##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 20-F



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

OR



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

for the fiscal year ended DECEMBER 31, 2005

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 number 001-14714

LOGO

(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 South Fushan Road

Zoucheng, Shandong Province

Peoples Republic of China

(Address of principal executive offices)



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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                  
|                                  | 
|H Shares, par value RMB1.00 each* |  | The Stock Exchange of Hong Kong Limited  



|* | Not for trading in the United States, but only in connection with the listing of the American Depositary Shares.
|- | ----------------------------------------------------------------------------------------------------------------

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)



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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

1,958,400,000 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    x  No

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 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 ̈

Indicate by check mark which financial statement item the
registrant has elected to follow.    Item 17 ̈Item 18  x

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

(APPLICABLE ONLY TO ISSUERS
INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

 ̈Yes ̈No



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##### Table of Contents

TABLE OF CONTENTS



|                                                 |  |                                                                              |  |   
|------------------------------------------------ |  | ---------------------------------------------------------------------------- |  | --
|CAUTIONARY STATEMENT                             |  | 1                                                                           
|CERTAIN DEFINITIONS AND SUPPLEMENTAL INFORMATION |  | 2                                                                           
|EXCHANGE RATES                                   |  | 3                                                                           
|                                                 | 
|PART I                                           |  |                                                                             
|                                                 |  |                                                                             
|ITEM 1.                                          |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.                       |  | 4 
|ITEM 2.                                          |  | OFFER STATISTICS AND EXPECTED TIMETABLE.                                     |  | 4 
|ITEM 3.                                          |  | KEY INFORMATION.                                                             |  | 4 
|ITEM 4.                                          |  | INFORMATION ON THE COMPANY.                                                  |  | 13
|ITEM 5.                                          |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS.                                |  | 31
|ITEM 6.                                          |  | DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES.                     |  | 47
|ITEM 7.                                          |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.                           |  | 57
|ITEM 8.                                          |  | FINANCIAL INFORMATION                                                        |  | 61
|ITEM 9.                                          |  | THE OFFER AND LISTING                                                        |  | 63
|ITEM 10.                                         |  | ADDITIONAL INFORMATION.                                                      |  | 66
|ITEM 11.                                         |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                  |  | 83
|ITEM 12.                                         |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.                      |  | 84
|                                                 | 
|PART II                                          |  |                                                                             
|                                                 |  |                                                                             
|ITEM 13.                                         |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.                             |  | 85
|ITEM 14.                                         |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 85
|ITEM 15.                                         |  | CONTROLS AND PROCEDURES                                                      |  | 85
|ITEM 16A.                                        |  | AUDIT COMMITTEE FINANCIAL EXPERT                                             |  | 85
|ITEM 16B.                                        |  | CODE OF ETHICS                                                               |  | 86
|ITEM 16C.                                        |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       |  | 86
|ITEM 16D.                                        |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |  | 86
|ITEM 16E.                                        |  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       |  | 87
|                                                 | 
|PART III                                         |  |                                                                             
|                                                 |  |                                                                             
|ITEM 17.                                         |  | FINANCIAL STATEMENTS.                                                        |  | 88
|ITEM 18.                                         |  | FINANCIAL STATEMENTS.                                                        |  | 88
|ITEM 19.                                         |  | EXHIBITS.                                                                    |  | 88
|                                                 |  |                                                                             
|SIGNATURES                                       |  |                                                                              |  |   



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CAUTIONARY STATEMENT

Certain information contained in this annual report, which does not relate to historical
financial information may be deemed to constitute forward-looking statements. The words or phrases will likely result, are expected to, will continue, is anticipated, estimate,
project, believe or similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
and Exchange Act of 1934, as amended, or the Exchange Act. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those presently anticipated or projected. We
wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. These forward-looking statements include, without limitation, statements relating to:



| |  |  | future prices and demand for our products and demand for our customers products;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | future PRC tariff levels and export quotas for coal;
| | - |  | ----------------------------------------------------



| |  |  | sales of our products;
| | - |  | ----------------------



| |  |  | the amount and nature of, and potential for, future development;
| | - |  | ----------------------------------------------------------------



| |  |  | coal mine reserves potential;
| | - |  | -----------------------------



| |  |  | production forecasts of coal;
| | - |  | -----------------------------



| |  |  | trends in the coal industry and domestic and international coal market conditions;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | the effectiveness of our cost-saving measures;
| | - |  | ----------------------------------------------



| |  |  | future expansion plans and capital expenditures;
| | - |  | ------------------------------------------------



| |  |  | expected production capacity increases;
| | - |  | ---------------------------------------



| |  |  | competition;
| | - |  | ------------



| |  |  | changes in legislation, regulations and policies;
| | - |  | -------------------------------------------------



| |  |  | estimates of proven and probable coal mine reserves;
| | - |  | ----------------------------------------------------



| |  |  | our research and development plans; and
| | - |  | ---------------------------------------



| |  |  | our dividend policy.
| | - |  | --------------------

These statements are based on
assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in particular circumstances. However,
whether actual results and developments will meet our expectations and predictions depends on a number of risks and uncertainties, which could cause actual results to differ materially from our expectations. These risks are more fully described in
the section entitled Item 3. Key Information  Risk Factors.

Consequently, all of the forward-looking statements made in
this annual report are qualified by these cautionary statements. 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 or our
business or operations.

Unless otherwise indicated, statistical and market trend information, as well as statements related to market
position and competitive data, are based on our internal statistics and/or estimates gathered from our own research and/or various publicly available sources.



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CERTAIN DEFINITIONS AND SUPPLEMENTAL INFORMATION

As used herein, references to we,
our, our Company or us refer to Yanzhou Coal Mining Company Limited, unless the context indicates otherwise. References to the Parent Company include references to Yankuang Group Corporation Limited
(formerly known as Yanzhou Mining (Group) Corporation Limited) and, in respect of references to any time prior to our incorporation, are to the businesses, assets and liabilities of the Predecessor that were not transferred to us in the
Restructuring and, where the context requires, includes our subsidiaries, and references to the Predecessor mean the entity that held all our assets and liabilities as well as the assets and liabilities of the Parent Company prior to the
Restructuring.

As used herein, Restructuring means our incorporation on September 25, 1997 and the transfer to us,
effective as of September 25, 1997, of the principal coal mining businesses of the Predecessor and certain assets and liabilities of the Predecessor relating thereto, together with certain other businesses, assets and liabilities of the
Predecessor.

References to Shares herein refer to our (i) domestic invested shares held by the Parent Company on behalf of the State,
RMB1.00 par value each (the State Legal Person Shares), (ii) domestic invested shares other than those held by the Parent Company, RMB1.00 par value each (the A Shares), (iii) overseas listed foreign invested shares
issued and traded in HK dollars, par value RMB1.00 each (the H Shares), and (iv) American Depositary Shares (ADSs), each of which represents 50 H Shares, collectively. The ADSs are evidenced by American Depositary
Receipts (ADRs).

References to the Domestic Shares herein refer to the State Legal Person Shares and A Shares
collectively.

References to the Combined Offering herein refer to (i) our offering of H Shares in Hong Kong in an offer
for subscription, (ii) our offering of ADSs in a public offering initially in the United States and Canada, and (iii) our offering of ADSs outside the United States, Canada and the PRC and to certain professional investors in Hong Kong
that purchased ADSs or H Shares other than in the Hong Kong offering. The Combined Offering was completed by us in April 1998 and resulted in the issuance by us of 850,000,000 H Shares, held in H Share and ADS form.

References to the Directors, Supervisors and Executive Officers herein refer to our directors, supervisors and executive officers as
discussed in Item 6 herein.

References to the Articles of Association herein refer to our articles of association, as
amended from time to time.

As used herein, Eastern China includes Shandong Province, Jiangsu Province, Anhui Province,
Zhejiang Province, Fujian Province, Jiangxi Province and Shanghai municipality.

As used herein, PRC Government or
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.

As used herein, tonne means metric tonne, equal to 1,000 kilograms
or approximately 2,205 pounds in weight.

Certain mining terms used herein are defined in the Glossary of Mining Terms annexed
as Appendix B to the registration statement on Form F-l forming part of the registration statement filed with the U.S. Securities and Exchange Commission, a copy of which may be obtained upon request.

We publish our financial statements in Renminbi yuan, the official legal tender currency of the PRC. Except as otherwise stated herein, all monetary
amounts in this Form 20-F have been presented in RMB.

Our audited financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS), which differ in certain material respects from generally accepted accounting principles in the United States (U.S. GAAP). Note 47 to our audited financial statements provides a
reconciliation of our financial statements to U.S. GAAP in accordance with Item 18 of Form 20-F.



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References to the Financial Statements herein refer to the Financial Statements in
Item 18 of this Form 20-F annual report.

EXCHANGE RATES

Unless otherwise specified, references in this Form 20-F to U.S. dollars or
U.S.$ are to United States dollars, references to HK dollars or HK$ are to Hong Kong dollars and references to Renminbi or RMB are to Renminbi yuan.

Solely for the convenience of the reader, certain items in this Form 20-F contain translations of Renminbi amounts into U.S. dollars. All such Renminbi
translations of amounts from Renminbi to U.S. dollars have been made, except as otherwise noted, at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New
York (the Noon Buying Rate) on December 31, 2005 of U.S.$1.00 = RMB8.0702. No representation is made that the Renminbi amounts could have been or could be converted into U.S. dollars at that rate or at any other rate.



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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
Information

The following tables present our consolidated summary income statement data, balance sheet data and cash flow data as of
and for the years ended December 31, 2001, 2002, 2003, 2004 and 2005. The summary balance sheet data as of December 31, 2004 and 2005 and income statement and cash flow data for the years ended December 31, 2003, 2004 and 2005 have
been derived from, and should be read in conjunction with, the audited financial statements included elsewhere in this report. The summary balance sheet data as of December 31, 2001, 2002 and 2003 and income statement and cash flow data for the
years ended December 31, 2001 and 2002 have been derived from our audited financial statements as of and for such dates and are not included in this annual report. Unless otherwise indicated, the financial statements are prepared and presented
in accordance with International Financial Reporting Standards, also known as IFRS. For a reconciliation of our net income and owners equity to generally accepted accounting principles in the United States, also known as U.S.
GAAP, see Note 47 to the Financial Statements. In 2005, the International Accounting Standards Board issued a number of new or revised IFRS which are effective for accounting periods beginning on or after January 1, 2005. We have adopted
these new IFRS in the financial statements and changed our accounting policies accordingly. See Note 47 to the Financial Statements included in Item 18.



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|                                                             |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | ------- | -
|                                                             |  | As of and For the Year Ended December 31,                                                         |  
|                                                             |  | 2001                                                                                              |   |  | 2002     |   |  | 2003     |   |  | 2004     |   |  | 2005     |   |  | 2005    |  
|                                                             |  | RMB                                                                                               |   |  | RMB      |   |  | RMB      |   |  | RMB      |   |  | RMB      |   |  | U.S.$   |  
|                                                             |  | (Amounts in millions except numbers of Shares and ADSs, and per Share,per ADS and operating data) |  
|INCOME STATEMENT DATA                                        |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                         |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net Revenue                                                  |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net sales of coal                                            |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Domestic                                                     |  | 2,599.8                                                                                           |   |  | 3,414.0  |   |  | 4,337.1  |   |  | 7,407.0  |   |  | 8,421.5  |   |  | 1,043.5 |  
|Export(2)                                                    |  | 2,276.2                                                                                           |   |  | 2,799.9  |   |  | 2,457.2  |   |  | 2,947.3  |   |  | 2,932.0  |   |  | 363.3   |  
|Railway transportation service income                        |  |                                                                                                  |   |  | 142.5    |   |  | 154.6    |   |  | 220.8    |   |  | 163.4    |   |  | 20.2    |  
|Total net revenue(3)                                         |  | 4,876.0                                                                                           |   |  | 6,356.4  |   |  | 6,948.9  |   |  | 10,575.1 |   |  | 11,516.9 |   |  | 1,427.1 |  
|Gross profit                                                 |  | 2,063.4                                                                                           |   |  | 2,993.5  |   |  | 3,193.9  |   |  | 6,023.4  |   |  | 6,228.3  |   |  | 771.8   |  
|Interest expenses                                            |  | (61.5                                                                                             | ) |  | (117.9   | ) |  | (60.0    | ) |  | (35.9    | ) |  | (24.6    | ) |  | (3.0    | )
|Income before income taxes                                   |  | 1,360.2                                                                                           |   |  | 1,748.2  |   |  | 1,974.9  |   |  | 4,673.3  |   |  | 4,420.0  |   |  | 547.7   |  
|Net income attributable to equity holders of the Company     |  | 970.9                                                                                             |   |  | 1,222.0  |   |  | 1,386.7  |   |  | 3,154.3  |   |  | 2,881.5  |   |  | 357.1   |  
|Net income/Earnings per Share                                |  | 0.35                                                                                              |   |  | 0.43     |   |  | 0.30     |   |  | 0.66     |   |  | 0.59     |   |  | 0.07    |  
|Net income/Earnings per ADS                                  |  | 17.29                                                                                             |   |  | 21.29    |   |  | 15.1     |   |  | 33.25    |   |  | 29.29    |   |  | 3.63    |  
|Operating income per Share                                   |  | 0.51                                                                                              |   |  | 0.65     |   |  | 0.44     |   |  | 0.99     |   |  | 0.90     |   |  | 0.11    |  
|Income from continuing operation per ADS                     |  | 25.32                                                                                             |   |  | 32.51    |   |  | 22.16    |   |  | 49.64    |   |  | 45.18    |   |  | 5.60    |  
|                                                             |  |                                                                                                   |   |  |          |  
|U.S. GAAP                                                    |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net income(4)                                                |  | 1,227.6                                                                                           |   |  | 1,325.7  |   |  | 1,499.2  |   |  | 3,263.9  |   |  | 2,994.7  |   |  | 371.1   |  
|Net income per Share                                         |  | 0.44                                                                                              |   |  | 0.46     |   |  | 0.33     |   |  | 0.69     |   |  | 0.61     |   |  | 0.08    |  
|Net income per ADS                                           |  | 21.86                                                                                             |   |  | 23.10    |   |  | 16.32    |   |  | 34.40    |   |  | 30.44    |   |  | 3.77    |  
|                                                             |  |                                                                                                   |   |  |          |  
|CASH FLOW DATA                                               |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                         |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net cash provided by operating activities                    |  | 1,610.2                                                                                           |   |  | 2,239.7  |   |  | 2,701.2  |   |  | 4,418.4  |   |  | 3,939.3  |   |  | 488.1   |  
|Depreciation                                                 |  | 819.6                                                                                             |   |  | 851.1    |   |  | 920.5    |   |  | 958.7    |   |  | 952.1    |   |  | 118.0   |  
|Net cash used in investing activities                        |  | (1,948.2                                                                                          | ) |  | (2,165.5 | ) |  | (1,310.3 | ) |  | (2,300.8 | ) |  | (2,262.5 | ) |  | 280.4   |  
|Net cash (used in) provided by financing activities          |  | 618.0                                                                                             |   |  | 345.2    |   |  | (911.4   | ) |  | 1,075.4  |   |  | (1,009.3 | ) |  | (125.1  | )
|                                                             |  |                                                                                                   |   |  |          |  
|OTHER FINANCIAL DATA                                         |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Income before income tax                                     |  | 1,360.2                                                                                           |   |  | 1,748.2  |   |  | 1,974.9  |   |  | 4,673.3  |   |  | 4,420.0  |   |  | 547.7   |  
|Add: Interest expenses                                       |  | 61.5                                                                                              |   |  | 117.9    |   |  | 60.0     |   |  | 35.9     |   |  | 24.6     |   |  | 3.0     |  
|Less: Interest income                                        |  | 39.9                                                                                              |   |  | 30.2     |   |  | 17.8     |   |  | 92.7     |   |  | 91.7     |   |  | 11.4    |  
|Add: Depreciation and amortisation                           |  | 827.0                                                                                             |   |  | 858.5    |   |  | 950.1    |   |  | 994.3    |   |  | 971.9    |   |  | 120.4   |  
|EBITDA(5)                                                    |  | 2,208.8                                                                                           |   |  | 2,694.4  |   |  | 2,967.2  |   |  | 5,610.8  |   |  | 5,324.8  |   |  | 659.7   |  
|EBITDA margin(6)                                             |  | 45.3                                                                                              | % |  | 42.4     | % |  | 42.7     | % |  | 53.1     | % |  | 46.2     | % |  | 46.2    | %
|                                                             |  |                                                                                                   |   |  |          |  
|OPERATING DATA                                               |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Raw coal production (000 tonnes)                            |  | 34,018                                                                                            |   |  | 38,435   |   |  | 43,279   |   |  | 39,146   |   |  | 34,655   |   |  | N/A     |  
|Net sales (000 tonnes)                                      |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Domestic                                                     |  | 18,369                                                                                            |   |  | 20,582   |   |  | 25,776   |   |  | 27,988   |   |  | 25,234   |   |  | N/A     |  
|Export                                                       |  | 12,666                                                                                            |   |  | 14,466   |   |  | 13,632   |   |  | 10,016   |   |  | 7,251    |   |  | N/A     |  
|Total                                                        |  | 31,035                                                                                            |   |  | 35,048   |   |  | 39,408   |   |  | 38,004   |   |  | 32,485   |   |  | N/A     |  
|                                                             |  |                                                                                                   |   |  |          |  
|BALANCE SHEET DATA                                           |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                         |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Total current assets                                         |  | 3,221.7                                                                                           |   |  | 3,873.4  |   |  | 4,430.5  |   |  | 8,319.6  |   |  | 10,951.1 |   |  | 1,357.0 |  
|Total current liability                                      |  | 2,047.6                                                                                           |   |  | 1,662.7  |   |  | 2,372.0  |   |  | 2,545.1  |   |  | 3,429.0  |   |  | 424.9   |  
|Net current assets                                           |  | 1,174.1                                                                                           |   |  | 2,170.7  |   |  | 2,058.5  |   |  | 5,774.5  |   |  | 7,522.1  |   |  | 932.1   |  
|Property, plant and equipment                                |  | 7,479.8                                                                                           |   |  | 8,276.9  |   |  | 8,616.4  |   |  | 8,537.2  |   |  | 9,318.5  |   |  | 1,154.7 |  
|Total assets                                                 |  | 11,182.6                                                                                          |   |  | 12,924.0 |   |  | 13,909.9 |   |  | 18,336.7 |   |  | 21,254.4 |   |  | 2,633.7 |  
|Total long-term borrowings                                   |  | 72.5                                                                                              |   |  | 1,261.3  |   |  | 650.9    |   |  | 441.1    |   |  | 231.8    |   |  | 28.7    |  
|Equity attributable to equity holders of the Company         |  | 9,060.0                                                                                           |   |  | 9,995.0  |   |  | 11,083.2 |   |  | 15,523.8 |   |  | 17,618.6 |   |  | 2,183.2 |  
|                                                             |  |                                                                                                   |   |  |          |  
|U.S. GAAP                                                    |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Property, plant and equipment and prepaid lease payment, net |  | 7,176.7                                                                                           |   |  | 7,271.4  |   |  | 7,785.8  |   |  | 8,073.7  |   |  | 8,851.5  |   |  | 1,096.8 |  
|Total assets                                                 |  | 11,071.0                                                                                          |   |  | 11,787.5 |   |  | 12,845.8 |   |  | 17,379.1 |   |  | 20,189.4 |   |  | 2,501.7 |  
|Equity attributable to equity holders of the Company         |  | 7,668.9                                                                                           |   |  | 8,858.5  |   |  | 10,019.2 |   |  | 14,519.3 |   |  | 16,699.8 |   |  | 2,069.3 |  
|                                                             |  |                                                                                                   |   |  |          |  
|Number of Shares                                             |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Domestic Shares                                              |  | 1,850.0                                                                                           |   |  | 1,850.0  |   |  | 1,850.0  |   |  | 1,850.0  |   |  | 2,960.0  |   |  | 2,960   |  
|H Shares (including H Shares represented by ADS)             |  | 1,020.0                                                                                           |   |  | 1,020.0  |   |  | 1,020.0  |   |  | 1,224.0  |   |  | 1,958.4  |   |  | 1,958.4 |  
|ADS                                                          |  | 20.4                                                                                              |   |  | 20.4     |   |  | 20.4     |   |  | 24.5     |   |  | 39.2     |   |  | 39.168  |  
|Dividend per                                                 |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Domestic Share/H Share(7)                                    |  | 0.082                                                                                             |   |  | 0.100    |   |  | 0.104    |   |  | 0.164    |   |  | 0.260    |   |  | 0.032   |  
|ADS(8)                                                       |  | 4.10                                                                                              |   |  | 5.00     |   |  | 5.20     |   |  | 8.20     |   |  | 13.00    |   |  | 1.611   |  



5



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##### Table of Contents

---

|(1) | The above financial highlights as of and for the year 2005 represent the data resulting from the consolidation of the financial statements of Yankuang Heze Power Chemical Company
Limited (Heze Nenghua), Shandong Yanmei Shipping Co. Ltd. (Yanmei Shipping), Yanzhou Coal Yulin Power Chemical Co. Limited, Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited. The gross profit, taxes and
surcharges resulting from the principal businesses of Yanmei Shipping are calculated as the transportation cost of coal of us. As the sales income, operation results, and assets of Yanmei Shipping have only limited impact on us, they are not
separately set out and analyzed in this report. Heze Nenghua, Yanzhou Coal Yulin Power Chemical Co. Limited, Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited are currently in the preparation stage or in the construction stage and have
limited impact on our financial results, and hence are not separately set out and analyzed in this report.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Export sales constituted 46.7%, 44.0%, 35.4%, 27.9% and 25.5% of total net revenue in 2001, 2002, 2003, 2004 and 2005, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(3) | Total net revenue is the sum of net sales of coal and railway transportation service income.
|--- | --------------------------------------------------------------------------------------------

|(4) | The net income for the year ended December 31, 2001 under U.S. GAAP included the loss of Jining III acquired in 2001 using the pooling of interest method. The net income for
the years ended December 31, 2001 under U.S. GAAP included the profit of Railway Assets using the pooling of interest method. The net income for the year ended December 31, 2004 and the total assets value and owners equity as at
December 31, 2004 under U.S. GAAP included the loss and net assets of Heze Nenghua acquired in 2005 using the pooling of interest method.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | EBITDA refers to earnings before interest income, interest expense, taxes, depreciation and amortization. EBITDA should not be construed as an alternative to operating income or any
other measure of performance or as an indicator of our operating performance, liquidity or cash flows generated by operating, investing and financing activities. The items of net income excluded from EBITDA are significant components in
understanding and assessing our financial performance, and EBITDA does not take into account capital expenditures or changes in working capital, which could have a material impact on our operating cash flow. Our computation of EBITDA may not be
comparable to other similarly titled measures of other companies. We have included the information concerning EBITDA because management believes it is a useful supplement to cash flow data as a measure of our performance.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | EBITDA margin represents EBITDA as a percentage of our total net revenue.
|--- | -------------------------------------------------------------------------

|(7) | The calculation of Dividend per Domestic Share/H Share is based on the dividend paid in the relevant year and total number of Domestic Shares and H Shares ranking for the dividend.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Dividend per ADS is calculated at 50 times Dividend per Domestic Share/H Share based on one ADS being equivalent to 50 H Shares.
|--- | --------------------------------------------------------------------------------------------------------------------------------

Exchange Rate Information

The following table sets
forth, for the periods indicated, the noon buying rates for U.S. dollars in New York for cable transfers payable in Renminbi as certified for customs purposes by the Federal Reserve Bank of New York expressed in Renminbi per U.S. dollar:



|                             |  |                              |  |            |  |        |  |       
|---------------------------- |  | ---------------------------- |  | ---------- |  | ------ |  | ------
|                             |  | Noon Buying Rate            
|Period                       |  | Period End                   |  | Average(1) |  | High   |  | Low   
|                             |  | (expressed in RMB per U.S.$)
|2000                         |  | 8.2781                       |  | 8.2784     |  | 8.2799 |  | 8.2768
|2001                         |  | 8.2766                       |  | 8.2772     |  | 8.2786 |  | 8.2709
|2002                         |  | 8.2800                       |  | 8.2772     |  | 8.2800 |  | 8.2700
|2003                         |  | 8.2767                       |  | 8.2771     |  | 8.2800 |  | 8.2765
|2004                         |  | 8.2765                       |  | 8.2768     |  | 8.2774 |  | 8.2764
|                             |  |                              |  |           
|2005                         |  | 8.0702                       |  | 8.1826     |  | 8.2765 |  | 8.0702
|December                     |  | 8.0702                       |  | 8.0755     |  | 8.0808 |  | 8.0702
|                             |  |                              |  |           
|2006                         |  |                              |  |            |  |        |  |       
|January                      |  | 8.0608                       |  | 8.0654     |  | 8.0702 |  | 8.0596
|February                     |  | 8.0415                       |  | 8.0512     |  | 8.0616 |  | 8.0415
|March                        |  | 8.0167                       |  | 8.0350     |  | 8.0505 |  | 8.0167
|April                        |  | 8.0165                       |  | 8.0143     |  | 8.0248 |  | 8.0040
|May                          |  | 8.0215                       |  | 8.0131     |  | 8.0300 |  | 8.0005
|June (through June 22, 2006) |  | 7.9963                       |  | 8.0060     |  | 8.0225 |  | 7.9963

---

|Source: | The Noon Buying Rate in New York for cable transfers payable in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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 28, 2006, the noon buying rate for Renminbi was U.S.$1.00 = RMB7.997.



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##### Table of Contents

B. Capitalization and Indebtedness

Not applicable.

C. Reason for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Our business and results of operations are dependent on coal markets, which may be cyclical.

As the majority of our revenue is derived from sales of coal and coal-related products, our business and operating results are substantially dependent on
the domestic and international demand for coal. The domestic and international coal markets are cyclical and exhibit fluctuation in supply and demand from year to year and are subject to numerous factors beyond our control, including, but not
limited to, the economic conditions in the PRC, the global economic conditions and fluctuations in industries with high demand for coal, such as the power and steel industries. Fluctuations in supply and demand for coal have effects on coal prices
which in turn affect our operating and financial performance. We have experienced substantial price fluctuations in the past and believe that such fluctuations will continue. The average selling price of our coal products per tonne was RMB172.4 in
2003, RMB272.3 in 2004 and RMB349.5 in 2005. The demand for coal is primarily affected by the overall economic development and the demand for coal from the electricity generation, steel and construction industries. The supply of coal on the other
hand, is primarily affected by the geographical location of the coal supplies, the volume of coal produced by the domestic and international coal suppliers, and the quality and price of competing sources of coal. Alternative fuels such as natural
gas, oil and nuclear power, alternative energy sources such as hydroelectric power, and international shipping costs also have effects on the market demand for coal. Excess supply of coal or significant reduction in the demand for our coal by the
foreign or domestic electricity generation or steel industries may have an adverse effect on coal prices which would in turn cause a decline in our profitability. In addition, any significant decline in domestic or export coal prices could also
materially and adversely affect our business and result of operations.

Our business relies on our major customers.

Prior to 2004, Shandong Power and Fuel Company was our largest domestic customer. For the year ended December 31, 2003, our sales to Shandong Power
and Fuel Company accounted for 11.3% of our total net sales in 2003. The Shandong Power and Fuel Company had in the past purchased coal on behalf of several electric power plants in Shandong Province, including Zouxian Electric Power Plant. The
Shandong Power and Fuel Company ceased to act as the central procurement center for coal on behalf of Zouxian Electric Power Plant and other electric power plants in Shandong Province after its restructuring at the end of 2003 and ceased to be our
largest domestic customer.

For the year ended December 31, 2004 and 2005, Huadian Power International Corporation Limited
(Huadian) replaced Shandong Power and Fuel Company and became our largest domestic customer. For the years ended December 31, 2004 and 2005, we supplied a total of 4.9 million and 5.6 million tonnes, representing 9.2% and
13.4% of our total net sales in 2004 and 2005, to our largest domestic customer. A substantial portion of Huadians coal purchases was supplied to Zouxian Electric Power Plant. Our sales of coal to Zouxian Electric Power Plant accounted for
9.6%, 9.5% and 13.2% of our total net sales in 2003, 2004 and 2005, respectively.

The Zouxian Electric Power Plants total coal
requirements were approximately 6.6 million tonnes in 2005. We estimated that we supplied approximately 77.0%, 92.3% and 83.6% of the Zouxian Electric Power Plants coal requirements in 2003, 2004 and 2005, respectively. We believe we are
likely to remain the



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Zouxian Electric Power Plants principal coal supplier because (i) we are located within close proximity to the
Zouxian Electric Power Plant, (ii) the Zouxian Electric Power Plant is unable to receive railway shipments of coal other than through our own railway network and (iii) the Zouxian Electric Power Plants boilers were designed to use
our coal. Given the large percentage of our revenues derived from the supply of coal to the Zouxian Electric Power Plant, any adverse developments at the Zouxian Electric Power Plant could have an adverse impact on our results of operations.

We do not have direct export rights.

Currently, we do not have direct export rights. As a result, all of our export sales must be made through intermediary export sales companies. We use export sales service provided by the following three companies: China Coal Energy Group
Company, China National Minerals Import and Export Company Limited and Shanxi Coal Import and Export Group Company (collectively, the Export Sales Companies). The quantity, quality, prices and final customer destination of our export
sales are determined by us, the Export Sales Companies and overseas coal purchasers. As a result, we do not directly control matters such as port storage, loading, unloading and shipping processes. Although we are in the process of applying to the
PRC central government, with the assistance of the Shandong provincial government, for direct export rights, there can be no assurance that we can obtain such rights. If we cannot obtain such direct export rights, we will have to continue reply on
the intermediary export sales companies to export our coal. In addition, as export sales represent a significant percentage of our total sales, any material changes in the international coal market could adversely affect our export sales and results
of operations.

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

The PRC government undertook measures in recent years to introduce market-oriented mechanisms to the coal sale and purchase process, including for
example, abolishing government-devised pricing guidance for thermal coal and other temporary price intervention measures and permit the suppliers and buyers to determine pricing through discussions. Major domestic coal suppliers and coal purchasers
attend the Annual National Coal Trading Convention to negotiate and discuss the price and quantity of coal to be supplied and purchased for the coming year through the signing of letters of intent and short- and long-term supply contracts.
Approximately 86.0%, 88.5% and 87.0% of our sales in 2003, 2004 and 2005, respectively, were derived from such sales contracts and letters of intent. These sales contracts and letters of intent generally specify the quantities and timing of
purchases planned over a time period generally no longer than one year. Prices with respect to purchases made under the letters of intent are generally determined at the time of sale based on mutual agreement between us and the relevant customers.
Such letters of intent may not be enforceable due to their omission of certain material terms. In addition, the PRC government also adopted measures to ensure adequate allocation of railway transportation capacity to major coal suppliers and buyers
and to improve market efficiency by permitting direct negotiation between the suppliers and buyers.

In the past, we and our customers have
completed the majority of the transactions contemplated under such letters of intent. However, a sudden and significant increase in the proportion of unrealized sales could have a material adverse impact on our results of operations. Furthermore, as
the price of coal sold pursuant to such letters of intent is generally determined at the time of sale, any significant downturn in the market price of coal could have an immediate and adverse impact on our results of operations.

Our product delivery relies on the PRCs railway transportation system.

Approximately 60.1%, 60.0% and 53.6% of our total net sales in 2003, 2004 and 2005, respectively, were derived from sales of coal transported by the PRCs national railway system (excluding coal sold to the
Zouxian Electric Power Plant, which were transported entirely by and within our own railway network). As the railway system has limited transportation capacity and cannot fully satisfy coal transportation requirements, discrepancies between capacity
and demand for transportation exist in certain areas of the PRC. Currently, our domestic customers are mainly located in Eastern China, where the railway system is relatively advanced. We generally utilize the national rail system to transport coal
to our customers as well as major coal shipping ports in the eastern coast of China for transshipping to customers in the coastal region of China and overseas. No assurance can be given that we will continue to be allocated adequate railway
transport capacity or acquire adequate rail cars, or that we will not experience any material delay in transporting our coal as a result of insufficient railway transport capacity or rail cars.



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The coal reserve data in this annual report are only estimates.

The coal reserve data provided by us are only estimates which may differ materially from the actual in-place proven and probable reserves. Our reserves
estimates may change substantially if new information subsequently becomes available. There are inherent uncertainties in estimating reserves, including many factors, assumptions and variables involved in estimating reserves that are beyond our
control. Our actual results of operations may differ materially from our long-term business and operational plans derived based on the estimated coal reserve data. We can not assure you that we will not adjust our coal reserve estimates in the
future, and in such event, our results of operations may be materially and adversely affected.

Competition in the PRC and the international coal
industry is increasing and our business and prospects will be adversely affected if we are not able to compete effectively.

We face
competition in all areas of our business. Competition in the coal industry is based on many factors, including price, production capacity, coal quality and characteristics, transportation capability and costs, blending capability and brand name. Our
coal business competes in the domestic and international markets with other large domestic coal producers and certain major international coal mining companies. Some of our overseas competitors may have greater financial, marketing, distribution and
other resources than we do, and more well-known brand names in the international markets. We currently compete favorably on the quality of our coal products. However, there can be no assurance that we will continue to compete favorably due to
quality improvements by our competitors. Although we believe that we compete favorably with respect to transportation capability and costs, due to insufficient rail capacity for the transportation of coal from Shanxi Province and the Inner Mongolia
Autonomous Region (where our principal competitors are located) to Eastern China (where demand for coal has been most strong) and the significant costs incurred in transporting coal from these regions to Eastern China, improvements in the PRC
national rail network will reduce our competitive advantage in transportation. For example, the PRC Government is planning to construct additional railways to transport coal from Northern and Northwestern China to Eastern China. Accordingly, the
completion of these projects may increase the supply of coal available to customers in Eastern China, which may have a material adverse impact on our results of operations.

Our operations may be affected by uncertain mining conditions.

As with all underground coal mining
companies, our operations are affected by mining conditions such as a deterioration in the quality or thickness of faults and/or coal seams, pressure in mine openings, presence of gas and/or water inflow and propensity to spontaneous combustion, as
well as operational risks associated with industrial or engineering activity, such as mechanical breakdowns. Although we have conducted geological investigations to evaluate such mining conditions and adapt our mining plans to address them, there
can be no assurance that the occurrence of any adverse mining conditions would not result in an increase in our costs of production, a reduction of our coal output or the temporary suspension of our operations.

Underground mining is also subject to certain risks such as methane outbursts, and accidents caused by roof weakness and groundfalls. There can be no
assurance that the occurrence of such events or conditions would not have a material adverse impact on our business and results of operations.

Results
of our operations depend on our ability to acquire or develop new coal mines or coal reserves.

Our recoverable coal reserves decline as
we produce coal. As we can only increase our existing production capacity by a limited amount, the future increase in our coal production will depend on our acquisition of new coal reserves, development of new mines or the expansion of our existing
coal mines.

We acquired Jining III Coal Mine and Southland Colliery in 2001 and 2004, respectively. In 2005, we further acquired 95.67% of
the equity interest in Heze Nenghua from our Parent Company and are currently developing Zhaolou Coal Mine in Juye Coal Field and other new mining projects in Shaanxi Province. However, we can not give any assurance that we will be able to continue
identifying suitable targets in the PRC or abroad for acquisition or acquire suitable targets on competitive terms. Nor can we assure you that we will be able to successfully develop new coal mines or expand our existing ones in accordance with our
development proposal or at all. Our failure to timely or successfully acquire suitable target on competitive terms, or to successfully complete the development of new coal mines or to expand our existing coal mines could have an adverse effect on
our financial condition and results of operation.



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The acquisition and/or the development of new mines in the PRC and overseas requires approval of the PRC
government. Delay or failure in securing the relevant PRC government approvals or permits as well as any adverse change in government policies may cause a significant adjustment to our development and acquisition plans, which may materially
adversely affect our profitability and growth prospects. In addition, we could encounter unforeseen problems due to our unfamiliarity with local laws and regulations, or suffer foreign exchange losses in connection with overseas investments. We
cannot assure you that our overseas expansion or investments will be successful.

We may suffer losses resulting from industry-related accidents and
lack of insurance.

We operate coal mines and related facilities that may be affected by water, gas, fire or structural problems. As a
result, we, like other coal mining companies, have experienced accidents that have caused property damage and personal injuries. Although we have implemented safety measures for our production facilities and provided on-the-job training for our
employees, and, we have in accordance with relevant laws set aside approximately 2.0% of employees total remuneration for employees injury insurance, there can be no assurance that industry-related accidents will not occur in the future.

We do not currently maintain fire, casualty or other property insurance covering our properties, equipment or inventories, other than with
respect to vehicles. In addition, we do not maintain any business interruption insurance or any third party liability insurance to cover claims in respect of personal injury, property or environmental damage arising from accidents on our properties,
other than third party liability insurance with respect to vehicles. Any uninsured losses and liabilities incurred by us could have a material adverse effect on our financial condition and results of operations.

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

A consequence of the underground mining methods used at our mines is land subsidence above underground mining sites. Depending on the circumstances, we may relocate inhabitants from the land above the underground
mining sites prior to mining those sites or we may compensate the inhabitants for losses or damages from land subsidence after the underground sites have been mined. We 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 our income statement in proportion to the
coal extracted. The payment for such costs is funded from working capital. The amount charged to income statements in 2005 amounted to RMB636.6 million. The provision for land subsidence, restoration, rehabilitation and environmental costs has been
determined by the directors based on the past occurrences of land subsidence. However, the provision is only an estimate. The estimate of the costs for restoration, rehabilitation or environmental protection of the land may be subject to change in
the future as the actual costs become apparent and standards established by the PRC Government change from time to time. Therefore, there can be no assurance that such estimates are accurate or that our restoration, rehabilitation and relocation
costs will not substantially increase in the future or that the PRC Government will not impose new fees in respect of land subsidence. Any such substantial increases or new fees could have a material adverse effect on our results of operations.

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

As a producer of coal products, we are subject to significant, extensive, and increasingly stringent environmental protection laws and regulations in
China. These laws and regulations:



| |  |  | impose fees for the discharge of waste substances;
| | - |  | --------------------------------------------------



| |  |  | require the establishment of reserves for reclamation and rehabilitation;
| | - |  | -------------------------------------------------------------------------



| |  |  | require the payment of fines for serious environmental offences; and
| | - |  | --------------------------------------------------------------------



| |  |  | allow the PRC Government, at its discretion, to close any facility that fails to comply with orders requiring it to correct or stop operations causing environmental damage.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our coal mining operations produce significant amounts of waste water, gas and solid waste materials. Currently, the PRC
Government is moving toward more rigorous enforcement of applicable laws and regulations as well as the adoption and enforcement of more stringent environmental standards. Our budgeted amounts of capital expenditure for environmental regulatory
compliance may not be sufficient and we may need to allocate additional funds for such purpose. If we fail to comply with current or future



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##### Table of Contents

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 operations and financial condition.

In addition, China is a signatory to the 1992
United Nations Framework Convention on Climate Change and the 1997 Kyoto Protocol, which are intended to limit emissions of greenhouse gases. Efforts to control greenhouse gas emission in China could result in reduced use of coal if power generators
switch to sources of fuel with lower carbon dioxide emissions, which in turn could reduce the revenues of our coal business and have a material adverse effect on our results of operations.

New quotas for coal exports in the PRC may adversely affect the amount of our coal exports.

Export sales of coal accounted for 36.2%, 28.5% and 25.8% of our net sales of coal in 2003, 2004 and 2005, respectively. Average selling prices for export
coal sales are generally higher than average selling prices for domestic sales. In 2005, average selling prices for export sales were RMB404.3 per tonne, compared to average selling prices for domestic sales of RMB333.7 per tonne.

In January 2004, the PRC Government promulgated new regulations, entitled Measures for the Administration of Quotas for Coal Export, which
take effect on July 1, 2004. Under the new regulations, the National Development and Reform Commission and the Ministry of Commerce will be responsible for determining the total volume of the PRCs export quota of coal and allocating the
quota among the authorized coal exporters. Under the regulations, the National Development and Reform Commission and the Ministry of Commerce are required to announce the total export quota available for each fiscal year by not later than
October 31 of the prior year. After the total available export quota has been announced, the National Development and Reform Commission and the Ministry of Commerce will accept written applications from authorized coal exporters for allocation
of specific export quotas for the following year.

The new regulations did not have a material adverse effect on our export sales in 2004
and 2005 as our export agents have consistently receive export quota sufficient to satisfy our export volume. However, we are unable to predict what impact, if any, they may have on the level of our export coal sales for 2006 and later years.
Article 10 of the regulations provides that, in determining the allocation of specific quotas to authorized coal exporters, the National Development and Reform Commission and the Ministry of Commerce will refer to the exporters respective coal
export performances in the previous year. We have been one of the largest coal exporters in China. For the years ended December 31, 2003, 2004 and 2005, our export sales of coal accounted for approximately 14.5%, 11.6% and 10.2%, respectively,
of the total coal export sales in China during the same period. Although our export sales have not been affected by the new regulations, if national coal exports are reduced, the level of our export sales in future periods could be affected, which
in turn could adversely affect our results of operations.

Our Parent Company may have a significant influence on us.

As at March 31, 2006, the Parent Company owned 52.86% of our outstanding shares. Our Articles of Association provide that, in addition to any obligation
imposed by law, a controlling shareholder shall not exercise its voting rights in a manner prejudicial to the interests of the shareholders generally, including voting with respect to certain enumerated matters of fundamental importance to
shareholders.

In addition to being our majority shareholder, the Parent Company also provides certain materials, utilities and services to
us pursuant to the materials and services supply agreement dated October 17, 1997 between us and the Parent Company (as amended by supplemental agreements dated October 30, 2001 and May 29, 2003).Pursuant to the regulations of Hong Kong
Stock Exchange and Shanghai Stock Exchange on on-going connected transactions and the operation developments of us and the Parent Company, we completed the review of its on-going connected transactions as required by law and entered into six new
on-going connected transaction agreements (New On-going Connected Transaction Agreements) with the Parent Company in the first quarter 2006. It also determined the caps on the connected transactions for each New On-going Connected
Transaction Agreements in each year (the Annual Caps) from 2006 to 2008. For details of the New On-going Connected Transactions, please see Item 7  Related Party Transaction. Any material financial or operational
problems experienced by the Parent Company leading to disruption of its operations could materially affect our operations and future prospects.



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##### Table of Contents

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

We are also subject to a number of risks relating to the PRC, including the following:



| |  |  | The central and local PRC governments continue to support the development and operation of coal industry in China. If the PRC Government changes its current policies that are
currently beneficial to us, we may face significant constraints on our flexibility and ability to expand our business operations or to maximize our profitability.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under current PRC regulatory requirements, our projects for the development of new coal mines require PRC Government approval. If any of our important projects required for our
growth or cost reduction are not approved, or are not approved on a timely basis, our financial condition and operating performances could be adversely affected.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The PRC Government has been reforming, and is expected to continue to reform its economic system. Many of the reforms are unprecedented or experimental, and are expected to be
refined and improved. Other political, economic and social factors can also lead to further readjustment of the reform measures. This refining and readjustment process may not always have a positive effect on our operations. Our operating results
may be adversely affected by changes in the PRCs economic and social conditions and by changes in policies of the PRC Government such as changes in laws and regulations (or the interpretation thereof), imposition of additional restrictions on
currency conversion and reduction in tariff protection and other import restrictions.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Since 1994, the conversion of Renminbi into foreign currencies, including Hong Kong and U.S. dollars, has been based on rates set by the Peoples Bank of China, or PBOC, which
are set daily based on the previous days PRC interbank foreign exchange market rate and current exchange rates on the world financial markets. Since 1994, the official exchange rate for the conversion of Renminbi to U.S. dollars has generally
been stable. On July 21, 2005, however, PBOC announced a reform of its exchange rate system. Under the reform, Renminbi is no longer effectively linked to US dollars but instead is allowed to trade in a tight 0.3% band against a basket of
foreign currencies. Any further appreciation of Renminbi in the future will increase the cost of our export sales, reduce our account receivables denominated in foreign currencies and adversely affect our financial condition and results of
operations. On the other hand, any devaluation of the Renminbi may adversely affect the value of, and dividends payable on, our H shares and ADSs in foreign currencies since we receive our revenues and denominate our profits in Renminbi. Our
financial condition and operating performance may also be affected by changes in the value of certain currencies other than Renminbi in which our earnings and obligations are denominated. In particular, a devaluation of the Renminbi is likely to
increase the portion of our cash flow required to satisfy our foreign currency-denominated obligations.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Since 1997, many new laws and regulations covering general economic matters have been promulgated in the PRC. Despite this activity to develop the legal system, PRCs system of
laws is not yet complete. Even where adequate law exists, enforcement of existing laws or contracts based on existing law may be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a
judgment by a court of another jurisdiction. The relative inexperience of PRCs judiciary in many cases creates additional uncertainty as to the outcome of any litigation. In addition, interpretation of statutes and regulations may be subject
to government policies reflecting domestic political changes.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Our coal operations, like those of other
PRC energy companies, are subject to extensive regulation established by the PRC Government. Central governmental authorities, such as the National Development and Reform Commission, the State Environmental Protection Administration, the Ministry of
Land and Resources, the State Administration of Coal Mine Safety, the and the State Bureau of Taxation, and provincial and local authorities and agencies exercise extensive control over various aspects of Chinas coal mining and transportation
(including rail and sea transport). These controls affect the following material aspects of our operations:



| |  |  | exploration, exploitation and mining rights and licensing;
| | - |  | ----------------------------------------------------------



| |  |  | rehabilitation of mining sites after mining is completed;
| | - |  | ---------------------------------------------------------



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| |  |  | recovery rate requirements;
| | - |  | ---------------------------



| |  |  | pricing of our transport services;
| | - |  | ----------------------------------



| |  |  | industry-specific taxes and fees;
| | - |  | ---------------------------------



| |  |  | target of our capital investments;
| | - |  | ----------------------------------



| |  |  | export quotas and procedures;
| | - |  | -----------------------------



| |  |  | pension funds appropriation;
| | - |  | ----------------------------



| |  |  | waivers of certain import tariffs on our supplies; and
| | - |  | ------------------------------------------------------



| |  |  | environmental and safety standards.
| | - |  | -----------------------------------

We may face
significant constraints on our ability to implement our business strategies or to carry out or expand our business operations. Our business may also be materially and adversely affected by future changes in certain regulations and policies of the
PRC Government in respect of the coal industry. New legislation or regulations may be adopted that may materially and adversely affect our coal operations, our cost structure or the demand for our products. In addition, new legislation or
regulations or different or more stringent interpretation of existing laws and regulations may also require us to substantially change our existing operations or incur significant costs.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

We, Yanzhou Coal Mining Company Limited, were established on September 25, 1997 as a PRC joint stock company with limited liability under the Company
Law of the PRC (the Company Law). The Predecessor, formerly known as Yanzhou Mining Bureau, was established in 1973. In 1996, upon receipt of approval from the former State Economic and Trade Commission and the former Ministry of Coal
Industry (MOCI), the Predecessor was incorporated and renamed Yanzhou Mining (Group) Corporation Limited and subsequently renamed as Yankuang Group Corporation Limited after reorganization in 1999.

In April 2001, we were approved by the Minister of Foreign Trade and Economic Cooperation, the predecessor of the Ministry of Commerce, to convert from a
joint stock company with limited liability to a Sino-foreign joint stock company with limited liability under the Company Law and the Sino-Foreign Joint Venture Law of the PRC. Our H Shares accounted for 39.82% of our outstanding shares as of
December 31, 2005.

Our contact information is:



| |  |  | Business address:        298 Fushan South Road, Zoucheng, Shandong Province, PRC
| | - |  | --------------------------------------------------------------------------------



| |  |  | Telephone number:    (86) 537 538 2319
| | - |  | --------------------------------------



| |  |  | Website:                     http://www.yanzhoucoal.com.cn/mygsbak/index.asp
| | - |  | ----------------------------------------------------------------------------

We principally engage in underground mining, preparation and sale of coal, and railway coal transportation. We were one of
the largest coal producers in Eastern China with raw coal production of approximately 34.7 million tonnes in 2005. We were also one of the largest coal exporters in the PRC in terms of sales volume with approximately 7.3 million tonnes in
export sales in 2005.

We have six coal mines located in China: Nantun Mine, Xinglongzhuang Mine, Baodian Mine, Dongtan Mine, Jining II
Mine and Jining III Mine, which commenced production in 1973, 1981, 1986, 1989, 1997 and 2000, respectively. As of December 31, 2005, our six domestic coal mines had a total in-place proven and probable reserve of approximately
1968.4 million tonnes.



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In 2004, we acquired the entire interest in the Southland coal mine located in New South Wales of
Australia (Southland) from independent third parties and completed the transfer on December 24, 2004. We subsequently renamed Southland coal mine as Austar Coal Mine. We have also established two wholly-owned subsidiaries in
Australia, namely Yancoal Australia Pty Limited (Yancoal) and Austar Coal Mine Pty Limited (Austar), in 2004 for our future operations of Southland. We expect to complete the upgrade of the coal mining and production system
as well as the testing and commissioning of the relevant coal mining and production system in Austar Coal Mine and to begin production in the third quarter of 2006.

In 2005, we acquired 95.67% equity interest in Yankuang Heze Power Chemical Company Limited (Heze Nenghua) from the Parent Company. The principal activities of Heze Nenghua are to conduct the initial
mining preparation of the Zhaolou, Wanfu and other coal mines at the Juye Coalfield including obtaining the approvals for the coal mine projects, applying for the necessary exploration rights for coal and preparing for the construction of the coal
mines. As at December 31, 2005, Heze Nenghua has commenced construction works for the Zhaolou coal mine. Pursuant to a supplemental agreement dated June 28, 2005 entered between us and the Parent Company, the Parent Company irrevocably
undertook that we shall have the right to acquire the mining rights of Zhaolou coal mine and Wanfu coal mine from the Parent Company within twelve months from the respective dates on which such mining rights are obtained by the Parent Company for a
consideration to be determined based on valuations conducted by independent qualified PRC valuers. The valuations should also be endorsed by the applicable PRC government authorities.

We have successfully developed a mechanized comprehensive caving method and have developed mining equipment suitable for medium to thick coal seam
extraction. The patented mechanized comprehensive caving method is one of the most advanced mining technologies in the world. We continue to improve our proprietary caving method for internal use or license to third party mining companies.

The location of a coal mine affects its competitiveness due to the significant costs of coal transport. We believe that our mines are
well-situated given the rapid economic growth of Eastern China, the insufficient supply of coal produced in this region and the substantial costs involved in transporting coal to Eastern China from major coal-producing provinces such as Shaanxi
Province, Shanxi Province and Inner Mongolia Autonomous Region. In 2003, 2004 and 2005, 35.2%, 47.4% and 49.5%, respectively, of our total net sales were derived from sales to customers within Shandong Province. Our largest end-user, Huadians
Zouxian Electric Power Plant, accounted for 9.6%, 9.5% and 13.2% of our total net sales in 2003, 2004 and 2005, respectively. Net sales to customers located in the rapidly growing Yangtze delta region, encompassing Shanghai Municipality, Jiangsu
Province and Zhejiang Province, were 20.3%, 16.9% and 15.1% of our total net sales in 2003, 2004 and 2005, respectively. Exports, principally to Japan, accounted for 35.4%, 27.9% and 25.5% of our total net sales in 2003, 2004 and 2005, respectively.
We did not record any sales from Austar Coal Mine for this reporting period as it was still under reconstruction and upgrade.

The
principal coal reserves in our mines consist of prime quality, low-sulphur coal, capable of yielding a product with an ash content as low as 6%. We sell thermal coal, which is suitable for large-scale electric power generation, as well as semi-soft
coking coal, which is used in metallurgical production. Our primary customers include electric power plants and metallurgical mills located in Eastern China and the areas along the Beijing-Hangzhou Grand Canal, which are generally more economically
developed than other areas of China, and foreign enterprises located in East Asia. Of our total net sales in 2003, 2004 and 2005, 20.5%, 20.1% and 20.4%, respectively, were sales to PRC electric utility customers, with the remainder representing
sales principally to metallurgical companies, chemical manufacturing companies and fuel supply companies. Our major domestic customers include Huadian, Shandong Luneng, Shanghai Baosteel Group Corporation and Dongguan Shijie Fuel Company.
Relationships between us and our key customers are stable.

In 2005, we generated total net sales and net income attributable to equity
holders of the Company of RMB11,516.9 million and RMB2,881.5 million, respectively.

Share Reform Plan

As background, beginning in May 2005, the PRC government and the PRC securities regulatory and supervisory authorities started to implement share reforms
for shares of domestically listed companies in the PRC in order to eliminate the split share treatment of shares of listed companies in the PRC. Under such split share system, domestic shares are either tradable or non-tradable. In adopting the
share reforms, the PRC government and the PRC securities regulatory and supervisory authorities have implemented an interest-balanced mechanism between the holders of non-tradable shares and tradable shares. Pursuant to the share reform policies in
the PRC, holders of non-tradable shares could, subject to approvals by the relevant government authorities and consents by the holders of domestically listed and tradable shares, convert their non-tradable shares into shares freely tradable on the
domestic stock exchanges in the PRC. In return for approving such share conversion, the holders of the tradable shares will receive certain numbers of shares and relevant commitments made by holders of non-tradable shares. Upon consummation of the
share reforms, all non-tradable shares, issued in the PRC, of PRC domestically listed companies will be freely tradable on the PRC domestic stock exchanges.



14



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##### Table of Contents

We have tradable shares issued in the PRC, or A Shares, which are listed on the Shanghai Stock Exchange
as well as non-tradable shares which are held by our Parent Company, our controlling shareholder. We also have overseas listed foreign invested shares, or H Shares, which are listed on the Hong Kong Stock Exchange as well as ADSs, representing the H
Shares, which are listed on the New York Stock Exchange. At present or under the PRC government policies, the A Shares and the non-tradable shares issued in the PRC are a separate class of shares and at present are not freely convertible into H
Shares or ADSs. Pursuant to relevant regulations relating to share reforms in the PRC and the relevant securities laws and regulations, the share reform plan only involves the tradability of non-tradable shares into tradable shares in the PRC and
the only shareholders who are entitled to participate in the shareholders meeting to approve the proposed share reform plan proposed by our Parent Company are the Holders of A shares and our Parent Company.

Our share reform plan was implemented on March 31, 2006. Our Parent Company paid a consideration of 2.5 non-tradable shares to each Holder of A
Shares for every ten A Shares held by such Holder of A Shares whose name appeared on the register of member of A Shares on March 30, 2006 in exchange for the right to list and trade the non-tradable shares of the Parent Company on the Shanghai
Stock Exchange. Our Parent Company did not offer similar consideration to the Holders of H Shares and Holders of ADSs of the Company. For more details of the changes of our shareholding structure as a result of implementation of the share reform
plan, see Item 9  Offering and Listing.

In addition to the statutory undertakings, our Parent Company also
undertook that (1) the original non-tradable Shares held by the Parent Company would be subject to a trading moratorium of 48 months from the date of the implementation of the share reform plan; (2) it will, in accordance with the relevant
governmental procedures, assign part of its operations including coal and electricity operations together with new projects which are in line with our Companys development strategies to us in 2006 and support our Company in the implementation
of such assignment to enhance the operational results of the Company and to minimize the connected transaction and competition between Yankuang Group and us. We will be invited to invest in the coal liquefaction project which is being developed by
Yankuang Group for co-development; and (3) all related expenses arising from the share reform plan would be borne by our Parent Company.

Our assets, liabilities, ownership interest, total share capital and net profit remain unchanged upon implementation of the share reform plan.

Capital Expenditures / Recent Developments

Our principal sources of cash have been cash from operations, the
proceeds from issuance of new Shares and bank loans. Our principal capital expenditures have been for the acquisition of property, plant and equipment. During 2003, 2004 and 2005, our total capital expenditures were RMB1,328.1 million, RMB1,057.5
million and RMB1,290.5 million, respectively. For more information, please see Item 5  Operating and Financial Review and Prospects  B. Liquidity and Capital Resources.

We commenced the reconstruction, expansion of production capacity and technology upgrade at Austar Coal Mine in 2005 and we expect to resume production
at the Austar Coal Mine in the third quarter of 2006. The reconstruction, expansion and technology upgrade at the Austar Coal Mine is expected to cost approximately AUD161.0 million. As of December 31, 2005, we have spent an aggregate total of
approximately AUD76.6 million on the reconstruction, expansion and technology of Austar Coal Mine. For more details of Austar Coal Mine, see  D. Property, Plants and Equipment  Austar Coal Mine. On December 31, 2005, the
noon buying rate for AUD was U.S.$1.00 = AUD0.7342.

We also commenced the construction at Zhaolou Coal Mine in 2004 and we expect to
complete the construction of the Zhaolou Coal Mine in December 2007. The construction at the Zhaolou Coal Mine is expected to cost approximately RMB 2,364.7 million and we have spent an aggregate total of approximately



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##### Table of Contents

RMB476.6 million on the construction and development of Zhaolou Coal Mine as at December 31, 2005. For more details
of Zhaolou Coal Mine, see D. Property, Plants and EquipmentZhaolou Coal Mine.

B. Business Overview

Principal Products and Services

We are engaged
in underground mining, preparing and selling coal and provision of railway transportation services.

Coal Production

We produce prime quality, low-sulphur coal capable of yielding a product with an ash content as low as 6%. Our products consist principally
of thermal coal, which is suitable for large-scale electric power generation, as well as semi-soft coking coal, which is used in metallurgical production. The following table sets out the ash and sulphur content, calorific value and principal
applications of the various types of coal produced by us:



|                  |  |                |  |                   |  |                      |  |        |  |                                                                              
|----------------- |  | -------------- |  | ----------------- |  | -------------------- |  | ------ |  | -----------------------------------------------------------------------------
|                  |  | Sulphurcontent |  | Ash Content       |  | Calorific Value      |  | Washed |  | Principal Application                                                        
|                  |  | %              |  | %                 |  | (megajoule/kilogram) |  |        |  |                                                                              
|No.1 Clean Coal   |  | 0.4            |  | 7-8average 7.6    |  | 26-28average 27.6    |  | Yes    |  | High-quality metallurgical production                                        
|No.2 Clean Coal   |  | 0.5            |  | 8-10average 9.6   |  | 26-28average 26.8    |  | Yes    |  | Metallurgical production; construction; production of liquidize coal         
|No.3 Clean Coal   |  | 0.6            |  | 9-16average 13    |  | 24-26average 25.3    |  | Yes    |  | Metallurgical production; electric power generation; coal chemical production
|Lump Coal         |  | 0.6            |  | 12-14average 13   |  | 25-26average 25.5    |  | Yes    |  | Construction; power generation; coal for oven application                    
|Screened Raw Coal |  | 0.6            |  | 18-27average 20.3 |  | 24-26average 25.3    |  | No     |  | Power generation                                                             
|Mixed Coal        |  | 0.6            |  | 22-30average 29.3 |  | 18-22average 20.1    |  | Yes    |  | Power generation                                                             

The following table sets out our principal coal products based on sales volume and net coal sales
in the years ended December 31, 2003, 2004 and 2005.



|                      |  |                         |  |               |  |               |  |               |  |               |  |              
|--------------------- |  | ----------------------- |  | ------------- |  | ------------- |  | ------------- |  | ------------- |  | -------------
|                      |  | Year Ended December 31,
|                      |  | 2003                    |  | 2004          |  | 2005         
|                      |  | Sales Volume            |  | Net Sales     |  | Sales Volume  |  | Net Sales     |  | Sales Volume  |  | Net Sales    
|                      |  | (000 tonnes)           |  | (RMB million) |  | (000 tonnes) |  | (RMB million) |  | (000 tonnes) |  | (RMB million)
|No. 1 Clean Coal      |  | 513.8                   |  | 128.2         |  | 631.3         |  | 220.5         |  | 773.9         |  | 398.0        
|No. 2 Clean Coal      |  | 6,729.2                 |  | 1,287.6       |  | 6,329.2       |  | 2,013.5       |  | 5,084.5       |  | 2,499.1      
|No. 3 Clean Coal      |  | 11,952.7                |  | 2,126.3       |  | 11,861.9      |  | 3,484.0       |  | 11,183.0      |  | 4,143.8      
|Lump Coal             |  | 583.4                   |  | 130.3         |  | 752.3         |  | 284.3         |  | 485.5         |  | 209.9        
|Screened Raw Coal     |  | 13,937.5                |  | 2,499.4       |  | 14,936.6      |  | 3,867.5       |  | 10,805.4      |  | 3,478.1      
|Mixed Coal and others |  | 5,690.9                 |  | 622.5         |  | 3,492.6       |  | 484.5         |  | 4,152.1       |  | 624.7        
|                      |  |                         |  |               |  |               |  |               |  |               |  |              
|Total                 |  | 39,407.5                |  | 6,794.3       |  | 38,003.9      |  | 10,354.3      |  | 32,484.5      |  | 11,353.5     
|                      |  |                         |  |               |  |               |  |               |  |               |  |              

Our coal production in 2005 was approximately 34.7 million tonnes, a decrease of
4.5 million tonnes or 11.5%, as compared with our production for the same period in 2004. The decrease was mainly due to the delay in relocation of certain villages located within the coal fields of our Company. Because we had to relocate these
6 villages, 6 of our 12 coal production systems including long-wall workfaces and other mining equipment did not maintain normal productivity in the third quarter of 2005. Upon the relocation of 2 villages in the fourth quarter of 2005, 3 coal
production systems have resumed normal productivity. The remaining 4 villages were relocated in the first quarter of 2006, 6 of our coal production systems have resumed their normal productivity in April 2006.



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##### Table of Contents

Railway Transportation Services

Our local railway transportation network (the Railway Assets) consists of a total of 184 kilometers of track connecting our coal mines with
the national railway system, nearby distribution points and in some cases, directly with large customers facilities. Ownership of the railway network enables us to charge customers for transportation, and thereby achieve a return on our
investment in the Railway Assets; to enhance cost controls by increasing coordination of coal production, transportation and sales; and to assume a greater degree of control over transportation of our coal, which is especially important during the
peak seasons.

We offer railway transportation services to third parties, including the Parent Company. In 2005, we transported a total of
20.2 million tonnes of goods, representing an decrease of 10.1 million tonnes, or 33.4%, as compared with that of 2004. External sales of our railway transportation services represent the amount charged to customers for the transportation
of coal purchased on an ex-mine basis, where the customer pays the cost of transportation. External sales from our railway transportation service in 2005 was RMB163.4 million, representing an decrease of RMB57.3 million, or 26%, as compared with
that of 2004 due primarily to decrease in total coal sales.

Sales and Marketing

Consistent with PRC coal industry practice, a substantial portion of our sales is made pursuant to sales contracts and letters of intent signed during the
annual national coal trading convention. These sales contracts and letters of intent generally specify the quantities and timing of purchases planned over a time period generally no longer than one year. Prices with respect to purchases made under
the letters of intent are generally determined at the time of sale. The remaining portion of our sales are made to customers who have further demand.

We have a flexible credit policy for different categories of customers. Depending upon the customer, we may allow open accounts, or require acceptance bills, and delivery against cash. Generally, we extend credit
(generally for periods not exceeding 180 days) to major customers with long-term relationships and require other customers to pay for their products before delivery.

Most of our domestic coal sales are made to electric power plants, metallurgical mills, chemical engineering companies, and fuel trading companies. Over the years, we have established long-term and stable
relationships with many of these companies. In addition, we sell some of our coal to overseas customers. Our export sales are made through Export Sales Companies. According to the export sales agency contracts, we pay agency fees to the agents, who
in turn enter into export sales contracts on our behalf with foreign customers. We are currently in the process of applying to the PRC central government, with the assistance of the Shandong provincial government, for direct export rights. If we are
successful in securing direct export rights, we will be able to negotiate and reach agreements directly with foreign customers.

Effective
from January 1, 2004, the VAT export refund for export sales of our coal products decreased to 11% from 13%. The VAT export refund further decreased to 8% effective from May 1, 2005. The decrease in VAT export refund for export coal sales
will in turn increase the cost of our export sales.

Net coal sales represent the invoiced value of coal sold and is net of returns,
discounts, sales taxes and transportation costs if the invoiced value includes transportation costs to the customers. Sales taxes consist primarily of a resource tax, which was increased to RMB3.60 from RMB2.40 per tonne of the imputed quantity of
raw coal sold effective from May 1, 2005. Sales taxes are paid to the local tax bureau.



17



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##### Table of Contents

The following table sets out our net coal sales by our customers industries for the years ended
December 31, 2003, 2004 and 2005:



|                                                 |  |                         |  |                    |  |              |  |                     |  |              |  |                    
|------------------------------------------------ |  | ----------------------- |  | ------------------ |  | ------------ |  | ------------------- |  | ------------ |  | -------------------
|                                                 |  | Year Ended December 31,
|                                                 |  | 2003                    |  | 2004               |  | 2005        
|                                                 |  | NetSales                |  | % of NetCoal Sales |  | NetSales     |  | % of Net Coal Sales |  | NetSales     |  | % of Net Coal Sales
|                                                 |  | (RMBmillion)            |  |                    |  | (RMBmillion) |  |                     |  | (RMBmillion) |  |                    
|Domestic Sales                                   |  |                         |  |                    |  |              |  |                     |  |              |  |                    
|Electric power plant                             |  | 1,421.4                 |  | 20.9               |  | 2,121.5      |  | 20.5                |  | 2,357.6      |  | 20.8               
|Metallurgical mills                              |  | 294.9                   |  | 4.3                |  | 656.9        |  | 6.3                 |  | 811.4        |  | 7.1                
|Construction material and chemical manufacturers |  | 329.8                   |  | 4.9                |  | 784.1        |  | 7.6                 |  | 686.2        |  | 6.0                
|Fuel trading companies and others                |  | 2,291.0                 |  | 33.7               |  | 3,844.5      |  | 37.1                |  | 4,566.2      |  | 40.3               
|Subtotals of Domestic Sales                      |  | 4,337.1                 |  | 63.8               |  | 7,407.0      |  | 71.5                |  | 8.421.5      |  | 74.2               
|                                                 |  |                         |  |                    |  |              |  |                     |  |              |  |                    
|Exports                                          |  |                         |  |                    |  |              |  |                     |  |              |  |                    
|Electric power plant                             |  | 1,226.6                 |  | 18.1               |  | 1,683.8      |  | 16.3                |  | 967.6        |  | 8.5                
|Metallurgical mills                              |  | 1,135.8                 |  | 16.7               |  | 1,208.1      |  | 11.7                |  | 1,952.0      |  | 17.2               
|Others                                           |  | 94.8                    |  | 1.4                |  | 55.4         |  | 0.5                 |  | 12.4         |  | 0.1                
|Subtotals of Exports                             |  | 2,457.2                 |  | 36.2               |  | 2,947.3      |  | 28.5                |  | 2,932.0      |  | 25.8               
|                                                 |  |                         |  |                    |  |              |  |                     |  |              |  |                    
|Total                                            |  | 6,794.3                 |  | 100.0              |  | 10,354.3     |  | 100.0               |  | 11,353.4     |  | 100.0              
|                                                 |  |                         |  |                    |  |              |  |                     |  |              |  |                    

Our domestic coal sales are concentrated in Eastern China, particularly in Shandong Province. The
following table sets out our net coal sales by geographic region for the years ended December 31, 2003, 2004 and 2005:



|                                 |  |                         |  |                     |  |              |  |                    |  |              |  |                   
|-------------------------------- |  | ----------------------- |  | ------------------- |  | ------------ |  | ------------------ |  | ------------ |  | ------------------
|                                 |  | Year Ended December 31,
|                                 |  | 2003                    |  | 2004                |  | 2005        
|                                 |  | NetSales                |  | % of Net Coal Sales |  | NetSales     |  | % of NetCoal Sales |  | NetSales     |  | % of NetCoal Sales
|                                 |  | (RMBmillion)            |  |                     |  | (RMBmillion) |  |                    |  | (RMBmillion) |  |                   
|Domestic Sales                   |  |                         |  |                     |  |              |  |                    |  |              |  |                   
|Eastern China                    |  |                         |  |                     |  |              |  |                    |  |              |  |                   
|Shandong Province                |  | 2,443.7                 |  | 36.0                |  | 5,014.4      |  | 48.4               |  | 5,697.4      |  | 50.2              
|Jiangsu Province                 |  | 546.6                   |  | 8.0                 |  | 738.1        |  | 7.1                |  | 674.7        |  | 5.9               
|Zhejiang Province                |  | 495.6                   |  | 7.3                 |  | 700.6        |  | 6.8                |  | 536.3        |  | 4.7               
|Shanghai                         |  | 365.5                   |  | 5.4                 |  | 351.6        |  | 3.4                |  | 528.8        |  | 4.7               
|Other provinces in the region(1) |  | 86.9                    |  | 1.3                 |  | 316.8        |  | 3.1                |  | 560.8        |  | 4.9               
|Subtotal                         |  | 3,938.3                 |  | 58.0                |  | 7,121.5      |  | 68.8               |  | 7,998.0      |  | 70.4              
|Southern China(1)                |  | 398.8                   |  | 5.8                 |  | 285.5        |  | 2.7                |  | 423.5        |  | 3.7               
|Exports                          |  | 2,457.2                 |  | 36.2                |  | 2,947.3      |  | 28.5               |  | 2,932.0      |  | 25.8              
|                                 |  |                         |  |                     |  |              |  |                    |  |              |  |                   
|Total                            |  | 6,794.3                 |  | 100.0               |  | 10,354.3     |  | 100.0              |  | 11,353.5     |  | 100.0             
|                                 |  |                         |  |                     |  |              |  |                    |  |              |  |                   

---

|(1) | Other provinces in Eastern China include Anhui Province, Fujian Province and Jiangxi Province whereas Southern China includes Guangdong Province, Hainan Province and Hunan Province.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table sets out our major domestic and overseas customers:



|                                             |  |                          
|-------------------------------------------- |  | -------------------------
|Domestic                                     |  | Overseas+                
|                                             | 
|Huadian Power International Corporation Ltd. |  | Sumitomo Metallurgy, Inc.
|                                             | 
|Shanghai Baosteel Corporation Ltd.           |  | Idemitsu                 
|                                             | 
|Dongguan Shijie Fuel Company                 |  | Nippon Steel Corporation 
|                                             | 
|Jinin Hongyun Materials Ltd                  |  | Kyushu Electric Power    
|                                             | 
|Shanghai Electric Fuel Ltd                   |  | JFE Steel Corporation    

---

|+ | Through Export Sales Companies
|- | ------------------------------



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##### Table of Contents

As of December 31, 2005, Huadian was our largest domestic customer. For the year ended
December 31, 2005, we supplied a total of 5.6 million, representing 13.4% of our total net sales in 2005, to our largest domestic customers. A substantial portion of Huadians coal purchases was supplied to Zouxian Electric Power
Plant. Our sales of coal to Zouxian Electric Power Plant accounted for 9.6%, 9.5% and 13.2% of our total net sales in 2003, 2004 and 2005. The Zouxian Electric Power Plants total coal requirements were approximately 6.6 million tonnes in
2005. We estimated that we supplied approximately 77.0%, 92.3% and 83.6% of the Zouxian Electric Power Plants coal requirements in 2003, 2004 and 2005, respectively.

In 2003, 2004 and 2005, net sales to our five largest domestic customers accounted for 18.5%, 15.3% and 20.0%, respectively, of our total net sales.

We exported 13.6 million, 10.0 million and 7.3 million tonnes of coal in 2003, 2004 and 2005, respectively, accounting for
approximately 14.5%, 11.6% and 10.2% of the PRCs total coal export sales in the respective periods. Export sales primarily consist of sales of our No. 2 and No. 3 Clean Coal to Japan. Our net export sales in 2005 decreased from 27.9%
of total net sales in 2004 to 25.5% because we sold more coal domestically due to higher domestic coal pricing compared to export coal pricing. Most of our major overseas end-users are located in East Asian countries and regions, such as Japan and
Korea, with Japan being the largest market. We have established close relationships with overseas customers, notwithstanding that all export sales were made through the Export Sales Companies.

Our sales and marketing department conducts routine customer visits and customer satisfaction surveys. In addition, we hire independent market
consultants throughout the Eastern China and Southern China regions to collect market information. Information gathered from these sources, together with general market information from other sources, is included in our market data center.

Product Pricing

The prices for
our products are generally based on market price or are determined on a contract basis. However, the price for certain thermal coal used for power generation is determined among coal suppliers and power plant buyers in accordance with the pricing
guidance published by the PRC Government.

Currently, we make pricing decisions taking into account: (i) prices in the relevant local
coal markets (inclusive of transportation costs); (ii) grade and quality of the coal; and (iii) relationships with customers. Most of the transportation costs for domestic sales of our products are borne by the customers. Our sales and
marketing department has access to domestic and international market information through our data center, enabling us to closely monitor pricing developments in our principal markets. Although we do not have direct export rights, export prices are
ultimately determined among us, our agents, and our customers through negotiation.

Product Delivery

Most of our major domestic customers are located in Eastern China and, to a lesser extent, in Southern China. We principally use railways to transport our
coal. We also use, to a lesser extent, road transport and river transport.

We use our railway network to deliver coal products directly to
our largest end-user customer, Zouxian Electric Power Plant. Our railway network also connects to the national railway to deliver products directly to other customers.

We also deliver our coal products through the national railway to Rizhao, Qingdao or Lianyungang ports from which we transship coal products to customers. Rizhao port is our main port for shipping.

We also use the Beijing-Hangzhou Grand Canal to ship coal on barges to customers located in the area serviced by the canal. In 2003, we funded the
construction of the Jining Siheco Coal Port to develop the market near the Beijing  Hangzhou Grand Canal. Jining Siheco Coal Port came into operation in the first quarter of 2004.

Mining Processes

Our mining operations involve four main processes: tunneling, extracting,
conveying and coal preparation. The tunneling process is necessary for the construction of conveyors, underground roadways and longwall work-faces. A majority of our tunneling is conducted by high-powered heading machines where conditions permit
tunnels to be driven within the coal seam. When the geological conditions do not



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permit the use of heading machines, we use explosives to dig tunnels. All the coal extracted from these tunnels is sent
to our underground storage bunkers to be stored together with the coal extracted from the longwall coal faces. The rock produced from the development roadways is segregated and conveyed out of the mine separately.

The extracting process is conducted by a standard, fully mechanized longwall system, which includes a coal-cutting machine that cuts and transports the
coal away from the longwall work-faces. When the thickness of the coal seams is less than 3.5 meters, we use a shearer with rotating drums to extract coal from the face of the longwall work-face. When the coal seams are thicker than 3.5 meters, we
use the caving method, which collects the coal from the caved areas behind the hydraulic roof supports. Coal is then transported away from the longwall work-faces by a conveyor located at the rear of the roof supports. The hydraulic roof supports
provide continuous support and cover along the length of the face and also facilitate the advance of the face conveyor through operating horizontal hydraulic rams positioned in the base of each support. These longwall hydraulic roof supports are
manufactured in China.

The shaft hoist system we use at most of our mines is imported. Coal is conveyed from the coal shaft either to the
ground storage or to the respective coal preparation plant via an overland conveyor system. In addition to the main coal shaft, each mine also has a service shaft, which elevates equipment and workers into and out of the mines. There are roadway and
railway systems that provide underground transportation for workers and equipment.

After the raw coal is brought to the ground, it
undergoes a simple selection process to separate coal from rocks and other impurities. A portion of such selected coal is directly sold to customers and the remainder is processed by our coal preparation plants for further purification and
classification. Each of our six mines has a coal preparation plant. In general, the coal-washing processes conducted by our coal preparation plants comprise a water bed washing and separation process by jig machines, a sink-and-float separation
process and a final floating separation process. With the exception of the equipment in the Xinglongzhuang coal preparation plant, most of the equipment used in our coal preparation plants is manufactured in the PRC. Most of the equipment used in
our coal preparation plants is automated, which enables our personnel to exercise precise control over the ash content and grades of the coal. The aggregate recovery rate of our coal preparation plants was 88.5%, 77.9% and 72.9% in 2003, 2004 and
2005, respectively.

Materials, Water and Energy Supply

We purchase certain materials to conduct our coal mining and processing operations, consisting principally of: (i) steel for support of the work-faces and underground tunnels, and (ii) cement for the
underground tunnels and ground structures. We source our steel principally from Shanghai Baosteel Corporation Ltd and Anhui Maanshan Iron & Steel Co. Ltd. We source our cement principally from the Parent Company pursuant to the Materials
and Services Supply Agreement and the supplemental agreements thereto. There is no governmental regulation of the price of materials. The prices are set at market rate or through negotiations. We believe that we have established stable cooperative
relationships with our suppliers, which enable us to obtain a reliable supply of most of the materials required in our production process. We believe that many alternative suppliers exist for most of the materials we purchase, and, therefore, we do
not foresee any difficulty in obtaining an adequate supply of these materials.

In 2003, 2004 and 2005, 4.6%, 6.0% and 1.8%, respectively,
of our total cost of sales were attributable to purchases from our largest supplier. In 2003, 2004 and 2005, 12.3%, 11.2% and 7.5% respectively, of our total cost of sales were attributable to purchases from our five largest suppliers.

We use electricity in our operations. Electricity prices in China are under governmental control. The total costs of electricity amounted to RMB291.7
million, RMB307.4 million and RMB294.8 million (inclusive of the electricity power used in the operation of our railway network) in 2003, 2004 and 2005, respectively. We have not experienced any material disruption in electricity supply in recent
years.

The main source of our water is underground water. Each of our mines has obtained a license to use underground water. We have not
experienced any material disruption in water supply in recent years.

Our costs for materials, water and electricity supplies amounted to a
total of RMB1,441.5 million in 2005, representing an increase of RMB41.5 million, or 3.0%, from RMB1,400.0 million in 2004. Our costs for materials, water and electricity supplies in 2005 accounted for 27.3% of our total cost of sales, decreased
from 30.8% in 2004.



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Quality Control

Coal Production

We have
implemented a quality assurance program pursuant to which we exercise strict quality control throughout the production and transportation processes. Utilizing advanced processing technology and management techniques, our coal preparation plants are
able to separate both metal impurities, such as blasting caps, and non-metal impurities, such as scraps of wood and plastic, from the coal. Our sales and marketing department has a quality inspection division, which conducts random inspections of
our coal and provides the information collected from the inspections to our production units and management to facilitate quality improvement.

Nantun, Xinglongzhuang, Baodian, Dongtan, Jining II, Jining III mines have obtained ISO 9002 quality recognition and ISO 14000 environmental management recognition.

Railway network

We
endeavor to ensure that the quality of our railway network is consistent with the quality of our coal production. Our railway network has obtained ISO 9001 quality accreditation and ISO 14001 environmental management recognition.

Safety Control

We have implemented a safety
control program based on our specific requirements and in compliance with the Coal Law, the National Mining Safety Law and safety regulations promulgated by relevant governing authorities. The safety records of our administrative or production
division directly affect the compensation levels of the officers and managers of such division. Each of our mines has a safety inspection unit which is responsible for the supervision and inspection of our mining activities. We also use the Parent
Companys safety training center to provide systematic training to our personnel. We provide rewards to employees who report potential unsafe conditions to us so as to prevent potential accidents.

As a result of our safety control program, we have been able to maintain a good safety record. The workers fatality rate for our mines was 0.077
fatalities per million tonnes of raw coal produced in 2004, and 0.087 fatalities per million tonnes of raw coal produced in 2005. These rates are substantially lower than the average rate for coal mines in the PRC.

Environmental Protection

We 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 us to cease or cure operations causing environmental damage. We believe all of our facilities are in compliance with the requirements of the relevant environmental protection laws and regulations.

Each of our mines has an underground water processing station. In the aggregate, we can process 18.7 million tonnes of underground water each year.
Such underground water, after processing, is used for production, coal washing and landscape maintenance. We also have six waste water treatment plants, which have an aggregate annual waste water treatment design capacity of 10.5 million
tonnes. The rocks produced during our production are mainly used for landfill and to produce construction materials.

In the years ended
December 31, 2003, 2004 and 2005, we spent RMB4.8 million, RMB3.8 million and RMB4.8 million for environmental protection, respectively. These expenses consisted principally of capital expenditures, equipment operating expenses and discharge
fees paid to the PRC Government.

Insurance

In accordance with what we believe is the customary practice for PRC coal mining entities, we do not currently maintain fire, casualty or other property insurance covering our properties, equipment or inventory other
than with respect to vehicles. In addition, we do not maintain any business interruption insurance or any third party liability insurance to cover claims in respect of personal injury, property or environmental damage arising from accidents on our
properties or relating to our operations, other than third party liability insurance with respect to vehicles. We do not maintain any insurance policy to cover our railway network or its operation. We have, in accordance with relevant laws, set
aside approximately 2.0% of employees total remuneration for employees injury insurance. We currently maintain personal injury insurance for our employees.



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Competition

Coal Production

Chinas coal industry is characterized by the uneven distribution of coal reserves and
the existence of a large number of enterprises. However, the number of large scale coal producing production enterprises is limited. According to the China Coal News published on April 3 April, 2006, there were 5,206 coal producing
production enterprises were considered as to be above-average enterprises that and had an annual coal sales revenues of over RMB5.0 million as of December 31, 2005. Of these, only 31 of those enterprises had an annual output of more than
10 million tones tonnes with and a total an aggregate production volume close to 900.0 million tonnes, accounting for 42.3% of the total coal production in China.

We principally compete in two markets: the PRC domestic market and the East Asian export market. The PRC domestic coal market is characterized by a very
large number of coal suppliers, with no individual dominant nationwide supplier. The domestic coal market is segmented principally by: (i) location, given the significant costs associated with coal transport, and (ii) coal quality, which
includes ash and sulphur levels, calorific value and degree of washing. We compete principally on the basis of price, coal quality, availability and costs of transportation, reliability of delivery and payment terms.

Our domestic competitors primarily include a number of coal mines located in Shanxi Province, Shaanxi Province and Inner Mongolia Autonomous Region.
Certain of our competitors from these regions have substantial reserves and favorable geological conditions. However, these competitors encounter high transportation cost as they are farther away from the end customers located in Eastern China. In
addition to coal mines located in Shanxi Province, Shaanxi Province and Inner Mongolia Autonomous Region, we also compete to a certain extent with local mines located in proximity to our customers.

The following table sets out the top ten coal producers in China in 2005, their 2005 production and principal seaports:



|                                 |  |               |  |                    |  |                                
|-------------------------------- |  | ------------- |  | ------------------ |  | -------------------------------
|                                 |  | Provinces     |  | 2005 Production(1) |  | Principal Seaport              
|                                 |  | (000 tonnes)
|Shenhua Group                    |  | Beijing       |  | 149,683            |  | Huanghua, Tianjin andQinhuandao
|ChinaCoal Group                  |  | Beijing       |  | 71,858             |  | Qinhuangdao andLianyungang     
|Shanxi Coking Coal Group Company |  | Shanxi        |  | 60,809             |  | Qinhuangdao                    
|Datong Coal Mining Group Company |  | Shanxi        |  | 56,684             |  | Qinhuangdao                    
|Longmay Coal Group Co.           |  | Heilongjiang  |  | 48,070             |  | Tianjin and Jinzhou            
|Yankuang Group Company.          |  | Shandong      |  | 33,455             |  | Rizhao                         
|Yangquan Coal Group Co.          |  | Shanxi        |  | 32,451             |  | Huanghua and Qinhuandao        
|Huainan Mining Group Co.         |  | Anhui         |  | 32,405             |  | Not applicable                 
|Pingdingshan Coal Group Co.      |  | Henan         |  | 32,060             |  | Not applicable                 
|Jincheng Wuyan Group Co.         |  | Shanxi        |  | 30,060             |  | Not applicable                 

---

|(l) | China Coal Industry Association
|--- | -------------------------------

Coal mining companies
generally have long-term, established relationships with their customers, particularly in the case of electric power plants. PRC electric power plants typically specify their future coal suppliers in their feasibility study, with their power
generation equipment usually designed based on the type and quality of coal sourced from a particular supplier. A change in coal suppliers may require the power plant concerned making additional expenditures to modify its power generation equipment,
thereby raising the costs associated with a change in suppliers.

We export coal to several countries in East Asia, including Japan and
Korea. These countries are generally characterized by high energy consumption levels and limited coal reserves, creating a significant demand for imported coal. With respect to export sales, we compete with certain major overseas coal mining
companies, most of which are located in Australia and Indonesia.



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Railway Operation

Our railway network is connected to the major national railway system and to the Zouxian Electric Power Plant, our largest end-user customer, to provide
railway transportation services for our internal use, the Parent Company and other customers. We do not encounter any material competition from other railway operators. However, we may compete with other surface transportation services.

Seasonality

Our business is not seasonal.

Regulatory Overview

Coal Law

On August 29, 1996, the PRC Government promulgated the Coal Law, which became effective on December 1, 1996. The Coal Law
sets forth requirements for all coal mines, from State-owned mines to township mines, regarding planning for resource exploitation, approval of new mines, the issuance of mining and production permits, implementation of safety standards, processing
of coal, business management, protection of mine areas from destructive exploitation, protection for miners and administrative supervision.

Entities seeking to establish mining enterprises must apply to the relevant government office and obtain all necessary approvals. Upon obtaining such approvals, the entities concerned will be granted a mining permit from the Ministry of
Land and Resources. Thereafter, an entity must obtain a coal production permit and a coal operation permit in order to commence coal production and sell coal products in the PRC. Mining activities in the PRC are also subject to the Mineral Resources
Law, which was promulgated by the PRC Government on March 19, 1986 and amended on August 29, 1996.

We are principally subject to
governmental supervision and regulation by two agencies of the PRC Government:



| |  |  | the National Development and Reform Commission (the NDRC), which sets and implements the major policies concerning Chinas economic and social development policies,
approves development projects exceeding certain capital expenditure amounts, including approval of Sino-foreign joint venture projects, coordinates economic development of State-owned enterprises and oversees their reform, formulates industrial
policies and investment guidelines for all industries, including the coal industry; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Ministry of Land and Resources, which has the authority to grant land use licenses and mining right permits.
| | - |  | ----------------------------------------------------------------------------------------------------------------

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

Pricing

In China, the prices of coal products,
excluding prices of thermal coal used in electricity generation, are determined by the market.

Until 2002, the production and pricing of
coal have largely been subject to close control and supervision by the PRC government, which centrally manages the production and pricing of coal. Previously, the price of coal was determined based on a government-devised pricing guideline which set
out the suggested prices for coal. However, in order to effectuate the transform from planned economy to market economy practices, China eliminated from 1 January 2002 the State guidance price for coal and left the determination of prices for
all types of coal largely to the market forces However, as the PRC government continues to maintain control over the national railway system, which is the primary means for coal transportation in China, the Chinese government still may exert
influence over the pricing of coal through its allocation of railway transportation capacity for coal.

In addition, under the Price Law of
the Peoples Republic of China, promulgated on 29 December 1997, effective from 1 May 1998, in the event of an actual increase or potential increase in the prices of important



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merchandise such as coal, the State Council and the provincial governments, autonomous regions and municipalities
directly under the central government may adopt intervention measures for some prices, such as restricting the ratio of price differentials or of profits, and imposing price limits, etc. In August 2004, the NDRC issued a notice setting forth
temporary measures to be imposed on thermal coal prices for certain regions. In December 2004, the NDRC issued a notice setting forth guidelines for pricing of thermal coal sales in 2005. Under these guidelines, the coal suppliers and their
customers may not negotiate for the sale of coal at prices exceeding the government suggested price range.

On May 1, 2005, the PRC
Government implemented a policy to associate coal prices with electricity price, allowing electricity prices to be adjusted on the fluctuation in coal prices. Factors affecting the fluctuations in coal prices include the overall performance of the
Chinese economy, business cycles in the power industry, the availability of alternative energy sources, and coal production and transportation capacities. Currently, the price of thermal coal used in electricity generation and the market price are
not in line. On December 27, 2005, the PRC Government issued a notice to (i) cancel the 2004 NDRC notices regarding temporary measures and pricing limitation imposing on thermal coal prices and (ii) allow the prices of thermal coal used in
electricity generation to be negotiated by coal suppliers and their customers. However, the PRC Government may adopt temporary intervention measures in the event of an actual increase or potential increase in the prices of thermal coal for
electricity generation pursuant to the Price Law. In the next five-year plan period (2006-2010), the PRC Government will gradually adjust prices of thermal coal used in electricity generation in accordance with the market price of coal.

Similar to coal pricing, the production and supply of coal, which was dictated by the PRC governments annual state coal allocation plan, has
been gradually liberalized and largely subject to market forces. Major domestic coal suppliers and coal purchasers attend the Annual National Coal Trading Convention to negotiate and discuss the price and quantity of coal to be supplied and
purchased for the coming year through the signing of letters of intent and short- and long-term supply contracts.

Fees and Taxes

PRC coal mining entities are subject to certain mining fees and taxes, including a resource tax and resource compensation fee.

Under the Mineral Resources Law, if mining results in damage to arable land, grasslands or afforested areas, the mining enterprise must take effective
measures to return the land to an arable state, plant trees or grass or take other 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 in
terms of living standards is held liable for the loss under the law and is required to compensate the persons affected and to remedy the situation. In addition, the Mineral Resources Law also provides for (i) regulations concerning labor safety
and hygiene and (ii) environmental protection.

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. All environmental protection facilities must be inspected and certified by relevant governmental authorities as being in compliance with PRC environmental protection laws and regulations.

Regulations Concerning Imports and Exports of Coal

In the PRC, the import and export of goods and technologies and the provision of international trade services are governed by the Foreign Trade Law, which was promulgated on May 12, 1994 and amended on April 6, 2004 with an
effective date of July 1, 2004. Imports of coal into China are subject to import tariffs. Pursuant to Chinas commitment under its World Trade Organization agreement, tariff rates for coal imports will be reduced.

Under the amended Foreign Trade Law and other relevant regulations, coal exports remain subject to State control and require governmental approval.
Currently, there are only four authorised coal exporters, Shenhua Coal Trading Company Limited, China Coal Energy Group Company, China National Minerals Import and Export Company Limited and Shanxi Coal Import and Export Group Company.

Pursuant to regulations promulgated in January 2004, Chinas coal and coke exports have been subject to a government approval system since
1 July 2004, under which the NDRC and the Ministry of Commerce are responsible for determining Chinas total coal and coke export quota and for allocating the quota among



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the authorized coal and coke exporters. The total quota will take into consideration Chinas economic needs, the
rational use of coal resources, the PRC governments economic policy and the dynamics of the domestic and international coal and coke markets. Each year, after the NDRC publishes the total coal and coke export quota for the following year,
authorized coal and coke exporters are required to submit written applications for the following years quota to the NDRC. The NDRC and the Ministry of Commerce then allocate the annual quota for the following year among the authorized coal
exporters. Each years quota expires on December 31. Upon receiving quota approval, authorized coal and coke exporters may apply for coal and coke export permits to the relevant authority designated by the MOFCOM. Authorized coal and coke
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 quota approved for 2005 and 2006 was 80 million tonnes, respectively.

The PRC
Government grants VAT refund to coal producers for the export of coal. In January 2004, the PRC Government announced with immediate effect, reduction of export VAT refund for thermal coal exports from 13.0% to 11.0%. The export VAT refund was
further reduced to 8.0% in May 2005.

Environmental Protection Laws and Regulations

The State Administration for Environmental Protection is responsible for uniform supervision and control of environmental protection in China. It
formulates national environmental quality and discharge standards and monitors Chinas environmental system. Environmental protection authorities are responsible for environmental protection within their areas of jurisdiction.

Environmental regulations require companies to file an environmental impact report with the relevant environmental authority for approval before
undertaking the construction of a new production facility or any major expansion or renovation of an existing production facility. New facilities built pursuant to this approval are not permitted to operate until the relevant environmental authority
has performed an inspection and is satisfied that the facilities are in compliance with environmental standards.

The Environmental
Protection Law requires any facility that produces pollutants or other hazards to incorporate environmental protection measures in its operations and establish an environmental protection responsibility system. Such system includes adoption of
effective measures to control and properly dispose of waste gases, waste water, waste residue, dust or other waste materials. Any entity that discharges pollution must register with the relevant environmental protection authority.

Remedial measures for violations of the Environmental Protection Law include a warning, payment of damages or imposition of a fine. Any entity
undertaking a construction project that fails to install pollution prevention and control facilities in compliance with environmental standards for a construction project may be ordered to suspend production or operations and may be fined. Criminal
liability may be imposed for a material violation of environmental laws and regulations that causes loss of property or personal injuries or death.

Mineral Resources Laws and Regulations

All mineral resources in China are owned by the State under the current Mineral
Resources Law. Exploration, exploitation and mining operations must comply with the relevant provisions of the Mineral Resources Law and are under the supervision of the Ministry of Land and Resources. Exploration and exploitation of mineral
resources are also subject to examination and approval by the Ministry of Land and Resources and relevant local authorities. Upon approval, a mining permit is issued by the relevant administrative authorities, which are responsible for supervision
and inspection of mining exploitation in their jurisdiction. Annual reports are required to be filed by the holders of mining rights with the relevant administrative authorities.



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The Mineral Resources Law governs, among other things, the assignment of mining rights. If the entity
holding the mining rights is to be changed, due to a sale of enterprise assets or other circumstances that may cause a change in the property rights to the assets of the enterprise, the enterprise may assign its mining rights, subject to approval
according to the Coal Law, the Mineral Resources Law and other laws and regulations.

The PRC Government permits mine operators of
collectively owned mines to exploit mineral resources in designated areas and individuals to mine scattered mineral resources. Such mine operators and individuals are subject to government regulation. Mining activities by individuals are restricted.
Individuals are not permitted to exploit mineral reserves allocated for exploitation by a mining enterprise or company or protected reserves. Indiscriminate mining that damages mineral resources is prohibited.

If mining activities result in damage to arable land, grassland or afforested areas, the mining operator must take measures to return the land to an
arable state within the prescribed time frame. Any entity or individual which fails to fulfill its remediation obligations may be fined and denied application for land use rights for new land by the relevant land and natural resources authorities.

It is unlawful for an entity or individual to conduct mining operations in areas designated for other legal mining operators. A mining
operator whose exploitation causes harm to others in terms of production or in terms of living standards is liable for compensation and is required to take necessary remedial measures. When a mine is closed, a mine closure report and information
concerning the mining facilities, hidden dangers, remediation and environmental protection must be submitted for examination and approval in accordance with the relevant law.

The mineral products illegally extracted and the income derived from such activities may be confiscated and may result in fines, revocation of the mining
permit and, in serious circumstances, criminal liability.

Coal Classification

Based on carbon content and heat value, coal can be classified into four major categories: anthracite, bituminous coal, sub-bituminous coal and lignite.
Anthracite contains the highest level of carbon, least moisture and highest heat values, and generates little flame and smoke when burned. Bituminous coal is a high-grade coal with heat values typically ranging from 23Mj/Kg to over 30Mj/Kg.
Bituminous coal burns with a smoky flame and is used for utility and industrial steam purposes as well as for making the coke necessary for steel production. All coal produced by our mines is bituminous coal. Sub-bituminous coal has a carbon content
between bituminous coal and lignite and has a heat value generally ranging from over 19 to 22 Mj/Kg. This type of coal is used mainly by electric utilities. Lignite is the lowest ranking coal. It generally has a heat value of about 15Mj/Kg and is
used to fuel electric power plants.

Coal is also commonly described by its sulphur content due to the importance of sulphur in
environmental regulations. Low-sulphur coal typically is used to describe coal with a sulphur content of 1% or less. Our in situ coal in the No. 3 Seam (the most important coal seam in the Yanzhou and Jining coalfields which our six
mines exploit) has sulphur contents generally ranging from 0.39% to 0.75% and therefore is a type of low-sulphur coal.

C. Organizational Structure

In 2005, we had 14 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, Department of Production Technology, Department of Safety Inspection, Electrical Engineering and Power Department, Ventilation and Dust Elimination
Department, Geological Survey Department, Department of Enterprise Management, Project Department, Community Relationship Office and Technical Center.



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Our shareholding and organizational structure as at March 31, 2006 are illustrated by the diagram
below:

LOGO

D. Property, Plants and Equipment

Real Property and Leasehold Property

As of December 31, 2005, the net book value of our
property, plant and equipment was RMB9,318.5 million. Our corporate headquarters and production and ancillary facilities mainly in Shandong Province occupy an area of 16,863,316 square meters, of which 88,090 square meters are used as stations,
offices, warehouses and other facilities for our railway services. Yancoal in Australia occupies an area of 16,179,838 square meters. The total gross floor area of our production and other facilities in PRC is 595,388 square meters. Heze Nenghua and
Yulin are in the process of applying for the necessary land use rights to their production areas. Under PRC law, we have freely transferable land use rights for a term of 50 years commencing from the respective dates when we acquired such land use
rights in the PRC. In addition, land ownership held by Yancoal is not subject to expiration pursuant to Southland Property Law in 1900.

Coal Mines and
Production Facilities

Existing mines

The six domestic 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 access to our customers
either directly or through the PRC national railway or highway system. We completed the acquisition of assets of Austar Coal Mine on December 24, 2004. In 2005, we acquired 95.67% equity interest in Heze Nenghua from the Parent Company. The
principal activities of Heze Nenghua are to conduct the initial preparation of the Zhaolou , Wanfu and other coal mines at the Juye Coalfield including (i) obtaining the approvals for the coal mine projects, (ii) applying for the necessary
exploration rights for coal, and (iii) preparing for the construction of the coal mines. As at December 31, 2005, Heze Nenghua has commenced construction works for the Zhaolou coal mine. Pursuant to a supplemental agreement dated
June 28, 2005 entered between us and the Parent Company, the Parent Company irrevocably undertook that we shall have the right to acquire the mining rights of Zhaolou coal mine and Wanfu coal mine from the Parent Company within twelve months
from the respective dates on which such mining rights are obtained by the Parent Company for a consideration to be determined based on valuations conducted by independent qualified PRC valuers. The valuations should also be endorsed by the
applicable PRC government authorities.



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The locations of our domestic six coal mines in Shandong Province and the connection of the railway
system are shown on the map below:

LOGO



The location of Austar Coal
Mine is shown on the map below:

LOGO

Our six domestic coal mines and our Austar Coal Mine are all underground coal mines.

The following table sets out detailed information for each of our mines:



|                                                                       |  |        |  |                  |  |         |  |         |  |           |     |  |            |  |        |     |  |        
|---------------------------------------------------------------------- |  | ------ |  | ---------------- |  | ------- |  | ------- |  | --------- | --- |  | ---------- |  | ------ | --- |  | -------
|                                                                       |  | Nantun |  | Xinglong- Zhuang |  | Baodian |  | Dongtan |  | Jining II |     |  | Jining III |  | Austar |     |  | Total  
|Background data:                                                       |  |        |  |                  |  |         |  |         |  |           |     |  |            |  |        |     |  |        
|Start of construction                                                  |  | 1966   |  | 1975             |  | 1977    |  | 1979    |  | 1989      |     |  | 1993       |  | 1998   |     |  | N/A    
|Start of commercial production                                         |  | 1973   |  | 1981             |  | 1986    |  | 1989    |  | 1997      |     |  | 2000       |  | 2000   |     |  | N/A    
|Coalfield area (square kilometers)                                     |  | 35.2   |  | 59.81            |  | 36.4    |  | 60.0    |  | 87.1      |     |  | 105.1      |  | 63.0   |     |  | 446.6  
|                                                                       |  |        |  |                  |  |         |  |        
|Reserve data: (millions tonnes as of December 31, 2005)                |  |        |  |                  |  |         |  |         |  |           |     |  |            |  |        |     |  |        
|Total in-place proven and probable reserves(1)                         |  | 132.85 |  | 356.57           |  | 310.83  |  | 487.32  |  | 429.50    |     |  | 251.37     |  | N/A    |     |  | 1968.44
|Proven and probable reserves recoverable by longwall mining methods(2) |  | 28.17  |  | 97.78            |  | 77.51   |  | 104.97  |  | 164.36    |     |  | 89.37      |  |        |     |  | 562.16 
|Depth of mine (meters underground)                                     |  | 397.0  |  | 429.2            |  | 474.7   |  | 710.0   |  | 593.0     |     |  | 556.0      |  | N/A    |     |  | N/A    
|Average thickness of main coal seam (meters)                           |  | 8.60   |  | 8.29             |  | 8.88    |  | 8.41    |  | 6.78      |     |  | 7.00       |  | N/A    |     |  | N/A    
|                                                                       |  |        |  |                  |  |         |  |        
|Production data: (million tonnes)                                      |  |        |  |                  |  |         |  |         |  |           |     |  |            |  |        |     |  |        
|Designed raw coal production capacity                                  |  | 2.4    |  | 3.0              |  | 3.0     |  | 4.0     |  | 4.0       |     |  | 5.0        |  | 2.0    |     |  | 23.4   
|Designed coal preparation input capacity                               |  | 1.8    |  | 3.0              |  | 3.0     |  | 4.0     |  | 3.0       |     |  | 5.0        |  | 2.0    |     |  | 22.8   
|Raw coal production                                                    |  |        |  |                  |  |         |  |         |  |           |     |  |            |  |        |     |  |        
|1994                                                                   |  | 2.9    |  | 3.9              |  | 3.3     |  | 3.5     |  |          |     |  |           |  |       |     |  | 13.6   
|1995                                                                   |  | 3.6    |  | 3.8              |  | 3.6     |  | 3.8     |  | 0.2       | (2) |  |           |  |       |     |  | 15.0   
|1996                                                                   |  | 4.0    |  | 4.0              |  | 4.1     |  | 4.9     |  | 0.4       | (2) |  |           |  |       |     |  | 17.4   
|1997                                                                   |  | 3.9    |  | 4.1              |  | 4.0     |  | 4.9     |  | 0.8       | (2) |  |           |  |       |     |  | 17.7   
|1998                                                                   |  | 4.2    |  | 5.0              |  | 4.3     |  | 5.4     |  | 1.8       |     |  |           |  |       |     |  | 20.7   
|1999                                                                   |  | 4.0    |  | 6.1              |  | 4.7     |  | 6.1     |  | 3.2       |     |  |           |  |       |     |  | 24.1   
|2000                                                                   |  | 4.5    |  | 6.2              |  | 5.3     |  | 6.7     |  | 4.8       |     |  |           |  | N/A    |     |  | 27.5   
|2001                                                                   |  | 4.9    |  | 6.6              |  | 6.2     |  | 7.1     |  | 4.1       |     |  | 5.1        |  | N/A    |     |  | 34.0   
|2002                                                                   |  | 3.6    |  | 7.1              |  | 6.4     |  | 8.1     |  | 5.2       |     |  | 8.0        |  | N/A    |     |  | 38.4   
|2003                                                                   |  | 4.7    |  | 7.0              |  | 7.3     |  | 8.2     |  | 6.0       |     |  | 10.1       |  | N/A    |     |  | 43.3   
|2004                                                                   |  | 4.1    |  | 7.4              |  | 7.0     |  | 8.5     |  | 4.9       |     |  | 7.3        |  | N/A    |     |  | 39.2   
|2005                                                                   |  | 4.0    |  | 6.6              |  | 5.0     |  | 7.5     |  | 4.5       |     |  | 7.0        |  | N/A    | (3) |  | 34.6   
|Cumulative raw coal production as of December 31, 2005                 |  | 48.4   |  | 67.8             |  | 61.2    |  | 74.7    |  | 35.9      |     |  | 37.5       |  | N/A    |     |  | 325.5  

---

|(1) | The reserve data (except for Austar Coal Mine) including (i) total in-place proven and probable reserves, (ii) proven and probable reserves recoverable by longwall mining
methods, (iii) depth of mine and (iv) average thickness of main coal seam, is based on the relevant information from Report of independent mining consultants, after deduction of actual production volume and non-accessible reserves up to
December 31, 2005. Non-accessible reserve is defined as the portion of identified resources estimated to be not accessible by application of one or more accessibility factors within an area. The report of the independent mining consultants for
Nantun, Xinglong Zhuang, Baodian, Dongtan and Jining II was prepared by International Mining Consultants Limited Nottinghamshire, United Kingdom (IMC) on February 16, 1998, and the Report for Jining III was prepared by SRK
Consulting in August 2000.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Produced during trial production period.
|--- | ----------------------------------------

|(3) | The mine was shut down in January 2004.
|--- | ---------------------------------------

Nantun Mine.Nantun is located in the south of our coalfield. Nantun began its commercial production in 1973 with original designed annual output of 1.5 million tonnes of coal. In 1993, the designed annual output 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



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meters and the thickness of the lower leaf averages 3.21 meters. We generally use the longwall caving mining 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. Currently, Nantun produces coal from two longwall faces.

The Nantun coal preparation plant produces mainly No. 2 and No. 3 Clean Coal and employs only jig machines. Most equipment used in the Nantun
coal preparation plant was manufactured in the PRC.

Xinglongzhuang Mine. Xinglongzhuang is located in the north of our coalfield.
The main coal seam of Xinglongzhuang is concentrated in one leaf with an average thickness of 8.29 meters. We principally use the longwall caving mining method to mine Xinglongzhuang. Currently, Xinglongzhuang operates one longwall face.

The Xinglongzhuang coal preparation plant produces mainly No. 1, No. 2 and No. 3 Clean Coal. The Xinglongzhuang coal preparation
plants principal equipment, including the jig machines, sink-and-float separation machines and floating separation machines, was imported.

Baodian Mine. Baodian is located in the west central area of our coalfield. Certain sections of the main coal seam of Baodian are concentrated in one leaf, with an average thickness of 8.81 meters, and the remaining sections are
divided into two leaves with average thickness of 5.74 meters for the upper leaf and 3.38 meters for the lower leaf. We generally use the longwall caving mining method to extract coal from the concentrated layer and the upper leaf of the divided
sections of the main coal seam. Currently, Baodian operates two longwall faces.

The original design of the Baodian coal preparation plant
was identical to that of the Nantun coal preparation plant. Subsequently, we remodeled the jig machines and added a number of sink-and-float machines and floating separation machines in the Baodian coal preparation plant. Most equipment used in the
Baodian coal preparation plant was manufactured in the PRC. The principal product of the Baodian coal preparation plant is No. 2 and No. 3 Clean Coal.

Dongtan Mine. Dongtan is located in the east central area of our coalfield. Certain sections of the main coal seam of Dongtan are concentrated in one leaf, with an average thickness of 8.41 meters, and the
remaining sections are divided into two leaves, with average thickness of 5.38 meters for the upper leaf and 3.22 meters for the lower leaf. We generally use the longwall caving mining method to extract coal from the concentrated leaf and the upper
leaf of the divided sections of the main coal seam. Currently, Dongtan operates two longwall faces.

Most equipment used in the Dongtan
coal preparation plant, including the jig machines, the sink-and-float separation machines and the floating separation machines, was manufactured in the PRC. The principal product of the Dongtan coal preparation plant is No. 2 and No. 3
Clean Coal.

Jining II. Jining II is located in the north of the Jining coalfield, the quality of coal reserves of which is similar
to that in our coalfield.

Certain sections of the main coal seam of Jining II are concentrated in one leaf, with an average thickness of
6.78 meters, and the remaining sections are divided into two leaves, with an average thickness of 2.1 meters for the upper leaf and an average thickness of 4.68 meters for the lower leaf. We use mainly longwall mining methods at Jining II.
Currently, Jining II operates three longwall faces.

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

Jining III.
Jining III is located in the south of the Jining coalfield and covers an area of 110.0 square kilometers. Jining III commenced commercial production on December 28, 2000, having a designed annual raw coal production capacity of five million
tonnes. The average thickness of the main coal seam of Jining III is 6.2 meters. Currently, Jining III operates two longwall faces.

The
main equipment used in Jining III are jig machines, which are imported from Germany. The principal product of the Jining III coal preparation plant is No. 2 and No. 3 Clean Coal.

Austar Coal Mine.Austar Coal Mine is an underground longwall mine located in Hunter Valley, New South Wales, Australia. Austar Coal Mine covers
an area of 63.0 square kilometers. Austar Coal Mine was constructed in 1998 and it commenced commercial production in 2000, having a designed annual raw coal production capacity of two million tonnes. Austar Coal Mine produces hard coking coal and
semi-soft



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coking coal. The average thickness of the main coal seam of Austar Coal Mine is 5.3 meters. According to the Information
Memorandum  Southland Coal Pty Ltd. provided by the vendor of the coal mine at the time of the acquisition, Austar Coal Mine has a proven and probable reserve of approximately 41 million tonnes.

Austar Coal Mine was formerly owned and operated by Southland Coal Pty Limited. In December 2003, an underground fire occurred at Austar Coal Mine. The
mine was shut down in January 2004. In 2004, we acquired the entire interest in the Austar Coal Mine from independent third parties including Southland Coal Pty Limited and completed the transfer on December 24, 2004. We have also established
two wholly-owned subsidiaries in Australia, Yancoal and Austar, in 2004 for our operations at Austar Coal Mine.

We commenced the
reconstruction, expansion of production capacity and technology upgrade at Austar Coal Mine in 2005 and plan to begin production at Austar Coal Mine in the third quarter of 2006.

The main equipment to be used in Austar Coal Mine is heavy-medium cyclone machines, which are manufactured in Australia. Austar Coal Mine will operate 1
longwall face upon operation.The designed coal production capacity of Austar Coal Mine after the reconstruction, expansion and technology upgrade is 2.0 million tonnes per annum. We planned to spend a total of approximately
AUD161.0 million on Austar Coal Mine and we have incurred AUD76.6 million as at December 31, 2005.

Mines under development

Zhaolou Coal Mine is an underground longwall mine located in central of Juye Coal Field. Zhaolou Coal Mine covers an area of 145.0 square
kilometers. We commenced the construction of Zhaolou Coal Mine in 2004 and we plan to complete the construction of Zhaolou Coal Mine in December 2007. Zhaolou Coal Mine has a designed annual raw coal production capacity of three million tonnes.
Zhaolou Coal Mine produces 1/3 coking coal and steam coal. The average thickness of the main coal seam of Zhaolou Coal Mine is 7 to 9 meters. According to Zhaolou Coal Mine Reserve Report attached as Exhibit 14.1, the total proven and probable
reserve of Zhaolou Coal Mine was 105.9 million as at December 31, 2005.

The construction at the Zhaolou Coal Mine is expected to
cost approximately RMB2,364.7 million and we have spent an aggregate total of approximately RMB476.6 million on the construction and development of Zhaolou Coal Mine as at December 31, 2005.

Railway Network

In 2002, we acquired our railway
network from the Parent Company. Currently, the railway network consists of 27 locomotives, 359 railcars, and special purpose coal transportation railway tracks of approximately 184 kilometers in length, which link most of our coal mines and
production units of the Parent Company and our largest end-customer, the Zouxian Electric Power Plant. As of December 31, 2005, our Railway Asset Department employed approximately 3,401 employees. The railway network connects to two of the
major national railways, namely, the Beijing-Shanghai Railway and Yanzhou-Shijiugang Railway.

After the acquisition, we and the Parent
Company entered into a supplemental agreement on October 30, 2001. The Supplemental Agreement amended the Materials and Services Supply Agreement dated October 17, 1997 which provided that the Parent Company would provide us with railway
transportation services. According to the supplemental agreement, (i) the Parent Company and/or its subsidiaries no longer provide railway transportation services to us; and (ii) we will provide the Parent Company and/or its subsidiaries
railway transportation services.

Mining Rights

The Parent Company and we have entered into a mining rights agreement dated October 17, 1997 (the Mining Rights Agreement) pursuant to which we agreed to pay to the Parent Company an annual fee (the Annual Fee)
of approximately RMB13.0 million as compensation for the Parent Companys agreement to relinquish the mining rights associated with five of our mines in China (Nantun Mine, Xinglongzhuang Mine, Baodian Mine, Dongtan Mine and Jining II). The
terms of the mining rights are 67 years for Baodian, 70 years for Dongtan, 45 years for Nantun, 80 years for Xinglongzhuang and 64 years for Jining II. All such terms commenced on October 14, 1997, the date on which the mining rights permits
were issued. The Annual Fee is fixed for a period of 10 years (the Initial Period) commencing from 1997, after which the Annual Fee will be revised if new national legislation is passed in respect thereof. The Parent Company and we also
entered into a compensation agreement dated October 17, 1997 (the Compensation Agreement) whereby



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the Parent Company has agreed to compensate us in respect of any amounts in excess of the Annual Fee which we may,
following the Initial Period, be required to pay as a result of any such new national legislation. For payment information, see Item 5. Operating and Financial Review and Prospects  F. Contractual Obligations.

Jining III Mining Rights

Pursuant to the Jining III
Coal Mine Acquisition Agreement dated August 4, 2000 entered into between us and the Parent Company, the consideration of the mining right of Jining III coal mine is approximately RMB132.5 million, which shall be paid to the Parent Company in
ten equal annual interest free installments commencing from 2001. During 2005, we paid RMB13.248 million to the Parent Company.

Austar Coal Mine Mining
Rights

We obtained a exploration license for Austar Coal Mine from the NSW Department of Primary Industries on April 5, 2005. In
accordance with the Asset Sale Agreement, we are obligated to pay the vendor AUD4,000,000 upon our successful procurement of exploration license to the new exploration site adjacent to the Austar Coal Mine. We are in the process of obtaining the
exploration license to the new exploration site adjacent to the Austar Coal Mine and expect to complete the process by June 2006.

Zhaolou Coal Mine
Mining Rights

Pursuant to a supplemental agreement dated June 28, 2005 entered between us and the Parent Company, the Parent
Company irrevocably undertook that we shall have the right to acquire the mining rights of Zhaolou coal mine and Wanfu coal mine from the Parent Company within twelve months from the respective dates on which such mining rights are obtained by the
Parent Company for a consideration to be determined based on valuations conducted by independent qualified PRC valuers. Our Parent company is in the process of obtaining the mining rights of Zhaolou Coal Mine and we plan to acquire such mining
rights from the Parent Company within 12 months upon its availability.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in
conjunction with the information set forth in the Financial Statements. The differences between IFRS and U.S. GAAP that would have had an impact on our equity attributable to equity holders of the Company and net income attributable to equity
holders of the Company as of December 31, 2004 and 2005 and net income attributable to equity holders of the Company for the years ended December 31, 2003, 2004 and 2005 are set forth in Note 47 to the Financial Statements.

A. Operating Results

We are engaged in the
underground mining of prime quality, low-sulphur coal from our mines for sale to electric power plants, metallurgical producers and other customers located principally in the economically developed eastern provinces in the PRC and for export to
customers located in East Asia. Our raw coal production was 34.7 million tonnes in 2005, and our total coal sales volume was 32.5 million tonnes in 2005. Domestic coal sales accounted for 62.4%, 70.0% and 73.1% of our total net sales
during 2003, 2004 and 2005, respectively, and export coal sales through export sales agent accounted for 35.4%, 27.9% and 25.5%, respectively, of our total net sales for such periods. We started to operate Yanmei Shipping in 2004.

In 2002 we acquired our local railway transportation network from the Parent Company, and began to provide rail transportation services both for our own
coal sales and for the Parent Company, its subsidiaries and other third parties. In 2005, we transported a total of 20.2 million tonnes of goods, compared to 30.3 million tonnes in 2004.

Sales of the railway transportation services segment consist of two components, namely (i) amount charged to customers for the transportation of
coal purchased on an ex-mine basis, where the customer pays the cost of transportation; and (ii) transportation services provided to third parties for the transport of goods via our railway network. External sales are recorded as our revenues
for the period, and the costs of providing these services are recorded as our cost of transportation services. For a presentation of segment revenues, results, and inter-segment eliminations and segment balance sheet items, see Note 6 to the
Financial Statements.



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Pursuant to the Restructuring, we assumed certain assets and liabilities from the Predecessor, including
Nantun, Xinglongzhuang, Baodian and Dongtan mines, as well as certain other facilities necessary for us to carry out our business. We acquired Jining II mine, Jining III mine, our railway network from the Parent Company in 1998, 2001 and 2002,
respectively. On December 24, 2004, we completed the transfer of all assets of Southland Colliery, which we subsequently renamed as Austar Coal Mine. We acquired 95.67% of equity interest in Heze Nenghua from our Parent Company on
December 7, 2005. Heze Nenghua is responsible for the construction of Zhaolou Coal Mine in the Juye Coal Field.

Overview

In 2005, we produced 34.7 million tonnes of raw coal, representing a 11.5% decrease compared to 2004 and sold 32.5 million tonnes of coal,
representing a 14.5% decrease compared to 2004, among which sales of export coal were 7.3 million tonnes, representing a decrease of 27.6% compared to 2004. Our total net revenue was RMB11,516.9 million in 2005, representing an increase of 8.9%
compared to 2004, while our net income attributable to the equity holders of the Company was RMB2,881.5 million in 2005, representing a decrease of 8.6% compared to 2004. The following table sets forth our sales and sales volumes classified
according to our principal products and services sales:



|                                        |  |                                              |  |               |  |                     |      |               |  |               |  |                     |   |  |               |  |               |  |                     |  
|--------------------------------------- |  | -------------------------------------------- |  | ------------- |  | ------------------- | ---- | ------------- |  | ------------- |  | ------------------- | - |  | ------------- |  | ------------- |  | ------------------- | -
|                                        |  | Historical Sales Data by Product and Service | 
|                                        |  | 2003                                         |  | 2004          |  |                     | 2005 |              
|                                        |  | SalesVolume                                  |  | Net Sales     |  | % of TotalNet Sales |      | SalesVolume   |  | Net Sales     |  | % of TotalNet Sales |   |  | SalesVolume   |  | Net Sales     |  | % of TotalNet Sales |  
|                                        |  | (000 tonnes)                                |  | (RMB million) |  |                     |      | (000 tonnes) |  | (RMB million) |  |                     |   |  | (000 tonnes) |  | (RMB million) |  |                     |  
|Clean Coal                              |  |                                              |  |               |  |                     |      |               |  |               |  |                     |   |  |               |  |               |  |                     |  
|No. 1 Clean Coal                        |  | 513.8                                        |  | 128.2         |  | 1.8                 |      | 631.3         |  | 220.5         |  | 2.1                 |   |  | 773.9         |  | 398.0         |  | 3.5                 |  
|No. 2 Clean Coal                        |  | 6,729.2                                      |  | 1,287.6       |  | 18.5                |      | 6,329.2       |  | 2,013.50      |  | 19.0                |   |  | 5,084.5       |  | 2,499.1       |  | 22.0                |  
|Domestic Sales                          |  | 636.5                                        |  | 151.8         |  | 2.2                 |      | 2,326.7       |  | 805.4         |  | 7.6                 |   |  | 2,981.3       |  | 1,531.4       |  | 13.3                |  
|Export                                  |  | 6,092.7                                      |  | 1,135.8       |  | 16.3                |      | 4,002.5       |  | 1,208.10      |  | 11.4                |   |  | 2,103.2       |  | 967.7         |  | 8.5                 |  
|No.3 Clean Coal                         |  | 11,952.7                                     |  | 2,126.3       |  | 30.6                |      | 11,861.9      |  | 3,484.00      |  | 33.0                |   |  | 11,183.0      |  | 4,143.8       |  | 36.0                |  
|Domestic Sales                          |  | 4,858.3                                      |  | 899.7         |  | 12.9                |      | 6,027.9       |  | 1,800.20      |  | 17.0                |   |  | 6,066.8       |  | 2,191.9       |  | 19.0                |  
|Export                                  |  | 7,094.4                                      |  | 1,226.6       |  | 17.7                |      | 5,834.0       |  | 1,683.80      |  | 15.9                |   |  | 5,116.2       |  | 1,951.9       |  | 17.2                |  
|Lump Coal                               |  | 583.4                                        |  | 130.3         |  | 1.9                 |      | 752.3         |  | 284.3         |  | 2.7                 |   |  | 485.5         |  | 209.9         |  | 1.8                 |  
|Domestic                                |  | 138.8                                        |  | 35.4          |  | 0.5                 |      | 572.7         |  | 228.9         |  | 2.2                 |   |  | 454.0         |  | 197.4         |  | 1.7                 |  
|Export                                  |  | 444.6                                        |  | 94.8          |  | 1.4                 |      | 179.6         |  | 55.4          |  | 0.5                 |   |  | 31.5          |  | 12.5          |  | 0.1                 |  
|Subtotal                                |  | 19,779.1                                     |  | 3,672.4       |  | 52.8                |      | 19,574.7      |  | 6,002.30      |  | 56.8                |   |  | 17,527.0      |  | 7,250.7       |  | 63.8                |  
|Domestic Sales                          |  | 6,147.4                                      |  | 1,215.2       |  | 17.5                |      | 9,558.6       |  | 3,055.00      |  | 28.9                |   |  | 10,276.2      |  | 4,318.7       |  | 38.0                |  
|Export                                  |  | 13,631.7                                     |  | 2,457.2       |  | 35.3                |      | 10,016.1      |  | 2,947.30      |  | 27.9                |   |  | 7,250.8       |  | 2,932.0       |  | 25.8                |  
|Screened Raw Coal                       |  | 13,937.5                                     |  | 2,499.4       |  | 36.0                |      | 14,936.6      |  | 3,867.5       |  | 36.5                |   |  | 10,805.4      |  | 3,478.1       |  | 30.6                |  
|Mixed Coal and Others                   |  | 5,690.9                                      |  | 622.5         |  | 9.0                 |      | 3,492.6       |  | 484.5         |  | 4.6                 |   |  | 4,152.1       |  | 624.7         |  | 5.5                 |  
|Net Coal Sales                          |  | 39,407.5                                     |  | 6,794.3       |  | 97.8                |      | 38,003.9      |  | 10,354.3      |  | 97.9                |   |  | 32,484.5      |  | 11,353.5      |  | 98.6                |  
|Railway Transportation Services Revenue |  |                                             |  | 154.6         |  | 2.2                 |      |              |  | 220.8         |  | 2.1                 |   |  |              |  | 163.4         |  | 1.4                 |  
|                                        |  |                                              |  |               |  |                     |      |               |  |               |  |                     |   |  |               |  |               |  |                     |  
|Total                                   |  | 39,407.5                                     |  | 6,948.9       |  | 100.0               |      | 38,003.9      |  | 10,575.1      |  | 100.0               | % |  | 32,484.5      |  | 11,516.9      |  | 100.0               | %
|                                        |  |                                              |  |               |  |                     |      |               |  |               |  |                     |   |  |               |  |               |  |                     |  

Net coal sales represent the invoiced value of coal sold and is net of returns, discounts, sales
taxes and transportation costs if the invoiced value includes transportation costs to the customers. Sales taxes consist primarily of a resource tax calculated at the rate of RMB2.40 per tonne of the imputed quantity of raw coal sold, which was
increased to RMB3.60 effective from May 1, 2005 and are paid to the local tax bureau.



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The following table sets forth our principal operating revenues, costs and expenses, and such items as
expressed as percentages of total net sales:



|                                                                     |  |         |  |                     |  |          |  |                     |  |          |  |                    
|-------------------------------------------------------------------- |  | ------- |  | ------------------- |  | -------- |  | ------------------- |  | -------- |  | -------------------
|                                                                     |  | 2003    |  | 2004                |  | 2005    
|                                                                     |  | RMB     |  | % of TotalNet Sales |  | RMB      |  | % of TotalNet Sales |  | RMB      |  | % of TotalNet Sales
|Net sales                                                            |  |         |  |                     |  |          |  |                     |  |          |  |                    
|Net sales of coal                                                    |  | 6,794.3 |  | 97.8                |  | 10,354.3 |  | 97.9                |  | 11,353.5 |  | 98.6               
|Railway transportation service revenue                               |  | 154.6   |  | 2.2                 |  | 220.8    |  | 2.1                 |  | 163.4    |  | 1.4                
|Total net sales                                                      |  | 6,948.9 |  | 100.0               |  | 10,575.1 |  | 100.0               |  | 11,516.9 |  | 100.0              
|                                                                     |  |         |  |                     |  |         
|Cost of sales and services provided                                  |  |         |  |                     |  |          |  |                     |  |          |  |                    
|Materials                                                            |  | 899.6   |  | 12.9                |  | 1,088.7  |  | 10.3                |  | 1,147.6  |  | 10.0               
|Wages and employee benefits                                          |  | 863.7   |  | 12.4                |  | 1,022.6  |  | 9.7                 |  | 1,258.3  |  | 10.9               
|Electricity                                                          |  | 278.5   |  | 4.0                 |  | 298.3    |  | 2.8                 |  | 282.5    |  | 2.5                
|Depreciation                                                         |  | 836.1   |  | 12.0                |  | 918.4    |  | 8.7                 |  | 891.6    |  | 7.7                
|Repairs and maintenance                                              |  | 374.9   |  | 5.4                 |  | 455.8    |  | 4.3                 |  | 351.0    |  | 3.0                
|Land subsidence, restoration, rehabilitation and environmental costs |  | 264.2   |  | 3.8                 |  | 323.2    |  | 3.1                 |  | 636.6    |  | 5.5                
|Mining right expenses                                                |  | 19.6    |  | 0.3                 |  | 19.6     |  | 0.2                 |  | 19.6     |  | 0.2                
|Other transportation fee                                             |  | 48.2    |  | 0.7                 |  | 119.7    |  | 1.1                 |  | 98.8     |  | 0.9                
|Others                                                               |  | 170.2   |  | 2.5                 |  | 305.4    |  | 2.8                 |  | 602.6    |  | 5.2                
|Total cost of sales and services provided                            |  | 3,755.0 |  | 54.0                |  | 4,551.7  |  | 43.0                |  | 5,288.7  |  | 45.9               
|                                                                     |  |         |  |                     |  |          |  |                     |  |          |  |                    
|Selling, general and administrative expenses                         |  | 1,264.9 |  | 18.2                |  | 1,479.9  |  | 14.0                |  | 1,918.8  |  | 16.7               
|                                                                     |  |         |  |                     |  |          |  |                     |  |          |  |                    
|Total cost of sales and operating expenses                           |  | 5,019.9 |  | 72.2                |  | 6,031.6  |  | 57.0                |  | 7,207.4  |  | 62.6               
|                                                                     |  |         |  |                     |  |          |  |                     |  |          |  |                    

The discussion and analysis have been based upon financial statements prepared in accordance with
the IFRS, which differs in certain respects from U.S. GAAP. For a further discussion on the differences between IFRS and U.S. GAAP, see Note 47 to our financial statements included elsewhere in this annual report.

Year Ended December 31, 2005 Compared with Year Ended December 31, 2004

Our net sales increased by RMB941.8 million, or 8.9%, to RMB11,516.9 million in 2005 from RMB10,575.1 million in 2004, due primarily the increases of revenue from sales of coal. Net sales of coal increased by RMB999.1
million, or 9.6%, to RMB11,353.5 million in 2005. The increase was primarily due to an increase of average coal sales prices of 28.3%, which resulted in an increase of net sales of coal by RMB2,502.9 million, partially offset by a decrease of coal
sales volume of 14.5%, which resulted in the decrease of net sales of coal by RMB1,503.8 million.

The increase in the average selling
price of our coal was primarily due to improved market conditions which resulted in increase in coal prices in both the domestic and the export markets as well as the increase in net sales price primarily due to the implementation of the Four
Optimizations strategy. Our average sales price per tonne for coal increased 28.3% from RMB272.3 for the year ended 31 December 2004 to RMB349.5 for the year ended 31 December 2005.

In 2005, we produced 34.7 million tonnes of raw coal, representing a 11.5% decrease compared to 2004 and sold 32.5 million tonnes of coal,
representing a 14.5% decrease compared to 2004, primarily due to decrease in our raw coal production. Our domestic sales of coal in 2005 were 25.2 million tonnes, representing an decrease of 9.9% compared to 2004. Our export sales of coal in
2005 were 7.3 million tonnes, representing a decrease of 27.6% compared to 2004. The change in sales structure was primarily due to our timely adjustment of product mix in light of the market needs.

Our net income from railway transportation service was RMB163.4 million, representing a decrease of RMB57.3 million, or 26.0%, from RMB220.8 million in
2004. Such decrease was principally due to the decrease in the sales volume of coal resulting from decreased production volume as well as the decrease in coal deliveries made by our railway network for coal sales where transportation expenses were
charged on ex-mine basis to the customers.

Our cost of sales and services (including railway transportation service) increased by RMB736.9
million, or 16.2%, to RMB5,288.6 million in 2005, as compared to RMB4,551.7 million in 2004. The cost of coal sales was RMB5,184.8 million, representing an increase of RMB722.5 million, or 16.2%, as



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compared to RMB4,462.3 million in 2004, principally due to (i) the increase in commodity prices, (ii) the
increase in employees wages, (iii) the reduction of the rate of export VAT rebate and (iv) the increase in expenditures on safety measures . The unit cost of coal sales was RMB159.6 per tonne of coal in 2005, representing an increase
of RMB42.2, or 36.0%, as compared to RMB117.4 in 2004.

Of the RMB42.2 increase in unit cost of coal sales per tonne of coal we sold in
2005, RMB15.8 was attributable to external factors beyond our control, including (i) an increase of RMB2.6 in unit cost of coal sales resulting from the reduction of export VAT rebate; (ii) an increase of RMB2.1 resulting from the increase
in cost of raw materials; and (iii) an increase of RMB11.1 resulting from the increase in subsidence fees to relocate villages above our coal mines. Of the reminder of the RMB42.2 increase in unit cost of our coal sales in 2005, RMB9.4 was
attributable to increase in employee wages, RMB2.9 was attributable to the increase of expenses as a result of the implementation of measures designed to (i) increase pricing through optimizing our product- and customer-mix; (ii) optimize
transportation and port flow structures to reduce cost of sales; (iii) stragically allocate coal sales to more profitable markets; and (iv) increase product sales to major customers (Four Optimizations), RMB1.2 was attributable
to the increase in safety inputs and RMB14.7 was attributable to increased fixed costs resulting from the decrease in sales volumes by 5.5 million tonnes in 2005 compared to 2004.

Our selling, general and administrative expenses were RMB1,918.8 million in 2005, representing an increase of RMB438.9 million, or 29.7%, from RMB1,479.9
million in 2004. This increase was primarily due to (i) an increase in retirement benefits scheme contributions of RMB114.2 million; (ii) an increase in employee wages and benefits of RMB114.3 million; (iii) an increase in start-up
cost incurred by Yancoal Australia Pty Ltd. of RMB121.8 million; and (iv) an increase of foreign exchange loss of RMB98.7 million.

Our other operating income decreased by RMB30.7 million, or 18.5%, to RMB135.0 million in 2005 from RMB165.7 million in 2004. The decrease was primarily due to a decrease in interest income of RMB16.1 million and a decrease in the release
of negative goodwill of RMB 27.6 million as compared to 2004 resulting from the revised IFRS adopted in 2005. For the information about the revised IFRS, see -G-Critical Accounting Policies.

Our interest expenses decreased by RMB11.3 million, or 31.5%, to RMB24.6 million in 2005 from RMB35.9 million in 2004. The decrease was primarily due to
the partial repayment of bank loans by the Company.

As a result, our income before taxes decreased by RMB253.3 million, or 5.4%, to
RMB4,420.0 million in 2005 from RMB4,673.3 million in 2004.

Our income tax expenses increased by RMB19.2 million, or 1.3%, to RMB1,538.0
million in 2005 from RMB1,518.8 million primarily due to an under-provision of income tax from prior years.

Our net income attributable to
equity holders of the Company decreased by RMB226.7 million, or 7.2%, to RMB2,927.6 million in 2005 from RMB3,154.3 million in 2004.

Year Ended
December 31, 2004 Compared with Year Ended December 31, 2003

Our net sales increased by RMB3,626.2 million, or 52.2%, to
RMB10,575.1 million in 2004 from RMB6,948.9 million in 2003, due primarily to the increased revenue from sales of coal. Net sales of coal increased by RMB3,560.0 million, or 52.4%, to RMB10,354.3 million in 2004. The increase was primarily due to an
increase of average selling price of coal by 57.9%, which resulted in an increase of net sales of coal by RMB3,796.6 million, partially offset by a decrease of coal sales volume of 3.6%, which resulted in the decrease of net sales of coal by
RMB242.1 million.

The increase in the average selling price of our coal was primarily due to improved market conditions which resulted in
increase in coal prices in both the domestic and the export markets as well as the increase in net sales price primarily due to the implementation of the Four Optimizations strategy. Our average sales price per tonne for coal increased
57.9% from RMB172.4 for the year ended 31 December 2003 to RMB272.3 for the year ended 31 December 2004.

In 2004, we produced
39.1 million tonnes of raw coal, representing a 9.5% decrease compared to 2003 and sold 38.0 million tonnes of coal, representing a 3.6% decrease compared to 2003, primarily due to decrease in our raw coal production resulted from the
adjustment of coal mine production system layout and the frequent assembly and disasssembly of workface in 2004 for the purpose of stablizing the coal output in future. Our domestic sales of coal in 2004 were 28.0 million tonnes, representing
an increase of 8.6%



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compared to 2003. Our export sales of coal in 2004 were 10.0 million tonnes, representing a decrease of 26.5%
compared to 2003. The change in sales structure was primarily due to our timely adjustment of product mix in light of the market needs.

Our net income from railway transportation service was RMB220.8 million, representing an increase of RMB66.2 million, or 42.8%, from RMB154.6 million in 2003. Such increase was principally due to the increase in the volume of coal
deliveries made by our railway network for coal sales transactions where transportation expenses were charged on ex-mine basis to the customers.

Our cost of sales and services increased by RMB796.7 million, or 21.2%, to RMB4,551.7 million in 2004, as compared to RMB3,755.0 million in 2003. The cost of coal sales was RMB4,462.3 million, representing an increase of RMB774.9 million,
or 21.0%, as compared to RMB3,687.4 million in 2003, principally due to (i) the increase in commodity prices, (ii) the increase in employees wages, (iii) the reduction of the rate of export tax rebate and (iv) the increase
in safety inputs. The unit cost of coal sales was RMB117.4 per tonne of coal we sold in 2004, representing an increase of RMB23.8, or 25.4%, as compared to RMB93.6 in 2003.

Of the RMB23.8 increase in unit cost of coal sales per tonne of coal we sold in 2004, RMB8.1 was attributable to external factors beyond our control,
namely, reduction of export tax rebate and increase in cost of raw materials, RMB4.9 was attributable to the increase of safety inputs, RMB4.1 was attributable to the increase in employee wages resulting from our payment of employee performance
bonus, RMB4.1 was attributable to the increase of expenses as a result of the implementation of our Four Optimizations measures, and RMB2.8 was attributable to the increase in unit fixed costs resulting from the decrease of
141 million tonnes coal sales in 2004. Our cost control measures have to a certain extent off-set portion of the overall increase in unit cost of coal sales.

Our selling, general and administrative expenses were RMB1,479.9 million in 2004, increased by RMB215.0 million, or 17.0%, from RMB1,264.9 million in 2003. This increase was mainly due to (i) an increase in
retirement benefits scheme contributions of RMB59.1 million; (ii) an increase in employees wages and employees benefits of RMB40.0 million; (iii) an increase in resources compensation fees of RMB26.0 million; and (iv) a
loss of RMB104.6 million from the sales of properties, plant and equipment.

Our other operating income increased by RMB59.9 million, or
56.6%, to RMB165.7 million in 2004 from RMB105.8 million in 2003. The increase was mainly due to the increase of interest on bank deposits.

Our interest expenses decreased by RMB24.0 million, or 40.1%, to RMB36.0 million in 2004 from RMB60.0 million in 2003. The decrease was principally due to the partial repayment of bank loans in the principal amount of RMB200.0 million.

As a result, our income before taxes increased by RMB2,698.4 million, or 136.6%, to RMB4,673.3 million in 2004 from RMB1,974.9 million in
2003.

Our income tax expenses increased by RMB931.1 million, or 158.4%, to RMB1,518.8 million in 2004 from RMB587.7 million in 2003
primarily due to the increase in income before tax and a deferred tax charge.

Our net income attributable to equity holders of the Company
increased by RMB1,767.6 million, or 127.5%, to RMB3,154.3 million in 2004 from RMB1,386.7 million in 2003.

B. Liquidity and Capital Resources

In 2005, our principal source of cash was cash flow from operations. Principal uses of cash in 2005 were operating working capital,
purchase of property, plants and equipment, repayment of shareholders dividends and increase in term deposits.

As at
December 31, 2005, the balance of bills and accounts receivable were RMB2,224.8 million, representing an increase of RMB1,001.0 million, or 81.8%, from RMB1,223.8 million as at December 31, 2004. Bills receivable increased by RMB1,202.9
million, or 135.2%, to RMB2,092.9 million from RMB890.0 million as at December 31, 2004, principally due to the increase in bank bills received from certain major customers in connection with sales of coal. We accepted a higher percentage of
bank bills from certain major and credit-worthy customers in part to facilitate sales in light of the rising coal prices. Accounts receivable decreased by RMB201.8 million, or 60.5%, to RMB131.9 million from RMB333.7 million as at December 31,
2004, principally due to the reduction of new accounts receivable and improvement of our collection of sales proceeds represented by accounts receivable.



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An analysis of the allowance for doubtful debts for bills and accounts receivable for 2003, 2004 and 2005
is as follows:



|                                           |  |         |   |  |         |  |        
|------------------------------------------ |  | ------- | - |  | ------- |  | -------
|                                           |  | 2003    |   |  | 2004    |  | 2005   
|                                           |  | RMB000 |   |  | RMB000 |  | RMB000
|Balance at January 1                       |  | 76,083  |   |  | 100,627 |  | 126,700
|Additional allowance charged to income     |  | 71,125  |   |  | 26,073  |  |       
|Direct write-off charged against allowance |  | (46,581 | ) |  |        |  |       
|                                           |  |         |   |  |         |  |        
|Balance at December 31                     |  | 100,627 |   |  | 126,700 |  | 126,700
|                                           |  |         |   |  |         |  |        

Our inventories decreased by RMB14.9 million, or 3.1%, to RMB470.5 million as at December 31,
2005, from RMB485.4 million as at December 31, 2004.

Other loan receivable decreased by RMB210.0 million, or 24.7%, to RMB640.0
million as at December 31, 2005, from RMB850.0 million as to December 31, 2004, principally due to the collection of outstanding entrusted bank loans amounting to RMB160.0 million from Shandong Longxiang Industry Company Limited and
RMB50.0 million from Shandong Cement Company Limited.

Prepayment and other current assets increased by RMB14.1 million, or 7.5%, to
RMB202.4 million as at December 31, 2005, from RMB188.3 million as at December 31, 2004. The increase was primarily due to the increase in advances to suppliers, prepayment of freight and related transportation charges.

As at December 31, 2005, total bills and bills payable increased by RMB19.4 million, or 4.1%, to RMB497.7 million from RMB478.3 million as at
December 31, 2004.

Other accounts payable and provisions increased by RMB238.3 million, or 17.8%, to RMB1,575.9 million as at
December 31, 2005 from RMB1,337.6 million as at December 31, 2004, principally due to increases of accounts receivable in advance, wages payable, fund payable for the purchase of properties, machinery and equipment and raw materials, and
accounts payable to the Parent Company.

Long-term liabilities decreased by RMB86.1 million, or 32.6%, to RMB178.1 million as at
December 31, 2005 from RMB264.2 million as at December 31, 2004. This was principally due to the repayment of RMB200.0 million in long-term bank loans, partially offset by the increase in deferred tax liabilities accrued from the
provisioning of land subsidence fees and safety production expenses of RMB123.2 million.

Our principal capital expenditures have been for
the acquisition of property, plant and equipment. During 2003, 2004 and 2005, our total capital expenditures were RMB1,328.1 million, RMB1,057.5 million and RMB1,303.7 million, respectively. Our capital expenditure for the purchase and construction
of property, machinery and equipment was RMB830.2 million and RMB1,290.5 million in 2004 and 2005, respectively. According to the Jining III Acquisition Agreement, we have paid the Parent Company RMB13.2 million for mining right during this
reporting period. For information about our contractual commitments for capital expenditures, see   F. Contractual Obligations.

Equity attributable to equity holders of the Company increased by RMB2,094.8 million, or 13.5%, to RMB17,618.6 million at December 31, 2005 compared to December 31, 2004, principally due to increase in profit realized from
operating activities. We paid dividends of RMB298.5 million, RMB470.7 million and RMB799.2 million in 2003, 2004 and 2005, respectively. As at December 31, 2005, our debt to equity ratio was 1.3%, which was calculated based on the equity
attributable to the equity holders of the Company and total amount of bank loan amounting to RMB17,618.6 million and RMB231.8 million, respectively.

Net cash provided by operating activities decreased by RMB479.1 million, or 10.8% from RMB4,418.4 million in 2004 to RMB3,939.3 million in 2005. The decrease was mainly due to the decrease of our operating income,
increase in bills and accounts receivable from certain major and credit-worthy customers through extending the payment period for purpose of facilitating sales, increase in advances to suppliers and prepayments for freight and related charges.



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Net cash used in investing activities decreased from RMB2,300.8 million in 2004 to RMB2,262.5 million in
2005. Net cash used in investing activities primarily reflected (i) an increase in term deposits of RMB1,326.3 million in 2005, (ii) an increase in capital expenditures for purchase of property, plant and equipment of approximately
RMB572.4 million from RMB743.0 million in 2004 to RMB1,315.4 million in 2005, and (iii) increase in restricted cash of RMB5.3 million in 2005. The decrease in net cash used in investing activities was partially offset by decrease in other loans
receivable of RMB210.0 million, increased bank balance and cash resulting from acquisition of Heze Nenghua of RMB170.2 million and proceeds from disposal of property, plant and equipment of RMB4.4 million.

Net cash used in financing activities in 2005 was RMB1,009.3 million, reflecting primarily (i) the payment of dividends of RMB799.2 million and
(ii) repayment of bank borrowings of RMB200.0 million. Net cash provided by financing activities was RMB1,075.4 million in 2004, reflecting primarily the net proceeds of RMB1,756.9 million from the H shares placement, partially offset by the
payment of dividends of RMB470.0 million.

Our estimated capital expenditure for year 2006 is RMB4,817 million which mainly consists of :
(1) approximately RMB1,262 million for the purchase of property, machinery and equipment for the six operating coal mines and railway assets; (2) approximately RMB3,555 million for the development of external projects, including:
approximately RMB1,513 million in the reconstruction and upgrade of Austar Coal Mine in Australia; approximately RMB1,352 million in the investment of 600,000 tonnes methanol project and a new coal mine project in Shanxi Province; and approximately
RMB690 million in the investment of Heze Zhaolou Coal Mine. The capital resource for the above capital expenditure is mainly from our cash in hand.

We believe that cash on hand, cash from operations, available banking facilities and other sources of financing will be sufficient for our operational requirements and capital expenditure need.

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

We have a team of specialized technicians which is responsible for research and development of new mining and processing technology. Our expenditures for research and development were RMB46.1 million, RMB24.9 million and RMB45.0 million, in
the years ended December 31, 2003, 2004 and 2005, respectively, accounting for 0.7%, 0.2% and 0.4%, respectively, of our total net sales for such periods. In addition to our own research and development program, we have also established
long-term cooperative relationships with a number of research institutes such as the China Coal Science Research Institution, Coal Mine Design Institution, a number of coal machinery and equipment manufacturers and a number of educational
institutions to conduct special research projects.

Our research and development efforts have contributed to increases in production in
recent years. The Predecessor began to use the longwall caving mining method in 1992. Thereafter, our research and development personnel concentrated on modifying such method, taking into account the special geological conditions of our mines, in
order to maximize our production. In addition, 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 costs for tunneling and supports;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | minimize the number of coal pillars required to support the mining areas, enabling the extraction of a greater proportion of coal;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | improve the roof support and auxiliary transportation systems to reduce costs; and
| | - |  | ----------------------------------------------------------------------------------



| |  |  | complete the two national projects regarding the research on equipment coordination and technology for 6Mt/a complex-mechanized top coal caving workface and the research
on high-efficient intensive complex-mechanized top coal caving technology and its key equipment to successfully develop the two-pillar hydraulic shield support for top coal caving.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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We are one of the worlds leading suppliers of coal products utilizing longwall caving extracting
technology as the principal mining method. The longwall caving extracting technology is patented in the PRC and Australia. The Parent Company granted DBT an exclusive license to develop the longwall caving extracting technology in Australia and
South Africa. We believe production costs of coal products can be reduced by utilizing longwall extracting technology.

Upgrading and
improving longwall caving extracting technology and equipment as well as mining methods for medium and thick coal seam are our principal business strategies. With regard to upgrading longwall caving extracting technology, we focus on further
improving relevant existing technology and replacing outdated equipment. We are currently focusing on the research and development of the complete set of equipment and technology for full-automatic complex-mechanized top coal caving workface and the
complete set of equipment and technology for fast tunneling of coal headings in order to further strengthen our competitive advantage in core technologies.

D. Trend Information

The domestic and export demand for coal in 2006 is expected to remain stable.

The domestic demand is expected to remain in equilibrium with a shortage of coal supplies in certain regions in China, with respect to certain type of
coal. As the Chinese economy continues to grow in 2006, industries with substantial coal consumption requirements such as power generation and metallurgical industries are expected to increase coal consumption. Although newly established coal miners
and imported coal will contribute to increase in supplies of coal, domestic consumption of coal is expected to exceed domestic supply of coal due to the PRC governments policy to shut down small coal miners which are not operated in compliance
with relevant laws and regulations. The demand for railway transportation services is expected to increase and we may encounter insufficient railway transport capacity or rail cars. However, increased railway transportation capacity is expected to
alleviate such insufficiency. The Chinese governments policy encouraging development of large coal companies and the government-driven initiative to implement a price-linking mechanism between the price for electricity and coal will facilitate
the long term development of the coal industry and improve the competitiveness of the large coal companies.

The international demand for
coal in 2006 is expected to be strong. As the economy continues to grow in the U.S., Japan and other countries in Asia, there is an increased demand for energy generation resources such coal. Countries in the Asia Pacific region are expected to
increase their import of coal by more than 3% in 2006, which will be higher than the rate of growth of coal imports in other countries around the world. The export of coal from China is expected to decrease due to the strong domestic demand that
causes reduced export quota set by the PRC government, that from Indonesia is expected to increase and that from Australia is expected to remain at the same level. The supply of coal in the East Asian market is expected to increase in 2006. The
international oil prices and the coal prices in Europe and South Africa are expected to remain high. Increased supply and demand of coal in Asia is expected to stabilize coal prices in 2006. On April 20, 2006, the Australian Barlow Jonker Coal
spot price was US$52.9 per tonne, which increased by 39.4% compared to the lowest price of US$37.95 per tonne in 2005. The contract price for coal in 2006 is expected to be higher than the spot price for coal.

The average coal sales prices is expected to decrease in 2006 compared to that of 2005. We are in the process of negotiations for domestic and export
coal sales contracts for 2006. It is expected that the contract price of domestic power coal will increase and the domestic contract prices of other coal sales are expected to remain stable. However, export coal price is expected to decrease and the
amount of price decrease in semi-soft coking coal will be greater than that of steam coal. It is expected that our contract price of export coal will be higher than the current spot price.

E. Off-balance Sheet Arrangements

As of
December 31, 2005, 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.



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F. Contractual Obligations

The following table summarizes our contractual obligations and commercial commitments at December 31, 2005:



|                                                                            |  |                        |  |                  |  |           |  |           |  |                  
|--------------------------------------------------------------------------- |  | ---------------------- |  | ---------------- |  | --------- |  | --------- |  | -----------------
|                                                                            |  | Payments due by period
|                                                                            |  | Total                  |  | Less than 1 Year |  | 1-3 years |  | 3-5 years |  | More than 5 years
|                                                                            |  | RMB000                |  | RMB000          |  | RMB000   |  | RMB000   |  | RMB000          
|Contractual Obligations                                                     |  |                        |  |                  |  |           |  |           |  |                  
|Unsecured bank borrowings                                                   |  | 200,000                |  | 200,000          |  |          |  |          |  |                 
|Capital commitments for the acquisition of property, plant and equipment(2) |  | 920,907                |  | 920,907          |  |          |  |          |  |                 
|Capital commitments for the development of new coal mines                   |  | 1,900,000              |  | 1,900,000        |  |          |  |          |  |                 
|                                                                            |  |                        |  |                  |  |           |  |           |  |                  
|Amounts due to Parent Company and its subsidiaries                          |  | 540,081                |  | 508,254          |  | 16,870    |  | 14,957    |  |                 
|                                                                            |  |                        |  |                  |  |           |  |           |  |                  
|Total                                                                       |  | 3,560,988              |  | 3,529,161        |  | 16,870    |  | 14,957    |  |                 
|                                                                            |  |                        |  |                  |  |           |  |           |  |                  

Acquisition of Jining III

We acquired Jining III on January 1, 2001 pursuant to the Jining III Acquisition Agreement entered into between the Parent Company and us on August 4, 2000. Pursuant to the Jining III Acquisition Agreement,
we agreed to pay approximately RMB132.5 million as total consideration for the mining rights associated with Jining III. This amount is to be paid to the Parent Company in 10 equal annual interest free installments commenced in 2001. As at
December 31, 2005 we have paid total of RMB66.2 million to the Parent Company for mining rights to Jining III.

Loan Agreement

We entered into a long-term loan agreement with the Bank of China on December 3, 2001 and borrowed a total of RMB1.2 billion from the Bank of China
on January 4, 2002. The initial interest rate of the loans was 6.21% per annum, subject to adjustment in accordance with statutory interest rate or changes by the State in the method of calculating interest during the term of the loan
agreement. The interest rate of the loans was adjusted to 5.76% first in 2003 and then to 6.12% in 2004. The loan is repayable in six annual installments of RMB200.0 million each over a period of 96 months, commencing August 2004. Interest is
payable on a quarterly basis. We made a partial repayment of RMB600.0 million in June 2003. According to the terms of the loan agreement, the balance of the loan is repayable in three annual installments of RMB200 million, i.e. on August 25, of
each year beginning 2004 to 2006.

Mining Rights

Pursuant to the Mining Rights Agreement dated October 17, 1997, we have agreed to pay to the Parent Company an annual fee (Annual Fee) of approximately RMB13.0 million as compensation for the Parent
Companys agreement to relinquish the mining rights associated with our mines (other than Jining III). The terms of the mining rights are 67 years for Baodian, 70 years for Dongtan, 45 years for Nantun, 80 years for Xinglongzhuang and 64 years
for Jining II. All such terms commenced on October 14, 1997, the date on which the mining rights permits were issued. It has been agreed that the Annual Fee will be fixed for a period of ten years (the Initial Period), after which
the Annual Fee will be revised if new national legislation is passed in respect thereof. The Parent Company and we have also entered into the Compensation Agreement on October 17, 1997 whereby the Parent Company has agreed that, following the
Initial Period, if we request a re-calculation of the amount of Annual Fee payable, the parties shall engage a qualified asset appraisal agency to appraise the value of the relevant mining rights and submit the appraised value to the relevant
government authorities for verification and confirmation, before making any adjustment to the Annual Fee.

We entered into the Asset Sale
Agreement with the receivers and managers and the liquidators of Southland Coal Pty Limited in October 2004, pursuant to which we acquired the entire assets of Southland



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Colliery previously owned by Southland Coal Pty Limited in liquidation. For more details, please see  Item 4  Information of the Company
 History and Development of the Company and Item 4  Information of the Company  D. Property, Plants and Equipment.

G. Critical Accounting Policies

We prepare our consolidated financial statements in accordance with International Financial
Reporting Standards. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to impairment, inventories, allowance for doubtful debts,
income taxes, land subsidence, restoration, rehabilitation and environmental costs, and depreciation of mining structure. We base our estimates and judgments on historical experience and on various other factors that we believe are reasonable.
Actual results may differ from these estimates.

The following critical accounting policies affect the more significant judgments and
estimates used in the preparation of our consolidated financial statements.

Goodwill

Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over our interest in the fair value of the
identifiable assets, liabilities and contingent liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognized as an asset and is subsequently measured at cost less any accumulated impairment losses. Any impairment is
recognized immediately in income statement and is not subsequently reversed.

For previously capitalized goodwill arising on acquisitions
after January 1, 2001, we have 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.

For the purposes of impairment testing, goodwill is allocated to each of our cash-generating units expected to benefit from
the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually and whenever 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 first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each
asset in the unit.

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, 2005, the carrying amount of goodwill is RMB153,037,000.

Goodwill arising on the acquisition of businesses or
subsidiaries is presented separately in the balance sheet.

On disposal of a business or subsidiary, the attributable amount of goodwill is
included in the determination of the gain or loss on disposal.

Through December 31, 2005, we recorded a RMB153.0 million goodwill
resulting from the acquisition of Heze, Jining II, Yanmei Shipping and Railway Assets.

Impairment other than goodwill

At each balance sheet date, we review the carrying amounts of tangible and intangible assets to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of
an individual asset, we estimate the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset
may be impaired.



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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 losses are recognized as an expense immediately.

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 so 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 income immediately.

At December 31, 2005, we have not recorded an impairment charge for our assets.

Income taxes

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 net profit as reported in the 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. Our liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is 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 negative 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, except where we are 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.

Deferred tax is calculated at the tax rates that are
expected to apply in the period when the liability is settled or the asset realized. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax
is also dealt with in equity.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation
authority and we intend to settle its current tax assets and liabilities on a net basis.

Through December 31, 2005, we have
recognized deferred tax liabilities for the tax consequence of temporary differences on the additional provision for land subsidence, restoration, rehabilitation and environmental costs as management believes that its realization is probable. A
change in managements belief resulting from anticipated levels of profitability would result in adjustment to the amount of deferred tax assets recognized and further impact our earnings in the year this change occurs. We have also recognized
the deferred taxation for the tax effect on the provision for work safety costs in 2005.

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, we may relocate inhabitants from the land above the underground mining sites prior to mining those sites or we may compensate the inhabitants for



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losses or damages from land subsidence after the underground sites have been mined. We 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.

Depreciation of mining structure

The mining structure includes the main and auxiliary mine shafts and underground tunnels.
Depreciation is provided to write off the cost of the mining structure using the units of production method based on the estimated production volume for which the structure was designed. Production volumes over the lives of these assets which differ
from managements estimates will impact future operating results.

For a detailed discussion of critical accounting policies, see Note
4 to our Financial Statements.

Estimated impairment on trade receivables

We regularly review the recoverability and age of the trade receivables. Impairment on trade receivables is made based on the estimation of the future
cash flow discounted at an effective interest rate to calculate the present value.

Mining Rights

Mining rights are amortized on a straight line basis over the shorter of the contractual period and their useful lives estimated based on the total proven
and probable reserves of coal mine. We exercise our judgment in estimating the total proven and probable reserves of coal mine.

Recent Changes in
Accounting Pronouncements

In 2005, the International Accounting Standards Board issued a number of new or revised IFRS which are
effective for accounting periods beginning on or after January 1, 2005. We have adopted these new IFRS in the financial statements for the year ended December 31, 2005.

We have considered these new IFRS and identified a number of these new IFRS that may have a material effect on how the results of our operations and
financial position are prepared and presented as described below:



| |  |  | goodwill (IFRS 3); and
| | - |  | ----------------------



| |  |  | excess of acquirers interest in the net fair value of acquirees identifiable assets, liabilities and contingent liabilities over cost of acquisition (previously known as
negative goodwill) (IFRS 3);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The impact of these changes in accounting policies is discussed in detail below. The
impact on basic earnings per share is disclosed in note 16 to the financial statements included in Item 18.

At the date of
authorization of these financial statements, the following standards and interpretations were in issue but not yet effective:



|                            |  |                                                                                                             
|--------------------------- |  | ------------------------------------------------------------------------------------------------------------
|IAS 1 (Amendment)           |  | Presentation of Financial Statements Added disclosures about an entitys capital1                           
|IAS 19 (Amendment)          |  | Employee Benefits2                                                                                          
|IAS 39 (Amendment)          |  | Financial Instruments: Recognition and Measurement Amendment for hedges of forecast intragroup transactions2
|IAS 39 (Amendment)          |  | Financial Instruments: Recognition and Measurement Amendment for fair value option2                         
|IAS 39 (Amendment) & IFRS 4 |  | Financial Instruments: Recognition and Measurement Amendment for financial guarantee contracts2             



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|        |  |                                                                                                         
|------- |  | --------------------------------------------------------------------------------------------------------
|IFRS 6  |  | Exploration for and Evaluation of Mineral Assets2                                                       
|IFRS 7  |  | Financial Instruments: Disclosures1                                                                     
|IFRIC 4 |  | Determining whether an Arrangement Contains a Lease2                                                    
|IFRIC 5 |  | Rights to Interests Arising from Decommissing, Restoration and Environmental Rehabilitation Funds2      
|IFRIC 6 |  | Liabilities arising from Participating in a Specific Market  Waste Electrical and Electronic Equipment3
|IFRIC 7 |  | Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies4      
|IFRIC 8 |  | Scope of IFRS 25                                                                                        
|IFRIC 9 |  | Reassessment of Embedded Derivatives6                                                                   

---

|1 | Effective for annual periods beginning on or after January 1, 2007.
|- | -------------------------------------------------------------------

|2 | Effective for annual periods beginning on or after January 1, 2006.
|- | -------------------------------------------------------------------

|3 | Effective for annual periods beginning on or after December 1, 2005.
|- | --------------------------------------------------------------------

|4 | Effective for annual periods beginning on or after March 1, 2006.
|- | -----------------------------------------------------------------

|5 | Effective for annual periods beginning on or after May 1, 2006.
|- | ---------------------------------------------------------------

|6 | Effective for annual periods beginning on or after June 1, 2006.
|- | ----------------------------------------------------------------

We are evaluating the impact of the adoption of these standards and interpretations but have not yet determined the effect on the adoption on our financial position and results of operations.

IFRS 3 Business Combinations

Goodwill

IFRS 3 Business Combinations has been adopted for business combinations for which the agreement date
is on or after March 31, 2004. The option of limited retrospective application of the Standard has not been taken up, thus avoiding the need to restate past business combinations. The principal impact of the new standard on the accounting for
that transaction has been the recognition of contingent liabilities that would not have been recognized separately from goodwill under the predecessor Standard, IAS 22. The recognition of these liabilities has had no material impact on the results
for the year.

After initial recognition, IFRS 3 requires goodwill acquired in a business combination to be carried at cost less any
accumulated impairment losses. Under IAS 36 Impairment of Assets (as revised in 2004), impairment reviews are required annually, or more frequently if there are indications that goodwill might be impaired. IFRS 3 prohibits the
amortization of goodwill. Previously, under IAS 22, we carried goodwill in its balance sheet at cost less accumulated amortization and accumulated impairment losses. Amortization was charged over the estimated useful life of the goodwill, subject to
the rebuttable presumption that the maximum useful life of goodwill was 20 years.

In accordance with the transitional rules of IFRS 3, we
have applied the revised accounting policy for goodwill prospectively from the beginning of its first annual period beginning on or after March 31, 2004, i.e. January 1, 2005, to goodwill acquired in business combinations for which the
agreement date was before March 31, 2004. Therefore, from January 1, 2005, we have discontinued amortizing such goodwill and has tested the goodwill for impairment in accordance with IAS 36. At January 1, 2005, the carrying amount of
amortization accumulated before that date of RMB29.3 million has been eliminated, with a corresponding decrease in the cost of goodwill.

Because the revised accounting policy has been applied prospectively, the change has had no impact on amounts reported for the year ended December 31, 2004 or prior periods. No amortization has been charged in the current year. Under
the previous accounting policy, RMB15.8 million would have been charged to income statement during the year ended December 31, 2005, leaving a balance of goodwill of RMB137.2 million at December 31, 2005.

No impairment loss has been recognized in the current period in accordance with IAS 36.

Excess of acquirers interest in the net fair value of acquirees identifiable assets, liabilities and contingent liabilities over
cost (previously known as negative goodwill)



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IFRS 3 requires that, after reassessment, any excess of the acquirers interest in the net fair
value of the acquirees identifiable assets, liabilities and contingent liabilities over the cost of the business combination should be recognized immediately in profit or loss. IFRS 3 prohibits the recognition of negative goodwill in the
balance sheet.

Previously, under IAS 22 (superceded by IFRS 3), negative goodwill was released to income over a number of accounting
periods, based on an analysis of the circumstances from which the balance resulted. Negative goodwill was reported as a deduction from assets in the balance sheet.

In accordance with the transitional rules of IFRS 3, the revised accounting policy has been applied prospectively from January 1, 2005. Therefore, the change has had no impact on amounts reported for the year
ended December 31, 2004 or prior periods.

The carrying amount of negative goodwill at January 1, 2005 has been derecognized at
the transition date. Therefore, an adjustment of RMB27.6 million is made to opening retained earnings and negative goodwill at January 1, 2005.

Under the previous accounting policy, RMB27.6 million of negative goodwill would have been released to income during the year ended December 31, 2005, leaving zero balance of negative goodwill at
December 31, 2005. Therefore, the impact of the change in accounting policy in 2005 is a reduction in other operating income of RMB27.6 million and no financial impact on net assets at December 31, 2005.

Recent Pronouncements in the US GAAP

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123 (revised 2004) (SFAS No. 123-R). Share-Based
Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123-R supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. Generally, the approach in
SFAS No. 123-R is similar to the approach described in SFAS No. 123. However, SFAS No. 123-R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on
the grant-date fair values. Pro forma disclosure previously permitted under SFAS No. 123 is no longer an alternative. The new standard, as recently amended, will be effective for the Group in the annual reporting period beginning after
January 1, 2006. Under SFAS No. 123-R, the Group could elect the modified prospective or modified retroactive option for transition on the adoption of this new standard. Under the modified retroactive option, prior periods are adjusted on
a basis consistent with the pro forma disclosures previously required for those periods by SFAS No. 123. Under the modified prospective option, compensation expense for all unvested stock options must be recognized on or after the required
effective date based on the grant-date fair value of those stock options. The Group does not issue stock options and therefore the adoption of SFAS No. 123-R did not have material impact on the Groups financial statements.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs  an amendment of ARB No. 43, Chapter 4. SFAS No. 151
clarifies the accounting that requires abnormal amounts of idle facility expenses, freight, handling costs, and spoilage costs to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective for inventory costs incurred on or after July 1, 2005. The Group adopted SFAS No.151 on July 1, 2005 and it did not have a
material effect on the Groups financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets  an amendment of APB Opinion No. 29 (SFAS 153), which amends Accounting Principles Board Opinion No. 29, Accounting for Nonmonetary Transactions to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for nonmonetary assets exchanges occurring in
fiscal periods beginning after June 15, 2005. The Group does not anticipate that the adoption of this statement will have a material effect on the Groups financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (SFAS 154) which replaces Accounting
Principles Board Opinions No. 20 Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements  An Amendment of APB Opinion No. 28. SFAS 154 provides guidance on the
accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a
correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Group does not anticipate that the adoption of this statement will have a material effect
on the Groups financial position or results of operations.



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Reconciliation and Summary of Differences between IFRS and U.S. GAAP

The consolidated financial statements are prepared in accordance with IFRS, which differ in certain significant respects from US GAAP. The significant
differences relate principally to the accounting for the acquisitions of Jining II, Jining III and Railway Assets, the cost bases of property, plant and equipment and land use rights and related adjustments to deferred taxation.

Under IFRS, the acquisitions of Jining II, Jining III and the Railway Assets have been accounted for using the purchase method which accounts for the
assets and liabilities of Jining II, Jining III and the Railway Assets at their fair value at the date of acquisition. Any excess of the purchase consideration over the fair value of the net assets acquired is capitalized as goodwill. Prior to
January 1, 2005, such goodwill was amortized over a period of ten to twenty years. Subsequent to January 1, 2005, such goodwill is tested for impairment at least annually. Prior to January 1, 2005, any excess of the fair value of the
net assets acquired over the purchase consideration is recorded as negative goodwill, which was presented as a deduction from the assets of the Group in the consolidated balance sheet. Such negative goodwill was released to the statement of income
on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets. The carrying amount of negative goodwill has been de-recognized and adjusted to the opening retained earnings at
January 1, 2005.

Under US GAAP, as the Group, Jining II, Jining III, the Railway Assets and Heze Nenghua are entities under the
common control of the Parent Company, the assets and liabilities of Jining II, Jining III, the Railway Assets and Heze Nenghua are required to be included in the consolidated balance sheet of the Group at historical cost. The difference between the
historical cost of the assets and liabilities of Jining II, Jining III, the Railway Assets and Heze Nenghua acquired and the purchase price paid is recorded as an adjustment to shareholders equity.

In applying the pooling of interest method, the financial statement items of the combining enterprises for the period in which the combination occurs and
for any comparative periods disclosed should be included in the financial statements of the combined enterprises as if they had been combined from the beginning of the earliest period presented. The effect of accounting for the acquisition of Heze
Nenghua using the pooling of interest method on the net income under US GAAP for the year ended December 31, 2004 and 2003 is as follows:



|                               |  |                         |   |  |          
|------------------------------ |  | ----------------------- | - |  | ---------
|                               |  | Year ended December 31,
|                               |  | 2004                    |   |  | 2003     
|                               |  | RMB000                 |   |  | RMB000  
|Net income                     |  |                         |   |  |          
|As previously reported         |  | 3,272,478               |   |  | 1,499,249
|Pooling of interest adjustment |  |                         |   |  |          
|Net loss from Heze Nenghua     |  | (8,586                  | ) |  |         
|                               |  |                         |   |  |          
|As restated                    |  | 3,263,892               |   |  | 1,499,249
|                               |  |                         |   |  |          

Under IFRS, the mining rights of Jining III are stated at purchase consideration less
amortization. Mining rights are amortized on a straight line basis over twenty years, being the useful life estimated based on the total proven and probable reserves of the coal mine. Under US GAAP, as both the Group and Jining III are entities
under the common control of the Parent Company, the mining rights have to be restated at nil cost and no amortization on mining rights will be recognized. However, a deferred tax asset relating to the capitalization of mining rights is required to
be recognized under US GAAP as a higher tax base resulting from the capitalization is utilized for PRC tax purposes.

Under IFRS,
property, plant and equipment and prepaid lease payments have been stated based on their respective fair values at the date of acquisition even for cases involving transaction between entities under common control. The fair value amount becomes the
new cost basis of the assets of the Company formed from the reorganization and depreciation is based on such new basis. Under US GAAP, when accounting for a transfer of assets or exchange of shares between entities under common control, the
entity



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that receives the net assets or equity interests shall initially recognize the assets and liabilities transferred at
their carrying amounts in the accounts of the transferring entity at the date of transfer. Accordingly, property, plant and equipment and prepaid lease payments are restated at the historical cost and no additional depreciation on the fair value
amounts will be recognized under US GAAP. However, a deferred tax asset relating to the difference in cost bases between the fair value at the date of acquisition and historical cost is required to be recognized under US GAAP and the tax bases
of the assets are the fair value amount at the date of acquisition.

Under IFRS, the acquisition of Yanmei Shipping has been accounted for
using purchase method which accounted for the assets and liabilities of Yanmei Shipping at their fair value at the date of acquisition. The excess of the purchase consideration over the value of the net assets acquired is capitalized and amortized
over a period of ten years prior to January 1, 2005. No further difference in this treatment of goodwill are identified from January 1, 2005 onwards. Under US GAAP, goodwill is not amortized but instead tested for impairment at least
annually

The adjustments necessary to restate net income and shareholders equity in accordance with U.S. GAAP are shown in the
tables set out below.



|                                                                                                                                                                                                    |  |                         |   |  |           |   |  |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | - |  | --------- | - |  | --------- | -
|                                                                                                                                                                                                    |  | Year ended December 31, |  
|                                                                                                                                                                                                    |  | 2005                    |   |  | 2004      |   |  | 2003      |  
|                                                                                                                                                                                                    |  | RMB000                 |   |  | RMB000   |   |  | RMB000   |  
|Income attributable to the equity holders of the Company as reported under IFRS                                                                                                                     |  | 2,881,461               |   |  | 3,154,317 |   |  | 1,386,686 |  
|                                                                                                                                                                                                    |  |                         |  
|U.S. GAAP adjustments:                                                                                                                                                                              |  |                         |   |  |           |   |  |           |  
|Additional depreciation charged on fair valued property, plant and equipment and prepaid lease payments                                                                                             |  | 187,885                 |   |  | 187,418   |   |  | 188,191   |  
|Additional deferred tax charge due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and
prepaid lease payments and capitalization of mining rights |  | (64,188                 | ) |  | (64,034   | ) |  | (64,389   | )
|Amortization of negative goodwill on acquisition of of Jining III                                                                                                                                   |  |                        |   |  | (27,620   | ) |  | (27,620   | )
|Amortization of mining rights of Jining III                                                                                                                                                         |  | 6,624                   |   |  | 6,624     |   |  | 6,624     |  
|Amortization of goodwill arising on acquisition of Jining II                                                                                                                                        |  |                        |   |  | 777       |   |  | 777       |  
|Amortization of goodwill arising on acquisition of the Railway Assets                                                                                                                               |  |                        |   |  | 13,880    |   |  | 8,880     |  
|Amortization of goodwill arising on acquisition of Yanmei Shipping                                                                                                                                  |  |                        |   |  | 1,116     |   |  |          |  
|Loss of Heze Nenghua included in the Group using the pooling of interest method                                                                                                                     |  | (17,071                 | ) |  | (8,586    | ) |  |          |  
|                                                                                                                                                                                                    |  |                         |   |  |           |   |  |           |  
|Income under U.S. GAAP                                                                                                                                                                              |  | 2,994,711               |   |  | 3,263,892 |   |  | 1,499,249 |  
|                                                                                                                                                                                                    |  |                         |   |  |           |   |  |           |  
|Earnings per share under U.S. GAAP, Basic and diluted                                                                                                                                               |  | RMB0.61                 |   |  | RMB0.69   |   |  | RMB0.33   |  
|Earnings per ADS under U.S. GAAP, Basic and diluted                                                                                                                                                 |  | RMB30.44                |   |  | RMB34.40  |   |  | RMB16.32  |  
|                                                                                                                                                                                                    |  |                         |   |  |           |   |  |           |  



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|                                                                                                                                                               |  |                 |   |  |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | - |  | ---------- | -
|                                                                                                                                                               |  | At December 31, |  
|                                                                                                                                                               |  | 2005            |   |  | 2004       |  
|                                                                                                                                                               |  | RMB000         |   |  | RMB000    |  
|Equity attributable to the equity holders of the Company as reported under IFRS                                                                                |  | 17,618,577      |   |  | 15,523,751 |  
|                                                                                                                                                               |  |                
|U.S. GAAP adjustments:                                                                                                                                         |  |                 |   |  |            |  
|Difference in cost bases of property, plant and equipment and prepaid lease rights                                                                             |  | (2,561,032      | ) |  | (2,561,032 | )
|Additional depreciation/amortization charged on fair valued property, plant and equipment and prepaid lease payments                                           |  | 1,500,823       |   |  | 1,312,938  |  
|Additional deferred tax asset due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and
prepaid lease payments |  | 349,869         |   |  | 411,871    |  
|Goodwill arising on acquisition of Jining II                                                                                                                   |  | (10,106         | ) |  | (10,106    | )
|Negative goodwill arising on acquisition of Jining III, net                                                                                                    |  |                |   |  | 27,621     |  
|Mining rights of Jining III                                                                                                                                    |  | (99,359         | ) |  | (105,983   | )
|Additional deferred tax asset due to a higher tax base resulting from capitalization of mining rights                                                          |  | 32,788          |   |  | 34,974     |  
|Goodwill arising on acquisition of Railway Assets                                                                                                              |  | (97,240         | ) |  | (97,240    | )
|Amortization of goodwill arising on acquisition of Yanmei Shipping                                                                                             |  | 1,116           |   |  | 1,116      |  
|Net assets of Heze Nenghua incorporated under pooling of interest                                                                                              |  |                 |   |  |            |  
| current assets                                                                                                                                               |  |                |   |  | 442,355    |  
| property, plant and equipment, net                                                                                                                           |  |                |   |  | 192,963    |  
| current liabilities                                                                                                                                          |  |                |   |  | (44,292    | )
| minority interests                                                                                                                                           |  |                |   |  | (25,592    | )
|                                                                                                                                                               |  |                |   |  | 565,434    |  
|                                                                                                                                                               |  |                 |   |  |            |  
|Consideration payable on acquisition of Heze Nenghua                                                                                                           |  |                |   |  | (584,008   | )
|Goodwill arising on acquisition of Heze Nenghus                                                                                                                |  | (35,645         | ) |  |           |  
|                                                                                                                                                               |  |                 |   |  |            |  
|Shareholders equity under U.S. GAAP                                                                                                                           |  | 16,699,791      |   |  | 14,519,336 |  
|                                                                                                                                                               |  |                 |   |  |            |  

ITEM 6. DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Director, Supervisors and Senior Management

The following table sets forth certain information concerning our board of directors (Board of Directors), board of
supervisors (the Board of Supervisors) and executive officers as of June 30, 2006. Based on our articles of association (Articles of Association), our Board of Directors currently consists of 13 directors, with one
Chairman, two Vice Chairmen, four independent directors, and one employee director. All Directors serve a term of three years since their respective election dates or until the election of their respective successors. The current Directors were
elected in the shareholders meeting held on June 28, 2005. As more than 50% of our voting power is held by the Parent Company, we are not required to have a majority of independent directors in reliance on the exemption provided under
Section 303A.00 of the NYSE Listing Rules.



|               |  |     |  |                                     |  |                            |  |                                         
|-------------- |  | --- |  | ----------------------------------- |  | -------------------------- |  | ----------------------------------------
|Name           |  | Age |  | Position at the Company             |  | Date Term ofOffice Expires |  | Share Ownership As of December 31, 2005*
|Directors      |  |     |  |                                     |  |                            |  |                                         
|WANG Xin       |  | 47  |  | Chairman                            |  | June 28, 2008              |  | 0                                       
|GENG Jiahuai   |  | 55  |  | Vice Chairman                       |  | June 28, 2008              |  | 0                                       
|YANG Deyu      |  | 57  |  | Vice Chairman and General Manager   |  | June 28, 2008              |  | 16,000                                  
|SHI Xuerang    |  | 51  |  | Director                            |  | June 28, 2008              |  | 0                                       
|CHEN Changchun |  | 53  |  | Director                            |  | June 28, 2008              |  | 0                                       
|WU Yuxiang     |  | 44  |  | Director and Chief Finance Officer  |  | June 28, 2008              |  | 16,000                                  
|WANG Xinkun    |  | 53  |  | Director and Deputy General Manager |  | June 28, 2008              |  | 0                                       



47



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|                                    |  |     |  |                                                  |  |                            |  |                                         
|----------------------------------- |  | --- |  | ------------------------------------------------ |  | -------------------------- |  | ----------------------------------------
|Name                                |  | Age |  | Position at the Company                          |  | Date Term ofOffice Expires |  | Share Ownership As of December 31, 2005*
|CHEN Guangshui                      |  | 40  |  | Director and Secretary of the Board of Directors |  | June 28, 2008              |  | 1,600                                   
|DONG Yunqing                        |  | 50  |  | Director                                         |  | June 28, 2008              |  | 0                                       
|                                    |  |     |  |                                                 
|Independent Non-executive Directors |  |     |  |                                                  |  |                            |  |                                         
|PU Hongjiu                          |  | 69  |  | Director                                         |  | June 28, 2008              |  | 0                                       
|CUI Jianmin                         |  | 73  |  | Director                                         |  | June 28, 2008              |  | 0                                       
|WANG Xiaojun                        |  | 51  |  | Director                                         |  | June 28, 2008              |  | 0                                       
|WANG Quanxi                         |  | 50  |  | Director                                         |  | June 28, 2008              |  | 0                                       
|                                    |  |     |  |                                                 
|Supervisory Committee               |  |     |  |                                                  |  |                            |  |                                         
|MENG Xianchang                      |  | 58  |  | Chairman of Supervisory Committee                |  | June 28, 2008              |  | 16,000                                  
|SONG Guo                            |  | 51  |  | Vice Chairman of Supervisory Committee           |  | June 28, 2008              |  | 0                                       
|ZHANG Shengdong                     |  | 49  |  | Supervisor                                       |  | June 28, 2008              |  | 0                                       
|LIU Weixin                          |  | 55  |  | Supervisor                                       |  | June 28, 2008              |  | 0                                       
|XU Bentai                           |  | 47  |  | Supervisor                                       |  | June 28, 2008              |  | 0                                       
|                                    |  |     |  |                                                 
|Executive Officers                  |  |     |  |                                                  |  |                            |  |                                         
|JIN Tai                             |  | 54  |  | Deputy General Manager                           |  |                           |  | 0                                       
|ZHANG Yingmin                       |  | 52  |  | Executive Deputy General Manager                 |  |                           |  | 0                                       
|HE Ye                               |  | 48  |  | Deputy General Manager                           |  |                           |  | 0                                       
|TIAN Fengze                         |  | 49  |  | Deputy General Manager                           |  |                           |  | 0                                       
|                                    |  |     |  |                                                 
|SHI Chengzhong                      |  | 43  |  | Vice General Manager                             |  |                           |  | 0                                       
|LAI Cunliang                        |  | 45  |  | Vice General Manager                             |  |                           |  | 0                                       
|NI Xinghua                          |  | 49  |  | Chief Engineer                                   |  |                           |  | 0                                       

---

|* | In the form of A Shares. Aggregate ownership less than 1% of the outstanding Shares.
|- | ------------------------------------------------------------------------------------

Executive Directors

WANG Xin, aged 47, an engineering technique application researcher,
doctor of engineering technology, is the chairman of the Board and the vice chairman of the board of directors and the general manager of the Parent Company. Mr. Wang joined the predecessor of the Company in 1982 and became the vice general
manager of the Parent Company in 2000. He was appointed as the director of the board of directors and vice general manager of the Parent Company in 2002, and promoted to be the vice chairman of the board of directors and the general manager of the
Parent Company in 2003. In 2004, he became a director and the chairman of the Board of the Company. He graduated from China University of Mining and Technology.

GENG Jiahuai, aged 55, an engineering technique application researcher, is the vice chairman of the Board and the chairman of the board of directors and the party committee secretary of the Parent Company.
During the period from 1985 to 2002, Mr. Geng successively acted as the deputy director of Zibo Mining Bureau, the Director of the Safety and Supervision Bureau and the director general of Zibo Mining Bureau. Mr. Geng joined the Parent
Company in 2002 and became the general manager, the vice chairman of the board of directors and the party committee deputy secretary of the Parent Company. Mr. Geng became the chairman of the board of the directors and the party committee
secretary of the Parent Company in 2003. Mr. Geng became a director of the Company in 2002 and the vice chairman of the Company in 2004. He graduated from Shandong Mining Institute.

YANG Deyu, aged 57, an engineering technique application researcher, is the vice chairman of the Board and the general manager of the Company, and
a director of the board of the Parent Company. Mr. Yang joined the Predecessor in 1968 and became the deputy director of Yanzhou Mining Bureau in 1994, and the deputy general manager of the Predecessor and the Director of the Safety and
Supervision Bureau in 1996. Mr. Yang became an executive director and the general manager of the Company in 1997 and the vice chairman of the Board and the general manager of the Company in 2002. Mr. Yang became a director of the board of
directors of the Parent Company in 2004. He graduated from Shandong Mining Institute.

SHI Xuerang, aged 51, a senior engineer, is a
director of the Company and deputy general manager of the Parent Company. From 2001 to 2003, Mr. Shi has successively acted as the deputy general manager of



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Xinkuang Group. He joined the Parent Company as the deputy general manager of the Parent Company in 2003 and became a director of the Company in 2005. He
graduated from Shandong Mining Institute.

CHEN Changchun, aged 53, a senior accountant, is a director of the Company and a director
and the chief accountant of the Parent Company. Mr. Chen joined the Predecessor in 1984 and became the chief accountant of the Parent Company in 1998 and became a director of the Parent Company in 2004. Mr. Chen became a director of the
Company in 2005. He graduated from Beijing Coal Cadre Institute.

WU Yuxiang, aged 44, a senior accountant, is a director and the
chief financial officer of the Company. Mr. Wu joined the Predecessor in 1981 and became the chief accountant of the finance department of the Predecessor in 1996. Mr. Wu became the Manager of the finance department of the Company in 1997,
and was promoted to be a director and the chief financial officer of the Company in 2002. He graduated from Shandong TV University.

WANG Xinkun, aged 53, a senior economist, is a director and the deputy general manager of the Company. Mr. Wang joined the Predecessor in 1977. Mr. Wang became the manager of the coal transportation and sales department of
the Company in 2000, and the deputy general manager of the Company in 2002. He became a director of the Company in 2004. He graduated from Tianjin University.

CHEN Guangshui, aged 40, a senior economist, is a director, the secretary to the Board. Mr. Chen joined the Predecessor in 1990. He became the secretary to the Board and the head of the Secretariat of the
Board of the Company in 1997. Mr. Chen became a director of the Company in 2005. He graduated from Fuxin Mining Institute.

DONG
Yunqing, aged 50, a senior administrative officer, is a director and the chairman of labor union of the Company. Mr. Dong joined the Predecessor in 1981 and was the vice chairman of labor union of the Parent Company from 2001 to April 2003.
Mr. Dong became a director and the chairman of labor union of the Company in 2002. He graduated from Shandong Mining Institute.

Independent
Non-executive Directors

PU Hongjiu, aged 69, professor-level senior engineer, is an independent non-executive director of the
Company. He is the first vice chairman of the China Coal Industry Association, the chairman of Coal Industry Association of China International Association, the board chairperson of China Coal Academy. Mr. Pu was a party group member and the
head of disciplinary inspection group in State Administration of Work Safety and State Administration of Coal Mine Safety in 2001. He has been the board chairperson of China Coal Academy since 2001, the first vice chairman of the China Coal Industry
Association since 2003 and the board chairperson of China Miner Pneumoconiosis Treatment Foundation since 2004. He became an independent non-executive director of the Company in 2005. He graduated from Hefei Mining Institute. He also acts as an
independent non-executive director in Shanghai Datun Energy Company Limited and Shenhua Ningxia Coal Mining Group Corporation Limited.

CUI Jianmin, aged 73, a senior auditor and certified accountant, is a consultant for China Tax Expert Association, and part-time professor for colleges such as Central Finance and Economics University. Mr. Cui had previously
been the deputy chief auditor of National Audit Office of the PRC, the chairman of the Association of China Certified Accountant, and a committee member of the 8th National Committee of the Chinese Peoples Political Consultative Conference.
Mr. Cui became an independent non-executive director of the Company in 2002 and he has been a consultant in China Tax Expert Association since September 2004. Mr. Cui graduated from Peoples University of China. Mr. Cui also acts
as an independent non-executive director both in China Power Co., Ltd and CITIC Guoan Information Industry Co., Ltd.

WANG Xiaojun,
aged 51, admitted as a solicitor in England and Wales and Hong Kong, is an independent non-executive director and a partner of the Wang & Co., X. J. in Hong Kong and is an independent non-executive director of the Company. He has practiced
PRC law in Beijing, and 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 Bulter. He became an independent
non-executive Director of the Company in 2002. He graduated from the Peoples University of China and the Graduate School of the Chinese Academy of Social Sciences and holds a bachelor degree in laws and a master degree in laws. Meanwhile, he
also acts as independent non-executive director of the Guangzhou Guangchuan International Company Limited and Hong Kong Zhengqi Investment Company Limited.

WANG Quanxi, aged 50, professor of Nankai University, is an independent non-executive director of the Company. He is the director of financial management department of Nankai University, the director of



49



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Enterprise Research Center of Nankai University, the vice director of MBA Center of Nankai University, and the
secretary-general of Association of Management of Tianjin City. Mr. Wang became the independent non-executive director of the Company in 2004. He graduated from Tianjin Finance and Economics University. Meanwhile, he also acts as independent
non-executive director of YinzuoBohai Group Co., Ltd.

Board of Supervisors

MENG Xianchang, aged 58, a senior administrative officer, is the chairman of the supervisory committee of the Company and party committee deputy
secretary of the Parent Company. Mr. Meng joined the Predecessor in 1981 and was promoted as party committee deputy secretary and a supervisor of the Predecessor in 1996, and became the chairman of the supervisory committee of the Company in
1997. He graduated from Shandong Mining Institute.

SONG Guo, aged 51, a senior administrative officer, is the vice chairman of the
supervisory committee of the Company, and the party committee deputy secretary and the secretary of disciplinary inspection committee of the Parent Company. Mr. Song was the director of the office of Coal Management Bureau of Shandong Province
in 2002. He joined the Parent Company as secretary of the disciplinary inspection committee in 2002, and became the deputy secretary of party committee of the Parent Company. He became the vice chairman of the supervisory committee of the Company in
2005. He graduated from Shandong University.

ZHANG Shengdong, aged 49, a senior accountant, is a supervisor of the Company and the
deputy chief accountant of the Parent Company. Mr. Zhang joined the Predecessor in 1981 and became the deputy chief accountant in 1997. He became a supervisor of the Company in 2002. He graduated from China University of Mining and Technology.

LIU Weixin, aged 55, a senior accountant, is a supervisor of the Company and the vice director of the audit department of the
Parent Company. Mr. Liu joined the Predecessor in 1971, and became the vice director of the audit affair office of the Parent Company in 2001, the chief of audit department of the Parent Company in 2003, and the deputy director of audit
department of the Parent Company in 2005. Mr. Liu became a supervisor of the Company in 2002. He graduated from Shandong Youth Cadre Institute.

XU Bentai, aged 47, a senior administrative officer, is an employee supervisor of the Company and the chairman of Jining III Coal Mines labor union. Mr. Xu joined the Predecessor in 1978 and became
the chairman of Jining III Coal Mines labor union in 1999. He became an employee supervisor of the Company in 2002. He graduated from the Central Communist Party School Correspondence Institute.

Other Executive Officers

JIN Tai, aged 54, a
senior engineer, is the deputy general manger of the Company. Mr. Jin joined the Predecessor in 1968. He became the director of the dispatching office of the Predecessor in 1996, and became the head of Xinglongzhuang coal mine in 1998, and
became the deputy general manager of the Parent Company in 2000. Mr. Jin became the deputy general manager of the Company in 2004. He graduated from China University of Mining and Technology.

ZHANG Yingmin, aged 52, an engineering technology application researcher, is the executive deputy general manager of the Company and a director of
the Parent Company. Mr. Zhang joined the Predecessor in 1971. He became the head of Baodian coal mine in 2000. Mr. Zhang became the executive deputy general manager of the Company in 2002 and the deputy general manager of the Parent
Company in 2003. Mr Zhang became a director of the board of directors of the Parent Company in 2004. He graduated from Tianjin University.

HE Ye, aged 48, a senior engineer, is a deputy general manager of the Company. Mr. He joined the Predecessor in 1993. He became the head of Jining II Coal Mine in 1999, and became the executive deputy general manager of an
industrial company subordinated to the Parent Company in 2002. Mr. He was promoted to be a deputy general manager of the Company in 2002. He graduated from Guizhou Institute of Technology.

TIAN Fengze, aged 49, a senior economist, is a deputy general manager of the Company. Mr. Tian joined the Predecessor in 1976. He became the
head of Beixu coal mine in 1991. Mr. Tian became a deputy general manager of the Company in 2002. He graduated from Beijing Coal Cadre Institute.



50



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SHI Chengzhong, aged 43, a senior engineer, is a deputy general manager of the Company.
Mr. Shi joined the Predecessor in 1983 and became a deputy chief engineer of the Parent Company in 2000 and a deputy general manager of the Company in 2002. He graduated from Shandong Mining Institute. Mr. Shi also acts as a director of
Guizhou Panjiang Coal Power Company Limited.

LAI Cunliang, aged 45, a senior engineer, master of mining engineer, is a deputy
general manager of the Company. Mr. Lai joined the Predecessor in 1980 and became the head of Xinglongzhuang coal mine of the Company in 2000. Then he became a director and the general manager of YanCoal Australia Pty Limited in 2004. And he
became a deputy general manager of the Company in 2005. He graduated from China University of Mining & Technology.

NI
Xinghua, aged 49, an engineering technology application researcher, is the chief engineer of the Company. Mr. Ni joined the Predecessor in 1975 and became the deputy chief engineer of the Parent Company in 2000. He was promoted to be the
chief engineer of the Company in 2002. He graduated from Tianjin University.

B. Compensation

The Directors, Supervisors and Executive Officers who are our employees receive compensation in the form of salaries, housing allowances, other allowances
and benefits in kind, including our contribution to the pension plan for our Directors and Supervisors. The aggregate amount of cash remuneration paid by us to the 15 Directors (including a former independent non-executive director who retired from
the Board of Directors on June 28, 2005), Supervisors and Executive Officers during the year ended December 31, 2005 was RMB2.5 million. The aggregate amount of cash remuneration paid by us to the five highest-paid individuals in the
Company (including two Directors) in 2005 was RMB1.1 million. In addition, Directors and Supervisors receive certain other benefits in kind, such as subsidized or free health insurance and transportation, customarily provided by enterprises in the
PRC to their employees. Details of the directors and supervisors emoluments on a named basis are as follows:



|                                    |  |                                      |  |                                              |  |                                      |  |                    |  |        
|----------------------------------- |  | ------------------------------------ |  | -------------------------------------------- |  | ------------------------------------ |  | ------------------ |  | -------
|                                    |  | For the year ended December 31, 2005
|                                    |  | Fees                                 |  | Salaries, allowanceand other benefits inkind |  | Retirementbenefit schemecontribution |  | Discretionarybonus |  | Total  
|                                    |  | RMB000                              |  | RMB000                                      |  | RMB000                              |  | RMB000            |  | RMB000
|Independent non-executive directors |  |                                      |  |                                              |  |                                      |  |                    |  |        
|Pu Hongjiu                          |  | 43                                   |  |                                             |  |                                     |  |                   |  | 43     
|Cui Jianmin                         |  | 81                                   |  |                                             |  |                                     |  |                   |  | 81     
|Wang Xiaojun                        |  | 98                                   |  |                                             |  |                                     |  |                   |  | 98     
|Wang Quanxi                         |  | 81                                   |  |                                             |  |                                     |  |                   |  | 81     
|Fan Weitang                         |  | 39                                   |  |                                             |  |                                     |  |                   |  | 39     
|                                    |  |                                      |  |                                              |  |                                      |  |                    |  |        
|                                    |  | 342                                  |  |                                              |  |                                      |  |                    |  | 342    
|                                    |  |                                      |  |                                              |  |                                      |  |                    |  |        
|Executive directors                 |  |                                      |  |                                              |  |                                      |  |                    |  |        
|Wang Xin                            |  |                                     |  |                                             |  |                                     |  |                   |  |       
|Geng Jiahuai                        |  |                                     |  |                                             |  |                                     |  |                   |  |       
|Yang Deyu                           |  |                                     |  |                                             |  |                                     |  |                   |  |       
|Shi Xuerang                         |  |                                     |  |                                             |  |                                     |  |                   |  |       
|Chen Changchun                      |  |                                     |  |                                             |  |                                     |  |                   |  |       
|Wu Yuxiang                          |  |                                     |  | 144                                          |  | 65                                   |  |                   |  | 209    
|Wang Xinkun                         |  |                                     |  | 144                                          |  | 65                                   |  |                   |  | 209    
|Chen Guangshui                      |  |                                     |  | 144                                          |  | 65                                   |  |                   |  | 209    
|Dong Yunqing                        |  |                                     |  | 144                                          |  | 65                                   |  |                   |  | 209    
|                                    |  |                                      |  |                                              |  |                                      |  |                    |  |        
|                                    |  |                                     |  | 576                                          |  | 260                                  |  |                   |  | 836    
|                                    |  |                                      |  |                                              |  |                                      |  |                    |  |        
|Supervisors                         |  |                                      |  |                                              |  |                                      |  |                    |  |        
|Meng Xianchang                      |  |                                     |  |                                             |  |                                     |  |                   |  |       
|Song Guo                            |  |                                     |  |                                             |  |                                     |  |                   |  |       
|Zhang Sheng Dong                    |  |                                     |  |                                             |  |                                     |  |                   |  |       
|Liu Wei Xin                         |  |                                     |  |                                             |  |                                     |  |                   |  |       
|Xu Bentai                           |  |                                     |  | 160                                          |  | 72                                   |  |                   |  | 232    
|                                    |  |                                      |  |                                              |  |                                      |  |                    |  |        
|                                    |  |                                     |  | 160                                          |  | 72                                   |  |                   |  | 232    
|                                    |  |                                      |  |                                              |  |                                      |  |                    |  |        



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|                      |  |                                      |  |                                              |  |                                      |  |                    |  |        
|--------------------- |  | ------------------------------------ |  | -------------------------------------------- |  | ------------------------------------ |  | ------------------ |  | -------
|                      |  | For the year ended December 31, 2005
|                      |  | Fees                                 |  | Salaries, allowanceand other benefits inkind |  | Retirementbenefit schemecontribution |  | Discretionarybonus |  | Total  
|                      |  | RMB000                              |  | RMB000                                      |  | RMB000                              |  | RMB000            |  | RMB000
|Other management team |  |                                      |  |                                              |  |                                      |  |                    |  |        
|Jin Tai               |  |                                     |  |                                             |  |                                     |  |                   |  |       
|Zhang Yingmin         |  |                                     |  |                                             |  |                                     |  |                   |  |       
|He Ye                 |  |                                     |  | 144                                          |  | 65                                   |  |                   |  | 209    
|Tian Fengze           |  |                                     |  | 144                                          |  | 65                                   |  |                   |  | 209    
|Shi Chenzhong         |  |                                     |  | 145                                          |  | 65                                   |  |                   |  | 210    
|Lai Cunliang          |  |                                     |  | 190                                          |  | 86                                   |  |                   |  | 276    
|Ni Xinghua            |  |                                     |  | 144                                          |  | 65                                   |  |                   |  | 209    
|                      |  |                                      |  |                                              |  |                                      |  |                    |  |        
|                      |  |                                     |  | 767                                          |  | 364                                  |  |                   |  | 1,113  
|                      |  |                                      |  |                                              |  |                                      |  |                    |  |        



C. Board Practices

Board of Directors

Directors are elected by
shareholders at a general meeting. Directors are elected for a term of three years. We adopt a cumulative voting rights system for the election of Board of Directors.

According to our Articles of Association, the Board of Directors is accountable to the shareholders in general meeting and exercises the following functions and powers:



| | (i) | to be responsible for the convening of shareholders meetings and reporting on its work to the shareholders at such meetings;
| | --- | -----------------------------------------------------------------------------------------------------------------------------



| | (ii) | to implement the resolutions passed by the shareholders in general meetings;
| | ---- | ----------------------------------------------------------------------------



| | (iii) | to determine our business plans and investment proposals;
| | ----- | ---------------------------------------------------------



| | (iv) | to formulate our annual preliminary and final budgets;
| | ---- | ------------------------------------------------------



| | (v) | to formulate our profit distribution proposal and loss recovery proposals;
| | --- | --------------------------------------------------------------------------



| | (vi) | to formulate proposals for the increase or reduction of our registered capital and the issuance of our debentures or other forms of securities;
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------



| | (vii) | to draw up plans for our merger, division, dissolution or change of corporate structure;
| | ----- | ----------------------------------------------------------------------------------------



| | (viii) | to decide on our internal management structure;
| | ------ | -----------------------------------------------



| | (ix) | to appoint or remove our general manager and to appoint or remove the deputy general manager(s) and other senior officers (including the financial controller), based on the
recommendation of the general manager, and to decide on their remuneration;
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (x) | to formulate our basic management system;
| | --- | -----------------------------------------



| | (xi) | to formulate proposals for any amendment of the Articles of Association;
| | ---- | ------------------------------------------------------------------------



| | (xii) | to decide on our business involving overseas investments, acquisition and disposal of assets, mortgages of assets and other guarantees, financial management and connected
transactions within the authority conferred by the general meeting;
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (xiii) | to manage disclosure of our information;
| | ------ | ----------------------------------------



| | (xiv) | to recommend to shareholders at shareholders general meetings the appointment or replacement of the independent auditors;
| | ----- | --------------------------------------------------------------------------------------------------------------------------



| | (xv) | to receive the working report from our management and examine their performance; and
| | ---- | ------------------------------------------------------------------------------------



| | (xvi) | to approve an aggregate amount of provision for impairment of assets not more than 10% of our latest audited consolidated net asset value, to clear an amount of provision for
impairment of assets not more than 5% of our latest audited consolidated net asset value, and to execute in compliance with the relevant regulations on connected transactions of any provision and clearance of impairment of assets involving any
connected transactions.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (xvii) | to exercise any other powers conferred by the shareholders in general meeting.
| | ------ | ------------------------------------------------------------------------------



52



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##### Table of Contents

Except for items (vi), (vii) and (xi), which require the affirmative vote of more than two-thirds of
all of the Directors, resolutions on any other items may be approved by the affirmative vote of a simple majority of Directors.

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 duty to each shareholder, in the exercise of our functions and powers entrusted to such person:



| |  |  | not to cause us to exceed the scope of business stipulated in our business license;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | 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, in the exercise of such persons powers and discharge of such persons duties, to exercise the care, diligence and skill that a reasonably prudent person would
exercise in comparable circumstances;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a fiduciary obligation, in the exercise of our powers entrusted to him or her, not to place himself or herself in a position where his or her duty to us and his or her interests may
conflict; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 Director, Supervisor, general manager, deputy general manager or senior officer is prohibited from doing.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Subject to compliance with relevant laws and administrative regulations, the shareholders in general meeting may by ordinary resolution remove any
Director before the expiration of his term of office. Subject to certain qualifications, a Director, Supervisor, general manager, deputy general manager or other senior officer of the Company may be relieved of liability for a specific breach of his
or her duties by the informed consent of shareholders in a general meeting.

As approved by our shareholders in the 2004 annual
shareholders general meeting held on June 28, 2005, we established a Directors Decision Making Risk Fund (Risk Fund) to compensate the Directors, Supervisors, Executive Officers and other applicable personnel for personal
economic losses resulted 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. According to the Management Measures for the
Directors Decision Making Risk Fund of Yanzhou Coal Mining Company Limited which was filed with the Commission as an exhibit to our annual report on Form 20-F for the fiscal year ended December 31, 2004, with effective from
January 1, 2005, RMB100,000 for each incumbent Director and RMB50,000 for each incumbent Supervisor, Executive Officer and other applicable personnel will be drawn annually to form the Risk Fund. The compensation paid from the Risk Fund will
only be granted upon the Boards approval.

Audit Committee of the Board of Directors

Pursuant to a resolution passed on October 29, 2002, our Board of Directors established an audit committee and an audit department as the audit
committees execution body. The audit committee comprised three independent non-executive directors, namely, Mr. Cui Jianmin (being the chairman of the audit committee), Mr. Fan Weitang and Mr. Wang Xiaojun, and two non-executive directors,
namely, Mr. Wang Bangjun and Mr. Dong Yunqing. As approved by the Board of Directors on June 28, 2005, we elected a new audit committee which is consisted of six members, including four independent non-executive directors, one affiliated
director and one employee representative. Mr. Cui Jianmin, who is a financial expert, was elected again as the chairman of the audit committee. Mr. Cui has extensive experience in financial accounting and audit management. Mr. Cui is
a senior auditor and certified accountant and is the chairman of the Association of China Certified Accountants. The primary duties of our audit committee as set out in the committee charter include (i) the engagement or replacement of external
independent auditors, (ii) review and audit of our accounting policies and system, disclosure of financial information and financial reporting channels, (iii) review and audit our internal control system and risk management system. Details
of the duties of our audit committee are available on our company website.



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Currently, the members of our audit committee of the Board of Directors are:



|               |  |     |  |                                    |  |                    
|-------------- |  | --- |  | ---------------------------------- |  | -------------------
|Name           |  | Age |  | Position                           |  | Ownership of Shares
|CUI Jianmin    |  | 73  |  | Independent non-executive director |  | 0                  
|PU Hongjiu     |  | 69  |  | Independent non-executive director |  | 0                  
|WANG Xiaojun   |  | 51  |  | Independent non-executive director |  | 0                  
|WANG Quanxi    |  | 50  |  | Independent non-executive director |  | 0                  
|CHEN Changchun |  | 53  |  | Affiliated Director                |  | 0                  
|DONG Yunqing   |  | 50  |  | 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 Securities Exchange Act of 1934 to be in compliance with the audit committee standards set out in Section 303A.06 of the
NYSE Listed Company Manual.

Supervisory Committee

We have a supervisory committee comprising five members, one of whom is an employee representative. Supervisors serve a term of three years. The supervisory committee shall be accountable to the shareholders in a
general meeting and shall exercise the following functions and powers in accordance with law:



| |  |  | to review our periodic reports as prepared by the Board of Directors and to provide written comments;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | to review our financial position;
| | - |  | ---------------------------------



| |  |  | to supervise the Directors, general manager, deputy general managers and other senior officers to ensure that they do not act in contravention of any law, regulation or our Articles
of Association and to recommend for the dismissal of the Directors, general manger, deputy general managers and other senior officers for the breach of law, regulation or our Articles of Association when necessary;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | to 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | to verify such financial information as financial reports, business reports and profit distribution plans to be submitted by the Board of Directors to shareholders general
meetings and to authorize, in our name, publicly certified and practicing accountants to assist in the re-examination of such information should any doubt arise in respect thereof;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | to propose to convene shareholders extraordinary general meetings and extraordinary board meetings;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | to make proposals at the shareholders general meetings;
| | - |  | --------------------------------------------------------



| |  |  | to represent us in negotiations with or in bringing actions against a Director or senior officers; and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | other functions and powers specified in our Articles of Association.
| | - |  | --------------------------------------------------------------------

Supervisors shall attend meetings of the Board of Directors.

Compensation Committee

Pursuant to a resolution passed on June 28, 2005, our Board of Directors approved and established a compensation committee. The compensation
committee is consisted of three members, including two independent non-executive directors and one employee director. Mr. Wang Quanxi 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 (i) the drafting and establishment of the compensation policies for the Directors, Supervisors, and the senior officers of the Company and (ii) the recommendation of



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compensation proposals for the Directors, Supervisors and the senior officers of the Company to the Board of Directors.
Further details on the responsibilities of the compensation committee can be found on our website.

Nomination / Corporate Governance

As at December 31, 2005, the Parent Company held 2,672,000,000 Shares in the form of Legal Person Shares, representing 54.33% of our total Shares on
the same day. As more than 50% of our voting power is held by the Parent Company, we are a controlled company under NYSE Listing Rules 303A.00. 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. As such, we currently do not have any such committees.

Arrangement to Purchase
Equity or Debt Securities and Other Arrangements

At no time during the year ended December 31, 2005, were we, our Parent Company
or any of our fellow subsidiaries a party to any arrangement to enable our Directors or Supervisors to acquire benefits by means of the acquisition of our equity or debt securities or any other body corporate with the exception of the A Shares
issued to 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 the Directors and Supervisors has entered into a service contract with us. Under such contracts, each executive director will receive a salary and
a discretionary year-end bonus, at such levels as are proposed by the Board of Directors and approved by the shareholders of our company in general meetings, provided that the discretionary year-end bonuses paid to our Executive Directors and other
employees (including, but not limited to, our other Directors, Supervisors and executive officers) do not, in aggregate, exceed 1% of the net profit after taxation and extraordinary losses but before extraordinary gains for that year.

Save as disclosed herein, no Director or Supervisor has entered into any service contract with our company which is not terminable 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 period
indicated:



|                                        |  |                    |  |        |  |       
|--------------------------------------- |  | ------------------ |  | ------ |  | ------
|                                        |  | As of December 31,
|                                        |  | 2003               |  | 2004   |  | 2005  
|Coal Production employees               |  | 21,419             |  | 22,369 |  | 23,060
|Engineers and technicians               |  | 923                |  | 1,023  |  | 1,069 
|Management and administrative personnel |  | 1,847              |  | 2,055  |  | 1,995 
|Support staff                           |  | 3,772              |  | 3,819  |  | 3,939 
|                                        |  |                    |  |        |  |       
|Total                                   |  | 27,961             |  | 29,266 |  | 30,063
|                                        |  |                    |  |        |  |       

The table below sets forth the number of our employees by locations as of December 31, 2005:



|          |  |           |  |            |  
|--------- |  | --------- |  | ---------- | -
|Location  |  | Employees |  | % of Total |  
|PRC       |  |           |  |            |  
|Shandong  |  | 29,990    |  | 99.7       | %
|Shanxi    |  | 58        |  | 0.2        | %
|Australia |  | 15        |  | 0.1        | %
|          |  |           |  |            |  
|Total     |  | 30,063    |  | 100.0      | %
|          |  |           |  |            |  



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The total remuneration of our employees includes wages and bonuses. We paid our employees an aggregate of
approximately RMB875.7 million, RMB1,051.7 million and RMB1,278.1 million in wages and bonuses in the years ended December 31, 2003, 2004 and 2005, respectively. The compensation of an employee directly involved in underground mining is based
on the production of such employee, as well as the production of the employees mining team. Employees and their families also receive certain social welfare benefits and education and health services from the Parent Company. These benefits are
provided in some cases by the Parent Company, as required by PRC laws and rules and regulations. We in turn pay the Parent Company for all such benefits.

The Parent Company is responsible for the administration of our employee pension fund and for the provision of retirement benefits to our retirees. According to the Pension Fund Agreement entered into between the
Parent Company and us, we are obligated to set aside the pension fund which equals 45% of the total remuneration paid to our employees, for the Parent Company to pay the local pension fund authority for and on behalf of our employees and to pay for
employee retirement benefits. The welfare of retired employees is administrated by the Parent Company. The Pension Fund Agreement was renewed in 2002. We and the Parent Company agreed that the foregoing pension fund scheme will be continuously
applied from 2002 to 2006. Pursuant to the approval of the Board of Directors on January 6, 2006, we and the Parent Company entered into a new Agreement for the Administration of Pension Fund and Retirement Benefit on January 10, 2006
,(Pension Fund and Retirement Benefit Agreement), to continue the administration of the foregoing pension fund scheme. The Pension Fund and Retirement Benefit Agreement is for a term of three years. We further carry personal injury
insurance for employees.

Our subsidiaries are participants in a State-managed retirement scheme pursuant to which the subsidiaries pay a
fixed percentage of their 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. In 2005, contributions payable by
the subsidiaries pursuant to this arrangement were insignificant.

In 2003, 2004 and 2005, total contributions paid by us for our
Directors, Supervisors, Executive Officers and senior management to the pension fund were approximately RMB0.1 million, RMB0.5 million and RMB0.7 million, respectively. In addition, each employee of ours currently pays a percentage of his or her
salary as an additional contribution. Upon retirement, our employees are entitled to the payment of a pension from the scheme.

Currently,
all of our employees are employed under employment contracts which specify the employees position, responsibilities, remuneration and grounds for termination. We have a labor union that protects employees rights, aims to assist in the
fulfillment of our economic objectives, encourages employee participation in management decisions and assists in mediating disputes between us and union members. Each of our operating units has a separate branch of the labor union. We have not
experienced any strikes or other labor disturbances which have interfered with our operations, and we believe that our relations with our employees are good.

All employees who are unable to work due to illness or disability are entitled to receive certain benefits during the period of their absence from the workplace. In addition, the PRC Government requires us to provide
casualty and life insurance for each of our employees who work in the underground mining areas. The premium is 2.0% of the total remuneration of the employees.

Medical Insurance Scheme

In accordance with the relevant regulations of the Shandong Provincial Peoples Government,
since January 1, 2002, we have established and commenced implementing a basic medical insurance scheme for employees, which comprises basic medical insurance and supplementary medical insurance schemes. The schemes are described below.



| |  |  | basic medical insurance scheme  we have set aside 8% of the total wages of employees as basic medical insurance fund, which was charged to Wages and Employee
Benefits under Cost of Sale and Services Provided and Selling, General and Administrative Expenses in our statement of income; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | supplementary medical insurance scheme  we have set aside a supplementary medical insurance fund of 4% of the total wages of employees to Supplementary Medical
Insurance under Selling, General and Administrative Expenses in our statement of income.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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We also carry personal injury insurance for our employees.

Housing Scheme

Under the Materials and Services
Supply Agreement, and its Supplemental Agreement, entered into between the Parent Company and us, the Parent Company is responsible for providing accommodation to our employees. We and the Parent Company share the incidental expenses relating to the
provision of such accommodation on a pro-rata basis based on our respective number of employees and mutual agreement. Such expenses amounted to RMB37.2 million for 2003, 2004 and 2005, respectively.

Commencing from 2002, we have paid to our employees a housing allowance, which is based on a fixed percentage of employees wages, for the purchase
of residential housing. In 2003, 2004 and 2005, housing allowances paid by us to employees amounted to RMB136.5 million, RMB137.3 million and RMB1.369 million, respectively.

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   A. Director and Senior Management.

We have not granted and have no plan to grant options to our employees for our Shares or other equity-linked securities. 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, 2005, the Parent Company owned 54.33% of our share capital (see table below). As a majority shareholder, the Parent Company is
able to make most of the decisions adopted by us. Currently, all of our ordinary shares enjoy equal voting rights.

The following table
sets forth certain information regarding ownership of our capital stock as of December 31, 2005 and as of March 31, 2006 upon implementation of the share reform plan by all persons who are known by us to own beneficially more than 5% of
our capital stock and by the Directors, Supervisors and Executive officers. For details of the share reform plan, see Item 9  Share Reform Plan. As of December 31, 2005 and March 31, 2006, the Directors, Supervisors
and Executive Officers own, as a group, 49,600 A Shares and 62,000 A Shares, representing 0.001% and 0.0013% of our share capital.



|                                              |  |                                                                            |  |                                     |  |                                                  
|--------------------------------------------- |  | -------------------------------------------------------------------------- |  | ----------------------------------- |  | -------------------------------------------------
|Identity of Person or Group                   |  | Title of Class                                                             |  | Shares Owned as ofDecember 31, 2005 |  | Percentage ofCapital Stock as ofDecember 31,
2005
|Parent Company                                |  | Ordinary Shares in the form of Legal Person Shares, par value RMB1.00 each |  | 2,672,000,000                       |  | 54.33%                                           
|                                              |  |                                                                            | 
|HKSCC Nominee Limited*                        |  | Ordinary Shares in the form of H Shares, par value RMB1.00 each            |  | 1,953,593,196                       |  | 39.72%                                           
|                                              |  |                                                                            | 
|Directors, Supervisors and Executive Officers |  | Ordinary Shares in the form of A Shares, par value RMB1.00 each            |  | 49,600                              |  | 0.001%                                           



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|                                              |  |                                                                            |  |                                  |  |                                               
|--------------------------------------------- |  | -------------------------------------------------------------------------- |  | -------------------------------- |  | ----------------------------------------------
|Identity of Person or Group                   |  | Title of Class                                                             |  | Shares Owned as ofMarch 31, 2006 |  | Percentage ofCapital Stock as ofMarch 31,
2006
|Parent Company                                |  | Ordinary Shares in the form of Legal Person Shares, par value RMB1.00 each |  | 2,600,000,000                    |  | 52.86%                                        
|                                              |  |                                                                            | 
|HKSCC Nominee Limited*                        |  | Ordinary Shares in the form of H Shares, par value RMB1.00 each            |  | 1,954,965,596                    |  | 39.75%                                        
|                                              |  |                                                                            | 
|Directors, Supervisors and Executive Officers |  | Ordinary Shares in the form of A Shares, par value RMB1.00 each            |  | 62,000                           |  | 0.0013%                                       

---

|* | As the nominee of the clearing and settlement agent for our H Shares, HKSCC Nominee Limited is the record holder of our H Shares.
|- | ---------------------------------------------------------------------------------------------------------------------------------

Our major shareholders do not have different voting rights from other shareholders.

To our knowledge, other than the Parent Company, which owns 54.33% of our Shares, we are not owned or controlled, directly or indirectly, by any other
corporation, by any government, or by any other natural or legal person or persons, severally or jointly.

To our knowledge, there are no
arrangements the operation of which may at a subsequent date result in us undergoing a change in control.

B. Related Party Transactions

The on-going connected transactions between the Company and the Parent Company for the year 2005 including the following three aspects:



| | 1. | On-going Supply of Materials and Services:
| | -- | ------------------------------------------

The connected
transactions of on-going supply of materials and services between us and the Parent Company were carried out in accordance with The Materials and Services Supply Agreement signed on 17th October, 1997 and its subsequent supplemental agreement,
as approved by independent shareholders.

The Stock Exchange of Hong Kong Limited (the Hong Kong Stock Exchange) has granted a
conditional waiver (the Waiver) to our company on July 11, 2003 from strict compliance with the requirements of disclosure and approval as stipulated in the Rules Governing the Listing of Securities on The Stock Exchange of Hong
Kong Limited (the Listing Rules) in respect of the connected transactions under the above agreements between us and the Parent Company for a period of three financial years ending December 31, 2005. The upper limits of the Waiver
were as follows: the value of connected transactions relating to the provision of materials and services by us to the Parent Company shall not exceed 13% of our audited consolidated net sales in the immediately preceding financial year, and the
aggregate value of connected transactions relating to the provision of materials and services by the Parent Company to us shall not exceed 26% of our companys audited consolidated net sales in the immediate preceding financial year.

For the year ended December 31, 2005, the value of connected transactions relating to the provision of materials and services by us
to the Parent Company was RMB1,255.4 million and accounted for 11.87% of our audited consolidated net sales in the year ended December 31, 2004, and the value of connected transactions relating to the provision of materials and services by the
Parent Company to us was RMB1,293.2 million and accounted for 12.23% of our audited consolidated net sales in the year ended December 31, 2004.



| | 2. | Mining Rights Fee
| | -- | -----------------

During 2005, pursuant to the Mining
Rights Agreement dated October 17, 1997 and its supplemental agreement dated February 18, 1998 entered into between the Parent Company and us, we paid RMB12.98 million to the Parent Company.



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| | 3. | Payment of Endowment Insurance Fund
| | -- | -----------------------------------

Pursuant to
Agreement of Endowment Insurance Fund entered into between us and the Parent Company dated October 17, 1997, the Parent Company undertakes to be responsible for the management of the insurance fund to our employees and payments of the pension
and other benefits to our retirees (the Endowment Insurance Fund) on a free of charge basis. During 2005 and pursuant to the Agreement of Endowment Insurance Fund, we have paid the Endowment Insurance Fund of RMB522.7 million.

Our independent non-executive Directors have reviewed the on-going connected transaction in the year 2005 and confirmed that: (1) all
such connected transactions have been: (a) entered into by us in the ordinary and usual course of our business; (b) 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 favourable to us than terms available to or from independent third parties; and (c) entered into in accordance with the relevant agreement governing them on terms that are fair and
reasonable and in the interests of the Shareholders as a whole; (2) the value of the connected transaction in respect of the on-going supply of materials and services have not exceeded the cap under the Waiver granted by the Hong Kong Stock
Exchange.

Our auditors has submitted the report to the Board confirming that the above on-going connected transactions between us and the
Parent Company (a) have received the approval by the Board; (b) are in accordance with our pricing policies; (c) have been entered into in accordance with the relevant agreement governing the connected transactions, and (d) have
not exceeded the cap disclosed in the previous announcement.

For the years ended December 31, 2003, 2004 and 2005, we had the
following on-going connected transactions with the Parent Company and/or its subsidiary companies:



|                                            |  |                         |  |           |  |          
|------------------------------------------- |  | ----------------------- |  | --------- |  | ---------
|                                            |  | Year ended December 31,
|                                            |  | 2003                    |  | 2004      |  | 2005     
|                                            |  | (RMB000)               |  | (RMB000) |  | (RMB000)
|Income                                      |  |                         |  |           |  |          
|Sales of coal                               |  | 229,730                 |  | 523,015   |  | 856,580  
|Sales of auxiliary materials                |  | 472,899                 |  | 350,873   |  | 369,855  
|                                            |  |                         | 
|Utilities and facilities                    |  | 29,000                  |  | 29,000    |  | 29,000   
|Railway transportation services             |  | 66                      |  |          |  |         
|                                            |  |                         | 
|Expenditure                                 |  |                         |  |           |  |          
|Utilities and facilities                    |  | 285,166                 |  | 354,424   |  | 355,953  
|Annual fee for mining rights                |  | 12,980                  |  | 12,980    |  | 12,980   
|Purchases of supply materials and equipment |  | 373,710                 |  | 303,549   |  | 341,935  
|                                            |  |                         | 
|Repair and maintenance services             |  | 225,408                 |  | 222,949   |  | 197,624  
|Social welfare and support services         |  | 188,825                 |  | 207,062   |  | 242,952  
|Technical support and training              |  | 15,130                  |  | 15,130    |  | 15,130   
|Road transportation services                |  | 17,216                  |  | 63,478    |  | 53,346   
|Construction services                       |  | 507,824                 |  | 160,342   |  |         

Approval of New On-going Connected Transaction Agreements and the Annual Caps for Year 2006 to 2008

Pursuant to the regulations of Hong Kong Stock Exchange and Shanghai Stock Exchange on on-going connected transactions and the
operation developments of us and the Parent Company, we completed the review of its on-going connected transactions as required by law and entered into six New On-going Connected Transaction Agreements with the Parent Company in the first quarter
2006. It also determined the Annual Caps on the connected transactions for each New On-going Connected Transaction Agreements in each year from 2006 to 2008.

The New On-going Connected Transaction Agreements and the Annual Caps were approved by the independent shareholders on March 24, 2006. The term for each of the New On-going Connected Transaction Agreements is
from January 1, 2006 until December 31, 2008. The Materials and Services Supply Agreement and its supplementary agreement and the Agreement of Endowment Insurance Fund originally entered into between us and the Parent Company have been
terminated. The English translation of the New On-going Connected Transaction Agreements are attached as Exhibit 4.4.



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Acquisition of connected assets



| | 1. | Acquisition of Equity Interest of Heze Nenghua and Payments to the Parent Company
| | -- | ---------------------------------------------------------------------------------

The 2005 first extraordinary general meeting of the Company was held on August 19, 2005, in which the Equity Transfer Agreement between our Parent Company and us and its Supplemental
Agreement (collectively the Heze Nenghua Acquisition Agreement) were approved. According to the Heze Nenghua Acquisition Agreement, we have acquired 95.67% equity interest in Heze Nenghua at the consideration of RMB584.01 million
on December 7, 2005. Heze Nenghua is responsible for coal development in Juye Coal Field in Shandong province for us. As of 31 December 2005, we have fully paid RMB584.1 million to the Parent Company for the acquisition of the Parent
Companys equity interest in Heze Nenghua. The English translation of the Heze Nenghua Acquisition Agreement are attached as Exhibit 4.5.



| | 2. | Mining Right Consideration of Jining III Coal Mine and Amount due to the Parent Company and its Subsidiaries.
| | -- | -------------------------------------------------------------------------------------------------------------

Pursuant to the Jining III Coal Mine Acquisition Agreement dated August 4, 2000 entered into between us and the Parent Company, the consideration of
the mining right of Jining III coal mine is approximately RMB132.5 million, which shall be paid to the Parent Company in ten equal annual interest free installments commencing from 2001. For the years ended December 31, 2005, we paid RMB13.248
million to the Parent Company.

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, 2005 included the present value of the outstanding balance that arose from the funding of the acquisition of the mining right of Jining III as of
January 1, 2001 discounted using the market rate of bank borrowings. The following table sets forth the amounts due to the Parent Company and its subsidiary companies as at December 31, 2004 and 2005:



|                                                  |  |                    |  |        
|------------------------------------------------- |  | ------------------ |  | -------
|                                                  |  | As at December 31,
|                                                  |  | 2004               |  | 2005   
|Term for Repayment                                |  | RMB000            |  | RMB000
|                                                  |  |                   
|Within one year                                   |  |                   |  | 508,254
|More than one year, but not exceeding two years   |  | 9,230              |  | 8,689  
|More than two years, but not exceeding five years |  | 24,574             |  | 23,138 
|Exceeding five years                              |  | 7,253              |  |       
|                                                  |  |                    |  |        
|Total due                                         |  | 41,057             |  | 540,081
|                                                  |  |                    |  |        
|Less: amount due within one year                  |  |                   |  | 508,254
|                                                  |  |                    |  |        
|Amount due after one year                         |  | 41,057             |  | 31,827 
|                                                  |  |                    |  |        

Except for the payments disclosed above, there are no amounts due to the Parent Company and/or its
subsidiary companies that have specific terms for repayment.

Expenditures for social welfare and support services (excluding medical and
child care expenses) of RMB63.5 million, RMB63.3 million and RMB63.4 million for the year ended December 31, 2003, 2004 and 2005, respectively, and for technical support and training of RMB15.1 million for the three years ended
December 31, 2003, 2004 and 2005, have been charged to us by the Parent Company at a negotiated amount per annum, subject to changes every year.

The above transactions were charged either at market prices or based on terms agreed by both parties.

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, 2005.



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ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

The selected income statement data and cash flow data for the five years ended December 31, 2005 and the selected balance sheet data as of
December 31, 2001, 2002, 2003, 2004 and 2005 set forth below are derived from, and should be read in conjunction with, and are qualified in their entirety by reference to the Financial Statements, including the notes thereto. The Financial
Statements are prepared and presented in accordance with IFRS. For a discussion of certain differences between IFRS and U.S. GAAP, see Note 47 to the Financial Statements. For full consolidated statements and other financial information, see pages
F-1 to F-71 following Item 19. In 2005, the International Accounting Standards Board issued a number of new or revised IFRS which are effective for accounting periods beginning on or after January 1, 2005. We have adopted these new IFRS in
the financial statements for the year ended December 31, 2005. See Note 3 to the Financial Statements.



|                                                         |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|-------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | ------- | -
|                                                         |  | As of and For the Year Ended December 31,                                                         |  
|                                                         |  | 2001                                                                                              |   |  | 2002     |   |  | 2003     |   |  | 2004     |   |  | 2005     |   |  | 2005    |  
|                                                         |  | RMB                                                                                               |   |  | RMB      |   |  | RMB      |   |  | RMB      |   |  | RMB      |   |  | U.S.$   |  
|                                                         |  | (Amounts in millions except numbers of Shares and ADSs, and per Share,per ADS and operating data) |  
|INCOME STATEMENT DATA                                    |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                     |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net Revenue                                              |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net sales of coal                                        |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Domestic                                                 |  | 2,599.8                                                                                           |   |  | 3,414.0  |   |  | 4,337.1  |   |  | 7,407.0  |   |  | 8,421.5  |   |  | 1,043.5 |  
|Export(2)                                                |  | 2,276.2                                                                                           |   |  | 2,799.9  |   |  | 2,457.2  |   |  | 2,947.3  |   |  | 2,932.0  |   |  | 363.3   |  
|Railway transportation service income                    |  |                                                                                                  |   |  | 142.5    |   |  | 154.6    |   |  | 220.8    |   |  | 163.4    |   |  | 20.2    |  
|Total net revenue(3)                                     |  | 4,876.0                                                                                           |   |  | 6,356.4  |   |  | 6,948.9  |   |  | 10,575.1 |   |  | 11,516.9 |   |  | 1,427.1 |  
|Gross profit                                             |  | 2,063.4                                                                                           |   |  | 2,993.5  |   |  | 3,193.9  |   |  | 6,023.4  |   |  | 6,228.3  |   |  | 771.8   |  
|                                                         |  |                                                                                                   |   |  |          |  
|Interest expenses                                        |  | (61.5                                                                                             | ) |  | (117.9   | ) |  | (60.0    | ) |  | (35.9    | ) |  | (24.6    | ) |  | (3.0    | )
|Income before income taxes                               |  | 1,360.2                                                                                           |   |  | 1,748.2  |   |  | 1,974.9  |   |  | 4,673.3  |   |  | 4,420.0  |   |  | 547.7   |  
|Net income attributable to equity holders of the Company |  | 970.9                                                                                             |   |  | 1,222.0  |   |  | 1,386.7  |   |  | 3,154.3  |   |  | 2,881.5  |   |  | 357.1   |  
|Net income/Earnings per Share                            |  | 0.35                                                                                              |   |  | 0.43     |   |  | 0.30     |   |  | 0.66     |   |  | 0.59     |   |  | 0.07    |  
|Net income/Earnings per ADS                              |  | 17.29                                                                                             |   |  | 21.29    |   |  | 15.1     |   |  | 33.25    |   |  | 29.29    |   |  | 3.63    |  
|Operating income per Share                               |  | 0.51                                                                                              |   |  | 0.65     |   |  | 0.44     |   |  | 0.99     |   |  | 0.90     |   |  | 0.11    |  
|Income from continuing operation per ADS                 |  | 25.32                                                                                             |   |  | 32.51    |   |  | 22.16    |   |  | 49.64    |   |  | 45.18    |   |  | 5.60    |  
|                                                         |  |                                                                                                   |   |  |          |  
|U.S. GAAP                                                |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net income(4)                                            |  | 1,227.6                                                                                           |   |  | 1,325.7  |   |  | 1,499.2  |   |  | 3,263.9  |   |  | 2,994.7  |   |  | 371.1   |  
|Net income per Share                                     |  | 0.44                                                                                              |   |  | 0.46     |   |  | 0.33     |   |  | 0.69     |   |  | 0.61     |   |  | 0.08    |  
|Net income per ADS                                       |  | 21.86                                                                                             |   |  | 23.10    |   |  | 16.32    |   |  | 34.40    |   |  | 30.44    |   |  | 3.77    |  
|                                                         |  |                                                                                                   |   |  |          |  
|CASH FLOW DATA                                           |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                     |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net cash provided by operating activities                |  | 1,610.2                                                                                           |   |  | 2,239.7  |   |  | 2,701.2  |   |  | 4,418.4  |   |  | 3,939.3  |   |  | 488.1   |  
|Depreciation                                             |  | 819.6                                                                                             |   |  | 851.1    |   |  | 920.5    |   |  | 958.7    |   |  | 952.1    |   |  | 118.0   |  
|Net cash used in investing activities                    |  | (1,948.2                                                                                          | ) |  | (2,165.5 | ) |  | (1,310.3 | ) |  | (2,300.8 | ) |  | (2,262.5 | ) |  | 280.4   |  
|Net cash (used in) provided by financing activities      |  | 618.0                                                                                             |   |  | 345.2    |   |  | (911.4   | ) |  | 1,075.4  |   |  | (1,009.3 | ) |  | (125.1  | )
|                                                         |  |                                                                                                   |   |  |          |  
|OTHER FINANCIAL DATA                                     |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Income before income tax                                 |  | 1,360.2                                                                                           |   |  | 1,748.2  |   |  | 1,974.9  |   |  | 4,673.3  |   |  | 4,420.0  |   |  | 547.7   |  
|Add: Interest expenses                                   |  | 61.5                                                                                              |   |  | 117.9    |   |  | 60.0     |   |  | 35.9     |   |  | 24.6     |   |  | 3.0     |  
|Less: Interest income                                    |  | 39.9                                                                                              |   |  | 30.2     |   |  | 17.8     |   |  | 92.7     |   |  | 91.7     |   |  | 11.4    |  
|Add: Depreciation and amortisation                       |  | 827.0                                                                                             |   |  | 858.5    |   |  | 950.1    |   |  | 994.3    |   |  | 971.9    |   |  | 120.4   |  
|EBITDA(5)                                                |  | 2,208.8                                                                                           |   |  | 2,694.4  |   |  | 2,967.2  |   |  | 5,610.8  |   |  | 5,324.8  |   |  | 659.7   |  
|EBITDA margin(6)                                         |  | 45.3                                                                                              | % |  | 42.4     | % |  | 42.7     | % |  | 53.1     | % |  | 46.2     | % |  | 46.2    | %
|                                                         |  |                                                                                                   |   |  |          |  
|OPERATING DATA                                           |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Raw coal production (000 tonnes)                        |  | 34,018                                                                                            |   |  | 38,435   |   |  | 43,279   |   |  | 39,146   |   |  | 34,655   |   |  | N/A     |  
|Net sales (000 tonnes)                                  |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Domestic                                                 |  | 18,369                                                                                            |   |  | 20,582   |   |  | 25,776   |   |  | 27,988   |   |  | 25,234   |   |  | N/A     |  
|Export                                                   |  | 12,666                                                                                            |   |  | 14,466   |   |  | 13,632   |   |  | 10,016   |   |  | 7,251    |   |  | N/A     |  
|Total                                                    |  | 31,035                                                                                            |   |  | 35,048   |   |  | 39,408   |   |  | 38,004   |   |  | 32,485   |   |  | N/A     |  
|                                                         |  |                                                                                                   |   |  |          |  
|BALANCE SHEET DATA                                       |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                     |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Total current assets                                     |  | 3,221.7                                                                                           |   |  | 3,873.4  |   |  | 4,430.5  |   |  | 8,319.6  |   |  | 10,951.1 |   |  | 1,357.0 |  
|Total current liability                                  |  | 2,047.6                                                                                           |   |  | 1,662.7  |   |  | 2,372.0  |   |  | 2,545.1  |   |  | 3,429.0  |   |  | 424.9   |  
|Net current assets                                       |  | 1,174.1                                                                                           |   |  | 2,170.7  |   |  | 2,058.5  |   |  | 5,774.5  |   |  | 7,522.1  |   |  | 932.1   |  
|                                                         |  |                                                                                                   |   |  |          |  
|Property, plant and equipment                            |  | 7,479.8                                                                                           |   |  | 8,276.9  |   |  | 8,616.4  |   |  | 8,537.2  |   |  | 9,318.5  |   |  | 1,154.7 |  
|                                                         |  |                                                                                                   |   |  |          |  
|Total assets                                             |  | 11,182.6                                                                                          |   |  | 12,924.0 |   |  | 13,909.9 |   |  | 18,336.7 |   |  | 21,254.4 |   |  | 2,633.7 |  



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|                                                             |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------- |  | -------- |  | -------- |  | -------- |  | -------- |  | -------
|                                                             |  | As of and For the Year Ended December 31,                                                        
|                                                             |  | 2001                                                                                              |  | 2002     |  | 2003     |  | 2004     |  | 2005     |  | 2005   
|                                                             |  | RMB                                                                                               |  | RMB      |  | RMB      |  | RMB      |  | RMB      |  | U.S.$  
|                                                             |  | (Amounts in millions except numbers of Shares and ADSs, and per Share,per ADS and operating data)
|Total long-term borrowings                                   |  | 72.5                                                                                              |  | 1,261.3  |  | 650.9    |  | 441.1    |  | 231.8    |  | 28.7   
|Equity attributable to equity holders of the Company         |  | 9,060.0                                                                                           |  | 9,995.0  |  | 11,083.2 |  | 15,523.8 |  | 17,618.6 |  | 2,183.2
|                                                             |  |                                                                                                   |  |          |  |         
|U.S. GAAP                                                    |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|Property, plant and equipment and prepaid lease payment, net |  | 7,176.7                                                                                           |  | 7,271.4  |  | 7,785.8  |  | 8,073.7  |  | 8,851.5  |  | 1,096.8
|Total assets                                                 |  | 11,071.0                                                                                          |  | 11,787.5 |  | 12,845.8 |  | 17,379.1 |  | 20,189.4 |  | 2,501.7
|Equity attributable to equity holders of the Company         |  | 7,668.9                                                                                           |  | 8,858.5  |  | 10,019.2 |  | 14,519.3 |  | 16,699.8 |  | 2,069.3
|                                                             |  |                                                                                                   |  |          |  |         
|Number of Shares                                             |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|Domestic Shares                                              |  | 1,850.0                                                                                           |  | 1,850.0  |  | 1,850.0  |  | 1,850.0  |  | 2,960.0  |  | 2,960  
|H Shares (including H Shares represented by ADS)             |  | 1,020.0                                                                                           |  | 1,020.0  |  | 1,020.0  |  | 1,224.0  |  | 1,958.4  |  | 1,958.4
|ADS                                                          |  | 20.4                                                                                              |  | 20.4     |  | 20.4     |  | 24.5     |  | 39.2     |  | 39.168 
|Dividend per                                                 |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|Domestic Share/H Share(7)                                    |  | 0.082                                                                                             |  | 0.100    |  | 0.104    |  | 0.164    |  | 0.260    |  | 0.032  
|ADS(8)                                                       |  | 4.10                                                                                              |  | 5.00     |  | 5.20     |  | 8.20     |  | 13.00    |  | 1.611  

---

|(1) | The above financial highlights as of and for the year 2005 represent the data resulting from the consolidation of the financial statements of Yankuang Heze Power Chemical Company
Limited (Heze Nenghua), Shandong Yanmei Shipping Co. Ltd. (Yanmei Shipping), Yanzhou Coal Yulin Power Chemical Co. Limited, Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited. The gross profit, taxes and
surcharges resulting from the principal businesses of Yanmei Shipping are calculated as the transportation cost of coal of us. As the sales income, operation results, and assets of Yanmei Shipping have only limited impact on us, they are not
separately set out and analyzed in this report. Heze Nenghua, Yanzhou Coal Yulin Power Chemical Co. Limited, Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited are currently in the preparation stage or in the construction stage and have
limited impact on our financial results, and hence are not separately set out and analyzed in this report.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Export sales constituted 46.7%, 44.0%, 35.4%, 27.9% and 25.5% of total net revenue in 2001, 2002, 2003, 2004 and 2005, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(3) | Total net revenue is the sum of net sales of coal and railway transportation service income.
|--- | --------------------------------------------------------------------------------------------

|(4) | The net income for the year ended December 31, 2001 under U.S. GAAP included the loss of Jining III acquired in 2001 using the pooling of interest method. The net income for
the years ended December 31, 2001 under U.S. GAAP included the profit of Railway Assets using the pooling of interest method. The net income for the year ended December 31, 2004 and the total assets value and owners equity as at
December 31, 2004 under U.S. GAAP included the loss and net assets of Heze Nenghua acquired in 2005 using the pooling of interest method.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | EBITDA refers to earnings before interest income, interest expense, taxes, depreciation and amortization. EBITDA should not be construed as an alternative to operating income or any
other measure of performance or as an indicator of our operating performance, liquidity or cash flows generated by operating, investing and financing activities. The items of net income excluded from EBITDA are significant components in
understanding and assessing our financial performance, and EBITDA does not take into account capital expenditures or changes in working capital, which could have a material impact on our operating cash flow. Our computation of EBITDA may not be
comparable to other similarly titled measures of other companies. We have included the information concerning EBITDA because management believes it is a useful supplement to cash flow data as a measure of our performance.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | EBITDA margin represents EBITDA as a percentage of our total net revenue.
|--- | -------------------------------------------------------------------------

|(7) | The calculation of Dividend per Domestic Share/H Share is based on the dividend paid in the relevant year and total number of Domestic Shares and H Shares ranking for the dividend.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Dividend per ADS is calculated at 50 times Dividend per Domestic Share/H Share based on one ADS being equivalent to 50 H Shares.
|--- | --------------------------------------------------------------------------------------------------------------------------------

Export Sales

Please see Item 4 
Information on the Company  B. Business Overview  Sales and Marketing.

Legal Proceedings and Arbitration

In the past we have entered into lending transactions wherein we make loans through PRC financial institutions to unrelated third-party corporate
borrowers, and for which guarantees are provided by other unrelated third-party corporate entities. On January 19, 2005, Shandong Xinjia Industry Co., Ltd. (Shandong Xinjia), the borrower under one such loan (the Defaulted
Loan) defaulted on the payment of principal of RMB640 million and interest. Payment of the Defaulted Loan is guaranteed by Lianda Group



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Co., Ltd. (Lianda) and secured by pledges of the following shares owned by Lianda: (i) 170 million
state legal person shares of Huaxia Bank Company Limited (Huaxia Bank), a PRC banking company whose shares are listed on the Shanghai Stock Exchange; and (ii) controlling equity interests in an unlisted PRC company (together, the
Pledged Shares).

At our request, the Peoples High Court of Shandong Province (the High Court) granted an
order sequestering a total of 289 million Huaxia Bank shares owned by Lianda, including the 170 million shares pledged to us, and on January 22, 2005 we filed an application with the High Court for execution of the court order. On
March 28, 2005, the High Court issued judgment allowing for the auction of the sequestered Huaxia Bank shares, with the auction proceeds to be used among others to pay outstanding principal, interest and premium on the Defaulted Loan. On
September 6, 2005, the High Court appointed Shandong Yinxing Auction Company Limited and auctioned the 289 million Huaxia Bank shares owned by Lianda in accordance with the relevant PRC laws and regulations. The final auction price is
RMB3.5 per Pledged Share and the total proceeds from the auction is RMB1,011.5 million.

The transfer of the Pledge Shares are subject to
the approval of the China Banking Regulatory Commission (CBRC). Upon receiving the approval from the CBRC and the completion of the transfer procedures, the successful bidder of the Pledged Shares will remit the full auction amount,
which will be administered by the High Court. We expect to receive the principal, interest, penalty interest and relevant expenses associated with the Defaulted Loan upon the completion of all necessary legal procedures. As at the date of this
annual report, the legal procedures have not been completed yet.

Save as disclosed above, we were not involved in other significant
litigation and arbitration in 2005.

Dividends Policy

According to our Articles of Associations, the shareholders shall by way of an ordinary resolution authorize our Board of Directors to declare and pay the interim and final dividends. Dividend shall be paid once a
year. We may distribute dividends in the form of cash or shares. Pursuant to the amended Articles of Association as approved during the annual shareholders general meeting on June 28, 2006, our after-tax profit shall be allocated in accordance
with the following order: (1) compensation of losses; (2) allocation to the statutory common reserve fund; (3) allocation to the discretionary common reserve fund upon approval by resolution of the shareholders general meeting;
(4) payment of dividends in respect of ordinary shares. If our statutory common reserve fund is not sufficient to compensate our losses from the previous year, we shall utilize our after-tax profit to compensate our losses before we make any
provision for the statutory common reserve fund.

B. Significant Changes

On June 28, 2005, our shareholders approved a special resolution granting the Board of Directors an unconditional general mandate to issue and allot
additional H Shares in our capital in an amount up to 20% of the aggregate nominal amount of H Shares in issue.

Other than events
disclosed above and elsewhere in this annual report, there have been no significant changes since the date of the financial statements attached to this Form 20-F .

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

The issuance history of our shares is as follows:



|              |  |                  |  |                 |  |                |  |                  |  |                
|------------- |  | ---------------- |  | --------------- |  | -------------- |  | ---------------- |  | ---------------
|              |  | H Shares         |  | A Shares       
|              |  | Initial offering |  | Second offering |  | Third offering |  | Initial offering |  | Second offering
|Time of issue |  | 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 at December 31, 2005, we have 2,672,000,000 state-owned shares all of which were held by
our Parent Company.



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Capitalization of capital reserve and our capital structure as of December 31, 2005:

Pursuant to the resolutions of our annual general meeting held on June 28, 2005, the shareholders approved that the issuance of bonus shares by us
through capitalization of the capital reserve on the basis of six bonus shares for every ten existing shares for the year ended December 31, 2004. After the issuance of the bonus shares, our total share capital increased from 3,074,000,000
shares (our share capital for the year ended December 31, 2004) to 4, 918, 400,000 shares, out of which 2,246,400,000 shares were listed shares starting from July 28, 2005. During 2005, our share capital has been changed as follows:



|                          |  |                                       |  |                                                                       |  |                                        
|------------------------- |  | ------------------------------------- |  | --------------------------------------------------------------------- |  | ---------------------------------------
|Type                      |  | Amount of shares as atJanuary 1, 2005 |  | Increase of shares as aresult of capitalization ofthe capital reserve |  | Amount of shares as atDecember 31, 2005
|State legal person shares |  | 1,670,000,000                         |  | 1,002,000,000                                                         |  | 2,672,000,000                          
|A Shares                  |  | 180,000,000                           |  | 108,000,000                                                           |  | 288,000,000                            
|H Shares                  |  | 1,224,000,000                         |  | 734,400,000                                                           |  | 1,958,400,000                          
|Total                     |  | 3,074,000,000                         |  | 1,844,400,000                                                         |  | 4,918,400,000                          

Implementation of share reform plan

Our share reform plan was implemented on March 31, 2006. Our Parent Company has paid a consideration of 2.5 non-tradable shares for every 10 A Shares
held by each holder of A shares whose name appears on the register of member of A share on March 30, 2006 in exchange for the right to list and trade the non-tradable shares of the Parent Company on the Shanghai Stock Exchange. Our Parent
Company did not offer similar consideration to the Holders of H shares and Holders of our ADSs. Our shareholding structure before and after the implementation of finalized share reform plan was as follows:



|                                                             |  |                                       |                                                  |                                          |     |  |                                                                               |  |                                       |  |                                          |    
|------------------------------------------------------------ |  | ------------------------------------- | ------------------------------------------------ | ---------------------------------------- | --- |  | ----------------------------------------------------------------------------- |  | ------------------------------------- |  | ---------------------------------------- | ---
|Before the Implementation ofthe
Share Reform Plan            |  |                                       | After the Implementation ofthe Share Reform
Plan |                                         
|                                                             |  | Number of shares                      |                                                  | Percentage ofthe registeredshare capital |     |  |                                                                               |  | Number of shares                      |  | Percentage ofthe registeredshare capital |    
|1.      Total of unlisted tradable shares State-owned shares |  | 2,672,000,000                         |                                                  | 54.33                                    | %   |  | 1.      Total of tradable shares with trading moratorium State-owned shares   |  | 2,600,000,000                         |  | 52.86                                    | %  
|                                                             |  |                                       |                                                  |                                          |    
|2.      Total of listed tradable shares A Shares H Shares    |  | 2,246,400,000288,000,0001,958,400,000 |                                                  | 45.675.8539.82                           | %%% |  | 2.      Total of tradable shares without trading moratorium A Shares H Shares |  | 2,318,400,000360,000,0001,958,400,000 |  | 47.147.3239.82                           | %%%
|                                                             |  |                                       |                                                  |                                          |    
|3.      Total of shares                                      |  | 4,918,400,000                         |                                                  | 100.00                                   | %   |  | 3.      Total number of shares                                                |  | 4,918,400,000                         |  | 100.00                                   | %  

Set out below is certain market information relating to the H Shares, ADSs and A Shares in respect
of 2001, 2002, 2003, each quarterly period within the fiscal years ended December 31, 2004 and 2005 and each monthly period ended May 31, 2006:



|               |  |                        |  |                      |  |                        |  |       |  |       |  |      
|-------------- |  | ---------------------- |  | -------------------- |  | ---------------------- |  | ----- |  | ----- |  | -----
|               |  | Price per H Share(HK$) |  | Price per ADS(U.S.$) |  | Price per A Share(RMB)
|               |  | High                   |  | Low                  |  | High                   |  | Low   |  | High  |  | Low  
|2001           |  | 3.95                   |  | 1.90                 |  | 24.65                  |  | 12.60 |  | 13.10 |  | 8.28 
|2002           |  | 3.55                   |  | 2.40                 |  | 22.30                  |  | 15.80 |  | 11.10 |  | 8.00 
|2003           |  | 8.20                   |  | 2.625                |  | 53.20                  |  | 17.80 |  | 11.29 |  | 7.53 
|2004           |  |                        |  |                      |  |                        |  |       |  |       |  |      
|First quarter  |  | 9.70                   |  | 6.50                 |  | 60.65                  |  | 42.00 |  | 15.30 |  | 10.88
|Second quarter |  | 9.85                   |  | 5.20                 |  | 62.80                  |  | 33.25 |  | 15.82 |  | 12.38
|Third quarter  |  | 10.25                  |  | 7.55                 |  | 66.28                  |  | 50.86 |  | 15.50 |  | 12.00
|Fourth quarter |  | 12.45                  |  | 9.40                 |  | 79.50                  |  | 61.18 |  | 15.55 |  | 11.65



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|                       |  |                        |  |                      |  |                        |  |       |  |       |  |      
|---------------------- |  | ---------------------- |  | -------------------- |  | ---------------------- |  | ----- |  | ----- |  | -----
|                       |  | Price per H Share(HK$) |  | Price per ADS(U.S.$) |  | Price per AShare (RMB)
|                       |  | High                   |  | Low                  |  | High                   |  | Low   |  | High  |  | Low  
|2005                   |  |                        |  |                      |  |                        |  |       |  |       |  |      
|First quarter          |  | 12.30                  |  | 10.30                |  | 78.95                  |  | 66.00 |  | 14.09 |  | 11.25
|Second quarter         |  | 11.20                  |  | 5.90                 |  | 71.86                  |  | 61.10 |  | 12.98 |  | 9.52 
|Third quarter          |  | 6.95                   |  | 5.55                 |  | 71.78                  |  | 35.50 |  | 10.30 |  | 6.08 
|Fourth quarter         |  | 6.35                   |  | 4.75                 |  | 40.95                  |  | 30.70 |  | 7.08  |  | 4.92 
|December               |  | 5.35                   |  | 4.875                |  | 35.18                  |  | 31.00 |  | 6.02  |  | 5.16 
|2006                   |  |                        |  |                      |  |                        |  |       |  |       |  |      
|January                |  | 5.95                   |  | 5.00                 |  | 38.90                  |  | 32.43 |  | 6.78  |  | 5.91 
|February               |  | 6.60                   |  | 5.75                 |  | 41.74                  |  | 37.22 |  | 7.79  |  | 6.99 
|March                  |  | 6.90                   |  | 6.10                 |  | 44.14                  |  | 40.18 |  |      |  |     
|April                  |  | 7.50                   |  | 6.25                 |  | 48.80                  |  | 41.22 |  | 7.12  |  | 6.00 
|May                    |  | 7.30                   |  | 5.55                 |  | 48.00                  |  | 35.91 |  | 8.90  |  | 6.58 
|June (through June 22) |  | 5.70                   |  | 4.575                |  | 36.01                  |  | 29.31 |  | 8.04  |  | 6.75 

Notes:

1. In 2005,
we carried out a resolution approved at the 2004 annual general meeting in relation to issuance of bonus shares through capitalization of the capital reserve. Based on the total share capital of 3,074,000,000 shares of the Company as at
December 31, 2004, six bonus shares were issued for every ten existing shares. As a result of capitalization of capital reserve, our share capital has been changed as follows: i) number of state legal person shares increased from 1,670,000,000
shares to 2,672,000,000 shares; ii) number of A shares increased from 180,000,000 shares to 288,000,000 shares; iii) number of H shares increased from 1,224,000,000 shares to 1,958,400,000 shares.

2. On March 31, 2006, we implemented the Share Reform Plan, pursuant to which, Yankuang Group, our Parent Company which held non-tradable shares of the Company, has
paid a consideration of 2.5 non-tradable shares for every 10 shares held by each holder of A shares whose name appear on the register of members of A share on March 30, 2006 in exchange for the right to list and trade the non-tradable shares of
the Parent Company. The non-tradable shares held by Yankuang Group were granted the right to listing and trading on the Shanghai Stock Exchange and our Parent Company also undertook that the original non-tradable Shares held by the Parent Company
would be subject to a trading moratorium of 48 months from the date of the implementation of the share reform plan. Upon the implementation of the Share Reform Plan, state legal person shares changed from unlisted to tradable shares subject to a
trading moratorium and our share capital has been changed as follows: i) number of state legal person shares decreased from 2,672,000,000 shares to 2,600,000,000 shares; ii) number of A shares increased from 288,000,000 shares to 360,000,000 shares;
iii) number of H shares remains 1,958,400,000 shares.

As of December 31, 2005, a total of 1,958,400,000 H Shares were outstanding,
92,298,700 Shares of which, representing 4.7% of the outstanding H Shares, were held in the form of ADSs (a total of 1,845,974 ADSs). The outstanding ADSs were held by 16 holders of record on May 31, 2006.

B. Plan of Distribution

Not applicable.

C. Markets

Our Shares are currently 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 as Depositary and are listed
on the New York Stock Exchange under the symbol YZC. Prior to the initial public offering and subsequent listings on the Hong Kong and New York Stock Exchanges on April l, 1998 and March 31, 1998, respectively, there was no market
for the H Shares or the ADSs. For market price information for the exchanges our securities are listed, see Item A  Offer and Listing Details.

D. Selling Shareholders

Not applicable.



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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

General

Since our
Articles of Association took effect on September 25, 1997, the PRC Government and other regulatory authorities have promulgated various rules, regulations and opinions which primarily include The Securities Laws of the PRC, the General Meeting
Opinions, the Independent Director Guiding Opinions, Regulations in connection with Protection of Public Shareholders, and the Guide for Articles of Association of Listed Companies, as amended in 2006. The supervisory authorities require listed
companies to incorporate such rules, regulations and opinions into their articles of associations as appropriate.

A copy of the English
translation of our Articles of Association was filed with the Commission as an exhibit to the registration statement on Form F-1 under the Securities Act in connection with a global offering of our H shares and related American depositary shares on
October 17, 1997. We amended our Articles of Association at an extraordinary general meeting on April 22, 2002, and the full text of the English translation of the Revised Articles of Association was filed with the Commission on our 2001
Form 20-F filed on June 27, 2002. We further revised our Articles of Association at an annual general meeting held on June 25, 2004, and the full text of the English translation of the amended Articles of Association was filed with the
Commission on our 2003 20-F. We subsequently revised our Articles of Association at the shareholders meeting held on July 8, 2004 and June 28, 2005, and the full text of the English translation of the amended Articles of Association are
filed with 2004 Form 20-F. For this reporting period, we revised our Articles of Association at the shareholders meeting held on August 22, 2005 and June 28, 2006, and the full text of the English translation of the amended Articles of
Association are filed with this Form 20-F as Exhibit 1.1.

Selected Summary of the Articles of Association

We are a joint stock limited company established in accordance with the Company Law of the Peoples Republic of China (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 (the Special Regulations) and other relevant laws and 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 24 September 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 Chinas State Administration Bureau of Industry and Commerce on September 25, 1997. Our business license number is: Qi Gu Lu Zong Fu Zi No. 003929-1/1.

Our scope of business includes: mining, selection and the sale of coal; transportation of cargo; the production, sale and leasing of machinery equipments
and parts, electronic products; the sale of metal materials, chemical products, construction materials, timber, flammable materials, grease and rubber products; the production and sale of other mining materials; the production and sale of knitted
products; composite of mining, science and technology services; property development within the mining areas; the provision of dining, accommodation and tourist services; the storage and discharge of coals at sea ports; the provision of inland water
transports; the provision of commodity logistics services; and the provision of ships repairing work.



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Board of Directors

Directors who are not staff representative shall be elected or removed at the shareholders general meeting. The staff directors shall be elected by the staff in the staff representative meeting or by other ways
democratically. Directors shall be elected for a term of three years. At the expiry of the term, it shall be renewable upon re-election. A director may not be removed by the shareholders in a general meeting without any reason before his term of
office expires. The Board of Directors is accountable to the shareholders in general meeting.

We have established a system of independent
Directors and currently have four independent Directors. The independent Directors do not hold any positions in our company other than as director and do not maintain with us and our substantial shareholders a connection which may hamper their
independent and objective judgment. Apart from the powers granted to directors by the Company Law and other relevant laws, regulations and the Articles of Association, the independent Directors shall have the following special powers:



| |  |  | Substantial connected transactions (determined in accordance with the standard promulgated from time to time by the regulatory organizations of the place where the Companys
shares are listed), and engaging or ceasing to engage an accounting firm, shall be agreed by more than one-half of the independent Directors before submitting to the Board of Directors for discussion;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The independent Directors may request the Board of Directors to convene an extraordinary general meeting, and suggest the convening of a board meeting , and publicly collect voting
rights from the shareholders before the shareholders general meeting, which shall all be agreed by more than one-half of the independent Directors;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | With the consent of all the independent Directors, the independent Directors may engage external audit institutions or consultative institutions independently to provide audit and
consultation for specific matters of the Company, the relevant costs of which shall be undertaken by the Company.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If the
above recommendation are not accepted or the above powers can not be exercised ordinarily, the Company shall disclose the circumstances accordingly

The Articles do not contain any requirement for (i) the Directors to retire by a specified age, or (ii) the Directors to own any or a specified number of our shares.

Our Articles provide that when passing a resolution in relation to connected transaction at a board meeting, 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 shall excuse himself from the Board of Directors meeting, shall not have any voting rights in respect
thereof , shall not exercise any voting rights on behalf of other Directors and shall not be counted as part of the quorum of the Board of Directors meeting. A quorum is formed when majority of the non-connected Directors attended and the
resolution can be passed when majority of the non-connected Directors approve such transaction. If less than three non-connected Directors attended at the Board of Directors meeting as a result of the absence of the connected Director, such
transaction shall be submitted for resolutions at a shareholders general meeting of the Company.

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
following limit with respect to purchase or sale of assets, foreign investment (including entrusted financial management and entrusted loans), provision of financial assistance, entrusted or trusted asset or business management, entering of licence
agreement, transfer or accept the transfer of research and development projects:



| |  |  | The total assets involved in a single transaction with amount more than 5% and below 25% of our Companys latest audited total asset value;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A single investment more than 5% and below 25% of our Companys latest audited net asset value;
| | - |  | -----------------------------------------------------------------------------------------------



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| |  |  | The subject of a single transaction accounted for more than 5% and less than 25% of our Companys latest audited income from principal operations for the latest financial year;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The subject of a single transaction accounted for more than 5% and less than 25% of our Companys latest audited net profit for the latest financial year;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

The above transactions which involve public offer of securities that requires the approval of the China Securities
Regulatory Commission shall be subject to approval of the shareholders general meeting.

(2)a single loan of less than 10% of our Companys latest audited net asset value and the debt ratio to our Companys assets remains under 60% after such financing;

(3) mortgages or pledges of assets the cumulative outstanding amount of which is less than 30% of our Companys latest audited net
asset value;

(4) external guarantees not within the approval limit of the shareholders general meeting as provided in our Articles of
Association;

(5) transactions involving connected transactions, which have to be conducted in accordance with the relevant regulations of
competent securities authorities and the listing rules of the stock exchanges.

The transactions referred to in (1) of the first
paragraph involving the provision of financial assistance and entrusted financial management, shall be calculated on accrued basis for twelve consecutive months according to the transaction categories and applicable approval limit proportion of the
board of directors. When our Company conducts other transactions apart from 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 our Company in accordance with the principle of accrued basis shall not be included in the scope of accrual
calculation.

Provision of regulatory authorities our Company is subject to within and outside the PRC that is of a stricter standard than
this Article of Association shall apply accordingly.

Description of the Shares

As at December 31, 2005, our share capital structure is as follows: 4,918,400,000 ordinary shares, of which (a) 2,672,000,000 shares, which
represent 54.33% of our share capital, are held by Yankuang Group Corporation Limited as domestic legal person shares; (b) 1,958,400,000 shares, which represent 39.82% of our share capital, are held by the H Shares shareholders; and
(c) 288,000,000 shares, which represent 5.85% of our share capital, are held by the A Shares shareholders.

Upon implementation of the
our share reform plan on March 31, 2006, our share capital structure is as follows: 4,918,400,000 ordinary shares, of which (a) 2,600,000,000 shares, which represent 52.86% of our share capital, are held by Yankuang Group Corporation
Limited as domestic legal person shares; (b) 1,958,400,000 shares, which represent 39.82% of our share capital, are held by the H Shares shareholders; and (c) 360,000,000 shares, which represent 7.32% of our share capital, are held by the
A Shares shareholders. For details of our share reform plan, see Item 9 - Offer and Listing.

Our ordinary shareholders shall
enjoy the following rights:



| |  |  | the right to receive dividends and other distributions in proportion to the number of shares held;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | the right to demand for the convening of a shareholders meeting, convene a shareholders meeting, attend or appoint a proxy to attend shareholders meetings and to
vote thereat;;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the right of supervisory management over our business operations and the right to present proposals or to raise queries;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



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| |  |  | the right to transfer, grant or pledge shares so held in accordance with laws, administrative regulations and provisions of our Articles of Association;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the right to obtain relevant information in accordance with the provisions of our Articles of Association;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | for shareholders who disagree with the resolutions for the merger and separation of the Company made in a general meeting, they may demand the Company to purchase their shares; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other rights conferred by laws, administrative regulations and our Articles of Association.
| | - |  | -------------------------------------------------------------------------------------------

A shareholder (including a proxy), when voting at a shareholders general meeting, may exercise such voting rights as are attached to the number of
voting shares which he represents. Each share shall have one vote. Shares held by our Company do not have voting rights and these shares will not count as the total number of shares entitled to voting rights. Resolutions of shareholders
general meetings shall be divided into ordinary resolutions and special resolutions. An ordinary resolution must be passed by votes representing more than one-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 ordinary shareholders are entitled to dividends and
other distributions in proportion to the number of shares held, and they are not liable for making any further contribution other than the subscription amount. Our Articles provide that a controlling shareholder (as defined in the Articles) shall
not approve certain matters which will be prejudicial to the interests of all or some of other shareholders by exercising his/her voting rights.

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 classes of shares; (ii) voting rights; (iii) the power of us to purchase 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.

Shareholders Meeting

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 (2) months of the occurrence of any one of the following events:



| |  |  | 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | where our unrecovered losses amount to one-third of the total amount of our share capital;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | whenever the Board of Directors deems necessary or the supervisory committee so requests;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | other cases as provided in laws, administrative regulations and these Articles of Association; or
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | 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 days 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. A shareholder who
intends to attend the meeting shall deliver to us his written reply concerning his attendance at such meeting 20 days before the date of the meeting. When we convene an annual general



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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 issues in the motions which are within the functions of the 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 failing to comply with Article 79 of these Articles of Association shall be not voted and resolved in the
shareholders general meeting.

Set forth below is certain information relating to the H Shares, including a brief summary of certain
provisions of the Articles, and selected laws and regulations applicable to us.

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 the 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.

Unless otherwise specified, all rights, obligations and protections discussed below derived from the Articles of Association, the PRC Company Law and
abovementioned laws and regulations.

Significant Differences in the H Shares and A Shares.Holders of H Shares and Domestic Shares,
with minor exceptions, are entitled to the same economic and voting rights. However, the Articles of Association provide that holders of H shares will receive dividends in HK dollars while holders of Domestic Shares will receive dividends in
Renminbi. In addition, the H Shares can be traded only 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 (QFII).
The state-owned Legal Person Shares are not transferable without the approval of the PRC Government.

Restrictions on Transferability
and the Share Register.H Shares may be traded only by investors from Taiwan, Hong Kong and Macau and any country or territories other than the PRC and may not be sold to PRC investors. The Articles of Association provide that PRC investors are
not entitled to be registered as holders of H Shares. The consequences under PRC law of a purported transfer of H Shares to PRC investors are unclear.

Pursuant to the Articles of Association, we may refuse to register a transfer of H Shares unless (i) any relevant transfer fee and stamp duty is paid; (ii) the instrument of transfer is only in respect of H
Shares; (iii) share certificates or such other evidence is given as may be reasonably necessary to show the right of the transferor to make the transfer; (iv) if it is intended that the shares be transferred to joint owners, the maximum
number of joint owners shall not be more than four; and (v) we do not have any lien on the relevant shares.

Merger and Acquisition

In the event of the merger or division of our company, a plan shall be presented by our Board of Directors and shall be approved in accordance with the
procedures stipulated in our Articles of Association. We shall then go through the relevant approval process. A shareholder who objects to the plan of merger or division shall have the right to demand us or the shareholders who consent to the plan
of merger or division to acquire such dissenting shareholders shareholding at a fair price. The contents of the resolution of merger or division of our company shall constitute special documents which shall be available for inspection by our
shareholders.



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Repurchase of Shares

We may repurchase shares in one of the following ways, with the approval of the relevant governing authority of the State:



| | (i) | by making a general offer for the repurchase of shares to all our shareholders on a pro rata basis;
| | --- | ---------------------------------------------------------------------------------------------------



| | (ii) | by repurchasing shares through public dealing on a stock exchange;
| | ---- | ------------------------------------------------------------------



| | (iii) | by repurchasing shares outside of the stock exchange by means of an off-market agreement; and
| | ----- | ---------------------------------------------------------------------------------------------



| | (iv) | by other means as authorized by the competent securities authorities under the State Council.
| | ---- | ---------------------------------------------------------------------------------------------

Interested Shareholders

Articles 140 and 141 of our Articles of Associations provide the following:

Article 140:

The following circumstances shall be deemed to be variation or abrogation of the rights attaching to a particular class of shares:



| | (i) | to increase or decrease the number of shares of that class, or to increase or decrease the number of shares of a class having voting or equity rights or privileges equal or superior
to those of shares of that class;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | to exchange all or part of the shares of that class for shares of another class or to exchange or to create a right to exchange all or part of the shares of another class for shares
of that class;
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | to remove or reduce rights to accrued dividends or rights to cumulative dividends attached to shares of that class;
| | ----- | -------------------------------------------------------------------------------------------------------------------



| | (iv) | to reduce or remove preferential rights attached to shares of that class to receive dividends or to the distribution of assets in the event that we are liquidated;
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | to add, remove or reduce conversion privileges, options, voting rights, transfer or pre-emptive rights, or rights to acquire our securities attached to shares of that class;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | to remove or reduce rights to receive payment payable by us in particular currencies attached to shares of that class;
| | ---- | ----------------------------------------------------------------------------------------------------------------------



| | (vii) | to create a new class of shares having voting or equity rights or privileges equal or superior to those of the shares of that class;
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------



| | (viii) | to restrict the transfer or ownership of shares of that class or to increase the types of restrictions attaching thereto;
| | ------ | -------------------------------------------------------------------------------------------------------------------------



| | (ix) | to allot and issue rights to subscribe for, or to convert the existing shares into, shares in our company of that class or another class;
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------



| | (x) | to increase the rights or privileges of shares of another class;
| | --- | ----------------------------------------------------------------



| | (xi) | to restructure our company in such a way so as to result in the disproportionate distribution of obligations between the various classes of shareholders;
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | (xii) | to vary or abrogate the provisions of this Chapter.
| | ----- | ---------------------------------------------------



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Article 141:

Shareholders of the affected class, whether or not otherwise having the right to vote at shareholders general meetings, have the right to vote at
class meetings in respect of matters concerning sub-paragraphs (2) to (8), (11) and (12) of Article 140, but interested shareholder(s) shall not be entitled to vote at such class meetings.

(An) interested shareholder(s), as such term is used in the preceding paragraph, means:



| | (i) | in the case of a repurchase of shares by way of a general offer to all our shareholders or by way of public dealing on a stock exchange pursuant to Article 32, a controlling
shareholder within the meaning of Article 61;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | in the case of a repurchase of shares by an off-market agreement pursuant to Article 32, a holder of the shares to which the proposed agreement relates;
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | in the case of our restructuring, a shareholder who assumes a relatively lower proportion of obligations than the obligations imposed on shareholders of that class under the
proposed restructuring or who has an interest in the proposed restructuring different from the general interests of the shareholders of that class.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Ownership Threshold

There are no ownership thresholds above which shareholder ownership is required to be disclosed.

Changes in Capital

Article 107
provides that the increase or reduction in share capital shall be resolved by a special resolution at a shareholders general meeting.

Changes in
Registered Capital

The Company may reduce its registered share capital. In so doing, it shall act according to the Company Law, other
relevant provisions and these Articles of Association.

C. Material Contracts

Placing and Underwriting Agreement for new H Shares in July 2004

We entered into a Placing and
Underwriting Agreement with BNP Paribas Peregrine Capital Limited on July 7, 2004, pursuant to which we placed 204,000,000 new H shares, par value RMB1.00 each, at a price of HK$8.30 per share (the Placing). The net proceeds of the
Placing were HK$1,656.3 million (approximately RMB1,756.9 million). The new H Shares were placed to more than six independent professional and institutional investors located in Hong Kong, Europe and the United States. We used the net proceeds to
invest in two new coal mine projects in Shandong Province and Shaanxi Province, and the methanol project in Shaanxi Province. The Placing shares were listed on the Hong Kong Stock Exchange on July 15, 2004. Our total share capital increased to
3,074 million shares from 2,870 million shares, and the percentage of our listed share capital to our total share capital increased from 41.81% to 45.67%. The Placing and Underwriting Agreement is filed with this Form 20-F as Exhibit 4.1.

Asset Sale Agreement

We entered into
the Asset Sale Agreement with the receivers and managers and the liquidators of Southland Coal Pty Limited in Australia in October 2004, pursuant to which we acquired the entire assets of Southland Colliery previously owned by Southland Coal Pty
Limited in liquidation. The aggregate consideration for the acquisition is AUD32.0 million. We completed the acquisition of Southland Colliery assets on December 24, 2004. Please see  Item 4. Information of the Company - D. Property,
Plants and Equipment, for more details of Austar Coal Mine. The Asset Sale Agreement is filed with this Form 20-F as Exhibit 4.2.

Jining III
Mining Rights

Pursuant to the Jining III Coal Mine Acquisition Agreement dated August 4, 2000 entered into between us and the
Parent Company, the consideration of the mining right of Jining III coal mine is approximately RMB132.5 million, which shall be paid to the Parent Company in ten equal annual interest free installments commencing from 2001. During 2005, we paid
RMB13.248 million to the Parent Company.



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Loan Agreement

We entered into the Loan Agreement with Bank of China Jining Branch, Shandong Xinjia and the Lianda Group on December 13, 2004 to provide a RMB640.0 million loan to Shandong Xinjia. The loan was guaranteed by
Lianda Group and secured by pledges. The annual interest rate of the loan is 7%. The period of the loan was from December 20, 2004 to January 19, 2005. Shandong Xinjia defaulted on the payment of principal of RMB640 million and interest.
The English translation of the summary of the Loan Agreement is filed with this Form 20-F as Exhibit 4.3.

Mining Rights

The Parent Company and we have entered into a mining rights agreement dated October 17, 1997 (the Mining Rights Agreement) pursuant to
which we agreed to pay to the Parent Company an annual fee (the Annual Fee) of approximately RMB13.0 million as compensation for the Parent Companys agreement to relinquish the mining rights associated with five of our mines in
China (Nantun Mine, Xinglongzhuang Mine, Baodian Mine, Dongtan Mine and Jining II). The terms of the mining rights are 67 years for Baodian, 70 years for Dongtan, 45 years for Nantun, 80 years for Xinglongzhuang and 64 years for Jining II. All such
terms commenced on October 14, 1997, the date on which the mining rights permits were issued. The Annual Fee is fixed for a period of 10 years (the Initial Period) commencing from 1997, after which the Annual Fee will be revised if
new national legislation is passed in respect thereof. The Parent Company and we also entered into a compensation agreement dated October 17, 1997 (the Compensation Agreement) whereby the Parent Company has agreed to compensate us
in respect of any amounts in excess of the Annual Fee which we may, following the Initial Period, be required to pay as a result of any such new national legislation. For payment information, see Item 5. Operating and Financial Review and
Prospects - F. Contractual Obligations.

Approval of New On-going Connected Transaction Agreements and the Annual Caps for Year 2006 to 2008

Pursuant to the regulations of Hong Kong Stock Exchange and Shanghai Stock Exchange on on-going connected transactions and the
operation developments of us and the Parent Company, we completed the review of its New On-going Connected Transactions as required by law and entered into six New On-going Connected Transaction Agreements with the Parent Company on January 28,
2005. It also determined the Annual Caps on the connected transactions for each New On-going Connected Transaction Agreements in each year from 2006 to 2008.

The New On-going Connected Transaction Agreements and the Annual Caps were approved by the independent shareholders on March 24, 2006. The term for each of the New On-going Connected Transaction Agreements is
from January 1, 2006 till December 31, 2008. The Materials and Services Supply Agreement and its supplementary agreement and the Agreement of Endowment Insurance Fund originally entered into between us and the Parent Company have been
terminated. The New On-going Connected Transaction Agreements are filed with this annual report as Exhibit 4.4.

Acquisition of Equity Interest of Heze
Nenghua and Payments to the Parent Company

The 2005 first extraordinary general meeting of the Company was held on August 19,
2005, in which the Equity Transfer Agreement between our Parent Company and us dated November 16, 2004 and its Supplemental Agreement (collectively the Heze Nenghua Acquisition Agreement) dated June 28,
2005 were approved. According to the Heze Nenghua Acquisition Agreement, we have acquired 95.67% equity interest in Heze Nenghua at the consideration of RMB584.01 million. Heze Nenghua is responsible for coal development in Juye Coal Field in
Shandong province for us. As of 31 December 2005, we have fully paid RMB584.1 million to the Parent Company for the acquisition of the Parent Companys equity interest in Heze Nenghua. The Heze Nenghua Acquisition Agreement is filed with
this annual report as Exhibit 4.5.

Save for the foregoing and except as disclosed in our 2003 and 2004 Form 20-F, we were not a party to
any material contract during the two years preceding the date of this annual report.



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D. Exchange Controls

Our Articles of Association require that we shall pay dividends and other amount to holders of Foreign-Invested Shares in accordance with the relevant foreign exchange control regulations. If there is no applicable
regulation, the applicable exchange rate shall be the average exchange reference rate of Renminbi to the relevant foreign currency announced by the Bank of China during five working days prior to the announcement of the payment of dividends and
other amounts.

Renminbi currently is not generally a freely convertible currency. The PRC State Administration of Foreign Exchange, under
the authority of the Peoples Bank of China, controls the conversion of Renminbi into foreign currency. In general, under existing foreign exchange regulations, unless otherwise approved by the State Administration of Foreign Exchange or
exempted by relevant regulations, PRC enterprises must price and sell their goods and services in the PRC in Renminbi. We have established a limited independent foreign currency account since 2001. The primary sources of our foreign currency are the
U.S. dollar revenues from sales of coal products. Our foreign currency is mainly used for the settlement of equipment and machinery purchases and payment of cash dividends in connection with our H Shares (in HK dollars). We have not experienced any
shortage of foreign currency. In addition, we are entitled to 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. We do not intend to hedge exchange rate fluctuations between Renminbi and HK dollars.

The existing
foreign exchange regulations have significantly reduced government foreign exchange controls for transactions under the current account, including trade and service related foreign exchange transactions and payment of dividends. We may undertake
current account foreign exchange transactions without prior approval from the State Administration of Foreign Exchange by producing commercial documents evidencing such transactions, provided that they are processed through Chinese banks licensed to
engage in foreign exchange transactions. However, we cannot predict whether the PRC Government will continue its existing foreign exchange policy and when the PRC Government will allow free conversion of Renminbi to foreign currency.

Foreign exchange transactions under the capital account, including principal payments in respect of foreign currency-denominated obligations, are subject
to significant foreign exchange controls and require the approval of the State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange through debt or equity financing, or to obtain foreign exchange
for capital expenditures.

E. Taxation

China
Taxation

The following discussion summarizes the material PRC tax provisions relating to the ownership and disposition of H shares or
ADSs purchased in connection with the global offering and held by the investor as capital assets.

Dividends Paid to Individual Investors

Under the Provisional Regulations of China Concerning Questions of Taxation on Enterprises Experimenting with the Share System (the
Provisional Regulations) 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, 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).
Under the Tax Notice, dividends paid by a Chinese company to foreign persons with respect to shares listed on an overseas stock exchange, or Overseas Shares, including the H shares and ADSs, are exempt from PRC withholding taxes for the time being.
However, if the Tax Notice is withdrawn, we will withhold such taxes as required by law.

The Individual Income Tax Law of China was
amended effective January 1, 1994 and states that it supersedes any contradictory prior administrative regulation concerning individual income tax. The amended Individual Income Tax Law can be interpreted as providing that all non-PRC
individuals are subject to the 20% withholding tax on dividends paid by a Chinese company on its Overseas Shares unless specifically exempted by the financial authority of the State Council of the PRC. However, 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 restated the exemption. In the event that the letter is withdrawn, a 20% tax
may be withheld on dividends paid to



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non-PRC individual holders of H Shares or ADSs, subject to reduction by an applicable tax treaty between China and the
country where such holders reside. To date, the relevant tax authorities have not collected withholding tax from dividend payments on such shares exempted under the Tax Notice.

Dividends Paid to Non-PRC Enterprises

According to the Provisional Regulations and other applicable
tax laws and regulations, dividends paid by Chinese companies to non-PRC enterprises are ordinarily subject to a China withholding tax levied at a flat rate of 20%. However, according to the Tax Notice, a non-PRC enterprise with no permanent
establishment in China receiving dividends paid on Overseas Shares is currently exempt from the 20% withholding tax. If the Tax Notice is withdrawn and such withholding tax becomes applicable in the future, such rate may still be reduced under
relevant tax treaties, if applicable.

Tax Treaties

Non-PRC shareholders who are residents or citizens of a country that has entered into a double-taxation treaty with China may be entitled to a reduction in the amount of tax withheld, if any, 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;
| | - |  | ---------



| |  |  | Singapore;
| | - |  | ----------



| |  |  | the United Kingdom; and
| | - |  | -----------------------



| |  |  | the Netherlands.
| | - |  | ----------------

Under each one of such treaties, the
rate of withholding tax imposed by Chinas taxation authorities is generally reduced. For example, under the double taxation 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 received by such person. Under the treaty, 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, as applicable under the treatys treaty shopping provisions.

Capital Gains

The Tax Notice provides that gains realized by non-PRC enterprises upon the sale of Overseas Shares which are not held by entities established by such
enterprises in China and gains realized by non-PRC individuals upon the sale of Overseas Shares are not subject to withholding tax for the time being. However, as far as individuals are concerned, the Individual Income Tax Law of China, as amended
on October 31, 1993 and effective on January 1, 1994, provides for a capital gains tax of 20% on individuals. On January 28, 1994, the Provisions for Implementing the Individual Income Tax Law of China was promulgated which provides
that the measures to levy individual income tax on the gains realized on the sale of shares will be made in the future by the Ministry of Finance and subject to the approval of the State Council. 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 temporarily no capital gains tax will be imposed on gains from the sale of shares by individuals. However, it is uncertain whether
the above exemption for non-PRC enterprises and non-PRC individuals will continue to apply or to be renewed in the future. If such exemption does not



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apply or is not renewed, and the Tax Notice is found not to apply, holders of H shares or ADSs might be
subject to a 20% tax on capital gains, unless reduced by an applicable double taxation treaty.

Under the Tax Reduction Notice, beginning
from January 1, 2001, enterprise income tax at a reduced 10% rate will apply to interest, rental, license fees and other income obtained in China by non-PRC enterprises without agencies or establishments in China or by non-PRC enterprises of
which such incomes do not have any substantive relationship with their agency or establishment in China. Therefore, if the exemption as described in the preceding paragraph does not apply or is not renewed, and the Tax Reduction 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.

Additional China Tax Considerations

Under the Provisional Regulations of the PRC Concerning the Stamp Duty, a stamp duty is
not imposed by China on the transfer of shares, such as the H shares or ADSs, of Chinese publicly traded companies that take place outside of China.

United States Federal Income Taxation

Each potential investor is strongly urged to consult his or her own tax advisor to
determine the particular United States federal, state, local, treaty and foreign tax consequences of acquiring, owning or disposing of the H shares or ADSs.

U.S. Holders

The following is a general discussion of material United States federal income tax consequences of
purchasing, owning and disposing of the H shares or ADSs if you are a U.S. holder, as defined below, and hold 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 purchase, 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
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | certain insurance companies;
| | - |  | ----------------------------



| |  |  | financial institutions;
| | - |  | -----------------------



| |  |  | regulated investment companies;
| | - |  | -------------------------------



| |  |  | real estate investment trusts;
| | - |  | ------------------------------



| |  |  | broker-dealers;
| | - |  | ---------------



| |  |  | traders in securities that elect to mark to market;
| | - |  | ---------------------------------------------------



| |  |  | U.S. holders liable for alternative minimum tax;
| | - |  | ------------------------------------------------



| |  |  | U.S. holders that own, actually or constructively, 10% or more of our voting stock;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | banks;
| | - |  | ------



| |  |  | grantor trusts;
| | - |  | ---------------



| |  |  | dealers or traders in securities or currencies;
| | - |  | -----------------------------------------------



| |  |  | persons who receive the H shares or ADSs as compensation for services;
| | - |  | ----------------------------------------------------------------------



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| |  |  | U.S. holders that hold the H shares or ADSs as part of a straddle or a hedging or conversion transaction; or
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | U.S. holders whose functional currency is not the U.S. dollar.
| | - |  | --------------------------------------------------------------

Moreover, this description does not address United States federal estate and gift taxes or any state or local tax consequences of the acquisition, 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 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any entity created or organized in or under the laws of any other jurisdiction if treated as a United States corporation pursuant to United States federal income tax laws;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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
| | - | --------------------------------------------------------------------------------------------------------------------



| |  | 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 the 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 ADRs evidencing ADSs, you will be
treated as the owner of the H shares represented by the ADSs. The following discussion assumes that we are not a passive foreign investment company, or PFIC, as discussed under PFIC Rules below.

Distributions on the H Shares or ADSs

The gross
amount of any distribution (without reduction for any Chinese 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. 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.



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Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends
received by an individual, trust or estate prior to January 1, 2009 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 PFIC. The income tax treaty between China and the United States has been approved for the purposes of the qualified dividend rules, and we expect to qualify for benefits under the income tax treaty between China and the United States.
Moreover, the ADSs are currently traded on the NYSE. Finally, based on our audited financial statements and relevant market data, we believe that we did not satisfy the definition for PFIC status for U.S. federal income tax purposes with respect to
our 2005 taxable year. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market data, we do not anticipate becoming a
PFIC for our 2006 taxable year or any future year. However, our status in future years will depend on our income and assets (which for this purpose depends in part on the market value of the H shares or ADSs) in those years. See the discussion of
the PFIC rules below.

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 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 United States source ordinary income or loss.

Subject to various limitations, any Chinese tax withheld from distributions in accordance with the Agreement Between the Government of the United States
of America and the Government of the Peoples Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income will be deductible or creditable against your United States federal income
tax liability. For foreign tax credit limitation purposes, dividends paid on the H shares or ADSs will be foreign source income, and generally will be treated as passive income or, in the case of some U.S. holders, financial
services income for taxable years ending on or before December 31, 2006, and general category income for subsequent taxable years. 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,
(ii) are obligated to make payments related to the dividends (for example, pursuant to a short sale) or (iii) hold the H shares or ADSs in an arrangement in which your expected economic return, after non-United States taxes, is
insubstantial.

Sale, Exchange or Other Disposition

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. Capital gain of certain
non-corporate U.S. holders, including individuals, is generally taxed at a maximum rate of 15 percent where the property has been held more than one year. Your ability to deduct capital losses is subject to limitations.

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.



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PFIC Rules

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 and royalties; 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

We believe that we will not meet either of the PFIC tests in the current or subsequent taxable years and therefore will not be treated as a PFIC for such
periods. However, there can be no assurance that we will not be a PFIC in the current or subsequent taxable years.

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.

The foregoing rules with respect to excess distributions and dispositions may be
avoided or reduced if you are eligible for and timely make a valid mark-to-market election. If your H shares or ADSs were treated as shares regularly traded on a qualified exchange for United States federal income tax
purposes and a valid mark-to-market election was made, in calculating your taxable income for each taxable year you generally would be required to take into account as ordinary income or loss the difference, if any, between the fair market value and
the adjusted tax basis of your H shares or ADSs at the end of your taxable year. However, the amount of loss you would be allowed is limited to the extent of the net amount of previously included income as a result of the mark-to-market election.
The NYSE in which the ADSs will be traded is a qualified exchange for United States federal income tax purposes.

Alternatively, a timely
election to treat us as a qualified electing fund under Section 1295 of the Code could be made to 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. 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 you



| |  |  | are a corporation or fall within various other exempt categories, and, when required, demonstrate this fact; or
| | - |  | ---------------------------------------------------------------------------------------------------------------



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| |  |  | Provide a correct taxpayer identification number on a properly completed IRS Form W-9 or a substitute form, certify 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.

Hong Kong Taxation

The following discussion summarizes the material Hong Kong tax provisions relating to the ownership of H shares or ADSs purchased in connection with the global offering and held by you.

Dividends

Under current practice, no tax will be
payable in Hong Kong in respect of dividends paid by us.

Taxation of Capital Gains

No tax is generally imposed in Hong Kong in respect of capital gains from the sale of property (such as the H shares). Trading gains from the sale of
property by persons carrying on a trade, profession or business in Hong Kong, where such gains are derived from or arise in Hong Kong from such trade, profession or business, will be chargeable to Hong Kong profits tax, which is currently imposed at
the rate of 17.5% on corporations and at a maximum rate of 16.0% on individuals. Gains from sales of the H shares effected on the Hong Kong Stock Exchange will be considered to be derived from or arise in Hong Kong. Liability for Hong Kong profits
tax would thus arise in respect of trading gains from sales of H shares realized by persons carrying on a business of trading or dealing in Hong Kong in securities.

There will generally be no liability for Hong Kong profits tax in respect of profits from the sale of ADSs, where purchases and sales of ADSs are effected outside Hong Kong, e.g. on the NYSE.

Hong Kong Stamp Duty

Hong Kong stamp duty will be
payable by each of the seller and the purchaser for every sale and purchase, respectively, of the H shares. Stamp duty is charged at the 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 duty not paid will be assessed on
the instrument of transfer (if any), and the transferee will be liable for payment of such duty.

The withdrawal of H shares when ADSs are
surrendered, and the issuance of ADSs when H shares are deposited, may be subject to Hong Kong stamp duty at the rate described above for sale and purchase transactions, unless the withdrawal or deposit does not result in a change of beneficial
ownership under Hong Kong law. 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. You are not liable for the Hong Kong stamp duty on
transfers of ADSs outside of Hong Kong so long as it does not result in a change of beneficial interest in the H shares.

Hong Kong Estate Duty

Hong Kong estate duty was abolished with effect from February 11, 2006.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not
applicable.



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H. Documents on Display

In accordance with the Exchange Act, we are obligated to file reports, including annual reports on this Form 20-F, and other information with the Commission. The reports and other information we have filed under the
Exchange Act and the Registration Statement 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 Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., 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 450 Fifth Street, N.W., Washington D.C. 20549, U.S.A. at prescribed
rates. The Form 20-F 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



|                                      |  |                                                    |  |                                                 |  |                                                                         |   |  |                               |   |  |                      |   |  |                                                                                     
|------------------------------------- |  | -------------------------------------------------- |  | ----------------------------------------------- |  | ----------------------------------------------------------------------- | - |  | ----------------------------- | - |  | -------------------- | - |  | ------------------------------------------------------------------------------------
|Name of Subsidiary                    |  | Country ofincorporation/ registrationand operation |  | Issued and fullypaid capital/registered capital |  | Proportion of registeredcapital/issued share capitalheld by the Company |   |  | Proportion ofvoting powerheld |   |  | Principal activities
|                                      |  |                                                    |  |                                                 |  | Directly                                                                |   |  | Indirectly                    |   |  |                      |   |  |                                                                                     
|Austar                                |  | Australia                                          |  | AUD30,000,000                                   |  |                                                                        |   |  | 100                           | % |  | 100                  | % |  | Coal mining business                                                                
|Heze Nenghua                          |  | PRC                                                |  | RMB600,000,000                                  |  | 95.67                                                                   | % |  |                              |   |  | 95.67                | % |  | Development of ancillary projects                                                   
|Yancoal                               |  | Australia                                          |  | AUD30,000,000                                   |  | 100                                                                     | % |  |                              |   |  | 100                  | % |  | Investment holding                                                                  
|Yanmei Shipping                       |  | PRC                                                |  | RMB5,500,000                                    |  | 92                                                                      | % |  |                              |   |  | 97                   | % |  | Transportation via rivers and lakes and the sales of coal and construction materials
|Yulin                                 |  | PRC                                                |  | RMB800,000,000                                  |  | 97                                                                      | % |  |                              |   |  | 97                   | % |  | Development of 600,000 tonnes Methanol Project                                      
|Zhongyan Trade Co., Ltd. (Zhongyan) |  | PRC                                                |  | RMB2,100,000                                    |  | 52.38                                                                   | % |  |                              |   |  | 52.38                | % |  | Trading and processing of mining machinery                                          

In 2005, we acquired a 95.67% equity interest in Yankuang Heze Power Chemical Company
Limited from the Parent Company. The projects developed by Yankuang Heze Power Chemical Company Limited, Yanzhou Coal Yulin Power Chemical Co., Limited and Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited are currently in construction
or preparation.

J. Compliance and Exemption of Corporate Governance Standards Imposed by the New York Stock Exchange

New York Stock Exchange (NYSE) has based on its listing rules imposed a series of corporate governance listing standards for companies listed
in the NYSE (Section 303A). However, NYSE provides that listed companies that are foreign private issuers, subject to certain limitations and conditions, are permitted to follow home country practice in lieu of the provision of
Section 303A. One of the conditions is that a listing foreign private issuer must disclose any significant ways in which their corporate governance practices differ from those followed by U.S. companies under NYSE listing standards.

As of the date of this annual report, 52.86% of our voting rights are vested in the Parent Company. We therefore are exempt from certain requirements
of Section 303A of the NYSE Listed Company Manual: (i) we are not required to comply with Section 303A.01s requirements to form a Board with the majority of independent directors, (ii) we are not required to comply with
Section 303A.04s requirements to form a nominating/corporate governance committee entirely consisted of independent directors, and (iii) we are not required to comply with Section 303A.05s requirements to form a
compensation committee entirely consisted of independent directors, and disclose herein.

We have established an audit committee pursuant
to the requirements of Section 303A.06 of the NYSE Listed Company Manual. 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 Securities Exchange Act of 1934 to be in compliance with the audit committee standards set out in Section 303A.06 of the NYSE Listed Company Manual.



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As a foreign private issuer, we set out below 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 ManualRequirements on CorporateGovernance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Companys Practices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Non-management directors must meet at regularly scheduled executive sessions without management |  | Section 303A.03 of the NYSE 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 are informed of the our business and
operations. We believe that the convening of Board meetings on a regularly basis offers the non-management Directors a well-established communication forum to voice their concerns and engage in full and open discussions regarding our business
affairs.                                                                                                                                                                                                                                                                                                        
|                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Corporate Governance Guidelines                                                                 |  | Section 303A.09 of the NYSE Listed Company Manual requires that a listed company must 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 corporate governance requirements required by the NYSE, our shareholders has approved relevant
corporate rules and measures to address issues pertaining to: the operations, powers and responsibilities of the Shareholders, the Board, the Board of Supervisors, and the independent Directors; the disclosure of information; and connected
transactions. We believe that collectively, the aforementioned rules and measures have adequately addressed the corporate governance requirements required by the NYSE and provide wider, more detailed corporate governance requirements that can
further facilitate the effective operation of the Company.
|                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Code of BusinessConduct and Ethics                                                              |  | Section 303A.10 of the NYSE Listed Company Manual requires that a listed company must adopt and disclose a code of business conduct and ethics for
directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers.  Topics must be addressed in the 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 in compliance with PRC laws and regulations as well as the rules of the relevant listing stock exchanges. The Code of Ethics is published on the our website.
Although our current Code of Ethics as adopted does not completely conform to the NYSE rules, we believe that the existing Code of Ethics can adequately protect the interests of the Company and the Shareholders.                                                                                                                                                                                                                                                                                                                                          



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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the potential
for loss due to adverse changes in the fair value of financial instruments. As a global concern, we face exposure to adverse movements in foreign currency exchange rates, interest rates and commodity price risk. These exposures may change over time
as business practices evolve and could have a material adverse impact on our financial results.

Interest Rate Risk. We are exposed
to interest rate risk resulting from fluctuations in interest rates on our debt, primarily on long-term debt obligations. We undertake debt obligations to support general corporate purposes 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 borrowings. Fluctuations in interest rates can also lead to significant fluctuations in the fair values of our debt obligations.
We do not currently use any derivative instruments to modify the nature of our debt so as to manage the interest rate risk.

We entered
into a long-term loan agreement with the Bank of China on December 3, 2001 and borrowed a total of RMB1.2 billion from the Bank of China on January 4, 2002. The initial interest rate of the loans was 6.2% per annum, subject to
adjustment in accordance with statutory interest rate or changes by the State in the method of calculating interest during the term of the loan agreement. The interest rate of the loans was adjusted to 5.76% first in 2003, then to 6.12% on
October 29, 2004 and recently adjusted to 6.39% on April 28, 2006. The loan is repayable in six installments of RMB200.0 million each over a period of 96 months, commencing August 2004. Interest is payable on a quarterly basis. We made a
partial repayment of RMB600.0 million in June 2003. According to the terms of the loan agreement, the balance of the loan is repayable in three annual installments of RMB200 million, i.e. on August 25, of each year beginning 2004 to 2006. We
have paid RMB200 million on August 2004 and 2005, respectively, and we plan to repay the balance of the loan, RMB200 million, on August 2006.

We have prepared a sensitivity analysis to assess the impact of interest rate fluctuations on our 2005 operating results. Based on this analysis, we estimate that an increase in the interest rate to 1% would have decreased our
reported net income attributable to the equity holders of the Company for 2005 by approximately RMB3.6 million.

Foreign
Currency Exchange Rate Risk. Since July 21, 2005, the PRC Government has announced a reform of its exchange rate system. Under the reform, the Renminbi would no longer be effectively linked to the U.S. dollars but instead would allow to
fluctuate within a narrow and managed band against a basket of foreign currencies. The PRC Government may adopt further reforms of its exchange rate system, including making the Renminbi freely convertible in the future.

The foreign exchange fluctuations mainly affect (i) exported coal product sales, quoted in U.S. dollars, (ii)imported machinery and equipment
purchases and (iii) foreign currency deposits. We have not entered into any material foreign exchange contracts to minimize or mitigate the effects of foreign exchange fluctuations on our operations. Most of our sales are domestic and as such
we have a limited amount of foreign currency denominated accounts receivable. In 2005, our sales of exported coal products accounted for 25.5% of our total revenue. Our export sales agents exchange 70% of the export sales proceeds from foreign
currency to RMB and remit RMB and foreign currency to us. In addition, we purchased only small amount of machinery and equipment in the past years. A substantial portion of our imported machinery and equipment purchases were made by us in foreign
currencies. As of December 31, 2005, we had Renminbi, U.S. Dollar, Euro, Australian Dollar Hong Kong Dollar and Pound denominated savings accounts of RMB4,516.0 million, U.S.$1,74.4 million, EUR28.4 million, AUD15.1 million HK$950.1
million and £ 0.2 million.

We have prepared a sensitivity analysis to assess the impact of exchange rate fluctuation on our 2005
operating results. Based on this analysis, we estimate that a 10% decrease in the exchange rate for the U.S. dollar to RMB would have decreased our reported net income attributable to the equity holders of the Company for 2005 by approximately
RMB255.5 million.

Commodity Price Risk.Coal prices are subject to cyclical fluctuations from time to time due to imbalances
between demand and supply. Fluctuations in prices directly affect our operating and financial performance. We have experienced substantial price fluctuations in the past and believe that such fluctuations will continue. The average selling price of
our coal products was RMB172.4 per tonne in 2003, RMB272.5 in 2004, and RMB349.5 in 2005. As certain portion of our total sales are derived from export coal sales, any significant changes in the international coal industry may have a material
adverse effect on our export sales and results of operations.



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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.



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PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

As of December 31, 2005, we were not in
default in the payment of principal or interest of any lenders.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15. CONTROLS AND PROCEDURES

As of the end of the period covered by this annual report, our
management carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002). Based on this evaluation, our chief executive officer and chief financial officer have concluded
that our disclosure controls and procedures are effective in timely alerting them to material information about us required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, and effectively ensure the
recording, processing, summarizing and reporting of such material information in accordance with the rules and forms of the Securities and Exchange Commission.

There have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation, although we are committed to ongoing
periodic review and enhancement of our existing controls and expect to consider from time to time making changes we believe will increase the efficiency and reliability of our controls in the future.

During the period covered by this Annual Report, no significant change has occurred in our internal controls over financial reporting that has materially
affected, or reasonably likely to materially affect, our internal controls over financial reporting. We are required under Section 404 of the Sarbanes-Oxley Act to complete an assessment of the effectiveness of our internal controls over
financial reporting by the end of 2006. We have set up a special panel and a project management committee to consider the design, implementation and testing of a comprehensive system of internal controls, including, among others, the introduction
and implementation of risk management programs. We are in the process of identifying and correcting the deficiencies and weaknesses existing in our internal control, including the effectiveness of our information system, the efficiency of our audit
committee and the efficiency of our internal control department. In the event that necessary improvements in our internal control system cannot be fully completed by the end of 2006, there may be matters which could constitute material weaknesses in
our internal control over financial reporting, and we would be required to disclose any material weakness in our internal control over financial reporting in accordance with applicable laws and regulations.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our audit committee members are Cui Jianming, Pu Hongjiu,
Wang Xiaojun, Wang Quanxi, Chen Changchun and Dong Yunqing with Mr. Cui Jianming, who is a financial expert, serving as the chairman of the committee. Mr. Cui has extensive experience in financial accounting and audit management.
Mr. Cui is a senior auditor and certified accountant and is a consultant for the Association of China Certified Accountant. See Item 6. Directors, Supervisors, Senior Management and Employees.



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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, controller and other senior officers of the finance and audit department. Our Code of Ethics is subject to review by the Board of Directors from time to time and is
subject to amendment. Our Code of Ethics has been posted on our corporate website: http://www.yanzhoucoal.com.cn/mygsbak/index.asp. A copy of this Code of Ethics is available to any person, without charge, upon request to the address on the cover of
this Form 20-F.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Deloitte Touche Tohmatsu Certified Public Accountants
and Deloitte Touche Tohmatsu Certified Public Accountants Ltd. (collectively, Deloitte Touche Tohmatsu) served as our international and domestic independent registered accounting firms for the 2005 fiscal year. A description of the fees
billed to us by Deloitte Touche Tohmatsu for professional services in each of the last two fiscal years is set forth below:



|                   |  |                         |  |         
|------------------ |  | ----------------------- |  | --------
|                   |  | Year ended December 31,
|                   |  | 2004                    |  | 2005    
|                   |  | (thousands)            
|Audit fees         |  | RMB5,000                |  | RMB9,229
|Audit-related fees |  |                        |  |        
|Tax fees           |  |                        |  |        
|                   |  |                         |  |         
|All other fees     |  |                        |  |        
|                   |  |                         |  |         

Audit Fees are the aggregate fees billed by Deloitte Touche Tohmatsu for the audit of
our consolidated and annual financial statements, review of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. Audit-Related Fees are fees charged
by Deloitte Touche Tohmatsu for services that are reasonably related to the performance of the audit or review of our financial statements but are not reported under Audit Fees. We have not paid Deloitte Touche Tohmatsu any Audit-Related
Fees for 2004 and 2005 fiscal years.

Audit Committee Pre-Approval Policies and Procedures

The audit committee of our Board of Directors is responsible, among other things, for the recommendation or termination of external auditor subject to the
requirements of applicable domestic and overseas listing rules and regulations. Before we can engage external auditors to perform audit or non-audit services, we must obtain the necessary pre-approval from the audit committee. For 2005, all of the
audit services provided by Deloitte Touche Tohmatsu were pre-approved by our audit committee. As of the date of this report, we did not engage any accounting firms to provide non-audit services.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Our audit committee consists of
four independent non-executive directors, namely, Mr. Cui Jianming, Pu Hongjiu, Wang Xiaojun and Wang Quanxi; one affiliated director, Mr.Chen Changchun; and one employee director, namely, Mr. Dong Yunqing. 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 Securities Exchange Act of 1934 to be in compliance with the audit
committee standards set out in Section 303A.06 of the NYSE Listed Company Manual.

The affiliated director meets the requirements of
independence requirement under Rule 10A-3(b)(1)(ii)(A) of the Securities Exchange Act of 1934 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. The affiliated director is
not our executive officer. Accordingly, we believe the affiliated director qualifies for the exemption under Rule 10A-3(b)(1)(iv)(D).

Rule
10A-3(b)(1)(iv)(C) of the Securities Exchange Act of 1934 provides an exemption to the independence requirement and permits an employee director of a foreign private issuer, who is not an executive officer of that foreign private issuer to serve as
a member of the audit committee if such employee director is elected or named to the



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board of directors or audit committee of the foreign private issuer 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 qualifies for the exemption under Rule 10A-3(b)(1)(iv)(C) of the Securities Exchange Act of 1934 because he is not our executive officer and is elected to the Board of Directors of the Company pursuant to the Advisory Opinion Regarding the
Establishment of Sound Corporate Procedures for Company Employee Directors and Supervisors, promulgated by the Shandong Economic and Trade Commission on July 20, 2000 (Shandong Advisory Opinion). The employee director is not a
voting member or the chairman of the audit committee pursuant to our audit committee charter. Accordingly, we believe that the employee director is exempt from the independence requirement pursuant to Rule 10A-3(b)(1)(iv)(C) of the Securities
Exchange Act of 1934.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.



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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

References are made to pages F-1 to F-71 for year-end financial
statements.

ITEM 19. EXHIBITS

Documents filed as exhibits to this annual report:



|              |  |             |  |                                                                                                                                                                             
|------------- |  | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description
|              |  |            
|1.1           |  | -           |  | Amended Articles of Association of Yanzhou Coal Mining Company Limited as approved by the Shareholders on July 8, 2004 and June 28, 2005, respectively (English translation)
|              |  |            
|4.1           |  | -           |  | Placing and Underwriting Agreement between us and BNP Paribas Peregrine Capital Limited dated July 7, 2004 (English original)                                               
|              |  |            
|4.2           |  | -           |  | Southland Colliery Asset Sale Agreement by and among us, the receivers, managers and the liquidators of Southland Coal Pty Limited dated October 5, 2004 (English original) 
|              |  |            
|4.3           |  | -           |  | Loan Agreement by and among us, Bank of China Jining Branch, Shandong Xinjia and the Lianda Group dated December 13, 2004 (English translation summary)                     
|              |  |            
|4.4           |  | -           |  | The New On-going Connected Transaction Agreements dated (English translation)                                                                                               
|              |  |            
|4.5           |  | -           |  | Heze Nenghua Acquisition Agreement (including Supplemental Agreement) (English translation)                                                                                 
|              |  |            
|7.1           |  | -           |  | Statement explaining how certain ratios were calculated in annual report                                                                                                    
|              |  |            
|8.1           |  | -           |  | List of subsidiaries of Yanzhou Coal Mining Company Limited                                                                                                                 
|              |  |            
|12.1          |  | -           |  | Certification of chief executive officer pursuant to Rule 13a-14(a) promulgated under the U.S. Securities Act of 1934                                                       
|              |  |            
|12.2          |  | -           |  | Certification of chief financial officer pursuant to Rule 13a-14(a) promulgated under the U.S. Securities Act of 1934                                                       
|              |  |            
|13.1          |  | -           |  | Certification of chief executive officer 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                      
|              |  |            
|14.1          |  | -           |  | Zhaolou Coal Mine Coal Reserve Report                                                                                                                                       
|              |  |            
|99.1          |  | -           |  | Statement explaining how earnings per share information was calculated in this annual report                                                                                



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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, 2006 |  |  |  | By: |  | /s/ YANG Deyu
|      |  |               |  |  |  |     |  |              



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YANZHOU COAL MINING COMPANY LIMITED

LOGO

Consolidated Financial Statements

For the years ended December 31, 2005, 2004

and 2003 and Report of

Independent Registered

Public Accounting Firm



---

##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003 AND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



|                                                        |  |           
|------------------------------------------------------- |  | ----------
|CONTENTS                                                |  | PAGE(S)   
|                                                        | 
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |  | F-2       
|                                                        | 
|CONSOLIDATED STATEMENTS OF INCOME                       |  | F-3       
|                                                        | 
|CONSOLIDATED BALANCE SHEETS                             |  | F-4       
|                                                        | 
|CONSOLIDATED STATEMENT OF CHANGES IN EQUITY             |  | F-5       
|                                                        | 
|CONSOLIDATED STATEMENT OF CASH FLOWS                    |  | F-6       
|                                                        | 
|NOTES TO THE FINANCIAL STATEMENTS                       |  | F-7 - F-71



F-1



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS OF
YANZHOU COAL MINING COMPANY LIMITED

LOGO

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

We have audited the accompanying consolidated balance sheets of Yanzhou Coal Mining Company Limited and its subsidiary as of December 31, 2005 and 2004 and the
related statements of income, changes in shareholders equity, and cash flows for the three years in the period ended December 31, 2005, all expressed in Renminbi. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Yanzhou Coal Mining Company Limited and its subsidiary as of December 31, 2005 and 2004, and the results of their operations and their cash flows for the three years in the period ended
December 31, 2005 in conformity with International Financial Reporting Standards.

International Financial Reporting Standards vary in certain
significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of net income for each of the three years in the period ended December 31,
2005 and the determination of shareholders equity and financial position at December 31, 2005 and 2004, to the extent summarized in note 47.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

April 21, 2006



F-2



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



CONSOLIDATED STATEMENTS OF INCOME



|                                             |  |       |  |                         |            |   |         |     |            |         |  |     |            |  
|-------------------------------------------- |  | ----- |  | ----------------------- | ---------- | - | ------- | --- | ---------- | ------- |  | --- | ---------- | -
|                                             |  |       |  | Year ended December 31, |           
|                                             |  | NOTES |  | 2005                    |            |   | 2004    |     |            | 2003    | 
|                                             |  |       |  | RMB000                 |            |   | RMB000 |     |            | RMB000 | 
|RAILWAY TRANSPORTATION SERVICE INCOME        |  |       |  |                         | 163,437    |   |         |     | 220,771    |         |  |     | 154,585    |  
|GROSS SALES OF COAL                          |  | 7     |  |                         | 12,283,588 |   |         |     | 11,757,052 |         |  |     | 8,386,629  |  
|                                             |  |       |  |                         |            |   |         |     |            |         |  |     |            |  
|                                             |  |       |  |                         | 12,447,025 |   |         |     | 11,977,823 |         |  |     | 8,541,214  |  
|TRANSPORTATION COSTS OF COAL                 |  | 7     |  |                         | (930,103   | ) |         |     | (1,402,715 | )       |  |     | (1,592,294 | )
|COST OF SALES AND SERVICE PROVIDED           |  | 8     |  |                         | (5,288,588 | ) |         |     | (4,551,703 | )       |  |     | (3,755,023 | )
|                                             |  |       |  |                         |            |   |         |     |            |         |  |     |            |  
|GROSS PROFIT                                 |  |       |  |                         | 6,228,334  |   |         |     | 6,023,405  |         |  |     | 3,193,897  |  
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |  | 9     |  |                         | (1,918,788 | ) |         |     | (1,479,863 | )       |  |     | (1,264,858 | )
|OTHER INCOME                                 |  | 10    |  |                         | 135,038    |   |         |     | 165,732    |         |  |     | 105,845    |  
|INTEREST EXPENSE                             |  | 11    |  |                         | (24,611    | ) |         |     | (35,942    | )       |  |     | (59,966    | )
|                                             |  |       |  |                         |            |   |         |     |            |         |  |     |            |  
|INCOME BEFORE INCOME TAXES                   |  |       |  |                         | 4,419,973  |   |         |     | 4,673,332  |         |  |     | 1,974,918  |  
|INCOME TAXES                                 |  | 12    |  |                         | (1,538,036 | ) |         |     | (1,518,762 | )       |  |     | (587,710   | )
|                                             |  |       |  |                         |            |   |         |     |            |         |  |     |            |  
|INCOME FOR THE YEAR                          |  | 13    |  |                         | 2,881,937  |   |         |     | 3,154,570  |         |  |     | 1,387,208  |  
|                                             |  |       |  |                         |            |   |         |     |            |         |  |     |            |  
|Attributable to:                             |  |       |  |                         |            |   |         |     |            |         |  |     |            |  
|Equity holders of the Company                |  |       |  |                         | 2,881,461  |   |         |     | 3,154,317  |         |  |     | 1,386,686  |  
|Minority interest                            |  |       |  |                         | 476        |   |         |     | 253        |         |  |     | 522        |  
|                                             |  |       |  |                         |            |   |         |     |            |         |  |     |            |  
|                                             |  |       |  |                         | 2,881,937  |   |         |     | 3,154,570  |         |  |     | 1,387,208  |  
|                                             |  |       |  |                         |            |   |         |     |            |         |  |     |            |  
|APPROPRIATIONS TO RESERVES                   |  |       |  |                         | 755,530    |   |         |     | 737,782    |         |  |     | 425,566    |  
|                                             |  |       |  |                         |            |   |         |     |            |         |  |     |            |  
|DIVIDEND                                     |  | 15    |  |                         | 799,240    |   |         |     | 470,680    |         |  |     | 298,480    |  
|                                             |  |       |  |                         |            |   |         |     |            |         |  |     |            |  
|EARNINGS PER SHARE, BASIC                    |  | 16    |  | RMB                     | 0.59       |   |         | RMB | 0.66       |         |  | RMB | 0.30       |  
|                                             |  |       |  |                         |            |   |         |     |            |         |  |     |            |  
|EARNINGS PER ADS, BASIC                      |  | 16    |  | RMB                     | 29.29      |   |         | RMB | 33.25      |         |  | RMB | 15.10      |  
|                                             |  |       |  |                         |            |   |         |     |            |         |  |     |            |  



F-3



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



CONSOLIDATED BALANCE SHEETS



|                                                                                    |  |       |  |                 |  |            |  
|----------------------------------------------------------------------------------- |  | ----- |  | --------------- |  | ---------- | -
|                                                                                    |  |       |  | At December 31, | 
|                                                                                    |  | NOTES |  | 2005            |  | 2004       |  
|                                                                                    |  |       |  | RMB000         |  | RMB000    |  
|ASSETS                                                                              |  |       |  |                 |  |            |  
|CURRENT ASSETS                                                                      |  |       |  |                 |  |            |  
|Bank balances and cash                                                              |  |       |  | 5,885,581       |  | 5,216,738  |  
|Term deposits                                                                       |  | 17    |  | 1,326,335       |  |           |  
|Restricted cash                                                                     |  | 17    |  | 30,505          |  | 24,877     |  
|Bills and accounts receivable                                                       |  | 18    |  | 2,224,836       |  | 1,223,788  |  
|Inventories                                                                         |  | 19    |  | 470,501         |  | 485,429    |  
|Other loans receivable                                                              |  | 20    |  | 640,000         |  | 850,000    |  
|Amounts due from Parent Company and its subsidiary companies                        |  | 39    |  |                |  | 213,871    |  
|Prepayments and other current assets                                                |  | 21    |  | 202,417         |  | 188,296    |  
|Prepaid lease payments                                                              |  | 23    |  | 13,465          |  | 13,171     |  
|Prepayment for land subsidence, restoration, rehabilitation and environmental costs |  | 33    |  | 157,511         |  | 103,407    |  
|                                                                                    |  |       |  |                 |  |            |  
|TOTAL CURRENT ASSETS                                                                |  |       |  | 10,951,151      |  | 8,319,577  |  
|MINING RIGHTS                                                                       |  | 22    |  | 153,265         |  | 138,617    |  
|PREPAID LEASE PAYMENTS                                                              |  | 23    |  | 579,773         |  | 578,547    |  
|PROPERTY, PLANT AND EQUIPMENT, NET                                                  |  | 24    |  | 9,318,486       |  | 8,537,150  |  
|GOODWILL                                                                            |  | 25    |  | 153,037         |  | 117,392    |  
|NEGATIVE GOODWILL                                                                   |  | 26    |  |                |  | (27,621    | )
|INVESTMENTS IN SECURITIES                                                           |  | 28    |  | 62,181          |  | 62,181     |  
|RESTRICTED CASH                                                                     |  | 17    |  | 36,551          |  | 36,854     |  
|DEPOSIT MADE ON INVESTMENT                                                          |  | 29    |  |                |  | 574,000    |  
|                                                                                    |  |       |  |                 |  |            |  
|TOTAL ASSETS                                                                        |  |       |  | 21,254,444      |  | 18,336,697 |  
|                                                                                    |  |       |  |                 |  |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                |  |       |  |                 |  |            |  
|CURRENT LIABILITIES                                                                 |  |       |  |                 |  |            |  
|Bills and accounts payable                                                          |  | 31    |  | 497,660         |  | 478,281    |  
|Other payables and accrued expenses                                                 |  | 32    |  | 1,575,869       |  | 1,337,565  |  
|Amounts due to Parent Company and its subsidiary companies                          |  | 39    |  | 508,254         |  |           |  
|Unsecured bank borrowing - due within one year                                      |  | 34    |  | 200,000         |  | 200,000    |  
|Taxes payable                                                                       |  |       |  | 647,247         |  | 529,265    |  
|                                                                                    |  |       |  |                 |  |            |  
|TOTAL CURRENT LIABILITIES                                                           |  |       |  | 3,429,030       |  | 2,545,111  |  
|AMOUNTS DUE TO PARENT COMPANY AND ITS SUBSIDIARY COMPANIES - DUE AFTER ONE YEAR     |  | 39    |  | 31,827          |  | 41,057     |  
|UNSECURED BANK BORROWING - DUE AFTER ONE YEAR                                       |  | 34    |  |                |  | 200,000    |  
|DEFERRED TAX LIABILITY                                                              |  | 30    |  | 146,279         |  | 23,104     |  
|                                                                                    |  |       |  |                 |  |            |  
|TOTAL LIABILITIES                                                                   |  |       |  | 3,607,136       |  | 2,809,272  |  
|COMMITMENTS                                                                         |  | 40    |  |                 |  |            |  
|CAPITAL AND RESERVES                                                                |  |       |  |                 |  |            |  
|SHARE CAPITAL                                                                       |  | 35    |  | 4,918,400       |  | 3,074,000  |  
|RESERVES                                                                            |  |       |  | 12,700,177      |  | 12,449,751 |  
|                                                                                    |  |       |  |                 |  |            |  
|EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY                                |  |       |  | 17,618,577      |  | 15,523,751 |  
|MINORITY INTEREST                                                                   |  |       |  | 28,731          |  | 3,674      |  
|                                                                                    |  |       |  |                 |  |            |  
|TOTAL EQUITY                                                                        |  |       |  | 17,647,308      |  | 15,527,425 |  
|                                                                                    |  |       |  |                 |  |            |  
|TOTAL LIABILITIES AND EQUITY                                                        |  |       |  | 21,254,444      |  | 18,336,697 |  
|                                                                                    |  |       |  |                 |  |            |  



F-4



---

##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY



|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |  |                    |   |  |                  |   |  |                                           |   |  |                  |   |  |            |  
|---------------------------------------------------------------------------------------------- |  | ------------ |  | ------------ | - |  | --------------------- |  | -------------------------- |  | -------------------------- |  | ------------------ | - |  | ---------------- | - |  | ----------------------------------------- | - |  | ---------------- | - |  | ---------- | -
|                                                                                               |  | Sharecapital |  | Sharepremium |   |  | Futuredevelopmentfund |  | Statutorycommonreservefund |  | Statutorycommonwelfarefund |  | Translationreserve |   |  | Retainedearnings |   |  | Attributableto equityholders oftheCompany |   |  | Minorityinterest |   |  | Total      |  
|                                                                                               |  | RMB000      |  | RMB000      |   |  | RMB000               |  | RMB000                    |  | RMB000                    |  | RMB000            |   |  | RMB000          |   |  | RMB000                                   |   |  | RMB000          |   |  | RMB000    |  
|                                                                                               |  |              |  |              |   |  | (note)                |  | (note 35)                  |  | (note 35)                  |  |                    |   |  |                  |   |  |                                           |   |  |                  |   |  |            |  
|Balance at January 1, 2003                                                                     |  | 2,870,000    |  | 3,272,527    |   |  | 855,237               |  | 388,201                    |  | 194,141                    |  |                   |   |  | 2,414,927        |   |  | 9,995,033                                 |   |  | 4,937            |   |  | 9,999,970  |  
|Net income and total recognized income and expenses for the year                               |  |             |  |             |   |  |                      |  |                           |  |                           |  |                   |   |  | 1,386,686        |   |  | 1,386,686                                 |   |  | 522              |   |  | 1,387,208  |  
|Appropriations to reserves                                                                     |  |             |  |             |   |  | 259,674               |  | 110,580                    |  | 55,312                     |  |                   |   |  | (425,566         | ) |  |                                          |   |  |                 |   |  |           |  
|Dividends                                                                                      |  |             |  |             |   |  |                      |  |                           |  |                           |  |                   |   |  | (298,480         | ) |  | (298,480                                  | ) |  | (1,765           | ) |  | (300,245   | )
|Acquisition of a subsidiary                                                                    |  |             |  |             |   |  |                      |  |                           |  |                           |  |                   |   |  |                 |   |  |                                          |   |  | 46               |   |  | 46         |  
|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |  |                    |   |  |                  |   |  |                                           |   |  |                  |   |  |            |  
|Balance at December 31, 2003                                                                   |  | 2,870,000    |  | 3,272,527    |   |  | 1,114,911             |  | 498,781                    |  | 249,453                    |  |                   |   |  | 3,077,567        |   |  | 11,083,239                                |   |  | 3,740            |   |  | 11,086,979 |  
|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |  |                    |   |  |                  |   |  |                                           |   |  |                  |   |  |            |  
|Balance at January 1, 2004                                                                     |  | 2,870,000    |  | 3,272,527    |   |  | 1,114,911             |  | 498,781                    |  | 249,453                    |  |                   |   |  | 3,077,567        |   |  | 11,083,239                                |   |  | 3,740            |   |  | 11,086,979 |  
|Net income and total recognized income and expenses for the year                               |  |             |  |             |   |  |                      |  |                           |  |                           |  |                   |   |  | 3,154,317        |   |  | 3,154,317                                 |   |  | 253              |   |  | 3,154,570  |  
|Appropriations to reserves                                                                     |  |             |  |             |   |  | 331,548               |  | 270,812                    |  | 135,422                    |  |                   |   |  | (737,782         | ) |  |                                          |   |  |                 |   |  |           |  
|Dividends                                                                                      |  |             |  |             |   |  |                      |  |                           |  |                           |  |                   |   |  | (470,680         | ) |  | (470,680                                  | ) |  | (319             | ) |  | (470,999   | )
|Share issued at premium                                                                        |  | 204,000      |  | 1,591,977    |   |  |                      |  |                           |  |                           |  |                   |   |  |                 |   |  | 1,795,977                                 |   |  |                 |   |  | 1,795,977  |  
|Share issue expenses                                                                           |  |             |  | (39,102      | ) |  |                      |  |                           |  |                           |  |                   |   |  |                 |   |  | (39,102                                   | ) |  |                 |   |  | (39,102    | )
|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |  |                    |   |  |                  |   |  |                                           |   |  |                  |   |  |            |  
|Balance at December 31, 2004                                                                   |  | 3,074,000    |  | 4,825,402    |   |  | 1,446,459             |  | 769,593                    |  | 384,875                    |  |                   |   |  | 5,023,422        |   |  | 15,523,751                                |   |  | 3,674            |   |  | 15,527,425 |  
|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |  |                    |   |  |                  |   |  |                                           |   |  |                  |   |  |            |  
|Balance at January 1, 2005                                                                     |  | 3,074,000    |  | 4,825,402    |   |  | 1,446,459             |  | 769,593                    |  | 384,875                    |  |                   |   |  | 5,023,422        |   |  | 15,523,751                                |   |  | 3,674            |   |  | 15,527,425 |  
|Effect of change in accounting policy                                                          |  |             |  |             |   |  |                      |  |                           |  |                           |  |                   |   |  | 27,621           |   |  | 27,621                                    |   |  |                 |   |  | 27,621     |  
|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |  |                    |   |  |                  |   |  |                                           |   |  |                  |   |  |            |  
|As restated                                                                                    |  | 3,074,000    |  | 4,825,402    |   |  | 1,446,459             |  | 769,593                    |  | 384,875                    |  |                   |   |  | 5,051,043        |   |  | 15,551,372                                |   |  | 3,674            |   |  | 15,555,046 |  
|Exchange difference arising on translation of foreign operations recognized directly in equity |  |             |  |             |   |  |                      |  |                           |  |                           |  | (15,016            | ) |  |                 |   |  | (15,016                                   | ) |  |                 |   |  | (15,016    | )
|Net income                                                                                     |  |             |  |             |   |  |                      |  |                           |  |                           |  |                   |   |  | 2,881,461        |   |  | 2,881,461                                 |   |  | 476              |   |  | 2,881,937  |  
|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |  |                    |   |  |                  |   |  |                                           |   |  |                  |   |  |            |  
|Total recognized income and expenses for the year                                              |  |             |  |             |   |  |                      |  |                           |  |                           |  | (15,016            | ) |  | 2,881,461        |   |  | 2,866,445                                 |   |  | 476              |   |  | 2,866,921  |  
|Appropriations to reserves                                                                     |  |             |  |             |   |  | 381,208               |  | 249,548                    |  | 124,774                    |  |                   |   |  | (755,530         | ) |  |                                          |   |  |                 |   |  |           |  
|Bonus issue of shares                                                                          |  | 1,844,400    |  | (1,844,400   | ) |  |                      |  |                           |  |                           |  |                   |   |  |                 |   |  |                                          |   |  |                 |   |  |           |  
|Dividends                                                                                      |  |             |  |             |   |  |                      |  |                           |  |                           |  |                   |   |  | (799,240         | ) |  | (799,240                                  | ) |  | (237             | ) |  | (799,477   | )
|Acquisition of a subsidiary                                                                    |  |             |  |             |   |  |                      |  |                           |  |                           |  |                   |   |  |                 |   |  |                                          |   |  | 24,818           |   |  | 24,818     |  
|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |  |                    |   |  |                  |   |  |                                           |   |  |                  |   |  |            |  
|Balance at December 31, 2005                                                                   |  | 4,918,400    |  | 2,981,002    |   |  | 1,827,667             |  | 1,019,141                  |  | 509,649                    |  | (15,016            | ) |  | 6,377,734        |   |  | 17,618,577                                |   |  | 28,731           |   |  | 17,647,308 |  
|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |  |                    |   |  |                  |   |  |                                           |   |  |                  |   |  |            |  

Note:

According to a clarification of the relevant regulations obtained from the Ministry of Finance during the year 2002, Yanzhou Coal Mining Company Limited (the Company) is required to transfer annually an
amount to the 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.

Pursuant to the relevant regulations of the Shandong Province Finance Bureau, State-owned Assets Supervision and Administration Commission of Shandong Province and
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 future development fund for the future improvement of the mining facilities
and is not distributable to shareholders.



F-5



---

##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|------------------------------------------------------------------------------------------------------------------ |  | ----- |  | ----------------------- | - |  | ---------- | - |  | ---------- | -
|                                                                                                                   |  |       |  | Year ended December 31, |  
|                                                                                                                   |  | NOTES |  | 2005                    |   |  | 2004       |   |  | 2003       |  
|                                                                                                                   |  |       |  | RMB000                 |   |  | RMB000    |   |  | RMB000    |  
|OPERATING ACTIVITIES                                                                                               |  |       |  |                         |   |  |            |   |  |            |  
|Income for the year                                                                                                |  |       |  | 2,881,937               |   |  | 3,154,570  |   |  | 1,387,208  |  
|Adjustments to reconcile income for the year to net cash from operating activities:                                |  |       |  |                         |   |  |            |   |  |            |  
|Depreciation of property, plant and equipment                                                                      |  |       |  | 952,096                 |   |  | 958,667    |   |  | 920,533    |  
|Amortization of prepaid lease                                                                                      |  |       |  | 13,171                  |   |  | 13,194     |   |  | 13,294     |  
|Amortization of goodwill                                                                                           |  |       |  |                        |   |  | 15,773     |   |  | 9,657      |  
|Release of negative goodwill to income                                                                             |  |       |  |                        |   |  | (27,620    | ) |  | (27,620    | )
|Amortization of mining rights                                                                                      |  |       |  | 6,624                   |   |  | 6,624      |   |  | 6,624      |  
|Recognition (utilization) of deferred tax asset                                                                    |  |       |  | 44,436                  |   |  | 44,436     |   |  | (65        | )
|Recognition of deferred tax liability                                                                              |  |       |  | 78,739                  |   |  | 67,540     |   |  |           |  
|Impairment loss on accounts receivables                                                                            |  |       |  |                        |   |  | 49,104     |   |  | 80,272     |  
|Loss (gain) on disposal of property, plant and equipment                                                           |  |       |  | 527                     |   |  | 104,597    |   |  | (6,872     | )
|Gain on disposal of investments in securities                                                                      |  |       |  |                        |   |  |           |   |  | (1,424     | )
|(Increase) decrease in assets:                                                                                     |  |       |  |                         |   |  |            |   |  |            |  
|Bills and accounts receivable                                                                                      |  |       |  | (1,001,048              | ) |  | (10,437    | ) |  | (506,885   | )
|Inventories                                                                                                        |  |       |  | 59,989                  |   |  | 27,129     |   |  | 93,153     |  
|Prepayment for land subsidence, restoration, rehabilitation and environmental cost                                 |  |       |  | (53,377                 | ) |  |           |   |  |           |  
|Prepayments and other current assets                                                                               |  |       |  | (17,261                 | ) |  | 324,273    |   |  | 224,674    |  
|Amounts due from Parent Company and its subsidiary companies                                                       |  |       |  | 213,871                 |   |  | (213,871   | ) |  |           |  
|Prepaid lease payment                                                                                              |  |       |  | (14,691                 | ) |  |           |   |  |           |  
|Increase (decrease) in liabilities:                                                                                |  |       |  |                         |   |  |            |   |  |            |  
|Bills and accounts payable                                                                                         |  |       |  | 19,379                  |   |  | 50,673     |   |  | (175,117   | )
|Other payables and accrued expenses                                                                                |  |       |  | 157,833                 |   |  | (13,333    | ) |  | 569,651    |  
|Provision for land subsidence, restoration, rehabilitation and environmental costs                                 |  |       |  |                        |   |  | (178,361   | ) |  | (2,194     | )
|Amounts due to Parent Company and its subsidiary companies                                                         |  |       |  | 479,067                 |   |  | (368,939   | ) |  | 58,794     |  
|Taxes payable                                                                                                      |  |       |  | 117,982                 |   |  | 414,362    |   |  | 57,553     |  
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|NET CASH FROM OPERATING ACTIVITIES                                                                                 |  |       |  | 3,939,274               |   |  | 4,418,381  |   |  | 2,701,236  |  
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|INVESTING ACTIVITIES                                                                                               |  |       |  |                         |   |  |            |   |  |            |  
|Increase in term deposits                                                                                          |  |       |  | (1,326,335              | ) |  |           |   |  |           |  
|Purchase of property, plant and equipment                                                                          |  |       |  | (1,315,431              | ) |  | (743,022   | ) |  | (1,317,856 | )
|Decrease (increase) in other loans receivable                                                                      |  |       |  | 210,000                 |   |  | (750,000   | ) |  | (100,000   | )
|Acquisition of Heze                                                                                                |  | 36    |  | 170,247                 |   |  | (574,000   | ) |  |           |  
|(Increase) decrease in restricted cash                                                                             |  |       |  | (5,325                  | ) |  | (44,210    | ) |  | 34,240     |  
|Proceeds on disposal of property, plant and equipment                                                              |  |       |  | 4,378                   |   |  | 17,009     |   |  | 34,399     |  
|Acquisition of Southland                                                                                           |  | 37    |  |                        |   |  | (136,302   | ) |  |           |  
|Acquisition of Yanmei Shipping                                                                                     |  | 38    |  |                        |   |  |           |   |  | (11,186    | )
|Proceeds on disposal of investments in securities                                                                  |  |       |  |                        |   |  |           |   |  | 90,126     |  
|Acquisition of Railway Assets                                                                                      |  |       |  |                        |   |  | (40,000    | ) |  | (40,000    | )
|Acquisition of investment in securities                                                                            |  |       |  |                        |   |  | (30,283    | ) |  |           |  
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|NET CASH FLOW USED IN INVESTING ACTIVITIES                                                                         |  |       |  | (2,262,466              | ) |  | (2,300,808 | ) |  | (1,310,277 | )
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|FINANCING ACTIVITIES                                                                                               |  |       |  |                         |   |  |            |   |  |            |  
|Dividend paid                                                                                                      |  |       |  | (799,240                | ) |  | (470,680   | ) |  | (298,480   | )
|Repayments of bank borrowings                                                                                      |  |       |  | (200,000                | ) |  | (200,000   | ) |  | (600,000   | )
|Repayment to Parent Company and its subsidiary companies in respect of consideration for acquisition of Jining III |  |       |  | (9,802                  | ) |  | (10,483    | ) |  | (11,115    | )
|Dividend paid to a minority shareholder of a subsidiary                                                            |  |       |  | (237                    | ) |  | (319       | ) |  | (1,765     | )
|Issues of shares, net of share issue expenses                                                                      |  |       |  |                        |   |  | 1,756,875  |   |  |           |  
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|NET CASH FLOW FROM (USED IN) FINANCING ACTIVITIES                                                                  |  |       |  | (1,009,279              | ) |  | 1,075,393  |   |  | (911,360   | )
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                          |  |       |  | 667,529                 |   |  | 3,192,966  |   |  | 479,599    |  
|CASH AND CASH EQUIVALENTS, BEGINNING                                                                               |  |       |  | 5,216,738               |   |  | 2,023,772  |   |  | 1,544,173  |  
|EFFECT OF FOREIGN EXCHANGE RATE CHANGES                                                                            |  |       |  | 1,314                   |   |  |           |   |  |           |  
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|CASH AND CASH EQUIVALENTS, ENDING, REPRESENTED BY BANK BALANCES AND CASH                                           |  |       |  |                         |   |  |            |   |  |            |  
|                                                                                                                   |  |       |  | 5,885,581               |   |  | 5,216,738  |   |  | 2,023,772  |  
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|Additional cash flow information:                                                                                  |  |       |  |                         |   |  |            |   |  |            |  
|Cash paid during the year for                                                                                      |  |       |  |                         |   |  |            |   |  |            |  
|Interest                                                                                                           |  |       |  | 24,199                  |   |  | 34,157     |   |  | 56,838     |  
|Income taxes                                                                                                       |  |       |  | 1,296,879               |   |  | 992,424    |   |  | 530,222    |  



F-6



---

##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



NOTES TO THE FINANCIAL STATEMENTS



|1. | GENERAL
|-- | -------

Organisation 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). The addresses of the registered office and principal place of business of the Company are 298 Fushan South Road, Zoucheng, Shandong Province.

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 railway network that links these mines with the national railway grid. These six coal mines and the railway were originally divisions of the
Companys ultimate holding company, Yankuang Group Corporation Limited (the Parent Company), a state-owned enterprise in the PRC. The Parent Company contributed the assets and liabilities of the Xinglongzhuang coal mine, Baodian
coal mine, Nantun coal mine and Dongtan coal mine into the Company upon its formation.

The Company acquired from the Parent Company Jining
II, Jining III and the assets of the special purpose coal railway transportation business (Railway Assets) in 1998, 2001 and 2002, respectively.

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 50 H shares) are listed on the New York Stock Exchange, Inc.

Acquisitions and establishment of subsidiaries

The Group represents the Company and its consolidated subsidiaries.

At December 31, 2003, the Company acquired a 92% interest in the registered capital of Shandong Yanmei Shipping Co., Ltd. (formerly known as Zoucheng Nanmei Shipping Co., Ltd.) (Yanmei Shipping) for a
cash consideration of RMB11,692,000. Yanmei Shipping is a limited liability company established and operated in the PRC and is principally engaged in the transportation business via rivers and lakes and sale of coal and construction materials.

In 2004, the Company established Yanzhou Coal Yulin Power Chemical Co., Ltd. (Yulin), a 97% owned subsidiary, for the future
development of the methanol projects of the Group in the Shaanxi Province in the PRC.



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|1. | GENERAL - continued
|-- | -------------------

In 2004, the Company acquired the
entire interest in the Southland coal mine located in New South Wales of Australia (Southland) from independent third parties at an aggregate cash consideration of AUD28,000,000 (equivalent to RMB187,312,000). See note 37 for further
details. The Company has also established two wholly-owned subsidiaries in Australia, namely Yancoal Australia Pty Limited (Yancoal) and Austar Coal Mine Pty Limited (Austar), in 2004 for the Groups future operations in
Southland.

In 2005, the Company acquired a 95.67% equity interest in Yankuang Heze Power Chemical Company Limited (Heze) from
the Parent Company at cash consideration of RMB584,008,000. See note 36 for further details. 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. At December 31, 2005, Heze has commenced construction works for the Zhaolou coal mine and it has no significant impact on the
Groups results for the year.



|2. | BASIS OF PRESENTATION
|-- | ---------------------

The accompanying financial
statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The Company also prepares a set of financial statements in accordance with the relevant accounting principles and regulations applicable
to PRC enterprises (PRC GAAP).

The financial statements reflect additional disclosures to conform with the disclosure
requirements of the Hong Kong Companies Ordinance.

The presentation currency of the Group is Renminbi, which is same as the functional
currency of the Group.



|3. | ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS
|-- | -----------------------------------------------------------------------

In the current year, the Group has adopted all of the new and revised standards and interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial
Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on January 1, 2005. The adoption of these new and revised standards and interpretations has resulted in
changes to the Groups accounting policies in the following areas that have affected the amounts reported for the current or prior periods:



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|3. | ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS - continued
|-- | -----------------------------------------------------------------------------------



| |  |  | goodwill (IFRS 3); and
| | - |  | ----------------------



| |  |  | excess of acquirers interest in the net fair value of acquirees identifiable assets, liabilities and contingent liabilities over cost of acquisition (previously known as
negative goodwill) (IFRS 3);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The impact of these changes in accounting policies is discussed in detail later in this note.
The impact on basic earnings per share is disclosed in note 16.

At the date of authorization of these financial statements, the following
standards and interpretations were in issue but not yet effective:



|                            |  |                                                                                                             
|--------------------------- |  | ------------------------------------------------------------------------------------------------------------
|IAS 1 (Amendment)           |  | Presentation of Financial Statements                                                                        
|                            | 
|                            |  | Added disclosures about an entitys capital1                                                                
|                            | 
|IAS 19 (Amendment)          |  | Employee Benefits2                                                                                          
|                            | 
|IAS 39 (Amendment)          |  | Financial Instruments: Recognition and Measurement Amendment for hedges of forecast intragroup transactions2
|                            | 
|IAS 39 (Amendment)          |  | Financial Instruments: Recognition and Measurement Amendment for fair value option2                         
|                            | 
|IAS 39 (Amendment) & IFRS 4 |  | Financial Instruments: Recognition and Measurement Amendment for financial guarantee contracts2             
|                            | 
|IFRS 6                      |  | Exploration for and Evaluation of Mineral Assets2                                                           
|                            | 
|IFRS 7                      |  | Financial Instruments: Disclosures1                                                                         
|                            | 
|IFRIC 4                     |  | Determining whether an Arrangement Contains a Lease2                                                        
|                            | 
|IFRIC 5                     |  | Rights to Interests Arising from Decommissing, Restoration and Environmental Rehabilitation Funds2          
|                            | 
|IFRIC 6                     |  | Liabilities arising from Participating in a Specific Market  Waste Electrical and Electronic Equipment3    
|                            | 
|IFRIC 7                     |  | Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies4          
|                            | 
|IFRIC 8                     |  | Scope of IFRS 25                                                                                            
|                            | 
|IFRIC 9                     |  | Reassessment of Embedded Derivatives6                                                                       



|1 | Effective for annual periods beginning on or after January 1, 2007.
|- | -------------------------------------------------------------------



|2 | Effective for annual periods beginning on or after January 1, 2006.
|- | -------------------------------------------------------------------



|3 | Effective for annual periods beginning on or after December 1, 2005.
|- | --------------------------------------------------------------------



|4 | Effective for annual periods beginning on or after March 1, 2006.
|- | -----------------------------------------------------------------



|5 | Effective for annual periods beginning on or after May 1, 2006.
|- | ---------------------------------------------------------------



|6 | Effective for annual periods beginning on or after June 1, 2006.
|- | ----------------------------------------------------------------

The directors are evaluating the impact of the adoption of these standards and interpretations but have not yet determined
the effect on the adoption on its financial position and results of operations.



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|3. | ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS - continued
|-- | -----------------------------------------------------------------------------------

IFRS 3, Business Combinations

Goodwill

IFRS 3 Business Combinations has been adopted for business combinations for which the agreement date is on or after March 31, 2004. The
option of limited retrospective application of the Standard has not been taken up, thus avoiding the need to restate past business combinations. The principal impact of the new standard on the accounting for that transaction has been the recognition
of contingent liabilities that would not have been recognized separately from goodwill under the predecessor Standard, IAS 22. The recognition of these liabilities has had no material impact on the results for the year.

After initial recognition, IFRS 3 requires goodwill acquired in a business combination to be carried at cost less any accumulated impairment losses. Under
IAS 36 Impairment of Assets (as revised in 2004), impairment reviews are required annually, or more frequently if there are indications that goodwill might be impaired. IFRS 3 prohibits the amortization of goodwill. Previously, under IAS
22, the Group carried goodwill in its balance sheet at cost less accumulated amortization and accumulated impairment losses. Amortization was charged over the estimated useful life of the goodwill, subject to the rebuttable presumption that the
maximum useful life of goodwill was 20 years.

In accordance with the transitional rules of IFRS 3, the Group has applied the revised
accounting policy for goodwill prospectively from the beginning of its first annual period beginning on or after March 31, 2004, i.e. January 1, 2005, to goodwill acquired in business combinations for which the agreement date was before
March 31, 2004. Therefore, from January 1, 2005, the Group has discontinued amortizing such goodwill and has tested the goodwill for impairment in accordance with IAS 36. At January 1, 2005, the carrying amount of amortization
accumulated before that date of RMB29.3 million has been eliminated, with a corresponding decrease in the cost of goodwill.

Because the
revised accounting policy has been applied prospectively, the change has had no impact on amounts reported for the year ended December 31, 2004 or prior periods. No amortization has been charged in the current year. Under the previous
accounting policy, RMB15.8 million would have been charged to income statement during the year ended December 31, 2005, leaving a balance of goodwill of RMB137.2 million at December 31, 2005.

No impairment loss has been recognized in the current period in accordance with IAS 36.

Excess of acquirers interest in the net fair value of acquirees identifiable assets, liabilities and contingent liabilities over cost
(previously known as negative goodwill)

IFRS 3 requires that, after reassessment, any excess of the acquirers interest in the net
fair value of the acquirees identifiable assets, liabilities and contingent liabilities over the cost of the business combination should be recognized immediately in profit or loss. IFRS 3 prohibits the recognition of negative goodwill in the
balance sheet.



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|3. | ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS - continued
|-- | -----------------------------------------------------------------------------------

Previously, under IAS 22 (superceded by IFRS 3), the Group released negative goodwill to income over a number of accounting periods, based on an analysis of the circumstances from which the balance resulted. Negative
goodwill was reported as a deduction from assets in the balance sheet.

In accordance with the transitional rules of IFRS 3, the Group has
applied the revised accounting policy prospectively from January 1, 2005. Therefore, the change has had no impact on amounts reported for the year ended December 31, 2004 or prior periods.

The carrying amount of negative goodwill at January 1, 2005 has been derecognized at the transition date. Therefore, an adjustment of RMB27.6 million
is made to opening retained earnings and negative goodwill at January 1, 2005.

Under the previous accounting policy, RMB27.6 million
of negative goodwill would have been released to income during the year ended December 31, 2005, leaving zero balance of negative goodwill at December 31, 2005. Therefore, the impact of the change in accounting policy in 2005 is a
reduction in other operating income of RMB27.6 million and no financial impact on net assets at December 31, 2005.



|4. | SIGNIFICANT ACCOUNTING POLICIES
|-- | -------------------------------

The financial statements
have been prepared on the historical cost basis, except for the revaluation of financial instruments which are stated at fair value. The principal accounting policies adopted are set out below.

Basis of consolidation

The
consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company. 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 results 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.

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

All significant intra-group transactions, balances, income and expenses are eliminated on consolidation.



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|4. | SIGNIFICANT ACCOUNTING POLICIES - continued
|-- | -------------------------------------------

Basis of
consolidation - continued

Minority interests in the net assets of consolidated subsidiaries are presented separately from the
Groups equity therein. Minority interests consist 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.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable for goods and services provided in the normal courses of business, net of discounts and sales related taxes.

Sales of goods are recognized when goods are delivered and title has passed.

Service income is recognized when services are provided.

Interest income from a financial asset accrued on
a time basis by reference to the principal outstanding and at the 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 from investments is recognized when the shareholders rights to receive payments have been established.

Mining rights

Mining
rights of Jining III and Southland are stated at cost less accumulated amortization and 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 commencement of commercial production.

Prepaid lease payments

Prepaid lease payments represents land use rights which are stated at cost less accumulated amortization and identified impairment losses.

Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at cost less 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, over their estimated useful lives and after taking into account their estimated
residual value, using the straight line method or units of production method.



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|4. | SIGNIFICANT ACCOUNTING POLICIES - continued
|-- | -------------------------------------------

Property,
plant and equipment - continued

Construction in progress is stated at cost less any identified impairment loss. Cost comprises
construction expenditure and other direct costs attributable to such projects, including borrowing costs, if the amount of capital expenditures and the time involved to complete the construction are significant. When the assets concerned are brought
into use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policies.

Assets under
construction are not depreciated until they are completed and put into commercial operation.

Any gain or loss arising on the disposal or
retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the income statement.

Impairment other than goodwill

At
each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

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 losses are recognized as an expense immediately.

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 so 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 income immediately.

Goodwill

Goodwill arising on the
acquisition of a subsidiary 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 a subsidiary at the date of acquisition. Goodwill is
initially recognized as an asset and is subsequently measured at cost less any accumulated impairment losses. Any impairment is recognized immediately in income statement and is not subsequently reversed.



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|4. | SIGNIFICANT ACCOUNTING POLICIES - continued
|-- | -------------------------------------------

Goodwill - continued

For previously capitalized goodwill arising on acquisitions 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.

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 combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually and whenever 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 first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

Goodwill arising on the acquisition of a subsidiary is presented separately in the balance sheet.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the gain or loss on disposal.

Inventories

Inventories of coal are
physically measured and are stated at the lower of cost and net realizable value. Cost, which comprises direct materials and, where applicable, direct labor 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.

Income taxes

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 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.



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|4. | SIGNIFICANT ACCOUNTING POLICIES - continued
|-- | -------------------------------------------

Income
taxes - continued

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 is 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, 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.

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 income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

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.

Research and development

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.

Where no internally-generated intangible asset can be recognized, development expenditure is recognized as an expense in the period in which it is incurred.

No development expenditure has been deferred.



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|4. | SIGNIFICANT ACCOUNTING POLICIES - continued
|-- | -------------------------------------------

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.

Capitalization of 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 in profit or loss 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 its 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 retranslated 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.

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
recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.



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|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 expenditures incurred by the Group, they are reported separately as other operating income. If the grants subsidise 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.

Retirement benefit costs

Payments to defined contribution retirement benefit plans are charged as expenses as they fall due.

Financial instruments

Financial
assets and financial liabilities are recognized on the balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Loan and receivables

Loan and receivables (including bills and accounts receivables, other loan
receivable) are subsequently measured at amortized cost using the effective interest rate method. An impairment loss for estimated irrecoverable amounts are recognized in profit or loss when there is objective evidence that the asset is impaired.
The impairment loss recognized is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

Investments

Investments are
recognized and derecognized on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at
fair value, plus directly attributable transaction costs.

Investments other than held-to-maturity debt securities are classified as either
investments held for trading or as available-for-sale, and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in profit or loss
for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognized directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss
previously recognized in equity is included in the profit or loss for the period. Available-for sale equity investments that do not have quoted market prices in an active market and those fair value can not be reliably measured are measured at cost
less impairment after initial recognition. Impairment losses recognized in profit or loss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss.



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|4. | SIGNIFICANT ACCOUNTING POLICIES - continued
|-- | -------------------------------------------

Cash and
cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments
that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

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.

Bank borrowings

Interest-bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and
the settlement or redemption of borrowings is recognized over the term of the borrowings.

Bills and accounts payable, other payables
and accrued expenses and amounts due to Parent Company and its subsidiary companies

Bills and accounts payable, other payables and
accrued expenses and amounts due to Parent Company and its subsidiary companies are subsequently measured at amortized cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received,
net of direct issue costs.



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|5. | CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINAITY
|-- | --------------------------------------------------------------------------

In the process of applying the Groups accounting policies, which are described in note 4, management has made the following judgments that have the most significant effect on the amounts recognized in the
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. The management exercises their judgment in estimating
the useful lives of the depreciable assets and the production volume of the mine.

Mining rights

Mining rights are amortized on a straight line basis over the shorter of the contractual period and their useful lives estimated based on the total proven
and probable reserves of coal mine. The management exercises their judgment in estimating the total proven and probable reserves of coal mine.

Estimated impairment on trade receivables

The management regularly reviews the recoverability and age of the trade
receivables. Impairment on trade receivables is made based on the estimation of the future cash flow discounted at an effective interest rate to calculate the present value.

Provision for land subsidence, restoration, rehabilitation and environmental costs

The cost of relocation of inhabitants from the land in preparation for mining activities is charged to statement of income when incurred. 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 cost and past experiences.

Estimated 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, 2005, the carrying amount of
goodwill is RMB153,037,000.



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|6. | SEGMENT INFORMATION
|-- | -------------------

The Group is engaged primarily in the
coal mining business and 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 must be 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 are engaged in trading and processing of mining machinery and the
transportation business via rivers and lakes 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.

Business segments

For management purposes, the Group is currently organized into two operating divisionscoal mining and coal railway transportation. These divisions
are the basis on which the Group reports its primary segment information.

Principal activities are as follows:

Coal
mining                            - Underground mining, preparation and sales of coal

Coal railway transportation    - Provision of railway transportation services

Segment information about these businesses is presented below:

INCOME STATEMENT



|              |  |                                                  |  |                |  |              |   |  |             
|------------- |  | ------------------------------------------------ |  | -------------- |  | ------------ | - |  | ------------
|              |  | For the year endedDecember 31, 2005 Coal railway
|              |  | Coal mining                                      |  | transportation |  | Eliminations |   |  | Consolidated
|              |  | RMB000                                          |  | RMB000        |  | RMB000      |   |  | RMB000     
|GROSS REVENUE |  |                                                  |  |                |  |              |   |  |             
|External      |  | 12,283,588                                       |  | 163,437        |  |             |   |  | 12,447,025  
|Inter-segment |  |                                                 |  | 226,852        |  | (226,852     | ) |  |            
|              |  |                                                  |  |                |  |              |   |  |             
|Total         |  | 12,283,588                                       |  | 390,289        |  | (226,852     | ) |  | 12,447,025  
|              |  |                                                  |  |                |  |              |   |  |             

Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority.



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|6. | SEGMENT INFORMATION - continued
|-- | -------------------------------



|                               |  |                                      |  |                            |  |              |  |              |  
|------------------------------ |  | ------------------------------------ |  | -------------------------- |  | ------------ |  | ------------ | -
|                               |  | For the year ended December 31, 2005 | 
|                               |  | Coal mining                          |  | Coal railwaytransportation |  | Eliminations |  | Consolidated |  
|                               |  | RMB000                              |  | RMB000                    |  | RMB000      |  | RMB000      |  
|RESULT                         |  |                                      |  |                            |  |              |  |              |  
|Segment results                |  | 4,601,715                            |  | 67,381                     |  |             |  | 4,669,096    |  
|                               |  |                                      |  |                            |  |              |  |              |  
|Unallocated corporate expenses |  |                                      |  |                            |  |              |  | (320,692     | )
|Unallocated corporate income   |  |                                      |  |                            |  |              |  | 96,180       |  
|Interest expenses              |  |                                      |  |                            |  |              |  | (24,611      | )
|                               |  |                                      |  |                            |  |              |  |              |  
|Income before income taxes     |  |                                      |  |                            |  |              |  | 4,419,973    |  
|Income taxes                   |  |                                      |  |                            |  |              |  | (1,538,036   | )
|                               |  |                                      |  |                            |  |              |  |              |  
|Income for the year            |  |                                      |  |                            |  |              |  | 2,881,937    |  
|                               |  |                                      |  |                            |  |              |  |              |  

BALANCE SHEET



|                                  |  |                      |  |                            |  |             
|--------------------------------- |  | -------------------- |  | -------------------------- |  | ------------
|                                  |  | At December 31, 2005
|                                  |  | Coal mining          |  | Coal railwaytransportation |  | Consolidated
|                                  |  | RMB000              |  | RMB000                    |  | RMB000     
|ASSETS                            |  |                      |  |                            |  |             
|Segment assets                    |  | 12,139,834           |  | 1,031,347                  |  | 13,171,181  
|                                  |  |                      |  |                            |  |             
|Unallocated corporate assets      |  |                      |  |                            |  | 8,083,263   
|                                  |  |                      |  |                            |  |             
|                                  |  |                      |  |                            |  | 21,254,444  
|                                  |  |                      |  |                            |  |             
|LIABILITIES                       |  |                      |  |                            |  |             
|Segment liabilities               |  | 2,584,110            |  | 29,500                     |  | 2,613,610   
|                                  |  |                      |  |                            |  |             
|Unallocated corporate liabilities |  |                      |  |                            |  | 993,526     
|                                  |  |                      |  |                            |  |             
|                                  |  |                      |  |                            |  | 3,607,136   
|                                  |  |                      |  |                            |  |             

OTHER INFORMATION



|                                                         |  |                                      |  |                |   |  |                        |  |                      
|-------------------------------------------------------- |  | ------------------------------------ |  | -------------- | - |  | ---------------------- |  | ---------------------
|                                                         |  | For the year ended December 31, 2005
|                                                         |  | Coal mining                          |  | transportation |   |  | Coal railwayand others |  | CorporateConsolidated
|                                                         |  | RMB000                              |  | RMB000        |   |  | RMB000                |  | RMB000              
|Capital additions                                        |  | 1,828,130                            |  | 23,710         |   |  | 5,531                  |  | 1,857,371            
|Amortization of prepaid lease payments                   |  | 7,983                                |  | 5,188          |   |  |                       |  | 13,171               
|Depreciation of property, plant and equipment            |  | 867,210                              |  | 77,412         |   |  | 7,474                  |  | 952,096              
|Amortization of mining rights                            |  | 6,624                                |  |               |   |  |                       |  | 6,624                
|(Gain) loss on disposal of property, plant and equipment |  |                                     |  | (13            | ) |  | 540                    |  | 527                  
|                                                         |  |                                      |  |                |   |  |                        |  |                      



F-21



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|6. | SEGMENT INFORMATION - continued
|-- | -------------------------------

INCOME STATEMENT



|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------ |  | -------------------------- |  | ------------ | - |  | ------------ | -
|                                                                                                  |  | For the year ended December 31, 2004 | 
|                                                                                                  |  | Coal mining                          |  | Coal railwaytransportation |  | Eliminations |   |  | Consolidated |  
|                                                                                                  |  | RMB000                              |  | RMB000                    |  | RMB000      |   |  | RMB000      |  
|GROSS REVENUE                                                                                     |  |                                      |  |                            |  |              |   |  |              |  
|External                                                                                          |  | 11,757,052                           |  | 220,771                    |  |             |   |  | 11,977,823   |  
|Inter-segment                                                                                     |  |                                     |  | 380,535                    |  | (380,535     | ) |  |             |  
|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  
|Total                                                                                             |  | 11,757,052                           |  | 601,306                    |  | (380,535     | ) |  | 11,977,823   |  
|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  
|                                                                                                 
|Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority. | 
|                                                                                                  |  |                                      |  |                           
|RESULT                                                                                            |  |                                      |  |                            |  |              |   |  |              |  
|Segment results                                                                                   |  | 4,642,234                            |  | 284,147                    |  |             |   |  | 4,926,381    |  
|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  
|Unallocated corporate expenses                                                                    |  |                                      |  |                            |  |              |   |  | (314,283     | )
|Unallocated corporate income                                                                      |  |                                      |  |                            |  |              |   |  | 97,176       |  
|Interest expenses                                                                                 |  |                                      |  |                            |  |              |   |  | (35,942      | )
|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  
|Income before income taxes                                                                        |  |                                      |  |                            |  |              |   |  | 4,673,332    |  
|Income taxes                                                                                      |  |                                      |  |                            |  |              |   |  | (1,518,762   | )
|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  
|Income for the year                                                                               |  |                                      |  |                            |  |              |   |  | 3,154,570    |  
|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  

BALANCE SHEET



|                                  |  |                      |  |                            |  |             
|--------------------------------- |  | -------------------- |  | -------------------------- |  | ------------
|                                  |  | At December 31, 2004
|                                  |  | Coal mining          |  | Coal railwaytransportation |  | Consolidated
|                                  |  | RMB000              |  | RMB000                    |  | RMB000     
|ASSETS                            |  |                      |  |                            |  |             
|Segment assets                    |  | 10,923,609           |  | 1,083,502                  |  | 12,007,111  
|                                  |  |                      |  |                            |  |             
|Unallocated corporate assets      |  |                      |  |                            |  | 6,329,586   
|                                  |  |                      |  |                            |  |             
|                                  |  |                      |  |                            |  | 18,336,697  
|                                  |  |                      |  |                            |  |             
|LIABILITIES                       |  |                      |  |                            |  |             
|Segment liabilities               |  | 1,669,373            |  | 23,747                     |  | 1,693,120   
|                                  |  |                      |  |                            |  |             
|Unallocated corporate liabilities |  |                      |  |                            |  | 1,116,152   
|                                  |  |                      |  |                            |  |             
|                                  |  |                      |  |                            |  | 2,809,272   
|                                  |  |                      |  |                            |  |             



F-22



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|6. | SEGMENT INFORMATION - continued
|-- | -------------------------------

OTHER INFORMATION



|                                                         |  |                                      |   |  |                            |  |                     |   |  |              |  
|-------------------------------------------------------- |  | ------------------------------------ | - |  | -------------------------- |  | ------------------- | - |  | ------------ | -
|                                                         |  | For the year ended December 31, 2004 |  
|                                                         |  | Coal mining                          |   |  | Coal railwaytransportation |  | Corporateand others |   |  | Consolidated |  
|                                                         |  | RMB000                              |   |  | RMB000                    |  | RMB000             |   |  | RMB000      |  
|Capital additions                                        |  | 1,009,788                            |   |  | 66,036                     |  | 18,458              |   |  | 1,094,282    |  
|Amortization of goodwill                                 |  | 777                                  |   |  | 13,880                     |  | 1,116               |   |  | 15,773       |  
|Release of negative goodwill to income                   |  | (27,620                              | ) |  |                           |  |                    |   |  | (27,620      | )
|Depreciation of property, plant and equipment            |  | 879,260                              |   |  | 74,635                     |  | 4,772               |   |  | 958,667      |  
|Amortization of prepaid lease payments                   |  | 8,006                                |   |  | 5,188                      |  |                    |   |  | 13,194       |  
|Amortization of mining rights                            |  | 6,624                                |   |  |                           |  |                    |   |  | 6,624        |  
|Loss (gain) on disposal of property, plant and equipment |  | 104,759                              |   |  | 272                        |  | (434                | ) |  | 104,597      |  
|Impairment losses on accounts receivable                 |  | 49,104                               |   |  |                           |  |                    |   |  | 49,104       |  
|                                                         |  |                                      |   |  |                            |  |                     |   |  |              |  

INCOME STATEMENT



|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------ |  | -------------------------- |  | ------------ | - |  | ------------ | -
|                                                                                                  |  | For the year ended December 31, 2003 | 
|                                                                                                  |  | Coal mining                          |  | Coal railwaytransportation |  | Eliminations |   |  | Consolidated |  
|                                                                                                  |  | RMB000                              |  | RMB000                    |  | RMB000      |   |  | RMB000      |  
|GROSS REVENUE                                                                                     |  |                                      |  |                            |  |              |   |  |              |  
|External                                                                                          |  | 8,386,629                            |  | 154,585                    |  |             |   |  | 8,541,214    |  
|Inter-segment                                                                                     |  |                                     |  | 400,048                    |  | (400,048     | ) |  |             |  
|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  
|Total                                                                                             |  | 8,386,629                            |  | 554,633                    |  | (400,048     | ) |  | 8,541,214    |  
|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  
|                                                                                                 
|Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority. | 
|                                                                                                  |  |                                      |  |                           
|RESULT                                                                                            |  |                                      |  |                            |  |              |   |  |              |  
|Segment results                                                                                   |  | 2,013,688                            |  | 245,041                    |  |             |   |  | 2,258,729    |  
|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  
|Unallocated corporate expenses                                                                    |  |                                      |  |                            |  |              |   |  | (246,469     | )
|Unallocated corporate income                                                                      |  |                                      |  |                            |  |              |   |  | 22,624       |  
|Interest expenses                                                                                 |  |                                      |  |                            |  |              |   |  | (59,966      | )
|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  
|Income before income taxes                                                                        |  |                                      |  |                            |  |              |   |  | 1,974,918    |  
|Income taxes                                                                                      |  |                                      |  |                            |  |              |   |  | (587,710     | )
|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  
|Income for the year                                                                               |  |                                      |  |                            |  |              |   |  | 1,387,208    |  
|                                                                                                  |  |                                      |  |                            |  |              |   |  |              |  



F-23



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|6. | SEGMENT INFORMATION - continued
|-- | -------------------------------

BALANCE SHEET



|                                  |  |                      |  |                            |  |             
|--------------------------------- |  | -------------------- |  | -------------------------- |  | ------------
|                                  |  | At December 31, 2003
|                                  |  | Coal mining          |  | Coal railwaytransportation |  | Consolidated
|                                  |  | RMB000              |  | RMB000                    |  | RMB000     
|ASSETS                            |  |                      |  |                            |  |             
|Segment assets                    |  | 10,440,480           |  | 1,115,491                  |  | 11,555,971  
|                                  |  |                      |  |                            |  |             
|Unallocated corporate assets      |  |                      |  |                            |  | 2,353,833   
|                                  |  |                      |  |                            |  |             
|                                  |  |                      |  |                            |  | 13,909,804  
|                                  |  |                      |  |                            |  |             
|LIABILITIES                       |  |                      |  |                            |  |             
|Segment liabilities               |  | 1,818,585            |  | 11,929                     |  | 1,830,514   
|                                  |  |                      |  |                            |  |             
|Unallocated corporate liabilities |  |                      |  |                            |  | 992,311     
|                                  |  |                      |  |                            |  |             
|                                  |  |                      |  |                            |  | 2,822,825   
|                                  |  |                      |  |                            |  |             

OTHER INFORMATION



|                                                         |  |                                      |   |  |                            |  |                     |  |              |  
|-------------------------------------------------------- |  | ------------------------------------ | - |  | -------------------------- |  | ------------------- |  | ------------ | -
|                                                         |  | For the year ended December 31, 2003 |  
|                                                         |  | Coal mining                          |   |  | Coal railwaytransportation |  | Corporateand others |  | Consolidated |  
|                                                         |  | RMB000                              |   |  | RMB000                    |  | RMB000             |  | RMB000      |  
|Capital additions                                        |  | 1,255,070                            |   |  | 82,616                     |  | 14,144              |  | 1,351,830    |  
|Amortization of goodwill                                 |  | 777                                  |   |  | 8,880                      |  |                    |  | 9,657        |  
|Release of negative goodwill to income                   |  | (27,620                              | ) |  |                           |  |                    |  | (27,620      | )
|Depreciation of property, plant and equipment            |  | 842,975                              |   |  | 74,170                     |  | 3,774               |  | 920,919      |  
|Amortization of prepaid lease payments                   |  | 8,019                                |   |  | 5,275                      |  |                    |  | 13,294       |  
|Amortization of mining rights                            |  | 6,624                                |   |  |                           |  |                    |  | 6,624        |  
|(Gain) loss on disposal of property, plant and equipment |  | (7,113                               | ) |  | 185                        |  | 56                  |  | (6,872       | )
|Impairment losses on accounts receivables                |  | 80,272                               |   |  |                           |  |                    |  | 80,272       |  
|                                                         |  |                                      |   |  |                            |  |                     |  |              |  

The number of employees in each of the Groups principal divisions are as follows:



|                            |  |                 |  |        |  |       
|--------------------------- |  | --------------- |  | ------ |  | ------
|                            |  | At December 31,
|                            |  | 2005            |  | 2004   |  | 2003  
|Coal mining                 |  | 26,662          |  | 25,892 |  | 24,810
|Coal railway transportation |  | 3,401           |  | 3,374  |  | 3,151 
|                            |  |                 |  |        |  |       
|                            |  | 30,063          |  | 29,266 |  | 27,961
|                            |  |                 |  |        |  |       



F-24



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|6. | SEGMENT INFORMATION - continued
|-- | -------------------------------

Geographical segment

The Groups operations are primarily located in the PRC. In December 2004, the Group acquired Southland which is located in Australia.
Analysis of the Groups gross sales and carrying amount of assets by geographical area is not presented in the financial statements as over 90% of the amounts involved are in the PRC.

The following is an analysis of the additions to property, plant and equipment and intangible assets analysed by the geographical area in which the assets
are located:



|          |  |                                                                                        |  |           |  |          
|--------- |  | -------------------------------------------------------------------------------------- |  | --------- |  | ---------
|          |  | Additions to property,plant and equipment and intangible assetsYear ended December 31,
|          |  | 2005                                                                                   |  | 2004      |  | 2003     
|          |  | RMB000                                                                                |  | RMB000   |  | RMB000  
|The PRC   |  | 1,599,372                                                                              |  | 869,957   |  | 1,351,830
|Australia |  | 257,999                                                                                |  | 224,325   |  |         
|          |  |                                                                                        |  |           |  |          
|          |  | 1,857,371                                                                              |  | 1,094,282 |  | 1,351,830
|          |  |                                                                                        |  |           |  |          



|7. | NET SALES OF COAL
|-- | -----------------



|                              |  |                         |  |            |  |          
|----------------------------- |  | ----------------------- |  | ---------- |  | ---------
|                              |  | Year ended December 31,
|                              |  | 2005                    |  | 2004       |  | 2003     
|                              |  | RMB000                 |  | RMB000    |  | RMB000  
|Domestic sales of coal, gross |  | 8,689,496               |  | 7,841,328  |  | 4,840,317
|Less: Transportation costs    |  | 268,034                 |  | 434,340    |  | 503,228  
|                              |  |                         |  |            |  |          
|Domestic sales of coal, net   |  | 8,421,462               |  | 7,406,988  |  | 4,337,089
|                              |  |                         |  |            |  |          
|Export sales of coal, gross   |  | 3,594,092               |  | 3,915,724  |  | 3,546,312
|Less: Transportation costs    |  | 662,069                 |  | 968,375    |  | 1,089,066
|                              |  |                         |  |            |  |          
|Export sales of coal, net     |  | 2,932,023               |  | 2,947,349  |  | 2,457,246
|                              |  |                         |  |            |  |          
|Net sales of coal             |  | 11,353,485              |  | 10,354,337 |  | 6,794,335
|                              |  |                         |  |            |  |          

Net sales of coal represents the invoiced value of coal sold and is net of returns, discounts,
sales taxes and transportation costs if the invoiced value includes transportation costs to the customers.



F-25



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|8. | COST OF SALES AND SERVICE PROVIDED
|-- | ----------------------------------



|                                                                     |  |                         |  |           |  |          
|-------------------------------------------------------------------- |  | ----------------------- |  | --------- |  | ---------
|                                                                     |  | Year ended December 31,
|                                                                     |  | 2005                    |  | 2004      |  | 2003     
|                                                                     |  | RMB000                 |  | RMB000   |  | RMB000  
|Materials                                                            |  | 1,147,572               |  | 1,088,683 |  | 899,602  
|Wages and employee benefits                                          |  | 1,258,333               |  | 1,022,614 |  | 863,707  
|Electricity                                                          |  | 282,492                 |  | 298,274   |  | 278,507  
|Depreciation                                                         |  | 891,640                 |  | 918,360   |  | 836,120  
|Land subsidence, restoration, rehabilitation and environmental costs |  | 636,590                 |  | 323,240   |  | 264,158  
|Repairs and maintenance                                              |  | 350,953                 |  | 455,782   |  | 374,855  
|Annual fee and amortization of mining rights (note 22)               |  | 19,604                  |  | 19,604    |  | 19,604   
|Transportation costs                                                 |  | 98,787                  |  | 119,737   |  | 48,231   
|Others                                                               |  | 602,617                 |  | 305,409   |  | 170,239  
|                                                                     |  |                         |  |           |  |          
|                                                                     |  | 5,288,588               |  | 4,551,703 |  | 3,755,023
|                                                                     |  |                         |  |           |  |          



|9. | SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
|-- | --------------------------------------------



|                                                  |  |                         |  |           |  |          
|------------------------------------------------- |  | ----------------------- |  | --------- |  | ---------
|                                                  |  | Year ended December 31,
|                                                  |  | 2005                    |  | 2004      |  | 2003     
|                                                  |  | RMB000                 |  | RMB000   |  | RMB000  
|Retirement benefit scheme contributions (note 41) |  | 523,324                 |  | 408,462   |  | 349,377  
|Wages and employee benefits                       |  | 271,213                 |  | 155,500   |  | 115,456  
|Additional medical insurance                      |  | 46,458                  |  | 35,912    |  | 27,814   
|Staff training costs                              |  | 32,553                  |  | 28,762    |  | 26,780   
|Depreciation                                      |  | 73,627                  |  | 53,501    |  | 44,339   
|Amortization of goodwill                          |  |                        |  | 15,773    |  | 9,657    
|Distribution charges                              |  | 35,626                  |  | 43,639    |  | 37,779   
|Impairment loss on accounts receivables           |  |                        |  | 49,104    |  | 80,272   
|Resource compensation fees (note)                 |  | 117,228                 |  | 110,959   |  | 84,941   
|Repairs and maintenance                           |  | 17,012                  |  | 18,753    |  | 13,918   
|Research and development                          |  | 45,009                  |  | 24,934    |  | 46,144   
|Freight charges                                   |  | 19,256                  |  | 9,801     |  | 14,862   
|Loss on disposal of property, plant and equipment |  | 527                     |  | 104,597   |  |         
|Others                                            |  | 736,955                 |  | 420,166   |  | 413,519  
|                                                  |  |                         |  |           |  |          
|                                                  |  | 1,918,788               |  | 1,479,863 |  | 1,264,858
|                                                  |  |                         |  |           |  |          



| | 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 imputed sales value of raw coal.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-26



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|10. | OTHER INCOME
|--- | ------------



|                                                  |  |                         |  |         |  |        
|------------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                                  |  | Year ended December 31,
|                                                  |  | 2005                    |  | 2004    |  | 2003   
|                                                  |  | RMB000                 |  | RMB000 |  | RMB000
|Dividend income                                   |  | 4,465                   |  | 4,465   |  | 4,810  
|Gain on sales of auxiliary materials              |  | 36,749                  |  | 33,878  |  | 35,197 
|Gain on disposal of property, plant and equipment |  |                        |  |        |  | 6,872  
|Government grants (note)                          |  |                        |  |        |  | 8,194  
|Interest income from bank deposits                |  | 85,971                  |  | 70,885  |  | 13,631 
|Interest income on other loans receivable         |  | 5,744                   |  | 21,826  |  | 4,183  
|Release of negative goodwill to income            |  |                        |  | 27,620  |  | 27,620 
|Others                                            |  | 2,109                   |  | 7,058   |  | 5,338  
|                                                  |  |                         |  |         |  |        
|                                                  |  | 135,038                 |  | 165,732 |  | 105,845
|                                                  |  |                         |  |         |  |        



| | Note: | Government grants represented the amount received by the Group in respect of its export sales activities.
| | ----- | ---------------------------------------------------------------------------------------------------------



|11. | INTEREST EXPENSE
|--- | ----------------



|                                                                 |  |                         |  |         |  |        
|---------------------------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                                                 |  | Year ended December 31,
|                                                                 |  | 2005                    |  | 2004    |  | 2003   
|                                                                 |  | RMB000                 |  | RMB000 |  | RMB000
|Interest expenses on:                                            |  |                         |  |         |  |        
|- bank borrowings wholly repayable within 5 years                |  | 20,753                  |  | 31,392  |  | 53,682 
|- bills receivable discounted without recourse                   |  |                        |  |        |  | 1,023  
|Deemed interest expenses in respect of acquisition of Jining III |  | 3,858                   |  | 4,550   |  | 5,261  
|                                                                 |  |                         |  |         |  |        
|                                                                 |  | 24,611                  |  | 35,942  |  | 59,966 
|                                                                 |  |                         |  |         |  |        

No interest was capitalized during each of the years presented.



|12. | INCOME TAXES
|--- | ------------



|                                       |  |                         |  |           |  |         |  
|-------------------------------------- |  | ----------------------- |  | --------- |  | ------- | -
|                                       |  | Year ended December 31, | 
|                                       |  | 2005                    |  | 2004      |  | 2003    |  
|                                       |  | RMB000                 |  | RMB000   |  | RMB000 |  
|Income taxes:                          |  |                         |  |           |  |         |  
|Current taxes                          |  | 1,372,398               |  | 1,390,767 |  | 587,775 |  
|Underprovision in prior years          |  | 42,463                  |  | 16,019    |  |        |  
|                                       |  |                         |  |           |  |         |  
|                                       |  | 1,414,861               |  | 1,406,786 |  | 587,775 |  
|Deferred tax charge (credit) (note 30) |  | 123,175                 |  | 111,976   |  | (65     | )
|                                       |  |                         |  |           |  |         |  
|                                       |  | 1,538,036               |  | 1,518,762 |  | 587,710 |  
|                                       |  |                         |  |           |  |         |  



F-27



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|12. | INCOME TAXES - continued
|--- | ------------------------

The Company and its subsidiaries
in the PRC are subject to a standard income tax rate of 33% on its taxable income.

Taxation arising in other jurisdictions is calculated at
the rates prevailing in the relevant jurisdictions.

The total charge for the year can be reconciled to the accounting profit as follows:



|                                                                                                     |  |                         |   |  |           |   |  |         |  
|---------------------------------------------------------------------------------------------------- |  | ----------------------- | - |  | --------- | - |  | ------- | -
|                                                                                                     |  | Year ended December 31, |  
|                                                                                                     |  | 2005                    |   |  | 2004      |   |  | 2003    |  
|                                                                                                     |  | RMB000                 |   |  | RMB000   |   |  | RMB000 |  
|Standard income tax rate in the PRC                                                                  |  | 33                      | % |  | 33        | % |  | 33      | %
|Standard income tax rate applied to income before income taxes                                       |  | 1,458,591               |   |  | 1,542,200 |   |  | 651,723 |  
|Reconciling items:                                                                                   |  |                         |   |  |           |   |  |         |  
|Transfer to future development fund deductible for tax purposes but not charged to income under IFRS |  | (68,618                 | ) |  | (109,411  | ) |  | (85,692 | )
|Release of negative goodwill not subject to tax                                                      |  |                        |   |  | (9,115    | ) |  | (9,115  | )
|Deemed interest not deductible for tax purposes                                                      |  | 1,273                   |   |  | 1,502     |   |  | 1,736   |  
|Impairment loss on doubtful debts not deductible for tax purposes                                    |  |                        |   |  | 16,187    |   |  | 25,731  |  
|Loss on disposal of property, plant and equipment not deductible for tax purposes                    |  | 836                     |   |  | 8,273     |   |  |        |  
|Government grants received not subject to tax                                                        |  |                        |   |  |          |   |  | (2,704  | )
|Tax effect of tax losses not recognized                                                              |  | 42,151                  |   |  |          |   |  |        |  
|Underprovision in prior years                                                                        |  | 42,463                  |   |  | 16,019    |   |  |        |  
|Write off deferred tax asset                                                                         |  | 44,436                  |   |  | 44,436    |   |  |        |  
|Others                                                                                               |  | 16,904                  |   |  | 8,671     |   |  | 6,031   |  
|                                                                                                     |  |                         |   |  |           |   |  |         |  
|Income taxes                                                                                         |  | 1,538,036               |   |  | 1,518,762 |   |  | 587,710 |  
|                                                                                                     |  |                         |   |  |           |   |  |         |  
|Effective income tax rate                                                                            |  | 35                      | % |  | 32        | % |  | 30      | %
|                                                                                                     |  |                         |   |  |           |   |  |         |  

The subsidiaries acquired during the years ended December 31, 2005, 2004 and 2003 did not have
any significant impact on the income taxes provided for the years ended December 31, 2005, 2004 and 2003.



F-28



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|13. | INCOME FOR THE YEAR
|--- | -------------------



|                                                              |  |                         |  |           |  |          
|------------------------------------------------------------- |  | ----------------------- |  | --------- |  | ---------
|                                                              |  | Year ended December 31,
|                                                              |  | 2005                    |  | 2004      |  | 2003     
|                                                              |  | RMB000                 |  | RMB000   |  | RMB000  
|Income for the year has been arrived at after charging:       |  |                         |  |           |  |          
|Amortization of mining rights                                 |  | 6,624                   |  | 6,624     |  | 6,624    
|Amortization of goodwill                                      |  |                        |  | 15,773    |  | 9,657    
|Amortization of prepaid lease payment                         |  | 13,171                  |  | 13,194    |  | 13,294   
|Depreciation of property, plant and equipment                 |  | 952,096                 |  | 958,667   |  | 920,533  
|                                                              |  |                         |  |           |  |          
|Total depreciation and amortization                           |  | 971,891                 |  | 994,258   |  | 950,108  
|                                                              |  |                         |  |           |  |          
|Auditors remuneration                                        |  | 9,229                   |  | 5,000     |  | 5,000    
|Staff costs, including directors and supervisors emoluments |  | 2,164,616               |  | 1,682,240 |  | 1,437,682
|Cost of inventories                                           |  | 5,144,888               |  | 4,460,844 |  | 3,687,433
|Exchange loss                                                 |  | 98,681                  |  |          |  |         
|                                                              |  |                         | 
|and crediting:                                                |  |                         |  |           |  |          
|                                                              |  |                         | 
|Gain on disposal of investments in securities                 |  |                        |  |          |  | 1,424    
|Exchange gain                                                 |  |                        |  | 5,507     |  | 116      
|                                                              |  |                         |  |           |  |          



|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, 2005
|                                    |  | Fees                                 |  | Salaries,allowance andother benefitsin kind |  | Retirementbenefitschemecontribution |  | Discretionarybonus |  | Total  
|                                    |  | RMB000                              |  | RMB000                                     |  | RMB000                             |  | RMB000            |  | RMB000
|Independent non-executive directors |  |                                      |  |                                             |  |                                     |  |                    |  |        
|Pu Hongjiu                          |  | 43                                   |  |                                            |  |                                    |  |                   |  | 43     
|Cui Jianmin                         |  | 81                                   |  |                                            |  |                                    |  |                   |  | 81     
|Wang Xiaojun                        |  | 98                                   |  |                                            |  |                                    |  |                   |  | 98     
|Wang Quanxi                         |  | 81                                   |  |                                            |  |                                    |  |                   |  | 81     
|Fan Weitang                         |  | 39                                   |  |                                            |  |                                    |  |                   |  | 39     
|                                    |  |                                      |  |                                             |  |                                     |  |                    |  |        
|                                    |  | 342                                  |  |                                            |  |                                    |  |                   |  | 342    
|                                    |  |                                      |  |                                             |  |                                     |  |                    |  |        



F-29



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|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, 2005
|                      |  | Fees                                 |  | Salaries,allowance andother benefitsin kind |  | Retirementbenefitschemecontribution |  | Discretionarybonus |  | Total  
|                      |  | RMB000                              |  | RMB000                                     |  | RMB000                             |  | RMB000            |  | RMB000
|Executive directors   |  |                                      |  |                                             |  |                                     |  |                    |  |        
|Wang Xin              |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Geng Jiahuai          |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Yang Deyu             |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Shi Xuerang           |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Chen Changchun        |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Wu Yuxiang            |  |                                     |  | 144                                         |  | 65                                  |  |                   |  | 209    
|Wang Xinkun           |  |                                     |  | 144                                         |  | 65                                  |  |                   |  | 209    
|Chen Guangshui        |  |                                     |  | 144                                         |  | 65                                  |  |                   |  | 209    
|Dong Yunqing          |  |                                     |  | 144                                         |  | 65                                  |  |                   |  | 209    
|                      |  |                                      |  |                                             |  |                                     |  |                    |  |        
|                      |  |                                     |  | 576                                         |  | 260                                 |  |                   |  | 836    
|                      |  |                                      |  |                                             |  |                                     |  |                    |  |        
|Supervisors           |  |                                      |  |                                             |  |                                     |  |                    |  |        
|Meng Xianchang        |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Song Guo              |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Zhang Sheng Dong      |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Liu Wei Xin           |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Xu Bentai             |  |                                     |  | 160                                         |  | 72                                  |  |                   |  | 232    
|                      |  |                                      |  |                                             |  |                                     |  |                    |  |        
|                      |  |                                     |  | 160                                         |  | 72                                  |  |                   |  | 232    
|                      |  |                                      |  |                                             |  |                                     |  |                    |  |        
|Other management team |  |                                      |  |                                             |  |                                     |  |                    |  |        
|Jin Tai               |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Zhang Yingmin         |  |                                     |  |                                            |  |                                    |  |                   |  |       
|He Ye                 |  |                                     |  | 144                                         |  | 65                                  |  |                   |  | 209    
|Tian fengze           |  |                                     |  | 144                                         |  | 65                                  |  |                   |  | 209    
|Shi Chenzhong         |  |                                     |  | 145                                         |  | 65                                  |  |                   |  | 210    
|Lai Cunliang          |  |                                     |  | 190                                         |  | 86                                  |  |                   |  | 276    
|Ni Xinghua            |  |                                     |  | 144                                         |  | 65                                  |  |                   |  | 209    
|                      |  |                                      |  |                                             |  |                                     |  |                    |  |        
|                      |  |                                     |  | 767                                         |  | 364                                 |  |                   |  | 1,113  
|                      |  |                                      |  |                                             |  |                                     |  |                    |  |        



F-30



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|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, 2004
|                                    |  | Fees                                 |  | Salaries,allowance andother benefitsin kind |  | Retirementbenefitschemecontribution |  | Discretionarybonus |  | Total  
|                                    |  | RMB000                              |  | RMB000                                     |  | RMB000                             |  | RMB000            |  | RMB000
|Independent non-executive directors |  |                                      |  |                                             |  |                                     |  |                    |  |        
|Fan Weitang                         |  | 77                                   |  |                                            |  |                                    |  |                   |  | 77     
|Cui Jianmin                         |  | 77                                   |  |                                            |  |                                    |  |                   |  | 77     
|Wang Xiaojun                        |  | 93                                   |  |                                            |  |                                    |  |                   |  | 93     
|Mang Quanxi                         |  | 77                                   |  |                                            |  |                                    |  |                   |  | 77     
|                                    |  |                                      |  |                                             |  |                                     |  |                    |  |        
|                                    |  | 324                                  |  |                                            |  |                                    |  |                   |  | 324    
|                                    |  |                                      |  |                                             |  |                                     |  |                    |  |        
|Executive directors                 |  |                                      |  |                                             |  |                                     |  |                    |  |        
|Mo Liqi                             |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Yang Deyu                           |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Geng Jiahuai                        |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Wang Bangjun                        |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Yang Jiachun                        |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Wu Yuxiang                          |  |                                     |  | 98                                          |  | 44                                  |  |                   |  | 142    
|Dong Yunqing                        |  |                                     |  | 124                                         |  | 56                                  |  |                   |  | 180    
|Wang Xin                            |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Wang Xinkun                         |  |                                     |  | 118                                         |  | 53                                  |  |                   |  | 171    
|                                    |  |                                      |  |                                             |  |                                     |  |                    |  |        
|                                    |  |                                     |  | 340                                         |  | 153                                 |  |                   |  | 493    
|                                    |  |                                      |  |                                             |  |                                     |  |                    |  |        
|Supervisors                         |  |                                      |  |                                             |  |                                     |  |                    |  |        
|Meng Xianchang                      |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Xiao Shuzhang                       |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Zhang Sheng Dong                    |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Liu Wei Xin                         |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Xu Bentai                           |  |                                     |  | 126                                         |  | 57                                  |  |                   |  | 183    
|                                    |  |                                      |  |                                             |  |                                     |  |                    |  |        
|                                    |  |                                     |  | 126                                         |  | 57                                  |  |                   |  | 183    
|                                    |  |                                      |  |                                             |  |                                     |  |                    |  |        
|Other management team               |  |                                      |  |                                             |  |                                     |  |                    |  |        
|Jin Tai                             |  |                                     |  |                                            |  |                                    |  |                   |  |       
|Zhang Yingmin                       |  |                                     |  |                                            |  |                                    |  |                   |  |       
|He Ye                               |  |                                     |  | 121                                         |  | 54                                  |  |                   |  | 175    
|Tian Fengze                         |  |                                     |  | 119                                         |  | 54                                  |  |                   |  | 173    
|Shi Chenzhong                       |  |                                     |  | 97                                          |  | 44                                  |  |                   |  | 141    
|Ni Xinghua                          |  |                                     |  | 103                                         |  | 46                                  |  |                   |  | 149    
|Chen Guangshui                      |  |                                     |  | 123                                         |  | 55                                  |  |                   |  | 178    
|                                    |  |                                      |  |                                             |  |                                     |  |                    |  |        
|                                    |  |                                     |  | 563                                         |  | 253                                 |  |                   |  | 816    
|                                    |  |                                      |  |                                             |  |                                     |  |                    |  |        



F-31



---

##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|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, 2003
|                                    |  | Fees                                 |  | Salaries,allowanceand otherbenefitsin kind |  | Retirementbenefitschemecontribution |  | Discretionarybonus |  | Total  
|                                    |  | RMB000                              |  | RMB000                                    |  | RMB000                             |  | RMB000            |  | RMB000
|Independent non-executive directors |  |                                      |  |                                            |  |                                     |  |                    |  |        
|Fan Weitang                         |  | 77                                   |  |                                           |  |                                    |  |                   |  | 77     
|Cui Jianmin                         |  | 77                                   |  |                                           |  |                                    |  |                   |  | 77     
|Wang Xiaojun                        |  | 93                                   |  |                                           |  |                                    |  |                   |  | 93     
|                                    |  |                                      |  |                                            |  |                                     |  |                    |  |        
|                                    |  | 247                                  |  |                                           |  |                                    |  |                   |  | 247    
|                                    |  |                                      |  |                                            |  |                                     |  |                    |  |        
|Executive directors                 |  |                                      |  |                                            |  |                                     |  |                    |  |        
|Mo Liqi                             |  |                                     |  |                                           |  |                                    |  |                   |  |       
|Yang Dayu                           |  |                                     |  |                                           |  |                                    |  |                   |  |       
|Geng Jiahuai                        |  |                                     |  |                                           |  |                                    |  |                   |  |       
|Yu Xuezhi                           |  |                                     |  |                                           |  |                                    |  |                   |  |       
|Wang Bangjun                        |  |                                     |  |                                           |  |                                    |  |                   |  |       
|Yang Jiachun                        |  |                                     |  |                                           |  |                                    |  |                   |  |       
|Wu Yuxiang                          |  |                                     |  | 29                                         |  | 13                                  |  |                   |  | 42     
|Dong Yunqing                        |  |                                     |  | 29                                         |  | 13                                  |  |                   |  | 42     
|                                    |  |                                      |  |                                            |  |                                     |  |                    |  |        
|                                    |  |                                     |  | 58                                         |  | 26                                  |  |                   |  | 84     
|                                    |  |                                      |  |                                            |  |                                     |  |                    |  |        
|Supervisors                         |  |                                      |  |                                            |  |                                     |  |                    |  |        
|Meng Xianchang                      |  |                                     |  |                                           |  |                                    |  |                   |  |       
|Xiao Shuzhang                       |  |                                     |  |                                           |  |                                    |  |                   |  |       
|Zhang Sheng Dong                    |  |                                     |  |                                           |  |                                    |  |                   |  |       
|Liu Wei Xin                         |  |                                     |  |                                           |  |                                    |  |                   |  |       
|Xu Bentai                           |  |                                     |  | 80                                         |  | 36                                  |  |                   |  | 116    
|                                    |  |                                      |  |                                            |  |                                     |  |                    |  |        
|                                    |  |                                     |  | 80                                         |  | 36                                  |  |                   |  | 116    
|                                    |  |                                      |  |                                            |  |                                     |  |                    |  |        
|Other management team               |  |                                      |  |                                            |  |                                     |  |                    |  |        
|Zhang Yingmin                       |  |                                     |  | 38                                         |  | 17                                  |  |                   |  | 55     
|Wang Xinkun                         |  |                                     |  | 29                                         |  | 13                                  |  |                   |  | 42     
|Tian fengze                         |  |                                     |  | 29                                         |  | 13                                  |  |                   |  | 42     
|Shi Chenzhong                       |  |                                     |  | 29                                         |  | 13                                  |  |                   |  | 42     
|Ni Xinghua                          |  |                                     |  | 29                                         |  | 13                                  |  |                   |  | 42     
|Chen Guangshui                      |  |                                     |  | 29                                         |  | 13                                  |  |                   |  | 42     
|                                    |  |                                      |  |                                            |  |                                     |  |                    |  |        
|                                    |  |                                     |  | 183                                        |  | 82                                  |  |                   |  | 265    
|                                    |  |                                      |  |                                            |  |                                     |  |                    |  |        



F-32



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO





|14. | DIRECTORS AND SUPERVISORS REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS - continued
|--- | --------------------------------------------------------------------------------------



| | (a) | Directors and supervisors emoluments - continued
| | --- | --------------------------------------------------

No directors waived any emoluments in each of the year ended 31 December 2005, 2004 and 2003.



| | (b) | Employees emoluments
| | --- | ---------------------

The five highest paid
individuals in the Group in 2005 included one director for the year ended December 31, 2005 (2004: four; 2003: five), details of whose emoluments are included in the disclosures in note 14(a) above. The emoluments of the remaining four
individual for the year ended December 31, 2005 (2004: one; 2003: Nil) were as follows:



|                                                  |  |                         |  |         |  |        
|------------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                                  |  | Year ended December 31,
|                                                  |  | 2005                    |  | 2004    |  | 2003   
|                                                  |  | RMB000                 |  | RMB000 |  | RMB000
|Salaries, allowance and other benefits in kind    |  | 3,690                   |  | 224     |  |       
|Retirement benefit scheme contributions (note 41) |  | 365                     |  | 101     |  |       
|Discretionary bonuses                             |  |                        |  |        |  |       
|                                                  |  |                         |  |         |  |        
|                                                  |  | 4,055                   |  | 325     |  |       
|                                                  |  |                         |  |         |  |        

Emoluments of each of these employees were all within the band of Nil to HK$1,000,000 for the year
ended December 31, 2005.



|15. | DIVIDEND
|--- | --------



|                                                                                                                 |  |                         |  |         |  |        
|---------------------------------------------------------------------------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                                                                                                 |  | Year ended December 31,
|                                                                                                                 |  | 2005                    |  | 2004    |  | 2003   
|                                                                                                                 |  | RMB000                 |  | RMB000 |  | RMB000
|2004 Final dividend, RMB0.260 per share (2004: 2003 final dividend RMB0.114; 2003: 2002 final dividend RMB0.104) |  | 799,240                 |  | 327,180 |  | 298,480
|2004 Special dividend RMB0.050 per share                                                                         |  |                        |  | 143,500 |  |       
|                                                                                                                 |  |                         |  |         |  |        
|                                                                                                                 |  | 799,240                 |  | 470,680 |  | 298,480
|                                                                                                                 |  |                         |  |         |  |        



F-33



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|15. | DIVIDEND - continued
|--- | --------------------

In the annual general meeting held
on June 27, 2003, a final dividend in respect of the year ended December 31, 2002 was approved by the shareholders and paid to the shareholders of the Company.

In the annual general meeting held on June 25, 2004, a final dividend and a special dividend in respect of the year ended December 31, 2003 was approved by the shareholders and paid to the shareholders of
the Company.

In the annual general meeting held on June 28, 2005, a final dividend and a bonus issue to the shareholder through the
capitalization of share premium of the Company on the basis of six shares for every ten existing shares in respect of the year ended December 31, 2004 were approved by the shareholders and paid and issued to the shareholders of the Company.

The board of directors proposes to declare a final dividend and a special divided of approximately RMB737,760,000 and RMB344,288,000
calculated based on a total number of 4,918,400,000 shares issued at RMB1 each, at RMB0.15 per share and RMB0.07 per share respectively, in respect of the year ended December 31, 2005. 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, 2005, 2004 and 2003 is based on the income attributable to the equity holders of the Company for the year of RMB2,881,461,000 RMB3,154,317,000
and RMB1,386,686,000 and on the weighted average number of 4,918,400,000 shares, 4,743,606,557 shares and 4,592,000,000 shares in issue, respectively, during the years.

The weighted average number of ordinary shares for the purpose of calculating basic earnings per share for all the period presented has been adjusted for the bonus issue of the Company on July 27, 2005.

The earnings per ADS have been calculated based on the net income for the relevant periods and on one ADS being, equivalent to 50 shares,
which has been adjusted for the bonus issue of the Company on July 27, 2005.

No diluted earning per share has been presented as there
are no dilutive potential shares in issue during the years ended December 31, 2005, 2004 and 2003.



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LOGO



|16. | EARNINGS PER SHARE AND PER ADS - continued
|--- | ------------------------------------------

Impact of
changes in accounting policies

Changes in the Groups accounting policies during the year are described in details in note 3. To
the extent that those changes have had an impact on results reported for the years ended December 31, 2005, 2004 and 2003, they have had an impact on the amounts reported for earnings per share. The following table summarizes that impact on
basic earnings per share:



|                                                           |  |                                    |   |                            |      |  |      |  |       |   |  |      |  |     
|---------------------------------------------------------- |  | ---------------------------------- | - | -------------------------- | ---- |  | ---- |  | ----- | - |  | ---- |  | ----
|                                                           |  | Impact on basic earnings per share |   | Impact on earnings per ADS
|                                                           |  | 2005                               |   |                            | 2004 |  | 2003 |  | 2005  |   |  | 2004 |  | 2003
|                                                           |  | RMB                                |   |                            | RMB  |  | RMB  |  | RMB   |   |  | RMB  |  | RMB 
|Non-amortisation of goodwill (replaced by impairment loss) |  | 0.003                              |   |                            |     |  |     |  | 0.16  |   |  |     |  |    
|Negative goodwill no longer released to income             |  | (0.006                             | ) |                            |     |  |     |  | (0.28 | ) |  |     |  |    
|                                                           |  |                                    |   |                            |      |  |      |  |       |   |  |      |  |     
|Total impact of changes in accounting policies             |  | (0.003                             | ) |                            |     |  |     |  | (0.12 | ) |  |     |  |    
|                                                           |  |                                    |   |                            |      |  |      |  |       |   |  |      |  |     



|17. | TERM DEPOSITS AND RESTRICTED CASH
|--- | ---------------------------------

At the balance sheet
dates, the short-term restricted cash 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. The long-term deposits carry interest at rate of 5.16% per annum.

The term deposits carry fixed interest rate of 0.72% to 2.70% per annum. The fair value of term deposit and restricted cash at December 31, 2005 approximates to its carrying amount.



|18. | BILLS AND ACCOUNTS RECEIVABLE
|--- | -----------------------------



|                                         |  |                 |   |  |           |  
|---------------------------------------- |  | --------------- | - |  | --------- | -
|                                         |  | At December 31, |  
|                                         |  | 2005            |   |  | 2004      |  
|                                         |  | RMB000         |   |  | RMB000   |  
|Total bills receivable                   |  | 2,092,949       |   |  | 890,046   |  
|Total accounts receivable                |  | 258,587         |   |  | 460,442   |  
|Less: Impairment loss                    |  | (126,700        | ) |  | (126,700  | )
|                                         |  |                 |   |  |           |  
|Total bills and accounts receivable, net |  | 2,224,836       |   |  | 1,223,788 |  
|                                         |  |                 |   |  |           |  

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 fair value of
bills and accounts receivable at December 31, 2005 approximates to their carrying amount.



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LOGO



|18. | BILLS AND ACCOUNTS RECEIVABLE - continued
|--- | -----------------------------------------

An analysis of
the impairment loss on bills and accounts receivable is as follows:



|                           |  |         |  |        
|-------------------------- |  | ------- |  | -------
|                           |  | 2005    |  | 2004   
|                           |  | RMB000 |  | RMB000
|Balance at January 1       |  | 126,700 |  | 100,627
|Additional impairment loss |  |        |  | 26,073 
|                           |  |         |  |        
|Balance at December 31     |  | 126,700 |  | 126,700
|                           |  |         |  |        

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 at the reporting date:



|               |  |                 |  |          
|-------------- |  | --------------- |  | ---------
|               |  | At December 31,
|               |  | 2005            |  | 2004     
|               |  | RMB000         |  | RMB000  
|1 - 180 days   |  | 2,245,170       |  | 1,233,248
|181 - 365 days |  | 6,014           |  | 654      
|1 - 2 years    |  | 19              |  | 3,913    
|2 - 3 years    |  |                |  | 32,407   
|Over 3 years   |  | 100,333         |  | 80,266   
|               |  |                 |  |          
|               |  | 2,351,536       |  | 1,350,488
|               |  |                 |  |          



|19. | INVENTORIES
|--- | -----------



|                                                 |  |                 |  |        
|------------------------------------------------ |  | --------------- |  | -------
|                                                 |  | At December 31,
|                                                 |  | 2005            |  | 2004   
|                                                 |  | RMB000         |  | RMB000
|COST                                             |  |                 |  |        
|Auxiliary materials, spare parts and small tools |  | 256,755         |  | 226,271
|Coal products                                    |  | 213,746         |  | 259,158
|                                                 |  |                 |  |        
|                                                 |  | 470,501         |  | 485,429
|                                                 |  |                 |  |        



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LOGO



|20. | OTHER LOANS RECEIVABLE
|--- | ----------------------

At the balance sheet dates, the
amounts consist of loans granted to the independent third parties. The amounts are guaranteed by other independent third parties and bear interest at 5.04% - 7.00% per annum. Included in the total amount is a loan of RMB640,000,000 (the
Default Loan) which is 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 proceed would be applied to repay the Default Loan and the associated interests to the Company. The public auction was held successfully in September 2005. Up to the date of the report, the legal procedure for the
transfer of ownership of the Secured Shares has not yet been completed. In the opinion of the directors, based on the result of the auction, the proceeds net of relevant expense would be sufficient to cover the principal and interest of the Default
Loan.



|21. | PREPAYMENTS AND OTHER CURRENT ASSETS
|--- | ------------------------------------



|                                                     |  |                 |  |        
|---------------------------------------------------- |  | --------------- |  | -------
|                                                     |  | At December 31,
|                                                     |  | 2005            |  | 2004   
|                                                     |  | RMB000         |  | RMB000
|Advances to suppliers                                |  | 69,605          |  | 56,707 
|Prepaid freight charges and related handling charges |  | 62,445          |  | 58,623 
|Others                                               |  | 70,367          |  | 72,966 
|                                                     |  |                 |  |        
|                                                     |  | 202,417         |  | 188,296
|                                                     |  |                 |  |        

The directors consider that the carrying amount of other current assets approximates their fair
value.

Included in the above balances as of December 31, 2005 is impairment loss of RMB35,717,000 (2004: RMB35,717,000). During the
year ended December 31, 2005, the Group did not made any additional impairment on doubtful debts (2004: RMB23,031,000; 2003: RMB:9,147,000).



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LOGO



|22. | MINING RIGHTS
|--- | -------------



|                         |  |         |  
|------------------------ |  | ------- | -
|                         |  | RMB000 |  
|COST                     |  |         |  
|At January 1, 2004       |  | 132,479 |  
|Acquisition of Southland |  | 32,634  |  
|                         |  |         |  
|At December 31, 2004     |  | 165,113 |  
|Exchange re-alignment    |  | (2,372  | )
|Addition                 |  | 23,644  |  
|                         |  |         |  
|At December 31, 2005     |  | 186,385 |  
|                         |  |         |  
|AMORTIZATION             |  |         |  
|At January 1, 2004       |  | 19,872  |  
|Provided for the year    |  | 6,624   |  
|                         |  |         |  
|At January 1, 2005       |  | 26,496  |  
|Provided for the year    |  | 6,624   |  
|                         |  |         |  
|At December 31, 2005     |  | 33,120  |  
|                         |  |         |  
|NET BOOK VALUES          |  |         |  
|At December 31, 2005     |  | 153,265 |  
|                         |  |         |  
|At December 31, 2004     |  | 138,617 |  
|                         |  |         |  

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.

Mining rights is amortized, on a straight-line basis, over the useful life of twenty years from the date of commencement of commercial production.



|23. | PREPAID LEASE PAYMENTS
|--- | ----------------------



|                                         |  |        
|---------------------------------------- |  | -------
|                                         |  | RMB000
|COST                                     |  |        
|At January 1, 2004 and December 31, 2004 |  | 658,549
|Addition                                 |  | 14,691 
|                                         |  |        
|At December 31, 2005                     |  | 673,240
|                                         |  |        
|AMORTIZATION                             |  |        
|At January 1, 2004                       |  | 53,637 
|Provided for the year                    |  | 13,194 
|                                         |  |        
|At December 31, 2004                     |  | 66,831 
|Provided for the year                    |  | 13,171 
|                                         |  |        
|At December 31, 2005                     |  | 80,002 
|                                         |  |        
|NET BOOK VALUES                          |  |        
|At December 31, 2005                     |  | 593,238
|                                         |  |        
|At December 31, 2004                     |  | 591,718
|                                         |  |        



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|23. | PREPAID LEASE PAYMENTS - continued
|--- | ----------------------------------

Analysis for reporting
purposes as:



|                    |  |                 |  |        
|------------------- |  | --------------- |  | -------
|                    |  | At December 31,
|                    |  | 2005            |  | 2004   
|                    |  | RMB000         |  | RMB000
|Current portion     |  | 13,465          |  | 13,171 
|Non-current portion |  | 579,773         |  | 578,547
|                    |  |                 |  |        
|                    |  | 593,238         |  | 591,718
|                    |  |                 |  |        

The amounts represent prepaid lease payment for land use rights which are situated in the PRC and
have a term of fifty years from the date of grant of land use rights certificates.

The land use rights of Railway Assets were acquired from
the Parent Company during the year ended December 31, 2002. The registration process in respect of the land use rights of the Railway Assets has not yet been completed at December 31, 2005.



|24. | PROPERTY, PLANT AND EQUIPMENT, NET
|--- | ----------------------------------



|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|---------------------------------------- |  | ------------------------ | - |  | --------- | - |  | -------------------- |  | ----------------- |  | ---------------- |  | --------------------------- | - |  | ----------------------- | - |  | ----------------------- | - |  | ---------- | -
|                                         |  | Freeholdland inAustralia |   |  | Buildings |   |  | Harborworksandcrafts |  | Railwaystructures |  | Miningstructures |  | Plant,machineryandequipment |   |  | Transportationequipment |   |  | Constructionin progress |   |  | Total      |  
|                                         |  | RMB000                  |   |  | RMB000   |   |  | RMB000              |  | RMB000           |  | RMB000          |  | RMB000                     |   |  | RMB000                 |   |  | RMB000                 |   |  | RMB000    |  
|COST                                     |  |                          |   |  |           |   |  |                      |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At January 1, 2004                       |  |                         |   |  | 2,052,927 |   |  | 250,231              |  | 720,484           |  | 3,904,460        |  | 7,314,574                   |   |  | 281,744                 |   |  | 85,748                  |   |  | 14,610,168 |  
|Acquisition of Southland                 |  | 57,195                   |   |  | 5,377     |   |  |                     |  |                  |  |                 |  | 128,833                     |   |  |                        |   |  |                        |   |  | 191,405    |  
|Additions                                |  |                         |   |  |          |   |  |                     |  |                  |  |                 |  | 18,791                      |   |  | 5,922                   |   |  | 805,530                 |   |  | 830,243    |  
|Transfers                                |  |                         |   |  | 76,541    |   |  |                     |  | 7,190             |  |                 |  | 690,072                     |   |  | 30,970                  |   |  | (804,773                | ) |  |           |  
|Disposals                                |  |                         |   |  |          |   |  |                     |  |                  |  |                 |  | (862,057                    | ) |  | (33,003                 | ) |  |                        |   |  | (895,060   | )
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At December 31, 2004 and January 1, 2005 |  | 57,195                   |   |  | 2,134,845 |   |  | 250,231              |  | 727,674           |  | 3,904,460        |  | 7,290,213                   |   |  | 285,633                 |   |  | 86,505                  |   |  | 14,736,756 |  
|Exchange re-alignment                    |  | (4,164                   | ) |  | (392      | ) |  |                      |  |                   |  |                  |  | (9,381                      | ) |  | (21                     | ) |  |                        |   |  | (13,958    | )
|Acquisition of Heze                      |  |                         |   |  |          |   |  |                     |  |                  |  |                 |  | 35,103                      |   |  | 201                     |   |  | 472,292                 |   |  | 507,596    |  
|Additions                                |  |                         |   |  | 1,689     |   |  |                     |  |                  |  |                 |  | 71,578                      |   |  | 25,258                  |   |  | 1,191,961               |   |  | 1,290,486  |  
|Transfers                                |  |                         |   |  | 34,447    |   |  |                     |  | 2,115             |  |                 |  | 823,315                     |   |  |                        |   |  | (859,877                | ) |  |           |  
|Disposals                                |  |                         |   |  | (597      | ) |  |                     |  |                  |  |                 |  | (20,175                     | ) |  | (8,115                  | ) |  |                        |   |  | (28,887    | )
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At December 31, 2005                     |  | 53,031                   |   |  | 2,169,992 |   |  | 250,231              |  | 729,789           |  | 3,904,460        |  | 8,190,653                   |   |  | 302,956                 |   |  | 890,881                 |   |  | 16,491,993 |  
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|ACCUMULATED DEPRECIATION                 |  |                          |   |  |           |   |  |                      |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At January 1, 2004                       |  |                         |   |  | 797,845   |   |  |                     |  | 106,903           |  | 1,408,418        |  | 3,545,719                   |   |  | 134,910                 |   |  |                        |   |  | 5,993,795  |  
|Provided for the year                    |  |                         |   |  | 97,878    |   |  | 6,068                |  | 54,498            |  | 97,866           |  | 693,886                     |   |  | 29,069                  |   |  |                        |   |  | 979,265    |  
|Eliminated on disposals                  |  |                         |   |  |          |   |  |                     |  |                  |  |                 |  | (748,503                    | ) |  | (24,951                 | ) |  |                        |   |  | (773,454   | )
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At December 31, 2004 and January 1, 2005 |  |                         |   |  | 895,723   |   |  | 6,068                |  | 161,401           |  | 1,506,284        |  | 3,491,102                   |   |  | 139,028                 |   |  |                        |   |  | 6,199,606  |  
|Provided for the year                    |  |                         |   |  | 124,340   |   |  | 6,068                |  | 54,568            |  | 86,638           |  | 684,913                     |   |  | 41,356                  |   |  |                        |   |  | 997,883    |  
|Eliminated on disposals                  |  |                         |   |  | (511      | ) |  |                     |  |                  |  |                 |  | (17,046                     | ) |  | (6,425                  | ) |  |                        |   |  | (23,982    | )
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At December 31, 2005                     |  |                         |   |  | 1,019,552 |   |  | 12,136               |  | 215,969           |  | 1,592,922        |  | 4,158,969                   |   |  | 173,959                 |   |  |                        |   |  | 7,173,507  |  
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|NET BOOK VALUES                          |  |                          |   |  |           |   |  |                      |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At December 31, 2005                     |  | 53,031                   |   |  | 1,150,440 |   |  | 238,095              |  | 513,820           |  | 2,311,538        |  | 4,031,684                   |   |  | 128,997                 |   |  | 890,881                 |   |  | 9,318,486  |  
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At December 31, 2004                     |  | 57,195                   |   |  | 1,239,122 |   |  | 244,163              |  | 566,273           |  | 2,398,176        |  | 3,799,111                   |   |  | 146,605                 |   |  | 86,505                  |   |  | 8,537,150  |  
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  



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LOGO



|24. | PROPERTY, PLANT AND EQUIPMENT, NET - continued
|--- | ----------------------------------------------

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



|                               |  |               
|------------------------------ |  | --------------
|Buildings                      |  | 15 to 35 years
|Harbour works and crafts       |  | 40 years      
|Railway structures             |  | 15 to 25 years
|Plant, machinery and equipment |  | 5 to 15 years 
|Transportation equipment       |  | 6 to 18 years 

Transportation equipment includes vessels which are depreciated over the estimated 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.



|25. | GOODWILL
|--- | --------



|                                                                                                          |  |         |   |  |        
|--------------------------------------------------------------------------------------------------------- |  | ------- | - |  | -------
|                                                                                                          |  | 2005    |   |  | 2004   
|                                                                                                          |  | RMB000 |   |  | RMB000
|COST                                                                                                      |  |         |   |  |        
|At January 1                                                                                              |  | 146,707 |   |  | 106,707
|Subsequent adjustment to contingent consideration payment in respect of the acquisition of Railway Assets |  |        |   |  | 40,000 
|Elimination of amortization accumulated prior to the adoption of IFRS 3 (note 3)                          |  | (29,315 | ) |  |        
|Acquisition of Heze (note 36)                                                                             |  | 35,645  |   |  |       
|                                                                                                          |  |         |   |  |        
|At December 31                                                                                            |  | 153,037 |   |  | 146,707
|                                                                                                          |  |         |   |  |        
|AMORTIZATION                                                                                              |  |         |   |  |        
|At January 1                                                                                              |  | 29,315  |   |  | 13,542 
|Elimination of amortization accumulated prior to the adoption of IFRS 3 (note 3)                          |  | (29,315 | ) |  |       
|Charge for the year                                                                                       |  |        |   |  | 15,773 
|                                                                                                          |  |         |   |  |        
|At December 31                                                                                            |  |        |   |  | 29,315 
|                                                                                                          |  |         |   |  |        
|NET BOOK VALUE                                                                                            |  |         |   |  |        
|At December 31                                                                                            |  | 153,037 |   |  | 117,392
|                                                                                                          |  |         |   |  |        

On January 1, 2002, the Company acquired the Railway Assets from its Parent Company for an
original consideration of RMB1,242,586,000. Pursuant to the terms of the acquisition agreement, the consideration was adjusted to RMB1,282,586,000, RMB1,322,586,000 and RMB1,362,586,000 as the annual transportation volume of the Railway Assets
reached the volume milestone targets of 25,000,000 tonnes, 28,000,000 tonnes and 30,000,000 tonnes for the years ended December 31, 2002, 2003 and 2004, respectively. The contingent consideration resulted in additional goodwill.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|25. | GOODWILL - continued
|--- | --------------------

Prior to January 1, 2005,
goodwill was amortized over its estimated useful life, ranging from 10 to 20 years. No amortization was made on goodwill from January 1, 2005 in accordance with the Groups accounting policy.

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units that all expected to benefit from that business
combination. Before recognition of impairment losses, the carrying amount of goodwill had been allocated as follows:



|                            |  |         |  |        
|--------------------------- |  | ------- |  | -------
|                            |  | 2005    |  | 2004   
|                            |  | RMB000 |  | RMB000
|Coal mining                 |  |         |  |        
|- Jining II                 |  | 10,106  |  | 10,106 
|- Yanmei Shipping           |  | 10,046  |  | 10,046 
|- Heze                      |  | 35,645  |  |       
|Coal Railway transportation |  |         |  |        
|- Railway Assets            |  | 97,240  |  | 97,240 
|                            |  |         |  |        
|                            |  | 153,037 |  | 117,392
|                            |  |         |  |        

The recoverable amounts of goodwill have been determined on the basis of value in use calculations.
Their 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, and a discount rate of 5%. During the year ended December 31, 2005, management of the Group determines that there are no impairments of any of its CGU containing goodwill.



|26. | NEGATIVE GOODWILL
|--- | -----------------



|                                                     |  |          |   |  |        
|---------------------------------------------------- |  | -------- | - |  | -------
|                                                     |  | 2005     |   |  | 2004   
|                                                     |  | RMB000  |   |  | RMB000
|COST                                                 |  |          |   |  |        
|At January 1                                         |  | 138,101  |   |  | 138,101
|Derecognized upon the application of IFRS 3 (note 3) |  | (138,101 | ) |  |       
|                                                     |  |          |   |  |        
|At December 31                                       |  |         |   |  | 138,101
|                                                     |  |          |   |  |        
|RELEASED TO INCOME                                   |  |          |   |  |        
|At January 1                                         |  | 110,480  |   |  | 82,860 
|Released for the year                                |  |         |   |  | 27,620 
|Derecognized upon the application of IFRS 3 (note 3) |  | (110,480 | ) |  |       
|                                                     |  |          |   |  |        
|At December 31                                       |  |         |   |  | 110,480
|                                                     |  |          |   |  |        
|NET BOOK VALUE                                       |  |          |   |  |        
|At December 31                                       |  |         |   |  | 27,621 
|                                                     |  |          |   |  |        

As explained in note 3, all negative goodwill arising on acquisition prior to January 1, 2005
was derecognized as a result of the application of IFRS 3.



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LOGO



|27. | SUBSIDIARIES
|--- | ------------

Details of the Companys subsidiaries
at December 31, 2005 are as follows:



|                                             |  |                                                   |  |                                                 |  |                                                                         |   |  |                               |   |  |                      |   |  |                                                                                     
|-------------------------------------------- |  | ------------------------------------------------- |  | ----------------------------------------------- |  | ----------------------------------------------------------------------- | - |  | ----------------------------- | - |  | -------------------- | - |  | ------------------------------------------------------------------------------------
|Name of subsidiary                           |  | Country
ofincorporation/registrationand operation |  | Issued andfully paid capital/registered capital |  | Proportion ofregistered capital/issued share capitalheld by the Company |   |  | Proportionof votingpower held |   |  | Principal activities
|                                             |  |                                                   |  |                                                 |  | Directly                                                                |   |  | Indirectly                    |   |  |                      |   |  |                                                                                     
|Austar                                       |  | Australia                                         |  | AUD30,000,000                                   |  |                                                                        |   |  | 100                           | % |  | 100                  | % |  | Coal mining business                                                                
|Heze (note)                                  |  | PRC                                               |  | RMB600,000,000                                  |  | 95.67                                                                   | % |  |                              |   |  | 95.67                | % |  | Development of ancillary projects                                                   
|Yancoal                                      |  | Australia                                         |  | AUD30,000,000                                   |  | 100                                                                     | % |  |                              |   |  | 100                  | % |  | Investment holding                                                                  
|Yanmei Shipping (note)                       |  | PRC                                               |  | RMB5,500,000                                    |  | 92                                                                      | % |  |                              |   |  | 97                   | % |  | Transportation via rivers and lakes and the sales of coal and construction materials
|Yulin (note)                                 |  | PRC                                               |  | RMB800,000,000                                  |  | 97                                                                      | % |  |                              |   |  | 97                   | % |  | Not yet commenced operations                                                        
|Zhongyan Trade Co., Ltd. (Zhongyan) (note) |  | PRC                                               |  | RMB2,100,000                                    |  | 52.38                                                                   | % |  |                              |   |  | 52.38                | % |  | Trading and processing of mining machinery                                          

Note: Yanmei Shipping, Yulin, Zhongyan and Heze are established in the PRC as limited liability
companies.



|28. | INVESTMENTS IN SECURITIES
|--- | -------------------------

The amounts represent cost of
available-for-sale equity investment of the Group. The amount at December 31, 2005 principally includes an unlisted investment of RMB60,421,000 in the form of state legal person shares of Shenergy Company Limited, a company listed on the SSE.
These shares are not tradable on the SSE.

They 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.



|29. | DEPOSIT MADE ON INVESTMENT
|--- | --------------------------

The amount in 2004 represented
the payment made by the Company to the Parent Company in relation to the transfer of 95.67% equity interest in Heze owned by the Parent Company. The principal activity of Heze is the development of ancillary projects of Wangfu Coal Mine and Zhaolou
Coal Mine in Shangdon Province in the PRC. During the year ended December 31, 2005, the acquisition was completed and Heze became a subsidiary of the Company.



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LOGO



|30. | DEFERRED TAX LIABILITY
|--- | ----------------------



|                                       |  |                                                                                |   |  |                            |   |  |          |  
|-------------------------------------- |  | ------------------------------------------------------------------------------ | - |  | -------------------------- | - |  | -------- | -
|                                       |  | Provision forland subsidence,restoration,rehabilitation andenvironmental costs |   |  | Acceleratedtaxdepreciation |   |  | Total    |  
|                                       |  | RMB000                                                                        |   |  | RMB000                    |   |  | RMB000  |  
|Balance at January 1, 2004             |  | 88,872                                                                         |   |  |                           |   |  | 88,872   |  
|(Charge) for the year (note 12)        |  | (44,436                                                                        | ) |  | (67,540                    | ) |  | (111,976 | )
|                                       |  |                                                                                |   |  |                            |   |  |          |  
|Balance at January 1, 2005             |  | 44,436                                                                         |   |  | (67,540                    | ) |  | (23,104  | )
|(Charge) credit for the year (note 12) |  | (44,436                                                                        | ) |  | (78,739                    | ) |  | (123,175 | )
|                                       |  |                                                                                |   |  |                            |   |  |          |  
|Balance at December 31, 2005           |  |                                                                               |   |  | (146,279                   | ) |  | (146,279 | )
|                                       |  |                                                                                |   |  |                            |   |  |          |  

At the balance sheet date, the Group has unused tax losses of AUD24 million, equivalent to
RMB140million (2004: Nil) contributed by the Australian subsidiaries available for offset against future profits. No deferred tax asset has been recognized in respect of such losses due to the unpredictability of future profit streams. Such tax
losses may be carried forward indefinitely.

There was no other material unprovided deferred tax for the year or at the balance sheet date.



|31. | BILLS AND ACCOUNTS PAYABLE
|--- | --------------------------



|                 |  |                 |  |        
|---------------- |  | --------------- |  | -------
|                 |  | At December 31,
|                 |  | 2005            |  | 2004   
|                 |  | RMB000         |  | RMB000
|Bills payable    |  | 136,779         |  |       
|Accounts payable |  | 360,881         |  | 478,281
|                 |  |                 |  |        
|                 |  | 497,660         |  | 478,281
|                 |  |                 |  |        



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LOGO



|31. | BILLS AND ACCOUNTS PAYABLE - continued
|--- | --------------------------------------

The following is
an aged analysis of bills and accounts payable at the reporting date:



|               |  |                 |  |        
|-------------- |  | --------------- |  | -------
|               |  | At December 31,
|               |  | 2005            |  | 2004   
|               |  | RMB000         |  | RMB000
|1 - 180 days   |  | 361,680         |  | 360,684
|181 - 365 days |  | 96,397          |  | 85,714 
|1 - 2 years    |  | 39,583          |  | 31,883 
|               |  |                 |  |        
|               |  | 497,660         |  | 478,281
|               |  |                 |  |        

The fair value of the Groups bills and accounts payable at December 31, 2005
approximates to their carrying amount.



|32. | OTHER PAYABLES AND ACCRUED EXPENSES
|--- | -----------------------------------



|                                                                                             |  |                 |  |          
|-------------------------------------------------------------------------------------------- |  | --------------- |  | ---------
|                                                                                             |  | At December 31,
|                                                                                             |  | 2005            |  | 2004     
|                                                                                             |  | RMB000         |  | RMB000  
|Customers deposits                                                                          |  | 475,333         |  | 426,877  
|Accrued wages                                                                                |  | 135,375         |  | 80,242   
|Other taxes payable                                                                          |  | 249,955         |  | 255,711  
|Payables in respect of purchases of property, plant and equipment and construction materials |  | 216,250         |  | 173,093  
|Accrued freight charges                                                                      |  | 39,342          |  | 51,685   
|Accrued repairs and maintenance                                                              |  | 22,829          |  | 47,895   
|Accrued utility expenses                                                                     |  | 4,120           |  | 7,672    
|Staff welfare payable                                                                        |  | 69,372          |  | 41,376   
|Accrued land subsidence, restoration, rehabilitation and environmental costs                 |  | 196             |  | 8,592    
|Resource compensation fees payable                                                           |  | 100,886         |  | 83,658   
|Consideration payable on acquisition of Southland                                            |  | 47,299          |  | 51,010   
|Payable in respect of purchase of mining rights in Southland (note 37)                       |  | 23,644          |  |         
|Others                                                                                       |  | 191,268         |  | 109,754  
|                                                                                             |  |                 |  |          
|                                                                                             |  | 1,575,869       |  | 1,337,565
|                                                                                             |  |                 |  |          

The fair value of the Groups other payables and accrued expenses at December 31, 2005
approximates to their carrying amount.



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LOGO



|33. | (PREPAYMENT) PROVISION FOR LAND SUBSIDENCE, RESTORATION, REHABILITATION AND ENVIRONMENTAL COSTS
|--- | -----------------------------------------------------------------------------------------------



|                                 |  |          |   |  |          |  
|-------------------------------- |  | -------- | - |  | -------- | -
|                                 |  | 2005     |   |  | 2004     |  
|                                 |  | RMB000  |   |  | RMB000  |  
|Balance at January 1             |  | (103,407 | ) |  | 85,022   |  
|Additional provision in the year |  | 635,863  |   |  | 313,172  |  
|Ultization of provision          |  | (689,967 | ) |  | (501,601 | )
|                                 |  |          |   |  |          |  
|Balance at December 31           |  | (157,511 | ) |  | (103,407 | )
|                                 |  |          |   |  |          |  

The provision for land subsidence, restoration, rehabilitation and environmental costs has been
determined by the directors based on their best estimates. The payment during both years included mainly rehabilitation costs paid on mining areas in relation to mining activities in the future periods and therefore the balances are presented as
prepayment at the balances sheet dates. 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.



|34. | UNSECURED BANK BORROWING
|--- | ------------------------

In 2002, the Group obtained a
new bank loan in the amount of RMB1,200,000,000, of which the repayment is guaranteed by the Parent Company. The loan bears interest at 6.21% per annum and is repayable by instalments over a period of 7 years, the first repayment instalment of
which was due in August 2004. The proceeds were used to finance the acquisition of the Railway Assets.

In 2003, the interest rate of the
bank loan was adjusted to 5.76% per annum, pursuant to the terms of the loan agreement. The loan is arranged at fixed interest rates and expose the Group to fair value interest rate risk. The Group has made a partial repayment of RMB600,000,000
during that year and according to the terms of the loan agreement, an early settlement would be deemed to settle the latest instalments due. The balance of the loan was therefore repayable in instalments over the following 3 years, the first
repayment instalment of which was due and repaid in August 2004. Interests are payable quarterly over the terms of the loan.

The above loan
is repayable as follows:



|                                                                     |  |                 |   |  |          |  
|-------------------------------------------------------------------- |  | --------------- | - |  | -------- | -
|                                                                     |  | At December 31, |  
|                                                                     |  | 2005            |   |  | 2004     |  
|                                                                     |  | RMB000         |   |  | RMB000  |  
|Within one year                                                      |  | 200,000         |   |  | 200,000  |  
|More than one year, but not exceeding two years                      |  |                |   |  | 200,000  |  
|                                                                     |  |                 |   |  |          |  
|                                                                     |  | 200,000         |   |  | 400,000  |  
|Less: Amount due within one year and included in current liabilities |  | (200,000        | ) |  | (200,000 | )
|                                                                     |  |                 |   |  |          |  
|Amount due after one year                                            |  |                |   |  | 200,000  |  
|                                                                     |  |                 |   |  |          |  



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LOGO



|35. | SHAREHOLDERS EQUITY
|--- | --------------------

Share capital

The Companys share capital structure at the balance sheet date is as follows:



|                                  |  |                                                      |  |                         |  |                                                      |  |              
|--------------------------------- |  | ---------------------------------------------------- |  | ----------------------- |  | ---------------------------------------------------- |  | -------------
|                                  |  | Domestic inveted shares                              |  | Foreign invested shares
|                                  |  | State legal personshares (held by theParent Company) |  | A shares(Note 1)        |  | H shares(including Hshare representedby ADS (Note 1) |  | Total        
|Number of shares                  |  |                                                      |  |                         |  |                                                      |  |              
|At January 1, 2004                |  | 1,670,000,000                                        |  | 180,000,000             |  | 1,020,000,000                                        |  | 2,870,000,000
|Issue of shares                   |  |                                                     |  |                        |  | 204,000,000                                          |  | 204,000,000  
|                                  |  |                                                      |  |                         |  |                                                      |  |              
|At January 1, 2005                |  | 1,670,000,000                                        |  | 180,000,000             |  | 1,224,000,000                                        |  | 3,074,000,000
|Bonus issue of shares             |  | 1,002,000,000                                        |  | 108,000,000             |  | 734,400,000                                          |  | 1,844,400,000
|                                  |  |                                                      |  |                         |  |                                                      |  |              
|At January 31, 2005               |  | 2,672,000,000                                        |  | 288,000,000             |  | 1,958,400,000                                        |  | 4,918,400,000
|                                  |  |                                                      |  |                         |  |                                                      |  |              
|                                  |  |                                                     
|                                  |  | Domestic inveted shares                              |  | Foreign invested shares
|                                  |  | State legal personshares (held by theParent Company) |  | A shares(Note 1)        |  | H shares(including Hshare representedby ADS (Note 1) |  | Total        
|                                  |  | RMB000                                              |  | RMB000                 |  | RMB000                                              |  | RMB000      
|Registered, issued and fully paid |  |                                                      |  |                         |  |                                                      |  |              
|At January 1, 2004                |  | 1,670,000                                            |  | 180,000                 |  | 1,020,000                                            |  | 2,870,000    
|Issue of shares                   |  |                                                     |  |                        |  | 204,000                                              |  | 204,000      
|                                  |  |                                                      |  |                         |  |                                                      |  |              
|At January 1, 2005                |  | 1,670,000                                            |  | 180,000                 |  | 1,224,000                                            |  | 3,074,000    
|Bonus issue of shares             |  | 1,002,000                                            |  | 108,000                 |  | 734,400                                              |  | 1,844,400    
|                                  |  |                                                      |  |                         |  |                                                      |  |              
|At January 31, 2005               |  | 2,672,000                                            |  | 288,000                 |  | 1,958,400                                            |  | 4,918,400    
|                                  |  |                                                      |  |                         |  |                                                      |  |              

Each share has a par value of RMB1.

At July 27, 2005, a bonus issue of six bonus shares for every ten shares in issue resulted in an increase in issued share capital of
RMB1,844,400,000, and an equivalent reduction in the share premium account.

On July 15, 2004, the Company issued an aggregate of
204,000,000 H shares to independent investors upon private placement. The net proceeds of approximately RMB1,756,875,000 will be used for the investments in the proposed development of coal mines in Shandong Province and the coal-methanol project in
Shaanxi Province. These new H shares were issued under the general mandate granted to the directors at the 2004 annual general meeting of the Company held on June 28, 2005 and these shares rank pari passu with other H shares in issue in all
respects.



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|35. | SHAREHOLDERS EQUITY - continued
|--- | --------------------------------

Reserves

The Company has to set aside 10% of its net income for the statutory common reserve fund (except where the fund has reached 50% of the
Companys registered capital) and 5% to 10% of its net income for the statutory common welfare fund. 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The statutory common welfare fund, which is to be used for the welfare of the staff
and workers of the Company, is of a capital nature.

In accordance with the Companys Articles of Association, the net income 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, 2005 is the retained earnings
computed under PRC GAAP which amounted to approximately RMB5,844,289,000 (2004: RMB4,522,369,000).



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LOGO



|36. | ACQUISITION OF HEZE
|--- | -------------------

The net assets of Heze acquired, and
the goodwill arising, are as follows:



|                                                           |  |            |  
|---------------------------------------------------------- |  | ---------- | -
|                                                           |  | Fair value |  
|                                                           |  | RMB000    |  
|Bank balances and cash                                     |  | 180,255    |  
|Prepayments and other current assets                       |  | 1,150      |  
|Property, plant and equipment                              |  | 507,596    |  
|Other payables and accrued expenses                        |  | (86,061    | )
|Amounts due to Parent Company and its subsidiary companies |  | (29,759    | )
|Minority interest                                          |  | (24,818    | )
|                                                           |  |            |  
|Total net assets acquired                                  |  | 548,363    |  
|Goodwill arising on acquisition                            |  | 35,645     |  
|                                                           |  |            |  
|                                                           |  | 584,008    |  
|                                                           |  |            |  
|Total consideration satisfied by:                          |  |            |  
|Deposit made on investment in 2004                         |  | 574,000    |  
|Cash consideration paid on acquisition                     |  | 10,008     |  
|                                                           |  |            |  
|                                                           |  | 584,008    |  
|                                                           |  |            |  
|Net cash outflow arising on acquisition:                   |  |            |  
|Cash paid on acquisition                                   |  | (10,008    | )
|Bank balances and cash acquired                            |  | 180,255    |  
|                                                           |  |            |  
|                                                           |  | 170,247    |  
|                                                           |  |            |  

Heze did not contribute significantly to the Groups turnover and profit before profit for the
year ended December 31, 2005.

If the acquisition had been completed on January 1, 2005, the Groups revenue and the
Groups profit for the year ended December 31, 2005 would have been RMB12,447,025,000 and RMB2,864,866,000, respectively.

On
November 16, 2004, the Company entered into an equity transfer agreement (Acquisition Agreements) with the Parent Company and conditionally agreed to purchase the 95.67% equity interest in Heze held by the Parent Company. As at
December 31, 2004, a deposit of RMB574,000,000 was paid to the Parent Company.



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|36. | ACQUISITION OF HEZE - continued
|--- | -------------------------------

On June 28, 2005, a
supplemental agreement (the Supplemental Agreement) was entered between the Company and the Parent Company, pursuant to which the consideration of the acquisition of 95.67% equity interest in Heze has been determined to be
RMB584,008,000. Under the Supplemental Agreement, the Parent Company has irrevocably undertaken that the Group shall have the right to purchase the mining rights of Zhaolou coal mine and Wanfu coal mine from the Parent Company within twelve months
from the respective dates on which such mining rights are obtained by the Parent Company, based on valuations conducted by independent qualified PRC valuers which should also be endorsed by the applicable PRC government authorities.

In December 2005, the acquisition was completed and the Company paid the remaining consideration of RMB10,008,000 to the Parent Company. The Company then
holds 95.67% equity interest in Heze. The net assets acquired were included in the coal mining segment. Heze did not have any significant impact on the Groups results or cash flows for the year ended December 31, 2005.

Pursuant to the Acquisition Agreement and the Supplemental Agreement, should certain situations arise, including but not limited to failure of Heze to
obtain the land use rights or failure of the Parent Company to obtain the mining rights of the Zhaolou coal mine by June 30, 2006, the Company shall have the right to transfer the 95.67% equity interest in Heze back to the Parent Company, and
the Parent Company will be obligated to refund the purchase consideration to the Company, within 30 days from the date of the issue of notice by the Company for such transfer.

The carrying amount of Hezes net assets approximates to its fair value at date of acquisition.

The goodwill arising on the acquisition is attributable to the anticipated profitability of the sales of coal products.



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|37. | ACQUISITION OF SOUTHLAND
|--- | ------------------------

In December 2004, the Group
acquired a 100% interest in Southland for a cash consideration of RMB187,312,000, of which RMB136,302,000 was paid upon acquisition and RMB51,010,000 (equivalent to AUD8,000,000) was payable upon the production of the initial 4 million tonnes
of saleable coal by the Group in Southland. Pursuant to the agreements in relation to the acquisition, the Company has an obligation to acquire further coal mines and land adjacent to Southland at AUD4,000,000 when the sellers obtain the exploration
license under the Mining Act of Australia for such coal mines. During the year, the Group successfully obtained the exploration licences for the adjacent mines. Accordingly, consideration amounted to RMB 23,644,000 (equivalent to AUD 4,000,000) was
payable upon the completion of registration process. In the opinion of directors, the registration process will be completed by June 2006.



|                                                                         |  |                              |  
|------------------------------------------------------------------------ |  | ---------------------------- | -
|                                                                         |  | Carrying valueand fair value |  
|                                                                         |  | RMB000                      |  
|The net assets of Southland acquired in the transaction were as follows: |  |                              |  
|                                                                         | 
|Mining rights                                                            |  | 32,624                       |  
|Property, plant and equipment                                            |  | 191,405                      |  
|Other payables and accrued expenses                                      |  | (36,727                      | )
|                                                                         |  |                              |  
|Total net assets acquired                                                |  | 187,312                      |  
|                                                                         |  |                              |  
|Satisfied by:                                                            |  |                              |  
|Cash consideration paid on acquisition                                   |  | 187,312                      |  
|                                                                         |  |                              |  

Southland did not contribute significantly to the Groups turnover and profit before income
taxes for the year ended December 31, 2004.

If the acquisition had been completed on January 1, 2004, the Groups revenue
and the Groups profit for the year ended December 31, 2004 would have been RMB 11,977,823,000 and RMB3,154,570,000, respectively.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|38. | ACQUISITION OF YANMEI SHIPPING
|--- | ------------------------------



|                                                                                                          |  |            |  
|--------------------------------------------------------------------------------------------------------- |  | ---------- | -
|                                                                                                          |  | Fair value |  
|                                                                                                          |  | RMB000    |  
|The net assets of Yanmei Shipping acquired in the transaction, and the goodwill arising, were as follows: |  |            |  
|                                                                                                          | 
|Bank balances and cash                                                                                    |  | 506        |  
|Bills and accounts receivable                                                                             |  | 735        |  
|Inventories                                                                                               |  | 1,254      |  
|Prepayments and other current assets                                                                      |  | 16,423     |  
|Property, plant and equipment, net                                                                        |  | 12,551     |  
|Other payables and accrued expenses                                                                       |  | (4,259     | )
|Amounts due to Parent Company and its subsidiaries                                                        |  | (26,151    | )
|Taxes payable                                                                                             |  | (483       | )
|Minority interest                                                                                         |  | (46        | )
|                                                                                                          |  |            |  
|Total net assets acquired                                                                                 |  | 530        |  
|Goodwill arising on acquisition                                                                           |  | 11,162     |  
|                                                                                                          |  |            |  
|                                                                                                          |  | 11,692     |  
|                                                                                                          |  |            |  
|Consideration satisfied by cash                                                                           |  | 11,692     |  
|                                                                                                          |  |            |  
|Net cash outflow arising on acquisition:                                                                  |  |            |  
|Cash consideration paid                                                                                   |  | (11,692    | )
|Bank balances and cash acquired                                                                           |  | 506        |  
|                                                                                                          |  |            |  
|                                                                                                          |  | (11,186)   |  
|                                                                                                          |  |            |  

On December 31, 2003, the Group acquired 92% of the issued share capital of Yanmei Shipping
for a cash consideration of RMB11,692,000. The net assets acquired were included in the coal mining segment. Yanmei Shipping did not have any significant impact on the Groups results or cash flows for the year ended December 31, 2003.

The carrying amount of Yanmei Shippings net assets approximates to its fair value at date of acquisition.

The goodwill arising on the acquisition is attributable to the anticipated future operating synergies from the combination.

Yanmei Shipping did not contribute significantly to the Groups turnover and profit before income taxes for the year ended December 31, 2003.

If the acquisition had been completed on January 1, 2003, the Groups revenue and the Groups profit for the year ended
December 31, 2003 would have been RMB8,542,214,000 and RMB1,385,573,000, respectively.



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|39. | 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 balance and transactions between the Group and other related parties are disclosed below.

Related Party Balances

The amounts due from Parent Company and its subsidiary companies were non-interest bearing, unsecured and repayable on demand.

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, 2005 and 2004 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 by equal installments before December of each year, commencing from 2001.



|                                                           |  |                 |   |  |        
|---------------------------------------------------------- |  | --------------- | - |  | -------
|                                                           |  | At December 31,
|                                                           |  | 2005            |   |  | 2004   
|                                                           |  | RMB000         |   |  | RMB000
|Amounts due to Parent Company and its subsidiary companies |  |                 |   |  |        
|Within one year                                            |  | 508,254         |   |  |       
|More than one year, but not exceeding two years            |  | 8,689           |   |  | 9,230  
|More than two years, but not exceeding three years         |  | 8,181           |   |  | 8,689  
|More than three years, but no exceeding four years         |  | 7,704           |   |  | 8,181  
|More than four years, but not exceeding five years         |  | 7,253           |   |  | 7,704  
|Exceeding five years                                       |  |                |   |  | 7,253  
|                                                           |  |                 |   |  |        
|Total                                                      |  | 540,081         |   |  | 41,057 
|Less: amount due within one year                           |  | (508,254        | ) |  |       
|                                                           |  |                 |   |  |        
|Amount due after one year                                  |  | 31,827          |   |  | 41,057 
|                                                           |  |                 |   |  |        



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|39. | RELATED PARTY BALANCES AND TRANSACTIONS - continued
|--- | ---------------------------------------------------

Except the amounts disclosed above, the amounts due to the Parent Company and/or its subsidiary companies have no specific terms of repayments.

Related Party Transactions

During the periods, the Group had the following significant transactions
with the Parent Company and/or its subsidiary companies:



|                                            |  |                         |  |         |  |        
|------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                            |  | Year ended December 31,
|                                            |  | 2005                    |  | 2004    |  | 2003   
|                                            |  | RMB000                 |  | RMB000 |  | RMB000
|Income                                      |  |                         |  |         |  |        
|Sales of coal                               |  | 856,580                 |  | 523,015 |  | 229,730
|Sales of auxiliary materials                |  | 369,855                 |  | 350,873 |  | 472,899
|Utilities and facilities                    |  | 29,000                  |  | 29,000  |  | 29,000 
|Railway transportation services             |  |                        |  |        |  | 66     
|Expenditure                                 |  |                         |  |         |  |        
|Utilities and facilities                    |  | 355,953                 |  | 354,424 |  | 285,166
|Annual fee for mining rights                |  | 12,980                  |  | 12,980  |  | 12,980 
|Purchases of supply materials and equipment |  | 341,935                 |  | 303,549 |  | 373,710
|Repair and maintenance services             |  | 197,624                 |  | 222,949 |  | 225,408
|Social welfare and support services         |  | 242,952                 |  | 207,062 |  | 188,825
|Technical support and training              |  | 15,130                  |  | 15,130  |  | 15,130 
|Road transportation services                |  | 53,346                  |  | 63,478  |  | 17,216 
|Construction services                       |  |                        |  | 160,342 |  | 507,824
|                                            |  |                         |  |         |  |        

During the periods, the Group had the following significant transactions with a related party,
certain management members of which were also management members of the Group:



|                                           |  |                         |  |         |  |        
|------------------------------------------ |  | ----------------------- |  | ------- |  | -------
|                                           |  | Year ended December 31,
|                                           |  | 2005                    |  | 2004    |  | 2003   
|                                           |  | RMB000                 |  | RMB000 |  | RMB000
|Sales of coal by the Group                 |  |                        |  |        |  | 77,155 
|Transaction services provided to the Group |  |                        |  |        |  | 74,783 
|                                           |  |                         |  |         |  |        

Certain expenditure for social welfare and support services (excluding medical and child care
expenses) of RMB63,361,000, RMB63,275,000 and RMB63,530,000 for each of the three years ended December 31, 2005, 2004 and 2003, respectively, and for technical support and training of RMB15,130,000 for each of the three years ended
December 31, 2005, 2004 and 2003, have been charged by the Parent Company at a negotiated amount per annum, subject to changes every year.

The above transactions were charged either at market prices or based on terms agreed by both parties.



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|39. | RELATED PARTY BALANCES AND TRANSACTIONS - continued
|--- | ---------------------------------------------------

During the year, the Company acquired Heze from the Parent Company. Details of this acquisition are set out in note 36.

In
addition to the above, the Company participates in a multi-employer scheme of the Parent Company in respect of retirement benefits (see notes 8 and 41).

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 fellow subsidiaries and other related parties 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.

In establishing its pricing strategies and approval process for transactions with other state-controlled entities, the Group does not differentiate whether the counter-party is a state-controlled entity or not.

Material transactions with other state-controlled entities are as follows:



|                |  |                         |  |           |  |          
|--------------- |  | ----------------------- |  | --------- |  | ---------
|                |  | Year ended December 31,
|                |  | 2005                    |  | 2004      |  | 2003     
|                |  | RMB000                 |  | RMB000   |  | RMB000  
|Trade sales     |  | 3,855,545               |  | 4,466,519 |  | 3,941,149
|                |  |                         |  |           |  |          
|Trade purchases |  | 1,607,729               |  | 1,541,147 |  | 1,760,528
|                |  |                         |  |           |  |          

Material balances with other state-controlled entities are as follows:



|                                                 |  |                |  |        
|------------------------------------------------ |  | -------------- |  | -------
|                                                 |  | At December 31
|                                                 |  | 2005           |  | 2004   
|                                                 |  | RMB000        |  | RMB000
|Amounts due from other state-controlled entities |  | 350,688        |  | 400,603
|                                                 |  |                |  |        
|Amounts due to other state-controlled entities   |  | 270,559        |  | 303,103
|                                                 |  |                |  |        

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.



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|39. | RELATED PARTY BALANCES AND TRANSACTIONS - continued
|--- | ---------------------------------------------------

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.

Compensation of key management personnel

The remuneration of directors and other members of key management was as follows:



|                                              |  |                         |  |         |  |        
|--------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                              |  | Year ended December 31,
|                                              |  | 2005                    |  | 2004    |  | 2003   
|                                              |  | RMB000                 |  | RMB000 |  | RMB000
|Directors fee                                |  | 342                     |  | 324     |  | 247    
|Salaries, allowance and other benefit in kind |  | 1,503                   |  | 1,029   |  | 321    
|Retirement benefit scheme contribution        |  | 678                     |  | 463     |  | 144    
|                                              |  |                         |  |         |  |        
|                                              |  | 2,523                   |  | 1,816   |  | 712    
|                                              |  |                         |  |         |  |        

The remuneration of directors and key executives is determined by the remuneration committee having
regard to the performance of individuals and market trends.



|40. | COMMITMENTS
|--- | -----------



|                                                                                                                                           |  |                 |  |          
|------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------- |  | ---------
|                                                                                                                                           |  | At December 31,
|                                                                                                                                           |  | 2005            |  | 2004     
|                                                                                                                                           |  | RMB000         |  | RMB000  
|Capital expenditure contracted for but not provided in the financial statements in respect of acquisition of property, plant and
equipment |  | 920,907         |  | 12,872   
|Capital expenditure authorized but not contracted for in respect of development of new coal mines                                          |  | 1,900,000       |  | 2,100,000
|                                                                                                                                           |  |                 |  |          
|                                                                                                                                           |  | 2,820,907       |  | 2,112,872
|                                                                                                                                           |  |                 |  |          

In accordance with the regulations of the State Administration of Work Safety, the Group has a
commitment to incurre RMB8 per tone of raw coal mined from May 1, 2004 aggregating to RMB91,462,000 (2004: RMB5,848,000) on enhancement of safety production environment and facilities (Work Safety Cost)



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|41. | RETIREMENT BENEFITS
|--- | -------------------

Qualifying employees of the Company
are entitled to a pension, medical and other welfare benefits. The Company participates in a multi-employer 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.

The monthly contribution rate was set initially at 45% of the aggregate monthly basic salaries and wages of the Companys employees, and was fixed
until December 31, 2001. Upon expiration of the initial period, the Company and the Parent Company determined that the contribution rate should remain at 45% for the period from January 1, 2002 to December 31, 2006.

The amount of contribution paid to the Parent Company were RMB522,650,000, RMB408,462,000 and RMB349,377,000 for the years ended December 31, 2005,
2004, and 2003.

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 payable by the subsidiaries pursuant to this arrangement were insignificant to the Group.

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.



|42. | HOUSING SCHEME
|--- | --------------

The Parent Company is responsible for
providing accommodation to its employees and the 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,
2005, 2004 and 2003. Such expenses, amounting to RMB37,200,000 for each of the three years ended December 31, 2005, 2004 and 2003, have been included as part of the social welfare and support services expenses summarized in note 39.

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. Starting from 2002, the Parent Company intends to sell the new accommodation by reference to market prices instead of cost. Accordingly, the Company paid an additional housing allowance to the employees at a percentage of their wages.



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|43. | FAIR VALUE OF FINANCIAL INSTRUMENTS
|--- | -----------------------------------

The carrying amounts
of bank balances and cash, bills and accounts receivable, bills and accounts payables, other payables and accrued expenses and variable debts approximate their fair value because of the short maturity of these amounts or because they are stated at
present value discounted using market rates. In addition, the carrying amount of bank borrowing approximates its fair value as the interest rate approximates the market rate.



|44. | CONCENTRATION OF CREDIT RISK
|--- | ----------------------------

The Group maintains its cash
and cash equivalents with banks in the PRC.

The Group generally grants the long-term customers credit terms with a range from one to four
months, 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 quality, prices and final customer destination of the Groups export sales are determined by the Group, National Coal Corporation, Shanxi Coal Corporation or Minmetals Trading. The Group intends to apply for direct
export rights although there can be no assurance that such rights will be obtained on a timely basis.

For the years ended December 31,
2005, 2004 and 2003, net sales to the Groups five largest domestic customers accounted for approximately 20.0%, 15.3% and 18.5%, respectively, of the Groups total net sales. Net sales to the Groups largest domestic customer
accounted for 13.4%, 9.2% and 11.3% of the Groups net sales for the years ended December 31, 2005, 2004 and 2003, respectively. The Groups largest domestic customer was the Huadian Power International Corporation Limited
(Huadian) for the year ended December 31, 2005 (2004: Huadian; 2003: the Shandong Power and Fuel Company). The Shandong Power and Fuel Company purchases coal on behalf of several power plants in Shangdong Province, the largest of
which, the Zouxian Electric Power Plant, alone accounted for 9.6% of the Groups net sales for the years ended December 31, 2003.

Details of the amounts receivable from the five customers with the largest receivable balances at December 31, 2005 and 2004 are as follows:



|                                 |  |                                  |   |  |      |  
|-------------------------------- |  | -------------------------------- | - |  | ---- | -
|                                 |  | Percentage ofaccounts receivable |  
|                                 |  | At December 31,                  |  
|                                 |  | 2005                             |   |  | 2004 |  
|Five largest receivable balances |  | 66                               | % |  | 75   | %
|                                 |  |                                  |   |  |      |  



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|45. | SUBSEQUENT EVENT
|--- | ----------------

Pursuant to a meeting for the holders of
A shares of the Company held on March 6, 2006, the share reform plan (Share Reform Plan) was approved by the relevant shareholders. Under the Share Reform Plan, 2.5 A shares for every existing 10 A shares would be offered by the
Parent Company and the non-tradable legal person shares held by the Parent Company would then be converted to tradable shares in 4 years time according to formula. The Share Reform Plan has been further approved by the Ministry of Commerce of the
PRC on March 21, 2006.



|46. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP
|--- | ------------------------------------------------

The
consolidated financial statements prepared under IFRS and those prepared under PRC GAAP have the following major differences:



| | (i) | adjustment of future development fund, which is charged to income before income taxes under PRC GAAP, to shareholders equity;
| | --- | ------------------------------------------------------------------------------------------------------------------------------



| | (ii) | reversal of the Work Safety Cost provided but not yet ultizing for the enhancement of safety production environment and facilities (see note 40), which is charged as expenses when
provided under PRC GAAP;
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | negative goodwill arising under IFRS for the acquisition of Jining III was recognized as income in the statement of income on a systematic basis over the remaining weighted average
useful life of the identifiable acquired depreciable/amortizable assets prior to January 1, 2005. No negative goodwill is recognized under PRC GAAP;
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | the installments payable to the Parent Company for the acquisition of Jining III have been stated at present value discounted using market rates under IFRS while under PRC GAAP, the
installments payable are stated at gross amounts. Accordingly, deemed interest expense arises on the installments payable to the Parent Company under IFRS and no such interest expenses are recognized under PRC GAAP;
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | write off pre-operating expenses capitalized in a subsidiary of the Company as a long term asset under PRC GAAP.
| | --- | ----------------------------------------------------------------------------------------------------------------



| | (vi) | reversal of amortization of goodwill under PRC GAAP, which is not amortized but instead tested for impairment at least annually under IFRS from January 1, 2005 onwards; and
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vii) | recognition of a deferred tax asset/liability under IFRS for the tax consequence of temporary differences by applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|46. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP - continued
|--- | ------------------------------------------------------------

The following table summarizes the differences between IFRS and PRC GAAP:



|                                                                                                    |  |                                                                                            |   |  |                                                                           |   |  |           |   |  |            |   |  |            |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ | - |  | ------------------------------------------------------------------------- | - |  | --------- | - |  | ---------- | - |  | ---------- | -
|                                                                                                    |  | Net income attributable to the equityholders of the Company for the yearended December 31, |   |  | Net assets attributable toequity holders of theCompany as at December 31, |  
|                                                                                                    |  | 2005                                                                                       |   |  | 2004                                                                      |   |  | 2003      |   |  | 2005       |   |  | 2004       |  
|                                                                                                    |  | RMB000                                                                                    |   |  | RMB000                                                                   |   |  | RMB000   |   |  | RMB000    |   |  | RMB000    |  
|As per consolidated financial statements prepared under IFRS                                        |  | 2,881,461                                                                                  |   |  | 3,154,317                                                                 |   |  | 1,386,686 |   |  | 17,618,577 |   |  | 15,523,751 |  
|Impact of IFRS adjustments in respect of:                                                           |  |                                                                                            |   |  |                                                                           |   |  |           |   |  |            |   |  |            |  
|- transfer to future development fund which is charged to income before income taxes under PRC GAAP |  | (381,208                                                                                   | ) |  | (331,548                                                                  | ) |  | (259,674  | ) |  | (269,945   | ) |  | (96,669    | )
|- reversal of Work Safety Cost                                                                      |  | (238,600                                                                                   | ) |  | (204,668                                                                  | ) |  |          |   |  | (443,268   | ) |  | (204,668   | )
|- release of negative goodwill to income                                                            |  |                                                                                           |   |  | (27,620                                                                   | ) |  | (27,620   | ) |  | (138,101   | ) |  | (110,480   | )
|- deemed interest expenses                                                                          |  | 3,858                                                                                      |   |  | 4,550                                                                     |   |  | 5,261     |   |  | 113,220    |   |  | 109,362    |  
|- write-off of pre-operating expenses of a subsidiary                                               |  | 121,801                                                                                    |   |  |                                                                          |   |  |          |   |  | 121,801    |   |  |           |  
|- reversal of goodwill amortisation                                                                 |  | (15,006                                                                                    | ) |  |                                                                          |   |  |          |   |  | (15,006    | ) |  |           |  
|- deferred tax effect on temporary differences not recognized under PRC GAAP                        |  | 123,175                                                                                    |   |  | 111,976                                                                   |   |  | (65       | ) |  | 146,279    |   |  | 23,104     |  
|- others                                                                                            |  |                                                                                           |   |  | 778                                                                       |   |  | 777       |   |  | 8,070      |   |  | 8,071      |  
|                                                                                                    |  |                                                                                            |   |  |                                                                           |   |  |           |   |  |            |   |  |            |  
|As per consolidated financial statements prepared under PRC GAAP                                    |  | 2,495,481                                                                                  |   |  | 2,707,785                                                                 |   |  | 1,105,365 |   |  | 17,141,627 |   |  | 15,252,471 |  
|                                                                                                    |  |                                                                                            |   |  |                                                                           |   |  |           |   |  |            |   |  |            |  

| | Note: | There are also differences in other items in the consolidated financial statements due to differences in classification between IFRS and PRC GAAP.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------



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|47. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP
|--- | -----------------------------------------------

The
consolidated financial statements are prepared in accordance with IFRS, which differ in certain significant respects from US GAAP. The significant differences relate principally to the accounting for the acquisitions of Jining II, Jining III and
Railway Assets, the cost bases of property, plant and equipment and land use rights and related adjustments to deferred taxation.

Under
IFRS, the acquisitions of Jining II, Jining III and the Railway Assets have been accounted for using the purchase method which accounts for the assets and liabilities of Jining II, Jining III and the Railway Assets at their fair value at the date of
acquisition. Any excess of the purchase consideration over the fair value of the net assets acquired is capitalized as goodwill. Prior to January 1, 2005, such goodwill was amortized over a period of ten to twenty years. Subsequent to
January 1, 2005, such goodwill is tested for impairment at least annually. Prior to January 1, 2005, any excess of the fair value of the net assets acquired over the purchase consideration is recorded as negative goodwill, which was
presented as a deduction from the assets of the Group in the consolidated balance sheet. Such negative goodwill was released to the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable
acquired depreciable/amortizable assets. The carrying amount of negative goodwill has been de-recognized and adjusted to the opening retained earnings at January 1, 2005.

Under US GAAP, as the Group, Jining II, Jining III, the Railway Assets and Heze are entities under the common control of the Parent Company, the
assets and liabilities of Jining II, Jining III, the Railway Assets and Heze are required to be included in the consolidated balance sheet of the Group at historical cost. The difference between the historical cost of the assets and liabilities of
Jining II, Jining III, the Railway Assets and Heze acquired and the purchase price paid is recorded as an adjustment to shareholders equity.

In applying the pooling of interest method, the financial statement items of the combining enterprises for the period in which the combination occurs and for any comparative periods disclosed should be included in the financial statements
of the combined enterprises as if they had been combined from the beginning of the earliest period presented. The effect of accounting for the acquisition of Heze using the pooling of interest method on the net income under US GAAP for the year
ended December 31, 2004 and 2003 is as follows:



|                               |  |                         |   |  |          
|------------------------------ |  | ----------------------- | - |  | ---------
|                               |  | Year ended December 31,
|                               |  | 2004                    |   |  | 2003     
|                               |  | RMB000                 |   |  | RMB000  
|Net income                     |  |                         |   |  |          
|As previously reported         |  | 3,272,478               |   |  | 1,499,249
|Pooling of interest adjustment |  |                         |   |  |          
|Net loss from Heze             |  | (8,586                  | ) |  |         
|                               |  |                         |   |  |          
|As restated                    |  | 3,263,892               |   |  | 1,499,249
|                               |  |                         |   |  |          



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|47. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP- continued
|--- | ----------------------------------------------------------

Under IFRS, the mining rights of Jining III are stated at purchase consideration less amortization. Mining rights are amortized on a straight line basis over twenty years, being the useful life estimated based on the total proven and
probable reserves of the coal mine. Under US GAAP, as both the Group and Jining III are entities under the common control of the Parent Company, the mining rights have to be restated at nil cost and no amortization on mining rights will be
recognized. However, a deferred tax asset relating to the capitalization of mining rights is required to be recognized under US GAAP as a higher tax base resulting from the capitalization is utilized for PRC tax purposes.

Under IFRS, property, plant and equipment and prepaid lease payments have been stated based on their respective fair values at the date of acquisition
even for cases involving transaction between entities under common control. The fair value amount becomes the new cost basis of the assets of the Company formed from the reorganization and depreciation is based on such new basis. Under US GAAP,
when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or equity interests shall initially recognize the assets and liabilities transferred at their carrying
amounts in the accounts of the transferring entity at the date of transfer. Accordingly, property, plant and equipment and prepaid lease payments are restated at the historical cost and no additional depreciation on the fair value amounts will be
recognized under US GAAP. However, a deferred tax asset relating to the difference in cost bases between the fair value at the date of acquisition and historical cost is required to be recognized under US GAAP and the tax bases of the assets
are the fair value amount at the date of acquisition.

Under IFRS, the acquisition of Yanmei Shipping has been accounted for using purchase
method which accounted for the assets and liabilities of Yanmei Shipping at their fair value at the date of acquisition. The excess of the purchase consideration over the value of the net assets acquired is capitalized and amortized over a period of
ten years prior to January 1, 2005. No further difference in this treatment of goodwill are identified from January 1, 2005 onwards. Under US GAAP, goodwill is not amortized but instead tested for impairment at least annually.



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|47. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------

The adjustments necessary to restate net income and shareholders equity in accordance with US GAAP are shown in the tables set out below.



|                                                                                                                                                                                                    |  |                         |           |   |         |     |           |         |  |     |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | - | ------- | --- | --------- | ------- |  | --- | --------- | -
|                                                                                                                                                                                                    |  | Year ended December 31, |          
|                                                                                                                                                                                                    |  | 2005                    |           |   | 2004    |     |           | 2003    | 
|                                                                                                                                                                                                    |  | RMB000                 |           |   | RMB000 |     |           | RMB000 | 
|Income attributable to the equity holders of the Company as reported under IFRS                                                                                                                     |  |                         | 2,881,461 |   |         |     | 3,154,317 |         |  |     | 1,386,686 |  
|US GAAP adjustments:                                                                                                                                                                                |  |                         |           |   |         |     |           |         |  |     |           |  
|Additional depreciation charged on fair valued property, plant and equipment and prepaid lease payments                                                                                             |  |                         | 187,885   |   |         |     | 187,418   |         |  |     | 188,191   |  
|Additional deferred tax charge due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and
prepaid lease payments and capitalization of mining rights |  |                         | (64,188   | ) |         |     | (64,034   | )       |  |     | (64,289   | )
|Amortization of negative goodwill on acquisition of Jining III                                                                                                                                      |  |                         |          |   |         |     | (27,620   | )       |  |     | (27,620   | )
|Amortization of mining rights of Jining III                                                                                                                                                         |  |                         | 6,624     |   |         |     | 6,624     |         |  |     | 6,624     |  
|Amortization of goodwill arising on acquisition of Jining II                                                                                                                                        |  |                         |          |   |         |     | 777       |         |  |     | 777       |  
|Amortization of goodwill arising on acquisition of the Railway Assets                                                                                                                               |  |                         |          |   |         |     | 13,880    |         |  |     | 8,880     |  
|Amortization of goodwill arising on acquisition of Yanmei Shipping                                                                                                                                  |  |                         |          |   |         |     | 1,116     |         |  |     |          |  
|Loss of Heze included in the Group using the pooling of interest method                                                                                                                             |  |                         | (17,071   | ) |         |     | (8,586    | )       |  |     |          |  
|                                                                                                                                                                                                    |  |                         |           |   |         |     |           |         |  |     |           |  
|Income under US GAAP                                                                                                                                                                                |  |                         | 2,994,711 |   |         |     | 3,263,892 |         |  |     | 1,499,249 |  
|                                                                                                                                                                                                    |  |                         |           |   |         |     |           |         |  |     |           |  
|Earnings per share under US GAAP, Basic and diluted                                                                                                                                                 |  | RMB                     | 0.61      |   |         | RMB | 0.69      |         |  | RMB | 0.33      |  
|                                                                                                                                                                                                    |  |                         |           |   |         |     |           |         |  |     |           |  
|Earnings per ADS under US GAAP Basic and diluted                                                                                                                                                    |  | RMB                     | 30.44     |   |         | RMB | 34.40     |         |  | RMB | 16.32     |  
|                                                                                                                                                                                                    |  |                         |           |   |         |     |           |         |  |     |           |  



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|47. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



|                                                                                                                                                               |  |                 |   |  |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | - |  | ---------- | -
|                                                                                                                                                               |  | At December 31, |  
|                                                                                                                                                               |  | 2005            |   |  | 2004       |  
|                                                                                                                                                               |  | RMB000         |   |  | RMB000    |  
|Equity attributable to the equity holders of the Company as reported under IFRS                                                                                |  | 17,618,577      |   |  | 15,523,751 |  
|US GAAP adjustments:                                                                                                                                           |  |                 |   |  |            |  
|Difference in cost bases of property, plant and equipment and prepaid lease payments                                                                           |  | (2,561,032      | ) |  | (2,561,032 | )
|Additional depreciation/amortization charged on fair valued property, plant and equipment and prepaid lease payments                                           |  | 1,500,823       |   |  | 1,312,938  |  
|Additional deferred tax asset due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and
prepaid lease payments |  | 349,869         |   |  | 411,871    |  
|Goodwill arising on acquisition of Jining II                                                                                                                   |  | (10,106         | ) |  | (10,106    | )
|Negative goodwill arising on acquisition of Jining III, net                                                                                                    |  |                |   |  | 27,621     |  
|Mining rights of Jining III                                                                                                                                    |  | (99,359         | ) |  | (105,983   | )
|Additional deferred tax asset due to a higher tax base resulting from capitalization of mining rights                                                          |  | 32,788          |   |  | 34,974     |  
|Goodwill arising on acquisition of Railway Assets                                                                                                              |  | (97,240         | ) |  | (97,240    | )
|Amortization of goodwill on acquisition of Yanmei Shipping                                                                                                     |  | 1,116           |   |  | 1,116      |  
|Net assets of Heze incorporated under pooling of interest                                                                                                      |  |                 |   |  |            |  
|- current assets                                                                                                                                               |  |                |   |  | 442,355    |  
|- property, plant and equipment, net                                                                                                                           |  |                |   |  | 192,963    |  
|- current liabilities                                                                                                                                          |  |                |   |  | (44,292    | )
|- minority interests                                                                                                                                           |  |                |   |  | (25,592    | )
|                                                                                                                                                               |  |                 |   |  |            |  
|                                                                                                                                                               |  |                |   |  | 565,434    |  
|                                                                                                                                                               |  |                 |   |  |            |  
|Consideration payable on acquisition of Heze                                                                                                                   |  |                |   |  | (584,008   | )
|Goodwill arising on acquisition of Heze                                                                                                                        |  | (35,645         | ) |  |           |  
|                                                                                                                                                               |  |                 |   |  |            |  
|Shareholders equity under US GAAP                                                                                                                             |  | 16,699,791      |   |  | 14,519,336 |  
|                                                                                                                                                               |  |                 |   |  |            |  



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|47. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------

A reconciliation of certain significant financial statement line items to the approximate amounts determined under US GAAP is as follows:



|                                                          |  |                 |   |  |           |  
|--------------------------------------------------------- |  | --------------- | - |  | --------- | -
|                                                          |  | At December 31, |  
|                                                          |  | 2005            |   |  | 2004      |  
|                                                          |  | RMB000         |   |  | RMB000   |  
|Total current assets                                      |  |                 |   |  |           |  
|As reported under IFRS                                    |  | 10,951,151      |   |  | 8,319,577 |  
|US GAAP adjustments:                                      |  |                 |   |  |           |  
|Net assets of Heze incorporated under pooling of interest |  |                 |   |  |           |  
|- current assets                                          |  |                |   |  | 442,355   |  
|Consideration payable on acquisition of Heze              |  |                |   |  | (584,008  | )
|                                                          |  |                 |   |  |           |  
|As adjusted under US GAAP                                 |  | 10,951,151      |   |  | 8,177,924 |  
|                                                          |  |                 |   |  |           |  
|Mining rights                                             |  |                 |   |  |           |  
|As reported under IFRS                                    |  | 153,265         |   |  | 138,617   |  
|US GAAP adjustment:                                       |  |                 |   |  |           |  
|Mining rights of Jining III                               |  | (99,359         | ) |  | (105,983  | )
|                                                          |  |                 |   |  |           |  
|As adjusted under US GAAP                                 |  | 53,906          |   |  | 32,634    |  
|                                                          |  |                 |   |  |           |  



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|47. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



|                                                                 |  |                 |   |  |            |  
|---------------------------------------------------------------- |  | --------------- | - |  | ---------- | -
|                                                                 |  | At December 31, |  
|                                                                 |  | 2005            |   |  | 2004       |  
|                                                                 |  | RMB000         |   |  | RMB000    |  
|Prepaid lease payments                                           |  |                 |   |  |            |  
|As reported under IFRS                                           |  |                 |   |  |            |  
|- Current portion                                                |  | 13,465          |   |  | 13,171     |  
|- Non-current portion                                            |  | 579,773         |   |  | 578,547    |  
|                                                                 |  |                 |   |  |            |  
|                                                                 |  | 593,238         |   |  | 591,718    |  
|US GAAP adjustments:                                             |  |                 |   |  |            |  
|Difference in cost bases of land use rights                      |  | (550,634        | ) |  | (550,634   | )
|Additional depreciation charged on land use rights               |  | 64,261          |   |  | 53,248     |  
|                                                                 |  |                 |   |  |            |  
|As adjusted under US GAAP                                        |  | 106,865         |   |  | 94,332     |  
|                                                                 |  |                 |   |  |            |  
|Analysis as:                                                     |  |                 |   |  |            |  
|Current                                                          |  | 13,465          |   |  | 13,171     |  
|Non-current                                                      |  | 93,400          |   |  | 81,161     |  
|                                                                 |  |                 |   |  |            |  
|                                                                 |  | 106,865         |   |  | 94,332     |  
|                                                                 |  |                 |   |  |            |  
|Property, plant and equipment                                    |  |                 |   |  |            |  
|As reported under IFRS                                           |  | 9,318,486       |   |  | 8,537,150  |  
|US GAAP adjustments:                                             |  |                 |   |  |            |  
|Difference in cost bases of property, plant and equipment        |  | (2,010,398      | ) |  | (2,010,398 | )
|Additional depreciation charged on property, plant and equipment |  | 1,436,562       |   |  | 1,259,690  |  
|Net assets of Heze incorporated under pooling of interests       |  |                 |   |  |            |  
|- Property, plant and equipment                                  |  |                |   |  | 192,963    |  
|                                                                 |  |                 |   |  |            |  
|As adjusted under US GAAP                                        |  | 8,744,650       |   |  | 7,979,405  |  
|                                                                 |  |                 |   |  |            |  



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|47. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



|                                                                                                         |  |                 |   |  |         |  
|-------------------------------------------------------------------------------------------------------- |  | --------------- | - |  | ------- | -
|                                                                                                         |  | At December 31, |  
|                                                                                                         |  | 2005            |   |  | 2004    |  
|                                                                                                         |  | RMB000         |   |  | RMB000 |  
|Goodwill                                                                                                 |  |                 |   |  |         |  
|As reported under IFRS                                                                                   |  | 153,037         |   |  | 117,392 |  
|US GAAP adjustments:                                                                                     |  |                 |   |  |         |  
|Goodwill arising on contingent payment for acquisition of Railway Assets, net                            |  | (97,240         | ) |  | (97,240 | )
|Goodwill arising on acquisition of Jining II, net                                                        |  | (10,106         | ) |  | (10,106 | )
|Goodwill arising on acquisition of Heze                                                                  |  | (35,645         | ) |  |        |  
|Amortization arising on acquisition of Yanmei Shipping                                                   |  | 1,116           |   |  | 1,116   |  
|                                                                                                         |  |                 |   |  |         |  
|As adjusted under US GAAP                                                                                |  | 11,162          |   |  | 11,162  |  
|                                                                                                         |  |                 |   |  |         |  
|Negative goodwill                                                                                        |  |                 |   |  |         |  
|As reported under IFRS                                                                                   |  |                |   |  | (27,621 | )
|US GAAP adjustment:                                                                                      |  |                 |   |  |         |  
|Negative goodwill arising on acquisition of Jining III, net                                              |  |                |   |  | 27,621  |  
|                                                                                                         |  |                 |   |  |         |  
|As adjusted under US GAAP                                                                                |  |                |   |  |        |  
|                                                                                                         |  |                 |   |  |         |  
|Deferred tax assets/(liability)                                                                          |  |                 |   |  |         |  
|As reported under IFRS                                                                                   |  | (146,279        | ) |  | (23,104 | )
|US GAAP adjustments:                                                                                     |  |                 |   |  |         |  
|Additional deferred tax asset attributable to differences in cost bases of property, plant and equipment |  | 189,366         |   |  | 247,734 |  
|Additional deferred tax asset attributable to differences in cost bases of land use rights               |  | 160,503         |   |  | 164,137 |  
|Additional deferred tax asset attributable to capitalization of mining rights                            |  | 32,788          |   |  | 34,974  |  
|                                                                                                         |  |                 |   |  |         |  
|As adjusted under US GAAP                                                                                |  | 236,378         |   |  | 423,741 |  
|                                                                                                         |  |                 |   |  |         |  



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|47. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



|                                                          |  |                 |  |          
|--------------------------------------------------------- |  | --------------- |  | ---------
|                                                          |  | At December 31,
|                                                          |  | 2005            |  | 2004     
|                                                          |  | RMB000         |  | RMB000  
|Current liabilities                                       |  |                 |  |          
|As reported under IFRS                                    |  | 3,429,030       |  | 2,545,111
|US GAAP adjustment:                                       |  |                 |  |          
|Net assets of Heze incorporated under pooling of interest |  |                |  | 44,292   
|                                                          |  |                 |  |          
|As adjusted under US GAAP                                 |  | 3,429,030       |  | 2,589,403
|                                                          |  |                 |  |          
|Minority interest                                         |  |                 |  |          
|As reported under IFRS                                    |  | 28,731          |  | 3,674    
|US GAAP adjustment:                                       |  |                 |  |          
|Net assets of Heze incorporated under pooling of interest |  |                |  | 25,592   
|                                                          |  |                 |  |          
|As adjusted under US GAAP                                 |  | 28,731          |  | 29,266   
|                                                          |  |                 |  |          



|                                                                 |  |                         |   |  |           |   |  |           |  
|---------------------------------------------------------------- |  | ----------------------- | - |  | --------- | - |  | --------- | -
|                                                                 |  | Year ended December 31, |  
|                                                                 |  | 2005                    |   |  | 2004      |   |  | 2003      |  
|                                                                 |  | RMB000                 |   |  | RMB000   |   |  | RMB000   |  
|Cost of sales and service provided                               |  |                         |   |  |           |   |  |           |  
|As reported under IFRS                                           |  | 5,288,588               |   |  | 4,551,703 |   |  | 3,755,023 |  
|US GAAP adjustments:                                             |  |                         |   |  |           |   |  |           |  
|Additional depreciation charged on property, plant and equipment |  | (165,677                | ) |  | (164,169  | ) |  | (163,459  | )
|Amortization of mining rights of Jining III                      |  | (6,624                  | ) |  | (6,624    | ) |  | (6,624    | )
|                                                                 |  |                         |   |  |           |   |  |           |  
|As adjusted under US GAAP                                        |  | 5,116,287               |   |  | 4,380,910 |   |  | 3,584,940 |  
|                                                                 |  |                         |   |  |           |   |  |           |  



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|47. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



|                                                                                                     |  |                         |   |  |           |   |  |           |  
|---------------------------------------------------------------------------------------------------- |  | ----------------------- | - |  | --------- | - |  | --------- | -
|                                                                                                     |  | Year ended December 31, |  
|                                                                                                     |  | 2005                    |   |  | 2004      |   |  | 2003      |  
|                                                                                                     |  | RMB000                 |   |  | RMB000   |   |  | RMB000   |  
|Selling, general and administrative expenses                                                         |  |                         |   |  |           |   |  |           |  
|As reported under IFRS                                                                               |  | 1,918,788               |   |  | 1,479,863 |   |  | 1,264,858 |  
|US GAAP adjustments:                                                                                 |  |                         |   |  |           |   |  |           |  
|Additional depreciation charged on:                                                                  |  |                         |   |  |           |   |  |           |  
|- property, plant and equipment                                                                      |  | (11,105                 | ) |  | (12,236   | ) |  | (13,719   | )
|- land use rights                                                                                    |  | (11,103                 | ) |  | (11,013   | ) |  | (11,013   | )
|Amortization of goodwill arising on acquisition of Railway Assets                                    |  |                        |   |  | (13,880   | ) |  | (8,880    | )
|Amortization of goodwill arising on acquisition of Jining II                                         |  |                        |   |  | (777      | ) |  | (777      | )
|Amortization of goodwill arising on acquisition of Yanmei Shipping                                   |  |                        |   |  | (1,116    | ) |  |          |  
|Loss of Heze included in the Group using the pooling of interest method                              |  | 17,071                  |   |  | 8,586     |   |  |          |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|As adjusted under US GAAP                                                                            |  | 1,913,651               |   |  | 1,449,427 |   |  | 1,230,469 |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|Other Operating income                                                                               |  |                         |   |  |           |   |  |           |  
|As reported under IFRS                                                                               |  | 135,038                 |   |  | 165,732   |   |  | 105,845   |  
|US GAAP adjustments:                                                                                 |  |                         |   |  |           |   |  |           |  
|Amortization of negative goodwill on acquisition of Jining III                                       |  |                        |   |  | (27,620   | ) |  | (27,620   | )
|Reclassification of interest income from bank deposits and investments in securities to other income |  | (91,715                 | ) |  | (92,711   | ) |  | (17,814   | )
|Reclassification of dividend income to other income                                                  |  | (4,465                  | ) |  | (4,465    | ) |  | (4,810    | )
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|As adjusted under US GAAP                                                                            |  | 38,858                  |   |  | 40,936    |   |  | 55,601    |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  



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|47. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



|                                                                                                                                      |  |                         |  |           |  |        
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- |  | --------- |  | -------
|                                                                                                                                      |  | Year ended December 31,
|                                                                                                                                      |  | 2005                    |  | 2004      |  | 2003   
|                                                                                                                                      |  | RMB000                 |  | RMB000   |  | RMB000
|Other income                                                                                                                          |  |                         |  |           |  |        
|As reported under IFRS                                                                                                                |  |                        |  |          |  |       
|US GAAP adjustment:                                                                                                                   |  |                         |  |           |  |        
|Reclassification of interest income from bank deposits and investments in securities to other income                                  |  | 91,715                  |  | 92,711    |  | 17,814 
|Reclassification of dividend income to other income                                                                                   |  | 4,465                   |  | 4,465     |  | 4,810  
|                                                                                                                                      |  |                         |  |           |  |        
|As adjusted under US GAAP                                                                                                             |  | 96,180                  |  | 97,176    |  | 22,624 
|                                                                                                                                      |  |                         |  |           |  |        
|Income taxes                                                                                                                          |  |                         |  |           |  |        
|As reported under IFRS                                                                                                                |  | 1,538,036               |  | 1,518,762 |  | 587,710
|US GAAP adjustments:                                                                                                                  |  |                         |  |           |  |        
|Additional deferred tax charges attributable to differences in cost bases of property, plant and equipment and prepaid lease
payments |  | 62,002                  |  | 61,848    |  | 62,103 
|Additional deferred tax charges attributable to capitalization of mining rights                                                       |  | 2,186                   |  | 2,186     |  | 2,186  
|                                                                                                                                      |  |                         |  |           |  |        
|As adjusted under US GAAP                                                                                                             |  | 1,602,224               |  | 1,582,796 |  | 651,999
|                                                                                                                                      |  |                         |  |           |  |        



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|47. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------

The following US GAAP condensed consolidated balance sheets and statements of income have been derived from the financial statements prepared in accordance with IFRS and reflect the adjustments and reclassifications presented above to
conform to US GAAP.

CONSOLIDATED BALANCE SHEETS



|                                     |  |                 |  |           
|------------------------------------ |  | --------------- |  | ----------
|                                     |  | At December 31,
|                                     |  | 2005            |  | 2004      
|                                     |  | RMB000         |  | RMB000   
|Assets                               |  |                 |  |           
|Current assets                       |  | 10,951,151      |  | 8,177,924 
|                                     |  |                 |  |           
|Mining rights                        |  | 53,906          |  | 32,634    
|Prepaid lease payment                |  | 93,400          |  | 81,161    
|Property, plant and equipment        |  | 8,744,650       |  | 7,979,405 
|Goodwill                             |  | 11,162          |  | 11,162    
|Deferred tax assets                  |  | 236,378         |  | 423,741   
|Other non-current assets             |  | 98,732          |  | 673,035   
|                                     |  |                 |  |           
|                                     |  | 20,189,379      |  | 17,379,062
|                                     |  |                 |  |           
|Liabilities and shareholders equity |  |                 |  |           
|Current liabilities                  |  | 3,429,030       |  | 2,589,403 
|Non-current liabilities              |  | 31,827          |  | 241,057   
|Shareholders equity                 |  | 16,699,791      |  | 14,519,336
|Minority interest                    |  | 28,731          |  | 29,266    
|                                     |  |                 |  |           
|                                     |  | 20,189,379      |  | 17,379,062
|                                     |  |                 |  |           

CONSOLIDATED STATEMENTS OF INCOME



|                                             |  |                         |   |  |            |   |  |            |  
|-------------------------------------------- |  | ----------------------- | - |  | ---------- | - |  | ---------- | -
|                                             |  | Year ended December 31, |  
|                                             |  | 2005                    |   |  | 2004       |   |  | 2003       |  
|                                             |  | RMB000                 |   |  | RMB000    |   |  | RMB000    |  
|Railway transportation service income        |  | 163,437                 |   |  | 220,771    |   |  | 154,585    |  
|Gross sales of coal                          |  | 12,283,588              |   |  | 11,757,052 |   |  | 8,386,629  |  
|Transportation costs of coal                 |  | (930,103                | ) |  | (1,402,715 | ) |  | (1,592,294 | )
|Cost of sales and service provided           |  | (5,116,287              | ) |  | (4,380,910 | ) |  | (3,584,940 | )
|Selling, general and administrative expenses |  | (1,913,651              | ) |  | (1,449,427 | ) |  | (1,230,469 | )
|Other operating income                       |  | 38,858                  |   |  | 40,936     |   |  | 55,601     |  
|Interest expenses                            |  | (24,611                 | ) |  | (35,942    | ) |  | (59,966    | )
|Other income                                 |  | 96,180                  |   |  | 97,176     |   |  | 22,624     |  
|                                             |  |                         |   |  |            |   |  |            |  
|Income before income taxes                   |  | 4,597,411               |   |  | 4,846,941  |   |  | 2,151,770  |  
|Income taxes                                 |  | (1,602,224              | ) |  | (1,582,796 | ) |  | (651,999   | )
|                                             |  |                         |   |  |            |   |  |            |  
|Income before minority interest              |  | 2,995,187               |   |  | 3,264,145  |   |  | 1,499,771  |  
|Minority interest                            |  | (476                    | ) |  | (253       | ) |  | (522       | )
|                                             |  |                         |   |  |            |   |  |            |  
|Net income                                   |  | 2,994,711               |   |  | 3,263,892  |   |  | 1,499,249  |  
|                                             |  |                         |   |  |            |   |  |            |  



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|47. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------

Details of effect of recent accounting pronouncements in the US GAAP are as follows:

In December 2004, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123 (revised 2004) (SFAS No. 123-R). Share-Based Payment, which is a revision of SFAS
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123-R supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. Generally, the approach in SFAS No. 123-R is similar to the
approach described in SFAS No. 123. However, SFAS No. 123-R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on the grant-date fair values. Pro forma
disclosure previously permitted under SFAS No. 123 is no longer an alternative. The new standard, as recently amended, will be effective for the Group in the annual reporting period beginning after January 1, 2006. Under SFAS
No. 123-R, the Group could elect the modified prospective or modified retroactive option for transition on the adoption of this new standard. Under the modified retroactive option, prior periods are adjusted on a basis consistent with the pro
forma disclosures previously required for those periods by SFAS No. 123. Under the modified prospective option, compensation expense for all unvested stock options must be recognized on or after the required effective date based on the
grant-date fair value of those stock options. The Group does not issue stock options and therefore the adoption of SFAS No. 123-R did not have material impact on the Groups financial statements.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs  an amendment of ARB No. 43, Chapter 4. SFAS No. 151
clarifies the accounting that requires abnormal amounts of idle facility expenses, freight, handling costs, and spoilage costs to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective for inventory costs incurred on or after July 1, 2005. The Group adopted SFAS No.151 on July 1, 2005 and it did not have a
material effect on the Groups financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets  an amendment of APB Opinion No. 29 (SFAS 153), which amends Accounting Principles Board Opinion No. 29, Accounting for Nonmonetary Transactions to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for nonmonetary assets exchanges occurring in
fiscal periods beginning after June 15, 2005. The Group does not anticipate that the adoption of this statement will have a material effect on the Groups financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (SFAS 154) which replaces Accounting
Principles Board Opinions No. 20 Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements  An Amendment of APB Opinion No. 28. SFAS 154 provides guidance on the
accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a
correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Group does not anticipate that the adoption of this statement will have a material effect
on the Groups financial position or results of operations.



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