CStone Pharmaceuticals — Capital/Financing Update 2000

Aug 7, 2000

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

兗州煤業股份有限公司

Yanzhou coal mining COMPANY LIMITED

(a joint stock limited company incorporated in the People's Republic of China ("PRC" or "China") with limited liability)

USE OF THE PROCEEDS FROM THE PREVIOUS SHARE OFFERINGS BY

YANZHOU COAL MINING COMPANY LIMITED

The Company has published on 7 August 2000 in the People's Republic of China (the "PRC") the following announcement relating to the use of the proceeds from the previous share offerings by the Company.

STATEMENT ON THE USE OF THE PROCEEDS FROM THE PREVIOUS SHARE OFFERINGS

BY YANZHOU COAL MINING COMPANY LIMITED

1. AMOUNT AND TIME OF PAYMENT OF THE PROCEEDS FROM THE PREVIOUS SHARE OFFERINGS

With the approval of the former State Council Securities Administration Commission (document ref. Zheng Wei Fa [1997] No. 61), the Company issued 850 million H Shares outside the PRC on March 31, 1998 and April 1, 1998, respectively. The issue price for the non-ADS H Shares of the US and International Offerings was HK$2.44 per share (equal to RMB-.61), while the issue price for investors in the Hong Kong Offering was HK$2.42 per share (equal to RMB-.59). After deduction of the issue costs, the actual proceeds amounted to RMB-.037 billion, which amount was fully paid up on June 15, 1998, as confirmed in the investment verification report of Deloitte Touche Tohmatsu Shanghai CPA (document ref. (98) Zi No. 0439). With the approval of the China Securities Regulatory Commission (document ref. Zheng Jian Fa Zi [1998] Nos. 79 and 80), the Company issued 80 million public A shares on the trading system of the Shanghai Stock Exchange on June 8, 1998, at an issue price of RMB-.37 per share. After deduction of the issue costs, the actual proceeds from the A Share Offering amounted to RMB-57 million, which amount was fully paid up on June 15, 1998, as confirmed in the investment verification report of Deloitte Touche Tohmatsu Shanghai CPA (document ref. (98) Zi No. 0439). The net total of the proceeds from the Company's A and H Share Offerings amounts to RMB-.294 billion.

1. PLANNED USE OF THE PROCEEDS FROM THE A AND H SHARE OFFERINGS AS SET FORTH IN THE PROSPECTUses

According to the Prospectuses of the Company, the proceeds from its A and H Share Offerings would be used for the following investment projects:

(1) Purchase of the Jining II coal mine. Yankuang (Group) Corporation Ltd. was in charge of constructing the mine, which was completed and commenced production in November 1997. Following appraisal, the mine's net asset value as at April 30, 1997 was confirmed to be RMB-.995 billion, its total assets were confirmed to amount to RMB-.02 billion and its liabilities were confirmed to be RMB-5 million. The Company planned to acquire the whole of that coal mine and to pay the purchase price in 1998 with the proceeds from the H Share Offering.

(2) Renewal of Existing Equipment. The Company planned to renew five sets of comprehensive mining equipment, requiring an investment of RMB-70 million. The Company intended to finance the investment with the proceeds from the A Share Offering and the Company's own funds.

(3) Repayment of Matured Loans. As set out in the Company's prospectus for the A Share Offerings, according to the loan agreement between the Company and the bank, the Company needed to make principal repayments of RMB-0 million in 1997 and RMB-80 million in 1998, requiring funds totaling RMB-70 million. The Company planned to repay the loans with the proceeds from the A Share Offering and to cover any shortfall with the Company's own funds.

1. ACTUAL USE OF THE PROCEEDS FROM THE previous shares OFFERINGS

As at August 3, 2000, the proceeds from the Company's previous offerings had been used as follows:

													Actual
													amount of						Time of
							Planned						offering						completion
								amount of						proceeds						of
		Project name			Method of investment			investment						invested						investment
									RMB-billion						RMB-billion

1.	Purchase of	proceeds from H Share	1.995		1.956		1998
	Jining II coal	Offering

mine

2.	Renewal of	proceeds from A Share	0.27		0.057		1998
	existing	Offering and Company's

equipment own funds

3.	Repayment of	proceeds from A Share	0.18		0.2		1998
	matured loans	Offering and Company's

own funds

4.	Replenishment	proceeds from H Share	-		0.081		1998

of working Offering

capital

	Total		2.445		2.294

Explanation of actual investments:

(1) The planned investment for purchase of the Jining II coal mine with the proceeds from the H Share Offering was RMB-.995 billion. This purchase price reflected the appraised and confirmed value of the mine as at April 30, 1997, whereas the actual purchase was completed on January 1, 1998. Therefore, the Company and the Parent Company re-discussed the matter and decided to take the mine's net asset value as at January 1, 1998, being RMB-.956 billion, as the purchase price. Such determination of the purchase price was lawful and valid under the relevant Chinese laws and regulations, as confirmed by the Company's domestic counsels, King and Wood. The RMB-1 million balance of the proceeds from the H Share Offering remaining after the purchase of the Jining II coal mine was used to replenish the Company's working capital.

(2) The Company originally intended to use the proceeds from the A Share Offering and its own funds to renew its existing equipment and repay its matured bank loans. The net proceeds received from the A Share Offering totaled RMB-57 million, of which RMB-7 million was actually invested in the renewal of equipment and RMB-00 million was used to repay the matured bank loans. Accordingly, the entire proceeds from the A Share Offering have been used for the projects in which the Company had undertaken to invest, and the actual investment tallies with the planned investment.

1. RESULTS OF THE USE OF THE PROCEEDS FROM THE previous share OFFERINGS

(1) Purchase of the Jining II Coal Mine

The Company acquired the Jining II coal mine on January 1, 1998. The mine's output of raw coal in 1998 and 1999 amounted to 1.8 million tonnes and 3.23 million tonnes respectively, accounting for 45% and 81% of the designed annual output (4 million tonnes) respectively. Based on the increased production of all of the Company's other coal mines and given the drop in coal prices in 1998 and 1999 of 15.3% and 18.2% respectively, the Company realized profit increases of 2.1% and 3.6% respectively.

(2) Renewal of Existing Equipment

In 1998 the Company used RMB-7 million from the offering proceeds and RMB-61 million of its own funds to renew its existing comprehensive mining equipment. Raw coal productivity has increased year by year in the wake of the upgrading of the equipment and the improvement of coal mining technology. Raw coal productivity in 1999 increased by 29% over that of 1998. The intensive coal mining method employed by the Company greatly increased labour efficiency and promoted the reduction of raw coal costs. The 1999 raw coal unit cost was 26% less than that of 1998.

(3) Repayment of Matured Loans

In 1998 the Company repaid a total of RMB-.2 billion of its bank loans, of which RMB-.2 billion came out of the proceeds from the A Share Offering. The reduction in the bank loans greatly reduced that year's financial expenses of the Company.

1. CONCLUSION OF THE REPORT OF DELOITTE TOUCHE TOHMATSU SHANGHAI CPA ON THE USE OF THE PROCEEDS FROM THE PREVIOUS SHARE OFFERINGS

Following verification, Deloitte Touche Tohmatsu Shanghai CPA was of the opinion that the statement of the Company's Board of Directors on the use of the proceeds from the previous share offerings and the related disclosure documents tally with the actual use of the proceeds.

The following is the report from Deloitte Touche Tohmatsu Shanghai CPA relating to the use of proceeds from the previous shares offerings by the Company aforesaid opinion of them.

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REPORT ON THE USE OF THE PROCEEDS

FROM THE PREVIOUS SHARE OFFERINGS

(ref. De Shi Bao (Shen) Zi (00) No. R033)

As instructed by your board of directors, we have verified your use of the proceeds from your previous share offerings as at December 31, 1999. It is the responsibility of your board of directors to provide original written materials, duplicate materials or oral evidence, etc. that are true, lawful and complete. It is our responsibility to give an opinion upon verification of the proceeds from your previous share offerings. This report is issued in accordance with the requirements of the Notice of the China Securities Regulatory Commission on Issues Concerning Placements by Listed Companies. The opinion given is our professional judgment reached after a careful investigation of the materials obtained in the course of the verification exercise, according to the due diligence procedures.

1. AMOUNT AND TIME OF PAYMENT OF THE PROCEEDS FROM THE PREVIOUS SHARE OFFERINGS

(1) H Share Offering

You were listed by means of a combined offering of 820 million H Shares and ADSs (each ADS representing 50 H Shares) on the New York Stock Exchange and the Hong Kong Stock Exchange on March 31, 1998 and April 1, 1998 respectively. Based on the over-allotment option exercised by the US underwriters of the Combined Offering, you subsequently issued an additional 30 million H Shares, resulting in a total issue of 850 million H Shares. The issue price for investors in the US and International Offerings that selected non-ADS H Shares was HK$2.44 per share, while the issue price for investors in the Hong Kong Offering was HK$2.42 per share. The ADS issue price was US$15.75 per share. All of the aforementioned share moneys were paid up by June 15, 1998, as confirmed in our investment verification report bearing reference De Shi Bao Zi (98) No. 0439. After deduction of the issue costs, your actual proceeds from the offering as at December 31, 1999 amounted to RMB-.037 billion.

(2) A Share Offering

With the approval of the China Securities Regulatory Commission, you issued 80 million A Shares in mainland China in June 1998 at an issue price of RMB-.37 per share, of which 72 million were sold to public investors and securities investment funds in mainland China and 8 million shares were sold to your staff and workers. All of the aforementioned share moneys were paid up by June 15, 1998, as confirmed in our investment verification report bearing reference De Shi Bao Zi (98) No. 0439. After deduction of the issue costs, your actual proceeds from the offering as at December 31, 1999 amounted to approximately RMB-57 million.

After deduction of the issue costs, your total proceeds from the said H and A Share Offerings are RMB-.294 billion.

1. ACTUAL USE OF THE PROCEEDS FROM THE PREVIOUS OFFERINGS

(1) Purchase of a New Coal Mine

Pursuant to the agreement for purchase of the Jining II coal mine executed between you and Yankuang (Group) Corporation Ltd. (the "Parent Company") on October 17, 1997 and amended on February 18, 1998, you purchased the Jining II coal mine form the Parent Company on January 1, 1998. The purchase price for the mine had originally been set at RMB-.995 billion, being the net asset value of the mine as at April 30, 1997, as specified in the official reply from State-Owned Assets Administration Bureau of the PRC. Following subsequent consultations, you and the Parent Company decided to reduce the purchase price to RMB-.956 billion, which price reflected the net asset value of the mine as at January 1, 1998. Your Chinese counsel had confirmed that under relevant Chinese laws and regulations, you were not required to apply to the State-owned Assets Administration Bureau of the PRC for an official reply in respect of the new purchase price for the Jining II coal mine. You used the proceeds from the H Share Offering to pay the full purchase price of RMB-.956 billion to the Parent Company by June 30, 1998. The balance of the proceeds from the H Share Offering was used to replenish your working capital.

(2) Repayment of Part of Your Long-Term Loans and Renewal of Part of Your Equipment

You originally intended to use the proceeds from the A Share Offering and your own funds to repay RMB-80 million of your long-term bank loans and to invest RMB-70 million in the renewal of your comprehensive mechanized mining equipment. As at December 31, 1999, you had used RMB-00 million out of the proceeds from the A Share Offering in repaying your long-term bank loans, and the balance of approximately RMB-7 million of such proceeds in renewing your comprehensive mechanized mining equipment.

1. RESULTS OF THE ACTUAL USE OF THE PROCEEDS FROM THE OFFERINGS

Following completion of the acquisition of the Jining II coal mine and renewal of part of your comprehensive mechanized mining equipment, your use of the proceeds from the offerings resulted in a 1998 total raw coal output of 20.69 million tonnes, a 22.6% increase over the 16.88 million tonnes of 1997. Of the mines involved, Jining II realized a coal output of 1.8 million tonnes, accounting for 45% of the normal designed annual output (4 million tonnes). In 1999 the Jining II coal mine realized an annual raw coal output of 3.23 million tonnes, already accounting for 81% of the normal designed annual output.

1. CONCLUSIVE OPINION ON THE USE OF THE PROCEEDS FROM THE PREVIOUS OFFERINGS

In our opinion, the statement of your board of directors on the use of the proceeds from the previous share offerings and the related disclosure documents tally with the actual use of the funds.

1. SCOPE OF USE OF THIS REPORT

This report is provided solely for the present issue of additional A Shares and may not be used for any other purposes. We agree to the use of this report as one of the necessary documents for the present issue of additional A Shares and to its submission to the higher authorities together with the other submission materials. We assume appropriate liability for this report as required by law.

Liu Weimin Gu Hongyu

Chinese certified public accountants

Deloitte Touche Tohmatsu Shanghai CPA

May 31, 2000

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By order of the board of Directors of

Yanzhou Coal Mining Company Limited

Zhao Jingche

Chairman of the Board

PRC, Shandong Province, 4 August 2000