CStone Pharmaceuticals — Annual Report 2005

Apr 24, 2006

兗州煤業股份有限公司 YANZHOU COAL MINING COMPANY LIMITED

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

(Stock Code: 1171)

ANNUAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER, 2005

The Company is pleased to announce the operating results of the Company for the year ended 31st December, 2005:

• The Company’s net sales for the year ended 31st December, 2005 was RMB11,516.9 million (approximately US$1,428.1 million, or HK$11,068.9 million), an increase of RMB941.8 million (approximately US$116.8 million, or HK$905.2 million), or 9.6% as compared with the 2004 net sales of RMB10,575.1 million (approximately US$1,277.7 million, or HK$9,941.8 million).

• The Company’s income attributable to the equity holders for the year ended 31st December, 2005 was RMB2,881.5 million (approximately US$357.3 million, or HK$2,769.4 million), a decrease by 8.6% as compared with the that 2004 of RMB3,154.3 million (approximately US$381.1 million, or HK$2,965.4 million).

• To reward the Shareholders for their long-term support to the Company, the board of Directors proposes to declare a special cash dividend to the Shareholders for the year 2005 in addition to the cash dividend payable in accordance with the Company’s consistent dividend policy. The 2005 cash dividends payable in accordance with the Company’s consistent dividend policy are RMB737.7 million (tax included) (approximately US$91.5 million, or HK$709.0 million) or RMB0.150 per share (tax included) (approximately US$0.0186, or HK$0.1441); and the 2005 special cash dividends payable are RMB344.3 million (tax included) (approximately US$42.7 million, or HK$330.9 million) or RMB0.070 per share (tax included) (approximately US$0.0087, or HK$0.0673). The above dividends totally amount to RMB1,082.0 million (tax included) (approximately US$134.2 million, or HK$1,039.9 million) or RMB0.220 per share (tax included) (approximately US$0.0273, or HK$0.2114). The proposed dividends payment will be presented to the Shareholders for approval at the Company’s annual general meeting for 2005, and will be paid to all Shareholders within two months after the annual general meeting (if so approved).

In the year 2005, due to the delay in resettlement of certain of the villages located within certain of the coal filed of the Yanzhou Coal Mining Company Limited (the “Company” or “the Company”), the raw coal production of the Company decreased. However, with the great support of all the shareholders and through the hard work of our staffs, the Company has achieved good income results and the income attributable to equity holders of the Company for the year 2005 was RMB2,881.5 million, representing a decrease of 8.6% over that of 2004. The audit committee of the Company has reviewed the results of the Company for the year 2005.

In 2005, in both domestic and overseas coal markets, demand and supply thrived, prices recorded a significant increase.

1

In 2005, the Company produced 34.66 million tonnes of raw coal, representing a decrease of 11.5% over that of 2004; sold 32.48 million tonnes of saleable coal, representing a decrease of 14.5% over that of 2004. The average coal sales price of the Company was RMB349.50 per tonne, representing a 28.3% increase over that of 2004. In 2005, the Company realized a net income attributable to equity holders of the Company of RMB2,881.5 million, representing a 8.6% decrease over that of 2004.

In 2005, the Company focused on the implementation of a series of operation measures to stabilize its existing coal output and sales volume, to strengthen the “Four Optimizations” for the sale of coal and to tighten its cost control. These measures include i) enhancement of efforts to decrease the negative impact caused by the delay in the resettlement of the villages located within the coal field of the Company and after a sharp decrease in the third quarter; the raw coal production of the Company gradually increased month by month in the fourth quarter of 2005. ii) reduction of the sales cost and increase product selling prices by optimizing its products mix, users mix, transportation structure and port flow structure; iii) improving the product reputation and competitive capability of the Company by continuously implementing the “Three Nil Project” (Nil Defect, Nil Impurity and Nil Claim) thereby decreasing the impurity ratio of clean coal to 1.12kg/10,000 tonnes; iv) strengthening its cost management and control, which has partially offset the increased costs and expenses.

The Company’s external development projects have achieved some breakthroughs. The Company acquired 95.67% equity interest in Yanmei Heze Nenghua Limited (“Heze Nenghua”), which was owned by Yankuang Group Corporation Limited (the “Yankuang Group” or the “Parent Company”), and the construction of Zhaolou Coal Mine, a coal mine owned and operated by Heze Nenghua is being carried out as planned. The preparatory works prior to the recommencement of production of Austar Coal Mine in Australia, which was acquired by the Company at the end of 2004, is being carried out smoothly. Negotiation for the new coal mine project in Shaanxi Province has made progress. The preliminary design of the principle part and the equipment procurement tender of the 600,000 tonnes of methanol project have been finished. The development of these new projects enriches the resources reserves and extends the industrial chains of the Company are beneficial to the enhancement of the Company’s operating scale and profitability and thereby consistently increases our shareholders’ return.

The Company has improved its systems and normalized its operation. The Company has established and improved its procedures for the corporate governance, the flow for connected transactions of the Company and the system for disclosure of information, etc. Pursuant to the requirements of Sarbanes-Oxley Act, the Company has fully initiated and improved the construction of the internal control systems.

In March 2006, the Company completed the share reform plan proposed by the Yankuang Group. The Yankuang Group paid 2.5 non-tradable shares for every 10 shares held by each holder of A shares in exchange for the right to list and trade the non-tradable shares held by the Parent Company on the Chinas domestic A share market. After the implementation of the reform, the shareholding of the Yankuang Group was reduced from 54.33% to 52.86%.

The Board is satisfied with the Company’s achievements in 2005.

FINANCIAL HIGHLIGHTS

(Prepared in accordance with International Financial Reporting Standards (“IFRS”))

The financial highlights are prepared based on the financial information set out in the audited consolidated statement of income, consolidated balance sheet, and consolidated statement of cash flows in 2005 and 2004.

2

OPERATING RESULTS

OPERATING RESULTS
	Year ended 31st December
	2005	2004
	(RMB’000)	(RMB’000)
Net sales
Net sales of coal	11,353,485	10,354,337
including: Domestic	8,421,462	7,406,988
Export	2,932,023	2,947,349
Net Income of railway, Transportation Service	163,437	220,771
Total Net Sales	11,516,922	10,575,108
Gross Profit	6,228,334	6,023,405
Interest Expenses	(24,611)	(35,942)
Income Before Income Taxes	4,419,973	4,673,332
Income attributable to equity holders of the Company	2,881,461	3,154,317
Earnings per Share(1)	RMB0.59	RMB0.66
Dividend per Share(2)	RMB0.220	RMB0.260

Notes (1): Earnings per Share is calculated on the basis of the net income realized in the relevant reporting period and the weighted average number of shares in the relevant year after adjusting for the bonus issue of the Company in July 2005.

(2): Dividend per share of year 2005 represents the dividend proposed.

ASSETS AND LIABILITIES

ASSETS AND LIABILITIES
		31st December
	2005	2004
	(RMB’000)	(RMB’000)
Net Current Assets	7,522,121	5,774,466
Net Book Value of Property, Plant and Equipment	9,318,486	8,537,150
Total Assets	21,254,444	18,336,697
Total Borrowings	231,827	441,057
Equity attributable to equity holders of the Company	17,618,577	15,523,751
Net Asset Value per Share	RMB3.58	RMB5.05
Return on Net Assets (%)	16.35	20.32
SUMMARY STATEMENT OF CASH FLOWS

SUMMARY STATEMENT OF CASH FLOWS
	Year ended 31st December
	2005	2004
	(RMB’000)	(RMB’000)
Net Cash from Operating Activities	3,939,274	4,418,381
Increase in Cash and Cash Equivalent	667,529	3,192,966
Net Cash Flow per Share from
Operating Activities	RMB0.80	RMB1.44

Notes: The total share capital was RMB3,074 million and RMB4,918.4 million as at 31st December, 2004 and 31st December, 2005 respectively. The Dividend per Share, Net Asset Value per Share and Net Cash Flow per Share from Operating Activities in the above financial highlights are calculated based on the total share capital as at the end of each corresponding year of the Company.

The above financial indicators of year 2005 also consolidated the result of the financial statements of Heze Nenghua during this reporting period. Since 2004, the financial statements of the Company have consolidated the financial statements of Shandong Yanmei Shipping Co. Ltd. (“Yanmei Shipping”) and Yanzhou Coal Yulin Nenghua Company Limited (“Yulin Nenghua Company”) and Yanzhou Coal Australia Pty Limited (Yancoal Australia Pty).

The taxes and surcharges resulting from the principal businesses of Yanmei Shipping are offset against the transportation cost of coal of the Company, thereby increasing the total coal sales. As the total sales, operating results and assets of Yanmei Shipping do not have any material impact on the Company, they are therefore not itemized in this report.

Yulin Nenghua Company, Yancoal Australia Pty and Heze Nenghua are currently under preparation or construction and do not have significant impact on the operational results of the Company, and hence are not itemized in this report.

3

OVERVIEW

In 2005, the Company produced 34.66 million tonnes of raw coal, sold 32.48 million tonnes of coal and the railway transportation of coal achieved 20.16 million tonnes. In 2005, net sales of the Company was RMB11,516.9 million, among which net sales of coal was RMB11,353.5 million and net income of railway service was RMB163.4 million, and the income attributable to the equity holders of the Company was RMB2,881.5 million.

COAL PRODUCTION

The Company’s raw coal production decreased by 4.49 million tonnes, or 11.5%, to 34.66 million tonnes in 2005 as compared with that of 2004. The decrease was mainly due to the delay in resettlement of certain of the villages located within the coal field of the Company, as a result, 6 among the 12 coal production systems of the Company did not achieve continuous production in the third quarter of year 2005. Upon the resettlement of 2 villages in the last quarter of year 2005, 3 coal production systems have resumed normal coal production. Upon the resettlement of the remaining 4 villages in the first quarter of year 2006, raw coal production capacity of the Company has resumed its normal level in April 2006.

The output of saleable coal of the Company was 31.94 million tonnes in 2005, representing a decrease of 4.81 million tonnes, or 13.1%, as compared with that of 2004.

PRODUCT PRICES AND SALES

The following table sets out the average coal prices of the Company for the years ended 31st December, 2005 and 2004:

	2005	2004
	(RMB/ton)	(RMB/ton)
Clean coal
No. 1	514.20	349.26
No. 2	491.51	318.13
Domestic	513.67	346.17
Export	460.09	301.83
No. 3	370.54	293.71
Domestic	361.30	298.64
Export	381.51	288.62
Lump coal	432.26	377.92
Domestic	434.66	399.60
Export	397.53	308.75
Subtotal for clean coal	413.69	306.64
Domestic	420.26	319.60
Export	404.37	294.26
Screened raw coal	321.88	258.93
Mixed coal and others	150.45	138.71
Average coal price	349.50	272.45
Including: Domestic	333.74	264.65

Notes: 1. The average coal prices represent the invoice prices less sale taxes, transportation cost from the Company to ports, port charges and miscellaneous fees for coal sales.

1. The average coal price for year 2005 and 2004 has taken into account the consolidation of financial statement of Yanmei Shipping Co. Limited and adjusted the average coal price of year 2004.The adjusted average coal prices for year 2004 have been disclosed in the Company’s interim report of 2005.

The average coal price of the Company was RMB349.50/tonne in 2005, representing an increase of RMB77.05/tonne, or 28.3%, as compared with that of 2004. The average domestic coal price was RMB333.74/tonne, representing an increase of RMB69.09/tonne, or 26.1%, as compared with that of 2004. The average export coal price was RMB404.37/tonne, representing an increase of RMB110.11/tonne, or 37.4%, as compared with that of 2004.

The increase in average coal price of the Company was principally due to the increase of coal price in domestic and overseas markets and the increase of net sale price due to the implementation of the “four optimizations” strategy.

4

The following table sets out the Company’s net sales of coal by product category for the years ended 31st December 2005 and 2004:

			Year ended	31st December	31st December
		2005				2004
			% of total				% of total
	Sales	Net sales	net sales		Sales	Net sales	net sales
	volume	of coal	of coal		volume	of coal	of coal
	(’000 Ton)	(RMB’000)			(’000 Ton)	(RMB’000)
Clean coal
No. 1	773.9	397,957	3.5		631.3	220,480	2.1
No. 2	5,084.5	2,499,068	22.0		6,329.2	2,013,510	19.5
Domestic	2,981.3	1,531,433	13.5		2,326.7	805,435	7.8
Export	2,103.2	967,635	8.5		4,002.5	1,208,075	11.7
No. 3	11,183.0	4,143,820	36.5		11,861.9	3,484,026	33.7
Domestic	6,066.8	2,191,938	19.3		6,027.9	1,800,193	17.4
Export	5,116.2	1,951,882	17.2		5,834.0	1,683,833	16.3
Lump coal	485.5	209,862	1.8		752.3	284,314	2.7
Domestic	454.0	197,356	1.7		572.7	228,873	2.2
Export	31.5	12,506	0.1		179.6	55,441	0.5
Subtotal for clean coal	17,527.0	7,250,707	63.9		19,574.7	6,002,330	58.0
Domestic	10,276.2	4,318,684	38.0		9,558.6	3,054,981	29.5
Export	7,250.8	2,932,023	25.8		10,016.1	2,947,349	28.5
Screened raw coal	10,805.4	3,478,075	30.6		14,936.6	3,867,528	37.3
Mixed coal and others	4,152.1	624,703	5.5		3,492.6	484,479	4.7
Total	32,484.5	11,353,485	100.0		38,003.9	10,354,337	100.0
Including: Domestic	25,233.7	8,421,462	74.2		27,987.8	7,406,988	71.5

The Company sold 32.48 million tonnes of coal in 2005, representing a decrease of 5.52 million tonnes, or 14.5%, as compared with that of 2004. Domestic sales were 25.23 million tonnes, representing a decrease of 2.75 million tonnes, or 9.9%, as compared with that of 2004. Export sales were 7.25 million tonnes, representing a decrease of 2.77 million tonnes, or 27.6%, as compared with that of 2004.

The sales volume of clean coal is 54% of total coal sales volume of the Company in 2005, which is an increase from 51.5% of that in the year 2004.

The change in sale structure is principally due to the timely adjustment of product mix by the Company in light of market needs.

The Company’s coal products are exported to East Asian countries, such as Japan and South Korea. Net export sales of coal in 2005 accounted for 25.8% of the Company’s total net sales of coal.

Most of the Company’s domestic coal sales were made to power plants, metallurgical mills, chemical companies and fuel companies etc.

Domestic sales of the Company’s coal products are concentrated in Eastern China, particularly in Shandong Province.

RAILWAY ASSETS

In 2005, railway transportation volume of the Company was 20.16 million tonnes, representing a decrease of 10.12 million tonnes, or 33.4%, as compared with that of 2004. Net income from railway transportation services of the Company was RMB163.4 million in 2005, representing a decrease of RMB57.334 million, or 26.0%, as compared with that of 2004.

5

OPERATING EXPENSES AND COST CONTROL

The following table sets out the Company’s principal operating expenses, which are also expressed as percentages of total net sales of the years ended 31st December 2005 and 2004:

		Year ended 31st	December
	2005	2004	2005	2004
	(RMB’000)		(% of total net sales)
Net sales
Net sales of coal	11,353,485	10,354,337	98.6	97.9
Net income of railway
transportation service	163,437	220,771	1.4	2.1
Total net sales	11,516,922	10,575,108	100.0	100.0
Costs of coal sales and railway
transportation service
Materials	1,147,572	1,088,683	10.0	10.3
Wages and employee welfare	1,258,333	1,022,614	10.9	9.7
Electricity	282,492	298,274	2.5	2.8
Depreciation	891,640	918,360	7.7	8.7
Repairs and maintenance	350,953	455,782	3.0	4.3
Land subsidence, restoration,
rehabilitation and
environmental costs	636,590	323,240	5.5	3.1
Mining rights expenses	19,604	19,604	0.2	0.2
Transportation fee	98,787	119,737	0.9	1.1
Other costs	602,617	305,409	5.2	2.8
Total cost of sales and railway
transportation service	5,288,588	4,551,703	45.9	43.0
Sales, general and management
expenses	1,918,788	1,479,863	16.7	14.0
Total operating expenses	7,207,376	6,031,566	62.6	57.0

In 2005, the total operating expenses of the Company were RMB7,207.4 million, representing an increase by RMB1,175.8 million, or 19.5%, as compared with that of 2004. Costs of sales and railway transportation service and sales, general and management expenses increased by 16.2% and 29.7% as compared with that of 2004, respectively. Total operating expenses were increased to 62.6% over total net sales from 57.0% in 2004.

MANAGEMENT DISCUSSION AND ANALYSIS

The following discussion and analysis should be read in conjunction with the audited financial statements of the Company for 2004 and 2005 and the notes thereto included elsewhere in this announcement. Such financial statements have been prepared in accordance with IFRS. For a discussion of certain differences between IFRS and US Generally Accepted Accounting Principles (“US GAAP”), please refer to the note 19 contained herein or the Company’s annual report on Form 20-F filed with the Securities and Exchange Commission of United States of America, which will be provided to any Shareholder upon written request.

YEAR ENDED 31ST DECEMBER, 2005 COMPARED WITH YEAR ENDED 31ST DECEMBER 2004

The Company’s realised net sales in 2005 was 11,516.9 million, increased by RMB941.8 million, or 8.9%, compared with RMB10,575.1 million in 2004, among which: (1) realized net sales of coal was RMB11,353.5 million, increased by RMB999.1 million, or 9.6%, compared with RMB10,354.3 million in 2004.The increase was mainly due to: an increase of average coal prices of 28.3%, which resulted in an increase of net sales of coal by RMB2,502.9 million; and a decrease of coal sales volume of 14.5%, which resulted in the decrease of net sales of coal by RMB1,503.8 million; (2) net income from railway transportation service (calculated on ex-mine basis and on the basis of transportation expenses being borne by the customers) was RMB163.4 million, representing a decrease of RMB57.334 million, or 26.0%, from RMB220.8 million in 2004. Such decrease was principally due to the decrease of coal sales volume resulting from the Company’s decrease of raw coal output and the decrease in the volume of coal deliveries where transportation expenses were calculated on ex-mine basis and were borne by the customers.

6

Cost of sales and railway transportation service of the Company 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 compared to RMB4,462.3 million in 2004, principally due to an increase in commodity prices, an increase in employees’ wages, a reduction of the rate of export VAT rebate and an increase in the safety inputs. The unit cost of coal sales was RMB159.61, representing an increase of RMB42.23, or 36.0%, as compared to RMB117.38 of 2004. This was principally due to (1) objective factors increasing the unit cost of coal sales by RMB15.79 among which, the reduction of the rate of export VAT rebate resulted in the increase of unit cost of coal sales by RMB2.60; the increase of prices of raw materials resulted in the increase of unit cost of coal sales by RMB2.09; the increase in subsidence fees as a result of the increase in commodity prices and the strengthening measures to resettle the villages located within the coal field of the Company resulted in the increase of unit cost of coal sales by RMB11.10; (2) an increase of unit cost of coal sales by RMB9.43 as a result of the increase of employees’ wages; (3) an increase of the unit coal sales by RMB2.85 as a result of an increase of expenses from the implementation of the “Four Optimizations” for sales of coal; (4) an increase of the unit coal sales by RMB1.20 as a result of an increase in safety inputs; (5) an increase of the unit cost of coal sales by RMB14.65 as a result of the increase in fixed costs resulting from the decrease of 5.52 million tonnes of sales when compared to the sales in the previous year; (6) the partial set-off of part of the said cost-increasing factors which resulted in the increase of unit cost of coal sales by the Company’s tightening of cost control measures.

Sales, general and management expenses of the Company were RMB1,918.8 million in 2005, increased by RMB438.9 million, or 29.7%, from RMB1,479.9 million of 2004. This increase was mainly due to: (1) the increase of RMB114.2 million as payment of retirement pension scheme; (2) the increase in wages and employee welfare by RMB114.3 million; (3) the increase in initial cost of Yancoal Australia Pty Ltd by RMB121.8 million; (4) increase in currency conversion losses by RMB98.681 million resulting from the fluctuation of exchange rate.

Other income of the Company decreased by RMB30.694 million, or 18.5%, to RMB135 million in 2005 from RMB165.7 million in 2004. This was mainly due to: (1) interest income decreased by RMB16.082 million; (2) a provision for devaluation instead of amortization as stipulated in the newly revised IFRS adopted by the Company in 2005, the negative goodwill amortization decreased by RMB27.62 million in 2005 compared with that of 2004.

Interest expenses of the Company decreased by RMB11.331 million, or 31.5 %, to RMB24.611 million in 2005 from RMB35.942 million in 2004. This was principally due to the partial repayment of bank loans.

Income before income taxes of the Company decreased by RMB253.3 million, or 5.4%, to RMB4,420 million in 2005 from RMB4,673.3 million in 2004.

Income attributable to the equity holders of the Company decreased by RMB272.8 million, or 8.6%, to RMB2,881.5 million in 2005 from RMB3,154.3 million in 2004.

Total assets increased by RMB2,917.7 million, or 15.9%, to RMB21,254.4 million as at 31st December, 2005 from RMB18,336.7 million as at 31st December 2004. This was principally due to the increase of the appreciation of asset value from the Company’s production and operation activities.

Total liabilities increased by RMB797.8 million, or 28.4%, to RMB3,607.1 million as at 31st December, 2005 from RMB2,809.3 million as at 31st December, 2004. This is mainly due to (1) accounts payable to the Parent Company and the Parent Company’s subsidiary increased by RMB508.3 million (2) tax payable increased by RMB118.0 million (3) deferred tax liabilities increased by RMB123.2 million.

Equity attributable to equity holders of the Company increased by RMB2,094.8 million, or 13.5%, to RMB17,618.6 million as at 31st December, 2005 from RMB15,523.8 million as at 31st December, 2004. This was principally due to profit realized by operation activities.

LIQUIDITY AND CAPITAL RESOURCES

In 2005, the Company’s principal source of capital was the cash flow from operations. The Company’s principal uses of the capital include payment for operating expenses, purchase of property, machinery and equipment, repayment of Shareholders’ dividends.

7

As at 31st December 2005, the balance of bills and accounts receivable were RMB2,224.8 million, representing an increase of RMB1,001 million, or 81.8%, from RMB1,223.8 million as at 31st December, 2004. Bills receivable increased by RMB1,202.9 million, or 135.2%, to RMB2,092.9 million as at 31st December, 2005 from the RMB890 million as at 31st December, 2004, principally due to the increase in bank bills of exchange from the sale of coal. Accounts receivable decreased by RMB201.8 million, or 60.5%, to RMB131.9 million as at 31st December, 2005 from RMB333.7 million as at 31st December, 2004, principally due to the reduction of newly occurred accounts receivable in this reporting period and the Company’s enhanced efforts of collecting the previous accounts receivable.

As at 31st December, 2005, inventories of the Company decreased by RMB14.928 million, or 3.1%, to RMB470.5 million as at 31st December, 2005 from RMB485.4 million as at 31st December, 2004. The decrease was due to the decrease in coal inventories.

Other loans receivable decreased by RMB210 million, or 24.7%, to RMB640 million as at 31st December 2005, from RMB850 million as to 31st December 2004. During the reporting period, the Company withdrew an entrusting bank loan of RMB160 million to Shandong Longxiang Industrial Co. Ltd and an entrusting bank loan of RMB50 million entrusting bank loan to Shandong Cement Co. Ltd.

Prepayment and other current assets increased by RMB14.121 million, or 7.5%, to RMB202.4 million as at 31st December, 2005, from RMB188.3 million as at 31st December, 2004.

As at 31st December, 2005, bills and accounts payable increased by RMB19.385 million, or 4.1%, to RMB497.7 million from RMB478.3 million as at 31st December, 2004.

Other accounts payable and provisions increased by RMB238.3 million, or 17.8 %, to RMB1,575.9 million as at 31st December, 2005 from RMB1,337.6 million as at 31st December, 2004 principally due to (1) accounts receivable in advance increased by RMB48.456 million (2) wages payable increased by RMB55.133 million (3) accounts payable for purchase of property, machinery and equipment, material increased by RMB43.157 million (4) accounts payable to the Parent Company increased by RMB81.514 million.

Long-term liabilities decreased by RMB86.055 million, or 32.6%, to RMB178.1 million as at 31st December 2005 from RMB264.2 million as at 31st December, 2004. This was principally due to (1) bank borrowing above one year decreased by RMB200 million (2) deferred tax liabilities accrued by provision expenses including land subsidence fees and safety production expenses increased by RMB123.2 million.

The Company’s capital expenditure for the purchase and construction of property, machinery and equipment was RMB830.2 million and RMB1,290.5 million in year 2004 and 2005 respectively. According to the Acquisition Agreement of Jining III Coal Mine, the Company has paid the Parent Company RMB13.248 million for mining right during this reporting period.

As at 31st December, 2005, the Company’s debt to equity ratio was 1.3%, which was calculated on basis of 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.

The Company’s estimated capital expenditure for year 2006 is RMB4,817 million. This is mainly due to: (1) the capital expenditure for purchase of property, machinery and equipment for the existing operating 6 coal mines and railway assets of approximately RMB1,262 million; (2) the capital expenditure for external projects development is approximately RMB3,555 million, including: investment in the construction of Yanzhou Austar Coal Mine in Australia of approximately RMB1,513 million; investment in 600,000 tonnes methanol project and new coal mine project in Shanxi Province of approximately RMB1,352 million; and investment in Heze Zhaolou Coal Mine of about RMB690 million. The capital resource for the above capital expenditure is mainly from the Company’s cash in hand.

Taking into account the cash in hand and existing abundant capital sources, the Company believes that it will have sufficient capital to satisfy for its operational and developmental requirements.

TAXATION

The Company is still subject to an income tax rate of 33% on its taxable profits in 2005.

8

US GAAP RECONCILIATION

The Company’s audited financial statements are prepared in compliance with IFRS, which differs in certain respects from accounting principles generally accepted in the United States of America (“US GAAP”). Please refer to supplemental information contained herein for a description of the differences between IFRS and US GAAP, and the adjusted net income for the year ended 31st December, 2005 and the Shareholders’ equity as at 31st December, 2005 after reconciliation made in accordance with US GAAP.

OUTLOOK FOR 2006

In 2006, the demand and supply of coal in both domestic and overseas markets will generally be in equilibrium.

The total quantity of the demand and supply of coal in the domestic coal market will remain in equilibrium. The supply of coal in some regions, at certain time or in respect of certain types of coal may fall short of the demand. The steady growth of the PRC’s economy will increase the demand of certain coal-consuming industries, such as power and metallurgical industries. Factors such as the commencement of new coal mines and the decreased net export volume of coal, etc. will increase the domestic supply of coal. According to the PRC’s Government’s plan to continue closing down small sub-standard coal mines, the growth in the volume of coal supply will be slightly lower than the growth in demand volume in the year 2006. The increasing coal transportation capacity will partially ease the tight domestic coal transportation capacity. The price of good quality steam coal is expected to maintain at a high level, and the prices of poor quality coal and coking coal are expected to reduce slightly. Measures such as greater concentration among coal enterprises and the PRC Government’s policies such as continuously strengthening the safety and environmental protection of the coal mines, protective mining of coal resources and the marketisation of the prices of power coal, etc. are beneficial to sustaining the development of the coal industry and the increase of the competitive capacities of the large scale coal enterprises.

The demand of coal in the international market will be strong. The economic growth of U.S.A., Japan and the other Asian countries will maintain strong, and the demand for energy by these counties will increase. The coal import of India and China will increase and it is expected that in 2006, the growth in import volume of coal in the Asia-Pacific region will be higher than that of the average level of the world. It is expected that in 2006, the export volume of coal from Australia will remain stable on the whole, the export volume of coal of the PRC will decrease and coal export from Indonesia will increase slightly and that the supply of coal in East-Asia will slightly increase. High international oil price and coal price in South Africa and Europe and the increased demand for coal in the Asia Pacific region will be beneficial to the stability of coal price in the Asia-Pacific region. On 20th April 2006, the spot price of the Australian BJ steam coal was USD52.90/tonne, representing an increase of 39.4% over the lowest price of USD37.95/tonne in 2005. It is expected that the export coal contract price in the year 2006 will be higher than the current spot price, and the amount of price decrease in coking coal will be greater than that in steam coal.

The average coal sales prices of the Company is expected to decrease slightly in 2006 compared to that of 2005. Currently, The Company has not yet completed its negotiations for domestic and export coal sales contracts for the year 2006. It is expected that the contract price of domestic power coal will increase slightly and the domestic contract prices of other coal sales remain stable; export coal price is expected to decrease, amongst which the amount of price decrease in semi-soft coking coal will be greater than that of steam coal. It is expected that the Company’s contract price of export coal will be higher than the current spot price.

The sales target for the year 2006 of the Company is 34 million tonnes and the export coal volume is expected to be 7 million tonnes.

OPERATING STRATEGIES

The Company will continue to improve its profitability and Shareholders’ return through organic development and external expansion. In 2006, the Company will focus on the following operating strategies:

9

i) Improving operation management and boosting profitability of the existing coal mines.

Firstly, the Company will stabilize the output and sales volume of its existing coal mines, optimize and adjust the production system of the coal mines so that the level of output will return to the normal level commencing from April this year, in order that the output of raw coal will start to increase again for the year.

Secondly, the Company will continue to implement the “Three Nil Project” to improve product quality and reputation in the market and to continuously implement the “Four Optimizations” by increasing the product sales prices through optimizing the Company’s products mix and users mix; optimizing the transportation structure and port flow structure to reduce the cost of sales and increase the net product sales prices; strategically allocating the coal sales to the more profitable markets and emphatically increasing the sales volume to major consumers.

Thirdly, improving management and cost control. The Company will improve the financial control system, strengthen the budgeting management for its capital and control the capital risk. The Company will fully implement the policy of “increasing the income, reducing the cost, reducing the material consumption and increasing the efficiency” by improving the overall budgeting management system, strengthening accountability and improving the system of assessment of performance for reward and punishment, thereby effectively controlling the cost. The Company will strive to control its unit cost below that of year 2005.

ii) Speeding up the development pace of the existing project and continuing to look for new acquisition opportunities.

The Company will accomplish the production system revamping, mining equipment installation and commissioning of Austar Coal Mine in Australia, and endeavours to put the coal mine into full operation in the third quarter of 2006. The Company will complete the commercial negotiation for the new coal mine project in Shaanxi Province, and endeavours to finish construction of coal mine so acquired by end of this year. The Company will speed up the construction pace of Zhaolou Coal Mine in Shandong Province and the methanol project in Shaanxi Province, and endeavours to accomplish the constructions of these two projects and put them into operation in the fourth quarter of year 2007.

In the year 2006, the Parent Company will implement the transfer of part of its coal and power operations and other new projects, which are in line with the Company’s development strategies in accordance with the relevant regulations. In addition, the Parent Company will support the Company in its acquisition of the above-mentioned transfers to increase the business performance of the Company, reduce connected transactions and intra-industry competition between the Parent Company and the Company. The Company would be invited to invest in the coal liquefaction project which is being developed by the Parent Company.

The Company will continue to look for new acquisition opportunities in coal and other related industries, expand the scale of its coal mine assets, develop coal further processing business.

iii) Regulating the operations of the Company and improving the management expertise of the Company.

Firstly, completing the re-engineering of the internal control systems before the end of the year 2006. The Company will improve its internal control of work flow and system in accordance with the requirements of Sarbanes-Oxley Act. The Company will complete the assessment and evaluation of the internal control system and test-run the system in the second quarter of 2006, and will formally run the system and issue the Internal Control Report by the end of the year 2006.

Secondly, improving the management of the Company, strengthening staff training. The Company will arrange for its Directors, Supervisors, senior management and the other employees to attend regular training of the newly revised Corporate Laws, Securities Law and the other relevant trainings to strengthen their awareness of self-discipline and responsibility. The Company will revise its Articles of Association for the purpose of improving its corporate governance to promote the operational compliance of the Company.

10

Thirdly, strengthening the management of external investment. The Company will improve of its external investment and management systems, set up evaluation system on responsibility assessment, control the risk of investment and improve the quality and returns of investment.

PROPOSED PROFIT APPROPRIATION

The profit appropriation of the Company for the year ended 31st December, 2005 as proposed by the Board is as follows:

by the Board is as follows:
Prepared in accordance with PRC GAAP	RMB’000
Net Income	2,495,481
Unappropriated profits at the beginning of year	3,722,813
Appropriation to statutory surplus reserve	249,548
Appropriation to statutory public welfare fund	124,774
Distributable profits	5,843,972
Proposed cash dividends after the date of the balance sheet	1,082,048
Unappropriated profits	4,761,924

The proposed profit appropriation will be presented to the shareholders of the Company (the “Shareholders”) for approval at the forthcoming 2005 annual general meeting of the Company (the “2005 AGM”).

Pursuant to the articles of association of the Company (the “Articles”), the Company’s financial statements should be prepared according to the PRC GAAP as well as the IFRS and the accounting standards and regulations of the places in which its shares are listed.

For the purpose of determining the dividends payable to the Shareholders in a relevant year, the lower of the profits after taxation in these accounting standards will be applied for the relevant year. For this purpose, audited profits after taxation in accordance with the PRC GAAP will be applied to determine the proposed cash dividends after the date of balance sheet for the year 2005.

DIVIDENDS

The directors of the Company have decided to propose at the 2005 AGM, a payment of cash dividends for the year 2005 of RMB1,082 million (tax included) or RMB0.220 (tax included) per share, which includes (1) a cash dividends of RMB737.7 million (tax included) or RMB0.150 (tax included) per share in accordance with the Company’s consistent dividend policy; and (2) a special cash dividends of RMB344.3 million (tax included) or RMB0.07 (tax included) per share. Following the approval by the Shareholders at the 2005 AGM, the above dividends will be declared and paid to all Shareholders within two months after the 2005 AGM (if so approved).

Pursuant to the Articles, cash dividends payable to the Shareholders shall be calculated and declared in RMB. Cash dividends payable to holders of the Company’s domestic shares shall be paid in RMB, while cash dividends payable to holders of the Company’s H shares shall be paid in Hong Kong dollars.

ON-GOING CONNECTED 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 the Company 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”) granted a conditional waiver (the “Waiver”) to the Company on 11th July, 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 the Company and the Parent Company for a period of three financial years ended 31st December 2005. The upper limits of the Waiver in respect of the on-going supply of material and services by

11

2

3 Payment of Endowment Insurance Fund

the Company to the Parent company should not exceed 13% of the Company’s 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 the Company should not exceed 26% of the Company’s audited consolidated net sales in the immediate preceding financial year.

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

Mining Rights Fee

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

Pursuant to Agreement of Endowment Insurance Fund entered into between the Company and the Parent Company dated 17th October, 1997, the Parent Company undertakes to be responsible for the management of the old age insurance fund to the employees and payments of the pension and other benefits to the retirees of the Company (the “Endowment Insurance Fund”) on a free of charge basis. In this reporting period and pursuant to the Agreement of Endowment Insurance Fund, the Company has paid the Endowment Insurance Fund of RMB522.7 million.

The Company’s independent non-executive Directors have reviewed the connected transactions of on-going connected transaction in the year 2005 and confirmed that: (1) all such connected transactions have been: (a) entered into by the Company in the ordinary and usual course of its 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 the Company 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 ongoing supply of materials and services have not exceeded the cap under the Waiver granted by the Hong Kong Stock Exchange.

The auditors of the Company, as reported to the Board in a letter, have performed certain agreed upon procedures on the above on-going connected transactions between the Company and the Parent Company in relation to the compliance of these transactions on: (a) have received approval by the Board ; (b) are in accordance with the pricing policies of the Company; (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.

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 the Company and the Parent Company, the Company completed the review of its on-going connected transactions as required by law and entered into six new on-going connected transaction agreements (“New Ongoing 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.

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

12

ACQUISITION OF CONNECTED ASSETS Acquisition of Equity Interest of Heze Neng Hua

The 2005 first extraordinary general meeting of the Company was held on 19th August, 2005, in which the “Equity Transfer Agreement between Yankuang Group Corporation Limited and Yanzhou Coal Mining Company Limited” and its “Supplemental Agreement” (collectively the “Acquisition Agreement”) were approved. According to the Acquisition Agreement, the Company has acquired 95.67% equity interest in Heze Neng Hua at the consideration of RMB584.01 million. Heze Neng Hua is responsible for coal development in Juye coalfield in Shandong province for the Company.

Mining Right Consideration of Jining III Coal Mine

Pursuant to the Jining III Coal Mine Acquisition Agreement entered into between the Company 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 this reporting period, the Company paid RMB13.248 million to the Parent Company.

HOUSING SCHEME

According to the Materials and Services Supply Agreement (as amended by the supplemental agreement) entered into between the Company and the Parent Company, which is set out in the paragraph headed “On-going Supply of Materials and Services” of the section headed “Ongoing Connected Transactions”, 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 provision of such accommodation on a pro-rata basis based on their respective number of employees and mutual agreement. Such expenses amounted to RMB37.2 million and RMB37.2 million in 2004 and 2005, respectively.

Commencing from 2002, the Company paid to its employees a housing allowance, which is based on a fixed percentage of employees’ wages, for their purchase of residential houses. During the year 2005, the employees’ housing allowances paid by the Company amounted to RMB136.9 million in total.

DISCLOSURE OF SIGNIFICANT EVENTS Material Litigation and Arbitration

On 13th December 2004, the Company made an entrusted loan of RMB640 million to Shandong Xin Jia Industrial Company Limited (“Shandong Xin Jia”) through the Bank of China Jining Branch (the “Entrusted Loan”). Since Shandong Xin Jia failed to duly repay the principal and interest of the Entrusted Loan, the Higher People’s Court of Shandong Province appointed Shandong Yinxing Auction Company Limited and auctioned the 289 million shares held by Lianda Group Limited, the guarantor, in Huaxia Bank Company Limited (the “Pledged Shares”) in accordance with the relevant laws on 6th September, 2005. The final auction price is RMB3.5 per Pledged Share and total final auction amount is RMB1,011.5 million.

After the qualification approval procedures of China Banking Regulatory Commission and the transfer procedures of the Pledged Shares have been completed, the successful bidder of the Pledged Shares will pay the auction amount. The auction amount will be administered by the People’s High Court of Shandong Province. After the completion of the legal procedures, the Company will get back the principal, interest, penalty interest and relevant expenses of the Entrusted Loan and upon which the Company will timely publish an announcement. As at the date of this report, the legal procedures and the transfer of the pledged shares still have not been completed yet.

Save as disclosed above, the Company was not involved in any other significant litigation and arbitration during this reporting period.

Share Reform Plan

The Share Reform Plan of the Company was carried out on 31st March, 2006. Yankuang Group 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 member of A share on 30th March, 2006 in exchange for the right to list and trade the non-tradable shares of the Parent Company on the Shanghai Stock Exchange. The non-tradable shares held by the Yankuang Group were granted the right to listing and trading on the Shanghai Stock Exchange since 3rd April, 2006.

13

In addition to the statutory undertakings, Yankuang Group also undertook the following: (1) the original non-tradable shares of the Company held by the Parent Company would be subject to a trading moratorium of 48 months from the date of the completion of the Share Reform Plan; (2) the Yankuang Group would, in accordance with the relevant governmental procedures, assign part of its operations including coal and power operations together with new projects, which are in line with the Company’s development strategies to the Company in 2006 and support the Company in the implementation of such assignment; and the Company would be invited to invest in the coal liquefaction project which is being developed by the Yankuang Group; (3) All related expenses arising from the Share Reform Plan would be borne by the Parent Company.

The financial indicators of the Company including assets, liabilities, ownership interest, total share capital and net profit remain unchanged upon implementation of the revised Share Reform Plan of the Yankuang Group.

Election of New Session of Directors and Supervisors

At the 2004 annual general meeting of the Company held on 28th June, 2005, Mr. Wang Xin, Mr. Geng Jiahuai, Mr.Yang Deyu, Mr. Shi Xuerang, Mr. Chen Changchun, Mr. Wu Yuxiang, Mr. Wang Xinkun, Mr. Chen Guangshui and Mr. Dong Yunqing were elected as directors of the third session of the Board, Mr. Pu Hongjiu, Mr. Cui Jianmin, Mr. Wang Xiaojun and Mr. Wang Quanxi were elected as independent non-executive directors of the third session of the Board, and Mr. Meng Xianchang, Mr. Song Guo, Mr. Zhang Shengdong and Mr. Liu Weixin were elected as shareholders representative supervisors of the third session of the supervisor committee. At the employees’ representative conference of the Company held in May 2005, Mr. Xu Bentai was elected as the employee representative supervisor of the third session of the supervisory committee.

The term of office for the directors of the third session of the Board and that of the supervisors of the third session of the supervisory committee are both three years, commencing from the conclusion of the 2004 annual general meeting to the shareholders’ meeting appointing the directors of the fourth session of the Board and the supervisors of the fourth session of the supervisory committee.

Election of Chairman, Vice Chairman and Appointment of Senior Management

At the first meeting of the third session of the Board held on 28th June, 2005, Mr. Wang Xin was elected as the chairman of the third session of the Board; Mr. Geng Jiahuai and Mr. Yang Deyu were elected as the vice-chairmen of the third session of the Board; Mr. Yang Deyu was appointed as the general manager of the Company; Mr. Jin Tai, Mr. Zhang Yingmin, Mr. He Ye, Mr. Wang Xinkun, Mr. Tian Fengze, Mr. Shi Chengzhong and Mr. Lai Cunliang were appointed as the deputy general managers; Mr. Wu Yuxiang was appointed as the chief financial officer; Mr. Chen Guangshui was appointed as the secretary of the Board; Mr. Ni Xinghua was appointed as the chief engineer; Mr. Wu Yuxiang and Mr. Chen Guangshui were appointed as the Company’s authorized representatives.

Establishment of Special Committee of the Board and Adjustment of Functioning Departments

At the first meeting of the third session of the Board, the establishment of the audit committee of the third session of the Board was approved. Mr. Cui Jianmin, Mr. Pu Hongjiu, Mr. Wang Xiaojun, Mr. Wang Quanxi, Mr. Chen Changchun and Mr. Dong Yunqing were appointed as members of the audit committee with Mr. Cui Jianmin being the chairman.

The establishment of the remuneration committee of the third session of the Board was approved. Mr. Wang Quanxi, Mr. Wang Xiaojun and Mr. Dong Yunqing were appointed as members of the remuneration committee with Mr. Wang Quanxi being the chairman.

Adjustment of some functioning departments of the Company was approved: abolition of the original economic operation department; establishment of the general coordination department, enterprise management department, project department and the enterprise community office.

Election of Chairman and Vice Chairman of the Supervisor Committee

At the first meeting of the third session of the supervisor committee held on 28th June, 2005, Mr. Meng Xianchang was elected as the chairman of the supervisor committee, and Mr. Song Guo was elected as the vice chairman of the supervisor committee.

14

Amendments to the Articles of Association of the Company

Pursuant to the approval of the 2004 annual general meeting, the Company amended the articles of association of the Company (the “Articles of Association”) in accordance with the new requirements of domestic and overseas supervising authorities and the needs of daily operations of the Company. Details of the amendments to the Articles of Association were posted to the shareholders of the Company on 13th May, 2005 and were published in the domestic China Securities Journal, Shanghai Securities News and Wen Wei Po, South China Morning Post of Hong Kong on 13th May, 2005.

Pursuant to the authorization granted at the 2004 annual general meeting of the Company, the Company amended Articles 16, 17 and 20 of the Articles of Association at the second meeting of the third session of the Board held on 19th August, 2005 so as to reflect the changes in the total share capital and the share capital structure of the Company upon completion the Bonus Share Issue approved by the shareholders at the 2004 annual general meeting of the Company. Details of the amendments to the Articles of Association were published in the domestic China Securities Journal, Shanghai Securities News and Wen Wei Po, South China Morning Post of Hong Kong on 22nd August, 2005.

Upon approval at the first extraordinary general meeting in 2006 dated on 24th March, 2006, the Company amended the Articles of Association. Details of the amendments to the Articles of Association were published in the domestic China Securities Journal, Shanghai Securities News and Wen Wei Po, South China Morning Post of Hong Kong on 27th March, 2006.

REPURCHASE, SALE OR REDEMPTION OF SHARES OF THE COMPANY

During this reporting period, the Company and its subsidiaries did not repurchase or redeem any shares of the Company.

IMPACT OF FLUCTUATIONS IN EXCHANGE RATES ON THE COMPANY

Starting from 21st July, 2005, China reformed the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. RMB will no longer be pegged to the US dollar.

Impact of RMB appreciation to the Company is mainly reflected in (a) income through coal export after conversion into RMB since coal exports of the Company are calculated in US dollar; (b) conversion loss of foreign currency deposit; and (c) the Company’s import costs of equipment and fittings.

The Company has no plan to make hedging arrangements for the exchange rates of RMB to foreign currencies.

POLICY OF REMUNERATION

The remuneration for the directors, supervisors and senior management should be proposed to the Board by remuneration committee of the Board. Upon review and approval by the Board, the proposal of remuneration for the directors and supervisors has to be approved in the shareholders’ general meeting; while the remuneration for the senior management should be approved by the Board.

The Company adopts a combined annual remuneration and risk control system for assessing and rewarding the directors and senior management of the Company. The annual remuneration consists of basic salary and benefit income: basic salary is determined according to the operational scale of the Company with reference to the market wages and the income of employees whereas benefit income is determined by the actual operational achievement of the Company. The annual remunerations for the directors and senior management of the Company are pre-paid on a monthly basis and are cashed after the assessment to be carried out in the following year.

The remuneration policy of the other employees of the Company is principally a position and skill remuneration system, which determines the remuneration of the employees on the basis of their positions and responsibilities and their quantified assessment results. Rewards are linked to the Company’s overall economic efficiency.

15

CORPORATE GOVERNANCE REPORT

As at 31st December, 2005, and as of the date of this announcement, the corporate governance practices documentation and the governance operation adopted by the Company are in compliance with the principles and the code provisions set out in the Code on Corporate Governance Practices contained in Appendix 14 of Hong Kong Stock Exchange Listing Rules.

DIRECTORS

As at the date of this announcement, the Directors of the Company are Mr. Wang Xin, Mr. Geng Jiahuai, Mr. Yang Deyu, Mr. Shi Xuerang, Mr. Chen Changchun, Mr. Wu Yuxiang, Mr. Wang Xinkun, Mr.Chen Guangshui and Mr. Dong Yunqing, and the independent non-executive Directors of the Company are Mr. Pu Hongjiu, Mr. Cui Jianmin, Mr. Wang Xiaojun, Mr. Wang Quanxi.

On behalf of the Board Wang Xin Chairman Zoucheng, PRC, 21st April, 2006

PUBLICATION OF ANNUAL RESULTS ON THE WEBSITE OF THE STOCK EXCHANGE OF HONG KONG LIMITED (THE “STOCK EXCHANGE”)

A results announcement containing the information required by paragraphs 45(1) to 45(3) of Appendix 16 to the Listing Rules will be published on the website of the Stock Exchange in due course.

ANNUAL RESULTS

The Board of Directors of the Company has the pleasure of presenting the audited annual operating results of the Company and its subsidiaries for the year ended 31st December, 2005 prepared in conformity with (I) International Financial Reporting Standards (“IFRS”) and (II) the relevant accounting principles and regulations applicable to PRC enterprises (“PRC GAAP”).

(I) Financial information under IFRS

CONSOLIDATED STATEMENT OF INCOME

NOTES RAILWAY TRANSPORTATION SERVICE INCOME GROSS SALES OF COAL 5 TRANSPORTATION COSTS OF COAL 5 COST OF SALES AND SERVICE PROVIDED 6 GROSS PROFIT SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7 OTHER INCOME 8 INTEREST EXPENSE 9 INCOME BEFORE INCOME TAXES INCOME TAXES 10 INCOME FOR THE YEAR	Year ended December 31, 2005 2004 RMB’000 RMB’000 163,437 220,771 12,283,588 11,757,052 12,447,025 11,977,823 (930,103) (1,402,715 ) (5,288,588) (4,551,703 ) 6,228,334 6,023,405 (1,918,788) (1,479,863 ) 135,038 165,732 (24,611) (35,942 ) 4,419,973 4,673,332 (1,538,036) (1,518,762 ) 2,881,937 3,154,570

16

Attributable to: Equity holders of the Company Minority interest APPROPRIATIONS TO RESERVES DIVIDEND 14 EARNINGS PER SHARE, BASIC 11 EARNINGS PER ADS, BASIC 11 CONSOLIDATED BALANCE SHEET NOTES ASSETS CURRENT ASSETS Bank balances and cash Term deposits Restricted cash Bills and accounts receivable 12 Inventories Other loans receivable Amounts due from Parent Company and its subsidiary companies Prepayments and other current assets Prepaid lease payments Prepayment for land subsidence, restoration, rehabilitation and environmental costs TOTAL CURRENT ASSETS MINING RIGHTS PREPAID LEASE PAYMENTS PROPERTY, PLANT AND EQUIPMENT, NET GOODWILL NEGATIVE GOODWILL INVESTMENTS IN SECURITIES RESTRICTED CASH DEPOSIT MADE ON INVESTMENT TOTAL ASSETS NOTES LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Bills and accounts payable 13 Other payables and accrued expenses Amounts due to Parent Company and its subsidiary companies Unsecured bank borrowing – due within one year Taxes payable

2,881,461 3,154,317 476 253 2,881,937 3,154,570 755,530 737,782 799,240 470,680 RMB0.59 RMB0.66 RMB29.29 RMB33.25 At December 31, 2005 2004 RMB’000 RMB’000 5,885,581 5,216,738 1,326,335 – 30,505 24,877 2,224,836 1,223,788 470,501 485,429 640,000 850,000 – 213,871 202,417 188,296 13,465 13,171 157,511 103,407 10,951,151 8,319,577 153,265 138,617 579,773 578,547 9,318,486 8,537,150 153,037 117,392 – (27,621 ) 62,181 62,181 36,551 36,854 – 574,000 21,254,444 18,336,697 At December 31, 2005 2004 RMB’000 RMB’000 497,660 478,281 1,575,869 1,337,565 508,254 – 200,000 200,000 647,247 529,265

17

TOTAL CURRENT LIABILITIES AMOUNTS DUE TO PARENT COMPANY AND ITS SUBSIDIARY COMPANIES – DUE AFTER ONE YEAR UNSECURED BANK BORROWING – DUE AFTER ONE YEAR DEFERRED TAX LIABILITY TOTAL LIABILITIES COMMITMENTS CAPITAL AND RESERVES SHARE CAPITAL RESERVES EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY MINORITY INTEREST TOTAL EQUITY TOTAL LIABILITIES AND EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS OPERATING ACTIVITIES Income for the year Adjustments to reconcile income for the year to net cash from operating activities: Depreciation of property, plant and equipment Amortization of prepaid lease Amortization of goodwill Release of negative goodwill to income Amortization of mining rights Recognition (utilization) of deferred tax asset Recognition of deferred tax liability Impairment loss on accounts receivables Loss (gain) on disposal of property, plant and equipment Gain on disposal of investments in securities (Increase) decrease in assets: Bills and accounts receivable Inventories Prepayment for land subsidence, restoration, rehabilitation and environmental cost Prepayments and other current assets Amounts due from Parent Company and its subsidiary companies Prepaid lease payment Increase (decrease) in liabilities: Bills and accounts payable Other payables and accrued expenses

3,429,030 2,545,111 31,827 41,057 – 200,000 146,279 23,104 3,607,136 2,809,272 4,918,400 3,074,000 12,700,177 12,449,751 17,618,577 15,523,751 28,731 3,674 17,647,308 15,527,425 21,254,444 18,336,697 Year ended December 31, 2005 2004 RMB’000 RMB’000 2,881,937 3,154,570 952,096 958,667 13,171 13,194 – 15,773 – (27,620 ) 6,624 6,624 44,436 44,436 78,739 67,540 – 49,104 527 104,597 – – (1,001,048) (10,437 ) 59,989 27,129 (53,377) – (17,261) 324,273 213,871 (213,871 ) (14,691) – 19,379 50,673 157,833 (13,333 )

18

Provision for land subsidence, restoration, rehabilitation and environmental costs Amounts due to Parent Company and its subsidiary companies Taxes payable NET CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Increase in term deposits Purchase of property, plant and equipment Decrease (increase) in other loans receivable Acquisition of Heze (Increase) decrease in restricted cash Proceeds on disposal of property, plant and equipment Acquisition of Southland Proceeds on disposal of investments in securities Acquisition of Railway Assets Acquisition of investment in securities NET CASH FLOW USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Dividend paid Repayments of bank borrowings Repayment to Parent Company and its subsidiary companies in respect of consideration for acquisition of Jining III Dividend paid to a minority shareholder of a subsidiary Issues of shares, net of share issue expenses NET CASH FLOW (USED IN) FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS, ENDING, REPRESENTED BY BANK BALANCES AND CASH Additional cash flow information: Cash paid during the year for Interest Income taxes	– 479,067 117,982 3,939,274 (1,326,335) (1,315,431) 210,000 170,247 (5,325) 4,378 – – – – (2,262,466) (799,240) (200,000) (9,802) (237) – (1,009,279) 667,529 5,216,738 1,314 5,885,581 24,199 1,296,879	(178,361 ) (368,939 ) 414,362 4,418,381 – (743,022 ) (750,000 ) (574,000 ) (44,210 ) 17,009 (136,302 ) – (40,000 ) (30,283 ) (2,300,808 ) (470,680 ) (200,000 ) (10,483 ) (319 ) 1,756,875 1,075,393 3,192,966 2,023,772 – 5,216,738 34,157 992,424

19

NOTES TO THE FINANCIAL STATEMENTS

1. 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.

2. 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:

• 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 11.

IFRS 3, “Business Combinations”

Goodwill

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)

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.

3. 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 in financial statements.

20

4. 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

INCOME STATEMENT
GROSS REVENUE External Inter-segment Total Inter-segment revenue is charged at prices RESULT Segment results Unallocated corporate expenses Unallocated corporate income Interest expenses Income before income taxes Income taxes Income for the year	For the year ended December 31, 2005 Coal railway Coal mining transportation Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 12,283,588 163,437 – 12,447,025 – 226,852 (226,852 ) – 12,283,588 390,289 (226,852 ) 12,447,025 pre-determined by the relevant governmental authority. 4,601,715 67,381 – 4,669,096 (320,692) 96,180 (24,611) 4,419,973 (1,538,036) 2,881,937	onsolidated RMB’000 12,447,025 –
		12,447,025
		4,419,973 (1,538,036)
		2,881,937

BALANCE SHEET

ASSETS Segment assets Unallocated corporate assets LIABILITIES Segment liabilities	At December 31, 200 Coal railway Coal mining transportation C RMB’000 RMB’000 12,139,834 1,031,347 2,584,110 29,500	5 onsolidated RMB’000 13,171,181 8,083,263
		21,254,444
		2,613,610

21

Unallocated corporate liabilities

993,526 3,607,136

OTHER INFORMATION

Capital additions Amortization of prepaid lease payments Depreciation of property, plant and equipment Amortization of mining rights (Gain) loss on disposal of property, plant and equipment	For the year ended De Coal railway Coal mining transportation RMB’000 RMB’000 1,828,130 23,710 7,983 5,188 867,210 77,412 6,624 – – (13 )	cember 31, 2005 Corporate and others C RMB’000 5,531 – 7,474 – 540	onsolidated RMB’000 1,857,371 13,171 952,096 6,624 527

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:

The PRC Australia	Additions to property, plant and equipment and intangible assets Year ended December 31, 2005 2004 RMB’000 RMB’000 1,599,372 869,957 257,999 224,325 1,857,371 1,094,282	Additions to property, plant and equipment and intangible assets Year ended December 31, 2005 2004 RMB’000 RMB’000 1,599,372 869,957 257,999 224,325 1,857,371 1,094,282
		1,094,282

5. NET SALES OF COAL

NET SALES OF COAL
Domestic sales of coal, gross Less: Transportation costs Domestic sales of coal, net Export sales of coal, gross Less: Transportation costs Export sales of coal, net Net sales of coal	Year ended 2005 RMB’000 8,689,496 268,034 8,421,462 3,594,092 662,069 2,932,023 11,353,485	December 31, 2004 RMB’000 7,841,328 434,340
		7,406,988
		3,915,724 968,375
		2,947,349
		10,354,337

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.

22

6. COST OF SALES AND SERVICE PROVIDED

Materials Wages and employee benefits Electricity Depreciation Land subsidence, restoration, rehabilitation and environmental costs Repairs and maintenance Annual fee and amortization of mining rights Transportation costs Others	Year ended 2005 RMB’000 1,147,572 1,258,333 282,492 891,640 636,590 350,953 19,604 98,787 602,617 5,288,588	December 31, 2004 RMB’000 1,088,683 1,022,614 298,274 918,360 323,240 455,782 19,604 119,737 305,409
		4,551,703

7. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Retirement benefit scheme contributions Wages and employee benefits Additional medical insurance Staff training costs Depreciation Amortization of goodwill Distribution charges Impairment loss on accounts receivables Resource compensation fees (note) Repairs and maintenance Research and development Freight charges Loss on disposal of property, plant and equipment Others	Year ended 2005 RMB’000 523,324 271,213 46,458 32,553 73,627 – 35,626 – 117,228 17,012 45,009 19,256 527 736,955 1,918,788	December 31, 2004 RMB’000 408,462 155,500 35,912 28,762 53,501 15,773 43,639 49,104 110,959 18,753 24,934 9,801 104,597 420,166
		1,479,863

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.

8. OTHER INCOME

Dividend income Gain on sales of auxiliary materials Interest income from bank deposits Interest income on other loans receivable Release of negative goodwill to income Others	Year ended 2005 RMB’000 4,465 36,749 85,971 5,744 – 2,109 135,038	December 31, 2004 RMB’000 4,465 33,878 70,885 21,826 27,620 7,058
		165,732

9.

INTEREST EXPENSE

	Year ended	December 31,
	2005	2004
	RMB’000	RMB’000
Interest expenses on:
– bank borrowings wholly repayable within
5 years	20,753	31,392
– bills receivable discounted without
recourse	–	–

23

Deemed interest expenses in respect of acquisition of Jining III 3,858 4,550 24,611 35,942

No interest was capitalized during each of the years presented.

10. INCOME TAXES

Income taxes: Current taxes Underprovision in prior years Deferred tax charge	Year ended 2005 RMB’000 1,372,398 42,463 1,414,861 123,175 1,538,036	December 31, 2004 RMB’000 1,390,767 16,019
		1,406,786 111,976
		1,518,762

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:

Standard income tax rate in the PRC Standard income tax rate applied to income before income taxes Reconciling items: Transfer to future development fund deductible for tax purposes but not charged to income under IFRS Release of negative goodwill not subject to tax Deemed interest not deductible for tax purposes Impairment loss on doubtful debts not deductible for tax purposes Loss on disposal of property, plant and equipment not deductible for tax purposes Government grants received not subject to tax Tax effect of tax losses not recognized Underprovision in prior years Write off deferred tax asset Others Income taxes Effective income tax rate	Year ended 2005 RMB’000 33% 1,458,591 (68,618 ) – 1,273 – 836 – 42,151 42,463 44,436 16,904 1,538,036 35%	December 31, 2004 RMB’000 33% 1,542,200 (109,411 ) (9,115 ) 1,502 16,187 8,273 – – 16,019 44,436 8,671
		1,518,762
		32%

The subsidiaries acquired during the years ended December 31, 2005 and 2004 did not have any significant impact on the income taxes provided for the years ended December 31, 2005 and 2004.

11. 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 and 2004 is based on the income attributable to the equity holders of the Company for the year of RMB2,881,461,000 and RMB3,154,317,000 and on the weighted average number of 4,918,400,000 shares and 4,743,606,557 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.

24

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 and 2004.

Impact of changes in accounting policies

Changes in the Group’s accounting policies during the year are described in details in note 2. To the extent that those changes have had an impact on results reported for the years ended December 31, 2005 and 2004, they have had an impact on the amounts reported for earnings per share. The following table summarizes that impact on basic earnings per share:

Non-amortisation of goodwill (replaced by impairment loss) Negative goodwill no longer released to income Total impact of changes in accounting policies	Impact on ba per s 2005 RMB 0.003 (0.006 ) (0.003 )	sic earnings hare 2004 RMB – – –	Impact o per 2005 RMB 0.16 (0.28 ) (0.12 )	n earnings ADS 2004 RMB – –
				–

12. BILLS AND ACCOUNTS RECEIVABLE

Total bills receivable Total accounts receivable Less: Impairment loss Total bills and accounts receivable, net	At Dece 2005 RMB’000 2,092,949 258,587 (126,700 ) 2,224,836	mber 31, 2004 RMB’000 890,046 460,442 (126,700
		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.

An analysis of the impairment loss on bills and accounts receivable is as follows:

Balance at January 1 Additional impairment loss Balance at December 31	2005 RMB’000 126,700 – 126,700	2004 RMB’000 100,627 26,073
		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.

25

The following is an aged analysis of bills and accounts receivable at the reporting date:

1 – 180 days 181 – 365 days 1 – 2 years 2 – 3 years Over 3 years	At Dec 2005 RMB’000 2,245,170 6,014 19 – 100,333 2,351,536	ember 31, 2004 RMB’000 1,233,248 654 3,913 32,407 80,266
		1,350,488

13. BILLS AND ACCOUNTS PAYABLE

Bills payable Accounts payable	At Dec 2005 RMB’000 136,779 360,881 497,660	ember 31, 2004 RMB’000 – 478,281
		478,281

The following is an aged analysis of bills and accounts payable at the reporting date:

1–180 days 181–365 days 1–2 years	At Dec 2005 RMB’000 361,680 96,397 39,583 497,660	ember 31, 2004 RMB’000 360,684 85,714 31,883
		478,281

The fair value of the Group’s bills and accounts payable at December 31, 2005 approximates to their carrying amount.

14. DIVIDEND

2004 Final Dividend, RMB0.260 per share (2004: 2003 final dividend RMB0.114: 2003: 2002 final dividend RMB0.104) 2004 Special dividend, RMB0.050 per share	Year ended 2005 RMB’000 799,240 – 799,240	December 31, 2004 RMB’000 327,180 143,500
		470,680

15. 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 )

26

Total net assets acquired Goodwill arising on acquisition Total consideration satisfied by: Deposit made on investment in 2004 Cash consideration paid on acquisition Net cash outflow arising on acquisition: Cash paid on acquisition Bank balances and cash acquired	548,363 35,645 584,008 574,000 10,008 584,008 (10,008 ) 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.

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.

27

16. 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 balances 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.

Amounts due to Parent Company and its subsidiary companies Within one year More than one year, but not exceeding two years More than two years, but not exceeding three years More than three years, but no exceeding four years More than four years, but not exceeding five years Exceeding five years Total Less: amount due within one year Amount due after one year	At Dec 2005 RMB’000 508,254 8,689 8,181 7,704 7,253 – 540,081 (508,254 ) 31,827	ember 31, 2004 RMB’000 – 9,230 8,689 8,181 7,704 7,253
		41,057 –
		41,057

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
	RMB’000	RMB’000
Income
Sales of coal	856,580	523,015
Sales of auxiliary materials	369,855	350,873
Utilities and facilities	29,000	29,000
Railway transportation services	–	–
Expenditure
Utilities and facilities	355,953	354,424
Annual fee for mining rights	12,980	12,980
Purchases of supply materials and equipment	341,935	303,549
Repair and maintenance services	197,624	222,949
Social welfare and support services	242,952	207,062
Technical support and training	15,130	15,130
Road transportation services	53,346	63,478
Construction services	–	160,342

28

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:

Sales of coal by the Group Transaction services provided to the Group	Year ended 2005 RMB’000 – –	December 31, 2004 RMB’000 – –

Certain expenditure for social welfare and support services (excluding medical and child care expenses) of RMB63,361,000, RMB63,275,000 for each of the two years ended December 31, 2005 and 2004, respectively, and for technical support and training of RMB15,130,000 for each of the three years ended December 31, 2005 and 2004, 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.

In addition to the above, the Company participates in a multi-employer scheme of the Parent Company in respect of retirement benefits.

17. SIGNIFICANT RELATED PARTY TRANSACTIONS (PREPARED UNDER PRC GAAP) (1) The followings are related parties where a control relationship exists:

Name of					Status
related parties	Registration address	Major business	Relationship	Quality	representative
Yankuang Group	Zoucheng, Shandong	Industry	Major shareholder	State-owned	Geng Jia Huai
		processing
Zhongyan Trade	Qingdao, Shandong	International	Subsidiary	Limited company	Shao Hua Zhen
		trade
Yanmei Shipping	Jining, Shandong	Transportation	Subsidiary	Limited company	Wang Xin Kun
		service via river
		and lakes
Yulin Power	Yulin, Shanxi	Prepare for	Subsidiary	Limited company	Wang Xin
		construction
Heze Power	Heze, Shandong	Prepare for	Subsidiary	Limited company	Wang Xin
		construction
Yanmei Australia	Australia	Investment	Subsidiary	Limited company	–
		holding
Austar Coal Mine	Australia	Coal exploitation	Subsidiary	Limited company	–

29

• (2) For the related parties where a control relationship exists, the registered capital and paid-in capital and the changes therein are as follows:

	At January 1, 2005
Name of related parties	and December 31, 2005
	RMB
Yankuang Group	3,090,336,000
Zhongyan Trade	2,100,000
Yanmei Shipping	5,500,000
Yulin Power	800,000,000
Yanmei Australia	191,285,954
Austar Coal Mine	191,285,954
Heze Power	600,000,000

(3) For the related parties where a control relationship exists, the proportion and changes of equity interest are as follows:

Name of	January 1, 2005	January 1, 2005	Addition		December 31, 2005	December 31, 2005
related parties	RMB	%	RMB	%	RMB	%
Yankuang Group	1,670,000,000	54.33	1,002,000,000	–	2,672,000,000	54.33
Zhongyan Trade	1,100,000	52.38	–	–	1,100,000	52.38
Yanmei Shipping	5,060,000	92.00	–	–	5,060,000	92.00
Yulin Power	776,000,000	97.00	–	–	776,000,000	97.00
Yanmei Australia	191,285,954	100.00	–	–	191,285,954	100.00
Austar Coal Mine	191,285,954	100.00	–	–	191,285,954	100.00
Heze Power	–	–	574,000,000	95.67	574,000,000	95.67

• (4) Significant transactions entered with the Company and above-mentioned related parties in current year:

• (a) Acquisition of Jining III

On January 1, 2001, the Company acquired Jinjing III according to the “Agreement for Acquisition of Jining III” signed with Yankuang Group at the consideration of RMB2,450,900,000 and mining rights of RMB132,480,000, totally RMB2,583,380,000.

By December 31, 2005, the Company had paid RMB2,517,140,000 to Yankaung Group for the above acquisition, including the consideration of RMB2,450,900,000 and the mining rights of RMB66,240,000. Included in the above payment, RMB13,248,000 was paid in current year for acquisition of the mining rights.

According to the agreement, the Company will pay the interest-free consideration for the cost of mining rights over ten years by equal instalments before December 31 of each year commencing from year 2001. The Company is scheduled to pay for the mining rights of RMB13,248,000 as the sixth instalment before December 31, 2006.

The consideration for the acquisition is determined according to revaluation price.

30

(b) Sales and purchases

Sales and service provided Sales of coal – Yankuang Group and its affiliates Public utilities and facilities income – Yankuang Group and its affiliates Material and spare parts sales – Yankuang Group and its affiliates Purchases – Yankuang Group and its affiliates	Year ended 2005 RMB’000 856,580 29,000 369,855 1,255,435 341,935	December 31, 2004 RMB’000 523,015 29,000 350,873
		902,888
		303,549

The price of the above transaction is determined according to market price or negotiated price.

(c) Construction services

Mining Equipment installation in Jining III Yankuang Group Civil engineering in Jining III Yankuang Group	Year ended 2005 RMB’000 – – –	December 31, 2004 RMB’000 123,294 37,048
		160,342

The price of the above transaction is determined at market price or negotiated price.

(d) Amount due to or from related parties

Account Company Notes receivable Yankuang Group and its affiliates Accounts receivable Yankuang Group and its affiliates Other receivables (Note) Yankuang Group and its affiliates Prepayments Yankuang Group and its affiliates Long-term equity Yankuang Group investment and its affiliates	December 31, 2005 RMB 7,495,158 2,915,543 49,153,257 4,100,645 – 63,664,603	December 31, 2004 RMB 8,419,139 7,106,878 333,289,930 3,342,400 574,000,000
		926,158,347

31

Accounts payable Yankuang Group and its affiliates Advances from customers Yankuang Group and its affiliates Other payables (Note) Yankuang Group and its affiliates Long-term payable due within one year Yankuang Group Long-term payables Yankuang Group	20,637,078 52,533,644 473,671,303 13,247,800 52,991,760 613,081,585	37,611,106 31,161,331 44,278,697 13,247,800 66,239,560
		192,538,494

Note: Other receivables due from Yankuang Group are interest free and receivable on demand.

Other payables due to Yankuang Group are interest free and repayable on demand.

(e) Other transactions

• (1) Pursuant to an agreement signed between the Company and Yankuang Group, Yankuang Group manages the retirement benefits, medical benefits and other benefits of the two companies and makes combined payments of the total retirement benefits of the two companies to the government department in charge of the related funds. Amount charged to expenses of the Company for the year of 2005 and 2004 are RMB685,252,000 and RMB535,648,000 respectively.

• (2) Pursuant to an agreement signed by the Company and Yankuang Group, the department and subsidiaries of Yankuang Group provided the following services and charged related service fees during the year:

Electricity Repairs and maintenance Technical support and training fee Mining rights fees (Note) Public utilities expenses Road transportation fee Gases and eructate expenses Buildings management fee Children tuition fee Others Total	Year ended 2005 RMB’000 351,313 197,624 15,130 12,980 4,640 53,346 11,020 37,200 16,600 15,530 715,383	December 31, 2004 RMB’000 354,044 222,949 15,130 12,980 380 63,478 11,536 37,200 16,600 14,539
		748,836

• Note: Pursuant to the mining rights agreement between the Company and Yankuang Group, the Company pays annual mining rights fees to Yankuang Group at RMB12,980,000 in first ten years from February 1998, which is used to compensate the five coals’ mining rights given up by Yankuang Group; after ten years, the fee will be recalculated. The payment will stop until the last year of the useful life of the 5 mining rights.

• (3) Total amount of salaries paid to key management, including salaries, welfare and subsidies paid in the form of cash, goods and others, for the year of 2005 and 2004 are RMB5,906,139 and RMB3,090,369 respectively.

• (4) During the years of 2004 and 2005, the Company and Yankuang Group have made payments or collected receipts to or from individual third party or government authorities on behalf of each other, in respect of goods purchased, services received, other expenses and insurances. These payments and receipts made on behalf of the other have been recorded in other payables.

32

18. 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, 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.

The following table summarizes the differences between IFRS and PRC GAAP:

As per consolidated financial statements prepared under IFRS Impact of IFRS adjustments in respect of: – transfer to future development fund which is charged to income before income taxes under PRC GAAP – reversal of Work Safety Cost – release of negative goodwill to income – deemed interest expenses – write-off of pre-operating expenses of a subsidiary – reversal of goodwill amortisation – deferred tax effect on temporary differences not recognized under PRC GAAP – others As per consolidated financial statements prepared under PRC GAAP	Net income attri equity holders of for the year ende 2005 RMB’000 2,881,461 (381,208 ) (238,600 ) – 3,858 121,801 (15,006 ) 123,175 – 2,495,481	butable to the the Company d December 31, 2004 RMB’000 3,154,317 (331,548 ) (204,668 ) (27,620 ) 4,550 – – 111,976 778 2,707,785	Net assets a to equity hol Company as at 2005 RMB’000 17,618,577 (269,945 ) (443,268 ) (138,101 ) 113,220 121,801 (15,006 ) 146,279 8,070 17,141,627	ttributable ders of the December 31, 2004 RMB’000 15,523,751 (96,669) (204,668) (110,480 ) 109,362 – – 23,104 8,071 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.

33

19. 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:

Net income As previously reported Pooling of interest adjustment Net loss from Heze As restated	Year ende 2005 RMB’000 3,272,478 (8,586 ) 3,263,892	d December 31, 2004 RMB’000 1,499,249 –
		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 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.

34

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

Income attributable to the equity holders of the Company as reported under IFRS US GAAP adjustments: Additional depreciation charged on fair valued property, plant and equipment and prepaid lease payments 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 Amortization of negative goodwill on acquisition of Jining III Amortization of mining rights of Jining III Amortization of goodwill arising on acquisition of Jining II Amortization of goodwill arising on acquisition of the Railway Assets Amortization of goodwill arising on acquisition of Yanmei Shipping Loss of Heze included in the Group using the pooling of interest method Income under US GAAP Earnings per share under US GAAP, Basic and diluted Earnings per ADS under US GAAP Basic and diluted Equity attributable to the equity holders of the Company as reported under IFRS US GAAP adjustments: Difference in cost bases of property, plant and equipment and prepaid lease payments Additional depreciation/amortization charged on fair valued property, plant and equipment and prepaid lease payments 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 Goodwill arising on acquisition of Jining II Negative goodwill arising on acquisition of Jining III, net Mining rights of Jining III Additional deferred tax asset due to a higher tax base resulting from capitalization of mining rights Goodwill arising on acquisition of Railway Assets Amortization of goodwill on acquisition of Yanmei Shipping	Year ende 2005 RMB’000 2,881,461 187,885 (64,188 ) – 6,624 – – – (17,071 ) 2,994,711 RMB0.61 RMB30.44 A 2005 RMB’000 17,618,577 (2,561,032 ) 1,500,823 349,869 (10,106 ) – (99,359 ) 32,788 (97,240 ) 1,116	d December 31, 2004 RMB’000 3,154,317 187,418 (64,034 ) (27,620 ) 6,624 777 13,880 1,116 (8,586 ) 3,263,892 RMB0.69 RMB34.40 t December 31, 2004 RMB’000 15,523,751 (2,561,032 ) 1,312,938 411,871 (10,106 ) 27,621 (105,983 ) 34,974 (97,240 ) 1,116

35

Net assets of Heze incorporated under pooling of interest – current assets – property, plant and equipment, net – current liabilities – minority interests Consideration payable on acquisition of Heze Goodwill arising on acquisition of Heze Shareholders’ equity under US GAAP	– – – – (35,645 ) 16,699,791	442,355 192,963 (44,292 ) (25,592 )
		565,434
		(584,008 ) –
		14,519,336

Under US GAAP, the Group’s total assets would have been RMB20,189,379,000 and RMB17,379,062,000 at December 31, 2005 and 2004, respectively.

(ii) The Financial Information under PRC GAAP BALANCE SHEET At December 31, 2005

ASSETS CURRENT ASSETS: Bank balances and cash Current investments Notes receivable Dividends receivable Accounts receivable Other receivables Prepayments Inventories Deferred expenses Other current assets TOTAL CURRENT ASSETS LONG-TERM INVESTMENTS Long-term equity investments	The Group December 31, December 31, 2005 2004 RMB RMB 7,278,972,385 5,278,468,720 640,000,000 850,000,000 2,100,443,880 898,465,509 – – 134,802,711 340,848,078 143,528,596 432,247,118 73,704,963 60,049,058 470,501,129 485,428,372 62,444,803 56,644,671 157,511,340 103,406,734 11,061,909,807 8,505,558,260 81,117,603 646,226,054	The Group December 31, December 31, 2005 2004 RMB RMB 7,278,972,385 5,278,468,720 640,000,000 850,000,000 2,100,443,880 898,465,509 – – 134,802,711 340,848,078 143,528,596 432,247,118 73,704,963 60,049,058 470,501,129 485,428,372 62,444,803 56,644,671 157,511,340 103,406,734 11,061,909,807 8,505,558,260 81,117,603 646,226,054	The Company December 31, December 31, 2005 2004 RMB RMB 6,297,641,649 5,003,516,578 640,000,000 850,000,000 2,100,243,880 897,865,509 – 350,456 134,802,711 340,848,078 398,177,622 401,278,358 78,776,194 66,218,808 428,483,999 474,377,994 62,346,044 55,863,146 157,511,340 103,406,734 10,297,983,439 8,193,725,661 1,597,035,257 1,618,135,335	The Company December 31, December 31, 2005 2004 RMB RMB 6,297,641,649 5,003,516,578 640,000,000 850,000,000 2,100,243,880 897,865,509 – 350,456 134,802,711 340,848,078 398,177,622 401,278,358 78,776,194 66,218,808 428,483,999 474,377,994 62,346,044 55,863,146 157,511,340 103,406,734 10,297,983,439 8,193,725,661 1,597,035,257 1,618,135,335
				8,193,725,661
				1,618,135,335
Including: Discrepancy on consolidation	18,936,910	10,045,361	–	–
Long-term debt investments TOTAL LONG TERM INVESTMENTS FIXED ASSETS: Fixed assets – cost Less: Accumulated depreciation Fixed assets – net book value Materials held for construction of fixed assets Fixed assets under construction TOTAL FIXED ASSETS	– 81,117,603 15,978,522,004 7,902,722,461 8,075,799,543 194,334,918 711,236,841 8,981,371,302	– 646,226,054 15,024,982,743 6,773,521,923 8,251,460,820 1,993,287 84,512,193 8,337,966,300	162,200,000 1,759,235,257 15,669,699,268 7,883,750,808 7,785,948,460 8,926,618 124,679,186 7,919,554,264	–
				1,618,135,335
				14,813,883,039 6,766,087,913
				8,047,795,126 1,993,287 81,594,857
				8,131,383,270

36

INTANGIBLE ASSETS AND OTHER ASSETS Intangible assets Long-term deferred expenses TOTAL INTANGIBLE ASSETS AND OTHER ASSETS TOTAL ASSETS LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Notes payable Accounts payable Advances from customers Salaries and wages payable Taxes payable Other payables Long-term payable due within one year TOTAL CURRENT LIABILITIES LONG-TERM LIABILITIES: Long-term loan Long-term payable TOTAL LONG-TERM LIABILITIES TOTAL LIABILITIES MINORITY INTERESTS SHAREHOLDERS’ EQUITY: Share capital Capital reserves Surplus reserves	815,161,408 148,620,077 963,781,485 21,088,180,197 136,779,128 381,517,651 527,865,895 127,539,246 897,202,321 1,194,089,906 304,709,446 3,569,703,593 – 322,936,910 322,936,910 3,892,640,503 53,912,439 4,918,400,000 4,865,480,791 1,528,790,703	827,575,090 – 827,575,090 18,317,325,704 – 515,892,192 458,038,528 80,241,534 784,731,685 616,637,336 218,732,157 2,674,273,432 200,000,000 162,908,540 362,908,540 3,037,181,972 27,673,169 3,074,000,000 6,501,949,387 1,154,468,484	761,255,776 – 761,255,776 20,738,028,736 136,779,128 381,517,651 527,793,426 126,888,680 895,394,930 885,365,147 304,709,446 3,258,448,408 – 322,936,910 322,936,910 3,581,385,318 – 4,918,400,000 4,865,480,791 1,528,474,119	794,940,709 –
				794,940,709
				18,738,184,975
				– 515,892,192 458,022,488 80,223,075 784,396,963 1,065,538,997 218,732,157
				3,122,805,872
				200,000,000 162,908,540
				362,908,540
				3,485,714,412
				–
				3,074,000,000 6,501,949,387 1,154,151,900
Including: Statutory common welfare fund	509,649,665	384,875,592	509,491,373	384,717,300
Cash dividend proposed after the balance sheet date 1,082,048,000 799,240,000 Unappropriated profits 4,761,923,924 3,722,812,692 Translation reserve (15,016,163 ) – TOTAL SHAREHOLDERS’ EQUITY 17,141,627,255 15,252,470,563 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 21,088,180,197 18,317,325,704 STATEMENT OF INCOME AND PROFITS APPROPRIATION The Group December 31, December 31, 2005 2004 RMB RMB Revenue from principal operations 12,705,529,905 12,209,163,529 Less: Cost of principal operations 5,907,119,918 5,086,472,309 Sales taxes and surcharges 258,504,729 231,340,630 Profit from principal operations 6,539,905,258 6,891,350,590			1,082,048,000 799,240,000 4,762,240,508 3,723,129,276 – – 17,156,643,418 15,252,470,563 20,738,028,736 18,738,184,975 The Company December 31, December 31, 2005 2004 RMB RMB 12,705,529,905 12,209,163,529 5,908,395,835 5,087,919,186 258,504,729 231,340,630 6,538,629,341 6,889,903,713	799,240,000 3,723,129,276 –
				15,252,470,563
				18,738,184,975
				6,889,903,713

37

Add: Profits from other operations 43,674,129 Less: Operating expenses 997,377,040 General and administrative expenses 1,627,752,362 Financial expenses 45,193,046 Operating profit 3,913,256,939 Add: Investment income 9,092,385 Non-operating income 2,397,034 Less: Non-operating expenses 13,927,078 Total profits 3,910,819,280 Less: Income taxes 1,414,861,832 Minority interest 475,997 Net profit 2,495,481,451 Add: Unappropriated profits at the beginning of the year 3,722,812,692 Profits available for appropriation 6,218,294,143 Less: Appropriations to statutory common reserve fund 249,548,146 Appropriations to statutory common welfare fund 124,774,073 Profits available for appropriation to shareholders 5,843,971,924 Less: Cash dividend proposed after the balance sheet date 1,082,048,000 Unappropriated profits at the end of the year 4,761,923,924 CASH FLOW STATEMENT For the year ended December 31, 2005	Add: Profits from other operations 43,674,129 Less: Operating expenses 997,377,040 General and administrative expenses 1,627,752,362 Financial expenses 45,193,046 Operating profit 3,913,256,939 Add: Investment income 9,092,385 Non-operating income 2,397,034 Less: Non-operating expenses 13,927,078 Total profits 3,910,819,280 Less: Income taxes 1,414,861,832 Minority interest 475,997 Net profit 2,495,481,451 Add: Unappropriated profits at the beginning of the year 3,722,812,692 Profits available for appropriation 6,218,294,143 Less: Appropriations to statutory common reserve fund 249,548,146 Appropriations to statutory common welfare fund 124,774,073 Profits available for appropriation to shareholders 5,843,971,924 Less: Cash dividend proposed after the balance sheet date 1,082,048,000 Unappropriated profits at the end of the year 4,761,923,924 CASH FLOW STATEMENT For the year ended December 31, 2005	39,031,783 1,473,128,158 1,298,030,947 (44,159,594 ) 4,203,382,862 25,174,956 11,936,922 125,671,496 4,114,823,244 1,406,785,722 252,676 2,707,784,846 2,220,500,672 4,928,285,518 270,811,034 135,421,792 4,522,052,692 799,240,000 3,722,812,692	41,770,016 1,001,895,961 1,603,012,619 34,758,133 3,940,732,644 (20,638,842 ) 2,185,909 12,618,939 3,909,660,772 1,414,179,321 – 2,495,481,451 3,723,129,276 6,218,610,727 249,548,146 124,774,073 5,844,288,508 1,082,048,000 4,762,240,508	37,812,551 1,477,900,400 1,291,676,868 (43,365,374 )
				4,201,504,370 25,556,243 11,605,824 125,622,993
				4,113,043,444 1,405,258,598 –
				2,707,784,846 2,220,752,156
				4,928,537,002 270,778,484 135,389,242
				4,522,369,276 799,240,000
				3,723,129,276
1. CASH FLOW FROM OPERATING ACTIVITIES: Cash received from sales of goods or rendering of services Refunds of taxes Other cash received relating to operating activities Sub-total of cash inflows Cash paid for goods and services Cash paid to and on behalf of employees Taxes payment Other cash paid relating to operating activities	The Group December 31, December 31, 2005 2004 RMB RMB 13,476,932,655 13,811,316,864 – 275,624,031 588,838,380 192,623,914 14,065,771,035 14,279,564,809 3,903,830,672 3,631,919,750 1,785,519,649 1,702,043,503 2,537,018,590 2,030,649,428 1,846,492,022 2,488,706,281		The Company December 31, December 31, 2005 2004 RMB RMB 13,475,817,162 13,810,353,368 – 275,624,031 186,985,815 195,917,541 13,662,802,977 14,281,894,940 3,921,446,617 3,646,457,066 1,765,543,379 1,700,453,371 2,536,222,962 2,029,066,507 2,205,656,139 2,496,598,428
				14,281,894,940
				3,646,457,066 1,700,453,371 2,029,066,507 2,496,598,428

		The	Group		The	Company
		December 31,		December 31,	December 31,	December 31,
		2005		2004	2005	2004
		RMB		RMB	RMB	RMB
1.	CASH FLOW FROM
	OPERATING ACTIVITIES:
	Cash received from sales of goods
	or rendering of services	13,476,932,655	13,811,316,864		13,475,817,162	13,810,353,368
	Refunds of taxes	–		275,624,031	–	275,624,031
	Other cash received relating
	to operating activities	588,838,380		192,623,914	186,985,815	195,917,541
	Sub-total of cash inflows	14,065,771,035	14,279,564,809		13,662,802,977	14,281,894,940
	Cash paid for goods and services	3,903,830,672	3,631,919,750		3,921,446,617	3,646,457,066
	Cash paid to and on behalf of
	employees	1,785,519,649	1,702,043,503		1,765,543,379	1,700,453,371
	Taxes payment	2,537,018,590	2,030,649,428		2,536,222,962	2,029,066,507
	Other cash paid relating to
	operating activities	1,846,492,022	2,488,706,281		2,205,656,139	2,496,598,428

38

Sub-total of cash outflows NET CASH FLOW FROM OPERATING ACTIVITIES 2. CASH FLOW FROM INVESTING ACTIVITIES: Cash received from the returns of investments Cash received from return on investment Net cash received from disposal of fixed assets intangible assets and other long-term assets Cash received from acquisition of Heze Power Decrease in restricted cash Sub-total of cash inflows Cash paid to acquire fixed assets, intangible assets and other long-term assets Cash paid for investments	10,072,860,933 3,992,910,102 210,000,000 10,208,536 4,378,342 170,247,828 303,647 395,138,353 1,353,764,616 –	9,853,318,962 4,426,245,847 600,000,000 26,291,107 17,008,924 – – 643,300,031 783,022,445 2,090,585,001	10,428,869,097 3,233,933,880 210,000,000 10,819,392 4,214,255 – – 225,033,647 959,394,956 172,207,700	9,872,575,372 4,409,319,568 600,000,000 26,291,107 16,967,165 – – 643,258,272 779,522,963 2,350,282,380
Including: Net cash paid for acquisition of Heze Cash paid for acquisition of Southland Assets Increase in restricted cash	– – –	574,000,000 136,301,992 36,854,436	10,007,700 – –	574,000,000 – –
Sub-total of cash outflows NET CASH FLOW USED IN INVESTING ACTIVITIES 3. CASH FLOW FROM FINANCING ACTIVITIES: Cash received from issue of share capital Sub-total of cash inflows	1,353,764,616 (958,626,263 ) – –	2,910,461,882 (2,267,161,851 ) 1,756,875,383 1,756,875,383	1,131,602,656 (906,569,009 ) – –	3,129,805,343 (2,486,547,071 ) 1,756,875,383 1,756,875,383

Please also refer to the published version of this announcement in South China Morning Post.

39