	26
15.	WARRANTIES	27
16.	LIMITATION OF LIABILITY	28
17.	RECEIVERS ARE NOT LIABLE	30
18.	TERMINATION	30
19.	ANNOUNCEMENTS	32
20.	DISPUTE RESOLUTION	32
21.	DUTIES, COSTS AND EXPENSES	34
22.	GENERAL	34

SCHEDULE 1	Warranties	39
SCHEDULE 2	Plant & Equipment	42
SCHEDULE 3	Freehold Property	43
SCHEDULE 4	Mining Tenements	44
SCHEDULE 5	Property Leases	45
SCHEDULE 6	Encumbrances	46
SCHEDULE 7	Contracts	47
SCHEDULE 8	Environmental Protection Licences	48

ANNEXURE A	Additional Tenement Area	50
ANNEXURE B	Escrow Deed	51
ANNEXURE C	Conveyor System Test	52
ANNEXURE D	Water Levels Test	53
ANNEXURE E	Continuous Miner Scope of Works	56
ANNEXURE F	Agreed Care and Maintenance Program	57

THIS AGREEMENT is made the 5th day of October 2004

PARTIES

SOUTHLAND COAL PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (LIQUIDATORS APPOINTED) ACN 000 077 225 of c/- Ferrier Hodgson, Level 17, 2 Market Street, Sydney NSW 2000 (“Vendor”)

AND

ANDREW JOHN LOVE of Ferrier Hodgson, Level 17, 2 Market Street, Sydney NSW 2000 (“Receiver”)

AND

YANZHOU COAL MINING COMPANY LIMITED of 40 Fushan Road, Zoucheng, Shandong Province, 273500, China (“Yanzhou”)

RECITALS

A. Pursuant to the terms of the Joint Venture Agreement, the Vendor has the Vendor Interest and Thiess has the Thiess Interest in various assets which together comprise the Business Assets.

B. The Receivers were jointly and severally appointed receivers and managers of the Vendor Interest in the Business Assets on 30 December 2003.

C. The Vendor has agreed to deliver and Yanzhou has agreed to buy or to procure that the Yanzhou Nominee buys the Business Assets on the terms set out in this agreement.

OPERATIVE PART

1. DEFINITIONS AND INTERPRETATIONS

1.1 Definitions

The following words have these meanings in this agreement:

“Abadare Reject Disposal Area” means Lot 2/1036300 and Lot 3/1036300.

“Additional Payment” means the sum of $4,000,000 payable by the Purchaser in accordance with clause 5.3.

“Additional Tenement Area” means the area shown or a substantial part of the area shown on the diagram attached as Annexure A.

1

“Agreed Care and Maintenance Program” means the care and maintenance program in respect of the Business Assets set out in Annexure F.

“Area of the No. 1 Shaft” means that part of Lot 3/7 14067 containing the shaft and associated infrastructure and equipment.

“Area of the No. 2 Shaft” means the land on which the No. 2 Shaft is located, being land covered by Consolidated Coal Lease 782.

“Assumed Liabilities” mean statutory liabilities for end of mine life closure and for remediation costs in respect of the Mining Tenements.

“Business” means the coal mining and processing business carried on at the Mine and includes the Business Assets and also means, where the context requires, any part of the Business.

“Business Assets” means the following assets used in the Business:

(a) the Business Records;

(b) the Computer Licences

(c) the Contracts;

(d) the Environmental Protection Licences

(e) the Goodwill;

(f) the Mining Tenements;

(g) the Permits to Operate;

(h) the Plant and Equipment;

(i) the Promotional Material;

(j) the Property Leases; and

(k) the Stock

but excludes the Freehold Properties which are the subject of a separate contract between the Vendor and the Purchaser.

“Business Day” means a day (excluding a Saturday or Sunday) on which banks are open for business in Sydney, New South Wales.

2

“Business Records” means to the extent they relate exclusively to the Business and to the extent they are in the possession or control of the Vendor and Thiess:

(a) records of the Contracts, the Property Leases, the Computer Licences, the Mining Tenements, the Permits to Operate and the Environmental Protection Licences, including the original (and where applicable, stamped) versions of all such documents and instruments;

(b) computer programs, databases and software;

(c) all geological and geophysical reports and information, mine technical and engineering drawings, plans and data, feasibility studies, reports and analysis (including documents and records developed by Thiess in respect of the Mine in the course of the Joint Venture Agreement);

(d) formulas, processes, patterns, product designs, engineering data and other knowhow;

(e) any other documents and records held in respect of the Business Assets;

and for the avoidance of doubt, excludes records of the Receivers and statutory records in relation to the Business Assets.

“Claim” means any claim or cause of action including

(a) in contract;

(b) in tort (including misrepresentation or negligence); or

(c) under statute (including the Trade Practices Act, 1974 (Cth) or the Fair Trading Act 1987 (NSW) or similar legislation in other states or territories of Australia),

in respect of this agreement, the Business or any of the Business Assets.

“Commissioner” means the Commissioner of Taxation.

“Completion” means completion of the sale and purchase of the Business Assets under clause 8.1.

“Completion Payment” means the sum of $16,600,008 payable by the Purchaser in accordance with clause 5.2.

“Computer Licences” means the computer and software licences granted in connection with the Business

3

“Condition Precedent” means a condition precedent specified in clause 2.1.

“Continuous Miner” means the Continuous Miner located at the intersection of 5 cut through and A heading of the SL5 maingate.

“Contracts” means the contracts and commitments entered into in the ordinary course of conducting the Business including, but not limited to those contracts listed in Schedule 7.

“Department” means the New South Wales Department of Mineral Resources.

“Deposit” means an amount of $2,000,000 payable by the Purchaser under clause 5.1.

“Disclosure Material” means the documentation and information in relation to the Business Assets and the Freehold Property contained in the data room and any other documentation and information in relation to the Business Assets provided to or made available to the Purchaser, the Purchaser’s Solicitors or any other of the Purchaser’s advisers by or on behalf of the Vendor in writing.

“Encumbrance” means any mortgage, charge, pledge, lien, other security interest or encumbrance, but does not include a lien arising as a matter of law, and including those encumbrances as set out in Schedule 6.

“Environmental Protection Licences” means the licences granted under Chapter 3 of the Environment Act listed in Schedule 8.

“Environment Act” means the Protection of the Environment Operations Act 1997 (New South Wales).

“EPA” means the New South Wales Environment Protection Authority.

“Escrow Deed” means the Escrow Deed in the form attached as Annexure B.

“Excluded Assets” means the following assets used in or arising out of the Business:

(a) the Longwall Equipment; and

(b) the Continuous Miner.

“Freehold Property” means the real property listed in Schedule 3.

“Goodwill” means the goodwill in respect of the Business and includes the exclusive right for the Purchaser to represent itself as carrying on the Business as the successor of the Vendor.

4

GST Law means the A New Tax System (Goods and Services Tax) Act 1999 and any other law which imposes or otherwise deals with the imposition or administration of a goods and services tax in Australia.

GST Rate means the rate of GST under the GST Law.

GST, Input Tax Credit, Supply and Tax Invoice have the same meanings as under the GST Law.

“Joint Venture Agreement” means the Joint Venture Agreement (Southland Colliery Joint Venture) between the Vendor and Thiess dated 22 May 2001.

“Joint Venture Parties” means the Vendor and Thiess collectively.

“Liabilities” means any duty, liability (including in respect of any Loss) or obligation affecting the person concerned, however it arises and whether it is present or future, fixed or unascertained, actual or contingent, other than Assumed Liabilities.

“Liquidation Value” means the liquidation value for items of Plant and Equipment obtained by the Vendor from a recognised licensed valuer prior to the date of this agreement.

“Longwall Equipment” means any equipment located on the inaccessible side of the permanent seals which are located at the entrances to the SM longwall area.

“Loss” means any loss, Claim, action, judgment, liability, damage, cost (including reasonable legal costs and disbursements), charge, expense, outgoing, payment, or diminution in value or deficiency of any kind.

“Mine” means the Southland colliery and processing plant operated near Cessnock in the Hunter Valley, New South Wales.

“Mining Act” means the Mining Act 1992 (New South Wales).

“Mining Payments” means rent, outgoings, royalties and other payments payable in connection with the Mining Tenements.

“Mining Tenements” means the mining leases listed in Schedule 4.

“Minister” means the New South Wales Minister for Mineral Resources.

“Pacific National Contract” means the Agreement to Carry Coal between the Vendor and Pacific National (NSW) Pty Limited dated 19 March 2003.

5

“Permits to Operate” means the licences and permits used in connection with the Business.

“Plant and Equipment” means the plant, equipment, machinery, tools, furniture, fixtures, fittings and motor vehicles owned by the Business and used in the Business including those items as listed in Schedule 2.

“Promotional Material” means advertising material, sales literature, catalogues, display stands, signs, film, plates, television and print media material and material of a similar nature used in the Business.

“Property Leases” means those property leases set out in Schedule 5. “Proposed Completion Date” means 26 November 2004.

“Purchase Price” means the sum of the following amounts payable by the Purchaser for the Business Assets:

(a) the Completion Payment;

(b) the Additional Payment; and

(c) the Royalty Payments.

“Purchaser” means Yanzhou or if Yanzhou nominates a Yanzhou Nominee under clause 4.1, the Yanzhou Nominee.

“Purchaser’s Solicitor” means Cons Chambers Westgarth, of I Farrer Place, Sydney, NSW, 2000.

“Receivers” means Mr Andrew John Love, Mr Peter Ivan Felix Geroff and Mr Alan Edward Lewis of Ferrier Hodgson.

“Related Body Corporate” has the same meaning as under the Corporations Act 2001.

“Royalty Payments” means the royalty payment payable by the Purchaser under clause 5.4.

“Southland Railways Contract” means the Rail Access Agreement between the Vendor and South Maitland Railways Pty Limited dated 3 July 1998.

“Stakeholders” means the Vendor’s Solicitor and the Purchaser’s Solicitor.

“Stock” means the coal stock of the Business owned by the Joint Venture Parties as at Completion, used or intended to be used in connection with the Business.

6

“Sunset Date” means 10 December 2004.

“Thiess” means Thiess Southland Pty Ltd ABN 24 053 356 193.

“Thiess Interest” means the 10% interest in the Business Assets held by Thiess, pursuant to the terms of the Joint Venture Agreement.

“Vendor Interest” means the 90% interest in the Business Assets held by the Vendor pursuant to the terms of the Joint Venture Agreement.

“Vendor’s Solicitor” means Henry Davis York of 44 Martin Place, Sydney 2000.

“Warranties” means in relation to the Vendor and the Receivers the representations and warranties in part A and part B of Schedule 1 respectively and in relation to the Purchaser the representations and warranties in Part C of Schedule 1.

“Yanzhou Nominee” means the subsidiary of Yanzhou nominated by Yanzhou in accordance with clause 4.1 and subject to clause 4.2.

1.2 Interpretation

In this agreement unless the contrary intention appears:

1.2.1 a reference to this agreement includes any variation or replacement of it;

1.2.2 a reference to a statute or other law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements or any of them;

1.2.3 singular includes the plural number and vice versa;

1.2.4 a reference to any one gender includes each other gender (as the case may require);

1.2.5 the word “person” includes a firm, corporation, body corporate, unincorporated association or any governmental authority;

1.2.6 a reference to a person includes a reference to the person’s executors, administrators, legal personal representatives, successors and permitted assigns;

1.2.7 an agreement on the part of, or in favour of, two or more persons binds or is for the benefit of them or any one or more of them jointly and severally;

7

1.2.8 a reference to a party means a person who is named as a party to this, and is bound to observe the provisions of this agreement;

1.2.9 the reference to “Dollars” or “$” is a reference to Australian currency; and

1.2.10 a reference to “includes” or “including” means includes, without limitation and including, without limitation, respectively.

1.3 All headings in this agreement have been inserted for the purpose of ease of reference only. They do not affect the meaning or interpretation of it.

1.4 Any schedule attached to this agreement forms part of it.

2. INTERDEPENDENT CONTRACTS AND CONDITIONS PRECEDENT

2.1 Conditions

Completion of the sale and purchase of the Business Assets is interdependent with and will not proceed unless simultaneously with or prior to Completion the following conditions have been met:

2.1.1 the parties complete the contract for the sale of the Freehold Properties which is to be executed on or about the date of this agreement;

2.1.2 a notice in writing is issued by, or on behalf of, the Treasurer of the Commonwealth of Australia stating that the Commonwealth Government does not object to the parties entering into and completing this agreement either unconditionally or on terms reasonably acceptable to the Purchaser or the Treasurer of the Commonwealth of Australia becomes precluded from making an order in respect of the acquisition of the Business Assets under the Foreign Acquisitions and Takeovers Act 1975 (Cth);

2.1.3 all necessary consents required from the Chinese Government or under Chinese law (including, but not limited to, the consent of the State Reform and Development Commission and the Ministry of Commerce) are obtained in writing;

2.1.4 the following contracts are assigned or novated to the Purchaser or a new contract is entered into between the relevant counter party and the Purchaser:

(a) the South Maitland Railways Contract;

(b) the Pacific National Contract; and

8

(c) the lease between the Vendor and the Hincks referred to in item 1 of Schedule 5.

2.1.5 Department Forms 12 “Application for Approval of the Transfer of An Authority” in respect of each of the Mining Tenements are lodged with the Department and are approved on whatever terms specified by the Department or the Minister, including, without limitation, the condition referred to in clause 10 (which the Purchaser acknowledges is acceptable to it);

2.1.6 there is no material adverse change in the nature or condition of the Business Assets between the date of this agreement and the date of Completion and no event or effect has occurred which would:

(a) materially restrict or have a materially adverse affect on the ability of the Purchaser to re-commence longwall operations at the Mine; or

(b) which would prevent the Vendor delivering unencumbered title to the Business Assets to the Purchaser on Completion;

2.1.7 the indicative consent of the Minister to a variation of the Mining Operations Plan for the Mine to adopt a care and maintenance program for the Mine, on whatever terms specified by the Minister, is obtained;

2.1.8 the test described in Annexure C in relation to the conveyer systems at the Mine is satisfied;

2.1.9 the pump test described in the first paragraph of the section headed “Test” in Annexure D in relation to borehole pumping at the Mine is satisfied;

2.1.10 the water test described in the second paragraph of the section headed “Test” in Annexure D in relation to water levels at the Mine is satisfied;

2.1.11 the scope of works described in Annexure E in relation to the Continuous Miner is completed; and

2.1.12 the Vendor delivering to the Purchaser duly executed transfer documents under clause 8.2 for the whole of the interest in the Business Assets.

2.2 Transfer of the whole of the interest in the Business Assets

2.2.1 The condition precedent in clause 2.1.12 may be satisfied either by (at the election of the Vendor):

(a) the Vendor acquiring the Thiess Interest in the Business Assets prior to Completion and providing the Purchaser with executed transfer documents under clause 8.2 for the whole of the interest in the Business Assets; or

9

(b) the Vendor procuring Thiess to dispose of the Thiess Interest in the Business Assets directly to the Purchaser and providing the Purchaser with transfer documents under clause 8.2 executed by Thiess (as appropriate) in favour of the Purchaser for the Thiess Interest in the Business Assets.

2.2.2 The Vendor must as soon as practicable after exchange, provide the Purchaser with written evidence that the Purchaser will satisfy one of the options under clause 2.2.1 so that the Purchaser may prepare the necessary transfer documents and commence taking action to satisfy the Condition Precedent in clause 2.1.3.

2.3 Chinese Government consents

The parties agree that the Purchaser will have until the later of the following dates to satisfy the Condition Precedent in clause 2.1.3:

2.3.1 the date 2 months after the date of this agreement; or

2.3.2 the date 6 weeks after the receipt by the Purchaser of the written evidence from the Vendor pursuant to clause 2.2.2,

provided that Completion must occur on or before the Sunset Date.

2.4 Termination of Contract

In the event that the contract described in clause 2.1.1 is validly terminated or is rescinded in accordance with its terms by a party to it prior to Completion then this agreement is automatically terminated. Upon termination under this clause this agreement has no further effect and neither the Purchaser nor the Vendor is liable to the other except in respect of any breach of this agreement occurring before termination and clause 2.10 applies.

2.5 Tests and Scope of Works

2.5.1 A representative of each of the Vendor and the Purchaser must meet:

(a) on a day convenient to the Vendor, being a day no earlier than two weeks prior to Completion in order to run the test described in clause 2.1.8;

10

(b) on a day convenient to the Vendor, being a day no earlier than two weeks prior to Completion in order to run the test described in clause 2.1.9;

(c) the day two days prior to Completion in order to run the test described in clause 2.1.10 (the tests referred to in clauses 2.5.1(a), 2.5.1(b) and this clause 2.5.1(c) being the “Tests”); and

(d) on a day convenient to the Vendor, being a day no earlier than two weeks prior to Completion in order to review the scope of works described in clause 2.1.11 (“Scope of Works”) and agree that it has been completed.

2.5.2 If, when the Tests are run in accordance with clauses 2.5.1(a), 2.5.1(b) or 2.5.1(c), one or more of the Tests are not satisfied, the Vendor will have the right to rectify any fault prior to Completion.

2.5.3 If when the Scope of Works is reviewed for completion in accordance with clause 2.5.1(d), the parties agree that Scope of Works is not completed, the Vendor will have the right to rectify any fault in the period prior to Completion.

2.5.4 If one or both of clauses 2.5.2 and 2.5.3 apply, a representative of each of the Vendor and the Purchaser must meet on a date convenient to the Vendor prior to Completion, in order to re-run the Tests or re-review the Scope of Works for completion.

2.5.5 Subject to clause 2.10, the parties agree that there is no limit to the number of times that the Tests may be re-run or the Scope of Works may be re-reviewed for completion in accordance with clauses 2.5.2 and 2.5.3.

2.5.6 The parties agree that the running of the Tests or the reviewing of the Scope of Works in accordance with clauses 2.5.1 to 2.5.3 may, but need not, occur on the same day.

2.5.7 The parties must also comply with the additional pre-test requirements set out in Annexure D.

2.6 Cross Default

2.6.1 A breach of this agreement by the Purchaser is deemed to be a breach of the contract for the sale of the Freehold Properties referred to in clause 2.1.1 (“Land Contract”).

2.6.2 A breach of the Land Contract by the Purchaser is, at the Vendor’s election, deemed to be a breach of this agreement by the Purchaser.

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2.6.3 If the Vendor terminates this agreement for any reason, then the Vendor must also terminate the Land Contract by written notice to the Purchaser.

2.7 Waiver

A Condition Precedent may only be waived by agreement in writing between the Purchaser and the Vendor, save that the Purchaser alone may waive in its absolute discretion, any of the Conditions Precedent referred to in clauses 2.1.2 to 2.1.11.

2.8 Best Endeavours

2.8.1 The Vendor and the Purchaser must each use its best endeavours to satisfy or assist the other party to satisfy on or before the Proposed Completion Date each Condition Precedent.

2.8.2 The parties must continue to use their best endeavours in accordance with clause 2.8.1 after the Proposed Completion Date if for any reason Completion has not occurred.

2.9 Notice

The Purchaser and the Vendor must promptly notify the other in writing if any Condition Precedent is satisfied or cannot be satisfied. Each party will promptly keep the other party reasonably informed of any developments relevant to any Condition

Precedent.

2.10 Cut-Off Date

If a Condition Precedent is not satisfied on or before the Sunset Date the Purchaser or the Vendor may by written notice to the other, terminate this agreement, provided that a party may not give such notice if it is in material default of an obligation under this agreement. Upon such termination, this agreement has no further effect and neither the Purchaser nor the Vendor is liable to the other except:

2.10.1 under clause 21 (duties and costs);

2.10.2 under clause 19 (confidentiality);

2.10.3 under clause 18.3 (return or information);

2.10.4 in respect of any breach of this agreement occurring before termination;

2.10.5 under clause 5.1.3; and

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2.10.6 if the Conditions Precedent are not satisfied for any reason (other than a reason the subject of clause 5.1.3), the Deposit and any other money, including interest, paid by the Purchaser towards the Purchase Price, will be refunded to the Purchaser, together with the interest earned on the Deposit if it was invested and the Vendor and the Purchaser must instruct the Stakeholders accordingly.

2.11 Period before Completion

2.11.1 During the period prior to Completion, the Vendor will use its reasonable endeavours to maintain and protect the Business Assets in their condition existing at the time the Purchaser last undertook a site visit to the Mine prior to the date of this agreement.

2.11.2 During the period prior to Completion and subject to clauses 2.11.3 and 2.11.4, the Vendor will implement and follow the Agreed Care and Maintenance Program in relation to the Business Assets.

2.11.3 For the avoidance of doubt, the parties agree that the Agreed Care and Maintenance Program will not require the Vendor to:

(a) incur any capital expenditure; or

(b) improve the condition or any of the Business Assets from their condition as at the date referred to in clause 2.11.1.

2.11.4 If the Purchaser wishes to vary the Agreed Care and Maintenance Program, any such variation must be approved by the Vendor, which will not unreasonably withhold its approval, and the Purchaser must indemnify the Vendor in respect of any Loss incurred by the Vendor in implementing and as a consequence of implementing the variations requested by the Purchaser under this clause 2.11.4.

3. BUSINESS ASSETS TO BE SOLD

3.1 On the date of Completion:

(a) the Vendor must sell and the Purchaser must purchase the Vendor Interest; and

(b) the Vendor must sell or procure that Thiess sells and the Purchaser must purchase the Thiess Interest in the Business Assets

free from Encumbrances for the Purchase Price, on the terms and conditions set out in this agreement.

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3.2 Excluded Assets

The Excluded Assets are excluded from the sale of the Business Assets.

4. PURCHASER

4.1 Yanzhou may nominate a Yanzhou Nominee as the purchaser of the Business Assets by notice in writing to the Vendor at least 3 days prior to Completion.

4.2 Notwithstanding anything to the contrary in this agreement, if a Yanzhou Nominee is nominated by Yanzhou under clause 4.1 to be the Purchaser under this agreement, Yanzhou will not be relieved of any of the obligations of the Purchaser under this agreement which remain unperformed by the Yanzhou Nominee 14 days after written demand by the Vendor on the Yanzhou Nominee.

5. PURCHASE PRICE AND PAYMENT

5.1 Deposit

5.1.1 The Vendor and Yanzhou shall enter into the Escrow Deed with the Stakeholders on the date of entering this agreement.

5.1.2 On the date of entering this agreement, the Purchaser must pay in cash or by bank cheque the Deposit as part payment of the Purchase Price to the Stakeholders to be held as stakeholders on the terms of the Escrow Deed. The Deposit will vest in the Vendor by virtue of Completion and on Completion, the Vendor and the Purchaser shall instruct the Stakeholders to pay the Deposit to the Vendor in accordance with the Escrow Deed.

5.1.3 The Deposit will be forfeited to the Vendor if:

(a) the Purchaser breaches this agreement; or

(b) the Condition Precedent in clause 2.1.3 is not satisfied for any reason by the Sunset Date (other than the failure or delay of the Vendor to provide the written evidence to the Purchaser in accordance with clause 2.2.2),

and, in the case of clause 5.1.3 (a), the Vendor gives written notice to the Purchaser to remedy the breach and the Purchaser remains in breach for 14 days after receipt of the notice. Forfeiture of the Deposit is without prejudice to any other rights or remedies the Vendor may have including seeking specific performance or termination of this agreement. If the Deposit is forfeited to the Vendor in accordance with this clause 5.1.3, the Vendor and the Purchaser shall instruct the Stakeholders to pay the Deposit to the Vendor in accordance with the Escrow Deed.

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5.1.4 No liability is to he borne by the Stakeholders, any party to this agreement or their agent or solicitor in respect of either the loss of the Deposit or the lack of interest earned on the Deposit as a result of it having been invested in accordance with the Escrow Deed.

5.1.5 Each party (and where a party comprises two or more persons, all of those persons) must provide the Stakeholders with its tax file number. If this agreement is completed and one party has provided their tax file number in accordance with this clause and the other party has not, the party who has provided their tax file number is entitled to all the net interest (if any) earned on the Deposit.

5.2 Completion Payment

At Completion, the Purchaser must pay by cash or bank cheque the Completion Payment less the amount of the Deposit paid under clause 5.1 (plus or minus any other net adjustment amount due under this agreement) to the Vendor or as the Vendor or the Vendor’s Solicitor may direct by notice in writing on account of the Purchase Price.

5.3 Additional Payment

If an exploration licence is granted to the Purchaser under the Mining Act over the Additional Tenement Area (“Additional Exploration Licence”), the Purchaser must pay the Additional Payment to the Vendor as the Vendor or the Vendor’ Solicitor may direct by notice in writing within 5 Business Days after the Additional Exploration Licence is granted on account of the Purchase Price.

5.4 Royalty Payments

5.4.1 The Purchaser must pay to the Vendor on account of the Purchase Price, a Royalty Payment of $2.00 per tonne for the first 4 million tonnes of saleable coal product produced by the Purchaser at the Mine and sold to either domestic or export customers or otherwise transferred by the Purchaser to a third party including, for the avoidance of doubt, a Related Body Corporate of the Purchaser.

5.4.2 The Royalty Payment referred to in clause 5.4.1 must be paid on a monthly basis within 5 Business Days after the end of the relevant month to the Vendor or as the Vendor or the Vendor’s Solicitor may direct by notice in writing.

5.4.3 The Purchaser must allow the Vendor to inspect and take copies of the relevant books of account of the Purchaser during business hours on reasonable notice by the Vendor to enable the Vendor to verify the amounts of the Royalty Payments.

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5.5 Interest

5.5.1 If Completion of the sale of the Business Assets does not take place by the Proposed Completion Date (unless the Purchaser is entitled to further time under clause 2.3.2 by reason of any failure or delay in the Vendor providing the written evidence to the Purchaser in accordance with clause 2.2.2) the Purchaser must pay interest on the amounts due under clause 5.2 to the Vendor on the date Completion takes place. This interest is payable on Completion on and in addition to the balance of the Purchase Price described in clauses 5.2 to 5.4 and any other moneys payable by the Purchaser to the Vendor under this agreement.

5.5.2 The rate of interest under clause 5.5.1 is a rate equal to the aggregate of 2% per annum plus the Commonwealth Bank Corporate Loan Reference Rate (on a quarterly charging cycle) from time to time. This interest accrues from day to day from the Proposed Completion Date to the date on which Completion actually occurs. If Completion is delayed solely as a reason of the Vendor’s default, interest is not to be charged for the period during which Completion was delayed for this reason.

5.6 Apportionment of Purchase Price

The Purchase Price (inclusive of the Completion Payment and the Additional Payment, but exclusive of the Royalty Payments) is apportioned between the Business Assets as follows:

Plant and Equipment	$	18,600,000
Mining Tenements	$	2,000,000
Computer Licences	$	1
Contracts	$	1
Environmental Protection Licences	$	1
Goodwill	$	1
Permits to Operate	$	1
Promotional Material	$	1
Property Leases	$	1
Stock	$	1
Total	$	20,600,008

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6. GST

6.1 Application of clause

The following clauses apply if a party (“the Supplier”) is or may become liable to pay GST in relation to any Supply to another party (“the Purchaser”) under or in connection with this document or in relation to any payment, whether by way of adjustment, reimbursement, indemnity, damages or otherwise.

6.2 GST payable in addition to other consideration:

6.2.1 In addition to any other amounts payable or consideration provided by the Purchaser to the Supplier under or in connection with this document (“the GST Exclusive Consideration”), the Purchaser must pay to the Supplier an amount equal to the GST Exclusive Consideration multiplied by the GST Rate.

6.2.2 Payment must be made by the Purchaser at the same time as the GST Exclusive Consideration is payable or is to be provided under this document.

6.2.3 If a payment to be made by one party to another (“the Recipient”) under this document is a reimbursement or indemnification of an amount paid by the Recipient, or is determined wholly or in part by reference to any underlying cost, expense or liability incurred by the Recipient, then the amount to be paid to the Recipient is:

(a) to be reduced by the Input Tax Credit to which the Recipient is entitled in respect of the cost, expense or liability; and

(b) otherwise to be calculated in accordance with this clause 6.

6.2.4 The Recipient will be presumed to be entitled to a full Input Tax Credit on such amounts unless it demonstrates otherwise.

6.3 Tax invoice

Tax Invoices must be issued in accordance with the requirements of GST Law.

6.4 GST group

If the Supplier is a member of a GST Group, references to GST for which the Supplier is or may become liable to pay and to Input Tax Credits to which the Supplier is entitled include GST for which the Representative Member of the GST Group of which the Supplier is a member is liable and Input Tax Credits to which that Representative Member is entitled.

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6.5 Definitions

6.5.1 GST Law means the A New Tax System (Goods and Services Tax) Act 1999 and any other law which imposes or otherwise deals with the imposition or administration of a goods and services tax in Australia.

6.5.2 GST Rate means the rate of GST under the GST Law.

6.5.3 GST, GST Group, Input Tax Credit, Representative Member, Supply and Tax Invoice have the same meanings as under the GST Law.

7. VALUATION OF PLANT AND EQUIPMENT

7.1 Stocktake on Completion

Subject to clause 7.4, the parties will arrange for a stocktake of the Plant and Equipment to be conducted no more than five days prior to the date of Completion at which representatives of the Vendor and the Purchaser must be present. The cost of the stocktake will be shared equally by the parties. On conclusion of the stocktake, representatives of the Vendor and the Purchaser must agree on the list of Plant and Equipment determined and any dispute as to quantity must be resolved at the time of the stocktake by recount. The Purchaser and Vendor must initial the Plant and Equipment list indicating their agreement.

7.2 Subject to clauses 7.3 and 7.4, if, as at the date of Completion, any of the Plant and Equipment cannot be located, is not owned by the Vendor or for any reason cannot be transferred by the Vendor to the Purchaser (“Relevant Plant and Equipment”), the parties agree that the Purchaser may require that the Purchase Price be adjusted by the Liquidation Value for the Relevant Plant and Equipment.

7.3 The Purchaser will not be entitled to request a variation to the Purchase Price under clause 7.2 if at Completion, it is established that any of the items of Plant and Equipment highlighted in blue in Schedule 2 or any of the Additional Significant Spare Parts highlighted in light yellow in Schedule 2 are not owned by the Vendor and cannot therefore be transferred to the Purchaser.

7.4 The Purchaser will not be entitled to request a variation to the Purchase Price under clause 7.2 unless the Liquidation Value of the Relevant Plant and Equipment exceeds $100,000 in aggregate.

7.5 The Vendor must provide the Purchaser full access to its books and records and any information required by the Purchaser to complete the stocktake pursuant to this clause 7.

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7.6 The parties may agree not to conduct a stocktake under clause 7.1, in which case clauses 7.1 to 7.5 will not apply.

8. COMPLETION

8.1 Date for Completion

Subject to clause 2, Completion of the sale and purchase of the Business Assets will take place at the offices of the Vendor’s Solicitor (or as they may otherwise reasonably direct) before 3.00 pm on a Business Day on or before:

8.1.1 the Proposed Completion Date; or

8.1.2 if the Conditions Precedent set out in clause 2 have not been satisfied or waived 2 Business Days prior to the Proposed Completion Date, the date 2 Business Days after the last of those conditions has been satisfied or waived provided that Completion is on or before the Sunset Date

at such other place, time and date as the Vendor and the Purchaser agree.

8.2 Delivery of Documents Executed by Vendor

On Completion, the Vendor must give to the Purchaser the following documents, in a form approved in advance by the Purchaser executed as the case may be, by the Vendor, Thiess or any third party whose consent is required, or all of them:

8.2.1 a release or discharge (including ASIC Forms 312) of each Encumbrance over the Business Assets;

8.2.2 Department Forms 13 “Application for Registration of the Transfer of an Authority” for the transfer of the Mining Tenements, together with, to the extent they are in the possession of the Vendor or which the Vendor is able to obtain from Thiess, the original instruments of title in respect of the Mining Tenements;

8.2.3 in respect of the Environmental Protection Licences, the prescribed form of Licence Transfer Application Form;

8.2.4 assignments of the Property Leases to be assigned at Completion under clause 11;

8.2.5 transfers of ownership and registration for all motor vehicles included in the Plant and Equipment;

8.2.6 control over the Business Records;

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8.2.7 to the extent they are in the possession or control of the Vendor or Thiess, certificates of registration and certificates relating to possession of any Business Assets issued by any Government Agency, or necessary for compliance with any law, including the Permits to Operate;

8.2.8 in relation to each Contract referred to in clause 2.1.4, an assignment or novation of that contract executed by the counterparties to that contract if that contract is to be assigned or novated on Completion under clause 2.1.4;

8.2.9 if any other Contracts are to be assigned or novated to the Purchaser in accordance with clause 11 on Completion, an assignment or novation of those Contracts to the Purchaser duly executed by the counterparties to those Contracts;

8.2.10 for examination by the Purchaser, any power of attorney under which a document required to be delivered under this agreement is executed; and

8.2.11 any other document reasonably required by the Purchaser to transfer the Business Assets to the Purchaser and to complete the sale under this agreement.

8.3 Delivery of Tangible Assets

On Completion, the Vendor must deliver (if it has not already done so) any tangible assets of the Business Assets to the Purchaser by leaving them at the Mine.

8.4 Completion Obligations of Purchaser

On Completion, the Purchaser must:

8.4.1 comply with its obligations under clause 5.2 and 5.5, subject to any net adjustments to be made under this agreement; and

8.4.2 deliver to the Vendor counterparts executed by the Purchaser of any documents referred to in clause 8.2 that are to be executed by the Purchaser.

9. PAYMENTS IN ADVANCE OR ARREARS

9.1 Adjustments on Completion

On Completion of the sale of the Business Assets:

9.1.1 the Purchaser must account to the Vendor for:

(a) any payment made in advance for goods and services supplied to or to be supplied to the Business on or after Completion; and

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(b) any other payment made in respect of the Business (including without limitation, any Mining Payments), the benefit of which is received by the Business on or after Completion;

(c) any credit or refund which may have accrued or will accrue in respect of the Business Assets relating to a period prior to Completion; and

(d) an amount equal to any bank guarantees, security deposits, cash deposits or similar security lodged in relation to the Business Assets which are not refunded or returned on or prior to Completion and of which the Purchaser gets the benefit after Completion. (The Vendor and the Purchaser shall co-operate to achieve the adjustment in relation to the security deposit and the bond lodged by the Vendor with the Department by arranging, on or as soon as practical following Completion, the substitution by the Purchaser of a security deposit and! or bond with the Department in such amount as is required by the Department in order to cause the release to the Vendor of the security deposit and bond currently lodged by it with the Department.)

9.1.2 the Vendor must account to the Purchaser for:

(a) any payments received for goods to be supplied and services to be rendered by the Business on or after Completion; and

(b) any unpaid liabilities in respect of the Business (including Mining Payments), the benefit of which has been received prior to Completion, including:

(i) any amounts, (if any), due to Cessnock Land Pty Limited in respect of the use or occupation by the Vendor of the Abadare Reject Disposal Area;

(ii) all amounts, if any, due to Mr and Mrs Hincks in respect of the use or occupation by the Vendor of the Area of the No. 1 Shaft;

(iii) all amounts, if any, due to State Forests in respect of the use or occupation by the Vendor of the Area of the No. 2 Shaft;

(iv) all statutory mining royalties due to the New South Wales Government under the Mining Tenements; and

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(v) all amounts, if any, due to Andrew Park in respect of the use or occupation by the Vendor of land owned by Mr Park.

9.2 Set-off

The Vendor and the Purchaser will set off the respective amounts payable by them under clauses 7.2 and 9.1 such that the party obliged to pay the greater amount will pay to the other on Completion only the excess payable by it. The parties will liaise to reach agreement on the adjustments required under these clauses at least 3 Business Days prior to Completion.

10. ACKNOWLEDGMENTS BY PURCHASER

The Purchaser specifically acknowledges and agrees that it has been provided with a copy of a letter from the New South Wales Department of Mineral Resources to the Vendor dated 4 June 2004 (“Letter”) indicating that all mining leases for coal are to be amended to include a condition requiring leaseholders to prepare a Subsidence Management Plan prior to commencing underground mining operations which would potentially lead to subsidence of the land surface, effective on and from 18 March 2004, as more fully described in the Letter.

The Purchaser acknowledges and agrees that the Mining Tenements will be transferred to the Purchaser subject to the requirements set out in the Letter and the Purchaser will be responsible for complying with the requirements set out in the Letter.

11. COMPUTER LICENCES, PROPERTY LEASES, PERMITS TO OPERATE AND CONTRACTS

11.1 Transfer of Contracts, Property Leases, Computer Licences and Permits to Operate

11.1.1 The Vendor and the Purchaser must each use its reasonable endeavours to transfer the Contracts, the Property Leases, the Computer Licences, the Permits to Operate, (or in the case of the Computer Licences and the Permits to Operate, cause the issue of a new licence or permit to the Purchaser) or any other operational agreements to the Purchaser on or before Completion including obtaining the consent of a third party which is required for the transfer or new issue.

11.1.2 A transfer made under this clause 11.1 may be made either by assignment, novation or by grant of a new lease, licence, permit or contract.

11.1.3 If the consent of a third party is required for a transfer or issue under clause 11.1 then the Purchaser’s reasonable endeavours to obtain that consent must include providing any information relating to the Purchaser which

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may be requested by the third party and providing reasonable security in support of the Purchaser’s obligations under the Contract, Property Lease, Computer Licence or Permit to Operate concerned. The Purchaser must pay for the cost of obtaining that consent including any legal costs (other than the legal costs of the Vendor or the Receivers) and is responsible for preparing any documentation necessary for the transfer or issue, subject to the approval of such documentation by the Vendor.

11.1.4 After Completion, the Purchaser must in respect of all Contracts, Property Leases, Computer Licenses, Permits to Operate and Computer Licenses transferred to it:

(a) perform to the extent it lawfully can, all obligations of the Vendor under the Contracts, the Property Leases, the Computer Licences and the Permit to Operate; and

(b) indemnify and keep indemnified the Vendor against any Loss incurred by the Vendor after Completion under or in relation to a Contract, a Property Lease, a Computer Licence or a Permit to Operate.

11.2 Pending Transfer or New Issue

If a Contract, a Property Lease, a Computer Licence or a Permit to Operate has not been transferred, or a new one issued, to the Purchaser by Completion:

11.2.1 after Completion, the Vendor and the Purchaser must use all reasonable endeavours to ensure that the Contract, Property Lease, Computer Licence or a Permit to Operate is transferred to the Purchaser in accordance with this agreement as soon as practicable after Completion; and

11.2.2 the Vendor must to the extent it lawfully can, allow the Purchaser to use or occupy the property the subject of the Contract, Computer Licence or Property Lease as licensee from Completion until the transfer or new issue is completed.

11.3 Failure to Transfer

Subject to clause 2.1, the Vendor has no liability to the Purchaser in relation to failure to transfer or cause the issue of a new Contract, Property Lease, Computer Licence or Permit to Operate if the Vendor has complied with its obligations under this clause 11.

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12. MINING TENEMENTS AND ENVIRONMENTAL PROTECTION LICENCES

12.1 Transfer of Mining Tenements and Environmental Protection Licences

The parties must use their best endeavours to effect the transfer of the Mining Tenements and the Environmental Protection Licences to the Purchaser as soon as practicable after the date of the agreement, including:

12.1.1 the Purchaser must prepare and the parties must execute Department Forms 12 “Application for the Approval of Transfer of an Authority” (and/or any other forms required under the Mining Act) to transfer the Mining Tenements to the Purchaser;

12.1.2 the Purchaser must comply with any requirements of the Department or the Minister in connection with the transfer of the Mining Tenements, including but not limited to, the lodgement of any security deposit or similar security, the payment of any prescribed transfer fee and providing any information in relation to the Purchaser which may be requested by the Department or the Minister, including the information to be lodged with the Department Forms 12;

12.1.3 the Purchaser must prepare and the parties must execute the necessary forms required to transfer the Environmental Protection Licences or cause the issue of a replacement environmental protection licence to the Purchaser in the form prescribed or required by the Environment Act;

12.1.4 the Purchaser must comply with any requirements of the EPA in connection with the transfer of the Environmental Protection Licences or the issue of a replacement environmental protection licence including but not limited to the lodgement of any security deposit or similar security, the payment of any prescribed transfer fee and providing any information in relation to the Purchaser which may be requested by the EPA, including the information to be lodged with the relevant transfer forms;

12.1.5 the Purchaser must forward the transfers referred to in clauses 12.1.1 and 12.1.4 together with a cheque for the prescribed fee to the Vendor who will lodge the transfers and the prescribed fee for approval by the Minister and the EPA (as appropriate);

12.1.6 the Purchaser must pay for the costs of obtaining the transfers or new issues contemplated by clauses 12.1.1 and 12.1.4 including legal costs;

12.1.7 from Completion, the Purchaser will be bound by and will perform all obligations under the Mining Tenements and the Environmental Protection Licences and will indemnify and keep indemnified the Vendor against all

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Loss incurred by the Vendor under or in relation to the Mining Tenements and the Environmental Protection Licences (including but not limited to rehabilitation obligations and liabilities) or any activities conducted by the Purchaser under the Mining Tenements and the Environmental Protection Licences on or after Completion; and

12.1.8 the Vendor has no liability to the Purchaser in relation to failure to transfer an Environmental Protection Licence to the Purchaser.

12.2 Grant of Additional Exploration Licence

12.2.1 The Purchaser must use its best endeavours to procure that the Additional Exploration Licence is granted to it as soon as possible after the date of this agreement.

12.2.2 The Purchaser must comply with any requirements of the Department or the Minister in connection with the grant of the Additional Exploration Licence, including but not limited to, the lodgement of any security deposit or similar security, the payment of any prescribed fee and providing any information in relation to the Purchaser which may be requested by the Department or the Minister.

13. TITLE & RISK

13.1 Title

Title to the Business Assets passes to the Purchaser on Completion.

13.2 Risk

Risk in the Business Assets passes to the Purchaser on Completion.

13.3 Post Completion Liabilities

The Purchaser will be solely responsible for and will indemnify the Vendor in respect of all liabilities and debts incurred in connection with the Business and the Business Assets in respect of the period on and from Completion save to the extent any liability arises substantially out of a breach by the Vendor of its obligations under this agreement.

13.4 The Vendor is responsible for paying all Liabilities owing or payable by the Vendor in connection with the Business and the Business Assets as at Completion.

13.5 The Purchaser assumes the Assumed Liabilities on and from Completion.

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13.6 Except as expressly provided under clause 13.5, the Purchaser does not and the Vendor acknowledges that the Purchaser does not under this agreement undertake or assume any liabilities of the Vendor or the Business.

14. OBLIGATIONS BEFORE AND AFTER COMPLETION

14.1 After Completion, the Purchaser must, after reasonable notice from the Vendor and at the Vendors cost, allow the Vendor and its representatives during normal business hours to inspect and take copies of the Business Records (to the extent that they relate to any period before Completion) if reasonably required by the Vendor for accounting or taxation purposes or for litigation.

14.2 After Completion, the Purchaser must, after reasonable notice from the Vendor and at the Vendors cost, allow the Vendor and its representatives and representatives of the Vendors insurers during normal business hours to inspect the Excluded Assets for the purposes of the insurance claims lodged by the Vendor in respect of the Excluded Assets.

14.3 Before Completion, the Vendor will make available office facilities and access to the Business Records to the Purchaser at the Mine. The Vendor will allow up to 5 representatives of the Purchaser (“Representatives”) to access the office facilities and the Business Records on 3 days per week (“Access Days”).

14.4 In addition, subject to clause 14.6:

14.4.1 On one Access Day per week, up to 4 of the Representatives will be permitted to inspect the Mine underground; and

14.4.2 On another Access Day per week, up to 5 of the Representatives will be permitted to inspect the surface facilities at the Mine

On the remaining Access Day per week, the Representatives will only be permitted to access the office facilities.

14.5 The Purchaser may be permitted additional access upon at least 2 days notice to the mine manager and provided that such additional access will be at the sole discretion of the mine manager.

14.6 During the inspections of the Mine underground and the surface facilities referred to in clause 14.4, the Vendor will use its best endeavours to accommodate the needs of the Representatives but the areas to which access will be permitted will be at the sole discretion of the mine manager.

14.7 The Representatives must comply with all site policies and all other procedures established by the mine manager from time to time.

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15. WARRANTIES

15.1 Business Assets are sold as is

Each of the Business Assets is sold as is, in its existing location, state of repair and condition as at the date of this agreement and the Purchaser relies upon its own inspection of each of them.

15.2 Time of Warranties

Subject to any disclosures made in writing prior to the date of this agreement:

15.2.1 the Vendor gives the Vendor’s Warranties in favour of the Purchaser;

15.2.2 the Receiver gives the Receivers’ Warranties on behalf of the Receivers in favour of the Purchaser; and

15.2.3 the Purchaser gives the Purchaser’s Warranties in favour of the Vendor and the Receivers,

as set out in Schedule 1, as at date of this agreement (unless specified otherwise in Schedule 1) and as at Completion.

15.3 Disclosure

The Purchaser must not claim any fact renders any of the Vendor’s Warranties or the Receivers’ Warranties untrue or misleading if that fact has been disclosed in:

15.3.1 this agreement; or

15.3.2 the Disclosure Material or any disclosure letter received by the Purchaser before the date of this agreement.

15.4 Purchaser Indemnity

The Purchaser must indemnify the Vendor for any Loss which the Vendor may sustain or incur arising from or in connection with:

15.4.1 any matter or thing being other than as represented or warranted by the Purchaser’s Warranties; or

15.4.2 any breach of, or default under this agreement by the Purchaser.

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15.5 Acknowledgement by Vendor

The Vendor acknowledges that to the best of its knowledge and belief and subject to the terms of this agreement, the Vendor has title to the Mining Tenements and the Plant and Equipment.

16. LIMITATION OF LIABILITY

16.1 Limitation to Claims under this Agreement

The Vendor is not liable to the Purchaser for any Claim arising from or relating to any statement, representation, warranty, promise, undertaking or agreement in connection with the sale of the Business or the Business Assets made by the Vendor, the Receivers or any person acting, or purporting to act on behalf of the Vendor or resulting from or implied by conduct made in the course of communications or negotiations in connection with the sale of the Business or the Business Assets, unless:

16.1.1 it is expressly set out or referred to in this agreement; or

16.1.2 the right to make or institute legal proceedings in respect of the Claim arises out of a statutory right which cannot be excluded by contract.

16.2 The Vendor is not liable to the Purchaser for any Claim arising out of a matter disclosed in the Disclosure Material.

16.3 The Purchaser acknowledges it has completed its due diligence enquiries prior to entering this agreement or has had sufficient opportunity to make its enquiries, inspect the Business Assets and review the Disclosure Material. Subject to any express provision of this agreement to the contrary, the Purchaser must not make, and waives any right it may have to make, any Claim arising from or relating to any statement, representation, promise, warranty or undertaking in connection with the sale of the Business Assets made by the Vendor, the Receivers or any person acting, or purporting to act on behalf of the Vendor or resulting from or implied by conduct made in the course of communications or negotiations in connection with the sale of the Business Assets unless the right to make or institute legal proceedings in respect of the Claim arises out of statutory right which cannot be excluded by contract.

16.4 The Purchaser acknowledges that it has satisfied itself in relation to any matters that would have arisen out of its due diligence inquiries if such inquiries had been conducted with all reasonable care and diligence.

16.5 The Purchaser acknowledges that when entering into this agreement, it relied exclusively on the following matters independently of any statements, inducements

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or representations made by or on behalf of the Vendor or the Receivers (including by any agent or person acting or purporting to act on behalf of the Vendor):

16.5.1 the inspection of and investigations relating to the Business and Business Assets made by or on behalf of the Purchaser;

16.5.2 the skill and judgment of the Purchaser, its consultants and representatives; and

16.5.3 opinions or advice obtained by the Purchaser independently of the Receivers, the Vendor or any of the Vendor’s agents or employees.

16.6 Vendor not Liable where Purchaser has Knowledge

The Vendor is not liable to the Purchaser for any Claim arising from or relating to breach of a Vendors or a Receiver’s Warranty if before Completion the Purchaser has actual knowledge of the matter that has given rise or will give rise to the breach or anticipated breach and does not before Completion give written notice to the Vendor of the matter.

16.7 Time Limits

The Vendor is not liable to the Purchaser for any Claim unless the Purchaser has given written notice to the Vendor setting out specific details of the Claim within four months after the date of Completion.

16.8 Right to Reimbursement

The Vendor will not be liable to the Purchaser for any claim for breach of, or inaccuracy in, any Warranty to the extent that any Loss concerned is made good or compensated for without Loss to the Purchaser, including any Loss which is recovered by the Purchaser or for which the Purchaser has an available indemnity under a policy of insurance.

16.9 Monetary Limits

16.9.1 Subject to clauses 16.9.2 to 16.9.5 the Vendor is not liable to the Purchaser for any Claim or series of Claims unless the amount finally adjudicated or agreed as being payable in respect of the Claim exceeds $10,000.

16.9.2 The maximum amount which the Purchaser may recover from the Vendor in respect of a Claim relating to an item of Plant and Equipment is the Liquidation Value for that item of Plant and Equipment.

16.9.3 The Vendor is only liable to the Purchaser for amounts by which Claims adjudicated or agreed under clause 16.9.1 exceed $100,000 in aggregate.

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16.9.4 Subject to clause 16.9.5, the maximum aggregate which the Purchaser may recover from the Vendor in respect of all Claims is 30% of the Purchase Price for the Business Assets.

16.9.5 The Purchaser may not, in respect of a Claim, recover from the Vendor any proceeds (including, but not limited to, damages and any amounts referable to the damage or destruction of the Excluded Assets) of the Vendor’s insurance claims in respect of the Excluded Assets.

17. RECEIVERS ARE NOT LIABLE

Subject to clause 15.2, the Purchaser acknowledges and agrees that:

17.1 the Receivers execute this agreement in their capacity as receivers and managers of the Vendor and not in their personal capacity;

17.2 the Receivers and their employees and agents do not assume any personal liability of any nature whatsoever (whether directly or indirectly), express or implied and howsoever arising including personal liability in respect of any action arising in pursuance of the Vendors rights and/or obligations under this agreement; and

17.3 the Receivers, by their execution of this agreement, take the personal benefit of any provision and indemnity given in favour of the Vendor; and

17.4 at and by virtue of Completion, the Purchaser releases the Receivers, their employees and agents from all Loss sustained by the Purchaser, its employees and agents for Claims arising out of representations made by the Receivers, their employees and agents and any breach of this agreement by the Receivers, their employees and agents.

18. TERMINATION

18.1 Breach

18.1.1 If a party to this agreement breaches a term of this agreement, the other party may give notice in writing to the party in breach requiring that party to remedy the breach.

18.1.2 If the party in breach has not or cannot rectify the breach within 14 days after the date of the clause 18.1.1 notice, the party giving the notice may, without affecting any of its other rights or remedies, terminate this agreement by giving written notice to the other party before Completion.

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18.2 Purchaser’s Default

18.2.1 If the Purchaser:

(a) fails to pay the balance of the Purchase Price as provided in clauses 5.2, 5.3 and 5.4, or

(b) fails to comply with any of the terms or conditions of this agreement,

then the Vendor may:

(c) affirm this agreement, or

(d) terminate this agreement.

18.2.2 If the Vendor affirms this agreement pursuant to clause 18.2.1(c), the Vendor may:

(a) sue the Purchaser for damages for breach or for specific performance and damages in addition to or instead of damages for breach; and

(b) recover from the Purchaser as a liquidated debt the Deposit or any part of it which the Purchaser has failed to pay.

18.2.3 If the Vendor terminates this agreement pursuant to clause 18.2.1(d), the Vendor may elect to:

(a) declare the Deposit (or so much of it as shall have been paid) forfeited and/or sue the Purchaser for breach, or

(b) declare the Deposit (or so much of it as shall have been paid) forfeited and/or resell the Property in which case any deficiency and any expense arising from such resale shall be recoverable by the Vendor from the Purchaser as liquidated damages; and

(c) in either case, the Vendor may recover from the Purchaser as a liquidated debt the Deposit or any part of it which has not been paid by the Purchaser.

18.2.4 The rights and powers conferred upon the Vendor by this clause 18.2 are in addition to any other right or power which the Vendor may have at law or in equity.

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18.3 Return of information

If for any reason this agreement is terminated, the Purchaser must immediately upon being requested by the Vendor to do so:

18.3.1 return to the Vendor all documents, records and materials (including copies and computer records) which were obtained by the Purchaser or on its behalf in the course of access allowed by the Vendor;

18.3.2 destroy copies of all analyses, compilations, studies or other documents prepared by or on behalf of the Purchaser on the basis of information to which the Purchaser is allowed access; and

18.3.3 confirm to the Vendor in writing it has complied with its obligations under clauses 18.3.1 and 18.3.2.

19. ANNOUNCEMENTS

19.1 Legal Requirements

A party may not disclose anything in respect of this agreement or the terms on which the Business Assets are sold except as required:

19.1.1 by applicable law; or

19.1.2 by any recognised stock exchange on which its shares are listed,

and to the extent possible, it must consult with the other party before making the disclosure and use reasonable endeavours to agree on the form and content of the disclosure.

19.2 Disclosure to Officers, Employees, Advisers

A party may disclose anything in respect of this agreement or the terms of the sale of the Business Assets to the officers, employees, bankers, financial advisers and financiers and professional advisers of that party (provided those persons are obliged to keep the information disclosed confidential) but it must use its best endeavours to ensure all matters disclosed are kept confidential.

20. DISPUTE RESOLUTION

20.1 Compliance with Agreement

Unless a party has complied with subclauses 20.2 and 20.3 that party may not commence court proceedings or arbitration relating to any dispute arising from this agreement except where that party seeks urgent interlocutory relief in which case that party need not comply with this clause before seeking the relief.

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20.2 Parties to Appoint Representative

20.2.1 A party claiming that a dispute has arisen in respect of or in connection with this agreement must give written notice to the other party designating, as its representative in negotiations relating to the dispute a person with authority to settle the dispute and the other party must promptly give notice in writing to the other party each designating, as its representative in negotiations relating to the dispute, a person with the same authority.

20.2.2 The designated persons must, within 10 days of the last designation required by clause 20.2.1 following whatever investigations each deems appropriate, seek to resolve the dispute.

20.3 No Resolution after 10 Days

If the dispute is not resolved within the following 10 days (or within such further period as the representatives may agree in writing) the parties must within a further 10 days (or within such further period as the representatives may agree in writing) seek to agree on a process for resolving the whole or any part of the dispute through means other than litigation or arbitration, such as further negotiations, mediation, conciliation, independent expert determination or appraisal mini-trial and on:

20.3.1 the procedure and timetable for any exchange of documents and other information relating to the dispute:

20.3.2 procedural rules and a timetable for the conduct of the selected mode of proceeding:

20.3.3 a procedure for selection and compensation of any neutral person who may be employed by the parties in dispute; and

20.3.4 whether the parties should seek the assistance of a dispute resolution organisation.

20.4 Exchange of Information

The purpose of any exchange of information or documents or the making of any offer of settlement pursuant to this clause is to attempt to settle the dispute between the parties. No party may use any information or documents obtained through the dispute resolution process established by this clause for any purpose other than an attempt to settle the dispute between the parties.

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20.5 Commencement of Proceedings

After the expiration of the time established by or agreed under clause 20.3 for agreement on a dispute resolution process, a party which has complied with the provisions of subclauses 2 to 4 may by notice in writing terminate the dispute resolution process provided for in those subclauses and may then refer the dispute to arbitration or commence proceedings relating to the dispute.

21. DUTIES, COSTS AND EXPENSES

21.1 Duties

The Purchaser must pay any stamp, transaction or registration duty imposed by any governmental agency in respect of the execution, delivery and performance of this agreement and any agreement or document entered into or signed under this agreement.

21.2 Costs and Expenses

Subject to clause 21.1 each party must pay its own costs and expenses in respect of the negotiation, preparation, execution, delivery, stamping and registration of this agreement.

22. GENERAL

22.1 Notices

22.1.1 Any notice or other communication given or made under this agreement:

(a) must be in writing;

(b) must be signed by the party giving or making it (or signed on behalf of such party by its duly authorised representative);

(c) must be left at the address, sent by prepaid security post (air mail if outside Australia) to the address or sent by facsimile to the facsimile number set out below:

(i) if to the Vendor:

Ferrier Hodgson

Level 17, 12 Market Street

Sydney NSW 2000

Attention: Robert Pfaff

Telephone: +61 2 9286 9999

Facsimile: +61 2 9286 9888

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(ii) if to the Purchaser:

Yanzhou Coal Mining Company Limited

40, Fushan Road

Zou Ceng City, 273500

Shan Dong Province

China

Attention: Fanghua Zhai

Telephone: 86-537 5393 3334

Facsimile: 86-537 5393 3334

(d) may, in the case of the Vendor, be sent to the Vendor’s Solicitor and in the case of the Purchaser, sent to the Purchaser’s Solicitor.

22.1.2 A party may change its address for the purpose of service of notices by giving notice of that change to each other party pursuant to the provisions of clause 22.1.1.

22.1.3 Any party which changes its business or residential address must immediately give notice of that change to each other party pursuant to the provisions of clause 22.1.1.

22.1.4 Proof of posting or of despatch of facsimile is proof of receipt:

(a) in the case of a letter: on the third (seventh, if outside Australia) day after the date of posting; and

(b) in the case of a facsimile: upon production of a transmission report by the machine from which the facsimile was sent which indicates that the facsimile was sent in its entirety to the facsimile number of the recipient notified for the purposes of this clause.

22.1.5 If the time of despatch of a facsimile is after 4.00 pm (local time) on a day in which business generally is carried on in the place to which the facsimile communication is sent it will be deemed to have been received at the commencement of business on the next business day in that place.

22.1.6 A recipient of a notice given pursuant to this clause need not enquire, where the notice purports to be signed on behalf of a party by its duly authorised representative, as to the authority of the representative signing the notice.

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22.2 Governing Law

The contents of this agreement, its meaning and interpretation and the relationship of the parties are to be governed by the laws of New South Wales. The parties submit to the jurisdiction of the courts exercising jurisdiction there.

22.3 Invalidity

If any part of this agreement is for any reason declared invalid or unenforceable, the validity of the remaining portion is not to be affected and the remaining portion is to remain in full effect as if this agreement had been signed with the invalid portion eliminated.

22.4 Waivers

22.4.1 No failure on the part of a party to exercise, or delay on its part in exercising, any of the rights or remedies provided by this agreement or by law operates as a waiver of them. Any single or partial exercise of any of the rights or remedies does not preclude any further or other exercise of such right or remedy or the exercise of any other of the rights or remedies.

22.4.2 Any waiver or consent by a party is effective only if it is in writing signed by or on behalf of that party and then only to the extent expressly stated in the writing and in the specific instance and the purpose for which it is given.

22.5 No Merger

Notwithstanding the completion of any of the transactions contemplated by this agreement, any obligation of a party, which is of a continuing nature or is not fully satisfied and discharged on Completion, including, the warranties, will not merge on Completion or in any transfer but will continue in favour of the party to which it is owed and remain in full effect.

22.6 Survival of Indemnities

22.6.1 Each indemnity of a party contained in this agreement is a continuing obligation of that party despite:

(a) any settlement of accounts; or

(b) the occurrence of anything,

and remains in full force and effect until all money owing, contingently or otherwise, under any indemnity has been paid in full.

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22.6.2 Each indemnity of a party contained in this agreement:

(a) is an additional, separate and independent obligation of that party and

(b) no one indemnity limits the generality of any other indemnity; and survives the termination of this agreement.

22.7 Remedies

22.7.1 The rights and remedies contained in this agreement are cumulative and are not exclusive of any rights and remedies provided by law.

22.7.2 Any right or remedy which may be exercised, or any determination which may be made, under this agreement by a party may be exercised or made (or declined to be exercised or made) in the absolute discretion of that party who is not under any obligation to do so or to give reasons for its decision.

22.7.3 A party is not liable or accountable for any loss occasioned by or arising out of or in connection with its omission to exercise any right or remedy or to make any determination, or any delay in exercising any right or remedy or in making any determination, or the exercise or partial exercise of any right or remedy.

22.7.4 A party is entitled to enforce or take action in respect of, to the extent permitted by law, any breach of another party’s obligations under this agreement notwithstanding the termination of this agreement.

22.8 Further Assurances

Each party must do and perform all such other acts matters and things as may be necessary or convenient to implement the provisions of this agreement so as to give effect to the intentions of the parties as expressed in this agreement.

22.9 Assignment

A party may not assign the benefit of or its obligations under this agreement without the prior written approval of each other party.

22.10 Whole Agreement

22.10.1 The contents of this agreement record the entire agreement between the parties in relation to its subject matter. It supersedes all previous negotiations, understandings or agreements in relation to the subject matter.

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22.l0.2 No modification of this agreement is to be binding unless it is in writing and signed by or on behalf of each party.

22.10.3 All understandings, agreements, warranties or representations (whether express or implied) are excluded other than, subject to clause 22. 10.1, those which are set out in writing in this agreement.

22.10.4 The conditions or warranties (if any) which are implied into this agreement by statute (where the statute voids or prohibits provisions excluding, restricting or modifying the application of or the exercise of a right conferred by or liability arising from a breach of the implied condition or warranty) are not excluded from this agreement.

22.11 Counterparts

If this agreement is signed in counterparts, each is deemed an original and all constitute one and the same instrument.

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SCHEDULE 1

Warranties

A. Vendor’s Warranties

AUTHORITY

1. The Vendor has taken all necessary action to authorise the execution, delivery and performance of this agreement in accordance with its terms.

2. The Vendor has full power to enter into and perform its obligations under this agreement and it can do so without the consent of any other person (except for consents required under the Contracts, the Property Leases, the Computer Licences, the Mining Tenements, the Environmental Protection Licences, the Permits to Operate and the consent of the person holding the Encumbrances).

3. The Receivers have been validly appointed.

4. The Receivers have the power and authority to execute this agreement on behalf of the Vendor and to sell the Vendor Interest in the Business Assets on behalf of the Vendor and if clause 2.2.1(a) applies, the Receivers have the power and authority to sell the Thiess Interest in the Business Assets on behalf of the Vendor.

5. The Vendor and the Receivers make no representation or warranties in relation to:

5.1 the nature, quality, state of repair, value or condition of the Business Assets;

5.2 subject to the acknowledgement in clause 15.5, the title to or rights attaching to or effecting the Business Assets;

5.3 any other matter having, or which may have, an effect, beneficial or otherwise, on the Business Assets (including without any defect, whether latent or patent);

5.4 the accuracy or completeness of the Disclosure Material;

5.5 any environmental or rehabilitation obligations or liabilities arising out of the Mining Tenements;

5.6 subject to the acknowledgement in clause 15.5, its right to assign or transfer any of the Business Assets;

5.7 the existence of any Native Title claims;

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5.8 the status of the Mining Tenements and the Environmental Protection Licences, including expenditure obligations;

5.9 the accuracy or completeness of the information contained in the schedules to this agreement;

5.10 any future matters in relation to the Business or the Business Assets including future costs, revenues or profits; or

5.11 without limitation, any other matter.

B. Receivers’ Warranties

1. The Receivers have been validly appointed.

2. The Receivers have the power and authority to execute this agreement on behalf of the Vendor and to sell the Vendor Interest in the Business Assets on behalf of the Vendor and if clause 2.2.1(a) applies, the Receivers have the power and authority to sell the Thiess Interest in the Business Assets on behalf of the Vendor.

3. The Business Assets will be free of all Encumbrances as at Completion.

C. Purchaser’s Warranties

AUTHORITY

1. The Purchaser has taken all necessary action to authorise the execution, delivery and performance of this agreement in accordance with its terms.

2. The Purchaser has full power to enter into and perform its obligations under this agreement and can do so without the consent of any other person (except for consents required under the Contracts, the Property Leases, the Computer Licences, the Permits to Operate, the Environmental Protection Licences and the Mining Tenements).

3. The execution, delivery and performance by the Purchaser of this agreement complies with:

3.1 each law, regulation, authorisation, ruling, judgment, order or decree of any governmental agency;

3.2 the constitution or other constituent documents of the Purchaser; and

3.3 any Encumbrance or document which is binding on the Purchaser.

3.4 The Purchaser has not gone into liquidation nor passed a winding-up resolution nor received a notice under section 601AB(3) of the Corporations Act 2001 (Cth).

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3.5 No petition or other process for winding up has been presented or threatened against the Purchaser and there are no circumstances justifying such a petition or other process.

3.6 No writ of execution has issued against the Purchaser.

3.7 No receiver or receiver and manager of any part of the undertaking or assets of the Purchaser has been appointed.

3.8 The Purchaser does not have actual knowledge of any matter or thing that is at the date of this agreement inconsistent with the Vendor’s Warranties or the Receivers’ Warranties.

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SCHEDULE 2

Plant & Equipment

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SCHEDULE 3

Freehold Property

Properties with the following identifiers:

Freehold Property

Lot 125/DP 755225 Lot 99/DP 755225 Lot 751DP 755225 Lot 67/DP 755225 Lot 66/DP 755225 Lot 65/DP 755225 Lot 64/DP 755225 Lot 35/DP 755225 Lot 19IDP 755225 AUTO CONSOL 2330-206 (Lots 1 to 6/DP 131087) AUTO CONSOL 2098-122 (Lots 12 and 1201DP755225) AUTO CONSOL 2019-214 (Lots 13-14/DP 755225) Lot 1/DP 823133 Lot 42/DP 812815 Lot 100/DP 755254 Lot 1/DP 775718 Lot 2/DP 775718 AUTO CONSOL 3456-246 (Lots 9,13-15, 18, 32, 34-38, 42, 47-49 and 54-58/DP 11747) Lot 99/DP 755254

Lot 98/DP 755254 AUTO CONSOL 3476-37 (Lots 1- 2, 5 and 8-13/DP 69968 and Lots 1-3/DP 124547) AUTO CONSOL 4788-46 (Lots 18-21,              Section 4/DP 13656) AUTO CONSOL 8633-1 (Lots 34- 36/DP 755215) Lot 24/Section 4/DP13656 Lot 25/Section 4/DP 13656 Lot 26/Section 4/DP 13656 Lot 27/Section 4/DP .13656 Lot 28/Section 4/DP 13656 Lot 29/Section 4JDP 13656 Lot 30/Section 4/DP 13656 Lot 1/DP 87087 Lot 1/DP 131054 Lot 2/DP 714067 Lot 32/DP 755225 Lot 2/DP 755225 Lot 3/DP 755225 Lot 4/DP 755225

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SCHEDULE 4

Mining Tenements

Dam Site Lease (Mining Purposes) 89 (Act 1901)

Mineral Lease 1157 (C&S Act 1906)

Mineral Lease L83 (C&S Act 1906)

Mining Purposes Lease 23 (Act 1906)

Mining Purposes Lease 217 (Act 1906)

Mining Purposes Lease 233 (Act 1906)

Mining Purposes Lease 269 (Act 1906)

Mining Purposes Lease 1364 (Act 1906)

Private Lands Lease 150 (Act 1906)

Consolidated Coal Lease 728 (Act 1973)

Consolidated Coal Lease 752 (Act 1973) lining Purposes Lease 324 (Act 1973)

Consolidated Mining Lease 2 (Act .1992)

Mining Lease 1345 (Act 1992)

Mining Lease 1347 (Act 1992)

Mining Lease 1388 (Act 1992)

Mining Purposes Lease 204 (Act 1906)

Mining Lease (Purposes) 1550 (Act 1992)

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SCHEDULE 5

Property Leases

1. The Lease between Mr and Mrs Hincks and the Vendor in relation to the Area of the No. 1 Shaft, if executed prior to Completion.

2. The Deed of Licence between the Vendor and Andrew Bryce Park in relation to land owned by Mr Park dated 9 December 1988.

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SCHEDULE 6

Encumbrances

1. Fixed and Floating Charge given by Southland Coal Pty Ltd in favour of Thiess Southland Pty Limited, on or about 22 May 2001, ASIC charge no. 802575.

2. Fixed and Floating Charge given by Southland Coal Pty Ltd in favour of HSBC Precious Metals (Australia) Limited on or about 30 August 2002, ASIC charge no. 887140.

3. Fixed and Floating Charge given by Southland Coal Pty Ltd in favour of Thiess Pty Limited on or about 13 February 2003, ASIC charge no. 927615.

4. Fixed and Floating Charge given by Thiess Southland Pty Limited in favour of Southland Coal Pty Limited on or about 22 May 2001, ASIC charge no. 802546.

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SCHEDULE 7

Contracts

Agreement to Carry Coal between the Vendor and Pacific National (NSW) Pty Ltd dated 19 March 2003.

Rail Access Agreement between the Vendor and South Maitland Railways Pty Limited dated 3 July 1998.

Coal Handling Services Agreement between the Vendor and Port Waratah Coal Services Limited (ABN 99001 363 828) dated 29 May 2001

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SCHEDULE 8

Environmental Protection Licences

Environmental Protection Licence Number 416

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EXECUTED as an agreement

EXECUTED FOR AND ON BEHALF of	)
ANDREW JOHN LOVE, PETER IVAN	)
FELIX GEROFF AND ALAN EDWARD	)
LEWIS jointly and severally in their capacity	)
as Receiver and Manager of SOUTHLAND	)
COAL PTY LIMITED (RECEIVERS AND	)
MANAGERS APPOINTED	)
(LIQUIDATORS APPOINTED) by	)	Signature of Andrew John Love, joint receiver and
ANDREW JOHN LOVE, in the presence of:	)	manager
Signature of Witness
Print Name:
Address:
SIGNED by ANDREW JOHN LOVE in the	)
presence of:	)
	)
		Andrew John Love
Signature of Witness
Print Name:
Address:
EXECUTED for and on behalf of	)
YANZHOU COAL MINING COMPANY	)
LIMITED by its duly authorised officer	)
		Signature of Director
Signature of Witness
		Print Name
Print Name

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ANNEXURE A

Additional Tenement Area

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ANNEXURE B

Escrow Deed

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ANNEXURE C

Conveyor System Test

At the time of the test:

• Each conveyor to be individually able to be remotely and locally started and stopped using each of the available systems.

• Conveyors to start and stop in correct sequence (except in the coal preparation plant).

• Control room monitoring is operational including the following:

• Slip

• Tracking

• Tension

• Thermal overload on motors

• Emergency stops

• Conveyors (ie drift belt, S1 to S10, the overland conveyors and the conveyors in the coal preparation plant) to run continuously for 3 hours at full speed.

• The following associated equipment is to be started and run for 1 minute:

• Feeders

• Magnets

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ANNEXURE D

Water Levels Test

Preamble

This test is predicated on the assumption that construction of a water treatment plant will be commenced during the period between execution and Completion. It is designed to ensure that the water levels at Completion are such that if construction of the water treatment plant is not complete, the water level will not be such that storage capacity will be exceeded before construction is complete.

The specifications of the water treatment plant shall be as agreed between the Vendor and Purchaser, however both parties agree that a water treatment plant substantially similar to the 3 ML/day plant, capable of receiving the water of the quality at the Mine, as currently under discussion with Ionics at the date of this agreement will be an acceptable specification.

The WTP must be available to be purchased by the Purchaser.

Definitions

W_E = Water level underground at date of execution (RL)

W_T = Water level underground at date of the test (RL)

W_M = Maximum level before overflow to Southland. measured at the date of the test. (RL)

T_ET = Time between execution and the test (days).

T_TC = Time between the test and the forecast date for commissioning of the WTP (days). Note: forecast date to be determined by agreement between the Vendor and Purchaser.

V₅ = Volume of water stored on surface and in the Pelton Underground Workings at execution. (ML)

VT = Volume of water stored on surface and in the Pelton underground Workings at the date of the test. (ML)

V_M = Storage capacity both used and unused on the surface and in the Pelton Underground Workings at the date of the test. (ML)

S = Safety margin (days) determined as (T_TC (10%) + 10).

Availability = Operating Time I (Calendar Time — Scheduled Maintenance)

WTP = water treatment plant of the type referred to in the Preamble

Test

The test is satisfied if:

1. Pump Test: On the date of the pump test, which shall be a date acceptable to the Receiver, but not more than 14 days prior to Completion, the borehole pumping and monitoring system is demonstrated to have operated at a minimum pumping rate of not less than 2.OML per day with an availability of 90% or greater for the period beginning on the date one week prior to the date of the test and ending on the date of the test; AND

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2. Water Test: Either:

a) the WTP is installed, fully commissioned and operational to the specifications for the water treatment plant as referred to in the Preamble; or

b) both of the following equations are true and V_M³ 100ML AND W_T£ 9726 metres:

Test 1:	WT + (WT — WE)/TET * (TTC + S) < WM
Test 2:	VT+ (VT — VE)/TET * (TTC + S) < VM

Measurement Constraints

Underground water measurements for the purposes of the tests will be taken at the underground measuring station by a representative of the Vendor and a representative of the Purchaser simultaneously. Prior to the calculation of W₅ and WT, for the purposes of the test, the Vendor must have caused the continuous discharge of water from 5L2 into the main shaft for a period of 2 days out of the previous seven days.

Any modification to WM from its notional value at execution will be carried out to the satisfaction of the mine manager having regard to applicable safety standards for the operation of an underground coal mine, and only after consultation with the Purchaser.

Water volumes will be estimated using standard engineering calculation methodology acceptable to both the Vendor and the Purchaser. The methodology for calculation shall be the same for V_T and V_E.

V_T and V_M shall be estimated using standard engineering calculations acceptable to both the Vendor and the Purchaser. Capacity shall be measured in such locations, and in those locations to the maximum water level, as determined by the mine manager having regard to applicable safety standards and environmental requirements for water storage on coal mine sites and after freeboard allowance for a 1: 100 year 72 hour duration rain event.

Subject to the following, when calculating V_M, the area allocated to the Pelton Underground Workings and the Washplant open cut together shall not exceed 100ML. If the volume of water stored in the Pelton Underground Workings and the Washplant open cut together at the date of calculation of V_M exceed 100 ML, the amount of such excess shall be deducted from V_M. However, if the Vendor can demonstrate to Yanzhou’s satisfaction (not to be unreasonably withheld) that the hydraulic connectivity has been sealed between Pelton Underground Workings and the Washplant open cut, then when calculating V_M, the area allocated to the Pelton Underground Workings and the Washplant open cut together shall be increased to the combined separated volumes as calculated.

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Additional pre-test requirements

The Receiver must ensure that between the date of this agreement and until Completion:

1. Water must not be pumped into the Kalingo Shaft. However if a rain event occurs which would otherwise result in overflow of the Kalingo Dam, the overflow may be directed into the Kalingo Shaft. The Purchaser must be informed if this occurs, and provided with an estimate of the amount of water directed to the Kalingo Shaft. If any water is pumped into the Kalingo workings that volume of water must be deducted from VM for the purposes of the calculation of the tests.

2. The Purchaser is consulted and kept fully and regularly informed of all material issues concerning the water levels at the Mine.

3. The Purchaser is fully consulted in relation to all proposals for a WTP to be commissioned at the Mine. The Receiver must consult with the Purchaser in relation to any contractual commitment proposed to be entered into by the Receiver in relation to any proposed WTP and must ensure that no commitment to purchase a WTP or hire a WTP is made by the Receiver without the prior agreement of the Purchaser (such agreement not to be unreasonably withheld, provided that the Purchaser shall have ultimate decision making authority in relation to the specification and cost of any WTP intended to be purchased) but provided further that the Purchaser will not object to the Receiver entering into hire arrangement not exceeding 6 month for a WTP of the type specified in the preamble in order to allow the Receiver to progress the ordering and construction of the WTP.

4. The Purchaser must be kept informed on a daily basis (excluding weekends) of material issues affecting the water level at the Mine, including the daily water level underground and daily pumping volume and daily location to which water is being pumped.

The Vendor must cover that portion of installation and hire costs incurred prior to Completion. The Purchaser must cover all capital costs and all costs incurred after Completion

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ANNEXURE E

Continuous Miner Scope of Works

The scope of works relates to the area of the fall on the Continuous Miner, and does not refer to the fall in 5 cut through.

The following works must be completed:

• The Continuous Miner must be removed from the roadway and placed in a location that will not block access.

• The area of the fall must be secured, including the roof being supported, to the satisfaction or the mine manager having regard to applicable safety standards for operating underground coal mines.

• Safe access to the mining face must be available to the satisfaction of the mine manager, having regard to applicable safety standards for the operation of an underground coal mines.

• The area must be cleared of excess material.

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ANNEXURE F

Agreed Care and Maintenance Program

Work Program	Dewatering mine and maintain all pumps.
	Maintain statutory stonedusting on conveyor roads and travel roads.
	Prepare to run conveyors.
	Routinely run all conveyors.
	Statutory inspections and 103 inspections of all engineering plant.
	Statutory inspections of mine per operational inspection scheme. Inspect weekly, and maintain all accessible seals.
	Monitor the mine gases and respond to trigger events.
	Sample gas bags through the gas chromatograph.
	Maintain and repair as required for key operating equipment in the Coal Handling and Preparation Plant and associated infrastructure.
	Maintain and repair, to existing standard, all engineering equipment in use including compressors, winders and main fans, as required.
Stability of U/G roadways	Inspect all accessible roadways each 7 days or as required by regulations.
	Attend to any urgent deterioration immediately.
	Carry out other identified works subject to approval of the Receivers.
	Inspect the 5 cut through SLS Maingate area each shift and monitor temperature and as readings.
Security	Maintain a security presence of the whole site 24 hours per day, 7 days per week.
	Attend to any security breaches.
Gas monitoring trends	Monitor gas levels in the mine and behind the seals continuously.
	Run gas bag samples, as required, through the gas chromatograph and record results.
	Forward Gas Chromatograph results to John Brady for further analysis.
	Attend to Trigger Action Response Plans and alarms.
	Maintain the tube bundle system.
	Maintain all monitoring and analysing equipment.
	Carry out monthly ventilation review of mine.
De watering Ellalong goaf and water level monitoring.	Continue to dewater the Ellalong goaf. Monitor and record water levels at Kalingo and No 2 shaft weekly. Locate storage for water placement. Attend to any unplanned discharge. Report unplanned discharges, if any, to Yanzhou.

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Environmental Issues	Audit the site weekly for environmental issues. Attend to any unplanned discharges and spills. Report unplanned discharges and spills, if any, to Yanzhou. Maintain all environmental monitoring and management equipment.
Statutory Issues	Attend to any statutory issues from relevant governmental departments. Forward copies of notices and correspondence, if any, to Yanzhou.
Projects from Receiver	Carry out all works from projects identified by the Receivers outside the range of the care and maintenance budget and program.
Reporting	Report weekly the status of the care and maintenance program to Yanzhou.
	Report as required to relevant Governmental departments, and provide a copy to Yanzhou

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EX-4.3

Exhibit 4.3

SUMMARY OF

FOUR-PARTY ENTRUSTED LOAN AGREEMENT

Trustor:	Yanzhou Coal Mining Company Limited
Address:	298 Fushan South Road, Zoucheng City, Shandong Province
Entrusted Lender:	Bank of China Jining Branch (“Lender”)
Address:	99 Guanghe Road, Jining City, Shandong Province
Borrower:	Shandong Xinjia Industrial Company Limited
Address:	138 Lishan Road, Jinan City, Shandong Province
Guarantor:	Lianda Group Corporation
Address:	28 Qianfoshan West Road, Jinan City, Shandong Province

To enable the Trustor to effectively utilize its capital, and the Entrusted Lender to make the Entrusted Loan to the Borrower, the parties after discussion agree as follows:

Article 1	General Provisions
1.	The Trustor shall deposit available cash with the Lender who shall disburse the Entrusted Loan to the Borrower, and receive payment of principal and interest at the maturity date.
2.	The Lender shall assist the Trustor to evaluate the Borrower’s credit status, supervise the use of the loan proceeds, supervise the Borrower to timely repay principal and interest, and carry out the lending procedures.
3.	The risk of loss in relation to the Entrusted Loan shall be borne by the Trustor, and the Lender shall not bear any risk of loss in relation to the Entrusted Loan.
4.	The Lender’s signature of this Loan Agreement shall not be deemed to be a guarantee by the Lender of payment by the Borrower.
5.	An amount of 3% of the interest (including penalty interest, overdue interest and fees) received by the Lender from the Borrower shall be the Entrusted Loan handling fee.
Article 2	Currency, Amount and Term
1.	Currency of the Entrusted Loan is Renminbi.
2.	The principal amount of the Entrusted Loan is RMB640,000,000.
3.	The term of the Entrusted Loan is from December 20, 2004 to January 19, 2005.

Article 3	Use of Proceeds
1.	The proceeds of the Entrusted Loan shall be used for working capital.
2.	Without the Trustor’s written consent, the Lender may not change the use of proceeds.
Article 4	Entrusted Loan Settlement Account
1.	Within seven business days of the signing of this Agreement, the Trustor shall open the Entrusted Loan Settlement Account with the Lender.
2.	Within seven business days of the signing of this Agreement, the Trustor shall deposit the full amount of RMB640,000,000 in the Entrusted Loan Settlement Account. The Lender shall pay interest on the funds on deposit at a floating rate of interest.
3.	Under no circumstances shall the Borrower at any time withdraw more than the balance on deposit in the Trustor’s account.
4.	The Lender shall deposit payments of principal and interest (including interest and penalty interest) received (or withheld) in the Trustor’s account on a quarterly basis, after deduction of the Entrusted Loan handling fee.
Article 5	Borrower’s Account
1.	After the effectiveness of this Agreement and before using the funds, the Borrower shall open an account with the Lender for the purpose of carrying out withdrawal, repayment of principal and interest, payment of fees, etc.
2.	The Borrower shall open a repayment account with the Lender, and shall deposit in such account the full amount of principal and interest due on any payment date not less than five business days prior to such payment date.
3.	Any operations relating to sale of goods, settlement or clearance referred to herein shall be conducted through the Lender.
Article 6	Entrusted Loan Interest and Calculation
1.	The interest rate of the Entrusted Loan is 7%. If, during the term of this Agreement, the Trustor and the Borrower adjust or change the interest rate or method of calculation, the Trustor shall give written notice thereof to the Lender, and the Lender shall commence calculation of interest at the adjusted rate from the second business day after receipt thereof.
2.	Method of calculation: Interest shall be calculated from the first date on which the Borrower makes a withdrawal according to the actual amount withdrawn and the actual number of days, based on a year of 360 days.

3.	Interest payment: The Lender shall make payment of interest on the day the Entrusted Loan matures, and the Lender shall be entitled to deduct such payment directly from the Borrower’s account. If the Borrower fails to make payment in full of principal and interest when due, and the balance on deposit in the Borrower’s account is insufficient to pay principal and interest, then the Lender shall have the right to charge the Borrower penalty at the rate of 0.00023 per day on the overdue amount.
Article 7	Interest on Overdue Amounts and Misapplied Amounts
1.	In the event that the Borrower shall fail to make repayment as set forth herein, and the parties shall not have agreed to an extension of the term of the loan such that the amounts are overdue, then the Trustor shall have the right to charge penalty interest at the rate of 0.00023 per day on the overdue amount.
2.	In the event that the Borrower shall fail to use the loan proceeds as set out herein, then the Trustor shall have the right to charge penalty interest at the rate of 0.00023 per day on the misapplied renminbi amount.
Article 8	Plan of Withdrawal
1.	The Borrower shall make one and only one withdrawal on December 20, 2004.
2.	The last date on which the Borrower may withdraw funds shall be the day 10 business days from the date of this Agreement, and after such date any unutilized amount of the loan shall be cancelled. Such date shall also be the date on which delayed withdrawal damages shall be collected.
Article 9	Conditions Precedent to Withdrawal
1.	The Borrower shall open an account with the Lender or one of the Lender’s branches.
2.	The Borrower shall have provided to the Lender the resolutions of the Board of Directors or other governing body authorizing the Borrower to enter into and perform this Agreement and powers of attorney.
3.	This Agreement shall be in effect.
4.	The Borrower shall have provided to the Lender a list of incumbent officers of the Borrower who are duly authorized to sign this Agreement, and all other documents and certificates related hereto, along with specimen signatures of such officers.
5.	Such other conditions as specified by the parties hereto.
Article 10	Repayment
1.	The Borrower shall repay the loan strictly in accordance with the following repayment schedule:

Number of Payments	Date of Payments	Payment Amount
1	January 19, 2005	RMB 640,000,000

2.	The Borrower may prepay the loan upon three days’ prior notice to the Lender.
3.	If the Trustor agrees to prepayment of a portion of the loan, the Borrower may not subsequently withdraw such amount.
4.	Any amounts paid by the Borrower hereunder or deducted by the Lender from the Borrower’s account shall be applied first to pay interest and damages, and thereafter to principal as and when due.
5.	The Lender shall be entitled to set-off any amounts on deposit in Borrower’s accounts with the Lender for the repayment of the Borrower’s debts as they mature.
6.	If the Lender believes that any risk exists in relation to the loan hereunder, it shall have the right to transfer back the loan principal and interest from the Borrower’s bank.
Article 11	Guarantee
1.	Payment of principal and interest (including penalty interest and other costs and expenses), other obligations of the Borrower hereunder and all costs and expenses of the Trustor or the Lender (including but not limited to court costs, attorneys’ fees, custody fees, etc.) in connection with the enforcement of their rights hereunder is guaranteed by Lianda Group Corporation, who shall be jointly liable as guarantor, and in connection with which it has separately executed pledges of equity interests.
2.	In the event that the financial condition of the Guarantor deteriorates or for any other reason the ability of the Guarantor to pay its debts is reduced, such that the Guarantor’s ability to perform under its guarantee is clearly diminished or impaired, then the Trustor shall have the right to require the Borrower to substitute another guarantor or provide other new security to ensure payment of the debt.
Article 12	Representations and Warranties of the Borrower
1.	The Borrower represents that:
	(i)	due incorporation and registration; full power and authority to enter into this Agreement; to sue; legal title to its assets.
	(ii)	voluntarily enters into this Agreement; duly authorized; entry into and performance of this Agreement do not violate Articles of Association, any applicable law or contract; entry into and performance of this Agreement duly authorized.

	(iii)	all documents, materials, reports, certificates, etc. provided to the Trustor and the Lender true, accurate, complete and in effect.
	(iv)	not failed to disclose to Trustor any event that has already occurred or about to occur that might affect the Trustor’s decision to make loan available.
2.	The Borrower warrants that:
	(i)	it will use proceeds in accordance with this Agreement; not to misapply or unreasonably spend the loan proceeds.
	(ii)	it will repay loan principal, interest and fees in accordance with this Agreement.
	(iii)	it will provide updated financial information at request of Lender.
	(iv)	if the Borrower has entered into any contract to guarantee the Guarantor’s guarantee obligation, such agreement will not affect the rights of the Trustor hereunder.
	(v)	it will undergo credit investigation and supervision from the Lender, and provide necessary cooperation.
	(vi)	it will promptly notify the Trustor and the Lender if it guarantees the obligations of third parties or pledges or mortgages its assets to provide security.
	(vii)	it will not subordinate its obligations under this Agreement to other similar indebtedness.
	(vii)	the Guarantor Lianda Group Corporation will complete procedures for pledge of equity interests within five days after the date hereof.
	(ix)	it will promptly notify the Trustor and the Lender if:
		•      it is in default under any loan agreement or guarantee
		•      there is a change of control, senior management or amendment of Articles of Association
		•      there is a material disruption of operations or deterioration of financial condition
		•      any material dispute relating to rights and obligations leading to litigation or arbitration

3.	The representations and warranties of the Borrower herein shall continue to have effect, and shall be deemed repeated by the Borrower whenever this Agreement is amended, supplemented or revised.
4.	The Borrower acknowledges that the Trustor and the Lender are entering into this Agreement in reliance on the basis of the representations and warranties of the Guarantor.
5.	The Borrower agrees that if any of the foregoing events occur, the Trustor shall be entitled to enforce its right to require repayment.
Article 13	Lender’s Representations and Warranties
1.	Lender represents that:
	(i)	it is due incorporated and registered; it has duly obtained business license and operation permit for financial institutions issued by the Peoples’ Bank of China and is a registered branch of a national commercial bank; is duly qualified and authorized to carry on financial business.
	(ii)	it is duly authorized to enter into and perform this agreement.
2.	Lender warrants that:
	(i)	it will make the Entrusted Loan pursuant to this Agreement and supervise the use of the loan proceeds, assist the Trustor to collect principal and interest.
	(ii)	it will not increase the interests at will.
Article 14	Trustor’s Representations and Warranties
1.	Trustor represents that:
	(i)	the fund provided by the Trustor is self-owned, legal and free.
	(ii)	it is entitled to carrying on the matters contemplated by this Agreement.
	(iii)	it voluntarily enters into this Agreement; it is duly authorized; it has completed all procedures required for the execution and performance of this Agreement.
	(iv)	the choice of Borrower, use of proceeds, interest and terms in this Agreement are all based on Trustor’s own decision.
2.	Trustor warrants that:
	it will deposit the fund in the Entrusted Loan Settlement Account pursuant to Article 4, and it guarantees that the balance in the Entrusted Loan Settlement Account shall be no less than the amount that will be withdrawn by the Borrowers pursuant to this Agreement.

Article 15	Defaults and Consequences
1.	Any of the following shall constitute automatic events of default by the Borrower:
	(i)	the Borrower fails to use the loan proceeds as specified herein;
	(ii)	the Borrower fails to timely repay principal or interest when due, other fees or any other amount payable hereunder;
	(iii)	the Borrower breaches any of the warranties or the representations are not true and accurate;
	(iv)	the Borrower commits anticipatory breach;
	(v)	the Borrower breaches any other obligation hereunder.
2.	If any of the foregoing occurs, the Borrower shall promptly inform the Lender and the Trustor, and the Lender or the Trustor separately or together may take the following actions:
	(i)	require the Borrower to cure the default within a stated period of time; or
	(ii)	notify the Borrower that the full amount of principal and interest hereunder is immediately due and payable, and demand payment of such principal, interest and fees.
3.	Lender’s defaults and consequences
	(i)	If the Lender without proper cause refuses to allow the Borrower to make withdrawal pursuant to the terms of this Agreement.
	(ii)	If the Lender breaches any provision of Article 13.
	If the Lender commits any violation referred to above, the Trustor or the Borrower separately or together may take the following actions:
	(i)	require the Lender to cure the default within a stated period of time;
	(ii)	the Borrower may prepay the loan;
	(iii)	the Trustor may replace the Lender with another lender.
4.	If any of the follow shall occur, it shall constitute a default by the Trustor hereunder:
	(i)	failure to establish the Trustor’s account and deposit the required amount in accordance with this Agreement;

	(ii)	unauthorized source of funds.
5.	If any of the above violations occur, the Lender or the Borrower shall have the right to take any of the following actions:
	(i)	require the Borrower to cure the default within a stated period of time;
	(ii)	the Lender may refuse to carry out the Entrusted Loan on behalf of the Trustor;
	(iii)	the Borrower may prepay the loan;
	(iv)	if the Lender or the Borrower incur loss, seek damages from the Trustor.
Article 16	Expenses
1.	Except as otherwise required by law, all expenses in connection with this Agreement (including but not limited to processing fees and notaries fees) shall be borne by the Borrower.
2.	All taxes and expenses in connection with the execution, performance or any dispute relating to this Agreement, including but not limited to stamp duty, interest withholding tax, litigation expenses, lawyers fees, execution costs etc. shall be borne by, or reimbursed by, the Borrower.
Article 17	Withholding
The Borrower shall pay all amounts payable hereunder without making any claim for deduction or right of set-off, and without imposing conditions.
Article 18	Assignment of Debt
1.	Without the written consent of the Trustor, the Borrower shall not transfer or assign any right or obligation hereunder to any third party.
2.	If, with the Trustor’s written consent, the Borrower transfers or assigns any right or obligation hereunder to any third party, such third party shall obey all of the provisions hereof without condition.
Article 19	Performance of Obligations and Waiver of Rights
1.	Except as otherwise specified herein, the obligations of the Borrower hereunder are independent obligations, and are not affected by the relationship of any party to any other third party.
2.	If the Trustor shall give the Borrower any waiver, variance, indulgence or extension in the exercise of its rights hereunder, it shall not affect, harm or limit the rights of the Trustor hereunder or under applicable laws or regulations, and shall not constitute a waiver of the rights of the Trustor or the Lender hereunder.

Article 20	Exhibits
1.	The exhibits to this Agreement are:
	•      Guarantee of Entrusted Loan Agreement
	•      Equity Interest Pledge Contract
	•      Equity Interest Pledge Agreement
and their related documents.
2.	The exhibits shall constitute an integral part of this Agreement, and be of equal effect.
Article 21	Modification; Supplement and Interpretation
1.	This Agreement can not be amended or supplemented without all parties’ written consents. Any amendments or supplements shall constitute an integral part of this Agreement, and be of equal effect.
2.	If any provision of this Agreement becomes invalid, illegal or unenforceable due to the change of laws, regulations or judicial interpretation, the validity, legality and enforceability of other provisions shall not be affected. All signing parties shall revise those invalid, illegal or unenforceable provisions under such circumstances.
3.	Any matters not covered by this Agreement shall be solved by discussion.
Article 22	Disputes Resolution; Governing Law; Waiver
1.	This Agreement shall be governed by, and construed in accordance with the laws of the PRC. Any dispute, controversy or claim among the parties to this Agreement arising out of or in connection with this Agreement may be solved by negotiation. If the dispute cannot be settled by negotiation, each party can sue under the court which has the jurisdiction.
2.	All costs in relation to the lawsuits shall be borne by the Borrower, unless otherwise determined by the court.
3.	The terms of this agreement shall continue in force notwithstanding the lawsuits. No party can refuse to perform this Agreement based on any lawsuits.
4.	The execution and performance of this Agreement by the Borrower are civil activities. The Borrower cannot take any economic or administrative actions against the Trustor or bring any petition against the jurisdiction, judgment or execution decision based on any waiver or exemption that it is entitled to.

Article 23	Notice
1.	Any notice or other document to be served under this Agreement may be delivered or sent to the Party to be served at its address and facsimile number appearing below:
	Trustor:	Yanzhou Coal Mining Company Limited
	Address:	298 South Fushan Road, Zoucheng City,
		Shandong Province, PRC
	Zip Code:	273500
	Fax No.:	0537-5382032
	Contact Person:	Zhou Qing Chung
	Entrusted Lender:	Bank of China Jijing Branch
	Address:	99 Guanghe Road, Jining City, Shandong Province
	Zip Code:	272100
	Fax No.:	0537-2609672
	Contact Person:	Qi Shao Hua
	Borrower:	Shandong Xinjia Industrial Company Limited
	Address:	138 Lishan Road, Jinan City, Shandong Province
	Zip Code:	250014
	Fax No.:	0531-2623329
	Contact Person:	Chen Chen
	Guarantor:	Lianda Group Corporation
	Address:	28 Qianfoshan West Road, Jinan City, Shandong Province
	Zip Code:	250014
	Fax No.:	0531-2950048
	Contact Person:	Liu Xu
3.	Any change to the addresses above shall be notified to other parties immediately.
4.	Any notice or document delivered to the addresses above shall be deemed to have been served:
	(i)     if sent by post, on the fifth business day after the registered mail has been dispatched; or
	(ii)    if sent by facsimile process, on the day of dispatch; or
	(iii)  if delivered, at the day of the receipt evidenced by recipient’s signature.
Article 24	Effective
1.	This Agreement shall become effective as of the date of the execution and shall be in full force and effect until the day that the principal and interest has been fully repaid.
2.	This Agreement shall be executed in four counterparts.

Trustor:         Yanzhou Coal Mining Company Limited

Authorized signature:

Entrusted Lender:         Bank of China Jijing Branch

Authorized signature:

Borrower:         Shandong Xinjia Industrial Company Limited

Authorized signature:

Guarantor:         Lianda Group Corporation

Authorized signature:

Date: December 13, 2004

Location: Jinan City, Shandong

Exhibits:

• Guarantee of Entrusted Loan Agreement

• Equity Interest Pledge Contract

• Equity Interest Pledge Agreement

EX-4.4

EXHIBIT 4.4

Contract No.: [GL-06001]

YANKUANG GROUP CORPORATION LIMITED

AND

YANZHOU COAL MINING COMPANY LIMITED

PROVISION OF MATERIALS AND WATER SUPPLY AGREEMENT

This agreement is entered into by the parties hereto on 10 January 2006 at Zoucheng, Shandong Province:

Yankuang Group Corporation Limited, a State wholly-owned enterprise established and validly subsisting under the laws of the PRC (registration number of business license for corporate legal person is 3700001801980), whose address is at 298 South Fushan Road, Zoucheng. Shandong Province and its legal representative is Geng Jiahuai (hereinafter is referred to as the “Group Company”).

Yanzhou Coal Mining Company Limited, a joint stock limited company established and validly subsisting under the laws of the PRC and its shares are issued to the public and listing on the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange Inc. (registration number of business license for corporate legal person is Qi Gu Lu Zhong Ji No. 003929), whose address is at 298 South Fushan Road, Zoucheng. Shandong Province and its legal representative is Wang Xin (hereinafter is referred to as the “Joint Stock Company”).

Whereas:

1. The Group Company was the sole promoter and established the Joint Stock Company pursuant to the laws of the PRC on 25 September 1997. As a part of the Restructuring, the Group Company inject the assets and liabilities mainly related to the business of production of operation of coal mining to the Joint Stock Company and retained the remaining assets and liabilities.

2. The Joint Stock Company issued shares to the public and the shares were listed on Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange Inc. The Group Company remained as the controlling shareholder of the Joint Stock Company after the listing. As at the date hereof, about 54.33% of the issued shares in the Joint Stock Company were held by the Group Company.

3. On 17 October 1997, the Group Company and the Joint Stock Company entered into the Materials and Services Supply Agreement for the mutual supply of materials, property management, medical and other staff benefit, staff training, maintenance and repair works of listed business assets, motor vehicle and rail motor vehicle transportation, heat, water, electricity and utilities (“Original Agreement”). The term of the Original Agreement was ten years.

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4. On 30 October 2001, the Group Company and the Joint Stock Company entered into the Supplementary Agreement for the Materials and Services Supply Agreement (“Supplementary Agreement (I)”), which was approved by the independent shareholders on 17 December 2001. On 29 May 2003, the Group Company and the Joint Stock Company entered into the Second Supplementary Agreement for the Materials and Services Supply Agreement (“Supplementary Agreement (II)”), which was approved by the independent shareholders on 27 June 2003.

5. On the basis of the regulatory provisions where the Joint Stock Company is listed and the latest development on the Group Company and the Joint Stock Company, the Group Company and the Joint Stock Company intend to terminate the Original Agreement, the Supplementary Agreement (I) and the Supplementary Agreement (II), and enter into Ongoing Connected Transactions Agreements of similar nature between the Group Company together with its subsidiaries and the Joint Stock Company together with its subsidiaries for the mutual supply of materials and services separately. In this agreement, where references are made to the provision of materials or services by the Group Company or the Joint Stock Company, their respective subsidiaries are also included therein.

In accordance with the relevant laws and regulations of the Contract Law of the People’s Republic of China and the regulatory provisions where the Joint Stock Company is listed, the Group Company enter into an agreement with the Joint Stock Company for matters on the provision of materials and water supply upon amicable negotiation between both parties as follows:

1. Definitions and Interpretations

1.1 Definitions

Unless otherwise defined herein, the following terms shall have the following meanings in this agreement:

“Financial Year” the financial year commencing from 1 January and ending on 31 December for each year;

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“Interim Period”	with respect to a financial year, the interim period either commencing from 1 January and ending on 30 June or commencing from 1 July and ending on 31 December;
“Agreed Provision”	the provision of materials and water supply;
“Hong Kong Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Market price”	where applicable, the calculation of market price for the Agreed Provision as contemplated under this agreement pursuant to Article 4.2
“Materials & Supplies”	the provision of materials, equipment and supplies such as concrete by the Group Company and its subsidiaries to the Joint Stock Company and its subsidiaries pursuant to Article 2.1.1 of this agreement
“PRC”	The People’s Republic of China
“Original Connected Transaction Agreements”	Original Agreement, Supplementary Agreement (I) and Supplementary Agreement (II);
“RMB”	the lawful currency of the PRC;
“State-prescribed price”	the price for the Agreed Provision as determined according to Article 4.3; and
“Subsidiaries”	the controlling subsidiaries, non-controlling subsidiaries and other entities of the Group Company and the Joint Stock Company

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1.2 Interpretations

Unless otherwise in contrary, in this agreement:

(1) Words and terms used importing the singular include the plural and vice versa;

(2) A party to this agreement or any other agreement includes its successor or authorized transferees;

(3) Articles or clauses or annex refer to the articles or clauses or annexes of this agreement;

(4) Any provision of this agreement shall not be construed as prohibiting the extension of this agreement or prohibiting the amendment, alteration or supplement to this agreement;

(5) The titles of sections to this agreement are provided for ease of reference only, and shall not affect the interpretation of this agreement.

2. Agreed Provision

2.1 The Agreed Provision by the Group Company to the Joint Stock Company as contemplated hereunder include:

2.1.1 Materials & Supplies: concrete, rubber belts, electricity cable for mining, support wheels, timber, axles; mining equipment and machinery such as liquid pressure support and rubber conveyors and other related material supplies;

2.1.2 Water supply.

2.2 The Group Company shall make available to the Joint Stock Company provision of materials and water supply as contemplated hereunder in

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accordance with the terms of this agreement and specific conditions as agreed by both parties from time to time, including but not limited to quantity and quality.

2.3 The Group Company undertakes to the Joint Stock Company that the price for provision of materials and water supply by the Group Company to the Joint Stock Company as contemplated hereunder shall not be higher than the price offered by the Group Company to any independent third party for the same type of materials and water supply. Where appropriate, the Group Company will provide such materials and water supply to the Joint Stock Company at a favourable price.

2.4 The Joint Stock Company may purchase Materials & Supplies and water supply from the Group Company in accordance with the terms and conditions as set out in this agreement. For avoidance of doubt, apart from the Materials & Supplies and water supply confirmed to be purchased by the Joint Stock Company from the Group Company in writing from time to time, the Joint Stock Company is not obliged to purchase any Materials & Supplies and water supply from the Group Company.

2.5 If the terms of provision of any materials and/or water supply by any third party are better than the terms offered by the Group Company or if the provision of such materials and/or water by the Group Company cannot meet the demand of the Joint Stock Company in any aspect (in terms of quantity or quality), the Joint Stock Company shall be entitled to purchase any such materials or water supply from other third parties. For avoidance of doubt, the Joint Stock Company is not required to obtain the provision of materials and water supply solely from the Group Company under any circumstances whatsoever.

3. Operation Model

3.1 The Joint Stock Company may submit the plan on the demand for Materials & Supplies and water supply for the following year or the adjustment plan to the service items for the current year (“Annual Provision Plan”) to the Group Company before 30 November each year. Both parties shall agree unanimously on the plan before 31 December of the current year. In the event the plan on the demand for Materials & Supplies and water supply of the Joint Stock Company for the following year is the same as the current year, the Group Company is obliged to satisfy the plan.

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3.2 Both parties and their respective subsidiaries shall enter into specific supply contract for the provision of Materials & Supplies and water supply pursuant to this agreement (including the formulation of Annual Provision Plan pursuant to this agreement).

3.3 In the course of executing the Annual Provision Plan or the specific supply contract, where necessary and agreed by both parties, the Annual Provision Plan or the specific supply contact may be adjusted.

3.4 The consideration for the Agreed Provision may be settled in one lump sum or installments.

3.5 Either party shall settle the amount due to the other party or credit the account of the other party in relation to the ongoing connected transactions for the current month latest by the last business day of each calendar month. The amount incurred by the ongoing connected transactions for each calendar month shall be settled within the month immediately following, but not including the amounts involved in the transactions not completed then and the amounts under disputes.

4. Basis for the determination of price on the Agreed Provision

4.1 The price for the Agreed Provision shall be determined according to the Market price. Such Market price shall be calculated and estimated each year, if possible, prior to the beginning of a financial year.

4.2 The price for the Agreed Provision shall be calculated according to the Market price to be determined according to normal commercial terms based on the following:

(1) the price at which the same or similar type of Agreed Provision provided by independent third parties under normal commercial terms in the ordinary course of their businesses in the same area or in the vicinity;

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(2) if (1) above is not applicable, the price at which the same or similar type of Agreed Provision is to be provided by independent third parties under normal commercial terms in the ordinary course of their businesses in the PRC.

4.3 In the event that at any time the state-prescribed price is effective and applicable to certain type of the Agreed Provision as contemplated under this agreement, both parties agree to determine the price for such type of Agreed Provision according to the state-prescribed price. Such state-prescribed price means the price determined according to the laws, regulations, decisions, orders or pricing policy of the relevant PRC government authorities applicable to such Agreed Provision, depending on specific conditions.

5. Representations, undertakings and warranties of the Group Company

5.1 The Group Company is a State wholly-owned enterprise established pursuant to the laws, which has the independent status of legal person and currently has a valid business licence;

5.2 The Group Company has been engaging in business activities pursuant to the laws and has never conducted any activities not included in the scope of operation as provided by the laws;

5.3 The execution of this agreement and the performance of obligations under this agreement by the Group Company do not contravene any other agreement entered into by it or its articles of association. There is no legal conflict to be arising from the execution of this agreement and the performance of obligations under this agreement against other agreement entered into by it or its articles of association.

5.4 The Group Company undertakes to the Joint Stock Company that the terms for the provision of Materials & Supplies and water supply to the Joint Stock Company as contemplated under this agreement shall not be less favourable than the terms of providing such Materials & Supplies and water supply to any independent third party by itself or its subsidiaries, depending as to the actual circumstances.

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5.5 The Group Company undertakes and warrants that it will provide such Materials & Supplies and water supply to the Joint Stock Company in accordance with the requirements and standards negotiated between the Joint Stock Company and the Group Company from time to time.

5.6 The Group Company assures that there will be adequate and qualified staff to provide the Agreed Provision to the Joint Stock Company, and that its staff shall obtain sufficient guidance and directions to provide such Materials & Supplies and water supply in accordance with the reasonable requirement of the Joint Stock Company.

5.7 The Group Company undertakes to the Joint Stock Company that in the course of providing any Agreed Provision as contemplated under this agreement, it will give priority in providing such Materials & Supplies and water supply to the Joint Stock Company. The Joint Stock Company is entitled to the pre-emptive right with respect to the provision of such Materials & Supplies and water supply by the Group Company to any third party (including, but not limited to any other third party related to the Group Company) in same terms.

5.8 In the event the Materials & Supplies and water supply as contemplated under this agreement is made available by the subsidiaries of the Group Company, the Group Company undertakes to procure the relevant subsidiaries to provide such Materials & Supplies and water supply to the Joint Stock Company and / or its subsidiaries in accordance with the provisions of this agreement.

5.9 The Group Company undertakes to the Joint Stock Company that if its subsidiaries violate any provisions of this agreement in the Agreed Provision in accordance with this agreement, the Group Company shall assume the liabilities as a result of the act of its subsidiaries in violating the provisions of this agreement.

5.10 The Group Company undertakes to the Joint Stock Company that the Group Company shall procure its subsidiaries to take all necessary actions to perform its obligations under this agreement.

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5.11 The Group Company warrants that in the course of performing its obligations under this agreement, it shall take reasonable actions to avoid certain omissions that will result in any damage to be suffered by the Joint Stock Company. The Group Company undertakes to indemnify the Joint Stock Company on all losses incurred by the Joint Stock Company arising therefrom.

6. Representations, undertakings and warranties of the Joint Stock Company

6.1 The Joint Stock Company is a joint stock limited company established pursuant to the laws, which has the independent status of legal person and currently has a valid business licence;

6.2 The Joint Stock Company has been engaging in business activities pursuant to the laws and has never conducted any activities not included in the scope of operation as provided by the laws;

6.3 The execution of this agreement and the performance of obligations under this agreement by the Joint Stock Company do not contravene any other agreement entered into by it or its articles of association. There is no legal conflict to be arising from the execution of this agreement and the performance of obligations under this agreement against other agreement entered into by it or its articles of association;

6.4 The Joint Stock Company undertakes to settle with the Group Company the consideration for the Agreed Provision timely in accordance with the provisions of this Agreement;

6.5 The Joint Stock Company warrants that in the course of performing its obligations under this agreement, it shall take reasonable actions to avoid certain omissions that will result in any damage to be suffered by the Group Company. The Joint Stock Company undertakes to indemnify the Group Company on all losses incurred by the Group Company arising therefrom.

7. Termination in the Agreed Provision

7.1 In the event the Joint Stock Company fails to obtain similar type of Materials & Supplies and water supply in the Agreed Provision as contemplated under this agreement with same terms from third parties conveniently, the Group Company shall not terminate the Agreed Provision under this agreement with any reason whatsoever.

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7.2 Notwithstanding the aforesaid Article 7.1, any party to this agreement may give notice in writing to the other party of not less twelve months in advance to terminate the provision or purchase of certain type of Materials & Supplies and water supply. It must be included in such termination notice which type of Materials & Supplies and water supply to be provided or purchased shall be terminated, and since when the termination shall be effective. Such type of Materials & Supplies and water supply as set out in such notice shall automatically be terminated from provision or purchase from the date the termination becomes effective as set out in such notice. If the provision of any Materials & Supplies and water supply is terminated according to this article, such termination shall not affect other rights and obligations of the Group Company or the Joint Stock Company under this agreement.

7.3 For avoidance of doubt, both parties agree that when the Joint Stock Company gives the termination notice for the Agreed Provision in accordance with Article 7.2, the Group Company must still provide the Agreed Provision to the Joint Stock company in accordance with the applicable provision terms (excluding the provision on the period of provision) prevailing since the date the notice is given until the date the termination becomes effective. The applicable provisions prevailing shall include the relevant terms of the supplementary agreement executed in accordance with Article 8.3.

8. Effectiveness, term and termination of the agreement

8.1 Save as otherwise agreed by both parties in writing, this agreement shall become effective after it is signed by the legal representatives or authorized representatives of both parties and the Joint Stock Company having performed the procedures to be considered and approved by the Board of Director or independent shareholders pursuant to the authorization limit and the regulatory provisions at the places where the Joint Stock Company are listed.

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8.2 This agreement is valid for a term of three years commencing from 1 January 2006 and ending on 31 December 2008. The Original Connected Transactions Agreement shall cease to execute after this agreement becomes effective.

8.3 If it is necessary to amend this agreement for any matters, both parties shall enter into supplementary agreements. Both parties shall enter into a supplementary agreement for the relevant matters prior to the end of November of the year before the financial year the supplementary agreement is subjected to. In the event both parties fail to agree unanimously for the terms of the required supplementary agreement before the above deadline, the terms of provision for the current year shall be applicable for the following financial year until both parties agree unanimously or the disputes between both parties were resolved pursuant to Article 8.4.

8.4 If both parties fail to agree on any matter related to the transaction price, including but not limited to the amounts payable and the payment schedule, upon the request of any parties, the matter shall submit to the Pricing Bureau of Zoucheng with the Pricing Bureau of Zoucheng as the mediator to determine the resolution method. The decision of the Pricing Bureau of Zoucheng shall be final and binding on both parties.

8.5 Prior to the termination of this agreement, both parties of this agreement may negotiate jointly for entering into a new agreement for the provision of materials and water supply, so as to ensure that the production and operation of both parties remain normal after the termination of this agreement.

8.6 In the event any part breaches any term of this agreement to a material extent (the “Breaching Party”) and the other party gives a written notice to the Breaching Party notifying that such act constitutes a breaching act and demands the Breaching Party to take remedial action within the reasonable deadline prescribed by the other party in such notice, the other party may terminate this agreement forthwith if the Breaching Party fails to take remedial action for such breaching act within the above-mentioned deadline. If the breaching act of the Breaching Party is irremediable, the other party may terminate this agreement forthwith.

8.7 The termination of this agreement shall not damage any rights or obligations already arisen for any party.

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9. Implementation of the agreement

In accordance with the requirements in the regulatory provisions at the places where the Joint Stock Company are listed, including but not limited to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and the Listing Rules of the Shanghai Stock Exchange, the ongoing connected transactions as contemplated under this agreement shall have set an annual cap to its transaction amounts. If the annual cap related to the Agreed Provision requires the approval by the independent shareholders of the Joint Stock Company, then whether such transactions will be conducted on an ongoing basis shall depend on the approval of the independent shareholders of the Joint Stock Company. If the actual amount incurred in such transactions for a particular year exceeds the annual cap as approved by the independent shareholders of the Joint Stock Company, both parties shall suspend the Agreed Provision that would have exceed the annual cap as approved by the independent shareholders of the Joint Stock Company until the Joint Stock Company has implemented the respective procedures for the consideration and approval in accordance with the regulatory provisions at the places where the Joint Stock Company are listed.

10. Announcement

Without the written consent of any party in advance, the other party shall not publish or allow other parties (that is subject to the control of the other party to this agreement) to publish any announcement related to the subject of this agreement or any relevant matters, save as the announcements to be published in accordance with the laws or the regulatory provisions of China Securities Regulatory Commission, Shanghai Stock Exchange, Hong Kong Stock Exchange, Securities and Futures Commission in Hong Kong, New York Stock Exchange Inc. and Securities and Exchange Commission in US or any other authorities at the places where the Joint Stock Company are listed.

11. Miscellaneous

11.1 Without the written consent of the other party, any party shall not assign its rights or obligations under this agreement.

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11.2 This agreement and its annex constitute the entire agreement for the matters as contemplated under this agreement, and substitutes all agreements related to such transactions entered into previously between both parties. In the event one party (the “Breaching Party”) breaches any term in the Original Connected Transactions Agreement, the Original Connected Transactions Agreement shall terminate forthwith upon the Joint Stock Company having performed the procedures to be considered and approved by the Board of Director or independent shareholders pursuant to the authorization limit and the regulatory provisions at the places where the Joint Stock Company are listed, notwithstanding any right obtained by the other party (the “Complying Party”) as a result of the breach by the Breaching Party being hampered and the claim to be raised against the Breaching Party being affected.

11.3 If any term in this agreement becomes illegal, invalid or unenforceable at any time, other terms shall not be affected accordingly.

11.4 If any party fails to perform any obligation under this agreement in accordance with the provisions of this agreement as a result of any force majeure events, evidences shall be timely provided together with a written notice to the other party, for which such failure to perform shall not be treated as any breaching act. The other party shall also agree to the performance of the relevant liabilities and obligations within a reasonable period depending on the circumstances prevailing.

11.5 Both parties agree to assume the related fees and expenses arising from the execution of this agreement in accordance with that as provided by the relevant laws of the PRC. If the same is not provided in any law, then such fees and expenses shall be equally allocated between both parties.

11.6 Amendment to this agreement or its annex shall be made in writing wherever possible, subject to signing by both parties and the corporate actions to be taken by both parties wherever appropriate.

11.7 Unless provided otherwise herein, the exercise or delay in exercise of the rights, powers or privileges under this agreement by one party does not constitute the waiver of such party on such rights, powers or privileges. The exercise of such rights, powers or privileges individually or in a portion does not exclude the exercise of any other rights, powers or privileges.

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11.8 The annex to this agreement is an integral party of this agreement and shall have the same binding effect to this agreement as if it is included in this agreement.

12. Notices

12.1 Any notice or other documents to be delivered to both parties pursuant to this agreement shall be made in writing and to be sent by hand, by post or by fax to the addresses of such party as follows:

(a)	Group Company:	Yankuang Group Corporation Limited
	Address:	298 South Fushan Road, Zoucheng. Shandong Province, the People’s Republic of China
	Telephone no.:	0537-5382232
	Fax no.:	0537-5382831
(b)	Joint Stock Company:	Yanzhou Coal Mining Company Limited
	Address:	298 South Fushan Road, Zoucheng. Shandong Province, the People’s Republic of China
	Telephone no.:	0537-5384031
	Fax no.:	0537-5382032

12.2 The timing for the delivery of the notices or documents:

(a)	By hand:	At the time when the notice or document is delivered
(b)	By post:	Five (5) working days after the notice or document is posted (Saturdays, Sundays and public holidays in the PRC shall be not counted)
(c)	By fax:	At the time when the fax is received. If the fax is received beyond the normal business hours, it will be deemed to be delivered in the normal business hours of the following days, except Saturdays, Sundays and public holidays in the PRC, with the delivery report printed from the fax machine of the sender confirming the fax is transmitted completely.

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13. Applicable laws and jurisdiction

This agreement is governed by the laws of the PRC and shall be construed according to the laws of the PRC. Any dispute in connection with or arising from this agreement (including its subsistence, validity, termination or any issue related to the rights or obligations of both parties under this agreement) shall be submitted to the Jining Arbitration Commission of Shandong Province for arbitration by any party after failing to resolve through amicable negotiation. The arbitration will be conducted at Jining in accordance with the arbitration rules then effective of such arbitration commission at the time the submission is made. The award of arbitration shall be final and shall be binding on both parties.

14. General

This agreement is made in Chinese.

There are four counterparts to this agreement. Both parties to the agreement shall each hold two copies after they are signed by the legal representatives or authorized representatives with seal affixed. Each copy of the agreement shall carry the same effect.

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This agreement is executed on the date written on the first page above.

Yankuang Group Corporation Limited

(with seal affixed)

Legal representative or authorized representative: [signed]

Yanzhou Coal Mining Company Limited

(with seal affixed)

Legal representative or authorized representative: [signed]

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Annex: Provision of Materials & Supplies and water supply by the Group Company to the Joint Stock Company

No.	Items	Pricing Basis	Term	Notice period for termination
1	Materials & Supplies (including but not limited to materials and equipment such as concrete, rubber belts, electricity cables)	Market price	3 years	12 months
2	Water supply	Market price	3 years	12 months

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Contract No.: [GL-06002]

YANKUANG GROUP CORPORATION LIMITED

AND

YANZHOU COAL MINING COMPANY LIMITED

PROVISION OF ELECTRICITY AGREEMENT

This agreement is entered into by the parties hereto on 10 January 2006 at Zoucheng, Shandong Province:

Yankuang Group Corporation Limited, a State wholly-owned enterprise established and validly subsisting under the laws of the PRC (registration number of business license for corporate legal person is 3700001801980), whose address is at 298 South Fushan Road, Zoucheng. Shandong Province and its legal representative is Geng Jiahuai (hereinafter is referred to as the “Group Company”).

Yanzhou Coal Mining Company Limited, a joint stock limited company established and validly subsisting under the laws of the PRC and its shares are issued to the public and listing on the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange Inc. (registration number of business license for corporate legal person is Qi Gu Lu Zhong Ji No. 003929), whose address is at 298 South Fushan Road, Zoucheng. Shandong Province and its legal representative is Wang Xin (hereinafter is referred to as the “Joint Stock Company”).

Whereas:

1. The Group Company was the sole promoter and established the Joint Stock Company pursuant to the laws of the PRC on 25 September 1997. As a part of the Restructuring, the Group Company inject the assets and liabilities mainly related to the business of production of operation of coal mining to the Joint Stock Company and retained the remaining assets and liabilities.

2. The Joint Stock Company issued shares to the public and the shares were listed on Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange Inc. The Group Company remained as the controlling shareholder of the Joint Stock Company after the listing. As at the date hereof, about 54.33% of the issued shares in the Joint Stock Company were held by the Group Company.

3. On 17 October 1997, the Group Company and the Joint Stock Company entered into the Materials and Services Supply Agreement for the mutual supply of materials, property management, medical and other staff benefit, staff training, maintenance and repair works of listed business assets, motor vehicle and rail motor vehicle transportation, heat, water, electricity and utilities (“Original Agreement”). The term of the Original Agreement was ten years.

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4. On 30 October 2001, the Group Company and the Joint Stock Company entered into the Supplementary Agreement for the Materials and Services Supply Agreement (“Supplementary Agreement (I)”), which was approved by the independent shareholders on 17 December 2001. On 29 May 2003, the Group Company and the Joint Stock Company entered into the Second Supplementary Agreement for the Materials and Services Supply Agreement (“Supplementary Agreement (II)”), which was approved by the independent shareholders on 27 June 2003.

5. On the basis of the regulatory provisions where the Joint Stock Company is listed and the latest development on the Group Company and the Joint Stock Company, the Group Company and the Joint Stock Company intend to terminate the Original Agreement, the Supplementary Agreement (I) and the Supplementary Agreement (II), and enter into Ongoing Connected Transactions Agreements of similar nature between the Group Company together with its subsidiaries and the Joint Stock Company together with its subsidiaries for the mutual supply of materials and services separately. In this agreement, where references are made to the provision of materials (including electricity) or services by the Group Company or the Joint Stock Company, their respective subsidiaries are also included therein.

6. The Group Company is equipped with power supply systems covering the mining areas (including the headquarters of the Joint Stock Company and the underground coal mines of the Joint Stock Company) and capabilities of power generation, and is capable to provide the electricity required by the Joint Stock Company and its underground coal mines.

In accordance with the relevant laws and regulations of the Contract Law of the People’s Republic of China and the regulatory provisions where the Joint Stock Company is listed, the Group Company enter into an agreement with the Joint Stock Company for matters on the provision of electricity upon amicable negotiation between both parties as follows:

1. Definitions and Interpretations

1.1 Definitions

Unless otherwise defined herein, the following terms shall have the following meanings in this agreement:

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“Financial Year”	the financial year commencing from 1 January and ending on 31 December for each year;
“Interim Period”	with respect to a financial year, the interim period either commencing from 1 January and ending on 30 June or commencing from 1 July and ending on 31 December;
“Hong Kong Stock Exchange”	The Stock Exchange of Hong Kong Limited
“PRC”	The People’s Republic of China;
“Original Connected Transaction Agreements”	Original Agreement, Supplementary Agreement (I) and Supplementary Agreement (II);
“RMB”	the lawful currency of the PRC;
“State-prescribed price”	the price for the provision of electricity as determined according to Article 4.2; and
“Subsidiaries”	the controlling subsidiaries, non-controlling subsidiaries and other entities of the Group Company and the Joint Stock Company

1.2 Interpretations

Unless otherwise in contrary, in this agreement:

(1) Words and terms used importing the singular include the plural and vice versa;

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(2) A party to this agreement or any other agreement includes its successor or authorized transferees;

(3) Articles or clauses or annex refer to the articles or clauses or annexes of this agreement;

(4) Any provision of this agreement shall not be construed as prohibiting the extension of this agreement or prohibiting the amendment, alteration or supplement to this agreement;

(5) The titles of sections to this agreement are provided for ease of reference only, and shall not affect the interpretation of this agreement.

2. Provision of Electricity

2.1 The Group Company shall make available to the Joint Stock Company the provision of electricity as contemplated hereunder in accordance with the terms of this agreement and specific conditions as agreed by both parties from time to time.

2.2 The Group Company undertakes to the Joint Stock Company that the price for the provision of electricity by the Group Company to the Joint Stock Company as contemplated hereunder shall not be higher than the price offered by the Group Company to any independent third party. Where appropriate, the Group Company will provide electricity to the Joint Stock Company at a favourable price.

2.3 If the terms of provision of electricity by any third party are better than the terms offered by the Group Company or if the provision of electricity by the Group Company cannot meet the demand of the Joint Stock Company, the Joint Stock Company shall be entitled to purchase electricity from other third parties. For avoidance of doubt, the Joint Stock Company is not required to obtain the provision of electricity solely from the Group Company under any circumstances whatsoever.

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3. Operation Model

3.1 The Joint Stock Company may submit the plan on the demand for electricity for the following year or the adjustment plan to the service items for the current year (“Annual Provision Plan”) to the Group Company before 30 November each year. Both parties shall agree unanimously on the plan before 31 December of the current year. In the event the plan on the demand for electricity of the Joint Stock Company for the following year is the same as the current year, the Group Company is obliged to satisfy the plan.

3.2 Both parties and their respective subsidiaries shall enter into specific supply contract for the provision of electricity pursuant to this agreement (including the formulation of Annual Provision Plan pursuant to this agreement).

3.3 In the course of executing the Annual Provision Plan or the specific supply contract, where necessary and agreed by both parties, the Annual Provision Plan or the specific supply contact may be adjusted.

3.4 The consideration for the provision of electricity may be settled in one lump sum or installments.

3.5 Either party shall settle the amount due to the other party or credit the account of the other party in relation to the ongoing connected transactions for the current month latest by the last business day of each calendar month. The amount incurred by the ongoing connected transactions for each calendar month shall be settled within the month immediately following, but not including the amounts involved in the transactions not completed then and the amounts under disputes.

4. Basis for the determination of price on the provision of electricity

4.1 The Group Company shall supply electricity to the Joint Stock Company at a price to be agreed and confirmed by the parties from time to time (“Agreed Price”), provided that such price shall be determined upon normal commercial terms and not higher than the price at which the Joint Stock Company could purchase power from the Shandong Power Grid.

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4.2 In the event that at any time the state-prescribed price is effective and applicable to the provision of electricity as contemplated under this agreement, both parties agree to determine the price for electricity according to the state-prescribed price. Such state-prescribed price means the price determined according to the laws, regulations, decisions, orders or pricing policy of the relevant PRC government authorities applicable to such supply, depending on specific conditions.

5. Representations, undertakings and warranties of the Group Company

5.1 The Group Company is a State wholly-owned enterprise established pursuant to the laws, which has the independent status of legal person and currently has a valid business licence;

5.2 The Group Company has been engaging in business activities pursuant to the laws and has never conducted any activities not included in the scope of operation as provided by the laws;

5.3 The execution of this agreement and the performance of obligations under this agreement by the Group Company do not contravene any other agreement entered into by it or its articles of association. There is no legal conflict to be arising from the execution of this agreement and the performance of obligations under this agreement against other agreement entered into by it or its articles of association.

5.4 The Group Company undertakes to the Joint Stock Company that the terms for the provision of electricity to the Joint Stock Company as contemplated under this agreement shall not be less favourable than the terms of providing electricity to any independent third party by itself or its subsidiaries, depending as to the actual circumstances.

5.5 The Group Company undertakes and warrants that it will provide electricity to the Joint Stock Company in accordance with the requirements and standards negotiated between the Joint Stock Company and the Group Company from time to time.

5.6 The Group Company assures that there will be adequate and qualified staff to provide electricity to the Joint Stock Company, and that its staff shall obtain sufficient guidance and directions to provide electricity in accordance with the reasonable requirement of the Joint Stock Company.

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5.7 The Group Company undertakes to the Joint Stock Company that in the course of providing electricity as contemplated under this agreement, it will give priority in providing electricity to the Joint Stock Company. The Joint Stock Company is entitled to the pre-emptive right with respect to the provision of electricity by the Group Company to any third party (including, but not limited to any other third party related to the Group Company) in same terms.

5.8 In the event the provision of electricity as contemplated under this agreement is made available by the subsidiaries of the Group Company, the Group Company undertakes to procure the relevant subsidiaries to provide electricity to the Joint Stock Company and / or its subsidiaries in accordance with the provisions of this agreement.

5.9 The Group Company undertakes to the Joint Stock Company that if its subsidiaries violate any provisions of this agreement in the provision of electricity in accordance with this agreement, the Group Company shall assume the liabilities as a result of the act of its subsidiaries in violating the provisions of this agreement.

5.10 The Group Company undertakes to the Joint Stock Company that the Group Company shall procure its subsidiaries to take all necessary actions to perform its obligations under this agreement.

5.11 The Group Company warrants that in the course of performing its obligations under this agreement, it shall take reasonable actions to avoid certain omissions that will result in any damage to be suffered by the Joint Stock Company. The Group Company undertakes to indemnify the Joint Stock Company on all losses incurred by the Joint Stock Company arising therefrom.

6. Representations, undertakings and warranties of the Joint Stock Company

6.1 The Joint Stock Company is a joint stock limited company established pursuant to the laws, which has the independent status of legal person and currently has a valid business licence;

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6.2 The Joint Stock Company has been engaging in business activities pursuant to the laws and has never conducted any activities not included in the scope of operation as provided by the laws;

6.3 The execution of this agreement and the performance of obligations under this agreement by the Joint Stock Company do not contravene any other agreement entered into by it or its articles of association. There is no legal conflict to be arising from the execution of this agreement and the performance of obligations under this agreement against other agreement entered into by it or its articles of association;

6.4 The Joint Stock Company undertakes to settle with the Group Company the consideration for the provision of electricity timely in accordance with the provisions of this Agreement;

6.5 The Joint Stock Company warrants that in the course of performing its obligations under this agreement, it shall take reasonable actions to avoid certain omissions that will result in any damage to be suffered by the Group Company. The Joint Stock Company undertakes to indemnify the Group Company on all losses incurred by the Group Company arising therefrom.

7. Termination in the provision of electricity

7.1 In the event the Joint Stock Company fails to obtain electricity as contemplated under this agreement with same terms from third parties conveniently, the Group Company shall not terminate the provision of electricity under this agreement with any reason whatsoever.

7.2 Notwithstanding the aforesaid Article 7.1, any party to this agreement may give notice in writing to the other party of not less twelve months in advance to terminate the provision or purchase of electricity. It must be included in such termination notice since when electricity to be provided/purchased shall be terminated. The provision of electricity as contemplated under this agreement shall automatically be terminated from the date of termination as set out in such notice. Such termination shall not affect other rights and obligations of the Group Company or the Joint Stock Company under this agreement.

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7.3 For avoidance of doubt, both parties agree that when the Joint Stock Company gives the termination notice for the provision of electricity in accordance with Article 7.2, the Group Company must still provide electricity to the Joint Stock company in accordance with the applicable provision terms (excluding the provision on the period of provision) prevailing since the date the notice is given until the date the termination becomes effective. The applicable provisions prevailing shall include the relevant terms of the supplementary agreement executed in accordance with Article 8.3.

8. Effectiveness, term and termination of the agreement

8.1 Save as otherwise agreed by both parties in writing, this agreement shall become effective after it is signed by the legal representatives or authorized representatives of both parties and the Joint Stock Company having performed the procedures to be considered and approved by the Board of Director or independent shareholders pursuant to the authorization limit and the regulatory provisions at the places where the Joint Stock Company are listed.

8.2 This agreement is valid for a term of three years commencing from 1 January 2006 and ending on 31 December 2008. The Original Connected Transactions Agreement shall cease to execute after this agreement becomes effective.

8.3 If it is necessary to amend this agreement for any matters, both parties shall enter into supplementary agreements. Both parties shall enter into a supplementary agreement for the relevant matters prior to the end of November of the year before the financial year the supplementary agreement is subjected to. In the event both parties fail to agree unanimously for the terms of the required supplementary agreement before the above deadline, the terms of provision for the current year shall be applicable for the following financial year until both parties agree unanimously or the disputes between both parties were resolved pursuant to Article 8.4.

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8.4 If both parties fail to agree on any matter related to the transaction price, including but not limited to the amounts payable and the payment schedule, upon the request of any parties, the matter shall submit to the Pricing Bureau of Zoucheng with the Pricing Bureau of Zoucheng as the mediator to determine the resolution method. The decision of the Pricing Bureau of Zoucheng shall be final and binding on both parties.

8.5 Prior to the termination of this agreement, both parties of this agreement may negotiate jointly for entering into a new agreement for the provision of electricity, so as to ensure that the production and operation of both parties remain normal after the termination of this agreement.

8.6 In the event any part breaches any term of this agreement to a material extent (the “Breaching Party”) and the other party gives a written notice to the Breaching Party notifying that such act constitutes a breaching act and demands the Breaching Party to take remedial action within the reasonable deadline prescribed by the other party in such notice, the other party may terminate this agreement forthwith if the Breaching Party fails to take remedial action for such breaching act within the above-mentioned deadline. If the breaching act of the Breaching Party is irremediable, the other party may terminate this agreement forthwith.

8.7 The termination of this agreement shall not damage any rights or obligations already arisen for any party.

9. Implementation of the agreement

In accordance with the requirements in the regulatory provisions at the places where the Joint Stock Company are listed, including but not limited to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and the Listing Rules of the Shanghai Stock Exchange, the transactions for the provision of electricity as contemplated under this agreement shall have set an annual cap to its transaction amounts. If such annual cap requires the approval by the independent shareholders of the Joint Stock Company, then whether such transactions will be conducted on an ongoing basis shall depend on the approval of the independent shareholders of the Joint Stock Company. If the actual amount incurred in such transactions for a particular year exceeds the annual cap as approved by the independent shareholders of the Joint Stock

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Company, both parties shall suspend the provision of electricity that would have exceed the annual cap as approved by the independent shareholders of the Joint Stock Company until the Joint Stock Company has implemented the respective procedures for the consideration and approval in accordance with the regulatory provisions at the places where the Joint Stock Company are listed.

10. Announcement

Without the written consent of any party in advance, the other party shall not publish or allow other parties (that is subject to the control of the other party to this agreement) to publish any announcement related to the subject of this agreement or any relevant matters, save as the announcements to be published in accordance with the laws or the regulatory provisions of China Securities Regulatory Commission, Shanghai Stock Exchange, Hong Kong Stock Exchange, Securities and Futures Commission in Hong Kong, New York Stock Exchange Inc. and Securities and Exchange Commission in US or any other authorities at the places where the Joint Stock Company are listed.

11. Miscellaneous

11.1 Without the written consent of the other party, any party shall not assign its rights or obligations under this agreement.

11.2 This agreement and its annex constitute the entire agreement for the matters as contemplated under this agreement, and substitutes all agreements related to such transactions entered into previously between both parties. In the event one party (the “Breaching Party”) breaches any term in the Original Connected Transactions Agreement, the Original Connected Transactions Agreement shall terminate forthwith upon the Joint Stock Company having performed the procedures to be considered and approved by the Board of Director or independent shareholders pursuant to the authorization limit and the regulatory provisions at the places where the Joint Stock Company are listed, notwithstanding any right obtained by the other party (the “Complying Party”) as a result of the breach by the Breaching Party being hampered and the claim to be raised against the Breaching Party being affected.

11.3 If any term in this agreement becomes illegal, invalid or unenforceable at any time, other terms shall not be affected accordingly.

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11.4 If any party fails to perform any obligation under this agreement in accordance with the provisions of this agreement as a result of any force majeure events, evidences shall be timely provided together with a written notice to the other party, for which such failure to perform shall not be treated as any breaching act. The other party shall also agree to the performance of the relevant liabilities and obligations within a reasonable period depending on the circumstances prevailing.

11.5 Both parties agree to assume the related fees and expenses arising from the execution of this agreement in accordance with that as provided by the relevant laws of the PRC. If the same is not provided in any law, then such fees and expenses shall be equally allocated between both parties.

11.6 Amendment to this agreement or its annex shall be made in writing wherever possible, subject to signing by both parties and the corporate actions to be taken by both parties wherever appropriate.

11.7 Unless provided otherwise herein, the exercise or delay in exercise of the rights, powers or privileges under this agreement by one party does not constitute the waiver of such party on such rights, powers or privileges. The exercise of such rights, powers or privileges individually or in a portion does not exclude the exercise of any other rights, powers or privileges.

11.8 The annex to this agreement is an integral party of this agreement and shall have the same binding effect to this agreement as if it is included in this agreement.

12. Notices

12.1 Any notice or other documents to be delivered to both parties pursuant to this agreement shall be made in writing and to be sent by hand, by post or by fax to the addresses of such party as follows:

(a)	Group Company:	Yankuang Group Corporation Limited
	Address:	298 South Fushan Road, Zoucheng. Shandong Province, the People’s Republic of China
	Telephone no.:	0537-5382232
	Fax no.:	0537-5382831

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(b)	Joint Stock Company:	Yanzhou Coal Mining Company Limited
	Address:	298 South Fushan Road, Zoucheng. Shandong Province, the People’s Republic of China
	Telephone no.:	0537-5384031
	Fax no.:	0537-5382032

12.2 The timing for the delivery of the notices or documents:

(a)	By hand:	At the time when the notice or document is delivered
(b)	By post:	Five (5) working days after the notice or document is posted (Saturdays, Sundays and public holidays in the PRC shall be not counted)
(c)	By fax:	At the time when the fax is received. If the fax is received beyond the normal business hours, it will be deemed to be delivered in the normal business hours of the following days, except Saturdays, Sundays and public holidays in the PRC, with the delivery report printed from the fax machine of the sender confirming the fax is transmitted completely.

13. Applicable laws and jurisdiction

This agreement is governed by the laws of the PRC and shall be construed according to the laws of the PRC. Any dispute in connection with or arising from this agreement (including its subsistence, validity, termination or any issue related to the rights or obligations of both parties under this agreement) shall be submitted to the Arbitration Commission of Jining, Shandong Province for arbitration by any party after failing to resolve through amicable negotiation. The arbitration will be conducted at Jining in accordance with the arbitration rules then effective of such arbitration commission at the time the submission is made. The award of arbitration shall be final and shall be binding on both parties.

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14. General

This agreement is made in Chinese.

There are four counterparts to this agreement. Both parties to the agreement shall each hold two copies after they are signed by the legal representatives or authorized representatives with seal affixed. Each copy of the agreement shall carry the same effect.

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This agreement is executed on the date written on the first page above.

Yankuang Group Corporation Limited

(with seal affixed)

Legal representative or authorized representative: [signed]

Yanzhou Coal Mining Company Limited

(with seal affixed)

Legal representative or authorized representative: [signed]

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Annex: Provision of electricity by the Group Company to the Joint Stock Company

Item	Pricing Basis	Term	Notice period for termination
Provision of electricity	Agreed price	3 years	12 months

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Contract No.: [GL-06004]

YANKUANG GROUP CORPORATION LIMITED

AND

YANZHOU COAL MINING COMPANY LIMITED

PROVISION OF LABOUR AND SERVICES AGREEMENT

This agreement is entered into by the parties hereto on 10 January 2006 at Zoucheng, Shandong Province:

Yankuang Group Corporation Limited, a State wholly-owned enterprise established and validly subsisting under the laws of the PRC (registration number of business license for corporate legal person is 3700001801980), whose address is at 298 South Fushan Road, Zoucheng. Shandong Province and its legal representative is Geng Jiahuai (hereinafter is referred to as the “Group Company”).

Yanzhou Coal Mining Company Limited, a joint stock limited company established and validly subsisting under the laws of the PRC and its shares are issued to the public and listing on the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange Inc. (registration number of business license for corporate legal person is Qi Gu Lu Zhong Ji No. 003929), whose address is at 298 South Fushan Road, Zoucheng. Shandong Province and its legal representative is Wang Xin (hereinafter is referred to as the “Joint Stock Company”).

Whereas:

1. The Group Company was the sole promoter and established the Joint Stock Company pursuant to the laws of the PRC on 25 September 1997. As a part of the Restructuring, the Group Company inject the assets and liabilities mainly related to the business of production of operation of coal mining to the Joint Stock Company and retained the remaining assets and liabilities.

2. The Joint Stock Company issued shares to the public and the shares were listed on Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange Inc. The Group Company remained as the controlling shareholder of the Joint Stock Company after the listing. As at the date hereof, about 54.33% of the issued shares in the Joint Stock Company were held by the Group Company.

3. On 17 October 1997, the Group Company and the Joint Stock Company entered into the Materials and Services Supply Agreement for the mutual supply of materials, property management, medical and other staff benefit, staff training, maintenance and repair works of listed business assets, motor vehicle and rail motor vehicle transportation, heat, water, electricity and utilities (“Original Agreement”). The term of the Original Agreement was ten years.

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4. On 30 October 2001, the Group Company and the Joint Stock Company entered into the Supplementary Agreement for the Materials and Services Supply Agreement (“Supplementary Agreement (I)”), which was approved by the independent shareholders on 17 December 2001. On 29 May 2003, the Group Company and the Joint Stock Company entered into the Second Supplementary Agreement for the Materials and Services Supply Agreement (“Supplementary Agreement (II)”), which was approved by the independent shareholders on 27 June 2003.

5. On the basis of the regulatory provisions where the Joint Stock Company is listed and the latest development on the Group Company and the Joint Stock Company, the Group Company and the Joint Stock Company intend to terminate the Original Agreement, the Supplementary Agreement (I) and the Supplementary Agreement (II), and enter into Ongoing Connected Transactions Agreements of similar nature between the Group Company together with its subsidiaries and the Joint Stock Company together with its subsidiaries for the mutual supply of materials and services separately. In this agreement, where references are made to the provision of materials or services by the Group Company or the Joint Stock Company, their respective subsidiaries are also included therein.

6. The Group Company is equipped with the capabilities and qualifications recognized by the State to construct pit, pit alley and ground projects, and will continue to provide construction services to the Joint Stock Company.

7. The Group Company will continue to provide telecommunication services to the Joint Stock Company.

8. The Group Company will continue to deploy its truck team to provide transportation services to the Joint Stock Company for the coal and purchased materials such as short trip transportation and assistance to remove coal mine waste.

9. The Group Company will continue to provide environmental and sanitary services to the Joint Stock Company.

10. The Group Company will continue to provide police and fire services to the Joint Stock Company.

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11. The Group Company will continue to provide heat and gas supply services to the Joint Stock Company.

12. The Group Company will continue to manage the dormitory and real estates rented and owned by the employees of the Joint Stock Company.

13. The Group Company will continue to provide education services to the children of the Joint Stock Company’s employees through the schools established by it.

14. The Group Company will continue to provide civil army training services to the Joint Stock Company.

15. The Group Company will continue to provide technical training services to the employees of the Joint Stock Company.

16. The Group Company will continue to provide medical, child care and other social welfare services to the employees of the Joint Stock Company.

In accordance with the relevant laws and regulations of the Contract Law of the People’s Republic of China and the regulatory provisions where the Joint Stock Company is listed, the Group Company enter into an agreement with the Joint Stock Company for matters on the provision of labour and services upon amicable negotiation between both parties as follows:

1. Definitions and Interpretations

1.1 Definitions

Unless otherwise defined herein, the following terms shall have the following meanings in this agreement:

“Financial Year”	the financial year commencing from 1 January and ending on 31 December for each year;
“Interim Period”	with respect to a financial year, the interim period either commencing from 1 January and ending on 30 June or commencing from 1 July and ending on 31 December;

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“Hong Kong Stock Exchange”	The Stock Exchange of Hong Kong Limited
“PRC”	The People’s Republic of China;
“Original Connected Transaction Agreements”	Original Agreement, Supplementary Agreement (I) and Supplementary Agreement (II);
“RMB”	the lawful currency of the PRC;
“Market price”	where applicable, the calculation of market price for the provision of labour and services as contemplated under this agreement pursuant to Article 4.2
“Cost price”	the cost for the provision of labour and services contemplated under this agreement buy the Group Company or the cost paid for the purchase of such labour and services from third parties by the Group Company and the additional cost of transmitting such labour and services to the Joint Stock Company by the Group Company;
“State-prescribed price”	the price for the provision of labour and services as determined according to Article 4.3; and
“Subsidiaries”	the controlling subsidiaries, non-controlling subsidiaries and other entities of the Group Company and the Joint Stock Company

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1.2 Interpretations

Unless otherwise in contrary, in this agreement:

(1) Words and terms used importing the singular include the plural and vice versa;

(2) A party to this agreement or any other agreement includes its successor or authorized transferees;

(3) Articles or clauses or annex refer to the articles or clauses or annexes of this agreement;

(4) Any provision of this agreement shall not be construed as prohibiting the extension of this agreement or prohibiting the amendment, alteration or supplement to this agreement;

(5) The titles of sections to this agreement are provided for ease of reference only, and shall not affect the interpretation of this agreement.

2. Provision of Labour and Services

2.1 The provision of labour and services by the Group Company to the Joint Stock Company as contemplated hereunder include:

(1) Construction services.

(2) Telecommunication services, including fixed line, Internet and related services.

(3) Motor vehicle transportation.

(4) Environmental services.

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(5) Police and fire services.

(6) Heat and gas supply.

(7) Property management.

(8) Education for children.

(9) Civil army training.

(10) Technical training.

(11) Medical, child care and social welfare services.

2.2 The Group Company shall make available to the Joint Stock Company the provision of labour and services as contemplated hereunder in accordance with the terms of this agreement and specific conditions as agreed by both parties from time to time, including but not limited to quantity and quality.

2.3 The Group Company undertakes to the Joint Stock Company that the price for the provision of labour and services by the Group Company to the Joint Stock Company as contemplated hereunder shall not be higher than the price offered by the Group Company to any independent third party for the same type of labour and services. Where appropriate, the Group Company will provide such labour and services to the Joint Stock Company at a favourable price. The Joint Stock Company is not required to obtain the provision of labour and services solely from the Group Company.

3. Operation Model

3.1 The Joint Stock Company may submit the plan on the demand for labour and services for the following year or the adjustment plan to the service items for the current year (“Annual Provision Plan”) to the Group Company before 30 November each year. Both parties shall agree unanimously on the plan before 31 December of the current year. In the event the plan on the demand for labour and services of the Joint Stock Company for the following year is the same as the current year, the Group Company is obliged to satisfy the plan.

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3.2 Both parties and their respective subsidiaries shall enter into specific supply contract for the provision of labour and services pursuant to this agreement (including the formulation of Annual Provision Plan pursuant to this agreement).

3.3 In the course of executing the Annual Provision Plan or the specific supply contract, where necessary and agreed by both parties, the Annual Provision Plan or the specific supply contact may be adjusted.

3.4 The consideration for the provision of labour and services may be settled in one lump sum or installments.

3.5 Either party shall settle the amount due to the other party or credit the account of the other party in relation to the ongoing connected transactions for the current month latest by the last business day of each calendar month. The amount incurred by the ongoing connected transactions for each calendar month shall be settled within the month immediately following, but not including the amounts involved in the transactions not completed then and the amounts under disputes.

4. Basis for the determination of price on the provision of labour and services

4.1 The price for construction services and telecommunication services shall be determined according to the Market price. Such Market price shall be calculated and estimated each year, if possible, prior to the beginning of a financial year.

4.2 The price for construction services and telecommunication services shall be calculated according to the Market price to be determined according to normal commercial terms based on the following:

(1) the price at which the same or similar type of supplies or services provided by independent third parties under normal commercial terms in the ordinary course of their businesses in the same area or in the vicinity;

(2) if (1) above is not applicable, the price at which the same or similar type of supplies or services is to be provided by independent third parties under normal commercial terms in the ordinary course of their businesses in the PRC.

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4.3 The price of motor vehicle transportation services shall be determined according to the state-prescribed price. Such state-prescribed price means the price determined according to the laws, regulations, decisions, orders or pricing policy of the relevant PRC government authorities applicable to such supply, depending on specific conditions.

4.4 With respect to environmental services, police and fire services, gas and heat supply services, property management services, education for children, civil army training, technical training, both parties agree to determine the prices of such services on the basis of the cost price of such services. If it is required to calculate the cost price of such services, the Group Company shall provide the complete books and records to the Joint Stock Company for calculating such cost price.

4.4.1 The final price for environmental services and gas and heat supply services shall be the total cost of such services incurred by the Group Company for the Joint Stock Company and itself multiplied by the proportion of the area of the properties of the Joint Stock Company receiving such services to the total area of the properties of the Group Company and the Joint Stock Company receiving such services.

4.4.2 The final price for police and fire services, property management services, education for children and civil army training shall be the total cost of such services incurred by the Group Company for the Joint Stock Company and itself multiplied by the proportion of the number of staff of the Joint Stock Company receiving such services to the total number of staff of the Group Company and the Joint Stock Company receiving such services.

4.4.3 The final price for technical training shall be the cost for training a staff by the Group Company multiplied by the actual number of staff of the Joint Stock Company being trained.

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4.5 The price for medical, child care and social welfare services shall be determined according to the state-prescribed price. In accordance with the laws, regulations, financial management system in the PRC and the relevant provisions of the Ministry of Finance and Shandong Provincial Government in relation to the establishment of Basic Medical Insurance and Supplementary Medical Insurance System for Staff in Municipal and County Area, the Joint Stock Company will make provision on welfare fees that is equivalent to 14% of the total annual salaries of its staff, and may elect to make provision for supplementary medical insurance premium that is equivalent to 4% of the total annual salaries of its staff, which shall be tender to the Group Company for the settlement of the Company’s staff medical, child care and social welfare services, including but not limited to cultural, artistic, sports and entertainment services, economic difficulties assistances, travel allowances and other welfare expenditures to be charged as provided by the State.

4.5.1 The Group Company shall settle the payment and administration of medical insurance funds for the Joint Stock Company. The Group Company shall make provision from the welfare fees that is equivalent to 8% of the total annual salaries of the Joint Stock Company’s staff for the basic medical insurance funds payable by the Joint Stock Company;

4.5.2 The balance of welfare fees after deducting for the provision of basic medical insurance funds shall be applied to pay to the Group Company for the provision of child care and other social welfare services to the staff of the Joint Stock Company.

4.5.3 The Joint Stock Company may elect to make provision for supplementary medical insurance premium that is equivalent to 4% of the total annual salaries of its staff.

4.6 In the event that at any time the state-prescribed price is effective and applicable to the provision of labour and services as contemplated under this agreement, both parties agree to determine the price for such labour and services according to the state-prescribed price. Such state-prescribed price is applicable to Article 4.3 of this agreement.

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5. Representations, undertakings and warranties of the Group Company

5.1 The Group Company is a State wholly-owned enterprise established pursuant to the laws, which has the independent status of legal person and currently has a valid business licence;

5.2 The Group Company has been engaging in business activities pursuant to the laws and has never conducted any activities not included in the scope of operation as provided by the laws;

5.3 The execution of this agreement and the performance of obligations under this agreement by the Group Company do not contravene any other agreement entered into by it or its articles of association. There is no legal conflict to be arising from the execution of this agreement and the performance of obligations under this agreement against other agreement entered into by it or its articles of association.

5.4 The Group Company undertakes to the Joint Stock Company that the terms for the provision of labour and services to the Joint Stock Company as contemplated under this agreement shall not be less favourable than the terms of providing such labour and services to any independent third party by itself or its subsidiaries, depending as to the actual circumstances.

5.5 The Group Company undertakes and warrants that it will provide such labour and services to the Joint Stock Company in accordance with the requirements and standards negotiated between the Joint Stock Company and the Group Company from time to time.

5.6 The Group Company assures that there will be adequate and qualified staff to provide such labour and services to the Joint Stock Company, and that its staff shall obtain sufficient guidance and directions to provide such labour and services in accordance with the reasonable requirement of the Joint Stock Company.

5.7 The Group Company undertakes to the Joint Stock Company that in the course of providing such labour and services as contemplated under this agreement, it will give priority in providing such labour and services to the Joint Stock Company. The Joint Stock Company is entitled to the

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pre-emptive right with respect to the provision of such services by the Group Company to any third party (including, but not limited to any other third party related to the Group Company) in same terms.

5.8 In the event the provision of labour and services as contemplated under this agreement is made available by the subsidiaries of the Group Company, the Group Company undertakes to procure the relevant subsidiaries to provide such labour and services to the Joint Stock Company and / or its subsidiaries in accordance with the provisions of this agreement.

5.9 The Group Company undertakes to the Joint Stock Company that if its subsidiaries violate any provisions of this agreement in the provision of labour and services in accordance with this agreement, the Group Company shall assume the liabilities as a result of the act of its subsidiaries in violating the provisions of this agreement.

5.10 The Group Company undertakes to the Joint Stock Company that the Group Company shall procure its subsidiaries to take all necessary actions to perform its obligations under this agreement.

5.11 The Group Company warrants that in the course of performing its obligations under this agreement, it shall take reasonable actions to avoid certain omissions that will result in any damage to be suffered by the Joint Stock Company. The Group Company undertakes to indemnify the Joint Stock Company on all losses incurred by the Joint Stock Company arising therefrom.

6. Representations, undertakings and warranties of the Joint Stock Company

6.1 The Joint Stock Company is a joint stock limited company established pursuant to the laws, which has the independent status of legal person and currently has a valid business licence;

6.2 The Joint Stock Company has been engaging in business activities pursuant to the laws and has never conducted any activities not included in the scope of operation as provided by the laws;

6.3 The execution of this agreement and the performance of obligations under

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this agreement by the Joint Stock Company do not contravene any other agreement entered into by it or its articles of association. There is no legal conflict to be arising from the execution of this agreement and the performance of obligations under this agreement against other agreement entered into by it or its articles of association;

6.4 The Joint Stock Company undertakes to settle with the Group Company the consideration for the provision of labour and services timely in accordance with the provisions of this Agreement;

6.5 The Joint Stock Company warrants that in the course of performing its obligations under this agreement, it shall take reasonable actions to avoid certain omissions that will result in any damage to be suffered by the Group Company. The Joint Stock Company undertakes to indemnify the Group Company on all losses incurred by the Group Company arising therefrom.

7. Termination in the provision of labour and services

7.1 In the event the Joint Stock Company fails to obtain certain type of labour and services as contemplated under this agreement with same terms from third parties conveniently, the Group Company shall not terminate the provision of such labour and services under this agreement with any reason whatsoever.

7.2 Notwithstanding the aforesaid Article 7.1, any party to this agreement may give notice in writing to the other party of not less twelve months in advance to terminate the provision or purchase of certain type of labour and services. It must be included in such termination notice which type of labour and services to be provided/purchased shall be terminated, and since when such type of labour and services to be provided/purchased shall be terminated. Such type of labour and service as set out in such notice shall automatically be terminated from provision/purchase from the date of termination as set out in such notice. Such termination shall not affect other rights and obligations of the Group Company or the Joint Stock Company under this agreement.

7.3 For avoidance of doubt, both parties agree that when the Joint Stock Company gives the termination notice for the provision of labour and

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services in accordance with Article 7.2, the Group Company must still provide the labour and services to the Joint Stock company in accordance with the applicable provision terms (excluding the provision on the period of provision) prevailing since the date the notice is given until the date the termination becomes effective. The applicable provisions prevailing shall include the relevant terms of the supplementary agreement executed in accordance with Article 8.3.

8. Effectiveness, term and termination of the agreement

8.1 Save as otherwise agreed by both parties in writing, this agreement shall become effective after it is signed by the legal representatives or authorized representatives of both parties and the Joint Stock Company having performed the procedures to be considered and approved by the Board of Director or independent shareholders pursuant to the authorization limit and the regulatory provisions at the places where the Joint Stock Company are listed.

8.2 This agreement is valid for a term of three years commencing from 1 January 2006 and ending on 31 December 2008. The Original Connected Transactions Agreement shall cease to execute after this agreement becomes effective.

8.3 If it is necessary to amend this agreement for any matters, both parties shall enter into supplementary agreements. Both parties shall enter into a supplementary agreement for the relevant matters prior to the end of November of the year before the financial year the supplementary agreement is subjected to. In the event both parties fail to agree unanimously for the terms of the required supplementary agreement before the above deadline, the terms of provision for the current year shall be applicable for the following financial year until both parties agree unanimously or the disputes between both parties were resolved pursuant to Article 8.4.

8.4 If both parties fail to agree on any matter related to the transaction price, including but not limited to the amounts payable and the payment schedule, upon the request of any parties, the matter shall submit to the Pricing Bureau of Zoucheng with the Pricing Bureau of Zoucheng as the mediator to determine the resolution method. The decision of the Pricing Bureau of Zoucheng shall be final and binding on both parties.

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8.5 Prior to the termination of this agreement, both parties of this agreement may negotiate jointly for entering into a new agreement for the provision of labour and services, so as to ensure that the production and operation of both parties remain normal after the termination of this agreement.

8.6 In the event any part breaches any term of this agreement to a material extent (the “Breaching Party”) and the other party gives a written notice to the Breaching Party notifying that such act constitutes a breaching act and demands the Breaching Party to take remedial action within the reasonable deadline prescribed by the other party in such notice, the other party may terminate this agreement forthwith if the Breaching Party fails to take remedial action for such breaching act within the above-mentioned deadline. If the breaching act of the Breaching Party is irremediable, the other party may terminate this agreement forthwith.

8.7 The termination of this agreement shall not damage any rights or obligations already arisen for any party.

9. Implementation of the agreement

In accordance with the requirements in the regulatory provisions at the places where the Joint Stock Company are listed, including but not limited to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and the Listing Rules of the Shanghai Stock Exchange, the ongoing connected transactions as contemplated under this agreement shall have set an annual cap to its transaction amounts. If the annual cap related to the labour and services transactions requires the approval by the independent shareholders of the Joint Stock Company, then whether such transactions will be conducted on an ongoing basis shall depend on the approval of the independent shareholders of the Joint Stock Company. If the actual amount incurred in such transactions for a particular year exceeds the annual cap as approved by the independent shareholders of the Joint Stock Company, both parties shall suspend the provision of labour and services that would have exceed the annual cap as approved by the independent shareholders of the Joint Stock Company until the Joint Stock Company has implemented the respective procedures for the consideration and approval in accordance with the regulatory provisions at the places where the Joint Stock Company are listed.

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10. Announcement

Without the written consent of any party in advance, the other party shall not publish or allow other parties (that is subject to the control of the other party to this agreement) to publish any announcement related to the subject of this agreement or any relevant matters, save as the announcements to be published in accordance with the laws or the regulatory provisions of China Securities Regulatory Commission, Shanghai Stock Exchange, Hong Kong Stock Exchange, Securities and Futures Commission in Hong Kong, New York Stock Exchange Inc. and Securities and Exchange Commission in US or any other authorities at the places where the Joint Stock Company are listed.

11. Miscellaneous

11.1 Without the written consent of the other party, any party shall not assign its rights or obligations under this agreement.

11.2 This agreement and its annex constitute the entire agreement for the matters as contemplated under this agreement, and substitutes all agreements related to such transactions entered into previously between both parties. In the event one party (the “Breaching Party”) breaches any term in the Original Connected Transactions Agreement, the Original Connected Transactions Agreement shall terminate forthwith upon the Joint Stock Company having performed the procedures to be considered and approved by the Board of Director or independent shareholders pursuant to the authorization limit and the regulatory provisions at the places where the Joint Stock Company are listed, notwithstanding any right obtained by the other party (the “Complying Party”) as a result of the breach by the Breaching Party being hampered and the claim to be raised against the Breaching Party being affected.

11.3 If any term in this agreement becomes illegal, invalid or unenforceable at any time, other terms shall not be affected accordingly.

11.4 If any party fails to perform any obligation under this agreement in

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accordance with the provisions of this agreement as a result of any force majeure events, evidences shall be timely provided together with a written notice to the other party, for which such failure to perform shall not be treated as any breaching act. The other party shall also agree to the performance of the relevant liabilities and obligations within a reasonable period depending on the circumstances prevailing.

11.5 Both parties agree to assume the related fees and expenses arising from the execution of this agreement in accordance with that as provided by the relevant laws of the PRC. If the same is not provided in any law, then such fees and expenses shall be equally allocated between both parties.

11.6 Amendment to this agreement or its annex shall be made in writing wherever possible, subject to signing by both parties and the corporate actions to be taken by both parties wherever appropriate.

11.7 Unless provided otherwise herein, the exercise or delay in exercise of the rights, powers or privileges under this agreement by one party does not constitute the waiver of such party on such rights, powers or privileges. The exercise of such rights, powers or privileges individually or in a portion does not exclude the exercise of any other rights, powers or privileges.

11.8 The annex to this agreement is an integral party of this agreement and shall have the same binding effect to this agreement as if it is included in this agreement.

12. Notices

12.1 Any notice or other documents to be delivered to both parties pursuant to this agreement shall be made in writing and to be sent by post or by fax to the addresses of such party as follows:

(a)	Group Company:	Yankuang Group Corporation Limited
	Address:	298 South Fushan Road, Zoucheng. Shandong Province, the People’s Republic of China
	Telephone no.:	0537-5382232
	Fax no.:	0537-5382831

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(b)	Joint Stock Company:	Yanzhou Coal Mining Company Limited
	Address:	298 South Fushan Road, Zoucheng. Shandong Province, the People’s Republic of China
	Telephone no.:	0537-5384031
	Fax no.:	0537-5382032

12.2 The timing for the delivery of the notices or documents:

(a)	By hand:	At the time when the notice or document is delivered
(b)	By post:	Five (5) working days after the notice or document is posted (Saturdays, Sundays and public holidays in the PRC shall be not counted)
(c)	By fax:	At the time when the fax is received. If the fax is received beyond the normal business hours, it will be deemed to be delivered in the normal business hours of the following days, except Saturdays, Sundays and public holidays in the PRC, with the delivery report printed from the fax machine of the sender confirming the fax is transmitted completely.

13. Applicable laws and jurisdiction

This agreement is governed by the laws of the PRC and shall be construed according to the laws of the PRC. Any dispute in connection with or arising from this agreement (including its subsistence, validity, termination or any issue related to the rights or obligations of both parties under this agreement) shall be submitted to the Jining Arbitration Commission of Shandong Province for arbitration by any party after failing to resolve through amicable negotiation. The arbitration will be conducted at Jining in accordance with the arbitration rules then effective of such arbitration commission at the time the submission is made. The award of arbitration shall be final and shall be binding on both parties.

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14. General

This agreement is made in Chinese.

There are four counterparts to this agreement. Each party shall hold two copies after they are signed by the legal representatives or authorized representatives with seal affixed. Each copy of the agreement shall carry the same effect.

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This agreement is executed on the date written on the first page above.

Yankuang Group Corporation Limited

(with seal affixed)

Legal representative or authorized representative: [signed]

Yanzhou Coal Mining Company Limited

(with seal affixed)

Legal representative or authorized representative: [signed]

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Annex: Provision of labour and Services by the Group Company to the Joint Stock Company

No.	Items	Pricing Basis	Term	Notice period for termination
1	Construction services	Market price	3 years	12 months
2	Telecommunication services	Market price	3 years	12 months
3	Motor vehicle transportation	State-prescribed price	3 years	12 months
4	Environmental services	To be determined on the basis of cost price, where the final price shall be the total cost of such services incurred by the Group Company for the Joint Stock Company and itself multiplied by the proportion of the area of the properties of the Joint Stock Company receiving such services to the total area of the properties of the Group Company and the Joint Stock Company receiving such services.	3 years	12 months
5	Heat and gas supply		3 years	12 months
6	Police and fire services	To be determined on the basis of cost price, where the final price shall be the total cost of such services incurred by the Group Company for the Joint Stock Company and itself multiplied by the proportion of the number of staff of the Joint Stock Company receiving such services to the total number of staff of the Group Company and the Joint Stock Company receiving such services	3 years	12 months
7	Property management		3 years	12 months
8	Education for children		3 years	12 months
9	Civil army training		3 years	12 months
10	Technical training	Cost price: the cost for training a staff by the Group Company multiplied by the actual number of staff of the Joint Stock Company being trained	3 years	12 months
11	Medical, child care and social welfare services	State-prescribed price	3 years	12 months

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Contract No.: [GL-06003]

YANKUANG GROUP CORPORATION LIMITED

AND

YANZHOU COAL MINING COMPANY LIMITED

EQUIPMENT MAINTENANCE AND REPAIR WORKS AGREEMENT

This agreement is entered into by the parties hereto on 10 January 2006 at Zoucheng, Shandong Province:

Yankuang Group Corporation Limited, a State wholly-owned enterprise established and validly subsisting under the laws of the PRC (registration number of business license for corporate legal person is 3700001801980), whose address is at 298 South Fushan Road, Zoucheng. Shandong Province and its legal representative is Geng Jiahuai (hereinafter is referred to as the “Group Company”).

Yanzhou Coal Mining Company Limited, a joint stock limited company established and validly subsisting under the laws of the PRC and its shares are issued to the public and listing on the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange Inc. (registration number of business license for corporate legal person is Qi Gu Lu Zhong Ji No. 003929), whose address is at 298 South Fushan Road, Zoucheng. Shandong Province and its legal representative is Wang Xin (hereinafter is referred to as the “Joint Stock Company”).

Whereas:

1. The Group Company was the sole promoter and established the Joint Stock Company pursuant to the laws of the PRC on 25 September 1997. As a part of the Restructuring, the Group Company inject the assets and liabilities mainly related to the business of production of operation of coal mining to the Joint Stock Company and retained the remaining assets and liabilities.

2. The Joint Stock Company issued shares to the public and the shares were listed on Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange Inc. The Group Company remained as the controlling shareholder of the Joint Stock Company after the listing. As at the date hereof, about 54.33% of the issued shares in the Joint Stock Company were held by the Group Company.

3. On 17 October 1997, the Group Company and the Joint Stock Company entered into the Materials and Services Supply Agreement for the mutual supply of materials, property management, medical and other staff benefit, staff training, maintenance and repair works of listed business assets, motor vehicle and rail motor vehicle transportation, heat, water, electricity and utilities (“Original Agreement”). The term of the Original Agreement was ten years.

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4. On 30 October 2001, the Group Company and the Joint Stock Company entered into the Supplementary Agreement for the Materials and Services Supply Agreement (“Supplementary Agreement (I)”), which was approved by the independent shareholders on 17 December 2001. On 29 May 2003, the Group Company and the Joint Stock Company entered into the Second Supplementary Agreement for the Materials and Services Supply Agreement (“Supplementary Agreement (II)”), which was approved by the independent shareholders on 27 June 2003.

5. On the basis of the regulatory provisions where the Joint Stock Company is listed and the latest development on the Group Company and the Joint Stock Company, the Group Company and the Joint Stock Company intend to terminate the Original Agreement, the Supplementary Agreement (I) and the Supplementary Agreement (II), and enter into Ongoing Connected Transactions Agreements of similar nature between the Group Company together with its subsidiaries and the Joint Stock Company together with its subsidiaries for the mutual supply of materials and services separately. In this agreement, where references are made to the provision of materials or services by the Group Company or the Joint Stock Company, their respective subsidiaries are also included therein.

In accordance with the relevant laws and regulations of the Contract Law of the People’s Republic of China and the regulatory provisions where the Joint Stock Company is listed, the Group Company enter into an agreement with the Joint Stock Company for matters on the provision of equipment maintenance and repair works upon amicable negotiation between both parties as follows:

1. Definitions and Interpretations

1.1 Definitions

Unless otherwise defined herein, the following terms shall have the following meanings in this agreement:

“Financial Year” the financial year commencing from 1 January and ending on 31 December for each year;

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“Interim Period”	with respect to a financial year, the interim period either commencing from 1 January and ending on 30 June or commencing from 1 July and ending on 31 December;
“Hong Kong Stock Exchange”	The Stock Exchange of Hong Kong Limited
“PRC”	The People’s Republic of China;
“Original Connected Transaction Agreements”	Original Agreement, Supplementary Agreement (I) and Supplementary Agreement (II);
“RMB”	the lawful currency of the PRC;
“Market price”	where applicable, the calculation of market price for the provision of equipment maintenance and repair works as contemplated under this agreement pursuant to Article 4.2
“State-prescribed price”	the price for the provision of equipment maintenance and repair works as determined according to Article 4.3; and
“Subsidiaries”	the controlling subsidiaries, non-controlling subsidiaries and other entities of the Group Company and the Joint Stock Company

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1.2 Interpretations

Unless otherwise in contrary, in this agreement:

(1) Words and terms used importing the singular include the plural and vice versa;

(2) A party to this agreement or any other agreement includes its successor or authorized transferees;

(3) Articles or clauses or annex refer to the articles or clauses or annexes of this agreement;

(4) Any provision of this agreement shall not be construed as prohibiting the extension of this agreement or prohibiting the amendment, alteration or supplement to this agreement;

(5) The titles of sections to this agreement are provided for ease of reference only, and shall not affect the interpretation of this agreement.

2. Equipment maintenance and repair works

2.1 The provision of equipment maintenance and repair works as contemplated hereunder include mining equipment and machinery such as coal excavators, digging machines, liquid pressure support systems, leather belt conveyance systems etc.

2.2 The Group Company shall make available to the Joint Stock Company the provision of equipment maintenance and repair works as contemplated hereunder in accordance with the terms of this agreement and specific conditions as agreed by both parties from time to time, including but not limited to quantity and quality.

2.3 The Group Company undertakes to the Joint Stock Company that the price for the provision of equipment maintenance and repair works by the Group Company to the Joint Stock Company as contemplated hereunder shall not be higher than the price offered by the Group Company to any independent third party for the similar services. Where appropriate, the Group Company will provide such equipment maintenance and repair works to the Joint Stock Company at a favourable price. The Joint Stock Company is not required to obtain the provision of equipment maintenance and repair works solely from the Group Company.

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3. Operation Model

3.1 The Joint Stock Company may submit the plan on the demand for equipment maintenance and repair works for the following year or the adjustment plan to the service items for the current year (“Annual Maintenance and Repair Services Plan”) to the Group Company before 30 November each year. Both parties shall agree unanimously on the plan before 31 December of the current year. In the event the plan on the demand for equipment maintenance and repair works of the Joint Stock Company for the following year is the same as the current year, the Group Company is obliged to satisfy the plan.

3.2 Both parties and their respective subsidiaries shall enter into specific equipment maintenance and repair works contract for the provision of equipment maintenance and repair works pursuant to this agreement (including the formulation of Annual Maintenance and Repair Services Plan pursuant to this agreement).

3.3 In the course of executing the Annual Maintenance and Repair Services Plan or the specific equipment maintenance and repair works contract, where necessary and agreed by both parties, the Annual Maintenance and Repair Services Plan or the specific equipment maintenance and repair works contract may be adjusted.

3.4 The consideration for the provision of equipment maintenance and repair works may be settled in one lump sum or installments.

3.5 Either party shall settle the amount due to the other party or credit the account of the other party in relation to the ongoing connected transactions for the current month latest by the last business day of each calendar month. The amount incurred by the ongoing connected transactions for each calendar month shall be settled within the month immediately following, but not including the amounts involved in the transactions not completed then and the amounts under disputes.

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4. Basis for the determination of price on equipment maintenance and repair works

4.1 The price for equipment maintenance and repair works shall be determined according to the Market price. Such Market price shall be calculated and estimated each year, if possible, prior to the beginning of a financial year.

4.2 The price for equipment maintenance and repair works shall be calculated according to the Market price to be determined according to normal commercial terms based on the following:

(1) the price at which the same or similar type of equipment maintenance and repair works provided by independent third parties under normal commercial terms in the ordinary course of their businesses in the same area or in the vicinity;

(2) if (1) above is not applicable, the price at which the same or similar type of equipment maintenance and repair works is to be provided by independent third parties under normal commercial terms in the ordinary course of their businesses in the PRC.

4.3 In the event that at any time the state-prescribed price is effective and applicable to the provision of equipment maintenance and repair works as contemplated under this agreement, both parties agree to determine the price for such equipment maintenance and repair works according to the state-prescribed price. Such state-prescribed price means the price determined according to the laws, regulations, decisions, orders or pricing policy of the relevant PRC government authorities applicable to such supply, depending on specific conditions.

5. Representations, undertakings and warranties of the Group Company

5.1 The Group Company is a State wholly-owned enterprise established pursuant to the laws, which has the independent status of legal person and currently has a valid business licence;

5.2 The Group Company has been engaging in business activities pursuant to the laws and has never conducted any activities not included in the scope of operation as provided by the laws;

5.3 The execution of this agreement and the performance of obligations under

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this agreement by the Group Company do not contravene any other agreement entered into by it or its articles of association. There is no legal conflict to be arising from the execution of this agreement and the performance of obligations under this agreement against other agreement entered into by it or its articles of association.

5.4 The Group Company undertakes to the Joint Stock Company that the terms for the provision of equipment maintenance and repair works to the Joint Stock Company as contemplated under this agreement shall not be less favourable than the terms of providing such equipment maintenance and repair works to any independent third party by itself or its subsidiaries, depending as to the actual circumstances.

5.5 The Group Company undertakes and warrants that it will provide such equipment maintenance and repair works to the Joint Stock Company in accordance with the requirements and standards negotiated between the Joint Stock Company and the Group Company from time to time.

5.6 The Group Company assures that there will be adequate and qualified staff to provide such equipment maintenance and repair works to the Joint Stock Company, and that its staff shall obtain sufficient guidance and directions to provide such equipment maintenance and repair works in accordance with the reasonable requirement of the Joint Stock Company.

5.7 The Group Company undertakes to the Joint Stock Company that it will give priority in providing such equipment maintenance and repair works to the Joint Stock Company on the same terms or terms not less favourable than those offered to third parties.

5.8 In the event the provision of equipment maintenance and repair works as contemplated under this agreement is made available by the subsidiaries of the Group Company, the Group Company undertakes to procure the relevant subsidiaries to provide such equipment maintenance and repair works to the Joint Stock Company and / or its subsidiaries in accordance with the provisions of this agreement.

5.9 The Group Company undertakes to the Joint Stock Company that if its subsidiaries violate any provisions of this agreement in the provision of

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equipment maintenance and repair works in accordance with this agreement, the Group Company shall assume the liabilities as a result of the act of its subsidiaries in violating the provisions of this agreement.

5.10 The Group Company undertakes to the Joint Stock Company that the Group Company shall procure its subsidiaries to take all necessary actions to perform its obligations under this agreement.

5.11 The Group Company warrants that in the course of performing its obligations under this agreement, it shall take reasonable actions to avoid certain omissions that will result in any damage to be suffered by the Joint Stock Company. The Group Company undertakes to indemnify the Joint Stock Company on all losses incurred by the Joint Stock Company arising therefrom.

6. Representations, undertakings and warranties of the Joint Stock Company

6.1 The Joint Stock Company is a joint stock limited company established pursuant to the laws, which has the independent status of legal person and currently has a valid business licence;

6.2 The Joint Stock Company has been engaging in business activities pursuant to the laws and has never conducted any activities not included in the scope of operation as provided by the laws;

6.3 The execution of this agreement and the performance of obligations under this agreement by the Joint Stock Company do not contravene any other agreement entered into by it or its articles of association. There is no legal conflict to be arising from the execution of this agreement and the performance of obligations under this agreement against other agreement entered into by it or its articles of association;

6.4 The Joint Stock Company undertakes to settle with the Group Company the consideration for the equipment maintenance and repair works timely in accordance with the provisions of this Agreement;

6.5 The Joint Stock Company warrants that in the course of performing its obligations under this agreement, it shall take reasonable actions to avoid

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certain omissions that will result in any damage to be suffered by the Group Company. The Joint Stock Company undertakes to indemnify the Group Company on all losses incurred by the Group Company arising therefrom.

7. Termination in the equipment maintenance and repair works

7.1 In the event the Joint Stock Company fails to obtain equipment maintenance and repair works as contemplated under this agreement with same terms from third parties conveniently, the Group Company shall not terminate the equipment maintenance and repair works under this agreement with any reason whatsoever.

7.2 Notwithstanding the aforesaid Article 7.1, any party to this agreement may give notice in writing to the other party of not less twelve months in advance to terminate the equipment maintenance and repair works. It must be included in such termination notice when the equipment maintenance and repair works shall be terminated. The equipment maintenance and repair works as contemplated hereunder shall automatically be terminated from the date of termination as set out in such notice. Such termination shall not affect other rights and obligations of the Group Company or the Joint Stock Company under this agreement.

7.3 For avoidance of doubt, both parties agree that when the Joint Stock Company gives the termination notice for the equipment maintenance and repair works in accordance with Article 7.2, the Group Company must still provide the equipment maintenance and repair works to the Joint Stock company in accordance with the applicable service terms (excluding the provision on the service period) prevailing since the date the notice is given until the date the termination becomes effective. The applicable provisions prevailing shall include the relevant terms of the supplementary agreement executed in accordance with Article 8.3.

8. Effectiveness, term and termination of the agreement

8.1 Save as otherwise agreed by both parties in writing, this agreement shall become effective after it is signed by the legal representatives or authorized representatives of both parties and the Joint Stock Company having performed the procedures to be considered and approved by the Board of

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Director or independent shareholders pursuant to the authorization limit and the regulatory provisions at the places where the Joint Stock Company are listed.

8.2 This agreement is valid for a term of three years commencing from 1 January 2006 and ending on 31 December 2008. The Original Connected Transactions Agreement shall cease to execute after this agreement becomes effective.

8.3 If it is necessary to amend this agreement for any matters, both parties shall enter into supplementary agreements. Both parties shall enter into a supplementary agreement for the relevant matters prior to the end of November of the year before the financial year the supplementary agreement is subjected to. In the event both parties fail to agree unanimously for the terms of the required supplementary agreement before the above deadline, the services terms for the current year shall be applicable for the following financial year until both parties agree unanimously or the disputes between both parties were resolved pursuant to Article 8.4.

8.4 If both parties fail to agree on any matter related to the transaction price, including but not limited to the amounts payable and the payment schedule, upon the request of any parties, the matter shall submit to the Pricing Bureau of Zoucheng with the Pricing Bureau of Zoucheng as the mediator to determine the resolution method. The decision of the Pricing Bureau of Zoucheng shall be final and binding on both parties.

8.5 Prior to the termination of this agreement, both parties of this agreement may negotiate jointly for entering into a new agreement for the equipment maintenance and repair works, so as to ensure that the production and operation of both parties remain normal after the termination of this agreement.

8.6 In the event any part breaches any term of this agreement to a material extent (the “Breaching Party”) and the other party gives a written notice to the Breaching Party notifying that such act constitutes a breaching act and demands the Breaching Party to take remedial action within the reasonable deadline prescribed by the other party in such notice, the other party may

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terminate this agreement forthwith if the Breaching Party fails to take remedial action for such breaching act within the above-mentioned deadline. If the breaching act of the Breaching Party is irremediable, the other party may terminate this agreement forthwith.

8.7 The termination of this agreement shall not damage any rights or obligations already arisen for any party.

9. Implementation of the agreement

In accordance with the requirements in the regulatory provisions at the places where the Joint Stock Company are listed, including but not limited to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and the Listing Rules of the Shanghai Stock Exchange, the equipment maintenance and repair works as contemplated under this agreement shall have set an annual cap to its transaction amounts. If the annual cap related to the equipment maintenance and repair works transactions as contemplated hereunder requires the approval by the independent shareholders of the Joint Stock Company, then whether such transactions will be conducted on an ongoing basis shall depend on the approval of the independent shareholders of the Joint Stock Company. If the actual amount incurred in such transactions for a particular year exceeds the annual cap as approved by the independent shareholders of the Joint Stock Company, both parties shall suspend the equipment maintenance and repair works that would have exceed the annual cap as approved by the independent shareholders of the Joint Stock Company until the Joint Stock Company has implemented the respective procedures for the consideration and approval in accordance with the regulatory provisions at the places where the Joint Stock Company are listed.

10. Announcement

Without the written consent of any party in advance, the other party shall not publish or allow other parties (that is subject to the control of the other party to this agreement) to publish any announcement related to the subject of this agreement or any relevant matters, save as the announcements to be published in accordance with the laws or the regulatory provisions of China Securities Regulatory Commission, Shanghai Stock Exchange, Hong Kong Stock Exchange, Securities and Futures Commission in Hong Kong, New York Stock Exchange Inc. and Securities and Exchange Commission in US or any other authorities at the places where the Joint Stock Company are listed.

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11. Miscellaneous

11.1 Without the written consent of the other party, any party shall not assign its rights or obligations under this agreement.

11.2 This agreement and its annex constitute the entire agreement for the matters as contemplated under this agreement, and substitutes all agreements related to such transactions entered into previously between both parties. In the event one party (the “Breaching Party”) breaches any term in the Original Connected Transactions Agreement, the Original Connected Transactions Agreement shall terminate forthwith upon the Joint Stock Company having performed the procedures to be considered and approved by the Board of Director or independent shareholders pursuant to the authorization limit and the regulatory provisions at the places where the Joint Stock Company are listed, notwithstanding any right obtained by the other party (the “Complying Party”) as a result of the breach by the Breaching Party being hampered and the claim to be raised against the Breaching Party being affected.

11.3 If any term in this agreement becomes illegal, invalid or unenforceable at any time, other terms shall not be affected accordingly.

11.4 If any party fails to perform any obligation under this agreement in accordance with the provisions of this agreement as a result of any force majeure events, evidences shall be timely provided together with a written notice to the other party, for which such failure to perform shall not be treated as any breaching act. The other party shall also agree to the performance of the relevant liabilities and obligations within a reasonable period depending on the circumstances prevailing.

11.5 Both parties agree to assume the related fees and expenses arising from the execution of this agreement in accordance with that as provided by the relevant laws of the PRC. If the same is not provided in any law, then such fees and expenses shall be equally allocated between both parties.

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11.6 Amendment to this agreement or its annex shall be made in writing wherever possible, subject to signing by both parties and the corporate actions to be taken by both parties wherever appropriate.

11.7 Unless provided otherwise herein, the exercise or delay in exercise of the rights, powers or privileges under this agreement by one party does not constitute the waiver of such party on such rights, powers or privileges. The exercise of such rights, powers or privileges individually or in a portion does not exclude the exercise of any other rights, powers or privileges.

11.8 The annex to this agreement is an integral party of this agreement and shall have the same binding effect to this agreement as if it is included in this agreement.

12. Notices

12.1 Any notice or other documents to be delivered to both parties pursuant to this agreement shall be made in writing and to be sent by hand, by post or by fax to the addresses of such party as follows:

(a)	Group Company:	Yankuang Group Corporation Limited
	Address:	298 South Fushan Road, Zoucheng. Shandong Province, the People’s Republic of China
	Telephone no.:	0537-5382232
	Fax no.:	0537-5382831
(b)	Joint Stock Company:	Yanzhou Coal Mining Company Limited
	Address:	298 South Fushan Road, Zoucheng. Shandong Province, the People’s Republic of China
	Telephone no.:	0537-5384031
	Fax no.:	0537-5382032

12.2 The timing for the delivery of the notices or documents:

(a)	By hand:	At the time when the notice or document is delivered
(b)	By post:	Five (5) working days after the notice or document is posted (Saturdays, Sundays and public holidays in the PRC shall be not counted)

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(c) By fax: At the time when the fax is received. If the fax is received beyond the normal business hours, it will be deemed to be delivered in the normal business hours of the following days, except Saturdays, Sundays and public holidays in the PRC, with the delivery report printed from the fax machine of the sender confirming the fax is transmitted completely.

13. Applicable laws and jurisdiction

This agreement is governed by the laws of the PRC and shall be construed according to the laws of the PRC. Any dispute in connection with or arising from this agreement (including its subsistence, validity, termination or any issue related to the rights or obligations of both parties under this agreement) shall be submitted to the Jining Arbitration Commission of Shandong Province for arbitration by any party after failing to resolve through amicable negotiation. The arbitration will be conducted at Jining in accordance with the arbitration rules then effective of such arbitration commission at the time the submission is made. The award of arbitration shall be final and shall be binding on both parties.

14. General

This agreement is made in Chinese.

There are four counterparts to this agreement. Each party shall hold two copies after they are signed by the legal representatives or authorized representatives with seal affixed. Each copy of the agreement shall carry the same effect.

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This agreement is executed on the date written on the first page above.

Yankuang Group Corporation Limited

(with seal affixed)

Legal representative or authorized representative: [signed]

Yanzhou Coal Mining Company Limited

(with seal affixed)

Legal representative or authorized representative: [signed]

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Annex: Provision of equipment maintenance and repair works by the Group Company to the Joint Stock Company

Item	Pricing Basis	Term	Notice period for termination
Equipment and repair works	Market price	3 years	12 months

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Contract No.: [GL-06005]

YANKUANG GROUP CORPORATION LIMITED

AND

YANZHOU COAL MINING COMPANY LIMITED

ADMINISTRATIVE SERVICES FOR PENSION FUND

AND RETIREMENT BENEFITS AGREEMENT

This agreement is entered into by the parties hereto on 10 January 2006 at Zoucheng, Shandong Province:

Yankuang Group Corporation Limited, a State wholly-owned enterprise established and validly subsisting under the laws of the PRC (registration number of business license for corporate legal person is 3700001801980), whose address is at 298 South Fushan Road, Zoucheng. Shandong Province and its legal representative is Geng Jiahuai (hereinafter is referred to as the “Group Company”).

Yanzhou Coal Mining Company Limited, a joint stock limited company established and validly subsisting under the laws of the PRC and its shares are issued to the public and listing on the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange Inc. (registration number of business license for corporate legal person is Qi Gu Lu Zhong Ji No. 003929), whose address is at 298 South Fushan Road, Zoucheng. Shandong Province and its legal representative is Wang Xin (hereinafter is referred to as the “Joint Stock Company”).

Whereas:

1. The Group Company was the sole promoter and established the Joint Stock Company pursuant to the laws of the PRC on 25 September 1997. As a part of the Restructuring, the Group Company inject the assets and liabilities mainly related to the business of production of operation of coal mining to the Joint Stock Company and retained the remaining assets and liabilities.

2. The Joint Stock Company issued shares to the public and the shares were listed on Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange Inc. The Group Company remained as the controlling shareholder of the Joint Stock Company after the listing. As at the date hereof, about 54.33% of the issued shares in the Joint Stock Company were held by the Group Company.

3. On 17 October 1997, the Group Company and the Joint Stock Company entered into the Restructuring Agreement, which provided that after the establishment of the Joint Stock Company, the staff of the Joint Stock Company may continue to participate in the pension fund being administrated according to the implementation measures of the Group Company.

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4. The Group Company owns the auxiliary facilities, services, education system related to the production and operation system of coal mining. These auxiliary facilities can provide a series of services to the benefit of the retired staff of the Joint Stock Company. As a company principally engaged in the production and operation of coal mining, the Joint Stock Company is not equipped with the conditions to assume the back-office functions such as community services and welfare benefits.

5. On 17 October 1997, the Group Company entered into the Pension Fund Agreement with the Joint Stock Company (“Original Administration Agreement”). According to the provisions of the Original Administration Agreement: (1) since the date the Joint Stock Company was establish, the relevant welfare matters of its retired staff will be administered by the Group Company; (2) the Joint Stock Company will provide the pension fund contribution which is equal to 45% of the total monthly salary of its staff per month and remit the same to the designated account of the Group Company before the end of that month, so that the Group Company can administer the pension fund for the Joint Stock Company including contribution of staff basic pension fund to the social insurance organizations and be responsible for other welfare benefit expenses of the Joint Stock Company’s retired and retiring staff; (3) the Joint Stock Company and the Group Company should re-define the proportion of contribution to the pension fund before 31 December 2006.

6. On the basis of the regulatory provisions where the Joint Stock Company is listed and the latest development on the Group Company and the Joint Stock Company, the Group Company and the Joint Stock Company intend to continue the provision in the Original Adminsitration Agreement with respect to providing the pension fund contribution which is equal to 45% of the total monthly salary of its staff per month and have the Group Company to administer the pension fund arrangement of its staff on behalf of the Joint Stock Company. Both parties enter into this agreement separately so as to implement the procedures on re-definition.

7. In this agreement, where references are made to the administration of matters on pension fund services as to the Group Company or the Joint Stock Company, their respective subsidiaries are also included therein.

In accordance with the relevant laws and regulations of the Contract Law of the

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People’s Republic of China and the regulatory provisions where the Joint Stock Company is listed, the Group Company enter into an agreement with the Joint Stock Company for matters on the provision of administrative services for pension fund and retirement benefits upon amicable negotiation between both parties as follows:

1. Definitions and Interpretations

1.1 Definitions

Unless otherwise defined herein, the following terms shall have the following meanings in this agreement:

“Hong Kong Stock Exchange”	The Stock Exchange of Hong Kong Limited
“PRC”	The People’s Republic of China;
“Original Administration Agreement”	the Pension Fund Agreement entered into by the Group Company with the Joint Stock Company on 17 October 1997 with respect to matters of the pension fund for the Joint Stock Company;
“Subsidiaries”	the controlling subsidiaries, non-controlling subsidiaries and other entities of the Group Company and the Joint Stock Company
“Administration of pension fund” or “Pension fund administration”	the contribution of staff’s basic pension fund by the Group Company on behalf of the Joint Stock Company and the administration of pension fund and other welfare benefits expenses of the Joint Stock Company’s retired and retiring staff.

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1.2 Interpretations

Unless otherwise in contrary, in this agreement:

(1) Words and terms used importing the singular include the plural and vice versa;

(2) A party to this agreement or any other agreement includes its successor or authorized transferees;

(3) Articles or clauses or annex refer to the articles or clauses or annexes of this agreement;

(4) Any provision of this agreement shall not be construed as prohibiting the extension of this agreement or prohibiting the amendment, alteration or supplement to this agreement;

(5) The titles of sections to this agreement are provided for ease of reference only, and shall not affect the interpretation of this agreement.

2. Administrative services for pension fund and retirement benefits

2.1 The staff of the Joint Stock Company must participate the basic pension fund plan pursuant to the provisions of the laws and regulations. According to the provisions of the relevant laws and regulations, the Joint Stock Company must contribute the basic pension fund for its staff and provide retirement funds and other welfare benefit expenses according to the practical circumstances.

2.2 It was agreed by both parties that the Group Company will administer the matters of pension fund on behalf of the Joint Stock Company in accordance with the provisions of the relevant laws, regulations, constitutions and other regulatory documents.

2.3 The Joint Stock Company will provide contribution to the pension fund which is equal to 45% of the total monthly salary of its staff per month and remit such entire amount to the designated account maintained by the Group Company for the Joint Stock Company (“Designated Account of Pension Fund”) before the end of that month.

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2.4 The Group Company will separately administer the Designated Account of Pension Fund. The amounts credited in such account will only be applied to the administrative services for pension fund and retirement benefits for the staff of the Joint Stock Company as contemplated under this agreement.

2.5 The Group Company shall provide an overview in relation to the application of the funds in the Designated Account of the Pension Fund to the Joint Stock Company every year.

2.6 The Joint Stock Company is entitled to monitor and examine the application of funds in the Designated Account of Pension Fund by the Group Company.

2.7 The Group Company shall provide the administrative services for pension fund and retirement benefits on behalf of the Joint Stock Company as contemplated hereunder in accordance with the terms of this agreement and specific conditions as agreed by both parties from time to time.

2.8 Following the performance of its responsibilities in Article 2.3, the Joint Stock Company shall not bear any other liability under this Agreement. The Group Company undertakes to assume the fees arising from the payment of pension fund, welfare fees, retirement funds and other welfare benefits to all retired staff of the Joint Stock Company currently and in future.

3. Representations, undertakings and warranties of the Group Company

3.1 The Group Company is a State wholly-owned enterprise established pursuant to the laws, which has the independent status of legal person and currently has a valid business licence;

3.2 The Group Company has been engaging in business activities pursuant to the laws and has never conducted any activities not included in the scope of operation as provided by the laws;

3.3 The Group Company shall timely assist the Joint Stock Company in performing or perform on behalf of the Joint Stock Company in accordance

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with its instruction the liabilities and obligations with respect to the contribution of staff’s basic pension fund, retirement funds and retirement benefits pursuant to the relevant laws, regulations, departmental constitutions and other regulatory documents.

3.4 The execution of this agreement and the performance of obligations under this agreement by the Group Company do not contravene any other agreement entered into by it or its articles of association. There is no legal conflict to be arising from the execution of this agreement and the performance of obligations under this agreement against other agreement entered into by it or its articles of association.

3.5 The Group Company undertakes and warrants that it will provide such services as contemplated under this agreement to the Joint Stock Company in accordance with the requirements and standards negotiated between the Joint Stock Company and the Group Company from time to time.

3.6 The Group Company undertakes and warrants to the Joint Stock Company that relevant information on number of relevant staff and salary scale of the staff strictly confidential, and warrants that such information aforesaid can only be applied to implement the obligations hereunder.

3.7 The Group Company assures that there will be adequate and qualified staff to provide such services as contemplated hereunder to the Joint Stock Company, and that its staff shall obtain sufficient guidance and directions to provide such services as contemplated hereunder in accordance with the reasonable requirement of the Joint Stock Company.

3.8 In the event the services as contemplated under this agreement is made available by the subsidiaries of the Group Company, the Group Company undertakes to procure the relevant subsidiaries to provide such services to the Joint Stock Company and / or its subsidiaries in accordance with the provisions of this agreement.

3.9 The Group Company undertakes to the Joint Stock Company that if its subsidiaries violate any provisions of this agreement in the provision of administrative services for pension fund and retirement benefits in accordance with this agreement, the Group Company shall assume the liabilities as a result of the act of its subsidiaries in violating the provisions of this agreement.

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3.10 The Group Company undertakes to the Joint Stock Company that the Group Company shall procure its subsidiaries to take all necessary actions to perform its obligations under this agreement.

3.11 The Group Company warrants that in the course of performing its obligations under this agreement, it shall take reasonable actions to avoid certain omissions that will result in any damage to be suffered by the Joint Stock Company. The Group Company undertakes to indemnify the Joint Stock Company on all losses incurred by the Joint Stock Company arising therefrom.

4. Representations, undertakings and warranties of the Joint Stock Company

4.1 The Joint Stock Company is a joint stock limited company established pursuant to the laws, which has the independent status of legal person and currently has a valid business licence;

4.2 The Joint Stock Company has been engaging in business activities pursuant to the laws and has never conducted any activities not included in the scope of operation as provided by the laws;

4.3 The execution of this agreement and the performance of obligations under this agreement by the Joint Stock Company do not contravene any other agreement entered into by it or its articles of association. There is no legal conflict to be arising from the execution of this agreement and the performance of obligations under this agreement against other agreement entered into by it or its articles of association;

4.4 The Joint Stock Company undertakes to remit the relevant amount to the Designated Account of Pension Fund timely and in full in accordance with the provisions of this Agreement;

4.5 The Joint Stock Company shall provide relevant information to the Group Company such as the number of relevant staff and salary scale of the staff as required for the performance by the Group Company of its obligations as contemplated hereunder in an accurate manner.

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4.6 The Joint Stock Company warrants that in the course of performing its obligations under this agreement, it shall take reasonable actions to avoid certain omissions that will result in any damage to be suffered by the Group Company. The Joint Stock Company undertakes to indemnify the Group Company on all losses incurred by the Group Company arising therefrom.

5. Termination in the administrative services as contemplated under this agreement

5.1 In the event the Joint Stock Company fails to obtain the payment and administrative services for pension fund and retirement benefits as contemplated under this agreement with same terms from third parties conveniently, the Group Company shall not terminate the provision of such services under this agreement with any reason whatsoever.

5.2 Notwithstanding the aforesaid Article 5.1, any party to this agreement may give notice in writing to the other party of not less twelve months in advance to terminate the services as contemplated under this agreement. It must be included in such termination notice since when such services shall be terminated. Such service as set out in such notice shall automatically be terminated from the date of termination as set out in such notice. Such termination shall not affect other rights and obligations of the Group Company or the Joint Stock Company under this agreement.

5.3 For avoidance of doubt, both parties agree that when the Joint Stock Company gives the termination notice for the services as contemplated hereunder in accordance with Article 5.2, the Group Company must still provide the services as contemplated hereunder to the Joint Stock Company in accordance with the applicable terms prevailing since the date the notice is given until the date the termination becomes effective. The applicable provisions prevailing shall include the relevant terms of the supplementary agreement executed in accordance with Article 6.3.

6. Effectiveness, term and termination of the agreement

6.1 Save as otherwise agreed by both parties in writing, this agreement shall become effective after it is signed by the legal representatives or authorized

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representatives of both parties and the Joint Stock Company having performed the procedures to be considered and approved by the Board of Director or independent shareholders pursuant to the authorization limit and the regulatory provisions at the places where the Joint Stock Company are listed.

6.2 This agreement is valid for a term of three years commencing from 1 January 2006 and ending on 31 December 2008. The Original Administration Agreement shall cease to execute after this agreement becomes effective.

6.3 If it is necessary to amend this agreement for any matters, both parties shall enter into supplementary agreements. In the event both parties fail to agree unanimously for the terms of the required supplementary agreement, the terms of provision prevailing shall be applicable until both parties agree unanimously for such terms.

6.4 Prior to the termination of this agreement, both parties of this agreement may negotiate jointly for entering into a new agreement for the provision of payment and administrative services for pension fund and retirement benefits, so as to ensure that the payment and administrative services for pension fund and retirement benefits of the staff of the Joint Stock Company remain normal after the termination of this agreement.

6.5 In the event any part breaches any term of this agreement to a material extent (the “Breaching Party”) and the other party gives a written notice to the Breaching Party notifying that such act constitutes a breaching act and demands the Breaching Party to take remedial action within the reasonable deadline prescribed by the other party in such notice, the other party may terminate this agreement forthwith if the Breaching Party fails to take remedial action for such breaching act within the above-mentioned deadline. If the breaching act of the Breaching Party is irremediable, the other party may terminate this agreement forthwith.

6.6 The termination of this agreement shall not damage any rights or obligations already arisen for any party.

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7. Implementation of the agreement

In accordance with the requirements in the regulatory provisions at the places where the Joint Stock Company are listed, including but not limited to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and the Listing Rules of the Shanghai Stock Exchange, the ongoing connected transactions as contemplated under this agreement shall have set an annual cap to its transaction amounts. If the annual cap related to the administrative services as contemplated hereunder requires the approval by the independent shareholders of the Joint Stock Company, then whether such administrative service transactions will be conducted on an ongoing basis shall depend on the approval of the independent shareholders of the Joint Stock Company. If the actual amount incurred in such transactions for a particular year exceeds the annual cap as approved by the independent shareholders of the Joint Stock Company, both parties shall suspend the administrative services that would have exceed the annual cap as approved by the independent shareholders of the Joint Stock Company until the Joint Stock Company has implemented the respective procedures for the consideration and approval in accordance with the regulatory provisions at the places where the Joint Stock Company are listed.

8. Announcement

Without the written consent of any party in advance, the other party shall not publish or allow other parties (that is subject to the control of the other party to this agreement) to publish any announcement related to the subject of this agreement or any relevant matters, save as the announcements to be published in accordance with the laws or the regulatory provisions of China Securities Regulatory Commission, Shanghai Stock Exchange, Hong Kong Stock Exchange, Securities and Futures Commission in Hong Kong, New York Stock Exchange Inc. and Securities and Exchange Commission in US or any other authorities at the places where the Joint Stock Company are listed.

9. Miscellaneous

9.1 Without the written consent of the other party, any party shall not assign its rights or obligations under this agreement.

9.2 This agreement and its annex constitute the entire agreement for the matters as contemplated under this agreement, and substitutes all agreements related

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to such transactions entered into previously between both parties. In the event one party (the “Breaching Party”) breaches any term in the Original Administration Agreement, the Original Administration Agreement shall terminate forthwith upon the Joint Stock Company having performed the procedures to be considered and approved by the Board of Director or independent shareholders pursuant to the authorization limit and the regulatory provisions at the places where the Joint Stock Company are listed, notwithstanding any right obtained by the other party (the “Complying Party”) as a result of the breach by the Breaching Party being hampered and the claim to be raised against the Breaching Party being affected.

9.3 If any term in this agreement becomes illegal, invalid or unenforceable at any time, other terms shall not be affected accordingly.

9.4 If any party fails to perform any obligation under this agreement in accordance with the provisions of this agreement as a result of any force majeure events, evidences shall be timely provided together with a written notice to the other party, for which such failure to perform shall not be treated as any breaching act. The other party shall also agree to the performance of the relevant liabilities and obligations within a reasonable period depending on the circumstances prevailing.

9.5 Both parties agree to assume the related fees and expenses arising from the execution of this agreement in accordance with that as provided by the relevant laws of the PRC. If the same is not provided in any law, then such fees and expenses shall be equally allocated between both parties.

9.6 Amendment to this agreement or its annex shall be made in writing wherever possible, subject to signing by both parties and the corporate actions to be taken by both parties wherever appropriate.

9.7 Unless provided otherwise herein, the exercise or delay in exercise of the rights, powers or privileges under this agreement by one party does not constitute the waiver of such party on such rights, powers or privileges. The exercise of such rights, powers or privileges individually or in a portion does not exclude the exercise of any other rights, powers or privileges.

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9.8 The annex to this agreement is an integral party of this agreement and shall have the same binding effect to this agreement as if it is included in this agreement.

10. Notices

10.1 Any notice or other documents to be delivered to both parties pursuant to this agreement shall be made in writing and to be sent by post or by fax to the addresses of such party as follows:

(a)	Group Company:	Yankuang Group Corporation Limited
	Address:	298 South Fushan Road, Zoucheng. Shandong Province, the People’s Republic of China
	Telephone no.:	0537-5382232
	Fax no.:	0537-5382831
(b)	Joint Stock Company:	Yanzhou Coal Mining Company Limited
	Address:	298 South Fushan Road, Zoucheng. Shandong Province, the People’s Republic of China
	Telephone no.:	0537-5384031
	Fax no.:	0537-5382032

10.2 The timing for the delivery of the notices or documents:

(a)	By hand:	At the time when the notice or document is delivered
(b)	By post:	Five (5) working days after the notice or document is posted (Saturdays, Sundays and public holidays in the PRC shall be not counted)
(c)	By fax:	At the time when the fax is received. If the fax is received beyond the normal business hours, it will be deemed to be delivered in the normal business hours of the following days, except Saturdays, Sundays and public holidays in the PRC, with the delivery report printed from the fax machine of the sender confirming the fax is transmitted completely.

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11. Applicable laws and jurisdiction

This agreement is governed by the laws of the PRC and shall be construed according to the laws of the PRC. Any dispute in connection with or arising from this agreement (including its subsistence, validity, termination or any issue related to the rights or obligations of both parties under this agreement) shall be submitted to the Jining Arbitration Commission of Shandong Province for arbitration by any party after failing to resolve through amicable negotiation. The arbitration will be conducted at Jining in accordance with the arbitration rules then effective of such arbitration commission at the time the submission is made. The award of arbitration shall be final and shall be binding on both parties.

12. General

This agreement is made in Chinese.

There are four counterparts to this agreement. Each party shall hold two copies after they are signed by the legal representatives or authorized representatives with seal affixed. Each copy of the agreement shall carry the same effect.

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This agreement is executed on the date written on the first page above.

Yankuang Group Corporation Limited

(with seal affixed)

Legal representative or authorized representative: [signed]

Yanzhou Coal Mining Company Limited

(with seal affixed)

Legal representative or authorized representative: [signed]

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Annex: Provision of payment and administrative services for pension fund and retirement benefits by the Group Company to the Joint Stock Company

Item	Pricing Basis	Term	Notice period for termination
Payment and administrative services for pension fund and retirement benefits	45% of the total monthly salary of the staff of the Joint Stock Company per month and remit the same to the designated account of the Group Company on monthly basis	3 years	12 months

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Contract No.: [GL-06006]

YANZHOU COAL MINING COMPANY LIMITED

AND

YANKUANG GROUP CORPORATION LIMITED

PROVISION OF PRODUCTS AND MATERIALS AGREEMENT

This agreement is entered into by the parties hereto on 10 January 2006 at Zoucheng, Shandong Province:

Yanzhou Coal Mining Company Limited, a joint stock limited company established and validly subsisting under the laws of the PRC and its shares are issued to the public and listing on the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange Inc. (registration number of business license for corporate legal person is Qi Gu Lu Zhong Ji No. 003929), whose address is at 298 South Fushan Road, Zoucheng. Shandong Province and its legal representative is Wang Xin (hereinafter is referred to as the “Joint Stock Company”).

Yankuang Group Corporation Limited, a State wholly-owned enterprise established and validly subsisting under the laws of the PRC (registration number of business license for corporate legal person is 3700001801980), whose address is at 298 South Fushan Road, Zoucheng. Shandong Province and its legal representative is Geng Jiahuai (hereinafter is referred to as the “Group Company”).

Whereas:

1. The Group Company was the sole promoter and established the Joint Stock Company pursuant to the laws of the PRC on 25 September 1997. As a part of the Restructuring, the Group Company inject the assets and liabilities mainly related to the business of production of operation of coal mining to the Joint Stock Company and retained the remaining assets and liabilities.

2. The Joint Stock Company issued shares to the public and the shares were listed on the Hong Kong Stock Exchange, the New York Stock Exchange Inc. and Shanghai Stock Exchange. The Group Company remained as the controlling shareholder of the Joint Stock Company after the listing. As at the date hereof, about 54.33% of the issued shares in the Joint Stock Company were held by the Group Company.

3. On 17 October 1997, the Group Company and the Joint Stock Company entered into the Materials and Services Supply Agreement for the mutual supply of materials, property management, medical and other staff benefit, staff training, maintenance and repair works of listed business assets, motor vehicle and rail motor vehicle transportation, heat, water, electricity and utilities (“Original Agreement”). The term of the Original Agreement was ten years.

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4. On 30 October 2001, the Group Company and the Joint Stock Company entered into the Supplementary Agreement for the Materials and Services Supply Agreement (“Supplementary Agreement (I)”), which was approved by the independent shareholders on 17 December 2001. On 29 May 2003, the Group Company and the Joint Stock Company entered into the Second Supplementary Agreement for the Materials and Services Supply Agreement (“Supplementary Agreement (II)”), which was approved by the independent shareholders on 27 June 2003.

5. On the basis of the regulatory provisions where the Joint Stock Company is listed and the latest development on the Group Company and the Joint Stock Company, the Group Company and the Joint Stock Company intend to terminate the Original Agreement, the Supplementary Agreement (I) and the Supplementary Agreement (II), and enter into Ongoing Connected Transactions Agreements of similar nature between the Group Company together with its subsidiaries and the Joint Stock Company together with its subsidiaries for the mutual supply of materials and services separately. In this agreement, where references are made to the provision of materials (including coal and materials and supplies) or services by the Group Company or the Joint Stock Company, their respective subsidiaries are also included therein.

6. The Joint Stock Company will continue to provide the coal to the Group Company for the purposes of power generation, gas production, concrete and other production usage as well as general usage.

7. The Supplies Provision Centre of the Joint Stock Company is equipped with the capability in the distribution of materials, which can purchase materials and supplies from third parties and sell a portion of such materials and supplies to the Group Company.

In accordance with the relevant laws and regulations of the Contract Law of the People’s Republic of China and the regulatory provisions where the Joint Stock Company is listed, the Joint Stock Company enter into an agreement with the Group Company for matters on the provision of products and materials and supplies upon amicable negotiation between both parties as follows:

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1. Definitions and Interpretations

1.1 Definitions

Unless otherwise defined herein, the following terms shall have the following meanings in this agreement:

“Financial Year”	the financial year commencing from 1 January and ending on 31 December for each year;
“Interim Period”	with respect to a financial year, the interim period either commencing from 1 January and ending on 30 June or commencing from 1 July and ending on 31 December;
“Hong Kong Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Market price”	where applicable, the calculation of market price for the products and materials and supplies as contemplated under this agreement pursuant to Article 4.2
“Materials & Supplies”	the provision of materials and supplies such as steel by the Joint Stock Company and its subsidiaries to the Group Company and its subsidiaries pursuant to Article 2.1.2 of this agreement
“PRC”	The People’s Republic of China
“Original Connected Transaction Agreements”	Original Agreement, Supplementary Agreement (I) and Supplementary Agreement (II);

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“RMB”	the lawful currency of the PRC;
“State-prescribed price”	the price for the products and materials and supplies as determined according to Article 4.3; and
“Subsidiaries”	the controlling subsidiaries, non-controlling subsidiaries and other entities of the Group Company and the Joint Stock Company

1.2 Interpretations

Unless otherwise in contrary, in this agreement:

(1) Words and terms used importing the singular include the plural and vice versa;

(2) A party to this agreement or any other agreement includes its successor or authorized transferees;

(3) Articles or clauses or annex refer to the articles or clauses or annexes of this agreement;

(4) Any provision of this agreement shall not be construed as prohibiting the extension of this agreement or prohibiting the amendment, alteration or supplement to this agreement;

(5) The titles of sections to this agreement are provided for ease of reference only, and shall not affect the interpretation of this agreement.

2. Provision of products and materials and supplies by the Joint Stock Company to the Group Company

2.1 The products and materials and supplies to be provided by the Joint Stock Company to the Group Company as contemplated hereunder include:

2.1.1 Coal.

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2.1.2 Materials and supplies: steel, timber, grease, axles, labour safety products and other related materials and supplies

2.2 The Joint Stock Company shall make available to the Group Company provision of products and materials and supplies as contemplated hereunder in accordance with the terms of this agreement and specific conditions as agreed by both parties from time to time, including but not limited to quantity and quality.

3. Operation Model

3.1 The Group Company may submit the plan on the demand for products and materials and supplies for the following year or the adjustment plan to the supplies items for the current year (“Annual Provision Plan”) to the Joint Stock Company before 30 November each year. Both parties shall agree unanimously on the plan before 31 December of the current year.

3.2 Both parties and their respective subsidiaries shall enter into specific supply contract for the provision of products and materials and supplies pursuant to this agreement (including the formulation of Annual Provision Plan pursuant to this agreement).

3.3 In the course of executing the Annual Provision Plan or the specific supply contract, where necessary and agreed by both parties, the Annual Provision Plan or the specific supply contact may be adjusted.

3.4 The consideration for the agreed provision may be settled in one lump sum or installments.

3.5 Either party shall settle the amount due to the other party or credit the account of the other party in relation to the ongoing connected transactions for the current month latest by the last business day of each calendar month. The amount incurred by the ongoing connected transactions for each calendar month shall be settled within the month immediately following, but not including the amounts involved in the transactions not completed then and the amounts under disputes.

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4. Basis for the determination of price on the products and materials and supplies

4.1 The price for coal and materials and supplies shall be determined according to the Market price. Such Market price shall be calculated and estimated each year, if possible, prior to the beginning of a financial year.

4.2 The Market price for the provision of products and materials and supplies as contemplated under this agreement shall be determined according to normal commercial terms based on the following:

(1) the price at which the same or similar type of products and materials and supplies provided by independent third parties under normal commercial terms in the ordinary course of their businesses in the same area or in the vicinity;

(2) if (1) above is not applicable, the price at which the same or similar type of products and materials and supplies is to be provided by independent third parties under normal commercial terms in the ordinary course of their businesses in the PRC.

4.3 In the event that at any time the state-prescribed price is effective and applicable to certain type of the products and materials and supplies as contemplated under this agreement, both parties agree to determine the price for the agreed provision according to the state-prescribed price. Such state-prescribed price means the price determined according to the laws, regulations, decisions, orders or pricing policy of the relevant PRC government authorities applicable to such products and materials and supplies, depending on specific conditions.

5. Representations, undertakings and warranties of the Joint Stock Company

5.1 The Joint Stock Company is a joint stock limited company established pursuant to the laws, which has the independent status of legal person and currently has a valid business licence;

5.2 The Joint Stock Company has been engaging in business activities pursuant to the laws and has never conducted any activities not included in the scope of operation as provided by the laws;

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5.3 The execution of this agreement and the performance of obligations under this agreement by the Joint Stock Company do not contravene any other agreement entered into by it or its articles of association. There is no legal conflict to be arising from the execution of this agreement and the performance of obligations under this agreement against other agreement entered into by it or its articles of association.

5.4 The Joint Stock Company warrants that the provision of products and materials and supplies as contemplated under this agreement to the Group Company shall be determined according to normal commercial terms.

5.5 The Joint Stock Company undertakes and warrants that it will provide such products and materials and supplies to the Joint Stock Company in accordance with the requirements and standards negotiated between the Joint Stock Company and the Joint Stock Company from time to time.

5.6 The Joint Stock Company assures that there will be adequate and qualified staff to provide the products and materials and supplies as agreed to the Joint Stock Company, and that its staff shall obtain sufficient guidance and directions to provide such products and materials and supplies in accordance with the reasonable requirement of the Group Company.

5.7 The Joint Stock Company undertakes to the Group Company that if its subsidiaries violate any provisions of this agreement in the products and materials and supplies in accordance with this agreement, the Joint Stock Company shall assume the liabilities as a result of the act of its subsidiaries in violating the provisions of this agreement.

5.8 The Joint Stock Company undertakes to the Group Company that the Joint Stock Company shall procure its subsidiaries to take all necessary actions to perform its obligations under this agreement.

5.9 The Joint Stock Company warrants that in the course of performing its obligations under this agreement, it shall take reasonable actions to avoid certain omissions that will result in any damage to be suffered by the Group Company. The Joint Stock Company undertakes to indemnify the Group Company on all losses incurred by the Group Company arising therefrom.

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6. Representations, undertakings and warranties of the Group Company

6.1 The Group Company is a State wholly-owned enterprise established pursuant to the laws, which has the independent status of legal person and currently has a valid business licence;

6.2 The Group Company has been engaging in business activities pursuant to the laws and has never conducted any activities not included in the scope of operation as provided by the laws;

6.3 The execution of this agreement and the performance of obligations under this agreement by the Group Company do not contravene any other agreement entered into by it or its articles of association. There is no legal conflict to be arising from the execution of this agreement and the performance of obligations under this agreement against other agreement entered into by it or its articles of association;

6.4 The Group Company undertakes to settle with the Group Company the consideration for the products and materials and supplies timely in accordance with the provisions of this Agreement. If any provision of this agreement is violated agreement, the Group Company shall assume the liabilities as a result of its act in violating the provisions of this agreement.

6.5 The Group Company warrants that in the course of performing its obligations under this agreement, it shall take reasonable actions to avoid certain omissions that will result in any damage to be suffered by the Joint Stock Company. The Group Company undertakes to indemnify the Joint Stock Company on all losses incurred by the Joint Stock Company arising therefrom.

7. Termination in the supply or purchase of products and materials and supplies

7.1 Any party to this agreement may give notice in writing to the other party of not less twelve months in advance to terminate the provision or purchase of certain type of products or materials and supplies. It must be included in such termination notice which type of products and materials and supplies to be provided or purchased shall be terminated, and since when the

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termination shall be effective. Such type of products and materials and supplies as set out in such notice shall automatically be terminated from provision or purchase from the date the termination becomes effective as set out in such notice. If the provision of any products and materials and supplies is terminated according to this article, such termination shall not affect other rights and obligations of the Group Company or the Joint Stock Company under this agreement.

7.2 For avoidance of doubt, both parties agree that when the Group Company gives the termination notice for the purchase of certain products and materials and supplies in accordance with Article 7.1, the Joint Stock Company must still provide such products and materials and supplies to the Group Company in accordance with the applicable provision terms (excluding the provision on the period of provision) prevailing since the date the notice is given until the date the termination becomes effective. The applicable provisions prevailing shall include the relevant terms of the supplementary agreement executed in accordance with Article 8.3.

8. Effectiveness, term and termination of the agreement

8.1 Save as otherwise agreed by both parties in writing, this agreement shall become effective after it is signed by the legal representatives or authorized representatives of both parties and the Joint Stock Company having performed the procedures to be considered and approved by the Board of Director or independent shareholders pursuant to the authorization limit and the regulatory provisions at the places where the Joint Stock Company are listed.

8.2 This agreement is valid for a term of three years commencing from 1 January 2006 and ending on 31 December 2008. The Original Connected Transactions Agreement shall cease to execute after this agreement becomes effective.

8.3 If it is necessary to amend this agreement for any matters, both parties shall enter into supplementary agreements. Both parties shall enter into a supplementary agreement for the relevant matters prior to the end of November of the year before the financial year the supplementary agreement is subjected to. In the event both parties fail to agree

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unanimously for the terms of the required supplementary agreement before the above deadline, the terms of provision for the current year shall be applicable for the following financial year until both parties agree unanimously or the disputes between both parties were resolved pursuant to Article 8.4.

8.4 If both parties fail to agree on any matter related to the transaction price, including but not limited to the amounts payable and the payment schedule, upon the request of any parties, the matter shall submit to the Pricing Bureau of Zoucheng with the Pricing Bureau of Zoucheng as the mediator to determine the resolution method. The decision of the Pricing Bureau of Zoucheng shall be final and binding on both parties.

8.5 Prior to the termination of this agreement, both parties of this agreement may negotiate jointly for entering into a new agreement for the provision of products and materials and supplies, so as to ensure that the production and operation of both parties remain normal after the termination of this agreement.

8.6 In the event any part breaches any term of this agreement to a material extent (the “Breaching Party”) and the other party gives a written notice to the Breaching Party notifying that such act constitutes a breaching act and demands the Breaching Party to take remedial action within the reasonable deadline prescribed by the other party in such notice, the other party may terminate this agreement forthwith if the Breaching Party fails to take remedial action for such breaching act within the above-mentioned deadline. If the breaching act of the Breaching Party is irremediable, the other party may terminate this agreement forthwith.

8.7 The termination of this agreement shall not damage any rights or obligations already arisen for any party.

9. Implementation of the agreement

In accordance with the requirements in the regulatory provisions at the places where the Joint Stock Company are listed, including but not limited to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and the Listing Rules of the Shanghai Stock Exchange, the ongoing

10

connected transactions as contemplated under this agreement shall have set an annual cap to its transaction amounts. If the annual cap related to the products and materials and supplies requires the approval by the independent shareholders of the Joint Stock Company, then whether such transactions will be conducted on an ongoing basis shall depend on the approval of the independent shareholders of the Joint Stock Company. If the actual amount incurred in such transactions for a particular year exceeds the annual cap as approved by the independent shareholders of the Joint Stock Company, both parties shall suspend the products and materials and supplies transactions that would have exceed the annual cap as approved by the independent shareholders of the Joint Stock Company until the Joint Stock Company has implemented the respective procedures for the consideration and approval in accordance with the regulatory provisions at the places where the Joint Stock Company are listed.

10. Announcement

Without the written consent of any party in advance, the other party shall not issue or allow other parties (that is subject to the control of the other party to this agreement) to issue any announcement related to the subject of this agreement or any relevant matters, save as the announcements to be issued in accordance with the laws or the regulatory provisions of China Securities Regulatory Commission, Shanghai Stock Exchange, Hong Kong Stock Exchange, Securities and Futures Commission in Hong Kong, New York Stock Exchange Inc. and Securities and Exchange Commission in US or any other authorities at the places where the Joint Stock Company are listed.

11. Miscellaneous

11.1 Without the written consent of the other party, any party shall not assign its rights or obligations under this agreement.

11.2 This agreement and its annex constitute the entire agreement for the matters as contemplated under this agreement, and substitutes all agreements related to such transactions entered into previously between both parties. In the event one party (the “Breaching Party”) breaches any term in the Original Connected Transactions Agreement, the Original Connected Transactions Agreement shall terminate forthwith upon the Joint Stock Company having performed the procedures to be considered and approved by the Board of

11

Director or independent shareholders pursuant to the authorization limit and the regulatory provisions at the places where the Joint Stock Company are listed, notwithstanding any right obtained by the other party (the “Complying Party”) as a result of the breach by the Breaching Party being hampered and the claim to be raised against the Breaching Party being affected.

11.3 If any term in this agreement becomes illegal, invalid or unenforceable at any time, other terms shall not be affected accordingly.

11.4 If any party fails to perform any obligation under this agreement in accordance with the provisions of this agreement as a result of any force majeure events, evidences shall be timely provided together with a written notice to the other party, for which such failure to perform shall not be treated as any breaching act. The other party shall also agree to the performance of the relevant liabilities and obligations within a reasonable period depending on the circumstances prevailing.

11.5 Both parties agree to assume the related fees and expenses arising from the execution of this agreement in accordance with that as provided by the relevant laws of the PRC. If the same is not provided in any law, then such fees and expenses shall be equally allocated between both parties.

11.6 Amendment to this agreement or its annex shall be made in writing wherever possible, subject to signing by both parties and the corporate actions to be taken by both parties wherever appropriate.

11.7 Unless provided otherwise herein, the exercise or delay in exercise of the rights, powers or privileges under this agreement by one party does not constitute the waiver of such party on such rights, powers or privileges. The exercise of such rights, powers or privileges individually or in a portion does not exclude the exercise of any other rights, powers or privileges.

11.8 The annex to this agreement is an integral party of this agreement and shall have the same binding effect to this agreement as if it is included in this agreement.

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12. Notices

12.1 Any notice or other documents to be delivered to both parties pursuant to this agreement shall be made in writing and to be sent by hand, by post or by fax to the addresses of such party as follows:

(a)	Joint Stock Company:	Yanzhou Coal Mining Company Limited
	Address:	298 South Fushan Road, Zoucheng. Shandong Province, the People’s Republic of China
	Telephone no.:	0537-5382232
	Fax no.:	0537-5382831
(b)	Group Company:	Yankuang Group Corporation Limited
	Address:	298 South Fushan Road, Zoucheng. Shandong Province, the People’s Republic of China
	Telephone no.:	0537-5384031
	Fax no.:	0537-5382032

12.2 The timing for the delivery of the notices or documents:

(a)	By hand:	At the time when the notice or document is delivered
(b)	By post:	Five (5) working days after the notice or document is posted (Saturdays, Sundays and public holidays in the PRC shall be not counted)
(c)	By fax:	At the time when the fax is received. If the fax is received beyond the normal business hours, it will be deemed to be delivered in the normal business hours of the following days, except Saturdays, Sundays and public holidays in the PRC, with the delivery report printed from the fax machine of the sender confirming the fax is transmitted completely.

13. Applicable laws and jurisdiction

This agreement is governed by the laws of the PRC and shall be construed

13

according to the laws of the PRC. Any dispute in connection with or arising from this agreement (including its subsistence, validity, termination or any issue related to the rights or obligations of both parties under this agreement) shall be submitted to the Jining Arbitration Commission of Shandong Province for arbitration by any party after failing to resolve through amicable negotiation. The arbitration will be conducted at Jining in accordance with the arbitration rules then effective of such arbitration commission at the time the submission is made. The award of arbitration shall be final and shall be binding on both parties.

14. General

This agreement is made in Chinese.

There are four counterparts to this agreement. Both parties to the agreement shall each hold two copies after they are signed by the legal representatives or authorized representatives with seal affixed. Each copy of the agreement shall carry the same effect.

14

This agreement is executed on the date written on the first page above.

Yanzhou Coal Mining Company Limited

(with seal affixed)

Legal representative or authorized representative: [signed]

Yankuang Group Corporation Limited

(with seal affixed)

Legal representative or authorized representative: [signed]

15

Annex: Provision of products and materials and supplies by the Joint Stock Company to the Group Company

No.	Items	Pricing Basis	Term	Notice period for termination
1	Coal	Market price	3 years	12 months
2	Materials and supplies: steel, timber, grease, axles, labour safety products and other related materials and supplies	Market price	3 years	12 months

16

EX-4.5

EXHIBIT 4.5

YANZHOU COAL MINING COMPANY LIMITED

AND

YANKUANG GROUP CORPORATION LIMITED

EQUITY TRANSFER AGREEMENT

This agreement is entered into by the parties hereto on 16 November 2004 at Zoucheng, Shandong Province:

Transferor: Yankuang Group Corporation Limited, a State wholly-owned enterprise established and validly subsisting under the laws of the PRC (registration number of business license for corporate legal person is 16309203-4-1), whose address is at 298 South Fushan Road, Zoucheng. Shandong Province and its legal representative is Geng Jiahuai.

Transferee: Yanzhou Coal Mining Company Limited, a joint stock limited company established and validly subsisting under the laws of the PRC and its shares are issued to the public and listing on the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange Inc., which is principally engaged in underground coal mining, preparation and processing, and sales and railway transportation of coal. Its address is 298 South Fushan Road, Zoucheng, Shandong Province and its legal representative is Wang Xin.

In accordance with the relevant laws and regulations of the Company Law of the People’s Republic of China and the Contract Law of the People’s Republic of China, both parties into an agreement with respect to the matters on equity transfer upon amicable negotiation for mutual compliances as follows:

Article 1 Equity Transfer and the Subject

1. Yankuang Heze Power Chemical Co., Ltd. (hereinafter referred to as “Heze”) is a limited liability company established and validly subsisting under the laws of the PRC (registration number of business license for corporate legal person is 3729001801014), whose address is at 92 Zhonghua East Road, Heze. The Transferor is the shareholder of Heze and holds 95.67% equity interests in Heze (hereinafter referred to as “Subject Equity”).

2. The Transferor agrees to transfer the Subject Equity to the Transferee in accordance with the terms and conditions of this agreement. The Transferee agrees to accept the equity transfer in accordance with the terms and conditions of this agreement.

1

Article 2 Consideration of Transfer

The benchmark consideration of transfer for the Subject Equity is RMB574 million. After the execution of this agreement, the Transferee will engage accounting firm and asset valuation firm with qualifications in securities practice to conduct audit and valuation to the value of equity in Heze pursuant to the relevant provisions of the regulatory authorities of the listed company. The final consideration for the acquisition of the equity will be calculated on the basis of RMB574 million and adjusted according to the financial indicators of Heze as audited and valued.

Article 3 Payment of consideration of transfer

1. The Transferee shall pay in prepayment the benchmark consideration of transfer within ten working days after the execution of this agreement to the Transferor.

2. All taxes and duties arising from the proceeds of the equity transfer will be assumed by both parties to this agreement pursuant to the laws.

Article 4 Completion of the Equity Transfer

After this agreement becomes effective, the Transferor shall assist to complete the procedures regarding the Equity Transfer at the request of the Transferee.

Article 5 Representations, Undertakings and Warranties of the Transferor

1. The Transferor is a State wholly-owned enterprise established and validly subsisting under the laws of the PRC , which legally owns 95.67% equity interests in Heze. The Transferor did not create any pledge or other restrictions of rights over the Subject Equity. The Transferor is entitled to transfer such equity to the Transferee pursuant to this agreement. Approvals have been sought from the power organs of the Transferor with respect to this Equity Transfer, including but not limited to the approval by its Board of Directors. Legal documents relating to the approval of this agreement were provided to the Transferee.

2. The Transferor shall perform the relevant statutory procedures for the transfer of State-owned property rights in accordance with the provisions of the “Interim Measures on the Management of Transfer of the State-owned Property Rights of Enterprises” and relevant laws and regulations, and complete the approval procedures in accordance with the provisions of those Measures so as to file at the competent authorities for approval.

2

3. The execution and performance of this agreement by the Transferor did not breach the legal binding effect of any contracts and agreements entered into by it.

4. The Transferor represents, undertakes and warrants to the Transferee with respect to Heze as follows:

(1) Heze is established legally pursuant to the laws of the PRC and has the independent status of legal person;

(2) Heze does not violate any prevailing laws, regulations of the PC and is not subject to any decision of administrative penalty and judgment and award of courts or arbitration institutions that will have a material effect on its production and operation;

(3) Heze is not engaged in any litigation, claim, arbitration, administration proceedings or other legal proceedings of material importance and there is no litigation, claim, arbitration, administration proceedings or other legal proceedings of material importance known to be pending or threatened by or against Heze.

5. The Transferor further warrants to the Transferee as follows:

(1) The financial information and business information as shown on the financial statements to determine the assets and liabilities of Heze by the Transferee is true, accurate and complete;

(2) Heze has the legal ownership to its assets. The relevant certificates and documents are complete with no defect.

Article 6 Representations, Undertakings and Warranties of the Transferee

1. The Transferee is a joint stock limited company established and validly subsisting under the laws of the PRC;

2. The execution and performance of this agreement by the Transferee did not breach the legal binding effect of any contracts and agreements entered into by it.

3

Article 7 Transitional Arrangement

The transitional period commences from the date this agreement is executed until the date this agreement becomes effective. Both parties to this agreement agree to maintain the operation and management of Heze in its usual manner during the transitional period. The Transferor warrants that it will not implement significant adjustment and deployment to the human resources and assets of Heze. In the event there is any significant change arising out of the ordinary course of business, the Transferor shall advise the change to the Transferee in writing accordingly.

Article 8 Takeover of decision, operation and management

After the transfer of Subject Equity is completed, the Transferee immediately becomes the shareholder of Heze, and will be entitled to the rights of the shareholders and have to assume the corresponding obligations. The Transferee is entitled to change the composition of the Board of Directors and the Supervisory Committee of Heze pursuant to the provisions in the Articles of Association of Heze, and to participate in the decision, operation and management of Heze. The Transferor shall provide all assistance required and transfer the relevant information and documents kept by it to the Transferee.

Article 9 Confidentiality

Both parties to this agreement shall have the obligation to maintain the confidentiality on the terms and conditions of this agreement and the information provided by parties hereto. In the event the performance of this agreement is expired or terminated otherwise, the obligation on confidentiality remains valid.

Article 10 Share of fees

Unless otherwise provided in this agreement, both parties hereto shall assume their respective fees and other expenses arising in the course of negotiating, drafting and performing this agreement.

Article 11 Liabilities of Breach

Any party who breaches its obligations, representations, undertakings or warranties under this agreement shall indemnify the complying party for all direct and indirect losses arising therefrom.

4

Article 12 Effectiveness of this agreement

This agreement will become effective upon the satisfaction of the following conditions:

1. This agreement is signed by the authorized representative or its attorney of the Transferor and the authorized representative or its attorney of the Transferee;

2. Both parties to this agreement have taken all necessary actions for the approval of this agreement and all relevant documents, including, but not limited to the approval of the Board of Directors of the Transferor and the approval of the Board of Directors and the Shareholders’ Meeting of the Transferee and the approval of the relevant competent authorities related to the transfer of State-owned Property Rights.

Both parties shall assure the precedent conditions above to be fulfilled as soon as possible upon friendly cooperation.

Article 13 Alteration and Discharge of this agreement

After this agreement becomes effective, without the consent of the other party in writing, any party is not allowed to alternate or discharge this agreement on its own.

Article 14 Assignment of this agreement

Without the consent of the other party in writing, any party to this agreement shall not assign the rights and obligations hereunder to third parties.

Article 15 Termination of this agreement

This agreement will be terminated before it is completed if the following events occur:

1. Both parties unanimously agree through negotiation to terminate this agreement;

5

2. In the course of auditing Heze, if the Transferee is rejected from obtaining any financial statements, records or other documents of Heze, or the Transferee becomes aware of any event that may have material adverse effect on Heze or the Transferee, or the Transferee becomes aware of any matters that constitute misrepresentation or material omission on the part of the Transferor, the Transferee is entitled to terminate this agreement ex parte without assuming any liabilities of breach.

Article 16 Applicable laws

1. The execution, performance, interpretation of this agreement and every matter related to this agreement shall be governed by the laws of the People’s Republic of China.

Article 17 Miscellaneous

After the execution of this agreement, in the event the approval of the Board of Directors and the Shareholders’ Meeting of the Transferee and / or the approval of the relevant competent authorities related to the transfer of State-owned Property Rights were not obtained ultimately, this agreement is no longer binding on any party to this agreement. The prepayment shall be returned to the Transferee by the Transferor, and the Transferor shall pay compensation in an amount to be calculated according to the interest rates for demand deposit as published by the People’s Bank of China for the said period.

This agreement is made into two counterparts and each party shall hold one copy. Each copy shall carry same legal effect.

(There is no text following.)

6

This is the signature page without text.

Transferor: Yankuang Group Corporation Limited

(with seal affixed)

Authorized representative or its attorney: [signed]

Transferee: Yanzhou Coal Mining Company Limited

(with seal affixed)

Authorized representative or its attorney: [signed]

7

Contract no.: YZCGQ05001

YANKUANG GROUP CORPORATION LIMITED

AND

YANZHOU COAL MINING COMPANY LIMITED

SUPPLEMENTARY AGREEMENT TO

EQUITY TRANSFER AGREEMENT

This supplementary agreement is entered into by the parties hereto on 28 June 2005 at Zoucheng, Shandong Province:

Transferor: Yankuang Group Corporation Limited.

Transferee: Yanzhou Coal Mining Company Limited.

WHEREAS:

The Transferor and the Transferee entered into the Equity Transfer Agreement between Yankuang Group Corporation Limited and Yanzhou Coal Mining Company Limited (hereinafter referred to as the “Equity Transfer Agreement”) on 16 November 2004. It was provided in the Equity Transfer Agreement that the Transferee accepted the transfer of 95.67% equity interest (hereinafter referred to as “Subject Equity”) in Yankuang Heze Power Chemical Co., Ltd. (now renamed as Yanmei Heze Neng Hua, and hereinafter referred to as “Heze”). Heze is currently conducting the initial preparation of the coal mines at Zhaolou and Wanfu.

In 2004, the Transferor replaced Heze and acquired the exploration rights of Zhaolou and Wanfu coal mines from Shandong Bureau of Coal Geology. Heze paid an amount of RMB228.6 million to Shandong Bureau of Coal Geology as part of the consideration for the exploration rights to Shandong Bureau of Coal Geology.

The Transferor is now completing the procedures for the exploration rights of Zhaolou and Wanfu coal mines. After the Transferor obtained the exploration rights of Zhaolou coal mine, it will transfer to Heze. After the Transferor obtained the exploration rights of Wanfu coal mine, it will transfer to Heze or other subsidiaries of the Transferee.

Both parties wish to conclude further agreement with respect to the matters related to the transfer of Subject Equity, and the transfer of Zhaoloou and Wanfu coal mines on the bases of the Equity Transfer Agreement. As such, both parties into a supplementary agreement in accordance with the Contract Law of the People’s Republic of China upon amicable negotiation for mutual compliances as follows:

I. Consideration for the Transfer of the Subject Equity

The Transferor and the Transferee confirmed that the consideration for the transfer of

1

the Subject Equity is RMB584.01 million. The consideration was the value of the Subject Equity as appraised by a qualified independent asset valuation firm engaged by the Transferor as at 30 April 2005 (the base date) and verified by State-owned asset administration authorities.

II. Precedent Conditions to the Completion of the Transfer of the Subject Equity

Both parties agree the completion of the transfer of the Subject Equity is subject to the fulfillment of the following precedent conditions:

(I) The Transferor and the Transferee had obtained all approvals essential to the transfer of the Subject Equity from relevant government authorities;

(II) The Board of Directors of the Transferee approves the acquisition of the Subject Equity;

(III) The independent shareholders of the Transferee approves the acquisition of the Subject Equity;

(IV) There is no material and adverse change to the business and financial conditions of Heze prior to the completion of the transfer of Subject Equity; and

(V) The representations, warranties and undertakings made by both parties according to this supplementary agreement and the transfer agreement remain true, accurate, complete and valid.

III. Termination of the Agreement

(I) If any of the precedent conditions for the transfer of the Subject Equity as set out in Article II to this agreement is not fulfilled before 31 December 2005, the Transferee is entitled to terminate this supplementary agreement and the Equity Transfer Agreement.

(II) In the event the Equity Transfer Agreement and this supplementary agreement are terminated pursuant to the circumstance as set out above, the Transferor shall return to the Transferee the prepayment of RMB574 million together

2

with the compensation paid by the Transferor within 30 days commencing from 31 December 2005 (if the approval of the independent shareholders for the acquisition of the Subject Equity is not obtained, then it will be 30 days commencing from the date the approval is not granted by the shareholders). The compensation for the said period will be calculated according to the interest rates for demand deposit as published by the People’s Bank of China.

IV. Completion date for the Subject Equity

Both parties agree to determine the completion date for the Subject Equity according to the following principles:

(I) the fulfillment of all precedent conditions to the completion for the transfer of the Subject Equity;

(II) a working day commonly agreed by both parties as soon as practicable;

(III) no matter whatsoever it shall not be later than 31 December 2005.

V. Completion of the Equity Transfer

On the completion date, both parties agree to finalize the following matters;

(I) the Transferee shall pay to the Transferor an amount of RMB10.01 million, being the difference between the consideration of transfer of RMB584.01 million as confirmed in this agreement and the prepayment of RMB574 million paid by the Transferee to the Transferor.

(II) the statutory proceedings and procedures with respect to the transfer of equity interest in Heze to the Transferee shall be completed by both parties to this agreement.

(III) The Transferor shall repay Heze an amount of RMB228.6 million, being the prepayment for the acquisition of the exploration rights relating to the Zhaolou and Wanfu coal mines.

3

VI. Transfer of Exploration Rights

(I) The Transferor irrevocably undertakes that, in the event it has obtained the exploration right of the Zhaolou coal mine, Heze shall have the right to purchase such exploration rights from the Transferor within twelve months from the respective date on which the exploration rights of such mines are obtained by the Transferor;

(II) The Transferor irrevocably undertakes that, in the event it has obtained the exploration right of the Wanfu coal mine, Heze or other subsidiaries of the Transferee shall have the right to purchase such exploration rights from the Transferor within twelve months from the respective date on which the exploration rights of such mines are obtained by the Transferor;

(III) Both parties shall appoint a qualified independent valuer to conduct a valuation of the exploration rights;

(IV) The consideration for the exploration rights shall be based upon the valuation appraised by the qualified independent valuer and endorsed by the competent authorities of the State;

(V) the acquisition of the exploration rights related to Zhaolou coal mine shall be governed by a separate agreement to be entered into between the Transferor and Heze; and

(VI) the acquisition of the exploration rights related to Wanfu coal mine shall be governed by separate agreements to be entered into between the Transferor and Heze or other subsidiaries of the Transferee.

VII. The Transferor has undertaken to assist Heze in the application for the approval of the land use rights for Zhaolou coal mine and its auxiliary coal processing plant project. The relevant fees to obtain the approval and the land use right shall be assumed by Heze accordingly.

VIII. Buyback option for the Subject Equity

After the completion of the transfer, if any of the following events occurs, the Transferee is entitled to exercise the arrangement on the buyback option and the Transferee shall buyback the Subject Equity:

4

(I) Heze fails to obtain the land use rights for Zhaolou coal mine and its auxiliary coal processing plant project before 30 June 2006 for any reason whatsoever;

(II) The Transferor fails to obtain the exploration right for Zhaolou coal mine before 30 June 2006 for any reason whatsoever;

(III) The independent shareholders of the Transferee fails to approve the acquisition of the exploration right for Zhaolou coal mine;

(IV) As a result of any other factors, the acquisition of the exploration rights for Zhaolou coal mine cannot finalise before 30 June 2006.

If the Transferee exercises the buyback option, it shall issue a written notice to the Transferor for the exercise of the buyback option. The date the notice is issued shall be the buyback date.

IX. Buyback Price for the Subject Equity

If the Transferee exercises the buyback option for the Subject Equity, the Transferor shall buyback the Subject Equity from the Transferee. The Transferor shall:

(I) return to the Transferee the total consideration of RMB584.01 million paid for the Equity Transfer;

(II) return the funds injected to Heze in net amount after the completion of the acquisition, the amount injected and timing will be determined on the basis of audited figures; and

(III) on the basis of the aggregate for the amounts in (I) and (II) above, the Transferor will pay compensation at a rate of 10% per annum. The compensation for the consideration of the equity transfer shall be calculated from the date the transfer is completed, whilst the compensation for the funds injected into Heze shall be calculated from the date the funds were injected to Heze.

(IV) The amounts in (I), (II) and (III) above shall be paid to the Transferee within 30 days from the buyback date.

5

X. Liabilities of Breach and Damages

Both parties undertake that any party who breaches its obligations, representations, or warranties under this supplementary agreement shall indemnify the loss incurred by the complying party arising therefrom.

XI. Applicable laws and resolution of disputes

(I) This supplementary agreement is governed and construed by the laws of the PRC.

(II) Any dispute arising from or in connection with this supplementary agreement shall be resolved by both parties through negotiation. In the event the dispute is not resolved through negotiation, any party is entitled to initial proceeding at the courts with jurisdiction.

XII. Miscellaneous

(I) This supplementary agreement is an integral part of the Equity Transfer Agreement and carries the same legal effect with the Equity Transfer Agreement. If there is any conflict between the provisions of this supplementary agreement and the Equity Transfer Agreement, this supplementary agreement shall prevail.

(II) This supplementary agreement is made into two counterparts. The Transferor and the Transferee shall each hold one copy. Each copy shall carry same legal effect.

(III) This supplementary agreement will become effective after it is signed by the authorized representative or its attorney of the Transferor and the Transferee and the performance of statutory approval procedures by each party.

(There is no text following.)

6

This is the signature page of the supplementary agreement to the equity transfer agreement between Yankuang Group Corporation Limited and Yanzhou Coal Mining Company Limited without text.

Transferor: Yankuang Group Corporation Limited

(with seal affixed)

Authorized representative or its attorney: [signed]

Transferee: Yanzhou Coal Mining Company Limited

(with seal affixed)

Authorized representative or its attorney: [signed]

7

EX-7.1

EXHIBIT 7.1

Statement explaining how certain ratios were calculated in annual report

The debt to equity ratio of 1.3%, is calculated using the equity attributable to equity holders of the Company and total amount of borrowings amounting to RMB17,618.6 million and RMB231.8 million, respectively.

EX-8.1

EXHIBIT 8.1

List of subsidiaries of Yanzhou Coal Mining Company Limited

Name of Subsidiary	Country of incorporation/ registration and operation	Issued and fully paid capital/ registered capital	Proportion of registered capital/issued share capital held by the Company				Proportion of voting power held		Principal activities
			Directly		Indirectly
Austar	Australia	AUD30,000,000	—		100	%	100	%	Coal mining business
Heze Nenghua (note)	PRC	RMB600,000,000	95.67	%	—		95.67	%	Development of ancillary projects
Yancoal	Australia	AUD30,000,000	100	%	—		100	%	Investment holding
Yanmei Shipping (note)	PRC	RMB5,500,000	92	%	—		97	%	Transportation via rivers and lakes and the sales of coal and construction materials
Yulin (note)	PRC	RMB800,000,000	97	%	—		97	%	Development of 600,000 tonnes Methanol Project
Zhongyan Trade Co., Ltd. (“Zhongyan”) (note)	PRC	RMB2,100,000	52.38	%	—		52.38	%	Trading and processing of mining machinery

Note: Yanmei Shipping, Yulin, Zhongyan and Heze are established in the PRC as limited liability companies.

EX-12.1

EXHIBIT 12.1

CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, YANG Deyu, certify that:

1 I have reviewed this annual report on Form 20-F of Yanzhou Coal Mining Company Limited;

2 Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3 Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4 The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

4.1 designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

4.2 evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

4.3 disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5 The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of registrant’s board of directors (or persons performing the equivalent function):

5.1 all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

5.2 any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ YANG Deyu

YANG Deyu

General Manager

June 29, 2006

EX-12.2

EXHIBIT 12.2

CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, WU Yuxiang, certify that:

1 I have reviewed this annual report on Form 20-F of Yanzhou Coal Mining Company Limited;

2 Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3 Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4 The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

4.1 designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

4.2 evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

4.3 disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5 The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of registrant’s board of directors (or persons performing the equivalent function):

5.1 all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

5.2 any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ WU Yuxiang

WU Yuxiang

Chief Financial Officer

June 29, 2006

EX-13.1

EXHIBIT 13.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the annual report of Yanzhou Coal Mining Company Limited, a joint stock limited company incorporated in the People’s Republic of China with limited liability (the “Company”), on Form 20-F for the year ended December 31, 2005 as filed with the Securities and Exchange Commission (the “Report”), I, YANG Deyu, General Manager of the Company, certify, pursuant to §906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to the best of my knowledge: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ YANG Deyu

YANG Deyu

General Manager

June 29, 2006

*A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-13.2

EXHIBIT 13.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the annual report of Yanzhou Coal Mining Company Limited, a joint stock limited company incorporated in the People’s Republic of China with limited liability (the “Company”), on Form 20-F for the year ended December 31, 2005 as filed with the Securities and Exchange Commission (the “Report”), I, WU Yuxiang, Chief Financial Officer of the Company, certify, pursuant to §906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to the best of my knowledge: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ WU Yuxiang

WU Yuxiang

Chief Financial Officer

June 29, 2006

*A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-14.1

Exhibit 14.1

Minarco AsiaPacific Coal Industry Advisors

YANZHOU COAL MINING COMPANY LIMITED

Revised Independent Technical Review and Resource

and Reserve Assessment

May 2006

TABLE OF CONTENTS

1	INTRODUCTION			1
	1.1	Purpose of Report		1
	1.2	Capability and Independence		1
	1.3	Scope of Work		2
	1.4	Operating Cost Estimate Limitations and Exclusions		3
	1.5	Resource And Reserve Limitations and Exclusions		3
	1.6	Inherent Mining Risks		4
	1.7	Study Methodology		4
	1.8	Background to Chinese Coal Industry		4
2	[INTENTIONALLY LEFT BLANK]			5
3	ZHAO LOU PROJECT			5
	3.1	Data Available and Reviewed		5
	3.2	Site Visit		5
	3.3	Geology		6
		3.3.1	Regional Geology	6
		3.3.2	Exploration Methods	7
		3.3.3	Seismic Exploration	7
		3.3.4	Geological Hazards	7
		3.3.5	Coal Quality	9
		3.3.6	Product Coal	9
	3.4	Coal Resources		10
		3.4.1	Introduction	10
		3.4.2	Coal Resources	10
	3.5	Mining Hazards		11
		3.5.1	Geotechnical Issues	11
		3.5.2	Geological Issues	12
		3.5.3	Gas	12
	3.6	Mine Infrastructure And Equipment		12
		3.6.1	Mine Access	12
		3.6.2	Development	12
		3.6.3	Longwall	13
		3.6.4	Underground Coal Clearance	13
		3.6.5	Surface Coal Handling	13
		3.6.6	Power	13
		3.6.7	Mine Water/Dewatering	14
		3.6.8	Men and Materials Transport	14
	3.7	Mine Production		14
		3.7.1	Mine Capacity	14
		3.7.2	Mine Plan	14
		3.7.3	Mining Method	14

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	3.7.4	Forecast Production Summary	15
	3.7.5	Development	15
	3.7.6	Longwall Production	16
	3.7.7	Historical Development Rates	17
3.8	Coal Preparation and Handling		17
3.9	Coal Products		17
3.10	Social And Environmental		17
3.11	Coal Reserves		18
	3.11.1	Classification	18
	3.11.2	Modifying Factors	19
	3.11.3	Reserve Estimate	20
3.12	Operational Expenditure		20
	3.12.1	General	20
3.13	Capital Expenditure		21
3.14	Concluding Statement		22

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LIST OF TABLES

TABLE 3.1 - COMPARISON OF CHINESE CODE 1999 AND JORC 2004	10
TABLE 3.2 - TOTAL COAL RESOURCES AS AT JULY 2003 FOR THE ZHAO LOU DEPOSIT	11
TABLE 3.3 - TYPICAL ROADWAY DIMENSIONS	15
TABLE 3.4 - WORK UP OF DEVELOPMENT METERAGE	16
TABLE 3.5 - WORK UP OF LONGWALL PRODUCTION	16
TABLE 3.6 - ESTIMATED RESERVES FOR ZHAO LOU MINE	20
TABLE 3.7 - OPERATING COST COMPARISON – ZHOU LAO	21
TABLE 3.8 - ZHAO LOU CAPITAL EXPENDITURE	21

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1 INTRODUCTION

1.1 Purpose of Report

This report dated May 2006 is an update requested by HSBC Global Investment Banking, Honk Kong (“HSBC”) of the previous report dated June 2005 prepared by Minarco Asia Pacific Pty Limited (“Minarco”). The initial report was at the request of Yanzhou Coal Mining Company Limited (“Yanzhou” or “the Company”) for the purpose of providing an independent technical review and resource and reserve assessment of the following two coal projects:

• [Intentionally left blank].

• Zhao Lou Project - Located in Shandong Province PRC Underground longwall coal mining operation in early development stage. 1^st longwall coal production expected in December 2007.

This report has been prepared for the sole use of Yanzhou and its advisors. This report is confidential, is not a public report and is not to be used for any other purpose or disclosed to any parties without the prior written consent of Minarco.

This updated report has been specifically requested by HSBC of Hong Kong to incorporate changes to the mining progress at [Intentionally left blank] since the inspection and review carried out by Minarco in June 2005.

1.2 Capability and Independence

The Minarco team worked with Yanzhou and its advisors to complete the scope of work. Whilst the Minarco team worked with others, the views and opinions expressed in this report are those of Minarco. Details of qualifications and experience of the Minarco team are set out in Annexure A of this report.

Minarco operates as an independent technical consultant providing resource evaluation, mining engineering and mine valuation services to the resources and financial services industries.

Minarco principals have extensive experience in the coal industry. They have managed or participated in studies covering:

• Over 30 mines in China including mines in Shandong, Henan, Shanxi, Heilongjiang, Hebei, Jiangsu and Inner Mongolia;

• Projects in New Zealand, South Africa, Indonesia, India, Malaysia, Ukraine, Canada, USA, Colombia, Philippines, Thailand, and Africa;

• Projects in every state of Australia including over 60 New South Wales operating mines and projects and over 25 Queensland operating mines and projects.

This diverse experience covers all levels of mine assessment from designing exploration strategies through to final feasibility studies and coal market assessment. Minarco has extensive experience in independent reporting and valuation of mines and mineral resources for financiers and capital markets.

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Minarco has received and will receive professional fees for its input to this assignment. None of Minarco or its directors, staff or sub-consultants who worked on this project, however, has any interest in:

• The Company or its respective related bodies corporate; or

• The mining assets reviewed.

Drafts of this report were provided to Yanzhou, but only for the purpose of confirming the accuracy of factual material and the reasonableness of assumptions relied upon in conducting the scope of work. At the date of finalising the report, Yanzhou had not provided Minarco with any feedback regarding the accuracy of factual material.

Minarco reviewed the assets in accordance with the scope of work and exclusions and limitations stated in this report.

1.3 Scope of Work

The specific scope of work as agreed between Minarco and Yanzhou was as follows:

Resources and Reserves

• Provide comment on how the reported results (Chinese Standard) for Resources and Reserves compare with International Standards (i.e. JORC code)^#;

• Generate values for Resources and Reserves to International Standards (e.g. JORC Code).

Mining Approach

• Provide assessment on the technical mining aspects including designed capacity, development and mining layout and method for both of the mining projects;

• Provide comment on the production scheduling to support financial modeling by financial advisors; and

• Estimate capital and operating costs based on the reviewed production capacity and schedule. (Minarco has assumed in its agreed works schedule that detailed cost information would be provided, and the consultant’s role would be to verify the suitability of the cost estimates provided.)

Environmental and Social Liabilities

• Provide comment on the environmental, social and community liabilities associated with each coal project with respect to the mining strategy recommended; and

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• Provide comment on the suitability of the strategies proposed to address these issues (where a strategy has been proposed).

^# The JORC Code - Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code 2004 Edition) sets out minimum standards, recommendations and guideline for Public Reporting in Australasia of Exploration Results, mineral Resources and Ore Reserves. The Code is a required minimum standard for public reporting on the ASX, NSX, as well as many other global exchanges including the HKSE.

Minarco acknowledges that this information, in combination, will be used by Yanzhou and its advisors to prepare an asset valuation.

1.4 Operating Cost Estimate Limitations and Exclusions

The report was based mainly on information provided by Yanzhou, either directly from its mine sites and other offices, or from reports by other organisations whose work is the property of the Company.

The report is based on information made available to Minarco before 20^th June 2005. Minarco has been advised of a material change to its operations or forecasts on 10^th May 2006 for which this revised report has been issued.

The work undertaken for this report is a technical review of the information coupled with such inspections as Minarco considered appropriate to prepare the report. It specifically excludes all aspects of legal issues, commercial and financing matters, land titles, agreements; excepting such aspects as may directly influence technical, operational or cost issues.

In Minarco’s opinion, the information provided by the Company appeared reasonable and nothing discovered during the review suggested that there was any significant error, misrepresentation or omission in respect of that information.

The title of this report and any associated work does not pass to Yanzhou and may not be relied upon until all consideration has been paid in full.

1.5 Resource and Reserve Limitations and Exclusions

Geological coal resources at [Intentionally left blank] were estimated by the [Intentionally left blank] and reported in a geological report titled “Coalfield Geology Report for the [Intentionally left blank]” in March 2004.

Geological coal resources at Zhao Lou were estimated by staff of the Exploration and Research Institute of Coalfield Geology and Engineering, Shandong Province, (E&RI) in a geological report titled “Detailed Exploration Geology Report For Zhaolou Coalfield Shandong, China” dated July 2003. The actual field work was done by different teams who collected different types of exploration data, for example, seismic, geophysical interpretation, drilling etc. All the different teams actually belong to the same group known as the Coalfield Geology Bureau of Shandong, including the E&RI team.

Due to time constraints, McElroy Bryan Geological Services Pty Ltd (MBGS) has not re-estimated coal resources but presents an opinion based on a review of the existing coal resources at [Intentionally left blank] and Zhao Lou as estimated by the above mentioned

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organisations. As part of the process of the MBGS review, the methodology of the [Intentionally left blank] and Zhao Lou resource estimation was also compared to the Australian JORC code of December 2004. MBGS’ review of the coal resource data prepared by Yanzhou indicates that the consistent, thorough, detailed approach used to define those resources meets international standards.

1.6 Inherent Mining Risks

Coal mining, and in particular underground coal mining, is carried out in an environment where not all events are predictable.

Whilst an effective management team can, firstly, identify the known risks, and secondly, take measures to manage and mitigate these risks, there is still the possibility for unexpected and unpredictable events to occur. It is therefore not possible to totally remove all risks or state with certainty that an event that may have a material impact on the operation of a coal mine, will not occur.

1.7 Study Methodology

The study has been completed in several stages as follows:

• Data Collection and Review; The Minarco Team (or “the Team”) reviewed data in the Company prepared data room as well as interviewed Yanzhou’s technical representatives;

• Site Visit; Members of the team inspected the underground workings and surface facilities for the [Intentionally left blank] and also the surface facilities and construction works at the Zhao Lou Project in Shandong;

• Analysis; Following the site inspections, the Minarco team analysed the collected data and prepared this report;

• A DRAFT of the report was submitted to Yanzhou for review on the 15^th June; and

• Minarco submitted a final DRAFT to Yanzhou on the 20^th June.

The basis for the comments and forecasts in this report is information compiled by enquiry and verbal comment from the Company, cross checked where possible with hard data or by comment from more than one source. Where there was conflicting information on issues Minarco used its professional judgment. Generally, the data available was sufficient for Minarco to complete the scope of work. The quality and quantity of data available, in Minarco’s view, showed a willingness by the Company to assist the review process.

1.8 Background to Chinese Coal Industry

Included as part of this report, the following annexures provide background to resource and reserve classification and comparison between Chinese and International Standards:

• Annexure B: Chinese Coal Quality Definitions;

• Annexure C: Chinese resource and reserve classification.

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2 [INTENTIONALLY LEFT BLANK]

3 ZHAO LOU PROJECT

3.1 Data Available and Reviewed

The data reviewed was largely available to the Team at a data room established at the Company’s office in Zoucheng City, Shandong, PRC. A request for data was supplied to Yanzhou prior the site visit and Yanzhou compiled a significant portion of this information in the data room. The data was supplemented on request and the Team was allowed to take copies of selected information.

The data available at the data room included:

• General Exploration Report;

• Preliminary Design Report, prepared by the Coal Industry Ministry of Jinan Design and Research Institute, December 2004;

• Pre-feasibility Study Report;

• Detailed Exploration Geology Report For Zhao Lou Coalfield Shandong, China;

• The China National Standard For Resources/Reserves of Solid Fuels and Mineral commodities (GB/T 17766-1999);

• Design drawings, mine plans and geological structure plans.

Other data was also made available during mine site visits and the management of these mines and projects discussed issues and answered questions freely.

Where the Team received anecdotal evidence it endeavoured to cross check this evidence with different sources or from hard copy evidence. Unfortunately not all anecdotal evidence could be crossed checked. Where this occurred and an issue has been identified as being material, this has been indicated in the report.

3.2 Site Visit

The Technical Team visited the Zhao Lou project on the morning of 8^th June. The mine location is shown in Figure 3.1.

The technical team was assisted by the construction site deputy general manager Mr Fu Lingqiao. The technical team inspected the surface construction works and drove around the surface overlying the proposed mining area. The surface over the proposed mining areas is mainly flat farmland used to crop wheat and corn.

Construction was observed and progress confirmed. Three shaft heads supporting construction were in place and in operation and a number of buildings were under construction. The site was orderly and appeared to be managed effectively. Nothing was observed that would indicate that the construction progress was not as presented and would not proceed as forecast.

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3.3 Geology

3.3.1 Regional Geology

The Zhao Lou project is located within the Juye Coalfield that is approximately 100 km west of the Yanzhou Coalfield and 40 km east of the service town of Heze. The town of Jining is about 65 km east of Juye. The coalfield underlies an area of 1200 km² and contains a very large in situ coal resource in the order of billions of tonnes in two main fields separated by a block fault zone of some 500 ⁺m displacement. The Juye Coalfield is a broad basin bounded by a major fault to the east and by subcrop of the coal-bearing Permian strata under a thick (up to 750 metres) succession of Jurassic and/or Quaternary strata.

The Permian - Carboniferous coal-bearing sequence is the same as that mined at Jining and Yanzhou coalfields. A total of 20 coal seams (numbered 1-20 in descending order) are present – seams 1-3 are of Lower Permian age and seams 4-20 are Upper Carboniferous. Potentially mineable reserves almost entirely occur within the No.3 Seam which has an average thickness of 8 metres and similar structural complexity to the Jining and Yanzhou coalfields. The coal seams dip in a range from 5º to 10º with local steeply dipping zones up to 25º associated with known faults. The coal is a low ash, low sulphur, low phosphorus, high energy coal with an average apparent relative density of 1.37 taken over 29 sample points which, according to Yanzhou personnel is superior in quality to the products from other Yanzhou operations.

“Fat” coal and “1/3 coking” coal comprise more than 60% of the total resource. No.3 Seam occurs between 600 metres and 1,200 metres depth with most of the resource in No.3 Seam being at a depth of more than 800 metres.

The Zhao Lou project is well situated in relation to existing town, road and rail infrastructure and is approximately 400 km from port facilities.

At Zhao Lou, the upper split of 3 Seam is the main mining target. The seam splits into 3 Upper and 3 Lower in a limited area in the southern part of the lease area. The alternative split has been mined in both coalfields and Yanzhou Coal has plans to develop further operations in that split in the future. At Zhao Lou deposit a midburden parting thickness of 0.7 metre is used to define a seam split line.

All other seams appear to be thin and often have high sulphur contents – these seams appear to have no economic potential at this stage and have been excluded from any resource figures documented in this report.

The dominant regional major fault trend is NNW with the western side generally downthrown. Other strong fault orientations are northwest and northeast.

The Juye Coalfield, like Yanzhou and Jining, is characterised by low seam gas levels, low in situ horizontal stress, minor groundwater issues and complex geological structure.

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  The following geological features are typical of Yanzhou Coal’s Zhao Lou deposit:

• Deep multiple coal seams with only one seam presenting a potential mining target;

• Minor seam splitting and coalescing; and

• Minor seam wash outs.

The coal sequence mined at Zhao Lou as shown on Figure 3.2.

3.3.2 Exploration Methods

Exploration of the Juye area has been proceeding since the 1950’s, but has become more intensive over the last 5 years. Government regulations tend to force companies to pay for exploration drilling on a 500 metres × 500 metres grid, carried out by government-owned rigs initially with government geologists supervising and sending coal and rock samples to government-owned laboratories for analysis.

Once mine development was approved, Yanzhou Coal took over the exploration role and further drilling was undertaken as required. Geological data was collected at a standard that is equivalent to Australian coal industry best practice. Deep stratigraphic cored drill holes at Zhao Lou are located on a approximately 1,000 metres grid pattern.

Holes are logged using a down-hole geophysical sonde that provides gamma, density and caliper measurements. Coal seams are correlated and picked depths (roof and floor) entered into the geological spreadsheet.

3.3.3 Seismic Exploration

Seismic surveys have been conducted at Yanzhou Coal sites since the early 1980’s. Initially, 2D surveys gave increasingly improved resolution of structures and more recently 3D seismic surveys have become the main type of exploration at each mine site in advance of mining.

Despite the high incidence of faulting, the Yanzhou operations in other mine sites in the same coalfield appear to cope remarkably well and coal production rarely seems to be interrupted because of the faults.

3.3.4 Geological Hazards

Faults

Normal and apparent low angle reverse thrust faulting is common within the Zhao Lou deposit and then have been defined 3D seismic surveys. Faulting with displacements up to 100 metres is recorded on the geological and mine plans. Faulting appears not to result in significant interruptions to production in other similar mines owned by Yanzhou Coal and this is probably because the second longwall will be activated if faulting causes problems with the one wall.

Seam Washouts

Sandstone channels have eroded the top of No.3 Seam in the Jining Coalfield and locally in the Yanzhou Coalfield. The 1,000 metres drilling pattern has broadly identified areas where this has occurred, but that level of drill spacing will be insufficient if a network of narrow channels is present.

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Igneous Features

Five widely spaced drill holes in the north east part of the lease area intersected Seam 3 coal that was consistently intruded by igneous material probably forming part of an extensive sill system in that part of the lease.

Hydrogeology

Several aquifers are present in the overlying Jurassic strata and the geological reports contain reference to potential inrushes where major faulting provides connection between aquifers and No.3 Seam. During the preliminary appraisal, it was not ascertained whether the faulting in the Permian coal-bearing strata extends into the overlying Jurassic rocks. Hydrogeological issues require much closer scrutiny.

Seam Gas

According to Yanzhou Coal, seam gas content is low despite the depth of the No.3 Seam. Gas drainage is not practised as a regular part of other operations, but monitoring of the roadway ventilation is a regular practice. These are issues concerning the potential ignition of coal dust. These concerns need to be reviewed further however, with the general low methane content, the hazard to operations may not be severe. According to the Detailed Exploration report, the dust explosive risk is considered low and the gas content is very low. It is reported that gas content is extremely low and methane and carbon dioxide content is also extremely low.

Spontaneous Combustion

The relatively high temperatures in the mines because of the depth of mining, combined with coal in goaf and low rank of the coal could lead to potential spontaneous combustion conditions. Apparently a number of heating incidents have occurred in other mines in similar coalfields and have not caused much concern to those operations. In the Detailed Geology report it is stated that the risk of spontaneous combustion is very low.

In Situ Stress

The low horizontal stress levels apparent in the Yanzhou mines are quite remarkable by Australian standards considering the depth of the operations.

High vertical stress will probably be a feature of the mine as would be expected and the mine will have to manage that stress. The tectonic environment that influences the horizontal stress levels is different to that in Australian coal mines but the reason for the low stress at Yanzhou is not clear.

Seam 3 Roof and Floor Strength

Competent siltstone appears to mostly comprise the Seam 3 floor strata and is not thought to present any adverse mining conditions. The Seam 3 roof is composed of

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fine to medium grained sandstone of a variable thickness. Based on laboratory tests the rock unconfined compression strength (UCS) of the siltstone roof ranges from 60 to 120 MPa. It is suspected that because it is difficult to get UCS test results of weak rocks the apparent high UCS test results of roof strata is biased to the high end. Observations of a limited number of sonic logs provided by Yanzhou Coal indicated intervals of strata in the roof as weak as the Seam 3 coal (less than 10 MPa). The consistent ‘weak’ zone appeared to be approximately 10 metres above Seam 3 and be 10 to 15 metres thick. Leaving a coal roof in mining development roadway should provide a secure roof.

Seam 3 floor test results indicate rock strength ranges between 12 to 20 Mpa.

3.3.5 Coal Quality

Yanzhou Coal technical staff processes and validates all coal core analyses carried out using standardized testing procedures. This data was reported in detailed tables in appendices of the geology report. Testing includes Relative Density (RD) Proximate analysis, Specific Energy, Total Sulphur and Ash Fusion Temperature.

Average raw coal quality parameters for No. 3 Upper are as follows:

Moisture	1.57% air dried
Ash	14.61% air dried
Volatiles	36.41% daf
Sulphur	0.53%
Phosphorous	0.019%
Specific Energy	29.05MJ/kg
Ash Fusion Temperature	>1350 degrees ST (Degrees Celsius)
Free swelling index	3.5 to 6.5

3.3.6 Product Coal

Washed coal product for No. 3 Upper is anticipated to be as follows:

Moisture	1.45% ad
Ash	6.65% ad
Volatiles	36.69%daf
Sulphur	0.45%
Phosphorous	0.011%
Specific Energy	32.36MJ/kg
Ash Fusion Temperature	>1350 degrees ST (Degrees Celsius)

Based on a single washability curve presented in the Detailed Exploration report it would appear that the best yield is obtained between density cut points approximately 1.4 to 1.6 producing a yield of 70% at approximately 9% ash.

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3.4 Coal Resources

3.4.1 Introduction

Geological coal resources were estimated by staff of the Exploration and Research Institute of Coalfield Geology and Engineering, Shandong Province, (E&RI) in a geological report titled “Detailed Exploration Geology Report for Zhao Lou Coalfield Shandong, China”. These coal resources were not validated or audited by the Team, however, the process and procedures used by E&RI to estimate them were assessed. Based on discussions and viewing of plans and cross sections presented at the data room it was assessed that the coal resources as stated by Yanzhou Coal for 2003 at Zhao Lou were fairly represented and reported.

3.4.2 Coal Resources

Chinese Classification

Chinese resource and reserve classifications follow strict criteria laid down by the Ministry of Land and Resources and are subject to annual re-estimation and review. The following criteria are applied to Chinese resources estimation:

• Minimum seam thickness of 0.70 metre;

• Exclusion of dirt bands > 0.05 metres in seam thickness;

• Maximum depth 1,000 metres;

• Exclusion of highly weathered coal;

• Estimation in relatively small block areas, utilising drill hole thickness; and

• Application of a seam specific conversion factor based on experimental results.

Coal is then classified into one of the four categories, A, B, C, or D with category A being based on the highest density of drill hole spacing and therefore having a higher degree of confidence. A new classification system (Classification for Resources/Reserves of Solid Fuels and Mineral Commodities GB/T 17766-1999) which is equivalent to international standards was implemented on 1 December 1999. The various criteria have been examined and compared to the classification nomenclature of Australia Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves (2003) and the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, (The JORC Code 2004 Edition), and considers the Chinese system to be approximately equivalent to the Australian code summarised in the Table 3.1.

Table 3.1 - Comparison of Chinese Code 1999 and JORC 2004

Chinese System	JORC Code 2004	Criteria
A	Measured	Drill hole spacing approx 500 metres
B	Indicated	Drill hole spacing approx 750 metres
C	Inferred	Drill hole spacing approx 1500 metres
D	Inferred	Limited drill holes and other data

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Resources for Zhao Lou are quoted from the “Detailed Exploration Geology Report for Zhao Lou Coalfield Shandong, China”.

Coal Resources were classified as Category A, B, C or D to reflect the confidence in the underlying geological data. Coal resources were delineated by applying various limiting factors to the geological model: Total coal resources are summarised in Table 3.2.

Table 3.2 - Total Coal Resources as at July 2003 for the Zhao Lou Deposit

Chinese Classification for Coal Reporting System	A	B	A Plus B	C	Total
Approx. Aust. JORC equivalent	Measured (Mt)	Indicated (Mt)	(Mt)	Inferred (Mt)	(Mt)
3 Upper Seam
Less than 850 m cover	31.018	57.002	88.020	91.759
850 to 1000 m cover	23.470	46.694	70.164	92.533
1000 to 1200 m cover	—	—	—	8.731
Subtotal	54.488	103.696	158.184	193.023
Subtotal A+B+C					351
3 Lower Seam
Less than 850 m cover	—	4.925	4.925	1.829
850 to 1000 m cover	—	4.731	4.731	8.592
1000 to 1200 m cover	—	1.019	1.019	4.547
Subtotal	—	10.675	10.675	14.968
Subtotal A+B+C					26
Total 3 Seam (Upper+Lower)	55	114	169	208	377

Note 1: C Resources have been included in subtotals and final totals because of an implied higher degree of confidence even though they are regarded as Inferred Resources

Note 2: Total 3 Seam (Upper+Lower) resources have been rounded to whole numbers

Note 3: Resources in fault barriers estimated by Yanzhou not included in above table

Because over 50 percent of the coal resources are provided by Inferred C category resources (208 Mt) out of a combined total 377 Mt. Additional exploration should be carried out for confirmation to increase the value of the project.

3.5 Mining Hazards

3.5.1 Geotechnical Issues

The proposed depth of mining at 900 metres introduces specific geotechnical issues with respect to strata stresses surrounding mine openings. Studies and experience show that the coal strata exhibits low stresses even at considerable depths. Suitably sized coal pillar sizes for barriers alongside the longwall panels have been designed at 4 metre widths.

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The resource area is intersected by a number of faults which may exhibit weaker strata conditions surrounding the fault plane. It is not proposed to extract coal within nominated barriers surrounding these faults. The size of these barriers increases as the displacement of the coal seam increases.

The No. 2 seam is approximately 21 metres above the No.3 Upper section which is the targeted mining horizon. Testing has indicated that the No.2 seam is potentially prone to spontaneous combustion. During the LTCC process this seam will collapse together with the immediately overlying strata into the mined out area. The single entry longwall mine plan has taken into consideration this hazard by reducing the likelihood of any air migration into the mine out areas.

The depth of mining will be subject to increased strata temperatures. Although not principally a geotechnical issue the mining environment will be hot and humid. Refrigeration has been allowed in the mine design and costings to provide a comfortable working environment to avoid heat stress.

3.5.2 Geological Issues

The upper strata consists of poorly consolidated Quaternary material containing water. The interface between this strata and the lower Permian coal measures strata is variable and the nature of water bearing aquifers is not precisely known. Flows have been found to be variable across the resource area, however it is predicted that water flows will be high on initial strata breakage and then subside. Further tests have been recommended by the design institute.

A number of exploration drill holes have not been able to be fully sealed due to the unconsolidated strata and water. This is a potential inrush hazard if these holes are intersected by the mine operations. Procedures are required for safely mining through these borehole zones.

3.5.3 Gas

The coal seam gas content is low and has been identified as predominantly nitrogen with minimal methane present. Advantage of the seam gas composition can be taken to manage spontaneous combustion risk.

3.6 Mine Infrastructure and Equipment

3.6.1 Mine Access

The mine will be serviced by three surface to underground vertical shafts. These provide coal clearance, men and materials access and ventilation. The shafts should be sufficient to support the operation of the mine and the planned production schedule.

3.6.2 Development

Development is facilitated using 3 continuous miner units and a drill and blast unit.

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The proposed development plan, equipment and methods are suited to the mining conditions and geological nature of the resources and support the forecast production and cost schedules.

3.6.3 Longwall

There are two LTCC faces which management indicated are both identical. The cut height is around 3.0 metres, with the remaining coal caved on the rear conveyor. The longwall face widths are typically 220 metres. The design capacity of each LTCC face is 2.9 Mtpa.

The proposed longwall layout, equipment and methods are suited to the mining conditions and geological nature of the resources and support the forecast production and cost schedules.

3.6.4 Underground Coal Clearance

Trunk Conveyor System

Coal is transported from the working faces to the Main Winding Shaft via belt conveyors which feed into two underground 1,500 tonne bulk bins which feed to the shaft skip loading equipment. The conveyors are 1,400 mm wide operate at a speed of 4 m/s and a have a capacity of 3,000 tph.

Winding Shaft

The main coal winding shaft has a designed capacity of 6.8 Mtpa. The winding hoist uses 4 skips each of 61 tonne capacity. Management indicated that the shaft hoisting systems actual capacity is closer to 8 Mtpa. These figures are confirmed in the engineering reports reviewed.

Minarco considers the proposed coal haulage system to be of sufficient capacity to support the forecast production schedule.

3.6.5 Surface Coal Handling

Coal will be transported from the hoisting shaft to a fully enclosed raw coal stockpile. Coal is recovered from this stockpile and fed by conveyor to the coal preparation plant. Product coal is stored in concrete bins before being loaded onto trains for transport to market. The proposed system is typical for a mine of this type and size and should support the production plan.

3.6.6 Power

Power will be delivered to the mine’s industrial area at 110 kV. A substation located in the industrial will reduce voltage to 35 kV before feeding underground. Minarco considers this sufficient to support the production estimates.

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3.6.7 Mine Water/Dewatering

The strata above the seam is water bearing and tests have shown that there is potential for high water flows on initial breakage of strata. The total water make into the mine is estimated to be n the order of 2.5 kl/second. Pumping systems including high capacity pumps have been selected to control the expected mine water make.

The proposed sequence of mine development and extraction is to progressively work up dip. This will place any flooded extracted areas on the lower side of the current mining areas.

3.6.8 Men and Materials Transport

Transport of mine personnel and supplies will be by a rail network using electric locomotives. All personnel, equipment and materials will enter the mine by the 7.2 metre diameter main shaft. The dimensions of the winding cage and hoisting capacity have been determined by the design institute to satisfy the selected mining equipment type to be established at the mine.

The transport roadway is designed to be partially within the No.2 seam and mid burden strata between the No.3 Upper and No.2 seams to ensure that gradients are within acceptable limits for rail equipment.

3.7 Mine Production

3.7.1 Mine Capacity

Working Time

The designed mine capacity, based on traditional Chinese standards is calculated based on:

• 300 days per year;

• 14 hour winder hoisting; and

• 2 shifts per day and one shift for maintenance.

In effect the mine is operated 365 days per year and the number of days lost for maintenance etc is actually a lot less than that implied by the regulated criteria. In reality it is typical for mines to produce on a minimum 330 day per schedule. In this way design estimates are very conservative for an experienced operator such as Yanzhou.

3.7.2 Mine Plan

3.7.3 Mining Method

The mining method will consist of twin LTCC faces for production supported by continuous miners developing coal roadways, and drill and blast faces developing roadways in stone, and stone/coal sections. The plans indicate that there will be 3 coal drivage units and 1 drill and blast faces. Where necessary a drill and blast face will also be used in the stone/coal sections. The typical cross sectional areas of the main roadways, are given in Table 3.3. This information is based on the Jinan Design Institutes Detailed Engineering Report. The typical mine plan is shown in Figure 3.3.

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Table 3.3 - Typical Roadway Dimensions

Roadway Type	Cross Sectional Area (m2)
Coal Drivage Service Road	12.0
Coal Drivage – Conveyor Road	13.0
Face Installation	10.7

Production rates given in the following sections, and also in the detailed schedule are based on the cross sectional areas as identified in Table 3.3.

3.7.4 Forecast Production Summary

Management indicated that total mine ROM production is planned to be 6.0 Mtpa with the operation of two LTCC faces. This is well above the designed capacity of the mine which is stated at around 3.0 Mtpa.

The planned production estimate is reasonable with the operation of two high production sections. All service and coal transport systems are designed for the higher rate of production.

3.7.5 Development

Description

The mine plans to use continuous miner units for coal development and drill and blast for development in stone. In addition some development will be done in both coal and stone, and this will be done using drill and blast methods.

Development Capacity

It was indicated by management that typical development rates are:

• Coal drivage – Planned 300 - 400 metres per month compared with designed 250 metres per month;

• Stone drivage – Planned 200 metres per months compared with designed 80 to 100 metres per month; and

• Combined Coal/Stone drivage – Planned 250 metres per month compared with designed 125 metres per month.

Management stated that there will be three units in coal, one in stone and one in combined coal/stone drivage.

Table 3.4 shows a work up of the development metres given the information provided by management.

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Table 3.4 - Work up of Development Meterage

	Development in Coal	Development in Stone	Development in Stone/Coal
Units per shift	3	1	1
Shifts per day	3	3	3
Days per week	7	7	7
Days per year	330	330	330
Design Capacity	250	80	80
Planned Meterage per Month per unit	350	250	150
Typical Cross Sectional Area (m2)	13	13	13
Annual Meterage	12,600	3,000	1,800
Average Relative Density	1.4	2.5	2.5
Annual Tonnage	229,320	97,500	58,500

The rate of development is considered reasonable for the mining conditions which will include periodic excavation through fault planes. The total annual metres developed is able to support the operation of two LTCC faces with sufficient trunk service road advance in stone as well as longwall gate road development in coal.

3.7.6 Longwall Production

For cutting heights of 5 metres the typical rate of retreat for a longwall is 150 metres per month. Approximately 2.75 Mtpa or 9,200 tonnes per day is therefore a minimum targeted output.

The actual designed capacity of the longwall unit has been stated at 4,800 tonnes per shift based on a 14 hour per day shaft hoisting operation. Management has indicated that total actual production (as aside from designed capacity) from the mine will be assessed from a 16 hour day and 330 days per year. Based on this, and using back analysis, Minarco has calculated that the actual possible tonnage from each longwall unit will be 10,960 tonnes per day. The results of the back analysis is shown in Table 3.5.

Table 3.5 - Work up of longwall production

	Longwall Coaling
Units per shift	2
Shifts per day	3
Days per week	7
Days per year	330
Design Capacity (T/shift)	4,800
Design Capacity (T/day)	9,600
Actual Capacity (T/shift)	5,480
Actual Capacity (T/day)	10,960
Actual Capacity (T/mth)	301,675
Annual Tonnage	3,620,100

The potential combined capacity of two longwall faces exceeds the planned mine output of 6.0 Mtpa. All coal conveying and shaft hoisting has been designed to exceed 8 Mtpa capacity. The planned longwall output of 6.0 Mtpa is considered to be realistic and readily achieved.

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3.7.7 Historical Development Rates

The proposed mining rates are derived from historical performance at the company’s mines where 6 Mtpa is readily obtained in their LTCC faces.

3.8 Coal Preparation and Handling

No information on coal preparation was made available.

3.9 Coal Products

No information on coal products was made available.

3.10 Social And Environmental

Environmental Footprint

• The total surface area of the lease is 145 km²;

• The No. 3 seam covers 91 km²;

• The industrial area is 36 Ha.

The key surface facilities include a service building, general office, office for underground staff, catering facilities dormitory facilities, main shaft and service shaft and associated infrastructure, return shaft, CHPP, raw coal undercover stockpile, and product coal handling and train loading facilities.

As the mine is an underground mine employing full extraction methods, there will be subsidence of the surface above and adjacent to longwall panels.

Social Issues

There are a total of 26 villages over the lease area. In the first mining area there are 2 villages that may be adversely impacted by subsidence. The villages are typical for the region and consist of a small number of dwellings constructed from mud and light bricks. Under the compensation package approved by the government, all the people living in these villages will be relocated to a new town. The town is located approximately 5 km from the current mine pit top area. Centralising small village populations is a policy supported by the government and by placing people in centralised accommodation village land is freed up for productive farm use. Centralising smaller populations also allows for better facilities such as schools.

As with most poorer rural areas in PRC, the population of the villages see the introduction of mining to their region as being positive. The mine is seen as providing employment and business opportunities. Minarco has observed this situation with many projects in PRC and the view of the local residence in this case was provided by management.

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Subsidence

Management indicated that there are three options for dealing with subsidence issues:

1. Fill the subsidence trough with Washplant and stoned drivage refuse;

2. Allow the trough to fill with water and pond; and

3. Leave as farming land.

Given that the subsidence is only going to be in the order of 1.5 to 2.0 metres, management indicated that it is likely that option 3 will be suitable for most of the area subsided.

Water Management

The mine will produce significant water from its underground mining operations. Management indicated that water from the mine will be used for:

1. Fire suppression underground;

2. In the CHPP; and

3. For everyday use on the surface.

Polluted water from the mine will be treated then released into the adjacent river.

Noise Dust Etc.

For other issues relating to noise dust and water, management indicated the mine will comply with national standards.

Minarco feels that management has adequate strategies in place to address the environmental and social issues that it faces and that there could be a net positive impact for local residents.

3.11 Coal Reserves

3.11.1 Classification

The coal reserves have been estimated within areas that have been interpreted as Measured and Indicated Resources. These resources have been identified in Section 3.4.

To convert resources to reserves it must be demonstrated that extraction could reasonably be justified after applying reasonable investment assumptions. Appropriate consideration of mining, processing, economic, environmental, social and government factors are considered in the estimation of the reserves. These are termed “Modifying Factors”.

The highest confidence level established Proved Reserves from Measured Resources and a lesser level of confidence establishes Probable Reserves from Indicated Resources. A level of uncertainty in any one of the Modifying Factors may result in Measured Resources converting to Probable reserves depending on materiality. A high level of uncertainty in any one or more of the Modifying factors may exclude the Resources from conversion to Reserves.

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3.11.2 Modifying Factors

Barriers and Exclusion Zones

A 40 metre wide barrier to mining has been established around the perimeter of the lease boundary. Variable width barriers are also provided around faults depending upon their throw interpreted from 3D seismic exploration.

The various barriers are:

•      Faults equal to or greater than 100 metres	100 metre barrier;
•      Faults between 50 metres and 100 metres	50 metre barrier;
•      Faults between 30 metres and 50 metres	30 metre barrier;
•      Fault less than 30 metres	No barrier.

A barrier of 400 metres to 500 metres has been established along the subcrop line to the west of the resource area. Fractured and eroded sections of strata associated with the different periods of deposition have been interpreted from lost drilling fluid.

Mining exclusion zones have been established around the mine shafts and beneath the surface industrial complex. The area of this barrier is determined by the depth of the various stratigraphic sequences and an angle of draw extended from 15 metres outside the surface of the structure.

No major railways or roads are within the recognised resource area.

Mining Assumptions

The mine layout has been prepared in areas defined as Measured and Indicated Resources. The layouts take into consideration the known constraints. Typical layout assumptions for the No.3 Upper Seam reserve estimation include:

•      LTCC panel face width	220 metres
•      Longwall panel length	1,065 metres – 3,300 metres
•      Roadway width	4.2 metres
•      Roadway height	3.0 metres
•      Barrier between longwall panels	4 metres

Dilution Quality

Out of seam dilution form the floor and roof strata during longwall extraction are:

Floor

•      Dilution material	25 mm
•      RD of stone	2.4
•      Out of seam dilution ash	100%

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Roof

•      Dilution material	5%
•      RD of stone	2.5
•      Out of seam dilution ash	100%

Coal Loss

Typical recovery factors applied to the LTCC method include:

•      Longwall cutting face	95%
•      Rear caving and recovery	80%

Moisture Adjustment

The Recoverable Reserves have been adjusted from an average air dried coal moisture of 1.57% to a ROM moisture of 5% following the mining process.

3.11.3 Reserve Estimate

The Recoverable Reserves were estimated from a mine layout that took into consideration all barriers and exclusion zones. The tonnages have been estimated from an averaging of seam thicknesses within defined polygons of the resources over which a mine plan can be reasonably be prepared in consideration of the proposed mining method. Due to the presence of faulting, incomplete coal washability testing over the resource area and irregular spacing of drill holes all reserves have been classified as Probable. Table 3.6 shows the estimated Reserves for the mine within the existing knowledge of exploration. A global 68% yield has been applied to the Reserves.

Table 3.6 - Estimated Reserves for Zhao Lou Mine

Area	Proved (Mt)	Probable (Mt)	Recoverable Reserves (Mt)	Product (Mt)	Product Ash (Mt)
South Area	—	65.0	65.0	42.2	7.12
West Area	—	40.9	40.9	26.5	7.10
Total	—	106.4	106.0	68.7	73.11

3.12 Operational Expenditure

3.12.1 General

Using the assessment carried out and reported in this report, Minarco has independently reviewed the operating cost forecasts provided by the Company.

Minarco has extensive experience at forecasting costs in Chinese coal mines and has developed a comprehensive cost forecasting model which has been calibrated against actual costs for a number of operations in varying geological conditions. Table 3.7 Shows Minarco’s and the Company’s forecasts. The difference of 5.73% is not considered to be material and is within the accuracy implied by the level of supporting documentation. Minarco therefore concludes that the operating cost forecast provided by the Company and used in the valuation model are reasonable.

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Table 3.7 - Operating Cost Comparison – Zhou Lao

OPERATING COSTS	Minarco	Feasibility Study		Difference
Labour
Wages	5.03	7.54	7.54	0.00	%
Benefits	2.51
Materials	19.03	19.03	19.00	0.16	%
Timber	0.90
Development Consumables	6.63
Explosives	0.07
Large Items	5.00
Spare Parts	3.00
Tools	0.20
Coal for Own Use	0.02
Health and Safety	0.20
Building Materials	0.50
Fuel and lubricants	0.50
Other	2.01
Adjustment (inventory)	0
Electricity	15.60	15.60	16.46	-5.22	%
Depreciation	0.00	0.00
Future development contribution	2.50	2.50	2.50
Expansion Funding	3.00	3.00	3.00
Maintenance	8.00	8.00	7.89	1.39	%
Subsidence Compensation	7.44	7.44	8.50
Other	20.70	20.70	24.01	-13.81	%
Total FOR	83.81	83.81	88.90	-5.73	%

The costs in Table 3.7 relate to a typical year at design capacity production of 6.0 Mtpa. They are in June 2005 currency.

3.13 Capital Expenditure

Minarco obtained detailed capital expenditure estimates from the company as outlined in the detailed design report prepared by the Jinan Design Institute. The costs reported in this detailed document are on average 33% higher than those recorded in the feasibility study reflecting the increased equipment and infrastructure requirements following further investigations and an improved understanding of the resource. The final capital expenditure estimates as provided in the detailed design report are given in Table 3.8.

Table 3.8 - Zhao Lou Capital Expenditure

Capital Expenditure Detailed	(RMB x 104)	RMB (Million)
Underground Construction	59,390.0	593.9
Surface Buildings	11,874.0	118.7
Equipment Installation	15,020.0	150.2
Equipment Purchase	56,416.0	564.2
Other	41,485.0	414.9
Planning & Design	16,220.0	162.2
Total	200,405.0	2,004.1

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Minarco found that capital expenditure for the project is supported by the appropriate level of feasibility study and engineering design.

3.14 Concluding Statement

Minarco concludes from the review that for Zhao Lou:

• The Coal Resources and Reserves which have been calculated according to Chinese standards have been correlated with the definitions in accordance with the JORC code;

• Production forecasts provided by the Company are based upon adequate geological and geotechnical data taking proper account of mining conditions;

• The assumptions used in estimating production volumes, yields, operating costs and capital costs are appropriate and reasonable;

• Capital and operating costs used in the financial models reflect the mine plans, development and construction schedules as well as the forecast production levels;

• Capital expenditure for the projects is supported by the appropriate level of feasibility study and engineering design;

• The projects are well managed by effective and capable people from within the Company, who understand mining and production risks;

• The Company’s mining equipment (either in place or planned in the capital forecasts, provided by the Company or provided by contractors) is suited to the mine plans and supports the production levels forecast; and

• The environmental issues are well managed and there were no issues identified that could significantly impede production.

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ANNEXURE A

QUALIFICATIONS AND EXPERIENCE OF MINARCO TEAM

David Meldrum – Managing Director, Minarco Asia Pacific

• Bachelor of Engineering (Mining – Hons), First Class Mine Managers Certificate of Competency

• Graduate Diploma in Applied Finance, Chartered Professional of Australasian Institute of Mining and Metallurgy, Member of the Australian Institute of Company Directors and Member of the CEO institute of Australia.

David has a First Class Mine Managers Certificate of Competency with over 16 years experience associated with the mining industry within Australia and overseas. During this period he has undertaken all levels of technical studies and audits of current and prospective operations in Queensland, New South Wales, South Australia, China, South Africa and Indonesia. Apart from providing advice to numerous financiers, David has finance industry experience having been an Investment Banker and having carried out studies for both lenders and investors.

David concentrates on providing technical and commercial advice to both the coal and finance industries. This work includes advising clients on the sale and/or purchase of coal projects and has involved development of business strategies to maximise the value of the opportunities. David also has extensive experience in reserve estimation.

Phil Mitchell – Senior Manager Engineering, Minarco Asia Pacific

• Bachelor of Engineering, Mining – University of Sydney, Bachelor of Science – University of Sydney

• First Class Mine Managers Certificate (Coal) – NSW & Queensland, Graduate Diploma in Applied Finance, Member of Australasian Institute of Mining and Metallurgy

Phil has over 25 years experience in the mining industry and is experienced in mine planning and design; cost and capital budgeting; ventilation design, fan specification and hazard planning for underground operations. Phil has undertaken a range of mining assignments from conceptual mine planning through to final feasibility, and has been involved in mine development, construction and operations. He has been involved extensively in due diligence and independent technical reviews for companies preparing for IPO’s in the last two years.

Charles Parbury – Director, MBGS

• Bachelor of Arts (Honours), Geology, Macquarie University. Member of Australian Institute of Mining and Metallurgy Australia

Charles has had over 25 years experience as a geologist and has worked internationally on coal related mining operations and exploration programs in Australia, the Philippines, Thailand, New Zealand and Indonesia. He has completed many resource estimation programs and was a key member of the team that completed the competent persons report for Xstrata for the London Listing.

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Andrew Ryan – Mining Engineer/Analyst, Minarco Asia Pacific

• Bachelor of Engineering, Mining – University of New South Wales, Graduate Member of Australasian Institute of Mining and Metallurgy

Andrew has worked with Minarco over the past 4 years and has been actively involved in all areas of coal consulting. Most recently he was involved in a due diligence project in China, and has also been actively involved in ongoing due diligence and technical advisory work in Australia for a Chinese Client. Andrew managed the development of Minarco’s new generation in house mine cost analysis system and currently manages the preparation of Minarco’s annual coal mine cost studies.

Wentao Han – Senior Geologist, MBGS

• Bachelor of Petroleum Engineering, Petroleum Institute, Daqing; Member of Society of Petroleum Engineers

Wentao has had over 15 years experience as a geologist and has worked on hydrocarbon potential of sedimentary basin deposits in China. He has completed many technical feasibility studies of petroleum resources as a consultant for investment companies. More recently has began working on coal related projects in Australia. He is a native Mandarin speaking Chinese with fluent English skills.

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ANNEXURE B

CHINESE COAL QUALITY DEFINITIONS

		Category Index
Category	Code	V.M. (%)	G.R.I	Y (mm)	b (%)	PM (%)	S.E. gar (MJ/kg)
Anthracite	WY	£10.0
Meagre coal	PM	10~20	£5
Meagre and lean coal	PS	10~20	5~20
Lean coal	SM	10~20	20~65
Coking coal	JM	20~28	50~65
(Major hard coking coal)		10~28	>65	£25	£150
Fat coal	FM	10~37	>85	>25
1/3 coking coal	1/3JM	28~37	>65	£25	£220
Gas and fat coal	QF	>37	>85	>25	>220
Gas coal	QM	28~37	50~65
		>37	>35	£25	£220
1/2 medium caking	1/2ZN	20~37	30~50
Weak caking	RN	20~37	5~30
Non-caking	BN	20~37	£5
Longflame coal	CY	>37	£35			>50
Lignite	HM	>37				£30
		>37				30~50	£24

Note:	Y	max. thickness of plastic layer
	B	coke property
	PM	reflectance

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ANNEXURE C

CHINESE RESOURCE AND RESERVE CLASSIFICATION

Chinese Classification

Chinese resource and reserve classifications follow strict criteria laid down by the Ministry of Land and Resources and are subject to annual recalculation and review. The following criteria are applied:

• Minimum seam thickness of 0.70 metres;

• Exclusion of dirt bands > 0.05 metres in seam thickness;

• Maximum depth 1,400 metres;

• Exclusion of highly weathered coal;

• Calculation in relatively small block areas, utilising borehole thickness; and

• Application of a seam specific conversion factor based on experimental results.

Coal is then classified into one of the four categories, A, B, C or D, with category A attracting the highest degree of confidence. A new classification system (Classification for Resources/Reserves of Solid Fuels and Mineral Commodities GB/T 17766-1999) which is equivalent to international standards was implemented on 1 December 1999. During the transition period both classification systems have been used in coal mines, however nearly all the coal mines are familiar with the old Code rather than the new Code. Minarco has examined the various criteria applied and using the classification nomenclature of Australia Guideline for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves (2003 Edition) and Australia Code for Reporting of Mineral Resources and Ore Reserves, September 1999 (The JORC Code), consider the following entries in Table AF1 and Table AF2 approximate equivalents.

Table AF1 - Comparison of Chinese Old Code and JORC Resource Classifications

Chinese System	JORC Code	Criteria
A	Measured Resource	Borehole spacing approximately 500 metres
B	Indicated Resource	Borehole spacing approximately 750 metres
C	Indicated Resource	Borehole spacing approximately 1,500 metres
D	Inferred Resource	Limited borehole and other data

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Table AF2 - Comparison of Chinese New Code and JORC Reserves Classifications

	Total Identified Mineral Resources			Undiscovered Resource
Degree of Economic	Measured	Indicated	Inferred	Reconnaissance
Economic	Proved extractable Reserve (111) Basic Reserves (111b)			Resource (334) ?
	Probable Extractable Reserves (121) Basic Reserves (121b)	Probable Extractable Reserves (122) Basic Reserves (122b)
Marginal Economic	Basic Reserves (2M11)
	Basic Reserves (2M21)	Basic Reserves (2M22)	Resource (333)
Sub-marginal Economic	Resource (2S11) Resource (2S21)	Resource (2S22)
Intrinsic Economic	Resource (331)	Resource (332)

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EX-99.1

EXHIBIT 99.1

Statement explaining how earnings per share information was calculated in this annual report

The calculation of the earnings per share attributable to the equity holders of the Company for the year ended December 31, 2005, 2004 and 2003 is based on the income attributable to the equity holders of the Company of RMB2,881,461,000, RMB3,154,317,000 and RMB1,386,686,000 and on the weighted average number of 4,918,400,000 shares, 4,743,606,557 shares and 4,592,000,000 shares in issue, respectively, during the years.

The weighted average number of ordinary shares for the purpose of calculating basic earnings per share for all the period presented has been adjusted for the bonus issue of the Company on July 27, 2005.

The earnings per ADS have been calcualted based on the net income for the relevant periods and on one ADS being, equivalent to 50 shares, which has been adjusted for the bonus issue of the Company on July 27, 2005.

No diluted earnings per share has been presented as there are no dilutive potential shares in issue during the years ended December 31, 2005, 2004 and 2003.