Background

The Mine is located at Caijiaying, which is approximately 250 kilometres north-west of Beijing in the Hebei Province. The site is easily accessible by two separate freeway systems from Beijing and secondary sealed roads. The site has significant water supplies, two independent connections to the electricity grid, full connectivity to fixed and mobile telecommunications and broadband access for internet services. Climatic conditions are not severe with warm summers and cold, dry winters. The mine operates 24 hours per day all year round.

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

Five zones of mineralisation have so far been discovered in the original 10 sq km licence area. Zone III has been the main focus of activity for Griffin and is the zone of current mining operations. Zone II which is approximately 1.5 kilometres to the south has economically extractable deposits and is now known to be continuous with Zone III. Hebei Hua Ao has commenced development work to access Zone II and the area between Zones II and III whilst working towards obtaining a mining licence for these areas. This, with further development at Zone III will enable mining operations to be significantly expanded.

The assets of the Mine are held by Hebei Hua Ao Mining Industry Company Limited (“Hebei Hua’ Ao”), a contractual co-operative joint venture entity established in 1994, in which Griffin, through its wholly owned Hong Kong subsidiary, China Zinc Limited (“China Zinc”), now holds an 88.8% equity interest and the Chinese joint venture partners (which include the Zhangjiakou City People’s Government, the Hebei Bureau of the Ministry of Land and Resources and the Third Geological Brigade) a 11.2% interest. In May 2012 the Hebei Hua Ao joint venture term and business licence was extended for a new 25 year term to October 2037.

In January 2004, a second contractual joint venture company, Hebei Sino Anglo Mining Development Company Limited (“Hebei Anglo”), was formed to hold the mineral rights to the area surrounding the original Hebei Hua’ Ao licence area and any other areas of interest in the Hebei Province.

Griffin, through its wholly owned UK subsidiary company, Panda Resources Limited, has a 90% interest in Hebei Anglo. The other Chinese shareholders in Hebei Anglo hold 10% and reflect those shareholders in Hebei Hua-Ao. Griffin, through Hebei Hua’ Ao and Hebei Anglo, has a controlling interest in mining and exploration licences over 52 square kilometres at Caijiaying.

In 2005, Griffin successfully commissioned the Mine at Caijiaying, on time and within budget, with an initial design throughput rate of 200,000 tonnes of ore per annum. Production rates have been steadily increased since commissioning with processing rates equivalent to in excess of 820,000 tonnes of ore per annum achieved following the recent upgrade of the processing facilities to include additional tailings storage facilities, new crushing circuit and second primary ball mill. More recently a dry tailings facility has been installed and backfill of waste material has increased, minimising the need for additional tailings facilities. Plans are now being made to further increase processing capacity to cope with the planned development of the Zone II area and further development of Zone III.

In December 2007, production of a separate precious metals concentrate containing gold, silver and lead commenced from an integrated circuit forming part of the main processing facilities at Caijiaying. This allowed the full economic benefit of these metals to be obtained by the Group. Previously gold, silver and lead were “lost” and unaccounted for by the smelters in the zinc concentrate.

Geology

Mineralisation at Caijiaying is believed to be related to a Jurassic igneous event that affected the 2.3 billion year old metamorphic basement rocks. Base metal and gold mineralisation associated with Jurassic intrusives have replaced favourable horizons in the metamorphic rocks, most notably calcsilicates and marble. Porphyry sills and dykes intruding along faults have then cut across the sequence.

On-going exploration in the area surrounding the mine at Caijiaying and within Hebei Hua Ao’s and Hebei Anglo’s tenement boundary continues to confirm the area to be highly prospective, indicating significant potential for further base metal and gold deposits.

Mine Operations 2012

The processing plant has performed above its design capacity treating a record 800,288 tonnes of ore during 2012. Throughput was constrained by the safety production permit rather than mill capacity, which will be increased as further permitting is obtained.

In 2012 the average ore processed was 5.3% zinc, 0.41% lead, 32.1 grammes per tonne silver and 0.66 grammes per tonne gold to produce 40,581 tonnes of zinc, 2,402 tonnes lead, 409,596 ounces silver and 8,322 ounces of gold, all in concentrate. Zinc, lead and silver metal in concentrate production not only exceeded 2011 production, but were a record for Caijiaying. Gold production was below 2011 levels due to lower grade gold mined.

Metallurgical recovery of all metals exceeded that in 2011. However, the variability of the gold grade and mineralogy in different ore lodes in Zone III has resulted in gold recoveries remaining below 50%. Metallurgical test work has been extensive and remains ongoing to increase gold grades and recoveries. In the interim, the mining of known higher gold grade lodes has been avoided until increased gold recoveries can be guaranteed. Lead recoveries were increased significantly as a result of modifications made to the processing circuit.

Mining rates have continued to be increased to meet the enhanced processing capacity with more stopes opened and greater use made of mechanised mining methods with faster rates of extraction.

During 2012, a record 789,692 tonnes of ore were mined and a record 792,653 tonnes of ore hauled.

Detailed planning for increasing mining and the further upgrade of the processing facilities is underway with the expectation of completing the upgrade by the end of 2014.

Further mine development work was undertaken in 2012 with the extension of the North and South declines and drives to access ore below the 1300 level. The south decline was developed to RL 1230 (270 metres below surface portal) and the north decline to RL 1235 (265 metres below the surface portal). During 2012, 7,314 metres of development drives and decline development were completed. This enabled lower levels of the mine to be accessed including the larger Ju Long, Fu Long and Qi Long lodes and allowed the greater use of mechanised mining methods. Long hole stoping continues to be the predominate mining method used in Zone III.

Remote bogging is being used to remove ore left in previously mined stopes which increased the recovery of ore mined during the year.

The percentage of tailings generated from the processing plant and placed underground as backfill increased to approximately 45% in 2012. Backfilling mined stopes reduces the amount of waste material going to the tailings dams and improves ground stability thereby allowing more ore to be extracted. A dry tailings facility has been constructed to further reduce the surface tailing facility volume required in the future. Dry tailings disposal should reduce the future capital cost of tailings dams, which would otherwise need to be constructed to handle the amount of wet tailings produced by the Caijiaying Mine.

Administration procedures are well under way to lodge the final application for a mining licence over Zone II and the area between Zone II and Zone III. The submission of a geological report to the relevant Chinese authorities has been accepted by the Ministry of Land and Resources. A boundary survey, feasibility study and environmental impact study are now being prepared. Work to access Zone II from the main decline has already begun in anticipation of the granting of the new mining licence, expected in the Spring of 2014. Further anticipatory work will also include infrastructure ventilation construction and underground development work to enable ore definition drilling to be completed.

The development of the Zone II deposit and upgrade of the processing facilities are not expected to result in any interruption to existing operations.

Development and plant upgrade costs will be funded from cash flow from existing operations with surplus cash flow directed to repaying existing Chinese banking facilities used in the Transaction to fund the acquisition of additional equity in, and the extension of, the joint venture in 2012.

JORC Resource Estimates

In May 2012, the latest JORC Mineral Resource Estimate for Caijiaying was produced at a zinc cut off of 1%. Tabled below is the summary of the 2012 Mineral Resource.

Approximately 35,898 meters of extensional and grade control drilling were completed in 2012. A resource update is planned to be completed by the end of 2013.

2011 Mineral Resources Estimate

Zone III

Zone II

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

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

Exploration Hebei Hua Ao Licence Area

Drilling activity continues underground at Zone III with up to 5 rigs operating during 2012. Drilling has been focused on extending the known resource, both along strike and at depth. Ore tonnes were increased outside the previously defined resource and a greater understanding of the ore distribution was developed. Primary targets were Fu Long North, South and down-dip, Qing Long South and down-dip, Ju Long South, Xiao Long South, Zone II North and down-dip extensions of the Inferred Resource.

Along strike drilling of the Qing Long and Fu Long ore bodies defined the northern extent of these ore bodies where the metamorphic host rocks are truncated against the younger Jurassic volcanics and sediments. Down-dip drilling of both of these ore bodies intersected significant base metal mineralisation up to 200 metres below the lowest development level (1259RL).

Mineralisation continues to remain open below these intersections and the down-dip extension of these zones will be tested with further drilling as mining continues deeper at Zone III.

Extensional drilling targeting Qing Long South and Zone II North returned positive results with significant base metal intersections seen in both drill programs. These two areas appear to have a complex structural relationship and may represent originally a single zone of mineralisation offset by northeast-southwest faulting. Intersections in excess of 10 metres thick and 5% zinc were seen in the southern-most holes drilled into the Xiao Long orebody, proving that the mineralisation continue to the south, beyond current mine development.

Exploration Hebei Anglo Licence Area

In 2012, exploration expenditure in the Hebei Anglo licence area was focused on preparing the tenement for the statutory relinquishment of 25% of its land area. Previously recorded soil sampling, illite crystallinity, Induced Polarisation, ground magnetic and drill hole data were analysed to define areas of low prospectivity for relinquishment and areas of high prospectivity for future work.

Two vertical diamond drill holes of 500.3 metres and 450.4 metres were drilled in the southwest of the tenement where the intersection of the regionally significant F45 Fault and a number of smaller subordinate faults had been interpreted from magnetic images. The aim of the drilling was to test the depth to metamorphic basement and, if basement was intersected, the nature of the basement rocks and their geochemistry. Both holes were terminated in younger, unmineralised Jurassic volcanics where it was concluded that they had passed beyond a practical mining depth.

To the east of the Caijiaying Mine, several previously tested targets were considered appropriate for relinquishment. Prior unfavourable drilling and soil sample results determined that no further work was warranted in these areas. The southern side of the F45 Fault is known to have been down-thrown in excess of 500 metres rendering basement metamorphic rocks impractical to economically explore or mine. A portion of the tenement to the south of the F45 Fault was also selected for relinquishment based on this information.

Two bio-geochemical surveys were carried out on four areas within the lease during 2012. This exploration technique attempts to use the broader reach (in comparison to a traditional soil sample) of vegetation's root systems to indicate geochemical anomalies within soil by sampling and analysing the foliage. Survey results were inconclusive as the most significant anomalies recorded were obtained from areas where the greatest likelihood of contamination had been located, i.e. prior artisanal processing operations.