Chairman's Statement

The following statement is from Yancoal's 2016 Annual Report:

As we experience the first signs of sustainable positive improvements within the thermal and metallurgical coal markets, Yancoal continues to prove itself a leader in production, transparency and investment.

Throughout 2016 Yancoal responded to market conditions and the constraints of its operating cash flow with strong and decisive action. Instituting new debt-funding arrangements to support the underground operations and providing our business with the optionality required to assist future organic and acquisitive growth.

At the same time we have forged ahead with the development of our tier one Moolarben Coal Complex, successfully completing the construction of the new underground mine on time and on budget.

Our expansion of the Moolarben asset sends a strong signal to both the market and local resources sector of our long-term vision and commitment to continued investment within Australia.

Benefitting from continued operational efficiencies and improved metallurgical and thermal coal prices in the second half of the year, Yancoal achieved a total Operating EBIT for 2016 of $52.3 million before tax, up $253.1 million on the year prior.

Our loss after income tax for 2016 of $227.1 million was also a significant improvement on the year prior (31 December 2015: $291.2 million) and a credit to the actions taken by our Executive and operational teams to continuously drive positive balance sheet improvements.

At the commencement of 2016, Yancoal instituted a necessary debt-funding arrangement to secure up to US$775 million to date, via the issuing of nine-year secured debt bonds by a newly established Yancoal subsidiary, Watagan Mining Company Pty Ltd (“Watagan”), to Industrial Bank Co., Ltd, BOCI Financial Products Limited and United NSW Energy Limited.

The debt-funding arrangement provided additional funding to support the future of the underground assets of Ashton, Austar and Donaldson, with control of the underground assets subsequently transferring to Watagan.

Yancoal achieved a strong full year production result of total ROM coal production of 26.2Mt (21.2Mt equity share) for the year (2015: 20.8Mt equity share) and saleable coal production of 19.8Mt (16.0Mt equity share) for the year (2015: 15.2Mt equity share).

Responding rapidly and strategically to increased market demand and global coal market price improvements in the second half of the year, Yancoal achieved a total production result well above its previously published operational guidance of 13.0Mt saleable coal (equity share).

Importantly, I am very pleased to advise we achieved such production gains without any significant injuries. The protection of our people remains paramount in all actions and at all times.

As we progress our operations, we also remain committed to managing all potential environmental impacts and returning our former mining areas to native woodland and pastoral areas for future use.

Further to the reporting period, on 24 January 2017 we announced Yancoal has entered into a binding agreement to acquire 100 percent of the shares in Coal & Allied Industries Limited from wholly-owned subsidiaries of Rio Tinto Limited for US$2.45 billion in completion and deferred cash payments, plus a coal price linked royalty.

This is a transformative and exciting acquisition for Yancoal shareholders and will form the basis for our future growth and success as Australia’s largest pure-play coal company.

The substantial cash flows from Coal & Allied’s assets, combined with the anticipated synergies and proposed equity raising will materially strengthen Yancoal’s balance sheet.

The transaction is expected to complete in the third quarter of 2017 and has the support of Yancoal’s majority shareholder, Yanzhou Coal Mining  Co Ltd and Yanzhou’s 56 percent shareholder, Yankuang Group Co Ltd.

With the financial commitment of our major shareholders, we remain resolute in our determination to see Yancoal Australia succeed.


Xiyong Li

Chairman of the Board