CStone Pharmaceuticals - Annual Report 2007

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Annual Report

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	Pages
GROUP PROFILE	2
DEFINITIONS	5
FINANCIAL HIGHLIGHTS	7
CHAIRMAN’S STATEMENT	9
REVIEW OF OPERATIONS	13
MANAGEMENT DISCUSSION AND ANALYSIS	20
REPORT OF BOARD OF DIRECTORS	24
REPORT OF SUPERVISORY COMMITTEE	48
CORPORATE GOVERNANCE REPORT	50
INDEPENDENT AUDITOR’S REPORT	58
CONSOLIDATED INCOME STATEMENT CONSOLIDATED BALANCE SHEET CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL INFORMATION AUDITORS’ REPORT (PRC) BALANCE SHEET FOR THE COMPANY AND THE CONSOLIDATED BALANCE SHEET (under PRC GAAP) STATEMENT OF INCOME FOR THE COMPANY AND THE CONSOLIDATED STATEMENT OF INCOME (under PRC GAAP) CASH FLOW STATEMENT FOR THE COMPANY AND THE CONSOLIDATED CASH FLOW STATEMENT (under PRC GAAP) STATEMENT OF CHANGES IN EQUITY FOR THE COMPANY AND	59 60 62 63 65 129 131 133 135 136
THE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (under PRC GAAP)	138
NOTES TO THE FINANCIAL STATEMENTS (under PRC GAAP)	140
SUPPLEMENT (under PRC GAAP)	230
CORPORATE INFORMATION	234
APPENDIX	236

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Group Profi le

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France
Switzerland
Italy
Mexico
Brazil
Yanzhou Coal is located in Shandong Province, the People’s Republic of China (the “PRC”). Th e Company is principally
engaged in underground coal mining, preparation and processing, sales, and railway transportation of coal. As at the end of
this reporting period, the total issued share capital of the Company is 4,918.4 million shares.
In 2007, the Company produced 35.64 million tonnes of raw coal; sold 35.11 million tonnes of salable coal, of which 3.16
million tonnes were export sales; and realized a net income attributable to equity holders of the Company of RMB3,230.5
million, making the Company one of the most profi table coal enterprises in the PRC.
PRODUCTS
Th e Company’s main products are prime quality low sulphur coal, which is suitable for use in large-scale power plants
as steam coal, metallurgical production as coal usually use with coking coal and the process of pulverized coal injection
(“PCI”).
CUSTOMERS
Th e customers of the Group are mainly located in Eastern China, Southern China and the East Asia such as Japan, South
Korea.
STOCK ISSUANCE
Successfully listed on New York, Hong Kong and Shanghai stock markets and issued 850 million H shares and 80
million A shares in 1998.
Successfully issued 100 million new A shares and 170 million new H shares in 2001.
Successfully issued 204 million new H shares in 2004.
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Group Profi le

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Jiaoji Line
Beijing
Tianjin Yanshi Line
Japan Qingdao
Korea
Jinan Rizhao
Xinxiang
Lanshan
Lianyungang
India Taiwan Xinyan Line
Xuzhou
Zhengzhou
Nanjing Shanghai
Th e Philippines Beijing-Shanghai Line
Export market for coal
Development of coal mine
Domestic sales market
Austar Coal Mine, Australia
ASSETS ACQUISITION MAJOR AWARDS IN 2007
In 1998, the Company acquired Jining II coalmine; 2007 Standard & Poor Greater China
Selected Stocks Portfolio;
In 2001, the Company acquired Jining III coalmine;
Platts Top 250 Global Energy
In 2002, the Company acquired Railway Assets;
Companies, and ranked No.7
In 2004, the Company acquired Austar coalmine; Global Coal and Consumption Fuel
Enterprise;
In 2004, the Company set up Yancoal Australia Pty;
Constituent Stock in respect of
In 2004, the Company set up Yulin Neng Hua; corporate governance index by the
Shanghai Stock Exchange;
In 2005, the Company acquired Heze Neng Hua;
2006 Zhongzheng Top 100 Listed
In 2006, the Company acquired Shanxi Neng Hua. Companies by China Securities
Journal;
Golden Top 100 Listed Companies in
relation to the governance of the board
of directors selected by Securities Daily
Report and the Company was also
selected as the “Outstanding Board in
Coal Industry in China”;
China 2006 Top 100 Listed Companies
in Investors’ Relationship Management
by China Securities Journal; and
2007 Most Respected Listed Company
in China by World Finance Lab.
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Group Profi le

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Production and Operation Structure of Group

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Nantun Coal Mine
Xinglongzhuang Coal Mine
Baodian Coal Mine
Dongtan Coal Mine
Jining II Coal Mine
Jining III Coal Mine
Railway Transportation Department
Branch Company in Zhenjiang
Materials & Goods Supply Centre
Complex Mining Machinery
Management Center
Austar Coal Mine Pty Limited
Yancoal Australia Pty Limited
(Austar Coal Mine)
Shanxi Heshun Tianchi Energy
Company Limited
Yanzhou Coal Shanxi Neng Hua (Tianchi Coal Mine)
Company Limited
Shanxi Tianhao Company Limited
(0.1Mt Methanol Project)
Yanzhou Coal Yulin Neng Hua
Company Limited
(0.6Mt Methanol Project)
Yanmei Heze Nenghua Company Zhaolou Coal Mine
S h andong Yanmei Shipping Co., Ltd.
Zhongyan Trading Co., Ltd.
of Qingdao Bonded
branches
coal mines and operation
Wholly-owned subsidiaries
Yanzhou Coal Mining Company Limited
Controlled entities
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In this annual report, unless the context requires otherwise, the following expressions have the following meaning:

“Yanzhou Coal”, “Company” or	means	Yanzhou Coal Mining Company Limited, a joint stock limited
“the Company”		company incorporated in the PRC and the H Shares, the ADSs and
		A Shares of which are listed on the Hong Kong Stock Exchange,
		New York Stock Exchange Inc. and the Shanghai Stock Exchange,
		respectively;
“Group” or “the Group”	means	the Company and its subsidiaries;
“Yankuang Group”,	means	Yankuang Corporation Group Limited, a company with limited
“the Controlling Shareholder”,		liability established in 1996, being the controlling shareholder of the
or “Parent Company”		Company holding 52.86% of the total share capital of the Company;
“Yulin Neng Hua”	means	Yanzhou Coal Yulin Neng Hua Company Limited, a company with
“Yushuwan Coal Mine Company” “Heze Neng Hua” “Shanxi Neng Hua”	means means means	limited liability incorporated under the laws of the PRC in 2004 and a 97% non-wholly owned subsidiary of the Company, mainly undertaking the construction and operation of 0.6 million tonnes of methanol project; Shaanxi Yushuwan Coal Mine Company Limited, a joint venture to be invested by the Company, Zhengda Energy & Chemicals Company Limited and Yushen Coal Company Limited of Yushen City and mainly undertaking construction and operation of Yushuwan coal mine, of which 41% equity interest will be held by the Company. Yanmei Heze Neng Hua Company Limited, a company with limited liability incorporated under the laws of the PRC in 2004 and a 96.67% non-wholly owned subsidiary of the Company, mainly undertaking the development of Juye coal f eld in Shandong province. Yanzhou Coal Shanxi Neng Hua Company Limited, a company with limited liability incorporated under the laws of the PRC in 2002 and
		a wholly-owned subsidiary of the Company, mainly undertaking
		the management of the projects invested in Shanxi province by the
		Company.
“Tianchi Energy”	means	Shanxi Heshun Tianchi Energy Company Limited, a company with
		limited liability incorporated under the laws of the PRC in 1999 and
		a 81.31% non-wholly owned subsidiary of Shanxi Neng Hua, mainly
		undertaking the production and operation of Tianchi coal mine.

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“Tianhao Chemicals”	means	Shanxi Tianhao Chemicals Company Limited, a joint stock company
		incorporated under the laws of the PRC in 2002 and a 99.85% non-
		wholly owned subsidiary of Shanxi Neng Hua, mainly undertaking the
		construction and operation of the 0.1 million tonnes methanol project;
“Yancoal Australia Pty”	means	Yancoal Australia Pty Limited, a company with limited liability
		incorporated under the laws of Australia in 2004 and a wholly-owned
		subsidiary of the Company, mainly undertaking the management of
		the projects invested in Australia by the Company;
“Austar Company”	means	Austar Coal Mine Pty Limited, a company with limited liability
		incorporated under the laws of Australia in 2004 and a wholly-owned
		subsidiary of Yancoal Australia Pty Limited, mainly undertaking the
		construction and operation of Austar coal mine;
“Railway Assets” “Hong Kong Stock Exchange” “Hong Kong Listing Rules” “H Shares” “A Shares”	means means means means means	the railway asset specif cally used for transportation of coal for the Company; T e Stock Exchange of Hong Kong Limited; T e Rules Governing the Listing of Securities on T e Stock Exchange of Hong Kong Limited (as revised from time to time); overseas listed foreign invested shares in the ordinary share capital of the Company, with a nominal value of RMB1.00 each, which are listed on the Hong Kong Stock Exchange; and domestic shares in the ordinary share capital of the Company, with a nominal value of RMB1.00 each, which are listed on the Shanghai Stock Exchange.

Financial Highlights

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

Th e fi nancial highlights are prepared based on the fi nancial information set out in the audited summary of consolidated income statement, summary of consolidated balance sheet, and summary of consolidated statement of cash fl ows of the Group in 2007, 2006, 2005, 2004 and 2003.

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OPERATING RESULTS

		Year	ended 31st December	ended 31st December
	2007	2006	2005	2004	2003
	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
Net sales
Net sales of coal	14,356,930	11,846,948	11,353,485	10,354,337	6,794,335
Of which: the Company	13,451,697	11,710,664	11,353,485	10,354,337	6,794,335
Domestic	12,831,496	9,365,857	8,421,462	7,406,988	4,337,089
Export Shanxi Neng Hua Yancoal Australia Pty Net Income of Railway Transportation Services Total Net Sales Gross Prof t Interest Expenses Income Before Income Taxes Net Income attributable to equity holders of the Company Earnings per Share Dividend per Share Note 1	620,201 243,571 661,662 203,714 14,560,644 7,228,720 (27,222) 4,543,313 3,230,450 RMB0.66 RMB0.170	2,344,807 21,875 114,409 160,399 12,007,347 5,817,278 (26,349) 3,726,624 2,372,985 RMB0.48 RMB0.200	2,932,023 – – 163,437 11,516,922 6,228,334 (24,611) 4,419,973 2,881,461 RMB0.59 RMB0.220	2,947,349 – – 220,771 10,575,108 6,023,405 (35,942) 4,673,332 3,154,317 RMB0.66 RMB0.260	2,457,246 – – 154,585 6,948,920 3,193,897 (59,966) 1,974,918 1,386,686 RMB0.30 RMB0.164

Notes 1: Dividend per share of year 2007 represents the dividend proposed.

Financial Highlights

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ASSETS AND LIABILITIES

			31st December
	2007	2006	2005	2004	2003
	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
Net Current Assets	5,808,755	6,043,863	7,522,121	5,774,466	2,045,252
Net Book Value of Property,
Plant and Equipment	13,524,594	12,139,939	9,318,486	8,537,150	8,616,373
Total Assets	26,187,400	23,458,749	21,254,444	18,336,697	13,909,804
Total Borrowings	344,956	403,138	231,827	441,057	650,859
Equity attributable to equity
holders of the Company	21,417,537	18,931,779	17,618,577	15,523,751	11,083,239
Net Asset Value per Share	RMB4.35	RMB3.85	RMB3.58	RMB5.05	RMB3.86
Return on Net Assets (%)	15.07	12.53	16.35	20.32	12.51

SUMMARY STATEMENT OF CASH FLOWS

Net Cash from Operating Activities Increase (Decrease) in Cash and Cash Equivalent Net Cash Flow per Share from Operating Activities	2007 (RMB’000) 4,558,649 (250,995) RMB0.93	Year 2006 (RMB’000) 3,767,156 (1,149,916) RMB0.77	ended 31st December 2005 2004 (RMB’000) (RMB’000) 3,939,274 4,418,381 667,529 3,192,966 RMB0.80 RMB1.44	2003 (RMB’000) 2,701,236 479,599 RMB0.94

Notes:

As at 31st December, 2003 and 2004, the total share capital of the Company was 2,870 million shares and 3,074.0 million shares, respectively. As at 31st December, 2005, 2006 and 2007, the total share capital of the Company was 4,918.4 million shares. Earnings per share in the above fi nancial highlights are calculated according to the net income attributable to the equity holders of the Company in the relevant year and the weighted average of shares over the years. Th e dividend per share, net asset value per share and net cash fl ow per share from operating activities in the above fi nancial highlights are calculated based on the total share capital as at the end of each corresponding year of the Company.

Th e above fi nancial indicators of fi nancial year 2006 also consolidated the fi nancial statements of Shanxi Neng Hua during this reporting period. Since 2005, the fi nancial statements of the Company have consolidated the fi nancial statements of Heze Neng Hua. Since 2004, the fi nancial statements of the Company have consolidated the fi nancial statements of Shandong Yanmei Shipping Co. Ltd. (“Yanmei Shipping”), Yulin Neng Hua and Yancoal Australia Pty.

Th e taxes, surcharges and gross profi t resulting from the principal businesses of Yanmei Shipping have off set 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 Group, they are therefore not itemized in this report.

As at 31st December, 2007, Yulin Neng Hua and Heze Neng Hua are currently under project construction and do not have a signifi cant impact on the operational results of the Group. As such, their fi nancials are not itemized in this report.

Chairman’s Statement

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Wang Xin Chairman
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Benefi ting from the rapid economic development in China, price recovery of fundamental energy, steady increase in coal price and the great support of all the shareholders of the Company (the “Shareholders”) and the hard work of our staff , the Group achieved an outstanding result in 2007 through optimization of product and sale structure, enhancement of product quality, more stringent cost control and other operation strategies. Th e net income attributable to equity holders of the Company for the year 2007 was RMB3,230.5 million, representing an increase of 36.1% over that of the same period in 2006.

To express our gratitude to the Shareholders, the board of the directors of the Company (the “Board” or the “Directors”) proposes to declare a cash dividend payable in accordance with the Company’s persistent dividend policy at the sum of RMB836.1 million (tax included) or RMB0.17 per share (tax included).

ACHIEVEMENTS IN 2007

Stable Production of coal in 2007. Austar Coalmine in Australia and Shanxi Nenghua Tianchi Coalmine have been put into operations which have further expanded the production and sales volume and the operation scale of the Group. However, under the impact of port quota and natural disaster, the annual coal sales of Austar coalmine was 1.42 million tonnes which was below the sales target of 2 million tonnes set at the beginning of the year. Th e Company’s coalmines have been aff ected by the environment of State coalmine safety supervision and the adjustment in production system at the relevant coalmines, with production and sales volume of the Company decreased as compared with those at the same period of the previous year, and failed to meet the sales target of 34.5 million tonnes set at the beginning of the year. In 2007, the output of raw coal of the Company was 35.64 million tonnes, representing a decrease of 1.1% over that of 2006; sales of coal of the Company was 35.11 million tonnes, representing an increase of 1.3% over that of 2006; despite the decrease in production capacity, the net income attributable to the equity holders of the Company was RMB3,230.5 million, representing an increase of 36.1% over that of 2006.

Constructions of new projects have been making progress according to plans. Th e 100,000 tonnes methanol project of Shanxi Neng Hua has entered into the trial production stage and will commence its operation in the second quarter of 2008. Th e 600,000 tonnes methanol project of Yulin Neng Hua has entered into the stage of key equipment installation and adjustment and will commence its operation in the second half of 2008. Th e fi ling and approval processes in relation to the acquisition of mining rights regarding Shandong Zhaolou Colamine have been completed. Th e main electricity supply, wind forcing, water drainage and underground parking systems have also been formed. Application for the establishment of the Yushuwan coalmine project in Shaanxi Province has been submitted. Th e establishment of the joint equity corporation, Huadian Zouxian Power Generating Company Limited, has further extended the industrial chain of the Group.

Chairman’s Statement

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Improvement in the corporate governance of the Company as a result of operation standardisation. Based on the standardized systems and enhancement of professionalism within the Company, the internal control system has been established to further improve the internal control business process and system, and has commenced specialized projects on corporate governance. In 2007, the Company was selected as the “Standard & Poor Greater China Selected Stocks Portfolio”, the “SEE Corporate Governance Stocks”, “Top 100 Best Investors Relationship Management in China in 2006”and “Top 100 Securities in China in 2006”. Th e Company has also been awarded as the “Outstanding Board in Coal Industry in China”, “No. 7 Global Coal and Consumption Fuel Enterprise”, “Most Respected Listed Company in China”, “China (Coal) Annual Brand in the World Market in 2007”. All the above achievements have further enhanced the Company’s brand value.

Fulfi llment in social responsibilities, and achievement in scientifi c development. Th e Company has fulfi lled its social responsibilities at various stages of production operation and has achieved harmonious corporate growth in line with the environmental and social development. In 2007, the Company achieved safe production of zero death rate in the production of million tonnes of raw coal, together with clean production of approximately 1.2kg of mixture in 10 thousand tonnes of clean coal, all of these have maintained its leading position in the world. To enhance resource utilization, the Company has achieved a coal recovery rate of 80%, a shaft water utilization rate of 92%, and a waste utilization rate of 100%. Th e Company was named the “Environmental Friendly Coal Enterprise in China” by China Environment Protection Association, with three coalmines of the Company listed among the fi rst ten coalmines in China which fulfi lled the relevant requirements.

OUTLOOK FOR 2008

Th e demand and supply of coal in the domestic market have met an overall equilibrium. Th e coal price is maintaining at a high level, especially the price of high quality thermal coal which is expected to be stabilized at a higher level, while the price of clean coking coal in short supply will still have room for upward price adjustment. It is expected that the price of low quality coal will slightly decrease.

Since China’s economic growth rate in 2008 is rated at 8% by the PRC government, the demand of coal for electricity, metallurgy, chemical, building materials and other fundamental industries will remain strong as they sustain a relatively high development pace. Th e domestic coal resource supply will be increased due to additional production from the newly constructed coalmines as well as implementation by the PRC government of related policies to reduce coal export which at the same time increase coal import. Th e bottleneck of railway coal transportation capacity will still limit coal supply. Th e PRC Government will continue to regulate and close down sub-standard coalmines and set out stricter safety production requirements. Th e “Coal Industry Policy” promulgated by the State Development and Reform Commission further limits entrance to the industry, regulates development order, improves withdrawal mechanism and sets out an industry prospect and structure in favor of development of large scale coal groups so as to enhance concentration in coal industry in the PRC. Th e PRC government has suspended application for exploration rights, so as to prevent any possible excess coal production capacity as a result of over investment, and enhance the steady development of the coal market in the PRC.

Chairman’s Statement

Coal is expected to be in short supply in the international market, and the coal price will be signifi cantly higher than that of 2007. As the prices of international oil and natural gas have reached successive new high records, the position of coal as basic energy will be further enhanced. Major coal suppliers around the world will experience diminishing increase in coal supply, while Australia is limited by port capacity, China, Vietnam, Indonesia, South Africa and other countries will not signifi cantly increase coal export as they would like to meet domestic demand for coal. Th e aggregate global demand for coal will continue to increase as a result of the rapid development in electricity and metallurgy industries in Asia Pacifi c region, with more than 50% of global coal trading volume, will lead to a strong demand for quality thermal coal and coking coal. Since March 2008, spot price for Australian BJ thermal coal has stayed at approximately US$120 per tonne. It is expected that international coal price will increase signifi cantly in 2008 as compared with that of 2007, and will remain volatile at a high level.

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Th e average coal sales price of the Group is expected to increase signifi cantly in 2008. Currently, the Company has signed domestic coal sales contracts and intentions amounting to 32.30 million tonnes, among which the average net contract price of sales contracts amounting to 9.51 million tonnes increased by 38.10% over that of 2007; while price of the coal sales intentions of 22.79 million tonnes will fl uctuate in accordance with changes in the market. Th e sales plan in relation to export coal is 500,000 tonnes and the negotiation for export coal has not completed yet. However, the Company expects a signifi cant increase in contract price of export coal as compared with that of 2007.

Th e sales target of the Group for the year 2008 is 34.40 million tonnes, including (i) the Company’s sales target of 31.60 million tonnes; (ii) Shanxi Neng Hua’s sales target of 1.2 million tonnes; and (iii) Yancoal Australia’s sales target of 1.6 million tonnes.

OPERATING STRATEGIES

In 2008, the Company will continue to encounter various types of pressures and challenges such as to resettle the villages located above the coal fi eld, increase in costs, volatility in coal price, diffi culties in acquiring new coal resources. Th e resettlement of the villages located above the coal fi eld exists generally in the economic cycles of coalmines in the eastern part of China. Th e Company is not able to rule out any risk aff ecting its production as may be caused by the untimely resettlement of villages located above the coal fi elds. Moreover, factors such as general price hike, increase in expenses caused by policies will have a negative impact on the cost control of the Company; state macroeconomic adjustment policies, changes in supply and demand of coal, and transportation capacity of coal will cause volatility in coal price while the upward movement in the price of coal resources will increase the operation costs of external expansion of the Company.

Th e Company will continue to improve its profi tability and Shareholders’ return through implementation of strategies relating to organic development and external expansion in parallel. In 2008, the Company will focus on the following operating strategies:

Expediting the existing projects construction and continuously seek for new acquisition opportunities. The PRC government authority has put more emphasis on the development of coal chemical industry. With high prices of methanol products, the industry is positioned in an upward channel. Th e Company will leverage such excellent policies circumstance for coal chemical industry to ensure the commencement of production of the 100,000 tonnes methanol project of Shanxi Neng Hua and the 600,000 tonnes methanol project of Yulin Neng Hua in 2008. Th e Company will form a solid foundation for the development of its coal chemical products through enhancement of product quality, profi tability and brand image of the Company. Th e Company will also accelerate the trial production in the fourth quarter of Zhaolou coalmine in Shandong Province and the establishment of Yushuwan coalmine in Shaanxi Province. Meanwhile, through expanding assets scale of coal mines, developing and expanding the further processing of coal, the Company will continue to seek new investment opportunities of coal reserves both in the PRC and abroad. Save and except the factors such as increase in expenses as a result of new policies, the Company will try to keep the increase rate in coal sales cost below 15% as compared with that of 2007.

Chairman’s Statement

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Improving operation management, eff ective cost control and enhancing profi tability of the existing coal mines. First, the Company will stabilize the output and sales volume of its headquarters, emphasizing on optimizing the coalmine production system. Second, the Company will improve the marketing and sales system and continue to implement the “Th ree Nil Project” and the “Four Optimizations”, adjust products’ variety mix, increase production percentage of high quality clean coal, raise the sales percentage of strategic customers, improve spot auction sales model and leverage the distribution network of the Company to expand the scale of operation of the Company. Th ird, by giving prominence to management and cost control, the Company will ensure eff ective cost control through steady improvement to be made in the fi nancial control systems, strengthening of capital budgeting management, further expansion of budget range in terms of controllable costs and improving performance assessment systems.

Regulating operations and improving social responsibilities of the Company. Th e Company intends to further enhance the establishment of its internal control system and improve its internal control of work fl ow and system, establish and accomplish related functional departments, enhance corporate governance and strive for a further regulated operation. It is also the intention of the Company to comply with the relevant PRC laws and regulations in relation to environmental protection, saving of resources and reduction of disposals. Th rough its reliance on technological advancement, steady growth in the economy and a healthy ecological environment, the Company will maintain a steady economic development so as to express it gratitude to the Shareholders’ support and to achieve a stable and harmonious enhancement of social stability and effi ciency.

On behalf of the Board

Wang Xin

Chairman

18th April, 2008 Zoucheng, PRC

Review of Operations

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Yang Deyu Vice Chairman
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Th e following discussion is based on the Group’s audited fi nancial results for the two years ended 31st December 2007 prepared in accordance with IFRS.

ACHIEVEMENTS IN 2007

In 2007, raw coal production was 35.64 million tonnes, 35.11 million tonnes of salable coal sold and the railway transportation volume of coal reached 17.86 million tonnes. In 2007, net sales of the Company was RMB14,560.6 million, of which RMB14,356.9 million was attributed to the net sales of coal and RMB203.7 million was attributed to the railway transportation services (calculated on ex-mine basis and on the basis of transportation expenses being borne by the customers on designated railway assets), and the net income attributable to the equity holders of the Company amounted to RMB3,230.5 million.

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Raw Coal Production (ten thousand tonnes)
5,000
4,000
3,000
2,000
1,000
0
Year 2004 Year 2005 Year 2006 Year 2007
Net Sales (RMB: million)
16,000
12,000
8,000
4,000
0
Year 2004 Year 2005 Year 2006 Year 2007
3,915
3,466 3,605 3,564
14,561
12,007
11,517
10,575
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Saleable coal sales of saleable coal
(ten thousand tonnes) export
5,000
4,000
3,000
2,000
1,000
0
Year 2004 Year 2005 Year 2006 Year 2007
3,800
3,466 3,511
3,248
1,363
725
633
316
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Net Income Attributable to Equity Holders of the Company (RMB: million)

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4,000
3,200
2,400
1,600
800
0
Year 2004 Year 2005 Year 2006 Year 2007
3,231
3,154
2,881
2,373
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Review of Operations

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COAL PRODUCTION

In 2007, the raw coal production was 35.64 million tonnes, representing a decrease of 0.41 million tonnes or 1.1% as compared to the same period last year, among which, (1) the raw coal production of the Company was 32.83 million tonnes, representing a decrease of 2.66 million tonnes or 7.5%, as compared to the same period last year; (2) the raw coal production of Shanxi Neng Hua was 1.23 million tonnes, representing an increase of 1.11 million tonnes or 925.0% as compared with the same period last year because. Tianchi coalmine commenced its commercial operation in November 2006; and (3) the raw coal production of Yancoal Australia Pty was 1.58 million tonnes, representing an increase of 1.14 million tonnes or 259.1% as compared with the same period last year because Austar coalmine commenced its commercial operation in October 2006.

Th e output of salable coal of the Group was 34.56 million tonnes in 2007, representing a decrease of 0.08 million tonnes, or 0.2%, as compared with that of 2006, among which, (1) the output of the Company’s coal for sale was 32.07 million tonnes, representing a decrease of 2.02 million tonnes or 5.9%, as compared with that of 2006; (2) the output of salable coal of Shanxi Neng Hua was 1.22 million tonnes, representing an increase of 1.10 million tonnes or 916.7% as compared with that of 2006; and (3) the output of salable coal of Yancoal Australia Pty was 1.27 million tonnes, representing an increase of 0.84 million tonnes or 195.3% as compared with that of 2006.

Review of Operations

PRODUCT PRICES AND SALES

Th e following table sets out the coal prices of the Group for the two years ended 31st December, 2007:

		2007	2006
		(RMB/tonnes)	(RMB/tonnes)
1.	T e Company
	Clean Coal
	No.1 Clean Coal	593.88	505.38
	No.2 Clean Coal	585.60	479.40
	Domestic	593.87	493.02
	Export	345.10	442.53
	No.3 Clean Coal	456.29	377.72
	Domestic	476.75	387.10
	Export	358.90	362.55
2. 3.	Lump Coal Average Price for Clean Coal Domestic Export Screened Raw Coal Mixed Coal and Others Average Coal Price of T e Company of which: domestic Shanxi Neng Hua Yancoal Australia Pty	563.85 520.60 538.88 356.98 338.85 157.42 414.02 417.24 204.13 465.10	427.88 414.58 429.92 382.13 289.89 147.17 341.12 332.19 155.22 594.55

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Notes: Th e coal prices represent the invoice prices less sales tax, transportation cost and miscellaneous fees for coal sales.

Th e average coal price of the Company was RMB414.02/tonne in 2007, representing an increase of RMB72.90/tonne or 21.4% as compared with that of 2006, among which: the average domestic coal price was RMB417.24/tonne, representing an increase of RMB85.05/tonne or 25.6% as compared with that of 2006; the average export coal price was RMB356.98/tonne, representing a decrease of RMB25.15/tonne or 6.6% as compared with that of 2006.

Decrease in average export coal price of the Company was mainly due to the export of 0.83 million tonnes of coal of the Company in the fi rst quarter of 2007 (accounting for 47.7% of the Company’s total export in 2007, the contract of which was entered into in 1006, resulting in a decreased contract price as compared with that of the same period in 2006.

For the year 2007, the average coal price of Shanxi Neng Hua was RMB204.13/tonne.

For the year 2007, the average coal price of Yancoal Australia Pty was RMB465.10/tonne.

Review of Operations

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Th e following table sets out the Group’s sales volume and net sales of coal in terms of product categories for the fi nancial years ended 31st December 2007 and 2006, respectively:

			Year ended	31st December
		2007			2006
			% of total net			% of total net
	Sales volume Net	sales of coal	sales of coal	Sales volume Net	sales of coal	sales of coal
	(’000 Tonnes)	(RMB’000)	(%)	(’000 Tonnes)	(RMB’000)	(%)
1. T e Company
Clean Coal
No.1 Clean Coal	712.9	423,385	3.0	869.3	439,320	3.7
No.2 Clean Coal	7,260.0	4,251,462	29.6	5,566.3	2,668,468	22.5
Domestic	7,018.5	4,168,125	29.0	4,064.2	2,003,752	16.9
Export	241.5	83,337	0.6	1,502.1	664,716	5.6
No.3 Clean Coal	8,616.2	3,931,502	27.4	12,129.7	4,581,674	38.7
Domestic Export Lump Coal Subtotal for Clean Coal Domestic Exports Screened Raw Coal Mixed Coal and Others Subtotal for T e Company Of which: Domestic 2. Shanxi Neng Hua 3. Yancoal Australia Pty Total for the Group	7,120.4 1,495.8 693.0 17,282.1 15,544.8 1,737.3 11,357.5 3,850.7 32,490.3 30,753.0 1,193.2 1,422.6 35,106.1	3,394,638 536,864 390,726 8,997,075 8,376,874 620,201 3,848,454 606,168 13,451,697 12,831,496 243,571 661,662 14,356,930	23.7 3.7 2.7 62.7 58.4 4.3 26.8 4.2 93.7 89.4 1.7 4.6 100.0	7,495.6 4,634.1 555.4 19,120.7 12,984.5 6,136.2 10,826.4 4,383.1 34,330.2 28,194.0 140.9 192.4 34,663.5	2,901,583 1,680,091 237,649 7,927,111 5,582,304 2,344,807 3,138,506 645,047 11,710,664 9,365,857 21,875 114,409 11,846,948	24.5 14.2 2.0 66.9 47.1 19.8 26.5 5.4 98.8 79.0 0.2 1.0 100.0

Th e Group sold 35.11 million tonnes of coal in 2007, representing an increase of 0.45 million tonnes or 1.3% as compared with that of 2006, among which, (1) the sales volume of the Company was 32.49 million tonnes, representing a decrease of 1.84 million tonnes or 5.4%, of which domestic sales volume was 30.75 million tonnes, representing an increase of 2.56 million tonnes or 9.1% as compared with that of 2006; export sales volume was 1.74 million tonnes, representing a decrease of 4.40 million tonnes or 71.7% as compared with that of 2006. Th e change in sales structure is principally due to timely adjustment of product variety by the Company in light of the market needs which increased domestic sales; (2) sales volume of Shanxi Neng Hua was 1.19 million tonnes, representing an increase of 1.05 million tonnes or 750.0% as compared with that of 2006; and (3) sales volume of Yancoal Australia Pty was 1.42 million tonnes, representing an increase of 1.23 million tonnes or 647.4% as compared with that of 2006.

Th e Group’s coal products are exported to the East Asia, such as Japan and South Korea. Net export sales of coal in 2007 accounted for 8.9% of the Group’s total net sales of coal.

Domestic sales of the Group’s coal products are mainly concentrated in the eastern part of China, especially in the Shandong Province.

Review of Operations

Th e following table sets out the Company’s net sales of coal in terms of geographical regions for the years ended 31st December 2007 and 2006, respectively:

		Year ended 31st December	Year ended 31st December
	2007		2006
		% of total		% of total
	Net sales of coal	net sales of coal	Net sales of coal	net sales of coal
	(RMB’000)	(%)	(RMB’000)	(%)
1. T e Company
Eastern China
Shandong Province	9,224,497	64.3	6,544,702	55.2
Jiangsu Province	1,055,567	7.4	677,333	5.7
Zhejiang Province	492,588	3.4	449,143	3.8
Shanghai	365,363	2.5	506,584	4.3
Other Provinces in Eastern China	889,748	6.2	386,876	3.2
Subtotal for Eastern China Southern China Export Subtotal for the Company 2. Shanxi Neng Hua 3. Yancoal Australia Pty Total for the Group	12,027,763 803,733 620,201 13,451,697 243,571 661,662 14,356,930	83.8 5.6 4.3 93.7 1.7 4.6 100.0	8,564,638 801,219 2,344,807 11,710,664 21,875 114,409 11,846,948	72.2 6.8 19.8 98.8 0.2 1.0 100.0

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Note: Other provinces in the eastern part of China include Anhui Province, Fujian Province and Jiangxi Province whereas the provinces in the southern part of China includes Guangdong Province and Hunan Province.

Most of the Group’s coal sales were made to power plants, metallurgical mills, chemical plants etc.

Review of Operations

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Th e following table sets out the Group’s net sales of coal by industries for the fi nancial years ended 31st December 2007 and 2006, respectively:

		Year ended 31st December	Year ended 31st December
	2007		2006
		% of total		% of total
	Net sales of coal	net sales of coal	Net sales of coal	net sales of coal
	(RMB’000)	(%)	(RMB’000)	(%)
1. T e Company
Domestic	12,831,496	89.4	9,365,857	79.0
Power plants	3,073,592	21.4	2,696,769	22.7
Metallurgical mills	1,002,281	7.0	607,888	5.1
Construction material/
chemical companies	4,668,472	32.5	2,037,326	17.2
Fuel trading companies/others	4,087,151	28.5	4,023,874	34.0
Export Power plants Metallurgical mills Total for the Company 2. Shanxi Neng Hua 3. Yancoal Australia Pty Total for the Group	620,201 536,864 83,337 13,451,697 243,571 661,662 14,356,930	4.3 3.7 0.6 93.7 1.7 4.6 100.0	2,344,807 1,680,091 664,716 11,710,664 21,875 114,409 11,846,948	19.8 14.2 5.6 98.8 0.2 1.0 100.0

RAILWAY ASSETS

In 2007, railway transportation volume of the Company was 17.86 million tonnes, representing a decrease of 1.63 million tonnes or 8.4% as compared with that of 2006. Net income from railway transportation services of the Company was RMB203.7 million in 2007, representing an increase of RMB43.315 million or 27.0% as compared with that of 2006, which is principally due to an increase of 3.23 million tonnes in the volume of coal deliveries, of which the transportation expenses were borne by the customers.

Review of Operations

OPERATING EXPENSES AND COST CONTROL

In 2007, the total operating expenses of the Group were RMB10,186.6 million, representing an increase by RMB1,766.4 million, or 21.0%, as compared with that of 2006, of which: (1) costs of sales and costs of railway transportation service have increased by RMB1,141.8 million or 18.4% as compared with that of 2006; (2) the sales and general administrative expenses have increased by RMB624.6 million or 28.0% as compared with that of 2006. Th e total operating expenses to total net sales have decreased to 70.0% from 70.1% in 2006.

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Th e following table sets out the Group’s principal operating expenses, which are also expressed in percentages of the total net sales for the two years ended 31st December 2007 and 2006, respectively:

		Year ended 31st December	Year ended 31st December
	2007	2006	2007	2006
	(RMB’000)		(% of total net sales of coal)
Net sales
Net sales of coal Net income of railway transportation service Total net sales Costs of sales and costs of railway transportation service Materials Wages and employee welfare Electricity Depreciation Land subsidence, restoration, rehabilitation and environmental costs Repairs and maintenance Annual fee and amortization of mining rights Transportation expenses Other costs Total cost of sales and costs of railway	14,356,930 203,714 14,560,644 1,257,433 2,392,447 377,686 1,121,557 833,282 441,511 28,708 105,930 773,370	11,846,948 160,399 12,007,347 1,320,596 1,646,018 336,284 962,963 742,985 327,151 25,049 106,572 722,451	98.6 1.4 100.0 8.6 16.4 2.6 7.7 5.7 3.0 0.2 0.7 5.3	98.7 1.3 100.0 11.0 13.7 2.8 8.0 6.2 2.7 0.2 0.9 6.0
transportation service	7,331,924	6,190,069	50.4	51.6
Sales, general and administrative expenses	2,854,677	2,230,142	19.6	18.6
Total operating expenses	10,186,601	8,420,211	70.0	70.1

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Management Discussion and Analysis

Th e following discussion and analysis should be read in conjunction with the audited fi nancial statements of the Group for the year ended 31st December 2007 and the notes thereto included elsewhere in this report.

YEAR ENDED 31ST DECEMBER, 2007 COMPARED WITH YEAR ENDED 31ST DECEMBER 2006

Th e net sales in 2007 was RMB14,560.6 million, representing an increase of RMB2,553.3 million, or 21.3%, compared with RMB12,007.3 million in 2006, including (1) realized net sales of coal of RMB14,356.9 million, among which (i) realized net sales of coal of the Company was RMB13,451.7 million, representing an increase of RMB1,741 million or 14.9% compared with RMB11,710.7 million in 2006. Such increase was mainly due to an increase of average coal price resulting in an increase of net sales of coal by RMB2,368.5 million; and a decrease of coal sales volume resulting from the decrease of net sales by RMB627.5 million; (ii) net sales of coal of Shanxi Neng Hua was RMB243.6 million in 2007, representing an increase of RMB221.7 million or 1,013.5% as compared with RMB21.875 million in 2006. Such increase was mainly due to the increase of sales volume; (iii) net sales of coal of Yancoal Australia Pty was RMB661.7 million in 2007, representing an increase of RMB547.3 million or 478.4% compared with RMB114.4 million in 2006. Such increase was mainly due to the increase of sales volume; (2) net income from railway transportation service was RMB203.7 million, representing an increase of RMB43.315 million, or 27.0%, from RMB160.4 million in 2006. Such increase was principally due to an increase of 3.23 million tonnes in the volume of coal deliveries, of which the transportation expenses were borne by the customers.

Cost of sales and cost of railway transportation service increased by RMB1,141.8 million or 18.4%, to RMB7,331.9 million in 2007, as compared to RMB6,190.1 million in 2006. Among which: (1) the cost of coal sales of the Company was RMB6,367.7 million, representing an increase of RMB526.3 million or 9.0% as compared with RMB5,841.4 million in 2006; Unit cost of coal sales of the Company was RMB196.00, representing an increase of RMB25.85 or 15.2% as compared with RMB170.15 in 2006. Th e increase was mainly due to: (i) the Company charged retirement insurance and wage surcharge of production workers (which was previously charged to selling, general and administrative expenses) to sales cost, which increased the cost of coal sales per tonne by RMB13.27; (ii) the decrease of sales volume of 1,840,000 tonnes as compared with the previous year, resulting in an increase in unit fi xed cost which in turn increased cost of coal sales per tonne by RMB6.74; (iii) the increase in staff wage resulting in an increase in cost of coal sales per tonne by RMB5.26; (iv) the commodity price hike led to an increase of maintenance expense of material and supplies assets, which in turn led to an increase in cost of coal sales per tonne by RMB2.1; (v) the Company enhanced cost control and partially off set impacts from such cost increases. (2) the cost of coal sales of Shanxi Neng Hua was RMB191.2 million in 2007, representing an increase of RMB175.3 million or 1,101.8% as compared with that of 2006. Th e per tonne unit cost of coal sales of Shanxi Neng Hua was RMB160.24; and (3) the cost of coal sales of Yancoal Australia Pty was RMB600.7 million in 2007, representing an increase of RMB365.7 million or 155.6% as compared with that of 2006. Th e per tonne unit cost of coal sales of Yancoal Australia Pty was RMB422.27.

Management Discussion and Analysis

Selling, general and administrative expenses were RMB2,854.7 million in 2007, representing an increase of RMB624.6 million or 28.0% from RMB2,230.1 million of 2006, among which (1) sales, general and administrative expenses of the Company have increased by RMB599.3 million or 29.4% to RMB2,638.3 million from RMB2,039.0 million in 2006, which was mainly due to: (i) increase in the number of employees and rising salary level resulting in an increase in wages by RMB210.5 million as compared with the same period of previous year; (ii) expenses for mine structure written-off increased by RMB308.4 million as compared with the same period of previous year; (iii) since 1st August 2007, in accordance with the requirements of the People’s Government of Jining City, Shandong Province, the Company made provision of RMB8 per tonne of raw coal production for coal price adjustment fund, which increased selling, general and administrative expenses by RMB105.4 million; (iv) exchange loss increased by RMB66.246 million as compared with the same period of previous year; (v) other operation loss increased by RMB102.7 million as compared with the same period of previous year; (vi) the commodity price hike resulted in an increase in expenses for maintenance of material and supplies assets, offi ce and other expenses by RMB51.502 million as compared with the same period of previous year; (vi) the Company enhanced science and technology investment, which resulted in an increase of research and development expense by RMB48.823 million as compared with the same period of previous year; (viii) during the reporting period, the Company charged retirement insurance and wage surcharge of production workers (which was previously charged to selling, general and administrative expenses) to cost of sales, which resulted in a decrease in sales, general and administrative expenses by RMB335.3 million as compared with the same period of previous year; (2) selling, general and administrative expenses of Shanxi Neng Hua increased by RMB63.762 million or 616.2% to RMB74.109 million in 2007 from RMB10.347 million in 2006; (3) selling, general and administrative expenses of Yancoal Australia Pty decreased by RMB85.103 million or 76.4% to RMB26.332 million in 2007 from RMB111.4 million in 2006; and (4) the organizational cost and administration expenses of the projects under construction and other administrative expenses were RMB99.575 million.

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Other operating income increased by RMB33.093 million or 20.0% to RMB198.9 million in 2007 from RMB165.8 million in 2006. Th is was mainly due to: (1) the gain on sales of auxiliary materials increased by RMB13.956 million as compared with the same period last year; and (2) the interest income from bank deposits increased by RMB9.192 million.

Interest expenses increased by RMB873,000 or 3.3% to RMB27.222 million in 2007 from RMB26.349 million in 2006.

Income before income taxes increased by RMB816.7 million, or 21.9%, to RMB4,543.3 million in 2007 from RMB3,726.6 million in 2006.

Income attributable to the equity holders of the Company increased by RMB857.5 million, or 36.1%, to RMB3,230.5 million in 2007 from RMB2,373.0 million in 2006.

Total assets have increased by RMB2,728.7 million or 11.6% to RMB26,187.4 million as at 31st December, 2007 from RMB23,458.7million as at 31st December 2006. Th is was principally resulted from the Company’s production and operation activities.

Total liabilities have increased by RMB233.8 million or 5.2% to RMB4,698.8 million as at 31st December, 2007 from RMB4,465.0 million as at 31st December, 2006.

Equity attributable to equity holders of the Company has increased by RMB2,485.7 million or 13.1% to RMB21,417.5 million as at 31st December, 2007 from RMB18,931.8 million as at 31st December, 2006. Such increase was mainly due to the increase in profi t from operating activities.

Management Discussion and Analysis

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LIQUIDITY AND CAPITAL RESOURCES

In 2007, the Group’s principal source of capital was the cash fl ow from operations. Th e Group has utilised its capital mainly for payment of operating expenses, purchase of property, machinery and equipment, payment of Shareholders’ dividends and investment in the establishment of Huadian Zouxian Power Generation Company Limited.

Th e net cash fl ow from operating activities increased by RMB791.4 million or 21.0% to RMB4,558.6 million in 2007 from RMB3,767.2 million in 2006.

As at 31st December 2007, the bills and accounts receivable were RMB2,753.5 million, representing an increase of RMB541.6 million or 24.5% from RMB2,211.9 million as at 31st December, 2006, among which bills receivable has increased by RMB634.6 million or 31.7% to RMB2,639.0 million as at 31st December, 2007 from RMB2,004.4 million as at 31st December, 2006, which was mainly due to increase of bank acceptance bills. Accounts receivable has decreased by RMB92.955 million or 44.8% to RMB114.5 million as at 31st December, 2007 from RMB207.5 million as at 31st December, 2006. Such decrease was mainly due to (1) a decrease in new accounts receivable of the Company during this reporting period; and (2) a decrease in the balance of account receivable resulted from the strengthening eff orts in debt collection by the Company.

As reviewed and approved at the 16th meeting of the third session of the board of directors of the Company held on 18 April, 2008, impairment loss on accounts receivable and other receivables of RMB8.62 million was written-off .

As at 31st December, 2007, inventories have decreased by RMB139.5 million or 24.1% to RMB440.1 million from RMB579.6 million as at 31st December, 2006. Such decrease was due to decrease in coal inventories.

Prepayment and other current assets have increased by RMB95.163 million or 41.1% to RMB326.7 million as at 31st December, 2007, from RMB231.5 million as at 31st December, 2006. Such increase was mainly due to: (1) the prepayment of deposit for geological protection of coal fi elds of RMB200 million; and (2) the advances to suppliers decreased by RMB73.986 million.

As at 31st December, 2007, bills and accounts payable have decreased by RMB88.168 million or 11.8% to RMB657.5 million from RMB745.7 million as at 31st December, 2006.

Other payables and accrued expenses have increased by RMB771.4 million or 40.6% to RMB2,671.1 million as at 31st December, 2007 from RMB1,899.7 million as at 31st December, 2006, which was principally due to: (1) customer’s deposits increased by RMB267.8 million; (2) accrued wages increased by RMB126.5 million; (3) payables in respect of purchases of property, plant and equipment and construction materials increased by RMB172.6 million; (4) accrued payments for coal price adjustment fund was RMB105.4 million; and (5) accrued freight charges increased by RMB77.493 million.

Long-term liabilities have decreased by RMB37.651 million or 5.9% to RMB599.3 million as at 31st December 2007 from RMB637.0 million as at 31st December, 2006.

Management Discussion and Analysis

Pursuant to the Acquisition Agreement of Jining III Coal Minein the year 2000, the Company has paid the Controlling Shareholder RMB13.248 million for the acquisition of the mining rights of Jining III Coal Mine during this reporting period.

In 2007, the Company contributed RMB900 million to the establishment of Huadian Zouxian Power Generation Company Limited and classify the investment as an associate company. Such payment was made out of the Company’s internal resources.

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As at 31st December, 2007, the Group’s debt to equity ratio was 1.6%, which was calculated on the basis of the equity attributable to the equity holders of the Company and total amount of borrowings amounting to RMB21,417.5 million and RMB345 million, respectively.

Th e Group’s capital expenditure for purchase of property, machinery and equipment for year 2007 is RMB2,928.0 million, which decreased by RMB435.4 million or 12.9% as compared with RMB3,363.4 million for year 2006, which was mainly due to the decrease in the number of projects under construction and purchase of machinery and equipment as compared with that in 2006.

Th e Group’s capital expenditure for year 2008 is expected to be RMB3,679.0 million, which is intended to be made out of the Company’s internal resources.

Th e capital expenditure for the year 2007 and the estimated capital expenditure for the year 2008 of the Group are set out in the following table.

T e Company Yulin Neng Hua Heze Neng Hua Shanxi Neng Hua Yancoal Australia Pty Total	2008 (Estimated) (RMB million) 1,137.2 1,080.8 1,241.7 194.2 25.2 3,679.0	2007 (RMB million) 713.2 1,579.3 337.9 81.9 215.8 2,928.1

Considering the suffi ciency in cash fl ow and capital sources of the Group, the Company believes that it will have suffi cient capital to satisfy its operational and development requirements.

TAXATION

In 2007, the Company and all its subsidiaries incorporated in the PRC are still subject to an income tax rate of 33% on its taxable profi ts in 2007 and Yancoal Australia Pty is still subject to an income tax rate of 30% on its taxable profi ts.

Report of Board of Directors

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Th e Board is pleased to submit the Report of the Board of Directors for the year 2007 together with the audited fi nancial statements of the Group for the year ended 31st December, 2007.

PRINCIPAL ACTIVITIES

Th e Group is principally engaged in underground coal mining, preparation and processing, sales and railway transportation of coal.

FINANCIAL HIGHLIGHTS

A summary of the results of the Group, the assets and liabilities of the Group and the cash fl ow of the Group for each of the fi ve years ended 31st December, 2007, which were prepared in accordance with the International Financial Reporting Standards (“IFRS”), are set out in the section headed “Financial Highlights” of the report.

PROPOSED PROFIT APPROPRIATION

Th e profi t appropriation of the Company for the year ended 31st December, 2007 as proposed by the Board is as follows:

Net prof t attribute to the shareholders of the Company Unappropriated prof ts at the beginning of year Appropriation to statutory surplus reserve Distributable prof ts Dividends payable – annual cash dividends for previous year as approved at the annual general meeting Unappropriated prof ts at the end of the year of which: Proposed cash dividends af er the date of the balance sheet	(Prepared in accordance with PRC GAAP) RMB’000 2,693,298 6,307,126 286,822 8,713,602 983,680 7,729,922 836,128

Th e proposed profi t appropriation will be presented to the Shareholders for approval at the forthcoming 2007 annual general meeting of the Company (the “2007 AGM”).

Pursuant to the articles of association of the Company (the “Articles”), the Company’s fi nancial statements should be prepared in accordance with the PRC GAAP and the relevant laws and regulations as well as the IFRS and the accounting standards of the places in which the shares of the Company are listed. For the purpose of determining the dividends payable to the Shareholders in the relevant year, the lower of the profi ts aft er taxation in the fi nancial statements prepared according to these two accounting standards will be applied for the relevant year. For this purpose, audited profi ts aft er taxation in accordance with the PRC GAAP will be applied to determine the proposed cash dividends aft er the date of balance sheet for the year 2007.

Report of Board of Directors

DIVIDENDS

Th e Directors have decided to propose at the 2007 AGM a payment of cash dividends for the year 2007 at the amount of RMB836.1 million (tax included) or RMB0.17 per share (tax included). Subject to approval by the Shareholders at the 2007 AGM, the above dividends will be declared and paid to all Shareholders within two months aft er the 2007 AGM (if so approved).

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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.

MAJOR SUPPLIERS AND CUSTOMERS

Th e percentage of goods purchased and services attributable to the Company’s fi ve largest suppliers was less than 30% of the total purchase of the Company in 2007.

Net sales to the Company’s fi ve largest domestic customers accounted for less than 30% of the Company’s total net sales in 2007.

RESERVES

Details of changes in the reserves for the year ended 31st December, 2007 and details of the distributable reserves of the Company as at 31st December, 2007 are set out in Note 35 and Note 45 to the consolidated fi nancial statements prepared in accordance with the IFRS contained herein.

BORROWINGS

Details of the borrowings are set out in Note 33 to the consolidated fi nancial statements prepared in accordance with the IFRS contained herein.

PROPERTY, PLANT AND EQUIPMENT

Details of movements property, plant and equipment during the year ended 31st December, 2007 are set out in Note 25 to the consolidated fi nancial statements prepared in accordance with the IFRS contained herein.

EMPLOYEES’ PENSION SCHEME

Details of the employees’ pension scheme of the Company are set out in Note 42 to the consolidated fi nancial statements prepared in accordance with the IFRS contained herein.

Report of Board of Directors

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ONGOING CONNECTED TRANSACTIONS

Th e on-going connected transactions between the Group and Yankuang Group for the year 2007 included the following three aspects:

1. On-going Supply of Materials and Services

Th e on-going supply of materials and services between the Group and Yankuang Group are executed in accordance with the Provision of Materials and Water Supply Agreement, the Provision of Electricity Agreement, Provision of Labor and Services Agreement, the Provision of Equipment Maintenance and Repair Works Agreement and the Provision of Products and the Materials Agreement entered into between the Company and Yankuang Group on 10th January, 2006, each with an eff ective term from 1st January, 2006 to 31st December, 2008. Th ese agreements and the respective annual caps for such transactions for the each of the three fi nancial years have been approved by the independent Shareholders on 24th March, 2006.

Details of the on-going connected transactions are set out in the “Announcement on Continuing Connected Transactions of Yanzhou Coal Mining Company Limited”, which was published in China Securities Journal and Shanghai Securities News in China and Wen Wei Po and South China Morning Post in Hong Kong on 11th January, 2006 as well as in the circular of the Company dated 1st February, 2006.

Details of on-going supply of materials and services between the Group and Yankuang Group for the year 2007 are shown in the following table.

No. 1 2 3	Types of Connected Transaction Materials and water purchased from Yankuang Group Fuel and power purchased from Yankuang Group Labor and services provided	Agreement “Provision of Materials and Water Supply Agreement” “Provision of Electricity Agreement” “Provision of Labor and Services Agreement”	Annual cap for the year 2007 (RMB’000) 565,200 400,000 912,700	Value of transactions for the year 2007 (RMB’000) 454,649 368,993 718,482
	by Yankuang Group
4	Maintenance and repair services	“Provision of Equipment Maintenance and	300,000	215,102
	provided by Yankuang Group	Repair Works Agreement”
5	Products and materials sold to	“Provision of Products and Services Agreement”	3,050,000	1,610,106
	Yankuang Group

Report of Board of Directors

2. Mining Right Fee

According to the approval granted by the relevant state-owned assets management and coal industry management authorities when the Company was incorporated, and pursuant to the Mining Right Agreement entered into between the Company and Yankuang Group in October, 1997 as amended by the supplemental agreement entered in February, 1998, the Company has to pay RMB12.98 million per year to Yankuang Group as mining right fees of Nantun Coalmine, Xinglongzhuang Coalmine, Dongtan Coalmine, Baodian Coalmine and Jining II Coalmine (the “Five Coalmines”), which have been owned by the Company since its incorporation. Pursuant to the relevant agreements, Yankuang Group was authorised to collect the mining rights fee for ten years from 1997. Aft er ten years, if the government promulgates any applicable new regulations governing payment of mining right fees, such regulations will apply.

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During this reporting period, the Company has paid RMB12.98 million as the mining right fee for the Five Coalmines to Yankuang Group.

In September, 2006, the State Council approved the “Implementation Proposal on Pilot Reform for Promoting System for Paid Use of Coal Resources” jointly issued by the Ministry of Finance, the Ministry of Land & Resources and the National Development and Reform Commission, which stipulates that if any enterprise obtains coal mining rights not for value, and if such mining rights are explored and ascertained based on investment by the relevant PRC government authority, such enterprise shall pay a mining right fee upon completion of evaluation of the resource reserve remaining. Shandong Province is one of the pilots designated for the use of paid mining rights. As at this reporting date, detailed implementation rules regarding the use of paid coal mining rights of Shandong Province have not been issued.

Th e mining rights of all other coal mines owned by the Company and its subsidiaries were acquired for value.

3. Payment of Pension Fund

Pursuant to the Agreement Relating to Provision of Administrative Services for Pension Fund and Retirement Benefi ts entered into on 10th January, 2006, Yankuang Group undertakes to be responsible for the management of the payments of the pension insurance fund for the Group’s employees as well as management of the payments of pension and other benefi ts to retirees of the Group (the “Endowment Insurance Fund”) on a free of charge basis. Such transaction constitutes an exempt continuing connected transaction which has been approved by the Board. Th e annual limit of the amount of the Endowment Insurance Fund to be paid by the Company for the year 2007 as approved at the 4th Meeting of the Th ird Session of the Board on 4th March, 2006 was RMB 695 million. Th e amount actually paid by the Company for the year 2007 was RMB692.912 million.

Report of Board of Directors

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Views of the Independent non-executive Directors on the connected transactions of the Company

Th e Company’s independent non-executive Directors have reviewed the on-going connected transactions for the Group in the year 2007 and confi rmed that: (1) all such connected transactions have been: (i) entered into by the Group in its ordinary and usual course of business; (ii) conducted either on normal commercial terms, or where there are not suffi cient comparable transactions to judge whether they are on normal commercial terms, on terms no less favorable to independent third parties than terms available to or from the Group; and (iii) entered into in accordance with the relevant governing agreement on terms that are fair and reasonable and in the interests of the Shareholders as a whole; (2) the value of the connected transactions in respect of the on-going supply of materials and services stated under the paragraph headed “1. On-going Supply of Materials and Services” above has not exceeded the annual cap for the year 2007 approved by independent Shareholders on 24th March, 2006.

Pursuant to Rule 14A.38 of the Hong Kong Listing Rules, the Directors have engaged the auditors of the Company to perform certain agreed-upon procedures in respect of the continued connected transactions of the Company. Th e auditors have reported their factual fi ndings on these procedures to the Directors.

ACQUISITION OF CONNECTED ASSETS

Mining Right Consideration for Jining III Coalmine

Pursuant to the Jining III Coalmine Acquisition Agreement entered into between the Company and Yankuang Group in 2000, the consideration for the mining rights of Jining III Coalmine is approximately RMB132.5 million, which shall be paid to Yankuang Group in ten equal installments, free of interest. Payment has commenced since 2001 and in 2007, the Company has paid a total of RMB13.248 million to Yankuang Group.

Establishment of Yankuang Group Finance Company Limited

At the 13th meeting of the third session of the Board held on 3rd August, 2007, the establishment of Yankuang Group Finance Company Limited jointly by the Company with Yankuang Group and Zhongcheng Trust and Investment Company Limited was approved. Its principal activities include internal transfer and settlement of funds among diff erent accounts of its members, attract deposits from its members, extend loans to its members etc. Th e name and principal activities of the company are subject to the approval by China Banking Regulatory Commission and the confi rmation by the industry and commerce registration authorities. Th e proposed registered capital of the company is RMB500 million, of which the Company will contribute RMB125 million, representing 25% of the equity interest.

As at this reporting date, the procedures for the establishment of Yankuang Group Finance Company Limited have not been completed.

Report of Board of Directors

Heze Neng Hua’s Acquisition of Mining Right of Zhaolou Coalmine

Th e Company acquired 95.67% equity interest in Heze Neng Hua from Yankuang Group in December 2005. According to the relevant acquisition agreements, Heze Neng Hua has the right to acquire mining rights of Zhoulou Coalmine at any time within 12 months from Yankuang Group’s acquisition of the mining rights of Zhaolou Coalmine.

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On 28th June, 2006, Yankuang Group obtained the mining right certifi cate of Zhaolou Coalmine from the Ministry of Land and Resources. At the fi rst extraordinary general meeting of the Company for the year 2008 held on 30th January, 2008, the purchase of the mining rights of Zhaolou Coalmine by Heze Neng Hua from Yankuang Group at a consideration of RMB747.3 million was approved. Th e acquisition is still pending the fi nal approval by the relevant regulatory authorities in charge of national land and resources.

For details of the transaction, please refer to the “Announcement on Connected Transaction of Yanzhou Coal Mining Limited Company” dated 4th December, 2007 and the circular of the Company dated 14th December, 2007 in respect of the connected transaction and the proposal for amendments to the articles of association of the Company.

HOUSING SCHEME

According to the Provision of Labour and Services Agreement (which is set out in the paragraph headed “On-going Supply of Materials and Services” in the section headed “On-going Connected Transactions”), Yankuang Group is responsible for providing dormitories to its own employees and the employees of the Group. Th e Group and Yankuang Group share the incidental expenses relating to the provision of such dormitories on a pro-rata basis based on their respective numbers of employees and the amount agreed by mutual agreement. Such expenses amounted to RMB86.2 million and RMB86.269 million in 2006 and 2007, respectively.

Since 2002, the Company has paid to its employees a housing allowance, which is based on a fi xed percentage of the employees’ wages, for their purchase of residences. In the year 2007, the employees’ housing allowances paid by the Company amounted to RMB176.2 million in total.

Details of the housing scheme are set out in Note 43 to the consolidated fi nancial statements prepared in accordance with the IFRS contained herein.

Report of Board of Directors

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SUBSTANTIAL CONTROLLED COMPANIES OR JOINT STOCK COMPANIES OF THE COMPANY

							(RMB’000)
				Registered
				capital	Total assets	Net assets
				contributed	as at 31st	as at 31st	Net prof ts
		Main Products	Registered	by the	December,	December,	for the year
Name of Company	Nature of Business	or Services	Capital	Company	2007	2007	2007
Yanzhou Coal Yulin Neng Hua Co., Ltd.	Energy and chemicals	Mainly undertaking the	800,000	776,000	1,102,215	716,496	–54,479
		construction and operation
		of the 0.6Mt Methanol Project
Yanmei Shanxi Neng Hua Co., Ltd.	Investment management	Mainly undertaking management	600,000	600,000	1,123,194	558,933	–35,958
		of the project invested in Shanxi
Yanmei Heze Neng Hua Co., Ltd. Yancoal Australia Pty Limited Shandong Yanmei Shipping Co., Ltd. Zhong Yan Trading Co., Ltd. of Qingdao Bonded Area	Energy Investment management Goods transportation International trade	province by the Company Development of coal resource in Juye Coalf eld Mainly undertaking management of project invested in Australia by the Company River shipping, sales of coal and other products International trade, product processing, commodity exhibition, and storage	1,500,000 AUS64 million 5,500 2,100	1,450,000 AUS64 million 5,060 1,100	1,587,666 232,818 34,344 8,484	1,416,561 12,830 10,928 8,113	–39,145 31,549 10 –373

As at 31st December, 2007, the Company’s subsidiaries, Yulin Neng Hua and Heze Neng Hua, have not been commenced operation.

Report of Board of Directors

DISCLOSURE OF SIGNIFICANT EVENTS

Performance of the undertakings made by the Company, shareholders and the actual controlling person

Special undertakings made by Yankuang Group as the shareholder of the original non-tradable shares and the performance of the undertakings under the share reform plan:

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Name of Shareholders	Special Undertakings	Special Undertakings	Performance of Undertakings
	(1)	T e formerly non-tradable shares of the Company held	The formerly non-tradable
		by Yankuang Group should not be listed for trading	shares in the Company held
		purpose within forty-eight months from the date of	by Yankuang Group have not
		execution of the share reform plan;	been traded.
	(2)	In 2006, Yankuang Group would transfer part of its	In 2006, Yankuang Group
		operations and new projects relating to coal and power	completed the transfer of the
Yankuang Group Corporation Limited	(3)	which are in line with the Company’s development strategies to the Company in accordance with the relevant PRC regulations, with a view to enhancing the operating results of the Company and reducing the connected transactions and competition between Yankuang Group and the Company. Yankuang Group should allow the Company to participate and invest in, for the purpose of co-development of, the coal liquefaction project, which is being developed by Yankuang Group. All related expenses accrued by the share reform for the non-tradable shares should be borne by Yankuang Group.	coal project and new electricity project to the Company, which are in line with the Company’s development strategies. Yankuang Group is in the process of implementing its other undertakings and there has not been material progress in this respect. The undertaking has been fulf lled.

Increasing registered capital of Yancoal Heze Nenghua Co., Ltd.

At the 10th meeting of the third session of the Board held on 20th April, 2007, it was approved that Yancoal Heze Nenghua Co., Ltd. (“Heze Nenghua”) increased its registered capital from RMB600 million to RMB1,500 million, in which RMB876 million will be contributed by the Company. Aft er such capital increase, the equity interest held by the Company in Heze Nenghua will increase from 95.67% to 96.67%. Th e increased registered capital will be mainly used for the construction of Zhaolou Coal Mine.

Report of Board of Directors

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Establishment of Huadian Zouxian Power Generation Company Limited

As approved at the 13th meeting of the third session of the Board convened on 3rd August, 2007, Huadian Zouxian Power Generation Company Limited was jointly established by the Company with Huadian Power International Corporation Limited (“Huadian”) and Zoucheng Municipal Assets Operation Company on 21st November, 2007. Th e registered capital of Huadian Zouxian Power Generation Company Limited is RMB3000 million, of which the Company has contributed cash at the amount of RMB900 million, representing approximately 30% of the registered capital.

For details, please refer to the Announcement on Investment of Yanzhou Coal Mining Company Limited posted on the website of Hong Kong Stock Exchange on 24th August, 2007.

Amendments to the Business Scope and the Articles of Association

As approved at the annual general meeting of the shareholders for the year 2006 convened on 15th June, 2007, the Company, in view of its own production development and pursuant to the requirements of the Ministry of Commerce of the State Council, amended its business scope and the relevant terms of the articles of association. Details of such amendments were contained in the announcement of the Company published on Wen Wei Po and South China Morning Post in Hong Kong on 27th April, 2007. Such announcement was also posted on the websites of the Shanghai Stock Exchange and Th e Stock Exchange of Hong Kong Limited, respectively, on the same day.

As approved by the fi rst extraordinary general meeting for the year 2008 held on 30th January, 2008, the Company amended the terms of the articles of association relating to certain powers of its independent directors. For details of such amendments, please refer to the circular of the Company dated 14th December, 2007 relating to the connected transaction and the proposed amendments to the Articles,

MATERIAL LITIGATION AND ARBITRATION

On 13th December 2004, the Company made an entrusted loan of RMB640 million to Shandong Xin Jia Industrial Company Limited (the “Entrusted Loan”). On 6th September, 2005, the Higher People’s Court of Shandong Province arranged and auctioned 289 million shares out of the 360 million shares held by Lianda Group Limited, the guarantor of the Entrusted Loan, in Huaxia Bank Company Limited (“Huaxia Shares”) in accordance with the relevant laws. Th e proceeds of such auction were for the repayment of the Company’s principal, interest, penalty interest and relevant expenses of the Entrusted Loan. Th e auction price was RMB3.5 per Huaxia Share and the total auction amount was RMB1,011.5 million. As at the date of this report, the successful bidder of the Huaxia Shares is still undergoing the qualifi cation review by China Banking Regulatory Commission (“CBRC”).

While the successful bidder of the Huaxia Shares is undergoing the qualifi cation review by CBRC, the Company noted that Shandong RunHua Group Company Limited (“RunHua Group”), a private enterprise, started legal proceedings claiming for the transfer of and entitlement to 240 million Huaxia Shares held by Lianda Group Limited.

Report of Board of Directors

As the two cases involve the same subject matter and as the Company has attached the Huaxia Shares in priority, the Supreme People’s Court is in the course of mediating the two cases. According to the mediation proposal of the Supreme People’s Court, RunHua Group shall voluntarily guarantee the realization of the debt of Yanzhou Coal and 200 million out of the 289 million Huaxia Shares attached to the Company shall be transferred to RunHua Group for RunHua Group to fi nance the settlement of debt whereas the 200 million Huaxia Shares and 89 million Huaxia Shares held by RunHua Group and Lianda Group, respectively, should continue to be attached to and frozen by the Company.

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On 20th November, 2007, the Company received a notifi cation from the Higher People’s Court of Shandong Province that the transfer of the 200 million Huaxia Shares has been implemented and the procedures relating to continuation of the attachment by the Company have also been completed.

Th e Company considers that the above arrangement is benefi cial to the recovery of the principal and interest of the Entrusted Loan. Th e Company will promptly disclose any signifi cant progress concerning the Entrusted Loan.

Th e Company was not involved in any other signifi cant litigation or arbitration during the reporting period.

MATERIAL CONTRACTS

Other than the agreements described in the signifi cant events in the section headed “Report of the Board of Directors”, the Company was not a party to any material contract during this reporting period.

PREEMPTIVE RIGHTS

Th e Articles and the laws of the PRC do not contain any provision for any pre-emptive rights, requiring the Company to off er new shares on a pro-rata basis to the existing shareholdings of the Shareholders.

EXTERNAL GUARANTEES

During this reporting period, there were no guarantee contracts or outstanding guarantee contracts and the Company had not provided any external guarantee. No guarantees were extended to the controlling subsidiaries of the Company. Th ere were no illegal guarantees.

Th e above information concerning external guarantee by the Company is disclosed in accordance with the relevant PRC (excluding Hong Kong) laws and regulations.

Report of Board of Directors

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ENTRUSTED LOAN

Entrusted loans that occurred in the previous years which were also continued in this reporting period are set out in the following table. Except for the disclosures made below, the Company currently has no other plans to provide entrusted loans.

						Whether		Accumulated
						there is a	Whether	interest income
		Amount of		Annual		provision for	principal	during this
No.	Borrower	Entrusted Loan	Approved Term of Loan	Interest	Approval Process	devaluation has been paid		reporting period
1	Shandong Xinjia	RMB640 million	From 20th December, 2004	7%	Reviewed and approved	No	No	—
	Industrial Co., Ltd		to 19th January, 2005		at a board meeting held
					on 13th December, 2004
2	Yanmei Australia	US$90 million	From 7th November, 2005	5.98% – 6.96%	Reviewed and approved at	No	No	—
	Pty Limited		to 7th November, 2008		a board meeting held
					on 28th June, 2005
3 4 5 6 7	Yanmei Heze Neng Hua Company Limited Yanzhou Coal Yulin Neng Hua Company Limited Yanzhou Coal Yulin Neng Hua Company Limited Yanmei Heze Nenghua Company Limited Shanxi Tianhao	RMB300 million RMB500 million RMB500 million RMB500 million RMB190 million	From 3rd July, 2006 to 26th June, 2007 From 20th October, 2006 to 20th October, 2009 From 17th May, 2007 to 17th May, 2010 5 years from the date of drawndown (not yet drawndown) 5 years from the date of	5.85% 6.30% 6.57% 7.20% 7.20%	Reviewed and approved to extend for one year at a board meeting held on 17th August, 2007 Reviewed and approved at a meeting of the general manager of ce held on 22nd June, 2006 Reviewed and approved at a meeting of the general manager of ce held on 11th September, 2006 Reviewed and approved at a board meeting held on 25th October, 2006 Reviewed and approved at a meeting of the general manager of ce held on 27th July, 2007 Reviewed and approved at a	No No No No No	Yes No No No No	RMB 7,252,862.50 RMB 31,937,500 RMB 14,244,125 — —
	Chemicals Company		drawndown (not yet drawndown)		meeting of the general manager
	Limited				of ce held on 27th July, 2007
8	Yanzhou Coal	RMB1.5 billion	From 15th October, 2007	7.20%	Reviewed and approved at a board	No	No	RMB4,530,000
	Yulin Neng Hua		to 15th October, 2012		meeting held on 17th August, 2007
	Company Limited		RMB 660 million was drawndown
9	Shanxi Heshun	RMB50 million	From 24th December, 2007	7.47%	Reviewed and approved at a meeting	No	No	—
	Tianchi Energy		to 24th December, 2010		of the general manager of ce held
	Company Limited				on 5th November, 2007

Report of Board of Directors

As at a meeting of the general manager offi ce held on 22nd January, 2007, Shanxi Neng Hua, the Company’s whollyowned subsidiary, was approved to extend an entrusted loan of RMB200 million to Tianhao Chemicals, Shanxi Neng Hua’ s controlling subsidiary, with details shown in following table.

						Whether		Accumulated
						there is a	Whether	interest income
		Amount of		Annual		provision for	principal	during this
No.	Borrower	Entrusted Loan	Term of Loan	Interest	Approval Process	devaluation has been paid		reporting period
1	Shanxi Tianhao	RMB200 million	From 29th March, 2007	6.48%	Reviewed and approved at the daily	No	No	RMB4,528,800
	Chemicals Company		to 28th March, 2012		operation meeting by the general
	Limited				managers held on 22nd January, 2007

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At the Board meeting held on 28th June, 2005, the Company was approved to extend an entrusted loan of US$90 million to Yanmei Australia Pty Limited. As approved at the board meeting convened on 17th August, 2007, repayments of the principal as to the amount of US$88.5 million and the corresponding interests of the entrusted loan mentioned above were extended for one year and shall be due on 7th November, 2008.

Th e above information concerning entrusted loans is made pursuant to the disclosure requirement under the relevant PRC laws (excluding Hong Kong).

SHARE CAPITAL

Details of the share capital of the Company are set out in Note 35 to the consolidated fi nancial statement prepared in accordance with the IFRS contained herein.

Report of Board of Directors

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CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF SUBSTANTIAL SHAREHOLDERS

Changes in Share Capital

During this reporting period, the total number of shares and the capital structure of the Company remained unchanged.

As at 31st December, 2007, the share capital structure of the Company was as follows.

	Unit: shares (Par value	per share: RMB1.00)
		Percentage of the
		total share capital
	Number of Shares	of the Company
Domestic Shares	2,960,000,000	60.18%
Of which: shares held by the Promoter (Yankuang Group Corporation Limited) Shares held by other shareholders H Shares Total Share Capital	2,600,000,000 360,000,000 1,958,400,000 4,918,400,000	52.86% 7.32% 39.82% 100.00%

Total Number of Shareholders at the end of this reporting period

As at 31st December, 2007, the Company had a total of 187,559 Shareholders, among which 5 were holders of tradable shares with trading moratorium, 187,449 were holders of A shares without trading moratorium and 105 were holders of H shares.

Report of Board of Directors

Shareholdings of the Top Ten Shareholders and Top Ten Shareholders Holding Tradable Shares not subject to Trading Moratorium

According to the registers of Shareholders as at 31st December, 2007 which was provided by the Shanghai Branch of China Securities Depository and Clearing Corporation Limited and Hong Kong Registrars Limited, the top ten Shareholders and the top ten holders of tradable shares not subject to trading moratorium were as follows:

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		(As at 31st	December, 2007)
			Percentage
		Number of shares	holding of the
		held at the end	total share
	Class of	of this reporting	capital of the
Name of Shareholder	shares held	period (shares)	Company(%)
Yankuang Group Corporation Limited
(Tradable shares with trading moratorium) HKSCC Nominees Limited Nuo’an Stocks Securities Investment Fund (諾安股票證券投資基金) Yifangda Value Growing Combined Securities Investment Fund (易方達價值成長混合型證券投資基金) Changcheng Anxin Return Combined Securities Investment Fund (長城安心回報混合型證券投資基金) Jiashi CSI 300 Index Securities Investment Fund (嘉實滬深300指數證券投資基金) NOMURA SECURITIES CO., LTD Boshi Yufu Securities Investment Fund (博時裕富證券投資基金) ITIC-UBS Ruifu Grading Stocks Securities Investment Fund (國投瑞銀瑞福分級股票型證券投資基金) Ye Liqi AIG GLOBAL INVESTMENT CORPORATION	A Shares H Shares A Shares A Shares A Shares A Shares A Shares A Shares A Shares A Shares A Shares	2,600,000,000 1,956,662,746 9,883,182 9,069,800 3,528,602 3,213,890 2,480,901 2,256,552 1,699,931 1,423,599 1,388,976	52.86 39.78 0.20 0.18 0.07 0.07 0.05 0.05 0.03 0.03 0.03

Save as disclosed above, no other Shareholder was recorded in the register kept pursuant to the Securities Law of the People’s Republic of China with an interest of 5% or more of the Company’s issued shares as at 31st December, 2007.

None of the shares held by Yankuang Group was pledged or restricted or under any trust arrangement during the reporting period. It is uncertain as to whether any of the shares held by the other Shareholders as disclosed above were pledged or restricted or under any trust arrangement during the reporting period.

Related party or concert party relationships among the above Shareholders are not known.

HKSCC Nominees Limited, as the clearing and settlement agent, held the H Shares of the Company in a nominee capacity.

Report of Board of Directors

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SUBSTANTIAL SHAREHOLDERS

Save as disclosed below, as at 31 December 2007, no other person (other than a Director, chief executive or Supervisor of the Company) had any interest or short position in the shares and underlying shares of the Company as recorded in the register pursuant to section 336 of the Securities and Futures Ordinance (the “SFO”).

						Percentage in the	Percentage in
						relevant class of	total share
Name of substantial		Number of shares				share capital	capital of the
shareholders	Class of shares	held (shares)		Capacity	Type of interest	of the Company	Company
Yankuang Group	Domestic Shares	2,600,000,000 (L)		Benef cial Owner	Corporate	87.84% (L)	52.86% (L)
Corporation Limited	(state legal person share)
JPMorgan Chase & Co.	H Shares	206,809,176 (L)		Benef cial owner, Investment	Corporate	10.56% (L)	4.20% (L)
		(including73,288,299	(P)	manager and Custodian		4.13% (S)	1.65% (S)
		80,929,090 (S))		corporation/Approved lending agent
UBS AG Penta Investment Advisers Limited Zwaanstra John Templeton Asset Management Ltd. Halbis Capital Management (Hong Kong) Limited	H Share H Share (Note 2) H Share (Note 2) H Share H Share	152,814,429 (L) 16,025,090 (S) 140,108,000 (L) 140,108,000 (L) 137,300,000 (L) 117,728,400 (L)		Benef cial owner, person having a security interest in Share and Interest of controlled corporations Investment manager Interest of controlled corporations Investment manager Investment manager	Corporate Corporate Corporate Corporate Corporate	7.80% (L) 0.82% (S) 7.15% (L) 7.15% (L) 7.01% (L) 6.01% (L)	3.11% (L) 0.33% (S) 2.85% (L) 2.85% (L) 2.79% (L) 2.39% (L)

Notes:

1: Th e letter “L” denotes a long position. Th e letter “S” denotes a short position. Th e letter “P” denotes interest in a lending pool. 2: Th e shares were held by Penta Investment Advisers Limited through its controlled companies. Mr. John Zwaanstra, as the 100% controller of Penta Investment Advisers Limited, is deemed as owning interests of these shares.

Report of Board of Directors

LEGAL PERSON SHAREHOLDERS WITH SHAREHOLDING OF 10% OR MORE

As at 31st December, 2007, Yankuang Group held 2,600,000,000 shares in the Company, representing 52.86% of the total share capital of the Company.

Yankuang Group, a wholly state-owned enterprise, is the controlling Shareholder of the Company. Its registered capital is RMB3,353.388 million and its legal representative is Mr. Geng Jiahuai. Yankuang Group is principally engaged in coal production, building and building materials, chemical and machinery processing businesses. Its actual controller is the Stateowned Assets Supervision and Administration Commission of the People’s Government of Shandong Province.

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During the reporting period, the Company’s controlling Shareholder or its actual controller remained unchanged.

As at 31st December, 2007, HKSCC Nominees Limited held 1,956,662,746 H shares of the Company, representing 39.78% of the total share capital of the Company. HKSCC Nominees Limited is a participant of the Central Clearing and Settlement System and provides securities registrations and trustee services to its customers.

SUFFICIENCY OF PUBLIC FLOAT

As at the date of this report, the total share capital of the Company comprised 4,918,400,000 shares, of which 2,318,400,000 shares were held by the public, representing 47.14% of the Company’s total share capital. Among the 2,318,400,000 shares held by the public, 1,958,400,000 of them are H shares, representing 39.82% of the Company’s total share capital whereas 360,000,000 are A shares held by the public, representing 7.32% of the Company’s total share capital.

SHAREHOLDING OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY

Save as disclosed below, as at 31st December 2007, none of the Directors, chief executive or Supervisors of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance of the Laws of Hong Kong (“SFO”)) (i) as recorded in the register required to be kept under section 352 of the SFO; or (ii) as otherwise notifi ed to the Company and Th e Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (Appendix 10 to the Listing Rules of the Hong Kong Stock Exchange Limited) (“the Model Code”) (which shall be deemed to apply to the Company’s supervisors to the same extent as it applies to the Directors).

Report of Board of Directors

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			Number of	Number of
			domestic	domestic
			shares held at the	shares held
			beginning of this	at the end of this
			reporting period	reporting period
Name	Capacity	Title	(shares)	(shares)	Reasons for changes
Wang Xin	–	Chairman of the Board	0	0	No change
Geng Jiahuai	–	Vice Chairman of the Board	0	0	No change
Yang Deyu	Benef cial Owner	Vice Chairman of the Board and General Manager	20,000	20,000	No change
Shi Xuerang	–	Director	0	0	No change
Chen Changchun	–	Director	0	0	No change
Wu Yuxiang	Benef cial Owner	Director and Chief Financial Of cer	20,000	20,000	No change
Wang Xinkun	–	Director and Deputy General Manager	0	0	No change
Zhang Baocai	–	Director and Secretary to the Board	0	0	No change
Dong Yunqing	–	Director	0	0	No change
Pu Hongjiu Cui Jianmin Wang Xiaojun Wang Quanxi Meng Xianchang Song Guo Zhang Shengdong Liu Weixin Xu Bentai Jin Tai Zhang Yingmin He Ye Qu Tianzhi Tian Fengze Shi Chengzhong Lai Cunliang	– – – – Benef cial Owner Benef cial Owner – – – – – – – – – –	Independent Non-executive Director Independent Non-executive Director Independent Non-executive Director Independent Non-executive Director Chairman of the Supervisory Committee Vice-Chairman of the Supervisory Committee Supervisor Supervisor Supervisor Deputy General Manager Executive Deputy General Manager Deputy General Manager Deputy General Manager Deputy General Manager Deputy General Manager Deputy General Manager	0 0 0 0 20,000 3,000 0 0 0 0 0 0 0 0 0 0	0 0 0 0 20,000 1,800 0 0 0 0 0 0 0 0 0 0	No change No change No change No change No change Traded at the secondary market No change No change No change No change No change No change No change No change No change No change
Ni Xinghua	–	Chief Engineer	0	0	No change

All the interests disclosed above represent long position in the shares of the Company.

As at 31st December, 2007, the total number of domestic shares of the Company held by the Directors, supervisors and senior management of the Company amounted to 61,800 shares, representing 0.001% of the total issued share capital of the Company.

As at 31st December, 2007, none of the Directors, chief executive or supervisors of the Company nor their spouses or children under the age of 18 was given the right to acquire shares or debentures of the Company or any associated corporation.

Report of Board of Directors

BRIEF BIOGRAPHY OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Directors

WANG Xin, aged 49, a researcher in engineering technique application and a doctor of engineering technology, chairman of the Board. Mr. Wang is also the vice chairman of the board, the general manager and the party committee deputy secretary of Yankuang Group as well as the chairman of Yankuang Xinjiang Neng Hua Company Limited. Mr. Wang joined the predecessor of the Company in 1982 and became the vice general manager of Yankuang Group in 2000. He was appointed as the director of the board of directors and vice general manager of Yankuang Group in 2002 and was appointed as the vice chairman of the board of directors and the general manager of Yankuang Group in 2003. In 2004, he was appointed as a Director and the chairman of the Board. Since 2007, he has been the party committee deputy secretary of Yankuang Group and the chairman of Yankuang Xinjiang Neng Hua Company Limited. He was graduated from China University of Mining and Technology.

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GENG Jiahuai, aged 57, a researcher in engineering technique application, is the vice chairman of the Board of the Company and at the same time the chairman of the board of directors and the party committee secretary of Yankuang Group. During the period from 1985 to 2002, Mr. Geng successively acted as the deputy director of Zibo Mining Bureau, the head of the Zibo Safety and Supervision Bureau and the director general of Zibo Mining Bureau. Mr. Geng joined Yankuang Group in 2002 and became the general manager, the vice chairman of the board of directors and the party committee deputy secretary of Yankuang Group. Mr. Geng was appointed the chairman of the board of the directors and the party committee secretary of Yankuang Group in 2003. Mr. Geng became a director of the Company in 2002 and the vice chairman of the Company in 2004. He was graduated from Shandong Mining Institute.

YANG Deyu, aged 59, a researcher in engineering technique application, is the vice chairman of the Board and the general manager of the Company. He is also a director of the board of Yankuang Group, and the vice chairman of Yankuang Xinjiang Neng Hua Company Limited. Mr. Yang joined the Company’s predecessor in 1968 and became the deputy director of Yanzhou Mining Bureau in 1994, and the deputy general manager of the Company’s predecessor and the head of the Safety and Supervision Bureau in 1996. Mr. Yang was appointed as an executive director and the general manager of the Company in 1997 and the vice chairman of the Board and the general manager of the Company in 2002. Mr. Yang was appointed as a director of Yankuang Group in 2004 and was appointed as the vice chairman of Yankuang Xinjiang Neng Hua Company Limited in 2007. He was graduated from Shandong Mining Institute.

SHI Xuerang, aged 53, a senior engineer, is a director of the Company and deputy general manager of Yankuang Group. From 2001 to 2003, Mr. Shi acted as the deputy general manager of Xinwen Coal Mining Group Company Limited. He joined Yankuang Group as a deputy general manager in 2003 and was appointed a director of the Company in 2005. He was graduated from Shandong Mining Institute.

CHEN Changchun, aged 55, a senior accountant, is a director of the Company and a director, the chief accountant, the chief legal advisor of Yankuang Group and a director of Yankuang Xinjiang Neng Hua Company Limited. Mr. Chen joined the Company’s predecessor in 1984 and became the chief accountant and a director of Yankuang Group in 1998 and 2004, respectively. Mr. Chen was appointed as a director of the Company in 2005 and was appointed as the chief legal advisor of Yankuang Group in 2006 and a director of Yankuang Xinjiang Neng Hua Company Limited in 2007. He was graduated from Beijing Coal Cadre Institute.

Report of Board of Directors

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WU Yuxiang, aged 46, a senior accountant, is a director and the chief fi nancial offi cer of the Company. Mr. Wu joined the Company’s predecessor in 1981 and became the chief accountant of the fi nance department of the Company’s predecessor in 1996. Mr. Wu became the manager of the fi nance department of the Company in 1997, and was appointed as a director and the chief fi nancial offi cer of the Company in 2002. Since 2007, he is also the chairman of the supervisory committee of Huadian Zouxian Power Generation Company Limited. He was graduated from Shandong TV University.

WANG Xinkun, aged 55, a senior economist, is a director and the deputy general manager of the Company. Mr. Wang joined the Company’s predecessor in 1977. Mr. Wang became a manager of the coal transportation and sales department of the Company in 2000, and a deputy general manager of the Company in 2002. He became a director of the Company in 2004. Since 2007, he is also the vice-chairman of Huadian Zouxian Power Generation Company Limited. He was graduated from Tianjin University.

Zhang Baocai, aged 40, a senior accountant, is a director and the board secretary of the Company. Mr. Zhang joined the Company’s predecessor in 1989 and was appointed as the head of the planning and fi nance department of the Company in 2002. He was appointed a director, the board secretary, the head of the Secretariat of the Board and the head of the Information Management Department of the Company in 2006. Mr. Zhang was graduated from Nankai University.

DONG Yunqing, aged 52, a senior administrative offi cer, is a director and the chairman of the labor union of the Company. Mr. Dong joined the Company’s predecessor in 1981 and was the vice chairman of the labor union of Yankuang Group from 2001 to April 2003. Mr. Dong was appointed as a director and the chairman of the labor union of the Company in 2002. He was graduated from Shandong Mining Institute.

INDEPENDENT NONEXECUTIVE DIRECTORS

Pu Hongjiu, aged 71, professor-level senior engineer, is an independent non-executive director of the Company. He is the fi rst vice chairman of the China Coal Industry Association and the chairman of Coal Industry Association of China International Association. Mr. Pu was a party group member and the head of disciplinary inspection unit of the State Administration of Work Safety and State Administration of Coalmine Safety in 2001. He has been the chairperson of China Coal Academy since 2001 and the fi rst vice-chairman of the China Coal Industry Association since 2003. He became an independent non-executive director of the Company in 2005. He was graduated from Hefei Mining Institute. He is also an independent non-executive director of Shanghai Datun Energy Company Limited and Shenhua Ningxia Coal Mining Group Corporation Limited, respectively.

CUI Jianmin, aged 75, a senior auditor and certifi ed accountant, is an independent non-executive director of the Company and a consultant of China Registered Tax Practitioners Association. Mr. Cui had previously been the deputy chief auditor of National Audit Offi ce of the PRC, the chairman of the Association of China Certifi ed Accountants, and a committee member of the 8th National Committee of the Chinese People’s Political Consultative Conference. Mr. Cui became an independent non-executive director of the Company in 2002 and he has been a consultant of China Registered Tax Practitioners Association since September 2004. Mr. Cui was graduated from the People’s University of China. Mr. Cui is also an independent non-executive director of China Yangtze Power Co., Ltd.

Report of Board of Directors

WANG Xiaojun, aged 53, admitted as a solicitor in England and Wales and Hong Kong, is an independent non-executive director of the Company and a partner of Wang & Co., X. J. in Hong Kong. He was admitted in the PRC, Hong Kong and England and Wales in 1988, 1995 and 1996, respectively. Mr. Wang had worked as a legal counsel in the Hong Kong Stock Exchange and practiced law with Richards Bulter. He became an independent non-executive Director of the Company in 2002. He was graduated from the People’s University of China and the Graduate School of the Chinese Academy of Social Sciences and holds a bachelor degree in laws and a master degree in laws. He is also an independent non-executive director of the Guangzhou Shipyard International Company Limited, Concepta Investments Ltd., and Natural Gas Company Limited of Shaanxi Province, respectively.

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WANG Quanxi, aged 52, professor of Nankai University, is an independent non-executive director of the Company. He is the director of Enterprise Research Center of Nankai University. Mr. Wang has been appointed as an independent nonexecutive director of the Company since 2004. He was graduated from Tianjin Finance and Economics University. He is also an independent non-executive director of Silver Plaza Group Co., Ltd.

SUPERVISORS

MENG Xianchang, aged 60, a senior administrative offi cer, is the chairman of the supervisory committee of the Company. Mr. Meng joined the Company’s predecessor in 1981 and was appointed as a supervisor of the Company’s predecessor in 1996. He had been the deputy secretary of party committee of Yankuang Group from 1996 to 2007. He became the chairman of the supervisory committee of the Company in 1997. He was graduated from Shandong Mining Institute.

SONG Guo, aged 53, a senior administrative offi cer, is the vice chairman of the supervisory committee of the Company and a deputy secretary of the party committee of Yankuang Group. In 2002, Mr. Song was the offi cer-in-charge of the offi ce of Coal Management Bureau of Shandong Province. He joined Yankuang Group in 2003 and was the secretary of the disciplinary inspection committee from 2003 to 2007. He became a deputy secretary of the party committee of Yankuang Group in 2004 and the vice-chairman of the supervisory committee of the Company in 2005. He was graduated from Shandong University.

ZHANG Shengdong, aged 51 is a senior accountant, a supervisor of the Company. He is also the deputy chief accountant and the head of the fi nance department and the fi nance company preparatory offi ce of Yankuang Group. Mr. Zhang joined the Company’s predecessor in 1981 and became the deputy chief accountant in 1997. He became a supervisor of the Company and the head of the fi nance company preparatory offi ce of Yankuang Group in 2002. Mr. Zhang was appointed as the head of the fi nance department of Yankuang Group in 2006. He was graduated from China University of Mining and Technology.

LIU Weixin, aged 57, a senior accountant, is a supervisor of the Company and the deputy chief of the audit department of Yankuang Group. Mr. Liu joined the Company’s predecessor in 1971 and became the vice director of the audit aff air offi ce of Yankuang Group in 2001, the chief of the audit department of Yankuang Group in 2003 and the deputy director of audit department of Yankuang Group in 2005. Mr. Liu became a supervisor of the Company in 2002. He was graduated from Shandong Youth Cadre Institute.

XU Bentai, aged 49, a senior administrative offi cer, is an employee supervisor of the Company and the chairman of Jining III Coalmine’s labor union. Mr. Xu joined the Company’s predecessor in 1978 and became the chairman of Jining III Coalmine’s labor union in 1999. Mr. Xu became an employee supervisor of the Company in 2002. He was graduated from the Central Communist Party School Correspondence Institute.

Report of Board of Directors

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SENIOR MANAGEMENT

JIN Tai, aged 56, a researcher in engineering technique application, is a deputy general manger of the Company. Mr. Jin joined the Company’s predecessor in 1968. He became the head of Xinglongzhuang Coalmine in 1998 and became the deputy general manager of Yankuang Group in 2000. Mr. Jin has been appointed as a deputy general manager of the Company since 2004. He was graduated from China University of Mining and Technology.

ZHANG Yingmin, aged 54, a researcher in engineering technology application, is the executive deputy general manager of the Company and a director of Yankuang Group. Mr. Zhang joined the Company’s predecessor in 1971. He became the head of Baodian Coalmine in 2000. Mr. Zhang became an executive deputy general manager of the Company in 2002 and a deputy general manager of Yankuang Group in 2003. In 2004, Mr. Zhang became a director of Yankuang Group and the chief of the safety supervision bureau of the Company. He was graduated from Tianjin University.

HE Ye, aged 50, a researcher in engineering technology application, is a deputy general manager of the Company. Mr. He joined the Company’s predecessor in 1993. He became the head of Jining II Coalmine in 1999 and became the executive deputy general manager of an industrial company subordinated to Yankuang Group in 2002. Mr. He has been appointed as a deputy general manager of the Company since 2004. He was graduated from Guizhou Institute of Technology.

QU Tianzhi, aged 45, a researcher in engineering technique application, is the deputy general manager of the Company. Mr. Qu joined the Company’s predecessor in 1985 and became the head of Dongtan Coalmine in 2000. He was appointed as a deputy general manager of the Company in 2006. Mr. Xu was graduated from China University of Mining and Technology.

TIAN Fengze, aged 51, a senior economist, is a deputy general manager of the Company. Mr. Tian joined the Company’s predecessor in 1976 and became the head of Beixu Coalmine in 1991. Mr. Tian became a deputy general manager of the Company in 2002. He was graduated from Beijing Coal Cadre Institute.

SHI Chengzhong, aged 45, a researcher in engineering technique application, is a deputy general manager of the Company. Mr. Shi joined the Company’s predecessor in 1983 and became a deputy chief engineer of Yankuang Group in 2000 and a deputy general manager of the Company in 2002. He was graduated from Shandong Mining Institute. Mr. Shi is also a director of Guizhou Panjiang Coal Power Company Limited.

LAI Cunliang, aged 47, a senior engineer, is a deputy general manager of the Company and holds a master degree in mining engineering. Mr. Lai joined the Company’s predecessor in 1980 and became the head of Xinglongzhuang Coalmine of the Company in 2000. He has been a director and the general manager of Yanmei Australia since 2004. Mr. Lai became a deputy general manager of the Company in 2005. He was graduated from China University of Mining & Technology.

NI Xinghua, aged 51, a researcher in engineering technique application, is the chief engineer of the Company. Mr. Ni joined the Company’s predecessor in 1975 and became a deputy chief engineer of Yankuang Group in 2000. He has been appointed as the chief engineer of the Company since 2002. Mr. Ni was graduated from Tianjin University.

Report of Board of Directors

DIRECTORS’ AND SUPERVISORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS

Details of the remuneration of the Directors and the Supervisors of the Company and the fi ve highest paid individuals of the Company are set out in Note 14 to the consolidated fi nancial statements prepared in accordance with the IFRS contained herein.

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Th ere were no arrangements under which a Director or Supervisor of the Company had waived or agreed to waive any remuneration in respect of the year ended 31st December, 2007.

ARRANGEMENT TO PURCHASE EQUITY OR DEBT SECURITIES

At no time during the year ended 31st December, 2007, was the Company, its holding company, or any of its subsidiaries involved or as a party to any arrangement to enable the Directors or Supervisors of the Company to acquire benefi ts by means of the acquisition of equity or debt securities of the Company or any other body corporate with the exceptions of the A shares held by the Directors, Supervisors and senior management of the Company. Details in this regard are set out in the section headed “Shareholding of Directors, Supervisors and Senior Management of the Company”.

SERVICE CONTRACTS OF DIRECTORS AND SUPERVISORS

Each of the Directors and supervisors of the Company has entered into a service contract with the Company. Under such contracts, each Director will receive a salary and a discretionary year-end bonus, the amount of which shall be approved by the Shareholders in general meetings, provided that the total amount of discretionary year-end bonuses paid to the Directors and other employees of the Company (including but not limited to other Directors, Supervisors and senior management members of the Company) do not exceed 1% of the aggregate of net profi t aft er taxation and extraordinary losses but before net extraordinary gains for that year.

No Director or supervisor of the Company has entered into any service contract with the Company, which is not terminable by the Company within one year without payment of compensation (other than statutory compensation).

INTERESTS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT IN CONTRACTS

None of the Directors, supervisors or senior management of the Company had a direct or indirect material interest in any material contract entered into or performed by the Company during the year ended 31st December, 2007.

Report of Board of Directors

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REPURCHASE, SALE OR REDEMPTION OF SHARES OF THE COMPANY

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

IMPACT OF FLUCTUATIONS IN EXCHANGE RATES ON THE GROUP

China adopts a managed fl oating exchange rate regime based on market supply and demand with reference to a basket of currencies.

Impact of RMB fl uctuations on the Group is mainly refl ected in (1) the income from coal export aft er conversion into RMB since coal exports of the Company are calculated in US dollar; (2) conversion loss of foreign currency deposit; and (3) the Company’s import costs of equipment and fi ttings.

Th e Company has no plan to enter into hedging arrangements for the exchange rates of RMB to foreign currencies.

CHANGES IN STATUTORY INCOME TAX RATE

In accordance with the PRC Enterprise Income Tax Law promulgated on 16th March 2007, since 1st January 2008, the statutory income tax rate applicable to the Company and all its subsidiaries registered in China shall be adjusted from 33% to 25%.

Th e statutory income tax rate applicable to Yancoal Australia remained unchanged at 30%.

Report of Board of Directors

REMUNERATION POLICY

The remuneration for the Directors, Supervisors and senior management should be proposed to the Board by the Remuneration Committee of the Board. Upon review and approval by the Board, any remuneration proposal for the Directors and supervisors has to be approved in the Shareholders’ general meeting. Th e remuneration for the senior management would be reviewed and approved by the Board.

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Th e Group adopts a combined annual remuneration and risk control system as the principal means for assessing and rewarding the Directors and senior management of the Company. Th e annual remuneration consists of basic salary and benefi t income. Th e basic salary is determined according to the operational scale of the Company with reference to the market wages and the income of employees whereas benefi t income is determined by the actual operational achievement of the Company. Th e annual remuneration for the Directors and senior management of the Company are pre-paid on a monthly basis and are cashed aft er the assessment to be carried out in the following year.

Th e remuneration policy for 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 quantifi ed assessment results. Rewards are linked to the Company’s overall economic effi ciency.

EMPLOYEES

As at 31st December, 2007, the Group had 42,783 employees, of whom 2,732 were administrative personnel, 1,599 were technicians, 28,098 were directly involved in coal production and 10,354 were supporting staff .

On behalf of the Board

WANG Xin

Chairman

Zoucheng, PRC, 18th April, 2008

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Report of Supervisory Committee

During this reporting period, all supervisors of the Company have fulfi lled their supervising responsibilities, protected the interests of the Company and the Shareholders, adhere to the principles of honesty and trustworthiness and have actively carried out their duties with care and diligence pursuant to the PRC Company Law and the Articles of the Company.

Th e Supervisory Committee has held four meetings during this reporting period. Details of each of the meetings are as follows.

Th e sixth meeting of the third session of the Supervisory Committee was held on 20th April, 2007. Th e Supervisory Committee’s Report for the Year 2006, the 2006 Annual Report, the Audited Financial Report for the Year 2006, the Profi t Distribution Plan for the Year 2006, the Supervisory Committee’s Opinions on the implementation status of the Group’s Information Disclosure System for the Year 2006 and the Supervisory Committee’s Opinions on the Board’s Resolution in respect of the writing-off of bad debt provision for the year 2006 were considered and approved.
Th e seventh meeting of the third session of the Supervisory Committee was held on 26th April, 2007. Th e Report for the First Quarter of Year 2007 of Yanzhou Coal Mining Company Limited was considered, approved and passed at the meeting.
Th e eighth meeting of the third session of the Supervisory Committee was held on 17th August, 2007. Th e Interim Report for the Year 2007 of Yanzhou Coal Mining Company Limited was considered, approved and passed at the meeting.
Th e ninth meeting of the third session of the Supervisory Committee was held on 26th October, 2007. Th e Report for the Th ird Quarter of Year 2007 of Yanzhou Coal Mining Company Limited was considered, approved and passed at the meeting.

Th e Supervisory Committee has provided its independent opinion on the following matters:

1. Operations of the Company in 2007 were in compliance with rules and regulations

Pursuant to the relevant laws and regulations, through its participation in the Board meetings and by attending the Shareholders’ meetings, the Supervisory Committee has carried out investigation and supervision functions on matters such as the resolutions of and the procedures on convening the meetings of the Shareholders and the Directors respectively, the implementation of the resolutions of the Shareholders’ meetings by the Board, the performing of duties by the senior management of the Company and the management system of the Company. No action in breach of law, regulations and the Articles have been carried out. No breach of laws and regulations by the Directors and managers of the Company in the course of performing their duties have been carried out. Th e Supervisory Committee considers that the performance of the Board in 2007 was in compliance with the relevant PRC laws and regulations and the Articles and it has been serious and responsive in its decision-making procedures and has been systematic in this regard. Th e internal control system have been sound and complete..

Report of Supervisory Committee

2. Examination of the fi nancial situation of the Company

Th e Supervisory Committee has examined in detail the operation results and fi nancial conditions of the Group during the reporting period. Deloitte Touché Tohmatsu Certifi ed Public Accountants Ltd. has issued relevant materials such as standard no qualifi ed opinion Audit Report etc. Th e Supervisory Committee is of the view that the contents and format of the Group’s fi nancial statements were in compliance with all the applicable rules. Further, the information provided can accurately and objectively refl ect the Group’s fi nancial situation and operating results of the reporting year. Th e fi nancial results are truly reported, and all costs, expenses and provisions have been incurred and made in accordance with the relevant laws, regulations and the Articles.

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3. Usage of Raised Funds

Th e Supervisory Committee takes the view that the projects which have been invested by the funds raised during this reporting period by the Company are compatible with the projects undertaken to be invested in by the Company.

4. Fairness of Assets Acquisitions and Disposals

Th e Supervisory Committee takes the view that trading and pricing terms for acquisitions and disposals of assets by the Group during the reporting period were fair and there was no insider dealings and transactions which caused any capital loss to the Group.

5. Connected Transactions

Th e Supervisory Committee is of the view that during the reporting period, the connected transactions between the Group and its controlling Shareholder, Yankuang Group and its subsidiaries were fair, reasonable and lawful and were in the interests of the Company.

Chairman of the Supervisory Committee Meng Xianchang

Zoucheng, China, 18th April, 2007

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Corporate Governance Report

Th e Group has set up a relatively regulated, stable and established corporate governance system and abided by the corporate governance principles of transparency, accountability and protection of the rights and interests of all the Shareholders.

Th e Board believes that good corporate governance is very important to the operation and development of the Group. Th e Board regularly reviews the corporate governance practices to ensure that the Company’s operation is in compliance with the laws, regulations and supervisory rules of the places where the shares of the Company are listed, and consistantly endeavors to implement high quality corporate governance.

Th e corporate governance rules implemented by the Group include, but not limited to, the following documentations: Th e Articles, the Rules of Procedure for Shareholders’ Meetings, the Rules of Procedure for Board Meetings, the Rules of Procedure for Supervisory Committee Meetings, the System of Work of the Independent Directors, the Rules for Disclosure of Information, the Rules for the Approval and the Disclosure of the Connected Transactions of the Company, the Rules for the Management of the Investors’ Relationships, the Code for Securities Transactions of the Management, the Standard of Conduct and Professional Ethics of the Senior Employees, the Measures on the Establishment of Internal Control System and the Measures on Overall Risk Management. As at 31st December, 2007, and as of the date of this report, the corporate governance rules and the corporate governance practices of the Group are in compliance with the principles and the code provisions set out in the Code on Corporate Governance Practices (the “Corporate Governance Code”) contained in Appendix 14 of Hong Kong Listing Rules.

Th e following are the major aspects of corporate government practices adopted by the Group which makes a more stringent impact than the Corporate Governance Code:

Th e provisions set out in the Code for Securities Transactions of the Management and the Standard of Conduct and Professional Ethics of the Senior Employees are stricter than those of the Model Code of the Hong Kong Listing Rules;
Th e Board held 6 meetings during the year 2007;
Th e Group is improving the infrastructure of its internal control system according to the requirements of the US Sarbanes-Oxley Act and Guidance on Internal Control for Listed Companies of the Shanghai Stock Exchange, in which the standards of the internal control contained therein are more specifi c than those of the Corporate Governance Code.

During this reporting period, the Company has strictly complied with the above corporate governance practices and has not deviated from any such requirements.

SECURITIES TRANSACTIONS OF DIRECTORS

Having made specifi c enquiry of all Directors, the Directors have strictly complied with the Model Code during the reporting period.

On 21st April, 2006, the Code for Securities Transactions of the Management was approved at the 5th Meeting of the third Session of the Board. Th e relevant requirements relating to the securities transactions under the PRC domestic laws, regulations and requirements on supervision are included in the Code for Securities Transactions of the Management which is draft ed based on the Model Code, but is stricter than the Model Code.

Corporate Governance Report

BOARD OF DIRECTORS

Th e Board comprises thirteen Directors including four independent non-executive Directors. Th e names and positions of the Directors are described in the paragraph headed “Shareholding of Directors, Supervisors and Senior Management of the Company” under the section headed “Report of the Board of Directors” in this Annual Report.

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Th e Board is mainly responsible for the strategic decision-making of the Company and the supervision of operations of the Company and the management. Th e Board primarily has the powers to decide on the operation plans and investment policy, to formulate the policy for fi nancial decision and allocation of profi ts, to implement and review the internal control system, and to confi rm the management organization and the basic management system of the Company etc. Th e duties and powers of the Board and the management have been set out in the Articles in detail.

According to the Articles and the Rules of Procedure for the Board Meeting, all the Directors are entitled to propose matters to be included in the agenda for Board meetings. Th e Company shall deliver a notice of the ordinary Board meeting or extraordinary Board meeting to the Directors 14 days before the ordinary Board meeting or 3 days before the extraordinary Board meeting; and the agenda and information for discussion have to be circulated to the Directors for their review 5 days before the ordinary Board meeting or 3 days before the extraordinary Board meeting. Draft and fi nal versions of minutes of Board meetings should be sent to all Directors for their comments and records respectively, in both cases within a reasonable time aft er the Board meeting is held. Any of the Directors are entitled to inspect the recorded minutes of Board meetings at any reasonable time.

Th e Company has set up a unit under the Board, through which all Directors are able to access the services of the Board secretary. Th e Board is entitled to seek independent professional advice for its Directors in appropriate circumstances, at the Company’s expense. When the Board considers a connected transaction, any interested Director shall abstain from the voting on such a transaction.

As at 31st December, 2007, six board meetings were held and the Directors attended the meetings in person or by means of electronic communication. All Directors attended the meetings, representing 100% attendance of the Board.

Th e Company has received an annual confi rmation provided by each of the independent non-executive Directors concerning his independence pursuant to Rule 3.13 of the Hong Kong Listing Rules. Th e Company confi rms that all of the four independent non-executive Directors comply with the qualifi cation requirements of independent non-executive Directors as required under the Hong Kong Listing Rules.

Except for their working relationships, there is no fi nancial, business, family or any other material relationship between the Directors, Supervisors and senior management.

Th e Directors are responsible for preparing the fi nancial accounts for the relevant accounting period of the Company, to truly and fairly refl ect the Company’s fi nancial situation, operating results and cash fl ows.

Corporate Governance Report

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CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Mr. Wang Xin serves as the Chairman of the Company, and Mr. Yang Deyu is the General Manager. Th e authorities and responsibilities of the Chairman and the General Manager are clearly divided between them. Details of such authorities and responsibilities of the Chairman and the General Manager are set out in the Articles.

TERM OF APPOINTMENT OF NONEXECUTIVE DIRECTORS

Each of the non-executive Directors has entered into a service contract with the Company. Pursuant to the Articles, the term of appointment of the members of the Board (including the non-executive Directors) is three years. Th e members of the Board can be reappointed consecutively aft er expiry of the term. However, the term of reappointment of independent non-executive Directors cannot exceed six years.

REMUNERATION OF DIRECTORS

As approved at the 1st Board Meeting of the third session of the Board held on 28th June, 2005, the Company set up the Remuneration Committee of the Third Session of the Board (the “Remuneration Committee”) which comprises two independent non-executive Directors, Mr. Wang Quanxi and Mr. Wang Xiaojun, and one non-executive Director, Mr. Dong Yunqing. Mr. Wang Quangxi serves as the Chairman of the Remuneration Committee.

Th e Remuneration Committee is mainly responsible for formulating the remuneration policy for the Directors, supervisors and the senior management, and recommending to the Board the remuneration plans for the Directors, Supervisors and the senior management. Th e details of the responsibilities of the Remuneration Committee are disclosed on the Company’s website.

During this reporting period, 1 meeting was held by the Remuneration Committee of the Company, and all members of the Remuneration Committee were present the meetings.

At the 16th Meeting of the third session of the Board held on 18th April, 2008, the Remuneration Committee made a report on the remuneration standard of the Directors, Supervisors and senior management for year 2007 and the operation assessment targets for the year 2008 to the Board, and submitted the relevant proposals regarding remuneration of the Directors, Supervisors and senior management for year 2008 to the Board. Such proposals were considered and approved by the Board.

The remuneration policy, remuneration calculation and payment methods of the Directors, Supervisors and senior management have been included in the paragraph headed “Remuneration Policy” under the section headed “Report of the Board of Directors” in this Annual Report. Details of the remunerations of the Directors, supervisors and senior management have been included in Note 14 to the fi nancial statement of this Annual Report which was prepared in accordance with the IFRS contained herein

Corporate Governance Report

NOMINATION OF DIRECTORS

Th e Company has not set up a Nomination Committee of the Board.

Th e Company has set up and has been strictly implementing the transparent and fair nomination and election procedures for the Directors. Pursuant to the Articles, the candidates for directorship are generally proposed to the Shareholders’ meeting by the Board by way of a resolution. Th e Shareholders and the Supervisory Committee may nominate candidate for directorship in accordance with the requirements of the Articles.

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AUDITORS’ REMUNERATION

For the year 2007, the Company retained Deloitte Touche Tohmatsu (Certifi ed Public Accountants in Hong Kong) and Deloitte Touche Tohmatsu Certifi ed Public Accountants Ltd. (Certifi ed Public Accountants in the PRC (excluding Hong Kong)) as its international and domestic auditors, respectively. Th e Company paid services fees in an aggregate sum of RMB12 million for the year 2007, such fees covered the auditing and review services for the consolidated fi nancial statements, and auditing service for internal controls and other related services. In addition, the Company paid HKD80,000 as consulting fees for Heze NengHua’s acquisition of the mining rights of Zhaolou Coalmine.

Save as disclosed above, the auditors did not provide any other non-auditing services to the Company in 2007.

The Company has not changed its auditors in the last three years. Deloitte Touche Tohmatsu and Deloitte Touche Tohmatsu Certifi ed Public Accountants Ltd. have been the Company’s international and domestic auditors for eleven years consecutively. No registered accountant of Deloitte Touche Tohmatsu Certifi ed Public Accountants Ltd. has been providing audit services to the Company for more than fi ve years.

In order to improve corporate governance, the Board recommended not to renew the appointment of Deloitte Touche Tohmatsu and Deloitte Touche Tohmatsu Certifi ed Public Accountants Ltd and recommended the appointment of Grant Th ornton and Shine Wing Certifi ed Public Accountants Ltd as the Company’s international and PRC auditors for the year 2008 respectively.

AUDIT COMMITTEE

As approved at the 1st meeting of the third session of the Board held on 28th June 2005, the Company set up the Audit Committee of the third Board (the “Audit Committee”). Th e Audit Committee comprises four independent non-executive Directors, namely Mr. Cui Jianmin, Mr. Pu Hongjiu, Mr. Wang Xiaojun and Mr. Wang Quanxi, and two non-executive Directors, namely Mr. Chen Changchun and Mr. Dong Yunqing. Mr. Cui Jianmin serves as the Chairman of the Audit Committee.

Corporate Governance Report

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Th e Audit Committee is mainly responsible for proposing the appointment or replacement of the external audit agencies; reviewing the accounting policies of the Company, the disclosure of the fi nancial information and the procedures for preparing fi nancial reports; and reviewing the internal control system and risk management system of the Company. Th e details of the responsibilities of the Audit Committee have been disclosed on the Company’s website.

Four meetings were held by the Audit Committee in the year 2007, details of the meeting are as follows:

Date	Main Topics	Member	Attendance
20th April	1. Review the operating results of the Company	Cui Jianmin	√
	for the year 2006;	Pu Hongjiu	√
	2. Discuss the reappointment of the auditor and	Wang Xiaojun	√
	their remunerations for the year 2007;	Wang Quanxi	√
	3. Debrief the auditor’s report on f nancial report	Chen Changchun	√
	for the year 2006.	Dong Yunqing	√
15th August 17th December (Morning) 17th December (Af ernoon)	Review the interim f nancial report of the Company for the year 2007. Discuss with the auditors: 1. Scheduled progress and arrangement of auditing works for the year 2007. 2. Independence of the auditors. 3. Status of works to counter corruption practices. 4. New regulations of US Audit Standards. 5. Assessment of internal control system of the Company. The management and relative departments made a collective report to the Audit Committee:	Cui Jianmin Pu Hongjiu Wang Xiaojun Wang Quanxi Chen Changchun Dong Yunqing Cui Jianmin Pu Hongjiu Wang Xiaojun Wang Quanxi Chen Changchun Dong Yunqing Cui Jianmin Pu Hongjiu	√ √ √ √ √ √ √ Attended by representative √ √ √ √ √ attended by
	1. Development of internal control system.		representative
	2. Suggestion about appointment of the auditors for	Wang Xiaojun	√
	the year 2008.	Wang Quanxi	√
	3. Production and operation status, progress status	Chen Changchun	√
	of signif cant events, internal auditing, works to	Dong Yunqing	√
	counter corruption practices and the risks control.

Th e Audit Committee of the Board has reviewed the results of the Company for the fi rst half of 2007, the results of the Company for the year 2007 and the performance of the internal control system of the Company for the year 2007.

Corporate Governance Report

INTERNAL CONTROLS

Th e Board and the management have paid much attention to the setting up and improvement of the internal control system, and confi rm that they have evaluated the internal supervisory and control systems of the Company and its subsidiaries. Th e Company has preliminarily set up an internal supervisory and control system on the basis of normalizing the system structure and exploiting the professional advantages of the internal organization.

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Since 2005, the Company has started the setting up of a uniform internal supervisory and evaluation system and a business fl ow control system in respect of the fi nance control, business operation, corporate compliance, and risk management, etc. pursuant to the listing requirements of the United States, Hong Kong and the PRC (Mainland).

The Group has made arrangements on internal control procedure and internal control system for the Company, the subordinated departments and companies, and the business of the Company. Th e auditing department, the planning and fi nance department, the information management center, risk management department and other departments of the Board serve as the internal control organizations and the inspecting and supervisory divisions. Th e Board assesses the eff ectiveness of the Company’s internal control system at least once a year since 2007.

As at this reporting date, Deloitte Touche Tohmatsu is still assessing the Company’s internal control system for the year 2007 to determine whether it is in conformity with the requirements of the US Sarbanes-Oxley Act.

DIRECTOR’S ACKNOWLEDGEMENT

All directors acknowledge their responsibility for preparing the accounts for the year ended 31st December 2007.

INFORMATION DISCLOSURE

Th e Company emphasizes the truthfulness, timeliness, fairness, impartiality and publicity of information disclosure and has observed the disclosure requirements set out in the Hong Kong Listing Rules. For the fi nancial report and related information to be disclosed, the Chief Financial Offi cer shall ensure the truthful and fair refl ection of the Company’s business operation and fi nancial status according to the applicable Accounting Standards and relevant rules and regulations.

According to the newly issued supervisory regulations, the Company has amended the relevant regulations in time. As approved by the Board, amendments to the Rules for Company Information Disclosure Management of Yanzhou Coal Company Limited were made in April 2007.

INVESTOR RELATIONS

Pursuant to the laws and supervisory regulations of the places where the shares of the Company are listed, both domestic and overseas, and based on the day-to-day business practices, the Company has issued the Rules for the Management of Investors’ Relationship and the Rules for Disclosure of Information to regulate the investor relationship management.

Corporate Governance Report

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Th e Company has set up normative and eff ective information collection, compilation, examination, disclosure and feedback control procedures to ensure that the disclosure of information is in compliance with the governance requirements of the places where the shares of the Company are listed and meet the needs of investors to have a reasonable access to the Company’s information. Th e Company takes an active initiative to consider the needs of investors and strives to enable investors to draw conclusions by themselves based on the disclosed information.

Th e Company insists on making at least two road-shows both at its home country and abroad each year. Th rough face-to-face meeting, the Company reports to investors its business operation while collecting opinions and suggestions in relation to the Company from the investors and the capital market.

Th e Company pays much attention to its communication with Shareholders through Shareholders’ meetings, and encourages the medium and minority Shareholders to participate in Shareholders’ meetings by various means such as internet voting. Th e Chairman and the Vice Chairman of the Board, the General Manager, the Chairman and the Vice Chairman of the Supervisory Committee, the relevant Directors and Supervisors generally attend the Shareholders’ meetings. At the Shareholders’ meetings, each individual resolution is proposed separately, all the resolutions are voted by poll.

SPECIAL ACTIVITIES OF CORPORATE GOVERNANCE

In accordance with the requirements by China Securities Regulatory Commission, Shandong Securities Regulatory Bureau and Shanghai Stock Exchange, the Company has implemented certain special activities on corporation governance since April 2007.

At the 12th meeting of the third session of the Board convened on 15th June, 2007, the Self-inspection Report and Rectifi cation Plan as a special activity on corporate governance was approved. In 25th October, 2007, Shandong Securities Regulatory Bureau made on-site inspection and report as a special activity on corporate governance. At the 15th meeting of the third session of the Board convened on 26th October, 2007, the Report of Rectifi cation on Special Activities of Corporate Governance of Yanzhou Coal Mining Company Limited was reviewed and approved. For details, please refer to the announcement of the Company posted on the website of the Hong Kong Stock Exchange on 30th October, 2007.

COMPLIANCE OF AND EXEMPTION FROM CORPORATE GOVERNANCE STANDARDS IMPOSED BY THE NEW YORK STOCK EXCHANGE

As at the date of this report, 52.86% of the Company’s shareholding is owned by Yankuang Group. Th e Company is therefore exempted from certain requirements under Section 303A of the Listed Company Manual of the New York Stock Exchange (the “NYSE”): (1) the Company is not required to comply with the requirements under Section 303A.01 to form a Board with a majority of the Independent Directors, (2) the Company is not required to comply with the requirements under Section 303A.04 to form a nomination and corporate governance committee of the Board with all the members being Independent Directors, and (3) the Company is not required to comply with the requirements under Section 303A.05 to form a remuneration committee of the Board with all the members being Independent Directors.

Corporate Governance Report

As a foreign issuer, the Company sets out below the material diff erences between its corporate governance practices and the NYSE’s corporate governance requirements contained in Section 303A of the Listed Company Manual of the NYSE:

	N Y S E L i s t e d C o m p a n y M a n u a l	Dif erences from the corporate governance practices
	Requirements on Corporate Governance	currently adopted by the Company
Meetings held by	Section 303A.03 of the NYSE Listed Company	There is no identical corporate governance
non-executive	Manual requires non-executive directors of	requirement in the PRC.
Directors	each listed company to meet regularly without
	the participation of executive directors at such	The Company has established a reporting system
	meetings.	for the Board to ensure that the Directors are kept
		informed of the Company’s business and operations.
		The Company believes that the holding of Board
		meetings on a regular basis of ers the non-executive
		Directors a well established communication forum
		to put their concerns and engage in full and open
Corporate Governance Guidelines	Section 303A.09 of the NYSE Listed Company Manual requires that a listed company must adopt and disclose corporate governance guidelines. In addition, Section 303A.09 lists out the matters that must be addressed in the guidelines which mainly include: • qualif cations of the directors; • responsibilities and obligations of the director; • communications between the director and the management and independent advisors; • remuneration of the director; • orientation and continuing education of the director;	discussions regarding the Company’s af airs. Although the Company has not adopted a separate set of corporate governance guidelines encompassing all corporate governance requirements required by the NYSE, the Company has however, formulated the Rules of Procedures for the Shareholders’ Meetings, the Rules of Procedures for the Board, the Rules of Procedures for the Supervisory Committee, the Rules for the Work of the Independent Non-Executive Directors, the Rules for Disclosure of Information, the Rules for the Approval and the Disclosure of the Connected Transactions of the Company and other corporate governance documentation in accordance with the regulations and requirement of listing in China. The above corporate governance documentation has adequately addressed the corporate governance requirements required by the NYSE and provides
	• reappointment of the management, and	more extensive and specific corporate governance
	• annual review of the performance of the	requirements that can further facilitate the operation
	board	of the Company ef ectively.

Code of Business Section 303A.10 of the NYSE Listed Company Conduct and Ethics Manual requires that a listed company must adopt and disclose a code of business conduct and ethics for directors, offi cers and employees, and promptly disclose any waivers

Although the Company has not adopted a Code of Business Conduct and Ethics which completely conforms to the NYSE requirements, the Company has adopted a suitable Code of Ethics in compliance with the PRC laws and regulations as well as the rules of the relevant listing stock exchanges. The Code of Business Conduct and Ethics is disclosed on the Company’s website. Th e Company believes that the existing Code of Ethics can appropriately protect the interests of both the Company and its Shareholders.

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Independent Auditor’s Report

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TO THE SHAREHOLDERS OF YANZHOU COAL MINING COMPANY LIMITED 兗州煤業股份有限公司

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

We have audited the consolidated fi nancial statements of Yanzhou Coal Mining Company Limited (the “Company”) and its subsidiaries (collectively referred as the “Group”) set out on pages 59 to 128, which comprise the consolidated balance sheet as at December 31, 2007, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash fl ow statement for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

Th e directors of the Company are responsible for the preparation and the true and fair presentation of these consolidated fi nancial statements in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board and the disclosure requirements of the Hong Kong Companies Ordinance. Th is responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the consolidated fi nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated fi nancial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certifi ed Public Accountants. Th ose standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the consolidated fi nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated fi nancial statements. Th e procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and true and fair presentation of the consolidated fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the eff ectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated fi nancial statements.

We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the consolidated fi nancial statements give a true and fair view of the state of aff airs of the Group as at December 31, 2007 and of the Group’s profi t and cash fl ows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Deloitte Touche Tohmatsu

Certifi ed Public Accountants Hong Kong

April 18, 2008

Consolidated Income Statement

For the year ended December 31, 2007

			Year ended December	31,
	NOTES	2007	2006	2005
		RMB’000	RMB’000	RMB’000
GROSS SALES OF COAL	7	14,906,746	12,783,567	12,283,588
RAILWAY TRANSPORTATION
SERVICE INCOME		203,714	160,399	163,437
TOTAL REVENUE		15,110,460	12,943,966	12,447,025
TRANSPORTATION COSTS OF COAL	7	(549,816)	(936,619)	(930,103)
COST OF SALES AND SERVICE PROVIDED	8	(7,331,924)	(6,190,069)	(5,288,588)
GROSS PROFIT		7,228,720	5,817,278	6,228,334
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES	9	(2,854,677)	(2,230,142)	(1,918,788)
SHARE OF LOSS OF AN ASSOCIATE	28	(2,438)	–	–
OTHER INCOME	10	198,930	165,837	135,038
INTEREST EXPENSE	11	(27,222)	(26,349)	(24,611)
PROFIT BEFORE INCOME TAXES INCOME TAXES PROFIT FOR THE YEAR Attributable to: Equity holders of the Company Minorityinterests APPROPRIATIONS TO RESERVES DIVIDEND RECOGNIZED AS DISTRIBUTION DURING THE YEAR EARNINGS PER SHARE, BASIC EARNINGS PER ADS, BASIC	12 13 15 16 16	4,543,313 (1,315,520) 3,227,793 3,230,450 (2,657) 3,227,793 701,860 983,680 RMB0.66 RMB32.84	3,726,624 (1,354,656) 2,371,968 2,372,985 (1,017) 2,371,968 566,728 1,082,048 RMB0.48 RMB24.12	4,419,973 (1,538,036) 2,881,937 2,881,461 476 2,881,937 755,530 799,240 RMB0.59 RMB29.29

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Consolidated Balance Sheet

As at December 31, 2007

		At December 31,	At December 31,
	NOTES	2007	2006
		RMB’000	RMB’000
ASSETS
CURRENT ASSETS
Bank balances and cash	17	4,424,561	4,715,945
Term deposits	17	1,294,984	1,194,531
Restricted cash	17	11,185	68,562
Bills and accounts receivable	18	2,753,485	2,211,909
Inventories	19	440,134	579,561
Other loans receivable	20	640,000	640,000
Prepayments and other receivables	21	326,668	231,505
Prepaid lease payments	22	13,976	13,746
Prepayment for resources compensation fees	23	3,240	3,240
Prepayment for land subsidence, restoration,
rehabilitation and environmental costs	32	–	212,912
TOTAL CURRENT ASSETS		9,908,233	9,871,911
MINING RIGHTS PREPAID LEASE PAYMENTS PREPAYMENT FOR RESOURCES COMPENSATION FEES PROPERTY, PLANT AND EQUIPMENT GOODWILL INVESTMENTS IN SECURITIES INTERESTS IN AN ASSOCIATE RESTRICTED CASH DEPOSIT MADE ON INVESTMENT DEFERRED TAX ASSETS TOTAL ASSETS	24 22 23 25 26 27 28 17 29 34	356,012 576,412 18,488 13,524,594 298,650 409,526 897,562 48,822 117,926 31,175 26,187,400	307,909 578,988 21,827 12,139,939 295,584 96,142 – 49,023 97,426 – 23,458,749

Consolidated Balance Sheet

As at December 31, 2007

		At December 31,	At December 31,
	NOTES	2007	2006
		RMB’000	RMB’000
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Bills and accounts payable	30	657,517	745,685
Other payables and accrued expenses	31	2,671,117	1,899,684
Provision for land subsidence, restoration,
rehabilitation and environmental costs	32	19,635	–
Amounts due to Parent Company and its
subsidiary companies	40	669,275	982,347
Unsecured bank borrowings – due within one year	33	72,000	50,000
Taxespayable		9,934	150,332
TOTAL CURRENT LIABILITIES		4,099,478	3,828,048
AMOUNTS DUE TO PARENT COMPANY AND ITS
SUBSIDIARY COMPANIES – DUE AFTER ONE YEAR	40	14,956	23,138
UNSECURED BANK BORROWINGS – DUE AFTER ONE YEAR DEFERRED TAX LIABILITY TOTAL LIABILITIES CAPITAL AND RESERVES SHARE CAPITAL RESERVES EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY MINORITY INTEREST TOTAL EQUITY TOTAL LIABILITIES AND EQUITY	33 34 35	258,000 326,354 4,698,788 4,918,400 16,499,137 21,417,537 71,075 21,488,612 26,187,400	330,000 283,823 4,465,009 4,918,400 14,013,379 18,931,779 61,961 18,993,740 23,458,749

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Th e consolidated fi nancial statements on pages 59 to 128 were approved and authorized for issue by the Board of Directors on April 18, 2008 and are signed on its behalf by:

Wang Xin Wu Yuxiang Director Director

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Consolidated Statement of Changes in Equity

For the year ended December 31, 2007

				Statutory	Statutory				Attributable
			Future	common	common		Investment		to equity
	Share	Share	development	reserve	welfare	Translation	revaluation	Retained	holders of	Minority
	capital	premium	fund	fund	fund	reserve	reserve	earnings	the Company	interest	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
			(note 35)	(note 35)	(note 35)
Balance atJanuary1, 2005	3,074,000	4,825,402	1,446,459	769,593	384,875	–	–	5,051,043	15,551,372	3,674	15,555,046
Exchange dif erence arising on translation
of foreign operations recognized
directly in equity	–	–	–	–	–	(15,016)	–	–	(15,016)	–	(15,016)
Prof t for theyear	–	–	–	–	–	–	–	2,881,461	2,881,461	476	2,881,937
Total recognized income
and expenses for theyear	–	–	–	–	–	(15,016)	–	2,881,461	2,866,445	476	2,866,921
Appropriations to reserves	–	–	381,208	249,548	124,774	–	–	(755,530)	–	–	–
Bonus issue of shares	1,844,400	(1,844,400)	–	–	–	–	–	–	–	–	–
Dividends	–	–	–	–	–	–	–	(799,240)	(799,240)	(237)	(799,477)
Acquisition of a subsidiary	–	–	–	–	–	–	–	–	–	24,818	24,818
Balance at December 31,2005	4,918,400	2,981,002	1,827,667	1,019,141	509,649	(15,016)	–	6,377,734	17,618,577	28,731	17,647,308
Balance atJanuary1, 2006 Gain on fair value change of available-for-sale investments Deferred taxes on fair value change of available-for-sale investments Exchange dif erence arising on translation of foreign operations Net income recognized directly in equity Prof t for theyear Total recognized income and expenses for theyear Appropriations to reserves Transfer Dividends Acquisition of a subsidiary Balance at December 31,2006 Balance atJanuary1, 2007 Gain on fair value change of available-for-sale investments	4,918,400 – – – – – – – – – – 4,918,400 4,918,400 –	2,981,002 – – – – – – – – – – 2,981,002 2,981,002 –	1,827,667 – – – – – – 390,907 – – – 2,218,574 2,218,574 –	1,019,141 – – – – – – 175,821 509,649 – – 1,704,611 1,704,611 –	509,649 – – – – – – – (509,649) – – – – –	(15,016) – – (489) (489) – (489) – – – – (15,505) (15,505) –	– 33,961 (11,207) – 22,754 – 22,754 – – – – 22,754 22,754 312,944	6,377,734 – – – – 2,372,985 2,372,985 (566,728) – (1,082,048) – 7,101,943 7,101,943 –	17,618,577 33,961 (11,207) (489) 22,265 2,372,985 2,395,250 – – (1,082,048) – 18,931,779 18,931,779 312,944	28,731 – – – – (1,017) (1,017) – – (271) 34,518 61,961 61,961 –	17,647,308 33,961 (11,207) (489) 22,265 2,371,968 2,394,233 – – (1,082,319) 34,518 18,993,740 18,993,740 312,944
Deferred taxes on fair value change of
available-for-sale investments	–	–	–	–	–	–	(75,519)	–	(75,519)	–	(75,519)
Exchange dif erence arising on translation
of foreign operations	–	–	–	–	–	1,563	–	–	1,563	–	1,563
Net income recognized
directly in equity	–	–	–	–	–	1,563	237,425	–	238,988	–	238,988
Prof t for theyear	–	–	–	–	–	–	–	3,230,450	3,230,450	(2,657)	3.227,793
Total recognized income
and expenses for theyear	–	–	–	–	–	1,563	237,425	3,230,450	3,469,438	(2,657)	3,466,781
Appropriations to reserves	–	–	368,531	333,329	–	–	–	(701,860)	–	–	–
Dividends	–	–	–	–	–	–	–	(983,680)	(983,680)	(330)	(984,010)
Contribution from a minority
Shareholder of a subsidiary	–	–	–	–	–	–	–	–	–	24,000	24,000
Acquisition of additional interest in a subsidiary	–	–	–	–	–	–	–	–	–	(11,899)	(11,899)
Balance at December 31,2007	4,918,400	2,981,002	2,587,105	2,037,940	–	(13,942)	260,179	8,646,853	21,417,537	71,075	21,488,612

Consolidated Statement of Cash Flows

For the year ended December 31, 2007

		Year ended December 31,
NOTES	2007	2006	2005
	RMB’000	RMB’000	RMB’000
OPERATING ACTIVITIES
Prof t before income taxes	4,543,313	3,726,624	4,419,973
Adjustments for:
Interest expenses	27,222	26,349	24,611
Interest income	(103,564)	(94,372)	(91,715)
Dividend income	(7,143)	(6,311)	(4,465)
Depreciation of property, plant and equipment	1,237,132	1,061,976	952,096
Release of prepaid lease payments	13,861	13,826	13,171
Amortization of prepayment for resources
compensation fees	3,339	320	–
Amortization of mining rights	15,728	12,069	6,624
(Reversal of) impairment loss on accounts
receivable and other receivables	(4,363)	(19,717)	–
Share of loss of an associate	2,438	–	–
(Gain) loss on disposal of property, plant and equipment Impairment loss onproperty,plant and equipment Operating cash f ows before movements in working capital (Increase) decrease in bills and accounts receivable Decrease (increase) in inventories Decrease (increase) in prepayment (provision) for land subsidence, restoration, rehabilitation and environmental cost Increase in prepayments and other receivables Decrease in amounts due from Parent Company and its subsidiary companies Increase in prepaid lease payments (Decrease) increase in bills and accounts payable Increase in other payables and accrued expenses (Decrease) increase in amounts due to Parent Companyand its subsidiarycompanies Cash generated from operations Income taxes paid	(25,002) 339,743 6,042,704 (536,673) 145,891 232,547 (108,607) – – (90,180) 622,128 (315,065) 5,992,745 (1,520,081)	73,531 – 4,794,295 40,527 (66,199) (55,401) (10,805) – (1,944) 235,899 64,281 471,464 5,472,117 (1,782,465)	527 – 5,320,822 (1,001,048) 59,989 (53,377) (17,261) 213,871 (14,691) 19,379 157,421 479,067 5,164,172 (1,296,879)
Interest paid	(24,722)	(23,179)	(24,199)
Interest income received	103,564	94,372	91,715
Dividend income received	7,143	6,311	4,465
NET CASH FROM OPERATING ACTIVITIES	4,558,649	3,767,156	3,939,274

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Consolidated Statement of Cash Flows

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For the year ended December 31, 2007

			Year ended December 31,
	NOTES	2007	2006	2005
		RMB’000	RMB’000	RMB’000
INVESTING ACTIVITIES
Decrease (increase) in term deposits		(100,453)	131,804	(1,326,335)
Purchase of property, plant and equipment		(2,772,586)	(3,137,145)	(1,315,431)
Decrease in other loans receivable		–	–	210,000
Decrease (increase) in restricted cash		59,404	(50,529)	(5,325)
Proceeds on disposal of property,
plant and equipment		31,593	14,165	4,378
Acquisition of Shanxi Group	38	(14,965)	(444,204)	–
Acquisition of Heze	39	–	–	170,247
Acquisition of Southland		–	(18,544)	–
Deposit made on investment		(20,500)	(97,426)	–
Acquisition of mining rights in Southland		(61,923)	(23,644)	–
Purchase of land use right		(11,515)	–	–
Investment in an associate		(900,000)	–	–
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 Contribution from a minority shareholder of a subsidiary NET CASH FLOW USED IN FINANCING ACTIVITIES NET DECREASE INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, AT JANUARY 1 EFFECT OF FOREIGN EXCHANGE RATE CHANGES		(3,790,945) (983,680) (50,000) (8,689) (330) 24,000 (1,018,699) (250,995) 4,715,945 (40,389)	(3,625,523) (1,082,048) (200,000) (9,230) (271) – (1,291,549) (1,149,916) 5,885,581 (19,720)	(2,262,466) (799,240) (200,000) (9,802) (237) – (1,009,279) 667,529 5,216,738 1,314
CASH AND CASH EQUIVALENTS, DECEMBER 31,
REPRESENTED BY BANK BALANCES
AND CASH		4,424,561	4,715,945	5,885,581

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

1. GENERAL

Organization and principal activities

Yanzhou Coal Mining Company Limited (the “Company”) is established as a joint stock company with limited liability in the People’s Republic of China (the “PRC”). In April 2001, the status of the Company was changed to that of a sinoforeign joint stock limited company. Th e Company’s A shares are listed on the Shanghai Securities Exchange (“SSE”), its H shares are listed on Th e Stock Exchange of Hong Kong (the “SEHK”), and its American Depositary Shares (“ADS”, one ADS represents 50 H shares) are listed on the New York Stock Exchange, Inc. Th e addresses of the registered offi ce and principal place of business of the Company are disclosed in the introduction to the annual report.

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Th e Company operates six coal mines, namely the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine, Dongtan coal mine, Jining II coal mine (“Jining II”) and Jining III coal mine (“Jining III”), as well as a regional rail network that links these mines with the national rail network. Th e Company’s parent and ultimate holding company is Yankuang Group Corporation Limited (the “Parent Company”), a state-owned enterprise in the PRC.

Th e principal activities of the Company’s associate and subsidiaries are set out in notes 28 and 45, respectively.

As at December 31, 2007, the Group has a net current assets of RMB5,808,755,000 (2006: RMB6,043,863,000) and total asset less current liabilities of RMB22,087,922,000. (2006:RMB19,630,701,000).

Acquisitions and establishment of major subsidiaries

In 2005, the Company acquired a 95.67% equity interest in Yankuang Heze Power Chemical Company Limited (“Heze”) from the Parent Company at cash consideration of RMB584,008,000. Th e principal activities of Heze are to conduct the initial preparation of the coal mines at the Juye coalfi eld which includes obtaining the approvals for the coal mine projects, applying rights to explore for coal and preparing the construction work of the coal mines.

In 2006, the Company acquired a 98% equity interest in Yankuang Shanxi Neng Hua Company Limited (“Shanxi Neng Hua”) and its subsidiaries (collectively referred as the “Shanxi Group”) from the Parent Company at cash consideration of RMB733,346,000. Th e principal activities of Shanxi Group are to invest in heat and electricity, manufacture and sale of mining machinery and engine products, coal mining and the development of integrated coal technology.

Shanxi Neng Hua is an investment holding company, which holds 81.31% equity interest in Shanxi Heshun Tianchi Energy Company Limited (“Shanxi Tianchi”) and approximately 99.85% equity interest in Shanxi Tianhao Chemical Company Limited (“Shanxi Tianhao”). Th e principal activities of Shanxi Tianchi are to exploit and sale of coal from Tianchi Coal Mine, the principal asset of Shanxi Tianchi. Shanxi Tianchi has completed the construction of Tianchi Coal Mine and commenced production by the end of 2006. Shanxi Tianhao is established to engage in the production of methanol and other chemical products, coke production, exploration and sales. Th e construction of the methanol facilities by Shanxi Tianhao commenced in March 2006 and it has not yet commenced production as at December 31, 2007.

In 2007, the Company further acquired the remaining 2% equity interest in Shanxi Neng Hua from a subsidiary of the Parent Company at cash consideration of RMB14,965,000.

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

2. BASIS OF PRESENTATION

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

Th e consolidated fi nancial statements include applicable disclosure required by the Hong Kong Companies Ordinance and by the Rules Governing the Listing of Securities on Th e Stock Exchange of Hong Kong Limited.

Th e consolidated fi nancial statements are presented in Renminbi, which is also the functional currency of the Company.

3. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

In the current year, the Group has applied, for the fi rst time, a number of new standard, amendment and interpretations (“new IFRSs”) issued by the International Accounting Standards Board (the “IASB”) and the International Financial Reporting Interpretations Committee (the IFRIC) of IASB, which are eff ective for the Group’s fi nancial year beginning January 1, 2007.

International Accounting Standard (“IAS”) 1 (Amendment) IFRS 7 IFRIC 7 IFRIC 8 IFRIC 9 IFRIC 10	Capital Disclosures Financial Instruments: Disclosures Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinf ationary Economies Scope of IFRS 2 Reassessment of Embedded Derivatives Interim Financial Reporting and Impairment

Th e adoption of the new IFRSs had no material eff ect on how the results and the fi nancial position for the current or prior accounting years have been prepared. Accordingly, no prior year adjustment has been required.

Th e Group has applied the disclosure requirements under IAS 1 (Amendment) and IFRS 7. Certain information presented in prior year under the requirements of IAS 32 has been removed and the relevant comparative information based on the requirement of IAS 1 (Amendment) and IFRS 7 has been presented for the fi rst time in the current year.

Th e Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet eff ective. Th e directors of the Company anticipate that the application of these standards or interpretations will have no material impact on the results or fi nancial position of the Group, except IFRS 8 Operating Segments.

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

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

IAS 1 (Revised)	Presentation of Financial Statements 1
IAS 23 (Revised)	Borrowing Costs 1
IAS 27 (Revised)	Consolidated and Separate Financial Statements 2
IAS 32 & 1 (Amendments)	Puttable Financial Instruments and Obligations Arising
	on Liquidation 1
IFRS 2 (Amendment)	Vesting Conditions and Cancellations 1
IFRS 3 (Revised)	Business Combinations 2
IFRS 8	Operating Segments 1
IFRIC 11	IFRS 2: Group and Treasury Share Transactions 3
IFRIC 12	Service Concession Arrangements 4
IFRIC 13	Customer Loyalty Programmes 5
IFRIC 14	IAS 19-T e Limit on a Def ned Benef t Asset,
	Minimum Funding Requirements and their Interaction 4

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1 Eff ective for annual periods beginning on or aft er January 1, 2009
2 Eff ective for annual periods beginning on or aft er July 1, 2009
3 Eff ective for annual periods beginning on or aft er March 1, 2007
4 Eff ective for annual periods beginning on or aft er January 1, 2008
5 Eff ective for annual periods beginning on or aft er July 1, 2008

On adoption of IFRS 8 on January 1, 2009, segment results will be reported in accordance with the basis used for preparing management fi nancial information. Currently, segment results are measured in accordance with the same accounting policies used to prepare the consolidated fi nancial statements and includes items specifi ed by IAS 14.

Th e adoption of IFRS 3 (revised) may aff ect the accounting for business combination for which the acquisition date is on or aft er the beginning of the fi rst annual reporting period beginning on or aft er July 1, 2009. IAS 27 (revised) will aff ect the accounting treatment for changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, which will be accounted for as an equity transaction.

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

4. SIGNIFICANT ACCOUNTING POLICIES

Th e consolidated fi nancial statements have been prepared on the historical cost basis except for certain fi nancial instruments, which are stated at fair value. Th e principal accounting policies are set out below.

Basis of consolidation

Th e consolidated fi nancial statements incorporate the fi nancial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities.

Th e results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the eff ective date of acquisition or up to the eff ective date of disposal, as appropriate.

Where necessary, adjustments are made to the fi nancial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

Business combination

Th e acquisition of business is accounted for using the purchase method. Th e cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given and liabilities incurred or assumed by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. Th e acquiree’s identifi able assets, liabilities and contingent liabilities are recognized at their fair values at the acquisition date.

Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifi able assets, liabilities and contingent liabilities recognised. If, aft er reassessment, the Group’s interest in the net fair value of the acquiree’s identifi able assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized immediately in profi t or loss.

Th e interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognized.

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Acquisition of additional interests in subsidiary

Goodwill arising on acquisition of additional interest in subsidiary represents the excess of the cost of acquisition over the carrying value of the net assets attributable to the additional interest in the subsidiary.

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Interests in associates

An associate is an entity over which the Group has signifi cant infl uence and that is neither a subsidiary nor an interest in a joint venture.

Th e results and assets and liabilities of associates are incorporated in these consolidated fi nancial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of net assets of the associates, less any identifi ed impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. An additional share of losses is provided for and a liability is recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifi able assets, liabilities and contingent liabilities of the associate recognized at the date of acquisition is recognized as goodwill. Th e goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group’s share of the net fair value of the identifi able assets, liabilities and contingent liabilities over the cost of acquisition, aft er reassessment, is recognized immediately in profi t or loss.

Where a group entity transacts with an associate of the Group, profi ts and losses are eliminated to the extent of the Group’s interest in the relevant associate.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal courses of business, net of discounts and sales related taxes.

Sales of goods are recognized when goods are delivered and title has passed.

Service income is recognized when services are provided.

Interest income from a fi nancial asset is accrued on a time basis, by reference to the principal outstanding and at the eff ective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the fi nancial assets to that asset’s net carrying amount.

Dividend income from investments is recognized when the shareholders’ rights to receive payments have been established.

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Mining rights

Mining rights are stated at cost less accumulated amortization and are amortized on a straight line basis over the shorter of their useful life estimated based on the total proven and probable reserves of the coal mine or contractual period from the date of commencement of commercial production which approximates the date from which they are available for use.

Prepaid lease payments

Prepaid lease payments represent land use rights under operating lease arrangement and is expensed over the relevant lease term.

Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

Depreciation is charged so as to write off the cost of items of property, plant and equipment, other than construction in progress, over their estimated useful lives and aft er taking into account their estimated residual value, using the straight line method or units of production method.

Construction in progress represents property, plant and equipment under construction for production or for its own use purposes. Construction in progress is carried at cost less any impairment loss. Construction in progress is classifi ed to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation commences when the assets are ready for their intended use.

Any gain or loss arising on the disposal of an item of property, plant and equipment is determined as the diff erence between the sales proceeds and the carrying amount of the asset and is recognized in the consolidated income statement.

Impairment other than goodwill

At each balance sheet date, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suff ered an impairment loss. If any such indication exists, the recoverable amount of the asset (determined at the higher of its fair value less costs to sell and its value in use) is estimated in order to determine the extent of the impairment loss (if any).

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

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

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Goodwill

Goodwill arising on acquisitions prior to January 1, 2005

Goodwill arising on an acquisition of net assets and operations of another entity for which the agreement date is before January 1, 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifi able assets and liabilities of the relevant acquiree at the date of acquisition.

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For previously capitalized goodwill arising on acquisitions of net assets and operations of another entity aft er January 1, 2001, the Group has discontinued amortization from January 1, 2005 onwards, and such goodwill is tested for impairment annually, and whenever there is an indication that the cash-generating unit to which the goodwill relates may be impaired (see the accounting policy below).

Goodwill arising on acquisitions on or aft er January 1, 2005

Goodwill arising on an acquisition of a business for which the agreement date is on or aft er January 1, 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifi able assets, liabilities and contingent liabilities of the relevant business at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

Goodwill is presented separately in the consolidated balance sheet.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefi t from the synergies of the acquisition. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit fi rst and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Any impairment is recognized immediately in the consolidated income statement and is not subsequently reversed.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the gain or loss on disposal.

Inventories

Inventories of coal are stated at the lower of cost and net realizable value. Cost, which comprises direct materials and, where applicable, direct labor and overheads that have been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average method. Net realizable value represents the estimated selling price less all further costs to completion and costs to be incurred in selling, marketing and distribution.

Inventories of auxiliary materials, spare parts and small tools expected to be used in production are stated at weighted average cost less allowance, if necessary, for obsolescence.

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Taxation

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

Th e tax currently payable is based on taxable profi t for the year. Taxable profi t diff ers from profi t as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Th e Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognized on diff erences between the carrying amounts of assets and liabilities in the consolidated fi nancial statements and the corresponding tax bases used in the computation of taxable profi t, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary diff erences, and deferred tax assets are recognized to the extent that it is probable that taxable profi ts will be available against which deductible temporary diff erences can be utilized. Such assets and liabilities are not recognized if the temporary diff erence arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that aff ects neither the taxable profi t nor the accounting profi t.

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

Th e carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that suffi cient taxable profi t will be available to allow all or part of the asset to be recovered.

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

Deferred tax assets and liabilities are off set when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Research and development

Expenditure on research activities is recognized as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development expenditure is recognized only if it is anticipated that the development costs incurred on a clearly-defi ned project will be recovered through future commercial activity. Th e resultant asset is amortized on a straight line basis over its useful life.

Where no internally-generated intangible asset can be recognized, development expenditure is recognized as an expense in the period in which it is incurred.

No development expenditure has been deferred.

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Land subsidence, restoration, rehabilitation and environmental costs

One consequence of coal mining is land subsidence caused by the resettlement of the land above the underground mining sites. Depending on the circumstances, the Group may relocate inhabitants from the land above the underground mining sites prior to mining those sites or the Group may compensate the inhabitants for losses or damages from land subsidence aft er the underground sites have been mined. Th e Group may also be required to make payments for restoration, rehabilitation or environmental protection of the land aft er the underground sites have been mined.

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

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of those assets. Investment income earned on the temporary investment of specifi c borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowings costs are recognized as expenses in the period in which they are incurred.

Foreign currencies

In preparing the fi nancial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange diff erences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profi t or loss in the period in which they arise.

For the purposes of presenting the consolidated fi nancial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Company (i.e. Renminbi) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fl uctuate signifi cantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange diff erences arising, if any, are recognized as a separate component of equity (the translation reserve). Such exchange diff erences are recognized in profi t or loss in the period in which the foreign operation is disposed of.

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Government grants

Government grants are recognized as income over the periods necessary to match them with the related costs. If the grants do not relate to any specifi c expenditures incurred by the Group, they are reported separately as other income. If the grants subsidise an expense incurred by the Group, they are deducted in reporting the related expense. Grants relating to depreciable assets are presented as a deduction from the cost of the relevant asset.

Payments to defi ned contribution retirement benefi t plans are charged as expenses when the employees render the services entitling them to the contributions.

Financial instruments

Financial assets and fi nancial liabilities are recognized when the Group becomes a party to the contractual provisions of the instrument. Financial assets and fi nancial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of fi nancial assets and fi nancial liabilities (other than fi nancial assets and fi nancial liabilities at fair value through profi t or loss) are added to or deducted from the fair value of the fi nancial assets or fi nancial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of fi nancial assets or fi nancial liabilities at fair value through profi t or loss are recognized immediately in profi t or loss.

Financial assets

Th e Group’s fi nancial assets are classifi ed into loans and receivables and available-for-sale fi nancial assets. All regular way purchases or sales of fi nancial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of fi nancial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. Th e accounting policies adopted in respect of fi nancial assets are set out below.

Loan and receivables

Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. Loan and receivables (including bank balances and cash, term deposits, restricted cash, bills and accounts receivable, other loans receivable and other receivables) are initially measured at fair value and subsequently measured at amortized cost using the eff ective interest method, less any identifi ed impairment loss.

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Available-for-sale fi nancial assets

Available-for-sale fi nancial assets are non-derivatives that are either designated or not classifi ed as fi nancial assets at FVTPL, loans and receivables or held-to-maturity investments.

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At each balance sheet date subsequent to initial recognition, available-for-sale fi nancial assets are measured at fair value. Changes in fair value are recognized in equity, until the fi nancial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognized in equity is removed from equity and recognized in profi t or loss (see accounting policy on impairment loss on fi nancial assets below).

Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identifi ed impairment losses at each balance sheet date subsequent to initial recognition (see accounting policy on impairment loss on fi nancial assets below).

Impairment of fi nancial assets

Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred aft er the initial recognition of the fi nancial asset, the estimated future cash fl ows of the fi nancial assets have been impacted.

For an available-for-sale equity investment, a signifi cant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment.

For all other fi nancial assets, objective evidence of impairment could include:

signifi cant fi nancial diffi culty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or fi nancial re-organisation.

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Available-for-sale fi nancial assets (continued)

Impairment of fi nancial assets (continued)

For certain categories of fi nancial asset, such as trade and bills receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments and changes in national or local economic conditions that correlate with default on receivables.

For fi nancial assets carried at amortised cost, an impairment loss is recognized in profi t or loss when there is objective evidence that the asset is impaired, and is measured as the diff erence between the asset’s carrying amount and the present value of the estimated future cash fl ows discounted at the original eff ective interest rate.

For fi nancial assets carried at cost, the amount of the impairment loss is measured as the diff erence between the asset’s carrying amount and the present value of the estimated future cash fl ows discounted at the current market rate of return for a similar fi nancial asset. Such impairment loss will not be reversed in subsequent periods.

Th e carrying amount of the fi nancial asset is reduced by the impairment loss directly for all fi nancial assets with the exception of trade and bills receivables and other receivables, where the carrying amounts are reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognized in profi t or loss. When a trade and bills receivables and other receivables are considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profi t or loss.

For fi nancial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring aft er the impairment losses was recognised, the previously recognized impairment loss is reversed through profi t or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

Impairment losses on available-for-sale equity investments will not be reversed in profi t or loss in subsequent periods. Any increase in fair value subsequent to impairment loss is recognized directly in equity.

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Financial liabilities and equity

Financial liabilities and equity instruments issued by the Group are classifi ed according to the substance of the contractual arrangements entered into and the defi nitions of a fi nancial liability and an equity instrument.

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An equity instrument is any contract that evidences a residual interest in the assets of the group aft er deducting all of its liabilities.

Financial liabilities

Th e Group’s fi nancial liabilities including bills and accounts payable, other payables, amounts due to Parent Company and its subsidiary companies, bank borrowings are subsequently measured at amortized cost, using the eff ective interest method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derecognition

Financial assets are derecognised when the rights to receive cash fl ows from the assets expire or, the fi nancial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the fi nancial assets. On derecognition of a fi nancial asset, the diff erence between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in profi t or loss.

Financial liabilities are derecognized when the obligation specifi ed in the relevant contract is discharged, cancelled or expires. Th e diff erence between the carrying amount of the fi nancial liability derecognized and the consideration paid and payable is recognized in profi t or loss.

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in note 4, the directors of the Company have made the following estimates that have the most signifi cant eff ect on the amounts recognized in the fi nancial statements

Depreciation

Th e cost of mining structures is depreciated using the units of production method based on the estimated production volume for which the structure was designed. Th e management exercises their judgment in estimating the useful lives of the depreciable assets and the production volume of the mine. Th e estimated coal production volume are updated at regular basis and have taken into account recent production and technical information about each mine. Th ese changes are considered a change in estimate for accounting purposes and is refl ected on a prospective basis in related depreciation rates. Estimates of the production volume are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information.

Mining rights

Mining rights are amortized on a straight line basis over the shorter of the contractual period and their useful lives. Th e useful lives are estimated based on the total proven and probable reserves of coal mine. Th e management exercises subjective judgements involved in developing information about the total proven and probable reserves of coal mine. Proved and probable coal reserve estimates are updated at regular basis and have taken into account of recent production and technical information about each mine.

Provision for land subsidence, restoration, rehabilitation and environmental costs

Th e cost of relocation of inhabitants from the land in preparation for mining activities is charged to consolidated income statement when incurred. Th e provision is reviewed regularly to verify that it properly refl ects the remaining obligation arising from the current and past mining activities. Provision for land subsidence, restoration, rehabilitation and environmental costs are determined by the management based on their best estimates of the current and future cost and past experiences.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. Th e value in use calculation requires the Group to estimate the future cash fl ows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. As at December 31, 2007, the carrying amount of goodwill is RMB298,650,000.

Cash fl ow projections during the budget period for each of the above units are based on the budgeted revenue and expected gross margins during the budget period and the raw materials price infl ation during the budget period. Expected cash infl ows/outfl ows have been determined based on past performance and management’s expectations for the market development.

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

5. KEY SOURCES OF ESTIMATION UNCERTAINTY continued)

Estimated impairment of property, plant and equipment

When there is impairment indicator, the Group takes into consideration the estimation of future cash fl ows. Th e amount of the impairment loss is measured as the diff erence between the asset’s carrying amount and the present value of estimated future cash fl ows. Where the actual future cash fl ows are less than expected, a material impairment loss may arise. In estimating the future cash fl ows, the management have taken into account the recent production and technical advancement. As prices and cost levels change from year to year, the estimate of the future cash fl ow also changes. Notwithstanding the management has used all the available information to make their impairment assessment, inherent uncertain exists on conditions of the mine and of the environment and actual written off may be higher than the amount estimated. As at December 31, 2007, the carrying amounts of property, plant and equipment is approximately RMB13,525,000,000. During the year ended December 31, 2007, RMB339,743,000 was written off as expenses.

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6. SEGMENT INFORMATION

The Group is engaged primarily in the coal mining business. The Group is also engaged in the coal railway transportation business. Th e Company does not currently have direct export rights in the PRC and all of its export sales is 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”). Th e fi nal 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 fi nancial statements as the underlying gross sales, results and assets of these businesses, which are currently included in the coal mining business segment, are insignifi cant to the Group. Certain of the Company’s subsidiaries are engaged in production of methanol and other chemical products, and invest in heat and electricity, are not considered as a reportable segment, as there is no external revenue generated. Accordingly, they are included as an unallocated reconciling item.

Business segments

For management purposes, the Group is currently organized into two operating divisions-coal mining and coal railway transportation. Th ese divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows:

Coal mining	–
Coal railway transportation	–

Underground mining, preparation and sales of coal Provision of railway transportation services

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

6. SEGMENT INFORMATION continued)

Business segments (continued)

Segment information about these businesses is presented below:

INCOME STATEMENT

		For the	year ended December 31, 2007	year ended December 31, 2007
		Coal railway
	Coal mining	transportation	Unallocated	Eliminations	Consolidated
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
GROSS REVENUE
External	14,906,746	203,714	–	–	15,110,460
Inter-segment	–	103,267	–	(103,267)	–
Total	14,906,746	306,981	–	(103,267)	15,110,460

Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority.

	Coal railway Coal mining transportation Unallocated Eliminations RMB’000 RMB’000 RMB’000 RMB’000	Consolidated RMB’000
RESULT Segment results Unallocated corporate expenses Unallocated corporate income Share of loss of an associate Interest expenses Prof t before income taxes Income taxes Prof t for the year	5,027,049 (78,653) (84,252) –	4,864,144 (401,878) 110,707 (2,438) (27,222)
	– – – –
		4,543,313 (1,315,520)
		3,227,793

Notes to the Consolidated Financial Statements

6. SEGMENT INFORMATION continued)

Business segments (continued)

BALANCE SHEET

For the year ended December 31, 2007

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	At December 31, 2007 Coal railway Coal mining transportation Unallocated RMB’000 RMB’000 RMB’000	Consolidated RMB’000
ASSETS Segment assets Interests in an associate Unallocated corporate assets LIABILITIES Segment liabilities Unallocated corporate liabilities	14,164,314 910,867 3,186,981	18,262,162 897,562 7,027,676
	3,558,576 23,816 450,108
		26,187,400
		4,032,500 666,288

		4,698,788

OTHER INFORMATION

Capital additions Amortization of mining rights Release of prepaid lease payments Depreciation of property, plant and equipment Gain on disposal of property, plant and equipment	Coal mining RMB’000 1,234,177 15,728 8,635 1,135,820 (25,002)	For the Coal railway transportation RMB’000 30,367 – 5,226 81,059 –	year ended December Unallocated RMB’000 1,704,375 – – 1,289 –	31, 2007 Corporate RMB’000 24,100 – – 18,964 –	Consolidated RMB’000 2,993,019 15,728 13,861 1,237,132 (25,002)
Impairment loss on property,
Plant and equipment	339,743	–	–	–	339,743
Impairment losses reversed
on accounts receivable	(4,363)	–	–	–	(4,363)

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

6. SEGMENT INFORMATION continued)

Business segments (continued)

INCOME STATEMENT

		For the	year ended December 31, 2006	year ended December 31, 2006
		Coal railway
	Coal mining	transportation	Unallocated	Eliminations	Consolidated
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
GROSS REVENUE
External	12,783,567	160,399	–	–	12,943,966
Inter-segment	–	206,770	–	(206,770)	–
Total	12,783,567	367,169	–	(206,770)	12,943,966

Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority.

	Coal railway Coal mining transportation Unallocated Eliminations RMB’000 RMB’000 RMB’000 RMB’000	Consolidated RMB’000
RESULT Segment results Unallocated corporate expenses Unallocated corporate income Interest expenses Prof t before income taxes Income taxes Prof t for the year	4,141,517 8,664 (47,662) –	4,102,519 (461,760) 112,214 (26,349)

		3,726,624 (1,354,656)
		2,371,968

Notes to the Consolidated Financial Statements

6. SEGMENT INFORMATION continued)

Business segments (continued)

BALANCE SHEET

For the year ended December 31, 2007

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	At December 31, 2006 Coal railway Coal mining transportation Unallocated RMB’000 RMB’000 RMB’000	Consolidated RMB’000
ASSETS Segment assets Unallocated corporate assets LIABILITIES Segment liabilities Unallocated corporate liabilities	13,806,344 933,987 1,466,313	16,206,644 7,252,105
	2,834,062 20,368 214,607
		23,458,749
		3,069,037 1,395,972

		4,465,009

OTHER INFORMATION

Capital additions Amortization of mining rights Release of prepaid lease payments Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Impairment losses reversed on accounts receivable and	Coal mining RMB’000 3,015,080 12,069 8,344 975,928 72,929	For the Coal railway transportation RMB’000 19,827 – 5,188 77,704 115	year ended December 31, 2006 Unallocated Corporate RMB’000 RMB’000 1,160,045 104,454 – – 294 – 378 7,966 – 487	Consolidated RMB’000 4,299,406 12,069 13,826 1,061,976 73,531
other receivable	(19,717)	–	– –	(19,717)

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

6. SEGMENT INFORMATION continued)

Business segments (continued)

INCOME STATEMENT

		For the	year ended December 31, 2005	year ended December 31, 2005
		Coal railway
	Coal mining	transportation	Unallocated	Eliminations	Consolidated
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
GROSS REVENUE
External	12,283,588	163,437	–	–	12,447,025
Inter-segment	–	226,852	–	(226,852)	–
Total	12,283,588	390,289	–	(226,852)	12,447,025

Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority.

Coal railway Coal mining transportation Unallocated Eliminations RMB’000 RMB’000 RMB’000 RMB’000	Coal railway Coal mining transportation Unallocated Eliminations RMB’000 RMB’000 RMB’000 RMB’000	Consolidated RMB’000
RESULT Segment results 4,601,715 67,381 – – Unallocated corporate expenses Unallocated corporate income Interest expenses Prof t before income taxes Income taxes Prof t for the year		4,669,096 (320,692) 96,180 (24,611)

		4,419,973 (1,538,036)
		2,881,937

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

6. SEGMENT INFORMATION continued)

Business segments (continued)

OTHER INFORMATION

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		For the	year ended December 31, 2005	year ended December 31, 2005
		Coal railway
	Coal mining	transportation	Unallocated	Corporate	Consolidated
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Capital additions	1,711,918	23,710	116,212	5,531	1,857,371
Release of prepaid lease payments	7,983	5,188	–	–	13,171
Depreciation of property, plant
and equipment	867,210	77,412	–	7,474	952,096
Amortization of mining rights	6,624	–	–	–	6,624
(Gain) loss on disposal of property,
plant and equipment	–	(13)	–	540	527

Geographical segment

Th e Group’s operations are primarily located in the PRC. In December 2004, the Group acquired certain subsidiaries located in Australia. Analysis of the Group’s gross sales and carrying amount of assets by geographical area is not presented in the consolidated fi nancial statements as over 90% of the amounts involved are in the PRC.

Th e following is an analysis of the additions to property, plant and equipment, goodwill and intangible assets analyzed by the geographical area in which the assets are located:

	T e PRC Australia	Additions to property, plant and Equipment, goodwill and intangible assets Year ended December 31, 2007 2006 2005 RMB’000 RMB’000 RMB’000 2,818,358 3,582,427 1,599,372 174,661 716,979 257,999 2,993,019 4,299,406 1,857,371

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

7. NET SALES OF COAL

		Year ended December 31,
	2007	2006	2005
	RMB’000	RMB’000	RMB’000
Coal sold in the PRC, gross	13,355,761	9,746,146	8,689,496
Less: Transportation costs	280,694	358,414	268,034
Coal sold in the PRC, net	13,075,067	9,387,732	8,421,462
Coal sold outside the PRC, gross	1,550,985	3,037,421	3,594,092
Less: Transportation costs	269,122	578,205	662,069
Coal sold outside the PRC, net	1,281,863	2,459,216	2,932,023
Net sales of coal	14,356,930	11,846,948	11,353,485

Net sales of coal represent the invoiced value of coal sold and are net of returns, discounts, sales taxes and transportation costs if the invoiced value includes transportation costs to the customers.

8. COST OF SALES AND SERVICE PROVIDED

	Materials Wages and employee benef ts Electricity Depreciation Land subsidence, restoration, rehabilitation and environmental costs Repairs and maintenance Annual fee and amortization of mining rights (note 24) Transportation costs Others	2007 RMB’000 1,257,433 2,392,447 377,686 1,121,557 833,282 441,511 28,708 105,930 773,370 7,331,924	Year ended December 31, 2006 RMB’000 1,320,596 1,646,018 336,284 962,963 742,985 327,151 25,049 106,572 722,451 6,190,069	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

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

9. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

		Year ended December 31,
	2007	2006	2005
	RMB’000	RMB’000	RMB’000
Wages and employee benef ts	1,093,732	1,001,783	794,537
Additional medical insurance	22,896	57,364	46,458
Staf training costs	38,735	44,037	32,553
Depreciation	129,436	112,839	73,627
Distribution charges	93,014	57,100	35,626
Resource compensation fees (note)	117,772	107,502	117,228
Repairs and maintenance	34,348	18,440	17,012
Research and development	78,973	45,979	45,009
Freight charges	29,305	20,741	19,256
Property, plant and equipment written of	339,743	–	–
Loss on disposal of property, plant and equipment	–	73,531	527
Others	876,723	690,826	736,955
	2,854,677	2,230,142	1,918,788

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Note: In accordance with the relevant regulations, the Group pays resource compensation fees (eff ectively a government levy) to the Ministry of Geology and Mineral Resources at the rate of 1% on the sales value of raw coal.

10. OTHER INCOME

	Dividend income Gain on sales of auxiliary materials Government grants Interest income from bank deposits Interest income on loan receivable Others	2007 RMB’000 7,143 63,579 – 103,564 – 24,644 198,930	Year ended December 31, 2006 RMB’000 6,311 49,623 4,000 94,372 – 11,531 165,837	2005 RMB’000 4,465 36,749 – 85,971 5,744 2,109 135,038

Included in dividend income above is income from listed investments of RMB7,143,000 (2006: RMB5,581,000 and 2005: RMB4,465,000) and from unlisted investments of nil (2006: RMB730,000 and 2005: nil).

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

11. INTEREST EXPENSE

		Year ended December 31,
	2007	2006	2005
	RMB’000	RMB’000	RMB’000
Interest expenses on:
– bank borrowings wholly
repayable within 5 years	10,522	10,058	20,753
– bank borrowings not wholly
repayable within 5 years	14,200	2,281	–
– bills receivable discounted without recourse	–	10,840	–
Deemed interest expenses in respect of
acquisition ofJiningIII	2,500	3,170	3,858
	27,222	26,349	24,611

12. INCOME TAXES

	Income taxes: Current taxes, PRC Enterprise Income Tax (Over)underprovision inprioryears Deferred tax charge (note 34) Current year Attributable to a change in tax rate	2007 RMB’000 1,484,195 (104,512) 1,379,683 1,925 (66,088) 1,315,520	Year ended December 31, 2006 RMB’000 1,309,783 (24,233) 1,285,550 69,106 – 1,354,656	2005 RMB’000 1,372,398 42,463 1,414,861 123,175 – 1,538,036

Th e 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.

On 16 March 2007, the People’s Republic of China promulgated the Law of the People’s Republic of China on Enterprise Income Tax (the “New Law”) by Order No. 63 of the President of the People’s Republic of China. On 6 December 2007, the State Council of the PRC issued Implementation Regulations of the New Law. Th e New Law and Implementation Regulations will change the tax rate from 33% to 25% for the Company and subsidiaries established in the PRC from 1 January 2008. Th e deferred tax balance has been adjusted to refl ect the tax rates that are expected to apply to the respective periods when the asset is realised or the liability is settled.

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

12. INCOME TAXES (continued)

Th e total charge for the year can be reconciled to the profi t per the consolidated income statement as follows:

		Year ended December 31,
	2007	2006	2005
	RMB’000	RMB’000	RMB’000
Standard income tax rate in the PRC	33%	33%	33%
Standard income tax rate applied to income
before income taxes	1,499,293	1,229,786	1,458,591
Reconciling items:
Tax ef ect of future development fund deductible
for tax purposes	(67,449)	(70,496)	(68,618)
Deemed interest not deductible for tax purposes	825	1,046	1,273
Expenses not deductible for tax purposes	29,008	117,447	–
(Reversal) provision of impairment loss on
doubtful debts not subject to tax	(1,439)	(6,507)	–
Loss on disposal of property, plant and equipment not deductible for tax purposes Deemed interest income from subsidiaries subject to tax Tax ef ect of tax losses not recognized (Over) underprovision in prior years Write of deferred tax asset Decrease in opening deferred tax liability resulting from decrease in applicable tax rate Others Income taxes Ef ective income tax rate	– 17,402 3,824 (104,512) – (66,088) 4,656 1,315,520 29%	– 9,456 94,807 (24,233) – – 3,350 1,354,656 36%	836 – 42,151 42,463 44,436 – 16,904 1,538,036 35%

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Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

13. PROFIT FOR THE YEAR

		Year ended December 31,
	2007	2006	2005
	RMB’000	RMB’000	RMB’000
Prof t for the year has been arrived at af er charging:
Amortization of mining rights	15,728	12,069	6,624
Depreciation ofproperty,plant and equipment	1,237,132	1,061,976	952,096
Total depreciation and amortization	1,252,860	1,074,045	958,720
Release of prepaid lease payments	13,861	13,826	13,171
Auditors’ remuneration	14,683	10,406	9,229
Staf costs, including directors’ and supervisors’
emoluments	3,572,734	2,783,298	2,164,616
Retirement benef t scheme contributions
(included in staf costs above)	720,091	641,633	523,324
Cost of inventories Exchange loss, net and crediting: Gain on disposal of property, plant and equipment Reversal of impairment loss on accounts receivable and other receivables	7,145,614 3,150 (25,002) (4,363)	6,089,185 12,346 – (19,717)	5,144,888 98,681 – –

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

14. DIRECTORS’ AND SUPERVISORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS

(a) Directors’ and supervisors’ emoluments

Details of the directors’ and supervisors’ emoluments are as follows:

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For the year ended December 31, 2007

		Salaries,	Retirement
		allowance and	benef t
		other benef ts	scheme
	Fees	in kind	contribution	Total
	RMB’000	RMB’000	RMB’000	RMB’000
Independent non-executive directors
Pu Hongjiu	96	–	–	96
Cui Jianmin	96	–	–	96
Wang Xiaojun WangQuanxi Executive directors Wang Xin Geng Jiahuai Yang Deyu Shi Xuerang Chen Changchun Wu Yuxiang Wang Xinkun Zhang Baocai DongYunqing Supervisors Meng Xianchang Song Guo Zhang Shengdong Liu Weixin Xu Bentai	115 96 403 – – – – – – – – – – – – – – –	– – – – – – – – 172 196 171 172 711 – – – – 207	– – – – – – – – 34 39 34 34 141 – – – – 41	115 96 403 – – – – – 206 235 205 206 852 – – – – 248
	–	207	41	248
Other management team
Jin Tai	–	–	–	–
Zhang Yingmin	–	–	–	–
He Ye	–	212	42	254
Tian fengze	–	172	34	206
Shi Chenzhong	–	195	39	234
Qu Tianzhi	–	212	42	254
Ni Xinghua	–	196	39	235
Lai Cunliang	–	410	–	410
	–	1,397	196	1,593

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

14. DIRECTORS’ AND SUPERVISORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS (continued)

(a) Directors’ and supervisors’ emoluments (continued)

Details of the directors’ and supervisors’ emoluments are as follows:

For the year ended December 31, 2006

		Salaries,	Retirement
		allowance and	benef t
		other benef ts	scheme
	Fees	in kind	contribution	Total
	RMB’000	RMB’000	RMB’000	RMB’000
Independent non-executive directors
Pu Hongjiu	89	–	–	89
Cui Jianmin	89	–	–	89
Wang Xiaojun WangQuanxi Executive directors Wang Xin Geng Jiahuai Yang Deyu Shi Xuerang Chen Changchun Wu Yuxiang Wang Xinkun Chen Guangshui Zhang Baocai DongYunqing Supervisors Meng Xianchang Song Guo Zhang Shengdong Liu Weixin	106 89 373 – – – – – – – – – – – – – – –	– – – – – – – – 182 238 187 170 205 982 – – – –	– – – – – – – – 82 107 84 77 92 442 – – – –	106 89 373 – – – – – 264 345 271 247 297 1,424 – – – –
Xu Bentai	–	218	98	316
	–	218	98	316
Other management team
Jin Tai	–	–	–	–
Zhang Yingmin	–	–	–	–
He Ye	–	208	94	302
Tian fengze	–	202	91	293
Shi Chenzhong	–	229	103	332
Qu Tianzhi	–	232	104	336
Ni Xinghua	–	218	98	316
Lai Cunliang	–	421	–	421
	–	1,510	490	2,000

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

14. DIRECTORS’ AND SUPERVISORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS (continued)

(a) Directors’ and supervisors’ emoluments (continued)

Details of the directors’ and supervisors’ emoluments are as follows:

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For the year ended December 31, 2005

		Salaries,	Retirement
		allowance and	benef t
		other benef ts	scheme
	Fees	in kind	contribution	Total
	RMB’000	RMB’000	RMB’000	RMB’000
Independent non-executive directors
Pu Hongjiu	43	–	–	43
Cui Jianmin	81	–	–	81
Wang Xiaojun Wang Quanxi Fan Weitang Executive directors Wang Xin Geng Jiahuai Yang Deyu Shi Xuerang Chen Changchun Wu Yuxiang Wang Xinkun Chen Guangshui DongYunqing Supervisors Meng Xianchang Song Guo Zhang Sheng Dong Liu Wei Xin	98 81 39 342 – – – – – – – – – – – – – –	– – – – – – – – – 144 144 144 144 576 – – – –	– – – – – – – – – 65 65 65 65 260 – – – –	98 81 39 342 – – – – – 209 209 209 209 836 – – – –
Xu Bentai	–	160	72	232
	–	160	72	232
Other management team
Jin Tai	–	–	–	–
Zhang Yingmin	–	–	–	–
He Ye	–	144	65	209
Tian fengze	–	144	65	209
Shi Chenzhong	–	145	65	210
Lai Cunliang	–	190	86	276
Ni Xinghua	–	144	65	209
	–	767	346	1,113

No directors waived any emoluments in each of the year ended 31 December 2007, 2006 and 2005.

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

14. DIRECTORS’ AND SUPERVISORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS (continued)

(b) Employees’ emoluments

Th e fi ve highest paid individuals in the Group included no director for the year ended December 31, 2007 (2006: nil; 2005: one), details of whose emoluments are included in the disclosures in note 14(a) above. Th e emoluments of the fi ve individuals for the year ended December 31, 2007 (2006: fi ve; 2005: four) were as follows:

		Year ended December 31,
	2007	2006	2005
	RMB’000	RMB’000	RMB’000
Salaries, allowance and other benef ts in kind	6,997	6,471	3,690
Retirement benef t scheme contributions	630	582	365
Discretionarybonuses	250	656	–
	7,877	7,709	4,055

Th eir emoluments were within the following bands:

	Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000 HK$2,000,001 to HK$2,500,000	2007 No. of employees – 3 2 –	2006 No. of employees – 3 1 1	2005 No. of employees 4 – – –

15. DIVIDEND RECOGNIZED AS DISTRIBUTION DURING THE YEAR

2006 Final dividend, RMB0.120 per share (2006: 2005 f nal dividend RMB0.150; 2005: 2004 f nal dividend RMB0.260)	2007 RMB’000 590,208	Year ended December 31, 2006 RMB’000 737,760	2005 RMB’000 799,240
Special dividends approved, RMB0.080 per share
(2006: RMB0.070; 2005: nil)	393,472	344,288	–
	983,680	1,082,048	799,240

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

15. DIVIDENDS RECOGNIZED AS DISTRIBUTION DURING THE YEAR (continued)

In the annual general meeting held on June 28, 2005, a fi nal dividend and a bonus issue to the shareholder through the capitalization of share premium of the Company on the basis of six shares for every ten existing shares in respect of the year ended December 31, 2004 were approved by the shareholders and paid and issued to the shareholders of the Company.

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In the annual general meeting held on June 29, 2006, a fi nal dividend and a special dividend in respect of the year ended December 31, 2005 was approved by the shareholders and paid to the shareholders of the Company.

In the annual general meeting held on June 15, 2007, a fi nal dividend and a special dividend in respect of the year ended December 31, 2006 was approved by the shareholders and paid to the shareholders of the Company.

Th e board of directors proposes to declare a fi nal dividend of approximately RMB836,128,000 calculated based on a total number of 4,918,400,000 shares issued at RMB1 each, at RMB0.17 per share, in respect of the year ended December 31, 2007. Th e declaration and payment of the fi nal dividend needs to be approved by the shareholders of the Company by way of an ordinary resolution in accordance with the requirements of the Company’s Articles of Association. A shareholders’ general meeting will be held for the purpose of considering and, if thought fi t, approving this ordinary resolution.

16. EARNINGS PER SHARE AND PER ADS

Th e calculation of the earnings per share attributable to the equity holders of the Company for the years ended December 31, 2007, 2006 and 2005 is based on the profi t attributable to the equity holders of the Company for the year of RMB3,230,450,000, RMB2,372,985,000 and RMB2,881,461,000 and on the 4,918,400,000 shares in issue, during each of the three years.

Th e 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.

Th e earnings per ADS have been calculated based on the profi t 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, 2007, 2006 and 2005.

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

17. BANK BALANCES AND CASH/TERM DEPOSITS AND RESTRICTED CASH

Bank balances carry interest at market rates which ranged from 0.72% to 1.44% (2006: from 0.72% to 1.44%) per annum.

At the balance sheet dates, the short-term restricted cash, which carry interest at market rates of 0.72% per annum (2006: 0.72%), represents the bank deposits pledged to certain banks to secure banking facilities granted to the Group. Th e long-term amount represents the bank deposits placed as guarantee for the future payments of rehabilitation costs of Southland as required by the Australian government. Th e long-term deposits carry interest rate of 1.8% (2006: 5.31%) per annum.

Th e term deposits carry fi xed interest rate of 1.71% to 3.42% (2006:0.72% to 2.25%) per annum.

18. BILLS AND ACCOUNTS RECEIVABLE

		At December	31,
		2007	2006
	Total bills receivable Total accounts receivable Less: Impairment loss Total bills and accounts receivable, net	RMB’000 2,638,956 135,525 2,774,481 (20,996) 2,753,485	RMB’000 2,004,425 238,931 2,243,356 (31,447) 2,211,909

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. Th e bills are noninterest bearing and have a maturity of six months.

According to the credit rating of diff erent customers, the Group allows a range of credit periods to its trade customers not exceeding 180 days.

Th e following is an aged analysis of bills and accounts receivable at the balance dates:

	At December	31,
	2007	2006
	RMB’000	RMB’000
1-90 days	1,490,661	1,429,048
91-180 days	1,262,824	782,861
	2,753,485	2,211,909

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

18. BILLS AND ACCOUNTS RECEIVABLE (continued)

Before accepting any new customer, the Group assess the potential customer’s credit quality and defi nes credit limits by customer. Limits attributed to customers are reviewed once a year.

Th ere are no signifi cant trade receivable which are past due but not yet impaired on both balance sheet dates. Th e Group does not hold any collateral over these balances. Th e average age of these receivables is 61 days (2006: 65days). Th e management closely monitors the credit quality of accounts receivable and consider the balance that are neither past due nor impaired are of good credit quality.

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Th e Group has provided fully for all receivables over 3 years because historical experience is such that receivables that are past due beyond 3 years are generally not recoverable. For receivable aged over 4 years and considered irrecoverable by the management will be written off .

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

	Balance at January 1 Written of Reversal Balance at December 31	2007 RMB’000 31,447 (6,088) (4,363) 20,996	2006 RMB’000 126,700 (78,603) (16,650) 31,447

Included in the allowance for doubtful debts is an allowance of RMB21 million (2006: RMB 31million) for individually impaired trade receivables, which are mainly due from corporate customers in the PRC and considered irrecoverable by the management aft er consideration on the credit quality of those individual customers, the ongoing relationship with the Group and the aging of these receivables. Th e impairment recognised represents the diff erence between the carrying amount of these trade receivables and the present value of the amounts. Th e Group does not hold any collateral over these balances.

19. INVENTORIES

	At December	31,
	2007	2006
	RMB’000	RMB’000
COST
Auxiliary materials, spare parts and small tools	248,412	265,122
Coalproducts	191,722	314,439
	440,134	579,561

Notes to the Consolidated Financial Statements

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For the year ended December 31, 2007

20 OTHER LOANS RECEIVABLE

At the balance sheet dates, the amount represents loan granted to an independent third party, which carries interest at 7.00% per annum and is guaranteed by other independent third parties (the “Guarantor”). Th e loan (the “Default Loan”) is secured by 170 million out of total 289 million state legal person shares of a company listed on the SSE (“the Secured Shares”) and certain equity interest in another unlisted company held by the Guarantor. Th e Default Loan defaulted in January 2005 and the Company had applied to the People’s Supreme Court of the Shangdong province (the “Court”) to freeze the Secured Shares. Th e Company has also applied to the Court to dispose the Secured Shares by way of a public auction and the proceeds would be applied to repay the Default Loan and the associated interests to the Company. Th e public auction was held successfully in September 2005. Th e legal procedure for the transfer of ownership of the Secured Shares has not been executed.

In December 2006, Shandong Runhua Group Company Limited (“Shandong Runhua”) has also claimed for a portion of the Secured Shares. To protect the Company’s priority rights in the Secured Shares to recover the Default Loan, the Company sought support from the Shandong provincial government and the State-owned Assets Supervision and Administrative Committee (the “SASAC”). In January 2007, these government authorities in Shandong province and the SASAC have rendered formal written request the Supreme Court to protect the Company’s priority right on the Secured Shares.

In October 2007, the Company, Shandong Runhua and the Guarantor reached an agreement in the presence of the Court. According to the settlement agreement, 240 million of the total 289 million Secured Shares held by the Guarantor should belong to Shandong Runhua and 200 million Secured Shares should be transferred to Shandong Runhua from the Guarantor. At the same time, Shandong Runhua has agreed to assist the Guarantor to repay the principal and the associated interest of the Default Loan to the Company. Th e Company has the right to request for the disposal of the frozen 49 million Secured Shares owned by the Guarantor for the settlement if the Default Loan is not repaid by the Guarantor or Shandong Runhua aft er June 6, 2008 (the date the restriction on trading of the Secured Shares is removed). If the proceed received from the disposal of the 49 million Secured Shares would not be suffi cient to cover the loan principal and interest of the Default Loan by that time, the Company has the right to request for the disposal of the remaining 40 million Secured Shares held under the Guarantor and not yet transferred to Shandong Runhua for settlement. If the disposal of the above mentioned 89 million Secured Shares would still not be suffi cient for settlement up to RMB730 million, the Company would have the right to further request for the disposal of the 200 million Secured Shares already transferred by the Guarantor to Shandong Runhua for full settlement up to RMB730 million.

Aft er considering the advise from the legal counsel and the settlement agreement, the directors are in the opinion that, the amount to be recovered by the Company would be suffi cient to cover the principal and interest of the Default loan.

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

21. PREPAYMENTS AND OTHER RECEIVABLES

	At December	31,
	2007	2006
	RMB’000	RMB’000
Advances to suppliers	35,728	109,714
Prepaid freight charges and related handling charges	10,934	27,287
Deposit for environment protection	200,000	–
Others	80,006	94,504
	326,668	231,505

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Included in the above balances as of December 31, 2007 is an impairment loss of RMB30,117,000 (2006: RMB32,650,000). During the year ended December 31, 2007, the Group wrote off impairment loss of RMB2,533,000. During the year ended December 31,2006, the Group reserved impairment loss of RMB3,067,000. During the year ended December 31, 2005, the Group did not make any additional impairment for doubtful debts.

Th e Group has provided fully for all receivables over 3 years because historical experience is such that receivables that are past due beyond 3 years are generally not recoverable. Receivable will be written off , if aged over 4 years and considered irrecoverable by the management aft er considering the credit quality of the individual party and the nature of the amount overdue..

22. PREPAID LEASE PAYMENTS

	Current portion Non-currentportion	At December 2007 RMB’000 13,976 576,412 590,388	31, 2006 RMB’000 13,746 578,988 592,734

Th e amounts represent prepaid lease payments for land use rights which are situated in the PRC and have a term of fi ft y years from the date of grant of land use rights certifi cates.

Notes to the Consolidated Financial Statements

100

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For the year ended December 31, 2007

23. PREPAYMENT FOR RESOURCES COMPENSATION FEES

In accordance with the relevant regulations, the Shanxi Group is required to pay resources compensation fees to the Heshun Municipal Coal Industry Bureau at a rate of RMB2.70 per tonne of raw coal mined. During the year 2006, Shanxi Group was requested by the relevant government to prepay the fees based on production volume of 10 million tonnes. At the balance sheet date, the amount represented the prepayment for resources compensation fees not yet ultized. Th e current portion represents the amount to be utilized in the coming year which is estimated based on expected production volume.

24. MINING RIGHTS

		RMB’000
	COST
	At January 1, 2006	186,385
	Exchange re-alignment	2,261
	Acquisition of Shanxi NengHua At January 1, 2007 Exchange re-alignment Addition At December 31, 2007 AMORTIZATION At January 1, 2006 Provided for theyear At January 1, 2007 Exchange re-alignment Provided for theyear At December 31, 2007 CARRYING VALUES At December 31, 2007 At December 31, 2006	164,452 353,098 2,092 61,923 417,113 33,120 12,069 45,189 184 15,728 61,101 356,012 307,909

In addition, the Parent Company and the Company have entered into a mining rights agreement pursuant to which the Company has agreed to pay to the Parent Company, eff ective from September 25, 1997, an annual fee of RMB12,980,000 as compensation for the Parent Company’s agreement to give up the mining rights associated with the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine, Dongtan coal mine and Jining II. Th e annual fee is subject to change aft er a ten-year period, and the renegotiation has not yet started up to the date of this report.

Th e mining rights of the Shanxi Group are amortized, on a straight-line basis, over the remaining useful life of twentyseven years from the date of acquisition. Th e mining right permit expires in January 2009 and can be renewed at a cost which is not signifi cant to the Group as the Parent Company has undertaken to compensate the Group for 79.68% of such cost.

Th e other mining rights are amortized, on a straight-line basis, over the useful life of twenty years from the date of commencement of commercial production.

Notes to the Consolidated Financial Statements

101

For the year ended December 31, 2007

25. PROPERTY, PLANT AND EQUIPMENT

			Harbor			Plant,
	Freehold		works			machinery
	land in		and	Railway	Mining	and	Transportation	Construction
	Australia	Buildings	craf s	structures	structures	equipment	equipment	in progress	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
COST
At January 1, 2006	53,031	2,169,992	250,231	729,789	3,904,460	8,190,653	302,956	890,881	16,491,993
Exchange re-alignment	2,224	280	–	–	–	7,803	22	6,958	17,287
Acquisition of Shanxi Group	–	95,347	–	–	129,366	186,107	25,723	192,433	628,976
Additions	–	15,725	–	–	15,378	257,147	2,139	3,073,042	3,363,431
Transfers	–	196,575	118	5,012	–	1,238,710	10,102	(1,450,517)	–
Disposals	–	(47,600)	–	–	(31,762)	(878,537)	(17,247)	–	(975,146)
At December 31, 2006 and
January 1, 2007	55,255	2,430,319	250,349	734,801	4,017,442	9,001,883	323,695	2,712,797	19,526,541
Exchange re-alignment	2,056	337	–	–	–	27,435	21	12,840	42,689
Additions Transfers Written of Disposals At December 31, 2007 ACCUMULATED DEPRECIATION AND IMPAIRMENT At January 1, 2006 Exchange re-alignment Provided for the year Eliminated on disposals At December 31, 2006 and January 1, 2007 Exchange re-alignment Provided for the year Eliminated on written of Eliminated on disposals At December 31, 2007	– – – – 57,311 – – – – – – – – – –	2,100 166,334 (18,999) – 2,580,091 1,019,552 18 132,648 (41,411) 1,110,807 52 123,617 (9,112) – 1,225,364	– – – – 250,349 12,136 – 6,070 – 18,206 – 6,071 – – 24,277	– 1,557 – – 736,358 215,969 – 53,710 – 269,679 – 53,442 – – 323,121	– 14,096 (344,149) – 3,687,389 1,592,922 – 90,921 (476) 1,683,367 – 85,162 (48,990) – 1,719,539	71,014 672,871 (219,261) (6,461) 9,547,481 4,158,969 293 781,231 (828,954) 4,111,539 1,594 931,748 (186,987) (1,115) 4,856,779	8,641 35,992 (12,731) (1,245) 354,373 173,959 6 35,648 (16,609) 193,004 12 38,032 (10,308) – 220,740	2,846,275 (890,850) – – 4,681,062 – – – – – – – – – –	2,928,030 – (595,140) (7,706) 21,894,414 7,173,507 317 1,100,228 (887,450) 7,386,602 1,658 1,238,072 (255,397) (1,115) 8,369,820
CARRYING VALUES
At December 31, 2007	57,311	1,354,727	226,072	413,237	1,967,850	4,690,702	133,633	4,681,062	13,524,594
At December 31, 2006	55,255	1,319,512	232,143	465,122	2,334,075	4,890,344	130,691	2,712,797	12,139,939

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Th e following estimated useful lives are used for the depreciation of property, plant and equipment, other than construction in progress:

Buildings	15 to 35 years
Harbor works and craf s	40 years
Railway structures	15 to 25 years
Plant, machinery and equipment	5 to 15 years
Transportation equipment	6 to 18 years

Notes to the Consolidated Financial Statements

102

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For the year ended December 31, 2007

25. PROPERTY, PLANT AND EQUIPMENT (continued)

Transportation equipment includes vessels which are depreciated over the estimated useful lives of 18 years.

Th e mining structures include the main and auxiliary mine shaft s and underground tunnels. Depreciation is provided to write off the cost of the mining structures using the units of production method based on the estimated production volume for which the structure was designed and the contractual period of the relevant mining rights.

During the year, the directors conducted a review of the Group’s mining assets and determined that a number of those assets were impaired, due to physical damage and technical obsolescence. Accordingly, an aggregate amount of RMB339,743,000 have been written off in respect of buildings, mining structure, plant, machinery and equipment, and transportation equipment, which are used in the mining segment.

26. GOODWILL

	COST At January 1 Acquisition of Shanxi Group (note 38) At December 31	2007 RMB’000 295,584 3,066 298,650	2006 RMB’000 153,037 142,547 295,584

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units that are expected to benefi t from that business combination. Th e carrying amount of goodwill had been allocated as follows:

	Coal Mining – Jining II – Shandong Yanmei Shipping Co., Ltd. – Heze – Shanxi Group Coal Railway Transportation	2007 RMB’000 10,106 10,046 35,645 145,613	2006 RMB’000 10,106 10,046 35,645 142,547
	– RailwayAssets	97,240	97,240
		298,650	295,584

Th e recoverable amounts of goodwill from each of the above cash generating units has been determined on the basis of value in use calculations. Th e recoverable amounts are based on certain similar key assumptions on discount rates, growth rates and expected changes in selling prices and direct cost. All value in use calculations use cash fl ow projections based on fi nancial budgets approved by management covering a 5-year period, using a zero percent growth rate and with a discount rate of 10% (2006: 8%).

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

103

26. GOODWILL (continued)

Th e cashfl ows beyond the 5-year period are extrapolated for 5 years using a zero percent growth rate. Cash fl ow projections during the budget period for each of the above units are based on the budgeted revenue and expected gross margins during the budget period and the same raw materials price infl ation during the budget period. Expected cash infl ows/outfl ows, which include budgeted sales, gross margin and raw material price infl ation have been determined based on past performance and management’s expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the carrying amount of each of the above units to exceed the recoverable amount of each of the above units. During the years ended December 31, 2007 and 2006, management of the Group determined that there are no impairments of any of its CGU containing goodwill.

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27. INVESTMENTS IN SECURITIES

Th e investments in securities represent available-for-sale equity investments:

	Equity securities listed on the SSE – Stated at fair value – Restricted portion stated at cost less impairment Unlisted equitysecurity	At December 2007 RMB’000 409,086 – 440 409,526	31, 2006 RMB’000 54,101 40,281 1,760 96,142

Previously, the Group invested in certain state legal person shares of Shenergy Company Limited and Lian Yun Gang Company Limited. Th ese shares were not tradable.

Pursuant to the share reform plan of Shenergy Company Limited carried out in 2006, the non-tradable legal person shares with the investment cost of RMB60,421,000 held by the Company were converted into tradable shares on August 17, 2006. Under this share reform plan, the Company has committed that the Company will not sell more than onethird of the shares held as of August 17, 2005 within one year aft er August 17, 2006; and two-third of the shares held as of August 17, 2005 within two years aft er August 17, 2006. Th is investment is presented as listed securities stated at fair value as at December 31, 2007 at the amount of RMB393,124,000. As at December 31, 2006, the unrestricted portion of this investment was presented as listed securities stated at fair value at the amount of RMB54,101,000 and the restricted portion was presented as listed securities stated at cost less impairment at the amount of RMB40,281,000.

On April 26, 2007, Lian Yun Gang Company Limited become a public company with its shares listed in SSE. Th e Company has committed not to sell its holding, or transfer to others; or asking others to held the shares on its behalf before April 28, 2008. Th is investment is presented as listed securities which amount to RMB15,962,000 as at December 31, 2007 and as unlisted securities which amount to RMB1,760,000 as at December 31, 2006.

Notes to the Consolidated Financial Statements

104

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For the year ended December 31, 2007

27. INVESTMENTS IN SECURITIES (continued)

As of December 31, 2007, the investment is carried at fair value determined by reference to bid prices quoted in active markets. As of December 31, 2006, the restricted portion was stated at cost less impairment because the restricted selling period was long and the range of reasonable fair value estimates was so signifi cant that the directors of the Company was of opinion that their fair value could not be measured reliably.

Th e unlisted equity securities are stated at cost less impairment at each balance sheet date because the range of reasonable fair value estimates is so signifi cant that the directors of the Company are of the opinion that their fair value cannot be measured reliably.

28. INTERESTS IN AN ASSOCIATE

	INTERESTS IN AN ASSOCIATE
		At December 31,
		2007
		RMB’000
	Cost of investment in an associate Share ofpost-acquisition loss	900,000 (2,438) 897,562

In 2007, the Group made a cash investment of RMB900,000,000 for its 30% equity interest in an associate, Huadian Zouxian Power Generation Company Limited, which established in the PRC and engaged in electricity generation business in the PRC.

Summarized fi nancial information in respect of the Group’s associate is set out below:

	Total assets Total liabilities Net assets	At December 31, 2007 RMB’000 7,623,027 (4,631,154) 2,991,873
	Group’s share of net assets of associate	897,562
		Year ended
		December 31,
		2007
		RMB’000
	Revenue	321,802
	Prof t for theperiod	(8,127)
	Group’s share of loss of an associate	(2,438)

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

105

29. DEPOSIT MADE ON INVESTMENT

During 2006, the Company entered into a co-operative agreement with two independent third parties, to establish a company for the operation of a coal mine to be acquired in Shanxi province. Th e Company will have to invest approximately RMB196.8 million in order to obtain 41% equity interest. As at December 31, 2007, the Company made a deposit of RMB118 million (2006: RMB97 million) in relation to this acquisition. As at December 31, 2007, the relevant procedures to establish the new company are still in progress, and the establishment has not yet been completed.

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30. BILLS AND ACCOUNTS PAYABLE

	At December	31,
	2007	2006
	RMB’000	RMB’000
Bills payable	139,100	159,632
Accountspayable	518,417	586,053
	657,517	745,685

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

	1-90 days 91-180 days 181-365 days 1-2years	At December 2007 RMB’000 506,474 – 126,048 24,995 657,517	31, 2006 RMB’000 564,995 – 139,974 40,716 745,685

Th e average credit period for accounts payable and bills payable is 90 days. Th e Group has fi nancial risk management policies in place to ensure that all payables within the credit timeframe.

Notes to the Consolidated Financial Statements

106

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For the year ended December 31, 2007

31. OTHER PAYABLES AND ACCRUED EXPENSES

	At December	31,
	2007	2006
	RMB’000	RMB’000
Customers’ deposits	942,557	674,789
Accrued wages	337,275	210,751
Other taxes payable	218,723	205,720
Payables in respect of purchases of property,
plant and equipment and construction materials	615,092	442,536
Accrued freight charges	93,456	15,963
Accrued repairs and maintenance	19,493	20,162
Accrued utility expenses	4,100	5,430
Staf welfare payable	58,196	72,748
Withholding tax payable	7,464	8,645
Deposits received from employees	57,493	33,775
Consideration payable on acquisition of Southland	–	28,755
Price regulating charges	105,421	–
Accrued land subsidence, restoration rehabilitation and environmental costs Others	81,157 130,690 2,671,117	35,248 145,162 1,899,684

32. PROVISION PREPAYMENT FOR LAND SUBSIDENCE, RESTORATION, REHABILITATION AND ENVIRONMENTAL COSTS

	Balance at January 1 Additional provision in the year Utilization ofprovision Balance at December 31	2007 RMB’000 212,912 (825,998) 593,451 (19,635)	2006 RMB’000 157,511 (731,796) 787,197 212,912

Th e provision for land subsidence, restoration, rehabilitation and environmental costs has been determined by the directors based on their best estimates. Th e payment during the year ended December 31, 2006 included mainly rehabilitation costs paid on mining areas in relation to mining activities in the future periods and therefore the balances are presented as prepayment at the balances sheet dates. However, in so far as the eff ect on the land and the environment from current mining activities becomes apparent in future periods, the estimate of the associated costs may be subject to change in the near term.

Notes to the Consolidated Financial Statements

107

For the year ended December 31, 2007

33. UNSECURED BANK BORROWINGS

Th e amounts are repayable as follows:

	At December	31,
	2007	2006
	RMB’000	RMB’000
Within one year	72,000	50,000
More than one year, but not exceeding two years	82,000	72,000
More than two years, but not more than f ve years	66,000	126,000
More than f veyears	110,000	132,000
	330,000	380,000
Less: Amounts due within oneyear and included in current liabilities	(72,000)	(50,000)
Amounts due af er oneyear	258,000	330,000

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Th e balances at of December 31, 2007 and 2006 represent two borrowings obtained by Shanxi Tianchi before the Company acquired it. Included in the loans of RMB330,000,000 (2006: 380,000,000) is an amount of RMB110,000,000 (2006: RMB160,000,000) that carries interest at 7.09% (2006: 5.85%) per annum and is subject to adjustment based on the interest rate stipulated by the People’s Bank of China (the “PBOC”). Th e loan is repayable by 3 instalments over a period of 4 years, with the fi rst instalment due in December 2007. the repayment is guaranteed by the Parent Company.

Th e remaining balance of RMB220,000,000 (2006: RMB220,000,000) carries interest at 6.84% (2006: 6.21%) per annum and is subject to adjustment based on the interest rate stipulated by the PBOC. Th e loan is repayable by 20 instalments over a period of 12 years, with the fi rst instalment due in May 2008. the amount is also guaranteed by the parent Company.

Notes to the Consolidated Financial Statements

108

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For the year ended December 31, 2007

34. DEFERRED TAXATION

		Accelerated	Fair value
	Available-for-sale	tax	adjustment on
	investment	depreciation	mining rights	Tax losses	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Balance at January 1, 2006	–	(146,279)	–	–	(146,279)
Acquisition of Shanxi Group	–	(2,962)	(54,269)	–	(57,231)
Charge to reserve	(11,207)	–	–	–	(11,207)
(Charge) credit to income
for theyear(note 12)	–	(69,272)	166	–	(69,106)
Balance at December 31, 2006
and January 1, 2007	(11,207)	(218,513)	(54,103)	–	(283,823)
Ef ect of change in tax rate	2,717	52,972	13,116	–	68,805
Charge to reserve	(78,236)	–	–	–	(78,236)
(Charge) credit to income
for theyear(note 12)	–	(34,613)	1,513	31,175	(1,925)
Balance at December 31, 2007	(86,726)	(200,154)	(39,474)	31,175	(295,179)

Th e following is the analysis of the deferred tax balances for fi nancial reporting purposes:

	Deferred tax assets Deferred tax liabilities	2007 RMB’000 31,175 (326,354) (295,179)	2006 RMB’000 – (283,823) (283,823)

At the balance sheet date, the Group has unused tax losses of RMB 556 million (2006: RMB450 million) contributed by the subsidiaries available for off set against future profi ts. A deferred tax asset have been recognized in respect of RMB 104 million (2006: nil) of such losses. No deferred tax asset has been recognized in respect of the remaining RMB 452 million (2006: RMB450 million) due to the unpredictability of future profi t streams. Included in unrecognized tax losses are losses of RMB55 million that will expire in 2011, and losses of RMB 106 million will expire in 2012. Other losses may be carried forward indefi nitely.

By reference to fi nancial budgets, management believes that there will be suffi cient future profi ts for the realization of deferred tax assets which have been recognized in respect of tax losses.

Notes to the Consolidated Financial Statements

109

For the year ended December 31, 2007

35. SHAREHOLDERS’ EQUITY

Share capital

Th e Company’s share capital structure at the balance sheet date is as follows:

	Domestic	invested shares	Foreign invested
			shares
			H shares
	State legal person		(including H
	shares (held by the	A shares	shares represented
	Parent Company)	(Note 1)	by ADS(Note 1))	Total
Number of shares
At January 1, 2006	2,672,000,000	288,000,000	1,958,400,000	4,918,400,000
Share Reform Plan	(72,000,000)	72,000,000	–	–
At January 1, 2007 and
December 31, 2007	2,600,000,000	360,000,000	1,958,400,000	4,918,400,000
Registered, issued and fully paid At January 1, 2006 Share Reform Plan At January 1, 2007 and December 31, 2007	Domestic State legal person shares (held by the Parent Company) RMB’000 2,672,000 (72,000) 2,600,000	invested shares A shares (Note 1) RMB’000 288,000 72,000 360,000	Foreign invested shares H shares (including H shares represented by ADS (Note 1)) RMB’000 1,958,400 – 1,958,400	Total RMB’000 4,918,400 – 4,918,400

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Each share has a par value of RMB1.

Pursuant to a meeting for the holders of A shares of the company held on March 6, 2006, a share reform plan (“Share Reform Plan”) was approved by the relevant shareholders. Under the Share Reform Plan, 2.5 A shares for every existing 10 A shares would be off ered by the Parent Company and the non-tradable legal person shares held by the Parent Company would then be converted to tradable shares in 4 years’ time according to a formula. Th e Share Reform Plan has been further approved by the Ministry of Commerce of the PRC on March 21, 2006. An aggregate of 72,000,000 state legal person shares of RMB 1 each held by the Parent Company is transferred as A shares pursuant to the Share Reform Plan.

Notes to the Consolidated Financial Statements

110

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For the year ended December 31, 2007

35. SHAREHOLDERS’ EQUITY (continued)

Reserves

Pursuant to regulation in the PRC, the Company and certain of its subsidiaries in the PRC is required to transfer an annual amount to a future development fund at RMB6 per tonne of raw coal mined. Th e fund can only be used for the future development of the coal mining business and is not available for distribution to shareholders.

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

Pursuant to the relevant regulations from the Ministry of Finance, the Company and its subsidiaries in the PRC is no longer required to set aside profi t to the statutory common welfare fund eff ective from January 1, 2006 and the balance of statutory common welfare fund as at January 1, 2006 is transferred to statutory common reserve fund.

Th e Company and its subsidiaries in the PRC has to set aside 10% of its profi t for the statutory common reserve fund (except where the fund has reached 50% of its registered capital). Th e statutory common reserve fund can be used for the following purposes:

to make good losses in previous years; or
to convert into capital, provided such conversion is approved by a resolution at a shareholders’ general meeting and the balance of the statutory common reserve fund does not fall below 25% of the registered capital.

In accordance with the Company’s Articles of Association, the profi t for the purpose of appropriation will be deemed to be the lesser of the amounts determined in accordance with (i) PRC accounting standards and regulations and (ii) IFRS or the accounting standards of the places in which its shares are listed.

Th e Company can also create a discretionary reserve in accordance with its Articles of Association or pursuant to resolutions which may be adopted at a meeting of shareholders.

Th e Company’s distributable reserve as at December 31, 2007 is the retained earnings computed under PRC GAAP which amounted to approximately RMB 8,363,756,000 (At December 31, 2006: RMB 6,766,042,000 as restated with adoption of new PRC GAAP).

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

111

36. CAPITAL RISK MANAGEMENT

Th e Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. Th e Group’s overall strategy remains unchanged from prior year.

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Th e capital structure of the Group consists of debt, which includes the borrowings disclosed in note 33 and equity attributable to equity holders of the Company, comprising issued share capital, reserves and retained earnings.

Th e directors of the Company review the capital structure regularly. As part of this review, the directors of the Company assess the annual budget prepared by the accounting and treasury department and consider and evaluate the cost of capital and the risks associated with each class of capital. Th e Group will balance its overall capital structure through the payment of dividends, issue of new shares and new debts or the repayment of existing debts.

37. FINANCIAL INSTRUMENT

37a. Categories of fi nancial instruments

	Financial assets Loans and receivables (including cash and cash equivalents) Available-for-sale f nancial assets Financial liabilities Amortised cost	2007 RMB’000 9,453,042 409,526 2,583,276	2006 RMB’000 8,974,474 96,142 2,796,237

37b. Financial risk management objectives and policies

The Group’s major financial instruments include available for-sales equity instrument, bills and accounts receivable, other loan receivable, other receivables, bank balances and cash, term deposits, restricted cash, bills and accounts payable, other payable, borrowings and amount due to Parent Company and its subsidiary companies. Details of these fi nancial instruments are disclosed in respective notes. Th e risks associated with these fi nancial instruments and the policies on how to mitigate these risks are set out below. Th e management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and eff ective manner. Th ere has been no signifi cant change to the Group’s exposure to market risk or the manner in which it manages ad measures the risk.

Notes to the Consolidated Financial Statements

112

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For the year ended December 31, 2007

37. FINANCIAL INSTRUMENT (continued)

37b. Financial risk management objectives and policies (continued)

Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in fi nancial loss to the Group.

In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is signifi cantly reduced.

Th e Group maintains its cash and cash equivalents with reputable banks. Th erefore, the directors consider that the credit risk for such is minimal.

Th e Group generally grants the customers with long-relationship credit terms not exceeding 180 days, depending on the situations of the individual customers. For small to medium sized new customers, the Group generally requires them to pay for the products before delivery.

Most of the Group’s domestic sales are sales to electric power plants, metallurgical companies, construction material producers and railway companies. Th e Group generally has established long-term and stable relationships with these companies. Th e Group also sells its coal to provincial and city fuel trading companies.

As the Group does not currently have direct export rights, all of its export sales must be made through National Coal Corporation, Shanxi Coal Corporation or Minmetals Trading. The quality, prices and final customer destination of the Group’s export sales are determined by the Group, National Coal Corporation, Shanxi Coal Corporation or Minmetals Trading.

For the years ended December 31, 2007, 2006 and 2005, net sales to the Group’s fi ve largest domestic customers accounted for approximately 25.6%, 22.1% and 20.0%, respectively, of the Group’s total net sales. Net sales to the Group’s largest domestic customer accounted for 12.1%, 10.2% and 13.4% of the Group’s net sales for the years ended December 31, 2007, 2006 and 2005, respectively. Th e Group’s largest domestic customer was the Huadian Power International Corporation Limited (“Huadian”) for the years ended December 31, 2007, 2006 and 2005.

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

113

37. FINANCIAL INSTRUMENT (continued)

37b. Financial risk management objectives and policies (continued)

Credit risk (continued)

Details of the amounts receivable from the fi ve customers with the largest receivable balances at December 31, 2007 and 2006 are as follows:

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		Percentage of
		accounts receivable
		At December 31,
		2007 2006
	Five largest receivable balances	63.26% 63.47%

Th e management considers the strong fi nancial background and good creditability of these customers, and there is no signifi cant uncovered credit risk.

Th e table below shows the credit limit and balance of 5 major counterparties at the balance sheet date:

31.12.2007 31.12.2006 Credit Carrying Credit Carrying Counterparty Location limit amount limit amount RMB’000 RMB’000 RMB’000 RMB’000	31.12.2007 31.12.2006 Credit Carrying Credit Carrying Counterparty Location limit amount limit amount RMB’000 RMB’000 RMB’000 RMB’000	31.12.2007 31.12.2006 Credit Carrying Credit Carrying Counterparty Location limit amount limit amount RMB’000 RMB’000 RMB’000 RMB’000
Company A T e PRC 40,000 Company B T e PRC 40,000 Company C T e PRC 20,000 Company D T e PRC 10,000 Company E T e PRC 10,000 Company F T e PRC – Company G T e PRC – Company H T e PRC –	32,773 30,000 31,664 30,000 13,645 – 3,896 – 3,756 – – 40,000 – 40,000 – 40,000 85,734	26,075 16,857 – – – 37,009 36,862 34,836 151,639

As at December 31, 2007, the Group has exposure to credit risk in the event of the counterparties failure to perform their obligation in relation to the Default Loan (note 20). In order to minimize the credit risk, the management of the Group has monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of other loan receivables at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is signifi cantly reduced.

Th e Group’s geographical concentration of credit risk is mainly in the PRC, which accounted for over 80% of the Group’s total trade receivable as at December 31, 2007 and 2006.

Notes to the Consolidated Financial Statements

114

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For the year ended December 31, 2007

37. FINANCIAL INSTRUMENT (continued)

37b. Financial risk management objectives and policies (continued)

Market risk

(i) Currency risk

Th e Group’s sales are denominated mainly in the functional currency of the relevant group entity making the sale, whilst costs are mainly denominated in the group entity’s functional currency. Accordingly, there is no signifi cant exposure to foreign currency risk.

Th e carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities in currencies other than the functional currencies of the relevant group entities at the balance sheet date are as follows:

	United States Dollar (“USD”) Euros (“EUR”) Hong Kong Dollar (“HKD”) SterlingPound(“GBP”)	Liabilities 2007 2006 RMB’000 RMB’000 2,250 1,354 47,338 13,932 – – – –	2007 RMB’000 663,713 34,018 103,851 –	Assets 2006 RMB’000 834,511 76,563 457,546 283

Th e Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging signifi cant foreign currency exposure should the need arises.

Sensitivity analysis

Th e Group is mainly exposed to the fl uctuation against the currency of United States Dollar and Hong Kong Dollar.

Th e following table details the Group’s sensitivity to a 5% increase and decrease in RMB against relevant foreign currencies. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 5% change in foreign currency rates. Th e sensitivity analysis includes loans to foreign operations within the Group where the denomination of the loan is in a currency other than the functional currency of the lender or the borrower.

Notes to the Consolidated Financial Statements

115

37. FINANCIAL INSTRUMENT (continued)

37b. Financial risk management objectives and policies (continued)

Market risk (continued)

For the year ended December 31, 2007

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(i) Currency risk (continued)

	USD Impact (note i)	USD Impact (note i)	HKD Impact (note i)	HKD Impact (note i)
	2007	2006	2007	2006
	RMB’000	RMB’000	RMB’000	RMB’000
Increase (Decrease) to prof t and loss
– if RMB weakens against
Respective foreign currency	62,804	73,140	4,945	21,788
– if RMB strengthens against
Respective foreign currency	(62,804)	(73,140)	(4,945)	(21,788)
Increase (Decrease) to prof t and loss – if AUD weakens against Respective foreign currency – if AUD strengthens against Respective foreign currency			USD Impact (note ii) 2007 2006 RMB’000 RMB’000 (31,305) (33,466) 31,305 33,466

Notes:

(i) Th is is mainly attributable to the exposure outstanding on the bank deposit and loans to foreign operations within the Group of USD and HKD at year end in the Group.

(ii) Th is is mainly attributable to the exposure outstanding on the loans to foreign operations within the Group where the denomination of the loan is in a currency other than the function currency of the borrower (i.e. AUD)

In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposure does not refl ect the exposure during the year.

(ii) Interest rate risk

Th e Group is exposed to fair value interest rate risk in relation to fi xed–rate loan receivable (see note 20 for details). Th e Group is also exposed to cash fl ow interest rate risk in relation to variable-rate bank balances, term deposits, restricted cash (see note 17 for details of these bank balances) and bank borrowings (see note 33 for details of these borrowings).

Th e Group currently does not have any interest rate hedging policy.

Th e Group’s exposures to interest rates on fi nancial assets and fi nancial liabilities are detailed in the liquidity risk management section of this note. Th e Group’s cash fl ow interest rate risk is mainly concentrate on the fl uctuation of the PBOC arising from the Group’s RMB borrowings.

Th e Group’s exposure to interest rate risk on fi nancial assets and liabilities and also the result of the sensitivity analysis is not signifi cant.

Notes to the Consolidated Financial Statements

116

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For the year ended December 31, 2007

37. FINANCIAL INSTRUMENT (continued)

37b. Financial risk management objectives and policies (continued)

Market risk (continued)

(iii) Other price risk

In addition to the above risks relating to fi nancial instruments, the Group is exposed to equity price risk through investment in listed equity securities. Th e Group currently does not have any arrangement to hedge the price risk exposure of its investment in equity securities. Th e Group’s exposure to equity price risk through investment in listed equity securities and also the result of the sensitivity analysis is not signifi cant.

Liquidity risk

In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to fi nance the Group’s operations and mitigate the eff ects of fl uctuations in cash fl ows. Th e management monitors the utilisation of bank borrowings and ensures compliance with loan covenants.

Th e following table details the Group’s remaining contractual maturity for its fi nancial liabilities. For nonderivative fi nancial liabilities, the table has been drawn up based on the undiscounted cash fl ows of fi nancial liabilities based on the earliest date on which the Group can be required to pay. Th e table includes both interest and principal cash fl ows.

Liquidity and interest risk tables

Weighted average ef ective interest rate %	Carrying Total amount Less than 3-6 6 months undiscounted at 3 months months to 1 year 1-5 years 5+ years cashf ow 12.31.2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
2007 Non-derivative f nancial liabilities Bills and accounts payables N/A Other payables N/A Amount due to Parent Company and its subsidiaries company N/A Bank borrowings – variable rate 6.84%-7.09% 2006 Non-derivative f nancial liabilities Bills and accounts payables N/A Other payables N/A Amount due to Parent Company and its subsidiaries company N/A Bank borrowings – variable rate 5.85%-6.12%	631,207 26,310 – – – 657,517 657,517 911,528 – – – – 911,528 911,528 669,275 – – 26,496 – 695,771 684,231 – 11,325 65,135 175,968 169,799 422,227 330,000
	2,212,010 37,635 65,135 202,464 169,799 2,687,043 2,583,276
	674,213 71,472 – – 745,685 745,685 665,067 – – – – 665,067 665,067 982,347 – – 39,744 – 1,022,091 1,005,485 – – 53,060 231,438 195,063 479,561 380,000
	2,321,627 71,472 53,060 271,182 195,063 2,912,404 2,796,237

Notes to the Consolidated Financial Statements

117

For the year ended December 31, 2007

37. FINANCIAL INSTRUMENT (continued)

37c. Fair values

the fair value of available-for-sales investment are determined with reference to quoted market price. the fair value of other fi nancial assets and fi nancial liabilities are determined in accordance with generally accepted pricing models based on discounted cash fl ow analysis.

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Th e directors consider that the carrying amounts of fi nancial assets and fi nancial liabilities recorded at amortised cost in the consolidated fi nancial statements approximate their fair values.

38. ACQUISITION OF SHANXI NENG HUA COMPANY LIMITED AND ITS SUBSIDIARIES

On August 18, 2006, the Company entered into an equity transfer agreement with the Parent Company and conditionally agreed to purchase the 98% equity interest in Shanxi Neng Hua from the Parent Company. In November 2006, the acquisition was completed and the consideration of RMB733,346,000 was fully paid to the Parent Company. Th e net assets acquired were included in the coal mining segment.

In 2007, the Company further acquired the remaining 2% equity interest in Shanxi Neng Hua from a subsidiary of the Parent Company at cash consideration of RMB14,965,000 which give rise to additional goodwill of RMB3,066,000.

Th is acquisition has been accounted for using the purchase method.

Notes to the Consolidated Financial Statements

118

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For the year ended December 31, 2007

38. ACQUISITION OF SHANXI NENG HUA COMPANY LIMITED AND ITS SUBSIDIARIES (continued)

Th e net assets of Shanxi Group acquired in 2006, and the goodwill arising, are as follows:

	Acquiree’s carrying Fair amount before value combination adjustments RMB’000 RMB’000	Fair value RMB’000
Bank balances and cash Bills and accounts receivable Inventories Prepayment for resources compensation fees Prepayments and other currents assets Property, plant and equipment Mining rights Deferred tax liability Prepaid lease payments Accounts payable Other payables and accrued expenses Bank borrowings Total net assets acquired Minority interests Goodwill arising on acquisition Total consideration satisf ed by: Cash consideration paid on acquisition Net cash outf ow arising on acquisition: Cash paid on acquisition Bank balances and cash acquired	289,142 10,950 4,609 25,387 15,216 628,976 – 164,452 (2,962) (54,269) 11,378 (12,126) (75,436) (380,000) 515,134	289,142 10,950 4,609 25,387 15,216 628,976 164,452 (57,231) 11,378 (12,126) (75,436) (380,000)
		625,317 (34,518) 142,547
		733,346
		733,346
		(733,346) 289,142
		(444,204)

Shanxi Group contributed RMB21,875,000 and RMB8,755,000 to the Group’s turnover and loss respectively, for the period between the date of acquisition to December 31, 2006.

If the acquisition had been completed on January 1, 2006, the Group’s revenue for the period would have been RMB12,961,204,000, and the Group’s profit for the year would have been RMB2,274,162,000. The pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on January 1, 2006, nor is it intended to be a projection of future results.

Th e goodwill arising from the acquisition is attributable to the anticipated profi tability and the anticipated future operating synergies from the combination.

Notes to the Consolidated Financial Statements

119

For the year ended December 31, 2007

39. ACQUISITION OF HEZE

Th e net assets of Heze acquired in 2005, and the goodwill arising, are as follows:

		Carrying
		value and
		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)
	Minorityinterest	(24,818)
	Total net assets acquired	548,363
	Goodwill arisingon acquisition	35,645
	Total consideration satisf ed by: Deposit made on investment in 2004 Cash considerationpaid on acquisition Net cash outf ow arising on acquisition: Cash paid on acquisition Bank balances and cash acquired	584,008 574,000 10,008 584,008 (10,008) 180,255 170,247

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Heze did not contribute signifi cantly to the Group’s turnover and profi t 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 profi t 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 Agreement”) 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, 2005, a deposit of RMB574,000,000 was paid to the Parent Company.

On June 28, 2005, a supplemental agreement (the “Supplemental Agreement”) was entered into between the Company and the Parent Company. Under the Supplemental Agreement, the Parent Company provided an irrevocable undertaking 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. In June 2006, the Parent Company has obtained the mining rights of Zhaolou coal mine. At December 31, 2007, the Company has not yet fi nished the purchase of the mining rights from the parent Company. Th e estimated consideration for the transfer of the mining rights of Zhaolou coal mine was approximately RMB 747 million. Th e relevant application has been submitted to the Municipal Land Resource Bureau. Th e purchases of the mining rights are subject to the approval of relevant government authorities.

Notes to the Consolidated Financial Statements

120

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For the year ended December 31, 2007

40. RELATED PARTY BALANCES AND TRANSACTIONS

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed. Details of balance and transactions between the Group and other related parties are disclosed below.

Related party balances

Th e amounts due to the Parent Company and its subsidiary companies are non-interest bearing and unsecured.

Th e amounts due to the Parent Company and its subsidiary companies as at December 31, 2007 and 2006 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.

Th e consideration for the cost of the mining rights of approximately RMB132,479,000 is to be settled over the 10 years by equal instalments 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 threeyears, but no exceedingfouryears Total Less: amount due within oneyear Amount due af er oneyear	At December 2007 RMB’000 669,275 7,703 7,253 – 684,231 (669,275) 14,956	31, 2006 RMB’000 982,347 8,181 7,704 7,253 1,005,485 (982,347) 23,138

Except the amounts disclosed above, the amounts due to the Parent Company and/or its subsidiary companies are repayable on demand.

Notes to the Consolidated Financial Statements

121

For the year ended December 31, 2007

40. RELATED PARTY BALANCES AND TRANSACTIONS (continued)

Related party transactions

During the years, the Group had the following signifi cant transactions with the Parent Company and/or its subsidiary companies:

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		Year ended December 31,
	2007	2006	2005
	RMB’000	RMB’000	RMB’000
Income
Sales of coal	1,014,963	1,069,879	856,580
Sales of auxiliary materials	595,143	496,221	369,855
Utilities and facilities	–	–	29,000
Expenditure
Utilities and facilities	377,074	358,370	355,953
Annual fee for mining rights	12,980	12,980	12,980
Purchases of supply materials and equipment Repair and maintenance services Social welfare and support services Technical support and training Road transportation services Construction services	454,469 215,102 313,062 20,000 60,718 316,801	458,329 246,841 406,004 20,000 63,448 306,658	341,935 197,624 242,952 15,130 53,346 –

Certain expenditure for social welfare and support services (excluding medical and child care expenses) of RMB165,900,000, RMB165,900,000 and RMB63,361,000 for the years ended December 31, 2007, 2006 and 2005, respectively, and for technical support and training of RMB20,000,000, RMB20,000,000 and RMB15,130,000, have been charged by the Parent Company at a negotiated amount per annum, subject to changes every year.

During the year ended December 31, 2006, the Company acquired Shanxi Neng Hua from the Parent Company. Details of this acquisition are set out in note 38.

During the year ended December 31, 2005, the Company acquired Heze from the Parent Company. Details of this acquisition are set out in note 39.

In addition to the above, the Company participates in a retirement benefi t scheme of the Parent Company in respect of retirement benefi ts (note 42).

Notes to the Consolidated Financial Statements

122

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For the year ended December 31, 2007

40. RELATED PARTY BALANCES AND TRANSACTIONS (continued)

Transactions/balances with other state-controlled entities in the PRC

Th e Group operates in an economic environment currently predominated by entities directly or indirectly owned or controlled by the PRC government (“state-controlled entities”). In addition, the Group itself is part of a larger group of companies under the Parent Company which is controlled by the PRC government. Apart from the transactions with the Parent Company and its subsidiaries disclosed above, the Group also conducts business with other state-controlled entities. Th e directors consider those state-controlled entities are independent third parties so far as the Group’s business transactions with them are concerned.

Material transactions with other state-controlled entities are as follows:

		Year ended December 31,
	2007	2006	2005
	RMB’000	RMB’000	RMB’000
Trade sales Tradepurchases	6,035,156 1,056,959	4,600,606 1,568,658	3,855,545 1,607,729

Material balances with other state-controlled entities are as follows:

	Amounts due from other state-controlled entities Amounts due to other state-controlled entities	At December 2007 RMB’000 339,979 311,922	31 2006 RMB’000 345,914 301,117

Notes to the Consolidated Financial Statements

For the year ended December 31, 2007

123

40. RELATED PARTY BALANCES AND TRANSACTIONS (continued)

In addition, the Group has entered into various transactions, including deposits placements, borrowings and other general banking facilities, with certain banks and fi nancial institutions which are state-controlled entities in its ordinary course of business. In view of the nature of those banking transactions, the directors are of the opinion that separate disclosure would not be meaningful.

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Except as disclosed above, the directors are of the opinion that transactions with other state-controlled entities are not signifi cant to the Group’s operations.

Compensation of key management personnel

Th e remuneration of directors and other members of key management was as follows:

		Year ended December 31,
	2007	2006	2005
	RMB’000	RMB’000	RMB’000
Directors’ fee Salaries, allowance and other benef t in kind Retirement benef t scheme contribution	403 2,315 378 3,096	373 2,710 1,030 4,113	342 1,503 678 2,523

Th e remuneration of directors and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends.

Notes to the Consolidated Financial Statements

124

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For the year ended December 31, 2007

41. COMMITMENTS

	At December	31,
	2007	2006
	RMB’000	RMB’000
Capital expenditure contracted for but not provided
in the consolidated f nancial statements in respect of
acquisition of property, plant and equipment	322,271	1,221,884
Capital expenditure authorized but not contracted for in respect
of development of new coal mines	747,339	600,000
	1,069,610	1,821,884

In accordance with the regulations of the State Administration of Work Safety, the Group has a commitment to incur RMB8 for each tonne of raw coal mined from May 1, 2004 which will be used for enhancement of safety production environment and improvement of facilities (“Work Safety Cost”). Th e unutilized Work Safety Cost at December 31, 2007 was RMB187,470,000 (2006: RMB30,208,000).

During 2006, the Company entered into a co-operative agreement with two independent third parties to establish a company for the operation of a coal mine to be acquired in Shaanxi province. In addition to the deposit referred to in note 29, the Company is committed to invest a further RMB78.8 million as at December 31, 2007.

Pursuant to the regulations issued by the Shandong Province Finance Bureau, the Group has to pay a deposit of RMB1,073 million to the relevant government authority, which secured for the environmental protection work done by the Company. As at December 31, 2007, deposit of RMB200 million were made and the Company is committed to further make security deposit of RMB874 million.

During 2007, the Company entered into an agreement with the Parent Company and Zhongcheng Trust and Investment LLC. to establish a company, with the proposed name of Yankuang Group Finance Company Limited (the “Investee”), which will engage in banking and fi nancing business. Th e name and the activities of the Investee are subject to the approval by China Banking Regulatory Commission and other relevant government authorities. Th e Company has agreed to contribute RMB125 million from internal resources, which will account for 25% of the equity interest in the Investee. As of December 31, 2007, the procedures to establish the Investee are still in progress.

Notes to the Consolidated Financial Statements

125

For the year ended December 31, 2007

42. RETIREMENT BENEFITS

Qualifying employees of the Company are entitled to a pension, medical and other welfare benefi ts. Th e Company participates in a scheme of the Parent Company and pays a monthly contribution to the Parent Company in respect of retirement benefi ts at an agreed contribution rate based on the monthly basic salaries and wages of the qualifi ed employees. Th e Parent Company is responsible for the payment of all retirement benefi ts to the retired employees of the Company.

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Pursuant to the provision of Administrative Services for Pension Fund and Retirement Benefi ts Agreement entered into by the Company and the Parent Company on January 10, 2006, the monthly contribution rate is set at 45% of the aggregate monthly basic salaries and wages of the Company’s employees for the period from January 1, 2006 to December 31, 2008.

The amount of contributions paid to the Parent Company were RMB692,912,000, RMB640,620,000 and RMB522,650,000 for the years ended December 31, 2007, 2006, and 2005, respectively.

Th e Company’s subsidiaries are participants in a state-managed retirement scheme pursuant to which the subsidiaries pay a fi xed percentage of its qualifying staff ’s wages as a contribution to the scheme. Th e subsidiaries’ fi nancial obligations under this scheme are limited to the payment of the employer’s contribution. During the year, contributions paid and payable by the subsidiaries pursuant to this arrangement were insignifi cant to the Group.

During the year and at the balance sheet date, there were no forfeited contributions which arose upon employees leaving the above schemes available to reduce the contributions payable in future years.

43. HOUSING SCHEME

The Parent Company is responsible for providing accommodation to its employees and the employees of the Company. Th e Company and the Parent Company share the incidental expenses relating to the accommodation at a negotiated amount for each of the three years ended December 31, 2007, 2006 and 2005. Such expenses, amounting to RMB86,269,000, RMB86,200,000 and RMB37,200,000 for each of the three years ended December 31, 2007, 2006 and 2005 respectively, have been included as part of the social welfare and support services expenses summarized in note 40.

Th e Company currently makes a fi xed monthly contribution for each of its qualifying employees to a housing fund which is equally matched by a contribution from the employees. Th e contributions are paid to the Parent Company which utilizes the funds, along with the proceeds from the sales of accommodation and, if the need arises, from loans arranged by the Parent Company, to construct new accommodation.

44. MAJOR NONCASH TRANSACTION

During the year ended December 31, 2007, the Group acquired certain property, plant and equipment, of which RMB615,092,000 (2006: RMB442,536,000) have not yet been paid.

Notes to the Consolidated Financial Statements

126

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For the year ended December 31, 2007

45. INFORMATION OF THE COMPANY

Th e Company’s balance sheet is disclosed as follows:

	At December 31,	At December 31,
	2007	2006
	RMB’000	RMB’000
ASSETS
CURRENT ASSETS
Bank balances and cash	4,331,449	4,405,364
Term deposits	1,294,984	1,194,531
Restricted cash	8,852	15,504
Amounts due from subsidiaries	213,890	259,178
Bills and accounts receivable	2,721,930	2,176,622
Inventories	325,620	417,816
Other loans receivable	640,000	640,000
Loans to subsidiaries	273,707	314,735
Prepayments and other receivables Prepaid lease payments Prepayment for land subsidence, restoration, rehabilitation and environmental costs TOTAL CURRENT ASSETS MINING RIGHTS PREPAID LEASE PAYMENTS PROPERTY, PLANT AND EQUIPMENT GOODWILL INVESTMENT IN SUBSIDIARIES (note a) INVESTMENTS IN SECURITIES INVESTMENT IN ASSOCIATE LOAN TO SUBSIDIARIES DEPOSIT MADE ON INVESTMENT TOTAL ASSETS LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Bills and accounts payable	317,922 13,362 – 10,141,716 86,111 548,314 7,519,521 107,346 3,402,004 409,526 900,000 2,170,190 117,926 25,402,654 598,473	178,751 13,199 212,912 9,828,612 92,735 553,570 8,285,043 107,346 2,511,038 96,142 – 1,132,505 97,426 22,704,417 613,835
Other payables and accrued expenses	1,915,922	1,390,959
Provision for land subsidence, restoration, rehabilitation and
environmental costs	19,635	–
Amounts due to Parent Company and its subsidiary companies	513,593	893,368
Taxespayable	9,956	150,594
TOTAL CURRENT LIABILITIES	3,057,579	3,048,756
AMOUNTS DUE TO PARENT COMPANY AND ITS
SUBSIDIARY COMPANIES-DUE AFTER ONE YEAR	14,956	23,138
DEFERRED TAX LIABILITY	283,064	226,171
TOTAL LIABILITIES	3,355,599	3,298,065
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE COMPANY(note b)	22,047,055	19,406,352
TOTAL LIABILITIES AND EQUITY	25,402,654	22,704,417

Notes to the Consolidated Financial Statements

127

45. INFORMATION OF THE COMPANY (continued)

Notes:

(a) Details of the Company’s subsidiaries at December 31, 2007 and 2006 are as follows:

For the year ended December 31, 2007

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	Country of			Proportion of
	incorporation/	Issued and		registered capital/		Proportion of
	registration	fully paid capital/		issued share capital			voting
Name of subsidiary	and operation	registered capital		held by the Company		power held		Principal activities
				2007	2006	2007	2006
			Directly	Indirectly Directly	Indirectly
Austar Coal Mine Pty,	Australia	AUD64,000,000	–	100% –	100%-	100%	100%	Coal mining business
Limited (“Austar”)
Heze (note)	PRC	RMB600,000,000	96.67%	– 95.67%	–	96.67%	95.67%	Coal mining business
Yancoal Australia Pty, Limited (“Yancoal”) Shandong Yanmei Shipping Co., Ltd. (Yanmei Shipping) (note) Yanzhou Coal Yuli Power Chemical Co., Ltd. (“Yulin”) (note) Zhongyan Trade Co., Ltd. (“Zhongyan”) (note) Shanxi Neng Hua (note) Shanxi Tianchi (note) Shanxi Tianhao (note)	Australia PRC PRC PRC PRC PRC PRC	AUD64,000,000 RMB5,500,000 RMB800,000,000 RMB2,100,000 RMB600,000,000 RMB90,000,000 RMB150,000,000	100% 92% 97% 52.38% 100% – –	– 100% – 92% – 97% – 52.38% – 98% 79.68% – 97.85% –	– – – – – 79.68% 97.85%	100% 92% 97% 52.38% 100% 78.09% 95.89%	100% 92% 97% 52.38% 98% 78.09% 95.89%	Investment holding Transportation via rivers and lakes and the sales of coal and construction materials Development of methanol project Trading and processing of mining machinery Investment holding Coal mining business Development of methanol project

Note: Yanmei Shipping, Yulin, Zhongyan, Heze, Shanxi Neng Hua, Shanxi Tianchi, Shanxi Tianhao are established in the PRC as limited liability companies.

Notes to the Consolidated Financial Statements

128

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For the year ended December 31, 2007

45. INFORMATION OF THE COMPANY (continued)

(b) Th e Company’s equity is as follows:

				Statutory	Statutory
			Future	common	common	Investment
	Share	Share	development	reserve	welfare	revaluation	Retained
	capital	premium	fund	fund	fund	reserve	earnings	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Balance at January 1, 2006	4,918,400	2,981,002	1,827,667	1,018,983	509,491	–	6,529,577	17,785,120
Gain on fair value changes of
available-for-sale investment	–	–	–	–	–	33,961	–	33,961
Deferred tax on fair value
change of available-for-sales
investment	–	–	–	–	–	(11,207)	–	(11,207)
Net income recognised
directly in equity Prof t for the year Prof t and total income and expense recognized for the year Appropriations to reserves Transfer Dividends Balance at December 31, 2006 and January 1, 2007 Gain on fair value change of available-for-sale investment Deferred taxes on fair value change of available-for-sales Net income recognized directly in equity Prof t for the year	– – – – – – 4,918,400 – – – –	– – – – – – 2,981,002 – – – –	– – – 390,340 – – 2,218,007 – – – –	– – – 175,821 509,491 – 1,704,295 – – – –	– – – – (509,491) – – – – – –	22,754 – 22,754 – – – 22,754 312,944 (75,519) 237,425 –	– 2,680,526 2,680,526 (566,161) – (1,082,048) 7,561,894 – – – 3,386,958	22,754 2,680,526 2,703,280 – – (1,082,048) 19,406,352 312,944 (75,519) 237,425 3,386,958
Total recognized income
and expenses for the year	–	–	–	–	–	237,425	3,386,958	3,624,383
Appropriations to reserves	–	–	361,110	333,645	–	–	(694,755)	–
Dividends	–	–	–	–	–	–	(983,680)	(983,680)
Balance at December 31, 2007	4,918,400	2,981,002	2,579,117	2,037,940	–	260,179	9,270,417	22,047,055

Supplemental Information

129

I. SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING STANDARD “IFRS AND THOSE UNDER THE PRC ACCOUNTING RULES AND REGULATIONS “PRC GAAP”

Th e Group has also prepared a set of consolidated fi nancial statement in accordance with relevant accounting principles and regulations applicable to PRC enterprises. In the current period, the Group has applied, for its fi rst time, the Accounting Standards for Business Enterprises (“ASBEs”) issued by the Ministry of Finance of the People’s Republic of China that are eff ective for accounting periods beginning on or aft er January 1, 2007. Th e application of the ASBEs has resulted in the changes in presentation of the fi nancial statement and in the accounting policies which prior periods adjustments have been made.

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Th e consolidated fi nancial statements prepared under IFRS and those prepared under PRC GAAP have the following major diff erences:

(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 utilizing for the enhancement of safety production environment and facilities, which is charged as expenses when provided under PRC GAAP.
(iii) Depreciation provided for plant and equipment acquired by utilizing Work Safety Cost, which is charged as expenses in all once provided as Work Safety Cost under PRC GAAP;
(iv) Under IFRS, the acquisitions of Jining II, Jining III, Railway Assets, Heze and Shanxi Group have been accounted for using the purchase method which accounts for the assets and liabilities of Jining II, Jining III, Railway Assets, Heze and Shanxi Group 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.

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

(v) Under IFRS, the mining rights of Shanxi Group are stated at purchase consideration less amortization. Mining rights are amortized on a straight line basis over twenty years and twenty-seven years, respectively, being the useful life estimated based on the total proven and probable reserves of the coal mine. Under PRC GAAP, as both the Group and Shanxi Group 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.

Supplemental Information

130

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I. SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING STANDARD “IFRS AND THOSE UNDER THE PRC ACCOUNTING RULES AND REGULATIONS “PRC GAAP” (continued)
(vi) Recognition of a deferred tax asset/liability under IFRS for the tax consequence of temporary diff erences by applying enacted statutory tax rates applicable to future years to diff erences between the fi nancial statement carrying amounts and the tax bases of existing assets and liabilities.

Th e following table summarizes the diff erences between consolidated fi nancial statement prepared under IFRS and those under PRC GAAP:

	Net income attributable to the	Net income attributable to the	Net assets attributable
	equity	holders of the Company	to equity holders of the
	for the	year ended December 31,	Company as at December 31,
	2007	2006 2005	2007 2006
As per consolidated f nancial 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 – Fair value adjustment on mining rights of Shanxi Group and related amortization – Goodwill arising from acquisition of Jining II, Railway Assets, Heze and Shanxi Group – deferred tax ef ect on temporary dif erences not recognized under PRC GAAP – others As per consolidated f nancial statementsprepared under PRC GAAP	RMB’000 3,230,450 (368,531) (138,456) 6,053 – (32,988) (3,230) 2,693,298	RMB’000 RMB’000 2,372,985 2,881,461 (390,907) (381,208) (209,555) (238,600) – – – – 69,021 123,175 686 – 1,842,230 2,384,828	RMB’000 RMB’000 21,417,537 18,931,779 (814,516) (447,372) (797,763) (659,974) (128,385) (130,640) (288,604) (285,538) 231,537 260,903 (4,116) 2,896 19,615,690 17,672,054

Note: Th ere are also diff erences in other items in the consolidated fi nancial statements due to diff erences in classifi cation between IFRS and PRC GAAP.

Auditors’ Report

131

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De Shi Bao (Shen) Zi (08)No. P0518 [Translation]

TO THE SHAREHOLDERS OF YANZHOU COAL MINING COMPANY LIMITED.:

We have audited the accompanying fi nancial statements of Yanzhou Coal Mining Company Limited. ("the Company"), which comprise of the company and consolidated balance sheets as at December 31, 2007, and the company and consolidated income statements, the statements of changes in equity and cash fl ow statements for the year then ended, and notes to the

1. MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

Management is responsible for the preparation of these fi nancial statements in accordance with Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises. Th is responsibility includes: (1) designing, implementing and maintaining internal control relevant to the preparation of fi nancial statements that are free from material misstatement, whether due to fraud or error; (2) selecting and applying appropriate accounting policies; and (3) making accounting estimates that are reasonable in the circumstances.

2. AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with Chinese Certifi ed Public Accountants Auditing Standards. Th ose standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the fi nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. Th e procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, we consider the internal control relevant to the preparation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the eff ectiveness of the internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the fi nancial statements.

We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.

Auditors’ Report

132

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3. OPINION

In our opinion, the fi nancial statements of the Company have been prepared in accordance with Accounting Standards for Business Enterprise and the Accounting System for Business Enterprise, and present fairly, in all material respect, the company and consolidated fi nancial position of the Company as of December 31, 2007, and the company and consolidated results of its operations and cash fl ows for the year then ended.

Deloitte Touche Tohmatsu CPA Ltd.	Chinese Certif ed Public Accountant
Shanghai, China	Zhang Ying
	Chen Song
April 18, 2008

Th e auditors’ report and the accompanying fi nancial statements are English translations of the Chinese auditors’ report and statutory fi nancial statements prepared under accounting principles and practices generally accepted in the People’s Republic of China. Th ese fi nancial statements are not intended to present the fi nancial position and results of operations and cash fl ows in accordance with accounting principles and practices generally accepted in other countries and jurisdictions. In case the English version does not conform to the Chinese version, the Chinese version prevails.

133

THE COMPANY AND CONSOLIDATED BALANCE SHEETS

AT DECEMBER 31, 2007

		T e	Group	T e	Company
		At December	At December	At December	At December
	NOTES IX	31, 2007	31, 2006	31, 2007	31, 2006
		RMB	RMB	RMB	RMB
			(Restated)		(Restated)
ASSETS
CURRENT ASSETS:
Bank balances and cash	1	5,779,552,295	6,028,060,759	5,635,285,807	5,615,399,136
Notes receivable	2	2,732,422,448	2,061,620,338	2,730,805,288	2,061,620,338
Accounts receivable	3	120,548,231	214,170,457	90,610,323	181,851,451
Prepayments	4	59,832,653	115,894,464	57,089,331	105,414,667
Interest receivable	5	–	–	76,482,715	31,457,046
Dividends receivable		–	–	–	298,582
Other receivables	6	315,801,434	192,373,095	956,461,123	573,541,575
Inventories	7	440,133,628	579,560,747	325,619,749	417,815,789
Entrust loan	8	640,000,000	640,000,000	837,224,200	923,278,300
Other current assets	9	10,933,507	240,199,375	10,933,507	239,949,381
Total current assets		10,099,224,196	10,071,879,235	10,720,512,043	10,150,626,265
NON CURRENT ASSETS: Available-for-sale f nancial assets Entrust loan Long-term equity investments Fixed assets Fixed assets under construction Materials held for construction of f xed assets Intangible assets Goodwill Long-term deferred expenses Deferred tax assets Other non-current assets Total non-current assets TOTAL ASSETS	10 8 11 12 13 14 15 16 17 18 19	409,085,879 – 898,001,770 8,242,576,351 4,289,220,537 229,460,787 788,504,784 10,045,361 21,728,081 31,174,701 306,476,992 15,226,275,243 25,325,499,439	94,381,623 – 1,760,419 8,795,190,480 2,197,521,485 65,408,224 721,759,540 10,045,361 25,067,328 – 557,915,001 12,469,049,461 22,540,928,696	409,085,879 2,170,189,800 4,023,118,868 6,849,270,087 70,713,274 1,656,966 647,787,472 – – – 117,925,900 14,289,748,246 25,010,260,289	94,381,623 1,132,504,700 2,240,882,272 7,522,530,384 111,624,099 21,829,853 659,503,957 – – – 97,425,900 11,880,682,788 22,031,309,053

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Continued

THE COMPANY AND CONSOLIDATED BALANCE SHEETS

134

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AT DECEMBER 31, 2007

		T e	Group	T e	Company
		At December	At December	At December	At December
	NOTES IX	31, 2007	31, 2006	31, 2007	31, 2006
		RMB	RMB	RMB	RMB
			(Restated)		(Restated)
LIABILITIES AND
SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Notes payable	21	154,519,715	168,945,054	154,519,715	137,843,036
Accounts payable	22	559,346,058	662,673,015	484,693,966	537,682,591
Advances from customers	23	983,294,466	732,812,102	963,437,277	722,618,722
Salaries and wages payable	24	337,275,927	210,216,780	299,831,899	174,764,641
Taxes payable	25	228,657,191	356,052,352	225,673,305	353,593,958
Other payables	26	1,909,171,032	1,760,353,295	1,480,813,707	1,431,145,703
Long-term payables
due within one year	27,28	487,447,969	90,955,596	395,837,955	33,093,610
Other current liabilities	9	19,634,780	–	19,634,780	–
Total current liabilities		4,679,347,138	3,982,008,194	4,024,442,604	3,390,742,261
NON-CURRENT LIABILITIES Bank borrowings Long-term payables Deferred tax liabilities Total non-current liabilities TOTAL LIABILITIES SHAREHOLDERS’ EQUITY: Share capital Capital reserves Surplus reserves Retained earnings Translation reserve Equity attributable to shareholders of the Company Minorityinterest TOTAL SHAREHOLDERS’ EQUITY	27 28 29 30 31 32 33	258,000,000 636,193,076 86,726,297 980,919,373 5,660,266,511 4,918,400,000 4,943,369,082 2,037,940,337 7,729,922,091 (13,941,634) 19,615,689,876 49,543,052 19,665,232,928	330,000,000 483,451,135 11,207,245 824,658,380 4,806,666,574 4,918,400,000 4,710,915,252 1,751,118,730 6,307,125,592 (15,505,409) 17,672,054,165 62,207,957 17,734,262,122	– 636,193,076 86,726,297 722,919,373 4,747,361,977 4,918,400,000 4,942,801,517 2,037,940,337 8,363,756,458 – 20,262,898,312 – 20,262,898,312	– 483,451,135 11,207,245 494,658,380 3,885,400,641 4,918,400,000 4,710,347,687 1,751,118,730 6,766,041,995 – 18,145,908,412 – 18,145,908,412
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY		25,325,499,439	22,540,928,696	25,010,260,289	22,031,309,053

Th e accompanying notes are part of the fi nancial statements.

Th e fi nancial statements on pages 133 to 229 were signed by the following:

Head of the Company: Wang Xin

Chief Financial Offi cer: Wu Yu Xiang

Head of Accounting Department: Zhao Qing Chun

FOR THE YEAR ENDED DECEMBER 31, 2007

135

THE COMPANY AND CONSOLIDATED INCOME STATEMENTS

	T e Group T e Company For the year ended Dec 31, For the year ended Dec 31, NOTES IX 2007 2006 2007 2006 Item RMB RMB RMB RMB (Restated) (Restated)
	1. Revenue 34 16,595,832,427 14,458,419,357 15,709,039,424 14,317,006,258 Less: Cost of sales 35 8,731,303,260 7,990,291,939 8,041,657,877 7,739,666,343 Sales taxes and surcharges 36 298,168,161 281,590,576 289,725,282 281,012,658 Selling expense 37 685,702,764 1,037,997,906 530,743,190 1,012,459,591 General and administrative expense 2,578,630,006 2,006,627,935 2,315,936,225 1,815,891,255 Financial expense 38 (72,451,450) (32,966,609) 54,891,493 30,295,423 Impairment loss of assets 39 (4,364,203) (19,716,674) (4,361,841) (19,746,863) Add: Investment income 40 4,705,418 6,311,225 104,968,103 46,938,641
	Including: Investment income of associates 40 (2,438,230) – (2,438,230) –
	2. Operating prof t 4,383,549,307 3,200,905,509 4,585,415,301 3,504,366,492 Add: Non-operating income 41 29,389,787 15,109,124 27,806,959 14,013,451 Less: Non-operatingexpense 42 373,472,715 89,562,125 371,245,474 82,809,974
	3. Prof t before income tax 4,039,466,379 3,126,452,508 4,241,976,786 3,435,569,969 Less: Income tax 43 1,348,507,813 1,285,550,000 1,373,760,716 1,284,833,596
	4. Netprof t 2,690,958,566 1,840,902,508 2,868,216,070 2,150,736,373
	Including: Attribute to shareholders of the Company 2,693,298,106 1,842,230,024 2,868,216,070 2,150,736,373 Minority interest (2,339,540) (1,327,516) – – 5. Earnings per share (1) Basis 44 0.55 0.37 (2)Diluted 44 N/A N/A

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Th e accompanying notes are part of the fi nancial statements.

THE COMPANY AND CONSOLIDATED CASH FLOW STATEMENTS

136

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FOR THE YEAR ENDED DECEMBER 31, 2007

	T e Group T e Company NOTES IX 2007 2006 2007 2006 RMB RMB RMB RMB
	1. CASH FLOW FROM OPERATING ACTIVITIES: Cash received from sales of goods or rendering of services 18,284,849,814 16,140,312,233 17,356,734,017 16,008,029,694 Other cash received relating to operatingactivities 48 434,017,502 541,469,913 371,287,073 361,206,785
	Sub-total of cash inf ows 18,718,867,316 16,681,782,146 17,728,021,090 16,369,236,479
	Cash paid for goods and services 5,016,176,267 5,085,243,877 4,440,583,420 4,944,979,986 Cash paid to and on behalf of employees 3,553,356,812 2,833,258,950 3,172,076,697 2,565,306,688 Taxes payments 3,538,445,444 3,318,349,229 3,497,825,660 3,315,398,012 Other cash paid relating to operatingactivities 48 2,030,101,595 1,068,108,816 2,119,566,562 1,576,121,658
	Sub-total of cash outf ows 14,138,080,118 12,304,960,872 13,230,052,339 12,401,806,344
	NET CASH FLOW FROM OPERATING ACTIVITIES 4,580,787,198 4,376,821,274 4,497,968,751 3,967,430,135
	2. CASH FLOW FROM INVESTING ACTIVITIES: Cash received from return on investments – – 300,000,000 – Cash received from investment income 7,143,648 6,311,225 62,679,246 15,183,013 Net cash received from disposal of f xed assets, intangible assets and other long-term assets 31,592,687 14,173,454 24,950,278 13,394,064 Other cash received relating to investingactivities 49 59,404,380 – 6,650,881 –
	Sub-total of cash inf ows 98,140,715 20,484,679 394,280,405 28,577,077
	Cash paid to acquire f xed assets, intangible assets and other long-term assets 2,846,023,681 3,770,532,448 721,640,792 1,067,365,264 Cash paid for investments 935,466,200 541,629,776 3,087,966,200 2,296,351,100
	Including: Cash paid for the acquisition of Heze Power – – 876,000,000 – Cash paid for the acquisition of Shanxi Power 14,966,200 444,203,876 14,966,200 733,346,200 Cash paid for additional investment in Yanmei Australia – – – 211,996,000 Cash paid for additional investment in Yulin Yushuwan 20,500,000 97,425,900 20,500,000 97,425,900 Cash paid for investment in Huadian Zouxian 900,000,000 – 900,000,000 –
	Other cash paid relating to investingactivities 49 – 81,034,538 – 15,503,032
	Sub-total of cash outf ows 3,781,489,881 4,393,196,762 3,809,606,992 3,379,219,396
	NET CASH FLOW FROM INVESTING ACTIVITIES (3,683,349,166) (4,372,712,083) (3,415,326,587) (3,350,642,319)
	Continued

137

THE COMPANY AND CONSOLIDATED CASH FLOW STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2007

	T e Group T e Company NOTES IX 2007 2006 2007 2006 RMB RMB RMB RMB
	3. CASH FLOW FROM FINANCING ACTIVITIES: Cash received from investors 24,000,000 – – –
	Including: Investment from minority investors of a subsidiary 24,000,000 – – –
	Sub-total of cash inf ows 24,000,000 – – –
	Repayments of borrowings 50,000,000 200,000,000 – 200,000,000 Cash paid for acquisition of Jining III 13,247,800 13,247,800 13,247,800 13,247,800 Cash paid for distribution of dividends or prof ts, or cash paid for interest expenses 1,008,731,745 1,103,087,868 983,680,000 1,101,285,561
	Include: Dividends paid to minority investors of a subsidiary 330,120 271,448 – –
	Sub-total of cash outf ows 1,071,979,545 1,316,335,668 996,927,800 1,314,533,361
	NET CASH FLOW FROM FINANCING ACTIVITIES (1,047,979,545) (1,316,335,668) (996,927,800) (1,314,533,361)
	4. EFFECT OF FOREIGN EXCHANGE RATE CHANGES (40,388,571) (19,719,687) (59,176,812) –
	5. NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (190,930,084) (1,331,946,164) 26,537,552 (697,745,545) Add: Cash and cash equivalent, opening 46 5,910,475,432 7,242,421,596 5,599,896,104 6,297,641,649
	6. Cash and cash equivalents, ending 46 5,719,545,348 5,910,475,432 5,626,433,656 5,599,896,104

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Th e accompanying notes are part of the fi nancial statements.

THE COMPANY AND CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

138

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FOR THE YEAR ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2007

						T e Group	T e Group
								Attribute to
								shareholders
			Share	Capital	Surplus	Retained	Translation	of the	Minority
		NOTES IX	capital	reserves	reserves	earnings	reserve	Company	interest	Total
			RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB
For	the year ended December 31, 2006
I.	Balance at December 31, 2005		4,918,400,000	4,865,480,791	1,528,790,703	5,843,971,924	(15,016,163)	17,141,627,255	–	17,141,627,255
	1. Change in accounting policies
	(Note VI)		–	(155,664,158)	7,254,389	(81,954,718)	–	(230,364,487)	52,750,300	(177,614,187)
II.	Balance at January1, 2006		4,918,400,000	4,709,816,633	1,536,045,092	5,762,017,206	(15,016,163)	16,911,262,768	52,750,300	16,964,013,068
III.	Changes for the year
	(I) Net prof t		–	–	–	1,842,230,024	–	1,842,230,024	(1,327,516)	1,840,902,508
	(II) Gain and loss directly recognized
	in shareholders’ equity
	1. Net fair value changes of
IV. For I. II.	available-for-sale f nancial assets 31 2. Acquisition of 2% shareholders’ equity of Shanxi Power 31 3. Translation reserve 4. Wei Jian Fei transfer in 31 5. Income tax ef ect related to items Recorded in shareholder equity 31 Sub-total of (I) and (II) (III) Owner’s contributions and reduction in capital (IV) Prof t distribution 1. Transfer to surplus reserve 32, 33 2. Distribution to shareholders 33 Balance at December 31, 2006 the year ended December 31, 2007 Balance at January1, 2007 Changes for the year (I) Net prof t (II) Gain and loss directly recognized		– – – – – – – – – 4,918,400,000 4,918,400,000 –	33,961,349 (235,135,480) – 213,479,995 (11,207,245) 1,098,619 – – – 4,710,915,252 4,710,915,252 –	– – – – – – – 215,073,638 – 1,751,118,730 1,751,118,730 –	– – – – – 1,842,230,024 – (215,073,638) (1,082,048,000) 6,307,125,592 6,307,125,592 2,693,298,106	– – (489,246) – – (489,246) – – – (15,505,409) (15,505,409) –	33,961,349 (235,135,480) (489,246) 213,479,995 (11,207,245) 1,842,839,397 – – (1,082,048,000) 17,672,054,165 17,672,054,165 2,693,298,106	– 10,911,914 – 144,707 – 9,729,105 – – (271,448) 62,207,957 62,207,957 (2,339,540)	33,961,349 (224,223,566) (489,246) 213,624,702 (11,207,245) 1,852,568,502 – – (1,082,319,448) 17,734,262,122 17,734,262,122 2,690,958,566
	in shareholders’ equity
	1. Net fair value changes of
	available-for-sale f nancial assets	31	–	312,943,837	–	–	–	312,943,837	–	312,943,837
	2. Translation reserve		–	–	–	–	1,563,775	1,563,775	–	1,563,775
	3. Income tax ef ect related to items
	Recorded in shareholder equity	31	–	(75,519,052)	–	–	–	(75,519,052)	–	(75,519,052)
	Sub-total of (I) and (II)		–	237,424,785	–	2,693,298,106	1,563,775	2,932,286,666	(2,339,540)	2,929,947,126
	(III) Owner’s contributions and reduction in capital
	1. Capital contribution from shareholders		–	–	–	–	–	–	24,000,000	24,000,000
	2. Others	31	–	(4,970,955)	–	–	–	(4,970,955)	(33,995,245)	(38,966,200)
	(IV) Prof t distribution
	1. Transfer to surplus reserve	32, 33	–	–	286,821,607	(286,821,607)	–	–	–	–
	2. Distribution to shareholders	33	–	–	–	(983,680,000)	–	(983,680,000)	(330,120)	(984,010,120)
III.	Balance at December 31, 2007		4,918,400,000	4,943,369,082	2,037,940,337	7,729,922,091	(13,941,634)	19,615,689,876	49,543,052	19,665,232,928

Th e accompanying notes are part of the fi nancial statement.

139

THE COMPANY AND CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2007

					T e Company
			Share	Capital	Surplus	Retained	Translation
		NOTES IX	capital	reserves	reserves	earnings	reserve	Total
			RMB	RMB	RMB	RMB	RMB	RMB
For	the year ended December 31, 2006
I.	Balance at December 31, 2005		4,918,400,000	4,865,480,791	1,528,474,119	5,844,288,508	–	17,156,643,418
	1. Change in accounting policies
	(Note VI)		–	(155,664,158)	7,570,973	68,138,752	–	(79,954,433)
II.	Balance at January1, 2006		4,918,400,000	4,709,816,633	1,536,045,092	5,912,427,260	–	17,076,688,985
III.	Changes for the year
	(I) Net prof t		–	–	–	2,150,736,373	–	2,150,736,373
	(II) Gain and loss directly recognized
	in shareholders’ equity
	1. Net fair value changes of
	available-for-sale f nancial assets	31	–	33,961,349	–	–	–	33,961,349
	2. Acquisition of Shanxi Power	31	–	(235,135,480)	–	–	–	(235,135,480)
IV. For I. II.	3. Translation reserve 4. Wei Jian Fei transfer in 31 5. Income tax ef ect related to items Recorded in shareholders’ equity 31 Sub-total of (I) and (II) (III) Shareholder’s contributions and reduction in capital (IV) Prof t distribution 1. Transfer to surplus reserve 32, 33 2. Distribution to shareholders 33 Balance at December 31, 2006 the year ended December 31, 2007 Balance at January1, 2007 Changes for the year (I) Net prof t (II) Gain and loss directly recognized in shareholders’ equity 1. Net fair value changes of available-for-sale f nancial assets 31		– – – – – – – 4,918,400,000 4,918,400,000 – –	– 212,912,430 (11,207,245) 531,054 – – – 4,710,347,687 4,710,347,687 – 312,943,837	– – – – – 215,073,638 – 1,751,118,730 1,751,118,730 – –	– – – 2,150,736,373 – (215,073,638) (1,082,048,000) 6,766,041,995 6,766,041,995 2,868,216,070 –	– – – – – – – – – – –	– 212,912,430 (11,207,245) 2,151,267,427 – – (1,082,048,000) 18,145,908,412 18,145,908,412 2,868,216,070 312,943,837
	2. Translation reserve		–	–	–	–	–	–
	3. Income tax ef ect related to items
	Recorded in shareholders’ equity	31	–	(75,519,052)	–	–	–	(75,519,052)
	Sub-total of (I) and (II)		–	237,424,785	–	2,868,216,070	–	3,105,640,855
	(III) Shareholder’s contributions and reduction in capital		–	–	–	–	–	–
	1. Other	31	-	(4,970,955)	-	-	-	(4,970,955)
	(IV) Prof t distribution
	1. Transfer to surplus reserve	32, 33	–	–	286,821,607	(286,821,607)	–	–
	2. Distribution to shareholders	33	–	–	–	(983,680,000)	–	(983,680,000)
III.	Balance at December 31, 2007		4,918,400,000	4,942,801,517	2,037,940,337	8,363,756,458	–	20,262,898,312

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Th e accompanying note are part of the fi nancial statements.

Notes to the Financial Statements

140

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For the year ended December 31, 2007

I. GENERAL

Yanzhou Coal Mining Company Limited (the “Company”) is a Sino-foreign joint stock company with limited liability established in the People’s Republic of China (the “PRC”). Th e Company was established on September 25, 1997 by Yankuang Group Corporation Limited (the “Yankuang Group”) and commenced operations on October 1, 1997. Th e A Shares, H Shares and American Depository Shares issued by the Company are listed on the stock exchanges in Shanghai, Hong Kong and New York, respectively. Th e principal operations of the Company are the mining and screening of coal, sales of coal products and coal transportation service.

Th e Company is one of the nineteenth batch of share reform companies designated by China Securities Regulatory Commission. As approved by the Lu State-owned Assets Ownership Letter [2006] No.32 issued by the State-owned Assets Supervision & Administration Commission (SASAC) of People’s Government of Shandong Province, as well as approved by the Company’s shareholder’s meeting regarding the share reform plan, the Company’s share reform plan is as follows: 2.5A shares for every existing 10 A shares would be off ered by the non-tradable legal person shares on the share registration date (March 30, 2006) of share reform plan implemented. Aft er the implementation of the plan, the Company’s total share capital as well as the Company’s fi nancial indicators such as assets, liabilities, shareholder’s equity, earnings per share, etc. will remain unchanged, and the shares owned by Yankuang Group would then be converted to tradable shares in 4 years time according to formula. Th e Share Reform Plan was further approved by the Ministry of Commerce of the PRC on March 21, 2006 and was implemented by April 3, 2006. See Note IX 30 for share capital aft er share reform.

II. THE PREPARATION FOUNDATION OF FINANCIAL STATEMENTS

First-time adoption of the Accounting Standards for Business Enterprises issued on February 15, 2006 (hereinaft er referred to as “new CASs” or “ASBEs”)

Since January 1, 2007, the Company has adopted the new CASs issued by the Ministry of Finance (MOF) on February 15, 2006, and in accordance with the requirements of Articles 5 to 19 of Accounting Standard for Business Enterprises No. 38 – First-Time Adoption of Accounting Standard for Business Enterprises (“ASBE No. 38”), made retrospective adjustments to the fi nancial statements of the comparative year.

In addition, the Company is a listed company issuing A and H shares that originally provided external parties with fi nancial statements prepared under both new CASs and International Financial Reporting Standards (“IFRSs”). In accordance with the requirements of Article 1 of Accounting Standard for Business Enterprises Interpretation No. 1, for transactions or events with no diff erences in the accounting treatment between the new CASs and IFRSs, except for retrospective adjustment is required under Articles 5 to 19 of ASBE No. 38, according to the information obtained and on the basis of the Company’s fi nancial statements prepared under IFRS, the Company makes retrospective adjustments to other transactions and events related to the changes in accounting policies due to the adoption of the New CASs which are not addressed by Articles 5 to 19 of ASBE No. 38, as well as to the fi nancial statements of the comparative year. Th e impact of fi rst-time adoption of the new CASs on the fi nancial statements of the comparative year is stated in Note VI.

Notes to the Financial Statements

For the year ended December 31, 2007

141

II. THE PREPARATION FOUNDATION OF FINANCIAL STATEMENTS (continued)

First-time adoption of the Accounting Standards for Business Enterprises issued on February 15, 2006 (hereinaft er referred to as “new CASs or “ASBEs”).-continued

For changes in the classifi cation, name and method of presentation for items in the fi nancial statements, the fi nancial statements of the comparative year have been restated in accordance with the requirements of the new CASs.

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In addition, the fi nancial information in the fi nancial statements are presented and disclosed in accordance with Information Disclosure and Presentation Rules for Companies Making Public Off ering No. 15 – General Provisions on Financial Reporting (Revised 2007) .

III. DECLARATION OF COMPLIANCE WITH ASBE

Th e fi nancial statements have been prepared in accordance with the new CASs and has been presented fairly, in all material respects, the company and consolidated fi nancial position of the Company as of December 31, 2007 and the company and consolidated results of its operations and cash fl ows for the year ended December 31, 2007

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

Th e following accounting policies and accounting estimates systems are determined by the new CASs.

1. Accounting year

Th e Company has adopted the calendar year as its accounting year, i.e. from January 1 to December 31.

2. Recording currency

Renminbi (“RMB”) is the currency of the primary economic environment, in which the Company and the subsidiaries located in China operate. Th e recording currency of the Company and the subsidiaries mentioned before is RMB.

Th e recording currency of two of the Company’s subsidiaries, namely Austar Coal Mine Pty. Limited and Yancoal Australia Pty. Limited who are located in Australia is Australia dollar (“AUD”).

3. Basis of accounting and principle of measurement

Th e Company has adopted the accrual basis of accounting. Except for some fi nancial instruments which are measured at fair value, the fi nancial statements use the historical cost as the principle of measurement. Where assets are impaired, provisions for assets impairment are made in accordance with relevant requirements.

Notes to the Financial Statements

142

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For the year ended December 31, 2007

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

4. Cash equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and investments which are subject to an insignifi cant risk of changes in value.

5. Foreign currency translation

On initial recognition, foreign currency transactions are translated using the spot exchange rate at the date when the transactions.

At the balance sheet date, monetary items denominated in foreign currencies are translated to RMB using the spot exchange rate at that date. Exchange diff erences arising from the diff erences between the spot exchange rate prevailing at the balance sheet date and those spot rates used on initial recognition or at the previous balance sheet date are recognized in profi t or loss for the current period, except for the exchange diff erences arising from specifi c-purpose borrowings in foreign currencies that are eligible for capitalization, which could be capitalized during the capitalization period and included in the cost of related assets.

Foreign currency non-monetary items carried at historical cost shall continue to be measured at the amounts in functional currency translated using the spot exchange rates at the dates of the transactions; foreign currency nonmonetary items carried at fair value are translated using the spot exchange rates at the date when the fair value was determined. Diff erences between the translated amount and the original amount of functional currency are accounted for as changes in fair value (including changes in foreign exchange rates) and included in profi t or loss for the period or in shareholders’ equity.

Preparation of consolidated fi nancial statements involving off shore operators, the exchange diff erences due to the exchange rate fl uctuation should be presented in the “Translation reserve” item in shareholders’ equity in case of a net investment of overseas operations of foreign currency monetary items. Th e disposal of off shore operators shall be included in profi t or loss for the current period.

6. Financial Instruments

Th e Company recognizes the fi nancial assets or fi nancial liabilities when it acts as one party of a contract. Financial assets and fi nancial liabilities are initially recognized at fair value. For fi nancial assets and fi nancial liabilities classifi ed as at fair value through profi t or loss, relevant transaction costs are directly recognized in profi t or loss for the current period; for fi nancial assets and fi nancial liabilities classifi ed as other categories, relevant transaction costs are included in the initial recognition amount.

Notes to the Financial Statements

For the year ended December 31, 2007

143

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

7.

Upon initial recognition, fi nancial assets are classifi ed into the following categories: fi nancial assets at ‘fair value through profi t or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’ (AFS) fi nancial assets and ‘loans and receivables’.

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7.1. Financial assets at FVTPL

Financial assets are classifi ed as at FVTPL where the fi nancial asset is either held for trading or it is designated as at FVTPL.

A fi nancial asset is classifi ed as held for trading if: (1) it has been acquired principally for the purpose of selling in the near term; or (2) it is a part of an identifi ed portfolio of fi nancial instruments that are managed together and for which there is objective evidence of a recent pattern of short-term profi t-taking; or (3) it is a derivative, except for a derivative that is a designated and eff ective hedging instrument, or a fi nancial guarantee contract, or a derivative that is linked to and must be settled by delivery of an unquoted equity instrument (without a quoted price from an active market) whose fair value cannot be reliably measured.

A fi nancial asset may be designated as at FVTPL upon initial recognition if either: (1) such designation eliminates or signifi cantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on diff erent bases; or (2) the fi nancial asset forms part of a group of fi nancial assets or fi nancial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis to the Company’s key management personnel.

Financial assets at FVTPL are subsequently measured at fair value, with gains or losses arising from changes in fair value as well as dividends and interest income related to such fi nancial assets recognized in profi t or loss for the period.

7.2. Held-to-maturity investment

Held-to-maturity investments are non-derivative fi nancial assets with fi xed or determinable payments and fi xed maturity date that the enterprise has the clear intention and ability to hold to maturity.

Th e held-to-maturity investments are carried at the amortized cost using the eff ective interest rate method less the impairment provision, a gain or loss is recognize in profi t or loss when the fi nancial asset is derecognized or impaired, and through the amortization process.

Th e eff ective interest method is a method of calculating the amortized cost of a fi nancial asset or a fi nancial liability (or group of fi nancial assets or fi nancial liabilities) and of allocating the interest income or interest expense over the relevant period, using the eff ective interest rate. Th e eff ective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the fi nancial instrument or, when appropriate, a shorter period to the net carrying amount of the fi nancial asset or fi nancial liability.

Notes to the Financial Statements

144

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For the year ended December 31, 2007

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

7. Classifi cation and valuation of fi nancial assets (continued)

7.2. Held-to-maturity investment (continued)

When calculating the eff ective interest rate, the Company shall estimate future cash fl ows considering all contractual terms of the fi nancial asset or fi nancial liability (including prepayment, call and similar options) but shall not consider future credit losses. Th e calculation of the eff ective interest rate shall include all fees paid or received between the parties to the contract giving rise to the fi nancial asset and fi nancial liability that are an integral part of the eff ective interest rate, transaction costs, and premiums or discounts etc.

7.3. Loans and receivables

Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market.

Loans and receivables are subsequently measured at amortized cost using the eff ective interest method. Gains or losses arising from derecognition, impairment or amortization are recognized in profi t or loss for the period.

7.4. AFS fi nancial assets

AFS fi nancial assets are those non-derivative fi nancial assets that are designated as available for sale or are not classifi ed as (1) fi nancial assets at FVTPL, (2) loans and receivables, or (3) held-to-maturity investments.

AFS fi nancial assets are subsequently measured at fair value. Gains or losses arising from changes in fair value (other than impairment losses and exchange diff erences on foreign currency monetary assets which are recognized in profi t or loss for the period) are recognized directly in shareholders’ equity, and are reversed and recognized in profi t or loss for the period when such fi nancial assets are derecognized.

Interest received during the period in which the entity holding AFS fi nancial assets and cash dividends declared by the investee shall be recognized as investment income.

Notes to the Financial Statements

For the year ended December 31, 2007

145

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

8. Impairment of fi nancial assets

Th e Company has assessed at the balance sheet date the carrying amount of a fi nancial asset (other than those at FVTPL). If there is objective evidence that the fi nancial asset is impaired, the Company shall determine the amount of any impairment loss.

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– Impairment of held-to-maturity investments, loans and account receivable

If a fi nancial asset carried at cost or unamortized cost is impaired, the carrying amount of the fi nancial asset shall be reduced to the present value of estimated future cash fl ows. Th e amount of reduction shall be recognized as an impairment loss in profi t or loss. If, subsequent to the recognition of an impairment loss on a fi nancial asset carried at amortized cost, there is objective evidence of a recovery in value of the fi nancial asset which can be related objectively to an event occurring aft er the impairment was recognized, the previously recognized impairment loss shall be reversed. However, the reversal shall not result in a carrying amount of the fi nancial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed.

Impairment of AFS fi nancial asset

When an AFS fi nancial asset is impaired, the cumulative loss arising from decline in fair value that had been recognized directly in shareholders’ equity shall be removed from shareholders’ equity and recognized in profi t or loss. Th e amount of the cumulative loss that is removed from shareholders’ equity shall be the diff erence between the acquisition cost (net of any principal repayment and amortization) and the current fair value, less any impairment loss on that fi nancial asset previously recognized in profi t or loss.

If, aft er an impairment loss has been recognized on an AFS fi nancial asset, the fair value of the fi nancial asset increases in a subsequent period and the increase can be objectively related to an event occurring aft er the impairment loss was recognized, the impairment loss shall be reversed, with the amount of the reversal of AFS debt instrument recognized in profi t or loss but AFS equity instrument recognized in shareholders’ equity.

Impairment losses incurred by the following are not reversed: (1) investments in an equity instrument that is not quoted in an active market whose fair value cannot be measured reliably; or (2) derivatives fi nancial assets linked to and must be settled by delivery of such an equity instrument; or (3) long-term equity investments not constituting control, common control or signifi cant infl uence that are not quoted in an active market whose fair value cannot be measured reliably.

Notes to the Financial Statements

146

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For the year ended December 31, 2007

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

9. Derecognition of fi nancial assets

Th e company shall derecognize a fi nancial asset when (1) the contractual rights to the cash fl ows from the fi nancial asset expire; or (2) the fi nancial asset has been transferred, including all the risks and revenues from the ownership; (3) the fi nancial asset has been transferred, and the Company has given up the control of the fi nancial assets, though it has neither transferred the ownership of the fi nancial assets nor retained almost all the risks and revenues from the ownership.

10. Inventories

Inventories are initially measured at cost. Cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Th e actual costs of inventories transferred out or issued for use are determined by the weighted average method.

Th e Company adopts a perpetual inventory system to account for its inventory.

11. Provision for decline in value of inventories

At the balance sheet date, inventories are measured at the lower of cost and net realizable value. If the cost of inventories is higher than the net realizable value, a provision for decline in value of inventories shall be recognized. For large quantity and low value items of inventories, provision may be made based on categories of inventories. For other inventories, the excess of cost over the net realizable value is generally recognized as provision for decline in value of inventories on an item-by-item basis.

Aft er provision for decline in value of inventories has been made, if the circumstances that previously caused inventories to be written down no longer exist which results in the net realizable value is higher than the carrying amount, the amount of the write-down shall be reversed in profi t or loss; the reversal shall be limited to the amount originally provided for the decline in value of inventories.

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale and relevant taxes. Purpose of inventories being held and eff ect of the post balance sheet events shall be taken into consideration in determining the net realizable value based on the conclusive available evidence.

Notes to the Financial Statements

For the year ended December 31, 2007

147

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

12. Long-term equity investments

For a long-term equity investment acquired through a business combination involving enterprises under common control, the initial investment cost of the long-term equity investment shall be the absorbing party’s share of the carrying amount of the shareholders’ owners’ equity of the party being absorbed at the date of combination. For a long-term equity investment acquired through business combination not involving enterprises under common control, the initial investment cost of the long-term equity investment acquired shall be the cost of acquisition. Th e long-term equity investment acquired through means other than a business combination shall be initially measured at its cost.

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Where the Company does not have joint control or signifi cant infl uence over the investee, the investment is not quoted in an active market and its fair value cannot be reliably measured, a long-term equity investment shall be accounted for using the cost method. Where the Company can exercise joint control or signifi cant infl uence over the investee, a long-term equity investment shall be accounted for using the equity method. Where the Company does not have control, joint control or signifi cant infl uence over the investee and the fair value of the long-term equity investment can be reliably measured, the investment shall be accounted for as an AFS fi nancial asset.

A long-term equity investment where the Company can exercise control over the investee is accounted for using the cost method.

12.1. A long-term equity investment accounted for using the cost method

Under the cost method, a long-term equity investment is measured at its initial investment cost. Investment income recognized in the current period shall be limited to the amount distributed to it out of accumulated net profi ts of the investee arising aft er the investment was made. Any cash dividends or distributions that declared by the investee received in excess of this amount shall be treated as return of initial investment cost to reduce the carrying amount of the investment.

12.2. A long-term equity investment accounted for using the equity method

Under the equity method, where the initial investment cost of a long-term equity investment exceeds the investing enterprise’s interest in the fair values of the investee’s identifi able net assets at the acquisition date, no adjustment shall be made to the initial investment cost. Where the initial investment cost is less than the investing enterprise’s interest in the fair values of the investee’s identifi able net assets at the acquisition date, the diff erence shall be charged to profi t or loss for the current period, and the cost of the long-term equity investment shall be adjusted accordingly.

Notes to the Financial Statements

148

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For the year ended December 31, 2007

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

12. Long-term equity investments (continued)

12.2. A long-term equity investment accounted for using the equity method (continued)

Under the equity method, investment income or loss represents the Company’s share of the net profi ts or losses made by the investee for the current period. Th e Company shall recognize its share of the investee’s net profi ts or losses based on the fair values of the investee’s individual separately identifi able assets at the time of acquisition, aft er making appropriate adjustments thereto in conformity with the accounting policies and accounting periods of the Company. For any changes in shareholders’ equity other than net profi ts or losses in the investee, the Company shall adjust the carrying amount of the long-term equity investment and include the corresponding adjustment in shareholders’ equity.

Th e Company’s share of net losses of the investee shall be recognized to the extent that the carrying amount of the long-term equity investment together with any long-term interests that in substance form part of the investor’s net investment in the investee are reduced to zero. If the Company has to assume additional obligations, the estimated obligation assumed shall be provided for and charged to the profi t or loss as investment loss for the period. Where the investee is making profi ts in subsequent periods, the Company shall resume recognizing its share of profi ts aft er setting off against the unrecognized share of losses.

For the long-term equity investment in associate and joint venture held prior to fi rst-time adoption date, if there exists equity investment debit balance associated with the investment, the amounts amortized on a straight-line basis during the remaining period shall be recognized in profi t or loss for the current period.

12.3. Disposal of a long-term equity investment

On disposal of a long-term equity investment, the diff erence between the proceeds actually received and the carrying amount shall be recognized in profi t or loss for the current period. For a long-term equity investment accounted for using the equity method, any changes in the shareholders’ equity of the investee included in the owner’s equity of the investing enterprise shall be transferred to profi t or loss for the current period on a pro-rata basis according to the proportion disposed of.

13. Fixed assets and depreciation

Fixed assets are tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and have useful lives more than one accounting year.

Notes to the Financial Statements

For the year ended December 31, 2007

149

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

13. Fixed assets and depreciation (continued)

Fixed assets shall be initially measured at cost and the eff ect of any expected costs of abandoning the asset at the end of its use. Except for lands category for which no depreciation is provided, and mining structures, which are depreciated using the estimated production volume method, depreciation is provided over their estimated useful lives from the month aft er they have reached the working condition for their intended use using the straight-line method. Th e estimated residual rate, useful life and annual depreciation rate of each category of fi xed assets are as follows:

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Category	Estimated residual value	Useful life	Annual depreciation rate
Buildings	3%	15-30 years	3.23-6.47%
Railway structure	3%	15-25 years	3.88-6.47%
Harbor works and craf	3%	40 years	2.43%
Plant, machinery and equipment Transportation equipment(Note)	3% 3%	5-15 years 6-18years	6.47-19.40% 5.39-16.17%

Note: Vessels of Shandong Yanmei Shipping Co., Ltd. are depreciated over 18 years. All the other transportation equipments are depreciated over 6 to 9 years.

Mining structures are depreciated using production volume method at RMB 2.50 per tonne of raw coal mined.

Land category only refers to that of Australian Southland coal mine and no depreciation is provided for as Austar enjoys the permanent ownership.

Estimated net residual value of a fi xed asset is the estimated amount that an enterprise would currently obtain from disposal of the asset, aft er deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

Subsequent expenditures incurred for a fi xed asset shall be included in the cost of the fi xed asset, only if it is probable that economic benefi ts associated with the asset will fl ow to the Company and the relevant cost can be measured reliably; meanwhile the carrying amount of the replaced part shall be derecognized. Other subsequent expenditures that fail to meet the capitalization criteria shall be charged to profi t or loss when incurred.

Th e Company shall review the useful life and estimated net residual value of a fi xed asset and the depreciation method applied at least at each fi nancial year-end. A change in the useful life or estimated net residual value of a fi xed asset or the depreciation method used shall be accounted for as a change in an accounting estimate.

When a fi xed asset is sold, transferred, retired or damaged, the Company shall recognize the amount of any proceeds on disposal of the asset net of the carrying amount and related taxes in profi t or loss for the current period.

Notes to the Financial Statements

150

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For the year ended December 31, 2007

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

14. Fixed assets under construction

Fixed assets under construction are recorded at the actual cost incurred for the construction comprising all expenditures incurred for construction projects, capitalized borrowing costs incurred on a specifi c borrowing for the construction of fi xed assets incurred before it has reached the working condition for its intended use, and other related expenses. A fi xed asset under construction is transferred to fi xed assets when it has reached the working condition for its intended use.

15. Intangible assets

An intangible asset is an identifi able non-monetary asset without physical substance owned or controlled by the Company.

An intangible asset shall be initially measured at cost. Th e expenditures incurred on an intangible asset shall be recognized as cost of the intangible asset only if: 1) it is probable that economic benefi ts associated with the asset will fl ow to the Company; and 2) the cost of the asset can be measured reliably. Other expenditures on an intangible asset that fail to meet the recognition criteria shall be charged to profi t or loss when incurred.

Land-use right acquired shall normally be recognized as an intangible asset. Self-constructed buildings (e.g. plants), related land-use right and the buildings shall be separately accounted for as an intangible asset and fi xed asset. For buildings purchased, the purchase consideration shall be allocated among the buildings and land-use right on a reasonable basis. In case there is diffi culty in making a reasonable allocation, the consideration shall be recognized in full as fi xed assets.

An intangible asset with a fi nite useful life shall be amortized using the straight-line method over its useful life when the asset is available for use. An intangible asset with an indefi nite useful life shall not be amortized.

Land use rights are evenly amortized over 50 years since the certifi cate of land use rights are obtained.

Mining rights are evenly amortized over the useful life since the mining rights are obtained. Th e useful life is estimated based on the total proven and probable reserves of the coal mine.

For an intangible asset with a fi nite useful life, the Company shall review the useful life and the amortization method applied at least at each fi nancial year-end. A change in the useful life or amortization method used shall be accounted for as a change in an accounting estimate. For an intangible asset with an indefi nite useful life, the Company shall reassess the useful life of the asset in each accounting period. If there is evidence indicating that the useful life of that intangible asset is fi nite, the Company shall estimate the useful life of that asset and apply the accounting policies accordingly.

Notes to the Financial Statements

For the year ended December 31, 2007

151

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

16. Long-term deferred expenses

Long-term deferred expenses are various expenditures incurred but that should be allocated over the current and future periods of more than one year. Long-term deferred expenses are evenly amortized over the respective benefi cial period.

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17. Impairment of non-monetary assets

Th e Company assesses at each balance sheet date whether there is any indication that the long-term equity investment in a subsidiary and the long-term equity investment measured by equity method, fixed assets, construction in progress and intangible assets with fi nite useful life may be impaired. If any indication exists that an asset may be impaired, the enterprise shall estimate the recoverable amount of the asset. If there is any indication that an asset may be impaired, recoverable amount shall be estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, an enterprise shall determine the recoverable amount of the asset group to which the asset belongs. If the recoverable amount of an asset is less than its carrying amount, the reduction is recognized as an impairment loss and charged to profi t or loss for the current period. A provision for impairment loss of the asset is recognized accordingly.

Goodwill arising in a business combination and an intangible asset with an indefi nite useful life shall be tested for impairment annually, irrespective of whether there is any indication that the asset may be impaired. For the purpose of impairment testing, goodwill shall be considered together with the related asset groups or sets of asset groups. For the purpose of impairment testing, the carrying amount of goodwill shall, from the acquisition date, be allocated on a reasonable basis to each of the related asset groups. If it is not possible to allocate to the related asset groups, it shall be allocated to each of the related sets of asset groups. If the recoverable amount is less than the carrying amount, the enterprise shall recognize an impairment loss. Th e amount of impairment loss shall fi rst reduce the carrying amount of any goodwill allocated to the asset group or set of asset groups, and then reduce the carrying amount of other assets (other than goodwill) within the asset group or set of asset groups, pro rata on the basis of the carrying amount of each asset.

Th e recoverable amount of an asset is the higher of its fair value cost of disposal and the present value of the future cash fl ows expected to be derived from the asset costs of disposal. An asset’s fair value less costs of disposal is the price in a sale agreement in an arm’s length transaction, adjusted for incremental costs that would be directly attributable to the disposal of the asset. If there is not sale agreement but an asset is traded in an active market, fair value shall be the asset’s market price less the costs of disposal. If there is not agreement or active market for an asset, fair value shall be based on the best available information. Costs of disposal include legal costs related to the disposal of the asset, related taxes, costs of removing the asset and direct costs to bring the asset into the condition of its sale.

Once an impairment loss on the long-term equity investment in subsidiaries, associates and joint ventures, fi xed assets, construction in progress, intangible assets with fi nite useful life or goodwill is recognized, it shall not be reversed in a subsequent period.

Notes to the Financial Statements

152

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For the year ended December 31, 2007

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

18. Financial liability

Upon initial recognition, fi nancial liabilities are classifi ed as either fi nancial liabilities ‘at fair value through profi t or loss’ (FVTPL) or ‘other fi nancial liabilities’.

18.1. Financial liabilities at FVTPL

Financial liabilities are classifi ed as a FVTPL where the fi nancial liability is either held for trading or it is designated as a FVTPL.

Th e criteria for a fi nancial liability to be classifi ed as held for trading and designated as at FVTPL are the same as those for a fi nancial asset to be classifi ed as held for trading and designated as at FVTPL.

Financial liabilities at FVTPL are subsequently measured at fair value, with gains or losses arising from changes in fair value as well as dividends and interest income related to such fi nancial liabilities recognized in profi t or loss for the period.

18.2. Other fi nancial liabilities

Other fi nancial liabilities are subsequently measured at unamortized cost using the eff ective interest method; gains or losses arising from derecognition or amortization is recognized in profi t or loss for the period.

18.3. Financial guarantee contract

Financial guarantee contracts other than those designated as fi nancial liabilities at FVTPL are initially recognized at fair value, and shall be subsequently measured at the higher of the following two amounts: (1) the amount determined in accordance with Accounting Standard for Business Enterprises No. 13 – Contingencies ; and (2) the amount initially recognized less cumulative amortization recognized in accordance with the principles set out in Accounting Standard for Business Enterprises No. 14 – Revenue .

19. Employee benefi ts

In the accounting period in which an employee has rendered services, the Company shall recognize the employee benefi ts payable as a liability.

Th e Company participates in social security systems required by the government. Payments of social security contributions for employees, such as premiums or contributions on medical insurance, pension insurance, payments of housing funds and other social welfare contributions shall be included in the cost of related assets or profi t or loss for the period in which they are incurred.

Notes to the Financial Statements

For the year ended December 31, 2007

153

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

19. Employee benefi ts (continued)

When the Company terminates the employment relationship with employees before the end of the employment contracts or provides compensation as an off er to encourage employees to accept voluntary redundancy, if the Company has a formal plan for termination of employment relationship or has made an off er for voluntary redundancy, which will be implemented immediately, and the Company cannot unilaterally withdraw from the termination plan or the redundancy off er, a compensation liability arising from the termination of employment relationship with employees should be charged to the profi t or loss for the current period.

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An internal retirement plan is accounted for using the same principles as described above. Salaries and social insurance contributions to be paid to the internally retired employees by the Company during the period from the date when the employee ceases to provide services to the normal retirement date are recognized in profi t or loss for the period when the recognition criteria for provisions are met (termination benefi ts).

20. Estimated liability

An obligation related to a contingency shall be recognized as a provision when all of the following conditions are satisfi ed: (1) the obligation is a present obligation of the Company; (2) it is probable that an outfl ow of economic benefi ts will be required to settle the obligation; and (3) the amount of the obligation can be measured reliably.

At the balance sheet date, factors pertaining to a contingency such as the risks, uncertainties and time value of money are taken into accounting a provision is initially measured at the best estimate of the out-fl ow of economic benefi ts required to settle the related present obligation.

Where some or all of the expenditure required to settle a liability that meets the above recognition criteria is expected to be reimbursed by a third party or other parties, the reimbursement is separately recognized as an asset when, and only when, it is virtually certain that the reimbursement will be received. Th e amount recognized for the reimbursement is limited to the carrying amount of the liability recognized.

21. Provision for production maintenance and production safety expenses

Pursuant to the rules and regulations of the related government authorities in the PRC, the Company has to accrue for production maintenance expenses (Wei Jian Fei) based on coal production volume, which are used to maintain production and technical improvement of coal mines. Th e Company also accrues for production safety expenses, which are used for enhancing safety standards of coal production machineries and mining structure facilities. Provisions for production maintenance and production safety expenses are charged as expense and credited to long term payables. Th e balance of long term payables is reduced when the expenditure is occurred. For capital expenditures relating to production maintenance and production safety payments, the long-term payable is reduced and fi xed assets are recognized with the same amount credited to accumulated depreciation. No further depreciation is provided on usage.

Notes to the Financial Statements

154

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For the year ended December 31, 2007

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

22. Reform and specifi c development fund

Pursuant to “Notice of setting up reform and specifi c Development Fund for provincial key corporations” Caiqi [2004] No.28, which was jointly issued by Shandong Province Finance Bureau, State-owned Assets Supervision and Administration Commission of Shandong Municipal Government, Shandong Province Coal Mine Industry Bureau, Reform and Specifi c Development Fund is accrued at RMB5.00 per tonne of raw coal mined from July1, 2004 and is used for related expenditures on mine construction. Provisions for reform and specifi c development fund are charged as expense and credited to long term payables. Th e balance of long term payables is reduced when the expenditure is occurred. For capital expenditures relating to reform and specifi c development fund payments, the long-term payable is reduced and fi xed assets are recognized with the same amount credited to accumulated depreciation. No further depreciation is provided on usage.

23. Off setting a fi nancial asset and a fi nancial liability

Financial assets and fi nancial liabilities shall be presented separately in the balance sheet and shall not be off set. However, a fi nancial asset and a fi nancial liability shall be off set and the net amount presented in the balance sheet when both of the following conditions are satisfi ed:

(1) the Company has a legal right to set off the recognized amounts and the legal right is currently enforceable; and
(2) the Company intends either to settle on a net basis, or to realize the fi nancial asset and settle the fi nancial liability simultaneously.

24. Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity aft er deducting all of its liabilities. Th e transaction fees arising from the issue of equity instruments by one party in the corporate merger shall be reduced in the premium income. If the transaction fees overweight the premium income, the Company shall reduce them in the retained revenue. For other equity instruments, the price received during the issue shall be added to shareholder’s equity aft er reducing the transaction fees. If the Company repurchases the equity instrument, the price paid and transaction fees shall reduce the shareholder’s equity. When issuing, repurchasing, selling, or cancelling the equity instrument, the Company shall not recognize the profi t or loss.

Th e distribution (excluding the dividend) to the equity instrument holders by the Company shall reduce the shareholder’s equity. Th e Company shall not recognize the changes of the equity instruments’ fair value.

25. Revenue recognition

25.1. Revenue from sales of goods

Revenue is recognized when the Company has transferred to the buyer the signifi cant risks and rewards of ownership of the goods, retains neither continuing managerial involvement to the degree usually associated with ownership nor eff ective control over the goods sold, will receive the economic benefi ts associated with the transaction, and can reliably measure the relevant amount of revenue and costs.

Notes to the Financial Statements

For the year ended December 31, 2007

155

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

25. Revenue recognition-continued

25.2. Revenue from rendering of services

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When the outcome of a transaction involving the rendering of services can be estimated reliably at the balance sheet date, revenue associated with the transaction shall be recognized using the percentage of completion method. Th e stage of completion is determined in accordance with the proportion of services performed to date to the total services to be performed.

Th e outcome of a transaction involving the rendering of services can be estimated reliably when all of the following conditions are satisfi ed: (1) the amount of revenue can be measured reliably; (2) it is probable that the associated economic benefi ts will fl ow to the enterprise; (3) the stage of completion of the transaction can be measured reliably; and (4) the costs incurred and to be incurred for the transaction can be measured reliably.

When the outcome of a transaction involving the rendering of services cannot be estimated reliably at the balance sheet date, revenue shall be recognized at the balance sheet date only to the extent of the costs incurred that are recoverable and service costs are recognized as expenses in the period in which they are incurred. If the service costs incurred are not expected to be recovered, revenue is not recognized.

When an enterprise has entered into a contract or an agreement comprising both sale of goods and rendering of services, if the sale of goods component and the services rendering component can be separately identifi able and measurable, the sale of goods component shall be accounted for as sale of goods and the services rendering component shall be accounted for as rendering of services. If the sale of goods component and the services rendering component cannot be separately identifi able, or cannot be separately measurable despite being separately identifiable, both the sale of goods component and the services rendering component shall be accounted for as sale of goods.

25.3. Interest income

Interest income is measured based on the length of time for which the enterprise’s cash is used by others and

26. Government grant

Government grants are transfer of monetary assets or non-monetary assets from the government to the Company at no consideration, excluding capital considerations from the government as an owner of the Company. Government grants are classifi ed into government grants related to assets and government grants related to income. Government grant shall be recognized when, and only when the conditions are met.

Notes to the Financial Statements

156

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For the year ended December 31, 2007

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

26. Government grant (continued)

If a government grant is in the form of a transfer of a monetary asset, the item shall be measured at the amount received or receivable. If a government grant is in the form of a transfer of a non-monetary asset, the item shall be measured at fair value. If fair value is not reliably determinable, the item shall be measured at a nominal amount and recognized immediately in profi t or loss for the current period.

A government grant related to an asset shall be recognized as deferred income, and evenly amortized to profi t or loss over the useful life of the related asset. For a government grant related to income, if the grant is a compensation for related expenses or losses to be incurred in subsequent periods, the grant shall be recognized as deferred income, and recognized in profi t or loss over the periods in which the related costs are recognized; if the grant is a compensation for related expenses or losses already incurred, the grant shall be recognized immediately in profi t or loss for the current period.

For the repayment of a government grant already recognized, if there is any related deferred income, the repayment shall be off set against the carrying amount of the deferred income, and any excess shall be recognized in profi t or loss for the current period; if there is no related deferred income, the repayment shall be recognized immediately in profi t or loss for the current period.

27. Borrowing costs

Borrowing costs include interest, amortization of discount or premiums related to borrowings, ancillary costs incurred in connection with the arrangement of borrowings, and exchange diff erences arising from foreign currency borrowings. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset (that necessarily take a substantial period of time for acquisition, construction or production go get ready for their intended use or sale), when expenditures for the asset and borrowing costs are being incurred, activities relating to the acquisition, construction or production of the asset that are necessary to prepare the asset for its intended use or sale have commenced shall be capitalized as part of the cost of that assets discontinue the capitalization when acquired and constructed production is available for use. Th e actual amounts of ancillary costs incurred aft er the qualifying asset becomes ready for its intended use or sale shall be recognized as an expense in the period in which they are incurred.

Where funds are borrowed under a specifi c-purpose borrowing for the acquisition, construction or production of a qualifying asset, the amount of interest to be capitalized shall be the actual interest expense incurred on that borrowing for the period less any bank interest earned from depositing the borrowed funds before being used on the asset or any investment income on the temporary investment of those funds. Where funds are borrowed under general-purpose borrowings and are utilized for the acquisition, construction or production of a qualifying asset, an enterprise shall determine the amount of interest to be capitalized on such borrowings by applying a capitalization rate to the weighted average of the excess amounts of cumulative expenditures on the asset over and above the amounts of specifi c-purpose borrowings. Th e capitalization rate shall be the weighted average of the interest rates applicable to the general-purpose borrowings.

Notes to the Financial Statements

For the year ended December 31, 2007

157

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

27. Borrowing costs (continued)

During the capitalization period, exchange diff erences related to the principal and interest on a specifi c-purpose borrowing denominated in foreign currency shall be capitalized as part of the cost of the qualifying asset. However, exchange diff erences related to the principal and interest on general-purpose borrowings denominated in foreign currency shall be recognized as an expense.

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Qualifying assets are assets (fi xed assets, investment property, inventories, etc) that necessarily take a substantial period of time for acquisition, construction or production to get ready for their intended use or sale.

Capitalization of borrowing costs shall be suspended during periods in which the acquisition, construction or production of a qualifying asset is interrupted abnormally, when the interruption is for a continuous period of more than 3 months. Th e borrowing costs incurred during these periods shall be recognized as expenses for the current period until the acquisition, construction or production of a qualifying asset is resumed.

28. Income tax

28.1. Current income taxes

At the balance sheet date, current income tax liabilities (or assets) for the current and prior periods shall be measured at the amount expected to be paid (or recovered) according to the requirements of tax laws. Taxable profi ts, which are the basis for calculating the current tax expense, are determined aft er adjusting the accounting profi ts before tax for the year in accordance with relevant requirements of tax laws.

28.2. Deferred tax assets and deferred tax liabilities

Temporary diff erences arising from the diff erence between the carrying amount of an asset or liability and its tax base, or the diff erence between the tax base and the carrying amount of those items that are not recognized as assets or liabilities but have a tax base that can be determined according to tax laws, shall be recognized as deferred tax assets and deferred tax liabilities using the balance sheet liability method.

Deferred tax liabilities are not recognized for taxable temporary differences related to (1) the initial recognition of goodwill; and (2) the initial recognition of an asset or liability in a transaction which is neither a business combination nor aff ects accounting profi t or taxable profi t (or deductible loss) at the time of the transaction. In addition, the Company recognizes the corresponding deferred tax liability for taxable temporary diff erences associated with investments in subsidiaries, associates and joint ventures, except when both of the following conditions are satisfi ed: (1) the Company able to control the timing of the reversal of the temporary diff erence; and (2) it is probable that the temporary diff erence will not reverse in the foreseeable future.

Notes to the Financial Statements

158

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For the year ended December 31, 2007

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

28. Income tax (continued)

28.2. Deferred tax assets and deferred tax liabilities (continued)

Deferred tax assets are not recognized for deductible temporary diff erences related to the initial recognition of an asset or liability in a transaction which is neither a business combination nor aff ects accounting profi t or taxable profi t (or deductible loss) at the time of the transaction. In addition, the Company recognizes the corresponding deferred tax asset for deductible temporary diff erences associated with investments in subsidiaries, associates and joint ventures to the extent that it is probable that taxable profi ts will be available against which the deductible temporary diff erences can be utilized, except when both of the following conditions are satisfi ed: (1) it is not probable that the temporary diff erence will reverse in the foreseeable future; and (2) it is not probable that taxable profi ts will be available in the future, against which the temporary diff erence can be utilized.

Th e Company recognizes a deferred tax asset for the carry forward of deductible losses and tax credits to subsequent periods, to the extent that it is probable that future taxable profi ts will be available against which the deductible losses and tax credits can be utilized.

At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, according to the requirements of tax laws.

At the balance sheet date, the Company shall review the carrying amount of a deferred tax asset. If it is probable that suffi cient taxable profi ts will not be available in future periods to allow the benefi t of the deferred tax asset to be utilized, the carrying amount of the deferred tax asset shall be reduced. Any such reduction in amount shall be reversed when it becomes probable that suffi cient taxable profi ts will be available.

28.3. Tax expense

Tax expense comprises current tax expense and deferred tax expense.

Current tax expense (current tax income) and deferred tax expense (deferred tax income) are included in profi t or loss for the current period, except for: (1) current tax and deferred tax related to transactions or events that are directly recognized in owners’ equity, which are recognized directly in owners’ equity; (2) deferred tax arising from a business combination, which is adjusted against the carrying amount of goodwill.

Notes to the Financial Statements

For the year ended December 31, 2007

159

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

29. Business combinations

A business combination is a transaction or event that brings together two or more separate enterprises into one reporting entity. Business combinations are classifi ed into business combinations involving enterprises under common control and business combinations not involving enterprises under common control.

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Th e company recognizes the assets and liabilities arise from the business combinations at the combinations date or acquisition date. Combinations date or acquisition date is the date on which the absorbing party eff ectively obtains control of the party been absorbed.

29.1. Business combinations involving enterprises under common control

A business combination involving enterprise under common control is a business combination in which all of the combining enterprises are ultimately controlled by the same party or parties both before and aft er the combination, and that control is not transitory. On the combination date, obtains control of another enterprise participating in the combination is the absorbing party, while that other enterprise participating in the combination is a party being absorbed.

Assets and liabilities that are obtained by the absorbing party in a business combination are measured at their carrying amounts at the combination date as recorded by the party being absorbed. Th e diff erence between the carrying amount of the net assets obtained and the carrying amount of the consideration paid for the combination (or the aggregate face value of shares issued as consideration) is adjustment to capital reserve. If the capital reserve is not suffi cient to absorb the diff erence, any excess shall be adjusted against retained earnings.

Cost incurred by the absorbing party that are directly attributable to the combination shall be charged to profi t or loss in the period when they are incurred.

29.2. Business combinations not involving enterprises under common control and goodwill

A business combination not involving enterprises under common control is a business combination in which all of the combining enterprises are not ultimately controlled by the same party or parties before and aft er the combination. For a business combination not involving enterprises under common control, the party that, on the acquisition date, obtains control of another enterprise participating in the combination is the acquirer, while that other enterprise participating in the combination is the acquiree.

For a business combination not involving enterprises under common control, the cost of combination is the aggregate of the fair values, at the acquisition date, of the assets given, liabilities incurred or assumed, and equity securities issued by the acquirer in exchange for control of the acquiree, as well as costs incurred by the acquirer that are directly attributable to the business combination. For a business combination achieved in stages that involves multiple exchange transactions, the cost of combination is the aggregate of the costs of individual transactions. When a business combination contract provides for an adjustment to the cost of combination contingent on a future event, the acquirer shall include the amount of that adjustment in the cost of the combination if it is expected on the acquisition date that the occurrence of the future event is probable and the amount aff ecting the cost of combination can be measured reliably.

Notes to the Financial Statements

160

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For the year ended December 31, 2007

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

29. Business combinations (continued)

29.2. Business combinations not involving enterprises under common control and goodwill (continued)

Th e acquiree’s identifi able assets, liabilities and contingent liabilities that satisfy the recognition criteria, which are acquired in a business combination not involving enterprises under common control, are measured at their fair value at the acquisition date.

Where the cost of a business combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities acquired, the difference shall be recognized as goodwill. Where the cost of combination is less than the acquiree’s interest in the fair value of the acquiree’s identified assets, liabilities and contingent liabilities acquired, the difference should be accounted for according to the following requirements: (1) the acquirer shall reassess the measurement of the fair values of the acquiree’s identifi able assets, liabilities and contingent liabilities and measurement of the cost of combination (2) if aft er the assessment, the cost of combination is still less than the acquirer’s interest in the fair value of the acquiree’s identifi able net assets, the acquirer shall recognize the remaining diff erence immediately in profi t or loss for the current period.

30. Lease

A fi nance lease is a lease that transfers in substance all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. An operating lease is a lease other than a fi nance lease.

30.1. Recording of operating leases by the Company as leasee

Lease payments under operating leases are recognized as an expense in the income statement on a straightline basis over the lease term. Initial direct costs incurred by the lessee shall be charged to profi t and loss for the current period. Contingent rents shall be charged to profi t or loss in the period in which they are actually incurred.

31. Preparation methods for consolidated fi nancial statements

Th e scope of consolidated fi nancial statements is determined on the basis of control. Control is the power to govern the fi nancial and operating policies of any entity so as to obtain benefi ts from its operating activities.

Th e Company recognize the date when it substantially transferred the risks and benefi ts related to the shares of the subsidiaries acquired or disposed as the date of acquisition or disposal. For those subsidiaries acquired or disposed not controlled by the same parent, the operating results and cash fl ows aft er the acquisition date and before disposal date have been properly included in the consolidated income statements and consolidated cash fl ow statements. For those subsidiaries acquired or disposed controlled by the same parent company, the operating results and cash fl ows from the opening of the consolidation period to the consolidation date are also presented in the consolidated income statement and the consolidated cash fl ow statements. Th e comparative consolidated fi nancial statements amount is also adjusted respectively.

Notes to the Financial Statements

For the year ended December 31, 2007

161

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

31. Preparation methods for consolidated fi nancial statements (continued)

Major accounting policies and accounting periods adopted by the subsidiary(ies) are defi ned according to the standardized accounting policies and accounting periods established by the Company.

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All signifi cant intra-group accounts and transactions between the Company and its subsidiaries or between subsidiaries are eliminated on consolidation.

Th e portion of a subsidiary’s equity that is not attributable to the parent is treated as minority interest and presented as “minority interest” in the consolidated balance sheet within owners’ equity. Th e portion of net profi ts or losses of subsidiaries for the period attributable to minority interest is presented in the consolidated income statement below the “net profi t” line item as “minority interest”. When the amount of loss attributable to the minority shareholders of a subsidiary exceeds the minority shareholders’ portion of the opening balance of owners’ equity of the subsidiary, where the minority shareholders have a binding obligation under the articles of association or an agreement and are able to make an additional investment to cover the loss, the excess amount shall be allocated against minority interest; otherwise the excess amount shall be allocated against shareholders’ equity attributable to the parent. If the subsidiary subsequently reports profi ts, such profi ts shall be allocated to shareholders’ equity attributable to the parent until the minority shareholders’ share of losses previously absorbed by the parent has been recovered.

32. Translation of fi nancial statements denominated in foreign currency

Th e fi nancial statements denominated in foreign currency of a foreign operation are translated to RMB is complied with the following requirement: (1)Assets and liabilities on the balance sheet are translated at the spot exchange rate prevailing at the balance sheet date; (2) all equity items except for unappropriated profi ts (or accumulated losses) are translated at the spot exchange rates at the dates on which such items arose; (3) income and expenses in the income statement are translated at the spot exchange rates at the dates of the transactions; (4)the unappropriated profi ts (or accumulated losses) brought forward are reported at the prior year’s closing balance; (5) the unappropriated profi ts (or accumulated losses) carried forward are calculated, based on the translated amounts of profi ts (or losses) and other profi t appropriation items and (6) all exchange diff erences resulting from the translation are recognized as “translation reserve” in the equity on the balance sheet.

Cash fl ows denominated in foreign currency or from a foreign subsidiary are translated at the spot exchange rates at the date of transaction. Th e eff ect of fl uctuations of exchange rates on cash and cash equivalents is presented separately as a reconciling item in the cash fl ow statement.

Th e opening balances and prior year’s fi gures are presented according to the translated amounts of the prior year.

Notes to the Financial Statements

162

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For the year ended December 31, 2007

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)

33. Related parties

If a party has the power to control, jointly control or exercise signifi cant infl uence over another party, they are regarded as related parties. Two or more parties are also regarded as related parties if they are subject to control, joint control or signifi cant infl uence from the same party.

V. BASIS OF DETERMINING SIGNIFICANT ACCOUNTING POLICIES AND KEY ASSUMPTIONS AND UNCERTAINTIES IN ACCOUNTING ESTIMATES

In the application of the Company’s accounting policies, which are described in Note IV, the Company is required to make judgments, estimates and assumptions about the carrying amounts of items in the fi nancial statements that cannot be measured accurately. Th ese judgments, estimates and assumptions are based on historical experience of the Company’s management as well as other factors that are considered to be relevant. Actual results may diff er from these estimates.

Th e aforementioned judgments, estimates and assumptions are reviewed regularly on a going concern basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision aff ects only that period or in the period of the revision and future periods if the revision aff ects both current and future periods.

– Critical judgments and uncertainties in applying accounting policies

Th e following are the critical judgments that the Company has made in the process of applying the accounting policies and that have the most signifi cant eff ect on the amounts recognized in fi nancial statements.

Depreciation and amortization

The mining structures are depreciated using the estimated production volume method. The production is the production estimated according to the design of the coal well constructions. Th e authorities estimate the remaining years usable of the assets depreciated and the production of the coal wells.

Mining right

Mining rights are amortized on a straight line basis over the shorter of the contractual period and their useful lives. Th e useful lives are estimated based on the total proven and probable reserves of coal mine. Th e management exercises subjective judgments involved in developing information about the total proven and probable reserves of coal mine. Proved and probable coal reserve estimates are updated at regular basis and have taken into account of recent production and technical information about each mine.

Notes to the Financial Statements

163

For the year ended December 31, 2007

V. BASIS OF DETERMINING SIGNIFICANT ACCOUNTING POLICIES AND KEY ASSUMPTIONS AND UNCERTAINTIES IN ACCOUNTING ESTIMATES (continued)

Critical judgments and uncertainties in applying accounting policies (continued)

Land subsidence, restoration, rehabilitation and environmental costs

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One consequence of coal mining is land subsidence caused by the resettlement of the land above the underground mining sites. Depending on the circumstances, the Group may relocate inhabitants from the land above the underground mining sites prior to mining those sites or the Group may compensate the inhabitants for losses or damages from land subsidence aft er the underground sites have been mined. An estimate of such costs is recognized in the period in which the obligation is identifi ed and is charged as an expense in proportion to the coal extracted.

Estimated impairment of property, plant and equipment

When there is impairment indicators, the Company takes into consideration the estimation of future cash fl ows. Th e amount of the impairment loss is measured as the diff erence between the asset’s carrying amount and the present value of estimated future cash fl ows (excluding future credit losses that have not been incurred) discounted at the fi nancial asset’s original eff ective interest rate (i.e. the eff ective interest rate computed at initial recognition). Where the actual future cash fl ows are less than expected, a material impairment loss may arise. In estimating the future cash fl ows, the management have taken into account the recent production and technical advancement. As prices and cost levels change from year to year, the estimate of the future cash fl ow also changes.

Estimated impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the assets or group of assets to which goodwill has been allocated. Th e value in use calculation requires the Company to estimate the future cash fl ows expected to arise from the assets or group of assets and a suitable discount rate in order to calculate the present value. As at December 31, 2007, the carrying amount of goodwill is RMB10,045,361.

Notes to the Financial Statements

164

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For the year ended December 31, 2007

VI. CHANGES IN ACCOUNTING POLICIES

Th e Company adopted new CASs for the fi rst time on January 1, 2007, and has recognized, measured and reported its transactions or events in accordance with new CASs since that day. Changes in accounting policies as a result of the fi rst-time adoption of new CASs are accounted for using the following methods.

1. Changes in accounting policies accounted for retrospectively

Long-term equity investments

Before the adoption of the new CASs when long-term equity investments were accounted for under the equity method, an excess of the initial investment cost over the Company’s share of owners’ equity of the investee was accounted for as debit equity investment diff erence, and evenly amortized over a certain period and recognized in profi t or loss accordingly. A shortfall of the initial investment cost over the Company’s share of owners’ equity of the investee was accounted for as credit equity investment diff erence and evenly amortized over a certain period and recognized in profi t or loss accordingly if occurred before the issuance of Cai Kuai [2003] No. 10; or was charged to the capital reserve if occurred aft er the issuance of Cai Kuai [2003] No. 10.

Before the adoption of the new CASs, long-term equity investments in the subsidiaries were accounted for under the equity method in the parent’s fi nancial statements.

Aft er the adoption of the new CASs, details regarding the accounting policies for long-term equity investments are set out in Note IV.12 “Long-term equity investments”.

At the fi rst-time adoption date, the long-term equity investment diff erence produced by the business combination involving enterprises under common control will be fully off set. Th e other credit equity investment diff erence produced by long-term equity investment accounted under the equity method will also be fully off set. And the cost at the fi rst-time adoption date will be recognized as the book balance of the long-term equity investment whose diff erence is off set. For the other long-term equity investments accounted under the equity method, the cost at the fi rst-time adoption date will also be recognized as the book balance of the long-term equity investment with credit equity investment diff erence.

At the first-time adoption date, long-term equity investments in the subsidiaries in the parent’s financial statements were adjusted retrospectively, as if the subsidiaries had been using the cost method to account for such long-term equity investments since the earliest period.

Notes to the Financial Statements

165

For the year ended December 31, 2007

VI. CHANGES IN ACCOUNTING POLICIES (continued)

1. Changes in accounting policies accounted for retrospectively (continued)

Income Tax

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Before the adoption of the new CASs, income taxes were accounted for using taxes payable method.

Aft er the adoption of the new CASs, income taxes are accounted for using the balance sheet liability method. Details regarding the accounting policies for income taxes are set out in Note IV.28 “Income taxes”.

Goodwill

Before the adoption of the new CASs, goodwill arising from the business combination is evenly amortized over a specifi c period.

Aft er the adoption of the new CASs, for goodwill resulted from a business combination involving enterprises under common control, any unamortized balance shall be derecognized and adjusted to retained earnings. For goodwill resulted from a business combination not involving enterprises under common control, the cost of goodwill shall be retrospectively adjusted on the basis of the Company’s fi nancial statements prepared under IFRS, and shall no longer be amortized. Details regarding the accounting policies for the business combination are set out in Note IV.29 “Business Combination”.

Financial assets at FVTPL and AFS fi nancial assets

Before the adoption of the new CASs, the initial cost of a current investment is the purchase price paid, less those cash dividends or interest on current investment that is not recorded as receivables. Subsequently, a current investment is carried at the lower price of cost and market value at the end of each period. For a long-term equity investment, where the investing enterprise does not have joint control or signifi cant infl uence over the investee, and which could be quoted in an active market, it is measured according to the initial investment cost and accounted for using the cost method.

Aft er the adoption of the new CASs, the investments above are classifi ed into fi nancial assets at FVTPL and AFS fi nancial assets. See Note 4 “Financial Assets” for the related accounting policies.

Other Financial Liabilities

Before the adoption of the new CASs, long-term payable is subsequently measured at historical cost.

Aft er the adoption of the new CASs, the liability as mentioned above is designated as at FVTPL. Details with respect to the accounting policies for fi nancial liabilities is set out in Note IV.18 “Financial Liabilities.”

Notes to the Financial Statements

166

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For the year ended December 31, 2007

VI. CHANGES IN ACCOUNTING POLICIES (continued)

1. Changes in accounting policies accounted for retrospectively (continued)

Pre-operating Expense

Before the adoption of the new CASs, the start-up expenditure shall be recognized as expense once the Company begin to operate except for those attribute to the acquisition or construction of fi xed assets.

Aft er the adoption of the new CASs, the unappropriated profi t and other related items bring forward from the last year and the statement of income and profi ts appropriation of the comparative year shall be adjusted on the basis of the Company’s fi nancial statement prepared under IFRSs for the pre-operating expense.

Consolidated Financial Statement

Before the adoption of the new CASs, minority interests is presented separately immediately above shareholders’ equity items and immediately below liability items in the consolidated balance sheet. Minority interest in the profi t or loss is presented as a deduction item before arriving at the net profi t.

Aft er the adoption of the new CASs, minority interests shall be presented separately which the shareholders’ equity in the consolidated balance sheet. Minority interest in the profi t or loss shall be presented immediately below the line item of the net profi t in the consolidated income statement.

For the above changes in accounting policies, the Company has adjusted retrospectively the opening balances or the comparative fi gures for the prior year in the fi nancial statements, and restated the fi nancial statements for the comparative years. Th e eff ects of the above changes in accounting policies on shareholders’ equity as at January 1, 2006 and December 31, 2006 are presented as follows:

(1)	Application of the cost method	Unappro- priated prof t RMB	Ef ect on shareholder’s equity Surplus Capital reserves reserves RMB RMB	Ef ect on shareholder’s equity Surplus Capital reserves reserves RMB RMB	of the Group as at January 1, Translation Minority reserves interest RMB RMB	of the Group as at January 1, Translation Minority reserves interest RMB RMB	2006 Total RMB	Unappro- priated prof t RMB	Ef ect on shareholder’s equity of the Group as at December 31, Surplus Capital Translation Minority reserves reserves reserves interest RMB RMB RMB RMB	Ef ect on shareholder’s equity of the Group as at December 31, Surplus Capital Translation Minority reserves reserves reserves interest RMB RMB RMB RMB	Ef ect on shareholder’s equity of the Group as at December 31, Surplus Capital Translation Minority reserves reserves reserves interest RMB RMB RMB RMB	Ef ect on shareholder’s equity of the Group as at December 31, Surplus Capital Translation Minority reserves reserves reserves interest RMB RMB RMB RMB	2006 Total RMB
	accounting for the subsidiaries	(2,544,274)	2,544,274	–	–	–	–	(40,512,934)	40,512,934	–	–	–	–
(2)	Goodwill arising from business
	combination involving enterprises
	under common control	32,985,000	3,665,000	(130,007,700)	–	–	(93,357,700)	46,386,693	5,154,077	(344,661,550)	–	–	(293,120,780)
(3)	Goodwill arising from business
	combination not involving
	enterprises under common
	control	1,004,536	111,615	–	–	–	1,116,151	2,009,072	223,230	–	–	–	2,232,302
(4)	Available-for-sale f nancial assets	–	–	–	–	–	–	–	–	33,961,349	–	–	33,961,349
(5)	Income tax ef ect related to items
	recorded in shareholders’ equity	–	–	–	–	–	–	–	–	(11,207,245)	–	–	(11,207,245)
(6)	Discounted long-term payables	8,401,500	933,500	–	–	–	9,335,000	5,548,500	616,500	–	–	–	6,165,000
(7)	Adjust pre-operation expenses
	using retrospective application	(121,801,480)	–	(25,656,458)	–	(1,162,139)	(148,620,077)	(41,749,449)	–	(46,138,088)	(5,109,486)	(3,280,555)	(96,277,578)
(8)	Minority interest presented
	as shareholders’ equity	–	–	–	–	53,912,439	53,912,439	–	–	–	–	65,488,512	65,488,512
Total		(81,954,718)	7,254,389	(155,664,158)	–	52,750,300	(177,614,187)	(28,318,118)	46,506,741	(368,045,534)	(5,109,486)	62,207,957	(292,758,440)

Notes to the Financial Statements

167

For the year ended December 31, 2007

VI. CHANGES IN ACCOUNTING POLICIES (continued)

1. Changes in accounting policies accounted for retrospectively (continued)

			Ef ect on shareholder’s equity of the Company as at January 1, 2006	Ef ect on shareholder’s equity of the Company as at January 1, 2006	Ef ect on shareholder’s equity of the Company as at January 1, 2006	Ef ect on shareholder’s equity of the Company as at January 1, 2006	Ef ect on shareholder’s equity of the Company as at January 1, 2006		Ef ect on shareholder’s equity of	Ef ect on shareholder’s equity of	the Company as	at December	31, 2006
		Unappro-						Unappro-
		priated	Surplus	Capital	Translation	Minority		priated	Surplus	Capital	Translation	Minority
		prof t	reserves	reserves	reserves	interest	Total	prof t	reserves	reserves	reserves	interest	Total
		RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB
(1)	Application of the cost method
	accounting for the subsidiaries	25,747,716	2,860,858	–	–	–	28,608,574	367,465,651	40,829,518	(567,565)	–	–	407,727,604
(2)	Goodwill arising from business
	combination involving enterprises
	under common control	32,985,000	3,665,000	(155,664,158)	–	–	(119,014,158)	46,386,693	5,154,077	(390,799,638)	–	–	(339,258,868)
(3)	Dif erence in equity investments
	arising from business combination
	not involving enterprises under
	common control	1,004,536	111,615	–	–	–	1,116,151	2,009,072	223,230	–	–	–	2,232,302
(4)	Available-for-sale f nancial assets	–	–	–	–	–	–	–	–	33,961,349	–	–	33,961,349
(5) (6) Total	Income tax ef ect related to items recorded in Shareholders’ equity Discounted long-term payables	– 8,401,500 68,138,752	– 933,500 7,570,973	– – (155,664,158)	– – –	– – –	– 9,335,000 (79,954,433)	– 5,548,500 421,409,916	– 616,500 46,823,325	(11,207,245) – (368,613,099)	– – –	– – –	(11,207,245) 6,165,000 99,620,142

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Th e eff ects of the above changes in accounting policies on the net profi ts for the year 2006 are summarised below:

(1) Application of the cost method in accounting for the subsidiaries (2) Dif erence in equity investments arising from business combination not involving enterprises under common control (3) Goodwill arising from business combination involving enterprises under common control (4) Financial liabilities at fair value through prof t or loss (5) Adjust pre-operation expenses using retrospective application (6) Minority interest presented	T e Group RMB – 1,116,151 14,890,770 (3,170,000) 80,052,031	T e Company RMB 379,686,595 1,116,151 14,890,770 (3,170,000) –
as shareholders’ equity	(1,327,516)	–
Total	91,561,436	392,523,516

Notes to the Financial Statements

168

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For the year ended December 31, 2007

VII. TAXES

Value added tax

Value added tax (“VAT”) on sales is calculated at 13% on revenue from sales of coal products and 17% on other types of sales, and paid aft er deducting input VAT.

Pursuant to the notice “Notice of the adjustment of export refund rate” (Caishui[2005] No.75) which was jointly issued by the Ministry of Finance and the State Administration, all the tax refund rate of coal exported by the Company was refund fro, 11% to 8% from May 1, 2005. Pursuant to Caishui[2006] No.139, for export contracts signed on or before September 14, 2006, if they can be fi led for record before September 30, 2006 and the exports are made before December 14, 2006 (inclusive), the business can claim refund from the authorities using the old export refund rates. Businesses that fail to fi le the export contracts before the prescribed date or fail to declare the export before December 15, 2006, must apply the new export refund rate.

Income tax

Income tax, including both national and domestic income tax, is calculated at 33% of the total assessable income of the Company.

Pursuant to the PRC Enterprise Income Tax Law (the new “ EIT Law”) issued at March 16, 2007, the Company will adopt the tax rate of 25% since January 1, 2008.

Income tax for Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited is calculated at 30% of the total assessable income of the Company.

Business tax

Business tax is paid at the 5% of the corresponding revenue; except for the business tax on revenue from coal transportation service is calculated at 3%.

Resource tax

Pursuant to the “Notice of the adjustment of resource tax amount of Shandong province” (Caishui [2005] No.86), which was jointly issued by the Ministry of Finance and the State Administration, resource tax of Shandong province is calculated and paid at the amount of RMB3.60 per tonne of raw coal sold and consumed in clean coal production. Meanwhile, pursuant to the “Notice of the adjustment of resource tax amount of Shanxi province” (Caishui [2004] No.187), which was jointly issued by the Ministry of Finance and the State Administration, resource tax of Shanxi province is calculated and paid at the amount of RMB3.20 per tonne of raw coal sold and consumed in clean coal production.

Notes to the Financial Statements

For the year ended December 31, 2007

169

VII. TAXES (continued)

City construction tax & education fee

Although the Company was changed to a Sino-foreign joint stock limited company, it is still subject to all taxes applicable to domestic enterprise according to the “Reply Letter to Yanzhou Coal Mining Co., Ltd.” issued by State Taxes Bureau (Guoshuihan [2001] No.673). Th e Company continues to calculate and pay the taxes under the tax law applicable to domestic companies. Th erefore, the city construction tax and education fee are still calculated and paid at 7% and 3%, respectively, on the total amount of VAT payable and business tax payable.

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According to “Notice of issues on collection of city construction tax & education fee aft er application of ‘Exemption, counteract and refund’ by exporting enterprises” issued by Shandong Local Taxes Bureau (Ludishuifa [2002] No.108), the amount of VAT exemption and counteract declared by the Company is also deemed as the basis for city construction tax & education fee calculation.

VIII. SCOPE OF CONSOLIDATION AND DETAILS OF SUBSIDIARIES

Th e Company owns the following subsidiaries as at December 31, 2006 and December 31, 2007:

Name of subsidiaries 1. Under common control Qingdao Free Trade Zone Zhongyan Trade Co., Ltd. (“Zhongyan Trade”) Yanzhou Coal Yulin Power Chemical Co., Ltd (“Yulin Power”) Yancoal Australia Pty Limited Zhongyan Trade Co., Ltd. (“Yanmei Australia”) Austar Coal Mine Pty Limited. (“Austar Coal Mine”)	Place of registration Qingdao, Shandong Yulin, Shanxi Australia Australia	Registered capital/ Paid-in capital RMB 2,100,000 RMB 800,000,000 AUD 64,000,000 AUD 64,000,000	Equity indirectly held by the Company 52.38% 97% 100% 100%	Type of enterprise Company limited Company limited Company limited Company limited	Consolidation not Yes Yes Yes Yes
Yancoal Heze Power Chemical	Heze, Shandong	RMB 1,500,000,000	96.67%	Company limited	Yes
Co., Ltd. (“Heze Power”)
Shanxi Power Co, Ltd	Jingzhong, Shanxi	RMB 600, 000,000	100%	Company limited	Yes
(“Shanxi Power”)
Heshun Tianchi Energy Co, Ltd	Jingzhong, Shanxi	RMB 90,000,000	81.31%	Company limited	Yes
(“Heshun Tianchi”)
Shanxi Tianhao Chemical Co, Ltd	Xiaoyu, Shanxi	RMB 150,000,000	99.85%	Company limited	Yes
(“Tianhao Chemical”)
2. Not under common control
Shangdong Yanmei Shipping Co., Ltd.	Jining, Shandong	RMB 5,500,000	92%	Company limited	Yes
(“Yanmei Shipping”)

Notes to the Financial Statements

170

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For the year ended December 31, 2007

VIII. SCOPE OF CONSOLIDATION AND DETAILS OF SUBSIDIARIES (continued)

Nature of business of Zhongyan Trade: international trade, processing and matching, trimming, exhibiting and storage in Qingdao Free Trade Zone (except for project subjected to special approval according to national regulations).

Nature of business of Yanmei Shipping: transportation service via river and lakes within the province of Shandong, Jiangsu, Anhui, Zhejiang and Shanghai and sales of coal.

Nature of business of Yulin Power Chemical: development of methanol and acetic acid construction for 600,000 ton methanol, 200,000 ton acetic acid and coal mine, electric project.

Nature of business of Yanmei Australia: investment holding company.

Nature of business of Austar Coal Mine: coal mining and sales of coal.

Nature of business of Heze power: the third industry and Pre-operation preparation for construction of Juye coal mine

Nature of business of Shanxi Power: Investment in heat and electricity, manufacture and sale of mining machinery and engine products and the development of integrated coal technology.

Nature of business of Heshun Tianchi: Exploration and sale of coal from Tianchi Coal Mine.

Nature of business of Tianhao Chemical: Engagement in the production of methanol and other chemical products (except for those are restricted by the government), coke production, exploration and sales.

Note 1 In May 2007, Heze Power’s shareholders increased capital by RMB 900 Million. Among all, the Company invested RMB874 Million, raising the percentage of its investment from 95.67% to 96.67%.

Note 2 On January, 2007, the Company signed agreement with Yankuang Runan Fertilizer Plant who holds 2% shares of Shanxi Power that the Company would acquire the 2% shares at the price of RMB14,966,200. Since then, the Company owns 100% shares of Shanxi Power.

Notes to the Financial Statements

171

For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS

1. Bank balances and cash

T e Group T e Group At December 31, 2007 At December 31, 2006 Foreign Exchange RMB Foreign Exchange currency rate equivalent currency rate	T e Group T e Group At December 31, 2007 At December 31, 2006 Foreign Exchange RMB Foreign Exchange currency rate equivalent currency rate	RMB equivalent
Cash on hand RMB – – Cash in bank RMB – – USD 87,067,881 7.3046 EUR 2,906,514 10.6669 AUD 18,029,576 6.3893 HKD 110,904,279 0.9364 BGP – – Other monetary assets RMB – –	304,445 – – 4,891,099,359 – – 635,996,050 102,675,776 7.8087 31,003,494 6,676,043 10.2665 115,196,374 11,401,669 6.1599 103,850,767 455,405,431 1.0047 – 184,695 15.3232 2,101,806 – – 5,779,552,295	966,211 4,624,342,664 801,764,334 68,539,592 70,233,141 457,545,836 2,830,125 1,838,856
		6,028,060,759
T e Company T e Company At December 31, 2007 At December 31, 2006 Foreign Exchange RMB Foreign Exchange currency rate equivalent currency rate		RMB equivalent
Cash on hand RMB – – Cash in bank RMB – – USD 87,064,211 7.3046 EUR 2,906,514 10.6669 HKD 110,904,279 0.9364 GBP – – Other monetary assets RMB – –	177,122 – – 4,862,183,376 – – 635,969,242 102,675,776 7.8087 31,003,494 6,676,043 10.2665 103,850,767 455,405,431 1.0047 – 184,695 15.3232 2,101,806 – – 5,635,285,807	273,904 4,282,606,489 801,764,334 68,539,592 457,545,836 2,830,125 1,838,856
		5,615,399,136

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Notes to the Financial Statements

172

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

2. Notes receivable

	T e	Group
	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Bank acceptance bills	2,732,422,448	2,061,620,338
	T e Company
	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Bank acceptance bills	2,730,805,288	2,061,620,338

See Note X (4)(d) for notes receivable due from shareholders of the Company and the Group holding more than 5% of the total shares of the Company.

3. Accounts receivable

Th e aging analysis of accounts receivable is as follows:

Within 1 year 1 to 2 years 2 to 3 years Over 3years Total	Amount RMB 124,377,863 1,771,331 9,945 15,384,906 141,544,045	At December 31, 2007 Bad debt % provision RMB 88 5,605,936 1 – – 4,972 11 15,384,906 100 20,995,814	At December 31, 2007 Bad debt % provision RMB 88 5,605,936 1 – – 4,972 11 15,384,906 100 20,995,814	T e Net book value RMB 118,771,927 1,771,331 4,973 – 120,548,231	Group Amount RMB 220,214,701 868,832 – 24,533,988 245,617,521	At December % 90 – – 10 100	31, 2006 Bad debt provision MB 6,512,361 400,715 – 24,533,988 31,447,064	Net book value RMB 213,702,340 468,117 – – 214,170,457
				T e Company
		At December 31, 2007				At December	31, 2006
			Bad debt	Net			Bad debt	Net
	Amount	%	provision	book value	Amount	%	provision	book value
	RMB		RMB	RMB	RMB		RMB	RMB
Within 1 year	96,183,459	86	5,578,109	90,605,350	187,865,506	88	6,482,172	181,383,334
1 to 2 years	–	–	–	–	868,832	–	400,715	468,117
2 to 3 years	9,945	–	4,972	4,973	–	–	–	–
Over 3years	15,384,906	14	15,384,906	–	24,533,988	12	24,533,988	–
Total	111,578,310	100	20,967,987	90,610,323	213,268,326	100	31,416,875	181,851,451

Notes to the Financial Statements

173

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

3. Accounts receivable (continued)

Th e disclosure of accounts receivable by category is as follows:

For the year ended December 31, 2007

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				T e	Group
		At December	31, 2007			At December	31, 2006
			Bad debt	Net			Bad debt	Net
	Amount	%	provision	book value	Amount	%	provision	book value
	RMB	RMB	RMB	RMB	RMB	RMB
Individually
signif cant amount	78,081,784	55	3,123,271	74,958,513	185,836,616	76	6,882,887	178,953,729
Individually
insignif cant amount
with high risks af er
the combination of
credit risk characteristics Other insignif cant amount Total Individually signif cant amount Individually insignif cant amount with high risks af er the combination of credit risk characteristics Other insignif cant	15,384,906 48,077,355 141,544,045 Amount RMB 78,081,784 15,384,906	11 34 100 At December % RMB 70 14	15,384,906 2,487,637 20,995,814 31, 2007 Bad debt provision RMB 3,123,271 15,384,906	– 24,533,988 45,589,718 35,246,917 120,548,231 245,617,521 T e Company Net book value Amount RMB RMB 74,958,513 185,836,616 – 24,533,988		10 14 100 At December % RMB 87 12	24,533,988 30,189 31,447,064 31, 2006 Bad debt provision 6,882,887 24,533,988	– 35,216,728 214,170,457 Net book value 178,953,729 –
amount	18,111,620	16	2,459,810	15,651,810	2,897,722	1	–	2,897,722
Total	111,578,310	100	20,967,987	90,610,323	213,268,326	100	31,416,875	181,851,451

Notes to the Financial Statements

174

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

3. Accounts receivable (continued)

Movement of the provision for accounts receivable are as follows:

	T e Group	T e Group
	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Balance at beginning of the year	31,447,064	126,700,309
Additions	4,774,730	1,270,726
Reversals	(9,138,083)	(17,921,083)
Other transfer out	(6,087,897)	(78,602,888)
Balance at closingof theyear	20,995,814	31,447,064

	Balance at beginning of the year Additions Reversals Other transfer out Balance at closingof theyear	T e Company At December 31, At December 31, 2007 2006 RMB RMB 31,416,875 126,700,309 4,774,730 1,240,537 (9,135,721) (17,921,083) (6,087,897) (78,602,888) 20,967,987 31,416,875

Th e Group balance of the 5 largest debtors is as follows:

Total balance of the 5 largest debtors RMB 85,733,648	Aging Within 1 year	Percentage in accounts receivable balance 61%

Th e Company balance of the 5 largest debtors is as follows:

Total balance of		Percentage in
the 5 largest debtors	Aging	accounts receivable balance
RMB
85,733,648	Within 1 year	77%

See Note X(4)(d) for accounts receivable due from shareholders of the Company and the Group holding more than 5% of the total shares of the Company.

Notes to the Financial Statements

For the year ended December 31, 2007

175

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

4. Prepayments

Th e aging analysis of prepayments is as follows:

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Aging

Aging
	T e Group		T e Group
	At December 31, 2007		At December 31, 2006
	RMB	%	RMB	%
Within 1 year	59,371,153	99	101,141,006	87
1 to 2years	461,500	1	14,753,458	13
Total	59,832,653	100	115,894,464	100
	T e Company		T e Company
	At December 31, 2007		At December 31, 2006
Within 1 year 1 to 2years Total	RMB 57,089,331 – 57,089,331	% 100 – 100	RMB 90,661,209 14,753,458 105,414,667	% 86 14 100

Th e disclosure of prepayment by category is as follows:

	Individually signif cant amount Individually insignif cant amount with high risks af er the combination of credit risk characteristics Other insignif cant amount Total	T e At December 31, 2007 RMB – – 59,832,653 59,832,653	Group At December 31, 2006 RMB 8,000,000 – 107,894,464 115,894,464

Notes to the Financial Statements

176

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

4. Prepayments (continued)

	T e Company	T e Company
	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Individually signif cant amount	–	–
Individually insignif cant amount
with high risks af er the combination
of credit risk characteristics	–	–
Other insignif cant amount	57,089,331	105,414,667
Total	57,089,331	105,414,667

See Note X(4)(d) for prepayments to shareholders of the Company and the Group holding more than 5% of the total shares of the Company.

5. Interest receivable

	Within one year Interest of entrust loan to Australia Over one year Interest of entrust loan to Australia Total	T e Company At December 31, At December 31, 2007 2006 RMB RMB 45,025,669 31,457,046 31,457,046 – 76,482,715 31,457,046

6. Other receivables

Aging analysis of other receivables is as follows:

					T e Company	T e Company
		At December		31, 2007			At December	31, 2006
				Bad debt	Net			Bad debt	Net
	Amount	%		provision	book value	Amount	%	provision	book value
	RMB	RMB		RMB	RMB	RMB	RMB
Within 1 year	290,348,682	84		7,277,913	283,070,769	135,977,544	60	6,387,178	129,590,366
1 to 2 years	25,769,115	7		3,215,373	22,553,742	55,197,068	25	2,719,717	52,477,351
2 to 3 years	3,523,984	1		328,590	3,195,394	9,444,907	4	1,447,336	7,997,571
Over 3years	26,276,941	8	19,295,412		6,981,529	24,403,535	11	22,095,728	2,307,807
Total	345,918,722	100	30,117,288		315,801,434	225,023,054	100	32,649,959	192,373,095

Notes to the Financial Statements

For the year ended December 31, 2007

177

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

6. Other receivables (continued)

					T e Company	T e Company
		At December		31, 2007			At December	31, 2006
				Bad debt	Net			Bad debt	Net
	Amount	%		provision	book value	Amount	%	provision	book value
	RMB	RMB		RMB	RMB	RMB	RMB
Within 1 year	506,790,229	51		7,277,913	499,512,316	263,248,768	43	6,387,178	256,861,590
1 to 2 years	172,137,882	17		3,215,373	168,922,509	309,386,419	51	2,719,717	306,666,702
2 to 3 years	281,373,359	29		328,590	281,044,769	9,444,907	2	1,447,336	7,997,571
Over 3years	26,276,941	3	19,295,412		6,981,529	24,111,440	4	22,095,728	2,015,712
Total	986,578,411	100	30,117,288		956,461,123	606,191,534	100	32,649,959	573,541,575

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Th e disclosure of other receivable by category is as follows:

Individually signif cant amount Individually insignif cant amount with high risks af er the combination of credit risk characteristics Other insignif cant amount Total	Amount RMB 200,835,408 26,276,941 118,806,373 345,918,722	At December % RMB 58 8 34 100 At December	31, 2007 Bad debt provision RMB 8,033,416 19,295,412 2,788,460 30,117,288 31, 2007 Bad debt	T e Group Net book value Amount RMB RMB 192,801,992 28,068,950 6,981,529 24,403,535 116,017,913 172,550,569 315,801,434 225,023,054 T e Company Net	T e Group Net book value Amount RMB RMB 192,801,992 28,068,950 6,981,529 24,403,535 116,017,913 172,550,569 315,801,434 225,023,054 T e Company Net	At December % RMB 12 11 77 100 At December	31, 2006 Bad debt provision – 22,095,728 10,554,231 32,649,959 31, 2006 Bad debt	Net book value 28,068,950 2,307,807 161,996,338 192,373,095 Net
	Amount	%	provision	book value	Amount	%	provision	book value
	RMB	RMB	RMB	RMB	RMB	RMB
Individually
signif cant amount	871,490,578	88	8,033,416	863,457,162	453,590,133	75	–	453,590,133
Individually
insignif cant amount
with high risks af er
the combination of
credit risk
characteristics	26,276,941	3	19,295,412	6,981,529	24,111,440	4	22,095,728	2,015,712
Other insignif cant
amount	88,810,892	9	2,788,460	86,022,432	128,489,961	21	10,554,231	117,935,730
Total	986,578,411	100	30,117,288	956,461,123	606,191,534	100	32,649,959	573,541,575

Notes to the Financial Statements

178

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

6. OTHER RECEIVABLES (continued)

Movement of the provision for other receivables is as follows:

	T e Group	T e Group
	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Balance at beginning of the year	32,649,959	35,716,276
Additions	–	1,202
Reversals	(850)	(3,067,519)
Other transfer out	(2,531,821)	–
Balance at closingof theyear	30,117,288	32,649,959
Balance at beginning of the year Additions Reversals Other transfer out Balance at closingof theyear	T e Company At December 31, At December 31, 2007 2006 RMB RMB 32,649,959 35,716,276 – 1,202 (850) (3,067,519) (2,531,821) – 30,117,288 32,649,959

Th e Group balance of the 5 largest debtors is as follows:

Total balance of the 5 largest debtors RMB 200,835,408	Percentage in other receivables balance 58%

Th e Company balance of the 5 largest debtors is as follows:

Total balance of	Percentage in
the 5 largest debtors	other receivables balance
RMB
802,871,202	81%

See Note X48(4)(d) for other receivables due from shareholders of the Company and the Group holding more than 5% of the total shares of the Company.

Notes to the Financial Statements

For the year ended December 31, 2007

179

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

7. Inventories

	T e	Group
	At December 31,	At December 31,
Item	2007	2006
	RMB	RMB
Raw materials	248,411,286	265,122,102
Finishedgoods	191,722,342	314,438,645
Less: Provision	–	–
Sub-total	440,133,628	579,560,747
Total	440,133,628	579,560,747
	T e Company
Item Raw materials Finishedgoods Less: Provision Sub-total Total	At December 31, 2007 RMB 217,120,273 108,499,476 – 325,619,749 325,619,749	At December 31, 2006 RMB 236,912,807 180,902,982 – 417,815,789 417,815,789

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8. Entrust loan

Shandong Xinjia Industry Co., Ltd. (“Shandong Xinjia”)	Amount	T e Group At December 31, 2007 Provision Net book value	T e Group At December 31, 2007 Provision Net book value	At Amount	T e Group December 31, 2006 Provision	Net book value
(Note 1)	640,000,000	–	640,000,000	640,000,000	–	640,000,000
Less: Entrust loan due
within oneyear	640,000,000	–	640,000,000	640,000,000	–	640,000,000
Entrust loan due
af er oneyear	–	–	–	–	–	–

Notes to the Financial Statements

180

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTSCONTINUED (continued)

8. Entrust loan (continued)

		T e Company			T e Company
	At	December 31, 2007		At	December 31, 2006
	Amount	Provision	Net book value	Amount	Provision	Net book value
Shandong Xinjia (Note 1)	640,000,000	–	640,000,000	640,000,000	–	640,000,000
Yanmei Australia (Note 2)	657,414,000	–	657,414,000	702,783,000	–	702,783,000
Yulin Power (Note 3)	1,660,000,000	–	1,660,000,000	500,000,000	–	500,000,000
Heze Power	–	–	–	213,000,000	–	213,000,000
Heshun Tainchi (Note 3)	50,000,000	–	50,000,000	–	–	–
Total	3,007,414,000	–	3,007,414,000	2,055,783,000	–	2,055,783,000
Less: Entrust loan due within oneyear	837,224,200	–	837,224,200	923,278,300	–	923,278,300
Including:
– Shandong Xinjia (Note 1) – Yanmei Australia (Note 2) – Heze Power Entrust loan due af er oneyear Including: – Yanmei Australia (Note 2) – Yulin Power (Note 3) – Heshun Tainchi(Note 3)	640,000,000 197,224,200 – 2,170,189,800 460,189,800 1,660,000,000 50,000,000	– – – – – – –	640,000,000 197,224,200 – 2,170,189,800 460,189,800 1,660,000,000 50,000,000	640,000,000 70,278,300 213,000,000 1,132,504,700 632,504,700 500,000,000 –	– – – – – – –	640,000,000 70,278,300 213,000,000 1,132,504,700 632,504,700 500,000,000 –

Note 1: Th e designated deposit represents an instructed deposit of RMB640,000,000 with Bank of China Jining Branch to Shandong Xinjia Industry Co., Ltd. at interest rate of 7% per annum for one month period from. Related obligations are secured by Lianda Group Co., Ltd (“Lianda Group”) with its 170 Million state legal person shares of Huaxia bank and its 66.7% of interest in Xi’an international golf club Co., Ltd..

Th e above designated deposits were due on January 19, 2005. Shandong Xinjia failed to pay off the principal and interest. As Lianda Group bore the security responsibility of the designated deposits, an auction on the frozen 289,000,000 shares of Huaxia Bank owned by Lianda Group was held on March 28, 2005 by the Supreme Court of Shandong Province and completed successfully on September 6, 2005 according to relevant laws. Aft er the completion of the auction, the buyer applied to the China Banking Regulatory Commission for its eligibility of investing in China domestic commercial bank. Up to the fi nancial statement signing date, related formalities are still in process.

On December 4, 2006, Shan Dong Runhua Group (“Runhua Group”) won in the lawsuit in which it implead Lianda Group and Huaxia Bank on stock ownership dispute. Lianda Group only retained 49,000,000 shares of Huaxia Bank total issued shares. However due to some obstacles related to the transfer of state-owned assets, the 240,000,000 shares could not be ultimately transferred to Runhua Group. Now the Company is actively seeking measures to retain the state-owned assets via certain administrative departments. A request on the case of designated deposit between the Company and Lianda Group is sent to the Supreme Court respectively by Shandong Provincial Government, Stateowned Assets Supervision and Administration Commission of Shandong Municipal Government and the State Department. Given the current situation, the Company is confi dent of calling back the principal, interest and fi ned interest of the loan. So the Company does not recognize provision for impairment loss on this designated deposit this year.

Notes to the Financial Statements

181

For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTSCONTINUED (continued)

8. Entrust loan (continued)

Note 1: (continued)

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Th e entity reached the following agreement of dispute settlement with Runhua Group and Lianda Group in Oct, 2007 regarding the relevant matters in the present of the Supreme Court: 1) 240 Million out of the 289 Million state legal person shares of Hua Xia Bank CO., Limited. frozen by the Higher People’s Court of Shandong Province should be owned by Runhua Group, 200 Million shares of which should be transferred to Runhua Group under active seizure (for sinking fund only). Meanwhile, Runhua Group should provide Yanzhou Coal Mining Co. Ltd. a guarantee to realize its creditors’ rights. 2) Aft er the circulation day, i.e. Jun 6, 2008, 49 Million out of the 289 Million frozen stock rights may used to discharge the debt of Lianda Group to Yanzhou Mining by preference upon Yanzhou Mining’s request. Th e rest 40 Million out of 89 Million shares and the 200 Million shares owned by Runhua Group should be used sequentially to meet the full discharge of the RMB 730 Million Yuan debt.

Note 2: Th e designated deposit represents instructed deposits with Bank of China Jining Branch to Yanmei Australia by the Company, whose due date is from Sep 2007 to June 2012, is at interest rate of 6.31% to 6.96 % per annum. As at December 31, 2007, loans amounting to about RMB 65.74 Million (namely USD 9 Million) was approved for extension of one year by State of Administration of Foreign Exchange, Shandong Branch.
Note 3: Th e instructed deposit to Yulin Power, whose due date is from Oct 2009 to Oct 2012, is at interest rate of 6.30% to 7.20 % per annum. Th e instructed deposit to Heshun Tianchi, whose due date Dec 2012, is at interest rate of 7.47 % per annum.

9. Other current assets/liabilities

Other current assets Land subsidence, restoration, rehabilitation and environment costs (Note 1) Prepaid freight and handlingcharges(Note 2) Other current liabilities	T e At December 31, 2007 RMB – 10,933,507 10,933,507 At December 31,	Group At December 31, 2006 RMB 212,912,430 27,286,945 240,199,375 At December 31,
	2007	2006
	RMB	RMB
Land subsidence, restoration, rehabilitation
and environment costs(Note 1)	19,634,780	–

Notes to the Financial Statements

182

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTSCONTINUED (continued)

9. Other current assets/liabilities (continued)

	T e Company	T e Company
Other current assets	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Land subsidence, restoration, rehabilitation
and environment costs (Note 1)	–	212,912,430
Prepaid freight and handlingcharges(Note 2)	10,933,507	27,036,951
	10,933,507	239,949,381
Other current liabilities	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Land subsidence, restoration, rehabilitation and environment costs(Note 1)	19,634,780	–

Note 1: Th e consequence of coal mining activities is land subsidence caused by the resettlement of the land above the underground mining sites. Depending on the circumstances, the Company may relocate inhabitants from the land above the underground mining sites prior to mining those sites or the Company may compensate the inhabitants for losses or damages from land subsidence aft er the underground sites have been mined.

Based on their past experiences, the management provides reserves according to the best estimation as they could make on the likely expenditures in the future, and reverse the accruals aft er payment. Considering the time diff erence between the payment and mining exists, if the accumulated payment is more than the accruals provided, such excess of payment would be presented under current assets at the year end; if the accumulated payment is less than the accruals provided, such shortage of payment would be presented under current liabilities at the year end.

Note 2: Th e freight and handling charges of coal handled by ports and coal in transit have been paid.

Items	At December 31,	At December 31,
	2007	2006
	RMB	RMB
AFS equitysecurities	409,085,879	94,381,623

Th e above fair value was based on the closing price of the Shanghai Stock Exchange on December 31, 2007.

Notes to the Financial Statements

183

For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTSCONTINUED (continued)

11. Long-term equity investments

(1) Details of long-term equity investments are as follows:

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Initial Name of investees investment RMB	T e Group Cash Opening New investment Adjustments dividends Other reversal balance for the period to equity for the period for the period RMB RMB RMB RMB RMB (Note)	Closing balance RMB
Equity method Associated company Huadian Zouxian Power Co., Ltd. (“Hua Dian Zhou Xian”) 900,000,000	– 900,000,000 (2,438,230) – –	897,561,770
900,000,000	– 900,000,000 (2,438,230) – –	897,561,770
Cost method Associated company Jiangsu Lianyungang Port Co., Ltd. (Note) 1,760,419 Zhejiang Jiangshan Cement Co., Ltd. 440,000	1,760,419 – – – (1,760,419) – 440,000 – – –	– 440,000
2,200,419	1,760,419 440,000 – – (1,760,419)	440,000
Total 902,200,419	1,760,419 900,440,000 (2,438,230) – (1,760,419)	898,001,770
Less: Provision for impairment Net amount of long-term equityinvestments	– 1,760,419	– 898,001,770

Notes to the Financial Statements

184

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTSCONTINUED (continued)

11. Long-term equity investments (continued)

(1) Details of long-term equity investments are as follows: (continued)

Initial Name of investees investment RMB	T e Company Cash Opening New investment Adjustments dividends Other reversal balance for the period to equity for the period for the period RMB RMB RMB RMB RMB (Note)	Closing balance RMB
Equity method Huadian Zouxian Power Co., Ltd 900,000,000	– 900,000,000 (2,438,230) – –	897,561,770
900,000,000	– 900,000,000 (2,438,230) – –	897,561,770
Cost method Investment in subsidiaries Qingdao Zhong yan 2,709,903 Heze Power 1,424,343,543 Yanmei Australia 403,281,954 Yulin Power 776,000,000 Shanxi Power 508,205,965 Yanmei Shipping 10,575,733 Jiangsu Lianyungang Port Co., Ltd. (Note) 1,760,419 Zhejiang Jiangshan Cement Co., Ltd. 440,000	2,709,903 – – – – 548,343,543 876,000,000 – – – 403,281,954 – – – – 776,000,000 – – – – 498,210,720 9,995,245 – – – 10,575,733 – – – – 1,760,419 – – – (1,760,419) – 440,000 – – –	2,709,903 1,424,343,543 403,281,954 776,000,000 508,205,965 10,575,733 – 440,000
3,127,317,517	2,240,882,272 886,435,245 – – (1,760,419)	3,125,557,098
Total 4,027,317,517	2,240,882,272 1,786,435,245 (2,438,230) – (1,760,419)	4,023,118,868
Less: Provision for impairment Net amount of long-term equityinvestments	– 2,240,882,272	– 4,023,118,868

Note: Transfer the limit sale tradable share of Jiangsu Lianyungang Port Co., Ltd. to available-for-sale fi nancial assets. Details please refer to Note IX 10.

Notes to the Financial Statements

185

For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTSCONTINUED (continued)

11. Long-term equity investments (continued)

(2) A list of associates and their key fi nancial information

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				Proportion			Investee’s	Investee’s
				of ownership	Investee’s	Investee’s	total operating	net prof t
			Registered	interest held	total assets	total liabilities	income for the	for the
Name of associates Registered location		Nature of business	capital by the enterprise		at year end	at year end	current year	current year
					RMB Million	RMB Million	RMB Million	RMB Million
Huadian	Tang village	Company Limited	3 billion	30%	7,623	4,631	32	(8)
Zouxian	Zou City

In August 2007, the Company and Huadian Power International Co. Ltd as well as Zouchen Assets Management Company entered into the Investment Agreement, pursuant to which the Parties have agreed to jointly establish the Joint Venture Company Huadian Zouxian Power Co., Ltd. Pursuant to the Investment Agreement, the registered capital of the Joint Venture Company shall be contributed as to 30% equal to RMB0.9 billion by the Company, Joint Venture Company was established in November 2007.

12. Fixed assets and accumulated depreciation

Changes in fi xed assets in the current year are as follows:

Cost At January 1, 2007 Additions Transfer from f xed assets under construction Exchange realignment	Lands (Note1) RMB 55,254,302 – – 2,057,718	Buildings RMB 2,456,418,212 2,100,408 166,334,474 337,030	Mining structure RMB 4,021,873,364 – 14,095,914 –	T e Group Harbor Railway works structure and craf RMB RMB 884,696,922 250,348,889 – – 1,556,827 – – –	T e Group Harbor Railway works structure and craf RMB RMB 884,696,922 250,348,889 – – 1,556,827 – – –	Plant, machinery and equipment RMB 9,155,750,332 71,012,985 672,870,300 27,433,291	Transportation equipment RMB 368,383,834 8,641,187 35,992,973 20,508	Total RMB 17,192,725,855 81,754,580 890,850,488 29,848,547
Disposals	–	(18,998,564)	(344,148,502)	–	–	(225,721,906)	(13,975,957)	(602,844,929)
At December 31, 2007	57,312,020	2,606,191,560	3,691,820,776	886,253,749	250,348,889	9,701,345,002	399,062,545	17,592,334,541
Accumulated depreciation
At January 1, 2007	–	1,246,663,229	1,688,012,427	419,575,119	18,205,720	4,787,386,325	237,692,555	8,397,535,375
Provided for the year	–	120,265,355	85,162,265	53,442,316	6,070,961	807,807,639	38,034,466	1,110,783,002
Transfer in for the year
(Note 2)	–	–	–	–	–	96,294,971	–	96,294,971
Exchange realignment	–	51,896	–	–	–	1,594,140	11,806	1,657,842
Disposals	–	(9,111,929)	(48,989,765)	–	–	(188,102,964)	(10,308,342)	(256,513,000)
At December 31, 2007	–	1,357,868,551	1,724,184,927	473,017,435	24,276,681	5,504,980,111	265,430,485	9,349,758,190
Net book value
At January1, 2007	55,254,302	1,209,754,983	2,333,860,937	465,121,803	232,143,169	4,368,364,007	130,691,279	8,795,190,480
At December 31, 2007	57,312,020	1,248,323,009	1,967,635,849	413,236,314	226,072,208	4,196,364,891	133,632,060	8,242,576,351

Notes to the Financial Statements

186

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTSCONTINUED (continued)

12. Fixed assets and accumulated depreciation (continued)

				T e Company	T e Company
						Harbor	Plant,
			Mining	Railway	works	machinery	Transportation
	Lands	Buildings	structure	structure	and craf	and equipment	equipment	Total
	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB
Cost
At January 1, 2007	–	2,341,831,226	3,876,792,201	884,696,922	250,348,889	8,177,202,999	322,508,086	15,853,380,323
Transfer from f xed
assets under construction	–	117,341,724	–	1,556,827	–	603,465,609	31,704,041	754,068,201
Disposals	–	(18,998,564)	(344,148,502)	–	–	(219,261,035)	(12,731,113)	(595,139,214)
At December 31, 2007	–	2,440,174,386	3,532,643,699	886,253,749	250,348,889	8,561,407,573	341,481,014	16,012,309,310
Accumulated depreciation
At January 1, 2007 Provided for the year Transfer in for the year (Note 2) Eliminated on disposals At December 31, 2007 Net book value At January1, 2007 At December 31, 2007	– – – – – – –	1,242,453,589 113,617,554 – (9,111,929) 1,346,959,214 1,099,377,637 1,093,215,172	1,685,255,429 82,070,370 – (48,989,765) 1,718,336,034 2,191,536,772 1,814,307,665	419,575,119 53,442,316 – – 473,017,435 465,121,803 413,236,314	18,205,720 6,070,961 – – 24,276,681 232,143,169 226,072,208	4,736,688,748 703,799,590 96,294,971 (186,986,478) 5,349,796,831 3,440,514,251 3,211,610,742	228,671,334 32,290,036 – (10,308,342) 250,653,028 93,836,752 90,827,986	8,330,849,939 991,290,827 96,294,971 (255,396,514) 9,163,039,223 7,522,530,384 6,849,270,087

Note 1: Th e item represents the land of the Australia Southland coal mine, which Austar enjoys the permanent ownership.

Note 2: In accordance with the provisions of State Administration of Coal Mine Safety, the Company purchased the equipment for the safety of coal production of RMB 96,294,971 by production safety expenses.

Notes to the Financial Statements

For the year ended December 31, 2007

187

IX. NOTES TO THE FINANCIAL STATEMENTSCONTINUED (continued)

13. Construction in progress

			T e Group
	At January		Transfers upon	Exchange	At December		Proportion
Items	1, 2007	Additions	completion	realignment	31, 2007	Budget	to budget	Source of funds
	RMB	RMB	RMB	RMB	RMB	RMB	%
Equipments
to be installed	667,753,191	1,924,384,216	(605,411,318)	12,840,316	1,999,566,405	2,740,668,682	70	Internally generated fund
Buildings under
construction	1,302,648,855	660,658,258	(265,423,360)	–	1,697,883,753	2,283,726,640	29	Internally generated fund
Others	227,119,439	384,666,750	(20,015,810)	–	591,770,379	819,094,190	47	internally generated fund
Total	2,197,521,485	2,969,709,224	(890,850,488)	12,840,316	4,289,220,537	5,843,489,512
			T e Company
Items Equipments to be Buildings under construction Others Total	installed	At January 1, 2007 RMB 84,146,223 9,446,231 18,031,645 111,624,099	Additions RMB 555,850,020 138,844,022 18,463,334 713,157,376	Transfers upon completion RMB (591,848,152) (142,556,777) (19,663,272) (754,068,201)	At December 31, 2007 RMB 48,148,091 5,733,476 16,831,707 70,713,274	Budget RMB 715,850,000 169,120,000 24,550,000 909,520,000	Proportion to budget % 78 82 75	Source of funds Internally generated fund Internally generated fund Internally generated fund

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No interest was capitalized for the year.

Notes to the Financial Statements

188

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

Th e Group

	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Materials held for construction	229,460,787	65,408,224
*T e Company*
	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Materials held for construction	1,656,966	21,829,853

15. Intangible assets

Cost At January 1, 2007 Addition Exchange realignment At December 31, 2007 Accumulated amortization At January 1, 2007 Provided for the period	Land use rights RMB 310,242,143 – – 310,242,143 55,171,418 6,244,549	Land use rights of Jining III RMB 88,928,996 – – 88,928,996 10,671,480 1,778,579	Mining rights of Jining III RMB 132,478,800 – – 132,478,800 39,743,734 6,623,946	T e Group Land use rights of Mining rights Railway Assets of Southland RMB RMB 259,378,500 56,277,886 8,156,303 61,922,866 – 2,091,837 267,534,803 120,292,589 25,937,850 5,051,432 5,225,714 3,051,082	T e Group Land use rights of Mining rights Railway Assets of Southland RMB RMB 259,378,500 56,277,886 8,156,303 61,922,866 – 2,091,837 267,534,803 120,292,589 25,937,850 5,051,432 5,225,714 3,051,082	Land use rights of Heshun Tanchi RMB 11,378,132 – – 11,378,132 349,003 240,198	Land use rights of Yulin Power RMB – 18,588,033 – 18,588,033 – 665,587	Total RMB 858,684,457 88,667,202 2,091,837 949,443,496 136,924,917 23,829,655
Exchange realignment	–	–	–	–	184,140	–	–	184,140
At December 31, 2007	61,415,967	12,450,059	46,367,680	31,163,564	8,286,654	589,201	665,587	160,938,712
Net book value
At January1, 2007	255,070,725	78,257,516	92,735,066	233,440,650	51,226,454	11,029,129	–	721,759,540
At December 31, 2007	248,826,176	76,478,937	86,111,120	236,371,239	112,005,935	10,788,931	17,922,446	788,504,784
Remaining
amortization year 39 years 11 months		43 years	13 years	44 years	18 years 44 years 11 months		50 years

Notes to the Financial Statements

189

For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

15. Intangible assets (continued)

			T e Company
		Land use		Land use
	Land	rights of	Mining rights	rights of
	use rights	Jining III	of Jining III Railway Assets		Total
	RMB	RMB	RMB	RMB	RMB
Cost
At January 1, 2007	310,242,143	88,928,996	132,478,800	259,378,500	791,028,439
Addition	–	–	–	8,156,303	8,156,303
At December 31, 2007	310,242,143	88,928,996	132,478,800	267,534,803	799,184,742
Accumulated amortization
At January 1, 2007	55,171,418	10,671,480	39,743,734	25,937,850	131,524,482
Provided for theyear	6,244,549	1,778,579	6,623,946	5,225,714	19,872,788
At December 31, 2007 Net book value AtJanuary1, 2007 At December 31, 2007 Remaining amortization year	61,415,967 255,070,725 248,826,176 39 years 11 months	12,450,059 78,257,516 76,478,937 43 years	46,367,680 92,735,066 86,111,120 13 years	31,163,564 233,440,650 236,371,239 44 years	151,397,270 659,503,957 647,787,472

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Th e original land use rights are injected by Yankuang Group. Th e land use rights of Jining III and Railway Assets and mining rights of Jining III were acquired from Yankuang Group at revaluated amount.

Th e original land use rights of the Company are revaluated by reference to the revaluation report [97] Zhongdizi [zong] zi No.032 of China Land Consultation and Evaluation Centre with the method of cost approaching and coeffi cient-revising of benchmark land price to determine the value of the land. Land use rights of Jining III are revaluated by reference to the revaluation report Ludijia [2000] No.7 of Shandong Land Evaluation Offi ce with the method of cost approaching and coeffi cient-revising of benchmark land price. Mining rights of Jining III are revaluated by reference to the revaluation report Haidiren Pingbaozi [2000] No.11 Zong No.24 of Beijing Haidiren Resource Consulting Co., Ltd. with the method of discounting cashfl ow. Land use rights of Railway Assets are revaluated by reference to the revaluation report [2001] Luzhengkuai Pingbaozi No. 10041 of Shandong Zhengyuan Hexin Limited Liability CPA with the method of cost revaluation.

Austar acquired mining rights of Southland through Southland Coal Pty limited at market value.

Th e land use right of Heshun Tianchi is purchased from the local government.

Th e land use right of Yulin Nenghua is purchased from the local government.

Notes to the Financial Statements

190

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

16. Goodwill

		At January 1,
		2007 and
		December 31,
		2007
		RMB
	Acquisition of Yanmei Shipping (Note)	10,045,361
	Less: Impairment ofgoodwill	–
	Goodwill-Net	10,045,361

Note: Yanmei Shipping is the subsidiary acquired in a business combination not involving enterprises under common control. Th e excess of the cost of acquisition over the Yanmei Shipping’s interest in the fair value of the identifi able net assets at the date of acquisition is restated using retrospective method according to Note II-Th e Preparation Foundation Of Financial and Note VI-Changes in accounting policies accounted for retrospectively. Th e above goodwill is thus recognized.

17. Long-term deferred expenses

	T e Category Prepayment for resource compensation fees of Heshun Tianchi(Note)	T e At December 31, 2007 RMB 21,728,081	Group At December 31, 2006 RMB 25,067,328

Note: In accordance with the relevant regulations, Heshun Tianchi is required to pay resources compensation fees to the Heshun Municipal Coal Industry Bureau at a rate of RMB2.7 per tonne of raw coal mined. Heshun Tianchi has prepaid the fees based on production volume of 10 Million tonnes which would be amortized according to the actual production.

Notes to the Financial Statements

191

For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

18. Deferred tax assets

	T e Company and the Group	T e Company and the Group
Item	At December 31,	At December	31,
	2007	2006
	RMB	RMB
Deductible temporary dif erence
and deductible tax loss	31,174,701		–

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Th e company has taxable losses of RMB 454 Millions could be used to deduct the taxable profi t in the future periods. Th e taxable losses arose from the subsidiaries. Th e company did not recognize the corresponding deferred tax assets for the unassured profi tability of subsidiaries in the future.

Th e following deductible temporary diff erence and tax loss did not recognize deferred tax assets:

	Deductible Temporary Dif erence Deductible Tax Loss Total	At December 31, 2007 RMB’000 129,943 454,099 584,042	At December 31, 2006 RMB’000 83,243 451,663 534,906

Th e deductible loss which did not recognize deferred tax assets will be due in following years:

	2011 2012 Total	At December 31, 2007 RMB’000 56,529 106,726 163,255	At December 31, 2006 RMB’000 56,529 – 56,529

Note: Pursuant to the Tax Law of Australia, the deductible tax loss of Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited can be carried forward without expiration.

Notes to the Financial Statements

192

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

19. Other non-current assets

	T e	Group
	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Deposit made on investment (Note)	117,925,900	97,425,900
Prepayment for equipments	188,551,092	460,489,101
	306,476,992	557,915,001
	T e Company
	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Deposit made on investment(Note)	117,925,900	97,425,900

Note: Th e balance represent the prepaid investment for the establishment of Yulin Yushuwan Coal Mine in Shanxi. Pursuant to agreements among the Company and other two parties. Related formalities are still in progress as at December 31, 2007.

20. Impairment of assets

	Provision for bad debts	At January 1, 2007 RMB 64,097,023 At January 1, 2007 RMB	Provision RMB 4,774,730 Provision RMB	T e Group Deduction At Reversals Written-of RMB RMB (9,138,933) (8,619,718) T e Company Deduction At Reversals Written-of RMB RMB	December 31, 2007 RMB 51,113,102 December 31, 2007 RMB
	Provision for bad debts	64,066,834	4,774,730	(9,136,571) (8,619,718)	51,085,275

Notes to the Financial Statements

193

For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

21. Notes payable

	T e	Group
	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Commercial notes payable	154,519,715	137,843,036
Bank notespayable	–	31,102,018
	154,519,715	168,945,054
	T e Company
	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Commercial notespayable	154,519,715	137,843,036

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22. Accounts payable

See Note X (4)(d) for accounts payable due to shareholders of the Company and the Group holding more than 5% of the total shares of the Company.

23. Advances from customers

See Note X (4)(d) for amounts advanced from shareholders of the Company and the Group holding more than 5% of the total shares of the Company.

Notes to the Financial Statements

194

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

24. Salaries and wages payable

		T e Group	T e Group
Item	At January 1,	Provision	Payment	At December 31,
	2007	for the year	for the year	2007
	RMB	RMB	RMB	RMB
Salary, bonus, allowance
and subsidies	172,378,399	2,434,970,733	(2,322,588,700)	284,760,432
Staf welfare	6,568,322	243,528,689	(250,097,011)	–
Social insurance	9,814,214	894,427,692	(884,452,976)	19,788,930
Including:
Medical insurance	4,086,329	88,111,331	(85,111,679)	7,085,981
Unemployment insurance	2,636,829	720,091,920	(719,801,252)	2,927,497
Fertility insurance	2,098,489	41,829,826	(36,978,456)	6,949,859
Injury insurance Maternity insurance Housing fund Union fund and Staf education fund Total Item Salary, bonus, allowance and subsidies Staf welfare Social insurance Including: Medical insurance Unemployment insurance Fertility insurance	371,957 620,610 949,820 20,506,025 210,216,780 At January 1, 2007 RMB 147,233,677 3,518,651 5,069,069 2,954,038 – 1,629,406	23,823,281 (23,814,133) 20,571,334 (18,747,456) 40,322,689 (40,018,860) 67,166,156 (56,199,265) 3,680,415,959 (3,553,356,812) T e Company Provision Payment for the year for the year RMB RMB 2,099,532,291 (1,987,028,765) 237,882,476 (241,401,127) 857,357,320 (849,273,658) 83,005,112 (80,182,065) 692,912,000 (692,912,000) 39,948,375 (36,116,716)		381,105 2,444,488 1,253,649 31,472,916 337,275,927 At December 31, 2007 RMB 259,737,203 – 13,152,731 5,777,085 – 5,461,065
Injury insurance	–	21,667,915	(21,667,915)	–
Maternity insurance	485,625	19,823,918	(18,394,962)	1,914,581
Housing fund	769,579	38,964,750	(38,961,829)	772,500
Union fund and
Staf education fund	18,173,665	63,407,118	(55,411,318)	26,169,465
Total	174,764,641	3,297,143,955	(3,172,076,697)	299,831,899

Notes to the Financial Statements

195

For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

25. Taxes payable

	T e	Group
Item	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Income tax	9,933,655	150,333,137
Value added tax	179,680,281	134,232,491
City construction tax	7,132,009	24,252,668
Resource Tax	9,261,436	22,909,986
Others	22,649,810	24,324,070
	228,657,191	356,052,352

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		T e Company
	Item Income tax Value added tax City construction tax Resource Tax Others	At December 31, At December 31, 2007 2006 RMB RMB 9,955,772 150,594,318 182,964,952 132,682,155 7,099,632 13,360,059 8,745,692 22,416,596 16,907,257 34,540,830 225,673,305 353,593,958

26. Other payables

See Note X (4)(d) for other payables due to shareholders of Company and the group holding more than 5% of the total shares of the Company.

Notes to the Financial Statements

196

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

27. Long-term loan

Lender	T e Group T e Group At December 31, At December 31, Annual 2007 2006 Period Interest Rate Condition for Loan RMB RMB
China Minsheng Bank State Development Bank Less: Long-term loan due within one year Long-term loan due af er one year	110,000,000 160,000,000 From December Note1 Guaranteed by 28, 2005 to Yankuang Group December 22, 2009 220,000,000 220,000,000 From March Note2 Guaranteed by 15, 2006 to Yankuang Group February 19, 2018 330,000,000 380,000,000 72,000,000 50,000,000 258,000,000 330,000,000

Note1: Th e loan initially carries interest at 5.85% per annum and is subject to adjustment based on interest rate stipulated by the People Bank of China (“PBOC”).

Note2: Th e loan carries interest subject to adjustment based on interest rate stipulated by the PBOC.

28. Long-term payables

Th e Group

*T e Group*
Payable for acquisition of Jining III’s mining rights (Note1) Reform and Specif c Development Fund (Note2) Work Safety Expense (Note3) Work Safety Expense of Shanxi (Note4)	At December 31, 2007 RMB 36,078,960 611,512,916 187,470,266 12,189,466	At December 31, 2006 RMB 46,826,760 447,372,175 22,345,810 7,861,986
Wei Jian Fei (Note5)	204,389,437	–
	1,051,641,045	524,406,731
Less: Long-termpayable due within oneyear	415,447,969	40,955,596
Long-termpayable due af er oneyear	636,193,076	483,451,135

Notes to the Financial Statements

197

For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

28. Long-term payables (continued)

	T e Company	T e Company
	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Payable for acquisition of Jining III’s mining rights (Note1)	36,078,960	46,826,760
Reform and Specif c Development Fund (Note2)	611,512,916	447,372,175
Work Safety Expense (Note3)	187,470,266	22,345,810
Wei Jian Fei (Note5)	196,968,889	–
Total	1,032,031,031	516,544,745
Less: Long-termpayable due within oneyear	395,837,955	33,093,610
Long-termpayable due af er oneyear	636,193,076	483,451,135

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Note 1: Th e amount represents the remaining balances of payable to Yankuang Group for acquisition of Jining III’s mining rights, details of which are set out in Note X (4)(a).
Note 2: According to the joint regulation of Shandong Province Finance Bureau, State-owned Assets Supervision and Administration Commission of Shandong Municipal government, form July 1, 2004, Reform and Specifi c Development Fund is accrued at RMB5 per ton raw coal mined and will be used for related expenditures on mine construction.
Note 3: According to the relevant regulation of State Administration of Coal Mine Safety, from May 21, 2004, Work Safety Expense is accrued at RMB8 per ton raw coal mined, and will be used on work safety related expenditure for coal mines. Th e Company is expected to fully use the remaining balance before the end of 2008.
Note 4: Pursuant to “Administration of Coal Mine Safety” released by State-owned Assets Supervision and Administration Commission of Shanxi Municipal government according to the relevant regulations, Work Safety Expense is accrued at RMB15 per ton raw coal mined of Heshun Tianchi, and will be used on work safety related expenditure for coal mines. Heshun Tianchi expects to fully use the remaining balance before the end of 2008.
Note 5: According to the relevant regulations, the Company accrues for production maintenance expenses based on coal production volume at RMB6 Yuan per ton (raw coal mined) which are used to maintain production and technical improvement of coal mines. Th e Company is expected to use the rest before the end of 2008.

Notes to the Financial Statements

198

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

29. Deferred tax liability

	T e Company and T e Group	T e Company and T e Group
Temporary dif erence	At December 31,	At December 31,
	2007	2006
	RMB	RMB
Changes on fair value
of AFS f nancial assets	86,726,297	11,207,245

30. Share capital

Changes in share capital from January 1, 2007 to December 31, 2007 are as follow:

	(1) (2) (3)	Listed shares with restricted trading condition Initiation shares Subtotal Listed shares 1. A-shares 2. H-Shares Total list shares Total share capital	T e Company and T e Group At January 1, 2007 and December 31, 2007 2,600,000,000 2,600,000,000 360,000,000 1,958,400,000 2,318,400,000 4,918,400,000

Notes to the Financial Statements

199

For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

30. Share capital (continued)

Changes in share capital from January 1, 2006 to December 31, 2006 are as follow:

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		T e Company		T e Company
		and T e Group	Addition	and T e Group
		At January 1,	(Reduction)	At December 31,
		2006	Share Reform	2006
(1)	Unlisted shares
	Initiation shares	2,672,000,000	(2,672,000,000)	–
	Sub-total	2,672,000,000	(2,672,000,000)	–
(2)	Listed shares with restricted
	trading condition
(3) (4)	Initiation shares Sub-total Listed shares 1.A-shares 2.H-shares Total of listed shares Total share capital	– – 288,000,000 1,958,400,000 2,246,400,000 4,918,400,000	2,600,000,000 2,600,000,000 72,000,000 – 72,000,000 –	2,600,000,000 2,600,000,000 360,000,000 1,958,400,000 2,318,400,000 4,918,400,000

Th e share reform plan has been implemented by April 3, 2006. On the fi rst trading day aft er the completion of the share reform, the shares owned by Yankuang Group, the sole unlisted share holder of the Company, became tradable. However, Yankuang Group committed that it will not sell these shares in 48 months aft er the implementation of the reform.

Th e share capital has been verifi ed by Deloitte Touche Tohmatsu Certifi ed Public Accountants Ltd. (formerly known as Deloitte Touche Tohmatsu Shanghai CPA) on capital verifi cation report Deshibao (Yan)zi No. 588, capital verifi cation Deshibao (Yan)zi (98) No. 439, capital verifi cation Deshibao (Yan)zi (01) No. 006 and capital verification Deshibao (Yan)zi (01) No.040, and Deshibao (Yan)zi (04) No.037, and Deshibao (Yan)zi (05) No.0031.

Each share has a par value of RMB1.

Notes to the Financial Statements

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200

For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

31. Capital reserves

Changes in capital reserves from January 1, 2007 to December 31, 2007 are as follows:

		T e Group
	At January 1,			At December 31,
	2007	Additions	Reversals	2007
	RMB	RMB	RMB	RMB
Share premium	2,866,934,600	–	(4,970,955)	2,861,963,645
Including: Capital invested by investor	3,257,734,238	–	–	3,257,734,238
Dif erence arised from
business combination
involving enterprises
under common control Other capital reserve Including: Gains or losses arise from changes of fair value of available-for-sale f nancial assets Transfer from Wei Jian Fei Income tax ef ect related to items recorded in shareholder equity (Note) Total Share premium Including: Capital invested by investor	(390,799,638) 1,843,980,652 33,961,349 1,821,226,548 (11,207,245) 4,710,915,252 At January 1, 2007 RMB 2,866,934,600 3,257,734,238	– (4,970,955) 237,424,785 – 312,943,837 – – – (75,519,052) – 237,424,785 (4,970,955) T e Company Additions Reversals RMB RMB – (4,970,955) – –		(395,770,593) 2,081,405,437 346,905,186 1,821,226,548 (86,726,297) 4,943,369,082 At December 31, 2007 RMB 2,861,963,645 3,257,734,238
Dif erence arised from
business combination
involving enterprises
under common control	(390,799,638)	–	(4,970,955)	(395,770,593)
Other capital reserve	1,843,413,087	237,424,785	–	2,080,837,872
Including: Gains or losses arise from
changes of fair value of
available-for-sale
f nancial assets	33,961,349	312,943,837	–	346,905,186
Transfer from
Wei Jian Fei	1,820,658,983	–	–	1,820,658,983
Income tax ef ect related
to items recorded in
shareholder equity (Note)	(11,207,245)	(75,519,052)	–	(86,726,297)
Total	4,710,347,687	237,424,785	(4,970,955)	4,942,801,517

Notes to the Financial Statements

201

For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

31. Capital reserves (continued)

Note: Th e new EIT Law had been issued in March 16, 2007, and will come into force since January 1, 2008. Th e changes brought up by adopting the new EIT law are various, including but not only the change of income tax rate to 25% both to state-owned enterprises and foreign-invested enterprises. During the process of accounting treatment of income tax of 2007, the Company re-evaluated the deferred tax liability arising from the diff erence between the carrying amount of an asset or liability and its tax base. Th e re-evaluated deferred tax liability is considered unrecoverable aft er January 1, 2008. Th e related amount of adjustment is included in the addition of current year.

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Changes in capital reserves from January 1, 2006 to December 31, 2006 are as follows:

		T e Group	T e Group
	At January 1,			At December 31,
	2006	Additions	Reversals	2006
	RMB	RMB	RMB	RMB
Share premium Including: Capital invested by investor Dif erence arised from business combination involving enterprises under common control Other capital reserve Including: Gains or losses arise from changes of fair value of available-for-sale f nancial assets Transfer from Wei Jian Fei Income tax ef ect related to items recorded in shareholder equity Total	3,102,070,080 3,257,734,238 (155,664,158) 1,607,746,553 – 1,607,746,553 – 4,709,816,633	– – – 236,234,099 33,961,349 213,479,995 (11,207,245) 236,234,099	(235,135,480) – (235,135,480) – – – – (235,135,480)	2,866,934,600 3,257,734,238 (390,799,638) 1,843,980,652 33,961,349 1,821,226,548 (11,207,245) 4,710,915,252

Notes to the Financial Statements

202

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

31. Capital reserves (continued)

Changes in capital reserves from January 1, 2006 to December 31, 2006 are as follows:-continued

		T e Company	T e Company
	At January 1,			At December 31,
	2006	Additions	Reversals	2006
	RMB	RMB	RMB	RMB
Share premium	3,102,070,080	–	(235,135,480)	2,866,934,600
Including: Capital invested by investor	3,257,734,238	–	–	3,257,734,238
Dif erence arised from
business combination
involving enterprises
under common control	(155,664,158)	–	(235,135,480)	(390,799,638)
Other capital reserve Including: Gains or losses arise from changes of fair value of available-for-sale f nancial assets Transfer from Wei Jian Fei Income tax ef ect related to items recorded in shareholder equity Total	1,607,746,553 – 1,607,746,553 – 4,709,816,633	235,666,534 33,961,349 212,912,430 (11,207,245) 235,666,534	– – – (235,135,480)	1,843,413,087 33,961,349 1,820,658,983 (11,207,245) 4,710,347,687

32. Surplus reserves

Changes in surplus reserves from January 1, 2007 to December 31, 2007 are as follows:

	T e Statutory	Company and T e Statutory	Group
	common	common
	reserve fund	welfare fund	Total
	RMB	RMB	RMB
At January 1, 2007	1,751,118,730	–	1,751,118,730
Additions	286,821,607	–	286,821,607
At December 31, 2007	2,037,940,337	–	2,037,940,337

Notes to the Financial Statements

For the year ended December 31, 2007

203

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

32. Surplus reserves (continued)

Changes in surplus reserves from January 1, 2006 to December 31, 2006 are as follows:

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	T e	Company and T e	Group
	Statutory	Statutory
	common	common
	reserve fund	welfare fund	Total
	RMB	RMB	RMB
At January 1, 2006	1,026,553,719	509,491,373	1,536,045,092
Additions	215,073,638	–	215,073,638
Transferred in(out)	509,491,373	(509,491,373)	–
At December 31, 2006	1,751,118,730	–	1,751,118,730

Th e statutory common reserve fund can be used to make up the losses incurred in previous years, expand the business scale of the Company or convert it into share capital.

According to the policy of “Solution of company fi nancial problems aft er the implement of “Company Law”” which was released by the Ministry of Finance on March 15, 2006, the Company stopped appropriating the statutory common welfare fund from 2006, the remaining balance of the statutory common welfare fund was transferred to the statutory common reserve fund.

33. Unappropriated profi ts

Opening balance (Restated, see Note 6.1) Add: Net prof t for the year Less: Appropriations to statutorycommon reserve fund	(1)	T e 2007 RMB 6,307,125,592 2,693,298,106 286,821,607	Group 2006 RMB 5,762,017,206 1,842,230,024 215,073,638
Prof t available for distribution		8,713,602,091	7,389,173,592
Less: Dividend – cash dividend of last year
approved bythe shareholders’ meeting	(2)	983,680,000	1,082,048,000
Closingbalance		7,729,922,091	6,307,125,592
Including: cash dividend proposed
af er the balance sheet date	(3)	836,128,000	983,680,000

Notes to the Financial Statements

204

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

33. Unappropriated profi ts (continued)

		T e Company	T e Company
		2007	2006
		RMB	RMB
Opening balance (Restated, see Note 6.1)		6,766,041,995	5,912,427,260
Add: Net prof t for the year		2,868,216,070	2,150,736,373
Less: Appropriations to
statutorycommon reserve fund	(1)	286,821,607	215,073,638
Prof t available for distribution		9,347,436,458	7,848,089,995
Less: Dividend – cash dividend of last year
approved bythe shareholders’ meeting	(2)	983,680,000	1,082,048,000
Closingbalance		8,363,756,458	6,766,041,995
Including: cash dividend proposed af er the balance sheet date	(3)	836,128,000	983,680,000

(1) Appropriations to statutory common reserve fund

Pursuant to the Company’s Article of Association, 10% of its net profi t is appropriated as statutory common reserve fund. Such appropriations can be ceased when the accumulated amount of the fund reaches 50% of the Company’s registered capital.

(2) Cash dividend of last year approved by the shareholders’ meeting

According to the minute of Board of Directors date April 20, 2007, final dividend of RMB1.2 and special dividend of RMB 0.8 for every ten shares issued, is proposed based on the total issued shares of 4,918,400,000 (each share with a par value of RMB1). Th e proposal was approved by the shareholders’ meeting of the Company at June 15, 2007.

(3) Cash dividend proposed aft er the balance sheet date

According to the minute of Board of Directors date April 18, 2008, fi nal dividend of RMB1.7 for every ten shares issued, is proposed based on the total issued shares of 4,918,400,000 (each share with a par value of RMB1).

Notes to the Financial Statements

For the year ended December 31, 2007

205

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

34. Operation income

	T e	Group
	2007	2006
	RMB	RMB
Principal operations
Revenue from domestic sales of coal products	13,627,053,397	9,972,289,601
Revenue from export sales of coal products	1,566,004,996	3,086,518,268
Revenue from railwaytransportation services	210,672,480	165,487,803
	15,403,730,873	13,224,295,672
Other operations
Sales of materials	737,617,703	839,325,378
Sales of coals purchased from other companies	395,767,566	347,875,420
Others	58,716,285	46,922,887
Total	1,192,101,554 16,595,832,427	1,234,123,685 14,458,419,357

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	Principal operations Revenue from domestic sales of coal products Revenue from export sales of coal products Revenue from railwaytransportation services Other operations Sales of materials Sales of coals purchased from other companies Others	T e Company 2007 2006 RMB RMB 13,378,058,306 9,949,836,713 822,297,116 2,972,108,821 210,672,480 165,487,803 14,411,027,902 13,087,433,337 843,169,852 839,325,378 395,767,566 347,875,420 59,074,104 42,372,123 1,298,011,522 1,229,572,921
	Total	15,709,039,424 14,317,006,258

Total sales amount of the 5 largest customers is RMB3, 814,918,739, which accounts for 23% in total revenue.

The Company exports coal through China National Coal Group Corporation, Minerals Trading Co., Ltd. Currently, the Company does not have direct export rights, so has to export coals through trading companies, and the fi nal decision on customer selection of the Company’s export sales is jointly determined by the Company and the above-mentioned trading companies. Th erefore the sales amounts of sales made through these companies are excluded from sales of the 5 largest customers.

Notes to the Financial Statements

206

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

35. Cost of principal operations

	T e	Group
	2007	2006
	RMB	RMB
Principal operations
Cost of sales of coal products	7,408,487,417	6,733,847,303
Cost of the railwaytransportation services	186,310,302	95,881,526
	7,594,797,719	6,829,728,829
Other operation
Sales of materials	691,626,141	798,866,147
Sales of coals purchased from other companies	378,180,151	338,711,469
Others	66,699,249	22,985,494
Total	1,136,505,541 8,731,303,260	1,160,563,110 7,990,291,939

	Principal operation Cost of sales of coal products Cost of the railwaytransportation services Other operation Sales of materials Sales of coals purchased from other companies Others Total	T e Company 2007 2006 RMB RMB 6,624,934,984 6,484,669,310 186,310,302 95,881,526 6,811,245,286 6,580,550,836 797,284,209 798,866,147 378,180,151 338,711,469 54,948,231 21,537,891 1,230,412,591 1,159,115,507 8,041,657,877 7,739,666,343

Notes to the Financial Statements

207

For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

36. Operating taxes and surcharges

	T e Group
	2007	2006
	RMB	RMB
Business tax	11,160,156	6,224,299
City construction tax	103,718,757	93,188,839
Education fee	58,683,219	53,231,994
Resource tax	124,606,029	128,945,444
	298,168,161	281,590,576

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	T e Company	T e Company
	2007	2006
	RMB	RMB
Business tax City construction tax Education fee Resource tax	8,188,893 103,456,095 57,847,459 120,232,835 289,725,282	6,224,299 93,188,839 53,231,994 128,367,526 281,012,658

37. Selling expenses

	Selling expense of domestic sales of coal products Selling expense of export sales of coal products Others	T e 2007 RMB 280,694,126 270,429,011 134,579,627 685,702,764	Group 2006 RMB 358,413,521 578,205,367 101,379,018 1,037,997,906

	T e Company 2007 2006	T e Company 2007 2006
	RMB	RMB
Selling expense of domestic sales of coal products	285,816,095	362,767,644
Selling expense of export sales of coal products	187,076,095	578,205,367
Others	57,851,000	71,486,580
	530,743,190	1,012,459,591

Notes to the Financial Statements

208

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

38. Financial expenses

	T e Group	T e Group
	2007	2006
	RMB	RMB
Interest expenses	27,221,625	26,372,250
Less: interest income	103,563,604	78,055,613
Exchange loss (Less: gain)	3,189,860	8,731,147
Others	700,669	9,985,607
	(72,451,450)	(32,966,609)
	T e Company
	2007	2006
	RMB	RMB
Interest expenses Less: interest income Exchange loss (Less: gain) Others	2,500,000 92,821,045 145,050,247 162,291 54,891,493	22,407,561 71,078,881 76,300,283 2,666,460 30,295,423

39. Impairment loss

	Bad Debt Bad Debt	T e Group 2007 2006 RMB RMB (4,364,203) (19,716,674) T e Company 2007 2006 RMB RMB (4,361,841) (19,746,863)

Notes to the Financial Statements

For the year ended December 31, 2007

209

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

40. Investment income

		T e Group
		2007	2006
		RMB	RMB
Long-term	equity investment income	(2,438,230)	730,250
Including:	Prof t distributions declared by
	the investee under the cost method	–	730,250
	Losses recognized under the entity method	(2,438,230)	–
Available-for-sale f nancial assets		7,143,648	5,580,975
Total		4,705,418	6,311,225

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Long-term equity investment income Including: Prof t distributions declared by the investee under the cost method Losses recognized under the entity method Available-for-sale f nancial assets Interest income from entrust loan Total	T e Company 2007 RMB (2,075,113) 363,117 (2,438,230) 7,143,648 99,899,568 104,968,103	2006 RMB 1,028,832 1,028,832 – 5,580,975 40,328,834 46,938,641

Notes to the Financial Statements

210

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

41. Non-operating income

	T e Group
	2007	2006
	RMB’000	RMB’000
Gain on disposal of f xed assets	25,003,458	5,915,662
Government grant (Note)	300,000	4,000,000
Others	4,086,329	5,193,462
	29,389,787	15,109,124
	T e Company
	2007	2006
	RMB’000	RMB’000
Gain on disposal of f xed assets Government grant (Note) Others	24,950,278 – 2,856,681 27,806,959	5,915,662 4,000,000 4,097,789 14,013,451

Note 1: Th e government grant represents the fi nancial subsidy the Company’s subsidiaries received which is granted by the Government. Th e subsidy income in 2006 represented the subsidy, which is granted by Ministry of Commerce, according to the Announcement [2005] No.146, to used in foreign investment in resource industry and in supporting the prophase construction of the foreign economic cooperation.

42. Non-operating expense

	Loss on disposal of f xed assets Others	T e Group 2007 RMB’000 339,742,700 33,730,015 373,472,715	2006 RMB’000 79,439,311 10,122,814 89,562,125

	T e Company
	2007	2006
	RMB’000	RMB’000
Loss on disposal of f xed assets	339,742,700	79,439,311
Others	31,502,774	3,370,663
	371,245,474	82,809,974

Notes to the Financial Statements

For the year ended December 31, 2007

211

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

43. Income taxes

	T e Group	T e Group
	2007	2006
	RMB	RMB
Current tax expense	1,379,682,514	1,285,550,000
Deferred tax expense	(31,174,701)	–
	1,348,507,813	1,285,550,000

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Reconciliation of income tax expenses to the accounting profi t is as follows:

		2007	2006
		RMB	RMB
	Accounting prof t Income tax expenses calculated at 33% (2006: 33%) Ef ect of expenses that are not deductible for tax purposes Ef ect of unrecognized deductible losses and deductible temporary dif erences for tax purposes Ef ect of previous year unrecognized deductible losses and deductible temporary dif erences for tax purposes Ef ect of dif erent tax rates of subsidiaries operating in other jurisdictions Previousyear overprovision income tax adjustment Income tax expense	4,039,466,379 1,333,023,905 100,664,007 16,338,408 (123,439) 3,117,470 (104,512,538) 1,348,507,813	3,126,452,508 1,031,729,328 178,431,855 94,995,059 (3,027,188) 7,654,023 (24,233,077) 1,285,550,000

44. Earning per share

Th e calculation of the earnings per share attributable to equity holders of the Company ended December 31, 2007 and 2006 is based on the profi t both periods of RMB2,693,298,106 and RMB1,842,230,024 and on the weighted average shares during both periods of 4,918,400,000 shares and 4,918,400,000 shares.

45. Net profi t deducted non-recurring gain and loss

	T e Group	T e Group
	For the period ended Dec 31,
	2007	2006
	RMB	RMB
Net prof t	2,693,298,106	1,842,230,024
Add/less: non-recurring prof t and loss
– Loss (gains) on disposal of non-current assets	314,739,242	73,523,649
– Government grants	(300,000)	(4,000,000)
– Other deductible non-operating expenditure	29,643,686	4,929,352
– Income tax ef ect for non-recurring gain and loss	(103,166,532)	(24,160,067)
Netprof t af er non-recurring prof t and loss	2,934,214,502	1,892,522,958

Notes to the Financial Statements

212

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

46. Cash and cash equivalents

	T e	Group
	2007	2006
	RMB	RMB
Cash	5,719,545,348	5,910,475,432
Including: Cash on hand	304,445	966,211
Deposits that can be readily drawn on demand	5,717,139,097	5,907,670,365
Other currency that can be readily drawn on demand	2,101,806	1,838,856
Cash equivalents	–	–
Cash and cash equivalents	5,719,545,348	5,910,475,432
Restricted cash and cash equivalents the
Companyand the subsidiaries(Note 1)	60,006,947 5,779,552,295	117,585,327 6,028,060,759

Note 1: Th e amounts represent the deposits placed in banks secured for the future payment of land subsidence, restoration, rehabitation and environmental costs of Austar under the request of Australia government and for issuing letter of credit and cash acceptance.

Cash Including: Cash on hand Deposits that can be readily drawn on demand Other currency that can be readily drawn on demand Cash equivalents Cash and cash equivalents	T e Company 2007 2006 RMB RMB 5,626,433,656 5,599,896,104 177,122 273,904 5,624,154,728 5,597,783,344 2,101,806 1,838,856 – – 5,626,433,656 5,599,896,104	T e Company 2007 2006 RMB RMB 5,626,433,656 5,599,896,104 177,122 273,904 5,624,154,728 5,597,783,344 2,101,806 1,838,856 – – 5,626,433,656 5,599,896,104
Restricted cash and cash equivalents
in the Company (Note 2)	8,852,151	15,503,032
	5,635,285,807	5,615,399,136

Note 2: Th e amounts represent the deposits placed in banks secured for issuing letter of credit at the balance date.

Notes to the Financial Statements

For the year ended December 31, 2007

213

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

47. Supplemental information of cash fl ow

		T e Group	T e Company	T e Company
	2007	2006	2007	2006
		(restated)		(restated)
Reconciliation of net prof t to net cash f ow
from operating activities
Net prof t	2,690,958,566	1,840,902,508	2,868,216,070	2,150,736,373
Add: Provision (reversal) of impairment
of assets	(4,364,203)	(19,716,674)	(4,361,841)	(19,746,863)
Depreciation of f xed assets	1,110,783,002	1,027,692,415	991,290,827	981,548,810
Provision for Wei Jian Fei	204,389,437	213,479,995	196,968,889	212,912,430
Provision for Work Safety Expense	281,176,555	285,663,920	262,625,185	283,883,240
Provision for Reform and
Specif c Development Fund	164,140,741	177,427,025	164,140,741	177,427,025
Amortization of intangible assets Decrease (increase) in other current liabilities Decrease (increase) in Long-term deferred expense Increase (decrease) in other current liabilities Losses (gains) on disposal of f xed assets and other long-term assets Financial expenses Losses (gain) arising from investments Decrease (increase) in deferred tax assets Decrease (increase) in inventories Decrease (increase) in receivables under operating activities Increase (decrease) in payables under operatingactivities Net cash f ow from operatingactivities	23,829,655 229,265,868 3,339,247 19,634,780 314,739,242 27,221,625 (4,705,418) (31,174,701) 139,427,119 (855,313,451) 267,439,134 4,580,787,198	25,096,163 35,157,858 – – 73,523,649 26,372,250 (6,311,225) – (104,450,309) (126,414,416) 928,398,115 4,376,821,274	19,872,788 229,015,874 – 19,634,780 314,792,422 2,500,000 (104,968,103) – 92,196,040 (804,070,380) 269,750,239 4,497,968,751	19,806,680 35,309,093 – – 73,523,649 22,407,561 (46,938,641) – 10,668,210 (255,968,270) 321,860,838 3,967,430,135

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Notes to the Financial Statements

214

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

48. Other cash relating to operating activities

		T e Group		T e Company
Item	2007	2006	2007	2006
	RMB	RMB	RMB	RMB
Other cash received relating
to operating activities
Non operating income	4,086,329	5,193,463	2,856,681	4,097,790
Interest income	103,563,604	78,055,613	92,821,045	71,078,881
Received cash from funds paid
on other’s behalf	326,067,569	454,220,837	275,609,347	282,030,114
Subsidyincome	300,000	4,000,000	–	4,000,000
Total	434,017,502	541,469,913	371,287,073	361,206,785
Other cash paid relating
to operating activities Payments for selling and administrative expenses Others Total	1,821,319,523 208,782,072 2,030,101,595	749,715,999 318,392,817 1,068,108,816	1,653,551,041 466,015,521 2,119,566,562	1,321,486,616 254,635,042 1,576,121,658

49. Other cash relating to investing activities

	Item Other cash received relating to investing activities Cash received from bank securities Other cash paid relating to investing activities Cashpaid to bank securities	2007 RMB 59,404,380 –	T e Group 2006 RMB – 81,034,538	T e Company 2007 2006 RMB RMB 6,650,881 – – 15,503,032

Notes to the Financial Statements

For the year ended December 31, 2007

215

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

50. Segment information

The Company is engaged in coal mining and coal railway-transportation business. The Company is not entitled to export directly so that it exports coal through trading companies which are China National Coal Group Corporation, Minerals Trading Co., Ltd., and Shanxi Coal Import & Export Group Corporation. Some subsidiaries in China are engaged in trade and mining machinery machining, also in river and lake transportation business. In view of the assets, total sales and results of operations of such businesses have no signifi cant impact on the Company, the fi nancial report does not disclose these businesses as a segment individually. Th ese businessrelated data have been included in the coal business.

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As the Company’s risks and returns are aff ected predominantly by diff erences in the products and services it produces, its primary format in disclosure of segment information is business segment, while its secondary format is geographical segment.

(1) Primary format for reporting segment information – Business Segment

Operating revenue External Inter-segment Total Operating expense – Cost of sales – External – Inter-segment – Operating expense Total operating prof t	Coal mining business 2007 2006 RMB RMB 16,385,159,94814,292,931,554 – – 16,385,159,94814,292,931,554 8,544,992,958 7,888,788,413 – – 2,821,619,515 2,792,201,321 11,366,612,47310,680,989,734 5,018,547,475 3,611,941,820	Railway transportation business 2007 2006 RMB RMB 210,672,479 165,487,803 103,267,405 206,769,553 313,939,884 372,257,356 186,310,302 101,503,526 88,053,549 140,494,286 111,271,356 116,506,683 385,635,207 358,504,495 (71,695,323) 13,752,861	Railway transportation business 2007 2006 RMB RMB 210,672,479 165,487,803 103,267,405 206,769,553 313,939,884 372,257,356 186,310,302 101,503,526 88,053,549 140,494,286 111,271,356 116,506,683 385,635,207 358,504,495 (71,695,323) 13,752,861	Other 2007 RMB – – – – – 84,502,914 84,502,914 (84,502,914)	business 2006 RMB – – – – – 31,053,145 31,053,145 (31,053,145)	Inter-segment elimination 2007 2006 RMB RMB – – (103,267,405) (206,769,553) (103,267,405) (206,769,553) – – (88,053,549) (140,494,286) (15,213,856) (66,275,267) (103,267,405) (206,769,553) – –	Inter-segment elimination 2007 2006 RMB RMB – – (103,267,405) (206,769,553) (103,267,405) (206,769,553) – – (88,053,549) (140,494,286) (15,213,856) (66,275,267) (103,267,405) (206,769,553) – –	Unallocated items 2007 2006 RMB RMB – – – – – – – – – – 478,799,931 393,736,027 478,799,931 393,736,027 (478,799,931) (393,736,027)	Unallocated items 2007 2006 RMB RMB – – – – – – – – – – 478,799,931 393,736,027 478,799,931 393,736,027 (478,799,931) (393,736,027)	Total 2007 2006 RMB RMB 16,595,832,42714,458,419,357 – – 16,595,832,42714,458,419,357 8,731,303,260 7,990,291,939 – – 3,480,979,860 3,267,221,909 12,212,283,12011,257,513,848 4,383,549,307 3,200,905,509	Total 2007 2006 RMB RMB 16,595,832,42714,458,419,357 – – 16,595,832,42714,458,419,357 8,731,303,260 7,990,291,939 – – 3,480,979,860 3,267,221,909 12,212,283,12011,257,513,848 4,383,549,307 3,200,905,509
Total assets	14,948,016,86213,498,407,402	813,626,688	933,986,515	3,292,153,257	1,466,313,123	(1,734,498,044)	(575,922,489)	8,006,200,676	7,218,144,145	25,325,499,439	22,540,928,696
Total liabilities	4,210,231,897 3,576,990,029	23,815,600	20,367,522	2,190,804,417	790,529,756	(1,734,498,044)	(575,932,489)	969,912,641	994,701,756	5,660,266,511	4,806,666,574
Additional information
Depreciation and amortization	1,031,556,950 941,968,215	83,195,617	82,888,262	1,952,929	378,135	–	–	17,907,161	27,554,146	1,134,612,657	1,052,788,578
Impairment losses	(4,364,203) (19,716,674)	–	–	–	–	–	–	–	–	(4,364,203)	(19,716,674)
Capital additions	1,124,216,212 2,322,375,578	68,212,772	41,442,348	1,575,183,299	1,160,045,246	–	–	78,411,398	246,669,276	2,846,023,681	3,770,532,448

Th e segment accounting policies are consistent with those for the consolidated fi nancial statements.

Inter-segment transfers are measured on the basis of actual transaction price. Segment revenue and expenses are determined by the actual revenue and expenses of each segment.

Notes to the Financial Statements

216

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For the year ended December 31, 2007

IX. NOTES TO THE FINANCIAL STATEMENTS (continued)

50. Segment information (continued)

(2) Secondary format for reporting segment information – Geographical Segment

Th e Company’s operations are primarily located in the PRC. In December 2004, the Company acquired the South Land Coal Mine in Australia. As more than 90% of all the business is in the PRC, the fi nancial report does not disclose the geographical segment of the Company’s operating income and total assets.

X. SIGNIFICANT RELATED PARTY TRANSACTIONS

(1) Th e followings are related parties where a control relationship exists:

	Name of	Registration	Major			Statutory
	relatedparties	address	business	Relationship	Nature	representative
	Yankuang Group	Zoucheng, Shandong	Industry processing	Major shareholder	State-owned	Geng Jia Huai

(2) See Note VIII for the detail information of subsidiaries.
(3) Transactions entered with the Company and key directors and supervisors:

Th e remuneration paid to key directors and supervisors amounted to RMB 3,096,936 and RMB4,111,103 in 2007 and 2006 respectively. Th e payment included salary, welfare and bonus paid by money, in-kind and other forms.

Notes to the Financial Statements

For the year ended December 31, 2007

217

X. SIGNIFICANT RELATED PARTY TRANSACTIONS (continued)

(4) Significant transactions entered with the Company and other related parties except for key directors and supervisors in current year:
(a) Acquisition of Jining III

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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, 2007, the Company had paid RMB2,530,390,000 to Yankaung Group for the above acquisition, including the consideration of RMB2,450,900,000 and the mining rights of RMB92,730,000.

According to the agreement, the Company will pay the interest-free consideration for the cost of mining rights over ten years by equal installments before December 31 of each year commencing from year 2001. Th e Company is scheduled to pay for the mining rights of RMB13,248,000 as the eighth installment before December 31, 2008.

Th e consideration for the acquisition is determined according to revaluation price.

(b) Sales and purchases

Sales and service provided: Sales of coal – Yankuang Group and its af liates Material and spare parts sales – Yankuang Group and its af liates – Subsidiaries Fixed assets lease – Subsidiaries Entrust Loan Interest	2007 RMB’000 1,014,963 595,143 – –	T e Group 2006 RMB’000 1,069,879 496,221 – –	T e Company 2007 2006 RMB’000 RMB’000B 1,014,963 1,069,879 595,143 496,221 105,658 – 13,325 –	T e Company 2007 2006 RMB’000 RMB’000B 1,014,963 1,069,879 595,143 496,221 105,658 – 13,325 –
– Subsidiaries	–	–	102,871	40,329
	1,610,106	1,566,100	1,831,960	1,606,429
Purchases
– Yankuang Group and its af liates	454,469	458,329	454,469	458,329
– Subsidiaries	–	–	22,289	25,321
	454,649	458,329	476,758	483,650

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

Notes to the Financial Statements

218

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For the year ended December 31, 2007

X. SIGNIFICANT RELATED PARTY TRANSACTIONS (continued)

(4) Significant transactions entered with the Company and other related parties except for key directors and supervisors in current year: (continued)

(c) Construction services

		T e Group	T e Company	T e Company
	2007	2006	2007	2006
	RMB’000	RMB’000	RMB’000	RMB’000B
Yankuang Group provide
construction services for the
company and its af liates:
Yanzhou Coal Mining
Injury Rescue Centre	–	52,060	–	52,060
Transportation system in
Nantun Coal Mine
Yanzhou Coal Mining Mining construction for Taihao Mining construction for Heze Power Construction of methane project in Yulin	– 46,840 86,722 183,239 316,801	39,875 – 53,574 161,149 306,658	– – – – –	39,875 – – – 91,935

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

Notes to the Financial Statements

For the year ended December 31, 2007

219

X. SIGNIFICANT RELATED PARTY TRANSACTIONS (continued)

(4) Significant transactions entered with the Company and other related parties except for key directors and supervisors in current year: (continued)
(d) Amount due to or from related parties

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Account	Company	T e Group	T e Group	T e	Company
		At December 31,	At December 31,	At December 31,	At December 31,
		2007	2006	2007	2006
		RMB	RMB	RMB	RMB
Notes receivable	Yankuang Group and its af liates	93,466,672	57,195,006	93,466,672	57,195,006
Accounts receivable	Yankuang Group and its af liates	6,019,424	9,655,076	6,019,424	9,655,076
Other receivables (Note)	Yankuang Group and its af liates	36,054,895	39,919,268	36,054,895	39,919,268
Other non-current assets	Yankuang Group and its af liates	50,274,598	1,570,374	104,209	1,570,374
Entrust Loan	Subsidiaries	–	–	2,170,189,800	1,132,504,700
Interest receivable	Subsidiaries	–	–	76,482,715	31,457,046
Other receivable Prepayments Entrust loan due within oneyear Notes payable Accounts payable Advances from customers Other payables (Note) Long-term payable due within one year (IX 28 and X (4)(a)) Long-term payables (IX 28 and X (4)(a)) Other Payable	Subsidiaries Subsidiaries Subsidiaries Yankuang Group and its af liates Yankuang Group and its af liates Yankuang Group and its af liates Yankuang Group and its af liates Yankuang Group and its af liates Yankuang Group and its af liates Subsidiaries	– – – 185,815,589 15,419,278 40,929,264 40,737,634 736,881,732 11,398,800 24,680,160 – 870,046,868	– – – 108,339,724 – 76,620,248 58,022,475 955,249,117 10,747,800 36,078,960 – 1,136,718,600	670,655,172 261,841 197,224,200 3,250,458,928 15,419,278 25,321,557 40,737,634 535,721,562 11,398,800 24,680,160 456,503,147 1,109,782,138	481,571,183 4,469,638 283,278,300 2,041,620,591 – 52,377,549 58,022,475 858,305,776 10,747,800 36,078,960 226,863,140 1,242,395,700

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

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

Notes to the Financial Statements

220

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For the year ended December 31, 2007

X. SIGNIFICANT RELATED PARTY TRANSACTIONS (continued)

(4) Significant transactions entered with the Company and other related parties except for key directors and supervisors in current year: (continued)
(e) Other transactions
- (1) Pursuant to an agreement signed between the Company and Yankuang Group, Yankuang Group manages the retirement benefi ts, medical benefi ts and other benefi ts of the two companies and makes combined payments of the total retirement benefi ts of the two companies to the government department in charge of the related funds. Amount charged to expenses of the Company for 2007 and 2006 are RMB799,274,000 and RMB839,924,000 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	T e Group and Company 2007 2006 RMB’000 RMB’000 368,993 349,095 215,102 246,841 20,000 20,000 12,980 12,980 8,081 9,275 60,718 63,448 26,000 26,000 86,200 86,200 40,800 40,800 53,700 53,700 892,574 908,339

Note: Pursuant to the mining rights agreement which the Parent Company and the Company entered into, the Company paid to the Parent Company an annual fee of RMB12,980,000 as compensation for the Parent Company’s agreement to give up fi ve mining rights from February 1998. Th e annual fee is subject to change aft er a ten-year period. Th e expense will be paid until the end of mining right of the last coal mine.

(3) In 2007 and 2006, 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. Th ese payments and receipts made on behalf of the other have been recorded in other payables.

Notes to the Financial Statements

221

For the year ended December 31, 2007

XI. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Th e Group’s major fi nancial instruments include available for-sales equity instrument, bills and accounts receivable, other loan receivable, other receivables, bank balances and cash, term deposits, restricted cash, bills and accounts payable, other payable, borrowings and amount due to Parent Company and its subsidiary companies. Details of these fi nancial instruments are disclosed in Note IX. Th e risks associated with these fi nancial instruments and the policies on how to mitigate these risks are set out below. Th e management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and eff ective manner.

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1. Risk management objectives and policies

Th e Group’s risk management objectives are to achieve proper balance between risks and yield, minimize the adverse impacts of risks on the Group’s operation performance, and maximize the benefi ts of the shareholders and other equity investors. Based on these risk management objectives, the Group’s basic risk management strategy is to identify and analyse the industry’s exposure to various risks, establish appropriate bottom line for risk tolerance and implement risk management, and monitor various risks in a timely and reliable manner to ensure risks are under control within certain limits.

1.1. Market risk

1.1.1. Currency risk

Th e Group’s sales are denominated mainly in the functional currency of the group entity making the sale, whilst costs are mainly denominated in the group entity’s functional currency. Accordingly, there is no signifi cant exposure to foreign currency risk.

	Liabilities At At December 31,December 31,	Liabilities At At December 31,December 31,	Assets At At December 31,December 31,	Assets At At December 31,December 31,
	2007	2006	2007	2006
	RMB’000	RMB’000	RMB’000	RMB’000
United States Dollar (“USD”)	2,250	1,354	641,057	808,328
Euros (“EUR”)	47,338	13,932	34,018	76,563
Hong Kong Dollar (“HKD”)	–	–	103,851	457,546
SterlingPound(“GBP”)	–	–	–	283

Notes to the Financial Statements

222

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For the year ended December 31, 2007

XI. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

1. Risk management objectives and policies (continued)

1.1. Market risk (continued)

1.1.2. Interest rate risk

Th e Group is exposed to fair value interest rate risk in relation to fi xed–rate loan receivable (see Note IX 8 for details). Th e Group is also exposed to cash fl ow interest rate risk in relation to variable-rate bank borrowings (see Note IX 27 for details of these borrowings).

Th e Group currently does not have any interest rate hedging policy.

1.1.3. Other price risk

Investments classifi ed as available-for-sale fi nancial assets which are held by the Group, are measured at fair value at the balance sheet date. Th erefore, the Group is exposed to risks of changes in securities market. Up till now, the Company does not have any arrangement on hedging securities price.

1.2. Credit risk

At December 31, 2007, the Group’s maximum exposure to credit risk which will cause a fi nancial loss to the Group is the failure to perform their obligations in relation to each class of recognized fi nancial assets is the carrying amount of those assets as stated in the consolidated balance sheet. Th e carrying amount of the recognised fi nancial assets in the consolidated balance sheet. For fi nancial instruments measured at fair value, the carrying amount refl ects the exposure to risks (but not the maximum exposure to risks); the maximum exposure to risks may change depending on future changes in the fair value.

Th e Group maintains its cash and cash equivalents with reputable banks. Th erefore, the directors consider that the credit risk for such is minimal.

Notes to the Financial Statements

For the year ended December 31, 2007

223

XI. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

1. Risk management objectives and policies (continued)

1.2. Credit risk (continued)

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Th e Group generally grants the long-term customers credit terms not exceeding 180 days, depending on the situations of the individual customers. For small to medium sized new customers, the Group generally requires them to pay for the products before delivery.

Most of the Group’s domestic sales are sales to electric power plants, metallurgical companies, construction material producers and railway companies. Th e Group generally has established long-term and stable relationships with these companies. The Group also sells its coal to provincial and city fuel trading companies.

As the Group does not currently have direct export rights, all of its export sales must be made through National Coal Corporation, Shanxi Coal Corporation or Minmetals Trading. Th e quality, prices and fi nal customer destination of the Group’s export sales are determined by the Group, National Coal Corporation, Shanxi Coal Corporation or Minmetals Trading.

For the years ended December 31, 2007 and 2006, net sales to the Group’s fi ve largest domestic customers accounted for approximately 23%, and 20%, respectively, of the Group’s total net sales. Net sales to the Group’s largest domestic customer accounted for 11% and 9% of the Group’s net sales for the years ended December 31, 2007 and 2006, respectively. Th e Group’s largest domestic customer was the Huadian Power International Corporation Limited (“Huadian”) for the years ended December 31, 2007 and 2006.

Details of the amounts receivable from the fi ve customers with the largest receivable balances at December 31, 2007 and 2006 are as follows:

		Percentage of accounts receivable At December 31 2007	2006
	Five largest receivable balances	61%	72%

Th e management considers the strong fi nancial background and good creditability of these customers, and there is no signifi cant uncovered credit risk.

Notes to the Financial Statements

224

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For the year ended December 31, 2007

XI. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

1. Risk management objectives and policies (continued)

1.2. Credit risk (continued)

Th e table below shows the credit limit and balance of 5 major counterparties at the balance sheet date:

At December 31, 2007 At December 31, 2006 Credit Carrying Credit Carrying Counterparty Location limit amount limit amount RMB’000 RMB’000 RMB’000 RMB’000	At December 31, 2007 At December 31, 2006 Credit Carrying Credit Carrying Counterparty Location limit amount limit amount RMB’000 RMB’000 RMB’000 RMB’000	At December 31, 2007 At December 31, 2006 Credit Carrying Credit Carrying Counterparty Location limit amount limit amount RMB’000 RMB’000 RMB’000 RMB’000
Company A T e PRC 40,000 Company B T e PRC 40,000 Company C T e PRC 20,000 Company D T e PRC 10,000 Company E T e PRC 10,000 Company F T e PRC – Company G T e PRC – Company H T e PRC –	32,773 30,000 31,664 30,000 13,645 – 3,896 – 3,756 – – 40,000 – 40,000 – 40,000 85,734	26,075 16,875 – – – 37,009 36,862 34,836
		151,657

As at December 31, 2007, the Group has exposure to credit risk in the event of the counterparties failure to perform their obligation in relation to the Default Loan (Note IX 8). In order to minimize the credit risk, the management of the Group has monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of other loan receivables at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is signifi cantly reduced.

Th e Group’s geographical concentration of credit risk is mainly in the PRC, which accounted for over 80% of the Group’s total trade receivable as at December 31, 2007 and 2006.

Notes to the Financial Statements

For the year ended December 31, 2007

225

XI. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

1. Risk management objectives and policies (continued)

1.3. Liquidity risk

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Liquidity and interest risk tables

2007 Non-derivative f nancial liabilities Bills payables Accounts payables Other payables Non-current liabilities due within one year Other current liabilities Bank borrowings Long-termpayable	Weighted average ef ective interest rate % N/A N/A N/A N/A N/A 6.84%-7.09% N/A	Less than 3 months RMB’000 128,210 559,346 1,909,171 13,248 19,635 – – 2,629,610	3-6 months RMB’000 26,310 – – – – 11,325 – 37,635	6 months to 1 year RMB’000 – – – – – 65,135 – 65,135	1-5 years RMB’000 – – – – – 175,968 26,496 202,464	5+years RMB’000 – – – – – 169,799 – 169,799	Total undiscounted cashf ow RMB’000 154,520 559,346 1,909,171 13,248 19,635 422,227 26,496 3,104,643	Carrying amount at December 31, RMB’000 154,520 559,346 1,909,171 13,248 19,635 330,000 24,680 3,010,600
2006
Non-derivative f nancial
liabilities
Bills payables	N/A	97,473	71,472	–	–	–	168,945	168,945
Accounts payables	N/A	662,673	–	–	–	–	662,673	662,673
Other payables	N/A	1,760,353	–	–	–	–	1,760,353	1,760,353
Non-current liabilities
due within one year	N/A	13,248	–	–	–	–	13,248	13,248
Bank borrowings	5.85%-6.12%	–	–	53,060	231,438	195,063	479,561	380,000
Long-termpayable	N/A	–	–	–	39,744	–	39,744	36,079
		2,533,747	71,472	53,060	271,182	195,063	3,124,524	3,021,298

Notes to the Financial Statements

226

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For the year ended December 31, 2007

XI. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

2. Fair value

Th e fair values of the fi nancial assets are determined as follows:

Th e fair value of available-for-sales investments are determined with reference to quoted market price.

Th e fair value of other fi nancial assets and fi nancial liabilities are determined in accordance with generally accepted pricing models based on discounted cash fl ow analysis.

Th e company’s management believes the book value of the fi nancial assets measured by fair value in the fi nancial statement is closed to the fair value.

3. Sensitivity analysis

Th e company analyze the reasonable and possible impact on the current P&L and shareholders equity that the risk variance made by using sensitivity analysis technology. It is seldom that a risk variance takes isolated changes. On the contrary, a certain variance always takes a signifi cant impact on the fi nalized amount, on condition that there is certain relativity between it and the other variances. Th erefore, the following result is based on the assumption that all changes happened in the independent circumstances.

Notes to the Financial Statements

For the year ended December 31, 2007

227

XI. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

3. Sensitivity analysis (continued)

3.1. Foreign exchange risks

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Th e Company is mainly exposed to the currency of United States Dollar and Hong Kong Dollar. Given the other variables unchanged, the possible reasonable changes to exchange rate may bring following before-tax aff ects to current year profi t and loss.

USD Impact	USD Impact	HKD Impact	HKD Impact
2007	2006	2007	2006
RMB’000	RMB’000	RMB’000	RMB’000
Increase (Decrease) to
prof t and loss
– if RMB weakens against Respective foreign currency (Note 1) 62,804 – if RMB strengthens against Respective foreign currency (Note 1) (62,804) Increase (Decrease) to prof t and loss – if AUD weakens against Respective foreign currency (Note 2) – if AUD strengthens against Respective foreign currency (Note 2)	73,140 (73,140)	4,945 21,788 (4,945) (21,788) USD Impact 2007 2006 RMB’000 RMB’000 (31,305) (33,466) 31,305 33,466

Note 1: Th is is mainly attributable to the exposure outstanding on assets and liabilities to foreign operations within the company and its subsidiaries in PRC of USD and HKD at year end.

Note 2: Th is is mainly attributable to the exposure outstanding on assets and liabilities to foreign operations within the company’s Australia subsidiaries of USD and HKD at year end.

Notes to the Financial Statements

228

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For the year ended December 31, 2007

XI. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

3. Sensitivity analysis (continued)

3.2. Interest rate sensitivity analysis

Interest rate risk sensitivity analysis based on the following assumptions:

Market interest rates fl uctuation have a eff ect on the interest income or expense of variable interest
To calculate the fair value fl uctuation of fi nancial assets and liabilities by using discounted cash fl ow method with the market interest rate on balance sheet day.

Th e possible reasonable changes in interest have no material aff ect to current profi t and loss and equity on the basis of assumptions mentioned above and with the same circumstances of the other variables.

3.3. Stock market sensitivity analysis

In addition to the above risks relating to fi nancial instruments, the Company is exposed to equity price risk through investment in listed equity securities. Th e Company currently does not have any arrangement to hedge the price risk exposure of its investment in equity securities. Th e Company's exposure to equity price risk through investment in listed equity securities and also the result of the sensitivity analysis is not signifi cant.

Notes to the Financial Statements

For the year ended December 31, 2007

229

XII. COMMITMENTS

1. Capital Commitment

	At	At
	December 31,	December 31,
	2007	2006
	RMB’000	RMB’000
Capital expenditure contracted for but not provided
in the f nancial statements in respect of:
– Purchase of assets	322,271	1,221,884
– Investment on associate	203,800	99,800
Total	526,071	1,321,684

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2. Other Commitment

Pursuant to the regulations issued by the Shandong Province Finance Bureau, the Company has to pay a deposit of RMB1,073 million to the relevant government authority, which secured for the environmental protection work done by the Company. As at December 31, 2007, deposit of RMB200 million were made and the Company is committed to further make security deposit of RMB874 million.

XIII. OTHER IMPORTANT EVENTS

Pursuant to the supplementary agreement between Yankuang Group and the Company on the acquisition of Heze Power share, Yankuang Group made an irrevocable claim that as soon as it got the mining rights of Zhaolou Mine and Wanfu Mine, the Company had the rights to acquire the mining rights within 12 months from that specifi c date. Furthermore, if any of the following matters occurred before June 30, 2006: (1) Heze Power failed to obtain the land use rights of Zhaolou Mine and its coal cleaning factory; (2) Yankuang Group failed to obtain the mining rights of Zhaolou Mine; (3) Any other factors led to the Group’s failure in acquiring Zhaolou Mine’s mining rights; the Company had the rights to send back its 95.67% share of Heze Power to the Group. Yankuang Group should pay back the Company the acquisition price, the net capital investment made by the Company to Heze Power, and the interest at a rate of 10% per annum for a twelve-month period. As at March 5, 2007, Yankuang Group had already obtained certain approval from the government on the land use rights of Heze Power coal cleaning factory with some procedures still in the process. And the mining rights of Zhaolou Mine was also successfully obtained on June 28, 2006. Approved by the shareholders’ meeting held on January 30, 2008, Heze Power will purchase the mining rights of Zhaolou Mine from Yankuang Group at a consideration of approximately RMB 747.3 million. Th e transaction is subject to the fi nal approval by relevant government department.

XIV APPROVE OF FINANCIAL STATEMENTS

Th e Company and the Group fi nancial statements have been approved by board of directors on April 18, 2008.

230

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Supplement

For the year ended December 31, 2007

1. COMPARISON STATEMENT OF THE FINANCIAL STATEMENTS PREPARED UNDER THE PREVIOUS SYSTEM AND THE NEW CASs

Item	Disclosed	Disclosed
	in report	in report
	for year end	for year end
	December	December	Dif erence
	31, 2007	31,2006	(Note)
Shareholder’s equity as at December 31, 2006
(Previous system)	18,027,020,562	18,027,020,562	–
Income tax	(11,207,245)	(11,207,245)	–
Business combinations:	(290,888,478)	(293,120,780)	2,232,302
Including:
Book value of the goodwill produced by
business combinations involving
enterprises under common control	(293,120,780)	(293,120,780)	–
Book value of the goodwill produced by
business combinations not involving enterprises under common control Available for sales f nancial assets Financial liabilities classif ed as at fair value through prof t or loss Minority interests presented as Shareholder’s equity Adjust pre-operation expenses usingretrospective application Shareholder’s equity as at December 31, 2006 (new CASs)	2,232,302 33,961,349 6,165,000 65,488,512 (96,277,578) 17,734,262,122	– 33,961,349 – 65,488,512 – 17,822,142,398	2,232,302 – 6,165,000 – (96,277,578) (87,880,276)

Note: In accordance with the requirements of Article 1 of Accounting Standard for Business Enterprises Interpretation No. 1, for transactions or events with no diff erences in the accounting treatment between new CASs and IFRSs, except for retrospective adjustment is required under Articles 5 to 19 of ASBE No. 38, according to the information obtained and on the basis of the Company’s fi nancial statements prepared under IFRS, the Company makes retrospective adjustments to other transactions and events related to the changes in accounting policies due to the adoption of the New CASs which are not addressed by Articles 5 to 19 of ASBE No. 38, as well as to the fi nancial statements of the comparative year.

Supplement

231

For the year ended December 31, 2007

2. SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP

Th e Reconciliation of diff erence between IFRS and PRC GAAP has been prepared by Yanzhou Coal Mining Co., Ltd (called “Yanzhou Mining” in belief below) in accordance with Information Disclosure and Presentation Rules for Companies Making Public Off ering No. 15-General Provisions on Financial Reporting (Revised 2007) issued by China Securities Regulatory Commission and Note II---Th e Preparation Foundation Of Financial.

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For the period ended December 31, 2007, under PRC GAAP net profi t is RMB2,693,298 thousand and net assets is RMB19,615,690 thousand. Th e summary of diff erences of net profi t and net assets between PRC GAAP and IFRS in this year is as follows:

	Net assets at	Net prof t
	December 31,	for the
	2007	current period
	RMB’000	RMB’000
As per the f nancial statements prepared under PRC GAAP Adjustments under IFRS: – Reversal of Wei Jian Fei and Work Safety Expense (1) – Reversal of Reform and Specif c Development Fund (2) – Business combinations involving enterprises under common control(3) – Deferred tax ef ect (4) – Others Asper f nancial statementsprepared under IFRS	19,615,690 1,000,766 611,513 416,989 (231,537) 4,116 21,417,537	2,693,298 342,846 164,141 (6,053) 32,988 3,230 3,230,450

Supplement

232

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For the year ended December 31, 2007

2. SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP (continued)

Th e diff erences arise from:

(1) According to the relevant regulations by Chinese Government, Coal Enterprises should accrue for production maintenance and production safety expenses based on coal production volume which are charged as expense during the current period. Th e fi xed assets, when are generated by production maintenance and production safety expenses, should be carried all over to accumulated depreciation at the same time. Under IFRS, related capital expenditures should be confi rmed for the fi xed assets in the event and corresponding depreciation method will be used.
(2) According to the relevant regulations by Chinese Government, Coal Enterprises should accrue for reform and specifi c development fund based on coal production volume which is charged as expense during the current period. According to IFRS, period expenses should be recognized in the event.
(3) Th e acquisition of assets and subsidiaries from Yankuang Group is regarded as business combination involving enterprises under common control. Assets and liabilities that are obtained by the absorbing party in a business combination shall be measured at their carrying amounts at the combination date as recorded by the party being absorbed. Th e diff erence between the carrying amount of the net assets obtained and the carrying amount of the consideration paid for the combination shall be adjusted to capital reserve. However, according to IFRS, the acquirer shall, at the acquisition date, recognizing the acquiree’s identifi able assets, liabilities and contingent liabilities in fair value. Where the cost of combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifi able net assets, the diff erence shall be recognized as goodwill.
(4) Th is adjustment mainly refl ected above (1) and (3) GAAP diff erences for the tax eff ects of deferred income tax adjustment.

Supplement

233

For the year ended December 31, 2007

3. RETURN ON SHAREHOLDERS’ EQUITY AND EARNINGS PER SHARE CALCULATED BY DILUTED METHOD AND WEIGHTED AVERAGE METHOD

Th e calculation of return on net assets and EPS has been prepared by Yanzhou Coal Mining Co., Ltd (called “Yanzhou Mining” in belief below) in accordance with Information Disclosure and Presentation Rules for Companies Making Public Off ering No. 9 – Calculation and Disclosure of Return on Net Assets and Earnings per Share (Revised 2007) issued by China Securities Regulatory Commission.

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		Return on
	shareholders’ equity		Earnings per share RMB
	Fully	Weighted	Fully	Weighted
Prof t for the reporting period	Diluted	average	Diluted	average
Net prof t	13.73%	14.45%	0.55	0.55
Net prof t excluding
extraordinary gain	14.96%	15.74%	0.60	0.60

Th e supplementary information provided by the management was signed by the following personnel of Yan Zhou Coal Mining Company Limited

Head of the Company:

Head of Accounting Department:

234

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Corporate Information

	Registered Name	兖州煤业股份有限公司
	English Name	Yanzhou Coal MiningCompanyLimited
	Registered Address	298 Fushan South Road
		Zoucheng City
		Shandong Province 273500
		PRC
	Place of Business in Hong Kong	Rooms 2608-10, 26/F, the Center
		99 Queen’s Road Central
		Hong Kong
		Tel: (852) 2136 6185
		Fax: (852) 2136 6068
		Contact Person: Luo Yating
	Company Secretary	Zhang Baocai
	Authorized Representatives	Wu Yuxiang
		Zhang Baocai
	Auditors
	International:	Deloitte Touche Tohmatsu
	Domestic: Legal Advisors As to Hong Kong law and United States law: As to PRC law:	Certif ed Public Accountants, 35th Floor, One Pacif c Place 88 Queensway Hong Kong Deloitte Touche Tohmatsu Certif ed Public Accountants Ltd. Certif ed Public Accountants in the PRC (excluding Hong Kong) 30th Floor, Bund Center 222 Yan’an Road East Shanghai 200002 PRC Baker & McKenzie 14th Floor, Hutchison House 10 Harcourt Road Hong Kong King & Wood 40th Floor, Tower A Beijing Fortune Center 7 Dong-sanhuan Zhonglu
		Chaoyang District
		Beijing 100022
		PRC
	Principal Contacting Bankers	Industrial and Commercial Bank of China Limited
		Zoucheng Branch
		Tie Xi Of ce
		489 Fushan South Road
		Zoucheng City
		Shandong Province 273500
		PRC
		China Construction Bank Limited
		Yanzhou Coal Mining District Special Branch
		543 Kuangjian East Road
		Zoucheng City
		Shandong Province 273500
		PRC

Corporate Information

235

Bank of China Limited Zoucheng Branch 51 Taiping East Road Zoucheng City Shandong Province 273500 PRC Hong Kong Share Registrar Hong Kong Share Registrar Hong Kong Registrars Limited Room 1712-1716, 17th Floor, Hopewell Center 183 Queen’s Road East Hong Kong Shanghai Share Registrar Shanghai Share Registrar China Securities Depository and Clearing Corporation Limited Shanghai Branch 36th Floor China Insurance Tower 166 Lujiazui East Road Pudong Shanghai 200120 PRC Depositary Th e Bank of New York Investor Services P.O. Box 11258 Church Street Station New York, NY 10286-1258 Places of listing ADSs: Th e Stock Exchange of Hong Kong Limited H shares: Stock Code:1171 ADSs: Th e New York Stock Exchange, Inc. Tick Symbol: YZC A shares: Th e Shanghai Stock Exchange Stock Abbreviation: Yanzhou Mei Ye Stock Code: 600188

Places of listing ADSs: H shares: ADSs: A shares:

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Publications:

As required by the United States securities laws, the Company will fi le an annual report on Form 20-F with the United States Securities and Exchange Commission on or before 30th June, 2008. Once the copies of the annual report as well as the Form 20-F have been fi led, they will also be available at:

Th e PRC:

Hong Kong/Outside PRC

Yanzhou Coal Mining Company Limited Offi ce of the Secretary to the Board 298 Fushan South Road Zoucheng City Shandong Province 273500 PRC Tel: (86-537) 538-2319 Fax: (86-537) 538-3311 Website: http://www.yanzhoucoal.com.cn e-mail: [email protected]

IPR Ogilvy Ltd. Rooms 2608-10, 26/F the Center 99 Queen’s Road Central Hong Kong Tel: (852) 2136 6185 Fax: (852) 2136 6068

236

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Appendix

DATA OF COAL MINES OF YANZHOU COAL

		Xinglong
	Nantun	zhuang	Baodian	Dongtan	Jining II	Jining III	Total
Background Data:
Commencement of construction	1966	1975	1977	1979	1989	1993	N/A
Commencement of
commercial production	1973	1981	1986	1989	1997	2000	N/A
Coalf eld area (square kilometer)	35.2	59.81	36.4	60.0	87.1	105.1	383.61
Reserve Data:
(million tonnes
as of 31st December, 2007)
Total in-place proven
and probable reserve	125.41	340.80	299.64	471.33	422.07	239.29	1,898.55
Recovery rate (%)	79.38	79.00	79.36	84.38	78.81	80.60	N/A
Type of coal	Steam	Steam	Steam	Steam	Steam	Steam	N/A
Production Data
(million tonnes)
Designed raw coal
production capacity	2.4	3.0	3.0	4.0	4.0	5.0	24.4
Designed raw coal input
washing capacity Raw coal production 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007	1.8 3.9 4.2 4.0 4.5 4.9 3.6 4.7 4.1 4.0 3.9 3.9	3.0 4.1 5.0 6.1 6.2 6.6 7.1 7.0 7.4 6.6 7.2 6.8	3.0 4.0 4.3 4.7 5.3 6.2 6.4 7.3 7.0 5.0 5.6 5.8	4.0 4.9 5.4 6.1 6.7 7.1 8.1 8.2 8.5 7.5 8.0 7.6	3.0 0.8 1.8 3.2 4.8 4.1 5.2 6.0 4.9 4.5 4.0 3.4	5.0 5.1 8.0 10.1 7.3 7.0 6.8 5.3	19.8 17.7 20.7 24.1 27.5 34 38.4 43.3 39.2 34.6 36.0 32.8

Note: Th e reserve data is based on the relevant information from the report of independent mining consultants and/or the operating data derived from our record. Total in-place proven and probable reserves is reported aft er deduction of actual production volume and non-accessible reserves up to December 31, 2007. Non-accessible reserves is defi ned as the portion of identifi ed resources estimated to be not accessible by application of one or more accessibility factors within an area. Th e report of the independent mining consultants for Nantun, Xinglong Zhuang, Baodian, Dongtan and Jining II was prepared by International Mining Consultants Limited, Nottinghamshire, United Kingdom on February 16, 1998, and the Report for Jining III was prepared by SRK Consulting in August 2000.

DATA OF AUSTAR COAL MINE, TIANCHI COAL MINE AND ZHAOLOU COAL MINE

Background Data: Commencement of construction	Austar 1998	Tianchi 2004	Zhaolou 2004	Total N/A
Commencement of commercial production	2000	2006 Under development		N/A
Coalf eld area (square kilometer)	63.0	20.0	143.36	228.0
Reserve Data:
(million tonnes as of 31st
December, 2007)
Recoverable reserve	50.0	29.2	106.0	185.2
Recovery rate	53.80	76.65	–	N/A
Type of coal	Semi-hard	Steam	1/3 Coking coal	N/A
	Coking Coal
Production Data
(million tonnes)
Designed raw coal production capacity	2.0	1.2	3.0	5.2
Designed raw coal preparation
input washing capacity	2.0	–	–	2.0
Raw coal production
2006	0.4	0.1	–	0.5
2007	1.6	1.2	–	2.8

Note: Th e reserve data for Tianchi Coal Mine and Zhaolou Coal Mine is based on the relevant information from the report of independent mining consultants and/or the operating data derived from our record. Recoverable reserves is reported aft er deduction of actual production volume and non-accessible reserves up to December 31, 2007. Non-accessible reserves is defi ned as the portion of identifi ed resources estimated to be not accessible by application of one or more accessibility factors within an area. Th e report of the independent mining consultant for Tianchi Coal Mine and Zhaoulou Coal Mine was prepared by Minarco Asia Pacifi c Pty Limited in May 2006.

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

AI assistant

CStone Pharmaceuticals — Annual Report 2007

50715_rns_2008-04-21_6a9f3f05-a8dc-440a-989f-486fc71654c8.pdf

Contents

Production and Operation Structure of Group

Financial Highlights

OPERATING RESULTS

ASSETS AND LIABILITIES

SUMMARY STATEMENT OF CASH FLOWS

Notes:

ACHIEVEMENTS IN 2007

OUTLOOK FOR 2008

OPERATING STRATEGIES

Wang Xin

ACHIEVEMENTS IN 2007

COAL PRODUCTION

PRODUCT PRICES AND SALES

RAILWAY ASSETS

OPERATING EXPENSES AND COST CONTROL

Management Discussion and Analysis

YEAR ENDED 31ST DECEMBER, 2007 COMPARED WITH YEAR ENDED 31ST DECEMBER 2006

LIQUIDITY AND CAPITAL RESOURCES

TAXATION

PRINCIPAL ACTIVITIES

FINANCIAL HIGHLIGHTS

PROPOSED PROFIT APPROPRIATION

DIVIDENDS

MAJOR SUPPLIERS AND CUSTOMERS

RESERVES

BORROWINGS

PROPERTY, PLANT AND EQUIPMENT

EMPLOYEES’ PENSION SCHEME

ONGOING CONNECTED TRANSACTIONS

1. On-going Supply of Materials and Services

2. Mining Right Fee

3. Payment of Pension Fund

Views of the Independent non-executive Directors on the connected transactions of the Company

ACQUISITION OF CONNECTED ASSETS

Mining Right Consideration for Jining III Coalmine

Establishment of Yankuang Group Finance Company Limited

Heze Neng Hua’s Acquisition of Mining Right of Zhaolou Coalmine

HOUSING SCHEME

SUBSTANTIAL CONTROLLED COMPANIES OR JOINT STOCK COMPANIES OF THE COMPANY

DISCLOSURE OF SIGNIFICANT EVENTS

Increasing registered capital of Yancoal Heze Nenghua Co., Ltd.

Establishment of Huadian Zouxian Power Generation Company Limited

Amendments to the Business Scope and the Articles of Association

MATERIAL LITIGATION AND ARBITRATION

MATERIAL CONTRACTS

PREEMPTIVE RIGHTS

EXTERNAL GUARANTEES

ENTRUSTED LOAN

SHARE CAPITAL

Changes in Share Capital

Total Number of Shareholders at the end of this reporting period

SUBSTANTIAL SHAREHOLDERS

Notes:

LEGAL PERSON SHAREHOLDERS WITH SHAREHOLDING OF 10% OR MORE

SUFFICIENCY OF PUBLIC FLOAT

SHAREHOLDING OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY

BRIEF BIOGRAPHY OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Directors

INDEPENDENT NONEXECUTIVE DIRECTORS

SUPERVISORS

SENIOR MANAGEMENT

DIRECTORS’ AND SUPERVISORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS

ARRANGEMENT TO PURCHASE EQUITY OR DEBT SECURITIES

SERVICE CONTRACTS OF DIRECTORS AND SUPERVISORS

INTERESTS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT IN CONTRACTS

REPURCHASE, SALE OR REDEMPTION OF SHARES OF THE COMPANY

IMPACT OF FLUCTUATIONS IN EXCHANGE RATES ON THE GROUP

CHANGES IN STATUTORY INCOME TAX RATE

REMUNERATION POLICY

EMPLOYEES

WANG Xin

Report of Supervisory Committee

1. Operations of the Company in 2007 were in compliance with rules and regulations

2. Examination of the fi nancial situation of the Company

3. Usage of Raised Funds

4. Fairness of Assets Acquisitions and Disposals

CStone Pharmaceuticals Annual Report 2007