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Chairman's Statement

On 8 June 2018, Yancoal Australia announced the appointment of Mr Baocai Zhang as Chairman, following the resignation of former Chair Mr Xiyong Li.

The following Chairman's statement is from Yancoal's 2017 Annual Report:

2017 has been a year of transformation for Yancoal Australia. Our strategic acquisition of Coal & Allied redefined our business as Australia’s largest pure-play coal producer and a major contributor to global coal markets.

 

TURNAROUND

The substantial cash flows generated from the acquired Coal & Allied assets, combined with the associated operational synergies and benefits of our equity raising, have immediately and materially strengthened Yancoal’s balance sheet.

It is with great pleasure we have announced Yancoal’s recovery to profit, achieving a total operating EBIT of $732 million before tax, up $693 million on the year prior, and a profit after tax of $229 million from revenue of $2.6 billion.

This significant turnaround is mostly attributable to the successful completion of the Coal & Allied transaction at a time of increasing pricing strength and sustainability across the metallurgical and thermal coal markets.

PRODUCTION INCREASE

The addition of attributable production from the newly acquired Mount Thorley Warkworth and Hunter Valley Operations mines generated an immediate and significant increase in production, allowing Yancoal to maximise sales and blending at a time of benchmark-high pricing for semi-soft and thermal coals with key buyers.

Yancoal achieved total saleable coal production of 31.5Mt (23.4Mt equity share) for the year (31 December 2016: 16.0Mt equity share) and total Run of Mine (“ROM”) coal production of 41.1Mt (30.6Mt equity share) for the year (31 December 2016: 21.2Mt equity share).

Such a strong production result includes only four months of attributable activity from the newly acquired tier-one assets and clearly demonstrates Yancoal is very well positioned to realise significant value for our shareholders in the years ahead.

Combining the world-class assets of Coal & Allied’s Mount Thorley Warkworth and Hunter Valley Operations with the Company’s existing portfolio, the acquisition enables the maximising of synergies between Yancoal assets and supports the Company’s vision for continued market growth.

THE ACQUISITION

Critically, we approached our competitive bid for Coal & Allied with a commitment to pricing-discipline, ensuring we negotiated a commercially robust offer in the best interests of all parties of US$2.45 billion cash payable on completion, plus US$240 million in future non-contingent royalty payments over five years following completion, and a coal price linked contingent royalty.

To support the funding of the acquisition, Yancoal also conducted a pro-rata renounceable entitlement offer of 23,464,929,520 fully paid ordinary shares to raise US$2.35 billion, and an associated placement of 1,500,000,000 fully paid ordinary shares to raise a further US$150 million.

The pro-rata entitlement offer attracted new investors, provided greater depth to our shareholder base, and efficiently generated the necessary funding to support the next stage of our business’ evolution.

At the same time, Yancoal also entered into a binding agreement to establish a 51:49 unincorporated joint venture with Glencore in relation to the Hunter Valley Operations asset, following completion of the acquisition.

The joint venture arrangement provides significant combined synergies and commercial opportunities for both Yancoal and Glencore, with shareholders set to benefit from the co-operative management experience and operational skills of two of Australia’s leading coal producers.

SHAREHOLDER SUPPORT

Throughout the transaction Yancoal operated swiftly and with certainty, supported by our majority shareholder, Yanzhou Coal Mining Company Ltd, and Yanzhou’s 56 percent shareholder, Yankuang Group Company Ltd.

Yanzhou shares Yancoal’s commitment to continuous improvement and a belief in operating to the highest standards of safety, integrity, excellence and with respect for our people and the countries in which we operate.

With their continued investment and that of our new second-largest shareholder Cinda International HGB Investment (UK) Limited, we have demonstrated Yancoal’s long term commitment to the local resources sector as a significant employer and exporter for Australia.

Investing within Australia requires flexibility, bravery, certainty and an ability to trust the management team working within the country.

The strategic acquisition of Coal & Allied is a credit to the management teams of Yancoal and our majority shareholders.

OPERATIONAL STRENGTH

Following the completion of the transaction on 1 September 2017, we have successfully and efficiently integrated the people, processes and systems of the newly acquired assets into the Yancoal Group. Sharing our values and core operating principles across operations to ensure we are culturally aligned and focused on achieving our production goals for the year ahead.

With this transaction Yancoal’s Board and executive have increased the capability and capacity required to generate new organic growth.

We have also maintained our strength in project management, completing the Stage Two Moolarben underground mine ahead of schedule and below budget, commencing longwall mining in October.

Our strategic decision to commit to the development of the Moolarben Stage Two Project in 2014 during the global coal market downturn, has appropriately prepared our business to respond swiftly and with surety to the recent price recovery.

We are now reaping the benefits of our early project investment and belief in the long-term return of the global market, understanding the risks and opportunities of the mining cycle.

MOVING FORWARD

While there is much work ahead for all of our teams, we retain a positive outlook towards the continued improvement within established and untapped developing global coal markets.

We also continue to focus on achieving our goal of operating without injury and achieving cost-efficiencies across the Group.

On behalf of the Board I would like to thank our people for their drive and dedication to safe production and instituting the highest operating standards.

Together, our people have fortified Yancoal against recent years of turbulent market forces and challenging operating conditions to overcome and establish our business as a true global market leader.

With the support of our majority shareholders and our joint venture and marketing partners, Yancoal Australia has the leadership, asset portfolio, experience, and long term strategy required to build a brighter future for all.

As we enter 2018, Yancoal is ready for the next exciting step in our continuing journey.

 

Xiyong Li

Chairman of the Board (resigned as of 8 June 2018)