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Dear Shareholders,

On behalf of the Board, I would like to present to the shareholders the annual report of the Group for the year ended 31 December 2019 and to report to all shareholders the performance of the Group for the year under review.

Global economic growth in 2019 was the slowest since the 2008 financial crisis, whilst populism and protectionism are gaining momentum across the world, trade frictions are escalating and the increasing geopolitical tension has further weakened the world economic growth. The Sino-US trade negotiations have been stalled for nearly two years and finally announced reaching a first-phase agreement in December 2019. The handshake established a "buffer zone" for both countries and prevented expansion of the trade war and further shockwave to the world economy. However, the signing of the first phase of the agreement is not a substantive solution to the root cause of the conflict between the two countries. The Sino-US gaming is expected to exist for a considerable period of time, bringing many disturbances and uncertain variables to global economic growth.

China economy has slowed down in 2019 and stabilised at the end of the year with an overall gross domestic product ("GDP") growth 6.1%. Among all the downstream industries of steel sector, although infrastructure investments growth was lower than expectation, the overall investment amount rebounded in 2019. On the other hand, real estate investment was better than expected. Despite targeted policies were implemented, real estate investment has shown resilience, and new construction areas growth have continued to grow but at a slow pace. Due to the increase of steel industry concentration, steel output of 2019 reached a new high again. The annual output of crude steel was nearly 1 billion tonnes, with a YOY increase of 8.3%; annual output of pig iron was more than 800 million tonnes, with a YOY increase of 5.3%. As coking coal demand grew, so did the supply. According to the statistics from, annual domestic supply of clean coking coal in 2019 was 470 million tonnes, with a YOY increase of 3.6%; annual import volume of coking coal was 74.65 million tonnes, with a YOY increase of 14.3%, which is equivalent to an overall YOY 5.0% increase in total coking coal supply. Supply and demand basically reached equilibrium in 2019. Coking coal prices showed a trend of high to low throughout the year with a significant decline in the second half of the year. In addition, due to the trade friction between China and the United States, the exchange rate of the RMB fluctuated, and the exchange rate of the RMB/HKD fell in 2019, which has negative impact on the Group's 2019 results.

As a result of our team's effort, under the current challenging market situation, the Group is pleased to report that for the year under review, the raw coking coal production volume of the Group was 4.41 million tonnes, with a YOY increase of 8%; the clean coking coal production was 2.75 million tonnes, the sales volume was 2.70 million tonnes, with a YOY increase of 30% and 29% respectively. The average selling price of clean coking coal (VAT included) was RMB1,396/tonne, with a YOY decrease of 4%. For the year ended 31 December 2019, the Group's revenue was HK$3.87 billion, with a YOY increase of 5%. The gross profit margin was 51% and the net profit attributable to the shareholders was HK$1.14 billion, maintaining a steady growth.

Jinjiazhuang Coal Mine was granted a production permit in August 2019 and resumed to normal production gradually. The Group has optimised the labor organisation to improve operation efficiency. By optimising the coal mining and blending, we have strived to increase the mining and processing recovery rate. Moreover, the underground conveyor belt centralised control and automation system has entered the pilot stage, which could further improve production efficiency in the future. Looking into 2020, the unexpected COVID-19 epidemic casts a shadow over the stabilised Chinese economy and global economy. World economic activities are severely suppressed, which will cause greater disturbance to the global supply chain, weaken the global economic growth and increase in downside risks. But we also see that the Chinese government's measures and efforts to combat the epidemic have been widely recognised by the world. At present, the epidemic in the Mainland China is basically under control. At the same time, the Chinese government has begun to gradually introduce various economic stimulus to the market which aim to reduce financial stress by proactive fiscal policy, measures including: cutting interest rate, fees and tax deferral and continuing to implement similar measures; impose financial transfer payments in those areas affected by the epidemic; increase fiscal expenditure by expanding the scale of local government debt issuance. However, the recent rapid spread of the epidemic overseas has exceeded anticipation and its impact on the economies of other countries is likely to further affect the Chinese economy due to the effect of board linkage. The short-term market outlook is full of challenges and uncertainties.

Since China is taking a more aggressive fiscal policy, we expect that the infrastructure investments will have a faster growth in 2020. Meanwhile, as different policies will be adopted in different cities, real estate market will remain at a steady and health position. Under the global trend of "decoupling", China will also vigorously promote domestic demand in medium and long term, especially in consumer products such as automobiles and home appliances which have been hit hard by the COVID-19 development recently. Therefore, we expect that China's steel and coking coal industry will rebound after a decline in the beginning of 2020 and remain relatively stable throughout the year. However, further development of the epidemic overseas in short-term could create unexpected impacts on the global economy and various industries.

Under the orderly work and production resumption policy implemented by the nation, the Group's Liulin three mines took the lead in passing the inspection and resumed to production in the mid of February 2020. The Group has imposed a series of epidemic prevention and control measures. In the meantime, we have adjusted the production schedule according to the new policies to ensure we can reach our production promotion target this year with Jinjiazhuang Coal Mine resumed in production. In this very time, the Group's stable financial position and strong cash flow will become an exceptional advantage to overcome current difficulties and explore potential business opportunities. In response to the epidemic development at home and abroad, the Group will timely adjust our operating strategy in order to lower cost and expand revenue stream. Last but not least, the Group will keep transforming to "Intelligence mines" and continue to maintain the highest standards in occupational safety, environmental protection and sustainability. I would like to express my sincere thanks to the management team and all the staff for their hard work and contributions. As a token of our appreciation for the continued support and kindness of our shareholders, the Board has proposed a final dividend of HK8.7 cents per ordinary share. Once more, I would like to express my heartfelt gratitude again to our shareholders, management team, employees and business partners for their support. Looking forward to overcoming difficulties together and a bright tomorrow!

Ding Rucai


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