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Dear shareholders:

On behalf of the Board of Directors, I would like to present to the shareholders the annual report of the Group for the year ended 31 December 2021, and report to the shareholders on the performance and operation of the Group for the year under review.

In 2021, COVID-19 continued to ravage the world. Due to strict pandemic control measures, China's economy continued to recover. Under the effect of diminishing marginal return and the Chinese government's rigorous measures to prevent inflation, investment in real estate, infrastructure and other fields has gradually declined. Especially, a double-digit decline is recorded in new property construction area. However, the annual gross domestic product (“GDP”) growth rate still exceeded the estimation of International Monetary Fund (“IMF”), reaching 8.1%, successfully achieved all the goals.

In the downstream of the coking coal industry, the national "dual carbon" emission reduction target and energy consumption control policy suppressed the production of steel industry. The output of crude steel fell by 3% YoY for the first time in six years, and the output of pig iron also fell by 4.3%. However, on the supply side, due to the increasing intensity of safety and environmental inspections, the overall supply of domestic coal mines was tight, and the amount of imported coal fallen sharply due to the disturbance of the pandemic and geopolitical relations. Both thermal coal and coking coal prices hit record high during the year. Subsequently, the National Development and Reform Commission issued a price ceiling on thermal coal in October and put forward a number of measures to ensure stable supply. The price of thermal and coking coal fell sharply, but it still fluctuated at a historically high level. The annual average market price was 70-80% higher YoY.

The market has brought huge profits to the entire coal industry. All employees of the Group did not just sit back and enjoy. We kept exploring the potential in various departments such as mining, production, sales and cost control to further improve quality and efficiency. At the same time, we strived to seize the opportunities brought by the market. We worked together and achieved brilliant performance again. Profit of the Group this year hit historical record high again. The Group is pleased to report to shareholders that during the year under review, the Group achieved raw coking coal production of 5.17 million tonnes, representing an increase of 4% YoY; the sales volume of clean coking coal reached 3.3 million tonnes, an increase of 1% YoY. The average selling price (VAT included) of the Group's main clean coking coal product was 2,019 yuan/tonne, representing a significant increase of 66% YoY. For the year ended 31 December 2021, the Group achieved sales revenue of HK$7.08 billion, a significant increase of 77% YoY; the gross profit margin for the year reached 62%, an increase of 15 percentage points compared to 2020. The Group's net profit reached HK$3.06 billion, a significant increase of 158% YoY, in which the net profit attributable to shareholders was HK$2.54 billion, a significant increase of 135% YoY. The Group achieved substantial returns to shareholders. The financial position of the Group has become more stable, and our funds are abundant, which lays a solid foundation for the further development of the Group.

At the beginning of 2022, the world has been undergoing tremendous changes. The economic situation has become increasingly complex and volatile. Geopolitical conflict has once again pushed up global raw material price. Conflict between Russian and Ukraine has brought great uncertainty to global economy. COVID-19 is still ongoing around the globe and the monetary policy is tightening in the United States. The world economic recovery lacks momentum and the external macro-environment becomes more complex, severe and full of uncertainties. Even under such situation, China will still adhere to the development concept of "seeking progress while maintaining stability" and withstand the downward pressure on the economy. The annual GDP growth rate target is set at 5.5%, which means there will be some degree of policy relaxation. Therefore, we see that the real estate industry will soon bottom out under the keynote of "housing not for speculation," and a series of policy adjustments similar to the housing purchase policy for new urban residents will be gradually introduced and the real estates market will tend to remain stable; the State Council has stated that the issuance of 3.65 trillion yuan of local government special bonds will be completed by the end of September this year, to support the follow-up financing of projects under construction and to start a number of construction projects like qualified major projects, new infrastructure, renovating existing public facilities. At the same time, the government also mentioned that infrastructure investment should be carried out moderately ahead of schedule, including key water conservancy projects, comprehensive transportation network, urban gas pipelines and other pipeline networks. Infrastructure investment is expected to exceed expectations. The infrastructure investment of the first quarter of 2022 has already exceeded 8% growth YoY. It is expected that the growth will accelerate after the epidemic situation eased in China.

At the same time, in the field of energy conservation and environmental protection, the government emphasized the principle of “establish the new before abolishing the old”, this helps avoiding the market shock brought by uncontrolled carbon reduction. This implies that the domestic steel industry demand will remain strong this year and production will remain stable. In terms of coking coal supply, it is expected that imports of coking coal will still be constrained. In addition, coal prices in domestic and seaborne market will be inverted which will further restrain import. Although the domestic coal price has dropped significantly from the highest point in 2021, it is still at a historical high. Of course, multiple outbreaks of COVID-19 in China has caused some impacts to the economy and industry. The government departments have emphasized multiple times that they must maintain smooth logistics and therefore, there is still hope that domestic demand will still grow under the “Zero COVID” policy. Under the circumstance that domestic demand is expected to grow while supply is difficult to increase, we expect coking coal prices to remain at a relatively high level.

In 2022, the Group will, as always, strive to improve ourselves, further strengthen production safety, improve quality and efficiency, maintain rigorous management, follow market trend closely and react timely to seize historical opportunities brought by the market.

I would like to express my sincere gratitude to the management team and all employees for their contributions to the Group. Fortunately, the COVID-19 in 2021 did not cause significant impact to the Group's employees and the Group's business. I would also like to thank the shareholders of the Company for their support to the Group. The Board of Directors recommends the final dividend to be 32 Hong Kong cents per ordinary share to share the Group's operating results in the past year with our shareholders. We look forward to the new year to further create beautiful and fruitful returns for shareholders, society, and all employees!

Ding Rucai


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