CStone Pharmaceuticals — Interim / Quarterly Report 2001

Aug 27, 2001

兗 州 煤 業 股 份 有 限 公 司

YANZHOU COAL MINING COMPANY LIMITED

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

INTERIM RESULTS FOR THE SIX MONTHS ENDED

30TH JUNE, 2001

Yanzhou Coal Mining Company Limited (the “Company”) is pleased to announce the unaudited interim operating results of the Company for the six months ended 30th June, 2001:

* Net sales were RMB2,335.4 million (or approximately US$282.1 million, or HK$2,203.2 million), an increase of 38.5% as compared with the net sales of RMB1,685.7 million (or approximately US$203.6 million, or HK$1,590.3 million) for the same period last year.

* Net income was RMB447.0 million (or approximately US$53.99 million or HK$421.7 million), an increase of 24.6% as compared with the net income of RMB358.8 million (or approximately US$43.33 million, or HK$338.5 million) for the same period last year.

The Board of Directors of Yanzhou Coal Mining Company Limited (the “Company”) is pleased to present the Company’s unaudited interim operating results for the six months ended 30th June, 2001.

In the first half of 2001, both domestic and export markets continued to develop positively as we anticipated. The Company’s raw coal production increased by 4.227 million tonnes, or 33.1%, to 16.991 million tonnes in the first half of 2001 as compared with the same period in 2000. Sales volume for the first six months of 2001 was 15.435 million tonnes, representing an increase of 2.988 million tonnes or 24.0% of the sales volume for the same period last year. Total net sales for the first six months of 2001 were RMB2,335.4 million, a RMB649.7 million or 38.5% increase over those for the same period last year. Income before income taxes and net income for the first six months of 2001 were RMB617.6 million and RMB447.0 million, respectively, a RMB120.9 million or 24.3% increase and a RMB88.235 million or 24.6% increase over those for the same period last year, respectively.

SUMMARY OF UNAUDITED FINANCIAL INFORMATION

(prepared in accordance with International Accounting Standards (“IAS”))

For the six months ended Year ended

30th June, 31st December

					% change as
					Compared to
					same period
	2001		2000		last year		2000
	RMB’000		RMB’000				RMB’000
	(unaudited)		(audited)		(+/-)		(audited)
Net sales
Domestic	1,348,035		1,072,234		25.7		2,090,758
Export	987,393		613,472		61.0		1,508,979
Total net sales	2,335,428		1,685,706		38.5		3,599,737
Gross profit	973,210		757,973		28.4		1,616,217
Operating income	613,635		463,870		32.3		979,781
Interest expenses	(23,879	)	(2,473	)	865.6		(5,012	)
Income before income taxes	617,619		496,724		24.3		1,035,652
Net income	446,998		358,763		24.6		748,360
Earnings per share	0.163		0.138		18.1		0.289

Ended Ended

30th June, 31st December,

	2001		2000		2000
	(unaudited)		(audited)		(audited)
Total assets (RMB’000)	10,707,735		7,679,926		8,103,684
Shareholder’s equity (RMB’000)	8,532,586		6,480,028		6,869,625
Return on net assets (%)	5.24		5.54		10.89
Net asset value per share (RMB)	2.97		2.49		2.64
Net cash flows from operating activities per share (RMB)	0.19		0.11		0.41

REVIEW OF OPERATIONS

The following discussion is based on the Company’s unaudited financial results for the first half of 2001 and the Company’s audited financial results for the first half of 2000, which were prepared in accordance with IAS.

Coal Production

The Company’s coal production increased by 4.227 million tonnes, or 33.1%, to 16.991 million tonnes in the first half of 2001 as compared with the same period in 2000. Jining III, the newly acquired coal mine, produced 2.509 million tonnes of coal in the first half of 2001, demonstrating the production capacity increase of the Company. As a result of applying advanced mining techniques and equipment and continuously improving production efficiency, the Company has also achieved steady production increase at the five existing coal mines.

Product Sales

The Company continued with the operating strategies of “increasing sales volume and enhancing export volume” in the first half of 2001. The Company’s sales volume increased by 2.988 million tonnes, or 24.0%, to 15.435 million tonnes in the first half of 2001 from the sales volume for the same period last year, of which 9.701 million tonnes were sold in the domestic market, an increase of 1.309 million tonnes, or 15.6% compared with the same period in 2000 (the principal factor being the increased sales of No. 3 clean coal and washed mixed coal and others). As to export sales, the volume increased to 5.734 million tonnes, an increase of 1.679 million tonnes, or 41.4%, as compared with the same period of 2000 mainly due to an increase of No. 2 clean coal exports by 349 thousand tonnes and an increase of No. 3 clean coal exports by 1.331 million tonnes. The proportion of the export sales volume of the Company’s total sales volume increased by 4.5 percentage points compared with the same period in 2000. The increase in sales volume reflected the Company’s strengthened market competitiveness in both domestic and overseas coal markets.

Product Pricing

The following table sets out the Company’s product prices for the six months ended 30th June, 2001, and the prices for the six months ended 30th June and 31st December, 2000, respectively:

(prepared in accordance with IAS)

For the For the six

six months months ended

ended 30th June, 31st December,

	2001		2000		2000
	Average price		Average price		Average price
					(note)
	RMB per tonne		RMB per tonne		RMB per tonne
Clean Coal
No. 1 Clean Coal	220.1		222.9		210.2
No. 2 Clean Coal	181.9		177.2		169.3
Domestic	218.3		221.7		214.1
Exports	177.8		167.2		161.3
No. 3 Clean Coal	167.8		147.4		146.5
Domestic	159.4		152.2		153.2
Exports	170.6		146.5		145.5
Average Price for Clean Coal	171.5		156.3		151.9
Domestic	169.3		178.0		172.0
Exports	172.2		151.3		148.5
Screened Raw Coal	141.8		128.6		129.1
Mixed Coal and others	80.4		65.8		64.4
Average	151.3		135.4		136.1

Note:

The average price per tonne for the six months ended 31st December, 2000, was calculated based on the following formula:

(Net sales for the year ended 31st December, 2000) less (net sales for the six months ended 30th June, 2000)

(Sales volume for the year ended 31st December, 2000) less (sales volume for the six months ended 30th June, 2000)

Information relating to net sales and sales volume for the year ended 31st December, 2000 was set out in the Company’s 2000 annual report.

The Company’s average coal price increased by RMB15.9, or 11.7%, to RMB151.30 in the first six months of 2001 as compared with the same period last year, of which the average domestic price increased by 8.8% and the average export price increased by 13.8%. The quantity increase can be accounted for by the following factors which include: (i) the effective implementation of the macro regulation and control measures taken by the government such as the “shutting down mines and reducing coal production” and “limiting coal production and reducing coal inventories” has resulted in increases in domestic coal prices; (ii) fluctuation in oil prices has led to an adjustment in the international energy consumption structure, which has had a positive impact on the export coal price; and (iii) the Company was able to significantly increase the sales volume of higher-priced clean coal.

Net Sales

Net sales increased by RMB649.7 million, or 38.5%, to RMB2,335.4 million in the first half of 2001 compared with the same period last year. Domestic net sales increased by RMB275.8 million, or 25.7%, to RMB1,348.0 million and export net sales increased by RMB373.9 million, or 61.0%, to RMB987.4 million. The proportion of the export sales of the Company’s total net sales increased by 5.9 percentage points compared with the same period of 2000.

The following table sets out the Company’s net sales by product category for the six months ended 30th June, 2001 and 2000, respectively:

(prepared in accordance with IAS)

For the six months ended For the six months ended

30th June, 2001 30th June, 2000

(unaudited) (audited)

	Sales				% of total		Sales				% of total
	volume		Net sales		net sales		volume		Net sales		net sales
	‘000						‘000
	tonnes		RMB’000				tonnes		RMB’000
Clean Coal
No. 1 Clean Coal	146.9		32,339		1.4		131.4		29,288		1.7
No. 2 Clean Coal	1,423.6		258,876		11.1		1,142.9		202,510		12.1
Domestic	141.6		30,907		1.3		209.6		46,453		2.8
Exports	1,282.0		227,969		9.8		933.3		156,057		9.3
No. 3 Clean Coal	5,915.3		992,708		42.5		3,703.6		546,042		32.3
Domestic	1,463.2		233,284		10.0		582.2		88,628		5.2
Exports	4,452.1		759,424		32.5		3,121.4		457,414		27.1
Subtotal of Clean Coal	7,485.8		1,283,923		55.0		4,977.9		777,840		46.1
Domestic	1,751.7		296,530		12.7		923.2		164,369		9.7
Exports	5,734.1		987,393		42.3		4,054.7		613,471		36.4
Screened Raw Coal	6,717.2		952,404		40.8		6,632.5		852,835		50.6
Mixed Coal and others	1,232.4		99,101		4.2		837.0		55,031		3.3
Total	15,435.4		2,335,428		100.0		12,447.4		1,685,706		100.0

Cost and Expenses

Total operating expenses for the six months of 2001 increased by RMB500 million, or 40.9%, to RMB1,721.8 million as compared with those for the same period last year, of which the cost of goods sold increased by 46.8% and the selling, general and administrative expenses increased by 22.3%.

MANAGEMENT DISCUSSION AND ANALYSIS

The following discussion and analysis are based on the unaudited interim financial report of 2001 and the audited 2000 interim financial report of the Company. These financial reports are prepared in accordance with IAS. For a discussion of certain differences between the IAS and accounting principles generally accepted in the United States of America (“US GAAP”), please refer to note 13 to the financial information prepared in accordance with IAS.

Net sales of the Company in the first six months of 2001 increased by RMB649.7 million, or 38.5%, to RMB2,335.4 million as compared with the same period of 2000. The increase of net sales was principally due to the increase of sales volume and product price, of which the increment of sales volume resulted in net sales increasing by RMB404.5 million, and the increases in product prices resulted in net sales increasing by RMB245.2 million.

Cost of goods sold increased by RMB434.5 million, or 46.8%, to RMB1,362.2 million in the first six months of 2001. The increase in cost of goods sold was principally due to: increases in production volume, greater than usual mine development cost arising from installation and removal of working panels, additional washery cost for clean coal and increases in wages. The unit cost of goods sold increased by RMB13.7 as compared with the same period of 2000 to RMB88.3, principally because: (i) as a result of the measure to enhance export volume, the increase in proportion of washed clean coal of total sales volume resulted in an increase of unit cost by around RMB3.4; (ii) increased occurance of installation and removal of working panels resulted in an increase in unit cost by around RMB2.8; (iii) the increase in employees’ wages in relation to the increase in the Company’s production and profitability resulted in an increase in unit cost by around RMB2.1; and (iv) Jining III had yet to achieve its economies of scale. Its unit cost of RMB99.4 in the first half of 2001 under the current production level resulted in an increase of RMB3.9 in the Company’s unit cost.

Selling, general and administrative expenses was RMB359.6 million in the first six months of 2001, an increase of RMB65.472 million as compared with the same period of 2000. The increase was principally due to the increase in contribution to the retirement benefit scheme, wages, and the bad debt provision.

The Company’s operating income increased by RMB149.7 million, or 32.3%, to RMB613.6 million for the first six months in 2001 from RMB463.9 million for the first half of 2000. This was principally due to the increase in sales income.

Interest expenses increased by RMB21.406 million, to RMB23.879 million as compared with the same period of 2000. This was principally due to the deemed interest expenses of RMB22.565 million reflecting the unpaid installments for Jining III acquisition.

Income before income taxes increased by RMB120.9 million, or 24.3%, to RMB617.6 million from RMB496.7 million in the same period of 2000.

Net income increased by RMB88.235 million, or 24.6%, to RMB447.0 million from RMB358.8 million for the same period of 2000.

Total assets increased by RMB2,604.0 million, or 32.1%, to RMB10,707.7 million as at 30th June, 2001 from RMB8,103.7 million as at 31st December, 2000. This was principally due to the acquisition of Jining III coal mine and the incremental assets increases arising from the Company’s operating activities.

Total liabilities increased by RMB941.0 million, or 76.2%, from RMB1,234.1 million as at 31st December, 2000 to RMB2,175.1 million as at 30th June, 2001. This was principally due to the deferred payments representing the balance of the consideration due for the Jining III acquisition.

Shareholders’ equity increased by RMB1,663.0 million, or 24.2%, from RMB6,869.6 million as at 31st December, 2000 to RMB8,532.6 million as at 30th June, 2001. This was principally attributed to an increase of RMB270.0 million resulting from the new issuances of A Shares and H Shares, an increase of RMB1,181.3 million in capital reserves and an increase of RMB211.7 million in undistributed operating profits.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s principal sources of capital are proceeds raised from the new issues of A Shares and H Shares, and cash flow from operations. The Company’s principal uses of capital have been payment of Jining III acquisition, shareholders’ dividend, and purchasing of property, plant and equipment.

As at 30th June, 2001, the balance of the Company’s accounts receivable and notes receivable was RMB832.7 million, a decrease of RMB4.06 million from that on 31st December, 2000. The Company tightened the collection of receivables resulting in a decrease of RMB85.376 million in receivable accounts.

Inventories increased by RMB84.237 million to RMB347.1 million from RMB262.9 million as at 31st December, 2000. This was principally due to the increase of coal stocks.

Prepayment and other current assets increased by RMB69.293 million to RMB629.7 million from RMB560.4 million as at 31st December, 2000. This was principally due to the increases in freight fee paid in advance.

Accounts payable decreased by RMB113.3 million to RMB435.1 million from RMB548.4 million as at 31st December, 2000.

Other accounts payable and provisions increased by RMB118.9 million to RMB517.4 million from RMB398.5 million as at 31st December, 2000. This was principally due to the increase arising from the next installment of the deferred payment for the consideration for Jining III acquisition.

Long-term liabilities were RMB639.7 million as at 30th June, 2001, which will be paid for the acquisition of Jining III a year latter.

In the first half of 2001, the Company’s capital expenditure was RMB1,396.5 million principally for the payments made in respect of the consideration for Jining III acquisition and replacement of machinery and equipment. The Company’s major capital expenditures will be used to meet the deferred payments representing the balance of consideration for Jining III acquisition and purchase and replacement of machinery and equipment in the second half of 2001.

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

TAXATION

For the period under review, the Company is still subject to an income tax rate of 33% on its taxable profits.

US GAAP RECONCILIATION

The Company’s unaudited interim financial statements are prepared in compliance with IAS, which differs in certain respects from US GAAP. Please refer to note 13 to the interim financial statements prepared in accordance with IAS for this period for a description of the differences between IAS and US GAAP.

OUTLOOK FOR THE SECOND HALF OF 2001

The Company achieved satisfactory interim results in the first half of 2001. The domestic and overseas coal markets are expected to continue to be stable in the second half of 2001. The positive effects of the government’s macro regulation and control measures to close small coal mines are expected to be realized in the second half of 2001. Fluctuation in oil prices has led to an adjustment in the international energy consumption structure, which has had a positive impact on the long term coal price and demand. The company is expected to benefit from the stabilized domestic and overseas coal markets.

In the second half of 2001, China’s economy is expected to maintain a strong outlook. Coal will maintain its position as the overall energy leader in China and it is expected during the Tenth Five Years period domestic demand for coal will increase by an average of 20 million tonnes per year. In the first half of 2001, the State Council promulgated measures to strengthen the macro regulation and control, including implementation of the system to investigate and inflict administrative responsibility for major safety accidents, closure of small state-owned coal mines, and restructuring and ceasation of production of the township coal mines. These powerful and effective macro regulatory and control measures are expected to further reduce domestic coal supply and achieve orderly operational environment. Large-scale coal enterprises including the Company are expected to benefit from these measures and increase their sales volume and improve their operating results. China exported 39.87 million tonnes of coal in the first half of 2001, giving an annualized total of 80 million tonnes, which is expected to make China the second largest exporter of coal in the world. The Company is expected to benefit from these export increases.

According to the “Tenth Five-year Plan For Coal Industry” promulgated by the State, enterprises are encouraged to establish industrial leaders commanding international competitiveness by means of acquisition, merger or restructuring to build up integrated operations including coal, power, transportation, ports and freight business. This State policy enables the Company to use its comparative advantages in technology, marketing position and financing skills to expand the Company’s production capacity and strengthen its core business.

Both supply and demand of the international coal market are in a strong yet balanced position. Adjustments caused by the fluctuating oil prices which have featured in the international energy consumption structure, resulted in substantial increase of coal demand in the international major markets. The import volume in East Asia markets mainly to Japanese and Korean and European markets are increasing continuously. The United States, which is typically a minor swing exporter of coal, has in recent months become a net importer. The United States and Germany implemented new energy policies to increase the proportion of coal-fired power generation. Thanks to the increase of coal demand, the export volume growth of major coal export countries such as Australia and China are being sustained.

The international coal spot market is expected to be active in the second half of 2001. The international spot coal prices showed notable increases in the first half of 2001. The Australian BJ spot price, which is a benchmark for the international coal price, has rebounded from US$27.8/tonne at the beginning of this year to the highest US$34.25/tonne in May, 2001, and then has sustained some downward pressure due to the close of most price negotiations for annual contract and timely increases of supply in major markets. As at 16th August, BJ spot price dropped to US$33.25/tonne. Japan is beginning to pay close attention to spot markets because the spot price has fallen below contract prices. European spot markets will also turn active due to the decrease in spot prices.

The Company’s principal development objectives are to focus on core business of coal and to realize the large-scale and low-cost expansion through utilization of advanced technology and superior management. The Company’s major operating strategies are: (i) increasing both coal production and sales volume, especially sales to the power plant customers in the coastal areas in China and increasing export volumes, especially to the power plant customers and the steel companies using PCI coal in Japan, South Korea and Taiwan; (ii) acquiring domestic and overseas high-quality assets to enhance the Company’s capacity in its core business; (iii) further improving and perfecting the top caving mining technology and improving efficiency; and (iv) exploring clean coal technology, which can process coal into clean energy used in power generation, chemical industry, transportation and so on.

The Company will continue to improve profitability through increasing sales volume. The Company is expected to sell more than 18 million tonnes in the second half of 2001, giving an annualized total of 33.2 million tonnes. In the second half of 2001, the domestic sales volume is expected to reach more than 10 million tonnes and the export sales volume is expected to reach more than 8 million tonnes.

The Company intends to focus on the following measures to improve the operational performance and enhance profitability in the second half of 2001:

I. Strengthening cost control measures. In the second half of 2001, the reduction in the installation and removal of working panels is expected to decrease cost and the increase in sales volume is expected to decrease the unit cost, respectively. The Company will adopt the following measures to control cost: (i) perfecting the top caving mining technology. In the second half of 2001, the production system with output capacity of 6 million tonnes per year will commence at Xinglongzhuang coal mine, resulting in an increase in the capacity and reduction in production cost; (ii) controlling wages escalation and implement further staff reduction by up to 600 emplyees; (iii) improving the cost control of Jining III; and (iv) strengthening the operation and management and reinforcing the implementation of cost reduction measures, and implementing the payroll structure linked to production cost.

II. Improving product quality and business reputation through improvements in coal preparation process, coal quality systems and equipment and improvements in transportation and storage quality.

III. The multiple-tracks of Yan-Shi railway is expected to commence operation in the fourth quarter of 2001. In conjunction with the increasing transportation capacity, the Company will reform its storage, loading and unloading and transportation systems, enhance management for exports and sales to the coastal areas, increase sales volume and reduce transportation cost.

IV. Jining III coal mine is anticipated to produce 5 million tonnes of coal in 2001, and is expected to reach the design production capacity and contribute positively to the Company in the first year it is commissioned. Jining III intends to focus on the following three tasks in the second half of 2001: (i) complete certification processes for ISO14000 environment protection system and ISO9000 quality assurance system; (ii) improve the production auxiliary equipment and increase production capacity; and (iii) enhance management of preparation plant and increase quality and production of washed coal.

With domestic and overseas coal markets showing signs of stability at a high operating level, the Company is expected to enhance profitability further in the second half of 2001 to reward our shareholders for their long-term support.

DISCLOSURE OF SIGNIFICANT EVENTS

Final Dividends

At the 2000 annual general meeting of the Company held on 15th June, 2001, the shareholders of the Company approved a final dividend of RMB235,340,000 (including tax), or RMB0.082 per share (including tax). Such final dividend had been paid to shareholders of the company before 30th June, 2001.

Interim Dividends

According to the Articles of Association of the Company, interim dividends will not be paid to the shareholders of the Company.

Acquisition of Jining III Coal Mine

The Company entered into the Acquisition Agreement for Jining III Coal Mine (the “Acquisition Agreement”) with the Parent Company on 4th August, 2000. The Acquisition Agreement was reviewed and approved by the Independent Board Committee on 26th August, 2000 and was further approved by the Independent Shareholders at an Extraordinary General Meeting held on 22nd September, 2000.

In accordance with the Acquisition Agreement, the Company completed the acquisition of Jining III on 1st January, 2001. The purchase price of approximately RMB2,434 million was set based on the valuation on 30th April, 2000 being the Valuation Date, and confirmed by the Ministry of Finance. After adjustment based on the current assets value of Jining III on 31st December, 2000, the purchase price is RMB2,451 million. The purchase price has been partially paid off by the Company with cash in hand of RMB3.94 million and the net proceeds of RMB961 million raised from the New Issuance of A Shares. The remainder of the purchase price will be paid before 31st December, 2001 and 31st December, 2002 in two installments without interest.

The consideration of the mining right of Jining III is approximately RMB132 million, which shall be paid to the Parent Company in ten equal annual installments without interest commencing from 2001.

New Issue Shares

The New Issuances of 100,000,000 A Shares and 170,000,000 H Shares were completed on 3rd January, 2001 and 11th May, 2001 respectively. Details are as follows:

	A Shares	H Shaes
Par value	RMB1.00 per share	RMB1.00 per share
Quantities of new issue
shares (‘000)	100,000	170,000
Issue price	RMB10.00 per share	HK$2.925 per share
Net proceeds	RMB961 million	RMB491 million
Use of proceeds	Applying to finance the	Applying to finance the
	acquisition of Jining III	acquisition of Jining III

Amendments to the Articles of Association of the Company

After the New Issue of A Shares, the Company has amended the Articles of Association of the Company and disclosed that in the Annual Report 2000. Due to the New Issuance of H Shares in accordance with the authorization made by the Annual General Meeting for the year 1999, held on 16th June, 2000, the Board of Directors has made the following amendments to the Articles of Association of the Company to reflect the new capital structure of the Company after New Issue of H Shares.

Article 15 Subject to the approval of the companies approving department authorised by the State Council, the Company issued a total of 2,870,000,000 ordinary shares, of which 1,670,000 ordinary shares, representing 58.19% of the total number of ordinary shares, were issued to the promoter of the Company at the time when the Company was established.

Article 16 The share capital structure of the Company comprises 2,870,000,000 ordinary shares, of which (a) 1,670,000,000 shares, which represent 58.19% of the Company’s share capital, are held by the promoter of the Company, Yankuang Group Corporation Ltd., in the form of state-owned legal person shares; (b) 1,020,000,000 shares, which represent 35.54% of the Company’s share capital are held by the H shares shareholders; and (c) 180,000,000 shares, which represent 6.27% of the Company’s share capital, are held by the A shares shareholders.

Article 19 The registered capital of the Company is RMB2,870,000,000. The Company shall register its registered capital with the State Industry and Commerce Department and make the necessary filings with the companies approving department authorised by the State Council and the State Council Security Policy Committee.

Connected Transactions

The Company’s connected transactions in the first half of 2001 are set out in note 11.

Purchase, Sale or Redemption of Shares

During the six months ended 30th June, 2001, the Company did not purchase or redeem any of its shares and the details of Shares Sale are set out on the “New Issue Shares” section of the report.

Compliance with Code of Best Practice

As at 30th June, 2001, the Board of Directors of the Company had not established an audit committee. However, under the Company’s organizational structure, a Board of Supervisors carries out functions similar to that of an audit committee. The differences being that the Company’s Board of Supervisors comprises five members (one of which shall be an employee representative) who are elected and removed in the general meeting of shareholders. Whereas, an audit committee should comprise the non-executive directors of a company.

Except for mentioned above, none of the directors is aware of any information that would reasonably indicate that the Company is not, or has not, in compliance with the “Code of Best Practice” set out in Appendix 14 of the Rules on Governing the Listing of Securities issued by the Hong Kong Stock Exchange Ltd. during the six months ended 30th June, 2001.

Changing into Sino-foreign Joint Stock Limited Company

The Company was changed into Sino-foreign Joint Stock Limited Company in April, 2001.

Material Litigation and Arbitration

The Company was not involved in any material litigation or arbitration during the period of this report.

Material Contracts

Saved as the Acquisition Agreement, which was set out on “Acquisition of Jining III Coal Mine” section, and the Placing Agreement of New Issue H Shares announced on 9th May, 2001, the Company did not enter into any material contract during the period of this report.

Auditors

The Company retained Deloitte Touche Tohmatsu Shanghai CPA and Deloitte Touche Tohmatsu as its domestic and international auditors, respectively.

On behalf of the Board

Zhao Jingche

Chairman

24th August, 2001

Zoucheng, P.R.China

INTERIM RESULTS

The Board of Directors of Yanzhou Coal Mining Company Limited (the “Company”) has the pleasure of presenting the unaudited interim operating results of the Company for the six months ended 30th June, 2001 prepared in conformity with (i) the relevant accounting principles and regulations applicable to PRC enterprises (“PRC GAAP”) and (ii) the International Accounting Standards (“IAS”).

(i) Financial information under PRC GAAP

STATEMENT OF INCOME AND PROFITS APPROPRIATION

(prepared under PRC GAAP)

PERIOD FROM JANUARY 1, 2001 TO JUNE 30, 2001

		Six months ended June 30,
			Year ended
		2001		2000		12.31.2000
		RMB		RMB		RMB
		(unaudited)		(audited)		(audited)
Net revenue from principal operations		3,086,004,912		2,148,897,507		4,780,580,876
Less: Cost of principal operations		1,362,218,643		927,732,721		1,983,519,916
Sales taxes on principal operations		47,335,555		41,119,715		76,380,272
Income from principal operations		1,676,450,714		1,180,045,071		2,720,680,688
Add: Income from other operations		19,625,160		16,752,321		27,559,433
Less: Operating expenses		735,642,914		456,336,972		1,168,691,771
Administrative expenses		344,387,680		250,486,606		554,130,939
Financial expenses		(7,579,042	)	(16,323,694	)	(20,768,987	)
Operating profit		623,624,322		506,297,508		1,046,186,398
Add: Subsidies		-		188,579		188,579
Non-operating income		269,155		1,825,436		2,996,491
Less: Non-operating expenses		5,418,076		12,117,157		14,777,978
Profit before income taxes		618,475,401		496,194,366		1,034,593,490
Less: Income taxes		171,837,140		145,880,950		295,607,377
Net profit		446,638,261		350,313,416		738,986,113
Add: Unappropriated profits at the
beginning of the period/year		1,070,321,502		677,523,306		677,523,306
Profits available for appropriation		1,516,959,763		1,027,836,722		1,416,509,419
Less: Appropriations to statutory
common fund		-		-		73,898,611
Appropriations to public
welfare fund		-		-		36,949,306
Profits available for appropriation
to shareholders		1,516,959,763		1,027,836,722		1,305,661,502
Less: Dividends		-		-		235,340,000
Unappropriated profits		1,516,959,763		1,027,836,722		1,070,321,502

(ii) Financial information prepared under IAS

CONDENSED STATEMENT OF INCOME

(prepared under IAS)

Six months ended June 30,

		2001		2000
	Notes	RMB’000		RMB’000
		(unaudited)		(audited)
Gross sales	3	3,038,669		2,107,778
Transportation costs	3	703,241		422,072
Net sales	3	2,335,428		1,685,706
Cost of goods sold	4	1,362,218		927,733
Gross profit		973,210		757,973
Selling, general and administrative expenses	5	359,575		294,103
Operating income		613,635		463,870
Interest expenses	6	(23,879	)	(2,473	)
Other income	7	27,863		35,327
Income before income taxes		617,619		496,724
Income taxes	8	170,621		137,961
Net income		446,998		358,763
Appropriations to reserves		8,361		-
Dividend		235,340		231,400
Earnings per share	9	RMB0.16		RMB0.14
Earnings per ADS.	9	RMB8.15		RMB6.90

CONDENSED BALANCE SHEET

(prepared under IAS)

		At June 30,		At December 31,
		2001		2000
	Notes	RMB’000		RMB’000
		(unaudited)		(audited)
ASSETS
Current assets
Bank balances and cash		1,204,896		844,754
Bills and accounts receivable	10	832,652		836,712
Inventories		347,139		262,902
Prepayments and other current assets		629,712		560,419
Total current assets		3,014,399		2,504,787
Non-current assets
Mining rights		129,167		-
Land use rights		375,966		290,979
Property, plant and equipment, net		7,208,676		5,209,543
Goodwill		12,825		13,214
Negative goodwill		(119,675	)	-
Deferred tax asset		86,377		85,161
Total non-current assets		7,693,336		5,598,897
TOTAL ASSETS		10,707,735		8,103,684
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable		435,082		548,387
Other payables and accrued expenses		517,422		398,459
Amounts due to Parent Company and
its subsidiary companies	11	461,110		137,487
Taxes payable		121,837		149,726
Total current liabilities		1,535,451		1,234,059
Non-current liabilities
Amounts due to Parent Company and its subsidiary
companies - due after one year	11	639,698		-
Total liabilities		2,175,149		1,234,059
Commitments
Shareholders’ equity		8,532,586		6,869,625
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		10,707,735		8,103,684

1. BASIS OF PRESENTATION

The condensed financial statements have been prepared in accordance with International Accounting Standard 34 (“IAS 34”) Interim Financial Reporting and with the applicable disclosures requirements of Appendix 16 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (“the Listing Rules”). The accounting policies adopted, as described below, differ from those used in the management accounts of the Company, which have been prepared in accordance with the relevant accounting principles and regulations applicable to PRC enterprises (“PRC GAAP”). The principal adjustments to the management accounts made to conform to IAS are summarized in note 12.

The condensed financial statements and supplemental information reflect certain reclassifications and additional disclosures to conform with the disclosure requirements of the Hong Kong Companies Ordinance and with presentations customary in the United States of America.

Differences between IAS and accounting principles generally accepted in the United States of America (“US GAAP”) are stated in note 13.

2. SIGNIFICANT ACCOUNTING POLICIES

The accrual accounting method based on historical cost has been adopted by the Company.

Except the following accounting policies adopted by the Company for the period, the remaining policies are consistant with those contained in the 2000 Annual Report.

Mining rights

Mining rights of Jining III are stated at cost less accumulated amortization and are amortized on a straight line basis over twenty years, being the useful life estimated based on the total proven and probable reserves of the coal mine.

Negative goodwill

Negative goodwill, which represents the excess of the fair value ascribed to the Company’s share of the separable net assets at the date of acquisition of Jining III over the purchase consideration is presented as a deduction from the assets of the Company. Negative goodwill is released to income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets.

3. SALES AND TRANSPORTATION COSTS

Six months ended June 30,

	2001		2000
	RMB’000		RMB’000
Domestic sales, gross	1,575,927		1,187,578
Less: Transportation costs	227,892		115,344
Domestic sales, net	1,348,035		1,072,234
Export sales, gross	1,462,742		920,200
Less: Transportation costs	475,349		306,728
Export sales, net	987,393		613,472
Net sales	2,335,428		1,685,706

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

Sales taxes consist primarily of a resource tax calculated at the rate of RMB1.20 per metric tonne (“tonne”) of imputed quantity of raw coal sold and is paid to the local tax bureau. The resource tax for each of six months ended June 30, 2000 and 2001 amounted to RMB15,479,000 and RMB19,954,000, respectively.

The Company exports its coal through China National Coal Industry Import and Export Corporation (“National Coal Corporation”), a company under National Coal Industry Bureau (“NCIB”). The final customer destination of the Company’s export sales is determined by the Company and National Coal Corporation.

4. COST OF GOODS SOLD

Six months ended June 30,

	2001		2000
	RMB’000		RMB’000
Materials	312,487		194,150
Wages and employee benefits	281,635		190,558
Electricity	111,476		90,880
Depreciation	373,446		246,998
Land subsidence, restoration, rehabilitation and
environmental costs	105,345		78,717
Repairs and maintenance	114,831		72,627
Annual fee and amortization of mining rights	9,802		6,490
Others	53,196		47,313
	1,362,218		927,733

5. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Six months ended June 30,

	2001		2000
	RMB’000		RMB’000
Retirement benefits scheme contributions	131,681		83,475
Wages and employee benefits	44,938		37,006
Depreciation	16,695		14,425
Amortization of goodwill	389		389
Amortization of negative goodwill	(18,426	)	-
Distribution charges	32,402		34,265
Provision for doubtful debts	4,308		-
Resource compensation fees	15,023		13,720
Repairs and maintenance	3,913		3,208
Research and development	12,483		12,503
Others	116,169		95,112
	359,575		294,103

6. INTEREST EXPENSES

Six months ended June 30,

	2001		2000
	RMB’000		RMB’000
Interest expenses on bills receivable discounted
without recourse	1,314		2,473
Deemed interest expenses	22,565		-
	23,879		2,473

No interest was capitalized during the relevant periods.

7. OTHER INCOME

	Six months ended June 30,
	2001		2000
	RMB’000		RMB’000
Gain on sales of auxiliary materials	16,916		16,447
Interest income from bank deposits	9,831		18,880
Others	1,116		-
	27,863		35,327

8. INCOME TAXES

	Six months ended June 30,
	2001		2000
	RMB’000		RMB’000
Income taxes	171,837		145,881
Deferred tax credit	(1,216	)	(7,920	)
	170,621		137,961

The Company is subject to a standard income tax rate of 33%. However, the effective income tax rate of the Company for the current period is 28% (six months ended June 30, 2000: 28%). The major reconciling item is the deduction claimed on the deemed appropriation to future development fund which is not charged to income under PRC tax regulation but is eligible for tax deduction.

9. EARNINGS PER SHARE AND ADS

The calculation of the earnings per share for the six months ended June 30, 2000 and 2001 is based on the net income for the period of RMB358,763,000 and RMB446,998,000 and on the weighted average number of 2,600,000,000 shares and 2,743,977,901 shares in issue, respectively, during the period.

The earnings per ADS have been calculated based on the net income for the relevant periods and on one ADS representing 50 H shares.

10. BILLS AND ACCOUNTS RECEIVABLE

	At June 30,		At December 31,
	2001		2000
	RMB’000		RMB’000
Total bills receivable	99,930		16,799
Total accounts receivable	821,581		906,957
Less: Provision for doubtful debts	(88,859	)	(87,044)
Total bills and accounts receivable, net	832,652		836,712

Bills receivable represent unconditional orders in writing issued by or negotiated from customers of the Company which entitle the Company to collect a sum of money from banks or other parties.

The Company made provision for doubtful debts of RMB1,815,000 for the six months ended June 30, 2001. No provision was made for the six months ended June 30, 2000.

According to the credit rating of different customers, the Company allows a range of credit periods to its trade customers not exceeding 180 days.

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

	At June 30,		At December 31,
	2001		2000
	RMB’000		RMB’000
1 - 180 days	548,324		529,457
181 - 365 days	182,107		198,180
1 - 2 years	176,194		178,003
2 - 3 years	8,210		10,262
Over 3 years	6,676		7,854
	921,511		923,756

11. RELATED PARTY TRANSACTIONS

The amounts due to Parent Company and/or its subsidiary companies are non-interest bearing and unsecured.

The amounts due to Parent Company and its subsidiary companies as at June 30, 2001 included the present value of outstanding balance discounted using market rate that arose from the acquisition of Jining III and its mining right as of January 1, 2001 (note 1).

	At June 30,		At December 31,
	2001		2000
	RMB’000		RMB’000
Within one year	461,110		137,487
More than one year, but not exceeding five years	598,642		-
Exceeding five years	41,056		-
Total due	1,100,808		137,487
Less: amount due within one year	461,110		137,487
Amount due after one year	639,698		-

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

During the periods, the Company had the following significant transactions with the Parent Company and/or its subsidiary companies:

	Six months ended June 30,
	2001		2000
	RMB’000		RMB’000
Income
Sales of coal	45,595		45,388
Sales of auxiliary materials and spare parts	5,272		4,493
Utilities and facilities	2,905		2,320
Expenditure
Utilities and facilities	300		300
Annual fee for mining rights	6,490		6,490
Purchases of supply materials	38,155		36,010
Railway transportation services for export sales	118,505		108,451
Repairs and maintenance services	60,603		35,818
Social welfare and support services	75,861		59,584
Technical support and training	7,565		7,565
Road transportation services	4,502		4,596

Certain expenditure for social welfare and support services (excluding medical and child care expenses) of RMB34,770,000 for the six months ended June 30, 2001 (six months June 30, 2000: RMB33,750,000) and for technical support and training of RMB7,565,000 for each of the six months ended June 30, 2000 and 2001 have been charged by the Parent Company at a negotiated amount per annum, subject to changes every year.

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

On January 1, 2001, the Company acquired Jining III mine from Parent Company. The purchase price include the costs of Jining III of approximately RMB2,450,905,000 and the costs of the mining rights of approximately RMB132,479,000.

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

12. SUMMARY OF DIFFERENCES BETWEEN IAS AND PRC GAAP

The condensed financial statements prepared under IAS and those prepared under PRC GAAP have the following major differences:

(i) elimination of the revaluation surplus on low-priced consumables recognized on the establishment of the Company and subsequently amortized to the statement of income in 1997 under PRC GAAP;

(ii) the installments payable to the Parent Company for the acquisition of Jining III have been stated at present value discounted using market rates under IAS while under PRC GAAP, the installments payable are stated at gross amount. Accordingly, deemed interest expense arises on the installments payable to the Parent Company under IAS.

(iii) recognition of a deferred tax asset under IAS for the tax consequence of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities; and

(iv) negative goodwill arising under IAS for the acquisition of Jining III is recognized as income in the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets.

(v) dividends proposed by the directors after the balance sheet date and subject to approval in the annual general meeting are adjusted in the condensed financial statements under PRC GAAP as at the balance sheet date.

The following table summarizes the difference between IAS and PRC GAAP:

	Net income for				Net assets
	Six months		Six months
	ended		ended		as at		as at
	June 30,		June 30,		June 30,		December 31,
	2001		2000		2001		2000
	RMB’000		RMB’000		RMB’000		HK$’000
			(restated - see				(restated - see
			note below)				note below)
As per condensed financial statements
prepared under IAS	446,998		358,763		8,532,586		6,869,625
Impact of IAS adjustment in respect of:
- revaluation surplus on low-priced
consumables recognized on the
establishment of the Company
under PRC GAAP	(3,672	)	(918	)	-		3,672
- amortization of goodwill	389		389		2,720		2,331
- deferred tax effect on temporary
differences not recognized under
PRC GAAP	(1,216	)	(7,920	)	(86,377	)	(85,161	)
- release of negative goodwill to income	(18,426	)	-		(18,426	)	-
- deemed interest expenses	22,565		-		22,565		-
- proposed final dividend	-		-		-		(235,340	)
- others	-		-		10		9
As per condensed financial statements
prepared under PRC GAAP	446,638		350,314		8,453,078		6,555,136

Note:

The Company’s net assets as at December 31, 2000 prepared under PRC GAAP had been restated and reduced by RMB13,940,000 as a result of the dividends distributed to the additional 170,000,000 H shares issued on May 11, 2001. Also, in prior years under PRC GAAP, land subsidence, restoration, rehabilitation and environmental costs were charged to income before income taxes when the costs had been paid and agreements reached between the respective Government departments and the Company. According to the respective accounting guidelines, an estimate of such costs is recognized in the period in which the obligation is identified and is charged as an expense in proportion to the coal extracted. The effect of adoption of these new accounting guidelines, which has been applied retrospectively, on the profit for the six months ended June 30, 2000 and the net assets as at December 31, 2000, are reductions of RMB 22,199,000 and RMB258,062,000, respectively.

There are also differences in other items in the condensed financial statements due to differences in classification between IAS and PRC GAAP.

13. SUMMARY OF DIFFERENCES BETWEEN IAS AND US GAAP

The Company’s condensed financial statements are prepared in accordance with IAS, which differ in certain significant respects from US GAAP. The significant differences relate principally to the accounting for the acquisitions of Jining II and Jining III, the revaluation of property, plant and equipment and land use rights and related adjustments to deferred taxation.

Under IAS, the acquisition of Jining III has been accounted for using the purchase method which accounts for the assets and liabilities of Jining III at their fair value at the date of acquisition. Any excess of the fair value of the assets acquired over the purchase consideration of Jining III is recorded as negative goodwill, which is presented as a deduction from the assets of the Company in the balance sheet. The Company released the negative goodwill to the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets.

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

In applying the pooling of interest method, the financial statement items of the combining enterprises for the period in which the combination occurs and for any comparative periods disclosed should be included in the financial statements of the combined enterprises as if they had been combined from the beginning of the earliest period presented. The effect of accounting for the acquisition of Jining III using the pooling of interest under US GAAP on the gross sales and net income for the six months ended June 30, 2000 is as follows:

	Six months
	ended
	June 30, 2000
	RMB’000
Gross sales
As previously reported	2,107,778
Pooling of interest adjustment	49,386
As restated	2,157,164
Net income
As previously reported	358,763
Pooling of interest adjustment	(3,406	)
As restated	355,357

Under IAS, excess of the fair value of the assets acquired over the purchase consideration of Jining III, which is calculated based on the installments payable to the Parent Company that have been stated at present value discounted using market rates, is presented as a deduction from the assets of the Company as negative goodwill. Under US GAAP, the amount of the value of Jining III based on historical cost over purchase consideration is eliminated against the equity of the Company.

Under IAS, the mining rights of Jining III are stated at purchase consideration less amortization. Mining rights are amortized on a straight line basis over twenty years, being the useful live estimated based on the total proven and probable reserves of the coal mine. Under US GAAP, as both the Company and Jining III are entities under the common control of the Parent Company, the mining rights are to be restated at nil cost and no amortization on mining rights will be recognized.

Under IAS, revaluation of property, plant and equipment and land use rights is generally permitted even for cases involving companies formed under reorganization of entities under common control. The revalued amount becomes the deemed cost base of the assets of the Company formed from the reorganization and depreciation is based on the deemed cost. Under US GAAP, financial statements are required to be prepared on a historical cost basis. Accordingly, property, plant and equipment and land use rights are restated at cost and no additional depreciation on revalued amounts will be recognized under US GAAP. However, a deferred tax asset relating to the revaluation surplus is required to be recognized under US GAAP as a higher tax base resulting from the revaluation is utilized for PRC tax purposes.

Under IAS, the excess of the purchase consideration of Jining II over the fair value of the net assets acquired is capitalized as goodwill and amortized over a period of twenty years. Under US GAAP, the amount of purchase consideration over the value of Jining II based on historical cost is deducted from the equity as a deemed dividend.

Under US GAAP, if there is a reasonable possibility that an additional loss may have been incurred, then disclosure of the additional amount of possible loss is required. In the case of the Company, the directors estimate that at June 30, 2001 additional accrual for land subsidence, restoration, rehabilitation and environmental costs of approximately RMB76,000,000 is reasonably possible.

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

The following table summarizes the effect on net income of differences between IAS and US GAAP:

	Six months ended June 30,
	2001		2000
	RMB’000		RMB’000
Net income as reported under IAS	446,998		358,763
US GAAP adjustments:
Depreciation charge on revalued property, plant and
equipment and land use rights	81,241		82,552
Amortization of goodwill on acquisition of Jining II	389		389
Additional deferred tax charge due to a higher tax base
resulting from the revaluation of property, plant and equipment	(26,810	)	(27,242	)
Loss of Jining III included in the Company using pooling of interest	-		(3,406	)
Amortization of negative goodwill on acquisition of Jining III	(18,426	)	-
Amortization of mining rights of Jining III	3,312		-
Net income under US GAAP	486,704		411,056
Earnings per share under US GAAP	RMB0.18		RMB0.16
Earnings per ADS under US GAAP	RMB8.87		RMB7.90

	At June 30,		At December 31,
	2001		2000
	RMB’000		RMB’000
Shareholders’ equity as reported under IAS	8,532,586		6,869,625
US GAAP adjustments:
Revaluation of property, plant and equipment
and land use rights	(1,982,444	)	(1,912,164	)
Depreciation charged on revalued property, plant and
equipment and land use rights	665,708		584,467
Additional deferred tax assets due to a higher tax base resulting
from the revaluation of property, plant and equipment	411,331		438,141
Goodwill arising on acquisition of Jining II	(12,825	)	(13,214	)
Net asset of Jining III incorporated under pooling of interest
- current assets	-		12,504
- property, plant and equipment and land use rights, net	-		2,391,174
- current liabilities	-		(20,909	)
	-		2,382,769
Negative goodwill arising on acquisition of Jining III, net	119,675		-
Mining rights of Jining III	(129,167	)	-
Shareholders’ equity under US GAAP	7,604,864		8,349,624

Under US GAAP, the Company’s total assets would have been RMB9,604,592,000 and RMB9,780,012,000 at December 31, 2000 and June 30, 2001, respectively.

In addition, the Company has not adopted the following new accounting standards:

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”. SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling of interest method.

In July 2001, the FASB also issued SFAS No.142, “Goodwill and Other Intangible Assets”, which requires that upon adoption, amortization of goodwill will cease and instead, the carrying value of goodwill will be evaluated for impairment on an annual basis. Identifiable intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of”. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001.

The Company is evaluating the impact of the adoption of these standards and has not yet determined the effect of adoption on its financial positions and results of operations.

Please also refer to the published version of this announcement in the SCMP dated 27/8/2001.