##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 20-F



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



OR



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



for the fiscal year ended DECEMBER 31, 2004



OR



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



Commission file number 001-14714



LOGO

(Exact name of Registrant as specified in its charter)



Yanzhou Coal Mining Company Limited

(Translation of Registrants name into English)



Peoples Republic of China

(Jurisdiction of incorporation or organization)



298 South Fushan Road

Zoucheng, Shandong Province

Peoples Republic of China

(Address of principal executive offices)



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



|                                  |  |                                          
|--------------------------------- |  | -----------------------------------------
|Title of each class               |  | Name of each exchange on which registered
|American Depositary Shares        |  | New York Stock Exchange                  
|                                  | 
|H Shares, par value RMB1.00 each* |  | The Stock Exchange of Hong Kong Limited  



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



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



None

(Title of Class)



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



None

(Title of Class)



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



1,850,000,000 Domestic Shares, par value RMB1.00 per share

1,224,000,000 H Shares, par value
RMB1.00 per share



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 which financial statement item the registrant has elected to follow.    Item 17 ̈Item 18  x



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##### Table of Contents

TABLE OF CONTENTS



|                                                 |  |                                                                              |  |   
|------------------------------------------------ |  | ---------------------------------------------------------------------------- |  | --
|CAUTIONARY STATEMENT                             |  | 1                                                                           
|CERTAIN DEFINITIONS AND SUPPLEMENTAL INFORMATION |  | 2                                                                           
|EXCHANGE RATES                                   |  | 3                                                                           
|                                                
|PART I                                          
|                                                 |  |                                                                             
|ITEM 1.                                          |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.                       |  | 4 
|ITEM 2.                                          |  | OFFER STATISTICS AND EXPECTED TIMETABLE.                                     |  | 4 
|ITEM 3.                                          |  | KEY INFORMATION.                                                             |  | 4 
|ITEM 4.                                          |  | INFORMATION ON THE COMPANY.                                                  |  | 13
|ITEM 5.                                          |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS.                                |  | 30
|ITEM 6.                                          |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.                                  |  | 43
|ITEM 7.                                          |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.                           |  | 52
|ITEM 8.                                          |  | FINANCIAL INFORMATION                                                        |  | 55
|ITEM 9.                                          |  | THE OFFER AND LISTING                                                        |  | 57
|ITEM 10.                                         |  | ADDITIONAL INFORMATION.                                                      |  | 59
|ITEM 11.                                         |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                  |  | 74
|ITEM 12.                                         |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.                      |  | 75
|                                                
|PART II                                         
|                                                 |  |                                                                             
|ITEM 13.                                         |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.                             |  | 76
|ITEM 14.                                         |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 76
|ITEM 15.                                         |  | CONTROLS AND PROCEDURES                                                      |  | 76
|ITEM 16A.                                        |  | AUDIT COMMITTEE FINANCIAL EXPERT                                             |  | 76
|ITEM 16B.                                        |  | CODE OF ETHICS                                                               |  | 76
|ITEM 16C.                                        |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       |  | 76
|ITEM 16D.                                        |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |  | 77
|ITEM 16E.                                        |  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       |  | 77
|                                                
|PART III                                        
|                                                 |  |                                                                             
|ITEM 17.                                         |  | FINANCIAL STATEMENTS.                                                        |  | 78
|ITEM 18.                                         |  | FINANCIAL STATEMENTS.                                                        |  | 78
|ITEM 19.                                         |  | EXHIBITS.                                                                    |  | 78
|                                                 |  |                                                                             
|SIGNATURES                                       |  |                                                                              |  |   



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##### Table of Contents

CAUTIONARY STATEMENT



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



Consequently, all of the forward-looking statements made in this annual
report are qualified by these cautionary statements. We cannot assure you that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us or our business or
operations.



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



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CERTAIN DEFINITIONS AND SUPPLEMENTAL INFORMATION



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



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



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



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



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



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



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



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



As used herein, PRC Government or Government or
State means the central government of the Peoples Republic of China (the PRC or China), including all political subdivisions (including provincial, municipal and other regional or local governmental
entities) and instrumentalities thereof.



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



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



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



Our
audited financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), which differ in certain material respects from generally accepted accounting principles in the United States
(U.S. GAAP). Note 44 to our audited financial statements provides a reconciliation of our financial statements to U.S. GAAP in accordance with Item 18 of Form 20-F.



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



EXCHANGE RATES



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



Solely for the
convenience of the reader, certain items in this Form 20-F contain translations of Renminbi amounts into U.S. dollars. All such Renminbi translations of amounts from Renminbi to U.S. dollars have been made, except as otherwise noted, at the noon
buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the Noon Buying Rate) on December 31, 2004 of U.S.$1.00 = RMB8.2765. No representation is
made that the Renminbi amounts could have been or could be converted into U.S. dollars at that rate or at any other rate.



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PART I



ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS



Not applicable.



ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE



Not applicable.



ITEM 3. KEY INFORMATION



A. Selected Financial
Data



Historical Financial Information



The following tables present our consolidated summary income statement
data, balance sheet data and cash flow data for the years ended December 31, 2001, 2002, 2003 and 2004, and the summary income statement data, balance sheet data and cash flow data for the year ended December 31, 2000, on a non-consolidated basis.
The summary balance sheet data as of December 31, 2003 and 2004 and income statement and cash flow data for the years ended December 31, 2002, 2003 and 2004 have been derived from, and should be read in conjunction with, the audited financial
statements included elsewhere in this report. The summary balance sheet data as of December 31, 2000, 2001 and 2002 and income statement and cash flow data for the years ended December 31, 2000 and 2001 have been derived from our audited financial
statements as of and for such dates and are not included in this annual report. Unless otherwise indicated, the financial statements are prepared and presented in accordance with International Financial Reporting Standards, also known as
IFRS. For a reconciliation of our net income and owners equity to generally accepted accounting principles in the United States, also known as U.S. GAAP see Note 44 to the Financial Statements.



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|                                                      |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|----------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | ------- | -
|                                                      |  | As of and For the Year Ended December 31,                                                         |  
|                                                      |  | 2000                                                                                              |   |  | 2001     |   |  | 2002     |   |  | 2003     |   |  | 2004     |   |  | 2004    |  
|                                                      |  | RMB                                                                                               |   |  | RMB      |   |  | RMB      |   |  | RMB      |   |  | RMB      |   |  | U.S.$   |  
|                                                      |  | (Amounts in millions except numbers of Shares and ADSs, and perShare, per ADS and operating data) |  
|INCOME STATEMENT DATA                                 |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                  |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net Revenue                                           |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net sales of coal                                     |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Domestic                                              |  | 2,090.7                                                                                           |   |  | 2,599.8  |   |  | 3,414.0  |   |  | 4,337.1  |   |  | 7,407.0  |   |  | 894.9   |  
|Export(2)                                             |  | 1,509.0                                                                                           |   |  | 2,276.2  |   |  | 2,799.9  |   |  | 2,457.2  |   |  | 2,947.3  |   |  | 356.1   |  
|Railway transportation service income                 |  |                                                                                                  |   |  |         |   |  | 142.5    |   |  | 154.6    |   |  | 220.8    |   |  | 26.7    |  
|Total net revenue                                     |  | 3,599.7                                                                                           |   |  | 4,876.0  |   |  | 6,356.4  |   |  | 6,948.9  |   |  | 10,575.1 |   |  | 1,277.7 |  
|Gross profit                                          |  | 1,616.2                                                                                           |   |  | 2,063.4  |   |  | 2,993.5  |   |  | 3,193.9  |   |  | 6,023.4  |   |  | 727.8   |  
|Operating income                                      |  | 1,040.7                                                                                           |   |  | 1,421.7  |   |  | 1,866.1  |   |  | 2,034.9  |   |  | 4,709.3  |   |  | 569.2   |  
|Income from continuing operation                      |  | 1,040.7                                                                                           |   |  | 1,421.7  |   |  | 1,866.1  |   |  | 2,034.9  |   |  | 4,709.3  |   |  | 569.2   |  
|Interest expenses                                     |  | (5.0                                                                                              | ) |  | (61.5    | ) |  | (117.9   | ) |  | (60.0    | ) |  | (35.9    | ) |  | (4.3    | )
|Income before income taxes                            |  | 1,035.7                                                                                           |   |  | 1,360.2  |   |  | 1,748.2  |   |  | 1,974.9  |   |  | 4,673.3  |   |  | 564.6   |  
|Net income                                            |  | 748.4                                                                                             |   |  | 970.9    |   |  | 1,222.0  |   |  | 1,386.7  |   |  | 3,154.3  |   |  | 381.1   |  
|Net income per Share                                  |  | 0.29                                                                                              |   |  | 0.35     |   |  | 0.43     |   |  | 0.48     |   |  | 1.06     |   |  | 0.13    |  
|Net income per ADS                                    |  | 14.39                                                                                             |   |  | 17.29    |   |  | 21.29    |   |  | 24.16    |   |  | 53.20    |   |  | 6.43    |  
|Operating income per Share                            |  | 0.40                                                                                              |   |  | 0.51     |   |  | 0.65     |   |  | 0.71     |   |  | 1.59     |   |  | 0.19    |  
|Income from continuing operation per ADS              |  | 20.01                                                                                             |   |  | 25.32    |   |  | 32.51    |   |  | 35.45    |   |  | 79.42    |   |  | 9.60    |  
|                                                      |  |                                                                                                   |   |  |          |  
|U.S. GAAP                                             |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net income(3)                                         |  | 918.6                                                                                             |   |  | 1,227.6  |   |  | 1,325.7  |   |  | 1,499.2  |   |  | 3,272.5  |   |  | 395.4   |  
|Net income per Share                                  |  | 0.35                                                                                              |   |  | 0.44     |   |  | 0.46     |   |  | 0.52     |   |  | 1.10     |   |  | 0.13    |  
|Net income per ADS                                    |  | 17.66                                                                                             |   |  | 21.86    |   |  | 23.1     |   |  | 26.12    |   |  | 55.19    |   |  | 6.67    |  
|                                                      |  |                                                                                                   |   |  |          |  
|CASH FLOW DATA                                        |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                  |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net cash provided by operating activities             |  | 1,023.2                                                                                           |   |  | 1,610.2  |   |  | 2,239.7  |   |  | 2,701.2  |   |  | 4,418.4  |   |  | 533.9   |  
|Depreciation                                          |  | 514.2                                                                                             |   |  | 819.6    |   |  | 851.1    |   |  | 933.8    |   |  | 971.9    |   |  | 117.4   |  
|                                                      |  |                                                                                                   |   |  |          |  
|Net cash used in investing activities                 |  | (464.7                                                                                            | ) |  | (1,948.2 | ) |  | (2,165.5 | ) |  | (1,310.3 | ) |  | (2,300.8 | ) |  | (278.0  | )
|Net cash (used in) provided by financing activities   |  | (231.4                                                                                            | ) |  | 618.0    |   |  | 345.2    |   |  | (911.4   | ) |  | 1,075.4  |   |  | 129.9   |  
|                                                      |  |                                                                                                   |   |  |          |  
|OTHER FINANCIAL DATA                                  |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Operating income                                      |  | 1,040.7                                                                                           |   |  | 1,421.7  |   |  | 1,866.1  |   |  | 2,034.9  |   |  | 4,709.3  |   |  | 569.0   |  
|Less: Interest income                                 |  | (26.0                                                                                             | ) |  | (39.9    | ) |  | (30.2    | ) |  | (17.8    | ) |  | (92.7    | ) |  | (11.2   | )
|Add: Depreciation and amortisation                    |  | 515.0                                                                                             |   |  | 827.0    |   |  | 858.5    |   |  | 950.5    |   |  | 994.3    |   |  | 120.1   |  
|EBITDA(4)                                             |  | 1,529.7                                                                                           |   |  | 2,208.8  |   |  | 2,694.4  |   |  | 2,967.6  |   |  | 5,610.9  |   |  | 677.9   |  
|EBITDA margin(5)                                      |  | 42.5                                                                                              | % |  | 45.3     | % |  | 42.4     | % |  | 42.7     | % |  | 53.1     | % |  | 53.1    | %
|                                                      |  |                                                                                                   |   |  |          |  
|OPERATING DATA                                        |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Raw coal production (000 tonnes)                     |  | 27,456                                                                                            |   |  | 34,018   |   |  | 38,435   |   |  | 43,279   |   |  | 39,146   |   |  | N/A     |  
|Net sales (000 tonnes)                               |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Domestic                                              |  | 16,430                                                                                            |   |  | 18,369   |   |  | 20,582   |   |  | 25,776   |   |  | 27,988   |   |  | N/A     |  
|Export                                                |  | 10,085                                                                                            |   |  | 12,666   |   |  | 14,466   |   |  | 13,632   |   |  | 10,016   |   |  | N/A     |  
|Total                                                 |  | 26,515                                                                                            |   |  | 31,035   |   |  | 35,048   |   |  | 39,408   |   |  | 38,004   |   |  | N/A     |  
|                                                      |  |                                                                                                   |   |  |          |  
|BALANCE SHEET DATA                                    |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                  |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net current assets                                    |  | 1,270.7                                                                                           |   |  | 1,166.2  |   |  | 2,157.4  |   |  | 2,045.2  |   |  | 5,761.3  |   |  | 696.1   |  
|Property, plant and equipment and land use right, net |  | 5,500.5                                                                                           |   |  | 7,851.8  |   |  | 8,895.1  |   |  | 9,221.3  |   |  | 9,128.9  |   |  | 1,103.0 |  
|Total assets                                          |  | 8,103.7                                                                                           |   |  | 11,182.6 |   |  | 12,924.0 |   |  | 13,909.9 |   |  | 18,336.7 |   |  | 2,215.5 |  
|Total long-term borrowings                            |  |                                                                                                  |   |  | 72.5     |   |  | 1,261.3  |   |  | 650.9    |   |  | 441.1    |   |  | 53.5    |  
|Owners equity                                        |  | 6,869.6                                                                                           |   |  | 9,060.0  |   |  | 9,995.0  |   |  | 11,083.2 |   |  | 15,523.8 |   |  | 1,875.6 |  
|                                                      |  |                                                                                                   |   |  |          |  
|U.S. GAAP                                             |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Property, plant and equipment and land use right, net |  | 6,564.0                                                                                           |   |  | 7,176.7  |   |  | 7,271.4  |   |  | 7,785.8  |   |  | 7,880.8  |   |  | 952.2   |  
|Total assets                                          |  | 9,604.6                                                                                           |   |  | 11,071.0 |   |  | 11,787.5 |   |  | 12,845.8 |   |  | 17,327.8 |   |  | 2,093.6 |  
|Owners equity                                        |  | 8,349.6                                                                                           |   |  | 7,668.9  |   |  | 8,858.5  |   |  | 10,019.2 |   |  | 14,537.9 |   |  | 1,756.5 |  
|                                                      |  |                                                                                                   |   |  |          |  
|Number of Shares                                      |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Domestic Shares                                       |  | 1,750.0                                                                                           |   |  | 1,850.0  |   |  | 1,850.0  |   |  | 1,850.0  |   |  | 1,850.0  |   |  | N/A     |  
|H Shares (including H Shares represented by ADS)      |  | 850.0                                                                                             |   |  | 1,020.0  |   |  | 1,020.0  |   |  | 1,020.0  |   |  | 1,224.0  |   |  | N/A     |  
|ADS                                                   |  | 17.0                                                                                              |   |  | 20.4     |   |  | 20.4     |   |  | 20.4     |   |  | 24.5     |   |  | N/A     |  
|Dividend per                                          |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Domestic Share/H Share(6)                             |  | 0.089                                                                                             |   |  | 0.082    |   |  | 0.100    |   |  | 0.104    |   |  | 0.153    |   |  | 0.02    |  
|ADS(7)                                                |  | 4.45                                                                                              |   |  | 4.10     |   |  | 5.00     |   |  | 5.20     |   |  | 7.65     |   |  | 1.0     |  

|
|



5



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##### Table of Contents

---

|(1) | The above financial highlights as of and for the year 2004 represent the data resulting from the consolidation of the financial statements of Shandong Yanmei Shipping Co. Ltd.
(Yanmei Shipping), Yanzhou Coal Yulin Power Chemical Co. Limited, Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited. The gross profit, taxes and surcharges resulting from the principal businesses of Yanmei Shipping are
calculated as the transportation cost of coal of us. As the sales income, operation results, and assets of Yanmei Shipping have only limited impact on us, they are not separately set out and analyzed in this report. Yanzhou Coal Yulin Power Chemical
Co., Limited, Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited are currently in the preparation stage or in the construction stage and have limited impact on our financial results, and hence are not separately set out and analyzed in
this report.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Export sales constituted 41.9%, 46.7%, 44.0%, 35.4% and 27.9% of total net revenue in 2000, 2001, 2002, 2003 and 2004, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(3) | The net income for the years ended December 31, 2000 and 2001 under U.S. GAAP included the loss of Jining III acquired in 2001 using the pooling of interest method. The net income
for the years ended December 31, 2000 and 2001 under U.S. GAAP included the profit of Railway Assets using the pooling of interest method.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total assets value and owners equity under U.S. GAAP as at December 31, 2000, have not been restated to show the effects of the acquisition of Railway Assets accounted for as a pooling of interests (see Note 44
to the Financial Statements) as such information is not available without significant costs and effort.

|(4) | 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | EBITDA margin represents EBITDA as a percentage of our total net revenue.
|--- | -------------------------------------------------------------------------

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

|(7) | 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.$)
|1999     |  | 8.2795                       |  | 8.2785     |  | 8.2880 |  | 8.2770
|2000     |  | 8.2774                       |  | 8.2784     |  | 8.2799 |  | 8.2768
|2001     |  | 8.2766                       |  | 8.2772     |  | 8.2786 |  | 8.2763
|2002     |  | 8.2800                       |  | 8.2770     |  | 8.2800 |  | 8.2699
|2003     |  | 8.2767                       |  | 8.2771     |  | 8.2800 |  | 8.2765
|2004     |  | 8.2765                       |  | 8.2768     |  | 8.2773 |  | 8.2764
|December |  | 8.2765                       |  | 8.2765     |  | 8.2767 |  | 8.2765
|2005     |  |                              |  |            |  |        |  |       
|January  |  | 8.2765                       |  | 8.2765     |  | 8.2765 |  | 8.2765
|February |  | 8.2765                       |  | 8.2765     |  | 8.2765 |  | 8.2765
|March    |  | 8.2765                       |  | 8.2765     |  | 8.2765 |  | 8.2765
|April    |  | 8.2765                       |  | 8.2765     |  | 8.2765 |  | 8.2765
|May      |  | 8.2765                       |  | 8.2765     |  | 8.2765 |  | 8.2765

---

|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 24,
2005, the noon buying rate for Renminbi was U.S.$1.00 = RMB8.2765.



6



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##### Table of Contents

B. Capitalization and Indebtedness



Not applicable.



C. Reason for the Offer and Use of Proceeds



Not applicable.



D. Risk Factors



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



As the majority of our revenue is derived from sales of coal and coal-related products, our business and operating results are substantially dependent on the domestic and international demand for coal. The domestic
and international coal markets are cyclical and exhibit fluctuation in supply and demand from year to year and are subject to numerous factors beyond our control, including, but not limited to, the economic conditions in the PRC, the global economic
conditions and fluctuations in industries with high demand for coal, such as the power and steel industries. Historically, the domestic and international markets for coal and coal-related products have at times experienced alternating periods of
increased demand, causing production capacity, prices and margins to increase, followed by periods of excess supply, causing production capacity, prices and margins to decline. As a significant percentage of our sales of coal products are for power
generation, a significant downturn in the power industry will also materially and adversely affect our business and results of operations. There can be no assurance that the domestic or international demand for coal will continue to grow, or that
the domestic or international coal markets will not experience excess supply. A significant decline in demand or excess supply for coal may have a material adverse effect on our business and results of operations.



Our business relies on our major customers.



Prior to 2004, Shandong Power and Fuel Company was our largest domestic
customer. For the years ended December 31, 2002 and 2003, our sales to Shandong Power and Fuel Company accounted for 13.3% and 11.3% of our total net sales in 2002 and 2003, respectively. The Shandong Power and Fuel Company had in the past purchased
coal on behalf of several electric power plants in Shandong Province, including Zouxian Electric Power Plant. The Shandong Power and Fuel Company ceased to act as the central procurement center for coal on behalf of Zouxian Electric Power Plant and
other electric power plants in Shandong Province after its restructuring at the end of 2003 and ceased to be our largest domestic customer.



For the year ended December 31, 2004, Huadian Power International Corporation Limited (Huadian) and Shandong Luneng Hengyuan Group Company
(Shandong Luneng) replaced Shandong Power and Fuel Company and became our largest and second largest domestic customers. For the year ended December 31, 2004, we supplied a total of 4.9 million and 1.1 million tonnes, representing 9.2%
and 2.0% of our total net sales in 2004, to our top two domestic customers. A substantial portion of Huadian and Shandong Lunengs coal purchases were supplied to Zouxian Electric Power Plant. Our sales of coal to Zouxian Electric Power Plant
accounted for 12.6%, 9.6% and 9.5% of our total net sales in 2002, 2003 and 2004, respectively.



The Zouxian Electric Power Plants total coal requirements were approximately 5.31 million tonnes in 2004. We estimated that we supplied
approximately 85.0%, 77.0% and 92.3% of the Zouxian Electric Power Plants coal requirements in 2002, 2003 and 2004, respectively. We believe we are likely to remain the Zouxian Electric Power Plants principal coal supplier because (i) we
are located within close proximity to the Zouxian Electric Power Plant, (ii) the Zouxian Electric Power Plant is unable to receive railway shipments of coal other than through our own railway network and (iii) the Zouxian Electric Power Plants
boilers were designed to use our coal. However, our ability to conclude favorable terms of sale with the Zouxian Electric Power Plant may be substantially impaired by current restrictions on price increases for coal sold to the electric power
industry. Given the large percentage of our revenues derived from the supply of coal to the Zouxian Electric Power Plant, any adverse developments at the Zouxian Electric Power Plant could have an adverse impact on our results of operations.



7



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##### Table of Contents

We do not have direct export rights.



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



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



Consistent with PRC coal industry practice, a substantial
portion of our sales are made pursuant to sales contracts and letters of intent signed during the annual national coal trading convention in accordance with the Guidance Allocation Plan of the PRC. Approximately 85.0%, 86.0% and 88.5% of our sales
in 2002, 2003 and 2004, 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 the past, we and our
customers have completed the majority of the transactions contemplated under such letters of intent. However, a sudden and significant increase in the proportion of unrealized sales could have a material adverse impact on our results of operations.
Furthermore, as the price of coal sold pursuant to such letters of intent is generally determined at the time of sale, any significant downturn in the market price of coal could have an immediate and adverse impact on our results of operations.



Our results of operations are vulnerable to volatility in prices for coal.



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 per tonne was RMB177.3 in 2002, RMB172.4 in 2003, and RMB272.3 in 2004. The primary factor affecting domestic and international coal prices and coal consumption patterns is the overall supply
and demand of coal. The demand for coal is primarily affected by the overall economic development and the demand for coal from the electricity generation, steel and construction industries. The supply of coal on the other hand, is primarily affected
by the geographical location of the coal supplies, the volume of coal produced by the domestic and international coal suppliers, and the quality and price of competing sources of coal. Alternative fuels such as natural gas, oil and nuclear power,
alternative energy sources such as hydroelectric power, and international shipping costs also have effects on the market demand for coal. Any reduction in the demand for our coal by the foreign or domestic electricity generation or steel industries
may cause a decline in profitability. Likewise, any significant decline in domestic or export coal prices could materially and adversely affect our result of operations.



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



Approximately 64.7%, 60.1% and 60.0% of our total net sales in 2002, 2003
and 2004, respectively, were derived from sales of coal transported by the PRCs national railway system (excluding coal sold to the Zouxian Electric Power Plant, which were transported entirely by and within our own railway network). The PRC
railway system cannot fully satisfy PRC coal transportation requirements, and 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. While we have in the past generally been allocated sufficient railway capacity and acquired sufficient rail cars to transport our coal, we have at times experienced delays in securing necessary
capacity or rail cars. 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.



8



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##### Table of Contents

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



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



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



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



Our operations may be affected by uncertain mining conditions.



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



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



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



Our recoverable coal reserves decline as we produce coal. As we can only
increase our existing production capacity by a limited amount, the future increase in our coal production will depend on our acquisition of new coal reserves, development of new mines or the expansion of our existing coal mines. We acquired Jining
III Coal Mine and Southland Colliery in 2001 and 2004, respectively. At present, we are in the process of acquiring Juye Coal Mine in the Shandong Province and developing other new mining project in Shaanxi Province. However, we can not give any
assurance that we will be able to continue identifying suitable targets in the PRC or abroad for acquisition or acquire suitable targets on competitive terms. Nor can we assure you that we will be able to successfully develop new coal mines or
expand our existing ones. In 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.



9



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##### Table of Contents

The acquisition and/or the development of new mines in the PRC requires approval of the PRC government.
Delay or failure in securing the relevant PRC government approvals or permits as well as any adverse change in government policies may cause a significant adjustment to our development and acquisition plans, which may materially adversely affect our
profitability and growth prospects.



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



We
operate coal mines and related facilities that may be affected by water, gas, fire or structural problems. As a result, we, like other coal mining companies, have experienced accidents that have caused property damage and personal injuries. Although
we have implemented safety measures for our production facilities and provided on-the-job training for our employees, and, we have in accordance with relevant laws set aside approximately 1.8% 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 longwall mining methods used at our mines is land
subsidence above underground mining sites. Depending on the circumstances, we may relocate inhabitants from the land above the underground mining sites prior to mining those sites or we may compensate the inhabitants for losses or damages from land
subsidence after the underground sites have been mined. We may also be required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined. An estimate of such costs is
recognized in the period in which the obligation is identified and is charged as an expense in our income statement in proportion to the coal extracted. The payment for such costs is funded from working capital. The amount charged to income
statements in 2004 amounted to RMB313.2 million. The accrual for land subsidence, restoration, rehabilitation and environmental costs has been determined by the directors based on the past occurrences of land subsidence. However, the accrual is only
an estimate. The estimate of the costs for restoration, rehabilitation or environmental protection of the land may be subject to change in the future as the actual costs become apparent and standards established by the PRC Government change from
time to time. Therefore, there can be no assurance that such estimates are accurate or that our restoration, rehabilitation and relocation costs will not substantially increase in the future or that the PRC Government will not impose new fees in
respect of land subsidence. Any such substantial increases or new fees could have a material adverse effect on our results of operations.



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



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



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



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



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



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



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



10



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##### Table of Contents

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 45.1%, 36.2% and 28.5% of our net coal sales in 2002, 2003 and 2004, respectively.
Average selling prices for export coal sales are generally higher than average selling prices for domestic sales. In 2004, average selling prices for export sales were RMB294.3 per tonne, compared to average selling prices for domestic sales of
RMB264.5 per tonne.



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



The new regulations did not have a material adverse effect on our export sales in 2004 and 2005 as our export agents have consistently receive export
quota sufficient to satisfy our export volume. However, we are unable to predict what impact, if any, they may have on the level of our export coal sales for 2006 and later years. Article 10 of the regulations provides that, in determining the
allocation of specific quotas to



11



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##### Table of Contents

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. Although our 2004 export sales have not been affected by the new regulations, if national coal exports are reduced, the level of our export sales in future periods could be affected, which in turn could
adversely affect our results of operations.



Our Parent Company may have a
significant influence on us.



Currently, the Parent
Company owns 54.33% of our outstanding shares. Our Articles of Association provide that, in addition to any obligation imposed by law, a controlling shareholder shall not exercise its voting rights in a manner prejudicial to the interests of the
shareholders generally, including voting with respect to certain enumerated matters of fundamental importance to shareholders.



In addition to being our majority shareholder, the Parent Company also provides certain materials, utilities and services to us pursuant to the materials
and services supply agreement dated October 17, 1997 between us and the Parent Company (as amended by supplemental agreements dated October 30, 2001 and May 29, 2003).Any material financial or operational problems experienced by the Parent
Company leading to disruption of its operations could materially affect our operations and future prospects.



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



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



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



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



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



| |  |  | Since 1994, the conversion of Renminbi into foreign currencies, including Hong Kong and U.S. dollars, has been based on rates set by the Peoples Bank of China, which are set
daily based on the previous days PRC interbank foreign exchange market rate and current exchange rates on the world financial markets. Since 1994, the official exchange rate for the conversion of Renminbi to U.S. dollars has generally been
stable. Any devaluation of the Renminbi, however, 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 1979, many new laws and regulations covering general economic matters have been promulgated in the PRC. Despite this activity to develop the legal system,
PRCs system of laws is not yet complete. Even where adequate law exists, enforcement of existing laws or contracts based on existing law may be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement or to
obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of PRCs judiciary in many cases creates
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12



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##### Table of Contents

| | additional uncertainty as to the outcome of any litigation. In addition, interpretation of statutes and regulations may be subject to government policies
reflecting domestic political changes.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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



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



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



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



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



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



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



ITEM 4. INFORMATION ON THE COMPANY



A. History
and Development of the Company



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



In April 2001, we were approved by the Minister of Foreign Trade and Economic
Cooperation 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 39.8% of our
outstanding shares as of December 31, 2004.



13



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Our contact information is:



|                         |  |                                                        
|------------------------ |  | -------------------------------------------------------
|      Business address: |  | 298 South Fushan Road, Zoucheng, Shandong Province, PRC
|                         | 
|      Telephone number: |  | (86) 537 538 2319                                      
|                         | 
|      Website:          |  | http://www.yanzhoucoal.com.cn/mygsbak/index.asp        



Our coal mines include
Nantun Mine, Xinglongzhuang Mine, Baodian Mine, Dongtan Mine, Jining II Mine and Jining III Mine, which commenced production in 1973, 1981, 1986, 1989, 1997 and 2000, respectively. Pursuant to the Asset Sale Agreement of Southland Colliery
(Asset Sale Agreement) entered into between us and the receivers and managers and the liquidators of Southland Coal Pty Limited in Australia, we acquired Southland Colliery in liquidation and completed the transfer on December 24, 2004.
We subsequently renamed Southland Colliery as Austar Coal Mine.



As of December 31, 2004, our domestic six mines have a total in-place proven and probable reserve of approximately 2,004.3 million tonnes.



We are engaged in underground mining, preparation and sale of coal, and providing railway coal transportation services. We were one of the largest coal
producers in Eastern China with raw coal production of approximately 39.2 million tonnes in 2004. We were also one of the largest suppliers of export coal in the PRC in terms of sales volume with approximately 10.0 million tonnes in export sales in
2004.



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



The location of a coal mine affects its competitiveness due to the significant costs of coal transport. We believe that our mines are well-situated given
the rapid economic growth of Eastern China, the insufficient supply of coal produced in this region and the substantial costs involved in transporting coal to Eastern China from major coal-producing provinces such as Shaanxi Province, Shanxi
Province and Inner Mongolia Autonomous Region. In 2002, 2003 and 2004, 27.7%, 35.2% and 47.4%, 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 12.6%, 9.6% and 9.5% of our total net sales in 2002, 2003 and 2004, respectively. Net sales to customers located in the rapidly growing Yangtze delta region, encompassing Shanghai Municipality, Jiangsu Province and
Zhejiang Province, were 18.3%, 20.3% and 16.9% of our total net sales in 2002, 2003 and 2004, respectively. Exports, principally to Japan, accounted for 44.0%, 35.4% and 27.9% of our total net sales in 2002, 2003 and 2004, respectively. We did not
record any sales from Austar Coal Mine for 2004.



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 2002, 2003 and 2004, 24.0%, 20.5% and 20.1%, 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
2004, we generated total net sales, operating income and net income of RMB10,575.1 million, RMB4,709.3 million and RMB3,154.3 million, respectively.



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##### Table of Contents

Organizational Structure



In 2004, we had 11 functional departments, namely the Secretariat of the Board of Directors, Department of Coordination, Department of Human Resources,
Department of Financial Planning, Department of Production Technology, Department of Safety Inspection, Electrical Engineering and Power Department, Ventilation and Dust Elimination Department, Geological Survey Department and Technical Center.



Capital Expenditures / Recent Developments



Our principal sources of cash have been cash from operations, the proceeds
from issuance of new Shares and bank loans. Our principal capital expenditures have been for the acquisition of property, plant and equipment. During 2002, 2003 and 2004, our total capital expenditures were RMB2,107.2 million, RMB1,328.1 million and
RMB1,057.5 million, respectively. For more information, please see Item 5 - Operating and Financial Review and Prospects - B. Liquidity and Capital Resources.



In an effort to expand the scale of our coal mine assets, we continue to explore opportunities to acquire new coal mines. We
entered into the Asset Sale Agreement (filed with this Form 20-F as Exhibit 4.1) with the receivers and managers and the liquidators of Southland Coal Pty Limited in October 2004, pursuant to which we acquired the entire Southland colliery formerly
owned by Southland Coal Pty Limited (Southland Colliery) in liquidation. The aggregate consideration for the acquisition is AUD32.0 million. As we acquired Southland Colliery from the liquidator of Southland Coal Pty Limited, the Asset
Sale Agreement does not contain the customary indemnities, representations and warranties ordinarily contained in an asset purchase and sale agreement entered into with a solvent vendor. We completed the assets transfer on December 24, 2004. We
subsequently renamed Southland Colliery as Austar Coal Mine.



Under the Asset Sale Agreement, the aggregate consideration consists of three parts. On December 24, 2004, we paid AUD20,000,000 to the vendor upon completion of the transfer. We are required to pay the Additional Payment in the amount of
AUD4,000,000 to the vendor when the exploration license is granted to Austar Coal Mine Pty Limited over the Additional Tenement Area (Additional Exploration License). We are also required to pay a Royalty Payment of AUD2.00 per tonne for
the first four million tonnes of saleable coal produced by us at the Austar Coal Mine.



We plan to commence the reconstruction, expansion of production capacity and technology upgrade at Austar Coal Mine in 2005 and resume the production of Austar Coal Mine in 2006. We plan to spend a total of
approximately RMB112.0 million capital expenditures on Austar Coal Mine. For more details of Austar Coal Mine, see - D. Property, Plants and Equipment - Austar Coal Mine.



Establishment of Subsidiaries



During the reporting period, we established Yanzhou Coal Yulin Power Chemical Co., Ltd. (Yanzhou Yulin Power Chemical), a subsidiary in which
we own 97% of shares, located in Yulin City, Shaanxi Province. Yanzhou Yulin Power Chemical is currently constructing chemical production facilities with annual production capacities of 600,000 tonnes of ethanol and 200,000 tonnes of acetic acid,
and ancillary facilities. Through December 31, 2004, we have invested RMB776.0 million in Yanzhou Yulin Power Chemical.



During the reporting period, we established a wholly-owned subsidiary, Yancoal Australia Pty Limited, in Sydney, Australia for the purpose of holding our
investments in Australia, particularly our interests at Austar Coal Mine. As of December 31, 2004, Yancoal Australia Pty Limited has injected share capital AUD30 million in Austar Coal Mine Pty Limited, which is responsible for the production and
operation of Austar Coal Mine.



Our H Shares Placement



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



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##### Table of Contents

The Placing shares were listed on the Hong Kong Stock Exchange on July 15, 2004. Our total share capital
increased to 3,074 million shares from 2,870 million shares, and the percentage of our listed share capital to our total share capital increased from 41.81% to 45.67%.



B. Business Overview



Principal Products and Services



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



Coal Production



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



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



The following table
sets out our principal coal products based on sales volume and net sales in the years ended December 31, 2002, 2003 and 2004.



|                      |  |                         |  |               |  |               |  |               |  |               |  |              
|--------------------- |  | ----------------------- |  | ------------- |  | ------------- |  | ------------- |  | ------------- |  | -------------
|                      |  | Year Ended December 31,
|                      |  | 2002                    |  | 2003          |  | 2004         
|                      |  | Sales Volume            |  | Net Sales     |  | Sales Volume  |  | Net Sales     |  | Sales Volume  |  | Net Sales    
|                      |  | (000 tonnes)           |  | (RMB million) |  | (000 tonnes) |  | (RMB million) |  | (000 tonnes) |  | (RMB million)
|No. 1 Clean Coal      |  | 422.5                   |  | 100.1         |  | 513.8         |  | 128.2         |  | 631.3         |  | 220.5        
|No. 2 Clean Coal      |  | 6,086.4                 |  | 1,245.9       |  | 6,729.2       |  | 1,287.6       |  | 6,329.2       |  | 2,013.5      
|No. 3 Clean Coal      |  | 12,369.0                |  | 2,300.1       |  | 11,952.7      |  | 2,126.3       |  | 11,861.9      |  | 3,484.0      
|Lump Coal             |  |                        |  |              |  | 583.4         |  | 130.3         |  | 752.3         |  | 284.3        
|Screened Raw Coal     |  | 12,628.6                |  | 2,213.4       |  | 13,937.5      |  | 2,499.4       |  | 14,936.6      |  | 3,867.5      
|Mixed Coal and others |  | 3,541.5                 |  | 354.5         |  | 5,690.9       |  | 622.5         |  | 3,492.6       |  | 484.5        
|                      |  |                         |  |               |  |               |  |               |  |               |  |              
|Total                 |  | 35,048.0                |  | 6,214.0       |  | 39,407.5      |  | 6,794.3       |  | 38,003.9      |  | 10,354.3     
|                      |  |                         |  |               |  |               |  |               |  |               |  |              



Our coal production in
2004 was approximately 39.2 million tonnes, a decrease of 4.1 million tonnes or 9.5%, as compared with our production for the same period in 2003.



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##### Table of Contents

Railway Transportation Services



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



External sales of our railway transportation
services represent the amount charged to customers for the transportation of coal purchased on an ex-mine basis, where the customer pays the cost of transportation. In addition, we offer railway transportation services to third parties, including
the Parent Company. In 2004, we transported a total of 30.3 million tonnes of goods, representing an increase of 2.0 million tonnes, or 7.1%, as compared with that of 2003. External sales from our railway transportation service in 2004 was RMB220.8
million, representing an increase of RMB66.2 million, or 42.8%, as compared with that of 2003.



As of December 31, 2004, we have paid the Parent Company in full a total of RMB1,362.6 million (including total contingent consideration of RMB120.0 million, with RMB40.0 million incurred in 2002, 2003 and 2004,
respectively) as total consideration for the acquisition of the Railway Assets.



Sales and Marketing



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



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



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



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



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



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##### Table of Contents

The following table sets out our net coal sales by our customers industries for the years ended
December 31, 2002, 2003 and 2004:



|                                                 |  |                         |  |                    |  |              |  |                    |  |              |  |                    
|------------------------------------------------ |  | ----------------------- |  | ------------------ |  | ------------ |  | ------------------ |  | ------------ |  | -------------------
|                                                 |  | Year Ended December 31,
|                                                 |  | 2002                    |  | 2003               |  | 2004        
|                                                 |  | NetSales                |  | % of NetCoal Sales |  | NetSales     |  | % of NetCoal Sales |  | Net Sales    |  | % of Net Coal Sales
|                                                 |  | (RMBmillion)            |  |                    |  | (RMBmillion) |  |                    |  | (RMBmillion) |  |                    
|Domestic Sales                                   |  |                         |  |                    |  |              |  |                    |  |              |  |                    
|Electric power plant                             |  | 1,522.9                 |  | 24.5               |  | 1,421.4      |  | 20.9               |  | 2,121.5      |  | 20.5               
|Metallurgical mills                              |  | 323.0                   |  | 5.2                |  | 294.9        |  | 4.3                |  | 656.9        |  | 6.3                
|Construction material and chemical manufacturers |  | 346.8                   |  | 5.6                |  | 329.8        |  | 4.9                |  | 784.1        |  | 7.6                
|Fuel trading companies and others                |  | 1,221.3                 |  | 19.7               |  | 2,291.0      |  | 33.7               |  | 3,844.5      |  | 37.1               
|Exports                                          |  | 2,799.9                 |  | 45.0               |  | 2,457.2      |  | 36.2               |  | 2,947.3      |  | 28.5               
|                                                 |  |                         |  |                    |  |              |  |                    |  |              |  |                    
|Total                                            |  | 6,213.9                 |  | 100.0              |  | 6,794.3      |  | 100.0              |  | 10,354.3     |  | 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, 2002, 2003 and 2004:



|                                 |  |                         |  |                     |  |              |  |                     |  |              |  |                   
|-------------------------------- |  | ----------------------- |  | ------------------- |  | ------------ |  | ------------------- |  | ------------ |  | ------------------
|                                 |  | Year Ended December 31,
|                                 |  | 2002                    |  | 2003                |  | 2004        
|                                 |  | NetSales                |  | % of Net Coal Sales |  | NetSales     |  | % of Net Coal Sales |  | Net Sales    |  | % of NetCoal Sales
|                                 |  | (RMBmillion)            |  |                     |  | (RMBmillion) |  |                     |  | (RMBmillion) |  |                   
|Domestic Sales                   |  |                         |  |                     |  |              |  |                     |  |              |  |                   
|Eastern China                    |  |                         |  |                     |  |              |  |                     |  |              |  |                   
|Shandong Province                |  | 1,750.0                 |  | 28.2                |  | 2,443.7      |  | 36.0                |  | 5,008.9      |  | 48.4              
|Jiangsu Province                 |  | 353.8                   |  | 5.7                 |  | 546.6        |  | 8.0                 |  | 738.1        |  | 7.1               
|Zhejiang Province                |  | 396.9                   |  | 6.4                 |  | 495.6        |  | 7.3                 |  | 700.6        |  | 6.8               
|Shanghai                         |  | 404.2                   |  | 6.5                 |  | 365.5        |  | 5.4                 |  | 351.6        |  | 3.4               
|Other provinces in the region(1) |  | 83.7                    |  | 1.3                 |  | 86.9         |  | 1.3                 |  | 322.3        |  | 3.1               
|Subtotal                         |  | 2,988.6                 |  | 48.1                |  | 3,938.3      |  | 58.0                |  | 7,116.0      |  | 68.8              
|Southern China(1)                |  | 425.4                   |  | 6.9                 |  | 398.8        |  | 5.8                 |  | 285.5        |  | 2.7               
|Exports                          |  | 2,799.9                 |  | 45.0                |  | 2,457.2      |  | 36.2                |  | 2,947.3      |  | 28.5              
|                                 |  |                         |  |                     |  |              |  |                     |  |              |  |                   
|Total                            |  | 6,213.9                 |  | 100.0               |  | 6,794.3      |  | 100.0               |  | 10,354.3     |  | 100.0             
|                                 |  |                         |  |                     |  |              |  |                     |  |              |  |                   

---

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



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



|                                             |  |                          
|-------------------------------------------- |  | -------------------------
|Domestic                                     |  | Overseas+                
|Huadian Power International Corporation Ltd. |  | Nippon Steel Corp.       
|                                             | 
|Shandong Luneng                              |  | Sumitomo Metallurgy, Inc.
|                                             | 
|Shanghai Baosteel Group Corporation          |  | Idemitsu                 
|                                             | 
|Shandong Rizhao                              |  | JFE Steel Corporation    
|                                             | 
|Dongguan Shijie Fuel Company                 |  | UBE Industries, Ltd.     

---

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



For the year ended December 31, 2004, Huadian and Shandong Luneng were our largest and second largest domestic customers.
For the year ended December 31, 2004, we supplied a total of 4.9 million and 1.1 million tonnes, representing 9.2% and 2.0% of our total net sales in 2004, to our top two domestic customers. Our sales of coal to Zouxian Electric Power Plant
accounted for 12.6%, 9.6% and 9.5% of our total net sales in 2002, 2003 and 2004. The Zouxian Electric Power Plants total coal requirements were approximately 5.31 million tonnes in 2004. We estimated that we supplied approximately 85.0%,
77.0% and 92.3% of the Zouxian Electric Power Plants coal requirements in 2002, 2003 and 2004, respectively.



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##### Table of Contents

In 2002, 2003 and 2004, net sales to our five largest domestic customers accounted for 21.2%, 18.5% and
15.3%, respectively, of our total net sales.



We exported 14.5
million, 13.6 million and 10.0 million tonnes of coal in 2002, 2003 and 2004, respectively, accounting for approximately 16.9%, 14.5% and 11.6% of the PRCs total coal export sales in the respective periods. Export sales primarily consist of
sales of our No. 2 and No. 3 Clean Coal to Japan. Our net export sales in 2004 decreased from 35.4% of total net sales in 2003 to 27.9%. Most of our major overseas end-users are located in East Asian countries and regions, such as Japan and Korea,
with Japan being the largest market. We have established close relationships with overseas customers, notwithstanding that all export sales were made through the Export Sales Companies.



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



Product Pricing



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



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



Product Delivery



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



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



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



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



Mining Processes



Our mining operations involve four main processes: tunneling, extracting, conveying and coal preparation. The tunneling process is necessary for the
construction of conveyors, underground roadways and longwall work-faces. A majority of our tunneling is conducted by high-powered heading machines where conditions permit tunnels to be driven within the coal seam. When the geological conditions do
not permit the use of heading machines, we use explosives to dig tunnels. All the coal extracted from these tunnels is sent to our underground storage bunkers to be stored together with the coal extracted from the longwall coal faces. The rock
produced from the development roadways is segregated and conveyed out of the mine separately.



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



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



After the raw coal is brought to the ground, it undergoes a simple
selection process to separate coal from rocks and other impurities. A portion of such selected coal is directly sold to customers and the remainder is processed by our coal preparation plants for further purification and classification. Each of our
six mines has a coal preparation plant. In general, the coal-washing processes conducted by our coal preparation plants comprise a water bed washing and separation process by jig machines, a sink-and-float separation process and a final floating
separation process. With the exception of the equipment in the Xinglongzhuang coal preparation plant, most of the equipment used in our coal preparation plants is manufactured in the PRC. Most of the equipment used in our coal preparation plants is
automated, which enables our personnel to exercise precise control over the ash content and grades of the coal. The aggregate recovery rate of our coal preparation plants was 89.9%, 88.5% and 77.9% in 2002, 2003 and 2004, respectively.



Materials, Water and Energy Supply



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



In 2002, 2003 and 2004, 2.6%, 4.6% and 6.0%, respectively, of our total cost
of sales were attributable to purchases from our largest supplier. In 2002, 2003 and 2004, 10.8%, 12.3% and 11.2% 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 RMB281.5 million, RMB286.3 million and RMB305.1 million (inclusive of the electricity power used in the operation of our railway network) in 2002, 2003 and 2004, respectively. We have
not experienced any material disruption in electricity supply in recent years.



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



Our costs for materials, water and electricity supplies amounted to a total
of RMB1.4 billion in 2004, representing an increase of RMB215.7 million, or 18.2%, from RMB1.2 billion in 2003. Our costs for materials, water and electricity supplies in 2004 accounted for 30.8% of our total cost of sales, decreased from 31.5% in
2003. We expect that the cost of some key materials, including steel, will experience further increase in 2005.



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##### Table of Contents

Quality Control



Coal Production



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



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



Railway network



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



Safety Control



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



As a result of our safety control program, we have been able to maintain a
good safety record. The workers fatality rate for our mines was 0.023 fatalities per million tonnes of raw coal produced in 2003, and 0.072 fatalities per million tonnes of raw coal produced in 2004. These rates are substantially lower than
the average rate for coal mines in the PRC.



Environmental Protection



We are subject to PRC environmental protection laws
and regulations which currently impose fees for the discharge of waste substances, require the payment of fines for serious pollution and provide for the discretion of the PRC Government to close any facility which fails to comply with orders
requiring us to cease or cure operations causing environmental damage. We believe all of our facilities are in compliance with the requirements of the relevant environmental protection laws and regulations.



Each of our mines has an underground water processing station. In the
aggregate, we can process 18.7 million tonnes of underground water each year. Such underground water, after processing, is used for production, coal washing and landscape maintenance. We also have eight waste water treatment plants, which have an
aggregate annual waste water treatment capacity of 30.4 million tonnes. The rocks produced during our production are mainly used for landfill and to produce construction materials.



In the years ended December 31, 2002, 2003 and 2004, we spent RMB4.8 million, RMB4.8 million and RMB3.8 million for
environmental protection, respectively. These expenses consisted principally of capital expenditures, equipment operating expenses and discharge fees paid to the PRC Government.



Insurance



In accordance with what we believe is the customary practice for PRC coal mining entities, we do not currently maintain fire, casualty or other property
insurance covering our properties, equipment or inventory other than with respect to vehicles. In addition, we do not maintain any business interruption insurance or any third party liability insurance to cover claims in respect of personal injury,
property or environmental damage arising from accidents on our properties or relating to our operations, other than



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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 1.8% of employees total remuneration for employees injury insurance. We currently maintain personal injury insurance for our employees.



Competition



Coal Production



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 five largest PRC coal producers, including us, accounted for only 15.9% of the countrys total 2004 production. The domestic coal market is segmented
principally by: (i) location, given the significant costs associated with coal transport, and (ii) coal quality, which includes ash and sulphur levels, calorific value and degree of washing. We compete principally on the basis of price, coal
quality, availability and costs of transportation, reliability of delivery and payment terms.



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



The following table sets out selected major coal mines with significant sales in Eastern China, their 2004 production and principal seaports:



|                         |  |                |  |                    |  |                                
|------------------------ |  | -------------- |  | ------------------ |  | -------------------------------
|                         |  | Provinces      |  | 2004 Production(1) |  | Principal Seaport              
|                         |  |                |  | (000 tonnes)      |  |                                
|Shenhua Group            |  | Shaanxi        |  | 119,936            |  | Huanghua, Tianjin andQinhuandao
|Shanxi Coking Coal Group |  | Shanxi         |  | 54,961             |  | Qinhuangdao                    
|Datong Coalmine Group    |  | Shanxi         |  | 53,581             |  | Qinhuangdao                    
|ChinaCoal                |  | Shanxi,Jiangsu |  | 42,504             |  | Qinhuangdao andLianyungang     
|Our company              |  | Shandong       |  | 39,146             |  | Rizhao                         

---

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



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



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



Railway Operation



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



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Seasonality



Our business is not seasonal.



Regulatory Overview



Coal Law



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



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



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



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



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



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



Pricing



Currently, the price of 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. The prices for all other coal products are subject to market forces.



Fees and Taxes



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



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



All coal producers are subject to PRC environmental protection laws and regulations which currently impose fees for the discharge of waste substances,
require the payment of fines for serious pollution and provide for the discretion of the PRC Government to close any facility which fails to comply with orders



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requiring it to cease or cure operations causing environmental damage. All environmental protection facilities must be inspected and certified by relevant
governmental authorities as being in compliance with PRC environmental protection laws and regulations.



Regulations Concerning Imports and Exports of Coal



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



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



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 regulations, the National Development and Reform Commission and the
Ministry of Commerce are responsible for determining the annual total volume of the PRCs export quota of coal and allocating the quota among the authorized coal exporters. In determining the total coal export quota, the National Development
and Reform Commission and the Ministry of Commerce take into account the PRCs economic security, the rational utilization of coal resources, the PRC Governments economic policies and objectives and the demand and supply situation in the
domestic and international coal markets.



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. Each years quota expires on
December 31. The regulations provide that, in determining the allocation of the quota to the authorized coal exporters, the National Development and Reform Commission and the Ministry of Commerce will refer to their coal export performance in the
previous year.



Upon quota approval, the authorized coal
exporters will apply for coal export permits to the relevant authority designed by the Ministry of Commerce. The authorized coal exporters are also required to report their monthly quota usage to the National Development and Reform Commission.



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 2004 and 2005 was 80 million and 80 million tonnes, respectively.



Environmental Protection Laws and Regulations



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



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



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



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



Mineral Resources Laws and Regulations



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



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



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



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



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



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



Coal Classification



Based on carbon content and heat value, coal can be classified into four
major categories: anthracite, bituminous coal, sub-bituminous coal and lignite. Anthracite contains the highest level of carbon, least moisture and highest heat values, and generates little flame and smoke when burned. Bituminous coal is a
high-grade coal with heat values typically ranging from 23Mj/Kg to over 30Mj/Kg. Bituminous coal burns



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with a smoky flame and is used for utility and industrial steam purposes as well as for making the coke necessary for steel production. All coal produced by
our mines is bituminous coal. Sub-bituminous coal has a carbon content between bituminous coal and lignite and has a heat value generally ranging from over 19 to 22 Mj/Kg. This type of coal is used mainly by electric utilities. Lignite is the lowest
ranking coal. It generally has a heat value of about 15Mj/Kg and is used to fuel electric power plants.



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



C.
Organizational Structure



Our organizational structure can
be understood by the diagram below:



LOGO



D. Property, Plants and Equipment



Real Property and Leasehold Property



As of December 31, 2004, the net book value of our property, plant and
equipment was RMB8,537.2 million. Our corporate headquarters and production and ancillary facilities in Shandong Province occupy an area of 683,478 square meters, of which 88,090 square meters are used as stations, offices, warehouses and other
facilities for our railway services. The total gross floor area of our production and other facilities is 595,388 square meters. 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.



Coal Mines and Production Facilities



The six domestic coal mines currently operated by us are all located in
the southwestern part of Shandong Province. All of these mines are connected by our railway network, which provides access to our customers either directly or through the PRC national railway or highway system. We completed the acquisition of assets
of Austar Coal Mine on December 24, 2004.



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



LOGO



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



LOGO



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



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



|                                                                       |  |        |  |                  |  |         |  |         |  |          |     |  |           |  |        |     |  |         
|---------------------------------------------------------------------- |  | ------ |  | ---------------- |  | ------- |  | ------- |  | -------- | --- |  | --------- |  | ------ | --- |  | --------
|                                                                       |  | Nantun |  | Xinglong- Zhuang |  | Baodian |  | Dongtan |  | JiningII |     |  | JiningIII |  | Austar |     |  | Total   
|Background data:                                                       |  |        |  |                  |  |         |  |         |  |          |     |  |           |  |        |     |  |         
|Start of construction                                                  |  | 1966   |  | 1975             |  | 1977    |  | 1979    |  | 1989     |     |  | 1993      |  | 1998   |     |  | N/A     
|Start of commercial production                                         |  | 1973   |  | 1981             |  | 1986    |  | 1989    |  | 1997     |     |  | 2000      |  | 2000   |     |  | N/A     
|Coalfield area (square kilometers)                                     |  | 35.2   |  | 59.81            |  | 36.4    |  | 60.0    |  | 87.1     |     |  | 105.1     |  | 63.0   |     |  | 446.6   
|                                                                       |  |        |  |                  |  |         |  |        
|Reserve data:                                                          |  |        |  |                  |  |         |  |         |  |          |     |  |           |  |        |     |  |         
|(millions tonnes as of December 31, 2004)                              |  |        |  |                  |  |         |  |         |  |          |     |  |           |  |        |     |  |         
|Total in-place proven and probable reserves(1)                         |  | 136.63 |  | 363.89           |  | 316.29  |  | 495.00  |  | 434.00   |     |  | 258.50    |  | N/A    |     |  | 2,004.31
|Proven and probable reserves recoverable by longwall mining methods(2) |  | 31.95  |  | 105.10           |  | 82.97   |  | 112.65  |  | 168.86   |     |  | 96.50     |  | N/A    |     |  | 598.03  
|Depth of mine (meters underground)                                     |  | 397.0  |  | 429.2            |  | 474.7   |  | 710.0   |  | 593.0    |     |  | 556.0     |  | N/A    |     |  | N/A     
|Average thickness of main coal seam (meters)                           |  | 8.60   |  | 8.29             |  | 8.88    |  | 8.41    |  | 6.78     |     |  | 7.00      |  | N/A    |     |  | N/A     
|                                                                       |  |        |  |                  |  |         |  |        
|Production data: (million tonnes)                                      |  |        |  |                  |  |         |  |         |  |          |     |  |           |  |        |     |  |         
|Designed raw coal production capacity                                  |  | 2.4    |  | 3.0              |  | 3.0     |  | 4.0     |  | 4.0      |     |  | 5.0       |  | 2.0    |     |  | 23.4    
|Designed coal preparation input capacity                               |  | 1.8    |  | 3.0              |  | 3.0     |  | 4.0     |  | 4.0      |     |  | 5.0       |  | 2.0    |     |  | 22.8    
|Raw coal production                                                    |  |        |  |                  |  |         |  |         |  |          |     |  |           |  |        |     |  |         
|1994                                                                   |  | 2.9    |  | 3.9              |  | 3.3     |  | 3.5     |  |         |     |  |          |  |       |     |  | 13.6    
|1995                                                                   |  | 3.6    |  | 3.8              |  | 3.6     |  | 3.8     |  | 0.2      | (2) |  |          |  |       |     |  | 15.0    
|1996                                                                   |  | 4.0    |  | 4.0              |  | 4.1     |  | 4.9     |  | 0.4      | (2) |  |          |  |       |     |  | 17.4    
|1997                                                                   |  | 3.9    |  | 4.1              |  | 4.0     |  | 4.9     |  | 0.8      | (2) |  |          |  |       |     |  | 17.7    
|1998                                                                   |  | 4.2    |  | 5.0              |  | 4.3     |  | 5.4     |  | 1.8      |     |  |          |  |       |     |  | 20.7    
|1999                                                                   |  | 4.0    |  | 6.1              |  | 4.7     |  | 6.1     |  | 3.2      |     |  |          |  |       |     |  | 24.1    
|2000                                                                   |  | 4.5    |  | 6.2              |  | 5.3     |  | 6.7     |  | 4.8      |     |  |          |  | N/A    |     |  | 27.5    
|2001                                                                   |  | 4.9    |  | 6.6              |  | 6.2     |  | 7.1     |  | 4.1      |     |  | 5.1       |  | N/A    |     |  | 34.0    
|2002                                                                   |  | 3.6    |  | 7.1              |  | 6.4     |  | 8.1     |  | 5.2      |     |  | 8.0       |  | N/A    |     |  | 38.4    
|2003                                                                   |  | 4.7    |  | 7.0              |  | 7.3     |  | 8.2     |  | 6.0      |     |  | 10.1      |  | N/A    |     |  | 43.3    
|2004                                                                   |  | 4.1    |  | 7.4              |  | 7.0     |  | 8.5     |  | 4.9      |     |  | 7.3       |  | N/A    | (3) |  | 39.2    
|Cumulative raw coal production as of December 31, 2004                 |  | 44.4   |  | 61.2             |  | 56.2    |  | 67.2    |  | 31.4     |     |  | 30.5      |  | N/A    |     |  | N/A     

---

|(1) | The reserve data (except for Austar Coal Mine) including (i) total in-place proven and probable reserves, (ii) proven and probable reserves recoverable by longwall mining methods,
(iii) depth of mine and (iv) average thickness of main coal seam, is based on the relevant information from Report of independent mining consultants, after deduction of actual production volume and non-accessible reserves up to December 31, 2004.
Non-accessible reserve is defined as the portion of identified resources estimated to be not accessible by application of one or more accessibility factors within an area. The report of the independent mining consultants for Nantun, Xinglong Zhuang,
Baodian, Dongtan and Jining II was prepared by International Mining Consultants Limited Nottinghamshire, United Kingdom (IMC) on February 16, 1998, and the Report for Jining III was prepared by SRK Consulting in August 2000.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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



Nantun Mine. Nantun is located in the south of our coalfield. Nantun began its commercial production in 1973 with original designed annual output
of 1.5 million tonnes of coal. In 1993, the designed annual output for Nantun was increased to 2.4 million tonnes after the completion of a renovation project. The main coal seam of Nantun is divided into two leaves. The thickness of the upper leaf
averages 5.35 meters and the thickness of the lower leaf averages 3.21 meters. We generally use the longwall caving mining method to extract coal from the upper layer of the coal seam and use mechanized longwall faces to mine the lower layer of the
coal seam. Currently, Nantun produces coal from a single face.



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



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



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



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



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



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



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



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



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



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



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



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



Austar Coal Mine. We entered into the Asset Sale Agreement with the receivers and managers and the liquidators of Southland Coal Pty Limited in
October 2004, pursuant to which we acquired the entire Southland Colliery previously owned by Southland Coal Pty Limited in liquidation. We completed the assets transfer on December 24, 2004. We subsequently renamed Southland Colliery as Austar Coal
Mine.



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Austar Coal Mine is an underground longwall mine located in Hunter Valley, New South Wales, Australia.
Austar Coal Mine was constructed in 1998 and it commenced commercial production in 2000. Austar Coal Mine covers an area of 63.0 square kilometers. Austar Coal Mine produces hard coking coal and semi-soft coking coal. Austar Coal Mine uses longwall
mining technology.



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 October 2004, we executed the Asset Sale Agreement (filed with this Form 20-F as Exhibit 4.2) to
purchase all business assets including mining tenements, permits to operate and plant and equipment. We plan to commence the reconstruction, expansion of production capacity and technology upgrade at Austar Coal Mine in 2005 and resume production of
Austar Coal Mine in 2006. We plan to spend a total of approximately AUD112.0 million capital expenditures on Austar Coal Mine. The designed coal production capacity of Austar Coal Mine after the reconstruction, expansion and technology upgrade is
2.0 million tonnes per year.



Railway Network



In 2002, we acquired our railway network from the Parent Company. Currently,
the railway network consists of 17 locomotives, 363 railcars, and special purpose coal transportation railway tracks of approximately 184 kilometers in length, which link most of our coal mines and production units of the Parent Company and our
largest end-customer, the Zouxian Electric Power Plant. As of December 31, 2004, our Railway Department employed approximately 3,374 employees. The railway network connects to two of the major national railways, namely, the Beijing-Shanghai Railway
and Yanzhou-Shijiugang Railway.



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



Development of Juye Coalfield



The Parent Company invested RMB574.0 million in Yankuang Heze Power Chemical
Company Limited (Heze), representing 95.67% of Hezes total registered capital in October 2002. Heze is responsible for the exploitation and construction of Zhaolou Coal Mine in the Juye Coalfield. Juye Coalfield is located at the
southwest corner of Shandong Province, in an adjacent area between Heze City and Jining City and approximately 100 kilometers away from the west end of our coalfields. The south-central part of the Juye coalfield is traversed by the Yanshi railway,
which connects to the Beijing-Shanghai railway approximately 100 kilometers to the east, and to the Beijing-Kowloon railway approximately 30 kilometers to the west.



According to the agreement between the Parent Company and us on October 17, 1997, the Parent Company shall notify us if it
intends to operate any coal mine by means of purchases and sales, mergers, acquisitions, development, construction or others if the operation will compete or is likely to compete with us.



Heze has completed substantially all of the construction work required for the Zhaolou Coal Mine. The Parent Company has
obtained the rights necessary for the exploration of Zhaolou Coal Mine and Wanfu Coal Mine and is currently applying for the mining rights for Zhaolou Coal Mine. Our Board of Directors approved the acquisition of the Parent Companys 95.67%
interest in Heze for RMB584.0 million on June 28, 2005. As of the date of this annual report, we have paid RMB574.0 million as partial payment for the acquisition of the Parent Companys equity interest in Heze.



Mining Rights



The Parent Company and we have entered into a mining rights agreement dated October 17, 1997 (the Mining Rights
Agreement) pursuant to which we agreed to pay to the Parent Company an annual fee (the Annual Fee) of approximately RMB13.0 million as compensation for the Parent Companys agreement to



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



Jining III Mining Rights



Pursuant to the Jining III Acquisition Agreement dated August 4, 2000 between the Parent Company and us, we agreed to pay total consideration of RMB132.5
million for mining rights associated with Jining III in 10 equal installments of RMB13.3 million each year commencing from 2001.



Austar Coal Mine Mining Rights



Due to the change of ownership, we obtained a new exploration license for Austar Coal Mine issued by NSW Department of Primary Industries on April 5,
2005. In accordance with the Asset Sale Agreement, we are required to pay the vendor AUD4,000,000 upon the transfer of exploration license to Austar Coal Mine Pty Limited.



ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS



The following discussion and analysis should be read in conjunction with the information set forth in the Financial Statements. The differences between IFRS and U.S. GAAP that would have had an impact on our
shareholders equity and net income as of December 31, 2002, 2003 and 2004 are set forth in Note 44 to the Financial Statements.



A. Operating Results



We are engaged in the underground mining of prime quality, low-sulphur coal from our mines for sale to electric power plants, metallurgical producers and
other customers located principally in the economically developed eastern provinces in the PRC and for export to customers located in East Asia. Our raw coal production was 39.2 million tonnes in 2004, and our total coal sales volume was 38.0
million tonnes in 2004. Domestic coal sales accounted for 53.7%, 62.4% and 70.0% of our total net sales during 2002, 2003 and 2004, respectively, and export coal sales through export sales agent accounted for 44.0%, 35.4% and 27.9%, respectively, of
our total net sales for such periods. We started to operate Yanmei Shipping in 2004.



In 2002 we acquired our local railway transportation network from the Parent Company, and began to provide rail transportation services both for our own coal sales and for the Parent Company, its subsidiaries and
other third parties. In 2004, we transported a total of 30.3 million tonnes of goods, compared to 28.3 million tonnes in 2003.



Sales of the railway transportation services segment consist of internal sales, which are eliminated on consolidation, and external sales. For 2004,
internal sales were RMB380.5 million, and external sales were RMB220.8 million. The internal sales represent amounts charged at the coal production segment for the cost of transporting coal sold, typically for sales on an FOB basis. These amounts
are eliminated (both as revenues of the railway transportation services segment and as costs of the coal production segment) upon consolidation. External sales consist of two components, namely (i) amount charged to customers for the transportation
of coal purchased on an ex-mine basis, where the customer pays the cost of transportation; and (ii) transportation services provided to third parties for the transport of goods via our railway network. External sales are recorded as our revenues for
the period, and the costs of providing these services are recorded as our cost of transportation services. For a presentation of segment revenues, results, and inter-segment eliminations and segment balance sheet items, see Note 5 to the Financial
Statements.



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



Overview



In 2004, we produced 39.2 million tonnes of raw coal, representing a 9.5% decrease compared to 2003 and sold 38.0 million tonnes of coal, representing a
3.6% decrease compared to 2003, among which sales of export coal were 10.0 million tonnes, representing a decrease of 26.5% compared to 2003. Our total net revenue was RMB10,575.1 million and net income was RMB3,154.3 million in 2004, representing
52.2% and 127.5% increases, respectively, over 2003. The following table sets forth our sales and sales volumes classified according to our principal products and services sales:



|                                        |  |                                              |  |               |  |                    |  |               |  |               |  |                    |  |               |  |               |  |                   |  
|--------------------------------------- |  | -------------------------------------------- |  | ------------- |  | ------------------ |  | ------------- |  | ------------- |  | ------------------ |  | ------------- |  | ------------- |  | ----------------- | -
|                                        |  | Historical Sales Data by Product and Service | 
|                                        |  | 2002                                         |  | 2003          |  | 2004               | 
|                                        |  | SalesVolume                                  |  | Net Sales     |  | % ofTotalNet Sales |  | SalesVolume   |  | Net Sales     |  | % ofTotalNet Sales |  | SalesVolume   |  | Net Sales     |  | %ofTotalNet Sales |  
|                                        |  | (000 tonnes)                                |  | (RMB million) |  |                    |  | (000 tonnes) |  | (RMB million) |  |                    |  | (000 tonnes) |  | (RMB million) |  |                   |  
|Clean Coal                              |  |                                              |  |               |  |                    |  |               |  |               |  |                    |  |               |  |               |  |                   |  
|No. 1 Clean Coal                        |  | 422.5                                        |  | 100.1         |  | 1.6                |  | 513.8         |  | 128.2         |  | 1.8                |  | 631.3         |  | 220.5         |  | 2.1               |  
|No. 2 Clean Coal                        |  | 6,086.4                                      |  | 1,245.9       |  | 19.6               |  | 6,729.2       |  | 1,287.6       |  | 18.5               |  | 6,329.2       |  | 2,013.50      |  | 19.0              |  
|Domestic Sales                          |  | 222.8                                        |  | 51.7          |  | 0.8                |  | 636.5         |  | 151.8         |  | 2.2                |  | 2,326.7       |  | 805.4         |  | 7.6               |  
|Export                                  |  | 5,863.6                                      |  | 1,194.2       |  | 18.8               |  | 6,092.7       |  | 1,135.8       |  | 16.3               |  | 4,002.5       |  | 1,208.10      |  | 11.4              |  
|No.3 Clean Coal                         |  | 12,369.0                                     |  | 2,300.0       |  | 36.2               |  | 11,952.7      |  | 2,126.3       |  | 30.6               |  | 11,861.9      |  | 3,484.00      |  | 33.0              |  
|Domestic Sales                          |  | 3,766.3                                      |  | 694.3         |  | 10.9               |  | 4,858.3       |  | 899.7         |  | 12.9               |  | 6,027.9       |  | 1,800.20      |  | 17.0              |  
|Export                                  |  | 8,602.7                                      |  | 1,605.7       |  | 25.3               |  | 7,094.4       |  | 1,226.6       |  | 17.7               |  | 5,834.0       |  | 1,683.80      |  | 15.9              |  
|Lump Coal                               |  |                                             |  |              |  |                   |  | 583.4         |  | 130.3         |  | 1.9                |  | 752.3         |  | 284.3         |  | 2.7               |  
|Domestic                                |  |                                             |  |              |  |                   |  | 138.8         |  | 35.4          |  | 0.5                |  | 572.7         |  | 228.9         |  | 2.2               |  
|Export                                  |  |                                             |  |              |  |                   |  | 444.6         |  | 94.8          |  | 1.4                |  | 179.6         |  | 55.4          |  | 0.5               |  
|Subtotal                                |  | 18,877.9                                     |  | 3,646.0       |  | 57.4               |  | 19,779.1      |  | 3,672.4       |  | 52.8               |  | 19,574.7      |  | 6,002.30      |  | 56.8              |  
|Domestic Sales                          |  | 4,411.6                                      |  | 846.1         |  | 13.3               |  | 6,147.4       |  | 1,215.2       |  | 17.5               |  | 9,558.6       |  | 3,055.00      |  | 28.9              |  
|Export                                  |  | 14,466.3                                     |  | 2,799.9       |  | 44.0               |  | 13,631.7      |  | 2,457.2       |  | 35.3               |  | 10,016.1      |  | 2,947.30      |  | 27.9              |  
|Screened Raw Coal                       |  | 12,628.6                                     |  | 2,213.4       |  | 34.8               |  | 13,937.5      |  | 2,499.4       |  | 36.0               |  | 14,936.6      |  | 3,867.5       |  | 36.5              |  
|Mixed Coal and Others                   |  | 3,541.5                                      |  | 354.5         |  | 5.6                |  | 5,690.9       |  | 622.5         |  | 9.0                |  | 3,492.6       |  | 484.5         |  | 4.6               |  
|Net Coal Sales                          |  | 35,048.0                                     |  | 6,213.9       |  | 97.8               |  | 39,407.5      |  | 6,794.3       |  | 97.8               |  | 38,003.9      |  | 10,354.3      |  | 97.9              |  
|Railway Transportation Services Revenue |  |                                             |  | 142.5         |  | 2.2                |  |              |  | 154.6         |  | 2.2                |  | 38,003.9      |  | 220.8         |  | 2.1               |  
|                                        |  |                                              |  |               |  |                    |  |               |  |               |  |                    |  |               |  |               |  |                   |  
|Total                                   |  | 35,048.0                                     |  | 6,356.4       |  | 100.0              |  | 39,407.5      |  | 6,948.9       |  | 100.0              |  | 631.3         |  | 10,575.1      |  | 100.0             | %
|                                        |  |                                              |  |               |  |                    |  |               |  |               |  |                    |  |               |  |               |  |                   |  



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



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



|                                       |  |                                           |  |                     |  |         |  |                      |  |          |  |                    
|-------------------------------------- |  | ----------------------------------------- |  | ------------------- |  | ------- |  | -------------------- |  | -------- |  | -------------------
|                                       |  | 2002                                      |  | 2003                |  | 2004   
|                                       |  | RMB                                       |  | % of TotalNet Sales |  | RMB     |  | % of Total Net Sales |  | RMB      |  | % of TotalNet Sales
|                                       |  | (amounts in millions, except percentages)
|Net sales                              |  |                                           |  |                     |  |         |  |                      |  |          |  |                    
|Net sales of coal                      |  | 6,213.9                                   |  | 97.8                |  | 6,794.3 |  | 97.8                 |  | 10,354.3 |  | 97.9               
|Railway transportation service revenue |  | 142.5                                     |  | 2.2                 |  | 154.6   |  | 2.2                  |  | 220.8    |  | 2.1                
|                                       |  |                                           |  |                     |  |        
|Total net sales                        |  | 6,356.4                                   |  | 100.0               |  | 6,948.9 |  | 100.0                |  | 10,575.1 |  | 100.0              



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|                                                                     |  |                                           |  |                     |  |         |  |                     |  |         |  |                    
|-------------------------------------------------------------------- |  | ----------------------------------------- |  | ------------------- |  | ------- |  | ------------------- |  | ------- |  | -------------------
|                                                                     |  | 2002                                      |  | 2003                |  | 2004   
|                                                                     |  | RMB                                       |  | % of TotalNet Sales |  | RMB     |  | % of TotalNet Sales |  | RMB     |  | % of TotalNet Sales
|                                                                     |  | (amounts in millions, except percentages)
|Cost of sales and services provided                                  |  |                                           |  |                     |  |         |  |                     |  |         |  |                    
|Materials                                                            |  | 752.5                                     |  | 11.8                |  | 899.6   |  | 12.9                |  | 1,088.7 |  | 10.3               
|Wages and employee benefits                                          |  | 757.6                                     |  | 11.9                |  | 863.7   |  | 12.4                |  | 1,022.6 |  | 9.7                
|Electricity                                                          |  | 278.4                                     |  | 4.4                 |  | 278.5   |  | 4.0                 |  | 298.3   |  | 2.8                
|Depreciation                                                         |  | 813.8                                     |  | 12.8                |  | 836.1   |  | 12.0                |  | 918.4   |  | 8.7                
|Repairs and maintenance                                              |  | 346.3                                     |  | 5.4                 |  | 374.9   |  | 5.4                 |  | 455.8   |  | 4.3                
|Land subsidence, restoration, rehabilitation and environmental costs |  | 232.0                                     |  | 3.7                 |  | 264.2   |  | 3.8                 |  | 323.2   |  | 3.1                
|Mining right expenses                                                |  | 19.6                                      |  | 0.3                 |  | 19.6    |  | 0.3                 |  | 19.6    |  | 0.2                
|Other transportation fee                                             |  | 43.2                                      |  | 0.7                 |  | 48.2    |  | 0.7                 |  | 119.7   |  | 1.1                
|Others                                                               |  | 119.5                                     |  | 1.9                 |  | 170.2   |  | 2.5                 |  | 305.4   |  | 2.9                
|                                                                     |  |                                           |  |                     |  |        
|Total cost of sales and services provided                            |  | 3,362.9                                   |  | 52.9                |  | 3,755.0 |  | 54.0                |  | 4,551.7 |  | 43.0               
|                                                                     |  |                                           |  |                     |  |         |  |                     |  |         |  |                    
|Selling, general and administrative expenses                         |  | 1,231.1                                   |  | 19.4                |  | 1,264.9 |  | 18.2                |  | 1,479.9 |  | 14.0               
|                                                                     |  |                                           |  |                     |  |         |  |                     |  |         |  |                    
|                                                                     |  |                                           |  |                     |  |        
|Total cost of sales and operating expenses                           |  | 4,594.0                                   |  | 72.3                |  | 5,019.9 |  | 72.2                |  | 6,031.6 |  | 57.0               
|                                                                     |  |                                           |  |                     |  |         |  |                     |  |         |  |                    



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 44 to our financial
statements included elsewhere in this annual report.



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



Our
net sales increased by RMB3,626.2 million, or 52.2%, to RMB10,575.1 million in 2004 from RMB6,948.9 million in 2003. Net sales of coal increased by RMB3,560.0 million, or 52.4%, from RMB6,794.3 in 2003 to RMB10,354.3 million in 2004. The increase
was mainly due to an increase of average coal sales prices of 57.9%, which resulted in an increase of net sales of coal by RMB3,796.6 million, partially offset by a decrease of coal sales volume of 3.6%, which resulted in the decrease of net sales
of coal by RMB242.1 million. Our net income from railway transportation service was RMB220.8 million, representing an increase of RMB66.2 million, or 42.8%, from RMB154.6 million in 2003. Such increase was principally due to the increase in the
volume of coal deliveries made by our railway network for coal sales transactions where transportation expenses were charged on ex-mine basis to the customers.



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



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



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



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##### Table of Contents

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



Our operating income increased by RMB2,674.4 million, or 131.4%, to RMB4,709.3 million in 2004 from RMB2,034.9 million in 2003.



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



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



Our net income increased by RMB1,767.6 million, or
127.5%, to RMB3,154.3 million in 2004 from RMB1,386.7 million in 2003.



Year
Ended December 31, 2003 Compared with Year Ended December 31, 2002



Total net sales increased by RMB592.5 million, or 9.3%, to RMB6,948.9 million in 2003 from RMB6,356.4 million in 2002. The net sales of coal increased by RMB580.4 million, or 9.3%, to RMB6,794.3 million in 2003 from RMB6,213.9 million in
2002, mainly due to a 12.4% increase of the volume of coal sales, partially offset by a 2.8% decrease in average coal prices. Railway transportation service income increased by RMB12.1 million, or 8.5%, to RMB154.6 million in 2003 from RMB142.5
million in 2002. The increase was principally due to an increase in the volume of coal deliveries where transportation expenses were calculated on an ex-mine basis and were borne by customers.



Cost of sales and services provided increased by RMB392.1 million, or 11.7%,
to RMB3,755.0 million in 2003 from RMB3,362.9 million of 2002. The cost of coal sales in 2003 increased RMB377.5 million, or 11.4%, from RMB3,309.9 million to RMB3,687.4 million, primarily due to increases in materials cost, wages and employee
benefits resulting from an increase in coal production. The unit cost of coal sold was RMB93.6 per tonne, representing a decrease of RMB0.9 per tonne, or 0.9%, compared with RMB94.5 per tonne in 2002. This decrease was mainly due to strengthened
cost control, and the increase in coal production which had the effect of reducing fixed costs per tonne.



Selling, general and administrative expenses increased by RMB33.8 million, or 2.7%, from RMB1,231.1 million in 2002 to RMB1,264.9 million in 2003. The
increase in selling, general and administrative expenses was mainly due to: (1) an increase in retirement benefits scheme contributions of RMB15.3 million; (2) an increase in resources compensation fees of RMB11.1 million; (3) an increase in
research and development expenses of RMB15.4 million; and (4) an increase in allowance for doubtful debt of RMB14.1 million over that of 2002. Due to strengthened management and cost controls, the percentage of selling, general and administrative
expenses to total net sales declined from 19.4% in 2002 to 18.2% in 2003.



Other operating income increased by RMB2.1 million, or 2.0%, to RMB105.8 million in 2003 from RMB103.7 million in 2002, primarily due to increased gain on sales of auxiliary materials, partially offset by a decrease
in interest income on bank deposits.



Our operating income
increased by RMB168.8 million, or 9.0%, to RMB2,034.9 million in 2003 from RMB1,866.1 million in 2002, in line with the increase in sales.



Interest expenses decreased by RMB57.9 million, or 49.2%, to RMB60.0 million in 2003 from RMB117.9 million in 2002. The decrease was principally due to a
partial repayment of a long-term bank loan in the principal amount of RMB600.0 million in 2003.



Income before income taxes increased by RMB226.7 million, or 13.0%, to RMB1,974.9 million in 2003 from RMB1,748.2 million in 2002. Net income increased by
RMB164.7 million, or 13.5%, to RMB1,386.7 million in 2003 from RMB1,222.0 million in 2002.



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##### Table of Contents

B. Liquidity and Capital Resources



In 2004, our principal source of cash was cash flow from operations and proceeds from the placing of new H Shares. The net
proceeds from the placing of H shares amounted to RMB1,756.9 million. Principal uses of cash in 2004 were operating working capital, payment of shareholders dividends, repayment of certain long-term bank loans, and purchase of property, plants
and equipment, such as Southland Colliery assets.



As at
December 31, 2004, the balance of bills and accounts receivable were RMB1,223.8 million, representing a decrease of RMB15.6 million, or 1.3%, from RMB1,239.4 million as at December 31, 2003. Bills receivable increased by RMB232.9 million, or 35.4%,
to RMB890.0 million from RMB657.1 million as at December 31, 2003, principally due to the increase in bank bills in connection with sales of coal. Accounts receivable decreased by RMB248.6 million, or 42.7%, to RMB333.7 million from RMB582.3 million
as at December 31, 2003, principally due to the reduction of new accounts receivable and improved collection of account receivable.



An analysis of the allowance for doubtful debts for bills and accounts receivable for 2002, 2003 and 2004 is as follows:



|                                           |  |         |   |  |         |   |  |        
|------------------------------------------ |  | ------- | - |  | ------- | - |  | -------
|                                           |  | 2002    |   |  | 2003    |   |  | 2004   
|                                           |  | RMB000 |   |  | RMB000 |   |  | RMB000
|Balance at January 1                       |  | 57,864  |   |  | 76,083  |   |  | 100,627
|Additional allowance charged to income     |  | 64,604  |   |  | 71,125  |   |  | 26,073 
|Direct write-off charged against allowance |  | (46,385 | ) |  | (46,581 | ) |  |       
|Allowance written back to income           |  |        |   |  |        |   |  |       
|                                           |  |         |   |  |         |   |  |        
|Balance at December 31                     |  | 76,083  |   |  | 100,627 |   |  | 126,700
|                                           |  |         |   |  |         |   |  |        



Our inventories
decreased by RMB16.6 million, or 3.3%, to RMB485.4 million as at December 31, 2004, from RMB502.0 million as at December 31, 2003. The decrease was due to the decrease in our inventories of coal products.



Other loan receivable increased by RMB750.0 million, to RMB850.0 million as
at December 31, 2004, from RMB100.0 million as to December 31, 2003, principally due to the increase of loans granted to independent third parties in 2004. The total amount includes a loan of RMB640,000,000 guaranteed by Lianda and secured by the
Pledged Shares. The borrower under such loan defaulted on the payment of principal and interest in January 2005. For more information, please see Item 8. Financial Information - Legal Proceedings and Arbitration.



Prepayment and other current assets decreased by RMB346.2 million, or 64.8%,
to RMB188.3 million as at December 31, 2004, from RMB534.5 million as at December 31, 2003. The decrease was mainly due to the decrease of export tax rebate.



As at December 31, 2004, total bills and accounts payable increased by RMB50.7 million, or 11.9%, to RMB478.3 million from RMB427.6 million as at December
31, 2003.



Other accounts payable and provisions increased by
RMB162.8 million, or 13.9%, to RMB1,337.6 million as at December 31, 2004 from RMB1,174.8 million as at December 31, 2003, principally due to increases of fund payable for the purchase of properties, machinery and equipment, fund payable for
construction materials, resources compensatory fees payable and the fees in connection with the acquisition of the Southland Colliery.



Long-term liabilities decreased by RMB186.7 million, or 41.4%, to RMB264.2 million as at December 31, 2004 from RMB450.9 million as at December 31, 2003.
This was principally due to the repayment of certain long-term bank loans in the principal amounts of RMB200.0 million.



Our principal sources of cash have been cash from operations, the proceeds from issuance of new Shares and bank loans. Our principal capital expenditures
have been for the acquisition of property, plant and equipment. During 2002, 2003 and 2004, our total capital expenditures were RMB2,107.2 million, RMB1,328.1 million and RMB1,057.5 million, respectively. Our capital expenditure for the purchase and
construction of property, machinery and equipment was RMB1,288.1 million and RMB830.2 million in



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2003 and 2004, respectively. Our capital expenditure in connection with our acquisition of Southland Colliery in 2004 was RMB187.3 million. According to the
Jining III Acquisition Agreement, we have paid the Parent Company RMB13.2 million for mining right during this reporting period. According to the Railway Assets Acquisition Agreement, we have paid the Parent Company RMB40.0 million during 2004. For
information about our contractual commitments for capital expenditures, see   F. Contractual Obligations.



Shareholders equity increased by RMB4,440.6 million, or 40.1%, to RMB15,523.8 million at December 31, 2004 compared to December 31, 2003,
principally due to an increase in retained earnings, and the placing of H Shares. Shareholders equity increased by RMB1,088.2 million, or 10.9%, to RMB11,083.2 million at December 31, 2003 compared to RMB9,995.0 million at December 31, 2002,
principally due to the increase in retained earnings. We paid dividends of RMB287.0 million, RMB298.5 million and RMB470.7 million in 2002, 2003 and 2004, respectively. As at December 31, 2004, our debt to equity ratio was 2.8%, which was calculated
based on the total Shareholders equity and total amount of bank loan amounting to RMB15,523.8 million and RMB441.1 million, respectively.



Net cash provided by operating activities increased by RMB1,717.2 million, or 63.6% from RMB2,701.2 million in 2003 to RMB4,418.4 million in 2004. The
increase was mainly due to the increase of our operating income.



Net cash used in investing activities increased from RMB1,310.3 million in 2003 to RMB2,300.8 million in 2004. Net cash used in investing activities primarily reflected (i) an increase in other loans receivable of RMB100.0 million in 2003
and RMB750.0 million in 2004, (ii) capital expenditures for purchase of property, plant and equipment of RMB1,317.9 million and RMB743.0 million in 2003 and 2004, respectively, (iii) deposit made on investments of RMB574.0 million in 2004 and (iv)
acquisition of Southland Colliery of RMB136.3 million in 2004.



Net cash provided by financing activities in 2004 was RMB1,075.4 million, reflecting primarily the net proceeds of RMB1,756.9 million from the H shares placement, partially offset by the payment of dividends of RMB470.7 million in 2004. Net
cash used by financing activities was RMB911.4 million in 2003, reflecting primarily the repayment of bank loans of RMB600.0 million and the payment of dividends of RMB298.5 million.



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



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



We have a team of specialized technicians which is responsible for research and development of new mining and processing technology. Our expenditures for research and development were RMB30.7 million, RMB46.1 million
and RMB24.9 million, in the years ended December 31, 2002, 2003 and 2004, respectively, accounting for 0.5%, 0.7% and 0.2%, respectively, of our total net sales for such periods. In addition to our own research and development program, we have also
established long-term cooperative relationships with a number of research institutes such as the China Coal Science Research Institution, Coal Mine Design Institution, a number of coal machinery and equipment manufacturers and a number of
educational institutions to conduct special research projects.



Our research and development efforts have contributed to increases in production in recent years. The Predecessor began to use the longwall caving mining method in 1992. Thereafter, our research and development personnel concentrated on
modifying such method, taking into account the special geological conditions of our mines, in order to maximize our production. In addition, largely because of our research and development personnels efforts, we have been able to:



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



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



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



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



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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. We believe production costs of coal products can be reduced by utilizing longwall extracting technology.



Upgrading and improving longwall caving extracting technology and equipment
as well as mining methods for medium and thick coal seam are our principal business strategies. With regard to upgrading longwall caving extracting technology, we focus on further improving relevant existing technology and replacing outdated
equipment.



D. Trend Information



The domestic demand for coal in 2005 is expected to be strong and the price
for coal is expected to remain at a high level.



There is a
shortage of coal supplies in certain regions in China, especially with respect to the supply of thermal and metallurgical coal. We expect the price for coal in 2005 to exceed the average price for coal in 2004. The Chinese government expects that
the gross domestic product (GDP) in China to grow 8% in 2005. The power generation and the metallurgical production industries combined demand for coal is expected to increase by approximate 150.0 million tonnes. The Chinese government expects
to adopt measures to strengthen the safety standards at coal mines, to control and restrain coal producers from over-production, to restructure and if necessary, shut down those coal mines that fail to comply with the regulatory requirements. As
such, the increase in supply and demand for coal will essentially be in equilibrium for 2005. The Chinese governments policy encouraging development of large coal companies and the government-driven initiative to implement a price-linking
mechanism between the price for electricity and coal will facilitate the long term development of the coal industry and improve the competitiveness of the large coal companies.



The international demand for coal in 2005 is expected to be strong and the price for coal is expected to remain at a high
level. As the global economy recovers, especially the continuous economic growth in the U.S., Europe and Japan, there is an increase in global demand. The increase in global demand has resulted in the rise of oil prices and the increase in the
demand for coal in power generation and metallurgical production industries. With most major coal-producing countries unable to increase the amount of coal exports, and Chinas continued control on the export of coal, the overall demand may
exceed the supply of coal thereby driving the prices for coal higher in 2005. The increase in ocean freight fees may also increase the cost of coal. We believe this would boost our inter-regional sales in the northeast Asian market as those
countries may look to coal suppliers within close proximity to save ocean freight costs.



We signed domestic sales contracts, letters of intent to sell 10.8 million and 19.9 million tonnes of coal, respectively in 2005. We are in the process of finalizing export sales arrangement with certain customers for
the export of approximately 9.0 million tonnes of coal for 2005.



The average price for our coal in 2005 is expected to be significantly higher than that of 2004. The average price for coal under our domestic sales contracts signed in 2005 increased by approximately 32.7% over that of 2004. The price for
coal under the domestic letters of intent however, will fluctuate depending on the market movements.



E. Off-balance Sheet Arrangements



As of December 31, 2004, other than capital expenditure commitments, discussed in B. Liquidity and Capital Resources above, and contractual obligations, discussed in F. Contractual Obligations
below, we did not have any off-balance sheet arrangements.



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F. Contractual Obligations



The following table summarizes our contractual obligations and commercial commitments at December 31, 2004:



|                                                                         |  |                        |  |                  |  |           |  |           |  |                  
|------------------------------------------------------------------------ |  | ---------------------- |  | ---------------- |  | --------- |  | --------- |  | -----------------
|                                                                         |  | 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                                                |  | 400,000                |  | 200,000          |  | 200,000   |  |          |  |                 
|Capital commitments for the acquisition of property, plant and equipment |  | 12,872                 |  | 12,872           |  |          |  |          |  |                 
|Capital commitments for the development of new coal mines                |  | 2,100,000              |  | 2,100,000        |  |          |  |          |  |                 
|Amounts due to Parent Company and its subsidiaries                       |  | 41,057                 |  |                 |  | 9,230     |  | 24,574    |  | 7,253            
|                                                                         |  |                        |  |                  |  |           |  |           |  |                  
|Total                                                                    |  | 2,553,929              |  | 2,312,872        |  | 209,230   |  | 24,574    |  | 7,253            
|                                                                         |  |                        |  |                  |  |           |  |           |  |                  



Acquisition of Jining III



We acquired Jining III on January 1, 2001 pursuant to the
Jining III Acquisition Agreement entered into between the Parent Company and us on August 4, 2000. Pursuant to the Jining III Acquisition Agreement, we agreed to pay approximately RMB132.5 million as total consideration for the mining rights
associated with Jining III. This amount is to be paid to the Parent Company in 10 equal annual interest free installments commenced in 2001. As at December 31, 2004 we have paid total of RMB53.0 million to the Parent Company for mining rights to
Jining III.



Acquisition of Railway Assets



On January 1, 2002, we acquired the Railway Assets from the Parent Company
pursuant to the Railway Assets Acquisition Agreement. Pursuant to the Railway Assets Acquisition Agreement, when the annual transportation volume of the Railway Assets reaches the volume milestone targets of 25 million tonnes, 28 million tonnes and
30 million tonnes for the years 2002, 2003 and 2004, respectively, we will pay to the Parent Company an amount of RMB40 million each year before June 30. The annual transportation volume of the Railway Assets in the years ended December 31, 2002,
2003 and 2004 were above 25 million, 28 million and 30 million tonnes, respectively. Accordingly, pursuant to the Railway Assets Acquisition Agreement, we paid RMB40.0 million in each of 2002, 2003 and 2004 to the Parent Company.



Loan Agreement



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



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Mining Rights



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



We entered into the Asset Sale Agreement with the receivers and managers and the liquidators of Southland Coal Pty Limited in October 2004, pursuant to
which we acquired the entire assets of Southland Colliery previously owned by Southland Coal Pty Limited in liquidation. For more details, please see  Item 4  Information of the Company  History and Development of the Company
and Item 4  Information of the Company  D. Property, Plants and Equipment.



|G. | Critical Accounting Policies
|-- | ----------------------------



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



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



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.



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,
2004, we have not recorded an impairment charge for our assets.



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Goodwill



Goodwill arising on acquisition with the agreements dated prior to March 31, 2004 represented the excess of the purchase consideration paid over our share
in the fair value of the identifiable assets and liabilities of businesses or subsidiaries at the date of acquisition. Goodwill was then capitalized and amortized on a straight line basis over its useful economic life.



Goodwill arising on acquisition with agreements dated on or after March 31,
2004 represents the excess of the cost of acquisition over our interest in the fair value of the identifiable assets, liabilities and contingent liabilities of businesses or subsidiaries at the date of acquisition. Goodwill is recognized as an asset
and reviewed for impairment at least annually. Any impairment is recognized immediately in income and is not subsequently reversed.



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



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



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



Through December 31, 2004, we recorded a RMB40 million goodwill resulting from the subsequent adjustment of contingent consideration payment in respect of
the acquisition of Railway Assets.



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 provision, if necessary, for obsolescence.



Through December 31, 2004, we did not write down inventories for obsolescence, based upon assumptions about future demand and market conditions. These assumptions, although consistently applied, can have a significant impact on current and
future operating results and financial position. Our principal inventory is coal products. Costs of the coal product are significantly lower than its net realizable value, hence no relevant inventory obsolescence risks exist.



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



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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, 2004, we have recognized deferred taxation for the tax consequence of temporary differences on the additional provision for land
subsidence, restoration, rehabilitation and environmental costs as management believes that its realization is probable. A change in managements belief resulting from anticipated levels of profitability would result in adjustment to the amount
of deferred tax assets recognized and further impact our earnings in the year this change occurs. We have also recognized the deferred taxation for the tax effect on the provision for work safety costs in 2004.



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 method based on the estimated production volume for which the
structure was designed. Production volumes over the lives of these assets which differ from managements estimates will impact future operating results.



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



Recent Changes in Accounting Pronouncements



In 2004, the International Accounting Standards Board issued a number of new
or revised IFRS which are effective for accounting periods beginning on or after January 1, 2005. We have not early adopted these new IFRS in the financial statements for the year ended December 31, 2004.



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



IFRS 3 Business Combination



IFRS 3 requires goodwill acquired in a business combination to be measured after initial recognition at cost less any accumulated impairment losses.
Therefore, the goodwill is not amortized and instead must be tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. Currently, we amortize the goodwill capitalized on a straight
line basis over its useful economic life.



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IFRS 3 also requires negative goodwill to be recognized in the profit or loss immediately on acquisition.
Currently, we present the negative goodwill as a deduction from assets and release to income based on an analysis of the circumstance from which the balances resulted.



Accordingly, we estimate that the adoption of IFRS 3 in the annual period beginning on January 1, 2005 in relation to the
discontinued goodwill amortization would result in an increase in the net profit the year ending December 31, 2005 of approximately RMB15.8 million.



In addition, we estimate that the adoption of IFRS 3 in the annual period beginning on January 1, 2005 in relation to the negative goodwill, would result
in an increase in the opening balance of accumulated profits by approximately RMB27.6 million with the corresponding decrease in negative goodwill of the same amount.



In relation to other new IFRS, we do not expect that the adoption will have a material effect on how the results of our
operation and financial position are prepared and presented.



Recent
pronouncements in the US GAAP



In January 2003, the Financial
Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated
Financial Statements and provides guidance on the identification of entities for which control is achieved through means other than voting rights (variable interest entities or VIEs) and how to determine when and which
business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (1) the equity investors (if any) lack one or more characteristics deemed essential to a controlling financial interest or (2)
the equity investment at risk is insufficient to finance that entitys activities without receiving additional subordinated financial support from other parties. FIN 46 was applicable for periods ending December 15, 2003. In December 2004 the
FASB issued FIN 46R which defers the implementation date to the end of the first reporting period after March 15, 2003 unless the Company has a special purpose entity in which case the provisions must be applied for fiscal years ending December 31,
2003. We do not have a special purpose entity and therefore the adoption of FIN 46 did not have a material impact on our financial statements.



In March 2004, the Emerging Issue Task Force (EITF) reached a consensus in EITF 03-1 The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments. The consensus was that certain quantitative and qualitative disclosures should be required for debt and marketable equity securities classified as available-for-sale or held-to-maturity under SFAS Nos.
115 and 124, that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. This EITF consensus is effective for fiscal years ending after June 15, 2004. Adoption of the EITF consensus did not
result in an impact on our financial position, results of operations or cash flows.



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



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



Under IFRS, the acquisitions of Jining II, Jining III and the Railway Assets
have been accounted for using the purchase method which accounts for the assets and liabilities of Jining II, Jining III and the Railway Assets at their fair value at the date of acquisition. Any excess of the purchase consideration over the fair
value of the net assets acquired is capitalized as goodwill and amortized over a period of ten to twenty years. Any excess of the fair value of the net assets acquired over the purchase consideration is recorded as negative goodwill, which is
presented as a deduction from the assets of the Group in the consolidated balance sheet. The Group releases the negative goodwill to the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable
acquired depreciable/amortizable assets.



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Under US GAAP, as the Group, Jining II, Jining III and the Railway Assets are entities under the common
control of the Parent Company, the assets and liabilities of Jining II, Jining III and the Railway Assets 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 and the Railway Assets acquired and the purchase price paid is recorded as an adjustment to shareholders equity.



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



Under IFRS, property, plant and equipment and land use rights have been stated based on their respective fair values at the date of acquisition even for cases involving transaction between entities under common
control. The fair value amount becomes the new cost basis of the assets of the Company formed from the reorganization and depreciation is based on such new basis. Under US GAAP, when accounting for a transfer of assets or exchange of shares between
entities under common control, the entity that receives the net assets or equity interests shall initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer.
Accordingly, property, plant and equipment and land use rights are restated at the historical cost and no additional depreciation on the fair value amounts will be recognized under US GAAP. However, a deferred tax asset relating to the difference in
cost bases between the fair value at the date of acquisition and historical cost is required to be recognized under US GAAP and the tax bases of the assets are the fair value amount at the date of acquisition.



Under IFRS, the acquisition of Yanmei Shipping has been accounted for using
purchase method which accounted for the assets and liabilities of Yanmei Shipping at their fair value at the date of acquisition. The excess of the purchase consideration over the value of the net assets acquired is capitalized and amortized over a
period of ten years. Under US GAAP, goodwill is not amortized but instead tested for impairment at least annually.



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



|                                                                                                                                                                                             |  |                         |   |  |           |   |  |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | - |  | --------- | - |  | --------- | -
|                                                                                                                                                                                             |  | Year ended December 31, |  
|                                                                                                                                                                                             |  | 2002                    |   |  | 2003      |   |  | 2004      |  
|                                                                                                                                                                                             |  | RMB000                 |   |  | RMB000   |   |  | RMB000   |  
|Net income as reported under IFRS                                                                                                                                                            |  | 1,221,999               |   |  | 1,386,686 |   |  | 3,154,317 |  
|U.S. GAAP adjustments:                                                                                                                                                                       |  |                         |   |  |           |   |  |           |  
|Additional depreciation charged on fair value of property, plant and equipment and land use rights                                                                                           |  | 188,178                 |   |  | 188,191   |   |  | 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 land
use rights and capitalization of mining rights |  | (64,284                 | ) |  | (64,289   | ) |  | (64,034   | )
|Amortization of negative goodwill on acquisition of Jining III                                                                                                                               |  | (27,620                 | ) |  | (27,620   | ) |  | (27,620   | )
|Amortization of mining rights of Jining III                                                                                                                                                  |  | 6,624                   |   |  | 6,624     |   |  | 6,624     |  
|Amortization of goodwill arising on acquisition of Jining II                                                                                                                                 |  | 777                     |   |  | 777       |   |  | 777       |  
|Amortization of goodwill arising on acquisition of the Railway Assets                                                                                                                        |  |                        |   |  | 8,880     |   |  | 13,880    |  
|Amortization of goodwill arising on acquisition of Yanmei Shipping                                                                                                                           |  |                        |   |  |          |   |  | 1,116     |  
|                                                                                                                                                                                             |  |                         |   |  |           |   |  |           |  
|Net income under U.S. GAAP                                                                                                                                                                   |  | 1,325,674               |   |  | 1,499,249 |   |  | 3,272,478 |  
|                                                                                                                                                                                             |  |                         |   |  |           |   |  |           |  
|Earnings per share under U.S. GAAP                                                                                                                                                           |  | RMB0.46                 |   |  | RMB0.52   |   |  | RMB1.10   |  
|                                                                                                                                                                                             |  |                         |  
|Earnings per ADS under U.S. GAAP                                                                                                                                                             |  | RMB23.10                |   |  | RMB26.12  |   |  | RMB55.19  |  
|                                                                                                                                                                                             |  |                         |   |  |           |   |  |           |  



42



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##### Table of Contents

|                                                                                                                                                        |  |                 |   |  |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | - |  | ---------- | -
|                                                                                                                                                        |  | At December 31, |  
|                                                                                                                                                        |  | 2003            |   |  | 2004       |  
|                                                                                                                                                        |  | RMB000         |   |  | RMB000    |  
|Shareholders equity as reported under IFRS                                                                                                             |  | 11,083,239      |   |  | 15,523,751 |  
|U.S. GAAP adjustments:                                                                                                                                  |  |                 |   |  |            |  
|Difference in cost bases of property, plant and equipment and land use rights                                                                           |  | (2,561,032      | ) |  | (2,561,032 | )
|Additional depreciation charged on fair value of property, plant and equipment and land use rights                                                      |  | 1,125,520       |   |  | 1,312,938  |  
|Additional deferred tax asset due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and land
use rights |  | 473,719         |   |  | 411,871    |  
|Goodwill arising on acquisition of Jining II                                                                                                            |  | (10,883         | ) |  | (10,106    | )
|Negative goodwill arising on acquisition of Jining III, net                                                                                             |  | 55,241          |   |  | 27,621     |  
|Mining rights of Jining III                                                                                                                             |  | (112,607        | ) |  | (105,983   | )
|Additional deferred tax asset due to a higher tax base resulting from capitalization of mining rights                                                   |  | 37,160          |   |  | (34,974    | )
|Goodwill arising on acquisition of Railway Assets                                                                                                       |  | (71,120         | ) |  | (97,240    | )
|Amortization of goodwill arising on acquisition of Yanmei Shipping                                                                                      |  |                |   |  | 1,116      |  
|                                                                                                                                                        |  |                 |   |  |            |  
|Shareholders equity under U.S. GAAP                                                                                                                    |  | 10,019,237      |   |  | 14,537,910 |  
|                                                                                                                                                        |  |                 |   |  |            |  



Under U.S. GAAP, our
total assets would have been RMB17,327,752,000 and RMB12,845,802,000 at December 31, 2004 and 2003, respectively.



ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES



A. Director and Senior Management



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



|                                    |  |     |  |                                                  |  |                            |  |                                         
|----------------------------------- |  | --- |  | ------------------------------------------------ |  | -------------------------- |  | ----------------------------------------
|Name                                |  | Age |  | Position at the Company                          |  | Date Term ofOffice Expires |  | Share Ownership As Of December 31, 2004*
|Directors                           |  |     |  |                                                  |  |                            |  |                                         
|WANG Xin                            |  | 46  |  | Chairman                                         |  | June 28, 2008              |  | 0                                       
|GENG Jiahuai                        |  | 54  |  | Vice Chairman                                    |  | June 28, 2008              |  | 0                                       
|YANG Deyu                           |  | 55  |  | Vice Chairman and General Manager                |  | June 28, 2008              |  | 10,000                                  
|SHI Xuerang                         |  | 50  |  | Director                                         |  | June 28, 2008              |  | 0                                       
|CHEN Changchun                      |  | 51  |  | Director                                         |  | June 28, 2008              |  | 0                                       
|WU Yuxiang                          |  | 43  |  | Director and Chief Finance Officer               |  | June 28, 2008              |  | 10,000                                  
|WANG Xinkun                         |  | 52  |  | Director and Deputy General Manager              |  | June 28, 2008              |  | 0                                       
|CHEN Guangshui                      |  | 39  |  | Director and Secretary of the Board of Directors |  | June 28, 2008              |  | 1,000                                   
|DONG Yunging                        |  | 49  |  | Employee Director                                |  | June 28, 2008              |  | 0                                       
|                                    |  |     |  |                                                 
|Independent Non-executive Directors |  |     |  |                                                  |  |                            |  |                                         
|PU Hongjiu                          |  | 68  |  | Director                                         |  | June 28, 2008              |  | 0                                       
|CUI Jianmin                         |  | 72  |  | Director                                         |  | June 28, 2008              |  | 0                                       
|WANG Xiaojun                        |  | 50  |  | Director                                         |  | June 28, 2008              |  | 0                                       
|WANG Quanxi                         |  | 49  |  | Director                                         |  | June 28, 2008              |  | 0                                       
|                                    |  |     |  |                                                 
|Supervisory Committee               |  |     |  |                                                  |  |                            |  |                                         
|MENG Xianchang                      |  | 57  |  | Chairman of Supervisory Committee                |  | June 28, 2008              |  | 10,000                                  



43



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##### Table of Contents

|                   |  |     |  |                                        |  |                            |  |                                         
|------------------ |  | --- |  | -------------------------------------- |  | -------------------------- |  | ----------------------------------------
|Name               |  | Age |  | Position at the Company                |  | Date Term ofOffice Expires |  | Share Ownership As Of December 31, 2004*
|SONG Guo           |  | 50  |  | Vice Chairman of Supervisory Committee |  | June 28, 2008              |  | 0                                       
|ZHANG Shengdong    |  | 48  |  | Supervisor                             |  | June 28, 2008              |  | 0                                       
|LIU Weixin         |  | 54  |  | Supervisor                             |  | June 28, 2008              |  | 0                                       
|XU Bentai          |  | 46  |  | Employee Supervisor                    |  | June 28, 2008              |  | 0                                       
|                   |  |     |  |                                       
|Executive Officers |  |     |  |                                        |  |                            |  |                                         
|JIN, Tai           |  | 53  |  | Deputy General Manager                 |  |                           |  | 0                                       
|ZHANG Yinmin       |  | 51  |  | Deputy General Manager                 |  |                           |  | 0                                       
|HE Ye              |  | 47  |  | Deputy General Manager                 |  |                           |  | 0                                       
|TIAN Fengze        |  | 48  |  | Deputy General Manager                 |  |                           |  | 0                                       
|SHI Chengzhong     |  | 42  |  | Deputy General Manager                 |  |                           |  | 0                                       
|LAI Cunliang       |  | 44  |  | Deputy General Manager                 |  |                           |  | 0                                       
|NI Xinghua         |  | 48  |  | Chief Engineer                         |  |                           |  | 0                                       

---

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



Executive Directors



WANG Xin, aged 46, an engineering technique application researcher and an industrial doctorate, is our Chairman of the Board of Directors. Mr. Wang
joined our predecessor in 1982. In 2000, he was the Deputy Head Engineer, the Department Head of the Mechanical Engineering Department and the Deputy General Manager of Yankuang Group Corporation Limited. In 2002, he became a Director and the Deputy
General Manager of Yankuang Group Corporation Limited, and was also the General Manager of Yankuang Coal Chemicals Company. By 2003, he was the Vice-Chairman of the Board of Directors and General Manager of Yankuang Group Corporation Limited. Mr.
Wang graduated from the China University of Mining and Technology.



GENG Jiahuai, aged 54, an engineering technique application researcher, is our Director and Vice Chairman of our board of directors. He is also the Party Committee Secretary of the Parent Company. From 1985 to 2002, Mr. Geng acted as
the Deputy Director, Director of the Safety and Supervision Bureau and the Director of Zibo Mining Bureau. Mr. Geng joined of the Parent Company in 2002, and became the General Manager and the Vice Chairman of the Board of Directors and the Party
Committee Deputy Secretary of the Parent Company in 2002. Mr. Geng became a Director of the Company in 2002. Mr. Geng became the Chairman of the Board of Directors and the Party Committee Secretary of the Parent Company in 2003, and became our Vice
Chairman in 2004. He graduated from Shandong Mining Institute.



YANG Deyu, aged 55, an engineering technique application researcher, is our Vice Chairman of the Board of Directors, and our General Manager. Mr. Yang joined the Predecessor in 1968, became the Deputy Director of Yanzhou Mining
Bureau in 1994 and became the Deputy General Manager and Director of the Safety and Supervision Bureau of the Predecessor in 1996. Mr. Yang become our Executive Director and General Manager in 1997, and become our Vice Chairman of the Board of
Directors and General Manager in 2002. He graduated from Shandong Mining Institute.



SHI Xuerang, aged 50, a senior engineer, is a Director of our company. Mr. Shi is also the deputy general manager of the Parent Company. During the period from 1995 to 2003, Mr. Shi successively acted as the
head of Huafeng mine of the Xinwen Mining Bureau, the head of Huafeng mine of the Xinkuang Corporation and the deputy general manager of Xinkuang Corporation Limited. Mr. Shi joined the Parent Company in 2003 and became the deputy general manager.
Mr. Shi graduated from Shandong Mining Institute.



CHEN
Changchun, aged 51, a senior accountant, is a Director of our company. Mr. Chen is also the chief accountant of the Parent Company. Mr. Chen joined the Predecessor in 1984 and became the head of the finance department of the Parent Company in
1996, and the chief accountant of the Parent Company in 1998. Mr. Chen graduated from Beijing Coal Management College.



WU Yuxiang, aged 43, a senior accountant, is a Director and the Chief Financial Officer of our company. Mr. Wu joined the Predecessor in 1981 and
became the Chief Accountant of the Finance Department of the Predecessor in 1996. Mr. Wu became the Manager of the Finance Department of our company in 1997, and became a Director and the Chief Financial Officer of our company in 2002. He graduated
from Shandong Television University.



44



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##### Table of Contents

WANG Xinkun, aged 52, a senior economist, is the Deputy General Manager of our company. Mr. Wang
joined our predecessor in 1977. He became the Manager of the Sales Department of our company in 2000. He became a Deputy General Manager of our company in 2002. He graduated from Tianjin University.



CHEN Guangshui, aged 39, a senior economist, is a Director and the
Secretary of the Board and the director of the secretariat of the Board. Mr. Chen joined the Predecessor in 1990 and became the secretary of the Board and the director of the secretariat of the Board in 1997. Mr. Chen graduated from Fuxin Mining
Institute.



DONG Yunqing, aged 49, a senior engineer, is
a Director and the Chairman of Labor Union of our company. Mr. Dong joined the Predecessor in 1981. Mr. Dong was the Vice Chairman of Labor Union of the Parent Company from 2001 to April 2003. Mr. Dong became a Director and the Chairman of Labor
Union of our company in 2002. He graduated from Shandong Mining Institute.



Independent Non-executive Directors



PU
Hongjiu, aged 68, a professor-grade senior engineer, is an Independent Non-executive Director of our company. Mr. Pu is the first vicechairman of China Coal Industry Association, the chairman of the Association of Coal Industry of The Chinese
International Chamber of Commerce and the president of Chinese Academy of Coal. Mr. Pu was the deputy general manager of China National Coal Mining Corporation, the deputy minister of the Ministry of Coal, a member of the party committee of the
State Coal Industry Bureau of China, a member of the party committee of the State Administration of Work Safety and the State Administration of Coal Mine Safety, the leader of Discipline Inspection Group of the State Administration of Coal Mine
Safety Central Discipline Bureau and a committee member of the 15th Session of the Central Discipline and Inspection Committee of the PRC. Mr. Pu graduated from University of Coal Industry of Hefei. Mr. Pu is also the independent director of
Shanghai Datun Energy Resources Co., Ltd.



CUI Jianmin,
aged 72, a senior auditor and certified accountant, is an Independent Non-executive Director of our company. Mr. Cui is the chairman of the Association of China Certified Accountants. Mr. Cui has extensive experience in financial accounting and
audit management and has been the deputy chief auditor of the National Audit Office of the PRC. Mr. Cui became a Committee Member of the 8th Chinese Peoples Political Consultative Conference. Mr. Cui became an Independent Non-executive
Director of our company in 2002. Mr. Cui graduated from Peoples University of China.



WANG Xiaojun, aged 50, admitted as a solicitor in England and Wales and Hong Kong, is an Independent Non-executive Director of our company. Mr. Wang is a partner of Wang & Co., X. J. in Hong Kong. He has
practiced PRC law in Beijing and was admitted in the PRC, Hong Kong and England and Wales in 1988, 1995 and 1996, respectively. Mr. Wang has worked as a legal adviser for the Hong Kong Stock Exchange and Richards Butler and has worked in investment
banking activities for BNP Paribas Peregrine and ING Barings. Mr. Wang became an Independent Non-executive Director of the Company in 2002. He graduated from the Peoples University of China and the Graduate School of the Chinese Academy of
Social Science and holds a bachelors degree in laws and a masters degree in laws.



WANG Quanxi, aged 49, a professor, is an Independent Non-executive Director of our company. Mr. Wang is currently the Faculty Head of the Nankai University Finance Management Faculty, the Head of the Nankai
University Enterprise Research Centre, and the Deputy Head of the Nankai University MBA Centre. He is also the Chief Secretary of the Tianjin City Management Science Academic Society. Mr. Wang graduated from the Tianjin Nankai University.



Board of Supervisors



MENG Xianchang, aged 57, a senior engineer, is the Chairman of the
Supervisory Committee of our company and a Supervisor and Party Committee Deputy Secretary of the Parent Company. Mr. Meng joined the Predecessor in 1981 and was promoted to Party Committee Deputy Secretary and Supervisor of the Predecessor in 1996,
and became the Chairman of the Supervisory Committee of our company in 1997. He graduated from Shandong Mining Institute.



45



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##### Table of Contents

SONG Guo, aged 50, a senior human relations coordinator, is a Supervisor of our company. Mr. Song
is the party committee deputy secretary and the discipline inspection committee secretary of the Parent Company. Mr. Song was the office head of Shandong Province Coal Administration Bureau in 2002, joined the Parent Company in 2002 as the
discipline inspection committee secretary of the Parent Company, and became the party committee deputy secretary of the Parent Company in 2004. Mr. Song graduated from Shandong Province self-taught examination.



ZHANG Shengdong, aged 48, a senior accountant, is a Supervisor of our
company and the Deputy Chief Accountant of the Parent Company. Mr. Zhang joined the Predecessor in 1981 and became the Deputy Chief Accountant of Parent Company in 1997. Mr. Zhang became a Supervisor of our company in 2002. He graduated from China
University of Mining and Technology.



LIU Weixin, aged
54, a senior accountant, is a Supervisor of our company and the Chief of Audit Department of the Parent Company. Mr. Liu joined the Predecessor in 1971, and became the Deputy Chief of Audit Office of the Parent Company in 2001. Mr. Liu became a
Supervisor of our company in 2002, and became the Director of Audit Department of the Parent Company in 2003. He graduated from Shandong Youth Cadre Institute.



XU Bentai, aged 46, a senior human relations coordinator. Mr. Xu is an employee Supervisor of our company and the chairman of Jining III
mines labor union. Mr. Xu joined the Predecessor in 1978, became the chairman of Jining III mines labor union in 1999, and became an employee supervisor of our company in 2002. Mr. Xu graduated from the Central Communist Party School
Correspondence Institute.



Other Executive Officers



JIN Tai, aged 53, a senior engineer, is the Deputy General Manager of
our company. Mr. Jin joined the Predecessor in 1968. In 1996, he was the Manager of the Co-ordination Department of the Predecessor. In 1998, he became the Head of Xinglong Zhuang Coal Mine. In 2000, he was the Deputy General Manager of the parent
company of our company, and in 2004 he became the Deputy General Manager of our company. Mr. Sin graduated from the China University of Mining and Technology.



ZHANG Yingmin, aged 51, a senior engineer, is the Deputy General Manager of our company. Mr. Zhang joined the Predecessor in 1971. He became the
Head of Baodian coal mine in 2000. Mr. Zhang became the Deputy General Manager of our company in 2002. He graduated from Tianjin University.



HEYe, aged 47, a senior engineer, is the Deputy General Manager of our company. Mr. He joined the Predecessor in 1993. In 1992, he was the
Head of the Jining II Coal Mine. In 2002, he was the Executive Deputy General Manager of a subsidiary of the Parent Company. In 2004, he became the Deputy General Manager of our company. Mr. He graduated from the Guizhou Industrial Academy.



TIAN Fengze, aged 48, a senior economist, is a Deputy
General Manager of our company. Mr. Tian joined the Predecessor in 1976. He became the Head of Beixu Coal Mine in 1991. Mr. Tian became a Deputy General Manager of our company in 2002. He graduated from Beijing Coal Cadre Institute.



SHI Chengzhong, aged 42, a senior engineer, is a Deputy General
Manager of our company. Mr. Shi joined the Predecessor in 1983 and became Vice Chief Engineer of the Parent Company in 2000, and became a Deputy General Manager of our company in 2002. He graduated from Shandong Mining Institute.



LAI Cunliang, aged 44, a senior engineer, master in mining
engineering, a deputy general manager of the Company. Mr. Lai joined the predecessor of the Company in 1980, became the head of Xing Long Zhuang Coal Mine in 2000. Mr. Lai became the director and general manager of Yancoal Australia Pty Limited in
2004. Mr. Lai became the Vice General Manager of our company in 2005. Mr. Lai graduated from the China University of Mining and Technology.



NI Xinghua, aged 48, a senior engineer, is the Chief Engineer of our company. Mr. Ni joined the Predecessor in 1975 and became Vice Chief Engineer
of the Parent Company in 2000, and became the Chief Engineer of our company in 2002. He graduated from Tianjin University.



46



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##### Table of Contents

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 Directors, Supervisors and Executive Officers (a total of 25 persons) during the year
ended December 31, 2004 was RMB3.1 million. The aggregate amount of cash remuneration paid by us to the five highest-paid individuals in the Company (including four Directors) in 2004 was RMB920,000. 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.



C. Board Practices



Board of Directors



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



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



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



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



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



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



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



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



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



| | (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 risk investments, mortgages of assets and other guarantees 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 3% of our latest audited consolidated net asset value, to clear an amount of provision for
impairment of assets not more than 1% 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.



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



47



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##### Table of Contents

| |  |  | to act honestly in our best interests;
| | - |  | --------------------------------------



| |  |  | not to expropriate our property in any way, including (without limitation) usurpation of opportunities which benefit us; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | not to expropriate the individual rights of shareholders, including (without limitation) rights to distributions and voting rights, save and except pursuant to our restructuring
which has been submitted to the shareholders for their approval in accordance with the Articles of Association.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Articles of Association further place on each Director, Supervisor, general manager, deputy general manager and senior officer:



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



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



| |  |  | a duty not to direct a person or entity related or connected to the Director, Supervisor, general manager, deputy general manager or senior officer in certain relationships
enumerated in the Articles of Association to act in a manner which such Director, Supervisor, general manager, deputy general manager or senior officer is prohibited from doing.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



As approved by our shareholders in the 2004 annual shareholders general meeting held on June 28, 2005, we established a Directors Decision Making
Risk Fund (Risk Fund) to compensate the Directors, Supervisors, Executive Officers and other applicable personnel for personal economic losses resulted from their performance of duties in accordance with the laws, regulations or our
Articles of Association or while attempting to procure legitimate benefits for our company. According to the Management Measures for the Directors Decision Making Risk Fund of Yanzhou Coal Mining Company Limited (filed as Exhibit
4.3 to this annual report) effective from January 1, 2005, RMB100,000 for each incumbent Director and RMB50,000 for each incumbent Supervisor, Executive Officer and other applicable personnel will be drawn annually to form the Risk Fund. The
compensation paid from the Risk Fund will only be granted upon the Boards approval.



Audit Committee of the Board of Directors



Pursuant to a resolution passed on October 29, 2002, our Board of Directors established an audit committee and an audit department as the audit committees execution body. The primary duties of our audit
committee as set out in the committee charter include review and audit of our (i) internal audit system, (ii) internal control procedures, (iii) financial reporting channels, and (iv) disclosure of financial information. The audit committee also
pre-approves audit and non-audit services provided by our independent auditors. As approved by the Board of Directors on June 28, 2005, the audit committee is consisted of six members, including four independent non-executive directors, one director
and one employee representative. Mr. Cui Jianming, who is a financial expert, was elected as the chairman of the audit committee. Mr. Cui has extensive experience in financial accounting and audit management. Mr. Cui is a senior auditor and
certified accountant and is the chairman of the Association of China Certified Accountants.



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



|             |  |     |  |                                    |  |                    
|------------ |  | --- |  | ---------------------------------- |  | -------------------
|Name         |  | Age |  | Position                           |  | Ownership of Shares
|CUI Jianming |  | 72  |  | Independent non-executive director |  | 0                  
|             |  |     | 
|PU Hongjiu   |  | 68  |  | Independent non-executive director |  | 0                  



48



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##### Table of Contents

|               |  |     |  |                                    |  |                    
|-------------- |  | --- |  | ---------------------------------- |  | -------------------
|Name           |  | Age |  | Position                           |  | Ownership of Shares
|               |  |     | 
|WANG Xiaojun   |  | 50  |  | Independent non-executive director |  | 0                  
|               |  |     | 
|WANG Quanxi    |  | 49  |  | Independent non-executive director |  | 0                  
|               |  |     | 
|CHEN Changchun |  | 51  |  | Director                           |  | 0                  
|               |  |     | 
|DONG Yunqing   |  | 49  |  | Employee director                  |  | 0                  



As a foreign private
issuer, we reply on the exemption under Section 303A of the NYSE Listed Company Manual which allows foreign private issuers until July 31, 2005, to comply with the relevant audit committee standards set out in Section 303A.06. 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 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;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



Supervisors shall attend meetings of the Board of Directors.



Nomination / Corporate Governance / Compensation Committee



As of the date of this annual report, the Parent Company held 1,670,000,000 Shares in the form of Legal Person Shares, representing 54.33% of our total
Shares on the same day. As more than 50% of our voting power is held by the Parent Company, we are a controlled company under NYSE Listing Rules 303A.00. As a result, we are not required to establish a Nomination Committee, Corporate
Governance Committee or Compensation Committee under Sections 303A.04 and 303A.05 of the NYSE Listing Rules.



Arrangement to Purchase Equity or Debt Securities and Other Arrangements



At no time during the year ended December 31, 2004, were we, our Parent Company or any of our fellow subsidiaries a party to any arrangement to enable our
Directors or Supervisors to acquire benefits by means of the acquisition of our equity or debt securities or any other body corporate with the exception of the A Shares issued to our Directors, Supervisors and senior management.



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



49



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##### Table of Contents

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,
|                                        |  | 2002               |  | 2003   |  | 2004  
|Coal Production employees               |  | 21,252             |  | 21,419 |  | 22,369
|Engineers and technicians               |  | 811                |  | 923    |  | 1,023 
|Management and administrative personnel |  | 2,007              |  | 1,847  |  | 2,055 
|Support staff                           |  | 3,802              |  | 3,772  |  | 3,819 
|                                        |  |                    |  |        |  |       
|Total                                   |  | 27,872             |  | 27,961 |  | 29,266
|                                        |  |                    |  |        |  |       



The table below sets
forth the number of our employees by locations as of December 31, 2004:



|         |  |           |  |           
|-------- |  | --------- |  | ----------
|Location |  | Employees |  | % of Total
|Shandong |  | 29,253    |  | 99.96     
|Shanxi   |  | 13        |  | 0.04      
|         |  |           |  |           
|Total    |  | 29,266    |  | 100.0     
|         |  |           |  |           



The total remuneration
of our employees includes wages and bonuses. We paid our employees an aggregate of approximately RMB824.8 million, RMB875.7 million and RMB1,051.7 million in wages and bonuses in the years ended December 31, 2002, 2003 and 2004, respectively. The
compensation of an employee directly involved in underground mining is based on the production of such employee, as well as the production of the employees mining team. Employees and their families also receive certain social welfare benefits
and education and health services from the Parent Company. These benefits are provided in some cases by the Parent Company, as required by PRC laws and rules and regulations. We in turn pay the Parent Company for all such benefits.



The Parent Company is responsible for the administration of our employee
pension fund and for the provision of retirement benefits to our retirees. According to the Pension Fund Agreement entered into between the Parent Company and us, we are obligated to set aside the pension fund which equals 45% of the total
remuneration paid to our employees, for the Parent Company to pay the local pension fund authority for and on behalf of our employees and to pay for employee retirement benefits. The welfare of retired employees is administrated by the Parent
Company. The Pension Fund Agreement was renewed in 2002. We and the Parent Company agreed that the foregoing pension fund scheme will be continuously applied from 2002 to 2006. We further carry personal injury insurance for employees. The premium is
1.8% of the total remuneration of the 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 2004, contributions payable by the subsidiaries pursuant to this arrangement were insignificant.



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Under the Agreement, in respect of every five-year period following the expiration of this period, we and
the Parent Company will determine a new contribution rate for us with reference to estimates of pension and welfare benefit expenditures and employees wages in respect of the employees of the Parent Company and us during such period. If we and
the Parent Company cannot agree on the level of contribution for any such subsequent five-year period, then the contribution rate will be fixed by an independent arbitrator. In 2002, 2003 and 2004, total contributions paid by us for our Directors,
Supervisors, Executive Officers and senior management to the pension fund were approximately RMB0.8 million, RMB0.7 million and RMB1.4 million, respectively. In addition, each employee of ours currently pays a percentage of his or her salary as an
additional contribution. Upon retirement, our employees are entitled to the payment of a pension from the scheme.



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



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



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 Materials and Services Supply Agreement, and its Supplemental Agreement, entered into between the Parent Company and us, the Parent Company is
responsible for providing accommodation to our employees. We and the Parent Company share the incidental expenses relating to the provision of such accommodation on a pro-rata basis based on our respective number of employees and mutual agreement.
Such expenses amounted to RMB37.2 million for 2002, 2003 and 2004, 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 2002, 2003 and 2004, housing
allowances paid by us to employees amounted to RMB129.7 million, RMB136.5 million and RMB137.3 million, respectively.



E. Share Ownership



No Director, Supervisor or member of senior management who received compensation as described in subsection B above owns more than one percent of our
outstanding Shares. See   A. Director and Senior Management.



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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, 2004, the Parent Company owned 54.33% of our share capital (see table below). The Parent Companys equity interests in our company has been diluted to the current shareholding of 54.33% from 58.19% after our H Shares
placement in 2004. As a majority shareholder, the Parent Company is able to make most of the decisions adopted by us. Currently, all of our ordinary shares enjoy equal voting rights.



The following table sets forth certain information regarding ownership of our capital stock as of December 31, 2004 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, 2004, the Directors, Supervisors and Executive Officers own, as a group, 71,000 A Shares,
representing 0.0023% of our share capital. Under PRC law, shares held by the Directors, Supervisors and Executive Officers cannot be transferred during their respective tenures of office with us.



|                                              |  |                                                                            |  |               |  |                            |  
|--------------------------------------------- |  | -------------------------------------------------------------------------- |  | ------------- |  | -------------------------- | -
|Identity of Person or Group                   |  | Title of Class                                                             |  | Shares Owned  |  | Percentage ofCapital Stock |  
|Parent Company                                |  | Ordinary Shares in the form of Legal Person
Shares, par value RMB1.00 each |  | 1,670,000,000 |  | 54.33                      | %
|                                              |  |                                                                            | 
|HKSCC Nominee Limited*                        |  | Ordinary Shares in the form of H Shares, par value RMB1.00 each            |  | 1,222,493,999 |  | 39.77                      | %
|                                              |  |                                                                            | 
|Directors, Supervisors and Executive Officers |  | Ordinary Shares in the form of A Shares, par value RMB1.00 each            |  | 71,000        |  | 0.0023                     | %

---

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



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



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



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



B. Related
Party Transactions



The Material and
Services Supply Agreement dated October 17, 1997, and its two Supplementary Agreements, entered into by and between us and the Parent Company, defined and provided for the types of authorized related party transactions between us and the Parent
Company(the English translation of such agreements were disclosed in the combined prospectus dated March 24, 1998, the announcement dated October 30, 2001, the circular to shareholders dated November 22, 2001 and the circular to shareholders dated
May 30, 2003).



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



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audited consolidated net sales in the immediately preceding financial year, and the aggregate value of connected transactions relating to the provision of
materials and services by the Parent Company to us shall not exceed 26% of our companys audited consolidated net sales in the immediate preceding financial year.



For the year ended December 31, 2004, the value of connected transactions relating to the provision of materials and
services by us to the Parent Company was RMB902.9 million and accounted for 13.0% of our audited consolidated net sales in the year ended December 31, 2004, and the value of connected transactions relating to the provision of materials and services
by the Parent Company to us was RMB1,326.9 million and accounted for 19.1% of our audited consolidated net sales in the year ended December 31, 2004.



The letter, as submitted by our auditors to the Board on April 18, 2005, has confirmed that the above on-going connected transactions between us and the
Parent Company (a) have received the approval by the Board; (b) are in accordance with our price policies; (c) have been entered into in accordance with the relevant agreement governing the connected transactions, and (d) have not exceeded the cap
disclosed in the previous announcement.



Our independent
non-executive Directors have reviewed our on-going connected transaction with the Parent Company in the year 2004 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 transaction in respect of the
on-going supply of materials and services has not exceeded the cap under the Waiver granted by the Hong Kong Stock Exchange on July 11, 2003.



For the years ended December 31, 2002, 2003 and 2004, we had the following on-going related party transactions with the Parent Company and/or its
subsidiary companies:



|                                            |  |                         |  |           |  |          
|------------------------------------------- |  | ----------------------- |  | --------- |  | ---------
|                                            |  | Year ended December 31,
|                                            |  | 2002                    |  | 2003      |  | 2004     
|                                            |  | (RMB000)               |  | (RMB000) |  | (RMB000)
|Income                                      |  |                         |  |           |  |          
|Sales of coal                               |  | 110,403                 |  | 229,730   |  | 523,015  
|Sales of auxiliary materials                |  |                        |  | 472,899   |  | 350,873  
|Net gains on sales of auxiliary materials   |  | 12,385                  |  |          |  |         
|Utilities and facilities                    |  | 5,000                   |  | 29,000    |  | 29,000   
|Railway transportation services             |  | 496                     |  | 66        |  |         
|                                            |  |                         | 
|Expenditure                                 |  |                         |  |           |  |          
|Utilities and facilities                    |  | 1,350                   |  | 285,166   |  | 354,424  
|Annual fee for mining rights                |  | 12,980                  |  | 12,980    |  | 12,980   
|Purchases of supply materials and equipment |  | 409,117                 |  | 373,710   |  | 303,549  
|                                            |  |                         | 
|Repair and maintenance services             |  | 239,297                 |  | 225,408   |  | 222,949  
|Social welfare and support services         |  | 186,657                 |  | 188,825   |  | 207,062  
|Technical support and training              |  | 15,130                  |  | 15,130    |  | 15,130   
|Road transportation services                |  | 33,208                  |  | 17,216    |  | 63,478   
|Construction services                       |  |                        |  | 507,824   |  | 160,342  



During the years ended
December 31, 2002, 2003 and 2004, we had the following significant transactions with Yanmei Shipping, certain management members of which were also our management members. Yanmei Shipping became our consolidated subsidiary in 2004:



|                                       |  |                         |  |           |  |          
|-------------------------------------- |  | ----------------------- |  | --------- |  | ---------
|                                       |  | Year ended December 31,
|                                       |  | 2002                    |  | 2003      |  | 2004     
|                                       |  | (RMB000)               |  | (RMB000) |  | (RMB000)
|Sales of coal by us                    |  | 37,693                  |  | 77,155    |  |         
|Transportation services provided to us |  |                        |  | 74,783    |  |         



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Pension Fund Agreement



We participate in a multi-employer scheme of the Parent Company. The Parent Company is responsible to pay retirement benefits for our employees.
According to the Pension Fund Agreement entered into between the Parent Company and us in 1997, which was renewed in 2002, we are obligated to set aside a pension fund equal to 45% of the total remuneration paid to our employees, which the Parent
Company uses to pay the local pension fund authority for and on behalf of our employees. We and the Parent Company agreed that the foregoing pension fund scheme will be continuously applied from 2002 until 2006. In 2002, 2003 and 2004, the pension
fund paid by us to the Parent Company was RMB334.1 million, RMB349.4 million and RMB408.5 million, respectively.



Payment to the Parent Company for the Acquisition of Parent Companys Equity Interest in Heze.



The Parent Company invested RMB574.0 million in Heze, representing 95.67% of Hezes total registered capital in October
2002. Heze is responsible for the exploitation and construction of Zhaolou Coal Mine in the Juye Coalfield. Our Board of Directors approved the acquisition of the Parent Companys 95.67% interest in Heze for RMB584.0 million on June 28, 2005.
As of the date of this annual report, we have paid RMB574.0 as partial payment for the acquisition of the Parent Companys equity interest in Heze. See   Item 4. Information on the Company  Development of Juye Coalfield.



Amounts Due to the Parent Company 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 Parent Company and its subsidiary companies as at December 31, 2004 included the present value of the outstanding balance that arose from the funding of the acquisition of the mining right
of Jining III as of January 1, 2001 discounted using the market rate of bank borrowings. The following table sets forth the amounts due to the Parent Company and its subsidiary companies as at December 31, 2003 and 2004:



|                                                  |  |                    |  |        
|------------------------------------------------- |  | ------------------ |  | -------
|                                                  |  | As at December 31,
|                                                  |  | 2003               |  | 2004   
|                                                  |  | RMB000            |  | RMB000
|Term for Repayment                                |  |                    |  |        
|Within one year                                   |  | 369,620            |  |       
|More than one year, but not exceeding two years   |  | 9,802              |  | 9,230  
|More than two years, but not exceeding five years |  | 26,101             |  | 24,574 
|Exceeding five years                              |  | 14,956             |  | 7,253  
|Total due                                         |  | 420,479            |  | 41,057 
|                                                  |  |                    |  |        
|Less: amount due within one year                  |  | 369,620            |  |       
|                                                  |  |                    |  |        
|Amount due after one year                         |  | 50,859             |  | 41,057 
|                                                  |  |                    |  |        



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



Expenditures for social welfare and support services (excluding medical and child care expenses) of RMB66.5 million, RMB63.5 million and RMB63.3 million
for the year ended December 31, 2002, 2003 and 2004, respectively, and for technical support and training of RMB15.1 million for each of the three years ended December 31, 2004, have been charged to us by the Parent Company at a negotiated amount
per annum, subject to changes every year.



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



On January 1, 2001, we acquired Jining III from the Parent Company.



On January 1, 2002, we acquired Railway Assets from the Parent Company.



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, 2004.



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As at December 31, 2004, the Directors, Supervisors and Executive Officers owned, as a group, 71,000 A
Shares representing approximately 0.0023% of our share capital. Under PRC law, shares held by Directors, Supervisors and Executive Officers may not be transferred during their respective tenures of office with us.



ITEM 8. FINANCIAL INFORMATION



A.
Consolidated Statements and Other Financial Information



The selected income statement data and cash flow data for the five years ended December 31, 2004 and the selected balance sheet data as of December 31, 2000, 2001, 2002, 2003 and 2004 set forth below are derived from, and should be read in
conjunction with, and are qualified in their entirety by reference to the Financial Statements, including the notes thereto. The Financial Statements are prepared and presented in accordance with IFRS. For a discussion of certain differences between
IFRS and U.S. GAAP, see Note 44 to the Financial Statements. For full consolidated statements and other financial information, see pages F-1 to F-55 following Item 19.



|                                                    |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|--------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | ------- | -
|                                                    |  | As of and For the Year Ended December 31,                                                         |  
|                                                    |  | 2000                                                                                              |   |  | 2001     |   |  | 2002     |   |  | 2003     |   |  | 2004     |   |  | 2004(1) |  
|                                                    |  | RMB                                                                                               |   |  | RMB      |   |  | RMB      |   |  | RMB      |   |  | RMB      |   |  | U.S.$   |  
|                                                    |  | (Amounts in millions except numbers of Shares and ADSs, and per Share,per ADS and operating
data) |  
|INCOME STATEMENT DATA                               |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net Revenue                                         |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net sales of coal                                   |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Domestic                                            |  | 2,090.7                                                                                           |   |  | 2,599.8  |   |  | 3,414.0  |   |  | 4,337.1  |   |  | 7,407.0  |   |  | 894.9   |  
|Export(2)                                           |  | 1,509.0                                                                                           |   |  | 2,276.2  |   |  | 2,799.9  |   |  | 2,457.2  |   |  | 2,947.3  |   |  | 356.1   |  
|Railway transportation service income               |  |                                                                                                  |   |  |         |   |  | 142.5    |   |  | 154.6    |   |  | 220.8    |   |  | 26.7    |  
|Total net revenue                                   |  | 3,599.7                                                                                           |   |  | 4,876.0  |   |  | 6,356.4  |   |  | 6,948.9  |   |  | 10,575.1 |   |  | 1,277.7 |  
|Gross profit                                        |  | 1,616.2                                                                                           |   |  | 2,063.4  |   |  | 2,993.5  |   |  | 3,193.9  |   |  | 6,023.4  |   |  | 727.8   |  
|Operating income                                    |  | 1,040.7                                                                                           |   |  | 1,421.7  |   |  | 1,866.1  |   |  | 2,034.9  |   |  | 4,709.3  |   |  | 569.2   |  
|Income from continuing operation                    |  | 1,040.7                                                                                           |   |  | 1,421.7  |   |  | 1,866.1  |   |  | 2,034.9  |   |  | 4,709.3  |   |  | 569.2   |  
|Interest expenses                                   |  | (5.0                                                                                              | ) |  | (61.5    | ) |  | (117.9   | ) |  | (60.0    | ) |  | (35.9    | ) |  | (4.3    | )
|Income before income taxes                          |  | 1,035.7                                                                                           |   |  | 1,360.2  |   |  | 1,748.2  |   |  | 1,974.9  |   |  | 4,673.3  |   |  | 564.6   |  
|Net income                                          |  | 748.4                                                                                             |   |  | 970.9    |   |  | 1,222.0  |   |  | 1,386.7  |   |  | 3,154.3  |   |  | 381.1   |  
|Net income per Share                                |  | 0.29                                                                                              |   |  | 0.35     |   |  | 0.43     |   |  | 0.48     |   |  | 1.06     |   |  | 0.13    |  
|Net income per ADS                                  |  | 14.39                                                                                             |   |  | 17.29    |   |  | 21.29    |   |  | 24.16    |   |  | 53.20    |   |  | 6.43    |  
|                                                    |  |                                                                                                   |   |  |          |  
|Operating income per Share                          |  | 0.40                                                                                              |   |  | 0.51     |   |  | 0.65     |   |  | 0.71     |   |  | 1.59     |   |  | 0.19    |  
|Income from continuing operation per ADS            |  | 20.01                                                                                             |   |  | 25.32    |   |  | 32.51    |   |  | 35.45    |   |  | 79.42    |   |  | 9.60    |  
|U.S. GAAP                                           |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net income(3)                                       |  | 918.6                                                                                             |   |  | 1,227.6  |   |  | 1,325.7  |   |  | 1,499.2  |   |  | 3,272.5  |   |  | 395.4   |  
|Net income per Share                                |  | 0.35                                                                                              |   |  | 0.44     |   |  | 0.46     |   |  | 0.52     |   |  | 1.10     |   |  | 0.13    |  
|Net income per ADS                                  |  | 17.66                                                                                             |   |  | 21.86    |   |  | 23.1     |   |  | 26.12    |   |  | 55.19    |   |  | 6.67    |  
|                                                    |  |                                                                                                   |   |  |          |  
|CASH FLOW DATA                                      |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|IFRS                                                |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Net cash provided by operating activities           |  | 1,023.2                                                                                           |   |  | 1,610.2  |   |  | 2,239.7  |   |  | 2,701.2  |   |  | 4,418.4  |   |  | 533.9   |  
|Depreciation                                        |  | 514.2                                                                                             |   |  | 819.6    |   |  | 851.1    |   |  | 933.8    |   |  | 971.9    |   |  | 117.4   |  
|                                                    |  |                                                                                                   |   |  |          |  
|Net cash used in investing activities               |  | (464.7                                                                                            | ) |  | (1,948.2 | ) |  | (2,165.5 | ) |  | (1,310.3 | ) |  | (2,300.8 | ) |  | (278.0  | )
|Net cash (used in) provided by financing activities |  | (231.4                                                                                            | ) |  | 618.0    |   |  | 345.2    |   |  | (911.4   | ) |  | 1,075.4  |   |  | 129.9   |  
|                                                    |  |                                                                                                   |   |  |          |  
|OTHER FINANCIAL DATA                                |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Operating income                                    |  | 1,040.7                                                                                           |   |  | 1,421.7  |   |  | 1,866.1  |   |  | 2,034.9  |   |  | 4,709.3  |   |  | 569.0   |  
|Less: Interest income                               |  | (26.0                                                                                             | ) |  | (39.9    | ) |  | (30.2    | ) |  | (17.8    | ) |  | (92.7    | ) |  | (11.2   | )
|Add: Depreciation and amortization                  |  | 515.0                                                                                             |   |  | 827.0    |   |  | 858.5    |   |  | 950.5    |   |  | 994.3    |   |  | 120.1   |  
|EBITDA(4)                                           |  | 1,529.7                                                                                           |   |  | 2,208.8  |   |  | 2,694.4  |   |  | 2,967.6  |   |  | 5,610.9  |   |  | 677.9   |  
|EBITDA margin(5)                                    |  | 42.5                                                                                              | % |  | 45.3     | % |  | 42.4     | % |  | 42.7     | % |  | 53.1     | % |  | 53.1    | %
|                                                    |  |                                                                                                   |   |  |          |  
|OPERATING DATA                                      |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  
|Raw coal production (000 tonnes)                   |  | 27,456                                                                                            |   |  | 34,018   |   |  | 38,435   |   |  | 43,279   |   |  | 39,146   |   |  | N/A     |  
|Net sales (000 tonnes)                             |  |                                                                                                   |   |  |          |   |  |          |   |  |          |   |  |          |   |  |         |  



55



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##### Table of Contents

|                                                      |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|----------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | -------- |  | -------- |  | -------- |  | -------- |  | -------
|                                                      |  | As of and For the Year Ended December 31,                                                        
|                                                      |  | 2000                                                                                              |  | 2001     |  | 2002     |  | 2003     |  | 2004     |  | 2004(1)
|                                                      |  | 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                                              |  | 16,430                                                                                            |  | 18,369   |  | 20,582   |  | 25,776   |  | 27,988   |  | N/A    
|Export                                                |  | 10,085                                                                                            |  | 12,666   |  | 14,466   |  | 13,632   |  | 10,016   |  | N/A    
|Total                                                 |  | 26,515                                                                                            |  | 31,035   |  | 35,048   |  | 39,408   |  | 38,004   |  | N/A    
|                                                      |  |                                                                                                   |  |          |  |         
|BALANCE SHEET DATA                                    |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|IFRS                                                  |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|Net current assets                                    |  | 1,270.7                                                                                           |  | 1,166.2  |  | 2,157.4  |  | 2,045.2  |  | 5,761.3  |  | 696.1  
|Property, plant and equipment and land use right, net |  | 5,500.5                                                                                           |  | 7,851.8  |  | 8,895.1  |  | 9,221.3  |  | 9,128.9  |  | 1,103.0
|Total assets                                          |  | 8,103.7                                                                                           |  | 11,182.6 |  | 12,924.0 |  | 13,909.9 |  | 18,336.7 |  | 2,215.5
|Total long-term borrowings                            |  |                                                                                                  |  | 72.5     |  | 1,261.3  |  | 650.9    |  | 441.1    |  | 53.5   
|Owners equity                                        |  | 6,869.6                                                                                           |  | 9,060.0  |  | 9,995.0  |  | 11,083.2 |  | 15,523.8 |  | 1,875.6
|U.S. GAAP                                             |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|Property, plant and equipment and land use right, net |  | 6,564.0                                                                                           |  | 7,176.7  |  | 7,271.4  |  | 7,785.8  |  | 7,880.8  |  | 952.2  
|Total assets                                          |  | 9,604.6                                                                                           |  | 11,071.0 |  | 11,787.5 |  | 12,845.8 |  | 17,327.8 |  | 2,093.6
|Owners equity                                        |  | 8,349.6                                                                                           |  | 7,668.9  |  | 8,858.5  |  | 10,019.2 |  | 14,537.9 |  | 1,756.5
|                                                      |  |                                                                                                   |  |          |  |         
|Number of Shares                                      |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|Domestic Shares                                       |  | 1,750.0                                                                                           |  | 1,850.0  |  | 1,850.0  |  | 1,850.0  |  | 1,850.0  |  | N/A    
|H Shares (including H Shares represented by ADS)      |  | 850.0                                                                                             |  | 1,020.0  |  | 1,020.0  |  | 1,020.0  |  | 1,224.0  |  | N/A    
|ADS                                                   |  | 17.0                                                                                              |  | 20.4     |  | 20.4     |  | 20.4     |  | 24.5     |  | N/A    
|Dividend per                                          |  |                                                                                                   |  |          |  |          |  |          |  |          |  |        
|Domestic Share/H Share(6)                             |  | 0.089                                                                                             |  | 0.082    |  | 0.100    |  | 0.104    |  | 0.153    |  | 0.02   
|ADS(7)                                                |  | 4.45                                                                                              |  | 4.10     |  | 5.00     |  | 5.20     |  | 7.65     |  | 1.0    

---

|(1) | The above financial highlights as of and for the year 2004 represent the data resulting from the consolidation of the financial statements of Shandong Yanmei Shipping Co. Ltd.
(Yanmei Shipping), Yanzhou Coal Yulin Power Chemical Co. Limited, Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited. The gross profit, taxes and surcharges resulting from the principal businesses of Yanmei Shipping are
calculated as the transportation cost of coal of us. As the sales income, operation results, and assets of Yanmei Shipping have only limited impact on us, they are not separately set out and analyzed in this report. Yanzhou Coal Yulin Power Chemical
Co., Limited, Yancoal Australia Pty Limited and Austar Coal Mine Pty Limited are currently in the preparation stage or in the construction stage and have limited impact on our financial results, and hence are not separately set out and analyzed in
this report.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Export sales constituted 41.9%, 46.7%, 44.0%, 35.4% and 27.9% of total net revenue in 2000, 2001, 2002, 2003 and 2004, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(3) | The net income for the years ended December 31, 2000 and 2001 under U.S. GAAP included the loss of Jining III acquired in 2001 using the pooling of interest method. The net income
for the years ended December 31, 2000 and 2001 under U.S. GAAP included the profit of Railway Assets using the pooling of interest method.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



U.S. GAAP net income for the two years ended December 31, 2000 and 2001, and U.S. GAAP total assets value and owners equity as at December 31, 2000
and 2001, have not been restated to show the effects of the acquisition of Railway Assets accounted for as a pooling of interests (see Note 44 to the financial statements) as such information is not available without significant costs and effort.

|(4) | 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 ours 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | EBITDA margin represents EBITDA as a percentage of our total net revenue.
|--- | -------------------------------------------------------------------------

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

|(7) | Dividend per ADS is calculated at 50 times Dividend per Domestic Share/H Share based on one ADS being equivalent to 50 H Shares.
|--- | --------------------------------------------------------------------------------------------------------------------------------



Export Sales



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



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##### Table of Contents

Legal Proceedings and Arbitration



In the past we have entered into lending transactions wherein we make loans through PRC financial institutions to unrelated
third-party corporate borrowers, and for which guarantees are provided by other unrelated third-party corporate entities. On January 19, 2005. Shandong Xinjia Industry Co., Ltd. (Shandong Xinjia), the borrower under one such loan (the
Defaulted Loan) defaulted on the payment of principal of RMB640 million and interest. Payment of the Defaulted Loan is guaranteed by Lianda Group Co., Ltd. (Lianda) and secured by pledges of the following shares owned by
Lianda; (i) 170 million state legal person shares of Huaxia Bank Company Limited (Huaxia Bank), a PRC banking company whose shares are listed on the Shanghai Stock Exchange; and (ii) controlling equity interests in an unlisted PRC
company (together, the Pledged Shares).



At our
request, the Peoples High Court of Shandong Province (the High Court) granted an order sequestering a total of 289 million Huaxia Bank shares owned by Lianda, including the 170 million shares pledged to us, and on January 22, 2005
we filed an application with the High Court for execution of the court order. On March 28, 2005, the High Court issued judgment allowing for the auction of the sequestered Huaxia Bank shares, with the auction proceeds to be used among others to pay
outstanding principal, interest and premium on the Defaulted Loan. However, the proposed auction of the Huaxia Bank shares has been temporarily suspended by the High Court pending application for approval from the relevant government authority to
dispose of such shares. Such approval has not yet been obtained.



Save as disclosed above, we were not involved in other significant litigation and arbitration in 2004.



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. 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 statutory common welfare fund; (4) allocation to the discretionary common reserve fund upon approval by resolution of the shareholders general meeting; (5) payment of dividends in
respect of ordinary shares. We shall not allocate dividends or carry out other allocations in the form of bonuses before we have compensated for our losses and made allocations to the statutory common reserve fund and the statutory common welfare
fund.



B. Significant Changes



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



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



ITEM 9. THE OFFER AND LISTING



A. Offer and
Listing Details



As of December 31, 2004, our capital
structure was as follows:



|                          |  |                
|------------------------- |  | ---------------
|Type                      |  | Amount ofShares
|State legal person shares |  | 1,670,000,000  
|A Shares                  |  | 180,000,000    
|H Shares                  |  | 1,224,000,000  
|                          |  |                
|Total                     |  | 3,074,000,000  
|                          |  |                



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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 May 31, 2004, a
total of 1,670,000,000 State Legal Person Shares were outstanding and all the State Legal Person Shares were held by the Parent Company on behalf of the State. The State Legal Person Shares are not publicly traded.



Set out below is certain market information relating to the H Shares, ADSs
and A Shares in respect of 2000, 2001, 2002 and 2003, each quarterly period within the fiscal years ended December 31, 2003 and 2004 and each monthly period ended May 31, 2005:



|               |  |                         |  |                       |  |                         |  |       |  |       |  |      
|-------------- |  | ----------------------- |  | --------------------- |  | ----------------------- |  | ----- |  | ----- |  | -----
|               |  | Price per H Share (HK$) |  | Price per ADS (U.S.$) |  | Price per A Share (RMB)
|               |  | High                    |  | Low                   |  | High                    |  | Low   |  | High  |  | Low  
|2000           |  | 2.77                    |  | 1.08                  |  | 17.19                   |  | 7.88  |  | 12.49 |  | 6.92 
|2001           |  | 3.95                    |  | 1.90                  |  | 24.6                    |  | 12.6  |  | 13.1  |  | 8.28 
|2002           |  | 3.55                    |  | 2.40                  |  | 22.30                   |  | 15.80 |  | 10.01 |  | 8.00 
|2003           |  |                         |  |                       |  |                         |  |       |  |       |  |      
|First quarter  |  | 3.65                    |  | 3.00                  |  | 23.40                   |  | 19.90 |  | 9.28  |  | 7.72 
|Second quarter |  | 3.825                   |  | 2.625                 |  | 25.01                   |  | 17.80 |  | 10.20 |  | 8.72 
|Third quarter  |  | 4.90                    |  | 3.60                  |  | 30.80                   |  | 23.85 |  | 9.34  |  | 7.53 
|Fourth quarter |  | 8.20                    |  | 4.30                  |  | 53.20                   |  | 27.60 |  | 11.29 |  | 7.62 
|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
|December       |  | 12.00                   |  | 10.65                 |  | 76.90                   |  | 68.50 |  | 14.27 |  | 11.65
|2005           |  |                         |  |                       |  |                         |  |       |  |       |  |      
|January        |  | 11.45                   |  | 10.30                 |  | 72.50                   |  | 66.00 |  | 12.44 |  | 11.25
|February       |  | 12.30                   |  | 10.75                 |  | 78.95                   |  | 68.00 |  | 14.09 |  | 12.05
|March          |  | 12.30                   |  | 10.50                 |  | 78.95                   |  | 67.12 |  | 13.89 |  | 11.69
|April          |  | 11.20                   |  | 9.95                  |  | 71.86                   |  | 63.80 |  | 12.98 |  | 10.93
|May            |  | 10.85                   |  | 6.00                  |  | 70.15                   |  | 62.00 |  | 11.75 |  | 9.97 



As of December 31,
2004, a total of 1,224,000,000 H Shares were outstanding, 28,294,700 Shares of which, representing 2.31% of the outstanding H Shares, were held in the form of ADSs (a total of 565,894 ADSs). The outstanding ADSs were held by nine holders of record
on May 31, 2005.



B. Plan of Distribution



Not applicable.



C. Markets



Our Shares are currently listed on the Shanghai Stock Exchange under the approval of the China Securities Regulatory
Commission. The principal trading market for the H Shares is the Hong Kong Stock Exchange. The ADSs have been issued by The Bank of New York as Depositary and are listed on the New York Stock Exchange under the symbol YZC. Prior to the
initial public offering and subsequent listings on the Hong Kong and New York Stock Exchanges on April l, 1998 and March 31, 1998, respectively, there was no market for the H Shares or the ADSs. For market price information for the exchanges our
securities are listed, see Item A  Offer and Listing Details.



D. Selling Shareholders



Not applicable.



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##### Table of Contents

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 Guide, the General Meeting Opinions and the Independent Director Guiding Opinions. The supervisory authorities require listed
companies to incorporate such rules, regulations and opinions into their articles of associations as appropriate.



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



Selected Summary of the Articles of Association



We are a joint stock limited company established in accordance with the
Company Law of the Peoples Republic of China (the Company Law), State Councils Special Regulations Regarding the Issue of Shares Overseas and the Listing of Shares Overseas by Companies Limited by
Share (the Special Regulations) and other relevant laws and regulations of the State. We were established by way of promotion with the approval of the former State Commission for Restructuring the Economic System on 24 September
1997, as evidenced by approval document Ti Gai Sheng (1997) no. 154 of 1997. We were registered with and have obtained a business license from Chinas State Administration Bureau of Industry and Commerce on 25 September 1997. Our business
license number is: Qi Gu Lu Zong Fu Zi No. 003929-1/1.



Our
scope of business includes mining, selection and sale of coal; cargo transportation; production and sale of knitted products, mining equipment, concrete and finished products; sales of metal material, chemicals, construction material, timber, fuel,
oil and rubber products; manufacture and sale of other mining material; manufacture and sale of textiles; general coal mine science technological advisory services; and provision of restaurant, housing and travel services; the storage, loading and
discharge of coal in ports, inland water transports, commodity logistics service and repair of ships in our scope of business.



Board of Directors



Our Directors are elected at the shareholders general meeting for terms not exceeding three years. At the expiry of a directors term, the term
is renewable upon re-election. The Board of Directors is accountable to the shareholders in general meeting.



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



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



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



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



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



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



Our Articles provide that when passing a resolution in relation to connected transaction at a board meeting, or where any Director or any of its
Associates (as defined under the Listing Rules of the Stock Exchange of Hong Kong) is connected with such resolution, such connected director shall excuse himself from the Board of Directors meeting, shall not have any voting rights in respect
thereof and shall not be counted as part of the quorum of the Board of Directors meeting. If a quorum is not formed at the Board of Directors meeting as a result of the absence of the connected Director, all Directors (including the
connected Director) shall pass a resolution in relation to the procedural issues on submitting such transaction for consideration at a shareholders general meeting of the Company, such that relevant resolutions in respect of such transaction
can be passed at the shareholders general meeting.



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



| |  |  | a single investment below 10% of the Companys most recently audited net asset value, including share investment and investment in production; however, any matters requiring
the approval of the China Securities Regulatory Commission, such as public offer of securities, shall be subject to approval of the shareholders general meeting;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | external guarantees of less than 3% of the Companys most recently audited net asset value for a single amount and less than 10% of such value for the cumulative amount;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | matters involving connected transactions, which have to be conducted in accordance with the relevant regulations of China Securities Regulatory Commission and the listing rules of
the Stock Exchange on which the shares are listed.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Description of the Shares



Our share capital structure is as follows: 3,074,000,000 ordinary shares, of which (a) 1,670,000,000 shares, which represent
54.33% of our share capital, are held by Yankuang Group Corporation Limited as domestic legal person shares; (b) 1,224,000,000 shares, which represent 39.82% of our share capital, are held by the H Shares shareholders; and (c) 180,000,000 shares,
which represent 5.85% of our share capital, are held by the A Shares shareholders.



Our ordinary shareholders shall enjoy the following rights:



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



| |  |  | the right to attend or appoint a proxy to attend shareholders general meetings and to vote thereat;
| | - |  | ----------------------------------------------------------------------------------------------------



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



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



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



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



| |  |  | 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. Resolutions of shareholders general meetings shall be divided into ordinary resolutions and special resolutions. An ordinary resolution must be
passed by votes representing more than one-half of the voting rights represented by the shareholders (including proxies) present at the meeting. A special resolution must be passed by votes representing more than two-thirds of the voting rights
represented by the shareholders (including proxies) present at the meeting. Our ordinary shareholders are entitled to dividends and other distributions in proportion to the number of shares held, and they are not liable for making any further
contribution other than the subscription amount. Our Articles provide that a controlling shareholder (as defined in the Articles) shall not approve certain matters which will be prejudicial to the interests of all or some of other shareholders by
exercising his/her voting rights.



The Listing Agreement
between us and the Hong Kong Stock Exchange further provides that we may not permit amendments to certain sections of the Articles of Association subject to the Mandatory Provisions. These sections include provisions relating to (i) varying the
rights of existing classes of shares; (ii) voting rights; (iii) the power of us to purchase our own shares; (iv) rights of minority shareholders; and (v) procedures upon liquidation. In addition, certain amendments to the Articles of Association
require the approval and assent of relevant PRC authorities.



Shareholders Meeting



Shareholders
general meetings are divided into annual general meetings and extraordinary general meetings. Shareholders general meetings shall be convened by the Board of Directors. Annual general meetings are held once every year and within six months
from the end of the preceding financial year. The Board of Directors shall convene an extraordinary general meeting within two (2) months of the occurrence of any one of the following events:



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



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



61



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##### Table of Contents

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



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



| |  |  | whenever more than a half of the independent Directors so request.
| | - |  | ------------------------------------------------------------------



When we convene a shareholders general meeting, written notice of the meeting shall be given 45 days before the date of the meeting (when
calculating the 45 days period, the date on which the meeting is held shall not be included) to notify all of the shareholders whose names appear in the share register of the matters to be considered and the date and place of the meeting,
along with the matters to be resolved in the meeting. A shareholder who intends to attend the meeting shall deliver to us his written reply concerning his attendance at such meeting 20 days before the date of the meeting. When we convene an annual
general meeting, a shareholder singly or shareholders jointly holding 5% or more of the voting shares of the Company may propose new motions in writing, and we shall include in the agenda those issues in the motions which are within the functions of
the general meeting.



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



Sources of Shareholders Rights. The rights and obligations of holders of H Shares and other provisions relating to shareholder protection are
principally provided in the Articles of Association and the PRC Company Law. The Articles of Association incorporate mandatory provisions in accordance with the Mandatory Provisions for the Articles of Association of Companies Listed Overseas
promulgated by the State Council Securities Commission and the State Restructuring Commission on August 27, 1994 (the Mandatory Provisions). We are further subject to management ordinances applicable to the listed companies in Hong Kong
SAR and the United States, as our H Shares are listed on the Hong Kong Stock Exchange and the New York Stock Exchange (in the form of ADSs).



In addition, for so long as the H Shares are listed on The Hong Kong Stock Exchange, we are subject to the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited (the HKSE Rules), the Securities and Futures Ordinance of Hong Kong (the SFO) and the Hong Kong Code on Takeovers and Mergers and Share Repurchases.



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



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



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



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



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



Interested Shareholders



Articles 96 and 97 of our Articles of Associations provide the following:



Article 96:



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



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



Article 97:



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 96, 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 27, a controlling
shareholder within the meaning of Article 51;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | in the case of a repurchase of shares by an off-market agreement pursuant to Article 27, 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.



C. Material Contracts



Placing and Underwriting Agreement for new H Shares



Pursuant to the authorization of our 2003 annual general meeting held on June 25, 2004 and the approval of the meeting of
the Board held on July 7, 2004, we entered into the Placing and Underwriting Agreement with BNP Paribas Peregrine Capital Limited on July 7, 2004, pursuant to which we placed 204,000,000 new H shares with a Renminbi-denominated par value of RMB1.00
each at a price of HK$8.30 per share (the Placing), the total nominal value of the new H shares is RMB204.0 million. We raised net proceeds of HK$1,656,335,800 (approximately RMB1,756,875,383) from the Placing. The Placing and
Underwriting Agreement is filed with this Form 20-F as Exhibit 4.1.



Asset
Sale Agreement



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



Loan Agreement



We
entered into the Loan Agreement with Bank of China Jining Branch, Shandong Xinjia and the Lianda Group on December 13, 2004 pursuant to which we provide a RMB640.0 million loan to Shandong Xinjia. The loan was guaranteed by Lianda Group and secured
by pledges. Shandong Xinjia defaulted on the payment of principal of RMB640 million and interest. For more information, please see Item 8. Financial Information - Legal Proceedings and Arbitration. The English translation of the summary
of the Loan Agreement is filed with this Form 20-F as Exhibit 4.3.



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Save for the foregoing and except as disclosed in our 2002 and 2003 annual reports on Form 20-F, we were
not a party to any material contract during the two years preceding the date of this annual report.



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



The following discussion describes the material United States federal
income, PRC and Hong Kong tax consequences of the ownership of H Shares or ADSs by an investor that holds the H Shares or ADSs as capital assets. This discussion is based on the tax laws of the United States and China as in effect on the date
hereof, as well as on the Agreement Between the United States of America and the Peoples Republic of China for the Avoidance of Double Taxation (the Treaty), and the tax laws of Hong Kong, all of which are subject to change (or
changes in interpretation), possibly with retroactive effect. In addition, the discussion is based in part upon the representations of the Depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be
performed in accordance with its terms. The discussion does not address any aspects of United States taxation other than federal income taxation, any aspects of PRC taxation other than income taxation, stamp taxation and capital gain taxation or any
aspects of Hong Kong taxation other than income taxation, stamp taxation and estate taxation.



A non-corporate United States Holder will generally be eligible for reduced rates of tax (i.e. the rates applicable to net capital gain, which are 5% and 15%) with respect to dividends on H Shares or ADSs under
section 1(h) of the Code if the United States Holder has held the H Shares or ADSs for more than 60 days during the 120-day period that begins on the date that is 60 days before the ex-dividend date. For the purpose of determining the holding
period, no account is taken of days on which the holders risk of loss with respect to the H Shares or ADSs is diminished by virtue of various hedging strategies described in section 246(c) of the Code.



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WE URGE YOU TO CONSULT YOUR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE AND LOCAL AND THE PRC
AND HONG KONG AND OTHER TAX CONSEQUENCES OF THE PURCHASE, HOLDING AND/OR DISPOSAL OF H SHARES OR ADSs. IN PARTICULAR, WE URGE YOU TO CONFIRM YOUR STATUS AS UNITED STATES HOLDERS (AS HEREINAFTER DEFINED) WITH YOUR ADVISORS AND TO DISCUSS WITH YOUR
ADVISORS ANY POSSIBLE CONSEQUENCES OF YOUR FAILURE TO QUALIFY AS UNITED STATES HOLDERS.



In general, and taking into account the assumptions set forth herein, for United States federal income and PRC tax purposes, holders of ADSs evidencing H shares will be treated as the owners of the H shares
represented by those ADSs, and exchanges of H Shares for ADSs, and ADSs for H Shares, will not be subject to United States federal income or to PRC tax.



United States Federal Income Taxation



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



U.S. Holders



The following is a general discussion of material United States federal income tax consequences of purchasing, owning and disposing of the H shares or
ADSs if you are a U.S. holder, as defined below, and hold the H shares or ADSs as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the Code). This discussion does not address all of the
tax consequences relating to the purchase, ownership and disposition of the H shares or ADSs, and does not take into account U.S. holders who may be subject to special rules including:



| |  |  | tax-exempt entities;
| | - |  | --------------------



| |  |  | partnerships or other entities treated as partnerships for United States federal income tax purposes
| | - |  | ----------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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



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



| |  |  | banks;
| | - |  | ------



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



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



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



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



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



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Moreover, this description does not address United States federal estate and gift taxes or any state or
local tax consequences of the acquisition, ownership and disposition of the H shares or ADSs.



This discussion is based on the Code, its legislative history, final, temporary and proposed United States Treasury regulations promulgated thereunder, published rulings and court decisions as in effect on the date
hereof, all of which are subject to change, or changes in interpretation, possibly with retroactive effect. In addition, this discussion is based in part upon representations of the depositary and the assumption that each obligation in the deposit
agreement and any related agreements will be performed according to its terms.



You are a U.S. holder if you are:



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



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



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



| |  |  | an estate the income of which is subject to United States federal income tax without regard to its source; or
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | a trust:
| | - |  | --------



| |  |  | subject to the primary supervision of a United States court and the control of one or more United States persons; or
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | that has elected to be treated as a United States person under applicable United States Treasury regulations.
| | - |  | -------------------------------------------------------------------------------------------------------------



If a partnership (including any entity treated as a partnership for United
States federal tax purposes) is a beneficial owner of the H shares or ADSs, the treatment of the partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. If an investor is a partner in a
partnership that holds H shares or ADSs, such investor should consult its tax advisor.



We urge you to consult your tax advisors regarding the United States federal, state, local and non-United States tax consequences of the purchase, ownership and disposition of the H shares or ADSs.



In general, if you hold ADRs evidencing ADSs, you will be treated as the
owner of the H shares represented by the ADSs. The following discussion assumes that we are not a passive foreign investment company (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, 2009 with respect to the H shares or ADSs will be subject to taxation at a maximum rate of 15% if the dividends are qualified dividends. Dividends paid on H shares or ADSs will be treated as qualified dividends if either (i)
we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service (IRS) has



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approved for the purposes of the qualified dividend rules, or (ii) the dividends are with respect to ADSs readily tradable on a U.S. securities market,
provided that we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a PFIC. The income tax treaty between China and the United States has been approved for the purposes of
the qualified dividend rules, and we expect to qualify for benefits under the income tax treaty between China and the United States. Moreover, the ADSs are currently traded on the NYSE. Finally, based on our audited financial statements and relevant
market data, we believe that we did not satisfy the definition for PFIC status for U.S. federal income tax purposes with respect to our 2004 taxable year. In addition, based on our audited financial statements and our current expectations regarding
the value and nature of our assets, the sources and nature of our income, and relevant market data, we do not anticipate becoming a PFIC for our 2005 taxable year or any future year. However, our status in future years will depend on our income and
assets (which for this purpose depends in part on the market value of the H shares or ADSs) in those years. See the discussion of the PFIC rules below.



The U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of common stock and intermediaries through whom such stock is
held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is not clear whether we will be able to comply with them. Holders of H
shares or ADSs should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of their own particular circumstances.



If we make a distribution paid in HK dollars, you will be considered to receive the U.S. dollar value of the distribution determined at the spot HK
dollar/U.S. dollar rate on the date such distribution is received by you or by the depositary, regardless of whether you or the depositary convert the distribution into U.S. dollars. Any gain or loss resulting from currency exchange fluctuations
during the period from the date the dividend payment is includible in your income to the date you or the depositary convert the distribution into U.S. dollars will be treated as United States source ordinary income or loss.



Subject to various limitations, any Chinese tax withheld from distributions
in accordance with the Agreement Between the Government of the United States of America and the Government of the Peoples Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income
will be deductible or creditable against your United States federal income tax liability. For foreign tax credit limitation purposes, dividends paid on the H shares or ADSs will be foreign source income, and generally will be treated as
passive income or, in the case of some U.S. holders, financial services income. 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 recognize capital gain or loss for United States federal income tax purposes
in an amount equal to the difference between the U.S. dollar value of the amount realized and your tax basis, determined in U.S. dollars, in such H shares or ADSs. Any gain or loss will generally be United States source gain or loss for foreign tax
credit limitation purposes. Capital gain of certain non-corporate U.S. holders, including individuals, is generally taxed at a maximum rate of 15 percent where the property has been held more than one year. Your ability to deduct capital losses is
subject to limitations.



If you are paid in a currency other
than U.S. dollars, any gain or loss resulting from currency exchange fluctuations during the period from the date of the payment resulting from sale, exchange or other disposition to the date you convert the payment into U.S. dollars will be treated
as United States source ordinary income or loss.



PFIC Rules



In general, a foreign corporation is a PFIC for any taxable year in
which, after applying relevant look-through rules with respect to the income and assets of subsidiaries:



| |  |  | 75% or more of its gross income consists of passive income, such as dividends, interest, rents and royalties; or
| | - |  | ----------------------------------------------------------------------------------------------------------------



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



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



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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 business in Hong Kong, where such gains are derived from or arise in Hong Kong from such 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 be no liability for Hong Kong profits tax in respect of profits
from the sale of ADSs, where purchases and sales of ADSs are effected outside Hong Kong, e.g. on the NYSE.



Hong Kong Stamp Duty



Hong Kong stamp duty will be payable by each of the seller and the purchaser for every sale and purchase, respectively, of the H shares. Stamp duty is charged at the rate of 0.2% of the value of the H shares transferred (the buyer and
seller each paying half of such stamp duty). In addition, a fixed duty of HK$5 is currently payable on an instrument of transfer of H shares. If one of the parties to a sale is a non-resident of Hong Kong and does not pay the required stamp duty,
the duty not paid will be assessed on the instrument of transfer (if any), and the transferee will be liable for payment of such duty.



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



Hong Kong Estate Duty



The Hong Kong budget handed down on March 16, 2005 proposed abolition of
Hong Kong Estate Duty. As of the date of this annual report, a bill has been introduced but the law has not been enacted. It is expected that this abolition will be implemented. It is also expected that the abolition will take effect from the date
of enactment and will not retroactively apply.



Estate duty is
imposed upon the principal value of property situated in Hong Kong passing on the death of a person. H shares are regarded as property situated in Hong Kong for estate duty purposes. Hong Kong estate duty is imposed on the principal value of a
deceaseds estate at graduated rates from 5% to 15%. No estate duty is payable where the principal value of the dutiable estate does not exceed HK$7.5 million; the maximum rate of 15% applies where the principal value exceeds HK$10.5 million.



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PRC Taxation



The following discussion summarizes the material PRC tax provisions relating to the ownership and disposition of H Shares or ADSs 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 (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. The amendment stipulates that it supersedes any contradictory prior
administrative regulation concerning individual income tax. The amended Individual Income Tax Law can be interpreted as providing that all foreign 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 China Securities Regulatory Commission, 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 you, subject to reduction
by an applicable tax treaty between China and the country where you 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 Foreign Enterprises



According to the Provisional Regulations and other applicable tax laws and
regulations, dividends paid by Chinese companies to foreign enterprises are ordinarily subject to a China withholding tax levied at a flat rate of 20%. However, according to the Tax Notice, a foreign 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



If you are a resident or citizen of a country that has entered into a
double-taxation treaty with China, you 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.



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Capital Gains



The Tax Notice provides that gains realized by foreign enterprises upon the sale of Overseas Shares which are not held by entities established by such
enterprises in China and gains realized by foreign individuals upon the sale of Overseas Shares are not subject to withholding tax for the time being. However, as far as individuals are concerned, the Individual Income Tax Law of China, as amended
on October 31, 1993 and effective on January 1, 1994, provides for a capital gains tax of 20% on individuals. On January 28, 1994, the Provisions for Implementing the Individual Income Tax Law of China was promulgated which provides that the
measures to levy individual income tax on the gains realized on the sale of shares will be made in the future by the Ministry of Finance and subject to the approval of the State Council. On June 20, 1994, February 9, 1996 and March 30, 1998, the
Ministry of Finance and the State Administration of Taxation issued notices providing that temporarily no capital gains tax will be imposed on gains from the sale of shares by individuals. However, it is uncertain whether the above exemption for
foreign enterprises and foreign 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, as a holder of H Shares or ADSs you may be subject to a
20% tax on capital gains, unless reduced by an applicable double taxation treaty.



On November 18, 2000, the State Council issued a notice entitled State Council Notice Regarding the Income Tax Reduction for Interest and Other Income that Foreign Enterprises Derive in China (Tax
Reduction Notice). Under the Tax Reduction Notice, beginning 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 foreign enterprises without agencies
or establishments in China or by foreign 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 foreign enterprises shareholder may 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 Peoples Republic of China
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.



F. Dividends and Paying Agents



Not applicable.



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.



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



As of the date of this annual report, 54.33% of our voting rights are
vested in the Parent Company. We therefore are exempt from certain requirements of Section 303A of the NYSE Listed Company Manual: (i) we are not required to comply with Section 303A.01s requirements to form a Board with the majority of
independent directors, (ii) we are not required to comply with Section 303A.04s requirements to form a nominating/corporate governance committee entirely consisted of independent directors, and (iii) we are not required to comply with Section
303A.05s requirements to form a compensation committee entirely consisted of independent directors, and disclose herein.



We have established an audit committee pursuant to the requirements of Sections 303A.06 of the NYSE Listed Company Manual. Our audit committee is not in
full compliance with the requirements of Sections 303A.06. We rely on the exemption under Section 303A of the NYSE Listed Company Manual which allows foreign private issuers until July 31, 2005, to comply with the relevant audit committee standards
set out in Section 303A.06.



As a foreign private issuer, we
set out below material differences between our corporate governance practices and the NYSEs corporate governance requirements as set out in Section 303A of the Listed Company Manual:



|                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                |  | NYSE Listed Company ManualRequirements on CorporateGovernance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Companys Practices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Non-management directors must meet at regularly scheduled executive sessions without management |  | Section 303A.03 of the NYSE Listed Company Manual requires non-management directors of each listed company to meet at regularly scheduled executive sessions without management
participation.                                                                                                                                                                                                                                                                                                                                                               |  | There is no identical corporate governance requirement in the PRC. We have established a reporting system to the Board to ensure that the Directors are informed of the our business and
operations. We believe that the convening of Board meetings on a regularly basis offers the non-management Directors a well-established communication forum to voice their concerns and engage in full and open discussions regarding our business
affairs.                                                                                                                                                                                                                                                                                                         
|                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Corporate Governance Guidelines                                                                 |  | Section 303A.09 of the NYSE Listed Company Manual requires that a listed company must adopt and disclose corporate governance guidelines. In
addition, Section 303A.09 lists out matters that must be addressed in the guidelines:        Director qualification standards;        Director responsibilities;        Director access to management and independent advisors;        Director
compensation;        Director orientation and continuing education;        Management succession; and        Annual performance evaluation of the Board. |  | Although we have not adopted a separate set of corporate governance guidelines encompassing all corporate governance requirements required by the NYSE, our shareholders have 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 our 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 code for directors or executive officers.                                                                                                                                                                                                                                                                                     |  | We have adopted a Code of Ethics in compliance with PRC laws and regulations as well as the rules of the relevant listing stock exchanges. The Code of Ethics is published on the our website.
Although our current Code of Ethics as adopted does not completely conform to the NYSE rules, we believe that the existing Code of Ethics can adequately protect the interests of our company and the Shareholders.                                                                                                                                                                                                                                                                                                                                           



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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



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



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



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



We have prepared a sensitivity analysis to assess the impact of interest rate fluctuations on our 2004 operating results. Based on this analysis, we
estimate that an increase in the interest rate to 1% would have decreased our reported net earnings for 2004 by approximately RMB357.3 million.



Foreign Currency Exchange Rate Risk. We have not entered into any material foreign exchange contracts to minimize or mitigate the effects of
foreign exchange fluctuations on our operations. The prices of our exported coal products are quoted in U.S. dollars. We purchased only small amount of machinery and equipment in the past years. A substantial portion of our imported machinery and
equipment purchases were made by us in foreign currencies. As the PRC Government has now adopted a controlled floating foreign exchange rate policy, which prevents significant appreciation or depreciation of RMB to foreign currencies, we believe
that the foreign currency exchange rate risk is limited.



As of
December 31, 2004, we had Renminbi, U.S. Dollar, Euro, Australian Dollar and Hong Kong Dollar denominated savings accounts of RMB2,249.7 million U.S.$144.3 million, EUR78,186, AUD8.6 million and HK$1,671.0 million. Most of our sales are domestic and
as such we have a limited amount of foreign currency denominated accounts receivable. 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 2004 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 earnings for 2004 by approximately RMB257.1 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 RMB177.3 per tonne in 2002, RMB172.4 in 2003, and RMB272.3 in 2004. As certain portion of our total sales are derived from export coal sales, any significant changes in
the international coal industry may have a material adverse effect on our export sales and results of operations.



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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES



Not applicable.



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##### Table of Contents

PART II



ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES



As of December 31, 2004, we were not in default in the payment of principal or interest of any lenders.



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



None.



ITEM 15. CONTROLS AND PROCEDURES



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



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



We are currently examining and reviewing our existing internal control structure and procedures with a view towards compliance with Section 404 of the Sarbanes-Oxley Act of 2002. As a foreign private issuer, we have
until December 31, 2006 to establish and implement internal control structure and procedures that are in compliance with Section 404, and the corresponding assessment program to evaluate the effectiveness of our internal control structure and
procedures.



ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT



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



ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES



Deloitte Touche Tohmatsu Certified Public Accountants and Deloitte Touche Tohmatsu Certified Public Accountants Ltd. (collectively, Deloitte Touche Tohmatsu) served as our international and



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domestic independent registered accounting firms for the 2004 fiscal year. A description of the fees billed to us by Deloitte Touche Tohmatsu for
professional services in each of the last two fiscal years is set forth below:



|                   |  |                        |  |      
|------------------ |  | ---------------------- |  | -----
|                   |  | Year endedDecember 31,
|                   |  | 2003                   |  | 2004 
|                   |  | (HK$ thousands)       
|Audit fees         |  | 5,000                  |  | 5,000
|Audit-related fees |  |                       |  |     
|Tax fees           |  |                       |  |     
|All other fees     |  |                       |  |     
|Total              |  | 5,000                  |  | 5,000



Audit Fees
are the aggregate fees billed by Deloitte Touche Tohmatsu for the audit of our consolidated and annual financial statements, review of interim financial statements and attestation services that are provided in connection with statutory and
regulatory filings or engagements. Audit-Related Fees are fees charged by Deloitte Touche Tohmatsu for services that are reasonably related to the performance of the audit or review of our financial statements but are not reported under
Audit Fees. We have not paid Deloitte Touche Tohmatsu any Audit-Related Fees for 2003 and 2004 fiscal years.



Audit Committee Pre-Approval Policies and Procedures



The audit committee of our Board of Directors is responsible, among other things, for the recommendation or termination of external auditor subject to the
requirements of applicable domestic and overseas listing rules and regulations. Before we can engage external auditors to perform audit or non-audit services, we must obtain the necessary pre-approval from the audit committee . For 2004, all of the
audit services provided by Deloitte Touche Tohmatsu were pre-approved by our audit committee. As of the date of this report, we did not engage any accounting firms to provide non-audit services.



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



Our audit committee consists of four independent non-executive directors, namely, Mr. Cui Jianming, Pu Hongjiu, Wang Xiaojun and Wang Quanxi; one
director, Mr.Chen Changchun; and one employee director, namely, Mr. Dong Yunqing. As a foreign private issuer, we rely on the exemption under NYSE Listing Rule 303A.00 which allows foreign private issuers until July 31, 2005 to comply with the audit
committee standards set out in NYSE Rule 303A.06



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



Not applicable.



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PART III



ITEM 17. FINANCIAL STATEMENTS



We have elected to provide the Financial Statements and related information specified in Item 18 in lieu of Item 17.



ITEM 18. FINANCIAL STATEMENTS



References is made to pages F-1 to F-55 for year-end financial statements.



ITEM 19. EXHIBITS



(a) See pages
F-1 to F-55 following this item.



(b) Index of Exhibits



Documents filed as exhibits to this annual report:



|              |  |                                                                                                                                                                                      
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                          
|1.1           |  | -        Amended Articles of Association of Yanzhou Coal Mining Company Limited as approved by the
Shareholders on July 8, 2004 and June 28, 2005, respectively (English translation)
|              | 
|4.1           |  | -        Placing and Underwriting Agreement between us and BNP Paribas Peregrine Capital Limited
dated July 7, 2004 (English original)                                               
|              | 
|4.2           |  | -        Southland Colliery Asset Sale Agreement by and among us, the receivers, managers and the
liquidators of Southland Coal Pty Limited dated October 5, 2004 (English original) 
|              | 
|4.3           |  | -        Loan Agreement by and among us, Bank of China Jining Branch, Shandong Xinjia and the
Lianda Group dated December 13, 2004 (English translation summary)                     
|              | 
|4.4           |  | -        Management Measures for the Directors Decision Making Risk Fund of Yanzhou Coal
Mining Company Limited (English translation)                                               
|              | 
|7.1           |  | -        Statement explaining how certain ratios were calculated in annual
report                                                                                                    
|              | 
|8.1           |  | -        List of subsidiaries of Yanzhou Coal Mining Company Limited                                                                                                                 
|              | 
|12.1          |  | -        Certification of chief executive officer pursuant to Rule 13a-14(a) promulgated under the
U.S. Securities Act of 1934                                                       
|              | 
|12.2          |  | -        Certification of chief financial officer pursuant to Rule 13a-14(a) promulgated under the
U.S. Securities Act of 1934                                                       
|              | 
|13.1          |  | -        Certification of chief executive officer pursuant to 18 U.S.C. Section 1350, as enacted
pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002                      
|              | 
|13.2          |  | -        Certification of chief financial officer pursuant to 18 U.S.C. Section 1350, as enacted
pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002                      
|              | 
|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 30, 2005 |  | By:                                 |  | /s/ YANG Deyu



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



Report and
Consolidated Financial Statements

For the year ended December 31, 2004



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2004



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



F - 1



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



TO THE BOARD OF DIRECTORS OF YANZHOU COAL MINING COMPANY LIMITED



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



We have audited the accompanying consolidated balance sheets of Yanzhou Coal Mining Company Limited and its subsidiaries as of December 31, 2004 and 2003 and the related statements of income, changes in
shareholders equity, and cash flows for the three years in the period ended December 31, 2004, all expressed in Renminbi. These financial statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.



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



In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Yanzhou Coal Mining Company Limited and its subsidiaries as of December 31, 2004 and 2003, and
the results of their operations and their cash flows for the three years in the period ended December 31, 2004 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, 2004 and the determination of shareholders equity and financial position at
December 31, 2004 and 2003, to the extent summarized in note 44.



Deloitte
Touche Tohmatsu

Certified Public Accountants

Hong Kong

April 25, 2005



F - 2



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



CONSOLIDATED STATEMENTS OF INCOME



|                                             |  |       |  |                         |   |  |            |   |  |            |  
|-------------------------------------------- |  | ----- |  | ----------------------- | - |  | ---------- | - |  | ---------- | -
|                                             |  |       |  | Year ended December 31, |  
|                                             |  | NOTES |  | 2004                    |   |  | 2003       |   |  | 2002       |  
|                                             |  |       |  | RMB000                 |   |  | RMB000    |   |  | RMB000    |  
|GROSS SALES OF COAL                          |  |       |  | 11,757,052              |   |  | 8,386,629  |   |  | 7,772,315  |  
|TRANSPORTATION COSTS OF COAL                 |  |       |  | (1,402,715              | ) |  | (1,592,294 | ) |  | (1,558,414 | )
|                                             |  |       |  |                         |   |  |            |   |  |            |  
|NET SALES OF COAL                            |  | 6     |  | 10,354,337              |   |  | 6,794,335  |   |  | 6,213,901  |  
|RAILWAY TRANSPORTATION SERVICE INCOME        |  |       |  | 220,771                 |   |  | 154,585    |   |  | 142,471    |  
|                                             |  |       |  |                         |   |  |            |   |  |            |  
|                                             |  |       |  | 10,575,108              |   |  | 6,948,920  |   |  | 6,356,372  |  
|COST OF SALES AND SERVICE PROVIDED           |  | 7     |  | (4,551,703              | ) |  | (3,755,023 | ) |  | (3,362,901 | )
|                                             |  |       |  |                         |   |  |            |   |  |            |  
|GROSS PROFIT                                 |  |       |  | 6,023,405               |   |  | 3,193,897  |   |  | 2,993,471  |  
|                                             |  |       |  |                        
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |  | 8     |  | (1,479,863              | ) |  | (1,264,858 | ) |  | (1,231,059 | )
|OTHER OPERATING INCOME                       |  | 9     |  | 165,732                 |   |  | 105,845    |   |  | 103,729    |  
|                                             |  |       |  |                         |   |  |            |   |  |            |  
|OPERATING INCOME                             |  |       |  | 4,709,274               |   |  | 2,034,884  |   |  | 1,866,141  |  
|                                             |  |       |  |                        
|INTEREST EXPENSES                            |  | 10    |  | (35,942                 | ) |  | (59,966    | ) |  | (117,929   | )
|                                             |  |       |  |                         |   |  |            |   |  |            |  
|INCOME BEFORE INCOME TAXES                   |  | 11    |  | 4,673,332               |   |  | 1,974,918  |   |  | 1,748,212  |  
|                                             |  |       |  |                        
|INCOME TAXES                                 |  | 13    |  | (1,518,762              | ) |  | (587,710   | ) |  | (523,148   | )
|                                             |  |       |  |                         |   |  |            |   |  |            |  
|INCOME BEFORE MINORITY INTEREST              |  |       |  | 3,154,570               |   |  | 1,387,208  |   |  | 1,225,064  |  
|                                             |  |       |  |                        
|MINORITY INTEREST                            |  |       |  | (253                    | ) |  | (522       | ) |  | (3,065     | )
|                                             |  |       |  |                         |   |  |            |   |  |            |  
|NET INCOME                                   |  |       |  | 3,154,317               |   |  | 1,386,686  |   |  | 1,221,999  |  
|                                             |  |       |  |                         |   |  |            |   |  |            |  
|APPROPRIATIONS TO RESERVES                   |  |       |  | 737,782                 |   |  | 425,566    |   |  | 817,187    |  
|                                             |  |       |  |                         |   |  |            |   |  |            |  
|DIVIDEND                                     |  | 14    |  | 470,680                 |   |  | 298,480    |   |  | 287,000    |  
|                                             |  |       |  |                         |   |  |            |   |  |            |  
|EARNINGS PER SHARE                           |  | 15    |  | RMB1.06                 |   |  | RMB0.48    |   |  | RMB0.43    |  
|                                             |  |       |  |                         |   |  |            |   |  |            |  
|EARNINGS PER ADS                             |  | 15    |  | RMB53.20                |   |  | RMB24.16   |   |  | RMB21.29   |  
|                                             |  |       |  |                         |   |  |            |   |  |            |  



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



CONSOLIDATED BALANCE SHEETS



|                                                                                    |  |       |  |                 |   |  |            |  
|----------------------------------------------------------------------------------- |  | ----- |  | --------------- | - |  | ---------- | -
|                                                                                    |  |       |  | At December 31, |  
|                                                                                    |  | NOTES |  | 2004            |   |  | 2003       |  
|                                                                                    |  |       |  | RMB000         |   |  | RMB000    |  
|ASSETS                                                                              |  |       |  |                 |   |  |            |  
|                                                                                    |  |       | 
|CURRENT ASSETS                                                                      |  |       |  |                 |   |  |            |  
|Bank balances and cash                                                              |  |       |  | 5,216,738       |   |  | 2,023,772  |  
|Restricted cash                                                                     |  | 16    |  | 24,877          |   |  | 17,521     |  
|Bills and accounts receivable                                                       |  | 17    |  | 1,223,788       |   |  | 1,239,424  |  
|Inventories                                                                         |  | 18    |  | 485,429         |   |  | 502,028    |  
|Other loans receivable                                                              |  | 19    |  | 850,000         |   |  | 100,000    |  
|Amounts due from Parent Company and its subsidiary companies                        |  | 37    |  | 213,871         |   |  |           |  
|Prepayments and other current assets                                                |  | 20    |  | 188,296         |   |  | 534,473    |  
|Prepayment for land subsidence, restoration, rehabilitation and environmental costs |  | 31    |  | 103,407         |   |  |           |  
|                                                                                    |  |       |  |                 |   |  |            |  
|TOTAL CURRENT ASSETS                                                                |  |       |  | 8,306,406       |   |  | 4,417,218  |  
|                                                                                    |  |       | 
|MINING RIGHTS                                                                       |  | 21    |  | 138,617         |   |  | 112,607    |  
|LAND USE RIGHTS                                                                     |  | 22    |  | 591,718         |   |  | 604,912    |  
|PROPERTY, PLANT AND EQUIPMENT, NET                                                  |  | 23    |  | 8,537,150       |   |  | 8,616,373  |  
|GOODWILL                                                                            |  | 24    |  | 117,392         |   |  | 93,165     |  
|NEGATIVE GOODWILL                                                                   |  | 25    |  | (27,621         | ) |  | (55,241    | )
|INVESTMENTS IN SECURITIES                                                           |  | 26    |  | 62,181          |   |  | 1,760      |  
|RESTRICTED CASH                                                                     |  | 16    |  | 36,854          |   |  |           |  
|DEPOSITS MADE ON INVESTMENTS                                                        |  | 27    |  | 574,000         |   |  | 30,138     |  
|DEFERRED TAX ASSET                                                                  |  | 28    |  |                |   |  | 88,872     |  
|                                                                                    |  |       |  |                 |   |  |            |  
|TOTAL ASSETS                                                                        |  |       |  | 18,336,697      |   |  | 13,909,804 |  
|                                                                                    |  |       |  |                 |   |  |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                |  |       |  |                 |   |  |            |  
|                                                                                    |  |       | 
|CURRENT LIABILITIES                                                                 |  |       |  |                 |   |  |            |  
|Accounts payable                                                                    |  | 29    |  | 478,281         |   |  | 427,608    |  
|Other payables and accrued expenses                                                 |  | 30    |  | 1,337,565       |   |  | 1,174,813  |  
|Provision for land subsidence, restoration, rehabilitation and environmental costs  |  | 31    |  |                |   |  | 85,022     |  
|Amounts due to Parent Company and its subsidiary companies                          |  | 37    |  |                |   |  | 369,620    |  
|Unsecured bank borrowing - due within one year                                      |  | 32    |  | 200,000         |   |  | 200,000    |  
|Taxes payable                                                                       |  |       |  | 529,265         |   |  | 114,903    |  
|                                                                                    |  |       |  |                 |   |  |            |  
|TOTAL CURRENT LIABILITIES                                                           |  |       |  | 2,545,111       |   |  | 2,371,966  |  
|                                                                                    |  |       | 
|AMOUNTS DUE TO PARENT COMPANY AND ITS SUBSIDIARY COMPANIES - DUE AFTER ONE YEAR     |  | 37    |  | 41,057          |   |  | 50,859     |  
|UNSECURED BANK BORROWING - DUE AFTER ONE YEAR                                       |  | 32    |  | 200,000         |   |  | 400,000    |  
|DEFERRED TAX LIABILITY                                                              |  | 28    |  | 23,104          |   |  |           |  
|                                                                                    |  |       |  |                 |   |  |            |  
|TOTAL LIABILITIES                                                                   |  |       |  | 2,809,272       |   |  | 2,822,825  |  
|                                                                                    |  |       | 
|COMMITMENTS                                                                         |  | 38    |  |                 |   |  |            |  
|SHAREHOLDERS EQUITY                                                                |  |       |  | 15,523,751      |   |  | 11,083,239 |  
|MINORITY INTEREST                                                                   |  |       |  | 3,674           |   |  | 3,740      |  
|                                                                                    |  |       |  |                 |   |  |            |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                          |  |       |  | 18,336,697      |   |  | 13,909,804 |  
|                                                                                    |  |       |  |                 |   |  |            |  



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



CONSOLIDATED STATEMENTS OF CHANGESIN SHAREHOLDERS EQUITY



|                                                             |  |              |  |              |   |  |                       |  |                            |  |                            |  |                  |   |  |            |  
|------------------------------------------------------------ |  | ------------ |  | ------------ | - |  | --------------------- |  | -------------------------- |  | -------------------------- |  | ---------------- | - |  | ---------- | -
|                                                             |  | Sharecapital |  | Sharepremium |   |  | Futuredevelopmentfund |  | Statutorycommonreservefund |  | Statutorycommonwelfarefund |  | Retainedearnings |   |  | Total      |  
|                                                             |  | RMB000      |  | RMB000      |   |  | RMB000               |  | RMB000                    |  | RMB000                    |  | RMB000          |   |  | RMB000    |  
|                                                             |  |              |  |              |   |  | (note)                |  |                            |  |                            |  |                  |   |  |            |  
|Balance at January 1, 2002                                   |  | 2,870,000    |  | 3,272,527    |   |  | 111,748               |  | 339,096                    |  | 169,548                    |  | 2,297,115        |   |  | 9,060,034  |  
|Net income                                                   |  |             |  |             |   |  |                      |  |                           |  |                           |  | 1,221,999        |   |  | 1,221,999  |  
|Appropriations to reserves, net of minority interests share |  |             |  |             |   |  | 743,489               |  | 49,105                     |  | 24,593                     |  | (817,187         | ) |  |           |  
|Dividends                                                    |  |             |  |             |   |  |                      |  |                           |  |                           |  | (287,000         | ) |  | (287,000   | )
|                                                             |  |              |  |              |   |  |                       |  |                            |  |                            |  |                  |   |  |            |  
|Balance at December 31, 2002                                 |  | 2,870,000    |  | 3,272,527    |   |  | 855,237               |  | 388,201                    |  | 194,141                    |  | 2,414,927        |   |  | 9,995,033  |  
|                                                             |  |              |  |              |   |  |                       |  |                            |  |                            |  |                  |   |  |            |  
|Balance at January 1, 2003                                   |  | 2,870,000    |  | 3,272,527    |   |  | 855,237               |  | 388,201                    |  | 194,141                    |  | 2,414,927        |   |  | 9,995,033  |  
|Net income                                                   |  |             |  |             |   |  |                      |  |                           |  |                           |  | 1,386,686        |   |  | 1,386,686  |  
|Appropriations to reserves, net of minority interests share |  |             |  |             |   |  | 259,674               |  | 110,580                    |  | 55,312                     |  | (425,566         | ) |  |           |  
|Dividends                                                    |  |             |  |             |   |  |                      |  |                           |  |                           |  | (298,480         | ) |  | (298,480   | )
|                                                             |  |              |  |              |   |  |                       |  |                            |  |                            |  |                  |   |  |            |  
|Balance at December 31, 2003                                 |  | 2,870,000    |  | 3,272,527    |   |  | 1,114,911             |  | 498,781                    |  | 249,453                    |  | 3,077,567        |   |  | 11,083,239 |  
|                                                             |  |              |  |              |   |  |                       |  |                            |  |                            |  |                  |   |  |            |  
|Balance at January 1, 2004                                   |  | 2,870,000    |  | 3,272,527    |   |  | 1,114,911             |  | 498,781                    |  | 249,453                    |  | 3,077,567        |   |  | 11,083,239 |  
|Share issued at a premium                                    |  | 204,000      |  | 1,591,977    |   |  |                      |  |                           |  |                           |  |                 |   |  | 1,795,977  |  
|Share issue expenses                                         |  |             |  | (39,102      | ) |  |                      |  |                           |  |                           |  |                 |   |  | (39,102    | )
|Net income                                                   |  |             |  |             |   |  |                      |  |                           |  |                           |  | 3,154,317        |   |  | 3,154,317  |  
|Appropriations to reserves, net of minority interests share |  |             |  |             |   |  | 331,548               |  | 270,812                    |  | 135,422                    |  | (737,782         | ) |  |           |  
|Dividends                                                    |  |             |  |             |   |  |                      |  |                           |  |                           |  | (470,680         | ) |  | (470,680   | )
|                                                             |  |              |  |              |   |  |                       |  |                            |  |                            |  |                  |   |  |            |  
|Balance at December 31, 2004                                 |  | 3,074,000    |  | 4,825,402    |   |  | 1,446,459             |  | 769,593                    |  | 384,875                    |  | 5,023,422        |   |  | 15,523,751 |  
|                                                             |  |              |  |              |   |  |                       |  |                            |  |                            |  |                  |   |  |            |  



Note:



Prior to 1999, Yanzhou Coal Mining Company Limited (the Company) was required to
contribute at RMB1.80 per tonne of raw coal mined to the National Coal Industry Bureau (NCIB) and Shandong Coal Mining Industrial Bureau (SCMIB) in aggregate and the amount was recognized as an expense. In addition, the
Company was also required to transfer an annual amount to a future development fund at RMB4.2 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.



The contribution to NCIB has been cancelled since July 1, 1998
and the contribution to SCMIB has been cancelled since January 1, 1999.



According to a clarification of the relevant regulations obtained from the Ministry of Finance during 2002, the requirement for the Company to transfer an annual amount to the future development fund was not changed upon cancellation of the
requirements for contributions to NCIB and SCMIB. Therefore, the Company is required to transfer annually an amount to the future development fund at RMB6 per tonne of raw coal mined.



Pursuant to the relevant regulations of the Shandong Province Finance Bureau, State-owned Assets Supervision and Administration Commission
of Shandong Province and Shandong Province Coal Mining Industrial Bureau, the Company is required to transfer an additional amount at RMB5 per tonne of raw coal mined beginning July 1, 2004 to the future development fund for the future improvement
of the mining facilities.





F - 5



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                                   |  |       |      |                         |   |      |            |   |      |            |  
|------------------------------------------------------------------------------------------------------------------ |  | ----- | ---- | ----------------------- | - | ---- | ---------- | - | ---- | ---------- | -
|                                                                                                                   |  | NOTES |      | Year ended December 31, |  
|                                                                                                                   |  |       | 2004 |                         |   | 2003 |            |   | 2002 |           
|                                                                                                                   |  |       |      | RMB000                 |   |      | RMB000    |   |      | RMB000    |  
|OPERATING ACTIVITIES                                                                                               |  |       |      |                         |   |      |            |   |      |            |  
|                                                                                                                   |  |       |      |                        
|Income before minority interest                                                                                    |  |       |      | 3,154,570               |   |      | 1,387,208  |   |      | 1,225,064  |  
|Adjustments to reconcile income before minority interest to net cash from operating activities:                    |  |       |      |                         |   |      |            |   |      |            |  
|Depreciation of property, plant and equipment and land use rights                                                  |  |       |      | 971,861                 |   |      | 933,827    |   |      | 851,119    |  
|Amortization of goodwill                                                                                           |  |       |      | 15,773                  |   |      | 9,657      |   |      | 777        |  
|Release of negative goodwill to income                                                                             |  |       |      | (27,620                 | ) |      | (27,620    | ) |      | (27,620    | )
|Amortization of mining rights                                                                                      |  |       |      | 6,624                   |   |      | 6,624      |   |      | 6,624      |  
|Utilization (recognition) of deferred tax asset                                                                    |  |       |      | 44,436                  |   |      | (65        | ) |      | (1,386     | )
|Recognition of deferred tax liability                                                                              |  |       |      | 67,540                  |   |      |           |   |      |           |  
|Allowance for doubtful debts                                                                                       |  |       |      | 49,104                  |   |      | 80,272     |   |      | 66,204     |  
|Loss (gain) on disposal of property, plant and equipment                                                           |  |       |      | 104,597                 |   |      | (6,872     | ) |      | 1,093      |  
|Gain on disposal of investments in securities                                                                      |  |       |      |                        |   |      | (1,424     | ) |      | (2,209     | )
|(Increase) decrease in assets (net of acquisitions):                                                               |  |       |      |                         |   |      |            |   |      |            |  
|Bills and accounts receivable                                                                                      |  |       |      | (10,437                 | ) |      | (506,885   | ) |      | (168,695   | )
|Inventories                                                                                                        |  |       |      | 27,129                  |   |      | 93,153     |   |      | (93,818    | )
|Prepayments and other current assets                                                                               |  |       |      | 324,273                 |   |      | 224,674    |   |      | 229,701    |  
|Amounts due from Parent Company and its subsidiary companies                                                       |  |       |      | (213,871                | ) |      |           |   |      |           |  
|Taxes receivable                                                                                                   |  |       |      |                        |   |      |           |   |      | 21,674     |  
|Increase (decrease) in liabilities (net of acquisitions):                                                          |  |       |      |                         |   |      |            |   |      |            |  
|Bills and accounts payable                                                                                         |  |       |      | 50,673                  |   |      | (175,117   | ) |      | (56,492    | )
|Other payables and accrued expenses                                                                                |  |       |      | (13,333                 | ) |      | 569,651    |   |      | 90,973     |  
|Provision for land subsidence, restoration, rehabilitation and environmental costs                                 |  |       |      | (178,361                | ) |      | (2,194     | ) |      | (43,419    | )
|Amounts due to Parent Company and its subsidiary companies                                                         |  |       |      | (368,939                | ) |      | 58,794     |   |      | 84,048     |  
|Taxes payable                                                                                                      |  |       |      | 414,362                 |   |      | 57,553     |   |      | 56,074     |  
|                                                                                                                   |  |       |      |                         |   |      |            |   |      |            |  
|NET CASH FROM OPERATING ACTIVITIES                                                                                 |  |       |      | 4,418,381               |   |      | 2,701,236  |   |      | 2,239,712  |  
|                                                                                                                   |  |       |      |                         |   |      |            |   |      |            |  
|INVESTING ACTIVITIES                                                                                               |  |       |      |                         |   |      |            |   |      |            |  
|Increase in other loans receivable                                                                                 |  |       |      | (750,000                | ) |      | (100,000   | ) |      |           |  
|Purchase of property, plant and equipment                                                                          |  |       |      | (743,022                | ) |      | (1,317,856 | ) |      | (842,471   | )
|Deposit made on investments                                                                                        |  |       |      | (574,000                | ) |      |           |   |      | (30,138    | )
|Acquisition of Southland                                                                                           |  | 34    |      | (136,302                | ) |      |           |   |      |           |  
|(Increase) decrease in restricted cash                                                                             |  |       |      | (44,210                 | ) |      | 34,240     |   |      | (21,761    | )
|Acquisition of Railway Assets                                                                                      |  | 36    |      | (40,000                 | ) |      | (40,000    | ) |      | (1,282,445 | )
|Acquisition of investment in securities                                                                            |  |       |      | (30,283                 | ) |      |           |   |      | (88,702    | )
|Proceeds on disposal of property, plant and equipment                                                              |  |       |      | 17,009                  |   |      | 34,399     |   |      | 47,800     |  
|Acquisition of Yanmei Shipping                                                                                     |  | 35    |      |                        |   |      | (11,186    | ) |      |           |  
|Proceeds on disposal of investments in securities                                                                  |  |       |      |                        |   |      | 90,126     |   |      | 52,206     |  
|                                                                                                                   |  |       |      |                         |   |      |            |   |      |            |  
|NET CASH FLOW USED IN INVESTING ACTIVITIES                                                                         |  |       |      | (2,300,808              | ) |      | (1,310,277 | ) |      | (2,165,511 | )
|                                                                                                                   |  |       |      |                         |   |      |            |   |      |            |  
|FINANCING ACTIVITIES                                                                                               |  |       |      |                         |   |      |            |   |      |            |  
|Issues of shares, net of share issue expenses                                                                      |  |       |      | 1,756,875               |   |      |           |   |      |           |  
|Dividend paid                                                                                                      |  |       |      | (470,680                | ) |      | (298,480   | ) |      | (287,000   | )
|Repayments of bank borrowings                                                                                      |  |       |      | (200,000                | ) |      | (600,000   | ) |      | (400,000   | )
|Repayment to Parent Company and its subsidiary companies in respect of consideration for acquisition of Jining III |  |       |      | (10,483                 | ) |      | (11,115    | ) |      | (567,242   | )
|Dividend paid to a minority shareholder of a subsidiary                                                            |  |       |      | (319                    | ) |      | (1,765     | ) |      | (592       | )
|Bank borrowings raised                                                                                             |  |       |      |                        |   |      |           |   |      | 1,600,000  |  
|                                                                                                                   |  |       |      |                         |   |      |            |   |      |            |  
|NET CASH FLOW FROM (USED IN) FINANCING ACTIVITIES                                                                  |  |       |      | 1,075,393               |   |      | (911,360   | ) |      | 345,166    |  
|                                                                                                                   |  |       |      |                         |   |      |            |   |      |            |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                          |  |       |      | 3,192,966               |   |      | 479,599    |   |      | 419,367    |  
|                                                                                                                   |  |       |      |                        
|CASH AND CASH EQUIVALENTS, BEGINNING                                                                               |  |       |      | 2,023,772               |   |      | 1,544,173  |   |      | 1,124,806  |  
|                                                                                                                   |  |       |      |                         |   |      |            |   |      |            |  
|CASH AND CASH EQUIVALENTS, ENDING, REPRESENTED BY BANK BALANCES AND CASH                                           |  |       |      | 5,216,738               |   |      | 2,023,772  |   |      | 1,544,173  |  
|                                                                                                                   |  |       |      |                         |   |      |            |   |      |            |  
|Additional cash flow information:                                                                                  |  |       |      |                         |   |      |            |   |      |            |  
|Cash paid during the year for Interest                                                                             |  |       |      | 34,157                  |   |      | 56,838     |   |      | 147,361    |  
|Income taxes                                                                                                       |  |       |      | 992,424                 |   |      | 530,222    |   |      | 446,786    |  





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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



NOTES TO THE FINANCIAL STATEMENTS



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



Organisation and principal activities



The Group represents the Company and its consolidated subsidiaries.



The Company is established as a joint stock company with limited liability in the Peoples Republic of China (the PRC) and 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



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. At December 31, 2004, Yulin had not yet commenced business operations and had no significant impact on the Groups results for the year.



In addition, the Company acquired the entire interest in the Southland coal
mine located in New South Wales, Australia (Southland) from independent third parties in 2004 for aggregate cash consideration of AUD29,377,000 (equivalent to RMB187,312,000). See note 34 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. Southland has not
commenced production of saleable coal since the Companys acquisition and therefore it has had no significant impact on the Group results for the year.



F - 7



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



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



The accompanying financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The Group also
prepares a set of financial statements in accordance with the relevant accounting principles and regulations applicable to PRC enterprises (PRC GAAP). Differences between IFRS and PRC GAAP are stated in note 43.



The financial statements reflect additional disclosures to conform with the
disclosure requirements of the Hong Kong Companies Ordinance and with presentations customary in the United States of America.



Differences between IFRS and accounting principles generally accepted in the United States of America (US GAAP) are stated in note 44.



|3. | POTENTIAL IMPACT ARISING FROM THE RECENTLY ISSUED ACCOUNTING STANDARDS
|-- | ----------------------------------------------------------------------



In 2004, the International Accounting Standards Board issued a number of new or revised IFRS which are effective for accounting periods beginning on or
after January 1, 2005. The Group has not early adopted these new IFRS in the financial statements for the year ended December 31, 2004.



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



IFRS 3 Business Combination



IFRS 3 requires goodwill acquired in a business combination to be measured after initial recognition at cost less any accumulated impairment losses. Therefore, the goodwill is not amortized and instead must be tested
for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. Currently, the Group amortizes the goodwill capitalized on a straight line basis over its useful economic life.



IFRS 3 also requires negative goodwill to be recognized in the profit or
loss immediately on acquisition. Currently, the Group presented the negative goodwill as a deduction from assets and released to income based on an analysis of the circumstance from which the balances resulted.



Accordingly, the Group estimates that the adoption of IFRS 3 in the annual
period beginning on January 1, 2005 in relation to the discontinued goodwill amortization would result in an increase in the net profit the year ending December 31, 2005 of approximately RMB15.8 million.



In addition, the Group estimates that the adoption of IFRS 3 in the annual
period beginning on January 1, 2005 in relation to the negative goodwill, would result in an increase in the opening balance of accumulated profits by approximately RMB 27.6 million with the corresponding decrease in negative goodwill of the same
amount.



In relation to other new IFRS, the Group does not
expect that the adoption will have a material effect on how the results of operation and financial position of the Group are prepared and presented.





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YANZHOU COAL MINING COMPANY LIMITED

LOGO



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



The financial statements have been prepared under the historical cost convention, as modified for the revaluation of financial instruments.



In the current year, the Group has adopted, for the first time, the
accounting treatment of IFRS 3 Business combinations for business combinations for which the agreement date is on or after March 31, 2004 and has also adopted, for the first time, International Accounting Standard (IAS) 36
(Revised) Impairment of assets and IAS 38 (Revised) Intangible assets for goodwill and intangible assets acquired through business combinations for which the agreement date is on or after March 31, 2004. For business
combinations for which the agreement date was before March 31, 2004, goodwill arising on those acquisitions is accounted for in accordance with IAS 22 Business Combinations. Goodwill represents the excess of the cost of the acquisition
over the Groups interest in the fair value of identifiable assets and liabilities of a subsidiary at the date of acquisition and is stated at cost less accumulated amortisation and accumulated impairment losses. IFRS 3 requires goodwill
arising from acquisitions to be determined as the excess of the cost of acquisition over the Groups interest in the fair value of the identifiable assets, liabilities and contingent liabilities on the date of acquisition and is measured after
initial recognition of cost less accumulated impairment losses. Under IFRS 3, goodwill is not amortised and instead must be tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired.
The adoption of IFRS 3, IAS 36 (Revised) and IAS 38 (Revised) has had no material effect on the results for the current or prior accounting period. Accordingly, no prior period adjustment has been made.



The principal accounting policies which have been adopted in preparing these
financial statements and which conform with IFRS are as follows:



Basis of consolidation



The consolidated
financial statements incorporate the financial statements of the Company and its subsidiaries as of December 31 each year.



On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess (deficiency) of the
cost of acquisition over (below) the fair values of the identifiable net assets acquired is recognised as goodwill (negative goodwill). The interest of minority shareholders is stated at the minoritys proportion of the fair values of the
assets and liabilities recognized.



The results of
subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.



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



All significant intercompany transactions and balances between group enterprises are eliminated on consolidation.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



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



Revenue recognition



Sales of goods are recognized when goods are delivered and title has passed.



Service income is recognized when services are provided.



Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable.



Dividend income from investments is recognised when the
shareholders rights to receive payments have been established.



Cash and cash equivalents



Cash and cash
equivalents include cash on hand, cash accounts, interest bearing savings accounts and time deposits which are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.



Mining rights



Mining rights of Jining III and Southland are stated at cost less
accumulated amortization and are amortized on a straight line basis over their useful life estimated based on the total proven and probable reserves of the coal mine.



Property, plant and equipmentand land use rights



Property, plant and equipment, other than construction in progress, are
stated at cost less accumulated depreciation and accumulated impairment losses. When assets are sold or retired, the gain or loss is determined as the difference between the sales proceeds and the carrying amount of the asset and the gain or loss is
included in the statement of income.



Depreciation is provided
to write off the cost of items of property, plant and equipment over their estimated useful lives, after taking into account their estimated residual value, using the straight line method. The estimated useful lives of property, plant and equipment
are as follows:



|                               |  |               
|------------------------------ |  | --------------
|Buildings                      |  | 15 to 35 years
|Harbour works and crafts       |  | 40 years      
|Railway structures             |  | 15 to 25 years
|Plant, machinery and equipment |  | 5 to 15 years 
|Transportation equipment       |  | 6 to 18 years 



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YANZHOU COAL MINING COMPANY LIMITED

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



Property, plant and equipmentand land use rights - continued



Transportation equipment includes vessels which are depreciated over the estimated lives of 18 years.



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



Land use rights are amortized over the term of the relevant rights.



Assets under construction are not depreciated until they are
completed and put into commercial operation.



Construction
in progress



Construction in progress is stated at cost
less any identified impairment loss. Cost comprises construction expenditures and other direct costs attributable to such projects, including borrowing costs, if the amount of capital expenditures and the time involved to complete the construction
are significant. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policies as stated above.



Impairment other than goodwill



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



If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately.



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



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YANZHOU COAL MINING COMPANY LIMITED

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



Goodwill



Goodwill arising on acquisition with the agreements dated prior to March 31, 2004 represented the excess of the purchase consideration paid over the
Groups share in the fair value of the identifiable assets and liabilities of businesses or subsidiaries at the date of acquisition. Goodwill was then capitalized and amortized on a straight line basis over its useful economic life.



Goodwill arising on acquisition with agreements dated on or after March
31, 2004 represents the excess of the cost of acquisition over the Groups interest in the fair value of the identifiable assets, liabilities and contingent liabilities of businesses or subsidiaries at the date of acquisition. Goodwill is
recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in income and is not subsequently reversed.



For the purposes of impairment testing, goodwill is allocated to each of the Groups cash-generating units expected to benefit from the synergies of
the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually and whenever there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the
carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.



Goodwill arising on the acquisition of 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.



Negative goodwill



Negative goodwill arising on acquisition of businesses or subsidiaries with agreement dated prior to March 31, 2004, representing the excess of the fair
value ascribed to the Groups share of the identifiable assets and liabilities of businesses or subsidiaries at the date of acquisition over the purchase consideration, is presented as a deduction from the assets in the balance sheet. Negative
goodwill is released to income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets.



Negative goodwill arising on acquisition with the agreements dated on or after 31 March 2004 represents the excess of the
Groups interest in the fair value of the identifiable assets, liabilities and contingent liabilities of businesses or subsidiaries at the date of acquisition over the purchase consideration. Such negative goodwill is recognized in income
immediately.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



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



Investments in securities



Investments in securities are recognized on a trade date basis and are initially measured at cost.



At subsequent reporting dates, debt securities that the Group has the
expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortized cost, less any impairment loss recognized to reflect irrecoverable amounts. The annual amortization of any discount or premium on the
acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognized in each period represents a constant yield on the investment.



Investments other than held-to-maturity debt securities are classified as
either held-for-trading or available-for-sale, and are measured at subsequent reporting dates at fair value, based on quoted market prices at the balance sheet date or at cost subject to impairment recognition where the fair value cannot be reliably
determined. Where securities are held for trading purposes, unrealized gains and losses are included in net profit or loss for the period. For available-for-sale investments, unrealized gains and losses 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 net profit or loss for the period.



Loan receivables



For loans receivables, an allowance for doubtful receivables is recognized when it is probable that the companies will be unable to collect all amounts
due according to the contractual terms of the agreement. The impairment is measured based on the present value of expected future cash flows discounted at the loans effective interest rate (or, alternatively, at the observable market price of
the receivable or the fair value of the underlying collateral).



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 provision, if necessary, for obsolescence.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



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



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. 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 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 recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised 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 recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to
control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.



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



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



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



Research
and development



Expenditure on research activities is
recognized as an expense in the period in which it is incurred.



An internally-generated intangible asset arising from development expenditure is recognized only if it is anticipated that the development costs incurred on a clearly-defined project will be recovered through future commercial activity. The
resultant asset is amortized on a straight line basis over its useful life.



Where no internally-generated intangible asset can be recognized, development expenditure is recognized as an expense in the period in which it is incurred.



No development expenditure has been deferred.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



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



Land subsidence, restoration, rehabilitation and environmental costs



One consequence of coal mining is land subsidence caused by the resettlement of the land above the underground mining sites.
Depending on the circumstances, the Group may relocate inhabitants from the land above the underground mining sites prior to mining those sites or the Group may compensate the inhabitants for losses or damages from land subsidence after the
underground sites have been mined. The Group may also be required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined.



An estimate of such costs is recognized in the period in which the
obligation is identified and is charged as an expense in proportion to the coal extracted.



Capitalization of borrowing costs



Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e. 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. Capitalization of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.



All other borrowings costs are recognized as an expense in the period in which they are incurred.



Foreign currency translation



The Group maintains its books and records in Renminbi.



Transactions denominated in foreign currencies are translated into Renminbi
at the applicable rates of exchange quoted by the Peoples Bank of China prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into Renminbi at the applicable rates of
exchange quoted by the Peoples Bank of China prevailing at the balance sheet date. Profits and losses arising on translation are recorded in the statement of income.



On consolidation, the assets ad liabilities of the Groups overseas operations are translated at exchange rates
prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange difference arising, if any, are classified as equity and transferred to the Groups translation reserve. Such
translation differences are recognised as income or as expenses in the period in which the operation is disposed of.



Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and
translated at the closing rate.



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.



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



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



Use of estimates



The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



|5. | SEGMENT INFORMATION
|-- | -------------------



The Group is engaged primarily in the coal mining business and, commencing from January 1, 2002, the Group is also engaged in the coal railway
transportation business. The Company does not currently have direct export rights in the PRC and all of its export sales must be made through China National Coal Industry Import and Export Corporation (National Coal Corporation),
Minmetals Trading Co., Ltd. (Minmetals Trading) or Shanxi Coal Imp. & Exp. Group Corp. (Shanxi Coal Corporation). The final customer destination of the Companys export sales is determined by the Company, National
Coal Corporation, Minmetals Trading or Shanxi Coal Corporation. Certain of the Companys subsidiaries are engaged in trading and processing of mining machinery and the transportation business via rivers and lakes in the PRC. No separate segment
information about these businesses is presented in these financial statements as the underlying gross sales, results and assets of these businesses, which are currently included in the coal mining business segment, are insignificant to the Group.



Business segments



For management purposes, the Group is currently organized into two operating
divisions - coal mining and coal railway transportation. These divisions are the basis on which the Group reports its primary segment information.



Principal activities are as follows:



|                            |  |                                                    
|--------------------------- |  | ---------------------------------------------------
|Coal mining                 |  | - Underground mining, preparation and sales of coal
|Coal railway transportation |  | - Provision of railway transportation services     



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|5. | SEGMENT INFORMATION - continued
|-- | -------------------------------



Segment information about these businesses is presented below:



INCOME STATEMENT



For the year ended December 31, 2004



|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|------------------------------------------------------------------------------------------------- |  | ----------- |  | --------------------------- |  | ------------ | - |  | ------------ | -
|                                                                                                  |  | Coal mining |  | Coal railway transportation |  | Eliminations |   |  | Consolidated |  
|                                                                                                  |  | RMB000     |  | RMB000                     |  | RMB000      |   |  | RMB000      |  
|GROSS REVENUE                                                                                     |  |             |  |                             |  |              |   |  |              |  
|External                                                                                          |  | 11,757,052  |  | 220,771                     |  |             |   |  | 11,977,823   |  
|Inter-segment                                                                                     |  |            |  | 380,535                     |  | (380,535     | ) |  |             |  
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|Total                                                                                             |  | 11,757,052  |  | 601,306                     |  | (380,535     | ) |  | 11,977,823   |  
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|Inter-segment revenue is charged at prices pre-determined
by the relevant governmental authority. | 
|RESULT                                                                                            |  |             |  |                             |  |              |   |  |              |  
|Segment results                                                                                   |  | 4,642,234   |  | 284,147                     |  |             |   |  | 4,926,381    |  
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|Unallocated corporate expenses                                                                    |  |             |  |                             |  |              |   |  | (314,283     | )
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|                                                                                                  |  |             |  |                             |  |              |   |  | 4,612,098    |  
|Unallocated corporate income                                                                      |  |             |  |                             |  |              |   |  | 97,176       |  
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|Operating income                                                                                  |  |             |  |                             |  |              |   |  | 4,709,274    |  
|Interest expenses                                                                                 |  |             |  |                             |  |              |   |  | (35,942      | )
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|Income before income taxes                                                                        |  |             |  |                             |  |              |   |  | 4,673,332    |  
|Income taxes                                                                                      |  |             |  |                             |  |              |   |  | (1,518,762   | )
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|Income before minority interest                                                                   |  |             |  |                             |  |              |   |  | 3,154,570    |  
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|                                                                                                  |  |             |  |                            
|BALANCE SHEET                                                                                     |  |             |  |                             |  |              |   |  |              |  
|                                                                                                  |  |             |  |                            
|At December 31, 2004                                                                              |  |             |  |                             |  |              |   |  |              |  



|                                  |  |             |  |                             |  |             
|--------------------------------- |  | ----------- |  | --------------------------- |  | ------------
|                                  |  | Coal mining |  | Coal railway transportation |  | 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   
|                                  |  |             |  |                             |  |             







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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|5. | SEGMENT INFORMATION - continued
|-- | -------------------------------



OTHER INFORMATION



For the year ended December 31, 2004



|                                                                                                  |  |             |   |  |                            |  |                      |   |  |              |  
|------------------------------------------------------------------------------------------------- |  | ----------- | - |  | -------------------------- |  | -------------------- | - |  | ------------ | -
|                                                                                                  |  | Coal mining |   |  | Coal railwaytransportation |  | Corporate and 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 and land use rights                                 |  | 887,266     |   |  | 79,823                     |  | 4,772                |   |  | 971,861      |  
|Amortization of mining rights                                                                     |  | 6,624       |   |  |                           |  |                     |   |  | 6,624        |  
|Loss (gain) on disposal of property, plant and equipment                                          |  | 104,759     |   |  | 272                        |  | (434                 | ) |  | 104,597      |  
|Allowance for doubtful debts                                                                      |  | 49,104      |   |  |                           |  |                     |   |  | 49,104       |  
|                                                                                                  |  |             |   |  |                            |  |                      |   |  |              |  
|INCOME STATEMENT                                                                                  |  |             |   |  |                            |  |                      |   |  |              |  
|                                                                                                 
|For the year ended December 31, 2003                                                              | 
|                                                                                                  |  | Coal mining |   |  | Coal railwaytransportation |  | Eliminations         |   |  | Consolidated |  
|                                                                                                  |  | RMB000     |   |  | RMB000                    |  | RMB000              |   |  | RMB000      |  
|GROSS REVENUE                                                                                     |  |             |   |  |                            |  |                      |   |  |              |  
|External                                                                                          |  | 8,386,629   |   |  | 154,585                    |  |                     |   |  | 8,541,214    |  
|Inter-segment                                                                                     |  |            |   |  | 400,048                    |  | (400,048             | ) |  |             |  
|                                                                                                  |  |             |   |  |                            |  |                      |   |  |              |  
|Total                                                                                             |  | 8,386,629   |   |  | 554,633                    |  | (400,048             | ) |  | 8,541,214    |  
|                                                                                                  |  |             |   |  |                            |  |                      |   |  |              |  
|Inter-segment
revenue is charged at prices pre-determined by the relevant governmental authority. | 
|                                                                                                  |  |             |   | 
|RESULT                                                                                            |  |             |   |  |                            |  |                      |   |  |              |  
|Segment results                                                                                   |  | 2,013,688   |   |  | 245,041                    |  |                     |   |  | 2,258,729    |  
|                                                                                                  |  |             |   |  |                            |  |                      |   |  |              |  
|Unallocated corporate expenses                                                                    |  |             |   |  |                            |  |                      |   |  | (246,469     | )
|                                                                                                  |  |             |   |  |                            |  |                      |   |  |              |  
|                                                                                                  |  |             |   |  |                            |  |                      |   |  | 2,012,260    |  
|Unallocated corporate income                                                                      |  |             |   |  |                            |  |                      |   |  | 22,624       |  
|                                                                                                  |  |             |   |  |                            |  |                      |   |  |              |  
|Operating income                                                                                  |  |             |   |  |                            |  |                      |   |  | 2,034,884    |  
|Interest expenses                                                                                 |  |             |   |  |                            |  |                      |   |  | (59,966      | )
|                                                                                                  |  |             |   |  |                            |  |                      |   |  |              |  
|Income before income taxes                                                                        |  |             |   |  |                            |  |                      |   |  | 1,974,918    |  
|Income taxes                                                                                      |  |             |   |  |                            |  |                      |   |  | (587,710     | )
|                                                                                                  |  |             |   |  |                            |  |                      |   |  |              |  
|Income before minority interest                                                                   |  |             |   |  |                            |  |                      |   |  | 1,387,208    |  
|                                                                                                  |  |             |   |  |                            |  |                      |   |  |              |  



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|5. | SEGMENT INFORMATION - continued
|-- | -------------------------------



BALANCE SHEET



At December 31, 2003



|                                  |  |             |  |                             |  |             
|--------------------------------- |  | ----------- |  | --------------------------- |  | ------------
|                                  |  | Coal mining |  | Coal railway transportation |  | Consolidated
|                                  |  | RMB000     |  | RMB000                     |  | RMB000     
|ASSETS                            |  |             |  |                             |  |             
|Segment assets                    |  | 10,440,480  |  | 1,115,491                   |  | 11,555,971  
|                                  |  |             |  |                             |  |             
|Unallocated corporate assets      |  |             |  |                             |  | 2,353,833   
|                                  |  |             |  |                             |  |             
|                                  |  |             |  |                             |  | 13,909,804  
|                                  |  |             |  |                             |  |             
|LIABILITIES                       |  |             |  |                             |  |             
|Segment liabilities               |  | 1,818,585   |  | 11,929                      |  | 1,830,514   
|                                  |  |             |  |                             |  |             
|Unallocated corporate liabilities |  |             |  |                             |  | 992,311     
|                                  |  |             |  |                             |  |             
|                                  |  |             |  |                             |  | 2,822,825   
|                                  |  |             |  |                             |  |             



OTHER INFORMATION



For the year ended December 31, 2003



|                                                                  |  |             |   |  |                            |  |                     |  |              |  
|----------------------------------------------------------------- |  | ----------- | - |  | -------------------------- |  | ------------------- |  | ------------ | -
|                                                                  |  | Coal mining |   |  | Coal railwaytransportation |  | Corporateand others |  | Consolidated |  
|                                                                  |  | RMB000     |   |  | RMB000                    |  | RMB000             |  | RMB000      |  
|Capital additions                                                 |  | 1,255,070   |   |  | 82,616                     |  | 14,144              |  | 1,351,830    |  
|Amortization of goodwill                                          |  | 777         |   |  | 8,880                      |  |                    |  | 9,657        |  
|Release of negative goodwill to income                            |  | (27,620     | ) |  |                           |  |                    |  | (27,620      | )
|Depreciation of property, plant and equipment and land use rights |  | 850,994     |   |  | 79,445                     |  | 3,774               |  | 934,213      |  
|Amortization of mining rights                                     |  | 6,624       |   |  |                           |  |                    |  | 6,624        |  
|(Gain) loss on disposal of property, plant and equipment          |  | (7,113      | ) |  | 185                        |  | 56                  |  | (6,872       | )
|Allowance for doubtful debts                                      |  | 80,272      |   |  |                           |  |                    |  | 80,272       |  
|                                                                  |  |             |   |  |                            |  |                     |  |              |  



F - 19



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|5. | SEGMENT INFORMATION - continued
|-- | -------------------------------



INCOME STATEMENT



For the year ended December 31, 2002



|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|------------------------------------------------------------------------------------------------- |  | ----------- |  | --------------------------- |  | ------------ | - |  | ------------ | -
|                                                                                                  |  | Coal mining |  | Coal railway transportation |  | Eliminations |   |  | Consolidated |  
|                                                                                                  |  | RMB000     |  | RMB000                     |  | RMB000      |   |  | RMB000      |  
|GROSS REVENUE                                                                                     |  |             |  |                             |  |              |   |  |              |  
|External                                                                                          |  | 7,772,315   |  | 142,471                     |  |             |   |  | 7,914,786    |  
|Inter-segment                                                                                     |  |            |  | 386,823                     |  | (386,823     | ) |  |             |  
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|Total                                                                                             |  | 7,772,315   |  | 529,294                     |  | (386,823     | ) |  | 7,914,786    |  
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|                                                                                                 
|Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority. | 
|                                                                                                  |  |             |  |                            
|RESULT                                                                                            |  |             |  |                             |  |              |   |  |              |  
|Segment results                                                                                   |  | 1,791,446   |  | 271,272                     |  |             |   |  | 2,062,718    |  
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|Unallocated corporate expenses                                                                    |  |             |  |                             |  |              |   |  | (226,795     | )
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|                                                                                                  |  |             |  |                             |  |              |   |  | 1,835,923    |  
|Unallocated corporate income                                                                      |  |             |  |                             |  |              |   |  | 30,218       |  
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|Operating income                                                                                  |  |             |  |                             |  |              |   |  | 1,866,141    |  
|Interest expenses                                                                                 |  |             |  |                             |  |              |   |  | (117,929     | )
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|Income before income taxes                                                                        |  |             |  |                             |  |              |   |  | 1,748,212    |  
|Income taxes                                                                                      |  |             |  |                             |  |              |   |  | (523,148     | )
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  
|Income before minority interest                                                                   |  |             |  |                             |  |              |   |  | 1,225,064    |  
|                                                                                                  |  |             |  |                             |  |              |   |  |              |  



BALANCE SHEET



At December 31, 2002



|                                  |  |             |  |                             |  |             
|--------------------------------- |  | ----------- |  | --------------------------- |  | ------------
|                                  |  | Coal mining |  | Coal railway transportation |  | Consolidated
|                                  |  | RMB000     |  | RMB000                     |  | RMB000     
|ASSETS                            |  |             |  |                             |  |             
|Segment assets                    |  | 9,861,375   |  | 1,162,372                   |  | 11,023,747  
|                                  |  |             |  |                             |  |             
|Unallocated corporate assets      |  |             |  |                             |  | 1,900,298   
|                                  |  |             |  |                             |  |             
|                                  |  |             |  |                             |  | 12,924,045  
|                                  |  |             |  |                             |  |             
|LIABILITIES                       |  |             |  |                             |  |             
|Segment liabilities               |  | 1,346,568   |  | 56,000                      |  | 1,402,568   
|                                  |  |             |  |                             |  |             
|Unallocated corporate liabilities |  |             |  |                             |  | 1,521,507   
|                                  |  |             |  |                             |  |             
|                                  |  |             |  |                             |  | 2,924,075   
|                                  |  |             |  |                             |  |             







F - 20



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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|5. | SEGMENT INFORMATION - continued
|-- | -------------------------------



OTHER INFORMATION



For the year ended December 31, 2002



|                                                                  |  |             |   |  |                            |  |                     |  |              |  
|----------------------------------------------------------------- |  | ----------- | - |  | -------------------------- |  | ------------------- |  | ------------ | -
|                                                                  |  | Coal mining |   |  | Coal railwaytransportation |  | Corporateand others |  | Consolidated |  
|                                                                  |  | RMB000     |   |  | RMB000                    |  | RMB000             |  | RMB000      |  
|Capital additions                                                 |  | 802,090     |   |  | 1,206,898                  |  | 5,547               |  | 2,014,535    |  
|Amortization of goodwill                                          |  | 777         |   |  |                           |  |                    |  | 777          |  
|Release of negative goodwill to income                            |  | (27,620     | ) |  |                           |  |                    |  | (27,620      | )
|Depreciation of property, plant and equipment and land use rights |  | 764,470     |   |  | 75,519                     |  | 11,130              |  | 851,119      |  
|Amortization of mining rights                                     |  | 6,624       |   |  |                           |  |                    |  | 6,624        |  
|Loss on disposal of property, plant and equipment                 |  | 1,093       |   |  |                           |  |                    |  | 1,093        |  
|Allowance for doubtful debts                                      |  | 66,204      |   |  |                           |  |                    |  | 66,204       |  
|                                                                  |  |             |   |  |                            |  |                     |  |              |  



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



|                            |  |                 |  |        |  |       
|--------------------------- |  | --------------- |  | ------ |  | ------
|                            |  | At December 31,
|                            |  | 2004            |  | 2003   |  | 2002  
|Coal mining                 |  | 25,892          |  | 24,810 |  | 24,623
|Coal railway transportation |  | 3,374           |  | 3,151  |  | 3,249 
|                            |  |                 |  |        |  |       
|                            |  | 29,266          |  | 27,961 |  | 27,872
|                            |  |                 |  |        |  |       



Geographical segment



The Groups operations are primarily located in the PRC.
In December 2004, the Group acquired Southland which is located in Australia. Analysis of the Groups gross sales and carrying amount of assets by geographical area is not presented in the financial statements as over 90% of the amounts
involved are in the PRC.



The following is an analysis of the
additions to property, plant and equipment and intangible assets analysed by the geographical area in which the assets are located:



|          |  |                         |  |           |  |          
|--------- |  | ----------------------- |  | --------- |  | ---------
|          |  | Year ended December 31,
|          |  | 2004                    |  | 2003      |  | 2002     
|          |  | RMB000                 |  | RMB000   |  | RMB000  
|The PRC   |  | 869,957                 |  | 1,351,830 |  | 2,014,535
|Australia |  | 224,325                 |  |          |  |         
|          |  |                         |  |           |  |          
|          |  | 1,094,282               |  | 1,351,830 |  | 2,014,535
|          |  |                         |  |           |  |          



F - 21



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|6. | NET SALES OF COAL
|-- | -----------------



|                              |  |                         |  |           |  |          
|----------------------------- |  | ----------------------- |  | --------- |  | ---------
|                              |  | Year ended December 31,
|                              |  | 2004                    |  | 2003      |  | 2002     
|                              |  | RMB000                 |  | RMB000   |  | RMB000  
|Domestic sales of coal, gross |  | 7,841,328               |  | 4,840,317 |  | 3,939,953
|Less: Transportation costs    |  | 434,340                 |  | 503,228   |  | 525,998  
|                              |  |                         |  |           |  |          
|Domestic sales of coal, net   |  | 7,406,988               |  | 4,337,089 |  | 3,413,955
|                              |  |                         |  |           |  |          
|Export sales of coal, gross   |  | 3,915,724               |  | 3,546,312 |  | 3,832,362
|Less: Transportation costs    |  | 968,375                 |  | 1,089,066 |  | 1,032,416
|                              |  |                         |  |           |  |          
|Export sales of coal, net     |  | 2,947,349               |  | 2,457,246 |  | 2,799,946
|                              |  |                         |  |           |  |          
|Net sales of coal             |  | 10,354,337              |  | 6,794,335 |  | 6,213,901
|                              |  |                         |  |           |  |          



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



Sales taxes consist primarily of a resource tax calculated at the rate of RMB2.40 per metric tonne (tonne) of
the imputed quantity of raw coal sold and are paid to the local tax bureau. Prior to January 1, 2004, resource tax was charged at the rate of RMB1.20 per tonne of the imported quantity of raw coal sold. The resource tax for each of the three years
ended December 31, 2004, 2003 and 2002 amounted to RMB97,613,000, RMB49,925,000 and RMB44,712,000, respectively.



|7. | COST OF SALES AND SERVICE PROVIDED
|-- | ----------------------------------



|                                                                     |  |                         |  |           |  |          
|-------------------------------------------------------------------- |  | ----------------------- |  | --------- |  | ---------
|                                                                     |  | Year ended December 31,
|                                                                     |  | 2004                    |  | 2003      |  | 2002     
|                                                                     |  | RMB000                 |  | RMB000   |  | RMB000  
|Materials                                                            |  | 1,088,683               |  | 899,602   |  | 752,513  
|Wages and employee benefits                                          |  | 1,022,614               |  | 863,707   |  | 757,532  
|Electricity                                                          |  | 298,274                 |  | 278,507   |  | 278,407  
|Depreciation                                                         |  | 918,360                 |  | 836,120   |  | 813,761  
|Land subsidence, restoration, rehabilitation and environmental costs |  | 323,240                 |  | 264,158   |  | 232,030  
|Repairs and maintenance                                              |  | 455,782                 |  | 374,855   |  | 346,290  
|Annual fee and amortization of mining rights (note)                  |  | 19,604                  |  | 19,604    |  | 19,604   
|Transportation costs                                                 |  | 119,737                 |  | 48,231    |  | 43,239   
|Others                                                               |  | 305,409                 |  | 170,239   |  | 119,525  
|                                                                     |  |                         |  |           |  |          
|                                                                     |  | 4,551,703               |  | 3,755,023 |  | 3,362,901
|                                                                     |  |                         |  |           |  |          



|Note: | 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 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.
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | The cost of the mining rights of Jining III of approximately RMB132,479,000 acquired in 2001 is amortized on a straight line basis over twenty years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------



F - 22



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|8. | SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
|-- | --------------------------------------------



|                                                  |  |                         |  |           |  |          
|------------------------------------------------- |  | ----------------------- |  | --------- |  | ---------
|                                                  |  | Year ended December 31,
|                                                  |  | 2004                    |  | 2003      |  | 2002     
|                                                  |  | RMB000                 |  | RMB000   |  | RMB000  
|Retirement benefit scheme contributions (note 39) |  | 408,462                 |  | 349,377   |  | 334,120  
|Wages and employee benefits                       |  | 155,500                 |  | 115,456   |  | 164,549  
|Additional medical insurance                      |  | 35,912                  |  | 27,814    |  | 29,710   
|Depreciation                                      |  | 53,501                  |  | 44,339    |  | 37,358   
|Amortization of goodwill                          |  | 15,773                  |  | 9,657     |  | 777      
|Distribution charges                              |  | 43,639                  |  | 37,779    |  | 54,524   
|Allowance for doubtful debts                      |  | 49,104                  |  | 80,272    |  | 66,204   
|Resource compensation fees (note)                 |  | 110,959                 |  | 84,941    |  | 73,762   
|Repairs and maintenance                           |  | 18,753                  |  | 13,918    |  | 8,668    
|Research and development                          |  | 24,934                  |  | 46,144    |  | 30,657   
|Staff training costs                              |  | 28,762                  |  | 26,780    |  | 26,272   
|Freight charges                                   |  | 9,801                   |  | 14,862    |  | 14,016   
|Loss on disposal of property, plant and equipment |  | 104,597                 |  |          |  | 1,093    
|Others                                            |  | 420,166                 |  | 413,519   |  | 389,349  
|                                                  |  |                         |  |           |  |          
|                                                  |  | 1,479,863               |  | 1,264,858 |  | 1,231,059
|                                                  |  |                         |  |           |  |          



| | Note: | In accordance with the relevant regulations, the Group pays resource compensation fees (effectively a government levy) to the Ministry of Geology and Mineral Resources at the rate
of 1% on the imputed sales value of raw coal.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|9. | OTHER OPERATING INCOME
|-- | ----------------------



|                                                  |  |                         |  |         |  |        
|------------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                                  |  | Year ended December 31,
|                                                  |  | 2004                    |  | 2003    |  | 2002   
|                                                  |  | RMB000                 |  | RMB000 |  | RMB000
|Dividend income                                   |  | 4,465                   |  | 4,810   |  |       
|Gain on sales of auxiliary materials              |  | 33,878                  |  | 35,197  |  | 21,277 
|Gain on disposal of property, plant and equipment |  |                        |  | 6,872   |  |       
|Government grants (note)                          |  |                        |  | 8,194   |  | 20,157 
|Interest income from bank deposits                |  | 70,885                  |  | 13,631  |  | 28,737 
|Interest income from investments in securities    |  |                        |  |        |  | 1,481  
|Interest income on loan receivable                |  | 21,826                  |  | 4,183   |  |       
|Release of negative goodwill to income            |  | 27,620                  |  | 27,620  |  | 27,620 
|Others                                            |  | 7,058                   |  | 5,338   |  | 4,457  
|                                                  |  |                         |  |         |  |        
|                                                  |  | 165,732                 |  | 105,845 |  | 103,729
|                                                  |  |                         |  |         |  |        



| | Note: | Government grants represented the amount received by the Group in respect of its export sales activities.
| | ----- | ---------------------------------------------------------------------------------------------------------





F - 23



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|10. | INTEREST EXPENSES
|--- | -----------------



|                                                                 |  |                         |  |         |  |        
|---------------------------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                                                 |  | Year ended December 31,
|                                                                 |  | 2004                    |  | 2003    |  | 2002   
|                                                                 |  | RMB000                 |  | RMB000 |  | RMB000
|Interest expenses on:                                            |  |                         |  |         |  |        
|- bank borrowings wholly repayable within 5 years                |  | 31,392                  |  | 53,682  |  | 3,666  
|- bank borrowings not wholly repayable within 5 years            |  |                        |  |        |  | 72,072 
|- bills receivable discounted without recourse                   |  |                        |  | 1,023   |  | 2,235  
|Deemed interest expenses in respect of acquisition of Jining III |  | 4,550                   |  | 5,261   |  | 39,956 
|                                                                 |  |                         |  |         |  |        
|                                                                 |  | 35,942                  |  | 59,966  |  | 117,929
|                                                                 |  |                         |  |         |  |        



No interest was
capitalized during each of the years presented.



|11. | INCOME BEFORE INCOME TAXES
|--- | --------------------------



|                                                               |  |                         |  |           |  |          
|-------------------------------------------------------------- |  | ----------------------- |  | --------- |  | ---------
|                                                               |  | Year ended December 31,
|                                                               |  | 2004                    |  | 2003      |  | 2002     
|                                                               |  | RMB000                 |  | RMB000   |  | RMB000  
|Income before income taxes has been arrived at after charging: |  |                         |  |           |  |          
|                                                               |  |                         | 
|Amortization of mining rights                                  |  | 6,624                   |  | 6,624     |  | 6,624    
|Auditors remuneration                                         |  | 5,000                   |  | 5,000     |  | 3,500    
|Staff costs, including directors and supervisors emoluments  |  | 1,682,240               |  | 1,437,682 |  | 1,354,251
|and crediting:                                                 |  |                         |  |           |  |          
|Gain on disposal of investments in securities                  |  |                        |  | 1,424     |  | 2,209    
|                                                               |  |                         |  |           |  |          



F - 24



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|12. | DIRECTORS AND SUPERVISORS REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS
|--- | --------------------------------------------------------------------------



| | (a) | Directors and supervisors emoluments
| | --- | --------------------------------------



Details of the directors and supervisors emoluments are as follows:



|                                                  |  |                         |  |         |  |        
|------------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                                  |  | Year ended December 31,
|                                                  |  | 2004                    |  | 2003    |  | 2002   
|                                                  |  | RMB000                 |  | RMB000 |  | RMB000
|Independent non-executive directors               |  |                         |  |         |  |        
|Fees                                              |  | 325                     |  | 248     |  | 239    
|                                                  |  |                         |  |         |  |        
|Executive directors                               |  |                         |  |         |  |        
|Fees                                              |  |                        |  |        |  |       
|Salaries, allowance and other benefits in kind    |  | 1,303                   |  | 989     |  | 825    
|Retirement benefit scheme contributions (note 39) |  | 586                     |  | 445     |  | 371    
|Discretionary bonuses                             |  |                        |  |        |  |       
|                                                  |  |                         |  |         |  |        
|                                                  |  | 1,889                   |  | 1,434   |  | 1,196  
|                                                  |  |                         |  |         |  |        
|Supervisors                                       |  |                         |  |         |  |        
|Fees                                              |  |                        |  |        |  |       
|Salaries, allowance and other benefits in kind    |  | 537                     |  | 426     |  | 400    
|Retirement benefit scheme contributions (note 39) |  | 242                     |  | 191     |  | 180    
|Discretionary bonuses                             |  |                        |  |        |  |       
|                                                  |  |                         |  |         |  |        
|                                                  |  | 779                     |  | 617     |  | 580    
|                                                  |  |                         |  |         |  |        



Emoluments of each of
the directors and supervisors are all within the band of Nil to HK$1,000,000 for the years ended December 31, 2004, 2003 and 2002.



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



The five highest paid individuals in the Group in 2004 included four directors for the year ended December 31, 2004 (2003: five; 2002: three), details of
whose emoluments are included in the disclosures in note 12(a) above. The emoluments of the remaining one individual for the year ended December 31, 2004 (2003: nil; 2002: two) were as follows:



|                                                  |  |                         |  |         |  |        
|------------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                                  |  | Year ended December 31,
|                                                  |  | 2004                    |  | 2003    |  | 2002   
|                                                  |  | RMB000                 |  | RMB000 |  | RMB000
|Salaries, allowance and other benefits in kind    |  | 224                     |  |        |  | 314    
|Retirement benefit scheme contributions (note 39) |  | 101                     |  |        |  | 141    
|Discretionary bonuses                             |  |                        |  |        |  |       
|                                                  |  |                         |  |         |  |        
|                                                  |  | 325                     |  |        |  | 455    
|                                                  |  |                         |  |         |  |        



Emoluments of each of
these employees were all within the band of Nil to HK$1,000,000 for the years ended December 31, 2004 and 2002.



F - 25



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|13. | INCOME TAXES
|--- | ------------



|                                     |  |                         |  |         |   |  |         |  
|------------------------------------ |  | ----------------------- |  | ------- | - |  | ------- | -
|                                     |  | Year ended December 31, | 
|                                     |  | 2004                    |  | 2003    |   |  | 2002    |  
|                                     |  | RMB000                 |  | RMB000 |   |  | RMB000 |  
|Income taxes:                        |  |                         |  |         |   |  |         |  
|Current taxes                        |  | 1,390,767               |  | 587,775 |   |  | 524,534 |  
|Underprovision in prior years        |  | 16,019                  |  |        |   |  |        |  
|                                     |  |                         |  |         |   |  |         |  
|                                     |  | 1,406,786               |  | 587,775 |   |  | 524,534 |  
|                                     |  |                         |  |         |   |  |         |  
|Deferred tax (note 28)               |  |                         |  |         |   |  |         |  
|Charge (credit) for the current year |  | 67,540                  |  | (65     | ) |  | (1,386  | )
|Overprovision in prior years         |  | 44,436                  |  |        |   |  |        |  
|                                     |  |                         |  |         |   |  |         |  
|                                     |  | 111,976                 |  | (65     | ) |  | (1,386  | )
|                                     |  |                         |  |         |   |  |         |  
|                                     |  | 1,518,762               |  | 587,710 |   |  | 523,148 |  
|                                     |  |                         |  |         |   |  |         |  



The Company is 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.



A reconciliation between the provision for income taxes computed by applying the standard PRC income tax rate to income before income taxes and the actual
provision for income taxes is as follows:



|                                                                                                     |  |                         |   |  |         |   |  |         |  
|---------------------------------------------------------------------------------------------------- |  | ----------------------- | - |  | ------- | - |  | ------- | -
|                                                                                                     |  | Year ended December 31, |  
|                                                                                                     |  | 2004                    |   |  | 2003    |   |  | 2002    |  
|                                                                                                     |  | 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                                       |  | 1,542,200               |   |  | 651,723 |   |  | 576,910 |  
|Reconciling items:                                                                                   |  |                         |   |  |         |   |  |         |  
|Transfer to future development fund deductible for tax purposes but not charged to income under IFRS |  | (109,411                | ) |  | (85,692 | ) |  | (76,101 | )
|Release of negative goodwill not subject to tax                                                      |  | (9,115                  | ) |  | (9,115  | ) |  | (9,115  | )
|Deemed interest not deductible for tax purposes                                                      |  | 1,502                   |   |  | 1,736   |   |  | 13,185  |  
|Allowance for doubtful debts not deductible for tax purposes                                         |  | 16,187                  |   |  | 25,731  |   |  | 23,681  |  
|Loss on disposal of property, plant and equipment not deductible for tax purposes                    |  | 8,273                   |   |  |        |   |  |        |  
|Government grants received not subject to tax                                                        |  |                        |   |  | (2,704  | ) |  | (6,652  | )
|Overprovision of deferred tax asset in prior years                                                   |  | 44,436                  |   |  |        |   |  |        |  
|Underprovision in prior years                                                                        |  | 16,019                  |   |  |        |   |  |        |  
|Others                                                                                               |  | 8,671                   |   |  | 6,031   |   |  | 1,240   |  
|                                                                                                     |  |                         |   |  |         |   |  |         |  
|Income taxes                                                                                         |  | 1,518,762               |   |  | 587,710 |   |  | 523,148 |  
|                                                                                                     |  |                         |   |  |         |   |  |         |  
|Effective income tax rate                                                                            |  | 32                      | % |  | 30      | % |  | 30      | %
|                                                                                                     |  |                         |   |  |         |   |  |         |  





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LOGO



|13. | INCOME TAXES - continued
|--- | ------------------------



| | Note: | The relevant tax authorities have not yet assessed the cap for total wages of the Company that would be deductible under PRC income tax. Given a subsidiary of the Parent
Company, the directors of the Company are of the opinion that the same basis for determining the deductible wages cap applicable to the Parent Company that has been allowed by the tax authority would be equally applicable to the Company.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The subsidiaries acquired during the years
ended December 31, 2004 and 2003 did not have any significant impact on the income taxes provided for the years ended December 31, 2004, 2003 and 2002.



|14. | DIVIDEND
|--- | --------



|                                                                            |  |                         |  |         |  |        
|--------------------------------------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                                                            |  | Year ended December 31,
|                                                                            |  | 2004                    |  | 2003    |  | 2002   
|                                                                            |  | RMB000                 |  | RMB000 |  | RMB000
|Final dividend approved, RMB0.114 per share(2003: RMB0.104; 2002: RMB0.100) |  | 327,180                 |  | 298,480 |  | 287,000
|Special dividend approved, RMB0.050 per share(2003 and 2002: nil)           |  | 143,500                 |  |        |  |       
|                                                                            |  |                         |  |         |  |        
|                                                                            |  | 470,680                 |  | 298,480 |  | 287,000
|                                                                            |  |                         |  |         |  |        



Pursuant to the annual
general meeting held on June 7, 2002, a final dividend in respect of the year ended December 31, 2001 was approved and paid to the shareholders of the Company.



Pursuant to the annual general meeting held on June 27, 2003, a final dividend in respect of the year ended December 31, 2002 was approved and paid to
the shareholders of the Company.



Pursuant to 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 were approved and paid to the shareholders of the Company.



The board of directors proposes to declare a final dividend of approximately RMB799,240,000 calculated based on a total
number of 3,074,000,000 shares in issue at RMB1 each, at RMB0.26 per share and a bonus issue on the basis of six bonus shares for every ten existing shares in respect of the year ended December 31, 2004. The declaration and payment of the final
dividend and the bonus issue need 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.



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LOGO



|15. | EARNINGS PER SHARE AND PER ADS
|--- | ------------------------------



The calculation of the earnings per share for the years ended December 31, 2004, 2003 and 2002 is based on the net income for the year of
RMB3,154,317,000, RMB1,386,686,000 and RMB1,221,999,000 and on the weighted average of 2,964,754,098 shares, 2,870,000,000 shares and 2,870,000,000 shares in issue, respectively, during the year.



The earnings per ADS have been calculated based on the net income for the
relevant periods and on one ADS being equivalent to 50 shares.



|16. | RESTRICTED CASH
|--- | ---------------



At the balance sheet date, 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.



|17. | BILLS AND ACCOUNTS RECEIVABLE
|--- | -----------------------------



|                                         |  |                 |   |  |           |  
|---------------------------------------- |  | --------------- | - |  | --------- | -
|                                         |  | At December 31, |  
|                                         |  | 2004            |   |  | 2003      |  
|                                         |  | RMB000         |   |  | RMB000   |  
|Total bills receivable                   |  | 890,046         |   |  | 657,090   |  
|Total accounts receivable                |  | 460,442         |   |  | 682,961   |  
|Less: Allowance for doubtful debts       |  | (126,700        | ) |  | (100,627  | )
|                                         |  |                 |   |  |           |  
|Total bills and accounts receivable, net |  | 1,223,788       |   |  | 1,239,424 |  
|                                         |  |                 |   |  |           |  



Bills receivable
represent unconditional orders in writing issued by or negotiated with customers of the Group for completed sales orders which entitle the Group to collect a sum of money from banks or other parties.



An analysis of the allowance for doubtful debts for 2004 and 2003 follows:



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



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LOGO



|17. | BILLS AND ACCOUNTS RECEIVABLE - continued
|--- | -----------------------------------------



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,
|               |  | 2004            |  | 2003     
|               |  | RMB000         |  | RMB000  
|1 - 180 days   |  | 1,233,248       |  | 961,307  
|181 - 365 days |  | 654             |  | 177,571  
|1 - 2 years    |  | 3,913           |  | 114,887  
|2 - 3 years    |  | 32,407          |  | 78,919   
|Over 3 years   |  | 80,266          |  | 7,367    
|               |  |                 |  |          
|               |  | 1,350,488       |  | 1,340,051
|               |  |                 |  |          



|18. | INVENTORIES
|--- | -----------



|                                                 |  |                 |  |        
|------------------------------------------------ |  | --------------- |  | -------
|                                                 |  | At December 31,
|                                                 |  | 2004            |  | 2003   
|                                                 |  | RMB000         |  | RMB000
|COST                                             |  |                 |  |        
|Auxiliary materials, spare parts and small tools |  | 226,271         |  | 204,466
|Coal products                                    |  | 259,158         |  | 297,562
|                                                 |  |                 |  |        
|                                                 |  | 485,429         |  | 502,028
|                                                 |  |                 |  |        



|19. | OTHER LOANS RECEIVABLE
|--- | ----------------------



At December 31, 2004, the amount consists of loans granted to independent third parties. The amounts are guaranteed by other independent third parties and
bear interest at 5.04% - 7.00% per annum. Included in the total amount is a loan of RMB640,000,000 (the Default Loan) which is secured by certain state legal person shares of a company listed on the SSE (the Secured Shares)
and certain equity interest in another unlisted company held by the guarantor. The Default Loan defaulted in January 2005 and the Company has 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 proceed will be applied to repay the Default Loan to the Company. In the opinion of the directors, based on the estimated fair
market value of the Secured Shares, the proceeds from their sale should be sufficient to cover the principal and interest of the Default Loan.



At December 31, 2003, the amount represented a loan granted to a minority shareholder of a subsidiary of the Company. The amount was guaranteed by an
independent third party, bore interest at 6% per annum and was secured by shares of a private PRC company (equivalent to approximately 16% of the share capital of that company) in which the borrower was a shareholder. The amount was fully settled
during the year.



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LOGO



|20. | PREPAYMENTS AND OTHER CURRENT ASSETS
|--- | ------------------------------------



|                                                                             |  |                 |  |        
|---------------------------------------------------------------------------- |  | --------------- |  | -------
|                                                                             |  | At December 31,
|                                                                             |  | 2004            |  | 2003   
|                                                                             |  | RMB000         |  | RMB000
|Advances to suppliers                                                        |  | 56,707          |  | 70,785 
|Prepaid freight charges and related handling charges                         |  | 58,623          |  | 103,680
|Value added tax (VAT) refund                                               |  |                |  | 275,624
|Prepayments for acquisition of property, plant and equipment                 |  | 4,290           |  | 3,163  
|Prepaid land subsidence, restoration, rehabilitation and environmental costs |  | 5,010           |  | 24,510 
|Receivables for utilities charges                                            |  | 3,264           |  | 6,838  
|Receivables for sales of auxiliary materials                                 |  | 13,689          |  | 15,057 
|Others                                                                       |  | 46,713          |  | 34,816 
|                                                                             |  |                 |  |        
|                                                                             |  | 188,296         |  | 534,473
|                                                                             |  |                 |  |        



Included in the above
balances of the Group as of December 31, 2004 and 2003 were allowances for doubtful debts of RMB35,717,000 and RMB12,686,000, respectively. During the year ended December 31, 2004, the Group made an allowance for doubtful debts of RMB23,031,000
(2003: RMB9,147,000).



|21. | MINING RIGHTS
|--- | -------------



|                                   |  |        
|---------------------------------- |  | -------
|                                   |  | RMB000
|COST                               |  |        
|At January 1, 2004                 |  | 132,479
|Acquisition of Southland (note 34) |  | 32,634 
|                                   |  |        
|At December 31, 2004               |  | 165,113
|                                   |  |        
|AMORTIZATION                       |  |        
|At January 1, 2004                 |  | 19,872 
|Provided for the year              |  | 6,624  
|                                   |  |        
|At December 31, 2004               |  | 26,496 
|                                   |  |        
|NET BOOK VALUES                    |  |        
|At December 31, 2004               |  | 138,617
|                                   |  |        
|At December 31, 2003               |  | 112,607
|                                   |  |        



In addition, the
Parent Company and the Company have entered into a mining rights agreement pursuant to which the Company has agreed to pay to the Parent Company, effective from September 25, 1997, an annual fee of RMB12,980,000 as compensation for the Parent
Companys agreement to give up the mining rights associated with the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine, Dongtan coal mine and Jining II. The annual fee is subject to change after a ten-year period.



Mining rights are amortised, on a straight-line basis, over their useful
life of twenty years.



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LOGO



|22. | LAND USE RIGHTS
|--- | ---------------



|                                         |  |        
|---------------------------------------- |  | -------
|                                         |  | RMB000
|                                         | 
|COST                                     |  |        
|At January 1, 2004 and December 31, 2004 |  | 658,549
|                                         |  |        
|DEPRECIATION                             |  |        
|At January 1, 2004                       |  | 53,637 
|Provided for the year                    |  | 13,194 
|                                         |  |        
|At December 31, 2004                     |  | 66,831 
|                                         |  |        
|NET BOOK VALUES                          |  |        
|At December 31, 2004                     |  | 591,718
|                                         |  |        
|At December 31, 2003                     |  | 604,912
|                                         |  |        



The land use rights
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 had not yet been
completed at December 31, 2004.



|23. | PROPERTY, PLANT AND EQUIPMENT, NET
|--- | ----------------------------------



|                         |  |                          |  |           |  |                        |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|------------------------ |  | ------------------------ |  | --------- |  | ---------------------- |  | ----------------- |  | ---------------- |  | --------------------------- | - |  | ----------------------- | - |  | ----------------------- | - |  | ---------- | -
|                         |  | Freeholdland inAustralia |  | Buildings |  | Habourworks and crafts |  | Railwaystructures |  | Miningstructures |  | Plant,machineryandequipment |   |  | Transportationequipment |   |  | Constructionin progress |   |  | Total      |  
|                         |  | RMB000                  |  | RMB000   |  | RMB000                |  | RMB000           |  | RMB000          |  | RMB000                     |   |  | RMB000                 |   |  | RMB000                 |   |  | RMB000    |  
|COST                     |  |                          |  |           |  |                        |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At January 1, 2004       |  |                         |  | 2,052,927 |  | 250,231                |  | 720,484           |  | 3,904,460        |  | 7,314,574                   |   |  | 281,744                 |   |  | 85,748                  |   |  | 14,610,168 |  
|Acquisition of Southland |  | 57,195                   |  | 5,377     |  |                       |  |                  |  |                 |  | 128,833                     |   |  |                        |   |  |                        |   |  | 191,405    |  
|Additions                |  |                         |  |          |  |                       |  |                  |  |                 |  | 18,791                      |   |  | 5,922                   |   |  | 805,530                 |   |  | 830,243    |  
|Transfers                |  |                         |  | 76,541    |  |                       |  | 7,190             |  |                 |  | 690,072                     |   |  | 30,970                  |   |  | (804,773                | ) |  |           |  
|Disposals                |  |                         |  |          |  |                       |  |                  |  |                 |  | (862,057                    | ) |  | (33,003                 | ) |  |                        |   |  | (895,060   | )
|                         |  |                          |  |           |  |                        |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At December 31, 2004     |  | 57,195                   |  | 2,134,845 |  | 250,231                |  | 727,674           |  | 3,904,460        |  | 7,290,213                   |   |  | 285,633                 |   |  | 86,505                  |   |  | 14,736,756 |  
|                         |  |                          |  |           |  |                        |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|DEPRECIATION             |  |                          |  |           |  |                        |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At January 1, 2004       |  |                         |  | 797,845   |  |                       |  | 106,903           |  | 1,408,418        |  | 3,545,719                   |   |  | 134,910                 |   |  |                        |   |  | 5,993,795  |  
|Provided for the year    |  |                         |  | 97,878    |  | 6,068                  |  | 54,498            |  | 97,866           |  | 693,886                     |   |  | 29,069                  |   |  |                        |   |  | 979,265    |  
|Eliminated on disposals  |  |                         |  |          |  |                       |  |                  |  |                 |  | (748,503                    | ) |  | (24,951                 | ) |  |                        |   |  | (773,454   | )
|                         |  |                          |  |           |  |                        |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At December 31, 2004     |  |                         |  | 895,723   |  | 6,068                  |  | 161,401           |  | 1,506,284        |  | 3,491,102                   |   |  | 139,028                 |   |  |                        |   |  | 6,199,606  |  
|                         |  |                          |  |           |  |                        |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|NET BOOK VALUES          |  |                          |  |           |  |                        |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At December 31, 2004     |  | 57,195                   |  | 1,239,122 |  | 244,163                |  | 566,273           |  | 2,398,176        |  | 3,799,111                   |   |  | 146,605                 |   |  | 86,505                  |   |  | 8,537,150  |  
|                         |  |                          |  |           |  |                        |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  
|At December 31, 2003     |  |                         |  | 1,255,082 |  | 250,231                |  | 613,581           |  | 2,496,042        |  | 3,768,855                   |   |  | 146,834                 |   |  | 85,748                  |   |  | 8,616,373  |  
|                         |  |                          |  |           |  |                        |  |                   |  |                  |  |                             |   |  |                         |   |  |                         |   |  |            |  



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LOGO



|24. | GOODWILL
|--- | --------



|                                                                                                                    |  |         |  |        
|------------------------------------------------------------------------------------------------------------------- |  | ------- |  | -------
|                                                                                                                    |  | 2004    |  | 2003   
|                                                                                                                    |  | RMB000 |  | RMB000
|COST                                                                                                                |  |         |  |        
|At January 1                                                                                                        |  | 106,707 |  | 55,545 
|Subsequent adjustment to contingent consideration payment in respect of the acquisition of Railway Assets (note 36) |  | 40,000  |  | 40,000 
|Acquisition of Yanmei Shipping (note 35)                                                                            |  |        |  | 11,162 
|                                                                                                                    |  |         |  |        
|At December 31                                                                                                      |  | 146,707 |  | 106,707
|                                                                                                                    |  |         |  |        
|AMORTIZATION                                                                                                        |  |         |  |        
|At January 1                                                                                                        |  | 13,542  |  | 3,885  
|Provided for the year                                                                                               |  | 15,773  |  | 9,657  
|                                                                                                                    |  |         |  |        
|At December 31                                                                                                      |  | 29,315  |  | 13,542 
|                                                                                                                    |  |         |  |        
|NET BOOK VALUES                                                                                                     |  |         |  |        
|At December 31                                                                                                      |  | 117,392 |  | 93,165 
|                                                                                                                    |  |         |  |        



The amounts represent
goodwill arising from acquisition of Jining II, Railway Assets and Yanmei Shipping. Goodwill is amortised on a straight line basis over a period of ten to twenty years.



Additional goodwill resulting from contingent consideration payments in respect of the acquisition of the Railway Assets is
amortized on a straight line basis over the remaining life of the original period of ten years.



|25. | NEGATIVE GOODWILL
|--- | -----------------



|                             |  |                 |  |        
|---------------------------- |  | --------------- |  | -------
|                             |  | At December 31,
|                             |  | 2004            |  | 2003   
|                             |  | RMB000         |  | RMB000
|COST                         |  |                 |  |        
|At January 1 and December 31 |  | 138,101         |  | 138,101
|                             |  |                 |  |        
|RELEASED TO INCOME           |  |                 |  |        
|At January 1                 |  | 82,860          |  | 55,240 
|Released for the year        |  | 27,620          |  | 27,620 
|                             |  |                 |  |        
|At December 31               |  | 110,480         |  | 82,860 
|                             |  |                 |  |        
|NET BOOK VALUES              |  |                 |  |        
|At December 31               |  | 27,621          |  | 55,241 
|                             |  |                 |  |        



The amount represents
negative goodwill arising from acquisition of Jining III and is released to income on a straight line basis over a period of five years.



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LOGO



|26. | INVESTMENTS IN SECURITIES
|--- | -------------------------



The amounts represent cost of available-for-sale equity investments of the Group.



The amount at December 31, 2004 principally includes an unlisted investment of RMB60,421,000 in the form of state legal
person shares of Shenergy Company Limited, a company listed on the SSE. These shares are not tradable on the SSE.



In the opinion of directors, the carrying value of the Groups unlisted equity investments is approximate to their fair values.



|27. | DEPOSITS MADE ON INVESTMENTS
|--- | ----------------------------



|                                        |  |       |  |                 |  |        
|--------------------------------------- |  | ----- |  | --------------- |  | -------
|                                        |  |       |  | At December 31,
|                                        |  | Notes |  | 2004            |  | 2003   
|                                        |  |       |  | RMB000         |  | RMB000
|Deposits made on investments comprises: |  |       |  |                 |  |        
|                                        |  |       | 
|Acquisition of a subsidiary             |  | (i)   |  | 574,000         |  |       
|Acquisition of investment in securities |  | (ii)  |  |                |  | 30,183 
|                                        |  |       |  |                 |  |        
|                                        |  |       |  | 574,000         |  | 30,183 
|                                        |  |       |  |                 |  |        

| | (i) | The amount represents the payment made by the Group to the Parent Company in relation to the transfer of a 95.67% equity interest in Yankuang Coal Heze Power Chemical Co. Ltd.,
(Heze), a limited liability company established in the PRC with registered capital of RMB600,000,000, owned by the Parent Company. The principal activity of Heze is the development of ancillary projects of Wangfu Coal Mine and Zhaolou
Coal Mine in Shangdon Province in the PRC. At December 31, 2004, the Company had not yet obtained all the approvals from the State-owned Assets Supervision and Administration Commission of the Shandong Province and the shareholders of the Company
for such transfer and therefore, the amount is presented as a deposit in the balance sheet.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | At December 31, 2003, the amount represented a deposit paid by the Group in connection with the acquisition of a less than 1 percent stake in Shenergy Company Limited, a company
listed on the SSE. The acquisition of the shares was completed during the year.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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LOGO



|28. | DEFERRED TAX ASSET (LIABILITY)
|--- | ------------------------------



|                              |  |                                                                                    |   |  |                                 |   |  |          |  
|----------------------------- |  | ---------------------------------------------------------------------------------- | - |  | ------------------------------- | - |  | -------- | -
|                              |  | Provision for land subsidence, restoration, rehabilitation and environmental costs |   |  | Provision for work safety costs |   |  | Total    |  
|                              |  | RMB000                                                                            |   |  | RMB000                         |   |  | RMB000  |  
|Balance at January 1, 2003    |  | 88,807                                                                             |   |  |                                |   |  | 88,807   |  
|Credit for the year (note 13) |  | 65                                                                                 |   |  |                                |   |  | 65       |  
|                              |  |                                                                                    |   |  |                                 |   |  |          |  
|Balance at January 1, 2004    |  | 88,872                                                                             |   |  |                                |   |  | 88,872   |  
|Charge for the year (note 13) |  | (44,436                                                                            | ) |  | (67,540                         | ) |  | (111,976 | )
|                              |  |                                                                                    |   |  |                                 |   |  |          |  
|Balance at December 31, 2004  |  | 44,436                                                                             |   |  | (67,540                         | ) |  | (23,104  | )
|                              |  |                                                                                    |   |  |                                 |   |  |          |  



There was no material
unprovided deferred tax for the year or at the balance sheet date.



|29. | ACCOUNTS PAYABLE
|--- | ----------------



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



|               |  |                 |  |        
|-------------- |  | --------------- |  | -------
|               |  | At December 31,
|               |  | 2004            |  | 2003   
|               |  | RMB000         |  | RMB000
|1 - 180 days   |  | 360,684         |  | 239,593
|181 - 365 days |  | 85,714          |  | 135,942
|1 - 2 years    |  | 31,883          |  | 52,073 
|               |  |                 |  |        
|               |  | 478,281         |  | 427,608
|               |  |                 |  |        



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YANZHOU COAL MINING COMPANY LIMITED

LOGO



|30. | OTHER PAYABLES AND ACCRUED EXPENSES
|--- | -----------------------------------



|                                                                                             |  |                 |  |          
|-------------------------------------------------------------------------------------------- |  | --------------- |  | ---------
|                                                                                             |  | At December 31,
|                                                                                             |  | 2004            |  | 2003     
|                                                                                             |  | RMB000         |  | RMB000  
|Customers deposits                                                                          |  | 426,877         |  | 598,315  
|Accrued wages                                                                                |  | 80,242          |  | 70,633   
|Other taxes payable                                                                          |  | 255,711         |  | 211,474  
|Payables in respect of purchases of property, plant and equipment and construction materials |  | 173,093         |  | 84,745   
|Accrued freight charges                                                                      |  | 51,685          |  | 60,093   
|Accrued repairs and maintenance                                                              |  | 47,895          |  | 37,254   
|Accrued utility expenses                                                                     |  | 7,672           |  | 15,175   
|Staff welfare payable                                                                        |  | 41,376          |  | 39,512   
|Accrued land subsidence, restoration, rehabilitation and environmental costs                 |  | 8,592           |  | 4,996    
|Resource compensation fees payable                                                           |  | 83,658          |  |         
|Consideration payable on acquisition of Southland                                            |  | 51,010          |  |         
|Others                                                                                       |  | 109,754         |  | 52,616   
|                                                                                             |  |                 |  |          
|                                                                                             |  | 1,337,565       |  | 1,174,813
|                                                                                             |  |                 |  |          



|31. | (PREPAYMENT) PROVISION FOR LAND SUBSIDENCE, RESTORATION, REHABILITATION AND ENVIRONMENTAL COSTS
|--- | -----------------------------------------------------------------------------------------------



|                                              |  |          |  
|--------------------------------------------- |  | -------- | -
|                                              |  | RMB000  |  
|                                              | 
|Balance at January 1                          |  | 85,022   |  
|Additional provision in the year              |  | 313,172  |  
|Transfers to prepayments and accrued expenses |  | (501,601 | )
|                                              |  |          |  
|Balance at December 31                        |  | (103,407 | )
|                                              |  |          |  



The provision for land
subsidence, restoration, rehabilitation and environmental costs has been determined by the directors based on their best estimates. The payments in 2004 include mainly rehabilitation costs paid on mining areas relating to mining activities in the
future periods and therefore the balance is presented as a prepayment at December 31, 2004. 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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YANZHOU COAL MINING COMPANY LIMITED

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|32. | UNSECURED BANK BORROWINGS
|--- | -------------------------



During the year ended December 31, 2002, the Group obtained a new bank loan in the amount of RMB1,200,000,000, of which the repayment is guaranteed by the
Parent Company. The loan bears interest at 6.21% per annum and is repayable in instalments over a period of 7 years, the first instalment payment was due in August 2004. The proceeds were used to finance the acquisition of the Railway Assets (see
note 1).



During the year ended December 31, 2003, the
interest rate of the bank loan was adjusted to 5.76% per annum, pursuant to the terms of the loan agreement. The Group made a partial repayment of RMB600,000,000 during that year and according to the terms of the loan agreement, the remaining
balance of the loan became repayable in annual instalments over the following 3 years, the first repayment instalment of which was due and paid in August 2004. Interests are repayable quarterly over the terms of the loan.



The above loan is repayable as follows:



|                                                                     |  |          |   |  |          |  
|-------------------------------------------------------------------- |  | -------- | - |  | -------- | -
|                                                                     |  | 2004     |   |  | 2003     |  
|                                                                     |  | RMB000  |   |  | RMB000  |  
|Within one year                                                      |  | 200,000  |   |  | 200,000  |  
|More than one year, but not exceeding two years                      |  | 200,000  |   |  | 200,000  |  
|More than two years, but not exceeding five years                    |  |         |   |  | 200,000  |  
|                                                                     |  |          |   |  |          |  
|                                                                     |  | 400,000  |   |  | 600,000  |  
|Less: Amount due within one year and included in current liabilities |  | (200,000 | ) |  | (200,000 | )
|                                                                     |  |          |   |  |          |  
|Amount due after one year                                            |  | 200,000  |   |  | 400,000  |  
|                                                                     |  |          |   |  |          |  



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|33. | SHAREHOLDERS EQUITY
|--- | --------------------



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



|                         |  |                                                             |  |                                  |  |              
|------------------------ |  | ----------------------------------------------------------- |  | -------------------------------- |  | -------------
|                         |  |                                                             |  | Number of shares at December 31,
|Class of shares          |  | Type of shares                                              |  | 2004                             |  | 2003         
|Domestic invested shares |  | - State legal person shares (held by the Parent Company)    |  | 1,670,000,000                    |  | 1,670,000,000
|                         |  | - A shares (note 1)                                         |  | 180,000,000                      |  | 180,000,000  
|                         |  |                                                             | 
|Foreign invested shares  |  | - H shares (including H shares represented by ADS) (note 1) |  | 1,224,000,000                    |  | 1,020,000,000
|                         |  |                                                             |  |                                  |  |              
|                         |  | Total                                                       |  | 3,074,000,000                    |  | 2,870,000,000
|                         |  |                                                             |  |                                  |  |              



Each share has a par
value of RMB1.



On July 15, 2004, the Company issued an
aggregate of 204,000,000 H shares to independent investors upon private placement. The net proceeds of approximately RMB1,756,875,000 will be used for the investments in the proposed development of coal mines in Shandong Province and the
coal-methanol project in Shaanxi Province. These new H shares were issued under the general mandate granted to the directors at the 2003 annual general meeting of the Company held on June 25, 2004 and these shares rank pari passu with other H shares
in issue in all respects.



Pursuant to regulations 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 beginning July 1, 2004 to the future development fund for the future improvement of the mining facilities.



The Company has to set aside 10% of its net income for the statutory common reserve fund (except where the fund has reached 50% of the Companys
registered capital) and 5% to 10% of its net income for the statutory common welfare fund. The statutory common reserve fund can be used for the following purposes:



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



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



The
statutory common welfare fund, which is to be used for the welfare of the staff and workers of the Company, is of a capital nature.



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YANZHOU COAL MINING COMPANY LIMITED

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|33. | SHAREHOLDERS EQUITY - continued
|--- | --------------------------------



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



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



The Companys reserve available for distribution as at December 31, 2004 is the retained earnings computed under PRC GAAP which amounted to approximately RMB4,522,369,000 (2003: RMB2,691,181,000).



|34. | 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) is 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 pay the sellers an addition of AUD4,000,000 (equivalent to RMB25,505,000) when the Company acquires further coal mines and land adjacent to Southland and obtains the exploration license under the Mining Act of Australia for such coal
mines.



|                                                                        |  |                           |  
|----------------------------------------------------------------------- |  | ------------------------- | -
|                                                                        |  | 2004                      |  
|                                                                        |  | Book value and fair value |  
|                                                                        |  | RMB000                   |  
|The net assets of Southland at the date of acquisition 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                   |  
|                                                                        |  |                           |  
|Total consideration                                                     |  | 187,312                   |  
|                                                                        |  |                           |  



Southland did not
contribute significantly to the Groups turnover and profit from operations 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 attributable to the equity holders of the
Company for the year ended December 31, 2004 would have been RMB11,977,823,000 and RMB3,154,317,000, respectively.



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YANZHOU COAL MINING COMPANY LIMITED

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|35. | ACQUISITION OF YANMEI SHIPPING
|--- | ------------------------------



|                                                                              |  |         |  
|----------------------------------------------------------------------------- |  | ------- | -
|                                                                              |  | 2003    |  
|                                                                              |  | RMB000 |  
|The net assets of Yanmei Shipping at the date of acquisition were as follows: |  |         |  
|                                                                              | 
|Bank balances and cash                                                        |  | 506     |  
|Bills and accounts receivable                                                 |  | 735     |  
|Inventories                                                                   |  | 1,254   |  
|Prepayments and other current assets                                          |  | 16,423  |  
|Property, plant and equipment, net                                            |  | 12,551  |  
|Other payables and accrued expenses                                           |  | (4,259  | )
|Amounts due to Parent Company and its subsidiaries                            |  | (26,151 | )
|Taxes payable                                                                 |  | (483    | )
|Minority interest                                                             |  | (46     | )
|                                                                              |  |         |  
|Total net assets acquired                                                     |  | 530     |  
|Goodwill arising on acquisition                                               |  | 11,162  |  
|                                                                              |  |         |  
|                                                                              |  | 11,692  |  
|                                                                              |  |         |  
|Consideration:                                                                |  |         |  
|                                                                              | 
|Satisfied by cash                                                             |  | 11,692  |  
|                                                                              |  |         |  
|Net cash outflow arising on acquisition:                                      |  |         |  
|                                                                              | 
|Cash paid                                                                     |  | (11,692 | )
|Bank balances and cash acquired                                               |  | 506     |  
|                                                                              |  |         |  
|                                                                              |  | (11,186 | )
|                                                                              |  |         |  



During the year ended
December 31, 2003, the Group acquired 92% of the issued share capital of Yanmei Shipping for a cash consideration of RMB11,692,000. The net assets acquired were included in the coal mining segment. Yanmei Shipping did not have any significant impact
on the Groups results or cash flows for the year ended December 31, 2003.



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YANZHOU COAL MINING COMPANY LIMITED

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|36. | ACQUISITION OF RAILWAY ASSETS
|--- | -----------------------------



|                                                                              |  |            |  
|----------------------------------------------------------------------------- |  | ---------- | -
|                                                                              |  | 2002       |  
|                                                                              |  | RMB000    |  
|The net assets of Railway Assets at the date of acquisition were as follows:  |  |            |  
|                                                                              | 
|Bank balances and cash                                                        |  | 141        |  
|Bills and accounts receivable                                                 |  | 4,586      |  
|Prepayment and other current assets                                           |  | 132,633    |  
|Inventories                                                                   |  | 5,461      |  
|Land use rights                                                               |  | 259,378    |  
|Property, plant and equipment, net                                            |  | 877,380    |  
|Bills and accounts payable                                                    |  | (22,830    | )
|Other payables and accrued expenses                                           |  | (14,163    | )
|                                                                              |  |            |  
|Net assets                                                                    |  | 1,242,586  |  
|Goodwill arising on subsequent adjustment to contingent consideration payment |  | 120,000    |  
|                                                                              |  |            |  
|                                                                              |  | 1,362,586  |  
|                                                                              |  |            |  
|Satisfied by:                                                                 |  |            |  
|                                                                              | 
|Cash consideration paid on acquisition                                        |  | 1,242,586  |  
|Subsequent adjustment to contingent consideration payment                     |  | 120,000    |  
|                                                                              |  |            |  
|                                                                              |  | 1,362,586  |  
|                                                                              |  |            |  
|Net cash outflow arising on acquisition:                                      |  |            |  
|Cash paid on acquisition                                                      |  | (1,282,586 | )
|Cash paid during the year ended December 31, 2003                             |  | (40,000    | )
|Cash paid during the year ended December 31, 2004                             |  | (40,000    | )
|Bank balances and cash acquired                                               |  | 141        |  
|                                                                              |  |            |  
|                                                                              |  | (1,362,445 | )
|                                                                              |  |            |  



On January 1, 2002,
the Company acquired the Railway Assets from its Parent Company for an original consideration of RMB1,242,586,000.



Pursuant to the terms of the acquisition agreement, the consideration was adjusted to RMB1,282,586,000, RMB1,322,586,000 and RMB1,362,586,000 as the
annual transportation volume of the Railway Assets reached the volume milestone target of 25,000,000 tonnes, 28,000,000 tonnes and 30,000,000 tonnes, for the years ended December 31, 2002, 2003 and 2004, respectively.



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YANZHOU COAL MINING COMPANY LIMITED

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|37. | RELATED PARTY BALANCES AND TRANSACTIONS
|--- | ---------------------------------------



The amounts due from Parent Company and its subsidiary companies are non-interest bearing, unsecured and have no specific terms of repayments.



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, 2004 included the present value of the outstanding balance that arose from the funding of the acquisition of the mining rights of Jining III as of January 1, 2001 discounted using the
market rate of bank borrowings.



The consideration for the
cost of the mining rights of approximately RMB132,479,000 is to be settled over ten years by equal annual installments before December 31 of each year, commencing from 2001. During the year ended December 31, 2004, the Company made a payment in a
discounted amount of RMB10,483,000 (2003: RMB11,115,000; 2002: RMB11,805,000).



|                                                           |  |         |  |        
|---------------------------------------------------------- |  | ------- |  | -------
|                                                           |  | 2004    |  | 2003   
|                                                           |  | RMB000 |  | RMB000
|Amounts due to Parent Company and its subsidiary companies |  |         |  |        
|Within one year                                            |  |        |  | 369,620
|More than one year, but not exceeding two years            |  | 9,230   |  | 9,802  
|More than two years, but not exceeding five years          |  | 24,574  |  | 26,101 
|Exceeding five years                                       |  | 7,253   |  | 14,956 
|                                                           |  |         |  |        
|Total due                                                  |  | 41,057  |  | 420,479
|Less: amount due within one year                           |  |        |  | 369,620
|                                                           |  |         |  |        
|Amount due after one year                                  |  | 41,057  |  | 50,859 
|                                                           |  |         |  |        



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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|37. | RELATED PARTY BALANCES AND TRANSACTIONS - continued
|--- | ---------------------------------------------------



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



|                                            |  |                         |  |         |  |        
|------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                            |  | Year ended December 31,
|                                            |  | 2004                    |  | 2003    |  | 2002   
|                                            |  | RMB000                 |  | RMB000 |  | RMB000
|Income                                      |  |                         |  |         |  |        
|Sales of coal                               |  | 523,015                 |  | 229,730 |  | 110,403
|Sales of auxiliary materials                |  | 350,873                 |  | 472,899 |  |       
|Gain on sales of anxiliary materials        |  |                        |  |        |  | 12,385 
|Utilities and facilities                    |  | 29,000                  |  | 29,000  |  | 5,000  
|Railway transportation services             |  |                        |  | 66      |  | 496    
|                                            |  |                         | 
|Expenditure                                 |  |                         |  |         |  |        
|Utilities and facilities                    |  | 354,424                 |  | 285,166 |  | 1,350  
|Annual fee for mining rights                |  | 12,980                  |  | 12,980  |  | 12,980 
|Purchases of supply materials and equipment |  | 303,549                 |  | 373,710 |  | 409,117
|Repair and maintenance services             |  | 222,949                 |  | 225,408 |  | 239,297
|Social welfare and support services         |  | 207,062                 |  | 188,825 |  | 186,657
|Technical support and training              |  | 15,130                  |  | 15,130  |  | 15,130 
|Road transportation services                |  | 63,478                  |  | 17,216  |  | 33,208 
|Construction services                       |  | 160,342                 |  | 507,824 |  |       
|                                            |  |                         |  |         |  |        



During the periods,
the Group had the following significant transactions with a related party, certain management members of which were also management members of the Group:



|                                           |  |                         |  |         |  |        
|------------------------------------------ |  | ----------------------- |  | ------- |  | -------
|                                           |  | Year ended December 31,
|                                           |  | 2004                    |  | 2003    |  | 2002   
|                                           |  | RMB000                 |  | RMB000 |  | RMB000
|Sales of coal by the Group                 |  |                        |  | 77,155  |  | 37,693 
|Transaction services provided to the Group |  |                        |  | 74,783  |  |       
|                                           |  |                         |  |         |  |        



Certain expenditure
for social welfare and support services (excluding medical and child care expenses) of RMB63,275,000, RMB63,530,000 and RMB66,500,000 for each of the three years ended December 31, 2004, 2003 and 2002, respectively, and for technical support and
training of RMB15,130,000 for each of the three years ended December 31, 2004, 2003 and 2002, have been charged by the Parent Company at a negotiated amount per annum, subject to changes every year.



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



In addition to the above, the
Company participates in a multi-employer scheme of the Parent Company in respect of retirement benefits (see notes 8 and 39) and paid RMB574,000,000 to the Parent Company for its acquisition of equity interest in Heze (see note 27(i)).



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YANZHOU COAL MINING COMPANY LIMITED

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|38. | COMMITMENTS
|--- | -----------



|                                                                                                  |  |                 |  |        
|------------------------------------------------------------------------------------------------- |  | --------------- |  | -------
|                                                                                                  |  | At December 31,
|                                                                                                  |  | 2004            |  | 2003   
|                                                                                                  |  | RMB000         |  | RMB000
|Capital expenditure contracted for but not provided in the financial statements in respect of:    |  |                 |  |        
|- acquisition of property, plant and equipment                                                    |  | 12,872          |  | 163,342
|- acquisition of an equity investment                                                             |  |                |  | 30,137 
|Capital expenditure authorised but not contracted for in respect of development of new coal mines |  | 2,100,000       |  |       
|                                                                                                  |  |                 |  |        
|                                                                                                  |  | 2,112,872       |  | 193,479
|                                                                                                  |  |                 |  |        



In addition to the
above, the Company is required to set aside an amount at RMB8 per tonne of raw coal mined beginning May 1, 2004 for the enhancement of safety production environment and facilities (Work Safety Cost) pursuant to the regulations of the
State Administration of Work Safety. The amount, which has been set aside for such purposes and has not yet been utilized, amounted to RMB5,484,000 as at December 31, 2004.



|39. | RETIREMENT BENEFITS
|--- | -------------------



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



The monthly contribution rate was set initially at 45% of the aggregate monthly basic salaries and wages of the Companys employees, and was fixed until December 31, 2001. Upon expiration of the initial period,
the Company and the Parent Company determined that the contribution rate should remain at 45% for the period from January 1, 2002 to December 31, 2006.



The 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.



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|40. | 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, 2004, 2003 and 2002. Such expenses, amounting to RMB37,200,000 for each of the three years ended December 31, 2004, 2003 and
2002, have been included as part of the social welfare and support services expenses summarized in note 37.



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.



|41. | FAIR VALUE OF FINANCIAL INSTRUMENTS
|--- | -----------------------------------



The carrying amounts of bills and accounts receivable, investments in securities, accounts payable and variable debt approximate their fair values because
of the short maturity of these amounts or because of the variable rate return of the debt. In addition, the carrying amount of bank borrowings approximate their fair value as the interest rates approximate the market rate.



|42. | CONCENTRATION OF CREDIT RISK
|--- | ----------------------------



The Group maintains its cash and cash equivalents with banks in the PRC.



The Group generally grants the long-term customers credit terms with a range from one to four months, depending on the
situations of the individual customers. For small to medium sized new customers, the Group generally requires them to pay for the products before delivery.



Most of the Groups domestic sales are sales to electric power plants, metallurgical companies, construction material producers and railway
companies. The Group generally has established long-term and stable relationships with these companies. The Group also sells its coal to provincial and city fuel trading companies.



As the Group does not currently have direct export rights, all of its export sales must be made through National Coal
Corporation, Shanxi Coal Corporation or Minmetals Trading. The quality, prices and final customer destination of the Groups export sales are determined by the Group, National Coal Corporation, Shanxi Coal Corporation or Minmetals Trading. The
Group intends to apply for direct export rights although there can be no assurance that such rights will be obtained on a timely basis.



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|42. | CONCENTRATION OF CREDIT RISK - continued
|--- | ----------------------------------------



For the years ended December 31, 2004, 2003 and 2002, net sales to the Groups five largest domestic customers accounted for approximately, 15.3%,
18.5% and 21.2%, respectively, of the Groups total net sales. Net sales to the Groups largest domestic customer accounted for 9.2%, 11.3% and 13.3% of the Groups net sales for the years ended December 31, 2004, 2003 and 2002,
respectively. The Groups largest domestic customer was the Huadian Power International Corporation Limited for the year ended December 31, 2004 (2003 and 2002: the Shandong Power and Fuel Company). The Shandong Power and Fuel Company purchases
coal on behalf of several power plants in Shangdong Province, the largest of which, the Zouxian Electric Power Plant, alone accounted for 9.6% and 12.6% of the Groups net sales for the years ended December 31, 2003 and 2002, respectively.



Details of the amounts receivable from the five customers
with the largest receivable balances at December 31, 2004 and 2003 are as follows:



|                                 |  |                                   |   |  |      |  
|-------------------------------- |  | --------------------------------- | - |  | ---- | -
|                                 |  | Percentage of accounts receivable |  
|                                 |  | At December 31,                   |  
|                                 |  | 2004                              |   |  | 2003 |  
|Five largest receivable balances |  | 75                                | % |  | 46   | %
|                                 |  |                                   |   |  |      |  



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|43. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP
|--- | ------------------------------------------------



The consolidated financial statements prepared under IFRS and those prepared under PRC GAAP have the following major differences:



| | (i) | adjustment of future development fund (see note 33), which is charged to income before income taxes under PRC GAAP, to shareholders equity;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | 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, which are not recognised under PRC GAAP;
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | negative goodwill arising under IFRS for the acquisition of Jining III is 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. No negative goodwill is recognized under PRC GAAP;
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | the installments payable to the Parent Company for the acquisition of Jining III have been stated at present value discounted using market rates under IFRS while under PRC GAAP, the
installments payable are stated at gross amounts. Accordingly, deemed interest expense arises on the installments payable to the Parent Company under IFRS and no such interest expenses are recognized under PRC GAAP;
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | Reversal of the Work Safety Cost provided but not yet incurred (see note 38), which is charged as an expense when set aside under PRC GAAP; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------



The following table summarizes the differences between IFRS and PRC GAAP:



|                                                                                                    |  |                                            |   |  |                               |   |  |           |   |  |            |   |  |            |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------------------------ | - |  | ----------------------------- | - |  | --------- | - |  | ---------- | - |  | ---------- | -
|                                                                                                    |  | Net income for the year ended December 31, |   |  | Net assets as at December 31, |  
|                                                                                                    |  | 2004                                       |   |  | 2003                          |   |  | 2002      |   |  | 2004       |   |  | 2003       |  
|                                                                                                    |  | RMB000                                    |   |  | RMB000                       |   |  | RMB000   |   |  | RMB000    |   |  | RMB000    |  
|As per consolidated financial statements prepared under IFRS                                        |  | 3,154,317                                  |   |  | 1,386,686                     |   |  | 1,221,999 |   |  | 15,523,751 |   |  | 11,083,239 |  
|Impact of IFRS adjustments in respect of:                                                           |  |                                            |   |  |                               |   |  |           |   |  |            |   |  |            |  
|- transfer to future development fund which is charged to income before income taxes under PRC GAAP |  | (331,548                                   | ) |  | (259,674                      | ) |  | (230,610  | ) |  | (96,669    | ) |  |           |  
|- reversal of Work Safety Cost                                                                      |  | (204,668                                   | ) |  |                              |   |  |          |   |  | (204,668   | ) |  |           |  
|- deferred tax effect on temporary differences not recognized under PRC GAAP                        |  | 111,976                                    |   |  | (65                           | ) |  | (1,386    | ) |  | 23,104     |   |  | (88,872    | )
|- release of negative goodwill to income                                                            |  | (27,620                                    | ) |  | (27,620                       | ) |  | (27,620   | ) |  | (110,480   | ) |  | (82,860    | )
|- deemed interest expenses                                                                          |  | 4,550                                      |   |  | 5,261                         |   |  | 39,956    |   |  | 109,362    |   |  | 104,812    |  
|- others                                                                                            |  | 778                                        |   |  | 777                           |   |  | 777       |   |  | 8,071      |   |  | 7,292      |  
|                                                                                                    |  |                                            |   |  |                               |   |  |           |   |  |            |   |  |            |  
|As per consolidated financial statements prepared under PRC GAAP                                    |  | 2,707,785                                  |   |  | 1,105,365                     |   |  | 1,003,116 |   |  | 15,252,471 |   |  | 11,023,611 |  
|                                                                                                    |  |                                            |   |  |                               |   |  |           |   |  |            |   |  |            |  



| | 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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|44. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP
|--- | -----------------------------------------------



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



Under IFRS, the acquisitions of Jining II, Jining III and the Railway Assets
have been accounted for using the purchase method which accounts for the assets and liabilities of Jining II, Jining III and the Railway Assets at their fair value at the date of acquisition. Any excess of the purchase consideration over the fair
value of the net assets acquired is capitalized as goodwill and amortized over a period of ten to twenty years. Any excess of the fair value of the net assets acquired over the purchase consideration is recorded as negative goodwill, which is
presented as a deduction from the assets of the Group in the consolidated balance sheet. The Group releases the negative goodwill to the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable
acquired depreciable/amortizable assets.



Under US GAAP, as
the Group, Jining II, Jining III and the Railway Assets are entities under the common control of the Parent Company, the assets and liabilities of Jining II, Jining III and the Railway Assets 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 and the Railway Assets acquired and the purchase price paid is recorded as an adjustment to shareholders
equity.



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



Under IFRS, property, plant and equipment and land use rights have been stated based on their respective fair values at the date of acquisition even for
cases involving transaction between entities under common control. The fair value amount becomes the new cost basis of the assets of the Company formed from the reorganization and depreciation is based on such new basis. Under US GAAP, when
accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or equity interests shall initially recognize the assets and liabilities transferred at their carrying amounts
in the accounts of the transferring entity at the date of transfer. Accordingly, property, plant and equipment and land use rights 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.



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|44. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



Under IFRS, the acquisition of Yanmei Shipping has been accounted for using purchase method which accounted for the assets and liabilities of Yanmei
Shipping at their fair value at the date of acquisition. The excess of the purchase consideration over the value of the net assets acquired is capitalized and amortized over a period of ten years. Under US GAAP, goodwill is not amortized but instead
tested for impairment at least annually.



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



|                                                                                                                                                                                             |  |                         |   |  |           |   |  |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | - |  | --------- | - |  | --------- | -
|                                                                                                                                                                                             |  | Year ended December 31, |  
|                                                                                                                                                                                             |  | 2004                    |   |  | 2003      |   |  | 2002      |  
|                                                                                                                                                                                             |  | RMB000                 |   |  | RMB000   |   |  | RMB000   |  
|Net income as reported under IFRS                                                                                                                                                            |  | 3,154,317               |   |  | 1,386,686 |   |  | 1,221,999 |  
|                                                                                                                                                                                             |  |                         |  
|US GAAP adjustments:                                                                                                                                                                         |  |                         |   |  |           |   |  |           |  
|                                                                                                                                                                                             |  |                         |  
|Additional depreciation charged on fair valued property, plant and equipment and land use rights                                                                                             |  | 187,418                 |   |  | 188,191   |   |  | 188,178   |  
|Additional deferred tax charge due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and land
use rights and capitalization of mining rights |  | (64,034                 | ) |  | (64,289   | ) |  | (64,284   | )
|Amortization of negative goodwill on acquisition of Jining III                                                                                                                               |  | (27,620                 | ) |  | (27,620   | ) |  | (27,620   | )
|Amortization of mining rights of Jining III                                                                                                                                                  |  | 6,624                   |   |  | 6,624     |   |  | 6,624     |  
|Amortization of goodwill arising on acquisition of Jining II                                                                                                                                 |  | 777                     |   |  | 777       |   |  | 777       |  
|Amortization of goodwill arising on acquisition of the Railway Assets                                                                                                                        |  | 13,880                  |   |  | 8,880     |   |  |          |  
|Amortization of goodwill arising on acquisition of Yanmei Shipping                                                                                                                           |  | 1,116                   |   |  |          |   |  |          |  
|                                                                                                                                                                                             |  |                         |   |  |           |   |  |           |  
|Net income under US GAAP                                                                                                                                                                     |  | 3,272,478               |   |  | 1,499,249 |   |  | 1,325,674 |  
|                                                                                                                                                                                             |  |                         |   |  |           |   |  |           |  
|Earnings per share under US GAAP                                                                                                                                                             |  | RMB1.10                 |   |  | RMB0.52   |   |  | RMB0.46   |  
|                                                                                                                                                                                             |  |                         |   |  |           |   |  |           |  
|Earnings per ADS under US GAAP                                                                                                                                                               |  | RMB55.19                |   |  | RMB26.12  |   |  | RMB23.10  |  
|                                                                                                                                                                                             |  |                         |   |  |           |   |  |           |  



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|44. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



|                                                                                                                                                        |  |                 |   |  |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | - |  | ---------- | -
|                                                                                                                                                        |  | At December 31, |  
|                                                                                                                                                        |  | 2004            |   |  | 2003       |  
|                                                                                                                                                        |  | RMB000         |   |  | RMB000    |  
|Shareholders equity as reported under IFRS                                                                                                             |  | 15,523,751      |   |  | 11,083,239 |  
|US GAAP adjustments:                                                                                                                                    |  |                 |   |  |            |  
|                                                                                                                                                        |  |                
|Difference in cost bases of property, plant and equipment and land use rights                                                                           |  | (2,561,032      | ) |  | (2,561,032 | )
|Additional depreciation charged on fair valued property, plant and equipment and land use rights                                                        |  | 1,312,938       |   |  | 1,125,520  |  
|Additional deferred tax asset due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and land
use rights |  | 411,871         |   |  | 473,719    |  
|Goodwill arising on acquisition of Jining II                                                                                                            |  | (10,106         | ) |  | (10,883    | )
|Negative goodwill arising on acquisition of Jining III, net                                                                                             |  | 27,621          |   |  | 55,241     |  
|Mining rights of Jining III                                                                                                                             |  | (105,983        | ) |  | (112,607   | )
|Additional deferred tax asset due to a higher tax base resulting from capitalization of mining rights                                                   |  | 34,974          |   |  | 37,160     |  
|Goodwill arising on acquisition of Railway Assets                                                                                                       |  | (97,240         | ) |  | (71,120    | )
|Amortization of goodwill on acquisition of Yanmei Shipping                                                                                              |  | 1,116           |   |  |           |  
|                                                                                                                                                        |  |                 |   |  |            |  
|Shareholders equity under US GAAP                                                                                                                      |  | 14,537,910      |   |  | 10,019,237 |  
|                                                                                                                                                        |  |                 |   |  |            |  



A reconciliation of
certain significant financial statement line items to the approximate amounts determined under US GAAP is as follows:



|                                                          |  |                 |   |  |           |  
|--------------------------------------------------------- |  | --------------- | - |  | --------- | -
|                                                          |  | At December 31, |  
|                                                          |  | 2004            |   |  | 2003      |  
|                                                          |  | RMB000         |   |  | RMB000   |  
|Total current assets                                      |  |                 |   |  |           |  
|                                                          |  |                
|As reported under IFRS                                    |  | 8,306,406       |   |  | 4,417,218 |  
|                                                          |  |                
|US GAAP adjustments:                                      |  |                 |   |  |           |  
|                                                          |  |                
|Reclassification of deferred tax assets as current assets |  |                |   |  | 88,872    |  
|                                                          |  |                 |   |  |           |  
|As adjusted under US GAAP                                 |  | 8,306,406       |   |  | 4,506,090 |  
|                                                          |  |                 |   |  |           |  
|Mining rights                                             |  |                 |   |  |           |  
|                                                          |  |                
|As reported under IFRS                                    |  | 138,617         |   |  | 112,607   |  
|                                                          |  |                
|US GAAP adjustment:                                       |  |                 |   |  |           |  
|                                                          |  |                
|Mining rights of Jining III                               |  | (105,983        | ) |  | (112,607  | )
|                                                          |  |                 |   |  |           |  
|As adjusted under US GAAP                                 |  | 32,634          |   |  |          |  
|                                                          |  |                 |   |  |           |  



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|44. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



|                                                                              |  |                 |   |  |            |  
|----------------------------------------------------------------------------- |  | --------------- | - |  | ---------- | -
|                                                                              |  | At December 31, |  
|                                                                              |  | 2004            |   |  | 2003       |  
|                                                                              |  | RMB000         |   |  | RMB000    |  
|Land use rights                                                               |  |                 |   |  |            |  
|                                                                              |  |                
|As reported under IFRS                                                        |  | 591,718         |   |  | 604,912    |  
|                                                                              |  |                
|US GAAP adjustments:                                                          |  |                 |   |  |            |  
|                                                                              |  |                
|Difference in cost bases of land use rights                                   |  | (550,634        | ) |  | (550,634   | )
|Additional depreciation charged on land use rights                            |  | 53,248          |   |  | 42,235     |  
|                                                                              |  |                 |   |  |            |  
|As adjusted under US GAAP                                                     |  | 94,332          |   |  | 96,513     |  
|                                                                              |  |                 |   |  |            |  
|Property, plant and equipment                                                 |  |                 |   |  |            |  
|                                                                              |  |                
|As reported under IFRS                                                        |  | 8,537,150       |   |  | 8,616,373  |  
|                                                                              |  |                
|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              |  | 1,259,690       |   |  | 1,083,285  |  
|                                                                              |  |                 |   |  |            |  
|As adjusted under US GAAP                                                     |  | 7,786,442       |   |  | 7,689,260  |  
|                                                                              |  |                 |   |  |            |  
|Goodwill                                                                      |  |                 |   |  |            |  
|                                                                              |  |                
|As reported under IFRS                                                        |  | 117,392         |   |  | 93,165     |  
|                                                                              |  |                
|US GAAP adjustments:                                                          |  |                 |   |  |            |  
|                                                                              |  |                
|Goodwill arising on contingent payment for acquisition of Railway Assets, net |  | (97,240         | ) |  | (71,120    | )
|Goodwill arising on acquisition of Jining II, net                             |  | (10,106         | ) |  | (10,883    | )
|Amortization arising on acquisition of Yanmei Shipping                        |  | 1,116           |   |  |           |  
|                                                                              |  |                 |   |  |            |  
|As adjusted under US GAAP                                                     |  | 11,162          |   |  | 11,162     |  
|                                                                              |  |                 |   |  |            |  





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|44. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



|                                                                                                         |  |                 |   |  |         |  
|-------------------------------------------------------------------------------------------------------- |  | --------------- | - |  | ------- | -
|                                                                                                         |  | At December 31, |  
|                                                                                                         |  | 2004            |   |  | 2003    |  
|                                                                                                         |  | RMB000         |   |  | RMB000 |  
|Negative goodwill                                                                                        |  |                 |   |  |         |  
|                                                                                                         |  |                
|As reported under IFRS                                                                                   |  | (27,621         | ) |  | (55,241 | )
|                                                                                                         |  |                
|US GAAP adjustment:                                                                                      |  |                 |   |  |         |  
|                                                                                                         |  |                
|Negative goodwill arising on acquisition of Jining III, net                                              |  | 27,621          |   |  | 55,241  |  
|                                                                                                         |  |                 |   |  |         |  
|As adjusted under US GAAP                                                                                |  |                |   |  |        |  
|                                                                                                         |  |                 |   |  |         |  
|Deferred tax asset (liability)                                                                           |  |                 |   |  |         |  
|                                                                                                         |  |                
|As reported under IFRS                                                                                   |  | (23,104         | ) |  | 88,872  |  
|                                                                                                         |  |                
|US GAAP adjustments:                                                                                     |  |                 |   |  |         |  
|                                                                                                         |  |                
|Additional deferred tax asset attributable to differences in cost bases of property, plant and equipment |  | 247,734         |   |  | 305,947 |  
|Additional deferred tax asset attributable to differences in cost bases of land use rights               |  | 164,137         |   |  | 167,772 |  
|Additional deferred tax asset attributable to capitalization of mining rights                            |  | 34,974          |   |  | 37,160  |  
|                                                                                                         |  |                 |   |  |         |  
|As adjusted under US GAAP                                                                                |  | 423,741         |   |  | 599,751 |  
|                                                                                                         |  |                 |   |  |         |  
|Analyzed as:                                                                                             |  |                 |   |  |         |  
|Current                                                                                                  |  |                |   |  | 88,872  |  
|Non-current                                                                                              |  | 423,741         |   |  | 510,879 |  
|                                                                                                         |  |                 |   |  |         |  
|                                                                                                         |  | 423,741         |   |  | 599,751 |  
|                                                                                                         |  |                 |   |  |         |  



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|44. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



|                                                                                                     |  |                         |   |  |           |   |  |           |  
|---------------------------------------------------------------------------------------------------- |  | ----------------------- | - |  | --------- | - |  | --------- | -
|                                                                                                     |  | Year ended December 31, |  
|                                                                                                     |  | 2004                    |   |  | 2003      |   |  | 2002      |  
|                                                                                                     |  | RMB000                 |   |  | RMB000   |   |  | RMB000   |  
|Cost of sales and service provided                                                                   |  |                         |   |  |           |   |  |           |  
|                                                                                                     |  |                         |  
|As reported under IFRS                                                                               |  | 4,551,703               |   |  | 3,755,023 |   |  | 3,362,901 |  
|                                                                                                     |  |                         |  
|US GAAP adjustments:                                                                                 |  |                         |   |  |           |   |  |           |  
|                                                                                                     |  |                         |  
|Additional depreciation charged on property, plant and equipment                                     |  | (164,169                | ) |  | (163,459  | ) |  | (163,934  | )
|Amortization of mining rights of Jining III                                                          |  | (6,624                  | ) |  | (6,624    | ) |  | (6,624    | )
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|As adjusted under US GAAP                                                                            |  | 4,380,910               |   |  | 3,584,940 |   |  | 3,192,343 |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|Selling, general and administrative expenses                                                         |  |                         |   |  |           |   |  |           |  
|                                                                                                     |  |                         |  
|As reported under IFRS                                                                               |  | 1,479,863               |   |  | 1,264,858 |   |  | 1,231,059 |  
|                                                                                                     |  |                         |  
|US GAAP adjustments:                                                                                 |  |                         |   |  |           |   |  |           |  
|                                                                                                     |  |                         |  
|Additional depreciation charged on:                                                                  |  |                         |   |  |           |   |  |           |  
|- property, plant and equipment                                                                      |  | (12,236                 | ) |  | (13,719   | ) |  | (13,231   | )
|- land use rights                                                                                    |  | (11,013                 | ) |  | (11,013   | ) |  | (11,013   | )
|Amortization of goodwill arising on acquisition of Railway Assets                                    |  | (13,880                 | ) |  | (8,880    | ) |  |          |  
|Amortization of goodwill arising on acquisition of Jining II                                         |  | (777                    | ) |  | (777      | ) |  | (777      | )
|Amortization of goodwill arising on acquisition of Yanmei Shipping                                   |  | (1,116                  | ) |  |          |   |  |          |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|As adjusted under US GAAP                                                                            |  | 1,440,841               |   |  | 1,230,469 |   |  | 1,206,038 |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|Other Operating income                                                                               |  |                         |   |  |           |   |  |           |  
|                                                                                                     |  |                         |  
|As reported under IFRS                                                                               |  | 165,732                 |   |  | 105,845   |   |  | 103,729   |  
|                                                                                                     |  |                         |  
|US GAAP adjustments:                                                                                 |  |                         |   |  |           |   |  |           |  
|                                                                                                     |  |                         |  
|Amortization of negative goodwill on acquisition of Jining III                                       |  | (27,620                 | ) |  | (27,620   | ) |  | (27,620   | )
|Reclassification of interest income from bank deposits and investments in securities to other income |  | (92,711                 | ) |  | (17,814   | ) |  | (30,218   | )
|                                                                                                     |  |                         |   |  |           |   |  |           |  
|As adjusted under US GAAP                                                                            |  | 45,401                  |   |  | 60,411    |   |  | 45,891    |  
|                                                                                                     |  |                         |   |  |           |   |  |           |  







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|44. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



|                                                                                                                               |  |                         |  |         |  |        
|------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------- |  | ------- |  | -------
|                                                                                                                               |  | Year ended December 31,
|                                                                                                                               |  | 2004                    |  | 2003    |  | 2002   
|                                                                                                                               |  | RMB000                 |  | RMB000 |  | RMB000
|Other income                                                                                                                   |  |                         |  |         |  |        
|                                                                                                                               |  |                         | 
|As reported under IFRS                                                                                                         |  |                        |  |        |  |       
|                                                                                                                               |  |                         | 
|US GAAP adjustments:                                                                                                           |  |                         |  |         |  |        
|                                                                                                                               |  |                         | 
|Reclassification of interest income from bank deposits and investments in securities to other income                           |  | 92,711                  |  | 17,814  |  | 30,218 
|                                                                                                                               |  |                         |  |         |  |        
|As adjusted under US GAAP                                                                                                      |  | 92,711                  |  | 17,814  |  | 30,218 
|                                                                                                                               |  |                         |  |         |  |        
|Income taxes                                                                                                                   |  |                         |  |         |  |        
|                                                                                                                               |  |                         | 
|As reported under IFRS                                                                                                         |  | 1,518,762               |  | 587,710 |  | 523,148
|                                                                                                                               |  |                         | 
|US GAAP adjustments:                                                                                                           |  |                         |  |         |  |        
|                                                                                                                               |  |                         | 
|Additional deferred tax charges attributable to differences in cost bases of property, plant and equipment and land use rights |  | 61,848                  |  | 62,103  |  | 62,098 
|Additional deferred tax charges attributable to capitalization of mining rights                                                |  | 2,186                   |  | 2,186   |  | 2,186  
|                                                                                                                               |  |                         |  |         |  |        
|As adjusted under US GAAP                                                                                                      |  | 1,582,796               |  | 651,999 |  | 587,432
|                                                                                                                               |  |                         |  |         |  |        



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,
|                              |  | 2004            |  | 2003      
|                              |  | RMB000         |  | RMB000   
|Assets                        |  |                 |  |           
|Current assets                |  |                 |  |           
|Deferred tax asset            |  |                |  | 88,872    
|Other current assets          |  | 8,306,406       |  | 4,417,218 
|                              |  |                 |  |           
|                              |  | 8,306,406       |  | 4,506,090 
|Mining rights                 |  | 32,634          |  |          
|Land use rights               |  | 94,332          |  | 96,513    
|Property, plant and equipment |  | 7,786,442       |  | 7,689,260 
|Goodwill                      |  | 11,162          |  | 11,162    
|Deferred tax asset            |  | 423,741         |  | 510,879   
|Other non-current assets      |  | 673,035         |  | 31,898    
|                              |  |                 |  |           
|                              |  | 17,327,752      |  | 12,845,802
|                              |  |                 |  |           



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YANZHOU COAL MINING COMPANY LIMITED

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|44. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



|                                     |  |                 |  |           
|------------------------------------ |  | --------------- |  | ----------
|                                     |  | At December 31,
|                                     |  | 2004            |  | 2003      
|                                     |  | RMB000         |  | RMB000   
|Liabilities and shareholders equity |  |                 |  |           
|Current liabilities                  |  | 2,545,111       |  | 2,371,966 
|Non-current liabilities              |  | 241,057         |  | 450,859   
|Shareholders equity                 |  | 14,537,910      |  | 10,019,237
|Minority interest                    |  | 3,674           |  | 3,740     
|                                     |  |                 |  |           
|                                     |  | 17,327,752      |  | 12,845,802
|                                     |  |                 |  |           



CONSOLIDATED
STATEMENTS OF INCOME



|                                             |  |                         |   |  |            |   |  |            |  
|-------------------------------------------- |  | ----------------------- | - |  | ---------- | - |  | ---------- | -
|                                             |  | Year ended December 31, |  
|                                             |  | 2004                    |   |  | 2003       |   |  | 2002       |  
|                                             |  | RMB000                 |   |  | RMB000    |   |  | RMB000    |  
|Gross sales of coal                          |  | 11,757,052              |   |  | 8,386,629  |   |  | 7,772,315  |  
|Transportation costs of coal                 |  | (1,402,715              | ) |  | (1,592,294 | ) |  | (1,558,414 | )
|                                             |  |                         |   |  |            |   |  |            |  
|Net sales of coal                            |  | 10,354,337              |   |  | 6,794,335  |   |  | 6,213,901  |  
|Railway transportation service income        |  | 220,771                 |   |  | 154,585    |   |  | 142,471    |  
|Cost of sales and service provided           |  | (4,380,910              | ) |  | (3,584,940 | ) |  | (3,192,343 | )
|Selling, general and administrative expenses |  | (1,440,841              | ) |  | (1,230,469 | ) |  | (1,206,038 | )
|Other operating income                       |  | 45,401                  |   |  | 60,411     |   |  | 45,891     |  
|Interest expenses                            |  | (35,942                 | ) |  | (59,966    | ) |  | (117,929   | )
|Other income                                 |  | 92,711                  |   |  | 17,814     |   |  | 30,218     |  
|                                             |  |                         |   |  |            |   |  |            |  
|Income before income taxes                   |  | 4,855,527               |   |  | 2,151,770  |   |  | 1,916,171  |  
|Income taxes                                 |  | (1,582,796              | ) |  | (651,999   | ) |  | (587,432   | )
|                                             |  |                         |   |  |            |   |  |            |  
|Income before minority interest              |  | 3,272,731               |   |  | 1,499,771  |   |  | 1,328,739  |  
|Minority interest                            |  | (253                    | ) |  | (522       | ) |  | (3,065     | )
|                                             |  |                         |   |  |            |   |  |            |  
|Net income                                   |  | 3,272,478               |   |  | 1,499,249  |   |  | 1,325,674  |  
|                                             |  |                         |   |  |            |   |  |            |  



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



In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial Statements and provides guidance on the identification of entities for which control is achieved through means other than voting rights (variable interest entities or VIEs)
and how to determine when and which business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (1) the equity investors (if any) lack one or more characteristics deemed essential to a
controlling financial interest or (2) the equity investment at risk is insufficient to finance that entitys activities without receiving additional subordinated financial support from other parties. FIN 46 was applicable for periods ending
December 15, 2003. In December 2004 the FASB issued FIN 46R which defers the implementation date to the end of the first reporting period after March 15, 2003 unless the Company has a special purpose entity in which case the provisions must be
applied for fiscal years ending December 31, 2003. The Company does not have a special purpose entity and therefore the adoption of FIN 46 did not have a material impact on the Groups financial statements.





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##### Table of Contents

YANZHOU COAL MINING COMPANY LIMITED

LOGO



|44. | SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued
|--- | -----------------------------------------------------------



In March 2004, the Emerging Issue Task Force (EITF) reached a consensus in EITF 03-1 The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments. The consensus was that certain quantitative and qualitative disclosures should be required for debt and marketable equity securities classified as available-for-sale or held-to-maturity under SFAS Nos.
115 and 124, that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. This EITF consensus is effective for fiscal years ending after December 15, 2004. Adoption of the EITF consensus did
not result in an impact on the Groups financial position, results of operations or cash flows.



* * * * * * * * *



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