Griffin Mining Ltd. Annual Report 2004

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FY2004 Annual Report · Griffin Mining Ltd.

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CONTENTS

Chairman’s Statement

Review of Operations

Directors and Senior Executives

Directors’ Report

Report of the Independent Auditors

Consolidated Profit and Loss Account

Consolidated Balance Sheet

Statement of Total Recognised Gains and Losses

Consolidated Cash Flow Statement

Accounting Policies

Notes to the Financial Statements

Corporate Information

Page

Registered number: EC13667 Bermuda.

Registered Office: Clarendon House, 2 Church Street, Hamilton HM11, Bermuda

Principal Office: 60 St James’s Street, London SW1A 1LE. UK

REPORT AND ACCOUNTS 2004Griffin Mining Limited is a mining development and investment company whose principal asset

is the Caijiaying zinc-gold mine, located 200 kilometres north-west of Beijing, China. The mine

and processing facilities are currently in the process of being commissioned.

Further information on the Company is available on the Company’s web site:

www.griffinmining.com.

Griffin Mining Limited’s shares are quoted on the Alternative Investment Market (AIM) of the

London Stock Exchange (symbol GFM)

GRIFFIN MINING LIMITED The processing plant at Caijiaying

REPORT AND ACCOUNTS 2004CHAIRMAN’S STATEMENT

Mladen Ninkov, Chairman, at Caijiaying

The last 7 years have shown management to have

made some significant and positive decisions. The

Company now has a project almost in production

with no debt on its balance sheet, no hedging

commitments and substantial cash balances. This is a

unique and extremely strong financial position for

the Company to find itself in. The Company is not

hampered by penury commercial bank covenants,

nor the need to pay interest on any debt and has not

been hamstrung by the obligation to sell forward its

base and precious metals production. Significantly,

the Company was able to avoid the need to appoint

an EPCM contractor to build the Caijiaying facilities

on a "fixed price" contract basis, a usual requirement

of bank financing. Instead the Company itself has

controlled the building of Caijiaying due to its strong

balance sheet position. The cost savings to

shareholders have been substantial.

The history of the junior mining company market

is one often characterized by endless capital

This does not mean, of course, that the Company

raisings, on-going drilling programs, promises

will rest on its laurels. The Company operates on

made and promises broken and, in the end, failure.

the well known expression, "If you are not moving

But ever so rarely, one small junior mining

forwards, then you are moving backwards."

company with a project usually belittled by its

However, unlike so many other mining

peers, journalists and mining analysts, rises from

companies, the success of Caijiaying will not be

the ashes to shake the very foundations of the

dissipated by leveraging into an unwise acquisition

mining industry. Such a company is Griffin

or joint venture. Caijiaying still has enormous,

Mining Limited ("Griffin" or the "Company").

untapped potential.

After a long, arduous and frantic 7 years, having

In the first instance, the Company will

weathered the doom merchants and scare

immediately start examining the viability of

mongers, the Company stands ready to finally

expanding its production to 150% of its planned

deliver on its promises with completion of

first year throughput. That will be a primary

construction of the Caijiaying processing facilities

focus of the Company. Secondly, a huge amount

and the developed underground mine workings at

of ground within the Company’s licence areas at

Caijiaying. As we go to press, dry commissioning

Caijiaying require both primary and secondary

has begun at Caijiaying and, by the time of the

exploration for precious and base metals. That

Annual General Meeting of the Company, full

also remains another primary focus of the

production should have commenced. To our

Company. Thirdly, the Company will continue

knowledge, Caijiaying will be the first foreign

to investigate, conduct due diligence and make

owned and built, new hard rock mining operation

calculated decisions on any future mining

in China in over 100 years.

acquisitions. These may occur anywhere the

GRIFFIN MINING LIMITED management believes it can find extraordinary

The employees and quasi-employees, past and

value with a project which can weather a

present, of both the Company and the Hebei Sino

commodities downturn and provide the

Australian Mining Development Company

necessary shareholder returns. Inevitably, our

Limited joint venture, who have worked so long

first country of interest has been, and will

and hard, should be recognized. In the early days

remain, China. Although we have examined

Bo Zhou and subsequently Jeff Sun, Ruilin Ji, Qi

many acquisitions in China, none has yet met the

Chengxiao, and Jin Shengchang. Western staff

mining, metallurgical and financial criteria we

including Stan Rogers, Campbell Powell, Bill

have set for the Company. The Company

Rankin, Roy Elliott and Les Hogan. Special

remains optimistic that such a project will be

mention should be made of our Chief Geologist,

offered

in due course

following

the

Warren Woodhouse, who can now be officially

commissioning of Caijiaying.

classified as the "old man" of the site having been

there longer than almost anyone.

Finally, an achievement like Caijiaying could not

have been achieved with anything other than a

The various experts and consultants who have

remarkable, cohesive and talented group of

traveled to China consistently over the last year.

individuals. It would be remiss of me not to

Mention needs to be made of Alan Senior, Gary

mention just a few of these people.

Patrick, Doug Cooper and many, many others. The

financial advisors who have supported the Company

In the mining world every project must have a

over the years including our nominated advisor and

champion. Someone who truly believes in a

broker, Charles Stanley and Company Limited, and

project through all its adversities. Someone who

in particular Giles Leather, and all the staff at Ocean

says it will work and then makes it work. Someone

Equities, in particular Guy Wilkes.

who proves the soothsayers wrong. For Caijiaying

that person is Rupert Crowe of CSA Australia Pty

Finally, you the owners of the Company must be

Limited. Although on secondment to Griffin as its

thanked. For it has been your commitment to the

Project Manager, Rupert has been Caijiaying’s

Company and your financial support which has seen

champion from the beginning and must be

Caijiaying come to fruition. A number of financial

recognized as such.

institutions have been staunch and long term

supporters of the Company and they need to be

The board of directors (both past and present)

recognized and thanked. In particular Adam Usdan

have laid their reputations on the line and

at Trellus Management LLC has been the pillar on

worked tirelessly, many years without

which this Company has been built.

compensation, to fulfil their dream of a mine in

China. That contribution needs to be

All that remains now is for the market to

recognized. That includes past directors Craig

understand and value the unique project and

Niven, John Goodger, Gordon Montgomery

position Griffin has in China. We await the day.

and John Steele and the long standing current

directors Dal Brynelsen, Bill Mulligan and

Roger Goodwin. In that regard, no-one has

worked harder and longer for the Company

Mladen Ninkov, Chairman

than Roger.

9th May 2005

REPORT AND ACCOUNTS 2004REVIEW OF OPERATIONS

Introduction

Caijiaying Area

Griffin is a mining and investment company listed

on the Alternative Investment Market of the

London Stock Exchange. Griffin, through two

joint ventures, has a controlling interest in mining

and exploration licences over 67 square kilometres

in the Caijiaying area of the Hebei Province

("Caijiaying") in the Peoples Republic of China

("China" or "the PRC").

Commissioning of the mine and processing

facilities at Caijiaying has commenced with an

initial production rate of 200,000 tonnes of ore

per annum to produce some 22,000 tonnes of

zinc metal plus gold, silver and other associated

metals for at least 14 years. The Company’s

management is investigating ways to increase

production at Caijiaying as soon as possible.

The area surrounding Caijiaying and within

Griffin’s tenement area is highly prospective,

indicating significant potential for further

economic base

and precious metals

mineralization.

Caijiaying mine location

Caijiaying is located approximately 200 km north

west of Beijing in the Hebei Province of the PRC.

The site is easily accessible by sealed road, has

adequate water supplies available

from

underground sources and is connected to the

electricity grid.

The Caijiaying area is on the south-east edge of

the Mongolian Plateau. Conditions are not severe

although winters are cold and dry.

Panorama of Caijiaying processing plant during construction in the winter

GRIFFIN MINING LIMITED Legal Structure

PRC when it was granted a mining licence over

1.56 square kilometres of the original 11.3 square

Griffin’s initial interest in Caijiaying was obtained

kilometre licence area at Caijiaying. In April 2005

through its local Chinese subsidiary company the

this licence was renewed for a 15 year period to 14

Hebei Hua' Ao Mining Development Company

April 2020.

Limited ("Hebei Hua-Ao").

The Company has long recognized the

Hebei Hua-Ao is a contractual joint venture entity

exploration potential of the area surrounding the

established in 1994 in which Griffin, through its

original 11.3 square kilometre licence area at

wholly owned Australian subsidiary company

Caijiaying. On 5 June 2000 an exploration

China Zinc Pty Ltd ("China Zinc"), holds a 60%

licence was granted covering an area of over

equity interest and the Chinese joint venture

102.2 square kilometres of highly prospective

partners (which include the Zhangjiakou City

ground surrounding the existing licence area at

People’s Government, the Hebei Bureau of

Caijiaying. This licence area has since been

Geology and Mineral Resources and the Third

reduced to discard the non-prospective areas and

Geological Brigade) have a 40% interest.

a new 2 year exploration licence was granted

Significantly, for the first 3 years of commercial

covering 55.7 square kilometres in January 2003.

production 100% of the cash flows accrue to

This licence has since been renewed for a further

China Zinc and ipso facto Griffin.

2 year period.

In October 1998 Hebei Hua-Ao was the first

In January 2004 a second contractual joint venture

foreign controlled joint venture to be awarded a

company, the Hebei Sino Anglo Mining

new exploration licence for a hard rock deposit in

Development Company Limited ("Hebei Anglo"),

the PRC when it received an exploration licence

was formed to hold the above exploration licence

covering an area of 11.3 square kilometres at

over 55.7 square kilometres and any further areas

Caijiaying.

of interest in the Hebei Province. Griffin, through

its wholly owned UK subsidiary company, Panda

On 21 March 2002, Hebei Hua-Ao became the

Resources Limited, has a 90% interest in Hebei

first foreign controlled joint venture to be granted

Anglo. The other Chinese shareholders remain the

a mining licence over a base metals deposit in the

same as in Hebei Hua-Ao.

From left to right: Jen Shengchang (CFO Hebei Hua-Ao); Xu Weiwem ( Foreign affairs director Zhangjiakou
City Government); Jeff Sun (General Manager Griffin China); Roger Goodwin (Finance Director Griffin); Gao
Jinhao (Mayor Zhangjiakou); Mladen Ninkov (Chairman Griffin); Zhang Baoyi (Chairman Zhangjiakou People
Congress); Rupert Crowe ( Project Manager); Qi Chagxiao (Deputy General Manager Hebei Hua-Ao).

REPORT AND ACCOUNTS 2004Enhanced satellite and air-photo imagery of the Caijiaying region

Caijiaying Geology

system has been confirmed with mineralization

displaying many features in common with other

The Caijiaying zinc mineralization is believed to

economic epithermal deposits.

have been emplaced 131-204 million years ago

during a volcanic episode that affected ancient, 2.3

The main mineralization occurs within distinct

billion-year-old metamorphic rocks, along a major

north-south trending altered corridors separated by

northeast-trending structure.

zones of barren rock. These are situated within

synclinal folds, formed as part of a conjugate set of

The base metal mineralization is believed to have

structures in response to movement along the

been caused by replacement of certain horizons in the

regionally important F45 Fault. This fault trends

metamorphic rocks by hot metal-bearing solutions

east-northeast across the area south of the main

during the early stage of a volcanic system. Some

deposits. The line of this fault is believed to be on a

gold may have been deposited at this time, but the

zone of crustal weakness which is thought to have

main gold event is interpreted to have occurred later

acted as a conduit for rising mineralizing fluids.

as a hot-spring or epithermal type of mineralization

towards the end of the volcanic period. This type of

Caijiaying Discovery

epithermal mineralization usually consists of gold and

silver (with minor base-metals) deposited in veins and

Mineralization was first identified in the Caijiaying

breccias with extensive alteration of the surrounding

area during the Chinese "Cultural Revolution" in

rock by the hot fluid. The epithermal nature of the

the late 1960’s. Subsequently, the Third

GRIFFIN MINING LIMITED Geological Brigade of the now defunct Ministry of

Development of Caijiaying

Geology and Mineral Resources (predecessor to

the Ministry of Land and Natural Resources, a

Since 1994, China Zinc, through Hebei Hua-Ao,

shareholder in Hebei Hua-Ao), conducted 10

has expended some $5 million on Caijiaying on

years of exploration work on Caijiaying, including

exploration and pre development work, again

95,000 metres of diamond drilling.

mostly on zone III. This includes the cost of a pre-

feasibility study, a mining scoping study, resource

Within the original 11.3 sq km licence area at

statements, approximately 10,000 metres of

Caijiaying, the Third Brigade defined 5 separate

diamond drilling, 300 metres of underground

mineralized zones. Zone III, covering an area of

drive, ore-body modelling, metallurgical test work

some 1.5 square kilometres, has been the main

and various geological, metallurgical, engineering,

focus of exploration and development activity.

environmental, power and transport studies. This

The other zones have not been intensively

culminating in the completion of a full feasibility

explored, but drilling and other work, in particular

study in August 2003.

in zones II and V, have indicated significant

potential for further economic mineralization.

Underground trial mining in the southern section

of zone III completed in 2000 revealed that instead

The Caijiaying project has had a long

of dipping south, the main mineralized bodies

exploration history because of the complex

trend north, parallel to the drill grid.

nature of the mineralization, which was first

Consequently, the project was reassessed as being

interpreted by Chinese geologists of the Third

more amenable to smaller scale underground

Brigade as forming a series of E-W trending,

mining and, in 2000, the Company commissioned

fairly steeply (-50° to -70°) southerly-dipping

a mining scoping study from CSA Australia Pty

lenses from 0-500 metres below surface, and

Ltd ("CSA") in conjunction with Gillespie Mining

which led to the Chinese drill grid being

Services Limited. This indicated that an economic

orientated in the wrong direction, parallel to the

underground mine could be brought into

main mineralized zones.

production at Caijiaying.

Early surface drilling of Caijiaying ore-body

REPORT AND ACCOUNTS 2004In 2002 a program of diamond drilling was

or:

undertaken in the correct east-west orientation for

* An indicated resource of 6.95 million tonnes at

the first time. This showed that the mineralized

11.58% zinc and 0.64g/t gold; and

lodes occur within the north-south corridors and

that they dip 75-80º to the west. Recognition of

this geometry then allowed a new geological

resource model to be interpreted by CSA which

then formed the basis of a new resource estimate.

Resource Estimate

The results of the 2002 drilling program together

with the drill hole data from past work enabled a

new resource statement to be compiled by

independent consultants Micromine Pty Ltd

Consulting Division ("Micromine") in accordance

with the guidelines set out in the Australasian

Code for Reporting of Mineral Resources and

Ore Reserves (The JORC Code) with the

following results:

* An indicated resource of 16.9 million

tonnes at 7.84% zinc and 0.75g/t gold; and

* An inferred resource of 6.68 million tonnes at

8.69% zinc and 0.5g/t gold;

* An inferred resource of 3.602 million tonnes at

11.73% zinc and 0.49g/t gold;

* For a total resource of 10.56 million tonnes at

11.63% zinc and 0.59 g/t gold at a 7% zinc

cut-off grade

These resource estimates cover only zone III. The

interpretation of steep north-trending lode

orientations is consistent with the outcropping

mineralization at zone II, which is situated 1

kilometre to the south of the main zone III deposit.

This similarity of geometry strongly suggests that

the two deposits maybe continuous, opening up a

large area for further exploration. The mine has

been designed to enable this area to be accessed for

mining if exploration proves successful.

The diamond drilling program undertaken by

Griffin in the summer of 2002 also encountered

significant gold intercepts which taken together,

with earlier gold results allowed Micromine to

* For a total resource of 23.6 million tonnes at

compile separate inferred estimates for the gold

8.08% zinc and 0.68g/t gold at a 4% zinc cut-

resource at zone III, including 2.61 million tonnes at

off grade

6.78 g/t at a 3 g/t cut off.

The Chairman, Project Manager and Chief Geologist examining mineralisation underground at Caijiaying

GRIFFIN MINING LIMITED General layout of the Caijiaying mine and processing plant site

Feasibility study

modular Australian design to treat a precious-

metals concentrate from which both gravity and

With the benefit of the above resource statement

cyanide-extracted gold will be won.

Griffin commissioned CSA Australia to complete

a full feasibility study ("the Study") on zone III at

The Study demonstrated that the project is

Caijiaying, which was completed in August 2003.

robust and is capable of generating significant

This Study broadly followed the plan that was

profits even at historically low world zinc prices.

presented in the scoping study completed in 2000

Operating costs are expected to be amongst the

for a zinc-gold mine with an initial throughput of

lowest of any underground zinc mining

200,000 tonnes per annum using a western-style

operation in the world.

decline and low-cost Chinese mining methods to

feed a process plant to produce a zinc

The Study shows life of mine production of

concentrate. A gold processing plant was

314,250 tonnes of zinc metal and 108,450

included in the design to produce gold dore bars

kilograms of silver in 586,300 tonnes of

on site for refining and sale.

concentrates grading 53.6% zinc and 185 g/t

silver. In addition, 39,850 ounces of gold will be

The basic design of the mine incorporates a

produced in bullion. It is anticipated that gold

Chinese built process plant using conventional

production will be increased as the mine develops.

crushing, grinding and flotation technology to

produce a standard zinc concentrate for sale to the

The mine has been designed so that an upgrade of

local market. However, the gold circuit is of

mine production can be readily implemented.

REPORT AND ACCOUNTS 2004With the benefit of 100% of the cash flows

further combined zinc/gold blocks will be

generated by Caijiaying accruing to China Zinc in

delineated by stope drilling ahead of mining.

the first 3 years of commercial production,

preferential local tax rates (including no income

Tests have shown that the majority of the

taxes payable in the first 2 years of commercial

contained gold is free although a portion occurs

production), the Company is planning to increase

within the sulphides. With mining costs covered

production as soon as practicable.

by the zinc production, gold production costs are

The Study indicated the need for total pre-

production and working capital of US$15.7

Construction

expected to be minimal.

million. The Study was conducted using mainly

Australian experts for the mine process plant and

infrastructure and the leading base-metal Chinese

base-metal engineering institute the Beijing

Engineering Non Ferrous Institute (ENFI) for the

mine design so as to ensure compliance with

Chinese regulations.

Reserves

The ore reserves have been optimized by

Datamine Consulting and CSA and estimated by

ENFI according to the mine plan. Only those

reserves that relate to Phase I of the Caijiaying

mine development (i.e. the first 14.5 years) have

been included in the ore reserves. The result is a

Processing plant site preparation May 2004

Probable Ore Reserve (under the Australian JORC

With the benefit of the feasibility study, in

Code classification) of 2,570,000 tonnes at 12.59%

February 2004 Griffin completed a private placing

zinc, 0.42g/t gold and 445.63g/t silver. This

with institutional investors to raise £8.75 million

reserve is based on an optimized resource block

(US$16.2 million), before placing fees and

model at a 7% minimum zinc cut off and

expenses, to fund the development of the

incorporates 8% mining dilution and 8% ore loss.

underground mine and the above ground

processing and other facilities at Caijiaying.

In addition to the above computer-generated

reserve, the mining plan incorporates a manually

Detailed design work commenced immediately

interpreted inferred resource block of higher

upon completion of the fund raising and work

grade gold mineralisation of 330,000 tonnes at

started on refurbishing, widening and lengthening

8.61% zinc, 2.47g/t gold and 36.35g/t silver. This

the existing exploration decline constructed in

resource block does not include significant other

1999 / 2000. At the same time work commenced

gold intersections such as hole ZK313-14 falling

on refurbishing and upgrading the support

outside the current ore reserve and mine plan but

facilities and infrastructure at Caijiaying. Work

close to the area of initial mining, which produced

was also started on the sinking of a ventilation and

8 metres at 11.65 g/t gold, 7.12% Zinc and 31.13

access shaft for the underground drives to the

g/t silver from 118 metres. It is expected that

north east of the area to be mined.

GRIFFIN MINING LIMITED up the production decline direct to the

processing plant site.

Work continues on the production decline to

the lower levels and to the north of the area of

initial mining. This is to the main area of

mineralisation in zone III indicated from earlier

exploration work and surface drilling.

In May 2004 work commenced on construction

of the main processing plant buildings,

administration and office buildings and

supporting service facilities. Crucially these were

structurally completed before the onset of

winter allowing for the installation of plant and

equipment during the winter months. This was a

Accomodation block

With the widening and lengthening of the

significant achievement as the main processing

existing exploration decline, work commenced on

plant building comprises an interior of some

developing a production and ventilation drive at

69,000 cubic metres and was constructed using

the 1400 level, approximately 100 metres below

in excess of one million bricks.

the surface, to join up with the northern

ventilation shaft and provide access to the ore

bodies. Subsequently, a number of cross cuts

were driven and a sub-incline driven to the lower

1355 level.

A cross cut drive has also been put in to connect

the 1368 level to the main production decline to

allow early production of ore from below the

1400 level. The northern ventilation shaft has

been sunk to the 1355 level and a cross cut driven

from the bottom of the shaft. Stope development

has now commenced at a number of levels with

ore being extracted and stock piled ready for

commissioning of the process plant.

Ore stockpile ready for processing

In July 2004 work commenced on driving the

During the summer of 2004 the initial tailings dam

main production decline from the processing

was excavated, the sides built up and lined in

plant area to the workings being developed from

readiness for commissioning of the process plant.

the existing exploration decline. In January 2005

this production decline reached the main

By April 2005 all major items of plant and

production drive at the 1400 level allowing

machinery had been installed and plant dry

haulage of ore from the underground workings

commissioning commenced.

REPORT AND ACCOUNTS 2004defining high-grade lodes in locations not

originally included in the feasibility study ore

reserve. Crucially this drilling has found ore at

shallower levels allowing for early extraction of ore

and enabling ore to be stock piled in advance of

the processing plant being commissioned.

This will have a significant positive impact on the

economics of the Caijiaying mine. Over 10,000

metres have been drilled under

this

drilling program.

The main focus of the drilling programme since

July 2004 has been to define ore to be mined first,

above the 1400 level. Mineralization and

specifically the "Fu Long lode" (Rich Dragon),

has been identified above the 1400 level which

was not included in the feasibility study ore

reserve. Further lodes, namely the Jin Long lode

to the west and below the main 1400 level and the

Chang Long lode crossing the 1400 level to the

north, have also since been identified. The

drilling program has delineated the Fu Long and

Jin Long lodes down to the 1300 level, to the east

and west of the 1400 drive respectively.

A resource estimate and reconciliation with the

Feasibility Study estimate is currently underway on

the Fu Long lode. The drilling programs on the

Jin Long and Chang Long lodes are continuing as

both lodes are turning out to be more extensive

than originally believed from surface drilling.

Given the success of the underground drilling

programs, attention is now being given to

expanding the production rate. This will require

the continuation of an aggressive underground

drilling campaign over the coming months

together with continued upgrading of the geology

department to enable it to cope with the demands

of production at the same time as the exploration

drilling program. The geometry of the Jin Long

and Chang Long lodes appear to make them

more amenable to bulk mining.

View of processing plant from the tailings dam

The development of the mine and commissioning

of the processing plant is broadly on target and

the costs in line with that estimated in the

feasibility study.

Mine development

Main production portal

With access enabled from the underground drives,

an ongoing program of systematic underground

stope-definition diamond drilling is being

undertaken. The results from this underground

drilling to date has exceeded expectations in

GRIFFIN MINING LIMITED Administration and Management

The Griffin management team, working in

combination with ENFI, continue to provide a

cost effective and flexible management system,

maintaining management control for the benefit

of Griffin whilst at the same time accessing

Chinese

expertise

in designing

and

installing their own equipment. This system has

helped keep costs under control and

maintain timetables.

With the development of the mine and processing

facilities at Caijiaying, Hebei Hua-Ao has

Northern ventilation shaft

employed over 40 staff and has contracted with a

number of local entities for the provision of

authorities is already bringing significant

supporting services, building and plant

economic benefits

to Caijiaying

and

construction, and mine development. When in

surrounding areas.

full operation Caijiaying will have a complement

of some 240 people. During construction of the

In addition to local staff, a foreign mine manager

processing plant buildings over 500 people were

has been employed together with a foreign Chief

engaged at the Caijiaying site. It is the intention

Accountant. A number of foreign geologists have

of Griffin to employ local people and use local

also been engaged to work at the Caijiaying site

contractors wherever possible. This together with

as well as an underground drill supervisor and

improvements in infrastructure by the local

mine superintendent.

Some of the Hebei Hua-Ao staff underground at Caijiaying

REPORT AND ACCOUNTS 2004Caijiaying Exploration Potential

The Company has long recognised the exploration

potential of the Caijiaying area particularly for gold.

Now that the Caijiaying mine is coming into

production, Griffin is setting its priorities for future

exploration. Griffin intends to initially focus on

increasing already identified deposits, thereby

enabling the current planned mine production to be

enhanced thereby, increasing profitability.

The main objectives of future exploration will be to:

1. Prove up additional high-gold and moderate-

zinc grade ore blocks within the mine area;

2. Prove up wider underground zinc ore blocks

by underground drilling, to enable mine

throughput to be increased as soon as practical;

3. Explore for gold and zinc in the surrounding

prospects with the aim of proving up

additional resources that can be added to the

ore stream (zones II & V);

4. Explore between the present mine (zone III)

and zone II where there are indications that

significant mineralization may exist between

the two;

5. Re-evaluate the previous data and conduct

further exploration work in the original

licence area for further zinc deposits that

were not discovered by the wrongly oriented

previous drill holes; and

6. Conduct a regional epithermal gold exploration

program for stand-alone new deposits.

Main areas of interest following ground magnetic image survey

GRIFFIN MINING LIMITED As indicated above, a program of underground

Zone V

drilling is well underway to achieve the first two

parts of the plan.

Exploration of the nearby prospects at zone V,

containing old underground workings, will be tested

by a program of surface drilling. Following

completion of this drilling program a decision will

then be made as to whether to de-water the old

workings and conduct further exploration from

underground.

Area between zones III and II

A staged approach will be used to evaluate the large

area between zones III and II as this will take some

time. The first stage will be by surface reverse-

circulation drilling of wide-spaced holes. If a

sufficiently encouraging picture emerges, the next

Underground resource definition drilling

stage will be to drive underground towards this area

During the summer of 2004, an induced

more densely spaced resource definition drilling.

from the existing main production decline to allow

polarisation ("IP") orientation survey was

conducted over zone III and following this, a

Zone II

comprehensive IP survey was conducted over the

area between zones II and III. A short program of

Work at zone II will be integrated with the results

three surface holes was implemented before winter

of the program between zone III and zone II. It is

to test some of the anomalies. On the regional

expected that it will eventually be re-drilled to

programme, a reconnaissance ground magnetic

assess its suitability as a separate source of ore on

survey (at 200 metre line spacing) was completed

possible enlargement of the process plant.

over the area of epithermal gold anomalies. This

has yielded excellent results and a follow-up

Re-evaluation of existing data

detailed survey (at 50 metre line spacing) is now

being conducted which will be used to define

Now that the correct geometry of the

drill targets.

mineralization is better understood Griffin expects

to re-evaluate the data on the original licence area.

Griffin is now planning an extensive drilling

This will be an ongoing task as there is a large

program for the forthcoming summer using a

amount of previous data and there are many

western-style reverse-circulation rig. This will

targets to investigate.

allow much more cost-effective testing of the

various targets, particularly the regional

Regional epithermal gold targets

epithermal gold zones. Future exploration work on

the areas surrounding zone III at Caijiaying will

The regional epithermal gold targets that were

focus on the following:

delineated by geochemical surveys in 2002 will be

tested with the reverse-circulation drill during the

coming summer.

REPORT AND ACCOUNTS 2004The Future

Financial

The commissioning of Caijiaying lays the

The Group recorded a profit for the year of

foundation not only for Griffin to become a

$398,000 (2003 loss $20,000).

profitable mining company, but also gives it the

potential to further expand its influence in the

Operating costs in 2004 were $1,048,000 (2003

mining sector of the world’s largest mineral

$586,000).

producer China. With Caijiaying coming into

production and with Griffin having invested

Foreign exchange gains of $939,000 were recorded in

$20m into China, Griffin and its management

2004 (2003 $476,000) on foreign currency deposits.

have established a good reputation in China as a

result of which Griffin is being offered other

Shareholders’ funds increased from $13,365,000 at 31

high class mining projects by various arms of

December 2003 to $29,336,000 at 31 December

t h e P R C ’ s l o c a l , p r o v i n c i a l a n d c e n t r a l

2004, with the benefit of the profit for the year, a

governments for development, modernisation

placing of 35,000,000 new ordinary shares, and the

and operation. As Caijiaying progresses, it is the

exercise of options and warrants over 7,100,000 new

intention to acquire further economically robust

ordinary shares, to raise a total of $15,630,000 after

mining projects to expand operations.

expenses. With completion of these capital raisings,

which fully fund construction of the mine and

Griffin will continue to initiate and investigate

processing facilities at Caijiaying, exploration and

transactions both within its traditional mining

development costs incurred to date of $6,419,000

b a s e a n d o t h e r a r e a s w h e r e i t s s t a f f a n d

have been reclassified as tangible fixed assets. Further

consultants have particular expertise, in order to

expenditure of $10,037,000 was incurred in

add further value to the Company.

constructing the mine and processing facilities to 31

December 2004.

The Chairman by the main ball mill

GRIFFIN MINING LIMITED DIRECTORS AND SENIOR EXECUTIVES

DIRECTORS:
Mladen Ninkov, Chairman, holds a Masters of
Law Degree from Trinity Hall, Cambridge and
Bachelor of Laws (with Honours) and Bachelor of
Jurisprudence Degree from the University of
Western Australia. He is a principal of Keynes
Capital. He has a mining, legal, fund management
and investment banking background and is
admitted as a barrister and solicitor of the
Supreme Court of Western Australia. He was a
director and Head of International Corporate
Finance at ANZ Grindlays Bank Plc in London, a
managing director of Maxwell Central and East
European Partners plc in London and a Vice
President of Prudential-Bache Securities Inc. in
New York. He also worked at Skadden Arps Slate
Meagher & Flom in New York and Freehill
Hollingdale & Page in Australia. He was
Chairman of Westgold Resources NL and a
director of Ramsgate Resources NL, both
companies listed on the Australian Stock
Exchange, and was also a director of Mt Monger
Gold Project Pty Ltd, Castle Hill Resources NL
and Matu Mining Pty Ltd.

Roger Goodwin, Finance Director, British, is a
Chartered Accountant. He has been with the
Company since 1996 having previously held senior
positions in a number of public and private
companies within the natural resources sector. He
has a strong professional background, including that
as a manager with KPMG, with considerable public
company and corporate finance experience, and
experience of emerging markets particularly in
Africa, the CIS and Eastern Europe. Roger was
named as one of the top 100 UK finance directors
of 2004 by Finance Week magazine.

Dal Brynelsen, Director, Canadian, is a
graduate of the University of British Columbia in
Urban Land Economics. Mr. Brynelsen has been
involved in the resource industry for over 30 years.
He has been responsible for the discovery,
several
development and operation of
underground gold mines during his career. Mr.
Brynelsen is the President and a director of
Vangold Resources Limited and provides
independent consulting services to private clients
and institutions.

William Mulligan, Director, USA, has a BSc
from Thomas Clarkson University, an MS in

Geological Engineering from the University of
Connecticut and an MBA from NYU Bernard
Baruch School of Business Administration. He is
currently the Managing Director for Global
Projects and Political Risk at AIG Global Trade
and Political Risk Insurance Company, a wholly
owned subsidiary of American International
Group Inc., and a director of AIG Investment
Bank (ZAO) Ltd based in Moscow. From 1994 to
1996 he was Executive Vice President for
Corporate Development at Latin American Gold
Limited. He is a director of Arcon International
Plc, the Dublin based company which operates the
Galmoy zinc mine in Ireland.

SENIOR EXECUTIVES:
Rupert Crowe, Project Manager, Australian and
Irish, has been seconded from CSA Australia Pty
Ltd to act as Caijiaying Project Manager. He gained
a BSc (Hons) from Trinity College, Dublin. He has
30 years of experience as a geologist and has
managed gold and base metal exploration and
development projects in Australia, SE Asia and
Africa. He was Exploration Manager for Aquitaine
Mining in Ireland in the 80s and established CSA in
both Ireland and Australia. He played a key role in
the development of the Lisheen zinc mine in Ireland
and the Double A gold mine in Australia. He has
been a director of Ivernia West, Golden Tiger
Resources and Maiden Gold.

Jeff Haitian Sun, General Manager China,
Chinese, is a Professor of Geology based in
Beijing. He holds a PhD and MSc in mineral
deposits from the Chinese University of
Geosciences and has undertaken postdoctoral
research in geology at the Norwegian University
of Technology. Jeff has worked on a number of
mineral projects both in China and overseas. Prior
to joining Griffin he was engaged by Mundoro
Mining Inc of Canada as a senior geologist.

Stanley Rogers, Mine Manager, British, has
many years of experience in managing mines in
developing countries. Previously he managed the
Wassa Gold Mine of Glencar in Ghana. He
worked at the Kilembe copper mine in Uganda,
was Mine Manager of the Pendarves tin mine in
Cornwall, Project Manager of a Sudanese gold
mine, General Manager of a Kenyan gold mine
and Operations Manager of the Mahd ad Dhahab
gold mine in Saudi Arabia.

REPORT AND ACCOUNTS 200420

Main production decline at the Caijiaying mine

GRIFFIN MINING LIMITED DIRECTORS’ REPORT

The Directors submit their report together with the audited consolidated accounts of Griffin Mining Limited ("the
Company") and its subsidiaries ("the Group") for the year ended 31 December 2004.

Financial results

The Group profit on ordinary activities before taxation, amounted to US$398,000 (2003 - loss US$20,000). No taxation was charged
(2003 - nil). The Group profit after taxation amounted to US$398,000 (2003 - loss US$20,000) and has been credited to reserves.

The profit per share amounted to 0.23 cents (2003 - loss 0.02 cents). The attributable net asset value per share at 31
December 2004 amounted to 17 cents (2003 - 10 cents).

The Directors do not recommend the payment of a dividend.

Principal activities

The principal activity of the Group is that of mining, exploration and development. A review of the Group’s operations for
the year ended 31 December 2004 and the indication of likely future developments are set out on pages 6 to 18.

Directors

The Directors of the Company during the year were:

Mladen Ninkov – Australian – Chairman
Roger Goodwin – British - Finance Director
Dal Brynelsen – Canadian
William Mulligan – American (US)

Under the bye laws of the Company, the Directors serve until re-elected at the next Annual General Meeting of the
Company. Being eligible all the Directors currently in office offer themselves for re-election at the forthcoming Annual
General Meeting of the Company.

The beneficial interests of the Directors holding office at 31 December 2004 and their immediate families in the share capital
of the Company were as follows:

Name

At 31 December 2004

At 1 January 2004

Ordinary shares
no.

Options over Ordinary shares
no.

ordinary shares no.*

Options over
ordinary shares no.

Mladen Ninkov
Roger Goodwin
Dal Brynelsen
William Mulligan

33,001
311,163
1
300,001

6,000,000
1,700,000
600,000
600,000

33,001
311,163
1
1

6,000,000
800,000
0
300,000

The options granted to the Directors entitle the holder to subscribe for new ordinary shares in the Company at 30 pence per
share on or before the 28 February 2007. *These options vest with each option holder in 3 separate and equal instalments
triggered by the following events:

The first third of each holder’s options vest immediately;

The second third of each holder’s options will vest upon the commissioning of the plant at Caijiaying, China
with an initial throughput of 200,000 tonnes per annum; and

REPORT AND ACCOUNTS 2004DIRECTORS’ REPORT

The last third of each holder’s options will vest upon the announcement of an upgrade in the throughput of the
Caijiaying plant from 200,000 tonnes per year to 500,000 tonnes per year.

The new options will not vest if an employee or a director resigns or leaves the Company prior to the vesting event taking
place. All the new options will vest immediately upon a takeover offer being made or a change in substantial control of the
Company taking place prior to the new options expiring.

On 1 March 2004 Great Welland Corporation exercised options over 6,000,000 new ordinary shares at an exercise price of 5
pence per share. These options were acquired by Great Welland Corporation on 27 February 2004 from Frick Pty Ltd
(a company associated with the Chairman of Griffin, Mr Mladen Ninkov).

On 1 March 2004 William Mulligan exercised options over 300,000 new ordinary shares at an exercise price of 5 pence per share.

All of the Directors’ interests detailed are beneficial.

Post Balance Sheet Events

On 14 February 2005 1,000,000 new ordinary shares in the Company were allotted at 20 UK pence each on the exercise of warrants

On 14 April 2005 Hebei Hua-Ao’s mining licence at Caijiaying was renewed for a period of 15 years to 14 April 2020.

In April 2005 dry commissioning of the processing plant at Caijiaying commenced.

Corporate Governance

Although incorporated in Bermuda and therefore not obliged to comply with the code of best practice established by the
Combined Code issued by the Committee on Corporate Governance, the Company has reviewed and broadly supports this
code. The Company does not comply where compliance would not be commercially justified allowing for the practical
limitations relating to the Company’s size.

The Board of directors includes a number of non executive directors who are independent and free from any business or other
relationship which could materially interfere with the exercise of their independent judgement. The Board meets regularly, at
least once a quarter, and is responsible for the overall strategy of the Group, its performance, management and major financial
matters. All directors are subject to re appointment annually at each annual general meeting of the Company’s shareholders.

Various safeguards and checks have been instigated as part of the Company’s system of financial control. These include:

•

preparation of regular financial reports and management accounts

preparation and review of capital and operational budgets

preparation of regular operational reports

prior approval of capital and other significant expenditure

regular review and assessment of foreign exchange risk and requirements

As part of these procedures all costs incurred on behalf of and by Hebei Hua-Ao are independently audited and checked by
the Chinese authorities and approved by the directors of Hebei Hua-Ao.

Auditors

Grant Thornton UK LLP have indicated their willingness to continue in office as auditors to the Company and a resolution
proposing their appointment will be put to the forthcoming Annual General Meeting.

GRIFFIN MINING LIMITED DIRECTORS’ REPORT

Statement of directors’ responsibilities in respect of the accounts

Bermuda company law and generally accepted best practice requires the Directors to prepare accounts for each financial year
which give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period.
In preparing these accounts, the Directors have:

•

selected suitable accounting policies and applied them consistently;

made judgements and estimates that are reasonable and prudent;

stated whether applicable accounting standards have been followed, subject to any material departures
disclosed and explained in the accounts; and

prepared the financial statements on a going concern basis unless it is inappropriate to presume the Company
will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the
financial position of the Group. They are also responsible for safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.

This report was approved by the Board and signed on its behalf by:

Roger Goodwin
Finance Director and Company Secretary
9 May 2005
London

REPORT AND ACCOUNTS 2004REPORT OF THE INDEPENDENT AUDITORS

Report of the Independent Auditors to the Members of Griffin Mining Limited

We have audited the financial statements of Griffin Mining Limited for the year ended 31 December 2004 which comprise
the consolidated profit and loss account, the consolidated balance sheet, the statement of total recognised gains and losses, the
consolidated cash flow statement, the accounting policies, and notes 1 to 22. These financial statements have been prepared in
accordance with International Financial Reporting Standards and under the accounting policies set out therein.

This report is made solely to the Company's members, as a body, in accordance with Section 90 of the Bermuda Companies
Act 1981. Our audit work has been undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit
work, for this report, or for the opinions we have formed.

Respective Responsibilities of Directors and Auditors

The Directors' responsibilities for preparing the Annual Report and the financial statements in accordance with applicable
Bermuda law and International Financial Reporting Standards are set out in the statement of directors' responsibilities. Our
responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and United
Kingdom auditing standards.

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in
accordance with International Financial Reporting Standards. We also report to you if, in our opinion, the directors' report is
not consistent with the financial statements, if the Company has not kept proper accounting records, or if we have not
received all the information and explanations we require for our audit.

We read other information contained in the Annual Report and consider whether it is consistent with the audited financial
statements. This other information comprises the Chairman's statement, review of operations and directors' report. We
consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with
the financial statements. Our responsibilities do not extend to any other information.

Basis of Opinion

We conducted our audit in accordance with United Kingdom auditing standards issued by the Auditing Practices Board. An
audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the
financial statements, and of whether the accounting policies are appropriate to the Group's circumstances, consistently
applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in
order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material
misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.

Opinion

In our opinion the financial statements give a true and fair view of the state of affairs of the Group at 31 December 2004 and
of its profit for the year then ended in accordance with International Financial Reporting Standards.

GRANT THORNTON UK LLP
REGISTERED AUDITORS
CHARTERED ACCOUNTANTS
SOUTHAMPTON
9 May 2005

GRIFFIN MINING LIMITED REPORT OF THE INDEPENDENT AUDITORS

The maintenance and integrity of the Griffin Mining Limited website is the responsibility of the directors:(cid:13)

the work carried out by the auditors does not involve consideration of these matters and, accordingly, the

auditors accept no responsibility for any changes that may have occurred to the financial statements since

they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of the financial statement

may differ from legislation in other jurisdictions.(cid:13)

24a

R EPORT AND ACCOUNTS 2004CONSOLIDATED PROFIT AND LOSS ACCOUNT

For the year ended 31 December 2004
(expressed in thousands US dollars)

Turnover

Cost of sales

Gross Profit

Net operating expenses

Operating (loss)

Foreign exchange gains

Interest receivable and similar income

Profit / (loss) on ordinary activities before taxation

Taxation on profit / (loss) on ordinary activities

Profit / (loss) for the financial year

Earnings / (loss) per share (cents)

Notes

2004

$000

2003

$000

(1,048)

(586)

(1,048)

(586)

939

507

398

476

(20)

0.23

(0.02)

REPORT AND ACCOUNTS 2004CONSOLIDATED BALANCE SHEET

As at 31 December 2004
(expressed in thousands US dollars)

Notes

2004)

$000)

2003)

$000)

Non-current assets

Intangible assets – exploration interests

Tangible assets – mineral interests

Tangible assets – plant and equipment

Tangible assets – other

Current assets

Portfolio investments

Accounts receivable

Prepaid expenses

Cash and deposits

Creditors: Amounts falling due within one year

Net current assets

Total net assets

Capital and reserves

Share capital

Share premium

Contributing surplus

Investment revaluation reserve

Foreign exchange reserve

Profit & loss account

Shareholders equity interests

11,770

5,109

16,933

108

168

12,985

13,288

(885)

12,403

6,285

171

6,459

6,831

6,992

(86)

6,906

29,336

13,365

1,773

36,594

3,690

(846)

(143)

1,352

21,385

3,690

(811)

(121)

(11,732)

(12,130)

29,336

13,365

Number of shares in issue

177,327,731

135,227,731

Attributable net asset value per share

$0.17

$0.10

The accounts on pages 25 to 37 were approved by the Board of Directors and signed on its behalf by:

Mladen Ninkov
Chairman
9 May 2005

Roger Goodwin
Finance Director

GRIFFIN MINING LIMITED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

For the year ended 31 December 2004
(expressed in thousands US dollars)

Profit / (loss) for the financial year

Unrealised (losses) / gains on investments

Currency translation differences on foreign currency net investments

Total gains and losses recognised in the year

Notes

2004)

$000)

398

(35)

(22)

341

2003)

$000)

(20)

(133)

(120)

Losses and profits for the financial year are the same as those on an historical cost basis.

REPORT AND ACCOUNTS 2004CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2004
(expressed in thousands US dollars)

Net cash inflow / (outflow) from operating activities

Investing activities

Interest received

Payments to acquire intangible fixed assets

Payments to acquire tangible fixed assets – mineral interests

Payments to acquire tangible fixed assets – plant and equipment

Payments to acquire tangible fixed assets – other

Net cash (outflow) from investing activities

Notes

2004)

$000)

611

507

(557)

(5,082)

(4,938)

(17)

(10,087)

2003)

$000)

(227)

(760)

(171)

(2)

(843)

Net cash (outflow) before financing

(9,476)

(1,070)

Financing

Issue of ordinary share capital

Expenses paid in connection with share issue

Increase in cash and cash equivalents

Reconciliation of operating (loss) to net cash inflow / (outflow)
from operating activities

Operating loss

Depreciation

(Increase) in debtors

Increase / (decrease) in creditors

Exchange differences

11/13

16,391

(761)

15,630

6,452

(288)

6,164

6,154

5,094

(1,048)

(177)

799

1,032

611

(586)

(76)

(1)

435

(227)

GRIFFIN MINING LIMITED ACCOUNTING POLICIES

Basis of accounting

The accounts have been prepared in accordance with applicable International Financial Reporting Standards.

The significant accounting policies adopted are detailed below:

Accounting convention

The accounts have been prepared under the historical cost convention modified for the revaluation of portfolio investments.

Consolidation basis

The Group accounts consolidate the accounts of the Company and all its subsidiary undertakings drawn up to 31 December
each year.

The results of subsidiary undertakings acquired are included from the date of acquisition. Profits or losses on intra-group
transactions are eliminated in full. On acquisition of a subsidiary, all of the subsidiary’s assets and liabilities which existed at
the date of acquisition are recorded at their fair values reflecting their condition at that date.

Under the terms of the joint venture contract establishing the Hebei Hua’ Ao Mining Development Company Limited, the
Company is entitled to 100% of the net cash flows of the subsidiary for the first three years after commencement of
commercial production reverting thereafter to 60% being the Company's share of the equity interest.

No minority interest in Hebei Hua’ Ao Mining Development Company Limited is recognised in these financial statements as
the minority interest's share of capital is extinguished by accumulated losses.

Non current assets

Intangible assets

Expenditure on licences, concessions and exploration incurred on areas of interest by subsidiary undertakings are carried as
intangible assets until such time as it is determined that there are commercially exploitable reserves within each area of
interest and the necessary finance in place, at which time such costs are transferred to tangible fixed assets to be amortised
over the expected productive life of the asset. The Group’s intangible assets are subject to periodic review by the Directors.
Exploration, appraisal and development costs incurred in respect of each area of interest determined as unsuccessful are
written off to the profit and loss account.

Tangible assets

Mine development expenditure for the initial establishment of access to mineral reserves, together with capitalised
exploration, evaluation and commissioning expenditure, and direct overhead expenses prior to commencement of commercial
production are capitalised to the extent that the expenditure results in significant future benefits.

An impairment test is carried out at each balance sheet date to assess whether the net book value of the capitalised costs in
each area of interest, together with the costs of development of undeveloped reserves, is covered by the discounted future net
revenues from reserves within that area of interest. Any deficiency arising is provided for to the extent that, in the opinion of
the Directors, it is considered to represent a permanent diminution in value of the related asset, and where arising, is dealt
with in the profit and loss account as additional depreciation.

REPORT AND ACCOUNTS 2004ACCOUNTING POLICIES

Plant and equipment, office furniture and equipment and motor vehicles are shown at cost less depreciation and provisions for
impairment in value (see note 8).

Depreciation

All costs capitalised within an area of interest, together with an appropriate estimate of the future costs to be incurred in
developing the estimated economic reserves will be amortised once production has commenced over the current estimated
economic reserve of the area of interest on a unit of production basis.

Office equipment is depreciated over four years on a straight line basis.

Investments

Current asset investments are valued as follows:

Portfolio investments

Marketable securities listed or traded on a recognised stock exchange, are valued at the bid market price on such exchange or
market. Unrealised gains and losses on revaluation are taken direct to an investment revaluation reserve.

Unquoted investments are initially valued at cost. A reduction in the value of an unquoted investment will be made if
considered appropriate in the light of a company’s condition or prospects. It is not practicable to ascertain the fair value of
unquoted investments.

Realised gains and losses on sales of investments are calculated based on the average cost of the investment and are reflected in
income when realised.

Foreign currency transactions

The accounts have been prepared in United States dollars being the local currency of Bermuda. Whilst registered in Bermuda
the Company, together with its subsidiaries, operate in China, the United Kingdom, and Australia.

Investments and monetary items have been translated at rates in effect at the balance sheet date. Foreign currency transactions
have been translated at the rate in effect at the date of transaction. Any realised or unrealised exchange adjustments have been
charged or credited to income.

The accounts of overseas subsidiary undertakings are translated at the rate of exchange ruling at the balance sheet date and
profit and loss account items are translated at the average rate for the year. The exchange difference arising on the
retranslation of opening net assets is taken directly to the foreign exchange reserve. All other translation differences are taken
to the profit and loss account.

Equity compensation

Griffin operates an equity compensation plan under which directors and certain key management are granted options to
subscribe for new ordinary shares in the Company as described in the Directors' report on page 21 and 22. In accordance
with current accounting standards the Company does not make a charge to staff costs in connection with share options issued
to directors and employees.

GRIFFIN MINING LIMITED NOTES TO THE FINANCIAL STATEMENTS

1. Segmental reporting

The Group’s principal project is the Caijiaying zinc gold project in the Peoples Republic of China. There were no sales of
mineral concentrates from this project in 2004. All operating costs in respect of the Caijiaying zinc gold project have been
capitalised in accordance with the Group’s accounting policies. Operating costs charged to profit are in respect of
administration costs incurred by Griffin Mining Limited.

2. Net operating expenses

Net operating costs comprise:
Depreciation
Staff costs
Other administrative costs
Total operating expenses

Average number of persons employed by the Group in the year

All operating expenses charged to profit relate to continuing operations.

2004
$000

(5)
(244)
(799)
(1,048)

No.
41

3. Directors’ remuneration

The following fees and remuneration were receivable by the Directors holding office during the year:

Mladen Ninkov
Dal Brynelsen
Roger Goodwin
William Mulligan

Fees

$000
-
50
-
50

Salary

$000
-
-
173
-

Total
2004
$000
-
50
173
50

2003
$000

(1)
(218)
(367)
(586)

No.
6

Total
2003
$000
-
-
114
-

Keynes Capital, the registered business name of Keynes Investments Pty Limited as trustee for the Keynes Trust, received
fees under a consultancy agreement of $420,000 (2003 $225,000), for the provision of advisory and support services to Griffin
Mining Limited and its subsidiaries during the year, 60% of which fees are charged to Hebei Hua-Ao and capitalised. Mladen
Ninkov is a director and employee of Keynes Investments Pty Limited.

On 1 March 2004 Great Welland Corporation exercised options over 6,000,000 new ordinary shares at an exercise price of 5
pence per share. These options were acquired by Great Welland Corporation on 27 February 2004 from Frick Pty Ltd (a
company associated with the Chairman of Griffin, Mr Mladen Ninkov).

On 1 March 2004 William Mulligan exercised options over 300,000 new ordinary shares at an exercise price of 5 pence per share.

On 9 March 2004 the Directors agreed to grant new options to the Directors and certain key management and on 22 March 2004
a total of 9,500,000 new options were granted to the Directors and certain key employees of the Company. Each new option
entitles the holder to subscribe for new ordinary shares in the Company at 30 pence per share on or before the 28 February 2007.
The new options vest with each option holder in 3 separate and equal instalments triggered by the following events:

REPORT AND ACCOUNTS 2004NOTES TO THE FINANCIAL STATEMENTS

The first third of each holder’s new options vest immediately;

The second third of each holder’s new options will vest upon the commissioning of the plant at Caijiaying,
China with an initial throughput of 200,000 tonnes per annum; and

The last third of each holder’s new options will vest upon the announcement of an upgrade in the throughput
of the Caijiaying plant from 200,000 tonnes per year to 500,000 tonnes per year.

The options will not vest if an employee or a director resigns or leaves the Company prior to the vesting event taking place.
All the new options will vest immediately upon a takeover offer being made or a change in substantial control of the Company
taking place prior to the new options expiring.

The directors options have been allocated as follows:

Mladen Ninkov
Roger Goodwin
Dal Brynelsen
William Mulligan
Total

4. Interest receivable and similar income

Bank and short term interest

5. Taxation on profit / (loss) on ordinary activities

Taxation on profit / (loss) on ordinary activities

The Company is resident for corporation tax purposes in the United Kingdom.

Factors affecting total current corporate tax charge for the year

Profit / (loss) on ordinary activities multiplied by the UK standard rate
of corporation tax 30% (2003: 30%)
Expenses not deductible for tax purposes
(Losses) brought forward / losses carried forward
Current tax charge for the year

No.
6,000,000
1,700,000
600,000
600,000
8,900,000

2003

$000
90

2003

$000
-

2003

$000

(7)
2
5
-

2004

$000
507

2004

$000
-

2004

$000

119
4
(123)
-

The Company has unutilised tax losses estimated at $6.6m, and capital losses estimated at $2.6m, in respect of which no deferred
tax asset has been recognised because of the uncertainty of future taxable income against which these losses may be utilised.

6. Earnings/ (Loss) per share

The earnings per share has been calculated on the basis of the net profit after taxation of US$398,000 (loss US$20,000 in
2003) and the weighted average number of shares in issue in the year ended 31 December 2004 of 170,646,361 (114,682,774
in 2003). There is no material dilutive effect of share purchase options.

GRIFFIN MINING LIMITED NOTES TO THE FINANCIAL STATEMENTS

7. Intangible assets

Exploration interests
China – Zinc / gold

COST / VALUATION
At 1 January 2004
Foreign exchange adjustments
Additions during the year
Transfer to tangible assets
At 31 December 2004

NET BOOK VALUE

At 31 December 2004

At 31 December 2003

$000
6,285
(384)
557
(6,419)
39

6,285

Intangible assets represent fair values on acquisition, plus subsequent expenditure on licences, concessions, exploration,
appraisal and development work. Where expenditure on an area of interest is determined as unsuccessful such expenditure is
written off to the profit and loss account. The recoverability of these assets depends, initially, on successful appraisal activities,
details of which are given in the report on operations. The outcome of such appraisal activity is uncertain. Upon economically
exploitable mineral deposits being established, sufficient finance will be required to bring such discoveries into production.

8. Tangible assets

COST
At 1 January 2004
Foreign exchange adjustments
Additions during the year
Transfer from intangible assets
At 31st December 2004

DEPRECIATION
At 1 January 2004
Provided during the year
At 31 December 2004

NET BOOK VALUE

At 31 December 2004

At 31 December 2003

Mineral
Interests
$000
-
269
5,082
6,419
11,770

-
-
-

11,770

Mill and
mobile mine
equipment
$000
171
-
4,938
-
5,109

Office furniture
and equipment
$000
23
-
17
-
40

-
-
-

5,109

171

20
5
25

Total
$000
194
269
10,037
6,419
16,919

20
5
25

16,894

174

Mineral interests comprise the Group’s interest in the Caijiaying ore bodies including fair values on acquisition, plus
subsequent expenditure on licences, concessions, exploration, appraisal and construction of the Caijiaying mine including
expenditure for the initial establishment of access to mineral reserves, commissioning expenditure, and direct overhead
expenses prior to commencement of commercial production. The tangible assets remain in the course of construction at 31
December 2004 and consequently no depreciation has been charged during the year.

REPORT AND ACCOUNTS 2004NOTES TO THE FINANCIAL STATEMENTS

9. Portfolio investments

Quoted (cost $873,000 - 2003 $873,000)

2004

$000
27

2003

$000
62

Quoted securities are valued at the bid market price. Unquoted investments have been fully provided against. Quoted and
unquoted investments are classified as available for sale.

10. Cash and deposits

Analysis of changes in cash and cash equivalents

At 1 January
Net cash inflow
At 31 December

2004

$000
6,831
6,154
12,985

2003

$000
1,737
5,094
6,831

Included within the net cash inflows of $6,154,000 (2003 inflow $5,094,000) is $939,000 (2003 $476,000) of foreign exchange
gains on cash deposits which have been treated as realised.

11. Share capital

AUTHORISED:
Ordinary shares of US$0.01 each

CALLED UP ALLOTTED AND FULLY PAID:
Ordinary shares of US$0.01 each
At 1 January
Issued during the year
At 31 December

2004

2003

Number

$000)

Number

$000

1,000,000,000

10,000

1,000,000,000

10,000

135,227,731
42,100,000
177,327,731

1,352
421
1,773

103,557,248
31,670,483
135,227,731

1,036
316
1,352

On 24 February 2004, 35,000,000 new ordinary shares in the Company were allotted at 25 UK pence ($0.45) per ordinary
share for cash to raise $15,664,000 before expenses on an equity placing.

On 1 March 2004 6,300,000 new ordinary shares in the Company were allotted at 5 UK pence ($0.09) per ordinary share on
the exercise of options.

On 31 March 2004, 300,000 new ordinary shares in the Company were allotted at 5 UK pence ($0.09) per ordinary share on
the exercise of options.

On 27 October 2004, 500,000 new ordinary shares in the Company were allotted at 15 UK pence ($0.27) per ordinary share
on the exercise of warrants.

GRIFFIN MINING LIMITED NOTES TO THE FINANCIAL STATEMENTS

12. Share options and warrants

COST

Options exercisable at 5 pence per share
at anytime upto 31 March 2004.

Warrants exercisable at 15 pence
at anytime upto 30 September 2004.

Warrants exercisable at 20 pence
at anytime upto 30 September 2004.

Warrants exercisable at 20 pence
at anytime upto 31 August 2005.

Warrants exercisable at 30 pence
at anytime upto 31 December 2004.

Warrants exercisable at 35 pence
from 1 January 2005 to 30 June 2005.

Warrants exercisable at 40 pence from
1 July 2005 to 31 December 2005.

Options exercisable at 30 pence per share
at anytime upto 28 February 2007.

Options exercisable at 30 pence per share from
commencement of production to 28 February 2007.

Options exercisable at 30 pence per share from
upgrade in throughput of Caijiaying mine to 500,000
tonnes of ore per annum to 28 February 2007.

13. Share premium

At 1 January
Premium on shares issued in year
Expenses paid in connection with share issues
At 31 December

14. Contributing surplus

At 1 January and 31 December

At 1 January
2004
Number

Granted
in year
Number

Exercised

At 31st
/ lapsed December 2004
Number
Number

6,600,000

500,000

250,000

6,000,000

500,000

3,166,666

3,166,667

(6,600,000)

(500,000)

(250,000)

6,000,000

500,000

3,166,666

3,166,667

13,350,000

11,000,000

(7,350,000)

17,000,000

2004

$000
21,385
15,970
(761)
36,594

2004

$000
3,690

2003

$000
15,537
6,136
(288)
21,385

2003

$000
3,690

The Contributing surplus is a statutory reserve for the maintenance of capital under Bermuda company law and was created
on a reduction in the par value of the Company’s ordinary shares on 15 March 2001.

REPORT AND ACCOUNTS 2004NOTES TO THE FINANCIAL STATEMENTS

15. Investment revaluation reserve

At 1 January
Movements during the year
At 31 December

2004

$000
(811)
(35)
(846)

Unrealised appreciation and depreciation of portfolio investments are reflected in the investment revaluation reserve.

16. Foreign exchange reserve

At 1 January
Transfer profit and loss account
Movements during the year
At 31 December

2004

$000
(121)
-
(22)
(143)

2003

$000
(844)
33
(811)

2003

$000
152
(140)
(133)
(121)

Exchange differences arising on the retranslation of opening net assets of overseas subsidiary undertakings, whose accounts
are prepared in local currencies, are reflected in the foreign exchange reserve.

The transfer to the profit and loss account in 2003 is in respect of foreign exchange gains on the translation of the net assets
of overseas subsidiary undertakings disposed of during 2003.

17. Profit and loss account

At 1 January
Transfer foreign exchange reserve
Profit / (loss) for the financial year
At 31 December

18. Reconciliation of movements in shareholders’ funds

Total gains and (losses) recognised in the year
Issue of ordinary shares in the year
Net additions to shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds

2004

$000
(12,130)
-
398
(11,732)

2004

$000
341
15,630
15,971
13,365
29,336

2003

$000
(12,250)
140
(20)
(12,130)

2003

$000
(120)
6,164
6,044
7,321
13,365

19. Attributable net asset value per share

The attributable net asset value per share has been calculated from the consolidated net assets of the Group divided by the
number of ordinary shares in issue at 31 December 2004 of 177,327,731 (135,227,731 at 31 December 2003).

GRIFFIN MINING LIMITED NOTES TO THE FINANCIAL STATEMENTS

20. Post Balance Sheet Events

On 4th February 2005 1,000,000 new ordinary shares in the Company were allotted at 20 UK pence ($0.38) per ordinary
share on the exercise of warrants.

21. Financial instruments

The Group finances its operations primarily from equity issues. The Group does not enter into derivative transactions such as
interest rate swaps, forward rate agreements or forward currency contracts. The Group has no borrowings other than trade
creditors and funds in excess of immediate requirements are placed in US dollar and sterling short term fixed and floating rate
deposits. The Group has overseas subsidiaries operating in China and Australia, whose costs are denominated in local
currencies. Liabilities are primarily incurred in US dollars, or Chinese Reminbi which is currently pegged to the US dollar.

In the normal course of its operations the Group is exposed to foreign currency and interest rate risks.

The Group places funds in excess of immediate requirements in US dollar and sterling deposits with a number of banks to
spread currency, interest rate and bank risk. These deposits are kept under regular review to maximise interest receivable and
with reference to future expenditure and future currency requirements.

22. Subsidiary companies

At 31 December 2004, Griffin Mining Limited had interests in the share capital of the following principal subsidiary companies.

Name

China Zinc
Pty Limited

Class of
shares held

Proportion of
shares held

Nature of
business

Country of
incorporation

Ordinary

100%

Holding company

Australia

Hebei Hua’ Ao Mining
Development Company
Limited*

100% (reducing to
60% after 3 years from
commercial production) **

Zinc mining
and development

China

Panda Resources Limited

Ordinary

Hebei Sino Anglo
Mining Development
Company Ltd*

100%

90%

Holding company

England

Gold exploration
and development

China

* China Zinc Pty Ltd and Panda Resources Ltd are directly owned by the Company. China Zinc Pty Ltd has a controlling
interest in Hebei Hua’ Ao Mining Development Company Ltd, see below, and Panda Resources Ltd has a 90% controlling
interest in Hebei Sino Anglo Mining Development Company Ltd.

** The joint venture contract establishing the Hebei Hua’ Ao Mining Development Company Ltd provides that 100% of the
cash flows generated by the joint venture in the first three years from commencement of commercial production be paid to
the foreign party. Thereafter the foreign party will receive 60% of the cash flows, in accordance with its share in the equity
interest in the joint venture.

REPORT AND ACCOUNTS 2004The interior of the processing plant

GRIFFIN MINING LIMITED Principal office:

Registered office:

China Zinc office:

Directors:

CORPORATE INFORMATION

6th & 7th Floors, 60 St James’s Street,
London. SW1A 1LE. UK.
Telephone: + 44 (0)20 7629 7772
Facsimile: + 44 (0)20 7629 7773
Email: griffin@griffinmining.com
Web site: www.griffinmining.com

Clarendon House,
2 Church Street,
Hamilton. HM11. Bermuda.

Level 9, BGC Centre,
28 The Esplanade,
Perth, WA 6000. Australia.
Telephone: + 61(0)8 9321 7143
Facsimile: + 61 (0)8 9321 7035

Mladen Ninkov (Chairman)
Roger Goodwin (Finance Director)
Dal Brynelsen
William Mulligan

Company Secretary:

Roger Goodwin

Nominated Adviser
and Broker for AIM:

Auditors:

Solicitors:

Bankers:

Charles Stanley and Company Limited
25 Luke Street,
London. EC2A 4AR. UK.

Grant Thornton UK LLP
31 Carlton Crescent,
Southampton. SO15 2EW. UK.

Mallesons Stephen Jaques
Unit 12, Level 5, Tower E1, The Towers Oriental Plaza
No, 1 East Chang an Avenue, Dong Cheng District,
Beijing 100738. PRC

Conyers Dill & Pearman
Clarendon House, Church Street, P.O. Box HM 666,
Hamilton. HMCX. Bermuda.

National Westminster Bank PLC.
St James’s and Piccadilly,
London. W1A 2DG. UK.

Anglo Irish Bank Corporation plc
10 Old Jewry,
London. EC2R 8DN. UK.

UK Registrars & Transfer Agents:

Capita IRG plc
Bourne House, 34 Beckenham Road, Beckenham,
Kent. BR3 4TU. UK.

REPORT AND ACCOUNTS 2004Caijiaying processing plant