THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. 14A.58(3)(b) If you have sold or transferred all your shares in China Coal Energy Company Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee. The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. 14A.59(1) * (A joint stock company incorporated in the People s Republic of China with limited liability) (Stock Code: 1898) A1B A NON-EXEMPT CONNECTED TRANSACTION Financial Adviser to the Company Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders SUPPLEMENTAL NOTICE OF ANNUAL GENERAL MEETING A letter from the board of Directors of China Coal Energy Company Limited (the Company ) is set out on pages 4 to 14 to this circular. A letter from the Independent Board Committee is set out on pages 15 and 16 of this circular. A letter from China Merchants Securities (HK) Co., Ltd., containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 17 to 34 to this circular. A notice dated 4 May 2008 convening the Annual General Meeting ( AGM ) of the Company to be held at 10:00 a.m. on Friday, 20 June 2008 at Crowne Plaza Park View Wuzhou Beijing ( ), No. 8 North Si Huan Zhong Road, Chaoyang District, Beijing, ( 8 ) the PRC has been published on the HKSE website and on the Company s website at A supplemental notice of AGM is set out on page 43 and 44 of this circular. A revised proxy form is enclosed with this supplemental notice. The form of proxy dispatched together with the AGM Notice is superseded by this revised form of proxy. Whether or not you intend to attend the 2007 Annual General Meeting, you are requested to complete and return the enclosed revised proxy form in accordance with the instructions printed thereon not less than 24 hours before the time fixed for holding the 2007 Annual General Meeting or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending the 2007 Annual General Meeting and voting in person if you so wish. * for identification purpose only 17 May 2008

2 CONTENTS Page Definitions... 1 Letter from the Board... 4 Letter from the Independent Board Committee Letter from China Merchants Appendix I General information Appendix II Letter from CICC (HK) Appendix III Letter from RSM Nelson Wheeler Appendix IV Supplemental Notice of Annual General Meeting i

3 DEFINITIONS Acquisitions AGM or Annual General Meeting AGM Notice The transactions contemplated under the Share Purchase Agreements the annual general meeting to be held at 10:00 a.m. on Friday, 20 June 2008 at Crowne Plaza Park View Wuzhou Beijing ( ), No. 8 North Si Huan Zhong Road, Chaoyang District, Beijing, ( 8 ), the PRC Notice of the 2007 Annual General Meeting dated 4 May, 2008 which sets out the resolutions to be considered by shareholders at the Annual General Meeting Announcement the connected transaction announcement dated 25 April 2008, which calls for the approval of the Independent Shareholders on the Acquisitions by way of poll at the AGM Appraiser Articles of Association associate Board China Merchants or Independent Financial Adviser China United Assets Appraisal Co., Ltd., ( ), a certified valuer in the PRC who is independent of the Group and independent of the connected persons of the Company the articles of association of the Company, as amended, modified or otherwise supplemented from time to time has the meaning ascribed hereto under the Listing Rules the board of directors of the Company China Merchants Securities (HK) Co., Ltd., a corporation licensed to carry on type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) of the regulated activities under the SFO, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of Share Purchase Agreements and the Acquisitions contemplated thereunder ChinaCoal Group China National Coal Group Corporation, the controlling shareholder of our Company and a Chinese state-owned Enterprise China Coal Imp. & Exp. China National Coal Imp. & Exp. Coal Co., Ltd., a company incorporated in the PRC which is a wholly owned subsidiary of ChinaCoal Group 1

4 DEFINITIONS China Coal Trade and Industry China Coal Trade and Industry Co., Ltd, a company incorporated in the PRC which is a wholly owned subsidiary of ChinaCoal Group CICC (HK) China International Capital Corporation (Hong Kong) Limited, a corporation licensed to carry on type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO Company controlling shareholder Directors China Coal Energy Company Limited, a joint stock company with limited liability incorporated in the PRC and whose H shares are listed on the Stock Exchange under the stock code of 1898 and A shares are listed on the Shanghai Stock Exchange under the stock code of has the meaning ascribed thereto under the Hong Kong Listing Rules and unless the context requires otherwise, refer to ChinaCoal Group the directors of the Company Dongpo Coal China Coal Shanxi Dongpo Coal Co., Ltd, a company incorporated in the PRC that is a wholly owned subsidiary of China Coal Imp. & Exp. Enlarged Group Group Independent Board Committee Independent Shareholders the Group, Dongpo Coal and Qinhuangdao Imp. & Exp. the Company and its subsidiaries the independent board committee of the Company comprising Gao Shangquan, Zhang Ke, Peng Ru Chuan, Wu Rongkang and Li Yanmeng, all being independent non-executive Directors the shareholders of the Company other than ChinaCoal Group and its associate (as defined in the Listing Rules) Latest Practicable Date May 15, 2008 Listing Rules MOFCOM PRC or China the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited Ministry of Commerce of People s Republic of China the People s Republic of China which, for the purpose of this circular only, does not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan 2

5 DEFINITIONS PRC GAAP the General Accepted Accounting Principles of the PRC Prospectus the prospectus of the Company dated 6 December 2006 Qinhuangdao Imp. & Exp. RMB China National Coal Industry Qinhuangdao Imp. & Exp. Co., Ltd., a company incorporated in the PRC which is 95% owned by the Company and 5% owned by China Coal Trade and Industry Renminbi, the lawful currency of the PRC SASAC State-owned Assets Supervision and Administration Commission of the State Council SFO Share Purchase Agreement I Share Purchase Agreement II Share Purchase Agreements Shareholders Stock Exchange the Securities and Futures Ordinance (Chapter 571 of laws of Hong Kong), as amended, supplemented or otherwise modified from time to time the share purchase agreement between the Company and China Coal Imp. & Exp. dated 25 April 2008 for the sale by China Coal Imp. & Exp. of its equity interest in the Dongpo Coal the share purchase agreement between the Company and China Coal Trade and Industry dated 25 April 2008 for the sale by China Coal Trade and Industry of its equity interest in the Qinhuangdao Imp. & Exp. Share Purchase Agreement I and II the registered holder(s) of the shares of the Company the Stock Exchange of Hong Kong Limited 3

6 LETTER FROM THE BOARD * (A joint stock company incorporated in the People s Republic of China with limited liability) (Stock Code: 1898) Executive Directors: Jing Tianliang Yang Lieke Peng Yi Registered office: No. 1, Huangsidajie Chaoyang District Beijing China Rule 2.14 Non-executive Directors: Zhang Baoshan Independent non-executive Directors: Gao Shangquan Zhang Ke Peng Ru Chuan Wu Rongkang Li Yanmeng Principal place of business in Hong Kong: Room 2608, 26th Floor Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong 17 May 2008 To the Shareholders Dear Sir or Madam, NON-EXEMPT CONNECTED TRANSACTION 1. Introduction On 25 April 2008, the Board announced that the Company entered into the Share Purchase Agreement I with China Coal Imp. & Exp. on 25 April 2008, pursuant to which China Coal Imp. & Exp. will transfer 100% equity interest in the Dongpo Coal to the Company for a cash consideration of RMB 1, million. The Company entered into the Share Purchase Agreement II with China Coal Trade and Industry on 25 April 2008, pursuant to which China Coal Trade and Industry will transfer 5% equity interest in the Qinhuangdao Imp. & Exp. to the Company for a cash consideration of RMB million (1) 14.58(3)(a) 14A.59(2)(e) Each of China Coal Imp. & Exp. and China Coal Trade and Industry is a wholly-owned subsidiary of ChinaCoal Group, and is therefore a connected person of the Company under Chapter 14A.59(2)(d) 14A.59(2)(e) 4

7 LETTER FROM THE BOARD 14A of the Listing Rules by virtue of being an associate of the Company s substantial shareholder (as defined under the Listing Rules). Accordingly, any transaction entered into between China Coal Imp. & Exp. and the Group, or China Coal Trade and Industry and the Group would constitute a connected transaction for the Company. The Acquisitions set out in the Share Purchase Agreements, when aggregated, constitute connected transactions of the Company under Chapter 14A of the Listing Rules and will be subject to reporting, announcement and the approval of the independent Shareholders by way of poll at the AGM. ChinaCoal Group, being the interested party to each of the Share Purchase Agreements, together with its associates, will abstain from voting at the AGM in respect of the Acquisitions. As at the date of this circular, ChinaCoal Group is beneficially interested in approximately % of the entire issued share capital of the Company. As at the Latest Practicable Date, no associates of China Coal Group have any interest in the Company s shares. As at the date of this circular, ChinaCoal Group, who is required to abstain from voting under the Listing Rules, has full controls over its voting right in respect of its Shares in the Company. 14A.59(5) Rule 2.17(1) The highest applicable percentage ratio (as defined in the Listing Rules) of the Acquisitions set out in the Share Purchase Agreements, when aggregated, is more than 2.5% but less than 5% and the total consideration under the Acquisitions is more than HK$ 10 million. As such, the Acquisitions constitute connected transactions subject to reporting, announcement and conditional upon approval of the independent Shareholders by way of poll at the AGM under Chapter 14A of the Listing Rules. The Board, including the independent non-executive directors, are of the opinion that the Acquisitions are entered into on normal commercial terms after arm s length negotiations, the consideration payable and the other terms of the Acquisitions are fair and reasonable and are in the interest of the Company and the shareholder as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Share Purchase Agreements and the Acquisitions contemplated thereunder. Reference is also made to the Prospectus. As disclosed in the Prospectus, the Company has (i) an option to purchase the interest in Dongpo Coal on the basis of valuation conducted by an independent valuer jointly appointed by ChinaCoal Group and the Company, subject to relevant laws and applicable listing rules and (ii) a pre-emptive right to purchase Dongpo Coal on terms not less favorable than those of third parties, in the event that ChinaCoal Group or any of its associates intends to transfer, sell, lease or license such interests to any third party. The Share Purchase Agreement I was entered into in accordance with the Company s option to purchase as stated in (i) above. In determining whether such option should be exercised, the Board, in particular, the independent non-executive directors, have considered various factors as set out in the Prospectus, including, among others, (a) whether Dongpo mine has obtained requisite licenses or permits for its operations in all material respects; (b) whether Dongpo mine has obtained the requisite mining right permit, safety production permit and have complied with the relevant laws and regulations; (c) whether the acquisition of Dongpo Coal is in line with the Company s development strategy; and (d) whether Dongpo Coal has reached a sufficiently developed stage that it would be in the interest of the Shareholders as a whole to exercise such options. 5

8 LETTER FROM THE BOARD The independent non-executive directors of the Company, after taking into account the above considerations, and having made due and reasonable enquiries in light of the above considerations, are of the view that the acquisition of Dongpo Coal are conducted on terms no less favorable than those to the third parties. The Independent Board Committee has been established to consider and advise the Independent Shareholders in respect of the Acquisitions under the Share Purchase Agreements. China Merchants has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders as to whether or not the terms and conditions of the Share Purchase Agreements and the Acquisitions are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. The purpose of this circular is to provide you with information, among other matters, (i) further details in relation to Share Purchase Agreements and the Acquisitions contemplated thereunder; (ii) the letter of recommendation from Independent Board Committee; (iii) the letter of advice from China Merchants to the Independent Board Committee and the Independent Shareholders; (iv) letters from CICC (HK), as the Company s financial adviser, and RSM Nelson Wheeler, as the Company s reporting accountant, in respect of the income method adopted in the valuation of the 5% equity interest in the Qinhuangdao Imp. & Exp.; and (v) a supplemental notice of the AGM to seek approval from the Independent Shareholders on the Share Purchase Agreements and the Acquisitions contemplated thereunder. 2. Share Purchase Agreements Share Purchase Agreement I Summary Date of Agreement: 25 April 2008 Parties: the Company, as purchaser China Coal Imp. & Exp., as seller 14A.59(2)(a) Subject matter of the Purchase: purchase by the Company of 100% equity interest in the Dongpo Coal Consideration: Conditions precedent: RMB 1, million (subject to SASAC s approval) The Share Purchase Agreement I will become effective upon obtaining internal approvals of both purchaser and seller, which includes, among others, the approval of independent Shareholders and all necessary regulatory approvals including but not limited to SASAC s approval. As of the Latest Practicable Date, all relevant materials have been submitted to SASAC and the Company is in the process of obtaining the approval. 14A.59(2)(b) 14A.59(2)(c) 6

9 LETTER FROM THE BOARD Undertaking by the seller: China Coal Imp. & Exp. provides the following undertaking in the Agreement: (i) Dongpo Coal has duly fulfilled the procedural requirements in connection with the obtaining of mining right under No mining license. As the above consideration represents all the fees in respect of the mining right, in the event that Donpo Coal is required by the relevant authority to make any further payment during the relevant period regarding the granting of mining right, including but not limited to license fees, China Coal Imp. & Exp. shall, upon the request of the Company from time to time, indemnify Dongpo Coal for such costs and losses incurred in full in a timely and effective manner; Details of No mining license are as follows: Location Area Mining Reserve under the License Current Status Shuocheng District, Shuozhou City, Shanxi Province km million tons Dongpo Coal as the licensee (ii) there are no disputes in connection with the land use right under Shuo Qu Tu Lin Zi ( ) NO Land Use Right Certificate. China Coal Imp. & Exp. will assist Dongpo Coal in completing the relevant procedures for the government s granting of the land use right and indemnify and compensate Dongpo Coal for any losses, expenses, claims and fees incurred due to any delay in the aforementioned procedure; 7

10 LETTER FROM THE BOARD Details of the relevant land use right are as follows: Location Area Usage of land Current Status Shuocheng District, Shuozhou City, Shanxi Province 39, sq.m. Site of coal mine Dongpo Coal is in the process of applying for the formal land use right certificate (iii) as the sole direct shareholder of Dongpo Coal, China Coal Imp. & Exp. has duly assisted in and supervised the transforming, expanding and constructing work of Dongpo Coal. If as a result of any defect existing in the project designing and constructing process, the Coal Production Permit or Safety Coal Production Permit cannot be obtained in time by Dongpo Coal after its construction is completed, China Coal Imp. & Exp. shall indemnify and compensate Dongpo Coal in full in a timely and effective manner for any losses incurred in this regard. Share Purchase Agreement II Summary Date of Agreement: 25 April 2008 Parties: Subject matter of the Purchase: Consideration: Conditions precedent: the Company, as purchaser China Coal Trade and Industry, as seller purchase by the Company of 5% equity interest in the Qinhuangdao Imp. & Exp. RMB million (subject to SASAC s approval) The Share Purchase Agreement II will become effective upon obtaining internal approvals of both purchaser and seller, which includes, among others, the approval of independent Shareholders and all necessary regulatory approvals including but not limited to SASAC s approval. As of the Latest Practicable Date, all relevant materials have been submitted to SASAC and the Company is in the process of obtaining the approval. 14A.59(2)(a) 14A.59(2)(b) 14A.59(2)(c) 8

11 LETTER FROM THE BOARD Basis of Consideration The consideration to be paid by the Company under Share Purchase Agreements has been determined after arm s length negotiations with reference to the appraised net assets value of RMB 1, million of the Dongpo Coal under cost method, where the value of the mining right was determined based on current approved capacity, and the appraised equity value of RMB million (5% equity interest) of Qinhuangdao Imp. & Exp. under income method, attributable to such interests the Company is acquiring, as provided by the Appraiser as at the reference date of 29 February 2008 and 30 June 2007, respectively, in the appraisal report prepared by the Appraiser. 14A.59(2)(c) 14A.59(6) The consideration will be paid by cash in full within 15 days after the Share Purchase Agreements become effective and the sources for the consideration will be our internal funding. Principal Assumptions adopted for income method: The premium arising from the valuation based on income method has been prepared on the following principal bases and assumptions: there will be no material changes in the existing political, legal, fiscal, market or economic conditions in the PRC, Hong Kong or any other countries or territories in which the Group currently operates or which are otherwise material to the Group s import and export business; there will be no changes in legislation, regulations or rules in the PRC, Hong Kong or any other countries or territories in which the Group s import and export business has covered, or will cover; there will be no material changes in inflation rates, interest rates or foreign exchange rates from those currently prevailing in the context of the Group s import and export business; there will be no material changes in the bases or applicable rates of taxation, surcharges or other government levies in the countries in which the Group s import and export business operates; there will be no wars, military incidents, pandemic diseases or natural disasters that would have a material impact on the Group s import and export business; the Group s import and export operations will not be adversely affected by occurrences such as labor shortages and disputes, or any other factors outside the control of its management. In addition, the Group will be able to recruit enough employees to meet its operating requirements for its import and export business; the PRC government will continue to adopt macroeconomic policies similar to 2007, in order to maintain a consistent rate of economic growth; and 9

12 LETTER FROM THE BOARD there will be no material changes in coal prices and power tariff setting that will have a material adverse effect on the coal import and export business of the Group. 3 Reasons for and benefits of the Acquisitions A1B29 The Board is of the view that the Acquisitions would enable the Company to (i) further implement its expansion strategy of venturing into and strengthening the Group s core business of coal production, (ii) increase the coal reserve and expand the production capacity, (iii) reduce future potential connected transactions, (iv) avoid any potential competition with ChinaCoal Group and (v) enhance the Company s profitability and competitiveness over the long run. 14A.58(1) 14A.59(13) 4. General Information about the parties involved in the Acquisitions The Company is principally engaged in coal production, sales and trading, coking operation, coal mining equipment manufacturing and other related operations in China. ChinaCoal Group is principally engaged in coal export, coal production and distribution, coal sales; coal chemistry, coal bed methane exploitation, pit mouth power plant, coal mine construction, coal mining equipment manufacturing as well as relevant engineering and technical services. China Coal Imp. & Exp. is principally engaged in coal trading, coal import, import, export and agency services of other goods approved by the MOFCOM; compensation trade in coal product; entrepot trade; product and technology import and export (except government-regulated goods) and material processing. 14A.59(2)(b) Dongpo Coal is principally engaged in resource integration and provision of technology improvement and project expanding services to Dongpo coal mine. Dongpo Coal has already obtained NO mining license. As at the date of this circular, Dongpo Coal has not been engaged in coal production. The table below sets out certain unaudited financial information (prepared under the PRC GAAP) of Dongpo Coal as of 31 December 2007 (in RMB million): For the year ended 31 December 2007 Total assets Net assets

13 LETTER FROM THE BOARD As Dongpo Coal was incorporated on 20 December 2007, Dongpo Coal mine is still in the process of construction and has not commenced coal production. It did not incur any profits and losses for the years ended 31 December 2006 and 31 December 2007 and therefore no information of profit before taxation and net profit after taxation is available. Based on the audited accounts prepared under the PRC GAAP, as at 29 February 2008, the total assets, total liabilities and net assets of Dongpo Coal were approximately RMB million, RMB 88.7 million and RMB million. In accordance with the appraisal result under the applicable national criteria and appraisal rules contained in the Category of Solid Mine Resource/Reserve ( / ) promulgated by the PRC government, which is also filed with the Appraisal Center of Shanxi Provincial Bureau of State Land and Resources, as at 31 December 2005 the coal reserve under the NO mining license of Dongpo Coal is amounted to million tons. It is estimated to commence coal production in the second half of The current approved production capacity of Dongpo Coal is 1.50 million tons per year. In light of its coal reserve and mining conditions, an extra production capacity of 1.50 million tons per year has already been designed and constructed for Dongpo Coal, as a result of which, the actual production capacity of Dongpo Coal is 3.00 million tons per year. The Company will apply to the relevant government authority for expanding the approved production capacity of Dongpo Coal to 3.00 million tons per year after formal commencing of coal production. The Directors are of the view that the Company s profitability will be further enhanced after the approval in connection with the production capacity expansion is obtained and Dongpo Coal further increases its annual production volume. Qinhuangdao Imp. & Exp. is principally engaged in import and export (except for government-regulated goods); sales of coal and coal product, coke, metal materials, construction materials, mechanical and engineering equipment, sales of stationery; transport agency, technical consultancy; employment agency; real estate and equipment leasing, customs clearance and inspection; warehouse service, loading and assembling, dustproof and spraying service. The table below sets out certain audited financial information (prepared under the PRC GAAP) of Qinhuangdao Imp. & Exp. for the year ended 31 December 2006 and 31 December 2007 (in RMB million): For the year ended 31 December 2006 For the year ended 31 December 2007 Profit before taxation Profit after taxation Net assets

14 LETTER FROM THE BOARD China Coal Trade and Industry is principally engaged in concurrent-business insurance agency and sales of electronic mechanical equipment, computers and software, office facilities, daily use commodity, textile, apparel, hardware and chemical products; housing construction and decoration; property management; equipment leasing; warehouse service; technology development, transfer and consulting service. 14A.59(2)(b) 5. Annual General Meeting Reference is made to the AGM Notice. Set out on page 43 to 44 of this circular is a supplemental notice of AGM. At the AGM, which will be held as originally scheduled, ordinary resolutions will be proposed to consider and, if thought fit, to approve, the Share Purchase Agreements and the Acquisitions contemplated thereunder in addition to other resolutions set out in the AGM Notice. ChinaCoal Group, being the interested party to each of the Share Purchase Agreements, together with its associates, will abstain from voting in the AGM on the relevant ordinary resolutions to approve the Share Purchase Agreements and the Acquisitions contemplated thereunder. A revised proxy form is enclosed with this circular. The form of proxy dispatched together with the AGM Notice is superseded by this revised form of proxy. Please refer to the AGM Notice for details in respect of the other resolutions to be passed at the AGM, eligibility for attending the AGM, proxy, registration procedures, closure of register of members, procedures for demanding a poll to vote on the resolutions and other relevant matters. 6. Recommendation from the Independent Board Committee The Independent Board Committee, having considered the interests of the Independent Shareholders and the advice of China Merchants, considers the terms of the Share Purchase Agreements fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Share Purchase Agreements and the Acquisitions contemplated thereunder. 14A.58(3)(a) 7. Procedures for demanding a poll According to the Articles of Association, a resolution will be determined on a show of hands unless before any vote on a show of hands, a poll is demanded. A poll may be demanded by (i) the chairman of the meeting; or (ii) at least two Shareholders entitled to vote, present in person or by proxy; or (iii) by one or more Shareholders present in person or by proxy representing ten percent or more of all Shares carrying the voting rights at the meeting. 12

15 LETTER FROM THE BOARD 8. Revised Proxy Form As a result of the additional proposed resolutions subsequent to the despatch of the AGM Notice, the proxy form sent together with the AGM Notice does not contain the proposed resolutions in respect of the Acquisitions as set out in this circular. In this connection, a new proxy form has been prepared and is enclosed with this circular, together with a supplemental notice of AGM. You are requested to complete the revised proxy form in accordance with the instructions printed thereon and return it to the Company s H share registrar for holders of H shares and to the Secretariat of the Board of Directors of the Company for holders of A shares. The addresses of the Company and its H share registrar are set out in the AGM Notice. A Shareholder who has not lodged the proxy form dispatched together with the AGM Notice in accordance with the instructions printed thereon is requested to lodge the revised proxy form if he or she wishes to appoint proxies to attend the AGM on his or her behalf. In this case, the first proxy form should not be lodged. A Shareholder who has already lodged the first proxy form in accordance with the instructions printed thereon should note that: (i) if no revised proxy form is lodged in accordance with the instructions printed thereon, the first proxy form, if correctly completed, will be treated as a valid proxy form lodged by him or her; (ii) if the second proxy form is lodged in accordance with the instructions printed thereon, the revised proxy form, if correctly completed, will be treated as a valid proxy form lodged by the Shareholder and will revoke and supersede the first proxy form previously lodged by him or her; (iii) if the revised proxy form is lodged after the closing time set out in the AGM Notice and the revised proxy form enclosed with this circular, the revised proxy form will be invalid. However, it will revoke the first proxy form previously lodged by the Shareholder, and any vote that may be cast by the purported proxy (whether appointed under the first proxy form or the revised proxy form) will not be counted in any poll which may be taken on a proposed resolution. Accordingly, Shareholders are advised not to lodge the revised proxy form after the specified closing time. If such Shareholders wish to vote at the AGM, they will have to attend in person and vote at the AGM themselves. 13

16 LETTER FROM THE BOARD 9. Additional Information Your attention is drawn to the letter from the Independent Board Committee set out on pages 15 to 16 of this Circular which contains its recommendation to the Independent Shareholders as to the voting at the Annual General Meeting regarding the Share Purchase Agreements and the Acquisitions contemplated thereunder. 14A.58(3)(a) Your attention is also drawn to the letter from China Merchants set out on pages 17 to 34 of this Circular which contains, among others, its advice to the Independent Board Committee and the Independent Shareholders in relation to the Share Purchase Agreements and the Acquisitions contemplated thereunder, as well as the principal factors and reasons considered by it in concluding its advice. Yours faithfully, For and on behalf of the Board of Directors China Coal Energy Company Limited Jing Tianliang Chairman of the Board, Executive Director 14

17 LETTER FROM THE INDEPENDENT BOARD COMMITTEE * (A joint stock company incorporated in the People s Republic of China with limited liability) (Stock Code: 1898) Independent Board Committee Mr. Gao Shangquan Mr. Zhang Ke Mr. Peng Ru Chuan Mr. Wu Rongkang Mr. Li Yanmeng 14A.59(7) 17 May 2008 To the Independent Shareholders Dear Sirs or Madams NON-EXEMPT CONNECTED TRANSACTION We refer to the circular dated 17 May 2008 issued by the Company to the Shareholders (the Circular ) of which this letter forms part. Terms defined in the Circular shall have the same meanings when used in this letter, unless the context otherwise requires. We have been appointed by the Board as member of the Independent Board Committee to advise the Independent Shareholders on whether the terms of the Share Purchase Agreements are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. China Merchants has been appointed as the Independent Financial Adviser to advise us and the Independent Shareholders in this respect. 15

18 LETTER FROM THE INDEPENDENT BOARD COMMITTEE Having considered the terms of the Share Purchase Agreements and taken into account the advice of China Merchants, we are of the view that the terms of the Share Purchase Agreements are on normal commercial terms, fair and reasonable and are in the interests of the Company and the Shareholders as a whole. We therefore recommend the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Share Purchase Agreements and the Acquisitions contemplated thereunder to be proposed at the AGM. Yours faithfully, The Independent Board Committee Mr. Zhang Ke Mr. Gao Shangquan Mr. Wu Rongkang Mr. Peng Ru Chuan Mr. Li Yanmeng Independent non-executive Directors 16

19 LETTER FROM CHINA MERCHANTS The following is the text of the letter of advice from China Merchants to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular. A1B5(3) 14A.59(8) 14A.58(1) 14A.58(3)(a) 14A.59(3)(d) 48th Floor, One Exchange Square, Central, Hong Kong 17 May 2008 China Coal Energy Company Limited No. 1 Huangsidajie Chaoyang District, Beijing The People s Republic of China To: the Independent Board Committee and the Independent Shareholders of China Coal Energy Company Limited Dear Sirs, NON-EXEMPT CONNECTED TRANSACTION INTRODUCTION We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Acquisitions, details of which are contained in the letter from the Board (the Letter from the Board ) of the circular dated 17 May 2008 (the Circular ) issued by the Company to the Shareholders, of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires. As referred from the Letter from the Board, the Company entered into the Share Purchase Agreement I with China Coal Imp. & Exp. on 25 April 2008, pursuant to which China Coal Imp. & Exp. will transfer 100% equity interest in Dongpo Coal to the Company for a cash consideration of RMB1, million. The Company entered into the Share Purchase Agreement II with China Coal Trade and Industry on 25 April 2008, pursuant to which China Coal Trade and Industry will transfer 5% equity interest in Qinhuangdao Imp. & Exp. to the Company for a cash consideration of RMB million. 17

20 LETTER FROM CHINA MERCHANTS As ChinaCoal Group is beneficially interested in approximately 57.52% of the entire issued share capital of the Company as at the Latest Practicable Date, ChinaCoal Group is therefore a connected person of the Company under Chapter 14A of the Lsting Rules and any transaction between ChinaCoal Group and the Group would constitute a connected transaction for the Company. Each of China Coal Imp. & Exp. and China Coal Trade and Industry is a wholly-owned subsidiary of ChinaCoal Group, and is therefore a connected person of the Company under Chapter 14A of the Listing Rules by virtue of being an associate of the Company s substantial shareholder. Accordingly, any transaction entered into between China Coal Imp. & Exp. and the Group, or China Coal Trade and Industry and the Group would constitute a connected transaction for the Company. As the highest applicable percentage ratio (as defined in the Listing Rules) of the Acquisitions set out in the Share Purchase Agreements, when aggregated, is more than 2.5% but less than 5% and the total consideration under the Acquisitions is more than HK$10 million, the Acquisitions constitute connected transactions for the Company under Chapter 14A of the Listing Rules and are subject to reporting and announcement and are conditional upon the approval of the independent Shareholders by way of poll at the AGM. In our capacity as the independent financial adviser to the Independent Board Committee and the Independent Shareholders, our role is to provide you with an independent opinion and recommendation as to whether the Acquisitions are (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms; (iii) fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole; and (iv) whether the Independent Shareholders should vote in favour of the Acquisitions. BASIS OF OUR OPINION In formulating our advice and recommendation, we have relied on the accuracy of the information and facts supplied, and the opinions expressed by the Company, the Directors and the Company s management to us. We have assumed that all statements of belief and intention made by the Directors in the Circular were made after due enquiries. We have also assumed that all information, representations and opinion made or referred to in the Circular were true, accurate and complete at the time they were made and will continue to be true up to the date of the AGM. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company, the Directors and the Company s management, and we have been advised by the Directors that no material facts have been omitted from the information provided by or referred to in the Circular. We have assumed such information to be accurate and reliable and have not carried out any independent verification on the accuracy of such information, which provides us with a basis on which we have been able to formulate our independent opinion. We consider that we have reviewed sufficient information to reach an informed view, to justify our reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have not, however, conducted any form of in-depth investigations into the business affairs, financial position and future prospects of the Group and the parties to the Share Purchase Agreements, nor carried out any independent verification of the information supplied, representations made or opinions expressed by the Company, the Directors and the Company s management. 18

21 LETTER FROM CHINA MERCHANTS PRINCIPAL FACTORS AND REASONS CONSIDERED I. BACKGROUND 1. Information on the Company As stated in the Letter from the Board, the Company is principally engaged in coal production, sales and trading, coking operation, coal mining equipment manufacturing and other related operations in China. The Group s revenue, gross profit and gross profit margin for the three years ended 31 December 2007 (prepared under the International Financial Reporting Standards) as stated in the annual reports of the Company for the years ended 31 December 2006 and 2007 are set out below: For the year ended 31 December (RMB 000) (RMB 000) (RMB 000) (Audited) (Audited) (Audited) Revenue Coal operations 25,147,700 23,831,884 26,450,680 Coking operations 1,591,275 2,034,821 4,436,932 Machinery operations 1,891,185 2,346,222 2,992,949 Other operations 1,431,115 2,013,578 2,547,623 Total 30,061,275 30,226,505 36,428,184 COGS 24,437,759 23,681,005 27,130,463 Gross Profit 5,623,516 6,545,500 9,297,721 Gross Profit Margin 18.7% 21.7% 25.5% As stated above, the Group s revenue was mainly derived from coal operations. For the year ended 31 December 2007, revenue from coal operations accounted for approximately 72.6% of the total revenue of the Group. From the year ended 31 December 2005 to the year ended 31 December 2007, (i) the Group s audited revenue achieved a compound average growth rate ( CAGR ) of approximately 10.1% per annum; and (ii) the Group s audited gross profit achieved a CAGR of approximately 28.6% per annum. We also noted that for the three years ended 31 December 2007, the Group s gross profit margin improved gradually. 19

22 LETTER FROM CHINA MERCHANTS Coal operations of the Group As stated in the Prospectus, the Group s coal operations revenue was primarily derived from (i) sales of coal extracted from the Group s mines and coal processed by the Group s facilities; (ii) proprietary coal trading; and (iii) the provision of coal import agency and export-related services. The Group s sales are made both within China through their own sales forces and overseas through ChinaCoal Group. The Group produces thermal coal, coking coal and semi-hard coking coal products from the nine operational coal mines located in four mining areas and thirteen coal processing plants located in northern, northwestern and eastern China. 2. Information on ChinaCoal Group As stated in the Letter from the Board, ChinaCoal Group is principally engaged in coal export, coal production and distribution, coal sales, coal chemistry, coal bed methane exploitation, pit mouth power plant, coal mine construction, coal mining equipment manufacturing as well as relevant engineering and technical services. ChinaCoal Group was beneficially holding approximately 57.52% of the entire issued share capital of the Company as at the Latest Practicable Date. 3. Information on China Coal Imp. & Exp., Dongpo Coal, Qinhuangdao Imp. & Exp. and China Coal Trade and Industry China Coal Imp. & Exp. As stated in the Letter from the Board, China Coal Imp. & Exp. is principally engaged in coal trading, coal import, import, export and agency services of other goods approved by the MOFCOM, compensation trade in coal product, entrepot trade, product and technology import and export (except government-regulated goods) and material processing. Dongpo Coal As stated in the Letter from the Board, Dongpo Coal is principally engaged in resource integration and provision of technology improvement and project expanding services to Dongpo coal mine. Dongpo Coal has already obtained NO mining license. As at the Latest Practicable Date, Dongpo Coal has not been engaged in coal production. The table below sets out the unaudited total assets value and net assets value (prepared under the PRC GAAP) of Dongpo Coal as at 31 December 2007: As at 31 December 2007 (in RMB million) Total assets Net assets

23 LETTER FROM CHINA MERCHANTS As Dongpo Coal was incorporated on 20 December 2007, Dongpo Coal mine is still in the process of contruction and has not yet commenced coal production. It did not incur any profits and losses for the years ended 31 December 2006 and 31 December 2007 and therefore no information of profit before taxation and net profit after taxation is available. According to the Letter from the Board, based on the audited accounts under the PRC GAAP, as at 29 February 2008, the total assets, total liabilities and net assets of Dongpo Coal were approximately RMB million, RMB million and RMB million. As stated in the Letter from the Board, in accordance with the appraisal result under the applicable national criteria and appraisal rules contained in the Category of Solid Mine Resource/Reserve ( / ) promulgated by the PRC government, which is also filed with the Appraisal Center of Shanxi Provincial Bureau of State Land and Resources, as at 31 December 2005, the coal reserve under the NO mining license of Dongpo Coal amounted to approximately million tons. It is estimated to commence coal production in the second half of As stated in the Letter of the Board, the current approved production capacity of Dongpo Coal is 1.50 million tons per year. In light of its coal reserve and mining conditions, an extra production capacity of 1.50 million tons per year has already been designed and constructed for Dongpo Coal, as a result of which, the actual production capacity of Dongpo Coal is 3.00 million tons per year. The Company will apply to the relevant government authority for expanding the approved production capacity of Dongpo Coal to 3.00 million tons per year after formal commencing of coal production. The Directors are of the view that the Company s profitability will be further enhanced after the approval in connection with the production capacity expansion is obtained and Dongpo Coal further increases its annual production volume. Qinhuangdao Imp. & Exp. As stated in the Letter from the Board, Qinhuangdao Imp. & Exp. is principally engaged in import and export (except for government-regulated goods), sales of coal and coal product, coke, metal materials, construction materials, mechanical and engineering equipment, sales of stationery, transport agency, technical consultancy, employment agency, real estate and equipment leasing, customs clearance and inspection, warehouse service, loading and assembling, dustproof and spraying service. 21

24 LETTER FROM CHINA MERCHANTS The table below sets out the audited profit before taxation and the audited profit after taxation (both prepared under the PRC GAAP) of Qinhuangdao Imp. & Exp. for the years ended 31 December 2006 and 31 December 2007 and the audited net assets value (prepared under the PRC GAAP) of Qinhuangdao Imp. & Exp. as at 31 December 2006 and 31 December 2007: For the year ended 31 December 2006 (in RMB million) For the year ended 31 December 2007 (in RMB million) Profit before taxation Profit after taxation As at 31 December 2006 (in RMB million) As at 31 December 2007 (in RMB million) Net assets China Coal Trade and Industry As stated in the Letter from the Board, China Coal Trade and Industry is principally engaged in concurrent-business insurance agency and sales of electronic mechanical equipment, computers and software, office facilities, daily use commodity, textile, apparel, hardware and chemical products, housing construction and decoration, property management, equipment leasing, warehouse service, technology development, transfer and consulting service. 4. Energy consumption in the PRC Based on the China Statistical Yearbook 2007, the China Statistical Yearbook 2006 and the China Statistical Yearbook 2005 published by the National Bureau of Statistics of China, the energy consumption in the PRC increased from approximately 1,518 million tons of Standard Coal Equivalent ( SCE ) in 2002 to approximately 2,462.7 million tons of SCE in 2006, representing a CAGR of approximately 12.9% per annum. 22

25 LETTER FROM CHINA MERCHANTS Set out below is the consumption of energy in the PRC from 2002 to 2006: Consumption of energy in the PRC from 2002 to ,000 10,000 tons of SCE 250, , , ,000 50, Year Source: China Statistical Yearbook 2007, China Statistical Yearbook 2006 and China Statistical Yearbook 2005 published by the National Bureau of Statistics of China. 5. Coal production in the PRC Based on the BP Statistical Review of World Energy June 2007 (the BP Statistical Review ) published by BP P.L.C, the production of coal in the PRC increased from approximately million tonnes oil equivalent in 2002 to approximately 1,212.3 million tonnes oil equivalent in 2006, representing a CAGR of approximately 13.4% per annum. Set out below is the production of coal in the PRC from 2002 to 2006: Production of coal in the PRC from 2002 to 2006 Million tonnes oil equivalent 1,400 1,200 1, Year Source: BP Statistical Review 23

26 LETTER FROM CHINA MERCHANTS 6. Coal consumption in the PRC Based on the BP Statistical Review, the consumption of coal in the PRC increased from approximately million tonnes oil equivalent in 2002 to approximately 1,191.3 million tonnes oil equivalent in 2006, representing a CAGR of approximately 13.7% per annum. Set out below is the consumption of coal in the PRC from 2002 to 2006: Consumption of coal in the PRC from 2002 to 2006 Million tonnes oil equivalent 1,400 1,200 1, Year Source: BP Statistical Review II. MAJOR TERMS OF THE ACQUISITIONS Set out below are the principal terms of the Share Purchase Agreement I: Date of Agreement: 25 April 2008 Parties: Subject matter of the Purchase: Consideration: Conditions precedent: the Company, as purchaser China Coal Imp. & Exp., as seller purchase by the Company of 100% equity interest in Dongpo Coal RMB1, million (subject to SASAC s approval) The Share Purchase Agreement I will become effective upon obtaining internal approvals of both purchaser and seller, which includes, among others, the approval of independent Shareholders and all necessary regulatory approvals including but not limited to SASAC s approval. As at the Latest Practicable Date, all relevant materials have been submitted to SASAC and the Company is in the process of obtaining the approval. 24

27 LETTER FROM CHINA MERCHANTS Undertaking by China Coal Imp. & Exp.: China Coal Imp. & Exp. provides the following undertaking in the Share Purchase Agreement I: (i) Dongpo Coal has duly fulfilled the procedural requirements in connection with the obtaining of mining right under No mining license. As the above consideration represents all the fees in respect of the mining right, in the event that Donpo Coal is required by the relevant authority to make any further payment during the relevant period regarding the granting of mining right, including but not limited to license fees, China Coal Imp. & Exp. shall, upon the request of the Company from time to time, indemnify Dongpo Coal for such costs incurred in full in a timely and effective manner; Details of No mining license are as follows: Location Area Mining Reserve under the License Current Status Shuocheng District, Shuozhou City, Shanxi Province km million tons Dongpo Coal as the licensee (ii) there are no disputes in connection with the land use right under Shuo Qu Tu Lin Zi ( ) NO Land Use Right Certificate. China Coal Imp. & Exp. will assist Dongpo Coal in completing the relevant procedures for the government s granting of the land use right and indemnify and compensate Dongpo Coal for any losses, expenses, claims and fees incurred due to any delay in the aforementioned procedure; 25

28 LETTER FROM CHINA MERCHANTS Details of the relevant land use rights are as follows: Location Area Usage of land Current Status Shuocheng District, Shuozhou City, Shanxi Province 39, sq.m. Site of coal mine Dongpo Coal is in the process of applying for the formal land use right certificate and (iii) as the sole direct shareholder of Dongpo Coal, China Coal Imp. & Exp. had duly assisted in and supervised the transforming, expanding and constructing work of Dongpo Coal. If as a result of any defect existing in the project designing and constructing process, the Coal Production Permit or Safety Coal Production Permit cannot be obtained in time by Dongpo Coal after its construction is completed, China Coal Imp. & Exp. shall indemnify and compensate Dongpo Coal in full in a timely and effective manner for any losses incurred in this regard. Set out below are the principal terms of the Share Purchase Agreement II: Date of Agreement: 25 April 2008 Parties: Subject matter of the Purchase Consideration: the Company, as purchaser China Coal Trade and Industry, as seller purchase by the Company of 5% equity interest in Qinhuangdao Imp. & Exp. RMB million (subject to SASAC s approval) 26

29 LETTER FROM CHINA MERCHANTS III. Conditions precedent: THE CONSIDERATION The Share Purchase Agreement II will become effective upon obtaining internal approvals of both the purchaser and the seller, which includes, among others, the approval of independent Shareholders and all necessary the regulatory approvals including but not limited to SASAC s approval. As at the Latest Practicable Date, all relevant materials have been submitted to SASAC and the Company is in the process of obtaining the approval. (a) Basis of the consideration As stated in the Letter from the Board, the consideration for the acquisition of Dongpo Coal (the Dongpo Coal Consideration ) amounted to RMB1, million, which was determined after arm s length negotiations with reference to the appraised net assets value of RMB1, million under the cost method, where the value of the mining right was determined based on current approved capacity as at 29 February 2008, as extracted from the valuation report (the Dongpo Coal Valuation Report ) prepared by China United Assets Appraisal Co., Ltd ( CUAA ), a PRC independent qualified valuer. As stated in the Letter from the Board, the consideration will be paid by cash in full within 15 days after the Share Purchase Agreements become effective and the sources for the consideration will be paid out by the Company s internal funding. As stated in the Letter from the Board, the consideration for the acquisition of Qinhuangdao Imp. & Exp. (the Qinhuangdao Consideration ) amounted to RMB million, which was determined with reference to the appraised equity value of RMB million (5% equity interest) under the income method, attributable to such interests the Company is acquiring as at 30 June 2007 extracted from the valuation report (the Qinhuangdao Valuation Report ) prepared by CUAA. In assessing the fairness and reasonableness of the valuation of Dongpo Coal, we have reviewed the Dongpo Coal Valuation Report prepared by CUAA. As stated in the Dongpo Coal Valuation Report, CUAA has adopted the cost method and the income method for the valuation of Dongpo Coal. The cost method was considered by CUAA the best method in the determination of the appraised value of Dongpo Coal. As stated in the Dongpo Coal Valuation Report, the cost method determines the value of a business enterprise by assuming the value of such business enterprise is equal to the fair value of its assets and liabilities. Thus the appraised net assets value of Dongpo Coal of RMB1, million as stated in the Dongpo Coal Valuation Report is equal to the fair value of the assets (including its mining rights) and liabilities of Dongpo Coal. Income method determines the value of a business enterprise by discounting its future cash flow. As discussed with CUAA, CUAA has valued Dongpo Coal in its existing status as at the date of the Dongpo Coal Valuation Report by the cost method. Thus the value of the mining right, being one of the assets of Dongpo Coal, was determined based on the current approved capacity of Dongpo Coal of 1.50 million tons per year as at 29 February 2008, being the date of the Dongpo Coal Valuation Report, and with reference to the current market price of coal. 27

30 LETTER FROM CHINA MERCHANTS As stated in the Dongpo Coal Valuation Report, the valuation of Dongpo Coal was conducted in accordance with the relevant rules and regulations regarding asset valuation in the PRC. We have discussed with CUAA on the methodology adopted and assumptions used in arriving at its valuation of Dongpo Coal in the Dongpo Coal Valuation Report. In the course of our discussions with CUAA, no material has come to our attention that would lead us to believe that the valuation of Dongpo Coal was not prepared on a reasonable basis nor reflect the methodology and assumptions which have been adopted and arrived at after due and careful consideration. We have no reason to doubt the fairness and appropriateness of the methodology adopted and assumptions used by CUAA in arriving at the valuation of Dongpo Coal. We concur with CUAA that the cost method is the most appropriate approach in evaluating the fair value of Dongpo Coal as the income approach is not appropriate as, at the date of the valuation of Dongpo Coal, most of the assets of Dongpo Coal are either under construction or has not been engaged in coal production. As such, no historical performance could be obtained on Dongpo Coal. We also concur with CUAA that income approach is not appropriate in the valuation of Dongpo Coal as income projection would be difficult to ascertain due to the lack of historical performance and the projection might be affected by certain future uncertainties. As advised by CUAA, the Qinhuangdao Valuation Report was principally prepared based under the income method. Income method determines the value of a business enterprise by discounting its future cash flow. As stated in the Qinhuangdao Valuation Report, the valuation of Qinhuangdao Imp. & Exp. was conducted in accordance with the relevant rules and regulations regarding asset valuation in the PRC. We have discussed with CUAA on the methodology adopted and assumptions used in arriving at its valuation of Qinhuangdao Imp. & Exp. in the Qinhuangdao Valuation Report. In the course of our discussions with CUAA, no material has come to our attention that would lead us to believe that the valuation of Qinhuangdao Imp. & Exp. was not prepared on a reasonable basis nor reflect the methodology and assumptions which have been adopted and arrived at after due and careful consideration. We have no reason to doubt the fairness and appropriateness of the methodology adopted and assumptions used by CUAA in arriving at the valuation of Qinhuangdao Imp. & Exp. We concur with CUAA that the income method is the most appropriate approach in evaluating the fair value of Qinhuangdao Imp. & Exp. after considering the business nature of Qinhuangdao Imp. & Exp. and its financial performance over the past years. The income method will better reflect the enterprise value of Qinhuangdao Imp. & Exp. as a whole. As advised by the Directors, pursuant to (the Provisional Measures on the Management of Acquisition of the State-owned Property Rights of Enterprises) effective from 1 February 2004, the consideration for the acquisition of State-owned assets shall be based on the value appraised by a qualified valuer endorsed by or filed with the relevant PRC government regulatory bodies. In view of the above and as confirmed by the Directors that 28

31 LETTER FROM CHINA MERCHANTS CUAA is a qualified valuer endorsed by or filed with the relevant PRC government regulatory bodies, we consider that the Dongpo Coal Consideration and the Qinhuangdao Consideration, which are based on the appraised value, are in line with our understanding of the above PRC regulation. (b) Comparable connected transactions We have, to the best of our knowledge, information and belief, performed searches on the official website of the Stock Exchange and identified connected transactions (the Comparable Connected Transactions ) since 1 March 2007 up to the date of the Share Purchase Agreements involving all acquisitions of assets or businesses from connected parties by companies incorporated in the PRC and listed on the main board of the Stock Exchange and adopted the appraised values as the basis to determine the relevant considerations. We compared the premium over or discount of considerations to appraised values of the Comparable Connected Transactions. However, we have to point out that although the analysis of Comparable Connected Transactions can reflect transaction benchmark and provides a guideline for valuation, it does not include differences in industries, accounting policies and standards as well as differences in local regulations, operating environment, business model, taxation and other unique characteristics of different target companies. However, we believe the following Comparable Connected Transactions analysis still provides a meaningful benchmark to assess the consideration. The following table sets out the approximate considerations, appraised values and the premium over or discount of considerations to appraised values of the Comparable Connected Transactions: Stock Code Listed companies Agreement date Consideration Appraised value of the target Premium over/ (discount) to the appraised value (RMB million) (RMB million) 2345 (Shanghai Prime Machinery Company Limited) 438 (Irico Group Electronics Company Limited) 107 (Sichuan Expressway Co. Ltd) % % , , % 29

32 LETTER FROM CHINA MERCHANTS Stock Code Listed companies Agreement date Appraised value of the Consideration target (RMB million) (RMB million) Premium over/ (discount) to the appraised value 1171 (Yanzhou Coal Mining Company Limited) 168 (Tsingtao Brewery Company Limited) 1122 (Qingling Motors Co., Ltd) 1071 (Huadian Power International Corporation Limited) 728 (China Telecom Corporation Ltd.) 991 (Datang International Power Generation Co. Ltd) 2868 (Beijing Capital Land Ltd) (1.20%) (1.90%) % , , % , , % % % , , % (Angang Steel Co. Ltd) Average (0.27%) Maximum 0.10% Minimum (1.90%) 1898 The Company - acquisition of 100% equity interest in Dongpo Coal - acquisition of 5% equity interest in Qinhuangdao Imp. & Exp. 1, , % % As shown above, the ratios of considerations to the appraised values of the Comparable Connected Transactions range from a discount of approximately 1.9% to a premium of approximately 0.1% with an average discount of approximately 0.27%. Since the Dongpo Coal Consideration and the Qinhuangdao Consideration are equal to the appraised value prepared by 30

33 LETTER FROM CHINA MERCHANTS CUAA, each of the Dongpo Coal Consideration and the Qinhuangdao Consideration has no discount or premium to the appraised value, which is in line with the practice of the 11 Comparable Connected Transactions listed in the above table and is in the range of the Comparable Connected Transactions. Therefore, we consider that the Dongpo Coal Consideration and the Qinhuangdao Consideration are fair and reasonable. IV. REASONS FOR AND BENEFITS OF ENTERING INTO THE SHARE PURCHASE AGREEMENTS We consider that the Acquisitions would bring the following benefits to the Group after completion of the Acquisitions (the Completion ): 1. Benefit from rising domestic coal industry As stated in the section headed Background above, the energy consumption in the PRC achieved a CAGR of approximately 12.9% per annum for the period from 2002 to 2006, of which coal is the major source of energy production in the PRC. With reference to the BP Statistical Review, coal production and coal consumption in the PRC recorded a CAGR of approximately 13.4% and 13.7% per annum respectively for the period from 2002 to The Directors believe that after the Acquisitions, the Group will further benefit from the positive outlook of the energy market and coal industry in the PRC. 2. In line with the Group s long-term development strategy As advised by the Directors, coal business is one of the three major businesses of the Group, and will be the Group s key area for future strategic development. The Directors believe that the Acquisitions will enable the Group to implement its expansion strategy of strengthening the Group s core business of coal production. As such, the Directors believe that the Group can strengthen its strategic position and improve its competitiveness in the coal industry through Acquisitions. The Directors also consider that the Acquisitions are in line with the Group s long-term development strategy. 3. Increase of coal reserve and coal production capacity As advised by the Directors, the earnings growth of the Group is mainly affected by (i) the consumption of coal in the PRC; and (ii) increase in supply of coal by the Group. As advised by the Directors, it is not uncommon for coal operation companies in the PRC to expand their coal generation capacities in an attempt to improve their business performance and profitability in the future. Through the acquisition of Dongpo Coal, the Directors believe that it will immediately increase the Group s good quality coal reserve and thus strengthen the Group s strategic position. As advised by the Directors, the Dongpo Coal is still in the process of construction, and is expected to commence coal production in the second half of As advised by the Directors, Dongpo Coal has already obtained the NO mining license with an annual production capacity of 1.50 million tons. The Directors consider that the acquisition of Dongpo Coal will increase the Group s coal production capacity in the future. 31

34 LETTER FROM CHINA MERCHANTS 4. Reducing amount of future potential continuing connected transactions As stated in the Prospectus, when the Group went initial public offering in December 2006, ChinaCoal Group retained certain operating rights to operate its five mines (the Mines under Restructuring ), including Dongpo Coal. At that time, the Mines under Restructuring were undergoing consolidation and restructuring and were not transferred to the Group. In order to minimize the potential competition between the Group and any third party, ChinaCoal Group entered into a coal supplies framework agreement (the Coal Supplies Framework Agreement ) with the Group on 5 September 2006 that ChinaCoal Group will procure all coal products produced from the Mines under Restructuring be supplied exclusively to the Group, and has undertaken not to sell any such coal products to any third party. As advised by the Directors, after the acquisition of Dongpo Coal, the transaction amount contemplated thereunder the Coal Supplies Framework Agreement will be reduced. 5. Improving management and operation efficiency After the acquisition of the remaining equity interests in Qinhuangdao Imp. & Exp., Qinhuangdao Imp. & Exp. will become a wholly-owned subsidiary of the Group. The Directors consider that the acquisition of Qinhuangdao Imp. & Exp. will improve the management and operation efficiency of Qinhuangdao Imp. & Exp., which will lead to the reduction of management s time and cost to manage Qinhuangdao Imp. & Exp. Taken into account of the above, we are of the view that the entering into the Share Purchase Agreements is in the ordinary and usual course of business of the Group, and is in the interests of the Group and the Shareholders as a whole. V. FINANCIAL EFFECTS OF THE ACQUISITIONS As advised by the Directors, the Acquisitions would bring the following financial effects on the Group: 1. Earnings According to the annual report of the Company for the year ended 31 December 2007 (the 2007 Annual Report ), the Group recorded an audited consolidated net profit attributable to the Shareholders (excluding minority interest) of approximately RMB6,019.8 million for the year ended 31 December As advised by the Directors, upon Completion, the Group will obtain the overall control on Dongpo Coal and Qinhuangdao Imp. & Exp. With the positive outlook of the coal market in the PRC and the current approved production capacity of Dongpo Coal of 1.5 million ton per year, the Directors expect that the Acquisitions will have a positive impact to the profitability of the Group upon Completion. 32

35 LETTER FROM CHINA MERCHANTS 2. Net assets value (the NAV ) According to the 2007 Annual Report, the audited consolidated net asset value of the Group attributable to the Shareholders (before minority interest) as at 31 December 2007 was approximately RMB27,332 million. As the Dongpo Consideration and the Qinhuangdao Consideration (collectively, the Consideration ) will be satisfied by the internal resources of the Group, we concur with the Directors view that the Share Purchase Agreements will have no material effect on the consolidated NAV of the Group upon Completion. 3. Gearing The gearing ratio (calculated as total liabilities divided by total assets) of the Group as at 31 December 2007 was approximately 43%. As mentioned in the above paragraph, since the payment for the Consideration will be satisfied by internal resources of the Group, there will be no material effect to the gearing ratio of the Group as a result of the Share Purchase Agreements. RECOMMENDATION From the above analysis, we noted that: (i) certain benefits are expected to be brought by the Acquisitions as detailed in the section headed Reasons for and benefits of entering into the Share Purchase Agreements above, including (i) benefit from rising domestic coal industry; (ii) in line with the Group s long-term development strategy; (iii) increase of coal reserve and coal production capacity; (iv) reducing amount of future potential continuing connected transactions; and (v) improving management and operation efficiency, which the Directors believe the Acquisitions (i) would enable the Group to achieve business expansion and accretion in earnings in the future, (ii) are in the ordinary and usual course of business of the Group; and (iii) in line with the Group s business objectives and demonstrates the Group s commitment to such objectives; (ii) the Consideration is negotiated on normal commercial terms and is fair and reasonable so far as the Independent Shareholders are concerned as detailed in the section headed The consideration above; and (iii) the Directors do not expect any material adverse impact on the financial position of the Group immediately after Completion as detailed in the section headed Financial effects of the Acquisitions. Having considered the above principal factors and reasons, we are of the view that the Acquisitions are (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms; and (iii) fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Group and the Shareholders as a whole. 33

36 LETTER FROM CHINA MERCHANTS Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the Acquisitions at the AGM. We also advise the Independent Shareholders to vote in favour of the Acquisitions at the AGM. For and on behalf of China Merchants Securities (HK) Co., Ltd. Tony Wu Executive Director 34

37 APPENDIX I GENERAL INFORMATION 1. RESPONSIBILITY STATEMENT This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company and its subsidiaries (the Group ). The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading. A1B2 2. DISCLOSURE OF INTEREST As at the Latest Practicable Date, none of the directors, chief executives or supervisors of the Company or their respective associates had any interests or short positions in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO, which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he or she is taken or deemed to have under such provision of the SFO); or are required, pursuant to Section 352 of the SFO, to be entered in the register, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies. R14.64(3) R14A.59(4) A1B34 A1B38(1) A1B38(1A) 3. SUBSTANTIAL SHAREHOLDERS As at the Latest Practicable Date, according to the register of interest kept by the Company under Section 336 of the SFO and so far as was known to the directors or chief executives of the Company, the following are details of the persons (other than directors, chief executives or supervisors of the Company) who have an interest or short position in the shares (including options) or underlying shares in the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital (including any options in respect of such capital) carrying rights to vote in all circumstances at general meeting of any other member of the Group: A1B38(2) Name of shareholders China National Coal Group Corporation Number of Shares Class of Shares Nature of interest 7,626,667,000(L) A Shares Long Positions Morgan Stanley 376,624,721(L) H Shares Long Positions 124,905,543(S) H Shares Short Positions National Council for Social Security Fund of the PRC ( ) 373,333,000(L) H Shares Long Positions UBS AG 274,356,245(L) H Shares Long Positions 41,293,152(S) H Shares Short Positions Percentage in the class of issued Shares Percentage in the total Shares in issue (%) (%) 83.33(L) (L) (S) (L) (L) (S)

38 APPENDIX I GENERAL INFORMATION Name of shareholders Number of Shares Class of Shares Nature of interest JPMorgan Chase & Co. 255,569,357(L) H Shares Long Positions 53,494,604(S) H Shares Short Positions 169,859,199(P) H Shares Lending Pool Davis Selected Advisers, L.P. (d/b/a: Davis Advisors) 248,098,000(L) H Shares Long Positions AMCI Capital GP Limited 239,995,000(L) H Shares Long Positions AMCI Capital L.P. 239,995,000(L) H Shares Long Positions AMCI H&F (Cayman) Ltd 239,995,000(L) H Shares Long Positions First Reserve Corporation 239,995,000(L) H Shares Long Positions FR XI Offshore AIV, L.P. 239,995,000(L) H Shares Long Positions FR XI Offshore GP Limited 239,995,000(L) H Shares Long Positions FR XI Offshore GP, L.P. 239,995,000(L) H Shares Long Positions Percentage in the class of issued Shares Percentage in the total Shares in issue (%) (%) 6.22(L) (S) (P) (L) (L) (L) (L) (L) (L) (L) (L) ARRANGEMENT AFFECTING DIRECTORS As at the Latest Practicable Date: (a) None of the Directors is interested, directly, in any assets which have, since 31 December 2007 the date to which the latest published audited accounts of the Company were made up, been acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group. A1B40(1) (b) None of the Directors is materially interested in any contract or arrangement subsisting at the Latest Practicable Date as entered into by any member of the Enlarged Group and which is significant in relation to the business of the Enlarged Group. A1B40(2) (c) None of the Directors and his/her associates has interests in the businesses, other than being a Director, which competes or are likely to compete, either directly or indirectly, with the businesses of the Group (as would be required to be disclosed under Rule 8.10 of the Listing Rules if he was a controlling shareholder). R14A.59(11) 36

39 APPENDIX I GENERAL INFORMATION (d) None of the Directors had entered into, or proposed to enter into, any service contract with the Company or any member of the Enlarged Group (excluding contracts expiring or determinable by the employer within one year without payment of compensations other than statutory compensation). R14.64(7) A1B39 5. EXPERT AND CONSENTS The following are the qualifications of the experts who have given opinions or advices which are contained in this circular: A1B5(1) Name China Merchants China United Assets Appraisal Co., Ltd. CICC (HK) RSM Nelson Wheeler Qualification A corporation licensed to carry on type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities) and type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO A certified valuer in the PRC China International Capital Corporation (Hong Kong) Limited, a corporation licensed to carry on type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO Certified Public Accountants (a) As at the Latest Practicable Date, none of China Merchants and China United Assets Appraisal Co., Ltd., CICC (HK) and RSM Nelson Wheeler was beneficially interested in the share capital of any member of the Group and had any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group and did not have any interest, direct or indirect, in any assets which had been, since 31 December 2007 (being the date to which the latest published audited financial statements of the Group were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group. A1B5(1)(2) A1B40(1) (b) Each of China Merchants and China United Assets Appraisal Co., Ltd., CICC (HK) and RSM Nelson Wheeler has given and has not withdrawn its written consent to the issue of this circular with inclusion of its opinion and the reference to its name included herein in the form and context in which it appears. AIB5(3) 6. MATERIAL ADVERSE CHANGES The Directors confirm there was no material adverse change in the financial and trading position of the Group since 31 December 2007, the date to which the latest published audited consolidated accounts of the Group were made up. A1B32 37

40 APPENDIX I GENERAL INFORMATION 7. LITIGATION As at the Latest Practicable Date, neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries. A1B33 8. PROCEDURE FOR DEMANDING A POLL BY SHAREHOLDERS Pursuant to the articles of association of the Company, at any Shareholders general meeting, a resolution shall be decided on a show of hands unless a poll is demanded: A1B8A (a) by the chairman of the meeting; (b) by at least two (2) Shareholders present in person or by proxy entitled to vote thereat; (c) by one (1) or more Shareholders present in person or by proxy and representing 10 % or more of all shares carrying the right to vote at the meeting, before or after a vote is carried out by a show of hands. The demand for a poll may be withdrawn by the person who demands the same. 9. MISCELLANEOUS (a) The joint company secretaries of the Company are Zhou Dongzhou and Wang Yuanheng. The qualified accountant of the Company appointed pursuant to Rule 3.24 of the Listing Rules is Xu Guannan. A1B35 (b) The registered address of the Company is No.1 Huangsidajie, Chaoyang District, Beijing, China. A1B36 (c) The H Share registrar and transfer office of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited at Shops , 17th Floor, Hopewell Centre, 183 Queen s Road East, Wanchai, Hong Kong. (d) The English text of this circular shall prevail over the Chinese text in case of any inconsistency. 38

41 APPENDIX I GENERAL INFORMATION 10. DOCUMENTS AVAILABLE FOR INSPECTION AIB43(2c) Copies of the following documents are available for inspection during normal business hours on any weekday (except public holidays) at Room 2608, 26th Floor, Office Tower Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong from the date of this circular up to and including 20 June 2008: (a) Share Purchase Agreement I and II; (b) the letter from the Independent Board Committee to the Independent Shareholders as set out in this circular; (c) the letter from the Independent Financial Adviser as set out in this circular; and (d) the Valuation Report prepared by China United Assets Appraisal Co., Ltd; (e) the letters from RSM Nelson Wheeler and CICC (HK) as set out in this circular; and (f) the letters of consent referred to under the paragraph headed Experts and consents of this appendix. 39

42 APPENDIX II LETTER FROM CICC (HK) 17 May, 2008 A1B29 The Board of Directors China Coal Energy Company Limited Dear Sirs, We refer to the valuation report prepared by China United Assets Appraisal Co., Ltd. ( CUAA ) in relation to the appraisal of the fair market value of 5% equity interest of China National Coal Industry Qinhuangdao Imp. & Exp. Co., Ltd. ( Qinhuangdao Imp. & Exp. ) as set out in the circular issued by China Coal Energy Company Limited ( the Company ) dated 17 May 2008(the Circular ). Terms used herein, unless otherwise defined, shall have the same meanings as defined in the Circular. We note that the valuation of 5% equity interest of Qinhuangdao Imp. & Exp. has been developed by CUAA through the application of income method. We also note that the valuation report has been prepared by CUAA based on the financial projections of the Qinhuangdao Imp. & Exp. (the Projections ). We have discussed with CUAA and the management of the Company in connection with the bases and assumptions upon which the Projections have been made. The Projections have been reviewed, confirmed and rectified by the directors of the Company. We have also considered the letter dated 17 May 2008 addressed to you from RSM Nelson Wheeler regarding the calculations upon which the Projections have been made. On the basis above, we are of the opinion that the Projections, for which you are solely responsible, have been made after due and careful enquiry. Yours Faithfully, For and on behalf of China International Capital Corporation (Hong Kong) Limited Susan Li Managing Director 40

43 APPENDIX III LETTER FROM RSM NELSON WHEELER 29th Floor, Caroline Centre, Lee Gardens Two, 28 Yun Ping Road, Hong Kong A1B29 17 May 2008 The Board of Directors China Coal Energy Company Limited Dear Sirs, We have examined the arithmetical accuracy of the calculations of the business valuation report (the Valuation ) dated 26 February 2008 prepared by China United Assets Appraisal Co. Ltd ( Valuer ) in respect of the appraisal of the fair value of the 100% equity interest in China National Coal Industry Qinhuangdao Imp. & Exp. Co. Ltd ( Qinhuangdao Imp. & Exp. ) as at the reference date of 30 June 2007 in connection with the circular of China Coal Energy Company Limited (the Company ) dated 17 May 2008 (the Circular ). Responsibilities The directors of the Company and Qinhuangdao Imp. & Exp. are responsible for the preparation of the Valuation and the reasonableness and the validity of the assumptions based on which the Valuation is prepared (the Assumptions ). It is our responsibility to form an opinion, based on our work on the arithmetical accuracy of the calculation of the Valuation and to report our opinion solely to you, as a body, solely for the purpose in connection with the Circular and for no other purpose. We accept no responsibility to any other person in respect of, arising out of, or in connection with our work. The Assumptions include hypothetical assumptions about future events and management actions that may or may not necessarily be expected to occur. Even if the events and actions anticipated do occur, actual results are still likely to be different from the Valuation and the variation may be material. Accordingly we have not reviewed, considered or conducted any work on the reasonableness and the validity of the Assumptions and do not express opinion whatsoever thereon. Basis of opinion We conducted our work in accordance with Hong Kong Standard on Assurance Engagements 3000 Assurance Engagements Other Than Audits or Reviews of Historical Financial Information with reference to the procedures under Auditing Guideline Accountants Report on Profit Forecasts issued by the Hong Kong Institute of Certified Public Accountants. Our work was performed solely to assist the directors of the Company to evaluate whether the Valuation was compiled properly so far as the calculations are concerned. 41