# OUTLOOK

Notwithstanding the rapid recovery in coal price in Guizhou province in late 2016, the fundamentals of coal demand have not changed significantly. As the coal demand shortage and overcapacity are still prominent, the Group believes that the government will continue adhering to the supply-side reform policy to resolve excess coal production capacity. The Group will continue adopting the existing business strategy through the expansion of existing shipping port, transport belts and coal beneficiation plant, and strengthening the effective coal quality management through coal washing and coal blending in order to meet different requirements of various customers and penetrate the surrounding coal market.

The status of coal as the primary energy in China is expected to remain unchanged for a considerable length of time in the future. Therefore the Company is cautiously positive about the coal industry in the longer term. The Company will also consider other potential business projects that can provide the Shareholders with promising returns and benefit the Group as a whole as and when suitable opportunities arise.

# APPRECIATION

On behalf of the Board, I would like to take this opportunity to express my appreciation to the staff and management team of the Group for their hard work and dedication during the year. I would also like to express my sincere gratitude to the Shareholders for their continuous support.

HAN Weibing

Chairman and Chief Executive Officer

Hong Kong, 31 March 2017

# BUSINESS REVIEW

In early 2016, the Group re-formulated its business strategy to enhance the Group’s overall competitiveness in the downturn of the coal industry by adopting the following measures.

First of all, in addition to the existing coal beneficiation plant, the Group managed to complete the construction of another simple coal washing facility within three months as well as putting two high sieving systems into operation. Coal washing and efficient coal blending could be performed with the Group’s own coal beneficiation plant, coal washing facility and high sieving systems. To meet the demands of power plants and other customers with lower coal specification, the Group blended raw coal, lignite (the by-product of coal washing), middling coal and coal residue stone. The sales of blended coal not only met customers’ specific requirements but also generated additional revenue for the Group and reduced the treatment cost of lignite and coal residue stone. Therefore the Group was in a better position to segment the coal market by providing customised coal products of different specifications and stable quality to various customers.

Secondly, the Group improved the logistics and transportation so that its coal products could be transported to the downstream chemical plants, cement plants and other customers waterway at a lower cost and a shorter time through the Group’s own shipping port.

Thirdly, the Group adhered to establish a strategic customer-oriented management system, which not only provided customers with a variety of customised specifications of coal products but also enhanced the quality of customer service. As a result, longer term customer relationship has been built up.

Fourthly, the Group adopted optimised mining plan, took advantage of water transport, stringent cost control and other means to reduce production and logistics costs. The Group also closely adhered to the stringent cash flow management by securing alternative financing for mine tunnel construction. Furthermore, the Group managed to negotiate “payment before delivery” term for non-power plant customers to minimise potential credit risk and reduce working capital cycle.

As a result of the effective implementation of the above strategies and the surge of coal price in the fourth quarter of 2016, the Group’s loss attributable to owners of the parent from continuing operations substantially declined from approximately CNY488.4 million in 2015 to approximately CNY205.7 million in 2016.