##### Table of Contents

As filed with Securities and Exchange Commission on June 29, 2007



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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, 2006

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



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LOGO

(Exact name of Registrant as specified in its charter)

Yanzhou Coal Mining Company Limited

(Translation of Registrants name into English)



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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 |  | New York Stock Exchange*                 



|* | 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 ̈No  x

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

Indicate by check mark whether the registrant 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



|                                                 |  |                                                                              |  |         
|------------------------------------------------ |  | ---------------------------------------------------------------------------- |  | --------
|                                                 |  |                                                                              |  | PAGE NO.
|CAUTIONARY STATEMENT                             |  | 1                                                                           
|CERTAIN DEFINITIONS AND SUPPLEMENTAL INFORMATION |  | 1                                                                           
|EXCHANGE RATES                                   |  | 3                                                                           
|                                                 |  |                                                                             
|                                                 |  | PART I                                                                       |  |         
|                                                 |  |                                                                             
|ITEM 1.                                          |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                        |  | 3       
|ITEM 2.                                          |  | OFFER STATISTICS AND EXPECTED TIMETABLE                                      |  | 3       
|ITEM 3.                                          |  | KEY INFORMATION                                                              |  | 3       
|ITEM 4.                                          |  | INFORMATION ON THE COMPANY                                                   |  | 12      
|ITEM 5.                                          |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 |  | 38      
|ITEM 6.                                          |  | DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES                      |  | 54      
|ITEM 7.                                          |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            |  | 65      
|ITEM 8.                                          |  | FINANCIAL INFORMATION                                                        |  | 69      
|ITEM 9.                                          |  | THE OFFER AND LISTING                                                        |  | 72      
|ITEM 10.                                         |  | ADDITIONAL INFORMATION                                                       |  | 74      
|ITEM 11.                                         |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  | 91      
|ITEM 12.                                         |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | 92      
|                                                 |  |                                                                             
|                                                 |  | PART II                                                                      |  |         
|                                                 |  |                                                                             
|ITEM 13.                                         |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | 93      
|ITEM 14.                                         |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 93      
|ITEM 15.                                         |  | CONTROLS AND PROCEDURES                                                      |  | 93      
|ITEM 16A.                                        |  | AUDIT COMMITTEE FINANCIAL EXPERT                                             |  | 94      
|ITEM 16B                                         |  | CODE OF ETHICS                                                               |  | 94      
|ITEM 16C.                                        |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       |  | 95      
|ITEM 16D.                                        |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |  | 95      
|ITEM 16E.                                        |  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       |  | 96      
|                                                 |  |                                                                             
|                                                 |  | PART III                                                                     |  |         
|                                                 |  |                                                                             
|ITEM 17                                          |  | FINANCIAL STATEMENTS                                                         |  | 96      
|ITEM 18.                                         |  | FINANCIAL STATEMENTS                                                         |  | 96      
|ITEM 19.                                         |  | EXHIBITS                                                                     |  | 96      
|                                                 | 
|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, 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.

CERTAIN DEFINITIONS AND SUPPLEMENTAL INFORMATION

As used herein, references to we,
our, Company, our Company or us refer to Yanzhou Coal Mining Company Limited and its subsidiaries which have been consolidated into the accounts of Yanzhou Coal Mining Company Limited for the purpose
of the consolidated financial statements, unless the context indicates otherwise. References to the Yankuang Group or Controlling Shareholder 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



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to us in the restructuring and incorporation of the Company (defined below) in 1997 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 Controlling Shareholder prior to the Restructuring.

As used herein, references to the Company refers to Yanzhou Coal Mining Company Limited on a stand-alone basis and does not include its
subsidiaries that have been consolidated into our accounts for the purposes of the consolidated financial statements. The subsidiaries of the Company which have been consolidated into our accounts for the purposes of the consolidated financial
statements include: Shandong Yanmei Shipping Co., Ltd. (Yanmei Shipping), Zhongyan Trading Co. Ltd. of Qingdao Bonded Area (Zhongyan Trading), Yanzhou Coal Yulin Nenghua Co., Ltd. (Yulin Nenghua), Yancoal
Australia Pty Limited (Yancoal Australia), Yanmei Shanxi Nenghua Co., Ltd. (Shanxi Nenghua), and Yanmei Heze Power Chemical Co., Ltd. (Heze Nenghua).

References to Shares herein refer to our (i) domestic invested shares held by the Controlling Shareholder 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 Controlling Shareholder, RMB1.00 par value each (the RMB Ordinary 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 held by Yankuang
Group on behalf of the State and RMB Ordinary A Shares collectively.

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 46 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.

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



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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 29, 2006 of U.S.$1.00 = RMB7.8041. 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.

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 selected financial information presents our consolidated income statement data, consolidated balance sheet data and consolidated cash flow data as of and for the years ended December 31, 2002, 2003, 2004, 2005 and 2006.
The following financial information should be read in conjunction with the audited financial statements included elsewhere in this 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 the IFRS as compared to generally accepted accounting principles in the United States, also known as U.S. GAAP, see Note 46 to the
financial statements. In 2006, we have applied, for the first time, a number of new standards, amendments and interpretations (New IFRS) issued by the International Accounting Standards Board (the IASB) and the International
Financial Reporting Interpretations Committee of the IASB which are either effective for accounting periods beginning on or after December 1, 2005 or January 1, 2006. Since the adoption of the new IFRS did not have a material effect on how
the result for the current or prior accounting periods have been prepared and presented, no prior period adjustment was required. See Note 3 to the financial statements included in Item 18.



|                                      |  |                                                                                                    |  |         |  |          |  |          |  |          |  |        
|------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | ------- |  | -------- |  | -------- |  | -------- |  | -------
|                                      |  | As of and for the Year Ended December 31,                                                         
|                                      |  | 2002                                                                                               |  | 2003    |  | 2004     |  | 2005     |  | 2006     |  | 2006   
|                                      |  | 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                     |  | 6,213.9                                                                                            |  | 6,794.3 |  | 10,354.3 |  | 11,353.5 |  | 11,846.9 |  | 1,518.0
|The Company(2)                        |  | 6,213.9                                                                                            |  | 6,794.3 |  | 10,354.3 |  | 11,353.5 |  | 11,710.7 |  | 1,500.6
|Domestic                              |  | 3,414.0                                                                                            |  | 4,337.1 |  | 7,407.0  |  | 8,421.5  |  | 9,365.9  |  | 1,200.1
|Export(3)                             |  | 2,799.9                                                                                            |  | 2,457.2 |  | 2,947.3  |  | 2,932.0  |  | 2,344.8  |  | 300.5  
|Yancoal Australia                     |  |                                                                                                   |  |        |  |         |  |         |  | 114.4    |  | 14.7   
|Shanxi Nenghua                        |  |                                                                                                   |  |        |  |         |  |         |  | 21.8     |  | 2.7    
|Railway transportation service income |  | 142.5                                                                                              |  | 154.6   |  | 220.8    |  | 163.4    |  | 160.4    |  | 20.5   



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|                                                             |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | ------- | -
|                                                             |  | As of and for the Year Ended December 31,                                                          |  
|                                                             |  | 2002                                                                                               |   |  | 2003     |   |  | 2004     |   |  | 2005     |   |  | 2006     |   |  | 2006    |  
|                                                             |  | 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 net revenue(4)                                         |  | 6,356.4                                                                                            |   |  | 6,948.9  |   |  | 10,575.1 |   |  | 11,516.9 |   |  | 12,007.3 |   |  | 1,538.5 |  
|Gross profit                                                 |  | 2,993.5                                                                                            |   |  | 3,193.9  |   |  | 6,023.4  |   |  | 6,228.3  |   |  | 5,817.3  |   |  | 745.4   |  
|Interest expenses                                            |  | (117.9                                                                                             | ) |  | (60.0    | ) |  | (35.9    | ) |  | (24.6    | ) |  | (26.3    | ) |  | (3.4    | )
|Income before income taxes                                   |  | 1,748.2                                                                                            |   |  | 1,974.9  |   |  | 4,673.3  |   |  | 4,420.0  |   |  | 3,726.6  |   |  | 477.5   |  
|Net income attributable to our equity holders                |  | 1,222.0                                                                                            |   |  | 1,386.7  |   |  | 3,154.3  |   |  | 2,881.5  |   |  | 2,373.0  |   |  | 304.1   |  
|Net income/Earnings per Share                                |  | 0.43                                                                                               |   |  | 0.30     |   |  | 0.66     |   |  | 0.59     |   |  | 0.48     |   |  | 0.06    |  
|Net income/Earnings per ADS                                  |  | 21.29                                                                                              |   |  | 15.1     |   |  | 33.25    |   |  | 29.29    |   |  | 24.12    |   |  | 3.09    |  
|Operating income per Share                                   |  | 0.65                                                                                               |   |  | 0.44     |   |  | 0.99     |   |  | 0.90     |   |  | 0.76     |   |  | 0.10    |  
|Income from continuing operation per ADS                     |  | 32.51                                                                                              |   |  | 22.16    |   |  | 49.64    |   |  | 45.18    |   |  | 37.88    |   |  | 4.85    |  
|                                                             |  |                                                                                                    |   |  |          |  
|U.S. GAAP                                                    |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net income(5)                                                |  | 1,325.7                                                                                            |   |  | 1,499.2  |   |  | 3,263.9  |   |  | 2,991.1  |   |  | 2,405.8  |   |  | 308.3   |  
|Net income per Share                                         |  | 0.46                                                                                               |   |  | 0.33     |   |  | 0.69     |   |  | 0.61     |   |  | 0.49     |   |  | 0.06    |  
|Net income per ADS                                           |  | 23.10                                                                                              |   |  | 16.32    |   |  | 34.40    |   |  | 30.41    |   |  | 24.46    |   |  | 3.13    |  
|                                                             |  |                                                                                                    |   |  |          |  
|CASH FLOW DATA                                               |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                         |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net cash provided by operating activities                    |  | 2,239.7                                                                                            |   |  | 2,701.2  |   |  | 4,418.4  |   |  | 3,939.3  |   |  | 3,767.2  |   |  | 482.7   |  
|Depreciation                                                 |  | 851.1                                                                                              |   |  | 920.5    |   |  | 958.7    |   |  | 952.1    |   |  | 1,062.0  |   |  | 136.1   |  
|Net cash used in investing activities                        |  | (2,165.5                                                                                           | ) |  | (1,310.3 | ) |  | (2,300.8 | ) |  | (2,262.5 | ) |  | (3,625.5 | ) |  | (464.6  | )
|Net cash (used in) provided by financing activities          |  | 345.2                                                                                              |   |  | (911.4   | ) |  | 1,075.4  |   |  | (1,009.3 | ) |  | (1,291.5 | ) |  | (165.5  | )
|                                                             |  |                                                                                                    |   |  |          |  
|OTHER FINANCIAL DATA                                         |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Income before income tax                                     |  | 1,748.2                                                                                            |   |  | 1,974.9  |   |  | 4,673.3  |   |  | 4,420.0  |   |  | 3,726.6  |   |  | 477.5   |  
|Add: Interest expenses                                       |  | 117.9                                                                                              |   |  | 60.0     |   |  | 35.9     |   |  | 24.6     |   |  | 26.3     |   |  | 3.4     |  
|Less: Interest income                                        |  | 30.2                                                                                               |   |  | 17.8     |   |  | 92.7     |   |  | 91.7     |   |  | 94.3     |   |  | 12.1    |  
|Add: Depreciation and amortisation                           |  | 858.5                                                                                              |   |  | 950.1    |   |  | 994.3    |   |  | 971.9    |   |  | 1,088.2  |   |  | 139.4   |  
|EBITDA(6)                                                    |  | 2,694.4                                                                                            |   |  | 2,967.2  |   |  | 5,610.8  |   |  | 5,324.8  |   |  | 4,746.8  |   |  | 608.2   |  
|EBITDA margin(7)                                             |  | 42.4                                                                                               | % |  | 42.7     | % |  | 53.1     | % |  | 46.2     | % |  | 39.5     | % |  | 39.5    | %
|                                                             |  |                                                                                                    |   |  |          |  
|OPERATING DATA                                               |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Raw coal production (000 tonnes)                            |  | 38,435                                                                                             |   |  | 43,279   |   |  | 39,146   |   |  | 34,655   |   |  | 36,051   |   |  | N/A     |  
|The Company(2)(000 tonnes)                                  |  | 38,435                                                                                             |   |  | 43,279   |   |  | 39,146   |   |  | 34,655   |   |  | 35,485   |   |  | N/A     |  
|Yancoal Australia (000 tonnes)                              |  |                                                                                                   |   |  |         |   |  |         |   |  |         |   |  | 447      |   |  | N/A     |  
|Shanxi Nenghua (000 tonnes)                                 |  |                                                                                                   |   |  |         |   |  |         |   |  |         |   |  | 119      |   |  | N/A     |  
|Net sales (000 tonnes)                                      |  | 35,048                                                                                             |   |  | 39,408   |   |  | 38,004   |   |  | 32,485   |   |  | 34,663   |   |  | N/A     |  
|The Company(2)(000 tonnes)                                  |  | 35,048                                                                                             |   |  | 39,408   |   |  | 38,004   |   |  | 32,485   |   |  | 34,330   |   |  | N/A     |  
|Domestic (000 tonnes)                                       |  | 20,582                                                                                             |   |  | 25,776   |   |  | 27,988   |   |  | 25,234   |   |  | 28,194   |   |  | N/A     |  
|Export (000 tonnes)                                         |  | 14,466                                                                                             |   |  | 13,632   |   |  | 10,016   |   |  | 7,251    |   |  | 6,136    |   |  | N/A     |  
|Yancoal Australia (000 tonnes)                              |  |                                                                                                   |   |  |         |   |  |         |   |  |         |   |  | 192      |   |  | N/A     |  
|Shanxi Nenghua (000 tonnes)                                 |  |                                                                                                   |   |  |         |   |  |         |   |  |         |   |  | 141      |   |  | N/A     |  
|                                                             |  |                                                                                                    |   |  |          |  
|BALANCE SHEET DATA                                           |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                         |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Total current assets                                         |  | 3,873.4                                                                                            |   |  | 4,430.5  |   |  | 8,319.6  |   |  | 10,951.1 |   |  | 9,871.9  |   |  | 1,265.0 |  
|Total current liability                                      |  | 1,662.7                                                                                            |   |  | 2,372.0  |   |  | 2,545.1  |   |  | 3,429.0  |   |  | 3,828.0  |   |  | 490.5   |  
|Net current assets                                           |  | 2,170.7                                                                                            |   |  | 2,058.5  |   |  | 5,774.5  |   |  | 7,522.1  |   |  | 6,043.9  |   |  | 774.5   |  
|Property, plant and equipment, net                           |  | 8,276.9                                                                                            |   |  | 8,616.4  |   |  | 8,537.2  |   |  | 9,318.5  |   |  | 12,139.9 |   |  | 1,555.6 |  
|Total assets                                                 |  | 12,924.0                                                                                           |   |  | 13,909.9 |   |  | 18,336.7 |   |  | 21,254.4 |   |  | 23,458.7 |   |  | 3,005.9 |  
|Total long-term borrowing                                    |  | 1,261.3                                                                                            |   |  | 650.9    |   |  | 441.1    |   |  | 231.8    |   |  | 403.1    |   |  | 51.7    |  
|Equity attributable to our equity holders                    |  | 9,995.0                                                                                            |   |  | 11,083.2 |   |  | 15,523.8 |   |  | 17,618.6 |   |  | 18,931.8 |   |  | 2,425.9 |  
|                                                             |  |                                                                                                    |   |  |          |  
|U.S. GAAP                                                    |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Property, plant and equipment and prepaid lease payment, net |  | 7,271.4                                                                                            |   |  | 7,785.8  |   |  | 8,073.7  |   |  | 9,279.7  |   |  | 11,860.3 |   |  | 1,519.8 |  
|Total assets                                                 |  | 11,787.5                                                                                           |   |  | 12,845.8 |   |  | 17,379.1 |   |  | 20,136.7 |   |  | 22,134.1 |   |  | 2,836.2 |  
|Equity attributable to our equity holders                    |  | 8,858.5                                                                                            |   |  | 10,019.2 |   |  | 14,519.3 |   |  | 16,565.3 |   |  | 17,913.2 |   |  | 2,295.4 |  
|                                                             |  |                                                                                                    |   |  |          |  
|Number of Shares                                             |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Domestic Shares                                              |  | 1,850.0                                                                                            |   |  | 1,850.0  |   |  | 1,850.0  |   |  | 2,960.0  |   |  | 2,960.0  |   |  | 2,960   |  
|H Shares (including H Shares represented by ADS)             |  | 1,020.0                                                                                            |   |  | 1,020.0  |   |  | 1,224.0  |   |  | 1,958.4  |   |  | 1,958.4  |   |  | 1,958.4 |  
|ADS                                                          |  | 20.4                                                                                               |   |  | 20.4     |   |  | 24.48    |   |  | 39.168   |   |  | 39.168   |   |  | 39.168  |  
|Dividend per                                                 |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  



4



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##### Table of Contents

|                          |  |                                                                                                    |  |       |  |       |  |       |  |       |  |      
|------------------------- |  | -------------------------------------------------------------------------------------------------- |  | ----- |  | ----- |  | ----- |  | ----- |  | -----
|                          |  | As of and for the Year Ended December 31,                                                         
|                          |  | 2002                                                                                               |  | 2003  |  | 2004  |  | 2005  |  | 2006  |  | 2006 
|                          |  | RMB                                                                                                |  | RMB   |  | RMB   |  | RMB   |  | RMB   |  | U.S.$
|                          |  | (Amounts in millions except numbers of Shares and ADSs, and per Share, per ADS and operating data)
|Domestic Share/H Share(8) |  | 0.10                                                                                               |  | 0.104 |  | 0.164 |  | 0.260 |  | 0.220 |  | 0.028
|ADS(9)                    |  | 5.00                                                                                               |  | 5.20  |  | 8.20  |  | 13.00 |  | 11.0  |  | 1.410

---

|(1) | The above financial highlights as of and for the year 2004 represent the data resulting from the consolidation of the financial statements of Yanmei Shipping, Yulin Nenghua and
Yancoal Australia . The above financial highlights as of and for the year 2005 represent the data resulting from the additional consolidation of the financial statements of Heze Nenghua. The above financial highlights as of and for the year 2006
represent the data resulting from the additional consolidation of the financial statements of Shanxi Nenghua. The gross profit, taxes and surcharges resulting from the principal businesses of Yanmei Shipping are calculated as our transportation cost
of coal. 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 and Yulin Nenghua are currently 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) | The Company does not include the subsidiaries that have been consolidated into our accounts for the purposes of the consolidated financial statements. The subsidiaries
that have been consolidated into our accounts for the purposes of the consolidated financial statements include: Yanmei Shipping, Zhongyan Trading, Yulin Nenghua, Yancoal Australia, Shanxi Nenghua, and Heze Nenghua.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Export sales constituted 44.0%, 35.4%, 27.9%, 25.5% and 20.0% of total net revenue of the Company in 2002, 2003, 2004, 2005 and 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|(4) | Total net revenue is the sum of net sales of coal and railway transportation service income.
|--- | --------------------------------------------------------------------------------------------

|(5) | The net income for the year ended December 31, 2004 and the total assets value and owners equity as of 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. The net income for the year ended December 31, 2005 and the total assets value and owners equity as of December 31, 2005 under U.S. GAAP included the loss
and net assets of Shanxi Nenghua acquired in 2006 using the pooling of interest method.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | EBITDA margin represents EBITDA as a percentage of our total net revenue.
|--- | -------------------------------------------------------------------------

|(8) | 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | 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.$)
|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
|2006     |  | 7.8041                       |  | 7.9723     |  | 8.0702 |  | 7.8041
|December |  | 7.8041                       |  | 7.8219     |  | 7.8350 |  | 7.8041



5



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##### Table of Contents

|                             |  |                              |  |            |  |        |  |       
|---------------------------- |  | ---------------------------- |  | ---------- |  | ------ |  | ------
|                             |  | Noon Buying Rate            
|Period                       |  | Period End                   |  | Average(1) |  | High   |  | Low   
|                             |  | (expressed in RMB per U.S.$)
|2007                         |  | 7.8041                       |  | 7.9723     |  | 8.0702 |  | 7.8041
|January                      |  | 7.7714                       |  | 7.7876     |  | 7.8127 |  | 7.705 
|February                     |  | 7.7410                       |  | 7.7502     |  | 7.7632 |  | 7.7410
|March                        |  | 7.7232                       |  | 7.7369     |  | 7.7454 |  | 7.7232
|April                        |  | 7.7090                       |  | 7.7247     |  | 7.7345 |  | 7.090 
|May                          |  | 7.6516                       |  | 7.6773     |  | 7.7065 |  | 7.6463
|June (through June 22, 2007) |  | 7.6220                       |  | 7.6381     |  | 7.6680 |  | 7.6175

---

|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 22, 2007 the noon buying rate for Renminbi was U.S.$1.00 = RMB7.6220

B. Capitalization and Indebtedness

Not applicable.

C. Reasons 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. They 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 RMB272.45 in 2004, RMB349.50 in 2005 and RMB341.77 in 2006. 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, and alternative energy sources, such as hydroelectric power, and
international shipping costs also have influences on the market demand for coal. Material changes in the international coal market may adversely affect our Companys export sales and future operational results. Excess supply of coal or
significant reduction in the demand for our coal by 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 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. In the past, Shandong Power and Fuel Company had 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.



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For the years ended December 31, 2005 and 2006, Huadian Power International Corporation Limited
(Huadian) replaced Shandong Power and Fuel Company and became our largest domestic customer. For the years ended December 31, 2005 and 2006, we supplied a total of 5.6 million and 4.9 million tonnes, representing 13.4% and
11.3% of our total net sales in 2005 and 2006, respectively, to Huadian. 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 9.5%, 13.2%
and 11.2% of our total net sales in 2004, 2005 and 2006, respectively.

Zouxian Electric Power Plants total coal requirements were
approximately 5.2 million tonnes in 2006. We estimated that we supplied approximately 92.3%, 83.6% and 92.9% of Zouxian Electric Power Plants coal requirements in 2004, 2005 and 2006, respectively. We believe we are likely to remain the
principal coal supplier for Zouxian Electric Power Plant because (i) we are located within close proximity to Zouxian Electric Power Plant, (ii) Zouxian Electric Power Plant is unable to receive railway shipments of coal other than through
our own railway network and (iii) Zouxian Electric Power Plants boilers were designed to use our coal. Given that a large percentage of our revenues is derived from the supply of coal to Zouxian Electric Power Plant, any adverse
developments at 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 services 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. 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 to rely on
intermediary export sales companies to export our coal.

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 to 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 88.5%, 87.0% and 87.3% of our sales in 2004, 2005 and 2006, 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.



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##### Table of Contents

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

Approximately 60.0%, 53.6% and 50.8% of our total net sales in 2004, 2005 and 2006, respectively, were derived from sales of coal transported by the
PRCs national railway system (excluding coal sold to Zouxian Electric Power Plant which was 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.

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 based on the estimated coal reserve data. We cannot 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 and international coal producers. Some of our overseas competitors may have greater financial, marketing, distribution and other resources than we do, and have more well-known brand names in 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. We believe that we compete favorably with respect to
transportation capability and costs due to the fact that our principal competitors are located mainly in Shanxi Province, Shaanxi Province and the Inner Mongolia Autonomous Region, where there is occasional insufficient rail capacity and significant
costs incurred in transporting coal from these regions to Eastern China, where the strongest demand for coal is. However, 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.



8



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##### Table of Contents

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 already developed new coal reserves, acquisitions 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 acquired from our Controlling Shareholder 95.67% of the equity interest in Heze Nenghua; Zhaolou Coal Mine in Juye
Coal Field, which is owned by Heze Nenghua, is currently under construction. In November 2006 and February 2007, our Company aggregately acquired 100% of the equity interests of Shanxi Nenghua which was held by our Controlling Shareholder and Lunan
Fertilizer Plant; Tianchi Coal Mine, which is owned by Shanxi Nenghua, was put into operation in November 2006. We are also in the process of setting up the relevant company for the coal mining project in Yushuwan, Shaanxi Province.

We cannot 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
targets 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 the results of operation and our financial condition.

The acquisition and/or the development of new mines in the PRC and overseas require 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 provide on-the-job training for our employees, and, 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 land subsidence, restoration,
rehabilitation or environmental protection of the land after the underground sites have been mined. An estimate of such costs is



9



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##### Table of Contents

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.
Payment for such costs is funded from working capital. The amount charged to income statements in 2006 was RMB743.0 million. The provision for land subsidence, restoration, rehabilitation and environmental costs has been determined by the directors
based on past occurrences of land subsidence. However, the provision is only an estimate. The estimate of costs for land subsidence, restoration, rehabilitation or environmental protection of the land may be subject to change in the future as 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 land subsidence, restoration, rehabilitation and environmental
protection 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 may produce 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 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 28.5%, 25.8% and 20.8% of our net sales of coal in 2004, 2005 and 2006, respectively. Average selling prices for
overseas coal sales are generally higher than average selling prices for domestic sales. In 2006, average selling prices for export sales were RMB388.59 per tonne, compared to average selling prices for domestic sales of RMB331.31 per tonne.

In January 2004, the PRC Government promulgated new regulations, entitled Measures for the Administration of Quotas for Coal
Export, which took 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 2005 and 2006 as our export agents have consistently received 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



10



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##### Table of Contents

sales for 2007 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, 2004, 2005 and 2006, our export sales of coal (not including Yancoal Australias overseas sales of coal) accounted for approximately 11.6%, 10.2% and 9.9%, 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 Controlling Shareholder may have a significant influence on us.

As of December 31, 2006, the Controlling Shareholder 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.

Pursuant to the regulations of Hong Kong Stock Exchange and Shanghai Stock Exchange on continuing connected transactions and the actual operations of us
and the Controlling Shareholder, we completed the necessary review procedures for our continuing connected transactions as required by law and entered into six new continuing connected transaction agreements (New Continuing Connected
Transaction Agreements), including the materials and water supply agreement, electricity supply agreement, labor and service agreement, equipment maintenance and repair works agreement, products and materials agreement and administrative
service for pension fund and retirement benefits agreement, with the Controlling Shareholder in the first quarter of 2006. We also determined the annual caps for each New Continuing Connected Transaction Agreements for 2006 to 2008. For details of
the New Continuing Connected Transactions, please see Item 7  Major Shareholders and Related Party Transaction. Any material financial or operational problems experienced by the Controlling Shareholder which leads to disruption of
its operations could materially affect our operations and future prospects.

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 governments of the PRC continue to support the development and operation of the 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On July 21, 2005, the Peoples Bank of China, or PBOC, announced the 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
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 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 continuously evolving. Even where adequate law exists, enforcement of existing laws or contracts may be uncertain and arbitrary, 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 lack of precedents in PRCs judiciary creates additional uncertainty as to the possible outcome of any litigation. In addition, interpretation of statutes and regulations may be subject to
evolving government policies and 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 regulations 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 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;
| | - |  | ---------------------------------------------------------



| |  |  | 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 our Company

The Company, Yanzhou Coal Mining Company Limited, was 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.



12



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##### Table of Contents

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, 2006.

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
transportation for coal products. We were the largest coal producers and coal exporters in Eastern China in 2006. In 2006, we had raw coal production of approximately 36.1 million tonnes, including 35.5 million tonnes by the Company,
0.4 million tonnes by Yancoal Australia and 0.1 million tonnes by Shanxi Nenghua. We also exported 6.3 million tonnes of coal, including 6.1 million tonnes by the Company and 0.2 million tonnes by the overseas sales of coal
by Yancoal Australia.

The Company has six coal mines located in China: Nantun, Xinglongzhuang, Baodian, Dongtan, Jining II and Jining III,
which commenced production in 1973, 1981, 1986, 1989, 1997 and 2000, respectively. As of December 31, 2006, the six domestic coal mines of the Company had a total in-place proven and probable reserve of approximately 1,933.0 million tonnes
and Shanxi Nenghua had recoverable reserves of 30.1 million tonnes, and probable reserves of 66.1 million tonnes.

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 for 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 2004, 2005 and 2006, 47.4%, 49.5% and
54.5%, 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 9.5%, 13.2% and 11.2% of our total net sales in 2004, 2005
and 2006, respectively. Net sales to customers located in the rapidly growing Yangtze delta region, encompassing Shanghai Municipality, Jiangsu Province and Zhejiang Province, comprised 16.9%, 15.1% and 13.6% of our total net sales in 2004, 2005 and
2006, respectively. Our overseas sales, including the export sales of the Company and the overseas sales of Yancoal Australia, principally to Japan, accounted for 27.9%, 25.5% and 20.5% of our total net sales in 2004, 2005 and 2006, respectively.
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 2004, 2005 and 2006, 20.1%, 20.4% and 22.5%, 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 2006, we generated total net sales of RMB12,007.3 million, and net
income attributable to our equity holders was RMB2,373.0 million.



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##### Table of Contents

Setting up Yulin Nenghua

In 2004, we established Yulin Nenghua in Yulin City in Shaanxi Province in the PRC by injecting RMB776 million of capital. The registered capital of Yulin Nenghua is RMB800 million. The main business of Yulin Nenghua
is the operation and construction of a methanol facility with 600,000 tonnes of annual capacity. It is currently expected that the methanol facility of Yulin Nenghua will commence operations in 2008.

Acquisition of Austar Coal Mine

On
December 24, 2004, we acquired the entire interest in the Southland Coal Mine located in New South Wales of Australia. Southland Coal Mines was subsequently renamed Austar Coal Mine. In 2004, we also established two wholly-owned subsidiaries in
Australia, namely Yancoal Australia and Austar Coal Mine Pty Limited (Austar). Austar Coal Mine was put into operation on October 16, 2006.

Acquisition of Heze Nenghua

On December 7, 2005, we acquired 95.67% equity interest in Heze Nenghua. The
principal activities of Heze Nenghua are to exploit coal resources at the Juye coalfield in Shandong Province in the PRC. As of December 31, 2006, Heze Nenghua has commenced construction works for the Zhaolou Coal Mine.

Implementation of Share Reform

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 Controlling Shareholder. We also have overseas listed foreign 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, under the PRC Government policies, the A Shares and the non-tradable shares issued in the PRC are a separate class of shares and are
not freely convertible into H Shares or ADSs.

On January 24, 2006, the Company, on behalf of the Controlling Shareholder, announced a
proposed share reform plan to the holders of the Companys A Shares whereas all the Controlling Shareholders non-tradable shares would be converted into A Shares (the Proposed Share Reform Plan). Under the Proposed Share
Reform Plan, the Controlling Shareholder, as the only holder of the Companys non-tradable shares, would pay, as consideration for the Proposed Share Reform Plan, 2.5 non-tradable shares for every 10 shares held by any holder of the
Companys A Shares whose name appeared on the register of members of A Shares on March 30, 2006. Pursuant to relevant PRC share reform regulations and the relevant PRC securities laws and regulations, only holders of the Companys A
Shares and the Controlling Shareholder were entitled to participate in the shareholders meeting to approve the Proposed Share Reform Plan. The Controlling Shareholder did not offer a similar consideration to the holders of the H shares.

The Proposed Share Reform Plan was subsequently implemented by our Company on March 31, 2006 after approvals from the relevant
shareholders at the shareholders meeting and PRC government authorities were obtained. The original non-tradable shares held by the Controlling Shareholder have been floated since April 3, 2006. Our assets, liabilities, ownership
interest, total share capital and net profit remain unchanged upon implementation of the Proposed Share Reform Plan.

Special undertakings
pursuant to the Share Reform Plan made by Yankuang Group and the performance of such undertakings are detailed as follows:



|                     |  |                                                                                                                                                                    |  |                             |  |                                                                                             
|-------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------- |  | --------------------------------------------------------------------------------------------
|Special
Undertakings |  |                                                                                                                                                                    |  | Performance of Undertakings
|(1)                  |  | The original non-tradable shares held by Yankuang Group will be subject to a trading moratorium of 48 months from the date of completion of the share reform plan. |  |                             |  | The original non-tradable shares of the Company held by Yankuang Group have not been traded.



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|                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                             |  |                                                                                                                                                                                                                                                                                                                                                                                        
|-------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Special
Undertakings |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Performance of Undertakings
|(2)                  |  | Yankuang Group will, in accordance with the relevant governmental procedure, transfer part of its operations, including coal and electricity operations, together with new projects which are in
line with the Companys development strategies to the Company in 2006 to enhance the operational results of the Company and to minimize connected transactions and competition between Yankuang Group, and the Company. Further, the Company will be
invited to invest in a coal liquefaction project which is being developed by Yankuang Group for co-development. |  |                             |  | Yankuang Group has transferred part of its coal operations to the Company. Please refer to the section headed Acquisition of Connected Asset for details of this transfer. Yankuang
Group has also started relevant preliminary works for the assignment of other projects. The Company will make disclosures as and when appropriate in accordance with the supervisory regulations.
|                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|(3)                  |  | The Yankuang Group will be responsible for all the costs incurred in connection with the implementation of the Share Reform Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                             |  | The undertaking has been fulfilled.                                                                                                                                                                                                                                                                                                                                                    

Acquisition of Shanxi Nenghua

In November 2006, we acquired 98% equity interest in Yankuang Shanxi Power Chemical Co., Ltd. (Shanxi Nenghua) from the Yankuang Group. In
February 2007, we acquired the remaining 2% equity interest in Shanxi Nenghua from Lunan Fertilizer Plant, a subsidiary of Yankuang Group, and became the sole owner of Shanxi Nenghua. Shanxi Nenghua owns 81.31% equity interest in Shanxi Heshun
Tianchi Energy Company Limited (Shanxi Tianchi) and approximately 99.85% equity interest in Shanxi Tianhao Chemical Company Limited (Shanxi Tianhao). The main business of Shanxi Tianchi is the operation of Tianchi Coal Mine,
which commenced production by November 2006. The main business of Shanxi Tianhao is operation and construction of a methanol facility with 100,000 tonnes annual capacity, which is currently being constructed.

Setting up Shaanxi Yulin Yushuwan Coalmine Company Limited

We have entered into a joint venture on August 16, 2006 to set up the Shaanxi Yulin Yushuwan Coalmine Company Limited (Yushuwan Coalmine Company) with Chia Tai Energy Chemical Limited (Chia Tai
Company) and Yushen Coal Company Limited (Yushen Company) of Yulin City. The registered capital of Yushuwan Coalmine Company is RMB480 million. Our Company holds 41% equity interest by contributing RMB196.8 million and accounts for
the investment of Yushuwan Coalmine Company by using the equity method. Chia Tai Company contributed capital of RMB192 million, and holds 40% of the equity interest in Yushuwan Coalmine Company; and Yushen Company contributed capital of RMB91.2
million, and holds 19% equity interest.

Yushuwan Coalmine Company will be responsible for the construction and operation of the Yushuwan
Coalmine. Yushuwan Coalmine is located in Yushen coal mining area in Yulin City, Shaanxi Province in the PRC and the main coal products are gas coal and thermal coal. Its designed annual capacity is 8 million tonnes. Since Yushen Company had
commenced the earlier development of the Yushuwan Coalmine, including obtaining the relevant approvals for the project and the commencement of the construction works, the parties of the joint venture have agreed, after negotiations, that our Company
and Chia Tai Company would collectively pay Yushen Company RMB150 million as compensation. In accordance with the proportion of equity holding in Yushuwan Coalmine Company, our Company will pay a total of RMB75.9 million and Chia Tai Company will
pay RMB74.1 million. As of the date of this Annual Report, relevant application for the incorporation of Yushuwan Coalmine Company is still being processed.



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Capital Expenditures / Recent Developments

Our principal sources of cash in 2006 have been cash from operations. Our principal capital expenditures have been for operational expenses, the
acquisition of property, plant and equipment, paying shareholders dividends, and the acquisition of equity interest in Shanxi Nenghua. During 2004, 2005 and 2006, our total capital expenditures were RMB1,057.5 million, RMB1,290.5 million and
RMB3,363.4 million, respectively. For more information, please see Item 5  Operating and Financial Review and Prospects  B. Liquidity and Capital Resources.

B. Business Overview

Principal Products and Services

We are engaged in underground mining, preparation and sale of coal and provision of railway transportation services for coal products.

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            |  | 8-10 average9.6   |  | 26-28average 26.8    |  | Yes    |  | Metallurgical production; construction; production of liquidize coal         
|No.3 Clean Coal       |  | 0.6            |  | 9-16 average13    |  | 24-26average 25.3    |  | Yes    |  | Metallurgical production; electric power generation; coal chemical production
|Lump Coal             |  | 0.6            |  | 12-14 average13   |  | 25-26average 25.5    |  | Yes    |  | Construction; power generation; coal for oven application                    
|Screened Raw Coal     |  | 0.6            |  | 18-27 average20.3 |  | 24-26average 25.3    |  | No     |  | Power generation                                                             
|Mixed Coal            |  | 0.6            |  | 22-30 average29.3 |  | 18-22average 20.1    |  | Yes    |  | Power generation                                                             
|Australian Clean Coal |  | 1.25           |  | 5.0               |  | 33                   |  | Yes    |  | Metallurgical production                                                     

The following table sets out our principal coal products based on sales volume and net coal sales
in the years ended December 31, 2004, 2005 and 2006.



|                      |  |                         |  |              |  |               |  |              |  |               |  |             
|--------------------- |  | ----------------------- |  | ------------ |  | ------------- |  | ------------ |  | ------------- |  | ------------
|                      |  | Year Ended December 31,
|                      |  | 2004                    |  | 2005         |  | 2006         
|                      |  | Sales Volume            |  | Net Sales    |  | Sales Volume  |  | Net Sales    |  | Sales Volume  |  | Net Sales   
|                      |  | (000 tonnes)           |  | (RMBmillion) |  | (000 tonnes) |  | (RMBmillion) |  | (000 tonnes) |  | (RMBmillion)
|No. 1 Clean Coal      |  | 631.3                   |  | 220.5        |  | 773.9         |  | 398.0        |  | 869.3         |  | 439.3       
|No. 2 Clean Coal      |  | 6,329.2                 |  | 2,013.5      |  | 5,084.5       |  | 2,499.1      |  | 5,566.3       |  | 2,668.5     
|No. 3 Clean Coal      |  | 11,861.9                |  | 3,484.0      |  | 11,183.0      |  | 4,143.8      |  | 12,129.7      |  | 4,581.7     
|Lump Coal             |  | 752.3                   |  | 284.3        |  | 485.5         |  | 209.9        |  | 555.4         |  | 237.6       
|Screened Raw Coal     |  | 14,936.6                |  | 3,867.5      |  | 10,805.4      |  | 3,478.1      |  | 10,967.3      |  | 3,160.4     
|Mixed Coal and others |  | 3,492.6                 |  | 484.5        |  | 4,152.1       |  | 624.7        |  | 4,383.1       |  | 645.0       
|Australian Clean Coal |  |                        |  |             |  |              |  |             |  | 192.4         |  | 114.4       
|                      |  |                         |  |              |  |               |  |              |  |               |  |             
|Total                 |  | 38,003.9                |  | 10,354.3     |  | 32,484.5      |  | 11,353.5     |  | 34,663.5      |  | 11,846.9    
|                      |  |                         |  |              |  |               |  |              |  |               |  |             



16



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##### Table of Contents

Our coal production in 2006 was approximately 36.1 million tonnes, an increase of 1.4 million
tonnes or 4.0%, as compared with our production in 2005. In particular, (1) the six coal mines of the Company produced 35.5 million tonnes of raw coal, an increase of 0.8 million tonnes, or 2.4%, as compared to 2005; (2) Yancoal
Australia produced 0.4 million tonnes of raw coal; and (3) Shanxi Nenghua produced 0.1 million tonnes of raw coal.

Railway Transportation
Services

In 2002, we acquired from our Controlling Shareholder our local railway transportation network (the Railway Assets),
consisting 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 Assets enables us to
assume a greater degree of control over the main channels of sales transportation, adds another source of income, and helps us to achieve our goals of consolidating the operations of coal production, transportation and sales in order to benefit from
the potential synergies.

We offer railway transportation services to customers including the Controlling Shareholder. In 2006, we
transported a total of 19.5 million tonnes of goods, representing a decrease of 0.7 million tonnes, or 3.3%, as compared with that of 2005. External net 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 2006 was RMB160.4 million, representing a decrease of RMB3 million, or 1.9%,
as compared with that of 2005 due to the decrease of sales of coal where the customers directly bears the transportation costs.

Sales and Marketing

A substantial portion of our domestic sales in 2006 was made pursuant to sales contracts and letters of intent signed during the
annual national coal trading convention which is consistent with PRC coal industry practice. 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 for 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 for our products.

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 (typically 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 the 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 from 13% to 11%. The VAT export refund further
decreased to 8% effective from May 1, 2005, and was completely abolished as of September 15, 2006. The cancellation of VAT export refund for export coal sales will in turn increase the cost of our export sales. According to the Notice of
the Customs Tariff Committee of the State Council on Revising the Provisional Tariff Rates on the Import and Export of Certain Goods (Issued by the Customs Tariff Committee of the State Council as document Shui Wei Hui [2006] No. 30), from
November 1, 2006, the State will impose a 5% export tariff on certain exported coal. Such export tariff is not applicable to the coal exported by us, therefore we are not required to pay any such export tariff on our exported coal. The state
policy, therefore, has no direct effect on us.



17



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##### Table of Contents

Net coal sales represent the invoiced value of coal sold and is net of returns, discounts, sales taxes,
transportation costs, port fees and various miscellaneous fees relating to sales if the invoiced value includes transportation costs to the customers. Sales taxes consist primarily of the resource taxes imposed by Shandong and Shanxi Provinces.
According to the Notice of the Ministry of Finance and State Administration of Taxation on Revising the Standard Tariff Rates for Coal and Resources Tax in Shandong Province (issued by the Ministry of Finance and State Administration of Taxation as
document Cai Shui [2005] No. 86), effective from May 1, 2005, the applicable resource tax rate for our coal mines located in Shandong Province was increased from RMB2.4 to RMB3.6 per tonne of the imputed quantity of raw coal. According to
the Notice of the Ministry of Finance and State Administration of Taxation on Revising the Standard Tariff Rates for Coal and Resources Tax in Shanxi Province etc. (issued by the Ministry of Finance and State Administration of Taxation as document
Cai Shui [2004] No. 187), the applicable resource tax rate of our coal mines in Shanxi Province is RMB3.2 per tonne. These taxes are paid to the local tax bureau.

The following table sets out our net coal sales by our customers industries for the years ended December 31, 2004, 2005 and 2006:



|                                                 |  |                         |  |                    |  |              |  |                     |  |              |  |                    
|------------------------------------------------ |  | ----------------------- |  | ------------------ |  | ------------ |  | ------------------- |  | ------------ |  | -------------------
|                                                 |  | Year Ended December 31,
|                                                 |  | 2004                    |  | 2005               |  | 2006        
|                                                 |  | Net Sales               |  | % of NetCoal Sales |  | Net Sales    |  | % of Net Coal Sales |  | Net Sales    |  | % of Net Coal Sales
|                                                 |  | (RMBmillion)            |  |                    |  | (RMBmillion) |  |                     |  | (RMBmillion) |  |                    
|Domestic Sales                                   |  |                         |  |                    |  |              |  |                     |  |              |  |                    
|Electric power plant                             |  | 2,127.0                 |  | 20.5               |  | 2,357.6      |  | 20.8                |  | 2,714.9      |  | 22.9               
|Metallurgical mills                              |  | 656.9                   |  | 6.3                |  | 811.4        |  | 7.1                 |  | 607.9        |  | 5.1                
|Construction material and chemical manufacturers |  | 784.1                   |  | 7.6                |  | 686.2        |  | 6.0                 |  | 2,037.3      |  | 17.2               
|Fuel trading companies and others                |  | 3,839.0                 |  | 37.1               |  | 4,566.2      |  | 40.3                |  | 4,027.7      |  | 34.0               
|Subtotals of Domestic Sales                      |  | 7,407.0                 |  | 71.5               |  | 8,421.5      |  | 74.2                |  | 9387.8       |  | 79.2               
|                                                 |  |                         |  |                    |  |              |  |                     |  |              |  |                    
|Overseas Sales                                   |  |                         |  |                    |  |              |  |                     |  |              |  |                    
|Electric power plant                             |  | 1,683.8                 |  | 16.3               |  | 1952.0       |  | 17.2                |  | 1,680.1      |  | 14.2               
|Metallurgical mills                              |  | 1,208.1                 |  | 11.7               |  | 967.6        |  | 8.5                 |  | 779.1        |  | 6.6                
|Others                                           |  | 55.4                    |  | 0.5                |  | 12.4         |  | 0.1                 |  |             |  |                   
|Subtotals of Overseas Sales                      |  | 2,947.3                 |  | 28.5               |  | 2,932.0      |  | 25.8                |  | 2459.2       |  | 20.8               
|                                                 |  |                         |  |                    |  |              |  |                     |  |              |  |                    
|Total                                            |  | 10,354.3                |  | 100.0              |  | 11,353.5     |  | 100.0               |  | 11,846.9     |  | 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, 2004, 2005 and 2006:



|                                    |  |                         |  |                     |  |              |  |                    |  |              |  |                   
|----------------------------------- |  | ----------------------- |  | ------------------- |  | ------------ |  | ------------------ |  | ------------ |  | ------------------
|                                    |  | Year Ended December 31,
|                                    |  | 2004                    |  | 2005                |  | 2006        
|                                    |  | Net Sales               |  | % of Net Coal Sales |  | Net Sales    |  | % of NetCoal Sales |  | Net Sales    |  | % of NetCoal Sales
|                                    |  | (RMBmillion)            |  |                     |  | (RMBmillion) |  |                    |  | (RMBmillion) |  |                   
|Eastern China                       |  |                         |  |                     |  |              |  |                    |  |              |  |                   
|Shandong Province                   |  | 5,014.4                 |  | 48.4                |  | 5,697.4      |  | 50.2               |  | 6,544.7      |  | 55.2              
|Jiangsu Province                    |  | 738.1                   |  | 7.1                 |  | 674.7        |  | 5.9                |  | 677.3        |  | 5.7               
|Zhejiang Province                   |  | 700.6                   |  | 6.8                 |  | 536.3        |  | 4.7                |  | 449.1        |  | 3.8               
|Shanghai                            |  | 351.6                   |  | 3.4                 |  | 528.8        |  | 4.7                |  | 506.6        |  | 4.3               
|Other provinces in Eastern China(1) |  | 316.8                   |  | 3.1                 |  | 560.8        |  | 4.9                |  | 386.9        |  | 3.2               
|Eastern China District Subtotal     |  | 7,121.5                 |  | 68.8                |  | 7,998.0      |  | 70.4               |  | 8,564.6      |  | 72.2              
|Southern China District             |  | 285.5                   |  | 2.7                 |  | 423.4        |  | 3.7                |  | 801.2        |  | 6.8               
|Other Provinces(2)                  |  |                        |  |                    |  |             |  |                   |  | 21.9         |  | 0.2               
|Overseas                            |  | 2,947.3                 |  | 28.5                |  | 2,932.0      |  | 25.8               |  | 2459.2       |  | 20.8              
|                                    |  |                         |  |                     |  |              |  |                    |  |              |  |                   
|Total                               |  | 10,354.3                |  | 100.0               |  | 11,353.4     |  | 100.0              |  | 11,846.9     |  | 100.0             
|                                    |  |                         |  |                     |  |              |  |                    |  |              |  |                   

---

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

|(2) | Other provinces refers to the sales area of coals produced by Tianchi Coal Mines in Shanxi Province for 2006.
|--- | ---------------------------------------------------------------------------------------------------------------



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



|                                             |  |                                           
|-------------------------------------------- |  | ------------------------------------------
|Domestic                                     |  | Overseas+                                 
|Huadian Power International Corporation Ltd. |  | POSCO Engineering & Construction Co.,Ltd  
|Shanghai Baosteel Group Corporation.         |  | Chubu Electric Power Company, Incorporated
|Jinin Hongyun Materials Ltd                  |  | Kyushu Electric Power Co., Inc.           
|Shanghai Electric Fuel Ltd                   |  | Mitsui Mining Company Limited             
|Zhejiang Zheneng Fuxing Fuel Ltd             |  | UBE Industries, Ltd                       

---

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

As of December 31,
2006, Huadian was our largest domestic customer. For the year ended December 31, 2006, we supplied a total of 4.9 million tonnes to Huadian, representing 11.3% of our total net sales in 2006. 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 9.5%, 13.2% and 11.2% of our total net sales in 2004, 2005 and 2006. Zouxian Electric Power Plants total coal requirements
were approximately 5.2 million tonnes in 2006. We estimated that we supplied approximately 92.3%, 83.6% and 92.9% of Zouxian Electric Power Plants coal requirements in 2004, 2005 and 2006, respectively.

In 2004, 2005 and 2006, net sales to our five largest domestic customers accounted for 15.3%, 20.0% and 18.6%, respectively, of our total net sales.

We exported 10.0 million, 7.3 million and 6.3 million tonnes of coal in 2004, 2005 and 2006, respectively, after deducting
the overseas sales of Yancoal Australia, accounting for approximately 11.6%, 10.2% and 9.9% 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. The
Companys net export sales as a percentage of total net sales decreased from 25.5% in 2005 to 19.5% in 2006. 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 our export sales (except for the overseas sales by Yancoal Australia) were made through the Export Sales Companies.

Our sales and marketing department conducts routine customer visits and customer satisfaction surveys. In addition, we collect market information
throughout the Eastern China and Southern China.

Product Pricing

The prices for our products are generally determined by market price or are based on contractual terms. 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 by 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, the Exports Sales Companies, and our final customers after
negotiations.

Product Delivery

Most of our major customers are located in Eastern China and, the remaining are located in Southern and Northern China. We principally use railways and the highways to transport our coal. We also use, to a lesser extent, water transport.

The Company uses its railway network to deliver coal products directly to its largest end-user customer, Zouxian Electric Power Plant. Our
railway network also connects to the national railway to deliver products directly to other consumers.



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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.

In the Shanxi Province, we use the Yangshe Railway that cuts across our Tianchi Coal Mine
area to directly deliver coal to the Hebei Province and nearby areas, and link to various national railways.

In Australia, in order to
transport Yancoal Australias coal products to Newcastle Port, we lease other transportation providers railway networks and use the Australian State railways.

Mining Processes

Our mining operations involve four main processes: tunneling, extracting,
conveying and coal preparation. The tunneling process is a necessary procedure for the construction of underground roadways and mining equipment. 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 permit the use of heading machines, we use explosives to dig tunnels. All the coal extracted from these tunnels is sent by conveyor belts 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 hydraulic roof supports are manufactured
in China.

The shaft hoist system equipment 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
roadway systems that provide underground transportation for workers and equipment.

After the raw coal is brought to the ground, it first
undergoes a selection and machine-operated process to separate coal from gangue materials. A small portion of such selected coal is directly sold to customers and the remainder is all processed by our coal preparation plants for further purification
and classification. Each of the six mines of the Company and the Austar Coal Mine 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. Certain of the equipment used in all of our coal preparation plants is imported. 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 77.9%, 72.9% and 75.9% in 2004, 2005 and 2006, 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; (ii) cement for the underground tunnels and ground structures; and
(iii) water required in the production process. We source our steel principally from Anhui Maanshan Iron & Steel Co. Ltd and Jinan Steel Holdings Co., Ltd. etc. We source our cement and water principally from the Controlling
Shareholder pursuant to the



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Materials and Services Supply Agreement and the supplemental agreements thereto. The price of materials are set at market rates or determined 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 2004, 2005 and 2006, 6.0%, 1.8% and 3.3%, respectively, of our total cost of sales were attributable to purchases from our largest supplier. In 2004, 2005 and 2006, 11.2%, 7.5% and 6.6%, 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 RMB307.4 million, RMB294.8 million and RMB345.2 million (inclusive of the electricity power used in the operation of our railway network) in 2004, 2005 and 2006,
respectively. We have not experienced any material disruption in electricity supply in recent years.

Our costs for materials, water and
electricity supplies amounted to a total of RMB1,680.2 million in 2006, representing an increase of RMB238.7 million, or 16.6%, from RMB1,441.5 million in 2005. Our costs for materials, water and electricity supplies in 2006 accounted for 27.1% of
our total cost of sales, a decrease of 0.2% from 27.3% in 2005.

Quality Control

Coal Production

Each of the six mines of the Company and our
Tianchi Coal Mine in Shanxi Province 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.

The Companys six mines: Nantun, Xinglongzhuang, Baodian, Dongtan, Jining II and Jining III mines have all obtained ISO 9002 quality recognition and
ISO 14000 environmental management recognition.

Yancoal Australia has hired CCI Australia Pty Ltd. to supervise and inspect the coal
quality from the mining process of Austar Coal Mine to ensure quality control and improve quality.

Railway Assets

We endeavor to ensure that the quality of our railway network is consistent with the quality of our coal production. Our Company (including the Railway
Assets) 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
other 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 Controlling Shareholder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 0.087 fatalities per million tonnes of raw coal produced in 2005 and 0.11 fatalities in 2006.



21



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##### Table of Contents

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 severe 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 PRC
environmental protection laws and regulations. In addition, our Yancoal Australia operation in Australia has been in compliance with relevant Australian environmental protection laws and regulations.

According to the labor and services agreement approved at the extraordinary general meeting of our Company held on March 24, 2006, the Controlling
Shareholder provides environmental services to our Company. In 2006, we paid the Controlling Shareholder a total of RMB26.7 million for services fees related to environmental services.

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.

Competition

Coal Production

The coal industry is characterized by the diverse distribution of coal reserves and the
existence of a large number of small scale enterprises. However, there are relatively few large scale coal producing enterprises. According to the statistics published in the China Coal News published on April 3, 2006, there were 5,206
state-owned coal production enterprises and non-state-owned coal producing enterprises which had annual sales revenue exceeding RMB0.5 million as of December 31, 2005. Of these, only 31 of those enterprises had an annual output of more than
10 million 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.

Please see the table below for the top ten coal production enterprises in the PRC in 2006:



|                                             |  |                                        |  |                                                        |  
|-------------------------------------------- |  | -------------------------------------- |  | ------------------------------------------------------ | -
|                                             |  | Raw Coalproduction (in million tonnes) |  | Percentage of the total raw coal production in the
PRC |  
|                                             |  |                                        |  | (%)                                                    |  
|Shenhua Group Corporation                    |  | 149.7                                  |  | 6.8                                                    | %
|China Coal Group                             |  | 71.9                                   |  | 3.3                                                    | %
|Shanxi Coking Coal Group Company             |  | 60.8                                   |  | 2.8                                                    | %
|Datong Coal Mining Group Company             |  | 56.7                                   |  | 2.6                                                    | %
|Heilongjiang Longmei Mining (Group) Co. Ltd. |  | 48.1                                   |  | 2.2                                                    | %
|Yankuang Group Company                       |  | 37.0                                   |  | 1.7                                                    | %
|Yangquan Coal Group Co.                      |  | 32.5                                   |  | 1.5                                                    | %
|Huainan Mining Group Co.                     |  | 32.4                                   |  | 1.5                                                    | %
|Pingdingshan Coal Group Co.                  |  | 32.1                                   |  | 1.5                                                    | %
|Jincheng Anthracite Group Co.                |  | 30.1                                   |  | 1.4                                                    | %
|Total                                        |  | 551.1                                  |  | 25.2                                                   | %



---

Source: Information of Coal Industry 2006



22



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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 incur significant transportation costs 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.

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 result in the concerned power plant incurring additional expenditures to modify its power generation equipment, thereby raising the costs and risks 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.

Railway Operation

Our railway network is connected to the
major national railway system and to Zouxian Electric Power Plant, our largest end-user customer, to provide railway transportation services for our internal use, the Controlling Shareholder 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 Peoples Republic of China Coal Law (the Coal Law), which became effective on December 1, 1996. The Coal Law sets forth requirements for all coal mines, including state-owned mines and
privately owned mines, mainly providing for resource exploitation planning, approval of new mines, the issuance of mining and safety production permits, implementation of safety standards, processing of coal, business management, protection of mine
areas from destructive exploitation, and safety protection for miners and administrative supervision.

According to the Coal Law, 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 and other related quality permits in order to commence coal production and sell coal products in the PRC. The PRC Government is in the process of amending the
Coal Law, in response to concerns over the lack of a well-coordinated development plan for mining, which contributed to a significant amount of waste of valuable coal resources. The lack of effective penalty provisions or the lenient enforcement of
existing provisions in the Coal Law has been cited as another important reason for the current rulemaking effort.



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Mining activities in the PRC are also subject to the Peoples Republic of China Mineral Resources
Law (Mineral Resources Law), which was promulgated by the PRC Government on March 19, 1986 and amended on August 29, 1996. The Mineral Resources Law regulates any matters relating to the planning or engaging in the exploration,
exploitation and mining of mineral resources. According the Mineral Resources Law all mineral resources, including coal, are owned by the state. Except under limited circumstances, any enterprise planning to engage in the exploration, exploitation
and mining of mineral resources must first apply for and obtain exploration rights and mining rights before commencing the relevant activities. The Mineral Resources Law prohibits the transfer of exploration and exploitation rights in general unless
the transfer falls within certain specified circumstances.

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



| |  |  | the State Council, which is the highest level of the executive branch, is responsible for the examination and approval of major investment projects specified in the
2004 Catalogue of Investment Projects released by the PRC Government;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the National Development and Reform Commission, which formulates and implements major policies concerning Chinas economic and social development,
examines and approves investment projects exceeding certain capital expenditure amounts or in specified industry sectors, including examination and approval of foreign investment projects, oversees reform of state-owned enterprises and formulates
industrial policies and investment guidelines for the natural resource industries, such as coal production. In addition, the NDRC administers coal export activities and export quotas jointly with the Ministry of Commerce. The NDRC is also
responsible for the evaluation and implementation of the price-linking mechanism between the prices of coal and power;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Ministry of Land and Resources (MLR), which has the authority to grant land use licenses and mining right permits, approves transfer and lease of
mining rights, and reviews mining rights premium and reserve valuation;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | the State Environmental Protection Administration of China (SEPA), which supervises and controls environmental protection and monitors Chinas
environmental system at the national level; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Ministry of Construction (MOC), which is responsible for the management of survey and design of construction projects, including but not limited to
the survey and design of coal mines.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Pricing

Until 2002, the production and pricing of coal have 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 transformation from planned economy to market economy practices, from January 1, 2002 China
eliminated the state guidance price for coal and allowed prices for all types of coal to be determined in accordance with market



24



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##### Table of Contents

demand. 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 PRC 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 December 29, 1997, effective from May 1, 1998, in the event of an actual increase or potential increase in the prices of important products
such as coal, the State Council and the provincial governments, autonomous regions and municipalities directly under the PRC Government may adopt intervention measures, such as restricting 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.

Similar to coal pricing, the production and supply of coal, which is 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.

On December 18, 2006, the National
Development and Reform Committee issued the Notice Relating to the Good Preparation for Inter Provincial Coal Production Transportation Works (Fa Gai Yun Xing [2006] No. 2867). According to the notice, in 2007, policies should be implemented to
encourage the reform of the market system for determining coal prices by allowing parties to determine prices through discussions in accordance with market demand, and to encourage price determination based on quality. On December 27, 2006, the
relevant government departments and units such as the National Development and Reform Committee for railway operations, Transportation Department etc. convened a 2007 coal industry video and telephone conference. This symbolized the end of the
Annual National Coal Trading Convention that has been in place for over 50 years. Under the States macroeconomic controls, the new mechanism for enterprises to freely determine prices through negotiations were put in place.

Fees and Taxes

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



|                                                 |  |                                                    |  |                                                                        
|------------------------------------------------ |  | -------------------------------------------------- |  | -----------------------------------------------------------------------
|Item                                             |  | Base                                               |  | Rate                                                                   
|Corporate income tax                             |  | Taxable income                                     |  | 33% , 15% or 7.5%                                                      
|VAT                                              |  | Revenue form domestic sales                        |  | 13%                                                                    
|                                                 |  | Revenue from export sales                          |  | 13%                                                                    
|Business tax                                     |  | Revenue from service                               |  | 3% or 5%                                                               
|City construction tax                            |  | Amount of VAT and business tax                     |  | 5% to 7%                                                               
|Education surcharge                              |  | Amount of VAT and business tax                     |  | 3%                                                                     
|Resource tax                                     |  | Aggregate volume of raw coal or coal products sold |  | RMB3.6 per tonne (Shandong Province) RMB3.2 per tonne (Shanxi Province)
|Compensation for the depletion of coal resources |  | Proceeds form the sale of coal                     |  | 1%                                                                     
|Future development pension fund                  |  | Volume of raw coal produced                        |  | RMB6.5 to RMB8 per tonne                                               
|Safety fund                                      |  | Volume of raw coal produced                        |  | RMB3 to RMB8 per tonne                                                 

Under the Mineral Resources Law, if mining results in damage to arable land, grasslands or forest
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.



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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 are expected to be reduced. Under the
amended Foreign Trade Law, the Cargo Import and Export Ordinance and the Administrative Measures of Coal Export Quota, coal exports remain subject to State control and require governmental approval. Currently, there are only four authorized 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 exports have been subject to a government approval system since July 1, 2004,
under which the NDRC and the Ministry of Commerce are responsible for determining Chinas total coal export quota and for allocating the quota among the authorized coal 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 markets. Each year, after the NDRC publishes the total coal export quota for the following year,
authorized coal 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 exporters may apply for coal export permits to the relevant authority designated by the MOFCOM. Authorized coal exporters are also required to report
their monthly quota usage to the NDRC.

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



| |  |  | a major change in the international market;
| | - |  | -------------------------------------------



| |  |  | a major change in domestic coal resources;
| | - |  | ------------------------------------------



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



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

The total national quota approved for 2006 and 2007 was 80 million and 70 million tonnes, respectively.

The PRC Government VAT refund has been completely abolished since September 15, 2006. According to the Notice of the Customs Tariff Committee of the
State Council on Revising the Provisional Tariff Rates on the Import and Export of Certain Goods (Issued by the Customs Tariff Committee of the State Council as document Shui Wei Hui [2006] No. 30), from November 1, 2006, the State will
impose a 5% export tariff on certain exported coal. Such export tariff is not applicable to the coal exported by us, therefore we are not required to pay any such export tariff on our exported coal. The state policy, therefore, has no direct effect
on us.

Domestic Trading of Coal

Pursuant to the Measures for the Regulation of Coal Operations promulgated by the NDRC on December 27, 2004, the state implemented a system to examine coal operation qualifications in respect of coal operations, including the wholesale
and retail of raw coal and processed coal products, and the processing and distribution of coal for civilian use. Before an enterprise can engage in coal operations, it must obtain a coal operation qualification certificate. A coal production
enterprise that deals in coal products which it did not itself produce and process is required to obtain coal operation



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qualifications. The enterprise is also prohibited from dealing in coal products produced and/or processed by a coal mine enterprise that does not have a coal
production permit. An enterprise is also prohibited from selling coal products to a coal operation enterprise that does not have coal operation qualifications.

Although the PRC Government indirectly influences coal prices through its broad regulation of electricity prices and control over the allocation of national railway capacity, domestic coal prices have mainly been
market-driven since 2002, when the PRC Government eliminated the price control measures for coal used in electric power generation. Prior to 2006, however, the PRC Government continued to implement temporary measures to prevent and control any
unusual fluctuations in thermal coal prices. This, among other reasons, has caused thermal coal contract prices for major users to be generally lower than spot market prices during this period. On January 1, 2006, the NDRC announced the
elimination of such temporary intervention practices on thermal coal price, thus completely removing control over thermal coal prices, including contract prices for major users.

Environmental Protection Laws and Regulations

Pursuant to the Environmental Protection Law, the SEPA
is empowered to formulate national environmental quality and discharge standards and to monitor Chinas environmental system at the national level for the purpose of preventing and eliminating environmental pollution and damage to ecosystems.
Environmental protection bureaus at the county level and above 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 has found that the facilities are in compliance with
environmental standards.

Mining operations, including both open pit mines and underground mines, may result in disturbances of surface and
underground land and cause water pollution, landslides and other types of environmental damage. To manage the adverse effects that the coal industry has on the environment, China has promulgated a series of laws and regulations. Through these laws
and regulations, China has established national and local environmental protection legal frameworks and issued standards applicable to emission controls, discharges of wastes and pollutants to the environment, generation, handling, storage,
transportation, treatment and disposal of waste materials by production facilities, land rehabilitation and reforestation.

The
Environmental Protection Law, promulgated by the National Peoples Congress on December 26, 1989, is the cardinal law for environmental protection in China. The law establishes the basic principle for coordinated advancement of economic
growth, social progress and environmental protection, and defines the rights and duties of governments at all levels. Local environmental protection bureaus may set stricter local standards than the national standards and enterprises are required to
comply with the stricter of the two sets of standards. The PRC Environmental Protection Law requires any entity operating a facility that produces pollutants or other hazards to incorporate environmental protection measures into its operations and
to establish an environmental protection responsibility system, which must adopt effective measures to control and properly dispose of waste gases, waste water, waste residue, dust or other waste materials.

New construction, expansion or reconstruction projects and other installations that directly or indirectly discharge pollutants to the environment shall
be subject to relevant state regulations governing environmental protection for such projects. Entities undertaking such projects must submit a pollutant discharge declaration statement detailing the amount, type, location and method of treatment to
the competent authorities for examination. The authorities will allow the construction project operator to release a certain amount of pollutants into the environment and will issue a pollutant discharge license for that amount of discharge subject
to the payment of discharge fees. The release of pollutants is subject to monitoring by the competent environmental protection authorities. If an entity discharges more than the amount permitted by the pollutant discharge license, the local
environmental protection bureau can fine the entity up to several times the discharge fees payable by the offending entity for its allowable discharge, require the offending entity to close its operations, or take other measures to remedy the
problem.



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In the environmental impact statement of a construction project, the project operator shall make an
assessment regarding the pollution and environmental hazards the project is likely to produce and its impact on the ecosystem, and measures for their prevention and control. The operator shall submit the statement according to the specified
procedure to the competent environmental protection authority for examination and approval. The building of sewage outlets within any water conservancy projects, such as canals, irrigation channels and reservoirs, shall be subject to the consent of
the competent authority in charge of water conservancy projects.

The facilities for the prevention and control of pollution must be
designed, constructed and put into use or operation simultaneously with the main part of a construction project. Such facilities must be inspected by the competent environmental protection authority. If they do not conform to the specified
requirements, the operator shall not be permitted to put the new facility into operation or use.

In addition, the Regulations on Coal Dust
Control at Ports and Railway Environmental Protection Regulations, both require port or railway operators to take measures to limit coal dust pollution.

The rehabilitation of mining sites is another important issue the PRC Government has sought to address. Under the Law of Land Administration of the Peoples Republic of China, promulgated on June 15, 1986,
and amended on August 28, 2004, and the Land Rehabilitation Regulations, issued by the State Council in 1988 and effective January 1, 1989, coal producers must undertake measures to restore the mining site to its original state within a
prescribed time frame if mining activities result in damage to arable land, grassland or forest. The rehabilitated land must meet rehabilitation standards, as required by law from time to time, and may only be subsequently used upon examination and
approval by the land authorities. A coal producers failure to comply with this requirement or its failure to return the mining site to its original state will result in the imposition of fines, rehabilitation fees and/or rejection of
applications for land use rights by the local bureau of land and resources.

Emissions of waste water by coal mines and coking plants are
regulated by the Law on Prevention and Control of Water Pollution of the Peoples Republic of China, promulgated by the National Peoples Congress in 1984 and effective as amended in 1996, and the Administrative Regulations on the Levy and
Use of Discharge Fees, issued by the State Council on January 2, 2003 and effective July 1, 2003. Any new construction projects, such as coal mines and coking plants, must submit an environmental impact statement, which shall include an
assessment on the water pollution hazards the project is likely to produce and its impact on the ecosystem. The environment impact statement must also contain measures to prevent and control the water pollution hazards. Every new production facility
must be equipped with waste water processing facilities which must be put in use together with the production facilities. Construction projects that discharge pollutants into water shall pay a pollutant discharge fee in accordance with state
regulations.

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

In addition to the PRC environmental laws and regulations, China is a signatory to the 1992 United Nations Framework Convention on Climate Change and the
1998 Kyoto Protocol, which propose emission targets to reduce greenhouse gas emissions. The Kyoto Protocol came into force on February 16, 2005. At present, the Kyoto Protocol has not set any specific emission targets for certain countries,
including China.

Mineral Resources Laws and Regulations

Exploration, exploitation and mining operations must comply with the relevant provisions of the Mineral Resources Law and other relevant regulations, 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. The holders of mining rights are required to file annual reports 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.

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.

Mining safety

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

The Measures for Implementing Work Safety Permits in Coal Mine Enterprises

The State Administration of Work Safety and the SACMS issued The Measures for Implementing Work Safety Permits in Coal Mine Enterprises, which came into effect on May 17, 2004. Pursuant to this
document, a coal mine enterprise without a work safety permit may not engage in coal production activities. Coal mining enterprises and their mines that do not satisfy the safety conditions set forth in this document, or those that violate the
provisions of this document, will be punished accordingly.

Special Regulations by the State Council on Preventing Work Safety Related Accidents in Coal
Mines and Five Sets of Supplemental Rules and Regulations

The Special Regulations by the State Council on Preventing Work Safety Related
Accidents in Coal Mines were promulgated and entered into effect on September 3, 2005.

This regulation specifies that coal mine
enterprises are responsible for preventing coal mine work safety-related accidents. If a coal mine has not obtained, in accordance with the law, a mining right permit, work safety permit, coal production permit or business license and if the mine
manager has not obtained, in accordance with the law, a mine manager qualification certificate and a mine manager safety qualification certificate, the coal mine may not engage in production. A coal mine should have adequate safety equipment,
facilities and resources and should have in place measures to guard against the occurrence of work safety related accidents, as well as a sound contingency plan to deal with emergencies. Coal mining enterprises should establish a sound system for
the detection, elimination, treatment and reporting of latent work safety-related dangers. If a major latent work safety-related danger as specified exists in a coal mine, the enterprise should immediately suspend



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production and eliminate the latent danger. Coal mining enterprises should provide their personnel working underground and their special operation personnel
with safety education and training in accordance with relevant state regulations. The person in charge of a coal mine and the production and operation management personnel should go into mines and act as foremen on a rotating basis in accordance
with state regulations, while a file recording their entry into the mine should be maintained. In addition, the State Administration of Work Safety issued five sets of supplemental measures:

(i) The Measures for Determining Major Latent Work Safety Related Dangers in Coal Mines (for Trial Implementation) stipulates the specific criteria for
determining major latent work safety-related dangers. It further defines each of the latent safety related dangers specified in the Special Regulations of the State Council on Preventing Work Safety Related Accidents in Coal Mines, and lists more
than 60 major latent safety related dangers.

(ii) The Implementing Measures for the Detection and Elimination of Latent Dangers in Coal
Mines and the Rectification and Closure of Such Mines (for Trial Implementation) specifies that coal mining enterprises are responsible for the detection and elimination of latent work safety-related dangers and that the main persons in charge of
coal mining enterprises are fully responsible for the detection, elimination and treatment of latent work safety-related dangers in their enterprises.

(iii) The Measures for the Supervision and Inspection of Coal Mine Safety Training (for Trial Implementation) specifies that coal mining enterprises must arrange and provide safety education and training to all of
their mining personnel in accordance with relevant regulations; select and send their principal persons in charge, work safety management personnel and special operation personnel to qualified coal mine safety training institutions for training in a
timely manner; and obtain the corresponding qualification certificates.

(iv) The Guiding Opinions on Persons in Charge of Coal Mines and
Production and Operation Management Personnel Going into Mines as Foremen requires the various types of coal mines to arrange for their persons in charge and production and operation management personnel to go into the mines to act as foremen and to
ensure that each shift has at least one such person on site directing the operations. Coal mining enterprises are required to establish such procedures, clarify foremens duties and responsibilities and strictly implement internal management
and performance appraisal.

(v) The Measures for Rewarding the Reporting of Major Latent Work Safety Related Dangers in, and Violations of
the Law by, Coal Mines (for Trial Implementation) specifies that all units or individuals have the right to report major latent work safety-related dangers in, and violations of law by, coal mines.

C. Organizational Structure

As of the end of 2006,
there are 17 departments in our Company, 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, Enterprise Management
Department, Information Management Department, Enterprise Development Department, Risk Management Department, General Control Center, Department of Production Technology, Department of Safety Inspection, Electrical Engineering and Power Department,
Ventilation and Dust Elimination Department, Geological Survey Department, Community Relationship Office and Technical Center

Our
shareholding and organizational structure as of March 31, 2007 are illustrated by the diagram below:



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LOGO



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D. Property, Plants and Equipment

Real Property and Leasehold Property

As of December 31, 2006, the net book value of our
property, plant and equipment was RMB12,139.9 million. The six coal mines and production and ancillary facilities of the Company are mainly in Shandong Province, we also own some assets in Shaanxi Province and Shanxi Province in the PRC and
Australia. As of December 31, 2006, our Company and our subsidiaries occupied an area of 19,586,741 square meters, of which 3,309,603 square meters is occupied by the Company in Shandong Province, Shanxi Nenghua owns an area of 97,300 square
meters, and Yancoal Australia owns 16,179,838 square meters of land. 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 Australia is not subject to expiration pursuant to Southland Property Law in 1900. Based on necessity of our business development, our Company will seek opportunity to acquire more land and to obtain relevant
approvals. We are in the process of applying to the appropriate authorities to obtain relevant title certificates in respect of some of our lands.

Coal
Mines and Production Facilities

Existing coal mines

The six domestic coal mines of the Company 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 Austar Coal Mine on December 24, 2004. In 2005, we acquired 95.67% equity interest in Heze Nenghua from the Controlling
Shareholder. 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. In November 2006, we acquired the 98% equity interest in Shanxi Nenghua owned by Yankuang Group, and in February 2007, we acquired the
remaining 2% equity interest in Shanxi Nenghua from Yankuang Groups subsidiary, Lunan Fertilizer Plant.

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

LOGO



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

LOGO

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

LOGO

Our coal mines are all underground coal mines.



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The following table sets out detailed information for each of the mines currently owned by our Company
which are in operation:



|                                                                       |  |        |  |                 |  |         |  |         |  |           |     |  |            |  |        |  |         |  |         
|---------------------------------------------------------------------- |  | ------ |  | --------------- |  | ------- |  | ------- |  | --------- | --- |  | ---------- |  | ------ |  | ------- |  | --------
|                                                                       |  | Nantun |  | Xinglong Zhuang |  | Baodian |  | Dongtan |  | Jining II |     |  | Jining III |  | Austar |  | Tianchi |  | Total   
|Background data:                                                       |  |        |  |                 |  |         |  |         |  |           |     |  |            |  |        |  |         |  |         
|Start of construction                                                  |  | 1966   |  | 1975            |  | 1977    |  | 1979    |  | 1989      |     |  | 1993       |  | 1998   |  | 2004    |  | N/A     
|Start of commercial production                                         |  | 1973   |  | 1981            |  | 1986    |  | 1989    |  | 1997      |     |  | 2000       |  | 2000   |  | 2006    |  | N/A     
|Coalfield area (square kilometers)                                     |  | 35.2   |  | 59.81           |  | 36.4    |  | 60.0    |  | 87.1      |     |  | 105.1      |  | 63.0   |  | 20      |  | 466.6   
|Reserve data: (millions tonnes as of December 31, 2006)                |  |        |  |                 |  |         |  |         |  |           |     |  |            |  |        |  |         |  |         
|Total in-place proven and probable reserves(1)                         |  | 129.38 |  | 348.68          |  | 305.33  |  | 479.16  |  | 425.68    |     |  | 244.40     |  | N/A    |  |        |  | 1,932.63
|Proven and probable reserves recoverable by longwall mining methods(2) |  | 24.70  |  | 89.89           |  | 72.01   |  | 96.81   |  | 160.54    |     |  | 82.40      |  |       |  |        |  | 526.35  
|recoverable reserves                                                   |  |       |  |                |  |        |  |        |  |          |     |  |           |  |       |  | 30.0    |  | 30.08   
|probable resources reserves                                            |  |       |  |                |  |        |  |        |  |          |     |  |           |  |       |  | 66.08   |  | 66.08   
|Depth of mine (meters underground)                                     |  | 397.0  |  | 429.2           |  | 474.7   |  | 710.0   |  | 593.0     |     |  | 556.0      |  | 300    |  |        |  | N/A     
|Average thickness of main coal seam (meters)                           |  | 8.60   |  | 8.29            |  | 8.88    |  | 8.41    |  | 6.78      |     |  | 6.20       |  | 5.30   |  | 4.50    |  | 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    |  | 1.0     |  | 24.4    
|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       |     |  |           |  |       |  |        |  | 27.5    
|2001                                                                   |  | 4.9    |  | 6.6             |  | 6.2     |  | 7.1     |  | 4.1       |     |  | 5.1        |  |       |  |        |  | 34.0    
|2002                                                                   |  | 3.6    |  | 7.1             |  | 6.4     |  | 8.1     |  | 5.2       |     |  | 8.0        |  |       |  |        |  | 38.4    
|2003                                                                   |  | 4.7    |  | 7.0             |  | 7.3     |  | 8.2     |  | 6.0       |     |  | 10.1       |  |       |  |        |  | 43.3    
|2004                                                                   |  | 4.1    |  | 7.4             |  | 7.0     |  | 8.5     |  | 4.9       |     |  | 7.3        |  |       |  |        |  | 39.2    
|2005                                                                   |  | 4.0    |  | 6.6             |  | 5.0     |  | 7.5     |  | 4.5       |     |  | 7.0        |  |       |  |        |  | 34.6    
|2006                                                                   |  | 3.9    |  | 7.2             |  | 5.6     |  | 8.0     |  | 4.0       |     |  | 6.8        |  | 0.4    |  | 0.1     |  | 36.0    
|Cumulative raw coal production as of December 31, 2006                 |  | 52.3   |  | 75.0            |  | 66.8    |  | 82.7    |  | 39.9      |     |  | 44.3       |  | 0.4    |  | 0.1     |  | 361.5   

---

|(1) | The reserve data (except for Austar Coal Mine) including (i) total in-place proven and probable reserves (if applicable), (ii) proven and probable reserves recoverable by
longwall mining methods, (iii) recoverable reserves; (iv) probable resource reserves; (v) depth of mine and (vi) 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, 2006. 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.The report of the independent mining consultant for Tianchi Coal Mine was prepared by Minarco Asia Pacific Pty Limited
in May 2006, which is attached hereto as Exhibit 14.1 to this Annual Report.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(3) | With respect to Tianchi Coal Mine, start of construction refers to the redevelopment and expansion; start of commercial production refers to
commencement of production after completion of redevelopment and expansion.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Nantun Coal Mine.Nantun is located in the southern portion 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 meters and the thickness of the lower leaf averages 3.21 meters. As of December 31, 2006, the estimated probable reserves on the main coal layer were
129.4 million tonnes, of which 24.7 million tonnes were recoverable by our longwall mining methods. 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 of the equipment used in the Nantun coal preparation plant was manufactured in the PRC.

Xinglongzhuang Coal Mine. Xinglongzhuang is located in the northern portion of our coalfield. 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 in Xinglongzhuang. Currently, Xinglongzhuang operates one longwall face. As of December 31, 2006, the estimated probable reserves
on the main coal layer were 348.7 million tonnes, of which 89.9 million tonnes were recoverable by our longwall mining methods.

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 Coal Mine. Baodian is located in the central western portion 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. As of
December 31, 2006, the estimated probable reserves on the main coal layer was 305.3 million tonnes, of which 72.0 million tonnes were recoverable by our longwall mining methods.

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 of the 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 Coal Mine. Dongtan is located in the central
eastern portion 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. As of December 31, 2006, the estimated probable reserves on the main coal layer were 479.2 million tonnes, of which 96.8 million tonnes were recoverable by our longwall mining methods.

Most of the 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 Coal Mine. Jining II is located in the northern portion of the Jining coalfield. The quality of its coal reserves 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. As of December 31, 2006, the estimated probable reserves on the main coal layer were 425.7 million tonnes, of which 160.5 million tonnes were recoverable by our longwall mining methods.



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The main equipment used in Jining II is 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 Coal Mine. Jining III
is located in the southern portion 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. As of December 31, 2006, the estimated probable reserves on the main coal layer were 244.4 million tonnes,
of which 82.4 million tonnes were recoverable by our longwall mining methods.

The main equipment used in Jining III is 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 coking coal. The average thickness of the main coal seam of Austar Coal
Mine is 5.3 meters.

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 Australia 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 the Austar Coal Mine has resumed operation in October 2006.

The main equipment used in Austar Coal Mine is heavy-medium cyclone machines, which are manufactured in Australia. Austar Coal Mine will operate one
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
AUD230.3 million on Austar Coal Mine and we have incurred AUD205.9 million as of December 31, 2006.

Tianchi Coal Mine.Tianchi
Coal Mine is located in Heshun County of Shanxi Province, with an area of approximately 20 square kilometers. After approval was obtained from the State Development Reform Committee on December 31, 2004, Tianchi Coal Mine underwent a
redevelopment and expansion, and on November 3, 2006 has commenced commercial production after the construction works was completed. The designed production capacity was increased from 0.3 million tonnes to 1.2 million tonnes per
annum. Tianchi Coal Mine is operated by inclined shaft development, and it produces mostly lean coal and meager lean coal. The average thickness of the main coal seam of Tianchi Coal Mine is 4.5 meters. As of December 31, 2006,
the estimated probable resources reserves were 66.1 million tonnes, and the recoverable reserve were 30.0 million tonnes.

Tianchi Coal Mine does not have a coal preparation plant.

Mines under Development

Zhaolou Coal Mine is an underground longwall mine located in the central portion of Juye Coal Field. Zhaolou Coal Mine covers an area of 145 square
kilometers. We commenced the construction of Zhaolou Coal Mine in 2004 and we plan to complete the construction of Zhaolou Coal Mine in 2008. Zhaolou Coal Mine has a designed annual raw coal production capacity of 3 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 the Revised Independent Technical Review and Resource and Reserve Assessment attached as Exhibit 14.1, the
total probable and recoverable reserves of Zhaolou Coal Mine was 106.0 million as of December 31, 2006.

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 RMB875.5 million on the construction and development of Zhaolou Coal Mine as of December 31, 2006.



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Railway Assets

Currently, the Railway Assets consists of 27 locomotives, 359 railcars, and special purpose coal transportation railway tracks of approximately 184 kilometers in length that link most of our coal mines and production
units of the Controlling Shareholder and our largest end-customer, Zouxian Electric Power Plant. As of December 31, 2006, our Railway Asset Department employed approximately 3,580 employees. The railway network connects to two of the major
national railways, namely, the Beijing-Shanghai Railway and Yanzhou-Shijiugang Railway.

Mining Rights

Mining Rights of our Five Mines

According to the
approval of the State-owned Supervision Department and the Coal Industry Supervision Department obtained at the establishment of the Company, and the Mining Agreement entered into with Yankuang Group in October 1997 and the supplemental agreement
entered into in February 1998, whereas the five coal mines owned by the Company: Nantun, Xinglongzhuang, Baodian, Dongtan and Jining II (the Five Mines), would incur RMB13.0 million per year for compensation for the depletion of coal
resources. For ten years from 1997 onwards, the compensation would be collected by Yankuang Group, and if the state implemented new regulations after ten years, the compensation would be adjusted accordingly.

During the time of the report, we paid Yankuang Group RMB13.0 million as compensation for the depletion of coal resources for the Five Mines.

In September 2006, the State Council approved the Implementation Plan for the Compensation System Reform Testing in relation to Deepening Coal
Resources as jointly promulgated by the Finance Department, Ministry of Land and Resources, and the National Development and Reform Commission. According to the implementation plan, if an enterprise obtained mining rights that were the result of
state-funded exploration, it must pay mining right fees in relation to valuation of the remaining reserves. Shandong Province is one of the testing points for mining rights paid with consideration. Up until the date of disclosure of this report, the
detailed terms of the implementation of the use of mining rights in Shandong Province were unclear.

Jining III

Pursuant to the Jining III Coal Mine Acquisition Agreement dated August 4, 2000 entered into between us and the Controlling Shareholder, the
consideration for the mining right of Jining III Coal Mine is approximately RMB132.5 million, which shall be paid to the Controlling Shareholder in ten equal annual interest free installments commencing from 2001. During 2006, we paid RMB13.3
million to the Controlling Shareholder.

Austar Coal Mine

We obtained an 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. During 2005, we successfully obtained the exploration license for the adjacent mines. Accordingly, consideration amounted to RMB23.6
million was paid upon the completion of registration process in 2006.

Tianchi Coal Mine

At the time we acquired Shanxi Nenghua, we paid a total consideration of RMB748.3 million, including the consideration for the mining right of Tianchi
Coal Mines for RMB136.6 million.



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Zhaolou Coal Mine

In December 2005, we acquired 95.67% of the equity interest in Heze Nenghua from Yankuang Group. According to the acquisition agreement, Heze Nenghua has the right to acquire the mining rights of Zhaolou Coal Mine
within 12 months upon its availability.

On June 28, 2006, Yankuang Group obtained the mining rights certificate issued by the State
Resources Department in relation to Zhaolou Coal Mine. In accordance with the terms of the Heze Nenghua Acquisition Agreement, we have begun the process of acquiring the mining rights of Zhaolou Coal Mine, and will make the appropriate disclosure in
relation to the acquisition progress. The construction of Zhaolou Coal Mine is expected to be completed in 2008.

Except for the Five Mines
of the Company, the mining rights of the coal mines owned by us are all paid with consideration.

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 the equity attributable to our equity holders and net income attributable to our equity
holders as of December 31, 2004 and 2005 and net income attributable to our equity holders for the years ended December 31, 2004, 2005 and 2006 are set forth in Note 46 to the financial statements.

A. Operating Results

We are engaged in the mining of
prime quality low-sulphur coal from our mines for sale to electric power plants, metallurgical producers and other customers located primarily in the economically developed eastern provinces of the PRC, and for export to customers located in East
Asia. Our raw coal production was 36.1 million tonnes in 2006, and our total coal sales volume was 34.7 million tonnes. Domestic coal sales accounted for 70.0%, 73.1% and 78.2% of our total net sales during 2004, 2005 and 2006,
respectively, and export coal sales through export sales agent accounted for 27.9%, 25.5% and 20.5%, respectively, of our total net sales for such periods.

In 2002 we acquired our local railway transportation network from the Controlling Shareholder, and began to provide rail transportation services both for our own coal sales and for the Controlling Shareholder, its
subsidiaries and other third parties. In 2006, we transported a total of 19.5 million tonnes of goods, compared to 20.2 million tonnes in 2005.

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. In 2006, the internal sales was RMB206.8 million and external sales was RMB160.4 million. 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. If treated as an independent business in 2006, Railway Assets contributed net profits of RMB9.3 million.

Overview

In 2006, we produced 36.1 million tonnes of raw coal and sold 34.7 million tonnes of coal, representing
a 4.0% and 6.7% increase, respectively, compared to 2005. In 2006, our realizable total net revenue was RMB12,007.3 million, representing an increase of 4.3% compared to 2005, while the net income attributable to our equity holders was RMB2,373.0
million in 2006, representing a decrease of 17.6% compared to 2005. The following table sets forth our sales and sales volumes classified according to our principal products and services sales:



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##### Table of Contents

|                                |  |                                              |  |               |      |                     |   |      |               |  |               |  |                     |    |  |               |  |               |  |                     |  
|------------------------------- |  | -------------------------------------------- |  | ------------- | ---- | ------------------- | - | ---- | ------------- |  | ------------- |  | ------------------- | -- |  | ------------- |  | ------------- |  | ------------------- | -
|                                |  | Historical Sales Data by Product and Service | 
|                                |  | 2004                                         |  |               | 2005 |                     |   | 2006 |              
|                                |  | 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                |  | 631.3                                        |  | 220.5         |      | 2.1                 | % |      | 773.9         |  | 398.0         |  | 3.5                 | %  |  | 869.3         |  | 439.3         |  | 3.6                 | %
|No. 2 Clean Coal                |  | 6,329.2                                      |  | 2,013.50      |      | 19.0                | % |      | 5,084.5       |  | 2,499.1       |  | 21.7                | %  |  | 5,566.3       |  | 2,668.5       |  | 22.2                | %
|Domestic Sales                  |  | 2,326.7                                      |  | 805.4         |      | 7.6                 | % |      | 2,981.3       |  | 1,531.4       |  | 13.3                | %  |  | 4,064.2       |  | 2,003.8       |  | 16.7                | %
|Export                          |  | 4,002.5                                      |  | 1,208.10      |      | 11.4                | % |      | 2,103.2       |  | 967.6         |  | 8.4                 | %  |  | 1,502.1       |  | 664.7         |  | 5.5                 | %
|No.3 Clean Coal                 |  | 11,861.9                                     |  | 3,484.00      |      | 33.0                | % |      | 11,183.0      |  | 4,143.8       |  | 36.0                | %  |  | 12,129.7      |  | 4,518.7       |  | 38.2                | %
|Domestic Sales                  |  | 6,027.9                                      |  | 1,800.20      |      | 17.0                | % |      | 6,066.8       |  | 2,191.9       |  | 19.0                | %  |  | 7,495.6       |  | 2,901.6       |  | 24.2                | %
|Export                          |  | 5,834.0                                      |  | 1,683.80      |      | 15.9                | % |      | 5,116.2       |  | 1,951.9       |  | 16.9                | %  |  | 4,634.1       |  | 1,680.1       |  | 14.0                | %
|Lump Coal                       |  | 752.3                                        |  | 284.3         |      | 2.7                 | % |      | 485.5         |  | 209.9         |  | 1.8                 | %  |  | 555.4         |  | 237.6         |  | 2.0                 | %
|Domestic                        |  | 572.7                                        |  | 228.9         |      | 2.2                 | % |      | 454.0         |  | 197.4         |  | 1.7                 | %  |  | 555.4         |  | 237.6         |  | 2.0                 | %
|Export                          |  | 179.6                                        |  | 55.4          |      | 0.5                 | % |      | 31.5          |  | 12.5          |  | 0.1                 | %  |  |              |  |              |  |                    |  
|Australian Clean Coal           |  |                                             |  |              |      |                    |   |      |              |  |              |  |                    |    |  | 192.4         |  | 114.4         |  | 1.0                 | %
|Subtotal                        |  | 19,574.7                                     |  | 6,002.3       |      | 56.8                | % |      | 17,527.0      |  | 7,250.7       |  | 63.0                | %  |  | 19,313.1      |  | 8,041.5       |  | 67.0                | %
|1. Coal Business                |  |                                              |  |               |      |                     |   |      |               |  |               |  |                     |    |  |               |  |               |  |                     |  
|Domestic Sales                  |  | 9,558.6                                      |  | 3,055.00      |      | 28.9                | % |      | 10,276.2      |  | 4,318.7       |  | 37.5                | %  |  | 12,984.5      |  | 5,582.3       |  | 46.5                | %
|Export                          |  | 10,016.1                                     |  | 2,947.30      |      | 27.9                | % |      | 7,250.8       |  | 2,932.0       |  | 25.5                | %  |  | 6,328.6       |  | 2,459.2       |  | 20.5                | %
|Screened Raw Coal               |  | 14,936.6                                     |  | 3,867.5       |      | 36.5                | % |      | 10,805.4      |  | 3,478.1       |  | 30.2                | %  |  | 10,967.3      |  | 3,160.4       |  | 26.3                | %
|Mixed Coal and Others           |  | 3,492.6                                      |  | 484.5         |      | 4.6                 | % |      | 4,152.1       |  | 624.7         |  | 5.4                 | %  |  | 4,383.1       |  | 645.0         |  | 5.4                 | %
|Coal business total             |  | 38,003.9                                     |  | 10,354.3      |      | 97.9                | % |      | 32,484.5      |  | 11,353.5      |  | 98.6                | % |  | 34,663.5      |  | 11,864.9      |  | 98.7                | %
|2. Railway                      |  |                                              |  |               |      |                     |   |      |               |  |               |  |                     |    |  |               |  |               |  |                     |  
|Transportation Services Revenue |  |                                             |  | 220.8         |      | 2.1                 | % |      |              |  | 163.4         |  | 1.4                 | %  |  |              |  | 160.4         |  | 1.3                 | %
|                                |  |                                              |  |               |      |                     |   |      |               |  |               |  |                     |    |  |               |  |               |  |                     |  
|3. Total                        |  | 38,003.9                                     |  | 10,575.1      |      | 100.0               | % |      | 32,484.5      |  | 11,516.9      |  | 100.0               | %  |  |              |  | 12,007.3      |  | 100.0               | %
|                                |  |                                              |  |               |      |                     |   |      |               |  |               |  |                     |    |  |               |  |               |  |                     |  

Net coal sales represent the invoiced value of coal sold and are net of returns, discounts, sales
taxes, transportation costs, port fees and various miscellaneous fees. Sales taxes consist primarily of a resource tax calculated at a rate per tonne of the imputed quantity of raw coal sold. Our Companys applicable coal industry tax rates in
Shandong Province is RMB3.60 per tonne and the applicable coal industry rates in Shanxi Province is RMB3.2 per tonnes. Such taxes are payable to the local tax bureau.

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



|                                                                     |  |              |  |                    |      |  |              |      |                    |   |  |              |  |                    |  
|-------------------------------------------------------------------- |  | ------------ |  | ------------------ | ---- |  | ------------ | ---- | ------------------ | - |  | ------------ |  | ------------------ | -
|                                                                     |  | 2004         |  |                    | 2005 |  |              | 2006 |                   
|                                                                     |  | RMB          |  | % ofTotalNet Sales |      |  | RMB          |      | % ofTotalNet Sales |   |  | RMB          |  | % ofTotalNet Sales |  
|                                                                     |  | (RMBMillion) |  |                    |      |  | (RMBMillion) |      |                    |   |  | (RMBMillion) |  |                    |  
|Net sales                                                            |  |              |  |                    |      |  |              |      |                    |   |  |              |  |                    |  
|Net sales of coal                                                    |  | 10,354.3     |  | 97.9               | %    |  | 11,353.5     |      | 98.6               | % |  | 11,846.9     |  | 98.7               | %
|Railway transportation service revenue                               |  | 220.8        |  | 2.1                | %    |  | 163.4        |      | 1.4                | % |  | 160.4        |  | 1.3                | %
|Total net sales                                                      |  | 10,575.1     |  | 100.0              | %    |  | 11,516.9     |      | 100.0              | % |  | 12,007.3     |  | 100.0              | %
|                                                                     |  |              |  |                    |      | 
|Cost of sales and services provided                                  |  |              |  |                    |      |  |              |      |                    |   |  |              |  |                    |  
|Materials                                                            |  | 1,088.7      |  | 10.3               | %    |  | 1,147.6      |      | 10.0               | % |  | 1,320.6      |  | 11.0               | %
|Wages and employee benefits                                          |  | 1,022.6      |  | 9.7                | %    |  | 1,258.3      |      | 10.9               | % |  | 1,646.0      |  | 13.7               | %
|Electricity                                                          |  | 298.3        |  | 2.8                | %    |  | 282.5        |      | 2.5                | % |  | 33.35        |  | 2.8                | %
|Depreciation                                                         |  | 918.4        |  | 8.7                | %    |  | 891.6        |      | 7.7                | % |  | 963.0        |  | 8.0                | %
|Repairs and maintenance                                              |  | 455.8        |  | 4.3                | %    |  | 351.0        |      | 3.0                | % |  | 327.2        |  | 2.7                | %
|Land subsidence, restoration, rehabilitation and environmental costs |  | 323.2        |  | 3.1                | %    |  | 636.6        |      | 5.5                | % |  | 743.0        |  | 6.2                | %
|Mining right expenses                                                |  | 19.6         |  | 0.2                | %    |  | 19.6         |      | 0.2                | % |  | 25.0         |  | 0.2                | %
|Other transportation fee                                             |  | 119.7        |  | 1.1                | %    |  | 98.8         |      | 0.9                | % |  | 106.6        |  | 0.9                | %
|Others                                                               |  | 305.4        |  | 2.9                | %    |  | 602.6        |      | 5.2                | % |  | 722.5        |  | 6.0                | %
|Total cost of sales and services provided                            |  | 4,551.7      |  | 43.0               | %    |  | 5,288.6      |      | 45.9               | % |  | 6,190.1      |  | 51.6               | %
|                                                                     |  |              |  |                    |      |  |              |      |                    |   |  |              |  |                    |  
|Selling, general and administrative expenses                         |  | 1,479.9      |  | 14.0               | %    |  | 1,918.8      |      | 16.7               | % |  | 2,230.1      |  | 18.6               | %
|                                                                     |  |              |  |                    |      |  |              |      |                    |   |  |              |  |                    |  
|Total cost of sales and operating expenses                           |  | 6,031.6      |  | 57.0               | %    |  | 7,207.4      |      | 62.6               | % |  | 8,420.2      |  | 70.1               | %
|                                                                     |  |              |  |                    |      |  |              |      |                    |   |  |              |  |                    |  

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 46 to our financial statements included elsewhere in this Annual Report.



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Year Ended December 31, 2006 Compared with Year Ended December 31, 2005

Our net sales in 2006 increased by RMB490.4 million, or 4.3%, to RMB12,007.3 million from RMB11,516.9 million in 2005, this was due primarily to the
increased net sale of our coal products.

Our net sales of coal increased by RMB493.5 million, or 4.3%, to RMB11,846.9 million in 2006. The
increase of net sales of coal was primarily due to the increase of our sales volume of coal, partly offset by the decreased average selling price of the Companys coal products.

In 2006, we sold 34.7 million tonnes of coal, representing an increase of 2.2 million tonnes, or 6.7%, as compared to 2005. The increase was a
result of (i) the 1.9 million tonnes, or 5.7%, increase of sales volume of the six coal mines of the Company (ii) the 0.2 million tonnes of sales volume of Yancoal Australia, and (iii) the 0.1 million tonnes of sales
volume of Shangxi Nenghua.

The decrease of average coal sales price of the Company was primarily due to the corresponding decrease in
export coal prices. Our net income from railway transportation services was RMB160.4 million, representing a decrease of RMB3.0 million, or 1.9%, from RMB163.4 million in 2005. The decrease was primarily due to a decrease in the volume of coal
deliveries made by our railway network for coal sales where transportation expenses were charged on an ex-mine basis to customer.

Our
total cost of sales (including railway transportation services) increased by RMB901.5 million, or 17.0%, to RMB6,190.1 million in 2006 as compared to RMB5,288.6 million in 2005, primarily due to the increased cost of our coal sales. Increase of our
cost of coal sales was primarily due to (i) the increase in commodity prices, (ii) the increase in employees wages; (iii) the increase in expenditures on safety measures, and (iv) the consolidation of the cost of coal sales
of our subsidiaries which were not acquired or put into operation in 2005.

The unit cost of coal sales per tonne for the Company was
RMB170.2, an increase of RMB10.5, or 6.6%, compared with RMB159.6 in 2005. Such increase in unit cost of coal sales per tonne was attributable to certain internal and external factors, including increases of raw material prices, employees
wages, subsidence fees of our Company as a result of the increased efforts to relocate the villages located above coal fields, and more frequent changes of underground work-faces.

Our selling, general and administrative expenses were RMB2,230.1 million in 2006, representing an increase of RMB311.3 million, or 16.2%, from RMB1,918.8
million of 2005. The increase of our selling, general and administrative expenses was primarily due to (i) the increase of RMB378.0 million of selling, general and administrative expenses of the Company, which was mainly attributable to the
increase in employees insurance, wages and depreciation expenses, and (ii) an additional RMB5.1 million for the selling, general and administrative expenses of Shanxi Nenghua. However, the increases were partly offset by the decrease of
RMB42.0 million of selling, general and administrative expenses of Yancoal Australia as compared to 2005.

Our other operating income
increased by RMB30.8 million or 22.8%, to RMB165.8 million in 2006 from RMB135.0 million in 2005. The increase was mainly due to (i) the RMB12.9 million increase of profit from sales of material and fittings; and (ii) the RMB8.4 million
increase of interest income of bank deposit.

Our interest expenses increased by RMB1.7 million, or 7.1%, to RMB26.3 million in 2006, from
RMB24.6 million in 2005. The increase was primarily due to the two new long-term loans borrowed by Shanxi Nenghua.

As a result, our income
before income taxes decreased by RMB693.4 million, or 15.7%, from RMB4,420.0 million in 2005 to RMB3,726.6 million in 2006.

Our income tax
expenses decreased by RMB183.3 million, or 12.0%, from RMB1,538.0 million in 2005 to RMB1,354.7 million in 2006.

As a result, the net
income attributable to our equity holders decreased by RMB508.5 million, or 17.6%, to RMB2,373.0 million in 2006 from RMB2,881.5 million in 2005.



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##### Table of Contents

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 to 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 by 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 December 31, 2004 to RMB349.5 for the year ended
December 31, 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 a 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 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 remainder
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) strategically 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, please see Item 5  G  Critical Accounting
Policies.



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

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

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 our equity holders decreased by RMB226.7 million, or 7.2%, from RMB3,154.3 million in 2004 to RMB2,927.6 million in 2005.

B. Liquidity and Capital Resources

In 2006, our principal source of cash was cash flow from
operations. Principal uses of cash in 2006 were operating working capital, purchase of property, plants and equipment, repayment of shareholders dividends, increase in term deposits and the acquisition of the equity interest in Shanxi Nenghua.

As of December 31, 2006, the balance of our bills and accounts receivable were RMB2,211.9 million, representing a decrease of RMB12.9
million, or 0.6%, from RMB2,224.8 million as of December 31, 2005. Bills receivable decreased by RMB88.5 million, or 4.2%, to RMB2,004.4 million as of December 31, 2006 from RMB2,092.9 million as of December 31, 2005, principally due
to the decrease of bills received from certain major customers in connection with sales of coal. Since 2006, we accept a higher percentage of bank bills received from certain major and credit-worthy customers in order to facilitate sales in light of
rising coal prices. Accounts receivable increased by RMB75.6 million, or 57.3%, to RMB207.5 million as of December 31, 2006 from RMB131.9 million as of December 31, 2005. Such increase was primarily due to (i) an increase of RMB43.3
million for accounts receivable by our Company in 2006 due to increased settlement balances from strategic customers; (ii) RMB26.3 million of accounts receivable for Yancoal Australia in 2006; and (iii) RMB6.0 million of accounts
receivable for Shanxi Nenghua in 2006.

An analysis of the allowance for doubtful debts for bills and accounts receivable for 2004, 2005
and 2006 is as follows:



|                                                     |  |         |  |         |  |         |  
|---------------------------------------------------- |  | ------- |  | ------- |  | ------- | -
|                                                     |  | 2004    |  | 2005    |  | 2006    |  
|                                                     |  | RMB000 |  | RMB000 |  | RMB000 |  
|Balance as of January 1                              |  | 100,627 |  | 126,700 |  | 126,700 |  
|Additional/(reversal of ) allowance charged toincome |  | 26,073  |  |        |  | (16,650 | )
|Direct write-off charged against allowance           |  |        |  |        |  | (78,603 | )
|                                                     |  |         |  |         |  |         |  
|Balance as of December 31                            |  | 126,700 |  | 126,700 |  | 31,477  |  
|                                                     |  |         |  |         |  |         |  

Our inventories increased by RMB109.1 million, or 23.2%, to RMB579.6 million as of
December 31, 2006 from RMB470.5 million as of December 31, 2005. The increase was due to the increase in coal inventories of Yancoal Australia.

Prepayment and other current assets increased by RMB29.1 million, or14.4%, to RMB231.5 million as of December 31, 2006, from RMB202.4 million as of December 31, 2005. The increase was mainly due to the
increase of prepayment or advances to supplier.

As of December 31, 2006, total bills and accounts payable increased by RMB248.0
million, or 49.8%, to RMB745.7 million from RMB497.7 million as of December 31, 2005. The increase was mainly caused by the increase of accounts payable.

Other accounts payable and provisions increased by RMB323.8 million, or 20.5%, to RMB1,899.7 million as of December 31, 2006 from RMB1,575.9 million as of December 31, 2005, principally due to (i) an
RMB199.5 million increase of the customers deposits; and (ii) an RMB226.3 million increase of accounts payable for the purchase of property, machinery, equipment and project materials compared to that in 2005; which was partially offset
by the RMB100.9 million decrease of resources compensation payable compared to that in 2005.



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Long-term liabilities increased by RMB458.9 million, or 257.7%, to RMB637.0 million as of
December 31, 2006 from RMB178.1 million as of December 31, 2005. This was mainly attributable to the RMB330 million new long-term loan of Shanxi Nenghua as a result of our acquisition of Shanxi Nenghua which we acquired and the increase of
RMB137.5 million for deferred tax liabilities accrued from the provision of land subsidence fees and safety production expenses.

Our
principal capital expenditure for the purchase and construction of property, machinery and equipment was RMB1,290.5 million and RMB3,363.4 million in year 2005 and 2006, respectively, representing an increase of RMB2,072.9 million, among which,
(i) capital expenditure for the construction of property increased by RMB1,881.1 million; and (ii) capital expenditure for machinery and equipment increased by RMB185.6 million. These increases were mainly due to the increase in
expenditure in the construction of properties and purchase of machinery and equipments for projects being developed by some of our wholly owned subsidiaries and controlled entities. In accordance with the Acquisition Agreement of Jining III Coal
Mine, we have paid the Controlling Shareholder RMB13.2 million for acquisition of the mining rights of Jining III Coal Mine during this reporting period. For information about our contractual commitment for capital expenditures, see - F.
Contractual Obligations.

Equity attributable to our equity holders increased by RMB1,313.2 million, or 7.5 %, to RMB18,931.8
million as of December 31, 2006 from RMB17,618.6 million as of December 31, 2005, which was mainly attributable to the increase in profit realized from operating activities. We paid dividends of RMB470.7 million, RMB799.2 million and
RMB1,082.0 million in 2004, 2005 and 2006, respectively. As of December 31, 2006, our debt to equity ratio was 2.1%, which was calculated based on the equity attributable to our equity holders and total amount of bank loans, which amounted to
RMB18,931 million and RMB403,1 million, respectively. As of December 31, 2006, our Companys debt to equity ratio was 2.1%, which was calculated on the basis of the equity attributable to our equity holders and total amount of borrowings
amounting to RMB18,931.8 million and RMB403.1 million, respectively.

The following table sets forth our cash flow for each of the three
years ended December 31, 2004, 2005 and 2006:



|                                                         |  |                        |   |  |            |   |  |            |  
|-------------------------------------------------------- |  | ---------------------- | - |  | ---------- | - |  | ---------- | -
|                                                         |  | Year ended 31 December |  
|                                                         |  | 2004                   |   |  | 2005       |   |  | 2006       |  
|                                                         |  | (RMB000)              |   |  | (RMB000)  |   |  | (RMB000)  |  
|Cash and cash equivalents at beginning of year           |  | 2,023,772              |   |  | 5,216,738  |   |  | 5,885,581  |  
|Net cash generated from operating activities             |  | 4,418,381              |   |  | 3,939,274  |   |  | 3,767,156  |  
|Net cash used in investing activities                    |  | (2,300,808             | ) |  | (2,262,466 | ) |  | (3,625,523 | )
|Net cash generated from / (used in) financing activities |  | 1,075,393              |   |  | (1,008,279 | ) |  | (1,291,549 | )
|Net increase/ (decrease) in cash and cash equivalents    |  | 3,192,966              |   |  | 667,529    |   |  | (1,149,916 | )
|Cash and cash equivalents at end of year                 |  | 5,216,738              |   |  | 5,885,581  |   |  | 4,715,945  |  

Our net cash generated from operating activities decreased by RMB172.1 million, or 4.3%, from
RMB3,939.3 million in 2005 to RMB3,767.2 million in 2006, despite the increase in our cash generated from operations by RMB307.9 million from RMB5,164.1 million in 2005 to RMB5,472.1 million in 2006. This was mainly because we paid an increased
RMB488.6 million in income taxes in 2006. Although our operating cash flow before movements in working capital decreased by RMB526.5 million to RMB4,794.3 in 2006 million from RMB5,320.8 million in 2005, our cash generated from operations
increased primarily due to the decrease in bill and accounts receivable and increase in bill and accounts payable, which was partially offset by the increase in inventories and decrease in other payables and accrued expenses.

Net cash used in investing activities increased from RMB2,262.5 million in 2005 to RMB3,625.5 million in 2006. Net cash used in investing activities
primarily reflected (i) an increase of approximately RMB1,821.7 million in capital expenditures for purchase of property, plant and equipment from RMB1,315.4 million in 2005 to RMB3137.1 million in 2006, (ii) the increase in restricted
cash of RMB50.5 million in 2006, (iii) the investment of RMB444.2 million for the



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acquisition of Shangxi Nenghua, and (iv) the payment of RMB 18.5million, RMB97.4 million and RMB23.6 million for the acquisition of Southland Coal Mine,
the deposit investment in connection with Yancoal Australia and the acquisition of mining rights in Southland Coal Mine, respectively. The increase in net cash used in investing activities was partially offset by a decrease in term deposits of
RMB131.8 million and proceeds from disposal of property, plant and equipment of RMB14.2 million.

Net cash used in financing activities in
2006 was RMB1,291.5 million, reflecting primarily (i) the payment of dividends of RMB1,082.0 million, and (ii) repayment of bank borrowings of RMB200.0 million. Net cash used in financing activities was RMB1,009.3 million in 2005,
reflecting primarily (i) the payment of dividends of RMB799.2 million, and (ii) repayment of bank borrowing of RMB200.0 million.

Our estimated capital expenditure for 2007 is RMB4,147.2 million, including : (i) approximately RMB1,035.3 million for the purchase and construction of property, machinery and equipment for the existing six operating coal mines and
Railway Assets of our Company ;and (ii) approximately RMB3,111.9 million for external development projects , including: (a) approximately RMB1,948.1 million for investment in the 600,000 tonnes capacity methanol facility in Shaanxi
Province; (b) approximately RMB663.8 million for investment in Zhaolou Coal Mine in Shandong Province; (c) approximately RMB278.9 million for investment in the 100,000 tonnes capacity methanol facility in Shanxi Province ; and
(d) approximately RMB221.1 million for investment in the construction of Austar Coal Mine in Australia. The capital resource for the planned capital expenditure is mainly from our cash in hand and remaining proceeds from the issuance of H
Shares in 2004.

We believe that the cash currently owned by our Company and the abundant capital sources will provide us with sufficient
capital to satisfy our operational and development requirements.

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

We have a team of specialized technicians who are responsible for research and development of new mining and processing technology. Our expenditures for
research and development were RMB24.9 million, RMB45.0 million and RMB46.0 million, in the years ended December 31, 2004, 2005 and 2006, respectively, accounting for 0.2%, 0.4% 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 on mining technology have contributed to increases in production in recent years. Our 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 and enhancing recycling of coal
resources;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 Controlling Shareholder granted DBT Australia Pty Ltd 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, our
focus is on further improving the existing technology and replacing outdated equipment. We are currently focusing on our research and development on the complete set of equipment and technology for a 6 million tonnes fully-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

Outlook for 2007

The demand and supply of coal in the domestic market is generally in equilibrium, and coal price is expected to remain stable. Since China is maintaining
an economic growth rate of over 8%, the demand of coal by electricity power, metallurgy, building materials, chemicals and other sectors in primary industry will still be persistent. The domestic coal resource supply is expected to increase due to
additional production from newly constructed coal mines as well as policy adjustments by the PRC Government, for example, the abolishment of VAT rebate for coal export, levying additional coal export tariff and reducing coal import tariff. No
radical breakthrough in the bottleneck of coal transportation capacity is expected in the short term. The PRC Government will continue to regulate and close down sub-standard coal mines and continue to strictly enforce increased safety investments.
The Eleventh Five-Year Plan (2006-2010) of Coal Industry encourages the development of large scale coal enterprises under a group structure and the raising of admittance requirements for newly constructed coal mine, which will result in the
consolidation of Chinas coal industry and enhance the competitive advantages of large-scale coal enterprises. The safety production level and operation system of the coal industry is expected to continue to improve.

Due to continuous growth of the world economy, steady development of electric power and metallurgy industries, and increasingly high oil prices, the coal
industry is one of the growing energy industries in terms of demand. The export volume of coal from Australia will remain stable on the whole, the export volume of coal from Indonesia and Vietnam is expected to increase; while the import volume of
coal by Japan and South Korea is expected to remain stable and the import volume of coal by China and India will increase. Therefore, the demand and supply in East Asian coal markets will be stable on the whole, and the supply of prime coal is
expected to be slightly tight. In response to the strong domestic demand of coal, Chinas adjustments to its coal import and export is expected to be in favor of the East Asian coal market prices. The contract price for coal in the
international coal market is on the whole higher than that of 2006. Ever since January 2007, the spot price of the Australian BJ steam coal has been stable with an increase trend. It is expected that the international coal price in 2007 will be
stable coupled with steady increase.

The average coal sales price of the Company is expected to increase slightly in 2007. Currently, we
have signed domestic coal sales contracts of 13.0 million tonnes, with average contract price increase of RMB52.04 per tonne or a19.2% increase over 2006. Adjustment for spot prices for coal is also expected in accordance with market changes.
Though the negotiation for coal export has not been completed, it is expected that our Companys long-term contract price for export coal will be slightly higher than 2006.



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E. Off-balance Sheet Arrangements

As of December 31, 2006, other than capital expenditure commitments, discussed in B. Liquidity and Capital Resources above, and contractual obligations, discussed in F. Contractual
Obligations below, we did not have any off-balance sheet arrangements.

F. Contractual Obligations

The following table summarizes our contractual obligations and commercial commitments as of December 31, 2006:



|                                                                        |  |                        |  |                  |  |           |  |           |  |                  
|----------------------------------------------------------------------- |  | ---------------------- |  | ---------------- |  | --------- |  | --------- |  | -----------------
|                                                                        |  | 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                                               |  | 380,000                |  | 50,000           |  | 154,000   |  | 44,000    |  | 132,000          
|Capital commitments for the acquisition of property,plant and equipment |  | 1,221,884              |  | 1,221,884        |  | 0         |  | 0         |  | 0                
|Capital commitments for the development of new coal mines               |  | 600,000                |  | 600,000          |  | 0         |  | 0         |  | 0                
|                                                                        |  |                        |  |                  |  |           |  |           |  |                  
|Amounts due to Controlling Shareholder andits subsidiaries              |  | 1,005,485              |  | 982,347          |  | 15,885    |  | 7,253     |  | 0                
|                                                                        |  |                        |  |                  |  |           |  |           |  |                  
|Total                                                                   |  | 3,207,369              |  | 2,854,231        |  | 169,885   |  | 51,253    |  | 132,000          
|                                                                        |  |                        |  |                  |  |           |  |           |  |                  

During 2006, we entered into a joint venture with Chia Tai Company and Yushen Company to establish
Yushuwan Coalmine Company for the construction and operation of Yushuwan Coalmine in Shaanxi Province. We have to invest approximately RMB196.8 million in order to obtain 41% equity interest. As of December 31, 2006, We have made a deposit of RMB97
million in relation to this joint venture and we are committed to invest a further RMB99.8 million.

Acquisition of Jining III

We acquired Jining III on January 1, 2001 pursuant to the Acquisition Agreement of Jining III Coal Mine, which was entered into between the
Controlling Shareholder and us on August 4, 2000. Pursuant to the Jining III Acquisition Agreement of Jining III Coal Mine, 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 Controlling Shareholder in ten equal annual interest free installments commencing in 2001. In 2006, we have paid a total of RMB13.3 million to the Controlling Shareholder 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 to borrow a total amount of RMB1.2 billion from the Bank of China on January 4, 2002. The initial interest rate of the loans was 6.21%, subject to adjustment in accordance with statutory
interest rate or changes by the State in relation to the method of calculating interest during the term of the loan agreement. On April 28 and August 25, 2006, the Peoples Bank of China (PBOC) adjusted interest rates, to
6.4% and 6.8% respectively (the 2006 PBOC interest rate adjustments). On August 25, 2006, we had already paid off the remaining amounts on the loan agreement.

On December 28, 2005, Shanxi Tianchi, a subsidiary of Shanxi Nenghua, entered into a long-term loan agreement with the Taiyuan branch of China
Minsheng Bank, for an amount of RMB160 million. The initial interest rate of the loan was 5.9% per annum but the interest rate was subject to the 2006 PBOC interest rate adjustments. The loan shall be repaid by three installments over a period
of three years, with the first installment due in December 22, 2007. The first two installments are for amounts of RMB50 million each, and the third installment is for RMB60 million. Interest is calculated on a monthly basis.

Shanxi Tianchi, a subsidiary of Shanxi Nenghua, entered into a long-term loan agreement with the State Development Bank on February 13, 2006, and
borrowed a total of RMB220 million on February 20, 2006. The initial interest rate of the loans was 6.1% per annum and was subject to adjustment based on the interest rate stipulated by the PBOC. However, the 2006 PBOC interest rate
adjustments did not affect the interest payable on the loan for the year 2006. From May 20, 2008, the principal for the loan will become payable in 20 installments over a period of 117 months, with each installment amounting to RMB11 million.
Interest is calculated on a quarterly basis.



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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 the Groups interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary at the date of acquisition. Goodwill
arising on an acquisition of a subsidiary for which the agreement date is on or after January 1, 2005, is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

Previously capitalized goodwill arising on acquisitions after January 1, 2001 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 acquisition. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an
indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit
first and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Any impairment is recognized immediately in the consolidated income statement and is not subsequently reversed.

As of December 31, 2006, the carrying amount of goodwill is RMB295.6 million.

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.

As of December 31, 2006, the goodwill comprises those arising from the acquisition of Jining II, Railway Assets, equity interest in
Yanmei Shipping, equity interest in Heze Nenghua and equity interest in Shanxi Nenghua.

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.

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.



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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, 2006, 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, 2006, we have recognized deferred tax liabilities for the tax
consequence of temporary differences on the unrealised profits of available-for-sale investment, accelerated depreciation, and the acquisition of the mining rights of Shanxi Nenghua Group.

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 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



48



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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.

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.

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

Recent Changes in Accounting Pronouncements

In the current year, the Group has applied, for the first time, a number of new standards, amendments and interpretations (New
IFRS) issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (the IFRIC) of the IASB which are either effective for accounting periods beginning on or
after December 1, 2005 or January 1, 2006. The adoption of the new IFRS had no material effect on how the results for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has
been required.

In 2005, the Group had adopted all of the new and revised standards and interpretations issued by the IASB and 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 had resulted in changes to the Groups accounting policies in
the following areas that had affected the amounts reported for the prior periods:



| |  |  | 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 are as follows:

IFRS 3, Business Combinations

Goodwill

In accordance with the transitional rules of IFRS 3 Business Combinations, 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 year 2005. 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.



49



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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.

Previously, under IAS 22 (superseded 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.

At the date of authorization of the financial statements for the year ended December 31, 2006, the following
standards and interpretations were in issue but not yet effective:



|                |  |                                                                                                   
|--------------- |  | --------------------------------------------------------------------------------------------------
|IAS (Amendment) |  | Presentation of Financial Statements Added disclosures about an entitys capital1                 
|IFRS 7          |  | Financial Instruments: Disclosures1                                                               
|IFRS 8          |  | Operating Segments2                                                                               
|IFRIC 7         |  | Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies3
|IFRIC 8         |  | Scope of IFRS 24                                                                                  
|IFRIC 9         |  | Reassessment of Embedded Derivatives5                                                             
|IFRIC 10        |  | Interim Financial reporting and Impairment6                                                       
|IFRIC 11        |  | IFRS 2-Group and Treasury Share Transactions7                                                     
|IFRIC 12        |  | Service Concession Arrangements8                                                                  

| | 
| | 

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

| | 2 | Effective for annual periods beginning on or after January 1, 2009.
| | - | -------------------------------------------------------------------

| | 3 | Effective for annual periods beginning on or after March 1, 2006.
| | - | -----------------------------------------------------------------

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

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

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

| | 7 | Effective for annual periods beginning on or after March 1, 2007.
| | - | -----------------------------------------------------------------

| | 8 | Effective for annual periods beginning on or after January 1, 2008.
| | - | -------------------------------------------------------------------

The directors anticipate that adoption of these Standards and Interpretations will have no material impact on the results and the financial position of
the Group.

Recent Pronouncements in the U.S. GAAP



50



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##### Table of Contents

In February 2006, the Financial Accounting Standards Board (FASB) issued No. 155,
(SFAS 155), Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements No. 133 and 140. This statement is effective for all financial instruments acquired, issued, or subject to a
remeasurement (new basis) event occurring after the beginning of an entitys first fiscal year that begins after September 15, 2006. Our Company will adopt SFAS 155 in the first quarter of 2007. We have not determined the impact, if any,
of SFAS 155 on our financial position, results of operations and cash flows.

In June 2006, the Financial Accounting Standard Board FASB
issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in income tax positions in FASB
Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 is effective for fiscal years beginning after December 15, 2006. We will adopt FIN 48 in the first quarter of 2007. We have not determined the impact, if any, of FIN 48 on its financial position, results of operations and cash
flows.

In September 2006 the FASB issued FASB Statement No. 157, (SFAS 157), Fair Value Measurement. SFAS 157
addresses standardizing the measurement of fair value for companies who are required to use a fair value measure of recognition for recognition or disclosure purposes. The FASB defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measure date. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. We are currently evaluating the impact, if any, of SFAS 157 on its financial position, results of operations and cash flows.

In September 2006, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No.108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements (SAB 108). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff
believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. SAB 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB 108 did not have a material impact on our consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value option for Financial Assets and Financial Liabilities. SFAS No. 159
Permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact, if any, of SFAS
159 on its financial position, results of operations and cash flows.

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
consolidated financial statement prepared under U.S. 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, the Railway Assets, Heze
Nenghau and Shanxi Nenghua have been accounted for using the purchase method which accounts for the assets and liabilities of Jining II, Jining III, the Railway Assets, Heze Nenghua and Shanxi Nenghua 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



51



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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, Heze Nenghua and Shanxi Nenghua are entities under the common control of the
Parent Company, the assets and liabilities of Jining II, Jining III, the Railway Assets, Heze Nenghua and Shanxi 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, Heze Nenghua and Shanxi 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 Shanxi
Nenghua using the pooling of interest method on the net income under US GAAP for the year ended December 31, 2005 and 2004 is as follows:



|                               |  |                         |   |  |          
|------------------------------ |  | ----------------------- | - |  | ---------
|                               |  | Year ended December 31,
|                               |  | 2005                    |   |  | 2004     
|                               |  | RMB000                 |   |  | RMB000  
|Net income                     |  |                         |   |  |          
|As previously reported         |  | 2,994,711               |   |  | 3,263,892
|Pooling of interest adjustment |  |                         |   |  |          
|Net loss from Shanxi           |  | (3,592                  | ) |  |         
|                               |  |                         |   |  |          
|As restated                    |  | 2,991,119               |   |  | 3,263,892
|                               |  |                         |   |  |          

Under IFRS, the mining rights of Jining III and Shanxi Nenghua are stated at purchase
consideration less amortization. Mining rights are amortized on a straight line basis over twenty years and twenty-seven years, respectively, being the useful lives 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 bases of the assets of our Company formed from the reorganization and depreciation is based on such new bases. 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 as goodwill and was, prior to
January 1, 2007, 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 starting from the initial recognition of goodwill in 2003, when Yanmei Shipping was acquired by our Company.



52



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Goodwill is tested for impairment annually or more frequently if events or changes in circumstances
indicate that it might be impaired. The Group completes a two-step goodwill impairment test. The first step compares the fair value of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds
its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying
value of a reporting units goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and
liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating
goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill.

The cost of mining structure is depreciated using the unit of production method based on the estimated production volume for proven and probable
reserves, of which the structure was designed.

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, |          
|                                                                                                                                                                                                                              |  | 2006                    |           |   | 2005    |     |           | 2004    | 
|                                                                                                                                                                                                                              |  | RMB000                 |           |   | RMB000 |     |           | RMB000 | 
|Income attributable to our equity holders as reported under IFRS                                                                                                                                                              |  |                         | 2,372,985 |   |         |     | 2,881,461 |         |  |     | 3,154,317 |  
|                                                                                                                                                                                                                              |  |                         |          
|U.S. GAAP adjustments:                                                                                                                                                                                                        |  |                         |           |   |         |     |           |         |  |     |           |  
|                                                                                                                                                                                                                              |  |                         |          
|Additional depreciation charged on fair valued property, plant and equipment and prepaid lease payments                                                                                                                       |  |                         | 187,859   |   |         |     | 187,885   |         |  |     | 187,418   |  
|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, net of minority interest |  |                         | (64,311   | ) |         |     | (64,188   | )       |  |     | (64,034   | )
|Amortization of negative goodwill on acquisition of Jining III                                                                                                                                                                |  |                         |          |   |         |     |          |         |  |     | (27,620   | )
|Amortization of mining rights of Jining III                                                                                                                                                                                   |  |                         | 6,624     |   |         |     | 6,624     |         |  |     | 6,624     |  
|Amortization of mining rights of Shanxi Nenghua, net of minority interest                                                                                                                                                     |  |                         | 402       |   |         |     |          |         |  |     |          |  
|Amortization of goodwill arising on acquisition of Jining II                                                                                                                                                                  |  |                         |          |   |         |     |          |         |  |     | 777       |  
|Amortization of goodwill arising on acquisition of the Railway Assets                                                                                                                                                         |  |                         |          |   |         |     |          |         |  |     | 13,880    |  
|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    | )
|Loss of Shanxi Nenghua included in the Nenghua using the pooling of interest method                                                                                                                                           |  |                         | (97,806   | ) |         |     | (3,592    | )       |  |     |          |  
|                                                                                                                                                                                                                              |  |                         |           |   |         |     |           |         |  |     |           |  
|Income under U.S. GAAP                                                                                                                                                                                                       |  |                         | 2,405,753 |   |         |     | 2,991,119 |         |  |     | 3,263,892 |  
|                                                                                                                                                                                                                              |  |                         |           |   |         |     |           |         |  |     |           |  
|Earnings per share under U.S. GAAP, Basic and diluted                                                                                                                                                                         |  | RMB                     | 0.49      |   |         | RMB | 0.61      |         |  | RMB | 0.69      |  
|                                                                                                                                                                                                                              |  |                         |           |   |         |     |           |         |  |     |           |  
|Earnings per ADS under U.S. GAAP, Basic and diluted                                                                                                                                                                           |  | RMB                     | 24.46     |   |         | RMB | 30.41     |         |  | RMB | 34.40     |  
|                                                                                                                                                                                                                              |  |                         |           |   |         |     |           |         |  |     |           |  



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|                                                                                                                                                               |  |                 |   |  |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | - |  | ---------- | -
|                                                                                                                                                               |  | At December 31, |  
|                                                                                                                                                               |  | 2006            |   |  | 2005       |  
|                                                                                                                                                               |  | RMB000         |   |  | RMB000    |  
|Equity attributable to our equity holders as reported under IFRS                                                                                               |  | 18,931,779      |   |  | 17,618,577 |  
|                                                                                                                                                               |  |                
|U.S. 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                                           |  | 1,688,682       |   |  | 1,500,823  |  
|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 |  | 287,876         |   |  | 349,869    |  
|Goodwill arising on acquisition of Jining II                                                                                                                   |  | (10,106         | ) |  | (10,106    | )
|Mining rights of Jining III                                                                                                                                    |  | (92,735         | ) |  | (99,359    | )
|Additional deferred tax asset due to a higher tax base resulting from capitalization of mining rights                                                          |  | 30,602          |   |  | 32,788     |  
|Difference in cost bases of mining rights of Shanxi Nenghua, net of minority interest                                                                          |  | (130,640        | ) |  | __         |  
|Additional deferred tax due to a higher tax base resulting from capitalization of mining rights of Shanxi Nenghua, net of minority interest                    |  | 43,112          |   |  |           |  
|Goodwill arising on acquisition of Railway Assets                                                                                                              |  | (97,240         | ) |  | (97,240    | )
|Goodwill arising on acquisition of Heze Nenghua                                                                                                                |  | (35,645         | ) |  | (35,645    | )
|Amortization of goodwill arising on acquisition of Yanmei Shipping                                                                                             |  | 1,116           |   |  | 1,116      |  
|Net assets of Shanxi Neng Hua incorporated under pooling of interest                                                                                           |  |                 |   |  |            |  
| current assets                                                                                                                                               |  |                |   |  | 252,476    |  
| property, plant and equipment, net                                                                                                                           |  |                |   |  | 426,798    |  
| prepaid lease payments                                                                                                                                       |  |                |   |  | 1,366      |  
| current liabilities                                                                                                                                          |  |                |   |  | (60,895    | )
| non current liabilities                                                                                                                                      |  |                |   |  | (3,456     | )
| minority interests                                                                                                                                           |  |                |   |  | (17,423    | )
|                                                                                                                                                               |  |                 |   |  |            |  
|                                                                                                                                                               |  |                |   |  | 598,866    |  
|                                                                                                                                                               |  |                 |   |  |            |  
|                                                                                                                                                               |  |                |   |  |            |  
|Consideration payable on acquisition of Shanxi Nenghua                                                                                                         |  |                |   |  | (733,346   | )
|Goodwill arising on acquisition of Shanxi Nenghua                                                                                                              |  | (142,547        | ) |  |           |  
|                                                                                                                                                               |  |                 |   |  |            |  
|Shareholders equity under U.S. GAAP                                                                                                                           |  | 17,913,222      |   |  | 16,565,311 |  
|                                                                                                                                                               |  |                 |   |  |            |  

ITEM 6. DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors, 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 December 31, 2006. Based on our 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.

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



|               |  |     |  |                                                  |  |                              |  |                                        
|-------------- |  | --- |  | ------------------------------------------------ |  | ---------------------------- |  | ---------------------------------------
|Name           |  | Age |  | Position at the Company                          |  | Date Term of Office Expires1 |  | Share Ownership As of December 31,20062
|Directors      |  |     |  |                                                  |  |                              |  |                                        
|WANG Xin       |  | 48  |  | Chairman                                         |  | June 28, 2008                |  | 0                                      
|GENG Jiahuai   |  | 56  |  | Vice Chairman                                    |  | June 28, 2008                |  | 0                                      
|YANG Deyu      |  | 58  |  | Vice Chairman and General Manager                |  | June 28, 2008                |  | 20,000                                 
|SHI Xuerang    |  | 52  |  | Director                                         |  | June 28, 2008                |  | 0                                      
|CHEN Changchun |  | 54  |  | Director                                         |  | June 28, 2008                |  | 0                                      
|WU Yuxiang     |  | 45  |  | Director and Chief Finance Officer               |  | June 28, 2008                |  | 20,000                                 
|WANG Xinkun    |  | 54  |  | Director and Deputy General Manager              |  | June 28, 2008                |  | 0                                      
|ZHANG Baocai   |  | 39  |  | Director and Secretary of the Board of Directors |  | June 28, 2008                |  | 0                                      
|DONG Yunqing   |  | 51  |  | Director                                         |  | June 28, 2008                |  | 0                                      



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|                                    |  |     |  |                                        |  |                              |  |                                        
|----------------------------------- |  | --- |  | -------------------------------------- |  | ---------------------------- |  | ---------------------------------------
|Name                                |  | Age |  | Position at the Company                |  | Date Term of Office Expires1 |  | Share Ownership As of December 31,20062
|                                    |  |     |  |                                       
|Independent Non-executive Directors |  |     |  |                                        |  |                              |  |                                        
|PU Hongjiu                          |  | 70  |  | Director                               |  | June 28, 2008                |  | 0                                      
|CUI Jianmin                         |  | 74  |  | Director                               |  | June 28, 2008                |  | 0                                      
|WANG Xiaojun                        |  | 52  |  | Director                               |  | June 28, 2008                |  | 0                                      
|WANG Quanxi                         |  | 51  |  | Director                               |  | June 28, 2008                |  | 0                                      
|                                    |  |     |  |                                       
|Supervisory Committee               |  |     |  |                                        |  |                              |  |                                        
|MENG Xianchang                      |  | 59  |  | Chairman of Supervisory Committee      |  | June 28, 2008                |  | 20,000                                 
|SONG Guo                            |  | 52  |  | Vice Chairman of Supervisory Committee |  | June 28, 2008                |  | 0                                      
|ZHANG Shengdong                     |  | 50  |  | Supervisor                             |  | June 28, 2008                |  | 0                                      
|LIU Weixin                          |  | 56  |  | Supervisor                             |  | June 28, 2008                |  | 0                                      
|XU Bentai                           |  | 48  |  | Supervisor                             |  | June 28, 2008                |  | 0                                      
|                                    |  |     |  |                                       
|Executive Officers                  |  |     |  |                                        |  |                              |  |                                        
|JIN Tai                             |  | 55  |  | Deputy General Manager                 |  | June 28, 2008                |  | 0                                      
|ZHANG Yingmin                       |  | 53  |  | Executive Deputy General Manager       |  | June 28, 2008                |  | 0                                      
|HE Ye                               |  | 49  |  | Deputy General Manager                 |  | June 28, 2008                |  | 0                                      
|QU Tianzhi                          |  | 44  |  | Deputy General Manager                 |  | June 28, 2008                |  | 0                                      
|TIAN Fengze                         |  | 50  |  | Deputy General Manager                 |  | June 28, 2008                |  | 0                                      
|SHI Chengzhong                      |  | 44  |  | Vice General Manager                   |  | June 28, 2008                |  | 0                                      
|LAI Cunliang                        |  | 46  |  | Vice General Manager                   |  | June 28, 2008                |  | 0                                      
|NI Xinghua                          |  | 50  |  | Chief Engineer                         |  | June 28, 2008                |  | 0                                      

---

|1. | The above date where term of office expires is determined by the date of the shareholders meeting when a new session of the Board is elected or a Board meeting where a senior
executive is retired.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | In the form of A Shares. Aggregate ownership less than 1% of the outstanding Shares.
|-- | ------------------------------------------------------------------------------------

Executive Directors

WANG Xin, aged 48, an engineering technique application researcher,
doctor of engineering technology, has been a Director and the Chairman of the Board of Directors since 2004. Mr. Wang is also the vice chairman of the board of directors and the general manager of the Controlling Shareholder. Mr. Wang
joined our Predecessor in 1982 and became the vice general manager of the Controlling Shareholder in 2000. In 2002, he was appointed as a director and vice general manager of the Controlling Shareholder, and in 2003 he was promoted to be the vice
chairman of the board of directors and the general manager of the Controlling Shareholder. He graduated from China University of Mining and Technology.

GENG Jiahuai, aged 56, an engineering technique application researcher, has been a Director of the Company since 2002, and has been the Vice Chairman of the Board of Directors since 2004. Mr. Geng is also
the chairman of the board of directors and the party committee secretary of the Controlling Shareholder. 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 Controlling Shareholder in 2002 as a general manager, the vice chairman of the board of directors and the party committee deputy secretary of the Controlling
Shareholder. In 2003, Mr. Geng became the chairman of the board of the directors and the party committee secretary of the Controlling Shareholder. He graduated from Shandong Mining Institute.

YANG Deyu, aged 58, an engineering technique application researcher, has been an Executive Director and the General Manager of the Company since
1997, and has been the Vice Chairman of the Board of Directors since 2002. Mr. Yang has also been a director of the Controlling Shareholder since 2004. 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. He graduated from Shandong Mining Institute.

SHI Xuerang, aged 52, a senior engineer, has been a Director of the Company since 2005. Mr. Shi has also been the deputy general manager of
the Controlling Shareholder since joining them in 2003. From 2001 to 2003, Mr. Shi acted as the deputy general manager of Xinkuang Group. He graduated from Shandong Mining Institute.

CHEN Changchun, aged 54, a senior accountant, has been a Director of the Company since 2005. Mr. Chen is also a director, the chief
accountant and the chief legal adviser of the Controlling Shareholder. Mr. Chen joined the Predecessor in 1984 and became the chief accountant of the Controlling Shareholder in 1998, and a director in 2004, and the chief legal advisor in 2006.
He graduated from Beijing Coal Cadre Institute.



55



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WU Yuxiang, aged 45, a senior accountant, has been a Director and the Chief Financial Officer of
the Company since 2002. 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 director and chief financial officer of the Company in 2002. He graduated from Shandong TV University.

WANG Xinkun,
aged 54, a senior economist, has been a Director of the Company since 2004 and has been the Deputy General Manager of the Company since 2002. Mr. Wang joined the Predecessor in 1977, and became the Manager of the Coal Transportation and Sales
Department of the Company in 2000. He graduated from Tianjin University.

ZHANG Baocai, aged 39, a senior economist, has been a
Director and the Secretary to the Board of Directors since 2006. Mr. Zhang joined the Predecessor in 1989 and acted as the head of the Planning And Finance Department of the Company in 2002. In 2006, he was promoted to become a director, the
secretary to the Board of Directors, the head of the Secretariat of the Board of Directors and the head of the Information Management Department of the Company in 2006. Mr. Zhan graduated from Nankai University.

DONG Yunqing, aged 51, a senior administrative officer, has been a Director and the Chairman of the Labor Union of the Company since 2002.
Mr. Dong joined the Predecessor in 1981 and was the vice chairman of the labor union of the Controlling Shareholder from 2001 to April 2003. He graduated from Shandong Mining Institute.

Independent Non-executive Directors

PU
Hongjiu, aged 70, professor-level senior engineer, has been an Independent Non-Executive Director of the Company since 2005. 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 the 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 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 74, a senior auditor and certified accountant, has been an Independent Non-Executive Director of the Company since 2002.
Mr. Cui 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 acted as the deputy chief auditor of the PRC National Audit Office, 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 has been a consultant in China Tax Expert Association since
September 2004. Mr. Cui also acts as an independent non-executive director both in China Power Co., Ltd and CITIC Guoan Information Industry Co., Ltd. Mr. Cui graduated from Peoples University of China.

WANG Xiaojun, aged 52, an admitted solicitor in England and Wales and Hong Kong, has been an Independent Non-Executive Director of the Company
since 2002. Mr. Wang is a partner of Wang & Co., X. J. in Hong Kong and has practiced PRC law in Beijing, and has been admitted to practice law in the PRC, Hong Kong and England and Wales in 1988, 1995 and 1996, respectively.
Mr. Wang has worked as a legal adviser to the Hong Kong Stock Exchange and Richards Bulter. 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
law and a master degree in law. Mr. Wang also acts as an independent non-executive director for Guangzhou Guangchuan International Company Limited, Hong Kong Concepta Investments Limited and Natural Gas Company Limited of Shaanxi Province.

WANG Quanxi, aged 51, professor of Nankai University, has been an Independent Non-Executive Director of the Company since 2004.
Mr. Wang is the director of financial management department of Nankai University, the director of Enterprise Research Center of Nankai University, the



56



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vice director of MBA Center of Nankai University, and the secretary-general of the Association of Management of Tianjin City. Mr. Wang graduated from
Tianjin Finance and Economics University. He also acts as independent non-executive director for YinzuoBohai Group Co., Ltd.

Board of Supervisors

MENG Xianchang, aged 59, a senior administrative officer, is the chairman of the supervisory committee of the Company and party
committee deputy secretary of the Controlling Shareholder. Mr. Meng joined the Predecessor in 1981, 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 52, 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 Controlling Shareholder. Mr. Song was the director of the office of Coal
Management Bureau of Shandong Province in 2002. He joined the Controlling Shareholder as secretary of the disciplinary inspection committee in 2003, and became the deputy secretary of party committee of the Controlling Shareholder in 2004. He became
the vice chairman of the supervisory committee of the Company in 2005. He graduated from Shandong University.

ZHANG Shengdong, aged
50, a senior accountant, is a supervisor of the Company, the deputy chief accountant and the head of the finance department and the finance company preparation department of the Controlling Shareholder. Mr. Zhang joined the Predecessor in 1981
and became the deputy chief accountant in 1997. He became a supervisor of the Company in 2002, and the head of the finance department of the Controlling Shareholder in 2006. He graduated from China University of Mining and Technology.

LIU Weixin, aged 56, a senior accountant, is a supervisor of the Company and the vice director of the audit department of the Controlling
Shareholder. Mr. Liu joined the Predecessor in 1971, and became the vice director of the audit affair office of the Controlling Shareholder in 2001, the chief of audit department of the Controlling Shareholder in 2003, and the deputy director
of audit department of the Controlling Shareholder in 2005. Mr. Liu became a supervisor of the Company in 2002. He graduated from Shandong Youth Cadre Institute.

XU Bentai, aged 48, 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 55, 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 Controlling Shareholder 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 53, an engineering technology application researcher, is the executive deputy general manager of the Company and a director of
the Controlling Shareholder. 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
Controlling Shareholder in 2003. In 2004, Mr. Zhang became a director of the Controlling Shareholder and the chief of the safety supervision bureau of the Company. He graduated from Tianjin University.

HE Ye, aged 49, 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 Controlling Shareholder in 2002. Mr. He was promoted to be a deputy general manager of Company in 2002. He graduated from
Guizhou Institute of Technology.



57



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QU Tianzhi, aged 44, an engineering technique application researcher, is the deputy general
manager of the Company. Mr. Qu joined the Companys predecessor in 1985 and became the head of Dongtan Coal Mine in 2000. He was appointed the deputy general manager of the Company in 2006. He graduated from China University of Mining and
Technology.

TIAN Fengze, aged 50, 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 and a deputy general manager of the Company in 2002. He graduated from Beijing Coal Cadre Institute.

SHI Chengzhong, aged 44, a senior engineer, is a deputy general manager of the Company. Mr. Shi joined the Predecessor in 1983, became a deputy chief engineer of the Controlling Shareholder 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 46, 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 50, an engineering technology application
researcher, is the chief engineer of our Company. Mr. Ni joined the Predecessor in 1975 and became the deputy chief engineer of the Controlling Shareholder in 2000. He was promoted to be the chief engineer of the Company in 2002. He graduated
from Tianjin University.

On September 20, 2006, the Board received the written resignation of Mr. Chen Guangshui. Mr. Chen
Guangshui tendered his resignation as the Director, the Board Secretary, Company Secretary and Authorized Representative of the Company due to his new job arrangement.

On September 20, 2006, the Seventh Meeting of the Third Session of the Board was held to appoint Mr. Zhang Baocai as the Board Secretary, Company Secretary and Authorized Representative of the Company.
Mr. Zhang was also nominated as a director. On November 10, 2006, the Company held its Second Provisional Shareholders Meeting to elect Mr. Zhang as a director of the Company.

On April 21, 2006, the Fifth Meeting of the Third Session of the Board appointed Mr. Qu Tianzhi as the deputy general manager of the Company.

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 executive director who retired from the Board of Directors on September 2006), Supervisors and Executive Officers during the year ended December 31, 2006
was RMB4.1 million. The aggregate amount of cash remuneration paid by us to the five highest-paid individuals in the Company (none Directors) in 2006 was RMB1.8 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. We did not pay any discretionary bonus during the reporting period of this Annual Report to our Directors, Supervisors
or Executive Officers. Details of the directors and supervisors emoluments on a named basis are as follows:



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|                                    |  |                                      |  |                                               |  |                                     |  |        
|----------------------------------- |  | ------------------------------------ |  | --------------------------------------------- |  | ----------------------------------- |  | -------
|                                    |  | For the year ended December 31, 2006
|                                    |  | Fees                                 |  | Salaries, allowance andother benefits in kind |  | Retirementbenefitschemecontribution |  | Total  
|                                    |  | RMB000                              |  | RMB000                                       |  | RMB000                             |  | RMB000
|Independent Non-Executive Directors |  |                                      |  |                                               |  |                                     |  |        
|Pu Hongjiu                          |  | 89                                   |  |                                              |  |                                    |  | 89     
|Cui Jianmin                         |  | 89                                   |  |                                              |  |                                    |  | 89     
|Wang Xiaojun                        |  | 106                                  |  |                                              |  |                                    |  | 106    
|Wang Quanxi                         |  | 89                                   |  |                                              |  |                                    |  | 89     
|                                    |  |                                      |  |                                               |  |                                     |  |        
|                                    |  | 373                                  |  |                                              |  |                                    |  | 373    
|                                    |  |                                      |  |                                               |  |                                     |  |        
|Directors                           |  |                                      |  |                                               |  |                                     |  |        
|Wang Xin                            |  |                                     |  |                                              |  |                                    |  |       
|Geng Jiahuai                        |  |                                     |  |                                              |  |                                    |  |       
|Yang Deyu                           |  |                                     |  |                                              |  |                                    |  |       
|Shi Xuerang                         |  |                                     |  |                                              |  |                                    |  |       
|Chen Changchun                      |  |                                     |  |                                              |  |                                    |  |       
|Wu Yuxiang                          |  |                                     |  | 182                                           |  | 82                                  |  | 264    
|Wang Xinkun                         |  |                                     |  | 238                                           |  | 107                                 |  | 345    
|Chen Guangshui                      |  |                                     |  | 187                                           |  | 84                                  |  | 271    
|Zhang Baocai                        |  |                                      |  | 170                                           |  | 77                                  |  | 247    
|Dong Yunqing                        |  |                                     |  | 205                                           |  | 92                                  |  | 297    
|                                    |  |                                      |  |                                               |  |                                     |  |        
|                                    |  |                                     |  | 982                                           |  | 442                                 |  | 1,424  
|                                    |  |                                      |  |                                               |  |                                     |  |        
|Supervisors                         |  |                                      |  |                                               |  |                                     |  |        
|Meng Xianchang                      |  |                                     |  |                                              |  |                                    |  |       
|Song Guo                            |  |                                     |  |                                              |  |                                    |  |       
|Zhang Shengdong                     |  |                                     |  |                                              |  |                                    |  |       
|Liu Weixin                          |  |                                     |  |                                              |  |                                    |  |       
|Xu Bentai                           |  |                                     |  | 218                                           |  | 98                                  |  | 316    
|                                    |  |                                      |  |                                               |  |                                     |  |        
|                                    |  |                                     |  | 218                                           |  | 98                                  |  | 316    
|                                    |  |                                      |  |                                               |  |                                     |  |        
|Other Management Team               |  |                                      |  |                                               |  |                                     |  |        
|Jin Tai                             |  |                                     |  |                                              |  |                                    |  |       
|Zhang Yingmin                       |  |                                     |  |                                              |  |                                    |  |       
|He Ye                               |  |                                     |  | 208                                           |  | 94                                  |  | 302    
|Tian Fengze                         |  |                                     |  | 202                                           |  | 91                                  |  | 293    
|Shi Chengzhong                      |  |                                     |  | 229                                           |  | 103                                 |  | 332    
|Qu Tianzhi                          |  |                                     |  | 232                                           |  | 104                                 |  | 336    
|Ni Xinghua                          |  |                                     |  | 218                                           |  | 98                                  |  | 316    
|Lai Cunliang                        |  |                                     |  | 421                                           |  |                                    |  | 421    
|                                    |  |                                      |  |                                               |  |                                     |  |        
|                                    |  |                                     |  | 1,510                                         |  | 490                                 |  | 2,000  
|                                    |  |                                      |  |                                               |  |                                     |  |        

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 the new session of the 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;
| | --- | --------------------------------------------------------------------------



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| | (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.
| | ------ | ------------------------------------------------------------------------------

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.

The Board of Directors should to decide on matters relating to foreign investment, purchase or sale of assets,
mortgage of assets, provision of guarantees, entrusted assets management and connected transactions by the Company within the scope of authority conferred by the general meeting and submit such matters to the shareholders meeting for approval.

With the approval of over two-thirds of all directors, the Board of Directors may make decisions on the following matters:



| | (1) | transactions falling within the 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:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 1. | the total assets involved in a single transaction with amount more than 5% and below 25% of the Companys latest audited total asset value;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | a single investment more than 5% and below 25% of the Companys latest audited net asset value;
| | -- | -----------------------------------------------------------------------------------------------



| | 3. | the subject of a single transaction accounted for more than 5% and less than 25% of the Companys latest audited income from principal operations for the latest financial year;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | the subject of a single transaction accounted for more than 5% and less than 25% of the 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 the Companys most recently audited net asset value and the debt ratio to the 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 the Companys most recently audited net asset value;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------



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



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| | (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 the 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 the Company in accordance with the principle of accrued basis shall not be included in the scope of accrual calculation.

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

In addition to obligations imposed by laws, administrative regulations or the listing rules of the stock
exchanges on which our Shares are listed, the Articles of Association place on each Director, Supervisor, general manager, deputy general manager and any other senior officer a 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.



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Audit Committee of the Board of Directors

As approved at the first Board Meeting of the Third Session of the Board held on June 28, 2005, the Company set up the Audit Committee (the
Audit Committee). The Audit Committee comprises four independent non-executive Directors, namely Mr. Cui Jianmin, Mr. Pu Hongjiu, Mr. Wang Xiaojun and Mr. Wang Quanxi, and two non-executive Directors, namely
Mr. Chen Changchun and Mr. Dong Yunqing. Mr. Cui Jianmin serves as the Chairman of the Audit Committee.

The Audit Committee
is mainly responsible for proposing the appointment or replacement of the external audit agencies; reviewing the accounting policies of the Company, the disclosure of the financial information and the procedures for preparing financial reports; and
reviewing the internal control system and risk management system of the Company. The details of the responsibilities of the Audit Committee have been disclosed on the Companys website.

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



|               |  |     |  |                                    |  |                    
|-------------- |  | --- |  | ---------------------------------- |  | -------------------
|Name           |  | Age |  | Position                           |  | Ownership of Shares
|CUI Jianmin    |  | 74  |  | Independent non-executive director |  | 0                  
|PU Hongjiu     |  | 70  |  | Independent non-executive director |  | 0                  
|WANG Xiaojun   |  | 52  |  | Independent non-executive director |  | 0                  
|WANG Quanxi    |  | 51  |  | Independent non-executive director |  | 0                  
|CHEN Changchun |  | 54  |  | Affiliated Director                |  | 0                  
|DONG Yunqing   |  | 51  |  | 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. See  Item 16.  D. Exemptions From The Listing Standards For Audit Committees.

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.



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Compensation Committee

Pursuant to a resolution passed on June 28, 2005, our Board of Directors approved and established a compensation committee. The compensation committee consists of three members: 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 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 of December 31, 2006 the Yankuang Group 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 Yankuang Group, 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,
2006, were we, our Controlling Shareholder 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 certain of our Directors, Supervisors and senior management.

There is no
arrangement or understanding between any Director and any major shareholder, customer or supplier in connection with the selection of such Director.

Service Contracts of Directors and Supervisors

Each of 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   |  | 2006  
|Coal production employees               |  | 21,419             |  | 22,369 |  | 23,060 |  | 26,548
|Engineers and technicians               |  | 923                |  | 1,023  |  | 1,069  |  | 1,333 
|Management and administrative personnel |  | 1,847              |  | 2,055  |  | 1,995  |  | 2,484 
|Support staff                           |  | 3,772              |  | 3,819  |  | 3,939  |  | 9,420 
|                                        |  |                    |  |        |  |        |  |       
|Total                                   |  | 27,961             |  | 29,266 |  | 30,063 |  | 39,785
|                                        |  |                    |  |        |  |        |  |       



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##### Table of Contents

The table below sets forth the number of our employees by locations as of December 31, 2006



|          |  |                                  |  |            |  
|--------- |  | -------------------------------- |  | ---------- | -
|Location  |  | Employees as ofDecember 31, 2006 |  | % of Total |  
|PRC       |  |                                  |  |            |  
|Shandong  |  | 39,397                           |  | 99.02      | %
|Shaanxi   |  | 76                               |  | 0.20       | %
|Shanxi    |  | 286                              |  | 0.72       | %
|Australia |  | 26                               |  | 0.06       | %
|          |  |                                  |  |            |  
|Total     |  | 39,785                           |  | 100.0      | %
|          |  |                                  |  |            |  

The total remuneration of our employees includes wages and bonuses. We paid our employees an
aggregate of approximately RMB1,051.7 million, RMB1,161.4 million and RMB1,645.1 million in wages and bonuses in the years ended December 31, 2004, 2005 and 2006, 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 Controlling
Shareholder. These benefits are provided in some cases by the Controlling Shareholder, as required by PRC laws, rules and regulations. We, in turn, pay the Controlling Shareholder for all such benefits.

The Controlling Shareholder 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 Controlling Shareholder and us, we are obligated to set aside the pension fund which equals 45% of the total remuneration paid to our employees, for the Controlling
Shareholder 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 Controlling Shareholder. The Pension Fund Agreement was
renewed in 2002. We and the Controlling Shareholder 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 Controlling
Shareholder 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 also 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 2006, contributions payable by the subsidiaries pursuant to this arrangement were insignificant.

In 2004, 2005 and 2006, total contributions paid by us for our Directors, Supervisors, Executive Officers and senior management to the pension fund were
approximately RMB0.5 million, RMB0.7 million and RMB1.0 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 interfering 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.



64



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##### Table of Contents

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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
also carry personal injury insurance for our employees.

Housing Scheme

Under the Labor and Supply Agreement, the Controlling Shareholder is responsible for providing accommodation to our employees. We and the Controlling
Shareholder 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, RMB37.2 million and RMB86.2
million for 2004, 2005 and 2006, 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 2004, 2005 and 2006, housing allowances paid by us to employees amounted to RMB135.7 million, RMB146.9 million and RMB165.6 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  Item 6.  A. Directors, Supervisors 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, 2006, the Controlling Shareholder owned 52.86% of our share capital (see table below). As a majority shareholder, the Controlling
Shareholder is able to make most of the decisions adopted by us. Currently, all of our ordinary shareholders enjoy equal voting rights.

The following table sets forth certain information regarding ownership of our capital stock as of December 31, 2006, after 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. As of December 31, 2006, the Directors, Supervisors and Executive Officers own, as a group, 60,000 A Shares, representing 0.001% of our share capital.



65



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##### Table of Contents

|                                              |  |                                                                            |  |                                     |  |                                                  |  
|--------------------------------------------- |  | -------------------------------------------------------------------------- |  | ----------------------------------- |  | ------------------------------------------------ | -
|Identity of Person or Group                   |  | Title of Class                                                             |  | Shares Owned as ofDecember 31, 2006 |  | Percentage ofCapital Stock asof December 31,2006 |  
|Controlling Shareholder                       |  | 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            |  | 1,953,593,196                       |  | 39.72                                            | %
|                                              |  |                                                                            | 
|Directors, Supervisors and Executive Officers |  | Ordinary Shares in the form of A Shares, par value RMB1.00 each            |  | 60,000                              |  | 0.001                                            | %

---

|* | 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 Controlling Shareholder, which owns 52.86% 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 is
no arrangements that would cause a change of the control of our Company at a later date.

B. Related Party Transactions

The continuing connected transactions between our Company and the Controlling Shareholder for the year 2006 include the following three categories:

1. Supply of Materials and Services

Details of on-going supply of materials and services between our Company and Yankuang Group as our Controlling Shareholder for the year 2006 are shown in the following table.



|            |  |                                                            |  |                                                               |  |                                       |  |                                       
|----------- |  | ---------------------------------------------------------- |  | ------------------------------------------------------------- |  | ------------------------------------- |  | --------------------------------------
|No.         |  | Types of Connected Transactions                            |  | Agreement                                                     |  | Annual cap for theyear 2006 (RMB000) |  | Transaction for theyear 2006 (RMB000)
|Expenditure |  |                                                            |  |                                                               |  |                                      
|            |  |                                                            |  |                                                              
|1.          |  | Materials and water purchased from Yankuang Group          |  | Provision of Materials and Water Supply Agreement             |  | 535,200                               |  | 458,509                               
|            |  |                                                            |  |                                                              
|2.          |  | Fuel and power purchased from Yankuang Group               |  | Provision of Electricity Agreement                            |  | 380,000                               |  | 349,095                               
|            |  |                                                            |  |                                                              
|3.          |  | Labor and services provided by Yankuang Group              |  | Provision of Labor and Services Agreement                     |  | 854,700                               |  | 805,205                               
|            |  |                                                            |  |                                                              
|4.          |  | Maintenance and repair services provided by Yankuang Group |  | Provision of Equipment Maintenance and Repair Works Agreement |  | 280,000                               |  | 246,841                               
|            |  |                                                            |  |                                                              
|5.          |  | Products and materials sold to Yankuang Group              |  | Provision of Products and Materials Agreement                 |  | 2,850,000                             |  | 1,566,100                             

2. Mining Rights Fee

Upon approval by the relevant state-owned assets management and coal industry management authorities when the Company was incorporated, and pursuant to the Mining Right Agreement in October 1997 and its supplemental
agreement in February 1998 entered into between the Company and Yankuang Group, the Company shall pay RMB13 million per year to Yankuang Group as mining rights fee for the five mines owned by the Company: Nantun, Xinglongzhuang, Dongtan, Baodian and
Jining II (the Five Coal Mines). Yankuang Group was commissioned to collect the mining rights fee for ten years since 1997. If there are any applicable new regulations governing the payment of mining rights fee promulgated by the State
after the ten years, such regulations will apply.



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##### Table of Contents

During this reporting period, the Company paid RMB13.0 million to Yankuang Group as the mining right fee
for the Five Coal Mines.

3. Payment of Endowment Insurance Fund

Pursuant to the Provision of Administrative Services for Pension Fund and Retirement Benefits Agreement entered into between the Company and Yankuang
Group dated January 10, 2006, Yankuang Group undertakes to be responsible for the management of the pension insurance fund to employees and payments of pension and other benefits to retirees of the Company (the Endowment Insurance
Fund) on a free of charge basis and such transaction constitutes an exempt continuing connected transaction which has been approved by the Board. The annual amount for the Endowment Insurance Fund for the year 2006 paid by the Company as
approved at the Fourth Meeting of the Third Session of the Board on March 4, 2006 was RMB605 million. The amount actually paid by the Company was RMB640.6 million, with an excess of RMB35.6 million approved by the Board on April 20, 2007.

Our Independent Non-executive Directors have reviewed the continuing connected transaction in the year 2006 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 favorable 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 transactions in respect of the on-going supply of materials and services stated under 1. Supply of Materials and Services above has
not exceeded the annual cap for the year 2006 approved by independent shareholders on March 24, 2006.

Pursuant to Rule 14A.38 of the
Hong Kong Listing Rules, the Directors engaged the auditors of the Company to perform certain agreed upon procedures in respect of the continuing connected transactions of the Company. The auditors have reported their factual findings on these
procedures to the Directors.

For the years ended December 31, 2004, 2005 and 2006, we had the following continuing connected
transactions with the Controlling Shareholder and/or its subsidiary companies:



|                                            |  |                         |  |           |  |          
|------------------------------------------- |  | ----------------------- |  | --------- |  | ---------
|                                            |  | Year ended December 31,
|                                            |  | 2004                    |  | 2005      |  | 2006     
|                                            |  | (RMB000)               |  | (RMB000) |  | (RMB000)
|Income                                      |  |                         |  |           |  |          
|Sales of coal                               |  | 523,015                 |  | 856,580   |  | 1,069,879
|Sales of auxiliary materials                |  | 350,873                 |  | 369,855   |  | 496,221  
|                                            |  |                         | 
|Utilities and facilities                    |  | 29,000                  |  | 29,000    |  |         
|                                            |  |                         | 
|Expenditure                                 |  |                         |  |           |  |          
|Utilities and facilities                    |  | 354,424                 |  | 355,953   |  | 358,370  
|Annual fee for mining rights                |  | 12,980                  |  | 12,980    |  | 12,980   
|Purchases of supply materials and equipment |  | 303,549                 |  | 341,935   |  | 458,329  
|                                            |  |                         | 
|Repair and maintenance services             |  | 222,949                 |  | 197,624   |  | 246,841  
|Social welfare and support services         |  | 207,062                 |  | 242,952   |  | 406,004  
|Technical support and training              |  | 15,130                  |  | 15,130    |  | 20,000   
|Road transportation services                |  | 63,478                  |  | 53,346    |  | 63,448   
|Construction services                       |  | 160,342                 |  |          |  | 306,658  

Approval of New Continuing 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 continuing connected transactions and the actual
operations of us and the Controlling Shareholder, we completed the necessary review procedures for our continuing connected transactions as required by



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law and entered into six new continuing connected transaction agreements (New Continuing Connected Transaction Agreements), including the
materials and water supply agreement, electricity supply agreement, labor and service agreement, equipment maintenance and repair works agreement, products and materials agreement and administrative service for pension fund and retirement benefits
agreement, with the Controlling Shareholder in the first quarter of 2006. We also determined the annual caps for each New Continuing Connected Transaction Agreements for 2006 to 2008.

The New Continuing Connected Transaction Agreements and the Annual Caps were approved by the independent shareholders on March 24, 2006. The term
for each of the New Continuing 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 Continuing Connected Transaction Agreements are attached as Exhibit 4.1.

Acquisition of connected assets

In November 2006, we
acquired a 98% equity interest in Yankuang Shanxi Power Chemical Co., Ltd. (Shanxi Nenghua) and its subsidiaries (collectively referred as the Shanxi Nenghua Group) from the Controlling Shareholder. In February 2007, we
acquired the remaining 2% equity interest in Shanxi Nenghua from Lunan Fertilizer Plant, a subsidiary of our Controlling Shareholder, and became the sole owner of Shanxi Nenghua. Until the disclosure date, we had already completed all the procedures
on equity transferring.

Shanxi Nenghua holds 81.31% equity interest in Shanxi Heshun Tianchi Energy Company Limited (Tianchi
Company), which is mainly responsible for the production and operation of Tianchi Coal Mine. Tianchi Coal Mine commenced operations in November 2006. Shanxi Nenghua holds 99.85% equity interest in Shanxi Tianhao Chemicals Company Limited
(Tianhao Company), whose main business is the construction and operation of a methanol facility with 100,000 tonnes capacity per annum. The methanol project is still under the construction.

Relevant information, in connection with the acquisition of Shanxi Nenghua, provided to our equity shareholder is attached as Exhibit 15.1.

Amounts due to Controlling Shareholder and its subsidiaries

The amounts due to the Parent Company and its subsidiary companies are non-interest bearing and unsecured. The amounts due to the Controlling Shareholder and its subsidiary companies as of December 31, 2006
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 Controlling Shareholder and its subsidiary companies as of December 31, 2005 and 2006:



|                                                    |  |                    |   |  |           |  
|--------------------------------------------------- |  | ------------------ | - |  | --------- | -
|                                                    |  | As of December 31, |  
|                                                    |  | 2005               |   |  | 2006      |  
|                                                    |  | RMB000            |   |  | RMB000   |  
|Term for Repayment                                  |  |                    |   |  |           |  
|Within one year                                     |  | 508,254            |   |  | 982,347   |  
|More than one year, but not exceeding two years     |  | 8,689              |   |  | 8,181     |  
|More than two years, but not exceeding three years  |  | 8,181              |   |  | 7,704     |  
|More than three years, but not exceeding four years |  | 7,704              |   |  | 7,253     |  
|More than four years, but not exceeding five years  |  | 7,253              |   |  |          |  
|                                                    |  |                    |   |  |           |  
|Total due                                           |  | 540,081            |   |  | 1,005,485 |  
|                                                    |  |                    |   |  |           |  
|Less: amount due within one year                    |  | (508,245           | ) |  | (982,347  | )
|                                                    |  |                   
|Amount due after one year                           |  | 31,827             |   |  | 23,138    |  
|                                                    |  |                    |   |  |           |  

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

Transactions/balance with other state-controlled entities in the PRC

We operate in an economic environment currently predominated by entities directly or indirectly owned or controlled by the PRC Government
(state-controlled entities). In addition, we are part of a larger group of companies under the Controlling Shareholder which is controlled by the PRC Government. Apart from the transactions with the Controlling Shareholder and fellow
subsidiaries and other related parties disclosed above, we also conduct business with other state-controlled entities. Our Directors consider those state-controlled entities are independent third parties so far as our business transactions with them
are concerned.

In establishing our pricing strategies and approval process for transactions with other state-controlled entities, we do not differentiate
whether the counter-party is a state-controlled entity or not.

Material transactions with other state-controlled entities are as follows:



|                |  |                    |  |           |  |          
|--------------- |  | ------------------ |  | --------- |  | ---------
|                |  | As of December 31,
|                |  | 2004               |  | 2005      |  | 2006     
|                |  | RMB000            |  | RMB000   |  | RMB000  
|Trade sales     |  | 4,466,519          |  | 3,855,545 |  | 4,600,606
|                |  |                    |  |           |  |          
|                |  |                    | 
|Trade purchases |  | 1,541,147          |  | 1,607,729 |  | 1,568,658
|                |  |                    |  |           |  |          

Material balances with other state-controlled entities are as follows:



|                                                 |  |                    |  |        
|------------------------------------------------ |  | ------------------ |  | -------
|                                                 |  | As of December 31,
|                                                 |  | 2005               |  | 2006   
|                                                 |  | RMB000            |  | RMB000
|Amounts due from other state-controlled entities |  | 350,688            |  | 345,914
|                                                 |  |                    |  |        
|                                                 |  |                   
|Amounts due to other state-controlled entities   |  | 270,559            |  | 301,117
|                                                 |  |                    |  |        

In addition, we have 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, our Directors are of the opinion that separate
disclosure would not be necessary.

Except as disclosed above, our Directors are of the opinion that transactions with other state-controlled entities are
not significant to our operations.



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##### Table of Contents

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, 2006.

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information



|                                                    |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|--------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | ------- | -
|                                                    |  | As of and for the Year Ended December 31,                                                          |  
|                                                    |  | 2002                                                                                               |   |  | 2003     |   |  | 2004     |   |  | 2005     |   |  | 2006     |   |  | 2006    |  
|                                                    |  | 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                                   |  | 6,213.9                                                                                            |   |  | 6,794.3  |   |  | 10,354.3 |   |  | 11,353.5 |   |  | 11,846.9 |   |  | 1,518.0 |  
|the Company(2)                                      |  | 6,213.9                                                                                            |   |  | 6,794.3  |   |  | 10,354.3 |   |  | 11,353.5 |   |  | 11,710.7 |   |  | 1,500.6 |  
|Domestic                                            |  | 3,414.0                                                                                            |   |  | 4,337.1  |   |  | 7,407.0  |   |  | 8,421.5  |   |  | 9,365.9  |   |  | 1,200.1 |  
|Export(3)                                           |  | 2,799.9                                                                                            |   |  | 2,457.2  |   |  | 2,947.3  |   |  | 2,932.0  |   |  | 2,344.8  |   |  | 300.5   |  
|Yancoal Australia                                   |  |                                                                                                   |   |  |         |   |  |         |   |  |         |   |  | 114.4    |   |  | 14.7    |  
|Shanxi Nenghua                                      |  |                                                                                                   |   |  |         |   |  |         |   |  |         |   |  | 21.8     |   |  | 2.7     |  
|Railway transportation service income               |  | 142.5                                                                                              |   |  | 154.6    |   |  | 220.8    |   |  | 163.4    |   |  | 160.4    |   |  | 20.5    |  
|Total net revenue(4)                                |  | 6,356.4                                                                                            |   |  | 6,948.9  |   |  | 10,575.1 |   |  | 11,516.9 |   |  | 12,007.3 |   |  | 1,538.5 |  
|Gross profit                                        |  | 2,993.5                                                                                            |   |  | 3,193.9  |   |  | 6,023.4  |   |  | 6,228.3  |   |  | 5,817.3  |   |  | 745.4   |  
|Interest expenses                                   |  | (117.9                                                                                             | ) |  | (60.0    | ) |  | (35.9    | ) |  | (24.6    | ) |  | (26.3    | ) |  | (3.4    | )
|Income before income taxes                          |  | 1,748.2                                                                                            |   |  | 1,974.9  |   |  | 4,673.3  |   |  | 4,420.0  |   |  | 3,726.6  |   |  | 477.5   |  
|Net income attributable to our equity holders       |  | 1,222.0                                                                                            |   |  | 1,386.7  |   |  | 3,154.3  |   |  | 2,881.5  |   |  | 2,373.0  |   |  | 304.1   |  
|Net income/Earnings per Share                       |  | 0.43                                                                                               |   |  | 0.30     |   |  | 0.66     |   |  | 0.59     |   |  | 0.48     |   |  | 0.06    |  
|Net income/Earnings per ADS                         |  | 21.29                                                                                              |   |  | 15.1     |   |  | 33.25    |   |  | 29.29    |   |  | 24.12    |   |  | 3.09    |  
|Operating income per Share                          |  | 0.65                                                                                               |   |  | 0.44     |   |  | 0.99     |   |  | 0.90     |   |  | 0.76     |   |  | 0.10    |  
|Income from continuing operation per ADS            |  | 32.51                                                                                              |   |  | 22.16    |   |  | 49.64    |   |  | 45.18    |   |  | 37.88    |   |  | 4.85    |  
|                                                    |  |                                                                                                    |   |  |          |  
|U.S. GAAP                                           |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net income(5)                                       |  | 1,325.7                                                                                            |   |  | 1,499.2  |   |  | 3,263.9  |   |  | 2991.1   |   |  | 2,405.8  |   |  | 308.3   |  
|Net income per Share                                |  | 0.46                                                                                               |   |  | 0.33     |   |  | 0.69     |   |  | 0.61     |   |  | 0.49     |   |  | 0.06    |  
|Net income per ADS                                  |  | 23.10                                                                                              |   |  | 16.32    |   |  | 34.40    |   |  | 30.41    |   |  | 24.46    |   |  | 3.13    |  
|                                                    |  |                                                                                                    |   |  |          |  
|CASH FLOW DATA                                      |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net cash provided by operating activities           |  | 2,239.7                                                                                            |   |  | 2,701.2  |   |  | 4,418.4  |   |  | 3,939.3  |   |  | 3,767.2  |   |  | 482.7   |  
|Depreciation                                        |  | 851.1                                                                                              |   |  | 920.5    |   |  | 958.7    |   |  | 952.1    |   |  | 1,062.0  |   |  | 136.1   |  
|Net cash used in investing activities               |  | (2,165.5                                                                                           | ) |  | (1,310.3 | ) |  | (2,300.8 | ) |  | (2,262.5 | ) |  | (3,625.5 | ) |  | (464.6  | )
|Net cash (used in) provided by financing activities |  | 345.2                                                                                              |   |  | (911.4   | ) |  | 1,075.4  |   |  | (1,009.3 | ) |  | (1,291.5 | ) |  | (165.5  | )
|                                                    |  |                                                                                                    |   |  |          |  
|OTHER FINANCIAL DATA                                |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Income before income tax                            |  | 1,748.2                                                                                            |   |  | 1,974.9  |   |  | 4,673.3  |   |  | 4,420.0  |   |  | 3,726.6  |   |  | 477.5   |  
|Add: Interest expenses                              |  | 117.9                                                                                              |   |  | 60.0     |   |  | 35.9     |   |  | 24.6     |   |  | 26.3     |   |  | 3.4     |  
|Less: Interest income                               |  | 30.2                                                                                               |   |  | 17.8     |   |  | 92.7     |   |  | 91.7     |   |  | 94.3     |   |  | 12.1    |  
|Add: Depreciation and amortisation                  |  | 858.5                                                                                              |   |  | 950.1    |   |  | 994.3    |   |  | 971.9    |   |  | 1,088.2  |   |  | 139.4   |  
|EBITDA(6)                                           |  | 2,694.4                                                                                            |   |  | 2,967.2  |   |  | 5,610.8  |   |  | 5,324.8  |   |  | 4,746.8  |   |  | 608.2   |  
|EBITDA margin(7)                                    |  | 42.4                                                                                               | % |  | 42.7     | % |  | 53.1     | % |  | 46.2     | % |  | 39.5     | % |  | 39.5    | %
|                                                    |  |                                                                                                    |   |  |          |  
|OPERATING DATA                                      |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Raw coal production (000 tonnes)                   |  | 38,435                                                                                             |   |  | 43,279   |   |  | 39,146   |   |  | 34,655   |   |  | 36,051   |   |  | N/A     |  
|The Company(2)(000 tonnes)                         |  | 38,435                                                                                             |   |  | 43,279   |   |  | 39,146   |   |  | 34,655   |   |  | 35,485   |   |  | N/A     |  
|Yancoal Australia (000 tonnes)                     |  |                                                                                                   |   |  |         |   |  |         |   |  |         |   |  | 447      |   |  | N/A     |  
|Shanxi Nenghua (000 tonnes)                        |  |                                                                                                   |   |  |         |   |  |         |   |  |         |   |  | 119      |   |  | N/A     |  
|Net sales (000 tonnes)                             |  | 35,048                                                                                             |   |  | 39,408   |   |  | 38,004   |   |  | 32,485   |   |  | 34,663   |   |  | N/A     |  
|The Company(2)(000 tonnes)                         |  | 35,048                                                                                             |   |  | 39,408   |   |  | 38,004   |   |  | 32,485   |   |  | 34,330   |   |  | N/A     |  
|Domestic (000 tonnes)                              |  | 20,582                                                                                             |   |  | 25,776   |   |  | 27,988   |   |  | 25,234   |   |  | 28,194   |   |  | N/A     |  
|Export (000 tonnes)                                |  | 14,466                                                                                             |   |  | 13,632   |   |  | 10,016   |   |  | 7,251    |   |  | 6,136    |   |  | N/A     |  
|Yancoal Australia (000 tonnes)                     |  |                                                                                                   |   |  |         |   |  |         |   |  |         |   |  | 192      |   |  | N/A     |  
|Shanxi Nenghua (000 tonnes)                        |  |                                                                                                   |   |  |         |   |  |         |   |  |         |   |  | 141      |   |  | N/A     |  
|                                                    |  |                                                                                                    |   |  |          |  
|BALANCE SHEET DATA                                  |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                |  |                                                                                                    |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Total current assets                                |  | 3,873.4                                                                                            |   |  | 4,430.5  |   |  | 8,319.6  |   |  | 10,951.1 |   |  | 9,871.9  |   |  | 1,265.0 |  
|Total current liability                             |  | 1,662.7                                                                                            |   |  | 2,372.0  |   |  | 2,545.1  |   |  | 3,429.0  |   |  | 3,828.0  |   |  | 490.5   |  



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|                                                             |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------- |  | -------- |  | -------- |  | -------- |  | -------- |  | -------
|                                                             |  | As of and for the Year Ended December 31,                                                        
|                                                             |  | 2002                                                                                              |  | 2003     |  | 2004     |  | 2005     |  | 2006     |  | 2006   
|                                                             |  | RMB                                                                                               |  | RMB      |  | RMB      |  | RMB      |  | RMB      |  | U.S.$  
|                                                             |  | (Amounts in millions except numbers of Shares and ADSs, and per Share,per ADS and operating data)
|Net current assets                                           |  | 2,170.7                                                                                           |  | 2,058.5  |  | 5,774.5  |  | 7,522.1  |  | 6,043.9  |  | 774.5  
|Property, plant and equipment, net                           |  | 8,276.9                                                                                           |  | 8,616.4  |  | 8,537.2  |  | 9,318.5  |  | 12,139.9 |  | 1,555.6
|                                                             |  |                                                                                                   |  |          |  |         
|Total assets                                                 |  | 12,924.0                                                                                          |  | 13,909.9 |  | 18,336.7 |  | 21,254.4 |  | 23,458.7 |  | 3,005.9
|Total long-term borrowing                                    |  | 1,261.3                                                                                           |  | 650.9    |  | 441.1    |  | 231.8    |  | 403.1    |  | 51.7   
|Equity attributable to our equity holders                    |  | 9,995.0                                                                                           |  | 11,083.2 |  | 15,523.8 |  | 17,618.6 |  | 18,931.8 |  | 2,425.9
|                                                             |  |                                                                                                   |  |          |  |         
|U.S. GAAP                                                    |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|Property, plant and equipment and prepaid lease payment, net |  | 7,271.4                                                                                           |  | 7,785.8  |  | 8,073.7  |  | 9,279.7  |  | 11,860.3 |  | 1519.8 
|Total assets                                                 |  | 11,787.5                                                                                          |  | 12,845.8 |  | 17,379.1 |  | 20,136.7 |  | 22,134.1 |  | 2,836.2
|Equity attributable to our equity holders                    |  | 8,858.5                                                                                           |  | 10,019.2 |  | 14,519.3 |  | 16,565.3 |  | 17,913.2 |  | 2,295.4
|                                                             |  |                                                                                                   |  |          |  |         
|Number of Shares                                             |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|Domestic Shares                                              |  | 1,850.0                                                                                           |  | 1,850.0  |  | 1,850.0  |  | 2,960.0  |  | 2,960.0  |  | 2,960  
|H Shares (including H Shares represented by ADS)             |  | 1,020.0                                                                                           |  | 1,020.0  |  | 1,224.0  |  | 1,958.4  |  | 1,958.4  |  | 1,958.4
|ADS                                                          |  | 20.4                                                                                              |  | 20.4     |  | 24.48    |  | 39.168   |  | 39.168   |  | 39.168 
|Dividend per                                                 |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|Domestic Share/H Share(8)                                    |  | 0.100                                                                                             |  | 0.104    |  | 0.164    |  | 0.260    |  | 0.220    |  | 0.028  
|ADS(9)                                                       |  | 5.00                                                                                              |  | 5.20     |  | 8.20     |  | 13.00    |  | 11.0     |  | 1.410  

---

|(1) | The above financial highlights as of and for the year 2004 represent the data resulting from the consolidation of the financial statements of Yanmei Shipping, Yulin Nenghua and
Yancoal Australia . The above financial highlights as of and for the year 2005 represent the data resulting from the additional consolidation of the financial statements of Heze Nenghua. The above financial highlights as of and for the year 2006
represent the data resulting from the additional consolidation of the financial statements of Shanxi Nenghua. The gross profit, taxes and surcharges resulting from the principal businesses of Yanmei Shipping are calculated as our transportation cost
of coal. 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 and Yulin Nenghua are currently 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) | The Company does not include the subsidiaries that have been consolidated into our accounts for the purposes of the consolidated financial statements. The subsidiaries
that have been consolidated into our accounts for the purposes of the consolidated financial statements include: Yanmei Shipping, Zhongyan Trading, Yulin Nenghua, Yancoal Australia, Shanxi Nenghua, and Heze Nenghua.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Export sales constituted 44.0%, 35.4%, 27.9%, 25.5% and 20.0% of total net revenue in 2002, 2003, 2004, 2005 and 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(4) | Total net revenue is the sum of net sales of coal and railway transportation service income.
|--- | --------------------------------------------------------------------------------------------

|(5) | The net income for the year ended December 31, 2004 and the total assets value and owners equity as of 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. The net income for the year ended December 31, 2005 and the total assets value and owners equity as of December 31, 2005 under U.S. GAAP included the loss
and net assets of Shanxi Nenghua acquired in 2006 using the pooling of interest method.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | EBITDA margin represents EBITDA as a percentage of our total net revenue.
|--- | -------------------------------------------------------------------------

|(8) | 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Dividend per ADS is calculated at 50 times Dividend per Domestic Share/H Share based on one ADS being equivalent to 50 H Shares.
|--- | --------------------------------------------------------------------------------------------------------------------------------



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Export Sales

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

Legal Proceedings and
Arbitration

On December 13, 2004, we made an entrusted loan of RMB640 million to Shandong Xin Jia Industrial Company Limited (the
Entrusted Loan). On September 6, 2005, the Higher Peoples Court of Shandong Province auctioned the 289 million shares in Huaxia Bank Company Limited (Huaxia Shares) held by Shandong Lianda Group Co., Ltd. (the
Lianda Group), the guarantor, in accordance with the relevant laws to repay the principal, interest, penalty interest and relevant expenses on the Entrusted Loan (the Creditors Rights and Interests). The final auction
price was RMB3.5 per Huaxia Share and the total final auction amount was RMB1,011.5 million. As of the date of this Annual Report, the successful bidder of the Huaxia Shares is still undergoing qualification review by the China Banking Regulatory
Commission (CBRC).

We recently became aware that while the successful bidder of the Huaxia Shares is undergoing the
qualification review by CBRC, a privately-owned enterprise, Shandong Runhua Group Co., Ltd. (Runhua Group), has commenced a legal proceeding to claim ownership of the 240 million of the Huaxia Shares. It is reported that the Supreme
Peoples Court has ruled that 240 million of the Huaxia Shares should be transferred to Runhua Group. However, pursuant to the notice of the Supreme Peoples Court, the Higher Peoples Court of Shandong Province also informed us
that enforcement of the Entrusted Loan case shall continue.

The State-owned Asset Supervision and Administration Commission of the State
Council and the Peoples Government of Shandong Province have respectively sent a letter to the Supreme Peoples Court and have formally requested the Supreme Peoples Court: (i) to support our proposition and give priority to
the execution of the Entrusted Loan case and repay the Creditors Rights and Interests from the auctioned funds from the auctioning of the Huaxia Shares; and (ii) that any transfer of the Huaxia shares to Runhua Group shall be subject to
requisite legal and approval procedures. Further, ownership of the Huaxi shares should not be transferred to the Runhua Group without first obtaining asset valuation and approvals by the state-owned asset supervision and administration organizations
and other related authorities, to avoid the great loss of state-owned assets.

In view of the same subject matter in the two legal
proceedings and in light of the fact that our Company has already seized the Huaxia Shares prior to the legal proceeding initiated by Runhua Group, the Supreme Peoples Court is mediating between the two legal proceedings, and the Peoples
Government of Shandong Province is also trying to resolve the disputes through negotiations with the concerned parties, in order to protect the state-owned assets and interests of the related parties. The final result has yet been determined.

Considering the significant rise in equity value of the Huaxia Shares, we are confident that through the disposal of the Huaxia Shares it
can satisfy its Creditors Rights and Interests. We will promptly disclose any significant progress concerning the Entrusted Loan.

Save as disclosed above, our Company was not involved in any other significant litigation or arbitration during this reporting period.

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) dividend payments 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.



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B. Significant Changes

On June 15, 2007, 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 of December 31, 2006, our share capital structure is as follows:



|                                                |  |                 
|----------------------------------------------- |  | ----------------
|Type                                            |  | Amount of shares
|Listed shares with restricted trading condition |  | 2,600,000,000   
|Listed shares                                   |  | 2,318,400,000   
|A Shares                                        |  | 360,000,000     
|H Shares                                        |  | 1,958,400,000   
|Total                                           |  | 4,918,400,000   

As of December 31, 2006, we have 2,600,000,000 tradable shares with restricted trading
conditions, all of which are held by our Controlling Shareholder on behalf of the State.

Capitalization of capital reserve and our capital structure as
of December 31, 2006:

During the period of this report, the capital reserve has not changed. Our shareholding structure before and
after the implementation of finalized share reform plan was as follows:



|                                                   |  |                                                   |  |                                                                       |   |  |                                        
|-------------------------------------------------- |  | ------------------------------------------------- |  | --------------------------------------------------------------------- | - |  | ---------------------------------------
|As of January 1, 2006                              |  | After the Implementation of the Share Reform Plan
|                                                   |  | Amount of shares as ofJanuary 1, 2006             |  | Increase of shares as aresult of
capitalizationof the capital reserve |   |  | Amount of shares asof December 31, 2006
|1. Unlisted shares                                 |  | 2,672,000,000                                     |  | (2,672,000,000                                                        | ) |  |                                       
|Initiation shares                                  |  | 2,672,000,000                                     |  | (2,672,000,000                                                        | ) |  |                                       
|2. Listed shares with restricted trading condition |  |                                                  |  | 2,600,000,000                                                         |   |  | 2,600,000,000                          
|Initiation shares                                  |  |                                                  |  | 2,600,000,000                                                         |   |  | 2,600,000,000                          
|3. Listed shares                                   |  | 2,246,400,000                                     |  | 72,000,000                                                            |   |  | 2,318,400,000                          
|A Shares                                           |  | 288,000,000                                       |  | 72,000,000                                                            |   |  | 360,000,000                            
|H Shares                                           |  | 1,958,400,000                                     |  |                                                                      |   |  | 1,958,400,000                          
|Total                                              |  | 4,918,400,000                                     |  |                                                                      |   |  | 4,918,400,000                          

Set out below is certain market information relating to the H Shares, ADSs and A Shares in respect
of 2002, 2003, each quarterly period within the fiscal years ended December 31, 2004, 2005 and 2006 each monthly period ended May 31, 2007:



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|               |  |                        |  |                      |  |                        |  |       |  |       |  |      
|-------------- |  | ---------------------- |  | -------------------- |  | ---------------------- |  | ----- |  | ----- |  | -----
|               |  | Price per HShare (HK$) |  | Price per ADS(U.S.$) |  | Price per AShare (RMB)
|               |  | High                   |  | Low                  |  | High                   |  | Low   |  | High  |  | Low  
|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



|                             |  |                        |  |                      |  |                        |  |       |  |       |  |       
|---------------------------- |  | ---------------------- |  | -------------------- |  | ---------------------- |  | ----- |  | ----- |  | ------
|                             |  | Price per HShare (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  
|2006                         |  |                        |  |                      |  |                        |  |       |  |       |  |       
|First quarter                |  | 6.90                   |  | 5.00                 |  | 44.14                  |  | 32.43 |  | 7.79  |  | 5.91  
|Second quarter               |  | 7.50                   |  | 4.58                 |  | 48.80                  |  | 29.31 |  | 8.90  |  | 6.00  
|Third quarter                |  | 5.96                   |  | 5.04                 |  | 38.25                  |  | 32.63 |  | 7.77  |  | 5.70  
|Fourth quarter               |  | 6.54                   |  | 5.10                 |  | 42.45                  |  | 33.09 |  | 7.48  |  | 5.90  
|December                     |  | 6.54                   |  | 5.48                 |  | 42.45                  |  | 35.50 |  | 7.48  |  | 6.28  
|2007                         |  |                        |  |                      |  |                        |  |       |  |       |  |       
|January                      |  | 7.78                   |  | 6.28                 |  | 49.31                  |  | 40.03 |  | 8.61  |  | 7.07  
|February                     |  | 8.45                   |  | 6.77                 |  | 53.42                  |  | 43.18 |  | 9.95  |  | 7.71  
|March                        |  | 7.56                   |  | 6.52                 |  | 48.61                  |  | 41.44 |  | 9.70  |  | 8.36  
|April                        |  | 8.35                   |  | 7.57                 |  | 52.76                  |  | 48.63 |  | 12.32 |  | 9.23  
|May                          |  | 10.54                  |  | 8.06                 |  | 66.03                  |  | 51.22 |  | 17.29 |  | 11.75 
|June (through June 22, 2007) |  | 12.08                  |  | 10.00                |  | 74.83                  |  | 63.60 |  | 16.23 |  | 11.500

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 of 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 which held non-tradable shares of the Company, paid a consideration of 2.5
non-tradable shares for every ten 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 held by Yankuang Group. The
non-tradable shares held by Yankuang Group were granted the right to list and trade on the Shanghai Stock Exchange on the undertaking from Yankuang Group that the original non-tradable Shares 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.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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As of December 31, 2006, a total of 1,958,400,000 H Shares were outstanding, 273,058,950 shares of
which, representing 13.9% of the outstanding H Shares, were held in the form of ADSs (a total of 5,461,179 ADSs). The outstanding ADSs were held by 13 holders of record on May 31, 2007.

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 on the exchanges where our securities are listed, please see Item A  Offer and Listing Details.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of
Association

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. The following is a summary of the dates when the Articles of Association were amended and filed with the Commission:



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|                                                 |  |                      
|------------------------------------------------ |  | ---------------------
|Date of amendment of the Articles of Association |  | Method of filing     
|April 22, 2002                                   |  | Appendix to 2001 20-F
|June 25, 2004                                    |  | Appendix to 2003 20-F
|July 8, 2004                                     |  | Appendix to 2004 20-F
|June 28, 2005                                    |  |                      
|August 22, 2005                                  |  | Appendix to 2005 20-F
|June 28, 2006                                    |  |                      
|November 10, 2006                                |  | Appendix to this 20-F

During the reporting period of this Annual Report, we made amendments to our Articles of
Association on June 28, 2006 and November 10, 2006 respectively. Certain amendments to our Articles of Association were resolved at our general meeting on June 15, 2007. However, the amendments made on June 15, 2007 have not been
approved by the relevant authorities and have not taken effect as of the date of this Annual Report.

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 September 24, 1997, as evidenced by approval document Ti Gai Sheng (1997) no.
154 of 1997. We were registered with and have obtained a business license from 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; production and sale of coal residual stones as construction material products..

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:



| | (i) | 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;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | 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;
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (iii) | 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 recommendations are not accepted or the above powers cannot 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:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 1. | 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;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | A single investment more than 5% and below 25% of our Companys latest audited net asset value;
| | -- | -----------------------------------------------------------------------------------------------



| | 3. | 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;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | 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;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------



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| | (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 of December 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.

Our ordinary shareholders shall enjoy the following rights:



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



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



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



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



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



| | (vi) | in the event of our termination or liquidation, the right to participate in the distribution of our surplus assets in accordance with the number of shares held;
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | (viii) | 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.



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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:



| | (i) | where the number of Directors is less than the number stipulated in the Company Law or two-thirds of the number specified in our Articles of Association;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | (iii) | where shareholder(s) singly or jointly holding 10% or more of our issued and outstanding voting shares request(s) in writing for the convening of an extraordinary general meeting;
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | whenever the Board of Directors deems necessary or the supervisory committee so requests;
| | ---- | -----------------------------------------------------------------------------------------



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



| | (vi) | whenever more than a half of the independent Directors so request.
| | ---- | ------------------------------------------------------------------

When we convene a shareholders general meeting, written notice of the meeting shall be given 45 days before the date of the meeting (when calculating the 45 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 meeting, a shareholder singly or shareholders jointly holding 5%
or more of the voting shares of the Company may propose new motions in writing, and we shall include in the agenda those motions which are within the authority of the shareholders general meeting.

When we convene a shareholders general meeting, the Board of Directors, the supervisory committee and shareholder(s) individually and jointly
holding more than 5% of our shares have the right to propose resolutions to the Company. Shareholder(s) individually and jointly holding more than 5% of our shares may propose special resolutions in writing to the convenor 20 days before the
shareholders general meeting is convened. The convenor shall issue a supplementary notice of the general meeting within two days after receiving the resolutions to announce the contents of the resolutions. Apart from the above, no amendment to
the resolutions as set out in the notice of general meeting or proposal of new resolutions shall be made after the convenor has issued the notice of general meeting. The resolutions not set out in the notice of general meeting or 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



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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 only be traded by investors of Taiwan, Hong Kong, Macau and any country other than the PRC, while A Shares may be traded only
by PRC investors and qualified foreign institutional investors (QFII). The state-owned Legal Person Shares are not transferable without the approval of the PRC Government.

Restrictions on Transferability and the Share Register.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.

Repurchase of Shares

We may, in accordance with the procedures set out in these Articles of Association and with the
approval of the relevant governing authority of the State, repurchase our issued shares under the following circumstances:



| | (i) | cancellation of shares for the purposes of reducing its capital;
| | --- | ----------------------------------------------------------------



| | (ii) | merging with another company that holds shares in our Company;
| | ---- | --------------------------------------------------------------



| | (iii) | granting the shares as incentives to our Companys staff;
| | ----- | ---------------------------------------------------------



| | (iv) | shareholders who disagree with the resolutions for the merger and separation of our Company made in a general meeting may demand our Company to purchase their shares;
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | other circumstances permitted by laws and administrative regulations.
| | --- | ---------------------------------------------------------------------

We shall not repurchase its issued shares except under the circumstances stated above.



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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 any 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. It shall do so in accordance with the Company Law, any other
relevant regulatory provisions and these Articles of Association.

C. Material Contracts

Approval of New Continuing 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 continuing connected transactions and the actual operations of us
and the Controlling Shareholder, we completed the necessary review procedures for our continuing connected transactions as required by law and entered into six new continuing connected transaction agreements (New Continuing Connected
Transaction Agreements), including the materials and water supply agreement, electricity supply agreement, labor and service agreement, equipment maintenance and repair works agreement, products and materials agreement and administrative
service for pension fund and retirement benefits agreement, with the Controlling Shareholder in the first quarter of 2006. We also determined the annual caps for each New Continuing Connected Transaction Agreements for 2006 to 2008.

In accordance with the various listing rules, the New Continuing Connected Transaction Agreements and the Annual Caps obtained approval from the board
meeting held on January 6, 2006, and the shareholders meeting held on March 24, 2006. The term for each of the New Continuing 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 Yankuang Group have been terminated. The New Continuing Connected Transaction Agreements are filed
with this Annual Report as Exhibit 4.1.



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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



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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 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



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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 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;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | banks, financial institutions, and insurance companies;
| | - |  | -------------------------------------------------------



| |  |  | real estate investment trusts, regulated investment companies, and grantor trusts;
| | - |  | ----------------------------------------------------------------------------------



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



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



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



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



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



| |  |  | certain U.S. expatriates; or
| | - |  | ----------------------------



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

Moreover, this description does not address United States federal estate 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.



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You are a U.S. holder if you are a beneficial owners of H Shares or ADSs and are:



| |  |  | an individual citizen or resident of the United States for United States federal income tax purposes;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | a corporation or other entity treated as a corporation for United States federal income tax purposes created or organized under the laws of the United States or any
political subdivision thereof;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.

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, 2011 with respect to the H Shares or ADSs will be subject to taxation at a maximum rate of 15% if the dividends are qualified dividends. Dividends paid on H Shares or ADSs will be treated as qualified dividends if
either (i) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service, or IRS, has approved for the purposes of the qualified dividend rules, or (ii) the dividends are
with respect to ADSs readily tradable on a U.S. securities market, provided that we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a PFIC. 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 (the Treaty) has been approved
for the purposes of the qualified dividend rules, and we expect to qualify for benefits under the Treaty. 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 2006 taxable year. In addition, based on our



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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 2007 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 ordinary income or loss from U.S. sources.

Subject to various limitations, any Chinese tax withheld from distributions in accordance with the Treaty 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
other U.S. holders, financial services income for taxable years ending on or before December 31, 2006. With respect to taxable years beginning after December 31, 2006, the foreign tax credit limitation categories will be
limited to passive category income and general category income. To the extent dividends are qualifying dividend income, in computing foreign tax credit limitations, individuals, trusts and estates must take into account
the gross amount of the dividend multiplied by a fraction, the numerator of which is the special reduced rate described above, and the denominator of which is the highest ordinary income rate. Whether this partial exclusion will affect your ability
to claim a foreign tax credit for the full amount of any Chinese tax withheld will depend on your particular circumstances. Each such recipient should consult its own tax adviser concerning the foreign tax credit limitation implications of the
receipt of a qualifying dividend.

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 and as a result of the U.S. foreign tax credit
limitation, foreign taxes, if any, imposed upon capital gains in respect of H Shares or ADSs may not be currently creditable. 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 significant 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, royalties, and gains from the sale of assets that give rise to such
income; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

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 in the H Shares 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.



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G. Statement by Experts

Not applicable.

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

As of March 31, 2007, we own the following subsidiaries:



|                   |  |                                                    |  |                                                  |             |                                                                        |       |   |                               |       |   |                      |       |   |  |                                                                                     
|------------------ |  | -------------------------------------------------- |  | ------------------------------------------------ | ----------- | ---------------------------------------------------------------------- | ----- | - | ----------------------------- | ----- | - | -------------------- | ----- | - |  | ------------------------------------------------------------------------------------
|Name of Subsidiary |  | Country ofincorporation/ registrationand operation |  | Issued and fully paid capital/registered capital |             | Proportion of registeredcapital/issued sharecapital held by theCompany |       |   | Proportion of votingpowerheld |       |   | Principal activities
|                   |  |                                                    |  |                                                  |             | Directly                                                               |       |   | Indirectly                    |       |   |                      |       |   | 
|Heze Nenghua       |  | PRC                                                |  | RMB                                              | 600,000,000 |                                                                        | 95.67 | % |                               |      |   |                      | 95.67 | % |  | Development of ancillary projects                                                   
|Yancoal Australia  |  | Australia                                          |  | AUD                                              | 64,000,000  |                                                                        | 100   | % |                               |      |   |                      | 100   | % |  | Investment holding                                                                  
|Austar             |  | Australia                                          |  | AUD                                              | 64,000,000  |                                                                        |      |   |                               | 100   | % |                      | 100   | % |  | Coal mining business                                                                
|Yanmei Shipping    |  | PRC                                                |  | RMB                                              | 5,500,000   |                                                                        | 92    | % |                               |      |   |                      | 92    | % |  | Transportation via rivers and lakes and the sales of coal and construction materials
|Yulin Nenghua      |  | PRC                                                |  | RMB                                              | 800,000,000 |                                                                        | 97    | % |                               |      |   |                      | 97    | % |  | Development of 600,000 tonnes Methanol Project                                      
|Zhongyan Trading   |  | PRC                                                |  | RMB                                              | 2,100,000   |                                                                        | 52.38 | % |                               |      |   |                      | 52.38 | % |  | Trading and processing of mining machinery                                          
|Shanxi Nenghua     |  | PRC                                                |  | RMB                                              | 600,000,000 |                                                                        | 100   | % |                               |      |   |                      | 100   | % |  | Investment holding                                                                  
|Shanxi Tianchi     |  | PRC                                                |  | RMB                                              | 90,000,000  |                                                                        |      |   |                               | 81.31 | % |                      | 81.31 | % |  | Coal mining business                                                                
|Shanxi Tianhao     |  | PRC                                                |  | RMB                                              | 150,000,000 |                                                                        |      |   |                               | 99.85 | % |                      | 99.85 | % |  | Development of methanol project                                                     

In 2006, we acquired a 98% equity interest in Shanxi Nenghua from Yankuang Group and in February
2007, we acquired the remaining 2% equity interest in Shanxi Nenghua from Lunan Fertilizer Plant, a subsidiary of Yankuang Group. As of December 31, 2006, the projects developed by Yulin Nenghua and Heze Nenghua had not yet officially commenced
operations.

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, 52.9% of our voting rights are vested in the Controlling Shareholder. 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



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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.

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 Manual Requirements on Corporate Governance                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | 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 Business Conduct 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                                                                                                                                                                                                                                                                              |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 



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| |  |                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | NYSE Listed Company Manual Requirements on Corporate Governance                                                                                                                                                                                                                                                                                                                                   |  | Companys Practices                                                                                                                                                                   
| |  | 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. |  | 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.

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 risks 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.
On April 28 and August 25, 2006, the Peoples Bank of China (PBOC) adjusted interest rates twice, to 6.4% and 6.8%, respectively (the 2006 PBOC interest rate adjustments). 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. On August 25, 2006, we had already paid off the remaining amounts on the loan agreement.

On December 28, 2005, Shanxi Tianchi, a subsidiary of Shanxi Nenghua, entered into a long-term loan agreement with the Taiyuan branch of China
Minsheng Bank, for an amount of RMB160 million. The initial interest rate of the loans was 5.9% per annum but was subject to the 2006 PBOC interest rate adjustments. The loan will be repayable by three installments over a period of three years,
with the first installment due in December 22, 2007. the first two installments are for amounts of RMB50 million each, and the third installment is RMB60 million. Interest is calculated on a monthly basis.

Shanxi Tianchi, a subsidiary of Shanxi Nenghua, entered into a long-term loan agreement with the State Development Bank on February 13, 2006, and
borrowed a total of RMB220 million on February 20, 2006. The initial interest rate of the loans was 6.1% per annum and is subject to adjustment based on the interest rate stipulated by the PBOC. The 2006 PBOC interest rate adjustments did
not affect the interest payable on the loan for the year 2006. From May 20, 2008, the principal for the loan becomes payable in 20 installments over a period of 117 months, with each installment amounting to RMB11 million. Interest is
calculated by the quarter.



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We have prepared a sensitivity analysis to assess the impact of interest rate fluctuations on our 2006
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 our equity holders for 2006 by approximately RMB39.7 million.

Foreign Currency Exchange Rate Risk.China adopts a managed floating exchange rate regime based on market supply and demand with reference to a
basket of currencies.

Impact of RMB fluctuations on our Company is mainly reflected in (a) income from coal export after conversion
into RMB since coal exports of our Company are calculated in US dollar; (b) conversion loss of foreign currency deposit; and (c) our Companys import costs of equipment and fittings.

Our Company has no plans to make hedging arrangements for the exchange rates of RMB to foreign currencies.

As of December 31, 2006, we had RMB4,624.3 million, U.S.$102.7 million, EUR6.7million, AUD11.4 million, HK$455.4 million and £ 0.2 million.
Most of our sales are domestic and as such we have a limited amount of foreign currency denominated accounts receivable. In 2006, our sales of exported coal products amounted to RMB3,086.5 million. Our export sales agents exchange 30% of the export
sales proceeds from foreign currency to RMB and remit RMB and foreign currency to us.

We have prepared a sensitivity analysis to assess
the impact of exchange rate fluctuation on our 2006 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 our equity
holders for 2006 by approximately RMB300.7 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 RMB272.5 in 2004, RMB349.5 in 2005 and RMB341.77 in 2006. As certain portions 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.

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, 2006, 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

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our General Manager and Chief Financial Officer, our management conducted an evaluation of the
effectiveness of our Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act)), as of December 31, 2006.
Based on our managements evaluation, our General Manager and Chief Financial Officer concluded that, as of December 31, 2006, our Companys disclosure controls and procedures were not effective due to the identification of a material
weakness in our internal control over financial reporting described below.

Managements Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act and have designed internal control over financial reporting or caused internal control over financial reporting to be designed under its supervision in order to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, as applicable.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override
of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. In addition, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are
subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision of and with the participation of our General Manager and our Chief Financial Officer, our management conducted its evaluation of
the effectiveness of our Companys internal control over financial reporting as of December 31, 2006 using the criteria in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on that evaluation, our management concluded that, as of December 31, 2006, our Companys internal control over financial reporting was not effective due to the material weakness described below.

We have excluded Yankuang Shanxi Power Chemical Co., Ltd. (Shanxi Nenghua) from our assessment of internal control over financial reporting
as of December 31, 2006 because the entity was acquired in November 2006 and qualified under the current United States Securities and Exchange Commission regulations for exclusion from our assessment of internal control over financial
reporting. The entity is a subsidiary of our Company and its financials statements constitute 3.1% and 5.1% of net and total assets, respectively, 0.2% of revenues, and -0.3% of net income of our consolidated financial statements amounts as of and
for the year ended December 31, 2006.



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A material weakness is a significant deficiency, or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. In its assessment of the effectiveness of internal control over financial reporting as of December 31, 2006, our
management identified the following material weakness:

A number of audit adjustments and additional disclosures have been made to our
Companys 2006 consolidated financial statements, principally including the adjustment to property, plant and equipment from construction in progress, for timely transfer of completed construction projects in two subsidiaries and one of our
Companys coal mines, the adjustment to construction in progress for the unqualified expenditures being capitalised and recorded in two subsidiaries, the adjustment to income tax expense for the provision of tax liabilities for the year, and
the reclassifications between certain short-term and long-term assets and liabilities. Management has determined that these adjustments and reclassifications have resulted from the control deficiency that there are inadequate accounting and finance
personnel or consultants sufficiently trained to address certain of the major transactions and complex accounting and financial reporting matters that arise from time-to-time and this control deficiency constitutes a material weakness.

Our independent registered public accounting firm, Deloitte Touche Tohmatsu, has audited the financial statements included in this Annual Report and
has issued an attestation report on pages F-2 to F-3 of this Annual Report on managements assessment of our Companys internal control over financial reporting as of December 31, 2006.

Managements Plan for Remediation of Material Weakness

In light of the conclusion that our Companys internal control over financial reporting was not effective, our management has developed a plan intended to remediate such ineffectiveness and to strengthen our internal control over
financial reporting through the implementation of certain remedial measures, which include:



| | (1) | enhancing our IFRS and U.S. GAAP training program for the accounting and finance personnel or consultants of our Company and of our subsidiaries and recruiting additional
professional personnel; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | engaging third-party accounting professionals to provide IFRS and U.S. GAAP consulting services and conduct timely check and evaluation.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------

Changes in Internal Control over Financial Reporting

During the reporting period covered by this Annual Report, no change was made to our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our audit committee members are Mr. Cui Jianming,
Mr. Pu Hongjiu, Mr. Wang Xiaojun, Mr. Wang Quanxi, Mr. Chen Changchun and Mr. Dong Yunqing. Mr. Cui Jianming, who is a financial expert, serves 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.

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.



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ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

For the year 2006, the Company has retained Deloitte
Touche Tohmatsu (Certified Public Accountants in Hong Kong) and Deloitte Touche Tohmatsu Certified Public Accountants Ltd. (Certified Public Accountants in the PRC (excluding Hong Kong)) as its international and domestic auditors, respectively. In
2006, the Company has paid an annual financial audit, review and other related services fee of HKD12 million, which covering the services of auditing our consolidated financial statements of the year 2006, reviewing our Companys adjusted
statement differences of consolidated shareholders equity in accordance with the new PRC accounting standards and the old standards and audit of internal controls over financial reporting required by Sarbanes-Oxley Act, and paid RMB0.3 million
as audit fee for acquisition of Shanxi Nenghua. Save as disclosed above, the auditors did not provide any other nonauditing services to the Company in 2006.

In 2005 the Company paid HK$7 million for annual financial audits, review and other related services; and paid RMB0.4 million for related auditing fees in relation to the acquisition of Heze Nenghua. There have not
been other fees.

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 2006, all of the audit services provided by Deloitte Touche Tohmatsu were
pre-approved by our audit committee.

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

Our audit committee consists of
four independent non-executive directors, 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.06 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 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.



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

Not applicable.

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-68 for year-end financial
statements.

ITEM 19. EXHIBITS

Documents filed as exhibits to this Annual Report:



|               |  |             |  |                                                                                                                                                       
|-------------- |  | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description
|1.1            |  | -           |  | Amended Articles of Association of Yanzhou Coal Mining Company Limited as approved by the Shareholders on November 11, 2006 (English translation)     
|               |  |            
|4.1            |  | -           |  | The New Continuing Connected Transaction Agreements (Incorporated by reference to Exhibit 4.4 to Registrants Form 20-F dated June 29, 2006)          
|               |  |            
|8.1            |  | -           |  | List of subsidiaries of Yanzhou Coal Mining Company Limited                                                                                           
|               |  |            
|12.1           |  | -           |  | Certification of general manager 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 general manager pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002        
|               |  |            
|13.2           |  | -           |  | Certification of chief financial officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002
|               |  |            
|14.1           |  | -           |  | Revised Independent Technical Review and Resource and Reserve Assessment in respect of Zhaolou Coal Mine and Tianchi Coal Mine Coal                   
|               |  |            
|15.1           |  | -           |  | Circular to the shareholder regarding the acquisition of equity interest in Shanxi NengHua                                                            
|               |  |            
|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, 2007 |  | By:                                 |  | /s/ YANG Deyu  
|                   |  | Name:                               |  | YANG Deyu      
|                   |  | Title:                              |  | General Manager



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2006, 2005 AND 2004

AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



|                                                        |  |          
|------------------------------------------------------- |  | ---------
|CONTENTS                                                |  | PAGE(S)  
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |  | F-1      
|                                                        | 
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |  | F-2F-3  
|                                                        | 
|CONSOLIDATED STATEMENT OF INCOME                        |  | F-4      
|                                                        | 
|CONSOLIDATED BALANCE SHEET                              |  | F-5      
|                                                        | 
|CONSOLIDATED STATEMENT OF CHANGES IN EQUITY             |  | F-6      
|                                                        | 
|CONSOLIDATED STATEMENT OF CASH FLOWS                    |  | F-7F-8  
|                                                        | 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS          |  | F-9 F-68



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS 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 subsidiaries (the Company) as of December 31,
2006 and 2005, and the related consolidated statements of income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2006, all expressed in Renminbi. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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 audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits 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
subsidiaries at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, 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, 2006 and the determination of shareholders equity and financial position at
December 31, 2006 and 2005, to the extent summarized in note 46.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Companys internal control over financial reporting as of December 31, 2006, based on Internal Control  Integrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated June 22, 2007 expressed an unqualified opinion on managements assessment of the effectiveness of the Companys internal control over financial
reporting and an adverse opinion on the effectiveness of the Companys internal control over financial reporting because of a material weakness.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

June 22, 2007



F-1



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS 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 managements assessment, included in the accompanying Managements Report on Internal Control over Financial Reporting disclosed in Item 15
of the Form 20-F, that Yanzhou Coal Mining Company Limited and its subsidiaries (the Company) did not maintain effective internal control over financial reporting as of December 31, 2006, because of the effects of the material
weakness identified in managements assessment, based on criteria established in Internal Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As described
in Managements Report on Internal Control over Financial Reporting disclosed in Item 15 of the Form 20-F, management excluded from its assessment the internal control over financial reporting at Yankuang Shanxi Power Chemical Co., Ltd.,
which was acquired in November 2006 and whose financial statements constitute 3.1% and 5.1% of net and total assets, respectively, 0.2% of revenues, and -0.3% of net income of the consolidated financial statement amounts as of and for the year ended
December 31, 2006. Accordingly, our audit did not include the internal control over financial reporting at Yankuang Shanxi Power Chemical Co., Ltd. The Companys management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Companys
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A companys internal control over
financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood
that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in managements assessment:

A number of audit adjustments and additional disclosures have been made to the Companys 2006 consolidated financial statements, principally
including the adjustment to property, plant and equipment from construction in progress, for timely transfer of completed construction projects in two subsidiaries and one of the Companys coal mines, the adjustment to construction in progress
for the unqualified expenditures being capitalised and recorded in two subsidiaries, the adjustment to income tax expense for the provision of tax liabilities for the year, and the reclassifications between certain short-term and long-term assets
and liabilities. Management has determined that these adjustments and reclassifications have resulted from the control deficiency that there are inadequate accounting and finance personnel or consultants sufficiently trained to address certain of
the major transactions and complex accounting and financial reporting matters that arise from time-to-time and this control deficiency constitutes a material weakness.



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our
audit of the consolidated financial statements as of and for the year ended December 31, 2006, of the Company and this report does not affect our report dated June 22, 2007 on such financial statements.

In our opinion, managements assessment that the Company did not maintain effective internal control over financial reporting as of December 31, 2006, is
fairly stated, in all material respects, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion,
because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2006, based on
the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We do not express an opinion or any other form of assurance on managements statements regarding corrective actions taken by the Company after December 31, 2006.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2006, of the Company and our report dated June 22, 2007 expressed an unqualified opinion on those consolidated financial statements.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

June 22, 2007



F-3



---

##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



CONSOLIDATED STATEMENT OF INCOME



|                                             |  |                         |  |            |   |  |            |   |  |            |  
|-------------------------------------------- |  | ----------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
|                                             |  | Year ended December 31, | 
|                                             |  | NOTES                   |  | 2006       |   |  | 2005       |   |  | 2004       |  
|                                             |  |                         |  | RMB000    |   |  | RMB000    |   |  | RMB000    |  
|GROSS SALES OF COAL                          |  | 7                       |  | 12,783,567 |   |  | 12,283,588 |   |  | 11,757,052 |  
|RAILWAY TRANSPORTATION SERVICE INCOME        |  |                         |  | 160,399    |   |  | 163,437    |   |  | 220,771    |  
|                                             |  |                         |  |            |   |  |            |   |  |            |  
|TOTAL REVENUE                                |  |                         |  | 12,943,966 |   |  | 12,447,025 |   |  | 11,977,823 |  
|TRANSPORTATION COSTS OF COAL                 |  | 7                       |  | (936,619   | ) |  | (930,103   | ) |  | (1,402,715 | )
|COST OF SALES AND SERVICE PROVIDED           |  | 8                       |  | (6,190,069 | ) |  | (5,288,588 | ) |  | (4,551,703 | )
|                                             |  |                         |  |            |   |  |            |   |  |            |  
|GROSS PROFIT                                 |  |                         |  | 5,817,278  |   |  | 6,228,334  |   |  | 6,023,405  |  
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |  | 9                       |  | (2,230,142 | ) |  | (1,918,788 | ) |  | (1,479,863 | )
|OTHER INCOME                                 |  | 10                      |  | 165,837    |   |  | 135,038    |   |  | 165,732    |  
|INTEREST EXPENSE                             |  | 11                      |  | (26,349    | ) |  | (24,611    | ) |  | (35,942    | )
|                                             |  |                         |  |            |   |  |            |   |  |            |  
|PROFIT BEFORE INCOME TAXES                   |  |                         |  | 3,726,624  |   |  | 4,419,973  |   |  | 4,673,332  |  
|INCOME TAXES                                 |  | 12                      |  | (1,354,656 | ) |  | (1,538,036 | ) |  | (1,518,762 | )
|                                             |  |                         |  |            |   |  |            |   |  |            |  
|PROFIT FOR THE YEAR                          |  | 13                      |  | 2,371,968  |   |  | 2,881,937  |   |  | 3,154,570  |  
|                                             |  |                         |  |            |   |  |            |   |  |            |  
|Attributable to:                             |  |                         |  |            |   |  |            |   |  |            |  
|Equity holders of the Company                |  |                         |  | 2,372,985  |   |  | 2,881,461  |   |  | 3,154,317  |  
|Minority interests                           |  |                         |  | (1,017     | ) |  | 476        |   |  | 253        |  
|                                             |  |                         |  |            |   |  |            |   |  |            |  
|                                             |  |                         |  | 2,371,968  |   |  | 2,881,937  |   |  | 3,154,570  |  
|                                             |  |                         |  |            |   |  |            |   |  |            |  
|APPROPRIATIONS TO RESERVES                   |  |                         |  | 566,728    |   |  | 755,530    |   |  | 737,782    |  
|                                             |  |                         |  |            |   |  |            |   |  |            |  
|DIVIDEND RECOGNIZED AS DISTRIBUTION          |  |                         |  |            |   |  |            |   |  |            |  
|DURING THE YEAR                              |  | 15                      |  | 1,082,048  |   |  | 799,240    |   |  | 470,680    |  
|                                             |  |                         |  |            |   |  |            |   |  |            |  
|EARNINGS PER SHARE, BASIC                    |  | 16                      |  | RMB0.48    |   |  | RMB0.59    |   |  | RMB0.66    |  
|                                             |  |                         |  |            |   |  |            |   |  |            |  
|EARNINGS PER ADS, BASIC                      |  | 16                      |  | RMB24.12   |   |  | RMB29.29   |   |  | RMB33.25   |  
|                                             |  |                         |  |            |   |  |            |   |  |            |  



F-4



---

##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



CONSOLIDATED BALANCE SHEET



|                                                                                    |  |                 |  |            |  |           
|----------------------------------------------------------------------------------- |  | --------------- |  | ---------- |  | ----------
|                                                                                    |  | At December 31,
|                                                                                    |  |                 |  | 2006       |  | 2005      
|                                                                                    |  | NOTES           |  | RMB000    |  | RMB000   
|ASSETS                                                                              |  |                 |  |            |  |           
|CURRENT ASSETS                                                                      |  |                 |  |            |  |           
|Bank balances and cash                                                              |  | 17              |  | 4,715,945  |  | 5,885,581 
|Term deposits                                                                       |  | 17              |  | 1,194,531  |  | 1,326,335 
|Restricted cash                                                                     |  | 17              |  | 68,562     |  | 30,505    
|Bills and accounts receivable                                                       |  | 18              |  | 2,211,909  |  | 2,224,836 
|Inventories                                                                         |  | 19              |  | 579,561    |  | 470,501   
|Other loans receivable                                                              |  | 20              |  | 640,000    |  | 640,000   
|Prepayments and other current assets                                                |  | 21              |  | 231,505    |  | 202,417   
|Prepaid lease payments                                                              |  | 22              |  | 13,746     |  | 13,465    
|Prepayment for resources compensation fees                                          |  | 23              |  | 3,240      |  |          
|Prepayment for land subsidence, restoration, rehabilitation and environmental costs |  | 32              |  | 212,912    |  | 157,511   
|                                                                                    |  |                 |  |            |  |           
|TOTAL CURRENT ASSETS                                                                |  |                 |  | 9,871,911  |  | 10,951,151
|                                                                                    |  |                 | 
|MINING RIGHTS                                                                       |  | 24              |  | 307,909    |  | 153,265   
|PREPAID LEASE PAYMENTS                                                              |  | 22              |  | 578,988    |  | 579,773   
|PREPAYMENT FOR RESOURCES COMPENSATION FEES                                          |  | 23              |  | 21,827     |  |          
|PROPERTY, PLANT AND EQUIPMENT                                                       |  | 25              |  | 12,139,939 |  | 9,318,486 
|GOODWILL                                                                            |  | 26              |  | 295,584    |  | 153,037   
|INVESTMENTS IN SECURITIES                                                           |  | 27              |  | 96,142     |  | 62,181    
|RESTRICTED CASH                                                                     |  | 17              |  | 49,023     |  | 36,551    
|DEPOSIT MADE ON INVESTMENT                                                          |  | 28              |  | 97,426     |  |          
|                                                                                    |  |                 |  |            |  |           
|TOTAL ASSETS                                                                        |  |                 |  | 23,458,749 |  | 21,254,444
|                                                                                    |  |                 |  |            |  |           
|LIABILITIES AND SHAREHOLDERS EQUITY                                                |  |                 |  |            |  |           
|                                                                                    |  |                 | 
|CURRENT LIABILITIES                                                                 |  |                 |  |            |  |           
|Bills and accounts payable                                                          |  | 30              |  | 745,685    |  | 497,660   
|Other payables and accrued expenses                                                 |  | 31              |  | 1,899,684  |  | 1,575,869 
|Amounts due to Parent Company and its subsidiary companies                          |  | 38              |  | 982,347    |  | 508,254   
|Unsecured bank borrowings - due within one year                                     |  | 33              |  | 50,000     |  | 200,000   
|Taxes payable                                                                       |  |                 |  | 150,332    |  | 647,247   
|                                                                                    |  |                 |  |            |  |           
|TOTAL CURRENT LIABILITIES                                                           |  |                 |  | 3,828,048  |  | 3,429,030 
|                                                                                    |  |                 | 
|AMOUNTS DUE TO PARENT COMPANY AND ITS                                               |  |                 |  |            |  |           
|SUBSIDIARY COMPANIES - DUE AFTER ONE YEAR                                           |  | 38              |  | 23,138     |  | 31,827    
|UNSECURED BANK BORROWINGS - DUE AFTER ONE YEAR                                      |  | 33              |  | 330,000    |  |          
|DEFERRED TAX LIABILITY                                                              |  | 29              |  | 283,823    |  | 146,279   
|                                                                                    |  |                 |  |            |  |           
|                                                                                    |  |                 | 
|TOTAL LIABILITIES                                                                   |  |                 |  | 4,465,009  |  | 3,607,136 
|                                                                                    |  |                 | 
|COMMITMENTS                                                                         |  | 39              |  |            |  |           
|                                                                                    |  |                 | 
|CAPITAL AND RESERVES                                                                |  |                 |  |            |  |           
|SHARE CAPITAL                                                                       |  | 34              |  | 4,918,400  |  | 4,918,400 
|RESERVES                                                                            |  |                 |  | 14,013,379 |  | 12,700,177
|                                                                                    |  |                 |  |            |  |           
|                                                                                    |  |                 | 
|EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY                                |  |                 |  | 18,931,779 |  | 17,618,577
|MINORITY INTEREST                                                                   |  |                 |  | 61,961     |  | 28,731    
|                                                                                    |  |                 |  |            |  |           
|                                                                                    |  |                 | 
|TOTAL EQUITY                                                                        |  |                 |  | 18,993,740 |  | 17,647,308
|                                                                                    |  |                 |  |            |  |           
|                                                                                    |  |                 | 
|TOTAL LIABILITIES AND EQUITY                                                        |  |                 |  | 23,458,749 |  | 21,254,444
|                                                                                    |  |                 |  |            |  |           



F-5



---

##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



CONSOLIDATED STATEMENT OF CHANGES IN EQUITY



|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |   |  |                    |   |  |                              |   |  |                  |   |  |                                             |   |  |                  |   |  |            |  
|---------------------------------------------------------------------------------------------- |  | ------------ |  | ------------ | - |  | --------------------- |  | -------------------------- |  | -------------------------- | - |  | ------------------ | - |  | ---------------------------- | - |  | ---------------- | - |  | ------------------------------------------- | - |  | ---------------- | - |  | ---------- | -
|                                                                                               |  | Sharecapital |  | Sharepremium |   |  | Futuredevelopmentfund |  | Statutorycommonreservefund |  | Statutorycommonwelfarefund |   |  | Translationreserve |   |  | Investmentrevaluationreserve |   |  | Retainedearnings |   |  | Attributable toequity holdersof the Company |   |  | Minorityinterest |   |  | Total      |  
|                                                                                               |  | RMB000      |  | RMB000      |   |  | RMB000               |  | RMB000                    |  | RMB000                    |   |  | RMB000            |   |  | RMB000                      |   |  | RMB000          |   |  | RMB000                                     |   |  | RMB000          |   |  | RMB000    |  
|                                                                                               |  |              |  |              |   |  | (note 34)             |  | (note 34)                  |  | (note 34)                  |   |  |                    |   |  |                              |   |  |                  |   |  |                                             |   |  |                  |   |  |            |  
|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 |  
|Profit 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    | )
|Profit for the year                                                                            |  |             |  |             |   |  |                      |  |                           |  |                           |   |  |                   |   |  |                             |   |  | 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 |  
|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |   |  |                    |   |  |                              |   |  |                  |   |  |                                             |   |  |                  |   |  |            |  
|Balance at January 1, 2006                                                                     |  | 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 |  
|Gain on fair value change of available-for-sale investments                                    |  |             |  |             |   |  |                      |  |                           |  |                           |   |  |                   |   |  | 33,961                       |   |  |                 |   |  | 33,961                                      |   |  |                 |   |  | 33,961     |  
|Deferred taxes on fair value change of available-for-sale investments                          |  |             |  |             |   |  |                      |  |                           |  |                           |   |  |                   |   |  | (11,207                      | ) |  |                 |   |  | (11,207                                     | ) |  |                 |   |  | (11,207    | )
|Exchange difference arising on translation of foreign operations                               |  |             |  |             |   |  |                      |  |                           |  |                           |   |  | (489               | ) |  |                             |   |  |                 |   |  | (489                                        | ) |  |                 |   |  | (489       | )
|Net income recognized directly in equity                                                       |  |             |  |             |   |  |                      |  |                           |  |                           |   |  | (489               | ) |  | 22,754                       |   |  |                 |   |  | 22,265                                      |   |  |                 |   |  | 22,265     |  
|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |   |  |                    |   |  |                              |   |  |                  |   |  |                                             |   |  |                  |   |  |            |  
|Profit for the year                                                                            |  |             |  |             |   |  |                      |  |                           |  |                           |   |  |                   |   |  |                             |   |  | 2,372,985        |   |  | 2,372,985                                   |   |  | (1,017           | ) |  | 2,371,968  |  
|Total recognized income and expenses for the year                                              |  |             |  |             |   |  |                      |  |                           |  |                           |   |  | (489               | ) |  | 22,754                       |   |  | 2,372,985        |   |  | 2,395,250                                   |   |  | (1,017           | ) |  | 2,394,233  |  
|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |   |  |                    |   |  |                              |   |  |                  |   |  |                                             |   |  |                  |   |  |            |  
|Appropriations to reserves                                                                     |  |             |  |             |   |  | 390,907               |  | 175,821                    |  |                           |   |  |                   |   |  |                             |   |  | (566,728         | ) |  |                                            |   |  |                 |   |  |           |  
|Transfer                                                                                       |  |             |  |             |   |  |                      |  | 509,649                    |  | (509,649                   | ) |  |                   |   |  |                             |   |  |                 |   |  |                                            |   |  |                 |   |  |           |  
|Dividends                                                                                      |  |             |  |             |   |  |                      |  |                           |  |                           |   |  |                   |   |  |                             |   |  | (1,082,048       | ) |  | (1,082,048                                  | ) |  | (271             | ) |  | (1,082,319 | )
|Acquisition of a subsidiary                                                                    |  |             |  |             |   |  |                      |  |                           |  |                           |   |  |                   |   |  |                             |   |  |                 |   |  |                                            |   |  | 34,518           |   |  | 34,518     |  
|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |   |  |                    |   |  |                              |   |  |                  |   |  |                                             |   |  |                  |   |  |            |  
|Balance at December 31, 2006                                                                   |  | 4,918,400    |  | 2,981,002    |   |  | 2,218,574             |  | 1,704,611                  |  |                           |   |  | (15,505            | ) |  | 22,754                       |   |  | 7,101,943        |   |  | 18,931,779                                  |   |  | 61,961           |   |  | 18,993,740 |  
|                                                                                               |  |              |  |              |   |  |                       |  |                            |  |                            |   |  |                    |   |  |                              |   |  |                  |   |  |                                             |   |  |                  |   |  |            |  



F-6



---

##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



CONSOLIDATED STATEMENT OF CASH FLOWS



|                                                                                               |  |       |  |                         |   |  |            |   |  |           |  
|---------------------------------------------------------------------------------------------- |  | ----- |  | ----------------------- | - |  | ---------- | - |  | --------- | -
|                                                                                               |  |       |  | Year ended December 31, |  
|                                                                                               |  | NOTES |  | 2006                    |   |  | 2005       |   |  | 2004      |  
|                                                                                               |  |       |  | RMB000                 |   |  | RMB000    |   |  | RMB000   |  
|OPERATING ACTIVITIES                                                                           |  |       |  |                         |   |  |            |   |  |           |  
|                                                                                               |  |       |  |                        
|Profit before income taxes                                                                     |  |       |  | 3,726,624               |   |  | 4,419,973  |   |  | 4,673,332 |  
|Adjustments for:                                                                               |  |       |  |                         |   |  |            |   |  |           |  
|Finance costs                                                                                  |  |       |  | 26,349                  |   |  | 24,611     |   |  | 35,942    |  
|Interest income                                                                                |  |       |  | (94,372                 | ) |  | (91,715    | ) |  | (92,711   | )
|Dividend income                                                                                |  |       |  | (6,311                  | ) |  | (4,465     | ) |  | (4,465    | )
|Depreciation of property, plant and equipment                                                  |  |       |  | 1,061,976               |   |  | 952,096    |   |  | 958,667   |  
|Amortization of prepaid lease payments                                                         |  |       |  | 13,826                  |   |  | 13,171     |   |  | 13,194    |  
|Amortization of prepayment for resources compensation fees                                     |  |       |  | 320                     |   |  |           |   |  |          |  
|Amortization of goodwill                                                                       |  |       |  |                        |   |  |           |   |  | 15,773    |  
|Release of negative goodwill to income                                                         |  |       |  |                        |   |  |           |   |  | (27,620   | )
|Amortization of mining rights                                                                  |  |       |  | 12,069                  |   |  | 6,624      |   |  | 6,624     |  
|(Reversal of) impairment loss on accounts receivable and other receivables                     |  |       |  | (19,717                 | ) |  |           |   |  | 49,104    |  
|Loss on disposal of property, plant and equipment                                              |  |       |  | 73,531                  |   |  | 527        |   |  | 104,597   |  
|                                                                                               |  |       |  |                         |   |  |            |   |  |           |  
|Operating cash flows before movements in working capital                                       |  |       |  | 4,794,295               |   |  | 5,320,822  |   |  | 5,732,437 |  
|                                                                                               |  |       |  |                        
|Decrease (increase) in bills and accounts receivable                                           |  |       |  | 40,527                  |   |  | (1,001,048 | ) |  | (10,437   | )
|Decrease (increase) in inventories                                                             |  |       |  | (66,199                 | ) |  | 59,989     |   |  | 27,129    |  
|Increase in prepayment for land subsidence, restoration, rehabilitation and environmental cost |  |       |  | (55,401                 | ) |  | (53,377    | ) |  |          |  
|Decrease (increase) in prepayments and other current assets                                    |  |       |  | (10,805                 | ) |  | (17,261    | ) |  | 324,273   |  
|Decrease (increase) in amounts due from Parent Company and its subsidiary companies            |  |       |  |                        |   |  | 213,871    |   |  | (213,871  | )
|Increase in prepaid lease payments                                                             |  |       |  | (1,944                  | ) |  | (14,691    | ) |  |          |  
|Increase in bills and accounts payable                                                         |  |       |  | 235,899                 |   |  | 19,379     |   |  | 50,673    |  
|Increase (decrease) in other payables and accrued expenses                                     |  |       |  | 64,281                  |   |  | 157,421    |   |  | (15,118   | )
|Decrease in provision for land subsidence, restoration, rehabilitation and environmental costs |  |       |  |                        |   |  |           |   |  | (178,361  | )
|Increase (decrease) in amounts due to Parent Company and its subsidiary companies              |  |       |  | 471,464                 |   |  | 479,067    |   |  | (368,939  | )
|                                                                                               |  |       |  |                         |   |  |            |   |  |           |  
|Cash generated from operations                                                                 |  |       |  | 5,472,117               |   |  | 5,164,172  |   |  | 5,347,786 |  
|                                                                                               |  |       |  |                        
|Income taxes paid                                                                              |  |       |  | (1,782,465              | ) |  | (1,296,879 | ) |  | (992,424  | )
|Interest paid                                                                                  |  |       |  | (23,179                 | ) |  | (24,199    | ) |  | (34,157   | )
|Interest income received                                                                       |  |       |  | 94,372                  |   |  | 91,715     |   |  | 92,711    |  
|Dividend income received                                                                       |  |       |  | 6,311                   |   |  | 4,465      |   |  | 4,465     |  
|                                                                                               |  |       |  |                         |   |  |            |   |  |           |  
|NET CASH FROM OPERATING ACTIVITIES                                                             |  |       |  | 3,767,156               |   |  | 3,939,274  |   |  | 4,418,381 |  
|                                                                                               |  |       |  |                         |   |  |            |   |  |           |  



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



CONSOLIDATED STATEMENT OF CASH FLOWS



|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|------------------------------------------------------------------------------------------------------------------ |  | ----- |  | ----------------------- | - |  | ---------- | - |  | ---------- | -
|                                                                                                                   |  |       |  | Year ended December 31, |  
|                                                                                                                   |  | NOTES |  | 2006                    |   |  | 2005       |   |  | 2004       |  
|                                                                                                                   |  |       |  | RMB000                 |   |  | RMB000    |   |  | RMB000    |  
|INVESTING ACTIVITIES                                                                                               |  |       |  |                         |   |  |            |   |  |            |  
|                                                                                                                   |  |       |  |                        
|Decrease (increase) in term deposits                                                                               |  |       |  | 131,804                 |   |  | (1,326,335 | ) |  |           |  
|Purchase of property, plant and equipment                                                                          |  |       |  | (3,137,145              | ) |  | (1,315,431 | ) |  | (743,022   | )
|Decrease (increase) in other loans receivable                                                                      |  |       |  |                        |   |  | 210,000    |   |  | (750,000   | )
|Increase in restricted cash                                                                                        |  |       |  | (50,529                 | ) |  | (5,325     | ) |  | (44,210    | )
|Proceeds on disposal of property, plant and equipment                                                              |  |       |  | 14,165                  |   |  | 4,378      |   |  | 17,009     |  
|Acquisition of Shanxi Group                                                                                        |  | 35    |  | (444,204                | ) |  |           |   |  |           |  
|Acquisition of Heze                                                                                                |  | 36    |  |                        |   |  | 170,247    |   |  | (574,000   | )
|Acquisition of Southland                                                                                           |  | 37    |  | (18,544                 | ) |  |           |   |  | (136,302   | )
|Deposit made on investment                                                                                         |  |       |  | (97,426                 | ) |  |           |   |  |           |  
|Acquisition of mining rights in Southland                                                                          |  |       |  | (23,644                 | ) |  |           |   |  |           |  
|Acquisition of Railway Assets                                                                                      |  |       |  |                        |   |  |           |   |  | (40,000    | )
|Acquisition of investment in securities                                                                            |  |       |  |                        |   |  |           |   |  | (30,283    | )
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|NET CASH FLOW USED IN INVESTING ACTIVITIES                                                                         |  |       |  | (3,625,523              | ) |  | (2,262,466 | ) |  | (2,300,808 | )
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|FINANCING ACTIVITIES                                                                                               |  |       |  |                         |   |  |            |   |  |            |  
|Dividend paid                                                                                                      |  |       |  | (1,082,048              | ) |  | (799,240   | ) |  | (470,680   | )
|Repayments of bank borrowings                                                                                      |  |       |  | (200,000                | ) |  | (200,000   | ) |  | (200,000   | )
|Repayment to Parent Company and its subsidiary companies in respect of consideration for acquisition of Jining III |  |       |  | (9,230                  | ) |  | (9,802     | ) |  | (10,483    | )
|Dividend paid to a minority shareholder of a subsidiary                                                            |  |       |  | (271                    | ) |  | (237       | ) |  | (319       | )
|Issues of shares, net of share issue expenses                                                                      |  |       |  |                        |   |  |           |   |  | 1,756,875  |  
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|NET CASH FLOW (USED IN) FROM FINANCING ACTIVITIES                                                                  |  |       |  | (1,291,549              | ) |  | (1,009,279 | ) |  | 1,075,393  |  
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                                               |  |       |  | (1,149,916              | ) |  | 667,529    |   |  | 3,192,966  |  
|                                                                                                                   |  |       |  |                        
|CASH AND CASH EQUIVALENTS, AT JANUARY 1                                                                            |  |       |  | 5,885,581               |   |  | 5,216,738  |   |  | 2,023,772  |  
|                                                                                                                   |  |       |  |                        
|EFFECT OF FOREIGN EXCHANGE RATE CHANGES                                                                            |  |       |  | (19,720                 | ) |  | 1,314      |   |  |           |  
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  
|CASH AND CASH EQUIVALENTS, DECEMBER 31, REPRESENTED BY BANK BALANCES AND CASH                                      |  |       |  | 4,715,945               |   |  | 5,885,581  |   |  | 5,216,738  |  
|                                                                                                                   |  |       |  |                         |   |  |            |   |  |            |  



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



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

Organization and principal activities

Yanzhou Coal Mining Company Limited (the Company) is established as a joint stock company with limited liability in the
Peoples Republic of China (the PRC). The addresses of the registered office and principal place of business of the Company are disclosed in the introduction to the annual report.

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 gird. 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

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.

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 2005.

In 2006, the Company
acquired a 98% equity interest in Yankuang Shanxi Neng Hua Company Limited (Shanxi Neng Hua) and its subsidiaries (collectively referred as the Shanxi Group) from



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



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

the Parent Company at cash
consideration of RMB733,346,000. The principal activities of Shanxi Group are to invest in heat and electricity, manufacture and sale of mining machinery and engine products, coal mining and the development of integrated coal technology.

Shanxi Neng Hua is an investment holding company, which holds 81.31% equity interest in Shanxi Heshun Tianchi Energy Company Limited (Shanxi
Tianchi) and approximately 99.85% equity interest in Shanxi Tianhao Chemical Company Limited (Shanxi Tianhao). The principal activities of Shanxi Tianchi are to exploit and sale of coal from Tianchi Coal Mine, the principal asset
of Shanxi Tianchi. Shanxi Tianchi has completed the construction of Tianchi Coal Mine and commenced production by the end of 2006. Shanxi Tianhao is established to engage in the production of methanol and other chemical products, coke production,
exploration and sales. The construction of the methanol facilities by Shanxi Tianhao commenced in March 2006 and it has not yet commenced production as at December 31, 2006. Shanxi Group has no significant impact to the Groups results for
the year. In 2007, the Company further acquired the remaining 2% equity interest in Shanxi Neng Hua at cash consideration of RMB14,966,000.



|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 and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The consolidated financial statements are presented in Renminbi, which is also the functional currency of the Company.



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

In the current year, the Group has applied, for the first time, a number of new standards, amendments and interpretations (New IFRS) issued by the International Accounting Standards Board (the
IASB) and the International Financial Reporting Interpretations Committee (the IFRIC) of the IASB which are either effective for accounting periods beginning on or after December 1, 2005 or January 1, 2006. The adoption of the New IFRS
had no material effect on how the results for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

In 2005, the Group had adopted all of the new and revised standards and interpretations issued by the IASB and 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 had resulted in changes to the Groups accounting policies in the following areas that had
affected the amounts reported for the prior periods:



| |  |  | 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).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



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

The impacts of these changes in accounting policies are as follow:

IFRS 3, Business
Combinations

Goodwill

In accordance with the transitional rules of IFRS 3 Business Combinations, 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 year 2005. 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.

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.

Previously, under IAS 22
(superseded 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.

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



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



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



|                  |  |                                                                                                   
|----------------- |  | --------------------------------------------------------------------------------------------------
|IAS 1 (Amendment) |  | Presentation of Financial Statements: Capital Disclosures1                                        
|IFRS 7            |  | Financial Instruments: Disclosures1                                                               
|IFRS 8            |  | Operating Segments2                                                                               
|IFRIC 7           |  | Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies3
|IFRIC 8           |  | Scope of IFRS 24                                                                                  
|IFRIC 9           |  | Reassessment of Embedded Derivatives5                                                             
|IFRIC 10          |  | Interim Financial Reporting and Impairment6                                                       
|IFRIC 11          |  | IFRS 2 - Group and Treasury Share Transactions7                                                   
|IFRIC 12          |  | Service Concession Arrangements8                                                                  

---

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

|2 | Effective for annual periods
beginning on or after January 1, 2009.
|- | -------------------------------------------------------------------

|3 | Effective for annual periods
beginning on or after March 1, 2006.
|- | -----------------------------------------------------------------

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

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

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

|7 | Effective for annual periods
beginning on or after March 1, 2007.
|- | -----------------------------------------------------------------

|8 | Effective for annual periods
beginning on or after January 1, 2008.
|- | -------------------------------------------------------------------

The directors anticipate that adoption of these Standards and
Interpretations will have no material impact on the results and the financial position of the Group.



|4. | SIGNIFICANT ACCOUNTING POLICIES
|-- | -------------------------------

The consolidated
financial statements have been prepared on the historical cost basis except for financial instruments, which are stated at fair value. The principal accounting policies are set out below.

Basis of consolidation

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

The 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 their accounting policies into line with those used by other
members of the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Groups equity therein. Minority interests in the
net assets 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.

Business combination

The
acquisitions of subsidiaries and businesses is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and
equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquirees identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3 Business Combinations are recognized at their fair values at the acquisition date.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|4. | SIGNIFICANT ACCOUNTING POLICIES  continued
|-- | -------------------------------------------

Business combination - continued

Goodwill arising on acquisition is recognized as an asset and initially measured at cost,
being the excess of the cost of the business combination over the Groups interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Groups interest in the net
fair value of the acquirees identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized immediately in profit or loss.

The interest of minority shareholders in the acquiree is initially measured at the minoritys proportion of the net fair value of the assets,
liabilities and contingent liabilities recognized.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts 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 income from investments is recognized when the shareholders rights to receive payments have been established.

Mining rights

Mining rights 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 which approximates the date from which
they are available for use.

Prepaid lease payments

Prepaid lease payments represent 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 subsequent accumulated depreciation and accumulated impairment losses.

Depreciation is charged so as to write off
the cost of items of property, plant and equipment, other than construction in progress, over their estimated useful lives and after taking into account their estimated residual value, using the straight line method or units of production method.

Construction in progress represents property, plant and equipment in the course of construction for production or for its own use purposes.
Construction in progress is carried at cost less any recognized impairment loss. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these
assets, on the same basis as other property assets, commences when the assets are ready for their intended use.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|4. | SIGNIFICANT ACCOUNTING POLICIES  continued
|-- | -------------------------------------------

Property, plant and equipment - continued

Assets under construction are not depreciated until they are completed and are
ready for their intended use.

Any gain or loss arising on the disposal of an item of property, plant and equipment is determined as the
difference between the sales proceeds and the carrying amount of the asset and is recognized in the consolidated income statement.

Impairment other than goodwill

At each balance sheet date, the Group reviews the carrying amounts of its tangible 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 loss is 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 an 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 net fair value of the identifiable assets, liabilities and contingent
liabilities of the relevant subsidiary at the date of acquisition. Goodwill arising on an acquisition of a subsidiary for which the agreement date is on or after January 1, 2005, is initially recognized as an asset at cost and is subsequently
measured at cost less any accumulated impairment losses.

Previously capitalized goodwill arising on acquisitions after January 1, 2001
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 acquisition. Cash-generating units to which goodwill has been allocated are tested
for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to the unit first and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Any impairment is recognized immediately in the consolidated
income statement and is not subsequently reversed.

Goodwill arising on the acquisition of a subsidiary is presented separately in the
consolidated balance sheet.

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



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|4. | SIGNIFICANT ACCOUNTING POLICIES  continued
|-- | -------------------------------------------

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.

Taxation

Income tax expense
represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year.
Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The
Groups liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and 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.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|4. | SIGNIFICANT ACCOUNTING POLICIES - continued
|-- | -------------------------------------------

Research
and development - continued

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.

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.

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 recognized as a separate component of equity (the translation reserve). Such exchange differences are recognized in profit or loss in the period in which the foreign operation is
disposed of.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|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 when the employees render the services entitling them to the
contributions.

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 receivable, other loan receivable) are initially measured at fair value and subsequently measured at amortized cost using the effective interest 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. Impairment losses are reversed in subsequent periods when an increase in the assets recoverable amount can be related objectively to an event occurring after the
impairment was recognized, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

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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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|4. | SIGNIFICANT ACCOUNTING POLICIES - continued
|-- | -------------------------------------------

Financial
instruments - 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 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
initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest method.

Equity
instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.



|5. | KEY SOURCES OF ESTIMATION UNCERTAINTY
|-- | -------------------------------------

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. The useful lives are 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.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|5. | KEY SOURCES OF ESTIMATION UNCERTAINTY - continued
|-- | -------------------------------------------------

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, 2006, the carrying amount of
goodwill is RMB295,584,000.

Cash flow projections during the budget period for each of the above units are based on the budgeted revenue
and expected gross margins during the budget period and the same raw materials price inflation during the budget period. Expected cash inflows/outflows, which include budgeted sales, gross margin and raw material price inflation have been determined
based on past performance and managements expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the carrying amount of each of the above units to exceed the
recoverable amount of each of the above units



|6. | SEGMENT INFORMATION
|-- | -------------------

The Group is engaged primarily in the
coal mining business. The Group is also engaged in the coal railway transportation business. The Company does not currently have direct export rights in the PRC and all of its export sales is made through China National Coal Industry Import and
Export Corporation (National Coal Corporation), Minmetals Trading Co., Ltd. (Minmetals Trading) or Shanxi Coal Imp. & Exp. Group Corp. (Shanxi Coal Corporation). The final customer destination of the
Companys export sales is determined by the Company, National Coal Corporation, Minmetals Trading or Shanxi Coal Corporation. Certain of the Companys subsidiaries 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.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|6. | SEGMENT INFORMATION - continued
|-- | -------------------------------

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 ended December 31, 2006
|              |  | Coal mining                          |  | Coal railwaytransportation |  | Eliminations |   |  | Consolidated
|              |  | RMB000                              |  | RMB000                    |  | RMB000      |   |  | RMB000     
|GROSS REVENUE |  |                                      |  |                            |  |              |   |  |             
|External      |  | 12,783,567                           |  | 160,399                    |  |             |   |  | 12,943,966  
|Inter-segment |  |                                     |  | 206,770                    |  | (206,770     | ) |  |            
|              |  |                                      |  |                            |  |              |   |  |             
|Total         |  | 12,783,567                           |  | 367,169                    |  | (206,770     | ) |  | 12,943,966  
|              |  |                                      |  |                            |  |              |   |  |             

Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority.



|                               |  |                                      |  |                            |  |              |  |              |  
|------------------------------ |  | ------------------------------------ |  | -------------------------- |  | ------------ |  | ------------ | -
|                               |  | For the year ended December 31, 2006 | 
|                               |  | Coal mining                          |  | Coal railwaytransportation |  | Eliminations |  | Consolidated |  
|                               |  | RMB000                              |  | RMB000                    |  | RMB000      |  | RMB000      |  
|RESULT                         |  |                                      |  |                            |  |              |  |              |  
|Segment results                |  | 4,093,855                            |  | 8,664                      |  |             |  | 4,102,519    |  
|                               |  |                                      |  |                            |  |              |  |              |  
|Unallocated corporate expenses |  |                                      |  |                            |  |              |  | (461,760     | )
|Unallocated corporate income   |  |                                      |  |                            |  |              |  | 112,214      |  
|Interest expenses              |  |                                      |  |                            |  |              |  | (26,349      | )
|                               |  |                                      |  |                            |  |              |  |              |  
|Profit before income taxes     |  |                                      |  |                            |  |              |  | 3,726,624    |  
|Income taxes                   |  |                                      |  |                            |  |              |  | (1,354,656   | )
|                               |  |                                      |  |                            |  |              |  |              |  
|Profit for the year            |  |                                      |  |                            |  |              |  | 2,371,968    |  
|                               |  |                                      |  |                            |  |              |  |              |  

BALANCE SHEET



|                                  |  |                      |  |                            |  |             
|--------------------------------- |  | -------------------- |  | -------------------------- |  | ------------
|                                  |  | At December 31, 2006
|                                  |  | Coal mining          |  | Coal railwaytransportation |  | Consolidated
|                                  |  | RMB000              |  | RMB000                    |  | RMB000     
|ASSETS                            |  |                      |  |                            |  |             
|Segment assets                    |  | 15,272,657           |  | 933,987                    |  | 16,206,644  
|                                  |  |                      |  |                            |  |             
|Unallocated corporate assets      |  |                      |  |                            |  | 7,252,105   
|                                  |  |                      |  |                            |  |             
|                                  |  |                      |  |                            |  | 23,458,749  
|                                  |  |                      |  |                            |  |             
|LIABILITIES                       |  |                      |  |                            |  |             
|Segment liabilities               |  | 3,048,669            |  | 20,368                     |  | 3,069,037   
|                                  |  |                      |  |                            |  |             
|Unallocated corporate liabilities |  |                      |  |                            |  | 1,395,972   
|                                  |  |                      |  |                            |  |             
|                                  |  |                      |  |                            |  | 4,465,009   
|                                  |  |                      |  |                            |  |             



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|6. | SEGMENT INFORMATION - continued
|-- | -------------------------------

OTHER INFORMATION



|                                                                       |  |                                      |   |  |                            |  |                     |  |              |  
|---------------------------------------------------------------------- |  | ------------------------------------ | - |  | -------------------------- |  | ------------------- |  | ------------ | -
|                                                                       |  | For the year ended December 31, 2006 |  
|                                                                       |  | Coal mining                          |   |  | Coal railwaytransportation |  | Corporateand others |  | Consolidated |  
|                                                                       |  | RMB000                              |   |  | RMB000                    |  | RMB000             |  | RMB000      |  
|Capital additions                                                      |  | 4,175,125                            |   |  | 19,827                     |  | 104,454             |  | 4,299,406    |  
|Amortization of mining rights                                          |  | 12,069                               |   |  |                           |  |                    |  | 12,069       |  
|Amortization of prepaid lease payments                                 |  | 8,638                                |   |  | 5,188                      |  |                    |  | 13,826       |  
|Depreciation of property, plant and equipment                          |  | 976,306                              |   |  | 77,704                     |  | 7,966               |  | 1,061,976    |  
|Loss on disposal of property, plant and equipment                      |  | 72,929                               |   |  | 115                        |  | 487                 |  | 73,531       |  
|Impairment losses reversed on accounts receivable and other receivable |  | (19,717                              | ) |  |                           |  |                    |  | (19,717      | )
|                                                                       |  |                                      |   |  |                            |  |                     |  |              |  

INCOME STATEMENT



|              |  |                                      |  |                            |  |              |   |  |             
|------------- |  | ------------------------------------ |  | -------------------------- |  | ------------ | - |  | ------------
|              |  | For the year ended December 31, 2005
|              |  | Coal mining                          |  | Coal railwaytransportation |  | 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.



|                               |  |                                      |  |                            |  |              |  |              |  
|------------------------------ |  | ------------------------------------ |  | -------------------------- |  | ------------ |  | ------------ | -
|                               |  | 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      | )
|                               |  |                                      |  |                            |  |              |  |              |  
|Profit before income taxes     |  |                                      |  |                            |  |              |  | 4,419,973    |  
|Income taxes                   |  |                                      |  |                            |  |              |  | (1,538,036   | )
|                               |  |                                      |  |                            |  |              |  |              |  
|Profit for the year            |  |                                      |  |                            |  |              |  | 2,881,937    |  
|                               |  |                                      |  |                            |  |              |  |              |  



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|6. | SEGMENT INFORMATION - continued
|-- | -------------------------------

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                          |  | Coal railwaytransportation |   |  | Corporateand others |  | Consolidated
|                                                         |  | 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         
|                                                         |  |                                      |  |                            |   |  |                     |  |             

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.



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|6. | SEGMENT INFORMATION - continued
|-- | -------------------------------

RESULT



|                               |  |                                      |  |                            |  |              |  |              |  
|------------------------------ |  | ------------------------------------ |  | -------------------------- |  | ------------ |  | ------------ | -
|                               |  | For the year ended December 31, 2004 | 
|                               |  | Coalmining                           |  | Coal railwaytransportation |  | Eliminations |  | Consolidated |  
|                               |  | RMB000                              |  | RMB000                    |  | RMB000      |  | RMB000      |  
|Segment results                |  | 4,642,234                            |  | 284,147                    |  |             |  | 4,926,381    |  
|                               |  |                                      |  |                            |  |              |  |              |  
|Unallocated corporate expenses |  |                                      |  |                            |  |              |  | (314,283     | )
|Unallocated corporate income   |  |                                      |  |                            |  |              |  | 97,176       |  
|Interest expenses              |  |                                      |  |                            |  |              |  | (35,942      | )
|                               |  |                                      |  |                            |  |              |  |              |  
|Profit before income taxes     |  |                                      |  |                            |  |              |  | 4,673,332    |  
|Income taxes                   |  |                                      |  |                            |  |              |  | (1,518,762   | )
|                               |  |                                      |  |                            |  |              |  |              |  
|Profit 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   
|                                  |  |                      |  |                            |  |             

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       |  
|                                                         |  |                                      |   |  |                            |  |                     |   |  |              |  



F-23



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|6. | SEGMENT INFORMATION - continued
|-- | -------------------------------

The number of employees
in each of the Groups principal divisions are as follows:



|                            |  |                 |  |        |  |       
|--------------------------- |  | --------------- |  | ------ |  | ------
|                            |  | At December 31,
|                            |  | 2006            |  | 2005   |  | 2004  
|Coal mining                 |  | 39,132          |  | 26,662 |  | 25,892
|Coal railway transportation |  | 3,760           |  | 3,401  |  | 3,374 
|                            |  |                 |  |        |  |       
|                            |  | 42,892          |  | 30,063 |  | 29,266
|                            |  |                 |  |        |  |       

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 analyzed by the geographical area in which the assets are located:



|          |  |                                                                  |  |           |  |          
|--------- |  | ---------------------------------------------------------------- |  | --------- |  | ---------
|          |  | Additions to property, plant and equipment and intangible assets
|          |  | Year ended December 31,                                         
|          |  | 2006                                                             |  | 2005      |  | 2004     
|          |  | RMB000                                                          |  | RMB000   |  | RMB000  
|The PRC   |  | 3,582,427                                                        |  | 1,599,372 |  | 869,957  
|Australia |  | 716,979                                                          |  | 257,999   |  | 224,325  
|          |  |                                                                  |  |           |  |          
|          |  | 4,299,406                                                        |  | 1,857,371 |  | 1,094,282
|          |  |                                                                  |  |           |  |          



|7. | NET SALES OF COAL
|-- | -----------------



|                              |  |                         |  |            |  |           
|----------------------------- |  | ----------------------- |  | ---------- |  | ----------
|                              |  | Year ended December 31,
|                              |  | 2006                    |  | 2005       |  | 2004      
|                              |  | RMB000                 |  | RMB000    |  | RMB000   
|Domestic sales of coal, gross |  | 9,746,146               |  | 8,689,496  |  | 7,841,328 
|Less: Transportation costs    |  | 358,414                 |  | 268,034    |  | 434,340   
|                              |  |                         |  |            |  |           
|Domestic sales of coal, net   |  | 9,387,732               |  | 8,421,462  |  | 7,406,988 
|                              |  |                         |  |            |  |           
|Export sales of coal, gross   |  | 3,037,421               |  | 3,594,092  |  | 3,915,724 
|Less: Transportation costs    |  | 578,205                 |  | 662,069    |  | 968,375   
|                              |  |                         |  |            |  |           
|Export sales of coal, net     |  | 2,459,216               |  | 2,932,023  |  | 2,947,349 
|                              |  |                         |  |            |  |           
|Net sales of coal             |  | 11,846,948              |  | 11,353,485 |  | 10,354,337
|                              |  |                         |  |            |  |           

Net sales of coal represent the invoiced value of coal sold and are net of returns, discounts,
sales taxes and transportation costs if the invoiced value includes transportation costs to the customers.



F-24



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|8. | COST OF SALES AND SERVICE PROVIDED
|-- | ----------------------------------



|                                                                     |  |                         |  |           |  |          
|-------------------------------------------------------------------- |  | ----------------------- |  | --------- |  | ---------
|                                                                     |  | Year ended December 31,
|                                                                     |  | 2006                    |  | 2005      |  | 2004     
|                                                                     |  | RMB000                 |  | RMB000   |  | RMB000  
|Materials                                                            |  | 1,320,596               |  | 1,147,572 |  | 1,088,683
|Wages and employee benefits                                          |  | 1,646,018               |  | 1,258,333 |  | 1,022,614
|Electricity                                                          |  | 336,284                 |  | 282,492   |  | 298,274  
|Depreciation                                                         |  | 962,963                 |  | 891,640   |  | 918,360  
|Land subsidence, restoration, rehabilitation and environmental costs |  | 742,985                 |  | 636,590   |  | 323,240  
|Repairs and maintenance                                              |  | 327,151                 |  | 350,953   |  | 455,782  
|Annual fee and amortization of mining rights (note 24)               |  | 25,049                  |  | 19,604    |  | 19,604   
|Transportation costs                                                 |  | 106,572                 |  | 98,787    |  | 119,737  
|Others                                                               |  | 722,451                 |  | 602,617   |  | 305,409  
|                                                                     |  |                         |  |           |  |          
|                                                                     |  | 6,190,069               |  | 5,288,588 |  | 4,551,703
|                                                                     |  |                         |  |           |  |          



|9. | SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
|-- | --------------------------------------------



|                                                  |  |                         |  |           |  |          
|------------------------------------------------- |  | ----------------------- |  | --------- |  | ---------
|                                                  |  | Year ended December 31,
|                                                  |  | 2006                    |  | 2005      |  | 2004     
|                                                  |  | RMB000                 |  | RMB000   |  | RMB000  
|Wages and employee benefits                       |  | 1,001,783               |  | 794,537   |  | 563,962  
|Additional medical insurance                      |  | 57,364                  |  | 46,458    |  | 35,912   
|Staff training costs                              |  | 44,037                  |  | 32,553    |  | 28,762   
|Depreciation                                      |  | 112,839                 |  | 73,627    |  | 53,501   
|Amortization of goodwill                          |  |                        |  |          |  | 15,773   
|Distribution charges                              |  | 57,100                  |  | 35,626    |  | 43,639   
|Impairment loss on accounts receivables           |  |                        |  |          |  | 49,104   
|Resource compensation fees (note)                 |  | 107,502                 |  | 117,228   |  | 110,959  
|Repairs and maintenance                           |  | 18,440                  |  | 17,012    |  | 18,753   
|Research and development                          |  | 45,979                  |  | 45,009    |  | 24,934   
|Freight charges                                   |  | 20,741                  |  | 19,256    |  | 9,801    
|Loss on disposal of property, plant and equipment |  | 73,531                  |  | 527       |  | 104,597  
|Others                                            |  | 690,826                 |  | 736,955   |  | 420,166  
|                                                  |  |                         |  |           |  |          
|                                                  |  | 2,230,142               |  | 1,918,788 |  | 1,479,863
|                                                  |  |                         |  |           |  |          

---

| | Note: | In accordance with the relevant regulations, the Company 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-25



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|10. | OTHER INCOME
|--- | ------------



|                                       |  |                         |  |         |  |        
|-------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                       |  | Year ended December 31,
|                                       |  | 2006                    |  | 2005    |  | 2004   
|                                       |  | RMB000                 |  | RMB000 |  | RMB000
|Dividend income                        |  | 6,311                   |  | 4,465   |  | 4,465  
|Gain on sales of auxiliary materials   |  | 49,623                  |  | 36,749  |  | 33,878 
|Government grants                      |  | 4,000                   |  |        |  |       
|Interest income from bank deposits     |  | 94,372                  |  | 85,971  |  | 70,885 
|Interest income on loan receivable     |  |                        |  | 5,744   |  | 21,826 
|Release of negative goodwill to income |  |                        |  |        |  | 27,620 
|Others                                 |  | 11,531                  |  | 2,109   |  | 7,058  
|                                       |  |                         |  |         |  |        
|                                       |  | 165,837                 |  | 135,038 |  | 165,732
|                                       |  |                         |  |         |  |        



|11. | INTEREST EXPENSE
|--- | ----------------



|                                                                 |  |                         |  |         |  |        
|---------------------------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                                                 |  | Year ended December 31,
|                                                                 |  | 2006                    |  | 2005    |  | 2004   
|                                                                 |  | RMB000                 |  | RMB000 |  | RMB000
|Interest expenses on:                                            |  |                         |  |         |  |        
|- bank borrowings wholly repayable within 5 years                |  | 10,058                  |  | 20,753  |  | 31,392 
|- bank borrowings not wholly repayable within 5 years            |  | 2,281                   |  |        |  |       
|- bills receivable discounted without recourse                   |  | 10,840                  |  |        |  |       
|Deemed interest expenses in respect of acquisition of Jining III |  | 3,170                   |  | 3,858   |  | 4,550  
|                                                                 |  |                         |  |         |  |        
|                                                                 |  | 26,349                  |  | 24,611  |  | 35,942 
|                                                                 |  |                         |  |         |  |        

No interest was capitalized during each of the years presented.



F-26



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|12. | INCOME TAXES
|--- | ------------



|                                     |  |                         |   |  |           |  |          
|------------------------------------ |  | ----------------------- | - |  | --------- |  | ---------
|                                     |  | Year ended December 31,
|                                     |  | 2006                    |   |  | 2005      |  | 2004     
|                                     |  | RMB000                 |   |  | RMB000   |  | RMB000  
|Income taxes:                        |  |                         |   |  |           |  |          
|Current taxes                        |  | 1,309,783               |   |  | 1,372,398 |  | 1,390,767
|(Over) underprovision in prior years |  | (24,233                 | ) |  | 42,463    |  | 16,019   
|                                     |  |                         |   |  |           |  |          
|                                     |  | 1,285,550               |   |  | 1,414,861 |  | 1,406,786
|Deferred tax charge (note 29)        |  | 69,106                  |   |  | 123,175   |  | 111,976  
|                                     |  |                         |   |  |           |  |          
|                                     |  | 1,354,656               |   |  | 1,538,036 |  | 1,518,762
|                                     |  |                         |   |  |           |  |          

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, |  
|                                                                                                     |  | 2006                    |   |  | 2005      |   |  | 2004      |  
|                                                                                                     |  | 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                                       |  | 1,229,786               |   |  | 1,458,591 |   |  | 1,542,200 |  
|Reconciling items:                                                                                   |  |                         |   |  |           |   |  |           |  
|Transfer to future development fund deductible for tax purposes but not charged to income under IFRS |  | (70,496                 | ) |  | (68,618   | ) |  | (109,411  | )
|Release of negative goodwill not subject to tax                                                      |  |                        |   |  |          |   |  | (9,115    | )
|Deemed interest not deductible for tax purposes                                                      |  | 1,046                   |   |  | 1,273     |   |  | 1,502     |  
|Expenses not deductible for tax purposes                                                             |  | 117,447                 |   |  |          |   |  |          |  
|(Reversal) provision of impairment loss on doubtful debts not subject to tax                         |  | (6,507                  | ) |  |          |   |  | 16,187    |  
|Loss on disposal of property, plant and equipment not deductible for tax purposes                    |  |                        |   |  | 836       |   |  | 8,273     |  
|Deemed interest income from subsidiaries subject to tax                                              |  | 9,456                   |   |  |          |   |  |          |  
|Tax effect of tax losses not recognized                                                              |  | 94,807                  |   |  | 42,151    |   |  |          |  
|(Over) underprovision in prior years                                                                 |  | (24,233                 | ) |  | 42,463    |   |  | 16,019    |  
|Write off deferred tax asset                                                                         |  |                        |   |  | 44,436    |   |  | 44,436    |  
|Others                                                                                               |  | 3,350                   |   |  | 16,904    |   |  | 8,671     |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|Income taxes                                                                                         |  | 1,354,656               |   |  | 1,538,036 |   |  | 1,518,762 |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|Effective income tax rate                                                                            |  | 36                      | % |  | 35        | % |  | 32        | %
|                                                                                                     |  |                         |   |  |           |   |  |           |  



F-27



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|13. | PROFIT FOR THE YEAR
|--- | -------------------



|                                                                         |  |                         |   |  |           |  |          
|------------------------------------------------------------------------ |  | ----------------------- | - |  | --------- |  | ---------
|                                                                         |  | Year ended December 31,
|                                                                         |  | 2006                    |   |  | 2005      |  | 2004     
|                                                                         |  | RMB000                 |   |  | RMB000   |  | RMB000  
|Profit for the year has been arrived at after charging:                  |  |                         |   |  |           |  |          
|                                                                         |  |                         |  
|Amortization of mining rights                                            |  | 12,069                  |   |  | 6,624     |  | 6,624    
|Amortization of goodwill                                                 |  |                        |   |  |          |  | 15,773   
|Amortization of prepaid lease payments                                   |  | 13,826                  |   |  | 13,171    |  | 13,194   
|Depreciation of property, plant and equipment                            |  | 1,061,976               |   |  | 952,096   |  | 958,667  
|                                                                         |  |                         |   |  |           |  |          
|Total depreciation and amortization                                      |  | 1,087,871               |   |  | 971,891   |  | 994,258  
|                                                                         |  |                         |   |  |           |  |          
|Auditors remuneration                                                   |  | 10,406                  |   |  | 9,229     |  | 5,000    
|Staff costs, including directors and supervisors emoluments            |  | 2,783,298               |   |  | 2,164,616 |  | 1,682,240
|Retirement benefit scheme contributions (included in staff costs above)  |  | 641,633                 |   |  | 523,324   |  | 408,462  
|Cost of inventories                                                      |  | 6,089,185               |   |  | 5,144,888 |  | 4,460,844
|Exchange loss                                                            |  | 12,346                  |   |  | 98,681    |  |         
|                                                                         |  |                         |  
|and crediting:                                                           |  |                         |   |  |           |  |          
|                                                                         |  |                         |  
|Reversal of impairment loss on accounts receivable and other receivables |  | (19,717                 | ) |  |          |  |         
|Exchange gain                                                            |  |                        |   |  |          |  | 5,507    
|                                                                         |  |                         |   |  |           |  |          



|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, 2006



|                                    |  |         |  |                                             |  |                                     |  |                    |  |        
|----------------------------------- |  | ------- |  | ------------------------------------------- |  | ----------------------------------- |  | ------------------ |  | -------
|                                    |  | 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                          |  | 89      |  |                                            |  |                                    |  |                   |  | 89     
|Cui Jianmin                         |  | 89      |  |                                            |  |                                    |  |                   |  | 89     
|Wang Xiaojun                        |  | 106     |  |                                            |  |                                    |  |                   |  | 106    
|Wang Quanxi                         |  | 89      |  |                                            |  |                                    |  |                   |  | 89     
|                                    |  |         |  |                                             |  |                                     |  |                    |  |        
|                                    |  | 373     |  |                                            |  |                                    |  |                   |  | 373    
|                                    |  |         |  |                                             |  |                                     |  |                    |  |        



F-28



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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, 2006 -
continued



|                      |  |         |  |                                             |  |                                     |  |                    |  |        
|--------------------- |  | ------- |  | ------------------------------------------- |  | ----------------------------------- |  | ------------------ |  | -------
|                      |  | 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            |  |        |  | 182                                         |  | 82                                  |  |                   |  | 264    
|Wang Xinkun           |  |        |  | 238                                         |  | 107                                 |  |                   |  | 345    
|Chen Guangshui        |  |        |  | 187                                         |  | 84                                  |  |                   |  | 271    
|Zhang Baocai          |  |        |  | 170                                         |  | 77                                  |  |                   |  | 247    
|Dong Yunqing          |  |        |  | 205                                         |  | 92                                  |  |                   |  | 297    
|                      |  |         |  |                                             |  |                                     |  |                    |  |        
|                      |  |        |  | 982                                         |  | 442                                 |  |                   |  | 1,424  
|                      |  |         |  |                                             |  |                                     |  |                    |  |        
|Supervisors           |  |         |  |                                             |  |                                     |  |                    |  |        
|Meng Xianchang        |  |        |  |                                            |  |                                    |  |                   |  |       
|Song Guo              |  |        |  |                                            |  |                                    |  |                   |  |       
|Zhang Shengdong       |  |        |  |                                            |  |                                    |  |                   |  |       
|Liu Weixin            |  |        |  |                                            |  |                                    |  |                   |  |       
|Xu Bentai             |  |        |  | 218                                         |  | 98                                  |  |                   |  | 316    
|                      |  |         |  |                                             |  |                                     |  |                    |  |        
|                      |  |        |  | 218                                         |  | 98                                  |  |                   |  | 316    
|                      |  |         |  |                                             |  |                                     |  |                    |  |        
|Other management team |  |         |  |                                             |  |                                     |  |                    |  |        
|Jin Tai               |  |        |  |                                            |  |                                    |  |                   |  |       
|Zhang Yingmin         |  |        |  |                                            |  |                                    |  |                   |  |       
|He Ye                 |  |        |  | 208                                         |  | 94                                  |  |                   |  | 302    
|Tian Fengze           |  |        |  | 202                                         |  | 91                                  |  |                   |  | 293    
|Shi Chenzhong         |  |        |  | 229                                         |  | 103                                 |  |                   |  | 332    
|Qu Tianzhi            |  |        |  | 232                                         |  | 104                                 |  |                   |  | 336    
|Ni Xinghua            |  |        |  | 218                                         |  | 98                                  |  |                   |  | 316    
|Lai Cunliang          |  |        |  | 421                                         |  |                                    |  |                   |  | 421    
|                      |  |         |  |                                             |  |                                     |  |                    |  |        
|                      |  |        |  | 1,510                                       |  | 490                                 |  |                   |  | 2,000  
|                      |  |         |  |                                             |  |                                     |  |                    |  |        



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
|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                                  |  |                   |  |       
|                                    |  |         |  |                                             |  |                                     |  |                    |  |        
|                                    |  |        |  | 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                                         |  | 346                                 |  |                   |  | 1,113  
|                                    |  |         |  |                                             |  |                                     |  |                    |  |        



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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     
|Wang 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    
|                                    |  |         |  |                                             |  |                                     |  |                    |  |        



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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:

No directors waived any emoluments in each of the
year ended 31 December 2006, 2005 and 2004.



| | (b) | Employees emoluments
| | --- | ---------------------

The five highest paid
individuals in the Group included no director for the year ended December 31, 2006 (2005: one; 2004: four), details of whose emoluments are included in the disclosures in note 14(a) above. The emoluments of the five individuals for the year
ended December 31, 2006 (2005: four; 2004: one) were as follows:



|                                               |  |                         |  |         |  |        
|---------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                               |  | Year ended December 31,
|                                               |  | 2006                    |  | 2005    |  | 2004   
|                                               |  | RMB000                 |  | RMB000 |  | RMB000
|Salaries, allowance and other benefits in kind |  | 7,053                   |  | 3,690   |  | 224    
|Retirement benefit scheme contributions        |  |                        |  | 365     |  | 101    
|Discretionary bonuses                          |  | 656                     |  |        |  |       
|                                               |  |                         |  |         |  |        
|                                               |  | 7,709                   |  | 4,055   |  | 325    
|                                               |  |                         |  |         |  |        

For the year ended December 31, 2006, the emoluments of four of these employees were within
the band of HK$1,000,000 to HK$2,000,000 and one of these employees were within the band of HK$2,000,000 to HK$3,000,000. For the years ended December 31, 2005 and 2004, emoluments of each of these employees were all within the band of nil to
HK$1,000,000.



|15. | DIVIDEND RECOGNIZED AS DISTRIBUTION DURING THE YEAR
|--- | ---------------------------------------------------



|                                                                                                                |  |                         |  |         |  |        
|--------------------------------------------------------------------------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                                                                                                |  | Year ended December 31,
|                                                                                                                |  | 2006                    |  | 2005    |  | 2004   
|                                                                                                                |  | RMB000                 |  | RMB000 |  | RMB000
|2005 Final dividend, RMB0.220 per share(2005: 2004 final dividend RMB0.260; 2004: 2003 final dividend RMB0.114) |  | 1,082,048               |  | 799,240 |  | 327,180
|2004 Special dividendRMB0.050 per share                                                                         |  |                        |  |        |  | 143,500
|                                                                                                                |  |                         |  |         |  |        
|                                                                                                                |  | 1,082,048               |  | 799,240 |  | 470,680
|                                                                                                                |  |                         |  |         |  |        



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|15. | DIVIDENDS RECOGNIZED AS DISTRIBUTION DURING THE YEAR - continued
|--- | ----------------------------------------------------------------

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.

In the annual general meeting held on June 29, 2006, a final dividend in respect of the year ended December 31, 2005 was approved by the
shareholders and paid to the shareholders of the Company.

The board of directors proposes to declare a final dividend and a special
dividend of approximately RMB590,208,000 and RMB393,472,000 calculated based on a total number of 4,918,400,000 shares issued at RMB1 each, at RMB0.12 per share and RMB0.08 per share respectively, in respect of the year ended December 31, 2006.
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, 2006, 2005 and 2004 is based on the profit attributable to the equity holders of the Company for the year of RMB2,372,985,000,
RMB2,881,461,000 and RMB3,154,317,000 and on the weighted average number of 4,918,400,000 shares, 4,918,400,000 shares and 4,743,606,557 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 profit 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, 2006, 2005 and 2004.



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|17. | BANK BALANCES AND CASH/TERM DEPOSITS AND RESTRICTED CASH
|--- | --------------------------------------------------------

Bank balances carry interest at market rates which ranged from 0.72% to 1.44%.

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 rate of 5.31% (2005: 5.16%) per annum.

The
term deposits carry fixed interest rate of 0.72% to 2.25% (2005: 0.72% to 2.70%) per annum. The fair value of term deposits and restricted cash at December 31, 2006 approximates to its carrying amount.



|18. | BILLS AND ACCOUNTS RECEIVABLE
|--- | -----------------------------



|                                         |  |                 |   |  |           |  
|---------------------------------------- |  | --------------- | - |  | --------- | -
|                                         |  | At December 31, |  
|                                         |  | 2006            |   |  | 2005      |  
|                                         |  | RMB000         |   |  | RMB000   |  
|Total bills receivable                   |  | 2,004,425       |   |  | 2,092,949 |  
|Total accounts receivable                |  | 238,931         |   |  | 258,587   |  
|                                         |  |                 |   |  |           |  
|                                         |  | 2,243,356       |   |  | 2,351,536 |  
|Less: Impairment loss                    |  | (31,447         | ) |  | (126,700  | )
|                                         |  |                 |   |  |           |  
|Total bills and accounts receivable, net |  | 2,211,909       |   |  | 2,224,836 |  
|                                         |  |                 |   |  |           |  

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, 2006 approximates to their carrying amount.



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|18. | BILLS AND ACCOUNTS RECEIVABLE - continued
|--- | -----------------------------------------

An analysis of
the impairment loss on bills and accounts receivable is as follows:



|                       |  |         |   |  |        
|---------------------- |  | ------- | - |  | -------
|                       |  | 2006    |   |  | 2005   
|                       |  | RMB000 |   |  | RMB000
|Balance at January 1   |  | 126,700 |   |  | 126,700
|Written off            |  | (78,603 | ) |  |       
|Reversal               |  | (16,650 | ) |  |       
|                       |  |         |   |  |        
|Balance at December 31 |  | 31,447  |   |  | 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,
|               |  | 2006            |  | 2005     
|               |  | RMB000         |  | RMB000  
|1 - 180 days   |  | 2,216,935       |  | 2,245,170
|181 - 365 days |  | 1,018           |  | 6,014    
|1 - 3 years    |  | 869             |  | 19       
|Over 3 years   |  | 24,534          |  | 100,333  
|               |  |                 |  |          
|               |  | 2,243,356       |  | 2,351,536
|               |  |                 |  |          



|19. | INVENTORIES
|--- | -----------



|                                                 |  |                 |  |        
|------------------------------------------------ |  | --------------- |  | -------
|                                                 |  | At December 31,
|                                                 |  | 2006            |  | 2005   
|                                                 |  | RMB000         |  | RMB000
|COST                                             |  |                 |  |        
|Auxiliary materials, spare parts and small tools |  | 265,122         |  | 256,755
|Coal products                                    |  | 314,439         |  | 213,746
|                                                 |  |                 |  |        
|                                                 |  | 579,561         |  | 470,501
|                                                 |  |                 |  |        



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|20. | OTHER LOANS RECEIVABLE
|--- | ----------------------

At the balance sheet dates, the
amount represents loan granted to the an independent third party, which carries interest at 7.00% per annum and is guaranteed by other independent third parties. The loan (the Default Loan) 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 Shandong province (the Court) to freeze the Secured Shares. The Company has also applied to the Court to dispose the Secured Shares by way of a public auction and the proceeds would be applied to repay the Default
Loan and the associated interests to the Company. 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 December 2006, Shandong Runhua Group Company Limited has also claimed for a portion of the Secured Shares. To protect the Companys
priority rights in the Secured Shares to recover the Default Loan, the Company sought support from the Shandong provincial government and the State-owned Assets Supervision and Administrative Committee (the SASAC). In January 2007, these
government authorities in Shandong province and the SASAC have rendered formal written request the Supreme Court to protect the Companys priority right on the Secured Shares.

After considering the advice from their legal counsel, the directors are in the opinion that, based on the result of the auction, the support from the
government authorities in Shandong province and the SASAC and the fair value of the underlying Secured Shares, the amount to be recovered by the Company from the Secured Shares would be sufficient to cover the principal and interest of the Default
Loan.



|21. | PREPAYMENTS AND OTHER CURRENT ASSETS
|--- | ------------------------------------



|                                                     |  |                 |  |        
|---------------------------------------------------- |  | --------------- |  | -------
|                                                     |  | At December 31,
|                                                     |  | 2006            |  | 2005   
|                                                     |  | RMB000         |  | RMB000
|Advances to suppliers                                |  | 109,714         |  | 69,605 
|Prepaid freight charges and related handling charges |  | 27,287          |  | 62,445 
|Others                                               |  | 94,504          |  | 70,367 
|                                                     |  |                 |  |        
|                                                     |  | 231,505         |  | 202,417
|                                                     |  |                 |  |        

The directors consider that the carrying amount of other current assets approximates their fair
value.

Included in the above balances as of December 31, 2006 is an impairment loss of RMB32,650,000 (2005: RMB35,717,000). During the
year ended December 31, 2006, the Group reversed impairment loss of RMB3,067,000. During the year ended December 31, 2005 the Group did not make any additional impairment for doubtful debts (2004: RMB23,031,000).



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|22. | PREPAID LEASE PAYMENTS
|--- | ----------------------



|                    |  |                 |  |        
|------------------- |  | --------------- |  | -------
|                    |  | At December 31,
|                    |  | 2006            |  | 2005   
|                    |  | RMB000         |  | RMB000
|Current portion     |  | 13,746          |  | 13,465 
|Non-current portion |  | 578,988         |  | 579,773
|                    |  |                 |  |        
|                    |  | 592,734         |  | 593,238
|                    |  |                 |  |        

The amounts represent prepaid lease payments 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, with the carrying amount of RMB233,441,000, has not yet been completed at December 31, 2006.



|23. | PREPAYMENT FOR RESOURCES COMPENSATION FEES
|--- | ------------------------------------------

In accordance
with the relevant regulations, the Shanxi Group is required to pay resources compensation fees to the Heshun Municipal Coal Industry Bureau at a rate of RMB2.70 per tonne of raw coal mined. During the year, Shanxi Group was requested by the relevant
government to prepay the fees based on production volume of 10 million tonnes. At the balance sheet date, the amount represented the prepayment for resources compensation fees. The current portion represents the amount to be utilized in the
coming year which is estimated based on expected production volume.



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|24. | MINING RIGHTS
|--- | -------------



|                               |  |         |  
|------------------------------ |  | ------- | -
|                               |  | RMB000 |  
|COST                           |  |         |  
|                               | 
|At January 1, 2005             |  | 165,113 |  
|Exchange re-alignment          |  | (2,372  | )
|Addition                       |  | 23,644  |  
|                               |  |         |  
|At January 1, 2006             |  | 186,385 |  
|Exchange re-alignment          |  | 2,261   |  
|Acquisition of Shanxi Neng Hua |  | 164,452 |  
|                               |  |         |  
|At December 31, 2006           |  | 353,098 |  
|                               |  |         |  
|AMORTIZATION                   |  |         |  
|At January 1, 2005             |  | 26,496  |  
|Provided for the year          |  | 6,624   |  
|                               |  |         |  
|At January 1, 2006             |  | 33,120  |  
|Provided for the year          |  | 12,069  |  
|                               |  |         |  
|At December 31, 2006           |  | 45,189  |  
|                               |  |         |  
|NET BOOK VALUES                |  |         |  
|At December 31, 2006           |  | 307,909 |  
|                               |  |         |  
|At December 31, 2005           |  | 153,265 |  
|                               |  |         |  

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, and the renegotiation has not yet started up to the date of this report.

The mining rights are amortized, on a straight-line basis, over the useful life of twenty years from the date of commencement of commercial production.

The mining rights of the Shanxi Group are amortized, on a straight-line basis, over the remaining useful life of twenty-seven years from
the date of acquisition. The mining right permit expires in January 2009 and can be renewed at a cost which is not significant to the Group as the Parent Company has undertaken to compensate the Group for 79.68% of the cost.



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|25. | PROPERTY, PLANT AND EQUIPMENT
|--- | -----------------------------



|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |   |  |                             |   |  |                         |   |  |                          |   |  |            |  
|---------------------------------------- |  | ------------------------ | - |  | --------- | - |  | -------------------- |  | ----------------- |  | ---------------- | - |  | --------------------------- | - |  | ----------------------- | - |  | ------------------------ | - |  | ---------- | -
|                                         |  | Freeholdland inAustralia |   |  | Buildings |   |  | Harborworksandcrafts |  | Railwaystructures |  | Miningstructures |   |  | Plant,machineryandequipment |   |  | Transportationequipment |   |  | Construction in progress |   |  | Total      |  
|                                         |  | RMB000                  |   |  | RMB000   |   |  | RMB000              |  | RMB000           |  | RMB000          |   |  | RMB000                     |   |  | RMB000                 |   |  | RMB000                  |   |  | RMB000    |  
|COST                                     |  |                          |   |  |           |   |  |                      |  |                   |  |                  |   |  |                             |   |  |                         |   |  |                          |   |  |            |  
|At 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 and January 1, 2006 |  | 53,031                   |   |  | 2,169,992 |   |  | 250,231              |  | 729,789           |  | 3,904,460        |   |  | 8,190,653                   |   |  | 302,956                 |   |  | 890,881                  |   |  | 16,491,993 |  
|Exchange re-alignment                    |  | 2,224                    |   |  | 280       |   |  |                     |  |                  |  |                 |   |  | 7,803                       |   |  | 22                      |   |  | 6,958                    |   |  | 17,287     |  
|Acquisition of Shanxi Group              |  |                         |   |  | 95,347    |   |  |                     |  |                  |  | 129,366          |   |  | 186,107                     |   |  | 25,723                  |   |  | 192,433                  |   |  | 628,976    |  
|Additions                                |  |                         |   |  | 15,725    |   |  |                     |  |                  |  | 15,378           |   |  | 257,147                     |   |  | 2,139                   |   |  | 3,073,042                |   |  | 3,363,431  |  
|Transfers                                |  |                         |   |  | 196,575   |   |  | 118                  |  | 5,012             |  |                 |   |  | 1,238,710                   |   |  | 10,102                  |   |  | (1,450,517               | ) |  |           |  
|Disposals                                |  |                         |   |  | (47,600   | ) |  |                     |  |                  |  | (31,762          | ) |  | (878,537                    | ) |  | (17,247                 | ) |  |                         |   |  | (975,146   | )
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |   |  |                             |   |  |                         |   |  |                          |   |  |            |  
|At December 31, 2006                     |  | 55,255                   |   |  | 2,430,319 |   |  | 250,349              |  | 734,801           |  | 4,017,442        |   |  | 9,001,883                   |   |  | 323,695                 |   |  | 2,712,797                |   |  | 19,526,541 |  
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |   |  |                             |   |  |                         |   |  |                          |   |  |            |  
|ACCUMULATED DEPRECIATION                 |  |                          |   |  |           |   |  |                      |  |                   |  |                  |   |  |                             |   |  |                         |   |  |                          |   |  |            |  
|At 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 and January 1, 2006 |  |                         |   |  | 1,019,552 |   |  | 12,136               |  | 215,969           |  | 1,592,922        |   |  | 4,158,969                   |   |  | 173,959                 |   |  |                         |   |  | 7,173,507  |  
|Exchange re-alignment                    |  |                         |   |  | 18        |   |  |                     |  |                  |  |                 |   |  | 293                         |   |  | 6                       |   |  |                         |   |  | 317        |  
|Provided for the year                    |  |                         |   |  | 132,648   |   |  | 6,070                |  | 53,710            |  | 90,921           |   |  | 781,231                     |   |  | 35,648                  |   |  |                         |   |  | 1,100,228  |  
|Eliminated on disposals                  |  |                         |   |  | (41,411   | ) |  |                     |  |                  |  | (476             | ) |  | (828,954                    | ) |  | (16,609                 | ) |  |                         |   |  | (887,450   | )
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |   |  |                             |   |  |                         |   |  |                          |   |  |            |  
|At December 31, 2006                     |  |                         |   |  | 1,110,807 |   |  | 18,206               |  | 269,679           |  | 1,683,367        |   |  | 4,111,539                   |   |  | 193,004                 |   |  |                         |   |  | 7,386,602  |  
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |   |  |                             |   |  |                         |   |  |                          |   |  |            |  
|NET BOOK VALUES                          |  |                          |   |  |           |   |  |                      |  |                   |  |                  |   |  |                             |   |  |                         |   |  |                          |   |  |            |  
|At December 31, 2006                     |  | 55,255                   |   |  | 1,319,512 |   |  | 232,143              |  | 465,122           |  | 2,334,075        |   |  | 4,890,344                   |   |  | 130,691                 |   |  | 2,712,797                |   |  | 12,139,939 |  
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |   |  |                             |   |  |                         |   |  |                          |   |  |            |  
|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  |  
|                                         |  |                          |   |  |           |   |  |                      |  |                   |  |                  |   |  |                             |   |  |                         |   |  |                          |   |  |            |  

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
|Harbor 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 useful lives of
18 years.

The mining structures include the main and auxiliary mine shafts and underground tunnels. Depreciation is provided to write off
the cost of the mining structures using the units of production method based on the estimated production volume for which the structure was designed and the contractual period of the relevant mining rights.



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LOGO



|26. | GOODWILL
|--- | --------



|                                      |  |         |  |        
|------------------------------------- |  | ------- |  | -------
|                                      |  | 2006    |  | 2005   
|                                      |  | RMB000 |  | RMB000
|COST                                  |  |         |  |        
|At January 1                          |  | 153,037 |  | 117,392
|Acquisition of Heze (note 36)         |  |        |  | 35,645 
|Acquisition of Shanxi Group (note 35) |  | 142,547 |  |       
|                                      |  |         |  |        
|At December 31                        |  | 295,584 |  | 153,037
|                                      |  |         |  |        

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating
units that are expected to benefit from that business combination. The carrying amount of goodwill had been allocated as follows:



|                            |  |         |  |        
|--------------------------- |  | ------- |  | -------
|                            |  | 2006    |  | 2005   
|                            |  | RMB000 |  | RMB000
|Coal Mining                 |  |         |  |        
|- Jining II                 |  | 10,106  |  | 10,106 
|- Yanmei Shipping           |  | 10,046  |  | 10,046 
|- Heze                      |  | 35,645  |  | 35,645 
|- Shanxi Group              |  | 142,547 |  |       
|Coal Railway Transportation |  |         |  |        
|- Railway Assets            |  | 97,240  |  | 97,240 
|                            |  |         |  |        
|                            |  | 295,584 |  | 153,037
|                            |  |         |  |        

The recoverable amounts of goodwill from each of the above cash generating units has been
determined on the basis of value in use calculations. The recoverable amounts are based on certain similar key assumptions on discount rates, growth rates and expected changes in selling prices and direct cost. All value in use calculations use cash
flow projections based on financial budgets approved by management covering a 5-year period, and with a discount rate of 8%.

The cashflows
beyond the 5-year period are extrapolated using a zero percent growth rate.

Cash flow projections during the budget period for each of the
above units are based on the budgeted revenue and expected gross margins during the budget period and the same raw materials price inflation during the budget period. Expected cash inflows/outflows, which include budgeted sales, gross margin and raw
material price inflation have been determined based on past performance and managements expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the carrying
amount of each of the above units to exceed the recoverable amount of each of the above units. During the year ended December 31, 2006, management of the Group determined that there are no impairments of any of its CGU containing goodwill.



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LOGO



|27. | INVESTMENTS IN SECURITIES
|--- | -------------------------

The investments in securities
represent available-for-sale equity investments:



|                                                              |  |                 |  |        
|------------------------------------------------------------- |  | --------------- |  | -------
|                                                              |  | At December 31,
|                                                              |  | 2006            |  | 2005   
|                                                              |  | RMB000         |  | RMB000
|Equity securities listed on the SSE                           |  |                 |  |        
|- Restricted portion stated at cost less impairment           |  | 40,281          |  |       
|- Unrestricted portion stated at fair value                   |  | 54,101          |  |       
|Unlisted equity security in form of state legal person shares |  |                |  | 60,421 
|Unlisted equity security                                      |  | 1,760           |  | 1,760  
|                                                              |  |                 |  |        
|                                                              |  | 96,142          |  | 62,181 
|                                                              |  |                 |  |        

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 were not tradable on the SSE as at December 31, 2005 and therefore, they were stated at cost less impairment because the range of
reasonable fair value estimates is so significant that the directors of the Company were of the opinion that their fair value cannot be measured reliably.

Pursuant to the share reform plan of Shenergy Company Limited, the non-tradable legal person shares held by the Company were converted into tradable shares on August 17, 2006. Under this share reform plan, the
Company has committed that the Company will not sell more than one-third of the shares held as of August 17, 2005 within one year after August 17, 2006; and two-third of the shares held as of August 17, 2005 within two years after
August 17, 2006. This investment is presented as listed securities as at December 31, 2006. The unrestricted portion is carried at fair value determined by reference to bid prices quoted in active markets.

The unlisted equity securities and the restricted portion of the shares of Shenergy Company Limited 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.



|28. | DEPOSIT MADE ON INVESTMENT
|--- | --------------------------

During 2006, the Company
entered into a co-operative agreement with two independent third parties, to establish a company for the operation of a coal mine to be acquired in Shaanxi province. The Company will have to invest approximately RMB196.8 million in order to obtain
41% equity interest. As at December 31, 2006, the Company made a deposit of RMB97 million in relation to this acquisition. As at December 31, 2006, the relevant procedures to establish the new company are still in progress, and the
acquisition has not yet been completed.



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LOGO



|29. | DEFERRED TAX LIABILITY
|--- | ----------------------



|                                                 |  |                              |   |  |                                                                                |   |  |                            |   |  |               |   |  |          |  
|------------------------------------------------ |  | ---------------------------- | - |  | ------------------------------------------------------------------------------ | - |  | -------------------------- | - |  | ------------- | - |  | -------- | -
|                                                 |  | Available-for-saleinvestment |   |  | Provision forland subsidence,restoration,rehabilitation andenvironmental costs |   |  | Acceleratedtaxdepreciation |   |  | Mining rights |   |  | Total    |  
|                                                 |  | RMB000                      |   |  | RMB000                                                                        |   |  | RMB000                    |   |  | RMB000       |   |  | RMB000  |  
|Balance at January 1, 2005                       |  |                             |   |  | 44,436                                                                         |   |  | (67,540                    | ) |  |              |   |  | (23,104  | )
|Charge the year (note 12)                        |  |                             |   |  | (44,436                                                                        | ) |  | (78,739                    | ) |  |              |   |  | (123,175 | )
|                                                 |  |                              |   |  |                                                                                |   |  |                            |   |  |               |   |  |          |  
|Balance at January 1, 2006                       |  |                             |   |  |                                                                               |   |  | (146,279                   | ) |  |              |   |  | (146,279 | )
|Acquisition of Shanxi Group                      |  |                             |   |  |                                                                               |   |  | (2,962                     | ) |  | (54,269       | ) |  | (57,231  | )
|Charge to reserve                                |  | (11,207                      | ) |  |                                                                               |   |  |                           |   |  |              |   |  | (11,207  | )
|(Charge) credit to income for the year (note 12) |  |                             |   |  |                                                                               |   |  | (69,272                    | ) |  | 166           |   |  | (69,106  | )
|                                                 |  |                              |   |  |                                                                                |   |  |                            |   |  |               |   |  |          |  
|Balance at December 31, 2006                     |  | (11,207                      | ) |  |                                                                               |   |  | (218,513                   | ) |  | (54,103       | ) |  | (283,823 | )
|                                                 |  |                              |   |  |                                                                                |   |  |                            |   |  |               |   |  |          |  

At the balance sheet date, the Group has unused tax losses of RMB450 million (2005: RMB140
million) contributed by the 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. Included in unrecognized tax losses are
losses of RMB55 million that will expire in 2011. Other losses may be carried forward indefinitely.



|30. | BILLS AND ACCOUNTS PAYABLE
|--- | --------------------------



|                 |  |                 |  |        
|---------------- |  | --------------- |  | -------
|                 |  | At December 31,
|                 |  | 2006            |  | 2005   
|                 |  | RMB000         |  | RMB000
|Bills payable    |  | 159,632         |  | 136,779
|Accounts payable |  | 586,053         |  | 360,881
|                 |  |                 |  |        
|                 |  | 745,685         |  | 497,660
|                 |  |                 |  |        

The following is an aged analysis of bills and accounts payable at the reporting date:



|               |  |                 |  |        
|-------------- |  | --------------- |  | -------
|               |  | At December 31,
|               |  | 2006            |  | 2005   
|               |  | RMB000         |  | RMB000
|1 - 180 days   |  | 564,995         |  | 361,680
|181 - 365 days |  | 139,974         |  | 96,397 
|1 - 2 years    |  | 40,716          |  | 39,583 
|               |  |                 |  |        
|               |  | 745,685         |  | 497,660
|               |  |                 |  |        

The fair value of the Groups bills and accounts payable at December 31, 2006
approximates to their carrying amount.



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LOGO



|31. | OTHER PAYABLES AND ACCRUED EXPENSES
|--- | -----------------------------------



|                                                                                             |  |                 |  |          
|-------------------------------------------------------------------------------------------- |  | --------------- |  | ---------
|                                                                                             |  | At December 31,
|                                                                                             |  | 2006            |  | 2005     
|                                                                                             |  | RMB000         |  | RMB000  
|Customers deposits                                                                          |  | 674,789         |  | 475,333  
|Accrued wages                                                                                |  | 210,751         |  | 135,375  
|Other taxes payable                                                                          |  | 205,720         |  | 249,955  
|Payables in respect of purchases of property, plant and equipment and construction materials |  | 442,536         |  | 216,250  
|Accrued freight charges                                                                      |  | 15,963          |  | 39,342   
|Accrued repairs and maintenance                                                              |  | 20,162          |  | 22,829   
|Accrued utility expenses                                                                     |  | 5,430           |  | 4,120    
|Staff welfare payable                                                                        |  | 72,748          |  | 69,372   
|Resource compensation fees payable                                                           |  |                |  | 100,886  
|Withholding tax payable                                                                      |  | 8,645           |  | 6,916    
|Deposits received from employees                                                             |  | 33,775          |  | 20,908   
|Consideration payable on acquisition of Southland                                            |  | 28,755          |  | 47,299   
|Payable in respect of purchase of mining rights in Southland (note 37)                       |  |                |  | 23,644   
|Others                                                                                       |  | 180,410         |  | 163,640  
|                                                                                             |  |                 |  |          
|                                                                                             |  | 1,899,684       |  | 1,575,869
|                                                                                             |  |                 |  |          

The fair value of the Groups other payables and accrued expenses at balance sheet date
approximates to their carrying amount.



|32. | PREPAYMENT FOR LAND SUBSIDENCE, RESTORATION, REHABILITATION AND ENVIRONMENTAL COSTS
|--- | -----------------------------------------------------------------------------------



|                                 |  |          |   |  |          |  
|-------------------------------- |  | -------- | - |  | -------- | -
|                                 |  | 2006     |   |  | 2005     |  
|                                 |  | RMB000  |   |  | RMB000  |  
|Balance at January 1             |  | (157,511 | ) |  | (103,407 | )
|Additional provision in the year |  | 731,796  |   |  | 635,863  |  
|Utilization of provision         |  | (787,197 | ) |  | (689,967 | )
|                                 |  |          |   |  |          |  
|Balance at December 31           |  | (212,912 | ) |  | (157,511 | )
|                                 |  |          |   |  |          |  

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.



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LOGO



|33. | UNSECURED BANK BORROWINGS
|--- | -------------------------

The amounts are repayable as
follows:



|                                                                      |  |                 |   |  |          |  
|--------------------------------------------------------------------- |  | --------------- | - |  | -------- | -
|                                                                      |  | At December 31, |  
|                                                                      |  | 2006            |   |  | 2005     |  
|                                                                      |  | RMB000         |   |  | RMB000  |  
|Within one year                                                       |  | 50,000          |   |  | 200,000  |  
|More than one year, but not exceeding two years                       |  | 72,000          |   |  |         |  
|More than two years, but not more than five years                     |  | 126,000         |   |  |         |  
|More than five years                                                  |  | 132,000         |   |  |         |  
|                                                                      |  |                 |   |  |          |  
|                                                                      |  | 380,000         |   |  | 200,000  |  
|                                                                      |  |                
|Less: Amounts due within one year and included in current liabilities |  | (50,000         | ) |  | (200,000 | )
|                                                                      |  |                 |   |  |          |  
|Amounts due after one year                                            |  | 330,000         |   |  |         |  
|                                                                      |  |                 |   |  |          |  

The bank loan of RMB200,000,000 as at December 31, 2005 carried interest at 5.76% per
annum. During the year ended December 31, 2006, this bank loan has been fully repaid.

The balances at of December 31, 2006 represent
two borrowings obtained by Shanxi Tianchi before the Company acquired it. Included in the loans of RMB380,000,000 is an amount of RMB160,000,000 that initially carries interest at 5.85% per annum and is subject to adjustment based on the interest
rate stipulated by the People Bank of China (the PBOC). The loan is repayable by 3 instalments over a period of 4 years, with the first instalment due in December 2007. The repayment is guaranteed by the Parent Company.

The remaining balance of RMB220,000,000 carries interest at 6.21% per annum and is subject to adjustment based on the interest rate stipulated by the
PBOC. The loan is repayable by 20 instalments over a period of 12 years, with the first instalment due in May 2008. The amount is also guaranteed by the Parent Company.



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LOGO



|34. | SHAREHOLDERS EQUITY
|--- | --------------------

Share capital

The Companys share capital structure at the balance sheet date is as follows:



|                                  |  |                                                      |   |                         |                  |  |                                                           |  |              
|--------------------------------- |  | ---------------------------------------------------- | - | ----------------------- | ---------------- |  | --------------------------------------------------------- |  | -------------
|                                  |  | Domestic invested shares                             |   | Foreign invested shares |                  | 
|                                  |  | State legal personshares (held by theParent Company) |   |                         | A shares(Note 1) |  | H shares (including H shares represented by ADS (Note 1)) |  | Total        
|Number of shares                  |  |                                                      |   |                         |                  |  |                                                           |  |              
|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 1, 2006                |  | 2,672,000,000                                        |   |                         | 288,000,000      |  | 1,958,400,000                                             |  | 4,918,400,000
|Share Reform Plan                 |  | (72,000,000                                          | ) |                         | 72,000,000       |  |                                                          |  |             
|                                  |  |                                                      |   |                         |                  |  |                                                           |  |              
|December 31,2006                  |  | 2,600,000,000                                        |   |                         | 360,000,000      |  | 1,958,400,000                                             |  | 4,918,400,000
|                                  |  |                                                      |   |                         |                  |  |                                                           |  |              
|                                  |  |                                                      |  
|                                  |  | Domestic invested shares                             |   | Foreign invested shares |                  | 
|                                  |  | State legal personshares (held by theParent Company) |   |                         | A shares(Note 1) |  | H shares (including H sharesrepresented by ADS (Note 1))  |  | Total        
|                                  |  | RMB000                                              |   |                         | RMB000          |  | RMB000                                                   |  | RMB000      
|Registered, issued and fully paid |  |                                                      |   |                         |                  |  |                                                           |  |              
|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 1, 2006                |  | 2,672,000                                            |   |                         | 288,000          |  | 1,958,400                                                 |  | 4,918,400    
|Share Reform Plan                 |  | (72,000                                              | ) |                         | 72,000           |  |                                                          |  |             
|                                  |  |                                                      |   |                         |                  |  |                                                           |  |              
|December 31, 2006                 |  | 2,600,000                                            |   |                         | 360,000          |  | 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.

Pursuant to a meeting for the holders of A shares of the
Company held on March 6, 2006, a 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 a formula. The Share Reform Plan has been further approved by the Ministry of Commerce of the PRC on March 21,
2006. An aggregate of 72,000,000 state legal person shares of RMB 1 each held by the Parent Company is transferred as A shares pursuant to the Share Reform Plan.



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YANZHOU COAL MINING COMPANY LIMITED

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|34. | SHAREHOLDERS EQUITY - continued
|--- | --------------------------------

Reserves

Pursuant to regulation in the PRC, the Company is required to transfer an annual amount to a future development fund at RMB6 per tonne
of raw coal mined. The fund can only be used for the future development of the coal mining business and is not available for distribution to shareholders.

Pursuant to the regulations of the Shandong Province Finance Bureau, State-owned Assets Supervision and Administration Commission of Shandong Province and the Shandong Province Coal Mining Industrial Bureau, the
Company is required to transfer an additional amount at RMB5 per tonne of raw coal mined from July 1, 2004 to the future development fund for the future improvement of the mining facilities and is not distributable to shareholders.

Pursuant to the relevant regulations from the Ministry of Finance, the Company is no longer required to set aside profit to the statutory common
welfare fund effective from January 1, 2006 and the balance of statutory common welfare fund as at January 1, 2006 is transferred to statutory common reserve fund.

The Company has to set aside 10% of its profit for the statutory common reserve fund (except where the fund has reached 50% of the Companys
registered capital). The statutory common reserve fund can be used for the following purposes:



| |  |  | to make good losses in previous years; or
| | - |  | -----------------------------------------



| |  |  | to convert into capital, provided such conversion is approved by a resolution at a shareholders general meeting and the balance of the statutory common
reserve fund does not fall below 25% of the registered capital.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In accordance with the Companys Articles of
Association, the profit for the purpose of appropriation will be deemed to be the lesser of the amounts determined in accordance with (i) PRC accounting standards and regulations and (ii) IFRS or the accounting standards of the places in
which its shares are listed.

The Company can also create a discretionary reserve in accordance with its Articles of Association or pursuant
to resolutions which may be adopted at a meeting of shareholders.

The Companys distributable reserve as at December 31, 2006 is
the retained earnings computed under PRC GAAP which amounted to approximately RMB6,344,632,000 (At December 31, 2005: RMB5,844,289,000).



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|35. | ACQUISITION OF SHANXI NENG HUA COMPANY LIMITED AND ITS SUBSIDIARIES
|--- | -------------------------------------------------------------------

On August 18, 2006, the Company entered into an equity transfer agreement with the Parent Company and conditionally agreed to purchase the 98% equity interest in Shanxi Neng Hua from the Parent Company.

In November 2006, the acquisition was completed and the consideration of RMB733,346,000 was fully paid to the Parent Company. The net
assets acquired were included in the coal mining segment.

This acquisition has been accounted for using the purchase method.

The net assets of Shanxi Group acquired, and the goodwill arising, are as follows:



|                                           |  |                                            |   |  |                       |   |  |            |  
|------------------------------------------ |  | ------------------------------------------ | - |  | --------------------- | - |  | ---------- | -
|                                           |  | Acquireescarryingamount beforecombination |   |  | Fair valueadjustments |   |  | Fair value |  
|                                           |  | RMB000                                    |   |  | RMB000               |   |  | RMB000    |  
|Bank balances and cash                     |  | 289,142                                    |   |  |                       |   |  | 289,142    |  
|Bills and accounts receivable              |  | 10,950                                     |   |  |                       |   |  | 10,950     |  
|Inventories                                |  | 4,609                                      |   |  |                       |   |  | 4,609      |  
|Prepayment for resources compensation fees |  | 25,387                                     |   |  |                       |   |  | 25,387     |  
|Prepayments and other currents assets      |  | 15,216                                     |   |  |                       |   |  | 15,216     |  
|Property, plant and equipment              |  | 628,976                                    |   |  |                       |   |  | 628,976    |  
|Mining rights                              |  |                                           |   |  | 164,452               |   |  | 164,452    |  
|Deferred tax liability                     |  | (2,962                                     | ) |  | (54,269               | ) |  | (57,231    | )
|Prepaid lease payments                     |  | 11,378                                     |   |  |                       |   |  | 11,378     |  
|Accounts payable                           |  | (12,126                                    | ) |  |                       |   |  | (12,126    | )
|Other payables and accrued expenses        |  | (75,436                                    | ) |  |                       |   |  | (75,436    | )
|Bank borrowings                            |  | (380,000                                   | ) |  |                       |   |  | (380,000   | )
|                                           |  |                                            |   |  |                       |   |  |            |  
|Total net assets acquired                  |  | 515,134                                    |   |  |                       |   |  | 625,317    |  
|Minority interests                         |  |                                            |   |  |                       |   |  | (34,518    | )
|Goodwill arising on acquisition            |  |                                            |   |  |                       |   |  | 142,547    |  
|                                           |  |                                            |   |  |                       |   |  |            |  
|                                           |  |                                            |   |  |                       |   |  | 733,346    |  
|                                           |  |                                            |   |  |                       |   |  |            |  
|Total consideration satisfied by:          |  |                                            |   |  |                       |   |  |            |  
|                                           |  |                                            |  
|Cash consideration paid on acquisition     |  |                                            |   |  |                       |   |  | 733,346    |  
|                                           |  |                                            |   |  |                       |   |  |            |  
|Net cash outflow arising on acquisition:   |  |                                            |   |  |                       |   |  |            |  
|                                           |  |                                            |  
|Cash paid on acquisition                   |  |                                            |   |  |                       |   |  | (733,346   | )
|Bank balances and cash acquired            |  |                                            |   |  |                       |   |  | 289,142    |  
|                                           |  |                                            |   |  |                       |   |  |            |  
|                                           |  |                                            |   |  |                       |   |  | (444,204   | )
|                                           |  |                                            |   |  |                       |   |  |            |  

Shanxi Group contributed RMB21,875,000 and RMB8,755,000 to the Groups turnover and loss
respectively, for the period between the date of acquisition and the balance sheet date.

If the acquisition had been completed on
January 1, 2006, the Groups revenue for the period would have been RMB12,961,204,000, and the Groups profit for the period would have been RMB2,274,162,000. The pro forma information is for illustrative purposes only and is not
necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on January 1, 2006, nor is it intended to be a projection of future results.

The goodwill arising from the acquisition is attributable to the anticipated profitability and the anticipated future operating synergies from the
combination.



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YANZHOU COAL MINING COMPANY LIMITED

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|36. | ACQUISITION OF HEZE
|--- | -------------------

The net assets of Heze acquired in
2005, and the goodwill arising, are as follows:



|                                                           |  |                             |  
|---------------------------------------------------------- |  | --------------------------- | -
|                                                           |  | Carryingvalue andfair 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 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 Agreement) 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.

On June 28, 2005, a supplemental agreement (the Supplemental
Agreement) was entered into between the Company and the Parent Company. Under the Supplemental Agreement, the Parent Company provided an irrevocable undertaking 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. In June 2006, the Parent Company has obtained the mining rights of Zhaolou coal mine. At
December 31, 2006, the Company has not yet purchased the mining rights from the parent Company.



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YANZHOU COAL MINING COMPANY LIMITED

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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 2005, the Group successfully obtained the exploration licences for the adjacent mines. Accordingly, consideration amounted to RMB23,644,000 (equivalent to AUD4,000,000) was paid
upon the completion of registration process in 2006.



|                                                                         |  |                             |  
|------------------------------------------------------------------------ |  | --------------------------- | -
|                                                                         |  | Carryingvalue andfair value |  
|                                                                         |  | RMB000                     |  
|The net assets of Southland acquired in the transaction were as follows: |  |                             |  
|                                                                         | 
|Mining rights                                                            |  | 32,634                      |  
|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. | 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 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, 2006 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 instalments before December of each year, commencing from 2001.



|                                                           |  |                 |   |  |          |  
|---------------------------------------------------------- |  | --------------- | - |  | -------- | -
|                                                           |  | At December 31, |  
|                                                           |  | 2006            |   |  | 2005     |  
|Amounts due to Parent Company and its subsidiary companies |  | RMB000         |   |  | RMB000  |  
|Within one year                                            |  | 982,347         |   |  | 508,254  |  
|More than one year, but not exceeding two years            |  | 8,181           |   |  | 8,689    |  
|More than two years, but not exceeding three years         |  | 7,704           |   |  | 8,181    |  
|More than three years, but no exceeding four years         |  | 7,253           |   |  | 7,704    |  
|More than four years, but not exceeding five years         |  |                |   |  | 7,253    |  
|                                                           |  |                 |   |  |          |  
|Total                                                      |  | 1,005,485       |   |  | 540,081  |  
|Less: amount due within one year                           |  | (982,347        | ) |  | (508,254 | )
|                                                           |  |                 |   |  |          |  
|Amount due after one year                                  |  | 23,138          |   |  | 31,827   |  
|                                                           |  |                 |   |  |          |  

Except the amounts disclosed above, the amounts due to the Parent Company and/or its subsidiary
companies have no specific terms of repayments.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|38. | RELATED PARTY BALANCES AND TRANSACTIONS - continued
|--- | ---------------------------------------------------

Related Party Transactions

During the years, the Group had the following significant transactions with the Parent Company
and/or its subsidiary companies:



|                                            |  |                         |  |         |  |        
|------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                            |  | Year ended December 31,
|                                            |  | 2006                    |  | 2005    |  | 2004   
|                                            |  | RMB000                 |  | RMB000 |  | RMB000
|Income                                      |  |                         |  |         |  |        
|Sales of coal                               |  | 1,069,879               |  | 856,580 |  | 523,015
|Sales of auxiliary materials                |  | 496,221                 |  | 369,855 |  | 350,873
|Utilities and facilities                    |  |                        |  | 29,000  |  | 29,000 
|                                            |  |                         | 
|Expenditure                                 |  |                         |  |         |  |        
|Utilities and facilities                    |  | 358,370                 |  | 355,953 |  | 354,424
|Annual fee for mining rights                |  | 12,980                  |  | 12,980  |  | 12,980 
|Purchases of supply materials and equipment |  | 458,329                 |  | 341,935 |  | 303,549
|Repair and maintenance services             |  | 246,841                 |  | 197,624 |  | 222,949
|Social welfare and support services         |  | 406,004                 |  | 242,952 |  | 207,062
|Technical support and training              |  | 20,000                  |  | 15,130  |  | 15,130 
|Road transportation services                |  | 63,448                  |  | 53,346  |  | 63,478 
|Construction services                       |  | 306,658                 |  |        |  | 160,342
|                                            |  |                         |  |         |  |        

Certain expenditure for social welfare and support services (excluding medical and child care
expenses) of RMB165,900,000, RMB63,361,000 and RMB63,275,000 for the years ended December 31, 2006, 2005 and 2004, respectively, and for technical support and training of RMB20,000,000, RMB15,130,000 and RMB15,130,000, have been charged by the
Parent Company at a negotiated amount per annum, subject to changes every year.



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LOGO



|38. | RELATED PARTY BALANCES AND TRANSACTIONS - continued
|--- | ---------------------------------------------------

During the year, the Company acquired Shanxi Neng Hua from the Parent Company. Details of this acquisition are set out in note 35.

During the year ended December 31, 2005, 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 retirement benefit scheme of the Parent Company in respect of retirement benefits (note 40).

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,
|                |  | 2006                    |  | 2005      |  | 2004     
|                |  | RMB000                 |  | RMB000   |  | RMB000  
|Trade sales     |  | 4,600,606               |  | 3,855,545 |  | 4,466,519
|                |  |                         |  |           |  |          
|Trade purchases |  | 1,568,658               |  | 1,607,729 |  | 1,541,147
|                |  |                         |  |           |  |          

Material balances with other state-controlled entities are as follows:



|                                                 |  |                |  |        
|------------------------------------------------ |  | -------------- |  | -------
|                                                 |  | At December 31
|                                                 |  | 2006           |  | 2005   
|                                                 |  | RMB000        |  | RMB000
|Amounts due from other state-controlled entities |  | 345,914        |  | 350,688
|                                                 |  |                |  |        
|Amounts due to other state-controlled entities   |  | 301,117        |  | 270,559
|                                                 |  |                |  |        

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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|38. | 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,
|                                              |  | 2006                    |  | 2005    |  | 2004   
|                                              |  | RMB000                 |  | RMB000 |  | RMB000
|Directors fee                                |  | 373                     |  | 342     |  | 324    
|Salaries, allowance and other benefit in kind |  | 2,710                   |  | 1,503   |  | 1,029  
|Retirement benefit scheme contribution        |  | 1,030                   |  | 678     |  | 463    
|                                              |  |                         |  |         |  |        
|                                              |  | 4,113                   |  | 2,523   |  | 1,816  
|                                              |  |                         |  |         |  |        

The remuneration of directors and key executives is determined by the remuneration committee
having regard to the performance of individuals and market trends.



|39. | COMMITMENTS
|--- | -----------



|                                                                                                                                           |  |                 |  |          
|------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------- |  | ---------
|                                                                                                                                           |  | At December 31,
|                                                                                                                                           |  | 2006            |  | 2005     
|                                                                                                                                           |  | RMB000         |  | RMB000  
|Capital expenditure contracted for but not provided in the financial statements in respect of acquisition of property, plant and
equipment |  | 1,221,884       |  | 920,907  
|Capital expenditure authorized but not contracted for in respect of development of new coal mines                                          |  | 600,000         |  | 1,900,000
|                                                                                                                                           |  |                 |  |          
|                                                                                                                                           |  | 1,821,884       |  | 2,820,907
|                                                                                                                                           |  |                 |  |          

In accordance with the regulations of the State Administration of Work Safety, the Group has a
commitment to set aside RMB8 for each tonne of raw coal mined from May 1, 2004 which will be used for enhancement of safety production environment and improvement of facilities (Work Safety Cost). The unutilized Work Safety Cost at
December 31, 2006 was RMB 30,208,000 (2005: RMB91,462,000).

During 2006, the Company entered into a co-operative agreement with two
independent third parties, to establish a company for the operation of a coal mine to be acquired in Shaanxi province. In addition to the deposit referred to in note 28, the Company is committed to invest a further RMB99.8 million.



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|40. | RETIREMENT BENEFITS
|--- | -------------------

Qualifying employees of the Company
are entitled to a pension, medical and other welfare benefits. The Company participates in a scheme of the Parent Company and pays a monthly contribution to the Parent Company in respect of retirement benefits at an agreed contribution rate based on
the monthly basic salaries and wages of the qualified employees. The Parent Company is responsible for the payment of all retirement benefits to the retired employees of the Company.

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 contributions paid to the Parent Company were RMB640,620,000, RMB522,650,000 and RMB408,462,000 for the years ended December 31, 2006,
2005, and 2004, respectively.

The Companys subsidiaries are participants in a state-managed retirement scheme pursuant to which the
subsidiaries pay a fixed percentage of its qualifying staffs wages as a contribution to the scheme. The subsidiaries financial obligations under this scheme are limited to the payment of the employers contribution. During the year,
contributions 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.



|41. | 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,
2006, 2005 and 2004. Such expenses, amounting to RMB86,200,000, RMB37,200,000 and RMB37,200,000 for each of the three years ended December 31, 2006, 2005 and 2004 respectively, have been included as part of the social welfare and support
services expenses summarized in note 38.

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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|42. | FAIR VALUE OF FINANCIAL INSTRUMENTS
|--- | -----------------------------------

The carrying amounts
of bank balances and cash, term deposits, restricted cash, other loans receivable, other payables, amounts due to Parent Company and its subsidiary companies and bank borrowings 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.



|43. | CONCENTRATION OF CREDIT RISK
|--- | ----------------------------

The Group maintains its cash
and cash equivalents with reputable banks in the PRC. Therefore, the directors consider that the credit risk for such is minimal.

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.

For the years ended December 31, 2006, 2005 and 2004, net sales to the Groups five largest domestic customers accounted for approximately
22.1%, 20.0% and 15.3%, respectively, of the Groups total net sales. Net sales to the Groups largest domestic customer accounted for 10.2%, 13.4% and 9.2% of the Groups net sales for the years ended December 31, 2006, 2005 and
2004, respectively. The Groups largest domestic customer was the Huadian Power International Corporation Limited (Huadian) for the years ended December 31, 2006, 2005 and 2004.

Details of the amounts receivable from the five customers with the largest receivable balances at December 31, 2006 and 2005 are as follows:



|                                 |  |                                                 |   |  |      |  
|-------------------------------- |  | ----------------------------------------------- | - |  | ---- | -
|                                 |  | Percentage ofaccounts receivableAt December 31, |  
|                                 |  | 2006                                            |   |  | 2005 |  
|Five largest receivable balances |  | 72                                              | % |  | 66   | %
|                                 |  |                                                 |   |  |      |  

As at 31 December 2006, the Group has exposure to credit risk in the event of the
counterparties failure to perform their obligation in relation to the Default Loan (note 20). In order to minimize the credit risk, the management of the Group has monitoring procedures to ensure that follow-up action is taken to recover overdue
debts. In addition, the Group reviews the recoverable amount of other loan receivables at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider
that the Groups credit risk is significantly reduced.



|44. | SUBSEQUENT EVENTS
|--- | -----------------

On January 11, 2007, the Company
acquired the remaining 2% of the equity interest in Shanxi Neng Hua at a cash consideration of RMB14,966,000. The acquisition was completed on January 23, 2007.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



On March 16, 2007, the Peoples Republic of China promulgated Law of the Peoples
Republic of China on Enterprise Income Tax (New Law) by Order No. 63 of the President of the Peoples Republic of China, which will be effective from January 1, 2008. The Company and its subsidiaries will then measure and
pay Enterprise Income Tax pursuant to the New Law. This may result in a decrease of the December 31, 2006 deferred tax liability of approximately RMB69 million.



|45. | SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER IFRS AND THOSE UNDER 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 utilizing for the enhancement of safety production environment and facilities (see note 39), which is charged as expenses when
provided under PRC GAAP;
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | depreciation provided for plant and equipment acquired by utilizing Work Safety Cost, which is charged as expenses in all once provided as Work Safety Cost under PRC GAAP;
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | 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;
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | 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;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | write off pre-operating expenses capitalized in a subsidiary of the Company as a long-term asset under PRC GAAP;
| | ---- | ----------------------------------------------------------------------------------------------------------------



| | (vii) | 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;
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (viii) | 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; and
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ix) | reversal of fair value change in available-for-sales investment, which is not taken up under PRC GAAP.
| | ---- | ------------------------------------------------------------------------------------------------------



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|45. | SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER IFRS AND THOSE UNDER PRC GAAP - continued
|--- | ------------------------------------------------------------------------------------------------------------------------

The following table summarizes the differences between consolidated financial statement prepared under IFRS and those under PRC GAAP:



|                                                                                                                                              |  |                                                                                              |   |  |                                                                            |   |  |           |   |  |            |   |  |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- | - |  | -------------------------------------------------------------------------- | - |  | --------- | - |  | ---------- | - |  | ---------- | -
|                                                                                                                                              |  | Net income attributable to the equity holders of the Company for the
year ended December 31, |   |  | Net assets attributable to equity holders of theCompany as at December 31, |  
|                                                                                                                                              |  | 2006                                                                                         |   |  | 2005                                                                       |   |  | 2004      |   |  | 2006       |   |  | 2005       |  
|                                                                                                                                              |  | RMB000                                                                                      |   |  | RMB000                                                                    |   |  | RMB000   |   |  | RMB000    |   |  | RMB000    |  
|As per consolidated financial statements prepared under IFRS                                                                                  |  | 2,372,985                                                                                    |   |  | 2,881,461                                                                  |   |  | 3,154,317 |   |  | 18,931,779 |   |  | 17,618,577 |  
|Impact of IFRS adjustments in respect of: - transfer to future development fund which is charged to income before income taxes under PRC
GAAP |  | (390,907                                                                                     | ) |  | (381,208                                                                   | ) |  | (331,548  | ) |  | (447,372   | ) |  | (269,945   | )
|- reversal of Work Safety Cost                                                                                                                |  | (209,555                                                                                     | ) |  | (238,600                                                                   | ) |  | (204,668  | ) |  | (652,823   | ) |  | (443,268   | )
|- release of negative goodwill to income                                                                                                      |  |                                                                                             |   |  |                                                                           |   |  | (27,620   | ) |  | (138,101   | ) |  | (138,101   | )
|- deemed interest expenses                                                                                                                    |  | 3,171                                                                                        |   |  | 3,858                                                                      |   |  | 4,550     |   |  | 116,391    |   |  | 113,220    |  
|- (Reversal) write-off of pre-operating expenses of subsidiaries                                                                              |  | (80,051                                                                                      | ) |  | 121,801                                                                    |   |  |          |   |  | 46,860     |   |  | 121,801    |  
|- reversal of goodwill amortization                                                                                                           |  | (16,007                                                                                      | ) |  | (15,006                                                                    | ) |  |          |   |  | (31,013    | ) |  | (15,006    | )
|- deferred tax effect on temporary differences not recognized under PRC GAAP                                                                  |  | 69,021                                                                                       |   |  | 123,175                                                                    |   |  | 111,976   |   |  | 226,507    |   |  | 146,279    |  
|- fair value change of available-for-sales investment                                                                                         |  |                                                                                             |   |  |                                                                           |   |  |          |   |  | (33,961    | ) |  |           |  
|- others                                                                                                                                      |  | 684                                                                                          |   |  |                                                                           |   |  | 778       |   |  | 8,754      |   |  | 8,070      |  
|                                                                                                                                              |  |                                                                                              |   |  |                                                                            |   |  |           |   |  |            |   |  |            |  
|As per consolidated financial statements prepared under PRC GAAP                                                                              |  | 1,749,341                                                                                    |   |  | 2,495,481                                                                  |   |  | 2,707,785 |   |  | 18,027,021 |   |  | 17,141,627 |  
|                                                                                                                                              |  |                                                                                              |   |  |                                                                            |   |  |           |   |  |            |   |  |            |  



| | 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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|46. | SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER IFRS AND THOSE UNDER US GAAP
|--- | -----------------------------------------------------------------------------------------------------------

The consolidated financial statements are prepared in accordance with IFRS, which differ in certain significant respects from consolidated financial
statement prepared under 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, the Railway Assets, Heze and Shanxi Group have
been accounted for using the purchase method which accounts for the assets and liabilities of Jining II, Jining III , the Railway Assets, Heze and Shanxi Group 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, Heze and Shanxi Group are entities under the common control of the Parent Company, the assets and liabilities of Jining II, Jining III, the Railway Assets, Heze and Shanxi Group 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, Heze and Shanxi Group 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 Shanxi Group using the pooling of interest method on the net income under US GAAP for the year ended December 31, 2005 and 2004 is as follows:



|                               |  |                         |   |  |          
|------------------------------ |  | ----------------------- | - |  | ---------
|                               |  | Year ended December 31,
|                               |  | 2005                    |   |  | 2004     
|                               |  | RMB000                 |   |  | RMB000  
|Net income                     |  |                         |   |  |          
|As previously reported         |  | 2,994,711               |   |  | 3,263,892
|Pooling of interest adjustment |  |                         |   |  |          
|Net loss from Shanxi           |  | (3,592                  | ) |  |         
|                               |  |                         |   |  |          
|As restated                    |  | 2,991,119               |   |  | 3,263,892
|                               |  |                         |   |  |          

Under IFRS, the mining rights of Jining III and Shanxi Group are stated at purchase consideration
less amortization. Mining rights are amortized on a straight line basis over twenty years and twenty-seven years, respectively, being the useful lives 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.



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|46. | SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER IFRS AND THOSE UNDER US GAAP - continued
|--- | -----------------------------------------------------------------------------------------------------------------------

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 bases of the assets of the Company formed from the reorganization and depreciation is based on such new bases. 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 as goodwill and was, prior to
January 1, 2007, 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 starting from the initial recognition of goodwill in 2003, when Yanmei Shipping was acquired by the Company.

Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. The Group completes a two-step goodwill impairment test. The first step compares the fair value of each
reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a
reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting units goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a
business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and
liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is
recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill.

The cost of mining structure is
depreciated using the unit of production method based on the estimated production volume for proven and probable reserves, of which the structure was designed.



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|46. | SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER IFRS AND THOSE UNDER 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, |          
|                                                                                                                                                                                                                              |  | 2006                    |           |   | 2005    |     |           | 2004    | 
|                                                                                                                                                                                                                              |  | RMB000                 |           |   | RMB000 |     |           | RMB000 | 
|Income attributable to the equity holders of the Company as reported under IFRS                                                                                                                                               |  |                         | 2,372,985 |   |         |     | 2,881,461 |         |  |     | 3,154,317 |  
|                                                                                                                                                                                                                              |  |                         |          
|US GAAP adjustments:                                                                                                                                                                                                          |  |                         |           |   |         |     |           |         |  |     |           |  
|                                                                                                                                                                                                                              |  |                         |          
|Additional depreciation charged on fair value of property, plant and equipment and prepaid lease payments                                                                                                                     |  |                         | 187,859   |   |         |     | 187,885   |         |  |     | 187,418   |  
|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, net of minority interest |  |                         | (64,311   | ) |         |     | (64,188   | )       |  |     | (64,034   | )
|Amortization of negative goodwill on acquisition of Jining III                                                                                                                                                                |  |                         |          |   |         |     |          |         |  |     | (27,620   | )
|Amortization of mining rights of Jining III                                                                                                                                                                                   |  |                         | 6,624     |   |         |     | 6,624     |         |  |     | 6,624     |  
|Amortization of mining rights of Shanxi Group, net of minority interest                                                                                                                                                       |  |                         | 402       |   |         |     |          |         |  |     |          |  
|Amortization of goodwill arising on acquisition of Jining II                                                                                                                                                                  |  |                         |          |   |         |     |          |         |  |     | 777       |  
|Amortization of goodwill arising on acquisition of the Railway Assets                                                                                                                                                         |  |                         |          |   |         |     |          |         |  |     | 13,880    |  
|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    | )
|Loss of Shanxi Group included in the Group using the pooling of interest method                                                                                                                                               |  |                         | (97,806   | ) |         |     | (3,592    | )       |  |     |          |  
|                                                                                                                                                                                                                              |  |                         |           |   |         |     |           |         |  |     |           |  
|Income under US GAAP                                                                                                                                                                                                          |  |                         | 2,405,753 |   |         |     | 2,991,119 |         |  |     | 3,263,892 |  
|                                                                                                                                                                                                                              |  |                         |           |   |         |     |           |         |  |     |           |  
|Earnings per share under US GAAP, Basic and diluted                                                                                                                                                                           |  | RMB                     | 0.49      |   |         | RMB | 0.61      |         |  | RMB | 0.69      |  
|                                                                                                                                                                                                                              |  |                         |           |   |         |     |           |         |  |     |           |  
|Earnings per ADS under US GAAP Basic and diluted                                                                                                                                                                              |  | RMB                     | 24.46     |   |         | RMB | 30.41     |         |  | RMB | 34.40     |  
|                                                                                                                                                                                                                              |  |                         |           |   |         |     |           |         |  |     |           |  



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YANZHOU COAL MINING COMPANY LIMITED

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|46. | SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER IFRS AND THOSE UNDER US GAAP - continued
|--- | -----------------------------------------------------------------------------------------------------------------------



|                                                                                                                                                               |  |                 |   |  |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | - |  | ---------- | -
|                                                                                                                                                               |  | At December 31, |  
|                                                                                                                                                               |  | 2006            |   |  | 2005       |  
|                                                                                                                                                               |  | RMB000         |   |  | RMB000    |  
|Equity attributable to the equity holders of the Company as reported under IFRS                                                                                |  | 18,931,779      |   |  | 17,618,577 |  
|                                                                                                                                                               |  |                
|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                                           |  | 1,688,682       |   |  | 1,500,823  |  
|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 |  | 287,876         |   |  | 349,869    |  
|Goodwill arising on acquisition of Jining II                                                                                                                   |  | (10,106         | ) |  | (10,106    | )
|Mining rights of Jining III                                                                                                                                    |  | (92,735         | ) |  | (99,359    | )
|Additional deferred tax asset due to a higher tax base resulting from capitalization of mining rights                                                          |  | 30,602          |   |  | 32,788     |  
|Difference in cost bases of mining rights of Shanxi Group, net of minority interest                                                                            |  | (130,640        | ) |  |           |  
|Additional deferred tax due to a higher tax base resulting from capitalization of mining rights of Shanxi Group, net of minority
interest                      |  | 43,112          |   |  |           |  
|Goodwill arising on acquisition of Railway Assets                                                                                                              |  | (97,240         | ) |  | (97,240    | )
|Goodwill arising on acquisition of Heze                                                                                                                        |  | (35,645         | ) |  | (35,645    | )
|Amortization of goodwill on acquisition of Yanmei Shipping                                                                                                     |  | 1,116           |   |  | 1,116      |  
|Net assets of Shanxi Neng Hua incorporated under pooling of interest                                                                                           |  |                 |   |  |            |  
|- current assets                                                                                                                                               |  |                |   |  | 252,476    |  
|- property, plant and equipment, net                                                                                                                           |  |                |   |  | 426,798    |  
|- prepaid lease payments                                                                                                                                       |  |                |   |  | 1,366      |  
|- current liabilities                                                                                                                                          |  |                |   |  | (60,895    | )
|- non-current liabilities                                                                                                                                      |  |                |   |  | (3,456     | )
|- minority interests                                                                                                                                           |  |                |   |  | (17,423    | )
|                                                                                                                                                               |  |                 |   |  |            |  
|                                                                                                                                                               |  |                |   |  | 598,866    |  
|                                                                                                                                                               |  |                 |   |  |            |  
|Consideration payable on acquisition of Shanxi                                                                                                                 |  |                |   |  | (733,346   | )
|Goodwill arising on acquisition of Shanxi Group                                                                                                                |  | (142,547        | ) |  |           |  
|                                                                                                                                                               |  |                 |   |  |            |  
|Shareholders equity under US GAAP                                                                                                                             |  | 17,913,222      |   |  | 16,565,311 |  
|                                                                                                                                                               |  |                 |   |  |            |  



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|46. | SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER IFRS AND THOSE UNDER 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, |  
|                                                                  |  | 2006            |   |  | 2005       |  
|                                                                  |  | RMB000         |   |  | RMB000    |  
|Total current assets                                              |  |                 |   |  |            |  
|As reported under IFRS                                            |  | 9,871,911       |   |  | 10,951,151 |  
|US GAAP adjustments:                                              |  |                 |   |  |            |  
|Net assets of Shanxi Group incorporated under pooling of interest |  |                 |   |  |            |  
|- current assets                                                  |  |                |   |  | 252,476    |  
|Consideration payable on acquisition of Shanxi Group              |  |                |   |  | (733,346   | )
|                                                                  |  |                 |   |  |            |  
|As adjusted under US GAAP                                         |  | 9,871,911       |   |  | 10,470,281 |  
|                                                                  |  |                 |   |  |            |  
|Mining rights                                                     |  |                 |   |  |            |  
|As reported under IFRS                                            |  | 307,909         |   |  | 153,265    |  
|US GAAP adjustment:                                               |  |                 |   |  |            |  
|Mining rights of Jining III                                       |  | (92,735         | ) |  | (99,359    | )
|Mining rights of Shanxi Group                                     |  | (163,948        | ) |  |           |  
|                                                                  |  |                 |   |  |            |  
|As adjusted under US GAAP                                         |  | 51,226          |   |  | 53,906     |  
|                                                                  |  |                 |   |  |            |  
|Prepaid lease payments                                            |  |                 |   |  |            |  
|As reported under IFRS                                            |  |                 |   |  |            |  
|- Current portion                                                 |  | 13,746          |   |  | 13,465     |  
|- Non-current portion                                             |  | 578,988         |   |  | 579,773    |  
|                                                                  |  |                 |   |  |            |  
|                                                                  |  | 592,734         |   |  | 593,238    |  
|US GAAP adjustments:                                              |  |                 |   |  |            |  
|Difference in cost bases of land use rights                       |  | (550,634        | ) |  | (550,634   | )
|Additional depreciation charged on land use rights                |  | 75,274          |   |  | 64,261     |  
|Net assets of Shanxi Group incorporated under pooling of interest |  |                 |   |  |            |  
|- prepaid lease payments                                          |  |                |   |  | 1,366      |  
|                                                                  |  |                 |   |  |            |  
|As adjusted under US GAAP                                         |  | 117,374         |   |  | 108,231    |  
|                                                                  |  |                 |   |  |            |  
|Analysis as:                                                      |  |                 |   |  |            |  
|Current                                                           |  | 13,746          |   |  | 13,465     |  
|Non-current                                                       |  | 103,628         |   |  | 94,766     |  
|                                                                  |  |                 |   |  |            |  
|                                                                  |  | 117,374         |   |  | 108,231    |  
|                                                                  |  |                 |   |  |            |  



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|46. | SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER IFRS AND THOSE UNDER US GAAP - continued
|--- | -----------------------------------------------------------------------------------------------------------------------



|                                                                                                         |  |                 |   |  |            |  
|-------------------------------------------------------------------------------------------------------- |  | --------------- | - |  | ---------- | -
|                                                                                                         |  | At December 31, |  
|                                                                                                         |  | 2006            |   |  | 2005       |  
|                                                                                                         |  | RMB000         |   |  | RMB000    |  
|Property, plant and equipment                                                                            |  |                 |   |  |            |  
|As reported under IFRS                                                                                   |  | 12,139,939      |   |  | 9,318,486  |  
|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                                         |  | 1,613,408       |   |  | 1,436,562  |  
|Net assets of Shanxi Group incorporated under pooling of interests                                       |  |                 |   |  |            |  
|- property, plant and equipment                                                                          |  |                |   |  | 426,798    |  
|                                                                                                         |  |                 |   |  |            |  
|As adjusted under US GAAP                                                                                |  | 11,742,949      |   |  | 9,171,448  |  
|                                                                                                         |  |                 |   |  |            |  
|Goodwill                                                                                                 |  |                 |   |  |            |  
|As reported under IFRS                                                                                   |  | 295,584         |   |  | 153,037    |  
|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         | ) |  | (35,645    | )
|Goodwill arising on acquisition of Shanxi Group                                                          |  | (142,547        | ) |  |           |  
|Amortization arising on acquisition of Yanmei Shipping                                                   |  | 1,116           |   |  | 1,116      |  
|                                                                                                         |  |                 |   |  |            |  
|As adjusted under US GAAP                                                                                |  | 11,162          |   |  | 11,162     |  
|                                                                                                         |  |                 |   |  |            |  
|Deferred tax assets/(liabilities)                                                                        |  |                 |   |  |            |  
|As reported under IFRS                                                                                   |  | (283,823        | ) |  | (146,279   | )
|US GAAP adjustments:                                                                                     |  |                 |   |  |            |  
|Additional deferred tax asset attributable to differences in cost bases of property, plant and equipment |  | 131,007         |   |  | 189,366    |  
|Additional deferred tax asset attributable to differences in cost bases of land use rights               |  | 156,869         |   |  | 160,503    |  
|Additional deferred tax asset attributable to capitalization of mining rights                            |  | 30,602          |   |  | 32,788     |  
|Additional deferred tax asset attributable to capitalization of mining rights of Shanxi Group            |  | 54,103          |   |  |           |  
|                                                                                                         |  |                 |   |  |            |  
|As adjusted under US GAAP                                                                                |  | 88,758          |   |  | 236,378    |  
|                                                                                                         |  |                 |   |  |            |  



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|46. | SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER IFRS AND THOSE UNDER US GAAP - continued
|--- | -----------------------------------------------------------------------------------------------------------------------



|                                                                               |  |                 |   |  |          
|------------------------------------------------------------------------------ |  | --------------- | - |  | ---------
|                                                                               |  | At December 31,
|                                                                               |  | 2006            |   |  | 2005     
|                                                                               |  | RMB000         |   |  | RMB000  
|Current liabilities                                                            |  |                 |   |  |          
|As reported under IFRS                                                         |  | 3,828,048       |   |  | 3,429,030
|US GAAP adjustment:                                                            |  |                 |   |  |          
|Current liabilities of Shanxi Group incorporated under pooling of interest     |  |                |   |  | 60,895   
|                                                                               |  |                 |   |  |          
|As adjusted under US GAAP                                                      |  | 3,828,048       |   |  | 3,489,925
|                                                                               |  |                 |   |  |          
|Non-current liabilities                                                        |  |                 |   |  |          
|As reported under IFRS                                                         |  | 353,138         |   |  | 31,827   
|US GAAP adjustment:                                                            |  |                 |   |  |          
|Non-current liabilities of Shanxi Group incorporated under pooling of interest |  |                |   |  | 3,456    
|                                                                               |  |                 |   |  |          
|As adjusted under US GAAP                                                      |  | 353,138         |   |  | 35,283   
|                                                                               |  |                 |   |  |          
|Minority interest                                                              |  |                 |   |  |          
|As reported under IFRS                                                         |  | 61,961          |   |  | 28,731   
|US GAAP adjustment:                                                            |  |                 |   |  |          
|Minority interest of capitalization of mining rights of Shanxi Group           |  | (22,317         | ) |  |         
|Net assets of Shanxi Group incorporated under pooling of interest              |  |                |   |  | 17,423   
|                                                                               |  |                 |   |  |          
|As adjusted under US GAAP                                                      |  | 39,644          |   |  | 46,154   
|                                                                               |  |                 |   |  |          



|                                                                 |  |                         |   |  |           |   |  |           |  
|---------------------------------------------------------------- |  | ----------------------- | - |  | --------- | - |  | --------- | -
|                                                                 |  | Year ended December 31, |  
|                                                                 |  | 2006                    |   |  | 2005      |   |  | 2004      |  
|                                                                 |  | RMB000                 |   |  | RMB000   |   |  | RMB000   |  
|Cost of sales and service provided                               |  |                         |   |  |           |   |  |           |  
|As reported under IFRS                                           |  | 6,190,069               |   |  | 5,288,588 |   |  | 4,551,703 |  
|US GAAP adjustments:                                             |  |                         |   |  |           |   |  |           |  
|Additional depreciation charged on property, plant and equipment |  | (165,103                | ) |  | (165,677  | ) |  | (164,169  | )
|Amortization of mining rights of Jining III                      |  | (6,624                  | ) |  | (6,624    | ) |  | (6,624    | )
|Amortization of mining rights of Shanxi Group                    |  | (504                    | ) |  |          |   |  |          |  
|                                                                 |  |                         |   |  |           |   |  |           |  
|As adjusted under US GAAP                                        |  | 6,017,838               |   |  | 5,116,287 |   |  | 4,380,910 |  
|                                                                 |  |                         |   |  |           |   |  |           |  



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|46. | SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER IFRS AND THOSE UNDER US GAAP - continued
|--- | -----------------------------------------------------------------------------------------------------------------------



|                                                                                                     |  |                         |   |  |           |   |  |           |  
|---------------------------------------------------------------------------------------------------- |  | ----------------------- | - |  | --------- | - |  | --------- | -
|                                                                                                     |  | Year ended December 31, |  
|                                                                                                     |  | 2006                    |   |  | 2005      |   |  | 2004      |  
|                                                                                                     |  | RMB000                 |   |  | RMB000   |   |  | RMB000   |  
|Selling, general and administrative expenses                                                         |  |                         |   |  |           |   |  |           |  
|As reported under IFRS                                                                               |  | 2,230,142               |   |  | 1,918,788 |   |  | 1,479,863 |  
|US GAAP adjustments:                                                                                 |  |                         |   |  |           |   |  |           |  
|Additional depreciation charged on:                                                                  |  |                         |   |  |           |   |  |           |  
|- property, plant and equipment                                                                      |  | (11,653                 | ) |  | (11,105   | ) |  | (12,236   | )
|- land use rights                                                                                    |  | (11,103                 | ) |  | (11,103   | ) |  | (11,013   | )
|Amortization of goodwill arising on acquisition of Railway Assets                                    |  |                        |   |  |          |   |  | (13,880   | )
|Amortization of goodwill arising on acquisition of Jining II                                         |  |                        |   |  |          |   |  | (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     |  
|Loss of Shanxi Group included in the Group using the pooling of interest method                      |  | 92,745                  |   |  | 3,592     |   |  |          |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|As adjusted under US GAAP                                                                            |  | 2,300,131               |   |  | 1,917,243 |   |  | 1,449,427 |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|Other operating income                                                                               |  |                         |   |  |           |   |  |           |  
|As reported under IFRS                                                                               |  | 165,837                 |   |  | 135,038   |   |  | 165,732   |  
|US GAAP adjustments:                                                                                 |  |                         |   |  |           |   |  |           |  
|Amortization of negative goodwill on acquisition of Jining III                                       |  |                        |   |  |          |   |  | (27,620   | )
|Reclassification of interest income from bank deposits and investments in securities to other income |  | (94,372                 | ) |  | (91,715   | ) |  | (92,711   | )
|Reclassification of dividend income to other income                                                  |  | (6,311                  | ) |  | (4,465    | ) |  | (4,465    | )
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|As adjusted under US GAAP                                                                            |  | 65,154                  |   |  | 38,858    |   |  | 40,936    |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|Interest expenses                                                                                    |  |                         |   |  |           |   |  |           |  
|As reported under IFRS                                                                               |  | 26,349                  |   |  | 24,611    |   |  | 35,942    |  
|US GAAP adjustments:                                                                                 |  |                         |   |  |           |   |  |           |  
|Loss of Shanxi Group included in the Group using the pooling of interest method                      |  | 5,061                   |   |  |          |   |  |          |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|As adjusted under US GAAP                                                                            |  | 31,410                  |   |  | 24,611    |   |  | 35,942    |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  



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|46. | SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT
|--- | ---------------------------------------------------------------

PREPARED UNDER IFRS AND THOSE UNDER US GAAP - continued



|                                                                                                                                      |  |                         |   |  |           |   |  |           |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | - |  | --------- | - |  | --------- | -
|                                                                                                                                      |  | Year ended December 31, |  
|                                                                                                                                      |  | 2006                    |   |  | 2005      |   |  | 2004      |  
|                                                                                                                                      |  | 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                                  |  | 94,372                  |   |  | 91,715    |   |  | 92,711    |  
|Reclassification of dividend income to other income                                                                                   |  | 6,311                   |   |  | 4,465     |   |  | 4,465     |  
|                                                                                                                                      |  |                         |   |  |           |   |  |           |  
|As adjusted under US GAAP                                                                                                             |  | 100,683                 |   |  | 96,180    |   |  | 97,176    |  
|                                                                                                                                      |  |                         |   |  |           |   |  |           |  
|Income taxes                                                                                                                          |  |                         |   |  |           |   |  |           |  
|As reported under IFRS                                                                                                                |  | 1,354,656               |   |  | 1,538,036 |   |  | 1,518,762 |  
|US GAAP adjustments:                                                                                                                  |  |                         |   |  |           |   |  |           |  
|Additional deferred tax charges attributable to differences in cost bases of property, plant and equipment and prepaid lease
payments |  | 61,992                  |   |  | 62,002    |   |  | 61,848    |  
|Additional deferred tax charges attributable to capitalization of mining rights                                                       |  | 2,186                   |   |  | 2,186     |   |  | 2,186     |  
|Additional deferred tax charges attributable to capitalization of Shanxi Group                                                        |  | 166                     |   |  |          |   |  |          |  
|                                                                                                                                      |  |                         |   |  |           |   |  |           |  
|As adjusted under US GAAP                                                                                                             |  | 1,419,000               |   |  | 1,602,224 |   |  | 1,582,796 |  
|                                                                                                                                      |  |                         |   |  |           |   |  |           |  
|Minority interest                                                                                                                     |  |                         |   |  |           |   |  |           |  
|As reported under IFRS                                                                                                                |  | 1,017                   |   |  | (476      | ) |  | (253      | )
|US GAAP adjustments:                                                                                                                  |  |                         |   |  |           |   |  |           |  
|Amortization of mining rights of Shanxi Group                                                                                         |  | (102                    | ) |  |          |   |  |          |  
|Additional deferred tax charges attributable to capitalization of Shanxi Group                                                        |  | 33                      |   |  |          |   |  |          |  
|                                                                                                                                      |  |                         |   |  |           |   |  |           |  
|As adjusted under US GAAP                                                                                                             |  | 948                     |   |  | (476      | ) |  | (253      | )
|                                                                                                                                      |  |                         |   |  |           |   |  |           |  



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YANZHOU COAL MINING COMPANY LIMITED

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|46. | SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER IFRS AND THOSE UNDER 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,
|                                     |  | 2006            |  | 2005      
|                                     |  | RMB000         |  | RMB000   
|Assets                               |  |                 |  |           
|Current assets                       |  | 9,871,911       |  | 10,470,281
|                                     |  |                 |  |           
|Mining rights                        |  | 51,226          |  | 53,906    
|Prepaid lease payments               |  | 103,628         |  | 94,766    
|Property, plant and equipment        |  | 11,742,949      |  | 9,171,448 
|Goodwill                             |  | 11,162          |  | 11,162    
|Deferred tax assets                  |  | 88,758          |  | 236,378   
|Other non-current assets             |  | 264,418         |  | 98,732    
|                                     |  |                 |  |           
|                                     |  | 22,134,052      |  | 20,136,673
|                                     |  |                 |  |           
|Liabilities and shareholders equity |  |                 |  |           
|Current liabilities                  |  | 3,828,048       |  | 3,489,925 
|Non-current liabilities              |  | 353,138         |  | 35,283    
|Shareholders equity                 |  | 17,913,222      |  | 16,565,311
|Minority interest                    |  | 39,644          |  | 46,154    
|                                     |  |                 |  |           
|                                     |  | 22,134,052      |  | 20,136,673
|                                     |  |                 |  |           



|                                             |  |                         |   |  |            |   |  |            |  
|-------------------------------------------- |  | ----------------------- | - |  | ---------- | - |  | ---------- | -
|                                             |  | Year ended December 31, |  
|                                             |  | 2006                    |   |  | 2005       |   |  | 2004       |  
|                                             |  | RMB000                 |   |  | RMB000    |   |  | RMB000    |  
|Gross sales of coal                          |  | 12,783,567              |   |  | 12,283,588 |   |  | 11,757,052 |  
|Railway transportation service income        |  | 160,399                 |   |  | 163,437    |   |  | 220,771    |  
|Transportation costs of coal                 |  | (936,619                | ) |  | (930,103   | ) |  | (1,402,715 | )
|Cost of sales and service provided           |  | (6,017,838              | ) |  | (5,116,287 | ) |  | (4,380,910 | )
|Selling, general and administrative expenses |  | (2,300,131              | ) |  | (1,917,243 | ) |  | (1,449,427 | )
|Other operating income                       |  | 65,154                  |   |  | 38,858     |   |  | 40,936     |  
|Interest expenses                            |  | (31,410                 | ) |  | (24,611    | ) |  | (35,942    | )
|Other income                                 |  | 100,683                 |   |  | 96,180     |   |  | 97,176     |  
|                                             |  |                         |   |  |            |   |  |            |  
|Income before income taxes                   |  | 3,823,805               |   |  | 4,593,819  |   |  | 4,846,941  |  
|Income taxes                                 |  | (1,419,000              | ) |  | (1,602,224 | ) |  | (1,582,796 | )
|                                             |  |                         |   |  |            |   |  |            |  
|Income before minority interest              |  | 2,404,805               |   |  | 2,991,595  |   |  | 3,264,145  |  
|Minority interest                            |  | 948                     |   |  | (476       | ) |  | (253       | )
|                                             |  |                         |   |  |            |   |  |            |  
|Net income                                   |  | 2,405,753               |   |  | 2,991,119  |   |  | 3,263,892  |  
|                                             |  |                         |   |  |            |   |  |            |  



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YANZHOU COAL MINING COMPANY LIMITED

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|46. | SUMMARY OF DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENT PREPARED UNDER IFRS AND THOSE UNDER US GAAP - continued
|--- | -----------------------------------------------------------------------------------------------------------------------

Details of effect of recent accounting pronouncements in the US GAAP are as follows:

In February 2006, the Financial Accounting Standards Board (FASB) issued FASB No. 155, (SFAS 155), Accounting for
Certain Hybrid Financial Instrumentsan amendment of FASB Statements No. 133 and 140. This statement is effective for all financial instruments acquired, issued, or subject to a remeasurement (new basis) event occurring after the
beginning of an entitys first fiscal year that begins after September 15, 2006. The Company will adopt SFAS 155 in the first quarter of 2007. The Company has not determined the impact, if any, of SFAS 155 on its financial position,
results of operations and cash flows.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxesan interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in income tax positions in FASB Statement No. 109, Accounting for Income Taxes. FIN
48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company will adopt FIN 48 in the first quarter of 2007. The Company has not determined the impact, if any, of FIN 48 on its financial position, results of operations and cash flows.

In September 2006 the FASB issued FASB Statement No. 157, (SFAS 157), Fair Value Measurement. SFAS 157 addresses
standardizing the measurement of fair value for companies who are required to use a fair value measure of recognition for recognition or disclosure purposes. The FASB defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measure date. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. The Company is currently evaluating the impact, if any, of SFAS 157 on its financial position, results of operations and cash flows.

In September 2006, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No.108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements (SAB 108). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff
believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. SAB 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB 108 did not have a material impact on the Companys consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS
No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the
impact, if any, of SFAS 159 on its financial position, results of operations and cash flows.



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