Background

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. The mine operates 24 hours per day all year round.

Mineralisation was first discovered at Caijiaying in the 1960's but despite extensive exploration work by the Chinese the area was not properly developed in part because the mineralisation was misinterpreted as trending east west rather than as subsequently reinterpreted by Griffin as trending north south. Some small scale mining was undertaken in the area up until the beginning of the 21st century.

Five zones of mineralisation have so far been discovered in the original 10 sq km licence area. Zone III has been the main focus of activity for Griffin and is the zone of current mining operations. Zone II which is approximately 1.5 kilometers to the south has economically extractable deposits and is now known to be continuous with Zone III. Hebei Hua Ao is working towards obtaining a mining licence for the Zone II area enabling mining operations to be significantly expanded.

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. Griffin acquired its interest in Hebei Hua Ao in 1997.

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 the 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.

In 2005, Griffin successfully commissioned the Mine at Caijiaying, on time and within budget, with an initial design throughput rate of 200,000 tonnes of ore per annum. Production rates have been steadily increased since commissioning with processing rates equivalent to in excess of 750,000 tonnes of ore per annum achieved following the recent upgrade of the processing facilities. The processing facilities have recently been upgraded to include a third tailings storage facility, new crushing circuit and second primary ball mill.

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. This allowed the full economic benefit of these metals to be obtained by the Group. Previously gold, silver and lead were “lost” and unaccounted for by the smelters in the zinc concentrate.

Geology

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.

Local Environment

Griffin has invested heavily in the local community and instigated best practice regarding the protection of the environment. In this regard:

• Solid and liquid wastes are not disposed into the environment;
• All production water is recycled;
• Gas emissions from boilers are treated to remove pollutants;
• Mined out areas underground are back filled;
• Noise and dust from operations at Caijiaying are strictly controlled; and
• All non-recyclable wastes from supporting facilities are treated in an incinerator

Griffin's efforts in this regard were rewarded by Hebei Hua Ao being presented with the environmental award at the 2010 China Mining Conference.

Hebei Hua Ao has provided direct water supplies to the local villagers, constructed sealed roads to the Caijiaying mine and nearby villages, financed the construction of a local kindergarten, old peoples rest home, and assisted with other infrastructure projects. Hebei Hua Ao has also assisted in the upgrade of facilities at the local township school and set up "Project Hope" to provide scholarships to local students. Griffin estimates that the Caijiaying mine has provided employment directly and indirectly to over 1,000 Chinese minimising the employment of foreign personnel.

Mine Operations 2010

With the grant of a new mining licence on the 15th January 2010, work commenced below the 1300 level (approximately 120 metres below surface), opening up more stopes and thereby enabling mine production to be increased. With more stopes opened and more consistent ore bodies at the lower levels, mine production increased to over 56,000 tonnes in May 2010 (the equivalent of 672,000 tonnes per annum). Gold grades have also improved as the lower levels have been accessed.

In the 6 months to the 30th June 2010, a record 278,044 tonnes of ore were mined. Processing rates had been increased with over 51,000 tonnes processed in July 2010 (the equivalent of 612,000 tonnes of ore per annum) without the benefit of the new ball mill and crushing circuit. In the six months to 30th June 2010 a record 260,316 tonnes of ore were processed with a record 15,101 tonnes of zinc metal in Concentrate, 4,570 ounces of gold and 105,475 ounces of silver produced. In addition, 441 tonnes of lead in Concentrate was also produced.

Good progress was being made to reach a target mine production of 750,000 tonnes of ore per annum by the Autumn of 2010 in anticipation of the completion of the processing facilities upgrade. This progress was interrupted when mining operations were suspended following two fatalities on site. The Chinese authorities launched an immediate investigation into the causes of the fatalities with the full co-operation of Hebei Hua Ao and the local personnel. The Chinese government authorities did not conclude their investigation and report until early December 2010 and did not allow operations to recommence until all the safety recommendations had been implemented, including greater supervision of sub-contracted underground workers by site management.

Underground maintenance work was further restricted in late September 2010 when electrical power to Caijiaying and surrounding areas was curtailed to meet Chinese carbon emission targets. Hebei Hua Ao was able to secure sufficient power from its own diesel generators to avoid any significant flooding of the Caijiaying mine. This allowed mine operations and production to restart promptly on the lifting of the suspension.

Since the re-commencement of operations, mine production has been steadily increasing to meet the increased processing capacity provided by the recently completed upgrade.

During 2010 6,038 metres of development work was completed including further development of the north and south declines to access the lower levels of the Zone III mine and also the development of the drive proposed to link Zone III to Zone II.

Approximately 24,425 metres of extensional and grade control drilling was completed underground in 2010.

With the hydraulic backfill plant commissioned in late 2009, backfill operations have continued in 2010 minimising the amount of waste material going to the tailings dams and allowing less mineralised ore to be left underground to the detriment of profitability.

During 2010, the first two tailings dams were lifted to increase their capacity and a third tailings dam was constructed with the first cell commissioned on recommencement of operations in December 2010.

Work on the upgrade of the processing plant continued apace in the first 7 months of 2010 with the installation of a second primary ball mill, construction of new crushing circuit and integration of all new equipment including new floatation cells. Construction and installation was completed by the end of July 2010 with commissioning underway by the time of the mine fatalities. Whilst processing continued until 20th September 2010 when all remaining surface stockpiles were exhausted, this did not allow for proper commissioning of the new processing facilities. Commissioning of the new ball mill and new crushing circuit recommenced in December and is now complete. Initial test runs have provided some indication that the upgraded processing facilities may be capable of processing as much as one million tonnes of ore per annum and possibly more. This would allow ore from the Zone II area, which has yet to be developed, to be processed.

Resource Estimates

In January 2011 the latest JORC reported Mineral Resource Estimate for Caijiaying was produced. The results not only significantly increase the contained tonnes and metal within the Zone III mineral resource after mining depletion, but also almost doubles the contained tonnes and metal within the Zone II mineral resource. In summary:

1. An 18% increase in the mineral resource at Zones II & III rising from 32.8 million tonnes to 38.6 million tonnes, representing a 30 plus year mine life at the increased throughput rate.

2. The following increases:

• 12.1% increase in contained Zinc;
• 28.4% increase in contained Lead;
• 15.2% increase in contained Silver; and
• 12.8% increase in contained Gold.

3. A 12% increase in the zinc grade and a 72% increase in the tonnage of the mineral resource at Zone II.

Drilling has continued to provide success along strike and south of Zone III to Zone II, allowing the reinterpretation and upgrade of the Zone II Mineral Resource Estimate. A 25,000 metre surface and underground drilling program is in progress. More underground drilling was undertaken in the mine corridor between Zone II and Zone III during 2010. Drilling continued to intersect significant mineralisation which added to the Zone II Mineral Resource Estimate. This work has continued in 2011.

With the Mineral Resource Estimate at Zone II approaching 10 million tonnes and the drilling density approaching the required level, it is envisaged that an application for a mining licence over Zone II will be made in the near future. The mining licence application will ensure that all the known mineralization covering Zones II and III and the contiguous area between them will be covered. This should allow a second ore source to be mined at Caijiaying and significantly extend the life of the mining operations.

The 2011 Mineral Resource estimate is reported at a zinc cut-off of 1%. Tabled below is the summary of the recently up-dated 2011 Mineral Resource.

2011 Mineral Resources Estimate

Zone III

Zone II

Note: Zone II Resource includes 1.49 million tonnes at 3.09% Zinc oxide material.

The information in this report that relates to the January 2011 Mineral Resource estimates 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.

Exploration Hebei Hua Ao Licence Area

Drilling activity was increased in 2010 with up to six rigs operating underground at Zone III and three rigs operating on the surface between Zone II and Zone III. Many positive results were returned, which resulted in a significant increase in the mineral resource inventory at Caijiaying. Approximately 12,885 metres of surface drilling and 38,000 metres of underground diamond drilling were completed for the year. Drilling targeted Zone II, Fu Long South, Qing Long Deeps, Qing Long South, Jin Long South and Xiao Long East lodes.

A combination of step-out and infill underground drilling continued to extend the Zone III mineralisation in all directions and improve confidence levels within the Mineral Resource Estimate. Mineralisation remains open to the north, south and at depth. Importantly some of the thickest and highest grade intercepts to date have been returned from the deepest drilling which indicates that Zone III at least maintains continuity with depth, perhaps strengthening in areas such as Qing Long.

Surface drilling intersected a number of new zones of mineralisation between Zone II and Zone III and extended other previously identified zones. All of the surface drilling data between Zone II and Zone III has been incorporated into a new Zone II mineral resource estimate. The result is an increase of almost 100% in the tonnage of the Mineral Resource Estimate for Zone II. Zone II mineralisation remains open to the north and at depth.

The focus for 2010 was to drill the Zone II Zone III corridor and Zone III deeps with four main objectives in mind:

1. Increase the tonnage and grade of the Mineral Resource Estimate for Caijiaying, targeting a 50% increase in overall tonnage and a 100% increase in measure and indicated tonnage within three years.

2. Provide the drill coverage and resource inventory required to be able to apply for a mining licence over Zone II.

3. Drill some deep holes underneath Zone III to confirm the new geological interpretation and extend the Mineral Resource.

4. Effectively test existing Induced Polarisation ("IP") anomalies.

A combination of surface and underground drilling was undertaken with success in all four of the objectives.

The other activity undertaken during 2010 was a soil sampling orientation survey. The aim was to find a geochemical technique that would be effective in areas of deep sandy cover.

Surface drilling was conducted on 200 metre sections with hole spacings along section of 100 metres. These drill sections essentially straddled the already drilled sections. The result was a drill density between Zone II and Zone III of better than 100 metre by 100 metre, and generally closer than 100 metre by 50 metre. With the underground drilling from the Fox Incline, at Zone II, and linking decline providing closer than 50 metre by 50 metre spacing, Hebei Hua Ao will be able to start the application process for a new mining licence over the Zone II area.

Underground drilling was completed from the linking decline and from the bottom of the mine at the 1260 level. Underground drilling was very successful with broad high grade intercepts being returned, confirming and extending the geological interpretation and Mineral Resource Estimates for Zone II and Zone III.

Zone II was re-modelled based on the new drill hole data resulting in significant increases in estimated grade and tonnage.

Exploration Hebei Anglo Licence Area

Work during 2010 was limited to an orientation soil sampling survey, field mapping and rock chip surveying. The results indicated that no geochemical technique would be effective in areas of “Mongolian Sand” cover, so a larger routine soil sampling survey did not proceed. Field mapping is ongoing and is due to recommence in the summer 2011.

A large IP survey was planned assuming positive results from drilling of the existing IP anomalies between Zone II and Zone III. Even though drilling intersected many zones of zinc mineralisation, there did not appear to be a strong relationship between mineralisation and the IP anomalies. Therefore no further IP surveying is planned at this stage.