UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K/A



Amendment No. 1

(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31,
2010



or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from __________
to __________



COMMISSION FILE NUMBER: 001-33929



CHINA SHEN ZHOU MINING & RESOURCES,
INC.



(Exact name of registrant as specified
in its charter)



|Nevada                                                         | 87-0430816                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number)



No. 166 Fushi Road, Zeyang Tower

Shijingshan District, Beijing, China
100043

(Address of principal executive offices)
(Zip Code)

86-010-8890-6927

(Issuer’s telephone number, including
area code)

Securities registered under Section 12(b)
of the Exchange Act:



|Title of Each Class           | Name of Each Exchange on Which Registered
|----------------------------- | -----------------------------------------
|Common Stock, par value $.001 | NYSE Amex                                



Securities registered under Section 12(g)
of the Exchange Act: None.



Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.



Yes  ̈
No x



Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.



Yes  ̈No
x



Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No  ̈



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes x
No  ̈



Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.  ̈



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.



|Large accelerated filer ̈ | Accelerated filer  ̈ | Non-accelerated filer  ̈    | Smaller reporting company x
|------------------------ | ------------------- | -------------------------- | ---------------------------
|                         |                     | (Do not check if a smaller |                            
|                         |                     | reporting company)         |                            



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act):



Yes  ̈
No x



The number of shares outstanding of
our common stock as of June 30, 2010, was 27,974,514 shares. The aggregate market value of the common stock held by non-affiliates
(5,114,214 shares), based on the closing market price ($0.85 per share) of the common stock as of June 30, 2010 was $4,347,081.90.



As of March 28, 2011 the number of shares
of the registrant’s classes of common stock outstanding was 30,811,397.



Except as otherwise indicated by the
context, references in this Form 10-K to:



| | · | “China Shen Zhou Mining & Resources, Inc.,” the “Company,” “CSZM,” “SHZ,” “we,” “us” or “our” are references to the combined business of China Shen Zhou Mining & Resources, Inc. and its direct and indirect subsidiaries.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                            
| | · | “U.S. Dollar,” “$” and “US$” means the legal currency of the United States of America.                                                                                                                                     
| |   |                                                                                                                                                                                                                            
| | · | “RMB” means Renminbi, the legal currency of China.                                                                                                                                                                         
| |   |                                                                                                                                                                                                                            
| | · | “China” or the “PRC” are references to the People’s Republic of China.                                                                                                                                                     
| |   |                                                                                                                                                                                                                            
| | · | “U.S.” is a reference to the United States of America.                                                                                                                                                                     
| |   |                                                                                                                                                                                                                            
| | · | “SEC” is a reference to the Securities & Exchange Commission of the United States of America.                                                                                                                              





DOCUMENTS INCORPORATED BY REFERENCE



|Document | Parts Into Which Incorporated
|-------- | -----------------------------
|         |                              
|None     | Not applicable               











EXPLANATORY NOTE



This Amendment No. 1 (“Amendment
No. 1”) to the Annual Report on Form 10-K of China Shen Zhou Mining & Resources, Inc. for the fiscal year ended
December 31, 2010 as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2011 (the “2010 Annual
Report”), is being filed to incorporate the Company’s revisions and responses pursuant to certain comment letters from
the staff of the SEC dated July 8, 2011 and December 19, 2011 (collectively, the “SEC Comment Letters”).



As required by Rule 12b-15 of the Securities
Exchange Act of 1934, new certifications by the Company’s principal executive officer and principal financial officer are
filed herewith as exhibits to this Amendment No. 1.



This Amendment No. 1 does not affect
any other portion of the 2010 Annual Report. Additionally, except as specifically referenced herein, this Amendment No. 1
does not reflect any event occurring after March 29, 2011, the filing date of the 2010 Annual Report.











TABLE OF CONTENTS





|PART I   |                                                                                                                     
|-------- | --------------------------------------------------------------------------------------------------------------------
|         | ITEM 1. BUSINESS                                                                                                    
|         | Corporate History                                                                                                   
|         | Our Industry                                                                                                        
|         | Current Business Operations                                                                                         
|         | Description of Products                                                                                             
|         | Exploration Activities                                                                                              
|         | Sales and Marketing                                                                                                 
|         | Our Major Customers                                                                                                 
|         | Competition                                                                                                         
|         | Business Strategies                                                                                                 
|         | Resumption of Production Capacity to Meet Demand                                                                    
|         | Acquire Synergistic Mining Entities                                                                                 
|         | Competitive Advantages                                                                                              
|         | Government Regulation                                                                                               
|         | Employees                                                                                                           
|         | ITEM 1A. RISK FACTORS                                                                                               
|         | ITEM 1B. UNRESOLVED STAFF COMMENTS                                                                                  
|         | ITEM 2. PROPERTIES                                                                                                  
|         | General                                                                                                             
|         | Sumochaganaobao Fluorite Mine (Xiangzhen Mining)                                                                    
|         | Mining Site No. 2 of Qingxing Copper Mine, in production Stage (Qingshan Metal)                                     
|         | Keyinbulake Cu-Zn Property in development stage (Xingzhen Mining)                                                   
|         | Inner Mongolia Wulatehouqi Qianzhen Ore Processing Co., Ltd (Qianzhen Mining)                                       
|         | Kichi Chaarat Closed Company (Kuru-Tegerek Mine)                                                                    
|         | ITEM 3. LEGAL PROCEEDINGS                                                                                           
|PART II  |                                                                                                                     
|         | ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|         | Equity Compensation Plan Information                                                                                
|         | ITEM 6. SELECTED FINANCIAL DATA                                                                                     
|         | ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                       
|         | Business                                                                                                            
|         | Business Strategy                                                                                                   
|         | Results of Operation Business                                                                                       
|         | ITEM 8. FINANCIAL STATEMENTS                                                                                        
|         | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                        
|         | ITEM 9A. CONTROLS AND PROCEDURES                                                                                    
|         | ITEM 9B. OTHER INFORMATION                                                                                          
|PART III |                                                                                                                     
|         | ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                     
|         | Involvement in Certain Legal Proceedings                                                                            
|         | Compliance with Section 16(a) of the Securities Exchange Act of 1934                                                
|         | Code of Ethics                                                                                                      
|         | Director Nominees Recommended by Stockholders                                                                       
|         | Board Composition; Audit Committee and Financial Expert                                                             
|         | ITEM 11. EXECUTIVE COMPENSATION                                                                                     
|         | Outstanding Equity Awards at Fiscal Year-End                                                                        
|         | Director Compensation                                                                                               
|         | Retirement, Post-Termination and Change in Control                                                                  
|         | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.            
|         | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                  
|         | ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                     
|PART IV 
|         | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                    













PART I



|ITEM 1. | BUSINESS
|------- | --------



Corporate History



Unless otherwise indicated, or unless
the context otherwise requires, all references in this Annual Report to the terms “Company,” “CSZM,” “we,”
“our,” or “us” mean China Shen Zhou Mining & Resources, Inc., a Nevada corporation.



We are the result of a share exchange/reverse
takeover among Earth Products & Technologies, Inc., a Nevada corporation (“EPTI”), American Federal Mining Group,
Inc., an Illinois company (hereinafter “AFMG”), and the shareholders of AFMG. The effective date of the transaction
was September 15, 2006. Pursuant to the transaction, EPTI issued a total of 20,000,000 shares of common voting stock to AFMG Shareholders,
in exchange for 100% of AFMG’s common stock. The common stock was issued in reliance on the exemption from registration set
forth in Section 4(2) of the Securities Act of 1933, as amended. This transaction was accounted for as a reverse takeover (recapitalization)
with AFMG deemed the acquirer for accounting purposes and EPTI the legal acquirer.



As a result of the share exchange/reverse
takeover, AFMG became a wholly-owned subsidiary of EPTI, with EPTI, which previously had no material operations, becoming a holding
company for the business of AFMG and its subsidiaries. AFMG is a holding company, incorporated in Illinois, whose principal business
is the ownership of entities in the People’s Republic of China (“PRC” or “China”) engaged in the
acquisition, exploration, extraction and development of mining properties.



The share exchange/reverse takeover
resulted in a change in voting control of EPTI. The former shareholders of AFMG now hold a total of 20,000,000 shares of common
stock, or approximately 94% of the outstanding common stock of EPTI, and the original EPTI shareholders now hold a total of 1,297,700
shares of common stock, or approximately 6% of the outstanding common stock. At the closing, EPTI’s officers and directors
resigned, and Xiao-Jing Yu was appointed as President of EPTI. Effective October 20, 2006, EPTI changed its name to China Shen
Zhou Mining & Resources, Inc.



AFMG owns all of the registered capital
of Inner Mongolia Wulatehouqi Qianzhen Ore Processing Co., Ltd. (“Qianzhen Mining”), a limited liability company organized
in the PRC. Qianzhen Mining holds 68% of the registered capital of Inner Mongolia Xiangzhen Mining Group Co., Ltd., a limited liability
company organized in the PRC (“Xiangzhen Mining”), with the remaining 32% of the registered capital of Xiangzhen Mining
being held by AFMG, thus effectively making Xiangzhen Mining a wholly-owned subsidiary of AFMG. The percentage of ownership interest
in Xiangzhen Mining by AFMG and Qianzhen Mining changed from 67% and 33% in 2006 to 68% and 32% in 2007, respectively, due to additional
investment into Xiangzhen Mining by AFMG and Qianzhen Mining. Qianzhen Mining owns 60% of Wulatehouqi Qingshan Nonferrous Metal
Development Co., Ltd. (“Qingshan Metal”). The other 40% of Qingshan Metal is owned by several individual shareholders.
Xiangzhen Mining owns 90% of Xinjiang Buerjin County Xingzhen Mining Co., Ltd. (“Xingzhen Mining”). The other 10% is
owned by Xinjiang Tianxiang New Technology Development Co., Ltd (5%) and an individual shareholder (5%).



In December 2007, the Company disposed
of one of its subsidiaries, Tianzhen Mining, an exploration stage company located in Wuqia County, Xinjiang Uygur Autonomous Region.



Prior to September 2009, the Company
owned 100% of the registered capital of Tun-Lin Limited Liability Company (“Tun-Lin”), which is a Kyrgyz Republic registered
company, which in turn owned 100% of Kichi Chaarat Closed Stock Company. On September 21, 2009, the Company, through its wholly-owned
subsidiary, Inner Mongolia Xiangzhen Mining Group Co., Ltd., a company organized under the laws of People’s Republic of China,
entered into a Share Purchase Agreement with Fortune Pegasus International Limited (“Fortune”), a company organized
under the laws of British Virgin Islands, pursuant to which the Company transferred to Fortune the entire equity of Tun Lin in
the Kyrgyz Republic.





1









The table below illustrates the corporate
structure of the Company:









Our common stock is listed on the NYSE
AMEX under the symbol “SHZ.”



Our executive offices are located at,
Suite 1211, Zeyang Tower, No. 166 Fushi Road, Shijingshan District, Beijing, China 100043. Our telephone number is 86-010-88906927.



Our Industry



Our primary business activity is mining,
processing and distributing fluorite ore and processed fluorite powder, copper, zinc, lead, and other mineral concentrates. In
the past three decades, China has experienced vast modernization and its economy has witnessed significant growth and as a result
there has been rapid development of its manufacturing capacity. Moreover, due to its investment environment and cheap labor, China
has attracted many manufacturers from developed countries.



Fluorite is mainly used by the steel
industry as a melting agent and by the fluorite chemical industry to manufacture hydrofluoric acid, a widely used raw material
for the chemical industry. Though it is an extremely scarce and non-renewable resource, fluorite has much wider applications. Therefore,
in January of 2010, China’s State Council issued the notification SCS [2010] No. 1 “On Adoption of Comprehensive Measures
on Exploration and Production Control of the Refractory Clay and Fluorite”. The notification was issued not only to restrict
the excessive exploitation of fluorite mineral resources through the integration of small fluorite mines, and shutting down parts
of small-scale processing plants and mines with poor resources, but also to ensure the rational use of resources. In addition,
for a certain period of time no application for the survey and mining of any new fluorite mines is permitted. This policy will
play a role in the control of fluorite supply, and will stimulate domestic fluorspar prices. The Company serves as the Vice Executive
President of the China fluorite Industry Association.



2







According to the statistics of China’s
Fluorite Industry Association, China produced approximately 2.44 million metric tons fluorite powder and approximately 1.51 million
metric tons fluorite lumps in 2010. In 2010, about 87.71% of the fluorite powder annual output was consumed within China and 12.29%
was exported. In recent years, large exports of fluorite and hydrofluoric acid have depleted fluorite resources in China.



According to the publication of China’s
Inorganic Fluoride Industry Association, in 2010, approximately 2.1 million metric tons of fluorite powder were consumed by the
producers of hydrofluoric acid and aluminum fluoride. Also, approximately 1 million metric ton of  fluorite lumps were
consumed by the producers of steel in China.



Current Business Operations



Our Business



Through our direct, wholly owned subsidiary,
American Federal Mining Group, Inc. (hereinafter “AFMG”), and its subsidiaries – Wulatehouqi Qianzhen Ore Processing
Co. Ltd. (“Qianzhen Mining”), Inner Mongolia Xiangzhen Mining Group Co., Ltd., (“Xiangzhen Mining”), Wulatehouqi
Qingshan Nonferrous metal Development Co., Ltd. (“Qingshan Metal”), Xinjiang Buerjin County Xingzhen Mining Co., Ltd.
(“Xingzhen Mining”) and Xinyi Fluorite Company, Ltd. (“Xinyi Fluorite”), we engage in the business of mining,
processing and distributing fluorite ore and processed fluorite powder, copper, zinc, lead, and other mineral concentrates. On
January 13, 2011, we, through Xingzhen Mining, entered into an agreement pursuant to which we acquired 55% of the equity of Xinyi
Fluorite, which is located in Jingde County, Anhui Province.



We operate mines in the Inner Mongolia
Autonomous Region and the Xinjiang Uygur Autonomous Region of the PRC, which are known for their rich reserves of high-grade minerals
of fluorite, copper, lead and zinc. Regional human resources of general labor and specialized professional mining teams are available
to us at a low cost. We believe that we have good relationships with the local governments since we provide employment opportunities
to the local residents and tax revenues to the government. Also, after years of experience working and developing relationships
in the mineral markets, we have formed strategic cooperative alliances with several large-scale domestic steel and chemical enterprises.



Our principal executive offices are
located at Suite 1211, Zeyang Tower, No. 166 Fushi Road, Shijingshan District, Beijing, China 100043, and our telephone number
at that location is 86-010-8890-6927.



The following table summarizes the business
activities of AFMG’s subsidiaries:



|Subsidiaries     |  | Current Business Activities                                         
|---------------- |  | --------------------------------------------------------------------
|Qianzhen Mining* |  | Engaged mainly in the processing of zinc-lead ore                   
|Xiangzhen Mining |  | Engaged in the extraction and processing of fluorite ore            
|Xingzhen Mining  |  | Engaged mainly in exploration and development of zinc-copper mine   
|Qingshan Metal*  |  | Engaged mainly in the extraction of copper-zinc ore, some processing
|Xinyi Fluorite** |  | Engaged in the processing of fluorite powder                        



*Qianzhen Mining and Qingshan Metal
had no operations in 2010.

**Xinyi Fluorite was acquired on January
13, 2011.



Description of Products



Fluorite



We extract and process fluorite ore
or fluorspar in northern Inner Mongolia. Xiangzhen Mining, a member of the China Fluorite Association, has the largest fluorite
ore reserves in northern China. There are two final products from extraction and processing of fluorite: (i) high grade fluorite
ore with a purity of above 75% CaF2 and (ii) fluorite powder with a purity of greater than 96% CaF2. The high grade fluorite ore,
selected directly from the mined ores, is sold to steel making companies to be used as a melting agent in steel making. Fluorite
powder, on the other hand, is a key upstream material for the manufacture of fluorine compounds by the fluorine chemical industry.



In 2010, we extracted approximately
131,000 metric tons of fluorite ore and sold 32,800 metric tons of fluorite lumps with total sales of approximately US$ 3.25 million,
accounting for approximately 41% of the revenues of our fluorite business. We also produced 24,300 metric tons of fluorite powder
and sold 29,000 metric tons of fluorite powder for approximately US$ 4.76 million, which accounted for approximately 59% of the
revenues of our fluorite business.



3







On January 13, 2011, we, through Xingzhen
Mining, entered into an agreement pursuant to which we acquired 55% of the equity of Xinyi Fluorite, which is located in Jingde
County, Anhui Province, to further develop our fluorite production capabilities for value-added fluorine chemicals. Xinyi
Fluorite’s primary assets include the mining permit to the Xinyi Qingzheng Fluorite Mine No. 1, the mining permit for the
Guangrong Fluorite Mine, and the mining rights and assets of the Sanxi Old Town flotation plant.



We believe that the new national policy
of tighter restrictions for new entrants into the fluorite production industry will have a positive effect on the results of operations
of Xiangzhen Mining and Xinyi Fluorite. We also expect that the trend in the industry of acquisition of smaller enterprises by
larger enterprises will continue into the near future.



Nonferrous



We extract and process zinc, copper
and lead ores in the central part of Inner Mongolia and the northeastern part of the Xinjiang Uygur Autonomous Region. Our final
products are zinc concentrate, copper concentrate and lead concentrate, which are sold to metallurgical companies which in turn
refine them into zinc, copper and lead ingots.



In 2010, Xingzhen produced zinc concentrates
and copper concentrates equivalent to 3,129 metric tons of zinc metal and 155 metric tons of copper metal, and sold zinc concentrates
and copper concentrates equivalent to 2,538 metric tons of zinc metal and 115 metric tons of copper metal accounting for approximately
79% and 21%, respectively, of the total revenues of our nonferrous business of approximately $3.60 million.



No activity was planned at Qianzhen
Mining in 2010 due to the low grade of the ore supplied by Qingshan Metal and the low market price of copper and sulfur. We did
not produce any products at Qianzhen Mining and Qingshan Metal in 2010.



Exploration Activities



Keyinbulake Copper-Zinc Mine



In the first half of 2010, Xingzhen
focused on conducting geophysical research and an electric logging project, making drilling plans, carrying out construction in
strict accordance with results given by our prospecting team, and conducting necessary geophysical investigations in the mining
area.



In 2010, Xingzhen mining drilled 12
holes, 3,356 meters, and trenched 3,060cubic meters, and completed 771 IP sounding points. Among the middle, northern
and southern areas, we found two new mineralized bodies through drilling verification. We are now drilling and exploring these
mines.



The exploration conducted in 2010 already
guaranteed our continued production. Based on these results, we will accelerate our work and try to submit a thorough examination
report (for internal use only) of the mining areas. Our work in 2011 will include:



| | · | Conducting a comprehensive geological survey and revising integrated maps of the mining areas on a 1:2,000 scale and producing a geophysical exploration model;              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                              
| | · | Conducting supplementary TEM and high-accuracy magnetic surveys in important areas of abnormality, and conducting 10-4 high-accuracy magnetic surveys around those areas; and
| |   |                                                                                                                                                                              
| | · | Based on the above work, a drilling construction plan will be determined and a new drilling plan of 3,000 meters will be arranged.                                           



Sales and Marketing



We do not employ any marketing staff.
We have maintained long-term and good relationships with our customers, who send their orders directly to us. Our in-house sales
staff fills these orders based on our actual production capacity and the products are delivered to our customers via railway or
truck. We expect these relationships with our customers to continue.



Major Suppliers



We have various suppliers as a
mining processor. We extract and process zinc, copper and fluorite ores from our mines and purchase fuel as well as small amounts
of raw materials.



4







Our Major Customers



In 2010, our revenues from our fluorite
business and nonferrous metals business were $8.01 million and $3.60 million, respectively.



The following table shows our major
customers (10% or more) for our nonferrous business for the year ended 2010:



|Number |       | Customer |                    | Revenue* (In thousands) |   |       | Percentage (%) | 
|------ | ----- | -------- | ------------------ | ----------------------- | - | ----- | -------------- | 
|       | 1     |          | Ruipeng Mining Ltd |                         | $ | 3,600 |                | 
|       | TOTAL |          |                    |                         | $ | 3,600 |                | 



|* | The total revenue from our nonferrous segment is $3.60 million
|- | --------------------------------------------------------------



The following table shows our major
customers (10% or more) for our fluorite business for the year ended 2010:



|Number |       | Customer |                    | Revenue* (In thousands) |   |       | Percentage (%) | 
|------ | ----- | -------- | ------------------ | ----------------------- | - | ----- | -------------- | 
|       | 1     |          | Handan Hongzhi Ltd |                         | $ | 907   |                | 
|       | 2     |          | Ningxia Jinhe Ltd  |                         |   | 3,926 |                | 
|       | TOTAL |          |                    |                         | $ | 4,833 |                | 



|* | Total revenue from our fluorite segment is $8.01 million.
|- | ---------------------------------------------------------



As disclosed above, our two
largest customers for the fiscal year ended December 31, 2010 were Ruipeng Mining Ltd. for nonferrous metals and Ningxia
Jinhe Chemical Co., Ltd for fluorite. Currently, the contracts we have signed with our major customers are short term sales
contracts with none having a duration longer than one year. They are one off agreements that do not necessarily establish a
long-term relationship between the Company and the customer and generally can be terminated by our customers without penalty.
Our other sales contracts have essentially the same terms as these agreements. Our major customers tend to vary from year to
year based upon market conditions and customer needs.



Competition



Rapid industrialization and development
in China have been the main drivers for China’s increase in nonferrous metal and fluorite consumption. In the current markets
for nonferrous metals and fluorite, demand, in general, exceeds supply. In the near term, we do not foresee difficulty in selling
our products and therefore do not expect to devote significant financial resources to sales and promotion.



Our competitors are mainly similar companies
in China.



Our main competitors in the fluorite
business are:



| | · | Zhejiang Wuyi Shenlong Mining Co., Ltd., which produced 50,000 metric tons of fluorite lumps and 50,000 metric tons of fluorite powder in 2010;              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                              
| | · | Inner Mongolia Linxi County Jingyuan Mining Co., Ltd., which produced 10,000 metric tons of fluorite lumps and 18,000 metric tons of fluorite powder in 2010;
| |   |                                                                                                                                                              
| | · | Gansu Gaotai Hongyuan Mining Co., Ltd., which produced 65,000 metric tons of fluorite ore in 2010; and                                                       
| |   |                                                                                                                                                              
| | · | Jinghua Huaying Mining Co., Ltd., which produced 20,000 metric tons of fluorite lumps and 28,000 metric tons of fluorite powder in 2010.                     



Our competitors in the zinc, lead and
copper concentrates industries are local mining companies such as Inner Mongolia Wulatehouqi Huogeqi Copper Mine (“Huogeqi
Mining”), Wancheng Trading Co., Ltd.(“Wancheng Trading”) and Dongshengmiao Mining Industry Co, Ltd. (“Dongshengmiao
Mining”). Our production volumes of zinc, lead and copper concentrates are relatively small compared to the production volumes
of these local mining companies. However, as the demand for nonferrous metal concentrate exceeds the supply, we believe that we
should have no difficulty in selling our products.



5







|Competitor           |  | Capacity                                                       
|-------------------- |  | ---------------------------------------------------------------
|Huogeqi Mining       |  | 1,700,000 metric tons of extracting and ore processing capacity
|Dongshengmiao Mining |  | 820,000 metric tons of extracting and ore processing capacity  
|Wancheng Trading     |  | 760,000 metric tons of extracting and ore processing capacity  



Our Competitive Strengths



We believe that our following competitive
strengths enable us to compete and to capitalize on the growth opportunities in our industry:



| | ● | All of our current businesses are conducted through our China-based subsidiaries. We operate mines in the Inner Mongolia Autonomous Region and the Xinjiang Uygur Autonomous Region, which are known for their rich mineral deposits of fluorite, copper, lead and zinc.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                         
| | ● | We own one of the best fluorite mines in China, which produces high purity fluorite ore, and possesses good extracting conditions as well as the largest processing plant in northern China.                                                                            
| |   |                                                                                                                                                                                                                                                                         
| | ● | We have an experienced management team. Most of our executive officers have more than 20 years of experience in the mining industry.                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                         
| | ● | We maintain good relationships with local government agencies. Also, regional labor and specialized professional mining teams are available to us at a low cost.                                                                                                        
| |   |                                                                                                                                                                                                                                                                         
| | ● | Many of our subsidiaries are located in the western part of China and therefore benefit from many preferential tax and regulatory policies.                                                                                                                             



Business Strategies



We plan to implement the following strategies:



|· | Resumption of Production to Meet Demand
|- | ---------------------------------------



| | ■ | Fluorite
| | - | --------



We began normal production on March
23, 2010 and processed 64,800 metric tons of fluorite ore and produced 24,300 metric tons of fluorite powder in 2010. In addition,
we sold 32,800 metric tons of fluorite lumps and 29,000 metric tons of fluorite powder in 2010.  On January 13, 2011,
we, through Xingzhen Mining, entered into an agreement pursuant to which we acquired 55% of the equity of Xinyi Fluorite, which
is located in Jingde County, Anhui Province, to further develop our fluorite production capabilities for the production of value-added
fluorine chemicals. Xinyi Fluorite’s primary assets include the mining permit to the Xinyi Qingzheng Fluorite Mine No.
1, the mining permit for the Guangrong Fluorite Mine, and the mining rights to and the assets of the Sanxi Old Town flotation plant.



| | ■ | Zinc and Copper
| | - | ---------------



In 2010, Xingzhen produced and sold
zinc concentrates and copper concentrates equivalent to 3,129 metal tons of zinc metal and 155 metal tons of copper metal accounting
for approximately 77% and 23%, respectively, of the total revenues of our nonferrous business of approximately $3.60 million. In
2010, we continued excavating and mining operations at Xingzhen. We began processing in May 2010 and we produced extracted ore
of 82,500 metric tons, and processed ores of 77,200 metal tons thereby producing the equivalent to 3,129 metal tons of zinc and
155 metal tons of copper. Due to demand, we have sold 2,537 metal tons of zinc and 115 metal tons of copper.



|· | Acquire Synergistic Mining Entities
|- | -----------------------------------



| | ■ | To increase our reserve base and ensure supply to our processing facilities, we plan to acquire domestic and foreign large-scale mines when the right opportunities arise. We also expect to acquire additional nonferrous metal mines and fluorite mines domestically that have high-quality extracting and operating conditions and possess all necessary governmental licenses.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6







| | ■ | In January 2011 we, through our subsidiary Xingzhen Mining entered into an equity transfer agreement to acquire 55% of the equity interests of Xinyi Fluorite Company Ltd. (“Xinyi”), a company based in Jingde County, Anhui Province, China. Xinyi’s primary business and assets relate to the mining of fluorite.                                                                                                                                    
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   | This acquisition was made to further develop our fluorite production capabilities for value-added fluorine chemicals - one of our core businesses. As such, Xinyi’s three primary assets are interests in fluorite mines in Anhui Province as follows: 1) the mining permit to the Xinyi Qingzheng Fluorite Mine No. 1, 2) the mining permit for the Guangrong Fluorite Mine, and 3) the mining rights and assets of the Sanxi Old Town flotation plant.



Government Regulation



The following is a summary of the principal
governmental laws and regulations that are or may be applicable to our operations in the PRC. The scope and enforcement of many
of the laws and regulations described below are uncertain. We cannot predict the effect of further developments in the Chinese
legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement of laws.



The mining industry, including certain
exploration and mining activities, is highly regulated in the PRC. Regulations issued or implemented by the State Council, the
Ministry of Land and Resources, and other relevant government authorities cover many aspects of exploration and mining of natural
resources, including: entry into the mining industry, the scope of permissible business activities, interconnection and transmission
line arrangements, tariff policies and foreign investment.



The principal regulations governing
the mining business in the PRC include:



| | ● | China Mineral Resources Law, which requires a mining business to have exploration and mining licenses from provincial or local land and resources agencies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ● | China Mine Safety Law, which requires a mining business to have a safe production license and provides for random safety inspections of mining facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ● | China Environmental Law, which requires a mining project to obtain an environmental feasibility study of each project.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ● | Foreign Exchange Controls. The principal regulations governing foreign exchange in the PRC are the Foreign Exchange Control Regulations (1996) and the Administration of Settlement, Sale and Payment of Foreign Exchange Regulations (1996) (“the Foreign Exchange Regulations”). Under the Foreign Exchange Regulations, RMB is freely convertible into a foreign currency for current account items, including the distribution of dividends. Conversion of RMB for capital account items, such as direct investment, loans and security investments, however, is still subject to the approval of the State Administration of Foreign Exchange (“SAFE”). Under the Foreign Exchange Regulations, foreign-invested enterprises are required to open and maintain separate foreign exchange accounts for capital account items. In addition, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business, and only after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from SAFE.



The Guidance to Businesses by Foreign
Investments revised in 2007 by the Chinese government no longer allows foreign investments in the fields of exploration and development
of fluorite mines in China. The policy is intended to protect Chinese businesses.



Our operating subsidiaries in China
have received authorization from the land and resources departments of the applicable local governments. Also, pursuant to Chinese
regulations that require a mining enterprise procure an exploration or a mining license from the land and resource department of
local governments before it can carry out exploration or mining activities, we have secured the necessary exploration or mining
licenses from local governments. These licenses require that we follow proper procedures in our exploring or mining activities
and in selling our products to customers. Most of our mining companies possess exploration or mining licenses while some are applying
for mining licenses in addition to exploration licenses.



Chinese regulations also require that
a mining company must have a safety certification from the PRC Administration of Work Safety before it can engage in mining and
extracting activities. All of our operating subsidiaries have obtained safety certifications from the Administration of Work Safety
of the applicable local governments. In addition, all of our operating subsidiaries have passed government safety inspections.



7







We also have been granted an environmental
certification from the PRC Bureau of Environmental Protection.



Employees



As of December 31, 2010, we employed
294 full-time employees, of whom approximately 6.80% are with our Beijing Representative Office, 2.04% are with Qianzhen Mining,
56.12% are with Xiangzhen Mining, 1.70% are with Qingshan Metal (copper and zinc mining) and 33.34% are with Xingzhen Mining. Approximately 10% of our employees are management personnel and 6.1% are sales and procurement
staff. In terms of education level, approximately 16% of our employees have a college degree or higher.



Under Chinese law, our employees have
formed trade unions which protect employees’ rights, aim to assist in the fulfillment of our economic objectives, encourage
employee participation in management decisions and assist in mediating disputes between us and union members. We believe that we
maintain a satisfactory working relationship with our employees and we have not experienced any significant labor disputes or any
difficulty in recruiting staff for our operations.



As required by applicable Chinese law,
we have entered into employment contracts with all of our employees. We have also entered into a confidentiality agreement with
each of our employees under which such employees are prohibited from disclosing confidential information of the Company or using
it for other purposes than the benefit of the Company. Directors, officers, mid-level managers and some key employees in sales
and R&D are required to sign a non-competition agreement which prohibits them from competing with the Company while they are
employees of the Company and within two years after their employment with the Company is terminated.



Our employees in China participate in
a state pension fund organized by Chinese municipal and provincial governments. We are required to contribute to the fund at the
rate of 20% of an employee’s average monthly salary. In addition, we are required by Chinese law to cover employees
in China with other types of social insurance. Our total contribution may amount to 30% of an employee’s average monthly
salary. Expenses related to social insurance were approximately $85,176 for fiscal year 2010.



Risk Factors



CAUTIONARY STATEMENT REGARDING FORWARD
- LOOKING INFORMATION AND CERTAIN IMPORTANT FACTORS



In this Annual Report on Form 10-K we
make, and from time to time we otherwise make, written and oral statements regarding our business and prospects, such as projections
of future performance, statements of management’s plans and objectives, forecasts of market trends, and other matters that
are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Statements containing the words or phrases “will likely result,” “are expected to,”
“will continue,” “is anticipated,” “estimates,” “projects,” “believes,”
“expects,” “anticipates,” “intends,” “target,” “goal,” “plans,”
“objective,” “should” or similar expressions identify forward-looking statements, which may appear in documents,
reports and filings with the Securities and Exchange Commission, news releases, written or oral presentations made by officers
or other representatives made by us to analysts, stockholders, investors, news organizations and others, and discussions with management
and other of our representatives. For such statements, we invoke the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.



Our future results, including results
related to forward-looking statements, involve a number of risks and uncertainties. No assurance can be given that the results
reflected in any forward-looking statements will be achieved. Any forward-looking statement speaks only as of the date on which
such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data,
communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except
as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect
events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results
to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time
to time in any forward-looking statement.



In addition to other matters identified
or described by us from time to time in filings with the SEC, there are several important factors that could cause our future results
to differ materially from historical results or trends, results anticipated or planned by us, or results that are reflected from
time to time in any forward-looking statement. Some of these important factors, but not necessarily all important factors, include
the following:



8







Risks Related to Our Business



Disruptions in the capital and credit
markets, which may continue indefinitely or intensify, could adversely affect our results of operations, cash flows and financial
condition, or those of our customers and suppliers.



The current disruptions in the capital
and credit markets may continue indefinitely or intensify, and adversely impact our results of operations, cash flows and financial
condition, or those of our customers and suppliers. Disruptions in the capital and credit markets as a result of uncertainty, changing
or increased regulation, reduced alternatives or failures of significant financial institutions could adversely affect our access
to liquidity needed to conduct or expand our businesses or conduct acquisitions or make other discretionary investments, as well
as our ability to effectively hedge our currency or interest rate. Such disruptions may also adversely impact the capital needs
of our customers and suppliers, which, in turn, could adversely affect our results of operations, cash flows and financial condition.



We may not be able to secure financing
needed for future operating needs on acceptable terms, or on any terms at all.



From time to time, we may seek additional
financing to provide the capital required to maintain or expand our exploration activities and mining facilities, and equipment
and/or working capital, as well as repay outstanding loans if cash flow from operations is insufficient to do so. We cannot predict
with certainty the timing or amount of any such capital requirements. If such financing is not available on satisfactory terms,
we may be unable to expand our business or to develop new business at the rate desired, and our operating results may suffer. If
we are able to incur debt, we may be subject to certain restrictions imposed by the terms of the debt and the repayment of such
debt may limit our cash flow and our ability to grow. If we are unable to incur debt, we may be forced to issue additional equity,
which could have a dilutive effect on the then current holders of equity.



We receive a significant portion
of our revenues from a small number of customers. Our business will be harmed if our customers reduce their orders from us.



All of our revenue from our nonferrous
segment in 2010 was derived from one customer. In 2010, our fluorite segment had two customers from which 60% of all revenue was
derived. Dependence on a few customers could expose us to the risk of substantial losses if a single dominant customer stops purchasing
our products. If we lose any customers and are unable to replace them with other customers that purchase a similar number of our
products and services, our revenues and net income would decline considerably.



We may not have sufficient supply
of nonferrous ore.



Qianzhen Mining, one of our subsidiaries,
has a 200,000 metric tons/year processing capacity for zinc-lead ore. However, it does not process any ore due to lack of ore supplied
from the third parties. Its contracts with third party ore suppliers expired in June 2008. It currently does not have a third
party supplier and may require third party suppliers in the future. Although we plan to increase the quantity of nonferrous metal
ore at Qingshan Metal to replace third party suppliers, we may not be able to produce a sufficient quantity or quality to ensure
the supply of ore for Qianzhen Mining. As a result, our revenues may be reduced and our business could suffer.



Inclement weather may affect our
fluorite business.



Our fluorite business is conducted through
Xiangzhen Mining which is located in an outlying area on the border between China’s Inner Mongolia Autonomous Region and
Mongolia. The weather conditions there are very harsh, especially in winter. If there are strong snow storms or other inclement
weather conditions, our fluorite mining operations may have to be suspended for an indefinite period of time and we may not be
able to ship our fluorite products to our customers in a timely manner. As a result, our revenues may be adversely affected.



Our administrative costs could affect
our ability to be profitable.



Our exploration and mining operations
are scattered across several geographical locations in China and we plan to make acquisition of mines in the future. Our administrative
costs may increase as a result and our profitability may be adversely affected.



Our ability to operate our company
effectively could be impaired if we lose key personnel.



We depend on the services of key executives
and a small number of personnel focused on the development of our mining projects. Additionally, the number of persons skilled
in the development and operation of mining properties is limited and significant competition exists for these individuals. We cannot
assure you that we will be able to employ key personnel or that we will be able to attract and retain qualified personnel in the
future. We do not maintain “key person” life insurance to cover our executive officers. Due to the relatively small
size of our company, our failure to retain or attract key personnel may delay or otherwise adversely affect the development of
our projects, which could adversely affect our business.



9







We may not be able to attract and
retain the additional personnel we will need to develop any of our projects.



We are a small company with a limited
operating history and relatively few employees. The development of any of our proposed projects will place substantial demands
upon us. We will be required to recruit additional personnel and to train, motivate and manage these new employees. There can be
no assurance that we will be successful in attracting and retaining such personnel.



We may not be able to obtain or renew
licenses, rights and permits required to develop or operate our mines, which would adversely affect our business.



In the ordinary course of business,
mining companies are required to seek governmental permits for expansion of existing operations or for the commencement of new
operations. In addition to requiring permits for the development of our mines, we will need to obtain various mining permits during
the life of each project. Obtaining and renewing the necessary governmental permits is a complex and time-consuming process. Obtaining
or renewing the necessary permits may increase costs and cause delays depending on the nature of the activity to be permitted and
the interpretation of applicable requirements implemented by the permitting authority. There can be no assurance that all necessary
permits will be obtained and, if obtained, will be renewed, or that in each case the costs involved will not exceed our estimates.
It is possible that the costs and delays associated with compliance with such standards and regulations could become such that
we would not proceed with the development or operation of a mine or mines.



Any material inaccuracies in our
production estimates could adversely affect our results of operations.



In preparing estimates of future production,
we cannot assure you that we will ever achieve our production estimates or any production at all. Our production estimates depend
on, among other things:



| | ● | the accuracy of our mineralization and reserves estimates;                                                                                                     
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                
| | ● | the accuracy of assumptions regarding ore grades and recovery rates;                                                                                           
| |   |                                                                                                                                                                
| | ● | ground conditions and physical characteristics of the mineralization, such as hardness and the presence or absence of particular metallurgical characteristics;
| |   |                                                                                                                                                                
| | ● | the accuracy of estimated rates and costs of mining and processing; and                                                                                        
| |   |                                                                                                                                                                
| | ● | our ability to obtain and keep effective all permits for our mines and facilities.                                                                             



Our actual production may vary from
our estimates if any of our assumptions prove to be incorrect, which may adversely affect our business.



We may seek to make acquisitions
that prove unsuccessful or strain or divert our resources.



We may seek to expand our business through
the acquisition of related businesses and assets. We may not be able to complete any acquisition on favorable terms or at all.
Acquisitions present risks that could materially and adversely affect our business and financial performance, including:



| | ● | the diversion of our management’s attention from our everyday business activities;                                                             
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                
| | ● | the contingent and latent risks associated with the past operations of, and other unanticipated problems arising in, the acquired business; and
| |   |                                                                                                                                                
| | ● | the need to expand management, administration, and operational systems.                                                                        



If we make such acquisitions we cannot
predict whether:



| | ● | we will be able to successfully integrate the operations and personnel of any new businesses into our business;
| | - | ---------------------------------------------------------------------------------------------------------------



10







| | ● | we will realize any anticipated benefits of completed acquisitions; or                                                                                                                  
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                         
| | ● | there will be substantial unanticipated costs associated with acquisitions, including potential costs associated with environmental liabilities undiscovered at the time of acquisition.



In addition, future acquisitions by
us may result in:



| | ● | potentially dilutive issuances of our equity securities;                                              
| | - | ------------------------------------------------------------------------------------------------------
| |   |                                                                                                       
| | ● | the incurrence of additional debt;                                                                    
| |   |                                                                                                       
| | ● | restructuring charges; and                                                                            
| |   |                                                                                                       
| | ● | the recognition of significant charges for depreciation and amortization related to intangible assets.



Expansion of our business may put
added pressure on our management and operational infrastructure, impeding our ability to meet any increased demand for our products
and adversely affect our operating results.



Our business plan is to significantly
grow our operations to meet anticipated growth in demand for our products. Our planned growth includes the expansion of our exploration
and mining activities over the next few years. Although most of our management personnel have extensive experience in the mining
industry, their training is in mining operations rather than contemporary management principles. They may not be able to cope with
the challenges presented by being a U.S. public company and the competitive business environment created by globalization. In addition,
growth in our business may place a significant strain on our personnel, management, financial systems and other resources. The
evolution of our business also presents numerous risks and challenges, including:



| | ● | the continued demand for our products from the iron and steel and fluorite chemical industries;            
| | - | -----------------------------------------------------------------------------------------------------------
| |   |                                                                                                            
| | ● | our ability to successfully and rapidly expand our operations in response to potentially increasing demand;
| |   |                                                                                                            
| | ● | the costs associated with such growth, which are difficult to quantify, but could be significant;          
| |   |                                                                                                            
| | ● | rapid technological change; and                                                                            
| |   |                                                                                                            
| | ● | the highly cyclical nature of the mining industry.                                                         



If we are successful in obtaining rapid
market growth of our products, we will be required to deliver large volumes of quality products to customers on a timely basis
and at a reasonable cost to those customers. Meeting any such increased demand will require us to expand our manufacturing facilities,
to increase our ability to purchase raw materials, to increase the size of our work force, to expand our quality control capabilities
and to increase the scale upon which we provide our products. Such demands would require more capital (including working capital)
than we currently have and, as a result, we may be unable to meet the needs of our customers.



We will incur increased costs relating
to corporate governance matters.



As a public reporting company, we will
need to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations adopted by the SEC, including expanded
disclosures, accelerated reporting requirements and more complex accounting rules. Compliance with Section 404 of the Sarbanes-Oxley
Act of 2002 and other requirements will increase our costs and require additional management resources. Additionally, these laws
and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and
officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs
to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain
qualified persons to serve on our board of directors, our board committees or as executive officers. We are presently evaluating
and monitoring developments with respect to these laws and regulations and cannot predict or estimate the amount or timing of additional
costs we may incur to respond to their requirements.



11







Risks Related to Our Industry



Fluctuations in the market price
of fluorite and nonferrous metals could adversely affect our business and results of operations.



The profitability of our operations
will be directly related to the market price of the metals we mine and refine. The market prices of fluorite and nonferrous metals
fluctuate widely and are affected by numerous factors beyond our control. These factors also include fluctuations with respect
to the rate of inflation, the exchange rates of the Renminbi and other currencies, interest rates, global or regional political
and economic conditions, banking industry fluctuations, global and regional demand, production costs in major metal producing areas
and other factors. Any decrease in the prices of the metals important to our operations would adversely impact our revenues, profits
and cash flows. In particular, a sustained drop in prices could:



| | ● | cause suspension of our development and, ultimately, our mining operations, if such operations become economically infeasible at the then-prevailing prices, thus further reducing revenues;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                             
| | ● | prevent us from fulfilling our obligations under our agreements or under our permits and licenses, which could cause us to lose our interests in, or be forced to sell, our properties; and 
| |   |                                                                                                                                                                                             
| | ● | reduce available financing to us.                                                                                                                                                           



Furthermore, the need to reassess the
feasibility of any of our projects if metal prices decline could cause substantial delays or might interrupt operations until the
reassessment can be completed. Mineral reserve calculations and life-of-mine plans using significantly lower metal prices could
result in reduced estimates of mineral reserves and in material write-downs of our investment in mining properties and increased
amortization, reclamation and closure charges.



Mining is inherently dangerous and
subject to conditions or events beyond our control, and any operating hazards could have a material adverse effect on our business.



Mining involves various types of risks
and hazards, including: environmental hazards, industrial accidents, metallurgical and other processing problems, unusual or unexpected
rock formations, structure cave-in or slides, flooding, fires and interruption due to inclement or hazardous weather conditions.  These
risks could result in damage to, or destruction of, mineral properties, production facilities or other properties, personal injury
or death, environmental damage, delays in mining, increased production costs, monetary losses and possible legal liability. We
may not be able to obtain insurance to cover these risks at economically feasible premiums and some types of insurance may be unavailable
or too expensive to maintain. We may suffer a material adverse effect on our business and the value of our securities may decline
if we incur losses related to any significant events that are not covered by our insurance policies.



There is no guarantee that legal
title to the properties in which we have an interest will not be challenged, which could result in the loss of our rights in those
properties.



The ownership and validity, or title,
of mining claims are often uncertain and may be contested in China. A successful claim contesting our title or interest to a property
could cause us to lose our rights to mine that property. In addition, the success of such a claimant could result in our not being
compensated for our prior expenditures relating to the property.



The mining industry is intensely
competitive, and we may have difficulty effectively competing with other mining companies in the future.



Mines have limited lives and, as a result,
we must continually seek to replace and expand our reserves through the acquisition of new properties. Significant competition
exists for the acquisition of properties producing or capable of producing fluorite and nonferrous metals. We may be at a competitive
disadvantage in acquiring additional mining properties because we must compete with other individuals and companies, many of which
may have greater financial resources and larger technical staffs than us. As a result of this competition, we may be unable to
acquire attractive mining properties on acceptable terms.



Shortages of critical parts, equipment
and skilled labor may adversely affect our development projects.



The industry has been impacted by increased
worldwide demand for critical resources such as input commodities, drilling equipment, tires and skilled labor. These shortages
have caused and may continue to cause unanticipated cost increases and delays in delivery times, potentially impacting operating
costs, capital expenditures and production schedules, which would adversely affect our business.



12







Costs estimates and timing of new
projects are uncertain.



The capital expenditures and time required
to develop new mines or other projects are considerable and changes in costs or construction schedules can affect project economics.
There are a number of factors that can affect costs and construction schedules, including, among others:



| | ● | availability of labor, power, transportation, commodities and infrastructure;
| | - | -----------------------------------------------------------------------------
| |   |                                                                              
| | ● | increases in input commodity prices and labor costs;                         
| |   |                                                                              
| | ● | fluctuations in exchange rates;                                              
| |   |                                                                              
| | ● | availability of financing;                                                   
| |   |                                                                              
| | ● | difficulty of estimating construction costs over a period of years; and      
| |   |                                                                              
| | ● | delays in obtaining environmental or other government permits.               



Uncertainties or incorrect assumptions
may cause unanticipated cost increases and delays in development, potentially impacting operating costs, capital expenditures and
production schedules, which would adversely affect our business.



Risks Related to Doing Business in
China



Our business may be adversely affected
by incidents of political unrest such as those in the Xinjiang Uygur Autonomous Region.



On July 5, 2009 in Urumqi, the capital
of the Xinjiang Uygur Autonomous region, political unrest and violence erupted due to ethnic conflicts between the minority Uygur
and the Han Chinese. One of our mines, Xingzhen Mining, is locatedin the Aletai Zone, Xinjiang Uygur Autonomous Region.
During this unrest, transportation in Xinjiang was affected. Our purchased raw materials could not be timely moved into our mining
site and our products could not be moved out of the site for sale.  Our operations and business may be adversely affected
should such similar unrest occur in the regions in which we operate.



Our business will be affected by
PRC government regulation and the PRC’s overall economic environment.



Although we export products to other
countries, most of our sales are in the PRC. It is anticipated that our products in China will continue to represent a significant
portion of our sales in the near future. As a result of our reliance on the Chinese markets, our operating results and financial
performance could be affected by any adverse changes in economic, political and social conditions in China.



There can be no assurance that future
regulatory, judicial and legislative changes will not have a material adverse effect on us, that regulators or third parties will
not raise material issues with regard to compliance or non-compliance with applicable laws or regulations, or that any changes
in applicable laws or regulations will not have a material adverse effect on our business.



The economy of the PRC is transitioning
from a planned economy to a market oriented economy. Although in recent years the Chinese government has implemented measures emphasizing
the utilization of market forces for economic reforms, the reduction of state ownership of productive assets and the establishment
of sound corporate governance in business enterprises, a substantial portion of productive assets in the PRC are still owned by
the Chinese government. For example, all land is state owned and are leased to business entities or individuals through governmental
granting of state-owned land use rights or mining and exploration rights.  The granting process is typically based on
government policies at the time of granting and can be lengthy and complex. This process may adversely affect our future business
expansion. The Chinese government also exercises significant control over the PRC’s economic growth through the allocation
of resources, controlling payment of foreign currency and providing preferential treatment to particular industries or companies.
Uncertainties may arise with the changing of governmental policies and measures. At present, our mining and exploration activities
are subject to approvals from the relevant government authorities in China. Such governmental approval processes are typically
lengthy and complex, and involve uncertainties.



Our ability to operate in China may
be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental
regulations, land use rights, property, work safety, labor protection, and other matters. We believe that our operations in China
are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments may
impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts
on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including
any decision not to continue to support recent economic reforms and to return to a more centrally planned economy, or regional
or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China
or particular regions thereof, and could require us to divest ourselves of any interest we hold in Chinese properties.



13







Certain political and economic considerations
relating to the PRC could adversely affect us.



While the PRC government has pursued
economic reforms since its adoption of the open-door policy in 1978, a large portion of the PRC economy is still operating under
five-year plans and annual state plans. Through these plans and other economic measures, such as control on foreign exchange, taxation
and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable
direct and indirect influence on the economy. Many of the economic reforms carried out by the PRC government are unprecedented
or experimental, and are expected to be refined and improved. Other political, economic and social factors can also lead to further
readjustment of such reforms. This refining and readjustment process may not necessarily have a positive effect on our operations
or future business development. Our operating results may be adversely affected by changes in the PRC’s economic and social
conditions as well as by changes in the policies of the PRC government, such as changes in laws and regulations (or the official
interpretation thereof), measures which may be introduced to control inflation, changes in the interest rate or method of taxation,
and the imposition of additional restrictions on currency conversion.



Economic reforms adopted by the Chinese
government have had a positive effect on the economic development of the country, but the government could change these economic
reforms or any of the legal systems at any time. This could either benefit or damage our operations and profitability. Some changes
that could have this effect are:



| | ● | level of government involvement in the economy;
| | - | -----------------------------------------------
| |   |                                                
| | ● | control of foreign exchange;                   
| |   |                                                
| | ● | methods of allocating resources;               
| |   |                                                
| | ● | balance of payments position;                  
| |   |                                                
| | ● | international trade restrictions; and          
| |   |                                                
| | ● | international conflict.                        



The Chinese economy differs from the
economics of most countries belonging to the Organization for Economic Cooperation and Development, or OECD, in many ways. The
economic reforms in China have been conducted under a tight control of the Chinese government. As a result of these differences,
we may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar to those of the
OECD member countries.



The recent nature and uncertain application
of many PRC laws applicable to us create an uncertain environment for business operations and they could have a negative effect
on us.



The PRC legal system is a civil law
system. Unlike the common law system, the civil law system is based on written statutes in which decided legal cases have little
value as precedents. In 1979, the PRC began to promulgate a comprehensive system of laws and has since introduced many laws and
regulations to provide general guidance on economic and business practices in the PRC and to regulate foreign investment. Progress
has been made in the promulgation of laws and regulations dealing with economic matters such as corporate organization and governance,
foreign investment, commerce, taxation and trade. The promulgation of new laws, changes of existing laws and the abrogation of
local regulations by national laws could have a negative impact on our business and business prospects. In addition, as these laws,
regulations and legal requirements are relatively recent, their interpretation and enforcement involve significant uncertainty.



A slowdown or other adverse developments
in the economy of the PRC may materially and adversely affect our customers, demand for our products and our business.



Although the economy of the PRC has
grown significantly in recent years, we cannot assure you that such growth will continue. A slowdown in overall economic growth,
an economic downturn or recession or other adverse economic developments in the PRC could materially reduce the demand for our
products and materially and adversely affect our business.

14







Future inflation in China may inhibit
our ability to conduct business in China.



In recent years, the Chinese economy
has experienced periods of rapid expansion and high rates of inflation. However, in 2009, the inflation rate in China experienced
a decline. Expansion and inflation have led to the adoption by the Chinese government, from time to time, of various corrective
measures designed to restrict the availability of credit or regulate growth and contain inflation. Higher inflation may in the
future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic
activity in China, and thereby harm the end market for our products. In addition, due to the tightening of credit, we may have
difficulties in securing funding from financial institutions in China, which could adversely affect our operations.



Restrictions on currency exchange
may limit our ability to receive and use our revenues effectively.



Our revenues will be settled in Renminbi,
and any future restrictions on currency exchanges may limit our ability to use revenue generated in Renminbi to fund any future
business activities outside China or to make dividend or other payments in U.S. Dollars. Although the Chinese government introduced
regulations in 1996 to allow greater convertibility of the Renminbi for current account transactions, significant restrictions
still remain, including primarily the restriction that foreign-invested enterprises may only buy, sell or remit foreign currencies
after providing valid commercial documents at those banks in China authorized to conduct foreign exchange business. In addition,
conversion of Renminbi for capital account items, including direct investment and loans, is subject to governmental approval in
China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot
be certain that we will be able to obtain such necessary governmental approval in China or that the Chinese regulatory authorities
will not impose more stringent restrictions on the convertibility of the Renminbi.



We may not be able to distribute
our assets upon liquidation.



Our assets are predominately located
in China. Under the laws governing foreign investment enterprises in China, dividend distribution and liquidation are allowed but
subject to certain procedures under the relevant laws and rules. Any dividend payment will be subject to the decision of the board
of directors and subject to foreign exchange rules governing such repatriation. Any liquidation is subject to both the relevant
government agency’s approval and supervision as well the foreign exchange control. This may generate additional risk for
our investors in case of liquidation.



PRC regulations relating to the establishment
of offshore special purpose companies by PRC domestic residents and registration requirements for employee stock ownership plans
or share option plans may subject our PRC resident beneficial owners or the plan participants to personal liability, limit our
ability to inject capital into our PRC subsidiaries, limit our subsidiaries’ ability to increase their registered capital
or distribute profits to us, or may otherwise adversely affect us.



SAFE issued a circular in October 2005
requiring PRC domestic residents to register with the local SAFE branch before establishing or controlling any company outside
of China for the purpose of capital financing with assets or equities of PRC companies, referred to in the circular as an “offshore
special purpose company.” PRC domestic residents who are stockholders of offshore special purpose companies and have completed
round trip investments but did not make foreign exchange registrations for overseas investments before November 1, 2005 were retroactively
required to register with the local SAFE branch before March 31, 2006. PRC resident stockholders are also required to amend their
registrations with the local SAFE branch in certain circumstances. We cannot provide any assurances that all of our stockholders
who are PRC residents have made all required amendments and will make or obtain any applicable registrations or approvals required
by these SAFE regulations. The failure or inability of our PRC resident stockholders to comply with the registration procedures
set forth therein may subject us to fines and legal sanctions, restrict our cross-border investment activities, or limit our PRC
subsidiaries’ ability to distribute dividends or limit our PRC subsidiaries’ ability to obtain foreign-exchange-dominated
loans.



As it is uncertain how the SAFE regulations
will be interpreted or implemented, we cannot predict how these regulations will affect our business operations or future strategy.
For example, we may be subject to more stringent review and approval process with respect to our foreign exchange activities, such
as remittance of dividends and foreign currency-denominated borrowings, which may adversely affect our results of operations and
financial condition.  In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the
owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and
registrations required by the SAFE regulations. This may restrict our ability to implement our acquisition strategy and could adversely
affect our business and prospects.



15







In December 2006, the People’s
Bank of China promulgated the Implementation Rules of the Administrative Measures for Individual Foreign Exchange, or the Individual
Foreign Exchange Rules, setting forth the respective requirements for foreign exchange transactions by PRC individuals under either
the current account or the capital account. In January 2007, SAFE issued implementing rules for the Individual Foreign Exchange
Rules, which, among other things, specified approval requirements for certain capital account transactions such as a PRC individuals
participation in the employee stock ownership plans or stock option plans of an overseas publicly-listed company. On March 28,
2007, SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee
Stock Holding Plan or Stock Option Plan of Overseas-Listed Company, or the Stock Option Rule. Under the Stock Option Rule, PRC
individuals who are granted stock options by an overseas publicly-listed company are required, through a qualified PRC agent or
a PRC subsidiary of such overseas publicly-listed company, to register with SAFE and complete certain other procedures. We and
our PRC employees who might be granted stock options are subject to the Stock Option Rule. If we or our PRC optionees fail to comply
with these regulations, we or our PRC optionees may be subject to fines and legal sanctions.



We must comply with the Foreign Corrupt
Practices Act and Chinese anti-corruption laws.



We are required to comply with the United
States Foreign Corrupt Practices Act, or FCPA, which prohibits U.S. companies from engaging in bribery or making other prohibited
payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors,
are not subject to these prohibitions. The PRC also strictly prohibits bribery of government officials. Corruption, extortion,
bribery, pay-offs, theft and other fraudulent practices occur from time to time in China. If our competitors engage in these practices,
they may receive preferential treatment from companies and gain an advantage in securing business, or from government officials
who might give them priority in obtaining new licenses, thus putting us at a disadvantage. Our employees, agents, representatives
and consultants may not always be subject to our control. If any of them violates the FCPA or other anti-corruption laws, we might
be held responsible, and we could be subject to severe penalties as a result. In addition, the U.S. government may seek to hold
us liable for successor liability for FCPA violations committed by companies in which we invest or which we acquire.



Our PRC subsidiaries are obligated
to withhold and pay PRC individual income tax in respect of the salaries and certain other income received by their employees who
are subject to PRC individual income tax. If our PRC subsidiaries fail to withhold or pay such individual income tax in accordance
with applicable PRC regulations, they may be subject to certain sanctions and other penalties, which could have a material adverse
impact on its business.



Under PRC individual income tax law,
our PRC subsidiaries are obligated to withhold and pay individual income tax in respect of the salaries and certain other income
received by their employees who are subject to PRC individual income tax. Our PRC subsidiaries may be subject to certain sanctions
and other liabilities under the PRC tax rules and regulations in the case of failure to withhold and pay individual income taxes
for their employees in accordance with the applicable law and regulations. Although we have not received any notice or penalty
from PRC tax authorities, we cannot assure you that such notice or penalty will not occur in the future.



Any future outbreak of severe acute
respiratory syndrome or avian influenza in China, or similar adverse public health developments, may severely disrupt our business
and operations.



A renewed outbreak of severe acute respiratory
syndrome, the Avian Flu or another widespread public health problem in China, where all of our manufacturing facilities are located
and where all of our revenues are derived from, could have a negative effect on our operations. In addition, there have been confirmed
human cases of avian influenza in the PRC, Vietnam, Iraq, Thailand, Indonesia, Turkey, Cambodia and other countries which have
proven fatal in some instances. If such an outbreak or any other similar epidemic were to spread in China, where our operations
are located, it may adversely affect our business and operating results.



| | ● | Such an outbreak could have an impact on our operations as a result of:                
| | - | ---------------------------------------------------------------------------------------
| |   |                                                                                        
| | ● | quarantines or closures of our facilities, which would severely disrupt our operations;
| |   |                                                                                        
| | ● | the sickness or death of our key officers and employees; and                           
| |   |                                                                                        
| | ● | a general slowdown in the Chinese economy.                                             



The Chinese merger and acquisition
rules may impact our ability to make acquisitions of Chinese businesses.



On August 8, 2006, six PRC regulatory
agencies namely, the PRC Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration
for Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission (“CSRC”),
and the SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “New
M&A Rule”), which became effective on September 8, 2006. The New M&A Rule purports, among other things, to require
offshore Special Purpose Ventures, or SPVs, formed after the effective date, for overseas listing purposes, through acquisitions
of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly
listing their securities on an overseas stock exchange.





16









The Company intends to make acquisitions
of Chinese businesses in the future. There are uncertainties regarding the interpretation and application of current or future
PRC laws and regulations, including the New M&A Rule and those uncertainties could make it difficult or impossible to make
acquisitions of Chinese businesses in the future.



The Enterprise Income Tax Law and
its implementing rules may adversely affect our business



On March 16, 2007, China’s parliament,
the National People’s Congress, adopted the Enterprise Income Tax Law, which took effect on January 1, 2008. The new income
tax law sets a unified income tax rate for domestic and foreign companies at 25% and abolishes the favorable tax policies for foreign
invested enterprises. After this law took effect, newly established foreign invested enterprises will no longer enjoy certain favorable
tax treatments. Our subsidiaries were benefiting from the preferred tax rates for foreign invested companies and are subject to
the new tax rate of 25 percent, thus, our net income margin and results of operations could be negatively affected.  Further
changes to the tax regime could also negatively impact our financial results.



You may have difficulty enforcing
judgments obtained against us.



Substantially all of our assets are
located outside of the United States. Substantially all of our current operations are conducted in the PRC. In addition, most of
our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the
assets of these persons is located outside the United States. As a result, it may be difficult for you to effect service of process
within the United States upon those persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S.
courts based on the civil liability provisions of the U.S. federal securities laws against us or our officers and directors, most
of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States.
In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts against
us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In
addition, it is uncertain whether such PRC courts would be competent to hear original actions brought in the PRC against us or
such persons predicated upon the securities laws of the United States or any state.



China lacks a regulatory body to provide
oversight and perform appropriate due diligence to help to ensure the accuracy of our SEC disclosures.



At this time there is no regulatory
body in China that reviews our SEC disclosures. Furthermore, there are no penalties in China for false, misleading or otherwise
inaccurate disclosures made by Chinese companies that are SEC reporting companies. Thus, the lack of a separate system of Chinese
regulation concerning the SEC filings of Chinese companies that are SEC reporting companies does not serve to strengthen compliance
with SEC and other relevant rules, regulations and laws.



Risks Related to Investing in Our
Securities



The market for our common stock is
limited.



The shares of our common stock have
been traded on the NYSE Amex LLC under the trading symbol “SHZ” since January 31, 2008. Before the listing on the NYSE
Amex LLC, the shares of our common stock were traded on the OTC Bulletin Board.



We currently have approximately 632
shareholders. The trading volume of our stock has been low. A viable public trading market may not develop for our shares or may
take a period of time to develop. Such a market, if it does develop, could be subject to extreme price and volume fluctuations.
In the absence of an active trading market:



| | ● | shareholders may have difficulty buying and selling or obtaining market quotations;                             
| | - | ----------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                 
| | ● | market visibility for our common stock may be limited; and                                                      
| |   |                                                                                                                 
| | ● | a lack of visibility for our common stock may have a depressive effect on the market price for our common stock.



Our stock price may be volatile,
which may result in losses to our stockholders.



The stock markets have experienced significant
price and trading volume fluctuations, and the market prices of companies listed on the NYSE Amex LLC, the stock market in which
shares of our common stock is listed, have been volatile in the past and have experienced sharp share price and trading volume
changes. The trading price of our common stock is likely to be volatile and could fluctuate widely in response to many factors,
including the following, some of which are beyond our control:



17







| | ● | variations in our operating results;                                                                                            
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                 
| | ● | changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;
| |   |                                                                                                                                 
| | ● | changes in operating and stock price performance of other companies in our industry;                                            
| |   |                                                                                                                                 
| | ● | additions or departures of key personnel; and                                                                                   
| |   |                                                                                                                                 
| | ● | future sales of our common stock.                                                                                               



The trading prices of many companies
that have business operations only in China, particularly companies that became public through the completion of a reverse merger,
have been volatile which may result in large fluctuations in the price of our common stock and losses for shareholders.



The stock market has experienced significant
price and volume fluctuations that have particularly affected the trading prices of equity securities of many companies that have
business operations only in China, especially companies, such as ours, that became public through the completion of a reverse merger.
These fluctuations have, at times, been as a result of negative publicity, and have often been unrelated or disproportionate to
the operating performance of many of these companies. Any negative change in the public’s perception of these companies could
depress our stock price regardless of our operating results. The market price of our common stock has been and may continue to
be volatile. We expect our stock price to be subject to fluctuations as a result of a variety of factors, including factors beyond
our control. These factors include:



| | ● | actual or anticipated variations in our quarterly operating results;                                                                                   
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                        
| | ● | announcements of technological innovations or new products or services by us or our competitors;                                                       
| |   |                                                                                                                                                        
| | ● | announcements relating to strategic relationships or acquisitions;                                                                                     
| |   |                                                                                                                                                        
| | ● | negative publicity relating to companies doing business in China or related to companies that became public through the completion of a reverse merger;
| |   |                                                                                                                                                        
| | ● | announcements relating to strategic relationships or acquisitions;                                                                                     
| |   |                                                                                                                                                        
| | ● | additions or terminations of coverage of our common stock by securities analysts;                                                                      
| |   |                                                                                                                                                        
| | ● | statements by securities analysts regarding us or our industry;                                                                                        
| |   |                                                                                                                                                        
| | ● | conditions or trends in the our industry; and                                                                                                          
| |   |                                                                                                                                                        
| | ● | changes in the economic performance and/or market valuations of other mining companies.                                                                



The prices at which our common stock
trades will affect our ability to raise capital, which may have an adverse affect on our ability to fund our operations.



Our common stock may be considered
to be a “penny stock” and, as such, the market for our Common Stock may be further limited by certain SEC rules applicable
to penny stocks.



To the extent the price of our common
stock remains below $5.00 per share, we have net tangible assets of $2,000,000 or less, or if we fall below certain other thresholds,
our common shares will be subject to certain “penny stock” rules promulgated by the SEC. Those rules impose certain
sales practice requirements on brokers who sell penny stock to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000). For transactions
covered by the penny stock rules, the broker must make a special suitability determination for the purchaser and receive the purchaser’s
written consent to the transaction prior to the sale. Furthermore, the penny stock rules generally require, among other things,
that brokers engaged in secondary trading of penny stocks provide customers with written disclosure documents, monthly statements
of the market value of penny stocks, disclosure of the bid and asked prices and disclosure of the compensation to the brokerage
firm and disclosure of the sales person working for the brokerage firm. These rules and regulations adversely affect the ability
of brokers to sell our common shares and limit the liquidity of our securities.



18







Future issuances of shares or equity-related
securities may depress the trading price of our shares.



Any issuance of equity securities could
dilute the interests of our existing stockholders and could substantially decrease the trading price of our shares. We may issue
equity securities in the future for a number of reasons, including to finance our operations and business strategy (including in
connection with acquisitions, strategic collaborations or other transactions), to adjust our ratio of debt to equity and to satisfy
our obligations upon the exercise of outstanding warrants or options or for other reasons.



Sales of a substantial number of shares
or other equity-related securities in the public market could depress the market price of our shares, and impair our ability to
raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our shares or
other equity-related securities would have on the market price of our shares.



We do not intend to pay any dividends
on our common stock in the foreseeable future.



We currently intend to retain all future
earnings, if any, to finance our current and proposed business activities and do not anticipate paying any cash dividends on our
common stock in the foreseeable future. We may also incur indebtedness in the future that may prohibit or effectively restrict
the payment of cash dividends on our common stock.



Certain stockholders can exert control
over the Company and may not make decisions that further the best interests of all stockholders.



Our officers, directors and principal
stockholders (greater than 5% stockholders) together currently own an aggregate of approximately 55.3% of our outstanding common
stock on a fully diluted basis. Consequently, these stockholders, if they act individually or together, may exert a significant
degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. In addition, this concentration of ownership may delay or prevent
a change of control of us and might affect the market price of our Common Stock, even when a change of control may be in the best
interest of all stockholders. Furthermore, the interests of this concentration of ownership may not always coincide with our interests
or the interests of other stockholders, and accordingly, they could cause us to enter into transactions or agreements which we
would not otherwise consider.



Fluctuation in the value of the RMB
may have a material adverse effect on your investment.



The change in value of the RMB against
the U.S. Dollar, the Euro and other currencies is affected by changes in China’s political and economic conditions, among
other things. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. Dollar.
Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies.
This change in policy has resulted in approximately 21% appreciation of RMB against the U.S. Dollar. While the international reaction
to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt
an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the
U.S. Dollar. As a portion of our costs and expenses is denominated in RMB, the revaluation in July 2005 and potential future revaluation
has and could further increase our costs. In addition, as we rely entirely on dividends paid to us by our operating subsidiaries,
any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition. For example,
to the extent that we need to convert U.S. Dollars into RMB for our operations, appreciation of the RMB against the U.S. Dollar
would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert our RMB into
U.S. Dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation
of the U.S. Dollar against the RMB would have a negative effect on the U.S. Dollar amount available to us.



If the Company were to be delisted
from NYSE Amex LLC, our common stock could be subject to “penny stock” rules which could negatively impact our liquidity
and our stockholders’ ability to sell their shares.



Our common stock is currently listed
on the NYSE Amex LLC. We must comply with numerous rules in order to maintain the listing of our common stock on the exchange.
There can be no assurance that we can continue to meet the requirements to maintain the NYSE Amex LLC listing of our common stock.
If we are unable to maintain our listing on the NYSE Amex LLC, the market liquidity of our common stock may be severely limited.



19







Volatility in our common stock price
may subject us to securities litigation.



The market for our common stock is characterized
by significant price volatility as compared to seasoned issuers, and we expect that our share price will continue to be more volatile
than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation
against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of
similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s
attention and resources.



Shares eligible for future sale may
adversely affect the market price of our common stock, as the future sale of a substantial amount of our restricted stock in the
public marketplace could reduce the price of our common stock.



From time to time, certain of our stockholders
may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market
pursuant to Rule 144, promulgated under the Securities Act (“Rule 144”), subject to certain limitations. Under Rule
144, a person who has beneficially owned restricted shares of our common stock or warrants for at least six months would be
entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time
of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting
requirements for at least three months before the sale.



Persons who have beneficially owned
restricted shares of our common stock for at least six months but who are our affiliates at the time of, or at any time during
the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell
within any three-month period only a number of securities that does not exceed the greater of either of the following:



| | ● | 1% of the total number of securities of the same class then outstanding; or                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                           
| | ● | the average weekly trading volume of such securities during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.



provided, in each case, that we are
subject to the Exchange Act periodic reporting requirements for at least three months before the sale.



If the CSRC or another PRC regulatory
agency determines that its approval was required in connection with our activities, we may become subject to penalties.



On August 8, 2006, six PRC regulatory
agencies, including the CSRC, promulgated the Regulation on Mergers and Acquisitions of Domestic Companies by Foreign Investors,
or the 2006 M&A Rule, which became effective on September 8, 2006. The 2006 M&A Rule, among other things, has certain
provisions that require offshore SPVs, formed for the purpose of acquiring PRC domestic companies and controlled by PRC individuals,
to obtain the approval of the CSRC prior to listing their securities on an overseas stock exchange. There remains uncertainty as
to how this regulation will be interpreted or implemented in the context of an overseas offering. If the CSRC or another PRC regulatory
agency subsequently determines that its approval was required for our overseas listing and any future offerings, we may face sanctions
by the CSRC or another PRC regulatory agency. If this occurs, these regulatory agencies may impose fines and other penalties on
our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the injection of proceeds from an offering
into our PRC subsidiaries, restrict or prohibit payment or remittance of dividends by our PRC subsidiaries to us or take other
actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects,
as well as the trading price of our common stock.



Our investors may lose their entire
investment in our securities.



An investment in our securities is highly
speculative and may result in the loss of the entire investment. Only potential investors who are experienced investors in high
risk investments and who can afford to lose their entire investment should consider an investment in our securities.



ITEM 2.  DESCRIPTION OF
PROPERTY



General



As of December 31, 2010, China Shen
Zhou Mining & Resources Inc. owns 2 properties in production; one in the Inner Mongolia Autonomous Region, in the People’s
Republic of China (“PRC”) and one in the Xinjiang Uygur Autonomous Region, in the PRC, and 1 property under sub-production
in the Inner Mongolia Autonomous Region in the PRC.



20







The two properties in production are:



| | · | Sumochaganaobao Fluorite Mine in Siziwangqi of Inner Mongolia Autonomous Region in the PRC (Xiangzhen Mining);                      
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                     
| | · | Keyinbulake Cu-Zn Multi-metal Mine located in Buerjin County, Aletai, Xinjiang Uygur Autonomous Region in the PRC (Xingzhen Mining).



The one property under sub-production
is:



| | · | Mining site No. 2 of Qingxing Copper Mine (Tanyaokou Copper Mine) in Wulatehouqi of Inner Mongolia Autonomous Region in the PRC (Qingshan Metal);
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



|No |  | Name
    of property          |  | Type               |  | Ownership |  | Status         |  | Location/Country                       |  | With
    Known Reserves
under Industry Guide 7
|-- |  | ----------------------------- |  | ------------------ |  | --------- |  | -------------- |  | -------------------------------------- |  | ----------------------------------------------
|1  |  | Sumochaganaobao Fluorite Mine |  | Non-metal Fluorite |  | 100%      |  | Production     |  | Inner Mongolia, PRC                    |  | Yes                                           
|2  |  | Qingxing Copper Mine          |  | Copper and zinc    |  | 60%       |  | Sub-Production |  | Inner Mongolia, PRC                    |  | No                                            
|3  |  | Keyinbulake Multi-metal Mine  |  | Copper and zinc    |  | 90%       |  | Production     |  | Xinjiang Uygur Autonomous Region , PRC |  | No                                            









Figure 2-1: China Shen Zhou’s
Properties in China



21









China Shen Zhou Mining & Resources
Inc. holds 3 mining licenses and 2 exploration licenses as of December 31, 2010. The licenses are:



| | · | Mining license for Sumochaganaobao Fluorite Mine, Siziwangqi, Inner Mongolia, PRC;                          
| | - | ------------------------------------------------------------------------------------------------------------
| |   |                                                                                                             
| | · | Mining license for Mining Site No. 2 of Qingxing Copper Mine, Wulatehouqi, Inner Mongolia, PRC;             
| |   |                                                                                                             
| | · | Mining license for Keyinbulake Cu-Zn Mine in Buerjin County, Xinjiang Uygur Autonomous Region, PRC;         
| |   |                                                                                                             
| | · | Exploration license for Southern Part of Keyinbulake Zn Mine in Xinjiang Uygur Autonomous Region of the PRC;
| |   |                                                                                                             
| | · | Exploration license for Northern Part of Keyinbulake Zn Mine in Xinjiang Uygur Autonomous Region of the PRC;



Table 2-1 and Table 2-2 below presents
detailed information about these licenses.



Table 2-1: 3 Mining Licenses Held
by the Company



|Property         |  | Sumochaganaobao fluorite
        deposit (between prospecting
        line 21-04) |  | Mining Site No. 2 of Qingxing Copper
        Mine (Tanyaokou Multi-metal Mine) |  | Keyinbulake Cu-Zn
Multi-metal Mine
|---------------- |  | --------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------ |  | ----------------------------------
|License Number   |  | 1500000820156                                                                     |  | 1500000820421                                                                  |  | 6500000712980                     
|Owner            |  | Inner Mongolia Xiangzhen Mining Group Ltd.                                        |  | Qingshan Nonferrous Metal Development Co Ltd.                                  |  | Buerjin County Xingzhen Mining.   
|Validated period |  | April 2008 to March 2011                                                          |  | September 2008 to September 2011                                               |  | August 2007 to August 2013        
|Area             |  | 0.9088 km2                                                                        |  | 0.6495 km2                                                                     |  | 1.955 km2                         
|Mining mode      |  | Underground mining                                                                |  | Underground mining                                                             |  | Underground mining                
|Mining scale     |  | 150,000 metric tons/annum                                                         |  | 100,000 metric tons/ annum                                                     |  | 21,000 metric tons/ annum         
|Mineral types    |  | Fluorite                                                                          |  | Copper, Zinc and sulfur                                                        |  | Copper and zinc                   
|Mining Level     |  | 1075m-497m                                                                        |  | 1455m-855m                                                                     |  | 1420m-1516m                       



Table 2-2: 2 Exploration licenses
held by the Company



|Property         |  | Southern Region of
        Keyinbulake Zn Mine |  | Northern Region of
        Keyinbulake Zn Mine
|---------------- |  | ---------------------------------------------- |  | ----------------------------------------------
|License Number   |  | 650000061272                                   |  | 650000061273                                  
|Owner            |  | Xingzhen Mining                                |  | Xingzhen Mining                               
|Validated period |  | April 2009 to April 2010                       |  | April 2009 to April 2010                      
|Area             |  | 13.37 km2                                      |  | 12.06 km2                                     



There are two types of mineral rights
in China: exploration rights and mining rights. Exploration rights are the rights to explore for minerals in the areas authorized
by the exploration license. Mining rights are the rights to exploit minerals within the defined area and produce mineral products.
According to Chinese law, an exploration license is valid for three years and shall not be extended beyond two additional periods
and each extension for no more than two years. 10, 20 and 30 years are the length limits of mining licenses for small, medium and
large deposits or mines, respectively. A mining license can be extended in scope or period of time if a company intends to continue
to operate. An application for extension needs to be submitted at least 30 days before the expiration date of the license. The
Company has applied to renew its exploration licenses.



Sumochaganaobao Fluorite Mine
in Production Stage (Xiangzhen Mining)



The Company has a 100% ownership interest
in the Sumochaganaobao fluorite mine (“Sumo”), which was acquired by Xiangzhen Mining from Inner Mongolia Siziwangqi
Northern Fluorite Ltd, Co. in July 2002.



Location, Access and Traffic



Sumochaganaobao fluorite mine is located
in Siziwangqi, Wulanchabu City, Inner Mongolia, PRC. The coordinates are: E111°15′35′′~111°16′30′′;
N43°07′10′′~43°07′49′′. This area is easily accessible, with a road of approximately 90km from the
mine to Erlianhot and then a freeway or national highway of approximately 250km to Hohhot, the capital city of Inner Mongolia,
China. Sumo has a typical continental climate characterized mainly by low precipitation and high evaporation, a large temperature
range between day and night, and windy conditions. The topography is gentle grassland with an elevation difference of only 20-40m.
Figure 2-2 is the index map of Sumochaganaobao Fluorite Mine.



22













Figure 2-2: Sumochaganaobao Fluorite
Mine



Mining Licenses



Inner Mongolia Xiangzhen Mining Group
Co Ltd. (Xiangzhen Mining) holds the mining licenses to the area between prospecting line 21 and 04 of the Sumochaganaobao Fluorite
Deposit. The mining license Number is 1500000820156, issued by the Bureau of Land and Resources in April 2008, Wulanchabu City,
Inner Mongolia and expires in March 2011. The Company has applied to renew the license.



Previous exploration and development



In 1975, Geological Survey Brigade No.
1 of Inner Mongolia conducted a 1/200,000 geological survey in this area and found the Sumochaganaobao Fluorite deposit. At that
time, its mineral reserves were estimated at 1.716 million metric tons of fluorite.



From 1981 to 1987, Geological Survey
Brigade No. 102 of Inner Mongolia conducted prospecting with continued general and detailed exploration and completed the “Geological
Report of Sumochaganaobao Fluorite Deposit of Siziwangqi, Inner Mongolia” in 1987.



In 1987, the property was mined by a
state-owned company, which was later reorganized to become the Siziwangqi Northern Fluorite Ltd., Co. in 1997. In 2003, the mining
right was transferred to Xiangzhen Mining Group Co., Ltd. from the Siziwangqi Northern Fluorite Ltd., Co.



Previous Mining Operation and Expansion



From 1987 to 2002, open-pit mining at
Sumo was conducted by state-owned company Siziwang Banner. The mining capacity was 8,000-20,000 metric tons per year and the mining
depth reached 58m from an elevation of 1,065m to 1,007m. In 1997, the mining right was transferred to Inner Mongolia Siziwangqi
Northern Fluorite Ltd., Co.



Since 2002, the underground mining has
been conducted by Xiangzhen Mining. Initially, the mining capacity was 80,000 metric tons per year with a concentrator (about 45km
southeast of the mine) with an annual processing capacity of 60,000 metric tons. In April 2006, the Company started an expansion.
The new designed mining capacity is 300,000 metric tons per year and the designed treatment capacity is 200,000 metric tons per
year carried out by a concentrator located near the fluorite mine. At the end of 2007, the expansion was completed and commissioning
started. As of 2010, the Company has invested approximately $5.91 million in the underground expansion and approximately $9.52
million in the new concentrator.



23







Water and Power Supply



Before October 2007, the mining area
did not possess a connection to the state power network, and power was supplied by diesel generators. Since October 2007, power
has been supplied to the mine by the state power network.



Water for production and living is supplied
by three wells that are located approximately one kilometer away from the mine. In 2010, the Company added a water treatment system
to the facility.



Current Mining Operation



Inclined shaft development has been
assumed. As a result, currently there is one main inclined shaft, one auxiliary inclined shaft and inclined shaft No. 2.



Hoisting and transportation: Underground
transportation is carried out by electric locomotives. After loading by rock loaders, ore is transported by the electric locomotive
to a shaft station and then lifted to ground level by the hoister and unloaded onto a storage platform where high grade lumps (CaF2>80%)
are directly sold to consumers (i.e., steel plant) after manual classification and the remainder is sent to concentrator for
further processing.



Ventilation: Fresh air is blown in from
the main inclined shaft, passes through the work area and is then out through the auxiliary inclined shaft and inclined shaft No.
2.



Drainage system: Water in each level
flows into sumps of drifts and is pumped to a pond on a higher level above ground for secondary use in production.



Mining Method: Short-hole shrinkage
stopping method with the mining loss at 25% and dilution at 10% and comprehensive recovery rate of ore at 75%.



Major equipment in the mine is as follows:



|Name                 |  | Type  |  | Qty (set) |  | Life of Service (year) |  | Notes       
|-------------------- |  | ----- |  | --------- |  | ---------------------- |  | ------------
|Hoisters             |  | Ф2M   |  | 3         |  | 20                     |  |             
|Rock loaders         |  | Z-20W |  | 6         |  | 20                     |  |             
|Compressors          |  | 20M 3 |  | 4         |  | 20                     |  | Power driven
|Electric Locomotives |  |       |  | 6         |  | 20                     |  |             
|Ventilators          |  |       |  | 4         |  | 20                     |  |             
|Transformers         |  |       |  | 5         |  |                        |  |             
|Pumps                |  |       |  | 6         |  |                        |  |             



Ore Processing:



The concentrator that went online in
2007 has an annual designed treatment capacity of 200,000 metric tons. The process consists of two-stage closed crushing with primary
and secondary grindings, rough flotation, scavenging, eight steps of cleaning, dehydrating (thickening, filtrating and drying),
and final packaging for delivery. The major facilities include a ball mill workshop, a flotation ore processing plant, a press
and filtration workshop, concentrate pools, tailings houses, a lab, electronic scales, water supply wells, power supply lines and
offices, etc. The major equipment is as follows:



|No. |  | Equipment                          |  | Unit |  | Qty |  | Life of Service |  | Notes
|--- |  | ---------------------------------- |  | ---- |  | --- |  | --------------- |  | -----
|1   |  | Linear vibrating feeder, XSW380x95 |  | set  |  | 1   |  | 20 years        |  | New  
|2   |  | Jaw-type crusher, PE-500 × 500     |  | set  |  | 1   |  | 20 years        |  | New  
|3   |  | Standard cone crusher, 36AF        |  | set  |  | 1   |  | 20 years        |  | New  
|4   |  | Vibrating screen, 2YAH1800 × 4800  |  | set  |  | 1   |  | 20 years        |  | New  
|5   |  | Overflow ball mill, MQY2700x4500   |  | set  |  | 1   |  | 20 years        |  | New  
|6   |  | Twin spiral classifiers, FLGT24    |  | set  |  | 1   |  | 20 years        |  | New  
|7   |  | Overflow ball mill, MQY1830x5700   |  | set  |  | 1   |  | 20 years        |  | New  
|8   |  | Flotation machines, SF-8           |  | set  |  | 34  |  | 20 years        |  | New  
|9   |  | Thickeners, NZSG-12                |  | set  |  | 1   |  | 20 years        |  | New  
|10  |  | High efficiency thickeners, Ф 18   |  | set  |  | 1   |  | 20 years        |  | New  
|11  |  | Ceramic filter, TC-45              |  | set  |  | 1   |  | 20 years        |  | New  
|12  |  | Rotary dryer, SD2422               |  | set  |  | 1   |  | 20 years        |  | New  
|13  |  | Air heater, EFL500                 |  | set  |  | 1   |  | 20 years        |  | New  
|14  |  | Packing machine, BG-4WY            |  | set  |  | 1   |  | 20 years        |  | New  





24









The processing recovery is 75%. Fluorite
concentrate grade is over 96%. The main component of fluorite is CaF2, an important chemical that is used in steel making as a
flux and in glass making as an additive. The concentrates are in high demand and demand is expected to increase in the future.



Geology of the Property



Sumo is located in the Suniteyou Banner
Fold Zone in the late-Varican, Inner Mongolia Fold Belt. The main strata in the property are: late Paleozoic lower Permian System
Xilimiao Formation (P1xl) with three sections: P1xl2-4, P1xl3, and P1xl4-1; Proterozoic Ailegemiao Formation and Jurassic Chagannoer
group. The fluorite mineralized body and mineralization marble occurs in the lower of P1xl3 and on the top of P1xl2-4.



Reserves



In 2010, we commissioned SRK Consulting
China Ltd. ( Beijing office) to update thereserve profile, compile underground mining designs and estimate reserves
for the authorized Siziwangqi Sumochaganaobao fluorite deposit (“Aobao fluorite deposit” or the “Mine”)
in Wulanchabu, Inner Mongolian Autonomous Region, as per the requirements of AMEX regarding reserve estimation. The estimation
report was successfully finished and issued in March 2011, and the main authors include Yong Huang (principal mining engineer,
Chinese Certified Reserves Evaluator), Dr. Anson Xu (principal geologist, PhD, MAusIMM), Changchun Wang (senior geologist, and
Dr. Yonglian Sun (principal consultant, BEng, PhD, FAusIMM, MIEAust, CPEng), as well as other certified experts. The SRK team reviewed
previous explorations completed by Chinese Minerals and Geology Exploration Brigades, and conducted data verification, and were
able to confirm the prior results. On the basis of their findings, SRK built a database for estimating the reserves. With respect
to the production of minerals, SRK estimated the recoverable reserves in compliance with the standards of the Joint Ore Reserve
Committee Code (“JORC”) or Canadian Institute of Mining, Metallurgy and Petroleum Code (“CIM”).



SRK has examined (via duplicate sample
collecting and re-analysis) the prior work, which was conducted by Chinese Geological Exploration Brigades, and SRK is satisfied
with the quality of previous work. On the basis of their results, SRK established a database for reserve estimation and, based
on the situation of the current mining operation, estimated the recoverable reserves of the mine in compliance with JORC or CIM.
The ore body model is delineated by using the following industrial indexes:



Cut-off grade: Lean ore: (CaF2) 320%,
Rich ore: (CaF2) 365%;



Price of Products: Fluorite Powder,
960 RMB per ton; Fluorite Lump: 620RMB per ton



Minimum mineable thickness: 1.0m for
rich ore and 0.7m for lean ore; and



Band thickness: 2m in rich ore, 0.7m
in lean ore.



Base on the above data, SRK is according
to real production situation, designed mines production, revalued reserves of mines. As of December 31st 2010, according
to JORC/CIM standard, reserves of mines are 1523 thousand tons(KT), the average grade is 53.6%, Prvoed reserve is 818 thousand
tons(KT), average grade is 60.43%; Probable reserve is 705 thousand tons(KT), the average grade is 45.78%



See Below:







|      |  | Block  |    |  | Proven       |  |     | Probable |  |  | Total
    Proven and Probable | 
|----- |  | ------ | -- |  | ------------ |  | --- | -------- |  |  | ----------------------------- | 
|Level |  | Amount |    |  | Tonnage (kt) |  |     | CaF2 (%) |  |  | Tonnage (kt)                  | 
|850 m |  |        | 4  |  |              |  | 153 |          |  |  | 60.26                         | 
|820 m |  |        | 7  |  |              |  | 355 |          |  |  | 61.56                         | 
|790 m |  |        | 8  |  |              |  | 310 |          |  |  | 59.23                         | 
|760 m |  |        | 10 |  |              |  |     |          |  |  |                               | 
|730 m |  |        | 8  |  |              |  |     |          |  |  |                               | 
|700 m |  |        | 9  |  |              |  |     |          |  |  |                               | 
|Total |  |        | 46 |  |              |  | 818 |          |  |  | 60.43                         | 







25









The depleted reserves in table are estimated
by SRK. SRK understands that the reserves above level 880m had been mined out and half of the reserves at level 850m
had been extracted. The mined out area is delineated based on measured plans and plans of design at and above level 850m, and depleted
reserves are accordingly estimated.



SRK Consulting



SRK Consulting is an independent, international
consulting practice that provides focused advice and solutions to clients. For mining projects, SRK offers services from exploration
through feasibility, mine planning, and production to mine closure. The Group’s independence is ensured by the fact that
it holds no equity in any project, and the fact that it is owned primarily by its employees. SRK is a leading international practice
in due diligence, feasibility studies and confidential internal reviews. Formed in 1974, SRK now employs more than 1000 professionals
internationally in 43 permanent offices on 6 continents.



Sampling, Analytical Procedures and
Quality Control



The core recovery is over 85% for the
drill holes. The samples were taken by splitting the core into halves, one half being the sample and the other half being stored
in the core box. Sample length was usually 0.5 meters to 1.5 meters and core recovery is over 85%.



Trenching samples were collected along
channels with widths of 10 centimeters and depths of 5 centimeters and in parallel along the walls of the pits. Each sample was
1 to 2 meters in length.



Samples are crushed by three jaw crushers
to 0.9mm in size and then are split. About 500 grams of each sample is sent for pulverization and the rest are kept as coarse rejects.
100 grams of each pulp sample are sent to the lab for assaying and the rest are stored. Items of CaF2, CaCO3, SiO2, Fe2O3 and S
are assayed in the lab.



Assaying of samples was completed in
the laboratory of Geological Brigade No. 102 of Inner Mongolia and checked by the Central Laboratory of Bureau of Geology of Inner
Mongolia. Internal and external check samples were assayed: 95% of samples sent for internal checkup and 6.4% for external checkup.
The qualification rate of the check samples was above 95%. The criteria of Barite, Fluorite and Boron Exploration were also adopted
in sample assaying.



Products and Output:



The mine produces fluorite ore which
is classified into two commodities, one being high grade fluorite lumps and the second being fluorite powders processed in concentrator.
The following table lists the products and output and the average prices in past four years:



Table 2-3: The Output and Price of
Products of 2007-2010, Xiangzhen Mining



|Year |  | Product |                      |  | Output (t) |  |           | Average Price per Year(USD$/t) | 
|---- |  | ------- | -------------------- |  | ---------- |  | --------- | ------------------------------ | 
|2007 |  |         | Fluorite lumps       |  |            |  | 52,523.96 |                                | 
|     |  |         | Fluorite concentrate |  |            |  | 22,447.23 |                                | 
|2008 |  |         | Fluorite lumps       |  |            |  | 17,632.19 |                                | 
|     |  |         | Fluorite concentrate |  |            |  | 9,167.13  |                                | 
|2009 |  |         | Fluorite lumps       |  |            |  | 27,663.10 |                                | 
|     |  |         | Fluorite concentrate |  |            |  | 15,261.40 |                                | 
|2010 |  |         | Fluorite lumps       |  |            |  | 36,133.95 |                                | 
|     |  |         | Fluorite concentrate |  |            |  | 24,327.57 |                                | 



Potential for Further Exploration



In June 2007, the Company hired the
Third Geological Prospecting Institute of China Metallurgy Geological General Bureau to conduct supplementary prospecting. As result
of the prospecting, the category of this fluorite mine was upgraded.



There is a low probability of finding
ore bodies or extensions to existing ore bodies since the deposit is well defined and well understood geologically.



26







Mining Site No. 2 of Qingxing
Copper Mine in Production Stage (Qingshan Metal)



Qingshan Metal owns 100% of the Qingxing
Copper Mine. Before April 2006, Qingshan Metal was owned by several individuals. On April 12, 2006, 60% of the shares of Qingshan
were transferred to Qianzhen Mining by the shareholders.



Location



Mining site No. 2 of the Qingxing Copper
Mine is located in Qingshan Town, Wulatehouqi, Bayannoer City, Inner Mongolia Autonomous Region of the PRC.



The coordinates are E 106o45′15′′-106o45’45”,
N 40o57′14” - 40o57′45”.



The mine is 59 kilometers southeast
to Linhe Railway Station of Beijing-Lanzhou Railway Line. It is conveniently accessible by highways and telecommunications.









Figure 2-3: Mining Site No. 2 of Qingxing
Copper Mine



History of Operation



Qingshan Metal had been in operation
for three years before it was acquired by the Company. The Mining Project was designed by the Inner Mongolia Metallurgy Design
Institute and the mining capacity was designed to be 60,000 metric tons per year. The actual mining capacity of the project is
50,000 metric tons of ores per year, of which copper ore accounts for about 40,000 metric tons and the remainder is approximately
to 10,000 metric tons of zinc and lead ore. In 2010, there was no production at the facility.



Geology of the Property



Qingxing Copper Mine is located in the
western part of the Langshan-Baiyunebo geotectogene, north boundary of North China Platform. The main strata spread over the mine
area are Zhaetaishan Formation member 2 (Pt2zh2) and member 3 (Pt2zh3).



The Zhaetaishan member 2 (Pt2zh21) consists
of three sequences which are set forth below.



Upper Sequence (Pt2zh23): mineralized
bodies occurring in this sequence are comprised of mica quartz schist, carbonaceous mica quartz schist and carbonaceous phyllitic
quartz schist.



Middle Sequence (Pt2zh22): carbonaceous
slate, carbonaceous phyllite, banded carbonaceous quartzite, bearing-carbon quartzite, dark quartzite and tremolite, diopsidite
etc.



27







Lower Sequence (Pt2zh21): the lower
part consists of carbonaceous phyllite; carbonaceous slate inter-bedded calcareous chlorite schist, chlorite quartz schist and
lens of crystal carbonate, followed by biotitic quartz schist, andalusite-mica schist and bearing-carbon mica quartz schist.



The Zhaetaishan member 3 (Pt2zh3) consists
of the lower sequence of quartz schist and the upper sequence of middle-thick quartzite inter-bedded thin quartzite.



The strata occur as monocline which
strikes southwest and dips to northwest at 30-89°. All faults were formed after the metallic mineralization that re-constructed
the mineralized bodies.



Mineralized bodies, strictly controlled
by the stratum, are blind and covered by gossans. There are two known mineralization zones, mineralization zone 3# and mineralization
zone 5#. Zone 3# is distributed in the north of the property and is 500 meters long and 10-30 meters wide, within which the mineralized
bodies No. 1 Cu-1, No. 2 Zn-1, and No. 3 Zn-2 are found. Zone 5# is distributed in the middle-south of the property and is 850
meters in length and 10-40 meters in width, where mineralized bodies No. 4 Cu-2, No. 5 Zn-3 as well as No. 6 Zn-4 were found.



The primary metallic minerals are comprised
of chalcopyrite, galena, sphalerite and pyrite and main gangue consists of quartz, calcite and chlorite.



Mining and Extraction technical conditions:



The mineralized body is inclined with
the occurrence stratified and stratoid with small thickness but stable. It has simple conditions of hydrogeology and engineering
geology with well stability of slake on top of mineralized body. In topography, the incision is deep. It is accessible with good
conditions for pit mining.



The Current Situation of the Mine



When the mine was acquired by the Company,
the mining system already existed. An adit development system has been put in place.



Transportation: Underground transportation
is carried out by electric locomotives. After they are loaded by rock loaders, ore is transported by the electric locomotive underground,
and then lifted to ground level by a hoister and unloaded into a storage yard.



Ventilation: Fresh air is blown in from
sublevel adit, passes through the work area and is expelled through a special shaft for ventilation connected to ground level.



Drainage system: The adit development
has conditions of underground water naturally discharged from a waterway in the adits.



Mining Method: Short-hole shrinkage
stopping method with the mining loss at 25% and dilution at 15% and comprehensive recovery rate at 80%.



Major equipment in the mine is as follows:



|Name                 |  | Type  |  | Qty (set) |  | Life of Service (year) |  | Notes       
|-------------------- |  | ----- |  | --------- |  | ---------------------- |  | ------------
|Hoisters             |  | Ф2M   |  | 2         |  | 20                     |  |             
|Rock loaders         |  | Z-20W |  | 3         |  | 20                     |  |             
|Compressors          |  | 20M 3 |  | 2         |  | 20                     |  | Power driven
|Electric Locomotives |  |       |  | 3         |  | 20                     |  |             
|Ventilators          |  |       |  | 4         |  | 20                     |  |             
|Transformers         |  |       |  | 5         |  | 20                     |  |             



Power and Water Supply



There is a 10 KV power supply line for
mining production. Water is supplied by a special water pipe line from the He Tao Plain about 5 kilometers to the south of
the Mining Ares.





28









Mineralized Materials



In January 2007, Wulatehouqi Qingshan
Non-ferrous Metals entrusted No .3 Geological Exploration Institute of China Metallurgy Geological Bureau to conduct the supplementary
geological survey on the “Tanyaokou Multi-Metal Zinc-copper Mine”, between prospecting line 42-58. The final supplementary
geological survey was reported in May 2007, which confirmed the mineralized materials within the mining area and the category
of the mining area. As of December 31, 2010, the total retained indicated mineralized material is 1.81 million metric tons with
the average grade at 0.6%. Due to the lack of high grade ores supply, mining did not take place in 2010 at Qingshan.



Potential for Further Exploration



In the mining process, two mining tunnels
at 1,390m level and at 1,350m level intercepted the Cu-2 mineralized body which improves the control degree and has increased the
Cu-2 mineralized body from 0.0286 million metric tons to 1.3778 million metric tons. Our geological consultant believes that if
further exploration is conducted in the future, more minerals could be defined. Drilling will upgrade some of the mineralized materials
to Category C (332). Underground exploration (associated with mining operation) should upgrade the mineralized material categories,
and explore the extension deeply. In 2009, 356 meters of drilling holes was completed in exploration. No exploration activity was
carried out in 2010.



Keyinbulake Cu-Zn Property in
Development Stage (Xingzhen Mining)



Xingzhen Mining owns 100% of the Keyinbulake
Multi-Metal Property. Before 2004 it was operated by Xinjiang Tianxiang New Tech Co. Ltd. (“Tianxiang”) and Mr. Li
Leyi. On April 28, 2006 Xiangzhen Mining acquired 80% of the ownership, and on June 25, 2007 Xiangzhen acquired another 10% from
Tianxiang. By December 31, 2007, Xiangzhen Mining owned 90% of Xingzhen Mining. The other 10% is owned by Xinjiang Tianxiang New
Technology Development Co., Ltd. (5%) and an individual shareholder (5%).



Location and Traffic



Keyinbulake Multi-Metal Property is
located in Buerjin County, Aletai, Xinjiang Uygur Autonomous Region. The coordinates are E 87o17′30′′-87o19’30”,
N 47o58′30” - 47o59′45”, and the area is in 3.59 km 2.
It is 65 kilometers northwest of Aletai city, and 60 kilometers northeast of Buerjin County, and 26 km northeast of Dulaiti town.
With the highway from Aletai city to Dulaiti Town passing through the property, it is conveniently accessible. Figure 2-4 is the
index map of the Keyinbulake Multi-Metal Property.







Figure 2-4: Keyinbulake Multi-Metal Property



Previous Geological work:



In June 2006, the Company conducted
geological explorations in the mining area by means of ground geophysical prospecting and drilling as well as underground Pitting
exploration and drilling. At the end of 2007, ground drilling completed 5909 meters and underground exploration 4322 meters and
underground drilling 7389 meters.



29







In 2009, IP sounding work in geological
prospecting was carried out. The information of the mineral formation conditions and the genesis of mineral bodies given by IP
sounding shows that Keyinbulake Copper-Zinc Mine belongs to the submarine volcanogenic sediments. The analysis on the data of exploration
shows that within the mineralized belt the mineral bodies continue along with the strike and distribute in parallel and en echelon
arrangement. The method of sounding indicates that the inclined deepening of the mineral-bodies in this area is longer than the
length of their strike prolongation. There are five high-polarization abnormal zones found through IP sounding methods and they
coincide in space and positions with the known copper-zinc mineralized bodies controlled under current underground extraction,
which confirms that Keyinbulake Copper-Zinc Mine exists with high potential of mineral prospecting and the work greatly assists
the Company in delimiting the accurate target area for further verification.



In the first half of 2010, Xingzhen
focused on conducting geophysical research and an electric logging project, making drilling plans, carrying out construction in
strict accordance with results given by our prospecting team, and conducting necessary geophysical investigations in the mining
area.



In 2010, Xingzhen mining drilled 12
holes, 3356 meters, and trenched 3060cubic meters, and completed 771 IP sounding points. Among the middle, northern
and southern areas, we found two new mineralized bodies through drilling verification. We are now drilling and exploring these
mines.



Ore Processing:



In April 2007, the Company began to
build a concentrator in the mining area with a designed daily processing capacity of 600 metric tons (200,000 metric tons/annually).
The concentrator started trial operation in May 2008.



The concentrator process consists of
two-stage closed crushings with one stage of grindings, flotation of copper primary and zinc secondary, scavenging, and two steps
of dehydrating (thickening and filtrating). The final products are copper concentrates and zinc concentrates. The following table
lists the products and output and the average prices in past three years:



Table 2-4: Annual treatment &
concentrate average price in last three years of Xingzhen Mining



|Year |  | Product |                                                                         |  | Treatment
    (metric tons) |  |        | Concentrate
    (metal tons) |  |  | Average Metal Price
    Per Year (USD$/metal ton) | 
|---- |  | ------- | ----------------------------------------------------------------------- |  | --------------------------- |  | ------ | ---------------------------- |  |  | ------------------------------------------------- | 
|2008 |  |         | Zinc
                                                       concentrate |  |                             |  | 51,400 |                              |  |  | 1,849.51                                          | 
|     |  |         | Cu concentrate                                                          |  |                             |  |        |                              |  |  | 108.50                                            | 
|2009 |  |         | Zinc concentrate                                                        |  |                             |  | 14,300 |                              |  |  | 178.30                                            | 
|     |  |         | Cu concentrate                                                          |  |                             |  |        |                              |  |  | 9.76                                              | 
|2010 |  |         | Zinc concentrate                                                        |  |                             |  | 77,241 |                              |  |  | 3,129.45                                          | 
|     |  |         | Cu concentrate                                                          |  |                             |  |        |                              |  |  | 154.81                                            | 



The major equipment is as follows:



|No. |  | Equipment                                 |  | Type                                         |  | Unit |  | Qty
|--- |  | ----------------------------------------- |  | -------------------------------------------- |  | ---- |  | ---
|1   |  | Vibrating feeder                          |  | ZSW380X95I                                   |  | set  |  | 1  
|2   |  | Jaw-type crusher,                         |  | PE-500X750                                   |  | set  |  | 1  
|3   |  | Belt conveyor No. 1                       |  | 8063 a=15 o v=1.60m/s Lh=53.393m             |  | set  |  | 1  
|4   |  | Cone crusher                              |  | H-36AFJ1-3                                   |  | set  |  | 1  
|5   |  | Belt conveyor No. 2                       |  | 8063 a=15.96 o v=1.60m/s Lh=47.393m          |  | set  |  | 1  
|6   |  | Electric drive rolling drum               |  | JWD2220-160-8063                             |  | set  |  | 1  
|7   |  | Heavy magnetic vibration- actuated feeder |  | DZ-C-80160                                   |  | set  |  | 1  
|8   |  | Circular vibrating screen                 |  | 2YA1542(Over screen 40mm, Below screen 15mm) |  | set  |  | 34 
|9   |  | Belt conveyor No. 3                       |  | B=650 Lh=36.85m a=16o                        |  | set  |  | 1  
|10  |  | Belt conveyor No. 4                       |  | B=650 Lh=20.713m a=15o                       |  | set  |  | 1  
|11  |  | Wet grate discharge ball mill             |  | MQG2700 × 3600                               |  | set  |  | 1  
|12  |  | Sinking win-spiral classifiers            |  | 2FC-20                                       |  | set  |  | 1  
|13  |  | Flotation machines                        |  | SF-4 scraper YIOOL-6 P=1.5KW                 |  | set  |  | 16 
|14  |  | Flotation machines                        |  | SF-2.8 scraper YIOOL-6 P=1.5KW               |  | set  |  | 7  
|15  |  | Flotation machines                        |  | SF-1.2 scraper Y90S-4 P=1.1KW                |  | set  |  | 7  
|16  |  | Horizontal slurry pump                    |  | ZBG(P)-458B(P) P=75kw n=1480r/min H=74m      |  | set  |  | 2  
|17  |  | Upright slurry pump                       |  | 65Q-LPR                                      |  | set  |  | 2  
|18  |  | Center drive thickeners                   |  | NZ-9                                         |  | set  |  | 1  
|19  |  | Center drive thickeners                   |  | NZ-12                                        |  | set  |  | 1  
|20  |  | Ceramic filter                            |  | TT-6 P=13 KW                                 |  | set  |  | 1  
|21  |  | Ceramic filter                            |  | TT-8 P=13 KW                                 |  | set  |  | 1  



30







All equipment was new when installed.
Each piece of equipment has a service life of 20 years.



Power and Water Supply



There is a 35KV high voltage power line
from the Buerjin Power Station to the mining area. The Company built the power line at its own expense.



Three wells 4km away from the mining
area provide production and drinking water.



Mineralized Materials



The Earth-Physics Exploration Brigade
of the Xinjiang Non-ferrous Geological Exploration Bureau completed the Geological Evaluation of the area between May 2002 and
July 2006. Their results were reported on August 31, 2006. The Technology Commission examined and approved this survey report on
September 5, 2006.



In June 2007, the No. 3 Geological Prospecting
Institute of the China Metallurgical Geological Bureau conducted a supplementary survey on the Keyinbulake property. In December
2007, it presented the final supplementary prospecting report which confirmed relevant mineralized materials within the mining
property. In this report, the total indicated mineralized materials included 0.6035 million metric tons of mineralized materials
with an average grade of copper at 0.68% and zinc at 4.19%.



Inner Mongolia Wulatehouqi Qianzhen
Ore Processing Co., Ltd (Qianzhen Mining)



Qianzhen Mining owns a concentrator
with an annual treatment capacity of 200,000 metric tons. The concentrator process includes two-stage closed crushing with primary
and secondary grindings, roughing flotation, scavenging, three steps of cleaning, thickening, filtrating and drying. The major
facilities of the concentrator include a ball mill workshop, a flotation ore processing plant, a filtration workshop, concentrate
pools, dams, a laboratory, electronic scales, water supply wells, power supply lines and offices, etc. The major equipment consists
of ball mills (3 sets, 2.1m x 3m and 1.5m x 3m), 4m3 flotation machines (24 sets), 2m3 flotation machines (12 sets),
Ф 12m thickeners (1 set), classifiers (2 sets, 1.5m x 10m), 20m2 filters, pumps, power transformers and power distribution
panels and so on. In 2005, Qianzhen Mining invested approximately $750,000 to modernize the processing production line to increase
its yearly capacity to approximately 200,000 metric tons. The current equipment was new when installed.



Qianzhen Mining conducts its operations
by purchasing zinc, copper and/or lead ore from Qingshan Nonferrous Metal or other suppliers. The final products are in bulk and
are transported by truck. Table 2-5 shows the annual output and the concentrate’s average price of Qianzhen Mining in past
four years.



Table 2-5: Annual treatment &
concentrate average price in last three years of Qianzhen Mining



|Year |  | Product |                                                                       |  | Treatment
    (t) |  |        | Concentrate
    (t) |  |  | Average Metal Price
    Per Year (USD$/metal ton) | 
|---- |  | ------- | --------------------------------------------------------------------- |  | ----------------- |  | ------ | ------------------- |  |  | ------------------------------------------------- | 
|2007 |  |         | Zn
                                                       concentrate |  |                   |  | 66,270 |                     |  |  | 5,582.5                                           | 
|     |  |         | Pb concentrate                                                        |  |                   |  |        |                     |  |  | 777.21                                            | 
|     |  |         | Cu concentrate                                                        |  |                   |  | 29,512 |                     |  |  | 402.27                                            | 
|2008 |  |         | Cu concentrate                                                        |  |                   |  | 5,420  |                     |  |  | 36.83                                             | 
|     |  |         | Concentrate sulfur                                                    |  |                   |  | 77,463 |                     |  |  | 18,146.70                                         | 
|2009 |  |         | -                                                                     |  |                   |  | -      |                     |  |  | -                                                 | 
|2010 |  |         | -                                                                     |  |                   |  | -      |                     |  |  | -                                                 | 

*The average price unit
of concentrate sulfur is US $/metric ton.



Kichi Chaarat Closed Stock Company
(Kuru-Tegerek Mine)



Prior to September 2009, the Company
owned 100% of the registered capital of Tun-Lin, a Kyrgyz Republic registered company, which in turn owned 100% of Kichi Chaarat
Closed Stock Company. On September 21, 2009, the Company entered into a Share Purchase Agreement with Fortune Pegasus International
Limited, a company organized under the laws of British Virgin Islands, pursuant to which the Company transferred to Fortune the
entire equity of Tun Lin in the Kyrgyz Republic. Prior to the disposal of Kuru Tegerek in 2009, we had not made any products at
the mine.



31







| | ITEM 3. | LEGAL PROCEEDINGS
| | ------- | -----------------



None.



32





PART II



| | ITEM 5. | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES.
| | ------- | ---------------------------------------------------------------------------------------------------------------



The shares of our common stock have
been traded on the NYSE AMEX (formerly American Stock Exchange) under the trading symbol “SHZ” since January 31, 2008.
Before the listing on the NYSE AMEX, the shares of our common stock were quoted on the OTC Bulletin Board. The following table
sets forth the quarterly average high and low bid prices per share for the common stock for the past two years:



|Year ending December 31, 2010 |  | High |      |  | Low |  
|----------------------------- |  | ---- | ---- |  | --- | -
|First Quarter                 |  | $    | 1.47 |  |     | $
|Second Quarter                |  | $    | 1.25 |  |     | $
|Third Quarter                 |  | $    | 1.10 |  |     | $
|Fourth Quarter                |  | $    | 9.29 |  |     | $



|Year ending December 31, 2009 |  | High |      |  | Low |  
|----------------------------- |  | ---- | ---- |  | --- | -
|First Quarter                 |  | $    | 0.54 |  |     | $
|Second Quarter                |  | $    | 0.59 |  |     | $
|Third Quarter                 |  | $    | 1.97 |  |     | $
|Fourth Quarter                |  | $    | 1.75 |  |     | $



Holders. As of March 14,
2011, we had 632 holders of record of our common stock. Our common stock had a closing bid price of $3.78 per share on March 14,
2011.



Dividends. We have never
declared or paid any cash dividends or distributions on our common stock. We currently intend to retain our future earnings to
support operations and to finance future growth and expansion and, therefore, do not anticipate paying any cash dividends on our
common stock in the foreseeable future.



Transfer Agent and Registrar.
Our transfer agent is Standard Registrar & Transfer, Inc. located at 12528 South 1840, East Draper, Utah, 84020. Their telephone
number is (801) 571-8844.



Securities Authorized for Issuance
Under Equity Compensation Plans.



On October 29, 2009, the shareholders
and the board of directors have approved the 2009 Omnibus Long-term Incentive Plan. On February 4, 2010, 760,000 shares of our
common stock were issued to 42 officers, directors, employees, or consultant under this 2009 Omnibus Long-term Incentive Plan.
The number of shares of stock awarded to each officer, director, employee or consultant was determined by dividing the amount of
back pay due such officer, director, employee or consultant by $0.38, average daily trading price per share for the Company’s
common stock in December 2008.



Recent Sales of Unregistered Securities



On September 22, 2009, the Company entered
into a Notes Repurchase Agreement with Mountview Path Limited (“Mountview”), a corporation incorporated under the laws
of the British Virgin Islands, pursuant to which the Company repurchased the entire 6.75% Senior Convertible Notes due 2012 of
US$ 28,000,000 principal amount from Mountview. The consideration payable in the transaction consisted of US$ 8,000,000 in cash
and 5 million shares of the Company’s common stock. The shares of the Company’s common stock were issued in a private
transaction pursuant to the “safe harbor” for the private offering exemption under Section 4(2) of the Securities Act
of 1933 (the “Securities Act”) and Rule 506 of Regulation D promulgated thereunder to accredited investors as defined
under Rule 501(a) of the Securities Act.



| | ITEM 6. | SELECTED FINANCIAL DATA.
| | ------- | ------------------------



Not required.



33









| | ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.
| | ------- | ---------------------------------------------------------------------------------------



The following management’s discussion
and analysis should be read in conjunction with our consolidated financial statements and the notes thereto and the other financial
information appearing elsewhere in this item. In addition to historical information, the following discussion contains certain
forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.
These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the
use of words such as “may”, “will”, “could”, “expect”, “anticipate”,
“intend”, “believe”, “estimate”, “plan”, “predict”, and similar terms
or terminology, or the negative of such terms or other comparable terminology. Although we believe the expectations expressed in
these forward-looking statements are based on reasonable assumptions within the bound of our knowledge of our business, our actual
results could differ materially from those discussed in these statements. Factors that could contribute to such differences include,
but are not limited to, those discussed in the “Risk Factors” section of this Annual Report on Form 10-K. We undertake
no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other
events occur in the future.



Our financial statements are prepared
in U.S. Dollars and in accordance with accounting principles generally accepted in the United States. See “Exchange Rates”
below for information concerning the exchanges rates at which Renminbi (“RMB”) were translated into U.S. Dollars (“USD”
or “US$” or “$”) at various pertinent dates and for pertinent periods.



OVERVIEW



We are principally engaged in the exploration,
development, mining, and processing of fluorite, zinc, lead, copper, and other nonferrous metals, through our subsidiaries in the
PRC.



BUSINESS



▼Fluorite



In early 2006, we started a designed 300,000
metric tons/year fluorite ore project at Xiangzhen Mining, which was completed in November 2007. We extracted approximately 131,000
metric tons of fluorite ores in 2010.



In early 2006, we started to build a
designed 200,000 metric tons/year fluorite ore processing plant at the Xiangzhen Mining. The new processing plant was constructed
and went into trial production in November 2007 (the “New Processing Plant”). We produced approximately 24,300 metric
tons (“metric tons” hereinafter) of fluorite powder in 2010.



In 2010, the Company had problems in
railway transportation in the Inner Mongolia Autonomous Region, in the PRC, due to a shortage of railway transportation. Our fluorite
lumps were transported via railway and our fluorite powder was transported by truck. We adjusted our product structure, and sold
less (about 22,200 metric tons) fluorite lumps and more (about 10,000 metric tons) fluorite powder, which was an unexpected result.
In addition, more value-add was generated from fluorite powder rather than fluorite lumps, we gave up the production of fluorite
lumps  to achieve better results.



2010 is the third year of operation
and production after the mining capacity was expanded to 300,000 metric tons per year and the processing capacity was expanded
to 200,000 metric tons per year. Xiangzhen Mining also owns an old production line with designed annual fluorite powder production
capacity of 60,000 metric tons (the “Old Processing Plant”). The Old Processing Plant and the New Processing Plant
re-started production in March and August 2010, respectively.



In 2010, 131,000 metric tons of fluorite
ore were extracted; 36,100 metric tons of fluorite lumps were produced and 32,800 metric tons of fluorite lump were sold. 64,800
metric tons of fluorite ore were processed and produced 24,300 metric tons of fluorite powder and 29,000 metric tons of fluorite
powder were produced and sold, respectively.



In 2010, our operation made the following
advances:



| | · | The Company added a water treatment system. After repeated adjustments, we successfully resolved the water quality problem and achieved the requirements for production, then the Company’s operation started its normal production in August 2010.                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | · | The Company started research and negotiations regarding potential acquisitions of other fluorite mines in 2010, and we successfully acquired Xinyi Fluorite Company on January 13, 2011.                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | · | In 2010, We commissioned SRK Consulting China Ltd. ( Beijing office) to update thereserve profile, compile underground mining designs and estimate workable reserves for the authorized Siziwangqi Sumochaganaobao fluorite deposit (“Aobao fluorite deposit” or the “Mine”) in Wulanchabu, Inner Mongolian Autonomous Region, as per the requirements of AMEX regarding reserves estimation The estimation report was successfully finished and issued in March 2011.



34







In 2011, the Company will continue focusing
its efforts in the following areas in order to achieve its goals:



First, based on our current production,
under the economic conditions that have kept price of fluorite ore increasing, we will continue the expansion of our production
of fluorite products, in order to achieve our designed production capacity.



Second,we will still strive to leverage our position as one of the leaders in the industry to acquire additional appropriate fluorite
reserves.



In 2011, we plan to be in normal production.
We plan to extract fluorite ore of 150,000 metric tons, and we have more than 100,000 metric tons of deposited ores. Also, we plan
to process fluorite ore of 160,000 metric tons. For 2011, we expect production to reach approximately 60,000 metric tons of fluorite
powder and approximately 40,000 metric tons of fluorite lumps. In addition, in 2011 we plan to sell 40,000 metric tons of fluorite
lumps and 60,000 metric tons of fluorite powder.



▼Zinc and Copper



Xingzhen Mining



In July 2006, Xingzhen Mining started
to build a 200,000 metric tons/year zinc-copper ore mining and processing project at Keyinbulake Multi-Metal Mine in Buerjin County,
Aletai Region, Xinjiang Uygur Autonomous Region.



On April 28, 2008, Xingzhen Mining completed
a successful testing at its first trial, and then went into production. In parallel with processing, Xingzhen did exploration in
the area. On April 28, 2008, Xingzhen Mining completed a successful testing at its first trial, and then went into production.
In parallel with processing, Xingzhen did exploration in the area. Due to the drop of the price of non-ferrous metal caused by
the economic crisis, Xingzhen stopped ore-selection production. However, it resumed production in May 2010.



In 2010, Xingzhen extracted ores of
82,500 metric tons, processed ores of 77,200 metric tons, and produced zinc ore powder of 3,129 metal tons and copper ore powder
of 155 metal tons. Xingzhen sold zinc ore powder of 2,538 metal tons, copper ore powder of 115 metal tons.



In 2010, we did not complete our planned
production of zinc concentrates and copper concentrates. This is mainly due to the pause in normal production of Xingzhen during
the 2010 winter season. In December 2010, there was a heat preservation equipment breakdown, which was the result of an exploded
water supply pipeline. As a result of this equipment failure, Xingzhen was not able to continue its normal production under freezing
conditions in December 2010.



As weather condition permits, we plan
to start processing production in late April or early May 2011. In addition, since last year we have never stopped excavating operations.
We plan to produce extracted ores of 120,000 metric tons, process ores of 120,000 metric tons, and produce approximately 7,000
metal tons of zinc concentrate  and nearly 280 metal tons of copper concentrate.



Qianzhen Mining



Before the end of 2007, Qianzhen Mining
processed ores supplied by local mining companies. Since then, the supplier contracts expired.



No production occurred at Qianzhen Mining
in 2010 due to a lack of supply from Qingshan Metal.



Due to a potential asset reorganization
activity, we did not plan to produce nor did we produce at Qianzhen Mining in 2011.



Qingshan Metal



Due to the decrease in the price of
copper in 2008, Qingshan completed exploration only and did not begin mining in 2009.



We did not plan to produce nor did we
produce in 2010 at Qingshan due to the low grade copper-zinc ore.



We do not plan to produce at Qingshan
Metal in 2011 due to potential asset reorganization activity.



35







Kichi Chaarat Copper and Gold Mine



In November 2007, We completed the acquisition
of Tun-Lin Co. Ltd. (“Tun-Lin”), a company that exists under the law of the Republic of Kyrgyzstan, which owns the
100% of the equity in Kichi Chaarat, whose major asset is the subsoil use right for (i) the mining of gold, copper and other metals
within the Kuru-Tegerek licensed area, and (ii) the exploration for gold, copper and other metals within the Kuru-Tegerek licensed
area.



Due to the financial crisis in 2008,
it was extremely difficult to raise funds. Also, the mine was not ready for mining. After careful consideration and investigation,
the Board of Directors of the Company decided to sell the entire equity stake in Tun-Lin Co. Ltd. and the Kichi Chaarat Copper
and Gold Mine on September 21, 2009.



On September 21, 2009, Xiangzhen Mining
and Fortune Pegasus International Limited signed an equity transfer agreement. Xiangzhen Mining sold the entire equity stake in
Tun-Lin Co. Ltd. to Fortune Pegasus International Limited. On November 20, 2009, the sale of Tun-Lin was closed.



Exploration Activities



Keyinbulake Cu-Zn Mine



In the first half of 2010, Xingzhen
focused on geophysical research and an electric logging project, making drilling plans, carrying out construction in strict accordance
with results given by our prospecting team, and conducting necessary geophysical investigations in the mining area.



In 2010, Xingzhen mining drilled 12
holes, 3,356 meters, and trenched 3,060cubic meters, and completed 771 IP sounding points. Among the middle, northern
and southern areas, we found two new mineralized bodies  through drilling verification. Now we are drilling and exploring
these mines.



The exploration conducted in 2010 already
guaranteed our continued production. Based on these results, we will accelerate our work and try to submit a thorough examination
report (for internal use only)  of the mining areas. Our work will include:



| | · | Conducting a comprehensive geological survey and revising integrated maps of the mining areas on 1:2000 scale and producing a geophysical exploration model;                 
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                              
| | · | Conducting supplementary TEM and high-accuracy magnetic surveys in important areas of abnormality, and conducting 10-4 high-accuracy magnetic surveys around those areas; and
| |   |                                                                                                                                                                              
| | · | Based on the above work, a drilling construction plan will be determined and a new drilling plan of 3,000m will be arranged.                                                 



Acquiring More Mineral Reserves



To increase our reserve base and insure
supply to our processing facilities, we plan to acquire domestic and foreign large-scale mines when the right opportunity arises.
We also expect to acquire additional nonferrous metal mines and fluorite mines that have good extracting and operating conditions
and possess all necessary governmental licenses.



BUSINESS STRATEGY



Prospect in 2011



With respect to China’s overall
economic situation, we believe that China’s economy will gradually turn for better in 2011. Non-ferrous metal and fluorite
industry will face new development opportunities. We also believe that non-metallic mineral industry is an industry with a bright
future.



First, we will expand production
capacity in order to position the Company to achieve the designed production capacity.



Due to favorable policies issued by
PRC government in 2010, the price of fluorite ores and the downstream products increased rapidly; at the same time, along with
the revival of the global economy, the price of nonferrous metal keeps going up. Under the aforementioned favorable environment,
the Company plans to expand production in 2011.





36













Acquiring More Mineral Reserves



To increase our reserve base and insure
supply to our processing facilities, we plan to acquire domestic and foreign large-scale mines when the right opportunity arises.
We also expect to acquire additional nonferrous metal mines and fluorite mines that have good extracting and operating conditions
and possess all necessary governmental licenses.



Adjusting Sales and Marketing Strategies



The adjustment of our sales and marketing
strategy is aimed at the Company’s fluorite ores business. The Company plans to change the sales strategy for our fluorite
products. Previously, our strategy was: due to economic crisis and the business difficulties, the Company generally signed sales
orders, fixed sales prices and recovered advances from customers more than 3 months in advance; thus, we did not get any benefit
from the increase of market price of fluorite ores (from the market price of approximately $118/ton at the beginning of 2010 to
the market price of approximately $295/ton by the end of 2010). Based on these past results, the Company plans to change its sales
strategy starting at the beginning of 2011. At that time, we will begin selling fluorite products at the current market price.



Continuing to put more efforts into
mining exploration and trying to form a periodic/staged and detailed report



Based on our early stage prospecting,
the Company plans to keep on putting more effort into the prospecting of chalcopyrite ore at Xingzhen Mining. We intend to retain
a third party authoritative geological prospecting and engineering team in Xinjiang Province, PRC, to drill, punch, and conduct
the geophysical and geochemical exploration, and try to complete the examination of the mining areas of the Company. They will
also complete an examination report. The Company hopes to locate more mineralized materials for Xingzhen’s large-scale mining
and selection in the future.



The Company plans to make an early
stage preparation for fluorine chemical downstream products



Based on the support and guidance of
government policies, the Company determined to set the fluorine chemical downstream products as a future development priority,
and the Company plans to focus more effort on research and development in the fluorine chemical industry. To be specific, we may
partner with some national and international fluorine chemical enterprises, through a “resource + technology” cooperation
form, and enter the fluorine chemical industry at suitable time.



RESULTS OF OPERATIONS - YEAR ENDED
DECEMBER 31, 2010 AS COMPARED TO YEAR ENDED DECEMBER 31, 2009



Selected information from the Consolidated
Statements of Operations



|                                              |  | For the years ended December 31, |       
|--------------------------------------------- |  | -------------------------------- | ------
|                                              |  | 2010                             |       
|                                              |  | (in thousands)                   |       
|Net revenue                                   |  | $                                | 11,612
|Gross profit                                  |  |                                  | 3,008 
|- Gross profit margin                         |  |                                  | 25.90 
|General and administrative expenses           |  |                                  | 4,145 
|Other operating expenses                      |  |                                  | 1,996 
|Interest expenses                             |  |                                  | 589   
|Net (loss) income attributable to the Company |  | $                                | (3,288



REVENUES. Net revenues for the year
ended December 31, 2010 were $11.61 million, representing a $7.42 million or 177% increase as compared to $4.19 million of 2009.
The improved performance was mainly due to the increased revenues from the fluorite and non-ferrous metal segments as described
below.



GROSS PROFIT AND GROSS PROFIT MARGIN.
For the year ended December 31, 2010, gross profit was $3.01 million, representing a increase of approximately 1,066% as compared
to $0.26 million of 2009. The gross profit from our fluorite segment was approximately $1.95 million and $0.16 million for the
year ended December 31, 2010 and 2009, respectively. The gross profit from our non-ferrous metal segment was approximately $1.06
million and $0.10 million the year ended December 31, 2010 and 2009, respectively. Gross profit margin was approximately 25.90%
for the year ended December 31, 2010, which increased significantly as compared to gross profit margin of 6.15% for the year ended
December 31, 2009.



37







GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses (impairment provision for doubtful accounts and inventory excluded) decreased by approximately
$1.65 million to $4.15 million in 2010 from $5.80 million in 2009. The decrease in general and administrative expenses was primarily
due to (i) the decreased salary expense amount to $0.84 million for the year ended December 31, 2010; (ii) the decreased idle cost
amount to $0.81 million for the year ended December 31, 2010.



OTHER OPERATING EXPENSES. Other operating
expense increased by approximately $1.95 million to $2.00 million in 2010 from $0.5 million in 2009. The increase was mainly due
to the impairment provision for the inventory and mining assets amount to $1.64 million for Qianzhen Mining and Qingshan Metal's
two years no production.



INTEREST EXPENSE. Interest expense decreased
by approximately $2.40 million as compared to the same period of 2009. The difference in interest expense is mainly due to the
non-cash interest expense and costs associated with our convertible bonds, which were repurchased in December 2009.



NET (LOSS) INCOME ATTRIBUTABLE TO THE
COMPANY. Net (loss) income attributable to the Company for the year ended December 31, 2010 was approximately ($3.29) million,
a difference of $6.30 million compared to net income of $3.01 million for 2009. The difference was mainly due to the fact that
in 2009 we repurchased the convertible bonds and gained approximately $13.95 million. Basic earnings per share were ($0.11) or
($0.11) fully diluted for the year ended December 31, 2010.



SEGMENT PERFORMANCE ANALYSIS



|                      |  | Segment revenue For year Ended December 31, |       |  | Segment profit (loss) For year Ended December 31, |  
|--------------------- |  | ------------------------------------------- | ----- |  | ------------------------------------------------- | -
|(amounts in thousand) |  | 2010                                        |       |  | 2009                                              |  
|Fluorite              |  | $                                           | 8,012 |  |                                                   | $
|                      |  |                                             |       |  |                                                   |  
|Nonferrous metals     |  | $                                           | 3,600 |  |                                                   | $



Fluorite



Fluorite segment revenue increased by
104% from $3.92 million for 2009 to $8.01 million for 2010. The increase was primarily due to the increases in sales volume for
fluorite powder and the sale price for fluorite powder. Approximately 29,000 and 12,000 metric tons of fluorite powder were sold
for the years ended December 30, 2010 and 2009, respectively; and the average price for a metric ton of fluorite powder was $164
and $113 for the years ended December 30, 2010 and 2009.



Revenue contributed from our fluorite
segment accounted for 69.0% of the Company’s total revenue for the year ended December 31, 2010 as compared to 93.5% in 2009.



Our fluorite segment reported a segment
loss of approximately $0.44 million for the year ended December 31, 2010 compared to a segment profit of $2.29 million in 2009.



Nonferrous metals



Nonferrous metals segment revenue for
2010 amounted to $3.60 million, representing a increase of approximate $3.33 million or 1219% compared to 2009. The performance
of the nonferrous metals segment significantly improved because Xingzhen restarted in May 2010 and even operate in the winter
of 2010. Xingzhen Mining processed 77,241 metric tons of ores to produce 3,129 metal ton of zinc concentrate powder and 155 metal
ton of copper concentrate, and sold 2,538 metal tons of zinc concentrate powder and 115 metal tons of copper concentrate powder
the year ended December 31, 2010. While for the same period of 2009, Xingzhen Mining was in trial production and produced
very few products because of the technological difficulties.



Revenue contributed from our nonferrous
metal segment accounted for 31.0% of the Company’s total revenue for the year ended December 31, 2010 as compared to 6.5%
in 2009.



Our nonferrous metal segment reported
a segment loss of approximately $2.77 million for the year ended December 31, 2010 compared to a segment profit of $1.83 million
in 2009.



The net segment loss for Xingzhen was
approximately 0.81 million and 1.22 million for the year ended December 31, 2010 and 2009, respectively.



38







The net segment loss for Qianzhen and
Qingshan was approximately 1.96 million and 0.61 million for the years ended December 31, 2010 and 2009, respectively. The significant
difference for Qianzhen and Qingshan was mainly due to the impairment provision for inventory, available for sale investment and
mining assets amount to approximately 1.79 million for two years no production.



FINANCIAL CONDITION, LIQUIDITY AND
CAPITAL RESOURCES



Cash and cash equivalents were $1.5
million as of December 31, 2010, an increase of $1.2 million as compared to the balance at December 31, 2009 of $0.3 million.



Net cash used in operating activities
for the year ended December 31, 2010 was $3.7 million, as compared to $1.2 million used for the year ended December 31, 2009. The
cash was mainly used in the repayment with amount to approximately $6.3 million to the suppliers.



Net cash used in investing activities
of $2.0 million for the year ended December 31, 2010, as compared to $7.7 million provided for the year end December 31, 2009.
The cash was mainly used in the purchasing of property, machinery and mining assets for the years ended December 31, 2010
and 2009, respectively. The cash provided for the year end December 31, 2009 was mainly due to the disposal of discontinued operations.



Net cash provided by financing activities
for the year ended December 31, 2010 was $7.2 million, which was mainly due to the net increased short loan amount to $4.5 million
from China Citic bank and the short loan amount to $2.8 million from Ms. Ding as described in the Note 10 to our financial statements.
For the same period in 2009, net cash used in financing activities for the year ended December 31, 2009 was $6.3 million, which
was mainly due to the repurchase of the convertible notes.



The accompanying consolidated financial
statements have been prepared on a going concern basis. The Company has incurred net operating losses of approximately $3.2
million and $5.7 million during the years ended December 31, 2010 and 2009, respectively. The Company had cash used in operations
of approximately $3.7 million and $1.2 million for the years ended December 31, 2010 and 2009, respectively. The Company’s
ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations
and repay its liabilities arising from normal business operations when they come due, to fund possible future acquisitions, and
to generate profitable operations in the future. Management plans to continue to provide for its capital requirements by issuing
additional equity securities and debt in addition to executing their business plan.



In 2011 the Company has raised funds
used to pay down short-term loans in the amount of $6.05 million and to acquire a 55% interest in Xinyi Fluorite Company Ltd. (see
Note 28)



The Company has also agreed to sell
common stock and warrants to purchase common stock to certain institutional investors. (see Note 28)



The outcome of these matters cannot
be predicted at this time and there are no assurances that if achieved, the Company will have sufficient funds to execute
its business plan or generate positive operating results.  These consolidated financial statements do not include any adjustments
to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a
going concern.



For further information concerning financial
condition, liquidity, and capital resources, please see the information under Note 2 to the financial statements included herein.



ENVIRONMENTAL



The Company’s mining and exploration
activities are subject to various PRC laws and regulations governing the protection of the environment. These laws and regulations
are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect the
public health and environment and believes its operations are in compliance with applicable laws and regulations in all material
respects. The Company’s mining operations are subject to “Natural Resource Compensation Charges”, but the charging
rate varies in different cities in the PRC. As of December 31, 2010 and 2009 Natural Resource Compensation Charges of $236,030
and $78,383, respectively, were charged to operations.



CONTRACTUAL OBLIGATIONS AND COMMERCIAL
COMMITMENTS



Convertible Notes



On December 27, 2006, the Company entered
into a Notes Purchase Agreement with Citadel Equity Fund Ltd. (“Citadel”), under the terms of which Citadel purchased
a total of US$ 28 million in convertible senior notes. The Notes have a maturity of December 27, 2012.



39







Redemption of Convertible Notes



On September 22, 2009, the Company entered
into a Notes Repurchase Agreement with Mountview Path Limited (“Mountview”), a corporation incorporated under the laws
of the British Virgin Islands, pursuant to which the Company repurchased the entire 6.75% Senior Convertible Notes due 2012 of
US$ 28 million principal amount (“Notes”), originally issued to Citadel. Mountview is the current legal and beneficial
owner of the entire amount of the Notes.



The consideration payable in the transaction
consists of US$ 8 million in cash and 5 million shares of the Company’s common stock. The gain on convertible note redemption
is US$ 14 million, or approximate 0.56 per share. Mountview were entitled to any accrued and unpaid interest on the Notes. The
closing of this transaction occurred on December 23, 2009.



OFF-BALANCE SHEET ARRANGEMENTS



We have never entered into any off-balance
sheet financing arrangements and have not formed any special purpose entities. We have not guaranteed any debt or commitments of
other entities or entered into any options on non-financial assets.



INFLATION



The Company does not foresee any material
adverse effects on its earnings as a result of inflation.



CRITICAL ACCOUNTING POLICIES



Our discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements
requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates.



An accounting policy is considered to
be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the
time the estimates are made, and if different estimates that reasonably could have been used, or changes in the accounting estimates
that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe the following critical
accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial
statements.



We believe that the following critical
accounting policies reflect the significant estimates and assumptions which are used in the preparation of the consolidated financial
statements and affect our financial condition and results of operations.



Use of Estimates



The Company’s consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The
preparation of the Company’s consolidated financial statements requires the Company to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date
of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. The more
significant areas requiring the use of management estimates and assumptions relate to mineral reserves and value beyond proven
and probable reserves that are the basis for future cash flow estimates utilized in impairment calculations, the estimated lives
of the mineralized bodies based on estimated recoverable volume through the end of the period over which the company has extraction
rights that are the basis for units-of-production depreciation, depletion and amortization calculations; estimates of fair value
for certain reporting units and asset impairments (including impairments of goodwill, long-lived assets and investments); write-downs
of inventory to net realizable value; reserves for contingencies and litigation; and the fair value and accounting treatment of
financial instruments. The Company bases its estimates on historical experience and on various other assumptions that are believed
to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different
assumptions or conditions.



40







Property, machinery and mining
assets



Expenditures for new facilities or equipment
and expenditures that extend the useful lives of existing facilities or equipment are capitalized and depreciated using the straight-line
method at rates sufficient to depreciate such costs over the estimated productive lives, which do not exceed the related estimated
mine lives, of such facilities based on mineralized material.



Mineral exploration costs are expensed
according to the term of license granted to the Company. Extraction rights are stated at the lower of cost and recoverable amount.
When extraction rights are obtained from the government according to mining industry practice in the PRC, extraction rights and
other costs incurred prospectively to develop the property are capitalized as incurred and are amortized using the units-of-production
(“UOP”) method over the estimated life of the mineralized body based on estimated recoverable volume through to the
end of the period over which the Company has extraction rights. At the Company’s surface mines, these costs include costs
to further delineate the mineralized body and remove overburden to initially expose the mineralized body. At the Company’s
underground mines, these costs include the cost of building access ways, shaft sinking and access, lateral development, drift development,
ramps and infrastructure development.



Major development costs incurred after
the commencement of production are amortized using the UOP method based on estimated recoverable volume in mineralized material.
To the extent that these costs benefit the entire mineralized body, they are amortized over the estimated life of the mineralized
body. Costs incurred to access specific mineralized blocks or areas that only provide benefit over the life of that area are amortized
over the estimated life of that specific mineralized block or area.  Interest cost allocable to the cost of developing
mining properties and to constructing new facilities, if any, is capitalized until assets are ready for their intended use.



Land use rights are stated at cost,
less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of 25 years.



The Company’s depreciation and
amortization policies on fixed assets are summarized as follows:

|                   |  | Useful Life |             
|------------------ |  | ----------- | ------------
|                   |  | (In years)  |             
|Land use rights    |  |             | 25          
|Buildings          |  |             | 25          
|Machinery          |  |             | 12          
|Mining assets      |  |             | License term
|Motor vehicle      |  |             | 6           
|Equipment          |  |             | 5           
|Extraction rights  |  |             | License term
|Exploration rights |  |             | License term



CONCENTRATION OF CUSTOMERS



We had two main customers who contributed
approximately $7,527,000 or 65% of the Company’s consolidated net revenue for the year ended December 31, 2010. For the same
period of 2009, the Company had five main customers who contributed approximately $3,441,000 or 81% of the Company’s consolidated
net revenue.



The following table shows the Company’s
major customers (10% or more of consolidated net revenue) for the year ended December 31, 2010:



|                   |  | Revenue        |       |  | Percentage | 
|------------------ |  | -------------- | ----- |  | ---------- | 
|Customer           |  | (In thousands) |       |  | (%)        | 
|RuiPeng Mining Ltd |  | $              | 3,600 |  |            | 
|Ningxia Jinhe Ltd  |  |                | 3,926 |  |            | 
|                   |  | $              | 7,527 |  |            | 



The following table shows the Company’s
major customers (10% or more of consolidated net revenue) for the year ended December 31, 2009:



|                                      |  | Revenue        |       |  | Percentage | 
|------------------------------------- |  | -------------- | ----- |  | ---------- | 
|Customer                              |  | (In thousands) |       |  | (%)        | 
|Handan Hongzhi Ltd                    |  | $              | 892   |  |            | 
|Ningxia Jinhe Ltd                     |  |                | 815   |  |            | 
|Laiwu Steel Ltd                       |  |                | 638   |  |            | 
|Inner Mongolia Huadesanli Trading Ltd |  |                | 621   |  |            | 
|Zibo Bofeng Ltd                       |  |                | 475   |  |            | 
|                                      |  | $              | 3,441 |  |            | 



41









| | ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
| | -------- | -----------------------------------------------------------



Not required.



| | ITEM 8. | FINANCIAL STATEMENTS.
| | ------- | ---------------------



Please see the “Consolidated Financial
Statements of the Company” beginning on page F-1 of this Annual Report.



| | ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
| | ------- | -------------------------------------------------------------------------------------



There are no reportable events as required
by Item 304(b) of Regulation S-K.



| | ITEM 9A. | CONTROLS AND PROCEDURES.
| | -------- | ------------------------



Effectiveness of Control Procedures





As required by Rule 13a-15(b) under
the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this
report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be
disclosed by us in reports that we file under the Exchange Act with the SEC is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our
management, as appropriate, to allow such persons to make timely decisions regarding required disclosures. Based upon the results
of our evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls
and procedures were effective as of December 31, 2010.



Management’s Report on Internal
Control Over Financial Reporting



Our management is responsible for establishing
and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) or 15d-15(f), under
the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our principal
executive and principal financial officers and affected by our Board of Directors, management and other personnel, and to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our assets; (ii)provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on its financial statements.



Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.



Management has assessed the effectiveness
of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria
set forth in the framework established by the Committee of Sponsoring Organizations of the Treadway Commission Internal Control—Integrated
Framework, (“COSO”) Based on its assessment, management believes that, as of December 31, 2010, our internal
control over financial reporting is effective based on those criteria.



42







This Annual Report does not include
an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual
Report.



Changes in Internal Control over
Financial Reporting



There have been no changes in our internal
control over financial reporting that occurred during the fourth quarter within the fiscal year ended December 31, 2010 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



| | ITEM 9B. | OTHER INFORMATION.
| | -------- | ------------------



None



43







PART III



| | ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
| | -------- | ---------------------------------------------------------------------------------------------------------------

Set forth below is certain information
concerning each of the directors and executive officers of the Company as of March 28, 2011. None of our directors or executive
officers holds directorships in other public companies as of March 28, 2011 except Gene Michael Bennett who is also an independent
director for China Agritech Inc. (NASDAQ:CAGC) and China Pharma Holdings, Inc. (AMEX:CPHI) and Konman Wong who is also an independent
director for Group Sense (International) Limited (HKSE:0601) and Polyard Petroleum International Group Ltd. (HKSE:8011).



Listed below are the directors, executive
officers, and certain key employees of the Company. The directors listed below will serve until the Company’s next annual
meeting of the stockholders:



|Name                 |  | Age |  | Position                                                           
|-------------------- |  | --- |  | -------------------------------------------------------------------
|Xiaojing Yu          |  | 54  |  | Director, CEO and Chairwoman of the Board                          
|Helin Cui            |  | 55  |  | Director, President and Chief Operating Officer                    
|Xueming Xu           |  | 50  |  | Director                                                           
|Jiayin Zhu           |  | 29  |  | Chief Financial Officer                                            
|Liancheng Li         |  | 44  |  | Director, Chairman of Compensation Committee                       
|Jian Zhang           |  | 69  |  | Director, Chairman of Corporate Governance and Nominating Committee
|Konman Wong          |  | 47  |  | Director                                                           
|Ligang Wang          |  | 50  |  | Vice President and President of Qianzhen Mining                    
|Gene Michael Bennett |  | 63  |  | Director and Chairman of Audit Committee                           



Ms. Xiaojing Yu has served as
Director, Chief Executive Officer and Chairwoman of the Board of Directors of the Company since September 15, 2006. Given Ms. Yu’s
extensive experience in the mining industry of greater than twenty years, and her vast management and leadership experience, the
Board of Directors believes Ms. Yu is essential to our future growth and based her appointment on such qualities. She currently
also serves as director and chairwoman of Inner Mongolia Wulatehou Banner Qianzhen Mining and Processing Co., Ltd and Inner Mongolia
Xiangzhen Mining Co., Ltd. She has served in that capacity since May 2002. Prior to that, from 1992 to 2001 she was the general
manager of Dalian Zhikun Metal Materials Co. Ltd and from 1974 to 1991 she was the finance manager of Gansu Baiyin Nonferrous Industrial
Corporation. Also, since July 2004, Ms. Yu has served as the Executive Vice President of China Fluorite Industry Association. She
attended an advanced Management Program run by Tsing Hua University from May 2004 to December 2005.



Mr. Helin Cui serves as Director,
President and Chief Operating Officer. Mr. Cui was appointed director on September 15, 2006, and President and Chief Operating
Officer on December 03, 2009. Given Mr. Cui has more than twenty years experience in the mining industry, which includes both technical
and management roles, the Board of Directors believes Mr. Cui is a qualified and valuable appointment to the Board. He is currently
a director and deputy chairman of Inner Mongolia Wulatehou Banner Qianzhen Mining and Processing Co., Ltd and of Inner Mongolia
Xiangzhen Mining Co., Ltd. He has served in that capacity since May 2002. Prior to that, from June 1974 to March 1977, Mr. Cui
worked with Gansu Province’s No. 3 Geological Team as a technician, engineer and team leader and from October 1979 to April
2002 as deputy general manager at Baiyin Foreign Trading Company in Gansu Province. From April 1977 to September 1979, he attended
and graduated from the Xi’an Geology College.



Mr. Xueming Xu serves
as Director. He was appointed director in April of 2007. The Board considered Mr. Xu’s extensive background in the
mining industry, more than twenty years, and his technical and management backgrounds, in determining that Mr. Xu is a
qualified and valuable appointment to the Board. He is currently director and President of Inner Mongolia Wulatehou Banner
Qianzhen Mining and Processing Co., Ltd and of Inner Mongolia Xiangzhen Mining Co., Ltd. He has served in that capacity since
May 2002. Prior to that, from August 1983 to May 1998, Mr. Xu served as technician, vice-superintendent and superintendent at
Inner Mongolia’s Tianyaokou Iron Ore Plant and, from June 1998 to July 2002, as deputy general manager of Inner
Mongolia Dongshengmiao Mining Co., Ltd. Mr. Xu graduated from Lianyungang College of Chemical Mining and attended an
advanced Management Program run by Tsing Hua University.



44







Mr. Liancheng Li serves as Director
and the Chairman of the Compensation Committee. He was appointed director in November of 2010. The Board considered Mr. Li’s
extensive experience in senior management and technical research and development, more than twenty years, in determining that Mr.
Li is a qualified and valuable appointment to the Board. From 2005 to present, as senior engineer, Mr. Li served as the vice-director
of Information Center of Tianjin Chemical Research & Design Institute of China National Offshore Oil Corp. Mr. Li acted as
the vice director of China National Inorganic Salts Information Center from 1997 to present. From 1989 to 1994, Mr. Li served as
a chemical economic analyst of Tianjin Research Institute of Chemical Industry. Mr. Li holds a bachelors degree in chemical engineering
from Zhengzhou Institute of Technology.



Mr. Jian Zhang serves as Director
and Chairman of the Nominating & Corporate Governance Committee. Mr. Zhang was appointed to these positions in April of 2007.
The Board considered Mr. Zhang’s extensive background in the mining industry, including nonferreous mining, project constructions
and management, spanning more than thirty years, as well as his technical and management backgrounds, in determining that Mr. Zhang
is a qualified and valuable appointment to the Board. Since August 2005, he has been an external director of China Construction
Materials Company Ltd. Prior to that, Mr. Zhang was President of China Nonferrous Mining Construction Group from September 2003
to August 2005. He served as President of China Nonferrous Mining Construction Group from April 2002 to September 2003. Mr. Zhang
graduated from the environmental engineering department of Xi’an Mining Architecture College in 1968.



Mr. Konman Wong serves as Director.
He was appointed Director in July of 2009. The Board considered his financial background and his previous experience serving on
the boards of publicly listed companies in deciding to appoint him to the Board. Since 2004, he has been a Director of Action Precision
Ltd., a metal casting manufacturer for the telecommunication industry. He is a member of AICPA and HKICPA. Mr. Wong graduated in
December 1988 from the University of Hawaii at Manoa with a bachelor’s degree in Accounting. From September 2004 to the present
he has served as independent and non-executive director of Group Sense International Limited (HKSE: 0601) and, from May 2010 to
the present, as independent and non-executive director of Polyard Petroleum International Group Limited (HKSE: 8011) both of which
companies are Hong Kong listed companies.



Mr. Jiayin Zhu serves as the
Chief Financial Officer of the Company. He was appointed as CFO on March 16, 2011. Most recently, Mr. Zhu held the position of
Financial Manager with the Company from June of 2010 until his appointment to the CFO position. Previously, Mr. Zhu held the positions
of Deputy Financial Manager and Accountant with the company, from February of 2009 until June of 2010 and from April of 2008 until
February of 2009, respectively. Mr. Zhu received his master’s degree in management from Liaoning Technical University in
2008. Mr. Zhu received his bachelor’s degree in economics from Central China Normal University in 2005.



Mr. Gene Michael Bennett serves
as Director and Chairman of the Audit Committee. He was appointed to these positions in November of 2007. He is the CEO of AGBA
a NGO that assists Chinese companies to develop business in the West and has been their CEO since March of 2008. Before that, from
June 2005 to March 2008, Mr. Bennett was a partner of Nexis Consulting, a firm based in Beijing assisting companies with raising
funds and with corporate governance issues. Mr. Bennett also is the director of four Chinese based exchange listed companies (China
Agritech Inc. – CAGC.pk; China Pharma Holdings, Inc – CPHI – Amex; China Shen Zhou Mining & Resources, Inc.
– SHZ – Amex; and Global Pharm Holding Group – GPHG – OTCBB). He has and also served as the chairman of
the audit committee of CPHI since March of 2011. He is in the process of finishing his doctoral thesis on corporate governance
in the PRC for his Doctorate at the City University of Hong Kong. Mr. Bennett was raised and educated in the U.S. and holds an
MBA in Finance from Michigan State University and was a CPA (inactive) in the state of Colorado. He has taught at the University
of Hawaii, California State University at Fullerton, Chaminade University in Honolulu and Chapman University in Orange, California.



The Board evaluated several factors
when selecting Mr. Bennett as the Chairman of the Audit Committee as well as its financial expert. First, his working knowledge
of US-GAAP was an important factor in the decision. This factor was bolstered by a number of other factors that led to the expertise
required to serve as the Chairman of the Audit Committee and the audit committee financial expert. These factors include, but are
not limited to the following: (i) obtaining his bachelor degree and his MBA, with a specialization in accounting and finance from
Michigan State University, (ii) working for Gerbel and Butzbaugh CPAs as accountant enroute to becoming a CPA, (iii) passing the
CPA exam on the first sitting, (iv) becoming a licensed CPA in Colorado, (v) presently working on a doctorate in Corporate Governance
from City University of Hong Kong, (vi) interfacing with auditors and CPAs on behalf of clients (vii) his experience garnered from
serving on several Boards of Companies as well as his holding various positions as CFO and consultant. His knowledge of both western
accounting practices and the Chinese business environment coupled with all of the reasons above made him an ideal candidate to
head our Audit Committee and act as its financial expert.



After consideration, the Company believes
Mr. Bennett fulfills the requirements of Regulation S-K Item 407(d) with respect to the role of audit committee financial expert.
The company feels that the Company’s business and structure does not preclude this finding, and the support for such determination
is further strengthened when the Company considers the combination of Mr. Bennett’s business and financial expertise with
the mining expertise of other members of the committee and the board.



45







Mr. Ligang Wanghas served as
Vice President. Since July 2002, he has served as President of Qianzhen Mining. He has more than 20 years’ experience in
mine management. From January 1986 to June 2002, he worked as plant manager in the Wulatehou Banner Baynnur Mining.



Each of the directors named above will
serve until our next Annual Meeting of Stockholders or until their successors are duly elected and qualified. Directors will be
elected for one-year terms at the Annual Meeting of Stockholders. Officers will hold their positions at the pleasure of the Board
of Directors, absent any employment agreement, of which none currently exists or is contemplated. There is no arrangement or understanding
between any of our directors or officers and any other person pursuant to which any director or officer was or is to be selected
as a director or officer, and there is no arrangement, plan or understanding as to whether non-management stockholders will exercise
their voting rights to continue to elect the current directors to our Board of Directors. There are also no arrangements, agreements
or understandings between non-management stockholders that may directly or indirectly allow participation in or influence the management
of our affairs.



There are no agreements or understandings
for any officer or director to resign at the request of another person, and none of our officers or directors is acting on behalf
of, or will act at the direction of, any other person.



As directors of the Company, we elected
them based on their experiences in financial or industrial work. Most of our directors have over 20 years’ experience in
the relevant industries, such as Messrs. Helin Cui, Xueming Xu, and Jian Zhang, and Liancheng Li who all have over 20 years’
experience in the management of nonferrous mining. Thus are qualified for being directors of the Company which is mainly engaged
in the business of mining operations. As an Amex listed company, we also appoint some financial experts as the director of the
Company, for example, Messrs. Gene Michael Bennett and Konman Wong.



Ms. Xiaojing Yu has over 20 years’
experience in the mining and finance industries. As the founder of the Company, she is a major shareholder (currently 49.2%) of
the Company. To stabilize the experienced management team and for the long term development of the Company, she has served as both
the Chairwoman of Board and the CEO of the Company.



We do not have a Lead Independent Director.
We consider the diversity in identifying nominees for director in two aspects: sufficient experiences in management of mining operations
and finance.



Involvement in Certain Legal Proceedings



During the past ten years, no present
or former director, executive officer or person nominated to become a director or an executive officer of our Company:



|(1) | Was a general partner or executive officer of any business against which any bankruptcy petition was filed, either at the time of the bankruptcy or two years prior to that time;                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                     
|(2) | Was convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                     
|(3) | Was subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
|    |                                                                                                                                                                                                                                                                                                     
|(4) | Was found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.                                            



Compliance with Section 16(a) of
the Securities Exchange Act of 1934



Section 16(a) of the Securities and
Exchange Act of 1934 requires our executive officers and directors and persons who own more than 10% of a registered class of our
equity securities, to file with the SEC initial statements of beneficial ownership on Form 3, reports of changes in ownership on
Form 4 and annual reports concerning their ownership on Form 5. Executive officers, directors and greater than 10% stockholders
are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.



46







Code of Ethics



We have adopted a Code of Business Conduct
and Ethics (the “Code”) that is applicable to all employees, consultants and members of the Board of Directors, including
the Chief Executive Officer, Chief Financial Officer and Secretary. This Code embodies our commitment to conduct business in accordance
with the highest ethical standards and applicable laws, rules and regulations. We will provide any person a copy of the Code, without
charge, upon written request to the Company. Requests should be addressed in writing to: Fulun Song, office of the Board of Directors,
China Shen Zhou Mining & Resources, Inc., Suite 1211, Zeyang Tower, No. 166 Fushi Road, Shijingshan District, Beijing, China
100043.



Director Nominees Recommended by
Stockholders



We have not implemented any changes
to the procedures by which stockholders may recommend nominees to our board of directors since we last disclosed those procedures
in our most recent proxy statement.



Board Composition; Audit Committee
and Financial Expert



Our Board has 7 members, of which 4
are independent directors. The independent directors are Gene Michael Bennett, Jian Zhang, Konman Wong and Liancheng Li. We have
an Audit Committee, a Compensation Committee and a Corporate Governance and Nominating Committee. The Audit Committee has been
established as a separately-designated standing committee in accordance with section 3(a)(58)(A) of the Exchange Act. The Audit
Committee has at least one member, Mr. Gene Michael Bennett, who meets the definition of an “audit committee financial expert”
under SEC rules and whom the Board has determined to be “independent”.



Audit Committee. The Audit Committee
is currently comprised of Gene Michael Bennett, Konman Wong and Jian Zhang, with Gene Michael Bennett as the chairman, each of
whom are “independent” as that term is defined by SEC rules and under the American Stock Exchange listing standards.
The Audit Committee is directly responsible for the appointment, retention and oversight of the work of any independent accountants
employed by the Company for the purpose of preparing or issuing an audit report or related work or performing other audit, review
or other services. Any such registered public accounting firm must report directly to the Audit Committee. The Audit Committee
has the ultimate authority and responsibility to evaluate and, where appropriate, replace the registered public accounting firm.



Audit Committee held 5 meetings in 2010
and the attendance rates for all committee members were 100%.



Compensation Committee. The Compensation
Committee is responsible for the administration of all salary, bonus and incentive compensation plans for our officers and key
employees. The members of the Compensation Committee are Konman Wong, Jian Zhang and Liancheng Li, with Liancheng Li as the chairman,
all of whom are “independent” directors.



Compensation Committee held 1
meetings in 2010 and the attendance rates for all committee members were 100%.



Nominating and Corporate Governance
Committee The Nominating and Corporate Governance Committee is responsible for overseeing, reviewing, and making periodic recommendations
concerning the company’s corporate governance policies and recommending candidates for election to the Company’s Board
of Directors. The committee also oversees our adherence to our corporate governance standards. The members of the committee are
Jian Zhang, Konman Wong, and Liancheng Li with Jian Zhang as the chairman.



Nominating and Corporate Governance
Committeeheld 2 meetings in 2010 and the attendance rates for all committee members were 100%.



In 2010, the board of directors held
6 meetings and attendance rates for all board members were 98%.



| | ITEM 11. | EXECUTIVE COMPENSATION
| | -------- | ----------------------



During 2010, no executive officer’s
total annual salary and bonus exceeded $100,000.



47







Summary Compensation Table

|Name and
    Principal Underlying  Positions (a) |  | Year
     (b) |      |  | Salary
    Paid in Cash (c) |   |        | Bonus
    (d) |  |   | Option    Awards (e) |  |  | Stock
    Awards (f)*** |   |  | Non-equity
    Incentive Plan Compensation (g) |  |   | Nonqualified
    Deferred Compensation
 Earnings (h) |  |   | All Other
    Compensation (i) |  |  | Total
    (j) |  
|------------------------------------------------ |  | ------------- | ---- |  | --------------------------- | - | ------ | ------------- |  | - | -------------------- |  |  | ----------------------- | - |  | ---------------------------------------------- |  | - | ---------------------------------------------------- |  | - | ------------------------------ |  |  | ------------- | -
|Xiaojing Yu, CEO                                 |  |               | 2010 |  |                             | $ | 70,808 |               |  | $ | 0                    |  |  | $                       | 0 |  |                                                |  | 0 |                                                      |  | $ | 0                              |  |  | $             | 0
|                                                 |  |               | 2009 |  |                             | $ | 70,287 |               |  | $ | 0                    |  |  | $                       | 0 |  |                                                |  | 0 |                                                      |  | $ | 0                              |  |  | $             | 0
|Xueming Xu, President and COO*                   |  |               | 2010 |  |                             | $ | 26,553 |               |  | $ | 0                    |  |  | $                       | 0 |  |                                                |  | 0 |                                                      |  | $ | 0                              |  |  | $             | 0
|                                                 |  |               | 2009 |  |                             | $ | 39,550 |               |  | $ | 0                    |  |  | $                       | 0 |  |                                                |  | 0 |                                                      |  | $ | 0                              |  |  | $             | 0
|Helin Cui, President and COO*                    |  |               | 2010 |  |                             | $ | 46,026 |               |  | $ | 0                    |  |  | $                       | 0 |  |                                                |  | 0 |                                                      |  | $ | 0                              |  |  | $             | 0
|                                                 |  |               | 2009 |  |                             | $ | 29,587 |               |  | $ | 0                    |  |  | $                       | 0 |  |                                                |  | 0 |                                                      |  | $ | 0                              |  |  | $             | 0
|Steven Wang, CFO**                               |  |               | 2010 |  |                             | $ | 6,294  |               |  | $ | 0                    |  |  | $                       | 0 |  |                                                |  | 0 |                                                      |  | $ | 0                              |  |  | $             | 0
|                                                 |  |               | 2009 |  |                             | $ | 0      |               |  | $ | 0                    |  |  | $                       | 0 |  |                                                |  | 0 |                                                      |  | $ | 0                              |  |  | $             | 0
|Jiusheng Zhang, CFO**                            |  |               | 2010 |  |                             | $ | 14,113 |               |  | $ | 0                    |  |  | $                       | 0 |  |                                                |  | 0 |                                                      |  | $ | 0                              |  |  | $             | 0
|                                                 |  |               | 2009 |  |                             | $ | 22,980 |               |  | $ | 0                    |  |  | $                       | 0 |  |                                                |  | 0 |                                                      |  | $ | 0                              |  |  | $             | 0
|Ligang Wang, Vice President                      |  |               | 2010 |  |                             | $ | 23,013 |               |  | $ | 0                    |  |  | $                       | 0 |  |                                                |  |   |                                                      |  | $ | 0                              |  |  | $             | 0
|                                                 |  |               | 2009 |  |                             | $ | 10,538 |               |  | $ | 0                    |  |  | $                       | 0 |  |                                                |  | 0 |                                                      |  | $ | 0                              |  |  | $             | 0



* Helin Cui was appointed as Chief Operating
Officer and President in addition to being a director on December 3, 2009. On this date, Xueming Xu resigned from the position
of Chief Operating Officer and President. He remains a Director of the Company.

** Jiusheng Zhang was appointed CFO
in March 2009 and his stock awarded in 2008 was issued for his service of financial consultancy. Jiusheng Zhang was CFO until Steven
Wang was appointed CFO in August 2010. Steven Wang resigned effective March 16, 2011 and was succeeded by Jiayin Zhu.

*** Common shares awarded under 2009
Omnibus Long-term Incentive Plan approved on October 29, 2009.



Outstanding Equity Awards at Fiscal
Year-End



2009 Omnibus Long-term Incentive Plan
was approved both by Board of Directors of the Company on October 29, 2009 and by shareholders of a majority of our voting stock
and upon the effectiveness of the Information Statement on Form 14C. The shares of Stock issuable under the 2009 Plan are available
either from authorized but unissued shares or from shares reacquired by us on the open market. The maximum number of shares of
Stock available for issuance under the 2009 Plan shall be 2,000,000, and the maximum number of common stock that will be awarded
to any one Grantee (as defined) during any calendar year shall not exceed 300,000.



On February 4, 2010, 760,000 common
shares were issued to 42 persons of employees, consultants, officers and directors under 2009 Omnibus Long-term Incentive Plan.
The number of shares of stock awarded to each officer, director, employee or consultant was determined by dividing the amount of
back pay due such officer, director, employee or consultant by $0.38 which was the average daily trading price per share for the
Company’s common stock in December 2008.



Director Compensation



Compensation for all directors in 2010
as follows:



|Name (a)               |  | Year |      |  | Fees Paid in Cash (b) |   |        | Stock Awards 
(c) ** |  |  | Option Awards 
(d) |  |  | Non-Equity Incentive Plan Compensation (e) |   |  | Nonqualified
 Deferred
 Compensation Earnings (f) |  |   | All Other 
Compensation
 (g) |  |  | Total (h) | 
|---------------------- |  | ---- | ---- |  | --------------------- | - | ------ | -------------------- |  |  | ------------------ |  |  | ------------------------------------------ | - |  | ------------------------------------------------- |  | - | ---------------------------- |  |  | --------- | 
|Youming Yang*          |  |      | 2010 |  |                       | $ | 11,506 |                      |  |  | —                  |  |  |                                            | — |  |                                                   |  | — |                              |  |  | —         | 
|                       |  |      |      |  |                       |   |        |                      |  |  |                    |  |  |                                            |   |  |                                                   |  |   |                              |  |  |           | 
|Liancheng Li*,**       |  |      | 2010 |  |                       | $ | 1,180  |                      |  |  | —                  |  |  |                                            | — |  |                                                   |  | — |                              |  |  | —         | 
|                       |  |      |      |  |                       |   |        |                      |  |  |                    |  |  |                                            |   |  |                                                   |  |   |                              |  |  |           | 
|Jian Zhang**           |  |      | 2010 |  |                       | $ | 12,687 |                      |  |  |                    |  |  |                                            | — |  |                                                   |  | — |                              |  |  | —         | 
|                       |  |      |      |  |                       |   |        |                      |  |  |                    |  |  |                                            |   |  |                                                   |  |   |                              |  |  |           | 
|Konman Wong**          |  |      | 2010 |  |                       | $ | 12,687 |                      |  |  | —                  |  |  |                                            | — |  |                                                   |  | — |                              |  |  | —         | 
|                       |  |      |      |  |                       |   |        |                      |  |  |                    |  |  |                                            |   |  |                                                   |  |   |                              |  |  |           | 
|Gene Michael Bennett** |  |      | 2010 |  |                       | $ | 14,600 |                      |  |  | —                  |  |  |                                            | — |  |                                                   |  | — |                              |  |  | —         | 

* Independent director Mr. Liancheng
Li was appointed independent director of the company in November 2010. On this date, Youming Yang resigned from his independent
director position with the Company.

** Independent director



We paid independent directors compensation
of $12,687 in 2010, except the Chairman of Audit Committee, Gene Michael Bennett whose 2010 compensation was $14,600.



48







Retirement, Post-Termination and
Change in Control



We have no retirement, pension, or profit-sharing
programs for the benefit of directors, officers or other employees, nor do we have post-termination or change in control arrangements
with directors, officer or other employees, but our Board of Directors may recommend adoption of one or more such programs in the
future.



| | ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
| | -------- | -----------------------------------------------------------------------------------------------



The following table sets forth certain
information as of March 28, 2011 relating to the beneficial ownership (as defined by the rules of the SEC) of shares of common
stock by (i) each person who owns beneficially more than 5% of the outstanding shares of our common stock, (ii) each of our directors,
(iii) each of our executive officers as of March 28, 2011, and (iv) all of our executive officers and directors as a group.



|                                                        |  | Amount and Nature of Beneficial Ownership (1) |           
|------------------------------------------------------- |  | --------------------------------------------- | ----------
|Name and Address                                        |  | Number of  Shares(2)                          |           
|Xiaojing Yu, CEO                                        |  |                                               | 15,167,000
|Xueming Xu, Director                                    |  |                                               | 1,790,000 
|Helin Cui, COO & President                              |  |                                               | 8,800     
|Jiayin Zhu, CFO***                                      |  |                                               | 100       
|Jian Zhang, Independent Director                        |  |                                               | 10,000    
|Liancheng Li, Independent Director                      |  |                                               | -         
|Gene Michael Bennett, Independent Director              |  |                                               | 10,000    
|Konman Wong, Independent Director                       |  |                                               | -         
|Ligang Wang, Vice President                             |  |                                               | 34,300    
|Directors and executive officers as a group (9 persons) |  |                                               | 17,020,200



|*   | Less than 1%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|**  | Including the common shares awarded under 2009 Omnibus Long-term Incentive Plan approved on October 29, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|*** | Jiayin Zhu replaced Steven Wang as CFO on March 16, 2011                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(1) | As of March 28, 2011, there were 30,811,397 shares of common stock outstanding. Each person named above has sole investment and voting power with respect to all shares of the common stock shown as beneficially owned by the person, except as otherwise indicated below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(2) | Under applicable rules promulgated by the SEC pursuant to the Exchange Act, a person is deemed the “beneficial owner” of a security with regard to which the person, directly or indirectly, has or shares (a) the voting power, which includes the power to vote or direct the voting of the security, or (b) the investment power, which includes the power to dispose or direct the disposition of the security, in each case irrespective of the person’s economic interest in the security. Under these SEC rules, a person is deemed to beneficially own securities which the person has the right to acquire within 60 days through (x) the exercise of any option or warrant or (y) the conversion of another security.                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(3) | In determining the percent of common stock owned by a person (a) the numerator is the number of shares of common stock beneficially owned by the person, including shares the beneficial ownership of which may be acquired within 60 days upon the exercise of options or warrants or conversion of convertible securities, and (b) the denominator is the total of (i) the shares of common stock outstanding as of March 28, 2011, and (ii) any shares of common stock which the person has the right to acquire within 60 days upon the exercise of options or warrants or conversion of convertible securities. Neither the numerator nor the denominator includes shares which may be issued upon the exercise of any other options or warrants or the conversion of any other convertible securities.



| | ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
| | -------- | -----------------------------------------------



There were no related party transactions
for the years ended December 31, 2010 and 2009, respectively, except for loans and repayments to related parties. Amounts due to
related parties consisted of the following:



49







|                                                                                             |  | December 31,   |      
|-------------------------------------------------------------------------------------------- |  | -------------- | -----
|                                                                                             |  | 2010           |      
|                                                                                             |  | (In thousands) |      
|Due to directors of the Company:                                                             |  |                |      
|Ms. Xiaojing Yu, CEO of the Company (a)                                                      |  | $              | 102  
|Mr. Xueming Xu, Director of the Company (b)                                                  |  |                | 12   
|Mr. He Lin Cui, COO of the Company (c)                                                       |  |                | -    
|Due to Mr. Xiao Ming Yu, General Manager of Xiangzhen (d)                                    |  |                | 431  
|Due to Wulatehouqi Mengxin Co., Ltd., the former minority shareholder of Xingzhen Mining (e) |  |                | -    
|Mr. Mao Huang, the minority shareholder of Xingzhen Mining (f)                               |  |                | 1,894
|                                                                                             |  | $              | 2,439



|(a) | Ms. Yu is the CEO of the Company.                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                 
|(b) | Mr. Xu is a director of the Company.                                                                                                                                            
|    |                                                                                                                                                                                 
|(c) | Mr. Cui is the COO of the Company.                                                                                                                                              
|    |                                                                                                                                                                                 
|(d) | Mr. Yu is the General Manager of Xiangzhen Mining.                                                                                                                              
|    |                                                                                                                                                                                 
|(e) | Wulatehouqi Mengxin Co., Ltd. is the former minority shareholder of Xingzhen Mining, and transferred all the shareholder’s rights and loans of Xingzhen Mining to Mr. Huang (f).
|    |                                                                                                                                                                                 
|(f) | Mr. Huang is the minority shareholder of Xingzhen Mining.                                                                                                                       



| | ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
| | -------- | --------------------------------------



Sherb & Co. LLP (“Sherb”)
has audited our financial statements for the 2010 and 2009 fiscal years. All of the services described below were approved by our
board prior to performance. Our board has determined that the payments made to its independent accountant for these services are
compatible with maintaining such auditor's independence.



Audit Fees. The aggregate fees
billed by Sherb for professional services rendered for the audit of the Company’s financial statements and review services
for interim quarterly financial statements for the fiscal years ended December 31, 2010 and 2009 were $172,000 and $160,000, respectively.



Audit-Related Fees. There were
no fees for assurance and related services by Sherb for the fiscal year ended December 31, 2010 and 2009.



Tax Fees. There were no fees
for tax compliance, tax advice or tax planning services by Sherb for the fiscal year ended December 31, 2010 and 2009.



All Other Fees . There were no
other fees for either audit-related or non-audit services billed by Sherb for the fiscal years ended December 31, 2010 and 2009.



50







| | ITEM 15. | EXHIBITS
| | -------- | --------



Statements filed as part of this
Report



Exhibits



The following documents are filed as
exhibits herewith or incorporated by reference to exhibits previously filed with the SEC:



|Exhibit
        Number |  | Description of Exhibit                                                                                                                                                                                                                                                                               
|---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2                      |  | Stock Exchange Agreement by and among Earth Products & Technologies, Inc., American Federal Mining Group, Inc. and shareholders of American Federal Mining Group, Inc., dated July 14, 2006 (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed on July 20, 2006)              
|3.1                    |  | Amended and Restated Articles of Incorporation of the Company, effective December 13, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)                                                                                                                        
|3.2                    |  | Bylaws of the Company adopted on November 27, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)                                                                                                                                                                
|3.3                    |  | Bylaws of China Shen Zhou Mining & Resources, Inc., dated November 2, 2007 (incorporated by reference to the Company’s Form 8-K filed with SEC on November 05, 2007.)                                                                                                                                
|10.1                   |  | Indenture dated December 27, 2006 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on December 29, 2006)                                                                                                                                                                    
|10.2                   |  | Note Purchase Agreement by and between the Company and Citadel Equity Fund, Ltd., dated December 21, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 29, 2006).                                                                                          
|10.3                   |  | Voting Agreement by and between the Company, Xiaojing Yu, Xueming Xu and Citadel Equity Fund, Ltd. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on December 29, 2006).                                                                                                 
|10.4                   |  | Service Agreement for Going Public between Inner Mongolia Xiangzhen Mining Group Co. Ltd and American Eastern Group, Inc., dated November 1, 2006, and as amended on December 10, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)                            
|10.5                   |  | Stock Option Agreement by and between the Company and American Eastern Group, Inc., dated December 3, 2005 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)                                                                                                        
|10.6                   |  | Stock Option Agreement by and between the Company and Shenzhen DRB Investment Consultant, Limited, dated December 3, 2005 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)                                                                                         
|10.7                   |  | Letter Agreement by and between the Company and American Eastern Securities, Inc., dated November 1, 2006, as amended on December 27, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)                                                                        
|10.8                   |  | Stock Purchase Agreement by and between American Federal Mining Group, Inc. and Xinjiang Buerjin County Xingzhen Mining Co., Ltd., dated April 28, 2006, as amended on July 6, 2006 and July 20, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)             
|10.9                   |  | Stock Purchase Agreement by and between American Federal Mining Group, Inc. and Inner Mongolia Qingshan Nonferrous Metal Development Co., Ltd., dated April 12, 2006, as amended on July 8, 2006 and July 20, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)
|10.10                  |  | Share Equity Acquisition Agreement by and between Inner Mongolia Xiangzhen Mining Group, Ltd. and Jiaxing Li and Guan Huang, dated as of November 6, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)                                                         
|10.11                  |  | Industrial Product Sales Contract by and between Inner Mongolia Wulatehouqi Qianzhen Ore Processing Co., Ltd. and Baiyin Nonferrous Metal Group. Co., Ltd., dated July 28, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)                                   
|10.12                  |  | Refined Zinc Ore Supply Agreement by and between Wulatehouqi Qianzhen Ore Processing Co., Ltd. and Zijin Nonferrous Metal Co., Ltd., dated as of March 26, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)                                                   
|10.13                  |  | Contract by and between Wulatehouqi Qianzhen Ore Processing Co., Ltd. and Wulatehouqi Zijin Mining Co., Ltd., dated as of December 10, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)                                                                       
|10.14                  |  | Fluorite Purchase Agreement by and between Inner Mongolia Xiangzhen Fluorite Industrial Co., Ltd. and Langfang Xinda Iron Alloy Co., Ltd., dated as of April 23, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)                                             





51









|10.15 |  | Contract by and between American Federal Mining Group, Inc., Xiaojing Yu and Inner Mongolia Wulatehouqi Qianzhen Ore Processing Co., Ltd., dated as of February 16, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)  
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16 |  | Industrial Product Sales Contract by and between Inner Mongolia Xiangzhen Mining Co., Ltd. and Beijing Capital Steel Company Limited by Shares, dated as of March 31, 2005 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)
|10.17 |  | Fluorite Powder Supply Agreement by and between Ningxia Jinhe Chemical Co., Ltd. and Inner Mongolia Xiangzhen Mining Group Co., Ltd. dated as of April 3, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)            
|10.18 |  | Working Capital Loan Agreement by and between Inner Mongolia Xiangzhen Mining Group Co., Ltd. and China Industrial and Commerce Bank, dated as of November 30, 2006 (incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)       
|10.19 |  | Equity Transfer Agreement, dated as of December 10, 2007, by and among Inner Mongolia Xiangzhen Mining Group Co Ltd., Xiaojing Yu, and Dechang Wang (incorporated by reference to the Company’s Form 8-K filed with SEC on December 12, 2007)                
|10.20 |  | Stock Purchase Agreement by and between Inner-Mongolian Xiangzhen Mining Group Ltd. Co and Xinjiang Tianxiang Development Co. of New Technology, dated June 25, 2007 (incorporated by reference to the Company’s 10-KSB filed on April 14, 2008)             
|10.21 |  | Share Purchase Agreement by and between Inner Mongolia Xiangzhen Mining Group Co., Ltd. and Fortune Pegasus International Limited, dated September 21, 2009 (incorporated by reference to exhibit 10.1 of the Company’s Form 8-K filed on September 25, 2009)
|10.22 |  | Notes Repurchase Agreement by and between China Shen Zhou Mining & Resources, Inc. and Mountview Path Limited, dated September 22, 2009 (incorporated by reference to exhibit 10.2 of the Company’s Form 8-K filed on September 25, 2009)                    
|10.24 |  | Form of Securities Purchase Agreement (incorporated by reference to exhibit 10.1 to the Company’s Form 8-K filed on January 19, 2011)                                                                                                                        
|10.25 |  | Form of Warrant to Purchase Common Stock (incorporated by reference to exhibit 4.1 to the Company’s Form 8-K filed on January 19, 2011)                                                                                                                      
|14.1  |  | Code of Ethics, dated as of April 16, 2007 (incorporated by reference to the Company’s Form 10-KSB filed on April 17, 2007)                                                                                                                                  
|21.1* |  | Subsidiaries of the Company                                                                                                                                                                                                                                  
|23.1* |  | Consent of Independent Auditor                                                                                                                                                                                                                               
|23.2* |  | Consent of Consultant                                                                                                                                                                                                                                        
|31.1* |  | Statement of Chief Executive Officer furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350                                                                                                                             
|31.2* |  | Statement of Chief Financial Officer furnished pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002, 18 U.S.C. Section 1350                                                                                                                             
|32*   |  | Statement of Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350                                                                                                 










* Filed herewith.



52







SIGNATURES



In accordance with Section 13 or 15(d)
of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                         |  | CHINA SHEN ZHOU MINING & RESOURCES, INC.                                             | 
|------------------------ |  | ------------------------------------------------------------------------------------ | 
|                         |  |                                                                                      | 
|Dated: February 20, 2012 |  | /s/ Xiaojing Yu                                                                      | 
|                         |  | Xiaojing Yu                                                                          | 
|                         |  | Director, Chief Executive Officer, and Chairman of the Board                         | 
|                         |  | (Principal Executive Officer)                                                        | 
|                         |  |                                                                                      | 
|Dated: February 20, 2012 |  | /s/ Jiayin Zhu                                                                       | 
|                         |  | Jiayin Zhu                                                                           | 
|                         |  | Chief Financial Officer
        (Principal Accounting and Financial
        Officer) | 



In accordance with the Exchange Act,
this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|Signature                |  | Title                                             |  | Date             
|------------------------ |  | ------------------------------------------------- |  | -----------------
|                         |  |                                                   |  |                  
|/s/ Xiaojing Yu          |  | Chairman of the Board and Chief Executive Officer |  | February 20, 2012
|Xiaojing Yu              |  | (Principal Executive Officer)                     |  |                  
|                         |  |                                                   |  |                  
|/s/ Jiayin Zhu           |  | Chief Financial Officer                           |  | February 20, 2012
|Jiayin Zhu               |  | (Principal Accounting and Financial Officer)      |  |                  
|                         |  |                                                   |  |                  
|/s/ Helin Cui            |  | Director, Chief Operating Officer                 |  | February 20, 2012
|Helin Cui                |  |                                                   |  |                  
|                         |  |                                                   |  |                  
|/s/ Xueming Xu           |  | Director                                          |  | February 20, 2012
|Xueming Xu               |  |                                                   |  |                  
|                         |  |                                                   |  |                  
|/s/ Jian Zhang           |  | Director                                          |  | February 20, 2012
|Jian Zhang               |  |                                                   |  |                  
|                         |  |                                                   |  |                  
|/s/ Simon Shing Mun Wong |  | Director                                          |  | February 20, 2012
|Simon Shing Mun Wong     |  |                                                   |  |                  
|                         |  |                                                   |  |                  
|/s/ Liancheng Li         |  | Director                                          |  | February 20, 2012
|Liancheng Li             |  |                                                   |  |                  



53







China Shen Zhou Mining & Resources,
Inc. and Subsidiaries



Index to Consolidated Financial Statements



|                                                           |  | Page |    
|---------------------------------------------------------- |  | ---- | ---
|Report of Independent Registered Public Accounting Firm    |  |      | F-1
|                                                           |  |      |    
|Consolidated Balance Sheets                                |  |      | F-2
|                                                           |  |      |    
|Consolidated Statements of Operations                      |  |      | F-3
|                                                           |  |      |    
|Consolidated Statements of Changes in Stockholders’ Equity |  |      | F-4
|                                                           |  |      |    
|Consolidated Statements of Cash Flows                      |  |      | F-5
|                                                           |  |      |    
|Notes to Consolidated Financial Statements                 |  |      | F-6





REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



To the Stockholders and Board of Directors



China Shen Zhou Mining & Resources,
Inc. and Subsidiaries



We have audited the accompanying consolidated
balance sheets of China Shen Zhou Mining & Resources, Inc. and Subsidiaries (the “Company”) as of December 31,
2010 and 2009 and the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows
for the years ended December 31, 2010 and 2009. These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, audits of its internal control over financial reporting. Accordingly we
express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,
2010 and 2009 and the results of their operations and their cash flows for the years ended December 31, 2010 and 2009, in conformity
with accounting principles generally accepted in the United States of America.



The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred operating losses,
negative cash flows from operations and has a working capital deficit as more fully described in Note 2. These issues raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are
also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome
of this uncertainty.



/s/Sherb & Co., LLP

Certified Public Accountants

New York, New York

March 25, 2011



F-1







CHINA SHEN ZHOU MINING & RESOURCES,
INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)



|                                                                                                                                                                            |  | December 31, |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------
|                                                                                                                                                                            |  | 2010         |        
|ASSETS                                                                                                                                                                      |  |              |        
|                                                                                                                                                                            |  |              |        
|Current assets:                                                                                                                                                             |  |              |        
|Cash and cash equivalents                                                                                                                                                   |  | $            | 1,546  
|Accounts receivable, net                                                                                                                                                    |  |              | 162    
|Prepayment for office rent                                                                                                                                                  |  |              | 82     
|Other deposits and prepayments, net                                                                                                                                         |  |              | 851    
|Inventories                                                                                                                                                                 |  |              | 7,243  
|Restricted assets                                                                                                                                                           |  |              | 115    
|Total current assets                                                                                                                                                        |  |              | 9,999  
|                                                                                                                                                                            |  |              |        
|Prepayment for office rent                                                                                                                                                  |  |              | -      
|Available for sale investment                                                                                                                                               |  |              | -      
|Property, machinery and mining assets, net                                                                                                                                  |  |              | 34,193 
|Total assets                                                                                                                                                                |  | $            | 44,192 
|                                                                                                                                                                            |  |              |        
|LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                        |  |              |        
|                                                                                                                                                                            |  |              |        
|Current liabilities:                                                                                                                                                        |  |              |        
|Accounts payable and accrued liabilities                                                                                                                                    |  | $            | 2,482  
|Short term bank loans                                                                                                                                                       |  |              | 8,061  
|Other payables and accruals                                                                                                                                                 |  |              | 6,163  
|Taxes payable                                                                                                                                                               |  |              | 644    
|Total current liabilities                                                                                                                                                   |  |              | 17,350 
|                                                                                                                                                                            |  |              |        
|Long term loans                                                                                                                                                             |  |              | 2,630  
|Due to related parties                                                                                                                                                      |  |              | 2,439  
|Total liabilities                                                                                                                                                           |  |              | 22,419 
|                                                                                                                                                                            |  |              |        
|STOCKHOLDERS’ EQUITY:                                                                                                                                                       |  |              |        
|Common Stock ($0.001 par value; 50,000,000 shares authorized; 27,974,514 shares and 27,214,514 shares issued and outstanding as of December 31, 2010 and 2009, respectively |  |              | 28     
|Additional paid-in capital                                                                                                                                                  |  |              | 29,508 
|PRC statutory reserves                                                                                                                                                      |  |              | 1,672  
|Accumulated other comprehensive income                                                                                                                                      |  |              | 4,357  
|Accumulated deficit                                                                                                                                                         |  |              | (13,630
|Stockholders' equity - China Shen Zhou Mining & Resources, Inc. and Subsidiaries                                                                                            |  |              | 21,935 
|Noncontrolling interest                                                                                                                                                     |  |              | (162   
|Total stockholders’ equity                                                                                                                                                  |  |              | 21,773 
|Total liabilities and stockholders’ equity                                                                                                                                  |  | $            | 44,192 



The accompanying notes are an integral
part of these consolidated financial statements.



F-2







CHINA SHEN ZHOU MINING & RESOURCES,
INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share
data)

|                                                                                              |  | For the Years Ended 
December 31, |       
|--------------------------------------------------------------------------------------------- |  | --------------------------------- | ------
|                                                                                              |  | 2010                              |       
|Net revenue                                                                                   |  | $                                 | 11,612
|Cost of sales                                                                                 |  |                                   | 8,604 
|Gross profit                                                                                  |  |                                   | 3,008 
|                                                                                              |  |                                   |       
|Operating expenses:                                                                           |  |                                   |       
|Selling and distribution expenses                                                             |  |                                   | 104   
|General and administrative expenses                                                           |  |                                   | 4,145 
|Provision for doubtful accounts                                                               |  |                                   | 355   
|Impairment provision for inventories                                                          |  |                                   | 287   
|Impairment provision for mining assets                                                        |  |                                   | 1,354 
|Total operating expenses                                                                      |  |                                   | 6,245 
|                                                                                              |  |                                   |       
|Net loss from operations                                                                      |  |                                   | (3,237
|                                                                                              |  |                                   |       
|Other income (expense):                                                                       |  |                                   |       
|Interest expense                                                                              |  |                                   | (589  
|Gain on convertible debt extinguishment                                                       |  |                                   | -     
|Provision for available for sale investment                                                   |  |                                   | (148  
|Other, net                                                                                    |  |                                   | 553   
|Total other income                                                                            |  |                                   | (184  
|                                                                                              |  |                                   |       
|Income (loss) from continuing operations before income taxes                                  |  |                                   | (3,421
|                                                                                              |  |                                   |       
|Provision of income taxes                                                                     |  |                                   | -     
|                                                                                              |  |                                   |       
|Income (loss) from continuing operations                                                      |  |                                   | (3,421
|                                                                                              |  |                                   |       
|Discontinued operations (Note 3):                                                             |  |                                   |       
|Loss from operations of discontinued component                                                |  |                                   | -     
|Loss on disposal of discontinued subsidiary                                                   |  |                                   | -     
|Loss from discontinued operations                                                             |  |                                   | -     
|                                                                                              |  |                                   |       
|Net (loss) income                                                                             |  |                                   | (3,421
|Less: Noncontrolling interests attributable to the noncontrolling interests                   |  |                                   | 133   
|Net (loss) income - attributable to China Shen Zhou Mining & Resources, Inc. and Subsidiaries |  |                                   | (3,288
|                                                                                              |  |                                   |       
|Other comprehensive income:                                                                   |  |                                   |       
|Foreign currency translation adjustments                                                      |  |                                   | 518   
|Comprehensive (loss) income                                                                   |  | $                                 | (2,770
|                                                                                              |  |                                   |       
|Net (loss) income per common share – basic and diluted                                        |  |                                   |       
|From continuing operations                                                                    |  | $                                 | (0.11 
|From discontinued operations                                                                  |  |                                   | -     
|                                                                                              |  | $                                 | (0.11 
|                                                                                              |  |                                   |       
|Weighted average common shares outstanding                                                    |  |                                   |       
|- Basic and Diluted                                                                           |  |                                   | 27,902

The accompanying notes are an integral
part of these consolidated financial statements.



F-3













CHINA SHEN ZHOU MINING & RESOURCES,
INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY AND COMPREHENSIVE INCOME

(Amounts in thousands)





|                                                        |  |              |        |  |            |   |    |           |  |   |             |   |  | Accumulated   |       |  |                |   |         |               | 
|------------------------------------------------------- |  | ------------ | ------ |  | ---------- | - | -- | --------- |  | - | ----------- | - |  | ------------- | ----- |  | -------------- | - | ------- | ------------- | 
|                                                        |  | Common Stock |        |  | Additional |   |    | PRC       |  |   |             |   |  | Other         |       |  |                |   |         | Total         | 
|                                                        |  | Number of    |        |  | Paid-in    |   |    | Statutory |  |   | Accumulated |   |  | Comprehensive |       |  | Noncontrolling |   |         | Stockholders' | 
|                                                        |  | Shares       |        |  | Amount     |   |    | Capital   |  |   | Reserves    |   |  | Deficit       |       |  | Income         |   |         | Interest      | 
|Balance at January 1, 2009                              |  |              | 22,215 |  |            | $ | 22 |           |  | $ | 25,251      |   |  | $             | 1,672 |  |                | $ | (13,356 | )             | 
|                                                        |  |              |        |  |            |   |    |           |  |   |             |   |  |               |       |  |                |   |         |               | 
|Repayment of convertible debt                           |  |              | -      |  |            |   | -  |           |  |   | (4,878      | ) |  |               | -     |  |                |   | -       |               | 
|Issuance of shares for repurchase the convertible notes |  |              | 5,000  |  |            |   | 5  |           |  |   | 8,145       |   |  |               | -     |  |                |   | -       |               | 
|Net income (loss) for the year ended December 31, 2009  |  |              | -      |  |            |   | -  |           |  |   | -           |   |  |               | -     |  |                |   | 3,014   |               | 
|Foreign currency translation adjustment                 |  |              | -      |  |            |   | -  |           |  |   | -           |   |  |               | -     |  |                |   | -       |               | 
|                                                        |  |              |        |  |            |   |    |           |  |   |             |   |  |               |       |  |                |   |         |               | 
|Balance at December 31, 2009                            |  |              | 27,215 |  |            |   | 27 |           |  |   | 28,518      |   |  |               | 1,672 |  |                |   | (10,342 | )             | 
|Issuance of shares for employees compensation           |  |              | 760    |  |            |   | 1  |           |  |   | 752         |   |  |               | -     |  |                |   | -       |               | 
|Debt discount                                           |  |              | -      |  |            |   | -  |           |  |   | 238         |   |  |               | -     |  |                |   | -       |               | 
|Net loss for the year ended December 31 , 2010          |  |              | -      |  |            |   | -  |           |  |   | -           |   |  |               | -     |  |                |   | (3,288  | )             | 
|Foreign currency translation adjustment                 |  |              | -      |  |            |   | -  |           |  |   | -           |   |  |               | -     |  |                |   | -       |               | 
|                                                        |  |              |        |  |            |   |    |           |  |   |             |   |  |               |       |  |                |   |         |               | 
|Balance at December 31, 2010                            |  |              | 27,975 |  |            | $ | 28 |           |  | $ | 29,508      |   |  | $             | 1,672 |  |                | $ | (13,630 | )             | 









The accompanying notes are an integral
part of these consolidated financial statements.



F-4







CHINA SHEN ZHOU MINING & RESOURCES,
INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands, except share data)

|                                                                                     |  | For the Year Ended December 31, |       
|------------------------------------------------------------------------------------ |  | ------------------------------- | ------
|                                                                                     |  | 2010                            |       
|                                                                                     |  |                                 |       
|Cash flows from operating activities:                                                |  |                                 |       
|Net (loss) income                                                                    |  | $                               | (3,288
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                                 |       
|Loss from operations of discontinued component, net of income tax benefits           |  |                                 | -     
|Loss on sale of discontinued operations, net of income taxes                         |  |                                 | -     
|Gain on sale of repurchase convertible notes                                         |  |                                 | -     
|Provision for doubtful accounts                                                      |  |                                 | 355   
|Impairment provision for inventories                                                 |  |                                 | 287   
|Provision for available for sale investment                                          |  |                                 | 148   
|Impairment provision for mining assets                                               |  |                                 | 1,354 
|Depreciation and amortization                                                        |  |                                 | 2,492 
|Fair value adjustment of warrants                                                    |  |                                 | -     
|Loss on disposal of property, machinery and mining assets                            |  |                                 | -     
|Accrual of coupon interests and accreted principal                                   |  |                                 | -     
|Amortization of deferred financing costs                                             |  |                                 | -     
|Amortization of debt issuance costs                                                  |  |                                 | -     
|Noncontrolling interests                                                             |  |                                 | (133  
|Forgiveness of payroll payables                                                      |  |                                 | (300  
|Changes in operating assets and liabilities:                                         |  |                                 |       
|(Increase) decrease in -                                                             |  |                                 |       
|Accounts receivable                                                                  |  |                                 | 48    
|Other deposits and prepayments                                                       |  |                                 | (220  
|Prepayment for office rent                                                           |  |                                 | 198   
|Inventories                                                                          |  |                                 | (3,687
|Restricted assets                                                                    |  |                                 | 649   
|Increase (decrease) in -                                                             |  |                                 |       
|Accounts payable                                                                     |  |                                 | (2,366
|Other payables and accruals                                                          |  |                                 | 434   
|Taxes payable                                                                        |  |                                 | 300   
|Net cash used in operating activities from continuing operations                     |  |                                 | (3,729
|Net cash used in operating activities from discontinued operations                   |  |                                 | -     
|Net cash used in operating activities                                                |  |                                 | (3,729
|Cash flows from investing activities:                                                |  |                                 |       
|Purchases of property, machinery and mining assets                                   |  |                                 | (2,103
|Sales of property, machinery and mining assets                                       |  |                                 | 75    
|Net cash used in investing activities from continuing operations                     |  |                                 | (2,028
|Net cash provided by disposal of discontinued operations                             |  |                                 | -     
|Net cash (used in) provided by investing activities                                  |  |                                 | (2,028
|Cash flows from financing activities:                                                |  |                                 |       
|Repayment at the convertible notes                                                   |  |                                 | -     
|Due to related parties                                                               |  |                                 | 67    
|Repayment at short-term bank loans                                                   |  |                                 | (5,036
|Proceeds from short-term bank loans                                                  |  |                                 | 12,142
|Net cash provided by (used in) financing activities                                  |  |                                 | 7,173 
|Foreign currency translation adjustment                                              |  |                                 | (203  
|                                                                                     |  |                                 |       
|Net increase in cash and cash equivalents                                            |  |                                 | 1,213 
|                                                                                     |  |                                 |       
|Cash and cash equivalents at the beginning of the year                               |  |                                 | 333   
|Cash and cash equivalents at the end of the year                                     |  | $                               | 1,546 
|                                                                                     |  |                                 |       
|Non-cash investing and financing activities                                          |  |                                 |       
|Shares issued to employees as share based compensation                               |  | $                               | 753   
|                                                                                     |  |                                 |       
|Supplemental disclosures of cash flow information:                                   |  |                                 |       
|Cash paid for interest expenses                                                      |  | $                               | 415   
|Cash paid for income tax                                                             |  | $                               | -     



The accompanying notes are an integral
part of these consolidated financial statements.



F-5









CHINA SHEN ZHOU MINING & RESOURCES,
INC AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - DESCRIPTION OF BUSINESS
AND ORGANIZATION



China Shen Zhou Mining & Resources,
Inc. and its subsidiaries (collectively known as the “Company” or “we”) are principally engaged in the
exploration, development, mining, and processing of fluorite, zinc, lead, copper, and other nonferrous metals in the People’s
Republic of China (“PRC” or “China”).



At December 31, 2010, the subsidiaries
of China Shen Zhou Mining & Resources, Inc. are as follows:





|Name                                                                              |  | Domicile and Date
        of Incorporation                          |  | Paid-in Capital |            | Percentage of Effective
        Ownership |     |   | Principal Activities
|--------------------------------------------------------------------------------- |  | ------------------------------------------------------------------- |  | --------------- | ---------- | ----------------------------------------- | --- | - | --------------------
|                                                                                  |  |                                                                     |  |                 |            |                                           |     |   |                     
|American Federal Mining Group, Inc. (“AFMG”)                                      |  | Illinois
        November 15, 2005                                  |  | USD             | 10         |                                           | 100 | % |                     
|                                                                                  |  |                                                                     |  |                 |            |                                           |     |   |                     
|Inner Mongolia Xiangzhen Mining Industry Group Co. Ltd. (“Xiangzhen Mining”)      |  | The PRC
        July 3,2002                                         |  | RMB             | 88,860,699 |                                           | 100 | % |                     
|                                                                                  |  |                                                                     |  |                 |            |                                           |     |   |                     
|Inner Mongolia Wulatehouqi Qianzhen Ore Processing Co., Ltd. (“Qianzhen Mining”)  |  | The PRC
        September 22, 2002                                  |  | RMB             | 37,221,250 |                                           | 100 | % |                     
|                                                                                  |  |                                                                     |  |                 |            |                                           |     |   |                     
|Wulatehouqi Qingshan Non-Ferrous Metal Developing Company Ltd. (“Qingshan Metal”) |  | The PRC
        April 23, 1995
        (Acquired on April 12, 2006) |  | RMB             | 4,100,000  |                                           | 60  | % |                     
|                                                                                  |  |                                                                     |  |                 |            |                                           |     |   |                     
|Xinjiang Buerjin County Xingzhen Mining Company (“Xingzhen Mining”)               |  | The PRC
        April 10, 2006
        (Acquired on April 28, 2006) |  | RMB             | 50,000,000 |                                           | 90  | % |                     





NOTE 2 - RECAPITALIZATION, REORGANIZATION
AND GOING CONCERN



On July 14, 2006, American Federal Mining
Group, Inc. (“AFMG”, the then holding company of China Shen Zhou’s PRC subsidiaries) completed the terms of a
stock exchange agreement with Earth Products & Technologies, Inc. (“EPTI”). Pursuant to the stock exchange agreement,
and as instructed by the Company, EPTI issued 20,000,000 shares of its common stock, of which 17,687,000 shares were issued to
shareholders of AFMG, 1,013,000 shares to management of AFMG and 1,300,000 shares to the financial advisors of AFMG, in exchange
for a 100% equity interest in AFMG, making AFMG a wholly-owned subsidiary of EPTI.



The above stock exchange transaction
resulted in those shareholders of AFMG obtaining a majority voting interest in EPTI. Generally accepted accounting principles in
the United States of America require that the Company whose shareholders retain the majority interest in a combined business be
treated as the acquirer for accounting purposes. Consequently, the stock exchange transaction has been accounted for as a recapitalization
of AFMG as AFMG acquired a controlling equity interest in EPTI as of September 15, 2006. The reverse acquisition process utilizes
the capital structure of EPTI and the assets and liabilities of AFMG recorded at historical cost. Although AFMG is deemed to be
the acquiring corporation for financial accounting and reporting purposes, the legal status of EPTI as the surviving corporation
did not change.



Subsequent to completion of the reverse
takeover transaction, on October 5, 2006, EPTI changed its name to China Shen Zhou Mining and Resources, Inc.



The accompanying consolidated financial
statements have been prepared on a going concern basis. The Company has incurred net operating losses of approximately $3.2
million and $5.7 million during the years ended December 31, 2010 and 2009, respectively. The Company had cash used in operations
of approximately $3.7 million and $1.2 million for the years ended December 31, 2010 and 2009, respectively. The Company’s
ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations
and repay its liabilities arising from normal business operations when they come due, to fund possible future acquisitions, and
to generate profitable operations in the future. Management plans to continue to provide for its capital requirements by issuing
additional equity securities and debt in addition to executing their business plan.



F-6







In 2011 the Company has raised funds
used to pay down short-term loans in the amount of $6.05 million and to acquire a 55% interest in Xinyi Fluorite Company Ltd. (see-Note
28)



The Company has also agreed to sell
common stock and warrants to purchase common stock to certain institutional investors. (see-Note 28)



The outcome of these matters cannot
be predicted at this time and there are no assurances that if achieved, the Company will have sufficient funds to execute its business
plan or generate positive operating results. These consolidated financial statements do not include any adjustments to the amounts
and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.



NOTE 3 - DISCONTINUED OPERATIONS



On November 20, 2009, the Company completed
the sale of all its ownership interest in Tun-Lin Limited Liability Company (“Tun-Lin”), a subsidiary of the Company
within the nonferrous metals segment. The Company received cash proceeds of $8.2 million.



The Company has recorded a loss from
operations of discontinued component, net of income taxes, of approximately $740,000, and a loss on disposal of discontinued subsidiary,
net of income taxes, of approximately $1,476,000. In accordance with Accounting Standard Codification (“ASC”) 360,
the Company has reflected Tun-Lin’s results of operations in the consolidated statements of operations through the date of
the sale as discontinued operations for all periods presented. The assets and liabilities of Tun-Lin in the Company’s consolidated
balance sheet as of December 31, 2009 have been reclassified. The cash flows of discontinued operations also have been reclassified.



The following table presents the revenue,
net loss from discontinued operations and on disposal of Tun-Lin for the periods presented:



|                                       |  | Years Ended December 31, |               
|-------------------------------------- |  | ------------------------ | --------------
|                                       |  | 2010                     |               
|                                       |  | (In thousands)           |               
|Revenue                                |  | $                        | -             
|                                       |  |                          |               
|Net loss from discontinued operations, |  | $                        | Not Applicable
|                                       |  |                          |               
|Net (loss) on disposal of subsidiary   |  | $                        | Not Applicable



NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES



Use of Estimates



The Company’s consolidated financial
statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US
GAAP”). The preparation of the Company’s consolidated financial statements requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities
at the balance sheet date and the reported amounts of revenues and expenses during the reporting periods. The more significant
areas requiring the use of management estimates and assumptions relate to mineral reserves and value beyond proven and probable
reserves that are the basis for future cash flow estimates utilized in impairment calculations, the estimated lives of the mineralized
bodies based on estimated recoverable volume through the end of the period over which the company has extraction rights that are
the basis for units-of-production depreciation, depletion and amortization calculations; estimates of fair value for certain reporting
units and asset impairments (including impairments of goodwill, long-lived assets and investments); write-downs of inventory to
net realizable value; reserves for contingencies and litigation; and the fair value and accounting treatment of financial instruments.
The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under
the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions.



Certain of the Company’s accounting
policies require higher degrees of judgment than others in their application. Management evaluates all of its estimates and judgments
on an on-going basis



F-7







Principles of Consolidation



The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries (AFMG, Xiangzhen Mining, and Qianzhen Mining) and its majority
owned subsidiaries (Qingshan Metal and Xingzhen Mining). All inter-company balances and transactions have been eliminated.



Minority interest in the net assets
and earnings or losses of Xingzhen Mining have been absorbed by the Company as minority interest holders in the subsidiary have
no basis in their investment in the subsidiary.



Basis of Preparation



The accompanying consolidated financial
statements have been prepared in conformity with US GAAP. The basis of accounting differs from that used in the statutory accounts
of the Company, which are prepared in accordance with the accounting principles of the PRC (“PRC GAAP”). The Company’s
functional currency is the Chinese Renminbi (“RMB”); however the accompanying consolidated financial statements have
been translated and presented in United States Dollars (“USD”). All significant inter-company transactions and balances
have been eliminated



Cash and Cash Equivalents



The Company considers all highly liquid
debt instruments purchased with a maturity period of three months or less to be cash or cash equivalents. The carrying amounts
reported in the accompanying consolidated balance sheets for cash and cash equivalents approximate their fair value. Substantially
all of the Company’s cash is held in bank accounts in the PRC and is not protected by FDIC insurance or any other similar
insurance. Restricted cash is excluded from cash and cash equivalents and is included in restricted assets.



Accounts Receivable



Accounts receivable is stated at cost,
net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting
from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes
allowances where there is doubt as to the collectibility of individual balances. In evaluating the collectibility of individual
receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history,
its current credit-worthiness and current economic trends.



Inventories



Inventories are stated at the lower
of cost, determined on a weighted average basis, or net realizable value. Costs of finished goods are composed of direct materials,
direct labor and an attributable portion of manufacturing overhead. Net realizable value is the estimated selling price, in the
ordinary course of business, less estimated costs to complete and dispose. The management also regularly evaluates the composition
of its inventories to identify slow-moving and obsolete inventories to determine if valuation allowance is required.



Available-for-sale Securities



The Company accounts for its investments
in auction rate securities in accordance with FASB ASC 320. Specifically, when the underlying security of an auction rate security
has a stated or contractual maturity date in excess of 90 days, regardless of the frequency of the interest rate reset date, the
security is classified as an available-for-sale marketable debt security.



Property, Machinery and Mining
Assets





Expenditures for new facilities or equipment and expenditures
that extend the useful lives of existing facilities or equipment are capitalized and depreciated using the straight-line method
at rates sufficient to depreciate such costs over the estimated productive lives, which do not exceed the related estimated mine
lives, of such facilities based on mineralized material.

Mineral exploration costs are expensed as incurred. After
a mine is considered to be in development or production stage or considered to have proven or probable reserves further exploration
costs are also expensed as incurred.

Extraction rights are stated at the lower of cost and recoverable
amount. When extraction rights are obtained from the government according to mining industry practice in the PRC, extraction rights
are capitalized as incurred and are amortized using the units-of-production (“UOP”) method over the estimated life
of the mineralized body based on estimated recoverable volume through to the end of the period over which the Company has extraction
rights.

Once a mine is considered to be in the development or production
stage, major development costs are amortized using the UOP method based on the estimated recoverable volume of the mineralized
material. The Company determines whether a mine is in development or production stage based upon standard mining industry practices
in the PRC. Given that commencing development and production at mining properties prior to establishing proven and probable reserves
(to the extent necessary to meet the definition under Industry Guide 7), and often after only establishing inferred resources,
is standard business practice in the mining industry in the PRC, the Company believes it is appropriate to account for the Qingshan
and the Xiangzhen properties as production-stage operations and to account for the Xingzhen property as a development-stage project.

At the Company’s surface mines, development costs include
costs to further delineate the mineralized body and remove overburden to initially expose the mineralized body. At the Company’s
underground mines, development costs include the costs of building access ways, shaft sinking and access, lateral development,
drift development, ramps and infrastructure development.

To the extent that these costs benefit the entire mineralized
body, they are amortized over the estimated life of the mineralized body. Costs incurred to access specific mineralized blocks
or areas that only provide benefit over the life of that area are amortized over the estimated life of that specific mineralized
block or area. Interest cost allocable to the cost of developing mining properties and to constructing new facilities, if any,
is capitalized until assets are ready for their intended use.

F-8





Land use rights are stated at
cost, less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of
25 years.



Estimated useful lives of the Company’s
assets are as follows:



|                   |  |  | Useful Life  | 
|------------------ |  |  | ------------ | 
|                   |  |  | (In years)   | 
|Land use rights    |  |  | 25           | 
|Buildings          |  |  | 25           | 
|Machinery          |  |  | 12           | 
|Mining assets      |  |  | License term | 
|Motor vehicle      |  |  | 6            | 
|Equipment          |  |  | 5            | 
|Extraction rights  |  |  | License term | 
|Exploration rights |  |  | License term | 



Xiangzhen’s extraction right license
will be expired in March 2011, and there will be some fees for the renew of the license.



Foreign Currency



The Company’s principal country
of operations is the PRC. The financial position and results of operations of the Company’s subsidiaries located in the PRC
are recorded in Renminbi (“RMB”) as the functional currency, respectively. The results of operations denominated in
foreign currency are translated at the average rate of exchange during the reporting period.



Assets and liabilities denominated in
foreign currencies at the balance sheet date are translated at the market rate of exchange ruling at that date. The registered
equity capital denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution.
All translation adjustments resulting from the translation of the financial statements into the reporting currency (“US dollar”)
are recorded in accumulated other comprehensive income, a separate component within shareholders’ equity.



The exchange rates used to translate
amounts in RMB into US Dollars for the purposes of preparing the consolidated financial statements were as follows:-



|                                                                                                                                                     |  | December 31, 2010 |  | December 31, 2009
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | -----------------
|Balance sheet items, except for the registered and paid-up capital and retained earnings, as of year end                                             |  | US$1=RMB6.6118    |  | US$1=RMB6.8282   
|                                                                                                                                                     |  |                   |  |                  
|Amounts included in the statements of operations, statements of changes in stockholders’ equity and statements of cash flows for the years then end. |  | US$1=RMB6.7788    |  | US$1=RMB6.8321   



For the years ended December 31, 2010
and 2009, foreign currency translation adjustment of approximately $518,000 and ($181,000), respectively, have been reported as
comprehensive income in the consolidated statement of stockholders’ equity and comprehensive income.



Although government regulations now
allow convertibility of RMB for current account transactions, significant restrictions still remain. Hence, such translations should
not be construed as representations that RMB could be converted into U.S. Dollars at that rate or any other rate.



F-9







The value of RMB against the U.S. Dollars
and other currencies may fluctuate and is affected by, among other things, changes in Chinese political and economic conditions.
Any significant revaluation of RMB may materially affect the Company’s financial condition in terms of U.S. Dollar reporting.



Noncontrolling Interest



Noncontrolling interests in the Company’s
subsidiaries are recorded in accordance with the provisions of FASB ASC 810 and are reported as a component of equity, separate
from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for
as equity transactions. Results of operations attributable to the noncontrolling interest are included in our consolidated results
of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value
with any gain or loss recognized in earnings.



Revenue Recognition



Revenue is recognized on the sale of
products when title has transferred to the customer in accordance with the specified terms of each product sales agreement and
all the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling
price is fixed or determinable, and collectibility is reasonably assured. Generally, the Company’s product sales agreements
provide that title and risk of loss pass to the customer when the quantity and quality of the products delivered are certified
and accepted by the customer.



Sales revenue is recognized, net of
PRC business taxes, sales discounts and returns at the time when the merchandise is sold to the customer. Based on historical experience,
management estimates that sales returns are immaterial and has not made allowance for estimated sales returns



Stripping Costs



Stripping costs are costs of removing
overburden and other mine waste materials. Stripping costs incurred during the production phase of a mine are variable production
costs that are included as a component of inventory to be recognized in cost of sales in the same period as the revenue from the
sale of inventory.



Debt Issuance Costs



Debt issuance costs are costs of commissions,
interest expenses for bridge loan and legal fees for convertible notes. Debt issuance costs are deferred and amortized over the
life of the convertible notes using the effective interest rate method.



Asset Impairment



(a) Long-lived Assets



The Company reviews and evaluates its
long-lived assets including property, machinery and mining assets for impairment when events or changes in circumstances indicate
that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash
flows on an undiscounted basis are less than the carrying amount of the assets, including goodwill, if any. An impairment loss
is measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on quantities of
recoverable metals, corresponding expected commodity prices (considering current and historical prices, price trends and related
factors), production levels and operating costs of production and capital, all based on life-of-mine plans. Existing proven and
probable reserves and value beyond proven and probable reserves are included when determining the fair value of mine site reporting
units at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable metals”
refers to the estimated amount of metals that will be obtained after taking into account losses during ore processing and treatment.
Estimates of recoverable metals from such exploration stage metal interests are risk adjusted based on management’s relative
confidence in such materials. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable
cash flows that are largely independent of future cash flows from other asset groups. The Company’s estimates of future cash
flows are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the
estimates, as actual future quantities of recoverable metals prices, production levels and operating costs of production and capital
are each subject to significant risks and uncertainties. At December 31, 2010, the Company deemed certain long-lived assets to
be impaired amount to $1,354,000.



F-10







Financial Instruments



Effective January 1, 2008, the Company
adopted FASB ASC 820-Fair Value Measurements and Disclosure or ASC 820 for assets and liabilities measured at fair value on a recurring
basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles
that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such
fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating
results, but did expand certain disclosures.



ASC 820 defines fair value as the price
that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs
and minimize the use of unobservable inputs. These inputs are prioritized below:



Level 1: Observable inputs such as quoted
market prices in active markets for identical assets or liabilities



Level 2: Observable market-based inputs
or unobservable inputs that are corroborated by market data



Level 3: Unobservable inputs for which
there is little or no market data, which require the use of the reporting entity’s own assumptions.



The Company values its financial instruments
as required by estimating their fair value. The estimated fair value amounts have been determined by the Company, using available
market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market
data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be
realized or would be paid in a current market exchange.



The Company’s financial instruments
primarily consist of cash and cash equivalents, accounts receivable, restricted assets, available for sale investment, accounts
payable, warrant liability, other payables and accruals,, short-term bank loans, other current liabilities.



Cash and cash equivalents include money
market securities and commercial paper that are considered to be highly liquid and easily tradable. These securities are valued
using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the fair value
hierarchy.



As of the balance sheet dates, the estimated
fair values of the financial instruments were not materially different from their carrying values as presented due to the short
maturities of these instruments and that the interest rates on the borrowings approximate those that would have been available
for loans of similar remaining maturity and risk profile at respective year ends.



Taxation



(a)Enterprise Income Tax



Taxation on profits earned in the PRC
are calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC after taking into
effect the benefits from any special tax credits or “tax holidays” allowed in the PRC.



The Company provides for deferred income
taxes using the asset and liability method. Under this method, the Company recognizes deferred income taxes for tax credits and
net operating losses available for carry-forwards and significant temporary differences. The Company classifies deferred tax assets
and liabilities as current or non-current based upon the classification of the related asset or liability in the financial statements
or the expected timing of their reversal if they do not relate to a specific asset or liability. The Company provides a valuation
allowance to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of
the deferred tax assets will not be realized.



Income taxes are accounted for under
the Statement of FASB ASC 740, Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying
amounts of existing assets and liabilities and their respective tax bases and tax loss carry forwards. Any deferred tax assets
and liabilities would be measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.



Based on all known facts and circumstances
and current tax law, the Company believes that the total amount of unrecognized tax benefits as of December 31, 2010, is not material
to its results of operations, financial condition or cash flows. The Company also believes that the total amount of unrecognized
tax benefits as of December 31, 2010, if recognized, would not have a material effect on its effective tax rate. The Company further
believes that there are no tax positions for which it is reasonably possible, based on current Chinese tax law and policy, that
the unrecognized tax benefits will significantly increase or decrease over the next 12 months producing, individually or in the
aggregate, a material effect on the Company’s results of operations, financial condition or cash flows.



F-11







(b) Value Added Tax



The Provisional Regulations of the PRC
Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the
Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is imposed on goods sold
in or imported into the PRC and on processing, repair and replacement services provided within the PRC.



Value added tax payable in the PRC is
charged on an aggregated basis at a rate of 13% or 17% (depending on the type of goods involved) on the full price collected for
the goods sold or, in the case of taxable services provided, at a rate of 17% on the charges for the taxable services provided,
but excluding, in respect of both goods and services, any amount paid in respect of value added tax included in the price or charges,
and less any deductible value added tax already paid by the taxpayer on purchases of goods and services in the same financial year.



(b) Resource Tax



All units and individuals engaged in
the exploitation of mineral products as prescribed in the Regulations within the territory of the PRC are taxpayers of Resource
Tax and shall pay Resource Tax. The specific tax amount applicable to taxpayers shall be determined within a prescribed tax amount
range, by the Ministry of Finance in consultation with the relevant departments of the State Council in accordance with the resource
situation of the taxable products exploited or produced by taxpayers. Exploiting or producing taxable products under different
taxable items. The tax payable for Resource Tax shall be computed in accordance with the assessable volume of the taxable products
and the prescribed unit tax amount.



Transportation charges



Transportation charges represent costs
to deliver the Company’s inventory to point of sale. Transportation costs are expensed and charged to cost of sales as incurred.



Stock Based Compensation



In December 2004, the Financial Accounting
Standards Board, or FASB, issued FASB ASC 718-10-55 - Compensation-Stock Compensation, or ASC 718-10-55. Under ASC 718-10-55, companies
are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and
recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based
compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and
employee share purchase plans. In addition, FASB ASC 825-10-50-10 – Financial Instruments – Overall – Disclosures,
or ASC 825-10-50-10, expresses views of the Securities and Exchange Commission, or the SEC, staff regarding the interaction between
ASC 718-10-55 and certain SEC rules and regulations and provides the staff's views regarding the valuation of share-based payment
arrangements for public companies. The Company’s compensation cost is measured on the date of grant at its fair value. Such
compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant



Net Income Per Common Share



Basic and diluted earnings per share
are presented for net income and for income from continuing operations. Basic earnings per share is computed by dividing net income
by the weighted-average number of outstanding common shares for the period. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts that may require the issuance of common shares in the future were converted.
Diluted earnings per share is computed by increasing the weighted-average number of outstanding common shares to include the additional
common shares that would be outstanding after conversion and adjusting net income for changes that would result from the conversion.
Only those securities or other contracts that result in a reduction in earnings per share are included in the calculation.



Comprehensive Income (Loss)



Accumulated other comprehensive income
includes foreign currency translation adjustments. Total comprehensive (loss) income for the years ended December 31, 2010 and
2009 was approximately ($2,770,000) and $2,833,000, respectively.



F-12







Reclassifications



Certain reclassifications have been
made to the prior periods’ financial statements to conform to the current year presentation. These reclassifications had
no effect on previously reported results of operations or the sum of retained earnings and statutory reserve.



Recently Issued Accounting Pronouncements



In January 2010, the FASB issued ASU
No. 2010-06, Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC
820 to require a number of additional disclosures regarding (1) the different classes of assets and liabilities measured at fair
value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers
between Levels 1, 2, and 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements
in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years. The Company does not expect that the adoption of ASU
2010-06 will have a material impact on its consolidated financial statements.



In April 2010, the FASB issued Update
No. 2010-17, or ASU 2010-17, Revenue Recognition—Milestone Method, which updates the guidance currently included under topic
605, Revenue Recognition. ASU 2010-17 provides guidance on defining the milestone and determining when the use of the milestone
method of revenue recognition for research or development transactions is appropriate. It provides criteria for evaluating if the
milestone is substantive and clarifies that a vendor can recognize consideration that is contingent upon achievement of a milestone
as revenue in the period in which the milestone is achieved, if the milestone meets all the criteria to be considered substantive.
ASU 2010-17 is effective for milestones achieved in fiscal years, and interim periods within those years, beginning after June
15, 2010 and should be applied prospectively. Early adoption is permitted. The Company is currently evaluating the potential impact,
if any, of the new accounting guidance on its consolidated financial statements.



In April 2010, the FASB issued an authoritative
pronouncement on effect of denominating the exercise price of a share-based payment award in the currency of the market in which
the underlying equity securities trades and that currency is different from (1) entity’s functional currency, (2) functional
currency of the foreign operation for which the employee provides services, and (3) payroll currency of the employee. The pronouncement
clarifies that an employee share-based payment award with an exercise price denominated in the currency of a market in which a
substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not
a market, performance, or service condition, and therefore should be considered an equity award assuming all other criteria for
equity classification are met. The pronouncement is for interim and annual periods beginning on or after December 15, 2010, and
will be applied prospectively. Affected companies will be required to record a cumulative catch-up adjustment for all awards outstanding
as of the beginning of the annual period in which the guidance is adopted. This amendment is not expected to have a material impact
on the Company’s financial statements.



A variety of proposed or otherwise potential
accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative
and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards
would be material to our consolidated financial statements.



NOTE 5 -ACCOUNTS RECEIVABLE



Accounts receivable consisted of the
following:



|                                      |  | December 31    |     
|------------------------------------- |  | -------------- | ----
|                                      |  | 2010           |     
|                                      |  | (In thousands) |     
|Accounts receivable                   |  | $              | 328 
|Less: Allowance for doubtful accounts |  |                | (166
|                                      |  | $              | 162 



F-13







The activities in the Company’s
allowance for doubtful accounts are summarized as follows:



|                                     |  | December 31    |    
|------------------------------------ |  | -------------- | ---
|                                     |  | 2010           |    
|                                     |  | (In thousands) |    
|Balance at the beginning of the year |  | $              | 66 
|Add: provision during the year       |  |                | 100
|Balance at the end of the year       |  | $              | 166



NOTE 6 - OTHER DEPOSITS AND PREPAYMENTS



Other deposits and prepayments consist
of the following:



|                                          |  | December 31    |    
|----------------------------------------- |  | -------------- | ---
|                                          |  | 2010           |    
|                                          |  | (In thousands) |    
|Prepayments and advances              (a) |  | $              | 257
|Other assets                              |  |                | 594
|                                          |  | $              | 851



(a) The allowance for other deposit
and prepayment is approximately $255,000 and $0 for the year ended December 31, 2010 and 2009, respectively.



NOTE 7 - INVENTORIES



Inventories consisted of the following:



|                                           |  | December 31    |      
|------------------------------------------ |  | -------------- | -----
|                                           |  | 2010           |      
|                                           |  | (In thousands) |      
|Raw materials                              |  | $              | 708  
|Unprocessed ore                            |  |                | 4,818
|Consumables                                |  |                | 227  
|Finished goods and semi-manufactured goods |  |                | 1,490
|                                           |  | $              | 7,243



The impairment provision for inventory
is approximately $287,000 for the year ended December 31, 2010 due to Qianzhen’s two years non-operation.



NOTE 8 - RESTRICTED ASSETS



Restricted assets are the deposits
saved in the bank account as the guarantee money for the environment protection, the safety in mining production and the issuing
bank drafts. As of December 31, 2010 and 2009, the Company has restricted assets of approximately $115,000 and $740,000, respectively.



Unprocessed ore is the inventory that
consists of materials extracted from the mines that have not been processed. These inventories are primarily maintained in large
mounds of materials stored in the mine field in the form of a “stockpile.” These stockpiles are measured at the reporting
date by qualified experts using industry standards. Such standards taking into account the volume, density, and mineral content
in such stockpiles. The cost for such stockpiles includes extraction cost from mines, labor, amortization and depreciation, and
other overhead costs. Any proven or probable reserves are not included in the Company’s inventory.



Under normal circumstances, ores will
be extracted, processed and sold within the same month. When the price of fluorite powder rose significantly in 2010, the Company
increased extraction of fluorite ore in order to produce fluorite powder. However, due to certain issues in processing ores the
capacity of the processing plant was limited and a large quantity of ores were not processed and sold in the usual timeframe.



NOTE 9 - PROPERTY,
MACHINERY AND MINING ASSETS, NET



Property, machinery and mining assets
consisted of the following:



|                                          |  | December 31    |        
|----------------------------------------- |  | -------------- | -------
|                                          |  | 2010           |        
|                                          |  | (In thousands) |        
|Land use rights                           |  | $              | 1,758  
|Buildings                                 |  |                | 13,586 
|Machinery                                 |  |                | 12,168 
|Mining assets                             |  |                | 10,808 
|Motor vehicles                            |  |                | 1,405  
|Equipment                                 |  |                | 459    
|Extraction rights                         |  |                | 8,512  
|Construction in progress                  |  |                | 388    
|                                          |  |                | 49,084 
|Less:                                     |  |                |        
|Accumulated depreciation and amortization |  |                | (13,398
|Impairment provision                      |  |                | (1,493 
|                                          |  | $              | 34,193 



F-14







Depreciation and amortization



Depreciation and amortization expense
in aggregate for the years ended December 31, 2010 and 2009 was approximately $2,492,000 and $2,514,000 respectively.



Impairment provision



An impairment provision of $1,354,000
for the year ended December 31, 2010 was recorded for the mining assets and of Qingshan Metal and Qianzhen Mining for the two years
no operation. The accumulated impairment provision of $1,493,000 and $105,000 for the year ended December 31, 2010 and 2009 was
recorded for the Mining assets and of Qingshan Metal and Qianzhen Mining.



Exploration and extraction rights



As in most jurisdictions, mineral rights
in China are divided into two types: extraction rights and exploration rights. Extraction rights refer to the rights obtained in
accordance with the law for exploitation of mineral resources and market control of mineral products. In nearly every jurisdiction
in the world, mineral rights are absolutely exclusive. In China, however, there are no clear stipulations regarding the exclusivity
of mineral rights. The Amendment of China Mining Regulation stressed the security of mineral rights and its Article 6 stated that
“upon discovery of mineral resources, the exploration licensees have the privileged priority to obtain mining rights to the
mineral resources within the exploration area.” According to the Ministry of Land and Resources, this privileged priority
will be guaranteed under further amendments to be made in the near future.



Exploration rights refer to the right
obtained in accordance with the law for exploring for mineral resources within the areas authorized by the exploration license.
The Company has been granted mineral exploration permits. These exploration rights enable the Company to explore selected prospective
mines for possible economic value to mine and develop. Under Chinese mining laws and regulations, generally an exploration license
is valid for no more than 3 years and extension of the exploration license shall not exceed two years and two extensions.



NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES



At December 31, 2010 and 2009, accounts
payable and accrued liabilities were approximately $2,482,000 and $4,694,000, respectively. Accounts payable and accrued liabilities
are primarily payments due to suppliers and vendors for mining and transportation services.



NOTE 11 - WARRANTS
LIABILITY



In connection with the issuance of the
convertible notes (as further described in Note 16), the Company issued a put warrant to one of the Company’s financial advisors
for the purchase of 875,000 shares of the Company’s common stock at an exercise price of $3.20 per share. This Warrant should
be vest and be exercisable at any time, or from time to time during the period commencing from the date hereof, and expiring at
5:00 p.m., Eastern Standard Time on January 1, 2010 (the “Termination Date”)exercisable on or before 3 years from the
date of grant. The Company has had the fair value of the put warrant computed by using the Black-Scholes model. As of December
31, 2009, the fair value of the put warrant is zero due to the Company’s common share market price being lower than exercise
price. No warrant had been exercised by January 1, 2010 and the warrant expired that day.



F-15







NOTE 12 - SHORT-TERM LOANS



Short-term loans consisted of the following:



|                                                                                                                                                                                                                                                                                    |  | December 31,   |       |  | December 31,   |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- |  | -------------- | -
|                                                                                                                                                                                                                                                                                    |  | 2010           |       |  | 2009           |  
|                                                                                                                                                                                                                                                                                    |  | (in thousands) |       |  | (in thousands) |  
|6.37% note payable to Baiyin Credit Union matures on December 28, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining and secured by the time deposit of Ms. Helin Cui, a director of the Company.          |  | $              | -     |  |                | $
|6.37% note payable to Baiyin Credit Union matures on August 18, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining and secured by the time deposit of Ms. Xiaojing Yu, a director of the Company.          |  |                | -     |  |                |  
|8.50% note payable to Baiyin Credit Union matures on December 29, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Xiangzhen Mining.                                                                                     |  |                | -     |  |                |  
|8.50% note payable to Baiyin Credit Union matures on February 13, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining.                                                                                      |  |                | -     |  |                |  
|8.50%% note payable to Baiyin Credit Union matures on February 13, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining                                                                                      |  |                | -     |  |                |  
|8.50% note payable to Baiyin Credit Union matures on March 23, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, which is in the name of a related party and guaranteed by Xiangzhen Mining.                                            |  |                | -     |  |                |  
|7.65% note payable to China Citic Bank matures on May 21, 2010, guaranteed by Xiangzhen Mining (a).                                                                                                                                                                                 |  |                | -     |  |                |  
|12.21% note payable to Wulatehouqi Credit Union matures on March 11, 2010 , which is in the name of a related party and guaranteed by Qianzhen Mining                                                                                                                               |  |                | -     |  |                |  
|6.97% note payable to Baiyin Credit Union matures on December 28, 2011 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining and secured by the certificate of deposit of Ms. Helin Cui, a director of the Company |  |                | 91    |  |                |  
|6.37% note payable to Baiyin Credit Union matures on August 18, 2011 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining and secured by the certificate of deposit of Ms. Xiaojing Yu, a director of the Company |  |                | 121   |  |                |  
|9.45% note payable to Baiyin Credit Union matures on December 21, 2011 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Xiangzhen Mining                                                                                      |  |                | 877   |  |                |  
|9.45% note payable to Baiyin Credit Union matures on March 21, 2011 with interest due on the 20th day of each quarter and principal due at date of maturity, which is in the name of a related party and guaranteed by Xiangzhen Mining                                             |  |                | 242   |  |                |  
|10.01% note payable to Baiyin Credit Union matures on February 4, 2011 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining                                                                                       |  |                | 189   |  |                |  
|10.01% note payable to Baiyin Credit Union matures on February 4, 2011 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining                                                                                       |  |                | 68    |  |                |  
|13.28% note payable to Wulatehouqi Credit Union matures on April 11, 2011 , which is in the name of a related party and guaranteed by Qianzhen Mining                                                                                                                               |  |                | 423   |  |                |  
|7.01% note payable to China Citic Bank matures on February 15, 2011, collateralized with Xiangzhen’s extraction right, land use right and some machineries                                                                                                                          |  |                | 756   |  |                |  
|7.01% note payable to China Citic Bank matures on February 12, 2011, collateralized with Xiangzhen’s extraction right, land use right and some machineries                                                                                                                          |  |                | 2,269 |  |                |  
|7.01% note payable to China Citic Bank matures on February 14, 2011, collateralized with Xiangzhen’s extraction right, land use right and some machineries                                                                                                                          |  |                | 3,025 |  |                |  
|                                                                                                                                                                                                                                                                                    |  | $              | 8,061 |  |                | $



NOTE 12 - LONG-TERM LOANS



Long-term loans consisted of the following:



|                                                                                                                                                          |  | December 31,   |       |  | December 31,   |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- |  | -------------- | -
|                                                                                                                                                          |  | 2010           |       |  | 2009           |  
|                                                                                                                                                          |  | (in thousands) |       |  | (in thousands) |  
|5.15%-interest note payable to Ms. Yanling Ding matures on January 26, 2012, collateralized with Xingzhen’s extraction right and the ore processing plant |  | $              | 2,630 |  |                | $









F-16









NOTE 14- OTHER PAYABLES AND
ACCRUALS



Other payables and accruals consisted
of the following:



|                                                         |  | December 31,   |      
|-------------------------------------------------------- |  | -------------- | -----
|                                                         |  | 2010           |      
|                                                         |  | (In thousands) |      
|Accrued debt issuance costs (a)                          |  | $              | -    
|Receipts in advance                                      |  |                | 2,058
|Accruals for payroll, bonus and other operating expenses |  |                | 690  
|Payables for construction service vender                 |  |                | 1,635
|Others payables                                          |  |                | 1,780
|                                                         |  | $              | 6,163



(a) The balance mainly represents outstanding
legal service fees payable in connection with the issuance of the convertible notes.

(b) As of December 31, 2010, Receipts
in advance total approximately $2,058,000, which consists of receivables from 10 customers.



The following table shows the receipts
in advance of the Company’s major customers (10% or more of consolidated receipts in advance) as of December 31, 2010:



|                   |  | Receipts in advance |       |  | Percentage | 
|------------------ |  | ------------------- | ----- |  | ---------- | 
|Customer           |  | (In thousands)      |       |  | (%)        | 
|RuiPeng Mining Ltd |  | $                   | 1,514 |  |            | 





As of December 31, 2009, Receipts in
advance total approximately $1,788,000 which consists of receivables from 8 customers.



The following table shows the receipts
in advance of the Company’s major customers (10% or more of consolidated receipts in advance) as of December 31, 2009:



|                   |  | Receipts in advance |       |  | Percentage | 
|------------------ |  | ------------------- | ----- |  | ---------- | 
|Customer           |  | (In thousands)      |       |  | (%)        | 
|RuiPeng Mining Ltd |  | $1,075              |       |  | 60%        | 
|Zibo Bofeng Ltd    |  |                     | 347   |  |            | 
|                   |  | $                   | 1,422 |  |            | 



NOTE 15 - DUE TO RELATED
PARTIES



Due to related parties consisted of
the following:



|                                                                                            |  | December 31,   |      
|------------------------------------------------------------------------------------------- |  | -------------- | -----
|                                                                                            |  | 2010           |      
|                                                                                            |  | (In thousands) |      
|Due to directors of the Company:                                                            |  |                |      
|Ms. Xiaojing Yu, CEO of the Company (a)                                                     |  | $              | 102  
|Mr. Xueming Xu, Director of the Company (b)                                                 |  |                | 12   
|Mr. He Lin Cui, COO of the Company(c)                                                       |  |                | -    
|Due to Mr. Xiao Ming Yu, General Manager of Xiangzhen (d)                                   |  |                | 431  
|Due to Wulatehouqi Mengxin Co., Ltd, the former minority shareholder of Xingzhen Mining (e) |  |                | -    
|Mr. Mao Huang, the minority shareholder of Xingzhen Mining (f)                              |  |                | 1,894
|                                                                                            |  | $              | 2,439



On December 8, 2009, the Company entered
into agreements with all their related parties, that their advances are interest-free, unsecured and have no fixed terms of
repayment until December 8, 2012. Amount due to related parties as of December 31, 2010 are interest-free, unsecured and with no
fixed terms of repayment.



|(a) | Ms. Yu is the CEO of the Company.                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Mr. Xu is a director of the Company.                                                                                                                                          
|(c) | Mr. Cui is the COO of the Company.                                                                                                                                            
|(d) | Mr. Yu is the General Manager of Xiangzhen Mining.                                                                                                                            
|(e) | Wulatehouqi Mengxin Co., Ltd is the former minority shareholder of Xingzhen Mining, and transferred all the shareholder’s rights and loan of Xingzhen Mining to Mr. Huang (f).
|(f) | Mr. Huang is the minority shareholder of Xingzhen Mining.                                                                                                                     





F-17











NOTE 16 - DEFINED
CONTRIBUTION RETIREMENT PLANS



As stipulated by the regulations of
the PRC government, companies operating in the PRC have defined contribution retirement plans for their employees. The PRC government
is responsible for the pension liability to these retired employees. Commencing from January 1, 2002, the Company was required
to make specified contributions to the state-sponsored retirement plan at 20% of the basic salary cost of their staff. Each of
the employees of the PRC subsidiaries is required to contribute 6% of his/her basic salary.



NOTE 17 - PRC
STATUTORY RESERVES



In accordance with the PRC Companies
Law, the Company’s PRC subsidiaries were required to transfer 10% of their profit after tax, as determined in accordance
with accounting standards and regulations of the PRC, to the statutory surplus reserve and a percentage of not less than 5%, as
determined by management, of the profit after tax to the public welfare fund. With the amendment of the PRC Companies Law
which was effective from January 1, 2006, enterprises in the PRC are no longer required to transfer any profit to the public welfare
fund. Any balance of public welfare fund brought forward from December 31, 2005 should be transferred to the statutory surplus
reserve. The statutory surplus reserve is non-distributable. There was no statutory reserve transferred in the years ended December
31, 2010 and 2009.



NOTE 18 - ASSET
RETIREMENT OBLIGATIONS



According to the “Rules on Mineral
Resources Administration” and “Rules on Land Rehabilitation” of the PRC, mining companies causing damages to
cultivated land, grassland or forest are required to restore the land to a state approved by the local governments. The local governments
administering the “Rules on Mineral Resources Administration” and “Rules on Land Rehabilitation” on the
Company’s two mines, “Sumochaganaobao Fluorite Mine” and “Mining site No. 2”, have confirmed that
the Company is not required to restore or rehabilitate the two mining sites because those two mining sites are located at distant
areas and the Company’s mining and extraction activities have not affected the surrounding environment. The Company’
property, machinery and mining assets related to those two mining sites at December 31, 2010 and 2009 were not subject to
an asset retirement obligation.



The Company has identified but not recognized
the asset retirement obligations related to the Company’s other mining sites for which the Company is applying the extraction
rights. These sites are still at the exploration stage. The asset retirement obligations related to these sites are not estimable
until extraction rights and licenses are granted. Upon the approval and issuance of the extraction licenses, the Company will be
able to reasonably estimate the settlement dates of, and apply an expected present value technique to determine and recognize the
asset retirement obligations related to these mining sites.



NOTE 19 - ENVIRONMENTAL
CHARGES



The Company’s mining and exploration
activities are subject to various PRC laws and regulations governing the protection of the environment. These laws and regulations
are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect the
public health and environment and believes its operations are in compliance with applicable laws and regulations in all material
respects.



The Company’s mining operations
are subject to “Natural Resource Compensation Charges”, but the charging rate varies in different cities in the PRC. Xiangzhen
Mining and Xingzhen Mining were charged at net revenue * 2%* a special index solely determined by the local government. Qingshan
Metal and Qianzhen Mining was engaged in refinery of metals and no involved in any mining activities in 2010. As such, they are
not subject to the charge.



For the years ended December 31, 2010
and 2009, Natural Resource Compensation Charges of approximately $268,000 and $78,000 respectively, were charged to operations
and included in cost of sales.



NOTE 20 - OPERATING
RISK



Country risk



Currently, the Company’s revenues
are mainly derived from sales in the PRC. The Company hopes to expand its operations in the PRC, however, there are no assurances
that the Company will be able to achieve such an expansion successfully. Therefore, a downturn or stagnation in the economic environment
of the PRC could have a material adverse effect on the Company’s financial condition.



F-18







Products risk



The Company competes with larger companies,
who have greater funds available for expansion, marketing, research and development and the ability to attract more qualified personnel.
There can be no assurance that the Company will remain competitive with larger competitors.



Exchange risk



The Company can not guarantee that the
current exchange rate will remain steady, therefore there is a possibility that the Company could post the same amount of profit
for two comparable periods and because of a fluctuating exchange rate actually post higher or lower profit depending on exchange
rate of PRC Renminbi (RMB) converted to U.S. Dollars on that date. The exchange rate could fluctuate depending on changes in the
political and economic environments without notice.



Political risk



Currently, the PRC is in a period of
growth and is openly promoting business development in order to bring more business into the PRC. Additionally, the PRC allows
a PRC corporation to be owned by a United States corporation. If the laws or regulations are changed by the PRC government, the
Company’s ability to operate in the PRC could be affected.



Key personnel risk



The Company’s future success depends
on the continued services of executive management in China. The loss of any of their services would be detrimental to the Company
and could have an adverse effect on business development. The Company does not currently maintain key-man insurance on their lives.
Future success is also dependent on the ability to identify, hire, train and retain other qualified managerial and other employees.
Competition for these individuals is intense and increasing.



Non-compliance with financing
requirements



The Company might need to obtain future
financing that require timely filing of registration statements, and have declared effective those registration statements, to
register the shares being offered by the selling stockholders in future financing. The Company might be subject to liquidated damages
and other penalties if they continue to obtain future financing requiring registration statements, and not having those registration
statements filed and declared effective in a prompt manner.



NOTE 21 - COMMITMENTS
AND CONTINGENCIES



General



The Company accounts for contingencies,
using FASB issued guidance, accordingly, estimated losses from loss contingencies are accrued by a charge to income when information
available prior to issuance of the financial statements indicates that it is probable that a liability could have been incurred
and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred.
If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements
when it is at least reasonably possible that a material loss could be incurred.



Mining industry in PRC



The Company's mining operations are
and will be subject to extensive national and local governmental regulations in China which regulations may be revised or expanded
at any time. A broad number of matters are subject to regulation. Generally, compliance with these regulations requires the Company
to obtain permits issued by government, state and local regulatory agencies. Certain permits require periodic renewal or review
of their conditions. The Company cannot predict whether it will be able to obtain or renew such permits or whether material changes
in permit conditions will be imposed. The inability to obtain or renew permits or the imposition of additional conditions could
have a material adverse effect on the Company's ability to develop and operate its properties.



Environmental matters



Environmental laws and regulations to
which the Company is subject as it progresses from the development stage to the production stage mandate additional concerns and
requirements of the Company. Failure to comply with applicable laws, regulations and permits can result in injunctive actions,
damages and civil and criminal penalties. The laws and regulations applicable to the Company's activities change frequently and
it is not possible to predict the potential impact on the Company from any such future changes.



F-19







Although management believes that the
Company is in material compliance with the statutes, laws, rules and regulations of every jurisdiction in which it operates, no
assurance can be given that the Company’s compliance with the applicable statutes, laws, rules and regulations will not be
challenged by governing authorities or private parties, or that such challenges will not lead to material adverse effects on the
Company’s financial position, results of operations, or cash flows.



The Company is not involved in any legal
matters arising in the normal course of business. While incapable of estimation, in the opinion of the management, the individual
regulatory and legal matters in which it might be involved in the future are not expected to have a material adverse effect on
the Company’s financial position, results of operations, or cash flows.



Capital commitment



The following table shows the Company
Contracted unpaid purchase which have not been received as of:



|                                                         |  | December 31,   |   
|-------------------------------------------------------- |  | -------------- | --
|                                                         |  | 2010           |   
|                                                         |  | (In thousands) |   
|Purchase of machinery - within one year                  |  | $              | 27
|Acquisition or construction of buildings-within one year |  |                | 36
|                                                         |  | $              | 63



NOTE 22 - CONCENTRATION
OF CUSTOMERS AND SUPPLIERS



Substantially all of the Company’s
bank accounts in banks located in the PRC are not covered by any type of protection similar to that provided by the FDIC on funds
held in U.S. banks. The Company does not maintain fund in U.S. banks as of December 31, 2010 and 2009.



The Company is operating in China, which
may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between
the U.S. Dollar and the RMB.



Financial instruments that potentially
subject the Company to concentration of credit risk consist principally of cash and trade receivables, the balances of which are
stated on the balance sheet. The Company places its cash in high credit quality financial institutions; however, such funds are
not insured in the PRC.



The Company had two main customers who
contributed approximately $7,527,000 or 65% of the Company’s consolidated net revenue for the year ended December 31, 2010.
For the same period of 2009 the Company had five main customers who contributed approximately $3,441,000 or 81% of the Company’s
consolidated net revenue.



The following table shows revenue from
the Company’s major customers (10% or more of consolidated net revenue) for the year ended December 31, 2010:



|                   |  | Revenue        |       |  | Percentage | 
|------------------ |  | -------------- | ----- |  | ---------- | 
|Customer           |  | (In thousands) |       |  | (%)        | 
|Ruipeng Mining Ltd |  | $              | 3,600 |  |            | 
|Ningxia Jinhe Ltd  |  |                | 3,926 |  |            | 
|                   |  | $              | 7,527 |  |            | 



The following table shows the Company’s
major customers (10% or more of consolidated net revenue) for the year ended December 31, 2009:

|                                      |  | Revenue        |       |  | Percentage | 
|------------------------------------- |  | -------------- | ----- |  | ---------- | 
|Customer                              |  | (In thousands) |       |  | (%)        | 
|Handan Hongzhi Ltd                    |  | $              | 892   |  |            | 
|Ningxia Jinhe Ltd                     |  |                | 815   |  |            | 
|Laiwu Steel Ltd                       |  |                | 638   |  |            | 
|Inner Mongolia Huadesanli Trading Ltd |  |                | 621   |  |            | 
|Zibo Bofeng Ltd                       |  |                | 475   |  |            | 
|                                      |  | $              | 3,441 |  |            | 



F-20







As of December 31, 2010, accounts receivable
total approximately $162,000, net of allowance of doubtful accounts, which consists of receivables from 2 customers.



The following table shows the receivable
distribution of the Company’s major customers (10% or more of consolidated accounts receivable, net) as of December 31, 2010:

|                   |  | Receivables    |     |  | Percentage | 
|------------------ |  | -------------- | --- |  | ---------- | 
|Customer           |  | (In thousands) |     |  | (%)        | 
|Laiwu Steel, Ltd.  |  | $              | 102 |  |            | 
|Handan Hongzhi Ltd |  |                | 60  |  |            | 
|                   |  | $              | 162 |  |            | 



As of December 31, 2010, Receipts in
advance total approximately $2,058,000, which consists of receivables from 10 customers.



The following table shows the receipts
in advance of the Company’s major customers (10% or more of consolidated receipts in advance) as of December 31, 2010:

|                   |  | Receipts in advance |       |  | Percentage | 
|------------------ |  | ------------------- | ----- |  | ---------- | 
|Customer           |  | (In thousands)      |       |  | (%)        | 
|RuiPeng Mining Ltd |  | $                   | 1,574 |  |            | 
|                   |  |                     |       |  |            | 

As of December 31, 2009, accounts receivable
total approximately $302,000, net of allowance of doubtful accounts which consists of receivables from 5 customers.



The following table shows the receivable
distribution of the Company’s major customers (10% or more of consolidated accounts receivable, net) as of December 31, 2009:



|                             |  | Receivables    |     |  | Percentage | 
|---------------------------- |  | -------------- | --- |  | ---------- | 
|Customer                     |  | (In thousands) |     |  | (%)        | 
|Ningxia Jinhe Chemistry Ltd. |  | $              | 135 |  |            | 
|Laiwu Steel, Ltd.            |  |                | 88  |  |            | 
|Handan Hongzhi Ltd.          |  |                | 75  |  |            | 
|                             |  | $              | 298 |  |            | 



As of December 31, 2009, Receipts in
advance total approximately $1,788,000 which consists of receivables from 8 customers.



The following table shows the receipts
in advance of the Company’s major customers (10% or more of consolidated receipts in advance) as of December 31, 2009:



|                   |  | Receivables    |       |  | Percentage | 
|------------------ |  | -------------- | ----- |  | ---------- | 
|Customer           |  | (In thousands) |       |  | (%)        | 
|RuiPeng Mining Ltd |  | $              | 1,075 |  |            | 
|Zibo Bofeng Ltd    |  |                | 347   |  |            | 
|                   |  | $              | 1,422 |  |            | 



In the years of 2010 and 2009, the Company
had no concentrated suppliers.



NOTE 23 - RELATED PARTY
TRANSACTION



There was no related party transaction
for the year ended December 31, 2010 and 2009, respectively, except for the loan and repayment to the related parties. (see-Note
15)



F-21







NOTE 24 - SEGMENT INFORMATION



The Company follows FASB ASC 280-Segment
Reporting, which requires that companies disclose segment data based on how management makes decision about allocating resources
to segments and evaluating their performance. The Company has two operating segments identified by product, “fluorite”
and “nonferrous metals”. The fluorite segment consists of our fluorite extraction and processing operations conducted
through the Company’s wholly-owned subsidiary, Xiangzhen Mining. The nonferrous metals segment consists of the Company’s
copper, zinc, lead and other nonferrous metal exploration, extraction and processing activities conducted through the Company’s
wholly-owned subsidiaries, Qianzhen Mining, Xingzhen Mining and Qingshan Mining.



The Company primarily evaluates performance
based on income before income taxes and excluding non-recurring items.



The segment data presented below were
prepared on the same basis as the Company’s consolidated financial statements.





|Year ended December 31, 2010                      |  | Fluorite |         |   | Nonferrous
metals |   |        | Consolidated | 
|------------------------------------------------- |  | -------- | ------- | - | ----------------- | - | ------ | ------------ | 
|Segment revenue                        (a)        |  | $        | 8,012   |   |                   | $ | 3,600  |              | 
|Inter-segment revenue                             |  |          | -       |   |                   |   | -      |              | 
|Revenue from external customers                   |  | $        | 8,012   |   |                   | $ | 3,600  |              | 
|                                                  |  |          |         |   |                   |   |        |              | 
|Segment loss                               (b)    |  | $        | (436    | ) |                   | $ | (2,770 | )            | 
|                                                  |  |          |         |   |                   |   |        |              | 
|Unallocated corporate income (loss)               |  |          |         |   |                   |   |        |              | 
|Income before income taxes and minority interests |  |          |         |   |                   |   |        |              | 
|                                                  |  |          |         |   |                   |   |        |              | 
|Total segment assets                              |  | $        | 37,616  |   |                   | $ | 27,014 |              | 
|Inter-segment receivables                         |  |          | (12,175 | ) |                   |   | (8,343 | )            | 
|                                                  |  | $        | 25,441  |   |                   | $ | 18,671 |              | 
|Other unallocated corporate assets                |  |          |         |   |                   |   |        |              | 
|                                                  |  |          |         |   |                   |   |        |              | 
|Other segment information:                        |  |          |         |   |                   |   |        |              | 
|Depreciation and amortization                     |  | $        | 1,488   |   |                   | $ | 1,044  |              | 
|Expenditure for segment assets                    |  | $        | 1,455   |   |                   | $ | 648    |              | 







|Year ended December 31, 2009                                                        |  | Fluorite |         |   | Nonferrous
metals |   |        | Consolidated | 
|----------------------------------------------------------------------------------- |  | -------- | ------- | - | ----------------- | - | ------ | ------------ | 
|Segment revenue                                                                     |  | $        | 3,919   |   |                   | $ | 273    |              | 
|Inter-segment revenue                                                               |  |          | -       |   |                   |   | -      |              | 
|Revenue from external customers                                                     |  | $        | 3,919   |   |                   | $ | 273    |              | 
|                                                                                    |  |          |         |   |                   |   |        |              | 
|Segment loss                                                                        |  | $        | (2,293  | ) |                   | $ | (1,832 | )            | 
|                                                                                    |  |          |         |   |                   |   |        |              | 
|Unallocated corporate expenses                                                      |  |          |         |   |                   |   |        |              | 
|Income (loss) from continuing operations before income taxes and minority interests |  |          |         |   |                   |   |        |              | 
|                                                                                    |  |          |         |   |                   |   |        |              | 
|Total segment assets                                                                |  | $        | 34,194  |   |                   | $ | 26,982 |              | 
|Inter-segment receivables                                                           |  |          | (11,789 | ) |                   |   | (8,127 | )            | 
|                                                                                    |  | $        | 22,405  |   |                   | $ | 18,855 |              | 
|Other unallocated corporate assets                                                  |  |          |         |   |                   |   |        |              | 
|                                                                                    |  |          |         |   |                   |   |        |              | 
|Other segment information:                                                          |  |          |         |   |                   |   |        |              | 
|Depreciation and amortization                                                       |  | $        | 1,680   |   |                   | $ | 833    |              | 
|Expenditure for segment assets                                                      |  | $        | 2,432   |   |                   | $ | 89     |              | 



F-22







|(a) | Fluorite                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Fluorite segment revenue increased by 104% from $3.92 million for 2009 to $8.01 million for 2010. The increase was primarily due to the increases in sales volume for fluorite powder and the sale price for fluorite powder. 29,087 and 12,192 metric tons of fluorite powder were sold for the years ended December 30, 2010 and 2009, respectively; and the average price for a metric ton of fluorite powder was $164 and $113 for the years ended December 30, 2010 and 2009.                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Nonferrous metals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Nonferrous metals segment revenue for 2010 amounted to $3.60 million, representing a increase of approximate $3.33 million or 1,219% compared to 2009. The performance of the nonferrous metals segment significantly improved because Xingzhen restarted in May 2010 and even operate in the winter of 2010. Xingzhen Mining processed 77,241 metric tons of ores to produce 3,129 metal ton of zinc concentrate powder and 155 metal ton of copper concentrate, and sold 2,538 metal tons of zinc concentrate powder and 115 metal tons of copper concentrate powder the year ended December 31, 2010. While for the same period of 2009, Xingzhen Mining was in trial production and produced very few products because of the technological difficulties.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(b) | Fluorite                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Our fluorite segment reported a segment loss of approximately $0.44 million for the year ended December 31, 2010 compared to a segment profit of $2.29 million in 2009. The difference was mainly due to the revenue significantly increased.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Nonferrous metals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Our nonferrous metal segment reported a segment loss of approximately $2.77 million for the year ended December 31, 2010 compared to a segment profit of $1.83 million in 2009. The net segment loss for Xingzhen was approximately 0.81 million and 1.22 million for the year ended December 31, 2010 and 2009, respectively. The net segment loss for Qianzhen and Qingshan was approximately 1.96 million and 0.61 million for the year ended December 31, 2010 and 2009, respectively. The significant difference for Qianzhen and Qingshan was mainly due to the impairment provision for inventory, available for sale investment and mining assets amount to approximately 1.79 million for two years no production.                                  



The following summarizes identifiable
assets by geographic area:



|                             |  | December 31,   |        |  | December 31,   |  
|---------------------------- |  | -------------- | ------ |  | -------------- | -
|                             |  | 2010           |        |  | 2009           |  
|                             |  | (In thousands) |        |  | (In thousands) |  
|China                        |  | $              | 44,112 |  |                | $
|Unallocated corporate assets |  |                | 80     |  |                |  
|                             |  | $              | 44,192 |  |                | $



The following summarizes net (loss)
income by geographic area:



|                                              |  | Year Ended December 31, |       
|--------------------------------------------- |  | ----------------------- | ------
|                                              |  | 2010                    |       
|                                              |  | (In thousands)          |       
|China                                         |  | $                       | (3,206
|Discontinued operation - Kyrgyzstan           |  |                         | -     
|Unallocated corporate operating income (loss) |  |                         | (215  
|                                              |  | $                       | (3,421



NOTE 25 - OTHER INCOME,
NET



|                                 |  | Years ended December 31, |    
|-------------------------------- |  | ------------------------ | ---
|                                 |  | 2010                     |    
|                                 |  | (In thousands)           |    
|Liabilities exemption (a)        |  | $                        | 300
|Exchange gain                    |  |                          | 235
|Loss on disposal of fixed assets |  |                          | (17
|Subsidies                        |  |                          | -  
|Penalty and late fee             |  |                          | (23
|others                           |  |                          | 58 
|                                 |  | $                        | 553



F-23







On February 5, 2010, certain directors
of the Company forgave unpaid salaries owed them by the Company in the amount of $300,000. Accordingly, the Company recorded this
amount in other income.



NOTE 26 - INCOME TAXES



The Company, its subsidiaries and consolidated
variable interest entity file separate income tax returns, mainly in the U.S. and PRC.



On September 21, 2009, Xiangzhen Mining
and Fortune Pegasus International Limited signed an equity transfer agreement. Xiangzhen Mining sold the entire equity in Tun-Lin
Co. Ltd to Fortune Pegasus International Limited. On November 20, 2009, the sale of Tun-Lin was closed.



The United States of America



The Company is incorporated in the State
of Delaware in the U.S., and is subject to U.S. federal corporate income tax at gradual rates of up to 35%.



PRC



The PRC’s statutory income tax
rate is 25%. The Company’s PRC subsidiary and consolidated variable entities are subject to PRC income tax at 25%, unless
otherwise specified.



The components of earnings (losses)
before income taxes are as follows:



|                                              |  | Year Ended December 31, |       
|--------------------------------------------- |  | ----------------------- | ------
|                                              |  | 2010                    |       
|                                              |  | (In thousands)          |       
|China                                         |  | $                       | (3,210
|Discontinued operation - Kyrgyzstan           |  |                         | -     
|Unallocated corporate operating income (loss) |  |                         | (211  
|                                              |  | $                       | (3,421



The Company’s income tax benefit
(expenses) consists of:



|                      |  | For the Year ended December 31, |  
|--------------------- |  | ------------------------------- | -
|                      |  | 2010                            |  
|                      |  | (In thousands)                  |  
|Current: tax expense  |  | $                               | -
|Deferred: tax expense |  |                                 | -
|                      |  | $                               | -



A reconciliation of the provision for
income taxes determined at the statutory average state and local income tax to the Company’s effective income tax rate is
as follows:



|                                                                                           |  | For the Year ended December 31, |       
|------------------------------------------------------------------------------------------ |  | ------------------------------- | ------
|                                                                                           |  | 2010                            |       
|                                                                                           |  | (In thousands)                  |       
|Pre-tax income (loss) from continuing operations                                           |  | $                               | (3,421
|United States statutory corporate income tax rate                                          |  |                                 | 35    
|Income tax benefit (expense) computed at United States statutory corporate income tax rate |  | $                               | 1,197 
|Reconciling items                                                                          |  |                                 |       
|Net loss from China subsidiaries                                                           |  |                                 | -     
|Rate differential for PRC or Kyrgyz earnings                                               |  |                                 | (322  
|Non-deductible expense                                                                     |  |                                 | (98   
|Utilization of net operating loss                                                          |  |                                 | -     
|Alternative minimum tax expense                                                            |  |                                 | -     
|Increase in valuation allowance                                                            |  |                                 | (777  
|Effective tax (expense) benefit                                                            |  | $                               | -     





F-24











As of December 31, 2010 and 2009, the
Company’s deferred income tax assets mainly arose from the temporary difference in depreciation and amortization under PRC
GAAP and U.S. GAAP.



In March 2007, the Chinese government
enacted new tax law which took effect beginning January 1, 2008. Under the new tax law of China, all domestic and foreign invested
enterprises are generally subject to a unified tax rate of 25%. The new tax law provide for a five-year transition period from
its effective date for those enterprises which were established before the promulgation date of the new tax law and which were
entitled to preferential tax treatments under the previous tax laws and regulations. Therefore, Xiangzhen Mining and Qianzhen Mining
will continue to enjoy the tax exemption benefit during their tax holidays.



The Company’s parent, China Shen
Zhou Mining & Resources, Inc., and its subsidiary AFMG, are incorporated in the United States and have incurred an aggregate
net operating loss of approximately $3,905,000 for income tax purposes through subsidiary December 31, 2010, subject to the Internal
Revenue Code Section 382, which places a limitation on the amount of taxable income that can be offset by net operating losses
after a change in ownership. The net operating loss carries forward for United States income taxes, and may be available to
reduce future years’ taxable income. These carryforwards will expire, if not utilized, through 2029. Management believes
that the realization of the benefits from these losses appears not more than likely due to the Company’s limited operating
history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance
on the deferred tax asset benefit of approximately $1,367,000 to reduce the asset to zero. Management will review this valuation
allowance periodically and make adjustments as warranted.



The tax effects of temporary differences
that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2010 and 2009 are presented
below:



|                                  |  | Years ended December 31, |     
|--------------------------------- |  | ------------------------ | ----
|                                  |  | 2010                     |     
|                                  |  | (In thousands)           |     
|                                  |  |                          |     
|Deferred tax liabilities          |  |                          |     
|- Convertible debt extinguishment |  | $                        | (200
|Net deferred tax liabilities      |  | $                        | (200



NOTE 27 - EARNINGS
PER SHARE



The following table is a reconciliation
of the weighted average shares used in the computation of basic and diluted earnings per share from continuing and discontinued
operations for the periods presented (amounts in thousands, except per share data):



|                                                                           |  | Years ended December 31,              |       
|-------------------------------------------------------------------------- |  | ------------------------------------- | ------
|                                                                           |  | 2010                                  |       
|                                                                           |  | (In thousands, except per share data) |       
|(Loss) income from continuing operations available to common shareholders: |  |                                       |       
|-Basic and Diluted                                                         |  | $                                     | (3,417
|                                                                           |  |                                       |       
|Loss from discontinued operations available to common shareholders:        |  |                                       |       
|-Basic and Diluted                                                         |  | $                                     | -     
|Weighted average number of shares:                                         |  |                                       |       
|-Basic and Diluted                                                         |  |                                       | 27,902
|                                                                           |  |                                       |       
|Earnings per share from continuing operations                              |  |                                       |       
|-Basic and Diluted                                                         |  | $                                     | (0.11 
|                                                                           |  |                                       |       
|(Loss) income per share from discontinued operations                       |  |                                       |       
|- Basic and Diluted                                                        |  | $                                     | -     



F-25







NOTE 28 - SUBSEQUENT
EVENT



On January 13, 2011, the Company signed
an equity transfer agreement to acquire 55% of the equity interests of Xinyi Fluorite Company Ltd. (“Xinyi”), a company
based in Jingde County, Anhui Province, China. Xinyi’s primary business and assets relate to the mining of fluorite.



On January 19, 2011, the Company agreed
to sell to certain institutional investors 2,836,883 shares of the Company’s common stock and warrants to purchase up to 851,066
shares of the Company’s common stock. From January 21, 2011 to March 11, 2011 the Company had received aggregate gross proceeds,
before deducting fees to the placement agent and other estimated offering expenses payable by the Company, of approximately $20
million.



From February 12, 2011 to February 15,
2011 the Company had repaid the short loan from China Citic Bank amount to approximately $6.05 million.



On March 16, 2011, Mr. Steven Wang resigned
as Chief Financial Officer of the Company effective immediately, Mr. Wang resigned for personal reasons and there were no disagreements
between him and the Company on any matter that resulted in his resignation. On March 16, 2011, Mr. Jiayin Zhu was appointed as
Chief Financial Officer of the Company by the Board of Directors of the Company.



F-26