20-F 1 d869465d20f.htm FORM 20-F Form 20-F
Table of Contents

As filed with Securities and Exchange Commission on April 27, 2015

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

 

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

OR

 

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

For the fiscal year ended December 31, 2014

OR

 

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

OR

 

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

Date of event requiring this shell company report

Commission file number: 001-14714

 

 

 

LOGO

(Exact name of Registrant as specified in its charter)

Yanzhou Coal Mining Company Limited

(Translation of Registrant’s name into English)

 

 

People’s Republic of China

(Jurisdiction of incorporation or organization)

298 Fushan South Road

Zoucheng, Shandong Province

People’s Republic of China

(Address of principal executive offices)

Zhang Baocai

298 South Fushan Road

Zoucheng, Shandong Province

People’s Republic of China (273500)

Tel: (86)537 5382319

Fax: (86)537 5383311

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

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

 

Title of each class

 

Name of each exchange on which registered

American Depositary Shares   New York Stock Exchange
Class H Ordinary Shares   New York Stock Exchange*

 

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

 

 

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

None

(Title of class)

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

None

(Title of class)

 

 

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

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

1,958,400,000 H Shares, par value RMB1.00 per share, including H Shares that were represented by 6,952,181 ADSs

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

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

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

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

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

 

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

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

 

U.S. GAAP  ¨   

International Financial Reporting Standards as issued

by the International Accounting Standards Board  x

   Other  ¨

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

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ¨    No  ¨

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  

Cautionary Statement Regarding Forward-looking Statements

     3   

Definitions and Supplemental Information

     3   

Conventions

     7   
  PART I   

ITEM 1.

  Identity of Directors, Senior Management and Advisers      8   

ITEM 2.

  Offer Statistics and Expected Timetable      8   

ITEM 3.

  Key Information      8   

ITEM 4.

  Information on the Company      23   

ITEM 4A.

  Unresolved Staff Comments      73   

ITEM 5.

  Operating and Financial Review and Prospects      73   

ITEM 6.

  Directors, Supervisors, Senior Management and Employees      94   

ITEM 7.

  Major Shareholders and Related Party Transactions      108   

ITEM 8.

  Financial Information      114   

ITEM 9.

  The Offering and Listing      115   

ITEM 10.

  Additional Information      118   

ITEM 11.

  Quantitative and Qualitative Disclosures about Market Risk      131   

ITEM 12.

  Description of Securities Other Than Equity Securities      133   
  PART II   

ITEM 13.

  Defaults, Dividend Arrearages and Delinquencies      134   

ITEM 14.

  Material Modifications to the Rights of Security Holders and Use of Proceeds      134   

ITEM 15.

  Controls and Procedures      134   

ITEM 16A.

  Audit Committee Financial Expert      135   

ITEM 16B

  Code of Ethics      135   

ITEM 16C.

  Principal Accountant Fees and Services      135   

ITEM 16D.

  Exemptions from the Listing Standards for Audit Committees      136   

ITEM 16E.

  Purchases of Equity Securities by the Issuer and Affiliated Purchasers      136   

ITEM 16F.

  Change in Registrant’s Certifying Accountant      136   

ITEM 16G.

  Corporate Governance      136   

ITEM 16H.

  Mining Safety Disclosure      138   
  PART III   

ITEM 17.

  Financial Statements      138   

ITEM 18.

  Financial Statements      138   

ITEM 19.

  Exhibits      139   

Signatures

  


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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

Without limiting the foregoing, all statements relating to our future operating results and anticipated capital expenditures, borrowings and sources of funding are forward-looking statements and speak only as of the date of this annual report. These statements are based on numerous assumptions that we believe are reasonable, but are subject to a wide range of risks, uncertainties and contingencies, which may cause actual results to differ materially from those discussed in these statements. Among the factors that could cause actual results to differ materially are:

 

    price volatility for our coal and other related products;

 

    demand for coal in the PRC and overseas markets;

 

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

 

    changes in legislation, regulations and policies;

 

    the factors affecting the methanol industry and methanol prices;

 

    our ability to compete effectively;

 

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

 

    expected increases in production capacity and utilization of new facilities;

 

    competitive landscape;

 

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

 

    effects of land reclamation and other liabilities;

 

    geologic, equipment and operational risks related to mining;

 

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

 

    our ability to realize the anticipated benefits of our acquisition of equity interests or assets of coal mines;

 

    obtaining governmental permits and approvals for our operations;

 

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

 

    availability, timing of delivery and cost of key supplies;

 

    impacts of natural disasters, epidemics and safety accidents; and

 

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

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

DEFINITIONS AND SUPPLEMENTAL INFORMATION

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

“ADSs” are to the American depositary shares of the Company.

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

 

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

“ASX” are to ASX Limited or, as the context requires, the financial market known as the Australian Securities Exchange operated by it.

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

“Australia” are to the Commonwealth of Australia.

“BBSY” are to the Australian Bank Bill Swap Rate.

“Beisheng Industry and Trade” are to Zoucheng Yankuang Beisheng Industry and Trade Co., Ltd., a limited liability company incorporated in the PRC.

“Beisu Company” are to Yankuang Group Beisu Coal Mine Co., Ltd., a limited liability company incorporated in the PRC, which is a wholly owned subsidiary of Yankuang Group.

“CAGR” are to the compound annual growth rate.

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

“CHESS” are to the Clearing House Electronic Subregister System of ASX.

“China” or the “PRC” are to the People’s Republic of China, excluding, for purposes of this annual report, the Hong Kong Special Administrative Region (“Hong Kong”), Macau Special Administrative Region and Taiwan.

“CSRC” are to the China Securities Regulatory Commission.

“CVR Shares” are to fully paid shares in the share capital of Yancoal Australia as defined in the amended merger proposal deed for the Gloucester acquisition.

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

“Eastern China” are collectively to Shandong Province, Jiangsu Province, Anhui Province, Zhejiang Province, Fujian Province, Jiangxi Province and Shanghai Municipality; “southern China” are to Guangdong Province, Hunan Province and Guangxi Zhuang Autonomous Region; “northern China” are to Beijing Municipality, Tianjin Municipality, Hebei Province, Shanxi Province and the Inner Mongolia Autonomous Region; and “northwestern China” are to Shaanxi Province, Gansu Province, Qinghai Province, Xinjiang Uyghur Autonomous Region and Ningxia Hui Autonomous Region.

“Felix” are to Yancoal Resources (formerly Felix Resources Limited).

“FOB” are to Free on Board, meaning the risk passes to the buyer, including payment of all transportation and insurance costs, once goods are delivered on board of the ship by the seller, as defined in the latest edition of the International Rules for the Interpretation of Trade Terms as published by ICC Publishing SA, 38 cours Albert 1er, 75008 Paris, France from time to time or such official rules for interpretation of trade terms as issued by the ICC in substitution therefore as amended from time to time.

“Gloucester” are to Gloucester Coal Ltd., a company incorporated in Australia, which focuses on the exploration, mining and sale of coal in Australia. We completed the merger with Gloucester in June 2012, which turned Gloucester a wholly-owned subsidiary of Yancoal Australia.

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

“Grant Thornton Hong Kong” are to a firm of certified public accountants in Hong Kong and operates as a corporate practice under the name of Grant Thornton Hong Kong Limited. This firm is the auditor for the purpose of the Hong Kong H Share listing only.

“H Shares” are to overseas listed foreign invested shares in the ordinary share capital of the Company, with nominal value of RMB1.00 each, which are listed on the HKSE.

 

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“Haosheng Company” are to Inner Mongolia Haosheng Coal Mining Company Limited, a Company incorporated in the PRC and a 74.82%-owned subsidiary of the Company, which engages in project development for Shilawusu Coal Field in the Inner Mongolia Autonomous Region.

“Heze Nenghua” are to Yanmei Heze Nenghua Company Limited, a Company incorporated in the PRC and a 98.33%-owned subsidiary of the Company, which manages our exploration for coal resources at the Juye Mine in Heze City, Shandong Province.

“Hong Kong Listing Rules” are to the Rules Governing the Listing of Securities on the HKSE.

“Hong Kong Stock Exchange” or “HKSE” are to The Stock Exchange of Hong Kong Limited.

“Hua Ju Energy” are to Shandong Hua Ju Energy Co., Limited, a Company incorporated in the PRC and a 95.14%-owned subsidiary of the Company, which engages in the generation of electric power from coal gangue and coal slurry, which are byproducts of our coal mining process.

“IFRS” are to International Financial Reporting Standards, as issued by the International Accounting Standard Board (“IASB”).

“Industry Guide 7” are to the United States Securities and Exchange Commission Industry Guide 7.

“Inner Mongolia Xintai” are to Inner Mongolia Xintai Coal Mining Company Limited, a company incorporated in the PRC that is a 80%-owned subsidiary of Ordos Neng Hua, which operates the Wenyu Coal Mine in Inner Mongolia Autonomous Region.

“Jiemei Wall Materials” are to Jining Jiemei New Wall Materials Co., Ltd., a limited liability company incorporated in the PRC.

“JORC Code” are to the Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia.

“LIBOR” are to the London Interbank Offered Rate.

“MEP” are to the Ministry of Environmental Protection of the PRC.

“MLR” are to the Ministry of Land and Resources of the PRC.

“MOFCOM” are to the Ministry of Commerce of the PRC.

“MOT” are to the Ministry of Transportation of the PRC.

“MRRT” are to the Minerals Resource Rent Tax, a tax on assessable profits generated from the extraction of coal and iron ore in Australia.

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

“NYSE” are to the New York Stock Exchange, Inc.

“Ordos Neng Hua” are to Yanzhou Coal Ordos Neng Hua Company Limited, a wholly owned subsidiary of the Company incorporated in the PRC that is principally engaged in the development of coal resources and the development of coal chemical business in the Inner Mongolia Autonomous Region.

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

“PRC government” are to the central, provincial or municipal government of the PRC.

“PRC Standards” are to the standards in the Solid Mineral Resource/Reserve Classification of the PRC (GB/T17766-1999).

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

“SAFE” are to the State Administration of Foreign Exchange of the PRC.

 

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“SASAC” are to the State-owned Assets Supervision and Administration Commission.

“SAT” are to the State Administration of Taxation of the PRC.

“SEC” are to the United States Securities and Exchange Commission.

“SERC” are to the State Electricity Regulatory Commission of the PRC.

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

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

“Shengyang Wood” are to Shandong Shengyang Wood Co., Ltd., a limited liability company incorporated in the PRC.

“Significant subsidiary” are to a significant subsidiary as defined in Rule 1-02 of Regulation S-X under the U.S. Securities Act of 1933.

“SSE” are to the Shanghai Stock Exchange.

“Tianhao Chemicals” are to Shanxi Tianhao Chemicals Company Limited, a 99.89%-owned subsidiary of Shanxi Nenghua and a Company incorporated in the PRC, which is principally engaged in the operation of a 100,000 tonne methanol project in Shanxi Province.

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

“Twelfth Five-Year Plan” are to the Twelfth Five-Year Plan (2011 to 2015) for National Economic and Social Development in the PRC.

“Yancoal Australia” are to Yancoal Australia Limited, an ASX-listed subsidiary of the Company incorporated in Australia that manages our investment projects in Australia, which is 78%-owned by the Company.

“Yancoal Canada” are to Yancoal Canada Resources Co., Ltd., a wholly owned subsidiary of the Company that manages our investment projects in Canada.

“Yancoal Resources” are to Yancoal Resources Limited, formerly known as Felix Resources Limited (“Felix”), a limited company incorporated under the laws of Australia and an indirect wholly owned subsidiary of Yancoal Australia, which mainly engages in coal mining, sales and exploration of coal.

“Yancoal International (Holding)” are to Yancoal International (Holding) Co., Limited, a wholly owned subsidiary of the Company.

“Yankuang Finance” is Yankuang Group Finance Company Limited, a joint venture established by the Yankuang Group, China Credit Trust Co., Ltd. and Yanzhou Coal Mining.

“Yankuang Group” or “Controlling Shareholder” are to Yankuang Group Corporation Limited (formerly known as Yanzhou Mining (Group) Corporation Limited), a wholly state-owned enterprise established in the PRC, and the Controlling Shareholder of our Company.

“Yulin Nenghua” are to Yanzhou Coal Yulin Nenghua Company Limited, a wholly owned subsidiary of the Company incorporated in the PRC, which is principally engaged in the operation of a 600,000-tonne methanol project in Shaanxi Province. Certain mining terms used in this annual report are defined in the “Glossary of Mining Terms”, which was included as Appendix B to our registration statement on Form F-l that we filed with the U.S. Securities and Exchange Commission. A copy of the “Glossary of Mining Terms” may be obtained upon written request to the Company.

 

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CONVENTIONS

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

Solely for your convenience, certain items in this annual report contain translations of Renminbi amounts into U.S. dollars, which have been made at the rate of RMB6.2046 to US$1.00, being the exchange rate as set forth in the H.10 weekly statistical release of the Board of Governors of the Federal Reserve System of the United States on December 31, 2014. All such translations in this annual report are provided solely for your convenience and no representation is made that the Renminbi amounts could have been or could be converted into U.S. dollars at that rate, or at all.

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

In this annual report, business taxes and surcharges have been reclassified as corresponding costs of each category of revenue to provide a more appropriate presentation. The same adjustments have been made to the corresponding prior year. The reclassification has no impact on our overall results. The attention of Shareholders and potential investors is drawn to such adjustments.

Coal resources and reserves are key elements in our Company’s investment decision-making process. The term “resources” describes a concentration or occurrence of material of intrinsic economic interest in or on the Earth’s crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge. The term “reserves” describes the recoverable quantity of coal that is commercially viable for development given the prevailing economic situation, particularly with respect to the prices of coal at the time of estimation. Reserves are estimated using a deterministic method, in which a single best estimate is made based on known geological, engineering and economic data, or a probabilistic method, in which known geological, engineering and economic data are used to generate a range of estimates and their associated probabilities. All coal reserves data are estimates, which are revised when additional information becomes available (for example, when additional coal mines commence operations or when actual coal production or extraction commences). “Proven reserves” refers to estimated quantities of coal that geological and engineering data demonstrate have reasonable certainty of being recovered in future years from known deposits under existing economic and operating conditions (that is, prices and costs at the date the estimate is made). “Probable reserves” refers to the estimated quantities of coal that geological and engineering data demonstrate have fair to good probability of being recovered in future years from known deposits under existing economic and operating conditions. To qualify as proven reserves, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the proven estimate. To qualify as probable reserves, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the proven plus probable estimate. Our total in-place proven and probable reserves are presented to include all mining and preparation losses that occur during the processing of coal after it is mined. Recoverable reserves refer to the amount of in-place proven and probable reserves but exclude all mining and preparation losses that occur during the processing of coal after it is mined. Our estimates of recoverable reserves are reported after deduction of actual production volume and nonaccessibe reserves up to December 31, 2014. Unless otherwise specified, coal reserves and resources are presented on a 100% basis.

A majority of our Company’s total estimated proven coal reserves are located in China and Australia. The coal reserves data in this annual report represent estimates of our Company that were calculated by its internal reserves system, which includes, among others, procedures for classifying and estimating reserves. Our Company believes that the methods it uses to estimate these reserves are consistent with definitions and classifications in Securities Act Industry Guide 7, the JORC Code and the PRC Standards, as applicable, to its PRC and Australian mines. Our Company’s internal geological team focuses on periodically estimating reserves information based on geological data obtained from various geological, geophysical and engineering studies. Estimates of net reserves are based on numerous assumptions and estimates relating to technical factors such as initial coal reserves, initial production rates, production decline rates, ultimate recovery of reserves, as well as commercial factors such as future coal prices, timing and amount of capital expenditures, and operating costs that may occur during the production life of the coal reserves.

Unless otherwise indicated, information regarding our Company’s coal production in this annual report refers to our Company’s share of production based on its percentage of equity interest in the relevant subsidiaries or coal mining projects.

 

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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 Data

The following table sets forth selected financial data as of and for the years ended December 31, 2010, 2011, 2012, 2013 and 2014. The selected income statement and cash flow data for the years ended December 31, 2012, 2013 and 2014 and the summary balance sheet data as of December 31, 2012, 2013 and 2014 have been derived from our audited consolidated financial statements included elsewhere in this annual report and should be read in conjunction with those financial statements and the accompanying notes. Unless otherwise indicated, the financial statements have been prepared and presented in accordance with IFRS, as issued by the IASB.

 

     As of and for the Year Ended December 31,  
     2010     2011     2012     2013     2014     2014  
     RMB     RMB     RMB     RMB     RMB     US$  
     (in millions except per Share and per ADS data)  

INCOME STATEMENT DATA

            

Total revenue1

     33,944.3        47,065.8        58,146.2        56,401.8        60,370.8        9,730.0   

Gross sales of coal

     32,590.9        45,181.2        56,200.6        54,444.8        58,539.4        9,434.8   

Railway transportation service income

     513.3        476.9        464.1        457.9        373.6        60.2   

Gross sales of electricity power

     185.5        328.0        323.6        332.1        241.5        38.9   

Gross sales of methanol

     629.3        1,059.3        1,118.0        1,155.7        1,195.5        192.7   

Gross sales of heat supply

     25.2        20.5        39.9        11.2        20.8        3.4   

Transportation costs of coal

     (1,160.5     (1,248.3     (2,104.2     (2,024.2     (2,291.6     (369.3

Cost of sales and service provided

     (16,801.3     (25,986.7     (42,149.0     (42,511.8     (49,557.5     (7,987.2

Cost of electricity power

     (195.5     (362.5     (330.8     (320.5     (159.7     (25.7

Cost of methanol

     (716.8     (930.2     (911.2     (850.8     (869.3     (140.1

Cost of heat supply

     (12.5     (13.8     (25.1     (6.7     (11.2     (1.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

  15,057.6      18,524.3      12, 625.8      10,687.8      7,481.4      1,205.9   

Selling, general and administrative expenses

  (5,093.4   (6,570.2   (7,987.6   (10,380.7   (6,069.9   (978.3

Share of profit of associates

  8.9      68.9      142.0      233.9      310.6      50.1   

Share of loss of jointly controlled entities

  0.5      —       (191.6   (376.0   (320.8   (51.7

Other income

  3,108.1      1,075.8      2,930.4      1,020.6      2,382.2      383.9   

Interest expense

  (603.3   (839.3   (1,448.7   (1,765.8   (2,183.6   (351.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income taxes

  12,477.3      12,259.5      6,070.4      (580.3   1,599.9      258.0   

Income taxes

  (3,171.0   (3,466.9   (36.2   394.8      (1,112.8   (179.4

Profit for the year

  9,306.3      8,792.5      6,034.2      (185.5   487.1      78.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to our equity holders

  9,281.4      8,745.1      6,065.6      777.4      766.2      123.5   

Earnings per Share

  1.89      1.78      1.23      0.16      0.16      0.03   

Earnings per ADS

  18.87      17.78      12.33      1.58      1.56      0.25   

Operating income per Share before income tax

  2.54      2.49      1.23      (0.12   0.33      0.05   

Profit from continuing operation per ADS before income tax

  25.37      24.93      12.34      (1.18   3.25      0.52   

CASH FLOW DATA

Net cash from operating activities

  5,399.8      17,977.3      6,503.6      (2,201.1   4,171.8      672.4   

Net cash from (used in) investing activities

  (5,884.4   (25,611.1   (3,187.4   (13,504.4   (8,534.8   (1,375.6

Net cash from (used in) financing activities

  1,360.5      9,441.1      1,145.1      13,286.9      8,692.2      (1,400.9

BALANCE SHEET DATA

Total current assets

  24,281.4      30,169.7      29,833.5      31,524.4      38,086.3      6,138.4   

Total current liabilities

  10,133.9      34,721.5      28,622.7      28,816.0      27,329.9      4,404.8   

Net current assets/(liabilities)

  14,147.5      (4,551.8   1,210.8      2,708.4      10,756.4      1,733.6   

Property, plant and equipment

  19,874.6      31,273.8      39,503.1      41,896.5      44,174.6      7,119.7   

Total assets

  72,755.9      96,890.2      122,165.1      127,458.2      133,098.1      21,451.5   

Long-term bank borrowing

  22,400.8      14,869.3      33,283.8      44,100.0      50,566.4      8,149.8   

Equity attributable to our equity holders

  37,331.9      42,451.5      45,530.0      40,378.7      38,725.8      6,241.5   

DIVIDEND PER SHARE

A and H Shares

  0.59      0.57      0.36      0.02      0.02      0.003   

ADS

  5.9      5.7      3.6      0.20      0.20      0.03   

 

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

Number of Shares Outstanding

 

     As of December 31,  
     2010      2011      2012      2013      2014  

A Shares

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

H Shares

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

ADS

     19,744,158         13,933,698         12,915,380         6,952,181         6,952,181   

Exchange Rate Information

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

 

Period

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

2010

     6.6000         6.7603         6.8330         6.6000   

2011

     6.2939         6.4475         6.6364         6.2939   

2012

     6.2301         6.3093         6.3449         6.2221   

2013

     6.0537         6.1412         6.2438         6.0537   

2014

     6.2046         6.1704         6.2591         6.0402   

October

     6.1142         6.1251         6.1385         6.1107   

November

     6.1429         6.1249         6.1429         6.1117   

December

     6.2046         6.1886         6.2256         6.1490   

2015

           

January

     6.2495         6.2181         6.2535         6.1870   

February

     6.2695         6.2518         6.2695         6.2399   

March

     6.2103         6.2422         6.2741         6.1955   

April (through April 10, 2015)

     6.2082         6.1989         6.2082         6.1930   

 

(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 April 10, 2015, the noon buying rate was US$1.00 = RMB6.2082.

 

B. Capitalization and Indebtedness

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

Not applicable.

 

D. Risk Factors

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

 

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Risks Relating to Our Business and Industry

Our business and profitability are affected by global economic conditions.

The coal industry depends on general economic conditions, including the conditions of global and local economies. In 2014, the economic recovery of certain developed countries have generally been muted or have slowed down, which has led to general market volatility and uncertainty about the prospects of future of global growth and investment. In addition, regional geopolitical turmoil in various countries has added uncertainty to the global economy. Meanwhile, China’s economic growth has generally slowed down due to excess production capacities in certain industries. The PRC government has implemented economic reform and sought to enhance economic growth methods, which includes energy conservation and environmental measures. However, to achieve certain energy-saving, emission-reduction as well as environmental protection goals, high energy consumption industries, such as coal industry and its downstream industries may be adversely affected, which may in turn materially and adversely affected our business, results of operations and financial condition.

Our business, results of operations and financial condition depend on volatile domestic and international coal markets.

Coal sales accounted for 96.7%, 96.5% and 97.0% of our revenues in 2012, 2013 and 2014, respectively, and we expect our coal sales to continue to account for a substantial portion of our revenue. As we derive a substantial portion of our revenue from sales of coal and coal-related products, our business and operating results depend heavily upon supply and demand for coal and coal-related products in the domestic and international coal markets. Accordingly, we are vulnerable to downturns in the demand for coal, increases in supply of coal through new or expanded coal production and declines in coal prices.

In 2014, as the global economy recovered slowly, which was affected by China’s slowing economic growth and weakness in domestic and overseas coal markets. International coal suppliers generally reduced production, while the PRC government introduced certain policies for coal companies. However, these measures were not considered fundamental changes to the adjust the growing imbalance between coal supply and demand. As such, coal prices general decreased, resulting in intensifying pressure on the overall coal industry in 2014. The average selling price of our coal products was RMB604.3, RMB523.5 and RMB475.6 per tonne in 2012, 2013 and 2014, respectively, representing a decrease of RMB47.9 per tonne from 2013 to 2014, which in turn had a direct adverse impact on our sales income. We cannot assure you that demand for and prices of coal will not further decline, the occurrence of which may adversely affect our business, results of operations and financial condition.

Global coal demand correlates strongly with the global economy and the performance of coal-consuming industries, including but not limited to the power generation, chemical, metallurgy and construction materials industries. In addition, the availability and prices of alternative energy sources to coal, as well as international shipping costs, also affect coal demand. Coal supply is primarily affected by the geographic location of coal reserves, transportation capacity, the level of domestic and international coal supplies and the type, quality and price of coal from various producers. Developments in the international coal market may adversely affect our overseas sales. The relaxation of global supply-demand structure of coal or reduction in demand for coal from key consuming industries, such as the PRC power generation industry, metallurgy industry and other related sectors, may decrease coal prices which, in turn, may significantly reduce our profitability and adversely affect our business, results of operations and financial condition.

We face risks associated with our sales contracts and strategic framework agreements, which may materially and adversely affect our business, results of operations and financial condition.

Sales of our coal produced in China are made primarily on the spot market or pursuant to strategic framework agreements and to a lesser extent, pursuant to sales contracts. Approximately 75% of sales of our coal produced in Australia are made pursuant to sales contracts. Our PRC sales contracts generally have terms of one year and specify the price, quantity and quality of coal and delivery schedule of coal. Our Australian sales contracts generally have terms of one year or less and specify the price, quantity and quality of coal and delivery schedule of coal. In 2013 and 2014, due to the volatile international coal markets, customers purchasing our coal produced in Australia generally entered into quarterly contracts with us. As such, if we experience a weak coal pricing environment that results in a decline in coal prices at the time of actual delivery, our revenue and profitability may be materially and adversely affected. In addition, our sales contracts are not automatically renewable. If we are not able to maintain our sales contracts with our major customers on terms commercially acceptable to us or at all, our business, results of operations and financial condition may be adversely affected.

In addition, the strategic framework agreements used in the sales of our coal produced in China generally only specify the quantity and quality of coal, while the purchase price is determined in the annual or monthly sales contracts we enter into under the strategic framework agreements. As a result, we are subject to market conditions at the time of actual delivery. Moreover, as letters of intent are not legally binding, customers entering into letters of intent with us are not obligated to purchase the agreed quantity of products, or any products at all. In addition, in accordance with industry practice, our customers do not enter into long-term contracts (those exceeding one year) with us. Therefore, we do not have long-term commitments from our customers to purchase our products, and our customers may reduce or stop purchasing products from us for various reasons, which may also materially and adversely affect our business, results of operations and financial condition.

 

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We derive a significant portion of our revenue from a limited number of customers, and the loss of, or a significant reduction in, sales to any of these customers could materially and adversely affect our business, results of operations and financial condition.

For the years ended December 31, 2012, 2013 and 2014, our top five customers accounted for 19.4%, 21.4% and 18.7% of our revenue, respectively, and sales to our largest customer accounted for 6.3%, 6.0% and 5.0% of our revenue, respectively. We expect that our results of operations will continue to depend on sales to a limited number of customers for the foreseeable future. We may not be able to rely on these customers for revenue generation in the future. We may lose these customers due to the intensified competition. See “— Competition in the PRC and the international coal industry is intensifying, and we may not be able to maintain our competitiveness.” We may also experience reduction, delay or cancellation of orders from one or more of our significant customers, and any decline in the businesses of our customers could also reduce their purchases of our products. The loss of sales to any of these customers could have a material adverse effect on our business, results of operations and financial condition.

We rely primarily on ports, highways and third party operated railway systems in the PRC and Australia to deliver our coal, any major disruption of which may adversely affect our business, results of operations and financial condition.

We rely primarily on highways and our own railway network, as well as third party operated railway system, to deliver coal to customers in China. We also deliver small volumes of coal through ports and canals. Coal resources and production in China are mainly located in northern and northwestern China, while coal consumption is primarily in eastern and southern China. As a result, coal suppliers must transport coal via third party operated railway systems from major supply areas to major demand areas. Although the PRC government has taken steps to upgrade and expand the railway system, the capacities of certain railway routes after even after an increase in capacity may not be sufficient to meet coal transportation demand in the short-term. Even though our domestic customers are mainly located in eastern China, where the railway system is more developed than other regions of China, our ability to deliver coal is still restricted by the transportation capacity. Pursuant to the Twelfth Five-Year Plan, the PRC government plans to construct several railways for coal transportation in cities in northern China and northwestern China, such as Shanxi Province, Shaanxi Province and the Inner Mongolia Autonomous Region. However, as it will take a significant amount of time for the relevant PRC authorities to grant approvals and permits and to complete the construction of the railway, we anticipate that we will continue to face challenges with respect to access to railway transportation. In addition to railway transportation, we use major coal shipping ports along the coast of China to deliver coal to customers located along the coastal regions of China. However, we may not be able to continue securing sufficient railway or port capacity to deliver our coal and may experience material delivery delays or substantial increases in transportation costs as a result of insufficient railway capacity.

In Australia, we rely substantially on third party operated railway networks to deliver coal to ports in New South Wales and Queensland, for onward shipping to our customers. We generally enter into transportation agreements with national and privately operated railway networks, rail haulage operators and ports to secure transportation capacity, generally for terms of five to ten years and generally on a “take or pay” basis. As the transportation capacity secured by these agreements is based on assumed production volume, we may not have sufficient capacity if our actual production volume exceeds our estimated production volume. Conversely, we may have excess transportation capacity (which, in the case of “take or pay” agreements, we will have to pay for even if unused) if our actual production volume is lower than our estimated production volume. In 2015, we expect the sluggish global economy will lead to weak demand for coal in both the PRC and overseas markets. We expect that global economic conditions will remain uncertain and international coal markets will not fundamentally improve in 2015, and as a result, we cannot assure you that we will fully use the transportation capacity secured on a “take or pay” basis. In addition, we may not be able to secure sufficient transportation capacity to deliver our coal in the future and may experience material delivery delays or substantial increases in transportation costs as a result of insufficient transportation capacity, which may also adversely affect our business, results of operations and financial condition.

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

We face competition in all aspects of our business, including pricing, production capacity, coal quality and specifications, transportation capacity, cost structure and brand recognition. Our coal business competes in the domestic and international markets with other large domestic and international coal producers. The ongoing consolidation in the PRC and Australian coal industry has increased the level of competition we face in our core business. In 2014, China continued to import a substantial amount of coal. Our competitors may have higher production capacities, stronger brand names and better financial, marketing, distribution and other resources than we do. We may not be able to maintain our competitiveness if changes or developments in the market weaken our existing competitive advantages. Efforts by our competitors to improve the quality of their coal may render obsolete or irrelevant any competitive advantage we have over them. Our failure to compete effectively may have a material adverse impact on our business, results of operations and financial condition.

 

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We may not be able to meet our capital expenditure requirements or secure additional external financing in the future.

Our business is capital intensive and will require substantial expenditures for, among other things, the construction of our key projects, machinery and equipment and operational capital expenditures. In 2012, 2013 and 2014, our total capital expenditures in respect of core coal business were approximately RMB20,809.2 million, RMB20,251.2 million and RMB7,489.4 million, respectively. In 2012, 2013 and 2014, our total capital expenditures in respect of acquisition of subsidiaries were approximately RMB10,882.2 million, RMB12,391.9 million and RMB 3,746.2 million, respectively. Our capital expenditures were made largely due to investment in our core coal businesses. We intend to use cash on hand, funds from operations and additional debt and equity financing to finance our capital expenditures going forward. However, we may not be able to obtain sufficient amounts of capital in a timely manner, on terms acceptable to us, or at all, which could result in a material adverse effect on our business, results of operations and financial condition.

In recent years, the size of our interest-bearing debt obligations has increased. In November and December 2013, we issued RMB denominated short term notes and non-public financing instruments in aggregate principal amounts of RMB6 billion. As of December 31, 2014, we had approximately RMB61,438.1 million in borrowings, of which approximately RMB10,871.7 million is due within a year and approximately RMB50,566.4 million is due after one year. In the first quarter of 2014, we issued RMB denominated short term notes in the aggregate principal amount of RMB5 billion. This level of debt could have significant consequences for our operations, including reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes as a result of our debt servicing obligations, limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, our industry and the general economy and potentially limiting our ability to obtain, or increasing the cost of, any additional financing. In addition, our business plans may change from time to time due to changing circumstances, new opportunities or unforeseen contingencies. If we change our business plans, we may need to obtain additional external financing which may include bank borrowings or issuances of debt securities to meet our capital expenditure plans. If we raise additional funds through debt financing, our interest and debt repayment obligations will increase and we may be subject to additional covenants that could limit our ability to access cash flows from operations. We may not be able to raise sufficient financing to fund our future capital expenditures and service our debt obligations or at all. Failure to obtain sufficient financing could cause delays or abandonment of business development plans and have a material adverse effect on our business, results of operations and financial condition.

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

Our coal reserve data are only estimates, which may differ materially from actual reserve amounts. There are inherent uncertainties in estimating reserves, which require the consideration of a number of factors, assumptions and variables, many of which may be beyond our control and cannot be ascertained despite due investigation. Our reserve estimates may change substantially if new information becomes available.

In addition, reserve data for certain of our PRC mines are estimated in accordance with Industry Guide 7 for proven and probable reserves and the JORC Code, as revised in 2004, for reserves. Reserve data for our Australian mines are typically estimated in accordance with the JORC Code, as revised in 2012. As the mining standards and mining terminology of the JORC Code may differ substantially from Industry Guide 7, our reserve data may materially vary when we compile and present such data. As such, our actual results of operations may differ materially from our long-term business and operational projections, which are based on our coal reserve estimates. We may adjust our coal reserve estimates downward in the future, and in such event, our long-term production and the useful lives of our mines may be materially and adversely affected.

Our business, results of operations and financial condition depend on in part our ability to continue developing or acquiring suitable coal reserves.

Coal reserves in existing mines decline as coal is produced. Due to limitations in significantly increasing our production capacity at existing mines, our ability to expand our coal production capacity depends on our development of coal reserves, as well as our projects under construction.

 

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We may not be able to successfully develop new coal mines or expand our existing ones in accordance with our development plans, or at all. Moreover, we may not be able to continue to identify suitable acquisition targets or acquire these targets on competitive terms, at an acceptable cost or in a timely manner. The acquisition of new mines by PRC coal companies, either within China or overseas, and the procurement of related licenses and permits are subject to PRC government approvals. Delays or failures in securing the required PRC government approvals, licenses or permits, as well as any adverse change in government policies, may hinder our expansion plans, which may materially and adversely affect our future profitability and growth prospects. In connection with overseas acquisitions and expansion, we may encounter challenges due to our unfamiliarity with local laws and regulations, and may suffer foreign exchange losses on overseas investments or face political or regulatory obstacles to acquisitions. As a result of these challenges, our overseas expansion plans and investments may not be successful and may not achieve our anticipated results. Failure to acquire suitable targets on competitive terms, develop new coal mines or expand our existing coal mines could have an adverse effect on our competitiveness and growth prospects.

We may experience difficulty integrating our acquisitions, which could result in a material adverse effect on our business, results of operations and financial condition.

We may from time to time expand our business through acquisitions of other coal mining companies, assets or other coal or mining-related businesses. We are devoting significant resources to the integration of our operations in order to achieve the anticipated synergies and benefits of the acquisitions and expansion.

Acquisitions and expansion involve uncertainties and a number of risks, including:

 

    difficulty in integrating the assets, operations and technologies of the acquired companies or assets, including their employees, corporate cultures, managerial systems, processes and procedures and management information systems and services;

 

    complying with the laws, regulations and policies applicable to the acquired businesses;

 

    failure to achieve the objectives or benefits, or to generate sufficient revenue to recover the costs and expenses, resulting from the acquisition and integration of such companies or assets;

 

    managing relationships with employees, customers and business partners during the course of integrating new businesses;

 

    integrating other acquired employee groups with our employee groups and on maintaining productive employee relations;

 

    attracting, training and motivating members of our management and workforce;

 

    accessing our capital resources and internally generated funds to fund acquisitions, which may divert financial resources otherwise available for other purposes;

 

    strengthening our operational, financial and management controls, particularly those of our newly acquired assets and subsidiaries, to maintain the reliability of our reporting processes;

 

    difficulty in exercising control and supervision over the newly acquired operations, including failure to implement and communicate our safety management procedures resulting in additional safety hazards and risks;

 

    potential ongoing financial obligations and unforeseen or hidden liabilities of the acquired companies or coal or potash-related businesses; and

 

    failure to diversify our operations to include new products or successfully manage our operations in new markets, such as potash.

In the event that we are unable to efficiently and effectively integrate newly acquired companies or coal or potash-related businesses into our Company, we may be unable to achieve the objectives or anticipated benefits of such acquisitions, which may adversely impact our business, results of operations and financial condition. In addition, we may have to write down the carrying value of the intangible assets associated with any acquired companies, which could adversely affect our earnings.

We may be required to allocate additional funds for land subsidence, restoration, rehabilitation and environmental protection.

Underground and surface mining may cause the land above mining sites to subside, or may otherwise adversely affect the environment. We may compensate inhabitants in areas surrounding our mining sites for their relocation expenses or for any property loss or damage as a result of our mining activities. PRC regulations require us to set aside provisions to cover the costs associated with land subsidence, restoration, rehabilitation and environmental protection. An estimated provision is deducted as a cost and expense item in our income statement based on the amount of coal actually extracted. In addition, under the relevant Australian environmental regulations, rehabilitation costs are generally estimated in accordance with the expected costs of land rehabilitation. These land rehabilitation costs may exceed current estimates. Environmental legislation may also change, which could result in mandated modifications to mining operations that are costly.

 

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In 2012, 2013 and 2014, we expensed approximately RMB1,450.6 million, RMB1,390.6 million and RMB1,225.4 million, respectively, of our provisions for land subsidence, restoration, rehabilitation and environmental protection as determined by our Directors based on estimations of various factors, including past occurrences of land subsidence. However, the provisions that we make are only estimates and may be adjusted to reflect the actual effects of our mining activities on the land above and surrounding our mining sites. Therefore, such estimates may not be accurate and land subsidence, restoration, rehabilitation and environmental costs may substantially increase in the future. Moreover, governments may impose new fees or change the basis of calculating compensation and reclamation costs in respect of land subsidence, the occurrence of any of which could increase our costs and have a material adverse effect on our business, results of operations and financial condition.

Our business and industry may be affected by the development of alternative energy sources and climate change.

We supply coal as fuel to, among others, the PRC thermal power generation industry and, as a result, are affected by the demand and growth of the PRC thermal power industry, which in turn is affected by the development of alternative energy sources, climate change and global environmental factors. If alternative combustion technologies develop and reduce the demand for coal in electricity generation, then demand for coal in the PRC thermal power generation industry may decrease, which would materially and adversely affect its demand for our products.

In addition, while the majority of global energy consumption is from conventional energy sources such as coal, alternative energy industries are rapidly developing and are gradually gaining widespread acceptance. Coal combustion generates significant greenhouse gas and other pollutants, and the effects of climate change resulting from global warming and increased pollution levels may provide incentives for governments to promote or invest in “green” energy technologies such as wind, solar, nuclear and biomass power plants, or to reduce their consumption of conventional energy sources such as coal. The Plan for Strategic Action of Energy Development (2014-2020), promulgated by the PRC government on June 7, 2014, requires total primary energy consumption by 2020 should be limited to approximately 4.8 billion tonnes, and total coal consumption should be limited to approximately 4.2 billion tonnes. By 2020, consumption of non-fossil fuel energy should account for 15% of total primary energy consumption, and consumption of coal should account for less than 62% of total primary energy consumption. As such, alternative energy industries may rapidly develop and gradually gain mainstream acceptance in the PRC and the rest of the world. If alternative energy technologies continue to develop and prove suitable for wide commercial application in the PRC and overseas, demand for conventional energy sources such as coal could gradually be reduced, which would have a material adverse effect on the coal mining industry and, consequently, our business, results of operations and financial condition. See “— Our business, results of operations and financial condition may be adversely affected by present or future environmental regulations.”

Exploration of mineral properties and development of resources could involve significant uncertainties.

We currently have exploration projects in Australia and Canada and we may have additional exploration projects in the PRC and other countries and regions in the future. The success of any mining exploration program depends on various factors including, among other things, whether mineral bodies can be located and whether the locations of mineral bodies are economically viable to mine. In addition, the development of these resources could face significant uncertainties. It can take several years and would require capital expenditures from the initial exploration phase until production commences, during which time market fundamentals, capital costs and economic feasibility may change, and the actual results may differ from those anticipated by third party independent technical studies. Furthermore, there are a number of uncertainties inherent in the development and expansion of mining operations, including: (i) the availability and timing of necessary governmental permits, licenses and approvals; (ii) the timing and cost necessary to construct mining and processing facilities; (iii) the availability and cost of labor, utilities, and supplies; (iv) the accessibility of transportation and other infrastructure; and (v) the availability of funds to finance construction and production activities. As a result, we cannot assure you that any of our exploration activities will result in the discovery of valuable resources or reserves, or that reported resources can be converted into reserves in the future.

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

We face risks relating to fluctuations in exchange rates for RMB against other currencies, primarily the Australian dollar and the U.S. dollar. China has adopted a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand with reference to a basket of currencies. In April 2012, the PRC government further enlarged the trading band. In this regard, the PBOC has allowed the Renminbi to rise or fall 1% against the U.S. dollar from the daily central parity rate, effective April 16, 2012, compared with its previous 0.5% limit. Subsequently, the PRC government further enlarged this trading band from 1% to 2% in March 2014, effective March 17, 2014. In the first quarter of 2015, the PRC government enacted certain measures that enabled the RMB exchange rate to float more freely at an appropriate and balanced level. We are primarily affected by exchange rate fluctuations that arise from our export sales denominated in Australian dollars and U.S. dollars, which may affect the RMB values of such export sales. In addition, exchange rate fluctuations can result in exchange losses on our foreign currency deposits and loans and other indebtedness. As of December 31, 2014, the exchange rate for the Australian dollar against the U.S. dollar was US$1.00 = A$0.8173, compared with US$1.00 = A$0.8929 as of December 31, 2013. We recorded an exchange loss of RMB1,686.0 million for the year ended December 31, 2013 and an exchange gain of RMB154.0 million for the year ended December 31, 2014, respectively. Exchange rate fluctuations can affect our cost of imported equipment and components. See “Item 3. — Key Information — A. Selective Financial Data — Exchange Rate Information.”

 

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On April 9, 2013, with the authorization of the PBOC, the China Foreign Exchange Trade System (CFETS) launched direct trading between Renminbi and Australian dollar on the inter-bank foreign exchange market, which is based on the direct exchange rate between the two currencies. We expect that this will help lower the currency conversion costs between the two currencies. However, we cannot assure you that the new policy will decrease our currency conversion costs. The conversion costs we realized in the previous trading scheme, which used U.S. dollars, may be lower, reflecting that the U.S. dollar is more liquid than the Australian dollar.

We are exposed to cash flow interest rate risk in relation to variable-rate bank balances, term deposits, restricted cash and variable rate borrowings. Our interest rate risk primarily arises from fluctuations in the PBOC benchmark interest rate in relation to our RMB-denominated borrowings, and fluctuations in the LIBOR rate in relation to our U.S. dollar-denominated borrowings. As of December 31, 2014, we had approximately US$5.8 billion of borrowings denominated in U.S. dollars and RMB 26 billion of borrowings denominated in RMB. A substantial majority of our borrowings denominated in RMB are linked to the benchmark lending rate published by the PBOC, which is subject to fluctuations as the PRC government adjusts interest rates and related policies from time to time as a matter of national economic policy.

In addition, a substantial majority of our borrowings denominated in U.S. dollars are linked to floating LIBOR rates, the fluctuation of which are beyond our control. Our lending rates may increase in the future as a result of reasons beyond our control, and may result in an adverse effect on our business, results of operations and financial condition.

As a part of our risk management efforts, we entered into forward foreign exchange contracts to sell or purchase specified amounts of foreign currencies in the future at stipulated exchange rates. The objective of entering into the forward foreign exchange contracts is to reduce our exposure to foreign exchange rate related volatility, which may affect the presentation of our revenues and capital expenditures. To hedge the exchange losses of USD loan arising from the fluctuation of foreign exchange, Yancoal Australia and Yancoal International have taken foreign exchange hedging measures to such debt on the accounting basis, which mitigated the impact of exchange loss on the current profit. We also entered into contracts with three banks to hedge a proportion of our borrowings issued at variable interest rates through the use of floating-to-fixed interest rate swap contracts. As of December 31, 2014, this interest rate hedging contract expired and we did not enter into any new interest rate hedging contracts. As of December 31, 2014, the fair value of our derivative assets in respect of our forward foreign exchange contracts was RMB0.4 million , compared with the fair value liability of our forward foreign exchange contracts of approximately RMB80.9 million. See “Item 11. Quantitative and Qualitative Disclosures of Market Risks.” In addition, our Australian subsidiaries’ USD bank loan repayments in a six-month period are structured to hedge against forecasted USD sales during the same period. However, despite our risk management efforts, our hedging arrangements may not be effective in all situations, and our business, results of operations and financial condition may be materially and adversely affected by fluctuations in exchange rates or interest rates.

Our business, results of operations and financial condition are subject to resource taxes and we may not be able to pass on our increased costs relating to resource taxes to our customers.

Pursuant to the Notice of Adjustment of Resource Tax in Shandong Province, jointly issued by the Provincial Department of Finance and local tax authority of Shandong, since December 1, 2014, the collection basis of resource tax in Shandong province has been changed from volumes into prices and the amount of business tax has been changed from RMB3.60 per tonne into 4% of the taxable sales of coal. Pursuant to the Notice of the Reformation Implementation of Coal Resource Tax in Shanxi Province, jointly issued by the Provincial Department of Finance and local tax authority of Shandong, as of December 1, 2014, the collection basis of resource tax in Shanxi Province has been modified to take into account prices, and business tax amounts have been changed from RMB3.20 per tonne to 8% of the taxable sales of coal. Pursuant to the Announcement of Applicable Coal Resource Tax Rate of Inner Mongolia, as of December 1, 2014, the collection basis of resource tax in Inner Mongolia has been modified to take into account prices, and the amount of business tax has been changed from RMB3.20 per tonne to 9% of the taxable sales of coal.

For resource taxes that are paid based on volume, we and our domestic subsidiaries pay resource tax on the actual sales of the sum of raw coal and washed coal products, multiplied by the applicable tax rate. For resource tax that are paid based on price, we and our domestic subsidiaries pay resource tax on the total taxable sales, multiplied by the applicable tax rate. As a result of these changes, if the tax based on pricing is significantly higher than our current tax, our costs will increase, which could have a material adverse effect on our business, results of operations and financial condition. In addition, the Australian MRRT became effective as of July 1, 2012. The MRRT is a profits-based tax that is charged at an effective rate of 22.5% on the assessable profits (excess of annual mining revenue over annual mining expenditures with respect to mineral interests, less certain allowances) of, among others, coal mining enterprises. On October 24, 2013, the Australian government announced that it will seek to repeal the MRRT with effect from July 1, 2014. We cannot predict whether the MRRT will be successfully repealed. The MRRT has the potential to increase the overall tax liability of our Australian subsidiaries and adversely affect our results of operations and financial condition in the future.

 

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Our Controlling Shareholder has significant influence over us.

As of December 31, 2014, our Controlling Shareholder, the Yankuang Group, together with its wholly owned subsidiary, owned 56.52% (52.86% A share and 3.66% H share) of our outstanding shares and has significant influence over us. The Company entered into a special labor and service supply agreement in March 2014 and renewed five continuing connected transaction agreements with Yankuang Group, namely a materials supply agreement, a supply of labor and services agreement, a pension fund management agreement, a coal products and materials supply and equipment lease agreement and an electricity and heat energy supply agreement in the ordinary course of business in October 2014. In March of 2014 and 2015, the Company renewed a financial services agreement with Yankuang Group, respectively. In addition, on March 27, 2015, the Company entered into a coal train escort services agreement with Shandong Yankuang Security Services Co., Ltd., a wholly owned subsidiary of the Company. These related party transactions were reviewed and approved according to the procedures under relevant regulations and standards of the HKSE, SSE, NYSE and SEC. However, we may continue to enter into related party transactions with Yankuang Group and, as such, any material financial or operational developments experienced by the Yankuang Group that lead to the disruption of its operations or impairs its ability to perform its obligations under the agreements could materially affect our business, results of operations and financial condition and future prospects.

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

 

    mergers or other business combinations;

 

    the acquisition or disposition of assets;

 

    the issuance of additional shares or other debt or equity securities; and

 

    management of our Company.

Accordingly, our Controlling Shareholder may vote, take other actions or make decisions that conflict with our interests or the interests of our other security holders.

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

Our coal operations in China are subject to extensive regulation by the PRC government. National governmental authorities, such as the National Development and Reform Commission of the PRC (the “NDRC”), the MEP, the MLR, the State Administration of Coal Mine Safety of the PRC (“SACMS”), the State Administration of Work Safety of the PRC (the “SAWS”), the National Energy Administration of the PRC and the SAT, as well as corresponding provincial and local authorities and agencies, exercise extensive control over the mining and transportation (including rail, sea and river transport) of coal within China. Our operations in Australia are subject to similar laws and regulations of general application governing mining and processing, land tenure and use, environmental requirements, including site-specific environmental licenses, permits and statutory authorizations, workplace health and safety, trade and export, competition, access to infrastructure, foreign investment and taxation. These regulations may be implemented by various federal, state and local government departments and authorities including the Department of Industry and the Department of Environment. Regulatory oversight from these authorities and agencies may affect the following aspects of our operations, among others:

 

    the use and granting of mining rights;

 

    access to land for mining and mining-related purposes;

 

    exploration licenses;

 

    rehabilitation of mining sites and surrounding areas;

 

    mining recovery rates;

 

    pricing of our transportation services for coal in China;

 

    taxes, levies and fees on our business;

 

    return on investments;

 

    application of capital investments;

 

    pension fund contributions;

 

    technological innovations;

 

    preferential tax treatment;

 

    environmental and safety standards; and

 

    MRRT and carbon tax for Australian operations.

 

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As a result of the foregoing regulation, our ability to execute our business strategies or to carry out or expand our business operations may be restricted. We are still in the process of obtaining or renewing some of the regulatory approvals, permits and licenses required for our business operations, and may experience substantial delays in obtaining such regulatory approvals, permits and licenses.

Our business may also be adversely affected by future changes in PRC or Australian regulations and policies that affect the coal industry. The adoption of new legislation or regulations or the new interpretation of existing legislation or regulations or changes in conditions attaching to approvals may materially and adversely affect our operations, our tax costs and cost structure or product demand. The occurrence of any of the foregoing may cause us to substantially change our existing operations, incur significant compliance costs and increase the risk of our future investment or prevent us from carrying out mining operations, which could have a material adverse effect on the profitability of our operations in Australia and our overall business, results of operations and financial condition. See “— Our business, results of operations and financial condition may be adversely affected by present or future environmental regulations” and “— Our business, results of operations and financial condition are subject to resource taxes and we may not be able to pass on our increased costs relating to resource taxes to our customers.”

Our business, results of operations and financial condition may be adversely affected by present or future environmental regulations.

Our coal mining operations produce waste water, gas emissions and solid waste materials. In addition, surface mining operations also produce noise pollution. As a PRC and Australian coal producer, we are subject to extensive and increasingly stringent environmental protection laws and regulations. These laws and regulations:

 

    impose fees and limits on the discharge of waste substances to air, water and land, including carbon emissions;

 

    require provisions for land reclamation and rehabilitation;

 

    impose fines and other penalties for serious environmental offenses;

 

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

 

    establish the conditions (including environmental requirements) for domestic mining operations.

Due to the increasing awareness of environmental issues, the PRC government has tightened its enforcement of applicable laws and regulations and adopted more stringent environmental standards, such as the Working Plan for the Control of Discharge of Greenhouse Gases under the Twelfth Five-Year Plan, the Twelfth Five-Year Plan for Environmental Protection and the Twelfth Five-Year Plan for Energy-saving and Emission-reduction, pursuant to which China plans to continue to increase the proportion of non-fossil fuels used as an overall primary energy source to 11.4% by 2015 and reduce the proportion of coal used as an overall primary energy source. On September 10, 2013, the State Council issued the Action Plan for Prevention and Control of Atmospheric Pollution (the “Action Plan”), pursuant to which the PRC government plans to reduce the coal consumption to less than 65% of total energy consumption by 2017. On April 24, 2014, the Standing Committee of National People’s Congress passed the Amended Environmental Protection Law, pursuant to which, effective January 1, 2015, more responsibility has been imposed on local governments and unlimited fines will be imposed on polluters. Similarly, our Australian operations are subject to Australia’s stringent federal and state environmental laws and regulations. Compliance with laws and involvement in litigation can be expensive, lengthy and disruptive to normal business operations. Moreover, Australian environmental approval processes require a technical environmental assessment to be prepared prior to granting approval, as well as public consultation. Community groups may lobby for more restrictive conditions to be imposed on approvals granted or for the approval to be declined, either of which may result in a material adverse effect on our business and results of operations.

In September 2014, the NDRC issued the State Plan of Responding to the Climate Change (2014-2020), which requires the carbon emission per unit of gross domestic product (GDP) of the PRC to decrease by 40% to 45% from 2005 to 2020; the percentage of non-fossil energy among the primary energy to decrease to approximately 15%; and the carbon emission per unit of industrial added value of the PRC to decrease by 50% from 2005 to 2020. In addition, the PRC government plans to reduce the coal consumption growth in certain key areas such as Beijing-Tianjin-Hebei metropolitan region, Yangtze River Delta and Pearl River Delta by increasing the consumption of electricity generated outside the region and using non-fossil fuel energy such as natural gas as alternative energy.

For our operations in Australia and Canada, we are required to renew some major supervisory approvals, permits and certificates from time to time. We are currently applying for certain supervisory approvals, permits and certificates for our mines.

If efforts to increase energy efficiency, control greenhouse gas emissions and enhance environmental protection result in a decrease in coal consumption, our revenue may decrease and our business may be adversely affected. In addition, our budgeted amount for environmental regulatory compliance may not be sufficient, and we may need to allocate additional funds for this purpose. If we fail to comply with current or future environmental laws and regulations, we may be required to pay penalties or fines or take corrective actions, any of which may have a material adverse effect on our business, results of operations and financial condition.

 

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We may not be able to obtain all necessary approvals, permits and licenses.

Pursuant to applicable laws and regulations in China, we are required to renew approvals, permits and licenses with respect to our exploration activities, mining operations and environmental protection for our existing operational mines and obtain more approvals, permits and licenses for our development-stage or exploration projects such as Zhuanlongwan, Shilawusu, Yingpanhao and Wanfu. In addition, we are required to obtain or maintain land use rights certificates and building ownership certificates for property we own or lease properties from owners possess valid land use rights certificates or building ownership certificates.

With respect to our operations in Australia and Canada, we are also required to obtain and renew from time to time a number of material regulatory approvals, permits and license. We are in the process of obtaining or renewing certain regulatory approvals, permits and licenses for our coal mines, such as the open-pit and underground project at Moolarben Coal Mine and the Southeast open-pit project at Ashton Coal Mine. As of the date of this annual report, we have obtained the approval of the Southeast open-pit project at Ashton Coal Mine, which requires the acquisition of a certain property from a private individual prior to the commencement of development.

If any of these or our other mining licenses, safety production licenses, environmental authorities or other certificates, approvals or permits are revoked, not renewed or not obtained, we could be required to cease operations of the affected mine or production facility. The loss of some or all of our mining licenses, coal production licenses, safety production licenses, environmental authorities or other certificates, approvals or permits may have a material adverse effect on our business, results of operations and financial condition.

Our ability to operate effectively could be impaired if we lose key personnel, including mine planners, or if we are unable to attract and retain skilled and qualified personnel.

In the conduct of our operations, we rely substantially on the services of our key employees with professional skills, qualifications and experience, including mine planners. We may not be able to continue to employ our key personnel or attract and retain skilled and qualified personnel and the loss of any of these personnel could materially and adversely affect our operations.

As our business expands, we believe our success will depend on our continued ability to attract and retain skilled and qualified personnel familiar with internationalized operation. Any difficulty in attracting, recruiting, training and retaining skilled and qualified personnel could materially and adversely affect our business, results of operations and financial condition.

Our operations may be affected by uncertain mining conditions and we may suffer losses resulting from mining safety incidents.

Our coal mines and operating facilities may be damaged by water, gas, fire or cave-ins due to unstable geological structures, which may affect the safety of our workforce as well as our costs of producing coal, including without limitation, roof collapses, deterioration in the quality or variations in the thickness of coal seams, mine water discharge and flooding, inclement weather, explosions from methane gas or coal dust, ground falls and other mining hazards. For example, an underground incident occurred at Austar Coal Mine on April 15, 2014 and two employees died. Additionally, we are exposed to operational risks associated with industrial or engineering activities, such as maintenance problems or equipment failures. Although we conduct geological assessments on mining conditions and adapt our mining plans to the mining conditions at each mine, adverse mining conditions may endanger our workforce, increase our production costs, reduce our coal output or temporarily suspend our operations. Although we have implemented safety measures at our mining sites, trained our employees on occupational safety and maintain liability insurance for personal injuries as well as limited property damage for certain of our operations, safety incidents may occur. The occurrence of any of the foregoing events or conditions would have a material adverse impact on our business, results of operations and financial condition.

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

We entered the PRC methanol market and commenced production of coal-based methanol at Tianhao Chemicals and Yulin Nenghua in September 2008 and August 2009, respectively. In 2012, 2013 and 2014, we generated revenue of RMB1,117.9 million, RMB1,155.7 million and RMB1,195.5 million from sales of methanol, respectively, which represented 1.9%, 2.0% and 2.0% of our total revenue for the same periods, respectively. However, we ceased production of coal-based methanol at Tianhao Chemicals in April 2012 due to the shortage of raw materials and are in the process of disposing of its methanol assets.

The methanol business is a cyclical and competitive commodity industry with rapidly changing supply and demand fundamentals. In addition, there is currently significant overcapacity in the methanol industry, which is not expected to change, and the market demand of methanol is not expected to grow significantly in the short term.

 

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We expect our methanol prices to be affected by a number of factors, including, without limitation:

 

    global and domestic methanol production;

 

    global energy prices;

 

    methanol plant utilization rates, capacity expansions and shutdowns;

 

    global economic conditions;

 

    compliance costs and environmental risks; and

 

    competition from low-cost methanol producers.

As of the end of 2014, we had a total annual methanol production capacity of 0.6 million tonnes. In addition, we have completed the construction of a 600,000-tonne methanol project in Ordos City, Inner Mongolia Autonomous Region, which has became commercially operational in the first half of 2015. We may not be able to optimize the utilization of our new facilities as planned. If our projections for the domestic methanol market prove incorrect or if we are unable to otherwise compete effectively, we may not recover the capital and resources we have invested in our methanol operations and may not realize the intended benefits of our expansion into this industry. In either event, our business, results of operations and financial condition will be adversely affected.

Our insurance will not cover all the potential risks associated with our operations.

Our business is subject to a number of risks and hazards generally, including adverse environmental conditions, industrial accidents, labor disputes, unusual or unexpected geological conditions, ground or slope failures, changes in regulatory environment and natural phenomena such as inclement weather conditions, floods, earthquakes and fires. Such occurrences could result in damage to mineral properties or production facilities, personal injury or death, environmental damage to our properties or properties of others, delays in development or mining, monetary losses and possible legal liability. Customary to what we believe to be industry practice, we have maintained insurance to protect against certain risks in such amounts we consider to be reasonable. However, our insurance may not cover all potential risks associated with our operations. We may also be unable to maintain insurance to cover these risks at economically feasible premiums and may not be able to pass on any increased costs relating to insurance to our customers. If such costs exceed the levels which we expect, there could be a material adverse effect on our business, results of operations and financial condition.

We may not be able to protect our patents or other intellectual property rights, which could have a material adverse effect on our business.

From 2012 to 2014, we completed 511 technology improvement projects, obtained 143 patents and received 368 technological awards, which have enhanced our coal mining and related business operations. Further, we own other intellectual property such as trademarks and know how. We believe our patents and other intellectual property rights are important to our success. Existing laws in China offer limited protection for our intellectual property rights. We rely upon a combination of patents, confidentiality policies and agreements, nondisclosure and other contractual arrangements to protect our intellectual property rights. We cannot assure you that we will be able to detect any unauthorized use of, or take appropriate, adequate and timely actions to enforce, our intellectual property rights. Consequently, we may not be able to effectively prevent unauthorized use of our patents in other countries where such patents are not registered.

The measures we take to protect our intellectual property rights may not be adequate, and monitoring and preventing unauthorized use is difficult. The protection of our intellectual property may be compromised as a result of (i) expiration of the protection period of our registered intellectual property rights, (ii) infringement by others of our intellectual property rights; and (iii) refusal by relevant regulatory authorities to approve our pending patent applications. Furthermore, the application of laws governing intellectual property rights in China and abroad is uncertain and evolving, and could involve substantial risks to us. If we are unable to adequately protect our intellectual property rights, our reputation may be negatively impacted and our business may be materially and adversely affected.

The audit report included in this annual report is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection.

Auditors of companies that are registered with the SEC and traded publicly in the United States, including our independent registered public accounting firm, must be registered with the United States Public Company Accounting Oversight Board (the “PCAOB”) and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards in connection with their audits of financial statements filed with the SEC. Because we have substantial operations within the Peoples’ Republic of China and the PCAOB is currently unable to conduct inspections of the work of our auditors as it relates to those operations without the approval of the Chinese authorities, our auditor’s work related to our operations in China is not currently inspected by the PCAOB.

 

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This lack of PCAOB inspections of audit work performed in China prevents the PCAOB from regularly evaluating the audits performed by Grant Thornton and its quality control procedures. As a result, investors are deprived of the full benefits of PCAOB inspections of auditors.

The inability of the PCAOB to conduct inspections of audit work performed in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures as compared to auditors in other jurisdictions that are subject to PCAOB inspections on all of their work. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

Proceedings instituted recently by the SEC against five PRC-based accounting firms could result in our financial statements being determined to not be in compliance with the requirements of the Exchange Act.

The SEC has recently brought administrative proceedings against five accounting firms in China, alleging that they had refused to produce audit work papers and other documents related to certain other China-based companies under investigation by the SEC for potential accounting fraud. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting firms and suspending four of the five firms from practicing before the SEC for a period of six months. The decision is neither final nor legally effective unless and until reviewed and approved by the SEC. The sanction will not become effective until after a full appeal process is concluded and a final decision is issued by the SEC. The four firms which are subject to the six month suspension from practicing before the SEC have recently appealed the initial administrative law decision to the SEC. We were not and are not subject to any SEC investigations, nor are we involved in the proceedings brought by the SEC against the accounting firms. In addition, our independent registered public accounting firm has no relationship with any one of the four accounting firms subject to the six month suspension from practicing before the SEC in the initial administrative law decision. However, we cannot assure you that our independent registered public accounting firm will not be investigated or be subject to similar suspension in the future and we may therefore be adversely affected by the outcome of such proceedings, along with other U.S.-listed companies audited by these accounting firms.

On May 24, 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC and MOFCOM, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations in the United States and China. In February 2015, each of the four accounting firms agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The firms’ ability to continue to serve all their respective clients is not affected by the settlement. The settlement requires the firms to follow detailed procedures to seek to provide the SEC with access to Chinese firms’ audit documents via the CSRC. If the firms do not follow these procedures, the SEC could impose penalties such as suspensions, or it could restart the administrative proceedings. The settlement did not require the firms to admit to any violation of law and preserves the firms’ legal defenses in the event the administrative proceeding is restarted.

In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our ADSs may be adversely affected.

Risks Relating to the PRC

Changes in China’s economic, political and social conditions as well as governmental policies could affect our business, results of operations and financial condition.

China’s economy differs from the economies of more developed countries in many respects, including the structure of the economy, level of government involvement, level of development, growth rate, control of capital investment, control of foreign currency and allocation of resources. China’s economy has been in transition from a planned economy to a more market-oriented economy. For the past three decades, the PRC government authorities have implemented economic reform measures to emphasize market forces in economic development. The PRC government authorities implement various macroeconomic and other policies and measures from time to time, including contractionary and expansionary policies and measures at times of, or in anticipation of, changes in China’s economic conditions. Economic reform measures, however, may be adjusted, modified or applied inconsistently from industry to industry or across different regions of the country. We cannot predict whether changes in the PRC’s political, economic and social conditions, laws, regulations and policies will have any adverse effect on our current or future business, results of operations and financial condition.

 

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Interpretation of PRC laws and regulations involves uncertainty.

The PRC legal system is a civil law system based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, due to the fact that these laws and regulations have not been fully developed, and because of the limited volume of published cases and the non-binding nature of prior court decisions, interpretation of PRC laws and regulations involves a degree of uncertainty. Under certain circumstances, some of these laws may be changed without being immediately published or may be amended with retroactive effect. We cannot predict the effect of future developments in the PRC legal system, particularly with regard to the coal mining industry in China, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of our resources and management attention.

Government control of currency conversion and future movements in exchange rates may adversely affect our business, results of operations and financial condition.

A portion of our Renminbi revenue may need to be converted into other currencies to meet our substantial requirements for foreign currencies, including debt service on foreign currency denominated debt, overseas acquisitions of mining properties, purchases of imported equipment, and payment of dividends declared in respect of shares held by international investors.

Foreign exchange transactions under the capital account, including principal payments with respect to foreign currency denominated obligations, are subject to the approval requirements of SAFE. In addition, the value of Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. Fluctuations in the exchange rate of the Renminbi against the U.S. dollar, the Australian dollar and certain other foreign currencies may adversely affect our business, results of operations and financial condition. For further information, please see “Item 11. Quantitative and Qualitative Disclosures of Market Risks — Foreign Currency Exchange Rate Risk.”

Our subsidiaries are subject to restrictions on the payment of dividends to us.

The ability of our subsidiaries to pay dividends to their shareholders is subject to, among other things, distributable earnings and restrictions contained in the articles of association of our subsidiaries, restrictions contained in the debt instruments and the requirements of PRC laws and regulations. For example, certain loan agreements of our subsidiaries contain covenants that limit their ability to pay dividends to us if there is a default in such loan agreements, or unless certain thresholds are satisfied or, in certain cases, limit their ability to pay dividends to us if their after-tax profits are nil or negative. PRC laws and regulations permit payment of dividends only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. Such profits differ from profits determined in accordance with IFRS in certain significant respects, including the use of different bases of recognition of expenses. Our PRC subsidiaries are also required to set aside a portion of their after-tax profits according to PRC accounting standards and regulations to fund certain reserves that are not distributable as such dividends.

Risks Relating to Australia

Coal mining operations in Australia have inherent title risks associated with renewal and native title rights.

Interests in tenements in Australia are governed by the respective State and Territory legislation and are evidenced by the granting of licenses or leases. Each license or lease is for a specific term and carries with it annual expenditure and reporting commitments, as well as other conditions requiring compliance. Consequently, we could lose title to or our interest in tenements if license or lease conditions are not met or if insufficient funds are available to meet expenditure commitments.

It is also possible that, in relation to tenements which we have an interest in or will in the future acquire, there may be areas over which legitimate native title rights of Aboriginal Australians exist. If native title rights do exist, our ability to gain access to tenements (through obtaining consent of any relevant landowner), or to progress from the exploration phase to the development and mining phases of operations, may be adversely affected. The tenements in which we have an interest are subject to applications for renewal. There is a risk that these applications will not be granted or transfers not approved.

 

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All of the granted tenements in which we have or may earn an interest in will be subject to applications for renewal or grant (as the case may be). The renewal or grant of each tenement or license is usually at the discretion of the relevant government authority which will consider various factors, including our compliance with any conditions placed on an existing license, when making its decisions. It is possible that the government authority may reject our applications for renewal or grant, in which case, our operations in Australia may be adversely affected.

Additionally, tenements are subject to a number of specific legislative conditions including payment of rent and meeting minimum annual expenditure and reporting commitments. Our inability to meet these conditions could affect the standing of a tenement or restrict its ability to be renewed. If a tenement is not renewed, we may suffer significant damage through loss of the opportunity to discover and/or develop any mineral resources on that tenement.

Coal mining operations in Australia are subject to certain domestic operational risks.

Our coal mining operations in Australia are subject to certain domestic operational risks, which include the following.

Land access. The granting of mining tenure does not remove the need to enter into land access arrangements with third party land holders (where the land underlying the mining tenure is owned by a third party). In some cases, the underlying land may be owned by a competitor, pastoralist or other third parties. In addition, elements of the agricultural industry and other groups are opposed to the future development of land for mining or mining-related purposes. These groups are actively lobbying the relevant government entities or seeking public support in an effort to limit the amount of land available for mining, and to make access arrangements for mines more difficult.

Coordination agreements. Coal mining tenure in Australia is frequently granted over land over which coal seam gas tenure has or may be granted. Where coal mining and coal seam gas tenures overlap, it is necessary for the coal miner and coal seam gas producer to enter into a coordination agreement. Where overlapping tenure exists, mining operations cannot commence without a coordination agreement. In some cases, the interests of the coal miner and coal seam gas producer may not be aligned and accordingly, mining operations may be delayed or adversely affected.

Environmental conditions and action groups. Before any mining tenure is granted in Australia, it is required that a comprehensive public environmental assessment on the impact of the proposed mining operations be undertaken. Such an assessment involves a public consultation process, which often involves encountering organized environmental or community groups that seek to restrict or block contemplated mining operations. Generally, where environmental approvals are granted, conditions are frequently imposed that materially affect mining operations.

 

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ITEM 4. INFORMATION ON THE COMPANY

 

A. History and Development of our Company

Overview

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

In 1999, the Minister of Foreign Trade and Economic Cooperation, the predecessor of the MOFCOM, approved our conversion into a Sino-foreign joint stock company with limited liability under the Company Law and the Sino-Foreign Joint Venture Law of the PRC.

Our contact information is:

 

Business address : 298 South Fushan Road
Zoucheng, Shandong Province
People’s Republic of China (273500)
Telephone number : (86) 537 538 2319
Website : http://www.yanzhoucoal.com.cn
(the contents of our website do not form part of this annual report)

Acquisitions

Acquisition of Equity Interest in Haosheng Company

As approved at the general manager working meeting of the Company held on November 24, 2014, the Company signed the Equity Transfer Agreement of Haosheng Company and Coal Resources Transfer Agreement of Inner Mongolia Shilawusu Coal Field (collectively, the “Equity Transfer and Resource Transfer Agreements”) to acquire 11.59% of the equity interest in Haosheng Company and corresponding 150 million tonnes of coal resources in Shilawusu coal field previously held by Inner Mongolia New Yangtze River Mining Investment Co., LTD. (“New Yangtze River Mining”), for the total consideration of RMB885.9 million.

To support the highly-purified aluminum project (with an annual production of 42,000 tonnes) of New Yangtze River Mining, Inner Mongolia Autonomous Region allocated 150 million tonnes of coal resources in Shilawusu coal field. As approved by a shareholders’ meeting of Haosheng Company, New Yangtze River Mining contributed RMB137.4 million to subscribe for 11.6% of equity interests of Haosheng Company through equity capital increase. After the equity capital increase, the equity interest of Yanzhou Coal in Haosheng Company would decrease from 74.8% to 66.2%. According to the Equity Transfer and Resource Transfer Agreements, New Yangtze River Mining will transfer 11.6% of equity interests in Haosheng Company and 150 million tones of coal resources allocated to it to Yanzhou Coal. After this transfer, the equity interest of Yanzhou Coal in Haosheng Company will be increased to 77.8%. The acquisition price is RMB885.9 million, representing 26.3% of the Group’s audited total profit of RMB3,366.2 million of 2014 calculated in accordance with CASs. As of the date of the annual report, the filing and approval procedures of above acquisition are being implemented.

Acquisition of 10% Equity Interests of Ashton Coal Mines Limited

On September 30, 2014, Yancoal Australia invested AUD17.9 million to acquire 10% of the equity interest in Ashton Coal Mines Limited held by ICRA Ashton Pty Ltd. through its wholly owned subsidiary. After the acquisition, Ashton Coal Mines Limited became a wholly-owned subsidiary of Yancoal Australia.

Financing Activities

As approved at the 2013 annual general meeting of our Company held on May 14, 2014, our Group was authorized to carry out domestic and overseas financing activities of an aggregate amount not exceeding RMB30 billion. On September 29, 2014, the Equity Investment Special Asset Management Planning Contract of Yanzhou Coal was entered into between the Company and ICBC Credit Suisse Investment Management Co., Ltd. (“ICBC Credit Suisse Investment”), which stipulated that the Equity Investment Special Asset Management Plan of Yanzhou Coal will be established through ICBC Credit Suisse Investment to raise RMB1.4 billion, with 46.7% equity of Heze Neng Hua held by Yanzhou Coal.

 

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Table of Contents

Acquisition of 5% Equity Interests of Ordos South Railway Co., Ltd.

Haosheng Company proposed to invest RMB147.4 million to acquire 5% of the equity interest of Ordos South Railway Co., Ltd. (“South Railway”) previously held by Ejin Horo Banner State-Owned Operation Co., Ltd. Haosheng Company contributed RMB100.7 million to South Railway, which was established in September 2010 with a registered capital of RMB2.948 billion, and whose business scope includes railways transportation, railway construction, facilities transportation, repair and manufacturing, storage services, transportation and handling, passenger and freight station services, logistics and mechanical equipment procurement and supply and marketing. The largest shareholder of South Railway, Hohhot Railway Bureau, holds 45% of South Railway’s equity interests. There are two railway lines under the administration of South Railway: (i) starting from Xinjie to Engealu to Taolimiao with a total length of 175 kilometers; and (ii) starting from Alimiao to Etukeqian Banner to Shanghaimiao, with a total length of 190 kilometers.

Subscription of the Placing Shares of Qilu Bank Co., Ltd

As reviewed and approved at the sixth meeting of the sixth session of the Board held on December 23, 2014, it was approved to subscribe for up to RMB246.2 million placing shares in Qilu Bank at the offering price of RMB3.18 per share. As of the date of this annual report, related procedures for subscription have being performed by Qilu Bank Co., Ltd.

Save as disclosed above, there was no other asset acquisition, sales and mergers during the reporting period.

The Offering of RMB Denominated Short Term Notes, Corporate Bonds, USD Denominated Perpetual Securities and Debt Financing Notes through Private Placement Notes

Pursuant to approval granted at the 2012 annual general meeting, we completed the issuance of RMB5 billion short term notes due March 14, 2015, which bore interest of 5.95% on March 12, 2014.

Pursuant to approval granted at the 2012 first extraordinary general meeting of held on February 8, 2012 and the acceptance of registration notices Zhengjianxuke [2012] No. 592, we completed the second issuance of RMB1.95 billion and RMB3.05 billion corporate bonds due March 3, 2019 and March 3, 2024, respectively, bearing interest rate of 5.92% and 6.15% on March 6, 2014, respectively. The corporate bonds were listed in SSE on March 31, 2014.

Pursuant to approval granted at the 2012 annual general meeting, Yancoal International Trading completed issuance of USD perpetual securities of USD300 million bearing an interest rate of 7.2% on May 15, 2014. The perpetual securities were listed on Hong Kong Stock Exchange. The proceeds will be used for debt repayment and repleshiment of working capital of overseas subsidiaries. As of December 31, 2014, USD220 million of net proceeds had been used.

Pursuant to the approvals granted at the 2012 annual general meeting and the 2013 annual general meeting, we completed the first and second issuance of debt financing notes through private placement on September 19, 2014 and November 17, 2014, respectively with issue price of RMB100/par value RMB100 and total net proceeds of RMB1.5 billion and RMB998.5 million, respectively. As of December 31, 2014, all of the net proceeds raised in the private placements have been used for working capital purposes.

Capital Expenditures

Our principal source of cash in 2014 was cash generated from our operating activities, the offering of RMB denominated short term notes and non-public issuance of financing instruments and bank borrowings. Our capital expenditures in 2014 were primarily for operational capital expenditures, purchase of properties, machinery and equipment, payment of dividends, and consideration paid for our acquisitions of assets and equity interests.

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

 

     Year Ended December 31,  
     2012      2013      2014      2014  
     RMB      RMB      RMB      US$  
     (in millions)  

Capital Expenditure

           

Coal mining

     19,170.1         18,709.6         5,296.6         853.7   

Coal railway transportation

     33.8         22.3         5.0         0.8   

Electricity power and methanol

     1,605.3         1,519.2         2,096.3         337.9   

Corporate

     0.1         0.04         91.5         14.7   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  20,809.2      20,251.2      7,489.4      1,207.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

 

Note: Capital expenditures include those arising from the acquisition of equity interest in Ashton Coal Mines Limited.

Our planned capital expenditures for 2015 are approximately RMB9,686.6 million. For more information, see “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources — Capital Expenditures” in this annual report.

Potential Takeovers by Third Parties

There were no indications of any public takeover offers by third parties in respect of our common shares in 2014.

 

B. Business Overview

We are one of the largest coal producers in China and Australia, with rapidly growing coal mining operations. We primarily engage in the mining, washing, processing and distribution of coal through railway transportation. We offer a wide variety of coal products including thermal coal, semi-hard coking coal, semi-soft coking coal, PCI coal and other mixed coal products which are sold to power plants, metallurgical mills, chemical manufacturers, construction material manufacturers and fuel trading companies in China and other countries, including Japan and South Korea. Since 2004, we have expanded and diversified our operations to include the production of coal chemicals and the generation of electricity and heat. We also commenced our potash exploration business in 2011.

We were established in 1997 and listed on the SSE, HKSE and NYSE in 1998. In addition, our subsidiary, Yancoal Australia, was listed on the ASX in 2012. Our revenue was RMB58,146.2 million, RMB56,401.8 million and RMB60,370.8 million in 2012, 2013 and 2014, respectively.

As of December 31, 2014, we were 52.86% directly owned by our parent, the Yankuang Group, which is wholly owned by the Shandong Provincial Government under the control of the SASAC of the Shandong Provincial Government. Yankuang Group’s wholly owned subsidiary incorporated in Hong Kong owned 3.66% of our total share capital. Yankuang Group and its wholly owned subsidiary incorporated in Hong Kong together owned 56.52% of our total share capital. The Yankuang Group was founded in 1973 to focus on coal mining and sales, the coal chemical industry, power generation, aluminum production, machinery manufacturing and financial investments.

As of December 31, 2014, we owned and operated 21 coal mines across China and Australia with abundant coal resources, including Shandong and Shanxi Provinces and the Inner Mongolia Autonomous Region in China, as well as Queensland, New South Wales and Western Australia in Australia. In addition, as of December 31, 2014, we had four coal projects under construction in China and four advanced-exploration stage projects in Australia.

In PRC, we directly own and operate eight coal mines in the PRC, namely, Nantun, Xinglongzhuang, Baodian, Dongtan, Jining II, Jining III, Beisu and Yangcun which produced in the aggregate approximately 50.2% of our total coal output in 2014. As of December 31, 2014, these eight mines had approximately 3,503.3 million recoverable reserves. We also hold equity interests in a number of coal mines in China through our subsidiaries. Shanxi Nenghua operates Tianchi Coal Mine, which holds approximately 117.0 million tonnes of recoverable reserves; Heze Nenghua operates Zhaolou Coal Mine, which holds approximately 408.8 million tonnes of recoverable reserves; and Ordos Neng Hua operates Anyuan Coal Mine and Wenyu Coal Mine.

 

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Table of Contents

The map below shows the approximate locations of our coal mines and projects in China.

 

 

LOGO

In Australia, we conduct our operations in Australia primarily through our subsidiaries, Yancoal Australia and Yancoal International (Holding). Yancoal Australia currently operates nine coal mines in Australia including Austar, Yarrabee, Ashton, Moolarben, Gloucester, Donaldson, Middlemount, Cameby Downs and Premier which collectively held approximately 5.0 billion tonnes of JORC (as revised in 2012) compliant reserves as of December 31, 2014. Yancoal Australia also holds an advanced-exploration stage project, Monash. Yancoal International (Holding) currently owns the advanced-exploration stage projects Athena, Harrybrandt and Wilpeena. In addition, we had a number of exploration tenements in Australia with potential for development projects as of December 31, 2014.

 

26


Table of Contents

The map below shows the approximate locations of our coal mines and projects in Australia.

 

 

LOGO

 

27


Table of Contents

Coal Business

We are primarily engaged in the production of coal, which involves the mining, washing, processing and distribution of coal. Our products consist primarily of thermal coal, semi-soft coking coal, semi-hard coking coal, PCI coal and other mixed coal products which are suitable for power generation and metallurgical production. The following table sets forth the specifications and principal applications of our coal products.

 

    

Sulfur
Content

  

Range of and Average Ash
Content

  

Calorific Value

  

Washed

  

Principal

Applications

     %    %   

(megajoule/

kilogram)

         
The Company               
No. 1 clean coal    0.48    7.01-8, average 7.70    28.04    Yes   

High quality

metallurgical

production

No. 2 clean coal    0.54    8.01-9, average 8.41    27.88    Yes   

Metallurgical

production,

construction, liquid

coal production

No. 3 clean coal    0.53    10.01-11, average 10.26    26.87    Yes   

Electricity generation

and coal chemical

production

Lump coal    0.52    10.01-14, average 12.28    27.54    Yes   

Construction, power

generation, coal for

oven application

Mixed coal    0.98    19.01-35, average 27.58    20.55    Yes    Power generation
Shanxi Nenghua               
Screened raw coal    2.17    20.01-36, average 27.46    23.71    No    Power generation
Lump coal    1.32    10.01-14, average 11.54    29.15    Yes   

Power generation,

construction

Heze Nenghua               
No. 2 clean coal    0.63    8.01-9, average 8.50    29.15    Yes   

Metallurgical

production,

construction

Mixed coal    0.95    28.01-35, average 28.71    20.46    Yes    Power generation
Ordos Nenghua               
Screened raw coal    0.73    8.01-24, average 15.30    21.45    No    Power generation
Yancoal Australia               
Semi-hard coking coal    1.30    5.5    25.36    Yes   

Metallurgical

production

Semi-soft coking coal    0.70    6-12    16.24    Yes   

Metallurgical

production,

construction

PCI coal    0.69    9.5-10.5    30.86    Yes   

Metallurgical

production

Thermal coal    0.60    10-16    24.98    No    Power generation

 

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Table of Contents

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

 

     Year Ended December 31,  
     2012      2013      2014  
     Sales volume
(‘000 tonnes)
     Sales income(1)
(RMB
in millions)
     Sales volume
(‘000 tonnes)
     Sales income(1)
(RMB
in millions)
     Sales volume
(‘000 tonnes)
     Sales income(1)
(RMB in
millions)
 

The Company

     32,809         20,572.1         33,271         17,793.3         34,748         15,286.8   

No. 1 clean coal

     385         353.0         315         240.9         325         194.9   

No. 2 clean coal

     9,042         8,039.5         9,725         7,196.4         9,060         5,225.6   

No. 3 clean coal

     2,540         1,829.1         1,926         1,138.6         4,979         2,364.7   

Lump coal

     1,245         1,112.9         1,448         969.4         2,262         1,177.7   

Screened raw coal

     14,176         7,189.1         12,693         5,858.4         10,605         4,206.2   

Mixed coal and others

     5,421         2,048.6         7,164         2,389.5         7,517         2,117.6   

Shanxi Nenghua

     1,343         469.5         1,476         416.7         1,500         316.1   

Screened raw coal

     1,343         469.5         1,476         416.7         1,500         316.1   

Heze Nenghua

     2,292         1,662.5         2,359         1,435.6         3,110         1,634.7   

No. 2 clean coal

     1,183         1,234.4         1,293         1,097.5         2,021         1,316.6   

Screened raw coal

     —          —          —          —          21         16.2   

Mixed coal and others

     1,109         428.1         1,066         338.1         1,068         302.0   

Ordos Neng Hua

     6,827         1,619.7         6,345         1,195.1         5,793         944.4   

Screened raw coal

     6,827         1,619.7         6,345         1,195.1         5,793         944.4   

Yancoal Australia

     14,350         9,296.0         15,623         8,961.9         15,742         7,300.8   

Semi-hard coking coal

     506         377.4         1,361         893.6         973         509.4   

Semi-soft coking coal

     1,124         1,048.1         1,595         1,122.1         1,470         800.8   

PCI coal

     2,056         1,917.6         3,274         2,304.9         3,280         1,739.5   

Thermal coal

     10,664         5,952.9         9,393         4,641.2         10,019         4,251.1   

Yancoal International (Holding)

     2,965         994.3         5,525         1,681.5         5,158         1,482.9   

Thermal coal

     2,965         994.3         5,525         1,681.5         5,158         1,482.9   

Externally purchased coal

     32,421         21,586.5         39,396         22,960.8         57,024         31,573.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  93,007      56,200.6      103,995      54,444.8      123,075      58,539.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Sales income comprises the invoiced amount of coal sold net of returns and discounts.

 

29


Table of Contents

Sales and Marketing

A significant portion of our PRC domestic sales is made on the spot market or pursuant to strategic framework agreements, while the remainder of our coal sales is made pursuant to sales contracts generally for a term not exceeding one year. These strategic framework agreements generally specify the quantity of the coal to be purchased. Prices for strategic framework agreements are generally determined in the annual sales contracts or monthly sales contracts which we enter under the strategic framework agreements.

We sell the majority of our domestic coal products to power plants, metallurgical mills, coking manufacturers, chemical manufacturers and trading companies with whom we have established long-standing and stable relationships. The majority of the coal sales of our Australian subsidiary, Yancoal Australia, are to power plants and metallurgical mills. The following table sets forth a breakdown of our sales income, which represents the invoiced amount of products sold net of returns and discounts of coal by the industry of our customers for the periods indicated. For the purposes of the table below, the figures of sales income include inter-segment sales.

 

     Year Ended December 31,  
     2012      2013      2014  
     Sales income(1)      % of
Sales income
     Sales income(1)      % of
Sales income
     Sales income(1)      % of
Sales income
 
    

(RMB

in millions)

           

(RMB

in millions)

           

(RMB

in millions)

        

Power plants

     8,012.7         14.2         10,432.9         19.2         8,606.5         14.7   

Metallurgical mills

     4,902.7         8.7         4,950.7         9.1         3,902.3         6.7   

Chemical manufacturers

     6,830.0         12.2         5,010.9         9.2         4,669.4         8.0   

Trade

     24,341.1         43.3         22,933.2         42.1         38,618.0         66.0   

Others

     12,114.1         21.6         11,117.1         20.4         2,743.2         4.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  56,200.6      100.0      54,444.8      100.0      58,539.4      100.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Sales income comprises the invoiced amount of coal sold net of returns and discounts.

The following table sets forth a breakdown of sales income of coal by geographical region for the periods indicated. For the purposes of the table below, the figures of sales income include inter-segment sales.

 

     Year Ended December 31,  
     2012      2013      2014  
     Sales income(1)      % of
sales income
     Sales income(1)      % of sales
income
     Sales income(1)      % of
sales income
 
    

(RMB

in millions)

           

(RMB

in millions)

           

(RMB

in millions)

        

China

     46,580.7         82.9         45,317.5         83.2         51,454.8         87.9   

Eastern China

     42,616.2         75.8         39,268.7         72.1         44,511.9         76.0   

Southern China

     76.1         0.1         139.7         0.3         192.1         0.3   

Northern China

     2,957.6         5.3         2,981.3         5.5         2,610.6         4.5   

Other regions

     930.9         1.7         2,927.8         5.4         4,140.2         7.1   

Japan

     1,770.5         3.2         1,225.7         2.3         1,217.3         2.1   

South Korea

     2,394.2         4.3         2,164.4         4.0         2,121.4         3.6   

Australia

     2,297.6         4.1         2,130.6         3.9         1,211.9         2.1   

Others

     3,157.6         5.6         3,606.6         6.6         2,534.0         4.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  56,200.6      100.0      54,444.8      100.0      58,539.4      100.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Sales income comprises the invoiced amount of coal sold net of returns and discounts.

 

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Table of Contents

Our domestic coal sales are concentrated primarily in Eastern China, particularly in Shandong and, to a lesser extent, in Southern China. Our sales income, which represents the invoiced amount of products sold net of returns and discounts, generated from Eastern China as a percentage of total sales income was 75.8%,72.1% and 76.0% in 2012, 2013 and 2014, respectively. The majority of our sales income is in the PRC. In 2012, 2013 and 2014, we generated 82.0%,83.2% and 81.9%, respectively, of our sales income from the PRC.

The following table sets forth a breakdown of export sales of our Company and Yancoal Australia for the periods indicated.

 

     Year Ended December 31,  
     2012      2013      2014  
     Sales income(1)      % of
sales income
     Sales income(1)      % of
sales income
     Sales
income(1)
     % of
sales income
 
    

(RMB

in millions)

           

(RMB

in millions)

           

(RMB

in millions)

        

The Company

                 

Japan

     7.4         0.1         1.1         0.1         6.4         0.1   

Our Australian subsidiaries

                 

South Korea

     2,394.2         29.9         2,164.4         25.4         2,121.4         28.0   

Japan

     1,770.5         22.1         1,225.7         14.4         1,217.3         16.0   

China

     670.4         8.4         1,516.0         17.8         1,331.9         17.6   

Others

     3,157.6         39.5         3,606.6         42.3         2,901.2         38.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  8,000.1      100.0      8,513.8      100.0      7,578.2      100.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Sales income comprises the invoiced amount of coal sold net of returns and discounts.

Export sales, excluding the coal sales in Australia by our Australian subsidiaries, represent only a small percentage of our total coal sales income. In 2012, 2013 and 2014, we generated 14.2%,15.6% and 12.9%, respectively, of our sales income from export sales. Our major overseas markets include South Korea and Japan. The majority of our overseas customers are located in Asia, and South Korea is our biggest market in this region. Even though we conduct all of our export sales from the PRC through export agents, we maintain close relationships with our overseas customers and end users.

In 2012, 2013 and 2014, our Australian subsidiaries’ domestic sales income was 22.3%, 20.0% and 13.8%, respectively, of their total sales income and in these same years their export sales income was 77.7%, 80.0% and 86.2%, respectively, of their total sales income. Our Australian subsidiaries’ export sales income represented 99.9%, 99.9% and 99.9% of our total export sales income in 2012, 2012 and 2014, respectively. Our Australian subsidiaries primarily conduct their export sales directly by entering into agreements with end user customers. Our Australian subsidiaries also export a small portion of coal through export agents with which our Australian subsidiaries have established longstanding relationships. The primary destinations for the export sales of our Australian subsidiaries are South Korea, Japan and China.

To meet our customers’ demand beyond the current capacity of our domestic coal mines, and to maintain and expand our customer base to support our anticipated capacity expansion by our advanced-exploration stage coal mines, we also purchase coal from other coal mining companies and trading companies and sell it to power plants, metallurgical mills and construction material manufacturers with whom we have established stable relationships. Purchases and sales of externally purchased coal are made pursuant to sales contracts. These sales contracts generally specify major terms such as the type of the coal, quantity and quality of the coal, price, delivery and payment methods. Prices for such contracts are generally determined in accordance with the market price.

Customers

As of December 31, 2014, our major customers include Yankuang Group, Jiangsu Tianyu Energy Co., Ltd, Huadian International, Linyi Yehua Coking Ltd. and Noble Resources Limited, among which Yankuang Group was our largest customer. In 2012, 2013 and 2014, sales to our top five largest customers accounted for 19.4%, 21.4% and 18.7% of our sales income, respectively. In 2012, 2013 and 2014, sales to our largest customer accounted for 6.3%, 6.0% and 5.0%, respectively, of our sales income.

 

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Table of Contents

Leveraging the high quality of our products and the strength of our brand, we have established long-term relationships with our customers. We make significant efforts to establish and maintain long-term cooperative relationships with our customers, and in particular, with our strategic and key customers. We have annual evaluations of our customers to identify key customers. To maintain the relationships with our key customers, we generally provide favorable price terms and product delivery priority. Our sales and marketing department conducts routine customer visits and customer surveys to keep abreast of market developments, collect and evaluate customers’ responses, maintain customer relationships and continually improve our business. In addition, we closely monitor the market information about China, South Korea, Japan and other regions, which we use for business planning and execution.

We have a flexible credit policy, and the credit terms we grant to our customers may vary from customer to customer depending on each customer’s creditworthiness, historical relationship with the Company and the credit amount involved. We may allow open accounts, require acceptance bills or require cash on delivery. We rely on data from our enterprise resource planning system to determine the appropriate payment arrangement and credit terms for each customer, which generally do not exceed 90 days. We evaluate the creditworthiness of potential new customers before entering into a sales contract with them and reassess the creditworthiness of all of our customers on an annual basis. For customers without a strong credit history, we require them to settle their accounts upon delivery.

Pricing

The pricing for our coal products sold in the PRC is generally based on negotiations between the contracting parties that reflect market conditions. For our Australian operations, the pricing of our coal products is dependent on negotiations between the contracting parties, as well as prevailing market prices. There are no statutory price control schemes for coal in Australia. In both our PRC and Australian markets, to price our coal products, we consider the prevailing prices in the relevant local coal markets, the grade and quality of the coal, the rating and scale of the purchaser and our relationship with the purchaser. Our sales and marketing department monitors domestic and international market information, enabling us to keep abreast of pricing developments in our principal markets.

Transportation

Most of our major coal customers are located in eastern China and our remaining domestic customers are located in southern and northern China. We deliver coal to our customers primarily by railways, and also by highways. With our private railway network, we are able to connect to the national railway system or deliver coal directly to Zouxian Power Plant. We also deliver our coal by domestic and international shipping routes.

We also ship coal on the national railway system to ports, such as Rizhao, for delivery to customers. Rizhao Port is our main port for shipping coal. We also use the Beijing-Hangzhou Grand Canal to ship coal on barges to customers located in the area serviced by the canal, primarily Jiangsu and Zhejiang. In Shanxi, we rely on the Yangshe Railway, which intersects the Tianchi Coal Mine, and trucks to deliver coal to Hebei, Shandong, Qinhuangdao and other nearby areas. We rely on the Baoshen Railway and trucks to deliver coal from Anyuan Coal Mine and Wenyu Coal Mine to Hebei and the surrounding areas.

We plan to construct a privately operated railway to connect Zhaolou Coal Mine with the national railway system. Before completing the construction, we will continue to rely on trucks to deliver coal from Zhaolou Coal Mine to the national railway and customers.

We transport Yancoal Australia’s coal products to Newcastle Port and Gladstone Port in Australia at our cost using third parties’ railway networks. These coal products are then exported to South Korea, Japan and other destinations by sea. Yancoal Australia owns a 27.0% interest in Newcastle Infrastructure Group (“NCIG”), a joint venture responsible for constructing and operating the third export terminal at Newcastle Port, which is the largest coal export port in New South Wales, and has a designed annual port capacity of 63.0 million tonnes through NCIG’s facility. Yancoal Australia also had an annual port capacity of 28.0 million tonnes at Newcastle Port in 2014 through a facility owned by Port Warratah Coal Services (“PWCS”) pursuant to an agreement between Yancoal Australia and PWCS and is entitled to 11.9 million tonnes from 2015. In addition, Yancoal Australia owns a 5.6% interest in Wiggins Island Coal Export Terminal Holdings Pty Limited, which is the parent company of the developer of the Wiggins Island Coal Export Terminal. Yancoal Australia has been allocated an annual port capacity of 1.5 million tonnes when the phrase 1 is completed in 2015. We believe these allocated port capacities will support current export sales.

Mining process

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

 

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PRC underground mining operations

Our PRC underground mining operations consist of four main steps: tunneling, coal extraction, transportation and coal preparation. The tunneling process is necessary for the construction of underground roadways, which are required for the installation of mining equipment. We conduct a majority of our tunneling using high-powered headers and use this method whenever geological conditions permit. The extraction process is undertaken by a standardized and fully mechanized longwall operation, which includes shearers that work in conjunction with conveyers to cut and transport the coal away from the longwall work face.

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

After raw coal is carried to the surface, it undergoes a mechanized selection process that separates coal from other mineral materials. A small portion of such selected coal is directly sold to customers as raw coal, and the remainder is transported to our coal preparation plants for further processing and classification to meet different requirements from our customers.

We employ the same mining operations in Anyuan and Wenyu Coal Mines except for the use of conveyers to transport the coal from the inclined shaft instead of shaft in our other PRC mines.

Australian open-pit mining operations

The open-pit mining process in Australia involves the removal of topsoil and overburden (earth and rock covering the coal), tunneling and extraction of coal from coal seams. The extracted coal undergoes selection and is then transported to treatment facilities for preparation. After coal is removed, we restore the affected land by replacing the overburden and topsoil.

Australian mining operations

With respect to underground mines in our Yancoal Australia mining operations, we conduct continuous tunneling, longwall operations and coal extraction by the fully mechanized caving method. Open-pit mining is used when coal is found relatively close to the surface, which is the same as our domestic open-pit mining operations.

Materials, Water and Energy Supply

PRC mining operations

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

We use a significant amount of electricity in our operations. Even though we have not experienced any material disruptions in our electricity supply in the past, we acquired Hua Ju Energy to secure a stable supply of energy for Nantun, Xinglongzhuang, Baodian, Dongtan, Jining II, Jining III, Beisu and Yangcun Coal Mines and to reduce our electricity costs.

Australian mining operations

Similar to our domestic coal mining and preparation operations, the primary materials we use in our Australian mining operations are steel, cement, explosives and water. We procure such materials primarily from local suppliers with which we have established long-standing relationships, and are able to procure sufficient materials for our mining and preparation operations.

 

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Competition

PRC mining operations

Our primary market, the PRC domestic coal market, is characterized by numerous small-scale coal suppliers. Although the PRC coal market is segmented principally by geographic regions due to the wide distribution of coal reserves, the domestic market in China is dominated by a number of large-scale coal producers. We compete principally on the basis of the availability and cost of transportation, coal quality and timely deliveries.

Our PRC competitors primarily include a number of coal mines located in Shanxi, Shaanxi and Inner Mongolia. Certain of our competitors from these regions have substantial reserves and favorable geological conditions. However, these competitors incur significant transportation costs when they supply to their end-user customers located in eastern China. In addition to coal mines located in Shanxi, Shaanxi Provinces and Inner Mongolia Autonomous Region, we also compete with local mines located in close proximity to our customers. In addition, we expect to face increasingly intense competition among coal mining enterprises due to a significant increase in the amount of coal exported to China and as the number of large-scale coal producers increase as the result of ongoing coal industry consolidation. Although we have strengths in the quality of our coal product and our sales network, we may not be able to compete effectively with Shandong Energy in this region. Our failure to compete effectively may in turn materially and adversely affect our results of operations.

Australian mining operations

We primarily compete with several large coal mining enterprises in Australia, including BHP Billiton, GlencoreXstrata, Rio Tinto, Anglo American and Peabody Energy Australia. Given that we mainly export our coal production in Australia to other Asian countries, particularly South Korea and Japan, we also compete with other mining enterprises located in China, Indonesia and Inner Mongolia, some of which are located in close proximity to our customers. Some of our competitors are large mining companies with a longer operating history, greater financial resources, stronger brand recognition and greater economies of scale as compared to our Company. However, we believe we are able to maintain our competitiveness through our cost-saving and capacity-expanding operations as well as our marketing of combined products.

Seasonality

Our coal business is not affected by seasonality.

Quality control

We have implemented a quality assurance program at each of our PRC coal mines to control quality throughout our coal operations from production to transportation. To further improve our coal preparation and control quality, we established a coal preparation management center in Shandong, in October 2013, to manage our preparation plants. In addition, our quality inspection division within our sales and marketing department conducts spot inspections on our coal production to maintain high quality standards.

Each of Nantun, Xinglongzhuang, Baodian, Dongtan, Jining II, Jining III, Beisu, Yangcun, Zhaolou and Tianchi Coal Mines has obtained the Quality/Environmental Management/Occupational Health and Safety Certificate.

Each of Nantun, Baodian, Dongtan, Jining II, Jining III Coal Mines has obtained Measurement Management System AAA certificate. We have been awarded a National Quality Management Award, a China Quality Tripod and an Asia-Pacific International Quality Gold Medal. In addition, we were awarded the Quality Excellence Award (Asian Recognition for Excellent in Quality Practice) by the Asian Network for Quality in 2012, which made us the only Chinese coal company which has ever won this prize.

Yancoal Australia has engaged Bureau Veritas, Societe Generale De Surveillance and ALS Laboratory Group to supervise and inspect the quality of the coal produced from the respective mines in Australia to ensure quality control and advise on quality improvement measures. In March 2015, we became the only company in the PRC coal industry to be recognized with the “China Quality and Credibility Commitment” designation.

Safety control

In our PRC operations, we have implemented a safety control program to achieve the targets set in our internal guidelines for safety and risk control management and to maintain compliance with the PRC Coal Industry Law and the National Mining Safety Law in China. In Australia, our operations in New South Wales comply with the Coal Mine Health and Safety Act 2002 (NSW) and Occupational Health and Safety Act 2011 (NSW), our operations in Queensland comply with the Occupational Health and Safety Act 2011 (QLD) and Coal Mining Safety and Health Act 1999 (QLD) and our operations in West Australia comply with the Coal Mine Safety and Inspection Act 1994 (WA) and Occupational Health and Safety Act 1984 (WA).

 

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

As a result of our safety control program, we have been able to maintain a zero fatality rate in our PRC operations since 2007 compared with the national average of 0.257 fatalities per million tonnes of coal produced in 2014, according to the State Administration of Work Safety of the PRC. In 2014, we produced approximately 46.9 million tonnes of coal in our PRC operations and did not experience any production accidents that involved serious work injuries or death. We have been continuously reviewing and evaluating our safety control and performance in Australia. With respect to our Australian operations in 2014, our lost time injury frequency rate, measured as the number of lost time injuries per million man-hours worked, was 2.7 for open-pit mines and 17.2 for underground mines. On April 15, 2014, an underground incident occurred at Austar Coal Mine and two employees died. The investigation by the Mine Safety Office of the NSW Department of Trade and Investment, Regional Infrastructure and Services (“DTIRIS”) to determine the cause of the incident is currently ongoing. As of the date of this annual report, the cause of the incident has not been determined and we are working with the DTIRIS investigators.

Environmental protection

We are subject to PRC environmental protection laws and regulations which impose fees for the discharge of waste substances and require the payment of fines for serious pollution. PRC regulations also authorize government agencies to close any facility that fails to comply with orders to cease, or bring into compliance with relevant laws and regulations, operations that cause environmental damage. In addition, the operations of Yancoal Australia must comply with relevant Australian environmental protection laws and regulations. In 2014, we incurred expenses related to environmental protection of RMB50.1 million .

Railway Transportation Business

In addition to transporting coal to support our own operations, we also provide railway transportation services to our customers, including the Yankuang Group, for fees. In 2014, we transported 16.56 million tonnes of coal on our railway network, representing a decrease of 1.69 million tonnes, or 9.2%, from 18.3 million tonnes in 2013. We generated sales income of RMB373.6 million from railway transportation services in 2014, representing a decrease of RMB84.3 million, or 18.4%, from RMB457.9 million in 2013. The cost of sales of our transportation business was RMB250.2 million in 2014, representing a decrease of RMB74.6 million, or 23.0% from that of 2013.

We own 15 steam locomotives, two heavy-duty rail motors and over 200 kilometers of railway tracks constructed for coal transportation that connect most of our coal mines with Zouxian Power Plant located in Jining City, Shandong. Our railway network also connects to two major national railways, namely, Beijing-Shanghai Railway and Yanzhou-Shijiugang Railway. Our railway network provides us with substantial control over a major means of transportation for our key product, allowing us to benefit from the synergies from coal production, sales and transportation. As of December 31, 2014, our railway transportation business had 3,286 employees.

We maintain ISO 9001 quality accreditation, environmental management certification (GB/T241001-2004), GB/T28001-2011 occupational safety and health certificate and GB/T19022-2003 management certification for the operation of our railway network.

Coal Chemical Business

Our coal chemical business focuses on the production of methanol, a liquid commodity that can be produced from coal or natural gas. We operate our coal chemical business primarily through Yulin Nenghua. In 2014, we produced 650,000 tonnes of methanol and sold 660,000 tonnes of methanol. We generated sales income of RMB1,195.5 million in 2014, representing an increase of RMB39.8 million, or 3.4%, from RMB1,155.7 million in 2013. The cost of sales of coal chemical business was RMB869.3 million in 2014, representing an increase of RMB18.5 million, or 2.2% from that of 2013. Our coal chemical facilities at Tianhao Chemicals ceased production since April 2012. We have completed the construction of a 600,000-tonne methanol project in Ordos City, Inner Mongolia Autonomous Region, which became commercially operational in 2015.

Sales and marketing

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

 

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Pricing

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

Production process

Yulin Nenghua. At Yunlin Nenghua’s plant, raw coal is pulverized, cleaned and then fed to a gasifier bed where it reacts with oxygen and steam. The product is synthesized into crude methanol and then purified through distillation.

Materials, water and energy supply

Coal and coke oven waste gas are the primary materials in our methanol production. Production at Yulin Nenghua is reliant on thermal coal, which it currently sources from local coal mines owned by third parties. Yulin Nenghua sources water from a local reservoir.

Quality control

We have implemented a series of quality control measures for our coal chemical operations to ensure product quality. We obtained AAA measurement management system, ISO 9001 quality accreditation and ISO 14001 environmental management certification in November 2009 and subsequently renewed ISO 9001 quality accreditation and ISO 14001 environmental management certification in November 2012 and AAA measurement management system in October 2013. In August 2012, methanol produced by Yulin Nenghua, after review by the National Standardization Management Committee, was confirmed to be of a higher standard than the international standard ASTM D1152:2006, and was granted the Usage of International Standard Certificate. We perform regular inspections and maintenance on our methanol plants.

Safety control

For our coal chemical operations, we have implemented safety control measures in compliance with the People’s Republic of China Production Safety Law, the People’s Republic of China Regulations on the Safe Administration of Dangerous Chemicals and other safety guidelines for chemical manufacturers. We obtained ISO 18001 occupational health and safety certification in November 2009, which was renewed in November 2012.

Competition

We compete with domestic methanol manufacturers in Shanxi and Shaanxi Provinces and the Inner Mongolia Autonomous Region. We have benefited from economies of scale as Yulin Nenghua’s 600,000-tonne methanol project achieved optimal utilization of its facilities and Ordos Neng Hua’s 600,000-tonne methanol plant commenced operations in 2015.

Seasonality

Our coal chemical operations are not affected by seasonality.

Electric Power and Heat Supply Business

As of the date of this annual report, we owned and operated seven power plants, which generate electricity for internal use and external sales. In 2014, we generated a total of 1,605.1 million KWh of electricity, 722.5 million KWh of which we sold to third parties. We generated sales income of RMB241.5 million in 2014, representing a decrease of RMB90.6 million, or 27.3%, from RMB332.1 million in 2013.

Hua Ju Energy operates five coal-fired power plants whose main facilities consist of energy conversion CFB boilers and extraction and condensing steam turbines. The power plants at Hua Ju Energy have an aggregate installed capacity of 132 MW. In 2012, 2013 and 2014, Hua Ju Energy generated 968.2 million KWh, 992.8 million KWh and 901.2 million KWh, respectively, and sold 831.9 million KWh, 869.1 million KWh and 303.6 million KWh, respectively, to the local power grid company.

 

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The power plants at Yulin Nenghua and Tianhao Chemicals were established with the primary intention to satisfy the power demand of the methanol projects of these two entities; we sell a small amount of electricity to third parties. These plants had an aggregate installed capacity of 60 MW as of the date of this annual report; however, Tianhao Chemicals has stopped generating electricity since January 1, 2012 due to the high cost of fuel, and we are in the process of disposing of the power plant together with Tianhao Chemical’s methanol assets. In 2014, the power plants operated by Yulin Nenghua generated 257.5 million KWh of electricity, of which 14.0 million KWh was sold to third parties.

We commenced the construction of the Zhaolou Coal Mine power plant for Zhaolou Coal Mine in March 2010. The integrated power plant has two phases with a designed capacity of 300 MW for each phase. In November 2014, phase I commenced operation. For further information on the Zhaolou Coal Mine power plants, please see “D. Property, Plant and Equipment — Methanol and Cogeneration Power Plants — Zhaolou Coal Mine Power Plants.”

We commenced heat supply operations, which consist of the production and sale of heat, following our acquisition of Hua Ju Energy in 2009. In 2014, Hua Ju Energy generated 1.3 million steam tonnes of heat energy. Our coal mines consume the substantial majority of heat energy produced by Hua Ju Energy. We sold 90,000 steam tonnes of heat to third parties and generated sales income of RMB20.85 million in 2014.

Sales and marketing

We consume a major portion of the heat generated by our power plants and, to a lesser extent, sell to the Yankuang Group. In addition to our own use and our sales to the Yankuang Group, we sold 45.0% of the electric power we produced to other end-users through power grids in 2014.

Pricing

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

Production process

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

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

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

Zhaolou power plant. Zhaolou power plant, located in Heze City, Shandong Province, is utilized by the Zhaolou coal plant of Heze Neng Hua. After crushing the coal fuel, it is transferred to the boiler and sent to the combustion chamber for burning. The combustion process generates heat and is transferred to water in the boiler. Water in the boiler is heated and produces high temperature, and high pressure steam, which runs the turbine that generates power.

Materials, water and energy supply

Our power plants are all coal-fired power plants. The power plants of Hua Ju Energy generate electricity by recycling coal gangue and coal slurry. Yulin Nenghua currently sources thermal coal from local coal mines. Zhaolou uses mixed coal, gangue and slime generated from coal washing to generate power.

 

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Quality control

Hua Ju Energy obtained ISO 9001 quality accreditation and ISO 14001 environmental management certification in November 2003 and has maintained its certification since then. Yulin Nenghua obtained AAA measurement management system, ISO 9001 quality accreditation and ISO 14001 environmental management certification in November 2009. Zhaolou obtained ISO 9001 quality accreditation, ISO 14001 environmental management certification and GB/T28001 occupational health and safety management certification in December 2009.

Safety control

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

Seasonality

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

Regulatory Oversight of Our Group

Regulation of the PRC Coal Industry

Mining activities in the PRC are also subject to the MLR. To establish a coal mining enterprise under the Coal Industry Law of the People’s Republic of China, amended in June 2013 (the “PRC Coal Industry Law”), the applicant must submit an application to the relevant department in charge of the coal industry. After obtaining approval to establish a coal mining enterprise, the applicant will be granted a mining permit by the MLR. After June 2013, applicants are not required to obtain the coal production permit and coal trading license. Coal mining companies are permitted to operate after safety inspection and relevant licenses and permits are obtained. The Mineral Resources Law of the PRC (the “Mineral Resources Law”) regulates any matters relating to the planning or the exploration, exploitation and mining of mineral resources. According to the Mineral Resources Law, all mineral resources in China, including coal, are owned by the State. Any enterprise planning to engage in the exploration, development and mining of mineral resources must obtain exploration rights and mining rights before commencing the relevant activities. The transfer of exploration and exploitation rights shall be subject to governmental approval pursuant to the PRC Coal Industry Law, the Mineral Resources Law, Measures for the Administration of Transfer of Exploration Rights and Mining Rights and other relevant regulations.

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

Pricing Laws

Until 2002, the production and pricing of coal was generally subject to the close control and supervision of the PRC government, which centrally managed the production and pricing of coal. To transition from a planned economy to market economy practices, the PRC government eliminated the state guidelines for coal prices on January 1, 2002 and took other measures intended to establish a pricing mechanism that would reflect market demand. In December 2012, the State Council issued a guideline to further implement the market reform for thermal coal. Pursuant to the guideline, beginning in 2013, the PRC government discontinued the compulsory thermal coal supply contracts arrangement, which required coal producers to sell thermal coal to power generation enterprises at preferential prices set by the government. In addition, prices of thermal coal will be negotiated between power generation enterprises and coal producers, instead of pursuant to government-guided prices.

 

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Regulation of fees and taxes

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

 

Item

 

Base

 

Rate

Corporate income tax

  Taxable income   25%

Corporate income tax (for Anyuan Coal Mine and Inner Mongolia Xintai)

  Taxable income   15%

VAT (for coal and other products)

  Sales revenue   17%

VAT (for heat supply)

  Sales revenue   13%

VAT (for coal transportation services)

  Revenue from service   11%

Business tax (for other services)

  Revenue from service   5%

City construction tax

  Amount of VAT and business tax   7%

Education surcharge

  Amount of VAT and business tax   3%

Local education surcharge

  Amount of VAT and business tax   2%

Water conservancy fund

  Amount of VAT and business tax   1%

Resource tax

  Aggregate volume of raw coal sold or used (1)  

Shandong Province: 4%

Shanxi Province: 8%

Inner Mongolia: 9%

Compensation for the depletion of coal resources

  Revenue from coal produced by us   1%

Price adjustment fund

 

Volume of raw coal produced or sales

volume of merchantable coal

 

1. Jining City, Shandong Province: RMB8 per tonne based on volume of raw coal produced;

2. Heze City, Shandong Province:

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

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

Property tax (for domestic companies)

  70% of the initial value of the property   1.2%

 

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

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

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

Foreign exchange laws

Provisions on Foreign Exchange Administration for Cross-border Guarantees and Operational Guidelines for Foreign Exchange Administration of Cross-border Guarantees (Hui Fa [2014] No. 29), promulgated by the SAFE on May 12, 2014, provide that when handling overseas lending and domestic guarantee business, without the approval of the Foreign Exchange Administration, the debtors shall not directly or indirectly transfer the funds under the guarantee back to the PRC for use through such methods as borrowing, equity investments, or securities investments in the PRC. The funds under the guarantee shall not be used for equity or debt investments, by overseas institutions or individuals directly or indirectly, in domestic institutions or individuals, including but not limited to the following circumstances:

 

    the debtor uses the funds under the guarantee to make, directly or indirectly, equity or debt investments in institutions incorporated within the PRC.

 

    the funds under the guarantee are used to acquire the equity of an overseas target company, of which over 50 percent of the assets are located within the PRC.

 

    the debtor uses the funds under the guarantee to make advance payments for trade in goods or trade in services, and the payment time is more than 1 year before the time of delivery of the goods or services and the amount of the advance payment exceeds USD 1 million and 30 percent of the total price of the sales and purchase agreement (for the export of large complete sets of equipment or contract services, the completed workload may be deemed as the delivery).

 

    the funds under the guarantee are used to repay the debt of the debtor or any other overseas company, while the original funds from the financing are transferred, directly or indirectly, back to the PRC in the form of equity or debt.

Import and export laws

According to the Foreign Trade Law, the Cargo Import and Export Ordinance and the Administrative Measures of Coal Export Quota, coal exports prior to 2013 are subject to State control and required governmental approval.

Our company has not been authorized as a PRC coal exporter. Our coal exports are conducted through three export agents, namely China National Coal Industry Import and Export Corporation, China National Minerals Import and Export Company Limited and Shanxi Coal Import and Export Group Company.

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

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

 

    a major change in the international market;

 

    a major change in domestic coal resources;

 

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    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.

On December 31, 2012, the MOFCOM and the General Administration of Customs issued the 2013 Catalog of Goods subject to the Export Permit Management, pursuant to which coke will not be subject to export quota management.

On August 29, 2013, the General Administration of Customs issued The Announcement of Tariff Adjustment on Certain Export Commodities such as Lignite, which adjust the zero tariff for lignite to 3%, effective from August 30, 2013.

On October 10, 2014, the PRC General Administration of Customs promulgated the Announcement on Adjusting the Import Tariff Rates of Coal (Announcement of the General Administration of Customs No. 73, 2014), which provides that as of October 15, 2014, the provisional zero import tariff rate of anthracite (H.S. code: 27011100), coking coal (H.S. code: 27011210), bituminous coals other than coking coal (H.S. code: 27011290), other coal (H.S. code: 27011900) and briquettes and other fuels (H.S. code: 27012000) shall be abolished, and the most-favored-nation tariff rate of 3% (anthracite), 3% (coking coal), 6% (bituminous coals other than coking coal), 5% (other coal) and 5% (briquettes and other fuels) shall be resumed respectively.

On December 16, 2014, the MOF issued the 2015 Implementation Plan of Customs Taxation, which provides that the export custom tax rates of coal products, including anthracite, bituminous coal, coaking coal, brown coal, peat coal, coal-made solid fuel and other coals shall decrease from 10% to 3%.

Domestic trading regulations

Pursuant to the Amended Measures for the Regulation of Coal Operations promulgated by the NDRC on July 30, 2014, entities are required to file their information of coal operations with local authorities within 30 business days after they obtained business license.

Environmental protection

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

The PRC Environmental Protection Law requires that enterprises, public institutions, and other business operators that discharge pollutants shall adopt measures to prevent and control pollution and damage to environment caused by waste gas, waste water, waste residue, medical wastes, dust, malodorous gases, radioactive substances, noise, vibration, optical radiation, electromagnetic radiation, and other substances generated in their production, construction, and other activities. Pollutant discharging entities under intensified supervision shall install and use monitoring equipment in accordance with the relevant provisions of the state and the monitoring norms, ensure the normal functioning of monitoring equipment, and preserve the original monitoring records. On April 24, 2014, the Standing Committee of National People’s Congress passed the Amended Environmental Protection Law, pursuant to which, effective January 1, 2015, more responsibility has been imposed on local governments and unlimited fines will be imposed on polluters. In addition, projects without environmental evaluation in accordance with relevant laws are not allowed to commence construction.

On September 10, 2013, the State Council issued the Action Plan for Prevention and Control of Atmospheric Pollution (the “Action Plan”), pursuant to which the PRC government plans to devote more efforts to prevent and control atmospheric pollution. On September 17, 2013, the State Council further issued the Rules for the Implementation for the Action Plan for Prevention and Control of Atmospheric Pollution in Beijing-Tianjin-Hebei metropolitan region, pursuant to which the PRC government aims to reduce atmospheric pollution and improve air quality.

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

The rehabilitation of mining sites is another priority of the PRC government. Under the Law of Land Administration of the PRC as amended on August 28, 2004, the Regulation on Land Reclamation effected on March 5, 2011 and the Implementation Measures on the Regulation on Land Reclamation effected on March 1, 2013, coal producers must undertake measures to restore a mining site to its original state within a prescribed time frame if their mining activities result in damage to arable land, grassland or forest. The rehabilitated land must meet rehabilitation standards, as required by law from time to time, and may only be subsequently used upon examination and approval by the land authorities.

 

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

Mining safety

On November 18, 2013, the State Council promulgated Several Opinions on Promoting the Steady Development of the Coal Industry, which contains the PRC government’s policies with respect to the administration of coal mining and exploration.

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

 

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

In addition, the SAWS issued three sets of measures on September 26, 2005: (i) the Measures for Determining Major Latent Work Safety Related Dangers in Coal Mines (for Trial Implementation); (ii) the Implementing Measures for the Detection and Elimination of Latent Dangers in Coal Mines and the Rectification and Closure of Such Mines (for Trial Implementation); and (iii) the Measures for the Supervision and Inspection of Coal Mine Safety Training (for Trial Implementation). On October 31, 2005, the SAWS issued the Guiding Opinions on Persons in Charge of Coal Mines and Production and Operation Management Personnel Going into Mines as Foremen. The SAWS and the MOF jointly issued the Incentive Arrangement for Report on Working Safety on May 2, 2012, which encourages reporting on material accident hazards on working safety systems and other illegal activities.

The SAWS, the SACMS and the All China Federation of Trade Unions jointly issued the Rules regarding the Working Safety Construction of Coal Mine Working Teams in June 2012, which requires coal mining enterprises to promote working safety target management and improve the salary structure to reflect the combination of working safety, production and profits. In addition, coal mining enterprises are required to improve working environments and labor protection facilities, provide employees with labor protection articles and occupational health examinations, establish occupational health files for employees and provide relevant remuneration for workers engaging in hazardous works.

Coal mining industry and resources integration

Several measures have been enacted by various PRC government and provincial authorities to promote the integration and enhancement of mineral resources to maximize domestic coal production and encourage developmental efficiency.

The General Office of the Shandong Provincial Government issued the Notice to Implement Circular Guo Fa Ban [2006] No. 108 and Notice to Effectively Implement Integration of Mineral Resources (Lu Zheng Ban Fa [2007] No. 37), on June 19, 2007, which further implement Circular Guo Fa Ban [2006] No. 108 and promote the integration of mineral resources in Shandong Province. In addition, the Shandong Provincial Government issued the Notice to Deepen Integration Works of Mineral Resources (Lu Zheng Ban Fa [2010] No. 1), on January 4, 2010, which requires further promotion of integration of mineral resources, reduces the number of mines and mining approvals, and enhances intensive production in Shandong Province.

The government authorities of Inner Mongolia issued the Notice of Printing and Distributing the Work Plan of Mergers and Reorganizations of Coal Mining Enterprises (Nei Zheng Fa [2011] No. 32) on March 15, 2011, which sets forth the guiding principles, integrative approach, applicable policies, regulations and working requirements for coal resources in the region. By the end of 2013, the notice indicates that coal mining enterprises located in Inner Mongolia Autonomous Region must achieve production of 1.2 million tonnes per annum (three million tonnes per annum may apply to certain regions upon certain conditions) or be required to merge with other enterprises. Enterprises with a production capacity of more than five million tonnes of raw coal, among others, or enterprises with at least either one underground coal mine with a singular well production capacity of more than 1.2 million tonnes or an open-pit coal mine with a singular well production capacity of more than three million tonnes, subject to certain operational safety conditions, will be given preference as entities into which other smaller entities may merge.

In addition, the government authorities of Inner Mongolia Autonomous Region issued the Notice of Working Well on the Related Issues Concerning Integration of Coal Resources (Nei Zheng Ban Fa [2011] No. 92) on October 9, 2011, which sets forth supplemental information on the determination of the status of coal mining entities and the scope of coal resources to be integrated in the region.

The National Energy Administration of the PRC issued the amended Coal Mining Industry Policy in February 2013 requesting public comment. The policy aims to further implement the reform of coal mining enterprises and market-oriented reforms.

These mining industry and resources integration regulations will affect the production capacity and rates of our mines that are located in the particular provinces or regions.

 

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Regulation of the Australian Coal Industry

Our operations in Australia are subject to laws and regulations of general application governing mining and processing, land tenure and use, environmental requirements, including site-specific environmental licenses, permits and statutory authorizations, industrial relations, workplace health and safety, trade and export, competition, access to infrastructure, foreign investment and taxation. These regulations are implemented by various federal, state and local government departments and authorities, including at a federal level the Department of Industry and Science, and the Department of the Environment.

Environmental and planning issues

Our mining operations in Australia are regulated by federal, state and local governments with respect to environmental issues (such as water quality, air quality, dust impact, noise impact) and planning issues (such as approvals to expand existing mines or to develop new mines or to change mining interests). Australian state governments require coal companies to post deposits or give other security on the land which is being used for mining and exploration, with those deposits being returned or security released after satisfactory remediation is completed.

State and territory governments are the primary environment and planning regulators for mining operations. The particular provisions of the various state and territory environment and planning legal regimes vary depending upon the jurisdiction. Despite variation in details, each state and territory has a system involving broadly at least two major phases, including: (i) obtaining major environment/planning developmental approval addressing planning and significant environmental issues and (ii) obtaining pollution control approvals regarding pollution control issues such as emissions to the atmosphere; emissions in waters; noise impact, impact from blasting; dust impact; and the generation, handling, storage and transportation of waste and other environmental licenses related to issues such as water extraction and use and Aboriginal heritage.

The federal environmental protection regime will apply if matters of national environmental significance are likely to be significantly impacted. If so, a referral must be made to the Department of the Environment and federal regulatory approval may be required. Most coal projects require such federal approval.

Work Health and Safety | Occupational Health and Safety

The Commonwealth, states and territories agreed to harmonise their work health and safety (WHS) laws by enacting the same WHS laws in each Australian jurisdiction. The national WHS laws which consist of a model WHS Act (Model WHS Act), model Regulations, and model Codes of Practice (WHS Laws) were originally expected to have commenced by 1 January 2012 in all States and Territories.

The WHS Laws have commenced operation in New South Wales, Queensland, the ACT, the Northern Territory, South Australia, Tasmania and in Commonwealth jurisdictions, although it should be noted that the WHS Laws are not fully harmonized with certain jurisdictions. However, Western Australia and Victoria are yet to implement the new laws. These jurisdictions have occupational health and safety (OHS) laws in place.

WHS [New South Wales, Queensland]

Under the WHS Laws, a person conducting a business or undertaking must ensure, as far as is reasonably practicable:

 

  (a) the health and safety of its “workers” whilst they are engaged at work in the business or undertaking; and
  (b) that other persons are not put at risk from the conduct of the business or undertaking.

Workers are defined to include employees, contractors, subcontractors and volunteers.

In respect of workers employed or engaged to perform work in a mine, a person conducting a business or undertaking must take reasonably practicable steps to ensure that workers are safe from injury by conducting a risk assessment of the workplace and, having regard to the risks identified in the assessment, take all reasonably practicable steps to:

 

  (a) provide a safe working environment without risks to health and safety;

 

  (b) provide and maintain safe plant and structures, including machinery;

 

  (c) provide and maintain safe systems of work, including safety equipment, safe plant and work materials;

 

  (d) provide adequate facilities;

 

  (e) the safe use, handling and storage of plant, structures and substances;

 

  (f) appropriate information, instruction, training and supervision that is necessary to protect all persons from risks to their health and safety; and

 

  (g) monitoring the health of workers and conditions at the workplace for the purposes of preventing illness or injury of workers.

 

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There is also an obligation for a person conducting a business or undertaking to consult with its workers (and other WHS duty holders) on WHS matters.

OHS [Western Australia]

Western Australia is still operating under a local OHS regime. Whilst this regime is similar to the WHS regime and requirements under WHS Laws as set out above, there are notable differences in terms of specific requirements under OHS legislation, regulations and associated penalties for non-compliance.

In relation to persons employed in a mine in Western Australia, an employer must, so far as is practicable, ensure that such persons are safe from injury by providing a safe working environment and systems of work such that employees are not exposed to hazards; safety machinery; safety equipment, plant and work materials; and appropriate information, instruction, training and supervision.

There is also a requirement for an employer to consult and cooperate with safety and health representatives (if any) and other employees at the workplace, regarding OHS matters.

Coal Industry Specific Legislation [All Relevant/Applicable States]

In recognition of the specialized nature of mining and mining activities, specific work health and safety obligations have been mandated under law and legislation that deals specifically with the coal mining industry. Mining employers, owners, directors and managers, persons in control of work places, mine managers, supervisors and employees are all subject to these duties.

Workers’ Compensation [All Relevant/Applicable States]

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

MRRT

In July 2012, a profits-based tax(MRRT) was introduced which is charged at an effective rate of 22.5% on the assessable profits (excess of annual mining revenue over annual mining expenditures with respect to mineral interests, less certain allowances) of, among others, coal mining enterprises, however, the relevant legislation was repealed in September 2014.

Carbon tax scheme

In an effort to meet Australia’s emissions target as set forth in the Kyoto Protocol, previously the Australian federal government introduced legislation making a liable entity liable pay for each tonne of carbon pollution that it emits, however, the relevant legislation was repealed in July 2014.

Foreign investment

As a foreign government investor under Australian law Yancoal will be required to obtain Australian Government approval before making a direct investment in Australia (regardless of the value of the investment). A direct investment includes any acquisition of an interest of 10 per cent or more of any asset or business or any acquisition of an interest of less than 10 per cent where that acquisition amounts to a strategic stake in the target, or allows the acquirer to influence or control the target.

Foreign government investors must also obtain Australian Government approval before starting a new business in Australia, or acquiring an interest in land in Australia. An interest in land includes any interest in a prospecting, exploration, mining or production tenement.

 

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Power generation industry

The Electric Power Law and the Electric Power Regulatory Ordinance

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

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

Approvals and licenses for power plants

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

Pricing

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

Safety

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

Coal chemical processing industry

The PRC Coal Industry Law, encourages and supports coal mining enterprises and other enterprises to produce both coal and electricity, coking coal and coal chemicals. In July 2006, the NDRC issued the Notice of Strengthening the Administration of Coal Chemical Processing Industry and Improving the Healthy Development of the Industry (Fa Gai Chan Ye [2011] No. 635), which was aimed at strengthening the coal chemical processing industry through the promotion of transportation safety, risk prevention and management standardization. According to the Enterprise Income Tax Law (the “EIT Law”) and its implementation regulations, enterprises that produce products which are not restricted by the State and satisfy State and industry standards by using resources encouraged by industrial policies of the State are eligible for preferential tax treatment. If an enterprise uses any of the materials that are listed in the Catalogue of Income Tax Preference for Enterprises of Comprehensive Utilization of Resources as a major raw material in its product, 90% of the total income derived from such product will be treated as taxable income under the preferential tax arrangement. Coke oven gas, one of the primary raw materials at one of our methanol production facilities, is one of the materials listed in the catalogue.

The PRC government aims to promote the healthy development of coal chemical industry during the Twelfth Five-Year through the development of proprietary intellectual property rights and the construction of demonstration projects. In addition, the PRC government imposed stringent entrance standards and requirements for environmental protection for the consumption of energy, coal and water for coal chemical demonstration projects.

 

C. Organizational Structure

As of December 31, 2014, our Company consisted of 13 departments.

 

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The following chart shows our departments and simplified corporate structure as of December 31, 2014:

 

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D. Property, Plant and Equipment

Real Property and Leasehold Property

As of December 31, 2014, the net book value of our property, plant and equipment was RMB44,174.6 million. The properties for which we own land use rights in China occupy an area of approximately 7.74 million square meters, while the coalfields to which we possess mining rights in Australia occupy an area of approximately 110.0 million square meters. Under PRC law, land use rights for properties in China are granted for 50 years commencing from the respective grant dates of such land use rights and are freely transferable. In addition, the land ownership rights held by Yancoal Australia are held in perpetuity pursuant to Australian law.

As of the date of this annual report, we have not obtained certain land-use rights and building ownership certificates in China. In addition, we have not completed the registration procedure with relevant real estate administrative authorities with respect to certain properties we lease in China. We do not expect that our rights to use or occupy such properties will be challenged by third parties and as of the date of this annual report, we are not aware of any administrative or legal action with respect to these properties. However, we are prohibited from the transfer, lease, mortgage, or disposal of such properties until we obtain the relevant real estate or building ownership certificates.

Coal Mines and Coal Production Facilities

Nantun, Xinglongzhuang, Baodian, Dongtan, Jining II, Jining III, Beisu and Yangcun Coal Mines are all located in the southwestern part of Shandong Province. Except for Yangcun Coal Mine, all of these mines are connected by our railway network, which directly connect to our customers or the PRC national railway or highway systems. We acquired Jining II Coal Mine in 1998 and Jining III Coal Mine in 2001. We acquired Heze Nenghua, the operator of Tianchi Coal Mine in 2006 and subsequently the mining rights of Zhaolou Coal Mine through Heze Nenghua in 2008. Our wholly owned subsidiary, Ordos Neng Hua, acquired Anyuan Coal Mine in 2010 and acquired the mining rights of Zhuanlongwan coalfield through public bidding in 2011. In addition, Ordos Neng Hua acquired 80% of the equity interest in Inner Mongolia Xintai in 2011, which has operated Wenyu Coal Mine since July 2011. In May 2012, we purchased from Yankuang Group and Beisu Company all of the assets and liabilities of Beisu Coal Mine and Yangcun Coal Mine, including mining rights, building ownership certificates, mining and related equipment and other fixed assets.

We acquired Austar Coal Mine in Australia in 2004, and we acquired the entire equity interest in Yancoal Resources (formerly Felix) through Yancoal Australia in 2009, which operates Ashton Coal Mine, Yarrabee Coal Mine and Moolarben Coal Mine. We acquired an additional 30% of the equity interest in the Ashton Coal Mine Joint Venture and disposed of 51% of the equity interest in the Minerva Coal Mine Joint Venture in 2011. On September 30, 2014, we acquired an additional 10% of the equity interest in the Ashton Coal Mine Joint Venture, which become wholly owned subsidiary of Yanzhou Australia after the acquisition. In August 2011, we acquired the entire equity interest of both Syntech Holdings Pty Ltd. and Syntech Holdings II Pty Ltd., which operate the Cameby Downs Coal Mine and have five exploration tenements that can be potentially developed. In September 2011, we acquired the entire equity interest of both Premier Coal, which operates the Premier Coal Mine and Wilga Exploration Area, and Premier Char. We completed the merger with Gloucester in June 2012, which turned Gloucester a wholly-owned subsidiary of Yancoal Australia. As of December 31, 2014, we own nine mines and four advanced-exploration stage projects in Australia.

As of the date of this annual report, we have obtained or in the process of obtaining the following material approvals, permits and licenses for our coal projects in China:

 

    we obtained approval and permits with respect to environmental assessment, water protection, and safety assessment on Shilawusu and Zhuanlongwan projects and are in the process of obtaining other approvals;

 

    Yingpanhao Project has been included into the NDRC’s twelfth five-year plan for the coal mining industry in March 2012. We have obtained the resources allocation approval from the Provincial government are in the process of obtaining project approval for our commencement of construction on this project; and

 

    we submitted the application for the mining permit for Wanfu Project to the MLR in January 2014.

In addition to the above, a number of material Australian regulatory approvals, permits and licenses are pending, outstanding, have not been applied for as yet or have expired, including:

 

    surface mining leases for the development of proposed additional stages of the Moolarben Coal Mine have obtained planning approval from relevant authorities; and

 

    the NSW Land & Environment Court has granted approval for the proposed Southeast open-cut project of the Ashton Coal Mine, condition upon the acquisition of a key property from a private individual prior to the commencement of development.

We operate substantially all of our mines either directly or through our subsidiaries and we have contracted the mining operations at Anyuan, Wenyu and Cameby Downs Coal Mines to third party contractors.

 

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The map below shows the location of Nantun, Xinglongzhuang, Baodian, Dongtan, Jining II, Jining III Coal Mines and our railway system:

 

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The map below shows the location of Tianchi Coal Mine:

 

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The map below shows the location of Zhaolou Coal Mine:

 

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The map below shows the location of Anyuan and Wenyu Coal Mines:

 

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The map below shows the location of Beisu Coal Mine:

 

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The map below shows the location of Yangcun Coal Mine:

 

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The map below shows the location of Austar, Yarrabee, Ashton and Moolarben Coal Mines as well as advanced-exploration stage projects Athena, Harrybrandt and Wilpeena.

 

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The map below shows the location of Cameby Downs Coal Mine:

 

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The map below shows the location of Premier Coal Mine and Wilga Project:

 

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The map below shows the location of Gloucester, Donaldson and Middlemount Coal Mines and Monash Project:

 

 

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The Six Coal Mines

The following table sets forth information about Nantun, Xinglongzhuang, Baodian, Dongtan, Jining II, Jining III Coal Mines, which are directly owned and operated by the Company.

 

     Nantun      Xinglong-
zhuang
     Baodian      Dongtan      Jining II      Jining III      Total  

Background data:

                    

Commencement of construction

     1966         1975         1977         1979         1989         1993         N/A   

Commencement of commercial production

     1973         1981         1986         1989         1997         2000         N/A   

Coalfield area (square kilometers)

     35.2         56.2         37.0         60.0         87.1         105.1         380.6   

Reserve data:(1)

(millions tonnes as of December 31, 2014)

                    

Total in-place proven and probable reserves(1)

     102.0         288.6         256.3         421.4         392.4         197.6         1,658.2   

Mining recovery rate(2)(%)

     83.4         80.0         79.2         82.1         82.0         80.6         N/A   

Coal preparation plant recovery rate (%)(3)

     85.6         73.2         69.7         57.1         74.4         59.7         N/A   

Depth of mine (meters underground)

     465         399         517         780         517         551         N/A   

Average thickness of main coal seam (meters)

     5.4         8.3         8.8         8.4         4.7         4.9         N/A   

Type of coal

    
 
Thermal
coal
  
  
    
 
Thermal
coal
  
  
    
 
Thermal
coal
  
  
    
 
Thermal
coal
  
  
    
 
Thermal
coal
  
  
    
 
Thermal
coal
  
  
     N/A   

Leased/owned

     Owned         Owned         Owned         Owned         Owned         Owned         N/A   

Assigned/unassigned(4)

     Assigned         Assigned         Assigned         Assigned         Assigned         Assigned         N/A   

Average calorific value (Kcal/kg)

     5,485         5,574         5,500         5,289         5,208         5,194         N/A   

Sulfur content (%)

     0.72         0.51         0.58         0.54         0.58         0.66         N/A   

Production data : (million tonnes)

                    

Approval raw coal production capacity

     3.0         6.6         6.4         7.5         4.2         6.6         34.3   

Designed washing capacity

     1.8         3.0         3.0         4.0         3.0         5.0         19.8   

Raw coal production

                    

1997-2007

     45.7         70.1         61.6         78.1         42.7         49.6         347.8   

2008

     3.5         6.6         6.0         7.0         3.9         6.1         33.1   

2009

     3.8         6.6         5.7         7.5         3.6         6.2         33.4   

2010

     3.6         6.8         6.1         7.4         4.2         6.2         34.3   

2011

     3.3         6.8         6.1         7.3         4.4         6.1         34.0   

2012

     3.2         7.0         6.1         7.6         3.7         5.5         33.1   

2013

     3.0         6.9         6.2         8.1         3.1         6.5         33.8   

2014

     2.7         6.8         5.8         8.0         4.2         5.3         32.8   

Cumulative raw coal production as of
December 31, 2014

     68.8         117.6         103.6         131.0         69.8         91.5         582.3   

 

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(1) The proven and probable reserves of the above coal mines are based on the report dated February 6, 1998 prepared by International Mining Consultants Limited, a UK-based company, in accordance with the standards in Industry Guide 7.

Under Industry Guide 7, “proven reserves” are reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established. “Probable reserves” are reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling, and measurement are further apart or are otherwise less adequately spaced. The degree of assurance of “probable reserves,” although lower than that for proven reserves, is high enough to assume continuity between points of observation.

The total proven and probable reserves as of the end of a year are derived by deducting the proven and probable reserves consumed in the coal production in the same year from the proven and probable reserves as of the end of the immediately preceding year. The distinction between proven and/or probable reserve classifications cannot be readily determined or defined.

 

(2) The mining recovery rate is the rate of the amount of coal recovered from a determined amount of proven and probable reserves, which is calculated by dividing the actual volume of coal recovered in a year by the volume of proven and probable reserves mined and consumed in the same year.
(3) “Coal preparation plant recovery rate” refers to the wash plant recovery rate of raw coal used during the production of our coal products.
(4) “Assigned” refers to coal reserves which have been committed to a particular mining complex (mine shafts, mining equipment, and plant facilities), and all coal which has been leased by the company to others. “Unassigned” refer to coal reserves which have not been committed, and which would require new mine shafts, mining equipment or plant facilities before operations could begin on the property.

Nantun Coal Mine

Nantun is located in the southern portion of our coalfield, with a coalfield area of approximately 35.2 square kilometers. Nantun began commercial production in 1973 with an approved annual raw coal production capacity of 3.0 million tonnes of coal. The main coal seam of Nantun is divided into four leaves. The thickness of the upper leaf averages 5.35 and 3.21 meters and the thickness of the lower leaf averages 0.89 and 1.03 meters. As of December 31, 2014, the total in-place proven and probable reserves on the main coal layer were approximately 102.0 million tonnes.

We primarily use the fully mechanized or comprehensive sublevel caving mining method to extract coal. As of December 31, 2014, Nantun produced coal from three work faces. Nantun’s coal preparation plant produces mainly No. 2 Clean Coal and employs movable-sieve jig machines and flotation machines. Most of the equipment used in the Nantun coal preparation plant was manufactured in the PRC.

Xinglongzhuang Coal Mine

Xinglongzhuang is located in the northern portion of our coalfield, with coalfield area of approximately 56.2 square kilometers. Xinglongzhuang began commercial production in 1981 with an approved annual raw coal production capacity of 6.6 million tonnes. The main coal seam of Xinglongzhuang is concentrated in one leaf with an average thickness of 8.3 meters. As of December 31, 2014, the total in-place proven and probable reserves on the main coal layer were approximately 288.6 million tonnes.

We primarily use the fully mechanized sublevel caving method to extract coal from the coal seam of Xinglongzhuang Coal Mine. At this coal mine, we produced coal from two work faces as of December 31, 2014. The Xinglongzhuang coal preparation plant produces No. 1 and No. 2 Clean Coal, lump coal and thermal coal. The majority of the equipment in the Xinglongzhuang coal preparation plant, including its jig machines, movable-sieve jig machines and flotation machines, was manufactured in the PRC while a small portion of the equipment was imported.

Baodian Coal Mine

Baodian is located in the central western portion of our coalfield, with coalfield area of approximately 37.0 square kilometers. Baodian began commercial production in 1986 with an approved annual raw coal production capacity of 6.4 million tonnes. Certain sections of the main coal seam of Baodian are concentrated in one leaf, with an average thickness of 8.81 meters. The remaining sections are divided into two leaves with an average thickness of 5.74 meters for the upper leaf and 3.38 meters for the lower leaf. As of December 31, 2014, the total in-place proven and probable reserves on the main coal layer were approximately 256.3 million tonnes.

 

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We primarily use the fully mechanized sublevel caving method to extract coal. At this coal mine, we maintained two work faces as of December 31, 2014. The Baodian coal preparation plant produces No. 2 Clean Coal and lump coal. The majority of equipment in the Baodian coal preparation plant, including its slanted wheel, cyclones and flotation machines, was manufactured in the PRC.

Dongtan Coal Mine

Dongtan is located in the central eastern portion of our coalfield, with coalfield area of approximately 60.0 square kilometers. Dongtan began commercial production in 1989 with an approved annual raw coal production capacity of 7.5 million tonnes. Certain sections of the main coal seam consist of one layer with an average thickness of 8.41 meters, and the remaining sections are divided into two layers, with an average thickness of 5.38 meters for the upper layer and 3.22 meters for the lower layer. As of December 31, 2014, the main coal layer held approximately 421.4 million tonnes of in-place proven and probable reserves.

We primarily use the fully mechanized sublevel caving method to extract coal. At this mine, we maintained two work faces as of December 31, 2014. The Dongtan coal preparation plant produces No. 2 Clean Coal, lump coal and thermal coal. The principal pieces of equipment in the Dongtan coal preparation plant, including its slanted wheel, cyclones, TBS sorting machines and flotation machines, were manufactured in the PRC.

Jining II Coal Mine

Jining II is located in the northern portion of the Jining coalfield, with coalfield area of approximately 87.1 square kilometers. Jining II began commercial production in 1997 with an approved annual raw coal production capacity of 4.2 million tonnes. Certain sections of the main coal seam of Jining II are concentrated in one layer, with an average thickness of 6.78 meters. The remaining sections are divided into two layers, with an average thickness of 2.1 meters for the upper leaf and an average thickness of 4.68 meters for the lower leaf. As of December 31, 2014, the total in-place proven and probable reserves on the main coal layer were approximately 392.4 million tonnes.

We primarily use the fully mechanized sublevel caving method to extract coal. At this coal mine, we produced coal from two work faces as of December 31, 2014. The main equipment used in Jining II are movable-sieve jig machines, cyclones and flotation machines, most of which were manufactured in the PRC. The principal product of the coal preparation plant of Jining II is No. 2 Clean Coal.

Jining III Coal Mine

Jining III is located in the southern portion of the Jining coalfield and covers an area of 105.1 square kilometers. Jining III has an approved annual raw coal production capacity of 6.6 million tonnes. The main coal seam of Jining III is divided into two leaves. The thickness of the upper leaf averages 1.21 meters and the thickness of the lower leaf averages 4.91 meters. As of December 31, 2014, the total in-place proven and probable reserves on the main coal layer were approximately 197.6 million tonnes.

We primarily used the fully mechanized sublevel caving method to extract coal from three work faces in Jining III Coal Mine as of December 31, 2014. The main pieces of equipment used in Jining III are slanted wheel, cyclones, TBS sorting machines, flotation machines and movable-sieve jig machines, which were manufactured in the PRC. The principal products of the coal preparation plant of Jining III are No. 2 Clean Coal and thermal coal.

 

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Beisu and Yangcun Coal Mines

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

 

     Beisu      Yangcun      Total  

Background data:

        

Commencement of construction

     1972         1981         N/A   

Commencement of commercial production

     1976         1988         N/A   

Coalfield area (square kilometers)

     29.3         27.5         56.8   

Reserve data:

(as of December 31, 2014)

        

Recoverable reserves(1)

     74.4         88.2         162.5   

Mining recovery rate (%)(2)

     87.3         86.7         N/A   

Coal preparation plant recovery rate (%)(3)

     N/A         N/A         N/A   

Depth of mine (meters underground)

     269.7         318.8         N/A   

Average thickness of main coal seam (meters)

     1.0         8.3         N/A   

Type of coal

     Thermal coal         Thermal coal         N/A   

Leased/owned

     Owned         Owned         N/A   

Average calorific value (Kcal/kg)

     5,244         4,974         N/A   

Sulfur content (%)

     3.52         1.38         N/A   

Production data: (million tonnes)

        

Approved raw coal production capacity

     1.0         1.2         2.2   

Designed coal preparation input washing capacity

     —           —           —     

Raw coal production

        

2012

     1.0         1.1         2.1   

2013

     1.0         1.1         2.1   

2014

     0.8         1.0         1.8   

Cumulative raw coal production as of December 31, 2014

     2.8         3.2         6.0   

 

(1) Based on the standards in the Solid Mineral Resource/Reserve Classification of the PRC (GB/T17766-1999) (“PRC Standards”), “recoverable reserves” in this table are the sum of basic reserves and resources. “Basic reserves” generally refers to measured and indicated economical reserves prior to deduction of design and extraction losses. “Resources” refers to the sum of a part of identified mineral resources and undiscovered resources.
(2) The mining recovery rate is the rate of the amount of coal recovered from a determined amount of reserves, which is calculated by dividing the actual volume of coal recovered in a year by the volume of reserves mined and consumed in the same year.
(3) “Coal preparation plant recovery rate” refers to the wash plant recovery rate of raw coal used during the production of our coal products.

Beisu Coal Mine

Beisu Coal Mine is located in the southern portion of our coalfield, and covers an area of approximately 29.3 square kilometers. We acquired the assets of Beisu Coal Mine in May 2012.

Beisu Coal Mine commenced operations in 1976 with an approved annual raw coal production capacity of 0.75 million tonnes. The annual raw coal production capacity has been increased to 1.0 million tonnes since 2006. The main coal seam of Beisu is divided into two thin-seam leaves. The thickness of the upper leaf averages 0.99 meters and the thickness of the lower leaf averages 0.9 meters. We primarily used the thin coal seam blasting method and the fully mechanized system to extract coal from two work faces in Beisu Coal Mine as of December 31, 2014. Beisu Coal Mine primarily produces thermal coal. Beisu Coal Mine has a coal preparation plant. The main equipment used in the coal preparation plant is a waste discharge system, which was manufactured in China.

 

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Yangcun Coal Mine

Yangcun Coal Mine is located in the north portion of our coalfield, and covers an area of approximately 27.5 square kilometers. We acquired the entire assets of Yangcun Coal Mine in May 2012.

Yangcun Coal Mine commenced operations in 1988 with an approved annual raw coal production capacity of 0.6 million tonnes. The annual raw coal production capacity has been increased to 1.15 million tonnes since 2006. The main coal seam of Yangcun is divided into three leaves. The thickness of the upper leaf averages 8.34 meters and the thickness of the lower leaves average 1.17 and 1.02 meters. We primarily used the fully mechanized sublevel caving method to extract coal from the upper leaf and the fully mechanized system to extract coal from the lower leaves. As of December 31, 2014, Yangcun Coal Mine has two work faces. Yangcun Coal Mine primarily produces thermal coal. Yangcun Coal Mine does not have any coal preparation plant.

Coal Mines operated by Shanxi Nenghua and Heze Nenghua

The following table sets forth information about Tianchi Coal Mine and Zhaolou Coal Mine in China that are operated by Shanxi Nenghua and Heze Nenghua:

 

     Tianchi      Zhaolou      Total  

Background data:

        

Commencement of construction(1)

     2004         2004         N/A   

Commencement of commercial production(1)

     2006         2009         N/A   

Coalfield area (square kilometers)

     18.7         143.4         162.1   

Reserve data:

(millions tonnes as of December 31, 2014)

        

Recoverable reserves(2)

     23.3         97.7         121.2   

Mining recovery rate(3)(%)

     75.0         84.2         N/A   

Coal preparation plant recovery rate (%)(4)

     N/A         66.1         N/A   

Depth of mine (meters underground)

     225         905         N/A   

Average thickness of main coal seam (meters)

     4.6         5.2         N/A   

Type of coal

     Thermal coal         1/3 coking coal         N/A   

Leased/owned

     Owned         Owned         N/A   

Assigned/unassigned(4)

     Assigned         Assigned         N/A   

Average calorific value (Kcal/kg)

     5,268         5,883         N/A   

Sulfur content (%)

     1.8         0.7         N/A   

Production data: (million tonnes)

        

Approved raw coal production capacity

     1.2         4.2         5.6   

Designed coal preparation input washing capacity

     —           3.0         3.0   

Raw coal production

        

2007

     1.2         —          1.2   

2008

     1.1         —          1.1   

2009

     1.0         0.04         1.04   

2010

     1.5         1.6         3.1   

2011

     1.2         3.0         4.2   

2012

     1.4         2.7         4.1   

2013

     1.5         2.9         4.4   

2014

     1.6         3.0         4.6   

Cumulative raw coal production as of December 31, 2014

     10.6         13.2         23.8   

 

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(1) With respect to the Tianchi Coal Mine, the “commencement of construction” refers to capacity expansion and technology upgrade undertaken after our 2006 acquisition; the “commencement of commercial production” refers to the resumption of production after completion of the foregoing expansion and upgrade.
(2) The recoverable reserves of the above coal mines are based on the report prepared by Minarco Asia Pacific Pty Limited in May 2006 in accordance with the standards in the JORC Code, as revised in 2004.

 

  “Recoverable reserves” generally refer to proved and probable reserves under the JORC Code as revised in 2004,. “Proved reserves” are the economically mineable part of a measured coal resource and “probable reserves” are the economically mineable part of an indicated, and in some circumstances, measured coal resource. Both “proved reserves” and “probable reserves” incorporate mining dilution and allow for mining losses and are based on an appropriate level of mine planning, mine design and scheduling.

 

(3) The mining recovery rate is the rate of the amount of coal recovered from a determined amount of recoverable reserves, which is calculated by dividing the actual volume of coal recovered in a year by the volume of recoverable reserves mined and consumed in the same year.
(4) “Coal preparation plant recovery rate” refers to the wash plant recovery rate of raw coal used during the production of our coal products.
(5) “Assigned” refer to coal reserves which have been committed to a particular mining complex (mine shafts, mining equipment and plant facilities), and all coal which has been leased by the company to others. “Unassigned” refers to coal reserves which has not been committed, and which would require new mine shafts, mining equipment, or plant facilities before operations could begin on the property.

Tianchi Coal Mine

Tianchi Coal Mine is an underground mine located in Heshun County of Shanxi, with an area of approximately 18.7 square kilometers. Tianchi Coal Mine commenced commercial production in 2006 and the designed production capacity was increased to 1.2 million tonnes per annum in the same year. Tianchi Coal Mine is operated by inclined shaft development and primarily produces thermal coal. The average thickness of the coal seam is 4.6 meters. As of December 31, 2014, the total recoverable reserves of Tianchi Coal Mine were approximately 23.3 million tonnes.

We primarily used the high seam mechanization mining method to extract coal from one work face at Tianchi Coal Mine as of December 31, 2014. The primary piece of equipment in this system is a slanted wheel, which was manufactured in China. The operations at Tianchi Coal Mine are powered by electricity from local power grids. We ship coal products from the Tianchi Coal Mine to Hebei and surrounding areas on the Yangshe Railway and the national railway network, as well as the highway network.

Zhaolou Coal Mine

Zhaolou Coal Mine is an underground longwall mine located in the central portion of Juye Coal Field in Shandong. Zhaolou Coal Mine covers an area of approximately 143.4 square kilometers, and is accessible by roadway and railway.

Zhaolou Coal Mine commenced commercial production in December 2009 and has a designed annual raw coal production capacity of 3.0 million tonnes. Zhaolou Coal Mine produces 1/3 coking coal. The average thickness of the main coal seam of Zhaolou Coal Mine is 5.2 meters. The total recoverable reserves of Zhaolou Coal Mine were approximately 97.7 million tonnes as of December 31, 2014, which was net of coal preparation and plant recovery losses.

We primarily used the longwall caving mining method to extract coal from two work faces at Zhaolou Coal Mine as of December 31, 2014. The coal preparation plant at Zhaolou Coal Mine commenced commercial production in September 2009. The main equipment used in the coal preparation plant was a slanted wheel, cyclone machines, TBS separators and flotation machines, which were mainly produced in China. The main product of Zhaolou’s coal preparation plant is No. 2 Clean Coal. The operations at Zhaolou Coal Mine are powered by electricity from local power grids. We ship coal products to Shandong and Hebei Provinces and surrounding areas by truck.

 

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Coal Mines operated by Ordos Neng Hua

The following table sets forth information about Anyuan Coal Mine and Wenyu Coal Mine in China that are operated by Ordos Neng Hua:

 

     Anyuan      Wenyu      Total  

Background data:

        

Commencement of construction

     —          1996         N/A   

Commencement of commercial production

     2004         1997         N/A   

Coalfield area (square kilometers)

     9.3         9.4         18.7   

Reserve data:

(as of December 31, 2014)

        

Recoverable reserves(1)

     28.3         44.2         72.5   

Mining recovery rate (%)(2)

     85.4         85.5         N/A   

Coal preparation plant recovery rate (%)(3)

     —           —           N/A   

Depth of mine (meters underground)

     68         59         N/A   

Average thickness of main coal seam (meters)

     2.8         3.9         N/A   

Type of coal

     Thermal coal         Thermal coal         N/A   

Leased/owned

     Owned         Owned         N/A   

Average calorific value (Kcal/kg)

     5,309         5,237         N/A   

Sulfur content (%)

     0.3         0.8         N/A   

Production data: (million tonnes)

        

Approved raw coal production capacity

     1.2         3.0         4.2   

Designed coal preparation input washing capacity

     —           —           —     

Raw coal production

        

2011

     2.3         2.1         4.4   

2012

     2.3         4.6         6.9   

2013

     2.2         4.1         6.3   

2014

     1.8         4.1         5.9   

Cumulative raw coal production as of December 31, 2014

     8.6         14.9         23.5   

 

(1) Based on the standards in the Solid Mineral Resource/Reserve Classification of the PRC (GB/T17766-1999) (“PRC Standards”), “recoverable reserves” in this table are the sum of basic reserves and resources. “Basic reserves” generally refers to measured and indicated economical reserves prior to deduction of design and extraction losses. “Resources” refers to the sum of a part of identified mineral resources and undiscovered resources.
(2) The mining recovery rate is the rate of the amount of coal recovered from a determined amount of reserves, which is calculated by dividing the actual volume of coal recovered in a year by the volume of reserves mined and consumed in the same year.
(3) “Coal preparation plant recovery rate” refers to the wash plant recovery rate of raw coal used during the production of our coal products.

Anyuan Coal Mine

Through Ordos Neng Hua, we wholly control Anyuan Coal Mine, which is located in Yijinhuoluoqi of Ordos City in Inner Mongolia Autonomous Region, and covers an area of approximately 9.3 square kilometers.

In 2011, we increased the annual production capacity of Anyuan Coal Mine from the approved annual production capacity of 1.2 million tonnes. Anyuan Coal Mine primarily produces thermal coal. The average thickness of the main coal seam of Anyuan Coal Mine is 2.8 meters. We principally extracted coal from one work face at Anyuan Coal Mine as of December 31, 2014. Anyuan Coal Mine has a coal separation system. Anyuan Coal Mine is located in close proximity to railway and road transportation. The provincial highway and Baoshen railway are located approximately six kilometers to the west of the coalfield.

Wenyu Coal Mine

Through our subsidiary, Inner Mongolia Xintai, we operate Wenyu Coal Mine, which is located in Ordos City in Inner Mongolia Autonomous Region, and covers an area of approximately 9.4 square kilometers.

        The original designed annual raw coal production capacity of Wenyu Coal Mine was 1.1 million tonnes. We completed production capacity expansion from 1.1 million tonnes to 3.0 million tonnes upon approvals from the relevant administrative authority and commenced commercial production in 2011. The approved annual raw coal production capacity of Wenyu Coal Mine is 3.0 million tonnes. The average thickness of the main seam of Wenyu Coal Mine is 1.45 meters. The type of coal is thermal coal. We principally extracted coal from two work faces at Wenyu Coal Mine as of December 31, 2014. Wenyu Coal Mine has a simplified coal separation system. Wenyu Coal Mine is located in close proximity to Baofu road, Anyuan Coal Mine and railway transportation.

 

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Zhuanlongwan Project

Ordos Neng Hua won the bid for the mining rights of Zhuanlongwan coalfield of Dongsheng Coal Field in Inner Mongolia Autonomous Region for a consideration of RMB7,878.7 million on January 28, 2011. Ordos Neng Hua has paid the first and second installment of RMB3.1 billion and RMB2.3 billion on February 25, 2011 and November 30, 2011, respectively. Ordos Neng Hua has paid the last installment of RMB2.3 billion in 2013 after obtaining the mining permit for Zhuanlongwan coalfield.

Coal Mines operated by Yancoal Australia

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

 

     Austar      Yarrabee      Ashton      Moolarben      Gloucester
Mine
     Donaldson
Mine
     Middlemount (6)      Total  

Background data:

                       

Commencement of construction(1)

     1998         1981         2003         2009         1998         2001         2009         N/A   

Commencement of commercial production(1)

     2000         1982         2004         2010         1999         2001         2011         N/A   

Coalfield area(2) (square kilometers)

     160         220         16         120         163         106         28         813   

Reserve data:

(millions of tonnes as of December 31, 2014)

                       

Recoverable reserves(3)

     43.6         47.6         55.3         330.4         52.2         128.7         84.0         741.8   

Depth of mine(4) (meters underground)

     300-700         N/A         190-280         N/A         N/A         50-150         N/A         N/A   

Type of coal

    
 
Semi-hard
coking coal
  
  
     PCI coal        
 
Semi-soft
coking coal
  
  
     Thermal coal        
 
Semi-hard
coking coal
  
  
    
 
Semi-soft
coking coal
  
  
    
 
Coking coal,
PCI coal
  
  
     N/A   

Leased/owned

     Owned         Owned         Owned         Owned         Owned         Owned         Owned         N/A   

Assigned/unassigned(5)

     Assigned         Assigned         Assigned         Assigned         Assigned         Assigned         Assigned         N/A   

Average calorific value (Kcal/kg)

     6,196         7,300         7,100         6,650         7,550         8,200         7,300         N/A   

Sulfur content (%)

     1.8         0.7         0.7         0.5         1.1         0.9         0.5         N/A   

Production data: (million tonnes)

                       

Approved raw coal production capacity

     3.0         3.6         3.0         14.0         3.8         3.0         5.3         35.7   

Designed coal preparation input washing capacity

     3.3         2.4         6.5         16.0         3.8         3.0         5.3         40.3   

Raw coal production

                       

2006

     0.4         —           —           —           —           —           —           0.4   

2007

     1.6         —          —          —          —          —          —          1.6   

2008

     1.9         —          —          —          —          —          —          1.9   

2009

     1.9         —          —          —          —          —          —          1.9   

2010

     1.7         2.3         2.7         3.9         —          —          —          10.6   

2011

     1.9         3.1         1.7         5.6         —          —          —          12.3   

2012

     1.7         3.2         2.3         7.2         1.8         2.0         —          18.2   

2013

     1.6         3.7         2.4         6.7         3.5         3.2         —          21.1   

2014

     1.9         3.9         2.6         6.6         2.5         2.5         —           20.0   

Cumulative raw coal production as of December 31, 2014

     14.6         16.2         11.7         30.0         7.8         7.7         —           88.0   

 

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(1) The Austar Coal Mine was closed in 2003 as the result of an underground fire. We acquired Austar Coal Mine in 2004 and implemented a production expansion and technology upgrade in 2005. Austar Coal Mine resumed part of its operations in October 2006. Each of the Ashton Coal Mine and Moolarben Coal Mine has an open-pit coal mine and an underground coal mine. The “commencement of commercial production” indicates the time when the open-pit mines, the earlier of the two types of mines, commenced commercial production.
(2) The coalfield area refers to the area of current leased land for mining, excluding the area on which we own prospecting rights.
(3) The recoverable reserves of the above coal mines are based on the report prepared by the competent persons appointed by Yancoal Australia in accordance with the standards in the JORC Code, as revised in 2012 and the total proved and probable reserves were prepared in accordance with the JORC Code, as revised in 2012. The difference in reserves data compared to those in the previous disclosures are the result of changes to the JORC Code after its revision in 2012 and, to a lesser extent, operational factors that affect the production process.
(4) Ashton Coal Mine has both open-pit and underground coal mines. The depth of mine indicates the depth of the underground mines.
(5) “Assigned” refers to coal reserves which have been committed to a particular mining complex (mine shafts, mining equipment and plant facilities), and all coal which has been leased by the company to others. “Unassigned” refers to coal reserves which have not been committed, and which would require new mine shafts, mining equipment, or plant facilities before operations could begin on the property.
(6) As Middlemount Coal Mine is owned and operated by a joint venture jointly controlled by Yancoal Australia and a third party, its production data and financial performance will not be consolidated in to our reports.

Austar Coal Mine

Austar Coal Mine is an underground mine located in Hunter Valley, New South Wales, Australia and is accessible by railway. Austar Coal Mine covers an area of 160 square kilometers. Austar Coal Mine was constructed in 1998 and commenced commercial production in 2000.

In 2003, an underground fire occurred at Austar Coal Mine when it was still owned by Southland Coal Pty Limited, resulting in the closure of the mine. On December 24, 2004, we acquired the entire interest in the Austar Coal Mine for approximately A$32.0 million from Southland Coal Pty Limited, an independent third party. After we invested approximately A$230.3 million in the reconstruction, capacity expansion and technology upgrade of Austar Coal Mine in 2005, which included funding for equipment and machinery, the mine resumed commercial production of semi-hard coking coal in October 2006.

The average thickness of the main coal seam of Austar Coal Mine is 6.5-7.0 meters. As of December 31, 2014, the mine’s JORC (as revised in 2012)-compliant reserves were approximately 3 million tonnes. As of the same date, the mine’s marketable coal reserves, representing beneficiated or otherwise enhanced coal products where modifications resulting from mining, dilution and processing have been considered, were approximately 43.6 million tonnes.

We principally use the fully mechanized longwall top coal caving mining method to extract coal from the underground mine. The main equipment used in the coal handling preparation plant consists of coal crushing equipment, cyclones and other associated equipment which were generally manufactured in Australia. The operations at Austar Coal Mine are powered by electricity from local power grids. We transport coal products from Austar Coal Mine to Newcastle Port via railway.

Yarrabee Coal Mine

Yarrabee Coal Mine is an open-pit mine located in Bowen Basin, Queensland, Australia and is accessible by railway to the Gladstone Port. Yarrabee Coal Mine covers an area of 220 square kilometers. The construction of Yarrabee Coal Mine started in 1981 and commercial production commenced in 1982.

Through Yancoal Resources, Yancoal Australia wholly owns Yarrabee Coal Mine. Currently, the approved annual capacity of Yarrabee Coal Mine is approximately 3.6 million tonnes. Yarrabee Coal Mine mainly produces low volatility PCI coal.

The thickness of the main coal seam of Yarrabee Coal Mine is approximately 8 meters. As of December 31, 2014, the mine’s JORC (as revised in 2012)-compliant reserves were approximately 47.6 million tonnes. As of the same date, the mine’s marketable coal reserves were approximately 37.4 million tonnes. We utilize conventional truck shovel and open-pit mining methods to extract coal at Yarrabee Coal Mine.

 

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Yarrabee Coal Mine has a coal preparation plant with an approved preparation capacity of 400 tonnes per hour, through which we are able to prepare 60% of the raw coal. We crush the remaining raw coal and sell to third parties as their quality is acceptable by the market. The main pieces of equipment used in the coal preparation plant are heavy medium cyclone machines and floating separation machines, which were generally manufactured in Australia. The operations at Yarrabee Coal Mine are powered by electricity from local power grids. We transport coal products from Yarrabee Coal Mine to Gladstone Port via railway.

Ashton Coal Mine

Ashton Coal Mine consists of an underground mine and an open-pit mine located in Hunter Valley, New South Wales, Australia and is accessible by railway to Newcastle Port. Ashton Coal Mine covers an area of approximately 16 square kilometers. The construction of the open-pit and underground mines of Ashton Coal Mine started in 2003 and commercial production commenced in 2004.

The approved annual capacity of Ashton Coal Mine is approximately 3.0 million tonnes of coal. Ashton Coal Mine mainly produces semi-soft coking coal.

The thickness of the main coal seams of the open-pit mine and the underground mine of Ashton Coal Mine ranges from 2.1 to 2.3 meters and 1.7 to 2.4 meters, respectively. As of December 31, 2014, the mine’s JORC (as revised in 2012)-compliant reserves were approximately 55.3 million tonnes. As of the same date, the mine’s marketable coal reserves were approximately 27.6 million tonnes, according to our internal estimates. We principally use longwall operations to extract coal from the underground coal seam of Ashton Coal Mine.

The main pieces of equipment used in the coal preparation plant of Ashton Coal Mine are heavy-medium cyclone machines and floating separation machines, which were generally manufactured in Australia. The operations at Ashton Coal Mine are powered by electricity from local power grids. We transport coal products from Ashton Coal Mine to Newcastle Port via railway.

Moolarben Coal Mine

Moolarben Coal Mine consists of an open-pit mine and an underground development project and is located near Mudgee in central western New South Wales. It is connected by railway to Newcastle Port. Moolarben Coal Mine covers an area of 120 square kilometers.

Yancoal Australia holds 80% of the equity interest in Moolarben Coal Mine through its subsidiary, Moolarben Coal Mines Pty Limited. Construction of Stage I, the open-pit mine, commenced in 2009 with commercial production starting in mid-2010. We have obtained the approval on June 16, 2014 to extend the pits approved under Stage I to access an additional 30.0 million tonnes of coal at the same production rate. On January 30, 2015, we obtained approval for the Moolarben Coal Project Stage II, comprising of one large open-pit mine (OC4) and two underground mines. Construction of Stage II is scheduled to commence in the second half of 2015. The approved annual production limit of Moolarben Coal Mine Stage I & II is 17.0 million ROM tonnes per annum, of which the annual production limit of the underground mine is 4.0 million ROM tonnes and the annual production limit of the open-pit mine is 13.0 million ROM tonnes. Moolarben Coal Mine produces thermal coal.

 

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The average thickness of the main coal seam of the open-pit mine of Moolarben Coal Mine is 6 to 13 meters. As of December 31, 2014, the mine’s JORC (as revised in 2012)-compliant reserves were approximately 330.4 million tonnes. As of the same date, the mine’s marketable coal reserves were approximately 258.6 million tonnes. We use conventional truck shovel mining methods in the open-pit mine and expect to use longwall machines to extract coal in the underground mine project.

Moolarben Coal Mine has a coal handling preparation plant with a capacity of approximately 1,800 TPH, and utilizes conventional equipment including medium-heavy cyclones and flotation cells which are primarily manufactured in Australia. The operations at Moolarben Coal Mine are powered by electricity from local power grids. We transport thermal coal products from Moolarben Coal Mine to Newcastle Port via railway.

Gloucester Coal Mine

Gloucester Coal Mine is located in Gloucester basin in New South Wales, Australia and covers an area of 163 square kilometers. Gloucester Coal Mine is approximately 100 kilometers away from Newcastle Port. The construction of Gloucester Coal Mine started in 1998 and commercial production commenced in 1999.

Gloucester Coal Mine consists of two open-pit mines, Duralie and Stratford, which has an aggregate annual approved production capacity of 3.8 million tonnes and an aggregate annual approved preparation capacity of 3.8 million tonnes. We use conventional truck shovel mining methods in Duralie open-pit mine and light mining equipment in Stratford open-pit mine. As of December 31, 2014, Gloucester Coal Mine’s JORC (as revised in 2012)-compliant reserves were approximately 52.2 million tonnes. As of the same date, the mine’s marketable coal reserves were approximately 31.0 million tonnes.

Duralie open-pit mine and Stratford open-pit mine own one coal preparation plan with an annual designed preparation capacity of 1.8 million tonnes, which was increased to 4.3 million tonnes in June 2011. We transport our coal products from Gloucester Coal Mine via railway.

Donaldson Coal Mine

Donaldson Coal Mine is located in Newcastle coal field in New South Wales, Australia and covers an area of 106 square kilometers. Donaldson Coal Mine is approximately 25 kilometers away from Newcastle Port. The construction of Donaldson Coal Mine started in 2001 and commercial production commenced in the same year.

Donaldson Coal Mine consists of Abel and Tasman underground mines, which has an aggregate annual designed production capacity of 3.0 million tonnes. The underground coal mine, Tasman, was temporally closed in July 2013 due to the high operational costs of the Tasman mine and the weak demand for coal products. The only underground mine, Abel, which is still under operation has an annual approved production capacity of 3 million tonnes. The average thickness of the main coal seam of the Abel mine ranges from 1.5 to 2.5 meters. As of December 31, 2014, Donaldson Coal Mine’s JORC (as revised in 2012)-compliant reserves were approximately 128.7 million tonnes. As of the same date, the mine’s marketable coal reserves were approximately 86.9 million tonnes.

Our coal products at Donaldson Coal Mine are prepared by a coal preparation plant owned and operated by a third party with coal preparation capacity of 3.0 million tonnes per year. We transport our coal products from Donaldson Coal Mine via railway.

 

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Middlemount Coal Mine

Middlemount Coal Mine is located at Bowen Basin in Queensland, Australia and covers an area of 28 square kilometers. The mine is approximately 300 kilometers away from Abbot Point port. The construction of Middlemount Coal Mine started in 2009 and commercial production commenced in 2011. Through Yancoal Australia, we own approximately 50% of the equity interest in the joint venture owns and operates Middlemount Coal Mine.

As of December 31, 2014, Middlemount Coal Mine’s JORC (as revised in 2012)-compliant reserves were approximately 84 million tonnes. As of the same date, the mine’s marketable coal reserves were approximately 63.4 million tonnes. The average thickness of the main coal seam of the Middlemount Coal Mine ranges from 9.3 to 9.8 meters. The mine has an annual set production capacity of 5.3 million tonnes. Middlemount Coal Mine has a coal preparation plant with an annual capacity of 5.25 million tonnes. The main pieces of equipment used in the coal preparation plant are screw machines with flotation devices. We transport our coal products from Middlemount Coal Mine via railway.

Coal Mines operated by Yancoal International

The following table sets forth information about our operational coal mines in Australia, which are directly or indirectly held by Yancoal International (Holding):

 

     Cameby Downs      Premier      Total  

Background data:

        

Commencement of construction

     2009         1996         N/A   

Commencement of commercial production

     2010         1996         N/A   

Coalfield area(1) (square kilometers)

     300         171         471   

Reserve data:

(millions of tonnes as of December 31, 2014)

        

Recoverable reserves(2)

     236.1         69.8         305.9   

Depth of mine (meters underground)

     Outdoor         Outdoor         N/A   

Type of coal

     Thermal coal         Thermal coal        
 
Semi-soft
coking coal
  
  

Leased/owned

     Owned         Owned         N/A   

Assigned/unassigned(3)

     Unassigned         Unassigned         N/A   

Average calorific value (Kcal/kg)

     6,000         4,776         N/A   

Sulfur content (%)

     0.5         0.6         N/A   

Production data: (million tonnes)

        

Approved raw coal production capacity

     1.8         5.0         6.8   

Designed coal preparation input washing capacity

     1.8         N/A         1.8   

Raw coal production

        

2011

     0.8         —           0.8   

2012

     1.9         4.2         6.1   

2013

     2.0         4.2         6.2   

2014

     2.0         3.7         5.7   

Cumulative raw coal production as of December 31, 2014

     6.7         12.1         18.8   

 

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(1) The coalfield area refers to the area of current leased land for mining, excluding the area on which we own prospecting rights.
(2) The recoverable reserves of the above coal mines are based on the report prepared by the competent persons appointed by Yancoal Australia and such reserves refer to total proved and probable reserves that were prepared in accordance with the standards in the JORC Code (2012). The reasons of the difference between the reserve data of the above coal mines compared to the previous disclosures are the result of changes to the JORC Code, as revised in 2012 and, to a lesser extent, operational factors that affect the production process.
(3) “Assigned” refers to coal reserves which have been committed to a particular mining complex (mine shafts, mining equipment and plant facilities), and all coal which has been leased by the company to others. “Unassigned” refers to coal reserves which have not been committed, and which would require new mine shafts, mining equipment, or plant facilities before operations could begin on the property.

 

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Cameby Downs Coal Mine

Cameby Downs Coal Mine consists of an open-pit mine located near Chinchilla in Southwest Queensland. The mine covers an area of approximately 300 square kilometers. The construction of the mine commenced in 2009 and commercial production started in late 2010. Yancoal Australia owns 100% of Cameby Downs Coal Mine. Cameby Downs Mine produces thermal coal and the average thickness of Cameby Downs Coal Mine was 5.6 meters. As of December 31, 2014, Cameby Downs Coal Mine had JORC (as revised in 2012)-compliant reserves of approximately 236.1 million tonnes. As of the same date, the mine’s marketable coal reserves were approximately 161.6 million tonnes.

The phase one stage of Cameby Downs Coal Mine has raw coal annual production capacity of 1.8 million tonnes and product capacity of approximately 1.4 million tonnes product coal.

Cameby Downs Coal Mine has a coal handling preparation plant with an annual capacity of approximately 220 TPH, and utilizes medium-heavy cyclones and flotation cells which are primarily manufactured in Australia. The operations at the mine are powered by electricity from the local power grid. We transport coal products from Cameby Downs Coal Mine to Brisbane Port via railway.

Premier Coal Mine

Premier Coal Mine, located in Perth, is an open-pit coal mine covering an area of approximately 130 square kilometers. The construction of the mine began in 1996 and commercial production commenced in the same year. Yancoal International (Holding) indirectly wholly owns Premier Coal Mine. The annual production capacity of Premier Coal Mine is approximately 5.0 million tonnes. Premier Coal Mine primarily produces low ash and low sulfur sub-bituminous coal. As of December 31, 2014, Premier Coal Mine had JORC-compliant reserves of approximately 69.8 million tonnes. We utilize conventional truck shovel open-pit mining methods to mine the coal from a number of seams at the mine. The coal mined at Premier Coal Mine is crushed and sold without washing. As a result, the mine’s marketable coal were approximately 69.8 million tonnes as of December 31, 2014, the same amount as its JORC (as revised in 2012)-compliant reserves.

The operations at Premier Coal Mine are powered by electricity from local power grids. We entered into a long-term coal sales agreement with Verve Energy, a power generator owned by the Western Australian Government. We transport coal products from Premier Coal Mine by conveyors to power stations and by railway to other customers in Australia.

Mining and Exploration Rights

Nantun, Xinglongzhuang, Baodian, Dongtan and Jining II

According to the approvals from the State-owned Asset Supervision Department and the Coal Industry Supervision Department obtained at the establishment of the Company, and the Mining Agreement entered into between the Yankuang Group and us in 1997 and its supplemental agreement, we undertook to make ten annual payments of approximately RMB13.0 million to the Yankuang Group commencing in 1997, as compensation for the depletion of coal resources at the Nantun, Xinglongzhuang, Baodian, Dongtan and Jining II coal mines. We fulfilled this obligation in 2007 after we made the final installment payment and we are not obligated to make further payment under this arrangement.

In September 2006, the State Council approved the Implementation Plan for the Compensation System Reform Testing in Relation to Deepening Coal Resources, jointly promulgated by the Ministry of Finance of the PRC, Ministry of Land and Resources of the PRC and the NDRC (the “Implementation Plan”). According to the Implementation Plan, enterprises that obtain mining rights as a result of state-funded exploration must pay mining right fees based on the valuation of its reserves. Our operations in Shandong Province are subject to this mining right fee. On August 3, 2012, Jining Municipal Land and Resources Bureau issued the Notice of payment for mining rights by Yanzhou Coal Mining Company Limited [JiGuotuzi(2012) No. 212], pursuant to which we are required to pay a consideration of RMB2,476.78 million for the mining rights of Nantun, Xinglongzhuang, Baodian, Dongtan and Jining II coal mines, RMB495.4 million of which was paid before the due date of September 30, 2012. The consideration was determined based on the assessment report for the consideration of mining rights of these five coal mines issued by independent third parties appointed by Jining Municipal Land and Resources Bureau and filed with Shandong Provincial Department of Land and Resources. As of December 31, 2014, we have paid mining rights compensation fees of approximately RMB1,287.9 million.

Jining III Coal Mine

Pursuant to the Jining III Coal Mine Acquisition Agreement dated August 4, 2000 that we entered into with the Yankuang Group, the consideration for the mining right of Jining III Coal Mine was approximately RMB132.5 million, which was to be paid to the Yankuang Group in ten equal interest-free annual installments commencing in 2001. We fully paid the consideration for the mining rights of Jining III Coal Mine in 2010.

 

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Austar Coal Mine

We obtained an exploration license for Austar Coal Mine from the New South Wales Department of Primary Industries in 2005. Pursuant to the underlying Asset Sale Agreement, we paid A$32.0 million to the receivers of Gympie Gold for the mine after we obtained the exploration license to the new exploration site adjacent to the Austar Coal Mine in 2006.

Tianchi Coal Mine

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

Zhaolou Coal Mine

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

Anyuan Coal Mine

We acquired the entire equity interest in Anyuan Coal Mine for a consideration of approximately RMB143.5 million in November 2010. The fair market value of the mining rights for Anyuan Coal Mine was approximately RMB131.3 million as of October 31, 2010.

Wenyu Coal Mine

In July 2011, Ordos Neng Hua acquired 80% of the equity interest in Inner Mongolia Xintai, which operates Wenyu Coal Mine, for a consideration of RMB2,801.6 million. In October 2013, Ordos Heng Hua further acquired the remaining 20% of the equity interest in Inner Mongolia Xintai for a consideration of RMB680.3 million and as a result of the acquisition Inner Mongolia Xintai became a wholly owned subsidiary of Ordos Neng Hua.

Zhuanlongwan Coalfield

Ordos Neng Hua won the bid for the mining rights of Zhuanlongwan coalfield of Dongsheng Coal Field in Inner Mongolia Autonomous Region for a consideration of RMB7,878.7 million on January 28, 2011. As of the date of this annual report, Ordos Neng Hua had fully paid the total consideration.

Yangcun and Beisu Coal Mine

We acquired the entire assets of Beisu and Yangcun Coal Mines from Yancoal Group and Beisu Company in 2012 for a consideration of RMB824.1 million. According to an evaluation report issued by an independent evaluator, the fair market value of the mining rights of Beisu Coal Mine and Yangcun Coal Mine was RMB139.5 million and RMB343.2 million as of August 31, 2011.

Coal Mines Owned by Yancoal Resources

We acquired the entire equity interest in Felix, a wholly owned subsidiary of Yancoal Australia, for A$3,333 million in 2009. The fair market value of our attributable reserves and attributable resources was A$2,845.2 million as of December 23, 2009. The acquisition included all mining rights to the coal mines owned by Felix (now Yancoal Resources), environment protection licenses, exploration licenses and mining leases.

In 2011, through Yancoal Resources, Yancoal Australia acquired 30% of the equity interest in the Ashton Coal Mine Joint Venture originally held by Austral-Asia Coal Holdings Pty Ltd., a wholly owned subsidiary of Singapore IMC Group, for a consideration of US$250 million. According to an evaluation report issued by an independent evaluator dated January 20, 2012, 30% of the equity interest Ashton Coal Mine Joint Venture was valued at approximately A$230.0 million. On September 30, 2014, Yancoal Australia invested AUD17.9 million to acquire the remaining 10% equity interest of Ashton Coal Mine Joint Venture held by ICRA Ashton Pty Ltd. through its wholly owned subsidiary. After the acquisition, Ashton Mine Joint Venture became a wholly-owned subsidiary of Yancoal Australia.

Cameby Downs Coal Mine

We acquired Cameby Downs Coal Mine and Syntech’s exploration tenements through the acquisition of the entire equity interest in Syntech Resources Pty Ltd. and Syntech Holdings II Pty Ltd., for a consideration of A$208.4 million on August 1, 2011. In addition to the Cameby Downs Coal Mine, Syntech Resources Pty Ltd. and Syntech Holdings II Pty Ltd. also have five exploration tenements that might be potentially developed. According to an evaluation report issued by an independent evaluator dated February 14, 2012, the fair market value of the reserves, resources and mining rights of the five exploration tenements was A$65.8 million as of August 1, 2011. Currently, the Syntech project is the phase I of Cameby Downs Coal Mine operation.

 

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Premier Coal Mine and Wilga Exploration Area

We acquired the Premier Coal Mine and the Wilga Exploration Area through the acquisition of Premier Coal Limited (then called Wesfarmers Premier Coal Limited) and Premier Char Ltd. (then called Wesfarmers Char Pty Ltd.), for a consideration of A$313.5 million in September 2011. The fair market value of the reserves, resources and mining rights of the coal mines owned by Premier Coal Limited was A$49.9 million as of December 31, 2011, according to an evaluation report issued by an independent evaluator.

Coal Mines Owned by Gloucester

Yancoal Australia completed its merger with Gloucester in June 2012. According to an evaluation report issued by an independent evaluator, the fair market value of the reserves, resources and mining rights of the coal mines owned by Gloucester was A$1,216.9 million as of June 30, 2012.

Potash Mineral Exploration Permits in Canada

We acquired 11 potash mineral exploration permits from Devonian Potash Inc. and eight potash mineral exploration permits from North Atlantic Potash Inc. for a total consideration of US$260 million in September 2011. The 19 potash mineral exploration permits cover an aggregate area of approximately 5,363.84 square kilometers in Saskatchewan, Canada. According to the preliminary exploration report, we expect that the permitted area may have abundant potash resources. We intend to conduct further in-depth exploration work to produce formal estimates of potash resources in compliance with internationally recognized reporting standards.

Railway Assets

We own and operate a railway transportation network that connects our coal mines in Shandong to the national railway system and Zouxian Power Plant in Jining City of Shandong. As of the date of this annual report, our railway network spans a total length of over 200 kilometers. Our railway network provides us with substantial control over a major means of transportation for our key product, allowing us to benefit from the synergies from coal production, sales and transportation.

Methanol and Cogeneration Power Plants

Yulin Nenghua. Yulin Nenghua, located in Yunlin City of Shanxi, operates a 600,000-tonne methanol plant and a supporting power plant. The primary pieces of equipment at the methanol plant include boilers, steam turbines, air compressors and booster set, GEA air-cooler exchangers, gasifiers and gasification compressors, synthetic compressors, a methanol synthetic gas-cooled reactor, a methanol synthetic water-cooled reactor and propylene refrigeration compressors. Yulin Nenghua also operates a supporting power plant with an installed capacity of 60 MW for its methanol production.

Hua Ju Energy. Hua Ju Energy is headquartered in Zoucheng City, Shandong. Hua Ju Energy owns and operates five cogeneration power plants, each of which is able to supply electric power and heat to our coal mines in its proximity. The power plants consist of the Nantun power plant, Xinglongzhuang power plant, Baodian power plant, Dongtan power plant and Jining II power plant. The aggregate installed capacity of these six power plants is 132 MW and the annual power generation capacity and heat supply capacity are 0.9 to 1.0 billion KWh and 1.0 to 1.2 million steam tonnes, respectively. The main pieces of equipment used at Hua Ju Energy include energy conversion CFB boilers and extraction and condensing steam turbines.

Zhaolou Coal Mine Power Plants. Zhaolou Coal Mine power plants are intended to be integrated power plants for Zhaolou Coal Mine, located in Heze City of Shandong. The power plants are being constructed in two phases with designed capacity of 300 MW for each phase. We commenced construction of phase I of the power plants which utilize a power generator of 300 MW in March 2010, which commenced operation in November 2014. The main pieces of equipment used at Zhaolou Coal Mine power plants include extraction and condensing steam turbines, water hydrogen generators and CFB boilers.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

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

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

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

 

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A. Operating Results

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

 

    coal business;

 

    railway transportation business;

 

    coal chemical business;

 

    electric power business; and

 

    heat supply business.

Overview

Coal Business

We are one of the primary coal producers in China and Australia. We primarily engage in the mining, washing, processing and distribution of coal through railway transportation. We offer a wide variety of coal products including thermal coal, semi-hard coking coal, semi-soft coking coal and PCI coal which are sold to Eastern China, Southern China, Northern China and other regions of China and multiple other countries, including Japan, South Korea and Australia. Since 2004, we have expanded our operations to include railway transportation, production of coal chemicals, the generation of electricity and heat and the potash exploration business.

Our invoiced amount of coal sold includes returns, discounts, sales-related taxes, port fees and other fees and, in certain cases, transportation costs payable by customers. Gross sales, or sales income as used elsewhere in this annual report, of coal equals the invoiced amount of coal sold less returns and discounts. In 2014, we produced approximately 72.6 million tonnes of raw coal and sold approximately 123.1 million tonnes of coal, which included approximately 57.0 million tonnes of coal that was purchased externally from third parties for trading. In 2012, 2013 and 2014, our sales income of coal was approximately RMB56,200.6 million, RMB54,444.8 million and RMB58,539.4 million, respectively, which represented approximately 96.7%, 96.5% and 97.0%, respectively, of our total sales income. Domestic sales income of coal accounted for 82.9%, 83.2% and 87.3% and overseas sales income of coal accounted for 17.1%, 16.8% and 12.7% of our total sales income of coal during 2012, 2013 and 2014, respectively.

Railway Transportation Business

We own a railway network spanning over 200 kilometers, which we use primarily to transport coal, as well as other goods upon the request of our railway transportation customers. To facilitate our production and sales of coal, we provide railway transportation services to our coal customers and the Yankuang Group. The annual transport volume on our railway network has remained steady in recent years. In 2014, we transported a total of approximately 16.6 million tonnes of goods on our railway network, compared to approximately 18.3 million tonnes in 2013 and approximately 17.5 million tonnes in 2012.

We derive income from our railway transportation services through the delivery of (i) coal purchased from us on an ex-mine basis, an arrangement where customers separately bear the cost of transporting the coal they purchase to a designated location, and (ii) goods other than coal that we deliver on behalf of customers who engage us exclusively for our railway transportation services. In 2014, income from our railway transportation services totaled approximately RMB373.6 million.

Coal Chemical Business

Our coal chemical operations consist primarily of the production and sale of methanol. Our subsidiary, Yulin Nenghua currently engages in the production of methanol. Yulin Nenghua’s methanol plant, which has a production capacity of 600,000 tonnes per annum, commenced commercial operations in August 2009. In 2012, Yulin Nenghua and Shanxi Nenghua produced a total of approximately 572,000 tonnes and sold 574,000 tonnes of methanol, generating sales income of approximately RMB1,118.0 million. In 2013, Yulin Nenghua produced a total of approximately 609,000 tonnes and sold 599,000 tonnes of methanol, generating sales income of approximately RMB1,155.7 million. In 2014, Yulin Nenghua produced a total of approximately 650,000 tonnes and sold 660,000 tonnes of methanol, generating sales income of approximately RMB1,195.5 million. In addition, Ordos Neng Hua completed the construction of a methanol project in Ordos City in the Inner Mongolia Autonomous Region, which became commercially operational in the first quarter of 2015.

 

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Electric Power Business

We own and operate seven power plants, with total installed capacity of 492 MW, which generate electric power primarily for internal use and, to a lesser extent, external sales. The six cogeneration power plants operated by Hua Ju Energy are able to generate both electric power and heat. We ceased production at the power plant operated by Shanxi Nenghua on January 1, 2012 due to high fuel costs. We are in the process of disposing this power plant together with Tianhao Chemical’s methanol assets. In 2012, we generated a total of approximately 1,155.2 million kWh of electricity and sold approximately 856.4 million kWh of electricity, generating approximately RMB323.6 million in revenue. In 2013, we generated a total of approximately 1,234.4 million kWh of electricity and sold approximately 879.1 million kWh of electricity, generating approximately RMB332.1 million in revenue. In 2014, we generated a total of approximately 1,605.1 million kWh of electricity and sold approximately 722.5 miilion kWh of electricity, generating approximately RMB241.5 million in revenue. In addition, Phase I of Heze Nenghua’s power plant, with an installed capacity of 300 MW, commenced commercial operation in November 2014.

Heat Supply Business

In 2014, we produced approximately 1.3 million steam tonnes of heat and sold approximately 90,000 steam tonnes of heat, generating sales revenue of approximately RMB20.8 million.

Factors Affecting Our Results of Operations

Our results of operations and financial condition are affected by a number of factors, many of which are beyond our control, including those set forth below:

Conditions and regulations affecting the coal mining industry

Our coal mining operations in the PRC are subject to various PRC laws and regulations, including developmental, environmental and health and safety laws and regulations, and various national and local policies, which could facilitate our acquisition activities and the overall growth of our business and operations, industry consolidation could result in larger coal mining enterprises that compete against us.

Our mining operations in Australia are regulated by Australian federal and state governments with respect to environmental issues such as water quality, air quality, dust impact, noise impact, planning issues (such as approvals to expand existing mines, develop new mines or change mining methods), and health and safety issues. Future changes to, and our continuing compliance with, these regulations may have a material effect on our business and results of operations. See “Item 3. Key Information — D. Risk Factors — Risks Relating to Our Business and Industry – Our coal operations are extensively regulated by the PRC and Australian government, and government regulations may limit our activities and adversely affect our business, results of operations and financial condition.”

Demand for coal

Given the nature of our operations, the demand for coal will continue to have a significant effect on our results of operations. Global coal demand correlates strongly with the global economy and, as such, the sustained economic downturn and intensified environmental protection may have an adverse effect on demand for coal. Coal demand is also affected by a variety of factors beyond our control, such as the availability and prices of alternative energy sources to coal, international shipping costs and costs of conducting coal mining operations.

Acquisition and expansion

Our coal business expansion plans are primarily dependent on successfully acquiring and developing projects that can grow or diversify our existing operations. Our coal reserves, future production capacity and, consequently, our revenues and results of operations, will depend on the success of such projects. Our business and results of operations could be affected if we are unable to successfully integrate or operate our acquisitions or achieve anticipated additional revenue and earnings.

 

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Exchange rate fluctuations

Assets, liabilities and the fair value of financial instruments and balances that we incur, create or acquire in the process of our international operations and which are denominated in currencies other than RMB, or in currencies other than the functional currencies of the relevant business units, may fluctuate substantially depending on changes in currency exchange rates. See “Item 3. Key Information — D. Risk Factors — Risks Relating to Our Business and Industry – Our business, results of operations and financial condition depend in part on our ability to continue acquiring or developing suitable coal reserves” and “Item 11. Quantitative and Qualitative Disclosures of Market Risk – Foreign Currency Exchange Rate Risk.”

Product mix

Our products, which include thermal coal, semi-hard coking coal, semi-soft coking coal and PCI coal, generally have different prices and gross margins. For example, our No. 1 clean coal has historically had a higher gross margin than our other products and, as such, an increased proportion of sales income generated from No. 1 clean coal would result in higher gross profits. Conversely, if the sales volume of lower gross margin coal products, such as thermal coal, increased in comparison to higher margin coal products, then we would have lower gross profits despite an increase in sales volume. In addition, the future launch of new products will also affect our product mix and, consequently, our revenues, gross margins and results of operations.

Production capacity

Our results of operations and future growth prospects are affected by our coal production capacity. Our production capacity and production volume may be affected by the macroeconomy and customer demand. We will continue to focus on increasing our production capacity by developing our existing projects and potential domestic and international acquisitions. Increasing our production capacity also increases costs, expenses and capital expenditures. The PRC government has issued a number of production limitation policies, which may affect our production output and results of operations.

Coal prices

The selling prices of our coal products are influenced by price fluctuations in the PRC domestic market and the global market. The coal prices may also be affected by factors that are out of our control, such as international demand and supply of coal, coal quality and features, method, capacity and cost of transportation, increasingly stringent environmental protection requirements and national policy on coal consumption industries. Changes in the above factors are likely to lead to changes in coal prices, which will in turn influence our business and results of operations. See “Item 3. Key Information — D. Risk Factors — Risks Relating to Our Business and Industry – Our business, results of operations and financial condition depend on volatile domestic and international coal markets.”

Cost of sales

Our results of operations are affected by our cost of sales, which mainly comprises wages and employee benefits, purchases of coal from third parties for trading purposes, materials, land subsidence, restoration, rehabilitation and environmental costs, depreciation and amortization expenses and business tax and surcharges associated with our coal business and railway transportation business. Key factors impacting these costs include variations in production volume, the cost of power, fuel and labor, the application of advanced mining technologies, changes in railway fees and port fees, and contractual terms of our coal products.

Transportation volume and cost

We primarily use railways, marine transportation and highways to transport coal domestically and internationally. We primarily rely on the national railway system in the PRC and railway systems operated by third parties in Australia to transport our coal. In addition, we also utilize our private railway network to transport other goods upon the request of our railway transportation customers. We also transport coal on the national railway system to ports, from which we ship coal to our customers. Our revenue and results of operations may be affected by fluctuations in the transportation volume and capacity of national and state railway systems and of our own railway assets, as well as fluctuations in the costs associated with transporting coal to our customers.

Coal resources and reserves

Coal resources and reserves data is a key element in our decision-making process. All coal reserves data are estimates, which are revised when additional information becomes available (for example, when additional coal mines commence operations or when actual coal production or extraction commences). If the amount or quality of coal mined differs from the reserve estimates, we may have to further process or wash the coal mined in order to produce coal of a saleable quality. See “Item 3. Key Information — D. Risk Factors — Risks Relating to Our Business and Industry — The coal reserve data in this annual report are only estimates, which may differ materially from actual reserve amounts.”

 

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Results of Operations

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

 

     2012     2013     2014  
     RMB
(million)
    %     RMB
(million)
    %     RMB
(million)
    %  

Total revenue

     58,146.2        100.0        56,401.8        100.0        60,370.8        100.0   

Gross sales of coal

     56,200.6        96.7        54,444.8        96.5        58,539.4        96.9   

Railway transportation service income

     464.1        0.8        457.9        0.8        373.6        0.6   

Gross sales of electric power

     323.6        0.6        332.1        0.6        241.5        0.4   

Gross sales of methanol

     1,118.0        1.9        1,155.7        2.0        1,195.5        1.9   

Gross sale of heat supply

     39.9        0.1        11.2        0.1        20.8        0.1   

Transportation costs of coal

     (2,104.2     (3.6     (2,024.2     (3.6     (2,291.6     (3.8

Cost of sales and service provided

     (42,149.0     (72.5     (42,511.8     (80.7     (49,557.5     (82.1

Cost of electric power

     (330.8     (0.6     (320.5     (0.6     (159.7     (0.3

Cost of methanol

     (911.2     (1.6     (850.8     (1.5     (869.3     (1.4

Cost of heat supply

     (25.1     0.0        (6.7     (0.1     (11.2     (0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

  12,625.8      21.7      10,687.8      18.9      7,481.4      12.4   

Selling, general and administrative expenses

  (7,987.6   (13.7   (10,380.7   (18.4   (6,069.8   (10.1

Share of profit of associates

  142.0      0.2      233.9      0.4      310.6      0.5   

Share of loss of jointly ventures

  (191.6   0.3      (376.0   (0.7   (320.8   (0.5

Other income

  2,930.4      5.0      1,020.6      1.8      2,382.2      3.9   

Interest expense

  (1,448.7   (2.5   (1,765.8   (3.1   (2,183.6   (3.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(Loss) before income taxes

  6,070.4      10.4      (580.3   (1.0   1,599.9      2.7   

Income taxes

  (36.2   (0.1   394.8      0.7      (1,112.8   (1.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(Loss) for the year

  6,034.2      10.4      (185.5   (0.3   487.1      0.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Attributable to:

Equity holders of the Company

  6,065.6      10.4      777.4      1.4      766.2      1.3   

Owners of perpetual capital security

  —        —        —        —        36.5      0.1   

Non-controlling interests

  (31.4   0.1      (962.8   (1.7   (315.5   (0.5

Year Ended December 31, 2014 Compared with Year Ended December 31, 2013

Total revenue

Our total revenue increased by RMB3,968.9 million, or 7%, from approximately RMB56,401.8 million in 2013 to approximately RMB60,370.76 million in 2014. Our gross sales of coal, which accounted for 96.7% of our total revenue in 2012, increased by RMB4,094.96 million, or 7.5%, from approximately RMB54,444.8 million in 2013 to approximately RMB58,539.4 million in 2014. The increase in gross sales of coal was primarily due to the increase in the sales volumes of our externally purchased coal products, partially offset by a decrease in the average selling price of our coal products. In 2014, our average selling price of coal products decreased by approximately RMB47.9 per tonne, from RMB523.53 to RMB475.64 per tonne, a 9.1% decrease from 2013. Our sales volume of coal products increased by 18.3% from approximately 104.0 tonnes in 2013 to 123.1 million tonnes in 2014, primarily due to the increase in the sales volumes of our externally purchased coal products to maintain our market share.

In 2014, the transportation volume of our railway assets was approximately 16.6 million tonnes, representing a decrease of approximately 1.7 million tonnes, or 9.2%, from 2013. Our railway transportation services income (income from transported volume settled on the basis of off-mine prices and special purpose railway transportation fees borne by customers) decreased by RMB 84.3 million, or 18.4%, from approximately RMB457.9 million in 2013 to approximately RMB373.6 million in 2014.

Our gross sales of methanol increased by approximately RMB39.7 million, or 3.4%, from RMB1,155.7 million in 2013 to approximately RMB1,195.6 million in 2014. The increase in gross sales of methanol was mainly attributable to an increase in sales volumes of methanol. Our gross sales of electric power decreased by approximately RMB90.6 million, or 27.3%, from approximately RMB332.1 million in 2013 to approximately RMB241.5 million in 2014. Our gross sales of heat supply increased by RMB9.6 million, or 85.8%, from approximately RMB11.2 million in 2013 to approximately RMB20.8 million in 2014, due primarily to an increase in sales volumes of heat.

 

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Transportation costs of coal

Our coal transportation costs, including our railway transportation costs for coal products, increased by RMB267.4 million, or 13.2%, from RMB2,024.2 million in 2013 to RMB2,291.6 million in 2014, and included transportation costs for our coal sold in the PRC of RMB880.2 million and for coal sold outside the PRC of approximately RMB1,411.4 million. The increase in the transportation costs of coal was primarily due to the increase of coal products transported in the amount of 3.5 million tonnes.

We use highways and, to a lesser extent, railways, domestic and international shipping lanes to transport trading coal. We are responsible for costs incurred if coal is transported via railways. The costs of highway and shipping lanes are charged by the relevant carriers to, and borne by, our customers and are not recorded as our transportation costs. As a result, our transportation costs of coal increased in 2014 due to a general increase in railway transportation coal volume, the costs of which are borne by us compared with volumes transported using highways, which are borne by our customers.

Cost of sales and services provided

Our cost of sales and services provided include the cost of sales of coal business and railway transport services, which consist primarily of costs of materials, wages, employee benefits, depreciation and amortization, reclamation of land subsidence restoration costs, environmental cost, cost of externally purchased coal and others. Our total cost of sales and services provided increased by RMB7,045.7 million, or 16.6%, from RMB42,511.8 million in 2013 to approximately RMB49,557.5 in 2014, primarily due to the increase of RMB8,538.1 million of cost of sales of externally purchased coal, partially offset by a decrease of RMB49.9 million in materials, RMB319.3 million in employee wages and benefits and RMB140.9 million in land subsidence, restoration and rehabilitation cost, respectively, as a result of increased cost control and improved productions system through reducing material consumption and labor costs.

Cost of electric power

Our cost of our electricity business is mainly from raw material and labor cost. Our cost of electric power decreased by RMB160.8 million or 50.2% from approximately RMB320.5 million in 2013, to approximately RMB159.7 million in 2014, primarily due to a decrease in electric power sold by Hua Ju Energy. Hua Ju Energy sold approximately 303.6 million kWh of electric power in 2014 compared to 869.1 million kWh of electric power in 2013. This decrease in sales resulted from a change in sales policy, as our Company since March 2014 had only sold electricity produced by Hua Ju Energy after satisfying internal demand requirements.

Cost of methanol

Our cost of methanol is mainly from raw material, labor and depreciation costs. Our costs of methanol increased from approximately RMB850.8 million in 2013 to approximately RMB869.3 million in 2014, primarily due to an increase in the sales volumes of methanol.

Cost of heat supply

Our cost of heat supply is mainly from raw material and labor cost. Our cost of heat supply increased by RMB4.5 million or 67.5%, from approximately RMB6.7 million in 2013 to approximately RMB11.2 million in 2014, primarily due to the increase in our sales volume of heat supply.

Selling, general and administrative expenses

Our selling, general and administrative expenses decreased by RMB4,310.8 million, or 41.5%, from approximately RMB10,380.7 million in 2013 to approximately RMB6,069.9 million in 2014. This decrease was primarily because (i) the exchange loss of RMB1.686 billion in 2013 resulted in impairment provision for intangible assets of RMB2.0522 billion while during the reporting period, there were no exchange loss and impairment provision for our intangible assets; (ii) the price regulation fund decreased by RMB195.8 million in 2014 as compared with that of 2013; partially offset by the operating taxes and surcharges increased by RMB334.8 million in 2014 as compared with that of 2013 and employee wages and benefit increased by RMB128.6 million in 2014.

Share of profit of associates

Our share of profit from associates increased by RMB76.7 million, or 32.8%, from RMB233.9 million in 2013 to approximately RMB310.6 million in 2014, primarily due to the investment return on Shaanxi Chemicals of RMB95.4 million, partially offset by the decrease in the the investment return on Huadian Zouxian by RMB14.2 million compared with that of 2013.

 

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Share of loss of joint ventures

Our share of loss of joint ventures decreased by RMB55.2 million, or 14.7%, from RMB376.0 million in 2013 to RMB320.8 million in 2014, primarily due to a decrease in the investment loss of RMB54.9 million in the joint venture operating Middlemount Coal Mine.

Other income

Our other income increased by RMB1,361.6 million, or 133.4%, from approximately RMB1,020.6 million in 2013 to approximately RMB2,382.2 million in 2014, primarily due to an increase in interest income of approximately RMB346.6 million, a foreign exchange gain of approximately RMB154.0 million and impairment provision for accrued intangible assets of RMB731.3 million reversed from the previous year in 2014.

Interest expenses

Our interest expenses increased by RMB417.8 million, from approximately RMB1,765.8 million in 2013 to approximately RMB2,183.6 million in 2014, primarily due to the increase in bank and other borrowings from 2013 to 2014.

Profit before income tax

As a result of the foregoing, the profit before income taxes increased by RMB2,180.2 million, or 375.7%, from loss of approximately RMB580.3 million in 2013 to profit of approximately RMB1,599.9 million in 2014.

Income tax expense/gain

We recorded income tax expense of approximately RMB1,112.8 million in 2014, as compared to income tax gain of approximately RMB394.8 million in 2013, primarily due to the increase in income tax expense of our Australia subsidiaries.

The effective income tax rate increased from 68.0% in 2013 to 69.6% in 2014 primarily due to loss incurred by our Australian operations, which are subject to generally higher income tax rates at a rate of 30%. The resulting income tax gain (after-tax effect of both income taxes and MRRT) of our Australian operations was RMB1,690 million and income tax expense of RMB431.4 million in 2013 and 2014, respectively. Excluding our subsidiaries, we were the major contributor to the income tax of the Group as a whole, with an income tax expense of RMB1,469 million and RMB757.1 million in 2013 and 2014, respectively. The resulting set-off resulted in a net income tax expense of RMB1,188.5 million in 2014 and RMB221 million in 2013. As a result of the foregoing, we experienced a significant fluctuation of our effective income tax rate from 2013 to 2014, as our corresponding effective tax rate was 38.0% and 74.2% in 2013 and 2014, respectively. The remaining income tax gain in 2014 is mainly related to losses incurred by other Chinese subsidiaries.

Profit/Loss for the year

As a result, we recorded profit for the year of approximately RMB487.1 million in 2014, as compared to loss for the year of approximately RMB185.5 million in 2013. In particular, net profit from our trading of externally purchased coal in 2014 was approximately RMB201.3 million. The profit attributable to equity holders of the Company decreased by RMB11.2 million, or 1.4%, from approximately RMB777.4 million in 2013 to approximately RMB766.2 million in 2014.

Year Ended December 31, 2013 Compared with Year Ended December 31, 2012

Total revenue

Our total revenue in 2013 decreased by RMB1,744.44 million, or 3.0%, from RMB58,146.2 million in 2012 to approximately RMB56,401.8 million in 2013. Our gross sales of coal, which accounted for 96.5% of our total revenue in 2011, decreased by RMB1,755.8 million or 3.1%, from approximately RMB56,200.6 million in 2012 to approximately RMB54,444.8 million in 2013. The decrease in gross sales of coal was primarily due to the decrease of the average selling price led by weak demand for coal in both domestic and overseas markets. In 2013, our average selling price of coal products decreased by approximately RMB80.7 per tonne, from RMB604.26 to RMB523.53 per tonne, a 13.4% decrease from 2012. Our sales volume of coal products increased 11.8% from approximately 93.0 million tonnes in 2012 to 104.0 million tonnes in 2013.

In 2013, the transportation volume of our railway assets was approximately 18.3 million tonnes, representing a decrease of approximately 0.7 million tonnes, or 4.2%, compared to 2012. Our railway transportation services income (income from transported volume settled on the basis of ex-mine prices and special purpose railway transportation fees borne by customers) decreased by RMB6.2 million, or 1.3%, from approximately RMB464.1 million in 2012 to approximately RMB457.9 million in 2013.

 

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Our gross sales of methanol increased by RMB37.7 million, or 3.4%, from approximately RMB1,118.0 million in 2012 to approximately RMB1,155.7 million in 2013. the increase in gross sales of methanol was mainly attributable to an increase in sales volumes of methanol. Our gross sales of electric power increased by approximately RMB8.5 million, or 2.6%, from approximately RMB323.6 million in 2012 to approximately RMB332.1 million in 2013. Our gross sales of heat supply decreased by RMB28.7 million, or 71.9%, from approximately RMB39.9 million in 2012 to approximately RMB11.2 million in 2013, due primarily to our termination of heat supply to Jidong New Town.

Transportation costs of coal

Our coal transportation costs decreased by RMB80.0 million, or 3.8%, from approximately RMB2,104.2 million in 2012 to approximately RMB2,024.2 million in 2013, which included transportation costs for our coal sold in the PRC of approximately RMB444.3 million and for coal sold outside of the PRC of approximately RMB1, 579.9 million.

Cost of sales and services provided

Our total cost of sales and services provided increased by RMB362.8 million, or 0.9%, from approximately RMB42,149.0 million in 2012 to approximately RMB42,511.8 million in 2013, primarily due to increased sales volumes of coal. The increased sales volumes resulted in an increase of RMB1,311.5 million in purchases of coal from third parties for trading purposes and a RMB347.2 million increase in depreciation.

Cost of electric power

Our cost of electric power decreased by RMB10.3 million from approximately RMB330.8 million in 2012, to approximately RMB320.5 million in 2013, primarily due to a decrease in electric power sold by Yulin Nenghua. Yulin Nenghua sold approximately 99.8 million kWh of electric power in 2013 compared to 244.6 million kWh of electric power in 2012, the decrease of which was caused by its increased internal consumption of electricity.

Cost of methanol

Our production costs decreased by RMB911.2 million in 2012 to approximately RMB850.8 million in 2013, primarily due to the decrease in the cost of coal.

Cost of heat supply

Our cost of heat supply decreased by RMB18.4 million, from approximately RMB25.1 million in 2012, to approximately RMB6.7 million in 2013, primarily due to the decrease in our sales volume of heat supply.

Selling, general and administrative expenses

Our selling, general and administrative expenses increased by RMB2,393.1 million, or 30.0%, from approximately RMB7,987.6 million in 2012 to approximately RMB10,380.7 million in 2013. This increase was primarily attributable to the exchange losses of approximately RMB1,686.0 million we recorded in 2013 as the result of the U.S. dollar deonominated and RMB denominated loans held by our Australian subsidiaries and the depreciation of Australian dollars against U.S. dollars and RMB. The increase was also due to an increase of RMB1,321.2 million in provision for assets impairment loss as compared with 2012.

Share of income of associates

Our share of income from associates increased by RMB91.9 million or 64.7%, from approximately RMB142.0 million in 2012 to RMB233.9 million in 2013, primarily due to an increase of RMB90.1 million in investment income from Huadian Zouxian as compared with 2012.

Share of loss of joint ventures

Our share of loss of joint ventures increased by RMB184.4 million, or 96.3%, from RMB191.6 million in 2012 to RMB376.0 million in 2013, primarily due to an increase in the investment loss of RMB54.9 million in the joint venture operating Middlemount Coal Mine.

Other income

Our other income decreased by RMB1,909.9 million, or 65.2%, from approximately RMB2,930.4 million in 2012 to approximately RMB1,020.6 million in 2013, primarily due to approximately RMB1,269.2 million income generated from the acquisition of Gloucester in 2012 and a foreign exchange gain of approximately RMB714.2 million in 2012.

 

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Interest expenses

Our interest expenses increased by RMB317.1 million from approximately RMB1,448.7 million in 2012 to approximately RMB1,765.8 million in 2013, primarily due to the offering of RMB denominated short-term notes and the non-public issuance of financial instruments in 2013.

Loss before income tax

As a result of the foregoing, we recorded loss before income taxes of approximately RMB580.3 million in 2013, as compared to the profit before income taxes of approximately RMB6,070.4 million in 2012.

Income tax gain

We recorded income tax gain of approximately RMB394.8 million in 2013, as compared to income tax expenses of approximately RMB36.2 million in 2012, primarily due to the decrease in the deffered income tax caused by the loss of Yancoal Australia.

Loss for the year

As a result, we recorded profit for the year of approximately RMB185.5 million in 2013, as compared to profit for the year of approximately RMB6,034.2 million in 2012. In particular, net profit from our trading of externally purchased coal in 2013 was approximately RMB125.8 million. The profit attributable to equity holders of the Company decreased by RMB5,288.2 million, or 87.2%, from approximately RMB6,056.6 million in 2012 to approximately RMB777.4 million in 2013.

Segment Information

The following table sets forth a breakdown of our total consolidated gross revenues for each of the years indicated and the percentage contribution of each segment to our total gross revenues:

 

     2012     2013     2014  
     RMB     %     RMB     %     RMB     %  
     (in millions, except for percentages)  

Coal mining revenue

     56,419.8        97.0        54,901.0        97.3        58,997.0        97.7   

Railway transportation revenue

     496.6        0.9        501.2        0.9        447.8        0.7   

Methanol, electricity and heat supply revenue

     1,765.9        3.0        1,792.1        3.2        1,988.5        3.3   

Unallocated and eliminations

     (536.2     (0.9     (792.4     (1.4     (1,062.5     (1.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross revenue

  58,146.2      100.0      56,401.8      100.0      60,370.8      100.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

We are mainly engaged in the mining, washing, processing and railway distribution of coal. For the year ended December 31, 2014, we derived our revenue mainly derived from coal sales in the PRC.

Coal mining revenue

Our revenue from coal mining segment (before unallocated corporate income and eliminations) increased by RMB4,096.0 million, from approximately RMB54,901.0 million in 2013 to approximately RMB58,997.0 million in 2014, primarily due to the increase in the sales volume of coal products from approximately 104.0 million tonnes in 2013 to approximately 123.1 million tonnes in 2014, partially offset by a decrease in the average selling price of our coal products. In addition, we recorded a profit on share of associates of RMB304.9 million in our mining business in 2014 as compared to a loss of RMB330.2 million in 2013, primarily due to the share of profit recognized by Shaanxi Chemical. We recognized a loss on our share of joint ventures in mining businesses, which decreased from RMB376.0 million in 2013 to RMB320.8 million in 2014, primarily due to share of loss recognized by the joint venture operating Middlemount Coal Mine.

In 2014, we recorded a reversal of impairment loss on intangible assets of RMB731.3 million, as compared to an impairment loss on intangible assets of RMB2,052.2 million in 2013, primarily due to the improvement in current and life of mine operating costs and an increase in JORC (as revised in 2012)-compliant reserves at the Moolarben Mine.

Railway transportation

Our revenue from railway transportation business segment (before unallocated corporate income and eliminations) remained relatively stable at RMB447.8 million in 2014 as compared to RMB501.2 million in 2013.

 

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The segment liabilities for the railway transportation business segment decreased by RMB29.9 million, from RMB170.9 million in 2013 to approximately RMB141.0 million in 2014, primarily due to a decrease in receivables due from companies within our Group in 2014 as a result of their late payments.

Methanol, electricity and heat supply business

Our revenue from methanol, electricity and heat supply business segment (before unallocated corporate income and eliminations) increased by RMB196.4 million, from RMB1,792.1 million in 2013 to RMB1,988.5 million in 2014. Our profits from associates in the methanol, electricity and heat supply business segment decreased by RMB558.4 million, from RMB564.1 million in 2013 to RMB5.7 million in 2014, as the result of a decrease in share of profit recognized by Huadian Zouxian.

Unallocated and eliminations

Our unallocated corporate income decreased by RMB270.1 million, from RMB792.4 million in 2013 to RMB1,062.5 million in 2014. Our unallocated corporate expenses increased by RMB702.4 million, from RMB1,504.1 million in 2013 to RMB1,990.3 million in 2014, primarily included bank charges, salaries and other employee benefits, miscellaneous taxes and other sundry items.

 

B. Liquidity and Capital Resources

Our principal sources of liquidity in 2014 were the cash generated from our operating activities, offering of RMB denominated short term notes and bonds and proceeds from bank borrowings. In 2014, we primarily utilized cash to pay our operating expenses, purchase property, machinery and equipment, finance acquisitions and pay dividends to shareholders.

Our principal sources of liquidity in 2013 were the cash generated from our operating activities, offering of RMB denominated short term notes and proceeds from bank borrowings. In 2013, we primarily utilized cash to pay our operating expenses, fund payments of interest and principal due on our indebtedness, finance acquisitions and expansion of our facilities and operations.

Our principal sources of liquidity in 2012 were proceeds from bank borrowings, the RMB-denominated corporate bonds we issued in 2012 (the “RMB Bond Offering”) and the US$-denominated corporate bonds we issued in 2012 (the “US$ Bond Offering”) and the cash generated from our operating activities. In 2012, we used cash primarily to finance working capital, fund payments of interest and principal due on our indebtedness, finance acquisitions and fund capital expenditures and the growth and expansion of our facilities and operations.

Taking into account our cash and cash equivalents on hand, our available credit facilities, cash generated from our future operations and the proceeds from the offering of RMB denominated short term notes and non-public issuance of financing instruments, we believe we have sufficient working capital to meet our financial requirements for at least the next 12 months from the date of this annual report. As of December 31, 2014, we had cash and cash equivalents of approximately RMB15,041.9 million.

We conduct our operations directly and through our operating subsidiaries, some of which we do not wholly own, are joint ventures or are public companies. Therefore, we may not be able in all circumstances to allocate our free cash flow as we would like among our subsidiaries. In addition, PRC law restricts the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans or advances. PRC regulations currently permit payment of dividends by PRC companies only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, under current PRC laws, regulations and accounting standards, each subsidiary is required to allocate at least 10% of its after-tax profit based on PRC accounting standards to its statutory common reserve fund each year until the cumulative amount of these reserves reaches 50% of its registered capital. These reserves are not distributable as cash dividends. As of December 31, 2014, the required deductions attributable to these statutory common reserve funds amounted to approximately RMB5,930.1 million.

Furthermore, under SAFE regulations, Renminbi is not convertible into foreign currencies for capital account items, such as loans, repatriation of investments and investments outside of China, unless the prior SAFE approval is obtained and prior registration with the SAFE is made. These restrictions have not historically had, and are not expected in the future to have, a material impact on our ability to meet our financial requirements.

 

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Cash Flows

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

 

     Year Ended December 31,  
     2012      2013      2014  
     (RMB’000)  

Net cash from / (used in) operating activities

     6,503.6         (2,201.1      4,171.8   

Net cash used in investing activities

     (3,187.4      (13,504.4      (8,534.8

Net cash from financing activities

     1,145.1         13,286.9         8,692.2   

Net increase / (decrease) in cash and cash equivalents

     4,461.4         (2,418.5      4,329.2   

Cash and cash equivalents as of end of year

     12,717.4         10,922.6         15,041.9   

Cash flow from / (used in) operating activities

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

Net cash from operating activities was approximately RMB4,171.8 million in 2014, and included loss before income taxes of approximately RMB1,599.9 million, adjustments for non-cash items of approximately RMB4,352.8 million, and positive changes in working capital of approximately RMB1,195.6 million. Adjustments for non-cash items primarily consisted of (i) depreciation of property, plant and equipment of approximately RMB3,078.8 million; (ii) impairment loss on intangibles assets of approximately RMB8.6 million and (iii) interest expenses of approximately RMB2,183.6 million. Positive changes in working capital consisted of (i) a decrease in bills and accounts payable of approximately RMB1,571.6 million; (ii) a decrease in bills and accounts receivable of approximately RMB1,847.6 million. Negative changes in working capital consisted of (i) an increase in prepayments and other current assets of approximately RMB773.1 million and (ii) a decrease in other payables and accrued expenses of approximately RMB182.3 million.

Net cash used in operating activities was approximately RMB2,201.1 million in 2013, and included loss before income taxes of approximately RMB580.3 million, adjustments for non-cash items of approximately RMB8,737.5 million, and negative changes in working capital of approximately RMB7,641.2 million. Adjustments for non-cash items primarily consisted of (i) depreciation of property, plant and equipment of approximately RMB3,125.0 million; (ii) impairment loss on intangibles assets of approximately RMB2,052.3 million and (iii) interest expenses of approximately RMB1,765.8 million. Negative changes in working capital consisted of (i) decrease in bills and accounts payable of approximately RMB3,187.9 million; (ii) increase in bills and accounts receivable of approximately RMB1,722.0 million; (iii) increase in repayments and other current assets of approximately RMB1,378.0 million and (iv) decrease in other payables and accrued expenses of approximately RMB1,223.3 million.

Net cash from operating activities was approximately RMB6,503.6 million in 2012, and included profit before income taxes of approximately RMB6,070.4 million, adjustments for non-cash items of approximately RMB3,037.2 million, and increase changes in working capital of approximately RMB711.9 million. Adjustments for non-cash items primarily consisted of (i) depreciation of property, plant and equipment of approximately RMB2,819.4 million; (ii) interest expenses of approximately RMB1,448.7 million; and (iii) amortization of intangible assets of approximately RMB1,177.6 million. Positive changes in working capital primarily consisted of (i) an increase in bills and accounts receivables of approximately RMB93.4 million; (ii) an increase in bills and accounts payables of approximately RMB246.1 million; (iii) an increase in land subsidence, restoration, rehabilitation and environmental costs of approximately RMB484.7 million; and (iv) an increase in other payables and accruals of approximately RMB412.7 million, partially offset by an increase in prepayments and other current assets of approximately RMB186.1 million.

Cash flows used in investing activities

Net cash used in investing activities was approximately RMB8,534.8 million in 2014, and primarily consisted of (i) purchase of property, plant and equipment of approximately RMB5,800.2 million; (ii) expenditures of purchase of intangible assets of approximately RMB128.6 million; (iii) advances of associates resulting in cash outflow of RMB1,250 million; (iv) acquisition of assets and equity resulting in cash outflow of RMB58.7 million and (v) increased bank deposits and cash with specific use resulting in cash outflow of RMB909.4 million.

 

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Net cash used in investing activities was approximately RMB13,504.4 million in 2013, and primarily consisted of (i) purchase of property, plant and equipment of approximately RMB10,221.4 million, (ii) expenditures of purchase of intangible assets of approximately RMB388.5 million; (iii) acquisition of subsidiaries resulting in cash outflow of RMB1,482.4 million; (iv) increased bank deposits and cash with specific use resulting in cash outflow of RMB1,242.3 million.

Net cash used in investing activities was approximately RMB3,187.4 million in 2012, and primarily consisted of (i) purchase of property, plant and equipment of approximately RMB6,230.4 million; (ii) expenditures of purchase of intangible assets of approximately RMB1,330.1 million, which were partially offset by a decrease in term deposits of approximately RMB6,356.3 million; (iii) investment in associates resulting in cash outflow of RMB810 million; (iv) increased investment deposit resulting in cash outflow of approximately RMB695.6 million; (v) acquisition of assets and equity resulting in cash outflow of RMB578.7 million and (vi) descreased cash with specific use resulting in cash inflow of RMB223.5 million.

Cash flows from (used in) financing activities

Net cash from financing activities was approximately RMB8,692.2 million in 2014, and primarily consisted of (i) proceeds from bank borrowings of approximately RMB8,072.8 million; (ii) proceeds from the offering of RMB9,932.2 million denominated short-term notes and non-public issuance of financing instruments, which were partially offset by the repayment of bank borrowings of approximately RMB6,193.2 million and the repayment of other borrowings of approximately RMB209.8 million; and (iii) company cash dividend resulting in cash outflow of RMB98.4 million.

Net cash from financing activities was approximately RMB13,286.9 million in 2013, and primarily consisted of proceeds from bank borrowings of approximately RMB21,103.1 million and proceeds from the offering of RMB denominated short-term notes and non-public issuance of financing instruments, which were partially offset by the repayment of bank borrowings of approximately RMB10,000.9 million and the repayment of other borrowings of approximately RMB2,057.4 million.

Net cash from financing activities was approximately RMB1,145.1 million in 2012, and primarily consisted of bank borrowings of approximately RMB12,281.5 million and the aggregate net proceeds from the RMB Bond Offering and the US$ Bond Offering of approximately RMB11,262.9 million, which were partially offset by repayment of bank borrowings of approximately RMB17,338.1 million, dividends paid of approximately RMB2,803.5 million and repayment of other borrowings of approximately RMB2,225.7 million.

Inventories

Our inventories comprise methanol, auxiliary materials, spare parts and small tools used in the construction of mining structures and coal products in our stockpiles. The following table sets forth our inventories as of the dates indicated:

 

     As of December 31,  
     2012      2013      2014  
     (RMB in millions)  

Methanol

     9.5         23.0         18.0   

Auxiliary materials, spare parts and small tools

     507.6         495.3         393.7   

Coal products

     1,048.5         1,070.9         1,058.9   
  

 

 

    

 

 

    

 

 

 

Total

  1,565.5      1,589.2      1,470.5   
  

 

 

    

 

 

    

 

 

 

Our inventories increased from approximately RMB1,565.5 million as of December 31, 2012 to RMB 1,589.2 million as of December 31, 2013, primarily due to increases in our inventory of auxiliary materials, spare parts and small tools and coal products. Our inventories decreased from approximately RMB1,589.2 million as of December 31, 2013 to RMB 1,470.5 million as of December 31, 2014 due to decrease in our inventory of auxiliary materials, spare parts and small tools.

 

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Bills and Accounts Receivables

Bills and accounts receivables represent unconditional written orders issued by, or negotiated from, our customers for completed sales orders which allow us to collect certain specified amounts from banks or other parties. These bills are non-interest-bearing and generally have a maturity of six months. The following table sets forth our bills and accounts receivables as of the dates indicated:

 

     As of December 31,  
     2012      2013      2014  
     (RMB in millions)  

Accounts receivable

     928.9         1,469.7         2,029.5   

Less: Impairment loss

     (2.5      (8.3      (13.7
  

 

 

    

 

 

    

 

 

 
  926.4      1,461.4      2,015.8   

Total bills receivable

  6,533.2      7,558.1      5,068.4   
  

 

 

    

 

 

    

 

 

 

Total bills and accounts receivable, net

  7,459.6      9,019.5      7,084.1   
  

 

 

    

 

 

    

 

 

 

Our bills and accounts receivable increased from approximately RMB7,459.6 million as of December 31, 2012 to RMB9,019.5 million as of December 31, 2013. Our bills and accounts receivable decreased from approximately RMB9,019.5 million as of December 31, 2013 to RMB7,084.1 million as of December 31, 2014, primarily due to the decrease of bills we received for the payment of coal in 2014 caused by the decrease in the sales of our self-produced coal products. We allow a range of credit periods to our trade customers which take into account the credit rating of our customers. Our credit periods do not exceed 180 days.

The following table sets forth an aging analysis of our bills and accounts receivables based on the applicable invoice dates:

 

     As of December 31,  
     2012      2013      2014  
     (RMB in millions)  

0 - 90 days

     3,423.0         8,685.1         6,625.1   

91 - 180 days

     3,954.4         316.7         187.4   

181 - 365 days

     80.8         4.7         259.9   

Over 1 year

     1.4         13.0         11.7   
  

 

 

    

 

 

    

 

 

 

Total

  7,459.6      9,019.5      7,084.1   
  

 

 

    

 

 

    

 

 

 

Before accepting any new customer, we assess the potential customer’s credit quality and define credit limits by customer. Limits attributed to customers are reviewed once a year. In 2012, 2013 and 2014, we did not have any significant trade receivables that were past due but not yet impaired as of the balance sheet dates above. We do not hold any collateral over these balances. The average ages of these receivables were 96 days, 49 days and 57 days for 2012, 2013 and 2014, respectively. Our management closely monitors the credit quality of accounts receivables and considers the balances that are neither past due nor impaired to be of good credit quality.

We have provided fully for all accounts receivables over three years because our experience is such that receivables that are past due beyond three years are generally not recoverable. Receivables aged over four years are considered irrecoverable by management and are written off. We wrote off our receivables of approximately RMB3.3 million in 2012. We did not write off any of our receivables in 2013 and 2014. The following table sets forth an analysis of our impairment losses on bills and accounts receivables:

 

     2012      2013      2014  
     (RMB in millions)  

Balance at January 1

     4.1         2.5         8.3   

Provided for the year

     0.005         21.4         12.7   

Reversal

     (1.6      (15.6      (7.3
  

 

 

    

 

 

    

 

 

 

Balance at December 31

  2.5      8.3      13.7   
  

 

 

    

 

 

    

 

 

 

 

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Our allowance for doubtful debts in 2012, 2013 and 2014 were approximately RMB2.5 million, RMB8.3 million and RMB13.7 million, respectively, for individually impaired trade receivables, which were primarily receivables from corporate customers in the PRC and considered irrecoverable by management after considering the credit quality of those individual customers, the ongoing relationship with us and the aging of these receivables. The recognized impairment represents the difference between the carrying amount of these trade receivables and the present value of the amounts. We do not hold any collateral over these balances. The confirmed impairment amount refers to the difference between the amount recognized in the carrying value of accounts receivable and the remaining of the unsecured accounts receivable held by the management.

Prepayments and Other Receivables

The following table sets forth our prepayments and other receivables as of the dates indicated:

 

     As of December 31,  
     2012      2013      2014  
     (RMB in millions)  

Advances to suppliers

     692.0         1,181.3         2,009.1   

Prepaid relocation costs of inhabitants

     1,877.9         2,193.0         2,102.1   

Advance to an associate

     —           —           1,250.0   

Others

     1,627.0         1,885.4         1,858.1   
  

 

 

    

 

 

    

 

 

 

Total

  4,197.0      5,259.6      7,219.3   
  

 

 

    

 

 

    

 

 

 

Our prepayments and other receivables increased from approximately RMB4,197.0 million as of December 31, 2012 to RMB5,259.6 million as of December 31, 2013, primarily due to the increase of RMB848.6 million in advances to trade coal suppliers paid by our subsidiary Shandong Yanmei Rizhao Port Coal Storage and Blending Co., Ltd., which was consolidated into our financial statements in 2013. Our prepayments and other receivables increased from approximately RMB5,259.6 million as of December 31, 2013 to RMB7,219.3 million as of December 31, 2014, primarily due to increase in advances to an associate and suppliers.

As of December 31, 2012, 2013 and 2014, we had impairment losses of approximately RMB25.3 million, RMB18.3 million and RMB19.2 million, respectively, on our prepayments and other receivables. We did not write off any impairment losses on our prepayments and other receivables in 2012 and 2014. We wrote off prepayments and other receivables of approximately RMB481,000 in 2013.

We have provided fully for all receivables over three years because our experience is such that receivables that are past due beyond three years are generally not recoverable. We set aside full provisions for receivables that are past due beyond three years. Receivables are written off if aged over four years and considered irrecoverable by management after considering the credit quality of the individual party and the nature of the amount overdue.

Bills and Accounts Payables

Our bills and accounts payable are primarily related to purchases from our suppliers and payables to export agents. The following table sets forth our bills and accounts payables as of the dates indicated:

 

     As of December 31,  
     2012      2013      2014  
     (RMB in millions)  

Accounts payable

     2,906.6         2,400.3         1,969.6   

Bills payable

     3,905.1         316.4         2,067.6   
  

 

 

    

 

 

    

 

 

 

Total

  6,811.8      2,716.7      4,037.2   
  

 

 

    

 

 

    

 

 

 

Our bills and accounts payable decreased from approximately RMB6,811.8 million as of December 31, 2012 to RMB2,716.7 million as of December 31, 2013, primarily due to the capital return to former Gloucester shareholders we recorded in 2012. Our bills and accounts payable increased from approximately RMB2,716.7 million as of December 31, 2013 to RMB4,037.2 million as of December 31, 2014, primarily because we settled a higher percentage of payment in the form of bills and account payables in 2014.

 

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The following table sets forth an aging analysis of our bills and accounts payables based on the applicable invoice dates as of the dates indicated:

 

     As of December 31,  
     2012      2013      2014  
     (RMB in millions)  

1 - 90 days

     6,384.2         2,351.8         1,979.7   

91 - 180 days

     224.5         92.9         1,815.9   

181 - 365 days

     68.6         128.7         103.3   

Over 1 year

     134.4         143.1         138.3   
  

 

 

    

 

 

    

 

 

 

Total

  6,811.8      2,716.7      4,037.2   
  

 

 

    

 

 

    

 

 

 

The average credit period for accounts payable and bills payable is 90 days. We have financial risk management policies in place to ensure that all payables are settled within the applicable credit plan.

Other Payables and Accrued Expenses

The following table sets forth our other payables and accrued expenses as of the dates indicated:

 

     As of December 31,  
     2012      2013      2014  
     (RMB in millions)  

Customers’ deposit

     1,368.7         852.2         798.4   

Accrued wages

     1,084.2         1,054.5         870.7   

Other taxes payable

     204.1         280.1         142.4   

Payables in respect of purchases of property, plant and equipment and construction materials

     3,662.8         1,268.4         1,629.3   

Accrued freight charges

     9.4         2.3         66.0   

Accrued repairs and maintenance

     51.2         19.2         31.6   

Staff welfare payable

     187.6         242.7         319.2   

Withholding tax payable

     7.3         0.7         28.4   

Deposits received from employees

     24.7         14.0         24.3   

Coal price adjustment fund

     52.0         —          —     

Accrued land subsidence, restoration, rehabilitation and environmental costs

     1.4         56.8         10.5   

Payable on compensation fee of mining rights

     —          —          —    

Interest payable

     395.8         540.9         905.5   

Payable on acquisition of Haosheng’s equity

     —          2,519.3         2,519.3   

Provision on Ashton research and development project

     —          —          115.4   

Others

     1,964.5         1,534.0         1,275.8   
  

 

 

    

 

 

    

 

 

 

Total

  9,013.8      8,385.1      8,736.7   
  

 

 

    

 

 

    

 

 

 

Our other payables and accrued expenses decreased from approximately RMB9,013.8 million as of December 31, 2012 to RMB8,385.1 million as of December 31, 2013, primarily due to our settlements with suppliers for purchases of property, plant and equipment and construction materials before December 31, 2013. Our other payables and accrued expenses increased from approximately RMB8,385.1 million as of December 31, 2013 to RMB8,736.7 million as of December 31, 2014, primarily due to the increase in payables for purchases of property, plant and equipment and construction materials as of December 31, 2014.

Working Capital and Liabilities

We have historically maintained sufficient working capital for our operations. Our principal source of cash in 2014 was cash generated from operating activities, bond issuance and bank borrowings.

 

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As of December 31, 2014, we recorded net current assets of approximately RMB10,756.5 million. Our current assets increased by RMB6,561.9 million, from RMB31,524.4 million as of December 31, 2013 to RMB38,086.3 million as of December 31, 2014, primarily as a result of an increase in bank balances and cash of RMB4,119.3 million, long term receivables due within one year of RMB1,705.8 million and an increase in the prepayments and other receivables of RMB1,959.7 million. The increase was partially offset by a decrease in bills and accounts receivable of approximately RMB1,935.4 million. Our current liabilities decreased by RMB1,486.1 million, from approximately RMB28,816.0 million as of December 31, 2013 to RMB27,329.9 million as of December 31, 2014, primarily due to a decrease in borrowings due within one year of approximately RMB403.4 million, a decrease in tax payable of approximately RMB796.5 mililon and a decrease in contingent value rights share liabilities of approximately RMB1,408.7 million, which was partially offset by an increase in bills and accounts payable of approximately RMB1,320.5 million.

As of December 31, 2013 and 2014, we had cash and cash equivalents of approximately RMB10,922.6 million and RMB15,041.9 million, respectively. Our cash and cash equivalents primarily consist of cash on hand and demand deposits with original maturities of three months or less that are placed with banks and other financial institutions.

As of December 31, 2013 and 2014, we had outstanding bank borrowings of approximately RMB55,375.1 million and RMB61,438.1 million, respectively. The following table sets forth the maturity profile of our bank borrowings as of the dates indicated:

 

     As of December 31,  
     2013      2014  
     (RMB in millions)  

Less than one year

     11,275.0         10,871.7   

One to three years

     13,254.4         18,918.9   

Three to five years

     6,277.3         5,770.0   

More than five years

     24,568.3         25,877.5   
  

 

 

    

 

 

 

Total

  55,375.0      61,438.1   
  

 

 

    

 

 

 

As of December 31, 2014, the interest rates relating to our bank borrowings ranged from 1.00% to 7.18% per annum. The interest rates for these bank borrowings are variable rates that are subject to adjustment based on the interest rate set by the PBOC or LIBOR. As of the date of this annual report, our bank borrowings were denominated in Renminbi, U.S. dollars, Australian dollars and Euro. As of December 31, 2014, our total bank loans denominated in Renminbi amounted to approximately RMB26.0 billion, our total bank loans denominated in U.S. dollars amounted to approximately US$5.8 billion, our total bank loans denominated in Australian dollars amounted to approximately A$41.2 million and we had nil total bank loans denominated in Euro. See Note 35 of the consolidated financial statements for more information on our borrowings. The interest expenses and exchange rate fluctuations associated with our bank borrowings may impair our future profitability.

We have, and in the future may continue to have, substantial debt. As of December 31, 2014, our long-term debt to equity ratio was 46.2%. The interest expenses associated with these debts may impair our future profitability. We may issue additional long term debts to finance short term cash flow requirements as necessary.

Capital Expenditures

Our principal capital expenditures, incurred for the purchase and construction of property, plant and equipment, decreased by RMB3,740.1 million, or 40.9%, from approximately RMB9,144.2 million in 2013 to approximately RMB5,404.1 million in 2014. The decrease was primarily due to the reduced number of new projects.

 

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Our estimated capital expenditures for 2015 are in the amount of RMB9.7 billion. We plan to finance our capital commitments primarily through a combination of funds generated from operations, bank borrowings and the proceeds of the offerings of corporate bonds. The following table sets forth our estimated capital expenditures for 2015 and actual capital expenditures we incurred in 2014.

 

Companies

   Estimated capital expenditure for 2015      Capital expenditure incurred in 2014  
   (RMB in millions)  

The Company

     2,313.4         2,061.0   

Shanxi Nenghua

     89.2         23.8   

Yulin Nenghua

     36.8         33.0   

Heze Nenghua

     905.9         405.0   

Huaju Energy

     45.6         69.8   

Ordos Neng Hua

     2,441.2         1,051.4   

Haosheng Company

     2,307.9         549.1   

Yancoal Australia

     1,477.3         945.6   

Yancoal International (Holding)

     69.3         127.6   
     —           137.8   
  

 

 

    

 

 

 

Total

  9,686.6      5,404.1   
  

 

 

    

 

 

 

 

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

One of our core strategies is to maintain our competitiveness and increase the efficiency of our mining operations through technology and innovation. In line with our development strategy with a focus on technology innovation, we have established a multilayer system for integrating new technology into our operations consisting of various entities, including a technology committee, a professional committee, a technology center, as well as relationships with external institutions or organizations with specialized technology development capacities. We have accumulated extensive experience and expertise in coal mining and coal processing procedures, particularly with respect to the underground raw coal mining technology. For example, our independently developed longwall top caving mining method has been adopted by various international coal mining enterprises such as DBT and has been awarded the State Scientific and Technological Progress Award (Second Class) by the National Office for Science and Technology Awards of the PRC in 2009. In 2014, we completed 45 technology improvement projects, among which, 25 projects have reached an international advanced level. In addition, we obtained 25 patents and received 65 technological awards in 2014, which have enhanced our coal mining and related business operations. Our expenditures for research and development were RMB301.6 million, RMB277.2 million and RMB33.9 million in 2012, 2013 and 2014, respectively, accounting for 0.5%, 0.5% and 0.06%, respectively, of our total sales income for the same periods.

Our mining technology research and development efforts have contributed to increases in our production. Our predecessor first adopted the longwall top caving mining method in 1992. Since then, we have focused on modifying and updating this method, taking into account the distinct geological conditions of our mining operations. Due to our research and development efforts, we have:

 

    increased our production efficiency by utilizing improved mining extraction equipment;

 

    extended the length of certain longwall coal mine faces to approximately 260 to 350 meters, which reduced our tunneling, support equipment and related costs;

 

    reduced the number of coal pillars required to support mining areas, thereby enhancing our recovery;

 

    patented our advanced technology for longwall top caving mining in the PRC, Australia and South Africa. The use of our longwall caving extraction technology reduces the per-tonne production cost of our operations and improves the production efficiency;

 

    conducted research projects that contributed to the development and export of the technology for advanced two-pillar hydraulic roof supports for the top coal caving process; Bucyrus International, Inc., the largest coal mining equipment supplier worldwide, signed a technology license agreement to manufacture and use the longwall top caving coal mining equipment in Australia;

 

    cooperated with Peabody to trial and commercialize longwall top caving coal mining equipment; and

 

    implemented various innovative projects to improve equipment use, safety, energy conservation and environmental protection measures in our coal mining operations.

We intend to focus our future research and development efforts on improving our longwall caving extraction technology, fully mechanized caving operations and related equipment and mining methods for medium and thick coal seams.

 

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D. Trend Information

Outlook for the Coal Market

It is expected that the world economy will tend to be differentiated in 2015. The geopolitics fluctuation has been increasing. The world energy, such as coal industry, is anticipated to remain the trend of downturn. Affected by decrease overseas demand and insufficient domestic demand, China’s economy has showed a distinct continuous downturn. Furthermore, the state government takes strict measures to control smog, cut down excessive production capacity and adjust industrial structures. All these factors lead to the increasing operating difficulties of coal industry in China. As a result, we expect the coal price will continue to decrease. We intend to sell approximately 122.0 million tonnes of coal in 2015, including approximately 52.9 million tonnes of external coal.

Outlook for the PRC Methanol Market

In 2015, we expect that supply will continue to exceed demand in the domestic methanol market. The demand for methanol remains weak due to governmental control policies with respect to environmental protection and elimination of backward production capacity of certain high energy-consumption industries as well as the excess capacity in methanol industry. We intend to sell 1.4 million tonnes of methanol in 2015.

 

E. Off-balance Sheet Arrangements

As of December 31, 2014, other than the capital expenditure commitments and contractual obligations disclosed in this annual report, we did not have any off-balance sheet arrangements.

 

F. Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations and commercial commitments as of December 31, 2014:

 

     Payments Due by Period  
     Total      Less than
one Year
     One to three
years
     Three to five
years
     More than
five years
 
   (RMB in millions)  

Contractual Obligations

              

Unsecured bank borrowings

     13,425.7         5,597.6         7,818.2         —           10.0   

Secured bank borrowings

     24,935.1         234.0         7,015.1         1,781.1         15,905.0   

Finance leases

     206.6         40.6         106.1         59.9         —     

Guaranteed notes

     21,040.2         4,999.6         3,749.1         2,929.0         9,362.5   

Loans pledged by machineries

     1,830.4         —           230.4         1,000.0         600.0   

Capital commitments for the acquisition of assets

     2,731.9         2,731.9         —           —           —     

Mining right compensation fee

     1,188.9         396.3         792.6         —           —     

Amounts due to Controlling Shareholder and its subsidiaries

     190.4         190.4         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  65,549.2      14,190.4      19,711.5      5,770.0      25,877.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table sets forth our consolidated interest-bearing borrowings as of December 31, 2013 and 2014:

 

     As of December 31,  
     2013      2014  
   (RMB in millions)  

Unsecured bank borrowings

     17,103.7         13,425.7   

Secured bank borrowings

     19,150.3         24,935.1   
  

 

 

    

 

 

 

Total

  36,254.0      38,360.9   
  

 

 

    

 

 

 

Secured Bank Borrowings

As of December 31, 2014, we had secured bank loans outstanding of approximately RMB24,935.1 million (approximately US$4,018.8 million), which primarily consisted of secured bank borrowings obtained for settling the consideration in respect of acquisition of Yancoal Resources. The borrowings are guaranteed by the Company, counter-guaranteed by the Parent Company and secured by 46.67% of Heze ordinary shares. The borrowings are secured by a portion of our term deposits. As of December 31, 2014, we had term deposits of approximately RMB53.9 million that secured bank borrowings.

 

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We have obtained two amendments to the loan agreements from Bank of China in November 2013 to amend certain debt covenant requirements prior to December 31, 2013. The debt covenants only apply to our subsidiary, Yancoal Australia, and hence the actual covenant ratios/amounts disclosed above cannot be reconciled to the IFRS amounts presented in our financial statements.

We have obtained two amendments from Bank of China in June and October 2014 to further defer the testing of interest coverage ratio to 12 months ending June 30, 2016, which also reduced the interest cover ratio from not less than 1.5 to not less than 1.15. We will continue to monitor our indebtedness, working capital and liquidity requirements. We believe we will be able to comply with the debt covenant requirements or seek the necessary waivers or amendments if we believe we are unable to comply with such debt covenants. Therefore, we do not expect this to materially and adversely affect our liquidity.

Borrowings of RMB16,761.4 million (US$2,740.0 million) carried interest at three-month LIBOR plus a margin of 2.80% (approximately 3.04%) and borrowings of RMB6,739.8 million (US$1,101.5 million) carried interest at three-month LIBOR plus a margin of a range from 1.55% to 3.00%. The borrowings of approximately RMB1,400.0 million (approximately US$225.6 million) carried interest of 6.16% per annum and is subject to adjustment based on the interest rate stipulated by PBOC. Other borrowings incurred in connection with our acquisition of Gloucester, amounting to approximately RMB34.0 million, (approximately US$5.6 million) carried interest at 5.68%. For more information on our secured borrowings, please see Note 35 to the consolidated financial statements.

Unsecured Bank Borrowings

We had unsecured bank borrowings of RMB13,425.7 million as of December 31, 2014, including loans in the amount of RMB917.9 million (US$150.0 million) carrying interest at six-month LIBOR plus a margin of 2.75% per annum, a loan in the amount of RMB948.6 million (US$155.0 million), carrying interest at three-month LIBOR plus a margin of 3.25% per annum, obtained by Yancoal International, and a loan in the amount of RMB911.7 million (US$150.0 million), carrying interest at three-month LIBOR plus a margin of 2.60% per annum. For more information about our unsecured borrowings, please see Note 35 to the consolidated financial statements to this annual report.

The Offering of RMB Denominated Short Term Notes and Non-public Issuance of Financing Instruments

See “Item 4. Information on the Company – A. History and Development of our Company – The Offering of RMB Denominated Short term notes and Non-public Issuance of Financing Instruments.”

Amounts due to Controlling Shareholder and its Subsidiaries

The amounts due to the Controlling Shareholder and its subsidiary companies do not bear any interest and are unsecured. The following table sets forth the amounts due to the Controlling Shareholder and its subsidiary companies as of December 31, 2013 and 2014.

 

     As of December 31,  
     2013      2014  
     (RMB’000)  

Term for Repayment

     

Within one year

     44,737         190,408   

More than one year, but not exceeding two years

     —          —     
  

 

 

    

 

 

 

Total due

  44,737      190,408   

Less: amounts due within one year

  (44,737   (190,408

Amounts will due over one year

  —       —     

As of December 31, 2014, neither the Controlling Shareholder nor its subsidiaries had used our funds for non-operational matters.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. Our financial statements have been prepared on a going concern basis and based on actual transactions and events, in accordance with Accounting Standards for Business Enterprises (referred to as “ASBEs”) and other related regulations issued by the MOF and accounting policies and estimates stated in Note IV to our consolidated financial statements. The preparation of these financial statements requires us to make estimates and assumptions about the carrying amounts of items in the financial statements that cannot be measured accurately. These judgments, estimates and assumptions are based on the historical experience of our management as well as other relevant factors. Actual results may differ from these estimates. We review the foregoing judgments, estimates and assumptions regularly on a going concern basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

 

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The following are the critical estimates that we have made in the process of applying the accounting policies and that have the most significant effect on the amounts recognized in financial statements.

Depreciation

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

Amortization of assets

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

Provision for land subsidence, restoration, rehabilitation and environmental costs

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

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The determination of value in use requires us to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate the present value. As of December 31, 2014, the carrying amount of goodwill was approximately RMB2,232.8 million. During the year ended December 31, 2014, no impairment loss on goodwill was recognized by the Group. Cash flow projections during the budget period for each of the above units are based on the budgeted revenue and expected gross margins during the budget period and the raw materials price inflation during the budget period. Expected cash inflows/outflows have been determined based on past performance and management’s market development expectations.

Estimated impairment of property, plant and equipment

When there are indications of impairment, we take into consideration the estimate of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. When actual future cash flows are less than expected, a material impairment loss may arise. In estimating future cash flows, management takes into account recent production and technical advancements. As price and cost levels change from year to year, the estimate of future cash flows also changes. Notwithstanding that management has considered all the available information in making their impairment assessment, inherent uncertainty exists as to the conditions of mines and the environment, and actual write-offs may be higher than the estimated amounts. As of December 31, 2014, the carrying amount of property, plant and equipment was approximately RMB44,174.6 million. During the year ended December 31, 2014, no property, plant and equipment was written off as expenses. We did not recognize any impairment loss on property, plant and equipment during the year ended December 31, 2014.

 

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Most of the coal sales by Premier and Wesfarmers Char are governed by a contract signed with an independent power station. The remaining coal sales are to independent third parties which are sold at market prices. The contract with the power station was a required condition in order for the government to grant the mining rights to Premier and Wesfarmers Char. The sales price under the contract is below market price and Premier and Wesfarmers Char are unable to negotiate to revise the terms of the existing contract, including the sale price of coal. Given the current market price of coal and rising costs, the Company also expected that the power station may purchase more coal from Premier and Wesfarmers Char, which will drive down the Company’s overall average sales prices. In 2012, a combined assessment of Premier and Wesfarmers Char, being a cash-generating unit, was performed, and hence in 2012, the Company recorded impairment on intangible assets (mining reserves and mining resources) of RMB417.2 million property, plant and equipment (mining structures) of RMB226.9 million and goodwill of RMB17.6 million as selling, general and administrative expenses in its statement of comprehensive income as set out in the financial statements. We used the value-in-use method to assess the impairment and the key assumptions included the future market price of the coal, sales volume, and mining costs. The changes in these key assumptions that were applied in the impairment analysis were a decrease of the average coal price from AUD76 per tonne to AUD24 per tonne, a decrease in total sales volume from 141 million tonne to 58 million tonne, an increase in average nominal operating cost from AUD48 per tonne to AUD62 per tonne and an increase in capital expenditure from AUD460 million to AUD584 million. During the year, no provision for impairment losses were made for Premier and Wesfarmers Char.

Estimated impairment of mining reserves

When there are indications of impairment, we take into consideration the estimate of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. When actual future cash flows are less than expected, a material impairment loss may arise. In estimating future cash flows, management takes into account recent production and technical advancements. As price and cost levels change from year to year, the estimate of future cash flows also changes. Notwithstanding that management has considered all the available information in making their impairment assessment, inherent uncertainty exists as to the conditions of mines and the environment, and actual write-offs may be higher than the estimated amounts.

The recoverable amount of cash generating units is assessed by management at the operating segment level. Business performance is reviewed by management on a mine by mine basis and each mine is considered to be a separate cash generating unit. The recoverable amount of each cash generating unit at December 31, 2014 was determined using the value in use method.

Value in use has been determined using a discounted cash flow model and key assumptions include coal prices, foreign exchange rates, production and capital costs, discount rate and coal reserves and resources. In determining the value assigned to each key assumption, management has used external sources of information and utilized the expertise of external and/or internal consultants and experts to validate entity specific assumptions such as coal reserves and resources.

Based on the impairment review, the recoverable amounts of coal reserves of Moolarben and Stratford & Duralie, both of which are coal mines of Yancoal Australia, were determined to be less than the carrying amounts and hence resulting an impairment loss of RMB2,052.2 million predominantly due to forecasted global economic conditions and coal sales prices. The cash flow forecast used assumed an average long term real coal prices of US$67 – US$148 per tonne, AUD/US$ exchange rate declining from year end spot rate of AUD0.82 to AUD0.78 over the next five years and a post-tax discount rate of 11%. Production and capital costs were based on the estimate of forecasted geological conditions, stage of existing plant and equipment and future production levels. The recoverable amount is also dependent on the life of mines which is based on the annual coal production forecast.

Acquisitions

During the year, we acquired several subsidiaries or business as set out in Notes 46 to the consolidated financial statements included in this annual report. We determined whether acquisitions were to be accounted for as an acquisition of business or an acquisition of assets based on factors including (i) whether the acquiree has relevant input, process or output and (ii) whether the acquiree has planned principal activities or is pursuing a plan to produce output and has access to a customer base.

In addition, management also made judgments in determining whether we would register the transfer of certain operating licenses immediately upon the payment of consideration.

 

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Recent Changes in Accounting Pronouncements

In the current year, we have applied, for the first time, a number of new standards and interpretations, amended and revised standards and interpretations (“new IFRSs”) issued by the IASB and the International Financial Reporting Interpretations Committee (the “IFRIC”) of the IASB which are effective for our fiscal year beginning January 1, 2014:

 

IAS 32 (Amendments) Offsetting Financial Assets and Financial Liabilities
IAS 36 (Amendments) Recoverable Amount Disclosures for Non-Financial Assets
IAS 39 (Amendments) Novation of Derivatives and Continuation of Hedge Accounting
IFRIC-Int 21 Levies

Except as described above, the accounting policies adopted for the current year are consistent with those adopted for the Group’s financial statements for the year ended December 31, 2014.

Except as described below, the application of the above new or revised IFRSs for the current year had no material impact on the amounts reported and/or disclosures set out in the consolidated financial statements for the year.

Amendments to IAS 36: Recoverable Amount Disclosures for Non-Financial Assets: The amendments clarify the requirements to disclose the recoverable amount of an asset (or cash generating unit) whenever an impairment loss has been recognised or reversed in the period. In addition, they introduce several new disclosures required to be made when the recoverable amount of impaired asset (or cash generating unit) is based on fair value less costs of disposal. The Group has applied the amendments retrospectively in accordance with their transitional provisions and the disclosures about the Group’s impaired non-financial assets are set out in notes 23 and 25 to the financial statements.

 

G. Safe Harbor

See the section headed “Cautionary Statement Regarding Forward-Looking Statements”.

 

ITEM 6. DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors, Supervisors and Senior Management

The following table sets forth selected information concerning our board of directors (“Board of Directors” or “Board”), Supervisory Committee (“Supervisory Committee”) and executive officers as of the date of this annual report. As of the date of this annual report, our Board of Directors consists of 10 Directors, including one chairman, four independent Directors and one employee Director. All Directors serve three-year terms beginning their respective election date until the election of their respective successor.

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

 

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

 

Name

  

Age

  

Position at the Company

  

Date Term of

Office Expires1

Directors

        
LI Xiyong    51    Chairman of the Board of Directors    May 2017
YIN Mingde    52    Director, General Manager    May 2017
WU Yuxiang    53    Director and Chief Finance Officer    May 2017
ZHANG Baocai    47    Director, Deputy General Manager and Secretary of the Board of Directors    May 2017
WU Xiangqian    49    Director    May 2017
JIANG Qingquan    51    Employee Director    May 2017
Independent Non-executive Directors         
WANG Lijie    62    Independent Non-executive Director    May 2017
JIA Shaohua    64    Independent Non-executive Director    May 2017
WANG Xiaojun    60    Independent Non-executive Director    May 2017
XUE Youzhi    50    Independent Non-executive Director    May 2017
Supervisors         
SHI Xuerang    60    Chairman of the Supervisory Committee    May 2017
ZHANG Shengdong    58   

Deputy Chairman of the Supervisory Committee

   May 2017
GU Shisheng    54    Supervisor    May 2017
ZHEN Ailan    51    Supervisor    May 2017
GUO Jun    52    Employee Supervisor    May 2017
CHEN Zhongyi    49    Employee Supervisor    May 2017
Other Management Team         
SHI Chengzhong    52    Deputy General Manager    May 2017
LIU Chun    53    Deputy General Manager    May 2017
DING Guangmu    54    Deputy General Manager    May 2017
WANG Fuqi    50    Chief Engineer    May 2017
ZHAO Honggang    49    Deputy General Manager    May 2017

 

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

Executive Directors

LI Xiyong, born in October 1963, a research fellow in applied engineering technology with an EMBA degree, is the chairman of the Company and chairman and secretary of the party committee of Yankuang Group. Mr. Li commenced his career in 1981. He was appointed as the head of Huafeng Coal Mine of Xinwen Mining Group Co., Ltd. (“Xinwen Group”) in May 2001. In June 2006, he was appointed as the deputy general manager of Xinwen Group. In May 2010, he was appointed as the chairman and secretary of the party committee of Xinwen Group. In March 2011, he was appointed as the vice chairman of Shandong Energy Group Co., Ltd. and the chairman and secretary of the party committee of Xinwen Group. In July 2013, he was appointed as the director, general manager and deputy secretary of the party committee of Yankuang Group. In February 2015, he was appointed as the chairman and party committee secretary of Yankuang Group. In September 2013, he was appointed as the chairman of the Company. Mr. Li graduated from Shandong University of Science and Technology and Nankai University.

YIN Mingde, born in December 1962, a senior engineer, a senior administrative officer and a certified safety engineer with a master’s degree, is a Director and the general manager of the Company. Mr. Yin joined the Company’s predecessor in 1980 and became deputy manager of Beisu Coal Mine in 1997. In 2000, he was appointed as the deputy director of Marketing Department under Strategic Resource Development Department of Yankuang Group. In 2002, he was appointed as the general manager of Yankuang Group Shanxi Neng Hua Co., Ltd. In 2006, he was appointed as the general manager of Yanzhou Coal Shanxi Neng Hua Co., Ltd. and the chairman and party committee secretary of Shanxi Tianhao Chemicals Co., Ltd. In 2011, he was appointed as the general manager and deputy secretary of party committee of Yanzhou Coal Ordos Neng Hua Co., Ltd. In 2012, he was appointed as the chairman, general manager and deputy secretary of party committee of Yanzhou Coal Ordos Neng Hua Co., Ltd. and the chairman of Inner Mongolia Haosheng Coal Mining Co., Ltd. In March 2014, he was appointed as the general manager of the Company. In May 2014, he was appointed as a Director of the Company. Mr. Yin graduated from East China Normal University.

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

 

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

WU Xiangqian, born in February 1966, a research fellow in applied engineering technology and a doctor of engineering, is a Director of the Company. Wu joined the predecessor Company in 1988. In 2003, he was appointed as a deputy head of Jining No.3 Coal Mine of the Company. In 2004, Mr. Wu was appointed as the deputy head and chief engineer of Jining No.3 Coal Mine. In 2006, he was appointed as the head of Jining No.3 Coal Mine. In March 2014, he was promoted as the chairman and general manager of Yanzhou Coal Ordos Neng Hua Co., Ltd. and chairman of Inner Mongolia Haosheng Coal Mining Co., Ltd. In May 2014, he was appointed as a Director of the Company. Mr. Wu graduated from Shandong University of Science and Technology.

JIANG Qingquan, born in December 1963, a senior administrative officer and engineer with a master’s degree, is an employee Director of the Company. Mr. Jiang joined the Company’s predecessor in 1984 and served as the office director of Safety Supervision Bureau of Yankuang Group in 1994 (worked in Personnel Division of Yankuang Group from November 1996 to September 1997). He served as the vice president of Yankuang Group General Hospital in 1997 (worked in Organization Department of Yankuang Group from June 1999 to January 2000). He served as the party committee secretary of the Railway Transportation Department of Yankuang Group in 2000. He served as the head and the deputy party committee secretary of the Railway Transportation Department in 2004. He was appointed as the general manager assistant of the Company in 2012 and the chairman of the Trade Union of the Company in March 2014. He was appointed as an employee Director of the Company in April 2014. Mr. Jiang graduated from the Qufu Normal University and the Party School of Shandong Provincial Communist Committee.

Independent Non-executive Directors

WANG Lijie, born in March 1953, is a professor and doctoral advisor. Mr. Wang is currently the director of the Institute for Energy Economics Research at China University of Mining and Technology (Beijing), the director of Coal Professional Committee of China Society of Technology Economics and the deputy director of Economic Management Professional Committee of China Coal Society. Mr. Wang is a professional technical talent in the coal industry, who enjoys government special allowances. He was the dean of School of Management of China University of Mining and Technology (Beijing), mainly engages in research work in mining, energy economics management and policy, business strategy etc. Mr. Wang is also the independent director of Beijing LongRuan Technologies Inc. and Henan Dayou Energy Co., Ltd. Mr. Wang graduated from China University of Mining and Technology (Beijing).

JIA Shaohua, born in December 1950, doctor of economics, a researcher, Mr. Jia is currently the director of Tax Education Institute of the Central University of Finance and Economics and vice president of the China Society for Finance and Tax Law, as well as the graduate advisor of the Central University of Finance and Economics, the Graduate School of Chinese Academy of Social Sciences, the Graduate School of Research Institute of MOF, who enjoys the special allowance from the State Council. Mr. Jia was the director of the Finance Department in Ningxia Autonomous Region, the deputy general manager of Hainan Commercial Group Company, the deputy director of Jiangxi and Hainan Provincial Office, SAT, the dean of Tax Leadership Academy of the SAT, and the edition-in-chief of the China Taxation Publisher etc. Mr. Jia has rich experience in accounting & tax and completed over a number of key research subjects at national and provincial level Mr. Jia is also the independent director of Harbin Electric Corporation Jiamusi Electric Machine Co., Ltd., JA Solar Holdings Co., Ltd., Zhuhai Letong Chemical Co., Ltd. and Haima Automobile Group Co., Ltd. Mr. Jia graduated from the Graduate School of Chinese Academy of Social Sciences.

WANG Xiaojun, born in August 1954, a solicitor admitted in the PRC, Hong Kong, England and Wales, a holder of master degree in law, is a partner of Jun He Law Offices and an independent non-executive Director of the Company. He was admitted in the PRC, Hong Kong, England and Wales in 1988, 1995 and 1996, respectively. Mr. Wang has worked as a legal adviser at the Hong Kong Stock Exchange and Richards Butler. He was an independent non-executive Director of the Company from 2002 to 2008, Mr. Wang is also an independent non-executive director of China Aerospace International Holdings Limited, Livzon Pharmaceutical Group Co., Ltd. and Oriental Patron Financial Investments Ltd. Mr. Wang graduated from the Renmin University of China and the Graduate School of the Chinese Academy of Social Sciences.

 

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XUE Youzhi, born in March 1965, is a holder of a master degree in corporate management, a doctoral degree in economics, a postdoctoral degree in business administration. Mr. Xue is currently the vice president, the professor and the doctoral advisor in the School of Business of Nankai University. Mr. Xue has rich experience in economics & management and completed over a number of national natural science fund and national social science fund projects. Mr. Xue was appointed as the vice president of the School of Business of Nankai University in 2005. Mr. Xue graduated from Jilin University and Nankai University.

Supervisors

SHI Xuerang, born in February 1955, a senior engineer with an Executive Master of Business Administration degree, is the chairman of Supervisory Committee of the Company and the deputy secretary of the party committee of Yankuang Group. From 2001 to 2003, Mr. Shi acted as the deputy general manager of Xinwen Coal Mining Group Company Limited. Mr. Shi served as the deputy general manager of Yankuang Group in 2003 Mr. Shi was appointed as a Director of the Company in 2005 and the chairman of the Supervisory Committee of the Company in May 2014. Mr. Shi graduated from Nankai University.

ZHANG Shengdong, born in March 1957, a senior accountant, is the vice chairman of the Supervisory Committee of the Company and the deputy general manager of Yankuang Group. Mr. Zhang joined the Company’s predecessor in 1981 and became the director of the Finance Management Department of Yankuang Group in 1999. Mr. Zhang served as the deputy chief accountant of Yankuang Group and a supervisor of the Company in 2002. Mr. Zhang was appointed as the general manager assistant of Yankuang Group in 2008. Mr. Zhang was appointed as the deputy general manager of Yankuang Group in January 2014 and the vice chairman of the Supervisory Committee in May 2014. Mr. Zhang graduated from China University of Mining and Technology.

GU Shisheng, born in January 1964, a professor level senior administrative officer with a master’s degree, is a supervisory of the Company and the chairman of the Trade Union of Yankuang Group. Mr. Gu joined the Company’s predecessor in 1979. He served as the deputy party committee secretary of Xinglongzhuang coal mine of Yankuang Group in 1996 and the party committee secretary of Xinglongzhuang coal mine of the Company in 2002. He served as the deputy secretary of the Discipline Inspection Commission and the director of Supervision Department of Yankuang Group in 2003. He was appointed as the chairman of the Trade Union of Yankuang Group in January 2014 and a supervisor of the Company in May 2014. Mr. Gu graduated from the Party School of Shandong Provincial Communist Committee.

ZHEN Ailan, born in November 1963, is a senior accountant, a senior auditor, a supervisor of the Company, the deputy chief accountant and the director of the Audit & Risk Department of Yankuang Group. Ms. Zhen joined the predecessor Company in 1980. She served as the deputy director of the Audit Division of Yankuang Group in 2002 and was appointed as the deputy director of the Audit Department of Yankuang Group in 2005. In 2012, Ms. Zhen served as the director of the Audit Department of Yankuang Group. In March 2014, she was appointed as the deputy chief accountant and the director of the Audit & Risk Department of Yankuang Group. In 2008, Ms. Zhen served as a supervisor of the Company. Ms. Zhen graduated from Dongbei University of Finance and Economics.

GUO Jun, born in January 1963, is a professor-level senior administrative officer, a senior economist, a doctor of business administration, an employee supervisor of the Company and the secretary of the Discipline Inspection Commission of Yankuang Group. Mr. Guo joined the predecessor Company in 1980 and served as the director of the economic division of the General Manager’s Office in 1996. He was appointed as the deputy director of the General Manager’s Office in 1997 and served as the office director of Board of Directors respectively in 2000 and 2002. He was appointed as the secretary of the Party committee and deputy chief of Baodian Coal Mine of the Company in 2004. In March 2014, Mr. Guo was appointed as the secretary of the Discipline Inspection Commission of the Company and served as the employee supervisor of the Company in April 2014. Mr. Guo graduated from the China Mining University (Beijing).

CHEN Zhongyi, born in December 1965, is a professor-level senior administrative officer with a bachelor’s degree, an employee supervisor of the Company and the vice chairman of trade union. Mr. Chen joined the predecessor Company in 1986 and served as the director of the Mass Work Department, the secretary of the Youth League Committee and the vice chairman of trade union in 2002. He was appointed as the vice chairman of trade union in 2008 and served as the director of Parties Working Department of the Company in March 2014. In April 2014, Mr. Chen was appointed as an employee supervisor of the Company. Mr. Chen graduated from the Party School of CPC Shandong Provincial Committee.

 

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Other Executive Officers

SHI Chengzhong, born in December 1962, a research fellow in applied engineering technology with a master’s degree in mining engineering and an EMBA degree, serves as a deputy general manager of the Company. Mr. Shi joined the predecessor Company in 1983 and served as a deputy chief engineer of Yankuang Group in 2000. Mr. Shi was appointed as a deputy general manager of the Company in 2002. Mr. Shi graduated from Northeastern University and Nankai University.

LIU Chun, born in September 1961, a research fellow in applied engineering technology with an EMBA degree, serves as a deputy general manager of the Company. Mr. Liu joined the predecessor Company in 1983 and was appointed as the director of Coal Sales and Transportation Department of the Company in 2002. Mr. Liu has been promoted to be a deputy general manager of the Company in 2011. Mr. Liu graduated from Nankai University.

DING Guangmu, born in September 1960, a senior economist with an EMBA degree, serves as a deputy general manager of the Company. Mr. Ding joined the predecessor Company in 1978 and served as the director of Vehicle Management Division of Yankuang Group. In 1999, he was appointed as deputy director of Materials & Goods Supply Centre of the Company. In 2002, he was appointed as the director and deputy secretary of party committee of Materials & Goods Supply Centre of the Company. In 2013, he served as the assistant general manager of the Company. In March 2014, he was appointed as the deputy general manager of the Company. Mr. Ding graduated from Shanghai Maritime University.

WANG Fuqi, born in May 1964, a research fellow in applied engineering technology with an EMBA degree and master of engineering, serves as the chief engineer of the Company. Mr. Wang joined the predecessor Company in 1985. In 2000, he was appointed as the chief engineer of Production and Technology Division of Yankuang Group. In 2002, he served as the director of Production and Technique Department of the Company. In 2003, he was appointed as the deputy chief engineer of the Company and director of Production and Technique Department of the Company. In March 2004, he served as the chief engineer of the Company. Mr. Wang graduated from Northeastern University and Nankai University.

ZHAO Honggang, born in November 1965, a research fellow in applied engineering technology and master of engineering, serves as the deputy general manager of the Company. Mr. Zhao joined the predecessor Company in 1987 and served as the deputy chief of Dongtan Coal Mine of the Company in March 2006. In March 2009, he was appointed as the director of Electromechanical Department. In December 2013, he served as the chairman and general manager of Shandong Huaju Energy Co., Ltd. In December 2014, he was appointed as the deputy general manager of the Company. Mr. Zhao graduated from Shandong University of Science and Technology.

Retirement and Resignation of Senior Management

Mr. ZHANG Yingmin has reached his retirement age and has tendered his resignation to the Board of the Company. His resignation from the position of the general manager of the Company took effect from January 8, 2014.

Due to work allocation, the former deputy general managers of the Company, Mr. HE Ye, Mr. LAI Cunliang, Mr. TIAN Fengze and the former chief engineer of the Company, Mr. NI Xinghua have tendered their resignations to the Board, respectively. Their resignation from the positions of deputy general managers and chief engineer took effect from March 6, 2014.

Appointment of Senior Management

As considered and approved by the nineteenth meeting of the fifth session of the Board of the Company held on March 6, 2014, Mr. YIN Mingde was appointed as general manager of the Company; Mr. DING Guangmu was appointed as deputy general manager of the Company; and Mr. WANG Fuqi was appointed as chief engineer of the Company.

Election of Directors and Supervisors of the Sixth Session of Board

As approved by the 2013 annual general meeting of the Company held on May 14, 2014, Mr. LI Xiyong, Mr. ZHANG Xinwen, Mr. YIN Mingde, Mr. WU Yuxiang, Mr. ZHANG Baocai and Mr. WU Xiangqian were elected as the non-independent Directors of the sixth session of the Board of the Company. Mr. WANG Lijie, Mr. JIA Shaohua, Mr. WANG Xiaojun and Mr. XUE Youzhi were elected as the independent Directors of the sixth session of the Board of the Company. Mr. SHI Xuerang, Mr. ZHANG Shengdong, Mr. GU Shisheng and Ms. ZHEN Ailan were elected as non-employee representative supervisors of the sixth session of Supervisory Committee of the Company.

 

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As approved by the employees representative meeting of the Company held on April 26, 2014, Mr. JIANG Qingquan was elected as an employee Director of the sixth session of the Board of the Company and Mr. GUO Jun and Mr. CHEN Zhongyi were elected as employee supervisors of the sixth session of the Supervisory Committee of the Company.

The term of office of the Directors of the sixth session of the Board and supervisors of the sixth session of the Supervisory Committee of the Company were three years commencing from the conclusion of 2013 annual general meeting and ending on the date of the conclusion of the general meeting for the election of Directors of the seventh session of the Board and and supervisors of the seventh session of the Supervisory Committee of the Company.

Election of Chairman and Vice Chairman of the Company

As approved by the first meeting of the sixth session of the Board of the Company on May 14, 2014, Mr. LI Xiyong was elected as chairman of the Company and Mr. ZHANG Xinwen was elected as vice chairman of the Company.

Election of Chairman and Vice Chairman of the Supervisory Committee of the Company

As approved by the first meeting of the sixth session of the Supervisory Committee of the Company on May 14, 2014, Mr. SHI Xuerang and Mr. ZHANG Shengdong were elected as chairman and vice chairman of the Supervisory Committee of the Company, respectively.

Appointment of Senior Management

As approved by the first meeting of the sixth session of the Board of the Company held on May 14, 2014, Mr. YIN Mingde was appointed as the general manager of the Company; Mr. SHI Chengzhong, Mr. ZHANG Baocai, Mr. LIU Chun and Mr. DING Guangmu were appointed as the deputy general manager; Mr. WU Yuxiang was appointed as the chief financial officer; Mr. ZHANG Baocai was appointed as the secretary to the Board and Mr. WANG Fuqi was appointed as the chief engineer.

As approved by the sixth meeting of the sixth session of the Board of the Company held on December 23, 2014, Mr. ZHAO Honggang was appointed as the deputy general manager of the Company

Change in members of the Sixth Session of the Board, Sixth Session of the Spervisory Committee and Senior Management

Due to work allocation, Mr. ZHANG Xinwen, the former vice chairman