CStone Pharmaceuticals — Proxy Solicitation & Information Statement 2009

Sep 14, 2009

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about any of the contents of this circular or as to what action to take in relation to this circular, you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Yanzhou Coal Mining Company Limited (the “ Company ”), you should at once hand this circular and the enclosed form of proxy and reply slip to the purchaser(s) or transferee(s) or to the bank, or a licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s).

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

YANZHOU COAL MINING COMPANY LIMITED

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

(Stock Code: 1171)

MAJOR TRANSACTION ACQUISTION OF 100% OF THE ISSUED SHARE CAPITAL IN FELIX RESOURCES LIMITED BY WAY OF A SCHEME OF ARRANGEMENT AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

A notice convening the extraordinary general meeting of the Company (the “ EGM ”) to be held at the Conference Room of Wai Zhao Building, 329 South Fushan Road, Zoucheng, Shandong Province 273500, the PRC at 9:00 a.m. on Friday, 30 October 2009 are set out on pages 379 to 381 of this circular.

Whether or not you are able to attend the EGM, you are strongly urged to complete and sign the accompanying form of proxy in accordance with the instructions printed thereon. For holders of H Shares of the Company, the proxy form shall be lodged with the Company’s H Share Registrar, Hong Kong Registrars Limited at 18/F., Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible, but in any event, no later than 24 hours before the time appointed for the holding of the EGM (or any adjournment thereof); and for holders of Domestic Shares, the proxy form shall be lodged with the Office of the Secretary to the Board at 298 South Fushan Road, Zoucheng, Shandong Province 273500, the PRC as soon as possible, but in any event, no later than 24 hours before the time appointed for the holding of the EGM (or any adjournment thereof).

Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM (or any adjournment thereof) should you so wish.

11 September 2009

CONTENTS

	Pages
Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Appendix I – Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . .	52
Appendix II – Financial Information of Felix . . . . . . . . . . . . . . . . . . . . . . . . . . .	145
Appendix III – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	374
Notice of Extraordinary General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	379

– i –

DEFINITIONS

In this circular, unless the context requires otherwise, the following expressions have the following meaning:

“ADSs”	American depositary shares, each representing
	ownership of 10 H Shares, which are listed on New
	York Stock Exchange Inc.;
“A Shares”	domestic shares in the ordinary share capital of the
	Company, with a nominal value of RMB1.00 each,
	which are listed on the Shanghai Stock Exchange;
“ASX”	Australian Securities Exchange;
“AUD”	the lawful currency of Australia;
“Austar”	Austar Coal Mine Pty Limited, a wholly-owned
	subsidiary of Yanzhou Australia, is a company
	incorporated under the laws of Australia;
“Australian Corporations Act”	the Corporations Act 2001 (Cth) of Australia;
“Board”	the board of Directors;
“Business Day”	a day that is: (a) a business day within the meaning
	given in the ASX Listing Rules; and (b) a day that
	banks are open for business in Sydney;
“CHPP” “Company”	Coal Handling and Preparation Plant; , Yanzhou Coal Mining Company
	Limited, a joint stock limited company incorporated in
	the PRC and the H Shares, ADSs and A Shares of
	which are listed on the Hong Kong Stock Exchange,
	New York Stock Exchange Inc. and the Shanghai Stock
	Exchange, respectively;
“Competing Proposal”	is, in summary, any proposal by a third party to acquire
	20% or more of the shares (or a 20% economic
	interest) in Felix, or to gain effective control over Felix
	(including by controlling the composition of Felix
	Board), or directly or indirectly acquire a significant
	shareholding or economic interest in the Felix Group
	(not including in relation to the in-specie distribution
	of SA Coal shares to Felix Shareholders);

“Conditions” the conditions to the Scheme becoming effective, as set out in the Scheme Implementation Agreement;

– 1 –

DEFINITIONS

“Controlling Shareholder”	, Yankuang Group Corporation
	Limited, a wholly State-owned corporation and a
	controlling shareholder of the Company holding
	approximately 52.86% of the total issued share capital
	of the Company;
“Court”	the Federal Court of Australia or any other court of
	competent jurisdiction under the Australian
	Corporations Act agreed in writing by Felix and the
	Company;
“Dividend Adjusted 1 Month	1 month VWAP prior to the first announcement date
VWAP”	(14 August 2009) of the Transaction adjusted for the
	permitted dividends of up to AUD1.00 per share and
	SA Coal divestment of AUD0.05 per share;
“Directors”	the directors of the Company;
“Effective”	the coming into effect, pursuant to section 411(10) of
	the Australian Corporations Act, of the order of the
	Court made under section 411(4)(b);
“Effective Date”	the date on which the Scheme becomes effective;
“Enlarged Group”	the Group after the conclusion of the Transaction;
“Exclusivity Period”	the period commencing on the date of the Scheme
	Implementation Agreement and ending on the earlier
	of:
	(a) the date the Scheme Implementation Agreement is
	terminated in accordance with its terms; or
	(b) the Effective Date;
“Extraordinary General Meeting”	an extraordinary general meeting of the Company to be
or “EGM”	held to consider, and if thought fit, to approve, among
	other things, the Transaction, including any
	adjournment in respect thereof;
“Felix”	Felix Resources Limited, a company incorporated under
	the laws of Australia, the shares of which are listed on
	ASX;
“Felix Board”	the board of directors of Felix;
“Felix Director(s)”	the directors of Felix;

– 2 –

DEFINITIONS

“Felix Group” Felix and its related entities which are: (a) any Related Body Corporate of Felix; (b) any entity that is in a consolidated financial reporting group with Felix; and (c) any entity controlled by Felix;

“Felix Option Rights” the rights to receive options issued by Felix to subscribe for the Felix Shares under the Felix Resources Operations General Manager’s Equity Participation Plan and the Felix Resources CFO/ General Manager’s Equity Participation Plan;

• “Felix Shares” fully paid ordinary shares in Felix;

• “Felix Shareholders” the shareholders of Felix;

“First Court Date” the first day on which the application made to the Federal Court of Australia or any other court of competent jurisdiction for orders under section 411(1) of the Corporations Act that the meeting of Felix Shareholders be convened is heard;

• “Group” the Company and its subsidiaries from time to time;

• “H Shares” overseas listed foreign invested shares in the ordinary share capital of the Company with a nominal value of RMB1.00 each, which are listed on the Hong Kong Stock Exchange;

• “Hong Kong”

• the Hong Kong Special Administrative Region of the PRC;

• “Hong Kong Listing Rules”

• the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange;

• “Hong Kong Stock Exchange” the Stock Exchange of Hong Kong Limited;

• “IMC”

• International Marine Corporation Group of Singapore;

• “Independent Expert”

the independent expert appointed by Felix in accordance with the Scheme Implementation Agreement;

• “Independent Expert’s Report”

the report in connection with the Scheme to be prepared by the Independent Expert in accordance with the Australian Corporations Act, and Australian Securities and Investments Commission policy and practice, for inclusion in the Scheme Booklet;

– 3 –

DEFINITIONS

“Itochu” Itochu Corporation of Japan; “JORC Code” the Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, which sets out minimum standards, recommendations and guidelines for Public Report in Australia of Exploration Results, Mineral Resources and Ore Reserves; “Korean Consortium” a consortium consisting of KORES; Korea Electric Power Corporation; Korea-South East Power Co., Ltd.; Korea Midland Power Co., Ltd.; Korea Western Power Co., Ltd; Korea Southern Power Co. Ltd.; and Hanwha Corporation of Korea; “KORES” Korea Resource Corporation, an entity owned by the Korean government; “Latest Practicable Date” 11 September 2009, being the latest practicable date of ascertaining certain information contained in this circular prior to its publication; “LTCC” Longwall Top Coal Caving; “Mt” million tonnes; “NCIG” Newcastle Coal Infrastructure Group, which is responsible for the construction and operation of terminal 3 at the Port of Newcastle in Australia; “PRC” or “China” the People’s Republic of China; “Related Body Corporate” or has the meaning ascribed to it in the Australian “Related Bodies Corporate” Corporations Act, and in relation to Felix means: (a) a holding company of Felix; (b) a subsidiary of Felix; or (c) a subsidiary of a holding company of Felix; “RMB” Renminbi, the lawful currency of the PRC; “SA Coal” South Australian Coal Corp. Pty Limited, a wholly owned subsidiary of Felix, holds coal and mineral exploration tenements in South Australia;

– 4 –

DEFINITIONS

• “Scheme” the proposed scheme of arrangement between Felix and the scheme participant under Part 5.1 of the Australian Corporations Act, the implementation of which will give effect to the Transaction, subject to any alterations or conditions made or required by the Federal Court of Australia or any other court of competent jurisdiction under section 411(6) of the Australian Corporations Act and approved in writing by the Company and Felix;

• “Scheme Booklet” the information to be dispatched to Felix Shareholders and approved by the Court, including the Scheme, explanatory statement in relation to the Scheme issued pursuant to section 412 of the Australian Corporations Act and registered with the Australian securities and Investments Commission, the Independent Expert’s Report, the deed poll, a tax opinion on the Scheme provided by Felix’ taxation advisers, a summary of the Scheme Implementation Agreement and notice convening the Scheme Meeting (together with proxy forms);

• “Scheme Consideration” AUD16.95 for each Felix Share or such other amount as agreed between the Company and Felix;

• “Scheme Implementation the agreement dated 13 August 2009 entered into Agreement” between the Company and Felix pursuant to which Felix will recommend the Scheme to Felix Shareholders by means of which the Company will, subject to the Conditions being fulfilled or waived, acquire all the Felix Shares;

• “Scheme Meeting” the meeting ordered by the Court to be convened pursuant to section 411(1) of the Australian Corporations Act in respect of the Scheme;

• “Scheme Participant” each person who is a Felix Shareholder as at the Scheme Record Date other than any Felix Shares held by the Company, Austar or any of their associates;

• “Scheme Record Date” means 7:00p.m. on the fifth Business Day following the date on which the Scheme becomes Effective, or such other date as Felix and the Company may agree in writing;

– 5 –

DEFINITIONS

• “Second Court Date”

• the first day on which an application made to the Federal Court of Australia or any other court of competent jurisdiction for an order in relation to the Scheme made pursuant to section 411(4)(b) of the Corporations Act is heard;

• “Shares” A Shares and H Shares;

• “Shareholder(s)” the shareholder(s) of the Company;

• “Sojitz” Sojitz Corporation of Japan;

• “State”

• the central government of the PRC, including all political subdivisions (including provincial, municipal and other regional or local government entities);

• “Superior Proposal”

• a bona fide Competing Proposal received after the date of the Scheme Implementation Agreement which the Felix Board determines, acting in good faith and in order to satisfy what the Felix Board considers to be its fiduciary and statutory duties (after having taken advice from its legal and financial advisers):

• (a) is capable of being valued and completed, taking into account all aspects of the Competing Proposal; and

• (b) would, if completed substantially in accordance with its terms, be more favourable to the Felix Shareholders than the Scheme, taking into account all the terms of the Competing Proposal;

• “Third Party”

• any of the following: (i) a person other than the Company or any of its Related Bodies Corporate; or (ii) a consortium, partnership, limited partnership, syndicate or other group in which neither the Company nor any of its Related Bodies Corporate has agreed in writing to be a participant;

• “Transaction”

the proposed acquisition by the Company (or a wholly-owned subsidiary of the Company) of all of the Felix Shares pursuant to the Scheme between Felix and Felix Shareholders under Part 5.1 of the Australian Corporations Act;

• “UCC”

• Ultra Clean Coal;

• “VWAP”

volume weighted average price;

– 6 –

DEFINITIONS

“Yancoal Australia”

Yancoal Australia Pty Limited, a wholly-owned subsidiary of the Company in Australia, is a company incorporated under the laws of Australia;

% per cent.

Notes:

1. Where amounts in Hong Kong dollars have been derived from Renminbi which have been derived from Australian dollars, such conversions are for the convenience of the readers only, and except as otherwise indicated, have been made at the rate of HKD1.00 to RMB0.8799 and AUD1.00 to RMB5.6859 respectively, as published by the Bank of China on 13 August 2009.

2. Unless otherwise stated, a reference to any time contained in this circular is a reference to that time in Hong Kong.

3. In this circular, the English names of the PRC entities are direct translation of their Chinese names and included herein for identification purpose only. In the event of any inconsistencies, the Chinese names shall prevail.

– 7 –

LETTER FROM THE BOARD

YANZHOU COAL MINING COMPANY LIMITED

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

(Stock Code: 1171)

Directors: Registered office: Wang Xin 298 South Fushan Road Geng Jiahuai Zoucheng Yang Deyu Shandong Province Shi Xuerang PRC Chen Changchun Postal Code: 273500 Wu Yuxiang Wang Xinkun Principal place of business in Hong Kong: Zhang Baocai Rooms 2608-10 Dong Yunqing 26/F., The Center 99 Queen’s Road Central Independent non-executive Directors: Hong Kong Pu Hongjiu Zhai Xigui Li Weian Wang Junyan

11 September 2009

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION ACQUISITION OF 100% OF THE ISSUED SHARE CAPITAL IN FELIX RESOURCES LIMITED BY WAY OF A SCHEME OF ARRANGEMENT AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

Reference is made to the announcement made by the Company dated 13 August 2009. The Directors announced that, on 13 August 2009, the Company entered into a binding Scheme Implementation Agreement with Felix, a corporation incorporated in Australia with shares listed on ASX, pursuant to which, Felix Directors will unanimously recommend the Scheme to Felix Shareholders by means of which the Company will, subject to the

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LETTER FROM THE BOARD

Conditions being fulfilled or waived, acquire all of the Felix Shares. The total Scheme Consideration for the Transaction will be approximately AUD3,333 million (equivalent to approximately HKD21,538 million or approximately RMB18,951 million).

As of the date of this circular, Felix has a total of 196,455,038 issued shares and will have 196,625,038 issued shares by the implementation of the Transaction, assuming the full exercise of 170,000 Felix Option Rights.

The implementation of the Transaction is conditional upon the satisfaction or waiver of the Conditions specified in the Scheme Implementation Agreement, which include but are not limited to obtaining the approvals of the Shareholders, Felix Shareholders and the Federal Court of Australia in respect of the Transaction and as described in the paragraph headed “Conditions” in this circular.

If concluded, the Transaction is anticipated to constitute a major transaction of the Company and will be subject shareholders’ approval requirement in accordance with Chapter 14 of the Hong Kong Listing Rules. The purpose of the circular is to provide you with (i) further information in relation to the terms of the Scheme Implementation Agreement; and (ii) a notice to the Shareholders of the EGM convening for the purposes of considering and, if thought fit, approving, among other things, the Scheme Implementation Agreement and the transactions contemplated thereunder.

THE SCHEME IMPLEMENTATION AGREEMENT

Date : 13 August 2009

Parties:

• (i) the Company; and

• (ii) Felix

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, each of Felix and its ultimate beneficial owners is a third party independent of and not connected with the Company and its connected persons.

As of the date of this circular, Felix has a total of 196,455,038 issued shares and will have 196,625,038 issued shares by the implementation of the Transaction, assuming the full exercise of 170,000 Felix Option Rights.

The Scheme

The Company, through its wholly-owned subsidiary Austar, will acquire the Felix Shares pursuant to the Scheme. Upon completion of the Scheme, all the Felix Shares will be acquired by Austar and the Felix Shareholders will be entitled to receive a cash payment of AUD16.95 per Felix Share.

– 9 –

LETTER FROM THE BOARD

Scheme Consideration

AUD16.95 (equivalent to approximately HKD109.54 or approximately RMB96.38) in cash for each Felix Share to be paid by the Company on the 8th Business Day after the coming into effect of the order of the Court approving the Scheme. It is expected that the total Scheme Consideration for the Transaction amounts to approximately AUD3,333 million (equivalent to approximately HKD21,538 million or approximately RMB18,951 million).

The Scheme Consideration of AUD16.95 for each Felix Share represents a 10.9% premium to the Dividend Adjusted 1 Month VWAP.

Conditions

Pursuant to the Scheme Implementation Agreement, the Transaction is conditional upon the fulfillment or waiver of a number of Conditions, including but not limited to the following, at any time before 8.00 a.m. on the Second Court Date (other than for Condition (xi) below):

• (i) Foreign investment approval – the Company having received no objections from the Australian Treasurer or his agent under the Australian Government’s foreign investment policy to the acquisition by the Company of all of the Felix Shares;

• (ii) PRC regulatory approvals – the Company having obtained all necessary legal and regulatory approvals, consents and authorizations required under the PRC laws in connection with the Transaction including (but not limited to) the National Development and Reform Commission of China, the Shandong Branch of the State-owned Assets Supervision and Administration Commission of China and the China Securities Regulatory Commission;

• (iii) Shareholder’s approval – the Company having obtained approval from two-thirds of the Shareholders (including proxies) present at the EGM in respect of the acquisition of the Felix Shares that are the subject of the Transaction;

• (iv) Financing – the Company entering into sufficient financing arrangements to fund the Transaction;

• (v) No material transactions – no material transactions are undertaken by Felix or any of its subsidiaries unless required to be undertaken by the Felix Group pursuant to the Transaction or to the extent disclosed (including in the Felix budget);

• (vi) Third party consents – Felix obtains a waiver from each relevant party of all rights that might arise as a result of the Transaction under its joint venture agreements, including those in relation to the Ashton coal mining project and Minerva coal mining project;

– 10 –

LETTER FROM THE BOARD

• (vii) Divestment of SA Coal – removal of SA Coal from the Felix Group; to be effected in the absence of any agreement to the contrary by way of a declaration by the Felix Board of an in specie dividend of shares of SA Coal including the capitalization by Felix by way of further equity contribution in SA Coal of AUD10 million;

• (viii) No material adverse change – no material adverse change occurs in relation to the Felix Group, including an event which diminishes consolidated net assets of the Felix Group by AUD200 million or more, or diminishes the aggregated consolidated annual net profit before tax of the Felix Group over 5 consecutive financial years by AUD100 million or more, or has the result that the Felix Group is unable to carry on its business in substantially the same manner but excluding any event beyond the control of the Felix Group (which includes any event that relates to interest rates, commodity prices or currency exchange rates);

• (ix) No dividends – Neither Felix nor any of its Related Bodies Corporate makes or declares any distribution (whether by way of dividend, capital reduction or otherwise and whether in cash or in specie) of more than AUD1.00 cash for each Felix Share, except any in specie distribution of shares or dividends made to Felix or between Felix Group members (other than SA Coal);

• (x) Felix Shareholders approval – Felix Shareholders approve the Scheme by the necessary majorities;

• (xi) Australian court approval – the Federal Court of Australia approves the Scheme in accordance with the Australian Corporations Act;

• (xii) No prescribed occurrence – between the date of the Scheme Implementation Agreement and 8:00 a.m. of the Second Court Date, there is no occurrence of any events as defined in the Scheme Implementation Agreement, including (a) any member of the Felix Group resolve to reduce, or reducing, it share capital in any way, or reclassifying, redeeming, combing, splitting or repurchasing directly or indirectly any of Felix Shares; (b) any member of the Felix Group issuing shares, or granting an option over its shares, or agreeing to make such an issue or grant such option; (c) any member of the Felix Group issuing, or agreeing to issue, securities convertible into shares or debt securities; (d) any member of the Felix Group making, in aggregate, capital expenditure in excess of AUD5 million on projects not commenced or approved prior to the date of the Scheme Implementation Agreement; (e) any member of the Felix Group acquiring, leasing or disposing of, or agreeing to acquire, lease or dispose of, or offering, proposing or announcing a bid or tenders for, any material business, assets or entity with a value greater than AUS5 million; (f) any member of the Felix Group entering into a contract or commitment restraining it from competing with any person or conducting activities in any market; (g) other than in the ordinary course of business and consistent with past practice or except as provided for in an existing employment contract in place, any member of the Felix Group paying any bonus to, or increasing the compensation of, any officer or employee of any member of the Felix Group; accelerating the rights of any officer or employee of any member

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LETTER FROM THE BOARD

of the Felix Group; or amending in any material respect any enterprise bargaining agreement, Australian workplace agreement or employee benefit plan relating to the officers or employees of any member of the Felix Group; or (h) any member of the Felix Group making any change in its accounting methods, principles or practices which would affect the reported consolidated assets, liabilities or results of operations of any member of the Felix Group, etc.;

• (xiii) Independent Expert – the Independent Expert to be appointed by Felix concludes that the Scheme is in the best interests of Felix Shareholders; and

• (xiv) Felix Debt Facilities – Felix receives all necessary consents, waivers and releases in respect of the Transaction under Felix’s debt facilities or has received adequate assurances in relation to a suitable replacement for the relevant facilities.

Each party has agreed to use all reasonable endeavors to procure that each of the Conditions for which it is responsible is satisfied as soon as practicable and that there is no occurrence that would prevent the Conditions for which it is responsible from being satisfied. Most of the Conditions cited above may be waived by one or both parties as specified in the Scheme Implementation Agreement.

Felix Dividend

Pursuant to the Scheme Implementation Agreement, Felix will pay to the Felix Shareholders (i) cash dividends totaling AUD1.00 for each Felix Share (the first payment is expected to be paid to Felix Shareholders on 30 October 2009) funded from Felix’s cash reserves; and (ii) an in-specie distribution of shares in SA Coal (which will have a cash backing of AUD0.05 a share).

Implementation

Felix has agreed to propose the Scheme. Each party has agreed to use all reasonable endeavors and utilise all necessary resources to produce the Scheme Booklet and implement the Scheme on the terms in accordance with the timetable set out in the Scheme Implementation Agreement.

Felix has agreed to commission an Independent Expert’s Report in respect of the Scheme, and to carry on its business and operations in the ordinary course and substantially consistent with the manner in which they have been conducted previously.

– 12 –

LETTER FROM THE BOARD

Recommendation of Felix Board

Felix has been advised by each of the Felix Directors that they intend to recommend the Transaction to Felix Shareholders. Felix has agreed to use its reasonable endeavors to procure each of the Felix Directors to maintain their recommendation of the Transaction, subject to:

• (i) the Independent Expert concluding that the Transaction is in the best interests of Felix Shareholders; and

• (ii) there being no Superior Proposal (which is, in summary, a publicly announced bona fide counter-proposal from a third party which the Felix Board determines, acting in accordance with its fiduciary duties, is capable of being valued and completed and is more favourable to Felix Shareholders than the Scheme).

Break Fees

The parties have agreed that the Transaction will benefit the parties and their respective shareholders and if the Scheme is not implemented, both parties will incur significant costs. The parties have agreed that a break fee of AUD33.30 million (equivalent to approximately HKD215.18 million or approximately RMB189.34 million) (“ Break Fee ”) will be payable in the following circumstances:

• (i) Felix will pay the Break Fee to the Company if:

• (a) in the period up to implementation (or termination) of the Scheme, any Felix Director fails to state or publicly changes or withdraws the statement or recommendation that the Transaction is in the best interests of Felix Shareholders, or a Competing Proposal is recommended by a majority of the Felix Board;

• (b) a Competing Proposal is announced or made before the expiry of the Exclusivity Period, and is completed before the first anniversary of the Scheme Implementation Agreement, as a result of which a third party acquires a relevant interest (as defined under the Australian Corporations Act) and/or an economic interest in at least 20% of the shares in Felix Shares; or

• (c) the Scheme Implementation Agreement is terminated by the Company because of Felix’ material breach or breach of Felix’ exclusivity obligations (referred to under the heading “Exclusivity” below); and

• (ii) the Company will pay the Break Fee to Felix if Felix terminates the Scheme Implementation Agreement because of the Company’s material breach or where the Company fails to obtain financing required to fund the Transaction.

– 13 –

LETTER FROM THE BOARD

Exclusivity

Felix has agreed to the following exclusivity arrangements until implementation (or termination) of the Scheme:

• (i) (No shop restriction) it will not solicit or encourage any Competing Proposals;

• (ii) (No talk restriction) it will not negotiate or enter into discussions with any Third Party in relation to a Competing Proposal; and

• (iii) (No due diligence) it will not provide any due diligence information for the purposes of enabling a Third Party to make a Competing Proposal.

The ‘no talk’ and ‘no due diligence’ restrictions will not apply to a Competing Proposal that is not solicited in breach of the Scheme Implementation Agreement or that the Felix Board determines, in accordance with its fiduciary or statutory duties, to be a Superior Proposal.

Felix is also required to notify the Company of the details of any approaches made to Felix that may potentially lead to a Competing Proposal. If Felix receives a Superior Proposal, Felix’s Board must provide the Company with a five Business Day period within which the Company can put forward a counterproposal. If Felix’s Board decides that such counterproposal produces a superior outcome for the Felix Shareholders than the Competing Proposal, then the counterproposal will be implemented

Termination

The Scheme Implementation Agreement provides for the following termination rights:

• (i) by either party if:

• (a) the resolution to approve the Scheme submitted to the Scheme Meeting is not approved by the requisite majorities of Felix Shareholders;

• (b) the Scheme has not become effective by 31 March 2010 (or such other date agreed by the Company and Felix);

• (c) the Independent Expert concludes that the Scheme is not in the best interests of Felix Shareholders;

• (d) either party materially breaches the Scheme Implementation Agreement and fails to cure such breach within 5 Business Days;

• (e) the Federal Court of Australia refuses to make an order convening the Scheme Meeting or approving the Scheme;

• (f) a court or other regulatory authority issues an order, decree or ruling or takes any other action which permanently restrains or prohibits the Scheme;

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LETTER FROM THE BOARD

• (g) there is a failure of a Condition; or

• (h) an insolvency event as defined in the Scheme Implementation Agreement occurs in relation to either party or material members of the corporate groups of Felix or the Company;

• (ii) by the Company if:

• (a) Felix breaches its exclusivity obligations (referred to in sub-section headed “Exclusivity” above);

• (b) any Felix Director changes or withdraws his recommendation that Felix Shareholders should vote in favour of the Scheme; or

• (c) a Competing Proposal in relation to Felix is recommended, promoted or otherwise endorsed by a majority of Felix Board; and

• (iii) by Felix if Felix Board publicly changes or withdraws its recommendation of the Scheme, or recommends a Superior Proposal in relation to Felix.

BASIS OF DETERMINING OF THE SCHEME CONSIDERATION

The Scheme Consideration of AUD16.95 per shares was determined having regard to overall consideration and complete assessment on factors including, but not limited to the nature and performance of business and state of operation of Felix, future development plans, prevailing commodity price, exchange rate environment as well as the share price on the secondary market of Felix and ultimately after arms’ length negotiation between the Company and Felix.

To better understand the situation of Felix, the Company has carried out due diligence investigation. After taking into consideration the results of the due diligence investigation, the independent financial advisor of the Company considered comparable transaction analysis on Felix, along with a number of valuation methods including discounted cash flow analysis, and made a judgment on the rationality and fairness of the pricing of the Transaction.

The objective of comparable transaction valuation method is to analyze past merger and acquisition transactions and select transactions similar to the Transaction. The pricing of the Transaction was compared with the consideration paid by the acquirer in comparable transactions, with focus on the transaction premium paid by the acquirer.

The conclusions of the comparable transaction valuation method were verified by methods including discounted cash flow valuation. The discounted cash flow valuation was mainly based on the public information and results of the due diligence investigation of Felix. The valuation relied on assumptions for key variables, including total reserves and resources, annual production capacity, coal product mix, operational costs and taxation of all the coal mines owned by Felix. A valuation was performed based on these assumptions.

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LETTER FROM THE BOARD

FINANCING ARRANGEMENTS FOR PAYMENT OF SCHEME CONSIDERATION

On 11 September 2009, the tenth meeting of the fourth session of the Board passed the resolution to adjust the financing scheme for the Transaction. The adjusted financing scheme is: to raise all the funds required for the Transaction by way of bank loans. To be specific, Bank of China Sydney Branch or a syndicate of banks led by Bank of China, Sydney branch will provide all the funds required to be paid for the Transaction to Yancoal Australia by way of bank loans and Yancoal Australia will in turn provide the funds to Austar for the payment of the consideration for the Transaction.

Principal terms of the loan agreement passed by the Board are as follows:

• (1) Borrower:

Yancoal Australia;

(2) Currency and amount: USD or AUD, equivalent to RMB20 billion;

• (3) Repayment deadline:

the earlier of 5 years from the date of initial drawdown, or 10 days before the date of expiry of the letter of guarantee issued by Bank of China Shandong Province Branch;

• (4) Guarantee:

the standby letter of credit or letter of guarantee of the USD- or AUD-equivalent of RMB20 billion issued by Bank of China Shandong Province Branch containing the terms and conditions acceptable to the lender.

The tenth meeting of the fourth session of the Board also authorised two Directors, namely Mr. Chen Changchun and Mr. Wu Yuxiang, to carry out necessary amendments on the agreement in relation to financing and to execute the aforesaid loan agreement, guarantee agreement and other necessary documents relating to the financing with parties involved in the adjusted financing scheme.

Recently, Bank of China Sydney Branch has issued financing commitment for the provision of a total amount equivalent to RMB20 billion for the Transaction.

The Company reserves the right to partly fund the Scheme Consideration and related transaction costs through the Group’s current cash reserves if required.

As at 30 June 2009, the Group had cash reserves of approximately RMB11.7 billion (AUD2.0 billion).

These cash reserves are not subject to any security interests, rights of set off or other arrangements that might materially affect the Company’s and Austar’s ability to use these cash reserves to pay the Scheme Consideration.

– 16 –

LETTER FROM THE BOARD

INDICATIVE TIMETABLE

Below is an indicative timetable for the different stages of the Transaction. The specific time arrangement may be adjusted accordingly depending on the actual status and needs of the project:

• 13 August 2009

• The Company’s first board meeting to consider and pass the resolutions in relation to the Transaction and to approve, confirm and rectify the Scheme Implementation Agreement entered into with Felix.

• 11 September 2009

• The Company’s second board meeting to consider and approve this circular, the financing arrangements for the Transaction and to convene the extraordinary general meeting of the Company.

• 28 September 2009

• First Court Date to approve Felix to convene the meeting of Felix Shareholders for the purpose of approving the Scheme. Upon obtaining the order from the relevant court, Felix will distribute the Scheme Booklet to Felix.

• Before 30 October 2009

• To obtain approval of the Transaction from the State-owned Assets Supervision and Administration Commission of Shandong Province and Foreign Investment Review Board (FIRB) of Australia.

• 30 October 2009

• The Company’s extraordinary general meeting for the purpose of considering, and if thought fit, approving the Transaction.

• Early December 2009

• Obtaining approval of the Transaction from the relevant competent authorities including National Development and Reform Commission and China Securities Regulatory Commission.

• 8 December 2009

• Meeting of Felix Shareholders to vote for the Scheme.

• 10 December 2009

Second Court Date to approve the implementation of the Scheme.

• End of December 2009

Completion of the Transaction.

– 17 –

LETTER FROM THE BOARD

INFORMATION ON FELIX

Felix is a company incorporated under the laws of Australia and whose shares are listed on ASX. The principal activities of Felix are exploring and extracting coal resources, operating, mining, acquiring and developing resource related projects that primarily focus on coal in Australia.

Felix has four major coal operating mines in Queensland and New South Wales, including (i) Ashton underground coal mine, (ii) Ashton open-cut coal mine, (iii) Minerva open-cut coal mine, and (iv) Yarrabee open-cut coal mine; two developing projects, including: (i) Moolarben open-cut coal mine; and (ii) Moolarben underground coal mine; and four exploration assets, including: (i) Athena underground coal mine; (ii) Harrybrandt open-cut coal mine; (iii) Wilpeena open-cut coal mine; and (iv) Phillipson Basin coal mine.

Ashton Underground and Open-Cut Coal Mines

Felix is the operator of the Ashton underground and open-cut coal mines and holds a 60% interest in an unincorporated joint venture with IMC (30%) and Itochu (10%).

There are three mining leases (ML1529, ML1533 and ML1623), one mining lease application (MLA310) and two exploration licences (EL4918 and EL5860) relating to the Ashton Project in the Singleton area of New South Wales, all of which are either current or a renewal has been lodged.

Ashton washes 100% of its ROM coal to produce a semi-soft coking coal and a thermal coal that meets export market coal specifications, which are primarily sold to Asian steel mills. Ashton owns and operates an Coal Handling and Preparation Plant (CHPP) that has a throughput capacity of 6.5Mtpa of ROM coal washing.

Demand for access to port facilities at the Port of Newcastle currently exceeds available capacity with the result that all coal exporters have been allocated shipping quotas. Ashton’s effective allocation is 3.4Mt for FY2010.

Ashton Open-Cut Mine

The current Ashton open-cut mining operation is located in the north-eastern portion of the lease and is known as the North East Open-Cut. Current production is from the Barrett Pit, which commenced in February 2004 and will continue until remaining reserves are exhausted in mid FY2010. It is planned to develop and operate a new open-cut mine (South East Open-Cut) approximately 2km to the south of the north east pit, commencing in mid 2010 financial year after cessation of current mining. A further open-cut opportunity exists in the area above the current underground mine, known as the West Pit.

The open-cut mine is a truck and shovel operation that produces approximately 2.5Mtpa of ROM coal and 1.5Mtpa of saleable semi-soft coking and thermal coal for export. Ashton open-cut has 49.1Mt of reserves and 118.9Mt of resources. At the current production rate, the remaining mine life is approximately 17 years.

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LETTER FROM THE BOARD

Ashton Underground Mine

The underground mine construction commenced in the third quarter of 2005, and longwall operations commenced in 2006. The Ashton underground longwall mine is designed to sequentially mine up to four coal seams, commencing with the uppermost seam (the Pikes Gully Seam).

The longwall mine production rates will vary according to seam geology and mining conditions with a budget annual production rate of up to 3.3Mtpa of ROM coal and 2.0Mt of saleable coal. For the financial year 2009 (year ended 30 June 2009), production from Ashton underground was 1.9Mt of saleable coal. All coal produced from the Ashton underground is semi-soft coking coal for export.

The underground mine has 47.4Mt of reserves and 322.7Mt of resources. The current reserves provide for a remaining mine life of 14 years. Ashton open-cut coal mine and underground mine exported a total of 3.14Mt in the 2009 financial year.

Minerva Open-Cut Coal Mine

Minerva is an open-cut coal mine situated 45km south of Emerald in Queensland’s Bowen Basin and 420km from the Port of Gladstone. Felix owns 51% of Minerva through an unincorporated joint venture with Sojitz (45%) and KORES (4%). Felix is the manager of the Minerva joint venture through its wholly owned subsidiary, Minerva Mining Pty Ltd.

The Minerva mine is a multi seam truck and shovel operation, mining two distinct export products. The coal does not require washing and is crushed and blended to produce a premium thermal coal product and a thermal coal product. The coal is generally low ash, high volatile coal with low sulphur with good burn properties. The first shipped from Minerva was in November 2005, and for the financial year of 2009, coal sales were 2.5Mt.

Minerva has 28.8Mt of reserves and 78.5Mt of resources. At the current production rate, the remaining mine life is approximately 11 years.

Minerva’s thermal products are exported through the Port of Gladstone, primarily to Japanese and Korean power generation and general industry markets.

Yarrabee Open-Cut Coal Mine

Felix holds a 100% interest in the Yarrabee open-cut coal mine. The Yarrabee mine produces and exports PCI (Pulverised Coal Injection) coal and exports thermal coal.

Yarrabee is a truck and shovel operation, which produced 1.5Mt and had coal sales of 1.6Mt of low volatile PCI and thermal coal for export markets in the 2009 financial year. A 2.5Mtpa wash plant was commissioned in July 2009 both on time and under budget, however, the expansion of the mine to 2.8Mtpa was placed on hold in the financial year of 2009 pending an improvement in the market for PCI coal.

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LETTER FROM THE BOARD

There are a number of mining leases (ML80104, ML80049, ML80050, ML1770 and ML80096) which are either current or a renewal has been lodged, relating to the Yarrabee Project in the Central Highlands, Isaac, Blackwater and Northern Blackwater regions of Queensland. There is also a current mineral development lease (MDL160) and a number of exploration licences (EPC717, EPC621, EPC1117, EPC1449, EPC1429, EPC1684 and EPC1668) that are either current applications or a renewal application lodged.

Coal is exported from Yarrabee through the Port of Gladstone, which is owned and operated by the Gladstone Port Authority. The combined capacity of the RG Tanna and Barney Point coal loading terminals is 75Mtpa.

Yarrabee has 27.5Mt of reserves and 117.2Mt of resources. The remaining mine life is expected to be a minimum of 10. It is expected that further exploration and drilling would extend its mine life to at least 20 years. The Yarrabee coal products are mainly sold to customers from Japan, China, Europe and Korea.

Moolarben Development Project

Felix holds an 80% interest in the Moolarben development project in New South Wales, which includes both the Moolarben open-cut and underground coal mines. These two mines will produce high quality export thermal and domestic thermal coal. The Moolarben project is managed and operated by an unincorporated joint venture between Felix (80%), Sojitz (10%) and the Korean Consortium (10%). Felix manages the joint venture and has general marketing responsibilities while Sojitz has exclusive marketing responsibilities in Japan and Hanwha (a member of the Korean Consortium) will market the coal in Korea.

The Moolarben project consists of two mining leases (ML1605 and ML1606) as well as another current mining lease (ML1628). The Moolarben Project also holds a number of pending mining lease applications (MLA316, MLA317, MLA327, MLA331 and MLA319) and three current or renewal pending exploration licences (EL7073, EL7074 and EL6288) all in the area near Orange and Mudgee in New South Wales.

The Moolarben project area is located in the Western coalfields, on the north-west margin of the Sydney-Gunnedah Basin. The coal measures contain a number of coal seams, with the major seam being the Ulan seam, which ranges in thickness between 5 and 13 metres. The full seam will be recovered with open cut mines using excavators and trucks. A partial high quality section of the seam will be recovered with underground mines using longwall mining methods.

Moolarben will be a staged development of up to four open-cut mines and three underground mines as well as a washery, coal handling facility and train loading facilities. Additional infrastructure will include buildings, power supplies, water supplies and access roads.

Coal from Moolarben will be mainly exported through terminal 3, a new coal export terminal being developed at Kooragang Island, at the Port of Newcastle. Felix is a 15.4% shareholder in NCIG (as set out under the heading Newcastle Coal Infrastructure Group below).

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LETTER FROM THE BOARD

Stage 1 approval for Moolarben, granted in September 2007, allowed for three open-cut mines and one underground mine to produce up to 12 Mtpa ROM coal and 10Mtpa of saleable coal. Construction of Stage 1 consisting of an open-cut, a CHPP and train loading facilities commenced in early 2009. Coal mining is planned to commence in late 2009 with first export coal railed in March 2010, in line with the availability of capacity from terminal 3 at the Port of Newcastle.

Approval for Stage 2, including two underground mines and one open-cut mine is expected in September/October 2009. Development will commence in the financial year of 2010, with production to coincide with the development of Stage 2 of terminal 3 at the Port of Newcastle, which is expected by mid-2012.

Both open-cut and underground mines are expected to operate concurrently from the financial year of 2013, and at full production will collectively produce up to 16Mtpa ROM coal and 13Mtpa of saleable thermal coal. Moolarben has 356.8Mt of reserves and 706.4Mt of resources, with a mine life of more than 20 years.

The majority of the Moolarben thermal coal product will be sold to several customers in Southeast Asia (mainly in Japan and Korea), with potential for some domestic sales to local power generators. 3.4Mt is already contracted to Korea commencing in early 2010.

SA Coal Exploration Asset

Phillipson Basin is an exploration project (EL3386) that is 100% owned by Felix’s subsidiary, SAC. Phillipson Basin is located in central South Australia. Total resources of 515Mt, inclusive of 160.3Mt of measured and indicated resources, are present within the Lake Phillipson Coal deposit. Further exploration work is underway to evaluate the additional potential of the tenement.

Other Exploration Assets

Felix also has interests in other exploration assets located in Queensland and New South Wales.

Athena

The Athena project consists of three exploration licences (EPC1591, EPC553 and EPC1116) and has an application lodged for a fourth (EPC1393). It is held by Felix (51%), Sojitz (45%) and KORES (4%) through an unincorporated joint venture. Athena is located adjacent to the Minerva mine. The tenement area covers approximately 27,000 hectares and is prospective for underground development. Athena has an inferred resource of 560Mt and is likely to be thermal coal of a similar grade and specification to the Minerva products. Athena is expected to use the Wiggins Island Coal Terminal at the Port of Gladstone. Felix has submitted an expression of interest to increase its export capacity through the Wiggins Island Coal Terminal starting in 2012.

– 21 –

LETTER FROM THE BOARD

Harrybrandt

The Harrybrandt exploration project is located near Nebo in Queensland’s Bowen Basin and is 100% owned by Felix. The project consists of an exploration licences (EPC1176) and a mineral development licence (MDL8).

The tenement is a mining development license and covers an area of 2,237 hectares. Harrybrandt has 102.5Mt of inferred resources and is prospective for opencut development. Harrybrandt has potential for producing ultra low volatile PCI coal and high value anthracite for a range of industries producing ferro-nickel, glass, steel, electrodes, pellets and recarburisers, and for use in specialised industrial applications such as sintering and filtration.

Wilpeena

Wilpeena is an exploration tenement (EPC1177) that is 100% owned by Felix and is adjacent to the operating Yarrabee mine. Limited exploration results to date has shown potential for an opencut development potentially producing a low volatile PCI, similar to Yarrabee.

The table below sets out information in relation to the tenements for the aforesaid (i) four major coal operating mines; (ii) two developing projects; and (iii) four exploration projects, of Felix:

		Date of grant of	Date of grant of
			rights/Date of
			application	Expiry date
Coal Assets	Tenements	(date-month-year)		(date-month-year)
Ashton	ML1529		10-9-2003	11-11-2012
Ashton	ML1533		26-2-2003	25-02-2024
Ashton	ML1623		30-10-2008	30-10-2029
Ashton	EL4918		18-12-1995	17-12-2010
Ashton	EL5860		22-5-2001	31-05-2009
Minerva	ML70145		1-12-2000	30-11-2030
Minerva	ML70376		1-8-2008	30-11-2030
Yarrabee	ML80104		1-10-2003	30-09-2023
Yarrabee	ML80049		1-7-1999	30-6-2019
Yarrabee	ML80050		1-11-1998	31-10-2018
Yarrabee	ML1770		1-4-1992	31-3-2007
Yarrabee	MDL160		1-4-2007	31-3-2012
Yarrabee	ML80096		1-7-2002	30-6-2020
Yarrabee	EPC717		27-9-2007	27-8-2009
Yarrabee	EPC621		29-10-2006	28-10-2009
Yarrabee	EPC1117		6-3-2008	5-3-2013
Yarrabee	EPC1449		–	–
Yarrabee	EPC1429		–	–
Yarrabee	EPC1684		–	–

– 22 –

LETTER FROM THE BOARD

		Date of grant of	Date of grant of
			rights/Date of
			application	Expiry date
Coal Assets	Tenements	(date-month-year)		(date-month-year)
Yarrabee	EPC1668		–	–
Moolarben	ML1606		20-12-2007	20-12-2028
Moolarben	ML1605		20-12-2007	20-12-2028
Moolarben	MLA316		25-2-2008	–
Moolarben	MLA 317		25-2-2008	–
Moolarben	MLA 327		20-3-2009	–
Moolarben	MLA 331		21-4-2009	–
Moolarben	ML1628		24-2-2009	24-2-2030
Moolarben	MLA 319		1-5-2008	–
Moolarben	EL7073		12-2-2008	12-2-2010
Moolarben	EL7074		12-2-2008	12-2-2010
Moolarben	EL6288		23-8-2004	22-8-2009
Harrybrandt	EPC1176		16-1-2008	15-1-2013
Harrybrandt	MDL8		1-12-2005	30-11-2009
Athena	EPC1591		3-7-2009	2-7-2014
Athena	EPC553		14-2-2008	13-2-2010
Athena	EPC1116		23-3-2007	22-3-2012
Athena	EPC1393		–	–
Phillipson	EL3386		9-8-2005	8-8-2009
Wilpeena	EPC1177		14-11-2008	13-11-2013

Notes:

1. “ML” denotes Mining Lease; “MDL” denotes Mineral Development Licence; “MLA” denotes Mineral/Mining Lease Application; “EL” denotes Exploration Licence and “EPC” denotes “Exploration Permit – Coal”.

2. Information contained in the above table was updated as of 10 August 2009 from tenement reports obtained from the relevant Australian state government departments.

Newcastle Coal Infrastructure Group (NCIG)

NCIG was selected as the developer and operator of a third coal export terminal at the Port of Newcastle on the Hunter River. The NCIG project involves the staged construction and operation of this new coal export terminal on Kooragang Island at Newcastle, New South Wales.

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LETTER FROM THE BOARD

Felix has a 15.4% shareholding in NCIG and is one of six shareholders:

Company	Ownership
BHP Billiton Limited	35.47%
Peabody Pacific Pty Ltd	17.68%
Felix	15.40%
Donaldson Coal Pty Ltd	11.61%
Whitehaven Coal Limited	11.06%
Centennial Coal Company Limited	8.79%

The initial Stage 1 capacity of NCIG is 30Mtpa, increasing the current Newcastle port export capacity to 132Mtpa. The shareholdings of each shareholder in NCIG reflect the capacity entitlement allocated to each shareholder, guaranteeing Felix 4.62Mtpa of the initial Stage 1 NCIG capacity.

The NCIG shiploading facilities will be built to the west of the existing Kooragang shiploaders, with the new stockyards and rail facilities to the south-west of the Kooragang Coal Terminal.

The construction of the Moolarben open-cut mine is expected to match the timeframe for the expansion of the coal loading facilities at Newcastle, with the first shipment through NCIG scheduled for March 2010.

Feasibility study and design for Stage 2 of the NCIG terminal, an expansion to increase capacity to 66Mtpa, has commenced. NCIG has a 35 year lease on the site.

Ultra Clean Coal (UCC) Technology

Felix, through its subsidiary UCC Energy owns 100% of the patented technology for the production of UCC, and a UCC pilot plant located in the Hunter Valley, New South Wales.

UCC is a high purity, chemically cleaned coal that is combusted in gas turbines to provide high efficiency power generation. Its intended use is as an environmentally acceptable and lower cost alternative to natural gas.

Felix began development of UCC technology in 1989. UCC testing has been carried out with the assistance of Mitsubishi Heavy Industries Limited and Idemitsu Kosan Company Limited.

Felix is currently in discussions with two Chinese power utilities regarding the use of UCC.

– 24 –

LETTER FROM THE BOARD

INFORMATION RELATING TO THE RESERVES OF FELIX

The following is a summary of the statement of JORC resources provided by Felix in its statement of resources and reserves, attached to its annual financial results for the year ended 30 June 2009:

Statistical summary of Felix’s JORC resources

		Evaluation	Felix’s	Measured	Indicated	Estimated	Total
Coal Assets	Status	date	ownership	resources	resources	resources	resources
				(million	(million	(million	(million
				tonnes)	tonnes)	tonnes)	tonnes)
Yarrabee open-cut	Operating	Dec 2008	100%	54.6	5.3	57.3	117.2
coal mine
Ashton open-cut coal	Operating	Dec 2008	60%	84.9	25.9	8.1	118.9
mine
Ashton underground	Operating	Dec 2008	60%	163.6	112.7	46.4	322.7
coal mine
Minerva open-cut	Operating	Jun 2008	51%	17.4	36.1	25.0	78.5
coal mine
Moolarben open-cut	Development	May 2008	80%	257.4	96.5	52.7	406.6
coal mine
Moolarben	Development	May 2008	80%	88.8	114.6	96.4	299.8
underground coal
mine
Athena underground	Exploration	Oct 2004	51%	0	0	560.0	560.0
coal mine
Harry-brandt open-cut	Exploration	May 2008	100%	0	0	102.5	102.5
coal mine
Wilpeena open-cut	Exploration	NA	100%	0	0	0	0
coal mine
Phillipson Basin Coal	Exploration	Jul 2009	100%	14.7	145.7	354.5	514.9
Mine
Total resources				681.4	536.8	1302.9	2521.1
(inclusive of
Phillipson Basin)
Attributable to Felix				504.2	421.5	964.6	1890.3
equity of each
project (inclusive
of Phillipson Basin)
Total resources				666.7	391.1	948.4	2006.2
(excluding
Phillipson Basin)
Attributable to Felix				489.5	275.8	610.1	1375.4
equity of each
project (excluding
Phillipson Basin)

– 25 –

LETTER FROM THE BOARD

The following is a summary of the statement of JORC reserves provided by Felix in its statement of resources and reserves, attached to its annual financial results for the year ended 30 June 2009:

Statistical summary of Felix’s JORC reserves

		Evaluation	Felix’s	Proved	Probable	Total
Coal assets	Status	date	Ownership	Reserves	Reserves	Reserves
				(Million	(Million	(Million
				tonnes)	tonnes)	tonnes)
Yarrabee open-cut coal mine	Operating	Dec 2008	100%	26.1	1.4	27.5
Ashton open-cut coal mine	Operating	Dec 2008	60%	29.2	19.9	49.1
Ashton underground coal mine	Operating	Dec 2008	60%	23.5	23.9	47.4
Minerva open-cut coal mine	Operating	Jun 2008	51%	13.6	15.2	28.8
Moolarben open-cut coal mine	Development	Jun 2008	80%	40.4	237.3	277.7
Moolarben underground coal mine	Development	Jun 2008	80%	44.1	35.0	79.1
Total reserves				176.9	332.7	509.6
Attributable to Felix equity of				132.3	253.3	385.5
each project

Source of information: Presentation materials of Felix to investors for the financial year 2009

Notes:

1. The above resources and reserves data were calculated based on the JORC standard, calculations for reserve volumes have been excluded for exploration projects,. The Wilpeena exploration project does not have JORC-compliant resource data.

2. The above resources and reserves data were calculated on the basis of 100% equity interest of each project. Actual data of the resources and reserves owned by Felix can be calculated in proportion to Felix’s equity interest in each project.

3. The Phillipson Basin Coal Mine Exploration project will be divested before completion of the Transaction and accordingly does not form part of the assets of the Transaction.

The information disclosed above regarding the existence of natural resources of Felix is substantiated by a technical report of a professional adviser engaged by Felix and such report is prepared based on the data including exploration results, analysis or other evidence made available to the professional adviser by Felix for such purpose.

With respect to the estimates of resources and reserves, Felix had engaged professional advisers in respect of each of its mines to provide these estimates on a basis that is consistent with the requirements of the Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, prepared by the Joint Ore Reserve Committee of the Australian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (JORC) – effective December 2004.

– 26 –

LETTER FROM THE BOARD

HISTORICAL SHARE PRICE & FINANCIAL INFORMATION ABOUT FELIX

The market price of Felix Shares closed at AUD16.90 on Friday, 7 August 2009, which is the last trading day in Felix Shares prior to the first announcement date (14 August 2009) of the Transaction. The VWAP over the preceding 1-month period prior to the announcement and the Dividend Adjusted 1 Month VWAP was AUD16.34 per share and AUD15.29 per share, respectively.

The following is a summary of the audited consolidated financial information of Felix for the three financial years ended 30 June 2007, 2008 and 2009:

	As at	As at	As at
	30 June 2007	30 June 2008	30 June 2009
	(audited)	(audited)	(audited)
	(AUD’000)	(AUD’000)	(AUD’000)
Total assets	636,954	849,353	1,007,530
Total liabilities	234,755	301,862	295,492
Net assets	402,199	547,491	712,038
	For the	For the	For the
	year ended	year ended	year ended
	30 June 2007	30 June 2008	30 June 2009
	(audited)	(audited)	(audited)
	(AUD’000)	(AUD’000)	(AUD’000)
Revenue	241,469	440,552	755,548
Profit before income tax	49,758	254,279	368,840
Profit after income tax from
continuing operations	47,159	188,460	267,618

The above financial information was prepared in accordance with the Australian Accounting Standards (“ AIFRS ”). There is no principal difference between the AIFRS and International Financial Reporting Standards (“ IFRS ”) as currently adopted by the Group which may have a material impact on the financial statements of Felix.

As at the Latest Practicable Date, the Company did not hold any interests in Felix.

– 27 –

LETTER FROM THE BOARD

INFORMATION ON THE COMPANY

The Company is primarily engaged in the underground mining, preparation and processing, sale, railway transportation of coal, coal deep-processing and power generation business. The Company’s products consist of prime quality and low-sulphur coal, which are suitable for use in large-scale power plants as steam coal, in metallurgical production when combined with coking coal and in pulverized coal injections during steel production.

The Company has six coal mines located in Jining City, Shandong Province in the PRC with a collective in-place proven and probable reserve base of approximately 1,866 million tonnes as at 31 December 2008. The Austar Coal Mine (previously known as Southland Colliery) in New South Wales, Australia which was acquired by the Company in 2004, the Company’s Tianchi Coal Mine in Shanxi Province and Zhaolou Coal Mine in Heze City, Shandong Province have aggregate recoverable reserves of approximately 182 million tonnes.

MANAGEMENT DISCUSSION AND ANALYSIS ON FELIX

Shareholders and potential investors should read the following discussion and analysis in conjunction with the financial information of Felix for the three years ended 30 June 2009, which is included as Appendix II to this circular and should not rely merely on the information in this section.

For the Year Ended 30 June 2009

Business Review

As at 30 June 2009, Felix lifted its attributable exports by 4% to 4.8 million tonnes (FY2008: 4.6 million tonnes) and NPAT by 42% to AUD267.6 million (FY2008: AUD188.5 million). Felix’s Moolarben development project is on schedule to commence exporting in March 2010 after which attributable production is expected to more than double on an annual basis. All mines performed to expectation during the year. Despite a severe global market downturn and concern about future coal sales in late 2008 and into the first quarter of 2009, Felix did not reduce its mine workforce. In the second quarter of 2009, the market improved quickly and China became a significant importer for Felix’s thermal and metallurgical coal.

Yarrabee Mine (100% owned)

Yarrabee coal sales for FY2009 were 1.6 million tonnes with 406,000 tonnes in stock at year end. Mine planning to lift production to 2.8 mtpa for 20 to 30 years began in FY2009. A wash plant was constructed and commissioned during the year. This plant is operating at design capacity with yields in the 80% to 85% range.

Minerva Mine (51% owned)

Minerva coal sales for FY2009 were 2.5 million tonnes with coal stocks increasing from 454,000 tonnes at the end of FY2008 to 579,000 tonnes at the end of FY2009.

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LETTER FROM THE BOARD

Ashton Mine (60% owned)

Ashton coal sales for FY2009 were 3.1 million tonnes with stocks at the end of period increasing to 414,000 tonnes. Both the open cut and underground mines and the coal preparation plant operated to plan.

Moolarben Project (80% owned)

Construction work at the Moolarben project proceeded to schedule with the of bulk earthworks nearing completion and foundations for the coal preparation plant and coal handling plant well advanced. Open cut mining in Stage 1 is expected to commence by early October 2009 with first coal to be loaded on trains at Moolarben in March 2010 to coincide with completion of Stage 1 of the new NCIG coal terminal at Newcastle.

Other business development

Felix has extensive exploration programs underway at Yarrabee, Wilpeena (north of Yarrabee) and Harrybrandt near Nebo. In South Australia exploration has continued in the Phillipson Basin and a JORC Resource of 515 million tonnes of measured, indicated and inferred has been defined.

Liquidity and Financial Resources

Felix mainly relied upon internally generated funds as well as bank and other borrowings to finance its operations and expansion.

As at 30 June 2009, the total net cash of Felix amounted to AUD287.2 million (FY2008: AUD145.9 million) and interest bearing liabilities of AUD51.4 million (FY2008: AUD91.2 million). The improved profitability and cash flows has increased cash on hand at 30 June 2009 to AUD338.6 million compared to AUD237.1 million last year.

Gearing was down with the ratio of interest bearing liabilities to equity plus interest bearing liabilities, falling to 7% (FY2008: 14%). The interest cover ratio, based on operating profits, has increased substantially from 16.3 times for FY2008 to 86.7 times for FY2009.

Capital Structure

Felix’s total capital comprises of total equity as shown in the balance sheet (including minority interest) plus total interest bearing liabilities. Felix’s primary objectives when managing capital are to ensure the continued ability to provide a consistent return for equity stakeholders through a combination of capital growth and distributions and to maintain an optimal capital structure to reduce the cost of capital. In order to achieve these objectives, Felix seeks to maintain a debt to equity ratio (gearing ratio) that balances risks and returns at an acceptable level and also to maintain a sufficient funding base to enable Felix to meet its working capital and strategic investment needs. In order to maintain or adjust the capital structure, Felix may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or alter the amount of debt.

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The gearing ratio at 30 June 2009 is as follows:

30 Total borrowings Total equity Total capital Gearing ratio	June 2009 (AUD’000) 51,427 712,038
	763,465
	7%

The decrease in the gearing ratio during 2009 was primarily due to the repayment of borrowings and an increased in total equity attributable to retained profits. There have been no changes in the capital management objectives during the year, nor in the items considered to be capital. All financial covenants specified under borrowing facilities have been complied with during the year.

Exposure to Financial Risk and Related Hedges

Foreign exchange risk

Felix operates entirely in Australia and its costs are primarily denominated in its functional currency, the Australian dollar. Export coal sales are denominated in US dollars. A strengthening of the Australian dollar against the US dollar has an adverse impact on earnings and cash flow. Some plant and equipment purchases are denominated in currencies other than the Australian dollar. A weakening of the Australian dollar against those other currencies has an adverse impact on earnings and cash flow.

Foreign exchange risk that arises from firm commitments or highly probable transactions is managed principally through the use of forward foreign currency derivatives. Felix hedges a proportion of these transactions (such as contracted US dollar sales and asset purchases settled in foreign currencies) in each currency in accordance with the Board’s risk management policy.

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LETTER FROM THE BOARD

Felix’s exposure to foreign exchange risk at the reporting date is set out below:

Trade receivables Trade payables Forward foreign exchange contracts – buy foreign currency (cash flow hedges) – sell foreign currency (cash flow hedges) Net exposure	30 June 2009 USD ($’000) EUR (€’000) 29,298 – (16) – 33,517 14,271 – – 62,799 14,271	YEN (¥’000) – – 1,638,641 –
		1,638,641

Coal price risk

Felix is exposed to price risk on the coal it produces and sells in the world market in US dollars. The majority of coal sales are made to Japanese and Korean power generation plants and steel mills, with prices negotiated annually. The remainder of coal sales are sold at the spot market price, or sold under long-term fixed prices.

Felix enters into coal swap contracts to sell specified amounts of coal in the future at stipulated prices. The objective of entering into the coal swap contracts is to reduce the coal price related volatility of Felix’s revenue stream and thereby assist in risk management for the Felix. Coal price speculation is specifically excluded. Coal swap contracts are entered for contracted future sales. The outstanding coal swap contracts are hedging highly probable forecasted sales of coal. The contracts are timed to mature when funds for coal sales are forecast to be received.

As at 30 June 2009, Felix had no coal swap contracts outstanding.

Interest rate risk

Felix is subject to interest rate risk that arises from borrowings. Borrowings issued at variable rates expose Felix to cash flow interest rate risk. Interest rate risk that arises from borrowings is managed generally by borrowing at floating interest rates. Felix hedges a proportion of borrowings issued at variable interest rates through the use of floating-to-fixed interest rate swap contracts when required under borrowing agreements.

Felix’s fixed rate borrowings and receivables are carried at amortised cost. They are therefore not subject to fair value interest rate risk. Felix’s exposure to cash flow interest rate risk from investments at 30 June 2009 was AUD88,143,000. Felix’s exposure to cash flow interest rate risk from borrowings at 30 June 2009 was AUD2,305,000.

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LETTER FROM THE BOARD

Contingent Liabilities and Performance Guarantee

As at 30 June 2009, Felix and its joint ventures had total contingent liabilities of AUD10,688,000 in respect of guarantees secured over deposits, performance guarantees provided to external parties and guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute.

Risk Management Objectives and Policies

The Felix Board of Directors has overall responsibility for determining risk management objectives and policies and risk management is carried out by a central treasury department. The Board provides written principles for overall risk management, as well as policies covering specific areas such as, investment of excess liquidity, and the use of derivative financial instruments to mitigate foreign exchange risk, price risk, and interest rate risk. These derivative instruments create an obligation or right that effectively transfers one or more of the risks associated with an underlying financial instrument, asset or obligation. Derivatives are used exclusively for hedging purposes and not as trading or other speculative instruments. Derivative transactions are entered into to hedge the risks relating to underlying physical positions arising from business activities.

The overall objective of the Board is to set policies that seek to reduce risk as much as possible and reduce volatility on financial performance without unduly affecting competitiveness and flexibility.

Significant Investment

Felix did not hold any significant investment for the financial year ended 30 June 2009.

Material Acquisitions and Disposal of Subsidiaries and Associated Companies

There was no material acquisition and disposal of subsidiaries and associated companies for the year ended 30 June 2009.

Remuneration Policies

Felix adopts the same remuneration policies throughout the three financial years ended 30 June 2009. Felix recognises the importance of having remuneration structures and levels aligned with the needs of the business. Levels are based on industry benchmarks and Felix’s circumstances.

Senior executive remuneration and other terms of employment are reviewed at least annually by a remuneration committee having regard to performance, relevant comparative information and independent expert advice. No specific performance conditions were set as at 30 June 2009. As well as a base salary, remuneration packages include superannuation, retirement and termination entitlements. There were no long term benefits paid during 2009.

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LETTER FROM THE BOARD

Executive directors and senior executives may receive bonuses at the discretion of the remuneration committee. During the year the remuneration committee decided to pay cash bonuses to key management personnel on the successful completion of a number of significant projects.

Remuneration packages are set at levels that are intended to attract and retain executives capable of managing Felix’s operations. Remuneration of non-executive directors is determined by the Felix Board within the maximum amount approved by the shareholders from time to time.

Charges on Assets

Felix’s finance leases relate to mining vehicles and machinery with lease terms between 3 and 7 years. These leases have terms of renewal at the discretion of the specific entity that holds the lease with some purchase options but no escalation clauses. The leases are subject to review of financial covenant ratios on a quarterly basis and contain restrictions on further indebtedness for one particular lease.

30 Commitments in relation to finance leases are payable: No later than one year Later than one year and not later than five years Later than five years Total minimum lease payments Less future finance charges Recognized as a liability	June 2009 (AUD’000) 14,452 37,031 1,600 53,083 (11,574) 41,509

Future Plans for Material Investments

With a strong cash and balance sheet position, Felix was well placed to fund the development of the Moolarben coal project. To this end new finance lease facilities of AUD167.8 million were secured as at 30 June 2009 of which AUD17.9 million were drawn down for the Yarrabee coal preparation plant. The balance of the facility is available for the Moolarben coal project. Felix continued to work towards expanding its borrowing facilities by a further approximately AUD150 million with the funds targeted for development costs at the Moolarben coal project.

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LETTER FROM THE BOARD

For the Year Ended 30 June 2008

Business Review

As at 30 June 2008, Felix lifted attributable exports by 24% to 4.6 million tonnes (FY2007: 3.7 million tonnes) and NPAT more than trebled to AUD188.5 million (FY2007: AUD47.2 million). The expansion of Yarrabee and the continued development of Moolarben maintained Felix’s goal to become a major coal producer by 2010.

Yarrabee Mine (100% owned)

The Yarrabee mine achieved sales of 1.6 million tonnes with one shipment of 80,000 tonnes due late June slipping into early July 2008. Stocks at year-end totalled 292,000 tonnes.

Minerva Mine (51% owned)

The Minerva mine performed to plan with 2.5 million tonnes exported in FY2008 from a total production of 2.8 million tonnes. The mine has now reached a steady state of production of thermal coal, which is sold to several customers mainly in Japan and Korea. Heavy rain in early 2008 in the Emerald area did affect employees access to the mine and production ceased for a few days.

Ashton (60% owned)

Exports from Ashton totalled 3.0 million tonnes of mainly semi-soft coking coal with some spot thermal coal sold for export. The open-cut mine performed to plan, however the underground mine encountered a dyke (intrusion) which slowed production for the third quarter of FY2008. The longwall has recently been transferred to the third panel where production has re-commenced.

Moolarben Project (80% owned)

Open-cut mining machinery was ordered with progressive delivery to commence in July 2009 through to February 2010. Detailed design of the coal preparation plant and train loading system began in FY2008 with construction of this infrastructure due to start in November 2008 for commissioning in February 2010.

Other Business Development

Felix has exploration programs underway at Yarrabee, Wilpeena, Harrybrandt and Athena in Queensland, Moolarben and Ashton in New South Wales and the Phillipson Basin in South Australia. In total there were seven drilling rigs operating and resources and reserves have increased substantially in FY2008 since a more intensive exploration program commenced.

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LETTER FROM THE BOARD

Liquidity and Financial Resources

Felix mainly relied upon internally generated funds as well as bank and other borrowings to finance its operations and expansion, which was supplemented by proceeds received from the disposal of interests in its assets.

As at 30 June 2008, the total net cash of Felix amounted to AUD145.9 million, representing interest bearing liabilities of AUD91.2 million and cash of AUD237.1 million. Cash generated from operations was up AUD72.8 million or 340% over the previous period, a further reflection of strong selling prices while costs had been reasonably contained. The AUD177.9 million received from the sell down of equity in the Moolarben Joint Venture added to cash reserves which allowed continued debt repayments and also payment of AUD17.7 million in dividends.

The increased profitability in FY2008 combined with continued debt repayment assisted in bringing down the ratio of interest bearing liabilities to equity plus interest bearing liabilities. This ratio stood at 14% in FY2008 (FY2007: 20%). The interest cover ratio, based on operating profits, increased substantially from 1.7 times for FY2007 to 16.3 times for FY2008.

Capital Structure

The gearing ratio at 30 June 2008 is as follows:

30 Total borrowings Total equity Total capital Gearing ratio	June 2008 (AUD’000) 91,223 547,491
	638,714
	14%

The decrease in the gearing ratio during 2008 was primarily due to the repayment of borrowings and an increase in total equity attributable to retained earnings. There have been no changes in the capital management objectives during the year, nor in the items considered to be capital. All financial covenants specified under borrowing facilities have been complied with during the year.

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Exposure to Financial Risk and Related Hedges

Foreign exchange risk

Felix’s exposure to foreign exchange risk at the reporting date is set out below.

Trade receivables Trade payables Forward foreign exchange contracts – buy foreign currency (cash flow hedges) – sell foreign currency (cash flow hedges) Net exposure	30 June 2008 USD ($’000) EUR (€’000) 54,976 – (1,155) – – 2,428 (62,766) – (8,945) 2,428	YEN (¥’000) – – 268,073 –
		268,073

Coal price risk

As at 30 June 2008, Felix had outstanding coal swap contracts on 720,000 tonnes of coal sales at an average price of US$121.76 per tonne.

Interest rate risk

Felix’s exposure to cash flow interest rate risk from investments at 30 June 2008 was AUD65,039,000. Felix’s to exposure cash flow interest rate risk from borrowings at 30 June 2008 was AUD56,923,000.

Contingent Liabilities and Performance Guarantee

As at 30 June 2008, Felix and its joint ventures had total contingent liabilities of AUD14,705,000 in respect of guarantees secured over deposits, performance guarantees provided to external parties and guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute.

Significant Investment

Felix did not hold any significant investment for the financial year ended 30 June 2008.

Material Acquisitions and Disposals of Subsidiaries and Associated Companies

Effective 30 June 2007 Felix disposed of 10% of its interest in the Moolarben Coal Project to Sojitz Corporation. This transaction decreased Felix’s interest in the coal project from 100% to 90% and resulted in the formation of the Moolarben Joint Venture. As the sale was subject to various conditions, only the first tranche of the sale proceeds amounting to AUD20,000,000 was recognised during the year ended 30 June 2007. The balance of the

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LETTER FROM THE BOARD

sale proceeds were recognised during the year ended 30 June 2008. Effective 29 February 2008 Felix disposed of 10% of its interest in the Moolarben Joint Venture. This transaction decreased Felix’s interest in the joint venture from 90% to 80%.

Charges on Assets

Felix’s finance leases relate to mining vehicles and machinery with lease terms between 3 and 7 years. These leases have terms of renewal at the discretion of the specific entity that holds the lease with some purchase options but no escalation clauses. The leases are subject to review of financial covenant ratios on a quarterly basis and contain restrictions on further indebtedness for one particular lease.

30 Commitments in relation to finance leases are payable: No later than one year Later than one year and not later than five years Later than five years Total minimum lease payments Less future finance charges Recognized as a liability	June 2008 (AUD’000) 10,145 15,128 2,132 27,405 (3,807) 23,598

Future Plans for Material Investments

The AUD177.9 million received from the sell down of equity in the Moolarben Joint Venture added to cash reserves which allowed continued debt repayments and also payment of AUD17.7 million in dividends.

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LETTER FROM THE BOARD

For the Year Ended 30 June 2007

Business Review

As at 30 June 2007, Felix continued to expand its production and sales base and maintained its goal to become a major coal producer by 2010. Rising cost pressures coupled with increased demurrage at both Gladstone and Newcastle ports significantly reduced profit potential. The severe weather at Newcastle in June 2007 compounded the poor performance. The coal market for all Felix products, PCI, semi-soft coking and thermal coal remained strong in FY2007 with current spot prices consistently AUD10 to AUD20 above Felix’s annual contracted prices. Total attributable coal sales increased 24% to 3.7 million tonnes in FY2007 (2006: 3.0 million tonnes) and NPAT by 57% to AUD47.2 million (2006: AUD30.1 million)

Yarrabee Mine (100% owned)

The Yarrabee mine achieved sales of 1.6 million tonnes and finished the year with 321,000 tonnes in stocks. Poor performance of one of the large excavators contributed to the slightly lower overburden and coal production and the company has installed a new excavator which commenced operation in July 2007.

Minerva Mine (51% owned)

In its first full year of operation Minerva produced approximately 2.0 million tonnes of saleable coal and exported 1.8 million tonnes through Gladstone. The mine easily met its planned overburden capacity, however, coal production was lower due to a fault encountered near what was interpreted as a “dome” or roll in the seams. During the year Felix reduced its equity in Minerva from 70% to 51%. Sojitz increased its share from 30% to 45% and KORES purchased a 4% share.

Ashton Mine (60% owned)

The Ashton open cut produced and sold approximately 1.4 million tonnes of saleable coal during the year with the severe weather in the Hunter Valley in June 2007 affecting both production and sales. Demand for this high quality semi-soft coking coal is strong with most of the production sold to Japanese, Taiwanese and Korean steelmakers. The new longwall was commissioned on time in March 2007. Saleable production from the underground was 460,000 tonnes. Most of the coal was produced in the last quarter.

Moolarben (90% owned)

During the year, exploration resulted in the open cut resource increasing to from 309 million tonnes to 348 million tonnes at an average overburden to coal ratio of less than three to one. The underground resource increased from 198 million tonnes to 267 million tonnes, measured, indicated and inferred.

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LETTER FROM THE BOARD

Business Development

Felix explored for coal in three areas of Queensland at Yarrabee North, Athena near Emerald and Harrybrandt near Nebo. Felix also prepared to re-commence exploration for coal and minerals at exploration tenements in central South Australia.

Liquidity and Financial Resources

Felix mainly relied upon internally generated funds as well as bank and other borrowings to finance its operations and expansion, which was supplemented by proceeds received from the disposal of interests in its assets.

As at 30 June 2007, the total net debt of Felix amounted to AUD88.8 million, representing interest bearing liabilities of AUD100.3 million and cash of approximately AUD17.5 million. Felix generated AUD21.4 million in cash from operations and raised AUD41.5 million during the year via the sell down of its interests in the Minerva and Athena Joint Ventures, from 70% interests to 51% interests in both projects.

Gearing was down with interest-bearing liabilities as a percentage of equity plus interest bearing liabilities of 20.0% (2006: 27.1%); with an interest cover ratio of 10.9 times (FY2006: 8.6 times).

Capital Structure

The gearing ratio at 30 June 2007 is as follows:

30 Total borrowings Total equity Total capital Gearing ratio	June 2007 (AUD’000) 100,337 402,199
	502,536
	20%

The decrease in the gearing ratio during 2007 was primarily due to the repayment of borrowings and an increase in total equity attributable to retained profits.

Issued capital increased from 180.2 million in FY2006 to 196.2 million at FY2007, primarily due to the conversion of 7.5 million B Class Felix shares into ordinary shares and a large number of options exercised during the year. No B Class Felix shares remained outstanding at the end of 30 June 2007.

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Exposure to Financial Risk and Related Hedges

Foreign exchange risk

Felix’s exposure to foreign exchange risk at the reporting date is set out below.

Trade receivables Trade payables Forward foreign exchange contracts – buy foreign currency (cash flow hedges) – sell foreign currency (cash flow hedges) Net exposure	30 June 2007 USD ($’000) EUR (€’000) 1,495 – (7) – – – (26,489) – (25,001) –	YEN (¥’000) – – – –
		–

Interest rate risk

Felix’s exposure to cash flow interest rate risk from investments at 30 June 2007 was AUD86,550,000. Felix’s to cash flow interest rate risk from borrowings at 30 June 2007 was AUD61,831,000.

Contingent Liabilities and Performance Guarantee

As at 30 June 2007, Felix and its joint ventures had total contingent liabilities of AUD18,311,000 in respect of guarantees secured over deposits, performance guarantees provided to external parties and guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute.

Significant Investment

Felix did not hold any significant investment for the financial year ended 30 June 2007.

Material Acquisitions and Disposals of Subsidiaries and Associated Companies

Effective 1 July 2006 Felix disposed of 21.4% of its interest in the Minerva and Athena Joint Ventures to Sojitz Corporation. This transaction decreased Felix’s interest in the joint ventures from 70% to 55%. Effective 1 October 2006 Felix disposed of 7.3% of its interest in the Minerva and Athena Joint Ventures to KORES. This transaction decreased Felix’s interest in the joint ventures from 55% to 51%.

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LETTER FROM THE BOARD

Effective 30 June 2007 Felix disposed of 10% of its interest in the Moolarben Coal Project. This transaction decreased Felix’s interest in the coal project from 100% to 90% and resulted in the formation of the Moolarben Joint Venture. As the sale was subject to various conditions, only the first tranche of the sale proceeds amounting to AUD20,000,000 was recognised during the year ended 30 June 2007.

Charges on Assets

Felix’s finance leases relate to mining vehicles and machinery with lease terms between 3 and 7 years. These leases have terms of renewal at the discretion of the specific entity that holds the lease with some purchase options but no escalation clauses. The leases are subject to review of financial covenant ratios on a quarterly basis and contain restrictions on further indebtedness for one particular lease.

30 Commitments in relation to finance leases are payable: No later than one year Later than one year and not later than five years Later than five years Total minimum lease payments Less future finance charges Recognized as a liability	June 2007 (AUD’000) 9,261 19,470 0 28,731 (4,019) 24,712

Future Plans for Material Investments

Felix did not disclose any future plans for material investments in the financial year 30 June 2007.

FINANCIAL EFFECT OF THE TRANSACTION

Upon conclusion of the Transaction, the Company will be interested in 100% of the total issued share capital of Felix and Felix will become a wholly-owned subsidiary of the Company. As such, all the earnings, assets and liabilities of the Felix Group will be consolidated into the consolidated financial statements of the Group.

As at 30 June 2009, the unaudited total assets and total liabilities of the Company prepared in accordance with the IFRS were approximately RMB34,840.90 million and RMB7,590.31 million respectively. As at 30 June 2009, the audited total assets and total liabilities of Felix prepared in accordance with the AIFRS were approximately AUD1,007.53 million and AUD295.49 million respectively. After the completion of the Transaction and taking into consideration of the potential debt financing in relation to the Transaction, the total assets and total liabilities of the Group are expected to increase respectively. As extracted from the 2008 annual report of Felix, the audited net profit (after income tax) of

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LETTER FROM THE BOARD

Felix for the year ended 30 June 2009 was approximately AUD267.62 million. Considering the historical earnings of Felix, and the potential synergies that may be realized by the Group after completion of the Transaction, the Transaction could improve the earnings of the Group in the long term.

WORKING CAPITAL OF THE GROUP

The Company has secured a committed banking facility of RMB20 billion in connection with the Transaction, the terms and conditions of which are subject to the completion of the Transaction and finalization of other required documentation.

Taking into account the financial resources available to the Group, including the internally generated funds and the available banking facilities, the Directors are of the opinion that the Group has sufficient working capital for its present requirements, that is for the period ending 30 September 2010.

INDEBTEDNESS OF THE GROUP

As at 31 July 2009, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had the following outstanding borrowings:

Current portion of long term bank loans Long term bank loans	RMB’000 82,000 165,000
	247,000

Bank loans of the Group were unsecured and were guaranteed by the Controlling Shareholder.

As at 31 July 2009, the Group did not have any material contingent liabilities.

Save as aforesaid or otherwise mentioned therein and apart from intra-group liabilities, none of the companies in the Group had, at the close of the business on 31 July 2009, any outstanding loan capital issued and outstanding or agreed to be issued, bank overdrafts, charges or debentures, mortgages, loans or other similar indebtedness or any finance lease commitments, hire purchase commitments, liabilities under acceptances, acceptances credits or guarantees or other materials contingent liabilities.

The Directors have confirmed that there have been no material changes in the indebtedness and contingent liabilities of the Group since 31 July 2009.

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LETTER FROM THE BOARD

TRADING PROSPECTS OF THE COMPANY

With an increase in coal supply in China, and a pickup in demand for coal, coal price is expected to be stable. The policies implemented by the Chinese government to boost domestic demand and guarantee national economic growth have achieved effective results. The gradual recovery of China’s economy leads to an increase in demand for coal by coal consuming industries. Meanwhile, many new coal mines commenced production and the closed coal mines in Shanxi Province are reopened. The decrease in coal export volume and the increase in coal import volume will enhance coal supply in China. Despite the increase in the capacity of railway coal transportation, the structural problem of transportation will continue to restrain coal supply. There will be tight supply in certain areas, certain period or for certain type of coal products. Factors such as increased high production concentration in the coal industry, resource tax and fee reform, environment protection and energy conserving policies and the government’s limitation on over-production capacity of coal mines, will contribute to maintain coal price at a stable level with little fluctuation. The PRC Government has suspended application for exploration rights of new coal resources, imposed more stringent safety production requirements, pushed in the consolidation of coal resource and speeded up the establishment of large coal groups to facilitate the stability of China’s coal market.

With a low demand in the international coal market, the coal price will continue to be volatile. As a result of the financial crisis, the world economy will recover in slow pace and the demand of energy will remain weak. Among the coal importing countries in Asia, coal import volume in Japan decreased, and the coal import volume of China and India increased, the coal demand and supply in the Asia-pacific region will remain balance. The increase in coal production capacity and improvement of port transportation capacity in Australia and the encouragement of coal export in Vietnam will enhance coal supply capacity in Asia-pacific region. International coal price will exhibit a volatile trend due to the change of supply-demand relationship, fluctuation of international oil price and sea freight rate.

As a coal enterprise, fluctuation in coal prices is one of the principal factors which affect the operating results of Felix. For the first half year of 2008, coal prices recorded a substantial increase as a result of the widening gap between demand and supply, devaluation of the U.S. dollar, surging prices of crude oil and stabilisation of prices resulting from long term agreements. The spot price of Australian thermal coal has reached USD190/tonne in July 2008. As a result of the impact of the global financial crisis in the second half of 2008, the major global economies entered into recession which resulted in a reduced international demand for coal and, as a result, a considerable fall in coal prices. The spot price of Australian thermal coal dropped to USD60/tonne in end of March 2009. A return of demand for coal in the second quarter of 2009 led to a mild rebound in coal prices. As at the end of August 2009, the spot price of Australian thermal coal has climbed to USD72.5/tonne.

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LETTER FROM THE BOARD

The Company will continue to implement its operational strategies for external and internal development to continue to enhance its profitability and shareholders’ return. In the second half of 2009, the Company will focus on the following operating strategies:

• Make vigorous yet steady efforts for the development and construction of external projects, continue to seek new acquisition opportunities and improve efficiency of utilization of its own funds. The Company will strictly implement investment decision making procedures, strengthen the management of its project investments, avoid and control investment risks and accelerate the production results of its existing projects. The Yulin Neng Hua 0.6 million tonnes methanol project and Heze Neng Hua’s Zhaolou Coal Mine is planned to reach full capacity and the Heze Neng Hua’s Wanfu Coal mine is planned to commence the construction this year. The expedition of the promotion of Yushuwan Coal Mine Company’s establishment and commencement of commercial operation as soon as possible, are also significant objectives for the Company. Through seizing opportunities for the integration of coal resources and after taking into account technical, financial conditions and operational risk, the Company will strengthen its ability for sustainable development by seeking new overseas and domestic investment opportunities in coal and related industries to expand the scale of its coal mine assets. The Company will focus on the acquisition of equity interest in Felix. Take full advantage of the adequacy of its own funds, the Company will pay more attention to project investment, development and construction, seek new opportunities for capital operation, increase the efficiency of utilization of its own funds to generate higher returns for Shareholders.

• Improving operational management will effectively control costs and guarantee a maximum benefit to the Company. Firstly, the Company will make constant efforts in basic safety management, and will work hard to build long-term safety production mechanisms. Secondly, the Company will stabilize the production and sales volume of the Company’s headquarter coal mines, optimise its mine production system, to expand the scale of production external coal mines. The Company will pay great attention on the resettlements of the villages located above coal fields and obtaining approvals for underneath river mining. Thirdly, the Company will continue to implement the “Three Nil Project”, and improve product quality and competitiveness; and guided by market demand, the Company will implement flexible marketing strategies, optimize product composition, user structure, distribution flows and mode of transportation to ensure stabilized sales volume. Lastly, with effective cost management as the core consideration, the Company will strengthen financial control systems and budget management, and make efforts in energy-saving and potential synergies.

• Regulate corporate operations and fulfill social responsibilities of the Company. The Company intends to further strengthen its internal control system, improve its internal control, its business procedures and systems, and strengthen its ability to guard against risks; to enhance corporate governance and drive an even better regulated operation. The Company will actively implement its social responsibilities, adhering to the basic principles of safety, high efficiency,

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LETTER FROM THE BOARD

cleanliness and mutual benefit, to realize the development of safe industry, clean development, healthy development to promote the harmonious development of the regional economy.

INTENTIONS IN RESPECT OF FELIX

This section sets out the Company’s intentions in relation to:

• the continuation of the business of Felix;

• any major changes to the business of Felix and any redeployment of the fixed assets of Felix; and

• the future employment of the present employees of Felix, in circumstances where the Scheme is implemented.

Yancoal Australia and Austar are wholly owned subsidiaries of the Company. Accordingly, the intentions, views, understandings and beliefs of the Company as set out in this section are the same as those of Yancoal Australia and Austar.

The intentions set out in this section have been formed on the basis of the facts and information concerning Felix and the general business environment which are known to the Company as at the time of the preparation of this circular. Final decisions on these matters will only be made by the Company in light of all material facts and circumstances at the relevant time. Accordingly, the statements set out in this section are statements of current intention only, which may change as new information becomes available or as circumstances change, and the statements in this section should be read in that context.

(a) Felix to be delisted

If the Scheme is implemented, Felix will request ASX to remove Felix from the official list of ASX.

(b) Board

The Company intends to reconstitute the Felix Board so that a majority of Felix Directors are nominees of the Company and make any consequential changes to the boards of Felix’s subsidiaries and of any company in respect of which Felix has nominee directors.

(c) Head office and management

The Company will keep Felix’s head office located in Australia. Following implementation of the Transaction, the Company intends to undertake a review of Austar and Felix’s head office functions to determine the extent to which they may be able to be merged or integrated.

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LETTER FROM THE BOARD

The Company intends that Austar and Felix’s marketing operations will be integrated into one marketing channel to maximise the value realised from the Company’s Australian operations. However, the Company is committed to continuing to trade Felix’s coal products on an arms length basis to a range of markets and has no intentions to modify the existing sales agreements.

(d) Business and operations

The Company intends to continue the current mining, exploration and other businesses of Felix in accordance with its existing practices.

In particular, the Company intends to continue the timely development of Felix’s Moolarben coal project and remain focused on funding and growing Felix’s exploration program in Australia, including the Athena, Wilpeena and Harrybrandt projects. The Company also intends to continue Felix’s involvement in the NCIG Consortium building new capacity at the Port of Newcastle.

The Company intends to work with Felix’s existing joint venture partners, customers and business partners to ensure the optimal performance of Felix’s assets.

The Company also intends to enhance Felix’s existing businesses and operations through the introduction of new technology and methods that the Company has successfully applied in its Austar operations, including introducing its patented LTCC technology to Felix’s underground mining operations to enable it to improve Felix’s resource recovery.

(e) Employees

The Company is committed to retaining Felix’s existing employees and management and maintaining the current workforce at the Company’s current Australian operations. The Company will grow the combined workforce as development projects are brought into production and future exploration opportunities become developed projects.

(f) Initial public offering

The Company intends that, subject to market conditions at the time being reasonable, it will undertake an initial public offering of its combined Australian operations (being the Austar coal mine and the operations of Felix) within several years of the implementation of the Scheme.

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LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE TRANSACTION

The Transaction, if completed, will provide the Company with the opportunity to expand its mining operations with the strategic objective of extending its coal reserves and increasing production. The Company also expects the Transaction to deliver operational synergies and other strategic benefits by further diversification of its operations.

The Company strongly believes that it can consolidate and operate the existing coal mines of Felix successfully. The Company is of the view that it has a unique advantage in underground coal mining and has secured various patents for underground mining technology in Australia. The production in coal pits and fire prevention and extinguishment technology that the Company has introduced to and successfully applied in Australia, including in particular its LTCC technology, enable it to improve the resource recovery rate of its mining operations.

The Board (including the independent non-executive directors of the Company) considers that the terms of the Transaction are on normal commercial terms and are fair and reasonable and in the interests of the Company and its Shareholders as a whole.

RISKS IN RELATION TO THE TRANSACTION

Shareholders and potential investors should note that the Transaction may or may not be successful and may not complete, depending upon, among other things, fulfillment of the Conditions.

Shareholders and potential investors are advised to exercise caution when dealing in the Shares.

IMPLICATIONS UNDER THE HONG KONG LISTING RULES

It is anticipated that, if concluded, the Transaction will constitute a major transaction of the Company, and will be subject to shareholders’ approval requirement in accordance with Chapter 14 of the Hong Kong Listing Rules.

To the best of the Directors’ knowledge and information, and having made all reasonable enquiries, no Shareholders have a material interest in the Transaction and accordingly, no Shareholder is required to abstain from voting on the relevant resolutions at the EGM.

– 47 –

LETTER FROM THE BOARD

DELAY IN DISCLOSURE OF CERTAIN NON-PUBLIC INFORMATION OF THE ENLARGED GROUP

The Company does not yet control Felix and does not have sufficient access to Felix’s financial systems to enable the Company’s auditors to conduct an audit on Felix’s financial statements in accordance with IFRS for the purpose of preparing the accountant’s report of Felix nor does it have access to certain substantive confidential non-public information relating to Felix which is required by the Hong Kong Listing Rules to be provided in this circular in respect of both Felix and the Enlarged Group. As at the Latest Practicable Date, the Company does not have access to the following information of Felix to enable information of the Enlarged Group to be included in this circular:

• statement of indebtedness of the Felix Group made up to the latest practicable date;

• statement of sufficiency of working capital of the Felix Group covering a period up to twelve months since the circular date;

• pro forma statement of the assets and liabilities of the Felix Group on the same accounting basis;

• statement as to the financial and trading prospects of the Felix Group;

• particulars of any litigation or claims of material importance pending or threatened against any member of the Felix Group; and

• material contracts and documents of the Felix Group available for inspection.

Full access to the books and records of Felix has not been granted to the Company for the following reasons:

• The non-public information requested by the Company goes significantly beyond what Felix has regarded as reasonable access to its officers and records as defined in the relevant provision in the Scheme Implementation Agreement and what would normally be required of a target company under an Australian scheme of arrangement, given that the Company does not currently have control over Felix and that the Transaction has not been voted by Felix Shareholders;

• In particular, the directors of Felix consider that to provide the Company with sufficient access to Felix staff, financial records and source accounting data to produce the relevant financial information for the purpose of the Hong Kong Listing Rules would involve considerable time and resource cost for Felix;

• To provide working capital forecast and profit forecast of Felix for the period up to September 2010 would be outside Felix’s normal budgeting cycle and would require further significant resource commitment; and

– 48 –

LETTER FROM THE BOARD

• The information requested by the Company would involve Felix signing a management representation letter to be provided to the Company. Given the nature of some of the requests and the fact that they relate to either forecast information or accounts prepared under accounting rules that are not familiar to the management, Felix is currently unable to confirm whether it will be able to provide such information in the form required by the Company.

For the above reasons, the Company anticipates that it will have to obtain control over Felix before it can have full access to all non-public financial information of Felix in order to fully comply with the disclosure requirements under Rules 14.66 and 14.67 of the Hong Kong Listing Rules. In this regard, the Company intends to defer the publication of certain non-public information in the manner set out in Rules 14.67A(2) and (3) of the Hong Kong Listing Rules.

For the purposes of this circular, the Company has extracted the audited consolidated financial statements of the Felix Group prepared under AIFRS for the three years ended 30 June 2009, extracted from the relevant annual reports or approved accounts of Felix.

The Company will issue a supplemental circular within 45 days of the earlier of the Company being able to exercise control over Felix and gain full access to the books and records of Felix for the purpose of complying with the disclosure requirements in respect of Felix and the Enlarged Group under Rules 14.66 and 14.67 of the Hong Kong Listing Rules.

The supplemental circular will include the following information:

• accountant’s report on Felix containing financial information of the Felix Group for each of the three financial years ended 30 June 2009 prepared in accordance with IFRS and accounting policies adopted by the Group;

• statement of indebtedness of the Enlarged Group made up to the latest practicable date;

• statement of sufficiency of working capital of the Enlarged Group covering a period up to twelve months since the circular date;

• pro forma statement of the assets and liabilities of the Enlarged Group on the same accounting basis;

• statement as to the financial and trading prospects of the Felix Group and the Enlarged Group;

• particulars of any litigation or claims of material importance pending or threatened against any member of the Enlarged Group;

• material contracts and documents of the Enlarged Group available for inspection;

• any other prescribed information under Rules 14.66 and 14.67 of the Hong Kong Listing Rules which has not been previously disclosed in the initial circular; and

– 49 –

LETTER FROM THE BOARD

• any material changes to the information previously disclosed in this circular.

In the event that the Company is unable to comply with the above timeline, the Company will seek an extension from the Hong Kong Stock Exchange to issue the supplemental circular at a later date and further announcement will be made in this regard.

EXTRAORDINARY GENERAL MEETING

The EGM will be held at the Conference Room of Wai Zhao Building, 329 South Fushan Road, Zoucheng, Shandong Province 273500, the PRC at 9:00 a.m. on Friday, 30 October 2009 for the purpose of considering and, if thought fit, approving the Scheme Implementation Agreement and the transactions contemplated thereunder.

A notice convening the EGM is set out on pages 379 to 381 to this circular. A reply slip and a proxy from for use at the EGM are enclosed. At the EGM, special resolutions will be proposed to approve, among other things, the Scheme Implementation Agreement and the transactions contemplated thereunder.

Whether or not you are able to attend the EGM, you are strongly urged to complete and sign the accompanying form of proxy in accordance with the instructions printed thereon. For holders of H Shares of the Company, the proxy form shall be lodged with the Company’s H Share Registrar, Hong Kong Registrars Limited at 18/F., Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible, but in any event, no later than 24 hours before the time appointed for the holding of the EGM (or any adjournment thereof); and for holders of A Shares, the proxy form shall be lodged with the Office of the Secretary to the Board at 298 South Fushan Road, Zoucheng, Shandong Province 273500, the PRC as soon as possible, but in any event, no later than 24 hours before the time appointed for the holding of the EGM (or any adjournment thereof). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM (or any adjournment thereof) should you so wish.

RECOMMENDATION

Due to the requirement under the China Securities Regulatory Commission, the Material Asset Restructuring report (the “ MAR ”) is required to be approved by the Shareholders at the EGM before it can be submitted to the China Securities Regulatory Commission for approval. The content of the MAR substantially reflects the content of this circular. The full MAR in Chinese is available at the Company’s website at (www.yanzhoucoal.com.cn), the Hong Kong Stock Exchange’s website at (www.hkex.com.hk) and the Shanghai Stock Exchange’s website at (www.sse.com.cn), Shareholders are welcome to review the MAR before attending the EGM.

The Directors consider that the terms of the Scheme Implementation Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Transaction contemplated under the Scheme Implementation Agreement, the financial arrangements for payment of Scheme Consideration and the MAR.

– 50 –

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the Appendices to this circular.

WARNING: THE TRANSACTION MAY OR MAY NOT BE SUCCESSFUL AND MAY NOT COMPLETE, DEPENDING UPON, AMONG OTHER THINGS, FULFILLMENT OF THE CONDITIONS. SHAREHOLDERS AND POTENTIAL INVESTORS ARE ADVISED TO EXERCISE CAUTION WHEN DEALING IN THE SHARES.

By order of the Board Yanzhou Coal Mining Company Limited Wang Xin Chairman

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

The following is a summary of the results of the Group for each of the years ended 31 December 2006, 2007 and 2008 and for each of the six months ended 30 June 2008 and 2009, and the balance sheets of the Group as at 31 December 2006, 2007 and 2008 and 30 June 2009, as extracted from the relevant financial statements of the Group prepared in accordance with IFRS.

The results of the Group for each of the years ended 31 December 2007 and 2008 and the balance sheets of the Group as at 31 December 2007 and 2008 were extracted from annual report of the Company for the year ended 31 December 2008. The results of the Group for the year ended 31 December 2006 and balance sheet of the Group as at 31 December 2006 were extracted from the annual report of the Company for the year ended 31 December 2007. The results of the Group for the six months ended 30 June 2008 and 2009 and the balance sheet as at 30 June 2009 were extracted from the interim report of the Company for the six months ended 30 June 2009.

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated income statements

Gross sales of coal Railway transportation service income Gross sales of electricity power Gross sales of methanol and heat supply Total revenue Transportation costs of coal Cost of sales and service provided Cost of electricity power Cost of methanol and heat supply Gross profit Selling, general and administrative expenses Share of (loss)/profit of an associate Other income Interest expense Profit before income taxes Income taxes Profit for the year/period Attributable to: Equity holders of the Company Minority interests	Year ended 31 December 2006 2007 2008 RMB’000 RMB’000 RMB’000 12,783,567 14,906,746 24,557,521 160,399 203,714 247,199 – – 59,811 – – 38,550	Year ended 31 December 2006 2007 2008 RMB’000 RMB’000 RMB’000 12,783,567 14,906,746 24,557,521 160,399 203,714 247,199 – – 59,811 – – 38,550	Year ended 31 December 2006 2007 2008 RMB’000 RMB’000 RMB’000 12,783,567 14,906,746 24,557,521 160,399 203,714 247,199 – – 59,811 – – 38,550	Six months ended 30 June 2008 2009 RMB’000 RMB’000 12,065,436 8,829,078 111,931 112,587 – 101,817 – 7,380 12,177,367 9,050,862 (219,511) (186,833) (5,172,474) (4,437,963) – (84,131) – (4,246) 6,785,382 4,337,689 (1,422,260) (1,840,102) (47,192) 43,815 194,152 198,685 (15,827) (20,844) 5,494,255 2,719,243 (1,580,496) (671,112) 3,913,759 2,048,131 3,912,641 2,025,690 1,118 22,441 3,913,759 2,048,131	Six months ended 30 June 2008 2009 RMB’000 RMB’000 12,065,436 8,829,078 111,931 112,587 – 101,817 – 7,380 12,177,367 9,050,862 (219,511) (186,833) (5,172,474) (4,437,963) – (84,131) – (4,246) 6,785,382 4,337,689 (1,422,260) (1,840,102) (47,192) 43,815 194,152 198,685 (15,827) (20,844) 5,494,255 2,719,243 (1,580,496) (671,112) 3,913,759 2,048,131 3,912,641 2,025,690 1,118 22,441 3,913,759 2,048,131
	12,943,966 (936,619) (6,190,069) – – 5,817,278 (2,230,142) – 165,837 (26,349) 3,726,624 (1,354,656)	15,110,460 24,903,081 (549,816) (508,712) (7,331,924) (11,816,789) – (88,253) – (37,834) 7,228,720 12,451,493 (2,854,677) (3,832,031) (2,438) (67,367) 165,837 351,493 (27,222) (38,360) 4,543,313 8,865,228 (1,315,520) (2,385,617)		12,177,367 (219,511) (5,172,474) – – 6,785,382 (1,422,260) (47,192) 194,152 (15,827) 5,494,255 (1,580,496)	9,050,862 (186,833 (4,437,963 (84,131 (4,246
					4,337,689 (1,840,102 43,815 198,685 (20,844
					2,719,243 (671,112
	2,371,968	3,227,793	3,227,793	3,913,759
	2,372,985 (1,017)	3,230,450 (2,657)	6,488,908 (9,297)	3,912,641 1,118	2,025,690 22,441
	2,371,968	3,227,793	6,479,611	3,913,759

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated balance sheets

ASSETS Current assets Bank balances and cash Term deposits Restricted cash Bills and accounts receivable Inventories Other loans receivable Prepayments and other receivables Prepaid lease payments Prepayment for resources compensation fees Prepayment for land subsidence, restoration, rehabilitation and environmental costs Derivative financial instruments Total current assets Non-current assets Mining rights Prepaid lease payments Prepayment for resources compensation fees Property, plant and equipment Goodwill Investments in securities Interests in an associate Restricted cash Deposit made on investment Deferred tax assets Total non-current assets Total assets	As 2006 RMB’000 4,715,945 1,194,531 68,562 2,211,909 579,561 640,000 231,505 13,746 3,240 212,912 –	at 31 December 2007 2008 RMB’000 RMB’000 4,424,561 8,439,578 1,294,984 1,153,385 11,185 18,823 2,753,485 2,977,266 440,134 819,599 640,000 – 326,668 1,567,210 13,976 15,296 3,240 3,240 – – – –	at 31 December 2007 2008 RMB’000 RMB’000 4,424,561 8,439,578 1,294,984 1,153,385 11,185 18,823 2,753,485 2,977,266 440,134 819,599 640,000 – 326,668 1,567,210 13,976 15,296 3,240 3,240 – – – –	As at 30 June 2009 RMB’000 8,645,119 3,011,995 19,066 2,202,836 651,101 – 1,694,464 16,972 2,559 – 66,840
	9,871,911 ------------- 307,909 578,988 21,827 12,139,939 295,584 96,142 – 49,023 97,426 –	9,908,233 ------------- 356,012 576,412 18,488 13,524,594 298,650 409,526 897,562 48,822 117,926 31,175	14,994,397 ------------- 1,039,707 628,119 15,490 14,149,446 298,650 139,887 830,195 78,791 117,926 46,023	16,310,952 ------------- 1,031,502 692,518 14,919 14,743,357 500,342 260,796 874,010 94,612 117,926 199,962
	13,586,838 ------------- -------------------------- 23,458,749	16,279,167 ------------- -------------------------- 26,187,400	17,344,234 ------------- -------------------------- 32,338,631	18,529,944 ------------- -------------------------- 34,840,896

– 54 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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 borrowings – due within one year Derivative financial instruments Taxes payable Total current liabilities Non-current liabilities Amounts due to parent company and its subsidiary companies – due after one year Unsecured bank borrowings – due after one year Deferred tax liability Total non-current liabilities Total liabilities Capital and reserves Share capital Reserves Equity attributable to equity holders of the Company Minority interests Total equity Total liabilities and equity	As at 31 December 2006 2007 2008 RMB’000 RMB’000 RMB’000 745,685 657,517 910,127 1,899,684 2,671,117 2,698,256 – 19,635 450,979 982,347 669,275 706,328 50,000 72,000 82,000 – – 29,435 150,332 9,934 419,866	As at 31 December 2006 2007 2008 RMB’000 RMB’000 RMB’000 745,685 657,517 910,127 1,899,684 2,671,117 2,698,256 – 19,635 450,979 982,347 669,275 706,328 50,000 72,000 82,000 – – 29,435 150,332 9,934 419,866	As at 31 December 2006 2007 2008 RMB’000 RMB’000 RMB’000 745,685 657,517 910,127 1,899,684 2,671,117 2,698,256 – 19,635 450,979 982,347 669,275 706,328 50,000 72,000 82,000 – – 29,435 150,332 9,934 419,866	As at 30 June 2009 RMB’000 743,328 4,616,688 967,365 683,169 82,000 – 286,633
	3,828,048 ------------- 23,138 330,000 283,823 636,961 ------------- -------------------------- 4,465,009 ------------- 4,918,400 14,013,379 18,931,779 61,961	4,099,478 ------------- 14,956 258,000 326,354 599,310 ------------- -------------------------- 4,698,788 ------------- 4,918,400 16,499,137 21,417,537 71,075	5,296,991 ------------- 7,253 176,000 41,777 225,030 ------------- -------------------------- 225,030 ------------- 4,918,400 21,836,724 26,755,124 61,486	7,379,183 ------------- 3,626 165,000 42,501
				211,127 ------------- -------------------------- 7,590,310 ------------- 4,918,400 22,110,687
				27,029,087 221,499
	18,993,740 ------------- -------------------------- 23,458,749	21,488,612 ------------- -------------------------- 26,187,400	26,816,610 ------------- -------------------------- 32,338,631	27,250,586 ------------- -------------------------- 34,840,896

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED FINANCIAL STATEMENTS

The following is an extract of the audited financial statements of the Group as extracted from the annual report of the Company for the year ended 31 December 2008.

Consolidated Income Statement

For the year ended December 31, 2008

NOTES GROSS SALES OF COAL 7 RAILWAY TRANSPORTATION SERVICE INCOME GROSS SALES OF ELECTRICITY POWER GROSS SALES OF METHANOL TOTAL REVENUE TRANSPORTATION COSTS OF COAL 7 COST OF SALES AND SERVICE PROVIDED 8 COST OF ELECTRICITY POWER COST OF METHANOL GROSS PROFIT SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 9 SHARE OF LOSS OF AN ASSOCIATE 28 OTHER INCOME 10 INTEREST EXPENSE 11 PROFIT BEFORE INCOME TAXES INCOME TAXES 12 PROFIT FOR THE YEAR 13 Attributable to: Equity holders of the Company Minority interests	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 24,557,521 14,906,746 12,783,567 247,199 203,714 160,399 59,811 – – 38,550 – – 24,903,081 15,110,460 12,943,966 (508,712) (549,816) (936,619) (11,816,789) (7,331,924) (6,190,069) (88,253) – – (37,834) – – 12,451,493 7,228,720 5,817,278 (3,832,031) (2,854,677) (2,230,142) (67,367) (2,438) – 351,493 198,930 165,837 (38,360) (27,222) (26,349) 8,865,228 4,543,313 3,726,624 (2,385,617) (1,315,520) (1,354,656) 6,479,611 3,227,793 2,371,968 6,488,908 3,230,450 2,372,985 (9,297) (2,657) (1,017) 6,479,611 3,227,793 2,371,968	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 24,557,521 14,906,746 12,783,567 247,199 203,714 160,399 59,811 – – 38,550 – – 24,903,081 15,110,460 12,943,966 (508,712) (549,816) (936,619) (11,816,789) (7,331,924) (6,190,069) (88,253) – – (37,834) – – 12,451,493 7,228,720 5,817,278 (3,832,031) (2,854,677) (2,230,142) (67,367) (2,438) – 351,493 198,930 165,837 (38,360) (27,222) (26,349) 8,865,228 4,543,313 3,726,624 (2,385,617) (1,315,520) (1,354,656) 6,479,611 3,227,793 2,371,968 6,488,908 3,230,450 2,372,985 (9,297) (2,657) (1,017) 6,479,611 3,227,793 2,371,968	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 24,557,521 14,906,746 12,783,567 247,199 203,714 160,399 59,811 – – 38,550 – – 24,903,081 15,110,460 12,943,966 (508,712) (549,816) (936,619) (11,816,789) (7,331,924) (6,190,069) (88,253) – – (37,834) – – 12,451,493 7,228,720 5,817,278 (3,832,031) (2,854,677) (2,230,142) (67,367) (2,438) – 351,493 198,930 165,837 (38,360) (27,222) (26,349) 8,865,228 4,543,313 3,726,624 (2,385,617) (1,315,520) (1,354,656) 6,479,611 3,227,793 2,371,968 6,488,908 3,230,450 2,372,985 (9,297) (2,657) (1,017) 6,479,611 3,227,793 2,371,968
	24,903,081 (508,712) (11,816,789) (88,253) (37,834) 12,451,493 (3,832,031) (67,367) 351,493 (38,360) 8,865,228 (2,385,617)	15,110,460 (549,816) (7,331,924) – – 7,228,720 (2,854,677) (2,438) 198,930 (27,222) 4,543,313 (1,315,520)	12,943,966 (936,619 (6,190,069 – –
			5,817,278 (2,230,142 – 165,837 (26,349
			3,726,624 (1,354,656
	6,479,611	3,227,793
	6,488,908 (9,297)	3,230,450 (2,657)	2,372,985 (1,017
	6,479,611	3,227,793

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES APPROPRIATIONS TO RESERVES DIVIDEND RECOGNIZED AS DISTRIBUTION DURING THE YEAR 15 EARNINGS PER SHARE, BASIC 16 EARNINGS PER ADS, BASIC 16	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 1,167,454 701,860 566,728 836,128 983,680 1,082,048 RMB1.32 RMB0.66 RMB0.48 RMB13.19 RMB6.56 RMB4.82	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 1,167,454 701,860 566,728 836,128 983,680 1,082,048 RMB1.32 RMB0.66 RMB0.48 RMB13.19 RMB6.56 RMB4.82
		1,082,048
		RMB0.48
		RMB4.82

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at December 31, 2008

NOTES ASSETS CURRENT ASSETS Bank balances and cash 17 Term deposits 17 Restricted cash 17 Bills and accounts receivable 18 Inventories 19 Other loans receivable 20 Prepayments and other receivables 21 Prepaid lease payments 22 Prepayment for resources compensation fees 23 TOTAL CURRENT ASSETS NON-CURRENT ASSETS Mining rights 24 Prepaid lease payments 22 Prepayment for resources compensation fees 23 Property, plant and equipment 25 Goodwill 26 Investments in securities 27 Interests in an associate 28 Restricted cash 17 Deposit made on investment 29 Deferred tax assets 35 TOTAL NON-CURRENT ASSETS TOTAL ASSETS	At December 31, 2008 2007 RMB’000 RMB’000 8,439,578 4,424,561 1,153,385 1,294,984 18,823 11,185 2,977,266 2,753,485 819,599 440,134 – 640,000 1,567,210 326,668 15,296 13,976 3,240 3,240	At December 31, 2008 2007 RMB’000 RMB’000 8,439,578 4,424,561 1,153,385 1,294,984 18,823 11,185 2,977,266 2,753,485 819,599 440,134 – 640,000 1,567,210 326,668 15,296 13,976 3,240 3,240
	14,994,397 1,039,707 628,119 15,490 14,149,446 298,650 139,887 830,195 78,791 117,926 46,023 17,344,234	9,908,233 356,012 576,412 18,488 13,524,594 298,650 409,526 897,562 48,822 117,926 31,175
		16,279,167
	32,338,631	26,187,400

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Bills and accounts payable 30 Other payables and accrued expenses 31 Provision for land subsidence, restoration, rehabilitation and environmental costs 32 Amounts due to Parent Company and its subsidiary companies 40 Unsecured bank borrowings – due within one year 33 Derivative financial instruments 34 Taxes payable TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Amounts due to Parent Company and its subsidiary companies – due after one year 40 Unsecured bank borrowings – due after one year 33 Deferred tax liability 35 TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES CAPITAL AND RESERVES 36 SHARE CAPITAL RESERVES EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY MINORITY INTEREST TOTAL EQUITY TOTAL LIABILITIES AND EQUITY	At December 31, 2008 2007 RMB’000 RMB’000 910,127 657,517 2,698,256 2,671,117 450,979 19,635 706,328 669,275 82,000 72,000 29,435 – 419,866 9,934	At December 31, 2008 2007 RMB’000 RMB’000 910,127 657,517 2,698,256 2,671,117 450,979 19,635 706,328 669,275 82,000 72,000 29,435 – 419,866 9,934
	5,296,991 7,253 176,000 41,777 225,030 5,522,021 4,918,400 21,836,724 26,755,124 61,486 26,816,610	4,099,478 14,956 258,000 326,354
		599,310
		4,698,788 4,918,400 16,499,137
		21,417,537 71,075
		21,488,612
	32,338,631	26,187,400

The consolidated financial statements were approved and authorized for issue by the Board of Directors on April 24, 2009 and are signed on its behalf by:

Wu Yuxiang

Director

Dong Yunqing

Director

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended December 31, 2008

Balance at January 1, 2006 Gain on fair value change of available-for-sale investments Deferred taxes on fair value change of available-for-sale investments Exchange difference arising on translation of foreign operations Net income recognized directly in equity Profit for the year Total recognized income and expenses for the year Appropriations to reserves Transfer Dividends Acquisition of a subsidiary Balance at December 31, 2006 Balance at January 1, 2007 Gain on fair value change of available-for-sale investments Deferred taxes on fair value change of available-for-sale investments Exchange difference arising on translation of foreign operations Net income recognized directly in equity Profit for the year Total recognized income and expenses for the year Appropriations to reserves Dividends Contribution from a minority shareholder of a subsidiary Acquisition of additional interest in a subsidiary Balance at December 31, 2007	Share capital RMB’000 (note 36) 4,918,400 – – –	Share premium RMB’000 2,981,002 – – –	Future development fund RMB’000 (note 36) 1,827,667 – – –	Statutory common reserve fund RMB’000 (note 36) 1,019,141 – – –	Statutory common welfare fund RMB’000 (note 36) 509,649 – – –	Translation reserve RMB’000 (15,016) – – (489)	Investment revaluation reserve RMB’000 – 33,961 (11,207) –	Cash flow hedge reserve RMB’000 – – – –	Retained earnings RMB’000 6,377,734 – – –	Attributable to equity holders of the Company RMB’000 17,618,577 33,961 (11,207) (489)	Minority interest RMB’000 28,731 – – –	Total RMB’000 17,647,308 33,961 (11,207 (489
	– – – – – – –	– – – – – – –	– – – 390,907 – – –	– – – 175,821 509,649 – –	– – – – (509,649) – –	(489) – (489) – – – –	22,754 – 22,754 – – – –	– – – – – – –	– 2,372,985 2,372,985 (566,728) – (1,082,048) –	22,265 2,372,985 2,395,250 – – (1,082,048) –	– (1,017) (1,017) – – (271) 34,518	22,265 2,371,968
												2,394,233 – – (1,082,319 34,518
	4,918,400	2,981,002	2,218,574	1,704,611	–	(15,505)	22,754	–	7,101,943	18,931,779	61,961	18,993,740
	4,918,400 – – – – – – – – – –	2,981,002 – – – – – – – – – –	2,218,574 – – – – – – 368,531 – – –	1,704,611 – – – – – – 333,329 – – –	– – – – – – – – – – –	(15,505) – – 1,563 1,563 – 1,563 – – – –	22,754 312,944 (75,519) – 237,425 – 237,425 – – – –	– – – – – – – – – – –	7,101,943 – – – – 3,230,450 3,230,450 (701,860) (983,680) – –	18,931,779 312,944 (75,519) 1,563 238,988 3,230,450 3,469,438 – (983,680) – –	61,961 – – – – (2,657) (2,657) – (330) 24,000 (11,899)	18,993,740 312,944 (75,519 1,563
												238,988 3,227,793
												3,466,781 – (984,010 24,000 (11,899
	4,918,400	2,981,002	2,587,105	2,037,940	–	(13,942)	260,179	–	8,646,853	21,417,537	71,075	21,488,612

– 60 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Balance at January 1, 2008 Loss on fair value change of available-for-sale investments Deferred taxes on fair value change of available-for-sale investments Exchange difference arising on translation of foreign operations Cash flow hedge reserve recognized Deferred taxes arising on change of cash flow hedge reserve Net loss recognized directly in equity Profit for the year Total recognized income and expenses for the year Appropriations to reserves Dividends Balance at December 31, 2008	Share capital RMB’000 (note 36) 4,918,400 – – – – – – – – – – 4,918,400	Share premium RMB’000 2,981,002 – – – – – – – – – – 2,981,002	Future development fund RMB’000 (note 36) 2,587,105 – – – – – – – – 382,219 – 2,969,324	Statutory common reserve fund RMB’000 (note 36) 2,037,940 – – – – – – – – 785,235 – 2,823,175	Statutory common welfare fund RMB’000 (note 36) – – – – – – – – – – – –	Translation reserve RMB’000 (13,942) – – (101,227) – – (101,227) – (101,227) – – (115,169)	Investment revaluation reserve RMB’000 260,179 (269,639) 67,409 – – – (202,230) – (202,230) – – 57,949	Cash flow hedge reserve RMB’000 – – – – (20,567) 8,831 (11,736) – (11,736) – – (11,736)	Retained earnings RMB’000 8,646,853 – – – – – – 6,488,908 6,488,908 (1,167,454) (836,128) 13,132,179	Attributable to equity holders of the Company RMB’000 21,417,537 (269,639) 67,409 (101,227) (20,567) 8,831 (315,193) 6,488,908 6,173,715 – (836,128) 26,755,124	Minority interest RMB’000 71,075 – – – – – – (9,297) (9,297) – (292) 61,486	Total RMB’000 21,488,612 (269,639) 67,409 (101,227) (20,567) 8,831
												(315,193) 6,479,611
												6,164,418 – (836,420)
												26,816,610

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended December 31, 2008

NOTES OPERATING ACTIVITIES Profit before income taxes Adjustments for: Interest expenses Interest income Dividend income Net unrealized foreign exchange losses Depreciation of property, plant and equipment Release of prepaid lease payments Amortization of prepayment for resources compensation fees Amortization of mining rights Reversal of impairment loss on accounts receivable and other receivables Share of loss of an associate (Gain) loss on disposal of property, plant and equipment Impairment loss on property, plant and equipment Operating cash flows before movements in working capital (Increase) decrease in bills and accounts receivable (Increase) decrease in inventories Movement in land subsidence, restoration, rehabilitation and environmental cost Increase in prepayments and other current assets Increase in prepaid lease payments Increase (decrease) in bills and accounts payable Increase in other payables and accrued expenses Increase (decrease) in amounts due to Parent Company and its subsidiary companies Cash generated from operations Income taxes paid Interest paid Interest income received Dividend income received NET CASH FROM OPERATING ACTIVITIES	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 8,865,228 4,543,313 3,726,624 38,360 27,222 26,349 (275,220) (103,564) (94,372) (7,401) (7,143) (6,311) 284,278 – – 1,140,809 1,237,132 1,061,976 15,109 13,861 13,826 2,998 3,339 320 35,652 15,728 12,069 (4,369) (4,363) (19,717) 67,367 2,438 – (12,317) (25,002) 73,531 – 339,743 – 10,150,494 6,042,704 4,794,295 (217,012) (536,673) 40,527 (405,200) 145,891 (66,199) 431,344 232,547 (55,401) (1,242,027) (108,607) (10,805) – – (1,944) 263,755 (90,180) 235,899 34,481 622,128 64,281 40,749 (315,065) 471,464 9,056,584 5,992,745 5,472,117 (2,207,217) (1,520,081) (1,782,465) (36,511) (24,722) (23,179) 275,220 103,564 94,372 7,401 7,143 6,311 7,095,477 4,558,649 3,767,156	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 8,865,228 4,543,313 3,726,624 38,360 27,222 26,349 (275,220) (103,564) (94,372) (7,401) (7,143) (6,311) 284,278 – – 1,140,809 1,237,132 1,061,976 15,109 13,861 13,826 2,998 3,339 320 35,652 15,728 12,069 (4,369) (4,363) (19,717) 67,367 2,438 – (12,317) (25,002) 73,531 – 339,743 – 10,150,494 6,042,704 4,794,295 (217,012) (536,673) 40,527 (405,200) 145,891 (66,199) 431,344 232,547 (55,401) (1,242,027) (108,607) (10,805) – – (1,944) 263,755 (90,180) 235,899 34,481 622,128 64,281 40,749 (315,065) 471,464 9,056,584 5,992,745 5,472,117 (2,207,217) (1,520,081) (1,782,465) (36,511) (24,722) (23,179) 275,220 103,564 94,372 7,401 7,143 6,311 7,095,477 4,558,649 3,767,156	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 8,865,228 4,543,313 3,726,624 38,360 27,222 26,349 (275,220) (103,564) (94,372) (7,401) (7,143) (6,311) 284,278 – – 1,140,809 1,237,132 1,061,976 15,109 13,861 13,826 2,998 3,339 320 35,652 15,728 12,069 (4,369) (4,363) (19,717) 67,367 2,438 – (12,317) (25,002) 73,531 – 339,743 – 10,150,494 6,042,704 4,794,295 (217,012) (536,673) 40,527 (405,200) 145,891 (66,199) 431,344 232,547 (55,401) (1,242,027) (108,607) (10,805) – – (1,944) 263,755 (90,180) 235,899 34,481 622,128 64,281 40,749 (315,065) 471,464 9,056,584 5,992,745 5,472,117 (2,207,217) (1,520,081) (1,782,465) (36,511) (24,722) (23,179) 275,220 103,564 94,372 7,401 7,143 6,311 7,095,477 4,558,649 3,767,156
	10,150,494 (217,012) (405,200) 431,344 (1,242,027) – 263,755 34,481 40,749 9,056,584 (2,207,217) (36,511) 275,220 7,401	6,042,704 (536,673) 145,891 232,547 (108,607) – (90,180) 622,128 (315,065) 5,992,745 (1,520,081) (24,722) 103,564 7,143	4,794,295 40,527 (66,199 (55,401 (10,805 (1,944 235,899 64,281 471,464
			5,472,117 (1,782,465 (23,179 94,372 6,311
	7,095,477	4,558,649

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES INVESTING ACTIVITIES Decrease (increase) in term deposits Purchase of property, plant and equipment Decrease in other loans receivable (Increase) decrease in restricted cash Proceeds on disposal of property, plant and equipment Acquisition of Shanxi Group 39 Acquisition of Southland Deposit made on investment Acquisition of mining rights in Southland Acquisition of mining rights in Zhaolou Purchase of land use right Investment in an associate NET CASH FLOW USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Dividend paid Repayments of bank borrowings Repayment to Parent Company and its subsidiary companies in respect of consideration for acquisition of Jining III Dividend paid to a minority shareholder of a subsidiary Contribution from a minority shareholder of a subsidiary NET CASH FLOW USED IN FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, AT JANUARY 1 EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS, DECEMBER 31, REPRESENTED BY BANK BALANCES AND CASH	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 141,599 (100,453) 131,804 (2,027,030) (2,772,586) (3,137,145) 640,000 – – (50,412) 59,404 (50,529) 19,829 31,593 14,165 – (14,965) (444,204) – – (18,544) – (20,500) (97,426) – (61,923) (23,644) (747,339) – – (68,136) (11,515) – – (900,000) – (2,091,489) (3,790,945) (3,625,523) (836,128) (983,680) (1,082,048) (72,000) (50,000) (200,000) (13,248) (8,689) (9,230) (292) (330) (271) – 24,000 – (921,668) (1,018,699) (1,291,549) 4,082,320 (250,995) (1,149,916) 4,424,561 4,715,945 5,885,581 (67,303) (40,389) (19,720) 8,439,578 4,424,561 4,715,945	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 141,599 (100,453) 131,804 (2,027,030) (2,772,586) (3,137,145) 640,000 – – (50,412) 59,404 (50,529) 19,829 31,593 14,165 – (14,965) (444,204) – – (18,544) – (20,500) (97,426) – (61,923) (23,644) (747,339) – – (68,136) (11,515) – – (900,000) – (2,091,489) (3,790,945) (3,625,523) (836,128) (983,680) (1,082,048) (72,000) (50,000) (200,000) (13,248) (8,689) (9,230) (292) (330) (271) – 24,000 – (921,668) (1,018,699) (1,291,549) 4,082,320 (250,995) (1,149,916) 4,424,561 4,715,945 5,885,581 (67,303) (40,389) (19,720) 8,439,578 4,424,561 4,715,945	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 141,599 (100,453) 131,804 (2,027,030) (2,772,586) (3,137,145) 640,000 – – (50,412) 59,404 (50,529) 19,829 31,593 14,165 – (14,965) (444,204) – – (18,544) – (20,500) (97,426) – (61,923) (23,644) (747,339) – – (68,136) (11,515) – – (900,000) – (2,091,489) (3,790,945) (3,625,523) (836,128) (983,680) (1,082,048) (72,000) (50,000) (200,000) (13,248) (8,689) (9,230) (292) (330) (271) – 24,000 – (921,668) (1,018,699) (1,291,549) 4,082,320 (250,995) (1,149,916) 4,424,561 4,715,945 5,885,581 (67,303) (40,389) (19,720) 8,439,578 4,424,561 4,715,945
	(2,091,489) (836,128) (72,000) (13,248) (292) – (921,668) 4,082,320 4,424,561 (67,303)	(3,790,945) (983,680) (50,000) (8,689) (330) 24,000 (1,018,699) (250,995) 4,715,945 (40,389)	(3,625,523
			(1,082,048 (200,000 (9,230 (271 –
			(1,291,549
			(1,149,916 5,885,581 (19,720
	8,439,578	4,424,561

– 63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements

For the year ended December 31, 2008

1. GENERAL

Organization and principal activities

Yanzhou Coal Mining Company Limited (the “Company”) is established as a joint stock company with limited liability in the People’s Republic of China (the “PRC”). In April 2001, the status of the Company was changed to that of a sino-foreign joint stock limited company. The Company’s A shares are listed on the Shanghai Securities Exchange (“SSE”), its H shares are listed on The Stock Exchange of Hong Kong (the “SEHK”), and its American Depositary Shares (“ADS”, one ADS represents 10 H shares) are listed on the New York Stock Exchange, Inc. The addresses of the registered office and principal place of business of the Company are disclosed in the introduction to the annual report.

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

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

As at December 31, 2008, the Group has a net current assets of RMB9,697,406,000 (2007: RMB5,808,755,000) and total assets less current liabilities of RMB27,041,640,000 (2007: RMB22,087,922,000).

Acquisitions and establishment of major subsidiaries

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

Shanxi Neng Hua is an investment holding company, which holds 81.31% equity interest in Shanxi Heshun Tianchi Energy Company Limited (“Shanxi Tianchi”) and approximately 99.85% equity interest in Shanxi Tianhao Chemical Company Limited (“Shanxi Tianhao”). The principal activities of Shanxi Tianchi are to exploit and sale of coal from Tianchi Coal Mine, the principal asset of Shanxi Tianchi. Shanxi Tianchi has completed the construction of Tianchi Coal Mine and commenced production by the end of 2006. Shanxi Tianhao is established to engage in the production of methanol and other chemical products, coke production, exploration and sales. The construction of the methanol facilities by Shanxi Tianhao commenced in March 2006 and it has commenced production as at December 31, 2008. In 2007, the Company further acquired the remaining 2% equity interest in Shanxi Neng Hua from a subsidiary of the Parent Company at cash consideration of RMB14,965,000.

The Company originally held a 97% equity interest in Yanzhou Coal Yulin Power Chemical Co., Ltd. (“Yulin”). During the year, the Company acquired the remaining 3% equity interest in Yulin. Moreover, the Company made further investment of RMB600,000,000 in Yulin in the current year.

2. BASIS OF PRESENTATION

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

The consolidated financial statements include applicable disclosure required by the Hong Kong Companies Ordinance and by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The consolidated financial statements are presented in Renminbi, which is also the functional currency of the Company.

3. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

In the current year, the Group has applied, for the first time, a number of new standard, amendment and interpretations (“new IFRSs”) applicable to the Group issued by the International Accounting Standards Board (the “IASB”) and the International Financial Reporting Interpretations Committee (the IFRIC) of IASB, which are effective for the Group’s financial year beginning January 1, 2008.

International Accounting Standard Reclassification of Financial Assets (“IAS”) 39 & IFRS 7(Amendments) IFRIC 11 IFRS 2 – Group and Treasury Share Transactions IFRIC 12 Service Concession Arrangements IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

The adoption of the new IFRSs had no material effect on how the results and the financial position for the current or prior accounting years have been prepared. Accordingly, no prior year adjustment has been required.

The Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

IFRSs (Amendments)	Improvements of IFRSs1
IAS 1 (Revised)	Presentation of Financial Statements2
IAS 23 (Revised)	Borrowing Costs2
IAS 27 (Revised)	Consolidated and Separate Financial Statements3
IAS 1 & 32 (Amendments)	Puttable Financial Instruments and Obligations Arising on
	Liquidation2
IAS 39 (Amendment)	Eligible Hedged Items3
IFRS 1& IAS 27 (Amendments)	Cost of an Investment in a subsidiary, Jointly		Controlled
	Entity or an Assocaite2
IFRS 1 (Revised)	First-time Adoption of International	Financial	Reporting
	Standards3
IFRS 2 (Amendment)	Share-based Payment – Vesting Conditions and Cancellations2
IFRS 3 (Revised)	Business Combinations3
IFRS 7 (Amendment)	Improving Disclosures about Financial Instruments2
IFRS 8	Operating Segments2
IAS 39 & IFRIC 9 (Amendments)	Embedded Derivative6
IFRIC 13	Customer Loyalty Programmes4
IFRIC 15	Agreements for the Construction of Real	Estate2
IFRIC 16	Hedges of a Net Investments in a Foreign Operation5
IFRIC 17	Distributions of Non-Cash Assets to Owners3
IFRIC 18	Transfers of Assets from Customers7

• 1 Effective for annual periods beginning on or after January 1, 2009, except the amendments to IFRS 5, effective for annual periods beginning on or after July 1, 2009

• 2 Effective for annual periods beginning on or after January 1, 2009

• 3 Effective for annual periods beginning on or after July 1, 2009

• 4 Effective for annual periods beginning on or after July 1, 2008

• 5 Effective for annual periods beginning on or after October 1, 2008

• 6 Effective for annual periods beginning on or after June 30, 2009

• 7 Effective for transfers of assets from customers received on or after July 1, 2009

– 65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Among these new standards and interpretations, IAS 1(Revised) is expected to materially change the presentation of the Group’s financial statements. The amendments affect the presentation of owner changes in equity and introduce a statement of comprehensive income. The Group will have the option of presenting items of income and expenses and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The amendment does not affect the financial position or results of the Group but will give rise to additional disclosures.

IFRS 8 will be effective for annual periods beginning on or after January 1, 2009. The accounting policy for identifying segments will be based on internal management reporting information that is regularly reviewed by the Group’s chief operating decision maker for the purposes of allocating resources to the segments and assessing their performances. In the current year, segment results are disclosed in accordance with IAS 14.

The adoption of IFRS 3 (Revised) may affect the accounting for business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after July 1, 2009. IAS 27 (Revised) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, which will be accounted for as an equity transaction.

The directors considered that except for the abovementioned standards or interpretations, the application of other standards or interpretations will have no material impact to the Group’s financial statements.

4. SIGNIFICANT ACCOUNTING POLICIES

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

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

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

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

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

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

Business combination

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

– 66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized immediately in profit or loss.

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

Acquisition of additional interests in subsidiary

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

Interests in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture.

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

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognized at the date of acquisition is recognized as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

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

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal courses of business, net of discounts and sales related taxes. Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized in profit or loss as follows:

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

Service income is recognized when services are provided.

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

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

– 67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Mining rights

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

Prepaid lease payments

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

Property, plant and equipment

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

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

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

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

Impairment other than goodwill

At each balance sheet date, the Group reviews the carrying amounts of its tangible assets and intangible assets with finite useful life to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset (determined at the higher of its fair value less costs to sell and its value in use) is estimated in order to determine the extent of the impairment loss (if any). Intangible assets with an indefinite useful life will be tested for impairment annually.

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

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

Goodwill

Goodwill arising on acquisitions prior to January 1, 2005

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Goodwill arising on acquisitions on or after January 1, 2005

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

Goodwill is presented separately in the consolidated balance sheet.

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

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

Inventories

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

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

Taxation

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

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

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

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

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

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

Research and development

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

An internally-generated intangible asset arising from development expenditure is recognized only if it is anticipated that the development costs incurred on a clearly-defined project will be recovered through future commercial activity. The resultant asset is amortized on a straight line basis over its useful life. Expenditure incurred on projects to develop new products is capitalized only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of recourses to complete the project and the ability to measure reliably the expenditure during the development.

No development expenditure has been deferred by the Company.

Land subsidence, restoration, rehabilitation and environmental costs

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

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. At each balance sheet date, the Group adjusts the estimated costs in accordance with the actual land subsidence status.

Borrowing costs

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

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

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Company (i.e. Renminbi) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognized as a separate component of equity (the translation reserve). Such exchange differences are recognized in profit or loss in the period in which the foreign operation is disposed of.

Government grants

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

Retirement benefit costs

Payments to defined contribution retirement benefit plans are charged as expenses when the employees render the services entitling them to the contributions.

Financial instruments

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

Financial assets

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

Loan and receivables

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

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

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

Impairment of financial assets

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

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

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

• significant financial difficulty of the issuer or counterparty; or

• default or delinquency in interest or principal payments; or

• it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

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

For financial assets carried at amortised cost, an impairment loss is recognized in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

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

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

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Financial liabilities and equity

Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

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

Financial liabilities

The Group’s financial liabilities including bills and accounts payable, other payables, amounts due to Parent Company and its subsidiary companies, bank borrowings are subsequently measured at amortized cost, using the effective interest method.

Equity instruments

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

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

Financial liabilities are derecognized when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

Accounting for derivative financial instruments and hedging activities

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (i) hedges of the fair value of recognised assets or liabilities (fair value hedge); and (ii) hedges of highly probable forecast transactions (cash flow hedge).

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at the inception of the hedge and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items.

The fair values of various derivative instruments used for hedging purposes are disclosed in note 34. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the consolidated income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. To the extent that the derivative is not effective as a hedge, gains and losses are recognised in the consolidated income statement as gains or losses on derivative instruments.

(ii) Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the consolidated income statement. Amounts accumulated in equity are recognised in the consolidated income statement as the underlying hedged items are recognised.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the consolidated income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated income statement.

(iii) Derivatives that do not qualify for hedge accounting and those not designated as hedge

Changes in the fair value of any derivative instruments that do not qualify for hedge accounting and those not designated as hedges are recognised immediately in the consolidated income statement.

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in note 4, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Depreciation

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

Mining rights

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Provision for land subsidence, restoration, rehabilitation and environmental costs

The provision is reviewed regularly to verify that it properly reflects the remaining obligation arising from the current and past mining activities. Provision for land subsidence, restoration, rehabilitation and environmental costs are determined by the management based on their best estimates of the current and future costs, latest government policies and past experiences.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. As at December 31, 2008 and 2007, the carrying amount of goodwill is RMB298,650,000.

Cash flow projections during the budget period for each of the above units are based on the budgeted revenue and expected gross margins during the budget period and the raw materials price inflation during the budget period. Expected cash inflows/outflows have been determined based on past performance and management’s expectations for the market development.

Estimated impairment of property, plant and equipment

When there is impairment indicator, the Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. Where the actual future cash flows are less than expected, a material impairment loss may arise. In estimating the future cash flows, the management have taken into account the recent production and technical advancement. As prices and cost levels change from year to year, the estimate of the future cash flow also changes. Notwithstanding the management has used all the available information to make their impairment assessment, inherent uncertainty exists on conditions of the mine and of the environment and actual written off may be higher than the amount estimated. As at December 31, 2008, the carrying amounts of property, plant and equipment is approximately RMB14,149,446,000 (2007: RMB13,525,000,000). During the year ended December 31, 2007, RMB339,743,000 was written off as expenses.

6. SEGMENT INFORMATION

The Group is engaged primarily in the coal mining business. The Group is also engaged in the coal railway transportation business. The Company does not currently have direct export rights in the PRC and all of its export sales is made through China National Coal Industry Import and Export Corporation (“National Coal Corporation”), Minmetals Trading Co., Ltd. (“Minmetals Trading”) or Shanxi Coal Imp. & Exp. Group Corp. (“Shanxi Coal Corporation”). The final customer destination of the Company’s export sales is determined by the Company, National Coal Corporation, Minmetals Trading or Shanxi Coal Corporation. Certain of the Company’s subsidiaries are engaged in trading and processing of mining machinery and the transportation business via rivers and lakes in the PRC. No separate segment information about these businesses is presented in these financial statements as the underlying gross sales, results and assets of these businesses, which are currently included in the coal mining business segment, are insignificant to the Group. Certain of the Company’s subsidiaries are engaged in production of methanol and other chemical products, and invest in heat and electricity.

Gross revenue disclosed below is same as the turnover.

Business segments

For management purposes, the Group is currently organized into three operating divisions-coal mining, coal railway transportation and methanol and electricity power. 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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Coal railway transportation – Provision of railway transportation services Methanol and electricity power – Production and sales of methanol and electricity power

Segment information about these businesses is presented below:

INCOME STATEMENT

GROSS REVENUE External Inter-segment Total	For the year ended December 31, 2008 Coal mining Coal railway transportation Methanol and electricity power Unallocated Eliminations RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 24,557,521 247,199 98,361 – – 131,655 88,458 – – (220,113) 24,689,176 335,657 98,361 – (220,113)	Consolidated RMB’000 24,903,081 –
		24,903,081

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

RESULT Segment results Unallocated corporate expenses Unallocated corporate income Share of loss of an associate Interest expenses Profit before income taxes Income taxes Profit for the year	Coal mining RMB’000 9,678,304	For the year ended December 31, 2008 Coal railway transportation Methanol and electricity power Eliminations RMB’000 RMB’000 RMB’000 (91,781) (185,116) –	For the year ended December 31, 2008 Coal railway transportation Methanol and electricity power Eliminations RMB’000 RMB’000 RMB’000 (91,781) (185,116) –	For the year ended December 31, 2008 Coal railway transportation Methanol and electricity power Eliminations RMB’000 RMB’000 RMB’000 (91,781) (185,116) –	Consolidated RMB’000 9,401,407
	–	–	(67,367)	–	(573,442 142,990 (67,367 (38,360
					8,865,228 (2,385,617
					6,479,611

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

ASSETS Segment assets Interests in an associate Unallocated corporate assets LIABILITIES Segment liabilities Unallocated corporate liabilities	Coal mining RMB’000 18,315,343	At December 31, 2008 Coal railway transportation Methanol and electricity power RMB’000 RMB’000 757,081 2,906,695	At December 31, 2008 Coal railway transportation Methanol and electricity power RMB’000 RMB’000 757,081 2,906,695	Consolidated RMB’000 21,979,119
	–	–	830,195	830,195 9,529,317
	2,264,820	46,008	1,215,524	32,338,631
				3,526,352
				1,995,669
				5,522,021

OTHER INFORMATION

		**For the year ended **	**For the year ended **	December 31, 2008
			Methanol
			and
		Coal railway	electricity
	Coal mining	transportation	power	Unallocated	Corporate	Consolidated
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Capital additions	1,925,294	29,234	925,084	–	2,105	2,881,717
Amortization of mining
rights	35,652	–	–	–	–	35,652
Release of prepaid lease
payments	9,379	5,372	358	–	–	15,109
Depreciation of property,
plant and equipment	1,009,365	79,912	49,159	–	2,373	1,140,809
Gain on disposal of
property, plant and
equipment	(12,317)	–	–	–	–	(12,317)
Impairment losses
reversed on accounts
receivable and other
receivables	(4,369)	–	–	–	–	(4,369)

– 77 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

INCOME STATEMENT

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

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

RESULT Segment results Unallocated corporate expenses Unallocated corporate income Share of loss of an associate Interest expenses Profit before income taxes Income taxes Profit for the year	Coal mining RMB’000 5,027,049	For the year ended December 31, 2007 Coal railway transportation Unallocated Eliminations RMB’000 RMB’000 RMB’000 (78,653) (84,252) –	For the year ended December 31, 2007 Coal railway transportation Unallocated Eliminations RMB’000 RMB’000 RMB’000 (78,653) (84,252) –	For the year ended December 31, 2007 Coal railway transportation Unallocated Eliminations RMB’000 RMB’000 RMB’000 (78,653) (84,252) –	Consolidated RMB’000 4,864,144
	–	–	–	–	(401,878 110,707 (2,438 (27,222
					4,543,313 (1,315,520
					3,227,793

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

ASSETS Segment assets Interests in an associate Unallocated corporate assets LIABILITIES Segment liabilities Unallocated corporate liabilities	Coal mining RMB’000 14,164,314 3,558,576	At December 31, 2007 Coal railway transportation Unallocated RMB’000 RMB’000 910,867 3,186,981 23,816 450,108	At December 31, 2007 Coal railway transportation Unallocated RMB’000 RMB’000 910,867 3,186,981 23,816 450,108	Consolidated RMB’000 18,262,162
				897,562 7,027,676
			450,108	26,187,400
				4,032,500
				666,288
				4,698,788

OTHER INFORMATION

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

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

INCOME STATEMENT

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

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

RESULT Segment results Unallocated corporate expenses Unallocated corporate income Interest expenses Profit before income taxes Income taxes Profit for the year	Coal mining RMB’000 4,141,517	For the year ended December 31, 2006 Coal railway transportation Unallocated Eliminations RMB’000 RMB’000 RMB’000 8,664 (47,662) –	For the year ended December 31, 2006 Coal railway transportation Unallocated Eliminations RMB’000 RMB’000 RMB’000 8,664 (47,662) –	Consolidated RMB’000 4,102,519
				(461,760 112,214 (26,349
				3,726,624 (1,354,656
				2,371,968

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

OTHER INFORMATION

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

Geographical segment

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

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

The PRC Australia	Additions to property, plant and equipment, goodwill and intangible assets Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 2,784,223 2,818,358 3,582,427 97,494 174,661 716,979 2,881,717 2,993,019 4,299,406	Additions to property, plant and equipment, goodwill and intangible assets Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 2,784,223 2,818,358 3,582,427 97,494 174,661 716,979 2,881,717 2,993,019 4,299,406
		4,299,406

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

7. NET SALES OF COAL

Coal sold in the PRC, gross Less: Transportation costs Coal sold in the PRC, net Coal sold outside the PRC, gross Less: Transportation costs Coal sold outside the PRC, net Net sales of coal	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 22,688,984 13,355,761 9,746,146 356,517 280,694 358,414 22,332,467 13,075,067 9,387,732 1,868,537 1,550,985 3,037,421 152,195 269,122 578,205 1,716,342 1,281,863 2,459,216 24,048,809 14,356,930 11,846,948	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 22,688,984 13,355,761 9,746,146 356,517 280,694 358,414 22,332,467 13,075,067 9,387,732 1,868,537 1,550,985 3,037,421 152,195 269,122 578,205 1,716,342 1,281,863 2,459,216 24,048,809 14,356,930 11,846,948
		9,387,732
		3,037,421 578,205
		2,459,216
		11,846,948

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

8. COST OF SALES AND SERVICE PROVIDED

Materials Wages and employee benefits Electricity Depreciation Land subsidence, restoration, rehabilitation and environmental costs Repairs and maintenance Annual fee and amortization of mining rights (note 24) Transportation costs Cost of traded coal Others	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 1,616,865 1,257,433 1,320,596 2,624,821 2,392,447 1,646,018 346,401 377,686 336,284 907,218 1,121,557 962,963 3,279,503 833,282 742,985 – 441,511 327,151 170,793 28,708 25,049 131,301 105,930 106,572 1,810,342 – – 929,545 773,370 722,451 11,816,789 7,331,924 6,190,069	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 1,616,865 1,257,433 1,320,596 2,624,821 2,392,447 1,646,018 346,401 377,686 336,284 907,218 1,121,557 962,963 3,279,503 833,282 742,985 – 441,511 327,151 170,793 28,708 25,049 131,301 105,930 106,572 1,810,342 – – 929,545 773,370 722,451 11,816,789 7,331,924 6,190,069
		6,190,069

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Wages and employee benefits Additional medical insurance Staff training costs Depreciation Distribution charges Resource compensation fees (note) Repairs and maintenance Research and development Freight charges Property, plant and equipment written off Loss on disposal of property, plant and equipment Others	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 1,374,698 1,093,732 1,001,783 53,068 22,896 57,364 24,412 38,735 44,037 114,451 129,436 112,839 103,209 93,014 57,100 159,938 117,772 107,502 424,751 34,348 18,440 106,516 78,973 45,979 20,247 29,305 20,741 – 339,743 – – – 73,531 1,450,741 876,723 690,826 3,832,031 2,854,677 2,230,142	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 1,374,698 1,093,732 1,001,783 53,068 22,896 57,364 24,412 38,735 44,037 114,451 129,436 112,839 103,209 93,014 57,100 159,938 117,772 107,502 424,751 34,348 18,440 106,516 78,973 45,979 20,247 29,305 20,741 – 339,743 – – – 73,531 1,450,741 876,723 690,826 3,832,031 2,854,677 2,230,142
		2,230,142

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

10. OTHER INCOME

Dividend income Gain on sales of auxiliary materials Government grants Interest income from bank deposits Interest income from entrusted loan (note 20) Others	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 7,401 7,143 6,311 37,762 63,579 49,623 3,500 – 4,000 142,990 103,564 94,372 132,230 – – 27,610 24,644 11,531 351,493 198,930 165,837	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 7,401 7,143 6,311 37,762 63,579 49,623 3,500 – 4,000 142,990 103,564 94,372 132,230 – – 27,610 24,644 11,531 351,493 198,930 165,837
		165,837

Included in dividend income above is income from listed investments of RMB7,401,000 (2007: RMB7,143,000 and 2006: RMB5,581,000) and from unlisted investments of nil (2007: nil and 2006: RMB730,000).

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

11. INTEREST EXPENSE

Interest expenses on: – bank borrowings wholly repayable within 5 years – bank borrowings not wholly repayable within 5 years – bills receivable discounted without recourse Deemed interest expenses in respect of acquisition of Jining III	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 20,537 10,522 10,058 15,899 14,200 2,281 75 – 10,840 1,849 2,500 3,170 38,360 27,222 26,349	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 20,537 10,522 10,058 15,899 14,200 2,281 75 – 10,840 1,849 2,500 3,170 38,360 27,222 26,349
		26,349

12. INCOME TAXES

Income taxes: Current taxes, PRC Enterprise Income Tax Under(over) provision in prior years Deferred tax charge (note 35) Attributable to a change in tax rate	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 2,351,759 1,484,195 1,309,783 265,390 (104,512) (24,233)	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 2,351,759 1,484,195 1,309,783 265,390 (104,512) (24,233)	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 2,351,759 1,484,195 1,309,783 265,390 (104,512) (24,233)
	2,617,149 (231,532) –	1,379,683 1,925 (66,088)	1,285,550 69,106 –
	2,385,617	1,315,520	1,354,656

The Company and its subsidiaries in the PRC are subject to a standard income tax rate of 25% on its taxable income (2007 & 2006: 33%).

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

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

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The total charge for the year can be reconciled to the profit per the consolidated income statement as follows:

Standard income tax rate in the PRC Standard income tax rate applied to income before income taxes Reconciling items: Tax effect of future development fund deductible for tax purposes Deemed interest not deductible for tax purposes Expenses not deductible for tax purposes (Reversal) provision of impairment loss on doubtful debts not subject to tax Deemed interest income from subsidiaries subject to tax Tax effect of tax losses not recognized Under (over) provision in prior years Decrease in opening deferred tax liability resulting from decrease in applicable tax rate Utilization of unrecognized tax losses in prior years Others Income taxes Effective income tax rate

Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 25% 33% 33% 2,216,307 1,499,293 1,229,786 – (67,449) (70,496) 462 825 1,046 (74,491) 29,008 117,447 (11,398) (1,439) (6,507) 40,213 17,402 9,456 28 3,824 94,807 265,390 (104,512) (24,233) – (66,088) – (51,600) – – 706 4,656 3,350 2,385,617 1,315,520 1,354,656 27% 29% 36%

13. PROFIT FOR THE YEAR

Profit for the year has been arrived at after charging: Amortization of mining rights Depreciation of property, plant and equipment Total depreciation and amortization Release of prepaid lease payments Auditors’ remuneration Staff costs, including directors’ and supervisors’ emoluments Retirement benefit scheme contributions (included in staff costs above) Cost of inventories Exchange loss, net and crediting: Gain on disposal of property, plant and equipment Reversal of impairment loss on accounts receivable and other receivables	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 35,652 15,728 12,069 1,140,809 1,237,132 1,061,976 1,176,461 1,252,860 1,074,045 15,109 13,861 13,826 10,157 14,683 10,406 4,358,556 3,572,734 2,783,298 867,808 720,091 641,633 11,986,520 7,145,614 6,089,185 328,858 3,150 12,346 (12,317) (25,002) – (4,369) (4,363) (19,717)	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 35,652 15,728 12,069 1,140,809 1,237,132 1,061,976 1,176,461 1,252,860 1,074,045 15,109 13,861 13,826 10,157 14,683 10,406 4,358,556 3,572,734 2,783,298 867,808 720,091 641,633 11,986,520 7,145,614 6,089,185 328,858 3,150 12,346 (12,317) (25,002) – (4,369) (4,363) (19,717)	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 35,652 15,728 12,069 1,140,809 1,237,132 1,061,976 1,176,461 1,252,860 1,074,045 15,109 13,861 13,826 10,157 14,683 10,406 4,358,556 3,572,734 2,783,298 867,808 720,091 641,633 11,986,520 7,145,614 6,089,185 328,858 3,150 12,346 (12,317) (25,002) – (4,369) (4,363) (19,717)
	1,176,461	1,252,860	1,074,045
	15,109 10,157 4,358,556 867,808 11,986,520 328,858 (12,317) (4,369)	13,861 14,683 3,572,734 720,091 7,145,614 3,150 (25,002) (4,363)

– 85 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

• (a) Directors’ and supervisors’ emoluments

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

For the year ended December 31, 2008

Independent non-executive directors Pu Hongjiu Cui Jianmin Wang Xiaojun Wang Quanxi Zhai Xigui Li Weian Wang Junyan Executive directors Wang Xin Geng Jiahuai Yang Deyu Shi Xuerang Chen Changchun Wu Yuxiang Wang Xinkun Zhang Baocai Dong Yunqing Supervisors Meng Xianchang Song Guo Zhang Shengdong Liu Weixin Zhou Shoucheng Zhen Ailan Wei Huanmin Xu Bentai	Fees RMB’000 104 50 60 50 54 54 54 426	Salaries, allowance and other benefits in kind Retirement benefit scheme contributions RMB’000 RMB’000 – – – – – – – – – – – – – – – –	Salaries, allowance and other benefits in kind Retirement benefit scheme contributions RMB’000 RMB’000 – – – – – – – – – – – – – – – –	Total RMB’000 104 50 60 50 54 54 54
				426
	– – – – – – – – –	– – – – – 192 218 191 192	– – – – – 38 44 38 38	– – – – – 230 262 229 230
	–	793	158	951
	– – – – – – – –	– – – – – – 192 207	– – – – – – 38 41	– – – – – – 230 248
	–	399	79	478

– 86 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Other management team Jin Tai Zhang Yingmin He Ye Tian Fengze Shi Chenzhong Qu Tianzhi Ni Xinghua Lai Cunliang	Fees RMB’000 – – – – – – – – –	Salaries, allowance and other benefits in kind Retirement benefit scheme contributions RMB’000 RMB’000 – – – – – – 192 38 218 44 218 44 218 44 508 102 1,354 272	Total RMB’000 – – – 230 262 262 262 610
			1,626

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

For the year ended December 31, 2007

Independent non-executive directors Pu Hongjiu Cui Jianmin Wang Xiaojun Wang Quanxi Executive directors Wang Xin Geng Jiahuai Yang Deyu Shi Xuerang Chen Changchun Wu Yuxiang Wang Xinkun Zhang Baocai Dong Yunqing	Fees RMB’000 96 96 115 96 403	Salaries, allowance and other benefits in kind Retirement benefit scheme contributions RMB’000 RMB’000 – – – – – – – – – –	Salaries, allowance and other benefits in kind Retirement benefit scheme contributions RMB’000 RMB’000 – – – – – – – – – –	Total RMB’000 96 96 115 96
				403
	– – – – – – – – –	– – – – – 172 196 171 172	– – – – – 34 39 34 34	– – – – – 206 235 205 206
	–	711	141	852

– 87 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Supervisors Meng Xianchang Song Guo Zhang Shengdong Liu Weixin Xu Bentai Other management team Jin Tai Zhang Yingmin He Ye Tian Fengze Shi Chenzhong Qu Tianzhi Ni Xinghua Lai Cunliang	Fees RMB’000 – – – – – –	Salaries, allowance and other benefits in kind Retirement benefit scheme contributions RMB’000 RMB’000 – – – – – – – – 207 41 207 41	Salaries, allowance and other benefits in kind Retirement benefit scheme contributions RMB’000 RMB’000 – – – – – – – – 207 41 207 41	Total RMB’000 – – – – 248
				248
	– – – – – – – –	– – 212 172 195 212 196 410	– – 42 34 39 42 39 –	– – 254 206 234 254 235 410
	–	1,397	196	1,593

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

For the year ended December 31, 2006

Independent non-executive directors Pu Hongjiu Cui Jianmin Wang Xiaojun Wang Quanxi	Fees RMB’000 89 89 106 89 373	Salaries, allowance and other benefits in kind Retirement benefit scheme contributions RMB’000 RMB’000 – – – – – – – – – –	Total RMB’000 89 89 106 89
			373

– 88 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Executive directors Wang Xin Geng Jiahuai Yang Deyu Shi Xuerang Chen Changchun Wu Yuxiang Wang Xinkun Chen Guangshui Zhang Baocai Dong Yunqing Supervisors Meng Xianchang Song Guo Zhang Shengdong Liu Weixin Xu Bentai Other management team Jin Tai Zhang Yingmin He Ye Tian Fengze Shi Chenzhong Qu Tianzhi Ni Xinghua Lai Cunliang	Fees RMB’000 – – – – – – – – – – –	Salaries, allowance and other benefits in kind Retirement benefit scheme contributions RMB’000 RMB’000 – – – – – – – – – – 182 82 238 107 187 84 170 77 205 92 982 442	Salaries, allowance and other benefits in kind Retirement benefit scheme contributions RMB’000 RMB’000 – – – – – – – – – – 182 82 238 107 187 84 170 77 205 92 982 442	Total RMB’000 – – – – – 264 345 271 247 297
				1,424
	– – – – –	– – – – 218	– – – – 98	– – – – 316
	–	218	98	316
	– – – – – – – –	– – 208 202 229 232 218 421	– – 94 91 103 104 98 –	– – 302 293 332 336 316 421
	–	1,510	490	2,000

No directors waived any emoluments in each of the year ended December 31, 2008, 2007 and 2006.

– 89 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Employees’ emoluments

The five highest paid individuals in the Group included no director for the year ended December 31, 2008 (2007: nil; 2006: nil). The emoluments of the five highest paid individuals (2007: five; 2006: five) were stated as follows:

Salaries, allowance and other benefits in kind Retirement benefit scheme contributions Discretionary bonuses	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 6,787 6,997 6,471 611 630 582 242 250 656 7,640 7,877 7,709	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 6,787 6,997 6,471 611 630 582 242 250 656 7,640 7,877 7,709
		7,709

Their emoluments were within the following bands:

	**Year **	**ended December **	31,
	2008	2007	2006
	No. of	No. of	No. of
	employees	employees	employees
Nil to HK$1,000,000	–	–	–
HK$1,000,001 to HK$1,500,000	3	3	3
HK$1,500,001 to HK$2,000,000	1	2	1
HK$2,000,001 to HK$2,500,000	1	–	1

15. DIVIDEND RECOGNIZED AS DISTRIBUTION DURING THE YEAR

2007 final dividend, RMB0.170 per share (2007: 2006 final dividend RMB0.120; 2006: 2005 final dividend RMB0.150) Special dividends approved, nil per share (2007: RMB0.080; 2006: RMB0.070)	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 836,128 590,208 737,760 – 393,472 344,288 836,128 983,680 1,082,048	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 836,128 590,208 737,760 – 393,472 344,288 836,128 983,680 1,082,048
		1,082,048

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

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

In the annual general meeting held on June 27, 2008, a final dividend in respect of the year ended December 31, 2007 was approved by the shareholders and paid to the shareholders of the Company.

The board of directors proposes to declare a final dividend of approximately RMB1,967,360,000 calculated based on a total number of 4,918,400,000 shares issued at RMB1 each, at RMB0.40 per share, in respect of the year ended December 31, 2008. The declaration and payment of the final dividend needs to be approved by the

– 90 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

shareholders of the Company by way of an ordinary resolution in accordance with the requirements of the Company’s Articles of Association. A shareholders’ general meeting will be held for the purpose of considering and, if thought fit, approving this ordinary resolution.

16. EARNINGS PER SHARE AND PER ADS

The calculation of the earnings per share attributable to the equity holders of the Company for the years ended December 31, 2008, 2007 and 2006 is based on the profit attributable to the equity holders of the Company for the year of RMB6,488,908,000, RMB3,230,450,000 and RMB2,372,985,000 and on the 4,918,400,000 shares in issue, during each of the three years.

The earnings per ADS have been calculated based on the profit for the relevant periods and on one ADS, being equivalent to 10 H shares. The equivalent H shares to one ADS have been changed from 50 to 10 H shares from June 27, 2008. The new ADS were distributed to ADS holders on July 3, 2008. The comparative figures of 2007 and 2006 have been adjusted accordingly.

No diluted earning per share has been presented as there are no dilutive potential shares in issue during the years ended December 31, 2008, 2007 and 2006.

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

Bank balances carry interest at market rates which ranged from 0.36% to 1.44% (2007: from 0.72% to 1.44%) per annum.

At the balance sheet dates, the short-term restricted cash, which carry interest at market rates of 0.05% per annum (2007: 0.72%), represents the bank deposits pledged to certain banks to secure banking facilities granted to the Group. The long-term amount represents the bank deposits placed as guarantee for the future payments of rehabilitation costs of Southland as required by the Australian government. The long-term deposits carry interest rate of 6.5% (2007:1.8%) per annum.

The term deposits carry fixed interest rate of 1.35% to 2.52% (2007: 1.71% to 3.42%) per annum.

18. BILLS AND ACCOUNTS RECEIVABLE

Total bills receivable Total accounts receivable Less: Impairment loss Total bills and accounts receivable, net	At December 31, 2008 2007 RMB’000 RMB’000 2,571,064 2,638,956 435,711 135,525 3,006,775 2,774,481 (29,509) (20,996) 2,977,266 2,753,485	At December 31, 2008 2007 RMB’000 RMB’000 2,571,064 2,638,956 435,711 135,525 3,006,775 2,774,481 (29,509) (20,996) 2,977,266 2,753,485
	3,006,775 (29,509)	2,774,481 (20,996
	2,977,266

Bills receivable represents unconditional orders in writing issued by or negotiated from customers of the Group for completed sale orders which entitle the Group to collect a sum of money from banks or other parties. The bills are non-interest bearing and have a maturity of six months.

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

– 91 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following is an aged analysis of bills and accounts receivable at the balance sheet dates:

1-90 days 91-180 days	At December 31, 2008 2007 RMB’000 RMB’000 1,759,526 1,490,661 1,217,740 1,262,824 2,977,266 2,753,485	At December 31, 2008 2007 RMB’000 RMB’000 1,759,526 1,490,661 1,217,740 1,262,824 2,977,266 2,753,485
		2,753,485

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

There are no significant trade receivables which are past due but not yet impaired on both balance sheet dates. The Group does not hold any collateral over these balances. The average age of these receivables is 65 days (2007: 61 days). The management closely monitors the credit quality of accounts receivable and consider the balance that are neither past due nor impaired are of good credit quality.

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

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

Balance at January 1 Provided for the year Written off reversed (recognised) Reversal Balance at December 31	2008 RMB’000 20,996 8,950 2,265 (2,702) 29,509	2007 RMB’000 31,447 – (6,088) (4,363)
		20,996

Included in the allowance for doubtful debts is an allowance of RMB29.5 million (2007: RMB 21 million) for individually impaired trade receivables, which are mainly due from corporate customers in the PRC and considered irrecoverable by the management after consideration on the credit quality of those individual customers, the ongoing relationship with the Group and the aging of these receivables. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the amounts. The Group does not hold any collateral over these balances.

19. INVENTORIES

COST Methanol Auxiliary materials, spare parts and small tools Coal products	At December 31, 2008 2007 RMB’000 RMB’000 7,414 – 220,960 248,412 591,225 191,722 819,599 440,134	At December 31, 2008 2007 RMB’000 RMB’000 7,414 – 220,960 248,412 591,225 191,722 819,599 440,134
		440,134

– 92 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. OTHER LOANS RECEIVABLE

At December 31, 2007, the amount represented a loan granted to an independent third party, which carried interest at 7.00% per annum and was guaranteed by other independent third parties. The loan (the “Default Loan”) was secured by certain state legal person shares of a company listed on the SSE (“the Secured Shares”) and certain equity interest in another unlisted company held by the guarantor. The Default Loan was defaulted in January 2005 and the Company had applied to The People’s Supreme Court of the Shangdong Province (the “Court”) to freeze the Secured Shares. The Company has also applied to the Court to dispose the Secured Shares by way of a public auction and the proceeds would be applied to repay the Default Loan and the associated interests to the Company.

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

In October 2007, the Company, Shandong Runhua and the guarantor reached an agreement in the presence of the Court. According to the settlement agreement, 240 million of the total 289 million Secured Shares held by the guarantor should belong to Shandong Runhua and 200 million Secured Shares should be transferred to Shandong Runhua from the guarantor. At the same time, Shandong Runhua has agreed to assist the guarantor to repay the principal and the associated interest of the Default Loan to the Company. The Company has the right to request for the disposal of the frozen 49 million Secured Shares owned by the guarantor for the settlement if the Default Loan is not repaid by the guarantor or Shandong Runhua after June 6, 2008 (the date the restriction on trading of the Secured Shares is removed). If the proceed received from the disposal of the 49 million Secured Shares would not be sufficient to cover the loan principal and interest of the Default Loan by that time, the Company has the right to request for the disposal of the remaining 40 million Secured Shares held under the guarantor and not yet transferred to Shandong Runhua for settlement. If the disposal of the above mentioned 89 million Secured Shares would still not be sufficient for settlement of the liability borne by the guarantor, the Company would have the right to further request for the disposal of the 200 million Secured Shares already transferred by the guarantor to Shandong Runhua for full settlement of approximate RMB700 million (including the interest). By December 31, 2008, the Company has executed the Secured Share rights and collected principal of RMB640 million plus interest after tax of RMB130 million (note 10) .

21. PREPAYMENTS AND OTHER RECEIVABLES

Advances to suppliers Prepaid freight charges and related handling charges Deposit for environment protection Prepaid relocation costs of inhabitants Others	At December 31, 2008 2007 RMB’000 RMB’000 94,796 35,728 7,958 10,934 200,000 200,000 1,151,895 – 112,561 80,006 1,567,210 326,668	At December 31, 2008 2007 RMB’000 RMB’000 94,796 35,728 7,958 10,934 200,000 200,000 1,151,895 – 112,561 80,006 1,567,210 326,668
		326,668

Included in the above balances as of December 31, 2008 is an impairment loss of RMB16,854,000 (2007: RMB30,117,000). During the year ended December 31, 2008, the Group wrote off impairment loss of RMB2,646,000, and reversed impairment loss of RMB 10,617,000. During the year ended December 31, 2007, the Group wrote off impairment loss of RMB2,533,000. During the year ended December 31, 2006, the Group reversed impairment loss of RMB3,067,000.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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

22. PREPAID LEASE PAYMENTS

Current portion Non-current portion	At December 31, 2008 2007 RMB’000 RMB’000 15,296 13,976 628,119 576,412 643,415 590,388	At December 31, 2008 2007 RMB’000 RMB’000 15,296 13,976 628,119 576,412 643,415 590,388
		590,388

The amounts represent prepaid lease payments for land use rights which are situated in the PRC and have a term of fifty years from the date of grant of land use rights certificates.

23. PREPAYMENT FOR RESOURCES COMPENSATION FEES

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. MINING RIGHTS

COST At January 1, 2007 Exchange re-alignment Acquisition of Shanxi Neng Hua At December 31, 2007 and at January 1, 2008 Exchange re-alignment Acquisition of Zhaolou coal mine At December 31, 2008 AMORTIZATION At January 1, 2007 Exchange re-alignment Provided for the year At December 31, 2007 and at January 1, 2008 Exchange re-alignment Provided for the year At December 31, 2008 CARRYING VALUES At December 31, 2008 At December 31, 2007

RMB’000 353,098 2,092 61,923 417,113 (30,772) 747,339 1,133,680 45,189 184 15,728 61,101 (2,780) 35,652 93,973 1,039,707 356,012

The addition of mining right of RMB747,339,000 during the year represented the consideration paid for Zhaolou coal mine acquired from the Parent Company.

In addition, the Parent Company and the Company have entered into a mining rights agreement pursuant to which the Company has agreed to pay to the Parent Company, effective from September 25, 1997, an annual fee of RMB12,980,000 as compensation for the Parent Company’s agreement to give up the mining rights associated with the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine, Dongtan coal mine and Jining II. The annual fee is subject to change after a ten-year period. Up to the date of these financial statements, compensation fee of RMB5 per tonne of raw coal mined amounting to RMB135,141,000 for the year ended December 31, 2008 has been preliminary agreed. The revised compensation fees are to be settled with governmental authority directly. The actual amount of compensation fee payable each year is still to be confirmed by the governmental authority.

The other mining rights are amortized, on a straight-line basis, over the useful life of twenty to twenty eight years from the date of acquisition.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

25. PROPERTY, PLANT AND EQUIPMENT

COST At January 1, 2007 Exchange re-alignment Additions Transfers Written off Disposals At December 31, 2007 and January 1, 2008 Exchange re-alignment Additions Transfers Disposals At December 31, 2008 ACCUMULATED DEPRECIATION AND IMPAIRMENT At January 1, 2007 Exchange re-alignment Provided for the year Eliminated on written off Eliminated on disposals At December 31, 2007 and January 1, 2008 Exchange re-alignment Provided for the year Eliminated on disposals At December 31, 2008 CARRYING VALUES At December 31, 2008 At December 31, 2007	Freehold land in Australia RMB’000 55,255 2,056 – – – –	Buildings RMB’000 2,430,319 337 2,100 166,334 (18,999) –	Harbor works and crafts RMB’000 250,349 – – – – –	Railway structures RMB’000 734,801 – – 1,557 – –	Mining structures RMB’000 4,017,442 – – 14,096 (344,149) –	Plant, machinery and equipment RMB’000 9,001,883 27,435 71,014 672,871 (219,261) (6,461)	Transportation equipment RMB’000 323,695 21 8,641 35,992 (12,731) (1,245)	Construction in progress RMB’000 2,712,797 12,840 2,846,275 (890,850) – –	Total RMB’000 19,526,541 42,689 2,928,030 – (595,140 (7,706
	57,311 (15,032) – – –	2,580,091 (3,066) – 429,580 (978)	250,349 – – 5,456 –	736,358 – – 132,609 –	3,687,389 – – 11,184 –	9,547,481 (252,328) 97,150 1,145,823 (45,996)	354,373 (303) 3,330 24,270 (4,045)	4,681,062 (70,451) 1,965,762 (1,748,922) –	21,894,414 (341,180 2,066,242 – (51,019
	42,279	3,005,627	255,805	868,967	3,698,573	10,492,130	377,625	4,827,451	23,568,457
	– – – – – – – – – – 42,279	1,110,807 52 123,617 (9,112) – 1,225,364 (964) 94,907 (387) 1,318,920 1,686,707	18,206 – 6,071 – – 24,277 – 42,653 – 66,930 188,875	269,679 – 53,442 – – 323,121 – 62,171 – 385,292 483,675	1,683,367 – 85,162 (48,990) – 1,719,539 – 80,538 – 1,800,077 1,898,496	4,111,539 1,594 931,748 (186,987) (1,115) 4,856,779 (47,147) 836,981 (39,393) 5,607,220 4,884,910	193,004 12 38,032 (10,308) – 220,740 – 23,559 (3,727) 240,572 137,053	– – – – – – – – – – 4,827,451	7,386,602 1,658 1,238,072 (255,397 (1,115
									8,369,820 (48,111 1,140,809 (43,507
									9,419,011
									14,149,446
	57,311	1,354,727	226,072	413,237	1,967,850	4,690,702	133,633	4,681,062	13,524,594

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

Buildings 15 to 30 years Harbor works and crafts 40 years Railway structures 15 to 25 years Plant, machinery and equipment 5 to 15 years Transportation equipment 6 to 18 years

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

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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

During the year ended December 31, 2007, the directors conducted a review of the Group’s mining assets and determined that a number of those assets were impaired, due to physical damage and technical obsolescence. Accordingly, an aggregate amount of RMB339,743,000 have been written off in respect of buildings, mining structure, plant, machinery and equipment, and transportation equipment, which are used in the mining segment.

26. GOODWILL

COST At January 1 Acquisition of Shanxi Group At December 31	2008 RMB’000 298,650 – 298,650	2007 RMB’000 295,584 3,066
		298,650

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

Coal Mining – Jining II – Shandong Yanmei Shipping Co., Ltd – Heze – Shanxi Group Coal Railway Transportation – Railway Assets	2008 RMB’000 10,106 10,046 35,645 145,613 97,240 298,650	2007 RMB’000 10,106 10,046 35,645 145,613 97,240
		298,650

The recoverable amounts of goodwill from each of the above cash generating units have been determined on the basis of value in use calculations. The recoverable amounts are based on certain similar key assumptions on discount rates, growth rates and expected changes in selling prices and direct cost. All value in use calculations use cash flow projections based on financial budgets approved by management covering a 5-year period, using a zero percent growth rate and with a discount rate of 8% (2007: 10%).

The cash flows beyond the 5-year period are extrapolated for 5 years using a zero percent growth rate. Cash flow projections during the budget period for each of the above units are based on the budgeted revenue and expected gross margins during the budget period and the same raw materials price inflation during the budget period. Expected cash inflows/outflows, which include budgeted sales, gross margin and raw material price inflation have been determined based on past performance and management’s expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the carrying amount of each of the above units to exceed the recoverable amount of each of the above units. During the years ended December 31, 2008 and 2007, management of the Group determined that there are no impairments of any of its cash-generating units containing goodwill.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. INVESTMENTS IN SECURITIES

The investments in securities represent available-for-sale equity investments:

Equity securities listed on the SSE – Stated at fair value Unlisted equity security	At December 31, 2008 2007 RMB’000 RMB’000 139,447 409,086 440 440 139,887 409,526	At December 31, 2008 2007 RMB’000 RMB’000 139,447 409,086 440 440 139,887 409,526
		409,526

Previously, the Group invested in certain state legal person shares of Shenergy Company Limited and Jiangsu Lian Yun Gang Port Corporation Limited. These shares were not tradable.

Pursuant to the share reform plan of Shenergy Company Limited carried out in 2006, the non-tradable legal person shares with the investment cost of RMB60,421,000 held by the Company were converted into tradable shares on August 17, 2006. Under this share reform plan, the Company has committed that the Company will not sell more than one-third of the shares held as of August 17, 2005 within one year after August 17, 2006; and two-third of the shares held as of August 17, 2005 within two years after August 17, 2006. This investment is presented as listed securities stated at fair value as at December 31, 2008 at the amount of RMB133,720,000 (2007: RMB393,124,000).

On April 26, 2007, Jiangsu Lian Yun Gang Port Corporation Limited became a public company with its shares listed in SSE. The Company has committed not to sell its holding, or transfer to others; or ask others to held the shares on its behalf before April 28, 2008. This investment is presented as listed securities which amount to RMB5,727,000 as at December 31, 2008 (2007: RMB15,962,000).

The investments in equity securities listed on the SSE are carried at fair value determined according to the quoted market prices in an active market.

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

28. INTERESTS IN AN ASSOCIATE

Cost of investment in an associate Share of post-acquisition loss	At December 31, 2008 2007 RMB’000 RMB’000 900,000 900,000 (69,805) (2,438) 830,195 897,562	At December 31, 2008 2007 RMB’000 RMB’000 900,000 900,000 (69,805) (2,438) 830,195 897,562
		897,562

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

– 98 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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

Total assets Total liabilities Net assets Group’s share of net assets of associate Revenue Loss for the year/period Group’s share of loss of an associate	At December 31, 2008 2007 RMB’000 RMB’000 7,623,355 7,623,027 (4,856,038) (4,631,154) 2,767,317 2,991,873 830,195 897,562 Year ended December 31, 2008 2007 RMB’000 RMB’000 3,650,661 321,802 (224,556) (8,127) (67,367) (2,438)	At December 31, 2008 2007 RMB’000 RMB’000 7,623,355 7,623,027 (4,856,038) (4,631,154) 2,767,317 2,991,873 830,195 897,562 Year ended December 31, 2008 2007 RMB’000 RMB’000 3,650,661 321,802 (224,556) (8,127) (67,367) (2,438)
		(8,127)
		(2,438)

29. DEPOSIT MADE ON INVESTMENT

During 2006, the Company entered into a co-operative agreement with two independent third parties to establish a company for acquiring a coal mine in Shaanxi province for operations. The Company will have to invest approximately RMB196.8 million in order to obtain 41% equity interest. As at December 31, 2008, the Company made a deposit of RMB118 million (2007: RMB118 million) in relation to this acquisition. As at December 31, 2008, the relevant procedures to establish the new company are still in progress, and the establishment has not yet been completed.

30. BILLS AND ACCOUNTS PAYABLE

Bills payable Accounts payable	At December 31, 2008 2007 RMB’000 RMB’000 160,341 139,100 749,786 518,417 910,127 657,517	At December 31, 2008 2007 RMB’000 RMB’000 160,341 139,100 749,786 518,417 910,127 657,517
		657,517

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

1-90 days 91-180 days 181-365 days 1-2 years	At December 31, 2008 2007 RMB’000 RMB’000 469,740 506,474 177,404 – 132,576 126,048 130,407 24,995 910,127 657,517	At December 31, 2008 2007 RMB’000 RMB’000 469,740 506,474 177,404 – 132,576 126,048 130,407 24,995 910,127 657,517
		657,517

The average credit period for accounts payable and bills payable is 90 days. The Group has financial risk management policies in place to ensure that all payables are within the credit timeframe.

31. OTHER PAYABLES AND ACCRUED EXPENSES

Customers’ deposits Accrued wages Other taxes payable Payables in respect of purchases of property, plant and equipment and construction materials Accrued freight charges Accrued repairs and maintenance Accrued utility expenses Staff welfare payable Withholding tax payable Deposits received from employees Price regulating charges Accrued land subsidence, restoration, rehabilitation and environmental costs Payable on compensation fee of mining rights Others	At December 31, 2008 2007 RMB’000 RMB’000 757,631 942,557 435,450 337,275 265,231 218,723 654,304 615,092 13,189 93,456 49,766 19,493 – 4,100 77,873 58,196 466 7,464 68,969 57,493 34,081 105,421 59,871 81,157 135,141 – 146,284 130,690 2,698,256 2,671,117	At December 31, 2008 2007 RMB’000 RMB’000 757,631 942,557 435,450 337,275 265,231 218,723 654,304 615,092 13,189 93,456 49,766 19,493 – 4,100 77,873 58,196 466 7,464 68,969 57,493 34,081 105,421 59,871 81,157 135,141 – 146,284 130,690 2,698,256 2,671,117
		2,671,117

32. (PROVISION) PREPAYMENT FOR LAND SUBSIDENCE, RESTORATION, REHABILITATION AND ENVIRONMENTAL COSTS

Balance at January 1 Additional provision in the year Utilization of provision Balance at December 31	2008 RMB’000 (19,635) (3,369,696) 2,938,352 (450,979)	2007 RMB’000 212,912 (825,998) 593,451
		(19,635)

The provision for land subsidence, restoration, rehabilitation and environmental costs has been determined by the directors based on their best estimates. The prepayment included mainly rehabilitation costs paid on mining areas in relation to mining activities in the future periods and therefore the balances are presented as prepayment

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

at the balances sheet dates. However, in so far as the effect on the land and the environment from current mining activities becomes apparent in future periods, the estimate of the associated costs may be subject to change in the near term.

During the year, the provision for land subsidence, restoration, rehabilitation and environmental costs increases mainly because the basis of calculating compensation increases and the land areas originally not subject to compensation in the past now require compensation due to the change of government policy.

33. UNSECURED BANK BORROWINGS

The amounts are repayable as follows:

Within one year More than one year, but not exceeding two years More than two years, but not more than five years More than five years Less: Amounts due within one year and included in current liabilities Amounts due after one year	At December 31, 2008 2007 RMB’000 RMB’000 82,000 72,000 22,000 82,000 66,000 66,000 88,000 110,000	At December 31, 2008 2007 RMB’000 RMB’000 82,000 72,000 22,000 82,000 66,000 66,000 88,000 110,000
	258,000 (82,000)	330,000 (72,000)
	176,000	258,000

The balances as of December 31, 2008 and 2007 represent two borrowings obtained by Shanxi Tianchi before the Company acquired it. Included in the loans of RMB258,000,000 (2007: RMB330,000,000) is an amount of RMB60,000,000 (2007: RMB110,000,000) that carries interest at 5.31% (2007: 7.09%) per annum and is subject to adjustment based on the interest rate stipulated by the People’s Bank of China (the “PBOC”). The loan is repayable by 3 instalments over a period of 4 years, with the first instalment due in December 2007. The repayment is guaranteed by the Parent Company.

The remaining balance of RMB198,000,000 (2007: RMB220,000,000) carries interest at 5.94% (2007: 6.84%) per annum and is subject to adjustment based on the interest rate stipulated by the PBOC. The loan is repayable by 20 instalments over a period of 12 years, with the first instalment due in May 2008. The amount is also guaranteed by the Parent Company.

34. DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives used for hedging Cash flow hedges – forward foreign exchange contracts	At December 31, 2008 2007 RMB’000 RMB’000 29,435 –

During the year ended December 31, 2008, the Group’s subsidiary in Australia entered into forward foreign exchange contracts to buy Australian Dollar against US Dollar with banks in order to manage the currency risks of foreign currency forecast sales. As at December 31, 2008, the outstanding notional amount was approximately RMB211 million, maturing through January to July 2009 with bought floor price and bought ceiling price of 0.6293 and 0.9568 respectively. The ineffective hedging portion of the changes in fair values of the forward foreign exchange contracts of approximately RMB10,445,000 is recognized as selling, general and administrative expenses in the consolidated income statement. The effective hedging portion was recognized as current portion of derivative financial instruments in the consolidated balance sheet.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The fair values of the forward foreign exchange contracts are estimated based on the discounted cash flows between the contract forward rate and spot forward rate.

35. DEFERRED TAXATION

Balance at January 1, 2007 Effect of change in tax rate Charge to reserve (Charge) credit to income for the year (note 12) Balance at January 1, 2008 Exchange re-alignment Charge to reserve (Charge) Credit to the consolidated income statement (note 12) Balance at December 31, 2008	Available-for-sale investment RMB’000 (11,207) 2,717 (78,236) –	Accelerated tax depreciation RMB’000 (218,513) 52,972 – (34,613)	Fair value adjustment on mining rights RMB’000 (54,103) 13,116 – 1,513	Temporary differences on expenses recognized RMB’000 – – – –	Tax losses RMB’000 – – – 31,175	Cash flow hedge reserve RMB’000 – – – –	Total RMB’000 (283,823) 68,805 (78,236) (1,925)
	(86,726) – 67,409 –	(200,154) – – (39,192)	(39,474) – – 1,513	– – – 225,125	31,175 (8,347) – 44,086	– – 8,831 –	(295,179) (8,347) 76,240 231,532
	(19,317)	(239,346)	(37,961)	225,125	66,914	8,831	4,246

The temporary differences on expenses recognized mainly arose in respect of unpaid provision of salaries and wages, provisions of compensation fees for mining rights and land subsidence, restoration, rehabilitation and environmental costs.

The following is the analysis of the deferred tax balances for financial reporting purposes:

Deferred tax assets Deferred tax liabilities	2008 RMB’000 46,023 (41,777) 4,246	2007 RMB’000 31,175 (326,354)
		(295,179)

At the balance sheet date, the Group has unused tax losses of RMB682 million (2007: RMB556 million) contributed by the subsidiaries available for offset against future profits. A deferred tax asset has been recognized in respect of RMB223 million (2007: RMB104 million) of such losses. No deferred tax asset has been recognized in respect of the remaining RMB459 million (2007: RMB452 million) due to the unpredictability of future profit streams. Included in unrecognized tax losses are losses of RMB55 million that will expire in 2011, losses of RMB106 million that will expire in 2012, and losses of RMB298 million that will expire in 2013 (2007: losses of RMB55 million that will expire in 2011 and losses of RMB106 million that will expire in 2012). Other losses may be carried forward indefinitely.

By reference to financial budgets, management believes that there will be sufficient future profits for the realization of deferred tax assets which have been recognized in respect of tax losses.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. SHAREHOLDERS’ EQUITY

Share capital

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

Number of shares At January 1, 2007, January 1, 2008 and December 31, 2008 Registered, issued and fully paid At January 1, 2007, January 1, 2008 and December 31, 2008	Domestic invested shares State legal person shares (held by the Parent Company) A shares 2,600,000,000 360,000,000 Domestic invested shares State legal person shares (held by the Parent Company) A shares RMB’000 RMB’000 2,600,000 360,000	Foreign invested shares H shares (including H shares represented by ADS) 1,958,400,000 Foreign invested shares H shares (including H shares represented by ADS) RMB’000 1,958,400	Total 4,918,400,000
			Total RMB’000 4,918,400

Each share has a par value of RMB1.

Reserves

Future Development Fund

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

Shanxi Tianchi is required to transfer an additional amount at RMB15 per tonne of raw coal mined from 2008 onwards as coal mine transformation fund and mine areas environmental restoration fund.

Pursuant to the regulations of the Shandong Province Finance Bureau, State-owned Assets Supervision and Administration Commission of Shandong Province and the Shandong Province Coal Mining Industrial Bureau, the Company is required to transfer an additional amount at RMB5 per tonne of raw coal mined from July 1, 2004 to the reform specific development fund for the future improvement of the mining facilities and is not distributable to shareholders. No further transfer to the reform specific development fund is required from January 1, 2008.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In accordance with the regulations of the State Administration of Work Safety, the Group has a commitment to incur RMB8 for each tonne of raw coal mined from May 1, 2004 which will be used for enhancement of safety production environment and improvement of facilities (“Work Safety Cost”). In prior years, the work safety expenditures are recognized only when acquiring the fixed assets or incurring other work safety expenditures. The Company and Shanxi Tianchi make appropriation to the future development fund in respect of unutilized Work Safety Cost from 2008 onwards. The unutilized Work Safety Cost at December 31, 2007 was RMB187,470,000.

Statutory Common Reserve Fund/Statutory Common Welfare Fund

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

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

• to make good losses in previous years; or

• to convert into capital, provided such conversion is approved by a resolution at a shareholders’ general meeting and the balance of the statutory common reserve fund does not fall below 25% of the registered capital.

Retained earnings

In accordance with the Company’s Articles of Association, the profit for the purpose of appropriation will be deemed to be the lesser of the amounts determined in accordance with (i) PRC accounting standards and regulations and (ii) IFRS or the accounting standards of the places in which its shares are listed.

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

The Company’s distributable reserve as at December 31, 2008 is the retained earnings computed under PRC GAAP which amounted to approximately RMB13,430,460,000 (At December 31, 2007: RMB8,625,550,000, as restated with the adoption of new accounting standards under PRC GAAP).

37. CAPITAL RISK MANAGEMENT

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

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

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

38. FINANCIAL INSTRUMENT

38a. Categories of financial instruments

	At December 31,	At December 31,
	2008	2007
	RMB’000	RMB’000
Financial assets
Loans and receivables (including cash and cash equivalents)	12,980,405	9,453,042
Available-for-sale financial assets	139,887	409,526
Financial liabilities
Amortised cost	3,559,204	2,583,276
Derivative financial instruments	29,435	–

38b. Financial risk management objectives and policies

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

Credit risk

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

At December 31, 2008 and 2007, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group is the failure to perform their obligations in relation to each class of recognized financial assets is the carrying amount of those assets as stated in the consolidated balance sheet.

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

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

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

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

– 105 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

For the years ended December 31, 2008, 2007 and 2006, net sales to the Group’s five largest domestic customers accounted for approximately 32.8%, 25.6% and 22.1%, respectively, of the Group’s total net sales. Net sales to the Group’s largest domestic customer accounted for 17.7%, 12.1% and 10.2% of the Group’s net sales for the years ended December 31, 2008, 2007 and 2006, respectively. The Group’s largest domestic customer was the Huadian Power International Corporation Limited (“Huadian”) for the years ended December 31, 2008, 2007 and 2006.

Details of the accounts receivable from the five customers with the largest receivable balances at December 31, 2008 and 2007 are as follows:

				Percentage of accounts	Percentage of accounts
				receivable
				**At December **	31,
				2008	2007
Five	largest	receivable	balances	87.54%	63.26%

The management considers the strong financial background and good creditability of these customers, and there is no significant uncovered credit risk.

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

		31.12.2008	31.12.2008	31.12.2007	31.12.2007
			Carrying		Carrying
Counterparty	Location	Credit limit	amount	Credit limit	amount
		RMB’000	RMB’000	RMB’000	RMB’000
Company A	The PRC	300,000	207,232	–	–
Company B	The PRC	300,000	89,074	–	–
Company C	The PRC	50,000	38,226	10,000	3,756
Company D	The PRC	24,000	23,769	10,000	3,896
Company E	The PRC	30,000	23,115	–	–
Company F	The PRC	–	–	40,000	32,773
Company G	The PRC	–	–	40,000	31,664
Company H	The PRC	–	–	20,000	13,645
			381,416		85,734

– 106 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

The Group’s geographical concentration of credit risk is mainly in the PRC, which accounted for over 90% and 80% of the Group’s total trade receivable as at December 31, 2008 and 2007 respectively.

Market risk

• (i) Currency risk

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

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

United States Dollar (“USD”) Euro (“EUR”) Hong Kong Dollar (“HKD”) Notional amounts of USD foreign exchange contracts used for hedging	Liabilities 2008 2007 RMB’000 RMB’000 4,447 2,250 – 47,338 – – 210,800 –	Assets 2008 2007 RMB’000 RMB’000 910,764 663,713 15,718 34,018 7,286 103,851 – –

Except as disclosed in note, the Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arises.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Sensitivity analysis

The Group is mainly exposed to the fluctuation against the currency of United States Dollar and Hong Kong Dollar.

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

USD Impact (note i) 2008 2007 RMB’000 RMB’000 Increase (Decrease) to profit and loss – if RMB weakens against respective foreign currency 58,863 62,804 – if RMB strengthens against respective foreign currency (58,863) (62,804) Increase (Decrease) to profit and loss – if AUD weakens against respective foreign currency – if AUD strengthens against respective foreign currency Increase (Decrease) to shareholders’ equity – if AUD weakens against respective foreign currency – if AUD strengthens against respective foreign currency

HKD Impact (note i) 2008 2007 RMB’000 RMB’000 273 4,945 (273) (4,945) USD Impact (note ii) 2008 2007 RMB’000 RMB’000 (21,584) (31,305) 21,584 31,305 (21,144) (31,305) 21,144 31,305

Notes:

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

• (ii) This is mainly attributable to the exposure outstanding on the loans to foreign operations within the Group and derivative financial instruments where the denomination of the loan is in a currency other than the functional currency of the borrower (i.e. AUD).

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Interest rate risk

The Group is exposed to fair value interest rate risk in relation to fixed-rate loan receivable (see note 20 for details). The Group is also exposed to cash flow interest rate risk in relation to variable-rate bank balances, term deposits, restricted cash (see note 17 for details of these bank balances) and bank borrowings (see note 33 for details of these borrowings).

The Group currently does not have any interest rate hedging policy.

The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. The Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of the PBOC arising from the Group’s RMB borrowings.

The Group’s exposure to interest rate risk on financial assets and liabilities and also the result of the sensitivity analysis is not significant.

(iii) Other price risk

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

Liquidity risk

In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of bank borrowings and ensures compliance with loan covenants.

The following table details the Group’s remaining contractual maturity for its financial liabilities. For non-derivative financial liabilities, the table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Liquidity and interest risk tables

Weighted average effective interest rate % 2008 Non-derivative financial liabilities Bills and accounts payables N/A Other payables N/A Amounts due to Parent Company and its subsidiary companies N/A Bank borrowings – variable rate 5.31%-5.94% Derivative financial instruments – gross settlement Forward foreign exchange contracts – Inflow N/A – Outflow N/A 2007 Non-derivative financial liabilities Bills and accounts payables N/A Other payables N/A Amounts due to Parent Company and its subsidiary companies N/A Bank borrowings – variable rate 6.84%-7.09%	Less than 3 months RMB’000 910,127 1,677,496 706,328 – 3,293,951	3-6 months RMB’000 – – – 11,254 11,254	6 months to 1 year RMB’000 – – – 74,739 74,739	1-5 years RMB’000 – – 13,248 104,625 117,873	5+ years Total undiscounted cash flow RMB’000 RMB’000 – 910,127 – 1,677,496 – 719,576 125,839 316,457 125,839 3,623,656	5+ years Total undiscounted cash flow RMB’000 RMB’000 – 910,127 – 1,677,496 – 719,576 125,839 316,457 125,839 3,623,656	Carrying amount at 12.31 RMB’000 910,127 1,677,496 713,581 258,000
							3,559,204
	129,200 (129,200)	71,400 (71,400)	10,200 (10,200)	– –	– –	210,800 (210,800)	210,800 (210,800
	–	–	–	–	–	–	–
	631,207 911,528 669,275 –	26,310 – – 11,325	– – – 65,135	– – 26,496 175,968	– – – 169,799	657,517 911,528 695,771 422,227	657,517 911,528 684,231 330,000
	2,212,010	37,635	65,135	202,464	169,799	2,687,043	2,583,276

38c. Fair values

The fair value of available-for-sales investment is determined with reference to quoted market price. The fair values of the forward foreign exchange contracts are estimated based on the discounted cash flows between the contract forward rate and spot forward rate. The fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate their fair values.

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

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

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

This acquisition has been accounted for using the purchase method.

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

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

Fair value RMB’000 289,142 10,950 4,609 25,387 15,216 628,976 164,452 (57,231) 11,378 (12,126) (75,436) (380,000) 625,317 (34,518) 142,547 733,346 733,346 (733,346) 289,142 (444,204)

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

– 111 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

The goodwill arising from the acquisition is attributable to the anticipated profitability and the anticipated future operating synergies from the combination.

40. RELATED PARTY BALANCES AND TRANSACTIONS

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

Related party balances

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

The amounts due to the Parent Company and its subsidiary companies as at December 31, 2008 and 2007 included the present value of the outstanding balance that arose from the funding of the acquisition of the mining rights of Jining III as of January 1, 2001 discounted using the market rate of bank borrowings.

The consideration for the cost of the mining rights of approximately RMB132,479,000 is to be settled over the 10 years by equal instalments before December of each year, commencing from 2001.

Amounts due to Parent Company and its subsidiary companies Within one year More than one year, but not exceeding two years More than two years, but not exceeding three years Total Less: amount due within one year Amount due after one year	At December 31, 2008 2007 RMB’000 RMB’000 706,328 669,275 7,253 7,703 – 7,253 713,581 684,231 (706,328) (669,275) 7,253 14,956

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

– 112 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Related party transactions

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

	**Year **	**ended December **	31,
	2008	2007	2006
	RMB’000	RMB’000	RMB’000
Income
Sales of coal	1,384,415	1,014,963	1,069,879
Sales of auxiliary materials	550,986	595,143	496,221
Expenditure
Utilities and facilities	376,288	377,074	358,370
Annual fee for mining rights	–	12,980	12,980
Purchases of supply materials and equipment	471,768	454,469	458,329
Repair and maintenance services	253,864	215,102	246,841
Social welfare and support services	255,265	313,062	406,004
Technical support and training	20,000	20,000	20,000
Road transportation services	86,671	60,718	63,448
Construction services	294,938	316,801	306,658

Certain expenditure for social welfare and support services (excluding medical and child care expenses) of RMB165,900,000, RMB165,900,000 and RMB165,900,000 for the years ended December 31, 2008, 2007 and 2006, respectively, and for technical support and training of RMB20,000,000, RMB20,000,000 and RMB20,000,000, have been charged by the Parent Company at a negotiated amount per annum, subject to changes every year.

During the year ended December 31, 2006, the Company acquired Shanxi Neng Hua from the Parent Company. Details of this acquisition are set out in note 39.

During the year ended December 31, 2008, the Company acquired Zhaolou coal mine from the Parent Company. Details of this acquisition are set out in note 24.

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

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

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

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

Trade sales Trade purchases	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 10,253,998 6,035,156 4,600,606 1,328,958 1,056,959 1,568,658	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 10,253,998 6,035,156 4,600,606 1,328,958 1,056,959 1,568,658
		1,568,658

– 113 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Amounts due to other state-controlled entities Amounts due from other state-controlled entities	At December 31, 2008 2007 RMB’000 RMB’000 294,888 311,922 364,420 339,979	At December 31, 2008 2007 RMB’000 RMB’000 294,888 311,922 364,420 339,979
		339,979

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

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

Compensation of key management personnel

The remuneration of directors and other members of key management were as follows:

Directors’ fees Salaries, allowance and other benefits in kind Retirement benefit scheme contributions	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 426 403 373 2,545 2,315 2,710 407 378 1,030 3,378 3,096 4,113	Year ended December 31, 2008 2007 2006 RMB’000 RMB’000 RMB’000 426 403 373 2,545 2,315 2,710 407 378 1,030 3,378 3,096 4,113
		4,113

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

41. COMMITMENTS

Capital expenditure contracted for but not provided in the consolidated financial statements in respect of acquisition of property, plant and equipment Capital expenditure authorized but not contracted for in respect of development of new coal mines	At December 31, 2008 2007 RMB’000 RMB’000 142,399 322,271 – 747,339 142,399 1,069,610	At December 31, 2008 2007 RMB’000 RMB’000 142,399 322,271 – 747,339 142,399 1,069,610
		1,069,610

During 2006, the Company entered into a co-operative agreement with two independent third parties to establish a company for acquiring a coal mine in Shaanxi province for operations. In addition to the deposit referred to in note 29, the Company is committed to invest a further RMB78.8 million as at December 31, 2008 and 2007.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pursuant to the regulations issued by the Shandong Province Finance Bureau, the Group has to pay a deposit of RMB997 million (2007: RMB1,073 million) to the relevant government authority, which secured for the environmental protection work done by the Company. As at December 31, 2008, deposit of RMB200 million (2007: RMB200 million) were made and the Company is committed to further make security deposit of RMB797 million (2007: RMB873 million).

On October 24, 2008, the Company entered into an acquisition agreement with the Parent Company at a consideration of RMB593.24 million to acquire 74% equity interest in Shandong Hua Ju Energy Company Limited (“Hua Ju Energy “).

Hua Ju Energy is a joint stock limited company established in the PRC. The principal business of Hua Ju Energy is the supply of electricity and heat by utilizing coal gangue and coal slurry produced from coal mining process. The acquisition has been approved by the shareholders of the Company at the general meeting of shareholders. As at December 31, 2008, the equity transfer and approval from governmental authority have not been completed. At the date of issue of these financial statements, the equity transfer and approval from governmental authority have been completed and the Company has fully settled the consideration in respect of the acquisition.

During 2007, the Company entered into an agreement with the Parent Company and Zhongcheng Trust and Investment LLC. to establish a company, with the proposed name of Yankuang Group Finance Company Limited (the “Investee”), which will engage in banking and financing business. The name and the activities of the Investee are subject to the approval by China Banking Regulatory Commission and other relevant government authorities. The Company has agreed to contribute RMB125 million from internal resources, which will account for 25% of the equity interest in the Investee. As of December 31, 2008, the procedures to establish the Investee are still in progress.

Compensation fees for mining rights are required to be pay annually and details are set out in note 24.

42. RETIREMENT BENEFITS

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

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

The amount of contributions paid to the Parent Company were RMB759,356,000, RMB692,912,000 and RMB640,620,000 for the years ended December 31, 2008, 2007, and 2006, respectively.

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

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

43. HOUSING SCHEME

The Parent Company is responsible for providing accommodation to its employees and the employees of the Company. The Company and the Parent Company share the incidental expenses relating to the accommodation at a negotiated amount for each of the three years ended December 31, 2008, 2007 and 2006. Such expenses,

– 115 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

amounting to RMB86,200,000, RMB86,269,000 and RMB86,200,000 for each of the three years ended December 31, 2008, 2007 and 2006 respectively, have been included as part of the social welfare and support services expenses summarized in note 40.

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

44. MAJOR NON-CASH TRANSACTION

During the year ended December 31, 2008, the Group acquired certain property, plant and equipment, of which RMB654,304,000 (2007: RMB615,092,000) have not yet been paid.

45. INFORMATION OF THE COMPANY

The Company’s balance sheet is disclosed as follows:

ASSETS CURRENT ASSETS Bank balances and cash Term deposits Restricted cash Amounts due from subsidiaries Bills and accounts receivable Inventories Other loans receivable Loans to subsidiaries Prepayments and other receivables Prepaid lease payments TOTAL CURRENT ASSETS NON-CURRENT ASSETS Mining rights Prepaid lease payments Property, plant and equipment Goodwill Investment in subsidiaries (note a) Investments in securities Investment in associate Loan to subsidiaries Deposit made on investment Deferred tax asset TOTAL NON-CURRENT ASSETS TOTAL ASSETS	At December 31, 2008 2007 RMB’000 RMB’000 8,221,661 4,331,449 1,153,385 1,294,984 14,823 8,852 235,122 213,890 2,961,769 2,721,930 693,974 325,620 – 640,000 122,805 273,707 1,463,195 317,922 13,334 13,362	At December 31, 2008 2007 RMB’000 RMB’000 8,221,661 4,331,449 1,153,385 1,294,984 14,823 8,852 235,122 213,890 2,961,769 2,721,930 693,974 325,620 – 640,000 122,805 273,707 1,463,195 317,922 13,334 13,362
	14,880,068 79,487 534,955 7,357,101 107,346 4,026,004 139,887 900,000 3,563,773 117,926 9,470 16,835,949	10,141,716 86,111 548,314 7,519,521 107,346 3,402,004 409,526 900,000 2,170,190 117,926 –
		15,260,938
	31,716,017	25,402,654

– 116 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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 Taxes payable TOTAL CURRENT LIABILITIES Amounts due to parent company and its subsidiary companies – due after one year Deferred tax liability TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY (note b) TOTAL LIABILITIES AND EQUITY	At December 31, 2008 2007 RMB’000 RMB’000 674,053 598,473 2,092,215 1,915,922 450,979 19,635 540,831 513,593 419,766 9,956	At December 31, 2008 2007 RMB’000 RMB’000 674,053 598,473 2,092,215 1,915,922 450,979 19,635 540,831 513,593 419,766 9,956
	4,177,844 7,253 –	3,057,579 14,956 283,064
	7,253	298,020
	4,185,097 27,530,920	3,355,599 22,047,055
	31,716,017	25,402,654

Notes:

(a) Details of the Company’s subsidiaries at December 31, 2008 and 2007 are as follows:

	Country of
	incorporation/	Issued and fully
Name of	registration and	paid capital/	**Proportion **	**of registered capital/ **		issued	Proportion of		Principal
subsidiary	operation	registered capital	**share capital held **		by the Company		voting power held		activities
			2008		2007		2008	2007
			Directly Indirectly		Directly Indirectly
Austar Coal	Australia	AUD64,000,000	–	100%	–	100%	100%	100%	Coal mining
Mine Pty,									business in
Limited									Australia
(“Austar”)
Heze (note)	PRC	RMB1,500,000,000	96.67%	–	96.67%	–	96.67%	96.67%	Coal mining
									business
Yancoal	Australia	AUD64,000,000	100%	–	100%	–	100%	100%	Investment
Australia									holding
Pty,
Limited
(“Yancoal
Australia”)
Shandong	PRC	RMB 5,500,000	92%	–	92%	–	92%	92%	Transportation
Yanmei									via rivers
Shipping									and lakes
Co., Ltd.									and the sales
(“Yanmei									of coal and
Shipping”)									construction
(note)									materials

– 117 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	Country of
	incorporation/	Issued and fully
Name of	registration and	paid capital/	**Proportion **	**of **	**registered capital/ **		issued	Proportion of		Principal
subsidiary	operation	registered capital	**share capital held **			by the Company		voting power held		activities
			2008			2007		2008	2007
			Directly Indirectly			Directly Indirectly
Yanzhou	PRC	RMB1,400,000,000	100%		–	97%	–	100%	97%	Development
Coal										of methanol
Yulin										project
Power
Chemical
Co., Ltd.
(“Yulin”)
(note)
Zhongyan	PRC	RMB2,100,000	52.38%		–	52.38%	–	52.38%	52.38%	Trading and
Trade Co.,										processing of
Ltd										mining
(“Zhongyan”)										machinery
(note)
Shanxi	PRC	RMB 600,000,000	100%		–	100%	–	100%	100%	Investment
Neng Hua										holding
(note)
Shanxi	PRC	RMB90,000,000	–	81.31%		–	81.31%	81.31%	81.31%	Coal mining
Tianchi										business
(note)
Shanxi	PRC	RMB 150,000,000	–	99.85%		–	99.85%	99.85%	99.85%	Methanol and
Tianhao										electricity
(note)										power
										business

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

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) The Company’s equity is as follows:

Balance at January 1, 2007 Gain on fair value changes of available-for-sale investment Deferred tax on fair value change of available-for-sale investment Net income recognized directly in equity Profit for the year Total recognized income and expense for the year Appropriations to reserves Dividends Balance at December 31, 2007 Balance at January 1, 2008 Loss on fair value changes of available-for-sale investment Deferred tax on fair value change of available-for-sale investment Net loss recognized directly in equity Profit for the year Total recognized income and expense for the year Appropriations to reserves Dividends Balance at December 31, 2008	Share capital RMB’000 4,918,400 – –	Share premium Future development fund RMB’000 RMB’000 2,981,002 2,218,007 – – – –	Share premium Future development fund RMB’000 RMB’000 2,981,002 2,218,007 – – – –	Statutory common reserve fund RMB’000 1,704,295 – –	Investment revaluation reserve RMB’000 22,754 312,944 (75,519)	Retained earnings RMB’000 7,561,894 – –	Total RMB’000 19,406,352 312,944 (75,519
	– – – – –	– – – – –	– – – 361,110 –	– – – 333,645 –	237,425 – 237,425 – –	– 3,386,958 3,386,958 (694,755) (983,680)	237,425 3,386,958
							3,624,383 – (983,680
	4,918,400	2,981,002	2,579,117	2,037,940	260,179	9,270,417	22,047,055
	4,918,400 – – – – – – –	2,981,002 – – – – – – –	2,579,117 – – – – – 355,800 –	2,037,940 – – – – – 785,235 –	260,179 (269,639) 67,409 (202,230) – (202,230) – –	9,270,417 – – – 6,522,223 6,522,223 (1,141,035) (836,128)	22,047,055 (269,639 67,409
							(202,230 6,522,223
							6,319,993 – (836,128
	4,918,400	2,981,002	2,934,917	2,823,175	57,949	13,815,477	27,530,920

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. INTERIM FINANCIAL INFORMATION

The following is an extract of the unaudited interim financial information of the Group as extracted from the interim report of the Company for the 6 months ended 30 June 2009.

CONDENSED CONSOLIDATED STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED 30 JUNE, 2009

		Six months ended	Six months ended
		**30 **	June
		2009	2008
		RMB’000	RMB’000
	Notes	(unaudited)	(unaudited)
Gross sales of coal	5	8,829,078	12,065,436
Railway transportation service income		112,587	111,931
Gross sales of electricity power		101,817	–
Gross sales of heat supply		7,380	–
Total revenue		9,050,862	12,177,367
Transportation costs of coal	5	(186,833) (219,511)
Cost of sales and service provided	6	(4,437,963) (5,172,474)
Cost of electricity power		(84,131) –
Cost of heat supply		(4,246) –
Gross profit		4,337,689	6,785,382
Selling, general and administrative expenses		(1,840,102) (1,422,260)
Share of profit/(loss) of an associate		43,815	(47,192)
Other income	7	198,685	194,152
Interest expenses	8	(20,844) (15,827)
Profit before income taxes	9	2,719,243	5,494,255
Income taxes	10	(671,112) (1,580,496)
Profit for the period		2,048,131	3,913,759
Equity attributable to:
Equity holders of the Company		2,025,690	3,912,641
Minority interests		22,441	1,118
		2,048,131	3,913,759
Earnings per share, basic	12	RMB0.41	RMB0.80
Earnings per ADS, basic	12	RMB4.12	RMB7.96

– 120 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE, 2009

	Six months ended	Six months ended
	**30 **	June
	2009	2008
	RMB’000	RMB’000
	(unaudited)	(unaudited)
Profit for the period	2,048,131	3,913,759
Other comprehensive income (after income tax):
Available-for-sale investment:
Change in fair value	90,727	(200,509)
Deferred taxes	(22,682) 50,127
	68,045	(150,382)
Cash flow hedge:
Cash flow hedge reserve recognized	87,408	–
Deferred taxes	(28,883) –
	58,525	–
Exchange difference arising on translation of foreign operations	89,063	2,861
Other comprehensive income/(loss) for the period	215,633	(147,521)
Total comprehensive income for the period	2,263,764	3,766,238
Equity attributable to:
Equity holders of the Company	2,241,323	3,765,120
Minority interests	22,441	1,118
	2,263,764	3,766,238

– 121 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

AT 30 JUNE, 2009

Notes ASSETS CURRENT ASSETS Bank balances and cash Term deposits Restricted cash 13 Bills and accounts receivable 14 Inventories Prepayments and other receivables 15 Prepaid lease payments Prepayment for resources compensation fees 16 Derivative financial instruments TOTAL CURRENT ASSETS NON-CURRENT ASSETS Mining rights 18 Prepaid lease payments Prepayment for resources compensation fees 16 Property, plant and equipment 19 Goodwill Investments in securities 20 Interests in an associate Restricted cash 13 Deposit made on investment Deferred tax assets 22 TOTAL NON CURRENT ASSETS TOTAL ASSETS	At 30 June 2009 RMB’000 (unaudited) 8,645,119 3,011,995 19,066 2,202,836 651,101 1,694,464 16,972 2,559 66,840	At 31 December 2008 RMB’000 (audited) 8,439,578 1,153,385 18,823 2,977,266 819,599 1,567,210 15,296 3,240 –
	16,310,952 1,031,502 692,518 14,919 14,743,357 500,342 260,796 874,010 94,612 117,926 199,962 18,529,944	14,994,397 1,039,707 628,119 15,490 14,149,446 298,650 139,887 830,195 78,791 117,926 46,023
		17,344,234
	34,840,896	32,338,631

– 122 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Bills and accounts payable 21 Other payables and accrued expenses Provision for land subsidence, restoration, rehabilitation and environmental costs 17 Amounts due to Parent Company and its subsidiary companies 25 Unsecured bank borrowings – due within one year Derivative financial instruments Taxes payable TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Amounts due to Parent Company and its subsidiary companies – due after one year 25 Unsecured bank borrowings – due after one year Deferred tax liabilities 22 TOTAL NON CURRENT LIABILITIES TOTAL LIABILITIES CAPITAL AND RESERVES 23 SHARE CAPITAL RESERVES EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY MINORITY INTEREST TOTAL EQUITY TOTAL LIABILITIES AND EQUITY	At 30 June 2009 RMB’000 743,328 4,616,688 967,365 683,169 82,000 – 286,633	At 31 December 2008 RMB’000 910,127 2,698,256 450,979 706,328 82,000 29,435 419,866
	7,379,183 3,626 165,000 42,501 211,127 7,590,310 4,918,400 22,110,687 27,029,087 221,499 27,250,586	5,296,991 7,253 176,000 41,777
		225,030
		5,522,021
		4,918,400 21,836,724
		26,755,124 61,486
		26,816,610
	34,840,896	32,338,631

– 123 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE, 2009

Balance at 1 January, 2008 Total comprehensive income for the period (unaudited) Appropriations to reserves (unaudited) Dividends (unaudited) Acquisition of additional interest in the equity of a subsidiary (unaudited) Balance at 30 June, 2008 Balance at 1 January, 2009 Total comprehensive income for the period (unaudited) Appropriations to reserves (unaudited) Dividends (unaudited) Acquisition of a subsidiary (unaudited) Balance at 30 June, 2009	Share capital RMB’000 4,918,400 – – – – 4,918,400	Share premium RMB’000 2,981,002 – – – – 2,981,002	Future development fund RMB’000 (note 23) 2,587,105 – 101,486 – – 2,688,591	Statutory common reserve fund RMB’000 (note 23) 2,037,940 – – – – 2,037,940	Translation reserve RMB’000 (13,942) 2,861 – – – (11,081)	Investment revaluation reserve RMB’000 260,179 (150,382) – – – 109,797	Cash flow hedge reserve RMB’000 – – – – – –	Retained earnings RMB’000 8,646,853 3,912,641 (101,486) (836,128) – 11,621,880	Attributable to equity holders of the Company RMB’000 21,417,537 3,765,120 – (836,128) – 24,346,529	Minority interest RMB’000 71,075 1,118 – – 2,506 74,699	Total RMB’000 21,488,612 3,766,238 – (836,128) 2,506
											24,421,228
	4,918,400 – – – –	2,981,002 – – – –	2,969,324 – 222,538 – –	2,823,175 – – – –	(115,169) 89,063 – – –	57,949 68,045 – – –	(11,736) 58,525 – – –	13,132,179 2,025,690 (222,538) (1,967,360) –	26,755,124 2,241,323 – (1,967,360) –	61,486 22,441 – – 137,572	26,816,610 2,263,764 – (1,967,360) 137,572
	4,918,400	2,981,002	3,191,862	2,823,175	(26,106)	125,994	46,789	12,967,971	27,029,087	221,499	27,250,586

– 124 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE, 2009

Notes NET CASH GENERATED BY OPERATING ACTIVITIES NET CASH USED IN INVESTING ACTIVITIES Purchase of property, plant and equipment (Increase)decrease in term deposits Settlement received from other loans receivable Expenditure for acquisition of Zhaolou Coal Mine Acquisition of Hua Ju Energy 24 Acquisition of minority interests of Yulin Increase in restricted cash Proceeds on disposal of property, plant and equipment NET CASH (USED IN) GENERATED BY FINANCING ACTIVITIES Dividend paid to the former equity holders of Hua Ju Energy Bank loans Repayment of borrowing to Parent Company NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS, ENDING, REPRESENTED BY BANK BALANCES AND CASH	Six months ended 30 June 2009 2008 RMB’000 RMB’000 (unaudited) (unaudited) 3,611,481 3,861,370 (826,033) (537,413) (1,858,745) 319,090 – 640,000 – (747,339) (588,676) – – (24,000) (2,204) (23,210) 15,416 9,636 (3,260,242) (363,236) (47,250) – (11,000) 453,910 (120,000) – (178,250) 453,910 172,989 3,952,044 8,439,578 4,424,561 32,552 (9,613) 8,645,119 8,366,992	Six months ended 30 June 2009 2008 RMB’000 RMB’000 (unaudited) (unaudited) 3,611,481 3,861,370 (826,033) (537,413) (1,858,745) 319,090 – 640,000 – (747,339) (588,676) – – (24,000) (2,204) (23,210) 15,416 9,636 (3,260,242) (363,236) (47,250) – (11,000) 453,910 (120,000) – (178,250) 453,910 172,989 3,952,044 8,439,578 4,424,561 32,552 (9,613) 8,645,119 8,366,992
	(3,260,242) (47,250) (11,000) (120,000) (178,250) 172,989 8,439,578 32,552	(363,236
		– 453,910 –
		453,910
		3,952,044
		4,424,561 (9,613
	8,645,119

– 125 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE, 2009

1. GENERAL

Organization and principal activities

The Group represents Yanzhou Coal Mining Company Limited (the “Company”) and its consolidated subsidiaries.

The Company is established as a joint stock company with limited liability in the People’s Republic of China (the “PRC”) and operates six coal mines, namely the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine, Dongtan coal mine, Jining II coal mine (“Jining II”) and Jining III coal mine (“Jining III”) as well as a regional railway network that links these mines with the national railway grid. These six coal mines and the railway were originally divisions of the Company’s ultimate holding company, Yankuang Group Corporation Limited (the “Parent Company”), a state-owned enterprise in the PRC. The Parent Company contributed the assets and liabilities of the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine and Dongtan coal mine into the Company upon its formation.

The Company acquired from the Parent Company Jining II, Jining III and the assets of the special purpose coal railway transportation business (“Railway Assets”) in 1998, 2001 and 2002, respectively.

In April 2001, the status of the Company was changed to that of a sino-foreign joint stock limited company.

The Company’s A shares are listed on the Shanghai Securities Exchange (“SSE”), its H shares are listed on The Stock Exchange of Hong Kong Limited (the “SEHK”), and its American Depositary Shares (“ADS”, one ADS represents 10 H shares) are listed on the New York Stock Exchange, Inc.

The Company holds a 52.38% interest in the registered capital of Qingdao Free Trade Zone Zhongyan Trade Co., Ltd.(“Zhongyan”), a limited liability company established and operated in the PRC. Zhongyan is engaged in the trading and processing of mining machinery.

The Company holds a 92% interest in the registered capital of Shandong Yanmei Shipping Co., Ltd. (“Yanmei Shipping”), a limited liability company established and operated in the PRC which is principally engaged in the transportation business via rivers and lakes and sale of coal and construction materials.

In 2004, the Company established Yanzhou Coal Yulin Neng Hua Co., Ltd. (“Yulin”), a 97% owned subsidiary, for the future development of the methanol projects of the Group in the Shaanxi Province in the PRC. In 2008, the Company acquired the remaining 3% equity in Yulin, and then the Company made further investment of RMB600,000,000 in Yulin in the same year..

In 2004, the Company acquired the entire interest in the Southland coal mine located in New South Wales, Australia (“Southland”) from independent third parties in 2004 for aggregate cash consideration of AUD29,377,000 (equivalent to RMB187,312,000 then). The Company has also established two wholly-owned subsidiaries in Australia, namely Yancoal Australia Pty Limited (“Yancoal”) and Austar Coal Mine Pty Limited (“Austar”), in 2004 for the Group’s future operations in Southland.

– 126 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In 2004, the Company acquired a 95.67% equity interest in Yanmei Heze Neng Hua Company Limited (“Heze”) from the Parent Company at cash consideration of RMB584,008,000. The principal activities of Heze are to conduct the initial preparation of the coal mines at the Juye coalfield which includes obtaining the approvals for the coal mine projects, applying rights to explore for coal and preparing the construction work of the coal mines. At 30 June, 2009, Heze has commenced construction works for the Zhaolou coal mine. The equity interests held by the Company increased to 96.67% after the increase of the registered capital of Heze in 2007.

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

Shanxi Neng Hua is an investment holding company, which holds 81.31% equity interest in Shanxi Heshun Tianchi Energy Company Limited (“Shanxi Tianchi”) and approximately 99.85% equity interest in Shanxi Tianhao Chemical Company Limited (“Shanxi Tianhao”). The principal activities of Shanxi Tianchi are to exploit and sale of coal from Tianchi Coal Mine, the principal asset of Shanxi Tianchi. Shanxi Tianchi has completed the construction of Tianchi Coal Mine and commenced production by the end of 2006. Shanxi Tianhao is established to engage in the production of methanol and other chemical products, coke production, exploration and sales. The construction of the methanol facilities by Shanxi Tianhao commenced in March 2006 and it has commenced trial production as at 30 June, 2009. In 2007, the Company further acquired the remaining 2% equity interest in Shanxi Neng Hua at cash consideration of RMB14,966,000.

During the period, the Company acquired 74% equity interest in Shandong Hua Ju Energy Company Limited (“Hua Ju Energy”) with a consideration of RMB593,243,000. Hua Ju Energy is a joint stock limited company established in the PRC, the principal business is the supply of electricity and heat by utilizing coal gangue and coal slurry produced from coal mining process. In July 2009, the Company entered into acquisition agreements with three shareholders of Hua Ju Energy, pursuant to which, the Company agrees to acquire 21.14% equity interest in Hua Ju Energy with the consideration of RMB173,010,000. At the date of issue of these financial statements, the equity transfer and approval from governmental authority have been completed and the Company has fully settled the consideration in respect of the acquisition.

2. BASIS OF PREPARATION

The condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting” and with the applicable disclosure requirements of Appendix 16 of the Rules Governing the Listing of Securities on the SEHK.

3. SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair value, as appropriate.

The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December, 2008, except a number of accounting policies that are adopted by the Company and effective for annual periods beginning on or after 1 January, 2009.

– 127 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In the current period the Group had applied, for the first time, the new standards and interpretations and revised/amended standards and interpretations (the new “IFRSs”) issued by the International Accounting Standards Board (the “IASB”) and the International Financial Reporting Interpretations Committee (the “IFRIC”) of the IASB, which are effective for the Group’s financial year beginning on 1 January, 2009. The new IFRSs that had material effect on the financial statements are as follow:

• IAS 1 (Revised)-Presentation of Financial Statements: IAS 1 (Revised) materially changes the presentation of the Group’s financial statements. The amendments affect the presentation of owner changes in equity and introduce a statement of comprehensive income. The Group have the option of presenting items of income and expenses and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The amendment does not affect the financial position or results of the Group but gives rise to additional disclosures. The Group adopted IAS 1 (Revised) since 1 January, 2009, and presented items of income and expenses and components of other comprehensive income in two separate statements (a separate income statement followed by a statement of comprehensive income).

• IFRS 8-Operating Segments: The accounting policy for identifying segments is based on internal management reporting information that is regularly reviewed by the Group’s chief operating decision maker for the purposes of allocating resources to the segments and assessing their performances.

The adoption of the new IFRSs had no material effect on the results or financial position of the Group for the current or prior accounting periods except the presentation disclosure. Accordingly, no prior period adjustment has been recognized.

The Group has not early applied the new standards or interpretations that have been issued but are not yet effective. The directors of the Company anticipate that the application of these standards or interpretations will have no material impact on the results and the financial position of the Group.

4. SEGMENT INFORMATION

The Group is engaged primarily in the coal mining business and the coal railway transportation business. The Company does not currently have direct export rights in the PRC and all of its export sales must be made through China National Coal Industry Import and Export Corporation (“National Coal Corporation”) or Minmetals Trading Co., Ltd. (“Minmetals Trading”) or Shanxi Coal Imp. & Exp Group Corp. (“Shanxi Coal Corporation”). The final customer destination of the Company’s export sales is determined by the Company, National Coal Corporation, Minmetals Trading or Shanxi Coal Corporation. Certain of the Company’s subsidiaries are engaged in trading and processing of mining machinery and the transportation business via rivers and lakes in the PRC. No separate segment information about these businesses is presented in these financial statements as the underlying gross sales, results and assets of these businesses, which are currently included in the coal mining business segment, are insignificant to the Group. Certain of the Company’s subsidiaries are engaged in production of methanol and other chemical products, and invest in heat and electricity.

Business segments

For management purposes, the Group is currently organized into three operating divisions-coal mining, coal railway transportation and methanol, electricity and heat supply. 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 Methanol, electricity and – Production and sales of methanol and electricity and related heat supply services

– 128 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment information about these businesses is presented below:

INCOME STATEMENT

GROSS REVENUE External sales Inter-segment sales Total Inter-segment revenue is ch RESULT Segment results Unallocated corporate expenses Unallocated corporate income Share of profit of an associate Interest expenses Profit before income taxes Income taxes Profit for the period	Coal mining RMB’000 8,829,078 77,728 8,906,806	For the six months ended 30 June 2009 Coal railway transportation Methanol, electricity and heat supply Eliminations RMB’000 RMB’000 RMB’000 112,587 109,197 – 34,757 286,531 (399,016) 147,344 395,728 (399,016)	For the six months ended 30 June 2009 Coal railway transportation Methanol, electricity and heat supply Eliminations RMB’000 RMB’000 RMB’000 112,587 109,197 – 34,757 286,531 (399,016) 147,344 395,728 (399,016)	For the six months ended 30 June 2009 Coal railway transportation Methanol, electricity and heat supply Eliminations RMB’000 RMB’000 RMB’000 112,587 109,197 – 34,757 286,531 (399,016) 147,344 395,728 (399,016)	Consolidated RMB’000 9,050,862 –
					9,050,862
	arged at prices pre-determined by the relevant governmental authority. 3,046,508 (81,605) (79,514) – – – 43,815 –				2,885,389
					(285,928) 96,811 43,815 (20,844)
					2,719,243 (671,112)
					2,048,131

– 129 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

GROSS REVENUE External sales Inter-segment sales Total	For the six months ended 30 June 2008 Coal mining Coal railway transportation Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 12,065,436 111,931 – 12,177,367 – 32,483 (32,483) – 12,065,436 144,414 (32,483) 12,177,367	For the six months ended 30 June 2008 Coal mining Coal railway transportation Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 12,065,436 111,931 – 12,177,367 – 32,483 (32,483) – 12,065,436 144,414 (32,483) 12,177,367
		12,177,367

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

	12,065,436 144,414 (32,483) 12,177,367	12,065,436 144,414 (32,483) 12,177,367	12,065,436 144,414 (32,483) 12,177,367	12,065,436 144,414 (32,483) 12,177,367
	-determined by the relevant governmental authority.
RESULT Segment results Unallocated corporate expenses Unallocated corporate income Share of loss of an associate Interest expenses Profit before income taxes Income taxes Profit for the period	5,863,503	(108,718)	–	5,754,785
				(249,843 52,332 (47,192 (15,827
				5,494,255 (1,580,496
				3,913,759

5. SALES OF COAL AND TRANSPORTATION COSTS OF COAL

Domestic sales of coal, gross Less: Transportation costs Domestic sales of coal, net Export sales of coal, gross Less: Transportation costs Export sales of coal, net Net sales of coal	Six months ended 30 June 2009 2008 RMB’000 RMB’000 8,249,349 11,233,286 150,435 126,710	Six months ended 30 June 2009 2008 RMB’000 RMB’000 8,249,349 11,233,286 150,435 126,710
	8,098,914 579,729 36,398 543,331	11,106,576
		832,150 92,801
		739,349
	8,642,245	11,845,925

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

– 130 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

6. COST OF SALES AND SERVICE PROVIDED

Materials Wages and employee benefits Electricity Depreciation Land subsidence, restoration, rehabilitation and environmental costs Annual fee and amortization of mining rights (note 18) Other transportation cost Costs of traded coal Others	Six months ended 30 June 2009 2008 RMB’000 RMB’000 659,790 704,859 1,452,226 1,267,739 117,763 209,377 687,437 547,341 854,635 951,570 102,299 85,303 34,607 65,436 209,539 727,381 319,667 613,468 4,437,963 5,172,474	Six months ended 30 June 2009 2008 RMB’000 RMB’000 659,790 704,859 1,452,226 1,267,739 117,763 209,377 687,437 547,341 854,635 951,570 102,299 85,303 34,607 65,436 209,539 727,381 319,667 613,468 4,437,963 5,172,474
		5,172,474

7. OTHER INCOME

Interest income from bank deposits Gain on exchange rate changes Interest income from entrusted loan Others	Six months ended 30 June 2009 2008 RMB’000 RMB’000 96,810 52,311 89,248 – – 132,230 12,627 9,611 198,685 194,152	Six months ended 30 June 2009 2008 RMB’000 RMB’000 96,810 52,311 89,248 – – 132,230 12,627 9,611 198,685 194,152
		194,152

8 INTEREST EXPENSES

Interest expenses on: – bank borrowings wholly repayable within 5 years – bank borrowings not wholly repayable within 5 years – bills receivable discounted without recourse Deemed interest expenses in respect of acquisition of Jining III	Six months ended 30 June 2009 2008 RMB’000 RMB’000 3,323 6,277 5,981 8,625 10,932 – 608 925 20,844 15,827	Six months ended 30 June 2009 2008 RMB’000 RMB’000 3,323 6,277 5,981 8,625 10,932 – 608 925 20,844 15,827
		15,827

No interest was capitalized during the periods.

– 131 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

9. PROFIT BEFORE INCOME TAXES

Profit before income taxes has been arrived at after charging (crediting): Depreciation of property, plant and equipment Amortization of mining rights (Included in cost of sales and service provided) Total depreciation and amortization Amortization of prepaid lease payments Loss/(Gain) on disposal of property, plant and equipment	Six months ended 30 June 2009 2008 RMB’000 RMB’000 833,203 630,903 21,870 8,775	Six months ended 30 June 2009 2008 RMB’000 RMB’000 833,203 630,903 21,870 8,775
	855,073	639,678
	8,577 4,449	8,627 (7,146

10. INCOME TAXES

Income tax: Current taxes, PRC Enterprise Income Tax Under provision in prior year Deferred tax (note 22): Current period	Six months ended 30 June 2009 2008 RMB’000 RMB’000 825,940 1,298,823 43,049 265,390	Six months ended 30 June 2009 2008 RMB’000 RMB’000 825,940 1,298,823 43,049 265,390
	868,989 (197,877)	1,564,213
		16,283
	671,112	1,580,496

The Group is subject to a standard income tax rate of 25%. The effective income tax rate of the Group for the current period is 25% (six months ended 30 June, 2008: 29%). The major reconciling items are certain expenses not deductible for tax purposes.

11. DIVIDENDS

Final dividend approved, RMB0.400 per share (2008: RMB0.170)	Six months ended 30 June 2009 2008 RMB’000 RMB’000 1,967,360 836,128

Pursuant to the annual general meeting held on 26 June, 2009, a final dividend in respect of the year ended 31 December, 2008 was approved.

– 132 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. EARNINGS PER SHARE AND PER ADS

The calculation of the earnings per share attributable to equity holders of the Company for the six months ended 30 June, 2009 and 30 June, 2008 is based on the profit for the period of RMB2,025,690,000 and RMB3,912,641,000 and on 4,918,400,000 shares in issue during both periods.

The earnings per ADS have been calculated based on the profit for the relevant periods and on one ADS, being equivalent to 10 H shares.

13. RESTRICTED CASH

At the balance sheet date, the short-term restricted cash represents the bank deposits pledged to certain banks to secure banking facilities granted to the Group. The long-term amount represents the bank deposits placed as guarantee for the future payments of rehabilitation cost of Southland as required by the Australian government. The long-term restricted cash carries interest at 3% per annum.

14. BILLS AND ACCOUNTS RECEIVABLE

Bills receivable Accounts receivable Total bills and accounts receivable Less: Impairment loss Bills and accounts receivable, net	At 30 June 2009 RMB’000 1,827,961 393,505	At 31 December 2008 RMB’000 2,571,064 435,711
	2,221,466 (18,630)	3,006,775
		(29,509)
	2,202,836	2,977,266

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

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 balance sheet date:

1-90 days 91-180 days	At 30 June 2009 RMB’000 1,401,040 801,796 2,202,836	At 31 December 2008 RMB’000 1,759,526 1,217,740
		2,977,266

– 133 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. PREPAYMENTS AND OTHER RECEIVABLES

Advances to suppliers Prepaid freight charges and related handling charges Deposit for environment protection Prepaid relocation costs of inhabitants Others	At 30 June 2009 RMB’000 224,325 2,910 140,000 1,151,895 175,334 1,694,464	At 31 December 2008 RMB’000 94,796 7,958 200,000 1,151,895 112,561
		1,567,210

16. PREPAYMENT FOR RESOURCES COMPENSATION FEES

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

17. PROVISION FOR LAND SUBSIDENCE, RESTORATION, REHABILITATION AND ENVIRONMENTAL COSTS

At beginning of period Additional provision in the period Utilization of provision At end of period	At 30 June 2009 RMB’000 450,979 805,094 (288,708)
	967,365

The provision for land subsidence, restoration, rehabilitation and environmental costs has been determined by the directors based on their best estimates. However, in so far as the effect on the land and the environment from current mining activities becomes apparent in future periods, the estimate of the associated costs may be subject to change in the near term.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. MINING RIGHTS

COST At 1 January, 2009 Exchange re-alignment At 30 June, 2009 AMORTIZATION At 1 January, 2009 Exchange re-alignment Provision for the period At 30 June, 2009 CARRYING VALUES At 30 June, 2009 At 31 December, 2008	RMB’000 1,133,680 15,223
	1,148,903
	93,973 1,558 21,870
	117,401
	1,031,502
	1,039,707

The Company and the Parent Company have entered into a mining rights agreement pursuant to which the Company has agreed to pay the Parent Company, effective from 25 September, 1997, an annual fee of RMB12,980,000 as compensation for the Parent Company’s agreement to give up the mining rights associated with the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine, Dongtan coal mine and Jining II. The annual fee is subject to change after a ten-year period. Up to the date of this interim report, compensation fee of RMB5 per tonne for raw coal mined amounting to RMB80,429,000 for the period has been preliminary agreed. The revised compensation is to be settled with the relevant governmental authority directly. The actual amount of compensation fee payable each year is still to be confirmed by the governmental authority.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

19. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January, 2009 Exchange re-alignment Acquisition of Hua Ju Energy Additions Transfers Disposals At 30 June, 2009 Accumulated depreciation At 1 January, 2009 Exchange re-alignment Provision for the period Eliminated on disposals At 30 June, 2009 CARRYING VALUES At 30 June, 2009 At 31 December, 2008	Freehold land in Australia RMB’000 42,279 7,437 – – – –	Buildings RMB’000 3,005,627 1,543 290,362 – 5,546 (11,214)	Harbor works and crafts RMB’000 255,805 – – – – –	Railway structures RMB’000 868,967 – – – 1,477 –	Mining structures RMB’000 3,698,573 – – – – –	Plant, machinery and equipment RMB’000 10,492,130 134,576 434,929 11,184 268,967 (36,889)	Transportation equipment RMB’000 377,625 1,283 4,050 172 2,819 (1,707)	Construction in progress RMB’000 4,827,451 30,109 25,872 542,565 (278,809) –	Total RMB’000 23,568,457 174,948 755,213 553,921 – (49,810)
	49,716 – – – – –	3,291,864 1,318,920 505 124,177 (4) 1,443,598	255,805 66,930 – 5,867 – 72,797	870,444 385,292 – 9,670 – 394,962	3,698,573 1,800,077 – 41,414 – 1,841,491	11,304,897 5,607,220 35,948 628,333 (28,580) 6,242,921	384,242 240,572 650 23,742 (1,361) 263,603	5,147,188 – – – – –	25,002,729
									9,419,011 37,103 833,203 (29,945)
									10,259,372
	49,716 42,279	1,848,266 1,686,707	183,008 188,875	475,482 483,675	1,857,082 1,898,496	5,061,976 4,884,910	120,639 137,053	5,147,188 4,827,451	14,743,357
									14,149,446

20. INVESTMENTS IN SECURITIES

The investment in securities represents available-for-sale equity investments:

Investment in equity securities listed on the SSE – Stated at fair value Unlisted equity securities	At 30 June 2009 RMB’000 230,174 30,622 260,796	At 31 December 2008 RMB’000 139,447 440
		139,887

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

– 136 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. BILLS AND ACCOUNTS PAYABLE

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

1-90 days 91-180 days 181-365 days 1-2 years	At 30 June 2009 RMB’000 452,725 188,359 76,915 25,329 743,328	At 31 December 2008 RMB’000 469,740 177,404 132,576 130,407
		910,127

22. DEFERRED TAXATION

Balance at 1 January, 2008 Exchange re-alignment Charge to reserve (Charge) credit to income for the year Balance at 31 December, 2008 and 1 January, 2009 Acquisition of Hua Ju Energy Exchange re-alignment Charge to reserve (Charge) credit to income for the period (note 10) Balance at 30 June, 2009	Available– for-sale investment RMB’000 (86,726) – 67,409 –	Accelerated Tax depreciation RMB’000 (200,154) – – (39,192)	Fair value adjustment on mining rights RMB’000 (39,474) – – 1,513	Temporary differences on expenses recognized RMB’000 – – – 225,125	Tax losses RMB’000 31,175 (8,347) – 44,086	Cash flow hedge reserve RMB’000 – – 8,831 –	Total RMB’000 (295,179) (8,347) 76,240 231,532
	(19,317) – – (22,682) –	(239,346) – (6,904) – 9,044	(37,961) – – – 757	225,125 2,017 – – 188,076	66,914 – 11,790 – –	8,831 – – (28,883) –	4,246 2,017 4,886 (51,565) 197,877
	(41,999)	(237,206)	(37,204)	415,218	78,704	(20,052)	157,461

The analysis of deferred tax balances in the financial statements is as follows:

Deferred tax assets Deferred tax liabilities	At 30 June 2009 RMB’000 199,962 (42,501) 157,461	At 31 December 2008 RMB’000 46,023 (41,777)
		4,246

There was no material unprovided deferred tax for the period or at the balance sheet date.

– 137 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. SHAREHOLDERS’ EQUITY

Share capital

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

Number of shares At 31 December, 2008 and 30 June, 2009 Registered, issued and fully paid (RMB’000) At 31 December, 2008 and 30 June, 2009	Domestic invested shares State legal person Shares (held by the Parent Company) A shares 2,600,000,000 360,000,000 2,600,000 360,000	Foreign invested shares H shares (including H share represented by ADS) Total 1,958,400,000 4,918,400,000 1,958,400 4,918,400	Foreign invested shares H shares (including H share represented by ADS) Total 1,958,400,000 4,918,400,000 1,958,400 4,918,400
			4,918,400

Each share has a par value of RMB1.

There is no movement in share capital during the period.

Reserves

Future Development Fund

Pursuant to regulation in the PRC, the Company and Shanxi Tianchi are required to transfer an annual amount to future development specific fund at RMB6 per tonne of raw coal mined. The fund can only be used for the future development of the coal mining business and is not available for distribution to shareholders.

Shanxi Tianchi is required to transfer an additional amount at RMB15 per tonne of raw coal mined from 2008 onwards as coal mine transformation fund and mine arrears environmental restoration fund.

Pursuant to the regulations of the Shandong Province Finance Bureau, State-owned Assets Supervision and Administration Commission of Shandong Province and the Shandong Province Coal Mining Industrial Bureau, the Company is required to transfer an additional amount at RMB5 per tonne of raw coal mined from 1 July, 2004 to the reform specific development fund for the future improvement of the mining facilities and is not available for distribution to shareholders. No further transfer to the reform specific development fund is required from 1 January, 2008.

In accordance with the regulations of the State Administration of Work Safety, the Group has a commitment to incur RMB8 for each tonne of raw coal mined from 1 May, 2004 which will be used for enhancement of safety production environment and improvement of facilities (Work Safety Cost). In prior years, the work safety expenditures are recognized only when acquiring the fixed assets or incurring other work safety expenditures. The Company and Shanxi Tianchi make appropriation to the future development fund in respect of unutilized Work Safety Cost from 2008 onwards.

– 138 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In accordance with the regulations of the State Administration of Work Safety, as one of the subsidiaries of the Group, Hua Ju Energy has a commitment to incur Work Safety Cost at the rate of: 4% of the sales income for the year below RMB10 million; 2% of the actual sales income for the year between 10 million and 100 million (included); 0.5% of the actual sales income for the year between RMB10,000 and RMB100,000(included); 0.2% of the actual sales income for the year above RMB1 billion.

The unutilized Work Safety Cost at 30 June, 2009 was RMB279,798,000.

Statutory Common Reserves Fund

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

• to make good losses in previous years; or

• to convert into capital, provided such conversion is approved by a resolution at a shareholders’ general meeting and the balance of the statutory common reserve fund does not fall below 25% of the registered capital.

Retained earnings

In accordance with the Company’s Articles of Association, the profit for the purpose of appropriation will be deemed to be the lesser of the amounts determined in accordance with (i) PRC accounting standards and regulations and (ii) IFRS or the accounting standards of the places in which its shares are listed.

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

The Company’s distributable reserve as at 30 June, 2009 is the retained earnings computed under PRC GAAP which amounted to approximately RMB13,108,434,000 (as at 31 December, 2008: RMB13,250,081,000, as restated with the adoption of new accounting standards under PRC GAAP).

24. ACQUISATION OF HUA JU ENERGY

On 24 October, 2008, the Company entered into an acquisition agreement with the Parent Company and conditionally agreed to acquire 74% equity interest in Hua Ju Energy. On 18 February, 2009, the acquisition was completed and the consideration of RMB593,243,000 was fully paid to the Parent Company to acquire 74% equity interest of Hua Ju Energy. The net assets acquired were included in the methanol, electricity and heat supply segment.

This acquisition has been accounted for using the purchase method.

– 139 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The net assets of Hua Ju Energy acquired in 2009, and the goodwill arising, are as follows:

Bank balances and cash Bills and accounts receivable Inventories Prepayment and other receivables Other current assets Property, plant and equipment Prepaid lease payment Available-for-sale financial assets Deferred tax liability Accounts payable Customer’s deposit and other payables Other current liabilities Total net assets acquired Minority interests Goodwill arising on acquisition Total consideration satisfied by: Cash consideration paid on acquisition Net cash outflow arising on acquisition: Cash paid on acquisition Bank balances and cash acquired

Fair Value RMB‘000 4,567 2,129 3,611 79,563 25,246 755,213 74,652 30,182 2,017 (64,760) (263,297) (120,000) 529,123 (137,572) 201,692 593,243 593,243 (593,243) 4,567 (588,676)

There is no significant difference between the carrying value and the fair value of net assets of Hua Ju Energy.

Goodwill arising from acquisition of Hua Ju Energy is mainly because this acquisition can establish an electricity management platform for the Group and is beneficial to the future development of coal resources of the Group. It also ensures stable supply of electricity to the Group, reduce operating costs, and enhance profitability and operating results. It further ensures environmental disposal of waste products such as coal gangue produced from the Group’s mining operations.

During the period from the acquisition date/the beginning period date to 30 June, 2009, this transaction does not have any material impact on the revenue and operating results of the Group.

25. RELATED PARTY TRANSACTIONS

The amounts due to 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 30 June, 2009 included the present value of outstanding balance that arose from the funding of the acquisition of the mining rights of Jining III as of 1 January, 2001 discounted using the market rate of bank borrowings.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The consideration for the cost of the mining rights of approximately RMB132.479million is to be settled over ten years by equal annual installments before 31 December of each year, commencing from 2001.

Amounts due to Parent Company and its subsidiary companies: Within one year More than one year, but not exceeding two years Total Less: amount due within one year Amount due after one year	At 30 June 2009 RMB’000 683,169 3,626	At 31 December 2008 RMB’000 706,328 7,253
	686,795 (683,169)	713,581 (706,328)
	3,626	7,253

Except for the outstanding consideration as described above, the amounts due to Parent Company and its subsidiary companies have no specific terms of repayment but is expected to be repaid within one year.

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

Income Sales of coal Sales of electricity and heat Sales of auxiliary materials Expenditure Utilities and facilities Purchases of supply materials and equipment Repairs and maintenance services Social welfare and support services Technical support and training Road transportation services Construction services	Six months ended 30 June 2009 2008 RMB’000 RMB’000 614,964 586,853 102,612 – 151,379 202,609 9,948 184,054 219,884 204,828 70,937 101,361 202,625 103,350 13,000 10,000 36,185 43,876 78,014 37,524	Six months ended 30 June 2009 2008 RMB’000 RMB’000 614,964 586,853 102,612 – 151,379 202,609 9,948 184,054 219,884 204,828 70,937 101,361 202,625 103,350 13,000 10,000 36,185 43,876 78,014 37,524
		184,054 204,828 101,361 103,350 10,000 43,876 37,524

Certain expenditures for social welfare and support services (excluding medical and child care expenses) of RMB134,300,000 and RMB82,950,000 for each of the six months ended 30 June, 2009 and 2008 respectively, and for technical support and training of RMB13,000,000and RMB10,000,000 for each of the six months ended 30 June, 2009 and 2008 respectively, have been charged by the Parent Company at a negotiated amount per annum, subject to changes every year.

During the period, the Company acquired Hua Ju Energy from the Parent Company. Details of this acquisition are set out in note 24.

In addition to the above, the Company participates in a retirement benefit scheme of the Parent Company in respect of retirement benefits (note 27) .

– 141 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

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

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

Trade sales Trade purchases	Six months ended 30 June 2009 2008 RMB’000 RMB’000 2,308,403 4,229,998 113,456 386,649	Six months ended 30 June 2009 2008 RMB’000 RMB’000 2,308,403 4,229,998 113,456 386,649
		386,649

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

Amounts due from other state-controlled entities Amounts due to other state-controlled entities	At 30 June 2009 RMB’000 79,318 157,575	At 31 December 2008 RMB’000 364,420
		294,888

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

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

Compensation of key management personnel

The remuneration of directors and other members of key management were as follows:

Directors’ fee Salaries, allowance and other benefit in kind Retirement benefit scheme contributions	Six months ended 30 June 2009 2008 RMB’000 RMB’000 217 417 2,175 1,281 385 208 2,777 1,906	Six months ended 30 June 2009 2008 RMB’000 RMB’000 217 417 2,175 1,281 385 208 2,777 1,906
		1,906

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

– 142 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. COMMITMENTS

	At 30	At 31
	June	December
	2009	2008
	RMB’000	RMB’000
Capital expenditure contracted for but not provided in the financial
statements in respect of acquisition of property, plant and equipment	170,727	142,399

Pursuant to the regulations issued by the Shandong Province Finance Bureau, the Group has to pay a deposit to the relevant government authority, which secured for the environmental protection work done by the Company. As at 30 June, 2009, the Company is committed to further make security deposit of RMB797,000,000.

27. RETIREMENT BENEFITS

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

Pursuant to the Provision of Insurance Fund Administrative Services Agreement entered into by the Company and the Parent Company on 7 November, 2008, the monthly contribution rate is set at 20% (45% for the period ended 30 June, 2008) of the total monthly basic salaries and wages of the Company’s employees for the period from 1 January, 2009 to 31 December, 2011. Retirement pension and other welfare benefits will be provided by the Parent Company on the actual cost basis, which will be reimbursed by the Company after actual payment made by the Parent Company (included in 45% contribution rate in pension scheme for the period ended 30 June, 2008).

The Company’s subsidiaries are participants in a state-managed retirement scheme pursuant to which the subsidiaries pay a fixed percentage of the qualifying staff’s wages as a contribution to the scheme. The subsidiaries’ financial obligations under this scheme are limited to the payment of the employees’ contribution. During the period, contributions paid and payable by the subsidiaries pursuant to this arrangement were insignificant to the Group.

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

28. HOUSING SCHEME

The Parent Company is responsible for providing accommodation to its employees and the employees of the Company. The Company and the Parent Company share the incidental expenses relating to the accommodation at a negotiated amount for each of the six months ended 30 June, 2009 and 2008. Such expenses, amounting to RMB82,500,000 and RMB43,100,000 for each of the six months ended 30 June, 2009 and 2008, have been included as part of the social welfare and support services expenses summarized in note 25.

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

29. POST BALANCE SHEET EVENT

On 13 August 2009, the Company signed a binding Scheme Implementation Agreement with Felix Resources Limited (Felix), a corporation incorporated in Australia with shares listed on the Australian Securities Exchange, to acquire all the shares of Felix in cash of approximately AUD3,333 million (equivalent to approximately RMB18.951billion). The principal activities of Felix are exploring and extracting coal resources, operating, identifying, acquiring and developing resource related projects that primarily focus on coal in Australia.

– 143 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The implementation of the transaction is conditional upon the satisfaction or waiver of the conditions specified in the Scheme Implementation Agreement, which include but are not limited to obtaining the approvals of the shareholders, the Federal Court of Australia and PRC relevant regulatory authorities in respect of the transaction. As at the date of issue of this financial report, the transaction has not yet been completed.

– 144 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

1. FINANCIAL SUMMARY

The following is a summary of the results of Felix Group for each of the years ended 30 June 2007, 2008 and 2009, and the balance sheets of Felix Group as at 30 June 2007, 2008 and 2009.

The balance sheets and results of Felix Group as at and for each of the years ended 30 June 2007, 2008 and 2009 were extracted from the annual reports of Felix for the respective years. The balance sheet of Felix Group as at 30 June 2008 has been restated in the comparative information presented in its financial statements for the year ended 30 June 2009 as a result of a reclassification of deferred tax assets and deferred tax liabilities amounting to A$7,929,000.

There was no qualified or modified opinion in the auditor’s report on the consolidated financial statements of Felix for each of the years ended 30 June 2007, 2008 and 2009.

Consolidated results

Revenue Profit before income tax Income tax expense Profit attributable to: Equity holders of Felix Minority interests	Year ended 30 June 2007 2008 2009 A$’000 A$’000 A$’000 241,469 451,870 755,548 49,758 254,279 368,840 2,599 65,819 101,222 46,957 188,261 267,428 202 199 190

– 145 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

Consolidated balance sheets

ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Other assets Total current assets Non-current assets Trade and other receivables Investments accounted for using the equity method Derivative financial instruments Property, plant and equipment Deferred tax assets Intangible assets Exploration and evaluation assets Total non-current assets Total assets	As at 30 June 2007 2008 A$’000 A$’000 17,460 237,093 36,440 72,779 22,861 31,812 1,150 3,546 38,490 47,614	As at 30 June 2007 2008 A$’000 A$’000 17,460 237,093 36,440 72,779 22,861 31,812 1,150 3,546 38,490 47,614	2009 A$’000 338,626 61,162 45,071 – 51,640
	116,401 ------------ 7,084 204 131 195,883 72,302 231,152 13,797	392,844 ------------ 10,435 187 70 197,864 27,597 194,519 17,908	496,499 ------------ 11,669 208 – 270,244 13,953 189,263 25,694
	520,553 ------------ ----------------------- 636,954 ------------	448,580 ------------ ----------------------- 841,424 ------------	511,031 ------------ ----------------------- 1,007,530 ------------

– 146 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Trade and other payables Interest bearing liabilities Derivative financial instruments Current tax liabilities Provisions Total current liabilities Non-current liabilities Trade and other payables Interest bearing liabilities Derivative financial instruments Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Capital and reserves Contributed equity Reserves (Accumulated losses)/retained profits Parent entity interest Minority interests Total equity	As at 30 June 2007 2008 A$’000 A$’000 36,708 55,759 17,432 20,856 – 16,416 162 19,134 1,121 608	As at 30 June 2007 2008 A$’000 A$’000 36,708 55,759 17,432 20,856 – 16,416 162 19,134 1,121 608	2009 A$’000 65,994 19,921 4,504 83,852 566
	55,423 ------------ 4,417 82,905 – 86,529 5,481	112,773 ------------ 4,372 70,367 21,804 77,454 7,163	174,837 ------------ 5,419 31,506 – 76,688 7,042
	179,332 ------------ ----------------------- 234,755 ------------ ----------------------- 402,199	181,160 ------------ ----------------------- 293,933 ------------ ----------------------- 547,491	120,655 ------------ ----------------------- 295,492 ------------ ----------------------- 712,038
	444,378 6,681 (52,189) 398,870 3,329	444,833 (19,280) 118,410 543,963 3,528	445,370 16,172 246,778
			708,320 3,718
	402,199	547,491	712,038

– 147 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

2. AUDITED FINANCIAL STATEMENTS

The following is an extract of the audited financial statements of Felix Group for the year ended 30 June 2009, which are prepared in accordance with the Australian Accounting Standards which complies with the International Financial Reporting Standards, as extracted from the annual report of Felix for the year ended 30 June 2009.

Income statements

For the year ended 30 June 2009

Notes Revenue 4 Other income 5 Changes in coal inventory Raw materials and consumables used Employee benefits expense Depreciation and amortisation expense 6 Transportation expense Contractual services and plant hire expense Government royalties expense Changes in overburden in advance All other operating expenses Finance costs 6 Share of net profits/(losses) of associates accounted for using the equity method Profit/(loss) before income tax Income tax (expense)/revenue 8 Profit for the year from continuing operations	Consolidated 2009 2008 $’000 $’000 755,548 451,870 18,269 124,331 10,654 8,372 (83,533) (67,031) (67,568) (45,366) (31,374) (28,639) (64,171) (63,289) (104,376) (88,966) (56,646) (25,277) 5,074 7,521 (8,755) (10,709) (4,303) (8,521) 21 (17)	Consolidated 2009 2008 $’000 $’000 755,548 451,870 18,269 124,331 10,654 8,372 (83,533) (67,031) (67,568) (45,366) (31,374) (28,639) (64,171) (63,289) (104,376) (88,966) (56,646) (25,277) 5,074 7,521 (8,755) (10,709) (4,303) (8,521) 21 (17)	The Company 2009 2008 $’000 $’000 275,078 5,579 – 250 – – (141) (53) (9,037) (5,156) (375) (369) – – (3,560) (3,027) – – – – (2,328) (648) (945) (1,157) – – 258,692 (4,581) 845 42,247 259,537 37,666	The Company 2009 2008 $’000 $’000 275,078 5,579 – 250 – – (141) (53) (9,037) (5,156) (375) (369) – – (3,560) (3,027) – – – – (2,328) (648) (945) (1,157) – – 258,692 (4,581) 845 42,247 259,537 37,666
	368,840 (101,222)	254,279 (65,819)	258,692 845	(4,581 42,247
	267,618	188,460	259,537

– 148 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Notes Profit is attributable to: Members of Felix Resources Limited 29(b) Minority interest Basic earnings per share 40 Diluted earnings per share 40 Dividends paid per share 31	Consolidated 2009 2008 $’000 $’000 267,428 188,261 190 199 267,618 188,460 Cents Cents 136.18 95.92 136.01 95.85 73.00 9.00	The Company 2009 2008 $’000 $’000 259,537 37,666 – – 259,537 37,666	The Company 2009 2008 $’000 $’000 259,537 37,666 – – 259,537 37,666
			37,666

These financial statements should be read in conjunction with the accompanying notes.

– 149 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Balance sheets

As at 30 June 2009

Notes ASSETS Current assets Cash and cash equivalents 9 Trade and other receivables 10 Inventories 12 Derivative financial instruments 11 Other assets 13 Total current assets Non-current assets Trade and other receivables 14 Investments accounted for using the equity method 15 Derivative financial instruments 11 Other financial assets 16 Property, plant and equipment 17 Deferred tax assets 19 Intangible assets 20 Exploration and evaluation assets 18 Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables 21 Interest bearing liabilities 22 Derivative financial instruments 11 Current tax liabilities Provisions 23 Total current liabilities	Consolidated 2009 2008 $’000 $’000 338,626 237,093 61,162 72,779 45,071 31,812 – 3,546 51,640 47,614	Consolidated 2009 2008 $’000 $’000 338,626 237,093 61,162 72,779 45,071 31,812 – 3,546 51,640 47,614	The Company 2009 2008 $’000 $’000 251,430 109,476 194,310 83,452 – – – – 62 31	The Company 2009 2008 $’000 $’000 251,430 109,476 194,310 83,452 – – – – 62 31
	496,499 11,669 208 – – 270,244 13,953 189,263 25,694 511,031 1,007,530 65,994 19,921 4,504 83,852 566 174,837	392,844 10,435 187 70 – 197,864 27,597 194,519 17,908 448,580 841,424 55,759 20,856 16,416 19,134 608 112,773	445,802 24,225 – – 241,393 1,766 799 236 – 268,419 714,221 132,840 8,642 – 83,856 – 225,338	192,959
				20,748 – – 241,393 752 5,535 301 –
				268,729
				461,688
				58,197 3,509 – 18,935 –
				80,641

– 150 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Notes Non-current liabilities Trade and other payables 24 Interest bearing liabilities 25 Derivative financial instruments 11 Deferred tax liabilities 26 Provisions 27 Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity 28 Reserves 29(a) Retained profits/Accumulated losses) 29(b) Parent entity interest Minority interest 30 Total equity	Consolidated 2009 2008 $’000 $’000 5,419 4,372 31,506 70,367 – 21,804 76,688 77,454 7,042 7,163 120,655 181,160 295,492 293,933 712,038 547,491	Consolidated 2009 2008 $’000 $’000 5,419 4,372 31,506 70,367 – 21,804 76,688 77,454 7,042 7,163 120,655 181,160 295,492 293,933 712,038 547,491	The Company 2009 2008 $’000 $’000 2,148 2,679 – 8,642 – – 131 323 – – 2,279 11,644 227,617 92,285 486,604 369,403 445,370 444,833 707 4,520 40,527 (79,950) 486,604 369,403 – – 486,604 369,403	The Company 2009 2008 $’000 $’000 2,148 2,679 – 8,642 – – 131 323 – – 2,279 11,644 227,617 92,285 486,604 369,403 445,370 444,833 707 4,520 40,527 (79,950) 486,604 369,403 – – 486,604 369,403
	445,370 16,172 246,778 708,320 3,718	444,833 (19,280) 118,410 543,963 3,528	445,370 707 40,527 486,604 –	444,833 4,520 (79,950
				369,403 –
	712,038	547,491	486,604

These financial statements should be read in conjunction with the accompanying notes.

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FINANCIAL INFORMATION OF FELIX

Statements of changes in equity

For the year ended 30 June 2009

Notes Total equity at the beginning of the financial year Cash flow hedges: Losses taken to equity 29 Transferred to profit 29 Deferred and current tax 29 Net income, expenses and transfers recognised directly in equity Profit for the year Total recognised income and expense for the year Share-based payment expense 29 Transactions with equity holders in their capacity as equity holders: Options exercised during the year 28 Dividends paid during the year 31 Total equity at the end of the financial year Total recognised income and expense for the year is attributable to: Members of Felix Resources Limited Minority interest	Consolidated 2009 2008 $’000 $’000 547,491 402,199	Consolidated 2009 2008 $’000 $’000 547,491 402,199	The Company 2009 2008 $’000 $’000 369,403 350,530 – (1,065) – (967) – 610 – (1,422) 259,537 37,666 259,537 36,244 1,009 135 – 156 (143,345) (17,662) (142,336) (17,371) 486,604 369,403 259,537 36,244 – – 259,537 36,244	The Company 2009 2008 $’000 $’000 369,403 350,530 – (1,065) – (967) – 610 – (1,422) 259,537 37,666 259,537 36,244 1,009 135 – 156 (143,345) (17,662) (142,336) (17,371) 486,604 369,403 259,537 36,244 – – 259,537 36,244
	(19,868) 75,960 (16,827) 39,265 267,618	(12,370) (24,482) 11,055 (25,797) 188,460	– – – – 259,537	(1,065 (967 610
				(1,422 37,666
	306,883	162,663	259,537
	1,009 – (143,345)	135 156 (17,662)	1,009 – (143,345)	135 156 (17,662
	(142,336) 712,038	(17,371) 547,491	(142,336) 486,604
	306,693 190	162,464 199	259,537 –	36,244 –
	306,883	162,663	259,537

These financial statements should be read in conjunction with the accompanying notes.

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Cash flow statements

For the year ended 30 June 2009

Notes Cash flows from operating activities Receipts from customers Payments to suppliers and employees Cash (paid)/received on forward foreign exchange contracts Cash received on coal swap contracts Interest received Interest paid Income taxes paid Net cash inflow/(outflow) from operating activities 39 Cash flows from investing activities Payments for property, plant and equipment Payments for intangible assets Proceeds from sale of property, plant and equipment Proceeds from sale of 20% of Moolarben Joint Venture 42 Payments for exploration and evaluation activities 18 Advances (to)/from other entities Advances from controlled entities Advances to associated entities Advances to directors Repayment of advances to a former director Payment of deferred Minerva purchase consideration Dividends received Net cash (outflow)/inflow from investing activities	Consolidated 2009 2008 $’000 $’000 885,433 381,460 (408,176) (307,675) (111,308) 23,515 60,440 – 16,678 5,385 (4,083) (8,318) (40,453) (163)	Consolidated 2009 2008 $’000 $’000 885,433 381,460 (408,176) (307,675) (111,308) 23,515 60,440 – 16,678 5,385 (4,083) (8,318) (40,453) (163)	The Company 2009 2008 $’000 $’000 2,976 1,821 (7,911) (8,349) – – – – 7,638 3,330 (725) (953) (40,062) – (38,084) (4,151) (1,222) (578) (103) (157) 2 – – – – – – – 63,475 125,095 – – – – – – (500) – 265,240 – 326,892 124,360	The Company 2009 2008 $’000 $’000 2,976 1,821 (7,911) (8,349) – – – – 7,638 3,330 (725) (953) (40,062) – (38,084) (4,151) (1,222) (578) (103) (157) 2 – – – – – – – 63,475 125,095 – – – – – – (500) – 265,240 – 326,892 124,360
	398,531 (87,371) (441) 19,684 – (8,073) (6,083) – (2,205) (1,802) 1,705 (500) – (85,086)	94,204 (15,045) (157) 212 177,863 (5,932) 4,703 – (2,791) – – – – 158,853	(38,084) (1,222) (103) 2 – – – 63,475 – – – (500) 265,240 326,892	(4,151
				(578 (157 – – – – 125,095 – – – – –
				124,360

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FINANCIAL INFORMATION OF FELIX

Notes Cash flows from financing activities Proceeds from issues of shares and other equity securities Repayment of borrowings Payment of finance lease liabilities Dividends paid 31 Net cash outflows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 9	Consolidated 2009 2008 $’000 $’000 – 156 (59,000) (8,000) (9,567) (7,918) (143,345) (17,662) (211,912) (33,424) 101,533 219,633 237,093 17,460 338,626 237,093	The Company 2009 2008 $’000 $’000 – 156 (3,500) (3,500) (9) (5) (143,345) (17,662) (146,854) (21,011) 141,954 99,198 109,476 10,278 251,430 109,476

These financial statements should be read in conjunction with the accompanying notes.

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APPENDIX II

Notes to the financial statements

30 June 2009

1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial report covers the consolidated entity of Felix Resources Limited (“Felix”) and its controlled entities and Felix as an individual parent entity. Felix is a listed public company limited by shares, incorporated and domiciled in Australia. This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. It is prepared on the basis of historical costs, except for derivative financial instruments and available-for-sale financial assets that have been measured at fair value. The financial report is presented in Australian dollars.

All values in the financial report are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the company under ASIC Class Order 98/100. The Company is an entity to which the class order applies.

The financial report also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

No new Australian Accounting Standards that have been issued but are not yet effective have been applied in the preparation of this financial report. Such standards are not expected to have a material impact on the consolidated entity’s financial report on initial application. The financial report was authorised for issue by the Board of Directors on 28 August 2009.

The following is a summary of the material accounting policies adopted by the consolidated entity in the preparation of the financial report. The accounting policies have been consistently applied to all the years presented, unless otherwise stated.

(a) Principles of consolidation

A controlled entity is any entity controlled by Felix. Control exists where Felix has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with Felix to achieve the objectives of Felix. A list of controlled entities is contained in note 36 to the financial statements.

All inter-company balances and transactions between entities in the consolidated entity, including any unrealised profits or losses, have been eliminated on consolidation.

Minority interests in the equity and results of entities that are controlled are shown as a separate item in the consolidated financial report. Losses applicable to the minority interest in a consolidated subsidiary are allocated against the majority except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. If in future years the subsidiary reports profits, such profits are allocated to the majority interest until the minority’s share of losses previously absorbed by the majority have been recovered.

Where an entity began or ceased to be controlled during the year the results for that entity are only included from the date control commenced or up to the date control ceased.

Associates are those entities over which the consolidated entity exercises significant influence, but not control. Investments in associates are accounted for in Felix’s financial statements using the cost method and in the consolidated financial statements using the equity method, after initially being recognised at cost. Under this method, the consolidated entity’s share of the post-acquisition profits or losses of associates is recognised in the consolidated income statement, and its share of post-acquisition movements in reserves is recognised in consolidated reserves. The cumulative post– acquisition movements are adjusted against the carrying amount of the investments.

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When the consolidated entity’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the consolidated entity does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

(b) Income tax

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rate expected to apply when the assets are recovered or the liabilities settled, based on those tax rates which are enacted or substantively enacted in each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. An exception is also made in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, and deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

Felix and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the Tax Consolidation regime. Felix is responsible for recognising the current tax assets and liabilities for the tax consolidated group. Each entity in the tax consolidated group recognises its own deferred tax assets and liabilities, except where the deferred tax assets relate to unused tax losses and credits, in which case Felix recognises the assets. The group has entered into a tax sharing agreement whereby each company in the group contributes to the income tax payable in proportion to their contribution to the profit before tax of the tax consolidated group. The tax consolidated group has also entered into a tax funding agreement whereby each entity in the group can recognise their balance of the current tax assets and liabilities through inter-entity accounts.

(c) Cash and cash equivalents

For the purpose of the cash flow statement, cash and cash equivalents includes:

• (i) cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts; and

• (ii) investments in short-term money market instruments with maturity periods of less than 3 months.

(d) Financial assets and financial liabilities

The consolidated entity classifies its financial assets and liabilities in to the categories listed below, with the allocation depending on the purpose the asset or liability was acquired.

(i) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Note 1(e) provides further information on loans and receivables.

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• (ii) Financial assets at fair value through profit or loss

Financial assets at fair value through the profit or loss are financial assets held for trading. Derivatives are classified as held for trading unless they are designated as hedges. Other financial assets are classified as held or trading if acquired principally for the purpose of selling in the short-term. Note 1(x) provides further information on derivatives.

• (iii) Available-for-sale financial assets

Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other financial asset categories. Note 1(j) provides further information on investments classified as available-for-sale.

• (iv) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss comprises ‘out-of-the-money’ derivatives.

• (v) Financial liabilities measured at amortised cost

Financial liabilities measured at amortised cost comprises trade and other payables, and interest bearing liabilities. Note 1(p) provides further information on interest bearing liabilities.

Details on financial risk management are disclosed in note 2.

(e) Loans and receivables

Trade receivables, loans and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

Debts which are known to be uncollectible are written-off by reducing the carrying amount directly. A provision for impairment is made when there is objective evidence that the full amount is not collectible. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the impairment provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.

The amount of the impairment loss is recognised in the income statement. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written-off against the provision account.

(f) Advances to controlled entities

Advances by the Company to controlled entities (refer to note 14) are principally contributions toward exploration and evaluation expenditure, research and development expenditure and mine development. The value and recoverability of these amounts is related to the Company’s policies with regards to exploration and evaluation expenditure as described in note 1(m), and research and development expenditure as described in note 1(l). Should the underlying asset values be insufficient to recover the advances the amounts are reviewed for impairment.

(g) Inventories

Coal stocks are stated at the lower of cost and net realisable value. Costs are assigned on a weighted average basis and include direct materials, direct labour and an appropriate proportion of variable and fixed overheads. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

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(h) Overburden in advance

Overburden in advance comprises the accumulation of expenses incurred to enable access to the coal seams, and includes direct removal costs, machinery and plant running costs.

(i) Property, plant and equipment

Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and accumulated impairment losses. The carrying amount of freehold land and buildings and plant and equipment is reviewed to ensure it is not in excess of the recoverable amount from these assets.

The depreciable amount of all fixed assets, including buildings and capitalised leased assets, but excluding freehold land, is depreciated on a straight-line or declining balance basis to allocate their cost, net of their residual values, over their estimated useful lives to the consolidated entity commencing from the time the asset is held ready for use, as follows:

Buildings	10-25 years
Mine development	10-25 years
Plant and equipment	2.5-25 years
Leased plant and equipment	2.5-18 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

(j) Investments

All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investment. After initial recognition, investments in shares in listed companies classified as available-for-sale are measured at fair value. Fair value for shares in listed companies is determined by reference to the Australian Securities Exchange quoted market bid prices at the close of business on the reporting date. Gains and losses on these available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement.

Investments in shares in unlisted companies, which do not have a quoted market price and whose fair value cannot be reliably measured, are classified as available-for-sale and are measured at cost. Gains and losses are recognised in the income statement when the investments are derecognised or impaired.

Investments in controlled entities are carried in the parent entity’s financial statements at the lower of cost and recoverable amount. Investments in associates are accounted for in the consolidated financial statements as set out in note 1(a).

(k) Interests in joint ventures

The consolidated entity’s share of the assets, liabilities, revenue and expenses of joint venture operations are included in the appropriate items of the consolidated financial statements. Details of the consolidated entity’s interests are shown in note 38.

(l) Intangible assets

• (i) Mining tenements

Mining tenements have a finite useful life and are carried at cost less, where applicable, any accumulated amortisation and accumulated impairment losses. The carrying values of mining tenements are reviewed to ensure they are not in excess of their recoverable amounts. The recoverable amount is assessed on the basis described in note 1(o).

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FINANCIAL INFORMATION OF FELIX

Amortisation of mining tenements commences from the date when commercial production commences, or in the case of the acquisition of the Ashton Coal Project, from the date of acquisition, and is charged to the income statement. Mining tenements are amortised over the life of the mine using a straight-line basis (Yarrabee has 2.5 years life remaining for amortisation purposes), or on the basis of JORC reserves extracted as follows.

	$/Tonne
	Extracted
Minerva	$0.24
Ashton	$0.64

Changes in the annual amortisation rate resulting from changes in the remaining JORC reserves or life of mine are applied on a prospective basis from the commencement of the next financial year.

(ii) Computer software

Computer software has a finite useful life and is carried at cost less, where applicable, any accumulated amortisation and accumulated impairment losses. The carrying values of computer software are reviewed to ensure they are not in excess of their recoverable amounts. The recoverable amount is assessed on the basis described in note 1(o).

Amortisation of computer software is calculated using the straight-line or declining balance method to allocate the cost over the period of the expected benefit, which varies from 2.5 to 4 years.

(iii) Research and development

Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads (including depreciation on property, plant and equipment). Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Capitalised development costs have a finite useful life and are carried at cost less, where applicable, any accumulated amortisation and accumulated impairment losses. The carrying value of capitalised development costs are reviewed to ensure they are not in excess of their recoverable amounts. The recoverable amount is assessed on the basis described in note1(o).

Amortisation of capitalised development costs is calculated using the straight-line or declining balance method to allocate the costs over the period of the expected benefit.

(iv) Rail access rights

Rail access rights have a finite useful life and are carried at cost less, where applicable, any accumulated amortisation and accumulated impairment losses. The carrying values of rail access rights are reviewed to ensure they are not in excess of their recoverable amounts. The recoverable amount is assessed on the basis described in note 1(o).

Rail access rights are amortised over the life of the mine or agreement using a unit of production basis in tonnes for the Minerva mine or on a straight-line basis. The remaining estimated economically recoverable reserves of the Minerva mine at 30 June 2009 are 26.2 million tonnes.

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(m) Exploration and evaluation expenditure

Exploration and evaluation expenditure incurred is accumulated in respect of each separately identifiable area of interest. These costs are only carried forward where the right of tenure for the area of interest is current and to the extent that they are expected to be recouped through successful development and commercial exploitation, or alternatively, sale of the area, or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing.

The carrying amount of exploration and evaluation assets is assessed for impairment when facts or circumstances suggest the carrying amount of the assets may exceed their recoverable amount. The recoverable amount is assessed on the basis described in note 1(o).

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Accumulated costs in relation to an abandoned area are written-off in full in the period in which the decision to abandon the area is made.

When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves.

(n) Acquisition of assets

All assets acquired, including property, plant and equipment and intangibles other than goodwill are initially recorded at their cost of acquisition at the date of acquisition, being the fair value of consideration provided plus incidental costs directly attributable to the acquisition.

When equity instruments are issued as consideration, their market price at the date of acquisition is used as their fair value, except where the notional price at which they could be placed in the market is a better indication of their fair value.

Where settlement of any part of cash consideration is deferred, the amounts payable are recorded at their present value, discounted at the rate applicable to the consolidated entity as if a similar borrowing were obtained from an independent financier under comparable terms and conditions. The unwinding of the discount is treated as a finance cost.

(o) Recoverable amount of assets and impairment

At each reporting date, the consolidated entity assesses whether there is any indication that an asset may be impaired. Where an indication of impairment exists, the consolidated entity makes a formal estimate of the recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. W here the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. The amount of the impairment loss is recognised in the income statement.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. W here it is not possible to estimate the recoverable amount of an individual asset, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs.

(p) Interest bearing liabilities

Interest bearing liabilities are initially recorded at fair value, net of transaction costs. Subsequent to initial recognition, interest bearing liabilities are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in the income statement over the period of the interest bearing liabilities using the effective interest rate method.

All interest bearing liabilities are classified as current liabilities unless the consolidated entity has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.

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(q) Borrowing costs

Borrowing costs incurred during the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are recognised as an expense when incurred.

(r) Leases

Leases of fixed assets where substantially all the risks and benefits incidental to ownership of the assets, but not the legal ownership, are transferred to the entities in the consolidated entity, are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the lower of the fair value of the leased property plus transaction costs incurred or the present value of the minimum lease payments, including any guaranteed residual value. Leased assets are depreciated on a straight-line basis over their estimated useful lives where it is likely that the consolidated entity will obtain ownership of the assets or over the shorter of the asset’s useful life and the term of the lease. Lease payments are allocated between the reduction of the lease liability and lease finance charges for the year.

The net gains arising on the sale of an asset and the leasing back of the same asset using a finance lease, are included as deferred income in the balance sheet and are released to the income statement on a straight-line basis over the term of the lease.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses on a straight-line basis over the term of the lease.

(s) Employee benefits

• (i) Annual leave, sick leave and long service leave

Benefits accruing to employees in respect of wages and salaries, annual leave and sick leave are included in trade and other payables. Related on-costs are also included in trade and other payables as other creditors. Long service leave is provided for when it is probable that settlement will be required and it is capable of being measured reliably.

Employee benefits expected to be settled within 12 months are measured using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to the reporting date.

• (ii) Retirement benefit obligations

Contributions are made by the consolidated entity to defined contribution superannuation funds and are charged as expenses when incurred.

(iii) Share-based payments

The consolidated entity provides benefits to Directors, other key management personnel and general managers of the consolidated entity in the form of share-based payment transactions, whereby Directors, other key management personnel and general managers render services in exchange for options to purchase shares in the Company. The cost of these share-based payment transactions is measured by reference to the fair value at the date at which they are granted. Fair values at grant date are determined using a trinomial or binomial option pricing model that takes into account the exercise price, the life of the option, the current price of the underlying instrument, the expected price volatility of the underlying instrument, the expected dividend yield, and the risk-free interest rate for the life of the option.

The assessed fair value at grant date is recognised as an expense in the income statement, together with a corresponding increase in equity, pro-rata over the expected life of the option from grant date to expected vesting date. Upon exercise of the options, the balance in the options reserve

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APPENDIX II

is transferred to contributed equity. No expense is recognised for options that do not ultimately vest because internal conditions were not met. An expense is still recognised for options that do not ultimately vest because a market condition is not met. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.

(t) Rehabilitation

A provision for rehabilitation is recognised when there is a present obligation to rehabilitate an area disturbed, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. An asset is created as part of the current and non-current development assets, to the extent that the development relates to future production activities, which is offset by a current and non-current provision for rehabilitation.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

(u) Revenue

Revenue from the sale of coal is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery, usually on a Free On Board, Trimmed (FOBT) basis.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

Dividend revenue is recognised when the right to receive the dividend has been established.

Revenue from the rendering of a service is recognised upon the delivery of the service to the customer.

(v) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST.

The net amount of GST recoverable from or payable to the ATO is included as a current asset or liability in the balance sheet.

Cash flows are included in the cash flow statement on a gross basis. The GST components of cash flows arising from investing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

(w) Foreign currency transactions and balances

Items included in the financial statements of each entity of the consolidated entity are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Australian dollars, which is Felix’s functional and presentation currency.

Foreign currency transactions during the period are translated into the functional currency at rates of exchange applicable at the dates of each transaction. Monetary assets and liabilities denominated in foreign currencies at balance date are converted at rates of exchange ruling at that date.

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Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities, whether realised or unrealised, are recognised in the income statement as they arise except where hedging specific anticipated transactions (see note 1(x)).

The monetary assets and liabilities of foreign controlled entities are translated at year-end rates. The non-monetary assets and liabilities are translated at rates at the transaction date or at the date these items are revalued or written down. Generally operating results are translated at average monthly rates. All resulting exchange differences are recognised as a separate component of equity. On disposal of a foreign controlled entity, the cumulative amount of such exchange differences are recognised in the income statement as part of the gain or loss on sale.

(x) Derivatives

The consolidated entity uses derivative financial instruments such as forward foreign exchange contracts, coal swap contracts, and interest rate swap contracts to hedge its risks associated with foreign currency, coal price, and interest rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value at each reporting date. The resulting gain or loss arising from changes in the fair value of derivatives, except for those that qualify as cash flow hedges, is recognised in the income statement immediately.

The fair value of forward foreign exchange contracts is determined using forward foreign exchange market rates at reporting date. The fair value of coal swap contracts is determined using forward coal price market rates at reporting date. The market rates are provided by the counterparty to the derivative.

The fair value of interest rate swap contracts is calculated as the present value of the estimated future cash flows. The forward foreign exchange contracts, coal swap contracts, and interest rate swap contracts entered into by the consolidated entity are designated and qualify as cash flow hedges.

The consolidated entity documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The consolidated entity also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

The gains or losses in respect of hedge transactions which relate to future purchases or sales are deferred and included in the measurement of the purchase or sale to which they relate when the anticipated transaction occurs. Any gains or losses on the hedge transaction after that date are included in the income statement.

The net amount receivable or payable as a result of a hedge transaction is included as an asset or liability in the balance sheet from the date of inception of the hedge. The corresponding unrealised gain or loss is recognised in equity in the hedging reserve. Changes in the fair value of the forward foreign exchange contracts, coal swap contracts, or interest rate swap contracts are recognised through the hedging reserve until the anticipated underlying transaction occurs. Once the anticipated underlying transaction occurs, amounts accumulated in equity are recycled through the income statement or recognised as part of the cost of the asset to which it relates.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity and is recognised when the forecast transaction is ultimately recognised. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement for the year.

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APPENDIX II

(y) Issued capital

Costs directly attributable to the issue of new shares or options are shown as a deduction from the equity proceeds, net of any income tax benefit. Costs directly attributable to the issue of new shares or options associated with the acquisition of a business are included as part of the purchase consideration.

(z) Critical accounting estimates and other accounting judgements

The Directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group.

There have been no judgements, apart from those involving estimation, in applying accounting policies that have a significant effect on the amounts recognised in this financial report.

Following is a summary of the key assumptions concerning the future, and other key sources of estimation at reporting date that have not been disclosed elsewhere in this financial report.

(i) Impairment

The consolidated entity assesses impairment at each reporting date by evaluating conditions specific to the consolidated entity that may lead to an impairment. Where an indicator of impairment exists, the recoverable amount of the asset is determined. The value-in-use calculations performed to determine the recoverable amount of the cash generating units to which these assets belong has been based on actual operating results and a cash flow model based on life of mines. The pre-tax discount rate applied in the model is 10.0%. Coal prices used in the model have been determined based on an analysis of long-term market price trends and estimated future foreign currency rates. Note 11 provides further information on the consolidated entity’s exposure to foreign currency risk.

No impairment has been recognised in respect of mine development assets, mining tenements, rail access rights or exploration and evaluation assets where the related area of interest is being or has been developed, for the reporting period.

(ii) Amortisation

The amortisation of mine development assets, mining tenements, rail access rights, exploration and evaluation assets where the related area of interest is being or has been developed, and the expensing of overburden removal costs is based on saleable coal production over estimated economically recoverable reserves. The amount of reserves that may actually be mined in the future and the consolidated entity’s estimate of reserves from time to time in the future may vary from current reserve estimates.

(aa) Earnings per share

• (i) Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to the members of Felix by the weighted average number of ordinary shares outstanding during the financial year.

(ii) Diluted earnings per share

Earnings used to calculate diluted earnings per share are calculated by adjusting the basic earnings by the after-tax effect of dividends and interest associated with dilutive potential ordinary shares. The weighted average number of shares used is adjusted for the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

(ab) Comparative figures

When required by accounting standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

2 FINANCIAL RISK MANAGEMENT

The consolidated entity undertakes transactions in a range of financial instruments including:

• (i) cash and cash equivalents;

• (ii) trade & other receivables;

• (iii) payables;

• (iv) interest bearing liabilities, including bank loans and finance leases; and

• (v) derivatives.

The consolidated entity’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.

The Board of Directors has overall responsibility for determining risk management objectives and policies and risk management is carried out by a central treasury department. The Board provides written principles for overall risk management, as well as policies covering specific areas such as, investment of excess liquidity, and the use of derivative financial instruments to mitigate foreign exchange risk, price risk, and interest rate risk. These derivative instruments create an obligation or right that effectively transfers one or more of the risks associated with an underlying financial instrument, asset or obligation. Derivatives are used exclusively for hedging purposes i.e. not as trading or other speculative instruments. Derivative transactions are entered into to hedge the risks relating to underlying physical positions arising from business activities.

The overall objective of the Board is to set policies that seek to reduce risk as far as possible and reduce volatility on financial performance without unduly affecting competitiveness and flexibility. Further details regarding these policies are set out below.

(a) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates (currency risk), coal prices (price risk) or interest rates (interest rate risk).

(i) Foreign exchange risk

The consolidated entity operates entirely in Australia and its costs are primarily denominated in its functional currency, the Australian dollar. Export coal sales are denominated in US dollars. A strengthening of the Australian dollar against the US dollar has an adverse impact on earnings and cash flow. Some plant and equipment purchases are denominated in currencies other than the Australian dollar. A weakening of the Australian dollar against those other currencies has an adverse impact on earnings and cash flow.

Foreign exchange risk that arises from firm commitments or highly probable transactions are managed principally through the use of forward foreign currency derivatives. The consolidated entity hedges a proportion of these transactions (such as contracted US dollar sales and asset purchases settled in foreign currencies) in each currency in accordance with the Board’s risk management policy.

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

The consolidated entity’s exposure to foreign exchange risk at the reporting date is set out below.

Trade receivables Trade payables Forward foreign exchange contracts – buy foreign currency (cash flow hedges) – sell foreign currency (cash flow hedges) Net exposure	30 June 2009 USD EUR $’000 €’000 29,298 – (16) – 33,517 14,271 – – 62,799 14,271	YEN ¥’000 – – 1,638,641 – 1,638,641	30 June 2008 USD EUR $’000 €’000 54,976 – (1,155) – – 2,428 (62,766) – (8,945) 2,428	YEN ¥’000 – – 268,073 –
				268,073

The Company was not exposed to foreign exchange risk at the reporting date.

Consolidated entity sensitivity analysis

Based on the financial instruments held at 30 June 2009, and a year-end spot rate of $0.8114 (2008: $0.9626), had the Australian dollar weakened/strengthened by 5% against the US dollar with all other variables held constant, the consolidated entity’s post-tax profit for the year would have been $1,330,000 higher/$1,204,000 lower (2008: $2,104,000 higher/ $1,904,000 lower), mainly as a result of foreign exchange gains/losses on translation of US denominated financial instruments as detailed in the table above. Profit is less sensitive to movements in the Australian dollar/US dollar exchange rates in 2009 than 2008 because of the decreased amount of US dollar denominated receivables. Equity (Hedging reserve) would have been $1,234,000 higher/$1,117,000 lower (2008: $2,339,000 lower/$2,195,000 higher) had the Australian dollar weakened/strengthened by 5% against the US dollar, arising from forward foreign exchange contracts designated as cash flow hedges. Equity is less sensitive to movements in the Australian dollar/US dollar exchange rates in 2009 than 2008 because of the decreased amount of sell US dollar forward foreign exchange contracts and the increased amount of buy US dollar forward foreign exchange contracts.

Based on the financial instruments held at 30 June 2009, and a year-end spot rate of €0.5751 (2008: €0.6096), had the Australian dollar weakened/strengthened by 5% against the Euro with all other variables held constant, equity (Hedging reserve) would have been $741,000 higher/$671,000 lower (2008: $153,000 higher/$138,000 lower), arising mainly on forward foreign exchange contracts designated as cash flow hedges. Equity is more sensitive to movements in the Australian dollar/Euro exchange rates in 2009 than 2008 because of the increased amount of buy Euro forward foreign exchange contracts.

Based on the financial instruments held at 30 June 2009, and a year-end spot rate of ¥77.7600 (2008: ¥101.9300, had the Australian dollar weakened/strengthened by 5% against the Yen with all other variables held constant, equity (Hedging reserve) would have been $588,000 higher/$557,000 lower (2008: $118,000 higher/$107,000 lower). Equity is more sensitive to movements in the Australian dollar/Yen exchange rates in 2009 than 2008 because of the increased amount of buy Yen forward foreign exchange contracts. The Company sensitivity analysis

The Company’s post-tax profit for the year and equity is unaffected by foreign exchange

risk.

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

(ii) Price risk

The consolidated entity is exposed to price risk on the coal it produces and sells on the world market in US dollars. The majority of coal sales are made to major customers with the prices negotiated annually. The remainder of coal sales are sold at the spot market price, or sold under long-term fixed prices.

Price risk that arises from firm commitments or highly probable transactions are managed principally through the use of forward coal price derivatives. The consolidated entity hedges a proportion of these transactions (such as contracted US dollar sales) in accordance with the Board’s risk management policy. These cash flow hedges balance the exposure to changes in the market price of coal by fixing the price. The Board’s policy assumes that at the time when coal sales contracts are entered into that the contracted price will approximate to the current price of the market index that the coal swap contracts are linked to. The Board’s policy requires that an offsetting coal swap contract is entered into at the same time that the coal sales contract price is agreed to. Currently, no additional coal price hedging is being entered into due to the low coal prices.

The consolidated entity’s exposure to price risk is detailed in note 11.

Consolidated entity sensitivity analysis

The consolidated entity’s post-tax profit for the year and equity is unaffected by coal price risk. Based on the financial instruments held at 30 June 2008, and the counterparties market valuation US$172.90 per tonne, had the coal price weakened/strengthened by 10% with all other variables held constant, the consolidated entity’s equity would have been $9,050,000 higher/$9,050,000 lower, arising from coal swap contracts designated as cash flow hedges. The consolidated entity’s post-tax profit would not have been affected had the coal price weakened/strengthened by 10%.

The Company sensitivity analysis

The Company’s post-tax profit for the year and equity is unaffected by coal price risk.

(iii) Cash flow and fair value interest rate risk

The consolidated entity and the Company are subject to interest rate risk that arises from borrowings. Borrowings issued at variable rates expose the consolidated entity and the Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the consolidated entity and the Company to fair value interest rate risk if they are carried at fair value. The consolidated entity and the Company invest surplus cash in interest bearing deposits with banks and financial institutions. Investments at variable rates expose the consolidated entity and the Company to cash flow interest rate risk. Investments at fixed rates expose the consolidated entity and the Company to fair value interest rate risk if they are carried at fair value.

Interest rate risk that arises from borrowings is managed generally by borrowing at floating interest rates. The consolidated entity hedges a proportion of borrowings issued at variable interest rates through the use of floating-to-fixed interest rate swap contracts when required under borrowing agreements.

The consolidated entity and the Company’s fixed rate borrowings and receivables are carried at amortised cost. They are therefore not subject to fair value interest rate risk.

The consolidated entity’s exposure to cash flow interest rate risk from investments at the reporting date was $88,143,000 (2008: $65,039,000). The consolidated entity’s exposure to cash flow interest rate risk from borrowings at the reporting date was $2,305,000 (2008: $56,923,000).

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

The effective interest rates of financial assets and financial liabilities of the consolidated entity at the reporting date are set out below.

2009

(i) Financial assets Current Cash and cash equivalents Secured director loan – interest bearing (ii) Financial liabilities Current Bank loans Lease liabilities Non-current Lease liabilities Loan from other entity	Floating balance $’000 88,143 – 88,143	Weighted average effective interest rate Fixed balance Floating Fixed $’000 % % 250,472 2.73 3.50 1,802 N/A 10.45 252,274 7,613 4.56 6.00 11,296 N/A 8.96 30,213 N/A 8.56 – 5.11 N/A 49,122
	1,012 – – 1,293	7,613 11,296 30,213 –
	2,305

2008

(i) Financial assets Current Cash and cash equivalents Secured director loan – interest bearing (ii) Financial liabilities Current Bank loans Lease liabilities Non-current Bank loans Lease liabilities	Floating balance $’000 63,334 1,705 65,039	Weighted average effective interest rate Fixed balance Floating Fixed $’000 % % 173,751 6.67 8.15 – 11.75 N/A 173,751 2,077 9.36 6.00 8,337 N/A 10.23 8,625 9.39 6.00 15,261 N/A 8.09 34,300
	10,442 – 46,481 –	2,077 8,337 8,625 15,261
	56,923

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

Sensitivity analysis

Set out in the tables below is a sensitivity analysis for the consolidated entity and the Company that shows what effect there would be on post-tax profit and equity if interest rates had changed by -/+ 100 basis points (100 basis points equals 1%) from the year-end rates with all other variables held constant. The carrying amounts disclosed below do not include items which have fixed interest rates.

Consolidated

30 June 2009 Carrying amount $’000 Financial assets Cash and cash equivalents 88,143 Financial liabilities Bank loans – current 1,012 Loan from other entity 1,293 Tax charge of 30% Total increase/(decrease) Consolidated 30 June 2008 Carrying amount $’000 Financial assets Cash and cash equivalents 63,334 Secured director loan 1,705 Financial liabilities Bank loans – current 10,442 Bank loans – non-current 46,481 Tax charge of 30% Total increase/(decrease)	Interest rate risk -100 basis points +100 basis points Profit Other equity Profit Other equity $’000 $’000 $’000 $’000 (881) – 881 – 10 – (10) – 13 – (13) – 258 – (258) – (600) – 600 – Interest rate risk -100 basis points +100 basis points Profit Other equity Profit Other equity $’000 $’000 $’000 $’000 (633) – 633 – (17) – 17 – 104 – (104) – 465 – (465) – 24 – (24) – (57) – 57 –	Interest rate risk -100 basis points +100 basis points Profit Other equity Profit Other equity $’000 $’000 $’000 $’000 (881) – 881 – 10 – (10) – 13 – (13) – 258 – (258) – (600) – 600 – Interest rate risk -100 basis points +100 basis points Profit Other equity Profit Other equity $’000 $’000 $’000 $’000 (633) – 633 – (17) – 17 – 104 – (104) – 465 – (465) – 24 – (24) – (57) – 57 –
		–

– 169 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

The Company

30 June 2009 Carrying amount $’000 Financial assets Cash and cash equivalents 61,393 Financial liabilities Bank loans – current 1,012 Tax charge of 30% Total increase/(decrease) The Company 30 June 2008 Carrying amount $’000 Financial assets Cash and cash equivalents 19,222 Financial liabilities Bank loans – current 1,423 Tax charge of 30% Total increase/(decrease)	Interest rate risk -100 basis points +100 basis points Profit Other equity Profit Other equity $’000 $’000 $’000 $’000 (614) – 614 – 10 – (10) – 181 – (181) – (423) – 423 – Interest rate risk -100 basis points +100 basis points Profit Other equity Profit Other equity $’000 $’000 $’000 $’000 (192) – 192 – 14 – (14) – 53 – (53) – (125) – 125 –	Interest rate risk -100 basis points +100 basis points Profit Other equity Profit Other equity $’000 $’000 $’000 $’000 (614) – 614 – 10 – (10) – 181 – (181) – (423) – 423 – Interest rate risk -100 basis points +100 basis points Profit Other equity Profit Other equity $’000 $’000 $’000 $’000 (192) – 192 – 14 – (14) – 53 – (53) – (125) – 125 –
		–

(b) Credit risk

Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted.

Credit risk arises from cash and cash equivalents, forward foreign exchange contracts, coal swap contracts and interest rate swap contracts, as well as credit exposures to customers. In respect of credit risk on derivatives, refer to note 11(b). In respect to cash deposits, the consolidated entity only invests with accounts that have a Standard and Poor’s credit rating of A-1+. The Commonwealth Bank of Australia (CBA) is the major counterparty for derivatives and cash and cash equivalents. CBA has an overall Standard and Poor’s credit rating of AA.

Credit risk in trade receivables is managed in the following ways:

• (i) payment terms are set for individual customers;

• (ii) a risk assessment process is used for all customers; and

• (iii) letters of credit are required for those customers assessed as posing a higher risk.

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

The maximum exposure to credit risk on financial assets which have been recognised in the balance sheet is their carrying amount less impairment provision as set out below.

Cash and cash equivalents Trade and other receivables Derivative financial instruments	Consolidated 2009 2008 $’000 $’000 338,626 237,093 72,831 83,214 – 3,616 411,457 323,923	The Company 2009 2008 $’000 $’000 251,430 109,476 218,535 104,200 – – 469,965 213,676	The Company 2009 2008 $’000 $’000 251,430 109,476 218,535 104,200 – – 469,965 213,676
			213,676

Included in trade and other receivables are significant customers located in China, Japan and South Korea that account for 36%, 27% and 15% of trade receivables respectively at 30 June 2009 (2008: 0%, 40% and 41%).

(c) Liquidity risk

Liquidity risk includes the risk that, as a result of operational liquidity requirements, the consolidated entity will be impacted in the following ways:

• (i) will not have sufficient funds to settle a transaction on the due date;

• (ii) will be forced to sell financial assets at a value which is less than what they are worth; or

• (iii) may be unable to settle or recover a financial asset at all.

Liquidity risk is managed by maintaining sufficient cash and liquid deposit balances and having readily accessible standby facilities in place in accordance with the Board’s risk management policy. Details regarding finance facilities are set out in note 25.

Maturities of financial liabilities

The tables below analyse the consolidated entity and the Company’s financial liabilities in to maturity groupings based on the remaining period at the reporting date to the contractual maturity date. Refer to note 11(a) for the contractual maturity of derivatives. Refer to note 34 for the contractual maturity of finance leases. The amounts presented represent the future undiscounted principal and interest cash flows and therefore do not necessarily equate to the carrying amounts.

Consolidated – At 30 June 2009

Trade creditors Other creditors Bank loans Deferred Minerva payment Unsecured loan – non-interest bearing Loan from other entity Total	Less than 6 months $’000 52,487 3,289 2,255 250 1,693 34 60,008	6 – 12 months $’000 – – 7,328 250 – 38 7,616	Between 1 and 3 years $’000 – – – 1,000 – 1,337 2,337	Over 3 years $’000 – – – 2,000 – – 2,000	Total contractual cash flows $’000 52,487 3,289 9,583 3,500 1,693 1,409 71,961	Carrying amount $’000 52,487 3,289 8,625 2,648 1,693 1,293
						70,035

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

Consolidated – At 30 June 2008

Trade creditors Other creditors Bank loans Deferred Minerva payment Unsecured loan – non-interest bearing Total	Less than 6 months $’000 44,959 6,222 9,651 – 1,693 62,525	6 – 12 months $’000 – – 9,682 250 – 9,932	Between 1 and 3 years $’000 – – 35,968 1,000 – 36,968	Over 3 years $’000 – – 29,025 2,750 – 31,775	Total contractual cash flows $’000 44,959 6,222 84,326 4,000 1,693 141,200	Carrying amount $’000 44,959 6,222 67,625 2,929 1,693
						123,428

The Company – At 30 June 2009

Trade creditors Other creditors Bank loans Deferred Minerva payment Total The Company – At 30 Trade creditors Other creditors Bank loans Deferred Minerva payment Total	Less than 6 months $’000 768 219 2,255 250 3,492 June 2008 Less than 6 months $’000 890 32 2,329 – 3,251	6 – 12 months $’000 – – 7,328 250 7,578 6 – 12 months $’000 – – 2,259 250 2,509	Between 1 and 3 years $’000 – – – 1,000 1,000 Between 1 and 3 years $’000 – – 9,488 1,000 10,488	Over 3 years $’000 – – – 2,000 2,000 Over 3 years $’000 – – – 2,750 2,750	Total contractual cash flows $’000 768 219 9,583 3,500 14,070 Total contractual cash flows $’000 890 32 14,076 4,000 18,998	Carrying amount $’000 768 219 8,625 2,648
						12,260
						Carrying amount $’000 890 32 12,125 2,929
						15,976

3 SEGMENT INFORMATION

For the years ended 30 June 2009 and 2008, the consolidated entity operated predominately in one business and one geographic segment. The consolidated entity operated predominately in Australia. The industry in which the consolidated entity operated was the exploration for and extraction of coal resources.

– 172 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

4 REVENUE

From continuing operations Sales revenue Sale of coal (Loss)/gain on forward foreign exchange contracts Gain on coal swap contracts Total sales revenue Other revenue Rendering of services: Management fees Marketing fees Interest received – other parties Dividends from related parties (note 35) Rents and sub-lease rentals Total other revenue Total revenue	Consolidated 2009 2008 $’000 $’000 807,450 416,070 (111,308) 24,482 35,349 –	Consolidated 2009 2008 $’000 $’000 807,450 416,070 (111,308) 24,482 35,349 –	The Company 2009 2008 $’000 $’000 – – – 967 – –	The Company 2009 2008 $’000 $’000 – – – 967 – –
	731,491 6,416 1,240 16,226 – 175 24,057	440,552 2,946 816 7,404 – 152 11,318	– – 2,022 7,816 265,240 – 275,078	967
				– 1,282 3,330 – –
				4,612
	755,548	451,870	275,078	5,579

• 5 OTHER INCOME

Foreign exchange gains (net) Government grants Disposal of 20% interest in Moolarben Joint Venture (note 42) Other income Total other income	Consolidated 2009 2008 $’000 $’000 13,206 – 970 – – 123,657 4,093 674 18,269 124,331	The Company 2009 2008 $’000 $’000 – – – – – – – 250 – 250	The Company 2009 2008 $’000 $’000 – – – – – – – 250 – 250
			250

– 173 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

6 EXPENSES

Profit/(loss) before income tax includes the following specific expenses: Depreciation Buildings Plant and equipment Mine development Less: capitalised depreciation Total depreciation Amortisation Leased plant and equipment Exploration and evaluation Mining tenements Rail access rights Computer software Less: capitalised amortisation Total amortisation Total depreciation and amortisation Finance costs Finance lease charges Finance lease charges – related parties (note 32) Other interest charges Finance costs expensed	Consolidated 2009 2008 $’000 $’000 534 368 10,918 10,141 6,195 5,296 (45) – 17,602 15,805	Consolidated 2009 2008 $’000 $’000 534 368 10,918 10,141 6,195 5,296 (45) – 17,602 15,805	The Company 2009 2008 $’000 $’000 – – 198 209 – – – – 198 209	The Company 2009 2008 $’000 $’000 – – 198 209 – – – – 198 209
				209
	7,701 287 4,642 933 245 (36)	7,078 314 4,665 621 156 –	9 – – – 168 –	4 – – – 156 –
	13,772 31,374	12,834 28,639	177 375	160
				369
	2,005 192 2,106	1,922 494 6,105	1 – 944	1 – 1,156
	4,303	8,521	945	1,157

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

Net loss on disposal of property, plant and equipment Rental expense relating to operating leases minimum lease payments Net foreign exchange losses Defined contribution superannuation expense Significant expenses Demurrage Net increase in impairment of controlled entity advances (note14) Loss/(gain) on forward foreign exchange contracts Significant profits Net gain on disposal of 20% of Moolarben Joint Venture (note 42) Dividends from related parties Gain on coal swap contracts Foreign exchange gains (net) 7 OPERATING PROFIT Reconciliation of profit/(loss) before income tax to operating profit/(loss) Profit/(loss) before income tax Net gain on disposal of 20% of Moolarben Joint Venture (note 42) Net loss on disposal of 28.7% of Athena Joint Venture Operating profit/(loss)	Consolidated 2009 2008 $’000 $’000 12 14 1,928 1,552 – 247 4,515 2,798 3,641 6,347 – – 111,308 (24,482) – 123,657 – – 35,349 – 13,206 – Consolidated 2009 2008 $’000 $’000 368,840 254,279 – (123,657) – 34 368,840 130,656	The Company 2009 2008 $’000 $’000 – – 491 290 6 1 521 309 – – 6,833 101 – (967) – – 265,240 – – – – – The Company 2009 2008 $’000 $’000 258,692 (4,581) – – – – 258,692 (4,581)

– 175 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

8 INCOME TAX

(a) Income tax recognised in profit Current tax Deferred tax Origination and reversal of temporary differences Benefit of tax losses recognised Over provision in prior years Total income tax expense/(revenue) (b) Numerical reconciliation of income tax expense/(revenue) to prima facie tax payable Profit/(loss) from continuing operations before income tax expense Income tax at the rate of 30% (2008: 30%) Increase/(decrease) in income tax expense/(revenue) due to: Non-deductible expenses Non-taxable dividends Non-deductible share-based payments Research and development concession Other deductible expenses Over provision in prior years Prior year tax losses not previously recognised Income tax expense attributable to the wholly-owned subsidiaries in the tax consolidated group Recovery of income tax expense under tax sharing agreement Total income tax expense/(revenue) Effective tax rate	Consolidated 2009 2008 $’000 $’000 100,815 79,526 4,643 (7,208) – – (4,236) (6,499) 101,222 65,819	Consolidated 2009 2008 $’000 $’000 100,815 79,526 4,643 (7,208) – – (4,236) (6,499) 101,222 65,819	The Company 2009 2008 $’000 $’000 (5,715) (1,890) 5,317 520 – (40,877) (447) – (845) (42,247) 258,692 (4,581) 77,608 (1,374) 2,111 248 (79,572) – 303 41 – – (848) (285) (398) (1,370) (447) – – (40,877) (845) (42,247) 110,390 85,178 (110,390) (85,178) (845) (42,247) –0.3% 922.2%	The Company 2009 2008 $’000 $’000 (5,715) (1,890) 5,317 520 – (40,877) (447) – (845) (42,247) 258,692 (4,581) 77,608 (1,374) 2,111 248 (79,572) – 303 41 – – (848) (285) (398) (1,370) (447) – – (40,877) (845) (42,247) 110,390 85,178 (110,390) (85,178) (845) (42,247) –0.3% 922.2%
	368,840 110,652 150 – 303 (5,323) (324) 105,458 (4,236) – 101,222 – –	254,279 76,284 290 – 41 (3,964) (333) 72,318 (6,499) – 65,819 – –	258,692 77,608 2,111 (79,572) 303 – (848) (398) (447) – (845) 110,390 (110,390)	(4,581
				(1,374 248 – 41 – (285
				(1,370 – (40,877
				(42,247 85,178 (85,178
	101,222 27.4%	65,819 25.9%	(845) –0.3%

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

Consolidated The Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

(c) Amounts recognised directly in equity

Aggregate current and deferred tax arising in the reporting period and not recognised in net profit or loss but directly debited or

credited to equity is set out below.

Changes in derivative financial instruments Current tax Net deferred tax Unrecognised deferred tax balances Tax losses attributable to members of the tax consolidated group – revenue Tax losses attributable to subsidiaries not members of the tax consolidated group – revenue Tax losses attributable to subsidiaries not members of the tax consolidated group – capital Potential tax benefit at 30%	7,527 9,300 16,827	(290) (10,765) (11,055)	– – –	(290) (320) (610) – – – –
	– 10,521 1,703	4,087 9,821 1,703	– – –	– – –
	12,224	15,611	–

(d) Unrecognised deferred tax balances

There is no expiry date on the future deductibility of unused tax losses. The benefit of revenue losses of $3,622,000 (2008: $3,622,000) and capital losses of $1,703,000 (2008: $1,703,000) are not recognised until it is probable that the subsidiary will earn future taxable amounts that will enable it to utilise these tax losses. The benefit of revenue losses of $6,899,000 (2008: $10,286,000) are not recognised until it is probable that the subsidiary will be able to utilise these tax losses.

(e) Tax consolidation legislation

For the purposes of taxation, Felix Resources Limited and its 100% owned Australian subsidiaries are a tax consolidated group. The head entity of the tax consolidated group is Felix Resources Limited. Felix is responsible for recognising the current tax assets and liabilities for the tax consolidated group. Each entity in the tax consolidated group recognises its own deferred tax assets and liabilities, except where the deferred tax assets relate to unused tax losses and credits, in which case Felix recognises the assets.

The group has entered into a tax sharing agreement whereby each company in the group contributes to the income tax payable in proportion to their contribution to the profit before tax of the tax consolidated group. The tax consolidated group has also entered into a tax funding agreement whereby each entity in the group can recognise their balance of the current tax assets and liabilities through inter-entity accounts. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is remote.

– 177 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

9 CURRENT ASSETS – CASH AND CASH EQUIVALENTS

Cash at bank and on hand Short-term deposits	Consolidated 2009 2008 $’000 $’000 14,052 5,844 324,574 231,249 338,626 237,093	The Company 2009 2008 $’000 $’000 306 1,134 251,124 108,342 251,430 109,476	The Company 2009 2008 $’000 $’000 306 1,134 251,124 108,342 251,430 109,476
			109,476

(a) Reconciliation to cash at the end of the year

The above figures are reconciled to cash at the end of the financial year as shown in the cash flow statement as follows:

Balances as above Balances per cash flow statement	338,626 338,626	237,093 237,093	251,430 251,430	109,476
				109,476

(b) Effective interest rate risk

Information concerning the effective interest rate of cash and cash equivalents is set out in note 2.

(c) Short-term deposits

Short-term deposits at 30 June 2009 include $100,000,000 (2008: N/A) in a security deposit account. These funds are mortgaged in favour of the counterparty as security for a portion of the finance lease facility. Short-term deposits at 30 June 2008 included $26,750,324 in the proceeds account as part of the Ashton Underground Syndicated Facility Agreement (SFA). Further information concerning the finance leases and the SFA are set out in note 25.

(d) Fair value

Due to the short-term nature of the deposits, their carrying amount is assumed to approximate their fair value.

10 CURRENT ASSETS – TRADE AND OTHER RECEIVABLES

Trade receivables Receivable from controlled entities Other debtors Secured director loan – interest bearing Secured loan – interest bearing Receivables from other entities	Consolidated 2009 2008 $’000 $’000 42,153 66,922 – – 7,959 4,152 1,802 – – 1,705 9,248 – 61,162 72,779	The Company 2009 2008 $’000 $’000 763 420 192,160 81,789 1,387 1,243 – – – – – – 194,310 83,452	The Company 2009 2008 $’000 $’000 763 420 192,160 81,789 1,387 1,243 – – – – – – 194,310 83,452
			83,452

– 178 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

(a) Past due but not impaired

As at 30 June 2009, the consolidated entity had trade receivables of $630,000 (2008: $7,607,000) that were past due but not impaired. As at 30 June 2009, the Company had trade receivables of $4,000 (2008: $56,000) that were past due but not impaired. The ageing analysis of these trade receivables is set out below.

< 15 days 15-30 days 30-45 days > 45 days	Consolidated 2009 2008 $’000 $’000 1 3,523 568 – 11 3,824 50 260 630 7,607	The Company 2009 2008 $’000 $’000 – – – – – 55 4 1 4 56	The Company 2009 2008 $’000 $’000 – – – – – 55 4 1 4 56
			56

The other classes within trade and other receivables do not contain impaired assets and are not past due. It is expected that these amounts will be received when due. Unless specified below, the consolidated entity does not hold any collateral in relation to these receivables.

(b) Other receivables

Included in receivables from other entities is funds of $8,347,000 (2008: $Nil) loaned to Newcastle Coal Infrastructure Group Pty Ltd, a company in which the consolidated entity has a minority shareholding. In August 2005 Newcastle Coal Infrastructure Group Pty Ltd was selected by the New South W ales government as the preferred developer and operator of a third coal loader for the port of Newcastle. The loan is non-interest bearing and unsecured and is repayable upon funding of the Stage 2 expansion project. Refer to note 14 for details on the non-current portion of this loan.

For the Company, the receivable from controlled entities represents the receivables from tax consolidated entities under the tax funding agreement, see note 8(e).

The secured director loan is to Director Mr. Brian Flannery. The terms and conditions of the loan are set out in note 32.

The secured loan was to former director Mr. John Rawlins being a secured interest bearing loan.

(c) Foreign exchange and interest rate risk

Information about the consolidated entity’s and the Company’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is set out in note 2.

(d) Fair value and credit risk

Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value.

The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above. Refer to note 2 for more information on the risk management policy of the consolidated entity and the credit quality of the entity’s trade receivables.

– 179 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

11 DERIVATIVE FINANCIAL INSTRUMENTS

Current Assets Interest rate swap contracts – receivable Forward foreign exchange contracts – receivable Non-current assets Interest rate swap contracts – receivable Current liabilities Forward foreign exchange contracts – payable Coal swap contracts – payable Non-current liabilities Coal swap contracts – payable	Consolidated 2009 2008 $’000 $’000 – 326 – 3,220 – 3,546	Consolidated 2009 2008 $’000 $’000 – 326 – 3,220 – 3,546	The Company 2009 2008 $’000 $’000 – – – – – –	The Company 2009 2008 $’000 $’000 – – – – – –
				–
	–	70	–	–
	–	70	–	–
	4,504 –	– 16,416	– –	– –
	4,504	16,416	–	–
	–	21,804	–	–
	–	21,804	–	–

(a) Instruments used by the consolidated entity

The consolidated entity uses derivative financial instruments in order to hedge exposure to fluctuations in interest rates, foreign exchange rates, and coal prices in accordance with the financial risk management policies (refer to note 2) .

(i) Forward foreign exchange contracts – cash flow hedges

The consolidated entity enters into forward foreign exchange contracts to sell or purchase specified amounts of foreign currencies in the future at stipulated exchange rates. The objective of entering into the forward foreign exchange contracts is to reduce the foreign exchange rate related volatility of the consolidated entity’s revenue stream and capital expenditure and thereby assist in risk management for the consolidated entity. Foreign currency speculation is specifically excluded. Forward foreign exchange contracts are entered for contracted future sales undertaken in foreign currencies and contracted future capital expenditure undertaken in foreign currencies.

– 180 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

The outstanding sell US$ contracts are hedging highly probable forecasted sales of coal, whereas the outstanding buy US$, Euro and Yen contracts relate to the purchase of mining equipment for Moolarben (2008: Yarrabee and Minerva respectively). The contracts are timed to mature when funds for coal sales are forecast to be received and when payments for mining equipment are scheduled to be made. At balance date, the details of the outstanding forward foreign exchange contracts are set out below. Refer to note 43(b) for post balance date forward foreign exchange contracts taken out.

Settlement Less than 6 months 6 months to 1 year Settlement Less than 6 months 6 months to 1 year Settlement Less than 6 months 6 months to 1 year Settlement Less than 6 months	Buy United States dollars 2009 2008 US$’000 US$’000 11,077 – 22,440 – 33,517 – Sell United States dollars 2009 2008 US$’000 US$’000 – 53,766 – 9,000 – 62,766 Buy Euros 2009 2008 EUR’000 EUR’000 5,781 2,428 8,490 – 14,271 2,428 Buy Japanese Yen 2009 2008 YEN’000 YEN’000 – 268,073 – 268,073	Average exchange rates 2009 2008 US$ US$ 0.7530 – 0.7530 – 0.7530 – Average exchange rates 2009 2008 US$ US$ – 0.9142 – 0.8474 – 0.9040 Average exchange rates 2009 2008 € € 0.5520 0.5973 0.5520 – 0.5520 0.5973 Average exchange rates 2009 2008 ¥ ¥ – 91.6800 – 91.6800	Average exchange rates 2009 2008 US$ US$ 0.7530 – 0.7530 – 0.7530 – Average exchange rates 2009 2008 US$ US$ – 0.9142 – 0.8474 – 0.9040 Average exchange rates 2009 2008 € € 0.5520 0.5973 0.5520 – 0.5520 0.5973 Average exchange rates 2009 2008 ¥ ¥ – 91.6800 – 91.6800
			91.6800

– 181 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

At balance date, the details of the outstanding flexible forward foreign exchange contracts are set out below.

Settlement Less than 6 months – ceiling – floor 6 months to 1 year – ceiling – floor	Buy Japanese Yen 2009 2008 YEN’000 YEN’000 816,915 – 71.7000 – 821,726 – 1,638,641 –	Average exchange rates 2009 2008 ¥ ¥ 72.7000 – 72.7000 – 71.7000 –	Average exchange rates 2009 2008 ¥ ¥ 72.7000 – 72.7000 – 71.7000 –

(ii) Coal price swap contracts – cash flow hedges

The consolidated entity enters into coal swap contracts to sell specified amounts of coal in the future at stipulated prices. The objective of entering into the coal swap contracts is to reduce the coal price related volatility of the consolidated entity’s revenue stream and thereby assist in risk management for the consolidated entity. Coal price speculation is specifically excluded. Coal swap contracts are entered for contracted future sales.

The outstanding coal swap contracts are hedging highly probable forecasted sales of coal. The contracts are timed to mature when funds for coal sales are forecast to be received. At balance date, the details of the outstanding coal swap contracts are set out below.

Settlement 6 months to 1 year 1 year to less than 2 years	Volume 2009 2008 Tonnes 000 Tonnes 000 – 300 – 420 – 720	Average coal price 2009 2008 USD USD – 121.76 – 121.76 – 121.76	Average coal price 2009 2008 USD USD – 121.76 – 121.76 – 121.76
			121.76

The gains and losses on hedges of anticipated coal sales, interest expense, and capital expenditure are recognised in the hedging reserve and the timing of their anticipated recognition as part of sales, interest expense, and capital expenditure are set out below.

Settlement Not later than 1 year 1 year to less than 2 years	Consolidated Net loss 2009 2008 $’000 $’000 21,487 (12,870) – (21,734) 21,487 (34,604)	Consolidated Net loss 2009 2008 $’000 $’000 21,487 (12,870) – (21,734) 21,487 (34,604)
		(34,604)

Details of movements in the hedging reserve are set out in note 29. There was no hedge ineffectiveness in the current or prior year.

– 182 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

(b) Credit risk exposures

Forward foreign exchange, coal swap, and interest rate swap contracts are subject to credit risk in relation to the relevant counterparties, which are principally large financial institutions. The maximum credit risk exposure is the full amount of unrealised gains on derivative financial instruments, should the counterparty fail to pay the amount which it is committed to pay the consolidated entity. The full amount of the exposure for the consolidated entity is $Nil (2008: $3,616,000) and for the Company $Nil (2008: $Nil). Further information about the consolidated entity’s and the Company’s exposure to credit risk in relation to derivatives is set out in note 2.

(c) Foreign currency, interest rate and price risk

Information about the consolidated entity’s and the Company’s exposure to foreign currency risk, price risk, and interest rate risk in relation to derivatives is set out in note 2.

(d) Fair value

The fair value of forward foreign exchange contracts is determined using forward foreign exchange market rates at reporting date. The fair value of coal swap contracts is determined using forward coal price market rates at reporting date. The market rates are provided by the counterparty to the derivative. The fair value of interest rate swap contracts is calculated as the present value of the estimated future cash flows.

12 CURRENT ASSETS – INVENTORIES

Coal – at cost Fuel – at cost Stock of spare parts – at cost Stock of tyres – at cost	Consolidated 2009 2008 $’000 $’000 39,779 27,945 173 435 2,569 820 2,550 2,612 45,071 31,812	The Company 2009 2008 $’000 $’000 – – – – – – – – – –	The Company 2009 2008 $’000 $’000 – – – – – – – – – –
			–

Inventory expense

Inventories recognised as expense during the year ended 30 June 2009 amounted to $256,462,000 (2008: $210,787,000).

13 CURRENT ASSETS – OTHER ASSETS

Prepayments Overburden – at cost	Consolidated 2009 2008 $’000 $’000 1,794 2,842 49,846 44,772 51,640 47,614	The Company 2009 2008 $’000 $’000 62 31 – – 62 31	The Company 2009 2008 $’000 $’000 62 31 – – 62 31
			31

– 183 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

14 NON-CURRENT ASSETS – TRADE AND OTHER RECEIVABLES

Advances to controlled entities Less: Accumulated impairment losses Advances to associated entities Receivables from other entities	Consolidated 2009 2008 $’000 $’000 – – – – 10,376 8,171 1,293 2,264 11,669 10,435	The Company 2009 2008 $’000 $’000 91,320 82,645 (67,095) (61,897) – – – – 24,225 20,748

(a) Terms and conditions relating to the above financial instruments

Advances to controlled entities by the Company includes a loan to White Mining Limited on acquisition to enable White Mining Limited to repay the majority of its shareholder loans.

Advances to controlled entities by the Company also includes advances to SASE Pty Ltd (SASE), South Australian Coal Corp Pty Ltd (SACC), Ballymoney Power Limited (BPL), Tonford Pty Ltd (TON), UCC Energy Pty Ltd (UCC), and an advance to Minerva Coal Pty Ltd which was acquired by the Company on purchase of Minerva Coal Pty Ltd. Details regarding the advances to associated entities are set out in note 35(e).

The receivables from other entities is expected to be received from Wiggins Island Coal Export Terminal Pty Ltd upon successful financing of the proposed new export coal terminal at W iggins Island, Gladstone. In 2008 the receivables from other entities represented funds loaned to Newcastle Coal Infrastructure Group Pty Ltd, a company in which the consolidated entity has a minority shareholding. The loan is non-interest bearing and unsecured. Details regarding the current portion of the loan and the terms and conditions of the loan are set out in note 10.

(b) Past due but not impaired

None of the non-current trade and other receivables are past due but not impaired.

(c) Impaired trade and other receivables

As at 30 June 2009 advances to controlled entities by the Company with a nominal value of $67,095,000 (2008: $61,897,000) were impaired. The impaired advances relate to the amounts receivable by the Company from SASE, SACC, TON and BPL. These amounts are principally contributions toward exploration expenditure. The value and recoverability of these amounts is related to the Company’s policies with regards to exploration and evaluation expenditure as described in note 1(m).

– 184 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

The impaired advances also includes amounts receivable by the Company from UCC Energy Pty Limited. These amounts are principally contributions towards research and development expenditure. The value and recoverability of these amounts is related to the Company’s policies with regards to research and development expenditure as described in note 1(l).

Movements in the provision for impairment of advances to controlled entities are as follows: Balance at beginning of the year Provision for impairment recognised during the year Advances written-off during the year as uncollectible Unused amount reversed	Consolidated 2009 2008 $’000 $’000 – – – – – – – – – –	The Company 2009 2008 $’000 $’000 61,897 61,796 6,833 102 (1,635) – – (1) 67,095 61,897	The Company 2009 2008 $’000 $’000 61,897 61,796 6,833 102 (1,635) – – (1) 67,095 61,897
			61,897

The creation and release of the provision for impairment of advances to controlled entities has been included in ’all other operating expenses’ in the income statement. Amounts charged to the provision account are generally written-off when there is no expectation of recovering additional cash.

(d) Risk exposure

Information about the consolidated entity’s and the Company’s exposure to credit risk, foreign exchange and interest rate risk is provided in note 2.

(e) Fair value

The carrying values of non-current receivables approximate their fair values.

15 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

(a) Interest in associates

Name of associate Principal activity Unlisted Australian Coal Processing Holdings Pty Ltd (i) Holding company Ashton Coal Mines Limited (ii) Real estate holder & sales company Australian Coal Processing Pty Ltd Dormant	Consolidated Carrying amount of investment 2009 2008 $’000 $’000 21 20 187 167 – – 208 187	Consolidated Percentage owned 2009 2008 % % 60 60 60 60 60 60	Consolidated Percentage owned 2009 2008 % % 60 60 60 60 60 60

– 185 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

Each of the above associates is incorporated in Australia. The company does not hold any investments in associates.

(i) A controlled entity of White Mining Limited (WML), White Mining (NSW) Pty Limited (WMNSW), holds 60% (2008: 60%) of the ordinary shares of Australian Coal Processing Holdings Pty Ltd. Under the shareholders agreement between WMNSW and the other shareholders, ICRA Ashton Pty Ltd (ICRA) and Austral-Asia Coal Holdings Pty Ltd (Austral), all major financial and operating policy decisions require a vote by Directors who together represent shareholders holding 100% of the shares or a vote by shareholders who together hold 100% of the shares. Therefore decisions must be passed unanimously and WMNSW’s voting power is equivalent to 33.33% (2008: 33.33%).

(ii) A controlled entity of White Mining Limited, White Mining (NSW) Pty Limited (WMNSW), holds 60% (2008: 60%) of the ordinary shares of Ashton Coal Mines Limited. Under the shareholders agreement between WMNSW and the other shareholders, ICRA Ashton Pty Ltd (ICRAA) and Austral-Asia Coal Holdings Pty Ltd (Austral), all major financial and operating policy decisions require a unanimous resolution of the shareholders. Therefore major decisions must be passed unanimously and WMNSW’s voting power is equivalent to 33.33% (2008: 33.33%).

(b) Movements in carrying amounts Carrying amount at the beginning of the financial year Return of share capital from associate Share of associates’ net profits/(losses) (note 15(c)) Carrying amount at the end of the financial year (c) Share of associates’ profits or losses Loss before income tax Income tax benefit/(expense) Profit/(loss) after income tax (note 15(b)) (d) Summarised financial information of associates Assets Liabilities Revenues (Profits)/losses	Consolidated 2009 2008 $’000 $’000 187 204 – – 21 (17) 208 187 – (12) 21 (5) 21 (17) 42,592 70,842 (42,275) (70,560) (734,960) (329,156) (36) 28	Consolidated 2009 2008 $’000 $’000 187 204 – – 21 (17) 208 187 – (12) 21 (5) 21 (17) 42,592 70,842 (42,275) (70,560) (734,960) (329,156) (36) 28
	– 21	(12 (5
	21 42,592 (42,275) (734,960) (36)

16 NON-CURRENT ASSETS – OTHER FINANCIAL ASSETS

Controlled entities – at cost (note 36) Less: Accumulated impairment losses	Consolidated 2009 2008 $’000 $’000 – – – – – –	The Company 2009 2008 $’000 $’000 256,736 256,736 (15,343) (15,343) 241,393 241,393

– 186 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

17 NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT

Consolidated – 2008 Assets under construction $’000 At 1 July 2007 Cost 111,120 Accumulated depreciation/ amortisation – Net book amount 111,120 Year ended 30 June 2008 Opening net book amount 111,120 Additions 11,069 Transfers (116,503) Disposals – Depreciation expense – Amortisation expense – Closing net book amount 5,686 At 30 June 2008 Cost 5,686 Accumulated depreciation/ amortisation – Net book amount 5,686 Consolidated – 2009 Assets under construction $’000 Year ended 30 June 2009 Opening net book amount 5,686 Additions 85,037 Transfers (52,985) Disposals – Depreciation expense – Amortisation expense – Other – Closing net book amount 37,738 At 30 June 2009 Cost 37,738 Accumulated depreciation/ amortisation – Net book amount 37,738	Consolidated – 2008 Assets under construction $’000 At 1 July 2007 Cost 111,120 Accumulated depreciation/ amortisation – Net book amount 111,120 Year ended 30 June 2008 Opening net book amount 111,120 Additions 11,069 Transfers (116,503) Disposals – Depreciation expense – Amortisation expense – Closing net book amount 5,686 At 30 June 2008 Cost 5,686 Accumulated depreciation/ amortisation – Net book amount 5,686 Consolidated – 2009 Assets under construction $’000 Year ended 30 June 2009 Opening net book amount 5,686 Additions 85,037 Transfers (52,985) Disposals – Depreciation expense – Amortisation expense – Other – Closing net book amount 37,738 At 30 June 2009 Cost 37,738 Accumulated depreciation/ amortisation – Net book amount 37,738	Freehold land & buildings $’000 14,052 (453)	Mine develop- ment Plant & equipment Leased plant & equipment Land acquisition in progress $’000 $’000 $’000 $’000 29,798 36,110 34,677 585 (7,822) (11,768) (10,416) –	Mine develop- ment Plant & equipment Leased plant & equipment Land acquisition in progress $’000 $’000 $’000 $’000 29,798 36,110 34,677 585 (7,822) (11,768) (10,416) –	Mine develop- ment Plant & equipment Leased plant & equipment Land acquisition in progress $’000 $’000 $’000 $’000 29,798 36,110 34,677 585 (7,822) (11,768) (10,416) –	Mine develop- ment Plant & equipment Leased plant & equipment Land acquisition in progress $’000 $’000 $’000 $’000 29,798 36,110 34,677 585 (7,822) (11,768) (10,416) –	Total $’000 226,342 (30,459
	111,120 111,120 11,069 (116,503) – – –	13,599 13,599 4,480 3,359 (1,385) (368) –	21,976 21,976 976 32,813 – (5,296) –	24,342 24,342 246 79,055 (63) (10,141) –	24,261 24,261 5,099 1,704 (163) – (7,078)	585 585 4,762 (585) – – –	195,883
							195,883 26,632 (157 (1,611 (15,805 (7,078
	5,686	19,685	50,469	93,439	23,823	4,762	197,864
	5,686 –	20,375 (690)	63,688 (13,219)	115,262 (21,823)	41,210 (17,387)	4,762 –	250,983 (53,119
		19,685 Freehold land & buildings $’000 19,685 436 11,345 – (534) – – 30,932	50,469 93,439 23,823 4,762 Mine develop- ment Plant & equipment Leased plant & equipment Land acquisition in progress $’000 $’000 $’000 $’000 50,469 93,439 23,823 4,762 199 7,240 27,421 – 5,068 36,311 56 – (313) (15,822) (1,503) – (6,195) (10,918) – – – – (7,701) – – – – (4,762) 49,228 110,250 42,096 –				197,864
							Total $’000 197,864 120,333 (205 (17,638 (17,647 (7,701 (4,762
							270,244
	37,738 –	32,479 (1,547)	67,527 (18,299)	142,309 (32,059)	63,714 (21,618)	– –	343,767 (73,523
	37,738	30,932	49,228	110,250	42,096	–	270,244

– 187 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

The Company – 2008 At 1 July 2007 Cost Accumulated depreciation/amortisation Net book amount Year ended 30 June 2008 Opening net book amount Additions Transfers Depreciation expense Amortisation expense Closing net book amount At 30 June 2008 Cost Accumulated depreciation/amortisation Net book amount The Company – 2009 Year ended 30 June 2009 Opening net book amount Additions Disposals Depreciation expense Amortisation expense Closing net book amount At 30 June 2009 Cost Accumulated depreciation/amortisation Net book amount	Assets under construction $’000 31 – 31	Plant & equipment $’000 583 (258) 325	Leased plant & equipment $’000 – – –	Total $’000 614 (258) 356 356 766 (157) (209) (4) 752 1,224 (472) 752 Total $’000 752 1,222 (1) (198) (9) 1,766 2,444 (678) 1,766
	31 720 (504) – –	325 46 316 (209) –	– – 31 – (4)	356 766 (157 (209 (4
	247	478	27
	247 –	946 (468)	31 (4)	1,224 (472
	247 Assets under construction $’000 247 476 – – – 723	478 Plant & equipment $’000 478 746 (1) (198) – 1,025	27 Leased plant & equipment $’000 27 – – – (9) 18
	723 –	1,690 (665)	31 (13)	2,444 (678
	723	1,025	18

– 188 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

Assets pledged as security

Included in the balance of property, plant & equipment are assets over which the charges listed in notes 22 and 25 have been granted as security.

The value of non-current assets pledged as security are: Land and buildings Mine development Plant and equipment Leased plant and equipment Assets under construction Other financial assets Net book amount	Consolidated 2009 2008 $’000 $’000 30,932 7,855 49,228 50,469 110,250 93,439 42,096 23,823 37,738 5,657 – – 270,244 181,243	The Company 2009 2008 $’000 $’000 – – – – 1,025 478 18 27 723 247 92 92 1,858 844	The Company 2009 2008 $’000 $’000 – – – – 1,025 478 18 27 723 247 92 92 1,858 844
			844

18 NON-CURRENT ASSETS – EXPLORATION AND EVALUATION ASSETS

(a) Reconciliation

Exploration and evaluation assets – at cost Opening balance Additions Disposals Closing balance Provision for write-down to recoverable amount Opening balance Amortisation expense Closing balance Net book amount	Consolidated 2009 2008 $’000 $’000 46,750 42,325 8,073 5,932 – (1,507) 54,823 46,750	Consolidated 2009 2008 $’000 $’000 46,750 42,325 8,073 5,932 – (1,507) 54,823 46,750	The Company 2009 2008 $’000 $’000 – – – – – – – –	The Company 2009 2008 $’000 $’000 – – – – – – – –
				–
	(28,842) (287)	(28,528) (314)	– –	– –
	(29,129) 25,694	(28,842) 17,908	– –	–
				–

– 189 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

(b) Areas of interest

Expenditure carried forward relates to exploration expenditure by subsidiary companies in the following areas of interest. The ultimate recoupment of this expenditure is dependent on the successful development and commercial exploitation, or alternatively, the sale, at a minimum value of book value, of these areas of interest.

Consolidated – 2008 Year ended 30 June 2008 Opening net book amount Additions Disposals Amortisation expense Closing net book amount Consolidated – 2009 Year ended 30 June 2009 Opening net book amount Additions Disposals Amortisation expense Closing net book amount	Athena $’000 208 174 (34) – 348 Athena $’000 348 794 – – 1,142	Yarrabee $’000 1,867 276 – (123) 2,020 Yarrabee $’000 2,020 401 – (79) 2,342	Ashton $’000 1,543 – – (191) 1,352 Ashton $’000 1,352 – – (208) 1,144	Moorlarben $’000 10,179 5,213 (1,473) – 13,919 Moorlarben $’000 13,919 3,756 – – 17,675	Phillipson Basin $’000 – – – – – Philipson Basin $’000 – 1,955 – – 1,955	Harrybrandt $’000 – 269 – – 269 Harrybrandt $’000 269 1,167 – – 1,436	Total $’000 13,797 5,932 (1,507) (314)
							17,908
							Total $’000 17,908 8,073 – (287)
							25,694

– 190 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

19 NON-CURRENT ASSETS – DEFERRED TAX ASSETS

The balance comprises temporary differences attributable to: Amounts recognised in profit and loss Trade and other payables Employee benefits provisions Rehabilitation provisions Property, plant and equipment Investments accounted for using the equity method Mining tenements Other intangible assets Tax losses Other Amounts recognised directly in equity Derivative financial instruments Total deferred tax assets	Consolidated 2009 2008 $’000 $’000 2,475 – 2,677 1,298 2,282 2,331 1,420 1,291 1,134 1,140 2,782 2,401 19 – 19 5,341 64 2,329	Consolidated 2009 2008 $’000 $’000 2,475 – 2,677 1,298 2,282 2,331 1,420 1,291 1,134 1,140 2,782 2,401 19 – 19 5,341 64 2,329	The Company 2009 2008 $’000 $’000 418 – 350 187 – – 8 7 – – – – 4 – 19 5,341 – –	The Company 2009 2008 $’000 $’000 418 – 350 187 – – 8 7 – – – – 4 – 19 5,341 – –
	12,872 1,081	16,131 11,466	799 –	5,535
				–
	13,953	27,597	799	5,535

20 NON-CURRENT ASSETS – INTANGIBLE ASSETS

Consolidated – 2008 At 1 July 2007 Cost Accumulated amortisation Net book amount Year ended 30 June 2008 Opening net book amount Disposals Transfers Amortisation expense Closing net book amount At 30 June 2008 Cost Accumulated amortisation Net book amount	Yarrabee mining tenement $’000 4,845 (2,131) 2,714	Minerva mining tenement $’000 7,781 (645) 7,136	Ashton mining tenement Moolarben mining tenement $’000 $’000 54,297 162,547 (4,490) – 49,807 162,547	Ashton mining tenement Moolarben mining tenement $’000 $’000 54,297 162,547 (4,490) – 49,807 162,547	Computer software $’000 545 (245) 300	Rail access rights $’000 9,241 (593) 8,648	Total $’000 239,256 (8,104
							231,152
	2,714 – – (603)	7,136 – – (579)	49,807 – – (3,483)	162,547 (31,348) – –	300 – 157 (156)	8,648 – – (621)	231,152 (31,348 157 (5,442
	2,111	6,557	46,324	131,199	301	8,027	194,519
	4,845 (2,734)	7,781 (1,224)	54,297 (7,973)	131,199 –	702 (401)	9,241 (1,214)	208,065 (13,546
	2,111	6,557	46,324	131,199	301	8,027	194,519

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Consolidated – 2009 Year ended 30 June 2009 Opening net book amount Additions Transfers Amortisation expense Closing net book amount At 30 June 2009 Cost Accumulated amortisation Net book amount The Company – 2008 At 1 July 2007 Cost Accumulated amortisation Net book amount Year ended 30 June 2008 Opening net book amount Transfers Amortisation expense Closing net book amount At 30 June 2008 Cost Accumulated amortisation Net book amount	Yarrabee mining tenement $’000 2,111 – – (603) 1,508	Minerva mining tenement $’000 6,557 211 – (642) 6,126	Ashton mining tenement Moolarben mining tenement $’000 $’000 46,324 131,199 – – – – (3,397) – 42,927 131,199	Ashton mining tenement Moolarben mining tenement $’000 $’000 46,324 131,199 – – – – (3,397) – 42,927 131,199	Computer software $’000 301 134 205 (245) 395	Rail access rights $’000 8,027 14 – (933) 7,108	Rail access rights $’000 8,027 14 – (933) 7,108
	4,845 (3,337)	7,992 (1,866)	54,297 (11,370)	131,199 –	1,234 (839)	9,256 (2,148)	208,823 (19,560
	1,508	6,126	42,927	131,199	395

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FINANCIAL INFORMATION OF FELIX

The Company – 2009 Year ended 30 June 2009 Opening net book amount Additions Amortisation expense Closing net book amount At 30 June 2009 Cost Accumulated amortisation Net book amount	Computer software $’000 301 103 (168
	236
	805 (569
	236

Security

There is a First Registered Mortgage over mining tenements owned by the consolidated entity.

21 CURRENT LIABILITIES – TRADE AND OTHER PAYABLES

Unsecured Trade payables Advances from controlled entities Other creditors Deferred Minerva payment Employee benefits Deferred income	Consolidated 2009 2008 $’000 $’000 52,487 44,959 – – 3,289 6,222 500 250 8,925 4,328 793 – 65,994 55,759	The Company 2009 2008 $’000 $’000 768 890 130,188 56,403 219 32 500 250 1,165 622 – – 132,840 58,197	The Company 2009 2008 $’000 $’000 768 890 130,188 56,403 219 32 500 250 1,165 622 – – 132,840 58,197
			58,197

Fair Value

Due to the short-term nature of these payables their carrying amount is assumed to approximate their fair value.

22 CURRENT LIABILITIES – INTEREST-BEARING LIABILITIES

Secured Bank loans Lease liabilities (note 34)	Consolidated 2009 2008 $’000 $’000 8,625 12,519 11,296 8,337 19,921 20,856	The Company 2009 2008 $’000 $’000 8,625 3,500 17 9 8,642 3,509	The Company 2009 2008 $’000 $’000 8,625 3,500 17 9 8,642 3,509
			3,509

Information about the terms and conditions relating to the above financial instruments are set out in note

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23 CURRENT LIABILITIES – PROVISIONS

Rehabilitation	Consolidated 2009 2008 $’000 $’000 566 608 566 608	The Company 2009 2008 $’000 $’000 – – – –	The Company 2009 2008 $’000 $’000 – – – –
			–

Provision for future rehabilitation of mine sites is made in accordance with note 1(t). The provision is expected to settle when the area disturbed is no longer in use or at the end of the life of the mine. The above amount represents those areas expected to be rehabilitated during the next 12 months.

Movements in provisions

Movements in current provision for rehabilitation:

	Rehabilitation	Rehabilitation
		$’000
Consolidated – 2009
Current
Carrying amount at start of year		608
Transfers (note 27)		(42)
Carrying amount at end of year		566
	Rehabilitation
		$’000
Consolidated – 2008
Current
Carrying amount at start of year		1,121
Transfers (note 27)		(513)
Carrying amount at end of year		608

24 NON-CURRENT LIABILITIES – TRADE AND OTHER PAYABLES

Deferred Minerva payment Unsecured loan – non-interest bearing Deferred income	Consolidated 2009 2008 $’000 $’000 2,148 2,679 1,693 1,693 1,578 – 5,419 4,372	The Company 2009 2008 $’000 $’000 2,148 2,679 – – – – 2,148 2,679	The Company 2009 2008 $’000 $’000 2,148 2,679 – – – – 2,148 2,679
			2,679

The fair value of trade and other payables is assumed to approximate their fair value. The carrying value of the deferred Minerva payment is based on cash flows discounted using a rate of 7.5%. The unsecured loan is repayable at call.

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25 NON-CURRENT LIABILITIES – INTEREST BEARING LIABILITIES

Secured Bank loans Lease liabilities (note 34) Loan from other entity	Consolidated 2009 2008 $’000 $’000 – 55,106 30,213 15,261 1,293 – 31,506 70,367	The Company 2009 2008 $’000 $’000 – 8,625 – 17 – – – 8,642	The Company 2009 2008 $’000 $’000 – 8,625 – 17 – – – 8,642
			8,642

(a) Terms and conditions relating to above financial instruments

Finance leases have lease terms ranging up to 7 years with some having the option to purchase the assets at completion of the lease term for the assets’ market value or contracted value. The effective interest rates implicit in the leases range from 6.9% to 12.5%. Lease liabilities are secured by charges over the leased assets. Certain leases also contain restrictions requiring notification to the lessors of any further finance leases entered into.

At 30 June 2009 bank loans represent a number of facilities as detailed below.

– Multi-option facility agreement working capital facility

A revolving cash advance facility for working capital was cancelled during the 2009 year. This facility for up to $27,400,000 consisted of a floating rate bill which at maturity could be rolled for 30, 60, 90, 120 or 180 days. Interest on the bill was charged at BBSY for the appropriate tenor plus a margin of 1.30%, for 2008 this was 9.19%. At 30 June 2008 the drawn down amount was $Nil.

Multi-option facility agreement – term debt facility

This is a loan for capital expenditure at the Minerva mine for $8,625,000 (2008: $12,125,000) and consists of a fixed rate bill in the amount of $7,613,000 (2008: $10,702,000) at a current interest rate of 6.00% (2008: 6.00%). The bill rolls quarterly with the rate fixed for the term of the loan. The facility also includes a floating rate bill of $1,012,000 (2008: $1,423,000) which at maturity can be rolled for 30, 60, 90, 120 or 180 days. Interest on the floating rate bill is charged at BBSY for the appropriate tenor plus a margin of 1.30% (2008: 1.30%), currently 4.56% (2008: 9.19%). The term debt facility matures on 30 June 2010 and principal is repayable each quarter in the amount of $875,000. At 30 June 2009, the current portion of the loan is $8,625,000 (2008: $3,500,000) and the non-current portion is $Nil (2008: $8,625,000).

Ashton underground – syndicated facility agreement

A facility for the development of the Ashton underground project was closed during the 2009 year. This facility, for $60,000,000, consisted of a floating rate bill which at maturity could be rolled for 30, 60 or 90 days. Interest on the floating rate bill was charged at BBSY for the appropriate tenor plus a margin of 0.80%, for 2008 this was 8.69%. The principal was repayable each quarter in varying amounts. The drawn down amounts were required to be held in a drawdown holding account and prior to project completion, amounts released from the drawdown holding account totalling $60,000,000 attracted an additional interest margin of 0.95% per annum. At 30 June 2008, the current portion of the loan was $9,019,000 and the non-current portion was $46,481,000.

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Gladstone Port Corporation – Loan from other entity facility

This is a facility in place to assist with the funding of the Wiggins Island Coal Export Terminal (WICET) feasibility study costs. At 30 June 2009 the non-current amount of the loan is $1,293,000 (2008: N/A). Interest on the loan is charged at BBSY for the appropriate tenor plus a margin of 1.85% (2008: N/A), at 30 June 2009 5.11% (2008: N/A). The loan is repayable in full upon commencement of the project or expiry of the facility.

(b) Security

The above loans and other banking facilities are secured by first registered company charges (mortgage debentures), first registered mortgages, fixed and floating charges, deeds of cross charges, bank guarantees and scrip liens exist over all the assets of certain entities in the consolidated entity. The terms of the charges preclude the assets being sold or being used as security for further mortgages or charges without the permission of the other holders. Certain finance leases are secured by cash deposit and it is expected this security will be released when syndication of the lease facility is in place. Refer to notes 9(c), 17 and 20 for details.

(c) Financing facilities available

At reporting date, the following financing facilities had been negotiated and were available:

Total facilities Working capital facility Term debt facility Underground syndicated facility Indemnity/guarantee facility Lease finance facility Loan from other entity facility Facilities used at balance date Term debt facility Underground syndicated facility Indemnity/guarantee facility (note 41) Lease finance facility Loan from other entity facility Facilities unused at balance date Working capital facility Indemnity/guarantee facility Lease finance facility Loan from other entity facility	Consolidated 2009 2008 $’000 $’000 – 27,400 8,625 12,125 – 55,500 27,000 27,000 191,287 23,599 2,530 – 229,442 145,624	Consolidated 2009 2008 $’000 $’000 – 27,400 8,625 12,125 – 55,500 27,000 27,000 191,287 23,599 2,530 – 229,442 145,624	The Company 2009 2008 $’000 $’000 – 27,400 8,625 12,125 – – 27,000 27,000 17 26 – – 35,642 66,551	The Company 2009 2008 $’000 $’000 – 27,400 8,625 12,125 – – 27,000 27,000 17 26 – – 35,642 66,551
				66,551
	8,625 – 10,688 41,509 1,293	12,125 55,500 14,705 23,599 –	8,625 – 8,874 17 –	12,125 – 12,892 26 –
	62,115	105,929	17,516	25,043
	– 16,312 149,778 1,237	27,400 12,295 – –	– 18,126 – –	27,400 14,108 – –
	167,327	39,695	18,126	41,508

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FINANCIAL INFORMATION OF FELIX

(d) Fair value

The carrying amounts and fair values of borrowings at balance date are:

Consolidated Bank loans – current Lease liabilities – current Bank loans – non-current Lease liabilities – non-current Loan from other entity non-current The Company Bank loans – current Lease liabilities – current Bank loans – non-current Lease liabilities – non-current	At 30 June 2009 Carrying amount Fair value $’000 $’000 8,625 8,625 11,296 11,296 – – 30,213 30,213 1,293 1,293 51,427 51,427	At 30 June 2009 Carrying amount Fair value $’000 $’000 8,625 8,625 11,296 11,296 – – 30,213 30,213 1,293 1,293 51,427 51,427	At 30 June 2008 Carrying amount Fair value $’000 $’000 12,519 12,519 8,337 8,337 55,106 55,106 15,261 15,261 – – 91,223 91,223	At 30 June 2008 Carrying amount Fair value $’000 $’000 12,519 12,519 8,337 8,337 55,106 55,106 15,261 15,261 – – 91,223 91,223
				91,223
	8,625 17 – –	8,625 17 – –	3,500 9 8,625 17	3,500 9 8,625 17
	8,642	8,642	12,151	12,151

The fair value of current borrowings equals their carrying amount, as the impact of discounting is not significant. The fair value of non-current borrowings at a floating interest rate is the same as their carrying value. The fair value of non-current borrowings at a fixed interest rate does not differ to their carrying value by a material amount.

(e) Risk exposures

Information about the consolidated entity’s and the Company’s exposure to risks arising from borrowings are set out in note 2.

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FINANCIAL INFORMATION OF FELIX

26 NON-CURRENT LIABILITIES – DEFERRED TAX LIABILITIES

The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Trade and other receivables Inventory Overburden Finance leases Mine development Mining tenements Exploration and evaluation Other intangible assets Other Amounts recognised directly in equity Derivative financial instruments Total deferred tax liabilities	Consolidated 2009 2008 $’000 $’000 1,279 892 1,765 2,891 14,954 13,432 176 67 11,110 11,455 39,812 39,966 7,547 5,372 – 88 45 2,206	Consolidated 2009 2008 $’000 $’000 1,279 892 1,765 2,891 14,954 13,432 176 67 11,110 11,455 39,812 39,966 7,547 5,372 – 88 45 2,206	The Company 2009 2008 $’000 $’000 131 323 – – – – – – – – – – – – – – – –	The Company 2009 2008 $’000 $’000 131 323 – – – – – – – – – – – – – – – –
	76,688 –	76,369 1,085	131 –	323
				–
	76,688	77,454	131	323

27 NON-CURRENT LIABILITIES – PROVISIONS

Rehabilitation	Consolidated 2009 2008 $’000 $’000 7,042 7,163 7,042 7,163	The Company 2009 2008 $’000 $’000 – – – –	The Company 2009 2008 $’000 $’000 – – – –
			–

Movements in provisions

Provision for future rehabilitation of mine sites is made in accordance with note 1(t). The provision is expected to be settled when the area disturbed is no longer in use or at the end of the life of the mine. The above amount represents those areas expected to be rehabilitated after 12 months or at the end of the life of the mine.

	Rehabilitation
	$’000
Consolidated – 2009
Non-current
Carrying amount at start of year	7,163
Additional provision recognised – charged to mine development	150
Unused amounts reversed – credited to mine development	(313)
Transfers (note 23)	42
Carrying amount at end of year	7,042

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	Rehabilitation
	$’000
Consolidated – 2008
Non-current
Carrying amount at start of year	5,481
Additional provision recognised – charged to mine development	1,169
Transfers (note 23)	513
Carrying amount at end of year	7,163

28 CONTRIBUTED EQUITY

(a) Share capital Ordinary shares Issued and fully paid up	Consolidated and the Company 2009 2008 Shares Shares 196,445,038 196,325,038 196,445,038 196,325,038	Consolidated and the Company 2009 2008 $’000 $’000 445,370 444,833 445,370 444,833	Consolidated and the Company 2009 2008 $’000 $’000 445,370 444,833 445,370 444,833
			444,833

(b) Movements in ordinary share capital:

Date Details 1 July 2007 Opening balance Options exercised during the year Transfer from options reserve on exercise of options (note 29(a)) 30 June 2008 Balance 1 July 2008 Opening balance Options exercised during the year Transfer from options reserve on exercise of options (note 29(a)) 30 June 2009 Balance	Number of shares 196,155,038 170,000 – 196,325,038	$’000 444,378 156 299
		444,833
	196,325,038 120,000 –	444,833 – 537
	196,445,038	445,370

(c) Ordinary shares

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle the holder to one vote either in person or by proxy at a meeting of the Company.

(d) Capital risk management

Total capital comprises total equity as shown in the balance sheet (including minority interest) plus total interest bearing liabilities. The consolidated entity’s and the Company’s primary objectives when managing capital are to ensure the continued ability to provide a consistent return for equity stakeholders through a combination of capital growth and distributions and to maintain an optimal capital structure to

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FINANCIAL INFORMATION OF FELIX

reduce the cost of capital. In order to achieve these objectives, the consolidated entity seeks to maintain a debt to equity ratio (gearing ratio) that balances risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the consolidated entity to meet its working capital and strategic investment needs. In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or alter the amount of debt. The gearing ratios at 30 June 2009 and 30 June 2008 were as follows:

Total borrowings (notes 22 and 25) Total equity Total capital Gearing ratio	Consolidated 2009 2008 $’000 $’000 51,427 91,223 712,038 547,491 763,465 638,714 7& 14%	The Company 2009 2008 $’000 $’000 8,642 12,151 486,604 369,403 495,246 381,554 2& 3%	The Company 2009 2008 $’000 $’000 8,642 12,151 486,604 369,403 495,246 381,554 2& 3%
			381,554
			3%

The decrease in the gearing ratio during 2009 was primarily due to the repayment of borrowings. There have been no changes in the capital management objectives during the year, nor in the items considered to be capital.

All financial covenants specified under borrowing facilities have been complied with during the year.

(e)

Share-based payments

The following options over ordinary fully paid shares existed during 2009 for the Company and the consolidated entity.

Grant Date Expiry date Exercised price Consolidated and the Company – 2009 13 December 2005 12 December 2009 (ii) $0.001 11 December 2006 10 December 2010 (iii) $0.001 1 January 2008 31 December 2011(iv) $0.001 Total Weighted average exercise price Weighted average fair value for options exercised during the year Weighted average remaining contractual life for options outstanding	Balance at start of the year Number 30,000 75,000 – 105,000 $ 0.001	Granted during the year Number – – 195,000 195,000	Exercise during the year Number (30,000) (35,000) (55,000) (120,000) $ 0.001 $ 8.32	Forfeited during the year Number – – – –	Balance at end of the year Number Vested and exercisable at end of the Number – – 40,000 – 140,000 10,000 180,000 10,000 $ 0.001 $ 0.001 2.27 years	Balance at end of the year Number Vested and exercisable at end of the Number – – 40,000 – 140,000 10,000 180,000 10,000 $ 0.001 $ 0.001 2.27 years
						10,000
						$ 0.001

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FINANCIAL INFORMATION OF FELIX

Grant Date Expiry date Exercised price Consolidated and the Company – 2008 19 November 2001 7 December 2008 (i) $ 5.20 13 December 2005 12 December 2009 (ii) $0.001 11 December 2006 10 December 2010 (iii) $0.001 Total Weighted average exercise price Weighted average fair value for options exercised during the year Weighted average remaining contractual life for options outstanding	Balance at start of the year Number 30,000 200,000 100,000 330,000 $ 0.47	Granted during the year Number – – – –	Exercise during the year Number (30,000) (115,000) (25,000) (170,000) $ 0.92 $ 7.04	Forfeited during the year Number – (55,000) – (55,000) $ 0.001	Balance at end of the year Number Vested and exercisable at end of the Number – – 30,000 – 75,000 – 105,000 – $ 0.001 2.17 years	Balance at end of the year Number Vested and exercisable at end of the Number – – 30,000 – 75,000 – 105,000 – $ 0.001 2.17 years
						–

• (i) Options exercisable upon the weighted average share price of ordinary shares in Felix measured over 10 consecutive trading days of the ASX after the grant date exceeding the hurdle price of $5.20. The options cannot be transferred, will not be quoted on the ASX and do not carry voting or dividend rights.

• (ii) Options granted under the Felix Resources Operations General Managers Equity Participation Plan. 60,000 vest immediately, 75,000 on 13 December 2006 and 2007, and 90,000 on 13 December 2008. The options are exercisable at any time from their vesting date until the expiry date or six months after the General Manager ceases to be a General Manager. The options cannot be transferred, will not be quoted on the ASX and do not carry voting or dividend rights. The weighted average fair value of $1.73 at grant date was determined using a binomial option pricing model which takes into account the exercise price, the life of the option, the current price of the underlying instrument, the expected volatility of the underlying instrument, the expected dividend yield, and the risk-free interest rate for the life of the option.

• The model inputs for options granted during 2006 included:

• (a) exercise price: $0.001

• (b) grant date: 13 December 2005

• (c) expiry date: 12 December 2009

• (d) weighted average share price at grant date: $1.91

• (e) expected price volatility of the Company’s shares: 55%

• (f) expected dividend yield: 2.50%

• (g) risk-free interest rate: 5.18%

The expected price volatility is based on an independent advisor’s report on historic volatility adjusted for any expected changes to future volatility due to publicly available information.

• (iii) Options granted under the Felix Resources Operations General Managers Equity Participation Plan. 25,000 options vest on 11 December 2007, 35,000 on 11 December 2008, and 40,000 on 11 December 2009. The options are exercisable at any time from their vesting date until the expiry date or six months after the General Manager ceases to be a General Manager. The

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APPENDIX II

options cannot be transferred, will not be quoted on the ASX and do not carry voting or dividend rights. The weighted average fair value of $4.00 at grant date was determined using a binomial option pricing model which takes into account the exercise price, the life of the option, the current price of the underlying instrument, the expected volatility of the underlying instrument, the expected dividend yield, and the risk-free interest rate for the life of the option.

The model inputs for options granted during 2007 included:

• (a) exercise price: $0.001

• (b) grant date: 11 December 2006

• (c) expiry date: 10 December 2010

• (d) weighted average share price at grant date: $4.16

• (e) expected price volatility of the Company’s shares: 43%

• (f) expected dividend yield: 1.00%

• (g) risk-free interest rate: 5.86%

The expected price volatility is based on an independent advisor’s report on historic volatility adjusted for any expected changes to future volatility due to publicly available information.

• (iv) Options granted under the Felix Resources General Managers Equity Participation Plan and the Felix Resources

CFO Equity Participation Plan. The option plans were entered into on 28 August 2008 with an effective grant date of 1 January 2008. 65,000 options vest on 1 January 2009, 65,000 on 1 January 2010, and 65,000 on 1 January 2011. The options are exercisable at any time from their vesting date until the expiry date or six months after the General Manager or the CFO ceases to be a General Manager or the CFO. The options cannot be transferred, will not be quoted on the ASX and do not carry voting or dividend rights. The weighted average fair value of $6.28 at grant date was determined using a binomial option pricing model which takes into account the exercise price, the life of the option, the current price of the underlying instrument, the expected volatility of the underlying instrument, the expected dividend yield, and the risk-free interest rate for the life of the option.

The model inputs for options granted during 2009 included:

• (a) exercise price: $0.001

• (b) grant date: 1 January 2008

• (c) expiry date: 31 December 2011

• (d) weighted average share price at grant date: $7.98

• (e) expected price volatility of the Company’s shares: 48%

• (f) expected dividend yield: 6.00%

• (g) risk-free interest rate: 6.60%

The expected price volatility is based on an independent advisor’s report on historic volatility adjusted for any expected changes to future volatility due to publicly available information.

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APPENDIX II

• (v) Forfeited share options were those granted under the Felix Resources Operations General Managers Equity Participation Plan which lapsed upon the resignation of a General Manager on 2 July 2007.

(f) Expenses arising from share-based payment transactions

Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows:

Options granted	Consolidated 2009 2008 $’000 $’000 1,009 135	The Company 2009 2008 $’000 $’000 1,009 135

29 RESERVES AND RETAINED PROFITS

(a) Reserves Capital profits Hedging reserve Option reserve Foreign currency translation reserve Movements in reserves: Capital profits Balance 1 July Transfer to retained profits Balance 30 June Hedging reserve Balance 1 July Losses recognised Transferred to profit Current tax Deferred tax Balance 30 June Movements in reserves: Option reserve Balance 1 July Share-based payment expense Options exercised, transfer to share capital (note 28(b)) Balance 30 June	Consolidated 2009 2008 $’000 $’000 – 4,285 15,041 (24,224) 707 235 424 424 16,172 (19,280)	Consolidated 2009 2008 $’000 $’000 – 4,285 15,041 (24,224) 707 235 424 424 16,172 (19,280)	The Company 2009 2008 $’000 $’000 – 4,285 – – 707 235 – – 707 4,520	The Company 2009 2008 $’000 $’000 – 4,285 – – 707 235 – – 707 4,520
				4,520
	4,285 (4,285)	4,285 –	4,285 (4,285)	4,285 –
	–	4,285	–	4,285
	(24,224) (19,868) 75,960 (7,527) (9,300)	1,573 (12,370) (24,482) 290 10,765	– – – – –	1,422 (1,065 (967 290 320
	15,041	(24,224)	–	–
	235 1,009 (537)	399 135 (299)	235 1,009 (537)	399 135 (299
	707	235	707	235

Foreign currency translation reserve

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FINANCIAL INFORMATION OF FELIX

Balance 1 July Balance 30 June (b) Retained profits/(Accumulated losses) Balance 1 July Profit attributable to the members of Felix Resources Limited Dividends Transfer from capital profits reserve Balance 30 June	Consolidated 2009 2008 $’000 $’000 424 424 424 424	Consolidated 2009 2008 $’000 $’000 424 424 424 424	The Company 2009 2008 $’000 $’000 – – – – (79,950) (99,954) 259,537 37,666 (143,345) (17,662) 4,285 – 40,527 (79,950)	The Company 2009 2008 $’000 $’000 – – – – (79,950) (99,954) 259,537 37,666 (143,345) (17,662) 4,285 – 40,527 (79,950)
	118,410 267,428 (143,345) 4,285	(52,189) 188,261 (17,662) –	(79,950) 259,537 (143,345) 4,285	(99,954 37,666 (17,662 –
	246,778	118,410	40,527

(c) Nature and purpose of reserves

(i) Capital profits

The capital profits reserve was used to record non-trading capital profits and the entire balance of the reserve was transferred to retained profits during the year.

(ii) Hedging reserve

The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised directly in equity, as described in note 1(x). Amounts are recognised in the income statement or as part of property, plant and equipment when the associated hedge transaction occurs.

(iii) Option reserve

The options reserve is used to recognise the fair value at grant date of options issued but not exercised. The options comprising this reserve at 30 June 2009 are those issued under the Felix Resources Operations General Managers Equity Participation Plan and the Felix Resources CFO Equity Participation Plan.

(iv) Foreign currency translation reserve

Exchange differences arising on translation of the foreign controlled entity are taken to the foreign currency translation reserve, as described in note 1(w). The reserve is recognised in profit and loss when the net investment is disposed of.

30 MINORITY INTEREST

Interest in: Share capital Reserves Accumulated losses	Consolidated 2009 2008 $’000 $’000 961 961 3,127 3,127 (370) (560) 3,718 3,528

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APPENDIX II

31 DIVIDENDS

		The Company
		2009	2008
		$’000	$’000
(a)	Ordinary shares
	Dividend of 50.00 cents per share paid on 31 October 2008, partially
	franked (30%) (2008: 6.00 cents per share, unfranked)	98,163	11,772
	Dividend of 3.00 cents per share paid on 31 March 2009, fully
	franked (2008: 3.00 cents per share, unfranked)	5,893	5,890
	Special dividend of 20.00 cents per share paid on 31 March 2009,
	fully franked (2008: Nil)	39,289	–
		143,345	17,662
(b)	Dividend on ordinary shares proposed and not recognised as a liability
	Fully franked dividend of 50 cents per share (2008: 50.00 cents per
	share, partially franked (30%))	98,228	98,163

(c) Franking credit balance

The amount of franking credits available for the subsequent reporting periods is:

Franking account balance as at the end of the year at 30% (2008: 30%) Franking credits that will arise from the payment of the amount of the provision for income tax Franking debits that will arise from the payment of dividends proposed but not recognised as a liability Balance available for the subsequent reporting period	Consolidated 2009 2008 $’000 $’000 8,282 204 83,856 18,935 (42,098) (12,621) 50,040 6,518	The Company 2009 2008 $’000 $’000 8,282 204 83,856 18,935 (42,098) (12,621) 50,040 6,518	The Company 2009 2008 $’000 $’000 8,282 204 83,856 18,935 (42,098) (12,621) 50,040 6,518
			6,518

32 KEY MANAGEMENT PERSONNEL DISCLOSURES

(a) Directors

The following persons were directors of Felix Resources Limited during the financial year:

• (i) Chairman – non-executive

• Travers Duncan (appointed as Chairman on 2 April 2007)

  • (appointed to Board on 15 April 2005)

• (ii) Executive directors

• Brian Flannery, Managing Director (appointed 21 March 2006)

   - (appointed to Board 15 April 2005)
  

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APPENDIX II

• (iii) Non-executive directors

John Kinghorn (appointed 1 September 2005) Vincent O’Rourke (appointed 2 August 2007) Hans Mende (appointed 29 October 2007)

(b) Other key management personnel

The following persons also had authority and responsibility for planning, directing and controlling the activities of the consolidated entity, directly or indirectly, during the financial year:

Name	Position	Employer
Michael Chapman	Chief Operating Officer	Felix Resources Limited
	(appointed 1 July 2007)
Craig Smith	Chief Financial Officer and Company	Felix Resources Limited
	Secretary (appointed 1 February
	2008)
Goran Stamenkovic	General Manager Marketing	Felix Resources Limited
	(appointed 1 February 2008)

(c) Key management personnel compensation

Short-term employee benefits Post-employment benefits Share-based payments	Consolidated 2009 2008 $ $ 3,717,491 2,009,839 282,661 148,625 642,015 – 4,642,167 2,158,464	The Company 2009 2008 $ $ 3,717,491 2,009,839 282,661 148,625 642,015 – 4,642,167 2,158,464	The Company 2009 2008 $ $ 3,717,491 2,009,839 282,661 148,625 642,015 – 4,642,167 2,158,464
			2,158,464

Further details regarding the compensation of key management personnel can be found in the Remuneration Report within the Directors’ Report.

(d) Equity instrument disclosures relating to key management personnel

(i) Option holdings

There were no options over ordinary shares in the Company held during the year by directors of the Company, including their related parties. The number of options over ordinary shares in the Company held during the year by other key management personnel of the consolidated entity, including their related parties, are set out below.

2009

Name Other key management Michael Chapman (1) Goran Stamenkovic Craig Smith Total	Balance at the start of the year Granted as compensation Exercised personnel of the consolidated entity 30,000 45,000 (45,000) – 60,000 (20,000) – 30,000 (10,000) 30,000 135,000 (75,000)	Other changes – – – –	Balance at end of the year Vested and exercisable 30,000 – 40,000 – 20,000 – 90,000 –	Unvested 30,000 40,000 20,000
				90,000

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There were no options over ordinary shares in the Company held during the year ended 30 June 2008 by directors of the Company and other key management personnel of the consolidated entity, including their related parties.

• (1) Balance at the start the of the year relates to options acquired under an option plan that was in place before Mr. M. Chapman was a key management person.

(ii) Share holdings

The numbers of shares in the Company held during the financial year by each director of Felix Resources Limited and other key management personnel of the consolidated entity, including their personally related parties, are set out below.

2009

Name Directors of Felix Resources Limited Hans Mende Travers Duncan Brian Flannery Other key management personnel of the consolidated entity Michael Chapman(1) Goran Stamenkovic Craig Smith Total 2008 Name Directors of Felix Resources Limited Hans Mende (2) Travers Duncan Brian Flannery Other key management personnel of the consolidated entity David Knappick (3) Joseph Butta (3) Total	Balance at the start of the year 37,601,724 29,948,706 29,450,000 40,000 – – 97,040,430 Balance at the start of the year 37,601,724 29,948,706 29,450,000 14,550,000 9,700,000 121,250,430	Received during the year on the exercise of options – – – 45,000 20,000 10,000 75,000 Received during the year on the exercise of options – – – – – –	Other changes during the year – – – – – – – Other changes during the year – – – (14,550,000) (9,700,000) (24,250,000)	Balance at the end of the year 37,601,724 29,948,706 29,450,000 85,000 20,000 10,000
				97,115,430
				Balance at the end of the year 37,601,724 29,948,706 29,450,000 – –
				97,000,430

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APPENDIX II

• (1) Balance at the start of the year relates to options exercised from an option plan that was in place before Mr. M. Chapman was a key management person.

• (2) Mr. H. Mende became a key management person upon his appointment as a director on 29 October 2007. Mr. H. Mende has a partial interest in these shares through a director related entity.

• (3) Net change other relates to shareholdings at date of resignation 31 January 2008.

(iii) Aggregates for key management personnel

			The	The
	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$	$	$	$
Aggregate proceeds received
from other key management
personnel on the exercise of
options and recognised as
issued capital	75	–	75	–
Fair value of shares issued to
other key management
personnel on the exercise of
options as at their issue date	634,500	–	634,500	–

(e) Loans to directors and other key management personnel

Balance at the start of the year Loans advanced Loan repayments received Interest payable for the year Interest paid Balance at the end of the year Highest indebtedness during the year Number of persons in the Group aggregate at the end of the year	Consolidated 2009 Aggregate for key management personnel – 1,827,002 (24,898) 169,485 (169,485) 1,802,104 1,889,184 1	Consolidated 2009 Individuals with loans above $100,000 during the financial year – 1,827,002 (24,898) 169,485 (169,485) 1,802,104 1,889,184 1	Consolidated 2008 Aggregate for key management personnel – – – – – – – –	Consolidated 2008 Individuals with loans above $100,000 during the financial year – – – – –
				–
				– –

Loan to Mr. B. Flannery for the acquisition of a Grazing Homestead Perpetual Lease in respect of property situated at Minerva. Mr. B. Flannery and Minerva Coal Pty Ltd have entered into a Deed of Licence under which Minerva is using part of the property as an access to its mining lease situated upon the property. The loan is a secured interest bearing loan, interest is compounded daily and payable twice yearly at the rate of 10.45% per annum.

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APPENDIX II

(f) Transactions with directors and other key management personnel

Transactions with directors of the Company and other key management personnel, including their related parties, are on commercial terms and conditions no more favourable than those available to other parties under similar circumstances unless otherwise stated.

Profit after tax includes the following items of revenue and expenses that resulted from transactions with directors of the Company and other key management personnel, including their related parties.

Amounts recognised as revenue Receipts by Ashton Coal Mines Limited from Energy Coal Marketing Pty Limited for the sale of thermal coal. Mr. H. Mende is an indirect shareholder in Energy Coal Marketing Pty Limited Receipts by Ashton Coal Mines Limited from Coalroc Contractors Pty Ltd for property rental. Mr. B. Flannery, Mr. T. Duncan, Mr. D. Knappick and Mr. J. Butta are the majority shareholders in Coalroc Contractors Pty Ltd Total recognised as revenue Amounts recognised as expense Payments to Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture for mining contracting and equipment hire. Payments to Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture for interest on finance leases (refer note 6) Payment to Coalroc Contractors Pty Ltd by UCC Energy Pty Limited for trade services Payments to Yunaga Mine Services Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture for trade services. Coalroc Contractors Pty Ltd owned 50% of the share capital of Yunaga Mine Services Pty Ltd up until 15 September 2007. Coalroc Contractors Pty Ltd reduced its shareholding to nil on this date. Payments to Mr. B. Flannery for land access licence fees by Minerva Coal Pty Ltd Total recognised as an expense Assets and liabilities include the following items that resulted from transactions with directors of the Company and other key management personnel, including their related parties. Amounts recognised as property, plant and equipment Fair value of plant & equipment acquired from Coalroc Contractors Pty Ltd by Tonford Pty Ltd Payments to Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture for mining contracting and equipment hire Payments to Yunaga Mine Services Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture for mining contracting Fair value of plant & equipment acquired from Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture. Total recognised as assets	Consolidated 2009 2008 $ $ 29,085,582 – 1,872 – 29,087,454 –	Consolidated 2009 2008 $ $ 29,085,582 – 1,872 – 29,087,454 –
		–
	3,801,702 192,479 – – 176,712	2,818,008 493,594 1,040 1,073 –
	4,170,893	3,313,715
	16,890 – – 810,000	– 58,907 2,864 –
	826,890	61,771

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APPENDIX II

Interest bearing liabilities Current Fair value of finance lease agreements with Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture Non-current Fair value of finance lease agreements with Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture Total recognised as liabilities	Consolidated 2009 2008 $ $ 103,870 1,978,018 – 141,897 103,870 2,119,915	Consolidated 2009 2008 $ $ 103,870 1,978,018 – 141,897 103,870 2,119,915
		2,119,915

Finance lease agreements with Coalroc Contractors Pty Ltd relate to mining equipment and have remaining lease terms ranging up to 3 months with the option to purchase the assets at completion of the lease term for the contracted value. The effective discount rate implicit in the leases range from 12% – 13.4%.

Lease liabilities are secured by the leased assets.

(g) Outstanding balances

The following balances are outstanding at the reporting date in relation to transactions with directors of the Company and other key management personnel, including their related parties.

Current receivables Trade Debtors Receivable by Ashton Coal Mines Limited from Coalroc Contractors Pty Ltd Current payables Trade Creditors Payable by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture, to Coalroc Contractors Pty Ltd	2009 $ 144 144	2008 $ –
		–
	261,570	361,466
	261,570	361,466

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FINANCIAL INFORMATION OF FELIX

33 REMUNERATION OF AUDITORS

Consolidated 2009 2008 $ $ Amounts paid or payable to BDO Kendalls for: Audit and review of financial reports 328,221 329,254 Non-audit services Tax compliance 110,317 93,310 Tax consulting 1,515 – Accounting consulting 89,500 – Amounts paid or payable to a related practice of BDO Kendalls for: Audit and review of financial reports 10,403 10,121 Non-audit services Tax compliance 2,508 9,902 Tax consulting 1,197 – 543,661 442,587 COMMITMENTS (a) Capital expenditure commitments Estimated capital expenditure contracted for at the reporting date but no Consolidated 2009 2008 $’000 $’000 Property, plant and equipment Not later than one year Share of joint ventures 168,118 6,850 Other 784 4,989 Mine development Not later than one year Share of joint ventures 5,793 – Freehold land and buildings Not later than one year Share of joint ventures – 56 Other 3,748 – Exploration expenditure Not later than one year Share of joint ventures 443 1,034 Total capital expenditure commitments 178,886 12,929	The Company 2009 2008 $ $ 275,000 275,000 84,532 55,165 1,515 – 89,500 – 10,403 10,121 2,508 9,902 1,197 – 464,655 350,188 t provided for: The Company 2009 2008 $’000 $’000 – – 784 – – – – – – – – – 784 –	The Company 2009 2008 $ $ 275,000 275,000 84,532 55,165 1,515 – 89,500 – 10,403 10,121 2,508 9,902 1,197 – 464,655 350,188 t provided for: The Company 2009 2008 $’000 $’000 – – 784 – – – – – – – – – 784 –
		–

34 COMMITMENTS

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APPENDIX II

(b) Lease expenditure commitments

• (i) Non-cancellable operating leases

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Not later than one year Later than one year but not later than five years Total lease expenditure commitments not recognised in the financial statements	1,257 500 1,757	1,695 1,356 3,051	408 409 817	393 615
				1,008

Operating leases have remaining lease terms ranging from 3 months to 5 years. Items that are subject to operating leases include mining equipment, office space and small items of office equipment. The consolidated entity does not have an option to purchase the leased assets at the expiry of the lease period.

• (ii) Finance leases

Commitments in relation to finance leases are payable as follows: Not later than one year Later than one year and not later than five years Later than five years Total minimum lease payments Less future finance charges Recognised as a liability Finance leases are included in the financial statements as: Current lease liability (note 22) Non-current lease liability (note 25)	Consolidated 2009 2008 $’000 $’000 14,452 10,145 37,031 15,128 1,600 2,132 53,083 27,405	Consolidated 2009 2008 $’000 $’000 14,452 10,145 37,031 15,128 1,600 2,132 53,083 27,405	The Company 2009 2008 $’000 $’000 18 10 – 18 – – 18 28	The Company 2009 2008 $’000 $’000 18 10 – 18 – – 18 28
				28
	(11,574)	(3,807)	(1)	(2
	41,509	23,598	17	26
	11,296 30,213	8,337 15,261	17 –	9 17
	41,509	23,598	17	26

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

Finance leases relate to mining vehicles and machinery with lease terms between 3 and 7 years. These leases have terms of renewal at the discretion of the specific entity that holds the lease with some purchase options but no escalation clauses. The leases are subject to review of financial covenant ratios on a quarterly basis and contain restrictions on further indebtedness for one particular lease.

35 RELATED PARTY TRANSACTIONS

(a) Parent entity and subsidiaries

The ultimate parent entity in the consolidated entity is Felix Resources Limited.

The consolidated entity consists of Felix Resources Limited and its controlled entities, the ownership interests of which are set out in note 36.

Transactions between Felix Resources Limited and other entities in the consolidated entity during the years ended 30 June 2009 and 2008 consisted of:

• i) loans advanced by Felix Resources Limited;

• ii) loans repaid to Felix Resources Limited;

• iii) the payment of interest on the above loans;

• iv) the payment of dividends to Felix Resources Limited;

• v) the provision of administration, accounting, management, marketing and hire services by Felix Resources Limited and other entities in the consolidated entity, and

• vi) transactions between Felix Resources Limited and its Australian controlled entities under the tax sharing agreement described in note 8(e).

(b) Associates and joint ventures

Associated entities are set out in note 15 and joint ventures in which the consolidated entity is a venturer are set out in note 38.

Transactions with associates and joint ventures during the years ended 30 June 2009 and 2008 consisted of:

• i) loans advanced by Felix Resources Limited, subsidiaries or joint ventures to associated entities;

• ii) loans repaid to Felix Resources Limited, subsidiaries or joint ventures from associated entities;

• iii) sales of coal by a subsidiary to an associated entity under terms and conditions specified in the Ashton Coal Joint Venture Agreement;

• iv) the provision of administration, accounting, marketing, management and hire services by Felix Resources Limited or subsidiaries to associated entities and joint ventures; and

• v) sale of coal by a subsidiary to a joint venture.

(c) Key management personnel

Disclosures relating to key management personnel are set out in note 32.

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APPENDIX II

(d) Transactions with related parties

The following transactions occurred with related parties:

	Consolidated	Consolidated	The Company	The Company
	2009	2008	2009	2008
	$	$	$	$
Sales of goods and services
Sales of coal to associated entities	432,743,216	195,020,990	–	–
Sales of management and
marketing services to
controlled entities	–	–	524,644	1,152,000
Sales of management and
marketing services to joint
ventures	7,546,934	3,957,741	682,946	969,600
Sales of marketing services to
associated entities	325,612	240,000	814,030	600,000
Sales of coal to joint venture	24,599,489	10,523,566	–	–
Dividend revenue
Dividends received from
subsidiaries	–	–	265,240,000	–
Doubtful debt expense
Write-down of advances to
subsidiaries	–	–	6,833,306	101,507
Reversal of write-down of
advances to subsidiary	–	–	–	(656)
Bad debt
Write-off of advances to
subsidiary against accumulated
impairment provision	–	–	1,635,948	–
Debt forgiven gain
Write-back of payables to
subsidiaries	–	–	566	–

(e) Outstanding balances arising from transactions with related parties

Balances outstanding at the reporting date to related parties are unsecured and subordinate to other liabilities. Balances outstanding at the reporting date from related parties are also unsecured, non-interest bearing and repayable on demand.

The following balances are outstanding at the reporting date in relation to transactions with related

parties.

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APPENDIX II

	Consolidated	Consolidated	The Company	The Company
	2009	2008	2009	2008
	$	$	$	$
Current receivables
Advances to controlled entities:
Receivable from Minerva Coal Pty
Ltd being an unsecured,
non-interest bearing loan	–	–	3,203,125	3,228,831
Advance to Minerva Coal Pty Ltd	–	–	–	244,972
Trade debtors
Receivable from Ashton Coal
Mines Limited	19,342,098	41,221,432	–	8,604
Receivable from controlled entities
Receivables from 100% owned
subsidiaries under tax sharing
agreement (note 10)	–	–	192,160,015	81,788,998
Non-current receivables
Advances to controlled entities
Receivable from Minerva Coal Pty
Ltd being an unsecured,
non-interest bearing loan	–	–	748,285	748,285
Receivable from SASE Pty Ltd
being an unsecured, non-interest
bearing loan	–	–	31,271,655	31,271,655
Less: Accumulated impairment
losses	–	–	(31,271,655)	(31,271,655)
Receivable from 100% owned
subsidiaries	–	–	59,300,160	50,625,507
Less: Accumulated impairment
losses	–	–	(35,823,298)	(30,625,507)
Advances to associated entities
Receivable from Ashton Coal
Mines Limited being an
unsecured, non-interest bearing
loan	10,376,000	8,171,131	–	–
Current payables
Advances from 100% owned
subsidiaries	–	–	130,187,913	56,403,000

(f) Terms and conditions

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

36 CONTROLLED ENTITIES

Name of entity Country of incorporation The Company: Felix Resources Limited Australia Controlled entities – at cost: Auriada Limited Ireland Ballymoney Power Limited Ireland Balhoil Nominees Pty Ltd Australia South Australian Coal Corp Pty Limited Australia SASE Pty Ltd Australia Athena Coal Pty Ltd Australia Minerva Mining Pty Ltd Australia Felix Coal Sales Pty Ltd Australia Proserpina Coal Pty Ltd Australia Minerva Coal Pty Ltd Australia Yarrabee Coal Company Pty Ltd Australia White Mining Limited Australia White Mining Services Pty Limited Australia Tonford Pty Ltd Australia Moorlarben Coal Operations Pty Ltd Australia Moolarben Coal Mines Pty Limited Australia Ashton Coal Operations Pty Limited Australia White Mining (NSW) Pty Limited Australia UCC Energy Pty Limited Australia Agrarian Finance Pty Ltd Australia Advanced Clean Coal Technology Pty Limited Australia White Mining Research Pty Ltd Australia Felix NSW Pty Ltd Australia Moolarben Coal Sales Pty Ltd Australia Controlled entities – at cost: Balhoil Nominees Pty Ltd Less: Accumulated impairment loss SASE Pty Ltd Less: Accumulated impairment loss Minerva Coal Pty Ltd Yarrabee Coal Company Pty Ltd White Mining Limited

The Company Owned 2009 2008 % % 100 100 100 100 100 100 100 100 90 90 100 100 100 100 100 100 100 100 51 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2009 2008 $’000 $’000 839 839 (839) (839) 14,504 14,504 (14,504) (14,504) 3,614 3,614 14,910 14,910 222,869 222,869 241,393 241,393

All controlled entities have 30 June balance dates. All equity interests are held in ordinary shares. All controlled entities are vehicles for exploration, development and operational activities of the consolidated entity. The proportion of ownership interest is equal to the proportion of voting power held.

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APPENDIX II

37 DEED OF CROSS GUARANTEE

A deed of cross-guarantee between Felix Resources Limited and its wholly-owned subsidiaries Yarrabee Coal Company Pty Ltd, South Australian Coal Company Pty Ltd and Balhoil Nominees Pty Ltd. The deed was enacted during 2004 and relief was obtained from preparing a financial report for Yarrabee Coal Company Pty Ltd under ASIC Class Order 98/1418. Under the deed, Felix Resources Limited guarantees to support the liabilities and obligations of the subsidiaries. The above companies represent a Closed Group for the purposes of the Class Order, and as there are no other parties to the Deed of Cross Guarantee that are controlled by Felix Resources Limited, they also represent the Extended Closed Group. The following are the aggregate totals for the Closed Group, for each category, relieved under the deed.

Financial information in relation to:

(a) Income statement Profit before income tax Income tax (expense)/revenue Profit for the year (b) Retained profits/(Accumulated losses) Accumulated losses at the beginning of the financial year Profit for the year Transfer from capital profits reserve Dividends paid Retained profits/(Accumulated losses) at the end of the financial year (c) Balance sheet ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Other assets Total current assets Non-current assets Trade and other receivables Other financial assets Property, plant and equipment Exploration and evaluation assets Deferred tax assets Intangible assets Total non-current assets Total assets	CLOSED GROUP 2009 $’000 330,061 (25,851) 304,210	CLOSED GROUP 2008 $’000 27,932 33,755 61,687 (84,541) 61,687 – (17,662) (40,516) 111,032 99,839 15,727 55 22,760 249,413 20,748 226,483 19,345 2,020 10,733 2,412 281,741 531,154
	(40,516) 304,210 4,285 (143,345)	(84,541 61,687 – (17,662
	124,634
	252,012 168,126 21,989 – 27,907	111,032 99,839 15,727 55 22,760
	470,034
	24,736 226,483 66,157 4,296 15,053 1,816	20,748 226,483 19,345 2,020 10,733 2,412
	338,541 808,575

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

LIABILITIES Current liabilities Payables Interest bearing liabilities Current tax liabilities Provisions Total current liabilities Non-current liabilities Payables Interest bearing liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained profits/(Accumulated losses) Total equity	CLOSED GROUP 2009 $’000 85,791 11,243 83,856 – 180,890	CLOSED GROUP 2008 $’000 69,256 4,300 18,935 – 92,491 2,679 13,745 11,195 2,089 29,708 122,199 408,955 444,833 4,638 (40,516) 408,955
	3,726 26,078 18,830 2,089	2,679 13,745 11,195 2,089
	50,723 231,613 576,962
	445,370 6,958 124,634	444,833 4,638 (40,516
	576,962

38 INTERESTS IN JOINT VENTURES

Interest in Joint Venture Operations

A controlled entity, Yarrabee Coal Company Pty Ltd, has a 50% interest in the output of Boonal Joint Venture whose principal activity is the provision of a coal haul road and train load out facilities.

A controlled entity, Proserpina Coal Pty Ltd, has a 51% interest in the output of Minerva Joint Venture whose principal activity is the development and operation of an open-cut coal mine.

A controlled entity, Athena Coal Pty Ltd, has a 51% interest in the Athena Joint Venture whose principal activity is coal exploration.

A controlled entity, White Mining (NSW) Pty Limited, has a 60% interest in the output of Ashton Joint Venture whose principal activity is the development and operation of open-cut and underground coal mines.

A controlled entity, Moolarben Coal Mines Pty Limited, has a 80% interest in the output of the Moolarben Coal Joint

Venture whose principal activity is the development and operation of open-cut and underground coal mines.

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

The consolidated entity’s interest in the assets, liabilities, revenue and expenses of the joint ventures are included in the consolidated financial statements, in accordance with accounting policy 1(k) under the following classifications:

Current assets Cash and cash equivalents Trade and other receivables Inventories Other assets Total current assets Non-current assets Trade and other receivables Property, plant and equipment Exploration and evaluation assets Intangible assets Total non-current assets Share of assets employed in joint venture operations Current liabilities Trade and other payables Interest bearing liabilities Provisions Total current liabilities Non-current liabilities Interest bearing liabilities Provisions Total non-current liabilities Share of liabilities employed in joint venture operations	Consolidated 2009 2008 $’000 $’000 11,863 3,467 3,319 2,304 23,081 16,084 23,792 24,871 62,055 46,726	Consolidated 2009 2008 $’000 $’000 11,863 3,467 3,319 2,304 23,081 16,084 23,792 24,871 62,055 46,726	The Company 2009 2008 $’000 $’000 – – – – – – – – – –	The Company 2009 2008 $’000 $’000 – – – – – – – – – –
				–
	11,158 199,582 20,723 187,446	8,163 170,284 16,381 192,107	– – – –	– – – –
	418,909 480,964	386,935 433,661	– –	–
				–
	38,642 8,678 566	32,448 7,511 608	– – –	– – –
	47,886	40,567	–	–
	5,429 4,954	10,142 5,074	– –	– –
	10,383 58,269	15,216 55,783	– –	–
				–

For capital expenditure commitments relating to joint venture operations refer to note 34. For contingent liabilities relating to joint venture operations refer to note 41.

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

Share of joint venture operations’ revenue, expenses and results: Revenues Expenses Loss before income tax	Consolidated 2009 2008 $’000 $’000 547 481 (267,668) (207,428) (267,121) (206,947)

39 RECONCILIATION OF PROFIT AFTER INCOME TAX TO THE NET CASH FLOWS FROM OPERATING ACTIVITIES

Profit for the year Dividends received Depreciation of non-current assets Amortisation of leased assets Amortisation of mining tenements Amortisation of exploration Amortisation of other intangible assets Amortisation of Minerva deferred purchase consideration Net loss on disposal of property, plant & equipment Net gain on disposal of 20% of Moolarben Joint Venture Net loss on disposal of 28.7% of Athena Joint Venture Non-cash cash flow hedge gains transferred to profit for the year Cash received on cash flow hedges not yet recognised in profit Share-based payments expense Share of net (profits)/losses of associates accounted for using the equity method Provision for write-down of advances to controlled entities Changes in assets and liabilities, net of effects from disposal of interests in joint ventures and projects (refer note 5) Decrease/(increase) in trade & other receivables Increase in inventory Decrease/(increase) in prepayments Decrease in deferred tax assets Increase in overburden in advance Increase in trade and other payables Increase in employee benefits Increase in tax provision Increase/(decrease) in deferred tax liabilities Net cash inflow/(outflow) from operating activities	Consolidated 2009 2008 $’000 $’000 267,618 188,460 – – 17,602 15,805 7,665 7,078 4,642 4,665 287 314 1,178 777 220 204 12 14 – (123,657) – 34 – (967) 25,091 – 1,009 135 (21) 17 – – 20,962 (61,602) (13,259) (8,951) 1,048 (1,603) 3,259 48,243 (5,074) (7,521) 4,185 14,271 4,597 1,072 57,191 19,262 319 (1,846) 398,531 94,204	The Company 2009 2008 $’000 $’000 259,537 37,666 (265,240) – 198 209 9 4 – – – – 168 156 220 204 – – – – – – – (967) – – 1,009 135 – – 6,833 101 (110,858) (71,071) – – (31) 49 4,736 9,484 – – 63 28 543 298 64,921 19,225 (192) 328 (38,084) (4,151)

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Non-cash investing and financing activities

Finance lease transactions

During the year the consolidated entity acquired plant and equipment with an aggregate fair value of $27,477,000 (2008: $6,803,000) by means of finance leases. These acquisitions are not included in the cash flow statements.

40 EARNINGS PER SHARE

(a) Reconciliation of earnings used in calculating earnings per share

Profit after income tax Profit attributable to minority interest Profit from continuing operations attributable to the ordinary equity holders of Felix Resources Limited used in calculating basic and diluted earnings per share	Consolidated 2009 2008 $’000 $’000 267,618 188,460 (190) (199) 267,428 188,261	Consolidated 2009 2008 $’000 $’000 267,618 188,460 (190) (199) 267,428 188,261
		188,261

(b) Weighted average number of shares used in calculating earnings per share

Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share	Consolidated 2009 2008 Number Number 196,378,189 196,261,627 246,829 158,285 196,625,018 196,419,912	Consolidated 2009 2008 Number Number 196,378,189 196,261,627 246,829 158,285 196,625,018 196,419,912
		196,419,912

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41 CONTINGENT LIABILITIES AND CONTINGENT ASSETS

Guarantees (a) Parent entity and consolidated entity Guarantees secured over deposits Performance guarantees provided to external parties Guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute (b) Joint ventures Guarantees secured over deposits Performance guarantees provided to external parties Guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute	Consolidated 2009 2008 $’000 $’000 701 149 1,651 7,403 2,472 2,130 75 75 69 69 5,720 4,879 10,688 14,705	The Company 2009 2008 $’000 $’000 623 72 1,343 7,095 2,472 2,130 – – – – 4,436 3,595 8,874 12,892	The Company 2009 2008 $’000 $’000 623 72 1,343 7,095 2,472 2,130 – – – – 4,436 3,595 8,874 12,892
			12,892

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42 DISPOSAL OF INTEREST IN JOINT VENTURE

Consolidated		The Company
2009	2008	2009	2008
$’000	$’000	$’000	$’000

Disposal of interest in Moolarben Joint Venture

Effective 30 June 2007 the consolidated entity disposed of 10% of its interest in the Moolarben Coal Project. This transaction decreased Felix’s interest in the coal project from 100% to 90% and resulted in the formation of the Moolarben Joint Venture. As the sale was subject to various conditions, only the first tranche of the sale proceeds amounting to $20,000,000 was recognised during the year ended 30 June 2007. The balance of the sale proceeds were recognised during the year ended 30 June 2008. Effective 29 February 2008 the consolidated entity disposed of 10% of its interest in the Moolarben Joint Venture. This transaction decreased Felix’s interest in the joint venture from 90% to 80%. The disposal details are set out below. Consideration: Cash received Net assets of the Moolarben Joint Venture disposed: Exploration and evaluation assets Freehold land & buildings Mining tenements Carrying amount of assets disposed Gain on disposal of assets before tax (note 5)	– – – – – – –	157,863 157,863 1,473 1,385 31,348 34,206 123,657	– – – – – – –	–
				–
				– – –
				–
				–

43 EVENTS OCCURING AFTER THE BALANCE SHEET DATE

(a) Potential change of control

On 13 August 2009 the Directors announced the Company had entered into a binding Scheme Implementation Agreement with Yanzhou Coal Mining Limited (“Yanzhou”), a publicly-traded company that is listed in Hong Kong, New York and Shanghai. Pursuant to the agreement, Felix Directors will unanimously recommend the scheme to Felix shareholders by means of which Yanzhou will acquire all of Felix’s issued shares. On completion of the Offer shareholders will have received:

• (i) a cash payment of A$16.95 per share;

• (ii) dividends totalling A$1.00 per share; and

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• (iii) an in-specie distribution of shares in South Australian Coal Corp Pty Limited which will have a cash backing of A$0.05 per share and coal and mineral exploration tenements in South Australia.

Completion of the transaction is subject to a number of conditions including:

• (i) the Independent Expert concluding that the Scheme of Arrangement is in the best interests of Felix shareholders;

• (ii) there being no Superior Offer;

• (iii) shareholder and relevant government approvals for both parties; and

• (iv) ‘spin-off’ by Felix of the wholly-owned subsidiary South Australian Coal Corp Pty Limited.

(b) Derivative financial instruments

Forward foreign exchange contracts – cash flow hedges

As set out in note 11(a) the consolidated entity enters into forward foreign exchange contracts to reduce the foreign exchange rate related volatility of the consolidated entity’s revenue stream. Subsequent to balance date the consolidated entity entered into further forward foreign exchange contracts as set out below.

Less than 6 months 6 months to 1 year	Sell United States dollars 2009 2008 US$’000 US$’000 25,000 140,000 30,000 – 55,000 140,000	Average exchange rates 2009 2008 US$ US$ 0.7674 0.9365 0.7674 – 0.7674 0.9365	Average exchange rates 2009 2008 US$ US$ 0.7674 0.9365 0.7674 – 0.7674 0.9365
			0.9365

(c) Moolarben capital expenditure commitments

Since 30 June 2009, the consolidated entity has entered into a share of capital expenditure commitments amounting to $39,954,000 for the construction and development of the Moolarben Joint Venture mine.

44 NATIVE TITLE

Native title describes the rights and interests in Australia of Aboriginal and Torres Strait Islander peoples in land and waters, according to their traditional laws and customs. Native title claims exist over all or part of the areas covered by the consolidated entity’s exploration licences in South Australia, Queensland and New South W ales. Under the Native Title Act these areas are protected for all current and future mining operations on existing mining leases.

45 COMPANY DETAILS

The registered office and principal place of business of the Company is:

Felix Resources Limited Level 6 316 Adelaide Street Brisbane, Qld. 4000 Australia

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The following is an extract of the audited financial statements of Felix Group for the year ended 30 June 2008, which are prepared in accordance with the Australian Accounting Standards which complies with the International Financial Reporting Standards, as extracted from the annual report of Felix for the year ended 30 June 2008.

Balance Sheets

as at 30 June 2008

Notes ASSETS Current assets Cash and cash equivalents 7 Trade and other receivables 8 Inventory 12 Derivative financial assets 9 Other 10 Total current assets Non-current assets Trade and other receivables 11 Investments accounted for using the equity method 13 Other financial assets 14 Property, plant and equipment 15 Exploration and evaluation assets 16 Deferred tax assets 4 Intangible assets 17 Derivative financial assets 9 Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables 18 Interest bearing liabilities 19 Derivative financial liabilities 9 Current tax liabilities 4 Provisions 21 Total current liabilities	CONSOLIDATED 2008 2007 $000 $000 237,093 17,460 72,779 36,440 31,812 22,861 3,546 1,150 47,614 38,490	CONSOLIDATED 2008 2007 $000 $000 237,093 17,460 72,779 36,440 31,812 22,861 3,546 1,150 47,614 38,490	THE COMPANY 2008 2007 $000 $000 109,476 10,278 83,452 81,172 – – – 1,065 31 80	THE COMPANY 2008 2007 $000 $000 109,476 10,278 83,452 81,172 – – – 1,065 31 80
	392,844 10,435 187 – 197,864 17,908 35,526 194,519 70 456,509 849,353 55,759 20,856 16,416 19,134 608 112,773	116,401 7,084 204 – 195,883 13,797 72,302 231,152 131 520,553 636,954 36,708 17,432 – 162 1,121 55,423	192,959 20,748 – 241,393 752 – 5,543 301 – 268,737 461,696 58,197 3,509 – 18,935 – 80,641	92,595
				20,749 – 241,393 356 – 15,027 300 –
				277,825
				370,420
				1,218 3,500 – – –
				4,718

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FINANCIAL INFORMATION OF FELIX

Notes Non-current liabilities Trade and other payables 22 Interest bearing liabilities 20 Derivative financial liabilities 9 Deferred tax liabilities 4 Provisions 23 Total non-current liabilities Total liabilities Net assets EQUITY Issued capital 24a Reserves 25a Accumulated profits/(losses) 25d Parent entity interest Minority interest 26 Total equity	CONSOLIDATED 2008 2007 $000 $000 4,372 4,417 70,367 82,905 21,804 – 85,383 86,529 7,163 5,481 189,089 179,332 301,862 234,755 547,491 402,199	CONSOLIDATED 2008 2007 $000 $000 4,372 4,417 70,367 82,905 21,804 – 85,383 86,529 7,163 5,481 189,089 179,332 301,862 234,755 547,491 402,199	THE COMPANY 2008 2007 $000 $000 2,679 2,724 8,642 12,125 – – 331 323 – – 11,652 15,172 92,293 19,890 369,403 350,530 444,833 444,378 4,520 6,106 (79,950) (99,954) 369,403 350,530 – – 369,403 350,530	THE COMPANY 2008 2007 $000 $000 2,679 2,724 8,642 12,125 – – 331 323 – – 11,652 15,172 92,293 19,890 369,403 350,530 444,833 444,378 4,520 6,106 (79,950) (99,954) 369,403 350,530 – – 369,403 350,530
	444,833 (19,280) 118,410 543,963 3,528	444,378 6,681 (52,189) 398,870 3,329	444,833 4,520 (79,950) 369,403 –	444,378 6,106 (99,954
				350,530 –
	547,491	402,199	369,403

These financial statements should be read in conjunction with the accompanying notes.

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APPENDIX II

Income Statements

Year ended 30 June 2008

Notes Revenue 2a Cost of sales Gross profit Other income 2c Distribution expenses Administrative expenses Finance costs 3a Share of net losses of associates accounted for using the equity method 13c Profit/(loss) before income tax Income tax (expense)/revenue 4a Profit after income tax from continuing operations Profit attributable to minority interest Profit attributable to members of Felix Resources Limited 25d Basic earnings per share (cents per share) 27 Diluted earnings per share (cents per share) 27 Dividends paid per share (cents per share) 5	CONSOLIDATED 2008 2007 $000 $000 440,552 241,469 (223,085) (168,411)	CONSOLIDATED 2008 2007 $000 $000 440,552 241,469 (223,085) (168,411)	THE COMPANY 2008 2007 $000 $000 967 6,079 – – 967 6,079 250 (79) – – (9,253) (4,993) (1,157) (1,720) – – (4,581) 9,478 42,247 13,524 37,666 23,002 – – 37,666 23,002	THE COMPANY 2008 2007 $000 $000 967 6,079 – – 967 6,079 250 (79) – – (9,253) (4,993) (1,157) (1,720) – – (4,581) 9,478 42,247 13,524 37,666 23,002 – – 37,666 23,002
	217,467 124,331 (71,738) (18,561) (8,521) (17) 254,279 (65,819) 188,460 199	73,058 48,638 (57,196) (13,368) (5,048) (713) 49,758 (2,599) 47,159 202	967 250 – (9,253) (1,157) – (4,581) 42,247 37,666 –	6,079
				(79 – (4,993 (1,720 –
				9,478 13,524
				23,002
				–
	188,261 95.92 95.85 9.00	46,957 25.19 25.17 4.00	37,666

These financial statements should be read in conjunction with the accompanying notes.

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Statements of changes in equity

Year ended 30 June 2008

Notes Total equity at the beginning of the year Cash flow hedges: (Losses)/gains taken to equity 25 Gains transferred to profit for the year 25 Deferred and current tax 25 Net loss and transfers recognised directly in equity Profit for the year after income tax Total recognised income and expense for the year Non-cash share-based payments 25 Transactions with equity holders in their capacity as equity holders: Options exercised during the year 24 Minority interest Dividends paid during the year 5 Total equity at the end of the year Total recognised income and expense for the year is attributable to: Members of Felix Resources Limited Minority interest	CONSOLIDATED 2008 2007 $000 $000 402,199 356,315	CONSOLIDATED 2008 2007 $000 $000 402,199 356,315	THE COMPANY 2008 2007 $000 $000 350,530 330,300 (1,065) 2,440 (967) (6,067) 610 1,088 (1,422) (2,539) 37,666 23,002 36,244 20,463 135 593 156 6,384 – – (17,662) (7,210) (17,371) (233) 369,403 350,530 36,244 20,463 – – 36,244 20,463	THE COMPANY 2008 2007 $000 $000 350,530 330,300 (1,065) 2,440 (967) (6,067) 610 1,088 (1,422) (2,539) 37,666 23,002 36,244 20,463 135 593 156 6,384 – – (17,662) (7,210) (17,371) (233) 369,403 350,530 36,244 20,463 – – 36,244 20,463
	(12,370) (24,482) 11,055 (25,797) 188,460 162,663 135 156 – (17,662) (17,371) 547,491 162,464 199	2,656 (6,067) 1,023 (2,388) 47,159 44,771 593 6,384 1,346 (7,210) 1,113 402,199 44,569 202	(1,065) (967) 610 (1,422) 37,666 36,244 135 156 – (17,662) (17,371) 369,403 36,244 –	2,440 (6,067 1,088
				(2,539 23,002
				20,463
				593 6,384 – (7,210
				(233
				350,530
				20,463 –
	162,663	44,771	36,244

These financial statements should be read in conjunction with the accompanying notes.

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APPENDIX II

Cash flow statements

Year ended 30 June 2008

Notes Cash flows from operating activities Receipts from customers Payments to suppliers and employees Cash received on forward foreign exchange contracts Interest received Interest paid Income tax paid Net cash inflows/(outflows) from operating activities 28a Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets (157) Proceeds from sale of property, plant and equipment Proceeds from sale of available-for-sale financial assets Proceeds from sale of intangible assets Proceeds from sale of 20% interest in Moolarben Joint Venture 28c Proceeds from sale of 28.7% of Minerva & Athena Joint Ventures 28d Payment for exploration and evaluation activities 16a Return of share capital from associate 13b Advances from/(to) other entities Advances from controlled entities	CONSOLIDATED 2008 2007 $000 $000 381,460 305,383 (307,675) (287,975) 23,515 6,781 5,385 1,866 (8,318) (4,670) (163) –	CONSOLIDATED 2008 2007 $000 $000 381,460 305,383 (307,675) (287,975) 23,515 6,781 5,385 1,866 (8,318) (4,670) (163) –	THE COMPANY 2008 2007 $000 $000 1,821 1,194 (8,349) (6,158) – 4,023 3,330 927 (953) (1,342) – – (4,151) (1,356) (578) (416) (21) – 253 – – – – – – – 1,267 – – – – – – 125,095 5,069	THE COMPANY 2008 2007 $000 $000 1,821 1,194 (8,349) (6,158) – 4,023 3,330 927 (953) (1,342) – – (4,151) (1,356) (578) (416) (21) – 253 – – – – – – – 1,267 – – – – – – 125,095 5,069
	94,204	21,385	(4,151)	(1,356
	(15,045) (1,551) 212 – – 177,863 – (5,932) – 4,703 –	(88,184) (157) 563 1,572 344 – 41,521 (4,927) 3,949 (4,306) –	(578) (21) – – – – – – – – 125,095

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FINANCIAL INFORMATION OF FELIX

Notes Advances to associated entities Dividends received Net cash inflows/(outflows) from investing activities Cash flows from financing activities Proceeds from issue of ordinary shares Payment of finance lease liabilities Repayment of borrowings Dividends paid Net cash outflows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 28b	CONSOLIDATED 2008 2007 $000 $000 (2,791) (934) – –	CONSOLIDATED 2008 2007 $000 $000 (2,791) (934) – –	THE COMPANY 2008 2007 $000 $000 – – – 7,210 124,360 13,362 156 6,384 (5) – (3,500) (16,600) (17,662) (7,210) (21,011) (17,426) 99,198 (5,420) 10,278 15,698 109,476 10,278	THE COMPANY 2008 2007 $000 $000 – – – 7,210 124,360 13,362 156 6,384 (5) – (3,500) (16,600) (17,662) (7,210) (21,011) (17,426) 99,198 (5,420) 10,278 15,698 109,476 10,278
	158,853 156 (7,918) (8,000) (17,662) (33,424) 219,633 17,460	(51,953) 6,384 (6,367) (24,146) (7,210) (31,339) (61,907) 79,367	124,360 156 (5) (3,500) (17,662) (21,011) 99,198 10,278	13,362
				6,384 – (16,600 (7,210
				(17,426
				(5,420 15,698
	237,093	17,460	109,476

These financial statements should be read in conjunction with the accompanying notes.

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APPENDIX II

Notes to the financial statements

30 June 2008

1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial report covers the consolidated entity of Felix Resources Limited (“Felix”) and its controlled entities and Felix as an individual parent entity. Felix is a listed public company limited by shares, incorporated and domiciled in Australia.

This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the Corporations Act 2001 . It is prepared on the basis of historical costs, except for derivative financial instruments and available-for-sale financial assets that have been measured at fair value. The financial report is presented in Australian dollars.

All values in the financial report are rounded to the nearest thousand dollars ($000) unless otherwise stated under the option available to the Company under ASIC Class Order 98/100. The Company is an entity to which the class order applies.

The financial report complies with Australian Accounting standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the consolidated financial report, comprising the financial statements and notes thereto, complies with the International Financial Reporting Standards (IFRS).

No new Australian Accounting Standards that have been issued but are not yet effective have been applied in the preparation of this financial report. Such standards are not expected to have a material impact on the consolidated entity’s financial report on initial application. The financial report was authorised for issue by the Board of Directors on 27 August 2008.

The following is a summary of the material accounting policies adopted by the consolidated entity in the preparation of the financial report. The accounting policies have been consistently applied by the entities in the consolidated entity unless otherwise stated.

(a) Principles of consolidation

A controlled entity is any entity controlled by Felix. Control exists where Felix has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with Felix to achieve the objectives of Felix. A list of controlled entities is contained in note 6 to the financial statements.

All inter-company balances and transactions between entities and the consolidated entity, including any unrealised profits or losses, have been eliminated on consolidation.

Minority interests in the equity and results of entities that are controlled are shown as a separate item in the consolidated financial report. Losses applicable to the minority interest in a consolidated subsidiary are allocated against the majority except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. If in future years the subsidiary reports profits, such profits are allocated to the majority interest until the minority’s share of losses previously absorbed by the majority have been recovered.

Where an entity began or ceased to be controlled during the year the results for that entity are only included from the date control commenced or up to the date control ceased.

Associates are those entities over which the consolidated entity exercises significant influence, but not control. Investments in associates are accounted for in Felix’s financial statements using the cost method and in the consolidated financial statements using the equity method, after initially being recognised at cost. Under this method, the consolidated entity’s share of the post-acquisition profits or losses of

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APPENDIX II

associates is recognised in the consolidated income statement, and its share of post-acquisition movements in reserves is recognised in consolidated reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investments.

When the consolidated entity’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the consolidated entity does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

(b) Income tax

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and for unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rate expected to apply when the assets are recovered or the liabilities settled, based on those tax rates which are enacted or substantively enacted in each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. An exception is also made in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, and deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and tax losses.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

Felix and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the Tax Consolidation regime. Felix is responsible for recognising the current tax assets and liabilities for the tax consolidated group. Each entity in the tax consolidated group recognises its own deferred tax assets and liabilities, except where the deferred tax assets relate to unused tax losses and credits, in which case Felix recognises the assets. The Group has entered into a tax sharing agreement whereby each company in the Group contributes to the income tax payable in proportion to their contribution to the profit before tax of the tax consolidated group. The tax consolidated group has also entered into a tax funding agreement whereby each entity in the Group can recognise their balance of the current tax assets and liabilities through inter-entity accounts.

(c) Cash and cash equivalents

For the purpose of the cash flow statement, cash and cash equivalents include:

• (i) cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts; and

• (ii) investments in short-term money market instruments with maturity periods of less than 3 months.

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(d) Financial assets and financial liabilities

The consolidated entity classifies its financial assets and liabilities in to the categories listed below, with the allocation depending on the purpose the asset or liability was acquired.

• i) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Note 1(e) provides further information on loans and receivables.

ii) Financial assets at fair value through profit or loss

Financial assets at fair value through the profit or loss are financial assets held for trading. Derivatives are classified as held for trading unless they are designated as hedges. Other financial assets are classified as held for trading if acquired principally for the purpose of selling in the short-term. Note 1(x) provides further information on derivatives.

iii) Available-for-sale financial assets

Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other financial asset categories. Note 1(j) provides further information on investments classified as available-for-sale.

iv) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss comprises ’out of-the-money’ derivatives.

• v) Financial liabilities measured at amortised cost

Financial liabilities measured at amortised cost comprises trade and other payables, and interest bearing liabilities. Note 1(p) provides further information on interest bearing liabilities.

Details on financial risk management are disclosed in note 37.

(e) Loans and receivables

Trade receivables, loans and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

Debts which are known to be uncollectible are written off by reducing the carrying amount directly. A provision for impairment is made when there is objective evidence that the full amount is not collectible. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the impairment provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.

The amount of the impairment loss is recognised in the income statement. When a receivable for which an impairment provision had been recognised becomes uncollectible in a subsequent period, it is written off against the provision account.

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(f) Advances to controlled entities

Advances by the Company to controlled entities (refer to note 11) are principally contributions toward exploration expenditure and mine development. The value and recoverability of these amounts is related to the Company’s policies with regards to exploration and evaluation expenditure as described in note 1(m). Should the underlying asset values be insufficient to recover the advances the amounts are reviewed for impairment.

(g) Inventories

Coal stocks are stated at the lower of cost and net realisable value. Costs are assigned on a weighted average basis and include direct materials, direct labour and an appropriate proportion of variable and fixed overheads. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(h) Overburden in advance

Overburden in advance comprises the accumulation of expenses incurred to enable access to the coal seams, and includes direct removal costs, machinery and plant running costs.

(i) Property, plant and equipment

Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and accumulated impairment losses. The carrying amount of freehold land and buildings and plant and equipment is reviewed to ensure it is not in excess of the recoverable amount from these assets.

The depreciable amount of all fixed assets, including buildings and capitalised leased assets, but excluding freehold land, is depreciated on a straight-line or declining balance basis to allocate their cost, net of their residual values, over their estimated useful lives to the consolidated entity commencing from the time the asset is held ready for use, as follows:

Buildings	10 – 25 years
Mine development	10 – 25 years
Plant and equipment	2.5 to 25 years
Leased plant and equipment	2.5 to 18 years

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance date.

(j) Investments

All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investment. After initial recognition, investments in shares in listed companies classified as available-for-sale are measured at fair value. Fair value for shares in listed companies is determined by reference to the Australian Securities Exchange quoted market bid prices at the close of business on the reporting date. Gains and losses on these available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement.

Investments in shares in unlisted companies, which do not have a quoted market price and whose fair value cannot be reliably measured, are classified as available-for-sale and are measured at cost. Gains and losses are recognised in the income statement when the investments are derecognised or impaired.

Investments in controlled entities are carried in the parent entity’s financial statements at the lower of cost and recoverable amount. Investments in associates are accounted for in the consolidated financial statements as set out in note 1(a).

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(k) Interests in joint ventures

The consolidated entity’s share of the assets, liabilities, revenue and expenses of joint venture operations are included in the appropriate items of the consolidated financial statements. Details of the consolidated entity’s interests are shown in note 29.

(l) Intangible assets

Mining tenements

Mining tenements have a finite useful life and are carried at cost less, where applicable, any accumulated amortisation and accumulated impairment losses. The carrying values of mining tenements are reviewed to ensure they are not in excess of their recoverable amounts. The recoverable amount is assessed on the basis described in note 1(o).

Amortisation of mining tenements commences from the date when commercial production commences, or in the case of the acquisition of the Ashton Coal Project, from the date of acquisition, and is charged to the income statement as cost of sales. Mining tenements are amortised over the life of the mine using a straight-line basis (Yarrabee has 4 years life remaining), or on the basis of JORC reserves extracted as follows.

	$/Tonne
	Extracted
Minerva	$0.21
Ashton	$0.71

Changes in the annual amortisation rate resulting from changes in the remaining JORC reserves or life of mine are applied on a prospective basis from the commencement of the next financial year.

Computer software

Computer software has a finite useful life and is carried at cost less, where applicable, any accumulated amortisation and accumulated impairment losses. The carrying values of computer software are reviewed to ensure they are not in excess of their recoverable amounts. The recoverable amount is assessed on the basis described in note 1(o).

Amortisation of computer software is calculated using the straight-line or declining balance method to allocate the cost over the period of the expected benefit, which varies from 2.5 to 4 years.

Rail access rights

Rail access rights have a finite useful life and are carried at cost less, where applicable, any accumulated amortisation and accumulated impairment losses. The carrying values of rail access rights are reviewed to ensure they are not in excess of their recoverable amounts. The recoverable amount is assessed on the basis described in note 1(o).

Rail access rights are amortised over the life of the mine or agreement using a unit of production basis in tonnes for the Minerva mine or on a straight-line basis. The remaining estimated economically recoverable reserves of the Minerva mine at 30 June 2008 are 28.8 million tonnes. Amortisation is charged to the income statement as distribution expenses or cost of sales.

(m) Exploration and evaluation expenditure

Exploration and evaluation expenditure incurred is accumulated in respect of each separately identifiable area of interest. These costs are only carried forward where the right of tenure for the area of interest is current and to the extent that they are expected to be recouped through successful development

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APPENDIX II

and commercial exploitation, or alternatively, sale of the area, or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing.

The carrying amount of exploration and evaluation assets is assessed for impairment when facts or circumstances suggest the carrying amount of the assets may exceed their recoverable amount. The recoverable amount is assessed on the basis described in note 1(o).

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Accumulated costs in relation to an abandoned area are written-off in full in the period in which the decision to abandon the area is made.

When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves.

(n) Acquisition of assets

All assets acquired, including property, plant and equipment and intangibles other than goodwill are initially recorded at their cost of acquisition at the date of acquisition, being the fair value of consideration provided plus incidental costs directly attributable to the acquisition.

When equity instruments are issued as consideration, their market price at the date of acquisition is used as their fair value, except where the notional price at which they could be placed in the market is a better indication of their fair value.

Where settlement of any part of cash consideration is deferred, the amounts payable are recorded at their present value, discounted at the rate applicable to the consolidated entity as if a similar borrowing were obtained from an independent financier under comparable terms and conditions. The unwinding of the discount is treated as a finance cost.

(o) Recoverable amount of assets and impairment

At each reporting date, the consolidated entity assesses whether there is any indication that an asset may be impaired. Where an indication of impairment exists, the consolidated entity makes a formal estimate of the recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. The amount of the impairment loss is recognised in the income statement.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where it is not possible to estimate the recoverable amount of an individual asset, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs.

(p) Interest bearing liabilities

Interest bearing liabilities are initially recorded at fair value, net of transaction costs. Subsequent to initial recognition, interest bearing liabilities are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in the income statement over the period of the interest bearing liabilities using the effective interest rate method.

All interest bearing liabilities are classified as current liabilities unless the consolidated entity has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.

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(q) Borrowing costs

Borrowing costs incurred during the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are recognised as an expense when incurred.

(r) Leases

Leases of fixed assets where substantially all the risks and benefits incidental to ownership of the assets, but not the legal ownership, are transferred to the entities in the consolidated entity, are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the lower of the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual value. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives where it is likely that the consolidated entity will obtain ownership of the assets or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and lease finance charges for the year.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses on a straight-line basis over the lease term.

(s) Employee benefits

Annual leave, sick leave and long service leave

Benefits accruing to employees in respect of wages and salaries, annual leave and sick leave are included in trade and other payables. Related on-costs are also included in trade and other payables as other creditors. Long service leave is provided for when it is probable that settlement will be required and it is capable of being measured reliably.

Employee benefits expected to be settled within 12 months are measured at their normal values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to the reporting date.

Retirement benefit obligations

Contributions are made by the consolidated entity to defined contribution superannuation funds and are charged as expenses when incurred.

Share-based payments

The consolidated entity provides benefits to Directors, other key management personnel and general managers of the consolidated entity in the form of share-based payment transactions, whereby Directors, other key management personnel and general managers render services in exchange for options to purchase shares in the Company. The cost of these share-based payment transactions is measured by reference to the fair value at the date at which they are granted. Fair values at grant date are determined using a trinomial or binomial option pricing model that takes into account the exercise price, the life of the option, the current price of the underlying instrument, the expected price volatility of the underlying instrument, the expected dividend yield, and the risk-free interest rate for the life of the option.

The assessed fair value at grant date is recognised as an expense in the income statement, together with a corresponding increase in equity, pro-rata over the expected life of the option from grant date to expected vesting date. Upon exercise of the options, the balance in the options reserve is transferred to issued capital. No expense is recognised for options that do not ultimately vest because internal conditions were not met. An expense is still recognised for options that do not ultimately vest because a market condition is not met. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.

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(t) Rehabilitation

A provision for rehabilitation is recognised when there is a present obligation to rehabilitate an area disturbed, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. An asset is created as part of the current and non-current development assets, to the extent that the development relates to future production activities, which is offset by a current and non-current provision for rehabilitation.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

(u) Revenue

Revenue from the sale of coal is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery, usually on a Free On Board, Trimmed (FOBT) basis.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

Dividend revenue is recognised when the right to receive the dividend has been established.

Revenue from the rendering of a service is recognised upon the delivery of the service to the customer.

(v) Goods and services tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST.

The net amount of GST recoverable from or payable to the ATO is included as a current asset or liability in the balance sheet.

Cash flows are included in the cash flow statement on a gross basis. The GST components of cash flows arising from investing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

(w) Foreign currency transactions and balances

Items included in the financial statements of each entity of the consolidated entity are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Australian dollars, which is Felix’s functional and presentation currency.

Foreign currency transactions during the period are translated into the functional currency at rates of exchange applicable at the dates of each transaction. Monetary assets and liabilities denominated in foreign currencies at balance date are converted at rates of exchange ruling at that date.

Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities, whether realised or unrealised, are recognised in the income statement as they arise except where hedging specific anticipated transactions (see note 1(x)).

The monetary assets and liabilities of foreign controlled entities are translated at year-end rates. The non-monetary assets and liabilities are translated at rates at the transaction date or at the date these items are revalued or written down. Generally operating results are translated at average monthly rates. All

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APPENDIX II

resulting exchange differences are recognised as a separate component of equity. On disposal of a foreign controlled entity, the cumulative amount of such exchange differences are recognised in the income statement as part of the gain or loss on sale.

(x) Derivatives

The consolidated entity uses derivative financial instruments such as forward foreign exchange contracts, coal swap contracts, and interest rate swap contracts to hedge its risks associated with foreign currency, coal price, and interest rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value at each reporting date. The resulting gain or loss arising from changes in the fair value of derivatives, except for those that qualify as cash flow hedges, is recognised in the income statement immediately.

The fair value of forward foreign exchange contracts is determined using forward foreign exchange market rates at reporting date. The fair value of coal swap contracts is determined using forward coal price market rates at reporting date. The market rates are provided by the counterparty to the derivative.

The fair value of interest rate swap contracts is calculated as the present value of the estimated future cash flows.

The forward foreign exchange contracts, coal swap contracts, and interest rate swap contracts entered into by the consolidated entity are designated and qualify as cash flow hedges.

The consolidated entity documents at the inception of the contract the hedging relationship between hedging instruments and hedged items, including the risk management objectives and strategies for undertaking various hedge transactions. The consolidated entity also documents its assessment, both at inception and periodically, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

The gains or losses in respect of hedge transactions which relate to future purchases or sales are deferred and included in the measurement of the purchase or sale to which they relate when the anticipated transaction occurs. Any gains or losses on the hedge transaction after that date are included in the income statement.

The net amount receivable or payable as a result of a hedge transaction is included as an asset or liability in the balance sheet from the date of inception of the hedge. The corresponding unrealised gain or loss is recognised in equity in the hedging reserve. Changes in the fair value of the forward foreign exchange contracts, coal swap contracts, or interest rate swap contracts are recognised through the hedging reserve until the anticipated underlying transaction occurs. Once the anticipated underlying transaction occurs, amounts accumulated in equity are recycled through the income statement or recognised as part of the cost of the asset to which it relates.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity and is recognised when the forecast transaction is ultimately recognised. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement for the year.

(y) Issued capital

Costs directly attributable to the issue of new shares or options are shown as a deduction from the equity proceeds, net of any income tax benefit. Costs directly attributable to the issue of new shares or options associated with the acquisition of a business are included as part of the purchase consideration.

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APPENDIX II

(z) Critical accounting estimates and other accounting judgements

The Directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group.

There have been no judgements, apart from those involving estimation, in applying accounting policies that have a significant effect on the amounts recognised in this financial report.

Following is a summary of the key assumptions concerning the future, and other key sources of estimation at reporting date that have not been disclosed elsewhere in this financial report.

Impairment

The consolidated entity assesses impairment at each reporting date by evaluating conditions specific to the consolidated entity that may lead to an impairment. Where an indicator of impairment exists, the recoverable amount of the asset is determined. The value-in-use calculations performed to determine the recoverable amount of the cash-generating units to which these assets belong has been based on actual operating results and a cash flow model based on life of mines. The pre-tax discount rate applied in the model is 11.5%. Coal prices used in the model have been determined based on an analysis of long term market price trends and estimated future foreign currency rates. Note 9 provides further information on the consolidated entity’s exposure to foreign currency risk.

No impairment has been recognised in respect of mine development assets, mining tenements, rail access rights or exploration and evaluation assets where the related area of interest is being or has been developed, for the reporting period.

Amortisation

The amortisation of mine development assets, mining tenements, rail access rights, exploration and evaluation assets where the related area of interest is being or has been developed, and the expensing of overburden removal costs is based on saleable coal production over estimated economically recoverable reserves. The amount of reserves that may actually be mined in the future and the consolidated entity’s estimate of reserves from time to time in the future may vary from current reserve estimates.

(aa) Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to the members of Felix by the weighted average number of ordinary shares outstanding during the financial year.

Diluted earnings per share

Earnings used to calculate diluted earnings per share are calculated by adjusting the basic earnings by the after-tax effect of dividends and interest associated with dilutive potential ordinary shares. The weighted average number of shares used is adjusted for the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

2 REVENUE AND INCOME

Notes From continuing operations a) Revenue Sales of coal Gain on forward foreign exchange contracts Total revenue b) Other revenue Rendering of services: Management fees Marketing fees Interest received – other parties Dividends from related parties 33 Rentals Plant hire Total other revenue c) Other income Net gain/(loss) on disposal of interests in joint ventures and projects Disposal of 20% interest in Moolarben Joint Venture 28c Disposal of 28.7% interest in Minerva & Athena Joint Ventures 28d Total net gain on disposal of interests in joint ventures and projects Net gain on sale of available-for-sale financial assets Option premiums for sales of tenements Other income Total other income	CONSOLIDATED 2008 2007 $000 $000 416,070 232,620 24,482 8,849 440,552 241,469	CONSOLIDATED 2008 2007 $000 $000 416,070 232,620 24,482 8,849 440,552 241,469	THE COMPANY 2008 2007 $000 $000 – – 967 6,079 967 6,079 – – 1,282 1,198 3,330 927 – 7,210 – – – 856 4,612 10,191 – – – (79) – (79) – – – – 250 – 250 (79)	THE COMPANY 2008 2007 $000 $000 – – 967 6,079 967 6,079 – – 1,282 1,198 3,330 927 – 7,210 – – – 856 4,612 10,191 – – – (79) – (79) – – – – 250 – 250 (79)
	2,946 816 7,404 – 152 –	874 722 1,866 – 161 764	– 1,282 3,330 – – –	– 1,198 927 7,210 – 856
	11,318	4,387	4,612
	123,657 (34) 123,623 – – 708	17,956 28,208 46,164 1,136 780 558	– – – – – 250	– (79
				(79
				– – –
	124,331	48,638	250

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

3 PROFIT BEFORE INCOME TAX

Profit before income tax has been determined after charging the following:

Notes a) Expenses Finance costs Finance lease charges Finance lease charges – related parties 34a Other interest charges Total finance costs Less finance costs capitalised Less finance costs capitalised – related parties 34a Total finance costs expensed Depreciation of non-current assets Plant and equipment Mine development Buildings Total depreciation Amortisation of non-current assets Leased plant and equipment Exploration Mining tenements Rail access rights Computer software Total amortisation Total depreciation & amortisation expense	CONSOLIDATED 2008 2007 $000 $000 1,922 1,934 494 778 6,105 7,577	CONSOLIDATED 2008 2007 $000 $000 1,922 1,934 494 778 6,105 7,577	THE COMPANY 2008 2007 $000 $000 1 – – – 1,156 1,720	THE COMPANY 2008 2007 $000 $000 1 – – – 1,156 1,720
	8,521 – –	10,289 (4,621) (620)	1,157 – –	1,720 – –
	8,521	5,048	1,157	1,720
	10,141 5,296 368 15,805 7,078 314 4,665 621 156 12,834	4,941 2,071 75 7,087 6,367 250 3,202 364 199 10,382	209 – – 209 4 – – – 156 160	153 – –
				153
				– – – – 199
				199
	28,639	17,469	369	352

– 242 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Notes Employee expenses Defined contribution superannuation expense Employee benefits expense Share-based payments expense Employee expense on-costs Total employee expenses Rental expenses on operating leases – minimum lease payments Government royalties b) Losses Net loss/(gain) on disposal of non-current plant and equipment Net foreign exchange losses c) Significant expenses and profits The following significant expense and profit items are relevant in explaining the financial performance: Expenses Demurrage Profits Net gain on disposal of 20% of Moolarben Joint Venture 28c Net (loss)/gain on disposal of 28.7% of Minerva & Athena Joint Ventures 28d Net (increase)/decrease in impairment of controlled entity loans	CONSOLIDATED 2008 2007 $000 $000 2,798 2,762 38,725 31,723 135 593 3,708 3,677 45,366 38,755	CONSOLIDATED 2008 2007 $000 $000 2,798 2,762 38,725 31,723 135 593 3,708 3,677 45,366 38,755	THE COMPANY 2008 2007 $000 $000 309 236 4,167 2,591 135 593 454 309 5,065 3,729 290 165 – – – (21) 1 – – – – – – (79) (101) 1,843	THE COMPANY 2008 2007 $000 $000 309 236 4,167 2,591 135 593 454 309 5,065 3,729 290 165 – – – (21) 1 – – – – – – (79) (101) 1,843
	1,552 25,277 14 247 6,347 123,657 (34) –	2,305 14,218 (13) – 7,373 17,956 28,208 –	290 – – 1 – – – (101)	165
				–
				(21 –
				–
				– (79 1,843

– 243 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Notes d) Reconciliation of profit/ (loss) before income tax to operating profit/(loss) Profit/(loss) before income tax Net gain on disposal of 20% of Moolarben Joint Venture 28c Net loss/(gain) on disposal of 28.7% of Minerva & Athena Joint Ventures 28d Operating profit/(loss) INCOME TAX a) Income tax recognised in profit Current Tax Deferred tax Origination and reversal of temporary differences Benefit of tax losses recognised (Over)/under provision in prior years Total income tax expense/(revenue) b) Numerical reconciliation of the effective tax rate Profit/(loss) before income tax Income tax expense at 30% (2007: 30%) Increase/(decrease) in income tax expense/(revenue) due to: Non-deductible expenses Non-assessable income Non-deductible share-based payments Research and development concession Other deductible expenses	CONSOLIDATED 2008 2007 $000 $000 254,279 49,758 (123,657) (17,956) 34 (28,208) 130,656 3,594 CONSOLIDATED 2008 2007 $000 $000 79,526 5,921	CONSOLIDATED 2008 2007 $000 $000 254,279 49,758 (123,657) (17,956) 34 (28,208) 130,656 3,594 CONSOLIDATED 2008 2007 $000 $000 79,526 5,921	THE COMPANY 2008 2007 $000 $000 (4,581) 9,478 – – – 79 (4,581) 9,557 THE COMPANY 2008 2007 $000 $000 (1,890) (384) 520 372 (40,877) (17,601) (40,357) (17,229) – 4,089 (42,247) (13,524) (4,581) 9,478 (1,374) 2,843 248 245 – (2,716) 41 178 – – (285) (562) (1,370) (12)	THE COMPANY 2008 2007 $000 $000 (4,581) 9,478 – – – 79 (4,581) 9,557 THE COMPANY 2008 2007 $000 $000 (1,890) (384) 520 372 (40,877) (17,601) (40,357) (17,229) – 4,089 (42,247) (13,524) (4,581) 9,478 (1,374) 2,843 248 245 – (2,716) 41 178 – – (285) (562) (1,370) (12)
	(7,208) – (7,208) (6,499)	9,687 (13,473) (3,786) 464	520 (40,877) (40,357) –	372 (17,601
				(17,229
				4,089
	65,819	2,599	(42,247)
	254,279 76,284 290 – 41 (3,964) (333) 72,318	49,758 14,927 996 – 178 (181) (312) 15,608	(4,581) (1,374) 248 – 41 – (285) (1,370)	9,478
				2,843 245 (2,716 178 – (562
				(12

4 INCOME TAX

– 244 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

(Over)/under provision in prior years Prior year tax losses not previously recognised Income tax expense attributable to the wholly owned subsidiaries in the tax consolidated group Recovery of income tax expense under tax sharing agreement Income tax expense/(revenue) Effective tax rate c) Amount recognised directly in equity Changes in derivative financial instruments Current tax Net deferred tax d) Unrecognised deferred tax balances Tax losses attributable to members of the tax consolidated group-revenue Tax losses attributable to subsidiaries not members of the tax consolidated group-revenue Tax losses attributable to subsidiaries not members of the tax consolidated group-capital Potential tax benefit @ 30% (2007: 30%)	CONSOLIDATED 2008 2007 $000 $000 (6,499) 464 – (13,473) – – – – 65,819 2,599	CONSOLIDATED 2008 2007 $000 $000 (6,499) 464 – (13,473) – – – – 65,819 2,599	THE COMPANY 2008 2007 $000 $000 – 4,089 (40,877) (17,601) 85,178 7,852 (85,178) (7,852) (42,247) (13,524) 922.2% (142.7%) (290) (617) (320) (471) (610) (1,088) – – – – – – – –	THE COMPANY 2008 2007 $000 $000 – 4,089 (40,877) (17,601) 85,178 7,852 (85,178) (7,852) (42,247) (13,524) 922.2% (142.7%) (290) (617) (320) (471) (610) (1,088) – – – – – – – –
	25.9% (290) (10,765)	5.2% (617) (406)	922.2% (290) (320)	(142.7%
				(617 (471
	(11,055)	(1,023)	(610)
	4,087 9,821 1,703	– 3,606 1,718	– – –	– – –
	15,611	5,324	–

There is no expiry date on the future deductibility of unused tax losses. The benefit of revenue losses of $3,622,000 (2007: $3,606,000) and capital losses of $1,703,000 (2007: $1,718,000) are not recognised until it is probable that the subsidiary will earn future taxable amounts that will enable it to utilise these tax losses. The benefit of revenue losses of $10,286,000 (2007: $Nil) are not recognised until it is probable that the subsidiary will be able to utilise these tax losses.

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

e) Current tax liabilities Income tax payable f) Deferred tax assets Amounts recognised in profit and loss Employee benefits provisions Rehabilitation provisions Inventory Property, plant and equipment Investments accounted for using the equity method Mining tenements Finance lease liabilities Tax losses Other Amounts recognised directly in equity Derivative financial instruments g) Deferred tax liabilities Amounts recognised in profit or loss Trade & other receivables Inventory Overburden Property, plant and equipment Mine development Mining tenements Exploration and evaluation Other intangible assets Other Amounts recognised directly in equity Derivative financial instruments	CONSOLIDATED 2008 2007 $000 $000 19,134 162	CONSOLIDATED 2008 2007 $000 $000 19,134 162	THE COMPANY 2008 2007 $000 $000 18,935 –	THE COMPANY 2008 2007 $000 $000 18,935 –
	1,298 2,331 – 2,140 1,140 2,401 7,080 5,341 2,329	977 1,981 1,566 3,441 1,052 1,181 7,048 53,994 1,062	187 – – 7 – – 8 5,341 –	97 – – – – – – 14,929 1
	24,060	72,302	5,543	15,027
	11,466	–	–	–
	35,526	72,302	5,543	15,027
	892 2,891 13,432 7,996 11,455 39,966 5,372 88 2,206 84,298 1,085	6,271 642 11,175 9,767 3,123 49,953 4,139 35 1,040 86,145 384	323 – – 8 – – – – – 331 –	– – – 3 – – – – –
				3 320
	85,383	86,529	331	323

h) Tax Consolidation

For the purposes of taxation, Felix Resources Limited and its 100% owned Australian subsidiaries are a tax consolidated group. The head entity of the tax consolidated group is Felix Resources Limited. Felix is responsible for recognising the current tax assets and liabilities for the tax consolidated group. Each entity in the tax consolidated group recognises its own deferred tax assets and liabilities, except where the deferred tax assets relate to unused tax losses and credits, in which case Felix recognises the assets.

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

The Group has entered into a tax sharing agreement whereby each company in the Group contributes to the income tax payable in proportion to their contribution to the profit before tax of the tax consolidated group. The tax consolidated group has also entered into a tax funding agreement whereby each entity in the Group can recognise their balance of the current tax assets and liabilities through inter-entity accounts. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is remote.

5 DIVIDENDS

a) Dividend paid during the year on ordinary shares i) Dividend of 6.00 cents per share on 31 October 2007, unfranked (2007: 20% franked, 4.00 cents per share) ii) Dividend of 3.00 cents per share on 31 March 2008, unfranked (2007: Nil) b) Dividend on ordinary shares proposed and not recognised as a liability Partially franked (30%) dividend of 50 cents per share (2007: 6.00 cents per share, unfranked) The tax rate at which dividends are franked is 30% (2007: 30%). c) Franking credit balance The amount of franking credits available for the subsequent reporting period is: Franking account balance as at the end of the year at 30% (2007: 30%) Franking credits that will arise on the payment of the provision for income tax Franking debits that will arise from the payment of the dividend proposed but not recognised as a liability Balance available for the subsequent reporting period	CONSOLIDATED 2008 2007 $000 $000 11,772 7,210 5,890 – 17,662 7,210	CONSOLIDATED 2008 2007 $000 $000 11,772 7,210 5,890 – 17,662 7,210	THE COMPANY 2008 2007 $000 $000 11,772 7,210 5,890 – 17,662 7,210	THE COMPANY 2008 2007 $000 $000 11,772 7,210 5,890 – 17,662 7,210
				7,210
	98,163 204 18,935 (12,621)	11,772 204 – –	98,163 – – –	11,772
				– – –
	6,518	204	–	–

– 247 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

6 CONTROLLED ENTITIES

OWNED Country of Incorporation 2008 2007 % % The Company: Felix Resources Limited Australia Controlled Entities at Cost: Auriada Limited Ireland 100 100 Ballymoney Power Limited Ireland 100 100 Balhoil Nominees Pty Ltd Australia 100 100 Accumulated impairment loss South Australian Coal Corp Pty Limited Australia 100 100 SASE Pty Ltd Australia 90 90 Accumulated impairment loss Athena Coal Pty Ltd Australia 100 100 Minerva Mining Pty Ltd Australia 100 100 Felix Coal Sales Pty Ltd Australia 100 100 Proserpina Coal Pty Ltd Australia 100 100 Minerva Coal Pty Ltd Australia 51 51 Yarrabee Coal Company Pty Ltd Australia 100 100 White Mining Limited Australia 100 100 White Mining Services Pty Limited Australia 100 100 Tonford Pty Ltd Australia 100 100 Moolarben Coal Operations Pty Ltd (formerly Splitters Hollow Pty Limited) Australia 100 100 Moolarben Coal Mines Pty Limited Australia 100 100 Ashton Coal Operations Pty Limited Australia 100 100 White Mining (NSW) Pty Limited Australia 100 100 UCC Energy Pty Limited Australia 100 100 Agrarian Finance Pty Ltd Australia 100 100 Advanced Clean Coal Technology Pty Limited Australia 100 100 White Mining Research Pty Ltd Australia 100 100 Felix NSW Pty Ltd Australia 100 100 Moolarben Coal Sales Pty Ltd Australia 100 –

THE COMPANY 2008 2007 $000 $000 – – – – 839 839 (839) (839) – – 14,504 14,504 (14,504) (14,504) – – – – – – – – 3,614 3,614 14,910 14,910 222,869 222,869 – – – – – – – – – – – – – – – – – – – – – – – – 241,393 241,393

All controlled entities have 30 June balance dates. All equity interests are held in ordinary shares. All controlled entities are vehicles for exploration, development and operational activities of the consolidated entity. The proportion of ownership interest is equal to the proportion of voting power held.

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APPENDIX II

Deed of Cross Guarantee

A deed of cross guarantee exists between Felix Resources Limited and its wholly-owned subsidiaries Yarrabee Coal Company Pty Ltd, South Australian Coal Corp Pty Limited and Balhoil Nominees Pty Ltd. The deed was enacted during 2004 and relief was obtained from preparing a financial report for Yarrabee Coal Company Pty Ltd under ASIC Class Order 98/1418. Under the deed, Felix Resources Limited guarantees to support the liabilities and obligations of the subsidiaries. The above companies represent a Closed Group for the purpose of the Class Order, and as there are no other parties to the Deed of Cross Guarantee that are controlled by Felix Resources Limited, they also represent the Extended Closed Group. The following are the aggregate totals for the Closed Group, for each category, relieved under the deed.

Financial Information in relation to: (i) Income statement Profit before income tax Income tax revenue Profit after income tax Profit attributable to members of Felix Resources Limited (ii) Accumulated losses Accumulated Losses at the beginning of the financial year Profit after income tax Dividends paid Accumulated Losses at the end of the financial year (iii) Balance sheet ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial assets Other Total current assets Non-current assets Trade and other receivables Other financial assets Property, plant and equipment Exploration and evaluation assets Deferred tax assets Intangible assets Total non-current assets Total assets	CLOSED GROUP 2008 $000 27,932 33,755 61,687 61,687	CLOSED GROUP 2007 $000 4,731 11,539 16,270 16,270 (93,601) 16,270 (7,210) (84,541) 14,641 84,813 12,477 1,065 17,620 130,616 20,748 226,483 12,761 1,867 19,649 3,014 284,522 415,138
	(84,541) 61,687 (17,662)	(93,601 16,270 (7,210
	(40,516)
	111,032 99,839 15,727 55 22,760	14,641 84,813 12,477 1,065 17,620
	249,413
	20,748 226,483 19,345 2,020 10,733 2,412 281,741 531,154	20,748 226,483 12,761 1,867 19,649 3,014
		284,522
		415,138

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

LIABILITIES Current liabilities Payables Interest bearing liabilities Current tax liabilities Provisions Total current liabilities Non-current liabilities Payables Interest bearing liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets EQUITY Issued capital Reserves Accumulated losses Total equity	CLOSED GROUP 2008 $000 69,256 4,300 18,935 –	CLOSED GROUP 2007 $000 19,435 3,808 – 300
	92,491 2,679 13,745 11,195 2,089 29,708 122,199	23,543
		2,724 13,343 7,717 1,789
		25,573
		49,116
	408,955	366,022
	444,833 4,638 (40,516)	444,378 6,185 (84,541
	408,955	366,022

7 CASH AND CASH EQUIVALENTS

Notes Cash at bank and on hand Short-term deposits 28b	CONSOLIDATED 2008 2007 $000 $000 5,844 11,495 231,249 5,965 237,093 17,460	THE COMPANY 2008 2007 $000 $000 1,134 4,777 108,342 5,501 109,476 10,278	THE COMPANY 2008 2007 $000 $000 1,134 4,777 108,342 5,501 109,476 10,278
			10,278

a) Short-term deposits

Short-term deposits at 30 June 2008 include $26,750,324 (2007: $77,135) in the proceeds account as part of the Ashton Underground Syndicated Facility Agreement (SFA). These funds must firstly be used for payments due under the SFA and then are available for use by the consolidated entity. Proceeds of coal sales from the Ashton mine are deposited into the proceeds account. Further information concerning the SFA is set out in note 20.

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APPENDIX II

b) Effective interest rate risk

Information concerning the effective interest rate of cash and cash equivalents is set out in note 37.

c) Fair value

Due to the short-term nature of the deposits, their carrying amount is assumed to approximate their fair value.

8 TRADE AND OTHER RECEIVABLES (CURRENT)

Notes Trade receivables Receivable from controlled entities 33d Receivable from Sojitz Moolarben Resources Pty Ltd 28c Other debtors Advances to controlled entities Loan to related entity-interest bearing Secured loan-interest bearing	CONSOLIDATED 2008 2007 $000 $000 66,922 5,618 – – – 20,000 4,152 3,855 – – – 6,967 1,705 – 72,779 36,440	THE COMPANY 2008 2007 $000 $000 420 1,639 81,789 10,504 – – 1,243 237 – 68,792 – – – – 83,452 81,172	THE COMPANY 2008 2007 $000 $000 420 1,639 81,789 10,504 – – 1,243 237 – 68,792 – – – – 83,452 81,172
			81,172

a) Past due but not impaired

As at 30 June 2008, the consolidated entity had trade receivables of $7,607,000 (2007: $675,000) that were past due but not impaired. As at 30 June 2008, the Company had trade receivables of $56,000 (2007: $389,000) that were past due but not impaired. The ageing analysis of these trade receivables is as follows:

Notes < 30 days 30-60 days 60-90 days Greater than 90 days	CONSOLIDATED 2008 2007 $000 $000 3,523 – 3,831 353 20 172 233 150 7,607 675	THE COMPANY 2008 2007 $000 $000 – – 55 122 1 87 – 180 56 389	THE COMPANY 2008 2007 $000 $000 – – 55 122 1 87 – 180 56 389
			389

At 30 June 2008, the consolidated entity’s trade receivables included three past due coal sales invoices totalling $7.3 million that were received shortly after the reporting date.

The other classes within trade and other receivables do not contain impaired assets and are not past due. It is expected that these amounts will be received when due. The consolidated entity does not hold any collateral in relation to trade and other receivables.

b) Other receivables

The receivable from Sojitz Moolarben Resources Pty Ltd represented the amount owing in relation to the 10% sale of the Moolarben Coal Project, $Nil (2007: $20,000,000).

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

The loan to a related entity represented funds advanced to Newcastle Coal Infrastructure Group Pty Ltd, a company in which the consolidated entity has a minority shareholding. In August 2005 Newcastle Coal Infrastructure Group Pty Ltd was selected by the New South Wales government as the preferred developer and operator of a third coal loader for the port of Newcastle. The loan was interest bearing and unsecured. The loan principal and interest were repaid upon funding of the project.

For the Company, the receivable from controlled entities represents the receivables from tax consolidated entities under the tax funding agreement, see note 4(h).

The advances to controlled entities are repayable at call.

The secured loan is to former Director Mr John Rawlins. The terms and conditions of the loan are set out in note 34(c).

c) Foreign exchange and interest rate risk

Information about the consolidated entity’s and the Company’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is set out in note 37.

d) Fair value and credit risk

Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above. Refer to note 37 for more information on the risk management policy of the consolidated entity and the credit quality of the entity’s trade receivables.

9 DERIVATIVE FINANCIAL INSTRUMENTS

CURRENT ASSETS Interest rate swap contracts – receivable Forward foreign exchange contracts – receivable NON-CURRENT ASSETS Interest rate swap contracts – receivable CURRENT LIABILITIES Coal swap contracts – payable NON-CURRENT LIABILITIES Coal swap contracts-payable	CONSOLIDATED 2008 2007 $000 $000 326 85 3,220 1,065 3,546 1,150	CONSOLIDATED 2008 2007 $000 $000 326 85 3,220 1,065 3,546 1,150	THE COMPANY 2008 2007 $000 $000 – – – 1,065 – 1,065	THE COMPANY 2008 2007 $000 $000 – – – 1,065 – 1,065
				1,065
	70	131	–	–
	70	131	–	–
	16,416	–	–	–
	16,416	–	–	–
	21,804	–	–	–
	21,804	–	–	–

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

a) Instruments used by the consolidated entity

The consolidated entity uses derivative financial instruments in order to hedge exposure to fluctuations in interest rates, foreign exchange rates, and coal prices in accordance with the financial risk management policies (refer to note 37).

(i) Forward foreign exchange contracts – cash flow hedges

The consolidated entity enters into forward foreign exchange contracts to sell or purchase specified amounts of foreign currencies in the future at stipulated exchange rates. The objective of entering into the forward foreign exchange contracts is to reduce the foreign exchange rate related volatility of the consolidated entity’s revenue stream and thereby assist in risk management for the consolidated entity. Foreign currency speculation is specifically excluded. Forward foreign exchange contracts are entered for contracted future sales undertaken in foreign currencies and contracted future capital expenditure undertaken in foreign currencies.

The outstanding US$ contracts are hedging highly probable forecasted sales of coal, whereas the outstanding Euro and Yen contracts relate to the purchase of mining equipment for Yarrabee and Minerva respectively. The contracts are timed to mature when funds for coal sales are forecast to be received and when payments for mining equipment are scheduled to be made. At balance date, the details of the outstanding forward foreign exchange contracts are set out below. Refer to note 38(a) for post balance date forward foreign exchange contracts taken out.

Settlement Less than 6 months 6 months to 1 year Settlement Less than 6 months Settlement Less than 6 months	SELL UNITED STATES DOLLARS 2008 2007 USD000 USD000 53,766 6,489 9,000 20,000 62,766 26,489 BUY EUROS 2008 2007 EUR000 EUR000 2,428 – 2,428 – BUY JAPANESE YEN 2008 2007 YEN000 YEN000 268,073 – 268,073 –	AVERAGE EXCHANGE RATES 2008 2007 US$ US$ 0.9142 0.7717 0.8474 0.8379 0.9040 0.8207 AVERAGE EXCHANGE RATE 2008 2007 € € 0.5973 – 0.5973 – AVERAGE EXCHANGE RATE 2008 2007 ¥ ¥ 91.6800 – 91.6800 –	AVERAGE EXCHANGE RATES 2008 2007 US$ US$ 0.9142 0.7717 0.8474 0.8379 0.9040 0.8207 AVERAGE EXCHANGE RATE 2008 2007 € € 0.5973 – 0.5973 – AVERAGE EXCHANGE RATE 2008 2007 ¥ ¥ 91.6800 – 91.6800 –
			–

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

(ii) Coal price swap contracts – cash flow hedges

The consolidated entity enters into coal swap contracts to sell specified amounts of coal in the future at stipulated prices. The objective of entering into the coal swap contracts is to reduce the coal price related volatility of the consolidated entity’s revenue stream and thereby assist in risk management for the consolidated entity. Coal price speculation is specifically excluded. Coal swap contracts are entered for contracted future sales.

The outstanding coal swap contracts are hedging highly probable forecasted sales of coal. The contracts are timed to mature when funds for coal sales are forecast to be received. At balance date, the details of the outstanding coal swap contracts are set out below. Refer to note 38(a) for post balance date coal swap contracts taken out.

Settlement 6 months to 1 year 1 year to less than 2 years	VOLUME 2008 2007 Tonnes 000 Tonnes 000 300 – 420 – 720 –	AVERAGE COAL PRICE 2008 2007 USD USD 121.76 – 121.76 – 121.76 –	AVERAGE COAL PRICE 2008 2007 USD USD 121.76 – 121.76 – 121.76 –
			–

The gains and losses on hedges of anticipated coal sales, interest expense and capital expenditure are recognised in the hedging reserve and the timing of their anticipated recognition as part of sales, interest expense, and capital expenditure are set out below:

Not later than 1 year 1 year to less than 2 years 2 years to less than 3 years	CONSOLIDATED Net (Loss)/Gain 2008 2007 $000 $000 (12,870) 1,150 (21,734) 106 – 25 (34,604) 1,281	CONSOLIDATED Net (Loss)/Gain 2008 2007 $000 $000 (12,870) 1,150 (21,734) 106 – 25 (34,604) 1,281
		1,281

Details of movements in the hedging reserve are set out in note 25. There was no hedge ineffectiveness in the current or prior year.

b) Credit risk exposures

Forward foreign exchange, coal swap, and interest rate swap contracts are subject to credit risk in relation to the relevant counterparties, which are principally large financial institutions. The maximum credit risk exposure is the full amount of unrealised gains on derivative financial instruments, should the counterparty fail to pay the amount which it is committed to pay the consolidated entity. The full amount of the exposure for the consolidated entity is $3,616,000 (2007: $1,281,000) and for the company $Nil (2007: $1,065,000). Further information about the consolidated entity’s and the Company’s exposure to credit risk in relation to derivatives is set out in note 37.

c) Foreign currency, interest rate, and price risk

Information about the consolidated entity’s and the Company’s exposure to foreign currency risk, price risk, and interest rate risk in relation to derivatives is set out in note 37.

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

d) Fair value

The fair value of forward foreign exchange contracts is determined using forward foreign exchange market rates at reporting date. The fair value of coal swap contracts is determined using forward coal price market rates at reporting date. The market rates are provided by the counterparty to the derivative. The fair value of interest rate swap contracts is calculated as the present value of the estimated future cash flows.

10 OTHER ASSETS (CURRENT)

Prepayments Overburden at cost	CONSOLIDATED 2008 2007 $000 $000 2,842 1,239 44,772 37,251 47,614 38,490	THE COMPANY 2008 2007 $000 $000 31 80 – – 31 80	THE COMPANY 2008 2007 $000 $000 31 80 – – 31 80
			80

11 TRADE AND OTHER RECEIVABLES (NON-CURRENT)

Secured Director loan – interest bearing Unsecured Loan to a related entity Advances to controlled entities Less: Accumulated impairment losses Advances to associated entities	CONSOLIDATED 2008 2007 $000 $000 – 1,705 2,264 – – – – – 8,171 5,379 10,435 7,084	THE COMPANY 2008 2007 $000 $000 – – – – 82,645 82,545 (61,897) (61,796) – – 20,748 20,749	THE COMPANY 2008 2007 $000 $000 – – – – 82,645 82,545 (61,897) (61,796) – – 20,748 20,749
			20,749

a) Terms & conditions relating to the above financial instruments

Details regarding the secured loan to a former Director are set out in note 34(c). The loan is secured against real property, whereby the lender has first right of refusal and the borrower is precluded from mortgaging the property to any other party.

The loan to a related entity represents funds advanced to Newcastle Coal Infrastructure Group Pty Ltd, a company in which the consolidated entity has a minority shareholding. This loan is non-interest bearing and is repayable over the 12 months commencing from 31 January 2011.

Advances to controlled entities by the Company includes a loan to White Mining Limited on acquisition to enable White Mining Limited to repay the majority of its shareholder loans.

Advances to controlled entities by the Company also includes advances to SASE Pty Ltd (SASE), South Australian Coal Corp Pty Limited (SACC), Ballymoney Power Limited (BPL), and an advance to Minerva Coal Pty Ltd which was acquired by the Company on purchase of Minerva Coal Pty Ltd. Details regarding the advances to associated entities are set out in note 33(d).

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

b) Impaired trade and other receivables

As at 30 June 2008 advances to controlled entities by the Company with a nominal value of $61,897,000 (2007: $61,796,000) were impaired. The impaired advances relate to the amounts receivable by the Company from SASE, SACC and BPL. These amounts are principally contributions toward exploration expenditure.

The value and recoverability of these amounts is related to the Company’s policies with regards to exploration and evaluation expenditure as described in note 1(m).

Movements in the provision for impairment of advances to controlled entities are as follows:

Balance at beginning of the year Provision for impairment recognised during the year Unused amount reversed Balance at end of the year	CONSOLIDATED 2008 2007 $000 $000 – – – – – – – –	THE COMPANY 2008 2007 $000 $000 61,796 63,639 102 4 (1) (1,847) 61,897 61,796	THE COMPANY 2008 2007 $000 $000 61,796 63,639 102 4 (1) (1,847) 61,897 61,796
			61,796

The creation and release of the provision for impairment of advances to controlled entities has been included in ’administrative expenses’ in the income statement. Amounts charged to the provision account are generally written off when there is no expectation of recovering additional cash.

c) Past due but not impaired

None of the non-current trade and other receivables are past due but not impaired.

d) Risk exposure

Information about the consolidated entity’s and the Company’s exposure to credit risk, foreign exchange, and interest rate risk is provided in note 37.

e) Fair value

The carrying values of non-current receivables approximate their fair value.

12 INVENTORY (CURRENT)

Coal at cost Fuel at cost Stock of spare parts at cost Stock of tyres at cost	CONSOLIDATED 2008 2007 $000 $000 27,945 20,468 435 295 820 254 2,612 1,844 31,812 22,861	THE COMPANY 2008 2007 $000 $000 – – – – – – – – – –	THE COMPANY 2008 2007 $000 $000 – – – – – – – – – –
			–

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

13 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

• a) Interest in associates

Name of Associate Principal Activity Unlisted Australian Coal Processing Holdings Pty Ltd Holding company Ashton Coal Mines Limited Real estate holder & sales agent Australian Coal Processing Pty Ltd Owned and operated a coal handling & processing plant for part of the 2007 year	CONSOLIDATED Carrying amount of investment 2008 2007 $000 $000 20 25 167 179 – – 187 204	THE COMPANY Percentage Owned 2008 2007 % % 60(i) 60(i) 60(ii) 60(ii) 60 60

Each of the above associates is incorporated in Australia.

• (i) A controlled entity of White Mining Limited, White Mining (NSW) Pty Limited (WMNSW), holds 60% (2007: 60%) of the ordinary shares of Australian Coal Processing Holdings Pty Ltd. Under the shareholders agreement between WMNSW and the other shareholders, ICRA Ashton Pty Ltd (ICRAA) and Austral-Asia Coal Holdings Pty Ltd (Austral), all major financial and operating policy decisions require a vote by Directors who together represent shareholders holding 100% of the shares or a vote by shareholders who together hold 100% of the shares. Therefore decisions must be passed unanimously and WMNSW’s voting power is equivalent to 33.33% (2007: 33.33%).

• (ii) A controlled entity of White Mining Limited, White Mining (NSW) Pty Limited (WMNSW), holds 60% (2007: 60%) of the ordinary shares of Ashton Coal Mines Limited. Under the shareholders agreement between WMNSW and the other shareholders, ICRA Ashton Pty Ltd (ICRAA) and Austral-Asia Coal Holdings Pty Ltd (Austral), all major financial and operating policy decisions require unanimous resolution of the shareholders. Therefore major decisions must be passed unanimously and WMNSW’s voting power is equivalent to 33.33% (2007: 33.33%).

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

Notes b) Carrying amount of investments in associates Balance at the beginning of the financial year Return of share capital from associate Share of associates’ net losses 13c Carrying amount of investments in associates at the end of the financial year c) Share of associates’ losses Loss before income tax Income tax (expense)/ benefit Loss after income tax 13b d) Summarised financial information of associates Assets Liabilities Revenues Losses	CONSOLIDATED 2008 2007 $000 $000 204 4,866 – (3,949) (17) (713) 187 204	CONSOLIDATED 2008 2007 $000 $000 204 4,866 – (3,949) (17) (713) 187 204	THE COMPANY 2008 2007 $000 $000 – – – – – – – –	THE COMPANY 2008 2007 $000 $000 – – – – – – – –
				–
	(12) (5)	(741) 28	– –	– –
	(17) 70,842 (70,560) (329,156) 28	(713) 9,135 (8,824) (119,025) 577	– – – – –	–
				– – – –

14 OTHER FINANCIAL ASSETS (NON-CURRENT)

Note Controlled entities at cost 6 Less: Accumulated impairment losses	CONSOLIDATED 2008 2007 $000 $000 – – – – – –	THE COMPANY 2008 2007 $000 $000 256,736 256,736 (15,343) (15,343) 241,393 241,393	THE COMPANY 2008 2007 $000 $000 256,736 256,736 (15,343) (15,343) 241,393 241,393
			241,393

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

15 PROPERTY, PLANT AND EQUIPMENT

a) Property, plant and equipment

Plant and equipment – at cost Less: Accumulated depreciation Mine development – at cost Less: Accumulated amortisation Freehold land and buildings – at cost Less: Accumulated depreciation Plant and equipment under lease – at cost Less: Accumulated amortisation Assets under construction – at cost Land acquisition in progress Total property, plant and equipment	CONSOLIDATED 2008 2007 $000 $000 115,262 36,110 (21,823) (11,768)	CONSOLIDATED 2008 2007 $000 $000 115,262 36,110 (21,823) (11,768)	THE COMPANY 2008 2007 $000 $000 946 583 (468) (258) 478 325 – – – – – – – – – – – – 31 – (4) – 27 – 247 31 – – 752 356	THE COMPANY 2008 2007 $000 $000 946 583 (468) (258) 478 325 – – – – – – – – – – – – 31 – (4) – 27 – 247 31 – – 752 356
	93,439 63,688 (13,219) 50,469 20,375 (690) 19,685 41,210 (17,387) 23,823 5,686 4,762	24,342 29,798 (7,822) 21,976 14,052 (453) 13,599 34,677 (10,416) 24,261 111,120 585	478 – – – – – – 31 (4) 27 247 –	325
				– –
				–
				– –
				–
				– –
				–
				31
				–
	197,864	195,883	752

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

b) Assets pledged as security

Included in the balance of property, plant and equipment are assets over which charges listed in note 19 and note 20 have been granted as security.

The value of non-current assets pledged as security are:

Land & buildings Mine development Plant and equipment Plant and equipment under lease Assets under construction Other financial assets	CONSOLIDATED 2008 2007 $000 $000 7,855 2,732 50,469 21,976 93,439 24,342 23,823 24,261 5,657 111,120 – – 181,243 184,431	THE COMPANY 2008 2007 $000 $000 – – – – 478 325 27 – 247 31 92 92 844 448	THE COMPANY 2008 2007 $000 $000 – – – – 478 325 27 – 247 31 92 92 844 448
			448

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

• c) Reconciliations Reconciliation of the carrying amounts of property, plant and equipment at the beginning and end of the year

Plant and equipment Carrying amount at beginning Additions Transfers Disposals Depreciation expense Mine development Carrying amount at beginning Additions Transfers Disposals Depreciation expense Freehold land & buildings Carrying amount at beginning Additions Transfers Disposals Depreciation expense Leased plant and equipment Carrying amount at beginning Additions Transfers Disposals Amortisation expense Assets under construction Carrying amount at beginning Additions Transfers Disposals	CONSOLIDATED 2008 2007 $000 $000 24,342 35,279 246 91 79,055 87 (63) (6,174) (10,141) (4,941) 93,439 24,342	CONSOLIDATED 2008 2007 $000 $000 24,342 35,279 246 91 79,055 87 (63) (6,174) (10,141) (4,941) 93,439 24,342	THE COMPANY 2008 2007 $000 $000 325 319 46 – 316 422 – (263) (209) (153) 478 325 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 31 – – – (4) – 27 – 31 37 720 416 (504) (422) – – 247 31	THE COMPANY 2008 2007 $000 $000 325 319 46 – 316 422 – (263) (209) (153) 478 325 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 31 – – – (4) – 27 – 31 37 720 416 (504) (422) – – 247 31
	21,976 976 32,813 – (5,296)	12,897 2,778 10,155 (1,783) (2,071)	– – – – –	– – – – –
	50,469	21,976	–
	13,599 4,480 3,359 (1,385) (368)	7,288 2,153 5,189 (956) (75)	– – – – –	– – – – –
	19,685	13,599	–
	24,261 5,099 1,704 (163) (7,078)	29,487 3,861 (1) (2,719) (6,367)	– – 31 – (4)	– – – – –
	23,823	24,261	27
	111,120 11,069 (116,503) –	41,427 84,005 (11,413) (2,899)	31 720 (504) –	37 416 (422 –
	5,686	111,120	247

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

As at 30 June 2007, assets under construction primarily represented the development costs for the Ashton underground project. These costs were transferred to their applicable class of property, plant and equipment during the year ended 30 June 2008.

Land acquisition in progress Carrying amount at beginning Additions Transfers	CONSOLIDATED 2008 2007 $000 $000 585 4,017 4,762 585 (585) (4,017) 4,762 585	THE COMPANY 2008 2007 $000 $000 – – – – – – – –	THE COMPANY 2008 2007 $000 $000 – – – – – – – –
			–

16 EXPLORATION AND EVALUATION ASSETS

Exploration and evaluation assets-at cost Provision for write-down to recoverable amount	CONSOLIDATED 2008 2007 $000 $000 46,749 42,325 (28,841) (28,528) 17,908 13,797	THE COMPANY 2008 2007 $000 $000 – – – – – –	THE COMPANY 2008 2007 $000 $000 – – – – – –
			–

a) Reconciliation

Reconciliation of the carrying amount of exploration and evaluation assets at the beginning and end of the year

Exploration and evaluation – at cost Carrying amount at beginning Additions Disposals Amortisation expense	CONSOLIDATED 2008 2007 $000 $000 13,797 10,259 5,932 4,927 (1,507) (1,139) (314) (250) 17,908 13,797	THE COMPANY 2008 2007 $000 $000 – – – – – – – – – –	THE COMPANY 2008 2007 $000 $000 – – – – – – – – – –
			–

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

b) Areas of interest

Expenditure carried forward at 30 June 2008 relates to exploration expenditure by subsidiary companies in the following areas of interest. The ultimate recoupment of this expenditure is dependent on the successful development and commercial exploitation, or alternatively, the sale, at a minimum of book value, of these areas of interest.

Athena Yarrabee Ashton Moolarben Minerva Harrybrandt	CONSOLIDATED 2008 2007 $000 $000 348 126 2,020 1,867 1,352 1,543 13,919 10,179 – 82 269 – 17,908 13,797	THE COMPANY 2008 2007 $000 $000 – – – – – – – – – – – – – –	THE COMPANY 2008 2007 $000 $000 – – – – – – – – – – – – – –
			–

17 INTANGIBLES

Yarrabee mining tenement – at cost Less: Accumulated amortisation Minerva mining tenement – at cost Less: Accumulated amortisation Ashton mining tenement – at cost Less: Accumulated amortisation Moolarben mining tenement – at cost Rail access rights – at cost Less: Accumulated amortisation Computer software – at cost Less: Accumulated amortisation Total intangible assets	CONSOLIDATED 2008 2007 $000 $000 4,845 4,845 (2,734) (2,131) 7,781 7,781 (1,224) (645) 54,297 54,297 (7,973) (4,490) 131,199 162,547	CONSOLIDATED 2008 2007 $000 $000 4,845 4,845 (2,734) (2,131) 7,781 7,781 (1,224) (645) 54,297 54,297 (7,973) (4,490) 131,199 162,547	THE COMPANY 2008 2007 $000 $000 – – – – – – – – – – – – – –	THE COMPANY 2008 2007 $000 $000 – – – – – – – – – – – – – –
	186,191 9,241 (1,214) 8,027 702 (401) 301	222,204 9,241 (593) 8,648 545 (245) 300	– – – – 702 (401) 301	–
				– –
				–
				545 (245)
				300
	194,519	231,152	301	300

a) Security

There is a First Registered Mortgage over mining tenements owned by the consolidated entity, with the exception of the Moolarben mining tenement.

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

b) Reconciliations

Reconciliations of the carrying amount of intangible assets at the beginning and end of the year

Note Mining tenements – at cost Carrying amount at beginning Disposals 28c Amortisation expense Rail access rights – at cost Carrying amount at beginning Additions Disposals Amortisation expense Computer software – at cost Carrying amount at beginning Additions Transfers Amortisation expense	CONSOLIDATED 2008 2007 $000 $000 222,204 225,406 (31,348) – (4,665) (3,202) 186,191 222,204	CONSOLIDATED 2008 2007 $000 $000 222,204 225,406 (31,348) – (4,665) (3,202) 186,191 222,204	THE COMPANY 2008 2007 $000 $000 – – – – – – – –	THE COMPANY 2008 2007 $000 $000 – – – – – – – –
				–
	8,648 – – (621)	10,266 1,529 (2,783) (364)	– – – –	– – – –
	8,027	8,648	–	–
	300 – 157 (156)	477 22 – (199)	300 – 157 (156)	477 22 – (199
	301	300	301	300

18 TRADE AND OTHER PAYABLES (CURRENT)

Unsecured Trade creditors Other creditors Deferred Minerva Payment Advances from controlled entities Employee benefits	CONSOLIDATED 2008 2007 $000 $000 44,959 31,249 6,222 2,203 250 – – – 4,328 3,256 55,759 36,708	THE COMPANY 2008 2007 $000 $000 890 786 32 108 250 – 56,403 – 622 324 58,197 1,218	THE COMPANY 2008 2007 $000 $000 890 786 32 108 250 – 56,403 – 622 324 58,197 1,218
			1,218

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FINANCIAL INFORMATION OF FELIX

19 INTEREST-BEARING LIABILITIES (CURRENT)

Secured Bank loan Finance leases	CONSOLIDATED 2008 2007 $000 $000 12,519 10,250 8,337 7,182 20,856 17,432	THE COMPANY 2008 2007 $000 $000 3,500 3,500 9 – 3,509 3,500	THE COMPANY 2008 2007 $000 $000 3,500 3,500 9 – 3,509 3,500
			3,500

20 INTEREST-BEARING LIABILITIES (NON-CURRENT)

Secured Bank loan Finance Leases	CONSOLIDATED 2008 2007 $000 $000 55,106 65,375 15,261 17,530 70,367 82,905	THE COMPANY 2008 2007 $000 $000 8,625 12,125 17 – 8,642 12,125	THE COMPANY 2008 2007 $000 $000 8,625 12,125 17 – 8,642 12,125
			12,125

a) Terms & conditions relating to above financial instruments

• i) Finance leases have lease terms ranging up to 7 years with some having the option to purchase the asset at completion of the lease term for the assets’ market value or contracted value. The effective interest rates implicit in the leases range from 6.9% to 13.4%. Lease liabilities are secured by charges over the leased assets. Certain leases also contain restrictions requiring notification to the lessors of any further finance leases entered into.

• ii) At 30 June 2008 bank loans represent a number of facilities as detailed below.

Multi-option facility agreement-working capital facility

This is a revolving cash advance facility for working capital up to $27,400,000 and consists of a floating rate bill which at maturity can be rolled for 30,60,90,120 or 180 days. Interest on the bill is charged at BBSY for the appropriate tenor plus a margin of 1.30% (2007: 1.30%), currently 9.19% (2007: 7.79%). At 30 June 2008 the drawn down amount was $Nil (2007: $Nil).

Multi-option facility agreement-term debt facility

This is a loan for capital expenditure at the Minerva mine for $12,125,000 (2007: $15,625,000) and consists of a fixed rate bill in the amount of $10,702,000 (2007: $13,794,000) at a current interest rate of 6% (2007: 6%). The bill rolls quarterly with the rate fixed for the term of the loan. The facility also includes a floating rate bill of $1,423,000 (2007: $1,831,000) which at maturity can be rolled for 30, 60, 90, 120 or 180 days. Interest on the floating rate bill is charged at BBSY for the appropriate tenor plus a margin of 1.30% (2007: 1.30%), currently 9.19% (2007: 7.79%). The term debt facility matures on 30 June 2010 and principal is repayable each quarter in the amount of $875,000. At 30 June 2008, the current portion of the loan is $3,500,000 (2007: $3,500,000) and the non-current portion is $8,625,000 (2007: $12,125,000).

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APPENDIX II

Ashton Underground-syndicated facility agreement

This facility is for the development of the Ashton underground project for $60,000,000 and consists of a floating rate bill which at maturity can be rolled for 30, 60 or 90 days. Interest on the floating rate bill is charged at BBSY for the appropriate tenor plus a margin of 0.80%, currently 8.69% (2007: 7.29%). The facility matures on 31 December 2011 and principal is repayable each quarter in varying amounts. The drawn down amounts were required to be held in a drawdown holding account (refer note 7) and prior to project completion, amounts released from the drawdown holding account totalling $60,000,000 attracted an additional interest margin of 0.95% per annum. After project completion, amounts released from the drawdown holding account attract an additional interest margin of 0.70% per annum. At 30 June 2008, the current portion of the loan is $9,019,000 (2007: $6,750,000) and the non-current portion is $46,481,000 (2007: $53,250,000).

b) Security

The above loans and other banking facilities are secured by first registered company charges (mortgage debentures), first registered mortgages, fixed and floating charges, deeds of cross charges, bank guarantees and scrip liens exist over all the assets of certain entities in the consolidated entity. The terms of the charges preclude the assets being sold or being used as security for further mortgages or charges without permission of the other holders. Refer to note 15(b) and 17(a) for details.

c) Financing facilities available

At the reporting date, the following financing facilities had been negotiated and were available:

Total Facilities Working capital facility Term debt facility Underground syndicated facility Indemnity/guarantee facility Lease finance facility	CONSOLIDATED 2008 2007 $000 $000 27,400 27,400 12,125 15,625 55,500 60,000 27,000 27,000 23,599 24,712 145,624 154,737	THE COMPANY 2008 2007 $000 $000 27,400 27,400 12,125 15,625 – – 27,000 27,000 26 – 66,551 70,025	THE COMPANY 2008 2007 $000 $000 27,400 27,400 12,125 15,625 – – 27,000 27,000 26 – 66,551 70,025
			70,025

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FINANCIAL INFORMATION OF FELIX

Note Facilities used at reporting date Working capital facility Term debt facility Underground syndicated facility Indemnity/guarantee facility 35 Lease finance facility Facilities unused at reporting date Working capital facility Term debt facility Underground syndicated facility Indemnity/guarantee facility Lease finance facility	CONSOLIDATED 2008 2007 $000 $000 – – 12,125 15,625 55,500 60,000 14,705 18,311 23,599 24,712 105,929 118,648	CONSOLIDATED 2008 2007 $000 $000 – – 12,125 15,625 55,500 60,000 14,705 18,311 23,599 24,712 105,929 118,648	THE COMPANY 2008 2007 $000 $000 – – 12,125 15,625 – – 12,892 16,499 26 – 25,043 32,124	THE COMPANY 2008 2007 $000 $000 – – 12,125 15,625 – – 12,892 16,499 26 – 25,043 32,124
				32,124
	27,400 – – 12,295 –	27,400 – – 8,689 –	27,400 – – 14,108 –	27,400 – – 10,501 –
	39,695	36,089	41,508	37,901

d) Fair value

The carrying amounts and fair value of borrowings at balance date are:

Consolidated Bank loans – current Finance leases – current Bank loans – non-current Finance leases – non-current The Company Bank loans – current Finance leases – current Bank loans – non-current Finance leases – non-current	CARRYING AMOUNT 2008 $000 12,519 8,337 55,106 15,261 91,223	FAIR VALUE 2008 $000 12,519 8,337 55,106 15,261 91,223	CARRYING AMOUNT 2007 $000 10,250 7,182 65,375 17,530 100,337	FAIR VALUE 2007 $000 10,250 7,182 65,375 17,530
				100,337
	3,500 9 8,625 17	3,500 9 8,625 17	3,500 – 12,125 –	3,500 – 12,125 –
	12,151	12,151	15,625	15,625

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APPENDIX II

The fair value of current borrowings equals their carrying amount, as the impact of discounting is not significant. The fair value of non-current borrowings at a floating interest rate is the same as their carrying value. The fair value of non-current borrowings at a fixed interest rate does not differ to their carrying value by a material amount.

e) Risk exposures

Details of the consolidated entity’s and the parent entity’s exposures to risks arising from borrowings are set out in note 37.

21 PROVISIONS (CURRENT)

Rehabilitation	CONSOLIDATED 2008 2007 $000 $000 608 1,121 608 1,121	THE COMPANY 2008 2007 $000 $000 – – – –	THE COMPANY 2008 2007 $000 $000 – – – –
			–

Provision for future rehabilitation of mine sites is made in accordance with note 1(t). The provision is expected to settle when the area disturbed is no longer in use or at the end of the life of the mine. The above amount represents those areas expected to be rehabilitated during the next 12 months.

Notes Movements in current provision for rehabilitation Carrying amount at beginning of financial year Additional provision recognised Amounts used Transfers 23 Amounts derecognised on disposal of interest in joint ventures Carrying amount at end of year	CONSOLIDATED 2008 2007 $000 $000 1,121 1,967 – 530 – (41) (513) (1,256) – (79) 608 1,121	THE COMPANY 2008 2007 $000 $000 – – – – – – – – – – – –	THE COMPANY 2008 2007 $000 $000 – – – – – – – – – – – –
			–

22 TRADE AND OTHER PAYABLES (NON-CURRENT)

Deferred Minerva payment Unsecured loan – non-interest bearing	CONSOLIDATED 2008 2007 $000 $000 2,679 2,724 1,693 1,693 4,372 4,417	THE COMPANY 2008 2007 $000 $000 2,679 2,724 – – 2,679 2,724	THE COMPANY 2008 2007 $000 $000 2,679 2,724 – – 2,679 2,724
			2,724

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APPENDIX II

a) Fair value

The carrying amounts of non-current trade and other payables is assumed to approximate their fair value. The carrying value of the deferred Minerva payment is based on cash flows discounted using a rate of 7.5%. The unsecured loan is repayable at call.

23 PROVISIONS (NON-CURRENT)

Rehabilitation	CONSOLIDATED 2008 2007 $000 $000 7,163 5,481 7,163 5,481	THE COMPANY 2008 2007 $000 $000 – – – –	THE COMPANY 2008 2007 $000 $000 – – – –
			–

Rehabilitation

Provision for future rehabilitation of mine sites is made in accordance with note 1(t). The provision is expected to settle when the area disturbed is no longer in

use or at the end of the life of the mine. The above amount represents those areas expected to be rehabilitated after 12 months or at the end of the life of the mine.

Movements in non-current provision for rehabilitation

Notes Carrying amount at beginning of financial year Additional provision recognised Amounts derecognised on disposal of interest in joint ventures Transfers 21 Carrying amount at the end of the year	CONSOLIDATED 2008 2007 $000 $000 5,481 3,220 1,169 1,148 – (143) 513 1,256 7,163 5,481	THE COMPANY 2008 2007 $000 $000 – – – – – – – – – –	THE COMPANY 2008 2007 $000 $000 – – – – – – – – – –
			–

24 ISSUED CAPITAL

• a) Share capital

Issued and fully paid up ordinary shares, 196,325,038 (June 2007: 196,155,038)	CONSOLIDATED 2008 2007 $000 $000 444,833 444,378 444,833 444,378	THE COMPANY 2008 2007 $000 $000 444,833 444,378 444,833 444,378	THE COMPANY 2008 2007 $000 $000 444,833 444,378 444,833 444,378
			444,378

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FINANCIAL INFORMATION OF FELIX

b) Movements in shares on issue

Notes ORDINARY SHARES Beginning of the year Options exercised during the year 24e Transfer from options reserve on exercise of options 25b Conversion of B class shares to fully paid ordinary shares on 16 November 2006 (i) 24c End of the year B CLASS SHARES Beginning of the year Conversion of B class shares to fully paid ordinary shares on 16 November 2006 (i) 24c End of the year	2008 Number of shares 196,155,038 170,000 – – 196,325,038	2008 $000 444,378 156 299 – 444,833	2007 Number of shares 180,233,038 8,422,000 – 7,500,000 196,155,038	2007 $000 420,133 6,384 2,336 15,525 444,378 15,525 (15,525) –
	– –	– –	7,500,000 (7,500,000)	15,525 (15,525
	–	–	–

• (i) On 15 April 2005, 82,000,000 ordinary shares, 7,500,000 A class shares and 7,500,000 B class shares were issued as consideration in the acquisition of 100% of White Mining Limited. The value placed on the ordinary shares was the market price at the date of acquisition of $2.30 per share. The value of the A class shares and the B class shares were $2.16 and $2.07 respectively, based on an independent valuation.

c) Terms and conditions of issued capital

Ordinary shares

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle the holder to one vote either in person or by proxy, at a meeting of the Company.

B Class shares

Until the B class shares converted to fully paid ordinary shares on 16 November 2006 they had no entitlement to participate in dividends, no voting rights, and were only entitled to participate in the capital of the Company upon winding up to the extent of $0.01 per share. The B class shares converted to fully paid ordinary shares upon the weighted average share price of ordinary shares in Felix measured over 10 consecutive trading days of the ASX after 15 April 2005 exceeding the hurdle price of $3.50.

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APPENDIX II

d) Capital risk management

Total capital comprises total equity as shown in the balance sheet (including minority interest) plus total interest bearing liabilities. The consolidated entity’s and the Company’s primary objectives when managing capital are to ensure the continued ability to provide a consistent return for equity stakeholders through a combination of capital growth and distributions and to maintain an optimal capital structure to reduce the cost of capital. In order to achieve these objectives, the consolidated entity seeks to maintain a debt to equity ratio (gearing ratio) that balances risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the consolidated entity to meet its working capital and strategic investment needs. In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or alter the amount of debt.

The gearing ratio at the balance sheet date is shown below:

Note Total borrowings 20d Total equity Total capital Gearing ratio	CONSOLIDATED 2008 2007 $000 $000 91,223 100,337 547,491 402,199 638,714 502,536 14% 20%	THE COMPANY 2008 2007 $000 $000 12,151 15,625 369,403 350,530 381,554 366,155 3% 4%	THE COMPANY 2008 2007 $000 $000 12,151 15,625 369,403 350,530 381,554 366,155 3% 4%
			366,155
			4%

The decrease in the gearing ratio during 2008 resulted from the repayment of borrowings. There have been no changes in the capital management objectives during the year, nor in the items considered to be capital.

All financial covenants specified under borrowing facilities have been complied with during the year.

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APPENDIX II

e) Share-based payment arrangements

The following options over ordinary fully paid shares existed during 2008 for the Company and the consolidated entity.

Grant date Expiry date Exercise Price 19 November 2001 7 December 2008 (i) $ 5.20 13 December 2005 12 December 2009 (iv) $0.001 11 December 2006 10 December 2010 (v) $0.001 Total Weighted average exercise price Weighted average share price for options exercised during the year Weighted average remaining contractual life for options outstanding	Balance at the beginning of the year 1 July 2007 No. 30,000 200,000 100,000 330,000 $ 0.47	Granted during the year No. – – – –	Exercised during the year No. (30,000) (115,000) (25,000) (170,000) $ 0.92 $ 7.04	Forfeited or expired during the year No. – (55,000) – (55,000) $ 0.001	Balance at the end of the financial year 30 June 2008 Exercisable at the end of the year 30 June 2008 No. No. – – 30,000 – 75,000 – 105,000 – $ 0.001 2.17 years	Balance at the end of the financial year 30 June 2008 Exercisable at the end of the year 30 June 2008 No. No. – – 30,000 – 75,000 – 105,000 – $ 0.001 2.17 years
						–

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

The following options over ordinary fully paid shares existed during 2007 for the Company and the consolidated entity.

Grant date Expiry date Exercise Price 19 November 2001 7 December 2008 (i) $ 5.20 8 October 2003 8 October 2008 (ii) $ 0.85 11 November 2004 30 June 2007 (iii) $ 0.01 11 November 2004 30 June 2008 (iii) $ 0.01 13 December 2005 12 December 2009 (iv) $0.001 11 December 2006 10 December 2010 (v) $0.001 Total Weighted average exercise price Weighted average share price for options exercised during the year Weighted average remaining contractual life for options outstanding	Balance at the beginning of the year 1 July 2006 No. 30,000 7,500,000 832,000 70,000 300,000 – 8,732,000 $ 0.75	Granted during the year Exercised during the year No. No. – – – (7,500,000) – (832,000) – (70,000) – (20,000) 100,000 – 100,000 (8,422,000) $ 0.001 $ 0.76 $ 4.99	Forfeited or expired during the year No. – – – – (80,000) – (80,000) $ 0.001	Balance at the end of the financial year 30 June 2007 Exercisable at the end of the year 30 June 2007 No. No. 30,000 30,000 – – – – – – 200,000 90,000 100,000 – 330,000 120,000 $ 0.47 $ 1.30 2.20 years	Balance at the end of the financial year 30 June 2007 Exercisable at the end of the year 30 June 2007 No. No. 30,000 30,000 – – – – – – 200,000 90,000 100,000 – 330,000 120,000 $ 0.47 $ 1.30 2.20 years
					120,000
					$ 1.30

• (i) Options exercisable upon the weighted average share price of ordinary shares in Felix measured over 10 consecutive trading days of the ASX after the grant date exceeding the hurdle price of $5.20. The options cannot be transferred, will not be quoted on the ASX and do not carry voting or dividend rights.

• (ii) 15,000,000 options were issued as part consideration in the purchase of Yarrabee Coal Company Pty Ltd. The options were exercisable upon the weighted average share price of ordinary shares in Felix measured over 10 consecutive trading days of the ASX after the grant date exceeding the hurdle price of $0.85. The options carry no voting or dividend rights and are non-transferable.

• (iii) Grants of options during 2005 were approved by shareholders at the Annual General Meeting for 2004 held on 11 November 2004. The options were granted to certain Directors and other key management personnel. Options were granted for no cash consideration and are exercisable anytime from immediately upon the performance hurdle being met until the expiry date. Options carry no dividend or voting rights and are non-transferable.

• (iv) Options granted under the Felix Resources Operations General Managers Equity Participation Plan. 60,000 options vest immediately, 75,000 on 13 December 2006 and 2007, and 90,000 on 13 December 2008. The options are exercisable at any time from their vesting date until the expiry date or six months after the General Manager ceases to be a General Manager. The options cannot be transferred, will not be quoted on the ASX and do not carry voting or dividend rights. The weighted average fair value of $1.73 at grant date was determined using a

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FINANCIAL INFORMATION OF FELIX

binomial option pricing model which takes into account the exercise price, the life of the option, the current price of the underlying instrument, the expected volatility of the underlying instrument, the expected dividend yield, and the risk-free interest rate for the life of the option. The model inputs for options granted during 2006 included:

(a)	grant date	13 December 2005
(b)	weighted average share price at grant date	$1.91
(c)	exercise price	$0.001
(d)	expected volatility	55%
(e)	expiry date	12 December 2009
(f)	expected dividends	2.50%
(g)	risk-free interest rate	5.18%

The expected price volatility is based on an independent advisor’s report on historic volatility adjusted for any expected changes to future volatility due to publicly available information.

• (v) Options granted under the Felix Resources Operations General Managers Equity Participation Plan. 25,000 options vest on 11 December 2007, 35,000 on 11 December 2008, and 40,000 on 11 December 2009. The options are exercisable at any time from their vesting date until the expiry date or six months after the General Manager ceases to be a General Manager. The options cannot be transferred, will not be quoted on the ASX and do not carry voting or dividend rights. The weighted average fair value of $4.00 at grant date was determined using a binomial option pricing model which takes into account the exercise price, the life of the option, the current price of the underlying instrument, the expected volatility of the underlying instrument, the expected dividend yield, and the risk-free interest rate for the life of the option.

The model inputs for options granted during 2007 included:

(a)	grant date	11 December 2006
(b)	weighted average share price at grant date	$4.16
(c)	exercise price	$0.001
(d)	expected volatility	43%
(e)	expiry date	10 December 2010
(f)	expected dividends	1.00%
(g)	risk-free interest rate	5.86%

The expected price volatility is based on an independent advisor’s report on historic volatility adjusted for any expected changes to future volatility due to publicly available information.

• (vi) Forfeited or expired share options were those granted under the Felix Resources Operations General Managers Equity Participation Plan which lapsed upon the resignation of a General Manager on 2 July 2007.

Total expenses arising from share-based payment transactions recognised during the year as part of employee benefits expense were as follows.

Note Options granted 25b	CONSOLIDATED 2008 2007 $000 $000 135 593	THE COMPANY 2008 2007 $000 $000 135 593

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APPENDIX II

25 RESERVES & RETAINED EARNINGS

a) Composition of reserves

Options reserve Capital profits Foreign currency translation Hedging reserve Movements in reserves Notes Options reserve Balance at beginning of year Non-cash share-based payments expense 24e Options exercised, transfer to share capital 24b Balance at end of year Capital profits Balance at beginning of year Balance at end of year Foreign currency translation Balance at beginning of year Balance at end of year Hedging reserve Balance at beginning of year (Losses)/gains recognised Transferred to profit Current tax Deferred tax Balance at end of year	CONSOLIDATED 2008 2007 $000 $000 235 399 4,285 4,285 424 424 (24,224) 1,573 (19,280) 6,681 CONSOLIDATED 2008 2007 $000 $000 399 2,142 135 593 (299) (2,336) 235 399	CONSOLIDATED 2008 2007 $000 $000 235 399 4,285 4,285 424 424 (24,224) 1,573 (19,280) 6,681 CONSOLIDATED 2008 2007 $000 $000 399 2,142 135 593 (299) (2,336) 235 399	THE COMPANY 2008 2007 $000 $000 235 399 4,285 4,285 – – – 1,422 4,520 6,106 THE COMPANY 2008 2007 $000 $000 399 2,142 135 593 (299) (2,336) 235 399 4,285 4,285 4,285 4,285 – – – – 1,422 3,961 (1,065) 2,440 (967) (6,067) 290 617 320 471 – 1,422	THE COMPANY 2008 2007 $000 $000 235 399 4,285 4,285 – – – 1,422 4,520 6,106 THE COMPANY 2008 2007 $000 $000 399 2,142 135 593 (299) (2,336) 235 399 4,285 4,285 4,285 4,285 – – – – 1,422 3,961 (1,065) 2,440 (967) (6,067) 290 617 320 471 – 1,422
	4,285	4,285	4,285	4,285
	4,285	4,285	4,285
	424	424	–	–
	424	424	–
	1,573 (12,370) (24,482) 290 10,765	3,961 2,656 (6,067) 617 406	1,422 (1,065) (967) 290 320	3,961 2,440 (6,067 617 471
	(24,224)	1,573	–

b) Movements in reserves

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APPENDIX II

c) Nature and purpose of reserves

Options reserve

The options reserve is used to recognise the fair value at grant date of options issued but not exercised. The options comprising this reserve at 30 June 2008 are those issued under the Felix Resources Operations General Managers Equity Participation Plan.

Capital profits

The capital profits reserve was used to record non-trading capital profits. The reserve has not changed in a number of years.

Foreign currency translation

Exchange differences arising on translation of foreign controlled entities are taken to the foreign currency translation reserve, as described in note 1(w). The reserve is recognised in profit and loss when the net investments are disposed of.

Hedging reserve

The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge which are recognised directly in equity, as described in note 1(x). Amounts are recognised in the income statement or as part of property, plant and equipment when the associated hedge transaction occurs.

d) Retained earnings/(accumulated losses)

Balance at beginning of the year Profit attributable to members of Felix Resources Limited Dividends paid Balance at the end of the year	CONSOLIDATED 2008 2007 $000 $000 (52,189) (91,936) 188,261 46,957 (17,662) (7,210) 118,410 (52,189)	THE COMPANY 2008 2007 $000 $000 (99,954) (115,746) 37,666 23,002 (17,662) (7,210) (79,950) (99,954)

26 MINORITY INTEREST

Interest in:

Issued capital Accumulated losses Reserves	CONSOLIDATED 2008 2007 $000 $000 961 961 (560) (759) 3,127 3,127 3,528 3,329

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APPENDIX II

27 EARNINGS PER SHARE

a) Reconciliation of earnings used in calculating earnings per share

Profit after income tax Profit attributable to minority interest Profit attributable to the ordinary equity holders of Felix Resources Limited used in calculating basic and diluted earnings per share	CONSOLIDATED 2008 2007 $000 $000 188,460 47,159 (199) (202) 188,261 46,957	CONSOLIDATED 2008 2007 $000 $000 188,460 47,159 (199) (202) 188,261 46,957
		46,957

b) Weighted average number of shares used in calculating earnings per share

Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share	2008 No. of shares 196,261,627 158,285 196,419,912	2007 No. of shares 186,380,197 203,905
		186,584,102

• c) The following potential ordinary shares are not dilutive and are therefore excluded from the weighted average number of ordinary shares used in the calculation of diluted earnings per share

Options	2008 No. of shares – –	2007 No. of shares 30,000
		30,000

• d) Weighted average number of converted, lapsed or cancelled potential ordinary shares included in the calculation of diluted earnings per share

				2008			2007
		_No. _	_of _	shares	_No. _	_of _	shares
Options	converted			52,090			16,040

For terms and conditions relating to the above potential ordinary shares, refer to note 24.

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APPENDIX II

28 CASH FLOW STATEMENTS

a) Reconciliation of the profit after income tax to the net cash flows from continuing operations

Profit after income tax Dividends received Depreciation of non-current assets Amortisation of leased assets Amortisation of mining tenements Amortisation of exploration Amortisation of other intangible assets Amortisation of Minerva deferred purchase consideration Net loss/(gain) on disposal of property, plant and equipment Net gain on disposal of available-for-sale financial assets Net gain on disposal of 20% of Moolarben Joint Venture Net loss/(gain) on disposal of 28.7% of Minerva & Athena Joint Ventures Non-cash foreign currency gains transferred to profit for the year Share-based payments expense Share of net losses of associates accounted for using the equity method Provision for write-down advances to controlled entities Changes in assets and liabilities, net of effects from disposal of interests in joint ventures and projects (refer note 2c) (Increase)/decrease in trade & other receivables (Increase)/decrease in prepayments Increase in overburden in advance Increase in inventory Decrease in development assets Decrease/(increase) in deferred tax assets Increase/(decrease) in trade and other creditors Increase/(decrease) in employee benefits Increase in rehabilitation provision Increase in tax provision (Decrease)/increase in deferred tax liability Net cash inflow/(outflow) from operating activities	CONSOLIDATED 2008 2007 $000 $000 188,460 47,159 – – 15,805 7,087 7,078 6,367 4,665 3,202 314 250 777 563 204 378 14 (13) – (1,136) (123,657) (17,956) 34 (28,208) (967) (2,056) 135 593 17 713 – – (61,602) 22,203 (1,603) (820) (7,521) (15,044) (8,951) (3,755) – 1,075 48,243 (20,605) 14,271 (4,920) 1,072 1,467 – 1,637 19,262 674 (1,846) 22,530 94,204 21,385	THE COMPANY 2008 2007 $000 $000 37,666 23,002 – (7,210) 209 153 4 – – – – – 156 199 204 378 – (21) – – – – – 79 (967) (2,056) 135 593 – – 101 (1,843) (71,071) (2,212) 49 12 – – – – – – 9,484 (11,878) 28 (905) 298 (10) – – 19,225 617 328 (254) (4,151) (1,356)

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FINANCIAL INFORMATION OF FELIX

b) Reconciliation of cash

Cash balance comprises: Cash at bank and on hand Short-term deposits Closing cash balance	CONSOLIDATED 2008 2007 $000 $000 5,844 11,495 231,249 5,965 237,093 17,460	THE COMPANY 2008 2007 $000 $000 1,134 4,777 108,342 5,501 109,476 10,278	THE COMPANY 2008 2007 $000 $000 1,134 4,777 108,342 5,501 109,476 10,278
			10,278

c) Disposal of 20% interest in Moolarben Joint Venture

Effective 30 June 2007 the consolidated entity disposed of 10% of its interest in the Moolarben Coal Project. This transaction decreased Felix’s interest in the coal project from 100% to 90% and resulted in the formation of the Moolarben Joint Venture. As the sale was subject to various conditions, only the first tranche of the sale proceeds were recognised during the year ended 30 June 2007. The balance of the sale proceeds were recognised during the year ended 30 June 2008. Effective 29 February 2008 the consolidated entity disposed of 10% of its interest in the Moolarben Joint Venture. This transaction decreased Felix’s interest in the joint venture from 90% to 80%. The disposal details are:

Notes Consideration: Cash received Cash receivable 8 Net assets of the Moolarben Joint Venture disposed: Exploration & evaluation assets Freehold land & buildings Mining tenements 17b Carrying amount of assets disposed Gain on disposal before tax 2c	CONSOLIDATED 2008 2007 $000 $000 157,863 – – 20,000 157,863 20,000	CONSOLIDATED 2008 2007 $000 $000 157,863 – – 20,000 157,863 20,000	THE COMPANY 2008 2007 $000 $000 – – – – – –	THE COMPANY 2008 2007 $000 $000 – – – – – –
				–
	1,473 1,385 31,348 34,206	1,139 905 – 2,044	– – – –	– – –
				–
	123,657	17,956	–	–

At 30 June 2007, $20,000,000 is shown as a receivable from Sojitz Moolarben Resources Pty Ltd.

d) Disposal of 28.7% interest in Minerva & Athena Joint Ventures

Effective 1 July 2006 the consolidated entity disposed of 21.4% of its interest in the Minerva and Athena Joint Ventures. This transaction decreased Felix’s interest in the joint ventures from 70% to 55%. Effective 1 October 2006 the consolidated entity disposed of 7.3% of its interest in the Minerva and Athena Joint Ventures. This transaction decreased Felix’s interest in the joint ventures from 55% to 51%. The disposal details are:

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FINANCIAL INFORMATION OF FELIX

Notes Consideration: Cash received Net assets of the Minerva & Athena Joint Ventures disposed: Cash and cash equivalents Trade and other receivables Inventory Other current assets Non-current other financial assets Exploration and evaluation assets Property, plant and equipment Intangible assets Trade and other payables Interest bearing liabilities Provisions Carrying amount of net assets disposed Gain on disposal before tax 2c Net cash effect: Cash included in the net assets disposed Cash consideration Cash inflow	CONSOLIDATED 2008 2007 $000 $000 – 42,100 – 42,100	CONSOLIDATED 2008 2007 $000 $000 – 42,100 – 42,100	THE COMPANY 2008 2007 $000 $000 – 1,267 – 1,267 – – – – – – – – – 1,346 – – – – – – – – – – – – – 1,346 – (79) – – – 1,267 – 1,267	THE COMPANY 2008 2007 $000 $000 – 1,267 – 1,267 – – – – – – – – – 1,346 – – – – – – – – – – – – – 1,346 – (79) – – – 1,267 – 1,267
	– – – – – 34 – – – – – 34	579 277 722 3,777 1,346 – 13,024 2,784 (2,906) (5,489) (222) 13,892	– – – – – – – – – – – –	– – – – 1,346 – – – – – –
				1,346
	(34)	28,208	–
	– –	(579) 42,100	– –	– 1,267
	–	41,521	–

e) Non-cash financing and investing activities

Finance lease transactions

During the year the consolidated entity acquired plant and equipment with an aggregate fair value of $6,803,000 (2007:$3,860,000) by means of finance leases. These acquisitions are not included in the Cash Flow Statements.

Other non-cash financing transactions

During 2007, the consolidated entity also acquired rail access rights with a fair value of $869,000 by means of an access facilitation loan with Queensland Rail. These acquisitions are not included in the Cash Flow Statements.

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29 JOINT VENTURES

Interest in Joint Venture Operations

A controlled entity, Yarrabee Coal Company Pty Ltd, has a 50% interest in the output of Boonal Joint Venture whose principal activity is the provision of a coal haul road and train load out facilities.

A controlled entity, Proserpina Coal Pty Ltd, has a 51% interest in the output of the Minerva Joint Venture whose principal activity is the development and operation of an open-cut coal mine.

A controlled entity, Athena Coal Pty Ltd, has a 51% interest in the Athena Joint Venture whose principal activity is coal exploration.

A controlled entity, White Mining (NSW) Pty Limited, has a 60% interest in the output of the Ashton Joint Venture whose principal activity is the development and operation of open-cut and underground coal mines.

A controlled entity, Moolarben Coal Mines Pty Limited, has an 80% (2007: 90%) interest in the output of the Moolarben Coal Joint Venture whose principal activity will be the development and operation of open-cut and underground coal mines.

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FINANCIAL INFORMATION OF FELIX

The consolidated entity’s interest in the assets, liabilities, revenue and expenses of the joint ventures are included in the consolidated financial statements, in accordance with accounting policy 1(k) under the following classifications:

Current assets Cash and cash equivalents Trade and other receivables Inventories Other Total current assets Non-current assets Trade and other receivables Property, plant and equipment Exploration and evaluation assets Intangible assets Total non-current assets Share of assets employed in joint venture operations Current liabilities Trade and other payables Interest bearing liabilities Provisions Total current liabilities Non-current liabilities Interest bearing liabilities Provisions Total non-current liabilities Share of liabilities incurred in joint venture operations Share of joint venture operations’ revenue, expenses and results: Revenues Expenses Loss before income tax	CONSOLIDATED 2008 2007 $000 $000 3,467 867 2,304 3,576 16,084 10,384 24,871 20,918 46,726 35,745 8,163 5,371 170,284 175,451 16,381 12,588 192,107 220,377 386,935 413,787 433,661 449,532 32,448 23,335 7,511 6,863 608 345 40,567 30,543 10,142 16,286 5,074 389 15,216 16,675 55,783 47,218 481 506 (207,428) (132,870) (206,947) (132,364)	CONSOLIDATED 2008 2007 $000 $000 3,467 867 2,304 3,576 16,084 10,384 24,871 20,918 46,726 35,745 8,163 5,371 170,284 175,451 16,381 12,588 192,107 220,377 386,935 413,787 433,661 449,532 32,448 23,335 7,511 6,863 608 345 40,567 30,543 10,142 16,286 5,074 389 15,216 16,675 55,783 47,218 481 506 (207,428) (132,870) (206,947) (132,364)
	8,163 170,284 16,381 192,107 386,935	5,371 175,451 12,588 220,377
		413,787
	433,661
	32,448 7,511 608	23,335 6,863 345
	40,567
	10,142 5,074 15,216	16,286 389
		16,675
	55,783
	481 (207,428)	506 (132,870
	(206,947)

For capital expenditure commitments relating to joint venture operations refer to note 30. For contingent liabilities relating to joint venture operations refer to note 35.

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30 EXPENDITURE COMMITMENTS

a) Capital expenditure commitments

Estimated capital expenditure contracted for at reporting date, but not provided for:

i) Plant and Equipment not later than one year share of joint ventures other ii) Underground development not later than one year share of joint ventures iii) Mine Development not later than one year share of joint ventures iv) Freehold land and buildings not later than one year share of joint ventures v) Exploration expenditure not later than one year share of joint ventures Total capital expenditure commitments Lease expenditure commitments i) Operating leases (non-cancellable) Minimum lease payments not later than one year later than one year and not later than five years Aggregate lease expenditure contracted for at balance date	CONSOLIDATED 2008 2007 $000 $000 6,850 756 4,989 67	CONSOLIDATED 2008 2007 $000 $000 6,850 756 4,989 67	THE COMPANY 2008 2007 $000 $000 – – – –	THE COMPANY 2008 2007 $000 $000 – – – –
	– – 56 1,034	421 1,006 – –	– – – –	–
				–
				–
				–
	12,929 2,250 CONSOLIDATED 2008 2007 $000 $000 1,695 1,352 1,356 2,027 3,051 3,379		– – THE COMPANY 2008 2007 $000 $000 393 92 615 – 1,008 92	–
				92

b) Lease expenditure commitments

Operating leases have remaining lease terms ranging from 8 months to 5 years. Items that are subject to operating leases include mining equipment, office space and small items of office equipment. The consolidated entity does not have the option to purchase the leased assets at the expiry of the lease period.

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FINANCIAL INFORMATION OF FELIX

ii) Finance leases

Consolidated not later than one year later than one year and not later than five years later than five years Total minimum lease payments Less future finance charges Recognised as a liability Finance leases are included in the financial statements as: current lease liability non-current lease liability	CONSOLIDATED 2008 2007 $000 $000 10,145 9,261 15,128 19,470 2,132 –	CONSOLIDATED 2008 2007 $000 $000 10,145 9,261 15,128 19,470 2,132 –	THE COMPANY 2008 2007 $000 $000 10 – 18 – – –	THE COMPANY 2008 2007 $000 $000 10 – 18 – – –
	27,405 (3,807)	28,731 (4,019)	28 (2)	– –
	23,598	24,712	26	–
	8,337 15,261	7,182 17,530	9 17	– –
	23,598	24,712	26	–

Finance leases relate to mining vehicles and machinery with lease terms between 3 and 7 years. These leases have terms of renewal at the discretion of the specific entity that holds the lease with some purchase options but no escalation clauses. The leases are subject to review of financial covenant ratios on a quarterly basis and contain restrictions on further indebtedness for one particular lease.

31 KEY MANAGEMENT PERSONNEL

a) Directors

The following persons were Directors of Felix Resources Limited during the year ended 30 June

Position

Name

Chairman (non-executive) (appointed 2 April 2007) Director (non-executive) (appointed 15 April 2005) Managing Director (appointed 21 March 2006) Director (executive) (appointed 15 April 2005)

Travers Duncan Chairman (non-executive) (appointed 2 April 2007) Director (non-executive) (appointed 15 April 2005) Brian Flannery Managing Director (appointed 21 March 2006) Director (executive) (appointed 15 April 2005) John Kinghorn Director (non-executive) (appointed 1 September 2005) Vincent O’Rourke Director (non-executive) (appointed 2 August 2007) Hans Mende Director (non-executive) (appointed 29 October 2007)

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APPENDIX II

b) Other key management personnel

The following persons also had authority and responsibility for planning, directing and controlling the activities of the consolidated entity, directly or indirectly, during the year ended 30 June 2008.

Name Position Employer Michael Chapman Chief Operating Officer Felix Resources Limited (appointed 1 July 2007) David Knappick Chief Financial Officer and Felix Resources Limited Company Secretary (resigned 31 January 2008) Craig Smith Chief Financial Officer and Felix Resources Limited Company Secretary (appointed 1 February 2008) Joseph Butta General Manager Marketing Felix Resources Limited (resigned 31 January 2008) Goran Stamenkovic General Manager Marketing Felix Resources Limited (appointed 1 February 2008)

c) Key management personnel compensation

Short-term employee benefits Post-employment benefits Share-based payment	CONSOLIDATED 2008 2007 $000 $000 2,009,839 1,613,223 148,625 107,500 – 183,801 2,158,464 1,904,524	THE COMPANY 2008 2007 $000 $000 2,009,839 1,613,223 148,625 107,500 – 183,801 2,158,464 1,904,524	THE COMPANY 2008 2007 $000 $000 2,009,839 1,613,223 148,625 107,500 – 183,801 2,158,464 1,904,524
			1,904,524

Further details regarding the compensation of key management personnel, including Directors, can be found in the Remuneration Report within the Directors Report.

d) Option holdings

There were no options over ordinary shares in the Company held during the year ended 30 June 2008 by directors of the Company and other key management personnel of the consolidated entity, including their related parties. Options held during the year ended 30 June 2007 are set out below.

2007 Directors Ian McCauley (1) John Rawlins (1) Anthony McLellan Other key management personnel Mark McCauley Total	Balance at beginning of year 1 July 2006 r 3,750,000 3,750,000 70,000 312,000 7,882,000	Granted as emuneration – – – – –	Options exercised (3,750,000) (3,750,000) (70,000) (312,000) (7,882,000)	Net change other – – – – –	Balance at end of year 30 June 2007 – – – – –	Total – – – – –	Vested at 30 June 2007 Not exercisable – – – – –	Exercisable – – – –
								–

(1) Resigned 21 March 2007. Options were under contract on that date and were exercised on 14 May 2007 following FIRB approval.

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APPENDIX II

e) Shareholdings

The numbers of shares in the Company held during the year by Directors of the Company and other key management personnel of the consolidated entity, including their related parties, are set out below.

2008 Directors Hans Mende (6) Travers Duncan Brian Flannery Other key management personnel David Knappick (2) Joseph Butta (2) Total 2007 Directors Travers Duncan (3) Brian Flannery (3) Ian McCauley (1) John Rawlins (1) Anthony McLellan (5) Other key management personnel Mark McCauley (4) David Knappick (3) Joseph Butta (3) Total	Balance at beginning of year 1 July 2007 37,601,724 29,948,706 29,450,000 14,550,000 9,700,000 121,250,430 Balance at beginning of year 1 July 2006 27,698,706 27,200,000 15,193,050 15,082,586 – 168,000 13,425,000 8,950,000 107,717,342	Granted as remuneration – – – – – – Granted as remuneration – – – – – – – – –	Options exercised – – – – – – Options exercised – – 3,750,000 3,750,000 70,000 312,000 – – 7,882,000	Consolidation of shares – – – – – – Consolidation of shares	Net change other – – – (14,550,000) (9,700,000) (24,250,000) Net change other 2,250,000 2,250,000 (18,943,050) (18,832,586) (70,000) (480,000) 1,125,000 750,000 (31,950,636)	Balance at end of year 30 June 2008 37,601,724 29,948,706 29,450,000 – – 97,000,430 Balance at end of year 30 June 2007 29,948,706 29,450,000 – – – – 14,550,000 9,700,000 83,648,706	Held nominally 30 June 2008 – – – – –
							–
							Held nominally 30 June 2007 – – – – – – – –
							–

(1) Shareholdings at resignation date 21 March 2007. Options and shareholdings were under contract on that date and were exercised on 14 May 2007 following FIRB approval.

(2) Shareholdings at resignation date 31 January 2008.

(3) Net change other relates to the conversion on B class shares to ordinary shares.

(4) Net change other relates to shareholding at date of resignation 28 February 2007.

(5) Net change other relates to shareholding at date of resignation 25 June 2007.

(6) Mr Mende became a key management person upon his appointment as a director on 29 October 2007. Mr Mende has a partial interest in these shares through a director related entity.

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APPENDIX II

FINANCIAL INFORMATION OF FELIX

	CONSOLIDATED	CONSOLIDATED	THE COMPANY	THE COMPANY
	2008	2007	2008	2007
Aggregate proceeds received from
Directors and other key management
personnel on the exercise of options and
recognised as issued capital	–	6,384,020	–	6,384,020
Fair value of shares issued to Directors and
other key management personnel on the
exercise of options as at their issue date	–	42,010,760	–	42,010,760

32 AUDITORS’ REMUNERATION

Amounts paid or payable to BDO Kendalls for:

an audit or review of the financial report of any entity in the consolidated entity non-audit services in relation to any entity in the consolidated entity tax consulting tax compliance Amounts paid or payable to a related practice of BDO Kendalls for: an audit or review of the financial report of any entity in the consolidated entity non-audit services in relation to any entity in the consolidated entity tax compliance	CONSOLIDATED 2008 2007 329,254 352,939 – 50,211 93,310 145,438 10,121 – 9,902 – 442,587 548,588	THE COMPANY 2008 2007 275,000 239,500 – 50,211 55,165 145,438 10,121 – 9,902 – 350,188 435,149	THE COMPANY 2008 2007 275,000 239,500 – 50,211 55,165 145,438 10,121 – 9,902 – 350,188 435,149
			435,149

33 RELATED PARTY TRANSACTIONS, EXCLUDING DIRECTORS & OTHER KEY MANAGEMENT PERSONNEL

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

a) Parent entity and subsidiaries

The ultimate parent entity in the consolidated entity is Felix Resources Limited.

The consolidated entity consists of Felix Resources Limited and its controlled entities, the ownership interests of which are set out in note 6.

Transactions between Felix Resources Limited and other entities in the consolidated entity during the years ended 30 June 2008 and 2007 consisted of:

• i) loans advanced by Felix Resources Limited;

• ii) loans repaid to Felix Resources Limited;

• iii) the payment of interest on the above loans;

• iv) the payment of dividends to Felix Resources Limited;

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

• v) the provision of administration, accounting, management, marketing and hire services by Felix Resources Limited and other entities in the consolidated entity; and

• vi) transactions between Felix Resources Limited and its Australian controlled entities under the tax sharing agreement described in note 4.

b) Associates and joint ventures

Associated entities are set out in note 13 and joint ventures in which the consolidated entity is a venturer are set out in note 29. Transactions with associates and joint ventures during the years ended 30 June 2008 and 2007 consisted of:

• i) loans advanced by Felix Resources Limited, subsidiaries or joint ventures to associated entities;

• ii) loans repaid to Felix Resources Limited, subsidiaries or joint ventures from associated entities;

• iii) sales of coal by a subsidiary to an associated entity under terms and conditions specified in the Ashton Coal Joint Venture Agreement;

• iv) the provision of administration, accounting, marketing, management and hire services by Felix Resources Limited or subsidiaries to associated entities and joint ventures;

• v) sale of excavator by Felix Resources Limited to a joint venture; and

• vi) purchase of coal by a joint venture from a subsidiary.

c) Transactions with related parties

The following transactions occurred with related parties.

Sales of goods and services Sales of coal to associated entities Sales of management and marketing services to controlled entities Sales of marketing services to associated entities Sales of management and marketing services to joint ventures Sale of excavator to joint venture Purchase of goods and services Purchase of coal by Minerva Joint Venture from Yarrabee Coal Company Pty Ltd Dividend Revenue Dividends received from subsidiaries Doubtful debt expense Write-down of receivables from subsidiary Reversal of write-down of receivables from subsidiary	CONSOLIDATED 2008 2007 195,020,990 70,525,723 – – 240,000 220,800 3,957,741 1,616,484 – 100,000 10,523,566 2,690,899 – – – – – –	THE COMPANY 2008 2007 – – 1,152,000 1,152,000 600,000 552,000 969,600 1,533,600 – 250,000 – – – 7,210,000 101,507 3,824 (656) (1,846,662)

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APPENDIX II

d) Outstanding balances arising from transactions with related parties

Balances outstanding at the reporting date to related parties are unsecured and subordinate to other liabilities. Balances outstanding at the reporting date from related parties are also unsecured, non-interest bearing and repayable on demand.

The following balances are outstanding at the reporting date in relation to transactions with related parties.

Current receivables Advances to controlled entities Receivable from Minerva Coal Pty Ltd being an unsecured non-interest bearing loan Advance to Minerva Coal Pty Ltd Advances to 100% owned subsidiaries Trade Debtors Receivable from Ashton Coal Mines Limited Receivable from controlled entities Receivables from 100% owned subsidiaries under tax sharing agreement Non-current receivables Advances to controlled entities Receivable from Minerva Coal Pty Ltd being an unsecured, non-interest bearing loan Receivable from SASE Pty Ltd being an unsecured, non-interest bearing loan Less: Accumulated impairment losses Receivable from 100% owned subsidiaries Less: Accumulated impairment losses Advances to associated entities Receivable from Ashton Coal Mines Limited being an unsecured, non-interest bearing loan Current Payables Advances from 100% owned subsidiaries Trade Creditors Payable by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture, to Australian Coal Processing Pty Ltd	CONSOLIDATED 2008 2007 – – – – – – 41,221,432 549,540 – – – – – – – – – – – – 8,171,131 5,378,938 – – – 58,608	THE COMPANY 2008 2007 3,228,831 3,228,831 244,972 82,225 – 65,480,914 8,604 – 81,788,998 10,503,925 748,285 748,285 31,271,655 31,272,311 (31,271,655) (31,272,311) 50,625,507 50,524,000 (30,625,507) (30,524,000) – – 56,403,000 – – –

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APPENDIX II

34 TRANSACTIONS WITH DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL

Transactions with Directors of the Company and other key management personnel, including their related parties, are on commercial terms and conditions no more favourable than those available to other parties under similar circumstances unless otherwise stated.

a) Transactions

Profit after tax includes the following items of expenses that resulted from transactions with Directors of the Company and other key management personnel, including their related parties.

Payment to Aedion Pty Ltd from Yarrabee Coal Company Pty Ltd for accommodation. Mr. J. Rawlins is a Director of Aedion Pty Ltd Payments to Rawmac Pastoral Pty Ltd for access licence fees. Rawmac Pastoral Pty Ltd is controlled by Mr. I. McCauley and Mr. J. Rawlins Payments to Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited as operator of the Ashton Joint Venture for mining contracting and equipment hire. Mr. T. Duncan, Mr. B. Flannery, Mr. D. Knappick and Mr. J. Butta are the majority shareholders in Coalroc Contractors Pty Ltd Payments to Coalroc Contractors Pty Ltd by Australian Coal Processing Pty Ltd for trade services Payments to Coalroc Contractors Pty Ltd by UCC Energy Pty Limited for trade services Payments to Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited as operator of the Ashton Joint Venture for interest on finance leases. Refer note 3(a) Payments to Yunaga Mine Services Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture for trade services. Coalroc Contractors Pty Ltd owned 50% of the share capital of Yunaga Mine Services Pty Ltd up until 15 September 2007. Coalroc Contractors Pty Ltd reduced its shareholding to nil on this date Payment to Yunaga Mine Services Pty Ltd by Australian Coal Processing Pty Ltd for trade services Payment to Yunaga Mine Services Pty Ltd by Ashton Coal Mines Limited for trade services Total recognised as expenses	CONSOLIDATED 2008 2007 – 7,800 – 6,000 2,818,008 1,135,004 – 1,264 1,040 1,040 493,594 158,759 1,073 697,347 – 1,168 – 18,210 3,313,715 2,026,592	THE COMPANY 2008 2007 – – – – – – – – – – – – – – – – – – – –	THE COMPANY 2008 2007 – – – – – – – – – – – – – – – – – – – –
			–

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APPENDIX II

Assets and liabilities include the following items that resulted from transactions with Directors of the Company and other key management personnel, including their related parties.

Non-current property plant and equipment Payments to Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited, as the operator of the Ashton Joint Venture for mining contracting and equipment hire Finance lease charges capitalised – note 3(a) Fair value of leased plant and equipment acquired from Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture Fair value of land and buildings acquired from Aedion Pty Ltd by Yarrabee Coal Company Pty Ltd Payments to Yunaga Mine Services Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture for mining contracting Total recognised as assets Interest bearing liabilities Current Fair value of finance lease agreements with Coalroc Contractors Pty Ltd byAshton Coal Operations Pty Limited, as operator of the Ashton Joint Venture Non-current Fair value of finance lease agreements with Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture Total recognised as liabilities	CONSOLIDATED 2008 2007 58,907 1,811,478 – 619,609 – 2,061,299 – 412,845 2,864 50,127 61,771 4,955,358	CONSOLIDATED 2008 2007 58,907 1,811,478 – 619,609 – 2,061,299 – 412,845 2,864 50,127 61,771 4,955,358	THE COMPANY 2008 2007 – – – – – – – – – – – –	THE COMPANY 2008 2007 – – – – – – – – – – – –
				–
	1,978,018 141,897	3,105,641 2,179,509	– –	– –
	2,119,915	5,285,150	–	–

Finance lease agreements with Coalroc Contractors Pty Ltd relate to mining equipment and have lease terms ranging up to 1 year and 3 months with the option to purchase the assets at completion of the lease term for the contracted value. The effective discount rate implicit in the leases range from 12%-13.4%.

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APPENDIX II

Lease liabilities are secured by the leased assets. The equipment was used in the development of the Ashton underground mine and therefore the finance charges paid as part of the minimum lease payments are capitalised as assets under construction within property, plant and equipment as noted in note 3(a). The finance charges stopped being capitalised once the Ashton underground mine began production in April 2007.

b) Outstanding balances

The following balances are outstanding at the reporting date in relation to transactions with Directors of the Company and other key management personnel, including their related parties

Current payables Trade Creditors Payable by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture, to Coalroc Contractors Pty Ltd Payable by Yarrabee Coal Company Pty Ltd to Rawmac Pastoral Pty Ltd Total recognised as liabilities	CONSOLIDATED 2008 2007 361,466 245,196 – 3,300 361,466 248,496	THE COMPANY 2008 2007 – – – – – –	THE COMPANY 2008 2007 – – – – – –
			–

c) Loans to Directors and other key management personnel

Loan to Mr John Rawlins being a secured interest bearing loan, interest payable twice yearly at the ANZ Bank corporate rate for overdrafts exceeding $1 million.

Balance at the start of the year Interest payable for the year Interest paid Balance at the end of the year Highest indebtedness during the year Number of persons in the Group aggregate at the end of the year	CONSOLIDATED 2008 Aggregate for key management personnel Individuals with loans above $100,000 during the year $ $ – – – – – – – –	CONSOLIDATED 2008 Aggregate for key management personnel Individuals with loans above $100,000 during the year $ $ – – – – – – – –	CONSOLIDATED 2007 Aggregate for key management personnel Individuals with loans above $100,000 during the year $ $ 1,705,045 1,705,045 172,210 172,210 (172,210) (172,210) 1,705,045 1,705,045	CONSOLIDATED 2007 Aggregate for key management personnel Individuals with loans above $100,000 during the year $ $ 1,705,045 1,705,045 172,210 172,210 (172,210) (172,210) 1,705,045 1,705,045
				1,705,045
	– –	– –	1,705,045 1	1,705,045
				1

Mr Rawlins ceased being a Director during the 2007 financial year.

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APPENDIX II

d) Shares

Shares issued to related parties of Directors and other key management personnel are detailed in note 31.

35 CONTINGENT LIABILITIES AND CONTINGENT ASSETS

Note Guarantees a) Parent entity and consolidated entity Guarantees secured over deposits Performance guarantees provided to external parties Guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute b) Joint ventures Guarantees secured over deposits Performance guarantees provided to external parties Guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute 20c	CONSOLIDATED 2008 2007 $000 $000 149 143 7,403 12,308 2,130 2,123 75 73 69 69 4,879 3,595 14,705 18,311	THE COMPANY 2008 2007 $000 $000 72 65 7,095 12,000 2,130 2,123 – – – – 3,595 2,311 12,892 16,499	THE COMPANY 2008 2007 $000 $000 72 65 7,095 12,000 2,130 2,123 – – – – 3,595 2,311 12,892 16,499
			16,499

36 SEGMENT REPORTING

For the years ended 30 June 2008 and 2007, the consolidated entity operated predominately in one business and one geographic segment. The consolidated entity operated predominantly in Australia. The industry in which the consolidated entity operated was the exploration for and extraction of coal resources.

37 FINANCIAL RISK MANAGEMENT

The consolidated entity undertakes transactions in a range of financial instruments including:

i) cash and cash equivalents, including deposits;

ii) trade & other receivables;

iii) payables;

iv) interest bearing liabilities, including bank loans and finance leases; and

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APPENDIX II

v) derivatives.

The consolidated entity’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.

The Board of Directors has overall responsibility for determining risk management objectives and policies and risk management is carried out by a central treasury department. The Board provides written principles for overall risk management, as well as policies covering specific areas such as, investment of excess liquidity, and the use of derivative financial instruments to mitigate foreign exchange risk, price risk, and interest rate risk. These derivative instruments create an obligation or right that effectively transfers one or more of the risks associated with an underlying financial instrument, asset or obligation. Derivatives are used exclusively for hedging purposes i.e. not as trading or other speculative instruments. Derivative transactions are entered into to hedge the risks relating to underlying physical positions arising from business activities.

The overall objective of the Board is to set policies that seek to reduce risk as far as possible and reduce volatility on financial performance without unduly affecting competitiveness and flexibility. Further details regarding these policies are set out below.

a) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates (currency risk), coal prices (price risk) or interest rates (interest rate risk).

i) Currency risk

The consolidated entity operates entirely in Australia and its costs are primarily denominated in its functional currency, the Australian dollar. Export coal sales are denominated in US dollars. A strengthening of the Australian dollar against the US dollar has an adverse impact on earnings and cash flow.

Foreign exchange risks that arise from firm commitments or highly probable transactions are managed principally through the use of forward foreign currency derivatives. The consolidated entity hedges a proportion of these transactions (such as contracted US dollar sales and asset purchases settled in foreign currencies) in each currency in accordance with the Board’s risk management policy.

The consolidated entity’s exposure to foreign currency risk at the reporting date was as listed below.

Trade receivables Trade payables Forward foreign exchange contracts – sell foreign currency (cash flow hedges) Forward foreign exchange contracts – buy foreign currency (cash flow hedges) Net exposure	2008 USD $000 54,976 (1,155) (62,766) –	2008 EUR €000 – – – 2,428	2008 YEN ¥000 – – – 268,073	2007 USD $000 1,495 (7) (26,489) –	2007 EUR €000 – – – –	2007 YEN ¥000 – – – –
	(8,945)	2,428	268,073	(25,001)	–	–

– 294 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

The Company’s exposure to foreign currency risk at the reporting date was as listed below.

Forward foreign exchange contracts – sell foreign currency (cash flow hedges) Net exposure	2008 USD $000 – –	2008 EUR €000 – –	2008 YEN ¥000 – –	2007 USD $000 (26,489) (26,489)	2007 EUR €000 – –	2007 YEN ¥000 –
						–

Consolidated entity sensitivity analysis

Based on the financial instruments held at 30 June 2008, and a year-end spot rate of $0.9626, had the Australian dollar weakened/strengthened by 5% against the US dollar with all other variables held constant, the consolidated entity’s post-tax profit for the year would have been $3,006,000 higher/$2,720,000 lower (2007: $82,000 higher/$74,000 lower), mainly as a result of foreign exchange gains/losses on translation of US denominated financial instruments as detailed in the table above. Profit is more sensitive to movements in the Australian dollar/ US dollar exchange rates in 2008 than 2007 because of the increased amount of US dollar denominated receivables. Equity (Hedging reserve) would have been $2,339,000 lower/ $2,195,000 higher (2007: $1,150,000 lower/$1,040,000 higher) had the Australian dollar weakened/strengthened by 5% against the US dollar, arising mainly from forward foreign exchange contracts designated as cash flow hedges. Equity is more sensitive to movements in the Australian dollar/US dollar exchange rates in 2008 than 2007 because of the increased amount of forward foreign exchange contracts. The consolidated entity’s exposure to other foreign exchange movements is not material.

The Company sensitivity analysis

The Company’s equity (Hedging reserve) would have been $Nil lower/$Nil higher (2007: $1,150,000 lower/$1,040,000 higher) had the Australian dollar weakened/strengthened by 5% against the US dollar, arising mainly from forward foreign exchange contracts designated as cash flow hedges. The Company’s post-tax profit would not have been affected had the Australian dollar weakened/strengthened by 5% against the US dollar.

ii) Price risk

The consolidated entity is exposed to price risk on the coal it produces and sells on the world market in US dollars. The majority of coal sales are made to major customers with the prices negotiated annually. The remainder of coal sales are sold at the spot market price, or sold under long term fixed prices.

Price risk that arises from firm commitments or highly probable transactions are managed principally through the use of forward coal price derivatives. The consolidated entity hedges a proportion of these transactions (such as contracted US dollar sales) in accordance with the Board’s risk management policy. These cash flow hedges balance the exposure to changes in the market price of coal by fixing the price. The Board’s policy assumes that at the time when coal sales contracts are entered in to that the contracted price will approximate to the current price of the market index that the coal swap contracts are linked to. The Board’s policy requires that an offsetting coal swap contract is entered in to at the same time that the coal sales contract price is agreed to.

The consolidated entity’s exposure to price risk at the reporting date is detailed in note 9.

– 295 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

Consolidated entity sensitivity analysis

Based on the financial instruments held at 30 June 2008, and the counterparty’s market valuation of US$172.90 per tonne, had the coal price weakened/strengthened by 10% with all other variables held constant, the consolidated entity’s equity would have been $12,929,000 higher/$12,929,000 lower (2007: $Nil higher/$Nil lower), arising from coal swap contracts designated as cash flow hedges. The impact on post-tax profit for the year had the coal price weakened/strengthened by 10% with all other variables held constant would have been $Nil higher/$Nil lower (2007: $Nil higher/$Nil lower).

The Company sensitivity analysis

The Company’s post-tax profit for the year and equity is unaffected by coal price risk.

iii) Cash flow and fair value interest rate risk

The consolidated entity and the Company are subject to interest rate risk that arises from long-term borrowings. Borrowings issued at variable rates expose the consolidated entity and the Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the consolidated entity and the Company to fair value interest rate risk. The consolidated entity and the Company invest surplus cash in interest bearing deposits with banks and financial institutions. Investments at variable rates expose the consolidated entity and the Company to cash flow interest rate risk. Investments at fixed rates expose the consolidated entity and the Company to fair value interest rate risk.

Interest rate risk that arises from borrowings and investments is managed generally by borrowing and investing at floating interest rates. The consolidated entity hedges a proportion of borrowings issued at variable interest rates through the use of floating-to-fixed interest rate swap contracts when required under borrowing agreements.

– 296 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

The consolidated entity’s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities at the reporting date are set out below.

2008 (i) Financial assets Current Cash and cash equivalents Secured Director loan-interest bearing Exposure to interest rate risk (ii) Financial liabilities Current Bank loans Lease liabilities Non-current Bank loans Lease liabilities Exposure to interest rate risk 2007 (i) Financial assets Current Cash and cash equivalents Loans to other entities – interest bearing Non-current Secured Director loan – interest bearing Exposure to interest rate risk (ii) Financial liabilities Current Bank loans Lease liabilities Non-current Bank loans Lease liabilities Exposure to interest rate risk	Floating Balance $000 63,334 1,705	Fixed Balance $000 173,751 –	Weighted average effective floating interest rate % 6.67 11.75	Weighted average effective fixed interest rate % 8.15 N/A
	65,039 10,442 – 46,481 – 56,923	173,751 2,077 8,337 8,625 15,261 34,300	9.36 N/A 9.39 N/A	6.00 10.23 6.00 8.09
	Floating Balance $000 17,420 – 1,705	Fixed Balance $000 35 6,967 –	Weighted average effective floating interest rate % 5.14 N/A 10.10	Weighted average effective fixed interest rate % 2.00 25.00 N/A
	19,125 8,581 – 53,250 – 61,831	7,002 1,669 7,182 12,125 17,530 38,506	8.14 N/A 8.24 N/A	6.00 10.56 6.00 9.27

– 297 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

Sensitivity Analysis

Set out in the tables below is a sensitivity analysis for the consolidated entity and the Company that shows what effect there would be on post-tax profit and equity if interest rates had changed by +/-100 basis points from the year-end rates with all other variables held constant. The carrying amounts disclosed below do not include amounts which have fixed interest rates.

Consolidated at 30 June 2008 Financial assets Cash and cash equivalents Secured Director loan Financial liabilities Bank loans – current Bank loans – non-current Tax charge of 30% After tax increase/ (decrease)	Carrying Amount $000 63,334 1,705 10,442 46,481	+100 basis points Profit Other Equity $000 $000 633 – 17 – (104) – (465) – (24) –	+100 basis points Profit Other Equity $000 $000 633 – 17 – (104) – (465) – (24) –	-100 basis points Profit Other Equity $000 $000 (633) – (17) – 104 – 465 – 24 –	-100 basis points Profit Other Equity $000 $000 (633) – (17) – 104 – 465 – 24 –
		57	–	(57)	–

The impact on profit in relation to cash and cash equivalents disclosed above is not representative of the consolidated entity’s exposure to cash flow interest rate risk during the year ended 30 June 2008 as the majority of the cash and cash equivalents balance was received part way through the year.

Consolidated at 30 June 2007 Financial assets Cash and cash equivalents Secured Director loan Financial liabilities Bank loans – current Bank loans – non-current Tax charge of 30% After tax increase/ (decrease)	Carrying Amount $000 17,420 1,705 8,581 53,250	+100 basis points Profit Other Equity $000 $000 174 – 17 – (86) – (533) – 128 –	+100 basis points Profit Other Equity $000 $000 174 – 17 – (86) – (533) – 128 –	-100 basis points Profit Other Equity $000 $000 (174) – (17) – 86 – 533 – (128) –	-100 basis points Profit Other Equity $000 $000 (174) – (17) – 86 – 533 – (128) –
		(300)	–	300	–

– 298 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

The Company at 30 June 2008 Financial assets Cash and cash equivalents Financial liabilities Bank loans – current Tax charge of 30% After tax increase/ (decrease)	Carrying Amount $000 19,222 1,423	+100 basis points Profit Other Equity $000 $000 192 – (14) – (53) –	+100 basis points Profit Other Equity $000 $000 192 – (14) – (53) –	-100 basis points Profit Other Equity $000 $000 (192) – 14 – 53 –	-100 basis points Profit Other Equity $000 $000 (192) – 14 – 53 –
		125	–	(125)	–

The impact on profit in relation to cash and cash equivalents disclosed above is not representative of the Company’s exposure to cash flow interest rate risk during the year ended 30 June 2008 as the majority of the cash and cash equivalents balance was received part way through the year.

The Company at 30 June 2007 Financial assets Cash and cash equivalents Financial liabilities Bank loans – current Tax charge of 30% After tax increase/ (decrease)	Carrying Amount $000 10,242 1,831	+100 basis points Profit Other Equity $000 $000 102 – (18) – (25) –	+100 basis points Profit Other Equity $000 $000 102 – (18) – (25) –	-100 basis points Profit Other Equity $000 $000 (102) – 18 – 25 –	-100 basis points Profit Other Equity $000 $000 (102) – 18 – 25 –
		59	–	(59)	–

b) Credit risk exposures

Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted.

Credit risk arises from cash and cash equivalents, forward foreign exchange contracts, coal swap contracts and interest rate swap contracts, as well as credit exposures to customers. In respect of credit risk on derivatives, refer to note 9(b). In respect to cash deposits, the consolidated entity only invests with accounts that have a Standard and Poor’s credit rating of A-1+. The Commonwealth Bank of Australia (CBA) is the major counterparty for derivatives and cash and cash equivalents. CBA has an overall Standard and Poor’s credit rating of AA.

Credit risk in trade receivables is managed in the following ways:

• i) payment terms are set for individual customers;

• ii) a risk assessment process is used for all customers; and

iii) letters of credit are required for those customers assessed as posing a higher risk.

– 299 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

The maximum exposure to credit risk on financial assets which have been recognised in the balance sheet is their carrying amount less impairment provision as set out below.

Cash and cash equivalents Trade and other receivables Derivative financial instruments	CONSOLIDATED 2008 2007 $000 $000 237,093 17,460 83,214 43,524 3,616 1,281 323,923 62,265	THE COMPANY 2008 2007 $000 $000 109,476 10,278 104,200 101,921 – 1,065 213,676 113,264	THE COMPANY 2008 2007 $000 $000 109,476 10,278 104,200 101,921 – 1,065 213,676 113,264
			113,264

Included in trade and other receivables are significant customers located in Korea and Japan that account for 41% and 40% of trade receivables respectively at 30 June 2008.

c) Liquidity risk

Liquidity risk includes the risk that, as a result of operational liquidity requirements, the consolidated entity will be impacted in the following ways:

• i) will not have sufficient funds to settle a transaction on the due date;

• ii) will be forced to sell financial assets at a value which is less than what they are worth; or iii) may be unable to settle or recover a financial asset at all.

Liquidity risk is managed by maintaining sufficient cash and liquid deposit balances and having readily accessible standby facilities in place in accordance with the Board’s risk management policy. Details regarding finance facilities are set out in note 20.

Maturities of financial liabilities

The tables below analyse the consolidated entity and the Company’s financial liabilities in to maturity groupings based on the reaming period at the reporting date to the contractual maturity date. Refer to note 9(a) for the contractual maturity of derivatives. Refer to note 30 for the contractual maturity of finance leases. The amounts presented represent the future undiscounted principal and interest cash flows and therefore do not necessarily equate to the carrying amounts.

Consolidated at 30 June 2008 Trade creditors Other creditors Bank loans Deferred Minerva payment Unsecured loan-non-interest bearing Total	Carrying Amount Contractual Cash flows $000 $000 44,959 44,959 6,222 6,222 67,625 84,326 2,929 4,000 1,693 1,693 123,428 141,200	< 6 mths $000 44,959 6,222 9,651 – 1,693 62,525	6-12 mths $000 – – 9,682 250 – 9,932	1-3 years $000 – – 35,968 1,000 – 36,968	> 3 years $000 – – 29,025 2,750 –
					31,775

– 300 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Consolidated at 30 June 2007 Trade creditors Other creditors Bank loans Deferred Minerva payment Unsecured loan-non-interest bearing Total Consolidated at 30 June 2008 Trade creditors Other creditors Bank loans Deferred Minerva payment Total Consolidated at 30 June 2007 Trade creditors Other creditors Bank loans Deferred Minerva payment Total	Carrying Amount Contractual Cash flows $000 $000 31,249 31,249 2,203 2,203 75,625 96,860 2,724 4,000 1,693 1,693 113,494 136,005 Carrying Amount Contractual Cash flows $000 $000 890 890 32 32 12,125 14,076 2,929 4,000 15,976 18,998 Carrying Amount Contractual Cash flows $000 $000 786 786 108 108 15,625 18,878 2,724 4,000 19,243 23,772	< 6 mths $000 31,249 2,203 7,225 – 1,693 42,370 < 6 mths $000 890 32 2,329 – 3,251 < 6 mths $000 786 108 2,433 – 3,327	6-12 mths $000 – – 9,326 – – 9,326 6-12 mths $000 – – 2,259 250 2,509 6-12 mths $000 – – 2,369 – 2,369	1-3 years $000 – – 42,285 750 – 43,035 1-3 years $000 – – 9,488 1,000 10,488 1-3 years $000 – – 14,076 750 14,826	> 3 years $000 – – 38,024 3,250 –
					41,274
					> 3 years $000 – – 2,750
					2,750
					> 3 years $000 – – – 3,250
					3,250

– 301 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

38 SUBSEQUENT EVENTS

a) Derivative financial instruments

(i) Forward foreign exchange contracts – cash flow hedges

As set out in note 9(a)(i) the consolidated entity enters into forward foreign exchange contracts to reduce the foreign exchange rate volatility of the consolidated entity’s revenue stream. Subsequent to balance date the consolidated entity entered into further forward foreign exchange contracts as noted below.

Settlement Less than 6 months 6 months to 1 year	SELL UNITED STATES DOLLARS 2008 2007 US$000 US$000 140,000 111,500 – 73,000 140,000 184,500	AVERAGE EXCHANGE RATES 2008 2007 US$ US$ 0.9365 0.8159 – 0.8018 0.9365 0.8103	AVERAGE EXCHANGE RATES 2008 2007 US$ US$ 0.9365 0.8159 – 0.8018 0.9365 0.8103
			0.8103

(ii) Coal price swap contracts – cash flow hedges

As set out in note 9(a)(ii) the consolidated entity enters into coal swap contracts to reduce the coal price volatility of the consolidated entity’s revenue stream. Subsequent to balance date the consolidated entity entered into further coal swap contracts as noted below.

Settlement 6 months to 1 year 1 year to less than 2 years	VOLUME 2008 2007 Tonnes Tonnes 60 – 60 – 120 –	AVERAGE COAL PRICE 2008 2007 US$ US$ 173.50 – 173.50 – 173.50 –	AVERAGE COAL PRICE 2008 2007 US$ US$ 173.50 – 173.50 – 173.50 –
			–

b) Moolarben capital commitments

Since 30 June 2008, the consolidated entity has entered into purchase orders amounting to $117,924,000 for mobile mining equipment to be used at the Moolarben Joint Venture.

c) Moolarben mining lease legal action

Felix has previously reported that Ulan Coal Mines Limited (Ulan), which is a joint venture of Xstrata as to 90% and Mitsubishi as to 10% had commenced legal proceedings in the Supreme Court of NSW seeking orders to prevent the granting of mining leases to Moolarben Coal Mines Pty Limited which is wholly owned by Felix. The court case for this action was awarded in Felix’s favour but was appealed by Ulan.

The appeal case was heard in April 2008 and the result was handed down on 8 August 2008. The Court upheld Ulan’s appeal but did not issue any orders. The parties are to submit further information to the court by 29 August 2008. The court will consider this information and make its orders. The likely outcome from the courts orders is uncertain at this time. The Directors are of the view that even if the outcome is unfavourable the impact on the carrying value of the Moolarben mining tenement is not likely to be material.

– 302 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

39 NATIVE TITLE

Native title describes the rights and interests in Australia of Aboriginal and Torres Strait Islander peoples in land and waters, according to their traditional laws and customs. Native title claims exist over all or part of the areas covered by the consolidated entity’s exploration licences in South Australia, Queensland and New South Wales. Under the Native Title Act these areas are protected for all current and future mining operations on existing mining leases.

40 COMPANY DETAILS

The registered office and principal place of business of the Company is:

Felix Resources Limited Level 6, 316 Adelaide Street Brisbane, Qld, 4000 Australia

– 303 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

The following is an extract of the audited financial statements of Felix Group for the year ended 30 June 2007, which are prepared in accordance with the Australian Accounting Standards which complies with the International Financial Reporting Standards, as extracted from the annual report of Felix for the year ended 30 June 2007.

Balance sheets

as at 30 June 2007

Notes ASSETS Current assets Cash and cash equivalents 7 Trade and other receivables 8 Inventory 12 Derivative financial assets 9 Other 10 Total current assets Non-current assets Trade and other receivables 11 Investments accounted for using the equity method 13 Other financial assets 14 Property, plant & equipment 15 Exploration and evaluation assets 16 Deferred tax assets 4 Intangible assets 17 Derivative financial assets 9 Total non-current assets Total assets	CONSOLIDATED 2007 2006 $000 $000 17,460 79,367 36,440 31,956 22,861 19,828 1,150 2,587 38,490 27,478	CONSOLIDATED 2007 2006 $000 $000 17,460 79,367 36,440 31,956 22,861 19,828 1,150 2,587 38,490 27,478	THE COMPANY 2007 2006 $000 $000 10,278 15,698 81,172 82,187 – – 1,065 2,587 80 92	THE COMPANY 2007 2006 $000 $000 10,278 15,698 81,172 82,187 – – 1,065 2,587 80 92
	116,401 7,084 204 – 195,883 13,797 72,302 231,152 131 520,553 636,954	161,216 8,810 4,866 – 130,395 10,259 51,697 236,149 49 442,225 603,441	92,595 20,749 – 241,393 356 – 15,027 300 – 277,825 370,420	100,564
				20,748 – 242,740 356 – 3,150 477 49
				267,520
				368,084

– 304 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Notes LIABILITIES Current liabilities Trade and other payables 18 Interest bearing liabilities 19 Current tax liabilities 4 Provisions 21 Total current liabilities Non-current liabilities Trade and other payables 22 Interest bearing liabilities 20 Deferred tax liabilities 4 Provisions 23 Total non-current liabilities Total liabilities Net assets EQUITY Issued Capital 24 Reserves 25a Accumulated losses 25d Parent entity interest Minority interest 26 Total equity	CONSOLIDATED 2007 2006 $000 $000 36,708 40,831 17,432 32,748 162 106 1,121 1,967	CONSOLIDATED 2007 2006 $000 $000 36,708 40,831 17,432 32,748 162 106 1,121 1,967	THE COMPANY 2007 2006 $000 $000 1,218 2,088 3,500 16,600 – – – – 4,718 18,688 2,724 2,346 12,125 15,625 323 1,047 – 78 15,172 19,096 19,890 37,784 350,530 330,300 444,378 435,658 6,106 10,388 (99,954) (115,746) 350,530 330,300 – – 350,530 330,300	THE COMPANY 2007 2006 $000 $000 1,218 2,088 3,500 16,600 – – – – 4,718 18,688 2,724 2,346 12,125 15,625 323 1,047 – 78 15,172 19,096 19,890 37,784 350,530 330,300 444,378 435,658 6,106 10,388 (99,954) (115,746) 350,530 330,300 – – 350,530 330,300
	55,423 4,417 82,905 86,529 5,481 179,332 234,755	75,652 4,039 99,731 64,406 3,298 171,474 247,126	4,718 2,724 12,125 323 – 15,172 19,890	18,688
				2,346 15,625 1,047 78
				19,096
				37,784
	402,199	356,315	350,530
	444,378 6,681 (52,189) 398,870 3,329	435,658 10,812 (91,936) 354,534 1,781	444,378 6,106 (99,954) 350,530 –	435,658 10,388 (115,746
				330,300 –
	402,199	356,315	350,530

These financial statements should be read in conjunction with the accompanying notes.

– 305 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

Income statements

Year ended 30 June 2007

Notes Revenue 2a Cost of sales Gross profit Other revenue 2b Other income 2c Distribution expenses Administrative expenses Finance costs 3a Share of net (losses)/profits of associates accounted for using the equity method 13c Profit before income tax Income tax (expense)/revenue 4a Profit after income tax Profit attributable to minority interest Profit attributable to members of Felix Resources Limited 25d Basic earnings per share (cents per share) 27 Diluted earnings per share (cents per share) 27 Dividends paid per share (cents per share) 5	CONSOLIDATED 2007 2006 $000 $000 241,469 212,142 (168,411) (130,293)	CONSOLIDATED 2007 2006 $000 $000 241,469 212,142 (168,411) (130,293)	THE COMPANY 2007 2006 $000 $000 6,079 2,604 – – 6,079 2,604 10,191 5,071 (79) 1,757 – – (4,993) (7,610) (1,720) (1,370) – – 9,478 452 13,524 8,066 23,002 8,518 – – 23,002 8,518	THE COMPANY 2007 2006 $000 $000 6,079 2,604 – – 6,079 2,604 10,191 5,071 (79) 1,757 – – (4,993) (7,610) (1,720) (1,370) – – 9,478 452 13,524 8,066 23,002 8,518 – – 23,002 8,518
	73,058 4,387 48,638 (57,196) (13,368) (5,048) (713) 49,758 (2,599) 47,159 202	81,849 2,578 6,726 (45,525) (13,191) (3,948) 1,533 30,022 81 30,103 –	6,079 10,191 (79) – (4,993) (1,720) – 9,478 13,524 23,002 –	2,604
				5,071 1,757 – (7,610 (1,370 –
				452 8,066
				8,518
				–
	46,957 25.19 25.17 4.00	30,103 16.71 16.26 1.95	23,002

These financial statements should be read in conjunction with the accompanying notes.

– 306 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Statements of changes in equity

Year ended 30 June 2007

Notes Total equity at the beginning of the year Cash flow hedges: Gains taken to equity 25 (Gains) transferred to profit for the year 25 Deferred and current tax 25 Net loss recognised directly in equity Profit for the year after income tax Total recognised income and expense for the year Adjustment on adoption of AASB 132 and AASB 139, net of tax 25 Total effect of change in accounting policy Non-cash share-based payments 25 Transactions with equity holders in their capacity as equity holders: Options exercised during the year 24 Minority interest Dividends paid during the year 5 Total equity at the end of the year Total recognised income and expense for the year is attributable to: Members of Felix Resources Limited Minority Interest	CONSOLIDATED 2007 2006 $000 $000 356,315 323,973	CONSOLIDATED 2007 2006 $000 $000 356,315 323,973	THE COMPANY 2007 2006 $000 $000 330,300 319,543 2,440 262 (6,067) (4,119) 1,088 1,157 (2,539) (2,700) 23,002 8,518 20,463 5,818 – 6,661 – 6,661 593 1,788 6,384 5 – – (7,210) (3,515) (233) (1,722) 350,530 330,300 20,463 5,818 – – 20,463 5,818	THE COMPANY 2007 2006 $000 $000 330,300 319,543 2,440 262 (6,067) (4,119) 1,088 1,157 (2,539) (2,700) 23,002 8,518 20,463 5,818 – 6,661 – 6,661 593 1,788 6,384 5 – – (7,210) (3,515) (233) (1,722) 350,530 330,300 20,463 5,818 – – 20,463 5,818
	2,656 (6,067) 1,023 (2,388) 47,159 44,771 – – 593 6,384 1,346 (7,210) 1,113 402,199 44,569 202	262 (7,761) 2,250 (5,249) 30,103 24,854 9,210 9,210 1,788 5 – (3,515) (1,722) 356,315 24,854 –	2,440 (6,067) 1,088 (2,539) 23,002 20,463 – – 593 6,384 – (7,210) (233) 350,530 20,463 –	262 (4,119 1,157
				(2,700 8,518
				5,818
				6,661
				6,661
				1,788 5 – (3,515
				(1,722
				330,300
				5,818 –
	44,771	24,854	20,463

These financial statements should be read in conjunction with the accompanying notes.

– 307 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

Cash flow statements

Year ended 30 June 2007

Notes Cash flows from operating activities Receipts from customers Payments to suppliers and employees Cash received on foreign exchange contracts Interest received Interest paid Income tax received Net cash inflows/(outflows) from operating activities 28a Cash flows from investing activities Purchase of property, plant & equipment Purchase of intangible assets Proceeds from sale of property, plant & equipment Proceeds from sale of available-for-sale financial assets Proceeds from sale of intangible assets Proceeds from sale of 28.7% of Minerva & Athena Joint Ventures 28c Net proceeds from sale of 25% interest in Ashton Joint Venture 28e Payment for exploration and evaluation activities 16b Return of share capital from associate 13b Advances (to) other entities Repayment of advances from related entities Advances from/(to) controlled entities Advances (to) associated entities Dividends received Net cash (outflows)/inflows from investing activities	CONSOLIDATED 2007 2006 $000 $000 305,383 216,652 (287,975) (196,755) 6,781 1,466 1,866 1,360 (4,670) (3,795) – 4,308	CONSOLIDATED 2007 2006 $000 $000 305,383 216,652 (287,975) (196,755) 6,781 1,466 1,866 1,360 (4,670) (3,795) – 4,308	THE COMPANY 2007 2006 $000 $000 1,194 180 (6,158) (5,840) 4,023 191 927 749 (1,342) (1,217) – 5,628 (1,356) (309) (416) (100) (21) (509) 253 – – 202 – – 1,267 – – – – – – – – – – – 5,069 (34,205) – – 7,210 3,222 13,362 (31,390)	THE COMPANY 2007 2006 $000 $000 1,194 180 (6,158) (5,840) 4,023 191 927 749 (1,342) (1,217) – 5,628 (1,356) (309) (416) (100) (21) (509) 253 – – 202 – – 1,267 – – – – – – – – – – – 5,069 (34,205) – – 7,210 3,222 13,362 (31,390)
	21,385 (88,184) (1,551) 563 1,572 344 41,521 – (4,927) 3,949 (4,306) – – (934) – (51,953)	23,236 (69,018) (509) 169 202 – – 29,464 (4,899) – (2,428) (1,275) – (68) – (48,362)	(1,356) (416) (21) 253 – – 1,267 – – – – – 5,069 – 7,210 13,362	(309
				(100 (509 – 202 – – – – – – – (34,205 – 3,222
				(31,390

– 308 –

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FINANCIAL INFORMATION OF FELIX

Notes Cash flows from financing activities Proceeds from issue of ordinary shares Payment of finance lease liabilities (Repayment)/proceeds of borrowings Proceeds from foreign exchange contracts early close Dividends paid Net cash (outflows)/inflows from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 28b	CONSOLIDATED 2007 2006 $000 $000 6,384 5 (6,367) (2,978) (24,146) 77,195 – 7,141 (7,210) (3,515)	CONSOLIDATED 2007 2006 $000 $000 6,384 5 (6,367) (2,978) (24,146) 77,195 – 7,141 (7,210) (3,515)	THE COMPANY 2007 2006 $000 $000 6,384 5 – – (16,600) 32,225 – 7,141 (7,210) (3,515) (17,426) 35,856 (5,420) 4,157 15,698 11,541 10,278 15,698	THE COMPANY 2007 2006 $000 $000 6,384 5 – – (16,600) 32,225 – 7,141 (7,210) (3,515) (17,426) 35,856 (5,420) 4,157 15,698 11,541 10,278 15,698
	(31,339) (61,907) 79,367	77,848 52,722 26,645	(17,426) (5,420) 15,698	35,856
				4,157 11,541
	17,460	79,367	10,278

These financial statements should be read in conjunction with the accompanying notes.

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APPENDIX II

Notes to the financial statements

30 June 2007

1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial report covers the consolidated entity of Felix Resources Limited (“Felix”) and its controlled entities and Felix as an individual parent entity. Felix is a listed public company limited by shares, incorporated and domiciled in Australia.

This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the Corporations Act 2001 . It is prepared on the basis of historical costs, except for derivative financial instruments and available-for-sale financial assets that have been measured at fair value. The financial report is presented in Australian dollars.

All values in the financial report are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the company under ASIC Class Order 98/100. The company is an entity to which the class order applies.

The financial report complies with Australian Accounting standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the consolidated financial report, comprising the financial statements and notes thereto, complies with the International Financial Reporting Standards (IFRS).

No new Australian Accounting Standards that have been issued but are not yet effective have been applied in the preparation of this financial report. Such standards are not expected to have a material impact on the consolidated entity’s financial report on initial application with the exception of AASB 7 “Financial Instruments Disclosure” which will require various additional disclosures regarding financial instruments. The financial report was authorised for issue by the Board on 31 August 2007.

The following is a summary of the material accounting policies adopted by the consolidated entity in the preparation of the financial report. The accounting polices have been consistently applied by the entities in the consolidated entity unless otherwise stated.

(a) Principles of consolidation

A controlled entity is any entity controlled by Felix. Control exists where Felix has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with Felix to achieve the objectives of Felix. A list of controlled entities is contained in note 6 to the financial statements.

All inter company balances and transactions between entities and the consolidated entity, including any unrealised profits or losses, have been eliminated on consolidation.

Minority interests in the equity and results of entities that are controlled are shown as a separate item in the consolidated financial report. Losses applicable to the minority interest in a consolidated subsidiary are allocated against the majority except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. If in future years the subsidiary reports profits, such profits are allocated to the majority interest until the minority’s share of losses previously absorbed by the majority have been recovered.

Where an entity began or ceased to be controlled during the year the results for that entity are only included from the date control commenced or up to the date control ceased.

Associates are those entities over which the consolidated entity exercises significant influence, but not control. Investments in associates are accounted for in Felix’s financial statements using the cost method and in the consolidated financial statements using the equity method, after initially being recognised at cost. Under this method, the consolidated entity’s share of the post-acquisition profits or losses of

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associates is recognised in the consolidated income statement, and its share of post-acquisition movements in reserves is recognised in consolidated reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investments.

When the consolidated entity’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the consolidated entity does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

(b) Income tax

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and for unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rate expected to apply when the assets are recovered or the liabilities settled, based on those tax rates which are enacted or substantively enacted in each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. An exception is also made in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, and deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and tax losses.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

Felix and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the Tax Consolidation regime. Felix is responsible for recognising the current tax assets and liabilities for the tax consolidated group. Each entity in the tax consolidated group recognises its own deferred tax assets and liabilities, except where the deferred tax assets relate to unused tax losses and credits, in which case Felix recognises the assets. The group has entered into a tax sharing agreement whereby each company in the group contributes to the income tax payable in proportion to their contribution to the profit before tax of the tax consolidated group. The tax consolidated group has also entered into a tax funding agreement whereby each entity in the group can recognise their balance of the current tax assets and liabilities through inter-entity accounts.

(c) Cash and cash equivalents

For the purpose of the cash flow statement, cash and cash equivalents includes:

• (i) cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts; and

• (ii) investments in short-term money market instruments with maturity periods of less than 3 months.

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(d) Loans and receivables

Trade receivables, loans, and other receivables are recorded at amortised cost less an allowance for any uncollectible amounts, if applicable. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.

(e) Advances to controlled entities

Advances by the company to controlled entities (refer to note 11) are principally contributions toward exploration expenditure and mine development. The value and recoverability of these amounts is related to the company’s policies with regards to exploration and evaluation expenditure as described in note 1(l). Should the underlying asset values be insufficient to recover the advances the amounts are reviewed for impairment.

(f) Inventories

Coal stocks are stated at the lower of cost and net realisable value. Costs are assigned on a weighted average basis and include direct materials, direct labour and an appropriate proportion of variable and fixed overheads. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(g) Overburden in advance

Overburden in advance comprises the accumulation of expenses incurred to enable access to the coal seams, and includes direct removal costs, machinery and plant running costs.

(h) Property, plant and equipment

Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and accumulated impairment losses. The carrying amount of freehold land and buildings and plant and equipment is reviewed to ensure it is not in excess of the recoverable amount from these assets.

The depreciable amount of all fixed assets, including buildings and capitalised leased assets, but excluding freehold land, is depreciated on a straight-line or declining balance basis to allocate their cost, net of their residual values, over their estimated useful lives to the consolidated entity commencing from the time the asset is held ready for use, as follows:

Buildings 25 years Mine development Life of mine as defined in note 1(k) Plant and equipment 2.5 to 18 years Leased plant and equipment 2.5 to 18 years

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance date.

(i) Investments

All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investment. After initial recognition, investments in shares in listed companies classified as available-for-sale are measured at fair value. Fair value for shares in listed companies is determined by reference to the Australian Securities Exchange quoted market bid prices at the close of business on the reporting date. Gains and losses on these available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement.

Investments in shares in unlisted companies, which do not have a quoted market price and whose fair value cannot be reliably measured, are classified as available-for-sale and are measured at cost. Gains and losses are recognised in the income statement when the investments are derecognised or impaired.

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Investments in controlled entities are carried in the parent entity’s financial statements at the lower of cost and recoverable amount. Investments in associates are accounted for in the consolidated financial statements as set out in note 1(a).

(j) Interests in joint ventures

The consolidated entity’s share of the assets, liabilities, revenue and expenses of joint venture operations are included in the appropriate items of the consolidated financial statements. Details of the consolidated entity’s interests are shown in note 29.

(k) Intangible assets

Mining tenements

Mining tenements have a finite useful life and are carried at cost less, where applicable, any accumulated amortisation and accumulated impairment losses. The carrying values of mining tenements are reviewed to ensure they are not in excess of their recoverable amounts. The recoverable amount is assessed on the basis described in note 1(n).

Amortisation of mining tenements commences from the date when commercial production commences, or in the case of the acquisition of the Ashton Coal Project, from the date of acquisition, and is charged to the income statement as cost of sales. Mining tenements are amortised over the life of the mine using a straight-line basis or units of production basis in tonnes as follows:

				Remaining
	**Life **	**of **	mine	life of mine
			Years	Units	Years	Units
Yarrabee			30	–	6	–
Minerva			–	34,543,000	–	31,616,378
Ashton			–	76,549,596	–	69,400,895
Moolarben			25	–	25	–

Changes in accounting estimates

The mine life of the Minerva mining tenement was reassessed as at 1 January 2006 resulting in an increase in estimated reserves from 22,400,000t to 36,240,000t as disclosed in the consolidated entity’s 2006 annual report. At that time the reserve estimate was not Joint Ore Reserve Committee (“JORC”) compliant and has now become so. The JORC compliant estimated life of the mine is 34,543,000t as at 30 April 2006. The error resulting from this over-estimate of the life of the mine was not significant and has been corrected in the financial statements for the year ended 30 June 2007.

Computer software

Computer software has a finite useful life and is carried at cost less, where applicable, any accumulated amortisation and accumulated impairment losses. The carrying values of computer software are reviewed to ensure they are not in excess of their recoverable amounts. The recoverable amount is assessed on the basis described in note 1(n). Amortisation of computer software is calculated using the straight-line or declining balance method to allocate the cost over the period of the expected benefit, which varies from 2.5 to 4 years.

Rail access rights

Rail access rights have a finite useful life and are carried at cost less, where applicable, any accumulated amortisation and accumulated impairment losses. The carrying values of rail access rights are reviewed to ensure they are not in excess of their recoverable amounts. The recoverable amount is assessed on the basis described in note 1(n).

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Rail access rights are amortised over the life of the mine or agreement using a units of production basis in tonnes as described above for the Minerva mine or on a straight-line basis. Amortisation is charged to the income statement as distribution expenses or cost of sales.

(l) Exploration and evaluation expenditure

Exploration and evaluation expenditure incurred is accumulated in respect of each separately identifiable area of interest. These costs are only carried forward where the right of tenure for the area of interest is current and to the extent that they are expected to be recouped through successful development and commercial exploitation, or alternatively, sale of the area, or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing.

The carrying amount of exploration and evaluation assets is assessed for impairment when facts or circumstances suggest the carrying amount of the assets may exceed their recoverable amount. The recoverable amount is assessed on the basis described in note 1(n).

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Accumulated costs in relation to an abandoned area are written-off in full in the period in which the decision to abandon the area is made.

When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves.

(m) Acquisition of assets

All assets acquired, including property, plant and equipment and intangibles other than goodwill are initially recorded at their cost of acquisition at the date of acquisition, being the fair value of consideration provided plus incidental costs directly attributable to the acquisition.

When equity instruments are issued as consideration, their market price at the date of acquisition is used as their fair value, except where the notional price at which they could be placed in the market is a better indication of their fair value.

Where settlement of any part of cash consideration is deferred, the amounts payable are recorded at their present value, discounted at the rate applicable to the consolidated entity as if a similar borrowing were obtained from an independent financier under comparable terms and conditions. The unwinding of the discount is treated as a finance cost.

(n) Recoverable amount of assets and impairment

At each reporting date, the consolidated entity assesses whether there is any indication that an asset may be impaired. Where an indication of impairment exists, the consolidated entity makes a formal estimate of the recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where it is not possible to estimate the recoverable amount of an individual asset, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs.

(o) Borrowings

Borrowings are initially recorded at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in the income statement over the period of the borrowings using the effective interest rate method.

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All borrowings are classified as current liabilities unless the consolidated entity has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.

(p) Borrowing costs

Borrowing costs incurred during the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are recognised as an expense when incurred.

(q) Leases

Leases of fixed assets where substantially all the risks and benefits incidental to ownership of the assets, but not the legal ownership, are transferred to the entities in the consolidated entity, are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the lower of the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual value. Leased assets are depreciated on a straight-line basis over their estimated useful lives where it is likely that the consolidated entity will obtain ownership of the assets or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and lease finance charges for the year.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses on a straight-line basis over the lease term.

(r) Employee benefits

Annual leave, sick leave and long service leave

Benefits accruing to employees in respect of wages and salaries, annual leave and sick leave are included in trade and other payables. Related on-costs are also included in trade and other payables as other creditors. Long service leave is provided for when it is probable that settlement will be required and it is capable of being measured reliably.

Employee benefits expected to be settled within 12 months are measured at their normal values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to the reporting date.

Retirement benefit obligations

Contributions are made by the consolidated entity to defined contribution superannuation funds and are charged as expenses when incurred.

Share-based payments

The consolidated entity provides benefits to Directors, other key management personnel and general managers of the consolidated entity in the form of share-based payment transactions, whereby Directors, other key management personnel and general managers render services in exchange for options to purchase shares in the company. The cost of these share-based payment transactions is measured by reference to the fair value at the date at which they are granted. Fair values at grant date are determined using a trinomial or binomial option pricing model that takes into account the exercise price, the life of the option, the current price of the underlying instrument, the expected price volatility of the underlying instrument, the expected dividend yield, and the risk-free interest rate for the life of the option.

The assessed fair value at grant date is recognised as an expense in the income statement, together with a corresponding increase in equity, pro-rata over the expected life of the option from grant date to expected vesting date. Upon exercise of the options, the balance in the options reserve is transferred to issued capital. No expense is recognised for options that do not ultimately vest

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APPENDIX II

because internal conditions were not met. An expense is still recognised for options that do not ultimately vest because a market condition is not met. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.

The consolidated entity has applied the requirements of AASB 1 in respect of share-based payment transactions and has applied AASB 2 Share-Based Payments only to equity instruments granted after 7 November 2002 that had not vested on or before 1 January 2005.

(s) Rehabilitation

A provision for rehabilitation is recognised when there is a present obligation to rehabilitate an area disturbed, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. An asset is created as part of the current and non-current development assets, to the extent that the development relates to future production activities, which is offset by a current and non-current provision for rehabilitation.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

(t) Revenue

Revenue from the sale of coal is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery, usually on a Free On Board, Trimmed (FOBT) basis.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

Dividend revenue is recognised when the right to receive the dividend has been established. Revenue from the rendering of a service is recognised upon the delivery of the service to the customer.

(u) Good and services tax

Revenues, expenses and assets are recognised net of the amount of Goods and Services Tax (GST), except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST.

The net amount of GST recoverable from or payable to the ATO is included as a current asset or liability in the balance sheet.

Cash flows are included in the cash flow statement on a gross basis. The GST components of cash flows arising from investing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

(v) Foreign currency transactions and balances

Items included in the financial statements of each entity of the consolidated entity are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Australian dollars, which is Felix’s functional and presentation currency.

Foreign currency transactions during the period are translated into the functional currency at rates of exchange applicable at the dates of each transaction. Monetary assets and liabilities denominated in foreign currencies at balance date are converted at rates of exchange ruling at that date.

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Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities, whether realised or unrealised, are recognised in the income statement as they arise except where hedging specific anticipated transactions (see note 1(w)).

The monetary assets and liabilities of foreign controlled entities are translated at year end rates. The non-monetary assets and liabilities are translated at rates at the transaction date or at the date these items are revalued or written down. Generally operating results are translated at average monthly rates. All resulting exchange differences are recognised as a separate component of equity. On disposal of a foreign controlled entity, the cumulative amount of such exchange differences are recognised in the income statement as part of the gain or loss on sale.

(w) Derivatives

The consolidated entity uses derivative financial instruments such as forward foreign exchange contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value at each reporting date. The resulting gain or loss arising from changes in the fair value of derivatives, except for those that qualify as cash flow hedges, is recognised in the income statement immediately.

The fair values of forward foreign currency contracts are calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair values of interest rate swaps are determined by reference to market values for similar instruments.

The forward foreign exchange contracts and interest rate swaps entered into by the consolidated entity are designated and qualify as cash flow hedges.

The consolidated entity documents at the inception of the contract the hedging relationship between hedging instruments and hedged items, including the risk management objectives and strategies for undertaking various hedge transactions. The consolidated entity also documents its assessment, both at inception and periodically, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

The gains or losses in respect of hedge transactions which relate to future purchases or sales are deferred and included in the measurement of the purchase or sale to which they relate when the anticipated transaction occurs. Any gains or losses on the hedge transaction after that date are included in the income statement.

The net amount receivable or payable as a result of a hedge transaction is included as an asset or liability in the balance sheet from the date of inception of the hedge. The corresponding unrealised gain or loss is recognised in equity in the hedging reserve. Changes in the fair value of the forward foreign exchange contracts or interest rate swaps are recognised through the hedging reserve until the anticipated underlying transaction occurs. Once the anticipated underlying transaction occurs, amounts accumulated in equity are recycled through the income statement or recognised as part of the cost of the asset to which it relates.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity and is recognised when the forecast transaction is ultimately recognised. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement for the year.

(x) Issued capital

Costs directly attributable to the issue of new shares or options are shown as a deduction from the equity proceeds, net of any income tax benefit. Costs directly attributable to the issue of new shares or options associated with the acquisition of a business are included as part of the purchase consideration.

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(y) Critical accounting estimates and other accounting judgements

The Directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group.

There have been no judgements, apart from those involving estimation, in applying accounting policies that have a significant effect on the amounts recognised in this financial report.

Following is a summary of the key assumptions concerning the future, and other key sources of estimation at reporting date that have not been disclosed elsewhere in this financial report.

Impairment

The consolidated entity assesses impairment at each reporting date by evaluating conditions specific to the consolidated entity that may lead to an impairment. Where an indicator of impairment exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates.

No impairment has been recognised in respect of mine development assets, mining tenements, rail access rights or exploration and evaluation assets where the related area of interest is being or has been developed, for the reporting period. The value-in-use calculations performed to determine the recoverable amount of the cash-generating units to which these assets belong has been based on actual operating results and a cash flow model based on life of mines. The pre-tax discount rate applied in the model is 12.5%. Coal prices used in the model have been determined based on an analysis of long term market price trends and estimated future foreign currency rates. Note 9 provides further information on the consolidated entity’s exposure to foreign currency risk.

Amortisation

The amortisation of mine development assets, mining tenements, rail access rights, exploration and evaluation assets where the related area of interest is being or has been developed, and the expensing of overburden removal costs is based on saleable coal production over estimated economically recoverable reserves. Note 1(k) provides further information regarding economically recoverable reserves. The amount of reserves that may actually be mined in the future and the consolidated entity’s estimate of reserves from time to time in the future may vary from current reserve estimates.

(z) Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to the members of Felix by the weighted average number of ordinary shares outstanding during the financial year.

Diluted earnings per share

Earnings used to calculate diluted earnings per share are calculated by adjusting the basic earnings by the after-tax effect of dividends and interest associated with dilutive potential ordinary shares. The weighted average number of shares used is adjusted for the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

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FINANCIAL INFORMATION OF FELIX

2 REVENUE AND INCOME

Notes From continuing operations a) Revenue Sales of coal Gain on forward foreign exchange contracts Total revenue b) Other revenue Rendering of services: Management fees Marketing fees Interest received – other parties Dividends from related parties (refer note 33) Rentals Plant hire Total other revenue c) Other income Net gain/(loss) on disposal of interests in joint ventures and projects: Disposal of 28.7% interest in Minerva & Athena Joint Ventures 28c Disposal of 10% in Moolarben Coal Project 28d Disposal of 25% interest in Ashton Joint Venture 28e Total net gain on disposal of interests in joint ventures and projects Net gain on sale of available-for-sale financial assets Option premiums for sales of tenements Gain on forward foreign exchange contracts where contracts were not matched to coal sales Other income Total other income	CONSOLIDATED 2007 2006 $000 $000 232,620 205,035 8,849 7,107 241,469 212,142	CONSOLIDATED 2007 2006 $000 $000 232,620 205,035 8,849 7,107 241,469 212,142	THE COMPANY 2007 2006 $000 $000 – – 6,079 2,604 6,079 2,604	THE COMPANY 2007 2006 $000 $000 – – 6,079 2,604 6,079 2,604
				2,604
	874 722 1,866 – 161 764	730 145 1,360 – 104 239	– 1,198 927 7,210 – 856	– 931 749 3,222 – 169
	4,387	2,578	10,191	5,071
	28,208 17,956 – 46,164 1,136 780 – 558	– – 4,270 4,270 71 444 1,686 255	(79) – – (79) – – – –	– – –
				–
				71 – 1,686 –
	48,638	6,726	(79)	1,757

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APPENDIX II

3 PROFIT BEFORE INCOME TAX

Profit before income tax has been determined after charging the following:

Notes a) Expenses Finance costs Finance lease charges Finance lease charges – related parties (refer note 34a) Other interest charges Total finance costs Less finance costs capitalised Less finance costs capitalised – related parties (refer note 34a) Total finance costs expensed Depreciation of non-current assets Mine development Buildings Plant and equipment Total depreciation Amortisation of non-current assets Leased equipment Exploration Mining tenements Rail access rights Computer software Total amortisation Total depreciation & amortisation expense Employee expenses Defined contribution superannuation expense Employee benefits expense Share-based payments expense Employee expense on-costs Total employee expenses Rental expenses on operating leases Government royalties Research and development expenditure b) Losses Net (gain)/loss on disposal of non-current plant & equipment	CONSOLIDATED 2007 2006 $000 $000 1,934 1,982 778 108 7,577 2,332	CONSOLIDATED 2007 2006 $000 $000 1,934 1,982 778 108 7,577 2,332	THE COMPANY 2007 2006 $000 $000 – – – – 1,720 1,370	THE COMPANY 2007 2006 $000 $000 – – – – 1,720 1,370
	10,289 (4,621) (620)	4,422 (366) (108)	1,720 – –	1,370 – –
	5,048	3,948	1,720	1,370
	2,071 75 4,941 7,087 6,367 250 3,202 364 199 10,382	1,977 35 2,663 4,675 3,466 498 2,392 319 32 6,707	– – 153 153 – – – – 199 199	– – 103
				103
				– – – – 32
				32
	17,469	11,382	352	135
	2,762 31,723 593 3,677	1,813 21,200 1,788 1,823	236 2,591 593 309	277 2,501 1,788 168
	38,775	26,624	3,729	4,734
	2,305 14,218 2,587 (13)	1,973 12,614 9,514 116	165 – – (21)	–
				–
				–
				–

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c) Significant revenues and expenses

The following significant revenue and expense items are relevant in explaining the financial performance:

Notes Revenues Gain on forward exchange contracts where contracts were not matched to coal sales Expenses Demurrage Profits Net gain/(loss) on disposal of 28.7% of Minerva & Athena Joint Ventures 28c Net gain on disposal of 10% of Moolarben Coal Project 28d Net gain on disposal of 25% of Ashton Joint Venture 28e Reduction in impairment of controlled entity loans	CONSOLIDATED 2007 2006 $000 $000 – 1,686	CONSOLIDATED 2007 2006 $000 $000 – 1,686	THE COMPANY 2007 2006 $000 $000 – 1,686	THE COMPANY 2007 2006 $000 $000 – 1,686
	7,373 28,208 17,956 – –	4,679 – – 4,270 –	– (79) – – 1,843	–
				– – – 334

4 INCOME TAX

Notes a) Income tax recognised in profit Current Tax Deferred tax Origination and reversal of temporary differences Effect of change in accounting estimate (refer note 4h) Benefit of tax losses recognised Under/(over) provision in prior years Total income tax expense/(revenue)	CONSOLIDATED 2007 2006 $000 $000 5,921 3,783	CONSOLIDATED 2007 2006 $000 $000 5,921 3,783	THE COMPANY 2007 2006 $000 $000 (384) (828	THE COMPANY 2007 2006 $000 $000 (384) (828
	9,687 – (13,473) (3,786) 464	3,720 (353) (6,724) (3,357) (507)	372 – (17,601) (17,229) 4,089	(6 – (6,724
				(6,730
				(507
	2,599	(81)	(13,524)	(8,066

– 321 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Notes b) Numerical reconciliation between income tax expense/(revenue) and profit before income tax Profit before income tax Income tax expense at 30% (2006: 30%) Increase/(decrease) in income tax expense/(revenue) due to: Non-deductible expenses Non-assessable income Non-deductible share based payments Research and development concession Other deductible expenses Under/(over) provision in prior years Effect of change in accounting estimate (refer note 4h) Prior year tax losses not previously recognised Income tax expense attributable to the wholly owned subsidiaries in the tax consolidated group Recovery of income tax expense under tax sharing agreement Income tax expense/(revenue) c) Deferred tax recognised directly in equity Adjustments to opening accumulated losses associated with changes in accounting policies for financial instruments Changes in derivative financial instruments	CONSOLIDATED 2007 2006 $000 $000 49,758 30,022 14,927 9,007 996 139 – – 178 537 (181) (1,719) (312) (460)	CONSOLIDATED 2007 2006 $000 $000 49,758 30,022 14,927 9,007 996 139 – – 178 537 (181) (1,719) (312) (460)	THE COMPANY 2007 2006 $000 $000 9,478 452 2,843 135 245 37 (2,716) (1,067) 178 537 – – (562) (477) (12) (835) 4,089 (507) – – (17,601) (6,724) 7,852 3,428 (7,852) (3,428) (13,524) (8,066) – (2,855) (320) 2,064 (320) (791)	THE COMPANY 2007 2006 $000 $000 9,478 452 2,843 135 245 37 (2,716) (1,067) 178 537 – – (562) (477) (12) (835) 4,089 (507) – – (17,601) (6,724) 7,852 3,428 (7,852) (3,428) (13,524) (8,066) – (2,855) (320) 2,064 (320) (791)
	15,608 464 – (13,473) – –	7,503 (507) (353) (6,724) – –	(12) 4,089 – (17,601) 7,852 (7,852)	(835
				(507 – (6,724 3,428 (3,428
	2,599	(81)	(13,524)
	– (384)	(3,947) 3,156	– (320)	(2,855 2,064
	(384)	(791)	(320)

– 322 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

d) Unrecognised deferred tax balances Tax losses attributable to members of the tax consolidated group – revenue Tax losses attributable to members of the tax consolidated group – capital Tax losses attributable to subsidiaries not members of the tax consolidated group – revenue e) Current tax liabilities Income tax payable f) Deferred tax assets Amounts recognised in profit and loss Employee benefits provisions Rehabilitation provisions Inventory Property, plant & equipment Investments accounted for using the equity method Mining tenements Finance lease liabilities Tax losses Other g) Deferred tax liabilities Amounts recognised in profit or loss Trade & other receivables Inventory Overburden Property, plant and equipment Mine development Mining tenements Exploration and evaluation Other intangible assets Investments accounted for using the equity method Other Amounts recognised directly in equity Derivative financial instruments	CONSOLIDATED 2007 2006 $000 $000 – 2,603 – 2,076 5,324 11,638 5,324 16,317	CONSOLIDATED 2007 2006 $000 $000 – 2,603 – 2,076 5,324 11,638 5,324 16,317	THE COMPANY 2007 2006 $000 $000 – 1,331 – 1,849 – – – 3,180	THE COMPANY 2007 2006 $000 $000 – 1,331 – 1,849 – – – 3,180
				3,180
	162 977 1,981 1,566 3,441 1,052 1,181 7,048 53,994 1,062	106 637 1,556 – 2,973 1,310 1,367 – 43,168 686	– 97 – – – – – – 14,929 1	–
				104 – – – – – – 3,042 4
	72,302	51,697	15,027	3,150
	6,271 642 11,175 9,767 3,123 49,953 4,139 35 – 1,040 86,145 384	22 582 7,781 622 1,987 48,590 3,571 – 460 – 63,615 791	– – – 3 – – – – – – 3 320	– – – 4 – – – – – 252
				256
				791
	86,529	64,406	323	1,047

– 323 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

h) Change in Accounting Estimate

Subsequent to the calculation of comparatives for deferred tax balances as at 30 June 2005 as presented in the consolidated entity’s first AIFRS compliant financial report for the half-year ended 31 December 2005, the consolidated entity prepared and lodged its 2005 consolidated income tax return. As a result of new information available during the preparation of the return, it was discovered that the tax bases of certain mining tenements, freehold land and buildings, and property, plant and equipment used for the purposes of calculating the deferred tax balances under AASB 112 Income Taxes as at 30 June 2005 required adjustments for allocated cost amounts under the tax consolidation legislation for the acquisition of White Mining Limited. The adjustments to the tax bases resulted in the following changes in deferred tax balances as at 30 June 2006.

	CONSOLIDATED	CONSOLIDATED	THE COMPANY
	2007	2006	2007	2006
	$000	$000	$000	$000
Increase in deferred tax assets	–	43,808	–	–
Increase in deferred tax liabilities	–	(43,455)	–	–
Tax expense on recognition of
deferred tax balances	–	(353)	–	–

i) Tax Consolidation

For the purposes of taxation, Felix Resources Limited and its 100% owned Australian subsidiaries are a tax consolidated group. The head entity of the tax consolidated group is Felix Resources Limited. Felix is responsible for recognising the current tax assets and liabilities for the tax consolidated group. Each entity in the tax consolidated group recognises its own deferred tax assets and liabilities, except where the deferred tax assets relate to unused tax losses and credits, in which case Felix recognises the assets.

The group has entered into a tax sharing agreement whereby each company in the group contributes to the income tax payable in proportion to their contribution to the profit before tax of the tax consolidated group. The tax consolidated group has also entered into a tax funding agreement whereby each entity in the group can recognise their balance of the current tax assets and liabilities through inter-entity accounts. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is remote.

5 DIVIDENDS

a) Dividend paid during the year on ordinary shares Partially franked (20%) dividend of 4.00 cents per share (2006: fully franked, 1.95 cents per share) b) Dividend on ordinary shares proposed and not recognised as a liability Dividend of 6.00 cents per share, unfranked (2006: 20% franked 4.00 cents per share)	CONSOLIDATED 2007 2006 $000 $000 7,210 3,515	CONSOLIDATED 2007 2006 $000 $000 7,210 3,515	THE COMPANY 2007 2006 $000 $000 7,210 3,515	THE COMPANY 2007 2006 $000 $000 7,210 3,515
	11,769	7,209	11,769	7,209

The tax rate at which the paid dividend was franked is 30% (2006: 30%). The dividend proposed is unfranked (2006: franked to 20% at the tax rate of 30%).

– 324 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

c) Franking credit balance

The amount of franking credits available for the subsequent reporting period is:

Franking account balance as at the end of the year at 30% (2006: 30%) Franking debits that will arise from the payment of the dividend proposed but not recognised as a liability Balance	CONSOLIDATED 2007 2006 $000 $000 204 668 – (618) 204 50	THE COMPANY 2007 2006 $000 $000 – – – – – –	THE COMPANY 2007 2006 $000 $000 – – – – – –
			–

– 325 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

6 CONTROLLED ENTITIES

OWNED Country of Incorporation 2007 2006 % % The Company: Felix Resources Limited Australia Controlled entities at cost: Auriada Limited Ireland 100 100 Ballymoney Power Limited Ireland 100 100 Balhoil Nominees Pty Ltd Australia 100 100 Accumulated impairment loss South Australian Coal Corp Pty Ltd Australia 100 100 SASE Pty Ltd Australia 90 90 Accumulated impairment loss Athena Coal Pty Ltd Australia 100 100 Minerva Mining Pty Ltd (formerly Sandhurst Mining Pty Ltd) Australia 100 100 Felix Coal Sales Pty Ltd Australia 100 100 Proserpina Coal Pty Ltd Australia 100 100 Minerva Coal Pty Ltd Australia 51 70 Yarrabee Coal Company Pty Ltd Australia 100 100 White Mining Limited Australia 100 100 White Mining Services Pty Limited Australia 100 100 Tonford Pty Ltd Australia 100 100 Splitters Hollow Pty Limited Australia 100 100 Moolarben Coal Mines Pty Limited Australia 100 100 Ashton Coal Operations Pty Limited Australia 100 100 White Mining (NSW) Pty Limited Australia 100 100 UCC Energy Pty Limited Australia 100 100 Agrarian Finance Pty Ltd Australia 100 100 Advanced Clean Coal Technology Pty Limited Australia 100 100 White Mining Research Pty Ltd Australia 100 100 Felix NSW Pty Ltd Australia 100 –

THE COMPANY 2007 2006 $000 $000 – – – – 839 839 (839) (839) – – 14,504 14,504 (14,504) (14,504) – – – – – – – – 3,614 4,961 14,910 14,910 222,869 222,869 – – – – – – – – – – – – – – – – – – – – – – 241,393 242,740

All controlled entities have 30 June balance dates. All equity interests are held in ordinary shares. All controlled entities are vehicles for exploration, development and operational activities of the consolidated entity.

– 326 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

Deed of Cross Guarantee

A deed of cross guarantee exists between Felix Resources Limited and its wholly-owned subsidiaries Yarrabee Coal Company Pty Ltd, South Australian Coal Corp Pty Ltd and Balhoil Nominees Pty Ltd. The deed was enacted during 2004 and relief was obtained from preparing a financial report for Yarrabee Coal Company Pty Ltd under ASIC Class Order 98/1418. Under the deed, Felix Resources Limited guarantees to support the liabilities and obligations of the subsidiaries. The above companies represent a Closed Group for the purpose of the Class Order, and as there are no other parties to the Deed of Cross Guarantee that are controlled by Felix Resources Limited, they also represent the Extended Closed Group. The following are the aggregate totals for the Closed Group, for each category, relieved under the deed.

Financial Information in relation to: (i) Income statement Profit before income tax Income tax revenue Profit after income tax Profit attributable to members of Felix Resources Limited (ii) Accumulated losses Accumulated losses at the beginning of the financial year Profit after income tax Dividends paid Accumulated losses at the end of the financial year (iii) Balance sheet ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial assets Other Total current assets Non-current assets Trade and other receivables Other financial assets Property, plant & equipment Exploration and evaluation assets Deferred tax assets Intangible assets Derivative financial assets Total non-current assets Total assets	CLOSED GROUP 2007 $000 4,731 11,539 16,270 16,270	CLOSED GROUP 2006 $000 20,712 1,503 22,215 22,215 (112,301) 22,215 (3,515) (93,601) 17,088 93,830 14,464 2,587 10,321 138,290 20,748 227,829 9,768 2,024 3,890 3,794 49 268,102 406,392
	(93,601) 16,270 (7,210)	(112,301 22,215 (3,515
	(84,541)
	14,641 84,813 12,477 1,065 17,620 130,616 20,748 226,483 12,761 1,867 19,649 3,014 – 284,522 415,138	17,088 93,830 14,464 2,587 10,321
		138,290
		20,748 227,829 9,768 2,024 3,890 3,794 49
		268,102
		406,392

– 327 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

LIABILITIES Current liabilities Payables Interest bearing liabilities Provisions Total current liabilities Non-current liabilities Payables Interest bearing liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets EQUITY Issued capital Reserves Accumulated losses Total equity	CLOSED GROUP 2007 $000 19,435 3,808 300	CLOSED GROUP 2006 $000 15,255 16,600 1,246
	23,543 2,724 13,343 7,717 1,789 25,573 49,116	33,101
		2,346 15,625 2,555 478
		21,004
		54,105
	366,022	352,287
	444,378 6,185 (84,541)	435,658 10,230 (93,601
	366,022	352,287

Total equity

7 CASH AND CASH EQUIVALENTS

Note Cash at bank and on hand Short-term deposits 28b	CONSOLIDATED 2007 2006 $000 $000 11,495 9,874 5,965 69,493 17,460 79,367	THE COMPANY 2007 2006 $000 $000 4,777 2,684 5,501 13,014 10,278 15,698	THE COMPANY 2007 2006 $000 $000 4,777 2,684 5,501 13,014 10,278 15,698
			15,698

a) Short term deposits

Short-term deposits at 30 June 2006 included $51,000,000 in the drawdown holding account and $4,724,033.72 in the proceeds account as part of the Ashton Underground Syndicated Facility Agreement. These funds, which were available only for expenditure on the Ashton underground project, were utilised during the year ended 30 June 2007. Proceeds of coal sales from the Ashton mine are deposited into the proceeds account and used only for expenditure on the Ashton underground project. Further information concerning the Ashton Underground Syndicated Facility Agreement is set out in note 20.

b) Effective interest rate risk

Information concerning the effective interest rate of cash and cash equivalents in set out in note 37.

– 328 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

8 TRADE AND OTHER RECEIVABLES (CURRENT)

Trade receivables Receivable from controlled entities Receivable from Sojitz Moolarben Resources Pty Limited 28d Other debtors Advances to controlled entities Loan to related entity	CONSOLIDATED 2007 2006 $000 $000 5,618 27,731 – – 20,000 – 3,855 4,225 – – 6,967 – 36,440 31,956	THE COMPANY 2007 2006 $000 $000 1,639 1,394 10,504 8,494 – – 237 280 68,792 72,019 – – 81,172 82,187	THE COMPANY 2007 2006 $000 $000 1,639 1,394 10,504 8,494 – – 237 280 68,792 72,019 – – 81,172 82,187
			82,187

a) Loan to related entity

The loan to a related entity represents funds advanced to Newcastle Coal Infrastructure Group Pty Ltd, a company in which the consolidated entity has a minority shareholding. In August 2005 Newcastle Coal Infrastructure Group Pty Ltd was selected by the New South Wales government as the preferred developer and operator of a third coal loader for the Port of Newcastle. The loan is interest bearing and unsecured. The loan principal and interest are repayable upon funding of the project.

b) Effective interest rate risk

Information concerning the effective interest rate of trade and other receivables in set out in note 37.

9 DERIVATIVE FINANCIAL INSTRUMENTS

CURRENT ASSETS Interest rate swaps – receivable Forward foreign exchange contracts – receivable NON-CURRENT ASSETS Interest rate swaps – receivable Forward foreign exchange contracts – receivable	CONSOLIDATED 2007 2006 $000 $000 85 – 1,065 2,587 1,150 2,587	CONSOLIDATED 2007 2006 $000 $000 85 – 1,065 2,587 1,150 2,587	THE COMPANY 2007 2006 $000 $000 – – 1,065 2,587 1,065 2,587	THE COMPANY 2007 2006 $000 $000 – – 1,065 2,587 1,065 2,587
				2,587
	131 –	– 49	– –	– 49
	131	49	–	49

– 329 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

a) Transition to AASB 132 and AASB 139

The consolidated entity took the exemption available under AASB 1 to apply AASB 132 and AASB 139 only from 1 July 2005. At the date of transition to these standards of 1 July 2005, a post-tax decrease in liabilities of $9,210,000 for the consolidated entity and $6,661,000 for the company was recognised representing the reclassification of foreign currency cash flow hedges under AASB 139 from deferred hedge gains to the hedging reserve. For further information refer to notes 1(w) and 25.

b) Instruments used by the consolidated entity

The consolidated entity enters into forward exchange contracts to sell or purchase specified amounts of foreign currencies in the future at stipulated exchange rates. The objective of entering into the forward exchange contracts is to reduce the foreign exchange rate related volatility of the consolidated entity’s revenue stream and thereby assist in risk management for the consolidated entity. Foreign currency speculation is specifically excluded. Forward foreign exchange contracts are entered for contracted future sales undertaken in foreign currencies and contracted future capital expenditure undertaken in foreign currencies.

The outstanding US$ contracts are hedging highly probable forecasted sales of coal, whereas the 2006 outstanding Euro contracts relate to capital expenditure for the Ashton Joint Venture underground project. The contracts are timed to mature when funds for coal sales are forecast to be received and when payments for major components of Ashton Joint Venture underground machinery are scheduled to be made. At balance date, the details of the outstanding forward exchange contracts are set out below. Refer note 38a for post balance date forward exchange contracts taken out.

Settlement Less than 6 months 6 months to 1 year 1 year to less than 2 years Settlement Less than 6 months 6 months to 1 year	SELL UNITED STATES DOLLARS 2007 2006 US$000 US$000 6,489 40,000 20,000 70,000 – 6,000 26,489 116,000 BUY EUROS 2007 2006 €000 €000 – 14,088 – 3,522 – 17,610	AVERAGE EXCHANGE RATES 2007 2006 US$ US$ 0.7717 0.7363 0.8379 0.7386 – 0.7388 0.8207 0.7378 AVERAGE EXCHANGE RATES 2007 2006 € € – 0.6141 – 0.6141 –0. 6141	AVERAGE EXCHANGE RATES 2007 2006 US$ US$ 0.7717 0.7363 0.8379 0.7386 – 0.7388 0.8207 0.7378 AVERAGE EXCHANGE RATES 2007 2006 € € – 0.6141 – 0.6141 –0. 6141
			6141

– 330 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

The exchange gains and losses on hedges of anticipated foreign currency sales, interest expense and capital expenditure are recognised in the hedging reserve and the timing of their anticipated recognition as part of sales, interest expense and capital expenditure are:

Not later than 1 year 1 year to less than 2 years 2 years to less than 3 years	CONSOLIDATED Net gain 2007 2006 $000 $000 1,150 2,587 106 49 25 – 1,281 2,636	CONSOLIDATED Net gain 2007 2006 $000 $000 1,150 2,587 106 49 25 – 1,281 2,636
		2,636

Details of movements in the hedging reserve are set out in note 25.

c) Credit risk exposures

Forward exchange contracts are subject to credit risk in relation to the relevant counterparties, which are principally large financial institutions. The maximum credit risk exposure on forward exchange contracts is the full amount of the foreign currency that the consolidated entity pays when settlement occurs, should the counterparty entity fail to pay the amount which it is committed to pay the consolidated entity. The full amount of the exposure is included in (b) above.

10 OTHER ASSETS (CURRENT)

Prepayments Development costs Overburden at cost	CONSOLIDATED 2007 2006 $000 $000 1,239 449 – 1,094 37,251 25,935 38,490 27,478	THE COMPANY 2007 2006 $000 $000 80 92 – – – – 80 92	THE COMPANY 2007 2006 $000 $000 80 92 – – – – 80 92
			92

11 TRADE AND OTHER RECEIVABLES (NON-CURRENT)

Secured Director loan – interest bearing Loans to other entities – interest bearing Advances to controlled entities Less: accumulated impairment losses Advances to associated entities	CONSOLIDATED 2007 2006 $000 $000 1,705 1,705 – 2,660 – – – – 5,379 4,445 7,084 8,810	THE COMPANY 2007 2006 $000 $000 – – – – 82,545 84,387 (61,796) (63,639) – – 20,749 20,748	THE COMPANY 2007 2006 $000 $000 – – – – 82,545 84,387 (61,796) (63,639) – – 20,749 20,748
			20,748

– 331 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

a) Terms and conditions relating to above financial instruments

Loans to other entities represents a loan to Newcastle Coal Infrastructure Group Pty Ltd. The loan is interest bearing and unsecured. The loan principal and interest is repayable upon funding of the project, which is expected to occur by 30 June 2008. Accordingly the loan has been classified as current as at 30 June 2007 (refer note 8a) .

Details regarding secured Director loans are set out in note 34.

Details regarding the advances to associated entities are set out in note 33.

b) Effective interest rate risk

Information concerning the effective interest rate of trade and other receivables is set out in note 37.

c) Fair Value

Advances to controlled entities by the company include a loan to White Mining Limited (WML) on acquisition to enable WML to repay the majority of its shareholder loans (refer note 34) .

Advances to controlled entities by the company also include advances to SASE Pty Ltd (SASE) and Ballymoney Power Limited (Ballymoney) and an advance to Minerva Coal Pty Ltd which was acquired by the company on purchase of Minerva Coal Pty Ltd. Amounts receivable by the company from SASE and Ballymoney have been written down to nil value.

12 INVENTORY (CURRENT)

Coal at cost Fuel at cost Stock of spare parts Stock of tyres	CONSOLIDATED 2007 2006 $000 $000 20,468 17,850 295 972 254 102 1,844 904 22,861 19,828	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – –	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – –
			–

– 332 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

13 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

• a) Interest in associates

Name of associate Principal Activity Unlisted Australian Coal Processing Holdings Pty Ltd Holding company Ashton Coal Mines Limited Real estate holder & sales agent Australian Coal Processing Pty Ltd Owned and operated a coal handling & processing plant for part of the year	CONSOLIDATED Carrying amount of investment 2007 2006 $000 $000 25 4,449 179 417 – – 204 4,866	CONSOLIDATED Percentage owned 2007 2006 % % 60 (i) 60 (i) 60(ii) 60(ii) 60 60

Each of the above associates is incorporated in Australia.

• (i) A controlled entity of White Mining Ltd, White Mining (NSW) Pty Limited (WMNSW), holds 60% (2006: White Mining Ltd 60%) of the ordinary shares of Australian Coal Processing Holdings Pty Ltd. Under the shareholders agreement between WMNSW and the other shareholders, ICRA Ashton Pty Ltd (ICRAA) and Austral-Asia Coal Holdings Pty Ltd (Austral), all major financial and operating policy decisions require a vote by Directors who together represent shareholders holding 100% of the shares or a vote by shareholders who together hold 100% of the shares. Therefore decisions must be passed unanimously and WMNSW’s voting power is equivalent to 33.33% (2006: WML 33.33%).

• (ii) A controlled entity of White Mining Ltd, White Mining (NSW) Pty Limited (WMNSW), holds 60% (2006: 60%) of the ordinary shares of Ashton Coal Mines Limited. Under the shareholders agreement between WMNSW and the other shareholders, ICRA Ashton Pty Ltd (ICRAA) and Austral-Asia Coal Holdings Pty Ltd (Austral), all major financial and operating policy decisions require unanimous resolution of the shareholders. Therefore major decisions must be passed unanimously and WMNSW’s voting power is equivalent to 33.33% (2006: 33.33%).

– 333 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Note b) Carrying amount of investments in associates Balance at the beginning of the financial year Return of share capital from associate Disposal of 25% interest to IMC Austral Share of associates’ net profits 13c Carrying amount of investments in associates at the end of the financial year c) Share of associates’ (loss)/profit (Loss)/profit before income tax Recoupment of unrecognised share of associates’ losses from profit for the period Income tax benefit/(expense) (Loss)/profit after income tax d) Unrecognised share of associates’ losses Unrecognised share of associates’ losses at the beginning of the financial year Recoupment of unrecognised share of associates’ losses from profit for the period Unrecognised share of associates’ losses at the end of the financial year e) Summarised financial information of associates Assets Liabilities Revenues Profit	CONSOLIDATED 2007 2006 $000 $000 4,866 4,445 (3,949) – – (1,112) (713) 1,533 204 4,866	CONSOLIDATED 2007 2006 $000 $000 4,866 4,445 (3,949) – – (1,112) (713) 1,533 204 4,866	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – –	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – –
				–
	(741) – 28	1,803 (165) (105)	– – –	– – –
	(713)	1,533	–	–
	– –	165 (165)	– –	– –
	– 9,135 (8,824) (119,025) 577	– 46,218 (38,529) (109,756) (2,830)	– – – – –	–
				– – – –

14 OTHER FINANCIAL ASSETS (NON-CURRENT)

Controlled entities at cost (note 6) Less: accumulated impairment losses	CONSOLIDATED 2007 2006 $000 $000 – – – – – –	THE COMPANY 2007 2006 $000 $000 256,736 258,083 (15,343) (15,343 241,393 242,740	THE COMPANY 2007 2006 $000 $000 256,736 258,083 (15,343) (15,343 241,393 242,740
			242,740

– 334 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

15 PROPERTY, PLANT & EQUIPMENT

a) Property, plant & equipment

Property, plant & equipment – at cost Less: Accumulated depreciation Mine development – at cost Less: Accumulated amortisation Freehold land and buildings – at cost Less: Accumulated depreciation Plant & equipment under lease – at cost Less: Accumulated amortisation Assets under construction – at cost Land acquisition in progress Total property, plant & equipment	CONSOLIDATED 2007 2006 $000 $000 36,110 45,931 (11,768) (10,652)	CONSOLIDATED 2007 2006 $000 $000 36,110 45,931 (11,768) (10,652)	THE COMPANY 2007 2006 $000 $000 583 500 (258) (181) 325 319 – – – – – – – – – – – – – – – – – – 31 37 – – 356 356	THE COMPANY 2007 2006 $000 $000 583 500 (258) (181) 325 319 – – – – – – – – – – – – – – – – – – 31 37 – – 356 356
	24,342 29,798 (7,822) 21,976 14,052 (453) 13,599 34,677 (10,416) 24,261 111,120 585	35,279 16,474 (3,577) 12,897 7,671 (383) 7,288 33,835 (4,348) 29,487 41,427 4,017	325 – – – – – – – – – 31 –	319
				– –
				–
				– –
				–
				– –
				–
				37
				–
	195,883	130,395	356

– 335 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

b) Assets pledged as security

Included in the balance of property, plant & equipment are assets over which charges listed in note 19 and note 20 have been granted as security.

The value of non-current assets pledged as security are:

Land & buildings Mine development Plant & equipment Plant & equipment under lease Assets under construction Other financial assets	CONSOLIDATED 2007 2006 $000 $000 2,732 4,570 21,976 12,897 24,342 35,279 24,261 29,487 111,120 41,427 – – 184,431 123,660	THE COMPANY 2007 2006 $000 $000 – – – – 325 319 – – 31 37 92 92 448 448	THE COMPANY 2007 2006 $000 $000 – – – – 325 319 – – 31 37 92 92 448 448
			448

c) Reconciliations

Reconciliation of the carrying amounts of property, plant and equipment at the beginning and end of the year.

Plant & equipment Carrying amount at beginning Additions Transfers Disposals Depreciation expense Mine development Carrying amount at beginning Additions Transfers Disposals Depreciation expense Freehold land & buildings Carrying amount at beginning Additions Transfers Disposals Depreciation expense	CONSOLIDATED 2007 2006 $000 $000 35,279 9,520 91 1,126 87 28,348 (6,174) (1,052) (4,941) (2,663) 24,342 35,279	CONSOLIDATED 2007 2006 $000 $000 35,279 9,520 91 1,126 87 28,348 (6,174) (1,052) (4,941) (2,663) 24,342 35,279	THE COMPANY 2007 2006 $000 $000 319 362 – 60 422 – (263) – (153) (103 325 319	THE COMPANY 2007 2006 $000 $000 319 362 – 60 422 – (263) – (153) (103 325 319
				319
	12,897 2,778 10,155 (1,783) (2,071)	18,921 2,210 (1,453) (4,804) (1,977)	– – – – –	– – – – –
	21,976	12,897	–	–
	7,288 2,153 5,189 (956) (75)	4,881 2,442 – – (35)	– – – – –	– – – – –
	13,599	7,288	–	–

– 336 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Leased plant & equipment Carrying amount at beginning Additions Transfers Disposals Amortisation expense Assets under construction Carrying amount at beginning Additions Transfers Disposals	CONSOLIDATED 2007 2006 $000 $000 29,487 26,805 3,861 6,542 (1) 4,760 (2,719) (5,154) (6,367) (3,466) 24,261 29,487	CONSOLIDATED 2007 2006 $000 $000 29,487 26,805 3,861 6,542 (1) 4,760 (2,719) (5,154) (6,367) (3,466) 24,261 29,487	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – – – –	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – – – –
				–
	41,427 84,005 (11,413) (2,899)	4,365 70,225 (33,108) (55)	37 416 (422) –	– 37 – –
	111,120	41,427	31	37

Assets under construction primarily represent the development costs for the Ashton underground project. These costs will, when fully analysed, be transferred to their applicable class of property, plant and equipment.

CONSOLIDATED 2007 2006 $000 $000 Land acquisition in progress Carrying amount at beginning 4,017 – Additions 585 4,017 Transfers (4,017) – 585 4,017 ORATION AND EVALUATION ASSETS CONSOLIDATED 2007 2006 $000 $000 Exploration and evaluation assets 42,325 38,318 Provision for write-down to recoverable amount (28,528) (28,059) 13,797 10,259	THE COMPANY 2007 2006 $000 $000 – – – – – – – – THE COMPANY 2007 2006 $000 $000 – – – – – –	THE COMPANY 2007 2006 $000 $000 – – – – – – – – THE COMPANY 2007 2006 $000 $000 – – – – – –
		–

16 EXPLORATION AND EVALUATION ASSETS

a) Reconciliation

Reconciliation of the carrying amount of exploration and evaluation assets at the beginning and end of the year

– 337 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Exploration and evaluation – at cost

Carrying amount at beginning Additions Disposals Amortisation expense	CONSOLIDATED 2007 2006 $000 $000 10,259 6,909 4,927 4,899 (1,139) (1,051) (250) (498) 13,797 10,259	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – –	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – –
			–

b) Areas of interest

Expenditure carried forward at 30 June 2007 relates to exploration expenditure by subsidiary companies in the following areas of interest. The ultimate recoupment of this expenditure is dependent on the successful development and commercial exploitation, or alternatively, the sale, at a minimum of book value, of these areas of interest.

Athena Yarrabee Ashton Moolarben Minerva	CONSOLIDATED 2007 2006 $000 $000 126 126 1,867 2,024 1,543 1,636 10,179 6,473 82 – 13,797 10,259	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – – – –	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – – – –
			–

17 INTANGIBLES

Yarrabee mining tenement – at cost Less: Accumulated amortisation Minerva mining tenement – at cost Less: Accumulated amortisation Ashton mining tenement – at cost Less: Accumulated amortisation Moolarben mining tenement – at cost Rail access rights – at cost Less: Accumulated amortisation Computer software – at cost Less: Accumulated amortisation Total intangible assets	CONSOLIDATED 2007 2006 $000 $000 4,845 4,845 (2,131) (1,528) 7,781 7,781 (645) (249) 54,297 54,297 (4,490) (2,287) 162,547 162,547	CONSOLIDATED 2007 2006 $000 $000 4,845 4,845 (2,131) (1,528) 7,781 7,781 (645) (249) 54,297 54,297 (4,490) (2,287) 162,547 162,547	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – – – – – –	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – – – – – –
	222,204 9,241 (593) 8,648 545 (245) 300	225,406 10,585 (319) 10,266 509 (32) 477	– – – – 545 (245) 300	–
				– –
				–
				509 (32
				477
	231,152	236,149	300	477

– 338 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

a) Security

There is a First Registered Mortgage over mining tenements owned by the consolidated entity.

b) Reconciliations

Reconciliations of the carrying amount of intangible assets at the beginning and end of the year

Mining tenements – at cost Carrying amount at beginning Additions Disposals Amortisation expense Rail access rights – at cost Carrying amount at beginning Additions Disposals Amortisation expense Computer software – at cost Carrying amount at beginning Additions Amortisation expense	CONSOLIDATED 2007 2006 $000 $000 225,406 245,644 – 3 – (17,849) (3,202) (2,392) 222,204 225,406	CONSOLIDATED 2007 2006 $000 $000 225,406 245,644 – 3 – (17,849) (3,202) (2,392) 222,204 225,406	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – –	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – –
				–
	10,266 1,529 (2,783) (364)	– 10,585 – (319)	– – – –	– – – –
	8,648	10,266	–	–
	477 22 (199)	– 509 (32)	477 22 (199)	– 509 (32
	300	477	300	477

18 TRADE AND OTHER PAYABLES (CURRENT)

Unsecured Trade creditors Other creditors Employee benefits	CONSOLIDATED 2007 2006 $000 $000 31,249 33,283 2,203 5,837 3,256 1,711 36,708 40,831	THE COMPANY 2007 2006 $000 $000 786 1,795 108 37 324 256 1,218 2,088	THE COMPANY 2007 2006 $000 $000 786 1,795 108 37 324 256 1,218 2,088
			2,088

– 339 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

19 INTEREST-BEARING LIABILITIES (CURRENT)

Secured Bank loan Finance leases Other loans	CONSOLIDATED 2007 2006 $000 $000 10,250 16,600 7,182 5,801 – 10,347 17,432 32,748	THE COMPANY 2007 2006 $000 $000 3,500 16,600 – – – – 3,500 16,600	THE COMPANY 2007 2006 $000 $000 3,500 16,600 – – – – 3,500 16,600
			16,600

20 INTEREST-BEARING LIABILITIES (NON-CURRENT)

Secured Bank loan Finance Leases	CONSOLIDATED 2007 2006 $000 $000 65,375 75,625 17,530 24,106 82,905 99,731	THE COMPANY 2007 2006 $000 $000 12,125 15,625 – – 12,125 15,625	THE COMPANY 2007 2006 $000 $000 12,125 15,625 – – 12,125 15,625
			15,625

a) Terms & conditions relating to above financial instruments

• i) Finance leases have lease terms ranging up to 5 years with some having the option to purchase the asset at completion of the lease term for the assets’ market value or contracted value. The effective interest rates implicit in the leases range from 6.9% to 13.4%. Lease liabilities are secured by charges over the leased assets. Certain leases also contain restrictions requiring notification to the lessors of any further finance leases entered into.

• ii) At 30 June 2007 bank loans represent a number of facilities as detailed below.

– Multi-option facility agreement working capital facility

This is a revolving cash advance facility for working capital up to $27,400,000 and consists of a floating rate bill which at maturity can be rolled for 30, 60, 90, 120 or 180 days. Interest on the bill is charged at BBSY for the appropriate tenor plus a margin of 1.30% (2006: 1.80%), currently 7.84% (2006: 7.71%). At 30 June 2007 the drawn down amount was $Nil (2006: $13,100,000, classed as current).

Multi-option facility agreement – term debt facility

This is a loan for capital expenditure at the Minerva mine for $15,625,000 (2006: $19,125,000) and consists of a fixed bill rate in the amount of $13,794,000 (2006: $17,136,000) at a current interest rate of 7.30% (2006: 7.80%). The bill rolls quarterly with the rate fixed for the term of the loan. The facility also includes a floating rate bill of $1,831,000 (2006: $1,989,000) which at maturity can be rolled for 30, 60, 90, 120 or 180 days. Interest on the floating bill rate is charged at BBSY for the appropriate tenor plus a margin of 1.30% (2006: 1.80%), currently at 7.79% (2006: 7.83%). The term debt facility matures on 30 June 2010 and principal is repayable each quarter in the amount of $875,000. At 30 June 2007, the current portion of the loan is $3,500,000 (2006: $3,500,000) and the non-current portion of the loan is $12,125,000 (2006: $15,625,000).

– 340 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

Ashton Underground – syndicated facility agreement

This facility is for the development of the Ashton underground project for $60,000,000 and consists of a floating rate bill which at maturity can be rolled for 30, 60, or 90 days. Interest on the floating rate bill is charged at BBSY for the appropriate tenor plus a margin of 0.80%, currently 7.22% (2006: 6.78%). The facility matures on 31 December 2011 and principal is repayable each quarter in varying amounts, commencing 31 December 2007. The draw down amounts were required to be held in a drawdown holding account (refer note 7) and prior to project completion, amounts released from the drawdown holding account totalling $60,000,000 (2006: $9,000,000) attract an additional interest margin of 0.95% per annum. After project completion, amounts released from the drawdown holding account attract an additional interest margin of 0.70% (2006: 0.70%) per annum. At 30 June 2007, the current portion of the loan is $6,750,000 (2006: $Nil) and the non-current portion is $53,250,000 (2006: $60,000,000).

• iii) At 30 June 2006 other loans represented an access facilitation loan in which Minerva Mining Pty Ltd (formerly Sandhurst Mining Pty Ltd), as manager of the Minerva Joint Venture, agreed to pay Queensland Rail (QR) an access facilitation charge in return for QR facilitating ongoing access to and use of its railway for the railing of coal from the Minerva mine. The agreement had a term of 11 years from 1 January 2006 with the charge payable monthly in arrears. QR has exercised its option to call in the total amount owing after 12 months from the facility commissioning date of 1 January 2006.

b) Effective interest rate risk

Further information concerning the effective interest rate of interest bearing liabilities is set out in note 37.

c) Security

The above loans and other banking facilities are secured by first registered company charges (mortgage debentures), first registered mortgages, fixed and floating charges, deeds of cross charges, bank guarantees and scrip liens exist over all the assets of certain entities in the consolidated entity. The terms of the charges preclude the assets being sold or being used as security for further mortgages or charges without permission of the other holders.

– 341 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

d) Financing facilities available

At the reporting date, the following financing facilities had been negotiated and were available:

Note Total Facilities Working capital facility Term debt facility Underground syndicated facility Indemnity/guarantee facility Lease finance facility Facilities used at reporting date Working capital facility Term debt facility Underground syndicated facility Indemnity/guarantee facility 35 Lease finance facility Facilities unused at reporting date Working capital facility Term debt facility Underground syndicated facility Indemnity/guarantee facility Lease finance facility	CONSOLIDATED 2007 2006 $000 $000 27,400 27,400 15,625 19,125 60,000 60,000 27,000 37,000 24,712 29,907 154,737 173,432	CONSOLIDATED 2007 2006 $000 $000 27,400 27,400 15,625 19,125 60,000 60,000 27,000 37,000 24,712 29,907 154,737 173,432	THE COMPANY 2007 2006 $000 $000 27,400 27,400 15,625 19,125 – – 27,000 37,000 – – 70,025 83,525	THE COMPANY 2007 2006 $000 $000 27,400 27,400 15,625 19,125 – – 27,000 37,000 – – 70,025 83,525
				83,525
	– 15,625 60,000 18,311 24,712	13,100 19,125 60,000 17,839 29,907	– 15,625 – 16,499 –	13,100 19,125 – 13,209 –
	118,648	139,971	32,124	45,434
	27,400 – – 8,689 –	14,300 – – 19,161 –	27,400 – – 10,501 –	14,300 – – 23,791 –
	36,089	33,461	37,901	38,091

21 PROVISIONS (CURRENT)

Rehabilitation	CONSOLIDATED 2007 2006 $000 $000 1,121 1,967 1,121 1,967	THE COMPANY 2007 2006 $000 $000 – – – –	THE COMPANY 2007 2006 $000 $000 – – – –
			–

– 342 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Provision for future rehabilitation of mine sites is made in accordance with note 1(s). The provision is expected to settle when the area disturbed is no longer in use or at the end of the life of the mine. The above amount represents those areas expected to be rehabilitated during the next 12 months.

CONSOLIDATED 2007 2006 $000 $000 Movements in provision for rehabilitation Carrying amount at beginning of financial year 1,967 1,756 Additional provision recognised 530 939 Amounts used (41) (585) Transfers (refer note 23) (1,256) – Amounts derecognised on disposal of interest in joint ventures (79) (143) Carrying amount at end of year 1,121 1,967 22 TRADE AND OTHER PAYABLES (NON-CURRENT) CONSOLIDATED 2007 2006 $000 $000 Deferred Minerva payment 2,724 2,346 Unsecured loan – non-interest bearing 1,693 1,693 4,417 4,039 23 PROVISIONS (NON-CURRENT) CONSOLIDATED 2007 2006 $000 $000 Employee benefits – 78 Rehabilitation 5,481 3,220 5,481 3,298	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – – – – THE COMPANY 2007 2006 $000 $000 2,724 2,346 – – 2,724 2,346 THE COMPANY 2007 2006 $000 $000 – 78 – – – 78	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – – – – THE COMPANY 2007 2006 $000 $000 2,724 2,346 – – 2,724 2,346 THE COMPANY 2007 2006 $000 $000 – 78 – – – 78
		78

– 343 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

Rehabilitation

Provision for future rehabilitation of mine sites is made in accordance with note 1(s). The provision is expected to settle when the area disturbed is no longer in use or at the end of the life of the mine. The above amount represents those areas expected to be rehabilitated after 12 months or at the end of the life of the mine.

Movements in provision for rehabilitation Carrying amount at beginning of financial year Additional provision recognised Amounts used Amounts derecognised on disposal of interest in joint ventures Transfers (refer note 21) Carrying amount at the end of the year 24 ISSUED CAPITAL	CONSOLIDATED 2007 2006 $000 $000 3,220 1,906 1,148 1,993 – (394) (143) (285) 1,256 – 5,481 3,220	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – – – –	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – – – –
			–

a) Share capital Issued and fully paid up ordinary shares, 196,155,038 (June 2006: 180,233,038) Issued and fully paid up B class shares, Nil (June 2006: 7,500,000)	CONSOLIDATED 2007 2006 $000 $000 444,378 420,133 – 15,525 444,378 435,658	THE COMPANY 2007 2006 $000 $000 444,378 420,133 – 15,525 444,378 435,658	THE COMPANY 2007 2006 $000 $000 444,378 420,133 – 15,525 444,378 435,658
			435,658

– 344 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Notes b) Movements in shares on issue ORDINARY SHARES Beginning of the year Options exercised during the year 24d Transfer from options reserve on exercise of options 25b Conversion of B class shares to fully paid ordinary shares on 16 November 2006 (i) 24c End of the year B CLASS SHARES Beginning of the year Conversion of B class shares to fully paid ordinary shares on 16 November 2006 (i) 24c End of the year	2007 Number of shares $000 180,233,038 420,133 8,422,000 6,384 – 2,336 7,500,000 15,525 196,155,038 444,378	2007 Number of shares $000 180,233,038 420,133 8,422,000 6,384 – 2,336 7,500,000 15,525 196,155,038 444,378	2006 Number of shares $000 179,785,038 419,112 448,000 5 – 1,016 – – 180,233,038 420,133	2006 Number of shares $000 179,785,038 419,112 448,000 5 – 1,016 – – 180,233,038 420,133
				420,133
	7,500,000 (7,500,000)	15,525 (15,525)	7,500,000 –	15,525 –
	–	–	7,500,000	15,525

• (i) On 15 April 2005, 82,000,000 ordinary shares, 7,500,000 A class shares and 7,500,000 B class shares were issued as consideration in the acquisition of 100% of White Mining Limited. The value placed on the ordinary shares was the market price at the date of acquisition of $2.30 per share. The value of the A class shares and the B class shares were $2.16 and $2.07 respectively, based on an independent valuation.

c) Terms and conditions of issued capital

Ordinary shares

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle the holder to one vote either in person or by proxy, at a meeting of the company.

B Class shares

Until the B class shares converted to fully paid ordinary shares on 16 November 2006 they had no entitlement to participate in dividends, no voting rights, and were only entitled to participate in the capital of the company upon winding up to the extent of $0.01 per share. The B class shares converted to fully paid ordinary shares upon the weighted average share price of ordinary shares in Felix measured over 10 consecutive trading days of the ASX after 15 April 2005 exceeding the hurdle price of $3.50.

– 345 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

d) Share-based payment arrangements

The following options over ordinary fully paid shares existed during 2007 for the company and the consolidated entity.

Grant date Expiry date Exercise price 19 November 2001 7 December 2008 (i) $ 5.20 8 October 2003 8 October 2008 (ii) $ 0.85 11 November 2004 30 June 2007 (iii) $ 0.01 11 November 2004 30 June 2008 (iii) $ 0.01 13 December 2005 12 December 2009 (iv) $0.001 11 December 2006 10 December 2010 (v) $0.001 TOTAL Weighted average exercise price Weighted average share price for options exercised during the year Weighted average remaining contractual life for options outstanding	Balance at the beginning of the year 1 July 2006 No. 30,000 7,500,000 832,000 70,000 300,000 – 8,732,000 $ 0.75	Granted during the year No. – – – – – 100,000 100,000 $ 0.001	Exercised during the year No. – (7,500,000) (832,000) (70,000) (20,000) – (8,422,000) $ 0.76 $ 4.99	Forfeited or expired during the year No. – – – – (80,000) – (80,000) $ 0.001	Balance at the end of the financial year 30 June 2007 Exercisable at the end of the year 30 June 2007 No. No. 30,000 30,000 – – – – – – 200,000 90,000 100,000 – 330,000 120,000 $ 0.47 $ 1.30 2.20 years	Balance at the end of the financial year 30 June 2007 Exercisable at the end of the year 30 June 2007 No. No. 30,000 30,000 – – – – – – 200,000 90,000 100,000 – 330,000 120,000 $ 0.47 $ 1.30 2.20 years
						120,000
						$ 1.30

The following options over ordinary fully paid shares existed during 2006 for the company and the consolidated entity.

Grant date Expiry date Exercise price 19 November 2001 7 December 2008 (i) $ 5.20 8 October 2003 8 October 2008 (ii) $ 0.85 11 November 2004 30 June 2007 (iii) $ 0.01 11 November 2004 30 June 2008 (iii) $ 0.01 13 December 2005 12 December 2009 (iv) $0.001 TOTAL Weighted average exercise price Weighted average share price for options exercised during the year Weighted average remaining contractual life for options outstanding	Balance at the beginning of the year 1 July 2005 No. 30,000 7,500,000 1,280,000 70,000 – 8,880,000 $ 0.74	Granted during the year No. – – – – 300,000 300,000 $ 0.001	Exercised during the year No. – – (448,000) – – (448,000) $ 0.01 $ 2.56	Forfeited or expired during the year No. – – – – – – –	Balance at the end of the financial year 30 June 2006 Exercisable at the end of the year 30 June 2006 No. No. 30,000 – 7,500,000 7,500,000 832,000 – 70,000 – 300,000 60,000 8,732,000 7,560,000 $ 0.75 $ 0.82 2.16 years	Balance at the end of the financial year 30 June 2006 Exercisable at the end of the year 30 June 2006 No. No. 30,000 – 7,500,000 7,500,000 832,000 – 70,000 – 300,000 60,000 8,732,000 7,560,000 $ 0.75 $ 0.82 2.16 years
						7,560,000
						$ 0.82

– 346 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

• (i) Options exercisable upon the weighted average share price of ordinary shares in Felix measured over 10 consecutive trading days of the ASX after the grant date exceeding the hurdle price of $5.20. The options cannot be transferred, will not be quoted on the ASX and do not carry voting or dividend rights.

• (ii) 15,000,000 options were issued as part consideration in the purchase of Yarrabee Coal Company Pty Ltd. The options were exercisable upon the weighted average share price of ordinary shares in Felix measured over 10 consecutive trading days of the ASX after the grant date exceeding the hurdle price of $0.85. Options carry no dividend or voting rights and are non-transferable.

• (iii) Grants of options during 2005 were approved by shareholders at the Annual General Meeting for 2004 held on 11 November 2004. The options were granted to certain Directors and other key management personnel. Options were granted for no cash consideration and are exercisable anytime from immediately upon the performance hurdle being met until the expiry date. Options carry no dividend or voting rights and are non-transferable.

• (iv) Options granted under the Felix Resources Operations General Managers’ Equity Participation Plan. 60,000 options vest immediately, 75,000 on 13 December 2006 and 2007, and 90,000 on 13 December 2008. The options are exercisable at any time from their vesting date until the expiry date or six months after the General Manager ceases to be a General Manager. The options cannot be transferred, will not be quoted on the ASX and do not carry voting or dividend rights. The weighted average fair value of $1.73 at grant date was determined using a binomial option pricing model which takes into account the exercise price, the life of the option, the current price of the underlying instrument, the expected volatility of the underlying instrument, the expected dividend yield, and the risk-free interest rate for the life of the option.

• The model inputs for options granted during 2006 included:

• (a) grant date 13 December 2005

• (b) weighted average share price at grant date $1.91

• (c) exercise price $0.001

• (d) expected volatility 55%

• (e) expiry date 12 December 2009

• (f) expected dividends 2.50%

• (g) risk-free interest rate 5.18%

The expected price volatility is based on an independent advisor’s report on historic volatility adjusted for any expected changes to future volatility due to publicly available information.

• (v) Options granted under the Felix Resources Operations General Managers’ Equity Participation Plan. 25,000 options vest on 11 December 2007, 35,000 on 11 December 2008, and 40,000 on 11 December 2009. The options are exercisable at any time from their vesting date until the expiry date or six months after the General Manager ceases to be a General Manager. The options cannot be transferred, will not be quoted on the ASX and do not carry voting or dividend rights. The weighted average fair value of $4.00 at grant date was determined using a binomial option pricing model which takes into account the exercise price, the life of the option, the current price of the underlying instrument, the expected volatility of the underlying instrument, the expected dividend yield, and the risk-free interest rate for the life of the option.

– 347 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

The model inputs for options granted during 2007 included:

• (a) grant date 11 December 2006

• (b) weighted average share price at grant date $4.16

• (c) exercise price $0.001

• (d) expected volatility 43%

• (e) expiry date 10 December 2010

• (f) expected dividends 1.00%

• (g) risk-free interest rate 5.86%

The expected price volatility is based on an independent advisor’s report on historic volatility adjusted for any expected changes to future volatility due to publicly available information.

• (vi) Forfeited or expired options were those granted under the Felix Resources Operations General Managers’ Equity Participation Plan which have lapsed as they were not exercised by a previous General Manager within six months of leaving the employment of Felix Resources Limited.

Total expenses arising from share-based payment transactions recognised during the year as part of employee benefits expense were as follows:

Options granted	CONSOLIDATED 2007 2006 $000 $000 593 1,788	THE COMPANY 2007 2006 $000 $000 593 1,788

25 RESERVES & ACCUMULATED LOSSES

a) Composition of reserves

Options reserve Capital profits Foreign currency translation Hedging reserve	CONSOLIDATED 2007 2006 $000 $000 399 2,142 4,285 4,285 424 424 1,573 3,961 6,681 10,812	THE COMPANY 2007 2006 $000 $000 399 2,142 4,285 4,285 – – 1,422 3,961 6,106 10,388	THE COMPANY 2007 2006 $000 $000 399 2,142 4,285 4,285 – – 1,422 3,961 6,106 10,388
			10,388

– 348 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

b) Movements in reserves

Note Options reserve Balance at beginning of year Non-cash share-based payments expense Options exercised, transfer to share capital 24b Balance at end of year Capital profits Balance at beginning of year Balance at end of year Foreign currency translation Balance at beginning of year Translation of assets & liabilities of foreign operations Balance at end of year Hedging reserve Balance at beginning of year Adjustments on adoption of AASB 132 and AASB 139, net of tax Gains recognised Transferred to profit Deferred and current tax Balance at end of year	CONSOLIDATED 2007 2006 $000 $000 2,142 1,370 593 1,788 (2,336) (1,016) 399 2,142	CONSOLIDATED 2007 2006 $000 $000 2,142 1,370 593 1,788 (2,336) (1,016) 399 2,142	THE COMPANY 2007 2006 $000 $000 2,142 1,370 593 1,788 (2,336) (1,016) 399 2,142 4,285 4,285 4,285 4,285 – – – – – – 3,961 – – 6,661 2,440 262 (6,067) (4,119) 1,088 1,157 1,422 3,961	THE COMPANY 2007 2006 $000 $000 2,142 1,370 593 1,788 (2,336) (1,016) 399 2,142 4,285 4,285 4,285 4,285 – – – – – – 3,961 – – 6,661 2,440 262 (6,067) (4,119) 1,088 1,157 1,422 3,961
	4,285	4,285	4,285	4,285
	4,285	4,285	4,285
	424 –	424 –	– –	– –
	424	424	–
	3,961 – 2,656 (6,067) 1,023	– 9,210 262 (7,761) 2,250	3,961 – 2,440 (6,067) 1,088	– 6,661 262 (4,119 1,157
	1,573	3,961	1,422

c) Nature and purpose of reserves

Options reserve

The options reserve is used to recognise the fair value of options issued but not exercised. The options comprising this reserve are those issued as consideration for the purchase of Yarrabee Coal Company Pty Ltd, along with Director, key management personnel and employee share-based payment options.

– 349 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

Capital profits

The capital profits reserve was used to record non-trading capital profits. The reserve has not changed in a number of years.

Foreign currency translation

Exchange differences arising on translation of foreign controlled entities are taken to the foreign currency translation reserve, as described in note 1v. The reserve is recognised in profit and loss when the net investments are disposed of.

Hedging reserve

The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge which are recognised directly in equity, as described in note 1w. Amounts are recognised in the income statement when the associated hedged transaction affects the income statement.

d) Accumulated losses

Accumulated losses at the beginning of the year (i) & (ii) Profit attributable to members of Felix Resources Limited (ii) Dividends paid Balance at the end of the year	CONSOLIDATED 2007 2006 $000 $000 (91,936) (118,524) 46,957 30,103 (7,210) (3,515) (52,189) (91,936)	THE COMPANY 2007 2006 $000 $000 (115,746) (120,749) 23,002 8,518 (7,210) (3,515) (99,954) (115,746)

• (i) The correction of a mis-allocation of minority interest losses in the previous financial year is detailed below.

AASB 127 Consolidated and Separate Financial Statements requires that losses applicable to the minority interest in a consolidated subsidiary be allocated against the majority except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. On adoption of Australian equivalents to International Financial Reporting Standards in the previous financial year, the allocation of losses incorrectly included the reserves for one particular subsidiary.

This had the effect of understating consolidated accumulated losses by $1,781,000 and outside equity interest in controlled entities by $1,781,000 as at 1 July 2005.

This has been corrected by restating each of the affected financial line items for the prior year, as described above.

• (ii) The correction of an omission in recording share-based payment expense in the previous financial year is detailed below.

The share-based payment expense relating to options for general managers was omitted from the parent company profit for the year ended 30 June 2006. This had the effect of understating the parent company option reserve by $238,000 and the parent company accumulated losses by $238,000 as at 30 June 2006. This also had the effect of overstating the parent company profit before income tax and after income tax by $238,000 for the year ended 30 June 2006.

– 350 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

This omission has been corrected by restating each of the affected financial line items for the prior year, as described above.

26 MINORITY INTEREST

Interest in: Issued capital Accumulated losses Reserves	CONSOLIDATED 2007 2006 $000 $000 961 961 (759) (961) 3,127 1,781 3,329 1,781	CONSOLIDATED 2007 2006 $000 $000 961 961 (759) (961) 3,127 1,781 3,329 1,781
		1,781

27 EARNINGS PER SHARE

a) Reconciliation of earnings used in calculating earnings per share

Profit after income tax Profit attributable to minority interest Profit attributable to the ordinary equity holders of Felix Resources Limited used in calculating basic and diluted earnings per share b) Weighted average number of shares used in calculating earnings per Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share c) The following potential ordinary shares are not dilutive and are therefore excluded from the weighted average number of ordinary shares used in the calculation of diluted earnings per share B Class shares Options d) Weighted average number of converted, lapsed or cancelled potential ordinary shares included in the calculation of diluted earnings per share Options converted	CONSOLIDATED 2007 2006 $000 $000 47,159 30,103 (202) – 46,957 30,103 share CONSOLIDATED 2007 2006 No. of shares No. of shares 186,380,197 180,203,580 203,905 4,915,409 186,584,102 185,118,989	CONSOLIDATED 2007 2006 $000 $000 47,159 30,103 (202) – 46,957 30,103 share CONSOLIDATED 2007 2006 No. of shares No. of shares 186,380,197 180,203,580 203,905 4,915,409 186,584,102 185,118,989
		185,118,989
	– 30,000	7,500,000 932,000
	30,000 16,040	8,432,000
		29,329

For terms and conditions relating to the above potential ordinary shares, refer to note 24.

– 351 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

28 CASH FLOW STATEMENTS

a) Reconciliation of the profit after income tax to the net cash flows from continuing operations

Profit after income tax Dividends received Depreciation of non-current assets Amortisation of leased assets Amortisation of mining tenements Amortisation of exploration Amortisation of other intangible assets Amortisation of Minerva deferred purchase consideration Net (gain)/loss on disposal of property, plant & equipment Net (gain) on disposal of available-for-sale financial assets Net (gain)/loss on disposal of 28.7% of Minerva & Athena Joint Ventures Net (gain) on disposal of 25% of Ashton Joint Venture Net (gain) on disposal of 10% of Moolarben Coal Project Non-cash foreign currency (gains) transferred to profit for the year Share-based payments expense Share of net losses/(profits) of associates accounted for using the equity method Provision for write-down on advances to controlled entities Changes in assets and liabilities, net of effects from disposal of interests in joint ventures and projects (refer note 2c) Decrease/(increase) in trade & other receivables (Increase)/decrease in prepayments (Increase) in overburden in advance (Increase) in inventory Decrease in tax assets Decrease in development assets (Increase) in deferred tax assets (Decrease)/increase in trade and other creditors Increase/(decrease) in employee benefits Increase in rehabilitation provision Increase/(decrease) in tax provision Increase/(decrease) in deferred tax liability Net cash inflow/(outflow) from operating activities	CONSOLIDATED 2007 2006 $000 $000 47,159 30,103 – – 7,087 4,675 6,367 3,466 3,202 2,392 250 498 563 351 378 153 (13) 116 (1,136) (71) (28,208) – – (4,270) (17,956) – (1,032) (7,761) 593 1,788 713 (1,533) – – 22,203 (7,639) (820) 2,044 (15,044) (11,980) (3,755) (7,562) – 4,308 1,075 401 (20,605) (42,964) (4,920) 9,184 1,467 711 1,637 1,953 56 (400) 22,124 45,273 21,385 23,236	THE COMPANY 2007 2006 $000 $000 23,002 8,518 (7,210) (3,222) 153 103 – – – – – – 199 32 378 153 (21) – – (71) 79 – – – – – (968) (4,118) 593 1,788 – – (1,843) (334) (2,212) (629) 12 85 – – – – – – – – (11,878) (2,938) (905) 313 (10) 13 – – – (507) (725) 505 (1,356) (309)

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

b) Reconciliation of cash

Cash balance comprises: Cash at bank Short-term deposits Closing cash balance	CONSOLIDATED 2007 2006 $000 $000 11,495 9,874 5,965 69,493 17,460 79,367	THE COMPANY 2007 2006 $000 $000 4,777 2,684 5,501 13,014 10,278 15,698	THE COMPANY 2007 2006 $000 $000 4,777 2,684 5,501 13,014 10,278 15,698
			15,698

c) Disposal of 28.7% interest in Minerva & Athena Joint Ventures

Effective 1 July 2006 the consolidated entity disposed of 21.4% of its interest in the Minerva and Athena Joint Ventures. This transaction decreased Felix’s interest in the joint ventures from 70% to 55%. Effective 1 October 2006 the consolidated entity disposed of 7.3% of its interest in the Minerva and Athena Joint Ventures. This transaction decreased Felix’s interest in the joint ventures from 55% to 51%. The disposal details are:

Consideration: Cash received Net asset of the Minerva & Athena Joint Ventures disposed: Cash and cash equivalents Trade and other receivables Inventory Other current assets Non-current other financial assets Property, plant & equipment Intangible assets Trade and other payables Interest bearing liabilities Provision Carrying amount of net assets disposed Gain on disposal before tax 2c Net cash effect: Cash included in the net assets disposed Cash consideration Cash inflow	CONSOLIDATED 2007 2006 $000 $000 42,100 –	CONSOLIDATED 2007 2006 $000 $000 42,100 –	THE COMPANY 2007 2006 $000 $000 1,267 –	THE COMPANY 2007 2006 $000 $000 1,267 –
	579 277 722 3,777 1,346 13,024 2,784 (2,906) (5,489) (222) 13,892	– – – – – – – – – – –	– – – – 1,346 – – – – – 1,346	– – – – – – – – – –
				–
	28,208	–	(79)	–
	(579) 42,100	– –	– 1,267	– –
	41,521	–	1,267	–

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

d) Disposal of 10% interest in Moolarben Coal Project

Effective 30 June 2007 the consolidated entity disposed of 10% of its interest in the Moolarben Coal Project. The disposal details for the first tranche of this disposal are (refer note 38b) :

Note Consideration: Cash receivable Net assets of the Moolarben Coal Project disposed: Exploration & evaluation assets Freehold land & buildings Carrying amount of assets disposed Gain on disposal before tax 2c	CONSOLIDATED 2007 2006 $000 $000 20,000 – 1,139 – 905 – 2,044 – 17,956 –	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – –	THE COMPANY 2007 2006 $000 $000 – – – – – – – – – –
			– –
			–
			–

The cash receivable of $20,000,000 is shown as a receivable from Sojitz Moolarben Resources Pty Limited (refer note 8) .

– 354 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

e) Disposal of 25% interest in Ashton Coal Joint Venture to IMC Austral

Effective 1 July 2005 the consolidated entity disposed of 25% of its interest in the Ashton Coal Joint Venture. The disposal details are:

Note Consideration: Cash received Net assets of the Ashton Joint Venture disposed: Cash and cash equivalents Trade and other receivables Inventory Prepayments Investments in associates WDV of property, plant & equipment Exploration and evaluation assets Mining tenements Trade and other creditors Leases and equipment loans Provisions Carrying amount of net assets disposed Gain on disposal before tax 2c Net cash effect: Cash included in the net assets disposed Cash consideration Cash inflow	CONSOLIDATED 2007 2006 $000 $000 – 29,838	CONSOLIDATED 2007 2006 $000 $000 – 29,838	THE COMPANY 2007 2006 $000 $000 – –	THE COMPANY 2007 2006 $000 $000 – –
	– – – – – – – – – – – –	374 1,707 638 53 1,111 10,776 877 17,849 (2,047) (5,188) (582) 25,568	– – – – – – – – – – – –	– – – – – – – – – – –
				–
	–	4,270	–	–
	– –	(374) 29,838	– –	– –
	–	29,464	–	–

f) Non-cash financing and investing activities

Finance lease transactions

During the year the consolidated entity acquired plant and equipment with an aggregate fair value of $3,860,000 (2006: $11,301,000) by means of finance leases. These acquisitions are not included in the Cash Flow Statements.

Other non-cash financing transactions

During the year the consolidated entity also acquired rail access rights with a fair value of $869,000 (2006: $10,585,000) by means of an access facilitation loan with Queensland Rail. These acquisitions are not included in the Cash Flow Statements. Refer note 20(a) (iii) for details regarding the loan.

– 355 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

29 JOINT VENTURES

a) Interest in Joint Venture Operations

A controlled entity, Yarrabee Coal Company Pty Ltd, has a 50% interest in the output of Boonal Joint Venture whose principal activity is the provision of a coal haul road and train load out facilities.

A controlled entity, Proserpina Coal Pty Ltd, has a 51% (2006: 70%) interest in the output of the Minerva Joint Venture whose principal activity is the development and operation of an open cut coal mine.

A controlled entity, White Mining (NSW) Pty Limited, has a 60% interest in the output of the Ashton Joint Venture whose principal activity is the development and operation of open cut and underground coal mines.

A controlled entity, Moolarben Coal Mines Pty Limited, has a 90% interest in the output of the Moolarben Coal Joint Venture whose principal activity will be the development and operation of open cut and underground coal mines (refer note 38b) .

The consolidated entity’s interest in the assets employed in the joint ventures are included in the consolidated balance sheet, in accordance with accounting policy note 1j under the following classifications:

CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other Total current assets NON-CURRENT ASSETS Trade and other receivables Property, plant & equipment Exploration and evaluation assets Intangible assets Total non-current assets SHARE OF ASSETS EMPLOYED IN JOINT VENTURE OPERATIONS	CONSOLIDATED 2007 2006 $000 $000 867 4,019 3,576 4,627 10,384 5,365 20,918 16,845	CONSOLIDATED 2007 2006 $000 $000 867 4,019 3,576 4,627 10,384 5,365 20,918 16,845
	35,745 5,371 175,451 12,588 220,377 413,787	30,856
		4,438 111,360 2,351 62,275
		180,424
	449,532	211,280

– 356 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

30 EXPENDITURE COMMITMENTS

a) Capital expenditure commitments

Estimated capital expenditure contracted for at reporting date, but not provided for:

i) Plant and equipment not later than one year share of joint venture other ii) Underground development not later than one year share of joint ventures iii) Mine development not later than one year share of joint venture b) Lease expenditure commitments i) Operating leases (non-cancellable) Minimum lease payments not later than one year later than one year and not later than five years Aggregate lease expenditure contracted for at balance date	CONSOLIDATED 2007 2006 $000 $000 756 2,730 67 –	CONSOLIDATED 2007 2006 $000 $000 756 2,730 67 –	THE COMPANY 2007 2006 $000 $000 – – – –	THE COMPANY 2007 2006 $000 $000 – – – –
	421 1,006	31,868 –	– –	–
				–
	1,352 2,027 3,379	1,119 2,664 3,783	92 – 92	– –
				–

Operating leases have remaining lease terms ranging from six months to five years. Items that are subject to operating leases include mining equipment, office space and small items of office equipment. The consolidated entity does not have the option to purchase the leased assets at the expiry of the lease period.

– 357 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

ii) Finance leases Consolidated not later than one year later than one year and not later than five years Total minimum lease payments Less future finance charges Present value of minimum lease payments The Company not later than one year later than one year and not later than five years Total minimum lease payments Less future finance charges Present value of minimum lease payments Finance leases are included in the financial statements as: current lease liability non-current lease liability	2007 Minimum lease payments $000 9,261 19,470 28,731 (4,019)	2007 Present value of lease $000 7,182 17,530 24,712 –	2006 Minimum lease payments $000 8,499 28,297 36,796 (6,889)	2006 Present value of lease $000 5,801 24,106 29,907 –
	24,712 – – – –	24,712 – – – –	29,907 – – – –	29,907
				– –
				– –
	– – CONSOLIDATED 2007 2006 $000 $000 7,182 5,801 17,530 24,106 24,712 29,907		– – THE COMPANY 2007 2006 $000 $000 – – – – – –	–
				–

Finance leases relate to mining vehicles and machinery with lease terms between 3 and 5 years. These leases have terms of renewal at the discretion of the specific entity that holds the lease with some purchase options but no escalation clauses. The leases are subject to review of financial covenant ratios on a quarterly basis and contain restrictions on further indebtedness for one particular lease.

– 358 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

31 KEY MANAGEMENT PERSONNEL

a) Directors

The following persons were Directors of Felix Resources Limited during the year ended 30 June

Name

Position

Chairman (non-executive) (appointed 2 April 2007) Deputy Chairman (non-executive) (to 1 April 2007)

Travers Duncan Chairman (non-executive) (appointed 2 April 2007) Deputy Chairman (non-executive) (to 1 April 2007) Brian Flannery Managing Director (appointed 20 March 2006) Executive Director (to 19 March 2006) John Kinghorn Director (non-executive) (appointed 1 September 2005) Ian McCauley Chairman (non-executive) (resigned 21 March 2007) John Rawlins Director (non-executive) (resigned 21 March 2007) Anthony McLellan Director (non-executive) (resigned 25 June 2007)

b) Other key management personnel

The following persons also had authority and responsibility for planning, directing and controlling the activities of the consolidated entity, directly or indirectly, during the year ended 30 June 2007.

Name	Position	Employer
Mark McCauley	Chief Financial Officer, General Manager	Felix Resources Limited
	Strategic Development and Co-Company
	Secretary (resigned 28 February 2007)
David Knappick	Chief Financial Officer (appointed 28 February	Felix Resources Limited
	2007, formerly a finance consultant to the
	group)
Joseph Butta	General Manager Marketing (appointed 14	Felix Resources Limited
	January 2005)
Kylie Anderson	Co-Company Secretary (resigned 17 October	Felix Resources Limited
	2006 and remained as a finance consultant
	until 28 February 2007)

c) Key management personnel compensation

Short-term employee benefits Post-employment benefits Other long-term benefits Termination benefits Share-based payment	CONSOLIDATED 2007 2006 $ $ 1,613,223 1,951,283 107,500 221,281 – – – 433,300 397,804 1,550,471 2,118,527 4,156,335	THE COMPANY 2007 2006 $ $ 1,613,223 1,951,283 107,500 221,281 – – – 433,300 397,804 1,550,471 2,118,527 4,156,335	THE COMPANY 2007 2006 $ $ 1,613,223 1,951,283 107,500 221,281 – – – 433,300 397,804 1,550,471 2,118,527 4,156,335
			4,156,335

– 359 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

Further details regarding the compensation of key management personnel, including Directors, can be found in the Remuneration Report within the Directors Report.

d) Option holdings

The number of options over ordinary shares in the company held during the financial year by Directors of the company or other key management personnel of the consolidated entity, including their related parties, are set out below.

2007 Directors Ian McCauley (1) John Rawlins (1) Anthony McLellan Other key management personnel Mark McCauley Total 2006 Directors Ian McCauley John Rawlins Jon Parker (2) Anthony McLellan Other key management personnel Mark McCauley Total	Balance at beginning of year 1 July 2006 Granted as remuneration 3,750,000 – 3,750,000 – 70,000 – 312,000 – 7,882,000 – Balance at beginning of year 1 July 2005 Granted as remuneration 3,750,000 – 3,750,000 – 830,000 – 70,000 – 480,000 – 8,880,000 –	Options exercised (3,750,000) (3,750,000) (70,000) (312,000) (7,882,000) Options exercised – – (280,000) – (168,000) (448,000)	Balance at end of year 30 June 2007 – – – – – Balance at end of year 30 June 2006 3,750,000 3,750,000 550,000 70,000 312,000 8,432,000	Vested at 30 June 2007 Total Not exercisable Exercisable – – – – – – – – – – – – – – – Vested at 30 June 2006 Total Not exercisable Exercisable 3,750,000 – 3,750,000 3,750,000 – 3,750,000 – – – – – – – – – 7,500,000 – 7,500,000	Vested at 30 June 2007 Total Not exercisable Exercisable – – – – – – – – – – – – – – – Vested at 30 June 2006 Total Not exercisable Exercisable 3,750,000 – 3,750,000 3,750,000 – 3,750,000 – – – – – – – – – 7,500,000 – 7,500,000
					7,500,000

(1) Resigned 21 March 2007. Options were under contract on that date and were exercised on 14 May 2007 following FIRB approval.

(2) Option holding at resignation date, 20 March 2006.

– 360 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

e) Shareholdings

The numbers of shares in the company held during the financial year by Directors of the company and other key management personnel of the consolidated entity, including their related parties, are set out below.

2007 Directors Ian McCauley (1) John Rawlins (1) Anthony McLellan Brian Flannery (6) Travers Duncan (6) Other key management personnel Mark McCauley (7) David Knappick (6) Joseph Butta (6) Total 2006 Directors Ian McCauley John Rawlins Jon Parker (5) Anthony McLellan Brian Flannery (2) Travers Duncan (2) Other key management personnel Mark McCauley David Knappick (3) Joseph Butta (4) Total	Balance at beginning of year 1 July 2006 15,193,050 15,082,586 – 27,200,000 27,698,706 168,000 13,425,000 8,950,000 107,717,342 Balance at beginning of year 1 July 2005 15,193,050 15,082,586 560,000 60,000 26,850,000 26,850,000 – 13,425,000 8,950,000 106,970,636	Granted as remuneration – – – – – – – – – Granted as remuneration – – – – – – – – – –	Options exercised 3,750,000 3,750,000 70,000 – – 312,000 – – 7,882,000 Options exercised – – 280,000 – – – 168,000 – – 448,000	Net change other (18,943,050) (18,832,586) (70,000) 2,250,000 2,250,000 – 1,125,000 750,000 (31,470,636) Net change other – – 40,000 (60,000) 350,000 848,706 – – – 1,178,706	Balance at end of year 30 June 2007 – – – 29,450,000 29,948,706 480,000 14,550,000 9,700,000 84,128,706 Balance at end of year 30 June 2006 15,193,050 15,082,586 880,000 – 27,200,000 27,698,706 168,000 13,425,000 8,950,000 108,597,342	Held nominally 30 June 2007 – – – – – – – –
						–
						Held nominally 30 June 2006 – – – – – – 168,000 – –
						168,000

(1) Shareholdings at resignation date, 21 March 2007. Options and shareholdings were under contract on that date and were exercised/sold on 14 May 2007 following FIRB approval.

(2) Each amount includes 2,250,000 B class shares.

(3) Includes 1,125,000 B class shares.

(4) Includes 750,000 B class shares.

• (5) Shareholdings at resignation date 20 March 2006.

– 361 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

• (6) Net change other relates to the conversion of B class shares to ordinary shares on 16 November 2006.

• (7) Shareholding at date of resignation, 28 February 2007.

The rights attaching to B class shares are detailed in Note 24.

Aggregate proceeds received from Directors and other key management personnel on the exercise of options and recognised as issued capital Fair value of shares issued to Directors and other key management personnel on the exercise of options as at their issue date AUDITORS’ REMUNERATION Amounts paid or payable to BDO Kendalls for: an audit or review of the financial report of any entity in the consolidated entity non-audit services in relation to any entity in the consolidated entity tax consulting tax compliance assurance related Amounts paid or payable to a related practice of BDO Kendalls for: an audit or review of the financial report of any entity in the consolidated entity non-audit services in relation to any entity in the consolidated entity tax compliance Amounts paid or payable to auditors other than BDO Kendalls for: an audit or review of the financial report of subsidiary entities	CONSOLIDATED 2007 2006 $ $ 6,384,020 4,480	CONSOLIDATED 2007 2006 $ $ 6,384,020 4,480	THE COMPANY 2007 2006 $ $ 6,384,020 4,480	THE COMPANY 2007 2006 $ $ 6,384,020 4,480
	42,010,760	1,146,880	42,010,760	1,146,880
	CONSOLIDATED 2007 2006 $ $ 352,939 169,572 50,211 198,326 145,438 194,615 – 3,800 – 5,297 – 2,335 – 3,199 548,588 577,144		THE COMPANY 2007 2006 $ $ 239,500 166,572 50,211 183,836 145,438 190,040 – 3,800 – 5,297 – 2,335 – – 435,149 551,880
				551,880

32 AUDITORS’ REMUNERATION

– 362 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

33 RELATED PARTY TRANSACTIONS, EXCLUDING DIRECTORS & OTHER KEY MANAGEMENT PERSONNEL

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

1) Parent entity and subsidiaries

The ultimate parent entity in the consolidated entity is Felix Resources Limited.

The consolidated entity consists of Felix Resources Limited and its controlled entities, the ownership interests of which are set out in note 6.

Transactions between Felix Resources Limited and other entities in the consolidated entity during the years ended 30 June 2007 and 2006 consisted of:

• a) loans advanced by Felix Resources Limited

• b) loans repaid to Felix Resources Limited

• c) the payment of interest on the above loans

• d) the payment of dividends to Felix Resources Limited

• e) the provision of administration, accounting, management, marketing and hire services by Felix Resources Limited and other entities in the consolidated entity, and

• f) transactions between Felix Resources Limited and its Australian controlled entities under the tax sharing agreement described in note 4.

2) Associates and joint ventures

Associated entities are set out in note 13 and joint ventures in which the consolidated entity is a venturer are set out in note 29.

Transactions with associates and joint ventures during the years ended 30 June 2007 and 2006 consisted of:

• a) loans advanced by Felix Resources Limited, subsidiaries or joint ventures to associated entities

• b) loans repaid to Felix Resources Limited, subsidiaries or joint ventures from associated entities

• c) sales of coal by a subsidiary to an associated entity under terms and conditions specified in the Ashton Coal Joint Venture Agreement

• d) payments by a joint venture to an associated entity under terms and conditions specified in the BOOT contract between Ashton Coal Operations Pty Limited and Australian Coal Processing Pty Ltd

• e) the provision of administration, accounting, marketing, management and hire services by Felix Resources Limited or subsidiaries to associated entities and joint ventures

• f) sale of excavator by Felix Resources Limited to a joint venture

• g) purchase of coal by a joint venture from a subsidiary.

– 363 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

3) Transactions with related parties

The following transactions occurred with related parties:

	CONSOLIDATED	CONSOLIDATED	THE COMPANY	THE COMPANY
	2007	2006	2007	2006
	$	$	$	$
Sales of goods and services
Sales of coal to associated entities	70,525,723	56,505,621	–	–
Sales of management and marketing
services to controlled entities	–	–	1,152,000	1,136,100
Sales of marketing services to
associated entities	220,800	8,320	552,000	20,800
Sales of management and marketing
services to joint ventures	1,616,484	1,262,076	1,533,600	1,394,400
Sale of excavator to joint venture	100,000	–	250,000	–
Purchase of goods and services
Purchase of coal preparation and
handling services by joint ventures
from associated entities	–	4,631,222	–	–
Purchase of coal by Minerva Joint
Venture from Yarrabee Coal
Company Pty Ltd	2,690,899	–	–	–
Dividend Revenue
Dividends received from subsidiaries	–	–	7,210,000	3,222,000
Doubtful debt expense
Write-down of receivables from
subsidiary	–	–	–	–
Reversal of write-down of
receivables from subsidiary	–	–	(1,849,459)	(414,480)

– 364 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

4) Outstanding balances arising from transactions with related parties

Balances outstanding at the reporting date to related parties are unsecured and subordinate to other liabilities. Balances outstanding at the reporting date from related parties are also unsecured, non-interest bearing and repayable on demand.

The following balances are outstanding at the reporting date in relation to transactions with related parties.

	CONSOLIDATED	CONSOLIDATED	THE COMPANY	THE COMPANY
	2007	2006	2007	2006
	$	$	$		$
Current receivables
Advances to controlled entities
Receivable from Minerva Coal Pty Ltd
being an unsecured non-interest bearing
loan	–	–	3,228,831	3,228,831
Advance to Minerva Coal Pty Ltd	–	–	82,225	86,000
Advances to 100% owned subsidiaries	–	–	65,480,914	68,704,457
Trade Debtors
Receivable from Ashton Coal
Mines Limited	549,540	5,841,916	–		–
Receivable from controlled entities
Receivables from 100% owned
subsidiaries under tax sharing
agreement	–	–	10,503,925	8,494,134
Non-current receivables
Advances to controlled entities
Receivable from Minerva Coal Pty Ltd
being an unsecured, non-interest
bearing loan	–	–	748,285	748,285
Receivable from SASE Pty Ltd being an
unsecured, non-interest bearing loan	–	–	31,272,311	33,121,770
Less: accumulated impairment losses	–	–	(31,272,311)	(33,121,770)
Receivable from 100% owned subsidiaries	–	–	50,524,000	50,517,380
Less: accumulated impairment losses	–	–	(30,524,000)	(30,517,380)
Advances to associated entities
Receivable from Ashton Coal Mines
Limited being an unsecured,
non-interest bearing loan	5,378,938	4,515,916	–		–
Current Payables
Trade Creditors
Payable by Ashton Coal Operations Pty
Limited, as operator of the Ashton Joint
Venture, to Australian Coal Processing
Pty Ltd	58,608	968,719	–		–

– 365 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

34 TRANSACTIONS WITH DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL

Transactions with Directors of the company and other key management personnel, including their related parties, are on commercial terms and conditions no more favourable than those available to other parties under similar circumstances unless otherwise stated.

1) Transactions

Profit after tax includes the following items of expenses that resulted from transactions with Directors of the company and other key management personnel, including their related parties.

Payment to Aedion Pty Ltd from Yarrabee Coal Company Pty Ltd for accommodation. Mr. J. Rawlins is a Director of Aedion Pty Ltd Payments to Rawmac Pastoral Pty Ltd for access licence fees. Rawmac Pastoral Pty Ltd is controlled by Mr. I. McCauley and Mr. J. Rawlins Payments to Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited as operator of the Ashton Joint Venture for mining contracting and equipment hire. Mr. T. Duncan, Mr. B. Flannery, Mr. D. Knappick and Mr. J. Butta are the majority shareholders in Coalroc Contractors Pty Ltd Payments to Coalroc Contractors Pty Ltd by Australian Coal Processing Pty Ltd for trade services Payments to Coalroc Contractors Pty Ltd by UCC Energy Pty Limited for trade services Payments to Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited as operator of the Ashton Joint Venture for interest on finance leases Payments to Yunaga Mine Services Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture for trade services. Coalroc Contractors Pty Ltd owns 50% of the share capital of Yunaga Mine Services Pty Ltd Payment to Yunaga Mine Services Pty Ltd by Australian Coal Processing Pty Ltd for trade services Payment to Yunaga Mine Services Pty Ltd by Ashton Coal Mines Limited for trade services Payments to Yunaga Mine Services Pty Ltd by UCC Energy Pty Limited for trade services Total recognised as expenses	CONSOLIDATED 2007 2006 $ $ 7,800 29,467 6,000 6,000 1,135,004 255,803 1,264 141,322 1,040 – 158,759 – 697,347 587,215 1,168 22,123 18,210 – – 3,614	CONSOLIDATED 2007 2006 $ $ 7,800 29,467 6,000 6,000 1,135,004 255,803 1,264 141,322 1,040 – 158,759 – 697,347 587,215 1,168 22,123 18,210 – – 3,614	THE COMPANY 2007 2006 $ $ – – – – – – – – – – – – – – – – – – – –	THE COMPANY 2007 2006 $ $ – – – – – – – – – – – – – – – – – – – –
	2,026,592	1,045,544	–	–

– 366 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

Assets and liabilities include the following items that resulted from transactions with Directors of the company and other key management personnel, including their related parties.

Non-current property, plant & equipment Payments to Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited, as the operator of the Ashton Joint Venture for mining contracting and equipment hire Finance lease charges capitalised – note 3(a) Fair value of leased plant & equipment acquired from Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture Fair value of land and buildings acquired from Aedion Pty Ltd by Yarrabee Coal Company Pty Ltd. Mr. J. Rawlins is a Director of Aedion Pty Ltd Payments to Yunaga Mine Services Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture for mining contracting Total recognised as assets Interest bearing liabilities Current Fair value of finance lease agreements with Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture Non-current Fair value of finance lease agreements with Coalroc Contractors Pty Ltd by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture Total recognised as liabilities	CONSOLIDATED 2007 2006 $ $ 1,811,478 2,154,427 619,609 108,181 2,061,299 5,863,801 412,845 – 50,127 – 4,955,358 8,126,409	CONSOLIDATED 2007 2006 $ $ 1,811,478 2,154,427 619,609 108,181 2,061,299 5,863,801 412,845 – 50,127 – 4,955,358 8,126,409	THE COMPANY 2007 2006 $ $ – – – – – – – – – – – –	THE COMPANY 2007 2006 $ $ – – – – – – – – – – – –
				–
	3,105,641 2,179,509	2,059,224 3,804,577	– –	– –
	5,285,150	5,863,801	–	–

Finance lease agreements with Coalroc Contractors Pty Ltd relate to mining equipment and have lease terms ranging up to 3 years and 3 months with the option to purchase the assets at completion of the lease term for the contracted value. The effective discount rate implicit in the leases range from 12% – 13.4%.

Lease liabilities are secured by the leased assets. The equipment was used in the development of the Ashton underground mine and therefore the finance charges paid as part of the minimum lease payments are capitalised as assets under construction within property, plant & equipment as noted in note 3(a). The finance charges stopped being capitalised once the Ashton underground mine began production in April 2007.

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

2) Outstanding balances

The following balances are outstanding at the reporting date in relation to transactions with Directors of the company and other key management personnel, including their related parties.

Current payables Trade Creditors Payable by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture, to Coalroc Contractors Pty Ltd Payable by Ashton Coal Operations Pty Limited, as operator of the Ashton Joint Venture, to Yunaga Mines Services Pty Ltd Payable by Yarrabee Coal Company Pty Ltd to Rawmac Pastoral Pty Ltd Total recognised as liabilities	CONSOLIDATED 2007 2006 $ $ 245,196 211,230 – 8,848 3,300 – 248,496 220,078	THE COMPANY 2007 2006 $ $ – – – – – – – –	THE COMPANY 2007 2006 $ $ – – – – – – – –
			–

3) Loans from related parties of Directors and other key management personnel

2006 Related parties of other key management personnel Fibora Pty Ltd, a related party of Mr David Knappick, a Director of a controlled entity and a key management person Greenworth Pty Ltd, a related party of Mr Joseph Butta, a Director of a controlled entity and a key management person Related parties of Directors Ilwella Pty Ltd and Ganra Pty Ltd, related parties of Mr Brian Flannery Gaffwick Pty Ltd and Travers Duncan Pty Ltd, related parties of Mr Travers Duncan	CONSOLIDATED Balance in current payables 1 July 2005 Repayments made to related party Balance in current payables 30 June 2006 $ $ $ 225,000 (225,000) – 150,000 (150,000) – 450,000 (450,000) – 450,000 (450,000) – 1,275,000 (1,275,000) –	CONSOLIDATED Balance in current payables 1 July 2005 Repayments made to related party Balance in current payables 30 June 2006 $ $ $ 225,000 (225,000) – 150,000 (150,000) – 450,000 (450,000) – 450,000 (450,000) – 1,275,000 (1,275,000) –
		–

Under the terms of the Share Sale and Purchase Agreement between Felix Resources Limited and White Mining Limited, no interest was payable on these loans. There have been no loans from related parties of Directors and other key management personnel during the 2007 financial year.

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

4) Loans to Directors and other key management personnel

Loan to Mr John Rawlins being a secured interest bearing loan, interest payable twice yearly at the ANZ Bank corporate rate for overdrafts exceeding $1 million.

Balance at the start of the year Interest payable for the year Interest paid Balance at the end of the year Highest indebtedness during the year Number of persons in the group aggregate at the end of the year	CONSOLIDATED 2007 Aggregate for key management personnel Individuals with loans above $100,000 during the year $ $ 1,705,045 1,705,045 172,210 172,210 (172,210) (172,210) 1,705,045 1,705,045 1,705,045 1,705,045 1	CONSOLIDATED 2006 Aggregate for key management personnel Individuals with loans above $100,000 during the year $ $ 1,705,045 1,705,045 165,730 165,730 (165,730) (165,730) 1,705,045 1,705,045 1,705,045 1,705,045 1	CONSOLIDATED 2006 Aggregate for key management personnel Individuals with loans above $100,000 during the year $ $ 1,705,045 1,705,045 165,730 165,730 (165,730) (165,730) 1,705,045 1,705,045 1,705,045 1,705,045 1
			1,705,045
			1,705,045

5) Shares

Shares issued to related parties of Directors and other key management personnel are detailed in note

35 CONTINGENT LIABILITIES AND CONTINGENT ASSETS

Note Guarantees a) Parent entity and consolidated entity Guarantees secured over deposits Performance guarantees provided to external parties Guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute b) Joint ventures Guarantees secured over deposits Performance guarantees provided to external parties Guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute 20d	CONSOLIDATED 2007 2006 $000 $000 1,582 143 308 – 2,123 1,350 1,357 2,826 12,069 13,257 872 263 18,311 17,839	THE COMPANY 2007 2006 $000 $000 1,505 65 – – 2,123 – – – 12,000 12,880 871 264 16,499 13,029	THE COMPANY 2007 2006 $000 $000 1,505 65 – – 2,123 – – – 12,000 12,880 871 264 16,499 13,029
			13,029

– 369 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

36 SEGMENT REPORTING

For the years ended 30 June 2007 and 2006, the consolidated entity operated predominately in one business and one geographic segment. The consolidated entity operated predominantly in Australia. The industry in which the consolidated entity operated was the exploration for and extraction of coal resources.

37 FINANCIAL INSTRUMENTS

a) Interest rate risk

The consolidated entity’s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at the reporting date, are as follows:

June 2007 (i) Financial assets Current Cash & cash equivalents Trade and other receivables Non-current Trade and other receivables (ii) Financial liabilities Current Payables Bank loans Lease liabilities Non-current Payables Bank loans Lease liabilities Net financial assets/ (liabilities)	Floating interest rate $000 17,420 – –	Fixed interest rate maturing in: 1 year or less 1 to 5 years More than 5 years $000 $000 $000 35 – – 6,967 – – – 1,705 –	Fixed interest rate maturing in: 1 year or less 1 to 5 years More than 5 years $000 $000 $000 35 – – 6,967 – – – 1,705 –	Fixed interest rate maturing in: 1 year or less 1 to 5 years More than 5 years $000 $000 $000 35 – – 6,967 – – – 1,705 –	Non- interest bearing $000 5 29,473 5,379	Total carrying amount as per the balance sheet $000 17,460 36,440 7,084	Weighted average effective interest rate % 5.14 25.00 10.10
	17,420 – 8,581 – – 53,250 – 61,831	7,002 – 1,669 7,182 – – – 8,851	1,705 – – – – 12,125 17,530 29,655	– – – – – – – –	34,857 36,708 – – 4,417 – – 41,125	60,984 36,708 10,250 7,182 4,417 65,375 17,530 141,462	–
							N/A 7.96 10.56 N/A 8.10 9.27
	(44,411)	(1,849)	(27,950)	–	(6,268)	(80,478)

– 370 –

APPENDIX II

FINANCIAL INFORMATION OF FELIX

Fixed interest rate maturing in:

June 2006 (i) Financial assets Current Cash & cash equivalents Trade and other receivables Non-current Trade and other receivables (ii) Financial liabilities Current Payables Bank loans Lease liabilities Other loans Non-current Payables Bank loans Lease liabilities Net financial assets/ (liabilities)	Floating interest rate $000 79,185 – –	1 year or less $000 83 – –	1 to 5 years $000 – – 4,365	More than 5 years $000 – – –	Non- interest bearing $000 99 31,956 4,445	Total carrying amount as per the balance sheet $000 79,367 31,956 8,810	Weighted average effective interest rate % 5.57 N/A 19.03
	79,185 – 15,342 – 10,347 – 60,000 – 85,689	83 – 1,258 5,801 – – – – 7,059	4,365 – – – – – 15,625 24,106 39,731	– – – – – – – – –	36,500 40,831 – – – 4,039 – – 44,870	120,133 40,831 16,600 5,801 10,347 4,039 75,625 24,106 177,349	N/A 7.73 10.52 8.70 N/A 7.10 9.69
	(6,504)	(6,976)	(35,366)	–	(8,370)	(57,216)

N/A – not applicable for non-interest bearing financial instruments

b) Credit risk exposures

Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted.

Credit risk on cash, deposits and forward exchange contracts is managed by ensuring that counterparties are recognised financial intermediaries with acceptable credit ratings.

Credit risk in trade receivables is managed in the following ways:

• payment terms are set for individual customers;

• a risk assessment process is used for all customers; and

• letters of credit are required for those customers assessed as posing a higher risk.

Recognised financial instruments: The credit risk on financial assets of the consolidated entity which have been recognised in the balance sheet, is their carrying amount, net of any provision for doubtful debts.

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FINANCIAL INFORMATION OF FELIX

APPENDIX II

c) Net fair values

All financial assets and liabilities have been recognised at the balance date at their net fair values. The following methods and assumptions are used to determine net fair values of financial assets and liabilities.

Recognised financial instruments

Cash and cash equivalents: The carrying amount approximates fair value because of their short term to maturity.

Current receivables and payables: The carrying value approximates fair value.

Non-current payables, bank loans and lease liabilities: The net fair value of non-current payables, bank loans and lease liabilities is determined by discounting the future cash flows, at market interest rates of similar borrowings, to their present value.

Forward exchange contracts: The fair values of forward exchange contracts is determined as the unrealised gain or loss at reporting date.

d) Liquidity risk

Liquidity risk is the risk that the Group may encounter difficulties raising funds to meet commitments associated with financial instruments, e.g. borrowing repayments. It is the policy of the Board of Directors that Felix’s treasury maintain adequate committed credit facilities and the ability to close out market positions.

38 SUBSEQUENT EVENTS

a) Derivative financial instruments

As set out in note 9b the consolidated entity enters into forward foreign exchange contracts to reduce the foreign exchange rate volatility of the consolidated entity’s revenue stream. Subsequent to balance date the consolidated entity entered into further forward foreign exchange contracts as noted below.

Settlement Less than 6 months 6 months to 1 year	Sell United States Dollars 2007 2006 US$000 US$000 111,500 – 73,000 – 184,500 –	Average Exchange Rates 2007 2006 US$ US$ 0.8159 – 0.8018 – 0.8103 –	Average Exchange Rates 2007 2006 US$ US$ 0.8159 – 0.8018 – 0.8103 –
			–

b) Sale of 10% in Moolarben Coal Project

On 30 June 2007 Felix, through two controlled entities, entered into an agreement with Sojitz Corporation for that company to purchase a 10% stake in the Moolarben Coal Project. This transaction was announced to the ASX on 2 July 2007. The purchase price is $90m and is subject to various conditions. Subsequent to 30 June 2007 some of these conditions were satisfied, including the formation of a new joint venture with Sojitz Corporation, the Moolarben Coal Joint Venture (refer notes 28d and 29a) . Felix has recorded a net gain of $18m in the year ended 30 June 2007 (refer note 2c) in relation to the first tranche of the purchase price of $20m. The remaining purchase price of $70m is expected to be received in the year ending 30 June 2008.

c) Appointment of a new Director

On 2 August 2007 Mr V. O’Rourke was appointed as a Director of Felix Resources Limited.

– 372 –

FINANCIAL INFORMATION OF FELIX

APPENDIX II

39 NATIVE TITLE

Native title describes the rights and interests in Australia of Aboriginal and Torres Strait Islander peoples in land and waters, according to their traditional laws and customs. Native title claims exist over all or part of the areas covered by the consolidated entity’s exploration licences in South Australia, Queensland and New South Wales. Under the Native Title Act these areas are protected for all current and future mining operations on existing mining leases.

40 COMPANY DETAILS

The registered office and principal place of business of the company is:

Felix Resources Limited Level 6 316 Adelaide Street Brisbane, Qld, 4000 Australia

– 373 –

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, which to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTEREST OF DIRECTORS AND SUPERVISORS OF THE COMPANY

As at the Latest Practicable Date, the interests and short positions of the Directors, chief executive or supervisors of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO) or which are required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange were as follows:

		Number of A Shares
		held as at the
Name	Title	Latest Practicable Date
		(shares)
Yang Deyu	Vice Chairman of the Board	20,000
Wu Yuxiang	Director and Chief Financial Officer	20,000
Song Guo	Chairman of the Supervisor Committee	1,800

All the interests disclosed above represent long position in the A Shares.

– 374 –

GENERAL INFORMATION

APPENDIX III

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, save as disclosed below, so far as is known to the Board, no other persons (not being a Director, chief executive or supervisor of the Company) had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

					Percentage
					in the
					relevant	Percentage
					class of	in the total
Name of substantial		Number of		Type of	issued share	issued share
shareholder	Class of shares	shares held	Capacity	interest	capital	capital
Yankuang Group	Domestic Shares	2,600,000,000(L)	Beneficial owner	Corporate	87.84%(L)	52.86%(L)
Corporation Limited	(State-owned legal
(Note 2)	person shares)
Templeton Asset	H Shares	137,352,000(L)	Investment manager	Corporate	7.01%(L)	2.79%(L)
Management Ltd.
Alliance Bernstein L.P.	H Shares	117,622,000(L)	Investment manager	Corporate	6.01%(L)	2.39%(L)
		(Note 3)	and interests of
			controlled
			corporations
UBS AG	H Shares	102,623,271(L)	Beneficial owner,	Corporate	5.24%(L)	2.09%(L)
		21,320,458(S)	Person having a		1.09%(S)	0.43%(S)
		(Note 4)	security interest in
			shares and
			interests of
			controlled
			corporations
JP Morgan Chase &	H Shares	99,181,545(L)	Beneficial owner,	Corporate	5.06%(L)	2.02%(L)
Co.		1,994,511(S)	Investment		0.10%(S)	0.04%(S)
		70,829,785(P)	manager and		3.62%(P)	1.44%(P)
			Custodian
			corporation/
			Approved lending
			agent

Notes:

1. The letter “L” denotes a long position. The letter “S” denotes a short position. The letter “P” denotes interests in a lending pool.

2. Mr. Wang Xin, a Director, is the vice chairman of the board, the general manager and the party committee deputy secretary of Yankuang Group.

Mr. Geng Jiahuai, a Director, is the chairman of the board and the party committee secretary of Yankuang Group.

Mr. Yang Deyu, a Director, is a director of Yankuang Group.

Mr. Shi Xuerang, a Director, is a deputy general manager of Yankuang Group.

Mr. Chen Changchun, a Director, is the chief accountant, a director and the chief legal advisor of Yankuang Group.

– 375 –

GENERAL INFORMATION

APPENDIX III

Mr. Song Guo, a supervisor of the Company, is a deputy secretary of the party committee of Yankuang Group.

Mr. Zhou Shoucheng, a supervisor of the Company, is the secretary of the disciplinary inspection committee and the chairman of the labour union of Yankuang Group.

Mr. Zhang Shengdong, a supervisor of the Company, is the assistant to the general manager, the deputy chief accountant and the head of the finance department.

Ms. Zhen Ailan, a supervisor of the Company, is the deputy director of the audit department of Yankuang Group.

1. The long positions in H Shares included 113,606,000 H Shares held as investment manager and 4,016,000 H Shares held as interests of controlled corporations.

2. The long positions in H Shares included 94,980,341 H Shares held as beneficial owner, 4,475,930 H Shares held as person having a security interest in shares and 3,167,000 H Shares held as interests of controlled corporations. Among the aggregate interest in the long positions in H Shares, 31,607,503 H Shares were held as derivatives.

The short positions in H Shares included 19,088,828 H Shares held as beneficial owner and 2,231,630 H Shares held as interests of controlled corporations. Among the aggregate interest in the short positions in H Shares, 17,821,458 H Shares were held as derivatives.

1. The long positions in H shares included 13,192,292 H Shares held as beneficial owner, 15,159,468 H Shares held as investment manager and 70,829,785 H shares held as custodian corporation/approved lending agent. The short position in H Shares were held as beneficial owner, among which 1,307,511 H Shares were held as derivatives.

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which will not expire or is not determinable by the Group within one year without payment of compensation (other than statutory compensation).

5. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors or their respective associates has interests in the businesses, other then being a Director, which compete or are likely to compete, either directly or indirectly, with the businesses of the Group (as would be required to be disclosed under Rule 8.10 of the Hong Kong Listing Rules if each of them were a controlling shareholder).

– 376 –

GENERAL INFORMATION

APPENDIX III

6. DIRECTORS’ INTERESTS IN THE GROUP’S ASSETS OR CONTRACTS

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had any interest in any assets which have been, since 31 December 2008 (being the date to which the latest published audited financial statements of the Group were made up), acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors or supervisors of the Company is materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Group.

7. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2008, being the date to which the latest published audited consolidated financial statements of the Group were made up to.

8. LITIGATION

As far as the Directors are aware, none of the members of the Group was at present engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Group as at the Latest Practicable Date.

9. MATERIAL CONTRACTS

1. the Scheme Implementation Agreement;

2. acquisition agreement dated 24 July 2009 entered into between the Company and Shandong Chuangye Investment and Development Limited in relation to the acquisition of 14.21% equity interest in Shandong Hua Ju Energy Limited (“ Hua Ju Energy ”) for a consideration of RMB116.30 million;

3. acquisition agreement dated 24 July 2009 entered into between the Company and Jining Shengdi Investment Management Company Limited in relation to the acquisition of 6.9% equity interest in Hua Ju Energy for a consideration of RMB56.4216 million;

4. acquisition agreement dated 24 July 2009 entered into between the Company and Ms. Wu Zenghua in relation to the acquisition of 0.03% equity interest in Hua Ju Energy for a consideration of RMB0.2835 million;

5. acquisition agreement dated 24 October 2008 entered into between the Company and Yankuang Group Corporation Limited in relation to the acquisition of 74% equity interest in Hua Ju Energy for a consideration of RMB593.24 million; and

– 377 –

GENERAL INFORMATION

APPENDIX III

1. acquisition agreement dated 4 December 2007 entered into between Heze Neng Hua and Yankuang Group Corporation Limited in relation to the acquisition of the mining rights of Zhaolou Coal Mine for a consideration of RMB747.3 million.

10. MISCELLANEOUS

• (a) Mr. Zhang Baocai is a Director and the Company Secretary of the Company. Mr. Zhang is a PRC qualified accountant.

• (b) The H Share registrar of the Company in Hong Kong is Hong Kong Registrars Limited at Room No. 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (c) The registered office of the Company is 298 Fushan South Road, Zoucheng City, Shandong Province 273500, PRC.

• (d) In the case of any discrepancy, the English text of this circular and form of proxy shall prevail over the Chinese text.

11. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s principal place of business in Hong Kong at Rooms 2608-10, 26/F, The Center, 99 Queen’s Road Central, Hong Kong during normal business hours on any weekday (except public holidays) for a period of 14 days from the date of this circular:

1. the articles of associations of the Company;

2. each of the contracts set out under the paragraph headed “Material Contracts” in this Appendix;

3. the annual reports of the Group for the two financial years ended 31 December 2007 and 2008; and

4. this circular.

– 378 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

YANZHOU COAL MINING COMPANY LIMITED

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

(Stock Code: 1171)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the extraordinary general meeting (the “ EGM ”) of Yanzhou Coal Mining Company Limited (the “ Company ”) will be held at 9:00 a.m. on Friday, 30 October 2009 at the Conference Room of Wai Zhao Building, 329 South Fushan Road, Zoucheng, Shandong Province, Postal Code 273500, the People’s Republic of China (the “ PRC ”) for the purpose of considering and, if thought fit, passing the following resolution of the Company:

SPECIAL RESOLUTIONS

1. “ That

2. a. the acquisition of 100% equity interest in Felix Resources Limited by the Company by way of a scheme of arrangement through Austar Coal Mine Pty Limited, a wholly-owned subsidiary of Yancoal Australia Pty Limited (“Yancoal Australia Pty”), a wholly-owned subsidiary of the Company (the “Transaction”) be and is hereby approved; and

3. b. all resolutions passed at the EGM shall be valid for a period of 12 months from the date of passing.”

4. “ That

the Material Asset Restructuring Report of the Company containing, inter alia, the following matters in relation to the Transaction, namely (1) the method of acquisition, the subject matter of and the counterparty to the Transaction; (2) the consideration; (3) the method or basis for determining the consideration; (4) the contractual obligations and the liabilities for breach of contract in respect of the transfer of title relating to the shares to be acquired; and (5) the conditions precedent and the effective date of the Transaction be and is hereby approved.”

1. “ That

the financing arrangement in respect of the satisfaction of the consideration for the Transaction in the amount of AUD3,333 million (equivalent to approximately RMB18,951 million) to be satisfied by way of bank loans to be provided by Bank of China, Sydney Branch or a syndicate of banks led by Bank of China, Sydney Branch

– 379 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

to be made in AUD- or USD-equivalent to the amount of RMB 20 billion; and the issuance of a letter of guarantee by Bank of China, Shandong Branch in favor of Bank of China, Sydney Branch at the request of and upon the application made by the Company to Bank of China, Shandong Branch; and the provision of the counter-guarantee by the controlling shareholder of the Company, Yankuang Group Corporation Limited, to the Company be and are hereby approved.”

4. “ That

the board of directors (the “Board”) of the Company and Mr. Wu Yuxiang and Mr. Zhang Baocai, being the directors of the Company, be and are hereby unconditionally and generally authorised to take any action and further actions on behalf of the Company as they consider necessary, appropriate, desirable or expedient in connection with the Transaction in accordance with the requirements of relevant regulatory authorities and the requirements of the Transaction itself, including, without limitation, executing and delivering any and all agreements, documents and instruments, if any, to execute and/or perform all necessary and ancillary actions with respect to the Transaction and to perfect the Transaction, making any amendments, revisions, supplements or waivers of any matters in relation to, or in connection with or incidental to, the Transaction which they consider are in the interest of the Company, provided that such amendments, revisions, supplements or waivers shall not result in a material change to the terms of the Transaction; and any or all past actions by the Board which they may deem or have deemed in their sole discretion to be necessary with respect to any of the matters contemplated by this resolution be and are hereby authorised, approved, if necessary, ratified and confirmed.”

By order of the Board Yanzhou Coal Mining Company Limited Wang Xin Chairman of the Board

Zoucheng, Shandong, the PRC 11 September 2009

Notes:

• (A) Holders of the Company’s overseas listed foreign invested shares (in the form of H Shares) whose names appear on the Company’s register of members of H Shares which is maintained by Hong Kong Registrars Limited at the close of business on Tuesday, 29 September 2009 are entitled to attend the EGM after completing the registration procedures for attending the EGM.

• (B) Holders of H Shares, who intend to attend the EGM, must deliver the completed reply slips for attending the EGM to the Office of the Secretary of the Board no later than Friday, 9 October 2009.

Shareholders can deliver the necessary documents for registration to the Company in person, by post or by facsimile. Further details of the requirements of the instrument appointing the proxies are set out in note (D) below.

– 380 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

• (C) Details of the Office of the Secretary of the Board are as follows: 298 South Fushan Road Zoucheng Shandong Province 273500 PRC Tel: 86-537-5382319 Fax: 86-537-5383311

• (D) Each holder of H Shares who has the right to attend and vote at the EGM is entitled to appoint in writing one or more proxies, whether a Shareholder or not, to attend and vote on his behalf at the EGM.

The proxies of a Shareholder who has appointed more than one proxy may only vote on a poll. The instrument appointing a proxy must be in writing under the hand of the appointer or his attorney duly authorized in writing, or if the appointer is a legal entity, either under seal or under the hand of a director or a duly authorized attorney. If that instrument is signed by an attorney of the appointer, the power of attorney authorizing that attorney to sign, or other documents of authorization, must be notarized.

For holders of H Shares, the power of attorney or other documents of authorization and proxy forms must be delivered to Hong Kong Registrars Limited (Room No. 1806-1807, 18th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong) no less than 24 hours before the time appointed for the holding of the EGM or any adjournment thereof in order for such documents to be valid.

• (E) The H share register will be closed from Wednesday, 30 September 2009 to Friday, 30 October 2009, during which time no transfer of H Shares will be registered. Holders of H Shares who wish to attend the EGM must deliver their duly stamped instruments of transfer, accompanied by the relevant share certificates, to Hong Kong Registrars Limited (Room No. 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong) no later than 4:30 p.m, Tuesday, 29 September 2009.

• (F) The EGM is expected to last half a day. Shareholders attending the EGM are responsible for their own transportation and accommodation expenses.

• (G) All voting at the EGM will be conducted by a poll.

– 381 –