CStone Pharmaceuticals — Interim / Quarterly Report 2004

Aug 23, 2004

Yanzhou Coal Mining Company Limited

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 with limited liability)

(Stock Code: 1171)

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE, 2004

The Board of the Company is pleased to announce the unaudited interim operating results of the Company for the six months ended 30th June, 2004:

• Net sales of the Company in the first half of 2004 was RMB4,452.4 million (or approximately US$538.0 million, or HK$4,196.0 million), representing an increase of 27.0% as compared to the net sales of RMB3,504.6 million (or approximately US$423.3 million, or HK$3,301.7 million) for the same period last year.

• Net income of the Company in the first half of 2004 was RMB1,224.4 million (or approximately US$147.9 million, or HK$1,153.9 million), representing an increase of 65.9% as compared to the net income of RMB738.0 million (or approximately US$89.13 million, or HK$695.2 million) for the same period last year.

The board of directors (the “Board”) 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, 2004, which have been reviewed by the audit committee of the Board.

In the first half of 2004, net sales of the Company were RMB4,452.4 million, representing an increase of RMB947.8 million, or 27.0%, over the same period last year. Net income was RMB1,224.4 million, representing an increase of RMB486.4 million, or 65.9%, as compared to the same period last year.

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Yanzhou Coal Mining Company Limited

SUMMARY OF UNAUDITED FINANCIAL INFORMATION

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

For the six months ended 30th June

Net sales Coal net sales Including: Domestic Export Railway transportation service income Total net sales Gross profit Operating income Interest expenses Income before income taxes Net income Net cash from operating activities Earnings per share (RMB/share) Current assets Current liabilities Total assets Shareholder’s equity Return on net assets (%) Net asset value per share (RMB/share)	2004 (RMB’000) (unaudited) 4,341,689 3,181,129 1,160,560 110,731 4,452,420 2,494,683 1,850,454 (20,012 ) 1,830,442 1,224,433 2,328,937 0.427	For the year % change as ended 31st compared to December 2003 same period 2003 (RMB’000) last year (RMB’000) (unaudited) (+/–) (audited) 3,428,625 26.6 6,794,335 2,181,385 45.8 4,337,089 1,247,240 -6.9 2,457,246 75,989 45.7 154,585 3,504,614 27.0 6,948,920 1,635,706 52.5 3,193,897 1,057,027 75.1 2,034,884 (37,971 ) -47.3 (59,966 ) 1,019,056 79.6 1,974,918 737,966 65.9 1,386,686 831,369 180.1 2,701,236 0.257 65.9 0.483 For the For the six months ended year ended 30th June 31st December 2004 2003 2003 (RMB’000) (RMB’000) (RMB’000) (unaudited) (unaudited) (audited) 5,815,913 3,935,471 4,417,218 2,733,414 1,676,447 2,371,966 15,024,855 12,776,306 13,909,804 11,836,992 10,434,519 11,083,239 10.34 7.07 12.51 4.12 3.64 3.86

Note: All the financial data set out in this summary for the six months ended 30th June, 2004 is consolidated with the new additional financial statements of Shandong Yanmei Shipping Co., Ltd. (“Yanmei Shipping”).

The gross profit and the sales taxes and surcharges of Yanmei Shipping were booked into the Company’s coal transportation costs for the purpose of the consolidation of the financial statements, reducing the total coal sales. As the total sales, operating income and assets of Yanmei Shipping do not have significant impacts on the Company, they will not be separately set out and analyzed in this announcement.

REVIEW OF OPERATIONS

The following discussion is based on the Company’s unaudited financial results for the first half of 2004 and 2003, which were prepared in accordance with IFRS.

Coal Production

In the first half of 2004, the Company’s raw coal production was 19.81 million tonnes, representing a decrease of 2.03 million tonnes, or 9.3%, as compared to the same period last year. The decrease in raw coal production was primarily due to the new arrangements of workplace and the more frequent assembly and disassembly of workface in the first half of 2004, especially in the second quarter, to ensure the stable coal production of the Company in the future. In the first half of 2004, the Company’s saleable coal production was 18.63 million tonnes, representing a decrease of 1.67 million tonnes, or 8.2%, as compared to the same period last year.

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Yanzhou Coal Mining Company Limited

Coal Sales

In the first half of 2004, the Company’s coal sales were 19.04 million tonnes representing a decrease of 0.94 million tonnes, or 4.7%, as compared to the same period last year. Among which, (i) sales to the domestic market were 14.21 million tonnes, representing an increase of 1.09 million tonnes, or 8.3%, as compared to the same period last year. The sales increase in the domestic market was primarily due to the increase of No.2 clean coal sales to the domestic market by 0.61 million tonnes, or 183.9%, the increase of No.3 clean coal sales to the domestic market by 0.85 million tonnes, or 36.6% and the increase of raw coal sales by 0.59 million tonnes, or 8.1%, and as partically offset by decrease of sales of mixed coals and other types of coals to the domestic market by 1.36 million tonnes, or 47.6%; and (ii) sales to the export market were 4.83 million tonnes, representing a decrease of 2.03 million tonnes, or 29.7%, as compared to the same period last year. The sales decrease in export market was primarily due to the decrease of No.2 clean coal sales to the export market by 1.21 million tonnes, or 36.6%, and the decrease of No.3 clean coal sales to the export market by 0.94 million tonnes, or 26.6%, and as partically offset by the increase of lump coal sales to the export market by 0.12 million tonnes, or 100.0%.

Coal Sales Prices

The following table sets out the selling prices of the Company’s products for the six months ended 30th June, 2004, 30th June, 2003, and 31st December, 2003, and for the year ended 31st December, 2003 (prepared in accordance with IFRS) :

			For the six	For the
	For the	six months ended	months ended	year ended
		30th June,	31st December,	31st December,
	2004	2003	2003	2003
		Average price of coal products (RMB per tonne)
Clean Coal
No.1 Clean Coal	311.18	245.88	253.28	249.57
No.2 Clean Coal	258.95	191.48	191.20	191.35
Domestic	291.80	234.86	242.62	238.54
Exports	244.07	187.09	185.63	186.42
No.3 Clean Coal	240.48	179.75	176.09	177.89
Domestic	243.43	184.09	186.21	185.19
Exports	236.88	176.91	168.86	172.90
Lump Coal	336.46	–	223.26	223.26
Domestic	361.93	–	255.15	255.15
Exports	257.55	–	213.30	213.30
Subtotal for Clean Coal	253.29	185.85	185.50	185.67
Domestic	266.17	195.34	199.79	197.67
Exports	240.50	181.81	178.69	180.26
Screened Raw Coal	219.06	176.36	182.62	179.33
Mixed Coal and others	111.73	110.76	107.98	109.38
Average	227.88	171.60	173.24	172.41
Average: domestic	223.59	166.27	170.33	168.26

• Notes: 1. The average price of coal products is the invoice price minus sales taxes, transportation cost from the Company to the ports, port charges and various miscellaneous fees.

• The historic average price per tonne of all coal products for the six months ended 31st December, 2003, was calculated based on the following formula:

  • (Net sales of all coal products for the year ended 31st December, 2003) less (net sales of all coal products for the six months ended 30th June, 2003)

  • (Sales volume of all coal products for the year ended 31st December, 2003) less (sales volume of all coal products for the six months ended 30th June, 2003)

• Information relating to the net sales and sales volume for the six months ended 30th June, 2003 and for the year ended 31st December, 2003 was set out in the Company’s 2003 interim report and 2003 annual report, respectively.

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Yanzhou Coal Mining Company Limited

The Company’s average coal price for the first six months of 2004 was RMB227.88/tonne, representing an increase of RMB56.28/tonne or 32.8%, as compared to the same period last year. Among which, average domestic coal price was RMB223.59/tonne, representing an increase of RMB57.32/tonne or 34.5%, as compared to the same period last year; while average export coal price was RMB240.50/tonne, representing an increase of RMB58.69/tonne or 32.3%, as compared to the same period last year.

The increase in the Company’s average coal price was due to the increase in coal prices in the domestic and overseas markets and the increase of coal sales net price through the implementation of sales strategies such as the optimization of product mix and transportation structures.

Net Sales of Coal

In the first half of 2004, the Company’s net sales of coal were RMB4,341.7 million. Setting aside the impacts of Yanmei Shipping, the Company’s net sales of coal were RMB4,338.5 million in the first half of 2004, representing an increase of RMB909.9 million, or 26.5%, as compared to the same period last year. Among which, net domestic sales were RMB3, 177.9 million, representing an increase of RMB996.5 million, or 45.7%; while net export sales were RMB1,160.6 million, representing a decrease of RMB86.680 million, or 6.9%, as compared to the same period last year.

The following table sets out the sales volume and net sales in coal by product category for the six months ended 30th June, 2004 and 2003 (prepared in accordance with IFRS) :

Clean Coal No.1 Clean Coal No.2 Clean Coal Domestic Exports No.3 Clean Coal Domestic Exports Lump Coal Domestic Exports Subtotal of Clean Coal Domestic Exports Screened Raw Coal Mixed Coal and others Total Total: domestic	For the six months ended 30th June, 2004 (unaudited) Coal Net coal % of total sales volume sales net coal sales ’000 tonnes RMB’000 (%) 288.9 89,893 2.1 3,041.9 787,697 18.2 948.3 276,721 6.4 2,093.6 510,976 11.8 5,798.0 1,394,288 32.1 3,184.3 775,160 17.9 2,613.7 619,128 14.2 484.6 163,073 3.7 366.4 132,617 3.0 118.2 30,456 0.7 9,613.4 2,434,951 56.1 4,787.9 1,274,391 29.4 4,825.5 1,160,560 26.7 7,923.8 1,735,805 40.0 1,501.1 167,707 3.9 19,038.3 4,338,463 100.0 14,212.8 3,177,903 73.3	For the six months ended 30th June, 2003 (unaudited) Coal Net coal % of total sales volume sales net coal sales ’000 tonnes RMB’000 (%) 257.7 63,366 1.8 3,634.8 695,996 20.3 334.1 78,461 2.3 3,300.7 617,535 18.0 5,891.2 1,058,955 30.9 2,331.8 429,250 12.5 3,559.4 629,705 18.4 – – – – – – – – – 9,783.7 1,818,317 53.0 2,923.6 571,077 16.6 6,860.1 1,247,240 36.4 7,331.8 1,293,075 37.7 2,864.2 317,233 9.3 19,979.7 3,428,625 100.0 13,119.6 2,181,385 63.6	For the six months ended 30th June, 2003 (unaudited) Coal Net coal % of total sales volume sales net coal sales ’000 tonnes RMB’000 (%) 257.7 63,366 1.8 3,634.8 695,996 20.3 334.1 78,461 2.3 3,300.7 617,535 18.0 5,891.2 1,058,955 30.9 2,331.8 429,250 12.5 3,559.4 629,705 18.4 – – – – – – – – – 9,783.7 1,818,317 53.0 2,923.6 571,077 16.6 6,860.1 1,247,240 36.4 7,331.8 1,293,075 37.7 2,864.2 317,233 9.3 19,979.7 3,428,625 100.0 13,119.6 2,181,385 63.6
	19,038.3	19,979.7	100.0
	14,212.8	13,119.6	63.6

Railway Assets Specifically Used for the Transportation of Coal (“Railway Assets”)

Coal deliveries made by Railway Assets in the first half of 2004 were 13.15 million tonnes, representing a decrease of 0.71 million, or 5.1%, as compared to the same period last year. The Company’s railway transportation service income for the first six months of 2004 was RMB110.7 million, representing an increase of RMB34.742 million (income from coal transportation volume was calculated on the ex-mine basis and on the basis of transportation expenses being borne by the customers), or 45.7%, over the same period last year.

Jining Sihe Port

Jining Sihe Port was invested by the Company in 2003 and came into operation in January 2004. The coal handling volume was 1.18 million tonnes in the first half of 2004.

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Yanzhou Coal Mining Company Limited

Cost and Expenses

The following table sets out the Company’s operating expenses, which are also expressed as percentages of total net sales, for each of the six months ended 30th June, 2004 and 2003:

Net sales Net sales of coal Net income of railway transportation service Total net sales Cost of sales and railway transportation service Materials Wages and employee benefits Electricity Depreciation Expenses for land subsidence, restoring, recovery and environmental protection Repairs and maintenance Mining rights expenses Transportation fees Other expenses Total cost of sales and railway transportation service Selling, general and administration expenses Total operating expenses

Six months ended 30th June, 2004 2003 2004 2003 (RMB’000) (% of total net sales) 4,341,689 3,428,625 97.5 97.8 110,731 75,989 2.5 2.2 4,452,420 3,504,614 100.0 100.0 452,843 446,973 10.2 12.8 452,389 429,853 10.2 12.3 152,393 141,058 3.4 4.0 447,972 434,622 10.1 12.4 159,585 131,473 3.6 3.7 122,786 154,926 2.7 4.4 9,806 9,802 0.2 0.3 24,112 26,037 0.5 0.7 135,851 94,164 3.1 2.7 1,957,737 1,868,908 44.0 53.3 713,037 636,167 16.0 18.2 2,670,774 2,505,075 60.0 71.5

The Company’s total operating expenses for the first six months of 2004 were RMB2,670.8 million, representing an increase of RMB165.7 million, or 6.6%, as compared to the same period last year. Among which, cost of sales and railway transportation service increased by 4.8% while selling, general and administration expenses increased by 12.1%.

The percentage of total operating expenses to total net sales decreased from 71.5% in the same period last year to 60.0% in this reporting period.

MANAGEMENT DISCUSSION AND ANALYSIS

The following discussion and analysis are based on the Company’s unaudited interim financial report of 2004 and 2003. These financial reports have been prepared in accordance with IFRS. In respect of the differences between IFRS and accounting principles generally accepted in the United States of America (the “US GAAP”), please refer to note 14 to the financial statements in the announcement prepared in accordance with IFRS.

In the first half of 2004, net sales of the Company were RMB4,452.4 million. Setting aside the impacts of Yanmei Shipping, net sales of the Company in the first half of 2004 were RMB4,449.2 million, representing an increase of RMB944.6 million, or 27.0%, as compared to RMB3,504.6 million for the same period last year. Among which, (i) net sales of coal were RMB4,338.5million, representing an increase of RMB909.9 million, or 26.5%, as compared to RMB3,428.6 million for the same period last year. The increase in net sales of coal was primarily the result of an increase of RMB1,071.5 million, which is attributable to the increase in price, as partially offset by a decrease of RMB161.6 million, which is attributable to the decrease in sales volume; and (ii) railway transportation service income was RMB110.7 million, representing an increase of RMB34.742 million, or 45.7%, from RMB75.989 million for the same period last year. The increase in railway transportation service income was primarily due to an increase of 1.79 million tonnes of coal transportation volume, the income of which was calculated on the ex-mine basis and on the basis of the transportation expenses being borne by the customers, as compared with the same period last year.

In the first half of 2004, cost of sales and railway transportation service of the Company were RMB1,957.7 million, representing an increase of RMB88.829 million, or 4.8%, as compared to RMB1,868.9 million for the same period last year. Among which, (i) coal sales cost was RMB1,916.9 million, representing an increase of RMB81.567 million, or 4.4%, as compared to

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Yanzhou Coal Mining Company Limited

RMB1,835.4 million for the same period last year. The increase in coal sales cost was primarily due to the decrease in the rate of export tax rebate and the increase in commodity price, wages and employee benefits; and (ii) unit cost of coal sales was RMB100.69, representing an increase of RMB8.83, or 9.6%, as compared to RMB91.86 for the same period last year. The increase in the unit cost of coal sales was primarily due to: (i) an increase in objective costs resulted in an increase of the unit cost of coal sales by RMB5.66; among which, the decrease in the rate of export tax rebate resulted in an increase of the unit of cost of coal sales by RMB1.73, the increase in the price of raw materials resulted in an increase of the unit cost of coal sales by RMB2.13, and the increase of commodity price resulted in an increase of the Company’s subsidence fees, which in turn resulted in an increase of the unit cost of coal sales by RMB1.80; (ii) an increase in employees’ wages in line with the improvement of the Company's efficiency resulted in an increase of the unit cost of coal sales by RMB1.97; (iii) a decrease in sales volume by 0.94 million tonnes resulted in an increase of fixed cost per tonne, which in turn resulted in an increase of the unit cost of coal sales by RMB2.74; (iv) the partial setoff against the abovementioned factors resulting in the increase in the unit cost of sales by the Company’s effective cost control in the first half of 2004.

The Company’s selling, general and administration expenses (“SG&A”) were RMB713.0 million in the first half of 2004, representing an increase of RMB76.87 million, or 12.1%, as compared to RMB636.2 million for the same period last year. The increase in SG&A was primarily due to: (i) an increase in pension scheme funds by RMB8.694 million, (ii) an increase in wages and employees’ benefits by RMB17.324 million, (iii) an increase in resources compensation fees by RMB8.659 million, and (iv) an increase in repairs and maintenance expenses by RMB34.675 million.

The Company’s operating income for the first six months of 2004 was RMB1,850.5 million, representing an increase of RMB793.5 million, or 75.1%, as compared to RMB1,057.0 million for the same period last year.

The Company’s interest expenses for the first six months of 2004 were RMB20.012 million, representing a decrease of RMB17.959 million, or 47.3%, as compared to RMB37.971 million for the same period last year. The decrease was primarily due to the decrease in long-term bank loan expenses as compared to the same period last year.

The Company’s income before tax for the first six months of 2004 was RMB1,830.4 million, representing an increase of RMB811.3 million, or 79.6%, as compared to RMB1,019.1 million for the same period last year.

The Company’s net income for the first six months of 2004 was RMB1,224.4 million, representing an increase of RMB486.4 million, or 65.9%, as compared to RMB738.0 million for the same period last year.

Total assets of the Company increased from RMB13,909.8 million as at 31st December, 2003 to RMB15,024.9 million as at 30th June, 2004, representing an increase of RMB1,115.1 million, or 8.0%. The increase was primarily due to the increase of assets value resulting from the Company’s operating activities.

Total liabilities of the Company increased from RMB2,822.8 million as at 31st December, 2003 to RMB3,184.3 million as at 30th June, 2004, representing an increase of RMB361.5 million, or 12.8%. The increase was primarily due to (i) the increase of other payables and accrued expenses by RMB116.6 million, (ii)the increase of taxes payable by RMB248.8 million, (iii) the increase of payables to the parent company and its subsidiaries by RMB153.6 million and (iv) the decrease of other current liabilities such as bills and accounts payable by RMB157.5 million.

Shareholders’ equity of the Company increased from RMB11,083.2 million as at 31st December, 2003 to RMB11,837 million as at 30th June, 2004, representing an increase of RMB753.8million, or 6.8%. The increase was primarily due to the increase in shareholders’ equity resulting from the profits generated from the Company’s operating activities.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations was the Company’s major source of capital during the first half of 2004. The Company’s capital was principally used for operating activities expenditure and the purchase of properties, machineries and equipment.

Bills and accounts receivable decreased from RMB1,239.4 million as at 31st December, 2003 to RMB783.2 million as at 30th June, 2004, representing a decrease of RMB456.2 million, or 36.8%. Among which, (i) bills receivable decreased from RMB657.1 million as at 31st December, 2003 to RMB424.1 million as at 30th June, 2004, representing a decrease of RMB233 million, or 35.5%. The decrease in bills receivable was primarily due to the decrease in the number of bank bills used for the settlement of sales amounts as a result of the good sales performance of the

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Yanzhou Coal Mining Company Limited

Company, and (ii) accounts receivable decreased from RMB582.3 million as at 31st December, 2003 to RMB359.1 million as at 30th June, 2004, representing a decrease of RMB223.2 million, or 38.3%. The decrease in accounts receivable was a result of the decrease of new accounts receivable and the Company’s strengthened efforts to collect its accounts receivable of previous financial years.

Inventories increased from RMB502.0 million as at 31st December, 2003 to RMB519.4million as at 30th June, 2004, representing an increase of RMB17.358 million, or 3.5%. The increase was primarily due to the increase of inventory materials.

Prepayment and other current assets decreased from RMB534.5 million as at 31st December, 2003 to RMB294.7 million as at 30th June, 2004, representing a decrease of RMB239.8 million, or 44.9%. The decrease was primarily due to the collection of all export tax rebate balance of previous financial years during this reporting period.

Total bills and accounts payable decreased from RMB427.6 million as at 30th June, 2003 to RMB281.7 million as at 30th June, 2004, representing a decrease of RMB145.9 million, or 34.1%. The decrease was primarily due to the partial repayment of accounts payable by the Company.

Other payables and accrued expenses increased from RMB1,174.8 million as at 31st December, 2003 to RMB1,291.4 million as at 30th June, 2004, representing an increase of RMB116.6 million, or 9.9%. The increase was primarily due to the unpaid 2003 dividends payable to the parent company.

In the first half of 2004, the Company’s capital expenditure was RMB224.0 million, which was primarily used for the purchase and refurbishment of properties, machineries and equipment.

As at 30th June, 2004, the Company’s debt to equity ratio was 5.5%, which was calculated based on the shareholders’ equity and the total amount of loans amounting to RMB11,837 million, and RMB650.9 million, respectively.

Taking into account the cash in hand and the abundant capital sources, the Company believes that it will have sufficient operating capitals to meet its current needs.

TAXATION

The Company was subject to an income tax rate of 33% on its taxable profits during this reporting period.

US GAAP RECONCILIATION

The Company’s unaudited interim financial statements are prepared in accordance with IFRS, which differs in certain aspects from the US GAAP. In respect of these differences, please refer to note 14 to the financial statements of this announcement prepared in accordance with IFRS contained herein.

OUTLOOK FOR THE SECOND HALF OF 2004

In the second half of 2004, the demand in both domestic and overseas coal markets are expected to remain strong and the price of coal is expected to move at a high level, which is favorable to the Company in achieving a significant growth in its operating results.

The Growth in Supply Falling Short of the Growth in Demand in the Domestic Coal Market, Price of Coal Moving at a High Level

It is expected that China’s economy will continue to develop speedily in the second half of 2004. The continued growth of demand for electricity in China will push up the growth in demand for coals used for power generation. Although the Chinese government has implemented macroeconomic controls to slow down the growth of high consuming industries such as metallurgy and cement industries, the overall scale of such industries is still expanding, resulting in a further increase in coal demand. The Chinese government increasingly pays attention to the production safety of coal mines and the protection and reasonable exploitation of coal resources and will continue regulating coal mines which do not meet the required production safety standards. The growth in total coal supply will not be able to satisfy the growth in demand because of the limited capacity of the large-scaled coal enterprises to increase production and the long cycle of the development of new coal mines. The average coal price in the domestic market in the second half of 2004 is expected to be higher than that in the first half of 2004. The Chinese government has recently implemented certain regulations and policies relating to the coal industry, which are favorable to maintaining the long-term development of the coal industry and enhancing the competitiveness of large-scale coal enterprises.

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Yanzhou Coal Mining Company Limited

Strong Demand in the Overseas Coal Market, Price of Coal Remaining Stable

The revival of the global economy is expected to push up the demand for power. The demand for coals used for metallurgy and power generation is expected to increase steadily. The Chinese government has recently implemented policies to reduce coal exports. International oil price is moving at a high level. As a result of the above factors, the supply of coal in the international coal market will continue to be tight, keeping the price of coal to remain stable. High international sea freight will support the price of coal in the international market, especially in the northeast Asian market, to move at a high level, which will maintain the Company’s strong competitiveness in northeast Asia. The spot price of Australian BJ steam coal was US$57.90/tonne on 19th August, 2004.

Operating Strategies in the Second Half of 2004

The Company will continue to increase its profitability and shareholders’ returns through internal growth and outward expansion.

• (i) Acquiring high quality coal mines, promoting deep processing of coal and expanding the operating scale of the Company. The Company will push forward the business negotiations, the construction progress and construction of auxiliary facilities of the two new coal mine projects in Shandong and Shanxi Province and the methanol project in Shanxi Province. The Company will continue to look for new acquisition opportunities in coal and other relating industries to improve the Company’s profitability and to strengthen the development of the Company.

• (ii) Improving operational management and boosting profitability of the existing coal mines. Firstly, enhancing the coal production and sales in the second half of 2004 on the basis of the optimization and adjustment of the production systems in the first half of 2004. Secondly, implementing the “Four Optimizations” for the sale of coal to increase net product prices: optimizing the product mix and user mix to increase product sale prices and optimizing the transportation structure and port flow structures to reduce sales cost and to increase net product prices.

• Thirdly, improving management and cost control. The Company will fully utilize ERP management system, improve the financial control system and the overall budgeting management system, improve material purchase management, reduce material reserve, reduce the cost of raw materials and equipment, continue the improvements on roof support system and auxiliary transportation, enlarge bolting net utility, reduce the consumption of materials and reduce labor costs.

To Realize a Substantial Growth in the Operating Results of the Company

It is expected that the coal sales price of the Company in the second half of 2004 will be higher than that of the first half of 2004. The Company will enhance and stabilize production to realize a substantial growth in its operating results. With regard to the operating results of the Company in the first half of 2004 and the expectation for coal price trend in domestic and overseas markets, the Company expects that the accumulative net earnings in the first three quarters of 2004 will increase by more than 50% over the same period last year.[Note]

• Note: The Company did not prepare the projections with a view towards compliance with published guidelines of the American Institute of Certified Public Accountants (“AICPA”) regarding forecasts and projections. The Company is announcing this estimate solely for the purpose of complying with the China Securities Regulatory Commission’s regulation. Such projections are necessarily based upon a number of assumptions and estimates that, while considered reasonable by the Company, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Company, and upon assumptions with respect to future business decisions which are subject to change. Accordingly, the Company cannot provide any assurance and makes no representation that these results will be achieved. Actual results of the Company may vary materially from the above projections. Shareholders of the Company and public investors are cautioned not to place undue reliance on these projections.

DISCLOSURE OF SIGNIFICANT EVENTS

Final Dividends

At the 2003 annual general meeting of the Company held on 25th June, 2004, the shareholders of the Company approved final dividends of RMB470.7 million (before tax), or RMB0.164 (before tax) per share to be declared and paid to the shareholders of the Company, which comprise cash dividends of RMB327.2 million (before tax), or RMB0.114 (before tax) per share according to the Company’s consistent dividend policy and special cash dividends of RMB143.5 million (before tax), or RMB0.050 (before tax) per share.

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Yanzhou Coal Mining Company Limited

Payments of such final dividends to the shareholders of the Company will be completed within two months after the 2003 annual general meeting of the Company.

Interim Dividends

There will be no payment of interim dividends to the shareholders of the Company for the halfyear of 2004. Conversion of surplus reserves into shares of capital will not take place.

Placing of New Shares

Pursuant to the authorization of the 2003 annual general meeting of the Company held on 25th June, 2004 and the approval of the meeting of the Board held on 7th July, 2004, the Company entered into the Placing and Underwriting Agreement with BNP Paribas Peregrine Capital Limited on 7th July, 2004, pursuant to which the Company placed 204,000,000 new H shares with a Renminbi-denominated par value of RMB1.00 each at a price of HK$8.30 per share (the “Placing”).

The Placing shares were listed on The Stock Exchange of Hong Kong Limited on 15th July, 2004. The total share capital of the Company increased to 3,074 million shares from 2,870 million shares. The percentage of the listed share capital of the Company to the total share capital of the Company increased from the original 41.81% to 45.67%. The change of share capital structure of the Company after the Placing is as follows.

		Unit: shares Par value: RMB1.00 each	Unit: shares Par value: RMB1.00 each	Unit: shares Par value: RMB1.00 each
			Changes
		Number of shares	attributable Number of shares
		before the Placing	to the Placing	after the Placing
			(+/-)
A:	Shares not listed for public dealings
	Promoter shares:
	Including:
	State legal person shares	1,670,000,000		1,670,000,000
	Total numbers of shares not listed	1,670,000,000		1,670,000,000
	for public dealings
B:	Shares listed for public dealings
	1. A Shares	180,000,000		180,000,000
	2. H Shares	1,020,000,000	+204,000,000	1,224,000,000
	Total numbers of shares listed	1,200,000,000	+204,000,000	1,404,000,000
	for public dealings
C:	Total numbers of shares	2,870,000,000	+204,000,000	3,074,000,000
The	Company raised net proceeds of HK$1.656 billion (approximately RMB1.757 billion) from the
Placing. The proceeds from the Placing will be used for investments in two				new coal mine
projects in Shandong Province and Shanxi Province, and the methanol project in Shanxi
Province. The negotiations relating to the intended investment projects as mentioned above are
still	in progress. The Company will timely disclose the progress of business negotiations and the
usage of the proceeds from the Placing in accordance with the requirements of domestic and
overseas supervising authorities.

Details of the Placing were published in the domestic China Securities Journal and Shanghai Securities News and Wen Wei Po and South China Morning Post of Hong Kong on 8th July, 2004 and 9th July, 2004.

Amendments to the Articles of Association of the Company

Pursuant to the approval of the 2003 annual general meeting of the Company held on 25th June, 2004, the Company amended the articles of association of the Company (the “Articles of Association”) in accordance with the new requirements of domestic and overseas supervising authorities and the needs of daily operations of the Company. Details of the amendments to the Articles of Association were posted to the shareholders of the Company on 19th April 2004 and were published in the domestic China Securities Journal , Shanghai Securities News and Wen Wei Po , South China Morning Post of Hong Kong on 19th April, 2004.

After the Placing, the Board amended Articles 16, 17 and 20 of the Articles of Association pursuant to the authorization granted in the 2003 annual general meeting of the Company so as to reflect the changes in the share capital structure of the Company after the Placing. Details of the amendments to the Articles of Association were published in the domestic China Securities Journal , Shanghai Securities News and Wen Wei Po , South China Morning Post of Hong Kong on 8th July, 2004.

Yanzhou Coal Mining Company Limited 23-8-2004

9

Yanzhou Coal Mining Company Limited

Material Contracts

Save as the disclosure regarding the Placing and Underwriting Agreement in the paragraph of “Placing of New Shares” in the section headed “Disclosure of Significant Events”, the Company was not a party to any other material contract during this reporting period.

Material Litigation and Arbitration

The Company was not involved in any significant litigation and arbitration during this reporting period.

Connected Transactions

The Company’s connected transactions during the first half of 2004 are set out in note 12 to the financial statements of this announcement prepared in accordance with the IFRS contained herein.

Purchase, Sale or Redemption of Shares of the Company

The Company and its subsidiaries did not purchase, sell or redeem any of the shares of the Company during this reporting period.

Details of the Company’s placement of 204,000,000 new H shares after the end of this reporting period are set out in the paragraph of “Placing of New Shares” in the section headed “Disclosure of Significant Events”.

Compliance with Model Code

Having made specific enquiry of all directors of the Company, during this reporting period, the directors of the Company have strictly complied with the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) set out in Appendix 10 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). The Company has not adopted a code of conduct regarding the securities transactions of the directors of the Company on terms no less exacting than the required standard set out in the Model Code.

Compliance with Code of Best Practice

None of the directors of the Company is aware of information that would reasonably indicate that the Company is not, or was not for any part of the six months ended 30th June, 2004, in compliance with the Code of Best Practice set out in Appendix 14 of the Listing Rules.

Impact of the Exchange Rate Fluctuations on the Company

Coal exports of the Company are all settled in US dollars. The government of the People’s Republic of China adopts a unified floating exchange rate that is under the State’s supervision. Since 2004, exchange rate for RMB to US dollars has varied slightly. The exchange rate fluctuations basically have no impact on the Company.

Employees

As at 30th June, 2004, the Company had 28,028 employees, of whom 1,904 were administrative personnel, 956 were technicians, 21,405 were directly involved in coal production and 3,763 were supporting staff.

Auditors

The Company retained Deloitte Touche Tohmatsu Certified Public Accountants Ltd. (certified public accountants in the PRC (excluding Hong Kong)) and Deloitte Touche Tohmatsu (certified public accountants in Hong Kong) as its domestic and international auditors, respectively.

Audit Committee of the Board

The audit committee of the Board comprises three independent non-executive directors of the Company, namely Mr. Cui Jianmin (being the Chairman of the audit committee of the Board), Mr. Fan Weitang and Mr. Wang Xiaojun, and two directors of the Company, namely Mr. Wang Bangjun and Mr. Dong Yunqing.

On behalf of the Board Wang Xin Chairman

20th August, 2004 Zoucheng, People’s Republic of China

Yanzhou Coal Mining Company Limited 23-8-2004

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Yanzhou Coal Mining Company Limited

Directors: As at the date of this announcement, the Directors of the Company are Mr. Wang Xin, Mr. Geng Jiahuai, Mr. Yang Deyu, Mr. Mo Liqi, Mr. Wang Bangjun, Mr. Yang Jiachun, Mr. Wu Yuxiang, Mr. Wang Xinkun and Mr. Dong Yunqing, and the independent non-executive Directors of the Company are Mr. Fan Weitang, Mr. Cui Jianmin, Mr. Wang Xiaojun, Mr. Wang Quanxi.

The interim report of the Company for the six-month period ended 30th June, 2004 containing all the information required by paragraghs 46(1) to 46(6) of Appendix 16 to the Listing Rules will be published on the website of The Stock Exchange of Hong Kong Limited http//www.hkex.com.hk in due course.

INTERIM RESULTS

The unaudited interim operating results of the Company for the six months ended 30th June, 2004 prepared in conformity with (i) the relevant accounting principles and regulations applicable to PRC enterprises (“PRC GAAP”) and (ii) the International Financial Reporting Standards (“IFRS”).

(i) Unaudited financial information prepared under PRC GAAP. STATEMENT OF INCOME AND PROFITS APPROPRIATION FOR THE PERIOD FROM JANUARY 1, 2004 TO JUNE 30, 2004

Revenue from principal operations Less: Cost of principal operations Sales taxes and surcharges Profit from principal operations Add: Profits from other operations Less: Operating expenses General and administrative expenses Financial expenses Operating profit Add: Investment income Subsidy income Non-operating income Less: Non-operating expenses Total profits Less: Income taxes Minority interest Net profit Add: Unappropriated profits at the beginning of the year Profits available for appropriation Less: Appropriations to statutory common reserve fund Appropriations to statutory common welfare fund Profits available for appropriation to shareholders Less: Cash dividend proposal after the balance sheet date Unappropriated profits at the end of the period	The Group Six months ended June 30, 2004 2003 RMB RMB (Unaudited ) (Unaudited ) 5,332,663,629 4,427,879,818 2,126,610,767 1,999,944,009 105,889,028 53,654,994 3,100,163,834 2,374,280,815 19,860,622 33,280,264 807,195,975 903,853,042 671,022,623 599,243,171 (8,002,957 ) 28,122,556 1,649,808,815 876,342,310 5,882,871 1,478,333 – 4,495,207 835,176 3,771,816 6,103,231 8,858,613 1,650,423,631 877,229,053 591,986,035 299,630,188 169,456 828,354 1,058,268,140 576,770,511 2,220,500,672 1,751,708,336 3,278,768,812 2,328,478,847 – – – – 3,278,768,812 2,328,478,847 – – 3,278,768,812 2,328,478,847	The Company Six months ended June 30, 2004 2003 RMB RMB (Unaudited ) (Unaudited ) 5,332,663,629 4,427,879,818 2,126,747,846 2,000,043,993 104,784,982 53,654,994 3,101,130,801 2,374,180,831 18,266,088 29,154,080 810,723,661 902,550,577 667,739,229 598,685,387 (8,149,010 ) 28,129,884 1,649,083,009 873,969,063 6,251,540 2,389,488 – 4,495,207 835,176 3,673,897 6,072,693 8,855,669 1,650,097,032 875,671,986 591,828,892 298,901,475 – – 1,058,268,140 576,770,511 2,220,752,156 1,751,872,206 3,279,020,296 2,328,642,717 – – – – 3,279,020,296 2,328,642,717 – – 3,279,020,296 2,328,642,717	The Company Six months ended June 30, 2004 2003 RMB RMB (Unaudited ) (Unaudited ) 5,332,663,629 4,427,879,818 2,126,747,846 2,000,043,993 104,784,982 53,654,994 3,101,130,801 2,374,180,831 18,266,088 29,154,080 810,723,661 902,550,577 667,739,229 598,685,387 (8,149,010 ) 28,129,884 1,649,083,009 873,969,063 6,251,540 2,389,488 – 4,495,207 835,176 3,673,897 6,072,693 8,855,669 1,650,097,032 875,671,986 591,828,892 298,901,475 – – 1,058,268,140 576,770,511 2,220,752,156 1,751,872,206 3,279,020,296 2,328,642,717 – – – – 3,279,020,296 2,328,642,717 – – 3,279,020,296 2,328,642,717
			2,374,180,831 29,154,080 902,550,577 598,685,387 28,129,884
			873,969,063 2,389,488 4,495,207 3,673,897 8,855,669
			875,671,986 298,901,475 –
			576,770,511 1,751,872,206
			2,328,642,717 – –
			2,328,642,717 –
			2,328,642,717

Yanzhou Coal Mining Company Limited 23-8-2004 11

Yanzhou Coal Mining Company Limited

(ii) Unaudited Financial Information prepared under IFRS

CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2004

Notes Gross sales of coal 3 Transportation costs of coal 3 Net sales of coal 3 Railway transportation service income Cost of sales and service provided 4 Gross profit Selling, general and administrative expenses 5 Other operating income 6 Operating income Interest expenses 7 Income before income taxes Income taxes 8 Income before minority interest Minority interest Net income Appropriations to reserves Dividend Earnings per share 9 Earnings per ADS. 9

Six months ended June 30, 2004 2003 RMB’000 RMB’000 (unaudited) (unaudited) 5,116,043 4,298,236 (774,354) (869,611 ) 4,341,689 3,428,625 110,731 75,989 (1,957,737) (1,868,908 ) 2,494,683 1,635,706 (713,037) (636,167 ) 68,808 57,488 1,850,454 1,057,027 (20,012) (37,971 ) 1,830,442 1,019,056 (605,840) (280,262 ) 1,224,602 738,794 (169) (828 ) 1,224,433 737,966 168,874 131,034 470,680 298,480 RMB0.43 RMB0.26 RMB21.33 RMB12.86

Yanzhou Coal Mining Company Limited 23-8-2004 12

Yanzhou Coal Mining Company Limited

CONDENSED CONSOLIDATED BALANCE SHEET

AT JUNE 30, 2004

Notes ASSETS CURRENT ASSETS Bank balances and cash Restricted cash Bills and accounts receivable 10 Inventories 11 Other loan receivable Prepayments and other current assets Taxes receivable TOTAL CURRENT ASSETS MINING RIGHTS LAND USE RIGHTS PROPERTY, PLANT AND EQUIPMENT, NET GOODWILL NEGATIVE GOODWILL INVESTMENTS IN SECURITIES DEPOSIT MADE ON ACQUISITION OF INVESTMENTS IN SECURITIES DEFERRED TAX ASSET TOTAL ASSETS LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Bills and accounts payable Other payables and accrued expenses Provision for land subsidence, restoration, rehabilitation and environmental costs Amounts due to Parent Company and its subsidiary companies Unsecured bank borrowing - due within one year Taxes payable TOTAL CURRENT LIABILITIES AMOUNTS DUE TO PARENT COMPANY AND ITS SUBSIDIARY COMPANIES – DUE AFTER ONE YEAR UNSECURED BANK BORROWING – DUE AFTER ONE YEAR TOTAL LIABILITIES COMMITMENTS SHAREHOLDERS’ EQUITY MINORITY INTEREST TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

At At June 30, December 31, 2004 2003 RMB’000 RMB’000 (unaudited) (audited) 4,189,555 2,023,772 28,483 17,521 783,167 1,239,424 519,386 502,028 – 100,000 294,694 534,473 628 – 5,815,913 4,417,218 109,291 112,607 598,317 604,912 8,348,072 8,616,373 87,777 93,165 (41,431) (55,241 ) 1,760 1,760 30,138 30,138 75,018 88,872 15,024,855 13,909,804 281,688 427,608 1,291,412 1,174,813 73,345 85,022 523,252 369,620 200,000 200,000 363,717 114,903 2,733,414 2,371,966 50,859 50,859 400,000 400,000 3,184,273 2,822,825 11,836,992 11,083,239 3,590 3,740 15,024,855 13,909,804

NOTES TO THE CONDENSED FINANCIAL STATEMENTS PREPARED UNDER IFRS

1. BASIS OF PRESENTATION

The condensed financial statements have been prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” and with the applicable disclosure requirements of Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The Company also prepares a set of financial statements in accordance with the relevant accounting principles and regulations applicable to PRC enterprises (“PRC GAAP”). Differences between International Financial Reporting Standards (“IFRS”) and PRC GAAP are stated in note 13.

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Yanzhou Coal Mining Company Limited

Differences between IFRS and accounting principles generally accepted in the United States of America (“US GAAP”) are stated in note 14.

2. SEGMENT INFORMATION

The Group is engaged primarily in the coal mining business and, commencing from January 1, 2002, the Group is also engaged in coal railway transportation business. The Group operates only in the PRC. Commencing from December 31, 2003, the Group is also engaged in the transportation business via rivers and lakes. All the identifiable assets of the Group are located in the PRC. The Company does not currently have direct export rights and all of its export sales must be made through China National Coal Industry Import and Export Corporation (“National Coal Corporation”), Minmetals Trading Co., Ltd. (“Minmetals Trading”) or Shanxi Coal Imp. & Exp. Group Corp. (“Shanxi Coal Corporation”). The final customer destination of the Company’s export sales is determined by the Company, National Coal Corporation, Minmetals Trading or Shanxi Coal Corporation. The Company’s subsidiaries are engaged in trading and processing of mining machinery and the transportation business via rivers and lakes in the PRC. No separate segment information about these businesses is presented in these financial statements as the underlying gross sales, results and assets of the these businesses, which are currently included in the coal mining business segment, are insignificant to the Group.

Business segments

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

Principal activities are as follows: Coal mining – Underground mining, preparation and sales of coal Coal railway transportation – Provision for railway transportation services Segment information about these businesses is presented below:

INCOME STATEMENT

GROSS REVENUE External Inter-segment Total Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority. RESULT Segment results Unallocated corporate expenses Unallocated corporate income Operating income	Coal mining RMB’000 5,116,043 – 5,116,043 1,865,247	For the six months ended June 30, Coal railway transportation Eliminations RMB’000 RMB’000 110,731 – 146,052 (146,052 ) 256,783 (146,052 ) 128,830 –	2004 Consolidated RMB’000 5,226,774 – 5,226,774 1,994,077 (176,337 ) 32,714 1,850,454

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Yanzhou Coal Mining Company Limited

			For the six months ended June	For the six months ended June	30, 2003	30, 2003
			Coal
			railway
		Coal mining	transportation	Eliminations		Consolidated
		RMB’000	RMB’000	RMB’000		RMB’000
	GROSS REVENUE
	External	4,298,236	75,989		–	4,374,225
	Inter-segment	–	194,767	(194,767 )		–
	Total	4,298,236	270,756	(194,767 )		4,374,225
	Inter-segment revenue is charged at
	prices pre-determined by the
	relevant governmental authority.
	RESULT
	Segment results	1,114,822	115,111		–	1,229,933
	Unallocated corporate expenses					(181,395 )
	Unallocated corporate income					8,489
	Operating income					1,057,027
3.	SALES OF COAL AND TRANSPORTATION COSTS OF COAL
				Six months ended
				June 30,
				2004		2003
				RMB’000		RMB’000
	Domestic sales of coal, gross			3,444,406		2,507,618
	Less: Transportation costs			263,277		326,233
	Domestic sales of coal, net			3,181,129		2,181,385
	Export sales of coal, gross			1,671,637		1,790,618
	Less: Transportation costs			511,077		543,378
	Export sales of coal, net			1,160,560		1,247,240
	Net sales of coal			4,341,689		3,428,625

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

Sales taxes consist primarily of a resource tax calculated at the rate of RMB2.40 per metric tonne (“tonne”) of the imputed quantity of raw coal sold and are paid to the local tax bureau. Prior to January 1, 2004, resource tax was charged at the rate of RMB1.20 per metric tonne of imputed quantity of raw coal sold. The resource tax for each of six months ended June 30, 2004 and 2003 amounted to RMB49,462,000 and RMB24,966,000, respectively.

4. COST OF SALES AND SERVICE PROVIDED

COST OF SALES AND SERVICE PROVIDED
Materials Wages and employee benefits Electricity Depreciation Land subsidence, restoration, rehabilitation and environmental costs Repairs and maintenance Annual fee and amortization of mining rights Transportation costs Others	Six months ended June 30, 2004 2003 RMB’000 RMB’000 452,843 446,973 452,389 429,853 152,393 141,058 447,972 434,622 159,585 131,473 122,786 154,926 9,806 9,802 24,112 26,037 135,851 94,164 1,957,737 1,868,908
		1,868,908

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Yanzhou Coal Mining Company Limited

5. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Retirement benefits scheme contributions Wages and employee benefits Additional medical insurance Depreciation Amortization of goodwill Distribution charges Allowance for doubtful debts Resource compensation fees Repairs and maintenance Research and development Staff training costs Freight charges Others	Six months ended June 30, 2004 2003 RMB’000 RMB’000 182,973 174,279 69,693 52,369 16,295 14,234 26,333 20,387 5,388 4,834 19,100 20,687 30,426 30,235 50,863 42,204 39,435 4,760 49,292 49,286 13,667 13,377 3,342 6,389 206,230 203,126 713,037 636,167	Six months ended June 30, 2004 2003 RMB’000 RMB’000 182,973 174,279 69,693 52,369 16,295 14,234 26,333 20,387 5,388 4,834 19,100 20,687 30,426 30,235 50,863 42,204 39,435 4,760 49,292 49,286 13,667 13,377 3,342 6,389 206,230 203,126 713,037 636,167
		636,167

6. OTHER OPERATING INCOME

OTHER OPERATING INCOME
	Six months ended
	June 30,
	2004	2003
	RMB’000	RMB’000
Gain on sales of auxiliary materials	20,001	26,124
Interest income from bank deposits	26,273	7,356
Interest income on loan receivable	6,441	1,133
Release of negative goodwill to income	13,810	13,810
Government grants	–	4,495
Others	2,283	4,570
	68,808	57,488

		68,808	57,488
7.	INTEREST EXPENSES
		Six months ended
		June 30,
		2004	2003
		RMB’000	RMB’000
	Interest expenses on:
	– bank borrowing wholly repayable within 5 years	17,737	35,154
	– bills receivable discounted without recourse	–	186
	Deemed interest expenses	2,275	2,631
		20,012	37,971
	No interest was capitalized during the relevant periods.
8.	INCOME TAXES

Income taxes Deferred tax charge (credit)	Six months ended June 30, 2004 2003 RMB’000 RMB’000 591,986 299,630 13,854 (19,368) 605,840 280,262	Six months ended June 30, 2004 2003 RMB’000 RMB’000 591,986 299,630 13,854 (19,368) 605,840 280,262
		280,262

The Group is subject to a standard income tax rate of 33%. The effective income tax rate of the Group for the current period is 33% (six months ended June 30, 2003: 28%). The major reconciling items are the amount claimed on the appropriation to future development fund which is eligible for tax deduction but is not charged to income under IFRS and the expenses not deductible for tax purposes.

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Yanzhou Coal Mining Company Limited

9. EARNINGS PER SHARE AND PER ADS

The calculation of the earnings per share for the six months ended June 30, 2004 and 2003 is based on the net income for the period of RMB1,224,433,000 and RMB737,966,000, respectively, and on the number of 2,870,000,000 shares in issue during the relevant periods. 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

Total bills receivable Total accounts receivable Less: Allowance for doubtful debts Total bills and accounts receivable, net	At At June 30, December 31, 2004 2003 RMB’000 RMB’000 424,094 657,090 490,126 682,961 (131,053) (100,627) 783,167 1,239,424	At At June 30, December 31, 2004 2003 RMB’000 RMB’000 424,094 657,090 490,126 682,961 (131,053) (100,627) 783,167 1,239,424
		1,239,424

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

The Group made allowance for doubtful debts of RMB30,426,000 and RMB21,088,000 for the six months ended June 30, 2004 and 2003, respectively.

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

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

1 – 180 days 181 – 365 days 1 – 2 years 2 – 3 years Over 3 years INVENTORIES COST Auxiliary materials, spare parts and small tools Coal products	At At June 30, December 31, 2004 2003 RMB’000 RMB’000 599,652 961,307 98,884 177,571 78,335 114,887 81,619 78,919 55,730 7,367 914,220 1,340,051 At At June 30, December 31, 2004 2003 RMB’000 RMB’000 216,963 204,466 302,423 297,562 519,386 502,028	At At June 30, December 31, 2004 2003 RMB’000 RMB’000 599,652 961,307 98,884 177,571 78,335 114,887 81,619 78,919 55,730 7,367 914,220 1,340,051 At At June 30, December 31, 2004 2003 RMB’000 RMB’000 216,963 204,466 302,423 297,562 519,386 502,028
		502,028

11. INVENTORIES

12. RELATED PARTY TRANSACTIONS

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

The amounts due to the Parent Company and its subsidiary companies as at June 30, 2004 included the present value of 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.

Yanzhou Coal Mining Company Limited 23-8-2004 17

Yanzhou Coal Mining Company Limited

nzhou Coal Mining Company Limited
	At	At
	June 30,	December 31,
	2004	2003
	RMB’000	RMB’000
Amounts due to Parent Company and
its subsidiary companies
Within one year	523,252	369,620
More than one year, but not exceeding two years	9,802	9,802
More than two years, but not exceeding five years	26,101	26,101
Exceeding five years	14,956	14,956
Total due	574,111	420,479
Less: amount due within one year	(523,252)	(369,620)
Amount due after one year	50,859	50,859
Except for the amounts disclosed above, the amounts due to the Parent Company and/or its
subsidiary companies have no specific terms of repayment.
During the periods, the Group had the following significant transactions with the Parent
Company and/or its subsidiary companies:
	Six months ended
	June 30,
	2004	2003
	RMB’000	RMB’000
Income
Sales of coal	214,045	79,009
Sales of auxiliary materials	184,702	180,480
Utilities and facilities	14,500	14,500
Railway transportation services	–	26
Expenditure
Utilities and facilities	165,121	154,419
Annual fee for mining rights	6,490	6,490
Purchases of supply materials and equipment	101,935	181,342
Repairs and maintenance services	47,262	92,217
Social welfare and support services	97,105	95,670
Technical support and training	7,565	7,565
Road transportation services	8,341	13,417
Construction services	160,342	–

During the periods, the Group had the following significant transactions with a related party, certain management members of which are also management members of the Group:

	Six months ended	Six months ended
	June 30,
	2004	2003
	RMB’000	RMB’000
Sales of coal	–	21,501

Certain expenditure for social welfare and support services (excluding medical and child care expenses) of RMB31,875,000 and RMB33,973,000 for each of the six months ended June 30, 2004 and 2003, respectively, and for technical support and training of RMB7,565,000 for each of the six months ended June 30, 2004 and 2003, have been charged by the Parent Company at a negotiated amount per annum, subject to changes every year.

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

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

13. SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP

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

(i) adjustment of future development fund, which is charged to income before income taxes under PRC GAAP, to shareholders’ equity;

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Yanzhou Coal Mining Company Limited

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

• (iii) negative goodwill arising under IFRS 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. No negative goodwill is recongized under PRC GAAP; and

• (iv) the installments payable to the Parent Company for the acquisition of Jining III have been stated at present value discounted using market rates under IFRS while under PRC GAAP, the installments payable are stated at gross amount. Accordingly, deemed interest expense arises on the installments payable to the Parent Company under IFRS and no such interest expenses are recognized under PRC GAAP.

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

Net income for six months ended June 30, 2004 2003 RMB’000 RMB’000 As per condensed financial statements prepared under IFRS 1,224,433 737,966 Impact of IFRS adjustment in respect of: – transfer to future development fund which is charged to income before income taxes under PRC GAAP (168,874 ) (131,034 ) – deferred tax effect on temporary differences not recognized under PRC GAAP 13,854 (19,368 ) – release of negative goodwill to income (13,810 ) (13,810 ) – deemed interest expenses 2,275 2,631 – others 390 386 As per financial statements prepared under PRC GAAP 1,058,268 576,771	Net as June 30, 2004 RMB’000 11,836,992 (49,998 ) (75,018 ) (96,670 ) 107,087 7,683 11,730,076	sets as at December 31, 2003 RMB’000 11,083,239 – (88,872 ) (82,860 ) 104,812 7,292
		11,023,611

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

14. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP

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

Under IFRS, the acquisitions of Jining II, Jining III and Railway Assets have been accounted for using the purchase method which accounts for the assets and liabilities of Jining II, Jining III and Railway Assets at their fair value at the date of acquisition. Any excess of the purchase consideration over the fair value of the net assets acquired is capitalized as goodwill and amortized over a period of ten to twenty years. Any excess of the fair value of the net assets acquired over the purchase consideration is recorded as negative goodwill, which is presented as a deduction from the assets of the Group in the condensed consolidated balance sheet. The Group releases 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 the Group, Jining II, Jining III and Railway Assets are entities under the common control of the Parent Company, the assets and liabilities of Jining II, Jining III and Railway Assets are required to be included in the condensed consolidated balance sheet of the Group at historical cost. The difference between the historical cost of the assets and liabilities of Jining II, Jining III and Railway Assets acquired and the purchase price paid is recorded as an adjustment to shareholders’ equity.

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Yanzhou Coal Mining Company Limited

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

Under IFRS, property, plant and equipment and land use rights are stated at their respective fair values at the date of acquisition even including transactions between entities under common control. The fair value amount becomes the new cost basis of the assets of the Company formed from the reorganization and depreciation is based on such new basis. Under US GAAP, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or equity interests shall initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer. Accordingly, property, plant and equipment and land use rights are restated at the historical cost and no additional depreciation on the fair value amounts will be recognized under US GAAP. However, a deferred tax asset relating to the difference in cost bases between the fair value at the date of acquisition and historical cost is required to be recognized under US GAAP as the tax basis of the assets is the fair value amount at the date of acquisition.

Under IFRS, the acquisition of Yanmei Shipping has been accounted for using purchase method which accounted for the assets and liabilities of Yanmei Shipping at their fair value at the date of acquisition. The excess of the purchase consideration over the value of the net assets acquired is capitalized and amortized over a period of twenty years. Under US GAAP, goodwill is not amortized but instead tested for impairment at least annually.

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

Net income as reported under IFRS US GAAP adjustments: Additional depreciation charged on fair valued property, plant and equipment and land use rights Additional deferred tax charge due to a higher tax bases resulting from the difference in cost bases of property, plant and equipment and land and use rights capitalization of mining rights Amortization of negative goodwill on acquisition of Jining III Amortization of mining rights of Jining III Amortization of goodwill arising on acquisition of Jining II Amortization of goodwill arising on acquisition of Railway Assets Amortization of goodwill arising on acquisition of Yanmei Shipping Net income under US GAAP Earnings per share under US GAAP Earnings per ADS under US GAAP	Six months ended June 30, 2004 2003 RMB’000 RMB’000 1,224,433 737,966 93,958 94,084 (32,100) (32,140) (13,810) (13,810) 3,316 3,312 390 390 4,440 4,444 558 – 1,281,185 794,246 RMB0.45 RMB0.28 RMB22.32 RMB13.84	Six months ended June 30, 2004 2003 RMB’000 RMB’000 1,224,433 737,966 93,958 94,084 (32,100) (32,140) (13,810) (13,810) 3,316 3,312 390 390 4,440 4,444 558 – 1,281,185 794,246 RMB0.45 RMB0.28 RMB22.32 RMB13.84
		794,246
		RMB0.28
		RMB13.84

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Yanzhou Coal Mining Company Limited

nzhou Coal Mining Company Limited
	At	At
	June 30,	December 31,
	2004	2003
	RMB’000	RMB’000
Shareholders’ equity as reported under IFRS	11,836,992	11,083,239
US GAAP adjustments:
Difference in cost bases of property, plant and equipment
and land use rights	(2,561,032)	(2,561,032)
Additional depreciation charged on fair value property,
plant and equipment and land use rights	1,219,478	1,125,520
Additional deferred tax asset due to a higher tax base
resulting from the difference in cost bases of property,
plant and equipment and land use rights	442,712	473,719
Goodwill arising on acquisition of Jining II	(10,493)	(10,883)
Negative goodwill arising on acquisition of Jining III, net	41,431	55,241
Mining rights of Jining III	(109,291)	(112,607)
Additional deferred tax asset due to a higher tax base
resulting from the capitalization of mining rights	36,067	37,160
Goodwill arising on acquisition of Railway Assets	(66,680)	(71,120)
Amortization of goodwill on acquisition of Yanmei Shipping	558	–
Shareholders’ equity under US GAAP	10,829,742	10,019,237
Under US GAAP, the Group’s total assets would have been RMB14,017,605,000 and
RMB12,845,802,000 at June 30, 2004 and December 31, 2003, respectively.

Please also refer to the published version of this announcement in South China Morning Post dated 23 August 2004.

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