As filed with Securities and Exchange Commission on June 29, 201024, 2011

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

 

¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscalfiscal year ended December 31, 20092010

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file numbernumber: 001-14714

 

 

LOGOLOGO

(Exact name of Registrant as specified in its charter)

Yanzhou Coal Mining Company Limited

(Translation of Registrant’s name into English)

 

 

People’s Republic of China

(Jurisdiction of incorporation or organization)

298 Fushan South Road

Zoucheng, Shandong Province

People’s Republic of China

(Address of principal executive offices)

Zhang Baocai

298 South Fushan South Road

Zoucheng, Shandong Province

People’s Republic of China (273500)

(86537)Tel: (86)537 5382319

Fax: (86)537 5383311

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)


Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Name of each exchange on which registered

American Depositary Shares New York Stock Exchange
Class H Ordinary Shares par value RMB1.00 each New York Stock Exchange*

 

*Not for trading in the United States, but only in connection with the listingregistration of American Depositary Shares, pursuant to the requirements of the American Depositary Shares.Securities and Exchange Commission.

 

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of class)

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

2,960,000,000 Domestic Shares, par value RMB1.00 per share

1,958,400, 0001,958,400,000 H Shares, par value RMB1.00 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x                Accelerated filer  ¨                Non-accelerated filer  ¨

Large accelerated filer  xAccelerated filer  ¨Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ¨

  

International Financial Reporting Standards as issued

by the International Accounting Standards Board  x

  Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ¨    Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

 

 


TABLE OF CONTENTS

 

   Page
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS  1
DEFINITIONS AND SUPPLEMENTAL INFORMATION  1
CONVENTIONS  3

PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS  3
ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE  3
ITEM 3.  KEY INFORMATION  4
ITEM 4.  INFORMATION ON THE COMPANY  1312
ITEM 4A.  UNRESOLVED STAFF COMMENTS  4644
ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS  4644
ITEM 6.  DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES  58
ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS  7069
ITEM 8.  FINANCIAL INFORMATION  73
ITEM 9.  THE OFFER AND LISTING  74
ITEM 10.  ADDITIONAL INFORMATION  76
ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  9089
ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES  9392

PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES  9493
ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS  9493
ITEM 15.  CONTROLS AND PROCEDURES  9493
ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT  9594
ITEM 16B  CODE OF ETHICS  9594
ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES  9594
ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES  9695
ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS  95
ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT95
ITEM 16G.CORPORATE GOVERNANCE96

PART III

ITEM 17.  FINANCIAL STATEMENTS  9697
ITEM 18.  FINANCIAL STATEMENTS  9697
ITEM 19.  EXHIBITS  9698
SIGNATURES  97


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This annual report includes statements of our expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to come within the safe harbor protection provided by those sections. The statements relate to future events or our financial performance, including, but not limited to, projections and estimates concerning the timing and success of specific projects and acquisitions. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” or their“will” and the negatives of such terms or other similar expressions to identify forward-looking statements.

Without limiting the foregoing, all statements relating to our future operating results and anticipated capital expenditures, borrowings and sources of funding are forward-looking statements and speak only as of the date of this annual report. These statements are based on numerous assumptions made by us in light of our experience and our perception of historical trends, current conditions and future developments, as well as other factorsthat we believe are appropriate. While our management considers these assumptions to be reasonable, theybut are inherently subject to significant business, economic, competitive, regulatorya wide range of risks, uncertainties and other risks, contingencies, and uncertainties, most of which are difficultmay cause actual results to predict and many of which are beyond our control. These risks, contingencies and uncertainties relatediffer materially from those discussed in these statements. Among the factors that could cause actual results to among other matters, the following:differ materially are:

 

price volatility for our coal and other products;

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price volatility for our coal and other products;

 

demand for coal in domesticthe PRC and overseas markets;

 

difficulty in managing our rapid growth, business diversification, geographic expansion and integrating our acquisitions;

 

changes in legislation, regulations and policies, including a proposal by the Australian federal government to implement a new resource super tax;policies;

 

the recovery of the methanol industry and methanol prices;

 

our ability to reduce costs and compete effectively;

 

our need for, and ability to obtain, capital to finance our future expansion plans and capital expenditures;

 

expected increases in production capacity and utilization of new facilities;

 

intensity of competition;

 

uncertainties in estimating our proven and probable coal reserves and our ability to replace and develop coal reserves;

 

effects of land reclamation and other liabilities;

 

geologic, equipment and operational risks related to mining;

 

changes in economic strength and political stability of countries in which we have operations or serve customers;

 

our ability to realize the anticipated benefits of our acquisition of Felix and Hua Ju Energy;equity interests or assets of coal mines;

 

obtaining governmental permits and approvals for our operations;

 

proximity of our coal resources to end-markets and cost of transportation;

availability, timing of delivery and costscost of key supplies;

impacts of natural disasters, epidemics and safety accidents; and

 

other factors, including, but not limited to, those discussed in the section headed Risk Factors, set forth in Part D of Item 3 of this annual report.

All of the forward-looking statements made in this annual report are qualified by this cautionary statement. We cannot assure you that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us, our business or our operations. We caution you not to place undue reliance on any such forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.

DEFINITIONS AND SUPPLEMENTAL INFORMATION

As used in this annual report, references to “Yanzhou Coal,” “we,” “our,” “our Company,” “the Group” or “us” refer to Yanzhou Coal Mining Company Limited and its subsidiaries, which have been consolidated into its accounts for the purpose of the consolidated financial statements, unless the context indicates otherwise. References to “the Company” refer to Yanzhou Coal onas a stand-alone basis.statutory entity.

“A Shares” refers to domestic shares in the ordinary share capital of the Company, with nominal value of RMB1.00 each, which are listed on the Shanghai Stock Exchange.

“Articles of Association” refers to our Articles of Association, as amended from time to time.

Yankuang Group” or “Controlling Shareholder”Austar Company” refers to Yankuang Group Corporation Limited (formerly known as Yanzhou Mining (Group) Corporation Limited).

“Yulin Nenghua” refers to YanzhouAustar Coal Yulin Nenghua CompanyMine Pty Limited, a wholly owned subsidiary of Yancoal Australia Limited incorporated in Australia, which mainly engages in the mining, processing and sale of coal in Australia.

“CASs” refers to Accounting Standard for Business Enterprises (2006) and the relevant regulations and explanations issued by the Ministry of Finance of the PRC.

“CBRC” refers to China Banking Regulatory Committee.

“Directors” as used herein refer to our directors as discussed in Item 6 herein.

“Felix” refers to Felix Resources Limited, a wholly owned subsidiary of Yancoal Australia Limited incorporated in Australia, which mainly engages in the exploration, mining and sale of coal in Australia.

“Grant Thornton” refers to a registered firm of certified public accountants in the People’s Republic of China and is the principal auditor for the purpose of reporting to the United States Securities and Exchange Commission and other relevant U.S. regulatory bodies.

“Grant Thornton Hong Kong” refers to a firm of certified public accountants in Hong Kong Special Administrative Region which was a former member firm of Grant Thornton International Ltd and has since changed its name to JBPB & Co as of December 10, 2010. (original official name in Hong Kong: Grant Thornton)

“Grant Thornton Jingdu Tianhua” refers to a firm of certified public accountants in Hong Kong Special Administrative Region, which has been a member firm of Grant Thornton International Ltd since November 2010. This firm is the auditor for the purpose of the Hong Kong H Share listing only.

“H Shares” refers to overseas listed foreign invested shares in the ordinary share capital of the Company, mainly engagedwith nominal value of RMB1.00 each, which are listed on the Hong Kong Stock Exchange.

“Haosheng Company” refers to Inner Mongolia Haosheng Coal Mining Company Limited, a 61% owned subsidiary of the Company, which engages in applying for project development and mining rights for Shilawusu Coal Field in the operation of a 600,000 tonne methanol project in Shaanxi Province.Inner Mongolia Autonomous Region.

“Heze Nenghua” refers to Yanmei Heze Nenghua Company Limited, a 98.33% owned subsidiary of the Company that manages our exploration for coal resources at the Juye Mine in Heze City, Shandong Province.

“Hong Kong Stock Exchange” refers to The Stock Exchange of Hong Kong Limited.

“Hua Ju Energy” refers to Shangdong Hua Ju Energy Co., Limited, a 95.14% owned subsidiary of the Company that engages in the generation of electric power from coal gangue and coal slurry, which are by-products of our coal mining process.

“IFRS” refers to International Financial Reporting Standards as issued by the International Accounting Standard Board.

“JBPB” refers to JBPB & Co., a firm of certified public accountants in Hong Kong Special Administrative Region formerly known as Grant Thornton in Hong Kong.

“NDRC” refers to the National Development and Reform Commission of the PRC.

“NYSE” refers to New York Stock Exchange.

“Ordos Neng Hua” refers to Yanzhou Coal Ordos Neng Hua Company Limited, a wholly owned subsidiary of the Company that mainly engages in the construction of a 600,000-tonne methanol project in Ordos City and the development of coal resources in the Inner Mongolia Autonomous Region.

“PBOC” refers to the People’s Bank of China.

“PRC” refers to the People’s Republic of China.

“Promoter Shares” refers to the domestic legal person shares held by Yankuang Group.

“Shanxi Nenghua” refers to Yanzhou Coal Shanxi Nenghua Company Limited, a wholly owned subsidiary of the Company that manages our investment projects in Shanxi Province.

“Tianchi Energy” refers to Shanxi Heshun Tianchi Energy Company Limited, an 81.31% owned subsidiary of Shanxi Nenghua mainly engaged in the operation of Tianchi Coal Mine.

“Tianhao Chemicals” refers to Shanxi Tianhao Chemicals Company Limited, a 99.89% owned subsidiary of Shanxi Nenghua mainly engaged in the operation of a 100,000 tonne methanol project in Shanxi Province.

“Yancoal Australia” refers to Yancoal Australia Pty Limited, a wholly owned subsidiary of the Company that manages our investment projects in Australia.

“Austar Company” refers to Austar Coal Mine Pty Limited, a wholly owned subsidiary of Yancoal Australia Pty Limited mainly engaged in the mining, processing and sale of coal.

“Felix” refers to Felix Resources Limited, a wholly owned subsidiary of Yancoal Australia Pty Limited mainly engaged in the exploration, mining and sale of coal.

“Hua Ju Energy” refers to Shangdong Hua Ju Energy Co., Limited, a 95.14% owned subsidiary of the Company engaged in the generation of electric power from coal gangue and coal slurry, which are by-products of our coal mining process.

“Ordos Nenghua” refers to Yanzhou Coal Ordos Nenghua Company Limited, a wholly owned subsidiary of the Company mainly engaged in the construction of a 600,000 tonne methanol project in Ordos City and the development of coal resources in the Inner Mongolia Autonomous Region.

“Yushuwan Coal Mine Company” refers to Shaanxi Yushuwan Coal Mine Company Limited, a joint venture among the Company, Chia Tai Energy & Chemicals Company Limited and Yushen Coal Company Limited, of which we will hold a 41% equity interest. As of the date of this annual report, the establishment of Yushuwan Coal Mine Company is still pending regulatory review.

“Shares” refers collectively to our (i) domestic invested shares listed on the Shanghai Stock Exchange, par value RMB1.00 each (the “Domestic Shares” or “A Shares”), (ii) foreign-invested shares issued and traded in HK dollars and listed on the Hong Kong Stock Exchange, par value RMB1.00 each (the “H Shares”) and (iii) American Depositary Shares (the “ADSs”), each of which represents 10ten H Shares.

Promoter Shares”Tianhao Chemicals” refers to Shanxi Tianhao Chemicals Company Limited, a 99.89% owned subsidiary of Shanxi Nenghua that mainly engages in the operation of a 100,000 tonne methanol project in Shanxi Province.

“Tianchi Energy” refers to Shanxi Heshun Tianchi Energy Company Limited, an 81.31% owned subsidiary of Shanxi Nenghua that mainly engages in the operation of Tianchi Coal Mine.

“Tonne” means metric tonne, which is equivalent to 1,000 kilograms or approximately 2,205 pounds.

“Twelfth Five-Year Plan” refers to the domestic legal person shares held by Yankuang Group.Twelfth Five-Year Plan (2011 to 2015) for National Economic and Social Development in the PRC.

Directors” as used herein refer to our directors as discussed in Item 6 herein.

“Articles of Association”Yancoal Australia” refers to Yancoal Australia Limited, a wholly owned subsidiary of the Company that manages our Articles of Association, as amended from time to time.investment projects in Australia.

Hong Kong Stock Exchange”Yankuang Group” or “Controlling Shareholder” refers to The Stock ExchangeYankuang Group Corporation Limited (formerly known as Yanzhou Mining (Group) Corporation Limited).

“Yulin Nenghua” refers to Yanzhou Coal Yulin Nenghua Company Limited, a wholly owned subsidiary of Hong Kong Limited.the Company that mainly engages in the operation of a 600,000-tonne methanol project in Shaanxi Province.

“Yushuwan Coal Mine Company” refers to Shaanxi Yushuwan Coal Mine Company Limited, a joint venture among the Company, Chia Tai Energy & Chemicals Company Limited and Yushen Coal Company Limited, of which we will hold a 41% equity interest. As used inof the date of this annual report, the establishment of Yushuwan Coal Mine Company is still pending regulatory approval.

For purpose of this annual report, “Eastern China” refers collectively to Shandong Province, Jiangsu Province, Anhui Province, Zhejiang Province, Fujian Province, Jiangxi Province and Shanghai Municipality; “Southern China” refers to Guangdong Province and Hunan Province and Guangxi Autonomous Region; and “Northern China” refers to Beijing Municipality, Tianjin Municipality, Hebei Province, Shanxi Province and the Inner Mongolia Autonomous Region.

“PRC government” or “State” means the central government of the People’s Republic of China (the “PRC” or “China”), including all political subdivisions (including provincial, municipal and other regional or local governmental entities) and instrumentalities thereof.

“Tonne” means metric tonne, which is equivalent to 1,000 kilograms or approximately 2,205 pounds.

Certain mining terms used in this annual report are defined in the “Glossary of Mining Terms”, which was included as Appendix B to our registration statement on Form F-l that we filed with the U.S. Securities and Exchange Commission. A copy of the “Glossary of Mining Terms” may be obtained upon written request to the Company.

CONVENTIONS

Unless otherwise specified, references in this annual report to “U.S. dollars”, “USD” or “US$” are to United States dollars, references to “HK dollars”, “HKD” or “HK$” are to Hong Kong dollars, references to “AUD”“A$” are to Australian dollars and references to “RMB” are to Renminbi, the lawful currency of the PRC. Our financial statements are denominated in RMB and, except as otherwise stated, all monetary amounts in this annual report are presented in RMB.

Solely for your convenience, certain items in this annual report contain translations of Renminbi amounts into U.S. dollars, which have been made at the rate of RMB6.8259RMB6.6000 to US$1.00, the certified exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board for December 31, 2009.30, 2010. No representation is made that the Renminbi amounts could have been or could be converted into U.S. dollars at that rate, or at all.

In this annual report, where information has been presented in thousands or millions of units, amounts may have been rounded up or down. Accordingly, the amounts identified as total amounts in tables may not be equal to the apparent sum of the amounts listed therein.

PART I

 

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

 

ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.KEY INFORMATION

 

A.Selected Financial Data

Historical Financial Data

The following table sets forth selected financial data as of and for the years ended December 31, 2006, 2007, 2008, 2009 and 2010. The selected income statement and cash flow data for the years ended December 31, 2007, 2008, 2009 and 20092010 and the selected balance sheet data as of December 31, 20082009 and 20092010 have been derived from our audited consolidated financial statements included elsewhere in this annual report and should be read in conjunction with those financial statements and the accompanying notes. Unless otherwise indicated, the financial statements have been prepared and presented in accordance with IFRS, as issued by the IASB.International Accounting Standards Board. Our selected income statement and cash flow data for the years ended December 31, 20052006 and 20062007 and our selected balance sheet data as of December 31, 2005, 2006, 2007 and 20072008 have been derived from our audited consolidated financial statements for thesethose periods and dates, which are not included in this annual report.

 

  As of and for the Year Ended December 31,  As of and for the Year Ended December 31, 
      2005          2006          2007          2008          2009          2009      2006 2007 2008 2009 2010 2010 
  RMB  RMB  RMB  RMB  RMB  US$  RMB RMB RMB RMB RMB US$ 
  (in millions except per Share and per ADS data)  (in millions except per Share and per ADS data) 

INCOME STATEMENT DATA

                   

Total revenue(1)

  12,447.0   12,944.0   15,110.4   24,903.1   20,253.4   2,967.1    13,224.3    15,403.7    25,287.4    20,677.1    33,944.3    5,143.1  

Gross sales of coal

  12,283.6   12,783.6   14,906.7   24,557.5   19,537.2   2,862.2    13,058.8    15,193.0    24,933.3    19,947.8    32,590.9    4,938.0  

Railway transportation service income

  163.4   160.4   203.7   247.2   258.4   37.9 

Railway transportation services income

   165.5    210.7    255.7    267.3    513.3    77.8  

Gross sales of electricity power

  —     —     —     59.8   185.6   27.2    —      —      59.8    187.5    185.5    28.1  

Gross sales of methanol

  —     —     —     38.6   258.9   37.9    —      —      38.6    258.9    629.3    95.3  

Gross sales of heat supply

  —     —     —     —     13.3   1.9    —      —      —      15.6    25.2    3.8  

Transportation costs of coal

  (930.1)  (936.6)  (549.8)  (508.7)  (403.3)  (59.1)   (936.6  (549.8  (508.7  (403.3  (1,160.5  (175.8

Cost of sales and service provided(1)

  (5,288.6)  (6,190.1)  (7,331.9)  (11,816.8)  (10,170.5)  (1,490.0)   (6,470.4  (7,625.2  (12,201.1  (10,590.0  (16,801.3  (2,545.7

Cost of electricity power

  —     —     —     (88.3)  (188.9)  (27.7)   —      —      (88.3  (190.8  (195.5  (29.6

Cost of methanol

  —     —     —     (37.8)  (352.9)  (51.7)   —      —      (37.8  (352.9  (716.8  (108.6

Cost of heat supply

  —     —     —     —     (7.4)  (1.1)   —      —      —      (9.7  (12.5  (1.9
                                     

Gross profit

  6,228.3   5,817.3   7,228.7   12,451.5   9,130.4   1,337.6    5,817.3    7,228.7    12,451.5    9,130.4    15,057.6    2,281.5  

Selling, general and administrative expenses

  (1,918.8)  (2,230.1)  (2,854.7)  (3,832.0)  (3,820.2)  (559.7)   (2,230.1  (2,854.7  (3,832.0  (3,820.2  (5,093.9  (771.8

Share of income (loss) of an associate

  —     —     (2.4)  (67.4)  109.8   16.1    —      (2.4  (67.4  109.8    8.9    1.3  

Other income

  135.0   165.8   198.9   351.5   311.0   45.6    165.8    198.9    351.5    311.0    3,108.1    470.9  

Interest expense

  (24.6)  (26.3)  (27.2)  (38.4)  (45.1)  (6.6)   (26.3  (27.2  (38.4  (45.1  (603.3  (91.4
                                     

Profit before income taxes

  4,419.9   3,726.7   4,543.3   8,865.2   5,685.8   833.0    3,726.7    4,543.3    8,865.2    5,685.8    12,477.3    1,890.5  

Income taxes

  (1,538.0)  (1,354.7)  (1,315.5)  (2,385.6)  (1,553.3)  (227.6)   (1,354.7  (1,315.5  (2,385.6  (1,553.3  (3,171.0  (480.5

Profit for the year

  2,881.9   2,372.0   3,227.8   6,479.6   4,132.5   605.4    2,372.0    3,227.8    6,479.6    4,132.5    9,306.3    1,410.0  
                                     

Profit attributable to our equity holders

  2,881.5   2,373.0   3,230.5   6,488.9   4,117.3   603.2    2,373.0    3,230.5    6,488.9    4,117.3    9,281.4    1,406.3  

Earnings per Share

  0.59   0.48   0.66   1.32   0.84   0.12    0.48    0.66    1.32    0.84    1.89    0.3  

Earnings per ADS

  5.86   4.82   6.56   13.19   8.37   1.23    4.82    6.56    13.19    8.37    18.87    2.9  

Operating income per Share before income tax

  0.90   0.76   0.92   1.80   1.16   0.17    0.76    0.92    1.80    1.16    2.54    0.4  

Profit from continuing operation per ADS before
income tax

  8.99   7.58   9.24   18.02   11.56   1.69    7.58    9.24    18.02    11.56    25.37    3.8  

CASH FLOW DATA

                   

Net cash from operating activities

  3,939.3   3,767.2   4,558.6   7,095.5   6,520.1   955.2    3,767.2    4,558.6    7,095.5    6,520.1    5,399.8    818.2  

Net cash used in investing activities

  (2,262.5)  (3,625.5)  (3,790.9)  (2,091.5)  (24,842.9)  (3,639.5)

Net cash from (used in) investing activities

   (3,625.5  (3,790.9  (2,091.5  (24,842.9  (5,884.4  (891.6

Net cash from (used in) financing activities

  (1,009.3)  (1,291.5)  (1,018.7)  (921.7)  18,503.7   2,710.8    (1,291.5  (1,018.7  (921.7  18,503.7    1,360.5    206.1  

BALANCE SHEET DATA

                   

Total current assets

  10,951.1   9,871.9   9,908.2   14,994.4   20,000.9   2,930.1    9,871.9    9,908.2    14,994.4    20,000.9    24,281.4    3,679.0  

Total current liabilities

  3,429.0   3,828.0   4,099.5   5,297.0   10,410.4   1,525.1    3,828.0    4,099.5    5,297.0    10,410.4    10,133.9    1,535.4  

Net current assets

  7,522.1   6,043.9   5,808.7   9,697.4   9,590.5   1,405.0    6,043.9    5,808.7    9,697.4    9,590.5    14,147.5    2,143.6  

Property, plant and equipment

  9,318.5   12,139.9   13,524.6   14,149.4   18,877.1   2,765.5    12,139.9    13,524.6    14,149.4    18,877.1    19,874.6    3,011.3  

Total assets

  21,254.4   23,458.7   26,187.4   32,338.6   62,432.6   9,146.4    23,458.7    26,187.4    32,338.6    62,432.6    72,755.9    11,023.6  

Long-term bank borrowing

  —     330.0   258.0   176.0   20,911.7   3,063.6    330.0    258.0    176.0    20,911.7    22,400.8    3,394.1  

Equity attributable to our equity holders

  17,618.6   18,931.8   21,417.5   26,755.1   29,151.8   4,270.8    18,931.8    21,417.5    26,755.1    29,151.8    37,331.9    5,656.3  

DIVIDEND PER SHARE

            

DIVIDEND DECLARED PER SHARE

       

A and H Shares

  0.26   0.22   0.20   0.17   0.40   0.06    0.22    0.20    0.17    0.40    0.59    0.09  

ADS

  2.60   2.20   2.00   1.70   4.00   0.59 

ADSs

   2.20    2.00    1.70    4.00    5.9    0.9  

(1)In this annual report, business taxes and surcharges have been reclassified as corresponding costs of each category of revenue to provide a more appropriate presentation. The same adjustments have been made to the corresponding prior year. The reclassification has no impact on the overall results of the Group. The attention of Shareholders and potential investors is drawn to such adjustments. For details, please see Note 2 of the consolidated financial statements attached to this annual report.

Number of Shares Outstanding

The following table sets forth the number of our A Shares, H Shares and ADSs outstanding as of the dates indicated.

   As of December 31,
   2005  2006  2007  2008  2009

A Shares

  2,960,000,000  2,960,000,000  2,960,000,000  2,960,000,000  2,960,000,000

H Shares

  1,958,400,000  1,958,400,000  1,958,400,000  1,958,400,000  1,958,400,000

ADS (1)

  1,845,974  5,461,179  3,338,368  18,919,105  19,403,533

   As of December 31, 
   2006   2007   2008   2009   2010 

A Shares

   2,960,000,000     2,960,000,000     2,960,000,000     2,960,000,000     2,960,000,000  

H Shares

   1,958,400,000     1,958,400,000     1,958,400,000     1,958,400,000     1,958,400,000  

ADSs

   5,461,179     3,338,368     18,919,105     19,403,533     19,744,158  

Exchange Rate Information

The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we use in this annual report or will use in the preparation of our periodic reports or any other information to be provided to you. The source of these rates is the Federal Reserve Bank of New York for the periods through December 31, 2008 and the Federal Reserve H.10 Statistical Release for the periods beginning on or after January 1, 2009.Release.

 

Period

   Period End     Average(1)       High          Low      Period End   Average(1)   High   Low 
  (expressed in RMB per US$)  (expressed in RMB per US$) 

2004

  8.2765  8.2768  8.2774  8.2764

2005

  8.0702  8.1826  8.2765  8.0702   8.0702     8.1826     8.2765     8.0702  

2006

  7.8041  7.9723  8.0702  7.8041   7.8041     7.9579     8.0702     7.8041  

2007

  7.2946  7.5806  7.8127  7.2946   7.2946     7.5806     7.8127     7.2946  

2008

  6.8225  6.9193  7.2946  6.7800   6.8225     6.9193     7.2946     6.7800  

2009

  6.8259  6.8307  6.8470  6.8176   6.8259     6.8295     6.8470     6.8176  

2010

   6.6000     6.7603     6.8330     6.6000  

October

   6.6707     6.6678     6.6912     6.6397  

November

   6.6670     6.6538     6.6892     6.6330  

December

  6.8259  6.8275  6.8299  6.8244   6.6000     6.6497     6.6745     6.6000  

2010

        

2011

        

January

  6.8270  6.8270  6.8295  6.8258   6.6017     6.5964     6.6364     6.5809  

February

  6.8258  6.8285  6.8328  6.8258   6.5713     6.5761     6.5965     6.5520  

March

  6.8258  6.8262  6.8270  6.8254   6.5483     6.5645     6.5743     6.5483  

April

  6.8258  6.8262  6.8270  6.8254   6.4900     6.5224     6.5477     6.4900  

May

  6.8305  6.8275  6.8310  6.8245   6.4786     6.4957     6.5073     6.4786  

June (through June 25, 2010)

  6.7911  6.8227  6.8323  6.7911

June (through June 17, 2011)

   6.4700     6.4785     6.4830     6.4700  

 

(1)Determined by averaging the rates on the last business day of each month during the respective period, except for monthly averages, which are determined by averaging the rates on each business day of the month.

On June 25, 2010,17, 2011, the noon buying rate was US$1.00 = RMB6.7911.RMB6.4700.

 

B.Capitalization and Indebtedness

Not applicable.

 

C.Reasons for the Offer and Use of Proceeds

Not applicable.

D.Risk Factors

Our business, financial condition and results of operations are subject to various changing business, competitive, economic, political and social conditions in China and worldwide. In addition to the factors discussed elsewhere in this annual report, the following are some of the important factors that could cause our actual results to differ materially from those projected in any forward-looking statements.

Our business and profitability are affected by global economic conditions.

The coal industry depends on general economic conditions, including the strength of global and local economies. In 2008 and 2009, the economies of the United States, Europe and certain countries in Asia experienced a severe and prolonged recession and China experienced a slowdown in overall economic downturn has adversely affected economies aroundgrowth, which led to a reduction in economic activity. In 2010, the world and businesses worldwide, including those in China, and the extent and timingaverage selling price of recovery are uncertain. Our revenue and profitcoal in the first three quartersPRC experienced fluctuations due to global and local economic conditions. In spite of 2009 were diminishedcertain policies and initiatives implemented by weakthe PRC government to alternately stimulate, and then moderate economic conditions, extreme market volatility and decreased demand for coal, particularly from industrial customers. Aswe cannot assure you that another recession would not occur or that a result, our coal prices and marginsdecline in 2009 were lower thanoverall economic conditions would not recur in the previous year. Althoughfuture. In the event of such a recession or decline in economic conditions, in China have improved since the fourth quarter of 2009, competition for market share and pressure on profit margins may intensify again if there is a renewed declinewhether globally, locally in the globalPRC or in our major markets, our business and profitability may be adversely affected. We cannot assure you that the PRC government will not implement tightening policies to manage the growth of the economy or if confidenceto control an overheated economy in economic recovery wanes. The occurrence of the foregoingfuture, which may have a negative impact on our suppliers and customers, which in turn affect coal prices. In the event that this occurs, our business and profitability may affect our results of operations, financial conditionbe materially and cash flow.adversely affected.

Our business and results of operations depend on the volatile domestic and international coal markets.

As substantially allwe derive a substantial portion of our revenue is derived from sales of coal, our business and operating results depend upon supply and demand for coal in the domestic and international coal marketsmarkets. The prices of coal have a significant effect on our businessbeen historically volatile and operating results. The domestic and international coal markets are cyclical and have historically experienced price volatility, which reflect PRC and globalfluctuate in response to general economic conditions, supply and fluctuationsdemand and the level of global inventories. From the fourth quarter of 2008 through early 2009, the demand for coal decreased significantly as a result of the global financial crisis. Since 2009, demand for coal in coal demand from industriesChina and worldwide, along with high coal consumption, among other factors. Difficult economic conditions in 2009 caused average coal prices, to decline from record high levels in 2008, which in turn negatively affected our operational and financial performance.has substantially recovered. The average selling price of our coal products was RMB409.0, RMB640.2RMB663.9, RMB529.2 and RMB507.4RMB663.5 per tonne in 2007, 2008, 2009 and 2009,2010, respectively. Although demand for coal in China and worldwide has substantially recovered, along with coal prices, since the second half of 2009 because of improvements in global macroeconomic conditions,However, we cannot assure you that demand for and prices of coal will not decline again, the occurrence of which may adversely affect our results of operations.

Global coal demand correlates strongly with the global economy and the performance of coal-consuming industries, including the power generation, chemical, metallurgy and construction materials industries. In addition, the availability and prices of alternative energy sources to coal, as well as international shipping costs, also affect demand for coal. Thecoal demand. Coal supply, of coal, on the other hand, is primarily affected by the geographical location of coal reserves, the transportation capacity, of coal. Within China, coal is generally transported on railways and internationally through seaports, the level of domestic and international coal supplies and the type, quality and price of coal from other coal producers. Developments in the international coal market may adversely affect our overseas sales, which we expect to increase following the expansion of our Australian operations. A significant increase in global coal supply or reduction in demand for coal from key consuming industries may decrease coal prices, which in turn may reduce our profitability and adversely affect our business and results of operations.

Our business is dependent on short-term sales contracts and letters of intent.

Approximately 86.9%, 87.5%In 2008, 2009 and 86.4%2010, the majority of our sales income (the invoiced amount of coal sold net sales in 2007, 2008of returns and 2009, respectively, werediscounts) of coal was derived from short-term sales contracts or letters of intent. These sales contracts and letters of intent generally specify the quantity and delivery schedule of purchases for a term generally not exceeding one year. Coal prices under the letters of intent are generally determined subsequently at the time of sale to reflect prevailing market prices. If we experience a weak coal pricing environment that results in a decline in coal prices at the time of actual sale, our revenue and profitability would be reduced.

Historically, our customers have performed a significant majority of their purchase obligations under the sales contemplated by thecontracts and letters of intent we enter into.with us. However, a sudden and significant increase in the proportion of unperformed sales contracts and letters of intent or unrealized sales could have a material adverse impact on our results of operations andif we mayare not be able to findlocate alternative purchasers inat the short term to replace our lost sales.similar level of profitability. Furthermore, any changes in the cost or availability of labor, raw materials or transportation or changesvolatility in foreign exchange rates during the period between the formation and performance of these sales contracts and letters of intent may adversely affect our ability to perform our contractual obligations or the profitability of our sales.profitability.

Our products may be subject to governmental price control measures, which may adversely affect our profitability.

TheAlthough the PRC government has implemented a series of measures to overhaul historical price and supply controls on coal with the aim to develop stronger market mechanisms in the PRC coal market. Although the PRC governmentand continues to support the increasing market orientationdevelopment of thea market-orientated PRC coal market, the PRC governmentit may intervene in the domestic coal market from time to time through the use of macroeconomic measures to stabilize the market and achieve national social and economic goals. In 2008,For example, the National DevelopmentState Council of China and Reform Commission, orthe NDRC imposed temporarypublished announcements in November and December 2010, respectively, imposing price caps on coal prices whensold pursuant to key thermal coal supply agreements imposed with reference to the coal prices of the agreements entered into by the relevant enterprises in 2010. Such price caps were at record highs to ensure uninterrupted operations at power plants duringreemphasized by the peak season for electricity demand. Similarly the provincial governments of Shandong and Shaanxi implemented temporaryNDRC in announcements issued in April 2011. These price-intervention measures in the same year to ensure the market supply of thermal coal by strictly enforcing coal supply contracts, mandating increases in coal supplies and setting a moratoriums on thermal coal price increases.

Even though the above measures were abolished in 2008 and no similar measures were implemented in 2009, we cannot assure you that the PRC government will not intervene in the domestic coal market in the future, which may limit the degree of control we have over certain aspects of our business and may have a negative impact on our operations, pricing and profitability.

We rely on the PRC national railway system to deliver our products.

We rely on the PRC national railway system, as well as our railway network, to deliver coal to customers. Approximately 37.3%We generated approximately 33.6%, 32.9%32.1% and 31.9%22.7% of our total sales volumeincome (the invoiced amount of coal in 2007, 2008sold net of returns and 2009, respectively, werediscounts) of coal products sold and transported on the PRC nationalstate-owned railway system (coal exclusive(exclusive of sales where the coal sold was transported exclusively on our own railway network). in 2008, 2009 and 2010, respectively. Although the PRC government has taken steps to upgrade and expand the national railway system, its current transportation capacity is generally not sufficient to meet the entire domestic coal transportation requirements.requirement. Even though our domestic customers are mainly located in Eastern China, where the railway system is relatively more developed than other regions of China, our ability to deliver coal can potentially beis still restricted by limitations inthe transportation capacity. In addition to railway transportation, we use major coal shipping ports along the coast of China to shipdeliver coal to customers located along the coastal regionregions of China. WeHowever, we cannot assure you that we will be able to continue to securesecuring sufficient railway and port capacity to deliver our coal or that we will not experience any material delivery delays in deliveries or substantial increases in transportation costs as a result of insufficient railway capacity. For details about our sales income of coal, please refer to “Item 5. Operating and Financial Review and Prospects — Coal Business”.

The coal reserve data in this annual report are only estimates, which may differ materially from actual results.

Our coal reserve data are only estimates, which may differ materially from actual reserves. Our reserve estimates may change substantially if new information becomes available. There are inherent uncertainties in estimating reserves, which require the consideration of a number of factors, assumptions and variables, many of which may be beyond our control and cannot be ascertained despite due investigation. Our actual results of operations may differ materially from our long-term business and operational plans, which are based on our coal reserve estimates. We cannot assure you that we will not adjust our coal reserve estimates downward in the future, and in such event, our long-term production and the useful life of our mines may be materially and adversely affected.

Competition in the PRC and the international coal industry is intensifying, and we may not be able to maintain our competitiveness.

We face competition in all aspects of our business, including pricing, production capacity, coal quality and specifications, transportation capacity, cost structure and brand recognition. Our coal business competes in the domestic and international markets with other large domestic and international coal producers. Ongoing consolidation in the PRC coal industry has increased the level of competition in China. Our competitors may have higher production capacities, stronger brand names and more financial, marketing, distribution and other resources than we do.

We may not be able to maintain our competitiveness if changes or developments in the market weaken our existing competitive advantages. The quality of our coal products positions us favorable against our competitors. However, weWe cannot assure you that efforts taken by our competitors to improve the quality of their coal will not erode this advantage. We also cannot assure you that continualthe quality advantage we have over them. Continual improvements in China’s transportation infrastructure, particularly the national railway transportation network, will notmay diminish our geographicproximity advantage of being located in Eastern China, the region in China with the highest coal demand. We believe that we have competed favorablydemand in terms of transportation capacity and delivery costs.the PRC. Our principal competitors are located predominately in Shanxi Province, Shaanxi Province and the Inner Mongolia Autonomous Region, where there have been occasional rail capacity shortages and the costs of transporting coal to Eastern China are more significant. However, the PRC government has constructed and plans to continue constructing additional railways to transport coal from northern and northwestern China to Eastern China. The completion of these railway projects may increase the supply of coal that can be delivered to customers in Eastern China, increasing the effective supply of coal, which may have a material adverse impact on our results of operations.

Our results of operations depend on our ability to continue acquiring or developing suitable coal reserves.

The recoverable coal reserves in our existing mines decline as we produce coal. AsDue to the limitation on our ability to significantly increase our production capacity at existing mines, is limited, our ability tosuch as Jining II Coal Mine, Jining III Coal Mine and Tianchi Coal Mine, the increase in our coal production will dependdepends on our ability to increase production at our recently developed and futurethe coal reserves and acquiring newwe developed recently or will develop in the future, as well as our newly acquired coal resources.

We acquired the mining rights of Zhaolou Coal Mine through Heze Nenghua in May 2008, and commenced production at Zhaolou Coal Mine in December 2009. On December 23, 2009, we completed the acquisition of the entire equity interest in Felix, which hashad an equity interest in fourthree operational mines and three exploratory mines. In December 2009, we established Ordos NenghuaNeng Hua to manage our investments in the Inner Mongolia Autonomous Region, including a coal mining project. In 2010, Ordos Neng Hua acquired a 100% equity interest in a 600,000 tonnes methanol project. We acquired the entire assets of Anyuan Coal Mine in December 2010, which has commenced production in early 2011. We also obtained a 61% equity interest in Haosheng Company as of the date of this annual report. We are also in the process of establishing an associate company for a coal mining project in Yushuwan, Shaanxi Province. For more information about the development and acquisition of our coal resources, please refer to “Item 4. Information on the Company — History and Development of Our Company” in this annual report.

The acquisition of new mines by PRC coal companies, either within China or overseas, and the procurement of related licenses and permits are subject to PRC government approval. Delays in securing or failure to secure relevant PRC government approvals, licenses or permits, as well as any adverse change in government policies may hinder our expansion plans, which may materially and adversely affect our profitability and growth prospects. In connection with overseas acquisitions and expansion, we may encounter challenges due to our unfamiliarity with local laws and regulations, suffer foreign exchange losses on overseas investments or face political or regulatory obstacles to acquisitions. We cannot assure you that our overseas expansion plans and investments will be successful.

We cannot assure you that we will be able to continue to identify suitable acquisition targets or acquire these targets on competitive terms and in a timely manner. We may not be able to successfully develop new coal mines or expand our existing ones in accordance with our development plans, or at all. Failure to successfully acquire suitable targets on competitive terms, develop new coal mines or expand our existing coal mines could have an adverse effect on our competitiveness and growth prospects.

Our operations may be affected by uncertain mining conditions.

Our operations are subject to certain risks inherent in underground mining, which may affect the safety of our workforce or cost of producing coal. These conditions includecoal, including, without limitation, roof collapses, deterioration in the quality or variations in the thickness of coal seams, minewater discharge, explosions from methane gas or coal dust, ground falls and other mining hazards. Additionally, we are exposed to operational risks associated with industrial or engineering activities, such as maintenance problems or equipment failures. Although we conduct geological assessments on mining conditions and adapt our mining plans to the mining conditions at each mine, we cannot assure you that adverse mining conditions would not endanger our workforce, increase our production costs, reduce our coal output or temporarily suspend our operations. The occurrence of any of the foregoing events or conditions would have a material adverse impact on our business and results of operations.

We may suffer losses resulting from mining safety incidents.

Our coal mines and operating facilities may be damaged by water, gas, fire or cave-ins due to unstable geological structures. Like other coal mining companies, we have experienced accidents that have resulted in property damage and personal injuries. Although we have implemented safety measures at our mining sites, trained our employees on occupational safety and maintain liability insurance for personal injuries as well as limited property damage for certain of our operations, we cannot assure you that safety incidents will not occur. Any significant accident, business disruption or safety incident could result in substantial uninsured costs and the diversion of our resources, which could materially and adversely affect our business operations and financial condition.

We may be required to allocate additional funds for land subsidence.

Underground mining may cause the land above mining sites to subside. We may compensate inhabitants in areas surrounding our mining sites for their relocation expenses or for any property loss or damage as a result of our mining activities. PRC regulations require us to set aside provisions to cover the costs associated with land subsidence, restoration, rehabilitation and environmental protection. An estimated provision is deducted as an expense in our income statement based on the amount of coal actually extracted.

In 2009, RMB623.72010, approximately RMB693.7 million of our provisions for land subsidence, restoration, rehabilitation and environmental protection was expensed. The provision for land subsidence, restoration, rehabilitation and environmental costs is determined by our Directors based on estimations on various factors, including past occurrences of land subsidence. However, the provisionprovisions that we make are only estimates and may be adjusted to reflect the actual effects of our mining activities on the land above and surrounding our mining sites. Therefore, there can be no assurance that such estimates will be accurate or that our land subsidence, restoration, rehabilitation and environmental costs will not substantially increase in the future or that the PRC government will not impose new fees or change the basis of calculating compensation and reclamation costs in respect of land subsidence, the occurrence of any of which could increase our costs and have a material adverse effect on our results of operations.

PRC quotas for coal exports may adversely affect the level of our coal export sales.

Our export sales conducted from China (not including the sales by Yancoal Australia) accounted for 4.3%approximately 0.9%, 0.8%0.3% and 0.2%0.03% of our net sales income of coal in 2007, 2008, 2009 and 2009,2010, respectively.The NDRC and the Ministry of Commerce setsset an annual export quota for domestic coal producers and allocate the quota among authorized coal exporters. Our export agents have historically received sufficient export quota to satisfy our export requirements. However, we are unable to predict what impact, if any, the national export quota may have on the level of our future export sales. If the national quota for coal exports is further reduced, our future export sales could be limited, which in turn could adversely affect our results of operations.

We do not have an export permit and cannot directly export our coal. All of our export sales must be made through intermediary export agents such as China National Coal Industry Import and Export Corporation, China National Minerals Import and Export Company Limited and Shanxi Coal Import and Export Group Company. The terms of our export sales are determined collectively by us, the export agents and our overseas customers. Although we have applied to the PRC central government for direct export rights with the assistance of the Shandong provincial government, we may not obtain such rights and may have to continue relying on export agents to export our coal from China.

Our business operations may be adversely affected by present or future environmental regulations.

As a PRC coal producer, we are subject to extensive and increasingly stringent environmental protection laws and regulations. These laws and regulations:

 

impose fees for the discharge of waste substances;

 

require provisions for land reclamation and rehabilitation;

 

impose fines and other penalties for serious environmental offenses; and

 

authorize the PRC government to close any facility that fails to comply with environmental regulations and suspend any coal operation that causes excessive environmental damage.

Our coal mining operations produce waste water, gas emissions and solid waste materials. The PRC government has tightened its enforcement of applicable laws and regulations and adopted more stringent environmental standards. Similarly, our Australian operations are subject to Australia’s stringent environmental regulations. Our budgeted amount for environmental regulatory compliance may not be sufficient, and we may need to allocate additional funds for this purpose. If we fail to comply with current or future environmental laws and regulations, we may be required to pay penalties or fines or take corrective actions, any of which may have a material adverse effect on our business, results of operations and financial condition.

In 2006,March 2011, the PRC government releasedNDRC promulgated the outlinemain targets of the Eleventh Five-Year Plan (2006 to 2010)resources conservation and environment protection for National Economic and Social Development,2011, which setsset the goals to decrease the amount of energy consumed per unit of GDP by 20%3.5% and to reduce the emission of certain major pollutants by 10%. In November 2009, the PRC government announced plans to reduce carbon emissions relative to the size of the PRC economy by 40% to 45% using 2005 emission levels as a baseline.1.5% in 2011 compared with that in 2010. If efforts to increase energy efficiency, and control greenhouse gas emissions and enhance environmental protection result in a decrease in coal consumption, our revenue may decrease and our business may be adversely affected.

We face pricing volatility and intense competition in our methanol operations.

We entered the PRC methanol market and commenced production of coal-based methanol at Tianhao Chemicals and Yulin Nenghua in September 2008 and August 2009, respectively. The methanol business is a cyclical and competitive commodity industry with dynamic supply and demand fundamentals. The priceFrom 2006 to 2010, the domestic methanol industry suffered from significant overcapacity following a period of rapid expansion and increased investment, which were stimulated by speculation on the development of methanol downstream applications and the overheated coal chemical industry. Stagnation in China decreased sharplymarket demand for methanol as a result of difficulty in promoting the second halfutilization of 2008 and throughmethanol downstream products caused the first three quarters of 2009over capacity issue to further deteriorate. We expect methanol prices in domestic market to remain sluggish due to overcapacity from previous years of industry expansion and weak demand from major downstream markets. Methanol prices have since increased as the global demand and economic conditions have improved. As of May 2010,above mentioned conditions. In March 2011, the PRC benchmark methanol price increased to RMB2,240RMB2,670 per tonne from RMB1,970RMB2,590 per tonne in May 2009,March 2010, representing a 13.7%3.1% increase.

We expect our methanol prices to be affected by a number of factors, including, but not limited to:without limitation:

 

global and domestic methanol production;

 

global energy prices;

 

methanol plant utilization rates, capacity additions and shut downs;

 

global economic conditions;

 

our cost structure, product quality, availability of raw materials and utilization of our methanol plants;

 

compliance costs and environmental risks; and

 

foreign competition from low cost methanol producers which may have greater resources.

As of the end of 2009,2010, we had a total methanol production capacity of 700,000 tonnes. As with developing any new business, we may not achieve optimaloptimize the utilization of our new facilities as planned. For example, Tianhao Chemicals has not been able to procure a steady supply of key raw material from its sole supplier of coke oven waste gas and has not been able to maintain steady operations as of the date of this annual report, which significantly curtailed its production in 2009.2010.

If our projections for the domestic methanol market prove incorrect or if we are unable to otherwise compete effectively, we may not recover the capital and resources we have invested in our methanol operations and realize the intended benefits of our business expansion. In either event, our business and profitability will be adversely affected.

Our electric power business is heavily regulated, which may affect our results of operations.

We generated RMB185.6RMB185.5 million of revenue from electric power sales, which represented less than 1%approximately 0.5% of our total revenue in 2009.2010. The significant majority of electricity that we produce is intendedproduced was for our owninternal use and only a smallwe sold the remaining portion is sold externally.to external customers. To the extent that we do sell electricity, any decrease in the government-set grid power prices, the price at which power grid operators purchase electricity from power plants, including our power plants, may reduce our profitability and adversely affect our results of operations.

The operation of coal-fired power plants is subject to increasingly stringent emission standards of the PRC government, in particular, the resources conservation and environmental protection standards for 2011 set forth by the NDRC, which will set newstipulated the standards for air pollutant emission in 2010 underemissions for the Emission Standard of Air Pollutants for Thermal Power Plants.power plants. As a result, our compliance costs will likely increase and the profitability of our electric power business may be reduced.

We are exposed to fluctuations in exchange rates and interest rates.

We have entered into hedging arrangements designed primarilymainly face risks relating to manage our exposure to foreign currency and interest rate fluctuations. Fluctuations in currency exchange rates may adversely affect the value of our net assets, capital investments, earnings and any declared dividends when translated or converted into U.S. dollars or Hong Kong dollars. RMB fluctuations mainly affect our income from exports denominated in foreign currencies, our conversion of foreign currency deposits and the cost of imported equipment and components. We face risks stemming from exchange rate fluctuations between the Australian dollar and U.S. dollar because (1)dollar. China has adopted a managed floating exchange rate system to allow the borrowings we incurred forvalue of the Felix acquisition areRenminbi to fluctuate within a regulated band based on market supply and demand with reference to a basket of currencies. The primary effect of exchange rate fluctuations on us is due to our exports denominated in U.S. dollars and Australian dollars. As a result, exchange rate fluctuations can affect our export sales. In addition, exchange rate fluctuations can result in exchange losses on our foreign currency deposits and (2) Yancoal Australia’s export sales are denominated in U.S. dollars but its functional currency isloans. As of December 31, 2010, the exchange rate for the Australian dollar andagainst the U.S. dollar was 1.0163 (A$1.00 = US$1.0163), compared with A$1.00 = US$0.8985 as of December 31, 2009. Yancoal Australia recorded an exchange gain of RMB2,688.2 million during the reporting period. Exchange rate fluctuations can affect Yancoal Australia’s resultsour cost of operations.imported equipment and components.

To manage uncertainty in our revenue stream and capital expenditures caused by exchange rate fluctuations, we have entered into forward foreign exchange contracts to sell or purchase specified amounts of foreign currencies at stipulated exchange rates. We have also entered into interest rate swap contracts with banks to hedge a portion of our variable interest rate borrowings. As of December 31, 2009,2010, the fair value assetof our derivative assets in respect of our foreign exchange contracts was RMB37.8RMB239.5 million, compared with the fair value liabilityof our derivative liabilities in respect of our forward contracts and interest rate swap contracts of approximately RMB28.3RMB166.2 million. See “Item 11. Quantitative and Qualitative Disclosures about Market Risks — Foreign Currency Exchange Rate Risk” for details on our hedging activities. We cannot assure you that our hedging arrangements will remain effective or that our results of operations will be not negatively affected by fluctuations in exchange rates or interest rates.

Our substantial indebtedness could adversely affect our business, financial condition and results of operations.

As of December 31, 2009,2010, we had approximately RMB22,509.8RMB23,015.8 million in bank borrowings, of which RMB1,598.1approximately RMB614.9 million is due within a year, RMB20,845.7approximately RMB22,356.8 million is due after one year but within five years and RMB66.0approximately RMB44.0 million is due after more than five years. Substantially all of our increase in our bank borrowings was attributable to our acquisition of Felix. This level of debt could have significant consequences on our operations, including:

 

reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes as a result of our debt servicing obligations;

 

limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, our industry and the general economy; and

 

potentially limiting our ability to obtain or increasing the cost of any additional financing.

Our borrowingsIn addition, Yancoal Australia obtained a syndicated loan amounting to approximately US$3,040.0 million attributable to the Felix acquisition amounting to US$3,040.0 millionin December 2009, which is guaranteed by us and secured by a counter guarantee from Yankuang Group. Failure by us to satisfy our repayment obligations could result in an event of a default that, if not cured or waived, could have a material adverse effect on us.

If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment and other obligations under our outstanding debt, which may have a material adverse effect on our results of operations and financial condition.condition may be materially and adversely affected.

The operations of our Controlling Shareholder have a significant impact on us.

As of December 31, 2009,2010, our Controlling Shareholder, the Yankuang Group, owned 52.86% of our outstanding shares and exerts significant influence over us. We may continue to enter into a number of connected transactions with the Yankuang Group. Pursuant to the regulations of the Hong Kong Stock Exchange and the Shanghai Stock Exchange on continuing connected transactions, we complete the necessary review and approval procedures before entering into continuing connected transactions. We have entered into five continuing connected transaction agreements with Yakuangthe Yankuang Group, namely the Provision of Materials Supply Agreement, ProvisionSupply of Labor and Services Supply Agreement, Provision of InsurancePension Fund Administrative ServicesManagement Agreement, Provision of Coal Products and the Materials Supply Agreement and Provision of Electricity and Heat Energy Supply Agreement, each of which has a term from 2009 to 2011. In the fourth quarter of 2008, our shareholders approved the amendment and renewal of the five foregoing continuing connected agreements. On April 23, 2011, we also entered into the Finance Services Agreement with Yankuang Group Finance Company Limited, a joint venture established by the Yankuang Group, China Credit Trust Co., Ltd and us. Any material financial or operational developments experienced by the Yankuang Group that lead to the disruption of its operations or impairs its ability to perform its obligations under the agreements could materially affect our operations and future prospects.

As our Controlling Shareholder, the Yankuang Group has the ability to exercise control over the Company’s business and affairs, including, but not limited to, decisions with respect to:

mergers or other business combinations;

the acquisition or disposition of assets;

the issuance of any additional shares or other equity securities;

the timing and amount of dividend payments; and

the management of our Company.

Our operations are affected by a number of risks relating to the PRC.

AsBecause a significant majority of our assets and operations are located in China, we are subject to a number of risks relating to conducting business in China, including, but not limited to, the following:

 

The central and local governments of the PRC have historically supported the development of the PRC coal industry and the continued operation of selected coal producers. A change in current policies that are favorable to us may adversely affect our ability to expand our business operations or increase our profitability.

 

Under current PRC regulatory requirements, we must obtain approval from relevant administrative authorities of the PRC government for any material capital expenditure we allocate to the development of new coal mine projects must be approved by the PRC government.project. Failure to obtain timely approvals for our projects may adversely affect our business plans and operating results.

 

China is still in the process of developing a comprehensive legal system. The enforcement of certain laws in China may still be subject to uncertainty. In addition,For instance, under current PRC tax laws, dividends payable to an non-PRC individual holders of shares outside the implementation of government policies,PRC are no longer exempted from timePRC individual income tax and are subject to time, may also affect20% individual income tax. However, this rate is still subject to adjustment in accordance with the interpretation of existing laws and regulations.applicable tax treaties or arrangement, pending on further confirmation from the relevant PRC authorities. Please refer to “Item 10. Additional Information — E. Taxation” for more details about this tax treatment.

 

The PRC government’s ongoing reform of the PRC economic system may increase the uncertainties in our business as a number of reforms are unprecedented or experimental and may be subject to refinement and adjustments. We may be directly affected by these reforms or indirectly affected by changes in political, economic and social factors that result from these reform measures. Our operating results may be adversely affected by changes in economic and social conditions in China and changes in the PRC government policies related, but not limited, to inflation control, economic stimulus policies, tax policies and rates, currency conversion restrictions and tariffs and other import restrictions.

Our coal operations are extensively regulated by the PRC and Australian government and government regulations may limit our activities and adversely affect our business operations.

Our coal operations in China are subject to extensive regulation by the PRC government. National governmental authorities, such as the NDRC, the Ministry of Environmental Protection, the Ministry of Land and Resources, the State Administration of Coal Mine Safety and the State Bureau of Taxation, as well as corresponding provincial and local authorities and agencies, exercise extensive control over the mining and transportation (including rail and sea transport) of coal within China.

Our operations in Australia are subject to similar laws and regulations of general application governing mining and processing, land tenure and use, environmental requirements, including site specific environmental licenses, permits and statutory authorizations, workplace health and safety, trade and export, competition, access to infrastructure, foreign investment and taxation. These regulations may be implemented by various federal and state government departments and authorities including the Department of Resources, Energy and Tourism, the Department of Environment, Water, Heritage and the Arts and the National Native Title Tribunal.

Regulatory oversight from these authorities and agencies may affect the following, among others, aspects of our operations:

 

the use and grant of mining rights;

 

rehabilitation of mining sites and surrounding areas;

 

mining recovery rates;

 

pricing of our transportation services for coal in China;

taxes, levies and fees on our business;

 

application of capital investments;

 

export quotas and procedures;

 

pension fund contributions;

 

preferential tax treatment; and

 

environmental and safety standards.

As a result of the foregoing regulation, our ability to execute our business strategies or to carry out or expand our business operations may be restricted. We may experience substantial delays in obtaining regulatory approvals, permits and licenses for our business operations. Our business may also be adversely affected by future changes in PRC or Australian regulations and policies that affect the coal industry. The adoption of new legislation or regulations, or the new interpretation of existing legislation or regulations, may materially and adversely affect our operations, our cost structure or product demand. The occurrence of any of the foregoing may cause us to substantially change our existing operations or incur significant compliance costs. For example, the Australia federal government announced proposals to implement a 40% resource tax on profitsResource Super Profits Tax generated from non-renewable resources forby mining companies, which is currently scheduled to come into effect on July 1, 2012. The tax payable of coal producers will increase substantially should this tax proposal become effective. The newly elected prime minister of Australia, Julia Gillard, later announced certain modifications to the Resource Super Profits Tax proposal, including, without limitation, reducing the number of affected companies, decreasing the applicable tax rate and increasing the range of tax credit available to mining companies. Notwithstanding the substantial modifications, the new tax proposal will still increase the taxation obligation of coal producers. In addition, we are subject to various uncertainties in relation to the foregoing tax proposal which has not yet been approved by the Australian government, including, without limitation, the final arrangement and the time of implementation. We expect the implementation of the foregoing tax proposal will have a material adverse effect to the profitability of our operations in Australia will be substantially eroded if this tax is approved and goes into effect.Australia.

We may not realize all or any of the anticipated benefits from the acquisition of Felix.

The success of our recent acquisition of Felix will depend, in large part, on our ability to realize the anticipated benefits, namely the increase in coal reserves, production capacity and economies of scale anticipated by us at the time of acquisition, and within the planned costs and timeframe to realize these benefits. Expanding our business through acquisitions, including our recent acquisition of Felix, involves various inherent risks, such as:

uncertainties in assessing the value, strengths and potential profitability of, and identifying the potential weaknesses, risks, contingent and other liabilities of, an acquisition target;

increasing our cost of compliance, and exposure of non-compliance, with the laws and regulations of Australia regarding mining rights, land reclamation, export quotas and environmental protection and work safety;

subsequent developments in the Australian regulatory environment, which may affect our operations and the timing and desirability of our projects; and

unanticipated changes in business, industry or general economic conditions that affect the assumptions or rationale underlying the acquisition.

In addition, we have made a number of undertakings to the Australian government in connection with the acquisition, see “Item 4. Information on the Company — History and Development of our Company — Acquisition of Felix.” If we are not able to execute our plans with respect to Felix acquisition or if there are unfavorable changes in the assumptions underlying our acquisition, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected.

ITEM 4.INFORMATION ON THE COMPANY

 

A.History and Development of our Company

Yanzhou Coal Mining Company Limited was established on September 25, 1997 as a joint stock company with limited liability under the Company Law of the PRC (the “Company Law”). The predecessor of our Company, Yanzhou Mining Bureau, was established in 1976. UponWith the approval fromof the former State Economic and Trade Commission and the former Ministry of Coal Industry in 1996, the predecessor was incorporated under the name Yanzhou Mining (Group) Corporation Limited and subsequently renamed Yankuang Group Corporation Limited after undergoing thea reorganization in 1999.

In January 1999, we were approved by the Minister of Foreign Trade and Economic Cooperation, the predecessor of the Ministry of Commerce, to convert toapproved our conversion into a Sino-foreign joint stock company with limited liability under the Company Law and the Sino-Foreign Joint Venture Law of the PRC.

Our contact information is:

 

Our contact information is:

•    Business address

  

:

  

298 South Fushan South Road

Zoucheng, Shandong Province

People’s Republic of China

(273500)

•    Telephone number

  :  (86) 537 538 2319

•    Website

  :  http://www.yanzhoucoal.com.cn

Establishment of Ordos Neng Hua and Acquisition of Coal Chemical Project

We established Ordos Neng Hua in the Inner Mongolia Autonomous Region in December, 2009. Ordos Neng Hua will act as our investment management platform for coal mining, coal chemicals and a coal power project in Inner Mongolia. As of the date of this annual report, the registered capital of Ordos Neng Hua was RMB3.1 billion.

Subsequently, the Company and Ordos Neng Hua successively completed the following related acquisitions: acquisition of 100% of the equity interests in a 600,000-tonne methanol project, the acquisition of a 61% equity interest in Haosheng Company, the acquisition of the entire assets of Anyuan Coal Mine and obtaining the mining rights of Zhuan Longwan coal mine field through public bidding. These acquisitions should assist us in acquiring coal resources in Ordos City, further participating in coal resources development in the Inner Mongolia Autonomous Region and enhancing the sustainable development ability and core competitiveness of the Company.

Acquisition of 100% equity interest in the 600,000-tonne methanol project

Pursuant to approval granted at the general manager working meeting held on December 1, 2009, Ordos Neng Hua acquired 100% of the equity interests held by Kingboard Chemical Holdings Limited in Inner Mongolia Rongxin Chemicals Co., Ltd, Inner Mongolia Daxin Industrial Gas Co., Ltd and Inner Mongolia Yize Mining Investment Co., Ltd, for a consideration of RMB190 million out of its own resources. The relevant procedures for the share ownership transfer procedures were completed on April 16, 2010. The above companies are responsible for the establishment of the first phase of the 600,000-tonne methanol project.

Acquisition of Inner Mongolia Haosheng Coal Mining Company Limited

Currently, Haosheng Company is primarily responsible for the approval application for the mining project and the grant of the mining rights of Shilawusu Coal Mine field Project in the Inner Mongolia Dongsheng Coal Field.

Pursuant to approval granted at the fifteenth meeting of the fourth session of the Board held on August 20, 2010, we entered into the equity transfer agreement of Haosheng Company and its supplementary agreement on September 6, 2010 and October 19, 2010, respectively. Under such agreements, we acquired 51% of equity interests in Haosheng Company originally held by Shanghai Huayi (Group) Company (“Huayi”), Ordos Jinchengtai Chemical Co., Ltd (“Jinchengtai”) and Shandong Jiutai Chemical Industrial Technology Company Limited (“Jiutai Technology”) in Haosheng Company for a consideration of approximately RMB6,649 million. The Company and other shareholders of Haosheng Company are obligated to inject further capital on a pro-rata basis in order to increase the registered capital from RMB50 million to RMB150 million.

The initial payment of the consideration and capital increase in Haosheng Company in a total amount of approximately RMB2,045.8 million was paid by us on October 20, 2010 and the share ownership transfer procedures were completed on November 4, 2010. We are obligated to pay a second installment of approximately RMB2,659.6 million within 15 working days when any of the following requirements has been met: (i) Haosheng Company obtains the exploration rights license of Shilawusu Coal Mine field; (ii) the mining zone delineation of Shilawsu Coal Mine Zone or other applications related to mining rights have been approved by the Ministry of Land and Resources (the main body to have obtained the mining zone delineation or other mining rights must be Haosheng Company). The third installment of approximately RMB1,994.7 million shall be paid within 10 months after completion of the second payment.

As of March 31, 2011, we entered into an equity transfer agreement of Haosheng Company with Ordos City Jiutaimanlai Coal Mining Company Limited (“Jiutaimanlai”) and Jiutai Technology to acquire 10% of the equity interests in Haosheng Company held by Jiutaimanlai and Jiutai Technology for a consideration of approximately RMB1,313.8 million. We paid the initial payment of approximately RMB394.1 million (representing 30% of the total amount) on April 7, 2011. Currently, we are processing the share ownership transfer procedures. Upon completion of the transfer, we will hold 61% of the equity interests in Haosheng Company. We are obligated to pay the second and third installments upon the same conditions as the payment arrangements in our acquisition of 51% of the equity interests.

Acquisition of Anyuan Coal Mine

Pursuant to approval granted at the general manager working meeting held on November 12, 2010, Ordos Neng Hua entered into Anyuan Coal Mine Transfer Agreement and its supplementary agreement on November 20, 2010 and January 20, 2011, respectively, to acquire the total assets of Anyuan Coal Mine for a consideration of approximately RMB1,435 million. Pursuant to the transfer agreement, Ordos Neng Hua acquired the Anyuan Coal Mine on December 1, 2010, but still subject to relevant governmental approval. Since December 1, 2010, Ordos Neng Hua owns all the coal produced and earnings derived from Anyuan Coal Mine. As of the date of this annual report, approximately RMB1,290 million has been paid by Ordos Neng Hua, and the balance of the consideration is expected to be paid in July 2011.

Anyuan Coal Mine, located in Ejin Horo Banner of Ordos City, is an underground coal mine. Anyuan Coal Mine covers an area of 9.26 km2 and with coal reserves of 40.51 million tonnes and recoverable coal reserves of 20.47 million tonnes. Its designed annual production capacity is 600,000 tonnes of raw coal. The Department of Coal Industry of Inner Mongolia Autonomous Region has approved the increase in annual production capacity of the mine to 1.2 million tonnes. Currently, its expansion and acceptance inspection procedures are in progress.

Bidding for Mining Rights of Zhuan Longwan Coal Mine Field

Pursuant to approval granted at the nineteenth meeting of the fourth session of the Board held on January 28, 2011, Ordos Neng Hua successfully bid for the mining rights of Zhuan Longwan coal mine field of Dongsheng Coal Field in Inner Mongolia Autonomous Region for a consideration of RMB7,800 million. Ordos Neng Hua paid the first installment of RMB3,120 million (representing 40% of the total consideration) on February 25, 2011. Ordos Neng Hua is obligated to pay the second installment of RMB2,340 million (representing 30% of the total consideration) in full by November 30, 2011 and the third installment of RMB2,340 million (representing 30% of the total consideration) in full by November 30, 2012.

Pursuant to the Announcement in relation to Public Auction of the Mining Rights of Zhuan Longwan Coal Mine Field of Dongsheng Coal Field issued by the Department of Land and Resources of the Inner Mongolia Autonomous Region, the coal mining field of Zhuan Longwan coal mine covers an area of 43.50 km2 and with reserves of 548 million tonnes. Extra large mines with a designed production capacity of 5 million tonnes per year can be constructed in the coal mine field.

The Department of Land and Resources of the Inner Mongolia Autonomous Region was entrusted by the Ministry of Land and Resources of the PRC to conduct the auction. At present, Ordos Neng Hua is undertaking the application procedure for the mining rights of Zhuan Longwan coal mine zone. The bidding was approved at the 2010 annual general meeting of the Company held on May 20, 2011.

Acquisition of Ashton Coal Mine Joint Venture in Australia

Pursuant to approval granted at the seventeenth meeting of the fourth session of the Board held on December 30, 2010, White Mining (NSW) Pty Limited, a wholly-owned subsidiary of Yancoal Australia, started the process of acquiring 30% of the equity interests in the Ashton Coal Mine Joint Venture originally held by Austral-Asia Coal Holdings Pty Ltd, a wholly-owned subsidiary of Singapore IMC Group, for a consideration of US$250 million. Upon the completion of this acquisition in May 2011, our ownership in the Ashton Coal Mine Joint Venture increased from 60% to 90%.

Ashton Coal Mine, located in Hunter Valley, New South Wales, Australia, consists of an open-cut coal mine and an underground coal mine, with annual designed production capacity of 5.20 million tonnes of raw coal. According to an assessment based on the Australian JORC Code, the aggregate coal reserves of Ashton Coal Mine amounted to 96.50 million tonnes. The types of coal are semi-soft coking coal and premium thermal coal with characteristics of low ash and high calorific value.

Disposal of equity interests in Minerva Coal Mine Joint Venture in Australia

Pursuant to approval granted at the seventeenth meeting of the fourth session of the Board held on December 30, 2010, Felix, a wholly-owned subsidiary of Yancoal Australia, disposed its 51% equity interests in the Minerva Coal Mine Joint Venture to Sojitz Coal Resources Pty Ltd, a wholly-owned subsidiary of Sojitz Corporation in Australia, for a consideration of A$201 million. Upon completion of the disposal, we have no interest in the Minerva Mine Coal Joint Venture.

Minerva Coal Mine, located in Bowen Basin, Queensland, is an open-cut coal mine, with annual production capacity of 2.80 million tonnes of raw coal. According to an assessment based on the Australia JORC Code, the aggregate coal resources of Minerva Coal Mine amounted to 76 million tones, with reserves of 23.6 million tonnes. The type of coal is thermal coal.

Establishment of Yankuang Group Finance Company Limited

AtPursuant to approval granted at the thirteenth meeting of the third session of the Board held on August 3, 2007, the Board approved the establishment ofwe established a joint venture company, Yankuang Group Finance Company Limited (“Yankuang Finance”), a joint venture company to be formed by us on September 13, 2010, jointly with Yankuang Group and China Credit Trust Co., Ltd. The principal activities of Yankuang Finance include handling transfers and settling funds among members and accepting deposits from and lending funds to members. The proposed registered capital of Yankuang Finance is RMB500.0 million, of which we have contributed cash of RMB125.0 million for arepresenting 25% of the equity interest. The CBRC approved the establishment of Yankuang Group Finance Company Limitedcommenced operation on November 16, 2009.

On April 20,1, 2010, we entered into a capital contribution agreement in relationwith its principal business including making the bill acceptance and discount for the members and accepting deposits from and lending funds to the formation of Yankuang Finance pursuant to the resolutions passed at the thirteenth meeting of the third session of the Board. The final name and business scope of Yankuang Finance are subject to approval by the China Banking Regulatory Commission (“CBRC”) and registration with relevant commerce authorities. As of the date of this annual report, the procedures for establishing Yankuang Finance have not been completed.members.

At the fourteenth meeting of the fourth session of the Board held on April 23, 2010, the Board approved the expected connected transactions to bewe entered into the Financial Services Agreement with Yankuang Finance after its establishmenton January 7, 2011. Under the financial service agreement, Yankuang Finance agreed to provide deposit service, loan service and annualmiscellaneous financial services to us with transaction caps for such transactions in 2010 and 2011.

Acquisition of Felix

As approved at Pursuant to the first extraordinary shareholders’ meeting of 2009 held on October 30, 2009, Yancoal Australia, through its wholly owned subsidiary, Austar Company, acquiredagreement, the entire issued share capitalfees charged by Yankuang Finance for the financial services to be provided to us shall be in Felix for AUD3.3328 billion. On December 23, 2009,accordance with the relevant share ownership transfer was completed, and Felix was delisted frombenchmark rates determined by the Australian Securities Exchange (“ASX”) on December 30, 2009 pursuant toPBOC or the relevant listing rules ofCBRC (if any), which shall not exceed those charged by the ASX. The entire acquisition cost of Felix was financed by bank borrowings.

Felix is a company incorporated in Brisbane, Australia whose principal activities include the exploration and production of coal. Felix holds ownership interests in a number of operational and exploratory mines located in New South Wales and Queensland, including Ashton Coal Mine (consisting of an underground coal mine and an open-pit coal mine), Minerva Coal Mine, Yarrabee Coal Mine and Moolarben Coal Mine (consisting of an underground coal mine and an open-pit coal mine). The total coal reserves of the mines in which Felix has an interest was approximately 2,048.0 million tonnes, of which 1,420.8 million tonnes are attributable to Felix based on its equity interestmajor commercial banks in the respective coal mines. These mines hold approximately 513.2 million tonnesPRC for the same kind of financial services provided to us. The agreement also provided risk control measures on funds for both parties to secure the recoverable reserves,safety of which 392.7 million tonnes are attributable to Felix.

Felix entered into several joint venture agreements prior to our acquisition, which triggered the respective “change of control” provision contained in the joint venture agreements for Ashton Coal Mine and Minerva Coal Mine. The total reserves of these two operational mines as of June 30, 2009 represented 24.6% of the total reserves of the operational mines in which Felix has an ownership interest. As of the date of this annual report, we are negotiating with two joint venture partners their rights to acquire all of the equity interests in the relevant joint ventures pursuant to the joint venture agreements and will disclose any material progress in the negotiations.

In connection with the Felix acquisition, we undertook, among other obligations, to list Yancoal Australia on the Australian Securities Exchange by no later than the end of 2012. In addition, we undertook to, not later than the date of the foregoing listing, reduce our economic ownership of (1) Felix’s existing assets to no more than 50% and from then on to not exceed 50% and (2) Yancoal Australia to less than 70% and from then on to not exceed 70%.

The acquisition of Felix is a critical component of our long-term development strategy. The acquisition significantly increases our reserve base, creating a solid basis for our sustainable development. We believe that the acquisition improved our asset to debt ratio and will enhance our competitiveness by increasing our operating income and production capacity. In addition to the synergies with our existing Australian operations, the Felix acquisition is a significant milestone in our international expansion strategy.funds.

AcquisitionEstablishment of Hua JuShaanxi Future Energy Chemical Corp. Ltd

As approvedPursuant to approval granted at the second extraordinary shareholders’ meeting of 2008 held on December 23, 2008, we acquired 74% of the equity interest in Hua Ju Energy from Yankuang Group for RMB593.2 million on February 18, 2009. As approved at the seventhseventeenth meeting of the fourth session of the Board held on July 24, 2009,December 30, 2010, we further acquired 14.21%established Shaanxi Future Energy Chemical Corp. Ltd (“Future Energy”) jointly with Yankuang Group and Shaanxi Yanchang Petroleum (Group) Corp. Ltd on February 25, 2011. The registered capital of theFuture Energy is RMB5,400 million, of which we will contribute RMB1,350 million in cash, representing an equity interest of 25%. The registered capital will be paid in Hua Jufull in three installments by August 2012. Future Energy from Shandong Chuangye from Investment Development Company for RMB116.3 million,will mainly engage in investment and participation in the coal liquefaction project in Shaanxi Province as well as 6.93%the preparation for development of the equity interest in Hua Ju Energy from two other shareholders for a total of RMB56.7 million. On July 29, 2009, we completed the relevant procedures for the share transfers, each of which were funded with internal sources. Following the foregoing acquisitions, our equity interest in Hua Ju Energy increased to 95.14%, while Shandong Honghe Mining Group Co., Ltd. continues to hold a 4.86% equity interest in Hua Ju Energy. We undertook the acquisition of Hua Ju Energy to decrease our connected transactions with Yankuang Group, expedite the restructuring of our business segments to optimize resource utilization and secure a reliable and cost-effective supply of electricity for our operations.

Establishment of Ordos Nenghua and Acquisition of Coal Chemical Project

As approved at the working meeting of the general managers held on December 1, 2009, we established Ordos Nenghua in the Inner Mongolia Autonomous Region on December 18, 2009 using RMB500.0 million of our internal funds. Ordos Nenghua will manage our investments in the Inner Mongolia Autonomous Region, which includes aancillary coal mining business, a coal chemical business and a coal power project. On April 16, 2010, Ordos Nenghua acquired the entire equity interest in Inner Mongolia Rongxin Chemical Co., Ltd., Inner Mongolia Daxin Industrial Gas Co., Ltd. and Inner Mongolia Yize Mining Investment Co., Ltd. from Kingboard Chemical Holdings Limited for RMB190.0 million and intends to establish a 600,000 tonne methanol project following these acquisitions.mines.

The establishment of Ordos Nenghua, and the acquisitions it has made, enable us to capitalize on opportunities to develop coal resources in the Inner Mongolia Autonomous Region, which will enhance the sustainability of our development and core competitiveness.

Increasing InvestmentInvestments in Heze NenghuaOrdos Neng Hua

In 2007, we contributed RMB876.0 million to Heze Nenghua to fund the construction of Zhaolou Coal Mine, which commenced operations in March 2009. Pursuant to approval granted at the resolution and as approved in the eleventheighteenth meeting of the fourth session of the Board held on October 27, 2009,January 17, 2011, we increased our capital investment in Ordos Neng Hua by RMB2,600 million with our own funds. On January 24, 2011, the registered capital of Heze Nenghua againOrdos Neng Hua increased from RMB500 million to RMB3,100 million.

Increasing Investments in Yancoal Australia

Pursuant to approval granted at the seventeenth meeting of the fourth session of the Board held on December 30, 2010, we increased the capital investment in Yancoal Australia by RMB1,500.0A$909 million which further increased(approximately RMB5,900 million) with our ownership interest to 98.33%. The registrationown funds. Upon completion of the capital injection, our capital investment in Yancoal Australia increased from A$64 million to A$973 million. The capital increase hadhas been completed asapproved by the Foreign Investment Review Board of Australia and the date of this annual report.

Establishment of Shaanxi Yushuwan Coal Mine Company Limited

We entered into a joint venture agreementNDRC and the procedures for remitting the capital increase are currently in 2006 to set up Yushuwan Coal Mine Company with Chia Tai Energy & Chemical Company Limited (“Chia Tai Company”) and Yushen Coal Company Limited (“Yushen Company”). The registered capital of Yushuwan Coal Mine Company is RMB480.0 million, of which the Company, Chai Tai Company and Yushen Company is expected to contribute RMB196.8 million, RMB192.0 million and RMB91.2 million, respectively, for a 41%, 40% and 19% equity interest in Yushuwan Coal Mine Company. Yushuwan Coal Mine Company will primarily be engaged in the construction and operation of Yushuwan Coal Mine in Shaanxi Province. We have made a deposit of RMB118.0 million for this joint venture. As of the date of this annual report, the application for the establishment of Yushuwan Coal Mine Company was still pending regulatory review.progress.

Capital Expenditures

Our principal source of cash in 20092010 was bank borrowings and cash generated from our operating activities.activities and bank borrowings. Our capital expenditures in 20092010 were primarily for operational capital expenditures, purchase of properties, machinery and equipment, payment of dividends, the acquisition of Felix, investments to enhance51% equity interests in Haosheng Company, the facilitiesacquisition of the SixAnyuan Coal MinesMine and investmentsinvestment in Heze Nenghua.Yankuang Finance.

The following table sets forth a summary of our capital expenditures in the periods indicated:

 

  Year Ended December 31,  Year Ended December 31, 
      2007          2008          2009          2009      2008   2009   2010   2010 
  RMB  RMB  RMB  US$  RMB   RMB   RMB   US$ 
  (in millions)  (in millions) 

Capital Expenditure

  

Coal mining

  1,234.2  1,925.3  24,086.5  3,528.7   1,925.3     24,086.5     3,298.0     486.5  

Coal railway transportation

  30.4  29.2  11.4  1.7   29.2     11.4     34.5     5.1  

Methanol, electricity and heat supply

  —    925.1  1,220.0  178.7

Electricity power and methanol

   925.1     1,220.0     452.8     66.8  

Unallocated

  1,704.4  —    —    —  

Undistributed items

   —       —       —       —    

Corporate

  24.1  2.1  7.0  1.0   2.1     7.0     —       —    
                            

Total

  2,993.1  2,881.7  25,324.9  3,710.1   2,881.7     25,324.9     3,785.3     558.4  
                            

Our planned capital expenditureexpenditures for 20102011 is approximately RMB4,085.2RMB5,103.1 million. For more information, see “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources — Capital Expenditures.”Expenditures” in this annual report.

Potential Takeovers by Third Parties

There were no indications of any public takeover offers by third parties in respect of our common shares in 2009.2010.

B.Business Overview

Yanzhou CoalThe Company is one of the largestprimary coal producers in China with a rapidly growing coal mining operations in Australia. We primarily engage in the mining, preparation and sale of coal as well as the railway transportation of coal. In recent years, we have expanded our operations to include the production of coal chemicals and generation of electricity and heat.

The Company directly owns and operates six coal mines: Nantun, Xinglongzhuang, Baodian, Dongtan, Jining II and Jining III (collectively, the “Six Coal Mines”), which produce a substantial majority of our total coal output. As of December 31, 2009,2010, the Six Coal Mines had an estimated collective in-place proven and probable reserve base of approximately 1,831.21,797.3 million tonnes.

Through our subsidiaries, we havealso hold equity interests in a number of coal mines in China and Australia. Yancoal Australia operates Austar Coal Mine, Yarrabee Coal Mine, Minerva Coal Mine, Ashton Coal Mine and Moolarben Coal Mine, which collectively holdshold approximately 557.8547.3 million tonnes of recoverable coal reserves. Shanxi Nenghua operates Tianchi Coal Mine, which holds 27.8approximately 26.7 million tonnes of recoverable reserves, and Heze Nenghua operates Zhaolou Coal Mine, which holds 105.8approximately 105.0 million tonnes of recoverable reserves. Since December 1, 2010, Ordos Neng Hua operates Anyuan Coal Mine, which holds approximately 20.5 million tonnes of recoverable coal reserves.

Our main product ofproducts in our coal business are thermal coal, semi-hard coking coal, semi-soft coking coal, PCI coal and1/3 coking coal which are sold to power plants, metallurgical mills, chemical manufacturers, construction material manufacturers and fuel trading companies in Eastern China and countries such as Japan and Korea.

Coal Business

We produce premium quality, low sulfur coal that is suitable for a wide range of applications. Our products consist principally of thermal coal, and semi-soft coking coal and semi-hard coking coal, which are suitable for power generation and metallurgical production, respectively. The following table sets forth the specifications and principal applications of our coal products.

 

   Sulfur
 Content 
  

Range of and

Average Ash

Content

  

Calorific Value

  Washed  

Principal

Applications

   %  %  

(megajoule/

kilogram)

      

The Company

          

No. 1 clean coal

  0.44  7-8 average 7.79  26-28 average 27.84  Yes  High quality metallurgical production

No. 2 clean coal

  0.49  8-9 average 8.57  26-28 average 27.57  Yes  Metallurgical production, construction, liquidize coal production

No. 3 clean coal

  0.53  10-11 average 10.43  26.3-26.9 average 26.63  Yes  Electricity generation and coal chemical production

Lump coal

  0.48  9-14 average 9.81  25-28 average 27.86  Yes  Construction, power generation, coal for oven application

Screened raw coal

  0.6  18-27 average 25.7  20-23.5 average 21.36  No  Power generation

Mixed coal

  0.6  22-30 average 29.3  18-22 average 20.1  Yes  Power generation

Shanxi Nenghua

          

Tianchi raw coal

  1.06  27-30, average 29  21-23, average 22.05  No  Power generation

Heze Nenghua

          

No. 2 clean coal

  0.49  8-9, average 8.43  29.85  Yes  Metallurgical production, construction, coal slurry

Mixed coal and others

  0.51  average 25.69  average 22.25  Yes  Power generation

Yancoal Australia

          

Semi-hard coking coal

  1.30  5.0  average 33.18  Yes  Metallurgical production

Semi-soft coking coal

  0.65  9.5  average 29.82  Yes  Metallurgical production, construction

PCI coal

  0.7  9.5-10.5  average 30.66  Yes  Metallurgical production

Thermal coal

  0.5-0.6  13.5-17.0  27.30-27.93  No  Power generation

   Sulfur
Content
  Range of and
Average  Ash

Content
   Calorific Value  Washed  

Principal

Applications

   %  %   

(megajoule/

kilogram)

      

The Company

          

No. 1 clean coal

  0.44   7-8 average 7.79    26-28 average 27.84  Yes  High quality metallurgical production

No. 2 clean coal

  0.49   8-9 average 8.57    26-28 average 27.57  Yes  Metallurgical production, construction, liquified coal production

No. 3 clean coal

  0.53   10-11 average 10.43    26.3-26.9 average 26.63  Yes  Electricity generation and coal chemical production

Lump coal

  0.48   9-14 average 9.81    25-28 average 27.86  Yes  Construction, power generation, coal for oven application

Screened raw coal

  0.6   18-27 average 25.7    20-23.5 average 21.36  No  Power generation

Mixed coal

  0.6   22-30 average 29.3    18-22 average 20.1  Yes  Power generation

Shanxi Nenghua

          

Screened raw coal

  1.06   27-30, average 29    21-23, average 22.05  No  Power generation

Heze Nenghua

          

No. 2 clean coal

  0.49   8-9, average 8.43    29.85  Yes  Metallurgical production, construction, coal slurry

Mixed coal and others

  0.51   average 25.69    average 22.25  Yes  Power generation

Yancoal Australia

          

Semi-hard coking coal

  1.30   5.0    average 33.18  Yes  Metallurgical production

Semi-soft coking coal

  0.65   9.5    average 29.82  Yes  Metallurgical production, construction

PCI coal

  0.7   9.5-10.5    average 30.66  Yes  Metallurgical production

Thermal coal

  0.5-0.6   13.5-17.0    27.30-27.93  No  Power generation

In 2009,2010, we produced approximately 36.349.4 million tonnes of raw coal, including 33.4approximately 34.3 million tonnes by the Company, 1.9approximately 12.0 million tonnes by Yancoal Australia, 1.0approximately 1.5 million tonnes by Shanxi Nenghua and 40,000approximately 1.6 million tonnes by Heze Nenghua.

We sold 38.0approximately 49.6 million tonnes of coal in 2009,2010, which consisted of 1.0approximately 1.4 million tonnes of internal sales to Hua Ju Energy and 37.0approximately 48.2 million tonnes of external sales, consisting of 2.1approximately 5.4 million tonnes that we had purchased from other coal producers for resale. Our total coal sales volume in 20092010 increased approximately 455,00011.6 million tonnes, or 1.2%30.6%, from 2008.2009 primarily due to the expansion of our Australian operations. We sold 36.0approximately 44.3 million tonnes of self-produced coal, representing an increase of approximately 970,0008.3 million tonnes or 2.8%23.1%, compared to 2008.2009. The Company sold 33.3 million tonnes of coal, representing an increase of 930,000 tonnes, or 2.9% from 2008. Shanxi Nenghua sold 990,000 tonnes of raw coal, representing decrease of approximately 110,000 tonnes or 10.3%, compared to 2008. Yancoal Australia sold 1.633.7 million tonnes of coal, representing an increase of approximately 140,0000.3 million tonnes, or 9.6%1.0%, compared to 2008.from 2009. Shanxi Nenghua and Heze Nenghua sold approximately 1.5 million and approximately 1.1 million tonnes of coal, respectively. Yancoal Australia sold approximately 8.0 million tonnes of coal, representing an increase of approximately 6.4 million tonnes, or 392.0%, in sales volume from 2009.

The following table sets forth our principal coal products by sales volume and net sales income of coal in the indicated periods. For the purposes of the table below, the figures of sales income and sales volume include inter-segment sales.

 

   Year Ended December 31,
   2007  2008  2009
   Sales Volume
  (‘000 tonnes)  
  Net Sales
(RMB
    million)    
  Sales Volume
  (‘000 tonnes)  
  Net Sales
(RMB
  million)  
  Sales Volume
  (‘000 tonnes)  
  Net Sales
(RMB
    million)    

The Company

  32,490       13,451.7  32,402   20.337.9  33,330     16,797.7

No. 1 clean coal

  713       423.4  363   388.3  694     482.7

No. 2 clean coal

  7,260       4,251.4  7,431   7,692.0  8,362     6,304.0

No. 3 clean coal

  8,616       3,931.5  2,916   2,513.2  1,717     1,100.2

Lump coal

  693       390.7  1,161   1,089.2  1,402     931.1

Screened raw coal

  11,357       3,848.5  17,934   8,281.9  17,100     7,026.5

Mixed coal and others

  3,851       606.2  2,597   373.3  4,055     953.2

Shanxi Nenghua

  1,193       243.5  1,099   294.0  986     285.0

Screened raw coal

  1,193       243.5  1,099   294.0  986     285.0

Heze Nenghua

  —         —    —     —    16     8.1

No. 2 clean coal

  —         —    —     —    5     4.9

Screened raw coal

  —         —    —     —    2     1.1

Mixed coal and others

  —         —    —     —    9     2.1

Yancoal Australia

  1,423       661.7  1,484   1,527.9  1,627     1,087.0

Semi-hard coking coal

  1,423       661.7  1,484   1,527.9  1,627     1,087.0

Externally purchased coal

  —         —    2,576.7   1,889.0  2,058     1,112.5
                  

Total

  35,106       14,356.9  37,562   24,048.8  38,017     19,290.4
                  

(1)Net sales of coal represent our invoice amount of coal sales with deductions for returns, discounts, sales taxes, port fees and various miscellaneous fees relating to a sale, as well as transportation costs if the invoice amount includes transportation costs charged to customers.

   Year Ended December 31, 
   2008   2009   2010 
   Sales volume
(‘000 tonnes)
   Sales income
(RMB
in millions)
   Sales volume
(‘000 tonnes)
   Sales income
(RMB
in millions)
   Sales volume
(‘000 tonnes)
   Sales income
(RMB
in millions)
 

The Company

   32,402     21,094     33,330     17,507.3     33,657     21,324.8  

No. 1 clean coal

   363     407     694     526.6     691     677.2  

No. 2 clean coal

   7,431     7,800     8,362     6,414.4     9,002     8,771.2  

No. 3 clean coal

   2,916     2,654     1,717     1,156     1,560     1,293.7  

Lump coal

   1,161     1,159     1,402     1,036.8     1,297     1,206  

Screened raw coal

   17,934     8,669     17,100     7,359.6     16,726     8,085.5  

Mixed coal and others

   2,597     404     4,055     1,013.4     4,381     1,290.7  

Shanxi Nenghua

   1,099     298     986     289.5     1,498     572.3  

Screened raw coal

   1,099     298     986     289.5     1,498     572.3  

Heze Nenghua

   —       —       16     8.3     1,079     833.0  

No. 2 clean coal

   —       —       5     4.9     546     603.2  

Screened raw coal

   —       —       2     1.2     119     62.6  

Mixed coal and others

   —       —       9     2.2     414     167.2  

Yancoal Australia

   1,484     1,636     1,627     1,199.3     8,022     6,210.2  

Semi-hard coking coal

   1,484     1,636     1,627     1,199.3     1,146     1,043.3  

Semi-soft coking coal

   —       —       —       —       1,279     1,202.3  

PCI

   —       —       —       —       2,046     1,893.8  

Thermal coal

   —       —       —       —       3,551     2,070.8  

Externally purchased coal

   2,577     1,910     2,058     1,112.5     5,378     3,990.0  
                              

Total

   37,562     24,938     38,017     20,116.9     49,634     32,930.3  
                              

Sales and Marketing

A significant portion of our domestic sales in 20092010 was made pursuant to sales contracts,on the spot market, while the remainder of our coal sales are based on purchase orders placed by ourwere made pursuant to sales contracts. Our customers may also sign letters of intent from time to time. Our customers may sign letters of intent to make purchases in the short term. The contract price in sales contracts are the result of market-based negotiations between the contracting parties. These sales contracts and letters of intent generally specify the quantity and delivery schedule of the coal to be purchased, generally for a term not exceeding one year. The contract price in sales contracts are the result of market-based negotiations between the contracting parties, while the contract prices for letters of intent are generally determined at the time of sale to reflect prevailing market prices.

We have a flexible credit policy, and credit terms may vary from customer to customer depending on each customer’s creditworthiness and the credit amount involved. We may allow open accounts, require acceptance bills or require cash on delivery. We rely on data from our ERP system to determine the appropriate payment arrangement and credit terms for each customer, which generally do not exceed 180 days. We evaluate the creditworthiness of potential new customers before entering into a sales contract with them and reassess the creditworthiness of all of our customers on an annual basis. For customers without a strong credit history, we require them to settle their accounts upon delivery. A majority of our domestic coal sales is made to power plants, metallurgical mills, chemical manufacturers and construction material manufacturers with whom we have established long-standing and stable relationships.

Sales taxes include resource taxes imposed by Shandong and Shanxi Provinces. The applicable resource tax rate is RMB3.6 per tonne for our coal mines located in Shandong Province and RMB3.2 per tonne for our coal mines in Shanxi Province. These taxes are paid to the local tax bureau. The following table sets forth a breakdown of our sales income, which represents the invoiced amount of products sold net salesof returns and discounts of coal by the industry of our customers for the indicated periods:periods indicated. For the purposes of the table below, the figures of sales income include inter-segment sales.

 

   Year Ended December 31,
   2007  2008  2009
   Net
    Sales     
    % of Net  
Sales
  Net
    Sales     
    % of Net  
Sales
  Net
    Sales     
    % of Net  
Sales
   

(RMB

million)

     

(RMB

million)

     

(RMB

million)

   

Power plants

  3,846.6  26.8  7,333.4  30.5  5,613.0  29.1

Metallurgical mills

  1,645.8  11.5  3,369.4  14.0  1,976.6  10.2

Chemical manufacturers

  4,158.5  29.0  4,459.7  18.5  2,656.7  13.8

Others

  4,706.1  32.8  8,886.3  37.0  9,044.1  46.9
                  

Total

  14,356.9  100.0  24,048.8  100.0  19,290.4  100.0
                  

(1)Net sales of coal represent our invoice amount of coal sales with deductions for returns, discounts, sales taxes, port fees and various miscellaneous fees relating to a sale, as well as transportation costs if the invoice amount includes transportation costs charged to customers.
   Year Ended December 31, 
   2008   2009   2010 
   Sales income   % of
sales
income
   Sales income   % of sales
income
   Sales income   % of
sales
income
 
   (RMB in
millions)
       (RMB
in millions)
       (RMB
in millions)
     

Power plants

   7,641.1     30.6     5,845.4     29.1     7,493.8     22.8  

Metallurgical mills

   3,574.7     14.3     2,085.3     10.4     5,200.2     15.8  

Chemical manufacturers

   4,526.5     18.2     2,764.3     13.7     1,405.3     4.3  

Others

   9,195.6     36.9     9,421.9     46.8     18,831.0     57.2  
                              

Total

   24,937.9     100.0     20,116.9     100.0     32,930.3     100.0  
                              

Our domestic coal sales are concentrated in Eastern China, particularly in Shandong Province. The following table sets forth a breakdown of our net sales income of coal by geographical region for the indicated periods:periods indicated. For the purposes of the table below, the figures of sales income include inter-segment sales.

 

   Year Ended December 31,
   2007  2008  2009   
     Net Sales      % of Net  
Sales
    Net Sales      % of Net  
Sales
    Net Sales      % of Net  
Sales
   

(RMB

million)

     

(RMB

million)

     

(RMB

million)

   

China

  13,075.1  91.1  22,332.5  92.9  18,345.4  95.1

Eastern China

  12,069.5  84.1  19,283.2  80.2  14,241.5  73.8

Southern China

  803.7  5.6  1,075.0  4.5  332.9  1.7

Northern China

  196.4  1.4  490.0  2.0  251.5  1.3

Other regions

  5.4  0.04  1,484.3  6.2  3,519.5  18.2

Japan

  941.0  6.6  1,350.3  5.6  447.1  2.3

Korea

  218.7  1.5  295.6  1.2  210.8  1.1

Australia

  20.6  0.1  15.3  0.1  40.9  0.2

Others

  101.5  0.7  55.1  0.2  246.2  1.3
                  

Total

  14,356.9  100.0  24,048.8  100.0  19,290.4  100.0
                  

(1)Net sales of coal represent our invoice amount of coal sales with deductions for returns, discounts, sales taxes, port fees and various miscellaneous fees relating to a sale, as well as transportation costs if the invoice amount includes transportation costs charged to customers.

   Year Ended December 31, 
   2008   2009   2010 
   Sales income   % of
sales income
   Sales
income
   % of sales
income
   Sales
income
   % of
sales income
 
   (RMB
in millions)
       (RMB
in millions)
       (RMB
in millions)
     

China

   23,066.5     92.5     19,081.7     94.9     27,619.7     83.9  

Eastern China

   19,819.4     79.5     14,573.1     72.4     21,861.5     66.4  

Southern China

   1,246.4     5.0     340.8     1.7     251.1     0.8  

Northern China

   496.5     2.0     254.3     1.3     511.9     1.6  

Other regions

   1,504.2     6.0     3,913.4     19.5     4,995.2     15.2  

Japan

   1,476.1     5.9     479.8     2.4     1,920.0     5.8  

South Korea

   312.4     1.3     235.2     1.2     2,349.0     7.1  

Australia

   16.9     0.1     44.8     0.2     482.2     1.5  

Others

   66.0     0.3     275.4     1.4     559.3     1.7  
                              

Total

   24,937.9     100.0     20,116.9     100.0     32,930.3     100.0  
                              

As of December 31, 2009,2010, our major customers arewere Huadian Power International, Corporation Limited, Yankuang Meihua Gongxiao Co., Ltd., Baoshan Iron & Steel Co., Ltd., Posco, Yankuang Meihua Gongxiao Co., Ltd. and Linyi Yehua Coking Co., Ltd., Yankuang Group Logistics Co., Ltd., among which Huadian International was our largest customer. In 2007, 2008, 2009 and 2009,2010, we provided 5.4 million,sold approximately 8.8 million, 7.5 million and 7.59.2 million tonnes of coal, respectively, to Huadian International, which represented 15.5%approximately 23.3%, 23.3%19.8% and 19.8%18.5% of our sales volume, respectively.respectively, in those years. A substantial portion of Huadian International’s coal purchases was, in turn, supplied to Zouxian Power Plant.

As of the date of this annual report, we have entered into domestic sales contracts and letters of intent to provide a total of 40.3approximately 32.4 million tonnes of coal, including contracts to sell 10.0approximately 9.0 million tonnes of coal at a tax-inclusive price of RMB578.26RMB571.3 per tonne, representing an increasea decrease of RMB86.75approximately RMB7.0 per tonne, or 17.6%1.2%, from our average selling price in 2009. The sales price under the letters of intent will be determined at the time of sale. Yancoal Australia has entered into agreements to sell 8.12approximately 2.7 million tonnes of coal in 2010.the first quarter of 2011.

Our Company’s sales income, which represents the invoiced amount of products sold net of returns and discounts, generated from export sales (including the export sales of Yancoal Australia) as a percentage of total sales increased significantly from 6.3% in 2009 to 19.1% in 2010, reflecting the expansion of our total net sales ofAustralian operations, whose coal decreased from 0.8% in 2008 to 0.2% in 2009. We have decreased our export sales in recent years because market conditions have made domestic sales more profitable than export sales.is primarily destined for overseas markets. Our major overseas markets include South Korea, Japan, Australia, India and Mexico. The majority of our overseas customers are located in Asia, and South Korea Australia, the United States and Switzerland.is our biggest market in this region. Even though we conduct all of our export sales from the PRC through export agents, we maintain close relationships with our overseas customers.

Our sales and marketing department conducts routine customer visits and customer surveys toof keep abreast onof market developments, maintain customer relationships and continually improve our business. In addition, we regularly collect market information about Eastern China and other regions, which is used by the entire Companywe use for business planning and execution purposes.execution.

Pricing

The pricing for our coal products is generally based on negotiationnegotiations between the contracting parties that reflect market conditions. However, a portion of our thermal coal sales may be affected by pricing guidelines announced by the PRC government from time to time or subject to temporary price controls. See “Item 3. Key Information — D. Risk Factors — Our products may be subject to governmental price control measures, which may adversely affect our profitability.”

When weTo price our coal products, we consider the prevailing prices in the relevant local coal markets, (inclusive of transportation costs), the grade and quality of the coal being sold and our relationship with the purchaser. Customers generally bear the cost of transportation in domestic coal sales. Our sales and marketing department has access tomonitors domestic and international market information, through our data center, enabling us to closely monitorkeep abreast of pricing developments in our principal markets. The price on export sales from China are determined collectively by the involved exports sales company, our end-user customer and us.

Transportation

Most of our major coal customers are located in Eastern China and our remaining domestic customers are located in Southern and Northern China. We primarily use railways and the highways to transport coal and, to a lesser extent, we also ship our coal on domestic and international shipping lanes. With our private railway network, we are able to connect to the national railway system or deliver coal directly to our largest end-user customer, Zouxian Power Plant.

We also transport coal on the national railway system to ports, such as Rizhao, Qingdao and Lianyungang, from which we ship coal to customers. Rizhao port is our main port for shipping coal. We also use the Beijing-Hangzhou Grand Canal to ship coal on barges to customers located in the area serviced by the canal. In Shanxi Province, we rely on the Yangshe Railway, which intersects the Tianchi Coal Mine, and truckingtrucks to deliver coal to Hebei Province, Shandong Province and other nearby areas.

We plan to construct a privately operated railway to connect Zhaolou Coal Mine with the national railway system. Before the completion of such plan, we will rely on truckingtrucks to deliver coal from Zhaolou Coal Mine to the national railway and certain customers.

To transport Yancoal Australia’s coal products to Newcastle Port and Gladstone Port in Australia, we use Australia’s state railway network and private railway networks.

Mining Process

The geological characteristics of our reserves largely determine the coal mining method that we employ. We use two primary methods of mining coal: underground mining and open-pit mining.

Domestic Underground Mining OperationsOperations.. Our domestic underground mining operations consist of four main steps: tunneling, coal extraction, transportation and coal preparation. The tunneling process is necessary for the construction of underground roadways, which isare required for the installation of mining equipment. We conduct a majority of our tunneling using high powered headers and use this method whenever geological conditions permit. When the use of headers is not feasible, we use explosives to excavate tunnels. Coal extracted during tunneling is carried by conveyor beltsadhesive tapes to our underground storage bunkers to be stored together with other extracted coal. Rock and other minerals produced during the excavation of roadways are separated and transported out of the mine.

The extraction process is completed by a standardized and fully mechanized longwall operation, which includes shearers that work in conjunction with conveyers to cut and transport the coal away from the longwall work-face. For coal seams with an thickness up to 4.5 meters thick, we use a fully mechanized method to extract coal. ForGenerally, for coal seams that are thicker than 4.5 meters, we add a caving method to the fully mechanized longwall mining operation, whereby coal that is beyond the reach of our shearers collapse in a controlled manner onto our conveyers as the coal support underneath it is removed by our shearers. Coal is then transported away from a longwall work-face by a series of conveyors positioned in front of and behind the system of roof supports. Roof supports provide continuous support for and protection along the length of the long-wall work-face and they also move the conveyors and shearers forward after each pass of the shearers along the work-face using horizontal hydraulic rams positioned at the base of each support. Our hydraulic roof supports are manufactured in China.

The shaft hoist system equipment that we use at most of our mines is imported. Coal is transported from the coal shaft either to a surface storage or directly to a coal preparation plant. In addition to the main coal shaft, our mines also have a service shaft and supplemental roadways and rail systems within the mines that provide a means of underground transportation for workers and equipment.

After raw coal is carried to the surface, it undergoes a mechanized selection process that separates coal from other mineral materials. A small portion of such selected coal is directly sold to customers as raw coal, and the remainder is transported to our coal preparation plants for further processing and classification. Each of the Six Coal Mines, Heze Nenghua Zhaolou Coal Mine, Austar Coal Mine, Yarrabee Coal Mine and AustarAshton Coal Mine has a coal preparation plant. In general, the coal-washing conducted in our coal preparation plants include a water bed washing and separation process by jig machines, a sink-and-float separation process and a final floating separation process. Most of the equipment used in our coal preparation plants is automated, enabling us to control the ash content and grade of our processed coal. The aggregate recovery rate of our coal preparation plants was 78.4%66.6%, 66.6%69.1% and 69.1%69.5% in 2007, 2008, 2009 and 2009,2010, respectively.

Australian Mining operationsoperations.. With respect to underground mines in our Yancoal Australia mining operations, we conduct continuous tunneling, longwall operation and coal extraction by fully mechanized caving method. Open-pit mining is used when coal is found relatively close to the surface. This method involves the removal of topsoil and overburden (earth and rock covering the coal), tunneling and extraction of coal from coal seams. The extracted coal undergoes selection and is then transported to treatment facilities for preparation. After coal is removed, we restore the affected land by replacing the overburden and topsoil.

Materials, Water and Energy Supply

The primary materials we use to conduct our coal mining and processing operations are steel to support work-faces and underground tunnels, cement for the construction of underground tunnels and ground structures and water used in our production process. We primarily procure steel principally from Jinan Iron &and Steel Co.Company Ltd., Laiwu Iron & Steel Group Corp. Ltd. and Shandong Shiheng Special Steel Group Co. Ltd. and cement from Shandong Lucheng Cement Company, Ltd. and China United Cement Taishan Cement Works.Co. Ltd. We procure water primarily from Yankuang Group pursuant to the Materials Supply Agreement and its supplemental agreements, and to a lesser extent, from local water companies. The price of materials is set at market rates or determined through negotiation. We believe that we have well-established, cooperative relationships with our suppliers, enabling us to secure reliable supplies of materials required in our production process. We believe that a number of alternative suppliers exist for our key materials in our coal operations and, therefore, we do not foresee any difficulty in obtaining adequate supplies.

We use significant amounts of electricity in our operations. Electricity prices in China are regulated by the government. Even though we have not experienced any material disruptions to our electricity supply in the past three years, we acquired Hua Ju Energy to secure a stable supply of energy for our Six Coal Mines and to reduce our electricity costs. In 2009,2010, Hua Ju Energy supplied 556.0approximately 726.7 million kWh of electricity to our operations.

Quality Control

We have implemented a quality assurance program at each of our PRC coal mines pursuant to control quality throughout theour coal operations from production and transportation of our coal.to transportation. Utilizing advanced processing technology and management techniques, our coal preparation plants are able to separate both metal and non-metal impurities from coal. Our quality inspection division within our sales and marketing department conducts spot inspections on our coal production to maintain high quality standards.

Each of Nantun Coal Mine, Xinglongzhuang Coal Mine, Baodian Coal Mine, Dongtan Coal Mine, Jining II Coal Mine and Jining III Coal Mine has obtained ISO 9002 quality and ISO 14000 environmental management certification. Tianchi Coal Mine has obtained ISO 9000 quality and ISO 14000 environmental management certification, and Zhaolou Coal Mine has obtained ISO 9001 quality and ISO 14001 environmental management certification.

Yancoal Australia has hired Bureau Veritas, Societe Generale De Surveillance and ALS Laboratory Group to supervise and inspect the quality of the coal produced from the respective mines in Australia to ensure quality control and suggest quality improvement measures.

Safety Control

In our PRC operations, we have implemented a safety control program to meetachieve the targets set in our internal guidelines for safety targets and risk control management and to maintain compliance with the Coal Law and the National Mining Safety Law in China. In Australia, our operations in New South Wales is compliantcomply with the Coal Mine Health and Safety Act 2002 (NSW) and Occupational Health and Safety Act 2000 (NSW) and our operations in Queensland is compliantcomply with the Coal Mining Safety and Health Act 1999 (Qld)(QLD).

Our safety control program combines close supervision and routine inspection of mining conditions with continual implementation of safety features and procedures at our mines and safety training for our production team. Moreover, in our PRC operations, the compensation of the officers and managers of each division reflects the division’s safety record in PRC.record. Each of our mines has a safety inspection unit which is responsible for the supervision and inspection of our mining activities. We also use Yankuang Group’s training center to provide safety training to our workforce. We reward employees who report unsafe mining conditions to encourage accident prevention.

As a result of our safety control program, we have been able to maintain a solid safety record and a zero fatality rate in our PRC operations since 2007.2007 compared with the national average of 0.749 fatalities per million tonnes of coal produced in 2010 according to the State Administration of Work Safety of the PRC. In 2010, we produced approximately 37.4 million tonnes of coal and did not experience any production accidents that involved serious work injuries or death in our PRC operations. Following our acquisition of Felix in December 2009, we have been continuously reviewing and evaluating its safety control and performance. With respect to our Australian operations (inclusive of Felix) in 2010, our lost time injury frequency rate (“LTIFR”), measured as the number of lost time injuries per million man-hours worked, was 6.4 for open cut mines and 13.4 for underground mines. We had no fatalities in our Australian operations in 2010.

Environmental Protection

We are subject to PRC environmental protection laws and regulations which impose fees for the discharge of waste materialsubstances and fine heavy polluters.require the payment of fines for serious pollution. PRC regulations also authorize government agencies to close any facility that fails to comply with orders to cease, or bring into compliance with relevant laws and regulations, operations that cause environmental damage. In addition, the operations of Yancoal Australia must comply with relevant Australian environmental protection laws and regulations.

According to the Provision of Labor and Services Supply Agreement that we entered into with Yankuang Group, it will provide us environmental protection services. In 2009,2010, we paid Yankuang Group a total of RMB41.7 million for such services to reduce the effects of our operations on the environment.

Competition

The development of the PRC coal industry is influencedcharacterized by thea large number of small scalesmall-scale enterprises and thea wide geographical distribution of coal reserves. However, thereThere are relatively few large-scale coal production enterprises in China.

Our primary market, the PRC domestic coal market, is characterized by numerous small-scale coal suppliers. The domestic coal market is segmented principally by geographical region, as a result of the wide geographical distribution of coal reserves. However, there are a number of large-scale coal production enterprises that dominate the domestic market. We compete principally on the basis of the availability and cost of transportation, coal quality and reliability of deliveries.

Our domestic competitors primarily include a number of coal mines located in Shanxi Province, Shaanxi Province and the Inner Mongolia Autonomous Region. Certain of our competitors from these regions have substantial reserves and favorable geological conditions. However, these competitors incur significant transportation costs when they supply to end-user customers located in Eastern China. In addition to coal mines located in Shanxi Province, Shaanxi Province and the Inner Mongolia Autonomous Region, we also compete to a certain extent with local mines located close to our customers. In addition, Shandong Energy Group Co. Ltd (“Shandong Energy”), which was established in March 2011, is our sole competitor in Shandong Province. Shandong Energy has a large-scale production capacity and marketing capability. Although we have strengths in the quality of our coal product and our sales network, we may not be able to compete effectively with Shandong Energy in this region. Our failure to compete effectively may in turn materially and adversely affect our results of operations.

We export coal mainly to South Korea, Japan, Korea, Australia, the United StatesIndia and Switzerland.Mexico. With respect to export sales, we compete with certain major overseas coal mining companies, most of which are located in Australia and Indonesia.

Seasonality

Our coal business is not affected by seasonality.

Railway Transportation Business

We own and operate a railway transportation network in Jining City of Shandong Province that connects our coal mines to the national railway system and Zouxian Power Plant. As of the date of this annual report, our railway network spanned a total length of 204 kilometers. Our railway network provides us a greater degree of control over a major mode of transportation for our key product, andallowing us to benefit from the synergies of having a consolidated coal operation that comprises coal production, sales and transportation.

In addition to transporting coal within the Group,to support our own operations, we also offer railway transportation services to customers, including Yankuang Group. Our transport volume has remained steady in recent years. In 2009,2010, we transported 19.919.7 million tonnes of coal on our railway network, representing an increasea slight decrease of 0.70.16 million tonnes, or 3.7%0.8%, from 2008.2009. We generated RMB258.4approximately RMB513.3 million from railway transportation services in 2009,2010, representing an increase of RMB11.2RMB245.9 million, or 4.5%92.0%, from 20082010 mainly due to anthe increase in the volume of goods transported.rates we charge to customers for railway transportation.

Our Company hasWe have obtained ISO 9001 quality accreditation, ISO 14001 environmental management certification and GB/T19022-2003 management certification for the operation of our railway network.

Our railway network connects us to the national railway system such asvia the Jinghu railway and Yanshi railway and provides us direct access to ZouxianHuadian Power Plant.International Corporation Limited, our largest end customer. We use our railway network to provide railway transportation services for our own internal use as well as to Yankuang Group and other customers. We do not face significant competition from other railway operators. However, we compete with other ground transportation services that serve the same region as our railway network.

Coal Chemical Business

Our coal chemical business focuses on the production of methanol, a liquid commodity that can be produced from coal or natural gas. In 2009,2010, we produced 199,000367,000 tonnes of methanol and sold 190,000 tonnes.376,000 tonnes, including inventory from the prior year. Yulin Nenghua completed its first full year of operations and produced 190,000311,000 tonnes after commencing commercial production in August 2009 and sold 178,000 tonnes in 2009.319,000 tonnes. Tianhao Chemicals which was unableincreased production to maintain regular operations in 2009 because of a continuing shortage in a key raw material, produced 9,00056,000 tonnes of methanol and sold 12,000 tonnes in 2009, including methanol from inventory. In 2009, our57,000 tonnes. As a result, we generated total revenuerevenues of approximately RMB629.3 million from our coal chemical business was RMB258.7 million.business.

Sales and Marketing

Our coal chemical sales are made pursuant to sales contracts that we enter into from time to time with customers. We sell our methanol exclusively in China, and predominately to chemical producers in Northern and Eastern China and methanol distributors, relying on regional highways to deliver our products.

Pricing

The pricing for our methanol product is generally based on negotiation between the contracting parties, taking into consideration prevailing market prices, market conditions and the customer’s creditworthiness.

Production Process

Yulin Nenghua. We useYulin Nenghua is primarily responsible for the operation of the 600,000 tonne methanol project using coal as raw material to manufacture methanol at our Yulin Nenghua facility.material. Coal is pulverized, cleaned and then fed to a gasifier bed where it reacts with oxygen and steam. The product is synthesized into crude methanol and then purified through distillation.

Tianhao ChemicalChemicalss. We use. Tianhao Chemicals is primarily responsible for the operation of the 100,000 tonne methanol project using coke oven waste gas as the primary raw material to manufacture methanol at our Tianhao Chemicals facility.material. We reduce the sulphur contained in coke oven waste gas and then convert the treated gas into synthesis gas. The synthesis gas is further processed into crude methanol and then purified through distillation.

Materials, Water and Energy Supply

Coal and coke oven waste gas are the primary materials in our methanol production. Production at Yulin Nenghua is reliant on thermal coal, which it currently sourced from local coal mines because our adjoining Yushuwan Coal Mine has not yet been registered. We plan to source thermal coal internally once Yushuwan Coal Mine commences operations. Yulin Nenghua sources water from a local reservoir.

Production at Tianhao Chemicals is dependent on receiving coke oven waste gas from one supplier whose facility is connected to Tianhao Chemicals’ plant through transmission pipelines. This supplier haswas not been able to provide a steady supply ofsufficient coke oven waste gas, due to poor market conditions that have affected the supplier’s operations, which in turn has severely interrupteddisrupted production at Tianhao Chemicals.Chemicals twice in 2010. As of the date of this annual report, we have not been able to find an alternative supplier.

Production at Yulin Nenghua is reliant on thermal coal, which it currently sourced from local coal mines as our adjoining Yushuwan Coal Mine has not been registered yet. We plan to source thermal coal internally once Yushuwan Coal Mine commences operations. Yulin Nenghua sources water from a local reservoir.

Quality Control

We have implemented a series of quality control measures for our coal chemical operations to ensure product quality and have obtained AAA measurement management system, ISO 9001 quality accreditation and ISO 14001 environmental management certification in November 2009. We perform regular inspections and maintenance on our methanol plants.

Tianhao Chemicals has implemented a series of management measures in 2010, covering various areas like evaluation on quality control, environmental protection and occupational health and safety. As of the date of this annual report, the relevant certification regarding the foregoing management systems was under process.

Safety Control

For our coal chemical operations, we have implemented safety control measures in compliance with the People’s Republic of China Production Safety Law, the People’s Republic of China Regulations on the Safety Administration of Dangerous Chemicals and other safety guidelines for chemical manufacturers.

Competition

We compete with domestic methanol manufacturers in Shanxi and Shaanxi Provinces and the Inner Mongolia Autonomous Region. We expect to benefit from economies of scale as Yulin Nenghua’s 600,000 tonne methanol project achieves optimal utilization of its facilities and we further expand our coal chemical operations with the construction of Ordos Nenghua’sNeng Hua’s methanol plant.

Seasonality

Our coal chemical operations are not affected by seasonality.

Electric Power and Heat Supply Business

We ownAs of the date of this annual report, we owned and operateoperated eight power plants, which generate electricity for internal use and external sales. In 2009,addition, we have one power plant currently under construction. In 2010, we generated a total of 1,201.21,369.8 million kWh of electricity, of which we sold 562.3526.6 million kWh externally and generated RMB185.6 million in revenue. The power plants operated by Hua Ju Energy, Tianhao Chemicals and Yulin Nenghua generated 1,051.2 million kWh, 102.9 million kWh and 47.2 million kWh, respectively. Hua Ju energy made external sales of 412.2 million kWh.

We held 95.14% of the equity interest in Hua Ju Energy as of December 31, 2009. Hua Ju Energy operates coal-fired power plants whose main facilities consist of energy conversion CFB boilers and extraction and condensing steam turbines. The power plants at Hua Ju Energy hashave an aggregate installed capacity of 114 megawatt and themegawatts. In 2010, Hua Ju Energy generated 1,090.4 million kWh, of which 469.6 million kWh was sold externally.

The power plants at Yulin Nenghua and Tianhao Chemicals havewere established with the intention to satisfy the power demand of the methanol projects of these two entities and had an aggregate installed capacity of 84 megawatt.megawatts as of the date of this annual report. With effect from January 1, 2010, the power plant at Tianhao Chemicals started to supply the electricity for our methanol projects directly. In 2010, the power plants operated by Yulin Nenghua and Tianhao Chemicals generated 212.6 million kWh and 66.86 kWh, respectively, of which, we made externals sale of 49.59 million kWh and 7.44 million kWh, respectively.

We commenced construction of the Zhaolou Coal Mine power plants for Heze Nenghua Zhaolou Coal Mine in March 2010. The integrated power plants have two phases with designed capacity of 300,000 kWh for each phase. As of the date of this annual report, only phase I was under construction. For details about Zhaolou Coal Mine power plants, please see “— D. Property, Plants and Equipment — Methanol and Cogeneration Power Plants — Zhaolou Coal Mine Power Plants”.

We commenced heat supply operations, which consist of the production and sale of heat supply following our acquisition of Hua Ju Energy. In 2009,2010, Hua Ju Energy generated 1.171.27 million steam tonnes of heat energy. Although the substantial majority of heat energy produced by Hua Ju Energy is intended to be consumed internally by our coal mines, we generated net salesales of RMB13.3RMB25.23 million from selling 0.140.19 million steam tonnes of heat externally.

Sales and Marketing

TheAlthough the majority of the electric power generated by our power plants is mainly intended for our own use, and, to a lesser extent,in 2010 we sold 38.4% of the electric power we produced to other end-users through power grids. We consume most of the heat generated by our power plants and to thea lesser extent, we have extra capacity, sell to Yankuang Group.

Pricing

The pricing and adjustments for the on-grid tariff are determined by the PRC government. The pricing of our heat productproducts is determined in accordance with regulations set by price administration authorities.

Production Process

Yulin Nenghua. We select, break, grind and transport coal to a boiler where the coal is burned to generate steam, which is converted by steam turbines into electricity.

Tianhao Chemical. Middling is carried by belts and fuel feeding devices to fluidized-bed boiler, where the coal is burned to generate steam, which is converted by steam turbines into electricity. Tianhao Chemical owns two power plants with an installed capacity of 12MW each to satisfy the electricity demand for methanol production or even the electricity demand for the whole factory.

Hua Ju Energy. We recycle by-products of our coal mining operations, such as coal gangue and coal slurry to generate electricity. Coal gangue and coal slurry, through the conveyersconveyer belt and fuel feeding device, are fed to a CFB boiler where they are burned to generate steam, which is converted by steam turbines into electricity. The power plants of Hua Ju Energy are cogeneration systems that are able to produce heat simultaneously with power generation. Part of the steam produced in power generation is extracted from the steam turbines and via the heat supply system provided to the mining operations.

In both processes, we filter the exhaust gas that we produce and recycle the cinder for future use.

Materials, Water and Energy Supply

Our power plants are all coal-fired power plants. The power plants of Hua Ju Energy generate electricity by recycling coal gangue and coal slurry. Tianhao Chemicals and Yulin Nenghua currently source thermal coal from local coal mines.

Quality Control

Hua Ju Energy has obtained ISO 9001 quality accreditation and ISO 14001 environmental management certification since November 2003. Yulin Nenghua obtained AAA measurement management system, ISO 9001 quality accreditation and ISO 14001 environmental management certification in November 2009. Hua Ju Energy has obtained ISO 9001Tianhao Chemicals implemented a series of internal evaluation systems and management measurement systems for quality accreditation and ISO 14001control, environmental management and health and safety control in 2010. The management measurement system certification since November 2003. We perform regular inspections and maintenance on our power plants.is being processed.

Safety Control

Safety measures for our electric power and heat supply operations were designed to meet the requirement of the Electricity Law and other related laws.

Seasonality

Our electric power operations are not affected by seasonality. Our heat supply operations isare affected by seasonality and experiencesexperience higher demand during winter.

Regulatory Oversight of Our Group

Coal Industry — PRC Regulatory Matters

To establish a coal mining enterprise under the Coal Law of the PRC (the “Coal Law”), the applicant must submit an application to the relevant department in charge of the coal industry. After obtaining approval to establish a coal mining enterprise, the applicant will be granted a mining permit by the Ministry of Land and Resources. Thereafter, the applicant must obtain a coal production permit before it commences coal production. Coal mining enterprises that have legally obtained coal production licenses will have the right to sell coal that they produce. For establishment of a coal trading enterprise, an applicant must apply for a different business license and may engage in coal trading only after it obtains a trading license from the administrative department of industry and commerce.

Mining activities in the PRC are also subject to the Mineral Resources Law of the People’s Republic of China (the “Mineral Resources Law”). The Mineral Resources Law regulates any matters relating to the planning or the exploration, exploitation and mining of mineral resources. According to the Mineral Resources Law, all mineral resources in China, including coal, are owned by the State. Any enterprise planning to engage in the exploration, development and mining of mineral resources must obtain exploration rights and mining rights before commencing the relevant activities. The transfer of exploration and exploitation rights shall be subject to governmental approval pursuant to the Coal Law, the Mineral Resources Law and other relevant regulations.

We are principally subject to the supervision and regulation by the following agencies of the PRC government:

 

the State Council, the highest level of the executive branch, which is responsible for the examination and approval of major investment projects specified in the Catalogue of Investment Projects released by the PRC government in 2004;2004 and as amended from time to time;

the National Development and Reform Commission, or NDRC, which formulates and implements major policies concerning China’s economic and social development, examines and approves investment projects exceeding certain capital expenditure amounts or in specified industry sectors, including the examination and approval of foreign investment projects and formulates industrial policies and investment guidelines for natural resource industries, such as the coal industry. In addition, the NDRC administers coal export activities and export quotas jointly with the Ministry of Commerce. The NDRC is also responsible for the evaluation and implementation of the pricing mechanism that links the prices of coal and power;

 

the Ministry of Land and Resources (“MLR”), which has the authority to grant land use licenses and mining right permits, approve the transfer and lease of mining rights, and review the transfer price of mining rights and reserve estimates;

 

the State Administration of Coal Mine Safety (“SACMS”), which is responsible for the implementation and supervision of the relevant safety laws and regulations applicable to coal mines and coal mining operations;

the Ministry of Railways (“MOR”), which supervises China’s railway operations and provides strategic development plans for railway transportation. The MOR, together with the NDRC, reviews all applications for railway construction plans, including railways designated or used for coal transportation; and

 

the State Environmental Protection Administration of China (“SEPA”), which supervises and controls environmental protection and monitors China’s environmental system at the national level.

The following is a summary of the principal laws, regulations, policies and administrative directives to which we are subject.

Pricing

Until 2002, the production and pricing of coal have generally been subject to close control and supervision by the PRC government, which centrally manages the production and pricing of coal. To transition from a planned economy to market economy practices, the PRC government eliminated the state guideline for coal prices on January 1, 2002 and aimed to establish a pricing mechanism thatto reflect market demand.

Under the Price Law of the People’s Republic of China, the PRC government reserves the right to intervene in price fluctuations of important commodities such as coal. The State Council and the provincial governments, autonomous regions and municipalities directly under the PRC government may adopt intervention measures, such as restricting margins or profits, and imposing price limits. Since 2002, NDRC has executed temporary measures several times to prevent and control unusual fluctuations in thermal coal prices.

To ensure the stable supply of thermal coal and reduce pricing pressure on electric power companies, NDRC issued Announcement No. 46 on June 19, 2008 to implement, from such date until December 31, 2008, temporary price caps on thermal coal. On December 3, 2008, NDRC issued the Notice Relating to the Good Preparation for Inter Provincial Coal Production Transportation Works (Fa Gai Yun Xing [2008] No. 3294), which announced the elimination of the price control measures implemented in June 2008. On December 30, 2008, NDRC issued an announcement (No. 67) to abolish the temporary price intervention measures on thermal coal, which became effective on January 1, 2009. On December 14, 2009, NDRC published the Guidance on the Improvement of Linking Up Coal Manufacture, Transportation and Demand, by allowing enterprises to choose the manner in which it transportsthey transport coal. The Guidance reiterates the government’s support for the market orientation of the coal industry.

We sell our coal both on the spot market and under the contractsales contracts and letterletters of intent. We set the purchase volume and schedule in a period of time (generally, within one year) in the sales contractcontracts and letterletters of intent with our customers. The purchase price in the contract is set at the time of execution of contract, however, the purchase price in the letter of intent is set at the time of actual sales.

Fees and Taxes

The table below sets forth material taxes and fees that are imposed upon coal producers in China, as well as reserves which we are required to set aside.

 

Item

  

Base

  

Rate

Corporate income tax  Taxable income  25%
VAT  Sales revenue  17%
Business tax  Revenue from service  3% or 5%
City construction tax  Amount of VAT and business tax  5% to 7%
Education surcharge  Amount of VAT and business tax  3%
Local education surcharge  Amount of VAT and business tax  1%2%
Resource tax  Aggregate volume of raw coal sold or used(1)  

RMB3.6 per tonne

(Shandong Province)

Item

Base

Rate

RMB3.2 per tonne

(Shanxi Province)

Compensation for the depletion of coal resources

  Revenue from coal produced by us  

RMB3.2 per tonne

(Shanxi Province)

1%

Price adjustment fund  Volume of raw coal produced or sales volume of merchantable coal  

1. Jining City, Shandong Province

Province: RMB8 per tonne based on volume of raw coal produced;

2. Heze City, Shandong Province:

(1) RMB1.5 per tonne for 20% of the sales volume of clean coal and RMB20 per tonne for 80% of the sales volume of clean coal;

(2) RMB1 per tonne for 20% of the sales volume of other types of coal and RMB15 per tonne for 80% of the sales volume of other types of coal.

 

(1)The resource tax applicable to our coal operation in Shandong and Shanxi Provinces is calculated by multiplying the aggregate volume of raw coal sold and raw coal consumed in the production of clean coal by the applicable per tonne resource tax in the respective province.

Coal producers may be fined if they damage the environment, arable land, grasslands or forest areas. Under the Mineral Resources Law, if a mining enterprise’s mining activities resultsresult in damage to arable land, grasslands or forest areas, the mining enterprise must return the land to an arable state or plant trees or grass or take other restorative measures. The Mineral Resources Law and other applicable laws and regulations also state that anyone who causes others to suffer loss in terms of production or living standards is liable for the loss and must compensate the affected persons and remedy the situation.

Additionally, all coal producers are subject to PRC environmental protection laws and regulations which currently impose fees for the discharge of waste substances, require the payment of fines for serious pollution and provide for the discretion of the PRC government to close any facility which fails to comply with orders requiring it to cease or cure operations causing environmental damage.

Imports and Exports

According to the Foreign Trade Law, the Cargo Import and Export Ordinance and the Administrative Measures of Coal Export Quota, coal exports remain subject to State control and require governmental approval.

Our company has not been authorized as a PRC coal exporter. Our coal export isexports are conducted through threetwo export agents, including China National Coal Industry Import and Export Corporation, Minmetals Trading Co., Ltd. and Shanxi Coal Import & Export Group Corp.

Pursuant to the Administrative Measures of Coal Export Quota, the NDRC and the Ministry of Commerce are responsible for determining China’s national coal export quota and allocating the quota among authorized coal exporters. Upon receiving a quota approval, authorized coal exporters may apply for coal export permits to the relevant authority designated by the MOFCOM. Authorized coal exporters are also required to report their monthly quota usage to the NDRC.

The regulations provide that quotas may be adjusted in the event of:

 

a major change in the international market;

 

a major change in domestic coal resources;

 

an imbalance in the usage of the coal export quota by an authorized coal exporter compared to its allocation of the coal export quota; and

other circumstances which require an adjustment to the coal export quotas.

The total national quotas approved for coal exports in 2009 and 2010 was 51.0 million and 25.5 million tonnes, respectively. The total national quota approved for 2008 and 2009 was 47.7coal export in 2011 is 38.0 million and 51.0tonnes with the first 18.0 million respectively, and the 2010tonnes’ quota is 25.5 million tonnes.already granted to exporters.

According to the Notice of the Customs Tariff Committee of the State Council on Revising the Tariff Rates on the Export of Aluminum Alloy, Coke and Coal (Shui Wei Hui 2008 No. 25), beginning August 20, 2008, the provisional tariff rate of coke, coking coal and soft coal will be 40%, 10%, and 10%, respectively. Export tariffs are generally passed to the purchaser. Therefore, changes in export tariffs do not directly affect us.

Domestic Trading of Coal

Pursuant to the Measures for the Regulation of Coal Operations promulgated by the NDRC on December 27, 2004, the State implemented a system to examine the qualifications of an entity to engage in coal operations, including the wholesale and retail of raw coal and processed coal products and the processing and distribution of coal for civilian use. Before an entity can engage in coal operations, it must obtain a coal operation qualification certificate. A coal production enterprise that deals in coal products produced and processed by a third party is required to obtain a coal operation qualification.

Environmental Protection

Pursuant to the Environmental Protection Law, the State Environmental Protection Administration is authorized to formulate national environmental quality and discharge standards and to monitor China’s environmental system at the national level to protect the environment. Environmental protection bureaus at the county level and above are responsible for environmental protection within their respective jurisdiction.

China has promulgated a series of laws and regulations. Through these laws and regulations, China has established national and local environmental protection legal frameworks and issued standards applicable to emission controls, discharges of wastes and pollutants to the environment, generation, handling, storage, transportation, treatment and disposal of waste materials by production facilities, land rehabilitation and reforestation.

The Environmental Protection Law requires any entity operating a facility that produces pollutants or may create a hazard to incorporate environmental protection measures into its operations and to establish an environmental protection responsibility system, which must adopt effective measures to control and properly dispose waste materials.

In the environmental impact statement of a construction project, the project operator must assess the pollution and environmental hazards the project is likely to produce and its impact on the ecosystem and measures for their prevention and control. The statement shall, after initial examination by the authorities in charge of the construction project, be submitted by a specified procedure to the competent department of environmental protection administration for approval. Facilities for the prevention and control of pollution must be designed, constructed and implemented simultaneously with the primary construction contemplated by a project. These facilities must be inspected by the competent environmental protection authority and determined to conform with specified requirements before they can be implemented.

Enterprises that discharge pollutants must report to and register with the relevant authorities in accordance with the provisions of a department of environmental protection administration under the State Council. Enterprises that discharge pollutants in excess of the prescribed national or local standards will be fined for excessive discharge according to State provisions and will be responsible for eliminating and controlling the pollution.

According to the Law on Prevention and Control of Water Pollution of the People’s Republic of China, and the Administrative Regulations on the Levy and Use of Discharge Fees, any new construction projects, which directly or indirectly discharge pollutants to water, such as coal mines and coking plants, must conduct an environmental impact assessment. Every new production facility must be equipped with waste water processing facilities which must be put in use together with the production facilities. Construction projects that discharge pollutants into water shall pay a pollutant discharge fee in accordance with state regulations.

Violators of the Environmental Protection Law and various environmental regulations may be subject to warnings, payment of damages and fines. Any entity undertaking construction work or manufacturing activities before the pollution and waste control and processing facilities are inspected and approved by the environmental protection department may be ordered to suspend production or operations and may be fined. The violators of relevant environment protection laws and regulations may be exposed to criminal liability if violations resulted in severe loss of property, personal injuries or death.

The rehabilitation of mining sites is another priority of the PRC government. Under the Law of Land Administration of the People’s Republic of China and the Land Rehabilitation Regulations, issued by the State Council in 1988, coal producers must undertake measures to restore a mining site to its original state within a prescribed time frame if their mining activities result in damage to arable land, grassland or forest. The rehabilitated land must meet rehabilitation standards, as required by law from time to time, and may only be subsequently used upon examination and approval by the land authorities. A coal producers’producer’s failure to comply with this requirement or its failure to return the mining site to its original state will result in the imposition of fines, rehabilitation fees and/or rejection of applications for land use rights by the local bureau of land and resources.

In addition to the PRC environmental laws and regulations, China is a signatory to the 1992 United Nations Framework Convention on Climate Change and the 1998 Kyoto Protocol, which propose emission targets to reduce greenhouse gas emissions. The Kyoto Protocol came into force in 2005. At present, the Kyoto Protocol has not set any specific emission targets for certain countries, including China.

Mining safety

On June 7, 2005, the State Council promulgated Several Opinions on Promoting the Healthy Development of the Coal Industry (“Opinions”), announcing the PRC government’s policies with respect to the development and restructuring of the coal industry. The Opinions reiterated the PRC government’s policies with respect to the administration of coal reserves, enhancement of coal mine safety, encouragement of industry consolidation among coal producers, acceleration of the construction of large coal production bases, improvement of mining techniques and equipment for coal production and the organization and regulation of small coal mines.

According to the Measures for Implementing Work Safety Permits in Coal Mine Enterprises issued by the State Administration of Work Safety and the SACMS, a coal mine enterprise without a work safety permit may not engage in coal production activities. Coal mining enterprises and their mines that do not satisfy the safety conditions set forth in these documents, or those that violate the provisions of this document, will be punished accordingly. Coal mine enterprises that remain compliant with the requirements set in these documents may apply for administrative approval to extend the validity period of their Work Safety Permits.

The Special Regulations by the State Council on Preventing Work Safety Related Accidents in Coal Mines were promulgated and entered into effect on September 3, 2005. This regulation specifies that coal mine enterprises are responsible for preventing coal mine work safety-related accidents. If a coal mine has not obtained, in accordance with the law, a mining right permit, work safety permit, coal production permit or business license and if the mine manager has not obtained, in accordance with the law, a mine manager qualification certificate and a mine manager safety qualification certificate, the coal mine may not engage in production. Coal mining enterprises should establish a sound system for the detection, elimination, treatment and reporting of latent work safety-related dangers. If a major latent work safety-related danger as specified exists in a coal mine, the enterprise should immediately suspend production and eliminate the latent danger. Coal mining enterprises should provide their personnel working underground and their special operation personnel with safety education and training in accordance with relevant state regulations. The person in charge of a coal mine and the production and operation management personnel should go into mines and act as foremen on a rotating basis in accordance with state regulations, while a file recording their entry into the mine should be maintained.

In addition, the State Administration of Work Safety issued five sets of supplemental measures: (i) the Measures for Determining Major Latent Work Safety Related Dangers in Coal Mines (for Trial Implementation); (ii) the Implementing Measures for the Detection and Elimination of Latent Dangers in Coal Mines and the Rectification and Closure of Such Mines (for Trial Implementation); (iii) the Measures for the Supervision and Inspection of Coal Mine Safety Training (for Trial Implementation); (iv) the Guiding Opinions on Persons in Charge of Coal Mines and Production and Operation Management Personnel Going into Mines as Foremen; and (v) the Measures for Rewarding the Reporting of Major Latent Work Safety Related Dangers in, and Violations of the Law by, Coal Mines (for Trial Implementation).

Coal Industry — Australian Regulatory Matters

Our mining operations in Australia are regulated by Australian federal and state governments with respect to environmental issues such as water quality, air quality, dust impacts, noise impacts, planning issues (such as approvals to expand existing mines or to develop new mines), and health and safety issues. Industrial relations are regulated under both federal and state laws. Australian state governments also require coal companies to post deposits or give other security against land which is being used for mining and exploration, with those deposits being returned or security released after satisfactory reclamation is completed.

Environmental

Each state and territory in Australia has its own legal regime regarding environment and planning and there is a Commonwealth environment regime in respect of matters of national environmental significance. In addition, each state and territory also has a legal regime dealing with mining in particular. The mining legislation in each state and territory generally operates concurrently with environment and planning legislation. The mining legislation governs exploration and mining licenses, including the restoration of land following the completion of mining activities.

The particular provisions of the various state and territory environment and planning legal regimes vary depending upon the jurisdiction. Despite variation in details, each state and territory has a system involving broadly at least two major phases. First, obtaining major environment/planning developmental approval addressing planning and significant environmental issues; and second, obtaining pollution control approvals, regarding pollution control issues such as emissions to the atmosphere; emissions in waters; noise impacts, impacts from blasting; dust impacts; the generation, handling, storage and transportation of waste.

The Commonwealth environment regime will apply if matters of national environmental significance are likely to be significantly impacted. If so, Commonwealth approval will be required.

Occupational Health and Safety

The combined effect of various state and federal statutes requires an employer to ensure that persons employed in a mine are safe from injury by providing a safe working environment and systems of work; safety machinery; equipment, plant and substances; and appropriate information, instruction, training and supervision.

In recognition of the specialized nature of mining and mining activities, specific occupational health and safety obligations have been mandated under law and legislation that deals specifically with the coal mining industry. Mining employers, owners, directors and managers, persons in control of work places, mine managers, supervisors and employees are all subject to these duties. The Australian federal government is currently conducting a review of health and safety legislation with a view to harmonizing requirements across the country.

It is mandatory for an employer to have insurance coverage with respect to the compensation of injured workers; similarworkers. Similar coverage is in effect throughout Australia which is of a no fault nature and which provides for benefits up to a prescribed level. The specific benefits vary by jurisdiction, but generally include the payment of weekly compensation to an injured employee, together with payment of medical, hospital and related expenses. The injured employee may have a right to sue his or her employer for further damages if a case of negligence can be established (but on the condition that the injured employee waives his or her right to the insurance coverage).

Carbon Pollution Reduction Scheme

The Federal Labor government ratified the Kyoto Protocol in December 2007. Under the treaty, Australia has a target of restricting greenhouse gas emissions to 108% of 1990 levels during the 2008 to 2012 commitment period. The government has also committed to a 60% reduction in emissions by 2050, from 2000 levels. To assist in meeting these targets, the Australian Federal government has announced that it intends to establish a cap and trade emissions trading scheme by 2013, named the Carbon Pollution Reduction Scheme. This scheme will impose costs on greenhouse gas emissions that will affect our business – however,business. However, the Australian government is likely to provide some support for the coal industry for the first few years of the scheme. If the Carbon Pollution Reduction Scheme starts to implementis implemented and we will need to buy the credits for volume of energy greenhouse gas emissions, our revenue may decrease and our business may be adversely affected.

Foreign Investment

No specific restrictions apply in relation to foreign investment in Australia’s coal industry. However, under Australian law and the Australian government’s foreign investment policy, certain acquisitions must be notified to obtain the prior approval of the Treasurer before proceeding. These include acquisitions of substantial interests in an Australian business where the value of the business’ total assets is, or the proposal value is, above US$100.0 million. It also includes (a) proposals to establish new businesses involving a total investment of US$10.0 million or more; (b) offshore takeovers of a foreign company whose Australian subsidiaries or assets are valued at more than US$200.0 million and account for less than 50% of the target company’s global assets (different thresholds apply to U.S. investors); (c) acquisition of shares in a company or trust which holds more than 50% of its assets in Australian urban land (regardless of the value of that acquisition); and (d) all direct investments in an Australian foreign business by foreign governments or their agencies (irrespective of the size of that Australian business or value of that acquisition and made either directly or through a company that is owned 15% or more by a foreign government).

Power Generation Industry

The Electric Power Law and the Electric Power Regulatory Ordinance

The Electric Power Law of the People’s Republic of China (the “Electric Power Law”) sets out the regulatory framework of the power industry. The Electric Power Law encourages power plant operators to focus on environmental protection and adopt new technology to decrease waste discharge.

In 2005, the State Council promulgated the Electric Power Regulatory Ordinance. The Electric Power Regulatory Ordinance sets forth regulatory requirements for many aspects of the power industry, including, among others, the issuance of electric power business permit, the regulatory inspections of power generators and grid companies and the legal liabilities from violations of the regulatory requirements.

Approvals and Licenses for Power Plants

Applications for all new coal-fired power plants are required to be submitted to the NDRC for approval, as well as the State Council for significant power plant projects. According to the Provisions on the Administration of Electric Power Business Licenses, applicants are also required to obtain requisite permits, including an Electric Power Business for Power Generation and approvals related to plant site, land use rights, construction and the environment.

Pricing

Since 1996, the Electric Power Law has set forth general principles for determining power tariffs. The Interim Provisions for the Administration of Grid Power Price promulgated by NDRC states that tariffs are to be formulated to provide reasonable compensation for costs and a reasonable return on investment, to share expenses fairly and to promote the construction of power projects. With the exception of grid power prices set by governmental bids or power plans that produce alternative energy, grid power prices of new power plants within the same region should be uniform. The on-grid tariffs for planned output and excess output are subject to a review and approval process involving the NDRC and the provincial price bureaus. In 2004, the NDRC, with the approval of the State Council, issued a policy to link thermal coal and power prices. This policy allows on-grid tariffs to increase if the average price of coal increases by more than 5% within a six-month period.

Safety

In accordance with the Measures for Supervising the Safety Production of Electricity, issued by the SERC, power plants are responsible for maintaining their safety operations in accordance with requirements set by the regional grid in which they are located. Power plants are required to report to the SERC and relevant local government authorities worker fatalities or serious or extraordinary accidents.

Coal Chemical Processing Industry

The State announced in the Coal Law its encouragement and support for coal mining enterprises and other enterprises to produce both coal and electricity, coking coal and coal chemicals. The NDRC issued the Notice of Strengthening the Administration of Coal Chemical Processing Industry and Improving the Healthy Development of the Industry, which was aimed at strengthening the coal chemical processing industry through the promotion of transportation safety, risk prevention and management standardization. According to the Enterprise Income Tax Law and its implementation regulations, enterprises that produce products using resources encouraged by industrial policies of the State are eligible for preferential tax treatment. If an enterprise uses any of the materials that are listed in the Catalogue of Income Tax Preference for Enterprises of Comprehensive Utilization of Resources as a major raw material in its product, the total income derived from such product for tax purposes will be reduced by 90%. Coke oven waste gas, one of the primary raw materials at one of our methanol production facilities, is one of the materials listed on in the catalogue.

 

C.Organizational Structure

As of December 31, 2009,2010, our Company consisted of 1718 departments, namely the Secretariat of the Board of Directors, Audit Department of the Board of Directors, Department of Coordination, Department of Human Resources, Department of Financial, Planning Enterpriseand Management Department, Information Management Department, Enterprise Development Department, Risk Management Department, General Control Center, Department of Production Technology, Department of Safety Inspection, Electrical Engineering and Power Department, Ventilation and Dust Elimination Department, Geological Survey Department, Office of Community Relationship, Technical Center and Technical Center.Overseas Management Department.

The diagram below sets forth our organizationorganizational structure as of December 31, 2009:2010:

LOGO

subsidiaries
production units
LOGO

LOGO shareholdings

LOGO production units

(1)with the exception of Yancoal Australia Pty Limited and its subsidiaries, which are incorporated in Australia, all of our other subsidiaries are incorporated in the PRC
(2)indirectly held by Felix through wholly-owned subsidiaries
(3)subsequent to December 31, 2009, our equity interest in Heze Nenghua and Tianhao Chemicals was increased to 98.33% and 99.89%, respectively

D.Property, PlantsPlant and Equipment

Real Property and Leasehold Property

As of December 31, 2009,2010, the net book value of our property, plant and equipment was RMB18,877.1RMB19,874.6 million. The properties for which we own land use rights in China occupy an area of approximately 7,133.5 thousand7.2 million square meters, while the coalfields to which we possess mining rights in Australia occupy an area of approximately 1,717,220.0 thousand1,035.7 million square meters. Under PRC law, our land use rights for properties in China during the validity of the grant are granted for 50 years commencing from the respective grant dates of such land use rights and are freely transferable. In addition, the land ownership rights held by Yancoal Australia are held in perpetuity pursuant to AustraliaAustralian law.

Coal Mines and Coal Production Facilities

The Six Coal Mines currently operated by us are all located in the southwestern part of Shandong Province. All of these mines are connected by our railway network, which provides direct access to our customers or indirectly through the PRC national railway or highway system. We acquired Austar Coal Mine in 2004 and subsequently acquired Shanxi Nenghua, which operates Tianchi Coal Mine, in 2006. We ownAs of the date of the annual report, we owned 98.33% of the equity interests of Heze Nenghua, which operates Zhaolou Coal Mine. Zhaolou Coal Mine commenced commercial operations in December 2009.Nenghua.

In December 2009, we acquired the entire equity interest in Felix through Yancoal Australia. Felix is a company incorporated in Australia whose principal activities include the mining, sales and exploration of coal. The major coal assets currently owned by Felix are located in New South Wales and Queensland. As of the date of this annual report, Felix hashad an ownership interest in the following operational coal mines: Ashton Coal Mine (consisting of an underground coal mine and an open-pit coal mine), Minerva Coal Mine, Yarrabee Coal Mine and Moolarben Coal Mine (consisting of an underground coal mine and an open-pit coal mine). Felix also holds ownership interests in three exploratory minesmine projects and a 15.4% equity interest in Newcastle Coal Infrastructure Group, a joint venture that is responsible for constructing and operating the third export terminal at Newcastle Port. Pursuant to approval granted the seventeenth meeting of the fourth session of the Board held on December 30, 2010, we acquired another 30% equity interest in the Ashton Coal Mine Joint Venture and disposed of a 51% equity interest in the Minerva Coal Mine Joint Venture. As of the date of the annual report, we held 90% of the equity interests in the Ashton Coal Mine Joint Venture in aggregate and held no interest in the Minerva Coal Mine Joint Venture.

Our wholly-owned subsidiary, Ordos Neng Hua, acquired Anyuan Coal Mine in December 2010. As of the date of the annual report, we were in the process of transferring the relevant certificates and registrations of Anyuan Coal Mine.

The map below shows the location of the Six Coal Mines in Shandong Province and our railway system:

LOGOLOGO

The map below shows the location of Tianchi Coal Mine:

LOGO

The map below shows the location of Zhaolou Coal Mine:

LOGO

The map below shows the location of Austar Coal Mine and coal mines owned by Felix:

LOGOLOGO

The map below shows the location of TianchiAnyuan Coal Mine:Mine owned by Ordos Neng Hua:

LOGOLOGO

The map below shows the location of Zhaolou Coal Mine:

LOGO

The following table sets forth information about each of the Six Coal Mines, which are directly owned and operated by the Company:

 

     Xinglong-               
    Nantun        zhuang        Baodian      Dongtan      Jining II      Jining III      Total   Nantun Xinglong-
zhuang
 Baodian Dongtan Jining II Jining III Total 

Background data:

                     

Commencement of construction

  1966  1975  1977  1979  1989  1993  N/A  1966    1975    1977    1979    1989    1993    N/A  

Commencement of commercial production

  1973  1981  1986  1989  1997  2000  N/A  1973    1981    1986    1989    1997    2000    N/A  

Coalfield area
(square kilometers)

  35.2  59.81  36.4  60.0  87.1  105.1  383.61  35.2    59.81    36.4    60.0    87.1    105.1    383.61  

Reserve data:(1)

(millions tonnes as of December 31, 2009)

     ��        

Reserve data:(1)

(millions tonnes as of December 31, 2010)

       

Total in-place proven and probable reserves(2)(3)

  118.20  326.13  288.36  457.47  413.42  227.54  1,831.2

Total in-place proven and probable reserves(1)

  114.74    319.13    282.41    450.57    408.87    221.60    1,797.32  

Mining recovery rate (%)

  80.75  80.58  82.57  84.02  65.27  81.59  N/A  80.39    80.50    80.99    83.78    71.12    80.49    N/A  

Coal preparation plant recovery rate (%)(4)

  83.54  61.69  77.05  69.10  51.90  73.68  69.10

Coal preparation plant recovery rate (%)(2)

  67.59    87.40    62.12    60.96    69.43    62.55    69.52  

Depth of mine(meters underground)

  397.0  429.2  474.7  710.0  593.0  556.0  N/A  397.0    429.2    474.7    710.0    593.0    556.0    N/A  

Average thickness of main coal seam(meters)

  8.60  8.29  8.81  8.41  6.78  6.20  N/A  8.60    8.29    8.81    8.41    6.78    6.20    N/A  

Type of coal

  steam  steam  steam  steam  steam  steam  N/A  thermal coal    thermal coal    thermal coal    thermal coal    thermal coal    thermal coal    N/A  

Leased/owned

  owned  owned  owned  owned  owned  owned  N/A  owned    owned    owned    owned    owned    owned    N/A  

Assigned/unassigned(5)

  assigned  assigned  assigned  assigned  assigned  assigned  N/A

Assigned/unassigned(3)

  assigned    assigned    assigned    assigned    assigned    assigned    N/A  

Average calorific value(Kcal/kg)

  5,572  5,881  5,890  5,586  5,467  5,412  N/A  5,572    5,881    5,890    5,586    5,467    5,412    N/A  

Sulfur content (%)

  0.74  0.47  0.52  0.60  0.56  0.52  N/A  0.60    0.47    0.52    0.60    0.56    0.52    N/A  

Production data: (million tonnes)

                     

Designed raw coal production capacity

  2.4  3.0  3.0  4.0  4.0  5.0  21.4  2.4    3.0    3.0    4.0    4.0    5.0    21.4  

Designed coal preparation input capacity

  1.8  3.0  3.0  4.0  3.0  5.0  19.8

Designed washing capacity

  1.8    3.0    3.0    4.0    3.0    5.0    19.8  

Raw coal production

                     

2000

  4.5  6.2  5.3  6.7  4.8  —    27.5  4.5    6.2    5.3    6.7    4.8    —      27.5  

2001

  4.9  6.6  6.2  7.1  4.1  5.1  34.0  4.9    6.6    6.2    7.1    4.1    5.1    34.0  

2002

  3.6  7.1  6.4  8.1  5.2  8.0  38.4  3.6    7.1    6.4    8.1    5.2    8.0    38.4  

2003

  4.7  7.0  7.3  8.2  6.0  10.1  43.3  4.7    7.0    7.3    8.2    6.0    10.1    43.3  

2004

  4.1  7.4  7.0  8.5  4.9  7.3  39.2  4.1    7.4    7.0    8.5    4.9    7.3    39.2  

2005

  4.0  6.6  5.0  7.5  4.5  7.0  34.6  4.0    6.6    5.0    7.5    4.5    7.0    34.6  

2006

  3.9  7.2  5.6  8.0  4.0  6.8  35.5  3.9    7.2    5.6    8.0    4.0    6.8    35.5  

2007

  3.9  6.8  5.8  7.6  3.4  5.3  32.8  3.9    6.8    5.8    7.6    3.4    5.3    32.8  

2008

  3.5    6.6    6.0    7.0    3.9    6.1    33.1  

2009

  3.8    6.6    5.7    7.5    3.6    6.2    33.4  

2010

  3.6    6.8    6.1    7.4    4.2    6.2    34.3  

Cumulative raw coal production as of December 31, 2010

  67.1    101.8    90.4    112.2    55.0    68.1    494.6  

       Nantun      Xinglong-
     zhuang    
      Baodian          Dongtan          Jining II          Jining III          Total    

2008

  3.5  6.6  6.0  7.0  3.9  6.1  33.1

2009

  3.8  6.6  5.7  7.5  3.6  6.2  33.4

Cumulative raw coal production as of December 31, 2009

  63.5  95.0  84.3  104.8  50.8  61.9  460.3

 

(1)Our estimatesThe above reserve data is based on the relevant information from the report of total in-place proven and probableindependent mining consultants and/or the operating data derived from the Company’s record. Recoverable reserves are reported after deduction of actual production volume and non-accessible reserves up to December 31, 2009.2010. In-place reserves refer to coal in-situ prior to the deduction of pillars of support, barriers or constraints for longwall mining. Non-accessible reserves are defined as the portion of identified resources estimated to be not accessible by application of one or more accessibility factors within an area.
(2)In-place reserves refer to coal in-situ prior to the deduction of pillars of support, barriers or constraints for longwall mining.
(3)See the individual description of each mine for relevant mining methods used.
(4)Coal preparation plant recovery rate refers to the wash plant recovery rate of raw coal used during the production of our clean coal products.
(5)(3)“Assigned” reserves refer to coal which has been committed to a particular mining complex (mine shafts, mining equipment, and plant facilities), and all coal which has been leased by the company to others. “Unassigned” reserves refer to coal which has not been committed, and which would require new mineshafts, mining equipment, or plant facilities before operations could begin on the property.

Nantun Coal Mine. Nantun is located in the southern portion of our coalfield.coalfield, with coalfield area of approximately 35.2 square kilometers. Nantun began commercial production initially in 1973 with a designed annual raw coal production capacity of 1.52.4 million tonnes of coal. In 1993, the designed annual production capacity for Nantun was increased to 2.4 million tonnes after the completion of a renovation project. The main coal seam of Nantun is divided into two leaves. The thickness of the upper leaf averages 5.35 meters and the thickness of the lower leaf averages 3.21 meters. As of December 31, 2009,2010, the total in-place proven and probable reserves on the main coal layer were approximately 118.2114.7 million tonnes. At this mine, we generally use the fully-mechanized sublevel caving mining method to extract coal from the upper layer of the coal seam and use a fully-mechanized longwall system to mine the lower layer of the coal seam. As of December 31, 2009,2010, Nantun produced coal from three work-faces.

Nantun’s coal preparation plant produces mainly No. 2 and No. 3 Clean Coal and employs onlymovable-sieve jig machines and jig machines. Most of the equipment used in the Nantun coal preparation plant was manufactured in the PRC.

Xinglongzhuang Coal Mine. Xinglongzhuang is located in the northern portion of our coalfield.coalfield, with coalfield area of approximately 59.8 square kilometers. Xinglongzhuang began commercial production initially in 1986 with a designed annual raw coal production capacity of 3.0 million tonnes of coal. The main coal seam of Xinglongzhuang is concentrated in one leaf with an average thickness of 8.3 meters. As of December 31, 2009,2010, the total in-place proven and probable reserves on the main coal layer were approximately 326.1319.1 million tonnes. At this mine, we principally use the fully-mechanized sublevel caving method to extract coal from the coal seam of Xinglongzhuang Coal Mine. Xinglongzhuang produced coal from two work-faces as of December 31, 2009.2010.

The Xinglongzhuang coal preparation plant produces No. 1, No. 2 Clean Coal and No. 3 Clean Coal.block coal. The principal piecesmajority of equipment in the Xinglongzhuang coal preparation plant, including its jig machines sink-and-float separationand movable-sieve jig machines, and floating separation machines, were manufactured in the PRC while a small portion of the equipment was imported.

Baodian Coal Mine. Baodian is located in the central western portion of our coalfield.coalfield, with coalfield area of approximately 36.4 square kilometers. Baodian began commercial production initially in 1986 with a designed annual raw coal production capacity of 3.0 million tonnes of coal. Certain sections of the main coal seam of Baodian are concentrated in one leaf, with an average thickness of 8.81 meters. The remaining sections are divided into two leaves with an average thickness of 5.74 meters for the upper leaf and 3.38 meters for the lower leaf. As of December 31, 2009,2010, the total in-place proven and probable reserves on the main coal layer were approximately 288.4282.4 million tonnes. At this mine, we generally use the fully-mechanized sublevel caving method to extract coal from the upper layer of the coal seam and use mechanized longwall faces to mine the lower layer of the coal seam. Baodian Coal Mine maintained two work-face as of December 31, 2009.2010.

The original design of the Baodian coal preparation plant is similar to thatproduces No. 2 Clean Coal and block coal. The majority of the Nantun coal preparation plant. Subsequently, we remodeled the jig machines and added a modified sink-and-float separation processing system at the Baodian coal preparation plant. Most of the equipment used in the Baodian coal preparation plant, wasincluding its slanted wheel, cyclones and jig machines were manufactured in the PRC. The principal products of Baodian’s coal preparation plant are No. 2 and No. 3 Clean Coal.

Dongtan Coal Mine. Dongtan is located in the central eastern portion of our coalfield.coalfield, with coalfield area of approximately 60.0square kilometers. Baodian began commercial production initially in 1989 with a designed annual raw coal production capacity of 4.0 million tonnes of coal. Certain sections of the main coal seam consist of one layer with an average thickness of 8.41 meters, and the remaining sections are divided into two layers, with an average thickness of 5.38 meters for the upper layer and 3.22 meters for the lower layer. As of December 31, 2009,2010, the main coal layer held approximately 457.5450.6 million tonnes of in-place proven and probable reserves. At this mine, we generally use the fully-mechanized sublevel caving method to extract coal from the sections of the coal seam with one layer of coal and the upper layer in the sections with two layers of coal. Dongtan Coal Mine maintained two work-faces as of December 31, 2009.2010.

MostThe Baodian coal preparation plant produces No. 2, No. 3 Clean Coal and block coal. The principal pieces of equipment in the equipment used at the DongtanBaodian coal preparation plant, including theits slanted wheel, cyclones and jig machines a modified sink-and-float separation processing system, waswere manufactured in the PRC. The principal products of Dongtan’s coal preparation plant are No. 2 and No. 3 Clean Coal.

Jining II Coal Mine. Jining II is located in the northern portion of the Jining coalfield.coalfield, with coalfield area of approximately 87.1 square kilometers. Baodian began commercial production initially in 1997 with a designed annual raw coal production capacity of 4.0 million tonnes of coal. Certain sections of the main coal seam of Jining II are concentrated in one layer, with an average thickness of 6.78 meters. The remaining sections are divided into two layers, with an average thickness of 2.1 meters for the upper leaf and an average thickness of 4.68 meters for the lower leaf. As of December 31, 2009,2010, the total in-place proven and probable reserves on the main coal layer were approximately 413.4408.9 million tonnes. At this coal mine, we use mainly the fully-mechanized sublevel caving method to extract coal from the upper layer of the coal seam and use mechanized longwall faces to mine the lower layer of the coal seam. Jining II Coal Mine produced coal from twothree work-faces as of December 31, 2009.2010.

The main equipment used in Jining II is movable-sieve jig machines and jig machines, most of which are manufactured in the PRC. The principal products of the coal preparation plant of Jining II are No. 2 and No. 3 Clean Coal.

Jining III Coal Mine. Jining III is located in the southern portion of the Jining coalfield and covers an area of 105.0 square kilometers. Jining III commenced commercial production in 2000 withhad a designed annual raw coal production capacity of 5 million tonnes.tonnes in 2000. The average thickness of the main coal seam of Jining III is 6.2 meters. As of December 31, 2009,2010, the total in-place proven and probable reserves on the main coal layer were approximately 227.5221.6 million tonnes. The average thickness of the main coal seam of Jining III is 6.2 meters. We mainly rely on the fully-mechanized sublevel caving method to extract coal from threetwo work-faces in Jining III Coal Mine as of December 31, 2009.2010.

The main pieces of equipment used in Jining III are slanted wheel, cyclones and movable-sieve jig machines, which were imported from Germany.manufactured in the PRC. The principal products of the coal preparation plant of Jining III are No. 2 and No. 3 Clean Coal. In 2010, Jining III implemented washing capacity through technical improvement.

The following table sets forth information about Tianchi Coal Mine and Zhaolou Coal Mine, our coal mines in China that are operated by subsidiaries of the Company:

 

       Tianchi          Zhaolou          Total    

Background data:

      

Commencement of construction(1)

  2004  2004  N/A

Commencement of commercial production(1)

  2006  2009  N/A

Coalfield area(square kilometers)

  20.0  143.36  163.36

Reserve data:(2)

(millions tonnes as of December 31, 2009)

      

Recoverable reserves(3)(4)

  27.73  105.79  133.52

Mining recovery rate (%)

  78.04  80.15  N/A

Coal preparation plant recovery rate (%)(5)

  N/A  73  N/A

Depth of mine(meters underground)

  225  905  N/A

Average thickness of main coal seam(meters)

  4.56  5.15  N/A

Type of coal

  Steam  1/3 coking coal  N/A

Leased/owned

  owned  owned  N/A

Assigned/unassigned(6)

  assigned    assigned  N/A

Average calorific value(Kcal/kg)

  5,177  6,937  N/A

Sulfur content (%)

  0.90  0.53  N/A

Production data:(million tonnes)

      

Designed raw coal production capacity

  1.2  3.0  4.2

      Tianchi          Zhaolou          Total      Tianchi   Zhaolou   Total 

Designed coal preparation input capacity

      

Background data:

      

Commencement of construction(1)

   2004     2004     N/A  

Commencement of commercial production(1)

   2006     2009     N/A  

Coalfield area(square kilometers)

   20.0     143.36     163.36  

Reserve data:

(millions tonnes as of December 31, 2010)

      

Recoverable reserves(2)

   26.71     105.00     131.71  

Mining recovery rate (%)

   80.04     78.71     N/A  

Coal preparation plant recovery rate (%)(3)

   N/A     69.18     N/A  

Depth of mine(meters underground)

   225     905     N/A  

Average thickness of main coal seam(meters)

   4.56     5.15     N/A  

Type of coal

   thermal     1/3 coking coal     N/A  

Leased/owned

   owned     owned     N/A  

Assigned/unassigned (4)

   assigned     assigned     N/A  

Average calorific value(Kcal/kg)

   5,177     6,937     N/A  

Sulfur content (%)

   0.90     0.53     N/A  

Production data:(million tonnes)

      

Designed raw coal production capacity

   1.2     3.0     4.2  

Designed coal preparation input washing capacity

   —       3.0     3.0  

Raw coal production

            

2006

  0.1    0.1   0.1     —       0.1  

2007

  1.2    1.2   1.2     —       1.2  

2008

  1.1    1.1   1.1     —       1.1  

2009

  1.0  0.04  1.04   1.0     0.04     1.04  

Cumulative raw coal production as of December 31, 2009

  3.4  0.04  3.44

2010

   1.5     1.6     3.1  

Cumulative raw coal production as of December 31, 2010

   4.9     1.64     6.54  

 

(1)With respect to Tianchi Coal Mine, the “commencement of construction” refers to capacity expansion and technology upgrade undertaken after our 2006 acquisition; the “commencement of commercial production” refers to the resumption of production after completion of the foregoing expansion and upgrade.
(2)Our estimates of recoverable reserves are reported after deduction of actual production volume and non-accessible reserves up to December 31, 2009. Non-accessible reserves are defined as the portion of identified resources estimated to be not accessible by application of one or more accessibility factors within an area.
(3)Recoverable reserves refer to the amount of proven and probable reserves that can be recovered after taking into account all mining and preparation losses that occur during the processing of coal after it is mined. Our estimates of recoverable reserves are reported after deduction of actual production volume and non-accessible reserves up to December 31, 2010. Non-accessible reserves are defined as the portion of identified resources estimated to be not accessible by application of one or more accessibility factors within an area.
(4)(3)See the individual description of each mine for relevant mining methods used.
(5)Coal preparation plant recovery raterate” refers to the wash plant recovery rate of raw coal used during the production of our coal products.
(6)(4)“Assigned” reserves refer to coal which has been committed to a particular mining complex (mine shafts, mining equipment, and plant facilities), and all coal which has been leased by the company to others. “Unassigned” reserve refers to coal which has not been committed, and which would require new mineshafts, mining equipment, or plant facilities before operations could begin on the property.

Tianchi Coal Mine. Tianchi Coal Mine is an underground mine located in Heshun County of Shanxi Province, with an area of approximately 20 square kilometers. Tianchi Coal Mine commenced commercial production in 2006 and the designed production capacity of Tianchi Coal Mine was increased to 1.2 million tonnes per annum in the same year.

Tianchi Coal Mine is operated by inclined shaft development, and it produces mostly lean coal and meager leanthermal coal. The average thickness of this target coal seam is 4.56 meters. As of December 31, 2009,2010, the total recoverable reserves of Tianchi Coal Mine were approximately 27.826.71 million tonnes. We principally used the longwall caving mining method to extract coal from one work-face at Tianchi Coal Mine as of December 31, 2009.2010.

Tianchi Coal Mine underwent a technological upgrade and installed a sink-and-float separation processing system and started trial production in April 2009.

The primary piece of equipment in this system areis slanted wheel, separators, which areis manufactured in China. Tianchi Coal Mine primarily produces thermal coal and block coal.

We do not employ mining contractors at Tianchi Coal Mine. The operations at Tianchi Coal Mine are powered by electricity from local power grids. We ship coal products from the Tianchi Coal Mine to Hebei Province and surrounding areas on the Yangshe Railway, the national railway network, as well as the national railwayhighway network.

Zhaolou Coal Mine. Zhaolou Coal Mine is an underground longwall mine located in the central portion of Juye Coal Field in Shandong Province. Zhaolou Coal Mine covers an area of approximately 145143.4 square kilometers, and is accessible by roadway and railway.

Zhaolou Coal Mine commenced commercial production in December 2009 and has a designed annual raw coal production capacity of three million tonnes. Zhaolou Coal Mine produces 1/3 coking coal. The average thickness of the main coal seam of Zhaolou Coal Mine is 5.15 meters. The total recoverable reserves of Zhaolou Coal Mine were approximately 105.8105.0 million tonnes as of December 31, 2009.2010. We principally used the longwall caving mining method to extract coal from the one work-face at Zhaolou Coal Mine as of December 31, 2009.2010.

The coal preparation plant at Zhaolou Coal Mine commenced commercial production in September 2009. The main equipment used in the coal preparation plant are slanted wheel, separatorscyclone machines and heavy-medium cyclone machine,TBS separators, which are mainly produced in China. The main product of Zhaolou’s coal preparation plant is No. 2 Clean Coal.

We do not employ mining contractors at Zhaolou Coal Mine. The operations at Zhaolou Coal Mine are powered by electricity from local power grids. We ship coal products to Hebei Province and surrounding areas by trucks.

Anyuan Coal Mine.Anyuan Coal Mine is an underground longwall mine located in Yijinhuoluoqi of Ordos City in Inner Mongolia. Anyuan Coal Mine covers an area of approximately 9.26 km2 with coal reserves of approximately 41.8 million tonnes and recoverable coal reserves of approximately 24.6 million tonnes. The original designed annual raw coal production capacity of Anyuan Coal Mine was 600,000 tonnes. As of the date of the annual report, we received approval from Inner Mongolia Coal Administrative Bureau to increase the annual production capacity of Anyuan Coal Mine to 1.2 million tonnes and we were still in the process of completing the relevant administration procedures.

The transportation condition of Anyuan Coal Mine is convenient. The 213 provincial traffic way and Baoshen railway are six kilometers away in the west of the coal field. There is a road for coal transportation from east to west across the central coal field.

We acquired 100% of the equity interests of the Anyuan Coal Mine pursuant to the approval granted at the general manager working meeting held on November 12, 2010. Anyuan Coal Mine was taken over by Ordos Neng Hua on December 1, 2010. As of the date of the annual report, we were in the process of transferring the relevant certificates and registrations of Anyuan Coal Mine.

The following table sets forth information about our operational and exploratory coal mines in Australia, which are held directly or indirectly by Yancoal Australia:

 

   Austar      Yarrabee          Minerva      Ashton  Moolarben  Athena  Harry-
brandt
      Wilpeena          Total    

Background data:

                  

Commencement of
construction
(1)

  1998    1981    2004    2003    2009    N/A    N/A    N/A    N/A  

Commencement of
commercial
production
(1)(2)

  2000    1982    2005    2004    2010    N/A    N/A    N/A    N/A  

Coalfield area (square
kilometers)

  97.49    33.95    1,558    10.38    17.4    782.73    40.4    34.65    2,540.51  

Reserve data:(3)

(millions tonnes as of
December 31, 2009)

                  

Resources

  129    146.5    74.6    437.27    706.4    560    96    27.2    2,176.97  

Recoverable
reserves
(4)(5)

  44.6    39.1    25.2    92.07    356.8    N/A    N/A    N/A    557.77  

Depth of mine(meters
underground)

  300    N/A    N/A    190-280    N/A    N/A    N/A    N/A    N/A  

Type of coal

  semi-hard  
coking coal  
  PCI    thermal coal    semi-soft  
coking coal  
  thermal coal    thermal coal    anthracite  
coal  
  PCI    N/A  

Leased/owned

                owned    N/A  
  owned    owned    owned    owned    owned    owned      owned      

Assigned/unassigned(6)

  assigned    assigned    assigned    assigned    assigned    unassigned      unassigned    unassigned    N/A  

Average calorific value
(Kcal/kg)

  6,196    7,300    6,500    7,100    6,650    N/A    N/A    N/A    N/A  

Sulfur content (%)

  1.30    0.70    0.60    0.65    0.50    N/A    N/A    N/A    N/A  

Production data:(million
tonnes)

                  

Designed raw coal production
capacity

  2.0    1.7    2.8    5.6    16.0    N/A    N/A    N/A    28.1  

Designed coal preparation
input capacity

  2.0    1.7    N/A    6.5    16.0    N/A    N/A    N/A    26.2  

Raw coal production

                  

2006

  0.4    —    —    —    —    —    —    —    0.4  

2007

  1.6    —    —    —    —    —    —    —    1.6  

2008

  1.9    —    —    —    —    —    —    —    1.9  

2009

  1.9    —    —    —    —    —    —    —    1.9  

Cumulative raw coal
production as of
December 31, 2009

  5.8    —    —    —    —    —    —    —    5.8  
  Austar  Yarrabee  Minerva  Ashton  Moolarben  Athena  Harry-
brandt
  Wilpeena  Total 

Background data:

         

Commencement of construction(1)

  1998    1981    2004    2003    2009    N/A    N/A    N/A    N/A  

Commencement of commercial production(1)

  2000    1982    2005    2004    2010    N/A    N/A    N/A    N/A  

Coalfield area(2)(square kilometers)

  63    62.71    15.6    19.21    17.4    782.73    40.4    34.65    1,035.7  

Reserve data:

(millions tonnes as of December 31, 2010)

         

Resources

  167    171.16    76.04    437.27    701.3    53.7    97.2    27.2    1,730.87  

Recoverable reserves(3)

  50.9    60.29    23.61    60.8    351.7    N/A    N/A    N/A    547.3  

Depth of mine(4) (meters underground)

  300    N/A    N/A    190-280    N/A    N/A    N/A    N/A    N/A  

Type of coal

  
 
semi-hard
coking coal
  
  
  PCI coal    thermal coal    
 
semi-soft
coking coal
  
  
  thermal coal    thermal coal    
 
anthracite
coal
  
  
  PCI coal    N/A  

Leased/owned

  owned    owned    owned    owned    owned    owned    owned    owned    N/A  

Assigned/unassigned (5)

 assigned assigned assigned assigned assigned unassigned unassigned unassigned N/A

Average calorific value (Kcal/kg)

 6,196 7,300 6,500 7,100 6,650 N/A N/A N/A N/A

Sulfur content (%)

 1.30 0.70 0.60 0.65 0.50 N/A N/A N/A N/A

Production data:(million tonnes)

         

Designed raw coal production capacity

 3.6 3.2 2.8 5.2 16.0 N/A N/A N/A 30.6

Designed coal preparation input washing capacity

 3.3 2.4 N/A 6.5 16.0 N/A N/A N/A 28.2

Raw coal production

         

2006

 0.4 —   —   —   —   —   —   —   0.4

2007

 1.6 —   —   —   —   —   —   —   1.6

2008

 1.9 —   —   —   —   —   —   —   1.9

2009

 1.9 —   —   —   —   —   —   —   1.9

2010

 1.7 2.3 1.4 2.7 3.9 —   —   —   12.0

Cumulative raw coal production as of December 31, 2010

 7.5 2.3 1.4 2.7 3.9 —   —   —   17.8

 

(1)Austar Coal Mine was closed in 2003 as the result of aan underground fire. We acquired Austar Coal Mine in 2004 and implemented a production expansion and technology upgrade in 2005. Austar Coal Mine resumed part or its operations in October 2006. Each of Ashton Coal Mine and Moolarben Coal Mine has an open-pit coal mine and an underground coal mine, and the “commencement of commercial production” indicates the time when the open-pit mines, the earlier of the two types of mines, commenced commercial production.
(2)Our estimatesThe coalfield area refers to the area of recoverable reserves are reported after deductioncurrent leased land for mining, excluding the area which we own rights of actual production volumeprospecting on. The coalfield area of Athena, Harry-brandt and non-accessible reserves upWilpeena refer to December 31, 2009. Non-accessible reserves are defined as the portionarea which we own rights of identified resources estimated to be not accessible by application of one or more accessibility factors within an area.prospecting on.
(3)Recoverable reserves refer to the amount of proven and probable reserves that can be recovered after taking into account all mining and preparation losses that occur during the processing of coal after it is mined. Our estimates of recoverable reserves are reported after deduction of actual production volume and non-accessible reserves up to December 31, 2010. Non-accessible reserves are defined as the portion of identified resources estimated to be not accessible by application of one or more accessibility factors within an area.
(4)See the individual description of each mine for relevant mining methods used.
(5)Ashton Coal Mine and Moolarben Coal Mine have both the open-pit coal mine and underground coal mine. The depth of mine indicates the depth of the underground mines.
(6)(5)“Assigned” reserves refer to coal which has been committed to a particular mining complex (mine shafts, mining equipment, and plant facilities), and all coal which has been leased by the company to others. “Unassigned” reserve refers to coal which has not been committed, and which would require new mineshafts, mining equipment, or plant facilities before operations could begin on the property.

Austar Coal Mine.Austar Coal Mine is an underground mine located in Hunter Valley, New South Wales, Australia and is accessible by railway. Austar Coal Mine covers an area of 63.0 square kilometers. Austar Coal Mine was constructed in 1998 and commenced commercial production in 2000.

In 2003, an underground fire occurred at Austar Coal Mine when it was still owned by Southland Coal Pty Limited, resulting in the closure of the mine. On December 24, 2004, we acquired the entire interest in the Austar Coal Mine for approximately AUD32.0A$32.0 million from Southland Coal Pty Limited, an independent third party.

We invested approximately AUD230.3A$230.3 million in the reconstruction, capacity expansion and technology upgrade of Austar Coal Mine in 2005, which included funding for equipment and machinery. After we completed the foregoing investment in Austar Coal Mine, the mine resumed commercial production in October 2006.

Austar Coal Mine produces semi-hard coking coal. The average thickness of the main coal seam of Austar Coal Mine is 5.30 meters. As of December 31, 2009,2010, the mine’s total recoverable reserves were approximately 44.650.9 million tonnes. weWe principally use the fully-mechanized caving method to extract coal from one work-face.

The main equipment used in Austar Coal Mine is the heavy-medium cyclone machine. These heavy-medium cyclone machines are manufactured in Australia.

We have not contracted the mining operations at Austar to a third-party mining contractor. The operations at Austar Coal Mine are powered by electricity from local power grids. We ship the coal products from the Austar Coal Mine to Newcastle Port via railway.

Yarrabee Coal Mine.Yarrabee Coal Mine is an open pit mine located in Bowen Basin, Queensland, Australia and is accessible by railway. Yarrabee Coal Mine covers an area of 3462.7 square kilometers. The construction of Yarrabee Coal Mine was constructedstarted in 1981 and it commenced commercial production in 1982.

Felix wholly owns Yarrabee Coal Mine. TheCurrently, the designed annual capacity of Yarrabee Coal Mine is 1.73.2 million tonnes. Yarrabee Coal Mine mainly produces PCI. The average thickness of the main coal seam of Yarrabee Coal Mine is 3.2 to 4 meters. As of December 31, 2009,2010, the mine’s total recoverable reserves were approximately 39.160.29 million tonnes. We use shearers to conduct surface mining at Yarrabee Coal Mines.

Yarrabee Coal Mine has a coal preparation plant. The main pieces of equipment used in the coal preparation plant are heavy-medium cyclone machines and floating separation machines, which are manufactured in Australia.

We have not contracted the mining operations at Yarrabee Coal Mine to third-party mining contractors. The operations at Yarrabee Coal Mine are powered by electricity from local power grids. We ship the coal products from the Yarrabee Coal Mine to Gladstone Port via railway.

Minerva Coal Mine.Minerva Coal Mine is an open pit mine located in Bowen Basin, Queensland, Australia and is accessible by railway. Minerva Coal Mine covers an area of 1,558approximately 15.6 square kilometers. The construction of Minerva Coal Mine was constructedstarted in 2004 and it commenced commercial production in 2005.

Felix holds 51% of the equity interestinterests in Minerva Coal Mine through Proserpina Coal Pty Ltd. The designed annual capacity of Minerva Coal Mine is 2.8 million tonnes. Minerva Coal Mine mainly produces thermal coal. The average thickness of the main coal seam of Minerva Coal Mine is 0.6 to 3.2 meters. As of December 31, 2009,2010, the mine’s total recoverable reserves were approximately 25.223.6 million tonnes,tonnes. Pursuant to approval granted at the seventeenth meeting of which approximately 12.9 million tonnes was attributable to us pursuant to our shareholding percentage. We use shearers to conduct surface mining at Minerva Coal Mine.

the fourth session of the Board held on December 30, 2010, we disposed of 51% of the equity interests in Minerva Coal Mine does not have a coal preparation plant. We separate raw coal and then transport it to customers. We have not contractedJoint Venture. As of the mining operations atdate of the annual report, we no longer held any interest in Minerva Coal Mine to a third-party mining contractor. The operations at Minerva Coal Mine are powered by electricity from local power grids. We ship the coal products from the Minerva Coal Mine to Gladstone Port via railway.Mine.

Ashton Coal Mine.Ashton Coal Mine has both an underground mine and an open pit mine located in Hunter Valley, New South Wales, Australia and is accessible by railway. Ashton Coal Mine covers an area of 10.38approximately 19.2 square kilometers. The construction of the open-pit and underground mines of Ashton Coal Mine were constructedstarted in 2003 and commencedtheir commercial production commenced in 2004.

Felix holds 60%Pursuant to approval granted at the seventeenth meeting of the fourth session of the Board held on December 30, 2010, we commenced the process of acquiring 30% of the equity interestinterests in the Ashton Coal Mine through White Mining (NSW)Joint Venture originally held by Austral-Asia Coal Holdings Pty Limited.Ltd, a wholly-owned subsidiary of Singapore IMC Group, for a consideration of US$250 million. Upon completion of this acquisition in May 2011, our equity interests in the Ashton Coal Mine Joint Venture increased to 90% from 60%. The designed annual capacity of Ashton Coal Mine is 5.6 million tonnes, of which the annual capacity of the underground mine is 3.0 million tonnes and the annual capacity of the open-pit mine is 2.75.2 million tonnes. Ashton Coal Mine mainly produces semi-soft coking coal. The average thickness of the main coal seam of the open-pit mine and the underground mine of Ashton Coal Mine are 2.14 to 2.26 meters and 1.7 to 2.4 meters, respectively. As of December 31, 2009,2010, the mine’s total recoverable reserves were approximately 92.160.8 million tonnes, of which approximately 55.2 million tonnes was attributable to us pursuant to our shareholding percentage.tonnes. We principally use the longwall operation to extract coal from the underground coal seam and shearers to conduct surface mining at the open-pit mine of Ashton Coal Mine.

The main pieces of equipment used in the coal preparation plant of Ashton Coal Mine are heavy-medium cyclone machines and floating separation machines, which are manufactured in Australia. We have not contracted the mining operations at Ashton Coal Mine to a third-party mining contractor. The operations at Ashton Coal Mine are powered by electricity from local power grids. We ship the coal products from the Ashton Coal Mine to Newcastle Port via railway.

Moolarben Coal Mine.Moolarben Coal Mine has both an underground mine and an open pit mine located in Hunter Valley, New South Wales, Australia and is accessible by railway. Moolarben Coal Mine covers an area of 17.4 square kilometers. The open-pit mine of Moolarben Coal Mine was constructed in 2009 and commenced commercial production in May 2010, while the construction of the underground mine of Moolarben Coal Mine will be completed in 2012 and commence commercial production in 2013.

Felix holds 80% of the equity interest in Moolarben Coal Mine through its subsidiary, Moolarben Coal Mines Pty Limited. The designed annual capacity of Moolarben Coal Mine is 16.0 million tonnes, of which the annual capacity of the underground mine is 12.04.0 million tonnes and the annual capacity of the open-pit mine is 4.012.0 million tonnes. Moolarben Coal Mine mainly produces thermal coal. The average thickness of the main coal seam of the open-pit mine of Moolarben Coal Mine is 5.5 to 11.66 meters. As of December 31, 2009,2010, the mine’s total recoverable reserves were approximately 356.8351.7 million tonnes, of which approximately 258.4 million tonnes was attributable to us pursuant to our shareholding percentage.tonnes. We principally use the longwall operation to extract coal from the underground coal seam and shearers to conduct surface mining at the open-pit mine of Moolarben Coal Mine.

Moolarben Coal Mine has a coal preparation plant. The main pieces of equipment used in the coal preparation plant are heavy-medium cyclone machines and floating separation machines, which are manufactured in Australia.

We have not contracted the mining operations at Moolarben Coal Mine to a third-party mining contractor. The operations at Moolarben Coal Mine are powered by electricity from local power grids. We ship the coal products from the Moolarben Coal Mine to Newcastle Port via railway.

Mining Rights

Mining Rights for Nantun, Xinglongzhuang, Baodian, Dongtan and Jining II

According to the approval from the State-owned Supervision Department and the Coal Industry Supervision Department that was obtained at the establishment of the Company, the Mining Agreement entered into with Yankuang Group in 1997 and its supplemental agreement, we undertook to make ten annual payments of approximately RMB13.0 million to Yankuang Group beginning 1997 as compensation for the depletion of the coal resources at the coal mines at Nantun, Xinglongzhuang, Baodian, Dongtan and Jining II. If the State implements new regulations after the initial ten years, the compensation would be adjusted accordingly. By 2007, we had made total payments of RMB130.0 million.

In September 2006, the State Council approved the Implementation Plan for the Compensation System Reform Testing in relation to Deepening Coal Resources as jointly promulgated by the Finance Department, Ministry of Land and Resources and the National Development and Reform Commission.NDRC. According to the implementation plan, enterprises that obtain mining rights as a result of state-funded exploration must pay mining right fees based on the valuation of the remaining reserves. Shandong Province is subject to this mining right fee. As of the date of this annual report, there remains uncertainty on the detailed rules of the implementation plan regarding the use of mining rights in Shandong Province.

Since 2008, we have made provisions of RMB5RMB5.0 per tonne of coal extracted to cover any resource compensation fees that may arise from the mining rights of the five foregoing coal mines, in anticipation of Shandong Province’s implementation of detailed rules for resource compensation fees. For the year ended December 31, 2009,2010, our provisions for resource compensation fees for the five mines waswere approximately RMB135.8RMB140.7 million.

Jining III Coal Mine

Pursuant to the Jining III Coal Mine Acquisition Agreement dated August 4, 2000 that we entered into with Yankuang Group, the consideration for the mining right of Jining III Coal Mine is approximately RMB132.5 million, which will be paid to Yankuang Group in ten equal interest-free annual installments commencing from 2001. During 2009,2010, we paid RMB13.2 million to Yankuang Group. As of December 31, 2010, we had paid an aggregate of RMB132.5 million in full for the mining rights of Jining III Coal Mine.

Austar Coal Mine

We obtained an exploration license for Austar Coal Mine from the NSW Department of Primary Industries in 2005. Pursuant to the underlying Asset Sale Agreement, we are obligated to pay AUD4.0A$4.0 million after obtaining the exploration license to the new exploration site adjacent to the Austar Coal Mine.

Tianchi Coal Mine

We acquired Shanxi Nenghua for RMB748.3 million, of which RMB136.6 million was consideration for the mining right of Tianchi Coal Mine.

Zhaolou Coal Mine

We purchased the mining rights of Zhaolou Coal Mine for RMB747.3 million in 2008.

Anyuan Coal Mines

We acquired the entire equity interest in Anyuan Coal Mines for the consideration of approximately RMB143.5 million upon approval at the general manager working meeting held on November 12, 2010. The evaluation of the mining right for Anyuan Coal Mine is approximately RMB131.3 million.

Zhuan Longwan Coal Mine Field

Pursuant to approval granted at the nineteenth meeting of the fourth session of the Board held on January 28, 2011, Ordos Neng Hua successfully bid for the mining rights of Zhuan Longwan coal mine field of Dongsheng Coal Field in Inner Mongolia Autonomous Region for a consideration of RMB7,800 million. Ordos Neng Hua paid the first installment of RMB3,120 million (representing 40% of the total consideration) on February 25, 2011. Ordos Neng Hua is obligated to pay the second installment of RMB2,340 million (representing 30% of the total consideration) in full by November 30, 2011 and the third installment of RMB2,340 million (representing 30% of the total consideration) in full by November 30, 2012.

Felix Coal Mines

We acquired the entire equity interest in Felix for RMB20,428.0 million.A$3,333 million in 2009. The fair market value of our attributable reserves and attributable resources was AUD2,845.2A$2,845.2 million.

Pursuant to approval granted at the seventeenth meeting of the fourth session of the Board held on December 30, 2010, Felix, a wholly-owned subsidiary of Yancoal Australia sold its 51% equity interests in Minerva Coal Mine Joint Venture to Sojitz Coal Resources Pty Ltd, an independent third party. The value of the 51% equity interest in this join venture is estimated to be between approximately A$188.0 million to A$201.0 million according to an evaluation report issued by an independent evaluator dated September 9, 2010.

Railway Assets

The assets in our railway transportation business consist of 13 diesel locomotives, 18 steam locomotives, 362 rail cars, and approximately 204 kilometers of railway tracks constructed for coal transportation that connect most of our coal mines with Yankuang Group and Zouxian Power Plant, which is located in Jining City, Shandong Province. The railway network also connects to two of major national railways, namely, the Beijing-Shanghai Railway and Yanzhou-Shijiugang Railway. As of December 31, 2009,2010, our railway transportation business employedhad approximately 4,0003,838 employees.

Methanol and Cogeneration Power Plants

Yulin Nenghua. We have constructedYulin Nenghua, located in Yunlin City of Shanxi Province, is primarily responsible for the operation of a 600,000 tonne600,000-tonne methanol plant in Shaanxi Province, which is operated by our subsidiary, Yulin Nenghua.and a supporting power plant with an installed capacity of 60 megawatts. The primary pieces of equipment at the methanol plant include boilers, steam turbines, air compressors and booster set, GEA air-cooler exchangers, gasifiers and gasification compressors, synthetic compressors, methanol synthetic gas cold reactor, methanol synthetic water cold reactor and propylene refrigeration compressors. Yulin Nenghua also operates a supporting power plant with an installed capacity of 60 megawatts.

Tianhao Chemicals. We have constructedTianhao Chemicals, located in Xiaoyi City of Shanxi Province, is primarily responsible for the operation of a 100,000 tonne100,000-tonne methanol plant and a supporting power plant in Xiaoyi City of Shanxi Province through our subsidiary, Tianhao Chemicals.plant. The primary pieces of equipment in the methanol plant include low pressure wet type spiral gas cabinets, coke oven gas compressors, reformers and converters.

Hua Ju Energy. Hua Ju Energy is headquartered in Zoucheng City, Shandong Province. Hua Ju Energy owns and operates six cogeneration power plants, each of which is able to supply electric power and heat to our coal mine in its proximity. The power plants consist of Nantun power plant, Xinglongzhuang power plant, Baodian power plant, Dongtan power plant, Jining II power plant and Jidongxincun power plant. The aggregate installed capacity of these six power plants is 144 megawatts and the annual power generation capacity and heat supply capacity are 1.0 to 1.1 billion kilowatt-hours and 1.0 to 1.2 million steam tonnes, respectively. The main pieces of equipment used at Hua Ju Energy includes energy conversion CFB boilers and extraction and condensing steam turbines.

Zhaolou Coal Mine Power Plants.Zhaolou Coal Mine power plants are the integrated power plants for Heze Nenghua Zhaolou Coal Mine, located in Heze city of Shandong Province. The power plants have two phases with designed capacity of 300,000 kWh for each phase. We commenced construction of phase I of the power plants in March 2010, which utilize a power generator of 300,000 kWh and a circulating fluidized bed boiler with capacity of 1,025 tonnes per hour. The main pieces of equipment used at Zhaolou Coal Mine power plants include extraction and condensing steam turbines, water hydrogen generators and CFB boilers.

 

ITEM 4A.UNRESOLVED STAFF COMMENTS

There are no unresolved staff comments from the Securities Exchange Commission.

 

ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in conjunction with the information set forth in our consolidated financial statements, together with the related notes, included in this annual report.

A.Operating Results

During the period covered by this annual report, our five business segments consist of:

 

coal business;

 

railway transportation business;

 

coal chemical business;

 

electric power business; and

 

heat supply business.

Coal Business

We are primarily engaged in the production of coal, which involves the mining, preparation and processing of coal. Historically, our coal operations were primarily based in the PRC, but we have rapidly expanded our Australian coal operations since the fourth quarter of 2009. Our high quality coal products primarily include steam coal, which is used by power plants, and coking and pulverized coal, which is used at metallurgical mills for blast furnace injections at metallurgical mills.injections. Our domestic customers are predominately power plants, metallurgical mills and chemical manufacturers located in the economically more developed region of Eastern China. We also export a portion of our coal from our PRC and Australian operations to international customers located in Japan, South Korea and other countries.

In 2009,2010, we produced 36.3approximately 49.4 million tonnes of raw coal and sold 38.0approximately 49.6 million tonnes of coal, which included approximately 2.15.4 millions tonnes of coal that was purchased externally from third parties for trading. Our netIn 2008, 2009 and 2010, our sales income of coal in 2007, 2008 and 2009 were RMB14,656.9 was approximately RMB24,933.3 million, RMB24,048.8RMB19,947.7 million and RMB19,133.9RMB32,590.9 million, respectively, representing approximately 98.6%, 98.6%96.5% and 96.4%96.0% respectively of our total net sales respectively.income. Domestic net sales income of coal (excluding coal purchased externally) accounted for 89.8%83.8%, 91.1%85.9% and 92.4%66.9% and overseas net sales income of coal conducted by Yancoal Australia or through export agents in China accounted for 8.8% 7.5%7.3%, 6.0%, and 5.7%18.3% of our total net sales income of coalduring 2007, 2008, 2009 and 2009,2010, respectively. In 2009,2010, our inter-segment coal sales amounted to RMB169.2RMB339.4 million, which primarily consisted of sales to our power plants. For more information on our segment revenues, inter-segment eliminations and segment balance sheet items, see Note 6 to our financial statements.

Our invoiceinvoiced amount of coal sold includes returns, discounts, sales related taxes, port fees and other fees and, in certain cases, transportation costs payable by customers. Gross sales, or sales income as used elsewhere in this annual report, of coal equals the invoiced amount of coal sold less returns discounts and sales related taxes. Net sales of coal represent gross sales less port fees and other fees, and any transportation costs payable by customers.discounts. Sales taxes and other fees consist primarily of business tax paid at 5% of our revenue and city construction tax and education surcharge calculated at 7% and 3%, respectively, on the total amount of our VAT payable and business tax payable. We also pay a local resource tax based on our coal consumption at the rate of RMB3.6 per tonne in Shandong Province and RMB3.2 per tonne in Shanxi Province to the local tax bureau. For more information on our sales income of coal, see Note 7 to our financial statements.

Railway Transportation Business

We also own a railway network spanning over 200 kilometers, which we use primarily to transport coal.coal, as well as other goods upon the request of our railway transportation customers. To facilitate our production and sales of coal, we provide railway transportation services to our coal customers and Yankuang Group and other independent parties.Group. The annual transport volume on our railway network has remained steady in recent years. In 2009,2010, we transported a total of 19.9approximately 19.7 million tonnes of goods on our railway network, compared to approximately 19.9 million tonnes in 2009 and approximately 19.2 million tonnes in 2008 and 17.9 million tonnes in 2007.2008.

OurWe derive our railway transportation serviceservices income represents revenue generated forfrom the delivery of (i) coal purchased from us on an ex-mine basis, an arrangement where customers separately bear the transportation cost of transporting the coal they purchase to a designated location, and (ii) goods other than coal that we deliver on behalf of customers who engage us exclusively for our railway transportation services. In 2009,2010, income from our railway transportation service incomeservices totaled RMB258.4approximately RMB513.3 million, of which inter-segment sales to our coal mining segment amounted to RMB61.5approximately RMB36.1 million.

Coal Chemical Business

Our coal chemical operations consist primarily of the production and sale of methanol. The 600,000Yulin Nenghua’s 600,000-tonne methanol plant of Yulin Nenghua commenced commercial operations in August 20092009. In 2010, Yulin Nenghua produced 311,000 tonnes and produced 190,000sold 319,000 tonnes of methanol, in 2009,including inventory from the prior year, generating sales income1 of which 178,000 tonnes were sold to generate net sales of RMB239.6RMB523.5 million.

Production at the 100,000 tonneTianhao Chemicals’ 100,000-tonne methanol plant of Tianhao Chemicals was significantly curtailed in 2009 because its exclusive third-party supplieradversely affected by the insufficient supply of a coke oven waste gas, a key raw material that is supplied via transmission pipelines could not provide a steady supplyconnected to the plant by its exclusive third-party supplier, which continued up to the date of the raw material.annual report. In 2009,2010, Tianhao Chemicals produced 9,00056,000 tonnes and sold 12,00057,000 tonnes of methanol, including inventory from the prior year, generating net sales of RMB19.2RMB105.8 million.

Electric Power Business

We own and operate eight power plants, which generate electric power primarily for internal use and, to a lesser extent, external sales. The cogeneration power plants operated by Hua Ju Energy are able to generate both electric power and heat. In 2009,2010, Hua Ju Energy, Yulin Nenghua and Shanxi Nenghua generated a total of 1,201.2approximately 1,369.8 million kWh of electricity, and sold 562.3of which, approximately 526.6 million kWh of the same in external sales.was sold externally. In 2009,2010, our electric power business generated RMB185.6approximately RMB185.5 million in revenue.

Heat Supply Business

We commenced our heat supply business, which consists of the production and sale of heat supply following our acquisition of Hua Ju Energy’s cogeneration power plants in 2009. Although the substantial majority of heat energy produced byIn 2010, Hua Ju Energy is intended to be consumed internally by our coal mines, we generated net sale of RMB13.3 million from sellingproduced approximately 0.11.27 million steam tonnes of heat, to third-party customers.of which we sold approximately 0.19 steam tonnes, generating sales revenue of RMB25.2 million.

The following table sets forth our income statement and the percentage of each line item to our total revenue:revenue for the periods indicated :

 

  2007 2008 2009   2008 2009 2010 
  RMB
million
 % RMB
million
 % RMB
million
 %   RMB
(million)
 % RMB
(million)
 % RMB
(million)
 % 

Total revenue(1)

  15,110.5   100.0   24,903.1   100.0   20,253.4   100.0     25,287.4    100.0    20,677.1    100.0    33,944.3    100.0  

Gross sales of coal

  14,906.7   98.7   24,557.5   98.6   19,537.2   96.5     24,933.3    98.6    19,947.7    96.5    32,590.9    96.0  

Railway transportation service income

  203.7   1.3   247.2   1.0   258.4   1.3     255    1.0    266    1.3    513.3    1.5  

Gross sales of electric power

  —     —     59.8   0.2   185.6   0.9     59.8    0.2    187.5    0.9    185.6    0.5  

Gross sales of methanol

  —     —     38.6   0.2   258.9   1.3     38.6    0.2    258.9    1.3    629.3    1.9  

Gross sale of heat supply

  —     —     —     —     13.3   0.1     —      —      15.6    0.1    25.2    0.1  

Transportation costs of coal

  (549.8 (3.6 (508.7 (2.0 (403.3 (2.0   (508.7  (2.0  (403.3  (2.0  (1,160.5  (3.4

Cost of sales and service provided(1)

  (7,331.9 (48.5 (11,816.8 (47.5 (10,170.5 (50.2   (12,201.1  (48.2  (10,590.0  (51.2  (16,801.3  (49.5

Cost of electric power

  —     —     (88.3 (0.4 (188.9 (0.9   (88.3  (0.3  (190.8  (0.9  (195.5  (0.6

Cost of methanol

  —     —     (37.8 (0.2 (352.9 (1.7   (37.8  (0.1  (352.9  (1.7  (716.8  (2.1

Cost of heat supply

  —     —     —     —     (7.4 0.0     —      —      (9.7  0.0    (12  0.0  
                                      

Gross profit

  7,228.7   48.5   12,451.5   50.0   9,130.4   45.2     12,451    49.2    9,130.4    44.2    15,057.6    44.4  

Selling, general and administrative expenses

  (2,854.7 (18.9 (3,832.0 (15.4 (3,820.2 (18.9   (3,832.0  (15.2  (3,820.3  (18.5  (5,093.9  (15.0

Share of income (loss) of an associate

  (2.4 (0.02 (67.4 (0.2 109.7   0.5     (67.4  (0.3  109.8    0.5    8.9    0.0  

Other income

  198.9   1.3   351.5   1.4   311.0   1.5     351    1.4    311.0    1.5    3,108.0    9.2  

Interest expense

  (27.2 (0.2 (38.4 (0.2 (45.1 (0.2   (38.4  (0.2  (45.1  (0.2  (603.3  (1.8
                                      

Profit before income taxes

  4,543.3   30.1   8,865.2   35.6   5,685.8   28.1     8,865.2    35.1    5,685.8    27.5    12,477.3    36.8  

Income taxes

  (1,315.5 (8.7 (2,385.6 (9.6 (1,553.3 (7.7   (2,385.6  (9.4  (1,553.3  (7.5  (3,171.0  (9.3
                                      

Profit for the year

  3,227.8   21.4   6,479.6   26.0   4,132.5   20.4     6,479.6    25.6    4,132    20.0    9,306.3    27.4  
                                      

Attributable to:

       

Equity holders of the Company

   6,488.9    25.7    4,117.3    19.9    9,281.4    27.3  

Non-controlling interests

   (9.3  (0.1  15.2    0.1    24.9    0.1  

1

In this annual report, business taxes and surcharges have been reclassified as corresponding costs of each category of revenue to provide a more appropriate presentation. The same adjustments have been made to the corresponding year prior. The reclassification has no impact on the overall results of the Group. The attention of Shareholders and potential investors is drawn to such adjustments. For details, please see Note 2 of the consolidated financial statements attached to this annual report.

Year Ended December 31, 2010 Compared with Year Ended December 31, 2009

Total revenue

        Our total revenue in 2010 increased RMB13,267.2 million, or 64.2%, to approximately RMB33,944.3 million. Our gross sales of coal, which accounted for 96.0% of our total revenue in 2010, increased RMB12,643.2 million, or 63.4%, to approximately RMB32,590.9 million in 2010. The increase in gross sales of coal was primarily due to the increase in the average selling price and the sales volume of our coal products driven by rapidly growing market demand in 2010. In 2010, our average selling price of coal products increased approximately RMB134.3 per tonne to RMB663.5 per tonne, representing a 25.4% increase from 2009. Our sales volume of coal products increased 30.5% from approximately 38.0 million tonnes in 2009 to 49.6 million tonnes in 2010.

In 2010, the transportation volume of our railway assets was approximately 19.7 million tonnes, representing a decrease of approximately 0.16 million tonnes, or 0.8%, from 2009, primarily caused by the decrease in our internal transportation volume where we bear the transportation costs by ourselves, and partly offset by an approximate 0.98 million tonnes increase in the volume of goods to which our customers bear the transportation fees, or external transportation volume. Our railway transportation services income (income from transported volume settled on the basis of off-mine prices and special purpose railway transportation fees borne by customers) was approximately RMB513.3 million in 2010, representing an increase of RMB246.0 million, or 92.0%, from that in 2009, primarily due to an increase in the standard transportation fee from RMB0.32 per tonne kilometer to RMB0.57 per tonne kilometer, which became effective from January 1, 2010. The increase in the railway transportation services income was also attributable to an increase of 0.98 million tonnes, or 5.7%, in 2010 in the volume of goods to which our customers bear the transportation fees.

We ramped up production in our coal chemical operations and generated gross sales of methanol of approximately RMB629.3 million in 2010, representing an increase of approximately RMB370.4 million, or 143.1%, from RMB258.9 million in 2009. The increase in gross sales of methanol was mainly attributable to the increased production at Yulin Nenghua’s methanol plant, which completed its first full year of operations in 2010.

In 2010, our gross sales of electric power amounted to approximately RMB185.5 million, representing a slight decrease of approximately RMB2.0 million, or 1.1%, from 2009. Our gross sales of heat supply increased to approximately RMB25.2 million, representing an increase of approximately RMB9.6 million, or 61.3%, from 2009, mainly attributable to an increase in the sales volume.

Transportation costs of coal

Transportation costs of coal primarily consist of railway, waterway and roadway transportation costs charged by carriers who deliver our coal products to our customers. Our coal transportation costs increased by RMB757.2 million, or 187.8%, to approximately RMB1,160.5 million in 2010. The increase was primarily due to our acquisition of Felix.

Cost of sales and services provided

Our cost of sales and railway transportation services provided consists of the costs of our coal business and railway transportation business, which primarily consist of wages and employee benefits, purchases of coal from third parties for trading purposes, materials, land subsidence, restoration, rehabilitation and environmental costs, depreciation and amortization expenses and business tax and surcharges. In 2010, our total cost of sales and services provided increased RMB6,211.3 million, or 58.7%, to approximately RMB16,801.3 million.

The increase was primarily due to a RMB2,878.1 million increase in the cost of traded coal, as a result of the increase in the volume and price of coal we purchased from third parties for trading purposes. Cost of sales and service provided also increased due to a RMB1,413.4 million increase in wages and employee benefits in line with the increase in our employee headcount, and partly offset by a RMB192.8 million decrease in land subsidence, restoration, rehabilitation and environmental costs.

Cost of electric power

Our cost of electric power operations primarily consists of raw material and labor costs incurred to generate electric power. Our cost of electric power increased by RMB4.7 million to approximately RMB195.5 million in 2010, from approximately RMB190.8 million in 2009.

Cost of methanol

Our cost of methanol primarily consists of raw materials, labor costs, depreciation and other manufacturing overhead. Our production costs increased significantly from approximately RMB352.9 million in 2009 to approximately RMB716.8 million in 2010, mainly attributable to the increased production at Yulin Nenghua’s methanol plant, which completed its first full year of operations in 2010.

Cost of heat supply

The costs in our heating business primarily consist of raw materials and labor. We incurred approximately RMB12.5 million in costs for our heat supply business in 2010, representing an increase of approximately RMB2.8 million compared to approximately RMB9.7 million in 2009, reflecting the significant growth in our production volume of 50,000 steam tonnes.

Selling, general and administrative expenses

Our selling, general and administrative expenses were approximately RMB5,093.9 million in 2010, representing an increase of RMB1,273.7 million, or 33.3%, from approximately RMB3,820.2 million in 2009. Our selling, general and administrative expenses increased primarily due to a RMB687.3 million increase in distribution charges mainly caused by the increase of our operations in Australia after the acquisition of Felix. The increase in our selling, general and administrative expenses was also attributable to the increase in depreciation, repair and maintenance expenses and utilities relating to administrative buildings.

Share of income of an associate

Our share of income from our investment in Huadian Zouxian Power Generation Company Limited and Yankuang Group Finance Company Limited was approximately RMB8.9 million in 2010, compared to RMB109.8 million in 2009. This decrease was primarily a result of the decreased income of Huadian Zouxian Power Generation Company Limited due to increased thermal coal prices in 2010.

Other income

Our other income increased significantly by RMB2,797.1 million from RMB311.0 million in 2009 to RMB3,108.1 million in 2010. Our increase in other income in 2010 was primarily attributable to an exchange gain of RMB2,688.2 million mainly resulting from the appreciation of the Australian dollar against the U.S. dollar.

Interest expenses

Our interest expenses increased significantly by RMB558.2 million, from approximately RMB45.1 million in 2009 to approximately RMB603.3 million in 2010. This increase was primarily due to an increase in interest expenses on bank borrowings wholly repayable within five years from approximately RMB18.8 million in 2009 to approximately RMB594.6 million in 2010, mainly attributable to an increase of approximately RMB575.2 million of interest expense in relation to the bank loans of Yancoal Australia in relation to the acquisition of Felix in late 2009. The increase in interest expenses was partially offset by a decrease of approximately RMB11.0 million in the bills receivable discounted without recourse in 2010.

Profit before income tax

As a result of the foregoing, our profit before income taxes increased by approximately RMB6,791.5 million, or 119.4%, from approximately RMB5,685.8 million in 2009 to approximately RMB12,477.3 million in 2010.

Income tax expenses

Our income tax expenses increased by RMB1,617.7 million, or 104.2%, to approximately RMB3,171.0 million in 2010. The increase primarily reflected an increase in our taxable income.

Profit for the year

As a result, our profit for the year increased by RMB5,173.8 million, or 125.2%, from approximately RMB4,132.5 million in 2009 to approximately RMB9,306.3 million in 2010. The profit attributable to equity holders of the Company increased by RMB5,164.1 million, or 125.4%, from approximately RMB4,117.3 million in 2009 to approximately RMB9,281.4 million in 2010.

Year Ended December 31, 2009 Compared with Year Ended December 31, 2008

Total revenue

Our total revenue in 2009 decreased RMB4,649.7RMB4,610.3 million, or 18.7%18.2%, to RMB20,253.4approximately RMB20,677.1 million. Our gross sales of coal, which accounted for 96.5% of our revenue in 2009, decreased RMB5,020.3RMB4,985.6 million, or 20.4%20.0%, to RMB19,537.2approximately RMB19,947.7 million in 2009. The decrease in gross sales of coal was primarily due to a decrease in the average selling price of our coal products partly offset by a slight increase in sales volume. The average price of our Company’s coal products decreased 20.7%20.3% in 2009 compared with our average price in 2008 as a result of weak market conditions in China and worldwide. TheOur gross sales of coal decreased approximately RMB4,985.5 million, from approximately RMB24,933.3 million in 2008 to approximately RMB19,947.8 million in 2009 primarily due to the decrease in average selling prices resultedprice of coal in a RMB4,553.2 million decline in net sales.2009. Our sales volume of coal products increased 1.2% from approximately 37.6 million tonnes in 2008 to approximately 38.0 million tonnes in 2009.

Our railway transportation serviceservices income was RMB258.4approximately RMB267.3 million in 2009, representing an increase of RMB11.2RMB11.6 million, or 4.5%, reflecting a 0.7 million tonne, or 3.7%, increase in the volume of goods transported.

We ramped up production significantly in our electric power and coal chemical operations and electric power and generated RMB185.6approximately RMB258.9 million and RMB258.9approximately RMB187.5 million from these businesses, respectively, in 2009. The increase in coal chemical sales was attributable to Yulin Nenghua’s methanol plant, which commenced production in August 2009 and generated net sales income1of approximately RMB239.6 million. The acquisition of Hua Ju Energy significantly increased our external sales of electricity, which generated revenue of RMB150.4approximately RMB152.1 million in 2009. We also began the production and sale of heat supply in 2009 and generated 13.3revenue of approximately 15.6 million from this new business in the same year.

Transportation costs of coal

Transportation costs of coal primarily consist of railway, waterway and roadway transportation costs charged by carriers who deliver our coal products to our customers. Our transportation costs of coal decreased RMB105.4 million, or 20.7%, to RMB403.3 million in 2009. The decrease was primarily due to a decrease in the volume of coal that was shipped through ports to domestic and overseas customers, both of which involve the incurrence of port fees and railway transportation costs for using the PRC national railway network to deliver coal to ports.

Cost of sales and serviceservices provided

Our cost of sales and servicerailway transportation services provided representsconsists of the costs of our coal business and railway transportation business, which primarily consistsconsist of materials, wages and employee benefits, depreciation and amortization expenses,purchases of coal from third parties for trading purposes, materials, land subsidence, restoration, rehabilitation and environmental costs, depreciation and cost of traded coal.amortization expenses and business tax and surcharges. In 2009, our total cost of sales and serviceservices provided decreased RMB1,646.3RMB1,611.1 million, or 13.9%13.2%, to RMB10,170.5approximately RMB10,590.0 million.

The decrease was primarily due to a decrease in land subsidience,subsidence, restoration, rehabilitation and environmental costs of RMB1,541.4 million and a RMB732.8 million decrease in the amount of coal that we purchased for trading purposes, partly offset by a RMB656.8 million increase in wages and employee benefits and a RMB379.0 million increase in depreciation expenses, which is in line with our increase in plant, property and equipment.

Cost of electric power

Our cost of electric power operations primarily representsconsists of raw material and labor costs. The year 2009 marked the first full year of operations of our electric power business, which commenced operations in September 2008. Our cost of power generation increased significantly from approximately RMB88.3 million in 2008 to RMB188.9approximately RMB190.8 million in 2009, primarily due to costs of RMB121.5 million associated with Hua Ju Energy’s external sales of electric power.

Cost of methanol

Our cost of methanol primarily representsconsists of raw materials, labor costs and other manufacturing overhead. We commenced production at a 600,000 tonne600,000-tonne methanol plant in August 2009, which increased our production capacity and volume significantly. Our cost of methanol production increased more than eightfold from approximately RMB37.8 million in 2008 to approximately RMB352.9 million in 2009, reflecting the significant growth in our production volume.

Cost of heat supply

The primary costs in our heating business consistsconsist of raw materials and labor. We incurred RMB7.4RMB9.7 million in costs for our heat supply business.

Selling, general and administrative expenses

Our selling, general and administrative expenses waswere approximately RMB3,820.2 million in 2009, representing a decrease of RMB11.8 million, or 0.3%, from approximately RMB3,832.0 million in 2008. Our selling, general and administrative expenses were reduced because we did not have any foreign exchange losses in 2009, the effects of which were offset by (i) an increase in property management fees of RMB91.7 million, (ii) an increase in depreciation of RMB53.9 million and (iii) an increase in repair and maintenance of RMB49.5 million.

Share of income of an associate

Our share of income from our investment in Huadian Zouxian Power Generation Company Limited was approximately RMB109.8 million in 2009, compared with our share of loss of approximately RMB67.4 million in 2008. Our associated company’s profitability werewas primarily the result of a decrease in steam coal prices in 2009.

Other income

Our other income decreased by RMB40.5 million, or 11.5%, to approximately RMB311.0 million in 2009. In 2008, we had a one-off recovery of approximately RMB132.2 million in interest income from a legal proceeding. Our decrease in other income in 2009 was partly offset by an increase in interest income from bank deposits of approximately RMB44.6 million and an increase in government grants of approximately RMB26.3 million.

Interest expenses

Our interest expenses increased RMB6.7by RMB6.8 million, or 17.4%, from approximately RMB38.4 million in 2008 to approximately RMB45.1 million in 2009. The increase was primarily due to an increase in interest expenses of approximately RMB13.6 million on discounted bills receivable and a decrease in interest expenses of approximately RMB6.2 million on bank borrowings.

Profit before income tax

As a result of the foregoing, our profit before income taxes decreased by RMB3,179.4 million, or 35.9%, from approximately RMB8,865.2 million in 2008 to approximately RMB5,685.8 million in 2009.

Income tax expenses

Our income tax expenses decreased by RMB832.3 million, or 34.9%, to approximately RMB1,553.3 million in 2009. The decrease primarily reflected a decrease in our taxable income.

Profit for the year

As a result, our profit for the year decreased by RMB2,347.1 million, or 36.2%, from approximately RMB6,479.6 million in 2008 to approximately RMB4,132.5 million in 2009.

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

Total revenue

Our total revenue in 2008 increased RMB9,792.6 The profit attributable to equity holders of the Company decreased by RMB2,371.6 million, or 64.8%36.5%, to RMB24,903.1 million, primarily due to the increase in the revenue from coal products segment. In addition, the increase in our railway transportation service income and, to a lesser extent, our gross sales of methanol and electricity power also contributed to the increase in our total revenue.

Our gross sales of coal increased RMB9,650.8 million, or 64.7%, to RMB24,557.5 million in 2008. The increase in gross sales of coal was primarily due to the increased average selling price of our coal products as well as, to a lesser extent, the increase in the sales volume of coal. The average price of our Company’s coal products increased 56.6% in 2008 compared with our average price in 2007. The increase in the average selling price of our coal product reflected the increase in domestic coal prices, which was consistent with the significant price increases in the international coal market in the first three quarters of 2008 and strong domestic demand growth. Total sales volume of our coal products increased 7.0% from 35.1 million tonnes to 37.6 million tonnes, which primarily consisted of the coal products we purchased from external sources for resale purposes, due to strong market demand. Prior to the significant increase in our revenue generated from the sales of externally purchased coal in 2008, which amounted to approximately RMB1,889.0 million, we record such revenue under other income in our income statement. The amount of gross sales of externally purchased coal in 2007 and 2006 were approximately RMB395.8 million and RMB347.9 million, respectively. No reclassification for previous periods has been made because of immateriality.

Our railway transportation service income was RMB247.2RMB6,488.9 million in 2008 representing an increase of RMB43.5 million, or 21.3%, from RMB203.7to approximately RMB4,117.3 million in 2007. The increase was primarily due to an approximate 2.1 million tonne increase in the coal transported on our railway network for coal sales where transportation expenses were borne by customers.

In 2008, we generated RMB38.6 million and RMB59.8 million from our new methanol and electric power businesses, respectively. Revenue from these two businesses collectively did not represent a significant portion of our total revenue in 2008. However, we did not commence methanol production until the last quarter of 2008 and expect methanol sales to increase in future periods when the domestic methanol market recovers.

Transportation costs of coal

Transportation costs of coal primarily consist of railway, waterway and roadway transportation costs charged by carriers who deliver our coal products to our customers. Our transportation costs of coal decreased RMB41.1 million, or 7.5%, from RMB549.8 million in 2007 to RMB508.7 million in 2008. The decrease was primarily due to the decrease in our export sales conducted from China, for which we bear the transportation costs of delivering our coal products on the PRC national railway network to ports.

In transactions where the invoice amount includes transportation costs payable by customers, such transportation costs are deducted from the invoice price to calculate net sales of coal. Net sales of coal increased RMB9,691.9 million, or 67.5%, to RMB24,048.8 million in 2008 primarily due to the increase in our gross sales of coal and the decrease in transportation costs of coal.

Cost of sales and service provided

Our cost of sales and service provided represents the direct costs of our coal production and transportation services, which primarily consists of materials costs, wages and employee benefits, depreciation and amortization expenses, land subsidence, restoration, rehabilitation and environmental costs and cost of traded coal. In 2008, our total cost of sales and service provided increased RMB4,484.9 million, or 61.2%, to RMB11,816.8 million.

The increase in our cost of sales and service provided was primarily due to (i) the significant increase in land subsidies, restoration, rehabilitation and environmental costs; (ii) an addition of RMB1,810.3 million as cost of traded coal, which represented the amount we paid for externally purchased coal; and (iii) the increase in cost of materials due to the increase in commodity prices. The increase was partly offset by the allocation of repair and maintenance expenses to selling, general and administrative expenses, which was previously charged to cost of sales. Repair and maintenance expenses in 2008 represented mainly repairs to general property, plant and equipment not directly related to mining equipment and were not directly related to our coal sales. The amounts reclassified were immaterial individually and collectively in relation to our income statement as a whole, so previous periods were not adjusted.

The cost per tonne of the Company’s coal products based on the net sales of coal was RMB274.4 in 2008, representing an increase of RMB78.4, or 40.0%, compared with RMB196.0 in 2007. This increase in cost per tonne of coal sold was mainly attributable to (i) the increase in land subsidence ground structure compensation expenses due to government policy changes in 2008 that increased the basis for calculating compensation and reclamation costs and enlarged the area surrounding our mining sites that is subject to reclamation and (ii) the increase in restoration and rehabilitation costs and ancillary compensation, such as the costs of relocating inhabitants and compensating them for their property losses. See “— G. Critical Accounting Policies — Provision for Land Subsidence, Restoration, Rehabilitation and Environmental Costs”. Our cost per tonne of coal also increased because of the increase in cost of materials resulting from higher commodity prices and the increase in employee wages.

Cost of electric power

Our cost of electric power operations primarily represents raw material and labor costs. In 2008, when we commenced the operation of power generation business, our cost of power generation was RMB88.3 million.

Cost of methanol

Our cost of methanol primarily represents raw materials, labor costs and other manufacturing overhead. In 2008, when we commenced the methanol production business, our cost of methanol production was RMB37.8 million.

Selling, general and administrative expenses

Our selling, general and administrative expenses was RMB3,832.0 million in 2008, representing an increase of RMB977.4 million, or 34.2%, from RMB2,854.7 million in 2007. The increase in our selling, general and administrative expenses was primarily due to (i) an addition of RMB390.4 million in repair and maintenance expenses that resulted from a change in accounting practice to charge repair and maintenance expenses (which was previously charged to our cost of sales and services provided) to selling, general and administrative expenses in 2008, (ii) the increase in wage and employee benefit expenses for our sales and administrative staffs of RMB281.0 million that resulted from the increase in the average salaries as well as the number of our marketing and administrative staff member, (iii) the loss of approximately RMB198.5 million with respect to book value of the liabilities of Yancoal Australia denominated in US dollar, which was primarily due to the depreciation of Australian dollars against U.S. dollar and (iv) provisions for coal price adjustment funds at RMB8 per tonne that are levied by the government of Jining City, Shandong Province since August 2007.

Share of loss of an associate

Our share of loss of an associate was RMB67.4 million in 2008, representing an significant increase of RMB64.9 million, from RMB2.4 million in 2007. The increase was primarily due to our share of loss of approximately RMB67.4 million in Huadian Zouxian Power Generation Company Limited, which was primarily due to the significant increase of steam coal price in the first three quarters of 2008, based on our relative ownership interest in the associate company.

Other income

Our other income increased RMB152.6 million, or 76.7%, to RMB351.5 million in 2008 from RMB198.9 million in 2007. The increase was primarily due to the RMB132.2 million increase in interest income we recovered from a defaulted entrusted loan and the RMB39.4 million increase in interest income from bank deposits. Our other income in 2007 included the net profit of our sales of externally purchased coal in 2007, calculated by gross sales of externally purchased coal net of cost for externally purchased coal and other relevant costs and expenses, was approximately RMB20.0 million. Sales of externally purchased coal in 2008 included in gross sales of coal. See “— Total revenue” above.

Interest expenses

Our interest expenses increased RMB11.1 million, or 40.9%, from RMB27.2 million in 2007 to RMB38.4 million in 2008. The increase was primarily due to the interest payments of approximately RMB12.0 million for bank borrowings of Yancoal Australia, which was repaid before December 31, 2008.

Profit before income tax

As a result of the foregoing, our profit before income taxes increased RMB4,321.9 million, or 95.1%, from RMB4,543.3 million in 2007 to RMB8,865.2 million in 2008.

Income tax expenses

Our income tax expenses increased RMB1,070.1 million, or 81.3%, to RMB2,385.6 million in 2008 despite the enactment of a new income tax law on January 1, 2008 that lowered our tax rate from 33% to 25%. The increase primarily reflected a 95.1% increase in our taxable income. The increase has been partially offset by an increase in deferred tax assets arising from an increase in temporary difference in respect of unpaid provision of salaries and wages and provision of compensation fees for mining rights and land subsidence, restoration, rehabilitation and environment costs, which were charged but not paid as of the end of the year.

Profit for the year

As a result, our profit for the year increased RMB3,251.8 million, or 100.7%, to RMB6,479.6 million in 2008 from RMB3,227.8 million in 2007.2009.

 

B.Liquidity and Capital Resources

Our principal sources of liquidity in 20092010 were bank borrowings and the cash generated from our operating activities. In 2009,2010, we primarily usedutilized cash to fund our acquisitionsthe acquisition of FelixHaosheng Company and Hua Ju Nenghua, constructionAnyuan coal mine, investment in Yankuang Group Finance Company Limited, the payment of Zhaolou Coal Mine and Yulin Nenghua’s methanol plant, establishment of Ordos Nenghua, purchasesoperating expenses, purchase of property, plantmachinery and equipment working capital and distributionpayment of dividends to shareholders.the Shareholders.

Cash Flows

The following table sets forth a summary of our cash flow for the indicated periods:periods indicated:

 

  Year Ended December 31,   Year Ended December 31, 
  2007 2008 2009   2008 2009 2010 
   (RMB’000)   (RMB’000) 

Net cash from operating activities

  4,558,649   7,095,477   6,520,131     7,095,477    6,520,131    5,399,804  

Net cash used in investing activities

  (3,790,945 (2,091,489 (24,842,938   (2,091,489  (24,842,938  (5,884,355

Net cash from (used in) financing activities

  (1,018,699 (921,668 18,503,741     (921,668  18,503,741    (1,360,523

Net increase/ (decrease) in cash and cash equivalents

  (250,995 4,082,320   180,934     4,082,320    180,934    (1,845,074

Cash and cash equivalents as of end of year

  4,424,561   8,439,578   8,522,399     8,439,578    8,522,399    6,771,314  

Cash Flow From Operating Activities

Net cash from operating activities represents cash generated from operations after income taxes, interest and dividend income. Cash generated from operations consisted of profit before income taxes adjusted for certain non-cash items, including depreciation, certain interest expenses and income, amortization and our share of investment in an associate company and cash generated from other activities.

Net cash from operating activities was RMB6,520.1approximately RMB5,399.8 million in 20092010 and consisted of profit before income taxes of RMB5,685.8approximately RMB12,477.3 million and adjustments for non-cash items of RMB1,652.3approximately RMB1,018.2 million, and cash providedoffset by negative adjustments to working capital and other activities of RMB621,000. Adjustmentsapproximately RMB5,646.5 million. Positive adjustment for non-cash items primarily consisted of depreciation of property, plant and equipment of approximately RMB2,426.6 million, partially offset by net unrealized foreign exchange gains of approximately RMB2,180.3 million and interest income of approximately RMB187.2 million. Negative changes in working capital activities primarily consisted of (i) an increase in bills and accounts receivable of approximately RMB5,286.1 million and (ii) an increase in inventories of approximately RMB728.0 million. These decreases were partially offset by (i) an increase in movement in land subsidence, restoration, rehabilitation and environmental cost of approximately RMB838.5 million and (ii) an increase in movement in overburden cost of approximately RMB224.5 million.

Net cash from operating activities was approximately RMB6,520.1 million in 2009 and consisted of profit before income taxes of approximately RMB5,685.8 million, adjustments for non-cash items of approximately RMB1,652.3 million and positive adjustments to working capital and other activities of approximately RMB620.8 million. Positive adjustment for non-cash items primarily consisted of depreciation of property, plant and equipment of approximately RMB1,793.3 million, partially offset by interest income of approximately RMB187.6 million and our share of income of an associate of approximately RMB109.8 million. In addition,Positive changes in working capital activities primarily consisted of (i) an increase in movement in land subsidence, restoration, rehabilitation and environmental cost of approximately RMB1,109.7 million and (ii) an increase in other payables and accrued expenses of approximately RMB622.1 million. These increases were partially offset by an increase in bills and accounts receivable of approximately RMB1,416.6 million due to an increase in coal purchases settled through acceptance bills.

Net cash from operating activities was approximately RMB7,095.5 million in 2008 and consisted of profit before income taxes of approximately RMB8,865.2 million, adjustments for non-cash items of approximately RMB1,285.3 million, and cash used inoffset by negative adjustments to working capital and other activities of approximately RMB1,093.9 million. AdjustmentsPositive adjustments for non-cash items primarily consisted of depreciation of property, plant and equipment of approximately RMB1,140.8 million, partially offset by interest income of approximately RMB275.2 million. In addition,Negative changes in working capital activities primarily consisted of (i) an increase in prepayments and other current assets of approximately RMB1,242.0 million, (ii) an increase in inventories of approximately RMB405.2 million, and (iii) an increase in bills and accounts receivable of approximately RMB217.0 million. These increasesdecreases were partially offset by an increase in movement in land subsidence, restoration, rehabilitation and environmental cost of approximately RMB431.3 million and an increase in bills and account payable of approximately RMB263.8 million.

Cash Flows FromUsed in Investing Activities

Net cash used in investing activities was approximately RMB5,884.4 million in 2010. Net cash used in investing activities primarily consisted of (i) our payment of approximately RMB2,045.8 million and approximately RMB1,080.0 million as partial payments for our acquisition of Haosheng Company and Anyuan Coal Mine, (ii) our purchase of property, plant and equipment of approximately RMB3,576.1 million, (iii) an increase in restricted cash of approximately RMB874.6 million, (iv) our investment of approximately RMB125.0 million to establish Yankuang Group Finance Company Limited, partially offset by equity transfer income of approximately RMB1,147.8 million from disposal of Minerva Coal Mine.

Net cash used in investing activities was approximately RMB24,842.9 million in 2009. Net cash used in investing activities primarily consisted of (i) our acquisition of Felix for cash of approximately RMB19,558.5 million, (ii) capital expenditures of approximately RMB2,133.7 million in property, plant and equipment, (iii) an increase in term deposits of approximately RMB1,971.4 million and (iv) our purchase of equity interest in Hua Ju Energy for approximately RMB761.7 million.

Net cash used in investing activities was approximately RMB2,091.5 million in 2008. Net cash used in investing activities primarily consisted of capital expenditures of approximately RMB2,027.0 million for property, plant and equipment and approximately RMB747.3 million for our acquisition of mining rightrights in Zhaolou Coal Mine. Cash used in investing activities was partially offset by a decrease in other loan receivables of approximately RMB640.0 million resulting from our recovery of the principal amount of the entrusted loan that was in default and a decrease in term deposits of approximately RMB141.6 million.

Cash Flows From (Used in) Financing Activities

Net cash used in financing activities in 2010 was approximately RMB1,360.5 million and primarily consisted of cash dividend payment of approximately RMB1,229.6 million and repayments of bank borrowings of approximately RMB655.5 million, partially offset by bank borrowings of approximately RMB1,111.0 million.

Net cash from financing activities in 2009 was approximately RMB18,503.7 million and primarily consisted of bank borrowings of approximately RMB20,757.7 million that we obtained to fund the acquisition of Felix, partially offset by cash dividend payments of approximately RMB1,967.4 million.

Net cash used in financing activities in 2008 was approximately RMB921.7 million, reflecting primarily dividend payments of approximately RMB836.1 million and the repayment of bank borrowings of approximately RMB72.0 million.

Working Capital and Liabilities

We have historically maintained sufficient working capital for our operations. Our principal source of cash in 20092010 was bank borrowings to fund a significant acquisition and cash generated from operating activities.

As of December 31, 2009, our2010, we recorded net current assets exceed our current liabilities by RMB9,590.5of approximately RMB14,147.5 million. Our current assets increased by RMB5,006.6RMB4,280.4 million primarily as a result of a RMB2,063.3RMB5,293.4 million, or 178.9%112.1%, increase in term deposits and a RMB1,746.7 million increase in bills and accounts receivable because of anand a RMB759.8 million increase in coal purchases settled through acceptance bills.inventories. Our current liabilities increaseddecreased by RMB5,113.4RMB276.5 million from RMB5,297.0 million in 2008 toapproximately RMB10,410.4 million in 2009.2009 to approximately RMB10,133.9 million in 2010. The significant increasedecrease in current liabilities was primarily due to the increasedecrease in borrowings due within one year of RMB983.2 million and the decrease in other payables and accrued expenses of RMB1,743.6 million,RMB620.9 million. The change in net current assets was primarily due to the increase in borrowing due within a year of RMB1,516.1 millionsales and profits during the increase in provisions for land subsidence, restoration, rehabilitation and environmental costs of RMB1,113.1 million.year.

As of December 31, 20092010 and 2008,2009, we had cash and cash equivalents of approximately RMB6,771.3 million and RMB8,522.4 million, respectively. Our cash and RMB8,439.6 million, respectively.cash equivalents primarily consist of cash on hand and demand deposits with original maturities of three months or less that are placed with banks and other financial institutions. As of December 31, 2009,2010, our total cash and cash equivalentequivalents denominated in Renminbi amounted to RMB6,723.2approximately RMB5,122.2 million and our total cash and cash equivalentequivalents denominated in U.S. dollars, Hong Kong dollars, Australian dollars, Pound Sterling and Euro amounted to RMB1,799.2approximately RMB1,649.1 million.

We have, and in the future may continue to have, substantial debts. As of December 31, 2009,2010, our outstanding bank borrowings increased significantlylong-term debt to RMB22,509.8 million from RMB258.0 million as of December 31, 2008. The increase primarily reflected loans amounting to RMB20,757.7 million (USD3,040.0 million) that we obtained for the acquisition of Felix. The maturity profile of our bank borrowings as of the indicated datesequity ratio was as follows:

   As of December 31,
   2008  2009
   (RMB’000)

Less than one year

  82,000  1,598,113

One to three years

  44,000  8,347,091

Three to five years

  44,000  12,498,637

More than five years

  88,000  66,000

Total

  258,000  22,509,841

As of December 31, 2009, the interest rate relating to our bank borrowings ranges from 4.02% to 7.6% per annum, which will be subject to adjustment based on the interest rate set by the People’s Bank of China (“PBOC”), LIBOR and BBSY. As of the date of this annual report, our bank borrowings were denominated in Renminbi and U.S. dollars.59.8%. The interest expenses and exchange rate fluctuations associated with our bank borrowingsthese debts may impair our future profitability.

We expect that cash from operations which is expected to increase following our integration of the coal resources owned by Felix, and bank borrowings will be sufficient to meet our operating cash flow requirements for at least the next twelve months, although certain events that materially and adversely affect our operating results may also have a negative impact on our liquidity. In addition, we cannot assure you that financing will be available in the amounts we need or on terms acceptable to us, if at all.

As of December 31, 2010, our outstanding bank borrowings increased to approximately RMB23,015.8 million from approximately RMB22,509.8 million as of December 31, 2009. The following table sets forth the maturity profile of our bank borrowings as of the dates indicated:

   As of December 31, 
   2009   2010 
   (RMB in thousands) 

Less than one year

   1,598,113     614,925  

One to three years

   8,347,091     14,735,445  

Three to five years

   12,498,637     7,621,388  

More than five years

   66,000     44,000  

Total

   22,509,841     23,015,758  

As of December 31, 2010, the interest rates relating to our bank borrowings ranged from 1.05% to 7.6% per annum. The interest rates for these bank borrowings are variable rates that are subject to adjustment based on the interest rates set by the PBOC, LIBOR or BBSY. As of December 31, 2010, all of our bank loans carry variable interest rates. As of the date of this annual report, our bank borrowings were denominated in Renminbi and U.S. dollars. As of December 31, 2010, our total bank loans denominated in Renminbi amounted to approximately RMB154 million, while our total bank loans denominated in U.S. dollars and Australian dollars amounted to approximately US$3,040 million and A$284 million, respectively. See Note 35 to the consolidated financial statements for more information on our borrowings. The interest expenses and exchange rate fluctuations associated with our bank borrowings may impair our future profitability.

Capital ExpenditureExpenditures

Our principal capital expenditure,expenditures, which was incurred for the purchase and construction of property, plant and equipment increaseddecreased by RMB4,321.6RMB2,825.7 million, or 209.2%44.2%, from RMB2,066.2 million in 2008 toapproximately RMB6,387.8 million in 2009. Our investments2009 to approximately RMB3,562.1 million in 2010. The decrease were primarily due to a decrease of RMB1,628.2 million in the capital expenditure of Yancoal Australia for the coal minespurchases of Felixproperty, plant and equipment, a decreased of RMB789.8 million the power plantscapital expenditure of Hua Ju Energy for the purchases of property, plant and equipment and a decrease of RMB390.3 million in which we invested RMB3,546.9 millioncapital expenditure of Heze Nenghua for the purchases of property, plant and RMB755.2 million, respectively.equipment.

Our estimated capital expenditure for 20102011 is RMB4,085.2 million, which consist primarily of approximately RMB2,110.1 millionRMB5,103.1 million. The table below sets forth our estimated capital expenditure for investment2011 and capital expenditure we incurred in the construction of Austar Coal Mine and the coal mines of Felix in Australia and approximately RMB1,174.6 million for purchases and the construction of property, machinery and equipment for our Six Coal Mines and railway transportation operations. 2010.

Companies

  Estimated capital expenditure for 2011   Capital expenditure incurred in 2010 
  (RMB in millions) 

The Company

   1,200.4     1,210.4  

Shanxi Nenghua

   38.1     14.5  

Yancoal Australia

   1,636.8     2,093.5  

Yulin Nenghua

   44.9     59.4  

Heze Nenghua

   720.5     134.8  

Huaju Energy

   67.7     41.6  

Ordos Neng Hua

   1,353.5     7.9  

Haosheng Company

   41.2     —    

Total

   5,103.1     3,562.1  

We also plan to spend approximately RMB800.5 million onfinance our capital commitments primarily through a combination of funds generated from operations, bank loans and other development projects as follows: (i) RMB319.9 million for Zhaolou Coal Mine in Shandong Province; (ii) RMB302.8 million for the construction of Ordos Nenghua’s 600,000 tonne methanol facility; (iii) approximately RMB79.3 million for the power generating facilities of Hua Ju Energy; (iv) RMB72.7 million for Yulin Nenghua’s 600,000 tonne methanol facility in Shaanxi Province; and (v) approximately RMB25.8 million for Tianhao Chemicals’ 100,000 tonne methanol facility and Tianchi Energy’s coal mine in Shanxi Province. Considering the sufficiency in our cash flow and capital sources,external financing arrangements. Currently, we believe that we will have sufficient capitalcash and financing channels from commercial banks, which we expect are sufficient to satisfy our operationalthe capital demand for operation and development needs.development.

 

C.Research and Development, Patents and Licenses, Etc.

One of our core strategies is to maintain our competitiveness through technology and innovation. WeIn line with our development strategy with a focus on technology innovation, we have established 14 research anda multi-layer system consists of various entities, including technology committee, professional committee, technology center, as well as external institutions or organizations with specialized technology development teams,capacities. We completed 81 technology projects, obtained 1924 patents and were awarded with 8878 technology advance prizes in 2009.2010. At the same time, we focused on strengthening our environmental protection capabilities and improving our energy conservation technologies. As a result, we have achievedwon the environmental protectionState Scientific and energy conservation objectives stated inTechnological Progress Award (Second Class) for our “Research and Development of the 11th Five-Year Plan (2006 to 2010) one year in advance.Fully Mechanized Top Coal Caving Mining Technology and Equipment and its Domestic and International Applications”. Our expenditures for research and development were RMB79.0 million, RMB106.5 million, and RMB46.3 million and RMB70.6 million, in 2007, 2008, 2009 and 2009,2010, respectively, accounting for 0.5%0.4%, 0.4%0.2% and 0.2%, respectively, of our total revenue for the same periods.

Our research and development efforts on mining technology have contributed to increases in our production. Our predecessor first adopted the longwall caving mining method in 1992. Thereafter, our research and development personnel concentrated on modifying and updating this method, taking into account the distinct geological conditions of our mining operations with a view tothe goal of maximizing production. Largely because of our research and development personnel’s efforts, we have been able to:

 

increase production efficiency by utilizing mining extracting equipment with improved technology;

 

extend the length of certain longwall work-faces to approximately 300 meters, thereby reducing our costs for tunneling and supports;

 

reduce the number of coal pillars required to support mining areas and enhance our recovery rate for coal mining and thereby increase our coal production;

 

improve the roof support and auxiliary coal transportation systems of our mining systems to reduce costs; and

 

  

Completecomplete two national technologically innovative projects entitledResearch on the equipment supply and technology for fully mechanized top-coal caving work face with annual production of six million tonnes andResearch on the technology to increase efficiency and scale of fully mechanized mining and the key equipment, respectively, as well as one key project entitledResearch on the integrated equipment and technology of fully-automated information-based mechanized top-coal caving work face with annual production of six million tonnes, which successfully developed a two-pillar hydraulic shield support for a top-coal caving process. Ourprocess;

patent our industry-leading technology for longwall caving mining in the PRC, Australia and South Africa. We believe the use of our longwall caving extraction technology reduces the per tonne production cost of our operations;

complete technologically innovative projects entitledResearch and application of the mechanics of mine tremor caused by the fall of large indirect roof in the goof in Yanzhou coal mining area,Study on early warning system through real-time online safety monitoring of rock burst in long-wall top coal caving, or LTCC, working face,Hydraulic roof support with advance support used in large deformation main gate in LTCC working face in deep mine andLiquid carbon dioxide fire fighting technology for longwall caving mining is patentedcoal spontaneous combustion, which passed appraisal held by either China National Coal Association or Shandong Science and Technology Committee in the PRC, Australia andSouth Africa. We believe the use of our longwall caving extraction technology reduces the per tonne production cost of our operations.2010;

start research on technologically innovative projects entitledResearch on deep mine cooling scheme andResearch on hidden dangers of super-high pressure Ordovician limestone water in mining the lower coal seams to provide technical support for work safety and efficiency; and

implement technologically innovative projects entitledTechnology for rapid gangue discharge in mixed coal-rock roadway,Technology on loading and haulage of coal and rock separately in mixed coal-rock roadway,Technology research on rapid development equipment andconstruction process in rock-roadwayandResearch on high-efficient rock-roadway development equipment compatibility and related key technologies, which improved our rock-roadway construction technology and equipment and enabled us to be more adapted to different working environments.

Our principal strategy isWe intend to further strengthen our competitive advantage in core technologies. We intend to upgradetechnologies with a focus on upgrading and improveimproving our longwall caving extraction technology, fully-mechanized caving operations and related equipment as well as mining methods for medium and thick coal seams.

D.Trend Information

Integration of Felix

The acquisition of Felix is a key component of our growth and international expansion strategy. Following the integration of Felix’s business and assets with our pre-existing AustraliaAustralian operations, we intend to ramp up production at our Australian operations. Going forward, our Australian operations isare expected to make substantial contributions to our total production volume and results of operations. Our ability to achieve our sales goals for our Australian operations will largely depend on our degree of success in realizing the anticipated benefits and synergies of the Felix acquisition. In 2010, we acquired 30% of the equity interests held by Austral-Asia Coal Holdings Pty Ltd, a wholly-owned subsidiary of Singapore IMC Group, in the Ashton Coal Mine Joint Venture. As of the date of this annual report, Felix’s control in the Ashton Coal Mine Joint Venture increased from 60% to 90%. In addition, we disposed of our 51% equity interest in the Minerva Coal Mine Joint Venture in 2010 that was originally held through Felix, and, since completion of the disposal, no longer have any interests in the Minerva Coal Mine Joint Venture.

Development in Ordos City of Inner Mongolia

We established Ordos Neng Hua on December 18, 2009 as our wholly-owned subsidiary in Inner Mongolia Autonomous Region. Ordos Neng Hua will act as our investment management platform for coal mining, coal chemicals and a coal power project in Inner Mongolia. Our ability to achieve our sales goals for our operations in Inner Mongolia will largely depend on our degree of success in realizing the anticipated benefits and synergies of our investment in Inner Mongolia through Ordos Neng Hua. In 2010, we successfully completed the acquisition of 100% equity interests in a 600,000-tonne methanol project, the acquisition of a 51% equity interest in Haosheng Company, the acquisition of the entire assets of Anyuan Coal Mine and obtaining the mining rights of Zhuan Longean Coal mine field through public competitive bidding.

Outlook for the Coal Market

Benefiting from the recovering global economy, demand for coal in 2010 will gradually2011 is expected to continue to increase andwhile the supply and demand will remain balancedof coal in the domestic andor international coal markets. The supply of coal availablemarket may become moderately tight. In line with the objectives set forth in China has generally been sufficientChina’s “Twelfth Five-Year Plan” issued in 2011, the domestic economy is expected to satisfy demand, although coal supplies may be constrainedcontinue to grow. Growth in certain regions of China during particular periods. The combination of stable economic growth, the continuous implementation of a proactive fiscal policy and the generally relaxed monetary policy of the PRC willdomestic economy is expected to drive the strong growth of major coal consumption industries, which in turn willis expected to increase domestic coal demand at a stable pace. The gradual commencementHowever, the increase of coal supply in China will be restricted by the further consolidation of the domestic coal industry guided by the national policy to control the increase of overall national coal production at newcapacity and production volume, through various measures, including the elimination of outdated production capacity and closing of small-sized coal mines combined with integrated minesmines. In addition, although rapid development of coal resources in Shanxi Province, among other factors,Western China will increase the supply of coal in this region, because the major domestic coal supplies. Although coal transportation capacity has increasedconsumers are in recent years,Eastern China, the effective supply of coal is stillexpected to remain restricted. As a result of the foregoing factors affecting supply and demand, coal prices in China are expected to increase, but to continue to be subject to the structural contradiction among production, transportation and demand.fluctuations.

The coal resources tax reform, environmental protection and energy saving guidance and acceleration of the restructuring of coal enterprises in specific provinces will provide strong support for coal prices. The integration of coal resources and the rapid formation of coal conglomerates will further accelerate the coal industry’s consolidation and enhance the competitiveness of large coal enterprises. With a gradual increase of demandsupply in the international market is also expected to be tight in 2011 as well, as a result of the limited increase of production volume in major coal marketexporting countries. For example, coal production and limited supply growth,rail transportation in Australia will be negatively impacted due to the continuing effects of the largest flood in Australia in decades, while exports from South Africa, Indonesia and Russia are not expected to make up for this shortfall due to inadequate infrastructure in these countries, such as railways and ports. Increase of coal prices areis expected to increase. Asbe primarily supported by demand from China and India, as well as from Japan. Although demand for coal in Japan was adversely affected by the world economy continues to recover, energymajor earthquake and tsunami experienced in Northeast Japan, demand for coal in Japan is expected to increase steadily. India, Japan, Korea, Taiwanonce it recovers from the effects of these events and other regions are expected to increase their importcommences reconstruction of coal. As China remains a net importer of coal, demand for coalits infrastructure in the Asia Pacific region will increase slightly. Among the major coal exporting countries in the world, Indonesia has increased its coal production capacity and its export volume continues to rise, while the coal production capacity and export volume of Vietnam has decreased. Due to the restrictions of port infrastructures, the growth of export capacity in Australia and South Africa has been limited. It is estimated that the supply of and demand for coal in the Asia Pacific will experience moderate growth, with demand increasing slightly faster than supply. Influenced by supply and demand dynamics, international coal price will remain current high levels and may continue to increase.affected areas.

Our average selling price of coal is expected to increase in 2010 as2011 compared with 2009.2010. As of the date of this annual report, the Company has entered into sales contracts and letters of intent for 40.3approximately 32.4 million tonnes of domestic coal sales, which included sales contracts for 10.0approximately 9.0 million tonnes of coal with an average tax-inclusive price that represented an increase of 17.6%1.2% compared with our average selling price in 2009.2010. The price of the remaining coal to be sold pursuant to the letters of intent with the amount of approximately 23.4 tonnes will be priced based on prevailing market prices at the time of sale.

Our average selling price of coal produced by Yancoal Australia is expected to increase significantly in 2011 as compared with 2010. Yancoal Australia has entered into sales contracts for 2.66 million tonnes coal sales from January 2011 to March 2011, with an average selling price of US$133.4 per tonne. Our coal sales target for 2011 is 54 million tonnes.

Outlook for the PRC Methanol Market

In 2010,2011, we expect that supply will continue to exceed demand in the domestic methanol market, making material increases in methanol prices unlikely. The gradual increase in production capacities of the newly built and existing domestic methanol facilities and the construction of new methanol facilities in China coupled with an increase in the importimports of low-costlow cost foreign prime methanol, will further increase the domestic supply of methanol. AlthoughThe demand for methanol remains weak due to overproduction of downstream methanol products such as methanol, dimethylether and acetic acid has increased, overallacid. However, methanol supply and demand in the methanol market remains moderate. The methanol market isfactors are expected to remain stable as PRC government hasbecome more balanced with the accelerated plans to stimulate the petrochemical industry, which aims to eliminateelimination of outdated methanol facilitiesproduction capacity and promotes the usepromotion of methanol in fuel for vehicles, together with the antidumping measures that restrictimposed on methanol imports by certain countries. On the production capacity of methanol production enterprises. The increaseother hand, increases in prices of input raw materials, including coal and natural gas, electricity and transportation costs will provide strong support forstimulate increases in methanol prices. Our methanol sales target for 20102011 is 610,000 tonnes.

E.Off-balance Sheet Arrangements

As of December 31, 2009,2010, other than capital expenditure commitments, discussed in “B. Liquidity and Capital Resources” above, and contractual obligations discussed in “F. Contractual Obligations” below, we did not have any off-balance sheet arrangements.

F.Contractual Obligations

The following table summarizessets forth our contractual obligations and commercial commitments as of December 31, 2009:2010:

 

  Payments Due by Period  Payments Due by Period 
  Total  Less than
1 Year
  1 to 3 years  3 to 5 years  More than
5 years
  Total   Less than
one Year
   One to three
years
   Three to five
years
   More than
five years
 
        (RMB’000)                (RMB’000)         

Contractual Obligations

                    

Unsecured bank borrowings(1)

  176,000  22,000  44,000  44,000  66,000   946,240     156,278     701,962     44,000     44,000  

Secured bank borrowings(1)

  21,677,138  919,410  8,303,091  12,454,637  —     21,247,514     375,978     13,851,694     7,019,842     —    

Finance leases(2)

  656,703  656,703  —    —    —     822,004     82,669     181,789    557,546     —    

Capital commitments for the acquisition of assets(3)

  716,196  716,196  —    —    —     1,021,911     1,021,911     —       —       —    

Amounts due to Controlling Shareholder and its subsidiaries(4)

  757,882  757,882  —    —    —     438,783     438,783     —       —       —    
                                   

Total

  23,983,919  3,072,191  8,347,091  12,498,637  66,000   24,476,452     2,075,619     14,735,445     7,621,388     44,000  
                                   

During 2006,

Note:

(1)Excludes interest.
(2)Consists of the finance leases born by Felix. For details of our finance leases, please refer to Note 35(iii) to the consolidated financial statements attached to this annual report.
(3)Mainly consists of our increased capital investment to Yancoal Australia in 2010. For details, please refer to Note 47 to the consolidated financial statements attached to this annual report.
(4)Reflects our contractual obligations to the Controlling Shareholder in relation to Acquisition Agreement of Jining III Coal Mine. Please see subsection headed “Amounts due to Controlling Shareholder and its Subsidiaries” below for details.

We established Ordos Neng Hua on December 18, 2009 as our wholly-owned subsidiary in Inner Mongolia Autonomous Region. As of December 31, 2010, we entered into a joint venture agreement with Chia Taihave made deposits of RMB2,045.8 million and RMB1,080 million for the acquisitions of equity interests in Haosheng Company and Yushen Company to establishassets of Anyuan Coal Mine, respectively. We established Yushuwan Coal Mine Company for the constructionjointly with Chia Tai Energy & Chemicals Company Limited and operation of YushuwanYushen Coal MineCompany Limited in Shaanxi Province.2006. We willare obligated to invest approximately RMB196.8 million to obtain afor 41% of the equity interestinterests in Yushuwan Coal Mine Company. As of December 31, 2009,2010, we have made a deposit of RMB118.0approximately RMB117.93 million in relationand are obligated to this joint venture,further invest approximately RMB78.87 million.

The following table sets forth our consolidated interest-bearing borrowings as of December 31, 2009 and we are committed to investing a further RMB78.8 million.2010:

   As of December 31, 
   2009   2010 
   (RMB’000) 

Secured bank borrowings

   21,677,138     21,247,514  

Unsecured bank borrowings

   176,000     946,240  
          

Total

   21,753,138     22,193,754  
          

Secured Bank Borrowings

In 2009, we incurredAs of December 31, 2010, the balance of our secured bank loans amounted to approximately RMB21.2 billion (approximately US$3.0 billion), which primarily consist of our secured bank borrowings amounting to RMB20,757.7 million (USD3,040.0 million)obtained for the acquisition of Felix. These borrowingsFelix in 2009 which amounted to approximately RMB20.1 billion, which are guaranteed by us, and secured by a counter guarantee by Yankuang Group see Note 36and secured by our term deposit, and three short-term loans in the amount of approximately A$24.0 million (equivalent to financial statementsapproximately RMB161.1 million) obtained by Yancoal Australia in 2010 for its general business operations, which were secured by, among other things, property, plant and equipment. For more information on our secured borrowings.borrowings, please see Note 35 to the financial statements.

Unsecured Bank Borrowings

Our RMB946.2 million balance of unsecured bank loans as of December 31, 2010 primarily representing the balance of a borrowing in the amount of RMB154.0 million, obtained by Tianchi Energy, a subsidiary of Shanxi Nenghua and the balance of a borrowing in the amount of RMB792.2 million (A$118.0 million) obtained by Yancoal Australia. For more information about our unsecured borrowings, please see Note 35 to the financial statements.

Tianchi Energy entered into a long-term loan agreement with the State Development Bank of China in 2006 to borrow RMB220.0 million. The loan is repayable by 20 installments over a period of 117 months, with the first installment due in May 2008. The initial interest rate on the loans was 6.12% per annum, which is subject to adjustments based on interest rates set by the PBOC. The amount is guaranteed by the Yankuang Group.

The balance of unsecured bank loan as of December 31, 2010 was also due to the balance of the borrowing in the amount of approximately RMB792.2 million (approximately A$118.0 million) obtained by Yancoal Australia, carried annual interest at three-month BBSY plus a margin of 1.5% (approximately 6.3%).

For more information on our unsecured borrowings, please see Note 35 to financial statements.

Amounts due to Controlling Shareholder and its Subsidiaries

We acquired Jining III Coal Mine on January 1, 2001 pursuant to the Acquisition Agreement of Jining III Coal Mine, which we entered into with the Controlling Shareholder on August 4, 2000. Pursuant to the Jining III Acquisition Agreement, we agreed to purchase the mining rights of Jining III for approximately RMB132.5 million. This amount is to be paid to the Controlling Shareholder in ten interest-free equal annual installments beginning 2001. In 2009,2010, we paid approximately RMB13.2 million to the Controlling Shareholder for the mining rights of Jining III Coal Mine.

Unsecured Bank Borrowings

Our RMB176.0 million balance of unsecured bank loanThe amounts due to the Controlling Shareholder and its subsidiary companies do not bear any interest and are unsecured. The following table sets forth the amounts due to the Controlling Shareholder and its subsidiary companies as of December 31, 2009 represented a borrowing obtained by Tianchi Energy, a subsidiary of Shanxi Nenghua, prior to our acquisition of Shanxi Nenghua. Tianchi Energy entered into a long-term loan agreement with the State Development Bank in 2006 to borrow RMB220.0 million. The initial interest rate on the loans was 6.12% per annum, which is subject to adjustments based on interest rates set by the PBOC. The outstanding balance as of December 31, 2008 carried an interest rate of 5.94% per annum. From 2008, the principal for the loan became payable in 20 installments over a period of 117 months, with each installment amounting to RMB11.0 million. Interest is calculated on a quarterly basis. The repayment of this loan is also guaranteed by Yankuang Group.and 2010.

   As of December 31, 
   2009  2010 
   (RMB’000) 

Term for Repayment

   

Within one year

   757,882    438,783  

More than one year, but not exceeding two years

   —      —    
         

Total due

   757,882    438,783  

Less: amounts due within one year

   (757,882  (438,783

Amounts will due over one year

   —      —    

 

G.Critical Accounting Policies

We prepare our consolidated financial statements in accordance with IFRS. The preparation of these financial statements requires us to make estimates and assumptions about the carrying amounts of items in the financial statements that cannot be measured accurately. These judgments, estimates and assumptions are based on the historical experience of our management as well as other relevant factors. Actual results may differ from these estimates. We review the foregoing judgments, estimates and assumptions regularly on a going concern basis. Revisions to accounting estimates are recognized 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 critical estimates that we have made in the process of applying the accounting policies and that have the most significant effect on the amounts recognized in financial statements.

Depreciation

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

Amortization of Assets

Coal reserves, coal resources and rail access rights are amortized on a straight line basis or unit of production basis over the shorter of their useful lives and the contractual period. The expensing of overburden removal costs is based on saleable coal production over the estimated economically recoverable reserves. The useful lives are estimated on the basis of the total proven and probable reserves of a coal mine. Proven and probable coal reserve estimates are updated aton a regular basis and take into account each mine’s recent production and technical information.

Provision for Land Subsidence, Restoration, Rehabilitation and Environmental Costs

The provision for land subsidence, restoration, rehabilitation and environmental costs is reviewed regularly to verify that it properly reflects the remaining obligation arising from the current and past mining activities. Provisions for land subsidence, restoration, rehabilitation and environmental costs are determined by our management based on past experience, its estimate of the current and future costs and predictions for government policies.

Impairment of Goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The determination of value in use requires the Company to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. As of December 31, 2009,2010, the carrying amount of goodwill was approximately RMB1,305.3RMB1,196.6 million. Cash flow projections during the budget period for each of the above units are based on the budgeted revenue and expected gross margins during the budget period and the raw materials price inflation during the budget period. Expected cash inflows/outflows have been determined based on past performance and management’s market development expectations. There is no material uncertainty regarding the carrying value of goodwill due to the profitability of the underlying reporting units.

Estimated Impairment of Property, Plant and Equipment

When there isare indications of impairment, indicator, the Company takes into consideration the estimationestimate of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. When actual future cash flows are less than expected, a material impairment loss may arise. In estimating the future cash flows, management taketakes into account the recent production and technical advancements. As price and cost levels change from year to year, the estimate of future cash flows also changes. Notwithstanding that management has considered all the available information in making their impairment assessment, inherent uncertainty exists as to the conditions of mines and the environment, and actual write-offs may be higher than the estimated amount.amounts. As of December 31, 2009,2010, the carrying amount of property, plant and equipment was approximately RMB18,877.1RMB19,874.6 million. In 2009, RMB14.22010, RMB1.5 million of construction in progress was written off as expenses.

Recent Changes in Accounting Pronouncements

In the current year, we have applied, for the first time, a number of new standards and interpretations, amended and revised standards and interpretations (“new IFRSs”) issued by the IASB and the International Financial Reporting Interpretations Committee (the “IFRIC”) of the IASB which are effective for our fiscal year beginning January 1, 2009:2010:

 

IFRSs (Amendments)

  Improvements to IFRSs 20082009

IAS 127 (Revised)

  Presentation ofConsolidated and separate Financial Statements

IAS 23IFRS 3 (Revised)

  Borrowing CostsBusiness Combinations

IFRS 1& IAS 27 (Amendments)

39
  Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

IFRS 7 (Amendment)

Improving Disclosures about Financial Instruments

IFRS 8

Operating SegmentsEligible Hedged Items

The adoption of the New IFRS had no material effect on how the results and the financial position for the current or prior accounting years have been prepared. Accordingly, no prior period adjustment is required.

We have not applied the following new and revised standards, amendments or interpretations that have been issued but are not effective as of the date of this annual report.report:

 

IFRSs (Amendments)

Improvements to IFRSs 20091

IAS 24 (Revised)

Related Party Disclosures2

IAS 27 (Revised)

Consolidated and Separate Financial Statements3

IAS 39 (Amendment)

Eligible Hedged Items3

IFRS 3 (Revised)

Business Combinations3

IFRS 9

Financial Instruments4

IFRSs (Amendments)

  Improvements to IFRSs 201051
IFRS 7 (Amendments)Disclosures – Transfers of Financial Assets2
IFRS 9Financial Instruments3
IFRS 10Consolidated Financial Statements3
IFRS 11Joint Arrangements3
IFRS 12Disclosures of Involvement with Other Entities3
IFRS 13Fair Value Measurement3
IAS 27 (Amendments)Separate Financial Statements (2011)3
IAS 28 (Amendments)Investments in Associates and Joint Ventures (2011)3
IAS 24 (Revised)Related Parties Disclosures4

 

(1)Effective for annual periods beginning on or after July 1, 2009 and January 1, 2010, as appropriate
(2)Effective for annual periods beginning on or after January 1, 2011
(3)Effective for annual periods beginning on or after July 1, 2009
(4)Effective for annual periods beginning on or after January 1, 2013
(5)Effective for annual periods beginning on or after July 1, 2010 and January 1, 2011, as appropriate
(2)Effective for annual periods beginning on or after July 1, 2011
(3)Effective for annual periods beginning on or after January 1, 2013
(4)Effective for annual periods beginning on or after January 1, 2011

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

IFRS 9 Financial Instruments introduces new requirements for the classification and measurement of financial assets and will be effective from January 1, 2013, with earlier application permitted. The standard requires all recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be measured at either amortized cost or fair value. Specifically, debt investments that (i) are held within a business model whose objective is to collect the contractual cash flows and (ii) have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost. All other debt investments and equity investments are measured at fair value.

IFRS 10 replaces the consolidation guidance in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation — Special Purpose Entities by introducing a single consolidation model for all entities based on control, irrespective of the nature of the investee (i.e., whether an entity is controlled through voting rights of investors or through other contractual arrangements as is common in special purpose entities). Under IFRS 10, control is based on whether an investor has 1) power over the investee; 2) exposure, or rights, to variable returns from its involvement with the investee; and 3) the ability to use its power over the investee to affect the amount of the returns.

IFRS 11 introduces new accounting requirements for joint arrangements, replacing IAS 31 Interests in Joint Ventures. The option to apply the proportional consolidation method when accounting for jointly controlled entities is removed. Additionally, IFRS 11 eliminates jointly controlled assets to now only differentiate between joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets and obligations for the liabilities. A joint venture is a joint arrangement whereby the parties that have joint control have rights to the net assets.

IFRS 12 requires enhanced disclosures about both consolidated entities and unconsolidated entities in which an entity has involvement. The objective of IFRS 12 is to require information so that financial statement users may evaluate the basis of control, any restrictions on consolidated assets and liabilities, risk exposures arising from involvements with unconsolidated structured entities and non-controlling interest holders’ involvement in the activities of consolidated entities.

IFRS 13 applies when another IFRS requires or permits fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except for certain exemptions. IFRS 13 requires the disclosures of fair values through a ‘fair value hierarchy’. The hierarchy categorises the inputs used in valuation techniques into three levels. The hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure fair value are categorised into different levels of the fair value hierarchy, the fair value measurement is categorised in its entirety in the level of the lowest level input that is significant to the entire measurement

The requirements relating to separate financial statements are unchanged and are included in the amended IAS 27. The other portions of IAS 27 are replaced by IFRS 10.

IAS 28 is amended for conforming changes based on the issuance of IFRS 10, IFRS 11 and IFRS 12.

IAS 24 (Revised) clarifies and simplifies the definition of related party. It introduces certain exemptions on disclosure requirements in respect of transactions between government-related entities and government, and other government related entities.

Except for the abovementioned standards or interpretations, the Directors are evaluating the impact of application of other standards or interpretations on the Group’s future results and financial statements.

 

ITEM 6.DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A.Directors, Supervisors and Senior Management

The following table sets forth selected information concerning our board of directors (“Board of Directors” or “Board”), board of supervisors and executive officers as of the date of this annual report. Pursuant to our ArticlesAs of Association,the date of this annual report, our Board of Directors consists of 1311 directors, including one chairman, twoone vice chairmen, four independent directors and one employee director. All Directors serve three-year terms beginning their respective election date until the election of their respective successor.

As more than 50% of our voting power is held by the Controlling Shareholder, we are not required to have a majority of our Board be comprised of independent directors in reliance on the exemption provided under Section 303A of the NYSE Listing Rules.

The following table sets forth information on our directors, supervisors and executive officers:

 

Name

  

Age

  

Position at the Company

  

Date Term of
Office Expires1

Directors

      

LI Weimin

50Chairman of the BoardMay 2014

WANG Xin

  52  Vice Chairman of the Board  June 2011May 2014

GENG JiahuaiZHANG Yingmin

  5957  Vice ChairmanJune 2011

LI Weimin

49Vice Chairman and General Manager  June 2011May 2014

Name

Age

Position at the Company

Date Term of
Office Expires1

SHI Xuerang

  5556  Director  June 2011

CHEN Changchun

57DirectorJune 2011May 2014

WU Yuxiang

  4849  Director and Chief Finance Officer  June 2011

WANG Xinkun

57Director and Deputy General ManagerJune 2011May 2014

ZHANG Baocai

  43  Director, Deputy General Manager and Secretary of the Board of Directors  June 2011May 2014

DONG Yunqing

  55  Employee Director  June 2011May 2014

Independent Non-executive Directors

      

PU HongjiuWANG Xianzheng

  7364  Director  June 2011May 2014

ZHAI XiguiCHENG Faguang

  6768  Director  June 2011May 2014

LI WeianWANG Xiaojun

  5357  Director  June 2011May 2014

WANG JunyanXUE Youzhi

  3946  Director  June 2011May 2014

Supervisors

      

SONG Guo

  5556  Chairman of Supervisory Committee  June 2011May 2014

ZHOU Shoucheng

  5758  Deputy Chairman of Supervisory Committee  June 2011May 2014

ZHANG Shengdong

  5354  Supervisor  June 2011May 2014

ZHEN Ailan

  4647  Supervisor  June 2011May 2014

WEI Huanmin

  5354  Employee Supervisor  June 2011May 2014

XU Bentai

  5152  Employee Supervisor  June 2011May 2014

Other Management Team Members

      

JIN Tai

  59  Deputy General Manager  June 2011

ZHANG Yingmin

56Executive Deputy General ManagerJune 2011May 2014

HE Ye

52Deputy General ManagerJune 2011

LAI Cunliang

49Deputy General ManagerJune 2011

QU Tianzhi

47Deputy General ManagerJune 2011

TIAN Fengze

  53  Deputy General Manager  June 2011May 2014

SHI ChengzhongLAI Cunliang

  4750  Deputy General Manager  June 2011May 2014

TIAN Fengze

54Deputy General ManagerMay 2014

SHI Chengzhong

48Deputy General ManagerMay 2014

NI Xinghua

  5354  Chief Engineer  June 2011May 2014

 

(1)The expiration of the term of office is generally the date of the shareholders’ meeting when a new session of the Board will be elected. Executives who retire in the interim are replaced at the next Board meeting.

Executive Directors

WANG Xin, a researcher in engineering technique application with a doctorate degree in engineering technology and an EMBA degree, has served as chairman of our Board since 2004. Mr. Wang is actively involved in Yankuang Group and serves as the vice chairman of the board, the general manager and the party committee deputy secretary for Yankuang Group. Mr. Wang joined the Company’s predecessor in 1982 and became a vice general manager of Yankuang Group in 2000. He was appointed a board director and vice general manager in 2002 and was promoted to the vice chairman of the board of directors and the general manager of Yankuang Group in 2003. Since 2007, he has been the party committee deputy secretary of Yankuang Group. He is a graduate of China University of Mining and Technology and Nankai University.

GENG Jiahuai, a researcher in engineering technique application with an EMBA degree, has served as a Director since 2002 and a vice chairman of our Board since 2004 and, at the same time, is the chairman of the board and the party committee secretary of Yankuang Group. From 1985 to 2002, Mr. Geng acted as the deputy director of Zibo Mining Bureau, the head of the Zibo Safety and Supervision Bureau and the director general of Zibo Mining Bureau. Mr. Geng joined Yankuang Group in 2002 and became the general manager and served as the vice chairman of the board of directors and the party committee deputy secretary of Yankuang Group. Mr. Geng was promoted to the chairman of the board of the directors and the party committee secretary of Yankuang Group in 2003. He is a graduate of Nankai University.

LI Weimin, a researcher in engineering technique applications and doctor ofwith a doctorate degree in mining engineering and holder of an EMBA degree. Mr. Li has served as our general manager since July 2009 and was appointed the viceas chairman of our Board in Februaryon December 30, 2010. Mr. Li joined the predecessor of the Company in 1982. In November 2002, Mr. Li was appointed as the manager of the Jining III Coal Mine III.Mine. In August 2006, Mr. Li was appointed as the deputy chief engineer and the deputy head of the Safety and Supervision Bureau of the Yankuang Group. In December 2007, Mr. Li was promoted to be the head of the Safety and Supervision Bureau of the Yankuang Group. In May 2009, Mr. Li was appointed as the deputy general manager of the Yankuang Group. Mr. Li was appointed as the general manager of the Company in July 2009 and was subsequently appointed as the vice chairman of the Company in February 2010. On December 15, 2010, Mr. Li was appointed as a Director, the general manager and the deputy secretary of the party committee of the Yankuang Group. He is a graduate of China University of Mining and the Technology and Nankai University.

WANG Xin, a researcher in engineering technique application with a doctorate degree in engineering technology and an EMBA degree is the vice chairman of our Board. Mr. Wang is actively involved in the Yankuang Group and serves as the chairman of the board and the party committee secretary for the Yankuang Group. Mr. Wang joined the Company’s predecessor in 1982 and became a vice general manager of the Yankuang Group in 2000. He was appointed a board director and vice general manager of the Yankuang Group in 2002 and was promoted to the vice chairman of the board of directors and the general manager of the Yankuang Group in 2003. Since 2007, he has been the party committee deputy secretary of the Yankuang Group. On December 30, 2010, Mr. Wang was appointed as the vice chairman of the Board. He is a graduate of China University of Mining and Technology and Nankai University.

ZHANG Yingmin, a researcher in engineering technology application with an EMBA degree, is the General Manager of the Company and a director of the Yankuang Group. Mr. Zhang joined the Company’s predecessor in 1971, appointed as the director of the division of production technology of the Yankuang Group in 1996 and became the head of Baodian Coal Mine in 2000. He was also appointed deputy general manager of the Yankuang Group in 2003 and the chief of the safety supervision bureau of the Company from 2004 to 2007. Mr. Zhang was appointed as the general manager of the Company in 2011. Mr. Zhang is a graduate of Nankai University.

SHI XuerangZHANG Yingmin, a senior engineerresearcher in engineering technology application with an EMBA degree, is a Director of our Board and deputy general manager of Yankuang Group. From 2001 to 2003, Mr. Shi acted as the deputy general manager of Xinwen Coal Mining Group Company Limited. He joined Yankuang Group as a deputy general manager in 2003 and was appointed a DirectorGeneral Manager of the Company in 2005. He is a graduate of Nankai University.

CHEN Changchun, a senior accountant, has served as a Director of our Board since 2005 and a director of the chief accountant and the chief legal advisor of Yankuang Group. Mr. Chen joined the Company’s predecessor in 1984 and became the chief accountant and a board director of Yankuang Group in 1998 and 2004, respectively. Mr. Chen was appointed the chief legal advisor of Yankuang Group in 2006. He is a graduate of Beijing Coal Cadre Institute.

WU Yuxiang, a senior accountant with a master degree in accounting, has served as a Director and the chief financial officer of the Company since 2002. Mr. Wu joined the Company’s predecessor in 1981 and was promoted to the chief accountant of the finance department in 1996 and the Company’s manager of the finance department in 1997. He is a graduate of the Party School of Shandong Provincial Communist Committee.

WANG Xinkun, a senior economist with a master degree, has served as a Director and a deputy general manager of the Company since 2004 and 2002, respectively. Mr. Wang joined the Company’s predecessor in 1977 and became the Company’s manager of the coal transportation and sales department in 2000. He is a graduate of Tianjin University.

ZHANG Baocai, a senior accountant with an EMBA degree, has served as a Director and the board secretary of the Company since 2006. Mr. Zhang joined the Company’s predecessor in 19891971, appointed as the director of the division of production technology of the Yankuang Group in 1996 and became the head of Baodian Coal Mine in 2000. He was also appointed deputy general manager of the Yankuang Group in 2003 and the chief of the safety supervision bureau of the Company from 2004 to 2007. Mr. Zhang was appointed as the head of the planning and finance departmentgeneral manager of the Company in 2002.2011. Mr. Zhang is a graduate of Nankai University.

DONG Yunqing, a professor-level senior administrative officer, has served as a Director and the chairman of the labor union of the Company since 2002. Mr. Dong joined the Company’s predecessor in 1981 and was the vice chairman of the labor union of Yankuang Group from 1996 to 2002. He is a graduate of Central Communist Party School Correspondence Institute.

Independent Non-executive Directors

PU Hongjiu, a professor-level senior engineer, has served as an independent non-executive Director of the Company since 2005. He is currently the vice chairman of the China Coal Industry Association, the chairman of Coal Industry Association of China International Association and the chairman of China Coal Society. Mr. Pu served as deputy minister of the Ministry of Coal Industry and from 1997-2002 was a member of the Communist Party of China Central Commission of Discipline Inspection. Mr. Pu was a party group member and the head of disciplinary inspection unit of the State Administration of Work Safety and State Administration of Coal Mine Safety in 2001. He has been the chairperson of China Coal Academy since 2001 and the first vice-chairman of the China Coal Industry Association from 2003 to 2009 and is currently the honorary chairman. In 2007, he was appointed as the deputy director of National Energy Experts Advisory Committee. He is a graduate of Hefei Mining Institute.

ZHAI Xigui, a senior auditor, was appointed an independent non-executive Director of the Company in 2008. Mr. Zhai is currently the president of the China Audit Society. Mr. Zhai was the deputy chief auditor of the National Audit Office in 1996 and the vice secretary of the party group of the National Audit Office in 1999. He was elected as the deputy to the 10thSession of the National People’s Congress of the PRC and a member of the Finance and Economics Committee in the same congressional session in 2003. Mr. Zhai was appointed as the president of China Audit Society in 2005. He is a graduate of Central University of Finance and Economics.

LI Weian, was appointed an independent non-executive Director of the Company in 2008 and is a professor at Nankai University holding doctorate degrees in management and economics. Mr. Li has been the Dean of the Business School of Nankai University since 1997 and became one of the first group of National distinguished professors in Arts appointed under the Cheung Kong Scholars Program in 2004. He is also a director of the Corporate Management Research Center, a part-time member of the Science Counseling Team of the Degree Committee of the State Council and a deputy director of the Business Administration Teaching Direction Committee of the Ministry of Education, enjoying the special government allowance. Mr. Li is a graduate of Nankai University and Keio University.

WANG Junyan, was appointed an independent non-executive director of the Company in 2008 and holds a master degree in finance. Mr. Wang has served as the chairman of the board and the investment director of Shanghai Investment and Management Co., Ltd. since 2007 and was appointed the managing director general manager and an investment director of CITIC Securities International Investment and Management (Hong Kong) Co., Ltd. in 2008. He was also appointed the managing director of Shanghai First Finance Group Co., Ltd. in 1997. Mr. Wang is a graduate of the University of Hong Kong.

Supervisors

SONG Guo, a professor-level senior administrative officer with an EMBA degree, is the chairman of the supervisory committee of the Company and a deputy secretary of the party committee of Yankuang Group. In 2002, Mr. Song was the officer-in-charge of the office of Coal Management Bureau of Shandong Province. He joined Yankuang Group in 2003 and served as the secretary of the disciplinary inspection committee from 2003 to 2007. He was appointed as a deputy secretary of the party committee of Yankuang Group in 2004 and the vice chairman of the supervisory committee of the Company in 2005. In 2008, Mr. Song was promoted to the chairman of the supervisory committee of the Company. He is a graduate of Nankai University.

ZHOU Shoucheng, a professor-level senior administrative officer with a master degree, was appointed the vice chairman of the supervisory committee of the Company in 2008 and has served as the secretary of the disciplinary inspection committee and the chairman of the labor union of Yankuang Group since 2007. Mr. Zhou joined the predecessor of the Company in 1979 and has held the posts of the secretary of the Youth League committee of Yankuang Group, the secretary of the party committee of Beisu Coal Mine and the secretary of the party committee and the vice manager of Xinglongzhuang Coal Mine successively from 1984 to 2002. He was the chairman of the labor union of Yankuang Group from 2002 to 2007. Mr. Zhou is a graduate of Central Communist Party School Correspondence Institute.

ZHANG Shengdong, a senior accountant, has been a supervisor of the Company since 2002.He is also the assistant to the general manager, the deputy chief accountant and the head of the finance department of Yankuang Group. Mr. Zhang joined the Company’s predecessor in 1981 and became the head of the finance of Yankuang Group in 2002. He also became the deputy chief accountant of Yankuang Group, a supervisor of the Company, the head of the finance company preparatory office of Yankuang Group in 2002. Mr. Zhang was appointed as the assistant to the general manager of Yankuang Group in 2008. He is a graduate of China University of Mining and Technology.

ZHEN Ailan, a senior accountant and senior auditor, was appointed a supervisor of the Company in 2008. She has served as the deputy director of the audit department at Yankuang Group since 2005. After joining the Company’s predecessor in 1980, she was appointed to the deputy chief of the audit division of Yankuang Group in 2002 and subsequently promoted to the deputy director of the audit department in 2005. Ms. Zhen is a graduate of Northeastern University of Finance and Economics.

WEI Huanmin, a professor-level senior administrative officer, was appointed the supervisor and the secretary of the disciplinary inspection committee of the Company in 2008 and 2006, respectively. Mr. Wei joined the Company’s predecessor in 1984, and served as the Company’s deputy secretary of the disciplinary inspection committee and the chief of the division of inspection from 2002 until being promoted to the secretary of the disciplinary inspection committee in 2006. Mr. Wei is a graduate of Central Communist Party School Correspondence Institute.

XU Bentai, a professor-level senior administrative officer with a master degree, has been the employee supervisor of the Company since 2002 and the chairman of the labor union of Jining III Coal Mine since 1999. Mr. Xu joined the Company’s predecessor in 1978 and is a graduate of the Party School of Shandong Provincial Communist Committee.

Other Executive Officers

JIN Tai, a researcher in engineering technique application with a master degree, has served as a deputy general manager of the Company since 2004. Mr. Jin joined the Company’s predecessor in 1968, and became the deputy general manager of Yankuang Group in 2000. He became the head of Xinglongzhuang Coal Mine in 1998. Mr. Tai is a graduate of China University of Mining and Technology.

ZHANG Yingmin, a researcher in engineering technology application with an EMBA degree, has beenis the executive deputy general managerGeneral Manager of the Company and a director of the Yankuang Group since 2002 and 2004, respectively.Group. Mr. Zhang joined the Company’s predecessor in 1971, appointed as the director of the division of production technology of the Yankuang Group in 1996 and became the head of Baodian Coal Mine in 2000. He was also appointed deputy general manager of the Yankuang Group in 2003 and the chief of the safety supervision bureau of the Company from 2004 to 2007. Mr. Zhang was appointed as the general manager of the Company in 2011. Mr. Zhang is a graduate of Nankai University.

SHI Xuerang, a senior engineer with an EMBA degree, is a Director of our Board and deputy general manager of the Yankuang Group. From 2001 to 2003, Mr. Shi acted as the deputy general manager of the Xinwen Coal Mining Group Company Limited. He joined the Yankuang Group as a deputy general manager in 2003 and was appointed a Director of the Company in 2005. He is a graduate of Nankai University.

WU Yuxiang, a senior accountant with a master degree in accounting, has served as a Director and the chief financial officer of the Company since 2002. Mr. Wu joined the Company’s predecessor in 1981 and was appointed as the Company’s manager of the finance department in 1997. He is a graduate of the Party School of Shandong Provincial Communist Committee.

ZHANG Baocai, a senior accountant with an EMBA degree, is a Director, deputy general manager and the board secretary of the Company. Mr. Zhang joined the Company’s predecessor in 1989 and was appointed as the head of the planning and finance department of the Company in 2002. He was appointed as a Director and the board secretary of the Company in 2006 and a deputy general manger of the Company in 2011. Mr. Zhang is a graduate of Nankai University.

DONG Yunqing, a professor-level senior administrative officer, has served as a Director and the chairman of the labor union of the Company since 2002. Mr. Dong joined the Company’s predecessor in 1981 and was the vice chairman of the labor union of Yankuang Group from 1996 to 2002. Mr. Dong was appointed as a Director and the chairman of the labor union of the Company in 2002. He is a graduate of Central Communist Party School Correspondence Institute.

Independent Non-executive Directors

WANG Xianzheng, a professor-level senior engineer with university education, is currently a president of China Coal Industry Association and a member of the sixteenth session of China Central Discipline Inspection Committee. Mr. Wang was appointed as a vice minister of Ministry of Coal Industry and a party member from April 1995 to March 1998. He was appointed as the deputy head of the State Coal Industry Bureau, deputy head and a party member of the State Administration of Coal Mine Safety from March 1998 to August 2000. Mr. Wang was the vice governor of Shanxi province from August 2000 to May 2002 and became a standing member of the provincial committee in October 2001. From May 2002 to February 2005, he was appointed as the head and the party committee secretary of the State Administration Bureau of Work Safety (the State Administration of Coal Mine Safety). From February 2005 to May 2008, Mr. Wang was appointed as the deputy head and vice secretary to the party committee of the State Administration of Work Safety. Mr. Wang has been the president of China Coal industry Association since January 2007. Mr. Wang is also an independent director of Beijing Haohua Energy Resource Company Ltd. He is a graduate of Fuxin School of Mining.

CHENG Faguang, is a senior accountant with post-graduate education. Mr. Cheng was appointed as the vice governor of the people’s government of Ningxia Hui Autonomous Region from May 1988 to May 1992. He was a standing member and the execuitive vice governor of the party committee of Ningxia Hui Autonomous Region from May 1992 to March 1994. Mr. Cheng was appointed as the chairman, president and secretary to the party committee of China Haohua Chemical (Group) Corporation, which was under the Ministry of Chemical Industry from March 1994 to May 1996. From May 1996 to May 2003, Mr. Cheng was the deputy head and a party member of the State Administration of Taxation. He was a member of the Financial and Economic Affairs Committee of the tenth National People’s Congress from March 2003 to March 2008. He is a graduate of the Central University of Finance and Economics.

WANG Xiaojun, a solicitor admitted in England and Wales and Hong Kong, is a holder of master’s degree in law and a partner of Jun He Law Offices. He was admitted in the PRC, Hong Kong and England and Wales in 1988, 1995 and 1996, respectively. Mr. Wang has worked as a legal adviser in the Hong Kong Stock Exchange and Richards Butler. He was an independent non-executive Director of the Company from 2002 to 2008. Meanwhile, Mr. Wang is also an independent non-executive director of the Guangzhou Shipyard International Company Limited, Zijin Mining Group Company Limited, Norinco International Cooperation Ltd and Euro-Asia Agricultural (Holdings) Company Limited. He is a graduate of the People’s University of China and the Graduate School of the Chinese Academy of Social Sciences.

XUE Youzhi, holder of a master degree in corporate management, a doctor’s degree in economics and a doctor’s degree in business management , is currently the vice president, a professor and a doctoral tutor in the School of Business of Nankai University. Mr. Xue has extensive experience in economics management and completed various of projects supported by National Social Science Fundation. Mr. Xue became the vice dean of the School of Business of Nankai University in 2005. Meanwhile, he is also an independent non-executive director of Xinjiang Tianshan Livestock Technology Company Limited. He is a graduate of Jilin University.

Supervisors

SONG Guo, a professor-level senior administrative officer with an EMBA degree, is the chairman of the supervisory committee of the Company and a deputy secretary of the party committee of the Yankuang Group. In 2002, Mr. Song was the officer-in-charge of the office of Coal Management Bureau of Shandong Province. He joined the Yankuang Group in 2003 and served as the secretary of the disciplinary inspection committee from 2003 to 2007. He was appointed as a deputy secretary of the party committee of the Yankuang Group in 2004 and the vice chairman of the supervisory committee of the Company in 2005. In 2008, Mr. Song became the chairman of the supervisory committee of the Company. He is a graduate of Nankai University.

ZHOU Shoucheng, a professor-level senior administrative officer with a master’s degree, was appointed the vice chairman of the supervisory committee of the Company in 2008 and has served as the secretary of the disciplinary inspection committee and the chairman of the labor union of the Yankuang Group since 2007. Mr. Zhou joined the predecessor of the Company in 1979 and has held the posts of the secretary of the Youth League committee of Yankuang Group, the secretary of the party committee of Beisu Coal Mine and the secretary of the party committee and the vice manager of Xinglongzhuang Coal Mine successively from 1984 to 2002. He was the chairman of the labor union of the Yankuang Group from 2002 to 2007. Mr. Zhou is a graduate of Central Communist Party School Correspondence Institute.

ZHANG Shengdong, a senior accountant, has been a supervisor of the Company since 2002.He is also the assistant to the general manager, the deputy chief accountant and the head of the finance department of the Yankuang Group. Mr. Zhang joined the Company’s predecessor in 1981 and became the head of the finance department of the Yankuang Group in 2002. He also became the deputy chief accountant of the Yankuang Group, a supervisor of the Company, the head of the finance company preparatory office of the Yankuang Group in 2002. Mr. Zhang was appointed as the assistant to the general manager of Yankuang Group in 2008. He is a graduate of China University of Mining and Technology.

ZHEN Ailan, a senior accountant and senior auditor, was appointed a supervisor of the Company in 2008. She has served as the deputy director of the audit department of the Yankuang Group since 2005. After joining the Company’s predecessor in 1980, she was appointed to the deputy chief of the audit division of the Yankuang Group in 2002 and subsequently promoted to the deputy director of the audit department in 2005. In 2008, Ms. Zhen became a Supervisor of the Company. Ms. Zhen is a graduate of Northeastern University of Finance and Economics.

WEI Huanmin, a professional level senior administrative officer, was appointed the supervisor and the secretary of the disciplinary inspection committee of the Company in 2008 and 2006, respectively. Mr. Wei joined the Company’s predecessor in 1984, and served as the Company’s deputy secretary of the disciplinary inspection committee and the chief of the division of inspection from 2002 to 2006, when he was promoted to the secretary of the disciplinary inspection committee. In 2008, Mr. Wei became an Employee Supervisor of the Company. Mr. Wei is a graduate of Central Communist Party School Correspondence Institute.

XU Bentai, a professional level senior administrative officer with a master’s degree, has been the employee supervisor of the Company since 2002 and the chairman of the labor union of Jining III Coal Mine since 1999. Mr. Xu joined the Company’s predecessor in 1978 and became an employee supervisor of the Company in 2002. Mr. Xu is a graduate of the Party School of Shandong Provincial Communist Committee.

Other Executive Officers

JIN Tai, a researcher in engineering technique application with a master’s degree, has served as a deputy general manager of the Company since 2004. Mr. Jin joined the Company’s predecessor in 1968, and became the deputy general manager of Yankuang Group in 2000. He became the head of Xinglongzhuang Coal Mine in 1998. Mr. Tai is a graduate of China University of Mining and Technology.

HE Ye, a researcher in engineering technology application, with a doctorate degree in engineering, has served as a deputy general manager of the Company since 2004. Mr. He joined the Company’s predecessor in 1993 and became the head of Jining II Coal Mine in 1999. In 2002, he was appointed the executive deputy general manager of an industrial company that is a subsidiary of Yankuang Group in 2002. Mr. He is a graduate of China University of Mining and Technology.

LAI Cunliang, a senior engineer with a mastermaster’s degree in mining engineering and an executive MBAEMBA degree, has served as a deputy general manager of the Company since 2005. Mr. Lai joined the Company’s predecessor in 1980 and became the head of Xinglongzhuang Coal Mine in 2000. He has been a director and the general manager of Yancoal Australia Pty since 2004. Mr. Lai became a deputy general manager of the Company in 2005 and became an executive director of Yancoal Australia in 2009. He is a graduate of China University of Mining and Technology and Nankai University.

QU Tianzhi, a researcher in engineering technique application, with a doctorate degree in engineering, has served as a deputy general manager of the Company since 2006. Mr. Qu joined the Company’s predecessor in 1985 and became the head of Dongtan Coal Mine in 2000. Mr. Xu is a graduate of China University of Mining and Technology.

TIAN Fengze, a senior economist with a mastermaster’s degree, has served as a deputy general manager of the Company since 2002. Mr. Tian joined the Company’s predecessor in 1976 and became the head of Beisu Coal Mine in 1991. Mr. Tian is a graduate of Party School of Shandong Provincial Communist Committee.

SHI Chengzhong, a researcher in engineering technique application with an EMBA degree and the mastera master’s degree ofin mining engineer, has served as a deputy general manager of the Company since 2002. Mr. Shi joined the Company’s predecessor in 1983 and became a deputy chief engineer of the Yankuang Group in 2000. Mr. Shi is a graduate of Northeastern University and Nankai University.

NI Xinghua, a researcher in engineering technique application with a mastermaster’s degree, has been the chief engineer of the Company since 2002. Mr. Ni joined the Company’s predecessor in 1975 and became a deputy chief engineer of the Yankuang Group in 2000. Mr. Ni is a graduate of Tianjin University.

Appointment of the General Manager

Reaching the age of retirement, Mr. Yang Deyu, the former general manager of the Company, tendered a letter of resignation to the Board on July 23, 2009 to resign from his position as general manager. At the seventh meeting of the fourth session of the Board held on July 24, 2009, Mr. Li Weimin was appointed the Company’s general manager to fill the vacancy.

Appointment of DirectorDirectors, Chairman and Vice Chairman of the Board

Mr. Yang Deyu, the former Vice Chairman of the Board, tendered his resignation to the Board on December 31, 2009, resigning from his positions as a Director and Vice Chairman of the Company. At the first extraordinary general meeting of 2010 of the Company and the thirteenth meeting of the fourth session of the Board held on February 26, 2010, Mr. Li Weimin was elected as non-independent director and vice chairman of the fourth session of the Board.

At the seventeenth meeting of the fourth session of the Board held on December 30, 2010, Mr. Li Weimin and Mr. Wang Xin were elected as the chairman and the vice chairman of the fourth session of the Board, respectively.

At the 2010 Annual General Meeting held on May 20, 2011, Mr. Li Weimin, Mr. Wang Xin, Mr. Shi Xuerang, Mr. Wu Yuxiang and Mr. Zhang Baocai were re-elected as directors of the fifth session of the Board upon their retirement by rotation at the conclusion of 2010 Annual General Meeting. Mr. Zhang Yingmin was elected as a director of the fifth session of the Board at the 2010 Annual General Meeting held on May 20, 2011.

Mr. Dong Yunqing was re-elected as the employee director of the fifth session of the Board by the employees of the Company.

Mr. Wang Xianzheng, Mr. Cheng Faguang, Mr. Wang Xiaojun and Mr. Xue Youzhi were elected as independent non-executive directors of the fifth session of the Board at the 2010 Annual General Meeting held on May 20, 2011.

At the first meeting of the fifth session of the Board held on May 20, 2011, Mr. Li Weimin and Mr. Wang Xin were elected as the chairman and the vice chairman of the fifth session of the Board, respectively.

Resignation and Retirement of Directors

Mr. Geng Jiahuai, the former Vice Chairman of the Board and Director of the Company submitted his resignation report to the Board on December 30, 2010, effective immediately.

Mr. Chen Changchun, the former Director of the Board, submitted his resignation report to the Board on March 9, 2011, effective immediately.

Mr. Wang Xinkun retired as director of the Board by rotation at the conclusion of 2010 Annual General Meeting. Mr. Pu Hongjiu, Mr. Zhai Xigui, Mr. Li Weian and Mr. Wang Junyan retired as independent non-executive directors by rotation at the conclusion of 2010 Annual General Meeting.

Appointment of Supervisors, Chairman and Deputy Chairman of the Supervisory Committee

At the 2010 Annual General Meeting held on May 20, 2011, Mr. Song Guo, Mr. Zhou Shoucheng, Mr. Zhang Shengdong and Ms. Zhen Ailan were elected as the non-worker representative supervisors of the fifth session of the supervisory committee of the Company.

Mr. Wei Huanmin and Mr. Xu Bentai were elected as the worker representative supervisors of the fifth session of the supervisory committee by the employees of the Company.

At the first meeting of the fifth session of the supervisory committee held on May 20, 2011, Mr. Song Guo and

Mr. Zhou Shoucheng were elected as the chairman and the deputy chairman of the fifth session of the supervisory committee.

Change of the Senior Management

Mr. Qu Tianzhi, former vice general manager of the Company resigned from his position on August 27, 2010 as a result of a change of employment.

At the twentieth meeting of the fourth session of the Board held on March 25, 2011, Mr. Zhang Yingmin was appointed as the general manager of the Company and Mr. Zhang Baocai was appointed a deputy general manager of the Company.

At the first meeting of the fifth session of the Board held on May 20, 2011, Mr. Zhang Yingmin was appointed as the general manager of the Company and Mr. Jin Tai, Mr. Heye, Mr. Lai Cunliang, Mr. Tian Fengze, Mr. Zhang Baocai and Mr. Shi Chengzhong were appointed as deputy general managers. Mr. Wu Yuxiang was appointed as chief financial officer and Mr. Ni Xinghua was appointed as chief engineer at the same meeting.

B.Compensation

TheFour Directors and four supervisors receive salaries from our Controlling Shareholder, while the rest of our Directors, supervisors and executive officers who are our employees receive compensation in the form of salaries, housing allowances and other allowances and benefits, including pension contributions. The aggregate amount of cash remuneration paid by us in 20092010 to Directors, supervisors and executive officers was RMB4.3 million.approximately RMB5.8 million (tax inclusive). In addition, Directors and supervisors receive other benefits, such as subsidized or free health insurance and transportation, which are customarily provided by PRC enterprises to their senior-level employees. We did not pay any discretionary bonus during the reporting period of this annual report to our Directors, supervisors or executive officers. Details of each of the directors’Directors’ and supervisors’ salaries and benefits are as follows:

 

  For the Year Ended December 31, 2009  For the Year Ended December 31, 2010 
  Fees  Salaries,
allowance and
other benefits
in kind
  Retirement
benefit plan
contributions
  Total  Fees   Salaries,
allowance and
other benefits
in kind
   Retirement
benefit plan
contributions
   Total 
  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000   RMB’000   RMB’000 

Independent Non-Executive Directors

                

Pu Hongjiu

  109  —    —    109   113     —       —       113  

Zhai Xigui

  109  —    —    109   113     —       —       113  

Li Weian

  109  —    —    109   113     —       —       113  

Wang Junyan

  109  —    —    109   113     —       —       113  
                            
  436  —    —    436   452     —       —       452  
                            

Directors

                

Wang Xin

  —    —    —    —     —       —       —       —    

Geng Jiahuai

  —    —    —    —     —       —       —       —    

Yang Deyu

  —    148  29  177

LI Weimin

   —       188     38     226  

Shi Xuerang

  —    —    —    —     —       —       —       —    

Chen Changchun

  —    —    —    —     —       —       —       —    

Wu Yuxiang

  —    220  44  264   —       269     54     323  

Wang Xinkun

  —    250  50  300   —       343     69     412  

Zhang Baocai

  —    220  44  264   —       312     62     374  

Dong Yunqing

  —    220  44  264   —       309     62     371  
                            
  —    1,058  211  1,269   —       1,421     285     1,706  
                            

Supervisors

        

Song Guo

  —    —    —    —  

Zhang Shengdong

  —    —    —    —  

Zhou Shoucheng

  —    —    —    —  

Zhen Ailan

  —    —    —    —  

Wei Huanmin

  —    220  44  264

Xu Bentai

  —    259  52  311
            
  —    479  96  575
            

  For the Year Ended December 31, 2009  For the Year Ended December 31, 2010 
  Fees  Salaries,
allowance and
other benefits
in kind
  Retirement
benefit plan
contributions
  Total  Fees   Salaries,
allowances and
other benefits
in kind
   Retirement
benefit plan
contributions
   Total 
  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000   RMB’000   RMB’000 

Supervisors

        

Song Guo

   —       —       —       —    

Zhang Shengdong

   —       —       —       —    

Zhou Shoucheng

   —       —       —       —    

Zhen Ailan

   —       —       —       —    

Wei Huanmin

   —       305     61     366  

Xu Bentai

   —       346     69     415  
                
   —       651     130     781  
                

Other Members of Management

                

Li Weimin

  —    61  12  73

Jin Tai

  —    61  13  74   —       189     38     227  

Zhang Yingmin

  —    61  12  73   —       189     38     227  

He Ye

  —    61  12  73   —       188     38     226  

Tian Fengze

  —    221  44  265   —       291     58     349  

Shi Chengzhong

  —    250  50  300   —       342     68     410  

Qu Tianzhi

  —    250  50  300   —       285     57     342  

Lai Cunliang

  —    540  —    540   —       664     —       664  

Ni Xinghua

  —    250  50  300   —       328     66     394  
                            
  —    1,755  243  1,998   —       2,476     363     2,839  
                            

Total

  436  3,292  550  4,278   452     4,548     778     5,778  
                            

 

C.Board Practices

Board of Directors

Directors are elected to serve three year terms. We have adopted cumulative voting for the election of a new Board of Directors.

Pursuant to our Articles of Association, the Board of Directors is accountable to shareholders in general meeting and exercises the following functions and powers:

 

 (i)convening shareholders’ meetings and reporting on the work of the Board of Directors at suchgeneral meetings;

 

 (ii)implementing resolutions passed by the shareholders inat general meetings;

 

 (iii)determining our business plans and investment proposals;

 

 (iv)formulating our annual preliminary and final budgets;

 

 (v)formulating our profit distribution proposal and loss recovery proposals;

 

 (vi)formulating proposals for the increase or reduction of our registered capital and the issuance of our debentures or other forms of securities;

 

 (vii)drawing up plans for our merger, division, dissolutionmaterial acquisitions, repurchases of shares of the Company, mergers, divisions, dissolutions or changechanges of corporate structure;

 

 (viii)deciding on our internal management structure;

 

 (ix)appointing or removing our general manager and secretary of the board and appointing or removing the deputy general manager(s) and other senior officers (including the financial controller(s) of the Company) based on the recommendationrecommendations of the general manager, to decide on their remuneration and determining their remuneration;matters relating to awards and penalty;

 

 (x)formulating our basic management system;

 

 (xi)formulating proposals for any amendment of the Articles of Association;

 (xii)deciding on our business involving overseas investments, acquisitionacquisitions and disposaldisposals of assets, mortgages of assets and other guarantees, financialentrusted assets management and connected transactions within the authority conferred by the general meeting;

 

 (xiii)managing the disclosure of information regarding us;relating to the Company;

 

 (xiv)making recommendations on the appointment or replacement of the Company’s independent auditors to shareholders at shareholders’ general meetings;

 

 (xv)reviewing management’s performance based on the working report submitted by management;

 (xvi)approving an aggregate amount of provision for impairment of assets not more than 10% of our latest audited consolidated net asset value, clearing an amount of provision for impairment of assets not more than 5% of our latest audited consolidated net asset value, and executing and clearing any provision of impairment of assets involving connected transactions in compliance with relevant connected transaction regulations; and

 

 (xvii)exercising any other powers specified by the law, administrative regulations, departmental rules, the Articles of Association and conferred by shareholders inat a general meeting.

Except for matters specified in (vi), (vii) and (xi), which require the affirmative vote of more than two-thirds of all of the Directors, resolutions in respect of the above listed matters can be approved by a simple majority of the Directors.

The Board of Directors makes decisions on the company’s scope of authority and inspection and decision making procedures with respect to company matters relating to foreign investment, asset sales and purchases, foreign investment, mortgages, guarantee provisions, entrusted asset management and connected transactions and, if a major investment involved, should appoint experts and professionals to make an assessment and submit such assessment to the shareholders’ meeting for approval.

With the approval of over two-thirds of all Directors, the Board of Directors may make decisions on the following matters:

 

 (1)transactions falling within the strictest of the following limitlimits with respect to asset sales and purchases, foreign investment (including entrusted financial management and entrusted loans), financial assistance provisions, leasing of assets as lessor or lessee, restructuring of claims or debts, giving or receiving assets as a gift, entrusted or trusted asset or business management, license agreements, and research and development projects:

 

 a.the total assets value (where book value and assessed value are available, whichever is higher) involved in a single transaction iswith amount more than 5%10% and below 25%50% of the Company’s latest audited total asset value;value prepared in accordance with the PRC GAAP; or more than 5% and less than 25% of the Company’s latest published total assets value prepared in accordance with the IFRS;

 

 b.a single investment representingof which the completion consideration (including liabilities and expenses) accounts for more than 5%10% and below 25%less than 50% of the Company’s latest audited net asset value;value prepared in accordance with the PRC GAAP; or more than 5% and less than 25% of the total market capitalisation of the Company (which is calculated by the average closing price of the Company’s shares as stated in the Hong Kong Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of a transaction);

 

 c.the latest annual income from principal operations of the subject of a single transaction involvingwhich accounted for more than 10% and less than 50% of the Company’s latest audited income from principal operations for the latest financial year prepared in accordance with the PRC GAAP; or more than 5% and less than 25% of the Company’s latest audited income from principal operations for the latest financial year;year prepared in accordance with the IFRS; and

 

 d.the latest annual net profit of the subject of a single transaction representingwhich accounted for more than 10% and less than 50% of the Company’s latest audited net profit for the latest financial year prepared in accordance with the PRC GAAP; or more than 5% and less than 25% of the Company’s latest audited net profit for the latest financial year.year prepared in accordance with the IFRS.

The above transactions that involve a public offer of securities, which requires the approval of the China Securities Regulatory Commission, shall be subject to a vote inat the shareholders’ general meeting;

 

 (2)a single loan representing more than 10% and less than 10%25% of the Company’s most recently audited net asset value if the debt ratio to the Company’s assets remains under 60%80% after such financing;

 

 (3)mortgages or pledges of assets so long as the cumulative outstanding amount is less than 30% of the Company’s most recently audited net asset value;

 

 (4)external guarantees that do not require the approval of the shareholders pursuant to the Articles of Association; and

 

 (5)connected transactions, which must be conducted in accordance with the relevant regulations of competent securities authorities and the listing rules of applicable stock exchanges.

The transactions referred to in item (1) above that involve the provision of financial assistance and entrusted financial management isare calculated on an accrued basis for twelve consecutive months according to the transaction categories and applicable approval limit proportion of the Board of Directors. When the Company conducts transactions other than those involving the provision of financial assistance and entrusted financial management, applicable approval limit proportion of the Board of Directors regarding each transaction which is under the same category shall be calculated on the principle of accrued basis for twelve consecutive months. Transactions already approved by the Company in accordance with the principle of accrued basis shall not be included in the scope of accrual calculation.

Provision

Provisions of regulatory authorities that the Company is subject to within and outside the PRC that isare of a stricter standard than this Articlethese Articles of Association shall apply accordingly.

In addition to obligations imposed by laws, administrative regulations or the listing rules of the stock exchanges on which our Shares are listed, the Articles of Association place on each Director, supervisor, general manager, deputy general manager and any other senior officer a dutythe following duties to each shareholder, in the exercise of his or her functions and powers entrusted to such person:powers:

 

to act honestly in our best interests;

 

not to expropriate our property in any way, including (without limitation) usurpation of opportunities which benefit us; and

 

not to expropriate the individual rights of shareholders, including (without limitation) rights to distributions and voting rights, save and except pursuant to our restructuring which has been submitted to the shareholders for their approval in accordance with the Articles of Association.

The Articles of Association further place on each Director, supervisor, general manager, deputy general manager and senior officer:

 

a duty to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances in the discharge of his or her duties;

 

a fiduciary obligation not to have interests that conflict with the Company’s;

 

a duty not to direct a person or entity related or connected to the Director, supervisor, general manager, deputy general manager or senior officer in certain relationships enumerated in the Articles of Association to act in a manner which such person is prohibited from doing; and

 

a duty not to cause us to exceed the scope of business stipulated in our business license;license.

Subject to compliance with relevant laws and administrative regulations, theThe shareholders in a general meeting may by ordinary resolution remove any Director or supervisor before the expiration of his or her term of office. Subjectoffice if such Director fails to certain qualifications, a Director, supervisor, general manager, deputy general manager or otherperform any of the Director’s duties. A senior officer of the Company may be relieved of liability for a specific breach ofremoved by the Board if he or she fails to perform his or her duties by the informed consent of shareholders in a general meeting.duty.

Directors’ Decision-making Risk Fund

As approvedUpon approval by our shareholders inat the 2004 annual shareholders’ general meeting, we established a Directors’ Decision-making Risk Fund (“Risk Fund”) to compensate theour Directors, supervisors, executive officers and other applicable personnel for personal economic losses resulting from their performance of duties in accordance with the laws, regulations or our Articles of Association or while attempting to procure legitimate benefits for our Company.

Directors, Supervisors and Management’s Indemnification

As approved inUpon approval at the 2009 general meeting that was held on June 25, 2010, we continued to purchase liability insurance for our Directors, supervisors and senior officers with an coverage of up to US$15 million.

Audit Committee of the Board of Directors

As approvedUpon approval at the first meeting of the fourthfifth session of the Board held on June 27, 2008,May 20, 2011, the Company set up our audit committee of the fourthfifth session of the Board. The audit committee comprises four independent non-executive Directors, namely Mr. Pu Hongjiu, Mr. Zhai Xigui, Mr. Li Weian andCheng Faguang, Mr. Wang Junyan,Xianzheng, Mr. Wang Xiaojun, Mr. Xue Youzhi, and twoone non-executive Directors, namely Mr. Chen Changchun and Mr. Dong Yunqing. Mr. Zhai XiguiCheng Faguang serves as the Chairman of the audit committee.

The audit committee is mainly responsible for ensuring the independence of the company’s independent auditors to maintain the integrity of audits, ensuring the efficiency of audit procedures, proposing the appointment or replacement of independent audit agencies; reviewing the accounting policies of the Company, the disclosure of the financial information and the procedures for preparing financial reports; and reviewing the Company’s internal control and risk management systems. The details of the responsibilities of the audit committee can be found on our Company’s website.

The members of the audit committee of our Board of Directors are:

 

Name

    Age    

Position

  Ownership
of Shares

ZHAI Xigui

  67  Independent non-executive director  0

PU Hongjiu

  73  Independent non-executive director  0

LI Weian

  53  Independent non-executive director  0

Name

  Age   

Position

  Ownership
of Shares
CHENG Faguang   68    Independent non-executive director, Chairman of the Audit Committee  0
WANG Xianzheng   64    Independent non-executive director  0
WANG Xiaojun   57    Independent non-executive director  0

Name

    Age    

Position

  Ownership
of Shares
  Age   

Position

  Ownership
of Shares

WANG Junyan

  39  Independent non-executive director  0

CHEN Changchun

  57  Affiliated director  0

XUE Youzhi

   46    Independent non-executive director  0

DONG Yunqing

  55  Employee director  0   55    Employee director  0

As a foreign private issuer, we rely on the exemption under Section 303A.00 of the NYSE Listed Company Manual as well as affiliated director and employee director exemptions as provided under Rule 10A-3 of the Exchange Act to be in compliance with the audit committee standards set out in Section 303A.06 of the NYSE Listed Company Manual. See “Item 16D. Exemptions from the Listing Standards For Audit Committees”.

Compensation Committee

The Compensation Committee of the fourthfifth session of the Board was set up following approval from the Board at the first meeting of the fourthfifth session of the Board held on June 27, 2008.May 20, 2011. Our compensation committee consists of three members: two independent non-executive directors, namely Mr. Li WeianXue Youzhi and Mr. Wang JunyanXiaojun, and one employeenon-executive director, namely Mr. Dong Yunqing. Mr. Li WeianXue Youzhi was elected to serve as the chairman of the compensation committee. The primary duties of our compensation committee as set out in the committee charter include drafting and establishing a compensation policy for our Directors, supervisors, and the senior officers and making recommendations on the compensation for our Directors, supervisors and the senior officers. Further details on the responsibilities of the compensation committee can be found on our website.

Nomination Committee

Pursuant to approval granted at the first meeting of the fifth session of the Board held on May 20, 2011, we established the Nomination Committee of the first session of the Board (the “Nomination Committee”). The Nomination Committee consists of three Directors, namely Mr. Li Weimin, Mr. Wang Xiaojun and Mr. Cheng Faguang. Mr. Wang Xiaojun serves as the chairman of the Nomination Committee. The main duties of the Nomination Committee include (i) considering and formulating the selection criteria and procedures for directors and managers and making recommendations; (ii) extensively searching for suitable candidates of directors and managers for the Company and making recommendations to the Board; (iii) reviewing the candidates for directors and managers for recommendation to the Board regarding proposed appointments and succession of directors and managers for recommendation to the Board; and (iv) assessing the independence of independent non-executive directors.

Strategy and Development Committee

Pursuant to approval granted at the first meeting of the fifth session of the Board held on May 20, 2011, we established the Strategy and Development Committee of the fifth session of the Board (the “Strategy and Development Committee”). The Strategy and Development Committee consists of five Directors, namely Mr. Li Weimin, Mr. Wang Xin, Mr. Zhang Baocai and Mr. Xue Youzhi. Mr. Li Weimin serves as the chairman. The main duties of the Strategy and Development Committee include: (i) conducting studies and making proposals regarding the long-term development strategy and significant investment decisions of the Company; (ii) conducting studies and making proposals regarding the annual strategic development and operating plans; (iii) supervising the implementation of the Company’s strategic and operating plans; and (iv) conducting studies and making proposals regarding other significant issues impacting the development of the Company.

Supervisory Committee

Our supervisory committee consists of six members, two of whom are employee representatives. Supervisors serve a term of three years and attend Board meetings. The supervisory committee is accountable to shareholders and exercises the following duties in accordance with law:the applicable laws:

 

review our periodic reports as prepared by the Board of Directors and provide written comments;

 

review our financial position;

 

supervise the Directors general manager, deputy general managers and other senior officers and to ensure that they do not act in contraventionpropose removal of a Director or a senior officer who has contravened any law, administrative regulation, or ourthese Articles of Association and recommend the dismissal of those who do;or resolutions passed at a shareholders’ general meeting;

 

demand any Director general manager, deputy general manager or any other senior officer who acts in a manner which is harmful to our interest to rectify such behavior;

 

verify financial information such as financial reports, business reports and profit distribution plans to be submitted by the Board of Directors to shareholders’ general meetings and if necessary, authorizeauthorise, in the audit or examinationCompany’s name, publicly certified and practising accountants to assist in the re-examination of such financial information;information should any doubt arise in respect thereof;

propose the convening of shareholders’ extraordinary general meetings and extraordinary board meetings;meetings. Where the Board of Directors fails to convene or hold the general meeting of shareholders in accordance with the provisions of the Company Law, to convene and hold the shareholders’ general meeting;

 

make proposals at the shareholders’ general meetings;

 

represent the Company in negotiations with or in bringing actionsproceedings against a Director or senior officers;officers in accordance with section 152 of the Company Law;

 

conduct investigation intoof any identified irregularities in the Company’s operations; and

 

other functions and powers specified in our Articles of Association.

Nomination and Corporate Governance

As of December 31, 20092010 the Yankuang Group held 2,600,000,000 Shares, representing 52.86% of our total shares on the same day. As the Yankuang Group holds more than 50% of our voting power, we are a “controlled company” under Section 303A.00 of the NYSE Listed Company Manual. As a result, we are not required to establish a Nomination Committee or Corporate Governance Committee under Sections 303A.04 and 303A.05 of the NYSE listing rules and have not done so. For details related to our corporate governance policies, please refer to “Item 16G — Corporate Governance”.

Arrangement to Purchase Equity or Debt Securities and Other Arrangements

At no time during the year ended December 31, 2009,2010 were we, our Controlling Shareholder or any of the Yankuang Group’s subsidiaries, a party to any arrangement that enabled our Directors or supervisors to acquire benefits through the acquisition of any securities, including our equity or debt securities, with the exception of the A Shares issued to certain of our Directors, supervisors and senior management.

There is no arrangement or understanding between any Director and any major shareholder, customer or supplier in connection with the selection of such Director.

Service Contracts of Directors and Supervisors

Each of theour Directors and supervisors has entered into a service contract with us. Under suchthose contracts, each executive director will receive a salarythe salaries and a discretionary year-end bonus, which isbonuses paid to the Directors and supervisors, are proposed by the Board of Directors and approved by our shareholders inat general meetings. The discretionary year-end bonuses paid to our executive directorsDirectors and other employees (including, but not limited to, our other Directors, supervisors and executivesenior officers) in any given year may not, in aggregate, exceed 1% of our net profit after(after taxation and extraordinary losses, but before extraordinary gainsgains) for that year.

No Director or supervisor has entered into any service contract with our Company which cannot be terminated by us within one year without payment other than statutory compensation.

 

D.Employees

General

The table below sets forth the number of our employees by function as of the periods indicated:

 

  As of December 31,  As of December 31,   As of May 31, 
  2007  2008  2009  2008   2009   2011 

Coal production employees

  28,098  32,297  34,516   32,297     34,516     36,364  

Engineers and technicians

  1,599  1,662  1,816   1,662     1,816     1,873  

Management and administrative personnel

  2,732  2,895  3,595   2,895     3,595     4,036  

Support staff

  10,354  10,535  9,706   10,535     9,706     10,010  
         
            

Total

  42,783  47,389  49,633   47,389     49,633     52,283  
                     

The table below sets forth the numbera breakdown of our employees by location as of DecemberMay 31, 2009:2011:

 

Location

  Employees    % of Total    Employees   % of Total 

PRC

        

Shandong

  49,093  98.92%   50,634     96.85

Shaanxi

  196  0.39%   183     0.35

Shanxi

  318  0.64%   293     0.56

Inner Mongolia

   58     0.11

Australia

  26  0.05%   1,115     2.13
              

Total

  49,633  100.0%   52,283     100
              

The total remuneration of our employees includes wages and allowance.allowances. We paid our employees an aggregate of approximately RMB2,005.4 million, RMB2,448.8 million, RMB2,985,5 million and RMB2,985,54,086.8 million in wages and allowanceallowances in the years ended December 31, 2007, 2008, 2009 and 2009,2010, respectively. The compensation of an employee directly involved in underground mining is based on the employee’s productivity, as well as the productivity of the employee’s mining team. Our employees and their families also receive certain social welfare benefits and education and health services indirectly through the Yankuang Group. These benefits are provided in some cases by the Yankuang Group as required by PRC laws, rules and regulations. We, in turn, make payments topay the Yankuang Group for such benefits.

According to the Provision of Insurance Fund Administrative Services Agreement and the annual caps from 2009 to 2011, the Yankuang Group will provide free management services for the contributions that we make to an endowment insurance fund, basic medical insurance fund, supplementary medical insurance fund, unemployment insurance fund and maternity insurance fund for our employees. We paid RMB838.8an aggregate of approximately RMB1,045.3 million to thesethe above listed insurance funds in 2009.2010.

In 2007, 2008, 2009 and 2009,2010, we paid pension contributions for our Directors, supervisors, executive officers and senior management of approximately RMB378,000, RMB509,000, RMB550,000 and RMB550,000RMB778,000, respectively. In addition, each of our employeeemployees currently pays a percentage of his or her salary as an additional pension contribution. Upon retirement, our employees are entitled to pension payments under the pension plan.

As of the date of this annual report, all of our employees are employed under employment contracts thatwhich specify the employee’s position, responsibilities, remuneration and permissible grounds for termination. We have a labor union that protects employees’ rights, assists usaims to achieveassist in the achievement of our economic objectives, encourages employee participation in management decisions and assists in mediating disputes between union members and us. Each of our operating units has a labor union. We have not experienced any strikes or other labor disturbances that has interfered with our operations, and we believe that we maintain strong relationships with our employees.

All employees who are unable to work due to illness or disability are entitled to certain benefits during the period of their absence from the work. In addition, the PRC government requires us to provide casualty and life insurance for each employee who works underground in mining sites through work injury funds. We contribute an amount to the work injury fund equivalent to 2% of each employee’s total remuneration the prior year.

Medical Insurance Plan

In accordance with the relevant regulations of the Shandong Provincial People’s government, since 2002, we have established a basic medical insurance plan for employees, which comprises basic medical insurance and supplementary medical insurance plans.

In 2009,2010, we set aside 6% and 4% of the total wages of each employee to a basic medical insurance fund and a supplementary medical insurance, respectively. TheProduction personnel’s supplementary medical insurance of production staff was recorded in our statement of income as “wages“Wages and employee benefits”Employee Benefits” under “cost“Cost of saleSale and service provided”Service Provided”, while that of management and administrative personnelpersonnel’s supplementary medical insurance was recorded under “selling, general“Selling, General and administrative expenses”Administrative Expenses”.

Housing Plan

Under the Labor and Service Supply Agreement, the Controlling Shareholder is partly responsible for providing housing accommodations to our employees. We and the Controlling Shareholder share the incidental expenses relating to the provision of housing accommodation on a pro rata basis based on our respective number of employees and other negotiations. Such expenses amounted to RMB86.3approximately RMB86.2 million, RMB86.2RMB140.0 million and RMB140.0 million for 2007, 2008, 2009 and 2009,2010, respectively.

SinceBeginning in 2002, we have paid toeach of our employees a housing allowance, which is calculated based on a fixed percentage of each employee’s wage to assist employees in their purchase of residential housing. In 2007, 2008, 2009 and 2009,2010, we paid housing allowances to employees that amounted to RMB176.2 million,an aggregate of approximately RMB193.6 million, and RMB238.5 million respectively.and RMB247.7 million, respectively, for our employees’ housing allowances.

 

E.Share Ownership

No Director, supervisor or member of senior management who received compensation as described in subsection B above owns more than one percent of our outstanding Shares. See “Item 6. Directors, Supervisors, Senior Management and Employees — A. Directors, Supervisors and Senior Management.”Management”.

We have not granted and have no plan to grant options for our sharesShares or other equity-linked securities to our employees. We have not and have no plan to implement any share bonus scheme for employees.

ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A.Major Shareholders

As of December 31, 2009,2010, the Yankuang Group owned 52.86% of our share capital. As a majority shareholder, the Yankuang Group is able to make most of the decisions reserved for shareholders.

The following table sets forth certain information regarding ownership of our capital stock as of December 31, 20092010 by all persons who are known by us to own beneficially more than 5% of our capital stock.

 

Title of Class

  Identity of Person or Group Shares Owned as of
December 31, 2009
  Percentage of Shares as of
December 31, 2009
   

Identity of Person or Group

  Shares Owned as  of
December 31, 2010
   Percentage of Shares as of
December 31, 2010
 

Ordinary Shares in the form of legal person shares

  Yankuang Group 2,600,000,000  52.86  Yankuang Group   2,600,000,000     52.86

Ordinary Shares in the form of H Shares

  HKSCC Nominee  Limited(1) 1,954,155,146  39.73  HKSCC Nominee Limited(1)   1,951,633,946     39.68

 

(1)As the nominee of the clearing and settlement agent for our H Shares, HKSCC Nominee Limited is the record holder of our H Shares.

The following table sets forth the substantial shareholders of our H Shares as of December 31, 2010.

Name of substantial shareholders

 

Class
of
shares

 Number
of shares
held
(shares)
  

Capacity

 

Type of
interest

 Percentage
in the

relevant
class of

share
capital of
the
Company
  Percentage
in total

share
capital of
the

Company
 

JP Morgan Chase & Co.

 H Share  

 

 

 

 

274,853,588

 

4,139,412

 

95,507,480

(L) 

 

(S) 

 

(P) (2) 

 

Beneficial owner,

 

Investment manager and custodian corporation / Approved lending agency

 Corporate  

 

 

 

 

14.03

 

0.21

 

4.88

%(L) 

 

%(S) 

 

%(P) 

  

 

 

 

 

5.59

 

0.08

 

1.94

%(L) 

 

%(S) 

 

%(P) 

Templeton Asset Management Ltd.

 H Share  235,912,000(L)  

Investment manager

 Corporate  12.05%(L)   4.80%(L) 

BNP Paribas Investment Partners SA

 H Share  117,641,207(L)  

Investment manager

 Corporate  6.00%(L)   2.39%(L) 

(1)The letter “L” denotes a long position. The letter “S” denotes a short position. The letter “P” denotes interests in a lending pool.
(2)The long positions in H Shares included 8,706,640 H Shares, which were held in the capacity of beneficial owners, 170,639,468 H Shares were held by investment managers and 95,507,480 H Shares were held as interests of controlled custodian corporation/approved lending agent. The aggregate interests of short positions in H Shares were held in the capacity of beneficial owners. Among the aggregate interests of long position in H Shares, 81,736 H Shares were held as derivatives. Among the aggregate interests of short position in H Shares, 1,939,412 H Shares were held as derivatives.

Except as described in the table above, we are not aware of any holder of more than 5% of any class of our shares. Our major shareholders do not have voting rights different from those of other shareholders. All of our ordinary shareholders enjoy equal voting rights for each share that they hold.

To our knowledge, other than the Yankuang Group, which owns 52.86% of our Shares, we are not owned or controlled, directly or indirectly, by any other corporation, government, or other natural or legal person or persons, jointly or severally. We are not aware of any arrangement which may at a subsequent date result in a change of control over us.

 

B.Related Party Transactions

Our connected transactions were mainly made with Yankuang Group (together withthe Controlling Shareholder (including its subsidiaries) for the provision of materials and services, giving rise to the continuing connected transactions described below, and asset purchase transactions.

Financial ServicesContinuing Connected Transactions

Upon our restructuring for listing, the Controlling Shareholder, the Yankuang Group, injected its major assets and business relating to coal production and operations into the Company, while the Yankuang Group continues to provide products, materials, services and logistics support services to the Company through its remaining businesses and utilizing its remaining assets. In 2007, the Board approved the joint establishment ofaddition, Yankuang Finance, amonga joint venture established by the Yankuang Group, China Credit Trust Co., Ltd.Ltd and us.the Company, started to provide financial services after its commencement of operation in November 2010. As both the Yankuang Finance is intendedGroup and the Company are located in Zoucheng City of Shandong Province, we are able to facilitateobtain a steady supply of materials, ancillary support services, financial and other services from the Yankuang Group, which may minimize the operational risks, financing costs and financing risks and in turn have a positive impact on our results of operations. In addition, the Yankuang Group purchases products and materials from us at market price, which may secure part of our sales market. Therefore, the continuing connected transactions among member companies by accepting deposits fromare necessary and making loanswill continue.

Pursuant to members and handling transfers and settling funds among member companies. The China Banking Regulatory Commission approvedapproval granted at the establishment of Yankuang Financesecond extraordinary general meeting held on November 16, 2009, andDecember 23, 2008, the Company entered into a capital contribution agreementfive continuing connected transaction agreements with the Yankuang Group, namely the Materials Supply Agreement, Supply of Labor and China Credit Trust Co., Ltd. on April 20, 2010. The proposed registered capital of the company is RMB500.0 million, of which we have contributed RMB125.0 million in cash, representing an equity interest of 25%. As of the date of this annual report, the procedures for establishing Yankuang Finance have not been completed.

Our Board approved the continuing connected transactions that may take place in connectionServices Agreement, Pension Fund Management Agreement, Coal Products and Materials Supply Agreement and Electricity and Heat Energy Supply Agreement, together with Yankuang Finance after its establishment and set the annual caps for such transactions as follows:

deposit servicesfrom 2009 to 2011, in the ordinary course of business. We determined the prices of these transactions primarily based on government pricing. If there is no government pricing, then the market price applies. If there is no government pricing or market price, then we determine prices based on actual cost. The supply fees can be settled in one lump sum or by installments. The supply fees for each of 2010 and 2011 is RMB1.4 billion;

loan services for each of 2010 and 2011 is RMB1.0 billion; and

other financial service such as note discounts and account settlement is RMB23.5 million for 2010 and RMB28.54 million for 2011.

Approval of Continuing Connected Transaction Agreements and the Annual Caps for 2009, 2010 and 2011

As required by the rules of the Hong Kong Stock Exchange and Shanghai Stock Exchange on continuing connected transactions wewithin the same calendar month shall be settled in the following month, except those transactions which are not yet completed or those amounts which are in dispute.

Pursuant to approval granted at the necessary review and approval procedures for our continuing connected transactions andfourteenth meeting of the fourth session of the Board of the Company held on April 23, 2010, we entered into five new continuing connected transaction agreements in the fourth quarter of 2008. The term for each of these agreements is from January 1, 2009 to December 31, 2011. The new continuing connected transaction agreements include the Provision of Materials Supply Agreement, Provision of Labor and Services Supply Agreement, Provision of Insurance Fund AdministrativeFinancial Services Agreement Provision of Coal Productswith Yankuang Finance. Pursuant to the agreement, Yankuang Finance will provide us with financial services including deposit services, borrowing services and Materials Agreement and Provision of Electricity and Heat Agreement. Wesettlement services. The agreement also determinedfixed the proposed annual caps for eachthe transactions from 2010 to 2011. Yankuang Finance has agreed to charge us at same or more favorable price for its financial services, compared with those charged by the major commercial banks in the PRC for the same kind of these agreements for 2009, 2010 and 2011.

Continuing Connected Transactionsfinancial services. Fund risk control measures were also taken to safeguard the security of the fund.

The continuing connected transactions between our Company and the Controlling Shareholder for the year 20092010 included the following:

Continuing Connected Transaction of Supply of Products and Services

Details of arrangement to supply products and services between our Company and Yankuang Group in 20092010 are shown in the following table.

 

Connected Transactions

  

Agreement

  Annual cap
for 2009
(RMB’000)
  Transaction
amount for 2009
(RMB’000)

Materials and facilities provided by Yankuang Group

  

Provision of Materials Supply Agreement

  600,000  598,498

Labor and services provided by Yankuang Group

  

Provision of Labor and Services Supply Agreement

  1,972,410  1,545,700

Coal and material provided to Yankuang Group

  

Provision of Coal Products and Materials Agreement

  3,700,000  2,404,021

Electricity and heat provided to Yankuang Group

  

Provision of Electricity and Heat Agreement

  310,000  204,061
   For the Year Ended December 31, 
   2009   2010 
   Amount
(RMB’000)
   % of
operating
income
   Amount
(RMB’000)
   % of  operating
income
 

Sales of goods and rendering of services by the Group to the Controlling Shareholder

   2,608,082     12.13     3,361,680     9.65  

Sales of goods and rendering of services by the Controlling Shareholder to the Group

   2,144,198     9.97     2,258,967     6.48  

Note:The listed figures are under PRC CASs.

The table below shows the effect on profits from sales of coal by the Group to the Controlling Shareholder in 2010:

   Sales income
(RMB’000)
   Operation  cost
(RMB’000)
   Gross  profit
(RMB’000)
 

Coal sold to the Controlling Shareholder

   2,672,424     1,295,783     1,376,641  

Note: The listed figures are under PRC CASs.

Continuing Connected Transaction of Pension Fund

As approved by our shareholdersPursuant to approval granted at the second 2008 extraordinary shareholders’ meeting and according to the Provision of InsurancePension Fund Administrative ServicesManagement Agreement and the annual transaction caps thereunder from 2009 to 2011, the Yankuang Group will provide free management services for contributions that we make to the endowment insurance fund, basic medical insurance fund, supplementary medical insurance fund, unemployment insurance fund and maternity insurance fund. We contributed RMB838.8an aggregate of approximately RMB1,045.3 million to the foregoing insurance funds in 2009.2010.

Continuing Connected Transaction of Financial Services

Pursuant to approval granted at the fourteenth meeting of the fourth session of the Board of the Company held on April 23, 2010, we entered into the Financial Services Agreement with Yankuang Finance on January 7, 2011, which sets forth the annual caps for such transactions in 2010 and 2011 as follows:

the maximum daily balance (including accrued interests) on our settlement account in Yankuang Finance is RMB1,400 million;

the credit facility limit for each of 2010 and 2011 is RMB1,000 million; and

the total fees for the discounted note services and other financial services is RMB28.54 million, in which the annual cap for discounted note service fees is RMB20.94 million.

As of December 31, 2010, our deposit balance in Yankuang Finance was RMB1,400 million, representing 15.9% of our total bank deposit as of December 31, 2010.

Details of the annual transaction cap for 2010 and the actual transaction amounts in 2010 for the above continuing connected transactions are shown in the following table.

Connected Transactions

  

Agreement

  Annual cap
for 2010
(RMB’000)
   Transaction
amount for  2010
(RMB’000)
 

Materials and facilities provided by Yankuang Group

  Materials Supply Agreement   660,000     421,606  

Labor and services provided by Yankuang Group

  Supply of Labor and Services Agreement   2,356,820     1,837,361  

Pension fund management provided by Yankuang Group

  Pension Fund Management Agreement   1,209,600     1,045,296  

Coal and material provided to Yankuang Group

  Coal Products and Materials Supply Agreement   4,070,000     3,126,678  

Electricity and heat provided to Yankuang Group

  Electricity and Heat Energy Supply Agreement   334,000     235,002  

Financial services provided by Yankuang Finance

  Financial service agreement    

deposit balance

     1,400,000     1,400,000  

credit facility

     1,000,000     0  

financial service fee

     28,540     0  

The table below sets forth the continuing connected transactions that we conducted with Yankuang Group or its subsidiary during the periods indicated:

   Year Ended December 31, 
   2008   2009   2010 
   (RMB’000) 

Sales Income

      

Sales of coal

   1,384,415     2,086,542     2,672,424  

Sales of auxiliary materials

   550,986     317,479     454,254  

Sales of heat and electricity

   —       204,061     235,002  
               

Total

   1,935,401     2,608,082     3,361,680  

Expenditure

      

Utilities and facilities

   376,288     39,069     34,006  

Annual fee for mining rights

   —       —       —    

Purchases of supply materials and equipment

   471,768     598,498     421,606  

Repair and maintenance services

   253,864     388,917     262,478  

Social welfare and support services

   255,265     769,561     794,621  

Technical support and training

   20,000     26,000     26,000  

Road transportation services

   86,671     79,560     64,945  

Construction services

   294,938     242,593     655,311  
               

Total

   1,758,794     2,144,198     2,258,967  

Opinions of the Independent Non-executive Directors

Our independent non-executive Directors have reviewed the continuing connected transactions that took place in 20092010 and confirmed that all such connected transactions have been: (i) entered into by us in the ordinary and usual course of our business, (ii) conducted either on normal commercial terms, or where there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favorable to us than terms available to or from independent third parties, and (iii) entered into in accordance with the relevant agreementsagreement governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole. The independent Directors also determined that the value of the connected transactions in respect of the supply of materials and services stated under “Continuing Connected Transaction of Supply of Products and Services” above did not exceed the annual cap for 20092010 approved by independent shareholders.shareholders and the Board.

Opinion of the Auditors

Pursuant to applicable regulations,Rule 14A.38 of the Hong Kong Listing Rules, the Directors have engaged ourthe auditors of the Company to perform certain agreed procedures required by the Hong Kong Listing Rules in respect of ourthe continuing connected transactions.transactions of the Group. The auditors have reported their findings following the procedures to the Directors.

The table below sets forthDirectors that the above continuing connected transactions that we conductedtransactions: (1) have received the approval of the Board; (2) are in accordance with Yankuang Group or its subsidiary during the periods indicated:pricing policies of the Company; (3) have been entered into in accordance with the relevant agreement governing the transactions; and (4) have not exceeded the relevant annual caps.

   Year Ended December 31,
   2007  2008  2009
      (RMB’000)   

Income

      

Sales of coal

  1,014,963  1,384,415  2,086,542

Sales of auxiliary materials

  595,143  550,986  317,479

Sales of heat and electricity

  —    —    204,061

Total

  1,610,106  1,935,401  2,608,082

Expenditure

      

Utilities and facilities

  377,074  376,288  39,069

Annual fee for mining rights

  12,980  —    —  

Purchases of supply materials and equipment

  454,469  471,768  598,498

Repair and maintenance services

  215,102  253,864  388,917

Social welfare and support services

  313,062  255,265  769,561

Technical support and training

  20,000  20,000  26,000

Road transportation services

  60,718  86,671  79,560

Construction services

  316,801  294,938  242,593

Total

  1,770,206  1,758,794  2,144,198

Acquisition from Connected Parties

Acquisition of Equity Interest in Hua Ju Energy

We acquired the 74% equity interest in Hua Ju Energy held by Yankuang Group for RMB593.2 million on February 18, 2009. Subsequently, we acquired an additional 21.1% of the equity interest in Hua Ju Energy from unrelated third parties for a total of RMB173.0 million. Following the completion of these acquisitions on July 29, 2009, our equity interest in Hua Ju Energy increased to 95.14%.

Purchase of the Mining Rights of Zhaolou Coal Mine by Heze Nenghua

In connection with our acquisition of Heze Nenghua from Yankuang Group in 2005, we obtained an option to purchase the mining rights of Zhaolou Coal Mine.

After Yankuang Group was granted the mining right permit of Zhaolou Coal Mine from the Ministry of Land and Resources, we exercised the option to purchase such mining rights for RMB747.3 million. On May 5, 2008, we obtained the mining rights when the relevant regulatory authorities approved the acquisition.

InstallmentInstallation Payment for the Mining Rights of Jining III Coal Mine

Pursuant to the Jining III Coal Mine Acquisition Agreement entered into between the Company and the Yankuang Group in 2000, we agreed to purchase the mining rights of Jining III Coal Mine for approximately RMB132.5 million. Payment iswas to be made in ten interest-free annual installments beginning onin 2001. Accordingly, we paid RMB13.2a total of RMB13.248 million for the mining rights to the Yankuang Group in 2009.2010. As of December 31, 2010, the total of RMB132.5 million for the mining rights of Jining III Coal Mine was paid in full.

External Connected Transactions Entered Into Jointly by Us and Related Parties

Investment in Yankuang Finance among Yankuang Group

Pursuant to approval granted at the thirteenth meeting of the third session of the Board held on August 3, 2007, we established Yankuang Finance jointly with the Yankuang Group and China Credit Trust Co., Ltd. The registered capital of Yankuang Finance is RMB500.0 million, of which we have contributed RMB125.0 million in cash, representing an equity interest of 25%. Yankuang Finance commenced its operations on November 1, 2010. Yankuang Finance provides financial services such as accepting deposits from members, inter-bank borrowings and making the bill acceptance and discount for its members.

Establishment of Future Energy

For details of our establishment of Future Energy, please see “Item 4 Information on the Company — A. History and Development of our Company — Establishment of Shaanxi Future Energy Chemical Corp. Ltd”.

Debt and debt obligations due between the Controlling Shareholder and us

The table below sets forth the balances due from/to the Controlling Shareholder between the Controlling Shareholder and us in 2010.

   Payable to related parties   Receivable from related parties 

Related Parties

  Amount involved   Remaining   Amount involved   Remaining 
   (RMB’000) 

Yankuang Group

   3,595,591     924,623     3,502,519     1,363,406  

Amounts due to the Controlling Shareholder and Its Subsidiaries

The amounts due toFor the Controlling Shareholder and its subsidiary companies do no bear interest and are unsecured. The amounts due include the present valuedetails of the balance that arose from the acquisition of the mining rights of Jining III on January 1, 2001 that are discounted using the market rate of bank borrowings. The following table sets forth the amounts due to the Controlling Shareholder and its subsidiary companies as ofsubsidiaries, please refer to “Item 5 — Operating and Financial Review and Prospects — F. Contractual Obligations — Amounts due to the dates indicated:Controlling Shareholder and Its Subsidiaries”.

Up to December 31, 2010, the Controlling Shareholder or its subsidiaries had not used our funds for nonoperational matters.

   As of
December 31,
   2008  2009
   (RMB’000)

Term for Repayment

    

Within one year

  706,328  757,882

More than one year, but not exceeding two years

  7,253  —  
      

Total due

  713,581  757,882
      

Transactions/ BalanceBalances with Other State-controlledState-owned Entities in the PRC

We operate in an economic environment currently predominated by entities directly or indirectly owned or controlled by the PRC government (“state-controlledstate-owned entities”). In addition, we are part of a larger group of companies under theour Controlling Shareholder that is controlled by the PRC government.also a state-owned entity. Apart from the transactions with the Controlling Shareholder and fellowits subsidiaries and other related partiesdisclosure disclosed above, we also conduct business with other state-controlledstate-owned entities. Our Directors consider those state-controlledstate-owned entities as independent third parties so far as our business transactions with them are concerned.

In establishing our pricing strategies and approval process for transactions with other state-controlled entities, we do not differentiate whether the counter party is a state-controlled entity or not.

Material transactions with other state-controlledstate-owned entities are as follows:

 

  Year Ended December 31,  Year Ended December 31, 
  2007  2008  2009  2008   2009   2010 
  (RMB’000)  (RMB’000) 

Trade sales

  6,035,156  10,253,998  6,970,855   10,253,998     6,970,855     9,823,814  

Trade purchases

  1,056,959  1,328,958  1,191,783   1,328,958     1,191,783     1,581,427  

Material balances with other state-controlledstate-owned entities are as follows:

 

   As of December 31,
   2008  2009
   (RMB’000)

Amounts due from other state-controlled entities

  364,420  1,101,535

Amounts due to other state-controlled entities

  294,888  359,726
   As of December 31, 
   2009   2010 
   (RMB’000) 

Amounts due from other state-owned entities

   1,101,535     1,320,801  

Amounts due to other state-owned entities

   359,726     443,403  

In addition, we have entered into various transactions, including deposit placements, borrowings and other general banking facilities, with certain banks and financial institutions that are state-controlledstate-owned entities in itsthe ordinary course of business. In view of the nature of those banking transactions, our Directors are of the opinion that separate disclosure woulddisclosures are not be necessary.

Except as disclosed above, our Directors are of the opinion that transactions with other state-controlledstate-owned entities are not significant to our operations.

Interest of Management in Certain Transactions

None of the Directors or supervisors or executive officers had, either directly or indirectly, any material interest in any significant material contract to which we were a party during the year ended December 31, 2009.2010.

 

ITEM 8.FINANCIAL INFORMATION

 

A.Consolidated Statements and Other Financial Information

You should read “Item 18. Financial Statements” for information regarding our audited consolidated financial statements and other financial information.

Significant Legal Proceedings and Arbitration

We were not involved in any other significant litigation or arbitration during the reporting period.period other than as disclosed in this report.

Dividend Policy

Pursuant to approval granted at the annual general meeting for the year 2009 held on June 25, 2010, the Company amended the terms of the Articles relating to profit distribution.

According to our Articles of Associations, we shall maintain the continuitycontinuance and stability of our profit distribution policy. We pay final dividends once a year. Shareholders shall, by way of an ordinary resolution, authorize our Board of Directors to declare and pay dividends, and we distribute interim dividends pursuant to the approval of the Boardboard and shareholders, we can distribute interim dividends.shareholders. We may distribute dividends in the form of cash or shares. Cash dividends shall account for approximately 35% of the net profit of the fiscal year after the deduction of the statutory common reserve. Pursuant to our Articles of Association, our after-tax profit shall be allocated in the following order: (1) compensation of losses if(if our statutory common reserve fund is not sufficient to compensate our losses from the previous year, we will utilize our after tax profit to compensate our losses before making any provision for the statutory common reserve fund;fund) (2) allocation to the statutory common reserve fund; (3) allocation to the discretionary common reserve fund upon approval by a resolution of a shareholders’ general meeting; and (4) dividend payments for ordinary shares.

B.Significant Changes

We have not experienced any significant changes since the date of the consolidated financial statements to the date ofin this annual report.

ITEM 9.THE OFFER AND LISTING

 

A.Offer and Listing Details

The followfollowing tables set forth a summary of the issuance of our Shares:

 

   H Shares   A Shares 
   Initial
offering
   Second
offering
   Third
offering
   Initial
offering
   Second
offering
 

Time of issuance

   March 1998     May 2001     July 2004     June 1998     January 2001  

Issue amount

   850,000,000     170,000,000     204,000,000     80,000,000     100,000,000  

As of December 31, 2009,2010, our share capital structure was as follows:

 

Type

  Number of shares  Percentage to total
shares
   Number of shares   Percentage of  total
shares
 

Listed shares with restricted trading condition

  2,600,041,800  52.8636   2,600,021,800     52.8632

Promoter Shares

  2,600,000,000  52.8627   2,600,000,000     52.8627

A Shares held by our Directors, supervisors and executive officers

  41,800  0.0009   21,800     0.0005

Listed shares without trading condition

  2,318,358,200  47.1364   2,318,378,200     47.1368

A Shares

  359,958,200  7.3186   359,978,200     7.3190

H Shares

  1,958,400,000  39.8178   1,958,400,000     39.8178

Total

  4,918,400,000  100.0   4,918,400,000     100.0

As of December 31, 2009,2010, we had 2,600,041,8002,600,021,800 listed shares that were subject to trading restrictions, substantially all of which are held by our Controlling Shareholder Yankuang Group,on behalf of the State and the remainder by our Directors, supervisors and executive officers.

In 2009,2010, the change of our listed Shares subject to trading restrictions was as follows:

 

Shareholders

  Shares subject
to trading
restrictions as
of January 1,
2009
(shares)
  Shares released
from trading
restrictions
in 2009
(shares)
  Increase in
Shares subject
to trading
restrictions
in 2009
(shares)
  Shares subject
to trading
restrictions as
of December 31,
2009
(share)
  

Basis for

imposition of

or release from

trading

restriction

Yankuang Group

  2,600,000,000  0  0  2,600,000,000  Share reform  plan(1)

Yang Deyu

  20,000  0  0  20,000  Directors, supervisors and senior management staff cannot transfer the shares held by them within six months after termination of their employment with the Company

Shareholders

  Shares subject
to trading
restrictions as
of January 1,
2009
(shares)
  Shares released
from trading
restrictions
in 2009
(shares)
  Increase in
Shares subject
to trading
restrictions
in 2009
(shares)
  Shares subject
to trading
restrictions as
of December 31,
2009
(share)
  

Basis for
imposition of

or release from

trading
restriction

 Shares subject
to trading
restrictions as
of January 1,
2010
(shares)
 Shares released
from trading
restrictions
in  2010
(shares)
 Increase in
Shares subject
to trading
restrictions
in  2010
(shares)
 Shares subject
to trading

restrictions as
of December  31,
2010
(share)
 

Basis for

imposition

of

or release

from

trading

restriction

Yankuang Group

  2,600,000,000    0    0    2,600,000,000   

Share reform plan(1)

Yang Deyu

  20,000    20,000    0    0   

Mr. Yang Deyu resigned from his position as a Director and Vice Chairman of the Company on December 31, 2009.

Wu Yuxiang

  20,000  0  0  20,000  Shares held by Directors,  20,000    0    0    20,000   

Share held by Directors, Supervisors and senior management

Song Guo

  1,800  0  0  1,800  supervisors, and executive officers  1,800    0    0    1,800   
             

Total

  2,600,041,800  0  0  2,600,041,800  —    2,600,041,800    20,000    0    2,600,021,800   

 

(1)The share reform plan was implemented April 2006 and restricted the trading of the Yankuang Group’s shares for 48 months beginning from the implementation of the reform or until certain commitments are satisfied, whichever is longer. As of the date of this annual report, certainthe Yankuang Group’s commitments have notin the share reform has been satisfiedsatisfied. Upon the Yankuang Group’s application and accordingly, the shares of Yankuang Group are still restricted from beingadministrative authorities’ approval, its share can be traded in the market.

Capitalization of Capital Reserve and Our Capital Structure:

DuringOur total shares remained the reporting period of this annual report,same in 2010, however, our capital reserve did not change. Our shareholding structure changed as follows, resulting from the release of the beginning and end of 2009 was as follows:restriction on restricted shares held by certain individuals:

 

  Number of Shares as of
January 1, 2009
  Increase/decrease in
shares during the year
  Number of Shares as of
December 31, 2009
 Number of Shares as  of
January 1, 2010
 Increase/decrease in
shares  during the year
 Number of Shares as  of
December 31, 2010
 

Restricted Shares

  2,600,041,800  —    2,600,041,800  2,600,041,800    (20,000  2,600,021,800  

Promoter Shares

  2,600,000,000  —    2,600,000,000  2,600,000,000    —      2,600,000,000  

A Shares held by our Directors, supervisors and executive officers

  41,800  —    41,800  41,800    (20,000  21,800  

Unrestricted Shares

  2,318,358,200  —    2,318,358,200  2,318,358,200    20,000    2,318,378,200  

A Shares

  359,958,200  —    359,958,200  359,958,200    20,000    359,978,200  

H Shares

  1,958,400,000  —    1,958,400,000  1,958,400,000    —      1,958,400,000  
         

Total

  4,918,400,000  —    4,918,400,000  4,918,400,000    —      4,918,400,000  

The table below sets forth certain market information relating to the H Shares, ADSs and A Shares for the periods indicated:

 

   Price per H Share
(HK$)
  Price per ADS
(US$)
  Price per A Share
(RMB)
   High  Low  High  Low  High  Low

Annual highs and lows

            

2005

  12.30  4.75  15.79  6.14  14.09  4.92

2006

  7.50  4.58  9.76  5.86  8.90  5.70

2007

  17.82  6.28  23.35  8.01  27.68  7.07

2008

  17.94  2.98  22.9  4.04  26.99  7.60

2009

  17.34  4.00  22.32  5.11  26.15  8.40

Quarterly highs and lows

            

2008

            

First quarter

  16.80  8.96  21.3  11.5  24.68  17.32

Second quarter

  17.94  10.80  22.9  14.38  26.99  13.75

Third quarter

  15.82  7.50  20.24  9.99  22.09  9.50

Fourth quarter

  8.47  2.98  10.72  4.04  12.29  7.60

2009

            

First quarter

  7.10  4.00  9.08  5.11  13.35  8.40

Second quarter

  11.70  5.55  15.00  7.33  16.81  12.60

Third quarter

  13.00  9.20  16.81  11.68  23.70  14.60

Fourth quarter

  17.34  10.48  22.32  13.52  26.15  16.95

  Price per H Share
(HK$)
  Price per ADS
(US$)
  Price per A Share
(RMB)
  Price per H  Share
(HK$)
   Price per  ADS
(US$)
   Price per A  Share
(RMB)
 
  High  Low  High  Low  High  Low  High   Low   High   Low   High   Low 

Annual highs and lows

            

2006

   7.50     4.58     9.76     5.86     8.90     5.70  

2007

   17.82     6.28     23.35     8.01     27.68     7.07  

2008

   17.94     2.98     22.90     4.04     26.99     7.60  

2009

   17.34     4.00     22.32     5.11     26.15     8.40  

2010

   25.25     14.00     32.26     18.29     33.65     14.88  

Quarterly highs and lows

            

2008

            

First quarter

   16.80     8.96     21.3     11.5     24.68     17.32  

Second quarter

   17.94     10.80     22.9     14.38     26.99     13.75  

Third quarter

   15.82     7.50     20.24     9.99     22.09     9.50  

Fourth quarter

   8.47     2.98     10.72     4.04     12.29     7.60  

2009

            

First quarter

   7.10     4.00     9.08     5.11     13.35     8.40  

Second quarter

   11.70     5.55     15.00     7.33     16.81     12.60  

Third quarter

   13.00     9.20     16.81     11.68     23.70     14.60  

Fourth quarter

   17.34     10.48     22.32     13.52     26.15     16.95  

2010

            

First quarter

   20.75     14.00     25.65     18.39     25.66     18.47  

Second quarter

   22.40     14.50     28.72     18.50     23.76     16.27  

Third quarter

   19.18     14.50     24.71     18.29     19.50     14.88  

Fourth quarter

   25.25     19.40     32.26     24.54     33.65     18.98  

Monthly highs and lows

                        

2009

            

2010

            

December

  17.34  15.00  22.32  20.31  26.15  21.39   23.80     20.90     30.72     27.46     30.74     25.77  

2010

            

2011

            

January

  20.75  15.00  25.65  19.35  25.66  19.71   26.20     22.20     33.13     28.69     30.00     23.29  

February

  16.80  14.00  21.29  18.39  21.00  18.87   23.65     21.05     30.30     27.67     28.96     24.37  

March

  18.98  16.20  24.36  21.25  21.28  18.47   29.25     23.00     36.71     29.34     36.45     27.40  

April

  22.40  18.10  28.72  23.03  23.76  19.55   32.00     28.05     39.80     35.92     39.50     33.28  

May

  21.50  15.52  27.10  19.23  23.48  18.25   32.95     27.55     41.89     35.41     35.75     29.92  

June (through June 22, 2010)

  18.44  15.74  23.82  20.04  19.49  17.42

June (through June 17, 2011)

   32.85     28.50     41.62     36.58     34.80     31.24  

As of December 31, 2009,2010, a total of 1,958,400,000 H Shares were outstanding, of which approximately 194,035,300197,441,580 H shares or 9.91%10.08% of the outstanding H Shares, were held in the form of 19,403,53319,744,158 ADSs. The outstanding ADSs were held collectively by 106111 holders of record onas of May 31, 2009.2011.

Repurchase, Sale or Redemption of H shares

The shareholders at the 2009 annual general meeting, the 2010 first domesticA shareholders’ meeting, and the 2010 first H shareholders’ meeting, each of which was held on June 25, 2010, and 2010 Annual General Meeting, held on May 20, 2011, resolved and granted the Board of Directors a general mandate to (i) repurchase H Shares up to 10% of the outstanding H Shares as of the date of the resolutions’ passage; and (ii) issue additional H shares up to 20% of the outstanding H Shares as of the date of the resolutions’ passage. During the mandate period, the Board of Directors may exercise the mandate based on our interests and market conditions, subject to the approvals of the relevant regulatory authorities and in compliance with laws, regulations and articlesthe Articles of association.Association. As of the date of this annual report, the general mandate to repurchase H Shares or issue additional H Shares has not been exercised.

The shareholder at the 2009 annual general meeting also granted the Board a general mandate to issue additional H shares not exceeding 20% of the total amount of existing issued H shares as of June 25, 2010 and make corresponding amendments to the Articles of Association where appropriate.

B.Plan of Distribution

Not applicable.

 

C.Markets

Our A Shares are listed on the Shanghai Stock Exchange under the approval of the China Securities Regulatory Commission. The principal trading market for the H Shares is the Hong Kong Stock Exchange. The ADSs have been issued by The Bank of New York Mellon, acting as Depositary Bank, and are listed on the New York Stock Exchange under the symbol “YZC”. For market price information on the exchanges on which our securities are listed, see “—“– A. Offer and Listing Details”.

 

D.Selling Shareholders

Not applicable.

 

E.Dilution

Not applicable.

 

F.Expenses of the Issue

Not applicable.

 

ITEM 10.ADDITIONAL INFORMATION

 

A.Share Capital

Not applicable.

 

B.Memorandum and Articles of Association

Since the effective date of our Articles of Association, became effective on September 25, 1997, the PRC government and other regulatory authorities have promulgated various rules, regulations and opinions includingwhich include the Securities Laws of the PRC, the General Meeting Opinions, and the Guide for Articles of Association of Listed Companies. As a listed company, we are required to incorporate these rules, regulations and opinions into our Articles of AssociationsAssociation as appropriate.

Selected Summary of theour Articles of Association

A copy of the English translation of our Articles of Association was filed with the Commission as an exhibit to our registration statement on Form F-1 under the Securities Act in connection with the global offering of our H Shares and related American Depositary Shares in 1997. The following table sets forth the dates our Articles of Association have beenwere amended or filed with the Commission, or both:

 

Date of Amendment to the Articles of Association

  

Filing

April 22, 2002

  Appendix to 2001 20-F

June 25, 2004

  Appendix to 2003 20-F

July 8, 2004

  Appendix to 2004 20-F

June 28, 2005

August 22, 2005

  Appendix to 2005 20-F

June 28, 2006

  

November 10, 2006

  Appendix to 2006 20-F

June 15, 2007

  Appendix to 2007 20-F

January 30, 2008

December 23, 2008

  Appendix to 2008 20-F

December 23, 2008

June 26, 2009

  Appendix to 2010 20-F

June 25, 2010

February 18, 2011

May 20, 2011

  

Objects and Purposes

We are a joint stock limited company established in accordance with the “Company Law”, “State Council’s Special Regulations Regarding the Issue of Shares Overseas and the Listing of Shares Overseas by Companies Limited by Share” and other relevant laws and administrative regulations of the State. We were established by way of promotion with the approval of the former State Commission for Restructuring the Economic System on September 24, 1997, as evidenced by approval document Ti Gai Sheng (1997) No. 154 of 1997. We were registered with and have obtained a business license from Shandong Provincial Administration Bureau of Industry and Commerce on September 25, 1997. Our business license number is: 370000400001016.

According to Article 12 of our Articles of Association, as amended on June 25, 2010, ourOur scope of business includes: selection and sale of coal (among others, the export of coal should be made through companies with coal export rightrights according to existing state regulations); transportation of goods through self-owned railwayrailways within the mining areas; transportation of goods through highway;highways; operation of ports; manufacture, sale, lease and repair of relevant mining equipments;equipment; production and sale of other mining materials; sale and lease of electronic equipmentsequipment and sale of parts; sale of metallic materials, electronic products, construction materials, timber, rubber products and methanol; provision of mining, science and technological services; property development within the mining areas, property leasing and provision of services such as dining and accommodation; production and sale of coal residual stones as construction materials; sale of coking coal and iron ore; import and export of goods and technology; warehousing; and automotive repairs.

Board of Directors

The Board of Directors is accountable to shareholders in general meetings and exercises the powers granted to it by the Articles of Association.

Directors who are not employee representatives are elected or removed at shareholders’ general meetings. Employee directors are elected in staff representative meetings or by other democratic methods. All Directors are elected for a term of three years, which can be renewed by re-election at the expiry of the term, unless aan Director is removed for cause during his term.

We have established a system of independent Directors and currently have four independent Directors. Independent Directors do not hold any positions in the Company other than their role as directors and do not maintain with us or our substantial shareholders anya connection thatwhich may impairhamper their independent and objective judgment. In addition to the powers granted to Directors by the Company Law and other relevant laws, regulations and the Articles of Association, independent Directors have the following powers:

 

 (i)a majority of the independent Directors must agree to the engagement of substantial connected transactions, as determined in accordance with the standards promulgated from time to time by the regulatory organizations of the place where the Company’s shares are listed, and the appointment of accounting firm(s) before submitting such decisions to the Board of Directors;

 

 (ii)a majority of the independent Directors may call an extraordinary general meeting for the Board of Directors, propose a board meeting, and publicly collect proxy votes from shareholders before shareholders’ general meetings; and

 (iii)with the consent of a majority of the independent Directors, the independent Directors may independently engage external auditors and consultants to provide auditingaudit and consultation services for specific Company matters, with the Company bearing the associated costs.

If the above recommendations are not accepted or the above powers cannot be exercised ordinarily, the Company shall disclose the circumstances accordingly.

Article 224 of our Articles of Association places a general prohibition onWhere a Director from voting, supervisor or senior officer of the Company is in respect of any way, directly or indirectly, materially interested in a contract, transaction or arrangement in whichor proposed contract, transaction or arrangement with the Company (other than his contract of service with the Company), he directly or indirectly through an associate, has a material interest. When a Director may have a conflict of interest, he mustshall declare the nature and extent of his interestinterests to the Board of Directors.Directors at the earliest opportunity, whether or not the contract, transaction or arrangement or proposal therefor is otherwise subject to the approval of the board of directors. Unless the interested Directordirector, supervisor or senior officer discloses his interests in accordance with the preceding sub-paragraph of this Article and the contract, transaction or arrangement is approved by the Boardboard of Directorsdirectors at a meeting in which the interested Directordirector, supervisor or senior officer is not counted as part of the quorum nor permitted to vote, theand refrains from voting, a contract, transaction or arrangement may bein which that Director, supervisor or senior officer is materially interested is voidable at the electioninstance of the Company.Company except as against a bona fide party thereto who did not have notice of the breach of duty by the interested director, supervisor or senior officer.

Similarly, our Articles provide that when passing a resolution in relation to a connected transaction, or where any Director or any of its associates (as defined under the Listing Rules of the Stock Exchange of Hong Kong) is connected with such resolution, such connected director must recuse himself from the Board meeting, not have any voting rights in respect thereof, not exercise any voting right on behalf of other directors and not be counted as part of the quorum of the Board of Directors’ meeting. Such board meeting can be convened where not less than half of the disinterested directors of the Company attend the meeting and any such resolutions shall be passed by at least half of the disinterested directors of the Company. If less than three disinterestednon-connected Directors attend the Board of Directors’ meeting, the connected transaction shall be submitted as a resolution at a shareholders’ general meeting of the Company.

Pursuant to Article 171,our Articles of Association, with the approval of over two-thirds of all Directors, the Board of Directors makes decisions onmay exercise its borrowing powers subject to the following matters:guidelines:

 

 (1)a single loan of more than 10% and less than 10%25% of the Company’s latest audited net asset value so long as the debt ratio to the Company’s assets remains under 60%80% after such financing; and

 

 (2)mortgages or pledges of assets the cumulative outstanding amount of which is less than 30% of the Company’s latest audited net asset value.

Remuneration of Directors are determined by resolution of the shareholders. The Articles of Association do not impose a mandatory retirement age or share ownership qualification on Directors.

Description of the Shares and Shareholder Rights

As of December 31, 2009,2010, our share capital structure consists of 4,918,400,000 ordinary shares, comprising

 

 (1)2,960,000,000 domestic shares, which represent 60.18% of our share capital, of which:

 

 a.2,600,000,000 shares, which represent 52.86% of our share capital, were held by the promoter, Yankuang Group Corporation Limited, and

 

 b.360,000,000 shares, which represent 7.32% of our share capital, were held by other shareholders; and

 

 (2)1,958,400,000 foreign H shares, which represent 39.82% of our share capital, were held by the H Shares shareholders.

Holders of our ordinary sharesShares are entitled to share in the Company’s profits, dividends and other distributions in proportion to the number of sharesShares held and are not liable for making any further contribution other than the subscription amount. Our ordinary shareholders enjoy the following rights:

 

 (i)the right to receive dividends and other distributions in proportion to the number of shares held;

 

 (ii)the right to demand the convening of a shareholders’ meeting, convene a shareholders’ meeting, attend or appoint a proxy to attend shareholders’ meetings and to vote thereat;

 

 (iii)the right of supervisingsupervisory management over our business operations and the right to present proposals or to raise queries;

 

 (iv)the right to transfer, grant or pledge shares so held in accordance with laws, administrative regulations and provisions of our Articles of Association;

 

 (v)the right to obtain relevant information in accordance with the provisions of our Articles of Association;

 

 (vi)in the event of our termination or liquidation, the right to participate in the distribution of our surplus assets in accordance with the number of shares held;

 

 (vii)for shareholders who disagree with the resolutions for the merger and separation of the Company made in a general meeting, maythe right to demand the Company to purchase their shares; and

 

 (viii)other rights conferred by laws, administrative regulations and our Articles of Association.

Voting Rights

ShareholderShareholders (including proxies), when voting at a shareholders’ general meeting, may exercise such voting rights as are attached to the number of voting shares thatwhich they hold. Each share represents one vote. Shares held by the Company do not have voting rights and these shares will not count as the total number of shares entitled to vote. Resolutions at shareholders’ general meetings shall be divided into ordinary resolutions and special resolutions. An ordinary resolution must be passed by votes representing more than half of the voting rights represented by the shareholders (including proxies) present at the meeting. A special resolution must be passed by votes representing more than two-thirds of the voting rights represented by the shareholders (including proxies) present at the meeting. Our Articles

Other than the obligations provided by the laws, administrative legislations and the listing rules of Associations provide that a controlling shareholderthe stock exchange on which the Company’s shares are listed, our Controlling Shareholder (as defined in the Articles) shall not exercise its voting rights to approve the following matters which will be prejudicial to the interests of all or some of the other shareholders.

(i)to relieve a director or supervisor of his duty to act honestly in the best interests of the Company;

(ii)to approve the expropriation by a Director or supervisor (for his own benefit or for the benefit of another person) of the Company’s assets in any way, including (without limitation) opportunities which are beneficial to the Company; and

(iii)to approve the expropriation by a Director or supervisor (for his own benefit or for the benefit of another person) of the individual rights of other shareholders, including (without limitation) rights to distributions and voting rights (save pursuant to a restructuring which has been submitted for approval by the shareholders in a general meeting in accordance with these Articles of Association).

Sources of Shareholders’ Rights

The rights and obligations of holders of H Shares and other provisions relating to shareholder protection are principally provided in the Articles of Association and the PRC Company Law. The Articles of Association incorporate mandatory provisions in accordance with the Mandatory Provisions for the Articles of Association of Companies Listed Overseas promulgated by the State Council Securities Commission and the State Restructuring Commission on August 27, 1994 (the “Mandatory Provisions”). We are further subject to management ordinances applicable to the listed companies in Hong Kong SAR and on the NYSE,United States, as our H Shares are listed on the Hong Kong Stock Exchange and the New York Stock Exchange (in the form of ADSs).

In addition, for so long as the H Shares are listed on the Hong Kong Stock Exchange, we are subject to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “HKSE Rules”), the Securities and Futures Ordinance of Hong Kong (the “SFO”) and the Hong Kong Code on Takeovers and Mergers and Share Repurchases. The Listing Agreement between us and the Hong Kong Stock Exchange further provides that we may not permit amendments to certain sections of the Articles of Association subject to the Mandatory Provisions. These sections include provisions relating to (i) varying the rights of existing share classes;classes of shares; (ii) voting rights; (iii) ourthe power of us to repurchasepurchase our own shares; (iv) rights of minority shareholders; and (v) procedures upon liquidation. In addition, certain amendments to the Articles of Association require the approval and assent of relevant PRC authorities.

Merger and Acquisition

In the event of the merger or division of our Company, a plan must be presented by our Board of Directors and approved in accordance with the procedures stipulated in our Articles of Association. Shareholders who object to the plan of merger or division will have the right to demand the Companyus or the shareholders who consentedconsent to the plan of merger or division to acquire their shares at fair market price. A resolution proposing a merger or division by our company constitutes a special document, which will be available for inspection by our shareholders.

Redemption Provisions

In accordance with the procedures set out in the Articles of Association and upon obtaining approval from relevant government authorities, we may repurchase our issued sharesShares under the following circumstances:

 

 (i)canceling sharesShares to reduce our capital;

 

 (ii)merger with another company that holds sharesShares of our Company;

 

 (iii)granting employee incentive shares;Shares;

 

 (iv)purchasing the shares of dissenting shareholders; and

 

 (v)other circumstances permitted by relevant laws and administrative regulations.

Apart from the above, the Company is not allowed to engage in the trading of its own shares.

We may repurchase shares in one of the following ways, with the approval of the relevant government authorities:

 

 (i)by making a general offer to repurchase shares of all our shareholders on a pro rata basis;

 

 (ii)by repurchasing shares through a public dealing on a stock exchange;

 

 (iii)by repurchasing shares outside of the stock exchange by means of an off-market agreement; or

 

 (iv)by other means as authorized by the competent securities authorities under the State Council.

Variation of Rights

The rights attached to any class of shares may not be varied or abrogated except with the approval of a special resolution of each class ofby all shareholders inat a general meeting, along with a special resolution of more than two-thirds of the holders of the affected class of shares at a separate meeting in accordance with the Articles of Association.

Shareholders’ Meetings and Notices

Shareholders’ general meetings are divided into annual general meetings and extraordinary general meetings. Shareholders’ general meetings shall be convened by the Board of Directors. Annual general meetings are held once every year and within six months from the end of the preceding financial year. The Board of Directors shall convene an extraordinary general meeting within two months of the occurrence of any one of the following events:

 

 (i)where the number of Directors is less than the number stipulated in the Company Law or two-thirds of the number specified in our Articles of Association;Association or is less than eight (8);

 

 (ii)where our unrecovered losses amount to one-third of the total amount of our share capital;

 

 (iii)where shareholder(s) singly or jointly holding 10% or more of our issued and outstanding voting shares request(s) in writing for the convening of an extraordinary general meeting;meeting. Within 10 days of receiving such proposal, the Board shall provide its written decision as to whether it agrees to convene such general meeting in accordance with the laws, administrative regulations and the Articles of Association.;

 

 (iv)whenever the Board of Directors deems necessary or the supervisory committee so requests;

 

 (v)other cases as provided in laws, administrative regulations and the Articles of Association; or

 

 (vi)whenever more than a half of the independent Directors so request.

When we convene a shareholders’ general meeting, written notice of the meeting shall be given 45 days before the date of the meeting (when calculating the 45 day period, the date on which the meeting is held shall not be included) to notify all of the shareholders whose names appear in the share register of the matters to be considered and the date and place of the meeting, along with the matters to be resolved in the meeting. Shareholders who intend to attend the meeting shall deliver to us their written reply concerning their attendance at such meeting 20 days before the date of the meeting. When we convene an annual general meeting, a shareholder singly or shareholders jointly holding 5% or more of the voting shares of the Company may propose new motions in writing, and we shall include in the agenda those motions which are within the authority of the shareholders’ general meeting.

When we convene a shareholders’ general meeting, the Board of Directors, the supervisory committee and shareholder(s) individually and jointly holding more than 5% of our shares have the right to propose resolutions to the Company. Shareholder(s) individually and jointly holding more than 5% of our shares may propose special resolutions in writing to the convenor 20 days before the shareholders’ general meeting is convened. The convenor shall issue a supplementary notice of the general meeting within two days after receiving the resolutions to announce the contents of the resolutions. Apart from the above, no amendment to the resolutions as set out in the notice of general meeting or proposal of new resolutions shall be made after the convenor has issued the notice of general meeting. The resolutions not set out in the notice of general meeting or failingthat fail to comply with Article 81 of the Articles of Association shall be not voted and resolved in the shareholders’ general meeting.

Limitations on Voting and Shareholding

Holders of H Shares and Domestic Shares, with minor exceptions, are entitled to the same economic and voting rights. Consistent with PRC law, the Articles of Association provide that the H Shares can only be traded by investors of Taiwan, Hong Kong, Macau and any country other than the PRC, while A Shares may be traded only by PRC investors and qualified foreign institutional investors. State-owned legal person shares can not be traded unless the approval from the relevant government authorities.

Ownership Threshold

There are no ownership thresholds above which shareholder ownership is required to be disclosed.

Changes in Registered Capital

The Company may change its registered share capital in accordance withPursuant to the Company Law, any other relevant regulatory provisions and the ArticlesArticle of Association. Article 109 provides thatAssociation, any increase or reduction in share capital must be resolved by a special resolution at a shareholders’shareholders general meeting.

Recent Amendments to the Articles of Association

During the reporting period of this annual report, we made a number of amendments to our Articles of Association. At our 2008 annual general meeting on June 26, 2009, our shareholders approved amendments to our Articles of Association regarding our business registration number, procedures for notifying creditors, cash dividend policy and use of electronic means to communicate with H Shareholders.

In addition, at our 2009 annual general meeting on June 25, 2010, our shareholders approved an amendment to our scope of business scope stated in our Articles of Association to include the “sale of coking coal and iron ore; import and export of goods and technology; warehousing; and automotive repairs.” This amendment is subjectAt the first extraordinary general meeting for the year 2011 held on February 18, 2011, our shareholders approved amendments to our Articles of Association regarding the approvalconvening of foreign tradean extraordinary general meeting, the attendance of shareholders’ general meeting, the power of the Board and economic authorities.the power of the general manager. At the 2010 annual general meeting held on May 20, 2011, our shareholders approved amendments to our Articles of Association regarding the structure of the Board and the convening of an extraordinary general meeting.

C.Material Contracts

AcquisitionShare Transfer Agreement of Shandong Hua Ju Energy Co., Ltd.Inner Mongolia Haosheng Coal Mining Company Limited between the Company, Jinchengtai, Huayi, Jiutai Technology and Jiutaimanlai

On October 24, 2008,September 6, 2010, entered into the Share Transfer Agreement with Jinchengtai, Huayi, Jiutai Technology and Jiutaimanlai . Pursuant to the Share Transfer Agreement, the Company proposed an acquisition 23.08% of equity interests held by Jinchengtai, 15.51% of equity interests held by Huayi and 12.41% of equity interests held by Jiutai Technology in Haosheng Company for the consideration of approximately RMB3,009.1 million, RMB2,022.3 million and RMB1,617.8 million, respectively. Upon completion of the Acquisition, the Company will hold a 51% equity interest in Haosheng Company. Pursuant to the Equity Transfer Agreement, the Company and other shareholders of Haosheng Company will inject further capital into Haosheng Company on a pro-rata basis so as to increase the Yankuang Group entered into an equity transfer agreement, pursuantregistered capital from RMB50 million to which, the Company agreed to purchase the 74% equity interest held by the Controlling Shareholder in Hua Ju Energy for RMB593.2RMB150 million andwithin one month after the transfer was completed on February 18, 2009. On July 24, 2009, the Company entered into acquisition agreements with three shareholders of Hua Ju Energy, pursuant to which, the Company agreed to acquire 21.14% equity interest in Hua Ju Energy at a consideration of RMB173.0 million.registration is completed.

AcquisitionDisposal of Felix Resources Limitedequity interests in Minerva Coal Mine Joint Venture in Australia

On August 13, 2009, the CompanyDecember 20, 2010, Felix, a wholly-owned subsidiary of Yancoal Australia, entered into a binding Scheme Implementationthe Minerva Joint Venture Interest Sale Agreement with FelixSojitz Coal Resources Limited,Pty Ltd, a wholly-owned subsdiary of Sojitz Corporation in Australia, to make a cash acquisitiondispose of the entireits 51% equity interest in Felixthe Minerva Coal Mine Joint Venture for approximately AUD3,333a consideration of A$201 million. This acquisition was completed on December 23, 2009.Upon completion of the disposal, we have no interest in the Minerva Mine Coal Joint Venture.

Capital ContributionFinancial Services Agreement in Relation to the Formation of thewith Yankuang Finance Company of the Group

On April 20, 2010, the CompanyJanuary 7, 2011, we entered into the “Capital ContributionFinancial Services Agreement in relationwith Yankuang Finance. Under the Financial Service Agreement, Yankuang Finance agreed to provide deposit services, loan services and miscellaneous financial services to us with transaction caps for 2010 and 2011. Pursuant to the formationagreement, the fees charged to us by Yankuang Finance for the financial services shall be in accordance with the relevant benchmark rates determined by the PBOC or the CBRC (if any), which shall not exceed those charged by the major commercial banks in the PRC for provision of same kind of financial services. The agreement also provided both parties’ risk control measures on funds to secure the safety of funds.

Deal Conclusion Letter for successful bidding of the Finance Companymining rights of Zhuan Longwan Coal Mine

On January 28, 2011, Ordos Neng Hua made a successful bid for the mining rights of Zhuan Longwan Coal Mine for consideration of RMB7,800 million. Ordos Neng Hua entered into the Deal Conclusion Letter with the Department of Land and Resources of the Group”Inner Mongolia Autonomous Region (on behalf of the Ministry of Land and Resources), confirming the successful bid for the mining rights of Zhuan Longwan Coal Mine on the same day.

Ashton Coal Joint Venture Sale Deed between White Mining (NSW) Pty Limited and Austral-Asia Coal Holdings Pty Ltd

On February 1, 2011, White Mining (NSW) Pty Limited, a wholly-owned subsidiary of Yancoal Australia, entered into the Ashton Coal Joint Venture Sale Deed with Austral-Asia Coal Holdings Pty Ltd, a wholly-owned subsidiary of Singapore IMC Group, to acquire 30% of the equity interests in the Ashton Coal Mine Joint Venture for consideration of US$250 million. As of the date of this annual report, we held 90% of the equity interests in the Ashton Coal Mine Joint Venture.

Joint Venture Agreement to Establish Future Energy

On February 25, 2011, we entered into the Joint Venture Agreement with the Yankuang Group and Shaanxi Yanchang Petroleum (Group) Corp. Ltd to establish Future Energy. Pursuant to the dominant shareholder ofJoint Venture Agreement, the Company, and Zhongcheng Entrust Co., Ltd. The registered capital of Future Energy is RMB5,400 million, in which we will contribute RMB1,350 million in cash, representing an equity interest of 25%. Future Energy will mainly engage in investment and participation in the Finance Company is RMB500.0 million,coal liquefaction project in Shaanxi Province as well as the preparation for development of which the Company contributed RMB125.0 million, representing approximately 25% of the registered capital.ancillary coal mines.

 

D.Exchange Controls

Our Articles of Association require that we pay dividends and other distributions to holders of foreign-invested sharesForeign-Invested Shares in accordance with relevant foreign exchange control regulations. If there is no applicable regulation, the exchange rate that we use to convert dividends and distributions to foreign currencies will be the average exchange rate of Renminbi to the relevant foreign currency announced by the Bank of China five business days prior to the announcement of the dividend or distribution.

The Renminbi currently is not a freely convertible currency. The PRC State Administration of Foreign Exchange (“SAFE”), under the authority of the People’s Bank of China,PBOC, controls the conversion of Renminbi into foreign currency. Under existing foreign exchange regulations, unless otherwise approved by the SAFE or exempted by relevant regulations, PRC enterprises must price and sell their goods and services in the PRC in Renminbi.

Since August 1, 2008, all foreign exchange income generated from current account transactions of PRC enterprises (including foreign-invested enterprises) may be retained by enterprises themselves or be sold to the financial institutions operating the foreign exchange settlement or sale business in accordance with relevant regulations. Foreign exchange income from loans issued by organizations outside the territory or from the issuance of bonds and shares (for example foreign exchange income received by our Company from the sale of shares overseas) is also not required to be sold to financial institutions operating the foreign exchange settlement or sale business, but may be deposited in foreign exchange accounts at the financial institutions operating foreign exchange businesses.

PRC enterprises (including foreign-invested enterprises) which require foreign exchange for transactions relating to current account items may, without the approval of SAFE, effect payment from their foreign exchange accounts at financial institutions operating foreign exchange businesses, with valid receipts and proof. Upon a board approval, foreign-invested and PRC enterprises that need foreign currency to distribute profits to their shareholders, such as our Company, may make distributions from their foreign exchange accounts or convert RMB into foreign currencies at foreign exchange businesses.

The conversion of foreign exchange inwith respect ofto capital account items, like direct investment and capital contribution, is subject to registration formalities at the foreign exchange administrative department of the State Council.

We have established a limited independent foreign currency account since 2001. The primary source of our foreign currency is revenues denominated in U.S. dollars from coal sales. We use foreign currency primarily to settle equipment and machinery purchases and pay cash dividends on our H Shares (in HK dollars). We have not experienced any shortage of foreign currency. In addition, we can exchange Renminbi for additional foreign currency from designated banks for current account transactions by presenting relevant documents to evidence foreign currency requirements in accordance with relevant regulations.

 

E.Taxation

The following summary of certain tax provisionprovisions does not address all of the tax considerations that may be relevant to each investor and is based on the tax laws, notices and treaties of the relevant jurisdictions as of the date of this annual report, all of which are subject to amendments or changes in interpretation, possibly with retroactive effect. This discussion does not deal with all possible tax consequences relating to an investment in the H Shares or ADSs. In particular, the tax consequences under state, local and other laws are not discussed. This discussion does not constitute legal or tax advice. Accordingly, potential investors are strongly urged to consult their own tax adviser to determine the tax consequences of their investment.

The People’s Republic of China

The following discussion summarizes the material PRC tax provisions relating to the ownership and disposition of H Shares or ADSs held by investors as capital assets.

Taxation on Dividends

Individual Investors. Under the Provisional Regulations of China Concerning Questions of Taxation on Enterprises Experimenting with the Share System (the “Provisional Regulations”), the Individual Income Tax Law of the PRC of 1980,1993, as last amended on December 29, 2007, and other applicable tax laws and regulations, dividends paid by Chinese companies to individuals are generally subject to a PRC withholding tax of 20%. However,Foreign persons are generally subject to a 20% withholding tax on the dividends received from Chinese companies, unless they are subject to tax relief under applicable taxation arrangement. Pursuant to the Circular on the Questions Concerning the Income Tax on the Profits for the Transfer of Shares (Equity Interests) and Dividend Received by Foreign Invested Enterprises, Foreign Enterprises and Individual Foreigners issued by the State Administration of Taxation on July 21, 1993 the PRC State Administration of Taxation issued the Notice Concerning the Taxation of Gains on Transfer and Dividends from Shares (Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and Foreign Individuals (the “Tax Notice”“Circular”). Under the Tax Notice,, dividends paid by a Chinese company to foreign persons with respect to shares listed on an overseas stock exchange (“Overseas Shares”), including the H Shares and ADSs,shares are exempt from PRC withholding taxes so long astaxes. On January 4, 2011, the Tax Notice is in effect. In a letter dated July 26, 1994 to the former State Commission for Restructuring the Economic System, the former State Council Securities Committee and the CSRC, the PRC State Administration of Taxation reiteratedissued the exemption. To date,Announcement on the List of Tax Regulations Fully or Partially Invalidated and Repealed, pursuant to which, the Circular was repealed and no longer valid. Therefore, based on our understanding, for the Company’s individual H shareholders whose names appear on the register of members of H shares of the Company, the exemption from PRC individual income tax under the Circular is no longer applicable when the Company distributes final dividend for the year ended December 31, 2010 (the “2010Final Dividend”). However, the rate of the withholding tax may be adjusted in accordance with the tax treaties or arrangements applicable to the Individual H Shareholders, pending on the further confirmation from the relevant PRC tax authorities have not collected withholding tax from dividend payments on such shares exempted under the Tax Notice. However, if the Tax Notice is withdrawn,authorities. Therefore, a 20% tax maywill be withheld for the time being on dividends2010 Final Dividends to be paid to non-PRC individual holders of H Shares or ADSs subject to reduction by an applicablepending on the further confirmation from relevant PRC tax treaty between China andauthorities. We reported the country where such holders reside.change of policy in dividend withholding tax on Form 6-K filed with the SEC on June 24, 2011. To date, the relevant tax authorities have not issued any implementation rules regarding the collection of the withholding tax

Enterprises. According to the Enterprise Income Tax Law of the People’s Republic of China effective as of January 1, 2008, the relevant regulations in the Implementing Regulations for the Law of the People’s Republic of China on Enterprise Income Tax (collectively, the “EIT Law”) and the Notice of the State Administration of Taxation on the Issues Concerning Withholding the Enterprise Income Tax on the Dividends Paid by Chinese Resident Enterprises to H Share Holders thatWhich are Overseas Non-resident Enterprises which was promulgated on November 6, 2008, where a Chinese resident enterprise pays dividends for the year of 2008 or any year thereafter to its H share holdersshareholders that are overseas non-resident enterprises, it shall withhold the enterprise income tax thereon at the uniform rate of 10%. After receiving dividends, a non-resident enterprise shareholder may submit an application to the competent tax authority to claim any treatment under a relevant tax agreement (arrangement).

Tax Treaties

Non-PRC shareholders who are residents or citizens of countries that have entered into treaties to avoid double-taxation with China may be entitled to a reduction in the withholding tax imposed on the payment of dividends. China currently has such treaties with a number of countries, including:

 

the United States;

 

Australia;

 

Canada;

 

France;

 

Germany;

 

Japan;

 

Malaysia;

 

the Netherlands;

Singapore; and

 

the United Kingdom.

Under each one of these treaties, the withholding tax imposed by China’s tax authorities is generally reduced. For example, under the treaty between China and the United States, China may tax dividends paid by us to an eligible U.S. holder up to a maximum of 10% of the gross amount of the dividend. For the purposes of this discussion, an eligible U.S. holder is a person who, by reason of domicile, residence, place or head office, place of incorporation or any other criterion of similar nature is subject to taxation in the United States.

Taxation on Capital Gains

According to the EIT Law, capital gains realized by foreign enterprises which have no establishment or residence in China or whose capital gains from China do not relate to their establishment or residence in China are generally subject to capital gains tax at the rate of 10%. According to the Tax Notice, gains realized by enterprises that are holder of Overseas Shares would, temporarily, not be subject to capital gains taxes. However, such tax exemption policy provided for in the Tax Notice was not included in the Preferential Notice.

According to the Interim Measures for Administration of Withholding at Source of Income Tax of Non-resident Enterprise, which was promulgated by the State Administration of Taxation on January 9, 2009, when two non-resident enterprises enter into an equity assignment transaction to transfer the equity of a Chinese enterprise outside the territory of China, the assigning non-resident enterprise shall pay tax withtaxes to the competent tax authority in the place where the Chinese enterprise whose equity has been transferred is located. In addition, the Chinese enterprise whose equity is being assigned shall assist the tax authority in the collection of taxapplicable taxes for the transaction.

With respect to individual holders of H Shares, the Provisions for Implementing the Individual Income Tax Law of China, as amended, provides that the leviedlevy individual income tax on the gains realized on the sale of shares will be regulated inand separate rules to be drafted by the Ministry of Finance. However, to date, no such implementing measures have been promulgated by the Ministry of Finance, and no individual income tax on gains realized on sales of shares has been levied. On June 20, 1994, February 9, 1996 and March 30, 1998, the Ministry of Finance and the State Administration of Taxation issued notices providing that gains realized by individuals were temporarily exemptedexempt from individual income tax. In addition, according to the Tax Notice, individual holders of Overseas Shares are temporarily not subject to capital gains tax. If such exemption does not applybecomes inapplicable or is not renewed, and the Tax Notice is found not to apply, a non-PRC enterprise shareholder might be subject to a 20% tax on capital gains unless reduced by an applicable double taxation treaty.under the Individual Income Tax Law of the PRC and its amendments.

Additional China Tax Considerations

Under the Provisional Regulations of the PRC Concerning the Stamp Duty, Chinese stamp duty is not imposed on the transfer of shares, such as the H Shares or ADSs, of Chinese publicly traded companies by non-Chinese investors that take place outside of China.

United States Federal Income Taxation

Investors are strongly urged to consult their own tax advisors to determine the particular United States federal, state, local, treaty and foreign tax consequences of purchasing, owning or disposing of the H Shares or ADSs.

The following is a general discussion of material United States federal income tax consequences ofrelated to purchasing, owning and disposing of the H Shares or ADSs if you are a U.S. holder, as defined below, and holdwho holds the H Shares or ADSs as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986 as amended (the “Code”). This discussion does not address all of the tax consequences relating to the ownership and disposition of the H Shares or ADSs, and does not take into account U.S. holders who may be subject to special rules including:

 

tax-exempt entities;

 

partnerships or other entities treated as partnerships for United States federal income tax purposes;

banks, financial institutions, and insurance companies;

 

real estate investment trusts, regulated investment companies and grantor trusts;

 

dealers or traders in securities, commodities or currencies;

 

U.S. holders liable for alternative minimum tax;

U.S. holders that own, actually or constructively, 10% or more of our voting stock;

 

persons who receive the H Shares or ADSs as compensation for services;

 

U.S. holders that hold the H Shares or ADSs as part of a straddle or a hedging or a conversion transaction;

 

certain U.S. expatriates; or

 

U.S. holders whose functional currency is not the U.S. dollar.

Moreover, this description does not address United States federal estate, gift or alternative minimum taxes or any state or local tax consequences of the purchase, ownership and disposition of the H Shares or ADSs.

This discussion is based on the Code, its legislative history, final, temporary and proposed United States Treasury regulations promulgated thereunder, published rulings and court decisions as in effect on the date hereof, all of which are subject to change, or changes in interpretation, possibly with retroactive effect. In addition, this discussion is based in part upon representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreements will be performed according to its terms.

You are a “U.S. holder” if you are a beneficial owner of H Shares or ADSs and are:

 

an individual citizen or resident of the United States for United States federal income tax purposes;

 

a corporation, or other entity treated as a corporation for United States federal income tax purposes, created or organized under the laws of the United States or any political subdivision thereof;

 

an estate the income of which is subject to United States federal income tax without regard to its source; or

 

a trust:

 

-

    subject to the primary supervision of a United States court and the control of one or more United States persons; or

subject to the primary supervision of a United States court and the control of one or more United States persons; or

 

-

    that has elected to be treated as a United States person under applicable United States Treasury regulations.

that has elected to be treated as a United States person under applicable United States Treasury regulations.

If a partnership (including any entity treated as a partnership for United States federal tax purposes) is a beneficial owner of the H Shares or ADSs, the treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. If an investor is a partner in a partnership that holds H Shares or ADSs, such investor should consult its tax advisor. We urge you to consult your tax advisors regarding the United States federal, state, local and non-United States tax consequences of the purchase, ownership and disposition of the H Shares or ADSs.

In general, if you hold ADSs, you will be treated as the owner of the H Shares represented by the ADSs. Exchanges of H shares for ADSs, and ADSs for H shares, generally will not be subject to United States federal income tax.

INVESTORS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSIDERATIONS APPLICABLE TO THEM RELATING TO THE OWNERSHIP AND DISPOSITION OF THE H SHARES OR ADSs, INCLUDING THE APPLICABILITY OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS OR NON-U.S. TAX LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.

Distributions on the H Shares or ADSs

Subject to the discussions below under “ — Passive Foreign Investment Company,” the gross amount of any distribution (without reduction for any PRC tax withheld) we make on the H Shares or ADSs out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) will be includible in your gross income as ordinary dividend income when the distribution is actually or constructively received by you, or by the depositary in the case of ADSs. Distributions that exceed our current and accumulated earnings and profits will be treated as a return of capital to you to the extent of your basis in the H Shares or ADSs and thereafter as capital gain. We, however, may not calculate earnings and profits in accordance with U.S. tax principles. In that case, all distributions by us to U.S. Holders will generally be treated as dividends. Any dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from United States corporations. The amount of any distribution of property other than cash will be the fair market value of such property on the date of such distribution.

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual, trust or estate in a taxable year prior to January 1, 2011 with respect to the H Shares or ADSs will be subject to taxation at a maximum rate of 15% if the dividends are “qualified dividends.” Dividends paid on H Shares or ADSs will be treated as qualified dividends if either (i) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service, or IRS, has approved for the purposes of the qualified dividend rules, or (ii) the dividends are with respect to ADSs readily tradable on a U.S. securities market, provided that we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company, or PFIC. The Agreement Between the Government of the United States of America and the Government of the People'sPeople’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income PFIC rules (the “Treaty”) has been approved for the purposes of the qualified dividend rules, and we expect to qualify for benefits under the Treaty. We are considered a qualified foreign corporation with respect to the ADSs because our ADSs are listed on the New York Stock Exchange.

The U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of common stock and intermediaries through whom such stock is held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is not clear whether we will be able to comply with them. Holders of H Shares or ADSs should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of their own particular circumstances.

If we make a distribution paid in HK dollars, you will be considered to receive the U.S. dollar value of the distribution determined at the spot HK dollar/U.S. dollar exchange rate on the date such distribution is received by you or by the depositary, regardless of whether you or the depositary convert the distribution into U.S. dollars. Any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in your income to the date you or the depositary convert the distribution into U.S. dollars will be treated as ordinary income or loss from U.S. sources.

Dividends paid by us generally will constitute income from sources outside the United States for U.S. foreign tax credit limitation purposes and will be categorized as “passive income” or, in the case of certain U.S. Holders as “general category income” for U.S. foreign tax credit purposes. We may be required to withhold PRC income tax on dividends paid to U.S. Holders on the H Shares or ADSs. Subject to various limitations, any PRC tax withheld from distributions in accordance with the Treaty may be deductible or creditable against your United States federal income tax liability.

In the event we are required to withhold PRC income tax on dividends paid to U.S. Holders on the H Shares or ADSs (see discussion under “Taxation The People’s Republic of China”), you may be able to claim a reduced 10% rate of PRC withholding tax if you are eligible for the benefits under the Treaty. You should consult your own tax advisor about the eligibility for reduction of PRC withholding tax.

You may not be able to claim a foreign tax credit (and instead may claim a deduction) for non-United States taxes imposed on dividends paid on the H Shares or ADSs if you (i) have held the H Shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss with respect to such shares, or (ii) are obligated to make payments related to the dividends (for example, pursuant to a short sale). The rules relating to the U.S. foreign tax credit are complex. U.S. Holders should consult their own tax advisors regarding the effect of these rules in their particular circumstance.

Sale, Exchange or Other Disposition

Subject to the discussions below under “—“ — Passive Foreign Investment Company,” upon a sale, exchange or other disposition of the H Shares or ADSs, you will generally recognize capital gain or loss for United States federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized and your tax basis, determined in U.S. dollars, in such H Shares or ADSs. Any gain or loss will generally be United States source gain or loss for foreign tax credit limitation purposes and as a result of the U.S. foreign tax credit limitation, foreign taxes, if any, imposed upon capital gains in respect of H Shares or ADSs may not be currently creditable. Under the Treaty, if any PRC tax was to be imposed on any gain from the disposition of H Shares or ADSs, the gain may be treated as PRC-source income. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreign withholding tax is imposed on a disposition of H Shares or ADSs, including the availability of the foreign tax credit under their particular circumstances.

If you are paid in a currency other than U.S. dollars, any gain or loss resulting from currency exchange fluctuations during the period from the date of the payment resulting from sale, exchange or other disposition is made to the date you convert the payment into U.S. dollars will be treated as United States source ordinary income or loss.

Medicare Tax on Unearned Income

Newly enacted legislation requires certain U.S. Holders that are individuals, estates or trusts to pay an additional 3.8% tax on, among other things, dividends on and capital gains from the sale or other disposition of stock for taxable years beginning after December 31, 2012. U.S. Holders that are individuals, estates or trusts should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of our common stock.

Passive Foreign Investment Company

In general, a foreign corporation is a PFIC for any taxable year in which, after applying relevant look-through rules with respect to the income and assets of subsidiaries:

 

75% or more of its gross income consists of passive income, such as dividends, interest, rents, royalties, and gains from the sale of assets that give rise to such income; or

 

50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income.

Passive income does not include rents and royalties derived from the active conduct of a trade or business. If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation'scorporation’s assets and receiving our proportionate share of the other corporation'scorporation’s income.

Based on the current and anticipated composition of our assets and income and current expectations regarding the price of the H Shares and ADSs, we believe that we should not be treated as a PFIC for U.S. federal income tax purposes with respect to our 2009 taxable year and we do not intend on or anticipate becoming a PFIC for any future taxable year. The determination of PFIC status is a factual determination that must be made annually at the close of each taxable year and therefore, there can be no certainty as to our status in this regard for the taxable year ending December 31, 2010 until the close of the 2010 taxable year. Changes in the nature of our income or assets or a decrease in the trading price of the H Shares or ADSs may cause us to be considered a PFIC in the current or any subsequent year.

If we were a PFIC in any taxable year that you held the H Shares or ADSs, you generally would be subject to special rules with respect to “excess distributions” made by us on the H Shares or ADSs and with respect to gain from your disposition of the H Shares or ADSs. An “excess distribution” generally is defined as the excess of the distributions you receive with respect to the H Shares or ADSs in any taxable year over 125% of the average annual distributions you have received from us during the shorter of the three preceding years, or your holding period for the H Shares or ADSs. Generally, you would be required to allocate any excess distribution or gain from the disposition of the H Shares or ADSs ratably over your holding period for the H Shares or ADSs. The portion of the excess distribution or gain allocated to a prior taxable year, other than a year prior to the first year in which we became a PFIC, would be taxed at the highest United States federal income tax rate on ordinary income in effect for such taxable year, and you would be subject to an interest charge on the resulting tax liability, determined as if the tax liability had been due with respect to such particular taxable years. The portion of the excess distribution or gain that is not allocated to prior taxable years, together with the portion allocated to the years prior to the first year in which we became a PFIC, would be included in your gross income for the taxable year of the excess distribution or disposition and taxed as ordinary income.

These adverse tax consequences may be avoided if the U.S. Holder is eligible to and does elect to annually mark-to-market the H Shares or ADSs. If a U.S. Holder makes a mark-to-market election, such holder will generally include as ordinary income the excess, if any, of the fair market value of the H Shares or ADSs at the end of each taxable year over their adjusted basis, and will be permitted an ordinary loss in respect of the excess, if any, of the adjusted basis of the H Shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously included in income as a result of the mark-to-market election). Any gain recognized on the sale or other disposition of the H Shares or ADSs will be treated as ordinary income. The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange or other market, as defined in the applicable Treasury regulations. The H Shares or ADSs may qualify as “marketable stock” because the ADSs are listed on the New York Stock Exchange.

A U.S. Holder'sHolder’s adjusted tax basis in the H Shares or ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. If a U.S. Holder makes a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the H Shares or ADSs are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. U.S. Holders are urged to consult their tax advisors about the availability of the mark-to-market election, and whether making the election would be advisable in their particular circumstances.

Alternatively, a timely election to treat us as a qualified electing fund would avoid the foregoing rules with respect to excess distributions and dispositions. You should be aware, however, that if we become a PFIC, we do not intend to satisfy record keeping requirements that would permit you to make a qualified electing fund election.

If you own the H Shares or ADSs during any year that we are a PFIC, you must file IRS Form 8621. The reduced tax rate for dividend income, as discussed above under “—“ — Distributions on the H Shares or ADSs,” is not applicable to a dividend paid by us if we are a PFIC for either our taxable year in which the dividend is paid or the preceding year. We encourage you to consult your own tax advisor concerning the United States federal income tax consequences of holding the H Shares or ADSs that would arise if we were considered a PFIC.

Backup Withholding and Information Reporting

In general, information reporting requirements will apply to dividends in respect of the H Shares or ADSs or the proceeds of the sale, exchange, or redemption of the H Shares or ADSs paid within the United States, and in some cases, outside of the United States, other than to various exempt recipients, including corporations. In addition, you may, under some circumstances, be subject to “backup withholding” with respect to dividends paid on the H Shares or ADSs or the proceeds of any sale, exchange or transfer of the H Shares or ADSs, unless youyou:

 

are a corporation or fall within various other exempt categories, and, when required, demonstrate this fact; or

 

provide a correct taxpayer identification number on a properly completed IRS Form W-9 or a substitute form, certifycertifying that you are exempt from backup withholding and otherwise comply with applicable requirements of the backup withholding rules.

Any amount withheld under the backup withholding rules generally will be creditable against your United States federal income tax liability provided that you furnish the required information to the IRS in a timely manner. If you do not provide a correct taxpayer identification number you may be subject to penalties imposed by the IRS. Investors should consult their own tax advisors as to their qualifications for an exemption from backup withholding and the procedures for obtaining this exemption.

Hong Kong

The following discussion summarizes the material Hong Kong tax provisions relating to the ownership of H shares or ADSs held by you.

Dividends

Under current Hong Kong Inland Revenue Department practice, no Hong Kong tax is payable by the recipient in respect of dividends paid by us.

Taxation of Capital Gains

No Hong Kong tax is imposed on capital gains arising from the sale of property (such as H shares) acquired and held as investment assets. However, if a person carries on a trade, profession or business in Hong Kong (e.g., trading and dealing in securities) and derives trading gains from that trade, profession or business in or from Hong Kong, Hong Kong profits tax will be payable. Gains from sales of H shares effected on or off the Hong Kong Stock Exchange are considered to derive from or arise in Hong Kong for this purpose. Hong Kong profits tax is currently charged at the rate of 16.5% for corporations and at the rate of 15% for individuals.

No Hong Kong tax liability will arise on capital or trading gains arising from the sale of ADSs where the purchase and sale is effected outside Hong Kong, e.g., on the NYSE.

Hong Kong Stamp Duty

Hong Kong stamp duty is payable by each of the seller and the purchaser for every sold note and every bought note created for every sale and purchase of the H shares. Stamp duty is charged at the total rate of 0.2% of the value of the H shares transferred (the buyer and seller each paying half of such stamp duty). In addition, a fixed duty of HK$5 is currently payable on an instrument of transfer of H shares. If one of the parties to a sale is a non-resident of Hong Kong and does not pay the required stamp duty, the stamp duty not paid will be assessed on the instrument of transfer (if any), and the transferee will be liable for payment of such stamp duty.

If the withdrawal of H shares when ADSs are surrendered or the issuance of ADSs when H shares are deposited results in a change of beneficial ownership in the H shares under Hong Kong law, Hong Kong stamp duty at the rate described above for sale and purchase transaction will apply. The issuance of ADSs for deposited H shares issued directly to the depositary or for the account of the depositary should not lead to a Hong Kong stamp duty liability. Holders of the ADSs are not liable for the Hong Kong stamp duty on transfers of ADSs outside of Hong Kong so long as the transfers do not result in a change of beneficial interest in the H shares under Hong Kong law.

F.Dividends and Paying Agents

Not applicable.

 

G.Statement by Experts

Not applicable.

 

H.Documents on Display

In accordance with the Exchange Act, we must file reports, including this annual report, and other information with the Commission. The reports and other information we have filed under the Exchange Act and the registration statement on Form F-1 and exhibits thereto we have previously filed with the Commission may be inspected and copied by the public at the public reference facilities maintained by the Commission at 100 F Street NE, Washington D.C. 20549, U.S.A. and will also be available for inspection and copying at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048, U.S.A. and at Northwest Atrium Center, 500 Madison Street (Suite 1400), Chicago, Illinois 60661, U.S.A. Copies of such material may also be obtained from the Public Reference Section of the Commission at 100 F Street NE, Washington D.C. 20549, U.S.A. at prescribed rates. Our annual reports and other information filed with the Commission are also available at the Commission’s website at www.sec.gov. Such reports and other information may also be inspected at the office of the New York Stock Exchange, 11 Wall Street, New York, New York 10005, U.S.A.

I.Subsidiaries

As of December 31, 2009,2010, we owned the following significant subsidiaries:

 

Name of

Subsidiary

 Country of
incorporation/
registration
and operation
 Issued and fully
paid capital/
registered capital
 Proportion of registered
capital/issued share capital
held by the Company
  Proportion
of voting
power held
  

Principal activities

   Directly  Indirectly   

Austar Coal Mine Pty Limited

 Australia AUD 64,000,000 —     100 100 Coal mining business

Felix Resources Limited

 Australia AUD 446,408,871 —     100 100 Coal mining, sales and exploration

Qingdao Free Trade Zone Zhongyan Trade Co., Ltd.

 PRC RMB 2,100,000 52.38 —     52.38 Trading and processing of mining machinery

Shandong Hua Ju Energy Co., Limited

 PRC RMB 288,589,774 95.14 —     95.14 Power and heat supply

Shandong Yanmei Shipping Co., Ltd.

 PRC RMB 5,500,000 92 —     92 Transportation via rivers and lakes and the sales of coal and construction materials

Shanxi Heshun Tianchi Energy Company Limited

 PRC RMB 90,000,000 —     81.31 81.31 Coal mining business

Shanxi Tianhao Chemicals Company Limited

 PRC RMB 150,000,000 —     99.85 99.85 Operation of methanol project

Yancoal Australia Pty Limited

 Australia AUD 64,000,000 100 —     100 Investment holding

Yanzhou Coal Shanxi Nenghua Company Limited

 PRC RMB 600,000,000 100 —     100 Investment holding

Yanmei Heze Nenghua Company Limited

 PRC RMB 1,500,000,000 96.67 —     96.67 Coal mining business

Yanzhou Coal Ordos Nenghua Company Limited

 PRC RMB 500,000,000 100 —     100 Construction of 600,000 tonne methanol project

Name of subsidiary

 Country of
incorporation/
registration
  Issued and fully
paid capital/
registered capital
  Proportion  of
registered
capital/issued share

capital held by us
  Proportion
of voting
power held
  

Principal activities

        Directly  Indirectly      

Yancoal Australia Limited

  Australia    A$64,000,000    100  —      100 

Management of investment project in Australia

Austar Coal Mine Pty Limited

  Australia    A$64,000,000    —      100  100 

Coal production, processing, washing and separation and sales

Felix Resources Limited

  Australia    A$446,408,871    —      100  100 

Coal mining, sales and exploration

Qingdao Free Trade Zone Zhongyan Trade Co., Ltd.

  PRC    RMB2,100,000    52.38  —      52.38 

International trade, processing and arranging, product exhibition, inter-trade among enterprises in the district and storage

Shandong Hua Ju Energy Co., Limited

  PRC    RMB288,589,774    95.14  —      95.14 

Power and heat supply

Shandong Yanmei Shipping Co., Ltd.

  PRC    RMB5,500,000    92  —      92 

Watercourse transportation services and the sales of coal and others

Yanzhou Coal Shanxi Nenghua Company Limited

  PRC    RMB600,000,000    100  —      100 

Management of investment project in Shanxi province

Shanxi Heshun Tianchi Energy Company Limited

  PRC    RMB90,000,000    —      81.31  81.31 

Coal mining business

Shanxi Tianhao Chemicals Company Limited

  PRC    RMB150,000,000    —      99.89  99.89 

Operation of methanol project

Yanmei Heze Nenghua Company Limited

  PRC    RMB1,500,000,000    98.33  —      98.33 

Coal resources exploration and mining in Juye coal field

Yanzhou Coal Ordos Neng Hua Company Limited

  PRC    RMB500,000,000    100  —      100 

Coal resources exploration in Inner Mongolia and construction of a 600,000-tonne methanol project

Yanzhou Coal Yulin Nenghua Company Limited

  PRC    RMB1,400,000,000    100  —      100 

Construction and operation of a 600,000-tonne methanol project

Inner Mongolia Haosheng Coal Mining Company Limited

  PRC    RMB150,000,000    51  —      51 

Project application and mining rights approvals of Shilawusu Coal Field

Name of

Subsidiary

  Country of
incorporation/
registration
and operation
  Issued and fully
paid capital/
registered capital
  Proportion of registered
capital/
issued share capital
held by the Company
  Proportion
of voting
power held
  

Principal activities

      Directly  Indirectly   

Yanzhou Coal Yulin Nenghua Company Limited

  PRC  RMB  1,400,000,000  100   100 Operation of 600,000 tonne methanol project

J.Compliance with and Exemption to Corporate Governance Standards Imposed by the New York Stock Exchange

The New York Stock Exchange (“NYSE”) has imposed a seriesFor details of corporate governance listing standards for companies listedour shareholding in indirect subsdiaries, please see “Item 4 Information on the NYSE in Section 303A of the NYSE Listed Company Manual. However, the NYSE allows listed foreign private issuers, subject to certain limitations and conditions, to follow “home country” practice in lieu of the provisions of Section 303A. To qualify for this exemption, a foreign private issuer must disclose any significant manners in which its corporate governance practices differ from those generally required under NYSE listing standards.— C. Organizational Structure”.

As of the date of this annual report, 52.86% of our voting rights are held by our controlling shareholder, Yankuang Group. We therefore are not required to comply with the majority independent requirement of Section 303A.01 when forming our board of directors. Moreover, we are not required to form a nominating, corporate governance, and compensation committee composed entirely of independent directors under the requirements of Sections 303A.04 and 303A.05.

We have established an audit committee pursuant to Section 303A.06 of the NYSE Listed Company Manual. We rely on the exemption under Section 303A.00 of the NYSE Listed Company Manual for foreign private issuers, as well as exemptions for affiliated director and employee director provided under Rule 10A-3 of the Exchange Act to comply with the audit committee requirements set out in the NYSE Listed Company Manual.

As a foreign private issuer, we are subject to more than one set of corporate governance requirements, including those applicable in our home country. In the table below, we set out material differences between our corporate governance practices and the NYSE’s corporate governance requirements as set out in Section 303A of the Listed Company Manual:

NYSE Listed Company Manual

Requirements on Corporate Governance

Our Practice

Non-management directors must meet at regularly scheduled executive sessions without managementSection 303A.03 of the Listed Company Manual requires non-management directors of each listed company to meet at regularly scheduled executive sessions without management participation.There is no identical corporate governance requirement in the PRC. We have established a reporting system to the Board to ensure that the Directors stay informed of our business and operations. We believe that convening board meetings on a regularly basis offers non-management directors an effective forum to opine their views and engage in full and open discussions regarding our business affairs.

NYSE Listed Company Manual

Requirements on Corporate Governance

Our Practice

Corporate Governance Guidelines

Section 303A.09 requires a listed company to adopt and disclose corporate governance guidelines. In addition, Section 303A.09 lists out matters that must be addressed in the guidelines:

•    director qualification standards;

•    director responsibilities;

•    director access to management and

      independent advisors;

•    director compensation;

•    director orientation and continuing

      education;

•    management succession; and

•    annual performance evaluation of the

      board.

Although we have not adopted a separate set of corporate governance guidelines encompassing all the corporate governance matters required by the NYSE, our shareholders have approved relevant corporate rules and measures to address issues pertaining to:

•    the duties, powers and responsibilities

      of shareholders, the Board, the

      Board of Supervisors, and the

      independent Directors;

•    the disclosure of information; and

•    connected transactions.

We believe that collectively, the foregoing rules and measures adequately address the corporate governance requirements of the NYSE and provide a comprehensive and detailed set of corporate governance requirements that promote the effective operation of the Company.

Code of Business Conduct and Ethics

Section 303A.10 requires a listed company to adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers from the code for directors or executive officers. The following topics must be addressed in a code of business conduct and ethics:

•    conflicts of interest;

•    corporate opportunities;

•    confidentiality;

•    fair dealing;

•    protection and proper use of company

      assets;

•    compliance with laws, rules and

      regulations (including insider trading

      laws); and

•    encouraging the reporting of any illegal

      or unethical behavior.

We have adopted a code of ethics, which is published on our website, in compliance with PRC laws and regulations as well as the rules of relevant stock exchanges. Although our current code of ethics as adopted does not completely conform to the NYSE rules, we believe that the existing code of ethics adequately protects the interests of the Company and Shareholders.

 

ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. As a global concern, we are exposed to adverse developments in foreign currency exchange rates, interest rates and commodity price risk. These exposures may change over time as our business develops and could have a material adverse impact on our financial results.

Interest Rate Risk. We are exposed to interest rate risk caused by interest ratesrate changes on our liabilities, in particular our long-term liabilities. We are also exposed to cash flow interest rate risk in relation to variable rate bank balances, term deposit,deposits, restricted cash and bank borrowings in Renminbi. Our cash flow interest rate risk is mainly concentrated on fluctuations of the PBOC benchmark lending interest rate in relation to our RMB denominated borrowings, fluctuations of LIBOR in relation to our U.S. dollar-denominated borrowings and fluctuations of the Australian BBSY in relation to our Australian dollar-denominated borrowings. We undertake debt obligations to fund our ordinary expenses, including capital expenditures and working capital needs. Upward fluctuations in interest rates increase the cost of new debt and the interest cost of outstanding variable rate liabilities. Interest rate fluctuations can also lead to significant fluctuations in the fair values of our debt obligations. The Group’sOur Australian subsidiaries also entered into contracts with banks to hedge a proportion of borrowings issued at variable interest rates through the use of floating-to-fixed interest rate swap contracts. As of December 31, 2009,2010, the outstanding notional amount was approximately RMB282RMB1,503 million, maturing within three years at a hedgean assessment period of three months with a floating rate and fixed rate of approximately 4.2783%5.09% and 5.89%5.8312%, respectively. We currently do not have an interest rate hedging policy nor do we use any derivative instruments to hedge our interest rate risk as to our operation in China.

Our exposures to interest rate risk on our financial assets and liabilities, as well as our sensitivity to interest rate fluctuation are not significant. We have prepared a sensitivity analysis to assess the impact of interest rate fluctuations on our 20092010 operating results.results, assuming the financial instruments outstanding at the end of the reporting period were outstanding for the whole year and all the variables were held constant, including the interest rate fluctuation of the abovementioned PBOC rate, LIBOR and Australian BBSY rate. Based on this analysis, we estimate that an increase in the interest rate of 1% would have decreased our reported net income attributable to our equity holders for 20092010 by approximately RMB61.8RMB71.95 million.

Foreign Currency Exchange Rate Risk. We mainly face foreign currency exchange rate risks relating to RMB fluctuations and risks stemming from exchange rate fluctuations between the Australian dollar and U.S. dollar. China has adopted a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand with reference to a basket of currencies. Exchange rate fluctuations may adversely affect the value of our net assets, earnings and any declared dividends when translated or converted into U.S. dollars or Hong Kong dollars.

RMB fluctuations mainly affect our (a) income from coal exports, which must be converted into RMB since our coal exports are denominated in U.S. dollars; (b) conversion of foreign currency deposits and loans; (c) exposure to the foreign currency loans we granted to our foreign operation;operations; and (d) costs of imported equipment and fittings.

The sales and costs of each entity in our Company are generally denominated in the functional currency of the relevant entity. Accordingly, we are not exposed to significant foreign currency risk. Our Company is primarily exposed to fluctuations in the U.S. dollar, Hong Kong dollar and Australian dollar.

The table below sets forth the foreign currency denominated assets and liabilities of the Company and its subsidiaries that are denominated in foreign currencies differentother than the functional currency of the entity that carries such assets or liabilities on its balance sheet as of December 31, 2009.2010.

 

   Liabilities  Assets
   2009  2008  2009  2008
   (RMB’000)

United States Dollars (US$)

  20,757,943  4,447  1,311,500  910,764

Euro (EUR)

  —    —    3,611  15,718

Hong Kong Dollar (HK$)

  —    —    7,309  7,286

Notional amounts to sell USD foreign exchange contracts used for hedging

  —    210,800  1,143,416  —  

Notional amounts of buy USD foreign exchange contracts used for hedging

  73,713  —    —    —  

Notional amounts of buy EUR foreign exchange contracts used for hedging

  26,541  —    —    —  

Notional amounts of buy Yen foreign exchange contracts used for hedging

  71,511  —    —    —  
   Liabilities   Assets 
   2010   2009   2010   2009 
   (foreign currencies converted into and dominated
in thousands of RMB)
 

United States dollars (US$)

   20,516,314     20,757,943     902,402     1,311,500  

Euro (“EUR”)

   —       —       222     3,611  

Hong Kong dollar (HK$)

   —       —       6,062     7,309  

Notional amounts to sell US$ foreign exchange contracts used for hedging

   —       —       4,169,000     1,143,416  

Notional amounts of buy US$ foreign exchange contracts used for hedging

   79,000     73,713     —       —    

Notional amounts of buy Euro foreign exchange contracts used for hedging

   —       26,541     —       —    

Notional amounts of buy Yen foreign exchange contracts used for hedging

   9,000     71,511     —       —    

Except as disclosed in our financial statements, we do not have a foreign currency hedging policy. However, our management monitors our foreign exchange exposure and will consider hedging significant currency exposure if the need arises.

We have prepared a sensitivity analysis to assess the impact of exchange rate fluctuations on our operating results based on a 5% increase or decrease in the exchange rates for the U.S. dollar or Hong Kong dollar against the Renminbi. The sensitivity analysis includes only outstanding monetary items denominated in foreign currencycurrencies and adjusts the translation of these monetary items as of the end of the indicated year for a 5%five percent change in the exchange rates for the relevant currency.currencies. The sensitivity analysis also assesses the impact of a 5% increase or decrease in the exchange rate for the Australian dollar against the U.S. dollar, which would affect loans to foreign operations within our GroupCompany that are denominated in a currency other than the functional currency of the lender or the borrower.

The following table sets forth our sensitivity to a 5% increase and decrease in the RMB against relevant foreign currencies. Five percent represents management’s assessment of reasonably possible changes in foreign exchange rates over the period until the next annual balance sheet date. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 5% change in foreign currency rates and also assumes all other risk variables remained constant. The sensitivity analysis includes loans to foreign operations within the Group where the denomination of the loan is in a currency other than the functional currency of the lender or the borrower.

   US$(1)  HK$(1) 
   2009  2008  2009  2008 
   (RMB’000) 

Increase (decrease) to profit and loss

     

- if RMB weakens against respective foreign currency

  49,390   58,863   274   273  

- if RMB strengthens against respective foreign currency

  (49,390 (58,863 (274 (273

 

   US$(2) 
   2009  2008 
   (RMB’000)  (RMB’000) 

Increase (decrease) to profit and loss

   

- if AUD weakens against respective foreign currency

  (739,749 (21,584

- if AUD strengthens against respective foreign currency

  739,749   21,584  
   US$(1)  HK$(1) 
   2010  2009  2010  2009 
   (RMB’000) 

Increase (decrease) to profit and loss

     

- if RMB weakens against respective foreign currency

   35,312    49,390    227    274  

- if RMB strengthens against respective foreign currency

   (35,312  (49,390  (227  (274

   US$(2) 
   2010  2009 
   (RMB’000)  (RMB’000) 

Increase (decrease) to profit and loss

   

-if A$ weakens against respective foreign currency

   (718,045  (739,749

-if A$ strengthens against respective foreign currency

   718,045    739,749  

Increase (decrease) to profit attributable to the equity holders of the Company

   

-if A$ weakens against respective foreign currency

   (725,998  (740,615

-if A$ strengthens against respective foreign currency

   725,998    740,615  

 

(1)This is mainly attributable to our exposure outstanding on the bank deposits and loans to foreign operations or subsidiaries denominated in U.S. dollars and Hong Kong dollars atas of the year end in the Group.end.

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

During the year ended December 31, 2009, the Group’s2010, our subsidiaries in Australia entered into forward foreign exchange contracts to sell or purchase specified amounts of foreign currencies in the future at stipulated exchange rates. The objective of entering into the forward foreign exchange contracts is to reduce the foreign exchange rate related volatility inof revenue streams and capital expenditures due to foreign exchange rates and thereby enhance the Group’sassist in our risk management. The outstanding contracts to sell United States dollars contracts are hedginghedge highly probable forecasted sales of coal, whereas the outstanding contracts to buy United States dollars Euro and Yen contracts relate to the purchase of mining equipment.

As of December 31, 2009,2010, the outstanding notional amount to sell United States dollars (sell United States dollars and buy Australian dollars) was approximately RMB1,143.4RMB4,169 million, all maturing within one year with forward rates ofranging approximately from 0.7661US$1.00 = A$0.8369 to 0.9044.US$1.00 = A$0.9887.

As of December 31, 2009,2010, the outstanding notional amount to buy United States dollars (buy United States dollars and sell Australian dollars), buy Euro (buy Euro and sell Australian dollars) and buy Yen (buy Yen and sell Australian dollars) was approximately RMB73.7RMB79 million, RMB26.5 millionnil and RMB71.5RMB9 million respectively, all maturing within six monthsone year with forward rates of approximately 0.753, 0.552US$1.00 = A$0.8811 and floor price and ceiling price of 71.7A$1.00 = 63.5 Yen and 72.7A$1.00 = 65 Yen, respectively.

Our Australian subsidiaries also entered into contracts with banks to hedge a proportion of borrowings issued at variable interest rates through the use of floating-to-fixed interest rate swap contracts. As at December 31, 2010, the outstanding notional amount was approximately RMB1,503 million, maturing within three years at a hedge period of 3 months with floating rate and fixed rate of approximately 5.09% and 5.8312%, respectively.

The Company also entered into contracts with three banks to hedge a proportion of borrowings issued at variable interest rates through the use of floating-to-fixed interest rate swap contracts. As of December 31, 2010, the outstanding notional amount was approximately RMB9,934 million (US$1,500 million), maturing within four years at a hedge period of three months with floating rate as LIBOR + 0.75% and fixed rate of approximately 2.75%, 2.42% and 2.41% for the three contracts respectively. The non-current portion of the derivatives is not material and is included in current portion.

For the year ended December 31, 2008,2009, no ineffective hedging portion has been included in the consolidated income statement. The effective hedging portion was recognized as current portion of derivative financial instruments in the consolidated balance sheet. For the year ended December 31, 2010, the ineffective hedging portion of the changes in fair values of the forward foreign exchange contracts of approximately RMB10.4RMB10 million was recognized as selling, general and administrative expenses in the consolidated income statement. No ineffective hedging portion has been included in the consolidated income statement for the year ended December 31, 2009. The effective hedging portion was recognized as current portion of derivative financial instruments in the consolidated balance sheet.

Commodity Price Risk. Coal prices are subject to cyclicalPrice fluctuations that reflect changes in demand and supply. Price fluctuationsmay directly affect our operating and financial performance. We have historically experienced substantial price fluctuations and believe these fluctuations will continue. We primarily face risk relating to coal price fluctuations, as well as methanol price fluctuations. The volume-weightedperiodic fluctuation in coal prices was caused by factors such as changes in macroeconomic policies, downstream demand and industrial competition. Although the average selling price of our coal productsproduct increased in 2010, the price may decrease again as a result of the adoption of macroeconomic measures, governmental control and changes in the global coal market, which may in turn adversely affect our results of operations and financial condition. For the years ended December 31, 2008, 2009 and 2010, the average coal selling price was RMB640.2RMB663.9, RMB529.2 and RMB663.5 per tonne.

Our profitability in 2008our methanol business was generally weak during 2010 as a result of overproduction, weak demand and RMB507.4negative impact brought by increased imports of methanol. We expect that methanol supply will continue to exceed market demand, which may lead to continued weak market prices. Methanol prices may also increase due to the increase in 2009.the prices of coal, natural gas, electricity and transportation, the promotion of ethanol gasoline for motor vehicles by the government and the industrial reform to be launched. However, we cannot assure you that methanol prices will not keep decreasing as the result of overproduction, uncertain demand and the increase in import methanol. All the risks mentioned above may adversely affect our results of operations.

Equity Price Risk. In addition to financial instruments, we are exposed to equity price risk because we hold investments in listed equity securities. We currently do not have any arrangements to hedge the price risk exposure of our investment in equity securities. We have conducted a sensitivity analysis and determined that our exposure to equity price risk stemming from our investment in listed equity securities is not significant.

 

ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

A.Debt Securities

Not applicable.

B.Warrants and Rights

Not applicable.

 

C.Other Securities

Not applicable.

 

D.American Depositary Shares

The following table summarizes the fees and charges that a holder of our ADSs may have to pay, directly or indirectly, in connection with the ownership of our American Depositary Receipts.

 

Persons depositing or withdrawing shares must pay:  For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)  

Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property

  

Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates

A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs  

Distribution of securities to holders of deposited securities that are distributed by the depositary to ADS registered holders

Registration or transfer fees  

Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares

Expenses of the depositary  

Cable, telex and facsimile transmissions
(when expressly provided in the deposit agreement)

  

•        Converting foreign currency to U.S. dollars

Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes  

•        As necessary

Any charges incurred by the depositary or its agents for servicing the deposited securities  

•        As necessary

The Bank of New York Mellon, as depositary, has agreed to waive certain standard fees related to the administration of our ADR program and investor relationship programs. From January 1, 20092010 to December 31 2009,2010, the total amount of the fees that were waived was approximately US$139,000.

PART II

 

ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

As of December 31, 2009,2010, we were not in default, in arrears or otherwise delinquent in the payment of principal or interest of any indebtedness or dividends.

 

ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

 

ITEM 15.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our general manager and chief financial officer, our management conducted an evaluationevaluated of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as amended) as of December 31, 2009.2010. Based on the evaluation described below, our general manager and chief financial officer concluded that, as of that date, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

Our managementManagement is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. As such, our management has designedreporting. Our internal control over financial reporting or caused internal control over financial reporting to beframework was designed under its supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control - Integrated Framework. Based on this evaluation, management concluded that our internal control over financial reporting was effective to provide reasonable assurance that the desired control objectives were achieved as of December 31, 2010.

The effectiveness of our internal control over financial reporting as of December 31, 2010 has been audited by Grant Thornton, our independent registered public accounting firm, as stated in their report which is included herein.

Limitations on Effectiveness of Controls and Procedures

Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (3) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not be able to prevent or detect misstatements on a timely basis, which may be a product of collusion, failure to abide by controls, error or fraud. In addition, projections of the internal control’s effectiveness to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or a deterioration inthat the degree of compliance with the internal control policies or procedures.

Under the supervision of and with the participation of our general manager and our chief financial officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting using criteria established in the Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As the acquisition of Felix Resources Limited was completed on December 23, 2009, our evaluation of internal control over financial reporting did not include the internal control measures of Felix Resources Limited, whose financial statements reflect total assets and revenues constituting 39% and nil percent, respectively, of our related consolidated financial statement amounts as of and for the year ended December 31, 2009. Based on its evaluation, our management has concluded that, as of December 31, 2009, our internal control over financial reporting (excluding that of Felix Resources Limited) was effective.

The effectiveness of our internal controls over financial reporting (excluding the internal control over financial reporting of Felix Resources Limited) as of December 31, 2009 has been audited by Grant Thornton, our independent registered public accounting firm, as stated in their report which is included herein.procedures may deteriorate.

Changes in Internal Control over Financial Reporting

During the fiscal yearperiod covered by this annual report, as well as following the completion of the Felix acquisition in December 2009, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT

Our audit committee consists of Mr. Zhai Xigui, Mr. Pu Hongjiu, Mr. Li Weian,Cheng Faguang, Mr. Wang Junyan,Xianzheng, Mr. Chen ChangchunWang Xiaojun, Mr. Xue Yonzhi and Mr. Dong Yunqing. Our Board of Directors has determined that Mr. Zhai XiguiCheng Faguang meets the independence requirement of Section 303A.02 of the NYSE Listed Company Manual and that he qualifies as an audit committee financial expert as the term is defined in the rules and regulations established by the SEC.

 

ITEM 16B.CODE OF ETHICS

We have adopted a code of ethics that applies to our chairman, vice chairman, chief executive officer, chief financial officer, board secretary, chief engineer, financial controller and the managers of our finance and audit departments. Our code of ethics is posted on our website atwww.yanzhoucoal.com.cn/en/governance/img/site8/20091111/0015c54657fb0c64597902.pdfwww.yanzhoucoal.com.cn. No amendments to, or waivers from, our code of ethics have been made. A copy of our code of ethics is available to any shareholder, without charge, upon written request to the address on the cover of this annual report.

 

ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES

During 2009,Upon approval at the Annual General Meeting held on June 25, 2010, Grant Thornton Hong Kong and ShineWing Certified Public Accountants were appointed as our international and domestic auditors, respectively, for the year ended December 31, 2010. Upon approval at the extraordinary general meeting held on February 18, 2011, Grant Thornton and collectively, ourGrant Thornton Jingdu Tianhua were appointed as the international auditors of the Company and its subsidiaries and should hold this office until the conclusion of the 2010 annual general meeting of the Company. Grant Thornton Jingdu Tianhua and Grant Thornton audit the financial statements of the Company with respect to the listing of the H shares on the Hong Kong Stock Exchange and reporting requirements of the Hong Kong Stock Exchange and the listing of the ADSs on the NYSE and reporting requirements of the SEC and the NYSE, respectively. Grant Thornton is therefore the principal accountants.auditor for the purpose of this filing.

Audit Fees

Audit fees primarily consist of fees for the audits of the consolidated financial statements prepared under IFRS and PRC GAAP and the statutory financial statements of our subsidiaries for the relevant year, the review of interim consolidated financial statements and the audit of our internal control over financial reporting as required by the Sarbanes-Oxley Act. Service fees denominated in Australian dollars were incurred for the audit of Yancoal Australia’s financial statements and internal control.

The following table sets forth the aggregate audit fees of our principal accountants for each of the two years ended December 31, 2009:periods indicated:

 

  Audit Fees  Audit Fees 
  (RMB)  (AUD)  (RMB)   (A$) 

2008

  6,960,000  90,000

2009

  6,960,000  610,000   6,960,000     610,000  

2010

   7,300,000     800,000  

Audit-related Fees, Tax Fees, All Other Fees

In 2009, we paid our principal accountants a consultation fee of approximately A$150,000 in relation to the acquisition of Felix. We did not incur anyother audit-related fees, tax fees or other fees for professional service rendered by our principal accountants during the last two fiscal years.

Audit Committee Pre-Approval Policies and Procedures

The audit committee of our Board of Directors is responsible for, among other things, the recommendation or termination of external auditors subject to the requirements of applicable domestic and overseas listing rules and regulations. Before our principal accountants were engaged by the Company or our subsidiaries to render audit or non-audit services, their respective engagements were approved by our audit committee. All of the audit services provided by Grant Thornton (SEC principal auditor), Grant Thornton Jingdu Tianhua (Hong Kong H Share auditor) and ShineWing Certified Public Accountants (China domestic statutory auditor) in 20092010 were pre-approved by our audit committee.

ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Our audit committee consists of four independent non-executive directors, Mr. Zhai Xigui, Pu Hongjiu, Li Weian andCheng Faguang, Mr. Wang Junyan; one affiliated director,Xianzheng, Mr. Chen Changchun;Wang Xiaojun, Mr. Xue Yonzhi and one employee director, Mr. Dong Yunqing. As a foreign private issuer, we rely on the exemption under Section 303A.06 of the NYSE Listed Company Manual, as well as exemptions for affiliated directors and employee directors as provided under Rule 10A-3 of the Exchange Act, to remain compliant with the audit committee standards set out in Section 303A.06 of the NYSE Listed Company Manual.

The affiliated director qualifiesOur connected directors do not accept any consulting fees or other compensation from our Group or any subsdiary of our Group, directly or indirectly, except for serving as members of our Board and Audit Committee, which meets the exemptionindependence requirements under Rule 10A-3(b)(1)(iv)(D)10A-3(1)(ii)(A) of the Exchange Act because, except in his capacity as a member of the Company’s Board of Directors and audit committee, he does not receive, directly or indirectly, any consulting, advisory or other compensatory fee from us or any of our subsidiaries. In addition, the affiliated director is not a voting member or the chairman of the audit committee pursuant to our audit committee charter, nor is the affiliated director one of our executive officers.Act.

The employee director qualifies for the exemption under Rule 10A-3(b)(1)(iv)(C) of the Exchange Act because he is not our executive officer and was elected to the Board of Directors of the Company pursuant to theAdvisory Opinion Regarding the Establishment of Sound Corporate Governance for Company Employee Directors and Employee Supervisors, which was promulgated by the Shandong Economic and Trade Commission on July 20, 2000.Commission. Rule 10A-3(b)(1)(iv)(C) of the Exchange Act provides an exemption to the independence requirement and permits an employee director of a foreign private issuer who is a non-executive officer who is elected or named to the foreign private issuer’s board of directors or audit committee pursuant to the issuer’s governing law or documents, an employee collective bargaining or similar agreement or other home country legal or listing requirements. The employee director is notneither a voting member ornor the chairman of the audit committee pursuant to our audit committee charter.committee.

 

ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

(a)Change of Principal Accountant

At the 2009 annual general meeting of the Company held on June 25, 2010, the shareholders of our Company approved the appointment of Grant Thornton Hong Kong as the Company’s international auditor for the year ended December 31, 2010. On November 26, 2010, it was announced that BDO and Grant Thomton Hong Kong had concluded an agreement to merge their businesses and practice in the name of BDO Limited. As a consequence of this merger, the Grant Thomton Hong Kong entity changed its name to JBPB & Co on December 10, 2010 and ceased trading. It was noted that Grant Thomton Hong Kong had ceased to be a member firm of Grant Thomton International with effect from November 23, 2010. The audit committee of our Board recommended the appointment of Grant Thornton (for the purpose of reporting to the United States Securities and Exchange Commission) and Grant Thornton Jingdu Tianhua (for the purpose of the Hong Kong H Share listing) as the international auditors to replace JBPB on December 24, 2010, which was approved by the Board on December 30, 2010. Subsequently JBPB tendered its letter of resignation, and the appointment of Grant Thornton and Grant Thornton Jingdu Tianhua as our international auditors was approved at the extraordinary general meeting held on February 18, 2011. We reported the change in our independent registered public accounting firm on Form 6-K filed with the SEC on January 3, 2011.

JBPB’s report on the Company’s consolidated financial statements as of and for the two fiscal years ended December 31, 2009 did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope, or accounting principles.JBPB’s audit report on the Company’s effectiveness of internal control over financial reporting as of December 31, 2008 contained an adverse opinion because of a material weakness. We reported the identification of the material weakness and our remediation and changes in internal control on Form 20-F filed with the SEC on June 25, 2009.

During JBPB’s tenure as the independent auditor, we did not have any disagreements with JBPB on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of JBPB, would have caused them to make reference to the subject matter of the disagreements in their report on the consolidated financial statements for such year and for such period.

During JBPB’s tenure as the independent auditor, save as disclosed above, there were no “reportable events” (hereinafter defined) requiring disclosure pursuant to Item 16F(a)(1)(v) of Form 20-F. As used herein, the term “reportable event” means any of the items listed in paragraphs (a)(1)(v)(A)-(D) of Item 16F of Form 20-F.

We provided a copy of this disclosure to JBPB and requested that JBPB furnish a letter addressed to the SEC stating whether it agrees with the above statements, and if not, stating the respects in which it does not agree. A copy of the letter from JBPB addressed to the SEC, dated June 24, 2011, is filed as Exhibit 15.3.

(b)Engagement of New Principal Accountant

On December 30, 2010, the Board appoved the proposal to appoint Grant Thornton and Grant Thornton Jingdu Tianhua as the independent registered public accounting firms of the Company and should hold office until the conclusion of the 2010 annual general meeting of the Company. On February 18, 2011, the appointment of Grant Thornton and Grant Thornton Jingdu Tianhua as our independent registered public accounting firms was approved at the extraordinary general meeting. Grant Thorton Jingdu Tianhua and Grant Thorton audit the financial statements of the Company with respect to the listing of the H Shares on the Hong Kong Stock Exchange and reporting requirements of the Hong Kong Stock Exchange and the listing of the ADSs on the NYSE and reporting requirements of the SEC and the NYSE, respectively.During the fiscal year ended December 31, 2009 and through February 18, 2011, neither we nor anyone on our behalf consulted Grant Thornton or Grant Thornton Jingdu Tianhua regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements. Also, we have not obtained any written report or oral advice that Grant Thornton and Grant Thornton Jingdu Tianhua concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) any matter that was either the subject of a “disagreement”, as that term is defined in Item 16F(a)(1)(v) of Form 20-F and related instructions to Item 16-F of Form 20-F, with Grant Thornton and Grant Thornton Jingdu Tianhua or a “reportable event”, as that term is described in Item 16F(a)(1)(v) of Form 20F).

ITEM 16G.CORPORATE GOVERNANCE

The NYSE imposes a series of corporate governance listing standards for companies listed on the NYSE in Section 303A of the NYSE Listed Company Manual. However, the NYSE allows foreign private issuers, subject to certain limitations and conditions, to follow “home country” practice in lieu of certain provisions of Section 303A. To qualify for this exemption, a foreign private issuer must disclose the significant manners in which its corporate governance practices differ from those generally required under NYSE listing standards.

As of the date of this annual report, 52.86% of our voting rights are held by our controlling shareholder, the Yankuang Group. We therefore are not required to comply with the majority of independent directors requirement of Section 303A.01 when forming our board of directors. Moreover, we are not required to form a nominating, corporate governance and compensation committee composed entirely of independent directors under the requirements of Sections 303A.04 and 303A.05.

We have established an audit committee pursuant to Section 303A.06 of the NYSE Listed Company Manual. We rely on the exemption under Section 303A.00 for foreign private issuers, as well as the exemption for employee directors provided under Rule 10A-3 of the Exchange Act to comply with the audit committee requirements set out in the NYSE Listed Company Manual.

As a foreign private issuer, we are subject to more than one set of corporate governance requirements, including those applicable in our home country. In the table below, we set out material differences between our corporate governance practices and the NYSE’s corporate governance requirements:

NYSE Listed Company Manual

Requirements on Corporate Governance

Our Practice

Non-executive directors must meet at regularly scheduled executive sessions without managementSection 303A.03 requires non-executive directors of each listed company to meet at regularly scheduled executive sessions without management participation.There is no identical corporate governance requirement in the PRC. We have established a reporting system to the Board to ensure that the Directors stay informed of our business and operations. We believe that convening board meetings on a regular basis offers non-executive directors an effective forum to opine their views and engage in full and open discussions regarding our business affairs.
Corporate Governance Guidelines

Section 303A.09 requires a listed company to adopt and disclose corporate governance guidelines. In addition, Section 303A.09 lists out matters that must be addressed in the guidelines:

•         director qualification standards;

•         director responsibilities;

•         communications between directors and the management and independent advisors;

•         director compensation;

•         director orientation and continuing education;

•         management succession; and

•         annual performance evaluation of the board.

Although we have not adopted a separate set of corporate governance guidelines encompassing all the corporate governance matters required by the NYSE, we formulated the Rules of Procedures for the Shareholders’ Meetings, Rules of Procedures for the Board Meetings, Rules of Procedures for the Supervisory Committee, Rules for the Work of the Independent Non-Executive Directors, Rules for Disclosure of Information, Rules for the Approval and the Disclosure of the Connected Transactions of the Company, and other corporate governance documentation in accordance with the regulations and requirements of listing in China.

We believe that, collectively, the foregoing rules and measures adequately address the corporate governance requirements of the NYSE and provide a comprehensive and detailed set of corporate governance requirements that promote the effective operation of the Company. This enables the promotion of the standard operation of the Company.

Code of Business Conduct and Ethics

Section 303A.10 requires a listed company to adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers from the code for directors or executive officers. The following topics must be addressed in a code of business conduct and ethics:

•         conflicts of interest;

•         corporate opportunities;

•         confidentiality;

•         fair dealing;

•         protection and proper use of company assets;

•         compliance with laws, rules and regulations (including insider trading laws); and

•         encouraging the reporting of any illegal or unethical behavior.

We have adopted a code of ethics, which is published on our website, in compliance with PRC laws and regulations as well as the rules of relevant stock exchanges. Although our current code of ethics as adopted does not completely conform to the NYSE rules, we believe that the existing code of ethics adequately protects the interests of the Company and Shareholders.

PART III

 

ITEM 17.FINANCIAL STATEMENTS

We have elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.

 

ITEM 18.FINANCIAL STATEMENTS

Our consolidated financial statements are included at the end of this annual report on Form 20-F.

ITEM 19.EXHIBITS

Documents filed as exhibits to this annual report:

 

Exhibit

Number

 

Description

  1.1Articles of Association of Yanzhou Coal Mining Limited
4.1 Scheme ImplementationShare Transfer Agreement withof Inner Mongolia Haosheng Coal Mining Company Limited, Ordos Jinchengtai Chemical Co., Ltd, Shanghai Huayi (Group) Company, Shandong Jiutai Chemical Industrial Technology Company Limited, Ordos City Jiutaimanlai Coal Mining Company Limited, Inner Mongolia Haosheng Coal Mining Limited and Yanzhou Coal Mining Company Limited
  4.2Minerva Joint Venture Interest Sale Agreement by Felix Resources Limited and Sojitz Coal Resources Pty Ltd
  4.3Financial Services Agreement by Yankuang Group Finacial Company and Yanzhou Coal Mining Company Limited
  4.4Deal Conclusion Letter Signed by Department of Land and Resources of the Inner Mongolia Autonomous Region (Entrusted by Ministry of Land and Resources of the People’s Republic of China)
  4.5Ashton Coal Joint Venture Sale Deed by White Mining (NSW) Pty Limited, Austral-Asia Coal Holdings Pty Ltd and Yancoal Australia Limited
  4.6Joint Venture Contract by Yankuang Group Company Ltd., Yanzhou Coal Mining Company Limited and Shaanxi Yanchang Petroleum (Group) Co., Ltd.
  8.1 List of subsidiaries of Yanzhou Coal Mining Company Limited
12.1 Certification of general manager pursuant to Rule 13a-14 or 15d-14 promulgated under the U.S. Securities Act of 1934
12.2 Certification of chief financial officer pursuant to Rule 13a-14 or 15d-14 promulgated under the U.S. Securities Act of 1934
13.1 Certification of general manager pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002
13.2 Certification of chief financial officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002
15.3

Consent of JBPB & Co (formerly known as Grant Thornton)

SIGNATURES

The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

 YANZHOU COAL MINING COMPANY LIMITED
 (Registrant)

Date: June 29, 201024, 2011

 By: 

/s/    LI WEIMIN        S/    ZHANG YINGMIN        

 Name: LI WeiminZhang Yingmin
 Title: General Manager


YANZHOU COAL MINING COMPANY LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 2008 AND 20072008

AND REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

CONTENTS

  

PAGE(S)

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  F-1 - F-4

CONSOLIDATED INCOME STATEMENTS

  F-5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

  F-6

CONSOLIDATED BALANCE SHEETS

  F-7

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

  F-8

CONSOLIDATED STATEMENTS OF CASH FLOWS

  F-9 & F-10

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

  F-11 - F-90F-99


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

YANZHOU COAL MINING COMPANY LIMITEDLOGOLOGO

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

We have audited the accompanying consolidated balance sheetssheet of Yanzhou Coal Mining Company Limited and its subsidiaries (the “Group”) as of December 31, 2009 and 2008,2010, and the related consolidated income statements,statement, statements of comprehensive income, changes in equity, and cash flows for each of the two years in the period ended December 31, 2009.year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.audit.

We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31, 2009 and 2008,2010, and the results of its operations and its cash flows for each of the two years in the periodyear then ended, December 31, 2009, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Group’s internal control over financial reporting as of December 31, 2009,2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 29, 201024, 2011 expressed an unqualified opinion on the Group’s internal control over financial reporting.

/s/Grant Thornton

Hong Kong

June 29, 2010

/s/ Grant Thornton
Beijing, People’s Republic of China
June 24, 2011

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

YANZHOU COAL MINING COMPANY LIMITEDLOGOLOGO

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

We have audited the internal control over financial reporting of Yanzhou Coal Mining Company Limited and its subsidiaries (the “Group”) as of December 31, 2009,2010, based on criteria established in Internal Control—Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Management’s Report on Internal Control over Financial Reporting disclosed in Item 15 of the Form 20-F (“Management’s Report”). Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit. Our audit of, and opinion on, the Group’s internal control over financial reporting does not include internal control over financial reporting of Felix Resources Limited, a wholly owned subsidiary, whose financial statements reflect total assets and revenues constituting 39 and nil percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2009. As indicated in the Management’s Report, Felix Resources Limited was acquired during 2009 and therefore, management’s assertion on the effectiveness of the Group’s internal control over financial reporting excluded internal control over financial reporting of Felix Resources Limited.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009,2010, based on the criteria established in Internal Control—Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 20092010 of the Group and our report dated June 29, 201024, 2011 expressed an unqualified opinion on those financial statements.

/s/Grant Thornton

Hong Kong

June 29, 2010
/s/ Grant Thornton
Beijing, People’s Republic of China

June 24, 2011

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OFTo the Board of Directors and Shareholders of

YANZHOU COAL MINING COMPANY LIMITED

(A joint stock company with limited liability established in the People’s Republic of China)Yanzhou Coal Mining Company Limited

We have audited the accompanying consolidated balance sheets of Yanzhou Coal Mining Company Limited and its subsidiaries (the “Group”) as of December 31, 2009 and the related consolidated income statement, statementstatements, statements of comprehensive income, changes in equity and cash flows of Yanzhou Coal Mining Company Limited and subsidiaries (the “Group”) for the yearyears ended December 31, 2007, all expressed in Renminbi.2009 and December 31, 2008. These consolidated financial statements are the responsibility of the Group’sCompany’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.audits.

We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.

In our opinion, suchthe consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31, 2009 and the results of its operations and its cash flows of Yanzhou Coal Mining Company Limited and subsidiaries for the yearyears ended December 31, 2007,2009 and December 31, 2008 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

As discussed in Note 16 to the consolidated financial statements, the 2007 reported earnings per American Depositary Shares (“ADS”) information has been retrospectively adjusted for the share split in July 2008./s/ JBPB & Co. (formerly known as GRANT THORNTON)

Hong Kong

/s/ Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
June 26, 2008 (June 25, 2009 as to Note 16)

June 29, 2010

YANZHOU COAL MINING COMPANY LIMITED

CONSOLIDATED INCOME STATEMENTS

 

     Year ended December 31,       Year ended December 31, 
  NOTES  2009 2008 2007   NOTES   2010 2009 2008 
     RMB’000 RMB’000 RMB’000       RMB’000 RMB’000 RMB’000 

GROSS SALES OF COAL

  7  19,537,191   24,557,521   14,906,746     7     32,590,911    19,947,748    24,933,349  

RAILWAY TRANSPORTATION SERVICE INCOME

    258,443   247,199   203,714       513,282    267,345    255,713  

GROSS SALES OF ELECTRICITY POWER

    185,593   59,811   —         185,542    187,540    59,811  

GROSS SALES OF METHANOL

    258,867   38,550   —         629,290    258,867    38,550  

GROSS SALES OF HEAT SUPPLY

    13,268   —     —         25,227    15,638    —    
                        

TOTAL REVENUE

    20,253,362   24,903,081   15,110,460       33,944,252    20,677,138    25,287,423  

TRANSPORTATION COSTS OF COAL

  7  (403,311 (508,712 (549,816   7     (1,160,470  (403,311  (508,712

COST OF SALES AND SERVICE PROVIDED

  8  (10,170,532 (11,816,789 (7,331,924   8     (16,801,323  (10,589,991  (12,201,131

COST OF ELECTRICITY POWER

    (188,855 (88,253 —         (195,536  (190,802  (88,253

COST OF METHANOL

    (352,943 (37,834 —         (716,802  (352,943  (37,834

COST OF HEAT SUPPLY

    (7,364 —     —         (12,490  (9,734  —    
                        

GROSS PROFIT

    9,130,357   12,451,493   7,228,720       15,057,631    9,130,357    12,451,493  

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

  9  (3,820,241 (3,832,031 (2,854,677   9     (5,093,904  (3,820,241  (3,832,031

SHARE OF INCOME (LOSS) OF AN ASSOCIATE

  29  109,786   (67,367 (2,438

SHARE OF INCOME (LOSS) OF ASSOCIATES

   28     8,870    109,786    (67,367

OTHER INCOME

  10  311,019   351,493   198,930     10     3,108,081    311,019    351,493  

INTEREST EXPENSE

  11  (45,115 (38,360 (27,222   11     (603,343  (45,115  (38,360
                        

PROFIT BEFORE INCOME TAXES

    5,685,806   8,865,228   4,543,313       12,477,335    5,685,806    8,865,228  

INCOME TAXES

  12  (1,553,312 (2,385,617 (1,315,520   12     (3,171,043  (1,553,312  (2,385,617
                        

PROFIT FOR THE YEAR

  13  4,132,494   6,479,611   3,227,793     13     9,306,292    4,132,494    6,479,611  
                        

Attributable to:

      

Equity holders of the company

    4,117,322   6,488,908   3,230,450  

Minority interests

    15,172   (9,297 (2,657

ATTRIBUTABLE TO:

      

EQUITY HOLDERS OF THE COMPANY

     9,281,386    4,117,322    6,488,908  

NON-CONTROLLING INTERESTS

     24,906    15,172    (9,297
                        
    4,132,494   6,479,611   3,227,793       9,306,292    4,132,494    6,479,611  
                        

EARNINGS PER SHARE, BASIC

  16  RMB 0.84   RMB1.32   RMB0.66     16     RMB 1.89    RMB 0.84    RMB 1.32  
                        

EARNINGS PER ADS, BASIC

  16  RMB 8.37   RMB 13.19   RMB 6.56     16     RMB 18.87    RMB 8.37    RMB 13.19  
                        

YANZHOU COAL MINING COMPANY LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

  Year ended December 31,   Year ended December 31, 
  2009 2008 2007   2010 2009 2008 
  RMB’000 RMB’000 RMB’000   RMB’000 RMB’000 RMB’000 

Profit for the year

  4,132,494   6,479,611   3,227,793     9,306,292    4,132,494    6,479,611  

Other comprehensive income (after income tax):

        

Available-for-sale investments:

    

Available-for-sales investments:

    

Change in fair value

  125,225   (269,639 312,944     (87,270  125,225    (269,639

Deferred taxes

  (31,306 67,409   (75,519   21,818    (31,306  67,409  
                    
  93,919   (202,230 237,425     (65,452  93,919    (202,230

Cash flow hedges:

        

Cash flow hedge reserve recognized

  12,280   (20,567 —       54,532    12,280    (20,567

Reclassification adjustments for amounts transferred to income statement (included in selling, general and administrative expenses)

  18,118   —     —       (6,576  18,118    —    

Deferred taxes

  (11,780 8,831   —       (24,350  (11,780  8,831  
                    
  18,618   (11,736 —       23,606    18,618    (11,736

Share of other comprehensive income of associates

   1,107    —      —    

Exchange difference arising on translation of foreign operations

  134,184   (101,227 1,563     173,415    134,184    (101,227
                    

Other comprehensive income (loss) for the year

  246,721   (315,193 238,988     132,676    246,721    (315,193
                    

Total comprehensive income for the year

  4,379,215   6,164,418   3,466,781     9,438,968    4,379,215    6,164,418  
                    

Attributable to:

        

Equity holders of the Company

  4,364,043   6,173,715   3,469,438     9,414,110    4,364,043    6,173,715  

Minority interests

  15,172   (9,297 (2,657

Non-controlling interests

   24,858    15,172    (9,297
                    
  4,379,215   6,164,418   3,466,781     9,438,968    4,379,215    6,164,418  
                    

YANZHOU COAL MINING COMPANY LIMITED

CONSOLIDATED BALANCE SHEETS

 

     At December 31,      At December 31, 
  NOTES  2009  2008  NOTES   2010   2009 
     RMB’000  RMB’000      RMB’000   RMB’000 

ASSETS

            

CURRENT ASSETS

            

Bank balances and cash

  17  8,522,399  8,439,578   17     6,771,314     8,522,399  

Term deposits

  17  3,216,697  1,153,385   17     2,567,722     3,216,697  

Restricted cash

  17  315,045  18,823   17     85,188     315,045  

Bills and accounts receivable

  18  4,723,922  2,977,266   18     10,017,260     4,723,922  

Inventories

  19  886,360  819,599   19     1,646,116     886,360  

Prepayments and other receivables

  21  1,868,229  1,567,210   20     2,613,686     1,868,229  

Prepaid lease payments

  22  17,121  15,296   21     18,280     17,121  

Prepayment for resources compensation fees

  23  2,761  3,240   22     3,948     2,761  

Derivative financial instruments

  37  37,760  —     36     239,476     37,760  

Tax recoverable

    59,978  —       169,013     59,978  

Overburden in advance

  26  350,676  —     25     149,351     350,676  
                  

TOTAL CURRENT ASSETS

    20,000,948  14,994,397     24,281,354     20,000,948  

NON-CURRENT ASSETS

            

Intangible assets

  24  18,866,674  1,039,707   23     19,633,164     18,866,674  

Prepaid lease payments

  22  691,339  628,119   21     728,082     691,339  

Prepayment for resources compensation fees

  23  13,208  15,490   22     8,072     13,208  

Property, plant and equipment

  25  18,877,134  14,149,446   24     19,874,615     18,877,134  

Goodwill

  27  1,305,345  298,650   26     1,196,586     1,305,345  

Investments in securities

  28  295,295  139,887   27     224,442     295,295  

Interests in an associate

  29  939,981  830,195

Interests in associates

   28     1,074,958     939,981  

Interests in jointly controlled entities

  31  1,257  —     30     751     1,257  

Restricted cash

  17  238,730  78,791   17     1,365,995     238,730  

Deposit made on investment

  30  175,021  117,926

Deposits made on investments

   29     3,243,679     175,021  

Deferred tax assets

  39  1,027,659  46,023   38     1,124,166     1,027,659  
                  

TOTAL NON-CURRENT ASSETS

    42,431,643  17,344,234     48,474,510     42,431,643  
                  

TOTAL ASSETS

    62,432,591  32,338,631     72,755,864     62,432,591  
                  
      

LIABILITIES AND SHAREHOLDERS’ EQUITY

      

LIABILITIES AND SHAREHOLDERS' EQUITY

      

CURRENT LIABILITIES

            

Bills and accounts payable

  33  1,366,976  910,127   32     1,554,444     1,366,976  

Other payables and accrued expenses

  34  4,441,834  2,698,256   33     3,820,971     4,441,834  

Provision for land subsidence, restoration, rehabilitation and environmental costs

  35  1,564,106  450,979   34     2,300,637     1,564,106  

Amounts due to Parent Company and its subsidiary companies

  45  757,882  706,328   46     438,783     757,882  

Borrowings - due within one year

  36  1,598,113  82,000   35     614,925     1,598,113  

Current portion of long term payable - due within one year

  38  5,967  —     37     6,536     5,967  

Derivative financial instruments

  37  28,333  29,435   36     166,178     28,333  

Tax payable

    647,190  419,866     1,231,388     647,190  
                  

TOTAL CURRENT LIABILITIES

    10,410,401  5,296,991     10,133,862     10,410,401  

NON-CURRENT LIABILITIES

            

Amounts due to Parent Company and its subsidiary companies - due after one year

  45  —    7,253

Borrowings - due after one year

  36  20,911,728  176,000   35     22,400,833     20,911,728  

Deferred tax liability

  39  1,785,087  41,777   38     2,601,207     1,785,087  

Provision for land subsidence, restoration, rehabilitation and environmental costs

  35  44,702  —     34     152,594     44,702  

Non-current portion of long term payable- due after one year

  38  26,380  —  

Non-current portion of long term payable - due after one year

   37     28,917     26,380  
                  

TOTAL NON-CURRENT LIABILITIES

    22,767,897  225,030     25,183,551     22,767,897  
                  

TOTAL LIABILITIES

    33,178,298  5,522,021     35,317,413     33,178,298  

Capital and reserves

  40       39      

Share capital

    4,918,400  4,918,400     4,918,400     4,918,400  

Reserves

    24,233,407  21,836,724     32,413,486     24,233,407  
                  

Equity attributable to equity holders of the Company

    29,151,807  26,755,124     37,331,886     29,151,807  

Minority interest

    102,486  61,486

Non-controlling interests

     106,565     102,486  
                  

TOTAL EQUITY

    29,254,293  26,816,610     37,438,451     29,254,293  
                  

TOTAL LIABILITIES AND EQUITY

    62,432,591  32,338,631     72,755,864     62,432,591  
                  

YANZHOU COAL MINING COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 Share
capital
 Share
premium
 Future
development
fund
 Statutory
common
reserve
fund
 Translation
reserve
 Investment
revaluation

reserve
 Cash  flow
hedge
reserve
 Retained
earnings
 Attributable to
equity holders
of the Company
 Minority
interest
 Total  Share
capital
 Share
premium
 Future
development
fund
 Statutory
common
reserve
fund
 Translation
reserve
 Investment
revaluation

reserve
 Cash flow
hedge
reserve
 Retained
earnings
 Attributable to
equity holders
of the Company
 Non-controlling
interests
 Total 
 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000  RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 
 (note 40) (note 40) (note 40)  (note 39)   (note 39) (note 39)               

Balance at January 1, 2007

 4,918,400 2,981,002 2,218,574 1,704,611 (15,505 22,754   —     7,101,943   18,931,779   61,961   18,993,740  

Appropriations to reserves

 —   —   368,531 333,329 —     —     —     (701,860 —     —     —    

Profit for the year

 —   —   —   —   —     —     —     3,230,450   3,230,450   (2,657 3,227,793  

Other comprehensive income:

           

- Fair value change of available-for-sale investments

 —   —   —   —   —     237,425   —     —     237,425   —     237,425  

- Exchange difference arising on translation of foreign operations

 —   —   —   —   1,563   —     —     —     1,563   —     1,563  
                             

Total comprehensive income for the year

 —   —   —   —   1,563   237,425   —     3,230,450   3,469,438   (2,657 3,466,781  

Transactions with owners

           

- Dividends

 —   —   —   —   —     —     —     (983,680 (983,680 (330 (984,010

- Contribution from a minority shareholder of a subsidiary

 —   —   —   —   —     —     —     —     —     24,000   24,000  

- Acquisition of additional interest in a subsidiary

 —   —   —   —   —     —     —     —     —     (11,899 (11,899
                             

Total transactions with owners

 —   —   —   —   —     —     —     (983,680 (983,680 11,771   (971,909
                             

Balance at December 31, 2007

 4,918,400 2,981,002 2,587,105 2,037,940 (13,942 260,179   —     8,646,853   21,417,537   71,075   21,488,612  
                             

Balance at January 1, 2008

 4,918,400 2,981,002 2,587,105 2,037,940 (13,942 260,179   —     8,646,853   21,417,537   71,075   21,488,612    4,918,400    2,981,002    2,587,105    2,037,940    (13,942  260,179    —      8,646,853    21,417,537    71,075    21,488,612  

Appropriations to reserves

 —   —   382,219 785,235 —     —     —     (1,167,454 —     —     —    

Profit for the year

 —   —   —   —   —     —     —     6,488,908   6,488,908   (9,297 6,479,611    —      —      —      —      —      —      —      6,488,908    6,488,908    (9,297  6,479,611  

Other comprehensive income :

                      

- Fair value change of available-for-sale investments

 —   —   —   —   —     (202,230 —     —     (202,230 —     (202,230  —      —      —      —      —      (202,230  —      —      (202,230  —      (202,230

- Cash flow hedge reserve recognized

 —   —   —   —   —     —     (11,736 —     (11,736 —     (11,736  —      —      —      —      —      —      (11,736  —      (11,736  —      (11,736

- Exchange difference arising on translation of foreign operations

 —   —   —   —   (101,227 —     —     —     (101,227 —     (101,227  —      —      —      —      (101,227  —      —      —      (101,227  —      (101,227
                                                              

Total comprehensive income for the year

 —   —   —   —   (101,227 (202,230 (11,736 6,488,908   6,173,715   (9,297 6,164,418    —      —      —      —      (101,227  (202,230  (11,736  6,488,908    6,173,715    (9,297  6,164,418  

Transactions with owners

                      

- Dividends

 —   —   —   —   —     —     —     (836,128 (836,128 (292 (836,420

-Dividends

  —      —      —      —      —      —      —      (836,128  (836,128  (292  (836,420

- Appropriations to reserves

  —      —      382,219    785,235    —      —      —      (1,167,454  —      —      —    
                                 

Total transactions with owners

  —      —      382,219    785,235    —      —      —      (2,003,582  (836,128  (292  (836,420
                                                              

Balance at December 31, 2008

 4,918,400 2,981,002 2,969,324 2,823,175 (115,169 57,949   (11,736 13,132,179   26,755,124   61,486   26,816,610    4,918,400    2,981,002    2,969,324    2,823,175    (115,169  57,949    (11,736  13,132,179    26,755,124    61,486    26,816,610  
                                                              

Balance at January 1, 2009

 4,918,400 2,981,002 2,969,324 2,823,175 (115,169 57,949   (11,736 13,132,179   26,755,124   61,486   26,816,610    4,918,400    2,981,002    2,969,324    2,823,175    (115,169  57,949    (11,736  13,132,179    26,755,124    61,486    26,816,610  

Appropriations to reserves

 —   —   292,550 381,280 —     —     —     (673,830 —     —     —    

Profit for the year

 —   —   —   —   —     —     —     4,117,322   4,117,322   15,172   4,132,494    —      —      —      —      —      —      —      4,117,322    4,117,322    15,172    4,132,494  

Other comprehensive income :

                      

- Fair value change of available-for-sale investments

 —   —   —   —   —     93,919   —     —     93,919   —     93,919    —      —      —      —      —      93,919    —      —      93,919    —      93,919  

- Cash flow hedge reserve recognized

 —   —   —   —   —     —     18,618   —     18,618   —     18,618    —      —      —      —      —      —      18,618    —      18,618    —      18,618  

- Exchange difference arising on translation of foreign operations

 —   —   —   —   134,184   —     —     —     134,184   —     134,184    —      —      —      —      134,184    —      —      —      134,184    —      134,184  
                                                              

Total comprehensive income for the year

 —   —   —   —   134,184   93,919   18,618   4,117,322   4,364,043   15,172   4,379,215    —      —      —      —      134,184    93,919    18,618    4,117,322    4,364,043    15,172    4,379,215  

Transactions with owners

                      

- Appropriations to reserves

  —      —      292,550    381,280    —      —      —      (673,830  —      —      —    

- Dividends

 —   —   —   —   —     —     —     (1,967,360 (1,967,360 (466 (1,967,826  —      —      —      —      —      —      —      (1,967,360  (1,967,360  (466  (1,967,826

- Acquisition of interests from minority shareholders

 —   —   —   —   —     —     —     —     —     (134,820 (134,820

- Acquisition of non-controlling interests

  —      —      —      —      —      —      —      —      —      (134,820  (134,820

- Acquisition of subsidiaries

 —   —   —   —   —     —     —     —     —     161,114   161,114    —      —      —      —      —      —      —      —      —      161,114    161,114  
                                                              

Total transactions with owners

 —   —   —   —   —     —     —     (1,967,360 (1,967,360 25,828   (1,941,532  —      —      292,550    381,280    —      —      —      (2,641,190  (1,967,360  25,828    (1,941,532
                                                              

Balance at December 31, 2009

 4,918,400 2,981,002 3,261,874 3,204,455 19,015   151,868   6,882   14,608,311   29,151,807   102,486   29,254,293    4,918,400    2,981,002    3,261,874    3,204,455    19,015    151,868    6,882    14,608,311    29,151,807    102,486    29,254,293  
                                                              

Balance at January 1, 2010

  4,918,400    2,981,002    3,261,874    3,204,455    19,015    151,868    6,882    14,608,311    29,151,807    102,486    29,254,293  

Profit for the year

  —      —      —      —      —      —      —      9,281,386    9,281,386    24,906    9,306,292  

Other comprehensive income :

           

- Fair value change of available-for-sale investments

  —      —      —      —      —      (65,452  —      —      (65,452  —      (65,452

- Cash flow hedge reserve recognized

  —      —      —      —      —      —      23,606    —      23,606    —      23,606  

- Exchange difference arising on translation of foreign operations

  —      —      —      —      173,463    —      —      —      173,463    (48  173,415  

- Share of other comprehensive income of associates

  —      —      —      —      —      1,107    —      —      1,107    —      1,107  
                                 

Total comprehensive income for the year

  —      —      —      —      173,463    (64,345  23,606    9,281,386    9,414,110    24,858    9,438,968  

Transactions with owners

           

- Disposal of a joint venture and subsidiaries

  —      —      —      —      —      —      —      —      —      (23,325  (23,325

- Appropriations to reserves

  —      —      398,750    665,965    —      —      —      (1,064,715  —      —      —    

- Dividends

  —      —      —      —      —      —      —      (1,229,600  (1,229,600  (1,871  (1,231,471

- Acquisition of non-controlling interests

  —      —      —      —      —      —      —      (4,431  (4,431  4,417    (14
                                 

Total transactions with owners

  —      —      398,750    665,965    —      —      —      (2,298,746  (1,234,031  (20,779  (1,254,810
                                 

Balance at December 31, 2010

  4,918,400    2,981,002    3,660,624    3,870,420    192,478    87,523    30,488    21,590,951    37,331,886    106,565    37,438,451  
                                 

YANZHOU COAL MINING COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Year ended December 31,       Year ended December 31, 
  NOTES  2009 2008 2007   NOTES   2010 2009 2008 
     RMB’000 RMB’000 RMB’000       RMB’000 RMB’000 RMB’000 

OPERATING ACTIVITIES

            

Profit before income taxes

    5,685,806   8,865,228   4,543,313       12,477,335    5,685,806    8,865,228  

Adjustments for:

            

Interest expenses

    45,115   38,360   27,222       603,343    45,115    38,360  

Interest income

    (187,604 (275,220 (103,564     (187,189  (187,604  (275,220

Dividend income

    (2,288 (7,401 (7,143     (4,504  (2,288  (7,401

Net unrealized foreign exchange losses

    37,676   284,278   —         (2,180,277  37,676    284,278  

Depreciation of property, plant and equipment

    1,793,278   1,140,809   1,237,132       2,426,626    1,793,278    1,140,809  

Release of prepaid lease payments

    17,027   15,109   13,861       17,958    17,027    15,109  

Amortization of prepayment for resources compensation fees

    2,761   2,998   3,339       3,949    2,761    2,998  

Amortization of intangible assets

    44,278   35,652   15,728       349,655    44,278    35,652  

Reversal of impairment loss on accounts receivable and other receivables

    (13,634 (4,369 (4,363     (4,923  (13,634  (4,369

Share of (income) loss of an associate

    (109,786 67,367   2,438  

(Gain) loss on disposal of property, plant and equipment

    11,252   (12,317 (25,002

Provision for inventory

     4,411    —      —    

Impairment loss on property, plant and equipment

    14,199   —     339,743       97,559    —      —    

Share of (income) loss of associates

     (8,870  (109,786  67,367  

Gain on disposal of a joint venture and subsidiaries

     (117,928  —      —    

Loss (Gain) on disposal of property, plant and equipment

     16,937    11,252    (12,317

Written off of property, plant and equipment

     1,491    14,199    —    
                        

Operating cash flows before movements in working capital

    7,338,080   10,150,494   6,042,704       13,495,573    7,338,080    10,150,494  

Increase in bills and accounts receivable

    (1,416,577 (217,012 (536,673     (5,286,147  (1,416,577  (217,012

(Increase) decrease in inventories

    228,862   (405,200 145,891       (728,026  228,862    (405,200

Movement in land subsidence, restoration, rehabilitation and environmental cost

    1,109,659   431,344   232,547       838,510    1,109,659    431,344  

Movement in overburden cost

     224,546    —      —    

(Increase) decrease in prepayments and other current assets

    20,193   (1,242,027 (108,607     (694,726  20,193    (1,242,027

Increase (decrease) in bills and accounts payable

    (4,964 263,755   (90,180     158,859    (4,964  263,755  

Increase in other payables and accrued expenses

    622,093   34,481   622,128       153,893    622,093    34,481  

Increase in long-term payables

    3,980   —     —         5,654    3,980    —    

Increase (decrease) in amounts due to Parent Company and its subsidiary companies

    57,549   40,749   (315,065

(Decrease) increase in amounts due to Parent Company and its subsidiary companies

     (319,099  57,549    40,749  
                        

Cash generated from operations

    7,958,875   9,056,584   5,992,745       7,849,037    7,958,875    9,056,584  

Income taxes paid

    (1,596,774 (2,207,217 (1,520,081     (2,038,697  (1,596,774  (2,207,217

Interest paid

    (28,501 (36,511 (24,722     (602,743  (28,501  (36,511

Interest income received

    184,243   275,220   103,564       187,561    184,243    275,220  

Dividend income received

    2,288   7,401   7,143       4,646    2,288    7,401  
                        

NET CASH FROM OPERATING ACTIVITIES

    6,520,131   7,095,477   4,558,649       5,399,804    6,520,131    7,095,477  
                        

YANZHOU COAL MINING COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued

 

      Year ended December 31, 
   NOTES  2009  2008  2007 
      RMB’000  RMB’000  RMB’000 
INVESTING ACTIVITIES      

Decrease (increase) in term deposits

    (1,971,371 141,599   (100,453

Purchase of property, plant and equipment

    (2,133,726 (2,027,030 (2,772,586

Decrease in other loans receivable

    —     640,000   —    

(Increase) decrease in restricted cash

    (432,492 (50,412 59,404  

Increase in deposit made on investment

    (57,095 —     (20,500

Proceeds on disposal of property, plant and equipment

    79,626   19,829   31,593  

Acquisition of Hua Ju Energy

  43  (761,683 —     —    

Acquisition of Felix

  44  (19,558,544 —     —    

Acquisition of Shanxi Group

    —     —     (14,965

Acquisition of mining rights in Southland

    —     —     (61,923

Acquisition of mining rights in Zhaolou

    —     (747,339 —    

Purchase of intangible assets

    (233 —     —    

Purchase of land use right

    (7,420 (68,136 (11,515

Investment in an associate

    —     —     (900,000
            
NET CASH USED IN INVESTING ACTIVITIES    (24,842,938 (2,091,489 (3,790,945
            
FINANCING ACTIVITIES      

Dividend paid

    (1,967,360 (836,128 (983,680

Proceeds from bank borrowings

    20,840,505   —     —    

Repayments of bank borrowings

    (188,705 (72,000 (50,000

Repayment to Parent Company and its subsidiary companies in respect of consideration for acquisition of Jining III

    (13,248 (13,248 (8,689

Dividend paid to a minority shareholder of a subsidiary

    (201 (292 (330

Dividend paid to the former shareholders of Hua Ju Energy

    (47,250 —     —    

Repayment of borrowings to Parent Company

    (120,000 —     —    

Contribution from a minority shareholder of a subsidiary

    —     —     24,000  
            

NET CASH FROM (USED IN) FINANCING ACTIVITIES

    18,503,741   (921,668 (1,018,699
            

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

    180,934   4,082,320   (250,995

CASH AND CASH EQUIVALENTS, AT JANUARY 1

    8,439,578   4,424,561   4,715,945  

EFFECT OF FOREIGN EXCHANGE RATE CHANGES

    (98,113 (67,303 (40,389
            

CASH AND CASH EQUIVALENTS, AT DECEMBER 31, REPRESENTED BY BANK BALANCES AND CASH

    8,522,399   8,439,578   4,424,561  
            

       Year ended December 31, 
   NOTES   2010  2009  2008 
       RMB’000  RMB’000  RMB’000 

INVESTING ACTIVITIES

      

Decrease (increase) in term deposits

     648,975    (1,971,371  141,599  

Purchase of property, plant and equipment

     (3,576,136  (2,133,726  (2,027,030

Decrease in other loans receivable

     —      —      640,000  

Increase in restricted cash

     (874,643  (432,492  (50,412

Increase in deposit made on investment

     (3,125,753  (57,095  —    

Proceeds on disposal of property, plant and equipment

     205,446    79,626    19,829  

Acquisition of non-controlling interests of Shanxi Tianhao

     (14  —      —    

Acquisition of three subsidiaries

   44     (133,000  —      —    

Acquisition of Hua Ju Energy

   42     —      (761,683  —    

Acquisition of Felix

   43     —      (19,558,544  —    

Acquisition of mining rights in Zhaolou

     —      —      (747,339

Proceeds on disposal of a joint venture and subsidiaries

   45     1,147,821    —      —    

Investments in securities

     (16,257  —      —    

Investments in associates

     (125,000  —      —    

Purchase of intangible assets

     (35,352  (233  —    

Purchase of land use right

     (442  (7,420  (68,136
               
NET CASH USED IN INVESTING ACTIVITIES     (5,884,355  (24,842,938  (2,091,489
               
FINANCING ACTIVITIES      

Dividend paid

     (1,229,600  (1,967,360  (836,128

Proceeds from bank borrowings

     1,110,954    20,840,505    —    

Repayments of bank borrowings

     (655,528  (188,705  (72,000

Repayments of other borrowings

     (584,478  —      —    

Repayment to Parent Company and its subsidiary companies in respect of consideration for acquisition of Jining III

     —      (13,248  (13,248

Dividend paid to non-controlling interests of a subsidiary

     (1,871  (201  (292

Dividend paid to the former shareholders of Hua Ju Energy

     —      (47,250  —    

Repayment of borrowings to Parent Company

     —      (120,000  —    
               

NET CASH (USED IN) FROM FINANCING ACTIVITIES

     (1,360,523  18,503,741    (921,668
               

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

     (1,845,074  180,934    4,082,320  

CASH AND CASH EQUIVALENTS, AT JANUARY 1

     8,522,399    8,439,578    4,424,561  

EFFECT OF FOREIGN EXCHANGE RATE CHANGES

     93,989    (98,113  (67,303
               

CASH AND CASH EQUIVALENTS, AT DECEMBER 31, REPRESENTED BY BANK BALANCES AND CASH

     6,771,314    8,522,399    8,439,578  
               

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

Organization and principal activities

Yanzhou Coal Mining Company Limited (the “Company”) is established as a joint stock company with limited liability in the People’s Republic of China (the “PRC”). In April 2001, the status of the Company was changed to that of a sino-foreign joint stock limited company. The Company’s A shares are listed on the Shanghai Securities Exchange (“SSE”), its H shares are listed on The Stock Exchange of Hong Kong (the “SEHK”), and its American Depositary Shares (“ADS”, one ADS represents 10 H shares) are listed on the New York Stock Exchange, Inc. The addresseaddress of the registered office and principal place of business of the Company is 298 Fushan South Road, Zoucheng, Shandong Province, PRC.

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

The principal activities of the Company’s associate and joint ventures are set out in notes 29,28, 30 and 31 and 32 respectively.

As at December 31, 2009,2010, the Group has a net current assets of RMB9,590,547,000 (2008: RMB9,697,406,000)RMB14,147,492,000 (2009: RMB9,590,547,000) and total assets less current liabilities of RMB52,022,190,000 (2008:RMB27,041,640,000)RMB62,622,002,000 (2009: RMB52,022,190,000).

Acquisitions and establishment of major subsidiaries

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

Shanxi Neng Hua is an investment holding company, which holds 81.31% equity interest in Shanxi Heshun Tianchi Energy Company Limited (“Shanxi Tianchi”) and approximately 99.85% equity interest in Shanxi Tianhao ChemicalsChemical Company Limited (“Shanxi Tianhao”). In the current year, Shanxi Neng Hua acquired approximate 0.04% equity interest of Shanxi Tianhao at cash consideration of RMB14,000. The principal activities of Shanxi Tianchi are to exploit and sale of coal from Tianchi Coal Mine, the principal asset of Shanxi Tianchi. Shanxi Tianchi has completed the construction of Tianchi Coal Mine and commenced production by the end of 2006. Shanxi Tianhao is established to engage in the production of methanol and other chemical products, coke production, exploration and sales. The construction of the methanol facilities by Shanxi Tianhao commenced in March 2006 and it has commenced production in 2008. In 2007, the Company further acquired the remaining 2% equity interest in Shanxi Neng Hua from a subsidiary of the Parent Company at cash consideration of RMB14,965,000.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

1. GENERAL—Continued

 

In 2004, the Company acquired a 95.67% equity interest in Yanmei Heze Company Limited (“Heze”) from the Parent Company at cash consideration of RMB584,008,000. The principal activities of Heze are to conduct the initial preparation of the coal mines at the Juye coalfield which includes obtaining the approvals for the coal mine projects, applying rights to explore for coal and preparing the construction work of the coal mines. The equity interests held by the Company increased to 96.67% after the increase of the registered capital of Heze in 2007. The equity interests held by the Company increased to 98.33% after the increase of the registered capital of RMB1.5 billion in the current year.

The Company originally held a 97% equity interest in Yanzhou Coal Yulin Power Chemical Co., Ltd. (“Yulin”). In 2008, the Company acquired the remaining 3% equity interest in Yulin. Moreover, the Company made further investment of RMB600,000,000 in Yulin in 2008.

In February 2009, the Company acquired 74% equity interest in Shandong Hua Ju Energy Company Limited (“Hua Ju Energy”) from the Parent Company at a consideration of RMB593,243,000. Hua Ju Energy is a joint stock limited company established in the PRC with the principal business of the supply of electricity and heat by utilizing coal gangue and coal slurry produced from coal mining process. In July 2009, the Company entered into acquisition agreements with three shareholders of Hua Ju Energy, pursuant to which, the Company agreed to acquire 21.14% equity interest in Hua Ju Energy at a consideration of RMB173,007,000.

During the year,In 2009, the Company entered into a binding scheme implementation agreement with Felix Resources Limited (“Felix”), a corporation incorporated in Australia with shares listed on the Australian Securities Exchange, to acquire all the shares of Felix in cash of approximately AUD3,333 million (equivalent to approximately RMB20,428 million).million. The principal activities of Felix are exploring and extracting coal resources, operating, identifying, acquiring and developing resource related projects that primarily focus on coal in Australia. This acquisition was completed in the current year.2009.

During the year,In 2009, the Company invested RMB500 million to set up a wholly owned subsidiary located in Inner Mongolia, Yanzhou Coal Ordos Neng Hua Company Limited (“Ordos”). Ordos is a limited liability company incorporated in the PRC with the objectives of production and sale of methanol and other chemical products. As at December 31, 2009,2010, Ordos has not yet commenced any construction and production projects.

During 2010, the Company acquired 100% equity interest of Inner Mongolia Yize Mining Investment Co., Ltd (“Yize”) and other two companies with consideration of RMB190,095,000. The main purpose of this acquisition is to facilitate the business of methanol and other chemical products in Inner Mongolia Autonomous Region. As at December 31, 2010, the three newly acquired companies have not commenced any construction and production projects.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2. BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The consolidated financial statements were approved and authorized for issue by the Board of Directors on June 29, 2010.24, 2011.

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

Changes in accounting estimates

In the current year, the unit-of-production method is applied for the amortization of coal reserves located in China. In the previous years, these assets were amortized on a straight-line basis. The directors of the Company consider that the unit-of-production method can better reflect the expected pattern of consumption of economic benefits of such assets. Changes of accounting estimates have no material impact on the consolidated financial statements.

Comparative figures

Business taxes and surcharges have been reclassified from as a deduction of each categories of revenue to each corresponding costs of these revenue to provide a more appropriate presentation. Therefore, for the years ended December 31, 2009 and December 31, 2008, subtotals of income and corresponding costs increased by RMB423,776,000 and RMB384,342,000 respectively. The reclassification has no impact to the overall results of the Group. The reclassification does not result in any changes to the consolidated balance sheets as at December 31, 2009 and December 31, 2008 and therefore they are not presented in the consolidated financial statements.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

In the current year, the Group has applied, for the first time, a number of new standards and interpretations, and amended and revised standards and interpretations (“new IFRSs”) applicable to the Group issued by the International Accounting Standards Board (the “IASB”) and the International Financial Reporting Interpretations Committee (the IFRIC) of IASB, which are effective for the Group’s financial year beginning January 1, 2009.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS—Continued2010.

 

IFRSs (Amendments)  Improvements to IFRSs 20082009
IAS 127 (Revised)  Presentation ofConsolidated and Separate Financial Statements
IAS 23IFRS 3 (Revised)  Borrowing CostsBusiness Combinations
IFRS 1 & IAS 27 (Amendments)Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate
IFRS 739 (Amendment)  Improving Disclosures about Financial Instruments
IFRS 8Operating SegmentsEligible Hedged Items

Except for those new accounting policies effective for the financial year beginning January 1, 20092010 as applied in these financial statements of the Group, the accounting policies adopted for the current year are the same as those adopted for the Group’s financial statements for the year ended December 31, 2008.2009. The effects of new IFRSs, which have a significant impact on the financial statements of the Group, are as follow:

IFRS 3 (Revised) - Business Combinations

The IFRS3 (Revised) introduced major changes to the accounting requirements for business combinations. It retains the major features of the purchase method of accounting, now referred to as the acquisition method. The most significant changes in IFRS3 (Revised) that had an impact on the Group’s acquisitions in 2010 are as follows: The assets acquired and liabilities assumed are generally measured at their acquisition-date fair values. Any contingent consideration is measured at fair value at the acquisition date. If the contingent consideration arrangement gives rise to a financial liability, any subsequent changes are generally recognized in profit or loss. Acquisition-related costs of the combination are recorded as an expense in the income statement. Prior to January 1, 2010, the costs were accounted for as part of the cost of the acquisition. As the Group did not have a material business combination in the current year, the adoption of IFRS 3 (Revised) did not have any material impact on the current year financial statements. IFRS 3 (Revised) is adopted prospectively.

 

IAS 127 (Revised) - PresentationConsolidated and Separate Financial Statements

IAS 27 (Revised) introduced changes to the accounting requirements for transactions with non-controlling interests and the loss of Financial Statements:control of a subsidiary. IAS 127 (Revised) materiallyrequires the changes in the presentationGroup’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s financial statements. The amendments affectinterests and the presentationnon-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of owner changesthe consideration paid or received is recognized directly in equity and introduceattributed to owners of the Company. Prior to January 1, 2010, goodwill arising on acquisition of additional interest in subsidiary represented the excess of the cost of acquisition over the carrying value of the net assets attributable to the additional interest in the subsidiary. IAS 27 (Revised) is adopted prospectively.

The adoption of IAS 27 (Revised) did not have material impact in the current year financial statements.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS—Continued

Improvements to IFRSs 2009

The Improvements to IFRSs 2009 (“2009 Improvements”) made several minor amendments to IFRSs. The only amendment relevant to the Group relates to IAS 17 Leases. Prior to this amendment, IAS 17 generally required a statementlease of comprehensive income.land to be classified as an operating lease. The amendment requires that leases of land are classified as finance or operating applying the general principles of IAS 17. The Group havehas reassessed the option of presenting items of income and expenses and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The amendment does not affect the financial position or resultsclassification of the Group but gives rise to additional disclosures. The Group adopts IAS 1 (Revised) from January 1, 2009,land elements of its unexpired leases and presents itemshas determined that none of income and expenses and components of other comprehensive income in two separate statements (a separate income statement followed by a statement of comprehensive income).its leases require reclassification.

IFRS 7 (Amendment) - Improving Disclosures about Financial Instruments: This amendment gives rise to additional disclosures on financial instruments, including disclosures of a three-level fair value hierarchy.

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

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

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

 

IFRSs (Amendments)  ImprovementsImprovement to IFRSs 200920101
IAS 24 (Revised)IFRS 7 (Amendments)  Related Party Disclosures – Transfers of Financial Assets2
IAS 27 (Revised)Consolidated and Separate Financial Statements3
IAS 39 (Amendment)Eligible Hedged Items3
IFRS 3 (Revised)Business Combinations3
IFRS 9  Financial Instruments43
IFRSsIFRS 10Consolidated Financial Statements3
IFRS 11Joint Arrangements3
IFRS 12Disclosures of Involvement with Other Entities3
IFRS 13Fair Value Measurement3
IAS 27 (Amendments)  Improvements to IFRSs 2010Separate Financial Statements (2011)5 3
IAS 28 (Amendments)Investments in Associates and Joint Ventures (2011) 3
IAS 24 (Revised)Related Parties Disclosures4

 

1

Effective for annual periods beginning on or after July 1, 20092010 and January 1, 2010,2011, as appropriate

2

Effective for annual periods beginning on or after July 1, 2011

3

Effective for annual periods beginning on or after January 1, 2013

4

Effective for annual periods beginning on or after January 1, 2011

IFRS 9 Financial instruments

Under IFRS 9, all recognized financial assets that are within the scope of IAS 39Financial Instruments: Recognition and Measurement are subsequently measured at either amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS—Continued

 

2

Effective

IFRS 9 Financial instruments—Continued

In relation to financial liabilities, the significant change relates to financial liabilities that are designated as at fair value through profit or loss. Specifically, under IFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the presentation of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under IAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss.

IFRS 10 Consolidated Financial Statements

IFRS 10 replaces the consolidation guidance in IAS 27Consolidated and Separate Financial Statements and SIC-12Consolidation — Special Purpose Entities by introducing a single consolidation model for all entities based on control, irrespective of the nature of the investee (i.e., whether an entity is controlled through voting rights of investors or through other contractual arrangements as is common in special purpose entities). Under IFRS 10, control is based on whether an investor has 1) power over the investee; 2) exposure, or rights, to variable returns from its involvement with the investee; and 3) the ability to use its power over the investee to affect the amount of the returns.

IFRS 11 Joint Arrangements

IFRS 11 introduces new accounting requirements for joint arrangements, replacing IAS 31Interests in Joint Ventures. The option to apply the proportional consolidation method when accounting for jointly controlled entities is removed. Additionally, IFRS 11 eliminates jointly controlled assets to now only differentiate between joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets and obligations for the liabilities. A joint venture is a joint arrangement whereby the parties that have joint control have rights to the net assets.

IFRS 12 Disclosures of Involvement with Other Entities

IFRS 12 requires enhanced disclosures about both consolidated entities and unconsolidated entities in which an entity has involvement. The objective of IFRS 12 is to require information so that financial statement users may evaluate the basis of control, any restrictions on consolidated assets and liabilities, risk exposures arising from involvements with unconsolidated structured entities and non-controlling interest holders’ involvement in the activities of consolidated entities.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS—Continued

IFRS 13 Fair Value Measurement

IFRS 13 applies when another IFRS requires or permits fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except for certain exemptions. IFRS 13 requires the disclosures of fair values through a ‘fair value hierarchy’. The hierarchy categorises the inputs used in valuation techniques into three levels. The hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure fair value are categorised into different levels of the fair value hierarchy, the fair value measurement is categorised in its entirety in the level of the lowest level input that is significant to the entire measurement

IAS 27 Separate Financial Statements (2011)

The requirements relating to separate financial statements are unchanged and are included in the amended IAS 27. The other portions of IAS 27 are replaced by IFRS 10.

IAS 28 Investments in Associates and Joint Ventures (2011)

IAS 28 is amended for conforming changes based on the issuance of IFRS 10, IFRS 11 and IFRS 12.

IAS 24 Related Party Disclosures (Revised)

The revised standard is applicable for annual periods beginning on or after January 1, 2011

3

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

4

Effective for annual periods beginning on or after January 1, 2013

5

Effective for annual periods beginning on or after July 1, 2010 and January 1, 2011, as appropriate

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

IFRS 9Financial Instruments introduces new requirements for the classification and measurement of financial assets and will be effective from January 1, 2013, with earlier application permitted.2011. The revised standard requires all recognized financial assets that are within the scope of IAS 39Financial Instruments: Recognition and Measurementto be measured at either amortized cost or fair value. Specifically, debt investments that (i) are held within a business model whose objective is to collect the contractual cash flows and (ii) have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost. All other debt investments and equity investments are measured at fair value.

IAS 24 (Revised) clarifies and simplifies the definition of a related party. Itparty and it introduces certain exemptions on disclosure requirements in respect of transactions between government-related entities and government, and other government-related entities.

Except for the abovementioned standards or interpretations, theThe directors are evaluating the impact of application of otherthe above mentioned standards or interpretations on the Group’sGroup's future results and financial statements.

No significant impact is anticipated on adoption of the 2010 improvements and IFRS 7 improvements.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES

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

Basis of consolidation

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

The resultsIncome and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if its results in the non-controlling interests have a deficit balance.

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

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

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.

Business combination

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognized in profit or loss as incurred.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Subsequent adjustments to the consideration are recognized against the cost of acquisition within the measurement period which does not exceed one year from the acquisition date. Subsequent accounting for changes in fair values of the contingent consideration that do not qualify as measurement period adjustments is included in the income statement or within equity for contingent consideration classified as an asset/liability and equity respectively.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity in the acquiree (if any) over the net of the acquisition–date amounts of the identifiable assets acquired and liabilities assumed. If, after assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value on the acquirer’s previously held interest in the acquiree (if any), the excess is recognized immediately in profit or loss as bargain purchase gain.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Basis of consolidation—Business combination—Continued

 

All intra-group transactions, balances, incomeNon-controlling interests that are present ownership interests and expenses are eliminated on consolidation.

Minority interestsentitle their holders to a proportionate share of the entity’s net assets in the net assetsevent of consolidated subsidiaries are presented separately fromliquidation may be initially measured either at fair value or at the Group’s equity therein. Minority interests in the net assets consistnon-controlling interests’ proportionate share of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

Business combination

The acquisition of business is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given and liabilities incurred or assumed by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities are recognized at their fair values at the acquisition date according to IFRS 3 Business Combinations.

Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized. If, after reassessment, the Group’s interest in the net fair valueamounts of the acquiree’s identifiable assets, liabilities and contingent liabilities exceedsnet assets. The choice of measurement basis is made on a transaction-by-transaction basis. The Group applies the costnon-controlling interests’ proportionate share of the business combination, the excess is recognized immediately in profit or loss.

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

Acquisition of additional interests in subsidiary

Goodwill arising on acquisition of additional interest in subsidiary represents the excess of the cost of acquisition over the carrying value of theacquiree’s identifiable net assets attributable to the additional interest in the subsidiary.account for all its acquisitions.

Interests in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. 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 these consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of net assets of the associates, less any identified impairment loss. When the Group’sGroup's share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. An additional share of losses is provided for and a liability is recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate. If the associate subsequently reports profits, the Group resumes recognizing its share of those profits only after its share of the profits exceeds the accumulated share of losses that has previously not been recognized.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Interests in associates—Continued

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

The requirements of IAS 39 are applied to determine whether it is necessary to recognize any impairment loss with respect to the 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 recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Interests in joint ventures

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control (i.e. when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control).

When a group entity undertakes its activities under joint venture arrangements directly, the Group’s share of jointly controlled assets and any liabilities incurred jointly with other venturers are recognized in the financial statements of the relevant entity and classified according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the Group’s share of the output of jointly controlled assets, and its share of joint venture expenses, are recognized when it is probable that the economic benefits associated with the transactions will flow to/from the Group and their amount can be measured reliably.

Joint venture arrangements that involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using the equity method of accounting and the details of equity method of accounting have been set out in the accounting policy for interests in associates. When a group entity transacts with a jointly controlled entity of the Group, unrealized profits and losses are eliminated to the extent of the Group’s interest in the joint venture.

The Group’s share using proportionate consolidation of the assets, liabilities, revenue and expenses of other joint ventures (no separate entity has been established) are included in the appropriate items of the financial statements.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Revenue recognition

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

Sales of goods are recognized upon transfer of the significant risks and rewards of ownership to the customer. This is usually taken as the time when the goods are delivered and titlethe customer has been passed.accepted the goods.

Service income is recognized when services are provided.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Revenue recognition—Continued

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

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Intangible assets (other than goodwill)

Intangible assets acquired separately

Intangible assets acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Internally-generated intangible assets – research and development expenditure

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

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

No development expenditure has been deferred by the Company.

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

(i) Coal reserves

Coal reserves represent the portion of total proven and probable reserves in the coal mine of a mining right. Coal reserves are amortized over the life of the mine on a unit of production basis of the estimated total proven and probable reserves or the Australia Joint Ore Reserves Committee (“JORC”) reserves for the Group’s subsidiaries in Australia. Changes in the annual amortization rate resulting from changes in the remaining reserves are applied on a prospective basis from the commencement of the next financial year.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Intangible assets (other than goodwill)—Continued

 

(i) Coal reserves

Coal reserves represent the portion of total proven and probable reserves in the coal mine of a mining right. Coal reserves are amortized on a straight line basis over the shorter of their useful life estimated based on the total proven and probable reserves of the coal mine or contractual period from the date of acquisition which approximates the date from which they are available for use, or are amortized over the life of the mine on a unit of production basis of Australia Joint Ore Reserves Committee (“JORC”) reserves. Changes in the annual amortization rate resulting from changes in the remaining JORC reserves are applied on a prospective basis from the commencement of the next financial year.

(ii) Coal resources

Coal resources represent the fair value of economically recoverable reserves (excluding the portion of total proven and probable reserves of coal mines of a mining right i.e. does not include the above coal reserves) of coal mines of a mining right (Details are set out in the accounting policy of exploration and evaluation expenditure). When production commences, the coal resources for the relevant areas of interest are amortized over the life of the area according to the rate of depletion of the economically recoverable reserves.

(iii) Rail access rights

Rail access rights are amortized on a straight line basis or on a unit of production basis under agreement over the life of the mine.

Exploration and evaluation expenditure

Exploration and evaluation expenditure incurred is accumulated in respect of each separately identifiable area of interest which is at individual mine level. These costs are only carried forward where the right of tenure for the area of interest is current and to the extent that they are expected to be recouped through successful development and commercial exploitation, or alternatively, sale of the area, or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing.

The carrying amount of exploration and evaluation assets is assessed for impairment when facts or circumstances suggest the carrying amount of the assets may exceed their recoverable amount.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Accumulated costs in relation to an abandoned area are written-off in full in the period in which the decision to abandon the area is made.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Exploration and evaluation expenditure—Continued

When production commences, the accumulated costs for the relevant area of interest are amortized over the life of the area according to the rate of depletion of the economically recoverable reserves.

Capitalized exploration and evaluation expenditure considered to be tangible is recorded as a component of property, plant and equipment. Otherwise, it is recorded as an intangible asset.

Exploration and evaluation expenditure acquired in a business combination are recognized at their fair value at the acquisition date (the fair value of potential economically recoverable reserves at the acquisition date which is shown as “coal resources”)

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Prepaid lease payments

Prepaid lease payments represent land use rights under operating lease arrangement and are stated at cost less accumulated amortization and accumulated impairment losses.

Property, plant and equipment

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

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

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

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

Impairment other than goodwill

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

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.

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Impairment other than goodwill—Continued

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Goodwill

Goodwill arising on acquisitions prior to January 1, 2005

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

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

Goodwill arising on acquisitions on or after January 1, 2005

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

Goodwill is presented separately in the consolidated balance sheet.

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

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

 

Inventories

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

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

Overburden in advance

Overburden in advance comprises the accumulation of expenses incurred to enable access to the coal seams, and includes direct removal costs, machinery and plant running costs. The deferred costs are then charged to the consolidated income statement in subsequent periods on the basis of run-of-mine (“ROM”) coal tonnes mined. This is calculated by multiplying the ROM coal tonnes mined during the period by the weighted average cost to remove a bank cubic metremet re (“BCM”) of waste by the stripping ratio (ratio of waste removed in BCMs to ROM coal tonnes mined). The stripping ratio of the Company’sCompany's Australian subsidiaries is based on the JORC reserves of each mine.

Taxation

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

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

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

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

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Taxation—Continued

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

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

Felix and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. Each entity in the tax consolidated group recognizes its own deferred tax assets and liabilities, except where the deferred tax assets relate to unused tax losses and credits, in which case Felix recognizes the assets. Felix group has entered into a tax sharing agreement whereby each company in the Felix group contributes to the income tax payable in proportion to their contribution to the profit before tax of the tax consolidated group. The tax consolidated group has also entered into a tax funding agreement whereby each entity in the Felix group can recognize their balance of the current tax assets and liabilities through inter-entity accounts.

Land subsidence, restoration, rehabilitation and environmental costs

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

An estimate of such costs is recognized in the period in which the obligation is identified and is charged as an expense in proportion to the coal extracted. At each balance sheet date, the Group adjusts the estimated costs in accordance with the actual land subsidence status. The provision is also adjusted for changes in estimates. Those adjustments are accounted for as a change in the corresponding capitalized cost, except where a reduction in the provision is greater than the undepreciated capitalized cost of any related assets, in which case the capitalized cost is reduced to nil and remaining adjustment is recognized in the income statement. Changes to the capitalized cost result in an adjustment to future depreciation and financial charges.

LeasesLeasing

Leases are classified as finance leases whenever the terms of fixed assets wherethe lease transfer substantially all the risks and benefits incidental torewards of ownership of the assets, but not the legal ownership, are transferred to the entities in the Grouplessee. All other leases are classified as operating leases.

Where the Group acquires the use of assets under finance leases. Finance leases, are capitalized, recording an asset and a liability equal to the lower ofamounts representing the fair value of the leased property plus transaction costs incurredasset, or, if lower, the present valuevalues of the minimum lease payments including any guaranteed residual value. Leasedof such assets are depreciated on a straight-line basis over their estimated useful lives where it is likely that the Group will obtain ownership of the assets or over the shorter of the asset’s useful lifeincluded in property, plant and equipment and the termcorresponding liabilities, net of the lease. Lease payments are allocated between the reduction of the lease liability and lease finance charges, for the year.

are recorded as an obligation under finance leases.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Leases—Leasing—Continued

The net gains arisingEach lease payment is allocated between liability and finance charges so as to achieve a constant rate of interest on the sale of an asset and the leasing backremaining balance of the same asset using aliability. The finance lease liabilities are included as deferred incomein current and non-current borrowings. The finance charges are expensed in the balance sheet and are released to the consolidated income statement over the lease periods so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The assets accounted for as finance leases are depreciated over the shorter of their estimated useful lives or the lease periods.

Operating lease payments are recognized as an expense on a straight-line basis over the termlease term. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.

Provisions and contingent liabilities

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the lease.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses on a straight-line basis over the termamount of the lease.obligation can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future uncertain events not wholly within the control of the Group are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Borrowing costs

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

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

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e., the currency of the primary environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

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

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

 

Government grants

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

Annual leave, sick leave and long service leave

Benefits accruing to employees in respect of wages and salaries, annual leave and sick leave are included in trade and other payables. Related on-costs are also included in trade and other payables as other creditors. Long service leave is provided for when it is probable that settlement will be required and it is capable of being measured reliably.

Employee benefits expected to be settled within 12 months are measured using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to the reporting date.

Retirement benefit costs

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

Financial instruments

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

Financial assets

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Financial instruments—Continued

Financial assets—assetsContinued

 

Loan and receivables

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

Available-for-sale financial assets

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

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

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

Impairment of financial assets

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

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

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

 

significant financial difficulty of the issuer or counterparty; or

 

default or delinquency in interest or principal payments; or

 

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

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Financial instruments—Continued

Financial assets—Continued

Impairment of financial assets—Continued

 

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

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

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

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

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

Financial liabilities and equity

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

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Financial instruments—Continued

Financial liabilities and equity—Continued

 

Financial liabilities

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

Equity instruments

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

Derecognition

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

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

Accounting for derivative financial instruments and hedging activities

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

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

The fair values of various derivative instruments used for hedging purposes are disclosed in note 37.36. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Financial instruments—Continued

Accounting for derivative financial instruments and hedging activities—Continued

 

(i) Fair value hedge

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

(ii) Cash flow hedge

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

Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognized in profit or loss.

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

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

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. SIGNIFICANT ACCOUNTING POLICIES—Continued

Related Parties

For the purposes of these financial statements, a party is considered to be related to the Group if:

(i)the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;

(ii)the Group and the party are subject to common control;

(iii)the party is an associate of the Group or a joint venture in which the Group is a venturer;

(iv)the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;

(v)the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or

(vi)the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

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

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized 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.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. KEY SOURCES OF ESTIMATION UNCERTAINTY—Continued

Depreciation of property, plant and equipment

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

Amortization of assets

Coal reserves, coal resources and rail access rights are amortized on a straight line basis or unit of production basis over the shorter of their useful lives and the contractual period. The expensing of overburden removal costs is based on saleable coal production over estimated economically recoverable reserves. The useful lives are estimated on the basis of the total proven and probable reserves of the coal mine. Proven and probable coal reserve estimates are updated at regular basisintervals and have taken into account of recent production and technical information about each mine.

Provision for land subsidence, restoration, rehabilitation and environmental costs

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

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. As at December 31, 2009,2010, the carrying amount of goodwill is RMB1,305,345,000 (2008: RMB 298,650,000)RMB1,196,586,000 (2009: RMB1,305,345,000).

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

5. KEY SOURCES OF ESTIMATION UNCERTAINTY—Continued

 

Estimated impairment of property, plant and equipment

When there is an impairment indicator, the Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. Where the actual future cash flows are less than expected, a material impairment loss may arise. In estimating the future cash flows, the management have taken into account the recent production and technical advancement. As prices and cost levels change from year to year, the estimate of the future cash flow also changes. Notwithstanding the management has used all the available information to make their impairment assessment, inherent uncertainty exists on conditions of the mine and of the environment and actual written off may be higher than the amount estimated. As at December 31, 2009,2010, the carrying amounts of property, plant and equipment is approximately RMB18,877,134,000 (2008: RMB14,149,446,000)RMB19,874,615,000 (2009: RMB18,877,134,000). During the year ended December 31, 2009, RMB14,199,0002010, RMB1,491,000 was written off as expenses (2008: nil; 2007: RMB 339,743,000)(2009: RMB14,199,000; 2008: nil). In addition, during the year ended December 31, 2010, impairment loss on property, plant and equipment of RMB97,559,000 was recognized (2009: nil) by the Group and details of this impairment are set out in note 24.

6. SEGMENT INFORMATION

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

Gross revenue disclosed below is same as the turnover.

For management purposes, the Group is currently organized into three operating divisions - coal mining, coal railway transportation and methanol, electricity and heat supply. These divisions are the basis on which the Group reports its segment information.

Principal activities are as follows:

 

Coal mining  -  Underground and open-cut mining, preparation and sales of coal
Coal railway transportation  -  Provision of railway transportation services

Methanol, electricity and heat supply

  -  Production and sales of methanol and electricity and related heat supply services

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. SEGMENT INFORMATION—Continued

The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 4. Segment profit represents the profit earned by each segment without allocation of corporate expenses and directors’ emoluments, results of associates, investment revenue, interest income, interest expenses and income tax expenses. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. SEGMENT INFORMATION—Continued

Segment information about these businesses is presented below:

INCOME STATEMENT

 

  For the year ended December 31, 2009  For the year ended December 31, 2010 
  Coal mining  Coal railway
transportation
  Methanol,
electricity
and heat
supply
  Unallocated  Eliminations Consolidated  Coal mining   Coal railway
transportation
   Methanol,
electricity
and heat
supply
   Unallocated   Eliminations Consolidated 
  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000 RMB’000  RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 RMB’000 

GROSS REVENUE

                      

External

  19,537,191  258,443  457,728  —    —     20,253,362   32,590,911     513,282     840,059     —       —      33,944,252  

Inter-segment

  169,153  61,507  474,946  —    (705,606 —     339,355     36,051     455,259     —       (830,665  —    
                                         

Total

  19,706,344  319,950  932,674  —    (705,606 20,253,362   32,930,266     549,333     1,295,318     —       (830,665  33,944,252  
                                         

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

 

   For the year ended December 31, 2009 
   Coal
mining
  Coal railway
transportation
  Methanol,
electricity
and heat
supply
  Eliminations  Consolidated 
   RMB’000  RMB’000  RMB’000  RMB’000  RMB’000 

RESULT

        

Segment results

  6,353,496  (171,712 (277,320 —    5,904,464  
                

Unallocated corporate expenses

        (473,221

Unallocated corporate income

        2,288  

Interest income

        187,604  

Share of profit of an associate

  —    —     109,786   —    109,786  

Interest expenses

        (45,115
          

Profit before income taxes

        5,685,806  

Income taxes

        (1,553,312
          

Profit for the year

        4,132,494  
          

   For the year ended December 31, 2010 
   Coal mining   Coal railway
transportation
   Methanol,
electricity
and heat
supply
  Eliminations   Consolidated 
   RMB’000   RMB’000   RMB’000  RMB’000   RMB’000 

RESULT

         

Segment results

   11,096,252     51,554     (459,610  —       10,688,196  
                        

Unallocated corporate expenses

          (473,502

Unallocated corporate income

          2,669,925  

Interest income

          187,189  

Share of profit of associates

   2,102     —       6,768    —       8,870  

Interest expenses

          (603,343
            

Profit before income taxes

          12,477,335  

Income taxes

          (3,171,043
            

Profit for the year

          9,306,292  
            

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

6. SEGMENT INFORMATION—Continued

 

BALANCE SHEET

 

  At December 31, 2009  At December 31, 2010 
  Coal mining  Coal railway
transportation
  Methanol,
electricity
and heat
supply
  Consolidated  Coal mining   Coal railway
transportation
   Methanol,
electricity
and heat
supply
   Consolidated 
  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000   RMB’000   RMB’000 

ASSETS

                

Segment assets

  46,812,323  690,172  4,105,745  51,608,240   57,600,041     637,184     5,083,532     63,320,757  
                            

Interests in an associate

  —    —    939,981  939,981

Interests in associates

   127,102     —       947,856     1,074,958  

Interests in jointly controlled entities

  1,257  —    —    1,257   751     —       —       751  

Unallocated corporate assets

        9,883,113         8,359,398  
                   
        62,432,591         72,755,864  
                   

LIABILITIES

                

Segment liabilities

  5,358,455  85,695  2,005,549  7,449,699   5,170,012     38,782     2,653,337     7,862,131  
                            

Unallocated corporate liabilities

        25,728,599         27,455,282  
                   
        33,178,298         35,317,413  
                   

OTHER INFORMATION

 

  For the year ended December 31, 2009   For the year ended December 31, 2010 
  Coal mining Coal railway
transportation
  Methanol,
electricity
and heat
supply
  Unallocated  Corporate  Consolidated   Coal
mining
 Coal railway
transportation
   Methanol,
electricity
and heat
supply
   Unallocated   Corporate   Consolidated 
  RMB’000 RMB’000  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000 RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

Capital additions (note 1)

  24,086,467   11,401  1,219,970  —    6,954  25,324,792     3,297,996    34,498     452,838     —       2     3,785,334  

Investments in jointly controlled entities

  1,257   —    —    —    —    1,257  

Investments in associates

   125,000    —       —       —       —       125,000  

Amortization of intangible assets

  44,274   —    4  —    —    44,278     341,003    5,014     3,638     —       —       349,655  

Release of prepaid lease payments

  9,606   5,372  2,049  —    —    17,027     9,760    5,372     2,826     —       —       17,958  

Provision for inventories

   —      —       4,411     —       —       4,411  

Impairment loss on property, plant and equipment

   —      —       97,559     —       —       97,559  

Depreciation of property, plant and equipment

  1,409,507   86,251  295,321  —    2,199  1,793,278     1,796,579    77,399     442,427     —       3,042     2,319,447  

Impairment loss on property, plant and equipment

  13,609   —    590  —    —    14,199  

Written off of property, plant and equipment

   —      —       1,491     —       —       1,491  

Impairment losses reversed on accounts receivable and other receivables

  (14,222 —    588  —    —    (13,634   (6,828  —       1,905     —       —       (4,923

Gain on disposal of a joint venture and subsidiaries

   117,928    —       —       —       —       117,928  
                                          

Note 1:Capital additions include those arising from the acquisition of three subsidiaries during the year.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

6. SEGMENT INFORMATION—Continued

INCOME STATEMENT

   For the year ended December 31, 2009 
   Coal mining   Coal railway
transportation
   Methanol,
electricity
and heat
supply
   Unallocated   Eliminations  Consolidated 
   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000  RMB’000 

GROSS REVENUE

           

External

   19,947,748     267,345     462,045     —       —      20,677,138  

Inter-segment

   169,153     61,507     474,946     —       (705,606  —    
                             

Total

   20,116,901     328,852     936,991     —       (705,606  20,677,138  
                             

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

   For the year ended December 31, 2009 
   Coal mining   Coal railway
transportation
  Methanol,
electricity
and heat
supply
  Eliminations   Consolidated 
   RMB’000   RMB’000  RMB’000  RMB’000   RMB’000 

RESULT

        

Segment results

   6,353,496     (171,712  (277,320  —       5,904,464  
                       

Unallocated corporate expenses

         (473,221

Unallocated corporate income

         2,288  

Interest income

         187,604  

Share of profit of an associate

   —       —      109,786    —       109,786  

Interest expenses

         (45,115
           

Profit before income taxes

         5,685,806  

Income taxes

         (1,553,312
           

Profit for the year

         4,132,494  
           

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. SEGMENT INFORMATION—Continued

BALANCE SHEET

   At December 31, 2009 
   Coal mining   Coal railway
transportation
   Methanol,
electricity
and heat
supply
   Consolidated 
   RMB’000   RMB’000   RMB’000   RMB’000 

ASSETS

        

Segment assets

   46,812,323     690,172     4,105,745     51,608,240  
                    

Interest in an associate

   —       —       939,981     939,981  

Interests in jointly controlled entities

   1,257     —       —       1,257  

Unallocated corporate assets

         9,883,113  
           
         62,432,591  
           

LIABILITIES

        

Segment liabilities

   5,358,455     85,695     2,005,549     7,449,699  
                    

Unallocated corporate liabilities

         25,728,599  
           
         33,178,298  
           

OTHER INFORMATION

   For the year ended December 31, 2009 
   Coal
mining
  Coal railway
transportation
   Methanol,
electricity
and heat
supply
   Unallocated   Corporate   Consolidated 
   RMB’000  RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

Capital additions (note 1)

   24,086,467    11,401     1,219,970     —       6,954     25,324,792  

Investments in jointly controlled entities

   1,257    —       —       —       —       1,257  

Amortization of intangible assets

   44,274    —       4     —       —       44,278  

Release of prepaid lease payments

   9,606    5,372     2,049     —       —       17,027  

Depreciation of property, plant and equipment

   1,409,507    86,251     295,321     —       2,199     1,793,278  

Written off of property, plant and equipment

   13,609    —       590     —       —       14,199  

Impairment losses reversed on accounts receivable and other receivables

   (14,222  —       588     —       —       (13,634
                             

 

Note 1:  Capital additions include the increase in goodwill during the year which represents RMB 766,816,000 and RMB239,879,000RMB 239,879,000 in respect of coal mining and methanol, electricity and heat supply segments respectively.
Note 2:  Capital additions and investments in jointly controlled entities include those arising from the acquisition of subsidiaries.subsidiaries.

INCOME STATEMENT

   For the year ended December 31, 2008
   Coal mining  Coal railway
transportation
  Methanol,
electricity

and heat
supply
  Unallocated  Eliminations  Consolidated
   RMB’000  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000

GROSS REVENUE

           

External

  24,557,521  247,199  98,361  —    —     24,903,081

Inter-segment

  131,655  88,458  —    —    (220,113 —  
                  

Total

  24,689,176  335,657  98,361  —    (220,113 24,903,081
                  

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

   For the year ended December 31, 2008 
   Coal mining  Coal railway
transportation
  Methanol,
electricity
and heat
supply
  Eliminations  Consolidated 
   RMB’000  RMB’000  RMB’000  RMB’000  RMB’000 

RESULT

        

Segment results

  9,678,304  (91,781 (185,116 —    9,401,407  
                

Unallocated corporate expenses

        (580,843

Unallocated corporate income

        7,401  

Interest income

        142,990  

Share of loss of an associate

  —    —     (67,367 —    (67,367

Interest expenses

        (38,360
          

Profit before income taxes

        8,865,228  

Income taxes

        (2,385,617
          

Profit for the year

        6,479,611  
          

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. SEGMENT INFORMATION—Continued

BALANCE SHEET

   At December 31, 2008
   Coal mining  Coal railway
transportation
  Methanol,
electricity

and heat
supply
  Consolidated
   RMB’000  RMB’000  RMB’000  RMB’000

ASSETS

        

Segment assets

  18,315,343  757,081  2,906,695  21,979,119
            

Interests in an associate

  —    —    830,195  830,195

Unallocated corporate assets

        9,529,317
         
        32,338,631
         

LIABILITIES

        

Segment liabilities

  2,264,820  46,008  1,215,524  3,526,352
            

Unallocated corporate liabilities

        1,995,669
         
        5,522,021
         

OTHER INFORMATION

   For the year ended December 31, 2008 
   Coal
mining
  Coal railway
transportation
  Methanol,
electricity
and heat

supply
  Unallocated  Corporate  Consolidated 
   RMB’000  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000 

Capital additions

  1,925,294   29,234  925,084  —    2,105  2,881,717  

Amortization of intangible assets

  35,652   —    —    —    —    35,652  

Release of prepaid lease payments

  9,379   5,372  358  —    —    15,109  

Depreciation of property, plant and equipment

  1,009,365   79,912  49,159  —    2,373  1,140,809  

Gain on disposal of property, plant and equipment

  (12,317 —    —    —    —    (12,317

Impairment losses reversed on accounts receivable and other receivables

  (4,369 —    —    —    —    (4,369
                   

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

6. SEGMENT INFORMATION—Continued

 

INCOME STATEMENT

 

  For the year ended December 31, 2007  For the year ended December 31, 2008 
  Coal mining  Coal railway
transportation
  Unallocated  Eliminations Consolidated  Coal mining   Coal railway
transportation
   Methanol,
electricity
and heat
supply
   Unallocated   Eliminations Consolidated 
  RMB’000  RMB’000  RMB’000  RMB’000 RMB’000  RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 RMB’000 

GROSS REVENUE

                    

External

  14,906,746  203,714  —    —     15,110,460   24,933,349     255,713     98,361     —       —      25,287,423  

Inter-segment

  —    103,267  —    (103,267 —     131,655     88,458     —       —       (220,113  —    
                                      

Total

  14,906,746  306,981  —    (103,267 15,110,460   25,065,004     344,171     98,361     —       (220,113  25,287,423  
                                      

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

 

   For the year ended December 31, 2007 
   Coal
mining
  Coal railway
transportation
  Unallocated  Eliminations  Consolidated 
   RMB’000  RMB’000  RMB’000  RMB’000  RMB’000 

RESULT

        

Segment results

  5,027,049  (78,653 (84,252 —    4,864,144  
                

Unallocated corporate expenses

        (401,878

Unallocated corporate income

        7,143  

Interest income

        103,564  

Share of loss of an associate

  —    —     —     —    (2,438

Interest expenses

        (27,222
          

Profit before income taxes

        4,543,313  

Income taxes

        (1,315,520
          

Profit for the year

        3,227,793  
          

   For the year ended December 31, 2008 
   Coal
mining
   Coal railway
transportation
  Methanol,
electricity
and heat
supply
  Eliminations   Consolidated 
   RMB’000   RMB’000  RMB’000  RMB’000   RMB’000 

RESULT

        

Segment results

   9,678,304     (91,781  (185,116  —       9,401,407  
                       

Unallocated corporate expenses

         (580,843

Unallocated corporate income

         7,401  

Interest income

         142,990  

Share of loss of an associate

   —       —      (67,367  —       (67,367

Interest expenses

         (38,360
           

Profit before income taxes

         8,865,228  

Income taxes

         (2,385,617
           

Profit for the year

         6,479,611  
           

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

6. SEGMENT INFORMATION—Continued

 

OTHER INFORMATION

 

  For the year ended December 31, 2007   For the year ended December 31, 2008 
  Coal
mining
 Coal railway
transportation
  Unallocated  Corporate  Consolidated   Coal
mining
 Coal railway
transportation
   Methanol,
electricity
and heat
supply
   Unallocated   Corporate   Consolidated 
  RMB’000 RMB’000  RMB’000  RMB’000  RMB’000   RMB’000 RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

Capital additions

  1,234,177   30,367  1,704,375  24,100  2,993,019     1,925,294    29,234     925,084     —       2,105     2,881,717  

Amortization of intangible assets

  15,728   —    —    —    15,728     35,652    —       —       —       —       35,652  

Release of prepaid lease payments

  8,635   5,226  —    —    13,861     9,379    5,372     358     —       —       15,109  

Depreciation of property, plant and equipment

  1,135,820   81,059  1,289  18,964  1,237,132     1,009,365    79,912     49,159     —       2,373     1,140,809  

Gain on disposal of property, plant and equipment

  (25,002 —    —    —    (25,002   (12,317  —       —       —       —       (12,317

Impairment loss on property, plant and equipment

  339,743   —    —    —    339,743  

Impairment losses reversed on accounts receivable and other receivables

  (4,363 —    —    —    (4,363   (4,369  —       —       —       —       (4,369
                                       

GEOGRAPHICAL INFORMATION

The following table sets out the geographical information. The geographical location of sales to external customers is based on the location at which the services were provided or the goods delivered. The geographical location of the specified non-current assets is based on the physical location of the asset, in the case of property, plant and equipment, the location of the operation to which they are allocated, in the case of intangible assets and goodwill, and the location of operations, in the case of interests in an associateassociates and jointly controlled entities.

The geographical information of sales are as follows:

   Revenue from external customers
   For the year ended December 31,
   2009  2008  2007
   RMB’000  RMB’000  RMB’000

The PRC (place of domicile)

  19,210,201  23,034,544  13,559,475

Australia

  45,121  16,346  23,175

Others

  998,040  1,852,191  1,527,810
         

Total

  20,253,362  24,903,081  15,110,460
         

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. SEGMENT INFORMATION—Continued

Geographical Information—Continued

 

The geographical information of sales are as follows:

   Revenue from external customers 
   For the year ended December 31, 
   2010   2009   2008 
   RMB’000   RMB’000   RMB’000 

The PRC (place of domicile)

   28,633,685     19,633,977     23,418,886  

Australia

   115,227     45,121     16,346  

Others

   5,195,340     998,040     1,852,191  
               

Total

   33,944,252     20,677,138     25,287,423  
               

The geographical information of specified non-current assets are as follows:

 

  Specified non-current assets  Specified non-current assets 
  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

The PRC (place of domicile)

  17,347,369  16,097,008   17,412,174     17,347,369  

Australia

  23,334,361  849,109   25,095,982     23,334,361  
              

Total non-current assets

  40,681,730  16,946,117   42,508,156     40,681,730  
              

For the year ended December 31, 2009,2010, the revenue from coal mining segment amounted to RMB19,537,191,000 (2008: RMB24,557,521,000; 2007: RMB14,906,746,000)RMB32,590,911,000 (2009: RMB19,947,748,000; 2008: RMB24,933,349,000) which including sales to the Group’s largest customer located in the PRC of approximately RMB 3,122,684,000 (2008: RMB 4,413,948,000; 2007: RMB 1,802,144,000)RMB4,443,729,000 (2009: RMB3,122,684,000; 2008: RMB4,413,948,000). As at December 31, 2009,2010, accounts receivable from this customer accounted for approximately 0% (2008: 20%(2009: 0%) of the Group’s total accounts receivable. Other than this customer, there is no other customer whose sales accounted for 10% or more of the Group’s total revenue.

7. NET SALES OF COAL

 

  Year ended December 31,  Year ended December 31, 
  2009  2008  2007  2010   2009   2008 
  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000   RMB’000 

Coal sold in the PRC, gross

  18,494,030  22,688,984  13,355,761   27,280,344     18,903,375     23,033,777  

Less: Transportation costs

  305,110  356,517  280,694   316,452     305,110     356,517  
                     

Coal sold in the PRC, net

  18,188,920  22,332,467  13,075,067   26,963,892     18,598,265     22,677,260  
                     

Coal sold outside the PRC, gross

  1,043,161  1,868,537  1,550,985   5,310,567     1,044,373     1,899,572  

Less: Transportation costs

  98,201  152,195  269,122   844,018     98,201     152,195  
                     

Coal sold outside the PRC, net

  944,960  1,716,342  1,281,863   4,466,549     946,172     1,747,377  
                     

Net sales of coal

  19,133,880  24,048,809  14,356,930   31,430,441     19,544,437     24,424,637  
                     

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

8. COST OF SALES AND SERVICE PROVIDED

 

  Year ended December 31,  Year ended December 31, 
  2009  2008  2007  2010   2009   2008 
  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000   RMB’000 

Materials

  1,482,653  1,616,865  1,257,433   2,017,681     1,482,653     1,616,865  

Wages and employee benefits

  3,281,578  2,624,821  2,392,447   4,695,000     3,281,578     2,624,821  

Electricity

  500,518  346,401  377,686   223,639     500,518     346,401  

Depreciation

  1,286,265  907,218  1,121,557   1,462,706     1,286,265     907,218  

Land subsidence, restoration, rehabilitation and environmental costs

  1,738,103  3,279,503  833,282   1,545,302     1,738,103     3,279,503  

Repairs and maintenance

  —    —    441,511

Annual fee and amortization of mining rights (note 24)

  181,344  170,793  28,708

Annual fee and amortization of mining rights (note 23)

   481,711     181,344     170,793  

Transportation costs

  86,618  131,301  105,930   76,171     86,618     131,301  

Cost of traded coal

  1,077,538  1,810,342  —     3,955,603     1,077,538     1,810,342  

Business tax and surcharges

   505,491     419,459     388,878  

Others

  535,915  929,545  773,370   1,838,019     535,915     925,009  
                     
  10,170,532  11,816,789  7,331,924   16,801,323     10,589,991     12,201,131  
                     

9. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

  Year ended December 31,  Year ended December 31, 
  2009  2008  2007  2010   2009   2008 
  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000   RMB’000 

Wages and employee benefits

  1,402,920  1,374,698  1,093,732   1,347,221     1,402,920     1,374,698  

Additional medical insurance

  20,919  53,068  22,896   67,420     20,919     53,068  

Staff training costs

  35,398  24,412  38,735   65,097     35,398     24,412  

Depreciation

  168,334  114,451  129,436   298,895     168,334     114,451  

Distribution charges

  148,580  103,209  93,014   835,900     148,580     103,209  

Resource compensation fees (note)

  177,842  159,938  117,772   226,578     177,842     159,938  

Repairs and maintenance

  474,233  424,751  34,348   614,173     474,233     424,751  

Research and development

  46,321  106,516  78,973   70,606     46,321     106,516  

Freight charges

  28,556  20,247  29,305   24,540     28,556     20,247  

Property, plant and equipment written off

  14,199  —    339,743   1,491     14,199     —    

Impairment loss on property, plant and equipment

   97,559     —       —    

Loss on disposal of property, plant and equipment

  11,252  —    —     16,937     11,252     —    

Legal and professional fees

  88,320  76,328  74,661   71,152     88,320     76,328  

Social welfare and insurance

  101,693  138,264  93,140   135,341     101,693     138,264  

Utilities relating to administrative buildings

  239,439  147,737  109,269   368,063     239,439     147,737  

Environmental protection

  82,426  48,028  26,700   110,254     82,426     48,028  

Travelling, entertainment and promotion

  79,734  80,109  87,644   98,709     79,734     80,109  

Foreign exchange losses

  —    328,858  3,150   —       —       328,858  

Coal price adjustment fund

  266,876  264,815  105,421   289,652     266,876     264,815  

Bonus payments

  67,842  49,977  75,655   —       67,842     49,977  

Others

  365,357  316,625  301,083   354,316     365,357     316,625  
                     
  3,820,241  3,832,031  2,854,677   5,093,904     3,820,241     3,832,031  
                     

 

Note:

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

10. OTHER INCOME

 

  Year ended December 31,  Year ended December 31, 
  2009  2008  2007  2010   2009   2008 
  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000   RMB’000 

Dividend income

  2,288  7,401  7,143   4,504     2,288     7,401  

Gain on sales of auxiliary materials

  25,769  37,762  63,579   22,820     25,769     37,762  

Government grants

  29,839  3,500  —     43,273     29,839     3,500  

Interest income from bank deposits

  187,604  142,990  103,564   187,189     187,604     142,990  

Interest income from entrusted loan (note 20)

  —    132,230  —  

Interest income from entrusted loan

   —       —       132,230  

Exchange gain, net

   2,665,421     46,151     —    

Gain on disposal of a joint venture and subsidiaries

   117,928     —       —    

Others

  65,519  27,610  24,644   66,946     19,368     27,610  
                     
  311,019  351,493  198,930   3,108,081     311,019     351,493  
                     

The above dividend income is from listed investments.

11. INTEREST EXPENSE

 

  Year ended December 31,  Year ended December 31, 
  2009  2008  2007  2010   2009   2008 
  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000   RMB’000 

Interest expenses on:

            

- bank borrowings wholly repayable within 5 years

  18,838  20,537  10,522   594,679     18,838     20,537  

- bank borrowings not wholly repayable within 5 years

  11,396  15,899  14,200   5,369     11,396     15,899  

- bills receivable discounted without recourse

  13,665  75  —     2,695     13,665     75  

Deemed interest expenses in respect of acquisition of Jining III

  1,216  1,849  2,500   600     1,216     1,849  
                     
  45,115  38,360  27,222   603,343     45,115     38,360  
                     

12. INCOME TAXES

 

   Year ended December 31, 
   2009  2008  2007 
   RMB’000  RMB’000  RMB’000 

Income taxes:

    

Current taxes

  1,771,674   2,351,759   1,484,195  

Under(over) provision in prior years

  42,221   265,390   (104,512
          
  1,813,895   2,617,149   1,379,683  

Deferred tax charge (note 39)

  (260,583 (231,532 1,925  

Attributable to a change in tax rate

  —     —     (66,088
          
  1,553,312   2,385,617   1,315,520  
          
   Year ended December 31, 
   2010   2009  2008 
   RMB’000   RMB’000  RMB’000 

Income taxes:

     

Current taxes

   2,467,741     1,771,674    2,351,759  

Under provision in prior years

   10,085     42,221    265,390  
              
   2,477,826     1,813,895    2,617,149  

Deferred tax charge (note 38)

   693,217     (260,583  (231,532
              
   3,171,043     1,553,312    2,385,617  
              

The Company and its subsidiaries in the PRC are subject to a standard income tax rate of 25% on its taxable income (2008:(2009: 25%; 2007: 33%2008: 25%).

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

12. INCOME TAXES—Continued

 

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

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

 

  Year ended December 31,   Year ended December 31, 
  2009 2008 2007   2010 2009 2008 
  RMB’000 RMB’000 RMB’000   RMB’000 RMB’000 RMB’000 

Standard income tax rate in the PRC

  25 25 33   25  25  25

Standard income tax rate applied to income before income taxes

  1,421,452   2,216,307   1,499,293     3,119,333    1,421,452    2,216,307  

Reconciling items:

        

Tax effect of future development fund deductible for tax purposes

  (20,436 —     (67,449   (18,601  (20,436  —    

Deemed interest not deductible for tax purposes

  304   462   825     150    304    462  

Expenses not deductible for tax purposes

  (64,170 (74,491 29,008  

(Reversal) provision of impairment loss on doubtful debts not subject to tax

  —     (11,398 (1,439

Effect of income exempt from taxation

   (242,252  (64,170  (74,491

Reversal of impairment loss on doubtful debts not subject to tax

   —      —      (11,398

Deemed interest income from subsidiaries subject to tax

  31,134   40,213   17,402     18,571    31,134    40,213  

Tax effect of tax losses not recognized

  135,268   28   3,824     150,590    135,268    28  

Under (over) provision in prior years

  42,221   265,390   (104,512

Decrease in opening deferred tax liability resulting from decrease in applicable tax rate

  —     —     (66,088

Under provision in prior years

   10,085    42,221    265,390  

Utilization of unrecognized tax losses in prior years

  —     (51,600 —       —      —      (51,600

Effect of tax rate differences in other taxation jurisdictions

  1,504   —     —       135,942    1,504    —    

Others

  6,035   706   4,656     (2,775  6,035    706  
                    

Income taxes

  1,553,312   2,385,617   1,315,520     3,171,043    1,553,312    2,385,617  
                    

Effective income tax rate

  27 27 29   25  27  27
                    

13. PROFIT FOR THE YEAR

 

   Year ended December 31, 
   2009  2008  2007 
   RMB’000  RMB’000  RMB’000 

Profit for the year has been arrived at after charging:

    

Amortization of intangible assets

  44,278   35,652   15,728  

Depreciation of property, plant and equipment

  1,793,278   1,140,809   1,237,132  
          

Total depreciation and amortization

  1,837,556   1,176,461   1,252,860  
          

Release of prepaid lease payments

  17,027   15,109   13,861  

Auditors’ remuneration

  12,401   10,157   14,683  

Staff costs, including directors’ and supervisors’ emoluments

  4,897,951   4,358,556   3,572,734  

Retirement benefit scheme contributions (included in staff costs above)

  1,092,817   867,808   720,091  

Cost of inventories

  9,219,686   11,986,520   7,145,614  

Exchange loss, net

and crediting:

  —     328,858   3,150  

Exchange gains, net

  (46,151 —     —    

Gain on disposal of property, plant and equipment

  —     (12,317 (25,002

Reversal of impairment loss on accounts receivable and other receivables

  (13,634 (4,369 (4,363
          

   Year ended December 31, 
   2010  2009  2008 
   RMB’000  RMB’000  RMB’000 

Profit for the year has been arrived at after charging:

    

Amortization of intangible assets

   349,655    44,278    35,652  

Depreciation of property, plant and equipment

   2,319,447    1,793,278    1,140,809  
             

Total depreciation and amortization

   2,669,102    1,837,556    1,176,461  
             

Release of prepaid lease payments

   17,958    17,027    15,109  

Auditors’ remuneration

   16,763    12,401    10,157  

Staff costs, including directors’ and supervisors’ emoluments

   5,988,821    4,897,951    4,358,556  

Retirement benefit scheme contributions (included in staff costs above)

   785,051    1,092,817    867,808  

Cost of inventories

   16,167,748    9,219,686    11,986,520  

Including: provision for inventories

   4,411    —      —    

Exchange loss, net and crediting:

   —      —      328,858  

Exchange gains, net

   (2,665,421  (46,151  —    

Gain on disposal of property, plant and equipment

   —      —      (12,317

Reversal of impairment loss on accounts receivable and other receivables

   (4,923  (13,634  (4,369
             

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

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

(a) Directors’ and supervisors’ emoluments

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

 

   For the year ended December 31, 2009
   Fees  Salaries, allowance
and other benefits
in kind
  Retirement
benefit scheme
contributions
  Total
   RMB’000  RMB’000  RMB’000  RMB’000

Independent non-executive directors

        

Pu Hongjiu

  109  —    —    109

Zhai Xigui

  109  —    —    109

Li Weian

  109  —    —    109

Wang Junyan

  109  —    —    109
            
  436  —    —    436
            

Executive directors

        

Wang Xin

  —    —    —    —  

Geng Jiahuai

  —    —    —    —  

Yang Deyu

  —    148  29  177

Shi Xuerang

  —    —    —    —  

Chen Changchun

  —    —    —    —  

Wu Yuxiang

  —    220  44  264

Wang Xinkun

  —    250  50  300

Zhang Baocai

  —    220  44  264

Dong Yunqing

  —    220  44  264
            
  —    1,058  211  1,269
            

Supervisors

        

Song Guo

  —    —    —    —  

Zhang Shengdong

  —    —    —    —  

Zhou Shoucheng

  —    —    —    —  

Zhen Ailan

  —    —    —    —  

Wei Huanmin

  —    220  44  264

Xu Bentai

  —    259  52  311
            
  —    479  96  575
            

Other management team

        

Li Weimin

  —    61  12  73

Jin Tai

  —    61  13  74

Zhang Yingmin

  —    61  12  73

He Ye

  —    61  12  73

Tian Fengze

  —    221  44  265

Shi Chenzhong

  —    250  50  300

Qu Tianzhi

  —    250  50  300

Ni Xinghua

  —    250  50  300

Lai Cunliang

  —    540  —    540
            
  —    1,755  243  1,998
            

   For the year ended December 31, 2010 
   Fees   Salaries, allowance
and other benefits
in kind
   Retirement
benefit  scheme
contributions
   Total 
   RMB’000   RMB’000   RMB’000   RMB’000 

Independent non-executive directors

        

Pu Hongjiu

   113     —       —       113  

Zhai Xigui

   113     —       —       113  

Li Weian

   113     —       —       113  

Wang Junyan

   113     —       —       113  
                    
   452     —       —       452  
                    

Executive directors

        

Wang Xin

   —       —       —       —    

Geng Jiahuai

   —       —       —       —    

Li Weimin

   —       188     38     226  

Shi Xuerang

   —       —       —       —    

Chen Changchun

   —       —       —       —    

Wu Yuxiang

   —       269     54     323  

Wang Xinkun

   —       343     69     412  

Zhang Baocai

   —       312     62     374  

Dong Yunqing

   —       309     62     371  
                    
   —       1,421     285     1,706  
                    

Supervisors

        

Song Guo

   —       —       —       —    

Zhang Shengdong

   —       —       —       —    

Zhou Shoucheng

   —       —       —       —    

Zhen Ailan

   —       —       —       —    

Wei Huanmin

   —       305     61     366  

Xu Bentai

   —       346     69     415  
                    
   —       651     130     781  
                    

Other management team

        

Jin Tai

   —       189     38     227  

Zhang Yingmin

   —       189     38     227  

He Ye

   —       188     38     226  

Tian Fengze

   —       291     58     349  

Shi Chenzhong

   —       342     68     410  

Qu Tianzhi

   —       285     57     342  

Ni Xinghua

   —       328     66     394  

Lai Cunliang

   —       664     —       664  
                    
   —       2,476     363     2,839  
                    

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

(a) Directors’ and supervisors’ emoluments—Continued

   For the year ended December 31, 2008
   Fees  Salaries, allowance
and other benefits
in kind
  Retirement
benefit  scheme
contributions
  Total
   RMB’000  RMB’000  RMB’000  RMB’000

Independent non-executive directors

        

Pu Hongjiu

  104  —    —    104

Cui Jianmin

  50  —    —    50

Wang Xiaojun

  60  —    —    60

Wang Quanxi

  50  —    —    50

Zhai Xigui

  54  —    —    54

Li Weian

  54  —    —    54

Wang Junyan

  54  —    —    54
            
  426  —    —    426
            

Executive directors

        

Wang Xin

  —    —    —    —  

Geng Jiahuai

  —    —    —    —  

Yang Deyu

  —    —    —    —  

Shi Xuerang

  —    —    —    —  

Chen Changchun

  —    —    —    —  

Wu Yuxiang

  —    192  38  230

Wang Xinkun

  —    218  44  262

Zhang Baocai

  —    191  38  229

Dong Yunqing

  —    192  38  230
            
  —    793  158  951
            

Supervisors

        

Meng Xianchang

  —    —    —    —  

Song Guo

  —    —    —    —  

Zhang Shengdong

  —    —    —    —  

Liu Weixin

  —    —    —    —  

Zhou Shoucheng

  —    —    —    —  

Zhen Ailan

  —    —    —    —  

Wei Huanmin

  —    192  38  230

Xu Bentai

  —    207  41  248
            
  —    399  79  478
            

Other management team

        

Jin Tai

  —    —    —    —  

Zhang Yingmin

  —    —    —    —  

He Ye

  —    —    —    —  

Tian Fengze

  —    192  38  230

Shi Chenzhong

  —    218  44  262

Qu Tianzhi

  —    218  44  262

Ni Xinghua

  —    218  44  262

Lai Cunliang

  —    508  102  610
            
  —    1,354  272  1,626
            

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

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

(a) Directors’ and supervisors’ emoluments—Continued

 

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

   For the year ended December 31, 2007
   Fees  Salaries, allowance
and other benefits
in kind
  Retirement
benefit  scheme
contributions
  Total
   RMB’000  RMB’000  RMB’000  RMB’000

Independent non-executive directors

        

Pu Hongjiu

  96  —    —    96

Cui Jianmin

  96  —    —    96

Wang Xiaojun

  115  —    —    115

Wang Quanxi

  96  —    —    96
            
  403  —    —    403
            

Executive directors

        

Wang Xin

  —    —    —    —  

Geng Jiahuai

  —    —    —    —  

Yang Deyu

  —    —    —    —  

Shi Xuerang

  —    —    —    —  

Chen Changchun

  —    —    —    —  

Wu Yuxiang

  —    172  34  206

Wang Xinkun

  —    196  39  235

Zhang Baocai

  —    171  34  205

Dong Yunqing

  —    172  34  206
            
  —    711  141  852
            

Supervisors

        

Meng Xianchang

  —    —    —    —  

Song Guo

  —    —    —    —  

Zhang Shengdong

  —    —    —    —  

Liu Weixin

  —    —    —    —  

Xu Bentai

  —    207  41  248
            
  —    207  41  248
            

Other management team

        

Jin Tai

  —    —    —    —  

Zhang Yingmin

  —    —    —    —  

He Ye

  —    212  42  254

Tian Fengze

  —    172  34  206

Shi Chenzhong

  —    195  39  234

Qu Tianzhi

  —    212  42  254

Ni Xinghua

  —    196  39  235

Lai Cunliang

  —    410  —    410
            
  —    1,397  196  1,593
            

   For the year ended December 31, 2009 
   Fees   Salaries, allowance
and other benefits
in kind
   Retirement
benefit  scheme
contributions
   Total 
   RMB’000   RMB’000   RMB’000   RMB’000 

Independent non-executive directors

        

Pu Hongjiu

   109     —       —       109  

Zhai Xigui

   109     —       —       109  

Li Weian

   109     —       —       109  

Wang Junyan

   109     —       —       109  
                    
   436     —       —       436  
                    

Executive directors

        

Wang Xin

   —       —       —       —    

Geng Jiahuai

   —       —       —       —    

Yang Deyu

   —       148     29     177  

Shi Xuerang

   —       —       —       —    

Chen Changchun

   —       —       —       —    

Wu Yuxiang

   —       220     44     264  

Wang Xinkun

   —       250     50     300  

Zhang Baocai

   —       220     44     264  

Dong Yunqing

   —       220     44     264  
                    
   —       1,058     211     1,269  
                    

Supervisors

        

Song Guo

   —       —       —       —    

Zhang Shengdong

   —       —       —       —    

Zhou Shoucheng

   —       —       —       —    

Zhen Ailan

   —       —       —       —    

Wei Huanmin

   —       220     44     264  

Xu Bentai

   —       259     52     311  
                    
   —       479     96     575  
                    

Other management team

        

Li Weimin

   —       61     12     73  

Jin Tai

   —       61     13     74  

Zhang Yingmin

   —       61     12     73  

He Ye

   —       61     12     73  

Tian Fengze

   —       221     44     265  

Shi Chenzhong

   —       250     50     300  

Qu Tianzhi

   —       250     50     300  

Ni Xinghua

   —       250     50     300  

Lai Cunliang

   —       540     —       540  
                    
   —       1,755     243     1,998  
                    

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

(a) Directors’ and supervisors’ emoluments—Continued

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

   For the year ended December 31, 2008 
   Fees   Salaries, allowance
and other benefits
in kind
   Retirement
benefit  scheme
contributions
   Total 
   RMB’000   RMB’000   RMB’000   RMB’000 

Independent non-executive directors

        

Pu Hongjiu

   104     —       —       104  

Cui Jianmin

   50     —       —       50  

Wang Xiaojun

   60     —       —       60  

Wang Quanxi

   50     —       —       50  

Zhai Xigui

   54     —       —       54  

Li Weian

   54     —       —       54  

Wang Junyan

   54     —       —       54  
                    
   426     —       —       426  
                    

Executive directors

        

Wang Xin

   —       —       —       —    

Geng Jiahuai

   —       —       —       —    

Yang Deyu

   —       —       —       —    

Shi Xuerang

   —       —       —       —    

Chen Changchun

   —       —       —       —    

Wu Yuxiang

   —       192     38     230  

Wang Xinkun

   —       218     44     262  

Zhang Baocai

   —       191     38     229  

Dong Yunqing

   —       192     38     230  
                    
   —       793     158     951  
                    

Supervisors

        

Meng Xianchang

   —       —       —       —    

Song Guo

   —       —       —       —    

Zhang Shengdong

   —       —       —       —    

Liu Weixin

   —       —       —       —    

Zhou Shoucheng

   —       —       —       —    

Zhen Ailan

   —       —       —       —    

Wei Huanmin

   —       192     38     230  

Xu Bentai

   —       207     41     248  
                    
   —       399     79     478  
                    

Other management team

        

Jin Tai

   —       —       —       —    

Zhang Yingmin

   —       —       —       —    

He Ye

   —       —       —       —    

Tian Fengze

   —       192     38     230  

Shi Chenzhong

   —       218     44     262  

Qu Tianzhi

   —       218     44     262  

Ni Xinghua

   —       218     44     262  

Lai Cunliang

   —       508     102     610  
                    
   —       1,354     272     1,626  
                    

No directors waived any emoluments in each of the year ended December 31, 2010, 2009 2008 and 2007.

2008.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

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

 

(b) Employees’ emoluments

The five highest paid individuals in the Group included no director for the year ended December 31, 2009 (2008:2010 (2009: nil; 2007:2008: nil). The emoluments of the five highest paid individuals (2008:(2009: five; 2007:2008: five) were stated as follows:

 

  Year ended December 31,  Year ended December 31, 
  2009  2008  2007  2010   2009   2008 
  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000   RMB’000 

Salaries, allowance and other benefits in kind

  6,380  6,787  6,997   4,411     6,380     6,787  

Retirement benefit scheme contributions

  574  611  630   228     574     611  

Discretionary bonuses

  228  242  250   28     228     242  
                     
  7,182  7,640  7,877   4,667     7,182     7,640  
                     

Their emoluments were within the following bands:

 

  Year ended December 31,  Year ended December 31, 
  2009  2008  2007  2010   2009   2008 
  No. of
employees
  No. of
employees
  No. of
employees
  No. of
employees
   No. of
employees
   No. of
employees
 

Nil to HK$1,000,000

  —    —    —     3     —       —    

HK$1,000,001 to HK$1,500,000

  3  3  3   1     3     3  

HK$1,500,001 to HK$2,000,000

  1  1  2   1     1     1  

HK$2,000,001 to HK$2,500,000

  1  1  —     —       1     1  
                     

15. DIVIDEND RECOGNIZED AS DISTRIBUTION DURING THE YEAR

 

   Year ended December 31,
   2009  2008  2007
   RMB’000  RMB’000  RMB’000

2008 final dividend, RMB0.400 per share (2008: 2007 final dividend RMB0.170; 2007: 2006 final dividend RMB0.120)

  1,967,360  836,128  590,208

Special dividends approved, nil per share (2008: nil; 2007: RMB0.080)

  —    —    393,472
         
  1,967,360  836,128  983,680
         

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

   Year ended December 31, 
   2010   2009   2008 
   RMB’000   RMB’000   RMB’000 

2009 final dividend, RMB0.250 per share (2009: 2008 final dividend RMB0.400; 2008: 2007 final dividend RMB0.170)

   1,229,600     1,967,360     836,128  
               

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

15. DIVIDENDS RECOGNIZED AS DISTRIBUTION DURING THE YEAR—Continued

 

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

In the annual general meeting held on June 26, 2009, a final dividend in respect of the year ended December 31, 2008 was approved by the shareholders and paid to the shareholders of the Company.

In the annual general meeting held on June 25, 2010, a final dividend in respect of the year ended December 31, 2009 was approved by the shareholders and paid to the shareholders of the Company.

The board of directors proposes to declare a final dividend of approximately RMB1,229,600,000RMB2,901,856,000 calculated based on a total number of 4,918,400,000 shares issued at RMB1 each, at RMB0.25RMB0.59 per share, in respect of the year ended December 31, 2009.2010. The declaration and payment of the final dividend needs to be approved by the shareholders of the Company by way of an ordinary resolution in accordance with the requirements of the Company’s Articles of Association. A shareholders’ general meeting will be held for the purpose of considering and, if thought fit, approving this ordinary resolution.

16. EARNINGS PER SHARE AND PER ADS

The calculation of the earnings per share attributable to the equity holders of the Company for the years ended December 31, 2010, 2009 2008 and 20072008 is based on the profit attributable to the equity holders of the Company for the year of RMB9,281,386,000, RMB4,117,322,000 RMB6,488,908,000 and RMB3,230,450,000RMB6,488,908,000 and on the 4,918,400,000 shares in issue, during each of the three years.

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

No diluted earnings per share has been presented as there are no dilutive potential shares in issue during the years ended December 31, 2010, 2009 2008 and 2007.2008.

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

Bank balances carry interest at market rates which ranged from 0.36% to 3.75% (2008:4.75% (2009: from 0.36% to 1.44%3.75%) per annum.

At the balance sheet dates, the short-term restricted cash, which carry interest at market rates of 0.36%-3.47% - 4.53 % per annum (2008: 0.05%(2009: 0.36%-3.47%), represents the bank deposits pledged to certain banks to secure banking facilities granted to the Group. The long-term amount represents the bank deposits placed as guarantee for the future payments of rehabilitation costs of Southland as required by the Australian government and as guarantee for borrowings. The long-term deposits carry interest rate of 5.20% (2009: of 4.41% (2008:6.5%) per annum.

The term deposits carry fixed interest rate of 2.25% to 4.80% (2009: 1.17% to 4.53% (2008: 1.35% to 2.52%) per annum.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

18. BILLS AND ACCOUNTS RECEIVABLE

 

  At December 31,   At December 31, 
  2009 2008   2010 2009 
  RMB’000 RMB’000   RMB’000 RMB’000 

Accounts receivable

      

- From third parties

  357,282   435,711     439,646    357,282  

- From a jointly controlled entity

  81,329   —       53,450    81,329  
              

Total accounts receivable

  438,611   435,711     493,096    438,611  

Less: Impairment loss

  (4,542 (29,509   (5,406  (4,542
              
  434,069   406,202     487,690    434,069  

Total bills receivable

  4,289,853   2,571,064     9,529,570    4,289,853  
              

Total bills and accounts receivable, net

  4,723,922   2,977,266     10,017,260    4,723,922  
              

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

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

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

 

  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

1 - 90 days

  2,592,713  1,759,526   4,738,930     2,592,713  

91 - 180 days

  2,131,209  1,217,740   5,278,330     2,131,209  
              
  4,723,922  2,977,266   10,017,260     4,723,922  
              

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

There are no significant trade receivables which are past due but not yet impaired on both balance sheet dates. The Group does not hold any collateral over these balances. The average age of these receivables is 8893 days (2008: 65(2009: 88 days). The management closely monitors the credit quality of accounts receivable and consider the balance that are neither past due nor impaired are of good credit quality.

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

18. BILLS AND ACCOUNTS RECEIVABLE—Continued

 

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

 

  At December 31,   At December 31, 
  2009 2008   2010 2009 
  RMB’000 RMB’000   RMB’000 RMB’000 

Balance at January 1

  29,509   20,996     4,542    29,509  

Provided for the year

  335   8,950     895    335  

Written off (recognized) reversed

  (5,797 2,265  

Written off recognized

   —      (5,797

Reversal

  (19,505 (2,702   (31  (19,505
              

Balance at December 31

  4,542   29,509     5,406    4,542  
              

Included in the allowance for doubtful debts is an allowance of RMB5.4 million (2009: RMB 4.5 million (2008: RMB 29.5 million) for individually impaired trade receivables, which are mainly due from corporate customers in the PRC and considered irrecoverable by the management after consideration on the credit quality of those individual customers, the ongoing relationship with the Group and the aging of these receivables. The impairment recognized represents the difference between the carrying amount of these trade receivables and the present value of the amounts. The Group does not hold any collateral over these balances.

19. INVENTORIES

 

   At December 31,
   2009  2008
   RMB’000  RMB’000

COST

    

Methanol

  27,320  7,414

Auxiliary materials, spare parts and small tools

  288,550  220,960

Coal products

  570,490  591,225
      
  886,360  819,599
      

20. OTHER LOANS RECEIVABLE

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

   At December 31, 
   2010   2009 
   RMB’000   RMB’000 

COST

    

Methanol

   10,279     27,320  

Auxiliary materials, spare parts and small tools

   372,046     288,550  

Coal products

   1,263,791     570,490  
          
   1,646,116     886,360  
          

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

20. OTHER LOANS RECEIVABLE—Continued

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

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

21. PREPAYMENTS AND OTHER RECEIVABLES

 

  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

Advances to suppliers

  75,623  94,796   243,210     75,623  

Prepaid freight charges and related handling charges

  5,232  7,958   —       5,232  

Due from a jointly controlled entity

  66,321  —  

Due from a jointly controlled entity (note)

   115,480     66,321  

Deposit for environment protection

  226,252  200,000   254,193     226,252  

Prepaid relocation costs of inhabitants

  1,288,453  1,151,895   1,709,872     1,288,453  

Others

  206,348  112,561   290,931     206,348  
              
  1,868,229  1,567,210   2,613,686     1,868,229  
              

Included in the above balances as of December 31, 20092010 is an impairment loss of RMB21,854,000 (2008: RMB16,854,000)RMB16,067,000 (2009: RMB21,854,000). During the year ended December 31, 2009, the Group wrote off impairment loss of RMB536,000. During the year ended December 31, 2008, the Group wrote off impairment loss of RMB2,646,000 and reversed impairment loss of RMB10,617,000. During the year ended December 31, 2007, the Group wrote off impairment loss of RMB2,533,000.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

21. PREPAYMENTS AND OTHER RECEIVABLES—Continued

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

Note: The amount due from a jointly controlled entity is unsecured, interest-free and has no fixed repayment term.

22.21. PREPAID LEASE PAYMENTS

 

  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

Current portion

  17,121  15,296   18,280     17,121  

Non-current portion

  691,339  628,119   728,082     691,339  
              
  708,460  643,415   746,362     708,460  
              

The amounts represent prepaid lease payments for land use rights which are situated in the PRC and have a term of 45 to 50 years from the date of grant of land use rights certificates.

23.22. PREPAYMENT FOR RESOURCES COMPENSATION FEES

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

24.23. INTANGIBLE ASSETS

 

  Coal
reserves
 Coal
resources
  Technology  Rail access
rights
  Others  Total   Coal
reserves
 Coal
resources
 Technology   Rail access
rights
 Water
Licenses
   Others Total 
  RMB’000 RMB’000  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000 RMB’000 RMB’000   RMB’000 RMB’000   RMB’000 RMB’000 

COST

                     

At January 1, 2008

  417,113   —    —    —    —    417,113  

Exchange re-alignment

  (30,772 —    —    —    —    (30,772

Acquisition of Zhaolou Coal mine

  747,339   —    —    —    —    747,339  
                   

At December 31, 2008 and at January 1, 2009

  1,133,680   —    —    —    —    1,133,680  

At January 1, 2009

   1,133,680    —      —       —      —       —      1,133,680  

Exchange re-alignment

  25,998   —    —    —    —    25,998     25,998    —      —       —      —       —      25,998  

Additions for the year

  —     —    —    —    233  233     —      —      —       —      —       233    233  

Acquisition of Felix

  13,782,538   3,859,559  153,235  41,523  11,168  17,848,023     13,782,538    3,859,559    153,235     41,523    7,356     3,812    17,848,023  
                                           

At December 31, 2009

  14,942,216   3,859,559  153,235  41,523  11,401  19,007,934  

At December 31, 2009 and at January 1, 2010

   14,942,216    3,859,559    153,235     41,523    7,356     4,045    19,007,934  

Exchange re-alignment

   1,224,643    354,020    14,613     2,135    699     713    1,596,823  

Acquisition of Yize

   —      —      —       —      124,565     7,420    131,985  

Additions for the year

   —      25,921    —       1,317    —       8,114    35,352  

Transfer

   206,922    (206,922  —       —      —       —      —    

Disposal of a joint venture and subsidiaries

   (539,070  (127,293  —       (41,410  —       (348  (708,121
                        

At December 31, 2010

   15,834,711    3,905,285    167,848     3,565    132,620     19,944    20,063,973  
                                           

AMORTIZATION

                     

At January 1, 2008

  61,101   —    —    —    —    61,101  

At January 1, 2009

   93,973    —      —       —      —       —      93,973  

Exchange re-alignment

  (2,780 —    —    —    —    (2,780   3,009    —      —       —      —       —      3,009  

Provided for the year

  35,652   —    —    —    —    35,652     44,274    —      —       —      —       4    44,278  
                                           

At December 31, 2008 and at January 1, 2009

  93,973   —    —    —    —    93,973  

At December 31, 2009 and at January 1, 2010

   141,256    —      —       —      —       4    141,260  

Exchange re-alignment

  3,009   —    —    —    —    3,009     8,601    —      —       11    —       100    8,712  

Provided for the year

  44,274   —    —    —    4  44,278     341,003    —      —       5,014    —       3,638    349,655  

Disposal of a joint venture and subsidiaries

   (63,976  —      —       (4,773  —       (69  (68,818
                        

At December 31, 2010

   426,884    —      —       252    —       3,673    430,809  
                        

CARRYING VALUES

          

At December 31, 2010

   15,407,827    3,905,285    167,848     3,313    132,620     16,271    19,633,164  
                                           

At December 31, 2009

  141,256   —    —    —    4  141,260     14,800,960    3,859,559    153,235     41,523    7,356     4,041    18,866,674  
                                           

CARRYING VALUES

           

At December 31, 2009

  14,800,960   3,859,559  153,235  41,523  11,397  18,866,674  
              ��    

At December 31, 2008

  1,039,707   —    —    —    —    1,039,707  
                   

The addition of mining right of RMB747,339,000 during the year ended December 31, 2008 represented the consideration paid for Zhaolou coal mine acquired from the Parent Company.

In addition, the Parent Company and the Company have entered into a mining rights agreement pursuant to which the Company has agreed to pay to the Parent Company, effective from September 25, 1997, an annual fee of RMB12,980,000 as compensation for the Parent Company’s agreement to give up the mining rights associated with the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine, Dongtan coal mine and Jining II. The annual fee is subject to change after a ten-year period. Up to the date of these financial statements, compensation fee of RMB5 per tonne of raw coal mined amounting to RMB 137,070,000 (2008: RMB135,141,000)RMB140,708,000 (2009: RMB137,070,000) for the year has been preliminary agreed. The revised compensation fees are to be settled with governmental authority directly. The actual amount of compensation fee payable each year is still to be confirmed by the governmental authority.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

24.23. INTANGIBLE ASSETS—Continued

 

The other mining rights (coal reserves) are amortized on the following basis:

 

   

Amortization method

Jining III

  Amortized on a straight-line basis over 20 yearsUnit of production method

Zhaolou

  Amortized on a straight-line basis over 28 yearsUnit of production method

Tianchi

  Amortized on a straight-line basis over 27 yearsUnit of production method

Austar

  Unit of production method

Ashton

Unit of production method

Minerva

  Unit of production method

Moolarben

  Unit of production method

Yarrabee

  Unit of production method

Rail access rights are amortized on a straight line basis or unit of production basis over the life of the mine.

Technology has not yet reached the stage of commercial application and therefore is not amortized.

Water licenses are amortized over the life of coal mine. The mining activities of the relevant locations have not yet been started and therefore, no amortization was provided.

Other intangible assets namely represent computer software and water licenses and arewhich is amortized on a straight line basis of 2.5 to 5 years over the useful life and the life of coal mine respectively.life.

Amortization expense of the mining rights for the year of RMB44,278,000 (2008: RMB35,652,000; 2007: RMB15,728,000)RMB341,003,000 (2009: RMB44,278,000) has been included in cost of sales and service provided. Amortization expense of other intangible assets for the year of RMB8,652,000 has been included in selling, general and administrative expenses.

At December 31, 2009,2010, intangible assets with a carrying amount of approximately RMB4,288,410,000 (2008: Nil)RMB18,297,975,000 (2009: RMB4,288,410,000) have been pledged to secure the borrowings of the Company’s subsidiaries (Note 36)35).

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

25.24. PROPERTY, PLANT AND EQUIPMENT

 

  Freehold
land in
Australia
 Buildings Harbor
works and
crafts
 Railway
structures
 Mining
structures
  Plant,
machinery
and
equipment
 Transportation
equipment
 Construction
in progress
 Total   Freehold
land in
Australia
 Buildings Harbor
works and
crafts
 Railway
structures
 Mining
structures
 Plant,
machinery
and
equipment
 Transportation
equipment
 Construction
in progress
 Total 
  RMB’000 RMB’000 RMB’000 RMB’000 RMB’000  RMB’000 RMB’000 RMB’000 RMB’000   RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 

COST

                     

At January 1, 2008

  57,311   2,580,091   250,349   736,358   3,687,389  9,547,481   354,373   4,681,062   21,894,414  

Exchange re-alignment

  (15,032 (3,066 —     —     —    (252,328 (303 (70,451 (341,180

Additions

  —     —     —     —     —    97,150   3,330   1,965,762   2,066,242  

Transfers

  —     429,580   5,456   132,609   11,184  1,145,823   24,270   (1,748,922 —    

Disposals

  —     (978 —     —     —    (45,996 (4,045 —     (51,019
                            

At December 31, 2008 and January 1, 2009

  42,279   3,005,627   255,805   868,967   3,698,573  10,492,130   377,625   4,827,451   23,568,457  

At January 1, 2009

   42,279    3,005,627    255,805    868,967    3,698,573    10,492,130    377,625    4,827,451    23,568,457  

Exchange re-alignment

  14,037   2,933   —     —     —    261,896   60   42,608   321,534     14,037    2,933    —      —      —      261,896    60    42,608    321,534  

Acquisition of Hua Ju Energy

  —     290,362   —     —     —    434,929   4,050   25,872   755,213     —      290,362    —      —      —      434,929    4,050    25,872    755,213  

Acquisition of Felix

  223,963   35,403   —     —     486,736  1,882,269   —     918,536   3,546,907     223,963    35,403    —      —      486,736    1,882,269    —      918,536    3,546,907  

Additions

  9,656   1,084   —     —     —    163,300   6,981   1,904,628   2,085,649     9,656    1,084    —      —      —      163,300    6,981    1,904,628    2,085,649  

Transfers

  577   481,045   —     480,557   994,476  4,553,842   21,366   (6,531,863 —       577    481,045    —      480,557    994,476    4,553,842    21,366    (6,531,863  —    

Written off

  —     —     —     —     —    —     —     (14,199 (14,199   —      —      —      —      —      —      —      (14,199  (14,199

Disposals

  —     (39,410 (2,127 (2,936 —    (359,180 (36,637 —     (440,290   —      (39,410  (2,127  (2,936  —      (359,180  (36,637  —      (440,290
                                                        

At December 31, 2009

  290,512   3,777,044   253,678   1,346,588   5,179,785  17,429,186   373,445   1,173,033   29,823,271  

At December 31, 2009 and January 1, 2010

   290,512    3,777,044    253,678    1,346,588    5,179,785    17,429,186    373,445    1,173,033    29,823,271  

Exchange re-alignment

��  26,598    10,471    —      —      67,144    357,436    25    77,736    539,410  

Acquisition of Yize

   —      4,670    —      —      —      8    73    —      4,751  

Additions

   41,764    77,300    —      —      281,451    94,707    2,337    3,059,827    3,557,386  

Transfers

   10    89,868    —      95,596    271,913    2,897,788    23,330    (3,378,505  —    

Written off

   —      —      —      —      —      —      —      (1,491  (1,491

Disposals

   —      (18,055  —      (27,588  —      (514,073  (10,279  —      (569,995

Disposal of a joint venture and subsidiaries

   (66,076  —      —      —      (87,366  (173,670  —      —      (327,112
                                                        

ACCUMULATED DPERECIATION AND IMPAIRMENT

           

At January 1, 2008

  —     1,225,364   24,277   323,121   1,719,539  4,856,779   220,740   —     8,369,820  

At December 31, 2010

   292,808    3,941,298    253,678    1,414,596    5,712,927    20,091,382    388,931    930,600    33,026,220  
                            

ACCUMULATED DEPRECIATION AND IMPAIRMENT

          

At January 1, 2009

   —      1,318,920    66,930    385,292    1,800,077    5,607,220    240,572    —      9,419,011  

Exchange re-alignment

  —     (964 —     —     —    (47,147 —     —     (48,111   —      936    —      —      —      82,274    50    —      83,260  

Provided for the year

  —     94,907   42,653   62,171   80,538  836,981   23,559   —     1,140,809     —      220,440    12,010    35,765    86,087    1,399,981    38,995    —      1,793,278  

Eliminated on disposals

  —     (387 —     —     —    (39,393 (3,727 —     (43,507   —      (9,783  (1,473  (2,226  —      (302,184  (33,746  —      (349,412
                                                        

At December 31, 2008 and January 1, 2009

  —     1,318,920   66,930   385,292   1,800,077  5,607,220   240,572   —     9,419,011  

At December 31, 2009 and January 1, 2010

   —      1,530,513    77,467    418,831    1,886,164    6,787,291    245,871    —      10,946,137  

Exchange re-alignment

  —     936   —     —     —    82,274   50   —     83,260     —      890    —      —      7,470    56,790    20    —      65,170  

Provided for the year

  —     220,440   12,010   35,765   86,087  1,399,981   38,995   —     1,793,278     —      109,779    5,819    165,254    271,295    1,836,394    38,085    —      2,426,626  

Impairment loss

   —      15,356    —      4,127    —      78,076    —      —      97,559  

Eliminated on disposals

  —     (9,783 (1,473 (2,226 —    (302,184 (33,746 —     (349,412   —      (4,761  —      (4,858  —      (328,379  (9,614  —      (347,612

Disposal a of a joint venture and subsidiaries

   —      —      —      —      (9,799  (26,476  —      —      (36,275
                            

At December 31, 2010

   —      1,651,777    83,286    583,354    2,155,130    8,403,696    274,362    —      13,151,605  
                            

CARRYING VALUES

          

At December 31, 2010

   292,808    2,289,521    170,392    831,242    3,557,797    11,687,686    114,569    930,600    19,874,615  
                                                        

At December 31, 2009

  —     1,530,513   77,467   418,831   1,886,164  6,787,291   245,871   —     10,946,137     290,512    2,246,531    176,211    927,757    3,293,621    10,641,895    127,574    1,173,033    18,877,134  
                                                        

CARRYING VALUES

           

At December 31, 2009

  290,512   2,246,531   176,211   927,757   3,293,621  10,641,895   127,574   1,173,033   18,877,134  
                            

At December 31, 2008

  42,279   1,686,707   188,875   483,675   1,898,496  4,884,910   137,053   4,827,451   14,149,446  
                            

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

 

Buildings

  10 to 30 years

Harbor works and crafts

  40 years

Railway structures

  15 to 25 years

Plant, machinery and equipment

  2.5 to 25 years

Transportation equipment

  6 to 18 years

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

24. PROPERTY, PLANT AND EQUIPMENT—Continued

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

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

25. PROPERTY, PLANT AND EQUIPMENT—Continued

During the year ended December 31, 2009,2010, the directors conducted a review of the Group’s mining assets and determined that a number of those assets were impaired, due to physical damage and technical obsolescence. Accordingly, an aggregate amount of RMB14,199,000 (2008: nil)RMB1,491,000 (2009: RMB14,199,000) have been written off in respect of construction in progress including railway projects and water engineering projects.

At December 31, 2009,2010, property, plant and equipment with a carrying amount of approximately RMB3,546,907,000 (2008: Nil)RMB4,361,373,000 (2009: RMB3,546,907,000) have been pledged to secure bank borrowings of the Group (Note 36)35).

In addition, the Group’s finance leases (Note 36)35) are secured by the property, plant and equipment held under the relevant finance leases with a carrying amount of RMB651,981,000 (2008: Nil)RMB856,876,000 (2009: RMB651,981,000).

As a result of shortage in raw materials supply of methanol operations, the raw material prices continue to rise. Therefore the Group assessed the recoverable amount of property, plant and equipment and the Group recognized impairment loss of RMB97,559,000 (included in selling, general and administrative expenses) for the year ended December 31, 2010.

26.25. OVERBURDEN IN ADVANCE

 

   At December 31,
   2009  2008
   RMB’000  RMB’000

Overburden in advance - cost

  350,676  —  
      
   At December 31, 
   2010   2009 
   RMB’000   RMB’000 

Overburden in advance - cost

   149,351     350,676  
          

Overburden in advance comprises the accumulation of expenses incurred to enable access to the coal seams, and includes direct removal costs, machinery and plant running costs. The deferred costs are presented after the deduction of the portion that has been transferred to the income statement in the period.

27. GOODWILL

   2009  2008
   RMB’000  RMB’000

COST

    

At January 1

  298,650  298,650

Acquisition of Hua Ju Energy

  239,879  —  

Acquisition of Felix

  766,816  —  
      

At December 31

  1,305,345  298,650
      

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

27. GOODWILL—Continued26. GOODWILL

 

   2010  2009 
   RMB’000  RMB’000 

COST

   

At January 1

   1,305,345    298,650  

Acquisition of Hua Ju Energy

   —      239,879  

Acquisition of Felix

   —      766,816  

Disposal of a joint venture and subsidiaries

   (181,883  —    

Exchange re-alignment

   73,124    —    
         

At December 31

   1,196,586    1,305,345  
         

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

 

   2009  2008
   RMB’000  RMB’000

Coal Mining

    

- Jining II

  10,106  10,106

- Shandong Yanmei Shipping Co., Ltd

  10,046  10,046

- Heze

  35,645  35,645

- Shanxi Group

  145,613  145,613

- Felix

  766,816  —  

Coal Railway Transportation

    

- Railway Assets

  97,240  97,240

Electricity and heat supply

    

- Hua Ju Energy

  239,879  —  
      
  1,305,345  298,650
      

Felix was acquired by the Group at the end of the year and its fair value has been assessed by the valuer (note 44). Therefore the Group did not perform detailed calculation of value in use on the cash generating units to assess whether impairment is required on the goodwill.

   2010   2009 
   RMB’000   RMB’000 

Coal Mining

    

- Jining II

   10,106     10,106  

- Shandong Yanmei Shipping Co., Ltd

   10,046     10,046  

- Heze

   35,645     35,645  

- Shanxi Group

   145,613     145,613  

- Felix

   658,057     766,816  

Coal Railway Transportation

    

- Railway Assets

   97,240     97,240  

Electricity and heat supply

    

- Hua Ju Energy

   239,879     239,879  
          
   1,196,586     1,305,345  
          

The recoverable amounts of goodwill from each of the above cash generating units have been determined on the basis of value in use calculations. The recoverable amounts are based on certain similar key assumptions on discount rates, growth rates and expected changes in selling prices and direct cost. All value in use calculations use cash flow projections based on financial budgets approved by management covering a 5-year period, using a zero percent growth rate and with a discount rate of 8% (2008:8-10% (2009: 8%).

The cash flows beyond the 5-year period are extrapolated for 5 years using a zero percent growth rate. Cash flow projections during the budget period for each of the above units are based on the budgeted revenue and expected gross margins during the budget period and the same raw materials price inflation during the budget period. Expected cash inflows/outflows, which include budgeted sales, gross margin and raw material price inflation, have been determined based on past performance and management’s expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the carrying amount of each of the above units to exceed the recoverable amount of each of the above units. During the years ended December 31, 20092010 and 2008,2009, management of the Group determined that there are no impairments of any of its cash-generating units containing goodwill.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

28.27. INVESTMENTS IN SECURITIES

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

 

  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

Equity securities listed on the SSE

        

- Stated at fair value

  264,672  139,447   194,258     264,672  

Unlisted equity securities

  30,623  440   30,184     30,623  
              
  295,295  139,887   224,442     295,295  
              

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

Pursuant to the share reform plan of Shenergy Company Limited carried out in 2006, the non-tradable legal person shares with the investment cost of RMB60,421,000 held by the Company were converted into tradable shares on August 17, 2006. Under this share reform plan, the Company has committed that the Company will not sell more than one-third of the shares held as of August 17, 2005 within one year after August 17, 2006; and two-third of the shares held as of August 17, 2005 within two years after August 17, 2006. This investment is presented as listed securities stated at fair value as at December 31, 20092010 at the amount of RMB254,046,000 (2008:RMB133,720,000)RMB185,661,000 (2009:RMB254,046,000).

On April 26, 2007, Jiangsu Lian Yun Gang Port Corporation Limited became a public company with its shares listed in SSE. The Company has committed not to sell its holding, or transfer to others before April 28, 2008. This investment is presented as listed securities which amount to RMB10,626,000RMB8,597,000 as at December 31, 2009 (2008:RMB5,727,000)2010 (2009:RMB10,626,000).

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

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

29.28. INTERESTS IN AN ASSOCIATEASSOCIATES

 

   At December 31, 
   2009  2008 
   RMB’000  RMB’000 

Cost of investment in an associate

  900,000  900,000  

Share of post-acquisition profit (loss)

  39,981  (69,805
       
  939,981  830,195  
       
   At December 31, 
   2010   2009 
   RMB’000   RMB’000 

Cost of investments in associates

   1,025,000     900,000  

Share of post-acquisition profit and other comprehensive income

   49,958     39,981  
          
   1,074,958     939,981  
          

Information on major associates is as follows:

 

  Place of
establishment
and operation
  Class of
shares held
  Principal
activity
  At December 31,  Place of
establishment

and operation
  Class of
shares held
   Principal
activity
   At December 31,
  2009 2008  2010 2009

Name of associate

  Interest held Interest held  Interest held Interest held

Huadian Zouxian Power Generation Company Limited

  PRC  Registered
Capital
  Electricity
generation
business
  30% 30%  PRC   
 
Registered
Capital
  
  
   
 
 
Electricity
generation
business
  
  
  
  30% 30%

Yankuang Group Finance Company Limited

  PRC   
 
Registered
Capital
  
  
   
 
Financial
services
  
  
  25% —  

Huadian Zouxian Power Generation Company Limited isand Yankuang Group Finance Company Limited are held by the Company directly.

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

 

  At December 31,   At December 31, 
  2009 2008   2010 2009 
  RMB’000 RMB’000   RMB’000 RMB’000 

Total assets

  6,945,366   7,623,355     12,631,030    6,945,366  

Total liabilities

  (3,812,095 (4,856,038   (8,963,100  (3,812,095
              

Net assets

  3,133,271   2,767,317     3,667,930    3,133,271  
              

Group’s share of net assets of associates

  939,981   830,195     1,074,958    939,981  
              

 

   Year ended December 31, 
   2009  2008 
   RMB’000  RMB’000 

Revenue

  3,832,204  3,650,661  
       

Profit (Loss) for the year

  365,954  (224,556
       

Group’s share of profit (loss) of associates

  109,786  (67,367
       

   Year ended December 31, 
   2010   2009 
   RMB’000   RMB’000 

Revenue

   4,239,375     3,832,204  
          

Profit for the year

   30,968     365,954  
          

Group’s share of profit of associates

   8,870     109,786  
          

Group’s share of other comprehensive income of associates

   1,107     —    
          

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

30. DEPOSIT29. DEPOSITS MADE ON INVESTMENTINVESTMENTS

 

  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

Shaanxi coal mine operating company

  117,926  117,926   117,926     117,926  

Inner Mongolia Rong Xin Chemical Co., Ltd.

  1,320  —     —       1,320  

Inner Mongolia Yi Feng Mining Investment Co., Ltd.

  53,880  —     —       53,880  

Inner Mongolia Da Xin Industrial Gases Co., Ltd.

  1,800  —     —       1,800  

Stamp duty paid

  95  —     —       95  

Inner Mongolia Haosheng Coal Mining Limited

   2,045,753     —    

Yijinhuoluo Qi Nalin Tao Hai Town An Yuan Coal Mine

   1,080,000     —    
              
  175,021  117,926   3,243,679     175,021  
              

During 2006, the Company entered into a co-operative agreement with two independent third parties to establish a company for acquiring a coal mine in Shaanxi province for operations. The Company will have to invest approximately RMB196.8 million in order to obtain 41% equity interest. As at December 31, 2009,2010, the Company made a deposit of RMB118 million (2008:(2009: RMB118 million) in relation to this acquisition. As at December 31, 2009,2010, the relevant procedures to establish the new company are still in progress, and the establishment has not yet been completed.

During the year, the Company entered into a co-operative agreement with an independent third party to acquire 100% equity interest in Inner Mongolia Rong Xin Chemical Co., Ltd.the Yijinhuoluo Qi Nalin Tao Hai Town An Yuan Coal Mine at a consideration of RMB4.4RMB1,435 million. As at December 31, 2009,2010, the Company made a deposit of RMB1.32RMB1,080 million in relationon this investment. According to this acquisition. As at December 31, 2009, equity transfer andthe agreement, the completion of acquisition is subject to the relevant approval from government authority have not yet been completed. Under the agreement, the Company can only assign personnel to take over the company’s business until the relevant application documents are approved formally. In Aprilauthority. As at December 31, 2010, the equity transfer and the relevant approval from government authority haveprocedures are still in progress and the acquisition has not yet been completed.

During the year, the Company entered into a co-operative agreement with anthree independent third partycompanies to acquire 100%51% equity interest inof Inner Mongolia Yi FengHaosheng Coal Mining Investment Co., Ltd.Limited (‘Hao Sheng’) at a consideration of RMB179.6 million.RMB6,649 million and to obtain the mining rights of the Shilawusu Coal Field (‘the mining right’) in name of Hao Sheng. As at December 31, 2009,2010, the Company made a deposit of RMB53.88RMB2,046 million in relation to this acquisition. As at December 31, 2009, equity transfer2010, the relevant procedures are still in progress and the relevant approval from government authority havemining right has not yet been completed. Underobtained. As the agreement,conditions of the Company can only assign personnelacquisition is to take overobtain the company’s business untilmining right in name of Hao Sheng, hence the relevant application documents are approved formally. In April 2010, the equity transfer and the relevant approval from government authority haveacquisition has not been completed.

During the year, the Company entered into a co-operative agreement with two independent third parties to acquire 100% equity interest in Inner Mongolia Da Xin Industrial Gases Co., Ltd. at a consideration of RMB6 million. As at December 31, 2009, the Company made a deposit of RMB1.8 million in relation to this acquisition. As at December 31, 2009, equity transfer and the relevant approval from government authority have not yet been completed. Under the agreement, the Company can only assign personnel to take over the company’s business until the relevant application documents are approved formally. In April 2010, the equity transfer and the relevant approval from government authority have been completed.

The above completed acquisitions are not material to the Group and therefore their financial information are not presented.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

31.30. INTERESTS IN JOINTLY CONTROLLED ENTITIES

 

   At December 31,
   2009  2008
   RMB’000  RMB’000

Share of net assets

  1,257  —  
      
   At December 31, 
   2010   2009 
   RMB’000   RMB’000 

Share of net assets

   751     1,257  
          

Information on major jointly controlled entities is as follows:

 

  Place of
establishment
and operation
  Class of shares
held
  Principal activity  At December 31,  Place of
establishment
and operation
  Class of shares
held
  Principal activity  At December 31, 
  2009 2008  2010 2009 

Name of jointly controlled entity

  Voting
power
 Interest held Voting
power
  Interest held  Voting
power
 Interest held Voting
power
 Interest held 

Australian Coal Processing Holdings Pty Ltd (i)

  Australia  Ordinary shares  Holding company  33.33% 60% —    —    Australia  Ordinary shares  Holding company  33.33% 60%  33.33  60

Ashton Coal Mines Limited (ii)

  Australia  Ordinary shares  Real estate holder
& sales

company

  33.33% 60% —    —    Australia  Ordinary shares  Real estate holder
& sales company
  33.33% 60%  33.33  60

 

(i)A subsidiary of the Company holds 60% of the ordinary shares of Australian Coal Processing Holdings Pty Ltd. Under the shareholders agreement between the subsidiary and the remaining two shareholders, all major financial and operating policy decisions require a vote by directors who together represent shareholders holding 100% of the shares or a vote by shareholders who together hold 100% of the shares. Therefore decisions must be passed unanimously by directors or shareholders and the subsidiary’s voting power is equivalent to 33.33%.
(ii)A subsidiary of the Company holds 60% of the ordinary shares of Ashton Coal Mines Limited. Under the shareholders agreement between the subsidiary and the remaining two shareholders, all major financial and operating policy decisions require a unanimous resolution of the shareholders. Therefore decisions must be passed unanimously by shareholders and the subsidiary’s voting power is equivalent to 33.33%.
(iii)The above jointly controlled entities are held indirectly by the Company. These entities were obtained from the acquisition of Felix at the end of the year2009 and therefore there iswas no share of profit or loss of jointly controlled entities.entities in 2009.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

30. INTERESTS IN JOINTLY CONTROLLED ENTITIES—Continued

Summarized financial information in respect of the Group’s jointly controlled entities is set out below:

 

  At December 31,  At December 31, 
  2009 2008  2010 2009 
  RMB’000 RMB’000  RMB’000 RMB’000 

Total assets

  245,024   —     82,698    245,024  

Total liabilities

  (242,929 —     (81,447  (242,929
             

Net assets

  2,095   —     1,251    2,095  
             

Group’s share of net assets of jointly controlled entities

  1,257   —     751    1,257  
             

   Year ended December 31, 
   2010  2009 
   RMB’000  RMB’000 

Revenue

   2,029,948    —    
         

Loss for the year

   (770  —    
         

Group’s share of net loss of jointly controlled entities

   (462  —    
         

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

32.31. INTERESTS IN JOINT VENTURES

Information on major joint ventures (other than jointly controlled entities) is as follows:

 

  

Place of
establishment
and operation

  

Principal activity

  At December 31,  

Place of
establishment
and operation

  

Principal activity

  At December 31, 
  2009 2008  2010 2009 

Name of joint venture

  Interest held Interest held  Interest held Interest held 

Boonal joint venture

  Australia  

Provision of a coal haul road and train load out facilities

  50 —    Australia  

Provision of a coal haul road and train load out facilities

   50  50

Minerva joint venture

  Australia  

Development and operation of an open-cut coal mine

  51 —  

Athena joint venture

  Australia  Coal exploration  51 —    Australia  

Coal exploration

   51  51

Ashton joint venture

  Australia  

Development and operation of open-cut and underground coal mines

  60 —    Australia  

Development and operation of open-cut and underground coal mines

   60  60

Moolarben joint venture

  Australia  

Development and operation of open-cut and underground coal mines

  80 —    Australia  

Development and operation of open-cut and underground coal mines

   80  80

The above joint ventures are established and operated as unincorporated businesses and are held indirectly by the Company. These joint ventures are consolidated into the Company’s consolidated financial statements due to the acquisition of Felix. Therefore results of joint ventures were not shared by the Group during 2009.

The Group’s interest in the assets and liabilities of the joint ventures isare set out below:

 

   At December 31,
   2009  2008
   RMB’000  RMB’000

Current assets

  537,378   —  

Non-current assets

  18,677,130   —  

Current liabilities

  (5,393,837 —  

Non-current liabilities

  (30,327 —  
      
  13,790,344   —  
      

   At December 31, 
   2010  2009 
   RMB’000  RMB’000 

Current assets

   588,626    537,378  

Non-current assets

   19,264,652    18,677,130  

Current liabilities

   (218,206  (326,604

Non-current liabilities

   (57,218  (30,327
         
   19,577,854    18,857,577  
         

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

33.31. INTERESTS IN JOINT VENTURES—Continued

The Group’s share of revenue, expenses and profit before income tax of the joint ventures are set out below:

   Year ended December 31, 
   2010  2009 
   RMB’000  RMB’000 

Revenue

   28,834    —    

Expenses

   (2,138,986  —    
         

Loss before income tax

   (2,110,152  —    
         

The assets and liabilities as at December 31, 2009 included the Minerva joint venture disposed of during the year (note 45).

32. BILLS AND ACCOUNTS PAYABLE

 

  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

Accounts payable

        

- To third parties

  1,242,349  749,786   1,420,042     1,242,349  

- To a jointly controlled entity

  5,667  —     7,943     5,667  
              
  1,248,016  749,786   1,427,985     1,248,016  

Bills payable

  118,960  160,341   126,459     118,960  
              
  1,366,976  910,127   1,554,444     1,366,976  
              

The following is an aged analysis of bills and accounts payable based on the invoice dates at the reportingbalance sheet date:

 

  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

1 - 90 days

  1,153,686  469,740   1,321,149     1,153,686  

91 - 180 days

  84,400  177,404   78,647     84,400  

181 - 365 days

  46,955  132,576   23,607     46,955  

1 - 2 years

  81,935  130,407   131,041     81,935  
              
  1,366,976  910,127   1,554,444     1,366,976  
              

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

3433. OTHER PAYABLES AND ACCRUED EXPENSES

 

  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

Customers’ deposits

  1,488,748  757,631   1,378,811     1,488,748  

Accrued wages

  578,679  435,450   823,655     578,679  

Other taxes payable

  166,604  265,231   280,028     166,604  

Payables in respect of purchases of property, plant and equipment and construction materials

  643,674  654,304   324,136     643,674  

Accrued freight charges

  58,119  13,189   5,466     58,119  

Accrued repairs and maintenance

  35,846  49,766   24,177     35,846  

Accrued utility expenses

  18,829  —     8,516     18,829  

Staff welfare payable

  122,487  77,873   96,501     122,487  

Withholding tax payable

  1,869  466   258     1,869  

Deposits received from employees

  14,469  68,969   9,946     14,469  

Coal price adjustment fund

  34,764  34,081

Coal Price adjustment fund

   36,031     34,764  

Accrued land subsidence, restoration, rehabilitation and environmental costs

  78,356  59,871   691     78,356  

Payable on compensation fee of mining rights

  272,210  135,141   412,919     272,210  

Payables by Felix to companies related to its directors (note)

  602,597  —     —       602,597  

Others

  324,583  146,284   419,836     324,583  
              
  4,441,834  2,698,256   3,820,971     4,441,834  
              

 

Note:To assist with the funding of the dividend paid to Felix’s shareholders prior to the acquisition by the Group, certain Felix’s directors, through their related entities, loaned unsecured funds to Felix. The amounts due have been fully repaid afterduring the balance sheet date.year.

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

 

   2009  2008 
   RMB’000  RMB’000 

Balance at January 1

  450,979   19,635  

Acquisition of Felix

  48,170   —    

Additional provision in the year

  1,733,325   3,369,696  

Utilization of provision

  (623,666 (2,938,352
       

Balance at December 31

  1,608,808   450,979  
       

Presented as:

   

Current portion

  1,564,106   450,979  

Non-current portion

  44,702   —    
       
  1,608,808   450,979  
       

   2010  2009 
   RMB’000  RMB’000 

Balance at January 1

   1,608,808    450,979  

Acquisition of Felix

   —      48,170  

Disposal of a joint venture and subsidiaries

   (6,878  —    

Exchange re-alignment

   12,791    —    

Additional provision in the year

   1,532,200    1,733,325  

Utilization of provision

   (693,690  (623,666
         

Balance at December 31

   2,453,231    1,608,808  
         

Presented as:

   

Current portion

   2,300,637    1,564,106  

Non-current portion

   152,594    44,702  
         
   2,453,231    1,608,808  
         

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

35.34. PROVISION FOR LAND SUBSIDENCE, RESTORATION, REHABILITATION AND ENVIRONMENTAL

COSTS—Continued

 

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

36.35. BORROWINGS

 

  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

Current liabilities

        

Bank borrowings

        

- Unsecured borrowings (i)

  22,000  82,000   156,278     22,000  

- Secured borrowings (ii)

  919,410  —     375,978     919,410  

Finance leases (iii)

  656,703  —     82,669     656,703  
              
  1,598,113  82,000   614,925     1,598,113  

Non-current liabilities

        

Bank borrowings

        

- Unsecured borrowings (i)

  154,000  176,000   789,962     154,000  

- Secured borrowings (ii)

  20,757,728  —     20,871,536     20,757,728  

Finance leases (iii)

   739,335     —    
              
  20,911,728  176,000   22,400,833     20,911,728  
              

Total borrowings

  22,509,841  258,000   23,015,758     22,509,841  
              

(i) Unsecured borrowings are repayable as follows:

 

  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

Within one year

  22,000  82,000   156,278     22,000  

More than one year, but not exceeding two years

  22,000  22,000   679,962     22,000  

More than two years, but not more than five years

  66,000  66,000   66,000     66,000  

More than five years

  66,000  88,000   44,000     66,000  
              

Total

  176,000  258,000   946,240     176,000  
              

The balance as of December 31, 20082010 represented two borrowings amounting to RMB60,000,000 and RMB198,000,000a borrowing obtained by Shanxi Tianchi before the Company acquired it. Included init and three new borrowings obtained by Australian subsidiaries during the loans was an amountyear. The loan of RMB60,000,000 thatShanxi Tianchi amounting to RMB154,000,000 (2009: RMB176,000,000) carried interest at 5.31% per annum and the Group has fully settled the amount in 2009. The remaining balance of RMB176,000,000 (2008: RMB198,000,000) carries interest at 5.94% (2008:(2009: 5.94%) per annum and is subject to adjustment based on the interest rate stipulated by the People’s Bank of China (“PBOC”). The loan is repayable by 20 instalments over a period of 12 years, with the first instalment due in May 2008. The amount is also guaranteed by the Parent Company.

The total unsecured borrowings of Australian subsidiaries amounting to RMB792,240,000 (AUD 118,000,000) carried interest at three-month BBSY plus a margin of 1.5% (approximately 6.3%).

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

36.35. BORROWINGS—Continued

 

(ii) Secured borrowings are repayable as follows:

 

  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

Within one year

  919,410  —     375,978     919,410  

More than one year, but not exceeding two years

  6,930,623  —     6,925,847     6,930,623  

More than two years, but not more than five years

  13,827,105  —     13,945,689     13,827,105  
              

Total

  21,677,138  —     21,247,514     21,677,138  
              

Included in the balance as of December 31, 20092010 are loans amounting to RMB20,757,728,000RMB20,133,007,000 (USD3,040,000,000) (2009: RMB20,757,728,000) obtained by the Group for the purpose of settling the consideration in respect of acquisition of Felix. The borrowings of RMB19,801,780,000RMB19,205,829,000 (USD2,900,000,000) (2009: RMB19,801,780,000) and of RMB955,948,000 (USD140,000,000) carryRMB927,178,000 (USD 140,000,000) (2009: RMB955,948,000) carried interest at three-month LIBOR plus a margin of 0.75% (approximately 4.02%1.05%) and at three-month LIBOR plus a margin of 0.8% (approximately 4.22%1.10%) respectively. The borrowings are guaranteed by the Company, couter guaranteedcounter-guaranteed by the Parent Company and secured by the Group’s restricted cash (noteterm deposit (Note 17).

Included in the balance as of December 31, 2010 were three new short term borrowings amounting to RMB161,133,000 (AUD24,000,000) carried interest at BBSY plus a margin of 1.8% (approximately 6.6%). The remaining borrowing attributable to Felix amounting to RMB919,410,000 (AUD150,000,000) carriesRMB953,374,000 (AUD142,000,000) (2009:RMB919,410,000) carried interest at BBSY plus a margin of 3.8% (approximately 8.6%) (2009: approximately 7.6%) and was obtained prior to the acquisition of Felix. This borrowingThese borrowings and the finance leases (note 36(iii)) are secured by the Group’s property, plant and equipment (note 25)(Note 24) and intangible assets (note 24)(Note 23) and are also secured by a floating charge over the other assets of Felix.

(iii)Finance leases are repayable as follows:

 

   At December 31,
   2009  2008
   RMB’000  RMB’000

Minimum lease payments

   

Within one year

  841,590   —  

More than one year, but not exceeding two years

  —     —  

More than two years, but not more than five years

  —     —  
      
  841,590   —  

Less: Future finance charges

  (184,887 —  
      

Present value of lease payments

  656,703   —  
      

   At December 31, 
   2010  2009 
   RMB’000  RMB’000 

Minimum lease payments

   

Within one year

   152,740    841,590  

More than one year, but not exceeding two years

   150,125    —    

More than two years, but not more than five years

   747,900    —    
         
   1,050,765    841,590  

Less: Future finance charges

   (228,761  (184,887
         

Present value of lease payments

   822,004    656,703  
         

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

36.35. BORROWINGS—Continued

 

(iii)Finance leases are repayable as follows:—Continued

 

  At December 31,  At December 31, 
  2009 2008  2010 2009 
  RMB’000 RMB’000  RMB’000 RMB’000 

Present value of minimum finance lease payments

      

Within one year

  656,703   —     82,669    656,703  

More than one year, but not exceeding two years

  —     —     88,144    —    

More than two years, but not more than five years

  —     —     651,191    —    
             
  656,703   —     822,004    656,703  

Less: amounts due within one year and included in current liabilities

  (656,703 —     (82,669  (656,703
             

Amounts due after one year and included in non-current liabilities

  —     —     739,335    —    
             

Breach of loan agreement:

The bank borrowings and finance leases granted to Felix have a number of provisions including the satisfaction of minimum net assets value and the proportion of forward contracts by Felix as at December 31, 2009.balance sheet date.

At December 31, 2009, Felix breached the above loan provisions. As a result of the breach, long term portions of the bank borrowings and finance leases of RMB 919,410,000RMB919,410,000 and RMB654,546,000 respectively have been reclassified as current liabilities.

In April 2010, Felix has obtained the waiver letter from the relevant lenders. The lenders agreeagreed not to demand immediate payments from Felix and the terms of borrowings remainremained unchanged. Under the original borrowing terms, the bank borrowings and finance leases shall be repaid as follows:

 

   At December 31,
2009
   RMB’000

Bank borrowings:

  

Secured bank borrowings

  

Within one year

  245,176

More than one year, but not more than two years

  196,141

More than two years, but not more than five years

  478,093
  

Total

  919,410
  
   At December 31,
2009
   RMB’000

Finance leases:

  

Present value of minimum lease payments

  

Within one year

  100,029

More than one year, but not more than two years

  67,301

More than two years, but not more than five years

  487,216
  
  654,546
   

As at December 31, 2010, the Group did not breach any loan provisions.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

37.36. DERIVATIVE FINANCIAL INSTRUMENTS

 

  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

Derivatives used for cash flow hedging:

        

Current assets

        

- Forward foreign exchange contracts

  37,760  —     239,476     37,760  
              

Current liabilities

        

- Forward foreign exchange contracts

  23,980  29,435   12,269     23,980  

- Interest rate swap contracts

  4,353  —     153,909     4,353  
              
  28,333  29,435   166,178     28,333  
              

During the year ended December 31, 2009,2010, the Group’s subsidiaries in Australia entered into forward foreign exchange contracts to sell or purchase specified amounts of foreign currencies in the future at stipulated exchange rates. The objective of entering into the forward foreign exchange contracts is to reduce the foreign exchange rate related volatility of revenue stream and capital expenditure and thereby assist in risk management for the Group. The outstanding sell United States dollars contracts are hedging highly probable forecasted sales of coal, whereas the outstanding buy United States dollars, Euro and Yen contracts relate to the purchase of mining equipment.

As at December 31, 2009,2010, the outstanding notional amount to sell United States dollars (sell United States dollars and buy Australian dollars) was approximately RMB1,143RMB4,169 million (2008: RMB211(2009: RMB1,143 million), all maturing within one year (2008:(2009: within 7 months)one year) with forward rates of approximatelyranging from 0.76610.8369 to 0.9044 (2008:0.9887 (2009: floor price and ceiling price of 0.62930.7661 and 0.95680.9044 respectively).

As at December 31, 2009,2010, the outstanding notional amount to buy United States dollars (buy United States dollars and sell Australian dollars), buy Euro (buy Euro and sell Australian dollars) and buy Yen (buy Yen and sell Australian dollars) was approximately RMB79 million (2009: RMB74 million), nil (2009: RMB27 million) and RMB9 million (2008: nil), RMB27 million (2008: nil) and(2009: RMB72 million (2008: nil)million) respectively, all maturing within one year (2009: within six months (2008: nil)months) with forward rates of approximately 0.753 (2008: nil)0.8811 (2009: 0.753), 0.552 (2008: nil)nil (2009: 0.552) and floor price and ceiling price of 63.5 and 65 (2009: floor price and ceiling price of 71.7 and 72.7 (2008: nil)72.7) respectively.

The Group’s Australian subsidiaries also entered into contracts with banks to hedge a proportion of borrowings issued at variable interest rates through the use of floating-to-fixed interest rate swap contracts. As at December 31, 2009,2010, the outstanding notional amount was approximately RMB1,503 million (2009: RMB282 million (2008: nil)million), maturing within three years (2008: nil)(2009: within three years) at a hedge period of 3 months with floating rate and fixed rate of approximately 5.09% and 5.8312% respectively (2009: 4.2783% and 5.89% respectively (2008: nil)).

The Company also entered into contracts with three banks to hedge a proportion of borrowings issued at variable interest rates through the use of floating-to-fixed interest rate swap contracts. As at December 31, 2010, the outstanding notional amount was approximately RMB9,934 million (USD 1,500,000,000), maturing within four years at a hedge period of 3 months with floating rate as LIBOR + 0.75% and fixed rate of approximately 2.75%, 2.42% and 2.41% for the three contracts respectively. The non-current portion of the derivatives is not material and is included in current portion.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

36. DERIVATIVE FINANCIAL INSTRUMENTS—Continued

For the year ended December 31, 2008,2009, no ineffective hedging portion has been included in the consolidated income statement. The effective hedging portion was recognized as current portion of derivative financial instruments in the consolidated balance sheet. For the year ended December 31, 2010, the ineffective hedging portion of the changes in fair values of the forward foreign exchange contracts of approximately RMB10,445,000RMB10 million was recognized as selling, general and administrative expenses in the consolidated income statement. No ineffective hedging portion has been included in the consolidated income statement for the year ended December 31, 2009. The effective hedging portion was recognized as current portion of derivative financial instruments in the consolidated balance sheet.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

37. DERIVATIVE FINANCIAL INSTRUMENTS—Continued

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

38.37. LONG-TERM PAYABLE

 

  At December 31,  At December 31, 
  2009  2008  2010     2009 
  RMB’000  RMB’000  RMB’000     RMB’000 

Current liabilities

          

- Deferred income of sale and leaseback

  2,902  —     3,179       2,902  

- Deferred payment for acquisition of interests in Minerva (i)

  3,065  —     3,357       3,065  
                
  5,967  —     6,536       5,967  

Non-current liabilities

          

- Deferred income of sale and leaseback

  10,156  —     7,946       10,156  

- Deferred payment for acquisition of interests in Minerva (ii)

  12,244  —  

- Deferred payment for acquisition of interests in Minerva (i)

   12,991       12,244  

- Others

  3,980  —     7,980       3,980  
                
  26,380  —     28,917       26,380  
                

Total

  32,347  —     35,453       32,347  
                

 

(i)The carrying value of the deferred payment for acquisition of interests in Minerva is based on cash flows discounted using a rate of 7.5%.
(ii)Felix incurred the deferred income of sale and leaseback and deferred payment for acquisition of interests in Minerva prior to its acquisition by the Group.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

39.38. DEFERRED TAXATION

 

  Available-for-sale
investment
 Accelerated
tax
depreciation
 Fair value
adjustment on
mining rights
(coal reserves)
 Temporary
differences  on
expenses
recognized
 Tax losses Cash  flow
hedge
reserve
 Total   Available-for-sale
investment
 Accelerated
tax
depreciation
 Fair value
adjustment on
mining rights
(coal reserves)
 Temporary
differences  on
income and
expenses

recognized
 Tax losses Cash flow
hedge
reserve
 Total 
  RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 

Balance at January 1, 2008

  (86,726 (200,154 (39,474 —     31,175   —     (295,179

Exchange re-alignment

  —     —     —     —     (8,347 —     (8,347

(Charge) Credit to other comprehensive income

  67,409   —     —     —     —     8,831   76,240  

(Charge) Credit to the consolidated income statement (note 12)

  —     (39,192 1,513   225,125   44,086   —     231,532  
                        RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 

Balance at January 1, 2009

  (19,317 (239,346 (37,961 225,125   66,914   8,831   4,246     (19,317  (239,346  (37,961  225,125    66,914    8,831    4,246  

Exchange re-alignment

  —     —     —     (8,077 —     —     (8,077   —      —      —      (8,077  —      —      (8,077

Acquisition of Hua Ju Energy

  —     —     —     2,017   —     —     2,017     —      —      —      2,017    —      —      2,017  

Acquisition of Felix

  —     —     (596,585 (929,508 554,300   (1,318 (973,111   —      —      (596,585  (929,508  554,300    (1,318  (973,111

(Charge) Credit to other comprehensive income

  (31,306 —     —     —     —     (11,780 (43,086

Charge to other comprehensive income

   (31,306  —      —      —      —      (11,780  (43,086

(Charge) Credit to the consolidated income statement (note 12)

  —     (61,880 1,513   378,493   (57,543 —     260,583     —      (61,880  1,513    378,493    (57,543  —      260,583  
                                            

Balance at December 31, 2009

  (50,623 (301,226 (633,033 (331,950 563,671   (4,267 (757,428

Balance at January 1, 2010

   (50,623  (301,226  (633,033  (331,950  563,671    (4,267  (757,428

Exchange re-alignment

   —      (3,897  (40,040  (30,255  53,752    —      (20,440

Disposal of a joint venture and subsidiaries

   —      —      2,229    (5,653  —      —      (3,424

Credit (Charge) to other comprehensive income

   21,818    —      —      —      —      (24,350  (2,532

Credit (Charge) to the consolidated income statement (note 12)

   —      (230  (32,738  (406,304  (253,945  —      (693,217
                                            

Balance at December 31, 2010

   (28,805  (305,353  (703,582  (774,162  363,478    (28,617  (1,477,041
                      

The temporary differences on income and expenses recognized mainly arose in respect of unpaid provision of salaries and wages, provisions of compensation fees for mining rights and land subsidence, restoration, rehabilitation and environmental costs and also included payments on certain expenses such as exploration costs.costs and certain income in Australia.

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

 

  2009 2008   2010 2009 
  RMB’000 RMB’000   RMB’000 RMB’000 

Deferred tax assets

  1,027,659   46,023     1,124,166    1,027,659  

Deferred tax liabilities

  (1,785,087 (41,777   (2,601,207  (1,785,087
              
  (757,428 4,246     (1,477,041  (757,428
              

At the balance sheet date, the Group has unused tax losses of RMB2,884RMB2,778 million (2008: RMB682(2009: RMB2,884 million) contributed by the subsidiaries available for offset against future profits. A deferred tax asset has been recognized in respect of RMB1,882RMB1,212 million (2008: RMB223(2009: RMB1,882 million) of such losses. No deferred tax asset has been recognized in respect of the remaining RMB1,002RMB1,566 million (2008: RMB459(2009: RMB1,002 million) due to the unpredictability of future profit streams. Included in unrecognized tax losses are losses of RMB106 million that will expire in 2012, losses of RMB 298 million that will expire in 2013 and losses of RMB357 million that will expire in 2014 (2009: losses of RMB55 million that will expire in 2011, losses of RMB106 million that will expire in 2012, losses of RMB298 million that will expire in 2013 and losses of RMB357 million that will expire in 2014 (2008: losses of RMB55 million that will expire in 2011, losses of RMB106 million that will expire in 2012 and losses of RMB298 million that will expire in 2013)2014). Other losses may be carried forward indefinitely.

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

40.39. SHAREHOLDERS’ EQUITY

Share capital

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

 

  Domestic invested shares  

Foreign

invested shares

  Total  Domestic invested shares   Foreign
invested shares
H shares
(including H  shares
represented by ADS)
   Total 
  State legal person
shares (held by the
Parent Company)
  A shares  H shares
(including H  shares
represented by ADS)
    State legal person
shares (held by the
Parent Company)
   A shares   

Number of shares

                

At January 1, 2008, January 1, 2009 and December 31, 2009

  2,600,000,000  360,000,000  1,958,400,000  4,918,400,000

At January 1, 2009, January 1, 2010 and December 31, 2010

   2,600,000,000     360,000,000     1,958,400,000     4,918,400,000  
                            
  Domestic invested shares  

Foreign

invested shares

  Total  Domestic invested shares   Foreign
invested shares
H shares
(including H  shares
represented by ADS)
   Total 
  State legal person
shares (held  by the
Parent Company)
  A shares  H shares
(including H shares
represented by ADS)
    State legal person
shares (held by the
Parent Company)
   A shares   
  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000   RMB’000   RMB’000 

Registered, issued and fully paid

                

At January 1, 2008, January 1, 2009 and December 31, 2009

  2,600,000  360,000  1,958,400  4,918,400

At January 1, 2009, January 1, 2010 and December 31, 2010

   2,600,000     360,000     1,958,400     4,918,400  
                            

Each share has a par value of RMB1.

The Company has completed the implementation of the share reform plan on April 3, 2006 and the non-tradable legal person shares held by the Parent Company become tradable shares. The Parent Company guaranteed that it would not trade these shares in the market within 48 months from that day. As part of the share reform plan, the Parent Company agreed that the Group can participate in the investment and joint development in the oil production project of the Parent.Parent Company. Up to the issue of these financial statements, there is no progress on the project development and hence the shares held by the Parent Company are still not yet tradeable.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

40.39. SHAREHOLDERS’ EQUITY—Continued

 

Reserves

Future Development Fund

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

Shanxi Tianchi is required to transfer an additional amount at RMB15RMB5 per tonne of raw coal mined from 2008 onwards as coal mine transformation fund.

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

In accordance with the regulations of the State Administration of Work Safety, the Company has a commitment to incur RMB8 (Shanxi Tianchi: RMB15) for each tonne of raw coal mined from May 1, 2004 which will be used for enhancement of safety production environment and improvement of facilities (“Work Safety Cost”). In prior years, the work safety expenditures are recognized only when acquiring the fixed assets or incurring other work safety expenditures. The Company, Heze and Shanxi Tianchi make appropriation to the future development fund in respect of unutilized Work Safety Cost from 2008 onwards. In accordance with the regulations of the State Administration of Work Safety, the Company’s subsidiaries, Hua Ju Energy and Yulin, have a commitment to incur Work Safety Cost at the rate of: 4% of the sales income for the year below RMB10 million; 2% of the actual sales income for the year between RMB10 million and RMB100 million (included); 0.5% of the actual sales income for the year between RMB10,000RMB100 million and RMB100,000RMB1 billion (included); 0.2% of the actual sales income for the year above RMB1 billion. The unutilized Work Safety Cost at December 31, 20092010 was RMB262,660,000.RMB431,779,000.

Statutory Common Reserve Fund

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

 

to make good losses in previous years; or

 

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

40. SHAREHOLDERS39. SHAREHOLDERS’ EQUITY—Continued

Reserves—Continued

 

Retained earnings

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

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

The Company’s distributable reserve as at December 31, 20092010 is the retained earnings computed under PRC GAAP which amounted to approximately RMB15,062,956,000RMB19,727,074,000 (At December 31, 2008: RMB13,250,081,000, as restated with the adoption of new accounting standards under PRC GAAP)2009: RMB15,062,956,000).

41.40. CAPITAL RISK MANAGEMENT

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

The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 3635 and equity attributable to equity holders of the Company, comprising issued share capital, reserves and retained earnings, and amounted to RMB51,661,648,000 (2008: RMB27,013,124,000)RMB60,347,644,000 (2009: RMB51,661,648,000) as at December 31, 2009.2010.

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

42.41. FINANCIAL INSTRUMENT

42a.41a. Categories of financial instruments

 

  At December 31,
  2009  2008  At December 31, 
  RMB’000  RMB’000  2010   2009 
  RMB’000   RMB’000 

Financial assets

        

Loans and receivables (including cash and cash equivalents)

  17,515,714  12,980,405   21,468,083     17,515,714  

Available-for-sale financial assets

  295,295  139,887   224,442     295,295  

Derivative financial instruments (financial instruments at fair value)

  37,760  —     239,476     37,760  

Financial liabilities

        

Amortized cost

  27,262,173  3,559,204   26,757,425     27,262,173  

Derivative financial instruments (financial instruments at fair value)

  28,333  29,435   166,178     28,333  
              

42b.41b. Financial risk management objectives and policies

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

Credit risk

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

At December 31, 20092010 and 2008,2009, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group arising from the failure to perform their obligations in relation to each class of recognized financial assets is the carrying amount of those assets as stated in the consolidated balance sheet.

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

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

42.41. FINANCIAL INSTRUMENT—Continued

42b.41b. Financial risk management objectives and policies—Continued

Credit risk—Continued

 

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

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

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

For the years ended December 31, 2010, 2009 2008 and 2007,2008, net sales to the Group’s five largest customers accounted for approximately 28.7%24.7%, 32.8%28.7% and 25.6%32.8%, respectively, of the Group’s total net sales. Net sales to the Group’s largest customer accounted for 15.4%13.0%, 17.7%15.4% and 12.1%17.7% of the Group’s net sales for the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively. The Group’s largest customer was Huadian Power International Corporation Limited (“Huadian”) for the years ended December 31, 2010, 2009 2008 and 2007.2008.

Details of the accounts receivable from the five customers with the largest receivable balances at December 31, 20092010 and 20082009 are as follows:

 

   Percentage of accounts receivable 
   At December 31, 
   2009  2008 

Five largest receivable balances

  62.18 87.54
       
   Percentage of accounts receivable 
   At December 31, 
   2010  2009 

Five largest receivable balances

   58.43  62.18
         

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

42.41. FINANCIAL INSTRUMENT—Continued

42b.41b. Financial risk management objectives and policies—Continued

Credit risk—Continued

 

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

 

     

31.12.2009

  31.12.2008     31.12.2010   31.12.2009 

Counterparty

  

Location

  

Credit limit

  Carrying amount  Credit limit  Carrying amount  

Location

  Credit limit   Carrying amount   Credit limit   Carrying amount 
     RMB000  RMB000  RMB000  RMB000     RMB’000   RMB’000   RMB’000   RMB’000 
     (note)              (note)       (note)     

Company A

  Australia  Not applicable  81,329      Australia   Not applicable     64,170     Not applicable     —    

Company B

  Korea  Not applicable  54,959      Korea   Not applicable     59,133     Not applicable     51,235  

Company C

  Korea  Not applicable  51,235      Korea   Not applicable     58,773     Not applicable     54,959  

Company D

  The PRC  Not applicable  43,592      Australia   Not applicable     53,450     Not applicable     81,329  

Company E

  The PRC  Not applicable  41,615      Japan   Not applicable     52,600     Not applicable     —    

Company F

  The PRC      300,000  207,232  The PRC   Not applicable     —       Not applicable     43,592  

Company G

  The PRC      300,000  89,074  The PRC   Not applicable     —       Not applicable     41,615  

Company H

  The PRC      50,000  38,226

Company I

  The PRC      24,000  23,769

Company J

  The PRC      30,000  23,115
                           
      272,730    381,416       288,126       272,730  
                           

 

Note:Customers in other countries of Australian subsidiaries have not been granted the credit limit. Australian subsidiaries generally make annual sales arrangements with customers.

The Group’s geographical concentration of credit risk is mainly in the PRC and East Asia (excluding the PRC). and Australia. As at December 31, 2010 and 2009, over 85% and 2008, over 91% and 90% of the Group’s total trade receivables were from Australia and from East Asia (excluding the PRC) and from the PRC respectively.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

42.41. FINANCIAL INSTRUMENT—Continued

42b.41b. Financial risk management objectives and policies—Continued

Market risk

(i) Currency risk

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

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

 

  Liabilities  Assets
  2009  2008  2009  2008  Liabilities   Assets 
  RMB000  RMB000  RMB000  RMB000  2010   2009   2010   2009 
  RMB’000   RMB’000   RMB’000   RMB’000 

United States Dollar (“USD”)

  20,757,943  4,447  1,311,500  910,764   20,516,314     20,757,943     902,402     1,311,500  

Euro (“EUR”)

  —    —    3,611  15,718   —       —       222     3,611  

Hong Kong Dollar (“HKD”)

  —    —    7,309  7,286   —       —       6,062     7,309  

Notional amounts of sell USD foreign exchange contracts used for hedging

  —    210,800  1,143,416  —     —       —       4,169,000     1,143,416  

Notional amounts of buy USD foreign exchange contracts used for hedging

  73,713  —    —    —     79,000     73,713     —       —    

Notional amounts of buy EUR foreign exchange contracts used for hedging

  26,541  —    —    —     —       26,541     —       —    

Notional amounts of buy Yen foreign exchange contracts used for hedging

  71,511  —    —    —     9,000     71,511     —       —    
                            

The sales of the Group’s subsidiaries in Australia are mainly export sales and some of their fixed assets are imported from overseas. Their foreign exchange hedging policy is disclosed in note 37.36. The Group’s operations in the PRC do not adopt any foreign exchange hedging policy.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

42.41. FINANCIAL INSTRUMENT—Continued

42b.41b. Financial risk management objectives and policies—Continued

Market risk—Continued

(i) Currency risk—Continued

 

Sensitivity analysis

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

The following table details the Group’s sensitivity to a 5% increase and decrease in RMB against relevant foreign currencies. 5% represents management’s assessment of reasonably possible changes in foreign exchange rates over the period until the next annual balance sheet date. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 5% change in foreign currency rates and also assumes all other risk variables remained constant. The sensitivity analysis includes loans to foreign operations within the Group where the denomination of the loan is in a currency other than the functional currency of the lender or the borrower.

 

  USD Impact (note i) HKD Impact (note i ) 
  2009 2008 2009 2008   USD Impact (note i) HKD Impact (note i ) 
  RMB000 RMB000 RMB000 RMB000   2010 2009 2010 2009 
  RMB’000 RMB’000 RMB’000 RMB’000 

Increase (Decrease) to profit and loss

          

- if RMB weakens against respective foreign currency

  49,390   58,863   274   273     35,312    49,390    227    274  

- if RMB strengthens against respective foreign currency

  (49,390 (58,863 (274 (273   (35,312  (49,390  (227  (274
                          

 

   USD Impact (note ii) 
   2009  2008 
   RMB000  RMB000 

Increase (Decrease) to profit and loss

   

- if AUD weakens against respective foreign currency

  (739,749 (21,584

- if AUD strengthens against respective foreign currency

  739,749   21,584  

Increase (Decrease) to shareholders’ equity

   

- if AUD weakens against respective foreign currency

  (740,615 (21,144

- if AUD strengthens against respective foreign currency

  740,615   21,144  
       

   USD Impact (note ii) 
   2010  2009 
   RMB’000  RMB’000 

Increase (Decrease) to profit and loss

   

- if AUD weakens against respective foreign currency

   (718,045  (739,749

- if AUD strengthens against respective foreign currency

   718,045    739,749  

Increase (Decrease) to shareholders’ equity

   

- if AUD weakens against respective foreign currency

   (725,998  (740,615

- if AUD strengthens against respective foreign currency

   725,998    740,615  
         

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

42.41. FINANCIAL INSTRUMENT—Continued

42b.41b. Financial risk management objectives and policies—Continued

Market risk—Continued

(i) Currency risk—Continued

 

Notes:

 

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

 

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

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

(ii) Interest rate risk

The Group is exposed to fair value interest rate risk in relation to fixed-rate loan receivable (see note 20 for details). The Group is also exposed to cash flow interest rate risk in relation to variable-rate bank balances, term deposits, restricted cash (see note 17 for details of these bank balances) and bank borrowings (see note 3635 for details of these borrowings).

The interest rate hedging policy of the Group’s subsidiaries in AustraliaGroup is disclosed in note 37. The Group’s operations in the PRC do not adopt any interest rate hedging policy.36.

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

42.41. FINANCIAL INSTRUMENT—Continued

42b.41b. Financial risk management objectives and policies—Continued

Market risk—Continued

(ii) Interest rate risk—Continued

 

Sensitivity Analysis

The following table details the Group’s sensitivity to a change of 100 basis points in the interest rate, assuming the financial instruments outstanding at the end of the reporting period were outstanding for the whole year and all the variables were held constant. It includes the interest rate fluctuation of the abovementioned PBOC rate, LIBOR and Australian BBSY rate.

 

2009
RMB’000

Increase (Decrease) to profit and loss

- If increases by 100 basis points

(61,818

- If decreases by 100 basis points

61,818

Increase (Decrease) to shareholders’ equity

- If increases by 100 basis points

(61,818

- If decreases by 100 basis points

61,818

At December 31, 2008, the Group’s exposure to interest rate risk on financial assets and liabilities and also the result of the sensitivity analysis is not significant.

   2010  2009 
   RMB’000  RMB’000 

Increase (Decrease) to profit and loss

   

-If increases by 100 basis points

   (71,946  (61,818

-If decreases by 100 basis points

   71,946    61,818  

Increase (Decrease) to shareholders’ equity

   

-If increases by 100 basis points

   (34,692  (61,818

-If decreases by 100 basis points

   34,692    61,818  
         

(iii) Other price risk

In addition to the above risks relating to financial instruments, the Group is exposed to equity price risk through investment in listed equity securities and also to price risk in non financial instruments such as steel and metals (the Group’s major raw materials). The Group currently does not have any arrangement to hedge the price risk exposure of its investment in equity securities and its purchase of raw materials. The Group’s exposure to equity price risk through investment in listed equity securities and also the result of the sensitivity analysis is not significant.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

42.41. FINANCIAL INSTRUMENT—Continued

42b.41b. Financial risk management objectives and policies—Continued

 

Liquidity risk

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

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

Liquidity and interest risk tables

 

   Weighted
average  effective
interest rate
  Less than
3 months
  3-6
months
  6 months
to 1 year
  1-5 years  5+ years  Total
undiscounted
cash flow
  Carrying
amount at
12.31
   %  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000

2009

               

Non-derivative financial liabilities

               

Bills and accounts payables

  N/A   1,306,265  60,711  —    —    —    1,366,976  1,366,976

Other payables

  N/A   2,612,165  —    —    —    —    2,612,165  2,612,165

Amount due to Parent Company and its subsidiary companies

  N/A   757,882  —    —    —    —    757,882  757,882

Finance leases

  6.9%-12.47 656,703  —    —    —    —    656,703  656,703

Bank borrowings - variable rate

  4.02%-7.6 919,410  11,254  11,588  24,930,041  92,394  25,964,687  21,853,138

Long-term payable

  N/A   1,532  —    1,532  15,324  3,065  21,453  15,309
                        
   6,253,957  71,965  13,120  24,945,365  95,459  31,379,866  27,262,173
                        

Financial guarantees issued

               

Maximum amount guaranteed (note)

  N/A   —    —    —    —    286,181  286,181  —  
                        

Derivative financial instruments – gross settlement

               

Forward foreign exchange contracts - Outflow

  N/A   100,254  71,511  —    —    —    171,765  171,765
                        

Derivative financial instruments – net settlement

               

Interest rate swap contracts

  N/A   4,353  —    —    —    —    4,353  4,353
                        

Note:The amount presented is the maximum contractual payment under guarantees issued.

   Weighted
average  effective
interest rate
  Less than
3 months
   3-6
months
   6 months
to 1 year
   1-5 years   5+ years   Total
undiscounted
cash flow
   Carrying
amount at
12.31
 
   %  RMB’000   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

2010

               

Non-derivative financial liabilities

               

Bills and accounts payables

   N/A    1,539,098     15,346     —       —       —       1,554,444     1,554,444  

Other payables

   N/A    1,732,092     —       —       —       —       1,732,092     1,732,092  

Amount due to Parent Company and its subsidiary companies

   N/A    438,783     —       —       —       —       438,783     438,783  

Finance leases

   6.9%-12.47  38,185     38,185     76,370     898,025     —       1,050,765     822,004  

Bank borrowings - variable rate

   1.05%-7.6  144,597     449,854     284,383     22,674,270     50,722     23,603,826     22,193,754  

Long-term payable

   N/A    1,626     —       1,576     10,968     2,337     16,507     16,348  
                                       
    3,894,381     503,385     362,329     23,583,263     53,059     28,396,417     26,757,425  
                                       

Financial guarantees issued

               

Maximum amount guaranteed (note)

   N/A    —       —       —       —       532,607     532,607     —    
                                       

Derivative financial instruments – gross settlement

               

Forward foreign exchange contracts - Outflow

   N/A    14,747     41,098     32,155     —       —       88,000     88,000  
                                       

Derivative financial instruments – net settlement

               

Interest rate swap contracts

   N/A    38,297     37,103     67,529     10,980     —       153,909     153,909  
                                       

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

42.41. FINANCIAL INSTRUMENT—Continued

42b.41b. Financial risk management objectives and policies—Continued

 

Liquidity risk—Continued

 

  Weighted
average  effective
interest rate
 Less than
3 months
  3-6
months
  6 months
to 1 year
  1-5 years  5+ years  Total
undiscounted
cash flow
  Carrying
amount at
12.31
  Weighted
average  effective
interest rate
 Less than
3 months
   3-6
months
   6 months
to 1  year
   1-5 years   5+ years   Total
undiscounted
cash flow
   Carrying
amount at
12.31
 
  % RMB’000  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000  % RMB’000   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

2008

               

2009

               

Non-derivative financial liabilities

                              

Bills and accounts payables

  N/A   910,127  —    —    —    —    910,127  910,127   N/A    1,306,265     60,711     —       —       —       1,366,976     1,366,976  

Other payables

  N/A   1,677,496  —    —    —    —    1,677,496  1,677,496   N/A    2,612,165     —       —       —       —       2,612,165     2,612,165  

Amount due to Parent Company and its subsidiary companies

  N/A   706,328  —    —    13,248  —    719,576  713,581   N/A    757,882     —       —       —       —       757,882     757,882  

Finance Leases

   6.9%-12.47  656,703     —       —       —       —       656,703     656,703  

Bank borrowings - variable rate

  5.31%-5.94 —    11,254  74,739  104,625  125,839  316,457  258,000   4.02%-7.6  919,410     11,254     11,588     24,930,041     92,394     25,964,687     21,853,138  

Long-term payable

   N/A    1,532     —       1,532     15,324     3,065     21,453     15,309  
                                                       
   3,293,951  11,254  74,739  117,873  125,839  3,623,656  3,559,204    6,253,957     71,965     13,120     24,945,365     95,459     31,379,866     27,262,173  
                               

Financial guarantees issued

               

Maximum amount guaranteed (note)

   N/A    —       —       —       —       286,181     286,181     —    
                                                       

Derivative financial instruments – gross settlement

                              

Forward foreign exchange contracts - Outflow

  N/A   129,200  71,400  10,200  —    —    210,800  210,800   N/A    100,254     71,511     —       —       —       171,765     171,765  
                                                       

Derivative financial instruments – net settlement

               

Interest rate swap contracts

   N/A    4,353     —       —       —       —       4,353     4,353  
                               

Note:the amount presented is the maximum contractual presented under guarantees issued.

42c.41c. Fair values

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

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

42.41. FINANCIAL INSTRUMENT—Continued

42c.41c. Fair values—Continued

 

Fair values of financial assets and financial liabilities are determined as follows:

The following table presents the carrying value of financial instruments measured at fair value across the three levels of the fair value hierarchy defined in IFRS 7 (Amendment). The levels of fair value are defined as follows:

 

Level 1:  fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2:  fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3:  fair value measurements are those derived from valuation techniques that include inputs for the assets or liability that are not based on observable market data (unobservable inputs).

 

  Level 1   Level 2   Level 3   At December  31
Total
 
  RMB’000   RMB’000   RMB’000   RMB’000 

2010

        

Assets

        

Available-for-sale investments

        

- Investments in securities listed on the SSE

   194,258     —       —       194,258  

Derivative financial instruments

        

- Forward foreign exchange contracts

   —       239,476     —       239,476  
                
   194,258     239,476     —       433,734  
                

Liabilities

        

Derivative financial instruments

        

- Forward foreign exchange contracts

   —       12,269     —       12,269  

- Interest rate swap contracts

   —       153,909     —       153,909  
                
   —       166,178     —       166,178  
  Level 1  Level 2  Level 3  At December 31
Total
                
  RMB’000  RMB’000  RMB’000  RMB’000

2009

                

Assets

                

Available-for-sale investments

                

- Investments in securities listed on the SSE

  264,672  —    —    264,672   264,672     —       —       264,672  

Derivative financial instruments

                

- Forward foreign exchange contracts

  —    37,760  —    37,760   —       37,760     —       37,760  
                            
  264,672  37,760  —    302,432   264,672     37,760     —       302,432  
                            

Liabilities

                

Derivative financial instruments

                

- Forward foreign exchange contracts

  —    23,980  —    23,980   —       23,980     —       23,980  

- Interest rate swap contracts

  —    4,353  —    4,353   —       4,353     —       4,353  
                            
  —    28,333  —    28,333   —       28,333     —       28,333  
                            

2008

        

Assets

        

Available-for-sale investments

        

- Investments in securities listed on the SSE

  139,447  —    —    139,447
            
  139,447  —    —    139,447
            

Liabilities

        

Derivative financial instruments

        

- Forward foreign exchange contracts

  —    29,435  —    29,435
            
  —    29,435  —    29,435
            

There were no transfers between Levels 1 and 2 during the year ended December 31, 20092010 and 2008.

2009.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

43.42. ACQUISITION OF HUA JU ENERGY

On October 24, 2008, the Company entered into an acquisition agreement with the Parent Company to acquire 74% equity interest in Hua Ju Energy. On February 18, 2009, the acquisition was completed and the consideration of RMB593,243,000 was fully paid to the Parent Company to acquire 74% equity interest of Hua Ju Energy. The net assets acquired were included in the methanol, electricity and heat supply segment.

In July 2009, the Company paid RMB173,007,000 to three former shareholders of Hua Ju Energy to acquire additional 21.14% equity interest in Hua Ju Energy which gives rise to goodwill of RMB38,187,000.

This acquisition has been accounted for using the purchase method.

The net assets of Hua Ju Energy acquired, and the goodwill arising, are as follows:

 

   Fair value 
   

RMB’000

 

Bank balances and cash

 4,567  

Bills and accounts receivable

  2,129  

Inventories

 3,611  

Prepayments and other receivables

  79,563  

Other currents assets

 25,246  

Property, plant and equipment

  755,213  

Prepaid lease payment

 74,652  

Available-for-sale financial assets

  30,182  

Deferred tax assets

  2,017  

Accounts payable

 (64,760

Customers’ deposits and other payables

  (263,297

Other current liabilities

 (120,000
    

Net assets acquired

  529,123  

MinorityNon-controlling interests

 (137,572

Goodwill arising on acquisition

  201,692  
    
 593,243  
   

Total consideration satisfied by:

  

Cash consideration paid on acquisition

  593,243  
   

Net cash outflow arising on acquisition:

  

Cash paid on acquisition

 (593,243

Bank balances and cash acquired

  4,567  
    
 (588,676
   

There is no significant difference between the carrying value and the fair value of net assets of Hua Ju Energy.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

43.42. ACQUISITION OF HUA JU ENERGY—Continued

 

Goodwill arising from acquisition of Hua Ju Energy is mainly because this acquisition can establish an electricity management platform for the Group and is beneficial to the future development of coal resources of the Group. It also ensures stable supply of electricity to the Group, reduce operating costs, and enhance profitability and operating results. It further ensures environmental disposal of waste products such as coal gangue produced from the Group’s mining operations.

During the period from the acquisition date/the beginning period date to December 31, 2009, this transaction does not have any material impact on the revenue and operating results of the Group.

44.43. ACQUISITION OF FELIX

On 13 August 2009, the Company entered into a binding scheme implementation agreement with Felix to acquire 100% equity interest in Felix. On December 23, 2009, the acquisition was completed and the Company paid the consideration of AUD3,333 million (equivalent to approximately RMB20,428 million) to all the shareholders of Felix. On December 30, 2009, Felix was delisted from the Australian Securities Exchange and all legal procedures of acquiring all of the Felix shares have been completed. The net assets acquired were included in the coal mining segment.

This acquisition has been accounted for using the purchase method.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

44.43. ACQUISITION OF FELIX—Continued

 

The net assets of Felix acquired, and the goodwill arising, are as follows:

 

  Carrying amounts Fair value
adjustments
 Fair values   Carrying amounts Fair value
adjustments
 Fair values 
  RMB’000 RMB’000 RMB’000   RMB’000 RMB’000 RMB’000 

Bank balances and cash

  872,435   —     872,435     872,435    —      872,435  

Term deposits

  91,941   —     91,941     91,941    —      91,941  

Bills and accounts receivable

  292,008   —     292,008     292,008    —      292,008  

Inventories

  306,444   (39,349 267,095     306,444    (39,349  267,095  

Prepayments and other receivables

  214,501   —     214,501     214,501    —      214,501  

Derivative financial instrument assets

  27,928   —     27,928     27,928    —      27,928  

Tax recoverable

  46,777   —     46,777     46,777    —      46,777  

Other currents assets

  350,676   —     350,676     350,676    —      350,676  

Property, plant and equipment, net

  2,842,046   704,861   3,546,907     2,842,046    704,861    3,546,907  

Available-for-sale financial assets

  1   —     1     1    —      1  

Interests in jointly controlled entities

  1,257   —     1,257     1,257    —      1,257  

Intangible assets

  1,312,393   16,535,630   17,848,023     1,312,393    16,535,630    17,848,023  

Accounts payable

  (390,927 —     (390,927   (390,927  —      (390,927

Receipts in advance and other payables

  (700,833 —     (700,833   (700,833  —      (700,833

Borrowings

  (1,573,956 —     (1,573,956   (1,573,956  —      (1,573,956

Derivative financial instrument liabilities

  (28,333 —     (28,333   (28,333  —      (28,333

Deferred taxation

  (376,526 (596,585 (973,111   (376,526  (596,585  (973,111

Provision for land subsidence, restoration, rehabilitation and environmental costs

  (48,170 —     (48,170   (48,170  —      (48,170

Other long-term payables

  (28,367 —     (28,367   (28,367  —      (28,367
            

Net assets acquired

    19,815,852       19,815,852  

Minority interests

    (23,542

Non-controlling interests

     (23,542

Goodwill arising on acquisition

    766,816       766,816  
            
    20,559,126       20,559,126  
            

Total consideration satisfied by:

        

Cash consideration paid on acquisition

    20,428,030       20,428,030  

Direct acquisition costs paid

    2,949       2,949  

Direct acquisition costs not yet settled

    128,147       128,147  
            
    20,559,126       20,559,126  
            

Net cash outflow arising on acquisition:

        

Cash paid on acquisition

    (20,430,979     (20,430,979

Bank balances and cash acquired

    872,435       872,435  
            
    (19,558,544     (19,558,544
            

During the period from the acquisition date to December 31, 2009, Felix doesdid not have any material impact on the revenue and operating results of the Group.

If the acquisition had been completed on January 1, 2009, the Group’s revenue for the year would have been RMB23,894 million, and the Group’s profit for the year would have been RMB4,914 million. The pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on January 1, 2009, nor is it intended to be a projection of future results.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

44.43. ACQUISITION OF FELIX—Continued

 

The goodwill arising from the acquisition is attributable to the extension of coal reserves and diversification of operations by the Group, and operational synergies and strategic benefits.

44. ACQUISITION OF THREE SUBSIDIARIES

In 2009, the Group signed a co-operation agreement with an independent third party for the acquisition of 100% equity of Yize. The acquisition was completed on April 30, 2010 with a consideration of RMB179.7 million being paid to the shareholders of Yize.

During the year, the Group has also completed the acquisition of 100% equity of Inner Mongolia Rongxin Chemical Co., Ltd (“Rongxin Chemicals”) and Inner Mongolia Daxin Industrial Gas Co., Ltd (“Daxin Industrial”) with cash consideration of RMB4.4 million and RMB6 million respectively.

Yize, Rongxin Chemicals and Daxin Industrial have not engaged in any operating activities at the acquisition date and the acquisitions were reflected as purchases of assets and liabilities of which no goodwill was recognized.

Net book values of the acquired net assets at acquisition dates are as follow:

Carrying amounts
RMB’000

Inventories

7

Prepayments and other receivables

15,600

Property, plant and equipment, net

4,751

Prepaid lease payments

55,418

Intangible assets

131,985

Other payables

(17,666

Net assets acquired

190,095

Considerations:

Cash paid on acquisition

133,000

Deposit paid for acquisition of investment in prior year

57,095
190,095

Net cash outflow arising on acquisition

(133,000

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

45. DISPOSAL OF A JOINT VENTURE

As at December 31, 2010, the Group disposed of its 51% interest in Minerva joint venture to an independent third party at a consideration of AUD191,860,000 (RMB1,235,840,000).

Net assets of joint venture dispose of are as follows:

Carrying
amounts
RMB’000

Total assets

1,401,548

Total liabilities

(283,636
1,117,912

Gain on disposal of a joint venture

117,928

Total consideration

1,235,840

Cash inflow (outflow) of the disposal

Cash consideration

1,235,840

Disposal of cash and bank balance

(88,019

Net cash inflow from the disposal of Minerva

1,147,821

During the year, the Group has also disposed of its interests in Minerva Mining Pty Ltd, Minerva Coal Pty Ltd and Felix Coal Sales Pty Ltd, subsidiaries related to the operations of Minerva joint venture. The subsidiaries are not material to the Group and their assets, liabilities and related profit or loss on disposal have been included in the above disposal of a joint venture.

46. RELATED PARTY BALANCES AND TRANSACTIONS

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

Related party balances

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

The amounts due to the Parent Company and its subsidiary companies as at December 31, 20092010 and 20082009 included the present value of the outstanding balance that arose from the funding of the acquisition of the mining rights of Jining III as of January 1, 2001 discounted using the market rate of bank borrowings.

The consideration for the cost of the mining rights of approximately RMB132,479,000 is to be settled over the 10 years, commencing from 2001.

   At December 31, 
   2009  2008 
   RMB’000  RMB’000 

Amounts due to Parent Company and its subsidiary companies

   

Within one year

  757,882   706,328  

More than one year, but not exceeding two years

  —     7,253  
       

Total

  757,882   713,581  

Less: amount due within one year

  (757,882 (706,328
       

Amount due after one year

  —     7,253  
       

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

45.46. RELATED PARTY BALANCES AND TRANSACTIONS—Continued

 

Related party transactions

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

 

  Year ended December 31,
  2009  2008  2007  Year ended December 31, 
  RMB’000  RMB’000  RMB’000  2010   2009   2008 
  RMB’000   RMB’000   RMB’000 

Income

            

Sales of coal

  2,086,542  1,384,415  1,014,963   2,672,424     2,086,542     1,384,415  

Sales of auxiliary materials

  317,479  550,986  595,143   454,254     317,479     550,986  

Sales of heat and electricity

  204,061  —    —     235,002     204,061     —    

Expenditure

            

Utilities and facilities

  39,069  376,288  377,074   34,006     39,069     376,288  

Annual fee for mining rights

  —    —    12,980   —       —       —    

Purchases of supply materials and equipment

  598,498  471,768  454,469   421,606     598,498     471,768  

Repair and maintenance services

  388,917  253,864  215,102   262,478     388,917     253,864  

Social welfare and support services

  769,561  255,265  313,062   794,621     769,561     255,265  

Technical support and training

  26,000  20,000  20,000   26,000     26,000     20,000  

Road transportation services

  79,560  86,671  60,718   64,945     79,560     86,671  

Construction services

  242,593  294,938  316,801   655,311     242,593     294,938  
                     

Certain expenditure for social welfare and support services (excluding medical and child care expenses) of RMB165,900,000,RMB259,575,000, RMB165,900,000 and RMB165,900,000 for the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively, and for technical support and training of RMB26,000,000, RMB20,000,000RMB26,000,000 and RMB20,000,000, have been charged by the Parent Company at a new negotiated amount per annum, subject to changes every year.

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

During the year ended December 31, 2009, the Company acquired 74% equity interest in Hua Ju Energy from the Parent Company. Details of this acquisition are set out in note 43.42.

In addition to the above, the Company participates in a retirement benefit scheme of the Parent Company in respect of retirement benefits (note 47)48).

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

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

45.46. RELATED PARTY BALANCES AND TRANSACTIONS—Continued

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

 

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

 

  Year ended December 31,  Year ended December 31, 
  2009  2008  2007  2010   2009   2008 
  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000   RMB’000 

Trade sales

  6,970,855  10,253,998  6,035,156   9,823,814     6,970,855     10,253,998  
                     

Trade purchases

  1,191,783  1,328,958  1,056,959   1,581,427     1,191,783     1,328,958  
                     

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

 

  At December 31,  At December 31, 
  2009  2008  2010   2009 
  RMB’000  RMB’000  RMB’000   RMB’000 

Amounts due to other state-controlled entities

  359,726  294,888   443,403     359,726  
              

Amounts due from other state-controlled entities

  1,101,535  364,420   1,320,801     1,101,535  
              

Amounts due to and from state-controlled entities are trade nature of which terms are not different from other customers (notes 18 and 33)32).

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

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

Balances and transactions with jointly controlled entities

Due from a jointly controlled entity:

 

   Year ended December 31,
   2009  2008
   RMB’000  RMB’000

Due from a jointly controlled entity (note 21)

  66,321  —  
      
   Year ended December 31, 
   2010   2009 
   RMB’000   RMB’000 

Due from a jointly controlled entity (note 20)

   115,480     66,321  
          

The amount due from a jointly controlled entity is unsecured and interest-free.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

45.46. RELATED PARTY BALANCES AND TRANSACTIONS—Continued

Balances and transactions with jointly controlled entities—Continued

 

As at December 31, 2009,2010, the trade balances between the Group and a jointly controlled entity are disclosed in notes 18 and 33.32. The jointly controlled entity was obtained through the acquisition of Felix and therefore there were noFelix. During the year, sales or purchases included into the consolidated financial statements forjointly controlled entity by the year.Group’s Australian subsidiaries amounted to RMB 1,202,255,000 (2009: nil).

Compensation of key management personnel

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

 

  Year ended December 31,
  2009  2008  2007  Year ended December 31, 
  RMB’000  RMB’000  RMB’000  2010   2009   2008 
  RMB’000   RMB’000   RMB’000 

Directors’ fee

  436  426  403   452     436     426  

Salaries, allowance and other benefits in kind

  3,292  2,545  2,315   4,548     3,292     2,545  

Retirement benefit scheme contributions

  550  407  378   778     550     407  
                     
  4,278  3,378  3,096   5,778     4,278     3,378  
                     

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

46.47. COMMITMENTS

 

  At December 31,
  2009  2008  At December 31, 
  RMB’000  RMB’000  2010   2009 
  RMB’000   RMB’000 

Capital expenditure contracted for but not provided in the consolidated financial statements

        

Acquisition of property, plant and equipment

        

- the Group

  5,308  142,399   814,800     5,308  

- share of joint ventures

  708,573  —     207,111     708,573  

Exploration and evaluation expenditure

        

- share of joint ventures

  2,315  —     —       2,315  
              
  716,196  142,399   1,021,911     716,196  
              

Capital expenditure authorized but not contracted for Acquisition of property, plant and equipment

        

- the Group

  142,565  —     —       142,565  
              

During 2006, the Company entered into a co-operative agreement with two independent third parties to establish a company for acquiring a coal mine in Shaanxi province for operations. In addition to the deposit referred to in note 30,29, the Company is committed to invest a further RMB78.8 million as at December 31, 20092010 and 2008.

2009.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

46.47. COMMITMENTS—Continued

 

Pursuant to the regulations issued by the Shandong Province Finance Bureau, the Group has to pay a deposit of RMB1,980 million (2008: RMB997(2009: RMB1,980 million) to the relevant government authority, which secured for the environmental protection work done by the Company. As at December 31, 2009,2010, deposit of RMB212RMB222 million (2008: RMB200(2009: RMB212 million) were made and the Company is committed to further make security deposit of RMB1,758 million. (2009: RMB1,768 million (2008: RMB797 million).

As at December 31, 2008, the Company entered into an acquisition agreement with the Parent Company at a consideration of RMB593.24 million to acquire 74% equity interest in Hua Ju Energy. The acquisition has been completed during the year and details are set out in note 43.

During 2007, the Company entered into an agreement with the Parent Company and China Credit Trust Co., LtdLtd. to establish a company, with the proposed namenamed of Yankuang Group Finance Company Limited (the “Investee”), which will engage in banking and financing business. The name and the activities of the Investee are subject to the approval by China Banking Regulatory Commission and other relevant government authorities.Limited. In November 2009, the Company has received the approval from China Banking Regulatory Commission. The Company shall contribute RMB125 million from internal resources, which willwould account for 25% of the equity interest in the Investee. As of December 31, 2009, the procedures to establish the Investee are still in progress. On April 20, 2010, all the investors signed a formal joint venture establishment agreement. As at the date of issue of these financial statements, the Company has made full contribution and the incorporationDetails of the Investee isestablishment are set out in the progress.note 28.

Compensation fees for mining rights are required to be paidpay annually and details are set out in note 24.23.

In 2009, the Company entered into agreements with third parties to acquire three subsidiary companies. The Company has made deposits of RMB 57 million in 2009 and the Group has to paypaid additional consideration of RMB133 million. Detailsmillion during the year. The acquisitions were completed during the year and details of the acquisitions are set out in note 30.44.

On October 27, 2009, the board of directors of the Company passed a resolution for additional investment in Yanmei Heze Neng Hua Co., Ltd of RMB1.5 billion by internal funding and thereby increasing its registered capital from RMB1.5 billion to RMB3 billion. The percentage of equity interest held by the Company increased from 96.67% to 98.33% and this capital increase was completed in March 2010.

On December 30, 2010, the Company’s board of directors approved to increase the capital investment in its wholly-owned subsidiary in Australia, Yancoal Australia Limited, by AUD909 million (approximately RMB5,900 million) by internal funding and thereby increasing its registered capital from AUD64 million to AUD973 million. The capital increase has been approved by the related governmental authorities and the procedures for remitting the capital increase are currently in progress.

As at December 31, 2010, the Company’s board of directors approved the acquisition of 30% equity interest in Ashton joint venture at a consideration of USD250 million. Up to the date of these financial statements, the acquisition has been completed.

47.YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

48. RETIREMENT BENEFITS

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

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

47. RETIREMENT BENEFITS—Continued

Pursuant to the Provision of Insurance Fund Administrative Services Agreement entered into by the Company and the Parent Company on November 7, 2008, the monthly contribution rate is set at 20% (2008: 45%(2009: 20%; 2007:2008: 45%) of the total monthly basic salaries and wages of the Company’s employees for the period from January 1, 2009 to December 31, 2011. Retirement pension and other welfare benefits will be provided by the Parent Company on the actual cost basis, which will be reimbursed by the Company after the actual payment made by the Parent Company (included in 45% contribution rate in pension scheme for the years ended December 31, 2008 and 2007)2008).

The amount of contributions paid to the Parent Company were RMB640,933,000, RMB520,273,000 RMB759,356,000 and RMB692,912,000RMB759,356,000 for the years ended December 31, 2010, 2009, 2008, and 2007,2008, respectively.

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

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

48.49. HOUSING SCHEME

The Parent Company is responsible for providing accommodation to its employees and the domestic employees of the Company. The Company and the Parent Company share the incidental expenses relating to the accommodation at a negotiated amount for each of the three years ended December 31, 2010, 2009 2008 and 2007.2008. Such expenses, amounting to RMB140,000,000, RMB86,200,000RMB140,000,000 and RMB86,269,000RMB86,200,000 for each of the three years ended December 31, 2010, 2009 2008 and 20072008 respectively, have been included as part of the social welfare and support services expenses summarized in note 45.48.

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

49.YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

50. MAJOR NON-CASH TRANSACTION

During the year ended December 31, 2009,2010, the Group acquired certain property, plant and equipment, of which RMB606,227,000 (2008: RMB654,304,000)RMB324,136,000 (2009: RMB606,227,000) have not yet been paid.

During the year ended December 31, 2010, the Group acquired certain property, plant and equipment at cost of RMB261,556,000 under finance leases.

51. POST BALANCE SHEET EVENT

On January 24, 2011, the Company, the Parent Company, and Shaanxi Yanchang Petroleum (Group) Corp. Ltd (“Yanchang Petroleum”) entered into an agreement for the formation of Shaanxi Future Energy Chemical Corp. Ltd. Upon completion of the agreement, the Parent Company, the Company and Yanchang Petroleum will contribute RMB2.7 billion, RMB1.35 billion and RMB1.35 billion as capital contribution and will hold 50%, 25% and 25% equity interest in the investee company respectively.

On January 17, 2011, the Company’s board of directors approved to increase the registered capital of Ordos by RMB2.6 billion with its internal resources. The registered capital of Ordos will therefore increase from RMB500 million to RMB3.1 billion. As of the date of these financial statements, the increase in registered capital has completed.

On January 28, 2011, the Company’s board of directors approved Ordos to participate in the public auction of the mining rights of Zhuan Longwan coal mine zone. Ordos was successful in the bidding at a consideration of RMB7.8 billion and entered into a confirmation agreement with the relative governmental authority of the Inner Mongolia Autonomous Region.

On March 31, 2011, the Company entered into equity transfer agreement with Ordos City Jiutaimanlai Coal Mining Company Limited (“Jiutaimanlai”) and Jiutai Technology to acquire 10% of the equity interests in Hao Sheng held by Jiutaimanlai and Jiutai Technology for a consideration of approximately RMB1,313.8 million. The share ownership transfer procedures were completed in April 2011. Up to the date of these financial statements, the Company hold 61% of the equity interests in Hao Sheng but the mining right of Shilawusu Coal Field has not yet been obtained.

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

50. POST BALANCE SHEET EVENT

Felix breached certain provisions in the borrowing agreements signed with the banks at December 31, 2009 (note 36). In April 2010, Felix’s management has obtained a waiver letter from lenders in this respect to waive any penalty and early repayment requirements.

The Company’s board of directors passed a resolution to change the accounting estimate in respect of the amortization method of mining rights (coal reserves) and agreed to adopt unit of production method as a uniform amortization method for the Company and its subsidiaries. In effect the Company and certain of its subsidiaries will change its amortization method from straight line basis to unit of production basis. The directors are assessing the impact of the above change in accounting estimate on the Company’s future results.

51.52. CONTINGENT LIABILITIES

 

  At December 31,   At December 31, 
  2009  2008   2010   2009 
  RMB’000  RMB’000   RMB’000   RMB’000 

Guarantees

Guarantees

    

Guarantees

    

(a)

  

The Group

      The Group    
  

Guarantees secured over deposits

  4,294  —    Guarantees secured over deposits   43,970     4,294  
  

Performance guarantees provided to external parties

  197,466  —    Performance guarantees provided to external parties   248,763     197,466  
  

Guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute

  41,334  —    

Guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute

   201,167     41,334  

(b)

  

Joint ventures

      Joint ventures    
  

Guarantees secured over deposits

  460  —    Guarantees secured over deposits   504     460  
  

Performance guarantees provided to external parties

  423  —    Performance guarantees provided to external parties   463     423  
  

Guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute

  42,204  —    

Guarantees provided in respect of the cost of restoration of certain mining leases, given to government departments as required by statute

   37,740     42,204  
                  
    286,181  —       532,607     286,181  
                  

52.53. OPERATING LEASE COMMITMENTS

 

  At December 31,
  2009  2008  At December 31, 
  RMB’000  RMB’000  2010   2009 
  RMB’000   RMB’000 

Within one year

  27,765  —     6,043     27,765  

More than one year, but not more than five years

  205,155  —     4,922     205,155  
              
  232,920  —     10,965     232,920  
              

Operating leases have average remaining lease terms of 31 to 5 years. Items that are subject to operating leases include mining equipment, office space and small items of office equipment.

 

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