Yanzhou Coal

METALS & MINING

1171.HK 1171 HK

EQUITY RESEARCH

EPS dilutive from the GCL merger

December 23, 2011 Rating Remains Target price Remains Closing price December 23, 2011 Potential upside

Merry Christmas to GCL shareholders

Valuation: Not cheap and EPS dilutive for Yanzhou Coal Yanzhou Coal announced the acquisition of GCL by a share swap. The existing GCL shareholders will also receive a special dividend and capital return totalling AUD700mn (AUD3.2/share). Post the merger, Yanzhou Coal and existing GCL shareholders will hold 77% and 23% of the New Yancoal Australia, respectively. The merger is supported by Noble Group and is expected to conclude by May 2012. The share swap values Yancoal Australias injected assets (four operating mines and 15.4% in Newcastle port) at AUD6.9bn (~12.7x 2011F P/E and 7x Jun-11 book) and GCL at AUD2.061bn (37x Jun-11 P/E and 2x Jun-11 P/B). The offer also represents a 44% premium to the closing price of GCL on December 16. We believe the deal looks more favourable to GCLs shareholders than to Yanzhou Coals. As well, in our December 20 note An expensive backdoor listing in Australia, we also highlighted that the offer is more expensive than peer transactions over 2007-09 in terms of the EV/t of JORC reserves and production. We estimate the deal would be 4% and 8.5% dilutive to Yanzhou's EPS in 2012F and 2013F, respectively. Action and catalyst: Look for an opportunistic entry point in 1Q12 We recommend being opportunistic in the sector in the near term and await a better entry point in 1Q12. Yanzhou (75% volume in spot) may be affected by the weakening spot coal price momentum from December and a likely 10-15% correction in 1H12F, in our view. As well, Yanzhou is vulnerable to a likely weakening of AUD/USD, given ~30% of its earnings are attributable to Yancoal Australia. Our currency strategist expects the AUD to depreciate 7% by end-12 to 1.05 AUD/USD (from 0.98 in 2011F).
31 Dec Currency (CNY) FY10 Actual Old FY11F New Old FY12F New Old FY13F New

Buy
HKD 27.70 HKD 16.74 +65.5%

Anchor themes Despite our expectation that spot coal price will fall by 1015% in 1H12, in the long term, we are fundamentally bullish, driven by solid demand backed by GDP growth and coals price competitiveness, tight supply given safety concerns, industry consolidation, depleting resources in the east and transportation bottlenecks. Nomura vs consensus Our TP is 11% below consensus, owing to our more conservative estimate on unit cost.
Research analysts China Metals & Mining Ivan Lee, CFA - NIHK ivan.lee@nomura.com +852 2252 6213 Matthew Cross, CFA - NIHK matthew.cross@nomura.com +852 2252 2199

Revenue (mn) Reported net profit (mn) Normalised net profit (mn) Normalised EPS Norm. EPS growth (%) Norm. P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%)

33,944 9,281 7,188 1.46 74.6 12.7 8.4 2.4 1.4 27.9 43.5

41,266 8,329 8,329 1.69 15.9 N/A 6.3 N/A N/A 20.7 45.5

41,266 8,329 8,329 1.69 15.9 10.3 6.7 2.0 3.0 20.7 45.5

49,551 10,541 10,541 2.14 26.6 N/A 4.7 N/A N/A 22.6 31.5

49,551 10,541 10,541 2.14 26.6 7.7 5.0 1.6 4.1 22.6 31.5

48,015 9,257 9,257 1.88 -12.2 N/A 4.9 N/A N/A 17.3 16.2

48,015 9,257 9,257 1.88 -12.2 8.8 5.2 1.4 3.6 17.3 16.2

Source: Company data, Nomura estimates

See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.

Key company data: See page 2 for company data and detailed price/index chart.

Nomura | Yanzhou Coal

December 23, 2011

Key data on Yanzhou Coal

Incomestatement(CNYmn)
Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %) Growth (%) Revenue EBITDA EBIT Normalised EPS Normalised FDEPS Per share Reported EPS (CNY) Norm EPS (CNY) Fully diluted norm EPS (CNY) Book value per share (CNY) DPS (CNY)
Source: Company data, Nomura estimates

Relative performance chart (one year)

FY09 20,677 -11,547 9,130 -3,820 5,310 7,147 -1,793 -44 5,310 -45 110 311 5,685 -1,553 4,132 -15 FY10 33,944 -18,887 15,058 -5,094 9,964 12,740 -2,427 -350 9,964 -603 9 302 9,671 -2,458 7,213 -25 FY11F 41,266 -22,916 18,350 -6,190 12,160 15,710 -2,747 -803 12,160 -1,273 9 302 11,197 -2,846 8,352 -22 FY12F 49,551 -26,598 22,953 -7,433 15,520 19,464 -3,141 -803 15,520 -1,353 9 302 14,478 -3,909 10,569 -28 FY13F 48,015 -29,089 18,926 -5,762 13,164 17,502 -3,535 -803 13,164 -760 9 302 12,715 -3,433 9,282 -25
(HKD) 35 30 25 20 15 10 A ug 11 S ep 11 M ay 11 F eb 11 J an 11 J un 11 N ov 11 O c t 11 A pr 11 J ul 11 D ec 11 M ar 11 80 120 Price Rel MSCI China 140

100

Source: ThomsonReuters, Nomura research

(%) Absolute (HKD) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (HKD) 3-mth avg daily turnover (USDmn) Major shareholders (%) Yankuang Group 1M 3M 12M

-9.4 -28.6 29.8 -9.2 -28.7 29.4 -11.2 -16.0 38.8 13,724.1 40.0 32.95/16.44 58.93

4,117 4,117 -1,967 2,149

7,188 2,093 9,281 -1,230 8,052

8,329 8,329 -2,604 5,725

10,541 10,541 -3,296 7,245

9,257 9,257 -2,894 6,363

52.9

Source: Thomson Reuters, Nomura research

Notes 22.9 36.3 22.9 2.1 14.5 3.2 14.9 20.0 44.2 34.6 25.7 19.9 27.3 47.8 10.1 1.2 14.7 13.9 12.7 20.0 9.8 1.4 16.9 2.4 8.4 10.8 44.4 37.5 29.4 27.3 25.4 13.2 10.5 1.5 27.9 16.6 10.3 16.2 10.3 3.0 8.6 2.0 6.7 8.6 44.5 38.1 29.5 20.2 25.4 31.3 12.4 1.9 20.7 17.1 7.7 12.2 7.7 4.1 6.7 1.6 5.0 6.2 46.3 39.3 31.3 21.3 27.0 31.3 10.3 1.6 22.6 19.7 8.8 13.9 8.8 3.6 5.5 1.4 5.2 6.9 39.4 36.5 27.4 19.3 27.0 31.3 10.6 1.4 17.3 16.2

-17.0 -27.0 -38.4 -36.6 -36.6

64.2 78.3 87.7 74.6 74.6

21.6 23.3 22.0 15.9 15.9

20.1 23.9 27.6 26.6 26.6

-3.1 -10.1 -15.2 -12.2 -12.2

83.71c 83.71c 83.71c 5.93 0.40

1.89 1.46 1.46 7.59 0.25

1.69 1.69 1.69 8.75 0.53

2.14 2.14 2.14 10.23 0.67

1.88 1.88 1.88 11.52 0.59

Nomura | Yanzhou Coal

December 23, 2011

Cashflow(CNYmn)
Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
Source: Company data, Nomura estimates

FY09 7,147 -1,326 699 6,520 -2,086 4,435 0 -20,377 -1,417 1,807 -2,771 -18,322 -2,015 20,652 -231 18,406 83 8,440 8,523 13,987 FY10 12,740 -5,325 -2,016 5,399 -3,562 1,836 0 -3,251 -4,253 927 4,255 -486 -1,231 -129 94 -1,266 -1,752 8,523 6,771 16,245 FY11F 15,710 -1,610 -4,136 9,964 -5,103 4,861 0 -5,900 0 0 0 -1,039 -2,289 4,900 0 2,611 1,572 6,771 8,343 19,573 FY12F 19,464 -2,356 -4,960 12,148 -5,103 7,045 0 0 0 0 0 7,045 -3,298 -1,714 0 -5,013 2,032 8,343 10,375 15,826 FY13F 17,502 1,064 -3,891 14,674 -5,103 9,571 0 0 0 0 0 9,571 -2,898 -1,752 0 -4,650 4,921 10,375 15,296 9,153 Notes

Balancesheet(CNYmn)
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
Source: Company data, Nomura estimates

FY09 8,523 4,724 886 5,868 20,001 940 18,877 1,305 18,867 2,442 62,433 1,598 1,367 7,445 10,410 20,912 1,856 33,178 102 0 4,918 24,233

FY10 6,771 10,017 1,646 5,847 24,281 1,075 19,875 1,197 19,633 6,695 72,756 615 1,554 7,964 10,134 22,401 2,783 35,317 107 0 4,918 32,414

FY11F 8,343 12,178 1,997 6,410 28,928 6,984 22,231 1,197 18,831 6,695 84,865 752 1,886 9,099 11,737 27,164 2,783 41,683 125 0 4,918 38,139

FY12F 10,375 14,623 2,318 7,048 34,365 6,993 24,192 1,197 18,028 6,695 91,470 875 2,189 9,844 12,908 25,326 2,783 41,017 150 0 4,918 45,384

FY13F 15,296 14,170 2,535 6,930 38,932 7,002 25,760 1,197 17,225 6,695 96,811 960 2,394 10,348 13,702 23,489 2,783 39,974 171 0 4,918 51,746

Notes

29,152 62,433

37,332 72,756

43,057 84,865

50,302 91,470

56,665 96,811

1.92 117.7

2.40 16.5

2.46 9.5

2.66 11.5

2.84 17.3

1.96 48.0

1.28 43.5

1.25 45.5

0.81 31.5

0.52 16.2

68.0 27.0 36.0 58.9

79.3 24.5 28.2 75.5

98.2 29.0 27.4 99.8

99.0 29.7 28.0 100.6

109.4 30.5 28.8 111.1

Nomura | Yanzhou Coal

December 23, 2011

Whats new?
Yanzhou Coal announced the scheme of Gloucesters (GCL) acquisition on December 23, 2011. According to the announcement, Yanzhou Coals 100% subsidiary, Yancoal Australia, will acquire the entire issued share capital of GCL by the form of share swap, in consideration for which GCL shareholders will have an option to elect to receive either all Yancoal Australia shares (one to one) or a combination of Yancoal Australia shares and CVR shares. Apart from the scheme, the existing GCL shareholders will receive a special dividend and capital return totalling AUD700mn (AUD3.2/share). Post the merger, GCL will become a wholly-owned subsidiary of New Yancoal Australia and Yanzhou Coal and the existing GCL shareholders will hold 77% and 23% of the share capital of New Yancoal Australia, respectively. Yanzhou Coal will subsequently place down its holding to (or below) 70% by issuing new shares or selling old shares to satisfy the requirement by the Foreign Investment Review Board of Australia. We believe issuing new shares is likely as Yancoal Australia has to pay majority of the AUD700mn dividend to GCL shareholders within six months. Yancoal Australia has already obtained the support of Noble Group, which owns 64.5% of GCL. The merger is conditional upon the approvals of GCL and Yanzhou Coal shareholders, the Federal court of Australia, the SEHK and various regulatory agencies. The merger is expected to complete by May 2012. Upon completion, New Yancoal Australia will be listed on the ASX with a market cap of ~AUD8.9bn, which will fulfill the undertaking to the Foreign Investment Review Board of Australia to list at least 30% of Yancoal Australia on the ASX by 2012 when it acquired Felix Resources Limited in 2009.

Valuation is not cheap, and EPS-dilutive for Yanzhou Coal

The share swap values Yancoal Australias injected assets (four operating mines and 15.4% in Newcastle port) at AUD6.9bn (~12.7x 2011F P/E and 7x Jun-11 book) and GCL at AUD2.061bn (37x Jun-11 P/E and 2x Jun-11 P/B). The offer to GCL also represents a 44% premium to the closing price of GCL as on December 16. We believe the deal looks more favorable to GCL than Yanzhou Coal in terms of valuation. As well, in our 20 December note, An expensive backdoor listing in Australia, we also highlighted that the US$2bn consideration and GCLs A$99mn debt represent an EV of US$7.63/t of JORC reserve, which is more expensive than peer transactions (US$3-6/tonne from our global selected M&A during 2007-09), and more expensive than Yanzhous recent acquisition of Premier and Syntech (US$2.1/t and US$1.1/t of JORC reserve). The transaction would be US$350/t of raw production based on GCL managements 6mtpa near-term target, more expensive than similar M&As worth US$220-250/t from our global selected M&As from 2007 to 2009 and US$83.6/US$237 for Premier and Syntech separately. Its worth highlighting that the comparison with Syntech is more relevant as Syntech (6,300kcal/kg) is having similar coal heat content with GCL (6,0006,300kcal/kg), while Premier is lower (4,200kcal/kg). Our preliminary estimates, assuming Yanzhou Coal eventually owns 70% of the New Yancoal Australia and the deal to be concluded by end June 2012, show that the asset swap would be 4% and 8.5% dilutive to Yanzhou's EPS in 2012 and 13, respectively. This is not reflected in our earnings forecasts. Our forecast and rating are under review, pending for more information.

Look for an opportunistic entry point in 1Q12

We recommend being opportunistic in the sector in the short term and await a better entry point in 1Q12F. We prefer Shenhua to Yanzhou and China Coal. Yanzhou (75% volume in spot) may be affected by the weakening spot coal price momentum from December and a likely 10%-15% correction in 1H12F, in our view. As well, Yanzhou is vulnerable to a likely weakening of AUD/USD, given ~30% of its earnings are attributable to Yancoal Australia. Our currency strategist expects the AUD to depreciate 7% by end2012F to 1.05 AUD/USD (from 0.98 in 2011F).

Nomura | Yanzhou Coal

December 23, 2011

Details of the transaction

Consideration of the acquisition
Yancoal Australia, a fully-owned subsidiary of Yanzhou Coal will use its 23% stake to exchange with the 100% stake of GCL (with 202.9mn outstanding shares) and replace GCL to be listed in Australia. On completion of the acquisition, Yanzhou Coal and the existing shareholders will hold 77% and 23% stakes in New Yancoal Australia, respectively.
Fig. 1: Yancoal Australias shareholder structure
(before the merger)

Fig. 2: Yancoal Australias shareholder structure

(after the merger)

Yanzhou 100%

Yanzhou 77%

Existing shareholders of GCL 23%

Yancoal Australia
Source: Company data, Nomura research

New Yancoal Australia

Source: Company data, Nomura research

Yanzhou has offered two options under the share swap: A share swap between GCL and New Yancoal Australia with an exchange ratio of 1:1. This scheme has been accepted by the largest shareholder of GCL, Noble Group, accounting for 64.5% of GCLs total stake (or 130mn shares in GCL); A share swap between GCL and New Yancoal Australia with an exchange ratio of 1:1 and one CVR share. The CVR shares will be redeemable preference shares conferring rights to cash if the share price of New Yancoal Australia is less than AUD6.96/share, based on three-month VWAP, 18 months after the implementation date, subject to a cap of AUD3.00/share. If the share price exceeds AUD6.96/share for 20 days in 25 consecutive trading days during the 18-month period after the implementation date, the CVR will lose efficacy automatically. Dividend to the existing shareholders of GCL: The shareholders of GCL before the merger will be entitled AUD3.2/share dividend (totalling AUD700mn, with AUD0.56/share special dividend and AUD2.64/share capital return to be paid six months after the merger), which will be paid by the New Yancoal Australia. A breaking fee of AUD20mn will be paid to Yancoal Australia if the deal did not go through, subject to the limitations set out in the merger proposal deed.

Asset included in the acquisition

Not all Yancoal Australias assets are included in the acquisition. The assets involved in this transaction include the four operating mines Austar, Ashton, Moolarben and Yarrabee and the 15.4% stake of Newcastle Coal Infrastructure Group (Newcastle port). The two recently acquired mines (Premier and Sytech), the Greenfield project of Felix (Harrybrandt, Athena and Wilpeena projects) and the stakes of two other companies (Yanzhou Technology Development Pty and UCC Energy Pty) are excluded. Yanzhou Coal will develop those excluded assets and the New Yancoal Australia will own the first refusal right to acquire them at a proper time. The New Yancoal Australia will have 3.4bn tones of resources (1.8bnt from GCL and 1.6bnt from Yancoal Australia), 704mt of reserves (276mnt from GCL and 423mnt from Yancoal Australia) and plans to grow the saleable production to ~25mt pa by 2016 (all equity basis and JORC standard). After the merger, New Yancoal Australia will also have a strong overall infrastructure position (including a 27% interest in Newcastle Coal Infrastructure Group and a 5.6% ownership interest in Stage One of the Wiggins Island Coal Export Terminal) to support future growth.

Nomura | Yanzhou Coal

December 23, 2011

Synergy with GCL: Largely on spare port capacity and coal blending
Yanzhou Coal said the merger will potentially generate significant optionality and synergies including through: (a) the potential acceleration of the development of Yancoal Australia's Moolarben mine by utilising Gloucester's spare port capacity, (b) increased blending opportunities, to optimise the suite of products for customers; and (c) savings in procurement, logistics and overhead. Our view is that strategically it makes sense to combine these assets into one vehicle. While the assets are in different locations in NSW, they export from the same port facilities (PWCS and NCIG). Coal qualities are also different which may allow for blending benefits. Donaldson will have 8.7mtpa of port capacity by 2015 once the NCIG expansions are completed vs. the current production of 1.9mtpa. If the Abel and Tasman underground expansions proceed as planned, spare port capacity will be close to 4mpta. Longer-term expansion plans would see this capacity used by the Monash project. The Felix assets have better growth prospects, particularly the Moolarben project which has significant ability to be ramped up if infrastructure capacity is available. We believe Donaldsons spare port capacity is of more value to Yancoal than to GCL.

Fig. 3: Injected assets of Yancoal Australia

Stake Mine assets Austar Ashton Moolarben Yarrabee Total mine asset Port assets Newcastle port 100% 90% 80% 100% Proved reserve Probable reserve (mnt) (mnt) 13 50 83 38 184 32 34 232 19 317 Proved reserve attributed Probable reserve attributed to to Yanzhou (mnt) Yanzhou (mnt) 13 45 66 38 162 32 31 186 19 267

15.4%

N/A

N/A

N/A

N/A

Source: Company data, Nomura research

Key takeaways from the conference call

The USD3bn loan (with the interest rate ranging from Libor+0.75% to Libor+0.8%) granted by Chinese banks, raised for the acquisition for Felix, will be injected into New Yancoal Australia as well. As the loan will expire in end-2014 (source: 1H11 interim results), Yanzhou will extend the loan by five years to relieve the cash flow pressure of the new company. Yanzhou expects a similar refinancing rate upon maturity. Along with GCLs 11.6% stake in Newcastle port, the New Yancoal Australia will enjoy the total stake of 27% in the port (15.4% from Yancoal Australia and 11.6% from GCL) on completion of the acquisition. The acquisition will have a synergy in port capacity given the tight capacity of Yancoal Australia on the expansion of Moolarben mines and the relatively sufficient capacity of GCL. According to management, the combination will increase the synergy as most of Yancoal Australias and GCLs assets are located in the same region. They can share resources of railway and port capacity. With the ramp up of Moolarben, Yancoal Australias coking coal exposure will decrease to 41% and 34% in 2012F and 2013F, respectively. The acquisition will also help optimise the New Yancoal Australias product mix owing to GCLs high coking coal proportion of 45%.

Nomura | Yanzhou Coal

December 23, 2011

Gloucester Coal: Asset overview

Gloucester Coal is a coal mining company in Australia with two mining operations, Stratford and Duralie, located in the New South Wales Gloucester Coal basin 100km north of Newcastle. In the past 18 months GCL has purchased interests in the Abel, Tasman and Middlemount coal mines from its major shareholder Noble Group. The company also holds coal exploration licences which cover a large proportion of the Gloucester basin and include a number of known coal deposits. GCL is focused on the production of both coking and thermal coal products. GCL coal is high in sulphur and these products are produced through the efficient blending of coal from its Stratford, Duralie and satellite operations. The complex geology necessitates multiple small scale pits which makes GCLs operations are relatively high cost.

GCLs transactions with Noble Group

In the last 18 months, GCL has purchased and completed two transactions with Noble Group, GCLs largest shareholder. Middlemount Coal joint venture In September 2010, GCL acquired a 30% interest in the Middlemount Coal joint venture and an option to purchase a further 20% of Middlemount from Macarthur Coal for A$100mn from Noble Group for A$269.5mn. In December 2010 GCL exercised this option at a cost of A$97.6mn and now owns a 50% interest in the project with Macarthur. GCL raised A$441mn of equity in 2H10, and all proceeds from the raising have been used to acquire the Middlemount project. Middlemount requires a further A$240mn of capex to achieve production, GCLs share of which is A$120mn and requires funding. GCL intends to fund this capex call with debt and operating cash flows. In addition, GCL agreed to acquire from Noble the right to receive a revenue royalty of 4% of free-onboard sales from 100% of the sales from the Middlemount JV for A$168mn. Donaldson Coal: Consensus view at the time was that GCL overpaid for these assets In May 2011, GCL acquired an unlisted business Donaldson from its major shareholder Noble Group. The GCL-Donaldson transaction sees the familiar GCL assets combined with the less familiar Donaldson/Noble-operated Donaldson open pit coal mine (to be closed 2012) and Abel and Tasman underground mines (subject to 20-year life extension plans). The Independent Expert (IE) used in this transaction assessed the value of Donaldson at $580-610mn and this valuation was used to price the transaction. The IEs valuation of Donaldson is based on managements production and cost assumptions, which in rough terms see Donaldson almost triple production and halve operating cost by 2014. Achieving this operating outcome will require a successful transition from current bord and pillar mining method to a combination of short and longwall mining. Donaldsons existing operations are small scale, very high cost (~A$121/t) and predominantly thermal coal. At current thermal coal prices, it is unlikely there will be earnings or valuation support for existing assets in their current configuration. The entire valuation case rests on underground expansion, which in rough terms will see Donaldson almost triple production and halve operating cost by 2014. While the expansion appears achievable, it is far from certain. The modelled outcome remains subject to significant planning, feasibility, funding and operating risks. We do not currently cover GCL, but consensus view at the time was that while the Donaldson transaction made strategic sense, GCL had overpaid for the assets by c.A$150-200mn.

Nomura | Yanzhou Coal

December 23, 2011

Fig. 4: Global select mergers and acquisitions of coal mines

Announce Date Acquirer Target CITIC Coppabella Pty Ltd Middlemount Asset (Noble Group) Gloucester Coal Maules Creek (Rio Tinto) Felix Resources Gloucester Coal Whitehaven Coal Watermark Exploration License Resource Pacific Holdings Custom Mining (2 mines) Resource Pacific Holdings Anvil Hill Austral Coal Felix Resources AMCI Holdings Australia Deal Type Asset Asset Corporate Asset Corporate Corporate Corporate Asset Corporate Asset Corporate Asset Corporate Corporate Corporate Deal Status Withdrawn Completed Withdrawn Completed Completed Completed Withdrawn Completed Completed Completed Withdrawn Completed Completed Completed Completed Majority Coal Type PCI PCI Thermal Coking Thermal Thermal Thermal / PCI Thermal Coking PCI Coking Thermal Coking Thermal Coking / Thermal Deal Value (US$m) 96 191 586 437 2,811 432 362 259 1,003 248 686 354 467 151 835 EV (US$m) 96 191 528 437 2,571 432 330 259 1,003 248 686 354 544 841 835
Mean Median Coking Coal Transactions Mean Median Mean Median

EV/ Production (US$/t) # # # # # # NA NA 308 NA 540 254 143 # # # # # # # # NA 251 NA 172 47 320 221 NA
251 251 247 211 252 221

EV/ Reserves (US$/t) 11.0 13.2 11.7 NA 6.7 11.4 2.4 NA 11.8 NA 8.1 2.2 6.3 3.1 7.4
7.9 7.7 10 8 6 3

EV/ Resources (RMB/t) 72.3 87.4 77.0 NA 44.0 75.1 15.8 NA 78.0 NA 53.3 14.8 41.3 20.6 48.6
52.4 51.0 63 53 41 21

22-Dec-2009 Macarthur Coal 22-Dec-2009 Macarthur Coal 22-Dec-2009 Macarthur Coal 04-Nov-2009 Aston Resources 13-Aug-2009 Yanzhou Coal 16-May-2009 Noble Group 20-Feb-2009 Gloucester Coal 15-Aug-2008 China Shenhua 05-Dec-2007 Xstrata PLC 12-Oct-2007 Macarthur Coal 26-Sep-2007 New Hope Corporation Ltd. 17-Sep-2007 Xstrata PLC 17-Sep-2007 Xstrata PLC 21-Mar-2007 American Metals and Coal International 26-Feb-2007 Cia. Vale do Rio Doce (Vale)

All Coal Transactions

Thermal Coal Transactions

Source: Nomura research

Nomura | Yanzhou Coal

December 23, 2011

Appendix A-1
Analyst Certification
We, Ivan Lee and Matthew Cross, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures

Mentioned companies
Issuer name China Shenhua Energy Yanzhou Coal Noble Group Ticker 1088 HK 1171 HK NOBL SP Price HKD 34.60 HKD 16.74 SGD 1.19 Price date 23-Dec-2011 23-Dec-2011 23-Dec-2011 Stock rating Buy Buy Buy Sector rating Not rated Not rated Not rated Disclosures 4,8,48,55,58 4,49,58

Disclosures required in the U.S.

48 IB related compensation in the past 12 months Nomura Securities International, Inc and/or its affiliates has received compensation for investment banking services from the company in the past 12 months. Possible IB related compensation in the next 3 months Nomura Securities International, Inc. and/or its affiliates expects to receive or intends to seek compensation for investment banking services from the company in the next three months.

49

Disclosures required in the European Union

4 Market maker Nomura International plc or an affiliate in the global Nomura group is a market maker or liquidity provider in the securities / related derivatives of the issuer. Investment banking services Nomura International plc or an affiliate in the global Nomura group is party to an agreement with the issuer relating to the provision of investment banking services which has been in effect over the past 12 months or has given rise during the same period to a payment or to the promise of payment.

Disclosures required in Hong Kong

55 Nomura financial interest/business relationships disclosures: Nomura International (Hong Kong) Limited has received compensation or mandate for investment banking services within the preceding 12 months from the issuer. Nomura financial interest/business relationships disclosures: Nomura International (Hong Kong) Limited or an affiliate in the global Nomura group is a market maker or liquidity provider in the securities / related derivatives of the issuer.

58

Previous Rating
Issuer name China Shenhua Energy Yanzhou Coal Noble Group Previous Rating Not Rated Not Rated Not Rated Date of change 27-Nov-2009 18-Jan-2011 12-May-2006

Nomura | Yanzhou Coal

December 23, 2011

Yanzhou Coal (1171 HK)

Rating and target price chart (three year history)

HKD 16.74 (23-Dec-2011) Buy (Sector rating: Not rated)

Date Rating Target price 24-Aug-11 27.70 12-Apr-11 34.40 18-Jan-11 Buy 18-Jan-11 30.40 14-May-09 Not Rated 10-Feb-09 5.70 Closing price 20.35 28.85 24.30 24.30 8.57 5.86

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology Our SOTP DCF-derived target price of HKD27.70 assumes: 1) a WACC of 10.9% and terminal growth of 2.5% for the coal segment over 2011-2020F. The cashflows are discounted back to FY11F; and 2) a WACC of 9.2% and a 1.0% terminal growth rate for non-coal segments. Risks that may impede the achievement of the target price Key risks include: 1) lower-than-expected spot price increase, 2) weaker coal demand due to weaker-than-expected China economic growth, and 3) higher-than-expected cost hike due to resources tax, less-than-expected cost cutting at Felix and Zhaolou and inflation risk: and 4) FX risk.
Noble Group (NOBL SP)
Rating and target price chart (three year history) Date 18-Nov-11 18-Jul-11 04-Apr-11 01-Mar-11 04-Feb-11 09-Nov-10 26-Oct-10 13-Aug-10 05-Aug-10 17-May-10 24-Feb-10 12-Jan-10 18-Nov-09 23-Sep-09 11-Aug-09 12-May-09 06-May-09 12-Mar-09 Rating Target price 1.70 2.50 2.75 2.80 2.76 2.52 2.36 2.10 2.26 2.46 3.90 3.96 3.30 2.70 2.32 1.71 1.73 1.31 Closing price 1.12 1.735 2.22 2.19 2.29 2.13 1.90 1.56 1.67 1.83 2.012 2.181 1.799 1.488 1.281 0.977 1.022 0.647

SGD 1.19 (23-Dec-2011) Buy (Sector rating: Not rated)

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology We value Noble using a residual dividend model, with an 10% cost of equity, 2.5% terminal growth rate and long-term ROE of 12.5% to arrive at our target price of SGD1.70. The residual dividends are discounted back to FY12. Risks that may impede the achievement of the target price The key company-specific downside risk in our view would be execution of its targeted processing facilities to generate more trading volumes. For example, it is targeting ~3mn MT of crushing capacity in Argentina (which would imply roughly 8% of Argentinas crushing market) the key risk in our view here would be tapping demand for these additional volumes of soy meal and soy oil. China currently satisfies most of its soy meal and soy oil requirements from soybeans crushed domestically, and thus exporting crushed soy meal from Argentina to Europe or China is prone to demand risks. Similarly, the sugar industry in Brazil is plagued with various regulations and the competition is heating up with global giants such as Bunge entering the market. Sustaining volumes with good profitability will remain a challenge, in our view. Noble is the most leveraged name to commodity cycle. If commodity prices correct, the companys

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earnings potential would be negatively impacted. Moreover, working capital may be a concern with rising commodity prices. On the funding side, interest cost can always be a swing factor because of ~80% leverage.
China Shenhua Energy (1088 HK)
Rating and target price chart (three year history) Date Rating Target price 12-Apr-11 44.40 18-Jan-11 41.00 28-May-10 44.60 27-Nov-09 Buy 27-Nov-09 47.00 13-May-09 Not Rated 10-Feb-09 20.00 Closing price 36.60 33.05 31.25 36.75 36.75 24.00 18.70

HKD 34.60 (23-Dec-2011) Buy (Sector rating: Not rated)

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology Our target price of HKD44.4 is based on SOTP valuation, with a WACC of 11.4% and terminal growth rate of 2.5% for coal segment DCF valuation and employing 10.0% WACC and 1% terminal growth rate for non-coal segments. Risks that may impede the achievement of the target price Downside risk includes: 1) lower-than-expected spot price increase; 2) weaker coal demand due to weaker-than-expected economic growth in China and 3) higher-than-expected cost hike due to resource tax and inflation. 4)worse than expected sales mix

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Important Disclosures
Online availability of research and conflict-of-interest disclosures
Nomura research is available on www.nomuranow.com, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne. Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx/ or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email grpsupporteu@nomura.com for help. The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Industry Specialists identified in some Nomura International plc research reports are employees within the Firm who are responsible for the sales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute in any manner to the content of research reports in which their names appear. Marketing Analysts identified in some Nomura research reports are research analysts employed by Nomura International plc who are primarily responsible for marketing Nomuras Equity Research product in the sector for which they have coverage. Marketing Analysts may also contribute to research reports in which their names appear and publish research on their sector.

Distribution of ratings (US)

The distribution of all ratings published by Nomura US Equity Research is as follows: 39% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 8% of companies with this rating are investment banking clients of the Nomura Group*. 54% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 3% of companies with this rating are investment banking clients of the Nomura Group*. 7% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 0% of companies with this rating are investment banking clients of the Nomura Group*. As at 30 September 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report.

Distribution of ratings (Global)

The distribution of all ratings published by Nomura Global Equity Research is as follows: 49% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 41% of companies with this rating are investment banking clients of the Nomura Group*. 41% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 50% of companies with this rating are investment banking clients of the Nomura Group*. 10% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 20% of companies with this rating are investment banking clients of the Nomura Group*. As at 30 September 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report.

Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including, but not limited to, when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://go.nomuranow.com/research/globalresearchportal);Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.

Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009
STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company.

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Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.

Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009
STOCKS A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.

Target Price
A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.

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