Hidili Industry International Development Limited - Proxy Solicitation & Information Statement 2013

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares of Hidili Industry International Development Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for transmission to the purchaser or the transferee.

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.

==> picture [374 x 104] intentionally omitted <==

MAJOR TRANSACTIONS IN RELATION TO THE CAPITAL INJECTIONS BY HUANENG TRUST TO CERTAIN SUBSIDIARIES OF THE COMPANY AND SHARE TRANSFERS

25 June 2013

CONTENTS

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
APPENDIX I	— FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . . . .	20
APPENDIX II	— FINANCIAL INFORMATION OF THE
	TARGET SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
APPENDIX III	— MANAGEMENT DISCUSSION AND ANALYSIS
	OF THE TARGET SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . .	217
APPENDIX IV	— UNAUDITED PRO FORMA FINANCIAL INFORMATION
	OF THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	240
APPENDIX V	— GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	245

– i –

DEFINITIONS

In this circular, the following expressions shall have the following meanings unless the context indicates otherwise:

‘‘Board’’
the board of Directors
‘‘Buy Back Consideration’’
collectively, the consideration payable by Hidili China to buy back the Target Equity Interest of the Target Subsidiaries pursuant to the terms of Share Transfer Agreements
‘‘Capital Injection Agreements’’
collectively, eight capital injection agreements dated 28 August 2012 entered into among the Target Subsidiaries, Immediate Shareholders and Huaneng Trust in respect of the increase in the share capital of the Target Subsidiaries by Huaneng Trust
‘‘Capital Injections’’
the injections of capital by Huaneng Trust into the Target Subsidiaries pursuant to the Capital Injection Agreements
‘‘Company’’
Hidili Industry International Development Limited 恒鼎實業國際發展有限公司, a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Stock Exchange
‘‘connected person(s)’’
shall have the meaning given to it under the Listing Rules
‘‘Consulting Service Agreements’’
collectively, eight consulting service agreements dated 28 August 2012 entered into between the Target Subsidiaries and Huaneng Trust for the provision of financial consulting service to the Target Subsidiaries for a term of two years
‘‘controlling shareholder(s)’’
shall have the meaning given to it under the Listing Rules
‘‘Director(s)’’ director(s) of the Company
‘‘Equity Transfer Agreements’’
collectively, 14 equity transfer agreements dated 22 and 23 May 2013 entered into among the Immediate Shareholders and Huaneng Trust in respect of the buy back of the Target Equity Interest (other than Panzhihua Yanjiang)
‘‘Fuyuan Dahe’’
富源縣大河青坪煤業有限公司 (Fuyuan County Dahe Qingping Coal Industry Co., Ltd.*), a company established in the PRC with limited liability and an indirect non wholly-owned subsidiary of the Company

– 1 –

DEFINITIONS

‘‘Fuyuan Jintai’’
富源縣錦泰煤業有限公司 (Fuyuan County Jintai Coal Industry Co., Ltd.*), a company established in the PRC with limited liability and an indirect non wholly-owned subsidiary of the Company
‘‘Fuyuan Kunyuan’’
富源縣坤源煤業有限公司 (Fuyuan County Kunyuan Coal Industry Co., Ltd.*), a company established in the PRC with limited liability and an indirect non wholly-owned subsidiary of the Company
‘‘Fuyuan Tonghe’’
富源縣通和煤業有限公司 (Fuyuan County Tonghe Coal Industry Co., Ltd.*), a company established in the PRC with limited liability and an indirect non wholly-owned subsidiary of the Company
‘‘Fuyuan Xiangda’’
富源縣祥達煤礦有限公司 (Fuyuan County Xiangda Coal Mine Co., Ltd.*), a company established in the PRC with limited liability and an indirect non wholly-owned subsidiary of the Company
‘‘Group’’ the Company and its subsidiaries
‘‘Hidili China’’
恒鼎實業(中國)集團有限公司 (Hidili Industry (China) Group Co., Ltd.*), a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company
‘‘HK$’’
Hong Kong dollars, the lawful currency of Hong Kong
‘‘Hong Kong’’
the Hong Kong Special Administrative Region of the PRC
‘‘Huaneng Trust’’
華能貴誠信托有限公司 (Huaneng Guicheng Trust Co., Ltd.*), a company established in the PRC with limited liability
‘‘IFRS’’
International Financial Reporting Standards, as published by the International Accounting Standards Board, as amended from time to time
‘‘Immediate Shareholders’’
collectively, the immediate shareholders of the Target Subsidiaries before the Capital Injections
‘‘Independent Valuer’’
北京天健興業資產評估有限公司 (Beijing Pan-China Assets Appraisal Co. Ltd.*), a valuer which is independent of the Company and its connected persons
‘‘Injection Date’’
the date of payment of the Injection Money by Huaneng Trust to the Target Subsidiaries

– 2 –

DEFINITIONS

‘‘Injection Money’’
collectively, the amounts injected by Huaneng Trust to the Target Subsidiaries under the Capital Injection Agreements
‘‘Latest Practicable Date’’
20 June 2013 June 2013, being the latest practicable date prior to the printing of this circular for ascertaining certain information for inclusion in this circular
‘‘Liupanshui Hidili’’ 六盤水恒鼎實業有限公司 (Liupanshui Hidili Industry Co., Limited*), a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company
‘‘Panzhihua Yanjiang’’
攀枝花市沿江實業有限責任公司 (Panzhihua Yanjiang Industrial Co., Ltd.*), a company incorporated in the PRC with limited liability and an indirect non wholly-owned subsidiary of the Company
‘‘PRC’’ the People’s Republic of China which, for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
‘‘PRC GAAP’’ the PRC Accounting Standards and Accounting Regulations for Business Enterprises and its supplementary regulations, as amended from time to time
‘‘Preference Investment Period’’ two years starting from the Injection Date
‘‘RMB’’ Renminbi, the lawful currency of the PRC
‘‘Sanlian’’ Sanlian Investment Holding Limited
‘‘Sichuan Hidili’’ 四川恒鼎實業有限公司 (Sichuan Hidili Industry Co., Ltd*), a company incorporated in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company
‘‘Share(s)’’ share(s) of HK$0.10 each in the capital of the Company
‘‘Shareholder(s)’’ holder(s) of the Share(s)
‘‘Share Pledge’’ pledge of certain of the equity interests in the Target Subsidiaries held by certain Immediate Shareholders pursuant to the Share Pledge Agreements

– 3 –

DEFINITIONS

‘‘Share Pledge Agreements’’
collectively, eight share pledge agreements dated 28 August 2012 entered into between certain Immediate Shareholders of Target Subsidiaries and Huaneng Trust to pledge the Share Pledge to Huaneng Trust to secure the payment of the Buy Back Consideration by Hidili China to Huaneng Trust throughout the Preference Investment Period
‘‘Share Transfer Agreements’’
collectively, eight share transfer agreements dated 28 August 2012 entered into among the Target Subsidiaries, Hidili China and Huaneng Trust for the buy back of the Target Equity Interest
‘‘Share Transfers’’
the buy back of the Target Equity Interest by Hidili China pursuant to the Share Transfer Agreements
‘‘Shenzhen Hidili’’ 深圳市恒信鼎立商貿有限公司 (Shenzhen City Hidili Commercial and Trading Co., Ltd*), a company incorporated in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company
‘‘Stock Exchange’’
The Stock Exchange of Hong Kong Limited
‘‘Target Equity Interest’’
in relation to each of the Target Subsidiaries, the equity interest to which Huaneng Trust is entitled upon the completion of the Capital Injections
‘‘Target Subsidiaries’’
collectively, Panzhihua Yanjiang, Yunnan Hidili, Fuyuan Kunyuan, Fuyuan Xiangda, Yunnan Henglong, Fuyuan Dahe, Fuyuan Tonghe and Fuyuan Jintai
‘‘Transactions’’
the transactions contemplated under the Capital Injections and the Share Transfers
‘‘Yunnan Henglong’’
雲南恒隆煤業有限公司 (Yunnan Henglong Coal Industry Co., Ltd*), a company incorporated in the PRC with limited liability and an indirect non wholly-owned subsidiary of the Company
‘‘Yunnan Hidili’’
雲南恒鼎煤業有限公司 (Yunnan Hidili Coal Industry Co., Ltd*), a company incorporated in the PRC with limited liability and an indirect non wholly-owned subsidiary of the Company
‘‘%’’
per cent.
For identification purpose only

– 4 –

LETTER FROM THE BOARD

==> picture [374 x 104] intentionally omitted <==

Executive Directors: Mr. Xian Yang (Chairman) Mr. Sun Jiankun Mr. Wang Rong

Independent non-executive Directors:

Mr. Chan Chi Hing Mr. Chen Limin Mr. Huang Rongsheng

Registered office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office: 16th Floor, Dingli Mansion No. 81 Renmin Road Panzhihua Sichuan 617000 The PRC

25 June 2013

To the Shareholders

Dear Sir/Madam,

MAJOR TRANSACTIONS IN RELATION TO THE CAPITAL INJECTIONS BY HUANENG TRUST TO CERTAIN SUBSIDIARIES OF THE COMPANY AND SHARE TRANSFERS

INTRODUCTION

Reference is made to the announcement dated 28 August 2012 and 27 September 2012 respectively regarding the major transactions in relation to the Capital Injections by Huaneng Trust into certain subsidiaries of the Company and the Share Transfers, and discloseable transactions in relation to Share Pledge and continuing connected transactions.

The purpose of this circular is to set out further details of the Transactions.

– 5 –

LETTER FROM THE BOARD

THE CAPITAL INJECTIONS

On 28 August 2012, the Target Subsidiaries, Immediate Shareholders and Huaneng Trust entered into the Capital Injection Agreements. Pursuant to the Capital Injection Agreements, Huaneng Trust has agreed to inject an aggregate of RMB1,500 million (approximately HK$1,829 million) as share capital in cash to the respective Target Subsidiaries for equity interest ranging from 34% to 41%.

Principal terms

The principal terms of each of the Capital Injection Agreements are as follows:

		Equity	Equity
		interest	interest
		held by	held by
		Immediate	Immediate	Injection
		Shareholders	Shareholders	Money
		before the	after the	payable by	Target
	Immediate	Capital	Capital	Huaneng	Equity
Target Subsidiaries	Shareholders	Injections	Injections	Trust	Interest
		%	%	RMB’ million	%
Panzhihua Yanjiang	Sichuan Hidili	100%	64%	370	36%
Yunnan Hidili	Shenzhen Hidili	90%	59.4%	250	34%
	Sichuan Hidili	10%	6.6%
Fuyuan Kunyuan	Liupanshui Hidili	90%	55.8%	230	38%
	Sichuan Hidili	10%	6.2%
Fuyuan Xiangda	Liupanshui Hidili	70%	41.3%	60	41%
	Sichuan Hidili	30%	17.7%
Yunnan Henglong	Liupanshui Hidili	80%	47.2%	90	41%
	Sichuan Hidili	20%	11.8%
Fuyuan Dahe	Shenzhen Hidili	90%	55.8%	270	38%
	Mr. Peng
	Zhongqiang	5.7%	3.52%
	Mr. Chen Laoling	3.8%	2.36%
	Mr. Tian Jinyi	0.4%	0.25%
	Mr. Guo Minli	0.1%	0.07%
Fuyuan Tonghe	Liupanshui Hidili	90%	54%	140	40%
	Sichuan Hidili	10%	6%
Fuyuan Jintai	Liupanshui Hidili	80%	48.8%	90	39%
	Sichuan Hidili	20%	12.2%

1,500

– 6 –

LETTER FROM THE BOARD

Conditions for the completion of the Capital Injections

Under the Capital Injection Agreements, Huaneng Trust has agreed to invest the Injection Money into the Target Subsidiaries subject to, among others, the fulfilment of the following conditions:

Huaneng Trust having raised adequate funding to finance the Capital Injections;
the Capital Injection Agreements having been executed;
Huaneng Trust having completed all the necessary financial and legal due diligence on the Target Subsidiaries and having obtained its own internal approval;
all the Immediate Shareholders of the Target Subsidiaries have agreed to give up the pre-emptive rights to allot new share capital of the Target Subsidiaries;
the Capital Injections to Target Subsidiaries having been approved by their respective Immediate Shareholders in the respective shareholders’ meetings;
the amendments to the respective memorandum and articles of association of the Target Subsidiaries having been completed and such amendments having been approved by Huaneng Trust;
the Target Subsidiaries and their respective Immediate Shareholders are not in breach of any provisions under the Capital Injection Agreements or any agreements entered into with Huaneng Trust; and
subject to the Shareholders’ approval to be obtained by the Company and in compliance with the applicable Listing Rules.

There is no long stop date for the fulfilment of the above conditions precedent and all these conditions precedent have been fulfilled other than the condition precedent referred to in item 8 above, which Huaneng Trust had waived.

Completion of the Capital Injections had taken place and the Injection Money had been received.

– 7 –

LETTER FROM THE BOARD

Basis of determining the Injection Money and the portion of equity interest entitled to Huaneng Trust

The Injection Money was determined with reference to the valuation of the net asset value of the Target Subsidiaries as at 30 April 2012 as appraised by the Independent Valuer appointed by Huaneng Trust that possesses relevant professional qualifications. The valuation of the net asset value of the Target Subsidiaries as at 30 April 2012 was as follows:

Target Subsidiaries

Valuation of the net asset value as at 30 April 2012 RMB’ million

Panzhihua Yanjiang	646.4
Yunnan Hidili	437.3
Fuyuan Kunyuan	409.6
Fuyuan Xiangda	101.6
Yunnan Henglong	226.4
Fuyuan Dahe	498.3
Fuyuan Tonghe	246.6
Fuyuan Jintai	155.6

The valuations of the Target Subsidiaries’ net asset value as at 30 April 2012 were much higher than the valuations of the Target Subsidiaries’ net asset value as at 31 December 2011 as disclosed on page 15 of this circular because the mining rights and structures as at 31 December 2011 were stated at historical cost whereas the mining rights and structures as at 30 April 2012 were revalued based on a market comparable approach with reference to the estimated recoverable reserves of the coal mines.

Completion of the Capital Injections

Within seven business days from the receipt of the Injection Money from Huaneng Trust, the Target Subsidiaries shall immediately engage an authorised capital certification company to examine the Injection Money and issue capital certification report (the ‘‘Certification Report(s)’’) to each of the Target Subsidiaries.

The Target Subsidiaries shall issue the capital certifications within seven business days from the date of issue of the Certificate Reports to Huaneng Trust and shall complete all the filings regarding the amendments to holders of equity interests, registered capital, directors and memorandum and articles of association to the Administration for Industry and Commerce in the PRC within 15 business days from the date of issue of the Certification Reports.

Immediately after completion of the Capital Injections, each of the board of directors of the Target Subsidiaries shall comprise five directors, of which two directors are to be appointed by Huaneng Trust. Huaneng Trust will not be involved in the daily operation of the Target Subsidiaries. Sichuan Hidili, the ultimate holding company of the Target Subsidiaries, is responsible for the daily operation of the Target Subsidiaries and will guarantee the quarterly

– 8 –

LETTER FROM THE BOARD

raw coal production volume and net profit (as set out in the respective Capital Injection Agreements) throughout the two years’ period after the Injection Date, (collectively, the ‘‘Guarantee’’) details of which are set out below:

In respect of Panzhihua Yanjiang:

A quarterly raw coal production volume ranging from 30,800 tonnes to 64,500 tonnes and a quarterly profit of not less than RMB2.46 million.

In respect of Yunnan Hidili:

A quarterly raw coal production volume ranging from 18,800 tonnes to 52,500 tonnes and a quarterly profit of not less than RMB1.50 million.

In respect of Fuyuan Kunyuan:

A quarterly raw coal production volume ranging from 7,500 tonnes to 20,000 tonnes and a quarterly profit of not less than RMB0.60 million.

In respect of Fuyuan Xiangda:

A quarterly raw coal production volume ranging from 15,000 tonnes to 45,000 tonnes and a quarterly profit of not less than RMB1.20 million.

In respect of Yunnan Henglong:

A quarterly raw coal production volume ranging from 15,000 tonnes to 30,000 tonnes and a quarterly profit of not less than RMB1.20 million.

In respect of Fuyuan Dahe:

A quarterly raw coal production volume ranging from 16,500 tonnes to 50,000 tonnes and a quarterly profit of not less than RMB1.32 million.

In respect of Fuyuan Tonghe:

A quarterly raw coal production volume ranging from 11,250 tonnes to 30,000 tonnes and a quarterly profit of not less than RMB0.90 million.

In respect of Fuyuan Jintai:

A quarterly raw coal production volume ranging from 13,500 tonnes to 27,000 tonnes and a quarterly profit of not less than RMB1.08 million.

The quarterly profit of the Target Subsidiaries will be unaudited and reported in PRC GAAP.

– 9 –

LETTER FROM THE BOARD

In the event that the Guarantees are not met, Huaneng Trust can exercise its discretion to extend the period for the fulfilment of such Guarantees (the ‘‘Extended Period’’). In determining whether the Guarantees will be met, the assessment will be carried out on a quarterly basis based on the respective quarterly production volume/profit. It is subject to the discretion of Huaneng Trust to consider the Guarantees of all Target Subsidiaries as a whole in a particular quarter and to extend the period for the fulfillment. The Extended Period will fall within the Preference Investment Period. If the Target Subsidiaries cannot meet the Guarantees within the Extended Period granted by Huaneng Trust, Huaneng Trust can at its discretion dispose of the Target Equity Interest and such disposal should be in compliance with the relevant laws. The Guarantee arrangement will not affect the buy-back arrangement under the Share Transfers.

At any time within two years from the Injection Date, if there is any material changes which may affect the Target Subsidiaries to fulfil the Guarantees, all parties agree to adjust the Guarantees accordingly. The ‘‘material changes’’ imply any changes from operation of the Target Subsidiaries that may constitute failure to fulfil the Guarantees and as a result may lead to default in the completion of the Share Transfers or payment of the quarterly premium payable.

Huaneng Trust has been informed of the suspension of production at the Group’s coal mines in Panzhihua and understands that some of the guarantees as mentioned above are not likely to be met. Huaneng Trust has agreed not to impose any penalty on the Group if the Guarantees are not fulfilled.

Pursuant to the Capital Injection Agreements, Huaneng Trust will have pre-emption rights to acquire further interests in the Target Subsidiaries and Huaneng Trust will have further rights to dispose of its equity interests in the Target Subsidiaries, subject to the occurrence of the following events:

the Target Subsidiaries are unable to meet the Guarantees, below 80% of either the respective quarterly raw coal production volume or quarterly profit, in a particular quarter or even within the Extended Period without any satisfactory explanation to Huaneng Trust;
the Target Subsidiaries are involved in any legal proceeding or arbitration with an amount of over RMB10 million;
the equity interests of the Target Subsidiaries are or exposed to be frozen or foreclosed by government authorities;
an accident occurs in the coal mines of the Target Subsidiaries;
the coal mines of the Target Subsidiaries suspend production for more than 180 days;
the Target Subsidiaries are subject to any penalty imposed by the government authorities of over RMB3 million; or

– 10 –

LETTER FROM THE BOARD

any adverse event affecting the daily operations of Group which will result in default in repayment under the Share Transfer Agreements.

THE SHARE TRANSFERS

On 28 August 2012, the Target Subsidiaries, Hidili China and Huaneng Trust entered into eight share transfer agreements (collectively, the ‘‘Share Transfer Agreements’’). Pursuant to the Share Transfer Agreements, Hidili China has agreed to buy back all the Target Equity Interest injected by Huaneng Trust under the Capital Injection Agreements at the end of the Preference Investment Period by cash.

Payment of the Buy Back Consideration

Pursuant to the Share Transfer Agreements, the Buy Back Consideration of the respective Target Equity Interest comprises the Injection Money and a premium. Hidili China shall settle the Injection Money in respect of the buy back of the relevant Target Equity Interest at the end of the Preference Investment Period and the premium payable by nine quarterly installments starting from the Injection Date as follows:

Amount of the premium payable

First installment 1.8% of the Injection Money Second to fifth quarterly installment 9% per annum of the Injection Money Sixth to ninth quarterly installment 10.8% per annum of the Injection Money

The basis of the Buy Back Consideration was determined with reference to Huaneng Trust’s internal rate of return on its trust investment.

Any dividends distributed and received by Huaneng Trust from the Target Subsidiaries during the Preference Investment Period can be used to reduce the Injection Money to be payable at the end of the Preference Investment Period by Hidili China.

After six months from the Injection Date and at any time during the Preference Investment Period, Hidili China can buy back all the Target Equity Interest from Huaneng Trust with written consent from Huaneng Trust. Subject to the written consent of Huaneng Trust and to the extent that Hidili China will buy back all the Target Equity Interest from Huaneng Trust, the Company will issue further announcement in compliance with the Listing Rules as and when appropriate.

If Hidili China elects to buy back all the Target Equity Interest from Huaneng Trust during the Preference Investment Period, the amount of premium payable will be based on the premium specified above. Hidili China is not required to pay the accelerated amount of the nine quarterly installments if Hidili China elects to buy back all the Target Equity Interest from Huaneng Trust during the Preference Investment Period. Hidili China is only liable to the premium payable at respective rate on time apportionment basis.

– 11 –

LETTER FROM THE BOARD

The completion of the Share Transfer Agreements is subject to the Shareholders’ approval and in compliance with the applicable Listing Rules.

Equity Transfer Agreements

The Immediate Shareholders and Huaneng Trust entered into the Equity Transfer Agreements on 22 May 2013 and 23 May 2013 in respect of the buy back of the Target Equity Interest (other than Panzhihua Yanjiang).

The consideration of the Equity Transfer Agreements is the same as the Buy Back Consideration in respect of the Target Equity Interest (other than Panzhihua Yanjiang) as set out in the Share Transfer Agreements in respect of which a written shareholder’s approval of the Company had been obtained on 13 September 2012 from Sanlian Investment Holding Limited which held 1,100,674,000 Shares (representing approximately 53.28% of the existing issued share capital of the Company as at 13 September 2012) for the entry of the Share Transfer Agreements.

The principal terms of the Equity Transfer Agreements are set out below:

Target Subsidiaries Equity interest held by Huaneng Trust before signing of the Equity Transfer Agreements Equity interest to be bought back by the Group from Huaneng Trust pursuant to the Equity Transfer Agreements % % Yunnan Hidili 34% 34% Fuyuan Kunyuan 38% 38% Fuyuan Xiangda 41% 41% Yunnan Henglong 41% 41% Fuyuan Dahe 38% 38% Fuyuan Tonghe 40% 40% Fuyuan Jintai 39% 39%	Buy Back Consideration payable by the Group to Huaneng Trust RMB’000 270,619 248,918 64,935 97,402 289,639 151,515 97,402
	1,220,430

As the Group will not buy back the equity interest of Panzhihua Yanjiang held by Huaneng Trust pursuant to the Equity Transfer Agreements, the outstanding Buy Back Consideration (the ‘‘Outstanding Buy Back Consideration’’) for the Group to buy back the equity interest of Panzhihua Yanjiang will be approximately RMB374 million. The Company intends to settle the Outstanding Buy Back Consideration.

– 12 –

LETTER FROM THE BOARD

ACCOUNTING IMPACT AFTER THE CAPITAL INJECTIONS AND SHARE TRANSFERS

The Company will continue to consolidate or take equity of the assets, liabilities and income of the Target Subsidiaries using the percentage of equity interests held by the Immediate Shareholders before the Capital Injections into the Group’s financial statements. This accounting treatment has been confirmed by the Company’s auditors and is in accordance with the requirement of IFRS. No gain or loss will arise as a result of the Capital Injections. The Capital Injections contemplated under the Capital Injection Agreements will be regarded as borrowings and the premium payable under the Share Transfer Agreements during the Preference Investment Period will be charged to the income statement.

FINANCIAL EFFECT OF THE CAPITAL INJECTIONS AND SHARE TRANSFERS

Upon the completion of the Capital Injections, the aggregate amount of RMB1,500 million injected by Huaneng Trust to the respective Target Subsidiaries will be regarded as borrowing and there will be no effect on the Group’s earnings and assets. The premium payable under the Share Transfer Agreements during the Preference Investment Period will be charged to earnings of the Group. The Group’s liabilities will be discharged by RMB1,500 million after the Share Transfers and there will be no effect on the Group’s assets for the Share Transfers. The Company will continue to consolidate or take equity of the assets, liabilities and income of the Target Subsidiaries using the percentage of equity interests held by the Immediate Shareholders before the Capital Injections into the Group’s financial statements.

THE SHARE PLEDGE

Shares pledged by certain Immediate Shareholders

On 28 August 2012, certain Immediate Shareholders of Target Subsidiaries entered into the Share Pledge Agreements with Huaneng Trust where they agreed to pledge certain of their equity interests in the Target Subsidiaries to Huaneng Trust to secure the payment of the Buy Back Consideration by Hidili China to Huaneng Trust throughout the Preference Investment Period. The equity interests pledged pursuant to the Share Pledge Agreements are as follows:

Immediate Shareholders

Equity interest pledged

Sichuan Hidili 36% of Panzhihua Yanjiang Liupanshui Hidili 38% of Fuyuan Kunyuan 41% of Fuyuan Xiangda 41% of Yunnan Henglong 40% of Fuyuan Tonghe 39% of Fuyuan Jintai Shenzhen Hidili 34% of Yunnan Hidili 38% of Fuyuan Dahe

Upon completion of the Share Transfer Agreements and payment of the Buy Back Consideration, Huaneng Trust shall proceed to discharge the Share Pledge accordingly.

– 13 –

LETTER FROM THE BOARD

UNDERTAKING BY CONTROLLING SHAREHOLDER

On 28 August 2012, Mr. Xian Yang, the Chairman and the controlling shareholder of the Company and his spouse, Ms. Qiao Qian, have undertaken to Huaneng Trust to guarantee the payment of the Buy Back Consideration in the event of default of payment by Hidili China.

INFORMATION OF THE GROUP, THE TARGET SUBSIDIARIES, HIDILI CHINA, THE IMMEDIATE SHAREHOLDERS AND HUANENG TRUST

The Group

The Company was incorporated in the Cayman Islands and registered as an exempted company with limited liability on 1 September 2006 and has been listed on the Stock Exchange since 21 September 2007.

The Group is one of the largest integrated coal enterprises in South West China and is principally engaged in coal mining and processing and sales of clean coal, coke, alloy pig iron and related by-products.

Target Subsidiaries

The principal activities of each of the Target Subsidiaries are coal mining and operating coal mines in Guizhou and Yunnan provinces in the PRC, respectively. The coal mines under the operation of the Target Subsidiaries are as follows:

Target Subsidiaries

Coal mines under operation Location of the coal mines

Panzhihua Yanjiang	Tianbao Coal Mine	Sichuan, PRC
Yunnan Hidili	Yanhe Coal Mine	Yunnan, PRC
Fuyuan Kunyuan	Jianglang Coal Mine	Yunnan, PRC
Fuyuan Xiangda	Xiangda No. 1 Coal Mine	Yunnan, PRC
Yunnan Henglong	Zude Coal Mine	Yunnan, PRC
Fuyuan Dahe	Qingping Coal Mine	Yunnan, PRC
Fuyuan Tonghe	Xingjian Coal Mine	Yunnan, PRC
Fuyuan Jintai	Xingji Coal Mine	Yunnan, PRC

– 14 –

LETTER FROM THE BOARD

The audited results and net assets value of the Target Subsidiaries for the two years ended 31 December 2011 prepared in accordance with accounting principles generally accepted in the PRC are as follows:

Year ended 31 December 2011

	Profit (Loss)	Profit (Loss)	Net assets
Target Subsidiaries	before taxation	after taxation	(liabilities)
	RMB’000	RMB’000	RMB’000
Panzhihua Yanjiang	152,463	133,405	595,185
Yunnan Hidili	23,288	23,288	132,215
Fuyuan Kunyuan	(3,019)	(3,053)	280,511
Fuyuan Xiangda	14,468	13,750	28,248
Yunnan Henglong	25	18	4,240
Fuyuan Dahe	73,660	62,142	368,485
Fuyuan Tonghe	(7,999)	(8,083)	95,705
Fuyuan Jintai	(73)	(73)	(709)

Year ended 31 December 2010

	Profit (Loss)	Profit (Loss)	Net assets
Target Subsidiaries	before taxation	after taxation	(liabilities)
	RMB’000	RMB’000	RMB’000
Panzhihua Yanjiang	83,856	77,567	461,780
Yunnan Hidili	(29,021)	(29,021)	108,928
Fuyuan Kunyuan	(5,428)	(5,428)	283,564
Fuyuan Xiangda	19,396	16,283	14,743
Yunnan Henglong	(5,718)	(5,778)	4,222
Fuyuan Dahe	19,143	17,378	308,912
Fuyuan Tonghe	(9,357)	(9,357)	103,545
Fuyuan Jintai	(5,577)	(5,636)	(636)

Hidili China

Hidili China is a limited liability company established in the PRC and is a wholly-owned subsidiary of the Company. Its principal activity is investment holding.

Liupanshui Hidili

Liupanshui Hidili is a limited liability company established in the PRC and is a whollyowned subsidiary of the Company. Its principal activities are coal mining and investment holding.

– 15 –

LETTER FROM THE BOARD

Shenzhen Hidili

Shenzhen Hidili is a limited liability company established in the PRC and is a whollyowned subsidiary of the Company. Its principal activity is investment holding.

Sichuan Hidili

Sichuan Hidili is a limited liability company established in the PRC and is a whollyowned subsidiary of the Company. Its principal activities are coal mining and investment holding.

Mr. Peng Zhongqiang

彭仲強先生 (Mr. Peng Zhongqiang*), one of the Immediate Shareholders of Fuyuan Dahe, holds 5.7% equity interest before the Capital Injections.

Mr. Chen Laoling

陳老令先生 (Mr. Chen Laoling*), one of the Immediate Shareholders of Fuyuan Dahe, holds 3.8% equity interest before the Capital Injections.

Mr. Tian Jinyi

田金益先生 (Mr. Tian Jinyi*), one of the Immediate Shareholders of Fuyuan Dahe, holds 0.4% equity interest before the Capital Injections.

Mr. Guo Minli

郭敏力先生 (Mr. Guo Minli*), one of the Immediate Shareholders of Fuyuan Dahe, holds 0.1% equity interest before the Capital Injections.

Huaneng Trust

Huaneng Trust is a limited liability company established in the PRC and is a subsidiary of 中國華能集團公司 (China Huaneng Group Company*). Its principal activity is trust investment with registered capital of RMB2,000 million.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Huaneng Trust and its ultimate beneficial owners are third parties independent of the Company and its connected persons.

REASONS FOR THE CAPITAL INJECTIONS AND SHARE TRANSFERS

The Company intended to restructure its loan and debt borrowings by way of the repayment of the outstanding amount under the convertible bonds issued by the Company in 2010 and substituting one-year term loans with medium to long term borrowings. In view of this, the Company had considered various refinancing alternatives, including new bank borrowings from financial institutions in the PRC and had approached various financial institutions in the PRC for the grant of medium to long term banking facilities. However, these

– 16 –

LETTER FROM THE BOARD

financial institutions will normally (i) grant such medium to long term banking facilities for capital expenditure purposes or with limitation in the use of proceeds and (ii) take a long time for processing, such as approval and execution before drawdown. Given the above reasons, the Company had entered into discussion with Huaneng Trust for alternative funding source which resulted in the Capital Injections and the Share Transfers in order to secure the repayment of our convertible bonds due in January 2013. The interest rate charged by Huaneng Trust under the Share Transfers was comparable with other trust loan offered to the Company in August 2012 (of which the Company did not enter into any loan arrangements with these institutions other than Huaneng Trust). In any event, the Company is still negotiating with financial institutions for other refinancing alternatives. The Company has used the entire amount injected by Huaneng Trust for repayment of borrowings.

As disclosed above, the Injection Money under the Capital Injections was determined based on the valuation of the net asset value of the Target Subsidiaries (which Huaneng Trust was entitled to) as at 30 April 2012 of approximately RMB1,020 million. As such, there is a shortfall of approximately RMB480 million, being the difference between the Injection Money of RMB1,500 million and the above aggregate net asset value of the Target Subsidiaries (which Huaneng Trust was entitled to) as at 30 April 2012 of approximately RMB1,020 million.

Moreover, based on the net assets value of the Target Subsidiaries as at 30 April 2012, the aggregate net asset value of the Target Subsidiaries to which Huaneng Trust is entitled and the Share Pledge amounted to approximately RMB2,691 million, which represents a discount of 44% when compared to the total Capital Injections of RMB1,500 million. Such discount is regarded as comparable to the ordinary bank borrowings of 40% to 60%.

In view of the above and as security for the performance of the Company’s obligations to buy back the Share Transfers at the Buy Back Consideration under the Share Transfer Agreements, the Share Pledge, together with the undertaking given by our controlling shareholder in favour of Huaneng Trust, were created in favour of Huaneng Trust as security.

Hidili China may buy back all the Target Equity Interest from Huaneng Trust with written consent from Huaneng Trust six months from the Injection Date and at any time during the Preference Investment Period pursuant to the terms of Share Transfers. If the Company were to buy back all the Target Equity Interest from Huaneng Trust upon maturity, the finance cost involved is expected to be approximately 13% per annum. The Company may buy back the Target Equity Interest when it has other refinancing alternatives with an estimated average interest rate of approximately 5% to 6% per annum where the refinancing cost of the Company is expected to be approximately 9.5% on average in the first year and reduced to 5% to 6% in the second year of such refinancing. The interest rates of our existing ordinary bank borrowings ranging from 6.6255% to 8.528%. Such refinancing cost is therefore comparable with 8.528%, being the highest interest rate charged by the Company’s existing borrowings.

The Directors believe that the Capital Injections can strengthen the Group’s cashflow and secure for the repayment of the short-term borrowings.

– 17 –

LETTER FROM THE BOARD

In view of the above, the Directors (including the independent non-executive Directors) believe that the terms and conditions of the Capital Injection Agreements and the Share Transfer Agreements are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

IMPLICATION OF THE LISTING RULES

The Capital Injections and the Share Transfers

As the applicable percentage ratios for the Capital Injections will exceed 25% but are less than 75% and the applicable percentage ratios for the Share Transfers will exceed 25% but are less than 100%, each of the Capital Injections and the Share Transfers constitutes a major transaction for the Company under the Listing Rules. Therefore, they are subject to the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules. Under the Listing Rules, the completion of the Capital Injections and the Share Transfers is subject to Shareholders’ approval.

On 13 September 2012, a written shareholder’s approval has been obtained from Sanlian which held 1,100,674,000 Shares (representing approximately 53.28% of the existing issued share capital of the Company as at 13 September 2012) for the entering into of the Capital Injections and the Share Transfers.

No Shareholder is required to abstain from voting if the Company were to convene a general meeting for the approval of the Transactions.

Waiver granted

In addition, as the Target Subsidiaries are engaged in coal mining and operating coal mines and the Share Transfers are deemed to be major transactions involving an acquisition of the Target Equity Interest, the Share Transfers would constitute Relevant Notifiable Transactions under Rule 18.10 of the Listing Rules. As such, the Share Transfers are subject to the requirements under Rule 18.09 of the Listing Rules. The Company has applied for, and the Stock Exchange has granted, a waiver to the Company from strict compliance with Rule 18.09 of the Listing Rules on the grounds that:

(a) while the Share Transfers appear to be an ‘‘acquisition’’ of the Target Equity Interest by the Company’s subsidiary, Hidili China, the arrangements that have been put in place, are, in substance, reflecting the intention of the Company and Huaneng Trust that:
(i) the various agreements entered into among the parties, including the Capital Injection Agreements and the Share Transfer Agreements, reflect the intention of the parties that the Target Subsidiaries are, and will remain, as the subsidiaries of the Company before and after completion of the Capital Injection Agreements. Despite the Capital Injections and the Share Transfers, the Company will continue to consolidate or take equity interests held by the Immediate Shareholders before the Capital Injections into the Group’s financial statements;

– 18 –

LETTER FROM THE BOARD

(ii) the provision of funds by Huaneng Trust to the Company and the repayment of the funds by way of the buy back of the Target Equity Interest by Hidili China under the Share Transfers; and
(iii) the Capital Injections were merely put in place to facilitate the provision of funds by Huaneng Trust to the Company through the Target Subsidiaries as opposed to a straightforward loan transaction,

and

(b) given that the Target Subsidiaries are and will remain as the subsidiaries of the Company before and after the completion of the Capital Injection Agreements, strict compliance with the requirements of Rule 18.10 of the Listing Rules would be unduly burdensome and impractical as the benefit of the preparation of the Competent Person’s Report (as defined in the Listing Rules) and the Valuation Report (as defined in the Listing Rules) as required under Rule 18.10 of the Listing Rules may not justify the additional work, time and expenses that will be incurred by the Company for complying with these requirements.

RECOMMENDATION

The Board, considers that the terms of the Capital Injections and the Share Transfers and the transactions contemplated thereunder are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

The Directors recommend the Shareholders to vote in favour of the resolutions if the Company were to convene a general meeting for the approval of the Transactions and the transactions contemplated thereunder.

ADDITIONAL INFORMATION

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

Yours faithfully, By Order of the Board Xian Yang Chairman

– 19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

The financial information of the Group (i) for the year ended 31 December 2012 is disclosed on page 40 to 115 of the 2012 annual report of the Company dated 24 May 2013; (ii) for the year ended 31 December 2011 is disclosed on pages 42 to 127 of the 2011 annual report of the Company dated 20 March 2012; and (iii) for the year ended 31 December 2010 is disclosed on pages 40 to 111 of the 2010 annual report of the company dated 29 March 2011.

All these financial statements have been published on the website of the Stock Exchange (http://www.hkexnews.hk) and the website of the Company (http://www.hidili.com.cn).

2. STATEMENT OF INDEBTEDNESS

As at the close of business on 30 April 2013 (being the latest practicable date for ascertaining information regarding this indebtedness statement), the Group had total outstanding borrowings of approximately RMB9,342 million. the borrowings comprised secured bank and other loans of approximately RMB5,418 million, unsecured bank and other loans of approximately RMB1,430 million, convertible loan notes of approximately RMB6 million and senior notes of approximately RMB2,488 million. The Group’s borrowings were secured by (i) certain assets held by the group with aggregate net book values of approximately RMB2,384 million as at 30 April 2013; and (ii) pledge of certain fixed deposits of the group of approximately RMB1,774 million as at 30 April 2013. Save as aforesaid, and apart from intragroup liabilities, the Group did not have any bank loans, bank overdrafts and liabilities under acceptances (other than normal trade bills) or other similar indebtedness, debentures or other loan capital, mortgages, charges, finance leases or hire purchase commitments, guarantees or other material contingent liabilities outstanding at the close of business on 30 April 2013.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into RMB at the rates of the exchange prevailing at the close of business on 30 April 2013.

3. SUFFICIENCY OF WORKING CAPITAL

Provided that (i) the Group is able to issue new medium to long term notes to banks and independent third parties in the PRC of not less than RMB2.5 billion; (ii) the Group is successful in renewing short term bank facilities of not less than RMB400 million to long term bank facilities; and (iii) the Group is successful in completing transactions for disposal of certain assets in 2013 as stated in ‘‘Financial and Trading Prospects of the Group’’ below, the Directors confirm that, after taking into account the effect of the Capital Injections and Share Transfers, and the present internal financial resources available to the Group, including internally generated cash flows and the existing banking and credit facilities available, the Group has sufficient working capital for its present requirements in next 12 months from the date of this circular in the absence of unforeseen material circumstances.

– 20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Group is engaged in mining and sale of coke, raw coal and clean coal. At the Latest Practicable Date, the Group owned 42 coal mines (including 12 mining rights in Sichuan province, 20 mining rights in Guizhou province, 9 mining rights in Yunnan province and 1 exploration right in Yunnan province).

With the coal mining development in Guizhou and Yunnan provinces, turnover and gross profit of the Group for the year ended 31 December 2012 amounted to approximately RMB1,923.6 million and RMB1,074.8 million respectively, recorded a decrease of approximately 32.8% and 39.2% respectively as compared to corresponding period in 2011. The production volume of raw coal amounted to approximately 3.5 million tonnes, representing a decrease of 14.2% as compared to approximately 4.1 million tonnes in the corresponding period in 2011. In this regard, the Group achieved EBITDA of approximately RMB579.1 million, representing a margin of 30.1% during the year ended 31 December 2012.

As a result of the coal mines accident happened in (i) Panzhihua, Sichuan province in August 2012, (ii) Fuyuan county, Yunnan province in December 2012 and (iii) Liupanshui, Guizhou province in January 2013, the production at all coal mines Panzhihua, Fuyuan and Liupanshui were halted for inspection after the accidents. As a result, the production at all the Group’s coal mines in Sichuan, Yunnan and Guizhou provinces were suspended. Some coal mines of the Group in Sichuan province have to undergo integration. The Group is currently preparing an integration plan subject to the approval of the PRC government. The Group’s remaining coal mines in Sichuan province have to carry out renovation. As at the Latest Practicable Date, the production of two out of five mining regions in Sichuan province and all coal mines in Yunnan and Guizhou provinces was resumed. In this regard, the Group will continue the construction of the coal mines in Guizhou and Yunnan province.

The resumption of production can help generate operating cash flow for the Group’s operations. In addition, the Group plans to shrink its debt size and dispose certain assets in 2013 to further improve its liquidity position.

– 21 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

The following is the text of the accountant’s report of the Target Subsidiaries prepared by Company’s auditors, Deloitte Touche Tohmatsu, for the purpose of incorporation in this circular.

==> picture [73 x 55] intentionally omitted <==

==> picture [78 x 34] intentionally omitted <==

25 June 2013

The Directors

Hidili Industry International Development Limited Room 3702, 37th Floor West Tower, Shun Tak Centre 168–200 Connaught Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information (‘‘Financial Information’’) regarding Panzhihua Yanjiang Industrial Co., Ltd. (‘‘Panzhihua Yanjiang’’) for each of the three years ended 31 December 2012 (the ‘‘Relevant Periods’’) for inclusion in a circular issued by Hidili Industry International Development Limited (the ‘‘Company’’) dated 25 June 2013 (the ‘‘Circular’’) in connection with the major transactions in relation to the capital injections by Huaneng Guicheng Trust Co., Ltd. (‘‘Huaneng’’) to Panzhihua Yanjiang and certain other subsidiaries of the Company and share transfers.

Panzhihua Yanjiang was established with limited liability in the People’s Republic of China (the ‘‘PRC’’) on 29 May 2003.

The statutory financial statements of Panzhihua Yanjiang were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC. The statutory financial statements of Panzhihua Yanjiang for the Relevant Periods were audited by Sichuan Jing Wei Certified Public Accountants Co., Ltd, certified public accountants registered in the PRC.

For the purpose of this report, the directors of Panzhihua Yanjiang have prepared the financial statements of Panzhihua Yanjiang for the Relevant Periods in accordance with International Financial Reporting Standards (‘‘IFRSs’’) (the ‘‘Underlying Financial Statements’’). We have undertaken an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) and have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

– 22 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

The Financial Information of Panzhihua Yanjiang for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements. No adjustments were deemed necessary by us to the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of Panzhihua Yanjiang who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of Panzhihua Yanjiang as at 31 December 2010, 31 December 2011 and 31 December 2012 and of its results and cash flows for the Relevant Periods.

– 23 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

A. FINANCIAL INFORMATION

Statements of Comprehensive Income

Notes Revenue 6 Cost of sales Gross profit Other income Administrative expenses Finance costs 7 Profit before tax Income tax expense 8 Profit and total comprehensive income for the year 9	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 128,430,131 262,784,116 103,799,364 (55,478,178) (77,362,577) (34,764,275) 72,951,953 185,421,539 69,035,089 27,089,790 28,440,719 31,158,811 (6,583,712) (8,160,532) (19,102,255) (1,905,119) (12,974,099) (15,532,028) 91,552,912 192,727,627 65,559,617 (5,211,286) (20,738,228) (9,046,025) 86,341,626 171,989,399 56,513,592

– 24 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

Statements of Financial Position

Notes NON-CURRENT ASSETS Property, plant and equipment 12 Deposits 13 Amount due from immediate holding company 16 Amounts due from fellow subsidiaries 16 CURRENT ASSETS Inventories 14 Bills receivables 15 Other receivables, deposits and prepayments 13 Tax recoverable Amount due from immediate holding company 16 Amounts due from fellow subsidiaries 16 Bank balances and cash 17 CURRENT LIABILITIES Trade payables 18 Other payables and accrued expenses 19 Amounts due to intermediate holding companies 16 Amounts due to fellow subsidiaries 16 Tax payables NET CURRENT (LIABILITIES) ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Provision for restoration and environmental costs 20 NET ASSETS CAPITAL AND RESERVES Paid in capital 21 Reserves TOTAL EQUITY	As 2010 RMB 220,877,481 16,599,828 182,577,583 245,869,831 665,924,723 2,590,885 — 1,949,270 — — 10,091,228 1,382,585 16,013,968 4,796,517 32,268,432 — 334,225,103 2,891,142 374,181,194 (358,167,226) 307,757,497 1,441,689 306,315,808 5,000,000 301,315,808 306,315,808	at 31 December 2011 2012 RMB RMB 295,011,617 344,045,424 31,760,728 31,760,728 194,611,474 207,438,534 262,075,384 279,349,064 783,459,203 862,593,750 2,782,948 5,729,845 — 2,800,000 6,330,999 5,896,711 — 3,114,586 35,574,861 8,896,395 39,409,898 255,744,475 739,375 1,463,024 84,838,081 283,645,036 13,050,816 8,667,652 26,434,691 14,393,387 1,752,000 3,705,055 337,494,407 212,519,564 9,352,118 — 388,084,032 239,285,658 (303,245,951) 44,359,378 480,213,252 906,953,128 1,908,045 2,134,329 478,305,207 904,818,799 5,000,000 7,812,500 473,305,207 897,006,299 478,305,207 904,818,799	at 31 December 2011 2012 RMB RMB 295,011,617 344,045,424 31,760,728 31,760,728 194,611,474 207,438,534 262,075,384 279,349,064 783,459,203 862,593,750 2,782,948 5,729,845 — 2,800,000 6,330,999 5,896,711 — 3,114,586 35,574,861 8,896,395 39,409,898 255,744,475 739,375 1,463,024 84,838,081 283,645,036 13,050,816 8,667,652 26,434,691 14,393,387 1,752,000 3,705,055 337,494,407 212,519,564 9,352,118 — 388,084,032 239,285,658 (303,245,951) 44,359,378 480,213,252 906,953,128 1,908,045 2,134,329 478,305,207 904,818,799 5,000,000 7,812,500 473,305,207 897,006,299 478,305,207 904,818,799
			862,593,750
			5,729,845 2,800,000 5,896,711 3,114,586 8,896,395 255,744,475 1,463,024
			283,645,036
			8,667,652 14,393,387 3,705,055 212,519,564 —
			239,285,658
			44,359,378
			906,953,128 2,134,329
			904,818,799
			7,812,500 897,006,299
			904,818,799

– 25 –

ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

APPENDIX IIA

Statements of Changes in Equity

At 1 January 2010 Profit and total comprehensive income for the year Transfer At 31 December 2010 Profit and total comprehensive income for the year Transfer At 31 December 2011 Profit and total comprehensive income for the year Transfer Capital injection At 31 December 2012	Paid in capital RMB 5,000,000 — — 5,000,000 — — 5,000,000 — — 2,812,500 7,812,500	Capital reserve RMB 138,896,839 — — 138,896,839 — — 138,896,839 — — 367,187,500 506,084,339	Statutory surplus reserve RMB (Note (i)) 11,709,062 — 5,984,838 17,693,900 — — 17,693,900 — — — 17,693,900	Future development fund RMB (Note (ii)) 2,759,175 — 7,436,621 10,195,796 — 1,600,513 11,796,309 — 26,879 — 11,823,188	Retained profits RMB 61,609,106 86,341,626 (13,421,459) 134,529,273 171,989,399 (1,600,513) 304,918,159 56,513,592 (26,879) — 361,404,872	Total RMB 219,974,182 86,341,626 —
						306,315,808 171,989,399 —
						478,305,207 56,513,592 — 370,000,000
						904,818,799

Notes:

(i) According to the Articles of Association of Panzhihua Yanjiang, Panzhihua Yanjiang is required to make an appropriation of 10% of its profit after taxation each year to statutory surplus reserve until the balance reaches 50% of the registered capital of Panzhihua Yanjiang while Panzhihua Yanjiang can make additional appropriation to statutory surplus reserve at their own discretion. According to the provision of the Articles of Association, in normal circumstances, the statutory surplus reserve shall only be used for making up losses, capitalisation into paid in capital and expansion of the production and operation of Panzhihua Yanjiang.
(ii) Pursuant to the relevant regulations in the PRC, Panzhihua Yanjiang is required to make a transfer to future development fund based on a fixed amount 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.

– 26 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

Statements of Cash Flows

OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Depreciation and amortisation of property,
plant and equipment
Interest expenses
Imputed interest income
Interest income
Loss on disposal of property, plant and
equipment
Provision for restoration and environmental
costs
Operating cash flows before movements in
working capital
Decrease (increase) in inventories
Increase in bills receivables
(Increase) decrease in other receivables, deposits
and prepayments
(Decrease) increase in trade payables
Increase (decrease) in other payables and accrued
expenses
Cash (used in) from operations
Income taxes paid
NET CASH (USED IN) FROM OPERATING
ACTIVITIES
INVESTING ACTIVITIES
Advance to immediate holding company
Advance to fellow subsidiaries
Repayment from immediate holding company
Repayment from fellow subsidiaries
Purchase of property, plant and equipment
Interest received
Withdrawal of pledged bank deposits
NET CASH FROM (USED IN) INVESTING
ACTIVITIES

For the year ended 31 December
2010
2011
2012
RMB
RMB
RMB
91,552,912
192,727,627
65,559,617
3,037,203
5,141,059
4,665,845
1,905,119
12,974,099
15,532,028
(26,493,246)
(28,239,444)
(30,100,740)
(181,759)
(27,011)
(503,371)
5,182
—
—
276,514
466,356
226,284
70,101,925
183,042,686
55,379,663
373,628
(192,063)
(2,946,897)
—
—
(2,800,000)
(16,527,537)
(19,542,629)
434,288
(198,868,897)
8,254,299
(4,383,164)
6,225,353
(5,666,945)
(12,225,351)
(138,695,528)
165,895,348
33,458,539
(3,268,726)
(14,277,252)
(21,512,729)
(141,964,254)
151,618,096
11,945,810
(28,747,194)
(125,705,870)
(685,845,751)
—
(39,409,898)
(254,928,160)
36,572,748
90,131,009
712,524,217
—
10,091,228
38,593,583
(27,091,374)
(79,441,991)
(53,515,605)
181,759
27,011
503,371
100,000,000
—
—
80,915,939
(144,308,511)
(242,668,345)

– 27 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

FINANCING ACTIVITIES
Repayment to fellow subsidiaries
Interest paid
Advance from fellow subsidiaries
Capital injection
Advance from intermediate holding companies
Repayment to intermediate holding companies
NET CASH FROM (USED IN) FINANCING
ACTIVITIES
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS BROUGHT
FORWARD
CASH AND CASH EQUIVALENTS CARRIED
FORWARD,
representing bank balances and cash

For the year ended 31 December
2010
2011
2012
RMB
RMB
RMB
(280,507,326)
(296,712,066)
(326,663,710)
(1,905,119)
(12,974,099)
(15,532,028)
341,555,715
299,981,370
201,688,867
—
—
370,000,000
—
1,800,000
1,953,055
—
(48,000)
—
59,143,270
(7,952,795)
231,446,184
(1,905,045)
(643,210)
723,649
3,287,630
1,382,585
739,375
1,382,585
739,375
1,463,024

– 28 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

Notes to the Financial Information

1. GENERAL

The principal activities of Panzhihua Yanjiang is mining and sale of raw coal to its group companies. Its immediate holding company is Sichuan Hidili Industry Co., Ltd., a company established in the PRC. The Company, a company incorporated in the Cayman Islands with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited, is an intermediate holding company of Panzhihua Yanjiang. In the opinion of the directors of Panzhihua Yanjiang, the ultimate holding company of Panzhihua Yanjiang is Sarasin Trust Company Guernsey Limited, a company incorporated in the British Virgin Islands which is controlled by Mr. Xian Yang, the Chief Executive and Executive Director of the Company. The address of the registered office and principal place of business of Panzhihua Yanjiang is Hebian Village, Taiping Country, Renhe District, Panzhihua City, Sichuan Province, PRC.

The Financial Information is presented in Renminbi (‘‘RMB’’), which is the same as the functional currency of Panzhihua Yanjiang.

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Underlying Financial Statements, throughout the Relevant Periods, Panzhihua Yanjiang has consistently adopted all of the new and revised standards, amendments and interpretations which are or have been effective for Panzhihua Yanjiang’s financial year beginning on 1 January 2012.

Panzhihua Yanjiang has not early applied the following new and revised IFRSs that have been issued but are not yet effective:

Amendments to IFRSs	Annual Improvements to IFRSs 2009–2011 Cycle2
Amendments to IFRS 7	Disclosure — Offsetting Financial Assets and Financial Liabilities2
Amendments to IFRS 7 and IFRS 9	Mandatory Effective Date of IFRS 9 and Transition Disclosures4
Amendments to IFRS 10, IFRS 11	Consolidated Financial Statements, Joint Arrangements and Disclosure
and IFRS 12	of Interests in Other Entities: Transition Guidance2
Amendments to IFRS 10, IFRS 12	Investment Entities3
and IAS 27
IFRS 9	Financial Instruments4
IFRS 10	Consolidated Financial Statements2
IFRS 11	Joint Arrangements2
IFRS 12	Disclosure of Interests in Other Entities2
IFRS 13	Fair Value Measurement2
IAS 19 (Revised 2011)	Employee Benefits2
IAS 27 (Revised 2011)	Separate Financial Statements2
IAS 28 (Revised 2011)	Investments in Associates and Joint Ventures2
Amendments to IAS 1	Presentation of Items of Other Comprehensive Income1
Amendments to IAS 32	Offsetting Financial Assets and Financial Liabilities3
Amendments to IAS 36	Recoverable Amount Disclosures for Non-Financial Assets3
IFRIC 20	Stripping Costs in the Production Phase of a Surface Mine2
IFRIC 21	Levies3

1 Effective for annual periods beginning on or after 1 July 2012.

2 Effective for annual periods beginning on or after 1 January 2013.

3 Effective for annual periods beginning on or after 1 January 2014.

4 Effective for annual periods beginning on or after 1 January 2015.

The directors of Panzhihua Yanjiang anticipate that the application of the new and revised IFRSs will have no material impact on the results and the financial position of Panzhihua Yanjiang.

– 29 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared in accordance with accounting policies which conform with IFRSs. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance.

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

The principal accounting policies are set out below.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold in the normal course of business, net of discount and sales related taxes.

Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

. Panzhihua Yanjiang has transferred to the buyer the significant risks and rewards of ownership of the goods;
. Panzhihua Yanjiang retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
. the amount of revenue can be measured reliably;
. it is probable that the economic benefits associated with the transaction will flow to Panzhihua Yanjiang; and
. the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to Panzhihua Yanjiang and the amount of income can be measured reliably. Interest income 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 asset to that asset’s net carrying amount on initial recognition.

Property, plant and equipment

Property, plant and equipment including buildings held for use in the production or supply of goods or services, or for administrative purposes, other than construction in progress and mining structures and mining rights, are stated in the statements of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses. Depreciation on these assets, other than mining structures and mining rights, is recognised so as to write off the cost of assets less their residual value over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

The mining structures and mining rights are stated at cost less subsequent accumulated depreciation and amortisation and accumulated impairment losses. Depreciation and amortisation is provided to write off the cost of mining structures and the mining rights using the units of production method over the total proven reserves of the coal mines.

– 30 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement 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 recognised in profit or loss.

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 added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefits costs

Payments to state-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

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 before tax’’ as reported in the statements of comprehensive income 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. Panzhihua Yanjiang’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

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

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which Panzhihua Yanjiang expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax are recognised in profit or loss.

– 31 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

Inventories

Inventories are stated at the lower of cost and net realisable value. Costs of inventories are calculated using the weighted average method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

Provision for restoration and environmental costs

Panzhihua Yanjiang is required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined. Provisions for restoration and environmental costs are required when Panzhihua Yanjiang has a present obligation as a result of a past event, it is probable that Panzhihua Yanjiang will be required to settle the obligation. Provisions are measured at the directors of Panzhihua Yanjiang’s best estimation of the consideration required to settle the present obligation at the end of the reporting period, and are discounted to present value where the effect is material.

Financial instruments

Financial assets and financial liabilities are recognised in the statements of financial position when Panzhihua Yanjiang 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 are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

Panzhihua Yanjiang’s financial assets are loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including bills receivables, other receivables and deposits, amount due from immediate holding company, amounts due from fellow subsidiaries and bank balances) are measured at amortised cost using the effective interest method, less any identified impairment.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of financial assets, the estimated future cash flows of the financial assets have been affected.

Objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty; or

– 32 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

. breach of contract, such as default or delinquency in interest or principal payments; or
. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

The amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

The carrying amount of financial asset is reduced by the impairment loss directly for all the financial assets. Subsequent recoveries of amounts previously written off are credited to profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised 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 amortised cost would have been had the impairment not been recognised.

Derecognition

Panzhihua Yanjiang derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

Financial liabilities and equity instruments

Debt and equity instruments issued by Panzhihua Yanjiang are classified either as financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of Panzhihua Yanjiang after deducting all of its liabilities. Equity instruments issued by Panzhihua Yanjiang are recognised at the proceeds received, net of direct issue costs.

Financial liabilities

Financial liabilities including trade payables, other payables, amounts due to intermediate holding companies and amounts due to fellow subsidiaries are subsequently measured at amortised cost, using the effective interest method.

– 33 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

Derecognition

Panzhihua Yanjiang derecognises financial liabilities when, and only when, Panzhihua Yanjiang’s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Impairment of tangible assets

At the end of each reporting period, Panzhihua Yanjiang reviews the carrying amounts of its tangible assets with finite useful lives 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 is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, Panzhihua Yanjiang estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. 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 for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

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

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of Panzhihua Yanjiang’s accounting policies, which are described in note 3, the directors of Panzhihua Yanjiang are 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 associated 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.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Depreciation of property, plant and equipment

Property, plant and equipment other than mining structures and mining rights are depreciated on a straight-line basis over their useful lives, after taking into account their estimated residual value. Mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines. The directors of Panzhihua Yanjiang assess annually the residual value and the useful life of the property, plant and equipment as well as the reserve of the coal mines. If the expectation differs from the original estimate, such difference will impact the depreciation and the amortisation charged in the year in which such estimate is changed. The carrying amount of property, plant

– 34 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

and equipment was RMB220,877,481, RMB295,011,617 and RMB344,045,424 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively. Details of property, plant and equipment are disclosed in note 12.

As explained in note 3, mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines.

Engineering estimates of Panzhihua Yanjiang’s mineral reserves involved subjective judgements by mineral engineers in developing such information. There is a Chinese system, which is the national standard set by the PRC Government, regarding the engineering criteria that have to be met before estimated mineral reserves can be designated as ‘‘proven’’. Proven reserve estimates are updated on a regular basis and are taken into account as a change in estimate for accounting purposes and are reflected on a prospective basis in related depreciation and amortisation rates. If the expectation differs from the original reserve estimate, such difference will impact the depreciation and amortisation charged in the year in which such estimate is changed. The carrying amount of mining structures and mining rights was RMB163,108,852, RMB217,888,638 and RMB255,943,209 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively.

Estimated impairment of property, plant and equipment

Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets exceeds its recoverable amount. The recoverable amount is determined with reference to the present value of estimated future cash flows. An impairment loss is measured as the difference between the asset’s carrying amount and the recoverable amount. Where the future cash flows are less than expected or there are unfavourable events and change in facts and circumstance which result in revision of future estimate cash flow, a material impairment loss may arise.

Determining whether an impairment loss on mining structure and mining rights requires an estimate of the recoverable amount of the cash-generating unit (‘‘CGU’’) to which the asset belongs. Management of Panzhihua Yanjiang consider that Panzhihua Yanjiang continues to use the relevant assets and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. The value in use calculation requires Panzhihua Yanjiang to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. Where the future cash flows are less than expected or due to changes in estimates, a material impairment loss may arise. As at 31 December 2010, 31 December 2011 and 31 December 2012, the carrying amounts of mining structures and mining rights was RMB163,108,852, RMB217,888,638 and RMB255,943,209, respectively.

5. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost	As at 31 December 2010 2011 2012 RMB RMB RMB 441,369,184 533,799,750 759,399,461 345,004,579 354,032,275 229,131,304	As at 31 December 2010 2011 2012 RMB RMB RMB 441,369,184 533,799,750 759,399,461 345,004,579 354,032,275 229,131,304
		229,131,304

(b) Financial risk management objectives and policies

Panzhihua Yanjiang’s major financial instruments include bills receivables, other receivables and deposits, bank balances, trade payables, other payables and amounts due from and to group companies. Details of these financial instruments are set out in respective notes. The risks associated with these financial

– 35 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

instruments include market risk (interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. Management of Panzhihua Yanjiang manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Market risk

Interest rate risk

Panzhihua Yanjiang is exposed to cash flow interest rate risk in relation to variable rate bank balances (see note 17). The directors of Panzhihua Yanjiang consider the exposure of interest-bearing bank balances is not significant as bank balances are in short maturity period. Panzhihua Yanjiang currently does not have an interest rate hedging policy. However, management closely monitors interest rate exposure and will consider hedging significant interest rate change exposure when the need arise. No sensitivity analysis is presented as the directors of Panzhihua Yanjiang consider the amount is insignificant.

(ii) Credit risk

As at the end of each reporting period, Panzhihua Yanjiang’s maximum exposure to credit risk which will cause a financial loss to Panzhihua Yanjiang due to failure to discharge an obligation by the counterparties is arising from the carrying amounts of the respective recognised financial assets as stated in the statement of financial position.

Management of Panzhihua Yanjiang reviews the recoverable amount of each individual debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, management of Panzhihua Yanjiang considers that the credit risk is significantly reduced.

Other than concentration of credit risks on group companies which management of Panzhihua Yanjiang reviews the financial position and repayment abilities of respective group companies, Panzhihua Yanjiang does not have any other significant concentration of credit risk, with exposure spread over a number of counterparties having similar characteristics.

The credit risk on liquid funds is limited because the counterparties are banks with good reputation.

(iii) Liquidity risk

In the management of the liquidity risk, Panzhihua Yanjiang monitors and maintains a level of cash and cash equivalents deemed adequate by management of Panzhihua Yanjiang to finance its operations and mitigate the effects of fluctuations in cash flows.

Panzhihua Yanjiang relies on advances from group companies as a significant source of liquidity. Details of which are set out in note 16.

The financial liabilities carried at amortised cost were required to be settled on demand or less than three months according to respective contractual provision at 31 December 2010, 31 December 2011 and 31 December 2012.

(c) Fair value

The fair value of financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

Management of Panzhihua Yanjiang considers that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate to their fair values.

– 36 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

6. REVENUE AND SEGMENT INFORMATION

Revenue represents sale of raw coal at invoiced value net of discounts and sales related taxes during the Relevant Periods.

The directors of Panzhihua Yanjiang, being the chief operating decision makers, assess the performance and allocate the resources of Panzhihua Yanjiang as a whole because Panzhihua Yanjiang is mainly engaged in mining. Therefore, the directors of Panzhihua Yanjiang consider that Panzhihua Yanjiang only has one operating segment under the IFRS 8. In this regard, no segment information is presented.

Geographical information

The operations and assets of Panzhihua Yanjiang are located in the PRC.

Information about major customers

Revenue from sales of raw coals are entirely contributed from fellow subsidiaries and immediate holding company of Panzhihua Yanjiang. Details of related party transactions are disclosed in note 24(a).

7. FINANCE COSTS

Interest expense on advance drawn on bills receivable discounted without recourse 8. INCOME TAX EXPENSE Current tax: PRC Enterprise Income Tax (‘‘EIT’’) Underprovision in prior years	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 1,905,119 12,974,099 15,532,028 2010 2011 2012 RMB RMB RMB 5,211,286 20,693,484 9,046,025 — 44,744 — 5,211,286 20,738,228 9,046,025	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 1,905,119 12,974,099 15,532,028 2010 2011 2012 RMB RMB RMB 5,211,286 20,693,484 9,046,025 — 44,744 — 5,211,286 20,738,228 9,046,025
		2012 RMB 9,046,025 —
		9,046,025

No provision for Hong Kong Profits Tax has been made as Panzhihua Yanjiang’s income neither arises in, nor is derived from, Hong Kong.

Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of the EIT Law, the statutory tax rate of Panzhihua Yanjiang is 25% during the Relevant Periods.

Pursuant to the ‘‘Application of preferential tax treatment for Foreign Investment Enterprise’’, Panzhihua Yanjiang was entitled to 50% deduction of EIT for three years from 2009 to 2011. Therefore, the applicable tax rate of Panzhihua Yanjiang is 12.5% for 2010 and 2011.

Panzhihua Yanjiang was also entitled to the tax incentives in connection with the development of the western part of the PRC in 2010, and the applicable tax rate of Panzhihua Yanjiang for 2010 was 7.5%.

– 37 –

ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

APPENDIX IIA

The tax charge for the year can be reconciled to the profit before taxation as follows:

Profit before tax Tax at applicable tax rate of 25% Tax effect of expenses not deductible for tax purpose Underprovision in prior years Tax effect of concessionary tax rate granted Tax effect of income not taxable Income tax expense for the year 9. PROFIT FOR THE YEAR Profit for the year has been arrived at after charging (crediting): Cost of inventories recognised as expense Depreciation and amortisation of property, plant and equipment Loss on disposal of property, plant and equipment Provision for restoration and environmental costs (note 20) Salaries and other benefits Retirement benefit costs Total staff costs Bank interest income Imputed interest income on amount due from immediate holding company Imputed interest income on amounts due from fellow subsidiaries	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 91,552,912 192,727,627 65,559,617 22,888,228 48,181,907 16,389,904 331,811 120,155 181,306 — 44,744 — (11,385,442) (20,548,717) — (6,623,311) (7,059,861) (7,525,185) 5,211,286 20,738,228 9,046,025 For the year ended 31 December 2010 2011 2012 RMB RMB RMB 55,478,178 77,362,577 34,764,275 3,037,203 5,141,059 4,665,845 5,182 — — 276,514 466,356 226,284	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 91,552,912 192,727,627 65,559,617 22,888,228 48,181,907 16,389,904 331,811 120,155 181,306 — 44,744 — (11,385,442) (20,548,717) — (6,623,311) (7,059,861) (7,525,185) 5,211,286 20,738,228 9,046,025 For the year ended 31 December 2010 2011 2012 RMB RMB RMB 55,478,178 77,362,577 34,764,275 3,037,203 5,141,059 4,665,845 5,182 — — 276,514 466,356 226,284	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 91,552,912 192,727,627 65,559,617 22,888,228 48,181,907 16,389,904 331,811 120,155 181,306 — 44,744 — (11,385,442) (20,548,717) — (6,623,311) (7,059,861) (7,525,185) 5,211,286 20,738,228 9,046,025 For the year ended 31 December 2010 2011 2012 RMB RMB RMB 55,478,178 77,362,577 34,764,275 3,037,203 5,141,059 4,665,845 5,182 — — 276,514 466,356 226,284	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 91,552,912 192,727,627 65,559,617 22,888,228 48,181,907 16,389,904 331,811 120,155 181,306 — 44,744 — (11,385,442) (20,548,717) — (6,623,311) (7,059,861) (7,525,185) 5,211,286 20,738,228 9,046,025 For the year ended 31 December 2010 2011 2012 RMB RMB RMB 55,478,178 77,362,577 34,764,275 3,037,203 5,141,059 4,665,845 5,182 — — 276,514 466,356 226,284	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 91,552,912 192,727,627 65,559,617 22,888,228 48,181,907 16,389,904 331,811 120,155 181,306 — 44,744 — (11,385,442) (20,548,717) — (6,623,311) (7,059,861) (7,525,185) 5,211,286 20,738,228 9,046,025 For the year ended 31 December 2010 2011 2012 RMB RMB RMB 55,478,178 77,362,577 34,764,275 3,037,203 5,141,059 4,665,845 5,182 — — 276,514 466,356 226,284
	17,631,462 965,869		29,922,284 817,569		22,486,544 1,317,264
	18,597,331 (181,759) (11,289,770) (15,203,476)		30,739,853 (27,011) (12,033,891) (16,205,553)		23,803,808 (503,371) (12,827,060) (17,273,680)

10. DIRECTORS’ EMOLUMENTS AND EMPLOYEES’ EMOLUMENTS

Directors’ emoluments

During the Relevant Periods, no fees or other emoluments was paid or payable by Panzhihua Yanjiang to its directors.

During the Relevant Periods, no remuneration was paid by Panzhihua Yanjiang to its directors as an inducement to join or upon joining Panzhihua Yanjiang or as compensation for loss of office. None of the directors has waived any remuneration during the Relevant Periods.

– 38 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

Employees’ emoluments

The five highest paid individuals for the Relevant Periods were as follows:

Salaries and other allowances Contributions to retirement benefit schemes	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 479,436 361,159 676,059 89,584 42,777 89,117 569,020 403,936 765,176	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 479,436 361,159 676,059 89,584 42,777 89,117 569,020 403,936 765,176
		765,176

Each of their emoluments were within HK$1,000,000 (approximately RMB800,000).

During the Relevant Periods, no emolument was paid or payable by Panzhihua Yanjiang to the five highest paid individuals as an inducement to join Panzhihua Yanjiang as compensation for loss of office.

11. EARNINGS PER SHARE

Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful.

– 39 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

12. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2010 Additions Transfer Disposal At 31 December 2010 Additions Transfer At 31 December 2011 Additions Transfer At 31 December 2012 DEPRECIATION At 1 January 2010 Provided for the year Eliminated on disposals At 31 December 2010 Provided for the year At 31 December 2011 Provided for the year At 31 December 2012 CARRYING AMOUNTS At 31 December 2010 At 31 December 2011 At 31 December 2012	Buildings RMB 11,300,245 84,615 1,494,104 — 12,878,964 1,281,476 — 14,160,440 — — 14,160,440 689,014 333,517 — 1,022,531 374,469 1,397,000 396,151 1,793,151 11,856,433 12,763,440 12,367,289	Mining structures and mining rights RMB 165,741,402 — 5,667,980 — 171,409,382 52,233,634 6,265,406 229,908,422 28,237,696 12,050,679 270,196,797 6,484,129 1,816,401 — 8,300,530 3,719,254 12,019,784 2,233,804 14,253,588 163,108,852 217,888,638 255,943,209	Machinery RMB 7,869,748 2,760,538 — — 10,630,286 2,831,516 — 13,461,802 2,092,746 — 15,554,548 1,162,748 616,145 — 1,778,893 741,353 2,520,246 935,408 3,455,654 8,851,393 10,941,556 12,098,894	Motor vehicles RMB 387,029 — — (53,230) 333,799 — — 333,799 2,851,118 — 3,184,917 140,826 99,720 (48,048) 192,498 99,277 291,775 752,304 1,044,079 141,301 42,024 2,140,838	Office and electronic equipment RMB 1,322,908 373,189 — — 1,696,097 275,381 — 1,971,478 3,844,951 — 5,816,429 162,539 171,420 — 333,959 206,706 540,665 348,178 888,843 1,362,138 1,430,813 4,927,586	Construction in progress RMB 18,381,826 24,337,622 (7,162,084) — 35,557,364 22,653,188 (6,265,406) 51,945,146 16,673,141 (12,050,679) 56,567,608 — — — — — — — — 35,557,364 51,945,146 56,567,608	Total RMB 205,003,158 27,555,964 — (53,230
							232,505,892 79,275,195 —
							311,781,087 53,699,652 —
							365,480,739
							8,639,256 3,037,203 (48,048
							11,628,411 5,141,059
							16,769,470 4,665,845
							21,435,315
							220,877,481
							295,011,617
							344,045,424

The following estimated useful lives are used for the depreciation of property, plant and equipment, other than mining structures and mining rights as well as construction in progress:

Buildings 15 to 35 years Machinery 5 to 15 years Motor vehicles, office and 5 to 10 years electronic equipment

The mining structures and mining rights include the main and auxiliary mine shafts and underground tunnels. The mining rights have average legal lives of 10 years but in the opinion of the directors of Panzhihua Yanjiang, Panzhihua Yanjiang will be able to renew the mining rights without incurring significant costs.

– 40 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

Depreciation and amortisation are provided to write off the cost of the mining structures and mining rights using the units of production method based on the total proven reserves of the coal mine.

The construction in progress comprise mainly the main and auxiliary mine shafts and underground tunnels in the course of construction.

The legal titles of the mining rights have been granted by the relevant government authorities as at 31 December 2010, 31 December 2011 and 31 December 2012.

During the year ended 31 December 2012, the operation in mines of Panzhihua Yanjiang have been suspended for safety inspection and government deliberations since the occurrence of accidents in the vicinity. At 31 December 2012, the carrying amounts of construction in progress and property, plant and equipment other than construction in progress, in respect of mines which were still suspended are RMB56,567,608 and RMB287,477,816, respectively.

For the purpose of the impairment testing of mining structure and mining rights of the mines being under suspension of production or construction for safety inspection and government deliberations, management of Panzhihua Yanjiang considers that Panzhihua Yanjiang will continue to use the relevant assets in the foreseeable future and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. Value in use calculation is based on the discount rates of 14.9% and cash flow projections prepared from financial forecasts approved by the directors of Panzhihua Yanjiang for the next five years, taking into account the best estimates of management of Panzhihua Yanjiang concerning the likely dates for resumption of mining operations and development. The CGUs cashflows beyond the 5-year period are extrapolated using a zero growth rate until the coal reserves have been mined based on existing production capacities. Other key assumptions for the value in use calculation related to the estimation of cash inflows/outflows which include future coal price and gross margin, such estimation is based on the estimation provided by management of Panzhihua Yanjiang. Based on the assumptions applied, the recoverable amounts are above its carrying amounts of the relevant CGUs, accordingly, management of Panzhihua Yanjiang has determined that there is no impairment of the mining structure and mining rights.

13. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

At 31 December 2010, 31 December 2011 and 31 December 2012, deposits of RMB16,599,828, RMB31,760,728 and RMB31,760,728, respectively, represent environmental rehabilitation deposits paid to the local government in the PRC, carrying interest at market rate determined by local government. The amounts will be refunded at the cessation of mining activities or closure of mines if and only if the environmental rehabilitation work of the relevant mines meets government’s requirements. They are not expected to be refunded within the next twelve months.

At 31 December 2012, included in other receivables, deposits and prepayment is an amount of RMB2,960,000 prepayment for advisory service to Huaneng, a shareholder of Panzhihua Yanjiang.

14. INVENTORIES

Auxiliary materials and spare parts	As at 31 December 2010 2011 2012 RMB RMB RMB 2,590,885 2,782,948 5,729,845

15. BILLS RECEIVABLES

At 31 December 2012, bills receivables represents bill issued by a fellow subsidiary for settlement of its trade balance. The aged of the bills receivable is within 90 days. Panzhihua Yanjiang generally allows an average credit period ranging from 90–120 days to its trade customers.

– 41 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

16. AMOUNTS DUE FROM AND TO GROUP COMPANIES

At 31 December 2010, 31 December 2011 and 31 December 2012, except for amount due from immediate holding company of RMB182,577,583, RMB194,611,474 and RMB207,438,534 and amounts due from fellow subsidiaries of RMB245,869,831, RMB262,075,384 and RMB279,349,064, respectively, which will be recovered in four year time from initial recognition, amounts due from group companies are expected to be recovered in one year. The effective interest of amounts due from fellow subsidiaries expected to be recovered in three year time is 6.6% per annum. All amounts due from group companies are interest free and unsecured.

All amounts due to group companies are interest free, unsecured and repayable on demand.

There is no credit terms and policies on the trading balances with group companies.

17. BANK BALANCES AND CASH

Bank balances carry interests at market rates range from 0.36% to 0.50% per annum.

18. TRADE PAYABLES

The aged analysis of Panzhihua Yanjiang’s trade payables based on invoice date at the end of the reporting period is as follows:

0–90 days 91–180 days 181–365 days Over 365 days	As at 31 December 2010 2011 2012 RMB RMB RMB 3,199,947 11,243,152 1,395,788 1,017,845 799,469 1,986,687 452,137 236,746 4,005,014 126,588 771,449 1,280,163 4,796,517 13,050,816 8,667,652	As at 31 December 2010 2011 2012 RMB RMB RMB 3,199,947 11,243,152 1,395,788 1,017,845 799,469 1,986,687 452,137 236,746 4,005,014 126,588 771,449 1,280,163 4,796,517 13,050,816 8,667,652
		8,667,652

The average credit period on purchases of goods is 90 days.

19. OTHER PAYABLES AND ACCRUED EXPENSES

Accrued salaries Accrued expenses Payables for acquisition of property, plant and equipment Other tax payables Others	As at 31 December 2010 2011 2012 RMB RMB RMB 1,802,014 2,026,768 1,531,617 19,058,599 15,588,352 8,622,736 464,590 297,794 481,841 9,403,847 7,084,519 — 1,539,382 1,437,258 3,757,193 32,268,432 26,434,691 14,393,387	As at 31 December 2010 2011 2012 RMB RMB RMB 1,802,014 2,026,768 1,531,617 19,058,599 15,588,352 8,622,736 464,590 297,794 481,841 9,403,847 7,084,519 — 1,539,382 1,437,258 3,757,193 32,268,432 26,434,691 14,393,387
		14,393,387

– 42 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

20. PROVISION FOR RESTORATION AND ENVIRONMENTAL COSTS

At 1 January 2010 Provision for the year At 31 December 2010 Provision for the year At 31 December 2011 Provision for the year At 31 December 2012	RMB 1,165,175 276,514
	1,441,689 466,356
	1,908,045 226,284
	2,134,329

Mining activities may result in land subsidence and damage to the environment of the mining areas. Pursuant to the relevant PRC regulations, Panzhihua Yanjiang is required to restore the mining areas back to certain acceptable conditions.

The provision for the restoration and environmental clean up costs has been determined by management based on their past experience with reference to the coal production each year to the coal reserve and the unit restoration costs governed by respective regulations and best estimate of future expenditure by discounting the expected expenditures to their net present value at market rate. The amounts provided in relation to restoration and environmental clean up costs are reviewed at least annually based upon the facts and circumstances available at the time and the provisions are updated accordingly.

21. PAID IN CAPITAL

Registered and fully paid at 1 January 2010, 31 December 2010 and 31 December 2011 Capital injection Registered and fully paid at 31 December 2012	RMB 5,000,000 2,812,500
	7,812,500

On 28 August 2012, the total registered capital of Panzhihua Yanjiang increased from RMB5,000,000 to RMB7,812,500 and Huaneng paid an additional contribution of RMB370,000,000 in September 2012, of which RMB2,812,500 as paid in capital and RMB367,187,500 as capital reserve.

22. CAPITAL RISK MANAGEMENT

Panzhihua Yanjiang manages its capital to ensure it 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 overall strategy of Panzhihua Yanjiang remains unchanged throughout the Relevant Period.

The capital structure of Panzhihua Yanjiang consists of debts, which include amounts due to group companies as disclosed in note 16, net of cash and cash equivalents and equity attributable to owners of Panzhihua Yanjiang, comprising paid in capital, reserves and retained profits.

The directors of Panzhihua Yanjiang review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Panzhihua Yanjiang will balance its overall capital structure through the payment of dividends as well as the issue of new debt or the redemption of existing debt.

– 43 –

APPENDIX IIA ACCOUNTANT’S REPORT OF PANZHIHUA YANJIANG

23. CAPITAL COMMITMENTS

Capital expenditure contracted for but not provided in respect of acquisition of property, plant and equipment	As at 31 December 2010 2011 2012 RMB RMB RMB 4,995,223 13,981,372 9,231,968

24. RELATED PARTY TRANSACTIONS

During the Relevant Periods, Panzhihua Yanjiang entered into the following transactions with related parties:

(a) Transactions

Immediate holding company: Sales Fellow subsidiaries: Sales Purchases A shareholder: Advisory fee paid and payable	2010 RMB 11,850,096 116,580,035 10,330,608 —	2011 RMB 115,785,284 146,998,832 3,420,196 —	2012 RMB 100,142,099 3,657,265 1,960,221 1,480,000

(b) Details of the balances with related parties are set out in the statements of financial position and notes 13, 15 and 16.

B. EVENTS AFTER THE REPORTING PERIOD

Subsequent to the reporting period, the production of Panzhihua Yanjiang’s mine was resumed.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Panzhihua Yanjiang have been prepared in respect of any period subsequent to 31 December 2012.

Yours faithfully, Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

– 44 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

The following is the text of the accountant’s report of the Target Subsidiaries prepared by Company’s auditors, Deloitte Touche Tohmatsu, for the purpose of incorporation in this circular.

==> picture [73 x 55] intentionally omitted <==

==> picture [78 x 34] intentionally omitted <==

25 June 2013

The Directors

Hidili Industry International Development Limited Room 3702, 37th Floor West Tower, Shun Tak Centre 168–200 Connaught Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information (‘‘Financial Information’’) regarding Yunnan Hidili Coal Industry Co., Ltd. (‘‘Yunnan Hidili’’) and its subsidiaries (together with Yunnan Hidili collectively referred to as the ‘‘Yunnan Hidili Group’’) for each of the three years ended 31 December 2012 (the ‘‘Relevant Periods’’) for inclusion in a circular issued by Hidili Industry International Development Limited (the ‘‘Company’’) dated 25 June 2013 (the ‘‘Circular’’) issued in connection with the major transactions in relation to the capital injections by Huaneng Guicheng Trust Co., Ltd. (‘‘Huaneng’’) to Yunnan Hidili and certain subsidiaries of the Company and share transfers.

Yunnan Hidili was established with limited liability in the People’s Republic of China (the ‘‘PRC’’) on 10 July 2009.

The particulars of Yunnan Hidili’s subsidiaries are as follows:

			Paid up
			capital as at
	Place of	Date of	31 December
Name of the Company	establishment	establishment	2012	Principal activities
			RMB
Fuyuan County Yuyuan Coal Industry	the PRC	16 July 2004	6,050,000	Coal mining and
Co., Ltd.				sale of coal
Fuyuan County Fude Coal Preparation	the PRC	30 November 2005	6,000,000	Coal washing
Co., Ltd. (‘‘Fuyuan Fude’’)

– 45 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Both subsidiaries are 80% owned by Yunnan Hidili at 31 December 2010, 31 December 2011 and 31 December 2012 and up to the date of this report.

The statutory financial statements of Yunnan Hidili Group were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC. The statutory financial statements of Yunnan Hidili Group for the Relevant Periods were audited by Sichuan Jing Wei Certified Public Accountants Co., Ltd, certified public accountants registered in the PRC.

For the purpose of this report, the directors of Yunnan Hidili have prepared the consolidated financial statements of Yunnan Hidili for the Relevant Periods in accordance with International Financial Reporting Standards (‘‘IFRSs’’) (the ‘‘Underlying Financial Statements’’). We have undertaken an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) and have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

The Financial Information of Yunnan Hidili Group for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements. No adjustments were deemed necessary by us to the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of Yunnan Hidili who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Yunnan Hidili Group as at 31 December 2010, 31 December 2011 and 31 December 2012 and of its results and cash flows for the Relevant Periods.

Without qualifying our opinion, we draw attention to note 1 to the Financial Information which indicates that Yunnan Hidili Group’s current liabilities exceeded its current assets by RMB403,448,108 as at 31 December 2012. As described in note 1 to the Financial Information, the Company has agreed to provide financial support to Yunnan Hidili Group to meet in full its financial obligations as and when they fall due in the foreseeable future. However, the Company’s going concern is dependent on the successful implementation of a number of measures as disclosed in note 1 to the Financial Information to improve its financial position. The eventual success of these measures cannot presently be determined and accordingly this indicates the existence of a material uncertainty which may cast significant doubt about Yunnan Hidili Group’s ability to continue as a going concern. The Financial Information does not include any adjustments that would result from a failure of the Company to implement such measures as disclosed in note 1 to the Financial Information.

– 46 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

A. FINANCIAL INFORMATION

Consolidated Statements of Comprehensive Income

Notes
Revenue
6
Cost of sales
Gross profit
Other income
Administrative expenses
Finance costs
7
Share of losses of associates
Profit before tax
Income tax expenses
8
Profit and total comprehensive income
for the year
9
Profit (loss) and total comprehensive
income (expense) for the year
attributable to:
Owners of the Company
Non-controlling interests

For the year ended 31 December
2010
2011
2012
RMB
RMB
RMB
306,069,286
435,682,775
370,695,794
(247,955,291)
(369,434,760)
(307,567,605)
58,113,995
66,248,015
63,128,189
15,046,463
29,461,481
29,397,300
(23,712,404)
(22,465,177)
(37,215,911)
(37,682,709)
(24,259,016)
(34,484,881)
—
—
(893,976)
11,765,345
48,985,303
19,930,721
(3,333,268)
(14,858,772)
(1,264,401)
8,432,077
34,126,531
18,666,320
7,974,133
40,975,438
15,561,361
457,944
(6,848,907)
3,104,959
8,432,077
34,126,531
18,666,320

– 47 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Consolidated Statements of Financial Position

Notes NON-CURRENT ASSETS Property, plant and equipment 12 Deposits 13 Interests in associates 14 Available-for-sale investment 15 Amount due from an intermediate holding company 19 Amounts due from fellow subsidiaries 19 CURRENT ASSETS Inventories 16 Bills and trade receivables 17 Other receivables, deposits and prepayments 18 Amount due from immediate holding company 19 Amounts due from intermediate holding companies 19 Amounts due from fellow subsidiaries 19 Amount due from a related party 19 Bank balances and cash 20 CURRENT LIABILITIES Trade payables 21 Other payables and accrued expenses 22 Amount due to immediate holding company 19 Amounts due to intermediate holding companies 19 Amounts due to fellow subsidiaries 19 Amount due to an associate 19 Tax payables Bank borrowing 23	As at 31 December 2010 2011 2012 RMB RMB RMB 638,208,053 952,987,316 1,087,711,069 259,271,433 51,000,000 1,000,000 — 103,571,433 102,677,457 — 54,700,000 54,700,000 — 27,659,594 57,526,036 398,363,969 322,740,204 366,014,800 1,295,843,455 1,512,658,547 1,669,629,362 60,606,446 32,881,283 20,782,770 27,907,308 30,255,330 109,633,321 38,842,938 82,728,058 74,413,587 — — 6,713,920 — 22,560,143 — 362,880,307 400,715,161 123,642,095 104,468,472 — 15,922,404 21,176,502 42,611,072 52,349,590 615,881,973 611,751,047 403,457,687 5,243,851 21,625,326 43,039,773 35,918,654 76,202,673 83,555,916 445,051,180 9,588,198 — 894,696,160 468,018,724 56,651,847 236,803,397 562,923,668 563,750,294 — 17,262,236 42,969,578 3,200,464 17,108,080 16,938,387 15,000,000 — — 1,635,913,706 1,172,728,905 806,905,795	As at 31 December 2010 2011 2012 RMB RMB RMB 638,208,053 952,987,316 1,087,711,069 259,271,433 51,000,000 1,000,000 — 103,571,433 102,677,457 — 54,700,000 54,700,000 — 27,659,594 57,526,036 398,363,969 322,740,204 366,014,800 1,295,843,455 1,512,658,547 1,669,629,362 60,606,446 32,881,283 20,782,770 27,907,308 30,255,330 109,633,321 38,842,938 82,728,058 74,413,587 — — 6,713,920 — 22,560,143 — 362,880,307 400,715,161 123,642,095 104,468,472 — 15,922,404 21,176,502 42,611,072 52,349,590 615,881,973 611,751,047 403,457,687 5,243,851 21,625,326 43,039,773 35,918,654 76,202,673 83,555,916 445,051,180 9,588,198 — 894,696,160 468,018,724 56,651,847 236,803,397 562,923,668 563,750,294 — 17,262,236 42,969,578 3,200,464 17,108,080 16,938,387 15,000,000 — — 1,635,913,706 1,172,728,905 806,905,795
		1,669,629,362
		20,782,770 109,633,321 74,413,587 6,713,920 — 123,642,095 15,922,404 52,349,590
		403,457,687
		43,039,773 83,555,916 — 56,651,847 563,750,294 42,969,578 16,938,387 —
		806,905,795

– 48 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Notes
NET CURRENT LIABILITIES
TOTAL ASSETS LESS CURRENT
LIABILITIES
NON-CURRENT LIABILITIES
Deferred tax liabilities
26
Provision for restoration and
environmental costs
24
Amount due to an intermediate holding
company
19
Amounts due to fellow subsidiaries
19
NET ASSETS
CAPITAL AND RESERVES
Paid in capital
25
Reserves
Equity attributable to owners of the
Company
Non-controlling interests
TOTAL EQUITY

As at 31 December
2010
2011
2012
RMB
RMB
RMB
(1,020,031,733)
(560,977,858)
(403,448,108)
275,811,722
951,680,689
1,266,181,254
88,941,990
88,908,012
88,877,596
220,985
420,069
529,960
—
418,262,551
457,985,365
43,557,544
252,090,213
268,161,245
132,720,519
759,680,845
815,554,166
143,091,203
191,999,844
450,627,088
20,000,000
20,000,000
30,303,000
64,387,580
120,145,128
365,364,413
84,387,580
140,145,128
395,667,413
58,703,623
51,854,716
54,959,675
143,091,203
191,999,844
450,627,088

– 49 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Consolidated Statements of Changes In Equity

	Attrib	utable to own	ers of the Company	ers of the Company	Total RMB 203,537,546 8,432,077 (81,748,190 12,669,770 — 200,000
Paid in capital RMB 20,000,000 — — — — — 20,000,000 — — — — — 20,000,000 — — — — 10,303,000 30,303,000	Capital reserve RMB 127,000,000 — — — — — 127,000,000 — — — — — 127,000,000 — — — — 239,697,000 366,697,000	Statutory surplus reserve RMB (Note i) — — — — 1,688,451 — 1,688,451 — — — — 350,555 2,039,006 — — — 12,623,516 — 14,662,522	Future development fund RMB (Note ii) — — — — 4,565,546 — 4,565,546 — — — — 6,043,659 10,609,205 — — — 10,405 — 10,619,610	Accumulated losses RMB (1,508,133) 7,974,133 (81,748,190) 12,669,770 (6,253,997) — (68,866,417) 40,975,438 (5,560,137) (20,132,850) 40,475,097 (6,394,214) (19,503,083) 15,561,361 (5,652,006) (4,387,070) (12,633,921) — (26,614,719)
					143,091,203 34,126,531 (5,560,137 (20,132,850 40,475,097 —
					191,999,844 18,666,320 (5,652,006 (4,387,070 — 250,000,000
					450,627,088

Notes:

(i) According to the Articles of Association of Yunnan Hidili and its subsidiaries, they are required to make an appropriation of 10% of their profit after taxation each year to statutory surplus reserve until the balance reaches 50% of their respective registered capital while they can make additional appropriation to statutory surplus reserve at their own discretion. According to the provision of the Articles of Association, in normal circumstances, the statutory surplus reserve shall only be used for making up losses, capitalisation into paid in capital and expansion of the production and operation of the respective entities.
(ii) Pursuant to the relevant regulations in the PRC, Yunnan Hidili and its subsidiaries are required to make a transfer to future development fund based on a fixed amount 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.

– 50 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Consolidated Statements of Cash Flows

Notes
OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Finance costs
Depreciation of property, plant and equipment
Interest income
Impairment loss recognised in respect of trade
receivables
Impairment loss (reversal of impairment loss)
recognised in respect of other receivables
Loss on disposal of property, plant and
equipment
Provision for restoration and environmental
costs
Imputed interest income
Share of losses of associates
Operating cash flows before movements in
working capital
(Increase) decrease in inventories
(Increase) decrease in bills and trade receivables
(Increase) decrease in other receivables and
prepayments
Increase in trade payables
Increase in other payables and accrued expenses
Cash (used in) from operations
Income taxes (paid) refund
NET CASH (USED IN) FROM OPERATING
ACTIVITIES

For the year ended 31 December
2010
2011
2012
RMB
RMB
RMB
11,765,345
48,985,303
19,930,721
37,682,709
24,259,016
34,484,881
7,006,898
6,161,548
8,675,468
(45,836)
(64,312)
(86,614)
—
1,078
—
60,000
(60,000)
73,165
3,585,132
—
—
220,985
199,084
109,891
(14,888,369)
(29,142,341)
(29,260,093)
—
—
893,976
45,386,864
50,339,376
34,821,395
(56,765,903)
27,725,163
12,098,513
(27,907,308)
15,930,900
19,742,009
(23,954,402)
(43,825,120)
2,117,522
3,387,879
16,381,475
21,414,447
6,513,718
5,776,919
10,877,027
(53,339,152)
72,328,713
101,070,913
(227,210)
(985,134)
(1,464,510)
(53,566,362)
71,343,579
99,606,403

– 51 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Notes
INVESTING ACTIVITIES
Repayment from fellow subsidiaries
Purchase of property, plant and equipment
Advance to a related party
Repayment from a related party
Deposit paid for acquisition of associates
Deposit paid for acquisition of assets
Deposits refunded
Acquisition of a subsidiary
28
Interest received
Proceeds from disposal of property, plant and
equipment
Advance to intermediate holding companies
Advance to fellow subsidiaries
Advance to immediate holding company
Repayment from intermediate holding companies
NET CASH (USED IN) FROM INVESTING
ACTIVITIES
FINANCING ACTIVITIES
Interest paid
Advance from fellow subsidiaries
Advance from immediate holding company
Advance from intermediate holding companies
Repayment to fellow subsidiaries
Repayment to immediate holding company
Repayment to intermediate holding companies
Repayment of bank borrowing
Advance from an associate
Capital injection
NET CASH FROM (USED TO) FINANCING
ACTIVITIES
NET INCREASE IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS BROUGHT
FORWARD
CASH AND CASH EQUIVALENTS CARRIED
FORWARD, representing bank balances and
cash

For the year ended 31 December
2010
2011
2012
RMB
RMB
RMB
—
529,313,207
564,053,123
(253,547,268)
(276,613,746)
(122,874,460)
(153,468,472)
(179,711,528)
(264,099,788)
49,000,000
265,900,000
149,057,384
(103,571,433)
—
—
(25,500,000)
—
—
—
50,000,000
—
541
—
—
45,836
64,312
86,614
382,863,652
—
—
—
(55,638,841)
(33,625,242)
(810,599,446)
(482,655,838)
(307,274,836)
—
—
(6,713,920)
—
—
22,560,143
(914,776,590)
(149,342,434)
1,169,018
(37,682,709)
(25,868,022)
(36,338,610)
442,621,083 1,498,542,613
748,251,231
190,929,184
18,684,640
2,382,522
1,070,407,893
581,404,947
461,936,917
(340,493,401)
(931,625,535)
(747,424,605)
—
(454,147,622)
(11,970,720)
(340,001,733)
(589,819,832)
(783,580,980)
—
(15,000,000)
—
—
17,262,236
25,707,342
—
—
250,000,000
985,780,317
99,433,425
(91,036,903)
17,437,365
21,434,570
9,738,518
3,739,137
21,176,502
42,611,072
21,176,502
42,611,072
52,349,590

– 52 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Notes to the Financial Information

1. GENERAL AND BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

The principal activities of Yunnan Hidili Group is mining and sale of raw coal and clean coal. Its immediate holding company is Shenzhen City Hidili Commercial and Trading Co., Limited, a company established in the PRC. The Company, a company incorporated in the Cayman Islands with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited, is an intermediate holding company of Yunnan Hidili. In the opinion of the directors of Yunnan Hidili, the ultimate holding company of Yunnan Hidili is Sarasin Trust Company Guernsey Limited, a company incorporated in the British Virgin Islands which is controlled by Mr. Xian Yang, the Chief Executive and Executive Director of the Company. The address of the registered office and principal place of business of Yunnan Hidili is Bumu Village, Mohong Town, Fuyuan County, Yunnan Province, PRC.

The Financial Information is presented in Renminbi (‘‘RMB’’), which is the same as the functional currency of Yunnan Hidili.

In preparing the Underlying Financial Statements, the directors of Yunnan Hidili have taken into consideration that Yunnan Hidili Group’s current liabilities exceeded its current assets by RMB403,448,108 as at 31 December 2012.

The Financial Information has been prepared on a going concern basis because the Company has agreed to provide financial support to Yunnan Hidili Group to meet in full its financial obligations as and when they fall due in the foreseeable future. The Company has been implementing a number of measures to improve its financial position, including but not limited to: (1) approaching banks and independent third parties in the PRC to obtain new medium to long-term facilities of not less than RMB2.5 billion; (2) negotiating with a bank to review and renew banking facilities repayable within 12 months from draw down to repayable after 12 months from draw down of not less than RMB400 million; and (3) proposed disposal of 50% equity interests in certain of its subsidiaries for a total consideration of RMB2.4 billion, details of which are set out in the Company’s announcement dated 24 May 2013. The directors of Yunnan Hidili believe that the above measures can be successfully implemented and therefore the Company will have sufficient working capital to finance the operations of Yunnan Hidili Group and Yunnan Hidili Group can meet its financial obligation as and when they fall due for the foreseeable future.

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Financial Information, throughout the Relevant Periods, Yunnan Hidili Group has consistently adopted all of the new and revised standards, amendments and interpretations which are or have been effective for Yunnan Hidili Group’s financial year beginning on 1 January 2012.

Yunnan Hidili Group has not early applied the following new and revised IFRSs that have been issued but are not yet effective:

Amendments to IFRSs Annual Improvements to IFRSs 2009–2011 Cycle[2] Amendments to IFRS 7 Disclosure — Offsetting Financial Assets and Financial Liabilities[2] Amendments to IFRS 7 and IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures[4] Amendments to IFRS 10, IFRS 11 Consolidated Financial Statements, Joint Arrangements and Disclosure and IFRS 12 of Interests in Other Entities: Transition Guidance[2] Amendments to IFRS 10, IFRS 12 Investment Entities[3] and IAS 27 IFRS 9 Financial Instruments[4] IFRS 10 Consolidated Financial Statements[2] IFRS 11 Joint Arrangements[2] IFRS 12 Disclosure of Interests in Other Entities[2] IFRS 13 Fair Value Measurement[2] IAS 19 (Revised 2011) Employee Benefits[2] IAS 27 (Revised 2011) Separate Financial Statements[2] IAS 28 (Revised 2011) Investments in Associates and Joint Ventures[2] Amendments to IAS 1 Presentation of Items of Other Comprehensive Income[1] Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities[3] Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets[3] IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine[2] IFRIC 21 Levies[3]

– 53 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

1 Effective for annual periods beginning on or after 1 July 2012. 2 Effective for annual periods beginning on or after 1 January 2013. 3 Effective for annual periods beginning on or after 1 January 2014. 4 Effective for annual periods beginning on or after 1 January 2015.

The directors of Yunnan Hidili anticipate that the application of the new and revised IFRSs will have no material impact on the results and the financial position of Yunnan Hidili Group.

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

The principal accounting policies are set out below.

Basis of consolidation

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

Income and expenses of subsidiaries acquired during the year are included in the consolidated statements of comprehensive income from the effective date of acquisition.

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

All intra-group transaction, balances, income and expenses are eliminated in full on consolidation.

Non-controlling interests in subsidiaries are presented separately from the Yunnan Hidili Group’s equity therein.

Investment in associates

An associate is an entity over which the Yunnan Hidili Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in the Financial Information using the equity method of accounting. The financial statements of associates used for equity accounting purposes are prepared using uniform accounting policies as those of the Yunnan Hidili Group for like transactions and events in similar circumstances. Under the equity method, investments in associates are initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Yunnan Hidili Group’s share of the profit or loss and other comprehensive income of the associates. When the Yunnan Hidili Group’s share of losses of an associate exceeds the Yunnan Hidili Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Yunnan Hidili Group’s net investment in the associate), the Yunnan Hidili Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Yunnan Hidili Group has incurred legal or constructive obligations or made payments on behalf of that associate.

– 54 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Any excess of the cost of acquisition over the Yunnan Hidili Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Yunnan Hidili Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Yunnan Hidili Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

When a Yunnan Hidili Group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognised in the Yunnan Hidili Group’ consolidated financial statements only to the extent of interests in the associate that are not related to the Yunnan Hidili Group.

Revenue recognition

Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

. Yunnan Hidili Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
. Yunnan Hidili Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
. the amount of revenue can be measured reliably;
. it is probable that the economic benefits associated with the transaction will flow to Yunnan Hidili Group; and
. the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to Yunnan Hidili Group and the amount of income can be measured reliably. Interest income 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 asset to that asset’s net carrying amount on initial recognition.

Property, plant and equipment

Property, plant and equipment including land and buildings held for use in the production or supply of goods or services, or for administrative purposes, other than construction in progress, are stated in the consolidated statements of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses. Depreciation on these assets, other than mining structures and mining rights, is recognised so as to write off the cost of assets less their residual value over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

– 55 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Construction in progress represents property, plant and equipment in the course of construction for production or for its own use purpose. Construction in progress is carried at costs less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs capitalised in accordance with Yunnan Hidili Group’s accounting policy. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Borrowing costs

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefits costs

Payments to state-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

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 before tax’’ as reported in the consolidated statements of comprehensive income 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. Yunnan Hidili Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, except where the Yunnan Hidili 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. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

– 56 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which Yunnan Hidili Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax are recognised in profit or loss.

Inventories

Provision for restoration and environmental costs

Yunnan Hidili Group is required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined. Provisions for restoration and environmental costs are required when Yunnan Hidili Group has a present obligation as a result of a past event, it is probable that Yunnan Hidili Group will be required to settle the obligation. Provisions are measured at the directors of Yunnan Hidili Group’s best estimation of the consideration required to settle the present obligation at the end of the reporting period, and are discounted to present value where the effect is material.

Financial instruments

Financial assets and financial liabilities are recognised in the consolidated statements of financial position when Yunnan Hidili Group becomes a party to the contractual provisions of the instrument.

Financial assets

Yunnan Hidili Group’s financial assets are loans and receivables and available-for-sale investment. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

Interest income is recognised on an effective interest basis for debt instruments.

– 57 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including other receivables and deposits, bills and trade receivables, amount due from a related party, amounts due from fellow subsidiaries, amount due from immediate holding company, amounts due from intermediate holding companies and bank balances and cash) are measured at amortised cost using the effective interest method, less any identified impairment.

Available-for-sale investment (‘‘AFS’’)

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

AFS 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 the end of each reporting period.

Impairment of financial assets

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

. significant financial difficulty of the issuer or counterparty; or
. breach of contract, such as default or delinquency in interest or principal payments; or
. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For loans and receivables, the amount of impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

For financial assets carries 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 loans and receivables is reduced by the impairment loss directly for all the financial assets.

For loans and receivables, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised 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 amortised cost would have been had the impairment not been recognised.

Derecognition

Yunnan Hidili Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

– 58 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

Financial liabilities and equity instruments

Debt and equity instruments issued by Yunnan Hidili Group are classified either as financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Effective interest method

Interest expense is recognised on an effective interest basis.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of Yunnan Hidili Group after deducting all of its liabilities. Equity instruments issued by Yunnan Hidili Group are recognised at the proceeds received, net of direct issue costs.

Financial liabilities

Financial liabilities including trade payables, other payables, amounts due to intermediate holding companies, amount due to immediate holding company, amount due to an associate, amounts due to fellow subsidiaries and bank borrowing are subsequently measured at amortised cost, using the effective interest method.

Derecognition

Yunnan Hidili Group derecognises financial liabilities when, and only when, Yunnan Hidili Group’s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Impairment of tangible assets

At the end of each reporting period, Yunnan Hidili Group reviews the carrying amounts of its tangible assets with finite useful lives 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 is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, Yunnan Hidili Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

– 59 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of Yunnan Hidili Group’s accounting policies, which are described in note 3, the directors of Yunnan Hidili are 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.

Depreciation of property, plant and equipment

Property, plant and equipment other than mining structures and mining rights are depreciated on a straight-line basis over their useful lives, after taking into account their estimated residual value. Mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines. The directors of Yunnan Hidili assess annually the residual value and the useful life of the property, plant and equipment as well as the reserve of the coal mines. If the expectation differs from the original estimate, such difference will impact the depreciation and the amortisation charged in the year in which such estimate is changed. The carrying amount of property, plant and equipment was RMB638,208,053, RMB952,987,316 and RMB1,087,711,069 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively. Details of property, plant and equipment are disclosed in note 12.

As explained in note 3, mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines.

Engineering estimates of Yunnan Hidili Group’s mineral reserves involved subjective judgements by mineral engineers in developing such information. There is a Chinese system, which is the national standard set by the PRC Government, regarding the engineering criteria that have to be met before estimated mineral reserves can be designated as ‘‘proven’’. Proven reserve estimates are updated on a regular basis and are taken into account as a change in estimate for accounting purposes and are reflected on a prospective basis in related depreciation and amortisation rates. If the expectation differs from the original reserve estimate, such difference will impact the depreciation and amortisation charged in the year in which such estimate is changed. The carrying amount of mining structures and mining rights was RMB498,374,772, RMB569,316,882 and RMB903,880,593 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively.

Estimated impairment of property, plant and equipment

– 60 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Determining whether an impairment loss on mining structure and mining rights requires an estimate of the recoverable amount of the cash-generating unit (‘‘CGU’’) to which the asset belongs. Management of Yunnan Hidili consider that Yunnan Hidili Group continues to use the relevant assets and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. The value in use calculation requires Yunnan Hidili Group to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. Where the future cash flows are less than expected or due to changes in estimates, a material impairment loss may arise. As at 31 December 2010, 31 December 2011 and 31 December 2012, the carrying amounts of mining structures and mining rights was RMB498,374,772, RMB569,316,882 and RMB903,880,593, respectively.

5. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Available for sales Financial liabilities Amortised cost	As at 31 December 2010 2011 RMB RMB 933,030,815 862,711,185 — 54,700,000 933,030,815 917,411,185 1,660,871,302 1,803,147,269	2012 RMB 774,990,193 54,700,000
		829,690,193
		1,501,475,875

(b) Financial risk management objectives and policies

Yunnan Hidili Group’s major financial instruments include bills and trade receivables, other receivables and deposits, bank balances, trade payables, other payables and amounts due from and to related parties. Details of these financial instruments are set out in respective notes. The risks associated with these financial instruments include market risk (interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. Management of Yunnan Hidili Group manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Market risk

Interest rate risk

Yunnan Hidili Group is exposed to cash flow interest rate risk in relation to variable rate bank balances and fair value interest rate risk in relation to bank borrowing and certain balances of amounts due from and to group companies which carry fixed interest rate (see notes 20, 23 and 19 for details). The directors of Yunnan Hidili consider the exposure of interest-bearing bank balances is not significant as bank balances are in short maturity period. Yunnan Hidili Group currently does not have an interest rate hedging policy. However, management closely monitors interest rate exposure and will consider hedging significant interest rate change exposure when the need arise. No sensitivity analysis is presented as the directors of Yunnan Hidili Group consider the amount is insignificant.

(ii) Credit risk

As at the end of each reporting period, Yunnan Hidili Group’s maximum exposure to credit risk which will cause a financial loss to Yunnan Hidili Group due to failure to discharge an obligation by the counterparties is arising from the carrying amounts of the respective recognised financial assets as stated in the consolidated statements of financial position.

– 61 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Management of Yunnan Hidili Group reviews the recoverable amount of each individual debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, management of Yunnan Hidili Group considers that the credit risk is significantly reduced.

Other than concentration of credit risks on group companies which management of Yunnan Hidili reviews the financial positions and repayment abilities of respective group companies, Yunnan Hidili Group does not have any other significant concentration of credit risk, with exposure spread over a number of counterparties having similar characteristics.

The credit risk on liquid funds is limited because the counterparties are banks with good reputation.

(iii) Liquidity risk

In the management of the liquidity risk, Yunnan Hidili Group monitors and maintains a level of cash and cash equivalents deemed adequate by management of Yunnan Hidili Group to finance the its operations and mitigate the effects of fluctuations in cash flows.

Yunnan Hidili Group relies on advances from related parties as a significant source of liquidity. Details of which are set out in note 19.

At 31 December 2012, Yunnan Hidili Group had net current liabilities of RMB403,448,108. As the Company has agreed to provide financial support to Yunnan Hidili Group to meet in full its financial obligations as they fall due in the foreseeable future, the directors of Yunnan Hidili consider the liquidity risk of Yunnan Hidili Group is insignificant.

The following tables detail Yunnan Hidili Group’s remaining contractual maturity for its nonderivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which Hidili Industry can be required to pay.

Weighted average interest rate % Trade payables — Other payables — Amount due to immediate holding company 5.76 Amounts due to intermediate holding companies — Amounts due to fellow subsidiaries 0.19 Bank borrowing — fixed rate 8.10	On demand or within 1 year RMB 5,243,851 20,519,170 445,051,180 894,696,160 236,803,397 15,401,685 1,617,715,443	More than 1 year and less than 2 years RMB — — — — — — —	More than 2 years and less than 5 years RMB — — — — 56,227,314 — 56,227,314	Total undiscounted cash flows RMB 5,243,851 20,519,170 445,051,180 894,696,160 293,030,711 15,401,685 1,673,942,757	Carrying amount at 31 December 2010 RMB 5,243,851 20,519,170 445,051,180 894,696,160 280,360,941 15,000,000
					1,660,871,302

– 62 –

APPENDIX IIB

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

Weighted average interest rate % Trade payables — Other payables — Amount due to immediate holding company 5.76 Amounts due to intermediate holding companies 4.69 Amounts due to fellow subsidiaries 2.41 Amount due to an associate — Weighted average interest rate % Trade payables — Other payables — Amount due to an intermediate holding company 7.26 Amounts due to fellow subsidiaries 2.14 Amount due to an associate —	On demand or within 1 year RMB 21,625,326 53,376,353 9,588,198 468,018,724 562,923,668 17,262,236 1,132,794,505 On demand or within 1 year RMB 43,039,773 68,917,773 56,651,847 563,750,294 42,969,578 775,329,265	More than 1 year and less than 2 years RMB — — — — — — — More than 1 year and less than 2 years RMB — — 105,752,389 — — 105,752,389	More than 2 years and less than 5 years RMB — — — 582,328,626 297,024,121 — 879,352,747 More than 2 years and less than 5 years RMB — — 458,514,190 297,024,121 — 755,538,311	Total undiscounted cash flows RMB 21,625,326 53,376,353 9,588,198 1,050,347,350 859,947,789 17,262,236 2,012,147,252 Total undiscounted cash flows RMB 43,039,773 68,917,773 620,918,426 860,774,415 42,969,578 1,636,619,965	Carrying amount at 31 December 2011 RMB 21,625,326 53,376,353 9,588,198 886,281,275 815,013,881 17,262,236
					1,803,147,269
					Carrying amount at 31 December 2012 RMB 43,039,773 68,917,773 514,637,212 831,911,539 42,969,578
					1,501,475,875

(c) Fair value

The fair value of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The management of the Yunnan Hidili Group considers that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate to their fair values.

6. REVENUE AND SEGMENT INFORMATION

Revenue represents sale of raw coal at invoiced value net of discounts and sales related taxes during the Relevant Periods.

The directors of Yunnan Hidili, being the chief operating decision makers, assess the performance and allocate the resources of Yunnan Hidili Group as a whole because Yunnan Hidili Group is mainly engaged in mining. Therefore, the directors of Yunnan Hidili consider that Yunnan Hidili Group only has one operating segment under IFRS 8. In this regard, no segment information is presented.

– 63 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Geographical information

The operations and assets of Yunnan Hidili Group are located in the PRC.

Information about major customers

Revenue from customers, other than related parties as disclosed in note 31(a), of the corresponding years contributing over 10% of the total sales of Yunnan Hidili Group are as follows:

		For the	year ended 31 December
		2010	2011	2012
		RMB	RMB	RMB
Customer	A	44,124,372	105,030,588	N/A*

The corresponding revenue did not contribute over 10% of the total sales of Yunnan Hidili Group.

7. FINANCE COSTS

Interest expense on borrowings wholly repayable within five years: — bank borrowings — amount due to immediate holding company — amounts due to intermediate holding companies Imputed interest expense on amounts due to fellow subsidiaries Less: Interest capitalised in construction in progress	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 6,924,384 401,685 — 30,758,325 — — — 25,466,337 36,338,610 — 8,210,959 16,071,032 37,682,709 34,078,981 52,409,642 — (9,819,965) (17,924,761 37,682,709 24,259,016 34,484,881	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 6,924,384 401,685 — 30,758,325 — — — 25,466,337 36,338,610 — 8,210,959 16,071,032 37,682,709 34,078,981 52,409,642 — (9,819,965) (17,924,761 37,682,709 24,259,016 34,484,881
		52,409,642 (17,924,761
		34,484,881

INCOME TAX EXPENSE

Current tax: PRC Enterprise Income Tax Underprovision in prior years Deferred tax (Note 26)	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 3,427,674 14,711,271 1,294,817 — 181,479 — 3,427,674 14,892,750 1,294,817 (94,406) (33,978) (30,416 3,333,268 14,858,772 1,264,401	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 3,427,674 14,711,271 1,294,817 — 181,479 — 3,427,674 14,892,750 1,294,817 (94,406) (33,978) (30,416 3,333,268 14,858,772 1,264,401
		1,294,817 (30,416
		1,264,401

No provision for Hong Kong Profits Tax has been made as Yunnan Hidili Group’s income neither arises in, nor is derived from, Hong Kong.

Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of the EIT Law, the statutory tax rate of Yunnan Hidili Group is 25% during the Relevant Periods.

– 64 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

The income tax expenses for the year can be reconciled to the profit before taxation as follows:

Profit before tax Tax at applicable tax rate of 25% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable Tax effect of tax losses not recognised Utilisation of tax losses previously not recognised Underprovision in prior year Others Income tax expenses for the year 9. PROFIT FOR THE YEAR Profit for the year has been arrived at after charging (crediting): Cost of inventories recognised as expense Depreciation of property, plant and equipment Provision for restoration and environmental cost (Note 24) Impairment loss (reversal of impairment loss) recognised in respect of — trade receivables — other receivables Loss on disposal of property, plant and equipment Salaries and other benefits Retirement benefit costs Total staff costs Bank interest income Imputed interest income on amounts due from fellow subsidiaries Imputed interest income on amount due from intermediate holding company	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 11,765,345 48,985,303 19,930,721 2,941,336 12,246,326 4,982,680 1,510,713 2,297,630 4,232,933 (3,722,092) (7,285,585) (7,315,023) 1,707,027 6,459,881 7,190,318 — — (7,826,507) — 181,479 — 896,284 959,041 — 3,333,268 14,858,772 1,264,401 For the year ended 31 December 2010 2011 2012 RMB RMB RMB 247,955,291 369,434,760 307,567,605 7,006,898 6,161,548 8,675,468 220,985 199,084 109,891 — 1,078 — 60,000 (60,000) 73,165 3,585,132 — — 16,170,701 18,504,273 15,434,988 1,011,736 1,065,407 2,392,027 17,182,437 19,569,680 17,827,015 (45,836) (64,312) (86,614) (14,888,369) (29,001,308) (27,366,887) — (141,033) (1,893,206)	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 11,765,345 48,985,303 19,930,721 2,941,336 12,246,326 4,982,680 1,510,713 2,297,630 4,232,933 (3,722,092) (7,285,585) (7,315,023) 1,707,027 6,459,881 7,190,318 — — (7,826,507) — 181,479 — 896,284 959,041 — 3,333,268 14,858,772 1,264,401 For the year ended 31 December 2010 2011 2012 RMB RMB RMB 247,955,291 369,434,760 307,567,605 7,006,898 6,161,548 8,675,468 220,985 199,084 109,891 — 1,078 — 60,000 (60,000) 73,165 3,585,132 — — 16,170,701 18,504,273 15,434,988 1,011,736 1,065,407 2,392,027 17,182,437 19,569,680 17,827,015 (45,836) (64,312) (86,614) (14,888,369) (29,001,308) (27,366,887) — (141,033) (1,893,206)
		15,434,988 2,392,027
		17,827,015 (86,614) (27,366,887) (1,893,206)

10. DIRECTORS’ EMOLUMENTS AND EMPLOYEES’ EMOLUMENTS

Directors’ emoluments

During the Relevant Periods, no fees or other emoluments was paid or payable by Yunnan Hidili Group to its directors.

During the Relevant Periods, no remuneration was paid by Yunnan Hidili Group to its directors as an inducement to join or upon joining Yunnan Hidili or as compensation for loss of office. None of the directors has waived any remuneration during the Relevant Periods.

– 65 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Employees’ emoluments

The five highest paid individuals for the Relevant Periods were as follows:

Salaries and other allowances Contributions to retirement benefit schemes	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 1,083,486 1,545,205 1,442,738 6,413 11,153 18,693 1,089,899 1,556,358 1,461,431	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 1,083,486 1,545,205 1,442,738 6,413 11,153 18,693 1,089,899 1,556,358 1,461,431
		1,461,431

Each of their emoluments were within HK$1,000,000 (approximately RMB800,000).

During the Relevant Periods, no emolument was paid or payable by Yunnan Hidili Group to the five highest paid individuals as an inducement to join Yunnan Hidili Group as compensation for loss of office.

11. EARNINGS PER SHARE

Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful.

– 66 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

12. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2010 Additions Acquired by acquisition of subsidiary (Note 28) Transfer Disposals At 31 December 2010 Additions Transfer At 31 December 2011 Additions Transfer At 31 December 2012 DEPRECIATION AND AMORTISATION At 1 January 2010 Charge for the year Eliminated on disposals At 31 December 2010 Charge for the year At 31 December 2011 Charge for the year At 31 December 2012 CARRYING AMOUNTS At 31 December 2010 At 31 December 2011 At 31 December 2012	Buildings RMB 12,549,633 — 4,576,350 — (10,879,625) 6,246,358 112,783 831,223 7,190,364 — 254,056 7,444,420 241,549 609,166 (15,620) 835,095 210,179 1,045,274 308,920 1,354,194 5,411,263 6,145,090 6,090,226	Mining structures and mining rights RMB 829,893,302 7,759,183 9,872,870 — (345,431,634) 502,093,721 73,258,501 — 575,352,222 51,358,000 284,905,963 911,616,185 689,001 3,029,948 — 3,718,949 2,316,391 6,035,340 1,700,252 7,735,592 498,374,772 569,316,882 903,880,593	Machinery RMB 15,191,125 7,230,299 1,581,452 — (6,404,614) 17,598,262 50,360,831 — 67,959,093 11,942,179 5,129,603 85,030,875 1,434,016 2,085,153 (382,323) 3,136,846 2,408,431 5,545,277 5,386,532 10,931,809 14,461,416 62,413,816 74,099,066	Motor vehicles RMB 3,239,269 5,540,625 — — (3,608,659) 5,171,235 633,248 — 5,804,483 271,600 — 6,076,083 173,115 1,120,335 (91,945) 1,201,505 956,163 2,157,668 911,128 3,068,796 3,969,730 3,646,815 3,007,287	Office and electronic equipment RMB 727,921 1,207,588 — 144,616 (288,726) 1,791,399 1,725,352 — 3,516,751 — 1,184,278 4,701,029 43,682 162,296 (904) 205,074 270,384 475,458 368,636 844,094 1,586,325 3,041,293 3,856,935	Construction in progress RMB 44,773,008 90,102,473 — (144,616) (20,326,318) 114,404,547 194,850,096 (831,223) 308,423,420 79,827,442 (291,473,900) 96,776,962 — — — — — — — — 114,404,547 308,423,420 96,776,962	Total RMB 906,374,258 111,840,168 16,030,672 — (386,939,576
							647,305,522 320,940,811 —
							968,246,333 143,399,221 —
							1,111,645,554
							2,581,363 7,006,898 (490,792
							9,097,469 6,161,548
							15,259,017 8,675,468
							23,934,485
							638,208,053
							952,987,316
							1,087,711,069

The following estimated useful lives are used for the depreciation of property, plant and equipment, other than mining structures and mining rights as well as construction in progress:

Buildings 15 to 35 years Machinery 5 to 15 years Motor vehicles, office and electronic 5 to 10 years equipment

– 67 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

The mining structures and mining rights include the main and auxiliary mine shafts and underground tunnels. The mining rights have average legal lives of 3 to 8 years but in the opinion of the directors of the Yunnan Hidili Group, the Yunnan Hidili Group will be able to renew the mining rights without incurring significant costs.

Depreciation and amortisation are provided to write off the cost of the mining structures and mining rights using the units of production method based on the total proven reserves of the coal mine.

The construction in progress comprise mainly the main and auxiliary mine shafts and underground tunnels in the course of construction.

During the year ended 31 December 2012, the operations in mines of Yunnan Hidili Group have been suspended for safety inspection and government deliberations since the occurrence of accidents in the vicinity. At 31 December 2012, the carrying amounts of construction in progress and property, plant and equipment other than construction in progress, in respect of mines which were still suspended are RMB96,776,962 and RMB990,934,107, respectively.

For the purpose of the impairment testing of mining structure and mining rights of the mines being under suspension of production or construction for safety inspection and government deliberations, management of Yunnan Hidili Group considers that Yunnan Hidili Group will continue to use the relevant assets in the foreseeable future and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. Value in use calculation is based on the discount rates of 14.9% and cash flow projections prepared from financial forecasts approved by the directors of Yunnan Hidili for the next five years, taking into account the best estimates of management of Yunnan Hidili Group concerning the likely dates for resumption of mining operations and development. The CGUs cashflows beyond the 5-year period are extrapolated using a zero growth rate until the coal reserves have been mined based on existing production capacities. Other key assumptions for the value in use calculation related to the estimation of cash inflows/outflows which include future coal price and gross margin, such estimation is based on the estimation provided by management of Yunnan Hidili Group. Based on the assumptions applied, the recoverable amounts are above its carrying amounts of the relevant CGUs, accordingly, management of Yunnan Hidili Group has determined that there is no impairment of the mining structure and mining rights.

13. DEPOSITS

Deposit paid for acquisition of associates Deposit paid for acquisition of available-for-sale investment Deposit paid for investments (note 27) Other deposits	As at 31 December 2010 2011 RMB RMB 103,571,433 — 54,700,000 — 100,000,000 50,000,000 1,000,000 1,000,000 259,271,433 51,000,000	2012 RMB — — — 1,000,000
		1,000,000

14. INTERESTS IN ASSOCIATES

Cost of investment in associates — unlisted Share of post-acquisition loss and other comprehensive expense	As at 31 December 2010 2011 RMB RMB — 103,571,433 — — — 103,571,433	2012 RMB 103,571,433 (893,976
		102,677,457

– 68 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

Details of the Yunnan Hidili Group’s associates at the end of the reporting period are as follows:

		Proportion of ownership	Proportion of ownership	Proportion of ownership
		interest and voting		power
	Place of	held by the Company
	establishment	As at	31 December		Principal
Name of associate	and operation	2010	2011	2012	activities
富源金通煤焦有限公司Translated	The PRC	—	47.38%	47.38%	Warehouse
as Fuyuan Jintong Coking					management and
Company Limited					provision of railway
(‘‘Fuyuan Jintong’’)					logistics service
富源昆鐵選煤有限公司Translated	The PRC	—	20%	20%	Clean coal washing
as Fuyuan Kuntie Coal Washing					and processing
Company Limited
(‘‘Fuyuan Kuntie’’)

At 31 December 2011 and 2012, included in the cost of investments in associates is goodwill of RMB55,395,000 and RMB14,995,000 arising from acquisition of Fuyuan Jintong and Fuyuan Kuntie respectively.

Summarised financial information in respect of the Group’s associates is set out below.

Total assets Total liabilities Net assets Yunnan Hidili Group’s share of net assets Total revenue Total loss and other comprehensive expense for the year Yunnan Hidili Group’s share of losses of associates for the year 15. AVAILABLE-FOR-SALE INVESTMENT Available-for-sale investment comprise: Unlisted equity security	As at 31 December 2010 2011 RMB RMB — 137,571,662 — (52,535,599) — 85,036,063 — 33,181,433 — — — — — — As at 31 December 2010 2011 RMB RMB — 54,700,000	2012 RMB 174,015,999 (90,690,022) 83,325,977 32,287,457 241,500,665 1,710,087 893,976 2012 RMB 54,700,000

The unlisted equity investment represent 18% equity interest in an entity established in the PRC. The principal activity of the investee is provision of transportation services. The unlisted equity is measured at cost less impairment at the end of the reporting period because the range of reasonable fair value estimates is so significant that the directors of Yunnan Hidili are of the opinion that their fair values cannot be measured reliably.

– 69 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

16. INVENTORIES

Coal products Auxiliary materials and spare parts BILLS AND TRADE RECEIVABLES Trade receivables Less: Allowance for doubtful debts Bills receivables	As at 31 December 2010 2011 RMB RMB 48,201,571 19,288,952 12,404,875 13,592,331 60,606,446 32,881,283 As at 31 December 2010 2011 RMB RMB 27,607,308 10,076,408 — (1,078) 27,607,308 10,075,330 300,000 20,180,000 27,907,308 30,255,330	2012 RMB 15,211,380 5,571,390
		20,782,770
		2012 RMB 5,913,321 —
		5,913,321 103,720,000
		109,633,321

17. BILLS AND TRADE RECEIVABLES

The Yunnan Hidili Group generally allows an average credit period ranging from 90–120 days to its trade customers and the average credit period for bills receivables is ranging from 90–180 days.

The aged analysis of bills and trade receivables, net of allowances presented based on the invoice date at the end of the reporting period which approximately respective revenue recognition dates, is as follows:

Aged: 0–90 days 91–120 days 121–180 days 181–365 days Over 365 days	As at 31 December 2010 2011 RMB RMB 27,797,459 13,373,822 109,849 5,201,648 — 11,650,000 — 29,860 — — 27,907,308 30,255,330	2012 RMB 65,079,816 1,502,120 40,000,000 3,000,000 51,385
		109,633,321

Before accepting any new customer, the Yunnan Hidili Group will assess credit worthiness by customer. As the customers are mostly the renowned steel manufacturer, therefore based on the past history, the eventual collectability of the receivables neither past due nor impaired is expected.

Included in the Yunnan Hidili Group’s bills and trade receivables at 31 December 2010, 31 December 2011 and 31 December 2012 are debtors with aggregate carrying amount of nil, RMB29,860 and RMB3,051,385, respectively which are past due as at the reporting date for which the Yunnan Hidili Group has not provided for impairment loss as assessed based on the management’s past experience and subsequent settlement pattern of these receivables.

– 70 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

18. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

At 31 December, 2010, 31 December 2011 and 31 December 2012 included in other receivables, deposits and prepayments are other tax receivables of RMB11,200,876, RMB27,801,396 and RMB10,548,852; and prepayment of nil, nil and RMB2,250,000 for advisory service to Huaneng, a shareholder of Yunnan Hidili, respectively.

19. AMOUNTS DUE FROM AND TO RELATED PARTIES

At 31 December 2010, except for amount due from fellow subsidiaries of RMB398,363,969 which will be recovered in two to four year time from initial recognition, amounts due from group companies are expected to be recovered in one year. The effective interest of amounts due from fellow subsidiaries expected to be recovered in two to four year time was ranged from 6.15% to 6.40% per annum. All amounts due from related parties are interest free and unsecured.

Except for amounts due to fellow subsidiaries at 31 December 2010 of RMB43,557,544 which will be settled in four year time from initial recognition, other amounts due to related parties will be settled in one year. In addition, except for amount due to immediate holding company of RMB445,051,180 is interest bearing at 5.76% per annum and repayable on demand, all amounts due to related parties are interest free. All amounts due to related parties are unsecured. The effective interest of amounts due to fellow subsidiaries will be settled to be recovered in four year time is 6.15% per annum.

At 31 December 2011, except for amounts due from an intermediate holding company and fellow subsidiaries of RMB27,659,594 and RMB322,740,204, respectively, which will be recovered in two to four year time from initial recognition, amounts due from related parties are expected to be recovered in one year. The effective interest of amounts due from intermediate holding companies and fellow subsidiaries expected to be recovered in two to four year time was ranged from 6.15% to 6.40% per annum. All amounts due from related parties are interest free and unsecured.

Except for amounts due to fellow subsidiaries at 31 December 2011 of RMB252,090,213 which will be settled in three to four year time from initial recognition and amount due to an intermediate holding company of RMB418,262,551 which will be settled in five years from initial recognition, all amounts due to related parties will be settled in one year. Except for amount due to an intermediate holding company of RMB418,262,551 which borne interest at 8.625% per annum, all amounts due to related parties are interest free. All amounts due to related parties are unsecured. The effective interest of amounts due to fellow subsidiaries expected to be recovered in three to four year time is range from 6.15% to 6.40% per annum.

At 31 December 2012, except for amounts due from an intermediate holding company and fellow subsidiaries of RMB57,526,036 and RMB366,014,800, respectively, which will be recovered in two to four year time from initial recognition, amounts due from related parties are expected to be recovered in one year. The effective interest of amounts due from an intermediate holding company and fellow subsidiaries expected to be recovered in two to four year time was ranged from 6.15% to 6.4% per annum. All amounts due from related parties are interest free and unsecured.

Except for amounts due to fellow subsidiaries at 31 December 2012 of RMB268,161,245 which will be settled in three years time from initial recognition and amounts due to intermediate holding companies of RMB457,985,365 which will be settled in five years, all amounts due to related parties will be settled in one year. Except for amounts due to intermediate holding company of RMB457,985,365 which borne interest range from 5.49% to 8.625% per annum, all amounts due to related parties are interest free. All amounts due to related parties are unsecured. The effective interest of amounts due to fellow subsidiaries expected to be recovered in three years time is range from 6.15% to 6.40% per annum.

Related party is a shareholder of a fellow subsidiary’s associate.

There is not credit terms and policies on the trading balances with group companies.

– 71 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

20. BANK BALANCES AND CASH

Bank balances as at 31 December 2010, 31 December 2011 and 31 December 2012 carried interests at market rates range from 0.35% to 0.50% per annum.

21. TRADE PAYABLES

The aged analysis of Yunnan Hidili Group trade payables based on invoice date at the end of the reporting period is as follows:

Aged: 0–90 days 91–180 days 181–365 days Over 365 days	As at 31 December 2010 2011 RMB RMB 5,030,331 20,998,089 141,348 428,230 72,172 11,171 — 187,836 5,243,851 21,625,326	2012 RMB 12,340,137 15,604,433 4,862,380 10,232,823
		43,039,773

The average credit period on purchases of goods is 90 days.

22. OTHER PAYABLES AND ACCRUED EXPENSES

At 31 December 2010, 31 December 2011 and 31 December 2012, included in other payables and accrued expense is payable for acquisition of property, plant and equipment of RMB11,992,900, RMB46,500,000 and RMB49,100,000; and other tax payables of RMB5,335,239, nil and RMB6,923,511, respectively.

23. BANK BORROWING

Bank borrowing repayable within one year	As at 31 December 2010 2011 RMB RMB 15,000,000 —	2012 RMB —

The bank borrowing of the Yunnan Hidili Group was a fixed-rate borrowing at 8.10% per annum.

24. PROVISION FOR RESTORATION AND ENVIRONMENTAL COSTS

At 1 January 2010 Provision for the year At 31 December 2010 Provision for the year At 31 December 2011 Provision for the year At 31 December 2012	RMB — 220,985
	220,985 199,084
	420,069 109,891
	529,960

Mining activities may result in land subsidence and damage to the environment of the mining areas. Pursuant to the relevant PRC regulations, the Yunnan Hidili Group is required to restore the mining areas back to certain acceptable conditions.

– 72 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

The provision for the restoration and environmental clean up costs has been determined by management based on their past experience with reference to the coal produced each year to the coal reserve and the unit restoration costs governed by respective regulations and best estimate of future expenditure by discounting the expected expenditures to their net present value at market rate. The amounts provided in relation to restoration and environmental clean up costs are reviewed at least annually based upon the facts and circumstances available at the time and the provisions are updated accordingly.

25. PAID IN CAPITAL

Registered and fully paid at 1 January 2010, 31 December 2010 and 2011 Capital injection Registered and fully paid at 31 December 2012	RMB 20,000,000 10,303,000
	30,303,000

On 28 August 2012, the total registered capital of Yunnan Hidili increased from RMB20,000,000 to RMB30,303,000 and Huaneng paid an additional contribution of RMB250,000,000 in September 2012, of which RMB10,303,000 as paid in capital and RMB239,697,000 as capital reserve.

26. DEFERRED TAX LIABILITIES

The following are the major deferred tax liabilities provided by the Yunnan Hidili Group and movements thereon during the Relevant Period:

At 1 January 2010 Arising from acquisition of subsidiaries (Note 28) Credit to profit or loss At 31 December 2010 Credit to profit or loss At 31 December 2011 Credit to profit or loss At 31 December 2012	Property, plant and equipment RMB 86,568,179 2,468,217 (94,406
	88,941,990 (33,978
	88,908,012 (30,416
	88,877,596

At 31 December 2010, 31 December 2011 and 31 December 2012, the Yunnan Hidili Group has unused tax losses of approximately RMB6,828,000, RMB32,668,000 and RMB32,169,000 available for offset against future profits. No deferred tax assets has been recognised in respect of such loses due to the unpredictability of future profit streams. All these tax losses will expire during 2012 to 2016.

27. NON CASH TRANSACTION

During the year ended 31 December 2012, deposit paid for investment of RMB50,000,000 has transferred to an intermediate holding company and offset amount due to intermediate holding company of RMB50,000,000.

During the year ended 31 December 2010, 31 December 2011 and 31 December 2012, a related company settled its outstanding balances by bills receivables of nil, RMB18,280,000 and RMB99,120,000, respectively.

– 73 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

28. ACQUISITION OF A SUBSIDIARY

During the year ended 31 December 2010, the Yunnan Hidili Group acquired 80% equity interest in Fuyuan Fude, at consideration of RMB800,000. Fuyuan Fude is engaged in coal washing and was acquired so as to continue the expansion of the Yunnan Hidili Group mining operation.

The aggregate net assets acquired by the Yunnan Hidili Group are as follows:

RMB

Net assets acquired: Property, plant and equipment Bank balances and cash Other payables Bank borrowings Deferred tax liability Non controlling interest Satisfied by: Deposit paid in 2009 Net cash inflow arising on acquisition: Bank balances and cash acquired	16,030,672 541 (2,562,996 (10,000,000 (2,468,217
	1,000,000 (200,000
	800,000
	800,000
	541

29. CAPITAL RISK MANAGEMENT

The Yunnan Hidili Group manage its capital to ensure that the Yunnan Hidili Group will be able to continue as a going concern while maximising the return to shareholder through the optimisation of the debt and equity balance. The overall strategy of Yunnan Hidili Group remains unchanged throughout the Relevant Periods.

The capital structure of the Yunnan Hidili Group consists of debts, which include amounts due to group companies and bank borrowing as disclosed in notes 19 and 23, respectively, net of cash and cash equivalents and equity attributable to owners of Yunnan Hidili, comprising paid in capital and reserves.

The directors of the Yunnan Hidili review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. The Yunnan Hidili Group will balance its overall capital structure through issue of new debt or the redemption of existing debt.

30. CAPITAL COMMITMENTS

Capital expenditure contracted for but not provided in the consolidated financial statements in respect of acquisition of property, plant and equipment	As at 31 December 2010 2011 RMB RMB 47,509,842 63,562,821	2012 RMB 61,439,395

– 74 –

ACCOUNTANT’S REPORT OF YUNNAN HIDILI

APPENDIX IIB

31. RELATED PARTY TRANSACTIONS

(a) Transactions

During the year, the Yunnan Hidili Group entered into the following transactions with related parties:

Immediate holding company: Interest expense Intermediate holding company: Sales Interest expense Fellow subsidiaries: Sales Purchases Disposal of property, plant and equipment A shareholder: Advisory fee paid and payable Related party: Sales Purchases Associates: Transportation costs	2010 RMB 30,758,325 — — 150,247,334 69,796,686 383,054,005 — 131,169,634 — —	2011 RMB — 28,876,212 25,466,337 137,833,784 387,893,437 — — 134,572,045 4,761,759 —	2012 RMB — 1,073,429 36,338,610 113,875,258 178,797,902 — 750,000 213,149,264 — 1,468,736

(b) Details of the balances with related parties are set out in the consolidated statements of financial position and notes 18 and 19.

B. EVENTS AFTER THE REPORTING PERIOD

Subsequent to the reporting period, the production of Yunnan Hidili Group’s mines were resumed.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited consolidated financial statements of Yunnan Hidili Group have been prepared in respect of any period subsequent to 31 December 2012.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 75 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

The following is the text of the accountant’s report of the Target Subsidiaries prepared by Company’s auditors, Deloitte Touche Tohmatsu, for the purpose of incorporation in this circular.

==> picture [73 x 55] intentionally omitted <==

==> picture [78 x 34] intentionally omitted <==

25 June 2013

The Directors Hidili Industry International Development Limited Room 3702, 37th Floor West Tower, Shun Tak Centre 168–200 Connaught Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information (‘‘Financial Information’’) regarding Fuyuan County Kunyuan Coal Industry Co., Ltd. (‘‘Fuyuan Kunyuan’’) for the period from 19 January 2010 (date of establishment) to 31 December 2010 and each of the two years ended 31 December 2012 (the ‘‘Relevant Periods’’) for inclusion in a circular issued by Hidili Industry International Development Limited (the ‘‘Company’’) dated 25 June 2013 (the ‘‘Circular’’) in connection with the major transactions in relation to the capital injections by Huaneng Guicheng Trust Co., Ltd. (‘‘Huaneng’’) to Fuyuan Kunyuan and certain other subsidiaries of the Company and share transfers.

Fuyuan Kunyuan was established with limited liability in the People’s Republic of China (the ‘‘PRC’’) on 19 January 2010.

The statutory financial statements of Fuyuan Kunyuan were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC. The statutory financial statements of Fuyuan Kunyuan for the Relevant Periods were audited by Sichuan Jing Wei Certified Public Accountants Co., Ltd, certified public accountants registered in the PRC.

For the purpose of this report, the directors of Fuyuan Kunyuan have prepared the financial statements of Fuyuan Kunyuan for the Relevant Periods in accordance with International Financial Reporting Standards (‘‘IFRSs’’) (the ‘‘Underlying Financial Statements’’). We have undertaken an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) and have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

– 76 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

The Financial Information of Fuyuan Kunyuan for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements. No adjustments were deemed necessary by us to the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of Fuyuan Kunyuan who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of Fuyuan Kunyuan as at 31 December 2010, 31 December 2011 and 31 December 2012 and of its results and cash flows for the Relevant Periods.

– 77 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

A. FINANCIAL INFORMATION

Statements of Comprehensive Income

Notes Revenue 6 Cost of sales Gross profit Other income Administrative expenses Finance costs 7 Profit (loss) before tax Taxation 8 Profit (loss) and total comprehensive income (expense) for the period/year 9	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 38,623,411 (11,794,925) 26,828,486 1,464 (2,537,257) (175,230) 24,117,463 (6,045,916) 18,071,547	For the year ended 31 December 2011 2012 RMB RMB 27,846,618 16,838,209 (9,220,679) (13,579,835) 18,625,939 3,258,374 4,563 41,900 (2,732,249) (5,532,436) (1,895,958) (6,993,673) 14,002,295 (9,225,835) (124,510) — 13,877,785 (9,225,835)

– 78 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

Statements of Financial Position

Notes NON-CURRENT ASSETS Property, plant and equipment 12 Deposit paid for acquisition of property, plant and equipment CURRENT ASSETS Inventories 13 Other receivables, deposits and prepayments 14 Amount due from immediate holding company 19 Amount due from an intermediate holding company 19 Amounts due from fellow subsidiaries 19 Bank balances 15 CURRENT LIABILITIES Trade payables 16 Other payables and accrued expenses 17 Amount due to immediate holding company 19 Amounts due to intermediate holding companies 19 Amounts due to fellow subsidiaries 19 Tax payables NET CURRENT (LIABILITIES) ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Provision for restoration and environmental costs 20 NET ASSETS CAPITAL AND RESERVES Paid in capital 18 Reserves TOTAL EQUITY	As 2010 RMB 310,317,637 — 310,317,637 2,614,514 3,126,299 — — 23,902,708 121,092 29,764,613 1,077,915 4,957,371 5,027,197 7,997,638 11,892,743 6,045,916 36,998,780 (7,234,167) 303,083,470 11,923 303,071,547 5,000,000 298,071,547 303,071,547	at 31 December 2011 2012 RMB RMB 356,093,498 381,496,346 10,510,000 — 366,603,498 381,496,346 1,610,434 679,300 1,384,243 6,135,792 — 113,732,312 — 91,315,512 74,476,663 71,363,613 443,640 266,607 77,914,980 283,493,136 797,758 3,673,836 8,378,309 6,567,249 5,142,633 — 100,939,075 99,065,625 6,131,932 12,629,278 6,155,324 5,297,427 127,545,031 127,233,415 (49,630,051) 156,259,721 316,973,447 537,756,067 24,115 32,570 316,949,332 537,723,497 5,000,000 8,064,500 311,949,332 529,658,997 316,949,332 537,723,497	at 31 December 2011 2012 RMB RMB 356,093,498 381,496,346 10,510,000 — 366,603,498 381,496,346 1,610,434 679,300 1,384,243 6,135,792 — 113,732,312 — 91,315,512 74,476,663 71,363,613 443,640 266,607 77,914,980 283,493,136 797,758 3,673,836 8,378,309 6,567,249 5,142,633 — 100,939,075 99,065,625 6,131,932 12,629,278 6,155,324 5,297,427 127,545,031 127,233,415 (49,630,051) 156,259,721 316,973,447 537,756,067 24,115 32,570 316,949,332 537,723,497 5,000,000 8,064,500 311,949,332 529,658,997 316,949,332 537,723,497
			381,496,346
			679,300 6,135,792 113,732,312 91,315,512 71,363,613 266,607
			283,493,136
			3,673,836 6,567,249 — 99,065,625 12,629,278 5,297,427
			127,233,415
			156,259,721
			537,756,067 32,570
			537,723,497
			8,064,500 529,658,997
			537,723,497

– 79 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

Statements of Changes in Equity

At 19 January 2010 (date of establishment) Profit and total comprehensive income for the period Transfer At 31 December 2010 Profit and total comprehensive income for the year Transfer At 31 December 2011 Loss and total comprehensive expense for the year Transfer Capital injection At 31 December 2012	Paid in capital RMB 5,000,000 — — 5,000,000 — — 5,000,000 — — 3,064,500 8,064,500	Capital reserve RMB 280,000,000 — — 280,000,000 — — 280,000,000 — — 226,935,500 506,935,500	Statutory surplus reserve RMB (Note (i)) — — 2,515,694 2,515,694 — 1,433,297 3,948,991 — 4,797,293 — 8,746,284	Future development fund RMB (Note (ii)) — — — — — — — — 12,135 — 12,135	Retained profits RMB — 18,071,547 (2,515,694) 15,555,853 13,877,785 (1,433,297) 28,000,341 (9,225,835) (4,809,428) — 13,965,078	Total RMB 285,000,000 18,071,547 — 303,071,547 13,877,785 — 316,949,332 (9,225,835) — 230,000,000 537,723,497

Notes:

(i) According to the Articles of Association of Fuyuan Kunyuan, Fuyuan Kunyuan is required to make an appropriation of 10% of its profit after taxation each year to statutory surplus reserve until the balance reaches 50% of the registered capital of Fuyuan Kunyuan while Fuyuan Kunyuan can make additional appropriation to statutory surplus reserve at their own discretion. According to the provision of the Articles of Association, in normal circumstances, the statutory surplus reserve shall only be used for making up losses, capitalisation into paid in capital and expansion of the production and operation of Fuyuan Kunyuan.
(ii) Pursuant to the relevant regulations in the PRC, Fuyuan Kunyuan is required to make a transfer to future development fund based on a fixed amount 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.

– 80 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

Statements of Cash Flows

OPERATING ACTIVITIES Profit (loss) before tax Adjustments for: Depreciation and amortisation of property, plant and equipment Impairment loss recognised on other receivables Interest expenses Provision for restoration and environmental costs Interest income Operating cash flows before movements in working capital (Increase) decrease in inventories (Increase) decrease in other receivables, deposits and prepayments Increase (decrease) in trade payables Increase (decrease) in other payables and accrued expenses Cash from (used in) operations Income tax paid NET CASH FROM (USED IN) OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of property, plant and equipments Advance to fellow subsidiaries Repayment from fellow subsidiaries Advance to immediate holding company Advance to an intermediate holding company Repayment from immediate holding company Repayment from an intermediate holding company Interest received NET CASH USED IN INVESTING ACTIVITIES	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 24,117,463 1,178,661 — 175,230 11,923 (1,464) 25,481,813 (2,614,514) (3,126,299) 1,077,915 4,957,371 25,776,286 — 25,776,286 (311,496,298) (56,979,946) 33,077,238 — — — — 1,464 (335,397,542)	For the year ended 31 December 2011 2012 RMB RMB 14,002,295 (9,225,835) 1,323,257 1,376,860 — 501,800 1,895,958 6,993,673 12,192 8,455 (2,862) (29,714) 17,230,840 (374,761) 1,004,080 931,134 1,742,056 (5,253,349) (280,157) 2,876,078 3,420,938 (1,811,060) 23,117,757 (3,631,958) (15,102) (857,897) 23,102,655 (4,489,855) (57,588,409) (14,351,421) (117,451,111) (106,819,635) 66,877,156 109,932,685 — (113,953,697) — (94,097,920) — 221,385 — 2,782,408 2,862 29,714 (108,159,502) (216,256,481)

– 81 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

FINANCING ACTIVITIES Capital injection Advance from fellow subsidiaries Interest paid Advance from immediate holding company Advance from intermediate holding companies Repayment to fellow subsidiaries Repayment to immediate holding company Repayment to intermediate holding companies NET CASH FROM FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS BROUGHT FORWARD CASH AND CASH EQUIVALENTS CARRIED FORWARD, representing bank balances	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 285,000,000 57,663,783 (175,230) 10,449,605 7,997,638 (45,771,040) (5,422,408) — 309,742,348 121,092 — 121,092	For the year ended 31 December 2011 2012 RMB RMB — 230,000,000 37,672,389 23,450,597 (1,916,667) (8,911,960) 6,115,436 — 100,916,667 5,168,550 (43,433,200) (16,953,251) (6,000,000) (5,142,633) (7,975,230) (7,042,000) 85,379,395 220,569,303 322,548 (177,033) 121,092 443,640 443,640 266,607

– 82 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

Notes to the Financial Information

1. GENERAL

The principally activities of Fuyuan Kunyuan is mining and sale of raw coal to its group companies. Its immediate holding company is Liupanshui Hidili Industry Company Limited, a sino-foreign owned enterprise established in the PRC. The Company, a company incorporated in the Cayman Islands with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited, is an intermediate holding company of Fuyuan Kunyuan. In the opinion of the directors of Fuyuan Kunyuan, the ultimate holding company of Fuyuan Kunyuan is Sarasin Trust Company Guernsey Limited, a company incorporated in the British Virgin Islands which is controlled by Mr. Xian Yang, the Chief Executive and Executive Director of the Company. The address of the registered office and principal place of business of Fuyuan Kunyuan is Jianglang Village, Mohong Town, Fuyuan County, Yunnan Province, PRC.

The Financial Information is presented in Renminbi (‘‘RMB’’), which is the same as the functional currency of Fuyuan Kunyuan.

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Underlying Financial Statements, throughout the Relevant Periods, Fuyuan Kunyuan has consistently adopted all of the new and revised standards, amendments and interpretations which are or have been effective for Fuyuan Kunyuan’s financial year beginning on 1 January 2012.

Fuyuan Kunyuan has not early applied the following new and revised IFRSs that have been issued but are not yet effective:

Amendments to IFRSs	Annual Improvements to IFRSs 2009–2011 Cycle2
Amendments to IFRS 7	Disclosure — Offsetting Financial Assets and Financial Liabilities2
Amendments to IFRS 7 and IFRS 9	Mandatory Effective Date of IFRS 9 and Transition Disclosures4
Amendments to IFRS 10, IFRS 11	Consolidated Financial Statements, Joint Arrangements and Disclosure
and IFRS 12	of Interests in Other Entities: Transition Guidance2
Amendments to IFRS 10, IFRS 12	Investment Entities3
and IAS 27
IFRS 9	Financial Instruments4
IFRS 10	Consolidated Financial Statements2
IFRS 11	Joint Arrangements2
IFRS 12	Disclosure of Interests in Other Entities2
IFRS 13	Fair Value Measurement2
IAS 19 (Revised 2011)	Employee Benefits2
IAS 27 (Revised 2011)	Separate Financial Statements2
IAS 28 (Revised 2011)	Investments in Associates and Joint Ventures2
Amendments to IAS 1	Presentation of Items of Other Comprehensive Income1
Amendments to IAS 32	Offsetting Financial Assets and Financial Liabilities3
Amendments to IAS 36	Recoverable Amount Disclosures for Non-Financial Assets3
IFRIC 20	Stripping Costs in the Production Phase of a Surface Mine2
IFRIC 21	Levies3

1 Effective for annual periods beginning on or after 1 July 2012.

2 Effective for annual periods beginning on or after 1 January 2013.

3 Effective for annual periods beginning on or after 1 January 2014.

4 Effective for annual periods beginning on or after 1 January 2015.

The directors of Fuyuan Kunyuan anticipate that the application of the new and revised IFRSs will have no material impact on the results and the financial position of Fuyuan Kunyuan.

– 83 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

The principal accounting policies are set out below.

Revenue recognition

Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

. Fuyuan Kunyuan has transferred to the buyer the significant risks and rewards of ownership of the goods;
. Fuyuan Kunyuan retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
. the amount of revenue can be measured reliably;
. it is probable that the economic benefits associated with the transaction will flow to Fuyuan Kunyuan; and
. the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to Fuyuan Kunyuan and the amount of income can be measured reliably. Interest income 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 asset to that asset’s net carrying amount on initial recognition.

Property, plant and equipment

Property, plant and equipment including land and buildings held for use in the production or supply of goods or services, or for administrative purposes, other than construction in progress, are stated in the statements of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses. Depreciation on these assets, other than mining structure and mining rights, is recognised so as to write off the cost of assets less their residual value over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

– 84 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

accordance with Fuyuan Kunyuan’s accounting policy. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Borrowing costs

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefits costs

Payments to state-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

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 period/year. Taxable profit differs from ‘‘profit before tax’’ as reported in the statements of comprehensive income 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. Fuyuan Kunyuan’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which Fuyuan Kunyuan expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax are recognised in profit or loss.

– 85 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

Inventories

Provision for restoration and environmental costs

Fuyuan Kunyuan is required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined. Provisions for restoration and environmental costs are required when Fuyuan Kunyuan has a present obligation as a result of a past event, it is probable that Fuyuan Kunyuan will be required to settle the obligation. Provisions are measured at the directors of Fuyuan Kunyuan’s best estimation of the consideration required to settle the present obligation at the end of the reporting period, and are discounted to present value where the effect is material.

Financial instruments

Financial assets and financial liabilities are recognised in the statements of financial position when Fuyuan Kunyuan becomes a party to the contractual provisions of the instrument.

Financial assets

Fuyuan Kunyuan’s financial assets are loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including other receivables and deposits amount due from immediate holding company, amounts due from an intermediate holding company, amounts due from fellow subsidiaries and bank balances) are measured at amortised cost using the effective interest method, less any identified impairment.

Impairment of financial assets

Objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty; or

– 86 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

. breach of contract, such as default or delinquency in interest or principal payments; or
. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

The carrying amount of financial asset is reduced by the impairment loss directly for all the financial assets. Subsequent recoveries of amounts previously written off are credited to profit or loss.

Derecognition

Fuyuan Kunyuan derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

Financial liabilities and equity instruments

Debt and equity instruments issued by Fuyuan Kunyuan are classified either as financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Effective interest method

Interest expense is recognised on an effective interest basis.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of Fuyuan Kunyuan after deducting all of its liabilities. Equity instruments issued by Fuyuan Kunyuan are recognised at the proceeds received, net of direct issue costs.

Financial liabilities

Financial liabilities including trade payables, other payables, amounts due to intermediate holding companies, amount due to immediate holding company and amounts due to fellow subsidiaries are subsequently measured at amortised cost, using the effective interest method.

– 87 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

Derecognition

Fuyuan Kunyuan derecognises financial liabilities when, and only when, Fuyuan Kunyuan’s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Impairment of tangible assets

At the end of each reporting period, Fuyuan Kunyuan reviews the carrying amounts of its tangible assets with finite useful lives 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 is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, Fuyuan Kunyuan estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of Fuyuan Kunyuan’s accounting policies, which are described in note 3, the directors of Fuyuan Kunyuan are 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.

Depreciation of property, plant and equipment

Property, plant and equipment other than mining structures and mining rights are depreciated on a straight-line basis over their useful lives, after taking into account their estimated residual value. Mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines. The directors of Fuyuan Kunyuan assess annually the residual value and the useful life of the property as well as the reserve of the coal mines, plant and equipment. If the expectation differs from the original estimate, such difference will impact the depreciation and the amortisation charged in the year in which such estimate is changed. The carrying amount of property, plant

– 88 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

and equipment was RMB310,317,637, RMB356,093,498 and RMB381,496,346 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively. Details of property, plant and equipment are disclosed in note 12.

As explained in note 3, mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines.

Engineering estimates of Fuyuan Kunyuan’s mineral reserves involved subjective judgements by mineral engineers in developing such information. There is a Chinese system, which is the national standard set by the PRC Government, regarding the engineering criteria that have to be met before estimated mineral reserves can be designated as ‘‘proven’’. Proven reserve estimates are updated on a regular basis and are taken into account as a change in estimate for accounting purposes and are reflected on a prospective basis in related depreciation and amortisation rates. If the expectation differs from the original reserve estimate, such difference will impact the depreciation and amortisation charged in the year in which such estimate is changed. The carrying amount of mining structures and mining rights was RMB277,031,493, RMB279,381,165 and RMB322,161,603 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively.

Estimated impairment of property, plant and equipment

Determining whether an impairment loss on mining structure and mining rights requires an estimate of the recoverable amount of the cash-generating unit (‘‘CGU’’) to which the asset belongs. Management of Fuyuan Kunyuan consider that Fuyuan Kunyuan continues to use the relevant assets and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. The value in use calculation requires Fuyuan Kunyuan to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. Where the future cash flows are less than expected or due to changes in estimates, a material impairment loss may arise. As at 31 December 2010, 31 December 2011 and 31 December 2012, the carrying amounts of mining structures and mining rights was RMB277,031,493, RMB279,381,165 and RMB322,161,603, respectively.

5. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost	As at 31 December 2010 2011 2012 RMB RMB RMB 26,984,541 76,050,072 280,218,177 26,171,961 113,504,310 121,009,476	As at 31 December 2010 2011 2012 RMB RMB RMB 26,984,541 76,050,072 280,218,177 26,171,961 113,504,310 121,009,476
		121,009,476

(b) Financial risk management objectives and policies

Fuyuan Kunyuan’s major financial instruments include other receivables and deposits, bank balances, trade payables, other payables and amounts due from and to group companies. Details of these financial instruments are set out in respective notes. The risks associated with these financial instruments include

– 89 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

market risk (interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. Management of Fuyuan Kunyuan manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Market risk

Interest rate risk

Fuyuan Kunyuan is exposed to cash flow interest rate risk in relation to variable rate bank balances and fair value interest rate risk in relation to certain balances of amounts due to an intermediate holding company which carry fixed interest rate (see notes 15 and 19 for details). The directors of Fuyuan Kunyuan consider the exposure of interest-bearing bank balances is not significant as bank balances are in short maturity period. Fuyuan Kunyuan currently does not have an interest rate hedging policy. However, management closely monitors interest rate exposure and will consider hedging significant interest rate change exposure when the need arise. No sensitivity analysis is presented as the directors of Fuyuan Kunyuan consider the amount is insignificant.

(ii) Credit risk

As at the end of each reporting period, Fuyuan Kunyuan’s maximum exposure to credit risk which will cause a financial loss to Fuyuan Kunyuan due to failure to discharge an obligation by the counterparties is arising from the carrying amounts of the respective recognised financial assets as stated in the statement of financial position.

Management of Fuyuan Kunyuan reviews the recoverable amount of each individual debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, management of Fuyuan Kunyuan considers that the credit risk is significantly reduced.

Other than concentration of credit risks on group companies which management of Fuyuan Kunyuan reviews the financial position and repayment abilities of respective group companies, Fuyuan Kunyuan does not have any other significant concentration of credit risk, with exposure spread over a number of counterparties having similar characteristics.

The credit risk on liquid funds is limited because the counterparties are banks with good reputation.

(iii) Liquidity risk

In the management of the liquidity risk, Fuyuan Kunyuan monitors and maintains a level of cash and cash equivalents deemed adequate by management of Fuyuan Kunyuan to finance the its operations and mitigate the effects of fluctuations in cash flows.

Fuyuan Kunyuan relies on advances from group companies as a significant source of liquidity. Details of which are set out in note 19.

(c) Fair value

The fair value of financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

Management of Fuyuan Kunyuan considers that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate to their fair values.

– 90 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

6. REVENUE AND SEGMENT INFORMATION

Revenue represents sale of raw coal at invoiced value net of discounts and sales related taxes during the Relevant Periods.

The directors of Fuyuan Kunyuan, being the chief operating decision makers, assess the performance and allocate the resources of Fuyuan Kunyuan as a whole because Fuyuan Kunyuan is mainly engaged in mining. Therefore, the directors of Fuyuan Kunyuan consider that Fuyuan Kunyuan only has one operating segment under IFRS 8. In this regard, no segment information is presented.

Geographical information

The operations and assets of Fuyuan Kunyuan are located in the PRC.

Information about major customers

Revenue from sales of raw coals are entirely contributed from fellow subsidiaries of Fuyuan Kunyuan. Details of related party transactions are disclosed in note 22(a).

7. FINANCE COSTS

Interest expenses on borrowings wholly repayable within five years: — amount due to an intermediate holding company Less: Interest capitalised in construction in progress	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 175,230 — 175,230	For the year ended 31 December 2011 2012 RMB RMB 1,916,667 8,911,960 (20,709) (1,918,287) 1,895,958 6,993,673

8. TAXATION

No provision for Hong Kong Profits Tax has been made as Fuyuan Kunyuan’s income neither arises in, nor is derived from, Hong Kong.

Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of the EIT Law, the tax rate of Fuyuan Kunyuan is 25% during the Relevant Periods.

– 91 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

The taxation during the Relevant Periods can be reconciled to the profit (loss) before tax per statements of comprehensive income as follows:

Profit (loss) before tax Tax at applicable tax rate of 25% Tax effect of expenses not deductible for tax purpose Effect of tax loss not recognised Others Taxation for the period/year	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 24,117,463 (6,029,366) (16,550) — — (6,045,916)	For the year ended 31 December 2011 2012 RMB RMB 14,002,295 (9,225,835) (3,500,574) 2,306,459 (54,139) (97,165) — (2,209,294) 3,430,203 — (124,510) —

At 31 December 2012, the Group has unused tax loss of approximately RMB8,836,000 available for offset against future profits. No deferred tax assets has been recognised in respect of such losses due to the unpredictability of future profit streams. Tax loss will expire in 2017.

9. PROFIT (LOSS) FOR THE PERIOD/YEAR

Profit (loss) for the period/year has been arrived at after charging (crediting): Cost of inventories recognised as expense Interest income Impairment loss recognised on other receivables Depreciation and amortisation of property, plant and equipment (note 12) Salaries and other benefits Retirement benefit costs Total staff costs	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 11,794,925 (1,464) — 1,178,661 4,766,047 26,897 4,792,944	For the year ended 31 December 2011 2012 RMB RMB 9,220,679 13,579,835 (2,862) (29,714) — 501,800 1,323,257 1,376,860 5,053,095 4,342,232 69,083 76,972 5,122,178 4,419,204	For the year ended 31 December 2011 2012 RMB RMB 9,220,679 13,579,835 (2,862) (29,714) — 501,800 1,323,257 1,376,860 5,053,095 4,342,232 69,083 76,972 5,122,178 4,419,204
			4,342,232 76,972
			4,419,204

10. DIRECTORS’ EMOLUMENTS AND EMPLOYEES’ EMOLUMENTS

Directors’ emoluments

During the Relevant Periods, no fees or other emoluments was paid or payable by Fuyuan Kunyuan to its directors.

– 92 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

During the Relevant Periods, no remuneration was paid by Fuyuan Kunyuan to its directors as an inducement to join or upon joining Fuyuan Kunyuan or as compensation for loss of office. None of the directors has waived any remuneration during the Relevant Periods.

Employees’ emoluments

The five highest paid individuals for the Relevant Periods were as follows:

Salaries and other allowances Contributions to retirement benefit schemes	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 434,259 3,911 438,170	For the year ended 31 December 2011 2012 RMB RMB 683,928 669,204 2,276 9,506 686,204 678,710	For the year ended 31 December 2011 2012 RMB RMB 683,928 669,204 2,276 9,506 686,204 678,710
			678,710

Each of their emoluments were within HK$1,000,000 (approximately RMB800,000).

During the Relevant Periods, no emolument was paid or payable by Fuyuan Kunyuan to the five highest paid individuals as an inducement to join Fuyuan Kunyuan as compensation for loss of office.

11. EARNINGS (LOSS) PER SHARE

Earnings (loss) per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful.

– 93 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

12. PROPERTY, PLANT AND EQUIPMENT

COST At 19 January 2010 (date of establishment) Additions At 31 December 2010 Additions Transfer At 31 December 2011 Additions Transfer At 31 December 2012 DEPRECIATION AND AMORTISATION At 19 January 2010 (date of establishment) Provided for the period At 31 December 2010 Provided for the year At 31 December 2011 Provided for the year At 31 December 2012 CARRYING AMOUNTS At 31 December 2010 At 31 December 2011 At 31 December 2012	Buildings RMB — 881,418 881,418 — 548,772 1,430,190 — 250,652 1,680,842 — 30,505 30,505 40,940 71,445 53,080 124,525 850,913 1,358,745 1,556,317	Mining structures and mining rights RMB — 277,927,715 277,927,715 3,168,700 — 281,096,415 — 43,352,536 324,448,951 — 896,222 896,222 819,028 1,715,250 572,098 2,287,348 277,031,493 279,381,165 322,161,603	Machinery RMB — 3,136,235 3,136,235 2,164,164 627,852 5,928,251 4,056,773 — 9,985,024 — 83,639 83,639 243,916 327,555 615,532 943,087 3,052,596 5,600,696 9,041,937	Motor vehicles RMB — 600,600 600,600 — — 600,600 — — 600,600 — 153,145 153,145 165,057 318,202 76,413 394,615 447,455 282,398 205,985	Office and electronic equipment RMB — 354,742 354,742 167,357 — 522,099 8,723 63,759 594,581 — 15,150 15,150 54,316 69,466 59,737 129,203 339,592 452,633 465,378	Construction in progress RMB — 28,595,588 28,595,588 41,598,897 (1,176,624) 69,017,861 22,714,212 (43,666,947) 48,065,126 — — — — — — — 28,595,588 69,017,861 48,065,126	Total RMB — 311,496,298
							311,496,298 47,099,118 —
							358,595,416 26,779,708 —
							385,375,124
							— 1,178,661
							1,178,661 1,323,257
							2,501,918 1,376,860
							3,878,778
							310,317,637
							356,093,498
							381,496,346

The following estimated useful lives are used for the depreciation of property, plant and equipment, other than mining structures and mining rights as well as construction in progress:

Buildings 15 to 35 years Machinery 5 to 15 years Motor vehicles, office and electronic 5 to 10 years equipment

The mining structures and mining rights include the main and auxiliary mine shafts and underground tunnels. The mining rights have average legal lives of 3 years but in the opinion of the directors of Fuyuan Kunyuan, Fuyuan Kunyuan will be able to renew the mining rights without incurring significant costs.

– 94 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

Depreciation and amortisation are provided to write off the cost of the mining structures and mining rights using the units of production method over the total proven reserves of the coal mine.

The construction in progress comprise mainly the main and auxiliary mine shafts and underground tunnels in the course of construction.

The legal titles of the mining rights have been granted by the relevant government authorities as at 31 December 2010, 31 December 2011 and 31 December 2012.

During the year ended 31 December 2012, the operation in mines of Fuyuan Kunyuan have been suspended for safety inspection and government deliberations since the occurrence of accidents in the vicinity. At 31 December 2012, the carrying amounts of construction in progress and property, plant and equipment other than construction in progress, in respect of mines which were still suspended are RMB48,065,126 and RMB333,431,220, respectively.

For the purpose of the impairment testing of mining structure and mining rights of the mines being under suspension of production or construction for safety inspection and government deliberations, management of Fuyuan Kunyuan considers that Fuyuan Kunyuan will continue to use the relevant assets in the foreseeable future and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. Value in use calculation is based on the discount rates of 14.9% and cash flow projections prepared from financial forecasts approved by the directors of Fuyuan Kunyuan for the next five years, taking into account the best estimates of management of Fuyuan Kunyuan concerning the likely dates for resumption of mining operations and development. The CGUs cashflows beyond the 5-year period are extrapolated using a zero growth rate until the coal reserves have been mined based on existing production capacities. Other key assumptions for the value in use calculation related to the estimation of cash inflows/outflows which include future coal price and gross margin, such estimation is based on the estimation provided by management of Fuyuan Kunyuan. Based on the assumptions applied, the recoverable amounts are above its carrying amounts of the relevant CGUs, accordingly, management of Fuyuan Kunyuan has determined that there is no impairment of the mining structure and mining rights.

13. INVENTORIES

Coal products Auxiliary materials and spare parts	As at 31 December 2010 2011 2012 RMB RMB RMB 410,872 577,196 — 2,203,642 1,033,238 679,300 2,614,514 1,610,434 679,300	As at 31 December 2010 2011 2012 RMB RMB RMB 410,872 577,196 — 2,203,642 1,033,238 679,300 2,614,514 1,610,434 679,300
		679,300

14. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

At 31 December 2012, included in other receivables, deposits and prepayments is an amount of RMB2,070,000 prepayment for advisory service to Huaneng, a shareholder of Fuyuan Kunyuan.

15. BANK BALANCES

Bank balances as at 31 December 2010, 31 December 2011 and 31 December 2012 carry interests at market rates at range from 0.35% to 0.50% per annum.

– 95 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

16. TRADE PAYABLES

The aged analysis of Fuyuan Kunyuan’s trade payables and based on invoice date at the end of the reporting period is as follows:

0–90 days 91–180 days 181–365 days Over 365 days	As at 31 December 2010 2011 2012 RMB RMB RMB 1,077,915 797,758 1,935,720 — — 1,422,430 — — 308,441 — — 7,245 1,077,915 797,758 3,673,836	As at 31 December 2010 2011 2012 RMB RMB RMB 1,077,915 797,758 1,935,720 — — 1,422,430 — — 308,441 — — 7,245 1,077,915 797,758 3,673,836
		3,673,836

The average credit period on purchases of goods is 90 days.

17. OTHER PAYABLES AND ACCRUED EXPENSES

At 31 December 2010, 31 December 2011 and 31 December 2012, included in other payables and accrued expenses is other tax payables of RMB3,779,638, RMB7,200,085, nil, respectively.

18. PAID IN CAPITAL

Registered and paid in capital at 19 January 2010 (date of establishment), 31 December 2010 and 31 December 2011 Capital injection Registered and paid in capital at 31 December 2012	RMB 5,000,000 3,064,500
	8,064,500

Fuyuan Kunyuan was established with registered capital of RMB5,000,000 on 19 January 2010. The registered capital was fully paid at the date of establishment. On 28 August 2012, the total registered capital of Fuyuan Kunyuan increased from RMB5,000,000 to RMB8,064,500 and Huaneng paid an additional contribution of RMB230,000,000 in September 2012, of which RMB3,064,500 as paid in capital and RMB226,935,500 as capital reserve.

19. AMOUNTS DUE FROM AND TO GROUP COMPANIES

Except for amount due to an intermediate holding company at 31 December 2010, 31 December 2011 and 31 December 2012 of RMB2,400,000, RMB100,939,075 and RMB99,065,625, respectively which bear interest ranged from 7.97% to 8.63% per annum, other amounts due from and to group companies are interest free. All balances are unsecured and repayable on demand.

There is no credit terms and policies on the trading balances with group companies.

– 96 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

20. PROVISION FOR RESTORATION AND ENVIRONMENTAL COSTS

At 19 January 2010 (date of establishment) Provision for the period At 31 December 2010 Provision for the year At 31 December 2011 Provision for the year At 31 December 2012	RMB — 11,923
	11,923 12,192
	24,115 8,455
	32,570

Mining activities may result in land subsidence and damage to the environment of the mining areas. Pursuant to the relevant PRC regulations, Fuyuan Kunyuan is required to restore the mining areas back to certain acceptable conditions.

21. CAPITAL RISK MANAGEMENT

Fuyuan Kunyuan manages its capital to ensure it 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 overall strategy of Fuyuan Kunyuan remains unchanged throughout the Relevant Period.

The capital structure of Fuyuan Kunyuan consists of debts, which include amounts due to group companies as disclosed in note 19, net of cash and cash equivalents and equity attributable to owners of Fuyuan Kunyuan, comprising paid in capital, reserves and retained profits.

The directors of Fuyuan Kunyuan review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Fuyuan Kunyuan will balance its overall capital structure through the payment of dividends as well as the issue of new debt or the redemption of existing debt.

– 97 –

ACCOUNTANT’S REPORT OF FUYUAN KUNYUAN

APPENDIX IIC

22. RELATED PARTY TRANSACTIONS

During the Relevant Periods, Fuyuan Kunyuan entered into the following transactions with related parties:

(a) Transactions

Immediate holding company: Purchases Fellow subsidiaries: Purchases Sales Purchase of property, plant and equipment Intermediate holding company Interest expenses A shareholder: Advisory fee paid and payable	2010 RMB 910,229 1,215,337 38,623,411 15,594,654 175,230 —	2011 RMB 5,139,917 1,703,138 27,846,618 — 1,916,667 —	2012 RMB — 4,678,285 16,838,209 — 8,911,960 690,000

(b) Details of the balances with related parties are set out in the statements of financial position and notes 14 and 19.

23. CAPITAL COMMITMENTS

Capital expenditure in respect of acquisition of property, plant and equipment contracted for but not provided	As at 31 December 2010 2011 2012 RMB RMB RMB 2,238,066 7,313,679 6,528,280

B. EVENTS AFTER THE REPORTING PERIOD

Subsequent to the reporting period, the production of Fuyuan Kunyuan’s mine was resumed.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Fuyuan Kunyuan have been prepared in respect of any period subsequent to 31 December 2012.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 98 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

The following is the text of the accountant’s report of the Target Subsidiaries prepared by Company’s auditors, Deloitte Touche Tohmatsu, for the purpose of incorporation in this circular.

==> picture [73 x 55] intentionally omitted <==

==> picture [78 x 34] intentionally omitted <==

25 June 2013

The Directors

Hidili Industry International Development Limited Room 3702, 37th Floor West Tower, Shun Tak Centre 168–200 Connaught Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information (‘‘Financial Information’’) regarding Fuyuan County Xiangda Coal Mine Co., Ltd. (‘‘Fuyuan Xiangda’’) for each of the three years ended 31 December 2012 (the ‘‘Relevant Periods’’) for inclusion in a circular issued by Hidili Industry International Development Limited (the ‘‘Company’’) dated 25 June 2013 (the ‘‘Circular’’) in connection with the major transactions in relation to the capital injections by Huaneng Guicheng Trust Co., Ltd. (‘‘Huaneng’’) to Fuyuan Xiangda and certain other subsidiaries of the Company and share transfers.

Fuyuan Xiangda was established with limited liability in the People’s Republic of China (the ‘‘PRC’’) on 3 July 2008.

The statutory financial statements of Fuyuan Xiangda were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC. The statutory financial statements of Fuyuan Xiangda for the Relevant Periods were audited by Sichuan Jing Wei Certified Public Accountants Co., Ltd, certified public accountants registered in the PRC.

For the purpose of this report, the directors of Fuyuan Xiangda have prepared the financial statements of Fuyuan Xiangda for the Relevant Periods in accordance with International Financial Reporting Standards (‘‘IFRSs’’) (the ‘‘Underlying Financial Statements’’). We have undertaken an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) and have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

– 99 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

The Financial Information of Fuyuan Xiangda for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements. No adjustments were deemed necessary by us to the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of Fuyuan Xiangda who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of Fuyuan Xiangda as at 31 December 2010, 31 December 2011 and 31 December 2012 and of its results and cash flows for the Relevant Periods.

Without qualifying our opinion, we draw attention to note 1 to the Financial Information which indicates that Fuyuan Xiangda’s current liabilities exceeded its current assets by RMB218,522,444 as at 31 December 2012. As described in note 1 to the Financial Information, the Company has agreed to provide financial support to Fuyuan Xiangda to meet in full its financial obligations as and when they fall due in the foreseeable future. However, the Company’s going concern is dependent on the successful implementation of a number of measures as disclosed in note 1 to the Financial Information to improve its financial position. The eventual success of these measures cannot presently be determined and accordingly this indicates the existence of a material uncertainty which may cast significant doubt about Fuyuan Xiangda’s ability to continue as a going concern. The Financial Information does not include any adjustments that would result from a failure of the Company to implement such measures as disclosed in note 1 to the Financial Information.

– 100 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

A. FINANCIAL INFORMATION

Statements of Comprehensive Income

Notes Revenue 6 Cost of sales Gross profit Other income Administrative expenses Finance costs 7 Profit before tax Income tax expense 8 Profit and total comprehensive income for the year 9	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 75,528,505 64,256,199 48,833,549 (40,633,863) (23,012,983) (21,372,408) 34,894,642 41,243,216 27,461,141 49,991 15,051 3,112,447 (7,372,959) (8,573,284) (8,301,369) (5,956,758) (4,764,926) (12,882,584) 21,614,916 27,920,057 9,389,635 (4,975,973) (8,810,167) (4,923,164) 16,638,943 19,109,890 4,466,471

– 101 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

Statements of Financial Position

Notes NON-CURRENT ASSETS Property, plant and equipment 12 Amount due from a shareholder 19 Amounts due from fellow subsidiaries 19 CURRENT ASSETS Inventories 13 Bills and trade receivables 14 Other receivables, deposits and prepayments 15 Amount due from a shareholder 19 Amounts due from fellow subsidiaries 19 Bank balances and cash 16 CURRENT LIABILITIES Trade payables 17 Other payables and accrued expenses 18 Amount due to a shareholder 19 Amount due to an intermediate holding company 19 Amounts due to fellow subsidiaries 19 Tax payables NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Provision for restoration and environmental costs 20 Amounts due to fellow subsidiaries 19 Other payables 18 NET ASSETS CAPITAL AND RESERVES Paid in capital 21 Reserves TOTAL EQUITY	As 2010 RMB 147,817,295 — — 147,817,295 6,097,612 620,000 4,580,805 — 16,197,695 24,868 27,520,980 393,747 3,163,484 10,144,521 123,926,758 14,127,460 4,975,973 156,731,943 (129,210,963) 18,606,332 105,495 — — 105,495 18,500,837 12,000,000 6,500,837 18,500,837	at 31 December 2011 2012 RMB RMB 297,713,957 308,867,205 — 48,166,688 — 78,796,827 297,713,957 435,830,720 4,406,078 11,219,294 2,600,000 33,946,391 4,242,279 4,363,900 13,276,322 — 18,828,456 3,917,789 16,416 648,382 43,369,551 54,095,756 3,348,943 6,806,683 20,976,486 16,498,794 33,956,664 31,439,252 97,725,000 106,143,000 217,580 100,941,622 10,032,074 10,788,849 166,256,747 272,618,200 (122,887,196) (218,522,444) 174,826,761 217,308,276 187,162 324,479 102,896,022 109,405,584 14,000,000 10,500,000 117,083,184 120,230,063 57,743,577 97,078,213 12,000,000 20,339,000 45,743,577 76,739,213 57,743,577 97,078,213

– 102 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

Statements of Changes In Equity

At 1 January 2010 Profit and total comprehensive income for the year Transfer At 31 December 2010 Profit and total comprehensive income for the year Deemed contribution from interest free loans granted by fellow subsidiaries Transfer At 31 December 2011 Profit and total comprehensive income for the year Deemed distribution on interest free loans granted to fellow subsidiaries and a shareholder Transfer Capital injection At 31 December 2012	Paid in capital RMB 12,000,000 — — 12,000,000 — — — 12,000,000 — — — 8,339,000 20,339,000	Capital reserve RMB — — — — — — — — — — — 51,661,000 51,661,000	Statutory surplus reserve RMB (Note (i)) — — 39,295 39,295 — — 4,538,071 4,577,366 — — 7,486,475 — 12,063,841	Future development fund RMB (Note (ii)) — — — — — — — — — — 8,043 — 8,043	(Accumulated loss) retained profits RMB (10,138,106) 16,638,943 (39,295) 6,461,542 19,109,890 20,132,850 (4,538,071) 41,166,211 4,466,471 (25,131,835) (7,494,518) — 13,006,329	Total RMB 1,861,894 16,638,943 — 18,500,837 19,109,890 20,132,850 — 57,743,577 4,466,471 (25,131,835) — 60,000,000 97,078,213

Notes:

(i) According to the Articles of Association of Fuyuan Xiangda, Fuyuan Xiangda is required to make an appropriation of 10% of its profit after taxation each year to statutory surplus reserve until the balance reaches 50% of the registered capital of Fuyuan Xiangda while Fuyuan Xiangda can make additional appropriation to statutory surplus reserve at its own discretion. According to the provision of the Articles of Association, in normal circumstances, the statutory surplus reserve shall only be used for making up losses, capitalisation into paid in capital and expansion of the production and operation of Fuyuan Xiangda.
(ii) Pursuant to the relevant regulations in the PRC, Fuyuan Xiangda is required to make a transfer to future development fund based on a fixed amount 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.

– 103 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

Statements of Cash Flows

OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Depreciation and amortisation of property, plant
and equipment
Imputed interest income
Interest expenses
Interest income
Loss on disposal of property, plant and equipment
Provision for restoration and environmental cost
Operating cash flows before movements in
working capital
Increase in bills and trade receivables
(Increase) decrease in inventories
(Increase) decrease in other receivables, deposits
and prepayments
(Decrease) increase in trade payables
Increase in other payables and accrued expenses
Cash from (used in) operations
Income taxes paid
NET CASH FROM (USED IN) OPERATING
ACTIVITIES
INVESTING ACTIVITIES
Purchase of property, plant and equipment
Advance to a shareholder
Advance to fellow subsidiaries
Repayment from a shareholder
Repayment from fellow subsidiaries
Interest received
NET CASH USED IN INVESTING ACTIVITIES

For the year ended 31 December
2010
2011
2012
RMB
RMB
RMB
21,614,916
27,920,057
9,389,635
3,304,031
4,765,059
6,084,347
—
—
(2,579,567)
5,956,758
4,764,926
12,882,584
(7,611)
(3,580)
(6,967)
58,972
—
—
105,495
81,667
137,317
31,032,561
37,528,129
25,907,349
(620,000)
(1,980,000)
(31,346,391)
(4,972,754)
1,691,534
(6,813,216)
(2,507,820)
338,526
(121,621)
(2,929,890)
2,955,196
3,457,740
2,642,067
6,047,705
3,787,605
22,644,164
46,581,090
(5,128,534)
—
(3,754,066)
(4,166,389)
22,644,164
42,827,024
(9,294,923)
(65,721,215)
(128,683,010)
(23,457,914)
—
(22,021,679)
(66,871,760)
(68,993,109)
(40,793,035)
(97,153,188)
—
8,745,357
22,397,402
52,795,414
38,162,274
20,298,752
7,611
3,580
6,967
(81,911,299)
(144,586,513)
(144,779,741)

– 104 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

FINANCING ACTIVITIES
Advance from a shareholder
Interest paid
Advances from fellow subsidiaries
Advance from an intermediate holding company
Repayment to an intermediate holding company
Repayment of long term payable
Repayment to fellow subsidiaries
Repayment to a shareholder
Capital injection
NET CASH FROM FINANCING ACTIVITIES
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS BROUGHT
FORWARD
CASH AND CASH EQUIVALENTS CARRIED
FORWARD,
represented by bank balances and cash

For the year ended 31 December
2010
2011
2012
RMB
RMB
RMB
49,811,145
26,476,851
10,688
(5,956,758)
(4,978,340)
(14,927,562)
92,742,027
144,619,761
198,050,000
123,926,758
97,725,000
8,418,000
—
(123,926,758)
—
—
—
(3,500,000)
(86,907,067)
(35,500,769)
(90,816,396)
(118,063,015)
(2,664,708)
(2,528,100)
—
—
60,000,000
55,553,090
101,751,037
154,706,630
(3,714,045)
(8,452)
631,966
3,738,913
24,868
16,416
24,868
16,416
648,382

– 105 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

Notes to the Financial Information

1. GENERAL AND BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The principal activities of Fuyuan Xiangda is mining and sale of raw coal. Fuyuan Xiangda is owned as to 41.3% by Liupanshui Hidili Industry Co., Limited (‘‘Liupanshui Hidili’’) and 17.7% by Sichuan Hidili Industry Co., Limited (‘‘Sichuan Hidili’’); and 40% by Huaneng, companies established in the PRC. The Company, a company incorporated in the Cayman Islands with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited, is an intermediate holding company of Fuyuan Xiangda. In the opinion of the directors of Fuyuan Xiangda, the ultimate holding company of Fuyuan Xiangda is Sarasin Trust Company Guernsey Limited, a company incorporated in the British Virgin Islands which is controlled by Mr. Xian Yang, the Chief Executive and Executive Director of the Company. The address of the registered office and principal place of business of Fuyuan Xiangda is Baima Village, Dahe Town, Fuyuan County, Yunnan Province, PRC.

The Financial Information is presented in Renminbi (‘‘RMB’’), which is the same as the functional currency of Fuyuan Xiangda.

In preparing the Underlying Financial Statements, the directors of Fuyuan Xiangda have taken into consideration that Fuyuan Xiangda’s current liabilities exceeded its current assets by RMB218,522,444 as at 31 December 2012.

The Financial Information has been prepared on a going concern basis because the Company has agreed to provide financial support to Fuyuan Xiangda to meet in full its financial obligations as and when they fall due in the foreseeable future. The Company has been implementing a number of measures to improve its financial position, including but not limited to: (1) approaching banks and independent third parties in the PRC to obtain new medium to long-term facilities of not less than RMB2.5 billion; (2) negotiating with a bank to review and renew banking facilities repayable within 12 months from draw down to repayable after 12 months from draw down of not less than RMB400 million; and (3) proposed disposal of 50% equity interests in certain of its subsidiaries for a total consideration of RMB2.4 billion, details of which are set out in the Company’s announcement dated 24 May 2013. The directors of Fuyuan Xiangda believe that the above measures can be successfully implemented and therefore the Company will have sufficient working capital to finance the operations of Fuyuan Xiangda and Fuyuan Xiangda can meet its financial obligations as and when they fall due for the foreseeable future.

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Underlying Financial Statements, throughout the Relevant Periods, Fuyuan Xiangda has consistently adopted all of the new and revised standards, amendments and interpretations which are or have been effective for Fuyuan Xiangda’s financial year beginning on 1 January 2012.

Fuyuan Xiangda has not early applied the following new and revised IFRSs that have been issued but are not yet effective:

Amendments to IFRSs Amendments to IFRS 7 Amendments to IFRS 7 and IFRS 9	Annual Improvements to IFRSs 2009–2011 Cycle2 Disclosure — Offsetting Financial Assets and Financial Liabilities2 Mandatory Effective Date of IFRS 9 and Transition Disclosures4
Amendments to IFRS 10, IFRS 11 and IFRS 12	Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance2
Amendments to IFRS 10, IFRS 12	Investment Entities3
and IAS 27
IFRS 9	Financial Instruments4
IFRS 10	Consolidated Financial Statements2
IFRS 11 IFRS 12	Joint Arrangements2 Disclosure of Interests in Other Entities2
IFRS 13	Fair Value Measurement2
IAS 19 (Revised 2011) IAS 27 (Revised 2011) IAS 28 (Revised 2011)	Employee Benefits2 Separate Financial Statements2 Investments in Associates and Joint Ventures2
Amendments to IAS 1 Amendments to IAS 32 Amendments to IAS 36	Presentation of Items of Other Comprehensive Income1 Offsetting Financial Assets and Financial Liabilities3 Recoverable Amount Disclosures for Non-Financial Assets3
IFRIC 20 IFRIC 21	Stripping Costs in the Production Phase of a Surface Mine2 Levies3

– 106 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

1 Effective for annual periods beginning on or after 1 July 2012. 2 Effective for annual periods beginning on or after 1 January 2013. 3 Effective for annual periods beginning on or after 1 January 2014. 4 Effective for annual periods beginning on or after 1 January 2015.

The directors of Fuyuan Xiangda anticipate that the application of the new and revised IFRSs will have no material impact on the results and the financial position of Fuyuan Xiangda.

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

The principal accounting policies are set out below.

Revenue recognition

Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

. Fuyuan Xiangda has transferred to the buyer the significant risks and rewards of ownership of the goods;
. Fuyuan Xiangda retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
. the amount of revenue can be measured reliably;
. it is probable that the economic benefits associated with the transaction will flow to Fuyuan Xiangda; and
. the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to Fuyuan Xiangda and the amount of income can be measured reliably. Interest income 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 asset to that asset’s net carrying amount on initial recognition.

Property, plant and equipment

– 107 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

Construction in progress represents property, plant and equipment in the course of construction for production or for its own use purpose. Construction in progress is carried at costs less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs capitalised in accordance with Fuyuan Xiangda’s accounting policy. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Borrowing costs

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefits costs

Payments to state-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

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 before tax’’ as reported in the statement of comprehensive income 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. Fuyuan Xiangda’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

– 108 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which Fuyuan Xiangda expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax are recognised in profit or loss.

Inventories

Provision for restoration and environmental costs

Fuyuan Xiangda is required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined. Provisions for restoration and environmental costs are required when Fuyuan Xiangda has a present obligation as a result of a past event, it is probable that Fuyuan Xiangda will be required to settle the obligation. Provisions are measured at the directors of Fuyuan Xiangda’s best estimation of the consideration required to settle the present obligation at the end of the reporting period, and are discounted to present value where the effect is material.

Financial instruments

Financial assets and financial liabilities are recognised in the statements of financial position when Fuyuan Xiangda becomes a party to the contractual provisions of the instrument.

Financial assets

Fuyuan Xiangda’s financial assets are loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including bills and trade receivables, other receivables and deposits, amount due from a shareholder, amounts due from fellow subsidiaries and bank balances) are measured at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of financial assets below).

– 109 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

Impairment of financial assets

Objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty; or
. breach of contract, such as default or delinquency in interest or principal payments; or
. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

The carrying amount of financial asset is reduced by the impairment loss directly for all the financial assets. Subsequent recoveries of amounts previously written off are credited to profit or loss.

Derecognition

Fuyuan Xiangda derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

Financial liabilities and equity instruments

Debt and equity instruments issued by Fuyuan Xiangda are classified either as financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Effective interest method

Interest expense is recognised on an effective interest basis.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of Fuyuan Xiangda after deducting all of its liabilities. Equity instruments issued by Fuyuan Xiangda are recognised at the proceeds received, net of direct issue costs.

– 110 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

Financial liabilities

Financial liabilities including trade payables, other payables, amounts due to an intermediate holding company, amount due to a shareholder and amounts due to fellow subsidiaries are subsequently measured at amortised cost, using the effective interest method.

Derecognition

Fuyuan Xiangda derecognises financial liabilities when, and only when, Fuyuan Xiangda’s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Impairment of tangible assets

At the end of each reporting period, Fuyuan Xiangda reviews the carrying amounts of its tangible assets with finite useful lives 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 is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, Fuyuan Xiangda estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of Fuyuan Xiangda’s accounting policies, which are described in note 3, the directors of Fuyuan Xiangda are 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.

Depreciation of property, plant and equipment

– 111 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

Mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines. The directors of Fuyuan Xiangda assess annually the residual value and the useful life of the property, plant and equipment as well as the reserve of the coal mines. If the expectation differs from the original estimate, such difference will impact the depreciation and the amortisation charged in the year in which such estimate is changed. The carrying amount of property, plant and equipment was RMB147,817,295, RMB297,713,957 and RMB308,867,205 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively. Details of property, plant and equipment are disclosed in note 12.

As explained in note 3, mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines.

Engineering estimates of Fuyuan Xiangda’s mineral reserves involved subjective judgements by mineral engineers in developing such information. There is a Chinese system, which is the national standard set by the PRC Government, regarding the engineering criteria that have to be met before estimated mineral reserves can be designated as ‘‘proven’’. Proven reserve estimates are updated on a regular basis and are taken into account as a change in estimate for accounting purposes and are reflected on a prospective basis in related depreciation and amortisation rates. If the expectation differs from the original reserve estimate, such difference will impact the depreciation and amortisation charged in the year in which such estimate is changed. The carrying amount of mining structures and mining rights was RMB30,060,502, RMB55,512,204 and RMB102,674,638 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively.

Estimated impairment of property, plant and equipment

Determining whether an impairment loss on mining structure and mining rights requires an estimate of the recoverable amount of the cash-generating unit (‘‘CGU’’) to which the asset belongs. Management of Fuyuan Xiangda consider that Fuyuan Xiangda continues to use the relevant assets and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. The value in use calculation requires Fuyuan Xiangda to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. Where the future cash flows are less than expected or due to changes in estimates, a material impairment loss may arise. As at 31 December 2010, 31 December 2011 and 31 December 2012, the carrying amounts of mining structures and mining rights was RMB30,060,502, RMB55,512,204 and RMB102,674,638, respectively.

5. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost	As at 31 December 2010 2011 2012 RMB RMB RMB 17,811,637 34,987,316 166,251,821 149,071,591 267,214,636 376,353,998	As at 31 December 2010 2011 2012 RMB RMB RMB 17,811,637 34,987,316 166,251,821 149,071,591 267,214,636 376,353,998
		376,353,998

– 112 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

(b) Financial risk management objectives and policies

Fuyuan Xiangda’s major financial instruments include bills and trade receivables, other receivables and deposits, bank balances, trade payables, other payables and amounts due from and to group companies. Details of these financial instruments are set out in respective notes. The risks associated with these financial instruments include market risk (interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. Management of Fuyuan Xiangda manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Market risk

Interest rate risk

Fuyuan Xiangda is exposed to cash flow interest rate risk in relation to variable rate bank balances and interest bearing payables for acquisitions of mining structures and mining rights (see notes 16 and 18 for details) and fair value interest rate risk in relation to certain balances of amounts due from and to related parties which carry fixed interest rate (see note 19 for details). The directors of Fuyuan Xiangda consider the exposure of interest-bearing bank balances is not significant as bank balances are in short maturity period. Fuyuan Xiangda currently does not have an interest rate hedging policy. However, management closely monitors interest rate exposure and will consider hedging significant interest rate change exposure when the need arise. No sensitivity analysis is presented as the directors of Fuyuan Xiangda consider the amount is insignificant.

(ii) Credit risk

As at the end of each reporting period, Fuyuan Xiangda’s maximum exposure to credit risk which will cause a financial loss to Fuyuan Xiangda due to failure to discharge an obligation by the counterparties is arising from the carrying amounts of the respective recognised financial assets as stated in the statement of financial position.

Management of Fuyuan Xiangda reviews the recoverable amount of each individual debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, management of Fuyuan Xiangda considers that the credit risk is significantly reduced.

Other than concentration of credit risks on group companies which management of Fuyuan Xiangda reviews the financial position and repayment abilities of respective group companies, Fuyuan Xiangda does not have any other significant concentration of credit risk, with exposure spread over a number of counterparties having similar characteristics.

The credit risk on liquid funds is limited because the counterparties are banks with good reputation.

(iii) Liquidity risk

In the management of the liquidity risk, Fuyuan Xiangda monitors and maintains a level of cash and cash equivalents deemed adequate by management of Fuyuan Xiangda to finance its operations and mitigate the effects of fluctuations in cash flows.

Fuyuan Xiangda relies on advances from group companies as a significant source of liquidity. Details of which are set out in note 19.

At 31 December 2012, Fuyuan Xiangda had net current liabilities of RMB218,522,444. As the Company has agreed to provide financial support to Fuyuan Xiangda to meet in full its financial obligations as they fall due in the foreseeable future, the directors of Fuyuan Xiangda consider the liquidity risk of Fuyuan Xiangda is insignificant.

– 113 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

The following tables detail Fuyuan Xiangda’s remaining contractual maturity for its nonderivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which Fuyuan Xiangda can be required to pay.

Weighted average interest rate % Trade payables — Other payables — Amount due to a shareholder — Amounts due to fellow subsidiaries — Amount due to an intermediate holding company 5.76 Weighted average interest rate % Trade payables — Other payables 1.20 Amount due to a shareholder — Amount due to an intermediate holding company 8.625 Amounts due to fellow subsidiaries 6.15 Weighted average interest rate % Trade payables — Other payables 1.20 Amount due to a shareholder — Amount due to an intermediate holding company 8.625 Amounts due to fellow subsidiaries 6.15	On demand or within 1 year RMB 393,747 479,105 10,144,521 14,127,460 123,926,758 149,071,591 On demand or within 1 year RMB 3,348,943 15,108,927 33,956,664 97,725,000 217,580 150,357,114 On demand or within 1 year RMB 6,806,683 11,156,357 31,439,252 106,143,000 100,941,622 256,486,914	More than 1 year and less than 2 years RMB — — — — — — More than 1 year and less than 2 years RMB — 3,542,000 — — — 3,542,000 More than 1 year and less than 2 years RMB — 3,542,000 — — — 3,542,000	More than 2 years and less than 5 years RMB — — — — — — More than 2 years and less than 5 years RMB — 10,626,000 — — 119,775,531 130,401,531 More than 2 years and less than 5 years RMB — 7,084,000 — — 119,775,531 126,859,531	Total undiscounted cash flows RMB 393,747 479,105 10,144,521 14,127,460 123,926,758 149,071,591 Total undiscounted cash flows RMB 3,348,943 29,276,927 33,956,664 97,725,000 119,993,111 284,300,645 Total undiscounted cash flows RMB 6,806,683 21,782,357 31,439,252 106,143,000 220,717,153 386,888,445	Carrying amount at 31 December 2010 RMB 393,747 479,105 10,144,521 14,127,460 123,926,758
					149,071,591
					Carrying amount at 31 December 2011 RMB 3,348,943 29,070,427 33,956,664 97,725,000 103,113,602
					267,214,636
					Carrying amount at 31 December 2012 RMB 6,806,683 21,617,857 31,439,252 106,143,000 210,347,206
					376,353,998

– 114 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

(c) Fair value

The fair value of financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

Management of Fuyuan Xiangda considers that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate to their fair values.

6. REVENUE AND SEGMENT INFORMATION

Revenue represents sale of raw coal at invoiced value net of discounts and sales related taxes during the Relevant Periods.

The directors of Fuyuan Xiangda, being the chief operating decision makers, assess the performance and allocate the resources of Fuyuan Xiangda as a whole because Fuyuan Xiangda is mainly engaged in mining. Therefore, the directors of Fuyuan Xiangda consider that Fuyuan Xiangda only has one operating segment under IFRS 8. In this regard, no segment information is presented.

Geographical information

The operations and assets of Fuyuan Xiangda are located in the PRC.

Information about major customers

Revenue from customers, other than related parties as disclosed in note 24(a), of the corresponding years contributing over 10% of the total sales of Fuyuan Xiangda are as follows:

		For the year ended 31 December	For the year ended 31 December	For the year ended 31 December
		2010	2011	2012
		RMB	RMB	RMB
Customer	A	N/A*	N/A*	12,579,865
Customer	B	17,469,983	16,434,144	N/A*

The corresponding revenue did not contribute over 10% of the total sales of Fuyuan Xiangda.

7. FINANCE COSTS

Interest expenses on borrowings wholly repayable within five years: — amount due to an intermediate holding company — amounts due to fellow subsidiaries Less: Interest capitalised in construction in progress	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 5,956,758 1,725,000 8,418,000 — 3,253,340 6,509,562 5,956,758 4,978,340 14,927,562 — (213,414) (2,044,978) 5,956,758 4,764,926 12,882,584

– 115 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

8. INCOME TAX EXPENSE

Current tax: PRC Enterprise Income Tax Overprovision in prior year	For the year ended 31 December 2010 2011 2012 RMB RMB RMB (4,975,973) (8,814,525) (4,923,164) — 4,358 — (4,975,973) (8,810,167) (4,923,164)

No provision for Hong Kong Profits Tax has been made as Fuyuan Xiangda’s income neither arises in, nor is derived from, Hong Kong.

Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of the EIT Law, the tax rate of Fuyuan Xiangda is 25% during the Relevant Periods.

The taxation during the Relevant Periods can be reconciled to the profit before tax per statements of comprehensive income as follows:

Profit before tax Tax at applicable tax rate of 25% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Overprovision in prior years Others Income tax expense for the year 9. PROFIT FOR THE YEAR	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 21,614,916 27,920,057 9,389,635 (5,403,729) (6,980,014) (2,347,409) (167,156) (1,239,599) (3,220,647) — — 644,892 — 4,358 — 594,912 (594,912) — (4,975,973) (8,810,167) (4,923,164)

Profit has been arrived at after charging (crediting): Cost of inventories recognised as expense Depreciation and amortisation of property, plant and equipment Provision for restoration cost (note 20) Loss on disposal of property, plant and equipment Salaries and other benefits Retirement benefit costs Total staff costs Bank interest income Imputed interest income on amounts due from fellow subsidiaries	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 40,633,863 23,012,983 21,372,408 3,304,031 4,765,059 6,084,347 105,495 81,667 137,317 58,972 — —	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 40,633,863 23,012,983 21,372,408 3,304,031 4,765,059 6,084,347 105,495 81,667 137,317 58,972 — —	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 40,633,863 23,012,983 21,372,408 3,304,031 4,765,059 6,084,347 105,495 81,667 137,317 58,972 — —	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 40,633,863 23,012,983 21,372,408 3,304,031 4,765,059 6,084,347 105,495 81,667 137,317 58,972 — —	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 40,633,863 23,012,983 21,372,408 3,304,031 4,765,059 6,084,347 105,495 81,667 137,317 58,972 — —
	14,867,349 949,849		8,198,238 204,030		9,466,579 784,917
	15,817,198 (7,611) —		8,402,268 (3,580) —		10,251,496 (6,967) (2,579,567)

– 116 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

10. DIRECTORS’ EMOLUMENTS AND EMPLOYEES’ EMOLUMENTS

Directors’ emoluments

During the Relevant Periods, no fees or other emoluments was paid or payable by Fuyuan Xiangda to its directors.

During the Relevant Periods, no remuneration was paid by Fuyuan Xiangda to its directors as an inducement to join or upon joining Fuyuan Xiangda or as compensation for loss of office. None of the directors has waived any remuneration during the Relevant Periods.

Employees’ emoluments

The five highest paid individuals for the Relevant Periods were as follows:

Salaries and other allowances Contributions to retirement benefit schemes	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 387,784 513,462 303,887 1,731 574 761 389,515 514,036 304,648	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 387,784 513,462 303,887 1,731 574 761 389,515 514,036 304,648
		304,648

Each of their emoluments were within HK$1,000,000 (approximately RMB800,000).

During the Relevant Periods, no emolument was paid or payable by Fuyuan Xiangda to the five highest paid individuals as an inducement to join Fuyuan Xiangda as compensation for loss of office.

11. EARNINGS PER SHARE

Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful.

– 117 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

12. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2010 Additions Transfer Disposal At 31 December 2010 Additions Transfer At 31 December 2011 Additions Transfer At 31 December 2012 DEPRECIATION AND AMORTISATION At 1 January 2010 Provided for the year Eliminated on disposals At 31 December 2010 Provided for the year At 31 December 2011 Provided for the year At 31 December 2012 CARRYING AMOUNTS At 31 December 2010 At 31 December 2011 At 31 December 2012	Buildings RMB 6,011,764 184,959 355,471 — 6,552,194 — 876,002 7,428,196 — 7,283,750 14,711,946 133,062 174,230 — 307,292 199,673 506,965 389,923 896,888 6,244,902 6,921,231 13,815,058	Mining structures and mining rights RMB 10,241,570 — 20,063,972 — 30,305,542 25,640,000 — 55,945,542 209,194 47,172,651 103,327,387 — 245,040 — 245,040 188,298 433,338 219,411 652,749 30,060,502 55,512,204 102,674,638	Machinery RMB 39,820,076 4,744,084 — — 44,564,160 28,139,061 4,344,607 77,047,828 3,491,298 286,863 80,825,989 1,623,314 2,680,175 — 4,303,489 3,959,160 8,262,649 5,016,128 13,278,777 40,260,671 68,785,179 67,547,212	Motor vehicles RMB — 839,042 — — 839,042 — — 839,042 — — 839,042 — 100,544 — 100,544 135,645 236,189 135,645 371,834 738,498 602,853 467,208	Office and electronic equipment RMB 3,366,237 108,751 — (75,285) 3,399,703 647,439 — 4,047,142 47,873 — 4,095,015 288,160 104,042 (16,313) 375,889 282,283 658,172 323,240 981,412 3,023,814 3,388,970 3,113,603	Construction in progress RMB 28,063,972 59,844,379 (20,419,443) — 67,488,908 100,235,221 (5,220,609) 162,503,520 13,489,230 (54,743,264) 121,249,486 — — — — — — — — 67,488,908 162,503,520 121,249,486	Total RMB 87,503,619 65,721,215 — (75,285
							153,149,549 154,661,721 —
							307,811,270 17,237,595 —
							325,048,865
							2,044,536 3,304,031 (16,313
							5,332,254 4,765,059
							10,097,313 6,084,347
							16,181,660
							147,817,295
							297,713,957
							308,867,205

The following estimated useful lives are used for the depreciation of property, plant and equipment, other than mining structures and mining rights as well as construction in progress:

Buildings 15 to 35 years Machinery 5 to 15 years Motor vehicles, office and electronic 5 to 10 years equipment

The mining structures and mining rights include the main and auxiliary mine shafts and underground tunnels. The mining rights have average legal lives of 10 years but in the opinion of the directors of Fuyuan Xiangda, Fuyuan Xiangda will be able to renew the mining rights without incurring significant costs.

– 118 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

Depreciation and amortisation are provided to write off the cost of the mining structures and mining rights using the units of production method over the total proven reserves of the coal mine.

The construction in progress comprise mainly the main and auxiliary mine shafts and underground tunnels in the course of construction.

The legal titles of the mining rights have been granted by the relevant government authorities as at 31 December 2010, 31 December 2011 and 31 December 2012.

During the year ended 31 December 2012, the operation in mines of Fuyuan Xiangda have been suspended for safety inspection and government deliberations since the occurrence of accidents in the vicinity. At 31 December 2012, the carrying amounts of construction in progress and property, plant and equipment other than construction in progress, in respect of mines which were still suspended are RMB121,249,486 and RMB187,617,719, respectively.

For the purpose of the impairment testing of mining structure and mining rights of the mines being under suspension of production or construction for safety inspection and government liberations, management of Fuyuan Xiangda considers that Fuyuan Xiangda will continue to use the relevant assets in the foreseeable future and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. Value in use calculation is based on the discount rates of 14.9% and cash flow projections prepared from financial forecasts approved by the directors of Fuyuan Xiangda for the next five years, taking into account the best estimates of management of Fuyuan Xiangda concerning the likely dates for resumption of mining operations and development. The CGUs cashflows beyond the 5-year period are extrapolated using a zero growth rate until the coal reserves have been mined based on existing production capacities. Other key assumptions for the value in use calculation related to the estimation of cash inflows/outflows which include future coal price and gross margin, such estimation is based on the estimation provided by management of Fuyuan Xiangda. Based on the assumptions applied, the recoverable amounts are above its carrying amounts of the relevant CGUs, accordingly, management of Fuyuan Xiangda has determined that there is no impairment of the mining structure and mining rights.

13. INVENTORIES

Coal products Auxiliary materials and spare parts	As at 31 December 2010 2011 2012 RMB RMB RMB 752,038 2,448,516 10,678,231 5,345,574 1,957,562 541,063 6,097,612 4,406,078 11,219,294	As at 31 December 2010 2011 2012 RMB RMB RMB 752,038 2,448,516 10,678,231 5,345,574 1,957,562 541,063 6,097,612 4,406,078 11,219,294
		11,219,294

14. BILLS AND TRADE RECEIVABLES

Trade receivables Bills receivables	As at 31 December 2010 2011 2012 RMB RMB RMB — — 33,946,391 620,000 2,600,000 — 620,000 2,600,000 33,946,391	As at 31 December 2010 2011 2012 RMB RMB RMB — — 33,946,391 620,000 2,600,000 — 620,000 2,600,000 33,946,391
		33,946,391

Fuyuan Xiangda generally allows an average credit period ranging from 90–120 days to its trade customers and the average credit period for bills receivables is ranging from 90–180 days.

– 119 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

The aged analysis of bills and trade receivables presented based on the invoice date at the end of the reporting period, is as follows:

Aged: 0–90 days	As at 31 December 2010 2011 2012 RMB RMB RMB 620,000 2,600,000 33,946,391

Bills and trade receivables as at the Relevant Periods were aged less than 30 days based on the invoice date.

Before accepting any new customer, Fuyuan Xiangda will assess credit worthiness by customer. As the customers are mostly the renowned steel manufacturer, therefore based on the past history, the eventual collectability of the receivables neither past due nor impaired is expected.

15. OTHER RECEIVABLES AND PREPAYMENTS

At 31 December 2012, included in other receivables, deposits and prepayments is an amount of RMB540,000 prepayment for advisory service to Huaneng, a shareholder of Fuyuan Xiangda.

16. BANK BALANCES AND CASH

Bank balances as at 31 December 2010, 31 December 2011 and 31 December 2012 carry interests at market rates range from 0.35% to 0.50% per annum.

17. TRADE PAYABLES

The aged analysis of Fuyuan Xiangda trade payables and based on invoice date at the end of the reporting period is as follows:

0–90 days 91–180 days 181–365 days Over 365 days	As at 31 December 2010 2011 2012 RMB RMB RMB 386,987 2,348,843 2,872,206 — 785,600 1,693,475 6,760 — 1,240,162 — 214,500 1,000,840 393,747 3,348,943 6,806,683	As at 31 December 2010 2011 2012 RMB RMB RMB 386,987 2,348,843 2,872,206 — 785,600 1,693,475 6,760 — 1,240,162 — 214,500 1,000,840 393,747 3,348,943 6,806,683
		6,806,683

The average credit period on purchases of goods is 90 days.

18. OTHER PAYABLES AND ACCRUED EXPENSES

At 31 December 2011, included in other payables and accrued expenses was an amount of RMB8,265,297 payables for acquisition of property, plant and equipment. The amount was paid during the year ended 31 December 2012. In addition, included in other payables and accruals is an amount of RMB17,500,000 payables for acquisitions of mining structures and mining rights and would be settled in six installments from 2012 to 2016 and borne interest at market rate.

At 31 December 2012, included in other payables and accruals is an amount of RMB14,000,000 payables for acquisitions of mining structures and mining rights and would be settled in five installments from 2013 to 2016 and borne interest at market rate.

– 120 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

The payables for acquisitions of mining structures and mining rights are analysed as below for presentation:

Current liabilities Non current liabilities	As at 31 December 2010 2011 2012 RMB RMB RMB — 3,500,000 3,500,000 — 14,000,000 10,500,000 — 17,500,000 14,000,000	As at 31 December 2010 2011 2012 RMB RMB RMB — 3,500,000 3,500,000 — 14,000,000 10,500,000 — 17,500,000 14,000,000
		14,000,000

19. AMOUNTS DUE FROM AND TO RELATED PARTIES

At 31 December 2010, except for amount due to an intermediate holding company of RMB123,926,758 which borne interest at 5.76% per annum, amounts due from and to related parties were interest free. All amounts due from and to related parties were unsecured and repayable on demand.

At 31 December 2011, except for amounts due to fellow subsidiaries of RMB102,896,022 which borne interest at 6.15% per annum and repayable within three years and amount due to an intermediate holding company of RMB97,725,000 which borne interest at 8.625% and repayable on demand, amounts due to related parties were interest free. All amounts due from and to related parties were unsecured and repayable on demand.

At 31 December 2012, except for amounts due from a shareholder and fellow subsidiaries of RMB48,166,688 and RMB78,796,827, respectively, which will be recovered in three year time from initial recognition, amounts due from related parties are expected to be recovered in one year. The effective interest of amounts due from a shareholder and fellow subsidiaries expected to be recovered in three year time was 6.15% per annum. All amounts due from related parties are interest free and unsecured.

At 31 December 2012, except for amounts due to fellow subsidiaries of RMB109,405,584 which borne interest at 6.15% per annum and repayable within two years and amount due to an intermediate holding company of RMB106,143,000 which borne interest at 8.625% and repayable on demand, amounts due to related parties were interest free. All amounts due to related parties were unsecured and repayable on demand.

There is no credit terms and policies on the trade balances with group companies.

20. PROVISION FOR RESTORATION AND ENVIRONMENTAL COSTS

At 1 January 2010 Provision for the year At 31 December 2010 Provision for the year At 31 December 2011 Provision for the year At 31 December 2012	RMB — 105,495
	105,495 81,667
	187,162 137,317
	324,479

Mining activities may result in land subsidence and damage to the environment of the mining areas. Pursuant to the relevant PRC regulations, Fuyuan Xiangda is required to restore the mining areas back to certain acceptable conditions.

– 121 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

expenditures to their net present value at market rate. The amounts provided in relation to restoration and environmental clean up costs are reviewed at least annually based upon the facts and circumstances available at the time and the provisions are updated accordingly.

21. PAID IN CAPITAL

Registered and fully paid at 1 January 2010, 31 December 2010 and 2011 Capital injection Registered and fully paid at 31 December 2012	RMB 12,000,000 8,339,000
	20,339,000

On 28 August 2012, the total registered capital of Fuyuan Xiangda increased from RMB12,000,000 to RMB20,339,000 and Huaneng paid an additional contribution of RMB60,000,000 in September 2012, of which RMB8,339,000 as paid in capital and RMB51,661,000 as capital reserve.

22. CAPITAL RISK MANAGEMENT

Fuyuan Xiangda manages its capital to ensure it 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 overall strategy of Fuyuan Xiangda remains unchanged throughout the Relevant Periods.

The capital structure of Fuyuan Xiangda consists of debts, which include amounts due to related parties as disclosed in note 19, net of cash and cash equivalents and equity attributable to owners of Fuyuan Xiangda, comprising paid in capital, reserves and retained profits.

The directors of Fuyuan Xiangda review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Fuyuan Xiangda will balance its overall capital structure through the payment of dividends as well as the issue of new debt or the redemption of existing debt.

23. CAPITAL COMMITMENTS

Capital expenditure contracted for but not provided in respect of acquisition of property, plant and equipment	As at 31 December 2010 2011 2012 RMB RMB RMB 75,736,678 35,648,330 52,095,495

– 122 –

ACCOUNTANT’S REPORT OF FUYUAN XIANGDA

APPENDIX IID

24. RELATED PARTY TRANSACTIONS

During the Relevant Periods, Fuyuan Xiangda entered into the following transactions with related parties:

(a) Transactions

A shareholder: Purchases Sales Advisory fee paid and payable Intermediate holding companies: Interest expenses Fellow subsidiaries: Purchases Sales Interest expenses	2010 RMB 37,463,460 — — 5,956,758 296,906 53,327,832 —	2011 RMB 22,389,379 26,256,805 — 1,725,000 498,586 20,001,926 3,253,340	2012 RMB — 2,536,836 270,000 8,418,000 3,463,780 31,151,568 6,509,562

(b) Details of the balances with related parties are set out in the statements of financial position and notes 15 and 19.

B. EVENTS AFTER THE REPORTING PERIOD

Subsequent to the reporting period, the production of Fuyuan Xiangda’s mine was resumed.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Fuyuan Xiangda have been prepared in respect of any period subsequent to 31 December 2012.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 123 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

The following is the text of the accountant’s report of the Target Subsidiaries prepared by Company’s auditors, Deloitte Touche Tohmatsu, for the purpose of incorporation in this circular.

==> picture [72 x 55] intentionally omitted <==

==> picture [77 x 34] intentionally omitted <==

25 June 2013

The Directors Hidili Industry International Development Limited Room 3702, 37th Floor West Tower, Shun Tak Centre 168–200 Connaught Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information (‘‘Financial Information’’) regarding Yunnan Henglong Coal Industry Co., Ltd. (‘‘Yunnan Henglong’’) for the period from 3 February 2010 (date of establishment) to 31 December 2010 and each of the two years ended 31 December 2012 (the ‘‘Relevant Periods’’) for inclusion in a circular issued by Hidili Industry International Development Limited (the ‘‘Company’’) dated 25 June 2013 (the ‘‘Circular’’) in connection with the major transactions in relation to the capital injections by Huaneng Guicheng Trust Co., Ltd. (‘‘Huaneng’’) to Yunnan Henglong and certain subsidiaries of the Company and share transfers.

Yunnan Henglong was established with limited liability in the People’s Republic of China (the ‘‘PRC’’) on 3 February 2010.

The statutory financial statements of Yunnan Henglong were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC. The statutory financial statements of Yunnan Henglong for the Relevant Periods were audited by Sichuan Jing Wei Certified Public Accountants Co., Ltd, certified public accountants registered in the PRC.

For the purpose of this report, the directors of Yunnan Henglong have prepared the financial statements of Yunnan Henglong for the Relevant Periods in accordance with International Financial Reporting Standards (‘‘IFRSs’’) (the ‘‘Underlying Financial Statements’’). We have undertaken an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) and have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

– 124 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

The Financial Information of Yunnan Henglong for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements. No adjustments were deemed necessary by us to the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of Yunnan Henglong who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Yunnan Henglong as at 31 December 2010, 31 December 2011 and 31 December 2012 and of its results and cash flows for the Relevant Periods.

Without qualifying our opinion, we draw attention to note 1 to the Financial Information which indicates that Yunnan Henglong’s current liabilities exceeded its current assets by RMB260,761,810 as at 31 December 2012. As described in note 1 to the Financial Information, the Company has agreed to provide financial support to Yunnan Henglong to meet in full its financial obligations as and when they fall due in the foreseeable future. However, the Company’s going concern is dependent on the successful implementation of a number of measures as disclosed in note 1 to the Financial Information to improve its financial position. The eventual success of these measures cannot presently be determined and accordingly this indicates the existence of a material uncertainty which may cast significant doubt about Yunnan Henglong’s ability to continue as a going concern. The Financial Information does not include any adjustments that would result from a failure of the Company to implement such measures as disclosed in note 1 to the Financial Information.

– 125 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

A. FINANCIAL INFORMATION

Statements of Comprehensive Income

Notes Revenue 6 Cost of sales Gross profit Other income Administrative expenses Finance costs 7 Profit (loss) before tax Income tax expense 8 Profit (loss) and total comprehensive income (expense) for the period/year 9	For the period from 3 February 2010 (date of establishment) to 31 December 2010 RMB 47,781,977 (18,262,189) 29,519,788 128,147 (1,600,772) (9,202,453) 18,844,710 (6,875,393) 11,969,317	For the year ended 31 December 2011 2012 RMB RMB 35,326,496 34,255,843 (13,514,277) (18,265,460) 21,812,219 15,990,383 4,528,768 8,607,941 (3,092,079) (8,460,652) (18,433,614) (29,430,627) 4,815,294 (13,292,955) (5,186,894) (2,356,857) (371,600) (15,649,812)

– 126 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

Statements of Financial Position

Notes NON-CURRENT ASSETS Property, plant and equipment 12 Loan receivable 13 Amounts due from fellow subsidiaries 19 CURRENT ASSETS Inventories 14 Other receivables, deposits and prepayments 15 Amount due from a shareholder 19 Amounts due from fellow subsidiaries 19 Bank balances and cash 16 CURRENT LIABILITIES Trade payables 17 Other payables and accrued expenses 18 Amounts due to shareholders 19 Amounts due to intermediate holding companies 19 Amounts due to fellow subsidiaries 19 Tax payables NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Provision for restoration and environmental costs 21 Amounts due to fellow subsidiaries 19 NET ASSETS CAPITAL AND RESERVES Paid in capital 20 Reserves TOTAL EQUITY	As 2010 RMB 434,256,969 22,623,118 43,557,544 500,437,631 4,987,415 4,564,715 — 1,502,400 319,910 11,374,440 39,369 9,585,169 37,843,576 10,254,400 174,075,374 6,862,145 238,660,033 (227,285,593) 273,152,038 108,984 206,250,013 206,358,997 66,793,041 10,000,000 56,793,041 66,793,041	at 31 December 2011 2012 RMB RMB 538,300,059 598,936,675 — — 75,302,402 142,453,214 613,602,461 741,389,889 2,005,265 2,192,887 33,119,554 6,422,381 — 16,000 12,441,259 45,955,198 44,757 10,401,360 47,610,835 64,987,826 1,577,683 5,271,044 10,048,719 34,419,713 250,912,627 266,431,376 5,676,800 5,676,800 100,439,102 1,986,257 12,001,443 11,964,446 380,656,374 325,749,636 (333,045,539) (260,761,810) 280,556,922 480,628,079 125,290 145,366 219,844,182 337,525,507 219,969,472 337,670,873 60,587,450 142,957,206 10,000,000 16,949,200 50,587,450 126,008,006 60,587,450 142,957,206

– 127 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

Statements of Changes in Equity

At 3 February 2010 (date of establishment) Profit and total comprehensive income for the period Deemed contribution on interest free loans granted from fellow subsidiaries Deemed distribution on interest free loans granted to fellow subsidiaries At 31 December 2010 Loss and total comprehensive expense for the year Deemed distribution on interest free loans granted to fellow subsidiaries Transfer At 31 December 2011 Loss and total comprehensive expense for the year Deemed contribution on interest free loans granted from fellow subsidiaries Deemed distribution on interest free loans granted to fellow subsidiaries Transfer Capital injection At 31 December 2012	Paid in capital RMB 10,000,000 — — — 10,000,000 — — — 10,000,000 — — — — 6,949,200 16,949,200	Capital reserve RMB — — — — — — — — — — — — — 83,050,800 83,050,800	Statutory surplus reserve RMB (Note i) — — — — — — — 751,592 751,592 — — — 10,384,739 — 11,136,331	Future development fund RMB (Note ii) — — — — — — — 373,153 373,153 — — — 15,366 — 388,519	Retained profits RMB — 11,969,317 57,493,494 (12,669,770) 56,793,041 (371,600) (5,833,991) (1,124,745) 49,462,705 (15,649,812) 20,220,033 (12,200,465) (10,400,105) — 31,432,356	Total RMB 10,000,000 11,969,317 57,493,494 (12,669,770) 66,793,041 (371,600) (5,833,991) — 60,587,450 (15,649,812) 20,220,033 (12,200,465) — 90,000,000 142,957,206

Notes:

(i) According to the Articles of Association of Yunnan Henglong, Yunnan Henglong is required to make an appropriation of 10% of its profit after taxation each year to statutory surplus reserve until the balance reaches 50% of the registered capital of Yunnan Henglong while Yunnan Henglong can make additional appropriation to statutory surplus reserve at their own discretion. According to the provision of the Articles of Association, in normal circumstances, the statutory surplus reserve shall only be used for making up losses, capitalisation into paid in capital and expansion of the production and operation of Yunnan Henglong.
(ii) Pursuant to the relevant regulations in the PRC, the Yunnan Henglong is required to make a transfer to future development fund based on a fixed amount 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.

– 128 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

Statements of Cash Flows

OPERATING ACTIVITIES Profit (loss) before tax Adjustments for: Depreciation and amortisation of property, plant and equipment Provision for restoration and environmental costs Interest income Interest expenses Imputed interest income Operating cash flows before movements in working capital (Increase) decrease in inventories (Increase) decrease in other receivables, deposits and prepayments Increase in trade payables Increase (decrease) in other payables and accrued expenses Cash from operations Income tax paid NET CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of property, plant and equipment (Advance to) repayment from a loan receivable Advance to fellow subsidiaries Repayment from fellow subsidiaries Advance to a shareholder Interest received NET CASH USED IN INVESTING ACTIVITIES	For the period from 3 February 2010 (date of establishment) to 31 December 2010 RMB 18,844,710 1,335,157 108,984 (128,147) 9,202,453 — 29,363,157 (4,987,415) (4,564,715) 39,369 7,085,169 26,935,565 (13,248) 26,922,317 (433,092,126) (22,623,118) (58,370,109) 640,395 — 128,147 (513,316,811)	For the year ended 31 December 2011 2012 RMB RMB 4,815,294 (13,292,955) 1,640,189 2,334,405 16,306 20,076 (1,657,840) (1,840,365) 18,433,614 29,430,627 (2,870,928) (6,767,576) 20,376,635 9,884,212 2,982,150 (187,622) (5,931,721) 4,074,055 1,538,314 3,693,361 2,463,550 (7,629,006) 21,428,928 9,835,000 (47,596) (2,393,854) 21,381,332 7,441,146 (105,644,652) (26,714,482) — 22,623,118 (76,800,358) (128,628,957) 31,153,578 22,531,317 — (16,000) 1,657,840 1,840,365 (149,633,592) (108,364,639)

– 129 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

FINANCING ACTIVITIES Capital injection Advance from shareholders Advance from an intermediate holding company Advance from fellow subsidiaries Repayment to shareholders Repayment to an intermediate holding company Repayment to fellow subsidiaries Interest paid NET CASH FROM FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS BROUGHT FORWARD CASH AND CASH EQUIVALENTS CARRIED FORWARD, representing bank balances and cash	For the period from 3 February 2010 (date of establishment) to 31 December 2010 RMB 10,000,000 67,843,576 10,254,400 463,969,316 (30,000,000) — (34,742,936) (609,952) 486,714,404 319,910 — 319,910	For the year ended 31 December 2011 2012 RMB RMB — 90,000,000 231,069,051 92,160,014 5,400,000 — 105,684,012 146,003,372 (18,000,000) (76,641,265) (9,977,600) — (179,320,284) (124,162,011) (6,878,072) (16,080,014) 127,977,107 111,280,096 (275,153) 10,356,603 319,910 44,757 44,757 10,401,360

– 130 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

Notes to the Financial Information

1. GENERAL AND BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The principal activities of Yunnan Henglong is mining and sale of raw coal to its group companies. Yunnan Henglong is owned as to 47.2% by is Liupanshui Hidili Industry Co., Limited (‘‘Liupanshui Hidili’’); 11.8% by Sichuan Hidili Industry Co., Ltd. (‘‘Sichuan Hidili’’); and 41% by Huaneng, companies established in the PRC. The Company, a company incorporated in the Cayman Islands with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited, is an intermediate holding company of Yunnan Henglong, Liupanshui Hidili and Sichuan Hidili. In the opinion of the directors of Yunnan Henglong, the ultimate holding company of Yunnan Henglong is Sarasin Trust Company Guernsey Limited, a company incorporated in the British Virgin Islands which is controlled by Mr. Xian Yang, the Chief Executive and Executive Director of the Company. The address of the registered office and principal place of business of Yunnan Henglong is Zude Village, Fucun Town, Fuyuan County, Yunnan Province, PRC.

The Financial Information is presented in Renminbi (‘‘RMB’’), which is the same as the functional currency of Yunnan Henglong.

In preparing the Underlying Financial Statements, the directors of Yunnan Henglong have taken into consideration that Yunnan Henglong’s current liabilities exceeded its current assets by RMB260,761,810 as at 31 December 2012.

The Financial Information has been prepared on a going concern basis because the Company has agreed to provide financial support to Yunnan Henglong to meet in full its financial obligations as and when they fall due in the foreseeable future. The Company has been implementing a number of measures to improve its financial positions, including but not limited to: (1) approaching banks and independent third parties in the PRC to obtain new medium to long-term facilities of not less than RMB2.5 billion; (2) negotiating with a bank to review and renew banking facilities repayable within 12 months from draw down to repayable after 12 months from draw down of not less than RMB400 million; and (3) proposal disposal of 50% equity interest in certain of its subsidiaries for a total consideration of RMB2.4 billion, details of which are set out in the Company’s announcement dated 24 May 2013. The directors of Yunnan Henglong believe that the above measures can be successfully implemented and therefore the Company will have sufficient working capital to finance the operations of Yunnan Henglong and Yunnan Henglong can meet its financial obligations as and when they fall due for the foreseeable future.

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Underlying Financial Statements, throughout the Relevant Periods, Yunnan Henglong has consistently adopted all of the new and revised standards, amendments and interpretations which are or have been effective for Yunnan Henglong’s financial year beginning on 1 January 2012.

Yunnan Henglong has not early applied the following new and revised IFRSs that have been issued but are not yet effective:

Amendments to IFRSs	Annual Improvements to IFRSs 2009–2011 Cycle2
Amendments to IFRS 7	Disclosure — Offsetting Financial Assets and Financial Liabilities2
Amendments to IFRS 7 and IFRS 9	Mandatory Effective Date of IFRS 9 and Transition Disclosures4
Amendments to IFRS 10, IFRS 11	Consolidated Financial Statements, Joint Arrangements and Disclosure
and IFRS 12	of Interests in Other Entities: Transition Guidance2
Amendments to IFRS 10,	Investment Entities3
IFRS 12 and IAS 27
IFRS 9	Financial Instruments4
IFRS 10	Consolidated Financial Statements2
IFRS 11	Joint Arrangements2
IFRS 12	Disclosure of Interests in Other Entities2
IFRS 13	Fair Value Measurement2
IAS 19 (Revised 2011)	Employee Benefits2
IAS 27 (Revised 2011)	Separate Financial Statements2
IAS 28 (Revised 2011)	Investments in Associates and Joint Ventures2
Amendments to IAS 1	Presentation of Items of Other Comprehensive Income1
Amendments to IAS 32	Offsetting Financial Assets and Financial Liabilities3
Amendments to IAS 36	Recoverable Amount Disclosures for Non-Financial Assets3
IFRIC 20	Stripping Costs in the Production Phase of a Surface Mine2
IFRIC 21	Levies3

– 131 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

1 Effective for annual periods beginning on or after 1 July 2012. 2 Effective for annual periods beginning on or after 1 January 2013. 3 Effective for annual periods beginning on or after 1 January 2014. 4 Effective for annual periods beginning on or after 1 January 2015.

The directors of Yunnan Henglong anticipate that the application of the new and revised IFRSs will have no material impact on the results and the financial position of Yunnan Henglong.

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

The principal accounting policies are set out below.

Revenue recognition

Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

. Yunnan Henglong has transferred to the buyer the significant risks and rewards of ownership of the goods;
. Yunnan Henglong retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
. the amount of revenue can be measured reliably;
. it is probable that the economic benefits associated with the transaction will flow to Yunnan Henglong; and
. the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to Yunnan Henglong and the amount of income can be measured reliably. Interest income 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 asset to that asset’s net carrying amount on initial recognition.

Property, plant and equipment

Property, plant and equipment including buildings held for use in the production or supply of goods or services, or for administrative purposes, other than construction in progress, are stated in the statements of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses. Depreciation on these assets, other than mining structures and mining right, is recognised so as to write off the cost of assets less their residual value over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

– 132 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

Construction in progress represents property, plant and equipment in the course of construction for production or for its own use purpose. Construction in progress is carried at costs less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs capitalised in accordance with Yunnan Henglong’s accounting policy. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Borrowing costs

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefits costs

Payments to state-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

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 before tax’’ as reported in the statements of comprehensive income 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. Yunnan Henglong’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

– 133 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which Yunnan Henglong expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax are recognised in profit or loss.

Inventories

Provision for restoration and environmental costs

Yunnan Henglong is required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined. Provisions for restoration and environmental costs are required when Yunnan Henglong has a present obligation as a result of a past event, it is probable that Yunnan Henglong will be required to settle the obligation. Provisions are measured at the directors of Yunnan Henglong’s best estimation of the consideration required to settle the present obligation at the end of the reporting period, and are discounted to present value where the effect is material.

Financial instruments

Financial assets and financial liabilities are recognised in the statements of financial position when Yunnan Henglong becomes a party to the contractual provisions of the instrument.

Financial assets

Yunnan Henglong’s financial assets are loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including other receivables and deposits, loan receivable, amount due from a shareholder, amounts due from fellow subsidiaries and bank balances and cash) are measured at amortised cost using the effective interest method, less any identified impairment losses.

– 134 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

Impairment of financial assets

Objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty; or
. breach of contract, such as default or delinquency in interest or principal payments; or
. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

The carrying amount of financial asset is reduced by the impairment loss directly for all the financial assets. Subsequent recoveries of amounts previously written off are credited to profit or loss.

Derecognition

Yunnan Henglong derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

Financial liabilities and equity instruments

Debt and equity instruments issued by Yunnan Henglong are classified either as financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Effective interest method

Interest expense is recognised on an effective interest basis.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of Yunnan Henglong after deducting all of its liabilities. Equity instruments issued by Yunnan Henglong are recognised at the proceeds received, net of direct issue costs.

– 135 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

Financial liabilities

Financial liabilities including trade payables, other payables, amounts due to intermediate holding companies, amounts due to shareholders and amounts due to fellow subsidiaries are subsequently measured at amortised cost, using the effective interest method.

Derecognition

Yunnan Henglong derecognises financial liabilities when, and only when, Yunnan Henglong’s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Impairment of tangible assets

At the end of each reporting period, Yunnan Henglong reviews the carrying amounts of its tangible assets with finite useful lives 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 is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, Yunnan Henglong estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of Yunnan Henglong’s accounting policies, which are described in note 3, the directors of Yunnan Henglong are 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.

Depreciation of property, plant and equipment

– 136 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

Mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines. The directors of Yunnan Henglong assess annually the residual value and the useful life of the property, plant and equipment as well as the reserve of coal mines. If the expectation differs from the original estimate, such difference will impact the depreciation and the amortisation charged in the year in which such estimate is changed. The carrying amount of property, plant and equipment was RMB434,256,969, RMB538,300,059 and RMB598,936,675 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively. Details of property, plant and equipment are disclosed in note 12.

As explained in note 3, mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines.

Engineering estimates of Yunnan Henglong’s mineral reserves involved subjective judgements by mineral engineers in developing such information. There is a Chinese system, which is the national standard set by the PRC Government, regarding the engineering criteria that have to be met before estimated mineral reserves can be designated as ‘‘proven’’. Proven reserve estimates are updated on a regular basis and are taken into account as a change in estimate for accounting purposes and are reflected on a prospective basis in related depreciation and amortisation rates. If the expectation differs from the original reserve estimate, such difference will impact the depreciation and amortisation charged in the year in which such estimate is changed. The carrying amount of mining structures and mining rights was RMB404,667,227, RMB404,901,106 and RMB522,010,359 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively.

Estimated impairment of property, plant and equipment

Determining whether an impairment loss on mining structure and mining rights requires an estimate of the recoverable amount of the cash-generating unit (‘‘CGU’’) to which the asset belongs. Management of Yunnan Henglong consider that Yunnan Henglong continues to use the relevant assets and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. The value in use calculation requires Yunnan Henglong to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. Where the future cash flows are less than expected or due to changes in estimates, a material impairment loss may arise. As at 31 December 2010, 31 December 2011 and 31 December 2012, the carrying amounts of mining structures and mining rights was RMB404,667,227, RMB404,901,106 and RMB522,010,359, respectively.

– 137 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

5. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost	As at 31 December 2010 2011 2012 RMB RMB RMB 72,274,019 117,272,261 200,236,666 430,998,779 579,083,685 650,150,198	As at 31 December 2010 2011 2012 RMB RMB RMB 72,274,019 117,272,261 200,236,666 430,998,779 579,083,685 650,150,198
		650,150,198

(b) Financial risk management objectives and policies

Yunnan Henglong’s major financial instruments include loan receivable, other receivables and deposits, bank balances, trade payables, other payables, amounts due from and to group companies. Details of these financial instruments are set out in respective notes. The risks associated with these financial instruments include market risk (interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. Management of Yunnan Henglong manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Market risk

Interest rate risk

Yunnan Henglong is exposed to cash flow interest rate risk in relation to variable rate bank balances and fair value interest rate risk in relation to loan receivable and certain balances of amount due to a shareholder which carry fixed interest rate (see notes 16, 15 and 19 for details). The directors of Yunnan Henglong consider the exposure of interest-bearing bank balances is not significant as bank balances are in short maturity period. Yunnan Henglong currently does not have an interest rate hedging policy. However, management closely monitors interest rate exposure and will consider hedging significant interest rate change exposure when the need arise. No sensitivity analysis is presented as the directors of Yunnan Henglong consider the amount is insignificant.

(ii) Credit risk

As at the end of each reporting period, Yunnan Henglong’s maximum exposure to credit risk which will cause a financial loss to Yunnan Henglong due to failure to discharge an obligation by the counterparties is arising from the carrying amounts of the respective recognised financial assets as stated in the statements of financial position.

Management of Yunnan Henglong reviews the recoverable amount of each individual debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, management of Yunnan Henglong considers that the credit risk is significantly reduced.

Other than concentration of credit risks on group companies which management of Yunnan Henglong reviews the financial position and repayment abilities of respective group companies, Yunnan Henglong does not have any other significant concentration of credit risk, with exposure spread over a number of counterparties having similar characteristics.

The credit risk on liquid funds is limited because the counterparties are banks with good reputation.

– 138 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

(iii) Liquidity risk

In the management of the liquidity risk, Yunnan Henglong monitors and maintains a level of cash and cash equivalents deemed adequate by management of Yunnan Henglong to finance its operations and mitigate the effects of fluctuations in cash flows.

Yunnan Henglong relies on advances from related parties as a significant source of liquidity. Details of which are set out in note 19.

At 31 December 2012, Yunnan Henglong had net current liabilities of RMB260,761,810. As the Company has agreed to provide financial support to Yunnan Henglong to meet in full its financial obligations as they fall due in the foreseeable future, the directors of Yunnan Henglong consider the liquidity risk of Yunnan Henglong is insignificant.

The following tables detail Yunnan Henglong’s remaining contractual maturity for its nonderivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which Yunnan Henglong can be required to pay.

Weighted average interest rate % Trade payables — Other payables — Amount due to shareholders 3.89 Amounts due to fellow subsidiaries 3.66 Amount due to intermediate holding companies — Weighted average interest rate % Trade payables — Other payables — Amount due to shareholders 4.81 Amount due to intermediate holding companies — Amounts due to fellow subsidiaries 4.41	On demand or within 1 year RMB 39,369 2,536,047 37,843,576 174,075,374 10,254,400 224,748,766 On demand or within 1 year RMB 1,577,683 633,291 250,912,627 5,676,800 100,439,102 359,239,503	More than 1 year and less than 2 years RMB — — — — — — More than 1 year and less than 2 years RMB — — — — — —	More than 2 years and less than 5 years RMB — — — 255,151,006 — 255,151,006 More than 2 years and less than 5 years RMB — — — — 255,151,006 255,151,006	Total undiscounted cash flows RMB 39,369 2,536,047 37,843,576 429,226,380 10,254,400 479,899,772 Total undiscounted cash flows RMB 1,577,683 633,291 250,912,627 5,676,800 355,590,108 614,390,509	Carrying amount at 31 December 2010 RMB 39,369 2,536,047 37,843,576 380,325,387 10,254,400
					430,998,779
					Carrying amount at 31 December 2011 RMB 1,577,683 633,291 250,912,627 5,676,800 320,283,284
					579,083,685

– 139 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

Weighted average interest rate % Trade payables — Other payables — Amount due to shareholders 6.34 Amount due to intermediate holding companies — Amounts due to fellow subsidiaries 6.12	On demand or within 1 year RMB 5,271,044 33,259,214 266,431,376 5,676,800 1,986,257 312,624,691	More than 1 year and less than 2 years RMB — — — — 255,151,006 255,151,006	More than 2 years and less than 5 years RMB — — — — 120,294,207 120,294,207	Total undiscounted cash flows RMB 5,271,044 33,259,214 266,431,376 5,676,800 377,431,470 688,069,904	Carrying amount at 31 December 2012 RMB 5,271,044 33,259,214 266,431,376 5,676,800 339,511,764
					650,150,198

(c) Fair value

The fair value of financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

Management of Yunnan Henglong considers that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate to their fair values.

6. REVENUE AND SEGMENT INFORMATION

Revenue represents sale of raw coal at invoiced value net of discounts and sales related taxes during the Relevant Periods.

The directors of Yunnan Henglong, being the chief operating decision makers, assess the performance and allocate the resources of Yunnan Henglong as a whole because Yunnan Henglong is mainly engaged in mining. Therefore, the directors of Yunnan Henglong consider that Yunnan Henglong only has one operating segment under IFRS 8. In this regard, no segment information is presented.

Geographical information

The operations and assets of Yunnan Henglong are located in the PRC.

Information about major customers

Revenue from sales of raw coals are substantially contributed from fellow subsidiaries of Yunnan Henglong. Details of related party transactions are disclosed in note 24(a).

– 140 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

7. FINANCE COSTS

Interest expenses on borrowings wholly repayable within five years: — amount due to a shareholder Deemed interest expense on amounts due to fellow subsidiaries Less: Interest capitalised in construction in progress	For the period from 3 February 2010 (date of establishment) to 31 December 2010 RMB 609,952 8,592,501 9,202,453 — 9,202,453	For the year ended 31 December 2011 2012 RMB RMB 6,878,072 16,080,014 13,594,169 17,607,152 20,472,241 33,687,166 (2,038,627) (4,256,539) 18,433,614 29,430,627

8. INCOME TAX EXPENSE

No provision for Hong Kong Profits Tax has been made as Yunnan Henglong’s income neither arises in, nor is derived from, Hong Kong.

Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of the EIT Law, the statutory tax rate of Yunnan Henglong is 25% during the Relevant Periods.

The income tax expenses for the period/year can be reconciled to the profit (loss) before taxation as follows:

Profit (loss) before tax Tax at applicable tax rate of 25% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable Others Income tax expenses for the period/year	For the period from 3 February 2010 (date of establishment) to 31 December 2010 RMB 18,844,710 4,711,178 2,164,215 — — 6,875,393	For the year ended 31 December 2011 2012 RMB RMB 4,815,294 (13,292,955) 1,203,824 (3,323,238) 3,496,541 4,416,116 (717,732) (1,691,894) 1,204,261 2,955,873 5,186,894 2,356,857

– 141 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

9. PROFIT (LOSS) FOR THE PERIOD/YEAR

Profit (loss) for the period/year has been arrived at after charging (crediting): Cost of inventories recognised as expense Depreciation and amortisation of property, plant and equipment (note 12) Provision for restoration costs (note 21) Salaries and other benefits Bank interest income Interest income from loan receivable Imputed interest income on amounts due from fellow subsidiaries	For the period from 3 February 2010 (date of establishment) to 31 December 2010 RMB 18,262,189 1,335,157 108,984 9,932,497 (5,029) (123,118) —	For the year ended 31 December 2011 2012 RMB RMB 13,514,277 18,265,460 1,640,189 2,334,405 16,306 20,076 5,345,321 9,822,734 (5,371) (13,503 (1,652,469) (1,826,862 (2,870,928) (6,767,576

10. DIRECTORS’ EMOLUMENTS AND EMPLOYEES’ EMOLUMENTS

Directors’ emoluments

During the Relevant Periods, no fees or other emoluments was paid or payable by Yunnan Henglong to its directors.

During the Relevant Periods, no remuneration was paid by Yunnan Henglong to its directors as an inducement to join or upon joining Yunnan Henglong or as compensation for loss of office. None of the directors has waived any remuneration during the Relevant Periods.

Employees’ emoluments

The five highest paid individuals for the Relevant Periods were as follows:

Salaries and other allowances Contributions to retirement benefit schemes	For the period from 3 February 2010 (date of establishment) to 31 December 2010 RMB 596,910 6,831 603,741	For the year ended 31 December 2011 2012 RMB RMB 663,078 694,596 4,340 4,034 667,418 698,630	For the year ended 31 December 2011 2012 RMB RMB 663,078 694,596 4,340 4,034 667,418 698,630
			698,630

Each of their emoluments were within HK$1,000,000 (approximately RMB800,000).

During the Relevant Periods, no emolument was paid or payable by Yunnan Henglong to the five highest paid individuals as an inducement to join Yunnan Henglong as compensation for loss of office.

– 142 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

11. EARNINGS (LOSS) PER SHARE

Earnings (loss) per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful.

12. PROPERTY, PLANT AND EQUIPMENT

At 3 February 2010 (date of establishment) Additions At 31 December 2010 Additions At 31 December 2011 Additions Transfer At 31 December 2012 DEPRECIATION AND AMORTISATION At 3 February 2010 (date of establishment) Provided for the period At 31 December 2010 Provided for the year At 31 December 2011 Provided for the year At 31 December 2012 CARRYING AMOUNTS At 31 December 2010 At 31 December 2011 At 31 December 2012	Buildings RMB — 1,615,708 1,615,708 — 1,615,708 — 2,545,195 4,160,903 — 49,595 49,595 66,090 115,685 106,541 222,226 1,566,113 1,500,023 3,938,677	Mining structures and mining rights RMB — 405,552,915 405,552,915 960,000 406,512,915 40,000,000 78,088,595 524,601,510 — 885,688 885,688 726,121 1,611,809 979,342 2,591,151 404,667,227 404,901,106 522,010,359	Machinery RMB — 7,811,963 7,811,963 4,776,983 12,588,946 4,557,728 1,852,507 18,999,181 — 277,472 277,472 666,551 944,023 1,058,234 2,002,257 7,534,491 11,644,923 16,996,924	Motor vehicles RMB — 947,186 947,186 — 947,186 — — 947,186 — 98,547 98,547 149,988 248,535 150,480 399,015 848,639 698,651 548,171	Office and electronic equipment RMB — 202,872 202,872 146,501 349,373 17,899 16,932 384,204 — 23,855 23,855 31,439 55,294 39,808 95,102 179,017 294,079 289,102	Construction in progress RMB — 19,461,482 19,461,482 99,799,795 119,261,277 18,395,394 (82,503,229) 55,153,442 — — — — — — — 19,461,482 119,261,277 55,153,442	Total RMB — 435,592,126
							435,592,126 105,683,279
							541,275,405 62,971,021 —
							604,246,426
							— 1,335,157
							1,335,157 1,640,189
							2,975,346 2,334,405
							5,309,751
							434,256,969
							538,300,059
							598,936,675

The following estimated useful lives are used for the depreciation of property, plant and equipment, other than mining structures and mining rights as well as construction in progress:

Buildings 15 to 35 years Machinery 5 to 15 years Motor vehicles, office and electronic 5 to 10 years equipment

– 143 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

The mining structures and mining rights include the main and auxiliary mine shafts and underground tunnels. The mining rights have average legal lives of 8 years but in the opinion of the directors of Yunnan Henglong, Yunnan Henglong will be able to renew the mining rights without incurring significant costs.

Depreciation and amortisation are provided to write off the cost of the mining structures and mining rights using the units of production method based on the total proven reserves of the coal mine.

The construction in progress comprise mainly the main and auxiliary mine shafts and underground tunnels in the course of construction.

The legal titles of the mining rights have been granted by the relevant government authorities as at 31 December 2010, 31 December 2011 and 31 December 2012.

During the year ended 31 December 2012, the operation in mines of Yunnan Henglong have been suspended for safety inspection and government deliberations since the occurrence of accidents in the vicinity. At 31 December 2012, the carrying amounts of construction in progress and property, plant and equipment other than construction in progress, in respect of mines which were still suspended are RMB55,153,442 and RMB543,783,233, respectively.

For the purpose of the impairment testing of mining structure and mining rights of the mines being under suspension of production or construction for safety inspection and government deliberations, management of Yunnan Henglong considers that Yunnan Henglong will continue to use the relevant assets in the foreseeable future and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. Value in use calculation is based on the discount rates of 14.9% and cash flow projections prepared from financial forecasts approved by the directors of Yunnan Henglong for the next five years, taking into account the best estimates of management of Yunnan Henglong concerning the likely dates for resumption of mining operations and development. The CGUs cashflows beyond the 5-year period are extrapolated using a zero growth rate until the coal reserves have been mined based on existing production capacities. Other key assumptions for the value in use calculation related to the estimation of cash inflows/outflows which include future coal price and gross margin, such estimation is based on the estimation provided by management of Yunnan Henglong. Based on the assumptions applied, the recoverable amounts are above its carrying amounts of the relevant CGUs, accordingly, management of Yunnan Henglong has determined that there is no impairment of the mining structure and mining rights.

13. LOAN RECEIVABLE

The amount represented a loan advanced to an entity which was registered and operating in the PRC. The loan would be repayable in 2012 with an annual interest rate of 8% per annum. The amount was classified in other receivables under current assets as at 31 December 2011 and was fully paid during the year 2012.

The directors of Yunnan Henglong are of the opinion that the above entity was independent of and not related to Yunnan Henglong.

14. INVENTORIES

Coal products Auxiliary materials and spare parts	As at 31 December 2010 2011 2012 RMB RMB RMB — — 1,721,282 4,987,415 2,005,265 471,605 4,987,415 2,005,265 2,192,887	As at 31 December 2010 2011 2012 RMB RMB RMB — — 1,721,282 4,987,415 2,005,265 471,605 4,987,415 2,005,265 2,192,887
		2,192,887

15. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

At 31 December 2012, included in other receivables, deposits and prepayments is an amount of RMB2,070,000 prepayment for advisory service to Huaneng, a shareholder of Yunnan Henglong.

– 144 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

16. BANK BALANCES AND CASH

Bank balances as at 31 December 2010, 31 December 2011 and 31 December 2012 carry interests range from 0.35% to 0.50% per annum.

17. TRADE PAYABLES

The aged analysis of the Yunnan Henglong’s trade payables based on invoice date at the end of the reporting period is as follows:

0–90 days 91–180 days 181–365 days Over 365 days	As at 31 December 2010 2011 2012 RMB RMB RMB 39,369 1,577,483 1,490,784 — 200 3,494,814 — — 285,246 — — 200 39,369 1,577,683 5,271,044	As at 31 December 2010 2011 2012 RMB RMB RMB 39,369 1,577,483 1,490,784 — 200 3,494,814 — — 285,246 — — 200 39,369 1,577,683 5,271,044
		5,271,044

The average credit period on purchases of goods is 90 days.

18. OTHER PAYABLES AND ACCRUED EXPENSES

At 31 December 2010, 31 December 2011 and 31 December 2012, included in other payables and accrued expenses is payable for acquisition of property, plant and equipment of RMB2,500,000, RMB500,000 and RMB32,500,000; and other tax payables of RMB5,026,795, RMB8,236,561 and RMB245,934, respectively.

19. AMOUNTS DUE FROM AND TO RELATED PARTIES

At 31 December 2010, 31 December 2011 and 31 December 2012, except for amounts due from fellow subsidiaries of RMB43,557,544, RMB75,302,402 and RMB142,453,214, respectively, which will be recovered in three to four year time from initial recognition, amounts due from related parties are expected to be recovered in one year. The effective interest of amounts due from fellow subsidiaries expected to be recovered in three to four year time is 6.15% per annum. All amounts due from group companies are interest free and unsecured.

Except for amounts due to fellow subsidiaries at 31 December 2010, 31 December 2011 and 31 December 2012 of RMB206,250,013, RMB219,844,182 and RMB337,525,507, respectively, which will be settled in three to four year time from initial recognition, other amounts due to related parties will be settled in one year. In addition, except for due to a shareholder of RMB23,361,080, RMB191,618,710 and RMB266,431,376, at 31 December 2010, 31 December 2011 and 31 December 2012, respectively, which borne interest at 6.3% per annum, all amounts due to related parties are interest free. The effective interest of amounts due to fellow subsidiaries expected to be settled in three to four year time is 6.15% per annum. All amounts due to related parties are unsecured.

There is no credit terms and policies on the trading balances with group companies.

20. PAID IN CAPITAL

Registered and fully paid at 3 February 2010 (date of establishment), 31 December 2010 and 2011 Capital injection Registered and fully paid at 31 December 2012	RMB 10,000,000 6,949,200
	16,949,200

– 145 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

Yunnan Henglong was established with registered capital of RMB10,000,000 on 3 February 2010. The registered capital was fully paid at the date of establishment. On 28 August 2012, the total registered capital of Yunnan Henglong increased from RMB10,000,000 to RMB16,949,200 and Huaneng paid an additional contribution of RMB90,000,000 in September 2012, of which RMB6,949,200 as paid in capital and RMB83,050,800 as capital reserve.

21. PROVISION FOR RESTORATION AND ENVIRONMENTAL COSTS

At 3 February 2010 (date of establishment) Provision for the period At 31 December 2010 Provision for the year At 31 December 2011 Provision for the year At 31 December 2012	RMB — 108,984
	108,984 16,306
	125,290 20,076
	145,366

Mining activities may result in land subsidence and damage to the environment of the mining areas. Pursuant to the relevant PRC regulations, Yunnan Henglong is required to restore the mining areas back to certain acceptable conditions.

22. CAPITAL RISK MANAGEMENT

Yunnan Henglong manages its capital to ensure it 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 overall strategy of Yunnan Henglong remains unchanged throughout the Relevant Period.

The capital structure of Yunnan Henglong consists of debts, which include amounts due to group companies as disclosed in note 19, net of cash and cash equivalents and equity attributable to owners of Yunnan Henglong, comprising paid in capital, reserves and retained profits.

The directors of Yunnan Henglong review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Yunnan Henglong will balance its overall capital structure through the payment of dividends as well as the issue of new debt or the redemption of existing debt.

23. CAPITAL COMMITMENTS

Capital expenditure contracted for but not provided in respect of acquisition of property, plant and equipment	As at 31 December 2010 2011 2012 RMB RMB RMB 8,303,764 5,085,916 4,712,844

– 146 –

ACCOUNTANT’S REPORT OF YUNNAN HENGLONG

APPENDIX IIE

24. RELATED PARTY TRANSACTIONS

(a) Transactions

During the Relevant Periods, Yunnan Henglong entered into the following transactions with related parties:

Fellow subsidiaries: Sales A shareholder: Interest expenses Advisory fee paid and payable	For the period from 3 February 2010 to 31 December 2010 RMB 47,781,977 609,952 —	For the year ended 31 December 2011 2012 RMB RMB 34,858,361 34,255,843 6,878,072 16,080,014 — 270,000

(b) Details of the balances with related parties are set out in the statements of financial position and notes 15 and 19.

B. EVENTS AFTER THE REPORTING PERIOD

Subsequent to the reporting period, the production of Yunnan Henglong’s mine was resumed.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Yunnan Henglong have been prepared in respect of any period subsequent to 31 December 2012.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 147 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

The following is the text of the accountant’s report of the Target Subsidiaries prepared by Company’s auditors, Deloitte Touche Tohmatsu, for the purpose of incorporation in this circular.

==> picture [72 x 55] intentionally omitted <==

==> picture [77 x 34] intentionally omitted <==

25 June 2013

The Directors Hidili Industry International Development Limited Room 3702, 37th Floor West Tower, Shun Tak Centre 168–200 Connaught Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information (‘‘Financial Information’’) regarding Fuyuan County Dahe Qingping Coal Industry Co., Ltd. (‘‘Fuyuan Dahe’’) for each of the three years ended 31 December 2012 (the ‘‘Relevant Periods’’) for inclusion in a circular issued by Hidili Industry International Development Limited (the ‘‘Company’’) dated 25 June 2013 (the ‘‘Circular’’) in connection with the major transactions in relation to the capital injections by Huaneng Guicheng Trust Co., Ltd. (‘‘Huaneng’’) to Fuyuan Dahe and certain other subsidiaries of the Company and share transfers.

Fuyuan Dahe was established with limited liability in the People’s Republic of China (the ‘‘PRC’’) on 29 April 2009.

The statutory financial statements of Fuyuan Dahe were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC. The statutory financial statements of Fuyuan Dahe for the Relevant Periods were audited by Sichuan Jing Wei Certified Public Accountants Co., Ltd, certified public accountants registered in the PRC.

For the purpose of this report, the directors of Fuyuan Dahe have prepared the financial statements of Fuyuan Dahe for the Relevant Periods in accordance with International Financial Reporting Standards (‘‘IFRSs’’) (the ‘‘Underlying Financial Statements’’). We have undertaken an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) and have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

– 148 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

The Financial Information of Fuyuan Dahe for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements. No adjustments were deemed necessary by us to the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of Fuyuan Dahe who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of Fuyuan Dahe as at 31 December 2010, 31 December 2011 and 31 December 2012 and of its results and cash flows for the Relevant Periods.

Without qualifying our opinion, we draw attention to note 1 to the Financial Information which indicates that Fuyuan Dahe’s current liabilities exceeded its current assets by RMB111,540,195 as at 31 December 2012. As described in note 1 to the Financial Information, the Company has agreed to provide financial support to Fuyuan Dahe to meet in full its financial obligations as and when they fall due in the foreseeable future. However, the Company’s going concern is dependent on the successful implementation of a number of measures as disclosed in note 1 to the Financial Information to improve its financial position. The eventual success of these measures cannot presently be determined and accordingly this indicates the existence of a material uncertainty which may cast significant doubt about Fuyuan Dahe’s ability to continue as a going concern. The Financial Information does not include any adjustments that would result from a failure of the Company to implement such measures as disclosed in note 1 to the Financial Information.

– 149 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

A. FINANCIAL INFORMATION

Statements of Comprehensive Income

Notes Revenue 6 Cost of sales Gross profit Other income Administrative expenses Finance costs 7 Profit before tax Income tax expense 8 Profit and total comprehensive income for the year 9	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 75,729,382 150,054,547 96,619,008 (20,653,498) (36,268,972) (36,970,582) 55,075,884 113,785,575 59,648,426 370,197 2,870,890 8,231,211 (6,780,758) (9,845,825) (10,278,173) (3,591,684) — (215,999) 45,073,639 106,810,640 57,385,465 (11,500,243) (26,115,309) (12,536,073) 33,573,396 80,695,331 44,849,392

– 150 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

Statements of Financial Position

Notes NON-CURRENT ASSETS Property, plant and equipment 12 Amounts due from fellow subsidiaries 19 CURRENT ASSETS Inventories 13 Other receivables, deposits and prepayments 14 Amounts due from fellow subsidiaries 19 Bank balances and cash 15 CURRENT LIABILITIES Trade payables 16 Other payables and accrued expenses 17 Amounts due to intermediate holding companies 19 Amounts due to fellow subsidiaries 19 Tax payables NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Provision for restoration and environmental costs 20 NET ASSETS CAPITAL AND RESERVES Paid in capital 18 Reserves TOTAL EQUITY	As 2010 RMB 440,936,108 41,506,118 482,442,226 3,172,590 6,238,819 143,957 171,885 9,727,251 692,567 11,285,704 73,245,420 73,309,468 13,025,533 171,558,692 (161,831,441) 320,610,785 — 320,610,785 42,000,000 278,610,785 320,610,785	at 31 December 2011 2012 RMB RMB 564,901,924 621,228,465 77,701,535 180,764,908 642,603,459 801,993,373 4,296,391 794,289 10,718,357 14,210,375 1,587,311 33,067,828 1,303,709 56,747 17,905,768 48,129,239 2,706,344 5,434,115 14,787,950 5,399,844 14,502,502 119,655,743 209,994,480 2,506,647 23,808,370 26,673,085 265,799,646 159,669,434 (247,893,878) (111,540,195) 394,709,581 690,453,178 164,013 267,049 394,545,568 690,186,129 42,000,000 67,741,900 352,545,568 622,444,229 394,545,568 690,186,129

– 151 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

Statements of Changes in Equity

At 1 January 2010 Profit and total comprehensive income for the year Deemed distribution on interest free loan granted to fellow subsidiaries Transfer At 31 December 2010 Profit and total comprehensive income for the year Deemed distribution on interest free loan granted to fellow subsidiaries Transfer At 31 December 2011 Profit and total comprehensive income for the year Capital injection Deemed distribution on interest free loan granted to fellow subsidiaries Transfer At 31 December 2012	Paid in capital RMB 42,000,000 — — — 42,000,000 — — — 42,000,000 — 25,741,900 — — 67,741,900	Capital reserve RMB 252,800,000 — — — 252,800,000 — — — 252,800,000 — 244,258,100 — — 497,058,100	Statutory surplus reserve RMB (Note (i)) — — — 6,611,838 6,611,838 — — 14,721,041 21,332,879 — — — 12,750,475 34,083,354	Future development fund RMB (Note (ii)) — — — 893,153 893,153 — — 381,573 1,274,726 — — — 30,000 1,304,726	Retained profits RMB 4,246,405 33,573,396 (12,009,016) (7,504,991) 18,305,794 80,695,331 (6,760,548) (15,102,614) 77,137,963 44,849,392 — (19,208,831) (12,780,475) 89,998,049	Total RMB 299,046,405 33,573,396 (12,009,016) — 320,610,785 80,695,331 (6,760,548) — 394,545,568 44,849,392 270,000,000 (19,208,831) — 690,186,129

Notes:

(i) According to the Articles of Association of Fuyuan Dahe, Fuyuan Dahe is required to make an appropriation of 10% of its profit after taxation each year to statutory surplus reserve until the balance reaches 50% of the registered capital of Fuyuan Dahe while Fuyuan Dahe can make additional appropriation to statutory surplus reserve at their own discretion. According to the provision of the Articles of Association, in normal circumstances, the statutory surplus reserve shall only be used for making up losses, capitalisation into paid in capital and expansion of the production and operation of Fuyuan Dahe.
(ii) Pursuant to the relevant regulations in the PRC, Fuyuan Dahe is required to make a transfer to future development fund based on a fixed amount 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.

– 152 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

Statements of Cash Flows

OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Depreciation and amortisation of property, plant and
equipment
Provision on for restoration and environmental costs
Imputed interest income on amounts due from
fellow subsidiaries
Interest income
Interest expense
Operating cash flows before movements in working
capital
(Increase) decrease in inventories
Increase in other receivables, deposits and
prepayments
(Decrease) increase in trade payables
Increase (decrease) in other payables and accrued
expenses
Cash from operations
Income tax paid
NET CASH FROM OPERATING ACTIVITIES
INVESTING ACTIVITIES
Purchase of property, plant and equipment
Advance to fellow subsidiaries
Repayment from fellow subsidiaries
Interest received
NET CASH USED IN INVESTING ACTIVITIES

For the year ended 31 December
2010
2011
2012
RMB
RMB
RMB
45,073,639
106,810,640
57,385,465
2,886,824
3,566,671
4,121,545
—
164,013
103,036
(220,192)
(2,735,715)
(7,993,904)
(2,380)
(4,836)
(68,527)
3,591,684
—
215,999
51,329,575
107,800,773
53,763,614
(970,763)
(1,123,801)
3,502,102
(822,963)
(4,479,538)
(3,492,018)
(217,968)
2,013,777
2,727,771
3,786,366
3,502,246
(9,388,106)
53,104,247
107,713,457
47,113,363
(2,908,913)
(15,332,472)
(9,671,358)
50,195,334
92,380,985
37,442,005
(104,812,997)
(127,431,882)
(60,009,736)
(92,517,285)
(171,258,082)
(379,420,074)
57,032,125
129,594,478
233,661,257
2,380
4,836
68,527
(140,295,777)
(169,090,650)
(205,700,026)

– 153 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

FINANCING ACTIVITIES
Advance from intermediate holding companies
Advance from fellow subsidiaries
Repayment to intermediate holding companies
Repayment to fellow subsidiaries
Capital injection
Interest paid
NET CASH FROM FINANCING ACTIVITIES
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS BROUGHT
FORWARD
CASH AND CASH EQUIVALENTS CARRIED
FORWARD,
representing bank balances and cash

For the year ended 31 December
2010
2011
2012
RMB
RMB
RMB
73,245,420
10,099,605
193,745,806
157,210,080
291,251,703
12,311,882
—
(68,842,523)
(88,592,565)
(136,663,549)
(154,566,691)
(219,799,715)
—
—
270,000,000
(3,591,684)
(100,605)
(654,349)
90,200,267
77,841,489
167,011,059
99,824
1,131,824
(1,246,962)
72,061
171,885
1,303,709
171,885
1,303,709
56,747

– 154 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

Notes to the Financial Information

1. GENERAL AND BASIS OF PREPARATION OF FINANCIAL STATEMENT

The principally activities of Fuyuan Dahe is mining and sale of raw coal to its group companies. Its immediate holding company is Shenzhen City Hidili Commercial and Trading Co., Limited, a company established in the PRC. The Company, a company incorporated in the Cayman Islands with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited, is an intermediate holding company of Fuyuan Dahe. In the opinion of the directors of Fuyuan Dahe, the ultimate holding company of Fuyuan Dahe is Sarasin Trust Company Guernsey Limited, a company incorporated in the British Virgin Islands which is controlled by Mr. Xian Yang, the Chief Executive and Executive Director of the Company. The address of the registered office and principal place of business of Fuyuan Dahe is Qinglonghe Village, Dahe Town, Fuyuan County, Yunnan Province, PRC.

The Financial Information is presented in Renminbi (‘‘RMB’’), which is the same as the functional currency of Fuyuan Dahe.

In preparing the Underlying Financial Statements, the directors of Fuyuan Dahe have taken into consideration that Fuyuan Dahe’s current liabilities exceeded its current assets by RMB111,540,195 as at 31 December 2012.

The Financial Information has been prepared on a going concern basis because the Company has agreed to provide financial support to Fuyuan Dahe to meet in full its financial obligations as and when they fall due in the foreseeable future. The Company has been implementing a number of measures to improve its financial position, including but not limited to: (1) approaching banks and independent third parties in the PRC to obtain new medium to long-term facilities of not less than RMB2.5 billion; (2) negotiating with a bank to review and renew banking facilities repayable within 12 months from draw down to repayable after 12 months from draw down of not less than RMB400 million; and (3) proposed disposal of 50% equity interests in certain of its subsidiaries for a total consideration of RMB2.4 billion, details of which are set out in the Company’s announcement dated 24 May 2013. The directors of Fuyuan Dahe believe that the above measures can be successfully implemented and therefore the Company will have sufficient working capital to finance the operations of Fuyuan Dahe and Fuyuan Dahe can meet its financial obligations as and when they fall due for the foreseeable future.

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Underlying Financial Statements, throughout the Relevant Periods, Fuyuan Dahe has consistently adopted all of the new and revised standards, amendments and interpretations which are or have been effective for Fuyuan Dahe’s financial year beginning on 1 January 2012.

Fuyuan Dahe has not early applied the following new and revised IFRSs that have been issued but are not yet effective:

Amendments to IFRSs Annual Improvements to IFRSs 2009–2011 Cycle[2] Amendments to IFRS 7 Disclosure — Offsetting Financial Assets and Financial Liabilities[2] Amendments to IFRS 7 and IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures[4] Amendments to IFRS 10, IFRS 11 Consolidated Financial Statements, Joint Arrangements and Disclosure and IFRS 12 of Interests in Other Entities: Transition Guidance[2] Amendments to IFRS 10, Investment Entities[3] IFRS 12 and IAS 27 IFRS 9 Financial Instruments[4] IFRS 10 Consolidated Financial Statements[2] IFRS 11 Joint Arrangements[2] IFRS 12 Disclosure of Interests in Other Entities[2] IFRS 13 Fair Value Measurement[2] IAS 19 (Revised 2011) Employee Benefits[2] IAS 27 (Revised 2011) Separate Financial Statements[2] IAS 28 (Revised 2011) Investments in Associates and Joint Ventures[2] Amendments to IAS 1 Presentation of Items of Other Comprehensive Income[1] Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities[3] Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets[3] IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine[2] IFRIC 21 Levies[3]

– 155 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

1 Effective for annual periods beginning on or after 1 July 2012. 2 Effective for annual periods beginning on or after 1 January 2013. 3 Effective for annual periods beginning on or after 1 January 2014. 4 Effective for annual periods beginning on or after 1 January 2015.

The directors of Fuyuan Dahe anticipate that the application of the new and revised IFRSs will have no material impact on the results and the financial position of Fuyuan Dahe.

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

The principal accounting policies are set out below.

Revenue recognition

Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

. Fuyuan Dahe has transferred to the buyer the significant risks and rewards of ownership of the goods;
. Fuyuan Dahe retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
. the amount of revenue can be measured reliably;
. it is probable that the economic benefits associated with the transaction will flow to Fuyuan Dahe; and
. the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to Fuyuan Dahe and the amount of income can be measured reliably. Interest income 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 asset to that asset’s net carrying amount on initial recognition.

Property, plant and equipment

Property, plant and equipment including buildings held for use in the production or supply of goods or services, or for administrative purposes, other than construction in progress, are stated in the statements of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses. Depreciation on these assets, other than mining structures and mining rights, is recognised so as to write off the cost of assets less their residual value over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

– 156 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

Construction in progress represents property, plant and equipment in the course of construction for production or for its own use purpose. Construction in progress is carried at costs less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs capitalised in accordance with Fuyuan Dahe’s accounting policy. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Borrowing costs

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefits costs

Payments to state-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

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 before tax’’ as reported in the statements of comprehensive income 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. Fuyuan Dahe’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which Fuyuan Dahe expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax are recognised in profit or loss.

– 157 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

Inventories

Provision for restoration and environmental costs

Fuyuan Dahe is required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined. Provisions for restoration and environmental costs are required when Fuyuan Dahe has a present obligation as a result of a past event, it is probable that Fuyuan Dahe will be required to settle the obligation. Provisions are measured at the directors of Fuyuan Dahe’s best estimation of the consideration required to settle the present obligation at the end of the reporting period, and are discounted to present value where the effect is material.

Financial instruments

Financial assets and financial liabilities are recognised in the statements of financial position when Fuyuan Dahe becomes a party to the contractual provisions of the instrument.

Financial assets

Fuyuan Dahe’s financial assets are loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including other receivables and deposits, amounts due from fellow subsidiaries and bank balances) are measured at amortised cost using the effective interest method, less any identified impairment.

Impairment of financial assets

Objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty; or
. breach of contract, such as default or delinquency in interest or principal payments; or

– 158 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

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

The carrying amount of financial asset is reduced by the impairment loss directly for all the financial assets. Subsequent recoveries of amounts previously written off are credited to profit or loss.

Derecognition

Fuyuan Dahe derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

Financial liabilities and equity instruments

Debt and equity instruments issued by Fuyuan Dahe are classified either as financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Effective interest method

Interest expense is recognised on an effective interest basis.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of Fuyuan Dahe after deducting all of its liabilities. Equity instruments issued by Fuyuan Dahe are recognised at the proceeds received, net of direct issue costs.

Financial liabilities

Derecognition

Fuyuan Dahe derecognises financial liabilities when, and only when, Fuyuan Dahe’s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

– 159 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

Impairment of tangible assets

At the end of each reporting period, Fuyuan Dahe reviews the carrying amounts of its tangible assets with finite useful lives 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 is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, Fuyuan Dahe estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cashgenerating units for which a reasonable and consistent allocation basis can be identified.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of Fuyuan Dahe’s accounting policies, which are described in note 3, the directors of Fuyuan Dahe are 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.

Depreciation of property, plant and equipment

Property, plant and equipment other than mining structures and mining rights are depreciated on a straight-line basis over their useful lives, after taking into account their estimated residual value. Mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines. The directors of Fuyuan Dahe assess annually the residual value and the useful life of the property, plant and equipment as well as the reserve of the coal mines. If the expectation differs from the original estimate, such difference will impact the depreciation and the amortisation charged in the year in which such estimate is changed. The carrying amount of property, plant and equipment was RMB440,936,108, RMB564,901,924 and RMB621,228,465 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively. Details of property, plant and equipment are disclosed in note 12.

As explained in note 3, mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines.

Engineering estimates of Fuyuan Dahe’s mineral reserves involved subjective judgements by mineral engineers in developing such information. There is a Chinese system, which is the national standard set by the PRC Government, regarding the engineering criteria that have to be met before estimated mineral reserves can be designated as ‘‘proven’’. Proven reserve estimates are updated on a regular basis and are taken into account as a change in estimate for accounting purposes and are reflected on a prospective basis in related

– 160 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

depreciation and amortisation rates. If the expectation differs from the original reserve estimate, such difference will impact the depreciation and amortisation charged in the year in which such estimate is changed. The carrying amount of mining structures and mining rights was RMB313,428,791, RMB341,969,223 and RMB507,120,083 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively.

Estimated impairment of property, plant and equipment

Determining whether an impairment loss on mining structure and mining rights requires an estimate of the recoverable amount of the cash-generating unit (‘‘CGU’’) to which the asset belongs. Management of Fuyuan Dahe consider that Fuyuan Dahe continues to use the relevant assets and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. The value in use calculation requires Fuyuan Dahe to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. Where the future cash flows are less than expected or due to changes in estimates, a material impairment loss may arise. As at 31 December 2010, 31 December 2011 and 31 December 2012, the carrying amounts of mining structures and mining rights was RMB313,428,791, RMB341,969,223 and RMB507,120,083, respectively.

5. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost	As at 31 December 2010 2011 2012 RMB RMB RMB 42,379,081 85,097,135 220,874,178 149,129,090 229,172,639 129,178,188	As at 31 December 2010 2011 2012 RMB RMB RMB 42,379,081 85,097,135 220,874,178 149,129,090 229,172,639 129,178,188
		129,178,188

– 161 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

(b) Financial risk management objectives and policies

Fuyuan Dahe’s major financial instruments include other receivables and deposits, bank balances, trade payables, other payables and amounts due from and to group companies. Details of these financial instruments are set out in respective notes. The risks associated with these financial instruments include market risk (interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. Management of Fuyuan Dahe manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Market risk

Interest rate risk

Fuyuan Dahe is exposed to cash flow interest rate risk in relation to variable rate bank balances and fair value interest rate risk in relation to certain balances of amounts due to an intermediate holding company which carry fixed interest rate (see notes 15 and 19 for details). The directors of Fuyuan Dahe consider the exposure of interest-bearing bank balances is not significant as bank balances are in short maturity period. Fuyuan Dahe currently does not have an interest rate hedging policy. However, management closely monitors interest rate exposure and will consider hedging significant interest rate change exposure when the need arise. No sensitivity analysis is presented as the directors of Fuyuan Dahe consider the amount is insignificant.

(ii) Credit risk

As at the end of each reporting period, Fuyuan Dahe’s maximum exposure to credit risk which will cause a financial loss to Fuyuan Dahe due to failure to discharge an obligation by the counterparties is arising from the carrying amounts of the respective recognised financial assets as stated in the statement of financial position.

Management of Fuyuan Dahe reviews the recoverable amount of each individual debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, management of Fuyuan Dahe considers that the credit risk is significantly reduced.

Other than concentration of credit risks on group companies which management of Fuyuan Dahe reviews the financial position and repayment abilities of respective group companies, Fuyuan Dahe does not have any other significant concentration of credit risk, with exposure spread over a number of counterparties having similar characteristics.

The credit risk on liquid funds is limited because the counterparties are banks with good reputation.

(iii) Liquidity risk

In the management of the liquidity risk, Fuyuan Dahe monitors and maintains a level of cash and cash equivalents deemed adequate by management of Fuyuan Dahe to finance the its operations and mitigate the effects of fluctuations in cash flows.

Fuyuan Dahe relies on advances from group companies as a significant source of liquidity. Details of which are set out in note 19.

At 31 December 2012, Fuyuan Dahe had net current liabilities of RMB111,540,195. As the Company has agreed to provide financial support to Fuyuan Dahe to meet in full its financial obligations as they fall due in the foreseeable future, the directors of Fuyuan Dahe consider the liquidity risk of Fuyuan Dahe is insignificant.

– 162 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

(c) Fair value

The fair value of financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

Management of Fuyuan Dahe considers that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate to their fair values.

6. REVENUE AND SEGMENT INFORMATION

Revenue represents sale of raw coal at invoiced value net of discounts and sales related taxes during the Relevant Periods.

The directors of Fuyuan Dahe, being the chief operating decision makers, assess the performance and allocate the resources of Fuyuan Dahe as a whole because Fuyuan Dahe is mainly engaged in mining. Therefore, the directors of Fuyuan Dahe consider that Fuyuan Dahe only has one operating segment under IFRS 8. In this regard, no segment information is presented.

Geographical information

The operations and assets of Fuyuan Dahe are located in the PRC.

Information about major customers

Revenue from sales of raw coals are substantially contributed from fellow subsidiaries of Fuyuan Dahe. Details of related party transactions are disclosed in note 22(a).

7. FINANCE COSTS

Interest expense on borrowings wholly repayable within five years: — amount due to an intermediate holding company Less: Interest capitalised in construction in progress 8. INCOME TAX EXPENSE Current tax: PRC Enterprise Income Tax Overprovision in prior years	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 3,591,684 100,605 654,349 — (100,605) (438,350) 3,591,684 — 215,999 2010 2011 2012 RMB RMB RMB (11,500,243) (26,311,638) (12,604,390) — 196,329 68,317 (11,500,243) (26,115,309) (12,536,073)

No provision for Hong Kong Profits Tax has been made as Fuyuan Dahe’s income neither arises in, nor is derived from, Hong Kong.

Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of the EIT Law, the tax rate of Fuyuan Dahe is 25% during the Relevant Periods.

– 163 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

The income tax expense during the Relevant Periods can be reconciled to the profit before tax per statements of comprehensive income as follows:

Profit before tax Tax at applicable tax rate of 25% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Overprovision in prior years Income tax expenses for the year	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 45,073,639 106,810,640 57,385,465 (11,268,410) (26,702,660) (14,346,366) (286,881) (292,907) (256,500) 55,048 683,929 1,998,476 — 196,329 68,317 (11,500,243) (26,115,309) (12,536,073)	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 45,073,639 106,810,640 57,385,465 (11,268,410) (26,702,660) (14,346,366) (286,881) (292,907) (256,500) 55,048 683,929 1,998,476 — 196,329 68,317 (11,500,243) (26,115,309) (12,536,073)
		(14,346,366) (256,500) 1,998,476 68,317
		(12,536,073)

9. PROFIT FOR THE YEAR

Profit for the year has been arrived at after charging (crediting): Cost of inventories recognised as expense Depreciation and amortisation of property, plant and equipment (note 12) Salaries and other benefits Retirement benefit costs Total staff costs Bank interest income Imputed interest on amounts due from fellow subsidiaries	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 20,653,498 36,268,972 36,970,582 2,886,824 3,566,671 4,121,545	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 20,653,498 36,268,972 36,970,582 2,886,824 3,566,671 4,121,545	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 20,653,498 36,268,972 36,970,582 2,886,824 3,566,671 4,121,545	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 20,653,498 36,268,972 36,970,582 2,886,824 3,566,671 4,121,545	For the year ended 31 December 2010 2011 2012 RMB RMB RMB 20,653,498 36,268,972 36,970,582 2,886,824 3,566,671 4,121,545
	9,762,458 170,428		15,356,395 790,588		14,724,184 870,876
	9,932,886 (2,380) (220,192)		16,146,983 (4,836) (2,735,715)		15,595,060 (68,527) (7,993,904)

10. DIRECTORS’ EMOLUMENTS AND EMPLOYEES’ EMOLUMENTS

Directors’ emoluments

During the Relevant Periods, no fees or other emoluments was paid or payable by Fuyuan Dahe to its directors.

During the Relevant Periods, no remuneration was paid by Fuyuan Dahe to its directors as an inducement to join or upon joining Fuyuan Dahe or as compensation for loss of office. None of the directors has waived any remuneration during the Relevant Periods.

Employees’ emoluments

The five highest paid individuals for the Relevant Periods were as follows:

Salaries and other allowances Contributions to retirement benefit schemes	For the year ended 31 2010 2011 RMB RMB 694,596 663,078 4,034 4,340 698,630 667,418	December 2012 RMB 596,910 6,831
		603,741

Each of their emoluments were within HK$1,000,000 (approximately RMB800,000).

– 164 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

During the Relevant Periods, no emolument was paid or payable by Fuyuan Dahe to the five highest paid individuals as an inducement to join Fuyuan Dahe as compensation for loss of office.

11. EARNINGS PER SHARE

Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful.

12. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2010 Additions Transfer At 31 December 2010 Additions At 31 December 2011 Additions Transfer At 31 December 2012 DEPRECIATION AND AMORTISATION At 1 January 2010 Provided for the year At 31 December 2010 Provided for the year At 31 December 2011 Provided for the year At 31 December 2012 CARRYING AMOUNTS At 31 December 2010 At 31 December 2011 At 31 December 2012	Buildings RMB 855,689 74,419 383,000 1,313,108 — 1,313,108 — 5,631,784 6,944,892 39,487 4,161 43,648 47,751 91,399 145,432 236,831 1,269,460 1,221,709 6,708,061	Mining structures and mining rights RMB 298,944,000 17,066,700 — 316,010,700 30,465,200 346,475,900 240,000 166,864,046 513,579,946 437,931 2,143,978 2,581,909 1,924,768 4,506,677 1,953,186 6,459,863 313,428,791 341,969,223 507,120,083	Machinery RMB 3,026,190 3,546,979 — 6,573,169 3,655,128 10,228,297 2,130,353 346,623 12,705,273 107,168 320,936 428,104 590,929 1,019,033 843,004 1,862,037 6,145,065 9,209,264 10,843,236	Motor vehicles RMB 1,900,138 302,982 — 2,203,120 — 2,203,120 — — 2,203,120 85,187 339,636 424,823 363,765 788,588 363,784 1,152,372 1,778,297 1,414,532 1,050,748	Office and electronic equipment RMB 149,860 1,868,218 — 2,018,078 6,446,136 8,464,214 — — 8,464,214 4,323 78,113 82,436 639,458 721,894 816,139 1,538,033 1,935,642 7,742,320 6,926,181	Construction in progress RMB 34,808,154 81,953,699 (383,000) 116,378,853 86,966,023 203,344,876 58,077,733 (172,842,453) 88,580,156 — — — — — — — 116,378,853 203,344,876 88,580,156	Total RMB 339,684,031 104,812,997 —
							444,497,028 127,532,487
							572,029,515 60,448,086 —
							632,477,601
							674,096 2,886,824
							3,560,920 3,566,671
							7,127,591 4,121,545
							11,249,136
							440,936,108
							564,901,924
							621,228,465

– 165 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

The following estimated useful lives are used for the depreciation of property, plant and equipment, other than mining structures and mining rights as well as construction in progress:

Buildings 15 to 35 years Machinery 5 to 15 years Motor vehicles, office and electronic 5 to 10 years equipment

The mining structures and mining rights include the main and auxiliary mine shafts and underground tunnels. The mining rights have average legal lives of 7 to 8 years but in the opinion of the directors of Fuyuan Dahe, Fuyuan Dahe will be able to renew the mining rights without incurring significant costs.

Depreciation and amortisation are provided to write off the cost of the mining structures and mining rights using the units of production method over the total proven reserves of the coal mine.

During the year ended 31 December 2012, the operation in mines of Fuyuan Dahe have been suspended for safety inspection and government deliberations since the occurrence of accidents in the vicinity. At 31 December 2012, the carrying amounts of construction in progress and property, plant and equipment other than construction in progress, in respect of mines which were still suspended are RMB88,580,156 and RMB532,648,309, respectively.

For the purpose of the impairment testing of mining structure and mining rights of the mines being under suspension of production or construction for safety inspection and government deliberations, management of Fuyuan Dahe considers that Fuyuan Dahe will continue to use the relevant assets in the foreseeable future and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. Value in use calculation is based on the discount rates of 14.9% and cash flow projections prepared from financial forecasts approved by the directors of Fuyuan Dahe for the next five years, taking into account the best estimates of management of Fuyuan Dahe concerning the likely dates for resumption of mining operations and development. The CGUs cashflows beyond the 5-year period are extrapolated using a zero growth rate until the coal reserves have been mined based on existing production capacities. Other key assumptions for the value in use calculation related to the estimation of cash inflows/outflows which include future coal price and gross margin, such estimation is based on the estimation provided by management of Fuyuan Dahe. Based on the assumptions applied, the recoverable amounts are above its carrying amounts of the relevant CGUs, accordingly, management of Fuyuan Dahe has determined that there is no impairment of the mining structure and mining rights.

13. INVENTORIES

Auxiliary materials and spare parts	As at 31 December 2010 2011 2012 RMB RMB RMB 3,172,590 4,296,391 794,289

14. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

At 31 December 2012, included in other receivables, deposits and prepayments is an amount of RMB2,430,000 prepayment for advisory service to Huaneng, a shareholder of Fuyuan Dahe.

15. BANK BALANCES AND CASH

Bank balances as at 31 December 2010, 31 December 2011 and 31 December 2012 carry interests at market rates range from 0.35% to 0.50% per annum.

– 166 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

16. TRADE PAYABLES

The aged analysis of Fuyuan Dahe’s trade payables based on invoice date at the end of the reporting period is as follows:

0–90 days 91–180 days 181–365 days Over 365 days	As at 31 December 2010 2011 2012 RMB RMB RMB 692,567 2,646,664 3,174,523 — — 837,677 — 24,330 1,112,479 — 35,350 309,436 692,567 2,706,344 5,434,115	As at 31 December 2010 2011 2012 RMB RMB RMB 692,567 2,646,664 3,174,523 — — 837,677 — 24,330 1,112,479 — 35,350 309,436 692,567 2,706,344 5,434,115
		5,434,115

The average credit period on purchases of goods is 90 days.

17. OTHER PAYABLES AND ACCRUED EXPENSES

At 31 December 2010, 31 December 2011 and 31 December 2012, included in other payables and accrued expenses is other tax payables of RMB7,408,937, RMB10,247,925 and RMB1,788,749, respectively.

18. PAID IN CAPITAL

Registered and fully paid 1 January 2010, 31 December 2010, 2011 and 2012 Capital injection Registered and fully paid at 31 December 2012	RMB 42,000,000 25,741,900
	67,741,900

On 28 August 2012, the total registered capital of Fuyuan Dahe increased from RMB42,000,000 to RMB67,741,900 and Huaneng paid an additional contribution of RMB270,000,000 in September 2012, of which RMB25,741,900 as paid in capital and RMB244,258,100 as capital reserve.

19. AMOUNTS DUE FROM AND TO GROUP COMPANIES

At 31 December 2010, 31 December 2011 and 31 December 2012, except for amounts due from fellow subsidiaries of RMB41,506,118, RMB77,701,535 and RMB180,764,908, respectively, which will be recovered in three to four year time from initial recognition, amounts due from fellow subsidiaries are expected to be recovered in one year. The effective interest of amounts due from fellow subsidiaries expected to be recovered in three to four year time was ranged from 6.15% to 6.40% per annum. All amounts due from fellow subsidiaries are interest free and unsecured.

Except for amount due to an intermediate holding company at 31 December 2010, 31 December 2011 and 31 December 2012 of RMB73,245,420, RMB5,099,605 and RMB5,182,248, respectively which bear interest ranged from 6.372% to 8.63% per annum, other amounts due to group companies are interest free. All amounts due to group companies are unsecured and repayable on demand.

There is no credit terms and policies on the trading balances with group companies.

– 167 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

20. PROVISION FOR RESTORATION AND ENVIRONMENTAL COSTS

At 1 January 2010 and 31 December 2010 Provision for the year At 31 December 2011 Provision for the year At 31 December 2012	RMB — 164,013
	164,013 103,036
	267,049

Mining activities may result in land subsidence and damage to the environment of the mining areas. Pursuant to the relevant PRC regulations, Fuyuan Dahe is required to restore the mining areas back to certain acceptable conditions.

21. CAPITAL RISK MANAGEMENT

Fuyuan Dahe manages its capital to ensure it 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 overall strategy of Fuyuan Dahe remains unchanged throughout the Relevant Period.

The capital structure of Fuyuan Dahe consists of debts, which include amounts due to group companies as disclosed in note 19, net of cash and cash equivalents and equity attributable to owners of Fuyuan Dahe, comprising paid in capital, reserves and retained profits.

The directors of Fuyuan Dahe review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Fuyuan Dahe will balance its overall capital structure through the payment of dividends as well as the issue of new debt or the redemption of existing debt.

22. RELATED PARTY TRANSACTIONS

During the Relevant Periods, Fuyuan Dahe entered into the following transactions with related parties:

(a) Transactions

Fellow subsidiaries: Purchases Sales Intermediate holding company: Interest expenses A shareholder: Advisory fee paid and payable	2010 RMB 6,849,722 75,529,382 3,591,684 —	2011 RMB 31,914,961 141,807,832 100,605 —	2012 RMB 34,560 96,619,008 654,349 810,000

(b) Details of the balances with related parties are set out in the statements of financial position and notes 14 and 19.

– 168 –

ACCOUNTANT’S REPORT OF FUYUAN DAHE

APPENDIX IIF

23. CAPITAL COMMITMENTS

Capital expenditure contracted for but not provided in respect of acquisition of property, plant and equipment	As at 31 December 2010 2011 2012 RMB RMB RMB 37,727,366 28,286,448 27,569,377

B. EVENTS AFTER THE REPORTING PERIOD

Subsequent to the reporting period, the production of Fuyuan Dahe’s mines were resumed.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Fuyuan Dahe have been prepared in respect of any period subsequent to 31 December 2012.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 169 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

The following is the text of the accountant’s report of the Target Subsidiaries prepared by Company’s auditors, Deloitte Touche Tohmatsu, for the purpose of incorporation in this circular.

==> picture [72 x 55] intentionally omitted <==

==> picture [77 x 34] intentionally omitted <==

25 June 2013

The Directors Hidili Industry International Development Limited Room 3702, 37th Floor West Tower, Shun Tak Centre 168–200 Connaught Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information (‘‘Financial Information’’) regarding Fuyuan County Tonghe Coal Industry Co., Ltd. (‘‘Fuyuan Tonghe’’) for the period from 21 June 2010 (date of establishment) to 31 December 2010 and each of the two years ended 31 December 2012 (the ‘‘Relevant Periods’’) for inclusion in a circular issued by Hidili Industry International Development Limited (the ‘‘Company’’) dated 25 June 2013 (the ‘‘Circular’’) in connection with the major transactions in relation to the capital injections by Huaneng Guicheng Trust Co., Ltd. (‘‘Huaneng’’) to Fuyuan Tonghe and certain other subsidiaries of the Company and share transfers.

Fuyuan Tonghe was established with limited liability in the People’s Republic of China (the ‘‘PRC’’) on 21 June 2010.

The statutory financial statements of Fuyuan Tonghe were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC. The statutory financial statements of Fuyuan Tonghe for the Relevant Periods were audited by Sichuan Jing Wei Certified Public Accountants Co., Ltd, certified public accountants registered in the PRC.

For the purpose of this report, the directors of Fuyuan Tonghe have prepared the financial statements of Fuyuan Tonghe for the Relevant Periods in accordance with International Financial Reporting Standards (‘‘IFRSs’’) (the ‘‘Underlying Financial Statements’’). We have undertaken an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) and have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

– 170 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

The Financial Information of Fuyuan Tonghe for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements. No adjustments were deemed necessary by us to the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of Fuyuan Tonghe who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of Fuyuan Tonghe as at 31 December 2010, 31 December 2011 and 31 December 2012 and of its results and cash flows for the Relevant Periods.

Without qualifying our opinion, we draw attention to note 1 to the Financial Information which indicates that Fuyuan Tonghe’s current liabilities exceeded its current assets by RMB137,247,359 as at 31 December 2012. As described in note 1 to the Financial Information, the Company has agreed to provide financial support to Fuyuan Tonghe to meet in full its financial obligations as and when they fall due in the foreseeable future. However, the Company’s going concern is dependent on the successful implementation of a number of measures as disclosed in note 1 to the Financial Information to improve its financial position. The eventual success of these measures cannot presently be determined and accordingly this indicates the existence of a material uncertainty which may cast significant doubt about Fuyuan Tonghe’s ability to continue as a going concern. The Financial Information does not include any adjustments that would result from a failure of the Company to implement such measures as disclosed in note 1 to the Financial Information.

– 171 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

A. FINANCIAL INFORMATION

Statements of Comprehensive Income

Notes Revenue 6 Cost of sales Gross profit Other income Administrative expenses Finance costs 7 Profit before tax Income tax expense 8 Profit and total comprehensive income for the period/year 9	For the period from 21 June 2010 (date of establishment) to 31 December 2010 RMB 67,878,588 (24,962,046) 42,916,542 6,941 (3,062,680) (801,810) 39,058,993 (9,784,617) 29,274,376	For the year ended 31 December 2011 2012 RMB RMB 55,978,079 43,189,891 (25,431,441) (20,805,261) 30,546,638 22,384,630 2,524,174 6,502,009 (5,529,667) (9,245,121) (6,260,348) (10,960,831) 21,280,797 8,680,687 (314,863) (3,313,524) 20,965,934 5,367,163

– 172 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

Statements of Financial Position

Notes NON-CURRENT ASSETS Property, plant and equipment 12 Deposits 13 Amounts due from fellow subsidiaries 19 CURRENT ASSETS Inventories 14 Other receivables, deposits and prepayments 13 Amount due from immediate holding company 19 Amount due from an intermediate holding company 19 Amounts due from fellow subsidiaries 19 Bank balances and cash 15 CURRENT LIABILITIES Trade payables 16 Other payables and accrued expenses 17 Amount due to immediate holding company 19 Amount due to an intermediate holding company 19 Amounts due to fellow subsidiaries 19 Tax payables NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Provision for restoration and environmental costs 20 NET ASSETS CAPITAL AND RESERVES Paid in capital 18 Reserves TOTAL EQUITY	As 2010 RMB 167,347,844 12,800,000 15,431,834 195,579,678 4,784,524 3,423,679 — — 24,736,549 1,238,957 34,183,709 837,106 9,902,507 5,969,518 39,533,633 25,497,815 9,784,617 91,525,196 (57,341,487) 138,238,191 122,248 138,115,943 3,000,000 135,115,943 138,115,943	at 31 December 2011 2012 RMB RMB 254,473,209 275,355,500 — — 65,232,730 142,800,262 319,705,939 418,155,762 1,579,741 1,429,835 2,764,477 5,590,148 5,755,822 — 466,367 11,928,352 41,907,306 86,870,316 633,488 75,299 53,107,201 105,893,950 1,694,407 2,993,262 27,180,944 15,651,479 — 11,493,125 168,969,000 167,938,313 15,098,943 32,763,327 10,069,996 12,301,803 223,013,290 243,141,309 (169,906,089) (137,247,359) 149,799,850 280,908,403 277,024 400,386 149,522,826 280,508,017 3,000,000 5,000,000 146,522,826 275,508,017 149,522,826 280,508,017

– 173 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

Statements of Changes in Equity

At 21 June 2010 (date of establishment) Capital injection by mean of assets injection Profit and total comprehensive income for the period Deemed distribution on interest free loan granted to fellow subsidiaries Transfer At 31 December 2010 Profit and total comprehensive income for the year Deemed distribution on interest free loan granted to fellow subsidiaries Transfer At 31 December 2011 Profit and total comprehensive income for the year Deemed distribution on interest free loan granted to fellow subsidiaries Transfer Capital injection At 31 December 2012	Paid in capital RMB 3,000,000 — — — — 3,000,000 — — — 3,000,000 — — — 2,000,000 5,000,000	Capital reserve RMB — 110,330,291 — — — 110,330,291 — — — 110,330,291 — — — 138,000,000 248,330,291	Statutory surplus reserve RMB (Note (i)) — — — — 4,443,075 4,443,075 — — 2,036,233 6,479,308 — — 5,846,468 — 12,325,776	Future development fund RMB (Note (ii)) — — — — — — — — — — — — 4,000 — 4,000	Retained profits RMB — — 29,274,376 (4,488,724) (4,443,075) 20,342,577 20,965,934 (9,559,051) (2,036,233) 29,713,227 5,367,163 (14,381,972) (5,850,468) — 14,847,950	Total RMB 3,000,000 110,330,291 29,274,376 (4,488,724) — 138,115,943 20,965,934 (9,559,051) — 149,522,826 5,367,163 (14,381,972) — 140,000,000 280,508,017

Notes:

(i) According to the Articles of Association of Fuyuan Tonghe, Fuyuan Tonghe is required to make an appropriation of 10% of its profit after taxation each year to statutory surplus reserve until the balance reaches 50% of the registered capital of Fuyuan Tonghe while Fuyuan Tonghe can make additional appropriation to statutory surplus reserve at their own discretion. According to the provision of the Articles of Association, in normal circumstances, the statutory surplus reserve shall only be used for making up losses, capitalisation into paid in capital and expansion of the production and operation of Fuyuan Tonghe.
(ii) Pursuant to the relevant regulations in the PRC, Fuyuan Tonghe is required to make a transfer to future development fund based on a fixed amount 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.

– 174 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

Statements of Cash Flows

OPERATING ACTIVITIES Profit before tax Adjustments for: Depreciation and amortisation of property, plant and equipment Interest expense Imputed interest income on amounts due from fellow subsidiaries Interest income Provision for restoration and environmental costs Operating cash flows before movements in working capital (Increase) decrease in inventories (Increase) decrease in other receivables, deposits and prepayments Increase in trade payables Increase (decrease) in other payables and accrued expenses Cash from operations Income taxes paid NET CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Advance to an intermediate holding company Advance to immediate holding company Purchase of and deposits paid for acquisition of property, plant and equipment Advance to fellow subsidiaries Repayment from fellow subsidiaries Repayment from immediate holding company Interest received Repayment from an intermediate holding company NET CASH USED IN INVESTING ACTIVITIES	For the period from 21 June 2010 (date of establishment) to 31 December 2010 RMB 39,058,993 1,593,262 801,810 — (4,437) 122,248 41,571,876 (4,784,524) (3,423,679) 837,106 9,902,507 44,103,286 — 44,103,286 — — (71,410,815) (46,869,365) 2,212,258 — 4,437 — (116,063,485)	For the year ended 31 December 2011 2012 RMB RMB 21,280,797 8,680,687 3,994,662 2,990,376 6,260,348 10,960,831 (2,490,683) (6,387,426) (4,339) (20,747) 154,776 123,362 29,195,561 16,347,083 3,204,783 149,906 659,202 (2,825,671) 857,301 1,298,855 7,036,917 (13,813,126) 40,953,764 1,157,047 (29,484) (1,081,717) 40,924,280 75,330 (466,367) (16,281,985) (31,437,239) (5,106,277) (67,369,855) (18,344,462) (124,925,409) (419,436,200) 50,885,388 288,911,112 25,681,417 10,862,099 4,339 20,747 — 4,820,000 (147,627,726) (154,554,966)

– 175 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

FINANCING ACTIVITIES Advance from immediate holding company Advance from fellow subsidiaries Advance from an intermediate holding company Capital injection Repayment to immediate holding company Repayment to an intermediate holding company Repayment to fellow subsidiaries Interest paid NET CASH FROM FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS BROUGHT FORWARD CASH AND CASH EQUIVALENTS CARRIED FORWARD representing bank balances and cash	For the period from 21 June 2010 (date of establishment) to 31 December 2010 RMB 19,701,341 25,497,815 39,533,633 3,000,000 (13,731,823) — — (801,810) 73,199,156 1,238,957 — 1,238,957	For the year ended 31 December 2011 2012 RMB RMB — 22,358,265 28,119,619 74,569,282 168,969,000 167,938,313 — 140,000,000 (5,969,518) (10,865,140) (39,533,633) (168,969,000) (38,518,491) (56,904,898) (6,969,000) (14,205,375) 106,097,977 153,921,447 (605,469) (558,189) 1,238,957 633,488 633,488 75,299

– 176 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

Notes to the Financial Information

1. GENERAL AND BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The principally activities of Fuyuan Tonghe is mining and sale of raw coal. Its immediate holding company is Liupanshui Hidili Industry Co., Limited, a company established in the PRC. The Company, a company incorporated in the Cayman Islands with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited, is an intermediate holding company of Fuyuan Tonghe. In the opinion of the directors of Fuyuan Tonghe, the ultimate holding company of Fuyuan Tonghe is Sarasin Trust Company Guernsey Limited, a company incorporated in the British Virgin Islands which is controlled by Mr. Xian Yang, the Chief Executive and Executive Director of the Company. The address of the registered office and principal place of business of Fuyuan Tonghe is Xinjiang Mine, Mohong Town, Fuyuan County, Yunnan Province, PRC.

The Financial Information is presented in Renminbi (‘‘RMB’’), which is the same as the functional currency of Fuyuan Tonghe.

In preparing the Underlying Financial Statements, the directors of Fuyuan Tonghe have taken into consideration that Fuyuan Tonghe’s current liabilities exceeded its current assets by RMB137,247,359 as at 31 December 2012.

The Financial Information has been prepared on a going concern basis because the Company has agreed to provide financial support to Fuyuan Tonghe to meet in full its financial obligations as and when they fall due in the foreseeable future. The Company has been implementing a number of measures to improve its financial position, including but not limited to: (1) approaching banks and independent third parties in the PRC to obtain new medium to long-term facilities of not less than RMB2.5 billion; (2) negotiating with a bank to review and renew banking facilities repayable within 12 months from draw down to repayable after 12 months from draw down of not less than RMB400 million; and (3) proposed disposal of 50% equity interests in certain of its subsidiaries for a total consideration of RMB2.4 billion, details of which are set out in the Company’s announcement dated 24 May 2013. The directors of Fuyuan Tonghe believe that the above measures can be successfully implemented and therefore the Company will have sufficient working capital to finance the operations of Fuyuan Tonghe and Fuyuan Tonghe can meet its financial obligations as and when they fall due for the foreseeable future.

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Underlying Financial Statements, throughout the Relevant Periods, Fuyuan Tonghe has consistently adopted all of the new and revised standards, amendments and interpretations which are or have been effective for Fuyuan Tonghe’s financial year beginning on 1 January 2012.

Fuyuan Tonghe has not early applied the following new and revised IFRSs that have been issued but are not yet effective:

– 177 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

1 Effective for annual periods beginning on or after 1 July 2012. 2 Effective for annual periods beginning on or after 1 January 2013. 3 Effective for annual periods beginning on or after 1 January 2014. 4 Effective for annual periods beginning on or after 1 January 2015.

The directors of Fuyuan Tonghe anticipate that the application of the new and revised IFRSs will have no material impact on the results and the financial position of Fuyuan Tonghe.

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

The principal accounting policies are set out below.

Revenue recognition

Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

. Fuyuan Tonghe has transferred to the buyer the significant risks and rewards of ownership of the goods;
. Fuyuan Tonghe retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
. the amount of revenue can be measured reliably;
. it is probable that the economic benefits associated with the transaction will flow to Fuyuan Tonghe; and
. the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to Fuyuan Tonghe and the amount of income can be measured reliably. Interest income 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 asset to that asset’s net carrying amount on initial recognition.

Property, plant and equipment

Property, plant and equipment including buildings held for use in the production or supply of goods or services, or for administrative purposes, other than construction in progress, are stated in the statements of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses. Depreciation on these assets, other than mining structures and mining rights, is recognised so as to write off the cost of assets less their residual value over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

– 178 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

Construction in progress represents property, plant and equipment in the course of construction for production or for its own use purpose. Construction in progress is carried at costs less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs capitalised in accordance with Fuyuan Tonghe’s accounting policy. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Borrowing costs

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefits costs

Payments to state-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

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 period/year. Taxable profit differs from ‘‘profit before tax’’ as reported in the statements of comprehensive income 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. Fuyuan Tonghe’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

– 179 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which Fuyuan Tonghe expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax are recognised in profit or loss.

Inventories

Provision for restoration and environmental costs

Fuyuan Tonghe is required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined. Provisions for restoration and environmental costs are required when Fuyuan Tonghe has a present obligation as a result of a past event, it is probable that Fuyuan Tonghe will be required to settle the obligation. Provisions are measured at the directors of Fuyuan Tonghe’s best estimation of the consideration required to settle the present obligation at the end of the reporting period, and are discounted to present value where the effect is material.

Financial instruments

Financial assets and financial liabilities are recognised in the statements of financial position when Fuyuan Tonghe becomes a party to the contractual provisions of the instrument.

Financial assets

Fuyuan Tonghe’s financial assets are loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including other receivables and deposits, amount due from immediate holding company, amounts due from an intermediate holding company, amounts due from fellow subsidiaries and bank balances) are measured at amortised cost using the effective interest method, less any identified impairment.

– 180 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

Impairment of financial assets

Objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty; or
. breach of contract, such as default or delinquency in interest or principal payments; or
. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

The carrying amount of financial asset is reduced by the impairment loss directly for all the financial assets. Subsequent recoveries of amounts previously written off are credited to profit or loss.

Derecognition

Fuyuan Tonghe derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

Financial liabilities and equity instruments

Debt and equity instruments issued by Fuyuan Tonghe are classified either as financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Effective interest method

Interest expense is recognised on an effective interest basis.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of Fuyuan Tonghe after deducting all of its liabilities. Equity instruments issued by Fuyuan Tonghe are recognised at the proceeds received, net of direct issue costs.

– 181 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

Financial liabilities

Financial liabilities including trade payables, other payables, amount due to an intermediate holding company, amount due to immediate holding company and amounts due to fellow subsidiaries are subsequently measured at amortised cost, using the effective interest method.

Derecognition

Fuyuan Tonghe derecognises financial liabilities when, and only when, Fuyuan Tonghe’s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Impairment of tangible assets

At the end of each reporting period, Fuyuan Tonghe reviews the carrying amounts of its tangible assets 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 is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, Fuyuan Tonghe estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of Fuyuan Tonghe’s accounting policies, which are described in note 3, the directors of Fuyuan Tonghe are 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.

Depreciation of property, plant and equipment

– 182 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

Mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines. The directors of Fuyuan Tonghe assess annually the residual value and the useful life of the property, plant and equipment as well as the reserve of the coal mine. If the expectation differs from the original estimate, such difference will impact the depreciation and the amortisation charged in the year in which such estimate is changed. The carrying amount of property, plant and equipment was RMB167,347,844, RMB254,473,209 and RMB275,355,500 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively. Details of property, plant and equipment are disclosed in note 12.

As explained in note 3, mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines.

Engineering estimates of Fuyuan Tonghe’s mineral reserves involved subjective judgements by mineral engineers in developing such information. There is a Chinese system, which is the national standard set by the PRC Government, regarding the engineering criteria that have to be met before estimated mineral reserves can be designated as ‘‘proven’’. Proven reserve estimates are updated on a regular basis and are taken into account as a change in estimate for accounting purposes and are reflected on a prospective basis in related depreciation and amortisation rates. If the expectation differs from the original reserve estimate, such difference will impact the depreciation and amortisation charged in the year in which such estimate is changed. The carrying amount of mining structures and mining rights was RMB106,990,898, RMB133,927,195 and RMB187,845,241 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively.

Estimated impairment of property, plant and equipment

Determining whether an impairment loss on mining structure and mining rights requires an estimate of the recoverable amount of the cash-generating unit (‘‘CGU’’) to which the asset belongs. Management of Fuyuan Tonghe consider that Fuyuan Tonghe continues to use the relevant assets and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. The value in use calculation requires Fuyuan Tonghe to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. Where the future cash flows are less than expected or due to changes in estimates, a material impairment loss may arise. As at 31 December 2010, 31 December 2011 and 31 December 2012, the carrying amounts of mining structures and mining rights was RMB106,990,898, RMB133,927,195 and RMB187,845,241, respectively.

– 183 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

5. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost	As at 31 December 2010 2011 2012 RMB RMB RMB 44,472,307 116,760,190 244,780,502 72,215,699 196,092,370 228,006,263	As at 31 December 2010 2011 2012 RMB RMB RMB 44,472,307 116,760,190 244,780,502 72,215,699 196,092,370 228,006,263
		228,006,263

(b) Financial risk management objectives and policies

Fuyuan Tonghe’s major financial instruments include other receivables and deposits, bank balances, trade payables, other payables and amounts due from and to group companies. Details of these financial instruments are set out in respective notes. The risks associated with these financial instruments include market risk (interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. Management of Fuyuan Tonghe manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Market risk

Interest rate risk

Fuyuan Tonghe is exposed to cash flow interest rate risk in relation to variable rate bank balances and fair value interest rate risk in relation to certain balances of amount due to an intermediate holding company which carry fixed interest rate (see notes 15 and 19 for details). The directors of Fuyuan Tonghe consider the exposure of interest-bearing bank balances is not significant as bank balances are in short maturity period. Fuyuan Tonghe currently does not have an interest rate hedging policy. However, management closely monitors interest rate exposure and will consider hedging significant interest rate change exposure when the need arise. No sensitivity analysis is presented as the directors of Fuyuan Tonghe consider the amount is insignificant.

(ii) Credit risk

As at the end of each reporting period, Fuyuan Tonghe’s maximum exposure to credit risk which will cause a financial loss to Fuyuan Tonghe due to failure to discharge an obligation by the counterparties is arising from the carrying amounts of the respective recognised financial assets as stated in the statements of financial position.

Management of Fuyuan Tonghe reviews the recoverable amount of each individual debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, management of Fuyuan Tonghe considers that the credit risk is significantly reduced.

Other than concentration of credit risks on group companies which management of Fuyuan Tonghe reviews the financial position and repayment liabilities of respective companies, Fuyuan Tonghe does not have any other significant concentration of credit risk, with exposure spread over a number of counterparties having similar characteristics.

The credit risk on liquid funds is limited because the counterparties are banks with good reputation.

– 184 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

(iii) Liquidity risk

In the management of the liquidity risk, Fuyuan Tonghe monitors and maintains a level of cash and cash equivalents deemed adequate by management of Fuyuan Tonghe to finance the its operations and mitigate the effects of fluctuations in cash flows.

Fuyuan Tonghe relies on advances from group companies as a significant source of liquidity. Details of which are set out in note 19.

At 31 December 2012, Fuyuan Tonghe had net current liabilities of RMB137,247,359. As the Company has agreed to provide financial support to Fuyuan Tonghe to meet in full its financial obligations as they fall due in the foreseeable future, the directors of Fuyuan Tonghe consider the liquidity risk of Fuyuan Tonghe is insignificant.

(c) Fair value

The fair value of financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

Management of Fuyuan Tonghe considers that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate to their fair values.

6. REVENUE AND SEGMENT INFORMATION

Revenue represents sale of raw coal at invoiced value net of discounts and sales related taxes during the Relevant Periods.

The directors of Fuyuan Tonghe, being the chief operating decision makers, assess the performance and allocate the resources of Fuyuan Tonghe as a whole because Fuyuan Tonghe is mainly engaged in mining. Therefore, the directors of Fuyuan Tonghe consider that Fuyuan Tonghe only has one operating segment under IFRS 8. In this regard, no segment information is presented.

Geographical information

The operations and assets of Fuyuan Tonghe are located in the PRC.

Information about major customers

Revenue from sales of raw coals are substantially contributed from fellow subsidiaries and immediate holding company of Fuyuan Tonghe. Details of related party transactions are disclosed in note 22(a).

– 185 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

7. FINANCE COST

Interest expenses on borrowings wholly repayable within five years: — amount due to an intermediate holding company Less: Interest capitalised in construction in progress	For the period from 21 June 2010 (date of establishment) to 31 December 2010 RMB 801,810 — 801,810	For the year ended 31 December 2011 2012 RMB RMB 6,969,000 14,205,375 (708,652) (3,244,544) 6,260,348 10,960,831

8. INCOME TAX EXPENSE

No provision for Hong Kong Profits Tax has been made as Fuyuan Tonghe’s income neither arises in, nor is derived from, Hong Kong.

Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of the EIT Law, the tax rate of Fuyuan Tonghe is 25% during the Relevant Periods.

The taxation during the Relevant Periods can be reconciled to the profit before tax per statements of comprehensive income as follows:

Profit before tax Tax at applicable tax rate of 25% Tax effect of expenses that are not deductible in determining taxable profit Tax effect of income that are not taxable in determining taxable profit Others Income tax expense for the period/year	For the period from 21 June 2010 (date of establishment) to 31 December 2010 RMB 39,058,993 9,764,748 19,869 — — 9,784,617	For the year ended 31 December 2011 2012 RMB RMB 21,280,797 8,680,687 5,320,199 2,170,172 24,944 215,424 (622,671) (1,596,866) (4,407,609) 2,524,794 314,863 3,313,524

– 186 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

9. PROFIT FOR THE PERIOD/YEAR

Profit for the period/year has been arrived at after charging (crediting): Cost of inventories recognised as expense Depreciation and amortisation of property, plant and equipment Salaries and other benefits Retirement benefit costs Total staff costs Bank interest income Imputed interest income on amounts due from fellow subsidiaries	For the period from 21 June 2010 (date of establishment) to 31 December 2010 RMB 24,962,046 1,593,262 11,761,068 174,057 11,935,125 (4,437) —	For the year ended 31 December 2011 2012 RMB RMB 25,431,441 20,805,261 3,994,662 2,990,376 10,581,105 9,467,119 607,762 978,947 11,188,867 10,446,066 (4,339) (20,747) (2,490,683) (6,387,426)	For the year ended 31 December 2011 2012 RMB RMB 25,431,441 20,805,261 3,994,662 2,990,376 10,581,105 9,467,119 607,762 978,947 11,188,867 10,446,066 (4,339) (20,747) (2,490,683) (6,387,426)
			9,467,119 978,947
			10,446,066 (20,747) (6,387,426)

10. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

Directors’ emoluments

During the Relevant Periods, no fees or other emoluments was paid or payable by Fuyuan Tonghe to its directors.

During the Relevant Periods, no remuneration was paid by Fuyuan Tonghe to its directors as an inducement to join or upon joining Fuyuan Tonghe or as compensation for loss of office. None of the directors has waived any remuneration during the Relevant Periods.

Employees’ emoluments

The five highest paid individuals for the Relevant Periods were as follows:

Salaries and other allowances Contributions to retirement benefit schemes	For the period from 21 June 2010 (date of establishment) to 31 December 2010 RMB 438,523 6,519 445,042	For the year ended 31 December 2011 2012 RMB RMB 697,521 508,122 4,338 5,480 701,859 513,602	For the year ended 31 December 2011 2012 RMB RMB 697,521 508,122 4,338 5,480 701,859 513,602
			513,602

Each of their emoluments were within HK$1,000,000 (approximately RMB800,000).

During the Relevant Periods, no emolument was paid or payable by Fuyuan Tonghe to the five highest paid individuals as an inducement to join Fuyuan Tonghe as compensation for loss of office.

– 187 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

11. EARNINGS PER SHARE

Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful.

12. PROPERTY, PLANT AND EQUIPMENT

COST At 21 June 2010 (date of establishment) Additions Transfer At 31 December 2010 Additions Transfer At 31 December 2011 Additions Transfer At 31 December 2012 DEPRECIATION AND AMORTISATION At 21 June 2010 (date of establishment) Provided for the period At 31 December 2010 Provided for the year At 31 December 2011 Provided for the year At 31 December 2012 CARRYING AMOUNTS At 31 December 2010 At 31 December 2011 At 31 December 2012	Buildings RMB — 182,398 — 182,398 — 47,032 229,430 — — 229,430 — 6,984 6,984 8,226 15,210 12,391 27,601 175,414 214,220 201,829	Mining structures and mining rights RMB — 108,275,168 — 108,275,168 28,514,398 — 136,789,566 — 55,215,134 192,004,700 — 1,284,270 1,284,270 1,578,101 2,862,371 1,297,088 4,159,459 106,990,898 133,927,195 187,845,241	Machinery RMB — 14,261,340 50,274 14,311,614 795,309 — 15,106,923 65,700 9,782,186 24,954,809 — 204,743 204,743 2,319,092 2,523,835 1,554,910 4,078,745 14,106,871 12,583,088 20,876,064	Motor vehicles RMB — 472,384 — 472,384 — — 472,384 12,000 — 484,384 — 95,117 95,117 74,858 169,975 106,247 276,222 377,267 302,409 208,162	Office and electronic equipment RMB — 15,702 — 15,702 146,068 — 161,770 22,398 — 184,168 — 2,148 2,148 14,385 16,533 19,740 36,273 13,554 145,237 147,895	Construction in progress RMB — 45,734,114 (50,274) 45,683,840 61,664,252 (47,032) 107,301,060 23,772,569 (64,997,320) 66,076,309 — — — — — — — 45,683,840 107,301,060 66,076,309	Total RMB — 168,941,106 —
							168,941,106 91,120,027 —
							260,061,133 23,872,667 —
							283,933,800
							— 1,593,262
							1,593,262 3,994,662
							5,587,924 2,990,376
							8,578,300
							167,347,844
							254,473,209
							275,355,500

– 188 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

The following estimated useful lives are used for the depreciation of property, plant and equipment, other than mining structures and mining rights as well as construction in progress:

Buildings 15 to 35 years Machinery 5 to 15 years Motor vehicles, office and electronic 5 to 10 years equipment

The mining structures and mining rights include the main and auxiliary mine shafts and underground tunnels. The mining rights have average legal lives of 6 years but in the opinion of the directors of Fuyuan Tonghe, Fuyuan Tonghe will be able to renew the mining rights without incurring significant costs.

Depreciation and amortisation are provided to write off the cost of the mining structures and mining rights using the units of production method over the total proven reserves of the coal mine.

The construction in progress comprise mainly the main and auxiliary mine shafts and underground tunnels in the course of construction.

The legal titles of the mining rights have been granted by the relevant government authorities as at 31 December 2010, 31 December 2011 and 31 December 2012.

During the year ended 31 December 2012, the operation in mines of Fuyuan Tonghe have been suspended for safety inspection and government deliberations since the occurrence of accidents in the vicinity. At 31 December 2012, the carrying amounts of construction in progress and property, plant and equipment other than construction in progress, in respect of mines which were still suspended are RMB66,076,309 and RMB209,279,191, respectively.

For the purpose of the impairment testing of mining structure and mining rights of the mines being under suspension of production or construction for safety inspection and government deliberations, management of Fuyuan Tonghe considers that Fuyuan Tonghe will continue to use the relevant assets in the foreseeable future and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. Value in use calculation is based on the discount rates of 14.9% and cash flow projections prepared from financial forecasts approved by the directors of Fuyuan Tonghe for the next five years, taking into account the best estimates of management of Fuyuan Tonghe concerning the likely dates for resumption of mining operations and development. The CGUs cashflows beyond the 5-year period are extrapolated using a zero growth rate until the coal reserves have been mined based on existing production capacities. Other key assumptions for the value in use calculation related to the estimation of cash inflows/outflows which include future coal price and gross margin, such estimation is based on the estimation provided by management of Fuyuan Tonghe. Based on the assumptions applied, the recoverable amounts are above its carrying amounts of the relevant CGUs, accordingly, management of Fuyuan Tonghe has determined that there is no impairment of the mining structure and mining rights.

13. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

At 31 December 2010, the deposits of RMB12,800,000 included in non-current assets were paid for acquisition of mines in the PRC.

At 31 December 2012, included in other receivables, deposits and prepayments is an amount of RMB1,260,000 prepayment for advisory service to Huaneng, a shareholder of Fuyuan Tonghe.

– 189 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

14. INVENTORIES

Coal products Auxiliary materials and spare parts	As at 31 December 2010 2011 2012 RMB RMB RMB 3,855,247 972,677 424,391 929,277 607,064 1,005,444 4,784,524 1,579,741 1,429,835	As at 31 December 2010 2011 2012 RMB RMB RMB 3,855,247 972,677 424,391 929,277 607,064 1,005,444 4,784,524 1,579,741 1,429,835
		1,429,835

15. BANK BALANCES AND CASH

Bank balances as at 31 December 2010, 31 December 2011 and 31 December 2012 carry interests at market rates range from 0.35% to 0.50% per annum.

16. TRADE PAYABLES

The aged analysis of Fuyuan Tonghe’s trade payables based on invoice date at the end of the reporting period is as follows:

0–90 days 91–180 days 181–365 days Over 365 days	As at 31 December 2010 2011 2012 RMB RMB RMB 643,746 1,668,802 1,519,137 66,580 13,075 830,320 126,780 12,530 631,275 — — 12,530 837,106 1,694,407 2,993,262	As at 31 December 2010 2011 2012 RMB RMB RMB 643,746 1,668,802 1,519,137 66,580 13,075 830,320 126,780 12,530 631,275 — — 12,530 837,106 1,694,407 2,993,262
		2,993,262

The average credit period on purchases of goods is 90 days.

17. OTHER PAYABLES AND ACCRUED EXPENSES

At 31 December 2010, 31 December 2011 and 31 December 2012, included in other payables and accrued expenses is payable for acquisition of property, plant and equipment of nil, RMB10,241,520 and RMB12,525,181; and other tax payables of RMB7,266,911, RMB15,624,999 and RMB2,622,805, respectively.

18. PAID IN CAPITAL

Registered and fully paid at 21 June 2010 (date of establishment), 31 December 2010 and 2011 Capital injection Registered and fully paid at 31 December 2012	RMB 3,000,000 2,000,000
	5,000,000

Fuyuan Tonghe was established with registered capital of RMB3,000,000 on 21 June 2010. The registered capital was fully paid at the date of establishment. On 28 August 2012, the total registered capital of Fuyuan Tonghe increased from RMB3,000,000 to RMB5,000,000 and Huaneng paid an additional contribution of RMB140,000,000 in September 2012, of which RMB2,000,000 as paid in capital and RMB138,000,000 as capital reserve.

– 190 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

19. AMOUNTS DUE FROM AND TO GROUP COMPANIES

At 31 December 2010, 31 December 2011 and 31 December 2012, except for amounts due from fellow subsidiaries of RMB15,431,834, RMB65,232,730 and RMB142,800,262, respectively, which will be recovered in three year time from initial recognition, amounts due from group companies are expected to be recovered in one year. The effective interest of amounts due from fellow subsidiaries expected to be recovered in three year time was 6.15% per annum. All amounts due from group companies are interest free and unsecured.

Except for amount due to an intermediate holding company at 31 December 2010, 31 December 2011 and 31 December 2012 of RMB39,533,633, RMB168,969,000 and RMB167,938,313 respectively which bear interest at 8.63% per annum, other amounts due to group companies are interest free. All amounts due to group companies are unsecured and repayable on demand.

There is no credit terms and policies on the trading balances with group companies.

20. PROVISION FOR RESTORATION AND ENVIRONMENTAL COSTS

At 21 June 2010 (date of establishment) Provision for the period At 31 December 2010 Provision for the year At 31 December 2011 Provision for the year At 31 December 2012	RMB — 122,248
	122,248 154,776
	277,024 123,362
	400,386

Mining activities may result in land subsidence and damage to the environment of the mining areas. Pursuant to the relevant PRC regulations, Fuyuan Tonghe is required to restore the mining areas back to certain acceptable conditions.

21. CAPITAL RISK MANAGEMENT

Fuyuan Tonghe manages its capital to ensure it 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 overall strategy of Fuyuan Tonghe remains unchanged throughout the Relevant Period.

The capital structure of Fuyuan Tonghe consists of debts, which include amounts due to group companies as disclosed in note 19, net of cash and cash equivalents and equity attributable to owners of Fuyuan Tonghe, comprising paid in capital, reserves and retained profits.

The directors of Fuyuan Tonghe review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Fuyuan Tonghe will balance its overall capital structure through the payment of dividends as well as the issue of new debt or the redemption of existing debt.

– 191 –

ACCOUNTANT’S REPORT OF FUYUAN TONGHE

APPENDIX IIG

22. RELATED PARTY TRANSACTIONS

During the Relevant Periods, Fuyuan Tonghe entered into the following transactions with related parties:

(a) Transactions

Immediate holding company: Sales Purchases Fellow subsidiaries: Sales Purchases Intermediate holding company: Interest expense A shareholder: Advisory fee paid and payable	2010 RMB 9,775,417 25,160,478 57,256,541 1,359,657 801,810 —	2011 RMB — 8,428,316 54,714,135 3,684,109 6,969,000 —	2012 RMB — — 43,189,891 6,183,375 14,205,375 420,000

(b) Details of the balances with related parties are set out in the statements of financial position and notes 13 and 19.

23. MAJOR NON-CASH TRANSACTIONS

During the period from 21 June 2010 to 31 December 2010, immediate holding company of Fuyuan Tonghe injected property, plant and equipment with carrying amounts of RMB110,330,291 to Fuyuan Tonghe.

24. CAPITAL COMMITMENTS

Capital expenditure contracted for but not provided in respect of acquisition of property, plant and equipment	As at 31 December 2010 2011 2012 RMB RMB RMB 18,955,206 15,270,129 10,256,444

B. EVENTS AFTER THE REPORTING PERIOD

Subsequent to the reporting period, the production of Fuyuan Tonghe’s mine was resumed.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Fuyuan Tonghe have been prepared in respect of any period subsequent to 31 December 2012.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 192 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

The following is the text of the accountant’s report of the Target Subsidiaries prepared by Company’s auditors, Deloitte Touche Tohmatsu, for the purpose of incorporation in this circular.

==> picture [72 x 55] intentionally omitted <==

==> picture [77 x 34] intentionally omitted <==

25 June 2013

The Directors

Hidili Industry International Development Limited Room 3702, 37th Floor West Tower, Shun Tak Centre 168–200 Connaught Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information (‘‘Financial Information’’) regarding Fuyuan County Jintai Coal Industry Co., Ltd. (‘‘Fuyuan Jintai’’) for the period from 19 January 2010 (date of establishment) to 31 December 2010 and each of the two years ended 31 December 2012 (the ‘‘Relevant Periods’’) for inclusion in a circular issued by Hidili Industry International Development Limited (the ‘‘Company’’) dated 25 June 2013 (the ‘‘Circular’’) in connection with the major transactions in relation to the capital injections by Huaneng Guicheng Trust Co., Ltd. (‘‘Huaneng’’) to Fuyuan Jintai and certain other subsidiaries of the Company and share transfers.

Fuyuan Jintai was established with limited liability in the People’s Republic of China (the ‘‘PRC’’) on 19 January 2010.

The statutory financial statements of Fuyuan Jintai were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC. The statutory financial statements of Fuyuan Jintai for the Relevant Periods were audited by Sichuan Jing Wei Certified Public Accountants Co., Ltd, certified public accountants registered in the PRC.

For the purpose of this report, the directors of Fuyuan Jintai have prepared the financial statements of Fuyuan Jintai for the Relevant Periods in accordance with International Financial Reporting Standards (‘‘IFRSs’’) (the ‘‘Underlying Financial Statements’’). We have undertaken an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) and have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

– 193 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

The Financial Information of Fuyuan Jintai for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements. No adjustments were deemed necessary by us to the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of Fuyuan Jintai who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of Fuyuan Jintai as at 31 December 2010, 31 December 2011 and 31 December 2012 and of its results and cash flows for the Relevant Periods.

Without qualifying our opinion, we draw attention to note 1 to the Financial Information which indicates that Fuyuan Jintai’s current liabilities exceeded its current assets by RMB235,214,292 as at 31 December 2012. As described in note 1 to the Financial Information, the Company has agreed to provide financial support to Fuyuan Jintai to meet in full its financial obligations as and when they fall due in the foreseeable future. However, the Company’s going concern is dependent on the successful implementation of a number of measures as disclosed in note 1 to the Financial Information to improve its financial position. The eventual success of these measures cannot presently be determined and accordingly this indicates the existence of a material uncertainty which may cast significant doubt about Fuyuan Jintai’s ability to continue as a going concern. The Financial Information does not include any adjustments that would result from a failure of the Company to implement such measures as disclosed in note 1 to the Financial Information.

– 194 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

A. FINANCIAL INFORMATION

Statements of Comprehensive Income

Notes Revenue 6 Cost of sales Gross profit Other income Administrative expenses Finance costs 7 Profit before tax Income tax expense 8 Profit and total comprehensive income for the period/year 9	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 43,578,458 (12,229,357) 31,349,101 54,399 (2,210,905) (7,056,312) 22,136,283 (6,602,728) 15,533,555	For the year ended 31 December 2011 2012 RMB RMB 102,465,673 36,924,038 (21,676,572) (21,824,230) 80,789,101 15,099,808 4,072,830 8,261,723 (2,524,571) (6,877,103) (9,883,498) (10,889,671) 72,453,862 5,594,757 (19,607,041) (1,862,611) 52,846,821 3,732,146

– 195 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

Statements of Financial Position

Notes NON-CURRENT ASSETS Property, plant and equipment 12 Loan receivable 13 Amount due from fellow subsidiaries 16 CURRENT ASSETS Inventories 14 Other receivables, deposits and prepayments 15 Amounts due from fellow subsidiaries 16 Bank balances and cash 17 CURRENT LIABILITIES Trade payables 18 Amounts due to shareholders 16 Amount due to an intermediate holding company 16 Amounts due to fellow subsidiaries 16 Other payables and accrued expenses 19 Tax payables NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Provision for restoration and environmental costs 21 Amounts due to fellow subsidiaries 16 NET ASSETS CAPITAL AND RESERVES Paid in capital 20 Reserves TOTAL EQUITY	As 2010 RMB 218,660,951 2,550,000 — 221,210,951 3,470,520 2,392,453 1,358,400 130,900 7,352,273 305,382 67,119,267 — 26,658,763 15,876,457 6,577,176 116,537,045 (109,184,772) 112,026,179 54,476 81,348,900 81,403,376 30,622,803 5,000,000 25,622,803 30,622,803	at 31 December 2011 2012 RMB RMB 293,076,485 317,254,988 — — 128,004,042 136,102,024 421,080,527 453,357,012 2,471,894 838,404 5,617,630 4,741,067 3,609,007 56,570,703 881,362 300,045 12,579,893 62,450,219 1,104,789 3,210,877 227,136,631 222,326,636 6,923,699 5,400,000 88,830,156 16,450,107 25,017,738 26,025,852 26,151,151 24,251,039 375,164,164 297,664,511 (362,584,271) (235,214,292) 58,496,256 218,142,720 108,686 138,236 — 55,090,023 108,686 55,228,259 58,387,570 162,914,461 5,000,000 8,196,700 53,387,570 154,717,761 58,387,570 162,914,461

– 196 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

Statements of Changes in Equity

At 19 January 2010 (date of establishment) Profit and total comprehensive income for the period Deemed contribution on interest free loans granted from fellow subsidiaries Transfer At 31 December 2010 Profit and total comprehensive income for the year Deemed distribution on interest free loans granted to fellow subsidiaries Transfer At 31 December 2011 Profit and total comprehensive income for the year Deemed contribution on interest free loans granted from fellow subsidiaries Transfer Capital injection At 31 December 2012	Paid in capital RMB 5,000,000 — — — 5,000,000 — — — 5,000,000 — — — 3,196,700 8,196,700	Capital reserve RMB — — — — — — — — — — — — 86,803,300 86,803,300	Statutory surplus reserve RMB (Note (i)) — — — 2,564,529 2,564,529 — — 2,099,127 4,663,656 — — 4,098,350 — 8,762,006	Future development fund RMB (Note (ii)) — — — — — — — — — — — 30,410 — 30,410	Retained profits RMB — 15,533,555 10,089,248 (2,564,529) 23,058,274 52,846,821 (25,082,054) (2,099,127) 48,723,914 3,732,146 10,794,745 (4,128,760) — 59,122,045	Total RMB 5,000,000 15,533,555 10,089,248 — 30,622,803 52,846,821 (25,082,054) — 58,387,570 3,732,146 10,794,745 — 90,000,000 162,914,461

Notes:

(i) According to the Articles of Association of Fuyuan Jintai, Fuyuan Jintai is required to make an appropriation of 10% of its profit after taxation each year to statutory surplus reserve until the balance reaches 50% of the registered capital of Fuyuan Jintai while Fuyuan Jintai can make additional appropriation to statutory surplus reserve at their own discretion. According to the provision of the Articles of Association, in normal circumstances, the statutory surplus reserve shall only be used for making up losses, capitalisation into paid in capital and expansion of the production and operation of Fuyuan Jintai.
(ii) Pursuant to the relevant regulations in the PRC, Fuyuan Jintai is required to make a transfer to future development fund based on a fixed amount 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.

– 197 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

Statements of Cash Flows

OPERATING ACTIVITIES Profit before tax Adjustments for: Depreciation and amortisation of property, plant and equipment Interest expenses Imputed interest income Interest income Provision for restoration and environmental cost Operating cash flows before movements in working capital (Increase) decrease in inventories Increase in other receivables, deposits and prepayments Increase in trade payables Increase (decrease) in other payables and accrued expenses Cash from (used in) operations Income taxes paid NET CASH FROM (USED IN) OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of property, plant and equipment Advance to fellow subsidiaries Repayment from fellow subsidiaries (Advance to) repayment from a loan receivable Interest received NET CASH USED IN INVESTING ACTIVITIES	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 22,136,283 866,070 7,056,312 — (4,400) 54,476 30,108,741 (3,470,520) (2,392,453) 305,382 7,416,457 31,967,607 (25,552) 31,942,055 (211,067,021) (1,358,400) — (2,550,000) 4,400 (214,971,021)	For the year ended 31 December 2011 2012 RMB RMB 72,453,862 5,594,757 2,209,385 1,886,324 9,883,498 10,889,671 (3,866,475) (8,097,982) (4,530) (13,741) 54,210 29,550 80,729,950 10,288,579 998,626 1,633,490 (675,177) (1,673,437) 799,407 2,106,088 15,961,281 (15,028,216) 97,814,087 (2,673,496) (33,066) (3,762,723) 97,781,021 (6,436,219) (82,299,312) (8,537,915) (152,828,628) (56,570,703) 1,358,400 3,609,007 — 2,550,000 4,530 13,741 (233,765,010) (58,935,870)

– 198 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

FINANCING ACTIVITIES Advance from fellow subsidiaries Capital injection Interest paid Advance from shareholders Advance from intermediate holding companies Repayment to fellow subsidiaries Repayment to shareholders Repayment to intermediate holding companies NET CASH FROM FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS BROUGHT FORWARD CASH AND CASH EQUIVALENTS CARRIED FORWARD, representing bank balances and cash	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 158,458,431 5,000,000 (3,002,330) 67,119,267 — (44,415,502) — — 183,159,866 130,900 — 130,900	For the year ended 31 December 2011 2012 RMB RMB 81,345,276 94,166,098 — 90,000,000 (5,882,690) (9,827,358) 189,017,364 86,734,038 6,923,699 — (105,669,198) (103,214,274) (29,000,000) (91,544,033) — (1,523,699) 136,734,451 64,790,772 750,462 (581,317) 130,900 881,362 881,362 300,045

– 199 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

Notes to the Financial Information

1. GENERAL AND BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The principal activities of Fuyuan Jintai is mining and sale of raw coal. Fuyuan Jintai is owned as to 48.8% by Liupanshui Hidili Industry Co., Limited (‘‘Liupanshui Hidili’’), 12.2% by Sichuan Hidili Industry Co., Limited (‘‘Sichuan Hidili’’); and 40% by Huaneng, companies established in the PRC. The Company, a company incorporated in the Cayman Islands with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited, is an intermediate holding company of Fuyuan Jintai, Liupanshui Hidili, Sichuan Hidili. In the opinion of the directors of Fuyuan Jintai, the ultimate holding company of Fuyuan Jintai is Sarasin Trust Company Guernsey Limited, a company incorporated in the British Virgin Islands which is controlled by Mr. Xian Yang, the Chief Executive and Executive Director of the Company. The address of the registered office and principal place of business of Fuyuan Jintai is Zude Village, Fucun Town, Fuyuan County, Yuannan Province, PRC.

The Financial Information is presented in Renminbi (‘‘RMB’’), which is the same as the functional currency of Fuyuan Jintai.

In preparing the Underlying Financial Statements, the directors of Fuyuan Jintai have taken into consideration that Fuyuan Jintai’s current liabilities exceeded its current assets by RMB235,214,292 as at 31 December 2012.

The Financial Information has been prepared on a going concern basis because the Company has agreed to provide financial support to Fuyuan Jintai to meet in full its financial obligations as and when they fall due in the foreseeable future. The Company has been implementing a number of measures to improve its financial position, including but not limited to: (1) approaching banks and independent third parties in the PRC to obtain new medium to long-term facilities of not less than RMB2.5 billion; (2) negotiating with a bank to review and renew banking facilities repayable within 12 months from draw down to repayable after 12 months from draw down of not less than RMB400 million; and (3) proposed disposal of 50% equity interests in certain of its subsidiaries for a total consideration of RMB2.4 billion, details of which are set out in the Company’s announcement dated 24 May 2013. The directors of Fuyuan Jintai believe that the above measures can be successfully implemented and therefore the Company will have sufficient working capital to finance the operations of Fuyuan Jintai and Fuyuan Jintai can meet its financial obligations as and when they fall due for the foreseeable future.

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Underlying Financial Statements, throughout the Relevant Periods, Fuyuan Jintai has consistently adopted all of the new and revised standards, amendments and interpretations which are or have been effective for Fuyuan Jintai’s financial year beginning on 1 January 2012.

Fuyuan Jintai has not early applied the following new and revised IFRSs that have been issued but are not yet effective:

Amendments to IFRSs	Annual Improvements to IFRSs 2009–2011 Cycle2
Amendments to IFRS 7 Amendments to IFRS 7 and IFRS 9	Disclosure — Offsetting Financial Assets and Financial Liabilities2 Mandatory Effective Date of IFRS 9 and Transition Disclosures4
Amendments to IFRS 10, IFRS 11	Consolidated Financial Statements, Joint Arrangements and Disclosure
and IFRS 12	of Interests in Other Entities: Transition Guidance2
Amendments to IFRS 10, IFRS 12	Investment Entities3
and IAS 27
IFRS 9	Financial Instruments4
IFRS 10	Consolidated Financial Statements2
IFRS 11 IFRS 12	Joint Arrangements2 Disclosure of Interests in Other Entities2
IFRS 13	Fair Value Measurement2
IAS 19 (Revised 2011) IAS 27 (Revised 2011) IAS 28 (Revised 2011)	Employee Benefits2 Separate Financial Statements2 Investments in Associates and Joint Ventures2
Amendments to IAS 1	Presentation of Items of Other Comprehensive Income1
Amendments to IAS 32 Amendments to IAS 36	Offsetting Financial Assets and Financial Liabilities3 Recoverable Amount Disclosure for Non-Financial Assets3
IFRIC 20	Stripping Costs in the Production Phase of a Surface Mine2
IFRIC 21	Levies3

– 200 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

1 Effective for annual periods beginning on or after 1 July 2012. 2 Effective for annual periods beginning on or after 1 January 2013. 3 Effective for annual periods beginning on or after 1 January 2014. 4 Effective for annual periods beginning on or after 1 January 2015.

The directors of Fuyuan Jintai anticipate that the application of the new and revised IFRSs will have no material impact on the results and the financial position of Fuyuan Jintai.

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

The principal accounting policies are set out below.

Revenue recognition

Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

. Fuyuan Jintai has transferred to the buyer the significant risks and rewards of ownership of the goods;
. Fuyuan Jintai retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
. the amount of revenue can be measured reliably;
. it is probable that the economic benefits associated with the transaction will flow to Fuyuan Jintai; and
. the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to Fuyuan Jintai and the amount of income can be measured reliably. Interest income 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 asset to that asset’s net carrying amount on initial recognition.

Property, plant and equipment

Property, plant and equipment including land and buildings held for use in the production or supply of goods or services, or for administrative purposes, other than construction in progress, are stated in the statements of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses. Depreciation on these assets, other than mining structures and mining rights, is recognised so as to write off the cost of assets less their residual value over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

– 201 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

Construction in progress represents property, plant and equipment in the course of construction for production or for its own use purpose. Construction in progress is carried at costs less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs capitalised in accordance with Fuyuan Jintai’s accounting policy. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Borrowing costs

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefits costs

Payments to state-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

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 period/year. Taxable profit differs from ‘‘profit before tax’’ as reported in the statements of comprehensive income 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. Fuyuan Jintai’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

– 202 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which Fuyuan Jintai expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax are recognised in profit or loss.

Inventories

Provision for restoration and environmental costs

Fuyuan Jintai is required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined. Provisions for restoration and environmental costs are required when Fuyuan Jintai has a present obligation as a result of a past event, it is probable that Fuyuan Jintai will be required to settle the obligation. Provisions are measured at the directors of Fuyuan Jintai’s best estimation of the consideration required to settle the present obligation at the end of the reporting period, and are discounted to present value where the effect is material.

Financial instruments

Financial assets and financial liabilities are recognised in the statements of financial position when Fuyuan Jintai becomes a party to the contractual provisions of the instrument.

Financial assets

Fuyuan Jintai’s financial assets are loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including other receivables and deposits, loan receivable, amounts due from fellow subsidiaries and bank balances) are measured at amortised cost using the effective interest method, less any identified impairment.

– 203 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

Impairment of financial assets

Objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty; or
. breach of contract, such as default or delinquency in interest or principal payments; or
. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

The carrying amount of financial asset is reduced by the impairment loss directly for all the financial assets. Subsequent recoveries of amounts previously written off are credited to profit or loss.

Derecognition

Fuyuan Jintai derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

Financial liabilities and equity instruments

Debt and equity instruments issued by Fuyuan Jintai are classified either as financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Effective interest method

Interest expense is recognised on an effective interest basis.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of Fuyuan Jintai after deducting all of its liabilities. Equity instruments issued by Fuyuan Jintai are recognised at the proceeds received, net of direct issue costs.

– 204 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

Financial liabilities

Financial liabilities including trade payables, other payables, amount due to an intermediate holding company, amounts due to shareholders and amounts due to fellow subsidiaries are subsequently measured at amortised cost, using the effective interest method.

Derecognition

Fuyuan Jintai derecognises financial liabilities when, and only when, Fuyuan Jintai’s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Impairment of tangible assets

At the end of each reporting period, Fuyuan Jintai reviews the carrying amounts of its tangible assets with finite useful lives 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 is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, Fuyuan Jintai estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cashgenerating units for which a reasonable and consistent allocation basis can be identified.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of Fuyuan Jintai’s accounting policies, which are described in note 3, the directors of Fuyuan Jintai are 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.

– 205 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

Depreciation of property, plant and equipment

Property, plant and equipment other than mining structures and mining rights are depreciated on a straight-line basis over their useful lives, after taking into account their estimated residual value. Mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines. The directors of Fuyuan Jintai assess annually the residual value and the useful life of the property, plant and equipment as well as the reserves of the coal mines. If the expectation differs from the original estimate, such difference will impact the depreciation and the amortisation charged in the year in which such estimate is changed. The carrying amount of property, plant and equipment was RMB218,660,951, RMB293,076,485 and RMB317,254,988 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively. Details of property, plant and equipment are disclosed in note 12.

As explained in note 3, mining structures and mining rights are depreciated and amortised using the units of production method based on the total proven reserves of the coal mines.

Engineering estimates of Fuyuan Jintai’s mineral reserves involved subjective judgements by mineral engineers in developing such information. There is a Chinese system, which is the national standard set by the PRC Government, regarding the engineering criteria that have to be met before estimated mineral reserves can be designated as ‘‘proven’’. Proven reserve estimates are updated on a regular basis and are taken into account as a change in estimate for accounting purposes and are reflected on a prospective basis in related depreciation and amortisation rates. If the expectation differs from the original reserve estimate, such difference will impact the depreciation and amortisation charged in the year in which such estimate is changed. The carrying amount of mining structures and mining rights was RMB184,197,458, RMB185,140,556 and RMB238,767,916 as at 31 December 2010, 31 December 2011 and 31 December 2012, respectively.

Estimated impairment of property, plant and equipment

Determining whether an impairment loss on mining structure and mining rights requires an estimate of the recoverable amount of the cash-generating unit (‘‘CGU’’) to which the asset belongs. Management of Fuyuan Jintai consider that Fuyuan Jintai continues to use the relevant assets and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. The value in use calculation requires Fuyuan Jintai to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. Where the future cash flows are less than expected or due to changes in estimates, a material impairment loss may arise. As at 31 December 2010, 31 December 2011 and 31 December 2012, the carrying amounts of mining structures and mining rights was RMB184,197,458, RMB185,140,556 and RMB238,767,916, respectively.

– 206 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

5. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost	As at 31 December 2010 2011 2012 RMB RMB RMB 4,224,552 135,714,638 194,055,855 189,939,063 325,677,615 308,450,556	As at 31 December 2010 2011 2012 RMB RMB RMB 4,224,552 135,714,638 194,055,855 189,939,063 325,677,615 308,450,556
		308,450,556

(b) Financial risk management objectives and policies

Fuyuan Jintai’s major financial instruments include other receivables and deposits, loan receivable, bank balances, trade payables, other payables and amounts due from and to related parties. Details of these financial instruments are set out in respective notes. The risks associated with these financial instruments include market risk (interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. Management of Fuyuan Jintai manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Market risk

Interest rate risk

Fuyuan Jintai is exposed to cash flow interest rate risk in relation to variable rate bank balances and fair value interest rate risk in relation to certain balances of amounts due to shareholders which carry fixed rate (see notes 17 and 16 for details). The directors of Fuyuan Jintai consider the exposure of interest-bearing bank balances is not significant as bank balances are in short maturity period. Fuyuan Jintai currently does not have an interest rate hedging policy. However, management closely monitors interest rate exposure and will consider hedging significant interest rate change exposure when the need arise. No sensitivity analysis is presented as the directors of Fuyuan Jintai consider the amount is insignificant.

(ii) Credit risk

As at the end of each reporting period, Fuyuan Jintai’s maximum exposure to credit risk which will cause a financial loss to Fuyuan Jintai due to failure to discharge an obligation by the counterparties is arising from the carrying amounts of the respective recognised financial assets as stated in the statement of financial position.

Management of Fuyuan Jintai reviews the recoverable amount of each individual debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, management of Fuyuan Jintai considers that the credit risk is significantly reduced.

Other than concentration of credit risks on group companies which management of Fuyuan Jintai reviews the financial position and repayment abilities of respective group companies, Fuyuan Jintai does not have any other significant concentration of credit risk, with exposure spread over a number of counterparties having similar characteristics.

The credit risk on liquid funds is limited because the counterparties are banks with good reputation.

– 207 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

(iii) Liquidity risk

In the management of the liquidity risk, Fuyuan Jintai monitors and maintains a level of cash and cash equivalents deemed adequate by management of Fuyuan Jintai to finance the its operations and mitigate the effects of fluctuations in cash flows.

Fuyuan Jintai relies on advances from group companies as a significant source of liquidity. Details of which are set out in note 16.

At 31 December 2012, Fuyuan Jintai had net current liabilities of RMB235,214,292. As the Company has agreed to provide financial support to Fuyuan Jintai to meet in full its financial obligations as they fall due in the foreseeable future, the directors of Fuyuan Jintai consider the liquidity risk of Fuyuan Jintai is insignificant.

The following tables detail Fuyuan Jintai’s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which Fuyuan Jintai can be required to pay.

Weighted average interest rate % Trade payables — Other payables — Amounts due to shareholders 4.58 Amounts due to fellow subsidiaries 6.00 Weighted average interest rate % Trade payables — Other payables — Amounts due to shareholders 3.96 Amount due to an intermediate holding company — Amounts due to fellow subsidiaries 5.99	On demand or within 1 year RMB 305,382 14,506,751 67,119,267 26,658,743 108,590,143 On demand or within 1 year RMB 1,104,789 1,682,340 227,136,631 6,923,699 89,721,007 326,568,466	More than 1 year and less than 2 years RMB — — — 87,384,166 87,384,166 More than 1 year and less than 2 years RMB — — — — — —	More than 2 years and less than 5 years RMB — — — — — More than 2 years and less than 5 years RMB — — — — — —	Total undiscounted cash flows RMB 305,382 14,506,751 67,119,267 114,042,909 195,974,309 Total undiscounted cash flows RMB 1,104,789 1,682,340 227,136,631 6,923,699 89,721,007 326,568,466	Carrying amount at 31 December 2010 RMB 305,382 14,506,751 67,119,267 108,007,663
					189,939,063
					Carrying amount at 31 December 2011 RMB 1,104,789 1,682,340 227,136,631 6,923,699 88,830,156
					325,677,615

– 208 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

Weighted average interest rate % Trade payables — Other payables — Amounts due to shareholders 5.06 Amount due to an intermediate holding company — Amounts due to fellow subsidiaries 4.74	On demand or within 1 year RMB 3,210,877 5,972,913 222,326,636 5,400,000 16,450,107 253,360,533	More than 1 year and less than 2 years RMB — — — — — —	More than 2 years and less than 5 years RMB — — — — 64,220,724 64,220,724	Total undiscounted cash flows RMB 3,210,877 5,972,913 222,326,636 5,400,000 80,670,831 317,581,257	Carrying amount at 31 December 2012 RMB 3,210,877 5,972,913 222,326,636 5,400,000 71,540,130
					308,450,556

(c) Fair value

The fair value of financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

Management of Fuyuan Jintai considers that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate to their fair values.

6. REVENUE AND SEGMENT INFORMATION

Revenue represents sale of raw coal at invoiced value net of discounts and sales related taxes during the Relevant Periods.

The directors of Fuyuan Jintai, being the chief operating decision makers, assess the performance and allocate the resources of Fuyuan Jintai as a whole because Fuyuan Jintai is mainly engaged in mining. Therefore, the directors of Fuyuan Jintai consider that Fuyuan Jintai only has one operating segment under IFRS 8. In this regard, no segment information is presented.

Geographical information

The operations and assets of Fuyuan Jintai are located in the PRC.

Information about major customers

Revenue from sales of raw coals are substantially contributed from fellow subsidiaries of Fuyuan Jintai. Details of related party transactions are disclosed in note 23(a).

– 209 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

7. FINANCE COSTS

Interest expenses on borrowings wholly repayable within five years: — amount due to a shareholder Imputed interest expense on amounts due to fellow subsidiaries Less: Interest capitalised in construction in progress	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 3,002,330 4,053,982 — 7,056,312	For the year ended 31 December 2011 2012 RMB RMB 5,882,690 9,827,358 5,146,415 2,552,895 (1,145,607) (1,490,582) 9,883,498 10,889,671

8. INCOME TAX EXPENSE

No provision for Hong Kong Profits Tax has been made as Fuyuan Jintai’s income neither arises in, nor is derived from, Hong Kong.

Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of the EIT Law, the tax rate of Fuyuan Jintai is 25% during the Relevant Periods.

The taxation during the Relevant Periods can be reconciled to the profit before tax per statements of comprehensive income as follows:

Profit before tax Tax at applicable tax rate of 25% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Others Income tax expenses for the period/year	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 22,136,283 5,534,071 1,068,657 — — 6,602,728	For the year ended 31 December 2011 2012 RMB RMB 72,453,862 5,594,757 18,113,466 1,398,689 1,303,927 638,224 (966,619) (2,024,496) 1,156,267 1,850,194 19,607,041 1,862,611

– 210 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

9. PROFIT FOR THE PERIOD/YEAR

Profit for the period/year has been arrived at after charging (crediting): Cost of inventories recognised as expense Depreciation and amortisation of property, plant and equipment Provision for restoration costs (note 21) Salaries and other benefits Retirement benefit costs Total staff costs Bank interest income Imputed interest income on amounts due from fellow subsidiaries	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 12,229,357 866,070 54,476 5,420,039 24,003 5,444,042 (4,400) —	For the year ended 31 December 2011 2012 RMB RMB 21,676,572 21,824,230 2,209,385 1,886,324 54,210 29,550 12,091,926 10,197,962 78,695 280,058 12,170,621 10,478,020 (4,530) (13,741) (3,866,475) (8,097,982)	For the year ended 31 December 2011 2012 RMB RMB 21,676,572 21,824,230 2,209,385 1,886,324 54,210 29,550 12,091,926 10,197,962 78,695 280,058 12,170,621 10,478,020 (4,530) (13,741) (3,866,475) (8,097,982)
			10,197,962 280,058
			10,478,020 (13,741) (8,097,982)

10. DIRECTORS’ EMOLUMENTS AND EMPLOYEES’ EMOLUMENTS

Directors’ emoluments

During the Relevant Periods, no fees or other emoluments was paid or payable by Fuyuan Jintai to its directors.

During the Relevant Periods, no remuneration was paid by Fuyuan Jintai to its directors as an inducement to join or upon joining Fuyuan Jintai or as compensation for loss of office. None of the directors has waived any remuneration during the Relevant Periods.

Employees’ emoluments

The five highest paid individuals for the Relevant Periods were as follows:

Salaries and other allowances Contributions to retirement benefit schemes	For the period from 19 January 2010 (date of establishment) to 31 December 2010 RMB 566,453 2,885 569,338	For the year ended 31 December 2011 2012 RMB RMB 714,773 604,420 10,291 2,885 725,064 607,305	For the year ended 31 December 2011 2012 RMB RMB 714,773 604,420 10,291 2,885 725,064 607,305
			607,305

Each of their emoluments were within HK$1,000,000 (approximately RMB800,000).

– 211 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

During the Relevant Periods, no emolument was paid or payable by Fuyuan Jintai to the five highest paid individuals as an inducement to join Fuyuan Jintai as compensation for loss of office.

11. EARNINGS PER SHARE

Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful.

12. PROPERTY, PLANT AND EQUIPMENT

COST At 19 January 2010 (date of establishment) Additions At 31 December 2010 Additions At 31 December 2011 Additions Transfer At 31 December 2012 DEPRECIATION AND AMORTISATION At 19 January 2010 (date of establishment) Provided for the period At 31 December 2010 Provided for the year At 31 December 2011 Provided for the year At 31 December 2012 CARRYING AMOUNTS At 31 December 2010 At 31 December 2011 At 31 December 2012	Buildings RMB — 1,234,031 1,234,031 — 1,234,031 — 66,166 1,300,197 — 30,200 30,200 39,750 69,950 40,582 110,532 1,203,831 1,164,081 1,189,665	Mining structures and mining rights RMB — 184,907,044 184,907,044 2,753,999 187,661,043 17,756,001 37,082,997 242,500,041 — 709,586 709,586 1,810,901 2,520,487 1,211,638 3,732,125 184,197,458 185,140,556 238,767,916	Machinery RMB — 3,153,638 3,153,638 1,969,594 5,123,232 1,896,763 35,886 7,055,881 — 123,727 123,727 340,471 464,198 613,092 1,077,290 3,029,911 4,659,034 5,978,591	Office and electronic equipment RMB — 60,439 60,439 169,347 229,786 — — 229,786 — 2,557 2,557 18,263 20,820 21,012 41,832 57,882 208,966 187,954	Construction in progress RMB — 30,171,869 30,171,869 71,731,979 101,903,848 6,412,063 (37,185,049) 71,130,862 — — — — — — — 30,171,869 101,903,848 71,130,862	Total RMB — 219,527,021
						219,527,021 76,624,919
						296,151,940 26,064,827 —
						322,216,767
						— 866,070
						866,070 2,209,385
						3,075,455 1,886,324
						4,961,779
						218,660,951
						293,076,485
						317,254,988

– 212 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

The following estimated useful lives are used for the depreciation of property, plant and equipment, other than mining structures and mining rights as well as construction in progress:

Buildings 15 to 35 years Machinery 5 to 15 years Office and electronic equipment 5 to 10 years

The mining structures and mining rights include the main and auxiliary mine shafts and underground tunnels. The mining rights have average legal lives of 3 years but in the opinion of the directors of Fuyuan Jintai, Fuyuan Jintai will be able to renew the mining rights without incurring significant costs.

Depreciation and amortisation are provided to write off the cost of the mining structures and mining rights using the units of production method based on the total proven reserves of the coal mine.

The construction in progress comprise mainly the main and auxiliary mine shafts and underground tunnels in the course of construction.

The legal titles of the mining rights have been granted by the relevant government authorities as at 31 December 2010, 31 December 2011 and 31 December 2012.

During the year ended 31 December 2012, the operation in mines of Fuyuan Jintai have been suspended for safety inspection and government deliberations since the occurrence of accidents in the vicinity. At 31 December 2012, the carrying amounts of construction in progress and property, plant and equipment other than construction in progress, in respect of mines which were still suspended are RMB71,130,862 and RMB246,124,126, respectively.

For the purpose of the impairment testing of mining structure and mining rights of the mines being under suspension of production or construction for safety inspection and government deliberations, management of Fuyuan Jintai considers that Fuyuan Jintai will continue to use the relevant assets in the foreseeable future and the recoverable amount of the relevant CGUs are determined on the basis of value in use calculation which is higher than its fair value less costs to sell. Value in use calculation is based on the discount rates of 14.9% and cash flow projections prepared from financial forecasts approved by the directors of Fuyuan Jintai for the next five years, taking into account the best estimates of management of Fuyuan Jintai concerning the likely dates for resumption of mining operations and development. The CGUs cashflows beyond the 5-year period are extrapolated using a zero growth rate until the coal reserves have been mined based on existing production capacities. Other key assumptions for the value in use calculation related to the estimation of cash inflows/outflows which include future coal price and gross margin, such estimation is based on the estimation provided by management of Fuyuan Jintai. Based on the assumptions applied, the recoverable amounts are above its carrying amounts of the relevant CGUs, accordingly, management of Fuyuan Jintai has determined that there is no impairment of the mining structure and mining rights.

13. LOAN RECEIVABLE

At 31 December 2010, amount represented the loan advanced to an entity which was registered and operating in the PRC. The loan carried interest at 8% per annum and would be repayable in 2012. The amount was included in other receivables under current assets at 31 December 2011 and fully paid during the year ended 31 December 2012.

The directors of Fuyuan Jintai are of the opinion that the above entity was independent and not related to Fuyuan Jintai.

– 213 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

14. INVENTORIES

Coal products Auxiliary materials and spare parts	As at 31 December 2010 2011 2012 RMB RMB RMB 159,404 125,967 42,095 3,311,116 2,345,927 796,309 3,470,520 2,471,894 838,404	As at 31 December 2010 2011 2012 RMB RMB RMB 159,404 125,967 42,095 3,311,116 2,345,927 796,309 3,470,520 2,471,894 838,404
		838,404

15. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

At 31 December 2012, included in other receivables, deposits and prepayments in an amount of RMB810,000 prepayment for advisory service to Huaneng, a shareholder of Fuyuan Jintai.

16. AMOUNTS DUE FROM AND TO GROUP COMPANIES

At 31 December 2010, 31 December 2011 and 31 December 2012, except for amounts due from fellow subsidiaries of nil, RMB128,004,042 and RMB136,102,024, respectively, which will be recovered in three year time from initial recognition, amounts due from group companies are expected to be recovered in one year. The effective interest of amounts due from fellow subsidiaries expected to be recovered in three year time is 6.15% per annum. All amounts due from group companies are interest free and unsecured.

Except for amounts due to fellow subsidiaries at 31 December 2010, 31 December 2011 and 31 December 2012 of RMB81,348,900, RMB86,495,315 and RMB55,090,023, respectively, which will be settled in two to three year time from initial recognition, other amounts due to related parties will be settled in one year. In addition, except for amount due to a shareholder of RMB48,290,330, RMB141,967,226 and RMB208,404,346, at 31 December 2010, 31 December 2011 and 31 December 2012, respectively, is interest bearing at 6.372%, 6.336% and 5.4%, respectively, which all amounts due to related parties are interest free. All amounts due to related parties are unsecured. The effective interest of amounts due to fellow subsidiaries expected to be recovered in two to three year time is 6.15% per annum.

There is no credit terms and policies on the trading balances with group companies.

17. BANK BALANCES AND CASH

Bank balances as at 31 December 2010, 31 December 2011 and 31 December 2012 carry interests at market rates range from 0.35% to 0.5% per annum.

18. TRADE PAYABLES

The aged analysis of Fuyuan Jintai’s trade payables based on invoice date at the end of the reporting period is as follows:

0–90 days 91–180 days 181–365 days Over 365 days	As at 31 December 2010 2011 2012 RMB RMB RMB 207,654 822,819 1,465,520 97,728 214,159 1,308,731 — 67,811 436,626 — — — 305,382 1,104,789 3,210,877	As at 31 December 2010 2011 2012 RMB RMB RMB 207,654 822,819 1,465,520 97,728 214,159 1,308,731 — 67,811 436,626 — — — 305,382 1,104,789 3,210,877
		3,210,877

The average credit period on purchases of goods is 90 days.

– 214 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

19. OTHER PAYABLES AND ACCRUED EXPENSES

At 31 December 2010, 31 December 2011 and 31 December 2012, included in other payables and accrued expense is payable for acquisition of property, plant and equipment of RMB8,460,000, RMB1,640,000 and RMB17,676,330; and other tax payables of RMB6,522,415, RMB22,432,645 and RMB4,626,349, respectively.

20. PAID IN CAPITAL

Registered and fully paid at 19 January 2010 (date of establishment), 31 December 2010 and 2011 Capital injection Registered and fully paid at 31 December 2012	RMB 5,000,000 3,196,700
	8,196,700

Fuyuan Jintai was established with registered capital of RMB5,000,000 on 19 January 2010. The registered capital was fully paid at the date of establishment. On 28 August 2012, the total registered capital of Fuyuan Jintai increased from RMB5,000,000 to RMB8,196,700 and Huaneng paid an additional contribution of RMB90,000,000 in September 2012, of which RMB3,196,700 as paid in capital and RMB86,803,300 as capital reserve.

21. PROVISION FOR RESTORATION AND ENVIRONMENTAL COSTS

At 19 January 2010 (date of establishment) Provision for the period At 31 December 2010 Provision for the year At 31 December 2011 Provision for the year At 31 December 2012	RMB — 54,476
	54,476 54,210
	108,686 29,550
	138,236

Mining activities may result in land subsidence and damage to the environment of the mining areas. Pursuant to the relevant PRC regulations, Fuyuan Jintai is required to restore the mining areas back to certain acceptable conditions.

22. CAPITAL RISK MANAGEMENT

Fuyuan Jintai manages its capital to ensure it 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 overall strategy of Fuyuan Jintai remains unchanged throughout the Relevant Periods.

The capital structure of Fuyuan Jintai consists of debts, which include amounts due to group companies as disclosed in note 16, net of cash and cash equivalents and equity attributable to owners of Fuyuan Jintai, comprising paid in capital, reserves and retained profits.

– 215 –

ACCOUNTANT’S REPORT OF FUYUAN JINTAI

APPENDIX IIH

The directors of Fuyuan Jintai review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Fuyuan Jintai will balance its overall capital structure through the payment of dividends as well as the issue of new debt or the redemption of existing debt.

23. RELATED PARTY TRANSACTIONS

During the Relevant Periods, Fuyuan Jintai entered into the following transactions with related parties:

(a) Transactions

Fellow subsidiaries: Purchases Sales A shareholder: Purchases Interest expense Advisory fee paid and payable	2010 RMB — 43,578,458 12,051,171 3,002,330 —	2011 RMB — 98,454,282 7,801,871 5,882,690 —	2012 RMB 1,253,549 36,924,038 — 9,827,358 270,000

(b) Details of the balances with related parties are set out in the statements of financial position and notes 15 and 16.

24. CAPITAL COMMITMENTS

Capital expenditure contracted for but not provided in respect of acquisition of property, plant and equipment	As at 31 December 2010 2011 2012 RMB RMB RMB 4,685,300 4,929,813 3,072,013

B. EVENTS AFTER THE REPORTING PERIOD

Subsequent to the reporting period, the production of Fuyuan Jintai’s mine was resumed.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Fuyuan Jintai have been prepared in respect of any period subsequent to 31 December 2012.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 216 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

The following is the management discussion and analysis of the Target Subsidiaries for each of the financial year ended 31 December 2010, 2011 and 2012.

MANAGEMENT DISCUSSION AND ANALYSIS FOR THE YEAR ENDED 31 DECEMBER 2012

Financial Review

A. Panzhihua Yanjiang

Revenue of Panzhihua Yanjiang was mainly generated from the sales of raw coal to immediate holding company and fellow subsidiaries. Revenue for the year ended 31 December 2012 amounted to approximately RMB103.8 million, representing a decrease of approximately RMB159.0 million or 60.5%, as compared to approximately RMB262.8 million for the year ended 31 December 2011. The decrease was mainly attributable to (i) decrease in sales volume of raw coal from approximately 578,000 tonnes for the corresponding period in 2011 to approximately 295,000 tonnes for the year; and (ii) decrease in average selling price of raw coal from approximately RMB434.3 per tonne for the corresponding period in 2011 to approximately RMB338.1 per tonne for the year.

Cost of sales of Panzhihua Yanjiang mainly represented production costs in relation to the raw coal production in Tianbao Coal Mine, Sichuan province. Cost of sales for the year ended 31 December 2012 amounted to approximately RMB34.8 million, representing a decrease of approximately RMB42.6 million or 55.1%, as compared to approximately RMB77.4 million for the year ended 31 December 2011. The decrease was mainly resulted from the decrease in production volume of raw coal from approximately 588,000 tonnes for the corresponding period in 2011 to approximately 285,000 tonnes for the year.

Other income of Panzhihua Yanjiang mainly consisted of bank interest income and imputed interest income on amount due from immediate holding company and fellow subsidiaries. Other income for the year ended 31 December 2012 amounted to approximately RMB31.2 million, representing an increase of approximately RMB2.8 million, as compared to approximately RMB28.4 million for the year ended 31 December 2011. The increase was due to the increase in imputed interest income on amount due from immediate holding company and fellow subsidiaries as the average outstanding amount increased during the year.

Administrative expenses of Panzhihua Yanjiang mainly comprised of staff costs, legal and professional expenses and bank charges. Administrative expenses for the year ended 31 December 2012 amounted to approximately RMB19.1 million, representing an increase of approximately RMB10.9 million, as compared with approximately RMB8.2 million for the year ended 31 December 2011. The increase was mainly resulted from (i) an increase of approximately RMB5.7 million in staff costs for the year; and (ii) an increase in advisory fee and legal and professional expenses of approximately RMB3.4 million in relation to the Capital Injection of Huaneng Trust during the year.

– 217 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

Finance costs of Panzhihua Yanjiang represented interest expenses on advance drawn on bills receivable discounted without recourse. Finance costs for the year ended 31 December 2012 amounted to approximately RMB15.5 million, representing an increase of approximately RMB2.5 million, as compared with approximately RMB13.0 million for the year ended 31 December 2011. The increase was attributable to the increase in interest expenses in relation to the amount of bills receivable being discounted during the year.

Income tax expenses of Panzhihua Yanjiang represented PRC enterprise income tax payable. Income tax expenses amounted to approximately RMB9.0 million for the year ended 31 December 2012, representing decrease of approximately RMB11.7 million, as compared to approximately RMB20.7 million for the year ended 31 December 2011. The effective tax rate for the year ended 31 December 2012 was 13.8% as compared to 10.8% for the year ended 31 December 2011. The increase was mainly attributable to the (i) tax effect of income not taxable in relation to the imputted interest income on amount due from immediate holding company and fellow subsidiaries and (ii) the tax effect of concessionary tax rate granted.

As a result of the foregoing, the profit for the year ended 31 December 2012 amounted to approximately RMB56.5 million, representing a decrease of approximately RMB115.5 million or 67.1% as compared to approximately RMB172.0 million for the year ended 31 December 2011. The net profit margin was approximately 54.4% for the year as compared to 65.4% in corresponding period in 2011.

B. Yunnan Hidili

Revenue of Yunnan Hidili was mainly generated from the production and sales of clean coal and its by-products. Revenue for the year ended 31 December 2012 amounted to approximately RMB370.7 million, representing a decrease of approximately RMB65.0 million or 14.9%, as compared to approximately RMB435.7 million for the year ended 31 December 2011. The decrease was mainly attributable to (i) decrease in sales volume of clean coal from approximately 356,000 tonnes for the corresponding period in 2011 to approximately 323,000 tonnes for the year; and (ii) decrease in average selling price of clean coal from approximately RMB1,124.2 per tonne for the corresponding period in 2011 to approximately RMB1,036.2 per tonne for the year.

Cost of sales of Yunnan Hidili mainly incorporated production costs in relation to the raw coal production in Yanhe Coal Mine and Hexing Coal Mine, Yunnan province and the corresponding clean coal processing costs. Cost of sales for the year ended 31 December 2012 amounted to approximately RMB307.6 million, representing a decrease of approximately RMB61.8 million or 16.7%, as compared to approximately RMB369.4 million for the year ended 31 December 2011. The decrease was mainly resulted from the decrease in production volume of raw coal from approximately 209,000 tonnes for the corresponding period in 2011 to approximately 116,000 tonnes for the year but partly offset by the purchase costs of raw coal from fellow subsidiaries and outside suppliers for clean coal processing during the year.

– 218 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

Other income of Yunnan Hidili mainly consisted of bank interest income and imputed interest income on amount due from immediate holding company and fellow subsidiaries. Other income for the year ended 31 December 2012 amounted to approximately RMB29.4 million, maintaining at similar level, as compared to approximately RMB29.5 million for the year ended 31 December 2011.

Administrative expenses of Yunnan Hidili mainly comprised of staff costs, legal and professional expenses and bank charges. Administrative expenses for the year ended 31 December 2012 amounted to approximately RMB37.2 million, representing an increase of approximately RMB14.7 million, as compared with approximately RMB22.5 million for the year ended 31 December 2011. The increase was mainly resulted from (i) an increase of approximately RMB8.6 million in bank charges for arrangement bank facilities; and (ii) an increase in advisory fee and legal and professional expenses of approximately RMB2.4 million in relation to the Capital Injection of Huaneng Trust during the year.

Finance costs of Yunnan Hidili represented interest expenses on bank borrowings, amount due to immediate holding company, intermediate holding companies and fellow subsidiaries. Finance costs for the year ended 31 December 2012 amounted to approximately RMB34.5 million, representing an increase of approximately RMB10.2 million, as compared with approximately RMB24.3 million for the year ended 31 December 2011. The increase was attributable to the increase of approximately RMB18.1 million in interest expenses on amount due to immediate holding company intermediate holding companies and fellow subsidiaries of which approximately RMB8.1 million was capitalised.

Income tax expenses of Yunnan Hidili represented PRC enterprise income tax payable. Income tax expenses amounted to approximately RMB1.3 million for the year ended 31 December 2012, representing decrease of approximately RMB13.6 million, as compared to approximately RMB14.9 million for the year ended 31 December 2011. The effective tax rate for the year ended 31 December 2012 was 6.3%, as compared with 30.3% for the year ended 31 December 2011. The decrease was mainly attributable to (i) the tax effect of expenses not deductible for tax purpose in relation of the interest expense on amount due to immediate holding company, intermediate holding companies and fellow subsidiaries; (ii) the tax effect of income not taxable in relation to the imputted interest income on amount due from fellow subsidiaries and intermediate holding company; and (iii) the utilization of tax losses previously not recognised.

As a result of the foregoing, the profit for the year ended 31 December 2012 amounted to approximately RMB18.7 million, representing a decrease of approximately RMB15.4 million or 45.3% as compared to approximately RMB34.1 million for the year ended 31 December 2011. The net profit margin was approximately 5.0% for the year as compared to 7.8% in corresponding period in 2011.

C. Fuyuan Kunyuan

Revenue of Fuyuan Kunyuan was mainly generated from the sales of raw coal to fellow subsidiaries. Revenue for the year ended 31 December 2012 amounted to approximately RMB16.8 million, representing a decrease of approximately RMB11.0 million or 39.5%, as

– 219 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

compared to approximately RMB27.8 million for the year ended 31 December 2011. The decrease was mainly attributable to the decrease in sales volume of raw coal from approximately 69,000 tonnes for the corresponding period in 2011 to approximately 30,000 tonnes for the year but partly offset by the increase in average selling price of raw coal from approximately RMB406.4 per tonne for the corresponding period in 2011 to approximately RMB553.3 per tonne for the year.

Cost of sales of Fuyuan Kunyuan mainly represented production costs in relation to the raw coal production in Jianglang Coal Mine, Yunnan province. Cost of sales for the year ended 31 December 2012 amounted to approximately RMB13.6 million, representing an increase of approximately RMB4.4 million or 47.3%, as compared to approximately RMB9.2 million for the year ended 31 December 2011. The increase was mainly resulted from the increase in raw materials usage of approximately RMB3.8 million in relation to the maintenance costs of the coal mine although the production volume of raw coal dropped from approximately 74,000 tonnes for the corresponding period in 2011 to 51,000 tonnes for the year.

Other income of Fuyuan Kunyuan mainly consisted of bank interest income. Other income for the year ended 31 December 2012 amounted to approximately RMB41,900, representing an increase of approximately RMB37,300, as compared to approximately RMB4,600 for the year ended 31 December 2011. The increase was due to the increase in bank interest income of approximately RMB26,800 during the year.

Administrative expenses of Fuyuan Kunyuan mainly comprised of staff costs, legal and professional expenses and bank charges. Administrative expenses for the year ended 31 December 2012 amounted to approximately RMB5.5 million, representing an increase of approximately RMB2.8 million, as compared with approximately RMB2.7 million for the year ended 31 December 2011. The increase was mainly resulted from (i) an increase of approximately RMB0.9 million in insurance expenses; and (ii) an increase in advisory fee and legal and professional expenses of approximately RMB2.0 million in relation to the Capital Injection of Huaneng Trust during the year.

Finance costs of Fuyuan Kunyuan represented imputed interest expenses on amount due to an immediate holding company less interest capitalized in construction in progress. Finance costs for the year ended 31 December 2012 amounted to approximately RMB7.0 million, representing an increase of approximately RMB5.1 million, as compared with approximately RMB1.9 million for the year ended 31 December 2011. The increase was attributable to the increase in imputed interest expenses on amount due to an immediate holding company since the average outstanding amount increased during the year.

Income tax expenses of Fuyuan Kunyuan represented PRC enterprise income tax payable. Income tax expenses amounted to nil for the year ended 31 December 2012 as Fuyuan Kunyuan suffered loss for the year.

As a result of the foregoing, the loss for the year ended 31 December 2012 amounted to approximately RMB9.2 million, representing a decrease of approximately RMB23.1 million or 166.5% as compared to profit of approximately RMB13.9 million for the year ended 31 December 2011.

– 220 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

D. Fuyuan Xiangda

Revenue of Fuyuan Xiangda was mainly generated from the production and sales of clean coal and its by-products. Revenue for the year ended 31 December 2012 amounted to approximately RMB48.8 million, representing a decrease of approximately RMB15.5 million or 24.0%, as compared to approximately RMB64.3 million for the year ended 31 December 2011. The decrease was mainly attributable to the decrease in sales volume of clean coal from approximately 51,000 tonnes for the corresponding period in 2011 to approximately 38,000 tonnes for the year but partly offset by the increase in average selling price of clean coal from approximately RMB984.2 per tonne for corresponding period of 2011 to approximately RMB1,021.5 per tonne for the year.

Cost of sales of Fuyuan Xiangda mainly represented production costs in relation to the raw coal production in Xiangda No. 1 Coal Mine, Yunnan province and the corresponding clean coal processing costs. Cost of sales for the year ended 31 December 2012 amounted to approximately RMB21.4 million, representing a decrease of approximately RMB1.6 million or 7.1%, as compared to approximately RMB23.0 million for the year ended 31 December 2011. The decrease was mainly resulted from the decrease in production volume of raw coal from approximately 151,000 tonnes for the corresponding period in 2011 to approximately 137,000 tonnes for the year. However, the decrease in production cost was offset by (i) an increase in power cost of approximately RMB2.0 million; and (ii) an increase in depreciation and amortization of approximately RMB3.4 million.

Other income of Fuyuan Xiangda mainly consisted of bank interest income and imputed interest income on amount due from fellow subsidiaries. Other income for the year ended 31 December 2012 amounted to approximately RMB3.1 million, representing an increase of approximately RMB2.9 million, as compared to approximately RMB0.1 million for the year ended 31 December 2011. The increase was due to the increase in imputed interest income on amount due from fellow subsidiaries as the average outstanding amount increased during the year.

Administrative expenses of Fuyuan Xiangda mainly comprised of staff costs, legal and professional expenses and bank charges. Administrative expenses for the year ended 31 December 2012 amounted to approximately RMB8.3 million, representing a decrease of approximately RMB0.3 million, as compared with approximately RMB8.6 million for the year ended 31 December 2011. The decrease was mainly resulted from a decrease of approximately RMB2.2 million in depreciation and amortization expenses but offset by (i) increase in other taxes of approximately RMB0.8 million; and (ii) an increase in advisory fee and legal and professional expenses of approximately RMB1.0 million in relation to the Capital Injection of Huaneng Trust during the year.

Finance costs of Fuyuan Xiangda represented interest expenses on amount due to an intermediate holding company and fellow subsidiaries less interest capitalized in construction in progress. Finance costs for the year ended 31 December 2012 amounted to approximately RMB12.9 million, representing an increase of approximately RMB8.1 million, as compared with approximately RMB4.8 million for the year ended 31 December 2011. The increase was

– 221 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

attributable to the increase in interest expenses on amount due to an intermediate holding company and fellow subsidiaries of approximate RMB9.9 million but offset by the increase in interest capitalized of approximately RMB1.8 million during the year.

Income tax expenses of Fuyuan Xiangda represented PRC enterprise income tax payable. Income tax expenses amounted to approximately RMB4.9 million for the year ended 31 December 2012, representing decrease of approximately RMB3.9 million, as compared to approximately RMB8.8 million for the year ended 31 December 2011. The effective tax rate for the year ended 31 December 2012 was 52.4% as compared with 31.6% for the year ended 31 December 2011. The increase was mainly attributable to (i) tax effect of expenses not deductible for tax purpose in relation to interest expenses on amounts due to an intermediate holding company and fellow subsidiaries; and (ii) tax effect of income not taxable in relation to the imputed interest income on amounts due from fellow subsidiaries.

As a result of the foregoing, the profit for the year ended 31 December 2012 amounted to approximately RMB4.5 million, representing a decrease of approximately RMB14.6 million or 76.6% as compared to approximately RMB19.1 million for the year ended 31 December 2011. The net profit margin was approximately 9.1% for the year as compared to 29.7% in corresponding period in 2011.

E. Yunnan Henglong

Revenue of Yunnan Henglong was mainly generated from the sales of raw coal to fellow subsidiaries. Revenue for the year ended 31 December 2012 amounted to approximately RMB34.3 million, representing a slight decrease of approximately RMB1.0 million or 3.0%, as compared to approximately RMB35.3 million for the year ended 31 December 2011. The decrease was mainly attributable to the decrease in sales volume of raw coal from approximately 88,000 tonnes for the corresponding period in 2011 to approximately 52,000 tonnes for the year but partly offset by the increase in average selling price of raw coal from approximately RMB402.4 per tonne for the corresponding period in 2011 to approximately RMB654.9 per tonne for the year.

Cost of sales of Yunnan Henglong mainly represented production costs in relation to the raw coal production in Zude Coal Mine, Yunnan province. Cost of sales for the year ended 31 December 2012 amounted to approximately RMB18.3 million, representing an increase of approximately RMB4.8 million or 35.2%, as compared to approximately RMB13.5 million for the year ended 31 December 2011. The increase was mainly resulted from the increase in production volume of raw coal from approximately 75,000 tonnes for the corresponding period in 2011 to approximately 92,000 tonnes for the year.

Other income of Yunnan Henglong mainly consisted of interest income from loan receivable and imputed interest income on amount due from fellow subsidiaries. Other income for the year ended 31 December 2012 amounted to approximately RMB8.6 million, representing an increase of approximately RMB4.1 million, as compared to approximately RMB4.5 million for the year ended 31 December 2011. The increase was due to the increase in imputed interest income on amount due from fellow subsidiaries as the average outstanding amount increased during the year.

– 222 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

Administrative expenses of Yunnan Henglong mainly comprised of staff costs, legal and professional expenses and bank charges. Administrative expenses for the year ended 31 December 2012 amounted to approximately RMB8.5 million, representing an increase of approximately RMB5.4 million, as compared with approximately RMB3.1 million for the year ended 31 December 2011. The increase was mainly resulted from (i) an increase of approximately RMB3.3 million in staff costs for the year; and (ii) an increase in advisory fee and legal and professional expenses of approximately RMB1.2 million in relation to the Capital Injection of Huaneng Trust during the year.

Finance costs of Yunnan Henglong represented imputed interest expenses on amount due to a shareholder and fellow subsidiaries less interest capitalized in construction in progress. Finance costs for the year ended 31 December 2012 amounted to approximately RMB29.4 million, representing an increase of approximately RMB11.0 million, as compared with approximately RMB18.4 million for the year ended 31 December 2011. The increase was attributable to the increase in imputed interest expenses on amount due to a shareholder and fellow subsidiaries of approximate RMB13.2 million but offset by the increase in interest capitalized of approximately RMB2.3 million during the year.

Income tax expenses of Yunnan Henglong represented PRC enterprise income tax payable. Income tax expenses amounted to approximately RMB2.4 million for the year ended 31 December 2012, representing decrease of approximately RMB2.8 million, as compared to approximately RMB5.2 million for the year ended 31 December 2011. Although Yunnan Henglong suffered loss before taxation of approximately RMB13.3 million for the year, the effective tax rate for the year ended 31 December 2012 was estimated at 25.2% after adjusted for (i) the imputed interest income on amount due from fellow subsidiaries of approximately RMB6.8 million which was considered to be not taxable, and (ii) the finance costs in related to interest payable to a shareholder and fellow subsidiaries but deducted interest capitalized in construction in progress of approximately RMB29.4 million which were considered to be not deductible for tax purpose.

As a result of the foregoing, the loss for the year ended 31 December 2012 amounted to approximately RMB15.6 million, representing a decrease of approximately RMB15.2 million or 4,111.5% as compared to loss of approximately RMB0.4 million for the year ended 31 December 2011.

F. Fuyuan Dahe

Revenue of Fuyuan Dahe was mainly generated from the sales of raw coal to fellow subsidiaries. Revenue for the year ended 31 December 2012 amounted to approximately RMB96.6 million, representing a decrease of approximately RMB53.5 million or 35.6%, as compared to approximately RMB150.1 million for the year ended 31 December 2011. The decrease was mainly attributable to (i) decrease in sales volume of raw coal from approximately 313,000 tonnes for the corresponding period in 2011 to approximately 212,000 tonnes for the year; and (ii) decrease in average selling price of raw coal from approximately RMB479.6 per tonne for the corresponding period in 2011 to approximately RMB453.0 per tonne for the year.

– 223 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

Cost of sales of Fuyuan Dahe mainly represented production costs in relation to the raw coal production in Qingping Coal Mine, Yunnan province. Cost of sales for the year ended 31 December 2012 amounted to approximately RMB37.0 million, representing an increase of approximately RMB0.7 million or 1.9%, as compared to approximately RMB36.3 million for the year ended 31 December 2011. The increase was mainly resulted from the increase in purchase costs of raw coal from outside suppliers but partly offset by the decrease in production volume of raw coal from approximately 169,000 tonnes for the corresponding period in 2011 to approximately 132,000 tonnes for the year.

Other income of Fuyuan Dahe mainly consisted of bank interest income and imputed interest income on amount due from fellow subsidiaries. Other income for the year ended 31 December 2012 amounted to approximately RMB8.2 million, representing an increase of approximately RMB5.3 million, as compared to approximately RMB2.9 million for the year ended 31 December 2011. The increase was mainly due to the increase in imputed interest income on amount due from fellow subsidiaries as the average outstanding amount increased during the year.

Administrative expenses of Fuyuan Dahe mainly comprised of staff costs, legal and professional expenses and bank charges. Administrative expenses for the year ended 31 December 2012 amounted to approximately RMB10.3 million, maintaining as similar level, as compared with approximately RMB9.8 million for the year ended 31 December 2011. During the year, an increase in advisory fee and legal and professional expenses of approximately RMB1.5 million in relation to the Capital Injection of Huaneng Trust was offset by the decrease in donation of RMB2 million incurred in 2011.

Finance costs of Fuyuan Dahe represented interest expenses on amount due to intermediate holding company less interest capitalized in construction in progress. Finance costs for the year ended 31 December 2012 amounted to approximately RMB0.2 million, representing an increase of 100%, as compared with nil for the year ended 31 December 2011. The increase was attributable to the increase in interest expenses on amount due to an intermediate holding company but partly offset by the increase in interest capitalized during the year.

Income tax expenses of Fuyuan Dahe represented PRC enterprise income tax payable. Income tax expenses amounted to approximately RMB12.5 million for the year ended 31 December 2012, representing decrease of approximately RMB13.6 million, as compared to approximately RMB26.1 million for the year ended 31 December 2011. The effective tax rate for the year ended 31 December 2012 was 21.8% as compared to 24.5% for the year ended 31 December 2011. The decrease was mainly attributable to (i) tax effect of expenses not deductible for tax purpose in relation to the interest expense in amount due to an intermediate holding company; and (ii) tax effect of income not taxable in relation to the imputted interest income on amount due to fellow subsidiaries.

– 224 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

As a result of the foregoing, the profit for the year ended 31 December 2012 amounted to approximately RMB44.8 million, representing a decrease of approximately RMB35.9 million or 44.4% as compared to approximately RMB80.7 million for the year ended 31 December 2011. The net profit margin was approximately 46.4% for the year as compared to 53.8% in corresponding period in 2011.

G. Fuyuan Tonghe

Revenue of Fuyuan Tonghe was mainly generated from the sales of raw coal to fellow subsidiaries. Revenue for the year ended 31 December 2012 amounted to approximately RMB43.2 million, representing a decrease of approximately RMB12.8 million or 22.8%, as compared to approximately RMB56.0 million for the year ended 31 December 2011. The decrease was mainly attributable to decrease in average selling price of raw coal from approximately RMB473.7 per tonne for the corresponding period in 2011 to approximately RMB317.0 per tonne for the year but partly offset by the increase in sales volume of raw coal from approximately 118,000 tonnes for the corresponding period in 2011 to approximately 136,000 tonnes for the year.

Cost of sales of Fuyuan Tonghe mainly represented production costs in relation to the raw coal production in Xingjian Coal Mine, Yunnan province. Cost of sales for the year ended 31 December 2012 amounted to approximately RMB20.8 million, representing a decrease of approximately RMB4.6 million or 18.2%, as compared to approximately RMB25.4 million for the year ended 31 December 2011. The decrease was mainly resulted from the decrease in production volume of raw coal from approximately 147,000 tonnes for the corresponding period in 2011 to approximately 117,000 tonnes for the year.

Other income of Fuyuan Tonghe mainly consisted of interest income from bank deposits and imputed interest income on amount due from fellow subsidiaries. Other income for the year ended 31 December 2012 amounted to approximately RMB6.5 million, representing an increase of approximately RMB4.0 million, as compared to approximately RMB2.5 million for the year ended 31 December 2011. The increase was due to the increase in imputed interest income on amount due from fellow subsidiaries as the average outstanding amount increased during the year.

Administrative expenses of Fuyuan Tonghe mainly comprised of staff costs, legal and professional expenses and bank charges. Administrative expenses for the year ended 31 December 2012 amounted to approximately RMB9.2 million, representing an increase of approximately RMB3.7 million, as compared with approximately RMB5.5 million for the year ended 31 December 2011. The increase was mainly resulted from (i) an increase of approximately RMB1.9 million in donation for the year; and (ii) an increase in advisory fee and legal and professional expenses of approximately RMB1.2 million in relation to the Capital Injection of Huaneng Trust during the year.

Finance costs of Fuyuan Tonghe represented imputed interest expenses on amount due to an intermediate holding company less interest capitalized in construction in progress. Finance costs for the year ended 31 December 2012 amounted to approximately RMB11.0 million, representing an increase of approximately RMB4.7 million, as compared with approximately

– 225 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

RMB6.3 million for the year ended 31 December 2011. The increase was attributable to the increase in imputed interest expenses on amount due to an intermediate holding company of approximate RMB7.2 million but offset by the increase in interest capitalized of approximately RMB2.5 million during the year.

Income tax expenses of Fuyuan Tonghe represented PRC enterprise income tax payable. Income tax expenses amounted to approximately RMB3.3 million for the year ended 31 December 2012, representing increase of approximately RMB3.0 million, as compared to approximately RMB0.3 million for the year ended 31 December 2011. The effective tax rate for the year ended 31 December 2012 was 38.2% as compared to 1.5% for the year ended 31 December 2011. The increase was mainly attributable to the tax effect of expenses not deductible for tax purpose in relation to the interest expense on amount due to an intermediate holding company.

As a result of the foregoing, the profit for the year ended 31 December 2012 amounted to approximately RMB5.4 million, representing a decrease of approximately RMB15.6 million or 74.4% as compared to approximately RMB21.0 million for the year ended 31 December 2011. The net profit margin was approximately 12.4% for the year as compared to 37.5% in corresponding period in 2011.

H. Fuyuan Jintai

Revenue of Fuyuan Jintai was mainly generated from the sales of raw coal to fellow subsidiaries. Revenue for the year ended 31 December 2012 amounted to approximately RMB36.9 million, representing a decrease of approximately RMB65.6 million or 64.0%, as compared to approximately RMB102.5 million for the year ended 31 December 2011. The decrease was mainly attributable to the decrease in sales volume of raw coal from approximately 283,000 tonnes for the corresponding period in 2011 to approximately 100,000 tonnes for the year but partly offset by the increase in average selling price of raw coal from approximately RMB361.9 per tonne for the corresponding period in 2011 to approximately RMB368.3 per tonne for the year.

Cost of sales of Fuyuan Jintai mainly represented production costs in relation to the raw coal production in Xingji Coal Mine, Yunnan province. Cost of sales for the year ended 31 December 2012 amounted to approximately RMB21.8 million, maintaining at similar level, as compared to approximately RMB21.7 million for the year ended 31 December 2011. During the year, an increase in government levies of approximately RMB6.9 million was absorbed by Fuyuan Jintai. However, such costs were partly offset by the decrease in production volume of raw coal from approximately 210,000 tonnes for the corresponding period in 2011 to approximately 115,000 tonnes for the year.

Other income of Fuyuan Jintai mainly consisted of bank interest income and imputed interest income on amount due from fellow subsidiaries. Other income for the year ended 31 December 2012 amounted to approximately RMB8.3 million, representing an increase of approximately RMB4.2 million, as compared to approximately RMB4.1 million for the year

– 226 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

ended 31 December 2011. The increase was due to the increase in imputed interest income on amount due from fellow subsidiaries as the average outstanding amount increased during the year.

Administrative expenses of Fuyuan Jintai mainly comprised of staff costs, legal and professional expenses and bank charges. Administrative expenses for the year ended 31 December 2012 amounted to approximately RMB6.9 million, representing an increase of approximately RMB4.4 million, as compared with approximately RMB2.5 million for the year ended 31 December 2011. The increase was mainly resulted from (i) an increase of approximately RMB2.4 million in staff costs for the year; and (ii) an increase in advisory fee and legal and professional expenses of approximately RMB1.2 million in relation to the Capital Injection of Huaneng Trust during the year.

Finance costs of Fuyuan Jintai represented imputed interest expenses on amount due to a shareholder and fellow subsidiaries less interest capitalized in construction in progress. Finance costs for the year ended 31 December 2012 amounted to approximately RMB10.9 million, maintaining at similar level, as compared with approximately RMB9.9 million for the year ended 31 December 2011.

Income tax expenses of Fuyuan Jintai represented PRC enterprise income tax payable. Income tax expenses amounted to approximately RMB1.9 million for the year ended 31 December 2012, representing decrease of approximately RMB17.7 million, as compared to approximately RMB19.6 million for the year ended 31 December 2011. The effective tax rate for the year ended 31 December 2012 was 33.3% as compared to 27.1% for the year ended 31 December 2011. The increase was mainly attributable to the tax effect of income not taxable for tax purpose in relation to the imputted interest income on amount due to fellow subsidiaries.

As a result of the foregoing, the profit for the year ended 31 December 2012 amounted to approximately RMB3.7 million, representing a decrease of approximately RMB49.1 million or 92.9% as compared to approximately RMB52.8 million for the year ended 31 December 2011. The net profit margin was approximately 10.1% for the year as compared to 51.6% in corresponding period in 2011.

Liquidity, Financial Resources and Capital Structure

The Target Subsidiaries mainly financed their respective mining and coal washing activities and capital expenditures through advances from fellow subsidiaries, immediate holding company and intermediate holding companies.

As at 31 December 2012, the combined bank balances and cash of the Target Subsidiaries amounted to approximately RMB65.6 million (2011: RMB46.7 million).

The Target Subsidiaries had no bank borrowings as at 31 December 2012. The combined amounts due to fellow subsidiaries, immediate holding company and intermediate holding companies amounted to approximately RMB1,713.7 million, RMB15.2 million and

– 227 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

RMB1,018.5 million respectively (2011: RMB1,896.0 million, RMB16.5 million and RMB1,281.0 million respectively), of which RMB1,519.3 million (2011: RMB2,200.4 million) was repayable within one year. Interest was charged at a range of 6.15% to 8.275% per annum.

The gearing ratio (calculate as the aggregate of bank borrowings, amounts due to fellow subsidiaries, immediate holding company and intermediate holding companies divided by total assets) of the Target Subsidiaries as at 31 December 2012 was 38.9% (2011: 54.1%).

Pledge of Assets

As at 31 December 2012, the Target Subsidiaries did not have any charge on their assets.

Employees

As at 31 December 2012, the Target Subsidiaries maintained an aggregate of approximately 3,850 employees as compared with approximately 4,580 employees at 31 December 2011.

During the year ended 31 December 2012, the aggregate staff cost of the Target Subsidiaries was approximately RMB102.6 million, representing a slight decrease of approximately RMB6.1 million, as compared to approximately RMB108.7 million for the year ended 31 December 2011.

The salary and bonus policy of the Target Subsidiaries is principally determined by the performance and working experience of the individual employee and with reference to prevailing market conditions.

Risk in Foreign Exchange

Since all of the Target Subsidiaries’ business activities are transacted in RMB, the Directors consider that the Target Subsidiaries’ risk in foreign exchange is insignificant.

Significant Investment Held

During the year ended 31 December 2012, there was no significant investment held by the Target Subsidiaries.

Material Acquisition and Disposal

During the year ended 31 December 2012, there was no material acquisition and disposal of subsidiaries and associated companies by the Target Subsidiaries.

Contingent Liabilities

The Target Subsidiaries did not have any material contingent liabilities as at 31 December 2012.

– 228 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

Connected Transactions

During the year, the advisory fee paid and payable by the Target Subsidiaries to Huaneng Trust amounted to approximately RMB5.0 million (2011: nil) pursuant to the Consulting Service Agreements.

MANAGEMENT DISCUSSION AND ANALYSIS FOR THE YEAR ENDED 31 DECEMBER 2011

Financial Review

A. Panzhihua Yanjiang

Revenue for the year ended 31 December 2011 amounted to approximately RMB262.8 million, representing an increase of approximately RMB134.4 million or 104.6%, as compared to approximately RMB128.4 million for the year ended 31 December 2010. The increase was mainly attributable to (i) increase in sales volume of raw coal from approximately 363,000 tonnes for the corresponding period in 2010 to approximately 578,000 tonnes for the year; and (ii) increase in average selling price of raw coal from approximately RMB349.8 per tonne for the corresponding period in 2010 to approximately RMB434.3 per tonne for the year.

Cost of sales for the year ended 31 December 2011 amounted to approximately RMB77.4 million, representing an increase of approximately RMB21.9 million or 39.4%, as compared to approximately RMB55.5 million for the year ended 31 December 2010. The increase was mainly resulted from the increase in production volume of raw coal from approximately 363,000 tonnes for the corresponding period in 2010 to approximately 588,000 tonnes for the year.

Other income for the year ended 31 December 2011 amounted to approximately RMB28.4 million, representing a slight increase of approximately RMB1.3 million, as compared to approximately RMB27.1 million for the year ended 31 December 2010. The increase was due to the increase in imputed interest income on amount due from immediate holding company and fellow subsidiaries as the average outstanding amount increased during the year.

Administrative expenses for the year ended 31 December 2011 amounted to approximately RMB8.2 million, representing an increase of approximately RMB1.6 million, as compared with approximately RMB6.6 million for the year ended 31 December 2010. The increase was mainly resulted from an increase of approximately RMB1.4 million in staff costs for the year.

Finance costs for the year ended 31 December 2011 amounted to approximately RMB13.0 million, representing an increase of approximately RMB11.1 million, as compared with approximately RMB1.9 million for the year ended 31 December 2010. The increase was attributable to the decrease in interest expense on advance drawn on bills receivable discounted without recourse.

– 229 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

Income tax expenses amounted to approximately RMB20.7 million for the year ended 31 December 2011, representing an increase of approximately RMB15.5 million, as compared to approximately RMB5.2 million for the year ended 31 December 2010. The effective tax rate for the year ended 31 December 2011 was 10.8% as compared to 5.7% for the year ended 31 December 2010. The decrease was mainly attributable to the tax effect of concessionary tax rate granted.

As a result of the foregoing, the profit for the year ended 31 December 2011 amounted to approximately RMB172.0 million, representing an increase of approximately RMB85.7 million or 99.2% as compared to approximately RMB86.3 million for the year ended 31 December 2010. The net profit margin was approximately 65.4% for the year as compared to 67.2% in corresponding period in 2010.

B. Yunnan Hidili

Revenue for the year ended 31 December 2011 amounted to approximately RMB435.7 million, representing an increase of approximately RMB129.6 million or 42.3%, as compared to approximately RMB306.1 million for the year ended 31 December 2010. The increase was mainly attributable to (i) increase in sales volume of clean coal and thermal coal from approximately 287,000 tonnes and 102,000 tonnes respectively for the corresponding period in 2010 to approximately 356,000 tonnes and 137,000 tonnes respectively for the year; and (ii) increase in average selling price of clean coal and thermal coal from approximately RMB1,002.1 per tonne and RMB163.6 per tonne respectively for the corresponding period in 2010 to approximately RMB1,124.2 per tonne and RMB226.7 per tonne respectively for the year.

Cost of sales for the year ended 31 December 2011 amounted to approximately RMB369.4 million, representing an increase of approximately RMB121.4 million or 49.0%, as compared to approximately RMB248.0 million for the year ended 31 December 2010. The increase was mainly resulted from (i) the increase in production volume of raw coal from approximately 168,000 tonnes for the corresponding period in 2010 to approximately 209,000 tonnes for the year; and (ii) the increase in purchase costs of raw coal for clean coal processing from fellow subsidiaries.

Other income for the year ended 31 December 2011 amounted to approximately RMB29.5 million, representing an increase of approximately RMB14.5 million, as compared to approximately RMB15.0 million for the year ended 31 December 2010. The increase was due to the increase in imputed interest income on amount due from fellow subsidiaries as the average outstanding amount increased during the year.

Administrative expenses for the year ended 31 December 2011 amounted to approximately RMB22.5 million, representing a decrease of approximately RMB1.2 million, as compared with approximately RMB23.7 million for the year ended 31 December 2010. The decrease was mainly resulted from the increase of approximately RMB2.1 million in staff costs but totally offset by the decrease in loss on disposal of property, plant and equipment of approximately RMB3.6 million incurred in the year ended 31 December 2010.

– 230 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

Finance costs for the year ended 31 December 2011 amounted to approximately RMB24.3 million, representing a decrease of approximately RMB13.4 million, as compared with approximately RMB37.7 million for the year ended 31 December 2010. The decrease was attributable to (i) the decrease in interest income on bank borrowings of approximately RMB6.0 million and (ii) the increase in interest capitalized in construction in progress of approximately RMB9.8 million but partly offset by the increase in interest expenses payable to holding companies and fellow subsidiaries of approximately RMB2.9 million.

Income tax expenses amounted to approximately RMB14.9 million for the year ended 31 December 2011, representing an increase of approximately RMB11.6 million, as compared to approximately RMB3.3 million for the year ended 31 December 2010. The effective tax rate for the year ended 31 December 2011 was 30.3% as compared to 28.3% for the year ended 31 December 2010.

As a result of the foregoing, the profit for the year ended 31 December 2011 amounted to approximately RMB34.1 million, representing an increase of approximately RMB25.7 million or 304.7% as compared to approximately RMB8.4 million for the year ended 31 December 2010. The net profit margin was approximately 7.8% for the year as compared to 2.8% in corresponding period in 2010.

C. Fuyuan Kunyuan

Revenue for the year ended 31 December 2011 amounted to approximately RMB27.8 million, representing a decrease of approximately RMB10.8 million or 27.9%, as compared to approximately RMB38.6 million for the period from 19 January 2010 to 31 December 2010. The decrease was mainly attributable to both the decrease in sales volume of raw coal from approximately 80,000 tonnes for the period from 19 January 2010 to 31 December 2010 to approximately 69,000 tonnes for the year and average selling price of raw coal from approximately RMB485.5 per tonne for the period from 19 January 2010 to 31 December 2010 to approximately RMB406.4 per tonne for the year respectively.

Cost of sales for the year ended 31 December 2011 amounted to approximately RMB9.2 million, representing a decrease of approximately RMB2.6 million or 21.8%, as compared to approximately RMB11.8 million for the period from 19 January 2010 to 31 December 2010. The decrease was mainly resulted from the decrease in transportation expenses of approximately RMB2.5 million. The production volume of raw coal remained at similar level of approximately 74,000 tonnes for the year.

Other income for the year ended 31 December 2011 amounted to approximately RMB4,600, representing an increase of approximately RMB3,100, as compared to approximately RMB1,500 for the period from 19 January 2010 to 31 December 2010. The increase was due to the increase in bank interest income of approximately RMB1,400 during the year.

Administrative expenses for the year ended 31 December 2011 amounted to approximately RMB2.7 million, maintaining at similar level of approximately RMB2.5 million for the period from 19 January 2010 to 31 December 2010.

– 231 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

Finance costs for the year ended 31 December 2011 amounted to approximately RMB1.9 million, representing an increase of approximately RMB1.7 million, as compared with approximately RMB0.2 million for the period from 19 January 2010 to 31 December 2010. The increase was attributable to the increase in imputed interest expenses on amount due to an immediate holding company since the average outstanding amount increased during the year.

Income tax expenses amounted to approximately RMB0.1 million for the year ended 31 December 2011, representing a decrease of approximately RMB5.9 million, as compared to approximately RMB6.0 million for the period from 19 January 2010 to 31 December 2010. The effective tax rate for the year ended 31 December 2011 was 0.9% as compared to 25.1% for the period from 19 January 2010 to 31 December 2010. The decrease was mainly attributable to the utilization of tax loss in previous year.

As a result of the foregoing, the profit for the year ended 31 December 2011 amounted to approximately RMB13.9 million, representing a decrease of approximately RMB4.2 million or 23.2% as compared to approximately RMB18.1 million for the period from 19 January 2010 to 31 December 2010. The net profit margin was approximately 49.8% for the year as compared to 46.8% for the period from 19 January 2010 to 31 December 2010.

D. Fuyuan Xiangda

Revenue for the year ended 31 December 2011 amounted to approximately RMB64.3 million, representing a decrease of approximately RMB11.2 million or 14.9%, as compared to approximately RMB75.5 million for the year ended 31 December 2010. The decrease was mainly attributable to (i) sharp decrease in sales volume of raw coal from approximately 188,000 tonnes in the corresponding period in 2010 to approximately 30,000 tonnes for the year; and (ii) decrease in average selling price of raw coal from approximately RMB402.6 per tonne for the corresponding period in 2010 to approximately RMB301.3 per tonne for the year but partly compensated by the increase in sales of approximately 51,000 tonnes and 11,000 tonnes of clean coal and thermal coal respectively at average selling prices of approximately RMB984.2 per tonne and RMB421.7 per tonnes respectively.

Cost of sales for the year ended 31 December 2011 amounted to approximately RMB23.0 million, representing a decrease of approximately RMB17.6 million or 43.4%, as compared to approximately RMB40.6 million for the year ended 31 December 2010. The decrease was mainly resulted from the decrease in production volume of raw coal from approximately 195,000 tonnes for the corresponding period in 2010 to 151,000 tonnes for the year.

Other income for the year ended 31 December 2011 amounted to approximately RMB15,000, representing a decrease of approximately RMB35,000, as compared to approximately RMB50,000 for the year ended 31 December 2010. The decrease was due to the decrease in bank interest income as the average deposit decreased during the year.

Administrative expenses for the year ended 31 December 2011 amounted to approximately RMB8.6 million, representing an increase of approximately RMB1.2 million, as compared with approximately RMB7.4 million for the year ended 31 December 2010. The increase was mainly

– 232 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

resulted from an increase of approximately RMB2.1 million in depreciation and amortization expenses but offset by the partly decrease in travelling and entertainment expenses of approximately RMB0.8 million.

Finance costs for the year ended 31 December 2011 amounted to approximately RMB4.8 million, representing a decrease of approximately RMB1.2 million, as compared with approximately RMB6.0 million for the year ended 31 December 2010. The decrease was attributable to the increase in imputed interest expenses on amounts due to an intermediate holding company and fellow subsidiaries of approximate RMB1.0 million and the increase in interest capitalized of approximately RMB0.2 million during the year.

Income tax expenses amounted to approximately RMB8.8 million for the year ended 31 December 2011, representing an increase of approximately RMB3.8 million, as compared to approximately RMB5.0 million for the year ended 31 December 2010. The effective tax rate for the year ended 31 December 2011 was 31.6% as compared to 23.0% for the corresponding period of 2010. The increase was mainly attributable to the tax effect of expenses not deductible for tax purpose in relation to the interest expenses on amounts due to an intermediate holding company and fellow subsidiaries.

As a result of the foregoing, the profit for the year ended 31 December 2011 amounted to approximately RMB19.1 million, representing an increase of approximately RMB2.5 million or 14.9% as compared to approximately RMB16.6 million for the year ended 31 December 2010. The net profit margin was approximately 29.7% for the year as compared to 22.0% in corresponding period in 2010.

– 233 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

E. Yunnan Henglong

Revenue for the year ended 31 December 2011 amounted to approximately RMB35.3 million, representing a decrease of approximately RMB12.5 million or 26.1%, as compared to approximately RMB47.8 million for the period from 3 February 2010 to 31 December 2010. The decrease was mainly attributable to (i) decrease in sales volume of raw coal from approximately 91,000 tonnes for the period from 3 February 2010 to 31 December 2010 to approximately 88,000 tonnes for the year and (ii) decrease in average selling price of raw coal from approximately RMB524.1 per tonne for the period from 3 February 2010 to 31 December 2010 to approximately RMB402.4 per tonne for the year.

Cost of sales for the year ended 31 December 2011 amounted to approximately RMB13.5 million, representing a decrease of approximately RMB4.8 million or 26.0%, as compared to approximately RMB18.3 million for the period from 3 February 2010 to 31 December 2010. The decrease was mainly resulted from the decrease in production volume of raw coal from approximately 109,000 tonnes for the period from 3 February 2010 to 31 December 2010 to approximately 75,000 tonnes for the year.

Other income for the year ended 31 December 2011 amounted to approximately RMB4.5 million, representing an increase of approximately RMB4.4 million, as compared to approximately RMB0.1 million for the period from 3 February 2010 to 31 December 2010. The increase was due to the increase in imputed interest income on amount due from fellow subsidiaries as the average outstanding amount increased during the year. Administrative expenses for the year ended 31 December 2011 amounted to approximately RMB3.1 million, representing an increase of approximately RMB1.5 million, as compared with approximately RMB1.6 million for the period from 3 February 2010 to 31 December 2010. The increase was mainly resulted from an increase of approximately RMB1.2 million in staff costs for the year.

Finance costs for the year ended 31 December 2011 amounted to approximately RMB18.4 million, representing an increase of approximately RMB9.2 million, as compared with approximately RMB9.2 million for the period from 3 February 2010 to 31 December 2010. The increase was attributable to the increase in imputed interest expenses on amount due to a shareholder and fellow subsidiaries of approximate RMB11.3 million but offset by the increase in interest capitalized of approximately RMB2.0 million during the year.

Income tax expenses amounted to approximately RMB5.2 million for the year ended 31 December 2011, representing decrease of approximately RMB1.7 million, as compared to approximately RMB6.9 million for the period from 3 February 2010 to 31 December 2010. The effective tax rate for the year ended 31 December 2011 was 107.7% as compared to 36.5% for the period from 3 February 2010 to 31 December 2010. The increase was mainly attributable to the tax effect of expenses not deductible for tax purpose arising from the imputed interest expenses payable to a shareholder and fellow subsidiaries.

– 234 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

As a result of the foregoing, the loss for the year ended 31 December 2011 amounted to approximately RMB0.4 million, representing a decrease of approximately RMB12.4 million or 103.1% as compared to profit of approximately RMB12.0 million for the period from 3 February 2010 to 31 December 2010.

F. Fuyuan Dahe

Revenue for the year ended 31 December 2011 amounted to approximately RMB150.1 million, representing an increase of approximately RMB74.4 million or 98.1%, as compared to approximately RMB75.7 million for the year ended 31 December 2010. The increase was mainly attributable to increase in sales volume of raw coal from approximately 154,000 tonnes for the corresponding period in 2010 to approximately 313,000 tonnes for the year but slightly offset by the decrease in average selling price of raw coal from approximately RMB490.6 per tonne for the corresponding period in 2010 to approximately RMB479.6 per tonne for the year.

Cost of sales for the year ended 31 December 2011 amounted to approximately RMB36.3 million, representing an increase of approximately RMB15.6 million or 75.6%, as compared to approximately RMB20.7 million for the year ended 31 December 2010. The increase was mainly resulted from the increase in production volume of raw coal from approximately 94,000 tonnes for the corresponding period in 2010 to approximately 169,000 tonnes for the year.

Other income for the year ended 31 December 2011 amounted to approximately RMB2.9 million, representing an increase of approximately RMB2.5 million, as compared to approximately RMB0.4 million for the year ended 31 December 2010. The increase was mainly due to the increase in imputed interest income on amount due from fellow subsidiaries as the average outstanding amount increased during the year. Administrative expenses for the year ended 31 December 2011 amounted to approximately RMB9.8 million, representing an increase of approximately RMB3.0 million, as compared with approximately RMB6.8 million for the year ended 31 December 2010. The increase was mainly attributable to an increase in donation and government levies of approximately RMB1.8 million and RMB0.9 million respectively.

Finance costs for the year ended 31 December 2011 amounted to nil, representing a decrease of 100%, as compared with approximately RMB3.6 million for the year ended 31 December 2010. The decrease was attributable to the decrease in imputed interest expenses on amount due to an immediate holding company and fully capitalized during the year.

Income tax expenses amounted to approximately RMB26.1 million for the year ended 31 December 2011, representing decrease of approximately RMB14.6 million, as compared to approximately RMB11.5 million for the year ended 31 December 2010. The effective tax rate for the year ended 31 December 2011 was 24.5% as compared to 25.5% for the year ended 31 December 2010.

– 235 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

As a result of the foregoing, the profit for the year ended 31 December 2011 amounted to approximately RMB80.7 million, representing an increase of approximately RMB47.1 million or 140.4% as compared to approximately RMB33.6 million for the year ended 31 December 2010. The net profit margin was approximately 53.8% for the year as compared to 44.3% in corresponding period in 2010.

G. Fuyuan Tonghe

Revenue for the year ended 31 December 2011 amounted to approximately RMB56.0 million, representing a decrease of approximately RMB11.9 million or 17.5%, as compared to approximately RMB67.9 million for the period from 21 June 2010 to 31 December 2010. The decrease was mainly attributable to (i) decrease in sales volume of raw coal from approximately 138,000 tonnes for the period from 21 June 2010 to 31 December 2010 to approximately 118,000 tonnes for the year and (ii) decrease in average selling price of raw coal from approximately RMB490.8 per tonne for the period from 21 June 2010 to 31 December 2010 to approximately RMB473.7 per tonne for the year.

Cost of sales for the year ended 31 December 2011 amounted to approximately RMB25.4 million, maintaining at similar level, as compared to approximately RMB25.0 million for the period from 21 June 2010 to 31 December 2010. During the year, the production volume of raw coal was approximately 147,000 tonnes, similar to approximately 142,000 tonnes for the period from 21 June 2010 to 31 December 2010.

Other income for the year ended 31 December 2011 amounted to approximately RMB2.5 million, representing a sharp increase of approximately RMB2.5 million, as compared to approximately RMB7,000 for the period from 21 June 2010 to 31 December 2010. The increase was due to the increase in imputed interest income on amount due from fellow subsidiaries as the average outstanding amount increased during the year.

Administrative expenses for the year ended 31 December 2011 amounted to approximately RMB5.5 million, representing an increase of approximately RMB2.4 million, as compared with approximately RMB3.1 million for the period from 21 June 2010 to 31 December 2010. The increase was mainly resulted from (i) an increase of approximately RMB0.8 million in staff costs for the year; and (ii) an increase in depreciation and amortisation of approximately RMB0.8 million during the year.

Finance costs for the year ended 31 December 2011 amounted to approximately RMB6.3 million, representing an increase of approximately RMB5.5 million, as compared with approximately RMB0.8 million for the period from 21 June 2010 to 31 December 2010. The increase was attributable to the increase in imputed interest expenses on amount due to an intermediate holding company of approximate RMB6.2 million in which approximately RMB0.7 million was capitalized to construction in progress during the year.

Income tax expenses amounted to approximately RMB0.3 million for the year ended 31 December 2011, representing decrease of approximately RMB9.5 million, as compared to approximately RMB9.8 million for the period from 21 June 2010 to 31 December 2010. The

– 236 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

effective tax rate for the year ended 31 December 2011 was 1.5% as compared to 25.1% for the period from 21 June 2010 to 31 December 2010. The decrease was mainly attributable to the utilization of tax losses provided in prior period.

As a result of the foregoing, the profit for the year ended 31 December 2011 amounted to approximately RMB21.0 million, representing a decrease of approximately RMB8.3 million or 28.4% as compared to approximately RMB29.3 million for the period from 21 June 2010 to 31 December 2010. The net profit margin was approximately 37.5% for the year as compared to 43.1% in the period from 21 June 2010 to 31 December 2010.

H. Fuyuan Jintai

Revenue for the year ended 31 December 2011 amounted to approximately RMB102.5 million, representing an increase of approximately RMB58.9 million or 135.1%, as compared to approximately RMB43.6 million for the period from 19 January 2010 to 31 December 2010. The increase was mainly attributable to the significant increase in sales volume of raw coal from approximately 85,000 tonnes for the period from 19 January 2010 to 31 December 2010 to approximately 283,000 tonnes for the year but slightly offset by the decrease in average selling price of raw coal from approximately RMB513.8 per tonne for the period from 19 January 2010 to 31 December 2010 to approximately RMB361.9 per tonne for the year.

Cost of sales for the year ended 31 December 2011 amounted to approximately RMB21.7 million, representing an increase of approximately RMB9.5 million or 77.3%, as compared to approximately RMB12.2 million for the period from 19 January 2010 to 31 December 2010. During the year, the production volume of raw coal increased from approximately 86,000 tonnes for the period 19 January 2010 to 31 December 2010 to approximately 210,000 tonnes for the year. With the use of the upgraded system, both the direct labour, power costs and depreciation led an increase of approximately RMB7.5 million during the year.

Other income for the year ended 31 December 2011 amounted to approximately RMB4.1 million, representing an increase of approximately RMB4.0 million, as compared to approximately RMB0.1 million for period from 19 January 2010 to 31 December 2010. The increase was due to the increase in imputed interest income on amount due from fellow subsidiaries as the average outstanding amount increased during the year.

Administrative expenses for the year ended 31 December 2011 amounted to approximately RMB2.5 million, maintaining at similar level, as compared with approximately RMB2.2 million for the period from 19 January 2010 to 31 December 2010. During the year, bank charges and legal and professional expenses decreased by approximately RMB0.2 million but fully offset by the increase in other taxes of approximately RMB0.5 million.

Finance costs for the year ended 31 December 2011 amounted to approximately RMB9.9 million, representing an increase of approximately RMB2.8 million, as compared with approximately RMB7.1 million for the period from 19 January 2010 to 31 December 2010. The increase was mainly attributable to the increase in interest payable to a shareholder and fellow subsidiaries of approximately RMB4.0 million in which approximately RMB1.1 was capitalized to construction in progress during the year.

– 237 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

Income tax expenses amounted to approximately RMB19.6 million for the year ended 31 December 2011, representing an increase of approximately RMB13.0 million, as compared to approximately RMB6.6 million for the period from 19 January 2010 to 31 December 2010. The effective tax rate for the year ended 31 December 2011 was 27.1% as compared to 29.8% for the period from 19 January 2010 to 31 December 2010.

As a result of the foregoing, the profit for the year ended 31 December 2011 amounted to approximately RMB52.8 million, representing an increase of approximately RMB37.3 million or 240.2% as compared to approximately RMB15.5 million for the period from 19 January 2010 to 31 December 2010. The net profit margin was approximately 51.6% for the year as compared to 35.6% in the period from 19 January 2010 to 31 December 2010.

Liquidity, Financial Resources and Capital Structure

As at 31 December 2011, the combined bank balances and cash of the Target Subsidiaries amounted to approximately RMB46.7 million (2010: RMB24.6 million).

The Target Subsidiaries had no bank borrowings as at 31 December 2011 (2010: bank borrowings of RMB15 million). The combined amounts due to fellow subsidiaries, immediate holding company and intermediate holding companies amounted to approximately RMB1,896.0 million, RMB16.5 million and RMB1,281.0 million respectively (2010: RMB1,227.7 million, RMB456.0 million and RMB1,149.7 million respectively), of which RMB2,200.4 million (2010: RMB2,502.3 million) was repayable within one year. Interest was charged at a range of 6.15% to 8.275% per annum.

Pledge of Assets

As at 31 December 2011, the Target Subsidiaries did not have any charge on their assets.

Employees

As at 31 December 2011, the Target Subsidiaries maintained an aggregate of approximately 4,580 employees as compared with approximately 3,450 employees at 31 December 2010.

During the year ended 31 December 2011, the aggregate staff cost of the Target Subsidiaries was approximately RMB108.7 million, representing an increase of approximately RMB15.1 million, as compared to approximately RMB93.6 million for the year ended 31 December 2010.

– 238 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET SUBSIDIARIES

APPENDIX III

Risk in Foreign Exchange

Since all of the Target Subsidiaries’ business activities are transacted in RMB, the Directors consider that the Target Subsidiaries’ risk in foreign exchange is insignificant.

Significant Investment Held

During the year ended 31 December 2011, there was no significant investment held by the Target Subsidiaries.

Material Acquisition and Disposal

During the year ended 31 December 2011, there was no material acquisition and disposal of subsidiaries and associated companies by the Target Subsidiaries.

Contingent Liabilities

The Target Subsidiaries did not have any material contingent liabilities as at 31 December 2011.

Connected Transactions

As at 31 December 2011, the Target Subsidiaries did not have any connected transactions.

– 239 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

For illustrative purposes only, set out below is the unaudited pro forma statement of adjusted consolidated statement of financial position of the Group (the ‘‘Unaudited Pro Forma Financial Information’’) after completion of the Share Transfer. Although reasonable care has been exercised in preparing the Unaudited Pro Forma Financial Information, Shareholders who read the information below should bear in mind that these figures are inherently subject to adjustments and may not give a complete picture of the Group’s financial position for the financial period concerned.

(A) UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE GROUP

The Unaudited Pro Forma Financial Information has been prepared by the Directors in accordance with Paragraph 4.29 of the Listing Rules to illustrate the effect of the Share Transfer on the consolidated statement of financial position of the Group as if the Share Transfer had taken place on 31 December 2012. The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only, and because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 31 December 2012 and any future date.

UNAUDITED PRO FORMA STATEMENT OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION

NON-CURRENT ASSETS Property, plant and equipment Prepaid lease payments Intangible assets Interests in associates Available-for-sale investments Long term deposits and other receivables Restricted bank deposits	Audited consolidated statement of financial position of the Group as at 31 December 2012 Proforma adjustment for Capital Injections RMB’000 RMB’000 (Note 1) (Note 2) 13,594,766 29,031 108,282 144,023 228,330 206,015 72,017 14,382,464	Unaudited pro forma consolidated statement of financial position of the Group after Capital Injections Proforma adjustment for Share Transfer RMB’000 RMB’000 (Note 3) 13,594,766 29,031 108,282 144,023 228,330 206,015 72,017 14,382,464	Unaudited pro forma consolidated statement of financial position of the Group after Share Transfer RMB’000 13,594,766 29,031 108,282 144,023 228,330 206,015 72,017
			14,382,464

– 240 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

CURRENT ASSETS Inventories Bills and trade receivables Bills receivables discounted with recourse Other receivables and prepayments Amounts due from associates Amounts due from related parties Held-for-trading investments Pledged bank deposits Bank balances and cash CURRENT LIABILITIES Bills and trade payables Advances drawn on bills receivables discounted with recourse Other payables and accrued expenses Amount due to an associate Amounts due to related parties Amount due to a non- controlling shareholder Tax payables Senior notes Convertible loan notes Bank and other borrowings — due within one year NET CURRENT LIABILITIES	Audited consolidated statement of financial position of the Group as at 31 December 2012 Proforma adjustment for Capital Injections RMB’000 RMB’000 (Note 1) (Note 2) 170,053 887,662 9,800 461,597 9,935 22,042 52,836 179,261 1,554,368 3,347,554 461,080 9,800 535,583 444 823 14,765 142,204 2,518,094 1,820,007 2,571,000 8,073,800 (4,726,246) 9,656,218	Unaudited pro forma consolidated statement of financial position of the Group after Capital Injections Proforma adjustment for Share Transfer RMB’000 RMB’000 (Note 3) 170,053 887,662 9,800 461,597 9,935 22,042 52,836 179,261 1,554,368 (1,499,957) 3,347,554 461,080 9,800 535,583 444 823 14,765 142,204 2,518,094 1,820,007 2,571,000 8,073,800 (4,726,246) 9,656,218	Unaudited pro forma consolidated statement of financial position of the Group after Share Transfer RMB’000 170,053 887,662 9,800 461,597 9,935 22,042 52,836 179,261 54,411
			1,847,597
			461,080 9,800 535,583 444 823 14,765 142,204 2,518,094 1,820,007 2,571,000
			8,073,800
			(6,226,203
			8,156,261

– 241 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

CAPITAL AND RESERVES Share capital Reserves Equity attributable to owners of the Company Non-controlling interests TOTAL EQUITY NON-CURRENT LIABILITIES Provision for restoration and environmental costs Other long term payables Deferred tax liabilities Bank and other borrowings — due after one year	Audited consolidated statement of financial position of the Group as at 31 December 2012 Proforma adjustment for Capital Injections RMB’000 RMB’000 (Note 1) (Note 2) 199,078 7,085,719 7,284,797 99,800 7,384,597 17,434 123,704 317,548 1,812,935 2,271,621 9,656,218	Unaudited pro forma consolidated statement of financial position of the Group after Capital Injections Proforma adjustment for Share Transfer RMB’000 RMB’000 (Note 3) 199,078 7,085,719 (27,022) 7,284,797 99,800 7,384,597 17,434 123,704 317,548 1,812,935 (1,472,935) 2,271,621 9,656,218	Unaudited pro forma consolidated statement of financial position of the Group after Share Transfer RMB’000 199,078 7,058,697
			7,257,775 99,800
			7,357,575
			17,434 123,704 317,548 340,000
			798,686
			8,156,218

Notes:

(1) Extracted from the consolidated statement of financial position of the Group as at 31 December 2012 as set out in the Company’s annual report for the year ended 31 December 2012 dated 26 March 2013.
(2) The capital injection from Huaneng Trust pursuant to capital injection agreements dated 28 August 2012 has been completed and recorded as other borrowings on the consolidated statement of financial position of the Group as at 31 December 2012.
(3) The adjustments reflect (a) the payment for buy back Target Equity Interests (other than Panzhihua Yanjiang) amounting to RMB1,127,737,000, which comprises consideration of RMB1,220,430,000 deducted for the effective interest expenses for the period from 1 January 2013 to 22 May 2013 amounting to RMB53,003,000 assuming that had taken place on 31 December 2012 and premium paid in advance at 31 December 2012 of RMB39,690,000; (b) the payment for buy back equity interest of Panzhihua Yanjiang amounting to RMB372,220,000, which comprises consideration of RMB387,205,000 assuming that had been taken place on 31 December 2012 deducted for the premium paid in advance at 31 December 2012 of RMB14,985,000; and (c) loss on derecognition of other secured loans carried at amortised cost of RMB27,022,000.

– 242 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

(B) ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

==> picture [72 x 54] intentionally omitted <==

TO THE DIRECTORS OF HIDILI INDUSTRY INTERNATIONAL DEVELOPMENT LIMITED

We report on the unaudited pro forma financial information of Hidili Industry International Development Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the Group buy back all the equity interests which 華能貴誠信托有限公司 Huaneng Guicheng Trust Co., Ltd injected to certain subsidiaries of the Company pursuant to capital injection agreements dated 28 August 2012, might have affected the financial information presented, for inclusion in Appendix IV of the circular dated 25 June 2013 (the ‘‘Circular’’). The basis of preparation of the unaudited pro forma financial information is set out in Appendix IV to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’) and with reference to Accounting Guideline 7 ‘‘Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars’’ issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 ‘‘Accountants’ Reports on Pro Forma Financial Information in Investment Circulars’’ issued by the Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

– 243 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purpose of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The unaudited pro forma financial information is for illustrative purpose only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in future and may not be indicative of the consolidated financial position of the Group as at 31 December 2012 or any future date.

Opinion

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group so far as such policies relate to the transaction; and
(c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

25 June 2013

– 244 –

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement contained herein or this circular misleading.

2. DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN THE SHARES

At the Latest Practicable Date, the Directors and chief executive of the Company had the following interests and/or short positions in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong) (the ‘‘SFO’’)) which are required, pursuant to section 352 of the SFO, to be recorded in the register referred to therein or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the ‘‘Model Code’’) as contained in the Listing Rules, to be notified to the Company and the Stock Exchange:

				Approximate
				percentage of
				the issued
				share capital
				of the
		Number of		Company/
		issued ordinary	Nature of	percentage of
Name	Name of the entity	shares held	interest	shareholding
Mr. Xian Yang	The Company	1,100,674,000	Founder and	53.04%
(‘‘Mr. Xian’’)			beneficiary of
(Note 1)			trust
Mr. Xian	Sanlian Investment	1,000	Beneficial owner	100%
	Holding Limited
	(‘‘Sanlian
	Investment’’)
Mr. Sun Jiankun	The Company	19,380,000	Interest of	0.93%
(‘‘Mr. Sun’’)			controlled
(Note 2)			corporation
Mr. Sun	Able Accord	1,000	Beneficial owner	100%
	Enterprises Limited
	(‘‘Able Accord’’)

– 245 –

GENERAL INFORMATION

APPENDIX V

Approximate percentage of the issued share capital of the Number of Company/ issued ordinary Nature of percentage of Name Name of the entity shares held interest shareholding Mr. Wang Rong The Company 7,887,000 Interest of 0.38% (‘‘Mr. Wang’’) controlled (Note 3) corporation Mr. Wang Pavlova Investment 1,000 Beneficial owner 100% Limited (‘‘Pavlova Investment’’) Mr. Chan Chi The Company 80,000 Beneficial owner 0.004% Hing

Notes:

The 1,100,674,000 shares of the Company are held by Sanlian Investment, the issued share capital of which is jointly held by Xian Yang No.1A Ltd. (‘‘Xian Yang No.1A’’) and Sanlian No.1 Ltd. (‘‘Sanlian No.1’’). Mr. Xian is the only controlling shareholder of Xian Yang No.1A and Sanlian No.1. In 2011, Mr. Xian formed a discretionary trust, The Xian Yang Foundation 1, of which Sarasin Trust Company Guernsey Limited (‘‘Sarasin Trust’’) was the trustee. Accordingly, Mr. Xian is deemed to be interested in the 1,100,674,000 shares held by Sanlian Investment by virtue of the SFO. Mr. Xian is also the sole director of Sanlian Investment.
The 19,380,000 shares of the Company are held by Able Accord, the entired issued share capital of which is held by Mr. Sun. Accordingly, Mr. Sun is deemed to be interested in 19,380,000 shares held by Able Accord by virtue of the SFO. Mr. Sun is also a director of Able Accord.
The 7,887,000 shares of the Company are held by Pavlova Investment, the entire issued share capital of which is held by Mr. Wang. Accordingly, Mr. Wang is deemed to be interested in 7,887,000 shares held by Pavlova Investment by virtue of the SFO. Mr. Wang is also a director of Pavlova Investment.

Save as disclosed above, to the best knowledge of the Directors, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had or was deemed to have any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which are required, pursuant to section 352 of the SFO, to be recorded in the register referred to therein or which are required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

– 246 –

GENERAL INFORMATION

APPENDIX V

Saved as disclosed, at no time during the year was the Company, its holding company, or any of its subsidiaries or fellow subsidiaries, a party to any arrangements to enable the Directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

3. SUBSTANTIAL SHAREHOLDERS

At the Latest Practicable Date, the following persons, other than the Directors and chief executive of the Company, had an interest or short position in the shares or underlying shares of the Company as recorded in the register required to be kept under section 336 of the SFO:

			Approximate
			percentage of
	Number of		the issued share
	issued ordinary		capital of the
Name	shares held*	Nature of interest	Company*
Sarasin Trust (Note 1)	561,343,740 (L)	Trustee	27.05% (L)
Sanlian Investment (Note 1)	1,100,674,000 (L)	Beneficial owner	53.04% (L)
Mr. Xian (Note 1)	1,100,674,000 (L)	Interest of	53.04% (L)
		controlled
		corporation
Ms. Qiao Qian (Note 2)	1,100,674,000 (L)	Interest of spouse	53.04% (L)
Baring Private Equity Asia	400,000,000	Interest of	19.28% (L)
GP V, L.P. (Note 3)		controlled
		corporation
Jean Eric Salata (Note 3)	400,000,000	Interest of	19.28% (L)
		controlled
		corporation

(L)-Long position

– 247 –

GENERAL INFORMATION

APPENDIX V

Notes:

The entire issued share capital of Sanlian Investment is jointly owned by Xian Yang No.1A and Sanlian No.1. Mr. Xian is the only controlling shareholder of Xian Yang No.1A and Sanlian No.1. In 2011, Mr. Xian formed a discretionary trust, The Xian Yang Foundation 1, of which Sarasin Trust was the trustee. Accordingly, Mr. Xian is deemed to be interested in 1,100,674,000 shares of the Company held by Sanlian Investment by virtue of the SFO. Mr. Xian is the sole director of Sanlian Investment.
Ms. Qiao Qian is the spouse of Mr. Xian. By virtue of the SFO, Ms. Qiao Qian is also deemed, as the spouse of Mr. Xian, to be interested in all the Shares in which Mr. Xian is deemed to be interested.
Baring Private Equity Asia GP V, L.P. was wholly controlled by Baring Private Equity Asia GP V Limited (as general partner), a company which wholly controlled The Baring Asia Private Equity Fund V, L.P. Baring Private Equity Asia GP V. Limited was wholly controlled by Mr. Jean Eric Salata. Baring Private Equity Asia V Holding (8) Limited was 99.35% controlled by The Baring Asia Private Equity Fund V, L.P. Accordingly, Baring Private Equity Asia GP V, L.P. and Jean Eric Salata by virtue of the SFO are deemed to be interested in 400,000,000 Shares.

Save as disclosed above, the Company has not been notified by any person (other than the Directors or the chief executive of the Company) who had/would have interests or short positions in the shares or underlying shares of the Company or its associated corporations of 5% or more which were required to be disclosed to the Company under Part XV of the SFO or which were recorded in the register kept by the Company under section 336 of the SFO.

4. DIRECTORS’ SERVICE CONTRACTS

Each of the executive Directors has entered into a service agreement with the Company for a fixed term of three years. The service agreements of the executive Directors have been renewed on 1 September 2010. Each of the independent non-executive Directors has entered into a service agreement with the Company for a fixed term of two years. The service agreements of the independent non-executive Directors have been renewed on 1 September 2011.

As at the Latest Practicable Date, none of the Directors has entered into any service agreement with the Company which is not determinable within one year without payment of compensation (other than the statutory compensation).

5. COMPETING INTERESTS

None of the Directors and their respective associates have any interest in a business, which competes or is likely to compete with the businesses of the Group.

6. INTEREST IN ASSETS

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any asset which has been since 31 December 2012, 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 are proposed to be acquired or disposed of by or leased to any member of the Group.

– 248 –

GENERAL INFORMATION

APPENDIX V

As at the Latest Practicable Date, none of the Directors is materially interested in any contract or arrangement entered into by any member of the Group subsisting at the date of this circular which is significant in relation to the business of the Group.

7. MATERIAL ADVERSE CHANGE

Other than the information as disclosed in the Company’s annual results announcement for the year ended 31 December 2012 dated 26 March 2013, the Directors are not aware of any material adverse changes in the financial or trading position of the Group since 31 December 2012, being the date to which the latest published audited financial statements of the Group were made up.

8. LITIGATION

On 28 January 2013, Blackrock Japan Co., Limited (the ‘‘First Plaintiff’’) and Blackrock (Singapore) Limited (the ‘‘Second Plaintiff’’) (collectively known as the ‘‘Plaintiffs’’), commenced legal proceedings against the Company in the High Court of Hong Kong Special Administrative Region Court of First Instance (the ‘‘Action’’).

The First Plaintiff is the investment manager of two high yield in January 2010 bond funds (the ‘‘Funds’’). lt delegated the investment management of the Funds to the Second Plaintiff. The Funds are the holders of certain bonds issued by the Company (the ‘‘Bonds’’). Under the terms of the Bonds, the Funds were entitled to require the Company to redeem some or all of the Bonds on 19 January 2013. Instead of issuing redemption notices on 18 and 19 December 2012, it is alleged that the Plaintiffs had issued by mistake notices (the ‘‘Notices’’) electing to convert the Bonds into shares in the Company. The Plaintiffs assert that the Company knew or ought to have known that the Notices were issued by mistake and therefore are void, or alternatively are voidable in equity, and are of no legal effect. A statement of claim was served on the Company on 25 February 2013 and the Company served the defence on 29 April 2013.

Save as disclosed, as at the Latest Practicable Date, neither the Company nor any of its subsidiaries is engaged in any litigation or claim of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

9. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business of the Group) have been entered into by the Group within the two years immediately preceding the date of the this circular and up to and including the Latest Practicable Date which are, or may be, material:

(i) three equity purchase agreements dated 13 December 2011 entered into between 雲南恒鼎煤業有限公司 (Yunnan Hidili Coal Company Limited) as purchaser and 曲靖明珠集團投資開發有限公司 (Qujing Mingzhu Group Investment Development Company Limited) as vendor for the acquisition of the 20% equity interest in 盤縣富源昆鐵選煤有限責任公司 (Panxian Fuyuan Kuntie Coal Washing Company

– 249 –

GENERAL INFORMATION

APPENDIX V

Limited), 18% equity interest in 貴州威箐煤焦物流有限公司 (Guizhou Weiqing Coking Logistic Company Limited) and 41.78% in 富源金通煤焦有限公司 (Fuyuan Jintong Coking Company Limited*) at a cash consideration of RMB150 million in aggregate;

(ii) the Capital Injection Agreements;
(iii) the Share Transfer Agreements;
(iv) a conditional agreement dated 17 May 2013 entered into among Hidili, China, 攀枝花市恒鼎煤焦化有限公司 (Panzhihua Hidili Coal Industry Co., Ltd.) and 雲南東源煤業集團有限公司 (Yunnan Dongyuan Coal Group Company Limited) in relation to the disposal of 50% equity interest in Yunnan Hidili; and
(v) the Equity Transfer Agreements.

10. EXPERT AND CONSENT

The following is the qualification of the expert who has given opinion or advice which is contained in this circular:

Name

Qualification

Deloitte Touche Tohmatsu certified public accountants

Deloitte Touche Tohmatsu is not beneficially interested in the share capital of any member of the Group nor has any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

Deloitte Touche Tohmatsu has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which it appears.

As at the Latest Practicable Date, Deloitte Touche Tohmatsu was not interested, directly or indirectly, in any assets which have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2012, being the date to which the latest published audited accounts of the Company were made up.

11. MISCELLANEOUS

(a) The company secretary of the Company is Ms. Chu Lai Kuen. She is an associate member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the Association of Chartered Certified Accountants. Prior to joining the Company in October 2008, she had over 16 years of working experience in auditing and financial management.

– 250 –

GENERAL INFORMATION

APPENDIX V

(b) The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. The principal place of business of the Company in Hong Kong is located at Unit 3702, 37th Floor, West Tower, Shun Tak Centre, 168–200 Connaught Road Central, Hong Kong.
(c) The share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East,Wanchai, Hong Kong.
(d) In the event of inconsistency, the English language of this circular shall prevail over the Chinese language.

12. DOCUMENT AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours on any week day (except public holidays) at Unit 3702, 37th Floor, West Tower, Shun Tak Centre, 168–200 Connaught Road Central, Hong Kong for the period of 14 days from the date of this circular:

(a) this circular;
(b) the memorandum and articles of association of the Company;
(c) the Capital Injection Agreements;
(d) the Share Transfer Agreements;
(e) the Equity Transfer Agreements;
(f) the material contracts referred to in the section headed ‘‘Material Contracts’’ in this appendix;
(g) the annual reports of the Company for the three financial years ended 31 December 2012;
(h) the interim reports of the Company for the six months ended 30 June 2010, 2011 and 2012; and
(i) the valuation report of the net asset value of the Target Subsidiaries as at 30 April 2012 as appraised and issued by 北京天健興業資產評估有限公司 (Beijing PanChina Assets Appraisal Co. Ltd.*).

– 251 –

AI assistant

Hidili Industry International Development Limited — Proxy Solicitation & Information Statement 2013

49894_rns_2013-06-25_d057fe41-89f9-4fad-ac3d-baeb43759e65.pdf

MAJOR TRANSACTIONS IN RELATION TO THE CAPITAL INJECTIONS BY HUANENG TRUST TO CERTAIN SUBSIDIARIES OF THE COMPANY AND SHARE TRANSFERS

DEFINITIONS

DEFINITIONS

DEFINITIONS

MAJOR TRANSACTIONS IN RELATION TO THE CAPITAL INJECTIONS BY HUANENG TRUST TO CERTAIN SUBSIDIARIES OF THE COMPANY AND SHARE TRANSFERS

INTRODUCTION

LETTER FROM THE BOARD

THE CAPITAL INJECTIONS

Principal terms

Conditions for the completion of the Capital Injections

Basis of determining the Injection Money and the portion of equity interest entitled to Huaneng Trust

Target Subsidiaries

Completion of the Capital Injections

In respect of Panzhihua Yanjiang:

In respect of Yunnan Hidili:

In respect of Fuyuan Kunyuan:

In respect of Fuyuan Xiangda:

In respect of Yunnan Henglong:

In respect of Fuyuan Dahe:

In respect of Fuyuan Tonghe:

In respect of Fuyuan Jintai:

THE SHARE TRANSFERS

Payment of the Buy Back Consideration

Amount of the premium payable

Equity Transfer Agreements

ACCOUNTING IMPACT AFTER THE CAPITAL INJECTIONS AND SHARE TRANSFERS

FINANCIAL EFFECT OF THE CAPITAL INJECTIONS AND SHARE TRANSFERS

THE SHARE PLEDGE

Shares pledged by certain Immediate Shareholders

Immediate Shareholders

Equity interest pledged

UNDERTAKING BY CONTROLLING SHAREHOLDER

INFORMATION OF THE GROUP, THE TARGET SUBSIDIARIES, HIDILI CHINA, THE IMMEDIATE SHAREHOLDERS AND HUANENG TRUST

The Group

Target Subsidiaries

Target Subsidiaries

Coal mines under operation Location of the coal mines

LETTER FROM THE BOARD

Year ended 31 December 2011

Hidili China

Liupanshui Hidili

Shenzhen Hidili

Sichuan Hidili

Mr. Peng Zhongqiang

Mr. Chen Laoling

Mr. Tian Jinyi

Mr. Guo Minli

Huaneng Trust

REASONS FOR THE CAPITAL INJECTIONS AND SHARE TRANSFERS

LETTER FROM THE BOARD

IMPLICATION OF THE LISTING RULES

The Capital Injections and the Share Transfers

Waiver granted

RECOMMENDATION

ADDITIONAL INFORMATION

1. FINANCIAL INFORMATION OF THE GROUP

2. STATEMENT OF INDEBTEDNESS

3. SUFFICIENCY OF WORKING CAPITAL

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

A. FINANCIAL INFORMATION

Statements of Comprehensive Income

Statements of Financial Position

Statements of Changes in Equity

Statements of Cash Flows

Notes to the Financial Information

1. GENERAL

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

3. SIGNIFICANT ACCOUNTING POLICIES

Revenue recognition

Property, plant and equipment

Borrowing costs

Retirement benefits costs

Taxation

Inventories

Provision for restoration and environmental costs

Financial instruments

Financial assets

Hidili Industry International Development Limited Proxy Solicitation & Information Statement 2013