CStone Pharmaceuticals — Share Issue/Capital Change 2000

Aug 7, 2000

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

兗州煤業股份有限公司

Yanzhou coal mining COMPANY LIMITED

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

Discloseable and Connected Transaction

Proposed A Share Issue

Closure of Register of Members

Further to the announcement on 17 July 2000, the Directors are pleased to announce that on 4 August 2000, the Company entered into the Acquisition Agreement with the Parent Company in exercise of the Jining III Option to acquire Jining III at a consideration of RMB2,567.74 million (approximately HK$2,399.76 million), subject to adjustment. In order to facilitate the funding of the Acquisition, the Board proposes to seek Shareholders' approval for an issue of 100 million new A Shares by the Company, subject to the exercise of an over-allotment option of an additional 15 million new A Shares.

A circular will be despatched to the Shareholders as soon as practicable setting out the details of the Acquisition and the A Share Issue together with the recommendations of the Independent Board Committee and the advice of an independent financial adviser in respect of the Acquisition.

The Acquisition constitutes a discloseable transaction under the Listing Rules. Furthermore, as the Parent Company is the controlling shareholder of the Company holding 64.23% of the total issued share capital of the Company, the acquisition of Jining III by the Company from the Parent Company constitutes a connected transaction for the Company and is required to be subject to the approval of the Independent Shareholders. On 4 August 2000, the Board resolved to convene the Extraordinary General Meeting to be held on 22 September 2000 to approve, among others, the Acquisition and the A Share Issue.

A copy of this announcement together with the notice of the Extraordinary General Meeting, its reply slip and the proxy form is expected to be despatched to the Shareholders on or around 7 August 2000. Shareholders whose names appear on the register of members of the Company at the close of business on 23 August 2000 are entitled to attend and vote at the Extraordinary General Meeting. The register of members of the Company will be closed from 23 August 2000 to 22 September 2000, both days inclusive, during which period no Share transfer will be registered.

The Board recommends that the Shareholders vote in favour of the Acquisition and A Share Issue as the Acquisition will have a positive impact on earnings per share, will deliver operating cost savings to the Company, and will enhance the Company's ability to sustain its long-term growth.

As disclosed in the Prospectus, the Company and the Parent Company entered into the Jining III Option Agreement on 17 October 1997, pursuant to which the Parent Company granted to the Company the Jining III Option. The Company exercised the Jining III Option to acquire Jining III from the Parent Company on 4 August 2000 and, accordingly, the Company and the Parent Company has entered into the Acquisition Agreement, the principal terms of which are set out below.

ACQUISITION AGREEMENT

Date of the Acquisition Agreement:

4 August 2000

Parties:

Purchaser: the Company

Vendor: the Parent Company, which is the controlling shareholder of the Company holding 64.23% of the issued share capital of the Company as at the date of this announcement.

Interest to be acquired:

The Company has conditionally agreed to acquire Jining III free of any liabilities.

Jining III is an underground coal mine located approximately 25km from the city of Zoucheng, Shandong Province, PRC. Jining III was constructed by the Parent Company and is currently in trial production mode. It is expected to commence commercial production in the fourth quarter of 2000 and is forecasted to produce 4 million tonnes of ROM coal in 2001, and thereafter, rising year by year to 8 million tonnes of ROM coal per annum by 2005. As the Company will own the mining right of Jining III, production will continue until the recoverable coal reserves of Jining III are fully exploited. The Board expects that the marketable coal reserves will have a life in excess of twenty years.

Coal reserves have been calculated by the Company in strict accordance with PRC Government practice down to depths of 1000 meters. SRK, a firm of international mining engineers, has utilised these figures using the classification nomenclature of the Australian Code for Reporting of Mineral Resources and Ore Reserves, September 1999 ("the JORC Code"). On that basis, SRK considers Jining III to contain 118 million tonnes of recoverable reserves and a further 81 million tonnes of indicated and inferred resources as at 30 June 2000.

As Jining III has only recently commenced trial production, the Board considers that no meaningful past trading record is available. Prior to the completion of the Jining III Valuation, Deloitte Touche Tohmatsu Shanghai CPA, a firm of certified accountants in the PRC, determined that the audited total asset value of Jining III as at the Valuation Date was RMB2,364.55 million (approximately HK$2,209.86 million).

Consideration and payment terms

The consideration for the Acquisition comprises the Purchase Price and the consideration for the mining right of Jining III.

The Purchase Price has been determined with reference to: (i) the Jining III Valuation, subject to confirmation by the Ministry of Finance; and (ii) any adjustment to the Purchase Price as set out below in the section headed "Purchase Price". For the purpose of implementing the Acquisition, the Parent Company and the Company has agreed that the basic Purchase Price shall be RMB2,435.26 million (approximately HK$2,275.94 million) (the "Basic Purchase Price"), which is equal to the Jining III Valuation. The Purchase Price shall be paid in cash by the following four instalments:

(a) Initial Instalment RMB243.526 million (approximately HK$227.59 million), representing 10% of the Basic Purchase Price, shall be paid on the Completion Date;

(b) Second Instalment an amount equal to the net proceeds of the A Share Issue shall be paid by the later of: (i) 7 days after the receipt by the Company of the net proceeds of the A Share Issue; or (ii) the Completion Date;

(c) Third Instalment 50% of the balance of the Purcase Price (as adjusted in accordance with section headed "Purchase Price") shall be paid (without interest) prior to 31 December 2001; and

(d) Fourth Instalment the outstanding balance of the Purchase Price (as adjusted in accordance with section headed "Purchase Price") shall be paid (without interest) prior to 31 December 2002.

The consideration for the mining right of Jining III shall be at a fixed price of RMB132.48 million (approximately HK$123.81 million), which shall be paid in cash (without interest) by ten equal instalments of RMB13.248 million on 31 December each year, commencing from 2001, for 10 years. This amount of consideration was determined based on a State-approved valuation.

Purchase Price

Adjustment relating to assets other than the Coal Preparation Plant:

According to the Acquisition Agreement, the Purchase Price shall be adjusted with reference to the difference between the audited asset value of Jining III (other than the Coal Preparation Plant) on the date before Completion and the same asset value on the Valuation Date, and the price after such adjustment shall be the adjusted Purchase Price. Should the asset value on the date before Completion be greater than that on the Valuation Date, the adjustment would be positive. On the contrary, should the asset value on the date before Completion be less than that on the Valuation Date, the adjustment would be negative.

The asset value of Jining III on the date before Completion shall be calculated in the following manner:

(a) account receivables

The value of the account receivables of Jining III as at the date before Completion shall be the lower of: (i) one sixth (based on 60 days divided by 360 days) of the total revenue for the whole of year 2000; or (ii) the audited book value of the account receivables.

(b) inventory

The value of the inventory of Jining III as at the date before Completion shall be the lower of: (i) one twelveth (based on 30 days divided by 360 days) of the total revenue for the whole of year 2000; or (ii) the audited book value of the inventory.

(c) the value of other assets of Jining III shall be based on their audited book value.

Adjustment relating to the Coal Preparation Plant:

Furthermore, with respect to the Parent Company's capital investment in the Coal Preparation Plant, the Purchase Price shall be adjusted in the following manner:

(a) the Purchase Price shall be increased by the lesser of: (i) the total amount of the capital investment for the Coal Preparation Plant during the period from the Valuation Date up to the date of commencement of Commercial Operation; or (ii) RMB74.13 million (approximately HK$69.28 million).

(b) if the Coal Preparation Plant has not commenced Commercial Operation by 30 June 2001, the Company may at any time after 30 June 2001 elect to: (i) continue the appointment of the Parent Company to continue the construction and operation of the Coal Preparation Plant by the Parent Company; or (ii) undertake the construction and operation of the Coal Preparation Plant by itself. If the Company elects to undertake the construction and operation of the Coal Preparation Plant by itself, the Purchase Price shall be decreased by the amount equal to the further capital investment which is required to enable the Coal Preparation Plant to commence Commercial Operation, which amount shall be determined by such independent technical expert as the Company and the Parent Company may agree.

Conditions precedent of the Acquisition Agreement

Completion of the Acquisition Agreement will be conditional upon the fulfilment of the following conditions precedent:

(a) completion of the due diligence review by the Company of the business position of Jining III and of its legal title to its assets to the satisfaction of the Company;

(b) all necessary approvals being obtained by the Company and the Parent Company from the relevant PRC authorities in respect of the Acquisition;

(c) approval of the Acquisition Agreement by the Independent Shareholders at the Extraordinary General Meeting;

(d) all necessary consents being obtained from the creditors and any other third parties in respect of the the transfer of Jining III;

(e) no material adverse change in the business operation and technical performance of Jining III; and

(f) all of the representations, warranties and undertakings by the Parent Company under the Acquisition Agreement remaining true, accurate, complete and effective on the Completion Date.

In the event that any of the above conditions are not fulfilled prior to 30 June 2001, the Company may elect to terminate the Acquisition Agreement. Further announcements will be made if Completion takes place or if the above conditions are not fulfilled prior to 30 June 2001. The Company and the Parent Company also agreed that if the Stock Exchange or the relevant regulatory authorities of the PRC impose any conditions in granting their approvals for the Acquisition, they shall negotiate to vary the relevant terms of the Acquisition Agreement to satisfy such conditions. If both parties are unable to reach an agreement, and the continued performance of the Acquisition Agreement would cause any of the parties to breach the laws of the PRC, then such party may elect to terminate the Acquisition Agreement.

Completion

After the conditions precedent set out above have been fulfilled, the Company and the Parent Company shall proceed with completion of the Acquisition Agreement on the date which is the later of (i) the date of fulfilment of all the conditions; or (ii) 1 January 2001. Upon Completion, the Company will obtain the ownership of Jining III, including but not limited to land use rights, owership of buildings, mining right and coal production permit.

A SHARE ISSUE

At present, 80 million A Shares are listed on the Shanghai Stock Exchange. To fund part of the consideration for the Acquisition, the Board proposes to raise further equity capital by further issuing 100 million new A Shares, representing 3.7% of the enlarged share capital of the Company immediately following such issue, to institutional and public investors in the PRC. The A Share Issue is not conditional on the Acquisition. The Board proposes to seek the authorisation of the Shareholders at the Extraordinary General Meeting to the Board to determine whether to grant a 15% over-allotment option to United Securities. If the over-allotment option is granted, United Securities may require the Company to issue up to an aggregate of 15 million additional A Shares to cover any over-allocations.

The issue price of the A Share Issue shall be greater than the equivalent of 18 times EPS Forecast on a fully diluted basis. In addition, the Board proposes that the issue price of the A Share Issue will be greater than 65% of the prevailing market price. The issue price will depend on certain multiples of over-subscription. Further announcement(s) will be made in due course as appropriate.

The A Share Issue consists of:

(a) approximately 60% of the new A Shares will be made available to the Eligible Shareholders and other public investors for subscription. Eligible Shareholders are entitled to subscribe for new A Shares on a preferential basis up to a certain proportion of their holding of existing issued A Shares. The new A Shares which are not subscribed by Eligible Shareholders will be offered to the public investors;

(b) approximately 40% of the new A Shares will be issued to institutional investors by way of a placement;

(c) the aforesaid portion sold to Eligible Shareholders and the public investors and portion sold to institutional investors are subject to re-allocation amongst them as determined by United Securities depending on the actual level of subscription; and

(d) the A Share Issue shall be subject to the approval of Shareholders and the confirmation of the China Securities Regulatory Commission of the PRC.

Set out below is a summary of the shareholding structure of the Company before and after the A Share Issue:

							After the A Share Issue
										Before the exercise of the						After the exercise of the
				Before the A Share Issue						over allotment option						over allotment option
	Number of				Shareholding			Number of			Shareholding			Number of				Shareholding
		Shares				percentage			Shares			percentage			Shares				percentage
		(million)				(%)			(million)			(%)			(million)				(%)

A Shares:

State legal

person Shares*	1,670	64.23	1,670	61.85	1,670	61.51
Publicly held Shares	80	3.08	180	6.67	195	7.18
H Shares:	850	32.69	850	31.48	850	31.31

Total	2,600	100.00	2,700	100.00	2,715	100.00

* held by the Parent Company

FINANCIAL IMPACT OF THE ACQUISITION

Funding of the Acquisition

The Acquisition is intended to be funded by the A Share Issue and the Company's internal cash sources. Funding for the Deferred Payments shall be sourced from cash generated from existing operations, cash revenue from Jining III operation, possible new equity issues and other sources of financing.

In the unlikely event that the A Share Issue does not proceed, the size of the third and fourth instalments set out in the section headed "Acquisition Agreement -Consideration and payment terms" will be greater.

Even if the A Share Issue does not proceed, the Board believes the Company has sufficient cash resources to pay for the Acquisition and has formulated a financing structure for the Acquisition for the following reasons:

-the Company is currently debt free;

-the Deferred Payments structure, which requires the Company to make future cash payments, has been designed to coincide with the build up of production and internal cash generation at Jining III; and

-if new debt is borrowed to retire the Deferred Payments the amount of which is likely to be small and would still result in a very conservative gearing ratio.

Balance sheet impact of the Acquisition

Prior to giving effect to the Acquisition, the Company's consolidated balance sheet as at 31 December 1999 shows total assets of RMB7,599.36 million (approximately HK$7,102.21 million). Following the Acquisition, total assets will increase to approximately RMB9,997.70 million (approximately HK$9,343.64 million), representing an increase of approximately 31.6%. Other than the payment of the Purchase Price and the consideration for the mining right of Jining III, the Board does not expect that any material capital commitment is required to put Jining III into operation. Since Jining III is newly constructed, the Board does not expect that the Company will have any need to provide significant capital investment for at least a few years after Completion.

The Acquisition will result in an increase in gearing, however, all the Deferred Payments are non-interest bearing.

The impact of the Acquisition on net asset value per Share shall either be neutral or positive on the following basis:

(a) should the A Share Issue not proceed, net asset value per Share will not change materially; and

(b) following the A Share Issue, net asset value per Share will increase because the new A Shares are being issued at a substantial premium over the net asset value per Share before the A Share Issue.

Earnings impact of the Acquisition

Jining III will move into commercial production in the fourth quarter of 2000. The forecasted production of Jining III will reach 4 million tonnes of ROM coal in 2001, and thereafter, increase year by year to 8 million tonnes of ROM coal per annum by 2005. The Board believes the Acquisition would have a positive earnings contribution to the Company. In addition, the Board anticipates that synergies arising from sharing company overheads over a larger production base will also positively impact on the Company's performance.

The Board is confident that the Acquisition will enhance the ability of the Company to increase the dividend payout.

REASONS FOR AND BENEFITS OF THE ACQUISITION

As disclosed in the Prospectus, the Company's strategy is to sustain long-term earnings growth by: (i) acquiring or investing in newly developed mines; (ii) acquiring existing and operating mines; (iii) enhancing operating efficiency and lowering costs; (iv) increasing sales of higher quality coal; and (v) pursuing targeted geographical markets.

The Board considers that the Acquisition is in the interests of the Company because:

-the Acquisition is in line with the Company's stated strategy and expansion of core business;

-the potential conflict and business competition between the Parent Company and the Company will be reduced;

-Jining III is a world class asset whose operating costs are expected to be one of the lowest of the world's export mines, producing high quality steaming and PCI coal;

-the Acquisition will significantly expand the total reserve base of high quality coal and will provide the Company with a further opportunity to exploit its leading technology for the Longwall Mining Method; and

-the Acquisition is expected to increase the size and scale of production of the Company and create a platform for further growth opportunities, particularly in export markets.

COMPANY BACKGROUND

The Company is engaged in underground mining, preparation and sales of coal. It currently owns and operates five coal mines, that is, Nantun Coal Mine, Xinglongzhuang Coal Mine, Baodian Coal Mine, Dongtan Coal Mine and Jining II Coal Mine. The principal customers of the Company include electric power plants, metallurgical producers and other customers located in Eastern China, which is generally more economically developed than other areas of China, and foreign enterprises located in Eastern China. The Company was the PRC's most profitable coal mining company in 1999 and was the largest coal producer in Eastern China with raw coal production of 24 million tonnes. The Company was also one of the PRC's largest coal exporters in 1999. As of 31 December 1999, the proven and probable reserves totaled an estimated 1,931 million tonnes, of which 688 million tonnes were estimated to be recoverable by the Company's technologically advanced Longwall Mining Method. The Company mainly produces prime quality and low-sulphur coal.

On-going Connected transactions

Assuming that the proposed Acquisition will be completed, the Company and its subsidiaries will enter into certain on-going connected transactions with the Parent Company and its associates (as defined in the Listing Rules), which will fall within the Supply Agreement, which was entered into before the commencement of listing of the H Shares on the Stock Exchange and the details of which were set out in the Prospectus. The Stock Exchange has granted a waiver from strict compliance with the relevant disclosure and/or shareholders' approval requirements under the Listing Rules in relation to, inter alia, the transactions contemplated under the Supply Agreement, the conditions of which were set out in the Prospectus. Currently, the Board expects that the volume of the on-going connected transactions under the Supply Agreement (including those arising from the Acquisition) will not exceed the limits as set out in the said waiver as mentioned in the Prospectus.

GENERAL INFORMATION

Under the Listing Rules, the proposed Acquisition between the Company and the Parent Company will constitute discloseable and connected transactions of the Company and are required to be subject to the approval of the Independent Shareholders at the Extraordinary General Meeting. The Parent Company and its associates will abstain from voting on the resolutions relating to the said approvals.

The Board will appoint an Independent Board Committee to consider and to advise the Independent Shareholders on the terms of the proposed Acquisition, and will appoint CLSA Equity Capital Markets Limited as the independent financial adviser to advise the Independent Board Committee regarding the proposed Acquisition.

A circular will be despatched to the Shareholders as soon as practicable setting out, among other things, the details of the Acquisition and the A Share Issue together with the recommendations of the Independent Board Committee and the advice of an independent financial adviser in respect thereof.

On 4 August 2000, the Board resolved, among other things, to convene the Extraordinary General Meeting to consider, and if thought fit to approve, the Acquisition and the A Share Issue. The Board recommends the Shareholders to vote in favour of the Acquisition and the A Share Issue as the Acquisition will have a positive impact on earnings per share, will deliver operating cost savings to the Company, and will enhance the Company's ability to sustain long-term growth.

A copy of this announcement together with the notice of the Extraordinary General Meeting, its reply slip and the proxy form, is expected to be despatched to Shareholders of the Company on or around 7 August 2000. Shareholders whose names appear on the register of members of the Company at the close of business on 23 August 2000 are entitled to attend and vote at the Extraordinary General Meeting. The register of members of the Company will be closed from 23 August 2000 to 22 September 2000, both days inclusive, during which period no Share transfer will be registered.

DEFINITIONS

In this announcement, the following expressions have the following meanings unless the context otherwise requires:

"A Shares"	domestic invested shares of RMB1.00 each in the capital of the Company;
"A Share Issue"	the proposed issue by the Company of up to 100 million new A Shares, subject to the exercise of an over allotment option of an additional 15 million new A Shares;
"Acquisition"	the acquisition of Jining III by the Company from the Parent Company;
"Acquisition Agreement"	the agreement for the acquisition of Jining III entered into by the Company and the Parent Company in respect of the Acquisition;
"Board"	board of Directors;
"Coal Preparation Plant"	the coal preparation plant for the production of coal for Jining III which is currently under construction by the Parent Company;
"Commercial Operation"	the stage at which the Coal Preparation Plant is able to have a coal preparation capacity of 5 million tonnes per annum, as confirmed by the Independent Board Committee;
"Company"	Yanzhou Coal Mining Company Limited, a joint stock limited company incorporated in the PRC with limited liability;
"Completion"	completion of the Acquisition;
"Completion Date"	the date of Completion;
"Deferred Payments"	the third and fourth instalments of the Purchase Price and the future instalment payments for the mining right of Jining III;
"Directors"	the Directors of the Company;
"Eligible Shareholders"	holders of A Shares which have opened shareholders accounts with the Shanghai Stock Exchange;
"EPS Forecast"	the Company's current earnings per Share that will be reviewed by Deloitte Touche Tohmatsu Shanghai CPA, a firm of certified accountants in the PRC, and will be set out in the A Share Issue prospectus;
"Extraordinary General Meeting"	the extraordinary general meeting of the Company to be held on 22 September 2000;
"H Shares"	overseas listed foreign invested shares of RMB1.00 each in the capital of the Company, which are subscribed for and traded in HK$;
"HK$"	Hong Kong dollars, the lawful currency of Hong Kong;
"Independent Board Committee" a committee of the Board to be established for the purpose of considering the Acquisition, comprising independent non	executive Directors who are independent in respect of the Acquisition;
"Independent Shareholders"	Shareholders, other than the Parent Company and its associates;
"Jining III"	the relevant assets related to Jining III and the production of coal of Jining III, including but not limited to the land use rights of Jining III and the buildings erected thereon, as well as other fixed assets of Jining III (such as the Coal Preparation Plant and other production facilities), current assets (including account receivables and inventory), the mining right, coal production permit and all other rights under all permits, licences and approvals relating to the mining and operation of Jining III;
"Jining III Option"	the exclusive option to acquire Jining III from the Parent Company granted to the Company under the Jining III Option Agreement;
"Jining III Option Agreement"	the Jining III option agreement dated 17 October 1997 between the Parent Company and the Company pursuant to which the Parent Company has granted the Jining III Option to the Company;
"Jining III Valuation"	the valuation of Jining III as at the Valuation Date as jointly assessed by 北京國友大正資產評估有限公司 a State approved independent PRC valuer appointed by the Parent Company, and Sallmans (Far East) Limited, a State approved independent international valuer appointed by the Company;
"Listing Rules"	the Rules Governing the Listing of Securities on the Stock Exchange;
"Longwall Mining Method"	wide seam longwall caving method;
"Ministry of Finance"	Ministry of Finance of the PRC;
"Parent Company"	Yankuang (Group) Corporation Ltd., a State owned and State solely invested company established in the PRC;
"PCI"	pulverized coal injection used in making steel;
"PRC" or "China"	the People's Republic of China, for the purpose of this announcement excluding Taiwan, Hong Kong and Macau;
"Prospectus"	the prospectus of the Company dated 24 March 1998 and issued in Hong Kong in connection with its initial public offering;
"Purchase Price"	the purchase price for the acquisition of Jining III other than its associated mining right;
"RMB"	renminbi, the lawful currency of the PRC;
"ROM"	run of mine;
"Shareholders"	holders of A Shares and holders of H Shares;
"SRK"	Steffen, Robertson and Kirsten (Australia) Ltd., an international mining engineering firm established in Australia;
"State"	the central government of the PRC, including all political subdivisions (including provincial, municipal and other regional or local government entities) and instrumentalities thereof;
"Stock Exchange"	The Stock Exchange of Hong Kong Limited;
"tonnes"	metric tonnes;
"United Securities"	United Securities Co., Ltd., a registered securities company in the PRC, who has been proposed to be appointed by the Company as the underwriter to fully underwrite the A Share Issue; and
"Valuation Date"	30 April 2000.

By order of the Board of Directors of

Yanzhou Coal Mining Company Limited

Zhao Jingche

Chairman of the Board

PRC, Shandong Province, 4 August 2000

Note: Where amounts in Hong Kong dollars have been derived from Renminbi, such translations are for the convenience of the reader only, and except as otherwise indicated, have been made at the rate of RMB1.07 to HK$1.00. 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.