Inner Mongolia Yitai Coal : SUSPENSION OF THE GANQUANBAO 2 MTPA PROJECT OF XINJIANG ENERGY AND NOTICE OF THE EXTRAORDINARY GENERAL MEETING

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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If you have sold or transferred all your shares in Inner Mongolia Yitai Coal Co., Ltd., you should at once hand this circular and the accompanying proxy form to the purchaser(s) or transferee(s) or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for transmission to the purchaser(s) or transferee(s).

SUSPENSION OF THE GANQUANBAO 2 MTPA

PROJECT OF XINJIANG ENERGY

AND

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

A letter from the Board is set out on pages 3 to 9 of this circular.

A notice convening the extraordinary general meeting to be held at Room 1, Conference Center, Building of Inner Mongolia Yitai Coal Co., Ltd., Ordos, Inner Mongolia, the People's Republic of China (the "PRC") at 3:00 p.m. on Wednesday, 24 March 2021 is set out on pages 10 to 11 of this circular.

Whether or not you propose to attend the EGM, you are requested to complete the form of proxy in accordance with the instruction printed thereon and return it to the Hong Kong H share registrar of the Company, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong as soon as possible but in any event no later than 24 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof if you so wish.

9 March 2021

* For identification purpose only

In this circular, unless the context otherwise requires, the following expressions have the following meanings:

"Yitai Group"

Inner Mongolia Yitai Group Co., Ltd. (內蒙古伊泰集團有限公司), a limited liability company established in the PRC and one of the Company's controlling Shareholder

"%"

per cent.

Executive Directors: Zhang Jingquan

Liu Chunlin Ge Yaoyong Zhang Dongsheng Liu JianRegistered Office: Yitai Building, North Tianjiao Road Dongsheng District, Ordos Inner Mongolia, the PRC

Lv Guiliang Lv Junjie

Principal place of business in Hong Kong:Independent non-executive Directors: Zhang Zhiming

40/F, Sunlight Tower 248 Queen's Road East Wanchai

Huang Sujian Wong Hin Wing Du Yingfen

Hong Kong

9 March 2021

To the Shareholders

SUSPENSION OF THE GANQUANBAO 2 MTPA

PROJECT OF XINJIANG ENERGY

AND

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

INTRODUCTION

The purpose of this circular, of which this letter forms part, is to provide you the notice of the EGM and all the information reasonably necessary to enable you to make an informed decision on whether to vote for or against the proposed resolution at the EGM.

Reference is made to the announcement of the Company dated 29 January 2021 in relation to proposed suspension of the Ganquanbao 2 Mtpa Project of Xinjiang Energy. An ordinary resolution will be proposed at the EGM to approve the suspension of the Ganquanbao 2 Mtpa Project of Xinjiang Energy.

* For identification purpose only

SUSPENSION OF THE GANQUANBAO 2 MTPA PROJECT OF XINJIANG ENERGY

Based on the prudential judgment on macroeconomic and industry situation as well as the actual condition of project, the Company will suspend the Ganquanbao 2 Mtpa Project of Xinjiang Energy.

I.

BASIC INFORMATION

(I) Basic Information of Xinjiang Energy and Ganquanbao 2 Mtpa Project

Xinjiang Energy is a limited liability company registered and established by the Company and Yitai Group in Xinjiang Uygur Autonomous Region on 16 February 2012 with a registered capital of RMB1.36 billion. The Company holds 90.2% equity interest in Xinjiang Energy and Yitai Group holds 9.8% equity interest in Xinjiang Energy.

The Ganquanbao 2 Mtpa Project constructed by Xinjiang Energy is located in the Ganquanbao Economic and Technological Development Zone in Urumqi, Xinjiang Autonomous Region.

The project has been filed by the Xinjiang Autonomous Region Development and Reform Commission. The total planned investment of the project is RMB32 billion. The construction period of the project is expected to be 4 years. 30% of funding source of the project is self-owned funds and 70% is bank loans. So far, the investment of RMB6.456 billion in the preliminary supporting and long-term equipment procurement has been completed. The

Ganquanbao 2 Mtpa Project has been considered and approved at the second extraordinary general meeting in 2014 of the Company held on 25 November 2014, at the seventh meeting of the sixth session of the Board of the Company held on 18 March 2015 and at the 2014 annual general meeting held on 9 June 2015.

For the Ganquanbao 2 Mtpa Project, the Approval on the Proposal of Preservation of Water and Soil of Yitai Ganquanbao 2 Mtpa Coal-to-oil Pilot Project of Yitai Xinjiang Energy Co.,

Ltd. (Shui Bao Han [2016] No. 12) was obtained from the Ministry of Water Resources of the PRC in January 2016, the Review Comments on the Energy Conservation Evaluation Report of Yitai Ganquanbao 2 Mtpa Coal-to-oil Pilot Project of Yitai Xinjiang Energy Co., Ltd. was obtained from the NDRC (Fa Gai Ban Huan Zi [2016] No. 1697) in July 2016, the Comment Letter on Control Indicators for Total Amount of Major Pollutants of Ganquanbao Coal-to-oil Project of Yitai Xinjiang Energy Co., Ltd. was obtained from the Department of Ecology and Environment of Xinjiang Autonomous Region (Xin Huan Han [2018] No. 1591) in October 2018, the Reply on Solution of Water Consumption Index of Yitai Ganquanbao 2 Mtpa Coal-to-oil Pilot Project (Mi Shui Fa [2019] No. 137) was obtained in September 2019, the

Affirmative Decision of Administration License for Approval of Water-drawing Permit of Ganquanbao 2 Mtpa Coal-to-oil Pilot Project of Yitai Xinjiang Energy Co., Ltd. was obtained from the Yellow River Conservancy Commission of Ministry of Water Resources of the PRC (Huang Xu Ke Jue [2020] No. 11) in March 2020. The Ganquanbao 2 Mtpa Project has obtained the land use certificate of the land of 6,896 mu, project construction land planning permission and construction approval procedures for certain supporting projects.

(II) Reasons for Suspension of the Ganquanbao 2 Mtpa Project of Xinjiang Energy

According to the strategic deployment of the Company, the Company has planned two coal-to-oil projects in Xinjiang, namely 1 Mtpa coal-to-oil pilot project of Yili Energy and Ganquanbao 2 Mtpa Project of Xinjiang Energy. The Company has planned a coal-to-oil project under construction in Inner Mongolia, i.e., 2 Mpta indirect coal-to-liquids conversion pilot project of Yitai Coal-to-oil. Based on the macroeconomic and industry situation, and from the perspective of protecting the interests of all shareholders, the Company will focus on the construction of 1 Mtpa coal-to-oil pilot project of Yili Energy and 2 Mpta indirect coal-to-liquids conversion pilot project of Yitai Coal-to-oil, and suspend the Ganquanbao 2 Mtpa Project. Specific reasons are as follows:

• 1. Impact of economic environment

  In recent years, international crude oil prices have been declining, which has had a significant adverse impact on the Company's coal-to-oil project. In the first half of 2020, the international crude oil futures price plunged to negative. Although the international crude oil price rose in the second half of 2020, there is still great uncertainty on the global crude oil supply side, and the current tight supply and demand condition is easily broken.

• 2. Impact of the COVID-19 pandemic

  The COVID-19 pandemic has caused traffic jams, business closures or under-operation, and the decline in fuel consumption and crude oil demand, which has dealt a serious blow to the global economy. Meanwhile, affected by the impact of the COVID-19 pandemic, the Company's coal production in 2020 was under capacity, and product sales are under restrictions. The production, sales and sales prices of coal and coal chemical products of the Company have declined to varying degrees from the same period last year, resulting in a decline in the efficiency of the coal sector and an increase in losses in the coal chemical sector, which affected the overall profitability of the Company. The construction of 1 Mtpa coal-to-oil pilot project of Yili Energy and Ganquanbao 2 Mtpa Project of Xinjiang Energy have been suspended due to the pandemic, and the capitalization of interest and expenses has been suspended, which has also affected the Company's profit level to a certain extent.

• 3. Policy barriers

  The 1 Mtpa coal-to-oil pilot project constructed by Yili Energy has obtained several approvals including environmental assessment, water conservation, construction land and project approval. On 6 January 2021, the National Energy Administration issued the Approval of Coal Mine Project of Yitai Yili Mining Company in the Resource Integration Zone of Xinjiang Yining Mining Area, approving the Company to construct the 4.5 Mtpa coal mine project in the Yining mining area as the raw material base supporting coal-to-oil project, thus the final barrier for successfully promoting the 1 Mtpa coal-to-oil pilot project of Yili Energy was broke through.

Since the establishment of the Ganquanbao 2 Mtpa Project of Xinjiang Energy, the Company has been proactively preparing relevant documents for approval and has successively carried out the preliminary preparation work for the project, and has obtained the approval for the Soil and Water Conservation Proposal and the land approval for project construction and others. However, since 2017, the progress of the approval for the Environmental Impact Appraisal Report necessary to the approval of the project has been slow, and after more than three years of effort by the Company, some supporting documents required by the project are still under approval process, including the project approval from the National Development and Reform Commission; the approval of the Ministry of Natural Resources on the environmental impact assessment report of the project; the construction project planning permission of the main project, the construction permission for construction works; construction procedures for railway lines and part of the land in the installation area. The Urumqi Municipal Government coordinated with the Ministry of Ecology and Environment and the Government of Xinjiang Autonomous Region on the approval of related matters in 2018 and 2019 respectively, but no substantial progress has been obtained up to now. In May 2019, the Company received the Notice on Issuing the Reduction Plan of Total Coal Consumption of Relevant Counties and Cities in Urumqi-Changji-Shihezi and Kuytun-Dushanzi-Usu Areas from the Xinjiang Autonomous Region Development and Reform Commission, which requires the implementation of relevant requirements under the Conference Minutes of Research on the Urumqi-Changji-Shihezi and Kuytun-Dushanzi-Usu Regional Ecological Environmental Protection Work (Xin Zheng Yue [2019] No. 88) to ensure that the coal consumption of relevant counties (cities) in 2020 will be reduced by 10% compared with that in 2015. The implementation will have impact on the coal resources for the coal-to-oil project of Xinjiang Energy to a greater extent. In December 2020, the Company participated in the Meeting on the Progress of Environmental Appraisal of Industrial Projects in Dispatching "Three Ledgers" (三本台 賬) organized and convened by the Department of Environmental Impact Assessment and Emission Management under the Ministry of Ecology and Environment and reported the particulars of Xinjiang Energy projects to the Department Environmental Impact Assessment and Emission Management, but no substantial progress has been yet made up to now.

• 4. Funding pressure of the project

  Although the Company actively promoted coordination and communication with banks and other financial institutions, it is still difficult to obtain project loans due to the progress of approval for the project. Affected by the COVID-19 pandemic, in 2020, the Company's coal production was under-capacity, product sales were under limitation and profits declined compared to that of previous years.

• 5. The construction period approved by the general meeting is expected to be 4 years. Up to now, the project has not progressed as expected.

Therefore, in the context of the continued downturn and uncertain international oil prices and the normalization of the prevention and control of the COVID-19 pandemic, after assessing the net profit and cash flow levels in the future in a reasonable and prudent manner, the Company takes initiative to suspend of the Ganquanbao 2 Mtpa Project of Xinjiang Energy with slow approval progress and no substantial progress in supporting coal mine facilities, which will be conducive to protecting the interests of all shareholders and will be in line with the Company's long-term strategic plans.

• II. THE EFFECT OF THE SUSPENSION OF THE GANQUANBAO 2 MTPA PROJECT OF XINJIANG ENERGY ON THE COMPANY

  For the assets that have been formed in the preliminary preparation stage of the Ganquanbao 2 Mtpa Project of Xinjiang Energy, based on the principle of optimizing utilization and minimizing losses, the Company intends to dispose of them by following ways: allocate and dispose of the reusable equipment assets (including process packages); consider transferring and leasing the real estate assets; consider as asset losses for assets that have clearly no use value.

  Based on the above actual situation, the suspension of the Ganquanbao 2 Mtpa Project of Xinjiang Energy may lead to signs of impairment of some assets. According to the assessment opinions from

  Shanghai Orient Appraisal Co., Ltd. engaged by the Company, it is estimated that the amount of asset impairment required to be provided will be RMB3,220,043,100 after preliminary calculations, which will result in a corresponding decrease of RMB3,220,043,100 in the total profit in consolidated statement of the Company from January to December 2020, and a decrease of RMB3,220,043,100 in net profit.

  The above data has not been audited, and is ultimately subject to the Company's 2020 financial report audited by the accountant and officially published.

• III. SUBSEQUENT ARRANGEMENTS

  The Company is an important domestic large-scale coal enterprise. From the perspective of industry development, coal-based energy structure in the PRC will not change for a long time. Benefited from the national coal capacity reduction and market control policies, coal prices are expected to remain stable in overall, but reducing the proportion of coal consumption is an important goal of the national energy policy. Therefore, from a strategic point of view, changing the current single industrial structure and accelerating the pace of transformation and upgrading is the only way for the Company's development.

  The Company has been committed to developing clean coal technology, increasing the added value of products, extending the coal industry chain, and actively promoting industrial upgrading. The Company relies on the world's leading coal indirect liquefaction technology, and since 2002, the Company has continued to promote the research and development and industrialization of indirect coal liquefaction technology. On 27 March 2009, the Company successfully completed the 160,000 tonnes of coal-to-oil pilot project and successfully produced first barrel of indirect coal-liquefied product oil in the PRC. So far, the Company has been operating safely and stably for 8 consecutive years, with a total of 1.9 million tonnes of products produced. In 2017, the Company completed 1.2

million tonnes of coal-based fine chemicals project and quickly reached the designed production capacity, and it has been operating stably. The 160,000 tonnes of coal-to-oil pilot project has been profitable for 9 consecutive years from 2011 to 2019 after it was put into operation. The 1.2 million tonnes of fine chemicals project of Yitai Chemical has been profitable for two consecutive years in 2018 and 2019 since it was put into operation.

Coal chemical is our strategic pillar industry. Therefore, the Company will unswervingly develop the coal chemical industry. The Company will conduct in-depth investigations and evaluations of the coal chemical product market under the influence of the pandemic. Combined with the future development cycle of the coal chemical product market, and relying on the advanced technical achievements and management experience of the 160,000 tonnes of coal-to-oil project and 1.2 million tonnes of coal-based fine chemicals project, the Company will further optimize the process technology and extend the industrial chain, take advantages of manpower, resources and capital, steadily promote the 1 Mtpa coal-to-oil pilot project of Yili Energy and 2 Mtpa indirect coal-to-liquids conversion pilot project of Yitai Coal-to-oil in Xinjiang and Inner Mongolia respectively ("Other Coal Chemical Projects").

Based on the consideration of the principle of prudence, Shanghai Orient Appraisal Co., Ltd. was engaged by the Company to conduct asset appraisal of Other Coal Chemical Projects as of 31 December 2020, and no signs of impairment have been found so far. The Company will pay close attention to the status of Other Coal Chemical Projects to objectively and fairly reflect the Company's asset value and financial status.

IV. RISK WARNING

• 1. The suspension of the Ganquanbao 2 Mtpa Project may lead to signs of impairment of some assets, and provision for asset impairment needs to be made. After preliminary calculations, the

• Company may suffer losses in 2020.

• 2. The performance of the Company may suffer losses, which will cause the decline and fluctuation of the Company's stock price.

An ordinary resolution will be proposed at the EGM to approve the suspension of the Ganquanbao 2 Mtpa Project of Xinjiang Energy.

EGM

The EGM will be held by the Company for the purpose of considering and approving by the Shareholders, by way of an ordinary resolution, the suspension of the Ganquanbao 2 Mtpa Project of Xinjiang Energy.

Votes at the EGM for all resolutions shall be taken by way of poll. As at the date of this circular, none of the Shareholders is required to abstain from voting with respect to the proposed resolution.

The EGM will be held at 3:00 p.m on Wednesday, 24 March 2021 at Room 1, Conference Center, Building of Inner Mongolia Yitai Coal Co., Ltd., Ordos, Inner Mongolia, the PRC. The notice convening the EGM is set out on pages 10 to 11 of this circular.

Whether or not you propose to attend the EGM, you are requested to complete the proxy form in accordance with the instruction printed thereon and return it to the Hong Kong H share registrar of the Company, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, as soon as possible but in any event no later than 24 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof if you so wish.

CLOSURE OF REGISTER FOR MEMBERS OF H SHARES

The register of members of H shares of the Company is closed from Monday, 22 February 2021 to Wednesday, 24 March 2021 (both days inclusive). In order to qualify for attending and voting at the EGM, all transfer documents must be lodged by holders of H shares to the Company's H share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong before 4:30 p.m. on Friday, 19 February 2021.

RECOMMENDATION

Based on the information disclosed in this circular, the Directors (including the independent non-executive Directors) are of the opinion that the suspension of the Ganquanbao 2 Mtpa Project of Xinjiang Energy is in the interests of the Company and its Shareholders as a whole.

Accordingly, the Board recommends the Shareholders to vote in favour of and approve the proposed resolution regarding the suspension of the Ganquanbao 2 Mtpa Project of Xinjiang Energy at the EGM.

By order of the Board

Inner Mongolia Yitai Coal Co., Ltd.

Zhang Jingquan

Chairman

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this notice, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this notice.

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the first extraordinary general meeting (the "EGM") of Inner Mongolia Yitai Coal Co., Ltd.* (the "Company") in 2021 will be held at Room 1, Conference Center, Building of Inner Mongolia Yitai Coal Co., Ltd., Ordos, Inner Mongolia, the People's Republic of China (the "PRC") at 3:00 p.m. on Wednesday, 24 March 2021 for the purpose of considering, and if thought fit, passing the following resolution. Unless indicated otherwise, capitalised terms used in this notice shall have the same meanings as those defined in the circular of the Company dated 9 March 2021.

AS ORDINARY RESOLUTION

1. To consider and approve the proposal relating to the suspension of the Yitai Ganquanbao 2 Mtpa coal-to-oil pilot project of Yitai Xinjiang Energy Co., Ltd.

By order of the Board

Inner Mongolia Yitai Coal Co., Ltd.

Zhang Jingquan

Chairman

Inner Mongolia, the PRC, 9 March 2021

As at the date of this notice, the executive directors of the Company are Mr. Zhang Jingquan, Mr. Liu Chunlin, Mr. Ge Yaoyong, Mr. Zhang Dongsheng, Mr. Liu Jian, Mr. Lv Guiliang and Mr. Lv Junjie; and the independent non-executive directors of the Company are Mr. Zhang Zhiming, Mr. Huang Sujian, Mr. Wong Hin Wing and Ms. Du Yingfen.

* For identification purpose only

Notes:

• 1. The register of members of H shares of the Company is closed from Monday, 22 February 2021 to Wednesday, 24 March 2021 (both days inclusive). Holders of H shares of the Company whose names appear on the register of members of H shares of the Company maintained at Computershare Hong Kong Investor Services Limited on Wednesday, 24 March 2021 are entitled to attend and vote at the EGM upon completion of the registration procedures. In order to qualify for attending and voting at the EGM, all transfer documents of H shares of the Company, accompanied by the relevant share certificates, must be lodged by shareholders with the Company's H share registrar before 4:30 p.m. on Friday, 19 February 2021. The address of the H share registrar of the Company is as follows:

  Computershare Hong Kong Investor Services Limited

  Shops 1712-1716, 17th Floor, Hopewell Centre

  183 Queen's Road East, Wanchai, Hong Kong

• 2. Any holder of H shares entitled to attend and vote at the EGM may, by the form of proxy of the Company, appoint one or more person(s) as his proxy(ies) to attend and vote at the EGM on his behalf. A proxy needs not be a shareholder of the Company.

• 3. A proxy shall be appointed by a shareholder by a written instrument signed by the appointor or his attorney duly authorized in writing. If the shareholder is a corporation, the same must be either under its common seal or under hand of its legal representative(s) or duly authorized attorney(s). If the written instrument is signed by an attorney of the appointor, the power of attorney or other authority of such attorney shall be notarially certified.

• 4. To be valid, the form of proxy and the relevant notarially certified power of attorney (if any) and other relevant authority (if any) as mentioned in Note 3 above must be served to the Company's H share registrar, Computershare Hong Kong Investor Services Limited, at 17M floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, no later than 24 hours before the time appointed for the holding of the EGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude a shareholder from attending and voting in person at the meeting should he so wishes.

• 5. A shareholder or his proxy should produce proof of identity when attending the EGM. Where a shareholder is a legal person, the legal representative(s) of such shareholder or the person authorized by its board of directors or other governing body shall produce a copy of the resolution of the board of directors or other governing body of such legal person shareholder appointing such person to attend the meeting.

• 6. The EGM is expected to last for half a day. The travelling and accommodation expenses shall be at the own cost of the shareholders attending the EGM.