Griffin Mining Ltd. Annual Report 2010

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FY2010 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 1 0

CONTENTS

CHAIRMAN’S STATEMENT

OPERATIONAL REVIEW

DIRECTORS

SENIOR EXECUTIVES

DIRECTORS’ REPORT

REPORT OF THE INDEPENDENT AUDITOR

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

ACCOUNTING POLICIES

NOTES TO THE FINANCIAL STATEMENTS

CORPORATE INFORMATION

Page

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

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 1 0

Zinc Concentrate Stockpiles

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

CHAIRMAN’S STATEMENT

R E P O RT A N D A C C O U N T S 2 0 1 0

I present to you, the shareholders and owners of

Although construction of the upgraded processing

facilities at the local township school and set up

trillion, unfunded Medicare and pension liabilities

Griffin Mining Limited

(“Griffin” or

the

facilities at Caijiaying was completed in August

"Project Hope" to provide scholarships to local

and the need to raise the national debt ceiling

“Company”), the Annual Report and Accounts of

2010, the unfortunate deaths of the 8th August

students. Griffin estimates that the Caijiaying mine

merely to pay recurring expenditure and interest

the Company for the 2010 financial and calendar

2010 delayed commissioning of the new ball mill

has provided employment directly and indirectly to

obligations on US government debt, does not bode

year.

and crushing circuit until the first quarter of 2011.

over 1,000 Chinese nationals whilst minimizing the

well for the world’s largest economy. Europe

As with the previous construction of processing

employment of foreign personnel. Griffin has

continues to try to live with the unliveable with a

In spite of the year not progressing as originally

facilities at Caijiaying, it is expected that the

striven to protect the local environment and in that

European Central Bank setting monetary policy

envisaged due to factors outside the control of the

upgrade of the processing facilities should enable

regard Hebei Hua Ao’s activities in China were

over wayward individual country members setting

Company, the Company and its subsidiaries still

significantly more throughput to be processed than

formally recognized when it was presented with the

their own

fiscal policies. The

inevitable

managed to record a profit before tax for the year

the designated 750,000 tonnes of ore per annum.

environmental award at the 2010 China Mining

consequences have become apparent with Ireland,

of $11.24 million compared to $7.25 million in

conference. Griffin, through Hebei Hua Ao, has

Portugal and Greece with more surely to follow.

2009. This included a 40.6% increase in ore

It is expected that part of that substantially

shown itself to be a responsible partner and

China remains the world’s economic powerhouse

processed, a 28% increase in zinc concentrate

increased throughput, over and above 750,000

operator in China.

although with the advent of rapid inflation coupled

produced, a 77% increase in silver produced in

tonnes of ore per annum, will be provided from the

with a fixed exchange rate, its export driven

concentrate and a 90% increase in gold produced

new resource at Zone II. In January 2011, a new

Unfortunately, the Company does not operate in an

economy will inevitably suffer. It is also worthy to

in concentrate, a record for gold production at

JORC reported Mineral Resource Estimate for

economic vacuum. As has been mentioned

note the questionable status of the Chinese banking

Caijiaying.

Caijiaying was produced which showed an 18%

numerous times in past missives, mining is

system and the level of non-performing loans in

The increase in profit and production was

representing a 30 plus year mine life at the

largely dependent on a predetermined commodity

increase in the mineral resource at Zones II & III

generally a fixed cost business whose profitability is

that country.

particularly noteworthy as it was achieved despite

increased throughput rate. This gave Hebei Hua

price. With China now acquiring 60% of the

What this means for Griffin is the need for

the suspension of all activities at Caijiaying for 4

Ao sufficient confidence to commence the

world’s iron ore and 40% of its base metals

patience. Although the Company has significant

months following the death of two men employed

necessary extra infill drilling, reports and work to

production, neither China nor the world’s economy

financial resources, including some $65 million in

by the mining contractor at Caijiaying. Although

support an application for a mining licence at Zone

can be ignored, even at the microeconomic level

cash, real value is created by purchasing assets

the Company’s subsidiary, Hebei Hua Ao Mining

II with a view to extracting a further 500,000

at which Griffin operates.

below their true intrinsic value at the low end of an

Industry Company Limited (“Hebei Hua Ao”), was

tonnes of ore per annum from that area.

economic cycle or in a severe financial downturn.

exonerated from primary fault, I would like to

Unfortunately the world’s economy has been shown

It is the view of the Company that mineable

express my deep sorrow that such an event could

In this modern age, it is vital for a mining company

to be, at best, brittle and, at worst, structurally

resources are scarce and becoming ever harder to

occur at Caijiaying and send my condolences to the

to be a good citizen of the community and country

unsound. The global financial crisis of 2008 has

find. It is also true that China and India are in the

deceased miners’ families. Griffin has, and

in which it operates. To that end, Hebei Hua Ao

demonstrated that the USA and Europe are on the

midst of a large urbanization process which will

continues to provide, its full co-operation and

has provided direct water supplies to the local

downward slope of their economic power without

cause commodity prices to remain buoyant in the

support to the Chinese individuals and government

villagers, constructed sealed roads to the Caijiaying

the political or economic bipartisanship will to

long term. When commodity prices are high,

departments

touched by

this unfortunate

mine and nearby villages, financed the construction

undertake the reforms critical to stave off economic

mining asset values are even higher. No economic

occurrence and continues to seek to improve safety

of a local kindergarten and old people’s rest home

decline. The huge transference of private to public

growth process in history has been linear and the

at Caijiaying above and beyond that recommended

and assisted with other infrastructure projects.

debt in the USA reaching a staggering $14.3

Company expects a significant correction in this

by the Chinese authorities.

Hebei Hua Ao has also assisted in the upgrade of

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 1 0

progression in the near future. It is therefore the

In such a year as 2010, tribute must be paid to the

Company’s task to assemble the right acquisition

efforts of all site staff, head office personnel and the

targets, human capital and capital markets support to

directors who worked so tirelessly to lift the

make these acquisitions when the

inevitable

operating suspension at Caijiaying, commission the

correction occurs. The Company remains dedicated

plant upgrade, increase throughput, evaluate

to only acquiring further assets where they provide

acquisitions and set the Company on the path to

real value over a long period of time with substantial

renewed financial strength in 2011. My sincere

added value to shareholders.

thanks to every one of them.

It is also likely that the Company will list its shares

Lastly, and most importantly, the support and

on the Hong Kong Stock Exchange at some point

loyalty of you, the shareholders of the Company,

in the future. That date will be driven by the

is never taken for granted. The Company strives

Company’s need for capital should the next

on a daily basis to meet your expectations and fulfill

acquisition require additional funds. History has

the true potential of the Company. The Company

shown that unless liquidity is provided in a new

will work strenuously towards that target.

listing through a new issue of shares, that company’s

stock will trade thinly and without any real interest

by Hong Kong institutions and retail investors.

Needless to say, an acquisition would never be made,

Mladen Ninkov

a capital raising completed or a listing sought unless

Chairman

it was genuinely in the best long-term interest of

3 May 2011

shareholders.

In that same vein, the directors have agonized, after

extensive consultation with shareholders, over the

reinstatement of a dividend to shareholders. Whilst

understanding and agreeing with the discipline and

financial need of many shareholders for a dividend,

the Company still believes that the better use of

internal funds can be made on the acquisition of

assets that may become available in the near future.

In the interim, to alleviate some shareholders need

for capital and to allow each individual shareholder

to deal with his or her tax position, the Company has

continued its share buy-back programme.

Caijiaying site

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 1 0

OPERATIONAL REVIEW 2010

OVERVIEW

Griffin Mining Limited (the “Company”) and its

• 690 tonnes of lead Concentrate were produced,

SUSPENSION OF ACTIVITIES

from their investigations into the causes of the

subsidiaries (together the “Group”) recorded a

compared to 500 tonnes in 2009, a 38% increase.

fatalities could be implemented immediately.

profit before tax for the year of $11,236,000 (2009:

$7,246,000). The increase in profit arises despite

the suspension of site activities from the 9th August

2010 to the 9th December 2010 following the

death of two men employed by the mining

contractor at Caijiaying. This result is a tribute to

the efforts of all site and administrative personnel

who worked so tirelessly to lift the operating

suspension at Caijiaying.

Profits from operations increased to $13,143,000 in

2010 from $5,519,000 in 2009 with increased

metal-in-concentrate (“Concentrate”) production

and higher metal prices. In summary:

• 389,496 tonnes of ore were processed,

compared to 276,880 tonnes in 2009, a 40.6%

increase;

Despite the suspension in activities during 2010,

production in 2010 represents a significant increase

in performance from the interrupted 2009 year

with zinc Concentrate production falling just short

of the maximum achieved in 2008 of 22,922 tonnes.

Outstandingly, 2010 was a record for gold

production at Caijiaying.

In August 2010, construction of the upgraded

processing facilities at Caijiaying was completed

creating the operating capability to process 750,000

tonnes of ore per annum. The unfortunate events

of the 8th August 2010 delayed commissioning of

the new ball mill and crushing circuit until

recommencement of operations on the 9th

December 2010. Commissioning of the upgraded

The two on-site fatalities on the 8th of August 2010

led to the immediate suspension of all operations at

Caijiaying and the immediate investigation into the

cause or causes of the fatalities by the Company and

the Chinese authorities. Whilst primary blame for

the fatalities was placed clearly on the deceased

miners, the Chinese authorities held the mining

contractor, Hebei Hua Ao and certain individuals

partly responsible. Hebei Hua Ao was fined

$142,000. In addition, a number of recommendations

for perceived improvements in safety standards were

suggested by the Chinese authorities and these have

been implemented at Caijiaying. In addition to the

above, site was further impacted during the

suspension period by the unprecedented curtailment

of electricity supplies to Caijiaying and surrounding

areas by the State owned electricity suppliers seeking

FINANCE

In order to protect the Group’s revenue stream should

the price of zinc fall significantly, the Company

purchased put options with a strike price of $1,700 per

tonne over 24,000 tonnes of zinc metal at a cost of

$2,238,000. The zinc price remained relatively strong

in 2010 with the LME zinc price averaging

approximately $2,160 per tonne. As a result, the put

options were marked to market at 31 December 2010

with a charge to profit of $2,224,000.

With cash balances averaging some $67 million in

2010, Griffin benefited from interest receipts of

$350,000 in 2010 (2009: $253,000).

processing facilities has now been completed and

to meet government designated carbon dioxide

Foreign exchange gains of $38,000 were recorded in

• 22,044 tonnes of zinc in Concentrate were

mining and haulage of ore has been increased to

emission standards.

produced, compared to 17,167 tonnes in 2009, a

meet the expanded processing capacity of the mill.

2010 (2009: gains of $1,956,000) with a weakened

sterling creating losses on sterling deposits offset by the

28% increase;

As with the previous construction of processing

Whilst every effort was made to minimise costs

strengthening Australian Dollar and Chinese

• 7,067 ounces of gold in Concentrate were

facilities at Caijiaying, it is expected that the

during the suspension of operations, key personnel

Renminbi which created profits on both Dollar and

produced, compared to 3,726 ounces in 2009, a

engineering work recently completed on the

were retained and continued to be paid on a partial

Renminbi accounts.

90% increase;

upgrade to the processing facilities, in addition to

salary basis. This was done to ensure that

• 157,679 ounces of silver in Concentrate were

the expertise of the staff on site, should enable

produced, compared to 89,222 ounces in 2009, a

significantly more throughput to be processed than

operations could be re-started as soon as practicable

Griffin’s 39.2% share of the losses of Spitfire Oil

once permission was granted, that certain expertise

Limited (“Spitfire”) of $109,000 has been recognised

77% increase; and

the designated 750,000 tonnes of ore per annum.

was not lost to competitors and to ensure that the

in 2010 (2009 $517,000).

recommendations of the Chinese authorities arising

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 1 0

MINE OPERATIONS

Ao and the local personnel. The Chinese government

minimising the amount of waste material going to the

RESOURCE ESTIMATES

authorities did not conclude their investigation and

tailings dams and allowing less mineralised ore to be

With the grant of a new mining licence on the 15th

report until early December 2010 and did not allow

left underground to the detriment of profitability.

In January 2011 the latest JORC reported Mineral

January 2010, work commenced below the 1300

operations to recommence until all the safety

During 2010, the first two tailings dams were lifted to

Resource Estimate for Caijiaying was produced.

level (approximately 120 metres below surface),

recommendations had been implemented, including

increase their capacity and a third tailings dam was

The results not only significantly increase the

opening up more stopes and thereby enabling mine

greater supervision of sub-contracted underground

constructed with the first cell commissioned on

contained tonnes and metal within the Zone III

production to be increased. With more stopes

workers by site management.

recommencement of operations in December 2010.

mineral resource after mining depletion, but also

opened and more consistent ore bodies at the lower

These facilities provide Caijiaying sufficient capacity

almost doubles the contained tonnes and metal

levels, mine production increased to over 56,000

Underground maintenance work was further restricted

to deal with all waste from operations for the

within the Zone II mineral resource. In summary:

tonnes in May (the equivalent of 672,000 tonnes

in late September 2010 when electrical power to

foreseeable future.

per annum). Gold grades have also improved as the

Caijiaying and surrounding areas was curtailed to meet

lower levels have been accessed.

Chinese carbon emission targets. Hebei Hua Ao was

Work on the upgrade of the processing plant

able to secure sufficient power from its own diesel

continued apace in the first 7 months of 2010 with the

In the 6 months to the 30th June 2010, a record

generators to avoid any significant flooding of the

installation of a second primary ball mill, construction

1. An 18% increase in the mineral resource at

Zones II & III rising from 32.8 million tonnes

to 38.6 million tonnes, representing a 30 plus

year mine life at the increased throughput rate.

278,044 tonnes of ore were mined. Processing rates

Caijiaying mine. This allowed mine operations and

of new crushing circuit and integration of all new

2. The following increases:

had been increased with over 51,000 tonnes processed

production to restart promptly on the lifting of the

equipment

including new

floatation

cells.

12.1% increase in contained Zinc;

in July 2010 (the equivalent of 612,000 tonnes of ore

suspension.

Construction and installation was completed by the

28.4% increase in contained Lead;

per annum) without the benefit of the new ball mill

end of July 2010 with commissioning underway by the

15.2% increase in contained Silver; and

and crushing circuit. In the six months to 30th June

Since the re-commencement of operations, mine

time of the mine fatalities. Whilst processing

12.8% increase in contained Gold.

2010 a record 260,316 tonnes of ore were processed

production has been steadily increasing to meet the

continued until 20th September 2010 when all

with a record 15,101 tonnes of zinc metal in

increased processing capacity provided by the recently

remaining surface stockpiles were exhausted, this did

3. A 12% increase in the zinc grade and a 72%

increase in the tonnage of the mineral resource

Concentrate, 4,570 ounces of gold and 105,475 ounces

completed throughput upgrade.

of silver produced. In addition, 441 tonnes of lead in

not allow for proper commissioning of the new

processing facilities. Commissioning of the new ball

at Zone II.

Concentrate was also produced.

During 2010 6,038 metres of development work was

mill and new crushing circuit recommenced in

Drilling has continued to provide success along

completed including further development of the north

December and is now complete. Initial test runs have

strike and south of Zone III to Zone II, allowing

Good progress was being made to reach a target mine

and south declines to access the lower levels of the

provided some

indication that the upgraded

the reinterpretation and upgrade of the Zone II

production of 750,000 tonnes of ore per annum by the

Zone III mine and also the development of the drive

processing facilities may be capable of processing as

Mineral Resource Estimate. The 25,000 metre

Autumn of 2010 in anticipation of the completion of

proposed to link Zone III to Zone II. Approximately

much as one million tonnes of ore per annum and

surface and underground drilling program is

the processing facilities upgrade. This progress was

24,425 metres of extensional and grade control drilling

possibly more. This would allow ore from the Zone

approximately 60% complete and is due to

interrupted when mining operations were suspended

was completed underground in 2010.

II area, which has yet to be developed, to be

recommence shortly. More underground drilling

following the fatalities on site. The Chinese authorities

processed.

launched an immediate investigation into the causes of

With the hydraulic backfill plant commissioned in late

the fatalities with the full co-operation of Hebei Hua

2009, backfill operations have continued in 2010

was undertaken in the mine corridor between Zone

II and Zone III during 2010. Drilling continued to

intersect significant mineralisation which added to

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 1 0

the Zone II Mineral Resource Estimate. This work

known mineralization covering Zones II and III

EXPLORATION

Deeps, Qing Long South, Jin Long South and Xiao

will continue in 2011.

and the contiguous area between them will be

covered. This should allow a second ore source to

CAIJIAYING AREA

Long East lodes.

With the Mineral Resource Estimate at Zone II

be mined at Caijiaying and significantly extend the

approaching 10 million tonnes and the drilling

life of the mining operations.

density approaching the required level, it is

envisaged that an application for a mining licence

The 2011 Mineral Resource estimate is reported at

over Zone II will be made in the near future. The

a zinc cut-off of 1%. Tabled below is the summary

mining licence application will ensure that all the

of the recently up-dated 2011 Mineral Resource.

Category Cut Tonnes
-off

2011 Mineral Resource Estimates

Metal Grade

Contained Metal

Zinc Lead

Silver

Gold

Zinc

Lead

Silver

Gold

000

% Grammes Grammes

Tonnes

Ounces

per
tonne

Zone III

Measured 1% 4,793

6.57

0.40

33.34

Indicated

1% 7,352

5.47

0.31

30.15

Inferred

1% 17,020

4.15

0.26

26.53

0.86

0.89

0.95

314,842

19,329

5,137,406 131,829

402,501

22,639

7,126,105 209,726

706,501

43,737

14,519,565 521,491

Mineralisation at Caijiaying is believed to be related

to a Jurassic igneous event that affected the 2.3

billion year old metamorphic basement rocks. Base

metal and gold mineralisation associated with

Jurassic

intrusives have replaced favourable

horizons in the metamorphic rocks, most notably

calcsilicates and marble. Porphyry sills and dykes

intruding along faults have then cut across the

sequence.

On-going exploration in the area surrounding the

mine at Caijiaying and within Hebei Hua Ao’s and

Hebei Anglo’s tenement boundary continues to

confirm the area to be highly prospective,

indicating significant potential for further base

metal and gold deposits.

Total

1% 29,164

4.88 0.29

28.56

0.92

1,423,843 85,769 26,783,076 863,049

HEBEI HUA AO LICENCE AREA

Zone II

Measured 1%

Indicated

1% 4,061

3.44

0.70

26.03

Inferred

1% 5,386

3.71

0.56

23.90

0.34

0.29

139,655

28,509

3,398,903

43,871

199,706

30,087

4,138,064

50,617

Total

1% 9,447

3.59 0.62

24.81

0.31

339,362 58,596

7,536,968

94,488

The information in this report that relates to the January 2011 Mineral Resource estimates is based on information compiled by
Mr Luke Marshall , BSc Geology , Member AIG. Mr. Marshall was a full time employee of Hebei Hua Ao Mining Industry
Company Limited, a subsidiary of Griffin Mining Limited. Mr. Marshall has sufficient experience which is relevant to the style of
mineralisation and type of deposit under consideration and to the activity which he has undertaking to qualify as a Competent Person
as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’
(the JORC Code). Mr Marshall consents to the inclusion in the report of the matters based on his information in the form and
context in which they appear.

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

Drilling activity was increased in 2010 with up to

six rigs operating underground at Zone III and

three rigs operating on the surface between Zone

II and Zone III. Many positive results were

returned, which resulted in a significant increase in

the mineral resource inventory at Caijiaying.

Approximately 12,885 metres of surface drilling

and 38,000 metres of underground diamond

Increase the tonnage and grade of the Mineral

drilling were completed for the year. Drilling

Resource Estimate for Caijiaying, targeting a

targeted Zone II, Fu Long South, Qing Long

50% increase in overall tonnage and a 100%

A combination of step-out and infill underground

drilling continued to extend the Zone III

mineralisation in all directions and improve

confidence levels within the Mineral Resource

Estimate. Mineralisation remains open to the

north, south and at depth. Importantly some of the

thickest and highest grade intercepts to date have

been returned from the deepest drilling which

indicates that Zone III at least maintains continuity

with depth, perhaps strengthening in areas such as

Qing Long.

Surface drilling intersected a number of new zones

of mineralisation between Zone II and Zone III and

extended other previously identified zones. All of

the surface drilling data between Zone II and Zone

III has been incorporated into a new Zone II

mineral resource estimate. The result is an increase

of almost 100% in the tonnage of the Mineral

Resource Estimate for Zone II.

Zone II

mineralisation remains open to the north and at

depth.

The focus for 2010 was to drill the Zone II Zone

III corridor and Zone III deeps with four main

objectives in mind:

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 1 0

increase in measure and indicated tonnage

Underground drilling was completed from the

SPITFIRE OIL LIMITED

As the exploration licences comprising the Salmon

within three years.

linking decline and from the bottom of the mine

Gums project were due to expire, application was

2. Provide the drill coverage and resource

inventory required to be able to apply for a

mining licence over Zone II.

3. Drill some deep holes underneath Zone III to

confirm the new geological interpretation and

extend the Mineral Resource.

4. Effectively test existing Induced Polarisation

("IP") anomalies.

at the 1260 level. Underground drilling was very

Griffin currently holds 16,666,667 ordinary shares

made to extend their term. The Department of

successful with broad high grade intercepts being

in Spitfire Oil Limited (“Spitfire”) representing a

Mines and Petroleum has granted a two year

returned, confirming and extending the geological

39.2% interest in the issued share capital of

“Extension of Term” for the four exploration

interpretation and Mineral Resource Estimates for

Spitfire, and with Mladen Ninkov and Roger

licences in the main tenement block (E63/934,

Zone II and Zone III.

Goodwin being directors of both Griffin and

035,947 & 961) to 6/7/2012. Since the applications

Zone II was re-modelled based on the new drill

associated company of Griffin. As a result

continue to provide secure title over the lignite

hole data resulting in significant increases in

US$109,000 (2009 - US$517,000) has been

resources previously reported, the six mining lease

estimated grade and tonnage.

charged to Griffin's income statement for its share

applications were withdrawn to reduce holding

Spitfire, this requires Spitfire to be treated as an

were approved, and as the exploration licences

of Spitfire's losses in the period.

costs.

A combination of surface and underground drilling

was undertaken with success in all four of the

HEBEI ANGLO LICENCE AREA

objectives.

The other activity undertaken during 2010 was a

soil sampling orientation survey. The aim was to

find a geochemical technique that would be

effective in areas of deep sandy cover.

Surface drilling was conducted on 200 metre

Work during 2010 was limited to an orientation

soil sampling survey, field mapping and rock chip

surveying. The

results

indicated

that no

geochemical technique would be effective in areas

of “Mongolian Sand” cover, so a larger routine soil

sampling survey did not proceed. Field mapping is

ongoing and is due to recommence in the summer

sections with hole spacings along section of 100

2011.

metres. These drill sections essentially straddled

the already drilled sections. The result was a drill

density between Zone II and Zone III of better

than 100 metre by 100 metre, and generally closer

than 100 metre by 50 metre. With

the

underground drilling from the Fox Incline, at Zone

II, and linking decline providing closer than 50

metre by 50 metre spacing, Hebei Hua Ao will be

A large IP survey was planned assuming positive

results from drilling of the existing IP anomalies

between Zone II and Zone III. Even though

drilling

intersected many zones of zinc

mineralisation, there did not appear to be a strong

relationship between mineralisation and the IP

anomalies. Therefore no further IP surveying is

able to start the application process for a new

planned at this stage.

mining licence over the Zone II area.

Following the decision in the autumn of 2009 to

suspend

further development of Spitfire’s

proprietary L2VTM process to extract oil and other

products from the lignite at Salmon Gums, because

of the expanding complexity and need for

additional research in refining and finalising the

process for commercial production, operating costs

have been reduced and employment contracts with

all staff terminated. Spitfire continues to consider

other competing coal to liquid and coal to gas to

liquid technologies, but to date none have proved

suitable or are too capital intensive to apply to the

Salmon Gums lignite. Potential partners for the

further development of the L2VTM process are also

being pursued.

The non-contiguous exploration licence to the east

of the main tenement area (E63/960) was

relinquished on 7 July 2010 as it was considered to

have no further mineralisation potential.

Following the reconnaissance gold exploration

programme undertaken by Spitfire in 2009 / 2010,

several companies evaluated the licence areas with

a view to undertaking a joint venture with Spitfire

but to date none has pursued such an option.

Although Spitfire’s primary objective remains the

commercialisation of its L2V lignite-to-liquids

technology over the large resource at Salmon

Gums, its management continues to evaluate other

energy related opportunities and other possible

synergistic business opportunities.

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 1 0

CORPORATE DEVELOPMENTS

of ore per annum from Zone III. Work has also

CAIJIAYING BACKGROUND

hold the mineral rights to the area surrounding the

commenced on all necessary reports and work to

original Hebei Hua Ao licence area and any other

ACQUISITIONS

support an application for a mining licence at Zone

The mine and processing facilities (the “Mine"),

areas of interest in the Hebei Province. Griffin,

II with a view to extracting a further 500,000

together with the staff accommodation, recreational

through its wholly owned UK subsidiary Panda

Griffin’s management team, consisting of finance,

tonnes of ore per annum from that area.

and mess facilities, are located at Caijiaying,

Resources Limited, has a 90% interest in Hebei

mining, metallurgy, geological and health and

approximately 300 kilometres by road, north-west

Anglo whilst the Zhangjiakou Caijiaying Lead Zinc

safety professionals, has to date reviewed over 1,100

Having achieved notable success with Caijiaying,

of Beijing in the Hebei Province. The site is easily

Mining Company holds 10%. Griffin, through

mining companies and their key projects, many of

the challenge remains to acquire, develop or

accessible by two alternative freeway systems from

Hebei Hua’ Ao and Hebei Anglo, has a controlling

which have been selected for semi detailed

discover a new mining project to build on the

Beijing and a number of secondary sealed roads.

interest in mining and exploration licences over 67

evaluation and over 50 for further intensive

efficient in-house skills that have been developed

The site has significant water supplies, two

square kilometres at Caijiaying.

analysis. This analysis included a number of site

within the Company. Griffin remains one of the

independent connections to the electricity grid, full

visits to potential target projects and companies.

few mining success stories in China. Having

connectivity to fixed and mobile telecommunications

In 2005, Griffin successfully commissioned the Mine

The companies selected held predominantly

maintained a presence in China for over 13 years

and broadband access for internet services. Climatic

at Caijiaying, on time and within budget, with an

advanced projects in a range of commodities and

and having invested in not just the Caijiaying mine

conditions are not severe with warm summers and

initial design throughput rate of 200,000 tonnes of

locations. In addition, Griffin has been approached

but in the local community, Griffin has gained an

cold, dry winters, enabling operations at Caijiaying

ore per annum. Production rates have been steadily

by a number of companies with a view to jointly

excellent reputation in China. This reputation was

to continue for 365 days a year.

increased since commissioning with processing rates

developing other mineral projects. This process

further enhanced and made more visible by the

equivalent to in excess of 500,000 tonnes of ore per

remains ongoing.

environmental award presented to Hebei Hua Ao

The assets of the Mine are held by Hebei Hua Ao

annum achieved prior to the recent upgrade of the

THE FUTURE

shown itself to be a responsible partner and

Ao”), a contractual co-operative joint venture

upgraded to include a third tailings storage facility,

at the 2010 China Mining conference. Griffin has

Mining Industry Company Limited (“Hebei Hua

processing facilities. With the processing facilities

investor in China. This provides Griffin with a

company entity established in 1994 in which

new crushing circuit and second primary ball mill

Having significant financial resources at hand and

unique entry into China, its culture and power

Griffin, through its wholly owned Hong Kong

processing capacity has been increased to in excess

substantial mineral resources, Griffin is well placed

structures. Nevertheless, to date it has proved

subsidiary China Zinc Limited (“China Zinc”),

of 750,000 tonnes of ore per annum.

for future development both at its existing

difficult to find a venture of the quality of

holds a 60% equity interest and the Zhangjiakou

Caijiaying venture and

through potential

Caijiaying in China. This has forced the Company

Caijiaying Lead Zinc Mining Company (the

In December 2007, production of a separate

acquisitions. The latest JORC resource confirms

to widen its geographic and commodity focus.

shareholders of which are the Zhangjiakou City

precious metals concentrate containing gold, silver

the availability of ore for increased future

Regardless, the Company remains dedicated to

People’s Government and the Third Geological

and lead commenced from an integrated circuit

production at Caijiaying. Recent test work has

only acquiring further assets where they provide

Brigade of Hebei Province) a 40% interest.

forming part of the main processing facilities at

indicated that the upgraded plant is capable of

real value over a long period of time with

Caijiaying. This allowed the full economic benefit of

processing considerably more than that specified

substantial added value to shareholders.

In January 2004, a second contractual joint venture

these metals to be obtained by the Group. Previously

and plans are now being made to further increase

the amount of ore extracted to 1,000,000 tonnes

company, Hebei Sino Anglo Mining Development

gold, silver and lead were “lost” and unaccounted for

Company Limited (“Hebei Anglo”), was formed to

by the smelters in the zinc concentrate.

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 1 0

Griffin has invested heavily in the local community

• Noise and dust from operations at Caijiaying

Hebei Hua Ao has provided direct water supplies

township school and set up "Project Hope" to

and

instigated best practice regarding the

are strictly controlled; and

to the local villagers, constructed sealed roads to

provide scholarships to local students. Griffin

protection of the environment. In this regard:

•

All non-recyclable wastes from supporting

the Caijiaying mine and nearby villages, financed

estimates that the Caijiaying mine has provided

facilities are treated in an incinerator

the construction of a local kindergarten, old

employment directly and indirectly to over 1,000

•

Solid and liquid wastes are not disposed into

peoples rest home, and assisted with other

Chinese minimising the employment of foreign

the environment;

Griffin's efforts in this regard were rewarded by

infrastructure projects. Hebei Hua Ao has also

personnel.

•

All production water is recycled;

Hebei Hua Ao being presented with the

assisted in the upgrade of facilities at the local

• Gas emissions from boilers are treated to

environmental award at the 2010 China Mining

remove pollutants;

Conference.

• Mined out areas underground are back filled;

Roger Goodwin, Griffin Finance Director, receiving environmental ward at 2010 China Mining Conference

Local students at San Hao township school receiving Project Hope scholarships

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 1 0

Mill at Caijiaying

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

DIRECTORS

SENIOR EXECUTIVES

R E P O RT A N D A C C O U N T S 2 0 1 0

Mladen Ninkov, Chairman, Australian, aged 49,

Dal Brynelsen, Director, Canadian, aged 64, is

William Darcey, Operations Manager

China, which is controlled by Golden Tiger

holds a Master of Law Degree from Trinity Hall,

a graduate of the University of British Columbia in

Caijiaying, Australian, aged 59, holds degrees

Mining NL, an ASX listed company. He has also

Cambridge and Bachelor of Laws (with Honours)

Urban Land Economics. Mr. Brynelsen has been

from Curtin University in mining, metallurgy,

worked as the Senior Geologist for Silk Road

and Bachelor of Jurisprudence Degree from the

involved in the resource industry for over 30 years.

mineral economics and a MEngSc (mining planning

Resources (A Toronto listed company), responsible

University of Western Australia. He is the principal

He has been responsible for the discovery,

and design). He has over 30 years experience in the

for evaluating various gold properties in Gansu

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

development and operation of several underground

mining and mineral processing industry working in

Province in central western China. Dr Zhou has

management and investment banking background

gold mines during his career. Mr. Brynelsen is the

both technical and operational roles. He has worked

considerable experience of and has established

and is admitted as a barrister and solicitor of the

President and a director of Vangold Resources

on mining project in Australia and overseas. More

extensive contacts in the Chinese resources sector.

Supreme Court of Western Australia. He was the

Limited.

Chairman and Managing Director of the Dragon

recently he worked in the Philippines as Operations

Director for a gold mining company.

Capital Funds management group, a director and

William Mulligan, Director, USA, aged 67, has

Head of International Corporate Finance at ANZ

a BSc from Thomas Clarkson University, an MS in

Wendy Zhang, Finance Manager China, aged

Grindlays Bank Plc in London, and a Vice

Geological Engineering from the University of

37, holds a Master of Accounting degree from

President of Prudential-Bache Securities Inc. in

Connecticut and an MBA from NYU Bernard

Macquarie University, a member of the Certified

New York. He also worked at Skadden Arps Slate

Baruch School of Business Administration. He is

Practising Accountant of Australia and a qualified

Meagher & Flom in New York and Freehill

currently the Managing Director for Global

member of the Chinese Institute of Certified Public

Hollingdale & Page in Australia. He has been

Projects and Political Risk at AIG Global Trade

Accountant for 11 years. Prior to joining Griffin

chairman and director of a number of both public

and Political Risk Insurance Company, a wholly

she spent the previous 4 years as Financial

and private mining companies.

owned subsidiary of American International Group

Controller for Golden Tiger Mining’s joint venture

Roger Goodwin, Finance Director, British,

Ltd based in Moscow. From 1994 to 1996 he was

company listed in Australian Stock Exchange).

aged 56, is a Chartered Accountant. He has been

Executive Vice President

for Corporate

Previously she was a Chief Accountant for

with the Company since 1996 having previously

Development at Latin American Gold Limited.

Shanghai Silk Group and subsequently Ann Taylor

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

operations in China (a gold exploration and mining

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.

Shanghai.

Dr Bo Zhou, General Manager China,

Australian, aged 48, holds a Ph.D in exploration

geology from Sydney University and a BSc in

economic geology from Peking University. He was

Managing Director of Sinovus Mining Ltd, an ASX

listed company with mineral interests in China.

Before that he was the General Manager for

Guangxi Golden Tiger Mining JV, a Sino-

Australian JV gold company focussed in Guangxi,

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 1 0

New Crusher

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 1 0

DIRECTORS’ REPORT

The Directors submit their report together with the audited consolidated financial statements of Griffin Mining Limited (“the
Company”) and its subsidiaries (“the Group”) for the year ended 31 December 2010.

FINANCIAL RESULTS

The Group profit before taxation amounted to US$11,236,000 (2009 US$7,246,000). Taxation of US$2,376,000 (2009
US$1,013,000) and non-controlling interests of $6,116,000 (2009 $2,621,000) have been provided. No dividend was paid in
2010 (2009 nil). US$2,744,000 has been credited to reserves (2009 US$3,612,000).

The earnings per share amounted to 1.51 cents (2009 1.99 cents). The attributable net asset value per share at 31 December
2010 amounted to 78 cents (2009 74 cents).

The directors do not recommend payment of a dividend at this time in the Company's development but have instigated a share
buy back programme which provides an effective and tax efficient method of providing returns to shareholders.

PRINCIPAL ACTIVITIES

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 4 March 2010 a new set of options (the “new options”) over 10,000,000 new ordinary shares were granted to directors and
key employees of the Company in order to retain and incentivize key personnel with managerial and operating experience in
non-standard jurisdictions in a tight mining employment market.

Each new option will entitle the holder to subscribe for new ordinary shares in the Company at an exercise price of 45 pence
per new ordinary share on or before 28 February 2015. The new options will vest with each option holder in 3 separate and
equal instalments as follows:

a. The first third of each holder’s options vested on 4 March 2010;

b. The second third of each holder’s options vested on 31 December 2010; and

c. The last third of each holder’s options will vest on 31 December 2011.

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 2010 and the indication of likely future developments are set out on pages 8 to 19.

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 control of the Company taking
place prior to the Options expiring.

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 2010 and their immediate families in the share capital
of the Company were as follows:

Name

At 31 December 2010

At 1 January 2010

Ordinary
shares
number

Options over
ordinary shares,
number exercisable at

Ordinary
shares
number

Options over
ordinary shares,
number exercisable at

45 pence

20 pence

110 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

3,000,000
200,000
600,000
200,000

33,001
1
577,830
300,001

3,000,000
200,000
600,000
200,000

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

The options exercisable at 110 pence per share lapsed on 28 February 2010.

The options exercisable at 20 pence per share entitle the holder to subscribe for new ordinary shares in the Company on or
before 31 October 2013. 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 28 October 2008;

b. The second third of each holder’s options vested on 31 December 2009; and

c. The last third of each holder’s options vested on 31 December 2010

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 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

regular review of commodity prices and assessment of hedging requirements

AUDITOR

Grant Thornton UK LLP have indicated their willingness to continue in office as auditor 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

R E P O RT A N D A C C O U N T S 2 0 1 0

DIRECTORS’ REPORT

REPORT OF THE INDEPENDENT AUDITOR

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

3 May 2011

REPORT OF THE INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF GRIFFIN MINING
LIMITED

We have audited the Group financial statements of Griffin Mining Limited for the year ended 31 December 2010 which comprise
the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial
position, consolidated statement of changes in equity, consolidated cash flow statement, the accounting policies and the notes 1
to 27. 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
Amendment 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 auditor’s 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

As explained more fully in the Directors’ Responsibilities Statement set out on page 28, the directors are responsible for the
preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to
audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards
on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical
Standards for Auditors.

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.

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS

A description of
www.frc.org.uk/apb/scope/UKP.cfm

the scope of an audit of

financial statements

is provided on

the APB website at

OPINION

In our opinion:

•

the financial statements give a true and fair view of the state of the Group's affairs as at 31 December 2010 and
of its profit for the year then ended;

have been properly prepared in accordance with International Financial Reporting Standards as adopted by the
European Union.

Grant Thornton UK LLP
Registered Auditors, Chartered Accountants
London

3 May 2011

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 1 0

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2010
(expressed in thousands US dollars)

Notes

2010
$000

2009
$000

Revenue

Cost of sales

Gross profit

Net operating expenses

Profit from operations

Share of losses of associated company
Foreign exchange gains
Finance income
Finance losses
Other income

Profit before tax

Income tax expense

Profit after tax

Attributable to non-controlling interests

Attributable to equity share owners of the parent

Basic earnings per share (cents)

Diluted earnings per share (cents)

5
6
7

41,050

25,368

Profit for the year

(16,780)

(11,909)

Other comprehensive income

Exchange differences on translating foreign operations

Other comprehensive income for the period, net of tax

Total comprehensive income for the period

Attributable to non-controlling interests

Attributable to equity owners of the parent

24,270

(11,127)

13,143

(109)
38
350
(2,224)
38

11,236

(2,376)

8,860

6,116

2,744

8,860

1.51

1.49

13,459

(7,940)

5,519

(517)
1,956
253
-
35

7,246

(1,013)

6,233

2,621

3,612

6,233

1.99

1.97

2010
$000

8,860

1,374

10,234

6,218

4,016

10,234

2009
$000

6,233

6,320

2,616

3,704

6,320

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 1 0

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

As at 31 December 2010
(expressed in thousands US dollars)

Notes

ASSETS
Non-current assets
Property, plant and equipment
Intangible assets – Exploration interests
Investment in associated company

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 attributable to equity holders of the parent

Non-controlling interests

Non-current liabilities
Long-term provisions

Current liabilities
Taxation payable

Trade and other payables

Total liabilities

Total equities and liabilities

Number of shares in issue

10
11
12

13
14

2010
$000

77,745
1,481
3,877
83,103

3,136
3,423
66,450
73,009

2009
$000

63,214
1,422
3,986
68,622

2,780
5,279
67,630
75,689

156,112

144,311

1,804
74,948
3,690
2,513
938
8,480
47,631
140,004

6,218

1,817
75,984
3,690
4,790
759
7,234
40,440
134,714

2,616

768

743

1,011

8,111

9,122

1,572

4,666

6,238

156,112

144,311

180,408,496

181,688,497

Attributable net asset value / total equity per share

$0.78

$0.74

The accounts on pages 30 to 53 were approved by the Board of Directors and signed on its behalf by:

Mladen Ninkov
Chairman

3 May 2010

Roger Goodwin
Finance Director

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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 1 0

CONSOLIDATED CASH FLOW STATEMENT

ACCOUNTING POLICIES

For the year ended 31 December 2010
(expressed in thousands US dollars)

Notes

5
6
16
10

5
11
10
10
10

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

Net cash inflow from operating activities

Taxation paid

Cash flows from investing activities
Interest received
Payments to acquire intangible assets – exploration interests
Payments to acquire tangible assets – mineral interests
Payments to acquire tangible assets – plant and equipment
Payments to acquire tangible assets – office equipment
Payments to acquire put options
Net cash (outflow) from investing activities

Cash flows from financing activities
Issue of ordinary share capital
Purchase of shares for cancellation

Decrease in cash and cash equivalents

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

Cash and cash equivalents comprise bank deposits
Bank deposits

2010
$000

11,236
109
(38)
(350)
2,224
2,323
2,151
(356)
(747)
3,445

19,997

(2,936)

350
(10)
(10,162)
(4,285)
(36)
(2,239)
(16,382)

97
(1,146)
(1,049)

(370)

67,630
(810)
66,450

2009
$000

7,246
517
(1,956)
(253)
-
495
1,533
446
285
(2,882)

5,431

253
(105)
(5,944)
(1,298)
-
-
(7,094)

42
(7)
35

(1,628)

67,193
2,065
67,630

BASIS OF ACCOUNTING

The accounts have been prepared in accordance with applicable International Financial Reporting Standards as issued by the
International Reporting Standards Board and as adopted by the European Union. 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.

CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

(a) New and amended standards adopted by the Group

The Group has adopted the following new and amended IFRSs as of 1 January 2010:

•

IFRS 3 (revised), ‘Business combinations’, and consequential amendments to IAS 27 (revised), ‘Consolidated and separate
financial statements’, IAS 28, ‘Investments in associates’, and IAS 31, ‘Interests in joint ventures’, are effective
prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after 1 July 2009. The revised standard continues to apply the acquisition method to
business combinations but with some significant changes compared with IFRS 3. For example, all payments to purchase
a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-
measured through profit or loss. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling
interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net
assets. All acquisition-related costs are expensed. The Group has not made any acquisitions during the year requiring the
application of the revised standard.

(b) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted
by the Group

The following standards and amendments to existing standards have been published and are mandatory for the Group’s
accounting periods beginning on or after 1st January 2011 or later periods, but the Group has not early adopted them:

•

IFRS 9 Financial Instruments (effective 1 January 2013)

IAS 24 (Revised 2009) Related Party Disclosures (effective 1 January 2011)

• Amendment to IAS 32 Classification of Rights Issues (effective 1 February 2010)

•

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective 1 July 2010)

• Prepayments of a Minimum Funding Requirement - Amendments to IFRIC 14 (effective 1 January 2011)

•

Improvements to IFRS issued May 2010 (some changes effective 1 July 2010, others effective 1 January 2011)

• Disclosures - Transfers of Financial Assets - Amendments to IFRS 7 (effective 1 July 2011)

• Deferred Tax: Recovery of Underlying Assets - Amendments to IAS 12 Income Taxes (effective 1 January 2012)

As far as can be determined the directors anticipate that the adoption of these Standards and Interpretations in future periods
will have no material impact on the financial statements of the Group. The Group does not intend to apply any of these
pronouncements early.

66,450

67,630

CONSOLIDATION BASIS

Included within net cash flows of $370,000 (2009 $1,628,000) are foreign exchange gains of $38,000 (2009 $1,956,000) which
have been treated as realised.

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.

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 1 0

ACCOUNTING POLICIES

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
provided all the funds required to develop the Caijiaying mine and was entitled to 100% of the net cash flows of the subsidiary
for the first three years after commencement of commercial production. With effect from 24 July 2008 the Company’s share of
the cash flows and profits reverted to the underlying equity interest of 60%.

ASSOCIATES

Associates are those entities over which the Group has significant influence but which are neither subsidiaries nor interests in
joint ventures. Investments in associates are recognised initially at cost and subsequently accounted for using the equity method.
Acquired investments in associates are also subject to purchase method accounting. However, any goodwill or fair value
adjustment attributable to the Group’s share in the associate is included in the amount recognised as investment in associates.

All subsequent changes to the Group’s share of interest in the equity of the associate are recognised in the Group's carrying
amount of the investment. Changes resulting from the profit or loss generated by the associate are reported in "share of profits
of associates" in profit or loss and therefore affect net results of the Group. These changes include subsequent depreciation,
amortisation or impairment of the fair value adjustments of assets and liabilities.

Items that have been recognised directly in other comprehensive income of the associate are recognised in other comprehensive
income of the Group. However, when the Group's share of losses in an associate equals or exceeds its interest in the associate,
including any unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made
payments on behalf of the associate. If the associate subsequently reports profits, the investor resumes recognising its share of
those profits only after its share of the profits equals the share of losses not recognised.

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

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 depreciated
over the expected productive life of the asset. The Group’s intangible assets are subject to periodic review at least annually 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 profit or loss.

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 10).

Residual values

Material residual value estimates are updated as required, but at least annually whether or not the asset is re-valued.

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

A review for impairment indicators at each balance sheet date is undertaken. In the event of impairment indicators being
identified, an impairment test is carried out to assess whether the net book value of the capitalised costs in each area of interest
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 BASIS

Future production

Proven and probable reserves and resource estimates together with processing capacity

Commodity prices

Forward market and longer term price estimates

Exchange rates

Discount rates

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

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 1 0

ACCOUNTING POLICIES

FINANCIAL ASSETS

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

EQUITY

Equity comprises the following:

•

loans and receivables

financial assets at fair value through profit or loss

available-for-sale financial assets

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 profit or loss or in other comprehensive income.

An assessment of whether a financial asset is impaired is made at least at each reporting date. Financial assets that are substantially
past due or when objective evidence is received that a specific counterparty will default, 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.

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 plus 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 profit or loss. The Group’s other receivables
fall into this category of financial instruments.

FINANCIAL LIABILITIES

The Group’s financial liabilities include trade and other payables, which are measured at amortised cost using the effective interest
rate method. On initial recognition financial liabilities at amortised cost 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 and associates, operate in China, the United Kingdom, and Australia. The functional
and presentation currency of the parent is US dollars.

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 profit or loss. Non monetary items measured at historical cost are translated using
the exchange rate at the date of the transaction. Non monetary items measured at fair value are translated using the exchange
rates at the date when the fair value was determined.

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 recognised in other comprehensive income
and accumulated in the foreign exchange reserve. All other translation differences are taken to profit and loss.

The balance of the foreign currency translation reserve relating to an operation that is disposed of is reclassified from equity to
profit or loss at the time of the disposal.

•

"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 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 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 profit or loss 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 2010 the total expense recognised in profit or loss arising from share based transactions
was $2,323,000 (2009: $495,000).

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:

•

Impairment review assumptions (note 10, 11 and 12)

Provisions for mine closure costs (note 18)

Depreciation (note 10)

Share based payments (note 16)

Determination that investments in associates are not subsidiaries (note 12)

Treatment of non-controlling interests (notes 14, 24 and 25)

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 1 0

ACCOUNTING POLICIES

NOTES TO THE FINANCIAL STATEMENTS

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.

1. SEGMENTAL REPORTING

The Group has one business segment, the Caijiaying zinc gold project in the Peoples Republic of China. All sales and costs of
sales in 2010 and 2009 were derived from the Caijiaying zinc gold project.

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.

TAXATION

Current tax is the tax currently payable based on taxable profit for the year.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided
on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided
on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a
business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in
subsidiaries, associates and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group
and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as
well as other income tax credits to the group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable
that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred
tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided
they are enacted or substantively enacted at the balance sheet date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except
where they relate to items that are recognised in other comprehensive income (such as the revaluation of land) in which case the
related deferred tax is also charged or credited directly to equity.

SEGMENTAL REPORTING

In identifying its operating segments, management generally follows the Group's service lines, which represent the main products
produced by the Group. Management consider there to be only one operating segment being the operations at the Caijiaying
Mine based in China. All activities of the Group are reported through management and the executive directors to the Board of
directors of the Company. The measurement policies the Group uses for Segment reporting under IFRS 8 are the same as those
used in its financial statements.

Corporate assets which are not directly attributable to the business activities of Caijiaying Mine are not allocated to the Chinese
segment but are reviewed in light of operating expenses by the region in which they occur. In the financial periods under review,
this primarily applies to the Group's head office and intermediary holding companies within the Group.

There have been no changes from prior periods in the measurement methods used to determine reported segment profit or loss.

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

Staff costs
Fair values of options granted to directors and management

Average number of persons employed by the Group in the year

2010
$000

92,979
6,380
56,753
156,112

14,459
25
10
14,494

2010
$000

(4,328)
(2,323)

No.
312

2010
$000

2009
$000

41,050

25,368

(16,780)

(11,909)

(6,813)
(14)
(4,300)
(11,127)

(5,382)
(50)
(2,508)
(7,940)

2009
$000

81,695
4,007
58,609
144,311

7,345
-
2
7,347

2009
$000

(3,772)
(495)

No.
245

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 1 0

NOTES TO THE FINANCIAL STATEMENTS

3. DIRECTORS’ AND KEY PERSONNEL REMUNERATION

8. INCOME TAX EXPENSE

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

Fees

Salary Share based
payments

$000

95
62
95
62
314
-
314

-
-
409
-
409
789
1,198

1,394
93
278
93
1,858
465
2,323

Mladen Ninkov
Dal Brynelsen
Roger Goodwin
William Mulligan

Key personnel

Security
Costs
$000

Social Total
2010

Fees

Salary Share based
payments

Social Total
2009

Security
Costs
$000

$000

-
-
51
-
51
19
70

1,489
155
833
155
2,632
1,273
3,905

94
65
94
65
318
-
318

-
-
343
-
343
1,033
1,376

297
20
59
20
396
99
495

-
-
43
-
43
20
63

$000

391
85
539
85
1,100
1,152
2,252

No share options were exercised by the directors in the year (2009 none).

Keynes Capital, the registered business name of Keynes Investments Pty Limited as trustee for the Keynes Trust, received fees
under a consultancy agreement of $1,227,000 (2009 $982,000), 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.

Profit for the year before tax

Tax rate

Expected tax expense:

Adjustment for tax exempt items:
- Income and expenses outside the PRC not subject to tax
- Share of associated company losses

Adjustments for permanent timing differences:
- Other

Adjustments for short term timing differences:
- In respect of accounting differences
- Other

Withholding tax on intercompany charges

2010
$000
11,236

12.5%

1,405

722
14

(22)
(2)

198

2009
$000
7,246

12.5%

906

(2)
65

(37)
14

4. SHARE OF LOSSES OF ASSOCIATED COMPANY

Share of losses of Spitfire Oil Ltd

Taxation charge

2,376

1,013

2010
$000
109

2009
$000
517

The Company is not resident in the United Kingdom for taxation purposes.

Hebei Hua’ Ao paid income tax in the PRC at a rate of 12.5% in 2010 (12.5% in 2009) based upon the profits calculated under
Chinese generally accepted accounting principals (Chinese “GAAP”). Hebei Hua’ Ao has benefited from a reduced tax rate for
past investment with the applicable PRC tax rate rising in 2011 to 25%.

Griffin acquired 16,666,667 ordinary shares in Spitfire Oil Ltd (“Spitfire”), representing a 39.2% interest in the issued share
capital of Spitfire, at 15p per share for a total cash consideration of £2,500,000 on 27 November 2008.

5. FINANCE INCOME

Interest on bank deposits

6. FINANCE LOSSES

Losses on revaluation of zinc put options

7. OTHER INCOME

Scrap and other sundry sales

2010
$000
350

2010
$000
(2,224)

2010
$000
38

2009
$000
253

2009
$000
-

2009
$000
35

9. 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:

2010

Earnings

$000

Weighted
average
number of
shares

Per
share
amount
(cents)

Earnings

$000

2009

Weighted
average
number
of shares

Per
share
amount
(cents)

2,744

181,579,409

1.51

3,612

181,560,512

1.99

Basic earnings per share
Earnings attributable to
ordinary shareholders

Dilutive effect of securities

Options

2,648,124

1,906,603

Diluted earnings per share

2,744

184,227,533

1.49

3,612

183,467,115

1.97

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 1 0

NOTES TO THE FINANCIAL STATEMENTS

10. PROPERTY, PLANT AND EQUIPMENT

At 1 January 2009 net of accumulated depreciation
Foreign exchange adjustments
Additions during the year
Rehabilitation provision
Depreciation charge for the year
At 31 December 2009
Foreign exchange adjustments
Additions during the year
Rehabilitation provision
Depreciation charge for the year
At 31 December 2010

At 31 December 2008

Cost
Accumulated depreciation
Net carrying amount

At 31 December 2009

Cost
Accumulated depreciation
Net carrying amount

At 31 December 2010

Cost
Accumulated depreciation
Net carrying amount

Mineral
interests

$000

42,182
(18)
5,944
-
(870)
47,238
1,639
10,162
(29)
(1,251)
57,759

Mill and
mobile mine
equipment
$000

14,699
(7)
1,296
645
(659)
15,974
589
4,285
-
(885)
19,963

Office furniture
and equipment

$000

4
-
2
-
(4)
2
-
36
-
(15)
23

Total

$000

56,885
(25)
7,242
645
(1,533)
63,214
2,228
14,483
(29)
(2,151)
77,745

$000

45,521
(3,339)
42,182

51,445
(4,207)
47,238

63,408
(5,649)
57,759

17,517
(2,818)
14,699

19,547
(3,573)
15,974

24,554
(4,591)
19,963

46
(42)
4

48
(46)
2

84
(61)
23

63,084
(6,199)
56,885

71,040
(7,826)
63,214

88,046
(10,301)
77,745

Mineral interests comprise the Group’s interest in the Caijiaying ore bodies including cost 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.

At 31 December 2010 and 2009 there were no indications of impairment in the net book values of the capitalised cost.

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

11. INTANGIBLE ASSETS

China – Zinc / gold exploration interests
At 1 January 2009
Foreign exchange adjustments
Additions during the year
At 31 December 2009
Foreign exchange adjustments
Additions during the year
At 31 December 2010

$000
1,313
4
105
1,422
49
10
1,481

Intangible assets represent cost 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
profit or loss. 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 2010 no amounts
had been provided or charged to the income statement in respect of the above exploration costs.

12. INVESTMENT IN ASSOCIATED COMPANY

At 1 January
Share of losses of Spitfire Oil Limited
At 31 December

2010
$000

3,986
(109)
3,877

2009
$000

4,503
(517)
3,986

Mladen Ninkov and Roger Goodwin are directors of Spitfire Oil Ltd giving Griffin significant influence over the financial and
operating policy decisions of Spitfire.

Spitfire’s principal activity is the pursuance of the production of fuel oil and distillate from the Salmon Gums Lignite deposits
in Western Australia.

Summarised financial information on Spitfire Oil Limited
(expressed in thousands Australian dollars)

Loss before income tax

(190)

(1,202)

Six months to 31 December 2010
Unaudited
Aus$000

Year to 30 June 2010
Audited
Aus$000

ASSETS
Current assets
Non-current assets
Total assets

LIABILITIES
Current and total liabilities

NET ASSETS

EQUITY
Issued capital
Reserves
Accumulated losses

31 December 2010
Unaudited
Aus$000

30 June 2010
Audited
Aus$000

8,077
7,948
16,025

(39)

15,986

20,854
790
(5,658)
15,986

7,992
8,257
16,249

(74)

16,175

20,854
790
(5,469)
16,175

Spitfire Oil Ltd reported no contingent liabilities at 31 December 2010 (30 June 2010 nil)

The directors have considered the carrying value of the Company’s investment in Spitfire Oil Limited by reference to current
market conditions, underlying assets and to projected discounted cash flow projections of Spitfire Oil Limited’s principal venture.

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 1 0

NOTES TO THE FINANCIAL STATEMENTS

13. INVENTORIES

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

2010
$000
850
890
-
1,396
3,136

2009
$000
471
1,412
33
864
2,780

All inventories are expected to be sold, used or consumed within one year of the balance sheet date. Inventories costing $312,000
(2009: $1,283,000) were recognised as an expense in the year.

14. OTHER CURRENT ASSETS

Zinc put options
Other receivables
Prepayments

2010
$000
14
2,792
617
3,423

2009
$000
-
3,567
1,712
5,279

Other receivables include advances of $2,029,000 (2009: $3,078,000) to related parties, recoverable from future share of profits
(note 25). The non-controlling share of the profits of Hebei Hua' Ao Mining Industry for 2010 amounting to $6,218,000 are
offsetable against this.

Number

-
4,700,001
10,000,000
14,700,001

16. SHARE OPTIONS AND WARRANTS

At 1 January
2010

Number

Granted At 31 December
2010

(Exercised)
(lapsed)
Number

Options exercisable at 110 pence per share to 28 February 2010 (lapsed)
Options exercisable at 20 pence per share to 31 October 2013 (exercised)
Options exercisable at 45 pence per share to 28 February 2015 granted

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

(10,000,000)
(299,999)
10,000,000
(299,999)

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

Outstanding at 1 January

Granted during the year

Lapsed during the year

Exercised in year

Outstanding at 31 December

2010
Number Weighted average
exercise price

2009
Number Weighted average
exercise price

15,000,000

10,000,000

(10,000,000)

(299,999)

14,700,001

80.0

45.0

(110.0)

(20.0)

37.00

20,475,000

(5,475,000)

15,000,000

76.0

(65.0)

80.00

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.

The estimated value of the options exercisable at 20p up to 31 October 2013, which vest in 3 tranches of 1,666,666 each, were
4.0p, 4.2p and 4.42p.

The estimated value of the options exercisable at 45p up to 28 February 2010, which vest in 3 tranches of 3,333,333 each, were
18.68p, 19.45p and 21.12p

15. 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
Bought back in for cancellation
At 31 December

2010

2009

Number

$000

Number

$000

1,000,000,000

10,000

1,000,000,000

10,000

Inputs into the Binomial valuation model were as follows:

181,688,497
299,999
(1,580,000)
180,408,496

1,817
3
(16)
1,804

181,589,731
133,333
(34,567)
181,688,497

1,816
1
-
1,817

Share price
Exercise price
Expected volatility
Risk free yield
Dividend yield

Options expiring
28 February 2015

Options expiring
31 October 2013

Options expired
28 February 2010

43.25p
45.0p
65%
2.84%
0%

14.0p
20.0p
60%
3.97%
4%

105.8p
110p
33%
5.1%
0%

During 2010 1,580,000 ordinary shares were bought in for cancellation from the market under a buy back programme at an
average price of 46.6 UK pence ($0.72) per share.

On 28 January 2010 133,333 new ordinary shares and on 29 April 2010 166,666 new ordinary shares were issued on the exercise
of options at 20 pence ($0.32) per share.

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 $2,323,000 (2009: $495,000) during the year ended 31 December 2010 relating to
equity settled share option scheme transactions.

17. DIVIDENDS

No dividends were paid in 2010 (2009 nil)

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 1 0

NOTES TO THE FINANCIAL STATEMENTS

18. LONG-TERM PROVISIONS

PROVISIONS FOR MINE CLOSURE COSTS

At 1 January
Transfer property plant and equipment (note 10)
Foreign exchange adjustments
At 31 December

2010
$000
743
(29)
54
768

2009
$000
98
645
-
743

21. RISK MANAGEMENT (CONTINUED)

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 + / - 10% change in the sterling exchange rate for the year ended 31
December 2010. These changes are considered to be reasonable based on observation of current market conditions for the year
ended 31 December 2010. 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 10% (2009: 10%) this would have had the following impact:

During 2007 the Group paid a bond under PRC regulations to be used to cover end of mine life restoration costs. Provision
for mine closure and rehabilitation costs have been made in accordance with the laws and regulations of China at a rate of Rmb
0.5 per tonne of estimated resources.

Net result for the year and on equity

2010
$000

4,782

19. TRADE AND OTHER PAYABLES

Trade creditors
Other creditors
Accruals

2010
$000
6,137
313
1,661
8,111

2009
$000
2,638
654
1,374
4,666

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

20. 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 2010 of $140,004,000 ($134,714,000 at 31 December 2009) divided by the number of ordinary shares
in issue at 31 December 2010 of 180,408,496 (181,688,497 at 31 December 2009).

21. 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. Associates operational and financial cash flows are
denominated in Australian dollars.

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 foreign exchange control promulgated by the
government of the PRC.

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

2009
$000

5,285

2009
$000

(4,324)

If sterling had weakened against the US Dollar by 10% (2009 10%) this would have the following impact:

Net result for the year and on equity

2010
$000

(3,912)

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.

With the Renminbi exchange rate linked to the value of the US dollar and with minimal amounts held in Australian dollars,
the effect on the net results and equity of changes in Renminbi and Australian dollar exchange rates are not expected to be
significant.

Foreign currency denominated financial assets and liabilities, translated into US Dollars at the closing rate, are as follows:

2010

Rmb
$000

AusD
$000

GBP
$000

2009

Rmb
$000

AusD
$000

GBP
$000

43,163

10,620

2,503

47,583

13,890

(368)

(8,712)

(38)

(147)

(4,501)

(18)

42,795

1,908

2,465

47,436

(9,389)

Financial assets

Financial liabilities

Short term exposure

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 + 300% and - 100% (2009 + 300% - 100%), 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.

Short term bank deposits

2010
$000

43,038

2009
$000

47,562

Net result for the year

2010

2009

Plus 300%

Minus 100%

Plus 300%

Minus 100%

$000

272

$000

(90)

$000

292

$000

(97)

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 1 0

22. CAPITAL MANAGEMENT AND PROCEDURES

The Group’s capital management objectives are:

• To ensure the Group’s ability to continue as a going concern;

• To increase the value of the assets of the Group: and

• To enhance shareholder value in the Company and returns to shareholders.

The achievement of these objectives is undertaken by developing existing ventures and identifying new ventures for future
development. The Company will also undertake other transactions where these are deemed financially beneficial to the Company.

The directors continue to monitor the capital requirements of the Group by reference to expected future cash flows. Capital
for the reporting periods under review is summarised in the consolidated statement of changes in equity.

23. FINANCIAL INSTRUMENTS

Other than put options purchased during the year (note 21), the Group does not enter into derivative transactions such as interest
rate swaps, forward rate agreements or forward currency contracts. The Group has no borrowings other than trade creditors
and funds in excess of immediate requirements are placed in US dollar and sterling short term fixed and floating rate deposits.
The Group has overseas subsidiaries operating in China and Australia, whose costs are denominated in local currencies.

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.

NOTES TO THE FINANCIAL STATEMENTS

21. RISK MANAGEMENT (CONTINUED)

Fixed and non interest bearing financial assets and liabilities are as follows:

Floating
interest
rate

2010

Non
interest
bearing

Total

Floating
interest
rate

2009

Non
interest
bearing

Total

$000

66,450
-
66,450

-
2,792
2,792

66,450
2,792
69,242

67,630
-
67,630

-
3,567
3,567

67,630
3,567
71,197

Financial Assets
Cash at bank
Other receivables
Total Financial Assets

Trade and other payables
Total Financial Liabilities

-
-

(8,111)
(8,111)

-
-

(4,666)
(4,666)

Net Financial Assets / (Liabilities)

66,450

(5,319)

61,131

67,630

(1,099)

66,531

Commodity risk

The Group is exposed to the risk of changes in commodity prices and in particular that for zinc, gold and to a lesser extent silver
and lead. The Group currently sells its metal concentrate production by way of open auctions in China. In 2010 the Company
purchased put options at a strike price of $1,700 over 24,000 tonnes of zinc metal in concentrate. The Group has not hedged
its metal production in 2009.

The following table illustrates the sensitivity of the net results for the year and equity to a reasonably possible change in the
market price of zinc and gold of plus 20% and minus 20% (2009 plus 20% and minus 20%), with effect from the beginning of
the year. These changes are considered reasonable based upon observation of current market conditions within which the Group
operates. This sensitivity analysis is based upon the Group’s sales in each year.

Net results for the year - zinc

Net results for the year - gold

Credit risk

2010
Plus 20% Minus 20%
$000

$000

5,327

1,312

(5,327)

(1,312)

2009

Plus 20%
$000

Minus 20%
$000

3,553

687

(3,553)

(687)

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

Fair value hierarchy

The Group adopted the amendments for IFRS 7 ‘Improving Disclosures about Financial Instruments’ effective from 1 January
2009. These amendments require the Group to present certain information about financial instruments measured at fair value
in the statement of financial position. On review of the financial instruments held by the Group management do not consider
this relevant to the Group.

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 1 0

24. SUBSIDIARY COMPANIES

27. CONTINGENT LIABILITIES

As described in note 24, the joint venture contract establishing the Hebei Hua’ Ao Mining Industry Company Ltd provides
that 100% of the cash flows and profits generated by the joint venture in the first three years from commencement of commercial
production be paid to the foreign party (China Zinc). Thereafter, being with effect from 24 July 2008, the cash flows are
shared 60% by the foreign party and 40% by the Chinese party, in accordance with their share in the equity interest in the
joint venture. The registered capital (equity) of Hebei Hua' Ao was provided in full by China Zinc. In 2008 Hebei Hua’ Ao
incurred losses and in view of the uncertainties in recovering the Chinese partners’ share of these losses, full provision was made
against the non-controlling share of losses from 24 July to 31 December 2008. In view of the unusual nature of the joint venture
contract and uncertainty as to its interpretation, with all the registered capital of Hebei Hua’ Ao being provided by China
Zinc, provision has only been made for the non-controlling interest in the profits of Hebei Hua Ao for 2009 and 2010 with no
provision made in respect of the net assets of Hebei Hua’ Ao. At 31 December 2010, the net assets of Hebei Hua’ Ao after
distributions due amounted to $31.4m. The non-controlling share of the net assets at 31 December 2010 on a termination of
Hebei Hua’ Ao could amount to $12.5m.

At 31 December 2010, 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

Hebei Hua’ Ao Mining
Industry Company Ltd*

Panda Resources Ltd

Ordinary

Hebei Sino Anglo Mining
Development Company Ltd*

100%

60%**

100%

90%

Service company

Australia

Holding company

Hong Kong

Base and precious
metals mining and
development

China

Holding company

England

Mineral exploration
and development

China

* 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, being with effect from 24 July 2008, the foreign
party (China Zinc) receives 60% of the cash flows, in accordance with its share in the equity interest in the joint venture. The
non-controlling share of the losses of Hebei Hua' Ao Mining Industry Company Ltd for 2008 amounting to $633,000
(2007 nil) have been fully provided against.

25. RELATED PARTY TRANSACTIONS

At 31 December 2010 Hebei Hua’ Ao had advanced Rmb13,407,000 ($2,029,000) (31 December 2009 Rmb 18,003,000
($2,637,000)) to the Zhangjiakou Caijiaying Lead Zinc Mining Company, that holds a 40% interest in Hebei Hua’ Ao. This
loan is non-interest bearing and repayable from their future share of the profits of Hebei Hua’ Ao. In addition, at 31 December
2009 Hebei Hua’ Ao had advanced Rmb 3,009,000 ($441,000) to the 3rd Geological Brigade of the Hebei Province, a partner
in the Zhangjiakou Caijiaying Lead Zinc Mining Company. This loan was repaid in 2010 from distribution of profits.

26. COMMITMENTS

At 31 December 2010 the Group had capital commitments of $1,340,000 (31st December 2009 $3,066,000).

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 1 0

Caijiaying Mine

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

CORPORATE INFORMATION

London 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:

Panmure Gordon (UK) Limited
Moorgate Hall, 155 Moorgate, London. EC2M 6XB. 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
Milton Gate, 60 Chiswell Street, London. EC1Y 4AG. UK.

Bankers:

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

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

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

UK Registrars
and Transfer Agents:

Capita Registrars (Jersey) Limited
12 Castle Street, St Helier, Jersey, JE2 3RT. UK.