Griffin, through its two Chinese joint ventures, Hebei Hua Ao Mining Industry Company Limited (‘Hebei Hua’ Ao’) and Hebei Sino Anglo Mining Development Company Limited (‘Hebei Sino Anglo’), has a controlling interest in mining and exploration licences over 67 square kilometres at Caijiaying. Applications have been made for further exploration licences in the surrounding area.

In 2005, Griffin successfully commissioned the mine and processing facilities at Caijiaying, on time and within budget, with an initial design production rate of 200,000 tonnes of ore per annum. Production rates have steadily increased since commissioning with 409,193 tonnes of ore being processed in 2007 to produce 21,781 tonnes of zinc metal in concentrate. In the first half of 2008, 237,438 tonnes were processed to produce 11,748 tonnes of zinc metal in concentrate.

In December 2007, production of a separate precious metals concentrate containing gold, silver and lead commenced from an integrated circuit forming part of the main processing facilities at Caijiaying. Previously, gold, silver and lead were lost to the smelters in the zinc concentrate.

Considerable planning and capital expenditure has been undertaken to further increase production. This work is ongoing with the installation of, inter alia; a new backfill plant, more floatation cells, a new crusher and a third ball mill as well as significant enhancement to site infrastructure. This should enable processing capacity to be increased from approximately 500,000 tonnes of ore per annum to 750,000 tonnes of ore per annum.

On-going exploration in the area surrounding the mine at Caijiaying and within Hebei Hua’ Ao’s and Hebei Sino Anglo’s tenement boundary confirms that the area is highly prospective, indicating significant potential for further economic base and precious metals mineralisation. Considerable progress was made in defining a resource at Zone II at Caijiaying some 1.5 kilometres to the south of the mine at Zone III with a maiden Mineral Resource estimate to JORC reporting standards of 5.49 million tonnes of 3.2% zinc, 0.6% lead, 0.3 grams per tonne gold and 24 grams per tonne silver. Further resources are expected to be defined at Zone II, in particular, as underground drilling moves northwards towards Zone III. This should provide additional ore for the processing facilities at Caijiaying.

CAIJIAYING AREA

Caijiaying is located on the south-east edge of the Mongolian Plateau, approximately 250 kilometres north-west of Beijing in Hebei Province. The site is easily accessible, particularly since the extension of the freeway from Beijing through to Zhangbei, by freeway and sealed road from Beijing to site.

The site has significant water supplies and two independent connections to the electricity grid with a third planned. The site is fully connected to fixed line and mobile telecommunications and has broadband access for internet services. Weather conditions are not severe with warm summers and cold, dry winters.

Mineralisation is believed to be related to a Jurassic igneous event that affected the 2.3 billion year old metamorphic basement rocks. Base metal and gold mineralisation associated with Jurassic intrusives have replaced favourable horizons in the metamorphic rocks, most notably calc-silicates and marble. Porphyry sills and dykes intruding along faults have then cut across the sequence.

LEGAL STRUCTURE

Griffin’s initial interest in Caijiaying was obtained through the acquisition in 1997/98 of a 100% interest in an Australian incorporated company China Zinc Pty Limited, and its local Chinese subsidiary company, Hebei Hua’ Ao. The Group has subsequently been restructured to transfer China Zinc Pty Limited’s interest to an intermediate parent company incorporated in Hong Kong, China Zinc Limited (“China Zinc”).

Hebei Hua’ Ao is a contractual co-operative joint venture entity established in 1994 in which Griffin, through China Zinc, holds a 60% equity interest and the Chinese joint venture partners (which include the Zhangjiakou City People’s Government, the Hebei Bureau of the Ministry of Land and Resources and the Third Geological Brigade) have a 40% interest. Since the beginning of commercial production commencing in mid 2005, 100% of the net cash flows from Caijiaying have accrued to Griffin through China Zinc. That arrangement ceased in July 2008 and the parties will share in the profits from that date according to their respective joint venture interests.

In October 1998, Hebei Hua’ Ao was the first foreign controlled joint venture to be awarded a new exploration licence for a hard rock deposit in China when it received an exploration licence covering an area of 11.3 square kilometres in the Caijiaying area.

Subsequently in March 2002, Hebei Hua’ Ao became the first foreign controlled joint venture to be granted a mining licence over a base metals deposit in China when it was granted a mining licence over 1.56 square kilometres of the original 11.3 square kilometre licence area at Caijiaying. This is the Zone III area currently being mined at Caijiaying.

In January 2004, a second contractual joint venture company, Hebei Sino Anglo, was formed to hold an exploration licence over 55.7 square kilometres surrounding the original 11.3 square kilometre licence area at Caijiaying and any further areas of interest in Hebei Province. Griffin, through its wholly owned UK subsidiary company, Panda Resources Limited, has a 90% interest in Hebei Sino Anglo. The other Chinese shareholders reflect those shareholders in Hebei Hua’ Ao. Their 10% interest remains free carried until the commissioning of a full feasibility study on any new mineral deposits found by Hebei Sino Anglo.

CAIJIAYING OPERATIONAL DEVELOPMENTS

The Caijiaying mine has to date operated without any significant accident or environmental incident and retains an excellent safety and environmental record. This was achieved whilst increasing both the mining and processing rates to record levels.

Increases in production have been achieved whilst the processing facilities at Caijiaying were being upgraded for the production of a precious metals concentrate and for further increases in throughput.

Despite a conscious decision to reduce the zinc cut off grade with the resultant drop in the head grade of the ore processed, plant recoveries have continued to improve and zinc metal in concentrate production increased with 21,781 tonnes in 2007 up from 20,138 tonnes in 2006.

A precious metals circuit was commissioned in December 2007 to produce a concentrate containing gold, silver and lead. Whilst current gold production is minimal, this is expected to increase as the mine reaches the deeper gold bearing ore zones.

The commissioning of the precious metals circuit has not just added an additional revenue stream, but has provided the additional benefit of removing lead as an impurity in the zinc concentrate. This has led to a better quality zinc concentrate being produced, commanding a better price.

Since early 2007, significant progress has been made in mine development and in upgrading the processing facilities and site infrastructure to enable ore throughput and production of metals to be further increased. This work is continuing throughout 2008.

The installation of the precious metals circuit required the re-configuration of the processing facilities, which was achieved with limited interruption to processing. This involved the installation of new ceramic filters, floatation cells and other equipment. It also necessitated an extension of the buildings housing the mill and the construction of additional storage areas.

A backfill plant, utilising waste tailings from the mill, has been constructed to not only maximise the extractable amount of ore but also to minimise the amount of waste sent to the tailings dams. Although the installation of the backfill facilities will reduce waste sent to the tailings dams, and the existing tailings dams continue to be lifted to increase capacity, a further tailings dam will be required in the foreseeable future.

With the expansion of mining operations and the subsequent increased tonnage of ore hauled, a 3 bay workshop has been constructed to assist the local haulage contractor in servicing its fleet thereby improving servicing and repair turn around times. In view of the further expansion to operations planned, underground haulage equipment, including a 20 tonne truck and matching loader are being purchased, to supplement the contractor’s fleet to ensure efficiency of ore supply to the mill is continually maintained.

During 2007, the compressed air, pumping and ventilation circuits and ancillary infrastructure were upgraded to enable underground drilling to continue unabated and ensure good ventilation as the mine expands, particularly to lower levels.

A new, 3 stage, crushing circuit, is being constructed which will increase crushing capacity to allow for the planned increase in processing capacity to 750,000 tonnes of ore per annum. To facilitate this increase in throughput, a second primary ball mill is being installed to work in tandem with the current primary ball mill and the currently unused and smaller secondary ball mill.

In view of the need to maintain and attract good quality personnel, especially on site, at this time of shortages in suitably skilled staff in the mining industry, the accommodation and ancillary facilities have been expanded and enhanced during the year. This has now led to ensuite accommodation for staff in addition to recreational facilities which include indoor basketball, badminton, table tennis, billiards, satellite television, bar facilities and a fully stocked gym.

Caijiaying processing plant with new flotation cells.

MINE DEVELOPMENT

Since commencement of mining operations in 2005, underground mine development has continued to expand in order to provide increased throughput to the expanding processing facilities. The main ‘Northern Decline’ continues to be extended to the lower levels. Following extensive sterilisation drilling, to delineate an optimal decline route, a second ‘Southern Decline’ commenced in 2007 to enable more stopes to be developed and avoid pinch points in mine haulage.

Up-hole benching has been introduced and although that mining method is new to China, it has been successfully implemented and is enabling the mine’s production rates to be increased. This mining method will become more important as time moves on and should eclipse shrink stoping as the preferred mining method.

At Zone II, approximately 1.5 kilometres to the south of Zone III, some 6,300 metres of underground drilling was completed from a 147 metre long underground exploration decline (‘the Fox decline’) to enable an initial JORC resource estimate to be made. The drilling has identified good mineralised zones consistent with Zone III. Consequently work has started on upgrading and extending the Fox decline to provide access to the ore bodies for bulk metallurgical testing and to continue exploration work. More importantly a drive is being developed connecting Zone III and the bottom of the extended Fox decline at Zone II. This will provide a suitable drilling platform in a cost effective manner for the exploration of the area between Zones III and II and eventually provide haulage and services access when mining commences from this area.

RESOURCE ESTIMATE AND RECONCILIATION - ZONE III

Tabled below is the updated JORC compliant Mineral Resource Estimate for Zone III at Caijiaying.

Micromine 2002 Mineral Resource Estimate (Non Grade Control Drilling)

FinOre 2006 Mineral Resource Estimate (Grade Control Drilling)

The information in this report that relates to the Mineral Resource Estimate for the 31 December 2007 grade control drilled areas is based on information compiled by Mr C Fawcett BSc (Hons),G Dip Eng, MAusIMM, of FinOre Pty Ltd. The mining depletion was carried out by Mr Timothy Blyth, Ass Dip (Geology), MAusIMM of Hebei Hua Ao Mining Industry Company Ltd. The information relating to the 2002 non grade control drilled area was compiled by Mr D Pertel of Micromine Consulting Ltd. Mr Fawcett and Mr Blyth are Members of The Australasian Institute of Mining and Metallurgy and Mr Pertel is a Member of the Australian Institute of Geoscientists. Mr Fawcett, Mr Pertel and Mr Blyth have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as Competent Persons as defined by the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code, 2004 edition).

The table above summarises the Mineral Resource Estimate as at 31 December 2007 for:

• the grade control drilled mine area.
• the 2002 Mineral Resource for the non grade control drilled mine area, at both a 1% and 4% cut off grade.

The aggregate resource is calculated by adding both the 2002 and 2006 resource estimates at a 1% cut-off grade.

As the mine continues to increase production, all diamond drill activity is being focused on better defining areas of known mineralisation so that production schedules can be updated.

Drilling has confirmed inter alia the following:

• High gold mineralisation below the Qing Long and Hong Long orebodies.
• Significant gold mineralisation within the Ju Long orebody, which was also found to extend to the north. Down plunge widths and grades were also found to be consistent, proving that this orebody could be relied upon for bulk tonnages in the future.
• The Fu Long orebody was found to split into three individual lodes at depth. A forth lode, the Wo Long, had previously been discovered as part of the Fu Long Deeps programme. This lode continued to display strong zinc and gold values.
• Better understanding of the lithological controls on the main Qing Long lode, with drilling confirming the positioning of the porphyry and dolerite dykes that control this orebody.
• The Xiao Long orebody was found to extend to the south, adding further mineable tonnes that can be mined without additional development.

RESOURCE ESTIMATE - ZONE II

Zone II is believed to represent a southerly continuation of mineralisation present in Zone III. During 2007, 6,300 metres of underground drilling was completed from two short drill cuddies in the exploration decline in Zone II (‘the Fox decline’). This work defined two zones, which were named the Xi Long (‘Western Dragon’) and Dong Long (‘Eastern Dragon’). The most significant mineralisation was found in Xi Long C lode with the best intersection being 47.54 metres at 7.68% zinc, 0.61% lead and 28 grams per tonne silver (UGFOX-031A 134.01 – 181.55m).

The underground and surface drilling in 2007 was of a sufficient density as to provide the first Mineral Resource Estimate for Zone II. This estimate was based on ordinary Kriging and a cutoff of greater than or equal to 1% zinc.

Mineral Resource Estimates for Zone II

Note: Rounding errors may occur

The information in this report that relates to the Mineral Resource estimates for Zone II is based on information compiled by Mr G. Fahey of CSA Australia Pty Ltd (CSA). Mr Fahey is a Chartered professional and Member of The Australasian Institute of Mining and Metallurgy and a Member of the Australian Institute of Geoscientists. Mr Fahey has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (the JORC Code). Mr Fahey consents to the inclusion in the report of the matters based on his information in the form and context in which they appear.

EXPLORATION - AREA BETWEEN ZONES II AND III

The 1,500m long area between Zones II and III has long been considered prospective for additional zinc deposits but drilling has proved difficult due to either local access restrictions or deep sandy overburden. In 2006, a 3-Dimensional Induced Polarization (‘3D IP’) survey was undertaken to help define drill targets. The results defined six prominent chargeability anomalies of which five were drilled in 2007. All contained zinc mineralisation with the most significant results from Anomalies D and E.

Anomaly D was considered to be a possible continuation of mineralisation found in Zone II and III. Results (shown below) indicate similar grades and widths to those found along strike at Zone III. To speed drilling and to avoid having to drill through the overlying sand, an incline is being developed to link the Zone III incline with the Zone II decline. Underground drilling will be used to further define the mineralisation present between Zone II and III.

Anomaly D Surface Diamond Drill Hole Results

Anomaly E was tested by drill hole DDCJY-005 and intersected two zinc-rich zones one of 2.81 metres of 3.15% zinc (53.69 to 55.50m) and the other 5.90 metres of 4.53% zinc (134.20 to 140.10 m). Additional work is warranted on all IP anomalies and a review is currently being undertaken to prioritise the targets for drilling in 2008.

Surface drilling was also undertaken 200m to the Northeast of Zone II in what is called the Northeast Target. Results are listed below.

Northeast Target Surface Diamond Drill Hole Results

These results are very encouraging and indicate that Zone II has additional parallel basemetal lodes similar to those present at Zone III.

HEBEI SINO ANGLO EXPLORATION LICENCE AREA

Prominent ground magnetic anomalies located 2.5kilometres east of Zone II at Hebaogou and 3 kilometres east of the mine near Ershili Naobao village. Drilling at Ershili Naobao, soil sampling, trenching and IP surveys were undertaken and have identified zinc anomalies which will be followed up.

Applied research is being undertaken by Dr Zhaoshan Chang of the ARC Centre of Excellence in Ore Deposie Univthe University of Tasmania as part of a research programme sponsored by Griffin. The purpose of this study is to understand the origin and controls of the mineralisation at Caijiaying and to apply this knowledge to the discovery of additional orebodies in the area.

During 2007, analysis of Proterozoic and Jurassic rock using PIMA identified a broad illite alteration hallo surrounding the mineralised zone providing a possible vector to mineralisation. Samples from the surrounding Hebei Sino Anglo Caijiaying Exploration Licence are being collected and analysed for illite as a means of defining additional alteration hallos that surround mineralisation.

REGIONAL EXPLORATION

The Sidougou (36km²) and Xuetangying (83km²) exploration licences applied for in 2005 and expected to be issued in 2007 were not granted due to the areas coming under a National Strategic Minerals Area. These areas will continue to be applied for.

A regional database of mineral occurrences has been incorporated into the Geographic Information System which will help in targeting new areas.