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68 YANZHOU COAL MINING COMPANY LIMITED Report and Financial Statements For the year ended December 31, 2002

69 YANZHOU COAL MINING COMPANY LIMITED REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2002 CONTENTS PAGE(S) REPORT OF THE AUDITORS 1 CONSOLIDATED STATEMENT OF INCOME 2 CONSOLIDATED BALANCE SHEET 3 BALANCE SHEET 4 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 5 CONSOLIDATED STATEMENT OF CASH FLOWS 6 NOTES TO THE FINANCIAL STATEMENTS 7-45

70 REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF YANZHOU COAL MINING COMPANY LIMITED (A joint stock company with limited liability established in the People's Republic of China) We have audited the financial statements on pages 2 to 45 which have been prepared in accordance with International Financial Reporting Standards. Respective responsibilities of directors and auditors The Company's directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you. Basis of opinion We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and of the Group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at December 31, 2002 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance. Certified Public Accountants Hong Kong, April 11,

71 YANZHOU COAL MINING COMPANY LIMITED CONSOLIDATED STATEMENT OF INCOME Year ended December 31, NOTES RMB'000 RMB'000 RMB'000 GROSS SALES OF COAL ,772,315 6,369,649 4,704,201 TRANSPORTATION COSTS OF COAL... 5 _ (1,558,414) _ (1,493,639) _ (1,104,464) NET SALES OF COAL ,213,901 4,876,010 3,599,737 RAILWAY TRANSPORTATION SERVICE INCOME... _ 142,471 _ - _ - 6,356,372 4,876,010 3,599,737 COST OF SALES AND SERVICE PROVIDED... 6 _ (3,362,901) _ (2,812,583) _ (1,983,520) GROSS PROFIT... 2,993,471 2,063,427 1,616,217 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES... 7 (1,231,059) (759,631) (636,436) OTHER OPERATING INCOME... 8 _ 103,729 _ 117,896 _ 60,883 OPERATING INCOME... 1,866,141 1,421,692 1,040,664 INTEREST EXPENSES... 9 (117,929) (61,519) (5,012) _ INCOME BEFORE INCOME TAXES ,748,212 1,360,173 1,035,652 INCOME TAXES (523,148) (389,228) (287,292) _ INCOME BEFORE MINORITY INTEREST... 1,225, , ,360 MINORITY INTEREST... 3, _ NET INCOME... 1,221, , ,360 APPROPRIATIONS TO RESERVES , , ,627 DIVIDEND , , ,400 EARNINGS PER SHARE RMB0.43 RMB0.35 RMB0.29 EARNINGS PER ADS RMB21.29 RMB17.29 RMB

72 YANZHOU COAL MINING COMPANY LIMITED CONSOLIDATED BALANCE SHEET ASSETS At December 31, NOTES RMB'000 RMB'000 CURRENT ASSETS Bank balances and cash... Restricted cash ,544,173 51,761 1,124,806 30,000 Bills and accounts receivable , ,252 Investments in securities... Inventories , ,579 49, ,882 Prepayments and other current assets , ,213 Taxes receivable ,674 TOTAL CURRENT ASSETS... 3,820,163 3,213,824 MINING RIGHTS , ,855 LAND USE RIGHTS... PROPERTY, PLANT AND EQUIPMENT, NET ,206 8,276, ,020 7,479,755 GOODWILL ,660 12,437 NEGATIVE GOODWILL... INVESTMENTS IN SECURITIES (82,861) 1,760 (110,481) 1,760 DEPOSIT MADE ON ACQUISITION OF INVESTMENTS IN SECURITIES ,138 - DEFERRED TAX ASSET ,807 87,421 TOTAL ASSETS... 12,924,045 11,182,591 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bills and accounts payable , ,387 Other payables and accrued expenses... Provision for land subsidence, restoration, rehabilitation , ,874 and environmental costs , ,196 Amounts due to Parent Company and its subsidiary companies , ,387 Taxes payable... 56, TOTAL CURRENT LIABILITIES... 1,662,734 2,047,637 AMOUNTS DUE TO PARENT COMPANY AND ITS SUBSIDIARY COMPANIES - DUE AFTER ONE YEAR ,341 72,456 LONG-TERM BANK BORROWING ,200,000 - TOTAL LIABILITIES... 2,924,075 2,120,093 COMMITMENTS SHAREHOLDERS' EQUITY... 9,995,033 9,060,034 MINORITY INTEREST... 4,937 2,464 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... 12,924,045 11,182,591 The financial statements on pages 2 to 45 were approved and authorized for issue by the Board of Directors on April 11, 2003 and are signed on its behalf by: Director Director - 3 -

73 YANZHOU COAL MINING COMPANY LIMITED BALANCE SHEET ASSETS At December 31, NOTES RMB'000 RMB'000 CURRENT ASSETS Bank balances and cash... 1,540,637 1,120,155 Restricted cash ,761 30,000 Bills and accounts receivable , ,252 Investments in securities ,702 49,997 Inventories , ,353 Prepayments and other current assets , ,846 Taxes receivable ,674 TOTAL CURRENT ASSETS... 3,808,575 3,202,277 MINING RIGHTS , ,855 LAND USE RIGHTS , ,020 PROPERTY, PLANT AND EQUIPMENT, NET ,276,343 7,479,411 GOODWILL ,660 12,437 NEGATIVE GOODWILL (82,861) (110,481) INVESTMENT IN A SUBSIDIARY ,710 2,710 INVESTMENTS IN SECURITIES ,760 1,760 DEPOSIT MADE ON ACQUISITION OF INVESTMENTS IN SECURITIES ,138 - DEFERRED TAX ASSET ,807 87,421 TOTAL ASSETS... 12,914,569 11,173,410 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bills and accounts payable , ,724 Other payables and accrued expenses , ,613 Provision for land subsidence, restoration, rehabilitation and environmental costs , ,196 Amounts due to Parent Company and its subsidiary companies , ,387 Taxes payable... 56,749 - TOTAL CURRENT LIABILITIES... 1,660,915 2,040,920 AMOUNTS DUE TO PARENT COMPANY AND ITS SUBSIDIARY COMPANIES - DUE AFTER ONE YEAR ,341 72,456 LONG-TERM BANK BORROWING ,200,000 - TOTAL LIABILITIES... 2,922,256 2,113,376 COMMITMENTS SHAREHOLDERS' EQUITY ,992,313 9,060,034 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... 12,914,569 11,173,410 Director Director - 4 -

74 YANZHOU COAL MINING COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Statutory Statutory Future common common Share Share development reserve welfare Retained capital premium fund fund fund earnings Total RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 Balance at January 1, ,600,000 2,087, , ,213 84,106 1,300,875 6,352,665 Net income , ,360 Appropriations to reserves ,418 38,209 (114,627) - Dividends _ - (231,400) (231,400) Balance at December 31, ,600,000 2,087, , , ,315 1,703,208 6,869,625 Balance at January 1, ,600,000 2,087, , , ,315 1,703,208 6,869,625 Additional issue of shares, net of share issue expenses of RMB77,253, ,000 1,184, ,454,804 Net income , ,945 Appropriations to reserves ,465 47,233 (141,698) - Dividends _ - (235,340) (235,340) Balance at December 31, ,870,000 3,272, , , ,548 2,297,115 9,060,034 Balance at January 1, ,870,000 3,272, , , ,548 2,297,115 9,060,034 Net income ,221,999 1,221,999 Appropriations to reserves, net of minority interests' share (note) ,489 49,105 24,593 (817,187) - Dividends _ - (287,000) (287,000) Balance at December 31, ,870,000 3,272, , , ,141 2,414,927 9,995,033 Note: Prior to 1999, the Company was required to contribute RMB1.80 per tonne of raw coal mined to National Coal Industry Bureau ("NCIB") and Shangdong Coal Mining Industrial Bureau ("SCMIB"), in aggregate and the amount was recognized as an expense. In addition, the Company was also required to transfer an annual amount to a future development fund at RMB4.2 per tonne of raw coal mined. The fund can only be used for the future development of the coal mining business and is not available for distribution to shareholders. The contribution to NCIB has been cancelled since July 1, 1998 and the contribution to SCMIB has been cancelled since January 1, The annual transfer to the future development fund was stopped starting from January According to a clarification of the relevant regulations obtained from the Ministry of Finance during the year ended December 31, 2002, the requirement of the Company to transfer an annual amount to the future development fund had not been changed upon cancellation of the requirements for contributions to NCIB and SCMIB. Therefore, the Company is required to transfer an amount of RMB743,489,000 (including RMB204,134,000, RMB164,738,000 and RMB144,007,000 for the years ended December 31, 2001, 2000 and 1999, respectively, that would have been transferred had the transfer not been stopped on January 1, 1999), to the future development fund in the current period, representing RMB6 per tonne of raw coal mined, from retained earnings. This change did not have any impact on the Group's financial position or results of operations

75 YANZHOU COAL MINING COMPANY LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS OPERATING ACTIVITIES Year ended December 31, NOTES RMB'000 RMB'000 RMB'000 Income before minority interest... 1,225, , ,360 Adjustments to reconcile income before minority interest to net cash from operating activities: Depreciation of property, plant and equipment and land use rights , , ,203 Amortization of goodwill Release of negative goodwill to income... (27,620) (27,620) - Amortization of mining rights... 6,624 6,624 - Recognition of deferred tax asset... (1,386) (2,260) (8,315) Loss on disposal of property, plant and equipment... 1,093 5,811 11,601 Gain on disposal of investments in securities... (2,209) - - (Increase) decrease in assets (net of acquisitions): Bills and accounts receivable... (104,091) 145,380 26,929 Inventories... (93,818) (157,373) 47,547 Prepayments and other current assets ,301 (282,451) (259,693) Taxes receivable... 21,674 (21,674) - Increase (decrease) in liabilities (net of acquisitions): Bills and accounts payable... (56,492) 79,275 38,485 Other payables and accrued expenses... 90, ,763 8,851 Provision for land subsidence, restoration, rehabilitation and environmental costs... (43,419) (16,528) (51,881) Amounts due to Parent Company and its subsidiary companies... 84,048 52, ,577 Taxes payable... 56,074 (149,726) (164,289) NET CASH FROM OPERATING ACTIVITIES... 2,239,712 1,610,239 1,023,152 INVESTING ACTIVITIES Acquisition of Railway Assets (1,282,445) - - Purchase of property, plant and equipment... (842,471) (677,936) (477,421) Acquisition of investments in securities... (88,702) (51,757) - Deposit made on acquisition of investments in securities... (30,138) - - Increase in restricted cash... (21,761) (30,000) - Proceeds on disposal of investments in securities... 52, Proceeds on disposal of property, plant and equipment... 47,800 13,686 12,736 Acquisition of Jining III (1,204,133) - Acquisition of Zhongyan ,941 - NET CASH FLOW USED IN INVESTING ACTIVITIES. (2,165,511) (1,948,199) (464,685) FINANCING ACTIVITIES Bank borrowings raised... 1,600, Repayment to Parent Company and its subsidiary companies in respect of consideration for acquisition of Jining III (567,242) (601,452) - Dividend paid... (287,000) (235,340) (231,400) Repayments of bank borrowings... (400,000) - - Dividend paid to a minority shareholder of a subsidiary... (592) - - Issues of shares, net of share issue expenses ,454,804 - NET CASH FLOW FROM (USED IN) FINANCING ACTIVITIES , ,012 (231,400) NET INCREASE IN CASH AND CASH EQUIVALENTS 419, , ,067 CASH AND CASH EQUIVALENTS, BEGINNING... 1,124, , ,687 CASH AND CASH EQUIVALENTS, ENDING, REPRESENTED BY BANK BALANCES AND CASH.. 1,544,173 1,124, ,754 Additional cash flow information: Cash paid during the year for Interest... Income taxes , ,786 37, ,888 5, ,

76 YANZHOU COAL MINING COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL The Company is established as a joint stock company with limited liability in the People's Republic of China (the "PRC") and operates six coal mines, namely the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine, Dongtan coal mine, Jining II coal mine ("Jining II") and Jining III coal mine ("Jining III") as well as a regional railway network that links these mines with the national railway gird. These six coal mines and the railway were originally divisions of the Company's ultimate holding company, Yankuang Group Corporation Limited (the "Parent Company"), a state-owned enterprise in the PRC. The Parent Company contributed the assets and liabilities of the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine and Dongtan coal mine into the Company upon its formation. The Company acquired Jining II from the Parent Company for cash in The Company acquired Jining III from the Parent Company effective January 1, This acquisition was financed as set out below. On January 3, 2001, the Company allotted an additional 100,000,000 A shares to the public in the PRC (the "A Share Issue") and the A shares have been listed on the Shanghai Securities Exchange ("SSE") since February On May 14, 2001, the Company issued an aggregate of 170,000,000 H shares to independent investors and the H shares were listed on The Stock Exchange of Hong Kong Limited. The total net proceeds from the A share and H share offerings were approximately RMB960,607,000 and HK$461,867,000 (equivalent to approximately RMB494,197,000), respectively. The proceeds were applied towards the purchase price of Jining III of approximately RMB2,583 million. The purchase price includes the cost of Jining III of approximately RMB2,450,905,000 and the cost of the mining rights of approximately RMB132,479,000. The consideration for the cost of Jining III was fully settled at December 31, 2002 as follows: (i) Initial installment RMB243,526,000 was paid on January 1, 2001, the completion date; (ii) Second installment The net proceeds of RMB960,607,000 of the A Share Issue were paid over on January 22, (iii) Third installment 50% of the outstanding balance of the purchase price was paid (without interest) prior to December 31, 2001; and (iv) Fourth installment The outstanding balance of the purchase price was paid (without interest) prior to December 31,

77 YANZHOU COAL MINING COMPANY LIMITED 1. GENERAL - continued The consideration for the cost of the mining rights of approximately RMB132,479,000 is to be settled over ten years by equal annual installments before December 31 of each year, commencing from 2001 (see also note 34). On January 1, 2002, the Company acquired from the Parent Company the assets of the special purpose coal railway transportation business ("Railway Assets"). The consideration for the acquisition of the Railway Assets was approximately RMB1,242,586,000 subject to the adjustments as follows: For each of the years ending December 31, 2002, 2003 and 2004, the Company will pay an extra RMB40,000,000 for each year if Railway Assets' actual capacity reaches 25,000,000 tonnes, 28,000,000 tonnes and 30,000,000 tonnes, respectively. The acquisition was funded by cash of the Company and a long-term bank loan of RMB1,200,000,000, the repayment of which is guaranteed by the Parent Company. For the year ended December 31, 2002, Railway Assets' actual capacity was more than 25,000,000 tonnes, and accordingly, the consideration is adjusted to approximately RMB1,282,586,000. At December 31, 2002 and 2001, the Company holds a 52.38% interest in the registered capital of Qingdao Free Trade Zone Zhongyan Trade Co., Ltd. ("Zhongyan"), a limited liability company established and operated in the PRC. Zhongyan is engaged in the trading and processing of mining machinery. The Company acquired its stake in Zhongyan during the year ended December 31, 2001 for a cash consideration of RMB2,710,000. Zhongyan did not have any significant impact on the Group's results. In April 2001, the status of the Company was changed to that of a sino-foreign joint stock limited company. The Company's A shares are listed on the SSE, its H shares are listed on The Stock Exchange of Hong Kong Limited, and its American Depositary Shares ("ADS", one ADS represents 50 H shares) are listed on the New York Stock Exchange, Inc. 2. BASIS OF PRESENTATION The accompanying financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). The Company also prepares a set of financial statements in accordance with the relevant accounting principles and regulations applicable to PRC enterprises ("PRC GAAP"). Differences between IFRS and PRC GAAP are stated in note 43. The financial statements reflect additional disclosures to conform with the disclosure requirements of the Hong Kong Companies Ordinance and with presentations customary in the United States of America. Differences between IFRS and accounting principles generally accepted in the United States of America ("US GAAP") are stated in note

78 YANZHOU COAL MINING COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared under the historical cost convention, as modified for the revaluation of financial instruments. The principal accounting policies which have been adopted in preparing these financial statements and which conform with IFRS are as follows: Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to December 31 each year. On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minority's proportion of the fair values of the assets and liabilities recognized. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All significant intercompany transactions and balances between group enterprises are eliminated on consolidation. Investments in subsidiaries Investments in subsidiaries in the Company's balance sheet are stated at cost, less any identified impairment loss. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. Revenue recognition Sales of goods are recognized when goods are delivered and title has passed. Service income is recognized when services are provided. Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable. Cash and cash equivalents Cash and cash equivalents include cash on hand, cash accounts, interest bearing savings accounts and time deposits which are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value

79 YANZHOU COAL MINING COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES - continued Mining rights Mining rights of Jining III are stated at cost less accumulated amortization and are amortized on a straight line basis over twenty years, being the useful life estimated based on the total proven and probable reserves of the coal mine. Property, plant and equipment and land use rights Property, plant and equipment, other than construction in progress, are stated at cost less depreciation and accumulated impairment losses. When assets are sold or retired, the gain or loss is determined as the difference between the sales proceeds and the carrying amount of the asset and the gain or loss is included in the statement of income. Depreciation is provided to write off the cost of items of property, plant and equipment over their estimated useful lives, after taking into account their estimated residual value, using the straight line method. The estimated useful lives of property, plant and equipment are as follows: Buildings... Railway structure... Plant, machinery and equipment... Transportation equipment to 35 years 15 to 25 years 5 to 15 years 6 to 9 years The mining structure includes the main and auxiliary mine shafts and underground tunnels. Depreciation is provided to write off the cost of the mining structure using the units of production method based on the estimated production volume for which the structure was designed. Land use rights are amortized over the term of the relevant rights. Assets under construction are not depreciated until they are completed and put into commercial operation. Construction in progress Construction in progress is stated at cost less any identified impairment loss. Cost comprises construction expenditures and other direct costs attributable to such projects, including borrowing costs, if the amount of capital expenditures and the time involved to complete the construction are significant. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policies as stated above

80 YANZHOU COAL MINING COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES - continued Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cashgenerating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized as income immediately. Goodwill Goodwill represents the excess of the purchase consideration paid over Company's share in the fair value of the identifiable assets and liabilities acquired as at the respective dates of acquisition of Jining II and Railway Assets. Goodwill is capitalized and amortized on a straight line basis over a period of ten to twenty years. Additional goodwill resulting from future contingent consideration payments in respect of acquisition of Railway Assets will be amortized on a straight line basis over the remaining life of the original period of ten to twenty years. Negative goodwill Negative goodwill, which represents the excess of the fair value ascribed to the Company's share of the separable net assets at the date of acquisition of Jining III over the purchase consideration is presented as a deduction from the assets of the Company and of the Group. Negative goodwill is released to income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets. Investments in securities Investments in securities are recognized on a trade date basis and are initially measured at cost. Investments other than held-to-maturity debt securities are classified as either held-for-trading or available-for-sale, and are measured at subsequent reporting dates at fair value, based on quoted market prices at the balance sheet date or at cost subject to impairment recognition where the fair value cannot be reliably determined. Where securities are held for trading purposes, unrealized gains and losses are included in net profit or loss for the period. For available-for-sale investments, unrealized gains and losses are recognized directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in the net profit or loss for the period

81 YANZHOU COAL MINING COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES - continued Inventories Inventories of coal are physically measured and are stated at the lower of cost and net realizable value. Cost, which comprises direct materials and, where applicable, direct labor and overheads that have been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average method. Net realizable value represents the estimated selling price less all further costs to completion and costs to be incurred in selling, marketing and distribution. Inventories of auxiliary materials, spare parts and small tools expected to be used in production are stated at weighted average cost less provision, if necessary, for obsolescence. Income taxes The charge for income taxes is based on the results for the year after adjusting for items which are non-assessable or disallowed. Deferred taxation is recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement amounts and the tax bases of existing assets and liabilities. Research and development Expenditure on research activities is recognized as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development expenditure is recognized only if it is anticipated that the development costs incurred on a clearly-defined project will be recovered through future commercial activity. The resultant asset is amortized on a straight line basis over its useful life. Where no internally-generated intangible asset can be recognized, development expenditure is recognized as an expense in the period in which it is incurred. No development expenditure has been deferred. Land subsidence, restoration, rehabilitation and environmental costs One consequence of coal mining is land subsidence caused by the resettlement of the land above the underground mining sites. Depending on the circumstances, the Group may relocate inhabitants from the land above the underground mining sites prior to mining those sites or the Group may compensate the inhabitants for losses or damages from land subsidence after the underground sites have been mined. The Group may also be required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined. An estimate of such costs is recognized in the period in which the obligation is identified and is charged as an expense in proportion to the coal extracted

82 YANZHOU COAL MINING COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES - continued Capitalization of borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e. assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of those assets. Capitalization of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. All other borrowings costs are recognized as an expense in the period in which they are incurred. Foreign currency translation The Group maintains its books and records in Renminbi. Transactions denominated in foreign currencies are translated into Renminbi at the applicable rates of exchange quoted by the People's Bank of China prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into Renminbi at the applicable rates of exchange quoted by the People's Bank of China prevailing at the balance sheet date. Profits and losses arising on translation are recorded in the statement of income. Government grants Government grants are recognized over the periods necessary to match them with the related costs. If the grants do not relate to any specific expenditures incurred by the Group, they are reported separately as other operating income. If the grants subsidise an expense incurred by the Group, they are deducted in reporting the related expense. Grants relating to depreciable assets are presented as a deduction from the cost of the relevant asset. Use of estimates The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 4. SEGMENT INFORMATION The Group is engaged primarily in the coal mining business and commencing from January 1, 2002, the Group is also engaged in coal railway transportation business. The Group operates only in the PRC. All the identifiable assets of the Group are located in the PRC. The Company does not currently have direct export rights and all of its export sales must be made through China National Coal Industry Import and Export Corporation ("National Coal Corporation"), China National Minerals Import and Export Co., Ltd. ("National Minerals Company") or Shanxi Coal Imp. & Exp. Group Corp. ("Shanxi Coal Corporation"). The final customer destination of the Company's export sales is determined by the Company, National Coal Corporation, National Minerals Company or Shanxi Coal Corporation. The Company's subsidiary is engaged in trading and processing of mining machinery in the PRC. No separate segment information about the subsidiary's business is presented in these financial statements as the underlying gross sales, results and assets of the subsidiary's business are insignificant to the Group

83 YANZHOU COAL MINING COMPANY LIMITED 4. SEGMENT INFORMATION - continued Business segments For management purposes, the Group is currently organized into two operating divisions - coal mining and coal railway transportation. These divisions are the basis on which the Group reports its primary segment information. Principal activities are as follows: Coal mining Coal railway transportation - Underground mining, preparation and sales of coal - Provision of railway transportation services Segment information about these businesses is presented below: INCOME STATEMENT For the year ended December 31, 2002 Coal railway Coal mining transportation Eliminations Consolidated RMB'000 RMB'000 RMB'000 RMB'000 GROSS REVENUE External... 7,772, ,471-7,914,786 Inter-segment ,823 (386,823) - Total... 7,772, ,294 (386,823) 7,914,786 Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority. RESULT Segment results... 1,791, ,272-2,062,718 Unallocated corporate expenses... (226,795) 1,835,923 Unallocated corporate income... 30,218 Operating income... 1,866,141 Interest expenses... (117,929) Income before income taxes... 1,748,212 Income taxes... (523,148) Income before minority interest... 1,225,064 Note: No segment information for the years ended December 31, 2001 and 2000 is presented as the Group was engaged primarily in the coal mining business during those years

84 YANZHOU COAL MINING COMPANY LIMITED 4. SEGMENT INFORMATION - continued BALANCE SHEET At December 31, 2002 Coal railway Corporate Coal mining transportation and others Consolidated RMB'000 RMB'000 RMB'000 RMB'000 ASSETS Segment assets... 9,861,375 1,162,372 1,900,298 12,924,045 LIABILITIES Segment liabilities... 1,346,568 56,000 1,521,507 2,924,075 OTHER INFORMATION For the year ended December 31, 2002 Coal railway Corporate Coal mining transportation and others Consolidated RMB'000 RMB'000 RMB'000 RMB'000 Capital additions ,090 1,166,898 5,547 1,974,535 Amortization of goodwill Release of negative goodwill to income... (27,620) - - (27,620) Depreciation of property, plant and equipment and land use rights.. 764,470 75,519 11, ,119 Amortization of mining rights... 6, ,624 Loss on disposal of property, plant and equipment... 1, ,093 Allowance for doubtful debts... 66, ,204 The number of employees of each of the Group's principal divisions are as follows: At December 31, Coal mining... 24,623 23,689 20,176 Coal railway transportation... 3, ,872 23,689 20,

85 YANZHOU COAL MINING COMPANY LIMITED 5. SALES OF COAL AND TRANSPORTATION COSTS OF COAL Year ended December 31, RMB'000 RMB'000 RMB'000 Domestic sales of coal, gross... 3,939,953 3,014,933 2,414,826 Less: Transportation costs , , ,068 Domestic sales of coal, net... 3,413,955 2,599,812 2,090,758 Export sales of coal, gross... 3,832,362 3,354,716 2,289,375 Less: Transportation costs... 1,032,416 1,078, ,396 Export sales of coal, net... 2,799,946 2,276,198 1,508,979 Net sales of coal... 6,213,901 4,876,010 3,599,737 Net sales of coal represents the invoiced value of coal sold and is net of returns, discounts, sales taxes and transportation costs if the invoiced value includes transportation costs to the customers. Sales taxes consist primarily of a resource tax calculated at the rate of RMB1.20 per metric tonne ("tonne") of the imputed quantity of raw coal sold and are paid to the local tax bureau. The resource tax for each of the three years ended December 31, 2002, 2001 and 2000 amounted to RMB44,712,000, RMB40,351,000 and RMB33,955,000, respectively. 6. COST OF SALES AND SERVICE PROVIDED Year ended December 31, RMB'000 RMB'000 RMB'000 Materials , , ,337 Wages and employee benefits , , ,134 Electricity , , ,759 Depreciation , , ,623 Land subsidence, restoration, rehabilitation and environmental costs , , ,229 Repairs and maintenance , , ,734 Annual fee and amortization of mining rights (note)... 19,604 19,604 12,980 Transportation costs... 43,239 22,632 23,336 Others ,525 63,695 25,388 3,362,901 2,812,583 1,983,

86 YANZHOU COAL MINING COMPANY LIMITED 6. COST OF SALES - continued Note: The Parent Company and the Company have entered into a mining rights agreement pursuant to which the Company has agreed to pay to the Parent Company effective from September 25, 1997 an annual fee of RMB12,980,000 as compensation for the Parent Company's agreement to give up the mining rights associated with the Group's mines other than Jining III. The annual fee is subject to change after a ten-year period. The cost of the mining rights of Jining III of approximately RMB132,479,000 acquired in 2001 is amortized on a straight line basis over twenty years. 7. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Year ended December 31, RMB'000 RMB'000 RMB'000 Retirement benefits scheme contributions (note 38) , , ,372 Wages and employee benefits ,549 75,717 74,946 Additional medical insurance... 29, Depreciation... 37,358 35,161 26,580 Amortization of goodwill Distribution charges... 54,524 57,970 64,569 Allowance for doubtful debts... 66,204 2,508 - Resource compensation fees (note)... 73,762 31,240 28,409 Repairs and maintenance... 8,668 8,247 6,518 Research and development... 30,657 23,026 24,290 Staff training costs... 26,272 23,991 21,462 Freight charges... 14,016 5,532 5,137 Others , , ,376 1,231, , ,436 Note: In accordance with the relevant regulations, the Group pays resource compensation fees (effectively a government levy) to the Ministry of Geology and Mineral Resources at the rate of 1% on the imputed sales value of raw coal

87 YANZHOU COAL MINING COMPANY LIMITED 8. OTHER OPERATING INCOME Year ended December 31, RMB'000 RMB'000 RMB'000 Gain on sales of auxiliary materials... 21,277 21,233 34,899 Government grants (note)... 20, Interest income from bank deposits... 28,737 39,863 25,984 Interest income from investments in securities... 1, Release of negative goodwill to income... 27,620 27,620 - Write back of allowance for doubtful debts ,180 - Others... 4, , ,896 60,883 Note: Government grants represents the amount granted to the Group in respect of its export sales activities in prior years and received during the year. 9. INTEREST EXPENSES Year ended December 31, RMB'000 RMB'000 RMB'000 Interest expenses on: - bank borrowings wholly repayable within 5 years... 3,666 1, bank borrowings not wholly repayable within 5 years... 72, bills receivable discounted without recourse... 2,235-5,012 Deemed interest expenses (note 34)... 39,956 59, ,929 61,519 5,012 No interest was capitalized during the relevant periods. 10. INCOME BEFORE INCOME TAXES Income before income taxes has been arrived at after charging: Year ended December 31, RMB'000 RMB'000 RMB'000 Amortization of mining rights... 6,624 6,624 - Auditors' remuneration... 3,500 2,200 2,000 Staff costs, including directors' and supervisors' emoluments... 1,354, , ,914 Loss on disposal of property, plant and equipment... 1,093 5,811 11,

88 YANZHOU COAL MINING COMPANY LIMITED 11. DIRECTORS' AND SUPERVISORS' REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS (a) Directors' and supervisors' emoluments Details of the directors' and supervisors' emoluments are as follows: Year ended December 31, RMB'000 RMB'000 RMB'000 Independent non-executive directors Fees Executive directors Fees Salaries, allowance and other benefits in kind Retirement benefits scheme contributions (note 38) Discretionary bonuses ,196 1, Supervisors Fees Salaries, allowance and other benefits in kind Retirement benefits scheme contributions (note 38) Discretionary bonuses Emoluments of each of the directors and supervisors are all within the band of Nil to HK$1,000,000 for the years ended December 31, 2002, 2001 and (b) Employees' emoluments The five highest paid individuals in the Group in 2002 included three directors (2001 and 2000: five), details of whose emoluments are included in the disclosures in note 11(a) above. The emoluments of the remaining two individuals are as follows: 2002 RMB'000 Salaries, allowance and other benefits in kind Retirement benefits scheme contributions (note 38) Discretionary bonuses Emoluments of each of these employees are all within the band of Nil to HK$1,000,000 for the year ended December 31,

89 YANZHOU COAL MINING COMPANY LIMITED 12. INCOME TAXES Year ended December 31, RMB'000 RMB'000 RMB'000 Income taxes , , ,607 Deferred tax credit (note 27)... (1,386) (2,260) (8,315) 523, , ,292 The Company is subject to an income tax rate of 33% on its taxable income. A reconciliation between the provision for income taxes computed by applying the standard PRC income tax rate to income before income taxes and the actual provision for income taxes is as follows: Year ended December 31, RMB'000 RMB'000 RMB'000 Standard income tax rate in the PRC... 33% 33% 33% Standard income tax rate applied to income before income taxes , , ,765 Reconciling items: Transfer to future development fund deductible for tax purpose but not charged to income under IFRS... (76,101) (67,364) (54,363) Amortization of the revaluation surplus of low-priced consumables deductible for tax purposes but not for accounting purposes under IFRS... - (1,212) (606) Release of negative goodwill not subject to tax... (9,115) (9,115) - Deemed interest not deductible for tax purposes... 13,185 19,666 - Allowance for doubtful debts not deductible for tax purposes... 23, Government grants received not subject to tax... (6,652) - - Others... 1,240 (1,604) 496 Income taxes , , ,292 Effective income tax rate... 30% 29% 28% The Company had received approval from the respective tax authorities for the filing of consolidated income taxes by the Parent Company prior to July Starting from July 2001, the Company submitted a separate income tax filing. The provision for income taxes of the relevant periods represents the provision calculated by the Company on the basis of a separate income tax filing. The subsidiary acquired during the year ended December 31, 2001 did not have any significant impact on the income taxes provided for the years ended December 31, 2001 and

90 YANZHOU COAL MINING COMPANY LIMITED 13. DIVIDEND Year ended December 31, RMB'000 RMB'000 RMB'000 Final dividend approved , , ,400 Pursuant to the annual general meeting held on June 16, 2000, a final dividend of approximately RMB231,400,000 or RMB0.089 per share proposed by the board of directors in respect of the year ended December 31, 1999 was approved and paid to the shareholders of the Company. Pursuant to the annual general meeting held on June 15, 2001, a final dividend of approximately RMB235,340,000 or RMB0.082 per share proposed by the board of directors in respect of the year ended December 31, 2000 was approved and paid to the shareholders of the Company. Pursuant to the annual general meeting held on June 7, 2002, a final dividend of approximately RMB287,000,000, or RMB0.100 per share proposed by the board of directors in respect of the year ended December 31, 2001 was approved and paid to the shareholders of the Company. The board of directors proposes to declare a final dividend of approximately RMB298,480,000 calculated based on a total number of 2,870,000,000 shares issued at RMB1 each, at RMB0.104 per share in respect of the year ended December 31, The declaration and payment of the final dividend needs to be approved by the shareholders of the Company by way of an ordinary resolution in accordance with the requirements of the Company's Articles of Association. A shareholders' general meeting will be held for the purposes of considering and, if thought fit, approving this ordinary resolution. 14. EARNINGS PER SHARE AND PER ADS The calculation of the earnings per share for the years ended December 31, 2002, 2001 and 2000 is based on the net income for the year of RMB1,221,999,000, RMB970,945,000 and RMB748,360,000 and on the weighted average of 2,870,000,000 shares, 2,807,507,000 shares and 2,600,000,000 shares in issue, respectively, during the year. The earnings per ADS have been calculated based on the net income for the relevant periods and on one ADS being equivalent to 50 shares. 15. RESTRICTED CASH At the balance sheet date, the amount represented the bank deposits pledged to certain banks to secure banking facilities granted to the Group and the Company

91 YANZHOU COAL MINING COMPANY LIMITED 16. BILLS AND ACCOUNTS RECEIVABLE THE GROUP AND THE COMPANY At December 31, RMB'000 RMB'000 Total bills receivable , ,883 Total accounts receivable , ,233 Less: Allowance for doubtful debts... (76,083) (57,864) Total bills and accounts receivable, net , ,252 Bills receivable represent unconditional orders in writing issued by or negotiated from customers of the Group for completed sale orders which entitle the Group to collect a sum of money from banks or other parties. An analysis of the allowance for doubtful debts for 2002 and 2001 follows: THE GROUP AND THE COMPANY RMB'000 RMB'000 Balance at January ,864 87,044 Additional allowance charged to income... 64,604 - Direct write-off charged against allowance... (46,385) - Allowance written back to income... - (29,180) Balance at December ,083 57,864 According to the credit rating of different customers, the Group allows a range of credit periods to its trade customers not exceeding 180 days. The following is an aged analysis of bills and accounts receivable at the reporting date: THE GROUP AND THE COMPANY At December 31, RMB'000 RMB' days , , days , , years... 99, , years... 38,388 8,258 Over 3 years... 6,825 6, , ,

92 YANZHOU COAL MINING COMPANY LIMITED 17. INVESTMENTS IN SECURITIES Available-for-sale investments THE GROUP AND THE COMPANY At December 31, RMB'000 RMB'000 NON-CURRENT Equity investments... 1,760 1,760 CURRENT Fixed maturity investments... 88,702 49,997 The non-current investments in securities represents unlisted equity investments with no quoted market price and the amount was stated at cost subject to impairment recognition. The current investments in securities represents investments in listed fixed maturity securities that the Group does not intend or is not able to hold to maturity. The carrying amounts of these fixed maturity securities approximate their quoted market prices. 18. INVENTORIES THE GROUP THE COMPANY At December 31, At December 31, RMB'000 RMB'000 RMB'000 RMB'000 COST Auxiliary materials, spare parts and small tools , , , ,981 Coal products , , , , , , , ,

93 YANZHOU COAL MINING COMPANY LIMITED 19. PREPAYMENTS AND OTHER CURRENT ASSETS THE GROUP THE COMPANY At December 31, At December 31, RMB'000 RMB'000 RMB'000 RMB'000 Advances to suppliers ,687 82, ,687 89,171 Prepaid freight charges and related handling charges , , , ,113 Value added tax refund , , , ,145 Prepayments for purchase of property, plant and equipment... 7,311 5,837 7,311 5,837 Prepaid land subsidence, restoration, rehabilitation and environmental costs... 23,967 29,984 23,967 29,984 Receivables for utilities charges... 8,162 7,670 8,162 7,670 Receivables for sales of auxiliary materials... 7,835 49,991 7,835 49,991 Others... 79, ,935 78, , , , , ,846 Included in the balances of the Group and of the Company as of December 31, 2002 and 2001 were allowances for doubtful debts of RMB3,539,000 and RMB2,508,000, respectively. During the year ended December 31, 2002, the Group and the Company made an allowance for doubtful debts of RMB1,600,000 and made direct write-downs of RMB569,000 charged against the balance of the allowances. During the year ended December 31, 2001, the Group and the Company made an allowance for doubtful debts of RMB2,508,000. Included in the Company's balance as of December 31, 2001 was an amount due from its subsidiary of RMB15,614, MINING RIGHTS THE GROUP AND THE COMPANY RMB'000 COST At January 1, 2002 and December 31, ,479 AMORTIZATION At January 1, ,624 Provided for the year... 6,624 At December 31, ,248 NET BOOK VALUES At December 31, ,231 At December 31, ,855 In addition, the Parent Company and the Company have entered into a mining rights agreement pursuant to which the Company has agreed to pay to the Parent Company, effective from September 25, 1997, an annual fee of RMB12,980,000 as compensation for the Parent Company's agreement to give up the mining rights associated with the Group's mines other than Jining III. The annual fee is subject to change after a ten-year period

94 YANZHOU COAL MINING COMPANY LIMITED 21. LAND USE RIGHTS THE GROUP AND THE COMPANY RMB'000 COST At January 1, ,171 Additions on acquisition of Railway Assets ,378 At December 31, ,549 DEPRECIATION At January 1, ,151 Provided for the year... 13,192 At December 31, ,343 NET BOOK VALUES At December 31, ,206 At December 31, ,020 The land use rights have a term of fifty years from the date of grant of land use rights certificates. 22. PROPERTY, PLANT AND EQUIPMENT, NET THE GROUP Plant, machinery Railway Mining and Transportation Construction Buildings structure structure equipment equipment in progress Total RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 COST At January 1, ,889,262-3,556,324 5,945, , ,689 11,831,103 Additions on acquisition of Railway Assets... 48, ,704-88,388 19, ,380 Additions... 7, ,500 10, , ,777 Transfers... 91,560-89, ,646 84,400 (533,351) - Disposals... (12,072) - - (131,488) (13,765) - (157,325) At December 31, ,024, ,704 3,646,069 6,602, , ,923 13,388,935 DEPRECIATION At January 1, ,208-1,204,134 2,447,362 88,644-4,351,348 Provided for the year ,921 52,286 96, ,846 35, ,078 Eliminated on disposals... (5,227) - - (96,135) (7,070) - (108,432) At December 31, ,902 52,286 1,300,221 2,935, ,512-5,111,994 NET BOOK VALUES At December 31, ,317, ,418 2,345,848 3,667, , ,923 8,276,941 At December 31, ,278,054-2,352,190 3,497,969 80, ,689 7,479,

95 YANZHOU COAL MINING COMPANY LIMITED 22. PROPERTY, PLANT AND EQUIPMENT, NET - continued THE COMPANY Plant, machinery Railway Mining and Transportation Construction Buildings structure structure equipment equipment in progress Total RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 COST At January 1, ,889,262-3,556,324 5,945, , ,689 11,830,759 Additions on acquisition of Railway Assets... 48, ,704-88,388 19, ,380 Additions... 7, ,400 10, , ,456 Transfers... 91,560-89, ,646 84,400 (533,351) - Disposals... (12,072) - - (131,488) (13,765) - (157,325) At December 31, ,024, ,704 3,646,069 6,602, , ,923 13,388,270 DEPRECIATION At January 1, ,208-1,204,134 2,447,362 88,644-4,351,348 Provided for the year ,921 52,286 96, ,799 35, ,011 Eliminated on disposals... (5,227) - - (96,135) (7,070) - (108,432) At December 31, ,902 52,286 1,300,221 2,935, ,492-5,111,927 NET BOOK VALUES At December 31, ,317, ,418 2,345,848 3,667, , ,923 8,276,343 At December 31, ,278,054-2,352,190 3,497,834 80, ,689 7,479, GOODWILL THE GROUP AND THE COMPANY RMB'000 RMB'000 COST At January ,545 15,545 Subsequent adjustment to contingent consideration payment in respect of the acquisition of Railway Assets (note 33)... 40,000 - At December ,545 15,545 AMORTIZATION At January ,108 2,331 Provided for the year At December ,885 3,108 NET BOOK VALUES At December ,660 12,

96 YANZHOU COAL MINING COMPANY LIMITED 24. NEGATIVE GOODWILL THE GROUP AND THE COMPANY RMB'000 RMB'000 COST At January 1 and at December , ,101 RELEASED TO INCOME At January ,620 27,620 Released for the year... 27,620 - At December ,240 27,620 NET BOOK VALUES At December , ,481 The negative goodwill is released to income on a straight line basis over a period of five years. 25. INVESTMENT IN A SUBSIDIARY THE COMPANY At December 31, RMB'000 RMB'000 Unlisted investment, at cost... 2,710 2,710 The Company holds a 52.38% interest in the registered capital of Zhongyan, a limited liability company established and operated in the PRC. Zhongyan is engaged in the trading and processing of mining machinery. 26. DEPOSIT MADE ON ACQUISITION OF INVESTMENTS IN SECURITIES The amount represents a deposit paid by the Group and the Company in connection with the acquisition of a less than 1 percent stake in Shenergy Company Limited, a company listed on the SSE. The investment is in the form of state legal person shares, which are not tradeable on the SSE. The unpaid consideration at December 31, 2002 is shown as a capital commitment in note

97 YANZHOU COAL MINING COMPANY LIMITED 27. DEFERRED TAX ASSET THE GROUP AND THE COMPANY RMB'000 RMB'000 Balance at January ,421 85,161 Credit for the year (note 12)... 1,386 2,260 Balance at December 31 88,807 87,421 At the balance sheet date, the deferred tax asset represents the tax effect of temporary differences on the excess of provision for land subsidence, restoration, rehabilitation and environmental costs over the amount eligible for tax deduction. There is no material unprovided deferred tax for the year or at the balance sheet date. 28. BILLS AND ACCOUNTS PAYABLE THE GROUP THE COMPANY At December 31, At December 31, RMB'000 RMB'000 RMB'000 RMB'000 Bills payable , , , ,860 Accounts payable , , , , , , , ,724 The following is an aged analysis of bills and accounts payable at the reporting date: THE GROUP THE COMPANY At December 31, At December 31, RMB'000 RMB'000 RMB'000 RMB' days , , , , days , , , , years... 86, ,885 86, , , , , ,

98 YANZHOU COAL MINING COMPANY LIMITED 29. OTHER PAYABLES AND ACCRUED EXPENSES THE GROUP THE COMPANY At December 31, At December 31, RMB'000 RMB'000 RMB'000 RMB'000 Customers' deposits , , , ,794 Accrued wages... 46,389 36,131 46,389 36,131 Other taxes payable ,273 54, ,273 54,276 Payables in respect of purchases of property, plant and equipment and construction materials , , , ,852 Utilities deposits received... 4,784 4,661 4,784 4,661 Accrued freight charges... 12,732 29,341 11,267 29,341 Accrued repairs and maintenance... 28,201 25,103 28,201 25,103 Accrued utility expenses... 10,372 3,547 10,372 3,547 Staff welfare payable... 51,163 8,422 51,163 8,422 Accrued land subsidence, restoration, rehabilitation and environmental costs... 4,468 32,450 4,468 32,450 Others... 53,623 94,297 53,623 90, , , , , PROVISION FOR LAND SUBSIDENCE, RESTORATION, REHABILITATION AND ENVIRONMENTAL COSTS THE GROUP AND THE COMPANY RMB'000 RMB'000 Balance at January , ,724 Additional provision in the year , ,939 Transfers to prepayments and accrued expenses... (275,449) (227,467) Balance at December 31 83, ,196 The provision for land subsidence, restoration, rehabilitation and environmental costs has been determined by the directors based on their best estimates. However, in so far as the effect on the land and the environment from current mining activities becomes apparent in future periods, the estimate of the associated costs may be subject to change in the near term

99 YANZHOU COAL MINING COMPANY LIMITED 31. LONG-TERM BANK BORROWING During the year, the Company obtained a new bank loan in the amount of RMB1,200,000,000. The loan bears interest at 6.21% per annum and is repayable in installments over a period of 7 years, the first repayment instalment of which is due in August The proceeds were used to finance the acquisition of Railway Assets (see note 1). The above loan is repayable as follows on December 31, 2002: THE GROUP AND THE COMPANY RMB'000 Within one year - More than one year, but not exceeding two years 200,000 More than two years, but not exceeding five years 600,000 Exceeding five years 400,000 1,200, SHAREHOLDERS' EQUITY The movements during the year in the Company's shareholders' equity are as follows: Statutory Statutory Future common common Share Share development reserve welfare Retained capital premium fund fund fund earnings Total RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 Balance at January 1, ,600,000 2,087, , , ,315 1,703,208 6,869,625 Additional issue of shares, net of share issue expenses of RMB77,253, ,000 1,184, ,454,804 Net income , ,945 Appropriations to reserves ,465 47,233 (141,698) - Dividends _ - (235,340) (235,340) Balance at December 31, ,870,000 3,272, , , ,548 2,297,115 9,060,034 Balance at January 1, ,870,000 3,272, , , ,548 2,297,115 9,060,034 Net income ,219,279 1,219,279 Appropriations to reserves ,489 49,024 24,512 (817,025) - Dividends _ - (287,000) (287,000) Balance at December 31, ,870,000 3,272, , , ,060 2,412,369 9,992,

100 YANZHOU COAL MINING COMPANY LIMITED 32. SHAREHOLDERS' EQUITY - continued The Company's share capital structure at the balance sheet date is as follows: Number of shares at December 31, Class of shares Type of shares 2002 and 2001 Domestic invested shares Foreign invested shares - State legal person shares (held by the Parent Company) 1,670,000,000 - A shares (note 1) 180,000,000 H shares (including H shares represented by ADS) (note 1) 1,020,000,000 Total 2,870,000,000 Each share has a par value of RMB1. Pursuant to regulations in the PRC, the Company is required to transfer an annual amount to a future development fund at RMB6 per tonne of raw coal mined. The fund can only be used for the future development of the coal mining business and is not available for distribution to shareholders. The Company has to set aside 10% of its net income for the statutory common reserve fund (except where the fund has reached 50% of the Company's registered capital) and 5% to 10% of its net income for the statutory common welfare fund. The statutory common reserve fund can be used for the following purposes: to make good losses in previous years; or to convert into capital, provided such conversion is approved by a resolution at a shareholders' general meeting and the balance of the statutory common reserve fund does not fall below 25% of the registered capital. The statutory common welfare fund, which is to be used for the welfare of the staff and workers of the Company, is of a capital nature. In accordance with the Company's Articles of Association, the net income for the purpose of appropriation will be deemed to be the lesser of the amounts determined in accordance with (i) PRC accounting standards and regulations and (ii) IFRS or the accounting standards of the places in which its shares are listed. The Company can also create a discretionary reserve in accordance with its Articles of Association or pursuant to resolutions which may be adopted at a meeting of shareholders. The Company's distributable reserve as at December 31, 2002 is the retained earnings computed under PRC GAAP which amounted to approximately RMB1,751,708,000. The Company's distributable reserve as at December 31, 2001 is also the retained earnings computed under PRC GAAP which have been restated from approximately RMB1,633,651,000 to approximately RMB1,197,704,000 as a result of the restatement of the amounts required for contribution to the future development fund as set out in note

101 YANZHOU COAL MINING COMPANY LIMITED 33. ACQUISITION OF RAILWAY ASSETS 2002 RMB'000 The net assets of Railway Assets at the date of acquisition were as follows: Bank balances and cash Bills and accounts receivable... 4,586 Prepayment and other current assets ,633 Inventories... 5,461 Land use rights ,378 Property, plant and equipment, net ,380 Bills and accounts payable... (22,830) Other payables and accrued expenses... (14,163) Net assets... 1,242,586 Goodwill arising on subsequent adjustment to contingent consideration payment... 40,000 1,282,586 Satisfied by: Cash consideration paid on acquisition... 1,242,586 Subsequent adjustment to contingent consideration payment... 40,000 1,282,586 Net cash outflow arising on acquisition: Cash paid on acquisition... (1,282,586) Bank balances and cash acquired (1,282,445) On January 1, 2002, the Company acquired the Railway Assets from its Parent Company for a consideration of RMB1,242,586,000. Pursuant to the terms of the acquisition agreement, the consideration has been adjusted to RMB1,282,586,000 as the annual transportation volume of the Railway Assets reached the volume milestone target of 25,000,000 tonnes for the year ended December 31, The contribution of the Railway Assets to the revenue and results of the Group for the year ended December 31, 2002 are set out under the heading "Coal railway transportation" in note

102 YANZHOU COAL MINING COMPANY LIMITED 34. ACQUISITION OF JINING III The net assets of Jining III at the date of acquisition were as follows: 2001 RMB'000 Bills and accounts receivable... 2,920 Inventories... 6,078 Prepayments and other current assets... 1,362 Mining rights ,479 Land use rights... 88,929 Property, plant and equipment, net... 2,372,525 Bills and accounts payable... (7,062) Other payables and accrued expenses... (13,847) Total net assets acquired... 2,583,384 Negative goodwill... (138,101) Consideration... 2,445,283 Satisfied by: Cash paid on acquisition... 1,204,133 Installments paid during the year ended December 31, ,452 Amounts due to Parent Company and its subsidiary companies - due within one year ,242 Amounts due to Parent Company and its subsidiaries - due after one year... 72,456 Total consideration... 2,445,283 The total consideration of RMB2,445,283,000 disclosed above represents the present value of the installments payable in respect of the acquisition cost of Jining III. The difference between this amount and the gross payments due of RMB2,583,384,000, amounting to RMB138,101,000 represents a deemed interest charge on the acquisition which is charged to income in proportion to the balance outstanding each period. Jining III contributed approximately RMB722,483,000 of net sales and RMB161,829,000 of income before income taxes during the year ended December 31,

103 YANZHOU COAL MINING COMPANY LIMITED 35. ACQUISITION OF ZHONGYAN The net assets of Zhongyan at the date of acquisition were as follows: 2001 RMB'000 Bank and cash... 4,651 Inventories... 13,529 Prepayments and other current assets... 8,981 Property, plant and equipment, net Bills and accounts payable... (1,663) Other payables and accrued expenses... (19,875) Tax payable... (793) Minority interest... (2,464) Total net assets acquired... 2,710 Consideration: Satisfied by cash... 2,710 Net cash inflow arising on acquisition: Cash paid... (2,710) Bank balances and cash acquired... 4,651 1,941 During the year ended December 31, 2001, the Group acquired 52.38% of the issued share capital of Zhongyan for a cash consideration of RMB2,710,000. Zhongyan did not have any significant impact on the Group's results or cash flows for that year. Proforma results assuming Zhongyan was acquired in January 2000 would approximate the Group's actual results. 36. RELATED PARTY BALANCES AND TRANSACTIONS The amounts due to the Parent Company and its subsidiary companies are non-interest bearing and unsecured. The amounts due to the Parent Company and its subsidiary companies as at December 31, 2002 included the present value of the outstanding balance that arose from the funding of the acquisition of the mining rights of Jining III as of January 1, 2001 discounted using the market rate of bank borrowings (note 1)

104 YANZHOU COAL MINING COMPANY LIMITED 36. RELATED PARTY BALANCES AND TRANSACTIONS - continued THE GROUP AND THE COMPANY At December 31, RMB'000 RMB'000 Amounts due to Parent Company and its subsidiary companies Within one year , ,387 More than one year, but not exceeding two years... 10,483 11,115 More than two years, but not exceeding five years... 27,721 29,515 Exceeding five years... 23,137 31,826 Total due 346, ,843 Less: amount due within one year 285, ,387 Amount due after one year 61,341 72,456 Except for the amounts disclosed above, the amounts due to the Parent Company and/or its subsidiary companies have no specific terms of repayments. During the periods, the Group had the following significant transactions with the Parent Company and/or its subsidiary companies: Year ended December 31, RMB'000 RMB'000 RMB'000 Income Sales of coal ,403 73,675 66,434 Gain on sales of auxiliary materials... 12,385 11,586 9,429 Utilities and facilities... 5,000 5,810 5,179 Railway transportation services Expenditure Utilities and facilities... 1, Annual fee for mining rights... 12,980 12,980 12,980 Purchases of supply materials , ,213 67,845 Railway transportation services , ,842 Repair and maintenance services , ,550 79,316 Social welfare and support services , , ,519 Technical support and training... 15,130 15,130 15,130 Road transportation services... 33,208 _ 6,302 _ 10,474 _ During the periods, the Group had the following significant transactions with a related party, certain management members of which are also management members of the Group: Year ended December 31, RMB'000 RMB'000 RMB'000 Sales of coal... 37,693 35,440 23,

105 YANZHOU COAL MINING COMPANY LIMITED 36. RELATED PARTY BALANCES AND TRANSACTIONS - continued Certain expenditure for social welfare and support services (excluding medical and child care expenses) of RMB66,500,000, RMB56,220,000 and RMB54,950,000 for each of the three years ended December 31, 2002, 2001 and 2000, respectively, and for technical support and training of RMB15,130,000 for each of the three years ended December 31, 2002, 2001 and 2000, have been charged by the Parent Company at a negotiated amount per annum, subject to changes every year. The above transactions were charged either at market prices or based on terms agreed by both parties. On January 1, 2001, the Company acquired Jining III from the Parent Company (see note 1). On January 1, 2002, the Company acquired Railway Assets from the Parent Company (see note 1). In addition to the above, the Company participates in a multi-employer scheme of the Parent Company in respect of retirement benefits (see notes 7 and 38). 37. COMMITMENTS THE GROUP AND THE COMPANY At December 31, RMB'000 RMB'000 Capital expenditure contracted for but not provided in the financial statements in respect of: - acquisition of property, plant and equipment ,382 63,986 - acquisition of an equity investment... 30, ,519 63, RETIREMENT BENEFITS Qualifying employees of the Company are entitled to a pension, medical and other welfare benefits. The Company participates in a multi-employer scheme of the Parent Company and pays a monthly contribution to the Parent Company in respect of retirement benefits at an agreed contribution rate based on the monthly basic salaries and wages of the qualified employees. The Parent Company is responsible for the payment of all retirement benefits to the retired employees of the Company. The monthly contribution rate was set initially at 45% of the aggregate monthly basic salaries and wages of the Company's employees, and was fixed until December 31, Upon expiration of the initial period, the Company and the Parent Company determined that the contribution rate should remain at 45% for the period from January 1, 2002 to December 31,

106 YANZHOU COAL MINING COMPANY LIMITED 38. RETIREMENT BENEFITS - continued The Company's subsidiary is a participant in a state-managed retirement scheme pursuant to which the subsidiary pays a fixed percentage of its qualifying staff's wages as a contribution to the scheme. The subsidiary's financial obligation under this scheme is limited to the payment of the employer's contribution. During the year, contributions payable by the subsidiary pursuant to this arrangement were insignificant to the Group. During the year and at the balance sheet date, there were no forfeited contributions which arose upon employees leaving the above schemes, available to reduce the contributions payable in future years. 39. HOUSING SCHEME The Parent Company is responsible for providing accommodation to its employees and the employees of the Company. The Company and the Parent Company share the incidental expenses relating to the accommodation at a negotiated amount for each of the three years ended December 31, 2002, 2001 and Such expenses, amounting to RMB37,200,000, RMB30,970,000 and RMB29,970,000 for each of the three years ended December 31, 2002, 2001 and 2000, respectively, have been included as part of the social welfare and support services expenses summarized in note 36. The Company currently makes a fixed monthly contribution for each of its qualifying employees to a housing fund which is equally matched by a contribution from the employees. The contributions are paid to the Parent Company which utilizes the funds, along with the proceeds from the sales of accommodation and, if the need arises, from loans arranged by the Parent Company, to construct new accommodation. Starting from 2002, the Parent Company intends to sell the new accommodation by reference to market prices instead of cost. Accordingly, the Company paid an additional housing allowance to the employees at a percentage of their wages. 40. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of bills and accounts receivable, investments in securities, bills and accounts payable and amounts due to the Parent Company and/or its subsidiary companies of the Group and of the Company approximate their fair values because of the short maturity of these amounts or because they are stated at present value discounted using market rates. In addition, the carrying amount of the long-term bank borrowing approximates its fair value as the interest rate approximates the market rate

107 YANZHOU COAL MINING COMPANY LIMITED 41. CONCENTRATION OF CREDIT RISK The Group maintains its cash and cash equivalents with banks in the PRC. The Group generally grants the long-term customers credit terms with a range from one to four months, depending on the situations of the individual customers. For small to medium sized new customers, the Group generally requires them to pay for the products before delivery. Most of the Group's domestic sales are sales to electric power plants, metallurgical companies, construction material producers and railway companies. The Group generally has established long-term and stable relationships with these companies. The Group also sells its coal to provincial and city fuel trading companies. As the Group does not currently have direct export rights, all of its export sales must be made through National Coal Corporation, Shanxi Coal Corporation or National Minerals Company. The quality, prices and final customer destination of the Group's export sales are determined by the Group, National Coal Corporation, Shanxi Coal Corporation or National Minerals Company. The Group intends to apply for direct export rights although there can be no assurance that such rights will be obtained on a timely basis. For the years ended December 31, 2002, 2001 and 2000, net sales to the Group's five largest domestic customers accounted for approximately, 21.2%, 23.0% and 26.7%, respectively, of the Group's total net sales. Net sales to the Group's largest domestic customer, the Shandong Power and Fuel Company, accounted for 13.3%, 15.7% and 17.5% of the Group's net sales for the years ended December 31, 2002, 2001 and 2000, respectively. The Shandong Power and Fuel Company purchases coal on behalf of several power plants in Shandong Province, the largest of which, the Zouxian Electric Power Plant, alone accounted for 12.6%, 14.9 % and 17.1% of the Group's net sales for the years ended December 31, 2002, 2001 and 2000, respectively. Details of the amounts receivable from the five customers with the largest receivable balances at December 31, 2002 and 2001 are as follows: Percentage of accounts receivable At December 31, Five largest receivable balances... 52% 30% 42. POST BALANCE SHEET EVENT Pursuant to a resolution passed by the board of directors on April 11, 2003, the Company will undertake a project to construct a port at Nanyang Lake adjacent to Jining III so that it can make use of transportation of domestic waterways connected with Jinghang Canal upon completion of the construction work. The approved capital expenditure for the project was approximately RMB250 million and expected to be incurred in

108 YANZHOU COAL MINING COMPANY LIMITED 43. SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP The consolidated financial statements prepared under IFRS and those prepared under PRC GAAP have the following major differences: (i) (ii) (iii) (iv) (v) (vi) adjustment of future development fund (see note 32), which is charged to income before income taxes under PRC GAAP, to shareholders' equity: elimination of the revaluation surplus on low-priced consumables recognized on the establishment of the Company in 1997 and subsequently amortized to the statement of income under PRC GAAP; recognition of a deferred tax asset under IFRS for the tax consequence of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities; negative goodwill arising under IFRS for the acquisition of Jining III is recognized as income in the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets. No negative goodwill is recognized under PRC GAAP; the installments payable to the Parent Company for the acquisition of Jining III have been stated at present value discounted using market rates under IFRS while under PRC GAAP, the instalments payable are stated at gross amounts. Accordingly, deemed interest expense arises on the installments payable to the Parent Company under IFRS and no such interest expenses recognized under PRC GAAP; and dividends proposed by the directors after the balance sheet date and subject to approval in the annual general meeting are adjusted in the consolidated financial statements under PRC GAAP as at the balance sheet date. The following table summarizes the differences between IFRS and PRC GAAP: Net income for the year ended Net assets as at December 31, December 31, RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 (restated- (restatedsee note see note below) below) As per consolidated financial statements prepared under IFRS... 1,221, , ,360 9,995,033 9,060,034 Impact of IFRS adjustments in respect of: - transfer to future development fund which is charged to income before income taxes under PRC GAAP... (230,610) (204,134) (164,738) amortization of revaluation surplus on low-priced consumables recognized on the establishment of the Company under PRC GAAP... - (3,672) (1,835) deferred tax effect on temporary differences not recognized under PRC GAAP... (1,386) (2,260) (8,315) (88,807) (87,421) - release of negative goodwill to income... (27,620) (27,620) - (55,240) (27,620) - deemed interest expenses... 39,956 59,595-99,551 59,595 - proposed final dividend (298,480) (287,000) - others , ,517 5,740 As per consolidated financial statements prepared under PRC GAAP... 1,003, , ,249 9,658,574 8,723,

109 YANZHOU COAL MINING COMPANY LIMITED 43. SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP - continued Note: According to a clarification of the relevant regulations obtained from the Ministry of Finance during the year ended December 31, 2002, the requirement of the Company to transfer an annual amount to the future development fund was not changed upon cancellation of the requirements for contributions to NCIB and SCMIB. Such amounts, representing RMB6 per tonne of raw coal mined, were required to be charged to income before income taxes, on a retrospective basis, under PRC GAAP. Accordingly, the Group's net income for the years ended December 31, 2001 and 2000 under PRC GAAP have been restated and reduced by RMB204,134,000 and RMB164,738,000, respectively. There are also differences in other items in the consolidated financial statements due to differences in classification between IFRS and PRC GAAP. 44. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP The consolidated financial statements are prepared in accordance with IFRS, which differ in certain significant respects from US GAAP. The significant differences relate principally to the accounting for the acquisitions of Jining II, Jining III and Railway Assets, the cost bases of property, plant and equipment and land use rights and related adjustments to deferred taxation. Under IFRS, the acquisitions of Jining II, Jining III and Railway Assets have been accounted for using the purchase method which accounts for the assets and liabilities of Jining II, Jining III and Railway Assets at their fair value at the date of acquisition. Any excess of the purchase consideration over the fair value of the net assets acquired is capitalized as goodwill and amortized over a period of ten to twenty years. Any excess of the fair value of the net assets acquired over the purchase consideration is recorded as negative goodwill, which is presented as a deduction from the assets of the Group in the consolidated balance sheet. The Group releases the negative goodwill to the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets. Under US GAAP, as the Group, Jining II, Jining III and Railway Assets are entities under the common control of the Parent Company, the assets and liabilities of Jining II, Jining III and Railway Assets are required to be included in the consolidated balance sheet of the Group at historical cost. The difference between the historical cost of the assets and liabilities of Jining II, Jining III and Railway Assets acquired and the purchase price paid is recorded as an adjustment to shareholders' equity

110 YANZHOU COAL MINING COMPANY LIMITED 44. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued In applying the pooling of interest method, the financial statement items of the combining enterprises for the period in which the combination occurs and for any comparative periods disclosed should be included in the financial statements of the combined enterprises as if they had been combined from the beginning of the earliest period presented. The effect of accounting for the acquisition of Railway Assets using the pooling of interest method on the gross revenue and net income under US GAAP for the year ended December 31, 2001 and 2000 is as follows: Year ended December 31, RMB'000 RMB'000 Gross revenue As previously reported... 6,369,649 4,843,515 Pooling of interest adjustment: Gross revenue from Railway Assets , ,284 Less: Elimination of inter-segment transactions... (247,756) (208,889) As restated... 6,549,323 4,941,910 Net income As previously reported... 1,058, ,323 Pooling of interest adjustment: Net income from Railway Assets , ,249 As restated... 1,227, ,572 Under IFRS, the mining rights of Jining III are stated at purchase consideration less amortization. Mining rights are amortized on a straight line basis over twenty years, being the useful life estimated based on the total proven and probable reserves of the coal mine. Under US GAAP, as both the Group and Jining III are entities under the common control of the Parent Company, the mining rights have to be restated at nil cost and no amortization on mining rights will be recognized. However, a deferred tax asset relating to the capitalization of mining rights is required to be recognized under US GAAP as a higher tax base resulting from the capitalization is utilized for PRC tax purposes. Under IFRS, property, plant and equipment and land use rights have been stated based on their respective fair values at the date of acquisition even for cases involving transaction between entities under common control. The fair value amount becomes the new cost basis of the assets of the Company formed from the reorganization and depreciation is based on such new basis. Under US GAAP, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or equity interests shall initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer. Accordingly, property, plant and equipment and land use rights are restated at the historical cost and no additional depreciation on the fair value amounts will be recognized under US GAAP. However, a deferred tax asset relating to the difference in cost bases between the fair value at the date of acquisition and historical cost is required to be recognized under US GAAP and the tax basis of the assets is the fair value amount at the date of acquisition

111 YANZHOU COAL MINING COMPANY LIMITED 44. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued The adjustments necessary to restate net income and shareholders' equity in accordance with US GAAP are shown in the tables set out below. Year ended December 31, RMB'000 RMB'000 RMB'000 Net income as reported under IFRS... 1,221, , ,360 US GAAP adjustments: Additional depreciation charged on fair valued property, plant and equipment and land use rights , , ,103 Additional deferred tax charge due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and land use rights and capitalization of mining rights... (64,284) (56,532) (54,484) Amortization of negative goodwill on acquisition of Jining III... (27,620) (27,620) - Amortization of mining rights of Jining III... 6,624 6,624 - Amortization of goodwill arising on acquisition of Jining II Loss of Jining III included in the Group using the pooling of interest method... - (47,433) Profit of Railway Assets included in the Group using the pooling of interest method , ,249 Net income under US GAAP... 1,325,674 1,227, ,572 Earnings per share under US GAAP... RMB0.46 RMB0.44 RMB0.35 Earnings per ADS under US GAAP... RMB23.10 RMB21.86 RMB

112 YANZHOU COAL MINING COMPANY LIMITED 44. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued At December 31, RMB'000 RMB'000 Shareholders' equity as reported under IFRS... 9,995,033 9,060,034 US GAAP adjustments: Difference in cost bases of property, plant and equipment and land use rights... (2,561,032) (1,982,444) Additional depreciation charged on fair valued property, plant and equipment and land use rights , ,151 Additional deferred tax asset due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and land use rights , ,987 Goodwill arising on acquisition of Jining II... (11,660) (12,437) Negative goodwill arising on acquisition of Jining III, net... 82, ,481 Mining rights of Jining III... (119,231) (125,855) Additional deferred tax asset due to a higher tax base resulting from capitalization of mining rights... 39,346 41,532 Net assets of Railway Assets incorporated under pooling of interest - current assets ,821 - property, plant and equipment and land use rights, net ,136,758 - deduct: difference in cost bases of property, plant and equipment and land use rights... - (578,588) - current liabilities... - (36,993) - 663,998 Consideration payable on acquisition of Railway Assets... - (1,242,586) Goodwill arising on acquisition of Railway Assets... (40,000) - Shareholders' equity under US GAAP... 8,858,468 7,668,861 Under US GAAP, the Group's total assets would have been RMB11,787,480,000 and RMB11,070,997,000 at December 31, 2002 and 2001, respectively

113 YANZHOU COAL MINING COMPANY LIMITED 44. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.142, "Goodwill and Other Intangible Assets" which requires that upon adoption, amortization of goodwill and other intangible assets with indefinite lives will cease and instead, the carrying value of these intangible assets will be evaluated for impairment on an annual basis. Identifiable intangible assets with definitive lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 142 is effective for financial statements issued for fiscal years beginning after December 15, The Group adopted SFAS No. 142 during the year ended December 31, 2002 and it did not have a material effect in the Group's financial statements. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" which is effective for financial statements issued for fiscal years beginning after June 15, This statement addresses the diverse accounting practices for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Group adopted SFAS No. 143 on January 1, 2003 and it did not have a material effect in the Group's financial statements. In October 2002, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which is effective for financial statements issued for fiscal years beginning after December 15, SFAS No. 144 applies to all long-lived assets (including discontinued operations) and it develops one accounting model for long-lived assets that are to be disposed of by sale. The Group adopted this standard during the year ended December 31, 2002 and it did not have a material effect in the Group's financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections", to update, clarify, and simplify certain existing accounting pronouncements. Specifically, SFAS No. 145: (i) Rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt", an amendment of APB Opinion 30, and SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements", which amended SFAS No. 4, as these two standards required that all gains and losses from the extinguishment of debt be aggregate and, if material, classified as an extraordinary item. Consequently, such gains and losses will now be classified as extraordinary only if they meet the criteria for extraordinary treatment set forth in APB Opinion 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extra-ordinary, Unusual and Infrequently Occurring Events and Transactions; (ii) Rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers", an amendment of Chapter 5 of Accounting Research Bulletins No. 43 and an interpretation of APB Opinions 17 and 30, because the discrete event to which the Statement relates is no longer relevant; (iii) Amends SFAS No. 13, "Accounting for leases", to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as such transactions; (iv) Makes certain technical corrections, which the FASB deemed to be non-substantive, to a number of existing accounting pronouncements. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 and No. 64 are effective for fiscal years beginning after May 15, The provisions related to the amendment of SFAS No. 13 are effective for transactions occurring after May 15, All other provisions of SFAS No. 145 are effective for financial statements issued on or after May 15, For those provisions that become effective during the year ended December 31, 2002, there was no significant impact on the Group's financial position and results of operations; for the remaining provision under SFAS No. 145, management is assessing, but has not yet determined, the impact such provisions will have, if any, on its financial position and results of operations

114 YANZHOU COAL MINING COMPANY LIMITED 44. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP - continued In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Such costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No. 146 replaces the previous accounting guidance provided by the Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, The Group is evaluating the impact of the adoption of this standard and has not yet determined the effect of the adoption on its financial position and results of operations. In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions - an amendment of FASB statements No.72 and 144 and FASB Interpretation No. 9", which relates to the application of the purchase method of accounting, and is effective for acquisitions for which the date of acquisition is on or after October 1, The provisions related to accounting for the impairment or disposal of certain long-term customers-relationship intangible assets are effective on October 1, Transition provisions for previously recognized unidentifiable intangible assets are effective on October 1, 2002, with earlier application permitted. On October 1, 2002, the Group adopted SFAS No. 147 and it did not have a material effect in the Group s financial statements. In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123", which amends SFAS No.123, "Accounting for Stock-Based Compensation". SFAS No.148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No.148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. The transition guidance and annual disclosure provision of SFAS No.148 are effective for fiscal years ended after December 15, 2002, with earlier application permitted in certain circumstances. The Group did not provide stock-based compensation to its employees and accordingly the adoption of this standard will not have a material effect in the Group s financial statements. In November 2002, the FASB issued Interpretation ("FIN") No. 45 "Guarantor s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". This interpretation requires certain disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN No. 45 are effective for interim and annual periods after December 15, The Group had no guarantees as of December 31, The initial recognition and initial measurement requirements of FIN No. 45 are effective prospectively for guarantees issued or modified after December 31, The Group is evaluating the impact of the adoption of the recognition and initial measurement requirements of FIN No. 45 but has not yet determined the effect of the adoption on its financial position and results of operations