23 12 11 yanzhou coal nomura

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

Yanzhou Coal 1171.HK 1171 HKMETALS & MINING

EQUITY RESEARCH

EPS dilutive from the GCL merger

Merry Christmas to GCLshareholders

December 23, 2011

RatingRemains

Buy

arget price

RemainsHKD 27.70

Closing price

December 23, 2011HKD 16.74

Potential upside +65.5%

Valuation: Not cheap and EPS dilutive for Yanzhou CoalYanzhou Coal announced the acquisition of GCL by a share swap. Theexisting GCL shareholders will also receive a special dividend and capitalreturn totalling AUD700mn (AUD3.2/share). Post the merger, Yanzhou

Coal and existing GCL shareholders will hold 77% and 23% of the NewYancoal Australia, respectively. The merger is supported by Noble Groupand is expected to conclude by May 2012. The share swap valuesYancoal Australias injected assets (four operating mines and 15.4% inNewcastle port) at AUD6.9bn (~12.7x 2011F P/E and 7x Jun-11 book) andGCL at AUD2.061bn (37x Jun-11 P/E and 2x Jun-11 P/B). The offer alsorepresents a 44% premium to the closing price of GCL on December 16.We believe the deal looks more favourable to GCLs shareholders than toYanzhou Coals. As well, in our December 20 note An expensive backdoorlisting in Australia, we also highlighted that the offer is more expensivethan peer transactions over 2007-09 in terms of the EV/t of JORCreserves 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 1Q12We recommend being opportunistic in the sector in the near term andawait a better entry point in 1Q12. Yanzhou (75% volume in spot) may beaffected by the weakening spot coal price momentum from December anda likely 10-15% correction in 1H12F, in our view. As well, Yanzhou isvulnerable to a likely weakening of AUD/USD, given ~30% of its earningsare attributable to Yancoal Australia. Our currency strategist expects theAUD to depreciate 7% by end-12 to 1.05 AUD/USD (from 0.98 in 2011F).

31 Dec FY10 FY11F FY12F FY13F

Currency (CNY) Actual Old New Old New Old New

Revenue (mn) 33,944 41,266 41,266 49,551 49,551 48,015 48,015

Reported net profit (mn) 9,281 8,329 8,329 10,541 10,541 9,257 9,257

Normalised net profit (mn) 7,188 8,329 8,329 10,541 10,541 9,257 9,257

Normalised EPS 1.46 1.69 1.69 2.14 2.14 1.88 1.88

Norm. EPS growth (%) 74.6 15.9 15.9 26.6 26.6 -12.2 -12.2

Norm. P/E (x) 12.7 N/A 10.3 N/A 7.7 N/A 8.8

EV/EBITDA (x) 8.4 6.3 6.7 4.7 5.0 4.9 5.2

Price/book (x) 2.4 N/A 2.0 N/A 1.6 N/A 1.4

Dividend yield (%) 1.4 N/A 3.0 N/A 4.1 N/A 3.6

ROE (%) 27.9 20.7 20.7 22.6 22.6 17.3 17.3

Net debt/equity (%) 43.5 45.5 45.5 31.5 31.5 16.2 16.2

Source: Company data, Nomura estimates

Anchor themes

Despite our expectation thatspot coal price will fall by 10-15% in 1H12, in the long term,

we are fundamentally bullish,driven by solid demand backedby GDP growth and coals pricecompetitiveness, tight supplygiven safety concerns, industryconsolidation, depletingresources in the east andtransportation bottlenecks.

Nomura vs consensus

Our TP is 11% belowconsensus, owing to our moreconservative estimate on unitcost.

Research analysts

China Metals & Mining

Ivan Lee, CFA - NIHK

[email protected]+852 2252 6213

Matthew Cross, CFA - NIHK

[email protected]+852 2252 2199

See Appendix A-1 for analystcertification, importantisclosures and the status of

non-US analysts.


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Nomura | Yanzhou Coal December 23, 2011

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Key data on Yanzhou CoalIncomestatement(CNYmn)Year-end 31 Dec FY09 FY10 FY11F FY12F FY13F

Revenue 20,677 33,944 41,266 49,551 48,015

Cost of goods sold -11,547 -18,887 -22,916 -26,598 -29,089

Gross profit 9,130 15,058 18,350 22,953 18,926

SG&A -3,820 -5,094 -6,190 -7,433 -5,762

Employee share expense

Operating profit 5,310 9,964 12,160 15,520 13,164

EBITDA 7,147 12,740 15,710 19,464 17,502

Depreciation -1,793 -2,427 -2,747 -3,141 -3,535

Amortisation -44 -350 -803 -803 -803

EBIT 5,310 9,964 12,160 15,520 13,164

Net interest expense -45 -603 -1,273 -1,353 -760

Associates & JCEs 110 9 9 9 9

Other income 311 302 302 302 302

Earnings before tax 5,685 9,671 11,197 14,478 12,715

Income tax -1,553 -2,458 -2,846 -3,909 -3,433

Net profit after tax 4,132 7,213 8,352 10,569 9,282

Minority interests -15 -25 -22 -28 -25

Other items

Preferred dividends

Normalised NPAT 4,117 7,188 8,329 10,541 9,257

Extraordinary items 2,093

Reported NPAT 4,117 9,281 8,329 10,541 9,257

Dividends -1,967 -1,230 -2,604 -3,296 -2,894

Transfer to reserves 2,149 8,052 5,725 7,245 6,363

Valuation and ratio analysis

FD normalised P/E (x) 22.9 12.7 10.3 7.7 8.8

FD normalised P/E at price target (x) 36.3 20.0 16.2 12.2 13.9

Reported P/E (x) 22.9 9.8 10.3 7.7 8.8

Dividend yield (%) 2.1 1.4 3.0 4.1 3.6

Price/cashflow (x) 14.5 16.9 8.6 6.7 5.5

Price/book (x) 3.2 2.4 2.0 1.6 1.4

EV/EBITDA (x) 14.9 8.4 6.7 5.0 5.2

EV/EBIT (x) 20.0 10.8 8.6 6.2 6.9

Gross margin (%) 44.2 44.4 44.5 46.3 39.4

EBITDA margin (%) 34.6 37.5 38.1 39.3 36.5EBIT margin (%) 25.7 29.4 29.5 31.3 27.4

Net margin (%) 19.9 27.3 20.2 21.3 19.3

Effective tax rate (%) 27.3 25.4 25.4 27.0 27.0

Dividend payout (%) 47.8 13.2 31.3 31.3 31.3

Capex to sales (%) 10.1 10.5 12.4 10.3 10.6

Capex to depreciation (x) 1.2 1.5 1.9 1.6 1.4

ROE (%) 14.7 27.9 20.7 22.6 17.3

ROA (pretax %) 13.9 16.6 17.1 19.7 16.2

Growth (%)

Revenue -17.0 64.2 21.6 20.1 -3.1

EBITDA -27.0 78.3 23.3 23.9 -10.1

EBIT -38.4 87.7 22.0 27.6 -15.2

Normalised EPS -36.6 74.6 15.9 26.6 -12.2

Normalised FDEPS -36.6 74.6 15.9 26.6 -12.2

Per share

Reported EPS (CNY) 83.71c 1.89 1.69 2.14 1.88

Norm EPS (CNY) 83.71c 1.46 1.69 2.14 1.88

Fully diluted norm EPS (CNY) 83.71c 1.46 1.69 2.14 1.88

Book value per share (CNY) 5.93 7.59 8.75 10.23 11.52

DPS (CNY) 0.40 0.25 0.53 0.67 0.59


Relative performance chart (one year)

Source: ThomsonReuters, Nomura research

(%) 1M 3M 12M

Absolute (HKD) -9.4 -28.6 29.8

Absolute (USD) -9.2 -28.7 29.4

Relative to index -11.2 -16.0 38.8

Market cap (USDmn) 13,724.1

Estimated free float (%) 40.0

52-week range (HKD) 32.95/16.44

3-mth avg daily turnover(USDmn)

58.93

Major shareholders (%)

Yankuang Group 52.9

Source: Thomson Reuters, Nomura research

Notes

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Cashflow(CNYmn)Year-end 31 Dec FY09 FY10 FY11F FY12F FY13F

EBITDA 7,147 12,740 15,710 19,464 17,502

Change in working capital -1,326 -5,325 -1,610 -2,356 1,064

Other operating cashflow 699 -2,016 -4,136 -4,960 -3,891

Cashflow from operations 6,520 5,399 9,964 12,148 14,674

Capital expenditure -2,086 -3,562 -5,103 -5,103 -5,103

Free cashflow 4,435 1,836 4,861 7,045 9,571

Reduction in investments 0 0 0 0 0

Net acquisitions -20,377 -3,251 -5,900 0 0

Reduction in other LT assets -1,417 -4,253 0 0 0

Addition in other LT liabilities 1,807 927 0 0 0

Adjustments -2,771 4,255 0 0 0

Cashflow after investing acts -18,322 -486 -1,039 7,045 9,571

Cash dividends -2,015 -1,231 -2,289 -3,298 -2,898

Equity issue

Debt issue 20,652 -129 4,900 -1,714 -1,752

Convertible debt issue

Others -231 94 0 0 0

Cashflow from financial acts 18,406 -1,266 2,611 -5,013 -4,650

Net cashflow 83 -1,752 1,572 2,032 4,921

Beginning cash 8,440 8,523 6,771 8,343 10,375

Ending cash 8,523 6,771 8,343 10,375 15,296

Ending net debt 13,987 16,245 19,573 15,826 9,153


Balancesheet(CNYmn)As at 31 Dec FY09 FY10 FY11F FY12F FY13F

Cash & equivalents 8,523 6,771 8,343 10,375 15,296

Marketable securities

Accounts receivable 4,724 10,017 12,178 14,623 14,170

Inventories 886 1,646 1,997 2,318 2,535

Other current assets 5,868 5,847 6,410 7,048 6,930

Total current assets 20,001 24,281 28,928 34,365 38,932

LT investments 940 1,075 6,984 6,993 7,002

Fixed assets 18,877 19,875 22,231 24,192 25,760

Goodwill 1,305 1,197 1,197 1,197 1,197

Other intangible assets 18,867 19,633 18,831 18,028 17,225

Other LT assets 2,442 6,695 6,695 6,695 6,695

Total assets 62,433 72,756 84,865 91,470 96,811

Short-term debt 1,598 615 752 875 960Accounts payable 1,367 1,554 1,886 2,189 2,394

Other current liabilities 7,445 7,964 9,099 9,844 10,348

Total current liabilities 10,410 10,134 11,737 12,908 13,702

Long-term debt 20,912 22,401 27,164 25,326 23,489

Convertible debt

Other LT liabilities 1,856 2,783 2,783 2,783 2,783

Total liabilities 33,178 35,317 41,683 41,017 39,974

Minority interest 102 107 125 150 171

Preferred stock 0 0 0 0 0

Common stock 4,918 4,918 4,918 4,918 4,918

Retained earnings 24,233 32,414 38,139 45,384 51,746

Proposed dividends

Other equity and reserves

Total shareholders' equity 29,152 37,332 43,057 50,302 56,665

Total equity & liabilities 62,433 72,756 84,865 91,470 96,811

Liquidity (x)

Current ratio 1.92 2.40 2.46 2.66 2.84

Interest cover 117.7 16.5 9.5 11.5 17.3

Leverage

Net debt/EBITDA (x) 1.96 1.28 1.25 0.81 0.52

Net debt/equity (%) 48.0 43.5 45.5 31.5 16.2

Activity (days)

Days receivable 68.0 79.3 98.2 99.0 109.4

Days inventory 27.0 24.5 29.0 29.7 30.5

Days payable 36.0 28.2 27.4 28.0 28.8

Cash cycle 58.9 75.5 99.8 100.6 111.1


Notes

Notes


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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 tothe 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 (6,000-

6,300kcal/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 end-

2012F to 1.05 AUD/USD (from 0.98 in 2011F).


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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)

Source: Company data, Nomura research

Fig. 2: Yancoal Australias shareholder structure

(after the merger)


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.

Yanzhou

Yancoal Australia

100%

Yanzhou Existing shareholders of GCL

New Yancoal Australia

77% 23%


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Synergy with GCL: Largely on spare port capacity and coalblending

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


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%.

Stake

Proved reserve

(mnt)

Probable reserve

(mnt)

Proved reserve attributed

to Yanzhou (mnt)

Probable reserve attributed to

Yanzhou (mnt)

Mine assets

Austar 100% 13 32 13 32

Ashton 90% 50 34 45 31

Moolarben 80% 83 232 66 186

Yarrabee 100% 38 19 38 19

Total mine asset 184 317 162 267

Port assets

Newcastle port 15.4% N/A N/A N/A N/A


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7

Gloucester Coal: Asset overviewGloucester 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-on-

board 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 extensionplans).

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 roughterms 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 seeDonaldson 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 whilethe

Donaldson transaction made strategic sense, GCL had overpaid for the assets by

c.A$150-200mn.


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8

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

Source: Nomura research

Majority EV/ EV/ EV/

Announce Deal Deal Coal Deal Value EV Production Reserves Resources

Date Acquirer Target Type Status Type (US$m) (US$m) (US$/t) (US$/t) (RMB/t)

22-Dec-2009 Macarthur Coal CITIC Coppabella Pty Ltd Asset Withdrawn PCI 96 96 # NA 11.0 72.3

22-Dec-2009 Macarthur CoalMiddlemount Asset

(Noble Group)Asset Completed PCI 191 191 # NA 13.2 87.4

22-Dec-2009 Macarthur Coal Gloucester Coal Corporate Withdrawn Thermal 586 528 # 308 11.7 77.0

04-Nov-2009 Aston Resources Maules Creek (Rio Tinto) Asset Completed Coking 437 437 # NA NA NA

13-Aug-2009 Yanzhou Coal Felix Resources Corporate Completed Thermal 2,811 2,571 # 540 6.7 44.0

16-May-2009 Noble Group Gloucester Coal Corporate Completed Thermal 432 432 # 254 11.4 75.1

20-Feb-2009 Gloucester Coal Whitehaven Coal Corporate Withdrawn Thermal / PCI 362 330 143 2.4 15.8

15-Aug-2008 China Shenhua Watermark Exploration License Asset Completed Thermal 259 259 # NA NA NA

05-Dec-2007 Xstrata PLC Resource Pacific Holdings Corporate Completed Coking 1,003 1,003 # 251 11.8 78.0

12-Oct-2007 Macarthur Coal Custom Mining (2 mines) Asset Completed PCI 248 248 # NA NA NA

26-Sep-2007 New Hope Corporation Ltd. Resource Pacific Holdings Corporate Withdrawn Coking 686 686 # 172 8.1 53.3

17-Sep-2007 Xstrata PLC Anvil Hill Asset Completed Thermal 354 354 # 47 2.2 14.8

17-Sep-2007 Xstrata PLC Austral Coal Corporate Completed Coking 467 544 # 320 6.3 41.3

21-Mar-2007 American Metals and Coal International Felix Resources Corporate Completed Thermal 151 841 # 221 3.1 20.6

26-Feb-2007 Cia. Vale do Rio Doce (Vale) AMCI Holdings Australia Corporate Completed Coking / Thermal 835 835 # NA 7.4 48.6

All Coal Transactions Mean 251 7.9 52.4

Median 251 7.7 51.0

Coking Coal Transactions Mean 247 10 63

Median 211 8 53

Thermal Coal Transactions Mean 252 6 41

Median 221 3 21


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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 DisclosuresMentioned companies

Issuer name Ticker Price Price date Stock rating Sector rating Disclosures

China Shenhua Energy 1088 HK HKD 34.60 23-Dec-2011 Buy Not rated 4,8,48,55,58

Yanzhou Coal 1171 HK HKD 16.74 23-Dec-2011 Buy Not rated 4,49,58

Noble Group NOBL SP SGD 1.19 23-Dec-2011 Buy Not rated

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.

49 Possible IB related compensation in the next 3 monthsNomura 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.

Disclosures required in the European Union

4 Market makerNomura 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.

8 Investment banking servicesNomura 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 tothe 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.

58 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.

Previous Rating

Issuer name Previous Rating Date of change

China Shenhua Energy Not Rated 27-Nov-2009

Yanzhou Coal Not Rated 18-Jan-2011

Noble Group Not Rated 12-May-2006


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Yanzhou Coal (1171 HK) HKD 16.74 (23-Dec-2011)Rating and target price chart (three year history)

Buy (Sector rating: Not rated)

Date Rating Target price Closing price

24-Aug-11 27.70 20.35

12-Apr-11 34.40 28.85

18-Jan-11 Buy 24.30

18-Jan-11 30.40 24.30

14-May-09 Not Rated 8.57

10-Feb-09 5.70 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 growthof 2.5% for the coal segment over 2011-2020F. The cashflows are discounted back to FY11F; and 2) a WACC of 9.2% and a1.0% 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 toresources tax, less-than-expected cost cutting at Felix and Zhaolou and inflation risk: and 4) FX risk.

Noble Group (NOBL SP) SGD 1.19 (23-Dec-2011)Rating and target price chart (three year history)



18-Nov-11 1.70 1.12

18-Jul-11 2.50 1.735

04-Apr-11 2.75 2.22

01-Mar-11 2.80 2.1904-Feb-11 2.76 2.29

09-Nov-10 2.52 2.13

26-Oct-10 2.36 1.90

13-Aug-10 2.10 1.56

05-Aug-10 2.26 1.67

17-May-10 2.46 1.83

24-Feb-10 3.90 2.012

12-Jan-10 3.96 2.181

18-Nov-09 3.30 1.799

23-Sep-09 2.70 1.488

11-Aug-09 2.32 1.281

12-May-09 1.71 0.977

06-May-09 1.73 1.022

12-Mar-09 1.31 0.647


Valuation Methodology We value Noble using a residual dividend model, with an 10% cost of equity, 2.5% terminal growthrate 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 beexecution of its targeted processing facilities to generate more trading volumes. For example, it is targeting ~3mn MT ofcrushing capacity in Argentina (which would imply roughly 8% of Argentinas crushing market) the key risk in our view herewould be tapping demand for these additional volumes of soy meal and soy oil. China currently satisfies most of its soy mealand soy oil requirements from soybeans crushed domestically, and thus exporting crushed soy meal from Argentina to Europeor China is prone to demand risks. Similarly, the sugar industry in Brazil is plagued with various regulations and the competitionis heating up with global giants such as Bunge entering the market. Sustaining volumes with good profitability will remain achallenge, 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. Onthe funding side, interest cost can always be a swing factor because of ~80% leverage.

China Shenhua Energy (1088 HK) HKD 34.60 (23-Dec-2011)Rating and target price chart (three year history)



12-Apr-11 44.40 36.60

18-Jan-11 41.00 33.05

28-May-10 44.60 31.25

27-Nov-09 Buy 36.75

27-Nov-09 47.00 36.7513-May-09 Not Rated 24.00

10-Feb-09 20.00 18.70


Valuation Methodology Our target price of HKD44.4 is based on SOTP valuation, with a WACC of 11.4% and terminal growthrate 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 priceincrease; 2) weaker coal demand due to weaker-than-expected economic growth in China and 3) higher-than-expected costhike due to resource tax and inflation. 4)worse than expected sales mix


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Important DisclosuresOnline availability of research and conflict-of-interest disclosuresNomura 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 requestedfrom Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please [email protected] for help.The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, aportion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report arenot registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not be subject toFINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities heldby a research analyst account.Industry Specialistsidentified in some Nomura International plc research reports are employees within the Firm who are responsible for thesales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute in any manner to the content ofresearch reports in which their names appear. Marketing Analystsidentified in some Nomura research reports are research analysts employedby Nomura International plc who are primarily responsible for marketing Nomuras Equity Research product in the sector for which they havecoverage. 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 thisrating 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 thisrating 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 thisrating 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 thisrating 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 withthis 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 withthis 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 AmericaThe 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 managementdiscretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriatevaluation methodology such as discounted cash flow or multiple analysis, etc.STOCKSA 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 thatthe analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, targetprice and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstancesincluding, 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);GlobalEmerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology.SECTORSA '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 thatthe 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 EmergingMarkets ex-Asia.Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from30 October 2008 and in Japan from 6 January 2009STOCKSStock 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 than15% 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 certaincircumstances 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 entityidentified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/orcompanies.SECTORSA 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positiveabsolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocksunder coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted averagerecommendation 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 2009STOCKSA rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next sixmonths. 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% overthe next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmarkby less than 5% over the next six months. A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform theBenchmark 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 tounderperform 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 additionalresearch reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or otherinformation contained herein.SECTORSA '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 thatthe 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: BloombergWorld Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.

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


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