CStone Pharmaceuticals — Share Issue/Capital Change 2000

Dec 28, 2000

This announcement is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities.

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

兗州煤業股份有限公司

Yanzhou coal mining COMPANY LIMITED

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

Increase in capital by way of NEW ISSUE OF 100,000,000 A SHARES OF PAR VALUE RMB1.00 EACH

IN THE PEOPLE’S REPUBLIC OF CHINA (“A SHARES ISSUE”)

Further to the announcement on 4th August, 2000 (the “Announcement”) and the discloseable and connected transaction circular dated 26th August, 2000 (the “Circular”), Yanzhou Coal Mining Company Limited (the “Company”) wishes to announce that:

The prospectus relating to the A Shares Issue (the “A Shares Prospectus”) was published in the press in the People’s Republic of China (the “PRC”) on 28th December, 2000 and the A Shares Prospectus will be made available to the public in the PRC on 28th December, 2000.

After the A Shares Issue, the Company’s issued share capital structure will be composed of 61.85% in state legal person shares, 6.67% in A Shares held by PRC public investors and securities investment funds and the Company’s employees in the PRC and 31.48% in H Shares.

Further to the Announcement and the Circular, the Board of Directors of the Company is pleased to announce further details relating to the A Shares Issue as follows:

General

1. Approval for the A Shares Issue was granted on 21st December, 2000 by the China Securities Regulatory Commission (the “CSRC”) pursuant to the documents Zheng Jian Gong Si Zi [2000] No. 226. The A Shares Prospectus was published in the press in the PRC on 28th December, 2000 and the A Shares Prospectus will be made available to the public in the PRC on 28th December, 2000. The A Shares Issue is an offering in the PRC of 100,000,000 new A shares of par value of RMB1.00 each (“A Shares”), to be offered as to approximately 60% to the holders of A Shares and public investors and as to approximately 40% to institutional investors in the PRC at a price to be determined between the Company and the lead underwriter for the A Shares Issue, which price shall be not less than RMB8.80 (approximately HK$8.23) per A Share. The A Shares Issue will be fully underwritten by a syndicate of PRC underwriters, with United Securities Co., Ltd. as the lead underwriter. The A Shares will be listed on the Shanghai Stock Exchange on a date to be determined.

Except as disclosed herein, most of the information contained in the A Shares Prospectus which relates to risk factors, corporate information and particulars of the Company have previously been disclosed in (i) the Company’s prospectus dated 24th March, 1998 relating to the offer of 850,000,000 H shares of par value of RMB1.00 each (“H Shares”) (as a result of the exercise of the over-allotment option), of which 82,000,000 H Shares were offered in Hong Kong and 15,360,000 American Depositary Shares (“ADSs”, each representing 50 H Shares) were offered in the United States and internationally, (ii) the Company’s A Share prospectus as published in the press in the PRC on 4th June, 1998 relating to the offer of 80,000,000 A Shares in PRC, (iii) the Company’s annual reports for the years ended 31st December, 1997, 31st December, 1998 and 31st December 1999, (iv) the Company’s interim reports for the periods ended 30th June, 1998, 30th June, 1999 and 30th June 2000; (v) the Company’s announcement dated 4th August, 2000 on use of proceeds and (vi) the Circular. Accordingly, the information disclosed in the A Shares Prospectus will conform with information already publicly available in Hong Kong in all material respects, save for the fact that all financial information contained in the A Shares Prospectus has been prepared in accordance with the relevant generally accepted accounting principles and regulations applicable to PRC enterprises (“PRC GAAP”) and save for the additional information set forth below, which Hong Kong shareholders of the Company may find useful and is summarised below.

Prospective Information

1. Pursuant to the relevant regulations of the CSRC, the A Shares Prospectus contains a profit forecast (the “Profit Forecast”) for the year ending 31st December, 2000 (the “Forecast Period”). The Profit Forecast has been prepared in accordance with PRC GAAP and is summarised below.

The Profit Forecast has been prepared by the Company in accordance with the bases and assumptions set out in section (B) below. The Profit Forecast has been reviewed by Deloitte Touche Tohmatsu Shanghai CPA in accordance with auditing standards in the PRC applicable to profit forecasts, as set out in their report De Shi Bao (Shen) Zi No. (00) R034. The information set out in sections (A) and (B) below has been extracted from the A Shares Prospectus. A reconciliation of the net income of the Company for the year ended 31st December, 1999 between International Accounting Standards (“IAS”) and PRC GAAP has already been disclosed in the annual report for the year ended 31st December, 1999. The attention of shareholders and potential investors is specifically drawn to the cautionary statements set out in section (D) below.

(A) Under PRC GAAP

		Year ending		Year ended
		31st December,		31st December,
		2000 forecast		1999 actual
		RMB’000		RMB’000
Revenue from principal operations		4,438,842		4,069,515
Less:	Costs from principal operations	1,845,117		1,678,311
	Taxes and additions from principal operations	71,379		68,040
Principal operation income		2,522,346		2,323,164
Add:	Income from other operations	33,466		19,925
Less:	Operation expenses	912,811		718,274
	Administration expenses	525,259		543,358
	Financial expenses	(28,724	)	(13,946	)
Total operating income		1,146,466		1,095,403
Add:	Subsidies	189		3,062
	Income from non-operating activities	1,825		81
Less:	Expenses from non-operating activities	12,117		3,671
Income before income taxes		1,136,363		1,094,875
Less:	Income taxes	321,774		314,014
Net income		814,589		780,861

(B) Bases and assumptions

1. There will be no material changes in the relevant laws, regulations and policies of the State and local regulations and policies promulgated by the provincial government of the Shandong Province that the Company has to comply with, and there will be no material changes in social and economic environment during the Forecast Period.

2. There will be no material changes from the present interest rates and exchange rates during the Forecast Period.

3. There will be no material changes from existing tax policies implemented by the Company and from existing market conditions.

4. There will be no material adverse impact on the Company arising from force majeure conditions or other unforeseeable events.

(C) Notes to the Profit Forecast

1. The Company has been approved by the local taxation authority to pay income tax and value added tax jointly with Yanzhou Mining (Group) Corporation Ltd. (the “Parent Company”).

2. Even though the Company will no longer make allocations at the rate of $6 per tonne of run of mine (“ROM”) coal to pay the fee for the maintenance of simple reproduction it will still be able to obtain approval from taxation authorities to offset the said amount against the taxable income as an adjustment item, and thus be exempted from the corresponding amount of tax, commencing from 1 January, 1999.

3. The allocated bad debts provision ratios for the accounts receivable of the Company for the year 2000 (excluding debts owed by associated units) are as follows: 3% for debts remain outstanding for not more than 1 year, 30% for debts remain outstanding for 1 to 2 years, 50% for debts remain outstanding 2 to 3 years and 100% for debts remain outstanding 3 years.

(D) Caution

The Company wishes to caution investors that the forward-looking statements set forth in the Profit Forecast above have not been prepared with a view toward compliance with published guidelines of the Hong Kong Society of Accountants or the American Institute of Certified Public Accountants regarding forecasts. They are, by their very nature, subject to significant risks and uncertainties. Actual results may differ materially from such forecasts as result of a number of factors, including, without limitation: whether any or all of the assumptions underlying the forecast listed under “(B) Bases and assumptions” above remain true through the end of 2000; whether the offering of 100,000,000 A Shares is completed at all; and whether the Renminbi will depreciate significantly against the U.S. dollar. Further, the figures contained in this announcement are prepared under PRC GAAP and would be subject to adjustments if they were prepared under IAS and have not been reviewed by any independent financial adviser or accountant in Hong Kong.

Risk Factors

1. Apart from the risk factors previously disclosed, the following risk factors have also been disclosed in the A Shares Prospectus:

(A) Risks relating to the operation

(a) Restriction of communication

Approximately 74.51% of the products of the Company were transported by rail or by rail and sea. Although rail will remain as the primary form of transportation for a long period in the future, transportation by rail and sea is becoming increasingly important. As it is anticipated that the Company’s sales will increase annually, the demand for capacity of all forms of transportation will also increase. Although the Company believes that it will be able to satisfy its transportation need as it increases production in the foreseeable future, no assurance can be given that the Company will not be affected as a result of force majeure or during occasional transportation peak seasons.

(b) Restriction on export of products

The Company engages mainly in the production of high quality low-sulphur coal. It exported 6.8255 million tonnes and 6.2039 million tonnes of coal in 1998 and 1999, which represented 33.65% and 27.45% of its total sales during those periods, respectively. The Company has exported 4.0547 million tonnes of coal in the first half of 2000 and it is anticipated that the export volume will increase significantly from that in 1999. Major overseas end users such as steel companies and steel pipe companies in Japan are long term customers of the Company. No assurance can be given that the demand for coal of these major users will remain stable and any change can affect the demand for export of the Company’s products. The PRC government is currently implementing preferential policies to encourage export. However, there can be no assurance that any change in these policies would not have any impact on the export of the Company’s products.

(c) Over-concentration of structure of business

The Company’s main business includes coal extraction, preparation and sales. The Company produced 24 million tonnes of ROM coal in 1999 and is the largest coal production enterprise in the Eastern China region. The coal mines constructed by the Company and its production techniques have been awarded with technology advancement special award and first class award by the State. There can be no assurance, however, that any adjustment by the State in the industry structure or partial restriction on production of coal would not have any negative impact on the Company’s production.

(B) Risks relating to the industry

(a) Policy on restriction of business

Currently, the State is implementing a policy in the coal industry to alleviate the imbalance of demand and supply of coal in the PRC by shutting down coal mines and restricting production. This policy restores the order within the industry and creates favourable external conditions for the operation and sales of the Company. There can be no assurance, however, that any adjustment of the policy of the State would not have any adverse impact on the production of the Company.

(b) Reliance on electric power sector

The Company sold 7.599 million tonnes of coal to electric power plants in 1999, accounting for 33.62% of its total sales. Sales to such customers is increasing significantly annually, which accords to the overall framework of coal consumption in the PRC and is favourable to the Company. The Company cannot assure that the uncertainty in the development of the electric power section would not have any unfavourable impact on the development of the Company.

(c) Reliance on coal resources

As a coal extraction enterprise, the amount of coal resources will have a great impact on the efficiency and development of the Company. The recoverable reserve as proven by professional coal geological companies of the State is 1.48 billion tonnes. The in-place proven and probable reserves as determined by international independent mining consultants is 1.931 billion tonnes as at the end of 1999 and the extraction of such reserves using the existing longwall extraction method can last about 30 years. No assurance can be given that these estimates are accurate. The inaccuracy of such estimates may pose unfavourable impact on the Company’s future operation.

(d) Competition within the coal industry

The Company competes with a number of coal producers located in Shanxi Province, Henan Province, Anhui Province, Hebei Province and the Inner Mongolia Autonomous Region. The Company believes that the competition encountered by it in Eastern China is limited to a certain extent because the transportation of coal from these areas to Eastern China is constrained by the insufficient rail capacity and also the costs of transporting are significant. However, there can be no assurance that these major competitors would not threaten the market share of the Company in Eastern China due to improvement in transportation system.

(C) Risks relating to the market

(a) Delineation of markets in the PRC

Coal production enterprises in the PRC are numerous in number and scattered, resulting in the delineation of markets for coal products. The total production of the top 10 coal production enterprises only accounted for 17.46% of that of the PRC in 1999. Being the largest coal production enterprise in Eastern China, the Company’s total production only accounted for 2.34% of that of the whole country in 1999. The delineation of markets intensifies competition and restricts the development and opening up of markets in the future to a certain extent.

(b) Entry into the World Trade Organisation

It is anticipated that after the entry into the World Trade Organisation, the PRC will have to gradually remove the requirement of import licences and reduce rates of custom duties. Export of coal by overseas coal enterprises (especially Australian) to the PRC will increase. Given the superior quality of some coal products of these overseas enterprises, especially those from Australia, sales of such products by the Company will be affected to a certain extent; hence the operation of the Company will be adversely affected.

(c) Restrictions on productivity

While the State has increased its investments in infrastructure and raw material industries, the demand for coal of relevant industries will increase. For a relatively long period in the future, coal will still occupy the leading position in the energy consumption structure in the PRC. The actual production capacity of the Company was 24 million tonnes of coal in 1999. Jining II coal mine and Baodian coal mine still have relatively large potential in increasing their productivity and economies of scale. The market demand for coal shall exert pressure on the production capacity of the Company.

(D) Risks relating to policies

Currently the extraction and sales of coal are subject to constraints and impact of relevant policies of the State relating to environmental protection, technical standard of extraction and safety standard, etc. These policies help raise the overall competitiveness of the coal industry of the PRC and are beneficial to the long term development of the coal industry. As the Company has been complying with these policies all along, the implementation of such policies is also favourable to its development. However, due to the comprehensiveness and the generality of these policies, it is difficult to assume that individual policy or executive action would not restrict the actions taken by the Company to adapt to the market or competition. There can be no assurance that such policy or action would not adversely affect the operation of the Company.

(E) Risks relating to the investment project financed by the A Shares Issue

The proceeds raised from the A Shares Issue will be used to finance the acquisition of Jining III coal mine (“Jining III”), a giant coal mine constructed by the Parent Company and which commenced its trial production on 30th September, 1999. Jining III mainly uses the comprehensive extracting caving technique and is equipped with internationally advanced production systems. Its designed annual output is 5 million tonnes. As disclosed in the Announcement and in the Circular, the Company has exercised its option to purchase Jining III. According to the experience of the Company in construction of coal mines and production, Jining III shall produce 4 million tonnes of run of mine coal in 2001. The production shall increase gradually until 8 million tonnes of run of mine coal in 2005. The Company, however, cannot rule out the possibilities that the operation revenues of the Company would be affected if the production targets of Jining III cannot be achieved due to force majeure.

Confirmation of Asset Value of Jining III and certain Major Audited Accounting Figures and further information

1. The adjusted book value of the assets comprised in the acquisition of Jining III before the valuation on 30th April, 2000 (the “Valuation Date”) by 北京國友大正資產評估有限公司 (the “PRC Valuer”) was RMB2,364.6566 million and the value as assessed by the PRC Valuer was RMB2,434.2081 million (as confirmed by Ministry of Finance). The assets as assessed by the PRC Valuer increased by RMB69.5515 million and at a rate of 2.94%. The main figures in the assessment are as follows:

Item	Adjusted book value		Value as assessed		Rate of increase
	(RMB million)		(RMB million)		(%)
Current assets	35.6117		34.8845		-2.04
Long term investment	0		0		0
Fixed assets	2,299.5655		2,310.3947		0.47
Intangible assets (land use rights)	29.4794		88.9290		201.67
Total assets	2,364.6566		2,434.2081		2.94
Current liabilities	26.0699		26.0699		0
Long term liabilities	0		0		0
Total liabilities	26.0699		26.0699		0
Net assets	2,338.5867		2,408.1382		2.97

Up to the Valuation Date, the total investment in the coal preparation plant of Jining III comprised in the acquisition of Jining III was RMB247.32 million. A further RMB74.13 million has yet to be invested.

The main accounting figures as audited by Deloitte Touche Tohmatsu Shanghai CPA are as follows:

Main accounting figures	As at 30th June, 2000		As at 31st December, 1999
	(RMB million)		(RMB million)
Total assets	2,359.9321		2,307.7239
Total liabilities	22.3262		9.7245
Net assets	2,337.6058		2,297.9994
Main operating income	55.3658		10.1874
Net profits	0.1147		(2.3015	)

As at 30th June, 2000, Jining III produced 420,000 tonnes of ROM coal and is forecasted to produce 4 million tonnes of ROM coal in 2001, representing 83% of the 4.8 million tonnes of ROM coal, being the average quantity of ROM coal produced by the five coal mines belonging to the Company in 1999. The quantity of ROM coal to be produced by Jining III will thereafter increase year by year and Jining III is forecasted to produce 8 million tonnes of ROM coal in 2005..

Future Activities of the Company

1. Apart from what has been previously disclosed, the Company is also conducting or planning to conduct the following projects of the Company, which have been officially included as important technological innovation projects proposed by the Ministry of Foreign Trade and Economic Commission (“MOFTEC”):

(a) Research in ancillary technique and equipment for slicing and caving faces of annual production of 600 tonnes - this project is a comprehensive technological innovation project which aims at reducing labour and improving efficiency and production capacity of coal mines.

(b) Slicing and caving techniques and essential equipment of high efficiency this project is a comprehensive application technique, comprising of manufacturing of machine, automatic control technique, computer technology, telecommunication technology, checking and testing technology, expert systems and artificial intelligence and using the slicing and caving techniques as the lead. The successful implementation of this project will raise the annual production capacity of working faces from 6 to 10 million tonnes. With the high automation of the working faces, the number of workers for each shift can be reduced from the current 20 people to 8 to 10 people. The substantial increase in level of automation and efficiency of labour will decrease the cost of labour and raise the economic benefits of the Company. Through the industrialisation of relevant products, export of technology and equipment can be realised.

Policies, Regulations and System of the State which affect the Operation of the Company

1. The following policies, regulations and systems implemented by the State have certain impact on the operation of the Company:

(A) Policies on export - From 1st April, 1999, the State raised the rate of tax rebates for export of coal from 9% to 13%. From 1st April, 1999 to 31st March, 2000, the State exempted the port construction fees for coal exported from 7 ports such as Rizhao and reduced shipment fees for export of coal from RMB18.70 per tonne to RMB13.00 per tonne. The implementation of these policies is beneficial to the Company in reducing its costs of export and increasing its profits.

(B) Policies on administration of coal business - The State implemented a policy to close coal mines to reduce and control production in 1999. The mines which are to be closed are small mines which are technologically backward, waste resources and do not possess safe production environment. The MOFTEC promulgated the Measures for the Administration of Coal Business Dealings on 22nd June, 1999, which aims at establishing a coal business dealing system which is unified, open and scientifically managed. In October 1999, the leading group on restoring the order of coal business dealings and office for inspecting the qualification for coal business mines were established to finalise policies. During 1999, the State closed coal mines at 31,000 locations and declared 14 state-owned coal mines bankrupt. The total coal production during that year was 1.23 billion tonnes, representing a decrease of 0.17 billion tonnes on the previous year. The coal reserve decreased from 0.2 billion tonnes at the beginning of this year to 0.174 tonnes at the end of the year. The State will continue to close coal mines and reduce production in 2000. The State plans to close 18,900 small coalpits and reduce coal production by 0.16 billion tonnes such that the coal production for the whole year can be controlled within 0.87 billion tonnes.

The Company is one of the key coal production enterprises and its coal mines are all giant coal mines of the State. The production conditions and technological level of these mines are among the best in the State and therefore are not subject to closure. The implementation of the policies mentioned alleviates the over-supply of coal in the PRC to a certain extent and will help stablise and expand the market share of the Company. It also restores the competition disorder within the coal industry. This will be beneficial to the increase in the coal price and the growth of the Company in long term.

Share Capital Structure of the Company before and after Completion of the A Shares Issue

1. Under the Company’s articles of association, holders of A Shares will have substantially the same rights and obligations as holders of H Shares, except that dividends on A Shares will be paid in Renminbi and dividends on H Shares will be paid in Hong Kong dollars. The issued share capital structure of the Company before and after completion of the A Shares Issue is as follows:

				Before A Shares Issue		After A Shares Issue
				Percentage		Percentage
			Number	of issued	Number	of issued
Class of shares	Type of shares		of shares	share capital	of shares	share capital
Domestic Invested Shares	- State Legal Person Shares		1,670,000,000	64.23%	1,670,000,000	61.85%
	(held by the Parent Company)
	- A Shares (held by PRC public		80,000,000	3.08%	180,000,000	6.67%
	investors and securities
	investment funds in the PRC
	and employees of the Company)
Foreign Invested Shares	H Shares (including H Shares		850,000,000	32.69%	850,000,000	31.48%
	represented by ADSs)
Total			2,600,000,000	100%	2,700,000,000	100%

Use of Net Proceeds of the A Shares Issue

1. It is anticipated that the Company will apply the whole amount of the net proceeds received from the A Shares Issue to finance the acquisition of the Jining III from the Parent Comany, the details of which were disclosed in the Announcement and in the Circular.

Others

1. Except where otherwise stated, translations of Renminbi into Hong Kong dollars for the purposes of this announcement have been made using an exchange rate of HK$1 to RMB1.07. No representation is made that Renminbi amounts could have been or could be converted into Hong Kong dollars at this rate or any other rate or at all.

By order of the Board

Chen Guangshui

Company Secretary

Shandong Province, People’s Republic of China, 27th December, 2000

Please also refer to the published version of this announcement in the South China Morning Post dated 28-12-2000