Griffin Mining Ltd. Annual Report 2007

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FY2007 Annual Report · Griffin Mining Ltd.

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R E P O RT A N D A C C O U N T S 2 0 0 7

CONTENTS

CHAIRMAN’S STATEMENT

HIGHLIGHTS

REVIEW OF OPERATIONS

DIRECTORS AND SENIOR EXECUTIVES

DIRECTORS’ REPORT

REPORT OF THE INDEPENDENT AUDITOR

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

ACCOUNTING POLICIES

NOTES TO THE FINANCIAL STATEMENTS

CORPORATE INFORMATION

Griffin Mining Limited is a mining and investment company whose principal asset
is the Caijiaying zinc-gold mine. 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).

Registered number: EC13667 Bermuda.
Registered Office: Clarendon House, 2 Church Street, Hamilton HM11, Bermuda
United Kingdom office: 60 St James's Street, London SW1A 1LE

Page

G R I F F I N M I N I N G L I M I T E D

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G R I F F I N M I N I N G L I M I T E D

CHAIRMAN’S STATEMENT

It gives me great pleasure to present to you, the

increased production schedules. A new backfill

shareholders of Griffin Mining Limited (“Griffin”

plant has been completed to enable more

or the “Company”), the 2007 Annual Report and

efficient extraction of ore, new floatation cells

Accounts. It has been yet another extraordinary

have been installed to handle the increased

year in the life of your company.

volume of zinc and precious metals

concentrates and a new crushing circuit and ball

I am delighted to report that the Company made a

mill will enable greater throughput to be

profit before tax of $26.8 million, a remarkable

generated by the Caijiaying mill. In addition, a

performance considering the zinc price fell 46%

new accommodation block and administrative

in 2007, from $4,100 in January to $2,200 in

offices have been constructed to cater for the

December. Yet Griffin was generally able to

additional staff required as the mine continues

reproduce its 2006 net profit level and, as such, the

to expand;

Company has been able to maintain its dividend

policy of declaring a $0.03 per share dividend for

the 2007 financial year.

2007 witnessed exceptional progress in many areas

of the Company’s operations and in its preparation

for the future. These include:

3. A new precious metals concentrate containing

gold, silver and lead was commissioned in

December 2007. This will become ever more

important with the increasing production of

precious metals as the mine accesses higher

grade material and will allow lead to be

separated from the zinc concentrate for the

1. Production of ore from Zone III at Caijiaying

production of a higher quality concentrate with

continued to increase. Mill throughput has now

a subsequently higher sale price;

increased over 150% since commissioning with

operations currently processing over 500,000

tonnes per annum and expected to reach

750,000 per annum following the installation of

the new primary ball mill in late summer 2008.

The mining operations are also expanding to

cater for this new production schedule;

4. The discovery of a new mineable orebody at

Zone II has far reaching consequences and

added exceptional value for shareholders.

Firstly, it is only 1.5 kilometres from the

Caijiaying processing facilities, allowing easy

haulage at minimum cost. Secondly, it provides

an alternate source of ore to ease the scheduling

2. Significant effort has been expended in

of mining and haulage timetables at Zone III.

designing, constructing and installing the new

Thirdly, and most importantly, it confirms the

infrastructure needed to deal with the planned

long held view that Zone II and III are, in

R E P O RT A N D A C C O U N T S 2 0 0 7

CHAIRMAN OF GRIFFIN MINING LIMITED,
MLADEN NINKOV

effect, one orebody. That prospect opens up

the possibility of an additional 1.5 kilometres of

mineralization. To prove this hypothesis, a new

decline is being driven off the Zone III access

directly to the new Zone II orebody, with the

necessary

underground

drilling

being

undertaken off that drive. This is an exciting

prospect for all involved; and

5. The continued accumulation of cash by the

Company such that Griffin now has a cash

balance exceeding $205 million with no debt.

It should be noted that the Company continues to

expend an inordinate amount of time on new

acquisitions. These need to be able to meet the

financial, political, structural, metallurgical and

geological parameters required to provide the

of the Company, it is now many years since I could

shareholders with the returns they have come to

name these individuals specifically. It is enough to

expect and deserve. Needless to say, such

say that the line of these exceptional people runs

acquisitions are difficult to find and even more

from the directors through to all our on-site

difficult to consummate. It is enough to add that

personnel. Our sincere thanks go out to them.

the Company will continue to progress the

enormous potential still untapped at Caijiaying

Finally, to you the shareholders and owners of the

whilst continuing to evaluate and undertake

Company, I look forward to being able to deliver

acquisitions which meet these set parameters.

even greater and more exciting news during 2008.

An organization of this size could not hope to be

Mladen Ninkov

successful without a team of highly skilled and

Chairman

dedicated individuals. With the growth in the size

30 April 2008

G R I F F I N M I N I N G L I M I T E D

HIGHLIGHTS

• Profit before tax of $26.8 million on a declining zinc price

• Ore mined up 43% in 2007 to 430,891 tonnes compared to

301,168 tonnes in 2006

• Ore processed up 36% in 2007 to 409,193 tonnes compared

to 301,101 tonnes in 2006

• Precious metals circuit commissioned with production and

sale of a second concentrate containing lead, silver and gold

• Maiden resource for Zone II announced, located just 1.5

kilometres south of the existing mine at Zone III

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G R I F F I N M I N I N G L I M I T E D

REVIEW OF OPERATIONS

INTRODUCTION

Griffin is a mining and investment company listed

Anglo’), has a controlling interest in mining and

on the Alternative Investment Market of the

exploration licences over 67 square kilometres at

London Stock Exchange. Its principal asset is the

Caijiaying. Application has been made for further

mine, processing facilities and extensive exploration

exploration licences in the surrounding area.

ground located at Caijiaying, Hebei Province

(‘Caijiaying’) in the People’s Republic of China

In 2005, Griffin successfully commissioned the

(‘China’ or the ‘PRC’).

mine and processing facilities at Caijiaying, on time

and within budget, with an

initial design

The Group recorded a profit before tax for the year

production rate of 200,000 tonnes of ore per

of $26,762,000 (2006 $29,545,000). The financial

annum. Production rates have steadily increased

results for the year were impacted by the decision

since commissioning with 409,193 tonnes of ore

to suspend sales, but not production, of zinc

being processed in 2007 to produce 21,781 tonnes

concentrate in the fourth quarter as a result of

of zinc metal in concentrate.

unacceptably

low prices offered

for zinc

concentrate in China caused by proposed changes

to tariffs and rebates on the import and export of

zinc and zinc concentrates to and from China.

With production continuing at record levels,

stocks of zinc concentrate had been accumulated by

the end of the financial year at which point sales

recommenced when better prices were offered.

The Group should realise the benefit of this

decision in the first half of 2008.

In December 2007, production of a separate

precious metals concentrate containing gold, silver

and lead commenced from an integrated circuit

forming part of the main processing facilities at

Caijiaying. Previously, gold, silver and lead were

lost to the smelters in the zinc concentrate.

Considerable planning and capital expenditure has

been undertaken during the year to further increase

production. This work is ongoing with the

installation of, inter alia; a new backfill plant, more

CAIJIAYING ZINC-GOLD MINE

floatation cells, a new crusher and a third ball mill

as well as significant enhancement to site

Griffin, through its two Chinese joint ventures,

infrastructure. This should enable processing

Hebei Hua Ao Mining Industry Company Limited

capacity to be increased from approximately

(‘Hebei Hua’ Ao’) and Hebei Sino Anglo Mining

500,000 tonnes of ore per annum at the present

Development Company Limited (‘Hebei Sino

time to 750,000 tonnes of ore per annum in 2009.

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On-going exploration in the area surrounding the

expected to be defined at Zone II, in particular, as

mine at Caijiaying and within Hebei Hua’ Ao’s and

underground drilling moves northwards towards

Hebei Sino Anglo’s tenement boundary continues

Zone III. This should provide additional ore for the

to confirm the area to be highly prospective,

processing facilities at Caijiaying.

indicating

significant potential

for

further

economic base and precious metals mineralisation.

Considerable progress was made in the past year in

CAIJIAYING AREA

defining a resource at Zone II at Caijiaying some

1.5 kilometres to the south of the mine at Zone III

Caijiaying is located on the south-east edge of the

with a maiden Mineral Resource estimate to JORC

Mongolian Plateau, approximately 250 kilometres

reporting standards of 5.49 million tonnes of 3.2%

north-west of Beijing in Hebei Province. The site

zinc, 0.6% lead, 0.3 grams per tonne gold and 24

is easily accessible, particularly since the extension

grams per tonne silver. Further resources are

of the freeway from Beijing through to Zhangbei,

CAIJIAYING MINE LOCATION

G R I F F I N M I N I N G L I M I T E D

by freeway and sealed road from Beijing to site.

and the Chinese joint venture partners (which

The site has significant water supplies and two

include

the Zhangjiakou City People’s

independent connections to the electricity grid with

Government, the Hebei Bureau of the Ministry of

a third planned. The site is fully connected to fixed

Land and Resources and the Third Geological

line and mobile telecommunications and has

Brigade) have a 40% interest. Since the beginning

broadband access for internet services. Weather

of commercial production commencing in mid

conditions are not severe with warm summers and

2005, 100% of the net cash flows from Caijiaying

cold, dry winters.

Mineralisation 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

the

metamorphic rocks, most notably calc-silicates and

marble. Porphyry sills and dykes intruding along

faults have then cut across the sequence.

LEGAL STRUCTURE

have accrued to Griffin through China Zinc. That

arrangement will cease to continue in July 2008 and

the parties will share in the profits from that date

according to their respective joint venture interests.

In October 1998, Hebei Hua’ Ao was the first

foreign controlled joint venture to be awarded a

new exploration licence for a hard rock deposit in

China when it received an exploration licence

covering an area of 11.3 square kilometres in the

Caijiaying area.

Subsequently in March 2002, Hebei Hua’ Ao

became the first foreign controlled joint venture

Griffin’s initial interest in Caijiaying was obtained

to be granted a mining licence over a base metals

through the acquisition in 1997/98 of a 100%

deposit in China when it was granted a mining

interest in an Australian incorporated company

licence over 1.56 square kilometres of the original

China Zinc Pty Limited, and its local Chinese

11.3 square kilometre licence area at Caijiaying.

subsidiary company, Hebei Hua’ Ao. The Group

This is the Zone III area currently being mined at

has subsequently been restructured to transfer

Caijiaying.

China Zinc Pty Limited’s

interest to an

intermediate parent company incorporated in

Hong Kong, China Zinc Limited (“China Zinc”).

In January 2004, a second contractual joint venture

company, Hebei Sino Anglo, was formed to hold an

exploration licence over 55.7 square kilometres

Hebei Hua’ Ao is a contractual co-operative joint

surrounding the original 11.3 square kilometre

venture entity established in 1994 in which Griffin,

licence area at Caijiaying and any further areas of

through China Zinc, holds a 60% equity interest

interest in Hebei Province. Griffin, through its

R E P O RT A N D A C C O U N T S 2 0 0 7

wholly owned UK subsidiary company, Panda

environmental record. This was achieved whilst

Resources Limited, has a 90% interest in Hebei

increasing both the mining and processing rates to

Sino Anglo. The other Chinese shareholders reflect

record levels, with:

those shareholders in Hebei Hua’ Ao. Their 10%

interest

remains

free

carried

until

the

commissioning of a full feasibility study on any

new mineral deposits found by Hebei Sino Anglo.

CAIJIAYING OPERATIONAL DEVELOPMENTS
2007/08

• ore mined up 43% in 2007 to 430,891 tonnes

compared to 301,168 tonnes in 2006.

• ore processed up 36% in 2007 to 409,193 tonnes

compared to 301,101 tonnes in 2006.

It should be noted that these increases also

occurred whilst the processing facilities at

The Caijiaying mine operated throughout 2007

Caijiaying were being upgraded for the production

without any significant accident or environmental

of a precious metals concentrate and for further

incident and retains an excellent safety and

increases in throughput.

G R I F F I N M I N I N G L I M I T E D

Despite a conscious decision to reduce the zinc cut

to increase as the mine reaches the deeper gold

off grade with the resultant drop in the head grade

bearing ore zones.

of the ore processed, plant recoveries have

continued to improve and zinc metal in concentrate

The commissioning of the precious metals circuit

production increased to 21,781 tonnes in 2007

has not just added an additional revenue stream, but

from 20,138 tonnes in 2006.

has provided the additional benefit of removing

In the autumn of 2007, changes were proposed to the

lead as an impurity in the zinc concentrate. This

has led to a better quality zinc concentrate being

Chinese rebates on the export of zinc, and increases to

produced, commanding a better price.

the tariffs on the import of zinc concentrates that had

the effect of reducing the demand for local zinc

concentrate in China. As a result, Hebei Hua’ Ao was

offered artificially low prices for its zinc concentrate in

China. The view was taken that this situation was

unlikely to be sustainable and Hebei Hua’ Ao

suspended sales of zinc concentrate in the final quarter

of 2007. As a result, 17,720 tonnes of zinc metal in

concentrate were sold in 2007 compared with 20,239

in 2006, with 4,080 tonnes of zinc metal in concentrate

stockpiled at 31 December 2007. Sales of zinc

concentrate re-commenced in late December 2007

when zinc concentrate prices in China recovered and,

since the year end, the zinc concentrate stockpiled at

Caijiaying has been sold.

During 2007, significant progress was made in

mine development and in upgrading the processing

facilities and site infrastructure to enable ore

throughput and production of metals to be further

increased. This work will continue into 2008.

The installation of the precious metals circuit

required the re-configuration of the processing

facilities, which was achieved with

limited

interruption to processing. This involved the

installation of new ceramic filters, floatation cells

and other equipment. It also necessitated an

extension of the buildings housing the mill and the

construction of additional storage areas.

With the commissioning of a precious metals

circuit in December 2007 to produce a concentrate,

containing gold, silver and lead, 119 tonnes of this

precious metals concentrate were produced in 2007

and 90 tonnes sold containing 12.8 tonnes lead,

6,470 ounces silver and 14.8 ounces gold. Whilst

current gold production is minimal, this is expected

A backfill plant, utilising waste tailings from the

mill, has been constructed to not only maximise the

extractable amount of ore but also to minimise the

amount of waste sent to the tailings dams.

Although the installation of the backfill facilities

will reduce waste sent to the tailings dams, and the

existing tailings dams continue to be lifted to

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increase capacity, a further tailings dam will be

During 2007, the compressed air, pumping and

required in the foreseeable future.

ventilation circuits and ancillary infrastructure were

With the expansion of mining operations and the

continue unabated and ensure good ventilation as

subsequent increased tonnage of ore hauled, a 3 bay

the mine expands, particularly to lower levels.

upgraded to enable underground drilling to

workshop was constructed to assist the local

haulage contractor in servicing its fleet thereby

improving servicing and repair turn around times.

In view of the further expansion to operations

planned, the decision has been made to purchase

underground haulage equipment, including a 20

tonne truck and matching loader, to supplement

the contractor’s fleet to ensure efficiency of ore

supply to the mill is continually maintained.

Construction of a new, 3 stage, crushing circuit, has

commenced which will increase crushing capacity

to allow for the planned increase in processing

capacity to 750,000 tonnes of ore per annum in

2009. To facilitate this increase in throughput, a

second primary ball mill has been ordered for

installation in the summer of 2008 to work in

tandem with the current primary ball mill and the

currently unused and smaller secondary ball mill.

CAIJIAYING PROCESSING PLANT WITH NEW FLOTATION CELLS

G R I F F I N M I N I N G L I M I T E D

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G R I F F I N M I N I N G L I M I T E D

In view of the need to maintain and attract good

become more important as time moves on and

quality personnel, especially on site, at this time of

should eclipse shrink stoping as the preferred mining

shortages in suitably skilled staff in the mining

method, as the mine continues to increase its

industry, the accommodation and ancillary facilities

production rate into 2008. Several drills have been

were expanded and enhanced during the year. This

ordered by the mining department to facilitate this

has now led to ensuite accommodation for staff in

expansion into up-hole benching.

addition to recreational facilities which include

indoor basketball, badminton,

table

tennis,

During 2007 over 34,000 metres of underground

billiards, satellite television, bar facilities and a fully

infill and exploration diamond drilling was

stocked gym.

completed within the area of current mining

MINE DEVELOPMENT

Underground mine development has continued to

expand in order to provide increased throughput

to the expanding processing facilities. The main

‘Northern Decline’ continues to be extended to the

lower levels. Following extensive sterilisation

drilling, to delineate an optimal decline route, a

second ‘Southern Decline’ commenced late in the

year to enable more stopes to be developed and

avoid pinch points in mine haulage.

With the number of ore zones being developed at

Caijiaying in 2007, some 7,200 metres (4,000

metres in 2006) of underground drives, rises and

cross cuts were developed.

activities at Zone III. This drilling significantly

improved understanding of the known resources,

enabling longer term mine planning to be

undertaken with confidence.

At Zone II, approximately 1.5 kilometres to the

south of Zone III, some 6,300 metres of

underground drilling has been completed from a

147 metre long underground exploration decline

(‘the Fox decline’). An initial JORC resource

estimate has been generated from the results of this

drilling. The drilling has

identified good

mineralised zones consistent with Zone III.

Consequently work has started on upgrading and

extending the Fox decline to provide access to the

ore bodies for bulk metallurgical testing and to

continue exploration work. More importantly work

has started on the development of a drive

As planned, implementation of up-hole benching

connecting Zone III and the bottom of the extended

was introduced, with over 10,070 metres of long

Fox decline at Zone II. This will provide a suitable

hole drilling undertaken. Although that mining

drilling platform in a cost effective manner for the

method was new to China, it was successfully

exploration of the area between Zones III and II and

implemented and is enabling the mine’s production

eventually provide haulage and services access when

rates to be increased. This mining method will

mining commences from this area.

R E P O RT A N D A C C O U N T S 2 0 0 7

RESOURCE ESTIMATE AND RECONCILIATION - ZONE III

During 2007, approximately 34,000 metres of

Tabled below is the updated JORC compliant

underground diamond drilling was completed.

Mineral Resource Estimate for Zone III at

This drilling was focused on grade control and

Caijiaying.

resource development rather than deep extensional

exploration drilling.

Micromine 2002 Mineral Resource Estimate (Non Grade Control Drilling)

Category

Cut Tonnes
-off Millions Zinc %

Metal Grade
Gold
grames

Silver
grams

per tonne per tonne

Zinc
million
tonnes

Contained Metal
Gold
million
ounces

Silver
million
ounces

Measured

Indicated

Inferred

Total

1.20

3.14

0.89

5.23

6.7

5.7

4.5

5.7

0.5

0.6

0.10

0.18

0.04

0.32

0.02

0.06

0.02

0.10

1.40

3.17

0.65

5.22

The information in this report that relates to the Mineral Resource Estimate for the 31 December 2007 grade control drilled areas is based
on information compiled by Mr C Fawcett BSc (Hons),G Dip Eng, MAusIMM, of FinOre Pty Ltd. The mining depletion was carried out
by Mr Timothy Blyth, Ass Dip (Geology), MAusIMM of Hebei Hua Ao Mining Industry Company Ltd. The information relating to the
2002 non grade control drilled area was compiled by Mr D Pertel of Micromine Consulting Ltd. Mr Fawcett and Mr Blyth are Members
of The Australasian Institute of Mining and Metallurgy and Mr Pertel is a Member of the Australian Institute of Geoscientists. Mr Fawcett,
Mr Pertel and Mr Blyth have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration
and to the activity which they are undertaking to qualify as Competent Persons as defined by the Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves (JORC Code, 2004 edition).

G R I F F I N M I N I N G L I M I T E D

The table on the previous page summarises the

• Better understanding of the lithological controls

Mineral Resource Estimate as at 31 December

on the main Qing Long lode, with drilling

2007 for:

confirming the positioning of the porphyry and

• the grade control drilled mine area.

dolerite dykes that control this orebody.

• the 2002 Mineral Resource for the non grade

control drilled mine area, at both a 1% and 4%

cut-off grade.

• The Xiao Long orebody was found to extend to

the south, adding further mineable tonnes that

can be mined without additional development.

The aggregate resource is calculated by adding

both the 2002 and 2006 resource estimates at a 1%

RESOURCE ESTIMATE - ZONE II

cut-off grade.

Zone II is believed to represent a southerly

As the mine continued to increase production, all

continuation of mineralisation present in Zone III.

diamond drill activity was focused on better

During 2007, 6,300 metres of underground drilling

defining areas of known mineralisation so that

was completed from two short drill cuddies in the

2007/2008 production schedules could be prepared.

exploration decline in Zone II (‘the Fox decline’).

During 2007, drilling confirmed the following:

This work defined two zones, which were named

the Xi Long (‘Western Dragon’) and Dong Long

• High gold mineralisation below the Qing Long

(‘Eastern Dragon’). The most

significant

and Hong Long orebodies.

mineralisation was found in Xi Long C lode with

• Significant gold mineralisation within the Ju

Long orebody, which was also found to extend

to the north. Down plunge widths and grades

were also found to be consistent, proving that

this orebody could be relied upon for bulk

tonnages in the future.

• The Fu Long orebody was found to split into

three individual lodes at depth. A forth lode, the

Wo Long, had previously been discovered as part

of the Fu Long Deeps programme. This lode

continued to display strong zinc and gold values.

the best intersection being 47.54 metres at 7.68%

zinc, 0.61% lead and 28 grams per tonne silver

(UGFOX-031A 134.01 – 181.55m).

The underground and surface drilling was of a

sufficient density as to provide the first Mineral

Resource Estimate for Zone II. This estimate was

based on ordinary Kriging and a cutoff of greater

than or equal to 1% zinc.

Material

Tonnes

Zn%

Pb%

R E P O RT A N D A C C O U N T S 2 0 0 7

Mineral Resource Estimates for Zone II

230,000

330,000

3,430,000

3,990,000

130,000

430,000

940,000

1,500,000

1.9

3.3

3.1

2.4

2.9

3.8

3.4

0.7

0.8

0.5

0.8

0.7

Au
grams
per tonne

Ag
grams
per tonne

0.3

0.2

0.3

0.2

0.3

0.4

20.0

22.7

25.7

25.1

21.2

16.7

25.5

22.6

INDICATED

Oxide

Transitional

Fresh

Total

INFERRED

Oxide

Transitional

Fresh

Total

TOTAL

Total

5,490,000

3.2

0.6

0.3

24.4

Note: Rounding errors may occur

The information in this report that relates to the Mineral Resource estimates for Zone II is based on information compiled by
Mr G. Fahey of CSA Australia Pty Ltd (CSA). Mr Fahey is a Chartered professional and Member of The Australasian Institute
of Mining and Metallurgy and a Member of the Australian Institute of Geoscientists. Mr Fahey has sufficient experience which
is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to
qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves’ (the JORC Code). Mr Fahey consents to the inclusion in the report of the matters based on
his information in the form and context in which they appear.

G R I F F I N M I N I N G L I M I T E D

EXPLORATION - AREA BETWEEN ZONES II AND III

The 1,500m long area between Zones II and III has

Anomaly D was considered to be a possible

long been considered prospective for additional

continuation of mineralisation found in Zone II and

zinc deposits but drilling has proved difficult due to

III. Results (shown opposite) indicate similar

either local access restrictions or deep sandy

grades and widths to those found along strike at

overburden. In 2006, a 3-Dimensional Induced

Zone III. This area is a priority for drilling in

Polarization (‘3D IP’) survey was undertaken to

2008. To speed drilling and to avoid having to drill

help define drill targets. The results defined six

through the overlying sand, an incline will be

prominent chargeability anomalies of which five

developed that will link the Zone III incline with

were drilled

in 2007. All contained zinc

the Zone II decline. Underground drilling will

mineralisation with the most significant results

then be used to further define the mineralisation

from Anomalies D and E.

present between Zone II and III.

R E P O RT A N D A C C O U N T S 2 0 0 7

Drill Hole No. From

DDCJY-006

-60/090

DDCJY-009

-60/090

DDCJY-014

-60/090

DDCJY-015

-60/090

Anomaly D Surface Diamond Drill Hole Results

To
(m)

163.00

200.50

217.02

231.75

237.73

80.31

115.00

207.62

82.30

89.90

77.44

106.50

171.45

187.00

198.10

Width
(m)

Results
(m)

173.84

203.55

218.80

235.64

241.00

84.06

125.00

211.00

84.35

93.75

93.30

111.35

177.70

193.20

201.07

10.84

3.15% Zn

3.05

1.78

3.89

3.27

3.75

10.00

3.38

2.05

3.85

7.42% Zn, 1.65g/t Au

4.50% Zn

4.62% Zn

4.02% Zn

5.38% Zn, 7.88% Pb

6.06% Zn, 0.71% Pb

12.34% Zn

29.59% Zn, 2.14% Pb, 168g/t Ag

4.57% Zn, 1.27% Pb, 50g/t Ag

15.86

3.31% Zn, 5.14% Pb, 70g/t Ag

4.85

6.25

6.20

2.97

1.76% Zn, 1.83% Pb, 44g/t Ag

4.59% Zn, 0.39% Pb, 0.74g/t Au, 33g/t Ag

2.89% Zn, 31g/t Ag

10.43% Zn, 15g/t Ag

Anomaly E was tested by drill hole DDCJY-005

anomalies and a review is currently being under-

and intersected two zinc-rich zones one of 2.81

taken to prioritise the targets for drilling in 2008.

metres of 3.15% zinc (53.69 to 55.50m) and

the other 5.90 metres of 4.53% zinc (134.20 to

Surface drilling was also undertaken 200m to the

140.10 m). Additional work is warranted on all IP

Northeast of Zone II in what is called the

Northeast Target. Results are listed below.

Northeast Target Surface Diamond Drill Hole Results

Drill Hole No. From

DDCJY-011

-60/090

To
(m)

80.68

158.36

199.44

90.69

159.49

202.56

Width
(m)

Results
(m)

DDCJY-016

-60/109

128.00

132.40

DDCJY-021

-60/289

DDCJY-026

-60/109

160.80

180.80

222.70

91.50

103.00

176.50

191.00

229.40

97.90

116.60

10.01

7.88% Zn, 39g/t Ag

1.13

3.12

4.40

15.70

10.20

6.70

6.40

13.60

24.25% Zn, 138g/t Ag

3.01% Zn

3.17% Zn, 1.24g/t Au, 41g/t Ag

5.88% Zn, 0.23% Pb, 0.51g/t Au, 59g/t Ag

4.40% Zn

5.80% Zn

7.35% Zn

5.92% Zn

G R I F F I N M I N I N G L I M I T E D

These results are very encouraging and indicate

Applied research is being undertaken by Dr

that Zone II has additional parallel basemetal lodes

Zhaoshan Chang of the ARC Centre of Excellence

similar to those present at Zone III.

in Ore Deposits at the University of Tasmania as

HEBEI SINO ANGLO EXPLORATION
LICENCE AREA

Prominent ground magnetic anomalies located

2.5kilometres east of Zone II at Hebaogou and

3 kilometres east of the mine near Ershili Naobao

village. Drilling at Ershili Naobao, soil sampling,

trenching and IP surveys were undertaken and have

identified zinc anomalies which will be followed up

in 2008.

part of a research programme sponsored by Griffin.

The purpose of this study is to understand the

origin and controls of the mineralisation at

Caijiaying and to apply this knowledge to the

discovery of additional orebodies in the area.

During 2007, analysis of Proterozoic and Jurassic

rock using PIMA identified a broad illite alteration

hallo surrounding the mineralised zone providing a

possible vector to mineralisation. During 2008,

R E P O RT A N D A C C O U N T S 2 0 0 7

THE FUTURE

samples from the surrounding Hebei Sino Anglo

Looking forward, 2008 will be an important year in

Caijiaying Exploration Licence will be analysed for

the development of Caijiaying with the installation

illite as a means of defining additional alteration

of a second primary ball mill and crusher to take

hallos that surround mineralisation.

processing throughput to a rate of 750,000 tonnes

of ore per annum in 2009.

REGIONAL EXPLORATION

The Sidougou (36km2) and Xuetangying (83km2)

Zones III and II have the potential to significantly

exploration licences applied for in 2005 and

expand operations at Caijiaying providing more ore

The development of Zone II and the areas between

expected to be issued in 2007 were not granted due

for the processing facilities.

to the areas coming under a National Strategic

Minerals Area. These areas will continue to be

With the benefit of the funds raised from the

applied for in 2008.

placing of new shares in Griffin in 2007 and from

cash flow generated from Caijiaying, Griffin is well

A regional database of mineral occurrences has

placed to take advantage of the opportunities now

been

incorporated

into

the Geographic

being presented in the current uncertain equity and

Information System which will help in targeting

debt capital markets. On 22 April 2008, the

new areas.

Company announced an agreed takeover of Yukon

Zinc corporation which controls 100% of the high

grade wolverine project in the Yukon District of

Canada. Whilst there is no certainty that this

transaction will be successfully completed, it

provides a worthwhile example of the type of

acquisition the company is prepared to undertake.

In essence one which will provide extraordinary

returns within acceptable risk parameters for the

shareholders of Griffin.

G R I F F I N M I N I N G L I M I T E D

R E P O RT A N D A C C O U N T S 2 0 0 7

G R I F F I N M I N I N G L I M I T E D

DIRECTORS AND SENIOR EXECUTIVES

DIRECTORS:

Mladen Ninkov, Chairman, Australian, aged 46,

Dal Brynelsen, Director, Canadian, aged 61, is

holds a Masters of Law Degree from Trinity Hall,

a graduate of the University of British Columbia in

Cambridge and Bachelor of Laws (with Honours)

Urban Land Economics. Mr. Brynelsen has been

and Bachelor of Jurisprudence Degree from the

involved in the resource industry for over 30 years.

University of Western Australia. He is the principal

He has been responsible for the discovery,

of Keynes Capital. He has a mining, legal, fund

development and operation of several underground

management and investment banking background

gold mines during his career. Mr. Brynelsen is the

and is admitted as a barrister and solicitor of the

President and a director of Vangold Resources

Supreme Court of Western Australia. He was the

Limited.

Chairman and Managing Director of the Dragon

Capital Funds management group, a director and

William Mulligan, Director, USA, aged 64, has

Head of International Corporate Finance at ANZ

a BSc from Thomas Clarkson University, an MS in

Grindlays Bank Plc in London and a Vice President

Geological Engineering from the University of

of Prudential-Bache Securities Inc. in New York.

Connecticut and an MBA from NYU Bernard

He also worked at Skadden Arps Slate Meagher &

Baruch School of Business Administration. He is

Flom in New York and Freehill Hollingdale &

currently the Managing Director for Global

Page in Australia. He has been chairman and

Projects and Political Risk at AIG Global Trade

director of a number of both public and private

and Political Risk Insurance Company, a wholly

mining companies.

owned subsidiary of American International Group

Inc., and a director of AIG Investment Bank (ZAO)

Roger Goodwin, Finance Director, British,

Ltd based in Moscow. From 1994 to 1996 he was

aged 53, is a Chartered Accountant. He has been

Executive Vice President

for Corporate

with the Company since 1996 having previously

Development at Latin American Gold Limited.

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.

R E P O RT A N D A C C O U N T S 2 0 0 7

SENIOR EXECUTIVES:

Dominic Claridge, Group Operations Manager,

Timothy Blyth, Operations Manager

Australian, aged 44, holds a degree in mining

Caijiaying, Australian, aged 48, holds an

engineering from the University of Sydney

Associate Diploma in Geology from the Canberra

(Australia). He has been involved in the mining

Institute of Technology and has 24 continuous

industry for over 20 years having worked

years experience in the Australian mining industry,

predominately with Australian mining companies,

with the last 10 years in senior management

with short interludes in South Africa and Finland.

positions. Having started as an underground

He has worked in a variety of operations

geologist, he also has significant experience of open

encompassing both underground and open cut

pit mining. †Prior to joining Griffin he spent the

mining, from small to medium sized mines. More

previous 5 years as Operations Manager and

recently he has worked in China as deputy general

Project Manager for Hill 50 Gold, Harmony and

manager for an underground gold operation and

Perilya. Previously he was a Chief Geologist

was project manager for a new gold operation in

(Geology Manager) for 5 years for Sons of Gwalia

Australia.

and then Hill 50 Gold.

Jeff Haitian Sun, General Manager China,

William Zhang, Finance Manager China, aged

Chinese, aged 47, is a Professor of Geology based

30, is an Australian resident and citizen of China.

in Beijing. He holds a PhD and MSc in mineral

He holds a Bachelor of Commerce degree from

deposits

from

the Chinese University of

University of Melbourne, and is an associate

Geosciences and has undertaken postdoctoral

member of the Certified Public Accountants of

research in geology at the Norwegian University of

Australia. He has a mining, accounting and finance

Technology. Jeff has worked on a number of

background having worked on a number of coal

mineral projects both in China and overseas. Prior

mining projects both in China and Australia,

to joining Griffin he was engaged by Mundoro

including; Yanzhou Coal (a coal mining company

Mining Inc of Canada as a senior geologist.

listed in NYSE, SEHK, SSE) and Fiserv Solutions

(a financial service firm listed in NASDAQ).

G R I F F I N M I N I N G L I M I T E D

R E P O RT A N D A C C O U N T S 2 0 0 7

G R I F F I N M I N I N G L I M I T E D

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 2007.

FINANCIAL RESULTS

The Group profit before taxation, amounted to US$26,762,000 (2006 – US$29,545,000). There is no taxation charge
(withholding taxation of US$75,000 was charged in 2006). A maiden dividend of $5,826,000 was paid in 2007 (2006 nil).
The Group profit after taxation and dividends paid amounted to US$20,936,000 (2006 – US$29,470,000) and has been credited
to reserves.

The earnings per share amounted to 12.08 cents (2006 – 16.02 cents). The attributable net asset value per share at 31 December
2007 amounted to 95 cents (2006 - 35 cents).

The Directors declare a dividend of 3 cents per ordinary share in the Company payable on 6 June 2008.

PRINCIPAL ACTIVITIES

The principal activity of the Group is that of mining and exploration. A review of the Group’s operations for the year ended 31
December 2007 and the indication of likely future developments are set out on pages 8 to 23.

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 2007 and their immediate families in the share capital
of the Company were as follows:

Name

At 31 December 2007

At 1 January 2007

Ordinary shares
No.

Options over ordinary shares

Ordinary shares
No.

Options over ordinary shares

Exercisable at
110 pence

Exercisable at
65 pence

Exercisable at
30 pence

Mladen Ninkov
Dal Brynelsen
Roger Goodwin
William Mulligan

33,001
1
577,830
300,001

6,000,000
400,000
1,200,000
400,000

2,000,000
200,000
575,000
200,000

33,001
1
311,163
300,001

2,000,000
200,000
575,000
200,000

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

The options exercisable at 65 pence per share entitle the holder to subscribe for new ordinary shares in the Company on or
before the 28 February 2009 and have all vested.

The options exercisable at 110 pence per share entitle the holder to subscribe for new ordinary shares in the Company on or
before 28 February 2010. The options vest with each option holder in 3 separate and equal instalments as follows:

a. The first third of each holder’s options vested on 31 December 2007;

b. The second third of each holder’s options will vest on 31 December 2008; and

c. The last third of each holder’s options will vest on 31 December 2009.

R E P O RT A N D A C C O U N T S 2 0 0 7

DIRECTORS’ REPORT

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

All of the Directors’ interests detailed are beneficial.

On 11 January 2007 the Company was notified of the exercise of options granted to the directors and management in March
2004 over 9,266,667 new ordinary shares in the Company at an exercise price of 30p per share to raise £2,780,000 for the
Company.

POST BALANCE SHEET EVENTS

On 19 April 2008 Griffin signed an agreement with Yukon Zinc Corporation (“Yukon Zinc”) for the acquisition of all the
issued common stock of Yukon Zinc. The agreement provides for a plan of arrangement pursuant to section 288(1) of the British
Columbia Business Corporations Act, in which the Yukon Zinc shareholders will exchange their Yukon Zinc shares for ordinary
shares of Griffin, on the basis of one Griffin share for each nine Yukon Zinc shares held. The plan of arrangement is subject to,
inter alia, the approval of two thirds of the Yukon Zinc shareholders attending and voting at a special general meeting.

Yukon Zinc has issued and outstanding 455,606,909 common shares for which Griffin will issue and exchange 50,622,990 (subject
to roundings) new ordinary shares amounting to 16.2% of the enlarged share capital on an undiluted basis of 312,132,539
ordinary shares. In addition Yukon Zinc has granted stock options exercisable for 23,578,000 common shares and warrants
exercisable for 76,511,618 common shares. Under the terms of the agreement, Griffin will grant options / warrants exercisable
over a total of 11,121,069 new ordinary shares in exchange for the outstanding Yukon Zinc options and warrants, amounting to
3.2% of the enlarged share capital on a fully diluted basis of 338,728,608 ordinary shares.

The final structure of the transaction will be determined on the basis of tax, securities and corporate law advice in order to ensure
the most efficient structure for each of the parties and their respective security holders. Yukon Zinc has agreed to pay a break
fee to Griffin, under certain circumstances, of C$2.5 million. Yukon Zinc has also provided Griffin with certain other customary
rights, including a right to match competing offers.

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, other than their shareholding, 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

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.

G R I F F I N M I N I N G L I M I T E D

DIRECTORS’ REPORT

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ACCOUNTS

Bermudan 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

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

In so far as the directors are aware:

•

there is no relevant information of which the Company’s auditors are unaware; and

the directors have taken all steps that they ought to have taken as directors to make themselves aware of relevant
audit information and to establish that the auditors are aware of that information.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that the financial statements comply with the Bermuda Companies
Act 1981 as amended. 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.

The directors are responsible for the maintenance and integrity of the corporate and financial information included in the
Company’s website. Legislation in Bermuda and the United Kingdom governing the preparation and dissemination of financial
statements may differ from the legislation in other jurisdictions.

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

Roger Goodwin

Finance Director and Company Secretary

30 April 2008

London

R E P O RT A N D A C C O U N T S 2 0 0 7

REPORT OF THE INDEPENDENT AUDITOR

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 2007 which comprise the
consolidated income statement, the consolidated balance sheet, the statement of changes in equity, the consolidated cash flow
statement, the accounting policies, and notes 1 to 23. These financial statements have been prepared 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 as amended. 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 AUDITOR

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 International
Standards on Auditing (United Kingdom and Ireland).

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 AUDIT OPINION

We conducted our audit in accordance with International Standards on Auditing (United Kingdom and Ireland) 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 in accordance with International Financial Reporting
Standards of the state of the Group’s affairs at 31 December 2007 and of its profit for the year then ended;

•

the financial statements have been properly prepared in accordance with the provisions of the Bermudan
Companies Act 1981 as amended.

GRANT THORNTON UK LLP
REGISTERED AUDITORS
CHARTERED ACCOUNTANTS
LONDON
30 April 2008

G R I F F I N M I N I N G L I M I T E D

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2007
(expressed in thousands US dollars)

Notes

Revenue

Cost of sales

Gross profit

Net operating expenses

Profit from operations

Foreign exchange gains
Finance income

Profit before tax

Income tax expense

Profit after tax attributable to equity share owners
for the financial year

Basic earnings per share (cents) from continuing operations

Diluted earnings per share (cents) from continuing operations

2007

$000

37,989

(7,768)

30,221

(10,078)

2006

$000

42,802

(8,516)

34,286

(6,142)

20,143

28,144

1,012
5,607

26,762

789
612

29,545

(75)

26,762

29,470

12.08

11.97

16.02

15.45

R E P O RT A N D A C C O U N T S 2 0 0 7

CONSOLIDATED BALANCE SHEET

As at 31 December 2007
(expressed in thousands US dollars)

Notes

ASSETS
Non-current assets
Property, plant and equipment
Intangible assets – Exploration interests

Current assets
Inventories
Other current assets
Cash and cash equivalents

Total assets

EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital
Share premium
Contributing surplus
Share based payments
Other reserves
Foreign exchange reserve
Profit and loss reserve
Total equity

Non-current liabilities
Long-term provisions

Current liabilities
Trade and other payables
Short term bank overdrafts

Total liabilities

Total equities and liabilities

Number of shares in issue

7
8

9
10

15
16

2007
$000

44,381
751
45,132

4,639
4,155
199,949
208,743

253,875

2,615
196,637
3,690
4,426
579
3,109
37,106
248,162

2006
$000

32,087
842
32,929

1,104
1,064
34,081
36,249

69,178

1,841
39,166
3,690
2,553
297
479
16,432
64,458

384

5,047
666

5,713

253,875

4,336
-

4,720

69,178

261,509,549

184,061,064

Attributable net asset value / total equity per share

$0.95

$0.35

The accounts on pages 34 to 53 were approved by the Board of Directors and signed on its behalf by:

Mladen Ninkov
Chairman

30 April 2008

Roger Goodwin
Finance Director

G R I F F I N M I N I N G L I M I T E D

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2007
(expressed in thousands US dollars)

Share
capital premium

Share Contributing
surplus

Share
based
payments

Other
reserves

Foreign

Profit
exchange and loss
reserve

reserve

Total

$000

At 31 December 2005

1,838

39,040

3,690

842

Exchange differences on
translating foreign operations

Net income recognised
directly in equity

Profit for the year

Total recognised income
and expenses in the year

Regulatory transfer for
future investment

Issue of share capital

Cost of share based payments

Movement in fair value of
financial assets

126

1,711

297

215

(12,740)

32,885

264

29,470

264

29,470

29,734

(297)

129

1,711

(1)

At 31 December 2006

1,841

39,166

3,690

2,553

297

479

16,432

64,458

Exchange differences on
translating foreign operations

Net income recognised
directly to equity

Profit for the year

Total recognised income
and expenses in the year

Dividend paid

Regulatory transfer for
future investment

Excercise of options

Issue of share capital

1,042

774

156,429

Cost of share based payments

(1,042)

2,915

262

2,630

2,650

26,762

2,630

26,762

29,412

(5,826)

(262)

- 157,203

2,915

At 31 December 2007

2,615

196,637

3,690

4,426

579

3,109

37,106 248,162

R E P O RT A N D A C C O U N T S 2 0 0 7

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2007
(expressed in thousands US dollars)

Notes

Net cash flows from operating activities
Profit before taxation
Foreign exchange (gains)
Taxation paid
Finance income
Adjustment in respect of share based payments
Depreciation, depletion and amortisation
(Increase) / decrease in inventories
(Increase) in other current assets
Increase in trade and other payables

Net cash inflow from operating activities

Cash flows from investing activities
Interest received
Receipts on sale of investments
Payments to acquire intangible fixed assets – exploration interests
Payments to acquire plant and equipment – mineral interests
Payments to acquire plant and equipment – plant and equipment
Payments to acquire plant and equipment – other
Dividends paid
Net cash (outflow) from investing activities

Cash flows from financing activities
Issue of ordinary share capital
Expenses paid in connection with share issue

8
7
7
7

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of the year
Effects of exchange rate changes
Cash and cash equivalents at the end of the year

Cash and cash equivalents comprise:
Bank deposits
Short term bank overdrafts
Total

2007
$000

26,762
(1,012)
-
(5,607)
2,915
1,351
(3,535)
(3,091)
711

18,494

5,607
-
(126)
(9,056)
(1,854)
-
(5,826)
(11,255)

157,211
(7)
157,204

164,443

34,081
759
199,283

199,949
(666)
199,283

2006
$000

29,545
(789)
(75)
(612)
1,711
890
516
(117)
811

31,880

612
63
(414)
(2,829)
(2,504)
(9)
-
(5,081)

129
-
129

26,928

6,663
490
34,081

34,081
-
34,081

Included within the net cash inflows of $164,443,000 (2006 $26,928,000) are foreign exchange gains / losses of $1,012,000 (2006
losses $789,000) which have been treated as realised.

G R I F F I N M I N I N G L I M I T E D

ACCOUNTING POLICIES

BASIS OF ACCOUNTING

The accounts have been prepared in accordance with applicable International Financial Reporting Standards as issued by the
International Accounting Standards Board.

The significant accounting policies adopted are detailed below.

ACCOUNTING CONVENTION

The accounts have been prepared under the historical cost convention, except for financial assets which are measured at fair
value.

ACCOUNTING POLICIES

A new International Financial Reporting Standard, IFRS 7, ‘Financial Instruments: Disclosures’, has become mandatory for
accounting periods beginning on 1 January 2007 or later. This Standard, which replaces rules previously set out in IAS 32,
‘Financial Instruments: Presentation and Disclosures’, has been applied by the Group in its 2007 consolidated financial
statements. All disclosures relating to financial instruments including all comparative information have been updated to reflect
the new requirements. The first time application of IFRS 7 has not resulted in any prior period adjustments to cash flows, net
income or balance sheet items.

ISSUED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS’S”) AND
INTERPRETATIONS THAT ARE NOT YET EFFECTIVE

The Group has not applied the following pronouncements: Those of which are expected to be most relevant to the Group are
IFRS 8 and IAS 27 (revised).

- IAS 1 Presentation of financial statements (revised) – effective 1 January 2009

- IAS 23 Borrowing Costs (revised 2007) – effective 1 January 2009

- IAS 27 (revised) Consolidated and separate financial statements – effective 1 January 2009.

- Amendment to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable

Financial Instruments and Obligations Arising on Liquidation – effective 1 January 2009

- IFRS 2 (Amendment) Share based payment – Vesting conditions and cancellations – effective 1 January 2009

- IFRS 3 (Amendment) Business combinations – effective 1 January 2009

- IFRS 8 Operating Segments – effective 1 January 2009. The segmental information reported under the standard is that
which the chief operating decision maker uses internally for evaluating the performance of operating segments and
allocating resources to those segments.

- IFRIC 11 (IFRS 2) Group and Treasury share transactions – effective 1 March 2007

- IFRIC 12 – Service concession arrangements – effective 1 January 2008

- IFRIC 13 Customer Loyalty Programmes – effective 1 July 2008

- IFRIC 14 (IAS 19) The limit on a defined benefit asset, minimum funding requirements and their interaction – effective

1 January 2008

The Group is evaluating the impact of the above pronouncements. The effect of the revision to IAS 27 will depend on the extent
of relevant future transactions including the reduction in the Group’s interest in Hebei Hua Ao. Otherwise, the changes are
not expected to be material to the Group’s earnings or to shareholders’ funds.

R E P O RT A N D A C C O U N T S 2 0 0 7

ACCOUNTING POLICIES

CONSOLIDATION BASIS

The Group accounts consolidate the accounts of the Company and all its subsidiary undertakings drawn up to 31 December
each year. Subsidiaries are entities over which the group has the power to control the financial and operating policies so as to
obtain benefits from its activities. The Group obtains and exercises control through voting rights.

Unrealised gains on transactions between the group and its subsidiaries are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements
of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Acquisitions of subsidiaries are dealt with by the purchase method. The purchase method involves the recognition at fair value
of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of
whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the
assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as
the bases for subsequent measurement in accordance with the Group accounting policies. Goodwill is stated after separating
out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the Group’s share of
the identifiable net assets of the acquired subsidiary at the date of acquisition.

Under the terms of the joint venture contract establishing the Hebei Hua’ Ao Mining Industry 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 Industry Company Limited is recognised in these financial statements as Griffin
Mining Limited is entitled to 100% of the cash flows for the first 3 years production commencing July 2005.

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

REVENUE

Revenue is measured by reference to the fair value of consideration received or receivable by the Group and comprises amounts
received, net of VAT and production royalties, from sales of metal concentrates to third party customers. Sales are made on a
cash on delivery / collection basis and are recognised on collection or delivery of the concentrate from the Group’s processing
facilities.

NON CURRENT ASSETS

Intangible assets - exploration cost

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 property, plant and equipment to be amortised
over the expected productive life of the asset. The Group’s intangible assets are subject to periodic review by the Directors for
impairment. 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.

Property, plant and equipment

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.

Property, plant and equipment are shown at cost less depreciation and provisions for the impairment of value (see note 7).

G R I F F I N M I N I N G L I M I T E D

ACCOUNTING POLICIES

NON CURRENT ASSETS (CONTINUED)

Depreciation

All costs capitalised (mineral interest, mill and mine equipment) within an area of interest, are amortised 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.

Impairment

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 income
statement as additional depreciation.

Impairment assessments are based upon a range of estimates and assumptions:

Estimate / assumption
Future production
Commodity prices
Exchange rates
Discount rates

Basis
Proven and probable reserves and resource estimates together with processing capacity
Forward market and longer term price estimates
Current market exchange rates
Cost of capital risk

MINE CLOSURE COSTS

Mining operations are generally required to restore mine and processing sites at the end of their lives to a condition acceptable
to the relevant authorities and consistent with the Group’s environmental policies. Whilst the Group strives to maintain and
where possible enhance the environment of the Group’s processing sites, provision is made for site restoration costs in the
accounts in accordance with local requirements.

INVENTORIES

Inventories are valued at the lower of cost or net realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for as follows:

•

Consumable stores and spares, at purchase costs on a first in first out basis

Concentrate stockpiles at cost of direct materials, power, labour, and a proportion of site overhead

Ore stockpiles at cost of direct material, power, labour contractor charges and a proportion of site overhead

FINANCIAL ASSETS

Financial assets, other than hedging instruments, can be divided into the following categories:

•

loans and receivables

financial assets at fair value through profit or loss

available-for-sale financial assets

held-to-maturity investments

R E P O RT A N D A C C O U N T S 2 0 0 7

ACCOUNTING POLICIES

FINANCIAL ASSETS (CONTINUED)

Financial assets are assigned to the different categories on initial recognition, depending on the characteristics of the instrument
and its purpose. A financial instrument’s category is relevant for the way it is measured and whether resulting income and expenses
are recognised in the income statement or charged directly against equity.

The Group generally recognises all financial assets using settlement day accounting. An assessment of whether a financial asset
is impaired is made at least at each reporting date. Financial assets that are substantially past due are also considered for
impairment. All income and expense relating to financial assets are recognised in the income statement line item “finance
costs” or “finance income”, respectively.

Individual receivables are considered for impairment when they are past due at the balance sheet date or when objective evidence
is received that a specific counterparty will default.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are classified as current assets or non current assets based on their maturity date. Loans and receivables are classified
as either 'trade and other receivables’ or 'other financial assets’ in the balance sheet. On initial recognition loans and receivables
are recognised at fair value net of transaction costs. They are subsequently measured at amortised cost using the effective interest
method, less provision for impairment. Any change in their value is recognised in the income statements. The Group’s other
receivables fall into this category of financial instruments.

The Group has no financial assets at fair value through profit or loss or held-to-maturity investments.

CASH FLOW HEDGE ACCOUNTING

International Accounting Standard 39 requires a specific accounting treatment for derivatives that are designated as hedging
instruments in cash flow hedge relationships. To qualify for hedge accounting, the hedging relationship must meet several
strict conditions with respect to documentation, probability of occurrence, hedge effectiveness and reliability of measurement.
All other derivative financial instruments are accounted for at fair value through profit or loss. The Group has not entered into
any derivatives that may be designated as hedging instruments.

FINANCIAL LIABILITIES

The Group’s financial liabilities include borrowings, trade and other payables, which are measured at amortised cost using the
effective interest rate method. On initial recognition loans and receivables are recognised at fair value net of transaction costs.

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest-
related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included in the
income statement line items “finance costs” or “finance income”.

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.

Foreign currency transactions by Group companies are recorded in their functional currencies at the exchange rate ruling at the
date of the transaction.

Monetary assets and liabilities have been translated at rates in effect at the balance sheet date. Any realised or unrealised exchange
adjustments have been charged or credited to income.

G R I F F I N M I N I N G L I M I T E D

ACCOUNTING POLICIES

FOREIGN CURRENCY TRANSACTIONS (CONTINUED)

On consolidation the accounts of overseas subsidiary undertakings are translated into the presentation currency of the Group
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 classified within equity and is taken directly
to the foreign exchange reserve. All other translation differences are taken to the income statement.

The balance of the foreign currency translation reserve relating to an operation that is disposed of is transferred to the income
statement at the time of the disposal.

EQUITY

Equity comprises the following:

•

“Share capital” represents the nominal value of equity shares.

“Share premium” represents the excess over nominal value of the fair value of consideration received for equity
shares, net of expenses of the share issue.

“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.

“Share based payments” represents equity-settled share-based employee remuneration until such share options
are exercised.

“Foreign exchange reserve” represents the differences arising from translation of investments in overseas
subsidiaries.

“Other reserve” represents a statutory retained earnings reserve under PRC law for future investment by Hebei
Hua’ Ao.

“Profit and loss reserve” represents retained profits and losses.

EQUITY SETTLED SHARE BASED PAYMENTS

All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2005 are recognised
in the financial statements.

All goods and services received in exchange for the grant of any share-based remuneration are measured at their fair values. Fair
values of employee services are indirectly determined by reference to the fair value of the share options awarded. Their value
is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, production upgrades).

All share-based remuneration is ultimately recognised as an expense in the income statement with a corresponding credit to
“Share based payments” in the balance sheet.

If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the
best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any
indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior
to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options
ultimately exercised are different to that estimated on vesting.

Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital.

For the financial year ended 31 December 2007 the application of the accounting standard has resulted in a net decrease in the
profit for the year of $2,915,000 (2006 $1,711,000).

R E P O RT A N D A C C O U N T S 2 0 0 7

ACCOUNTING POLICIES

SIGNIFICANT JUDGEMENTS AND ESTIMATES

In formulating accounting policies the directors are required to apply their judgement, and where necessary engage professional
advisors, with regard to the following significant areas:

•

Expenditure capitalised as intangible fixed assets (note 8)

Expenditure capitalised as property, plant & equipment (note 7)

Impairment review assumptions (note 7 and 8)

Provisions for mine closure costs (note 14)

Share based payments (note 12)

Classification of share based payments (note 12)

The directors continually monitor the basis on which their judgements are formulated. Where required they will make
amendments to these judgements. Where judgements and estimates are amended between accounting periods, full disclosure
of the financial implications are given within the relevant notes to the Group accounts.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments
that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

DIVIDENDS

Dividend distributions payable to equity shareholders are included in “other short term financial liabilities” when the dividends
are approved in a directors meeting prior to the balance sheet date.

G R I F F I N M I N I N G L I M I T E D

NOTES TO THE FINANCIAL STATEMENTS

1. SEGMENTAL REPORTING

The Group has one business segment, the Caijiaying zinc gold project in the Peoples Republic of China, which is its primary
segment for the purposes of financial reporting. All sales and costs of sales in 2007 and 2006 were derived from the Caijiaying
zinc gold project.

2007
$000

2006
$000

37,989

42,802

(7,768)

(8,516)

(4,735)
15
(5,358)
(10,078)

(3,434)
(30)
(2,678)
(6,142)

50,207
382
18,589
69,178

5,747
-
9
5,756

2006
$000
(890)
(2,071)
(1,711)

No.
200

REVENUES
China

COST OF SALES
China

NET OPERATING EXPENSES
China
Australia
European Union

All revenues, cost of sales, and operating expenses charged to profit relate to continuing operations.

TOTAL ASSETS
China
Australia
European Union

CAPITAL EXPENDITURE
China
Australia
European Union

2. PROFIT FROM OPERATIONS

Profit from operations is stated after charging

Depreciation, depletion and amortisation
Staff costs
Fair values of options granted to directors and management

Average number of persons employed by the Group in the year

54,841
79
198,955
253,875

11,036
-
-
11,036

2007
$000
(1,351)
(2,301)
(2,915)

No.
200

R E P O RT A N D A C C O U N T S 2 0 0 7

NOTES TO THE FINANCIAL STATEMENTS

3. DIRECTORS’ AND KEY PERSONNEL REMUNERATION

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

Mladen Ninkov
Dal Brynelsen
Roger Goodwin
William Mulligan

Key personnel

Fees

Salary

$000
45
66
45
66
222
-
222

$000
-
-
365
-
365
801
1,166

Share based
payments
$000
1,744
116
349
116
2,325
588
2,913

Total
2007
$000
1,789
182
759
182
2,912
1,389
4,301

Fees

Salary

$000
-
50
-
50
100
-
100

$000
-
-
281
-
281
570
851

Share based
payments
$000
678
67
193
67
1,005
710
1,715

Total
2006
$000
678
117
474
117
1,386
1,280
2,666

Keynes Capital, the registered business name of Keynes Investments Pty Limited as trustee for the Keynes Trust, received fees
under a consultancy agreement of $932,000 (2006 $748,000), 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. Mladen Ninkov is a director and
employee of Keynes Investments Pty Limited.

On 14 February 2007 the Company agreed to grant further options over 10,000,000 new ordinary shares to directors and key
employees of the Company (the “New Options”). Each New Option entitles the holder to subscribe for new ordinary shares in
the Company at an exercise price of 110 pence per new ordinary share on or before 28 February 2010. The New Options vest
with each option holder in 3 separate and equal instalments per annum as follows:

The first third of each holder’s New Options vested on 31 December 2007;

The second third of each holder’s New Options will vest on 31 December 2008; and

The last third of each holder’s New Options will vest on 31 December 2009.

The New Options will not vest if an employee or a director resigns or leaves the Company for cause 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 new options have been allocated as follows:

New options
granted

Total number of
options granted

Options
exercised

No.

Total number of
options vested at
31 December 2007
No.

6,000,000
1,200,000
400,000
400,000

2,000,000

10,000,000

14,000,000
3,475,000
1,200,000
1,200,000

(6,000,000)
(1,700,000)
(600,000)
(600,000)

4,866,667

(366,667)

24,741,667

(9,266,667)

4,000,000
975,000
333,333
333,333

2,933,334

8,575,000

Directors:

Mladen Ninkov
Roger Goodwin
Dal Brynelsen
William Mulligan

Management

Key Personnel

Total

G R I F F I N M I N I N G L I M I T E D

NOTES TO THE FINANCIAL STATEMENTS

4. FINANCE INCOME

Interest income on bank deposits

5. INCOME TAX EXPENSE

Taxation on profit on ordinary activities
Overseas withholding taxation
Taxation charge

2007
$000
5,607

2007
$000

-
-

2006
$000
612

2006
$000

75
75

The Company ceased to be resident in the United Kingdom for taxation purposes on 14 November 2006 and at the balance
sheet date was no longer within the charge to United Kingdom corporation tax. Taxation and capital losses carried at 13
November 2006 were extinguished at the point of migration.

The overseas taxation shown above is withholding tax applied on outbound inter company interest payments from China.

The Group benefits from a taxation holiday in China until 2008 and does not pay taxation on its trading profits until 2008.

6. EARNINGS PER SHARE

The calculation of the basic earnings per share is based upon the earnings attributable to ordinary shareholders divided by the
weighted average number of shares in issue during the year. The calculation of diluted earnings per share is based on the basic
earnings per share on the assumed conversion of all dilutive options and other dilutive potential ordinary shares.

Reconciliation of the earnings and weighted average number of shares used in the calculations are set out below:

2007

Earnings

$000

Weighted
average
number of
shares

Per
share
amount
(cents)

Earnings

$000

2006

Weighted
average
number
of shares

Per
share
amount
(cents)

26,762

221,441,986

12.08

29,470

183,931,840

16.02

2,153,244

6,820,134

Basic earnings per share
Earnings attributable to
ordinary shareholders

Dilutive effect of securities

Options

Diluted earnings per share

26,762

223,595,230

11.97

29,470

190,751,974

15.45

R E P O RT A N D A C C O U N T S 2 0 0 7

NOTES TO THE FINANCIAL STATEMENTS

Mineral
interests mine equipment

Mill and

Office furniture
and equipment

7. PROPERTY, PLANT AND EQUIPMENT

At 1 January 2006 net of accumulated depreciation
Foreign exchange adjustments
Additions during the year
Depreciation charge for the year
At 31 December 2006
Foreign exchange adjustments
Additions during the year
Transfers from exploration interests
Transfers from long term provisions re mine closure
costs on payment of rehabilitation bonds
Depreciation charge for the year
At 31 December 2007

At 1 January 2006
Cost
Accumulated depreciation
Net carrying amount

At 31 December 2006
Cost
Accumulated depreciation
Net carrying amount

At 31 December 2007
Cost
Accumulated depreciation
Net carrying amount

$000

18,377
236
2,829
(222)
21,220
2,500
9,056
162

(384)
(733)
31,821

$000

18,501
(124)
18,377

21,574
(354)
21,220

32,937
(1,116)
31,821

$000

8,675
329
2,504
(660)
10,848
457
1,854
-

-
(608)
12,551

$000

9,110
(435)
8,675

11,970
(1,122)
10,848

14,336
(1,785)
12,551

Total

$000

27,070
565
5,342
(890)
32,087
2,957
10,910
162

(384)
(1,351)
44,381

$000

18
-
9
(8)
19
-
-
-

-
(10)
9

$000

37
(19)
18

46
(27)
19

46
(37)
9

27,648
(578)
27,070

33,590
(1,503)
32,087

47,319
(2,938)
44,381

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 and together with the end of life restoration costs.

The office furniture and equipment disclosed above relates solely to the fixed assets of the Company.

G R I F F I N M I N I N G L I M I T E D

NOTES TO THE FINANCIAL STATEMENTS

8. INTANGIBLE ASSETS

Exploration interests
China – Zinc / gold

At 1 January 2006
Foreign exchange adjustments
Additions during the year
At 31 December 2006
Foreign exchange adjustments
Additions during the year
Transfers to mineral interests
At 31 December 2007

$000
419
9
414
842
(55)
126
(162)
751

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. At 31 December
2007 no amounts had been provided or charged to the income statement in respect of the above exploration costs.

9. INVENTORIES

Underground ore stocks
Surface ore stocks
Concentrate ore stocks
Spare parts and consumables

2007
$000
1,006
223
2,869
541
4,639

2006
$000
288
397
-
419
1,104

All inventories are expected to be sold, used or consumed within one year of the balance sheet date. Inventories costing
$7,768,000 were charged to the income statement in 2007 (2006 $ 8,516,000).

10. OTHER CURRENT ASSETS

Other receivables
Prepayments

2007
$000
1,695
2,460
4,155

2006
$000
565
499
1,064

Other receivables comprise advances to; related parties, recoverable from future share of profits (note 21); and personnel,
recoverable from salaries. All current assets are short term. The carrying values of all receivables are considered to be a reasonable
approximation of fair value.

R E P O RT A N D A C C O U N T S 2 0 0 7

NOTES TO THE FINANCIAL STATEMENTS

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

2007

2006

Number

$000

Number

$000

1,000,000,000

10,000

1,000,000,000

10,000

184,061,064
77,448,485
261,509,549

1,841
774
2,615

183,827,731
233,333
184,061,064

1,838
3
1,841

On 11 January 2007 9,266,667 new ordinary shares in the Company were allotted at 30 UK pence ($0. 59) per ordinary share
on the exercise of options.

On 1 August 2007 68,181,818 new ordinary shares in the Company were allotted at 110 UK pence ($2.22) per ordinary share
for cash raising £75million ($151,770,000) for the Company.

Transaction costs of $8,000 were incurred in respect of the issue of shares on 1 August 2007 and charged to share premium.

12. SHARE OPTIONS AND WARRANTS

At 1 January
2007
Number

Granted/ At 31 December
2007
Number

(Exercised)
Number

Options exercisable at 30 pence per share at anytime up to 28 February 2007 3,050,000
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
Options exercisable at 65 pence per share to 28 February 2009
Options exercisable at 110 pence per share to 28 February 2010

3,050,000

3,166,667
5,475,000
-
14,741,667

(3,050,000)

(3,166,667)
-
10,000,000
733,333

-
5,475,000
10,000,000
15,475,000

The following table shows the number and weighted average exercise price of all the unexercised share options and warrants at
the year end:

2007
Number Weighted average
exercise price

2006
Number Weighted average
exercise price

Outstanding at 1 January

Granted during the year

Exercised during the year

Lapsed during the year

14,741,667

10,000,000

(9,266,667)

Outstanding at 31 December

15,475,000

43.0

110.0

30.0

94.1

9,500,000

5,475,000

(233,333)

14,741,667

30.0

65.0

30.0

43.0

The weighted average share price of the options exercised at the date of exercise was 107.5p

The estimated value of the options exercisable at 65p up to 28 February 2009, which vested in 3 tranches of 1,825,000 each, were
14.81p, 14.93p and 15.10p. All the options exercisable at 65p vested in 2006.

The estimated value of the options exercisable at 110p up to 28 February 2010, which vested in 3 tranches of 3,333,333 each,
were 25.19p, 25.87p and 26.52p.

G R I F F I N M I N I N G L I M I T E D

NOTES TO THE FINANCIAL STATEMENTS

12. SHARE OPTIONS AND WARRANTS (CONTINUED)

Inputs into the Binomial valuation model were as follows:

Share price
Exercise price
Expected volatility
Risk free rate
Dividend yield

Options expiring
28 February 2010

Options expiring
28 February 2009

Options expiring
28 February 2007

105.8p
110.0p
33%
5.1%
0%

65.75p
65.0p
30%
4.31%
0%

29.75p
30.0p
55%
4.64%
0%

Expected volatility was determined by calculating the historical volatility of the Company’s share price with reference to the
correlation with the zinc price and zinc price volatility over the same period. The Binomial model used assumes that the options
will be exercised early when the share price exceeds the exercise price by a multiple of two.

The Group recognised a total expense of $2,915,000 (2006: $1,711,000) during the year ended 31 December 2007 relating to
equity settled share option scheme transactions.

13. DIVIDENDS

On 6 June 2007 a maiden dividend of 3 cents per ordinary share in the Company was paid.

14. LONG-TERM PROVISIONS

PROVISIONS FOR MINE CLOSURE COSTS

At 1 January
Transfer to mineral interests on payment of rehabilitation bond
Foreign exchange adjustments
At 31 December

2007
$000
384
(384)
-
-

During 2007 the Group paid a bond under PRC regulations to be used to cover end of mine life restoration costs.

15. TRADE AND OTHER PAYABLES

Trade creditors
Taxation payable
Accruals

2007
$000
2,995
605
1,447
5,047

2006
$000
372
-
12
384

2006
$000
602
2,036
1,698
4,336

All amounts are short term. The carrying values of all trade and other payables are considered to be a reasonable approximation
of fair value.

16. SHORT TERM BANK OVERDRAFTS

Short term bank overdrafts comprise an 8.52% fixed rate bank loan of Rmb5,000,000 ($666,000) repayable on 10 March 2008,
which was secured by way of a floating charge over Hebei Hua’ Ao’s concentrate stocks.

17. ATTRIBUTABLE NET ASSET VALUE / TOTAL EQUITY PER SHARE

The attributable net asset value / total equity per share has been calculated from the consolidated net assets / total equity of the
Group at 31 December 2007 of $248,162,000 ($64,458,000 at 31 December 2006) divided by the number of ordinary shares in
issue at 31 December 2007 of 261,509,549 (184,061,064 at 31 December 2006).

R E P O RT A N D A C C O U N T S 2 0 0 7

NOTES TO THE FINANCIAL STATEMENTS

18. RISK MANAGEMENT

The Group is exposed to a variety of financial risks which result from its operating and investing activities. The Group’s risk
management is coordinated by its senior management and executive directors and focuses on actively securing the Group’s short-
to-medium term cash flows.

Foreign Currency Risk

The majority of the Group’s operational and financial cash flows are denominated in Renminbi and United States Dollars with
sterling bank deposits held to cover future sterling expenditure estimates.

Currently the Group does not carry out any significant operations in currencies outside the above.

The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange
exposure and will consider hedging significant foreign currency exposure should the need arise.

In addition, the conversion of Renminbi into foreign currencies is subject to the rules and regulations of the foreign exchange
control promulgated by the government of the PRC.

Sterling bank deposits are translated into United States Dollars at the closing rate are as follows:

Short term bank deposits

2007
$000

60,134

2006
$000

4,052

The following table illustrates the sensitivity of the net results for the year and equity in regards to the Group’s sterling deposits
and the sterling US Dollar exchange rate. It assumes a + / - 9.6% change in the sterling exchange rate for the year ended 31
December 2007. These changes are considered to be reasonable based on observation of current market conditions for the year
ended 31 December 2007. The sensitivity analysis is based upon the Group’s sterling deposits at each balance sheet date.

If sterling had strengthened against the US Dollar by 9.6% (2006 9.6%) this would have the following impact:

Net result for the year and on equity

2007
$000

6,386

If sterling had weakened against the US Dollar by 9.6% (2006 9.6%) this would have the following impact:

Net result for the year and on equity

2007
$000

(5,267)

2006
$000

430

2006
$000

(355)

Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the
analysis above is considered to be indicative of the Group’s exposure to currency risk.

Interest rate risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s bank deposits with floating
interest rates. The Group currently does not have an interest rate hedging policy.

The following table illustrates the sensitivity of the net results for the year and equity to a reasonably possible change in
interest rates of + 20% and - 30% (2006 +/- 20%), with effect from the beginning of the year. These changes are considered to
be reasonable based on observation of current market conditions within which the Group operates. The sensitivity analysis is
based upon the Group’s deposits at each balance sheet date.

Net result for the year

2007

2006

Plus 20%

Minus 30%

Plus 20% Minus 20%

$000

2,009

$000

(3,013)

$000

195

$000

(195)

G R I F F I N M I N I N G L I M I T E D

NOTES TO THE FINANCIAL STATEMENTS

18. RISK MANAGEMENT (CONTINUED)

Commodity risk

The Group is exposed to the risk of changes in commodity prices and in particular that for zinc, lead, gold and silver. The Group
currently sells its metal concentrate production by way of open auctions in China. The Group currently does not hedge its metal
production.

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading
to a financial loss. The Group is exposed to credit risk from its financing activities, including deposits with banks and financial
institutions, foreign exchange transactions and other financial instruments. The Group does not have trade receivables and does
not hold collateral as security.

Credit risk from balances with banks and financial institutions is managed by the Board. Investments of surplus funds are made
only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed
by the Griffin Board on a regular basis. The limits are set to minimise the concentration of risks and therefore mitigate financial
loss through potential counterparty failure. No material exposure is considered to exist by virtue of the possible non performance
of the counterparties to financial instruments.

19. FINANCIAL INSTRUMENTS

The Group does not enter into derivative transactions such as interest rate swaps, forward rate agreements or forward currency
contracts. With the exception of a fixed rate and fixed term Renminbi short term bank loan, 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.

In the normal course of its operations the Group is exposed to commodity price, 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.

Commodity prices are monitored on a regular basis to ensure the Group receives fair value for its products.

20. SUBSIDIARY COMPANIES

At 31 December 2007, Griffin Mining Limited had interests in the share capital of the following principal subsidiary companies.

Name

Class of Share
held

Proportion of
shares held

Nature of
business

Country of
incorporation

China Zinc Pty Ltd

Ordinary

China Zinc Limited

Ordinary

100%

Service company

Australia

Holding company

Hong Kong

Hebei Hua’ Ao Mining
Industry Company Ltd*

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

Base and precious
metals mining and
development

China

Panda Resources Ltd

Ordinary

Hebei Sino Anglo Mining
Development Company Ltd*

100%

90%

Holding company

England

Mineral exploration
and development

China

R E P O RT A N D A C C O U N T S 2 0 0 7

NOTES TO THE FINANCIAL STATEMENTS

20. SUBSIDIARY COMPANIES (CONTINUED)

* China Zinc Ltd, China Zinc Pty Ltd and Panda Resources Ltd are directly owned by the Company. China Zinc Ltd has a
controlling interest in Hebei Hua’ Ao Mining Industry 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 Industry Company Ltd provides that 100% of the cash
flows generated by the joint venture in the first three years from commencement of commercial production (commenced in
the second half of 2005) be paid to the foreign party (China Zinc). Thereafter the foreign party (China Zinc) will receive 60%
of the cash flows, in accordance with its share in the equity interest in the joint venture.

China Zinc Limited was formed on 25th October 2007 following which China Zinc Pty Limited’s equity interest in Hebei
Hua’ Ao was transferred to China Zinc Limited at book value.

21. RELATED PARTY TRANSACTIONS

At 31 December 2007 Hebei Hua’ Ao Mining Industry Company Limited had advanced Rmb3,009,000 ($400,000) (31 December
2006 Rmb 3,009,000 ($384,000)) to the 3rd Geological Brigade of the Hebei Province, a partner in the local Chinese entity (the
Caijiaying Lead Zinc Preparatory Committee), that holds a 40% interest in Hebei Hua’ Ao. At 31 December 2007 Hebei Hua’
Ao had advanced Rmb9,003,000 ($1,200,000) (31 December 2006 Rmb 603,000 ($77,000)) to the Caijiaying Lead Zinc
Preparatory Committee. Both these loans are non-interest bearing and repayable from their future share of the profits of
Hebei Hua’ Ao, commencing in 2008.

22. COMMITMENTS

At 31 December 2007 the Group had capital commitments of $2,858,000.

23. POST BALANCE SHEET EVENTS

G R I F F I N M I N I N G L I M I T E D

R E P O RT A N D A C C O U N T S 2 0 0 7

G R I F F I N M I N I N G L I M I T E D

CORPORATE INFORMATION

Principal office:

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

Registered office:

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

China Zinc office:

Levels 9 & 11, BGC Centre, 28 The Esplanade, Perth, WA 6000. Australia.
Telephone: + 61 (0)8 9321 7143
Facsimile: + 61 (0)8 9321 7035

Directors:

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

Company Secretary:

Roger Goodwin

Nominated Adviser
and Broker for AIM:

Collins Stewart Limited
9th Floor, 88 Wood Street, London. EC2V 7QR. UK.

Auditors:

Solicitors:

Grant Thornton UK LLP
Grant Thornton House, Melton Street, London. NW1 2EP. UK.

Mallesons Stephen Jaques
Unit 2925, South Tower, Beijing Kerry Centre, 1 Guang Hua Road,
Chao Yang District, Beijing 100020. PRC

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

Addleshaw Goddard LLP
150 Aldergate Street, London. EC1A 4EJ. UK.

Bankers:

Anglo Irish Bank Corporation plc
31 The Parade, St Helier, Jersey. JE4 0WJ. UK.

The Bank of Bermuda Ltd
6 Front Street, Hamilton. HM11. Bermuda.

HSBC Bank plc
27-32 Poultry, London. EC2P 2BX. UK.

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

UK Registrars
and Transfer Agents:

Capita IRG plc
12 Castle Street, St Helier, Jersey. JE2 3RT. UK.