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On January 29, 2021, Inner Mongolia Yitai Coal Co., Ltd. held the sixth meeting of its eighth board of directors, during which the proposal regarding the suspension of the development of the 2 million tons per year coal-to-oil demonstration project at Yitai Ganquanbao by Yitai Xinjiang Energy Co., Ltd. was reviewed and approved. Based on a careful assessment of the macroeconomic and industry conditions, as well as taking into account the actual circumstances of the project, Inner Mongolia Yitai Coal Co., Ltd. will cease advancing the 2 million tons per year coal-to-oil demonstration project at Yitai Ganquanbao, Yitai Xinjiang Energy Co., Ltd. Image: Xinjiang Energy is a limited liability company established on February 16, 2012, in the Xinjiang Uyghur Autonomous Region by Inner Mongolia Yitai Coal Co., Ltd. and Inner Mongolia Yitai Group Co., Ltd. (hereinafter referred to as “Yitai Group”), with a registered capital of 1.36 billion yuan. Inner Mongolia Yitai Coal Co., Ltd. holds 90.2% of the shares in Xinjiang Energy, while Yitai Group holds 9.8% of those shares. The 2 million-ton Ganquanbao project, built with energy from Xinjiang as the main source, is located in the Ganquanbao Economic and Technological Development Zone in Urumqi, Xinjiang Autonomous Region. This project has been registered with the Development and Reform Commission of the Xinjiang Uyghur Autonomous Region. The total investment for project planning is 32 billion yuan, with an estimated construction period of 4 years. The project funds will come from 30% own capital and 70% bank loans. To date, investments totaling 6.456 billion yuan have been made in preliminary supporting works and the procurement of long-lead-time equipment. The project received approval in January 2016 from the Ministry of Water Resources in the form of the \"Approval on the Soil and Water Conservation Plan for Yitai Ganquanbao 2000,000 tons/year coal-to-oil demonstration project by Yitai Xinjiang Energy Co., Ltd.\" (Document No. Shuibao Han [2016] 12) ； In July 2016, it received the **NDRC’s Review Comments on the Energy Efficiency Assessment Report for Yitai Gansuuanbao 2000,000 tons/year Coal-to-Oil Pilot Project by Yitai Xinjiang Energy Co., Ltd.** (NDRC Office of Environmental Resources [2016] No. 1697) ； In October 2018, it received a letter from the Environmental Protection Department of Xinjiang Uygur Autonomous Region titled \"Opinions on the Total Emission Control Targets for Key Pollutants in the Coal-to-Oil Project of Yitai Xinjiang Energy Co., Ltd.\" (Document No. Xinhuanhan [2018] 1591) ； In September 2019, the reply regarding the resolution of water usage requirements for the Yitai Ganquanbao 2 million tons per year coal-to-oil demonstration project was obtained (Mi Shui Fa [2019] No. 137) ； In March 2020, it received the \"Administrative Approval Decision on the Granting of Water Withdrawal Permission for the 2 million tons per year coal-to-oil demonstration project of Yitai Xinjiang Energy Co., Ltd. in Ganquanbao\", issued by the Yellow River Water Resources Commission under the Ministry of Water Resources (Huang Xu Ke Jue [2020] No. 11) ； The project has obtained the land use permit for 6,896 mu of land designated for it, the planning approval for the land used for construction, as well as the approval procedures required for the construction of some supporting facilities. Reportedly, the company has planned two coal-to-oil projects under construction in Xinjiang: the 1-million-ton-per-year coal-to-oil demonstration project by Yitai Yili Energy Co., Ltd. (hereinafter referred to as “Yili Energy”), and the 2-million-ton project by Xinjiang Energy in Ganquanbao. A coal-to-oil project is under planning in Inner Mongolia, namely the 2 million tons per year demonstration project for coal indirect liquefaction by Inner Mongolia Yitai Coal-to-Oil Co., Ltd. (hereinafter referred to as “Yitai Coal-to-Oil”). Taking into account the macroeconomic and industry trends, and with the aim of protecting the interests of all shareholders, the company will focus its efforts on developing the Yili Energy 1 million tons per year coal-to-oil demonstration project and the Yitai Coal-to-Oil 2 million tons per year coal indirect liquefaction demonstration project, while suspending the development of the Xinjiang Energy Ganquanbao 2 million tons project. The specific reasons for stopping the progress are as follows: 1. Economic environmental impacts – In recent years, international crude oil prices have remained low, which has had a significant negative impact on the company’s coal-to-oil project. In the first half of 2020, international crude oil futures prices plummeted to negative levels. Although prices rose in the second half of 2020, there remained significant uncertainty on the supply side of global crude oil, and the current tight balance between supply and demand could easily be disrupted. Given the company’s expectations and assessments regarding crude oil demand and prices, it carries significant economic risks in building three large-scale coal-to-oil projects simultaneously. 2. Impact of the COVID-19 pandemic: The COVID-19 pandemic has led to transportation disruptions and business closures or underutilization of production capacity. As a result, fuel consumption and crude oil demand have declined, dealing a severe blow to the global economy. At the same time, due to the impact of the COVID-19 pandemic, the company’s coal production was insufficient in 2020 and product sales were restricted; as a result, the output, sales volume, and selling prices of the company’s coal and coal chemical products all decreased to varying degrees compared with the same period last year. This led to a decline in the profitability of the coal business segment and an increase in losses in the coal chemical business segment, affecting the company’s overall profit level. The 1 million tons per year coal-to-oil demonstration project in Yili Energy, as well as the 2 million tons per year project in Ganquanbao of Xinjiang Energy, have seen their construction delayed due to the impact of the pandemic; the capitalization of interest and expenses has also been suspended, which has had a certain impact on the company’s profit levels. 3. Policy barriers: The 1 million tons per year coal-to-oil demonstration project, built primarily by Yili Energy, has now obtained all necessary approvals, including environmental impact assessments, water conservation evaluations, land use approvals, and project authorization. On January 6, 2021, the Energy Bureau issued a document titled \"Approval for the Coal Mine Project of Yitai Yili Mining Company in the Resource Integration Area of the Yining Mining Region in Xinjiang,\" approving the construction of a coal mine with an annual production capacity of 4.5 million tons in that area. This mine is intended to serve as a raw material supply base for the coal-to-oil project, thereby removing the final obstacle to the smooth progress of Yili’s 1-million-ton-per-year coal-to-oil demonstration project. Since the initiation of the 2 million-ton project at Ganquanbao in Xinjiang Energy, the company has been actively working on obtaining the necessary approval documents while simultaneously carrying out the preliminary preparations for the project. To date, it has received approval for the soil and water conservation plan as well as the necessary permits for the land to be used for project construction. However, since 2017, the approval process for the \"Environmental Impact Assessment Report\" required for project authorization has progressed slowly. After more than three years of effort, the company has obtained some of the supporting documents needed for the project (including: **Project approval documents from the Development and Reform Commission ； Approval from the Ministry of Natural Resources regarding the project’s environmental impact assessment report ； Construction project planning permit and construction permit for the main project ； The approval procedures for the railway lines and related construction on some of the land in the plant area are still underway. In 2018 and 2019, Urumqi ** coordinated with the Ministry of Ecology and Environment as well as the Xinjiang Uygur Autonomous Region regarding the approval procedures for relevant matters, but to date no substantial progress has been made. In May 2019, the company received a notice from the Development and Reform Commission of the Xinjiang Uygur Autonomous Region regarding the plans to reduce coal consumption in the counties and cities involved in the \"Urumqi-Changji-Shijiazhuang\" and \"Kuijin-Duolun-Urumqi\" regions. This notice required compliance with the provisions set out in the document titled \"Minutes of the Special Meeting on Environmental Protection in the ‘Urumqi-Changji-Shijiazhuang’ and ‘Kuijin-Duolun-Urumqi’ Regions\" (New Policy Document No. [2019]88), in order to ensure that coal consumption in these counties (cities) decreased by 10% by 2020 compared to 2015 levels. The implementation of this document will have a significant impact on the allocation of coal resources for Xinjiang’s energy coal-to-oil projects. In December 2020, the company attended the \"Meeting on Monitoring the Progress of Environmental Impact Assessments for Industrial Projects Involving the ‘Three Types of Records’\" organized by the Department of Environmental Impact Assessment and Emission Management under the Ministry of Ecology and Environment, and presented details regarding the Xinjiang energy project to that department; however, no substantial progress has been achieved to date. 4. Financial pressure on the project: Although the company is actively working to coordinate with financial institutions such as banks, it remains difficult to secure project loans due to delays in project approval processes. Affected by the COVID-19 pandemic, the company’s coal production was insufficient in 2020, product sales were restricted, and profits declined compared to previous years. 5. The construction period, as approved by the shareholders’ meeting, is estimated to be 4 years. To date, the project has not progressed as scheduled. Therefore, against the backdrop of persistently low and uncertain international oil prices, as well as the ongoing efforts to control the COVID-19 pandemic, the company has, after a careful assessment of future net profits and cash flow levels, decided to suspend the development of the 2 million-ton project at Ganquanbao in Xinjiang Energy. This project has slow approval processes and no significant progress regarding the associated coal mines; by taking this action, the company aims to protect the interests of all shareholders, in line with its long-term strategic plans. The impact of stopping the advancement of the 2 million-ton project at Ganquanbao in Xinjiang Energy on the company is such that, with regard to the assets that have been established during the preliminary preparation phase of this project, the company aims to make optimal use of them while minimizing losses. The planned approach for dealing with these assets is to reallocate or dispose of those that can be reused, including process-related equipment ； For real estate assets, transfer or leasing can be considered ； Assets that are clearly of no use are considered as asset losses. Given the above circumstances, stopping the advancement of the 2 million-ton energy project in Ganquanbao, Xinjiang, could lead to signs of asset impairment. According to the assessment conducted by Shanghai Dongzhou Asset Appraisal Co., Ltd., which was hired by the company, it is estimated that an asset impairment provision of 322,004.31 million yuan will be necessary. This results in a corresponding reduction of the company’s total profit shown in its consolidated financial statements for the period from January to December 2020 by 322,004.31 million yuan, as well as a reduction in net profit by the same amount. The above figures are unaudited and shall ultimately be subject to the annual financial report audited by the company’s annual audit accountants. The company is a major coal enterprise in the country. From the perspective of industry development, China’s energy structure, which is dominated by coal, is not expected to change for a long time. Thanks to policies aimed at reducing coal production capacity and regulating the market, coal prices are likely to remain stable overall. However, reducing the proportion of coal consumption is an important goal of China’s energy policy. Therefore, from a strategic perspective, changing the current single-industry structure and accelerating the pace of transformation and upgrading is the only way for the company to develop. The company has been committed to developing clean coal technology, increasing the added value of its products, extending the coal industry chain, and actively promoting industrial upgrading. Relying on the world-leading technology for coal indirect liquefaction to produce oil, the company has been continuously advancing the research and development as well as industrialization of this technology since 2002. On March 27, 2009, the 160,000-ton coal-to-oil demonstration project was successfully completed, and China’s first batch of refined oil produced through coal indirect liquefaction was manufactured. To date, it has been operating safely and stably for 8 consecutive years, with a total production volume of 1.9 million tons. In 2017, a 1.2 million-ton coal-based fine chemicals project was completed and quickly reached its designed production capacity, operating steadily to this day. After the 160,000-ton coal-to-oil demonstration project came online, it was profitable for 9 consecutive years from 2011 to 2019. After the 1.2 million-ton coal-based fine chemicals project of Yitai Chemicals was put into operation, it achieved profitability in both 2018 and 2019. As a strategic pillar industry for the company, coal chemical industry will be unwaveringly developed. The company will conduct in-depth research and assessments of the market for coal chemical products under the impact of the pandemic. By taking into account the future development trends of this market, and leveraging the advanced technological achievements and management experience from its 160,000-ton coal-to-oil project and 1.2 million-ton coal-based fine chemicals project, it will further optimize production processes and expand its industrial chain. By utilizing its advantages in terms of human resources, materials, and capital, the company will steadily advance the Yili Energy 1-million-ton/year coal-to-oil demonstration project and the Yitai Coal-to-Oil 2-million-ton/year coal indirect liquefaction demonstration project (hereinafter referred to as “other coal chemical projects”) in Xinjiang and Inner Mongolia regions. In line with the principle of prudence, the company has engaged Shanghai Dongzhou Asset Appraisal Co., Ltd. to conduct an asset appraisal of other coal chemical projects as of December 31, 2020; no signs of impairment have been identified so far. The company will closely monitor the progress of other coal chemical projects, and objectively and fairly reflect the company’s asset value and financial condition. However, the company believes that halting progress on the 2 million-ton project in Ganquanpu could lead to signs of asset impairment, necessitating the provision for asset impairment losses. Preliminary estimates indicate that this might result in a loss for the company in 2020. Due to the possibility of the company experiencing losses, its stock price may decline and experience volatility. It was also reported that Yitai Coal issued a statement stating that the company, along with its holding subsidiaries Suancigou Mining, Yitai Baoshan Coal, and Yitai Dadi Coal, signed transfer agreements with Zhongtai Energy on January 29, 2021. Pursuant to the transfer agreement, the Company and its holding subsidiaries, Suancigou Mining, Yitai Baoshan Coal, and Yitai Dadi Coal, have each agreed to sell the respective target assets, while Zhongtai Energy has agreed to acquire them. The total consideration amounts to RMB 813,370,800 (excluding taxes). The assets subject to the sale include certain fixed assets and circulating materials of the Company’s organs, Suancigou Mining, Yitai Baoshan Coal, Yitai Dadi Coal, Talahao Coal Mine, Hongjingta No. 1 Mine, Kaida Coal Mine, and Nalinmiao Coal Mine No. 2. In addition, Yitai Coal stated that it expects to record a loss of around 800 million RMB for the year 2020, compared to a net profit of 3.789 billion RMB in 2019. The company believes that the main reason for the expected loss in performance for this period is as follows: affected by the COVID-19 pandemic and the market conditions, the company produced 45.6041 million tons of thermal coal in 2020, a 19.15% decrease compared to the same period in 2019. It sold 73.2613 million tons of coal, a 16.04% decrease compared to the same period in 2019. The average selling price of coal was 375.93 yuan per ton, representing a 1.16% decline compared to the average selling price in 2019 ； The 1 million tons per year coal-to-oil demonstration project of Itai Ili Energy Co., Ltd. and the 2 million tons per year coal-to-oil demonstration project at Ganquanbao of Itai Xinjiang Energy Co., Ltd. have seen their construction postponed due to the impact of the pandemic; the capitalization of interest and expenses has also been suspended ； At the same time, the decline in the production and sales volume as well as the selling prices of coal chemical products have had a certain impact on the company’s profit levels.