HISTORY OF CAIJIAYING

The Mine is located at Caijiaying, which is approximately 250 kilometres north-west of Beijing in the Hebei Province. The site is easily accessible by two separate freeway systems from Beijing and secondary sealed roads. The site has significant water supplies, two independent connections to the electricity grid, full connectivity to fixed and mobile telecommunications and broadband access for internet services. Climatic conditions are not severe with warm summers and cold, dry winters.

Caijiaying Mine location, courtesy of Google Maps

The assets of the Mine are held by Hebei Hua Ao Mining Industry Company Limited (“Hebei Hua’ Ao”), a contractual co-operative joint venture entity established in 1994, in which Griffin, through its wholly owned Hong Kong subsidiary, China Zinc Limited (“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) a 40% interest.

In January 2004, a second contractual joint venture company, Hebei Sino Anglo Mining Development Company Limited (“Hebei Anglo”), was formed to hold the mineral rights to the area surrounding the original Hebei Hua’ Ao licence area and any other areas of interest in Hebei Province.

Griffin, through its wholly owned UK subsidiary company, Panda Resources Limited, has a 90% interest in Hebei Anglo. The other Chinese shareholders in Hebei Anglo hold 10% and reflect those shareholders in Hebei Hua-Ao. Griffin, through Hebei Hua’ Ao and Hebei Anglo, has a controlling interest in mining and exploration licences over 67 square kilometres at Caijiaying.

Application has been made for further exploration licences in the surrounding area.

Caijiaying Mine surface facilities

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 been steadily increased since commissioning with processing rates equivalent to 600,000 tonnes of ore per annum recently achieved.

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.

Flotation Cells in the Caijiaying Plant

Considerable work has been undertaken since commissioning to increase production with the installation of, inter alia, a new back-fill plant, new floatation circuits, extended and new tailings facilities, new accommodation and administration building extensions and other site infrastructure. The construction of a new crushing circuit and installation of a second primary ball mill should be completed by September 2010. When completed, this should enable processing capacity to be increased to 750,000 tonnes of ore per annum.

Plant upgrade work on a new crushing circuit 2010

Construction of third tailings facility summer 2009

Installation of new ball mill April 2010

To date the Caijiaying Mine has operated without any significant accident or environmental incident and retains an excellent safety and environmental record.

MINE OPERATIONS

Underground stope at Caijiaying

Since commencement of operations in July 2005 production capacity has continued to increase at the Mine allowing tonnes of ore processed to increase from 92,606 tonnes in 2005, to 301,168 tonnes in 2006, to 409,193 tonnes in 2007, to 491,848 tonnes in 2008. In view of the relatively low market prices for metals in the later part of 2008 and early 2009, mining operations were suspended in the first five months of 2009, as a result only 321,000 tonnes of ore were processed in 2009. In late 2007 production started of a second concentrate containing lead, silver and gold. In 2008 the upgrade of the processing plant encountered some delays and difficulties due to a number of reasons. In the first instance poor design work was produced by the local Chinese Engineering Institute which was then exacerbated by below standard construction work by certain Chinese contractors.

Construction was significantly disrupted by the Olympic and Paraplegic Olympic Games held in Beijing in the summer of 2008, which severely interrupted supplies of equipment. With relatively low market prices for metals prevailing at the beginning of 2009, and thereby a time where the loss to revenues to the Group would be relatively small, a decision was made to suspend operations to allow for ore block modelling, long term structural maintenance and an operational efficiency review to be completed at Caijiaying.

Mining operations were suspended on the 1st January 2009 whilst milling operations continued throughout January and February to process the surface stockpiles. During the suspension period, staff were given leave on a reduced salary ensuring that on recommencement of operations, all staff would return promptly to work on the 1st June 2009.

“Mucking out” draw points underground at Caijiaying

The suspension of operations allowed technical staff to re-evaluate and optimise the mine and milling operations. This proved highly profitable, as evidenced in the months following the recommencement of operations, where increasing production rates and better grades were produced. The full benefit of this optimisation will only be felt upon the completion of the plant upgrade in the second half of 2010 and as mining and haulage rates increase to satisfy the upgraded throughput capacity. The six months to 31st December 2009 produced record mine production with 244,000 tonnes mined from June to December 2009 (see Graph I).

Graph 1

A substantial amount of management time has been expended in striving to obtain a permit to mine below the 1300 level (approximately 120 metres below the surface) from the Chinese regulatory authorities. The delay in obtaining the new mining licence created some operational difficulties. In particular, the delay in the development of the lower mine levels restricted stoping to the upper levels. Nevertheless, mine operations continued smoothly and without incident.

Despite mining operations being suspended for the majority of the first half of 2009, over 4,530 metres of development was completed in 2009. This compared to a total of 6,796 metres in 2008. However, further development of the North Decline and South Decline was suspended pending receipt of the licence to mine below the 1300 level.

A temporary work permit was granted in late October 2009, allowing underground infrastructure to be installed and exploration development work to be undertaken below the 1300 level, but not the extraction of ore. This allowed development of the North and South Declines to recommence. By the year end, access below the 1300 level had been achieved with development work started on the first three stopes planned for the 1290, 1275 and 1260 levels.

The new 16 year mining licence (Permit No.C1000002010013210053716) was granted on the 15th January 2010. The grant of this licence has enabled mine development below the 1300 level and the full recommencement of the upgrade to the processing facilities

Underground haulage at Caijiaying

Mine facilities have been improved over the year with the haulage contractor increasing its mobile fleet to 11 trucks and 4 loaders in readiness for increased mine production. Further equipment will be acquired by this contractor as needed. In support of this increase in haulage capacity, new servicing facilities were constructed for the haulage fleet during the year.

New Haulage Service Workshop

As previously mentioned, significant improvements and modifications were made to the processing plant and supporting facilities during the suspension of operations at the Mine. These improvements have enhanced the operational capabilities of the process plant enabling a higher throughput to be processed through the on-site facilities. By the end of 2009, the milling rate had been increased to pre-suspension of operations levels, and since that time, surpassed (see Graph II).

Graph II

As local operators become even more familiar with the processing circuit changes, further rate increases are anticipated. With the benefit of enhanced modelling of the mineralisation undertaken during the suspension period, the grade of ore both mined and processed has increased since recommencement of operations. This has resulted in record zinc metal in concentrate production of 13,924 tonnes in the second half of 2009 (see Graph III).

Graph III

The improved ore modelling enabled higher gold grade bearing zones to be targeted. As a result, the second half of 2009 also recorded increased gold production of 3,109 oz. (see Graph IV)

Graph IV

Construction work on the upgrading of the plant and supporting facilities to increase processing capacity to a minimum 750,000 tonnes of ore peannum has increased apace since obtaining receipt of the licence to mine below the 1300 level. Construction work on the upgrade was slowed to a minimum during the suspension of operations as such expenditures could not be justified during a period of low commodity prices and the inability to access the more productive lower levels of the mine. With the grant of the new mining licence, upgrade works are now scheduled to be completed early in the fourth quarter of 2010.

Process Plant at Caijiaying

During 2009, further land was acquired for a third tailings storage facility. All earthworks for this third tailings storage facility were completed in the summer of 2009. It is expected the new tailings dam will be commissioned in the summer of 2010 once the pipe lines running from the mine site have been installed. Over the past year, both the existing first and second tailings storage facilities have had their walls lifted to increase tailings storage capacity.

Although the Hydraulic Backfill plant was commissioned in 2008, due to the suspension of operations and a number of commissioning issues, it was not fully operational until late 2009. With the backfill plant now fully operational and the third tailings storage facility completed, the Mine will have sufficient capacity to deal with waste material at planned production rates for the foreseeable future.

Loading concentrate at Caijiaying

Underground diamond drilling was suspended at the Mine at the same time as mining operations and did not recommence until May 2009. Drilling activities were necessarily concentrated on the upper levels of Zone III pending receipt of the new permit to mine below the 1300 level. Approximately 21,000 metres of extensional and grade control drilling was completed in 2009. Drilling results were very encouraging with notable successes in identifying further mineral resources at the Ju Long, Fu Long, Qing Long and Xiao Long lodes.

Drilling underground

No development work was undertaken in 2009 at Zone II, some 1.5 kilometres to the south of the Mine at Zone III. The Zone II inclined shaft was put on care and maintenance. However, an underground drive is being developed from Zone III towards Zone II (the “Fox Linking Drive”), from which exploratory drilling is being undertaken. Initial results from this drilling have been encouraging with several holes intersecting mineralisation over the induced polarisation (“IP”) anomalies that were located in the 2008 IP survey program.

These results have provided the necessary confidence to commit to a 25,000 metre surface and underground drilling program in 2010 which may enable an estimate to be made to JORC reporting standards on the mineral resource located in the area between Zones II and III.

If, as expected, an economic resource can be identified between Zones II and III and with the benefit of the existing resource at Zone II, an application will be made for a new mining licence to cover this area.

RESOURCE ESTIMATES ZONE III

During 2009, approximately 21,000 metres of underground diamond drilling was completed, mainly above the 1300 level, targeting the Fu Long, Qing Long, Ju Long, Jin Long and Xiao Long lodes. Drilling provided enough information to allow re-modelling to be completed in a number of areas, resulting in significant increases in estimated mineral resource tonnages. Of particular note was nearly 1,000,000 tonnes of ore added to the mineral resources in the Qing Long lode.

A complete reinterpretation of the geometry of the ore bodies, based on the knowledge gained from five years of mining at Zone III, has allowed a single, coherent, resource model to be built removing the need for two resource tables previously published. This has resulted in a near doubling of the measured and indicated resource base.

The 2010 Mineral Resource was estimated at a zinc cut-off of 1%. Tabled below is a summary of the recent up-dated 2010 Mineral Resource.

			Metal Grade				Contained Metal
Category	Cut off	Tonnes	Zn	Pb	Ag	Au	Zn	Pb	Ag	Au
		'000 t	%	%	g/t	g/t	t	t	Oz	Oz
Measured	1%	4,737	6.73	0.41	34.29	0.87	318,657	19,191	5,221,348	131,761
Indicated		5,999	5.85	0.35	32.48	0.81	351,052	20,787	6,263,912	155,724
Inferred		16,596	4.38	0.24	26.39	0.95	726,957	39,437	14,078,921	508,317
Total:		27,332	5.11	0.29	29.09	0.91	1,396,666	79,416	25,564,182	795,803

The information in this report that relates to the 2010 Mineral Resource estimates for the 2010 is based on information compiled by Mr Luke Marshall BSc Geology , Member AIG. .Mr. Marshall is a full time employee of Hebei Hua Ao Mining Industry Company Limited, a subsidiary of Griffin Mining Limited. Mr. Marshall has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he has 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 Marshall consents to the inclusion in the report of the matters based on his information in the form and context in which they appear.

CSA Global Pty Ltd undertook a high level review of the resource model and found no flaws to the model or estimation.

The deeper Mineral Resources have not been included in the above table. They will be evaluated in light of the proposed drilling program to be undertaken in 2010 which should provide the necessary information to evaluate the deeper mineralisation at Zone III.

Zone II Lode Map Showing Indicated and Measured Resources Only

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 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 cut-off of greater than or equal to 1% zinc.

Material	Tonnes	Zn%	Pb%	Au g/t	Ag g/t
INDICATED
Oxide	230,000	1.9	0.7	0.3	20.0
Transitional	330,000	1.9	0.8	0.2	22.7
Fresh	3,430,000	3.3	0.5	0.3	25.7
Sub-total	3,990,000	3.1	0.5	0.3	25.1
INFERRED
Oxide	130,000	2.4	0.5	0.2	21.2
Transitional	430,000	2.9	0.5	0.3	16.7
Fresh	940,000	3.8	0.8	0.4	25.5
Sub-total	1,500,000	3.4	0.7	0.3	22.6
TOTAL	5,490,000	3.2	0.6	0.3	24.4

The information in this report that relates to the Mineral Resource estimate for Zone II (Fox) 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 CAIJIAYING AREA

Mineralisation at Caijiaying 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 calcsilicates and marble. Porphyry sills and dykes intruding along faults have then cut across the sequence.

On-going exploration in the area surrounding the mine at Caijiaying and within Hebei Hua Ao’s and Hebei Anglo’s tenement boundary continues to confirm the area to be highly prospective, indicating significant potential for further base metal and gold deposits.

During 2009, all existing datasets were reviewed and then imported into Graphical Information Systems (“GIS”) and three dimensional (“3D”) mining software. This enabled a multi layered targeting exercise to be undertaken with a number of datasets able to be viewed at the same time in real space. This also allowed a 3D magnetic model to be constructed, giving geologists a better understanding of the main structural controls on mineralisation at Caijiaying.

Map Showing Location of Successful Drilling

HEBEI HUA’ AO LICENCE AREA

The 1.5 kilometre 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. Zone III contains the current Mine and at Zone II, approximately 1.5 kilometres to the south of Zone III, drilling defined an initial JORC resource estimate of 5.49 million tonnes of 3.2% zinc, 0.6% lead, 0.3 grams per tonne gold and 24 grams per tonne silver.

Work is underway linking access between Zone II and Zone III by extending the Fox decline from Zone II northwards towards Zone III and developing a drive southwards from Zone III towards Zone II. The aim of this work was firstly, to provide a more practical drilling platform than drilling from the surface through soft aeolian sand as further significant resources are expected to be defined at between Zone II and Zone III as this should provide additional ore for the processing facilities at Caijiaying, and secondly, to facilitate haulage and services access when mining commences from this area.

In 2009 the importing of the existing IP anomalies into the 3D computer environment with the overlaying surface magnetic and geochemical imagery emphasised the need for further drilling to test the effectiveness of IP for detecting zinc mineralisation. Two strong IP anomalies were able to be tested from existing drill cuddies off the main decline and the Fox Linking Drive. Drilling returned immediate success with hole UGCJY-1657 intersecting multiple zones of zinc mineralisation including 9.52 metres @ 7.25% Zinc from 218.68 metres and 3.69 metres @ 13.17% Zinc from 282.36 metres (the assay results were from the Mine’s laboratory). Drilling will continue through 2010, both inside and outside of the IP anomalies. Drilling will be further expanded should the IP technology continue to prove to be a successful targeting tool in identifying zinc anomalies at the Caijiaying.

As indicated previously, the remodelling of the entire Zone III known deposit was completed in 2009 which provided a much improved picture of the mineralisation. This has led to several high priority drill targets being identified and the commitment to a three year underground development and drilling programme to test all targets and confirm, upgrade and extend the global resource base within the Zone II - Zone III corridor. The drilling programme is already well underway and the aforementioned IP drill testing is part of this programme.

Superimposed Diagrammatic View of Caijiaying. Courtesy of Google Maps

HEBEI ANGLO LICENCE AREA

Hebei Sino Anglo Mining Development Company Limited (“Hebei Anglo”) in which Griffin has a 90% equity interest has the exploration rights over 55.7 square kilometers surrounding the 11.3 sq km exploration and mining licence areas held by the Hebei Hua-Ao Mining Development Company.  This area contains epithermal areas of alteration containing known gold and silver occurrences.

In the summer of 2004, a reconnaissance ground magnetic survey, at 200 metre line spacing, was carried out over the area of the epithermal anomalies.  This was continued in 2005 by an infill ground magnetic survey to define drill targets.  Two targets were subsequently tested in 2005 in the western areas by RC drilling. These holes intersected a Proterozoic basement (similar host rocks as in the Caijiaying mine, owned and operated by Hua-Ao) and so have potential for base metals as well as gold mineralization.  

Two prominent ground magnetic anomalies detected at reconnaissance-scale in 2004 were revisited and surveyed in more detail in 2006. The most prominent of these anomalies has been estimated to contain 10% magnetite and covers an area of several hundred metres in length, width and depth. It is situated below a sand-covered valley near Hebaogou village, some 2.5 kilometres east of Zone II. To the northeast near Ershili Naobao village, several tight magnetic anomalies were detected off the flanks of a faulted porphyry intrusion which returned anomalous rock chip and soil geochemical results, particularly Au, Ag, Cu, Zn and Hg. These prominent ground magnetic anomalies were further investigated in 2007. Drilling at Hebaogou was unsuccessful intersecting an unmineralised hydrothermal breccia. At Ershili Naobao soil sampling, trenching and IP surveys were undertaken and have identified zinc anomalies.

During 2008, a field programme was undertaken comprising geological mapping and the collection of 422 soil and 98 rock samples. Assaying revealed the presence of gold, copper, zinc, molybdenum and lead geochemical anomalies. A short drilling programme was undertaken to test a concept that mineralisation extended across the F45 fault that runs through the licence area. Success would have extended the strike length of mineralisation another few kilometres. The programme had to be abandoned due to poor drilling conditions resulting from very broken ground. The concept remains untested.

Newly developed geochemical techniques continue to be evaluated to determine if they can be used to discover mineralisation beneath Aeolian sands. This sand blankets a large part of the tenement block thereby hindering exploration. The ability to “see through” this cover would be a major advance in exploration of the Caijiaying region and for all areas covered by similar sands.

Magnetic Image of Caijiaying Tenement Field

A detailed magnetic interpretation has been undertaken in the larger Hebei Anglo licence area, allowing the major controlling structures to be modelled in three dimensions. The magnetic interpretation was compared with geochemical data and a number of targets have been selected for future drill testing. Mapping and rock chip sampling programs have been undertaken to further validate the targets before drilling.

A total of four diamond drill holes were completed in 2009, targeting several coincident geochemical and geophysical anomalies. The ultimate aim of the drilling was to:

1. Determine the thickness of Jurassic volcanic units in order to assess the likely effectiveness of geophysical and geochemical techniques;
2. Intersect the interpreted structures of interests, favourable host lithologies and, extrapolatively, mineralisation;
3. Determine the sources of surface geochemical anomalies; and
4. Refine the three dimensional stratigraphic and structural models to help in developing a strategy for the 2010 field season.

Twenty-five rock chip samples were collected in 2009 and some mapping completed before drilling commenced. The results are encouraging with all drill holes penetrating to the Proterozoic basement. Jurassic volcanic cover has generally been less than 100 metres thick, which is encouraging for potential future work such as IP surveying. A number of the rock chip samples returned anomalous zinc, gold and

Applied research is being undertaken by Dr Zhaoshan Chang of the ARC Centre of Excellence in Ore Deposits at the 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.