Mladen Ninkov at Caijiaying

Welcome to Griffin Mining Ltd’s web site. Griffin Mining Limited through its subsidiary companies has been operating in China since 1997 and remains one of the few foreign mining companies operating in China. In 2005 Griffin brought the Caijiaying zinc gold mine into production and since then has striven to increase production from initial throughput of 200,000 tonnes of ore per annum to rates in excess of 500,000 tonnes of ore per annum. Work is well advanced in upgrading the processing plant to increase capacity to 750,000 tonnes of ore per annum, potentially more. Unfortunately 2009 was a difficult year following the unforeseeable catastrophe of the Global Financial Crisis in the final quarter of 2008 and the subsequent collapse in commodity prices. As a result the Company decided to shut down mining operations at Caijiaying, place staff on temporary leave and undertake long term maintenance and extensive geological work whilst the economic opportunity cost of doing so was minimal. Further, a concerted effort was made at this time to ensure the economic performance of the mine was enhanced once production restarted by seeking to cut any extraneous costs.  Whilst these measures are not apparent in the 2009 results, which were impacted by the suspension of mining, costs have been declining per tonne of metal produced since the restart of operations.

Operations recommenced after a five month shutdown in the first week of June 2009. This led to an immediate return to profitability with profit before tax in the second half of 2009 being $8.6 million compared to a loss of $6.1 million in the second half of 2008.

There were a number of momentous developments for the Company in 2009/2010. The first was the receipt of the new mining licence to mine below the 1300 level. This immediately enabled larger and higher grade ore lodes to be accessed via more extensive mechanised mining which led to increased extraction rates. The new licence also justified the decision to complete the processing plant upgrade, including the installation of a new primary ball mill, a new crushing circuit, the construction of a very large third tailings dam and all ancillary equipment, to allow a minimum throughput capacity of 750,000 tonnes per annum. This upgrade is scheduled to be completed by the 10th of August 2010. The economic benefits which should flow should be substantial. As a result of the suspension of operations and the need to retain funds in China to finance the upgrade of the processing facilities and mine expansion, the Company decided not to declare a dividend for the 2009.

The publication in 2010 of the new JORC reported Mineral Resource for Zone III at Caijiaying, confirmed the very extensive mine life available at Zone III at the higher production levels expected to be obtained in the late summer of 2010. This does not even take into account the ore believed to be contained at the lower levels of Zone III, the known ore at Zone II and the significant resources believed to be housed in the area between Zones II and III.

Of course, mining continues to be a fixed cost business whose profitability continues to be governed by the swings inherent in commodity prices. Although the zinc price has been stable since the recommencement of operations, serious concerns still exist in the global economy with huge public debt levels, rising interest rates, a liquidity and associated housing bubble in China and world zinc supply outstripping demand. To lessen the impact to the Company’s financial health should some economic shock reoccur and zinc prices deteriorate as in 2008/2009, in 2010 the Company purchased put options over the next year’s production at a very modest cost. This was considered to be a prudent course of action whilst not in any way limiting the upside potential to the Company should the zinc price continue to rise.

As has come to be expected, the Company continues to aggressively investigate, evaluate and negotiate a myriad of mining companies and projects to find the next long life, profitable mine for its shareholders. The task continues to be a difficult one with many poor quality assets and companies available, but few projects uncovered of the standard which the shareholders of the Company have come to deserve and expect. The Company will continue to undertake this task energetically in 2010.

With respect to the Company’s investment in Spitfire Oil Limited (“Spitfire”), enough progress has been made to recognise the need to bring in a strategic partner capable of providing, primarily, the technical expertise needed to progress the development of the process for the commercial production of oil from the Salmon Gums lignite deposit.  In the interim, overhead costs have been minimised and all efforts have been placed on the strategic path needed to make Spitfire a commercial success.