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 491,848 tonnes of ore processed in 2008 and 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, new accommodation and administration building extensions and other site infrastructure. The construction of a new crushing circuit has not yet been completed and a second primary ball mill purchased but not yet installed. When completed, this should enable processing capacity to be increased to 750,000 tonnes of ore per annum.

Underground at Caijiaying

MINE OPERATIONS

Since commencement of operations in July 2005 production capacity has continued to increase at the Mine which allowed 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 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. As a result, the upgrade remains ongoing. However, sufficient progress on the upgrade of the processing plant being made such that processing rates equivalent to 600,000 tonnes of ore per annum have already been achieved.

From 1st January 2009 to 1st June 2009, during a period of relatively low metal prices and Chinese holidays, mine operations were temporarily suspended to facilitate mine development, maintenance work and plant upgrades. This enabled the Company to cost effectively work without interruption from blasting and haulage traffic, to: lubricate, replace and overhaul existing sections of the processing facilities; and complete ongoing upgrade construction. This work was successfully concluded in May allowing production to recommence at the beginning of June 2009.

Ore Processed

Zinc metal in concentrate production has been impacted by a decision to reduce the cut off grade at which ore is mined at a time of high prices leading to a reduction in the head grade of zinc, and also other variations in the zinc grade, a normal occurrence given the numerous lodes carrying various grades of zinc mineralization and the scheduling of mining of these different lode systems.

Zinc metal in concentrate produced has increased from 6,676 tonnes in 2005, to 20,138 tonnes in 2006, to 21,781 tonnes in 2007, to 22,922 tonnes in 2008. Production of a second concentrate containing lead, silver and gold commenced at the end of 2007. Production of gold in concentrate increased from 15 ounces in 2007 to 2,421 ounces in 2008, silver in concentrate increased from 6,470 ounces in 2007 to 171,888 ounces in 2008 and lead in concentrate increased from 13 tonnes in 2007 to 1,127 tonnes in 2008.

Whilst recovery rates for zinc have held in excess of 95% through 2008, recovery rates for lead, gold and silver have not yet met expectations and further work is being undertaken in an attempt to improve recovery rates.

Metal Production

To date, mining operations have been directed at the upper levels of the mine. Development of the lower levels of the mine have been delayed by permitting issues and, in particular, delays in obtaining an environmental permit required for the expansion of mining operations. The Company has working to resolve these issues and has been advised that in the main these issues have been resolved with the expectation of being able to commence developing the lower levels in the Autumn.

With the development of the lower levels of the mine, grades, particularly for gold, are expected to improve as drilling results indicate higher gold grades at lower levels.

Underground stope at Caijiaying

The Mine continues to rank in the lowest quartile of zinc producer costs. The commissioning of the second processing circuit to produce a gold, silver and lead concentrate in December 2007 and the commissioning of a backfill plant to fill underground voids have caused costs to increase. Administrative costs have also increased in China with local managers being appointed by the Chinese joint venture partners to certain administrative positions following the start of the Chinese profit sharing in July 2008. All costs are kept under review to ascertain where costs can be reduced.

Underground mine development is continuing in order to provide increased throughput to the processing facilities. The main “Northern Decline” has been to be extended to the lower levels although development of the lower levels has been delayed by permitting issues. During 2008, 433,274 tonnes of ore were mined (2007: 430,891 tonnes). Mining was hindered during 2008 by difficulties in sourcing supplies, most notably explosives, during the Olympic and Paraplegic Olympic Games in Beijing and delays in accessing the lower mine levels. The inability to access the lower levels has resulted in having to revert to shrink stoping to extract ore as opposed to up-hole benching. Greater use of up-hole benching, which allows for increased extraction rates albeit with greater dilution, will be made to extract ore from the lower levels which are expected to be more amenable to such mining methods.

In 2008, 7,392 meters (2007: 7,200 meters) of underground drives, rises and cross cuts were developed. During 2008, within the area of current mining activities at Zone III, over 35,570 metres (2007: 34,000 metres) of underground infill and exploration diamond drilling was completed. Following the discovery of mineralisation and the preparation of an initial resource estimate in 2007 at Zone II (approximately 1.5 kilometres to the south of Zone III), a further 120 meters of underground drives were constructed from the “Fox” exploration decline at Zone II. This development was undertaken to enable further exploration drilling in the future.

Resource definition drilling at Caijiaying

In 2008 work was started on the development of a drive connecting Zone III and the extended Fox decline at Zone II. This will give services and haulage access to the Zone II resources for future development. It will also provide a suitable drilling platform and allow cost effective underground exploration drilling of the area between Zones III and II.

To date the Caijiaying mine has operated without any significant accident or environmental incident, retaining an excellent safety and environmental record.

RESOURCE ESTIMATES 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 2008 grade control drilled areas is based on information compiled by Mr L Marshall BSc. MAIG. The mining depletion of the FinOre 2006 Mineral Resource estimate was carried out by Mr L Marshall. Mr. Marshall is a full time employee of Griffin Mining Ltd. The information relating to the FinOre 2006 Mineral Resource and the Micromine2002 Mineral Resource estimates were compiled by Mr C Fawcett BSc (Hons),G Dip Eng, MAusIMM of FinOre and Mr D Pertel MSc. MAIG. of Micromine Consulting Ltd. Mr Marshall, Mr Fawcett and Mr Pertel 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 summarises the Mineral Resource as at 31 December 2008 for:

• The grade control drilled area defined by the FinOre 2006 Mineral Resource estimate
• The non grade control drilled area defined by the Micromine 2002 Mineral Resource estimate

The figure below is the FinOre 2006 Mineral Resource and the 2008 Mineral Resources (grade control drilling) and the 2002 Inferred Mineral Resource (historic surface drilling only).

Defined Resource 2008

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.

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 calc-silicates 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.

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.

Superimposed Diagrammatic View of Underground Mine Workings at Caijiaying. Courtesy of Google Maps

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.

HEBEI ANGLO LICENCE AREA

A detailed review of the ground magnetic data in the Hebei Anglo licence area has revealed an anomalous circular magnetic anomaly to the east of Zone II, termed the Xiaobazi Prospect. 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. 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 are currently being 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

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.

Plant upgrade work on a new crushing circuit summer 2008