**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**




**x ANNUAL
      REPORT
      UNDER SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934**





**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2007**





**o TRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934** ****





**COMMISSION
      FILE NUMBER:** **** **033-03385-LA**





**CHINA
      SHEN ZHOU MINING & RESOURCES, INC.**


(Name
      of
      Small Business Issuer Specified in its Charter)





Nevada
            87-0430816(State
                of incorporation)
            (IRS
                Employer Identification Number)





No. 166
      Fushi Road, Zeyang Tower, Suite 305


Shijingshan
      District, Beijing, China 100043


(Address
      of principal executive offices) (Zip Code)





86-010-68867292


(Issuer’s
      telephone number, including area code)





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


None





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


Common
      Stock, par value $0.001 per share





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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. x Yes o
      No





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will 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-KSB/A or any amendment to this Form 10-KSB/A. o Yes x
      No





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


o
      Yes x No





The
      Issuer’s revenue for its most recent fiscal year was $14,351,000.




As
      of
      March 20, 2008, 22,214,514 shares
      of the Issuer’s $0.001 par value common stock were outstanding and the aggregate
      market value of the shares held by non-affiliates was approximately $18,165,289
      based upon a closing bid price on March 20, 2008 of $4.42 per share of common
      stock on the American Stock Exchange.





Transitional
      Small Business Disclosure Format (check one)    Yes o   No
x









**TABLE
      OF CONTENTS**





**PART
                I**ITEM
                1.
            DESCRIPTION
                OF BUSINESS
            1Corporate
                History
            1Our
                Industry
            2Current
                Business Operations
            2Description
                of Products
            3Sales
                and Marketing
            4Our
                Major Customers
            4Competition
            4Business
                Strategies
            5Expansion
                of Production Capacity to Meet Demand
            5Increased
                Exploration Activities
            6Acquire
                More Mineral Resources
            7Expand
                into Down Stream Chemical Business
            7Competitive
                Advantages
            7Government
                Regulation
            8Employees
            9Risk
                Factors
            9ITEM
                2.
            DESCRIPTION
                OF PROPERTY
            20General
            20Sumochaganaobao
                Fluorite Mine (Production Stage)
            22The
                Kuru-Tegerek Cu-Au Mine (Under Development)
            26Mining
                Site No. 2 of Qingxing Copper Mine, in production Stage (Qingshan
                Metal)
            29Keyinbulake
                Cu-Zn Property in development stage (Xingzhen Mining)
            31Qianzhen
                Mining
            33ITEM
                3.
            LEGAL
                PROCEEDINGS
            34ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            34**PART
                II**ITEM
                5.
            MARKET
                FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
                ISSUER
                PURCHASES OF EQUITY SECURITIES
            34Equity
                Compensation Plan Information
            37ITEM
                6.
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            38Expansion
                of Production Capacity to Meet Demand
            38Acquire
                More Mineral Resources
            40Expand
                into Down Stream Chemical Business
            40




-i-





ITEM
                7.
            FINANCIAL
                STATEMENTS
            48ITEM
                8.
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
            49ITEM
                8A.
            CONTROLS
                AND PROCEDURES
            49ITEM
                8B.
            OTHER
                INFORMATION
            51**PART
                III**ITEM
                9.
            DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION
                16(A) OF THE EXCHANGE ACT
            51Involvement
                in Certain Legal Proceedings
            53Compliance
                with Section 16(a) of the Securities Exchange Act of 1934
            54Code
                of Ethics
            55Director
                Nominees Recommended by Stockholders
            55Board
                Composition; Audit Committee and Financial Expert
            55ITEM
                10.
            EXECUTIVE
                COMPENSATION
            55Outstanding
                Equity Awards at Fiscal Year-End
            56Director
                Compensation
            57Retirement,
                Post-Termination and Change in Control
            57ITEM
                11.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS.
            57ITEM
                12.
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS.
            58ITEM
                13.
            EXHIBITS
            59ITEM
                14.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            60


-ii-


**PART
      I**




**ITEM 1.**
            **DESCRIPTION
                OF 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”) with 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 will be 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. Xiangzhen Mining
      also holds 100% of the registered capital of Tun-Lin
      Limited Liability Company (“Tun-Lin”), which is a Kyrgyz Republic registered
      company, which in turn owns 100% of Kichi Chaarat Closed Stock
      Company .
       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.




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




The
      table
      below illustrates the corporate structure of the Company:




-1-







Our
      common stock is listed on the American Stock Exchange under the symbol “SHZ.”





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




**Our
      Industry**




Our
      primary business activity is mining, processing and distributing fluorite ores
      and processed fluorite powder, copper, zinc, lead, and other mineral
      concentrates. Along with China’s modernization drive, its economy has witnessed
      significant growth in the past three decades, which brought about a rapid growth
      in its manufacturing capacity. Moreover, due to its investment environment
      and
      cheap labor, China has attracted many manufacturers from developed countries.
      The increasing industrial capacity of China has caused, and is anticipated
      to
      cause, a high level of demand for industrial raw materials including fluorite
      and nonferrous metals.




Fluorite
      is mainly used by the steel industry as a melting agent and the fluorite
      chemical industry to manufacture hydrofluoric acid, a widely used raw material
      for the chemical industry. With a rapid growth of the steel industry and the
      chemical industry in China, the demand for fluorite and nonferrous metals has
      increased significantly. China produced 2.9  million metric tons
      of fluorite ore in 2005, 3.0 million metric tons in 2006 and 3.85 million
      metric tons in 2007.  In
      2007,
      about 84.4% of the annual output was for domestic consumption and 15.6% for
      export, according to the information published in the papers of the China
      Fluorite Conference of Xining  and
      based
      on the estimates by China’s Fluorite Industry Association. In 2010 the demand is
      expected to increase from 1.94 million to 2.25 million metric
      tons. In recent years, large exports of fluorite and hydrofluoric acid have
      depleted fluorite resources in China. In order to protect fluorite reserves,
      the
      Chinese government instituted an export quota system in 2001.




We
      anticipate the fluorite markets will provide excellent opportunities for us
      to
      grow.




**Current
      Business Operations**




Our
      primary business activity is mining, processing and distributing fluorite ore,
      zinc, copper, lead, and other mineral products. All of our business is conducted
      through our China-based subsidiaries. We operate mines in the Inner Mongolia
      Autonomous Region and Xinjiang Uygur Autonomous Region, 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 maintain good
      relationships with the local governments by providing employment opportunities
      to the people and tax revenues to the government.  We have also achieved
      good and stable long term cooperative relationships with several large-scale
      domestic steel, nonferrous refining and chemical enterprises after years of
      experience and relationships in the mineral markets.  Such relationships
      combined with the large resources available on hand provide the Company with
      a
      competitive advantage over others in the same industry.




-2-




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




**Subsidiaries**
            
            **Current
                Business Activities**Qianzhen
                Mining
            
            Engage
                mainly in the processing of zinc-lead oreXiangzhen
                Mining
            
            Engage
                in the extraction and processing of fluorite oreXingzhen
                Mining
            
            Engage
                mainly in exploration and development of zinc-copper
                mineQingshan
                Metal
            
            Engage
                mainly in the extraction of copper-zinc ore, some
                processingTun-Lin
              Kichi
                Chaarat
            
            Holding
                company of Kichi Chaarat
              Engage
                in the development of Kichi Chaarat gold and copper
                deposit




**Description of Products**





***Fluorite*** **:**





We
      extract and process fluorite ores or fluorspar in northern Inner Mongolia.
      In
      2007, we extracted a total amount of 109,000 metric tons of fluorite ores.
      Two
      final products are derived from extraction and processing of fluorites: high
      grade fluorite ores with a purity of above 75% CaF2 and refined fluorite powder
      with a purity of greater than 97% CaF2. The high grade fluorite ores, selected
      directly from the mined ores, are sold to steel making companies to be used
      as a
      melting agent in steel making. The refined fluorite powder is a key upstream
      material for the manufacture of fluorine compounds by the fluorine chemical
      industry. In 2007, we produced approximately 53,000 metric tons of high grade
      fluorite ores and sold 48,000 metric tons with total sales of approximately
      US$3.6 million, accounting for approximately 55% of the revenues from our
      fluorite business. . In 2007, we also processed 46,100 metric tons of fluorite
      ores and produced 22,400 metric tons of refined fluorite powder and sold 23,300
      metric tons for approximately US$ 3 million, accounting for approximately 45%
      of
      our revenues from our fluorite business.




***Nonferrous*** **:**




We
      extract and process zinc, copper and lead ores in central part of Inner Mongolia
      and north west part of Xinjiang Uyur 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
      2007,
      we produced zinc, lead and copper concentrates equivalent to 2,649 metric tons
      of zinc metal, 463 metric tons of lead metal and 143 metric tons of copper
      metal
      and sold zinc, lead and copper concentrates equivalent to 2,693 metric tons
      of
      zinc metal, 512 metric tons of lead metal and 131 metric tons of copper metal,
      accounting for approximately 79%, 9% and 12% respectively of our total revenues
      from our nonferrous business of approximately $7.7 million..




-3-




**Sales
      and Marketing**




Currently,
      we do not have any marketing staff. We have maintained long term and good
      relationships with our customers, who send their orders to us, usually with
      cash
      paid in advance. Our in-house sales staff then try to fill these orders based
      on
      our actual production level and then deliver the products to our customers
      through railway or trucks. We expect these relationships with our customer
      to
      continue because we believe that the demand for mineral products will remain
      strong for the foreseeable future.




**Major
      Supplier**




During
      the year 2007, Wulatehouqi Zijin Mining
      Co., Ltd. was
      the
      only supplier of Qianzhen Mining’s zinc-lead ores for its processing operations. In
      2007,
      Qianzhen Mining purchased approximately 42,000 metric tons of zinc-lead ores
      at
      an average price of $34.4 per ton, which is considerably higher than the fixed
      price of $7.9 per ton in 2006 due to tight market demand for zinc-lead
      ores.




In
      2007,
      Qingshan Metal, one of the Company’s subsidiaries, supplied 35,000
      metric tons of copper ores to Qianzhen Mining to supplement its remaining
      requirements for raw material. In 2007, Qingshan applied to the local government
      to increase the licensed area of extraction and the permit for exploration
      in
      potential areas and the management believes Qingshan may be able to meet
      Qianzhen Mining’s raw material requirements for its processing business in the
      future.




Our
      Major
      Customers




In
      2007,
      our revenues from our fluorite business and nonferrous business were
      $6.6 million and $7.7 million, respectively.





The
      following table shows our major customers (5% or more) for our nonferrous
      business as of December 31, 2007:




**Number**
            
            **Customer**
            
            **Revenue***
              **($1,000)**
            
            **Percentage**
              **(%)**1
            
            
            Wulatehouqi
                Zijin Mining Co., Ltd.
            
            
            3,465
            
            
            44
            %2
            
            
            Baiyin
                Nonferrous Metals Company
            
            
            3,181
            
            
            41
            %3
            
            
            Zhixin
                Sales Company Ltd
            
            
            710
            
            
            9
            %**TOTAL**
            
            
            
            
            
            
            
            
            **94**
            **%**


*The
      total revenue from our nonferrous segment is $7.7 million





The
      following table shows our major customers (5% or more) for our fluorite business
      as of December 31, 2007:




**Number**
            
            **Customer**
            
            **Revenue***
              **($1,000)**
            
            **Percentage**
              **(%)**1
            
            
            Jinhe
                Chemical Industry Co., Ltd.
            
            
            2,606
            
            
            39
            %2
            
            
            Taiyuan
                Iron and Steel Co., Ltd.
            
            
            1,357
            
            
            21
            %3
            
            
            Laiwu
                Steel Co.,Ltd
            
            
            952
            
            
            14
            %4
            
            
            Inner
                Mongolia Huadesanli Trading Co.
            
            
            727
            
            
            11
            %**TOTAL**
            
            
            
            
            
            
            
            
            **85**
            **%**




*
      Total
      revenue from our fluorite segment is $6.6 million.




**Competition**




Rapid
      industrialization and development in China have been the main drivers for its
      increase in non ferrous 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 any difficulty in selling our products and
      therefore we do not expect to devote large financial resources to sales and
      promotion. Our competitors mainly are similar companies in
      China.


-4-




Our
      main
      competitors in the fluorite business are:




·
            Jiangxi
                Yingpeng Mining Co., Ltd., which produced 120,000 metric tons of
                fluorite
                ore and 120,000 metric tons of fluorite powder in
                2007.




·
            Shandong
                Hongxing Fluorite Co., Ltd., which produced 110,000 metric tons of
                fluorite ore and 30,000 metric tons of fluorite powder in
                2007.




·
            Gansu
                Gaotai Hongyuan Mining Co., Ltd., which produced 60,000 metric tons
                of fluorite ore and 20,000 metric tons of fluorite powder in
                2007.




·
            Henan
                Tongbai Yinhe Mining Co., Ltd., which produced 40,000 metric tons of
                fluorite and 5,000 metric tons of fluorite powder in
                2007.




Our
      competitors in the zinc, lead and copper concentrates are local mining companies
      such as Inner Mongolia Wulatehouqi Huogeqi Copper Mine (Huogeqi Mining) and
      Dongshengmiao Mining Industry Co, Ltd, (Dongshengmiao Mining). Our production
      volume in zinc, lead and copper concentrates are relatively small compared
      to
      these local mining companies. As the demand for non ferrous metal concentrate
      exceeds the supply, we should have no difficult in selling our
      products.




**Competitor**
            
            **Capacity**Huogeqi
                Mining
              Dongshengmiao
                Mining
              Wancheng
                Trading Co.,Ltd
            
            1,000,000
                metric tons of extracting and ore processing capacity
              600,000
                metric tons of extracting and ore processing capacity
              400,000
                metric tons of extracting and ore processing
                capacity





**Business
      Strategy**




**Expansion
      of Production Capacity to Meet Demand**




**▼
      Fluorite**




We
      extracted approximately 109,000 metric tons of fluorite ores in 2007. In early
      2006, we started a 300,000 metric ton fluorite ore project at Xiangzhen Mining,
      which was completed in November 2007. In 2008, we expect to extract 210,000
      metric tons of fluorite ores. In 2008, this project is expected to reach 70%
      of
      its designed annual capacity and from 2009 onward, we expect to increase our
      extraction capacity to 300,000 metric tons of fluorite ores per
      year.




We
      produced approximately 22,400 metric tons of refined fluorite powder in 2007.
      In
      early 2006, we started to build a 200,000 metric ton/year fluorite ore
      processing plant at the mine site. The new processing plant was completed and
      went into trial production in November 2007. In 2008, this project is expected
      to reach 70% of its designed annual capacity and produce 70,000 metric tons
      of
      fluorite powder. After reaching its full capacity in 2009, we expect to produce
      approximately 100,000 metric tons of refined fluorite powder per year.




-5-




**▼Zinc,
      Copper and Lead**




In
      2007,
      Qianzhen Mining purchased approximately 42,000 metric tons of zinc-lead ore
      and processed 66,300 metric tons of ore into zinc concentrate equivalent to
      2,567 metric tons of zinc metal and 310 metric tons of lead metal. Due to
      its dependence on a third party supplier of ores for processing, Qianzhen
      Mining’s operation was materially impacted by an insufficient amount of ore
      supply and increased purchase cost.




In
      2007,
      Qingshan Metal extracted 59,000 metric tons of copper ores and processed
      copper concentrate equivalent to 71 metric tons of copper metal and supplied
      an
      additional 35,000 metric tons of copper ore to Qianzhen Mining. In the third
      quarter of 2007, Qingshan Metal stopped its processing operation and began
      to
      supply Qianzhen copper ore for its processing operation. In 2008, Qingshan
      Metal
      plans to expand its extracting capacity by increasing its investment in mine
      development and after completion expects to extract approximately 70,000-100,000
      metric tons of copper and zinc ore per year, which will be supplied to Qianzhen
      Mining for processing.




In
      July
      2006, Xingzhen Mining started to build a 200,000 metric ton/year zinc-copper
      ore
      mining and processing project at Keyinbulake Multi-Metal Mine in Buerjin County,
      Aletal Zone, Xinjiang Uygur Autonomous Region. This project is expected to
      go
      into production in the first half of 2008 and is expected to produce
      approximately 100,000 metric tons of zinc and copper ores and process them
      into
      concentrates equivalent to 4,000 metric tons of zinc metal and 400 tons of
      copper metal in 2008.




In
      November 2007, We completed the acquisition of Tun-Lin Co. Ltd, 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) mining for gold, copper and other metals within the Kuru-Tegerek
      licensed area; and (ii) exploration for gold, copper and other metals within
      the
      Kuru-Tegerek licensed area. The purpose of the acquisition was to enable the
      Company to explore, develop and mine the potential reserves of the Kuru-Tegerek
      licensed area. In 2008, the Company will complete a development plan for the
      Kichi Chaarat deposit and start construction of a mining facility. The Company
      will also engage in more explorations of the licensed areas and conduct further
      a feasibility study that will broaden our base of reserves at the Kichi Chaarat
      deposit.




**Increased
      Exploration Activities**




ü
            **Keyinbulake
                Cu-Zn Mine**




Following
      the exploration in 2007, further exploration activities are planned in 2008
      in
      the southern and northern parts of Keyinbulake Cu-Zn Mine. The exploration
      details are scheduled as follows:




**Table1-3:
      Exploration Program for Keyinbulake Property**




**Item**
            
            **Method**
            
            **Unit**
            
            **Quantity****Geology**
            
            Mapping
                and comprehensive study
            
            -
            
            -Surface
                scanning
            
            km2
            
            15**Geophysical**
            
            Depth
                measuring by induced polarization method
            
            point
            
            50**prospecting**
            
            “Mise—a—la—masse”
                method
            
            km2
            
            1TEM
            
            km2
            
            1**Drilling**
            
            Inclined
                hole
            
            m
            
            5000**Trenching**
            
            -
            
            m3
            
            6000**Assaying**
            
            Sampling
                and test
            
            -
            
            -




-6-




The
      abovementioned exploration activities shall be completed by a Geophysical
      Prospecting Team of Xinjiang Nonferrous Geophysical Prospecting Bureau at the
      end of August 2008 with a total budget of approximately $1.2 million, which
      will
      be funded by the Company.




ü
            **Kichi
                Chaarat Copper and Gold
                Mine**




We
      have
      the program to conduct the exploration by the local geological service company
      in the region of Kuru-Tegerek in Kyrgyz. The exploration details are scheduled
      as follows:




**Item**
            
            **Unit**
            
            **Quantity**
            
            **Remark****Geology**
            
            km
            
            20
            
            mapping**Trenching**
            
            m3
            
            400**Drilling**
            
            m
            
            400**Assaying**
            
            piece
            
            800




The
      total
      budget for the above exploration activities will amount to approximately
      $82,000, which will be funded by the company.




ü
            **Qingshan
                Metal**




ü
            We
                may have exploration activities in the areas of Qingshan copper
                mine.




**Acquire
      More Mineral Resources**




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 domestically that have good extracting and operating
      conditions and possess all necessary governmental licenses.




**Expand
      into Down Stream Chemical Business**




To
      increase the profit margin of our business, we plan to expand into the
      fluorochemical industry which enjoys a very high margin and a rapidly growing
      market through strategic cooperation with the major participants in the
      fluorochemical industry.




**Competitive
      Advantages**




We
      believe we have the following competitive advantages:




·
            We
                own one of the best fluorite mines in China which has high purity
                fluorite
                ore and good extracting conditions with the single largest processing
                plant in northern China.




·
            We
                have increased our potential reserve base in nonferrous metals by
                completing an acquisition of a large gold and copper deposit in Republic
                of Kyrgyzstan.




·
            We
                have an experienced management team. Most of our executive officers
                have
                more than 20 years of experience in the mining
                industry.




-7-




·
            We
                have good relationships with local government
                agencies.




·
            Many
                of our subsidiaries are located in the western part of China and
                therefore
                enjoy many preferential tax and regulatory
                policies.




**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 policy 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 the 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, Renminbi (“RMB”) is freely convertible into
                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 investment, 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 after providing valid commercial
                documents and, in the case of capital account item transactions,
                obtaining
                approval from SAFE.




Our
      operating subsidiaries in China have been authorized by land and resources
      departments of local governments. Chinese regulations require that mining
      enterprises must procure an exploration or mining license from the land and
      resource department of local governments before they can carry out exploration
      or mining activities. This license ensures that an enterprise follow proper
      procedures in its own exploring or mining activities and in selling its products
      to customers. We have secured the necessary exploration or mining licenses
      from
      local governments. Most of our mining companies possess exploration or mining
      licenses and some of them are applying for mining licenses after
      exploration.




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
      certification from the Administration of Work Safety of local governments.
      In
      addition, all of our operating subsidiaries have passed government safety
      inspections.




-8-




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




**Employees**




As
      of
      December 31, 2007, we employed 374 full-time employees, of whom approximately
      20.1% are with Qianzhen Mining, 62% are with Xiangzhen Mining, 4.8% are with
      Tun-Lin Co. (gold and copper project in Kyrgyz), 2.4% are with Qingshan Metal
      (copper and zinc ore mining) and 10.7% are with Xingzhen Mining (holding
      exploration rights of copper ore and zinc ore). Approximately 18% of our
      employees are management personnel, and 4.6% are sales and procurement staff.
      In
      terms of education level, 15.8% 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 all 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-compete 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 arrangement organized by Chinese municipal and provincial
      governments. We are required to contribute to the arrangement at the
      rate of 20% of the 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 the average monthly salary. We
      have
      purchased social insurance for all of our employees. Expense related to social
      insurance was approximately $72,849 for fiscal year 2007.




**Risk
      Factors**




**CAUTIONARY
      STATEMENT REGARDING FORWARD** **-** **LOOKING
      INFORMATION AND CERTAIN IMPORTANT FACTORS**




In
      this
      Annual Report on Form 10-KSB 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.




-9-




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:




**Risks
      Related to Our Business**




**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.**





A
      significant amount of our revenue is derived from only a small number of
      customers mainly in the iron and steel and fluorite chemical industries.
      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 ton/year processing
      capacity for zinc-lead ore. However, it does not produce any ore it processes.
      Currently, it obtains its supply of ore from third parties. Its contracts with
      third parties will expire in June 2008. We may not be able to renew contracts
      or
      secure new contracts with third party suppliers. 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 to ensure the
      supply of ore for Qianzhen Mining. As a result, our revenues may be reduced
      and
      our business would suffer.


-10-




**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 is a strong snow storm, 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 time. As a result, our revenues may be
      negatively impacted.




**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 will make acquisition of mines in the future. Our
      administrative costs may increase as a result and our profitability may be
      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 would have
      a
      material adverse effect on our business.




**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
      on
      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, or we may encounter environmental conditions
      or
      requirements 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 during the life of the project. Obtaining
      and renewing the necessary governmental permits is a complex and time-consuming
      process. Obtaining or renewing 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 those that we previously estimated. 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**





We
      have
      prepared 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;




-11-







·
            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.




**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 possibly hurting 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
      exploration and mining over the next few years. Although most of management
      personnel have extensive experience in the mining industry, their training
      is in
      mining operations rather than contemporary management principles. They may
      be
      not able to cope with the challenges presented by being a U.S. public company
      and the competitive business environment due to 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 of our products by 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 we may be unable to meet the needs of our
      customers.




**There
      is certain risk for the company to maintain listing on American Stock
      Exchange.**




The
      company is currently listed on American Stock Exchange (“Amex”). To maintain the
      listing on Amex, the company shall meet the continual listing standards required
      by the Amex, which include but not limited to financial criteria. If a company
      falls below any criteria, the Amex will notify the company and review the
      appropriateness of continued listing. Once notified, the company shall submit
      a
      plan to return to compliance. If the Amex accepts the plan, it will monitor
      the
      company's performance throughout the plan period.  If the company fails to
      achieve stated goals in a timely manner, the Amex will move to remove it from
      the listing. Therefore, the company faces the risk of delisting if it is
      not able to comply with the continual listing standards of Amex.




-12-




**Risks
      Related to Our Industry**





**Fluctuations
      in the market price of fluorite and nonferrous metals could adversely affect
      the
      value of our company and our securities**




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 the control
      of any mining company. These factors 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 a number of other factors. Any drop in the price
      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 uneconomic 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
                financing available 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 unpatented mining claims are often
      uncertain and may be contested. 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 mineralization and 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
      we
      have. As a result of this competition, we may be unable to acquire attractive
      mining properties on acceptable terms.




-13-




**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.




**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.




**Risks
      Relate to Doing Business in China**




**The
      Company’s business will be affected by PRC government regulation and the
      country’s economic environment because most of our sales will be in the China
      market.**





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 sales in the near future.  As a result of our
      reliance on the China 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 has been transitioning from a planned economy to 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 lands are 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 it could
      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 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 never certain to be obtained.


-14-





**There
      are risks inherent in doing business in China** .




The
      PRC
      is a developing country with a young market economic system overshadowed by
      the
      state. Its political and economic systems are very different from the more
      developed countries and are still in the state of change.  China also faces
      many social, economic and political challenges that may produce major shocks
      and
      instabilities and even crises, in both its domestic arena and in its
      relationship with other countries, including but not limited to the United
      States. Such shocks, instabilities and crises may in turn significantly and
      adversely affect our performance.




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





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.





**The
      recent nature and uncertain application of many PRC laws applicable to CSZM
      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
      new Chinese law 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 (“SASAC”),
      the State Administration for Taxation, the State Administration for Industry
      and
      Commerce, the China Securities Regulatory Commission (“CSRC”), and the State
      Administration of Foreign Exchange (“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.





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.


-15-




**Foreign
      Investment Policy Change**





On
      March
      16, 2007, China's parliament, the National People's Congress, adopted the
      Enterprise Income Tax Law, which will take effect on January 1, 2008. The new
      income tax law sets a unified income tax rate for domestic and foreign companies
      at 25 percent and abolishes the favorable policy for foreign invested
      enterprises. After this law takes effect, newly established foreign invested
      enterprises will not enjoy favorable tax treatment as in effect under current
      tax laws. Some of our subsidiaries are benefiting from the preferred tax rates
      for foreign companies and will be subject to the new tax rate when their
      respective term of preferred tax rates expires. Our net income margin may be
      affected at that time.





**Risks
      Relate to Doing Business in Kyrgyzstan**




**The
      Company’s business may be affected by Kyrgyzstan laws and its government
      regulations and the country’s economic environment.**





The
      company indirectly controls Tun-Lin Limited Liability Company (“Tun-Lin”), a
      Kyrgyzstan Republic registered company which entirely owns Kichi-Chaarat closed
      joint stock company. The major asset of Kichi-Chaarat is the subsoil use right
      for (i) mining gold and other metals within the Kuru-Tegerek licensed area,
      and
      (ii) exploration of gold and other metals within the Kuru-Tegerek licensed
      area.
      The company will engage in mining in the Kuru-Tegerek licensed area in the
      near
      future. As a result, the company’s operating results and financial performance
      could be affected by any adverse changes in economic, political and social
      conditions in Kyrgyzstan.




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 Kyrgyzstan has been transitioning from a planned economy to
      market oriented economy. At present, our exploration activities are subject
      to
      approvals from the relevant government authorities in Kyrgyzstan.  Such
      governmental approval processes are typically lengthy and complex, and never
      certain to be obtained.





**There
      are risks inherent in doing business in Kyrgyzstan.**




The
      Kyrgyzstan is a developing country with a young market economic system
      overshadowed by the state. Its political and economic systems are very different
      from the more developed countries and are still in the state of change.
 Kyrgyzstan also faces many social, economic and political challenges that
      may produce major shocks and instabilities and even crises, in both its domestic
      arena and in its relationship with other countries, including but not limited
      to
      the United States and China. Such shocks, instabilities and crises may in turn
      significantly and adversely affect our performance.





**Certain
      political and economic considerations relating to the Kyrgyzstan could adversely
      affect CSZM.**





Through
      controls on foreign exchange, taxation and restrictions on foreign participation
      in the domestic market of various industries, the Kyrgyzstan government exerts
      considerable direct and indirect influence on the economy. Many of the economic
      reforms carried out by the Kyrgyzstan 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 Kyrgyzstan’s
      economic and social conditions as well as by changes in the policies of the
      Kyrgyzstan 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.


-16-




**The
      recent nature and uncertain application of man** y **Kyrgyzstan laws applicable to CSZM creates an uncertain environment for business
      operations and they could have a negative effect on us.**





The
      Kyrgyzstan legal system is different from that of United States. Progress has
      been made in the promulgation of laws and regulations dealing with economic
      matters such as corporate organization and governance, foreign investment,
      employment, commerce, taxation and trade. However, 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.





**Risks
      Related to the Market for Our Stock**





**The
      market for our Common Stock is limited.**





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





We
      currently have approximately 660 shareholders. But the trading volume 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.




**You
      may face difficulties in protecting your interests, and your ability to protect
      your rights through the U.S. federal courts may be limited, as our subsidiaries
      are incorporated in non-U.S. jurisdictions, we conduct substantially all of
      our
      operations in China, and all of our officers reside outside the United
      States.** ******




We
      conduct substantially all of our operations in China through our wholly owned
      subsidiaries in China. All of our officers reside outside the United States
      and
      some or all of the assets of those persons are located outside of the United
      States. As a result, it may be difficult or impossible for you to bring an
      action against us or against these individuals in China in the event that you
      believe that your rights have been infringed under the securities laws or
      otherwise. Even if you are successful in bringing an action of this kind, the
      laws of the PRC may render you unable to enforce a judgment against our assets
      or the assets of our directors and officers. As a result of all of the above,
      our public stockholders may have more difficulties in protecting their interests
      through actions against our management, directors or major stockholders than
      would stockholders of a corporation doing business entirely within the United
      States.




**The
      trading prices of many companies that have business operations only in China
      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. These
      fluctuations 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:


-17-




•
            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;




•
            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 industrial
                fire safety 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.




**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;




•
            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;


-18-




•
            restructuring
                charges; and




•
            the
                recognition of significant charges for depreciation and amortization
                related to intangible assets.




**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.




**We
      are not currently compliant with certain Sarbanes-Oxley Act
      standards.**




The
      enactment of the Sarbanes-Oxley Act in July 2002 created a significant number
      of
      new corporate governance and internal control requirements. Although we expect
      to implement the requisite changes to become compliant with existing
      requirements, and new requirements when they do apply to us, we may not be
      able
      to do so, or to do so in a timely manner. If we do not come into compliance
      with
      the Sarbanes-Oxley Act corporate governance requirements, we may not be able
      to
      continue listing our securities on either AMEX in the event we ever attempt
      to
      do so.





**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.




**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 79.21% 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.





**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.


-19-


**ITEM
      2.     DESCRIPTION OF PROPERTY**




**General**




As
      of
      December 31, 2007, China Shen Zhou Mining & Resources Inc. owns two
      properties in the production in the Inner Mongolia Autonomous Region, the
      Peoples’ Republic of China (“PRC”), and two properties under development, one in
      Xinjiang Uygur Autonomous Region in the PRC and the other in Kyrgyz
      Republic.




The
      two
      properties in production are:


-
      Sumochaganaobao Fluorite Mine in Siziwangqi of Inner Mongolia Autonomous Region
      in the PRC (Xiangzhen Mining);


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




The
      two
      properties under development are:


-
      Keyinbulake Cu-Zn Multi-metal Mine located in Buerjin County, Aletai, Xinjiang
      Uygur Autonomous Region in the PRC (Xingzhen Mining).


-
      Kuru-Tegerek Cu-Au Mine located in Kyrgyz Republic (Tun Lin).




No.
              
              Name
                  of property
              
              Type
              
              Ownership
              
              Status
              
              Location/Country1
              
              Sumochaganaobao
                  Fluorite Mine
              
              Non-metalFluorite
              
              100%
              
              Production
              
              Inner
                  Mongolia, PRC2
              
              Qingxing
                  Copper Mine
              
              Copper
                  and zinc
              
              60%
              
              
              
              Inner
                  Mongolia, PRC3
              
              Keyinbulake
                  Multi-metal Mine
              
              Copper
                  and zinc
              
              90%
              
              Development
              
              Inner
                  Mongolia, PRC4
              
              Kuru-Tegerek
                  Cu-Au Mine
              
              Copper
                  and gold
              
              100%
              
              
              
              Kyrgyz
                  Republic







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


-20-










Figure
      2-2: China Shen Zhou’s Property in Kyrgyzstan




China
      Shen Zhou Mining & Resources Inc. holds four mining licenses and three
      exploration licenses at December 31 of 2007. The licenses are:




-Mining
      license of Sumochaganaobao Fluorite Mine, Siziwangqi, Inner Mongolia,
      PRC;


-Mining
      license of Mining Site No. 2 of Qingxing Copper Mine, Wulatehouqi, Inner
      Mongolia, PRC;


-Mining
      license of Keyinbulake Cu-Zn Mine in Buerjin County, Xinjiang Uygur Autonomous
      Region, PRC;


-Mining
      license of Kuru-Tegerek Cu-Au Mine in Kyrgyz Republic;




-Exploration
      license of Southern Part of Keyinbulake Zn Mine in Xinjiang Uygur Autonomous
      Region of the PRC;


-
      Exploration license of Northern Part of Keyinbulake Zn Mine in Xinjiang Uygur
      Autonomous Region of the PRC;


-Exploration
      license of Kuru-Tegerek Cu-Au Property in the region of Kuru-Tegerek, Kyrgyz
      Republic




Tables
      2-1/2 present detailed information about the licenses.




**Table
      2-1: 4 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 )**License
                Number
            
            1526000220071
                (152000630047)
            
            1500000530858Owner
            
            Inner
                Mongolia Xiangzhen MiningGroup Ltd.
            
            Qingshan
                Nonferrous Metal Development Co Ltd.Validated
                period
            
            October
                2006 to May 2007
            
            October
                2005 to October 2008Area
            
            0.909
                km2
            
            0.1211km2Mining
                mode
            
            Underground
                mining
            
            Underground
                miningMining
                scale
            
            80,000
                metric
                tons/annum
            
            60,000
                metric tons/ annumOre
                types
            
            Fluorite
            
            Copper,
                Zinc and sulfurMining
                Level
            
            700m-1060m
            
            1417m-1320m


-21-





**Property**
            
            **Keyinbulake
                Cu-Zn Multi-metal**
              **Mine**
            
            **Kuru-Tegerek
                deposit (Tun Lin)**License
                Number
            
            6500000712980
            
            8063-3300-AO(ИУ)
                21984940Owner
            
            Buerjin
                County Xingzhen Mining.
            
            Kichi
                Chaarat CJSCValidated
                period
            
            August
                2007.to August 2013
            
            December
                2006 to December 2009Area
            
            1.955km2
            
            9km2Mining
                mode
            
            Underground
                mining
            
            -Mining
                scale
            
            21,000
                metric tons/ annum
            
            -Ore
                types
            
            Copper,
                zinc and silver
            
            Gold,
                silver and copperMining
                Level
            
            1420m-1516m
            
            -





**Table
      2-2: 3 Exploration licenses held by the Company**





**Property**
            
            **Kuru-Tegeret
                Region (Kichi-Chaarat CJSC)**
            
            **Southern
                /Northern Region of Keyinbulake Zn Mine (2
                licenses)**License
                Number
            
            8063-3300-AO(ИУ)
                21984940
            
            650000061272/3Owner
            
            Kichi-Chaarat
                CJSC
            
            Xingzhen
                MiningValidated
                period
            
            December
                2005 to December 2009
            
            Feb.
                2007 to Feb. 2009Area
            
            39,500
                hectares (h)
            
            13.37km2/12.06
                km2





There
      are
      two types of mineral
      rights in China: exploration right and mining right. Exploration right is the
      right for exploring mineral resources within the areas authorized by the
      exploration license.  Mining right is the right for exploitation of mineral
      resources and produc tion
      of mineral
      products. According to Chinese law, an exploration license is valid for 3 years
      and shall not be
      extended beyond  two
      additional periods and each no more than two
      years . 10, 20
      and 30 years are
      the
      periods of time for mining licenses for
      small, medium and large deposits or
      mine s
      respectively .
      The
      mining license can be extended in scope
      or
      periods of time if the
      company intends to continue to
      operate .
      Application for extension needs to be submitted at least 30 days before the
      expiration date





**Sumochaganaobao
      Fluorite Mine in Production Stage (Xiangzhen
      Mining)**




The
      Company holds 100% ownership of Sumozaganaobao fluorite mine, which was acquired
      by Xiangzhen Mining from Inner Mongolia Siziwangqi Northern Fluorite Ltd, Co.
      in
      July 2002.




**Location,
      Access and Traffic**




Sumozaganaobao
      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 mud road of approximate 90km from the mine to
      Erlianhot and then a freeway or national highway of about 250km to Hohhot,
      the
      capital city of Inner Mongolia, China. It has a typical continental climate
      characterized mainly by low precipitation and high evaporation, a big
      temperature difference between day and night, and windy conditions. The
      topography is gentle grassland with an elevation difference of only 20-40m.
      Figure 2-3 is the index map of Sumochaganaobao Fluorite Mine.




-22-









Figure
      2-3: Sumochaganaobao Fluorite Mine




**Mining
      Licenses**




Inner
      Mongolia Xiangzhen Mining Group Co Ltd. (Xiangzhen Mining) holds the mining
      licenses of the area between prospecting line 21 and 04 of Sumochaganaobao
      Fluorite Deposit. The mining license Number is 1526000220071, with Temporary
      Extension No. 1526000630047, issued by the Bureau of Land and Resources,
      Wulanchabu City, Inner Mongolia and expired in May 2007.  In 2007,
      Xiangzhen Mining submitted an application to Inner Mongolia Bureau of Land
      and
      Resources to extend the mining license. The extension is pending, but Xiangzhen
      Mining expected it to be issued soon.




**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 Sumochaganaobao Fluorite deposit.
      The
      mineral resource was estimated at 1.716 million metric tons of fluorite at
      that
      time.




From
      1981
      to 1987, Geological Survey Brigade No.102 of Inner Mongolia conducted
      prospecting with continual 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. The
      mining right was then 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 was conducted by a state-owned company of Siziwang
      Banner. The mining capacity was 8,000-20,000 tons per year and the mining depth
      reached 58m from elevation of 1,065m to 1,007m. In 1997, the mining right was
      transferred to Inner Mongolia Siziwangqi Northern Fluorite Ltd, Co.




-23-




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 mining
      capacity designed is 300,000 metric tons per year and the treatment capacity
      is
      200,000 metric tons per year from a concentrator located near the fluorite mine .
      At the
      end of 2007 when the expanding construction had basically been completed and
      commissioning started. The Company invested USD$2,895,380 in underground
      expansion and USD$7,760,300 in the new concentrator.




**Water
      and Power Supply**




Before
      October 2007, a state power network was not built into the mining area, and
      power for production and living was supplied by diesel generators. Since October
      2007, power has been supplied to the mine by the state power
      network.




Water
      supply for production and living is from three wells about one kilometer away
      from the mine.




**Current
      Mining Operation**




Inclined
      shaft development has been assumed. As a result, currently there are 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, ores are transported by the electric
      locomotive to a shaft station and then lifted to ground by the hoister and
      unloaded onto a storage platform where high grade lumps (CaF2>80%) are
      directly sold to consumers (steel plant) after manual classification and the
      remaining 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 exhausted out from 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 on the 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)
            
            NotesHoisters
            
            Ф2M
            
            3
            
            20Rock
                loaders
            
            Z-20W
            
            6
            
            20Compressors
            
            20M3
            
            4
            
            20
            
            Power drivenElectric
                Locomotives
            
            
            
            6
            
            20Ventilators
            
            
            
            4
            
            20Transformers
            
            
            
            5Pumps
            
            
            
            6




**Ore** **Processing** :




The
      newly
      established concentrator has an annual 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:




-24-




**No.**
              
              **Equipment**
              
              **Unit**
              
              **Qty**
              
              **Life
                  of**
                **Service**
              
              **Notes**1
              
              Linear
                  vibrating feeder, XSW380x95
              
              set
              
              1
              
              20
                  years
              
              New2
              
              Jaw-type
                  crusher, PE-500×500
              
              set
              
              1
              
              20
                  years
              
              new3
              
              Standard
                  cone crusher, 36AF
              
              set
              
              1
              
              20
                  years
              
              new4
              
              Vibrating
                  screen, 2YAH1800×4800
              
              set
              
              1
              
              20
                  years
              
              new5
              
              Overflow
                  ball mill, MQY2700x4500
              
              set
              
              1
              
              20
                  years
              
              new6
              
              Twin
                  spiral classifiers, FLGT24
              
              set
              
              1
              
              20
                  years
              
              new7
              
              Overflow
                  ball mill, MQY1830x5700
              
              set
              
              1
              
              20
                  years
              
              new8
              
              Flotation
                  machines, SF-8
              
              set
              
              34
              
              20
                  years
              
              new9
              
              Thickeners,
                  NZSG-12
              
              set
              
              1
              
              20
                  years
              
              new10
              
              High
                  efficiency thickeners,Φ18
              
              set
              
              1
              
              20
                  years
              
              new11
              
              Ceramic
                  filter, TC-45
              
              set
              
              1
              
              20
                  years
              
              new12
              
              Rotary
                  dryer, SD2422
              
              set
              
              1
              
              20
                  years
              
              new13
              
              Air
                  heater, EFL500
              
              set
              
              1
              
              20
                  years
              
              new14
              
              Packing
                  machine, BG-4WY
              
              set
              
              1
              
              20
                  years
              
              new




The processing
      recovery is 83%. 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.




**Investment
      of Expanded Property:**




As
      of
      December 31, 2007, the costs in US Dollar of newly expanded property are as
      follows:




Item
            
            Mine
            
            Concentrator
            
            Equipment
            
            TotalProperty
            
            $
            2,895,380
            
            $
            7,627,173
            
            $
            133,125
            
            $
            10,655,678




**Geology** **of the Property**




The
      Sumochaganaobao fluorite deposit is located in the Suniteyou Banner Fold Zone
      in
      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.




The
      mineralized body is bedded, which strikes 40°-60°, dips to 310°-330° at angle
      21°-40°, exceptional with 47°. The distribution is stable and continual. The
      length of mineralized body is 1100 meters; the maximum dip length controlled
      at
      present is 1540 meters. The thickness is 0.52 meters to 22.48 meters averaged
      at
      5.80 meters. The mineral is fluorite only, whose main composition is CaF2.
      The
      gangue minerals are: quartz, chlorite and sericite. By the contents of useful
      component, the mineralized body is divided to high grade mineralized material
      (rich ore), CaF2≥60%, and low grade mineralized material (lean ore), 20% ≤ CaF2≥
60%.




**Resources**




In
      March
      2007, the Bureau of Land
      and
      Resource of
      Wulanchabu City commissioned the Land-resources Institute of Inner Mongolia
      to
      verify the resources/reserve in the Mining License area . The
      Institute submitted “the Verification Report of Resources/Reserve between
      Prospecting line 21 and 04, of Sumochaganaobao Fluorite Deposit in Siziwangqi,
      Inner Mongolia” . The
      “Consulting Center of the China Mining Association” had reviewed and assessed
      the verification report and recognized the resource statement in the
      report , the
      indicated resources were
      confirmed as 505.1 million metric tons of fluorite with the average grade
      57.58%.




**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%.


-25-


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 ores which are classified into two commodities, one being
      high
      grade fluorite lump and the second being fluorite powders processed in
      concentrator. The following table lists the products and output and the average
      prices in past three years:




**Table
      2-3: The Output and Price of Products of 2005-2007, Xiangzhen Mining,
      Ltd** .





**Year**
            
            **Product**
            
            **Output (t)**
            
            **Average Price per Year  (USD$/t)**2005
            
            Fluorite lump
            
            33,312.86
            
            62.89Fluorite
                concentrate
            
            -
            
            80.11
                (sold 3092.54t in inventory)2006
            
            Fluorite
                lump
            
            50,839.44
            
            71.50Fluorite
                concentrate
            
            14,791.02
            
            111.162007
            
            Fluorite
                lump
            
            52,523.96
            
            84.62Fluorite
                concentrate
            
            22,447.23
            
            144.13




**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 it, Category of this fluorite mine is upgraded.




There
      is
      low possibly to find new ore bodies or extensions to existing ore bodies since
      the deposit is well defined and well understood geologically.




**The
      Kuru-Tegerek Cu-Au****Mine
      Under Development (Tun Lin)**





The
      company indirectly holds 100% ownership of Tun Lin Limited Liability Company
      (“Tun Lin”), a Kyrgyz Republic registered company which entirely owns
      Kichi-Chaarat Closed Joint Stock Company. The major asset of Kichi-Chaarat
      is
      the subsoil use right for (i) mining gold and other metals within the
      Kuru-Tegerek licensed area, and (ii) exploring gold and other metals within
      the
      Kuru-Tegerek licensed area.




**Location,
      Accessibility, Geography and Climate**




The
      Kuru-Tegerek Cu-Au Mine is located in Chatkal region of the province of
      Jalal-Abad in the western part of Kyrgyzstan (see the Figure below). It occupies
      a southern slope of the Chandalash range, which is part of the Talas Altai
      Mountains between the Chakmakus River and the Kuru-Tegerek River. The geographic
      coordinates of the deposit are: 42°02'N and 71°25'E.




The
      mine
      is about 120 kilometers
      away from the station near Talas City, which is to the west of the capital
      city
      Bishkek. It is easily accessible via road.




The
      Kuru-Tegerek region has a typical continental climate with fast temperature
      changes daily and seasonally and characterized by cold winters and hot summers.




-26-









Figure
      2-4:  The Kuru-Tegerek Region




**Mining
      and Exploration Licenses**




Kichi
      Chaarat CJS Company currently holds two licenses: one mining license No.
      8063-3300- AO(ИУ) 21984940
      covering 9km2 over the Kuru-Tegerek area, which was issued by the Ministry of
      Land and Mine of Kyrgyzstan and expired in December 2009, and an exploration
      license No. 8063-3300- AO(ИУ)
      21984940 covering
      39,500 hectares (h) of the area of the eastern slope of the Sandal mountain
      range including the Kuru-Tegerek mountain, which was issued by the Ministry
      of
      Land and Mine of Kyrgyzstan and will expire in December 2009.




**History
      of Exploration**




The
      regional geological investigations started in 1963 and ended in 1980, executed
      by Geological Bureaus of former Soviet Union and Kyrgyzstan. The following
      major
      and basic prospecting work has been completed.




1.
            Trenching:
                systematically disclosed the deposit in spacing 25-50
                meters;




2.
            Drilling:
                completed drilling of 40,028 meters both on ground and underground
                (at
                elevations of 2,505, 2,722 and 2,880). In the southern part of the
                deposit, drilling was conducted in the grids of 100m x 100m from
                the
                ground surface deep to elevation 2,505m, below which was the grids
                of
                200x100m. In the eastern and western part, the grid is between
                100x100-200x100m.




3.
            Pitting:
                19,037 meters




4.
            Topographic
                survey, assaying and ore dressing
                test:




In
      2007,
      the Company entrusted Kyrgyz Avista Geology Team to conduct geological work
      in
      the 20 km 2 area
      around the deposit, which had discovered a good clue for gold mine.




In
      compliance with the requirements of the mining permit, the Company also
      entrusted Kentoo Research Center (Kyrgyzstan) to undertake the mine design
      of
      upper part oxide deposit, based upon which the construction in the mine can
      start with the approval of the Kyrgyz government.




**Geology** **of the Property**




The
      Cu-Au
      deposit of Kuru-Tegerek is associated with intrusive quartz porphyry diorite
      which represents the first stage of Sandalash-Chatkal complex.




-27-




The
      mineralization of gold is mainly restricted in contact zones with skarns and
      marbles or around the carbonated rock among skarn body on the
      ground.




The
      mineralization of copper occurs during the beresitization in the formation
      course of magnesium metasomatism. There is no more decrease of copper contents
      in the deep part.




Gold
      mineralization concentrating in beresite metasomatism has a good development
      on
      the upper part of deposit. Due to the gradual disappearance of this
      mineralization, the distribution of these rocks is decreased along with increase
      of depth and the content of gold is also sharply reduced.




The mineralized bodies occur mostly lense-like with thickness generally varying
      from
      10 to 50 meters, and the dips of the shoots vary from 45° to 60° .




The
      main
      minerals are: chalcopyrite, pyrrhotite, magnetite, pyrite, and native gold.
      More
      rarely present: covelite, chalcocite, molybdenite, arsenopyrite, cobaltite,
      sphalerite, bismuthinite, and minerals of platinum.




**Resources/reserve** **s**




In
      200 6,
      Ken-Too conducted a feasibility study for the Kuru-Tegerek deposit and a reserve
      estimate of the upper part of the deposit (layers of the oxide ore for open
      pit
      mining). With a gold price $400 USD/oz, copper $2,400 USD/t, copper recovery
      rate of dressing 62% and gold recovery 80%, production cost of copper $1,914
      USD/t, production cost of gold $9USD/t and economic cutoff grade 2g/t, the
      proven reserves was confirmed as 3.66 million metric
      tons (excluding mining losses) with an average copper grade 0.78% and gold
      2.95g/t. It is obvious that this reserve is only a small portion (which can
      be
      extracted by open pit mining) of the whole deposit where the total resources
      is
      172.66 million metric
      tons with the average grade of copper at 0.60% and gold at 0.56g/t.




**Sampling,** **Analytical
      Procedures and Quality Control**




During
      exploration, the samples were taken of outcrop mineralized body, skarns,
      strongly corroded intrusive rocks and limestone. The sampling methods include
      trenching, coring and other ways. In addition, the ore bodies were taken the
      samples. The process samples and the samples to determine the mass of ore and
      wall rock were taken as well.




Trenching
      sampling was undertaken in sublevels based on the geological outline and the
      extents of hydrothermal alteration and metasomatic alteration. The average
      length of each sample was 1 meters (sometime between 05-1.5 meters) with a
      channel section size of 0.1 m (wide)
      x 0.5 m (deep). The length of the trenching sample varies with the
      mineralization characteristics and the thickness of mineralized band and
      mineralized body. 28,643 samples were taken in trenching.




For
      the
      cores drilled from 1966 to 1968, the samples were taken by splitting the core
      into halves, one half being the sample, and the other half being stored in
      core
      box. With the drilling cores of hydrothermal alteration rock taken in
      preliminary phase from 1969 to 1980, samples were systematically taken. In
      order
      to guarantee the weight of samples, the samples were usually taken over 0.3
      meters in length. 13,700 samples were taken in cores. The core recovery is
      about
      70% for the drill holes.




For
      samples of trenching and coring, sample preparations were completed respectively
      in the crushing workshops of Geological Brigade of Southern Kyrgyz, Geological
      Bureau of (former) Soviet Socialism Republic of Kyrgyz, Geological Bureau of
      (former) Soviet Socialism Republic of Uzbek and Geological Bureau of (former)
      Soviet Socialism Republic of Kazakhstan. Sample preparation was made according
      to the formula Q= Kd3 with K value=0.8.




Assaying
      of samples was also
      completed respectively in the laboratories of Geological Team of Southern
      Kyrgyz, Geological Bureau of (former) Soviet Socialism Republic of Kyrgyz,
      Geological Bureau of (former) Soviet Socialism Republic of Uzbek and Geological
      Bureau of (former) Soviet Socialism Republic of Kazakhstan. Optical spectrum
      analysis, chemical analysis, gold-measuring analysis and hydrochemistry analysis
      were conducted in the assaying of samples.




Internal
      check samples were assayed. 1,059 samples of trenching and cores were taken
      in
      the preliminary phase of exploration and the assaying results of metal copper,
      gold and molybdenum in different grades were at the range of allowable
      tolerance. External checks were also carried out: 1,230 samples were taken
      in
      the preliminary phase of exploration and the probability factor (t) for metal
      copper, gold and molybdenum in different grades was less than 2. The results
      indicate that no systematic tolerance exists in the analysis in labs and all
      analysis can be used for the calculation of reserve.




-28-




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




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




**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 47o57′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
      2-5:  Mining Site No. 2 of Qingxing Copper Mine




**History
      of Operation**




Qingshan
      Metal had been in operation for 3 years before it was acquired by the Company.
      The Mining Project was designed by the Inner Mongolia Metallurgy Design
      Institute, and the mining capacity designed was 60,000 metric
      tones per year. The actual mining capacity is 50,000 metric tones of ores per
      year, of which copper ores account for about 40,000 metric tones and the
      remaining pertains to 10,000 metric tones of zinc and lead ores.




**Geology
      of the Property**




Qingxing
      Copper Mine is located at west 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).




-29-




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




Upper
      Sequence (Pt2zh23): mineralized bodies occur in this sequence which is 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.




Lower
      Sequence (Pt2zh21): 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 lower sequence of quartz schist and 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 north of the property which
      is
      500meters long and 10-30 meters wide, within which the mineralized body No.1
      Cu-1 and No.2 Zn-1, No.3 Zn-2 were defined. Zone 5# is distributed in
      middle-south of the property which is 850 meters in length and 10-40 meters
      in
      width, where mineralized body No.4 Cu-2, No.5 Zn-3 as well as No.6 Zn-4 were
      defined.




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




**Mining
      and Extraction technical conditions:**




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,
      incision is deep. It is available with good conditions of pit
      mining.




**The
      Current Situation of the Mine**




When
      the
      mine was acquired by the Company, the mining system already existed. Adit
      development system has been assumed.




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




Ventilation:
      fresh air is blown in from sublevel adit, passes through the work area and
      is
      exhausted out from the special shaft of ventilation connected to
      ground.




Drainage
      system: Adit development has the conditions of underground water naturally
      discharged from waterway in 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)
            
            NotesHoisters
            
            Ф2M
            
            2
            
            20Rock
                loaders
            
            Z-20W
            
            3
            
            20Compressors
            
            20M3
            
            2
            
            20
            
            Power drivenElectric
                Locomotives
            
            
            
            3
            
            20Ventilators
            
            
            
            4
            
            20Transformers
            
            
            
            5
            
            20




-30-




**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.




**Ore** **Processing** :




The
      method of processing consists of two-stage grindings and sulfur-restraining
      flotation. The final products are copper and zinc concentrates.




In
      June
      2007, the Company decided to close the processing plant and supply Qianzhen
      with
      its own products from the Qingshan Metal. The major equipment is as
      follows:




**No.**
            
            **Equipment**
            
            **Unit**
            
            **Qty**1
            
            Jaw-type
                crusher, PE-400×500
            
            set
            
            12
            
            Twin
                spiral classifiers, FLGT24
            
            set
            
            13
            
            Vibrating
                screen, 2YAH1800×4800
            
            set
            
            14
            
            Overflow
                ball mill, MQY1500x2400
            
            set
            
            15
            
            Flotation
                machines, SF-0.8
            
            set
            
            10




**Asset
      of Mine:**




As
      of
      December 31, 2007, the assets in US Dollar are as follows:




Item
            
            Mine
            
            Equipment
            
            TotalProperty
            
            
            $88,230
            
            
            $54,960
            
            
            $143,190




**Resources**




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 resources and category within the
      mining area. As of April 30, 2007, the total retained indicated resources is
      1.81 million metric
      tons with the average grade at 0.6%.




**Potential
      for Further Exploration**




In
      the
      mining process, two mining tunnels in 1 ,390m
      level and in 1,350m level intercepted Cu-2 mineralized body which improves
      the
      control degree and has increased the resources of 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 resources to
      Category C (332). Underground exploration (associated with mining operation)
      should upgrade the resource categories, and explore the extension deeply.




**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
      together. 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.




-31-




**Location
      and Traffic**




Keyinbulake
      Multi-Metal Property is located in Buerjin County, Aletai, Xinjiang Uygur
      Autonomous Region. The coordinates are E 87o17′30′′-87o9’30”, N 47o58′30” -
      47o59′45”, and the area is in 3.59 km2. It is 65 kilometers
      west-north of Aletai city, and 60 kilometers east-north of Buerjin County,
      and
      26 km east-north of Dulaiti town. With the highway from Aletai city to Dulaiti
      Town passing through the property, it is conveniently accessible. Figure 2-6
      is
      the index map of the Keyinbulake Multi-Metal Property .









Figure
      2-6: 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.




In
      April
      2007, the Company began to build a concentrator in the mining area with a daily
      processing capacity of 600 metrictons (200,000 metric ton/annually). Such a concentrator is expected
      to be
      put into a trial operation in April 2008.




**Ore** **Processing** :




The
      process of concentrator consists of two-stage closed crushing with one stage
      grindings, flotation of copper primary and zinc secondary, scavenging, two
      steps
      of dehydrating (thickening and filtrating). The final products are copper
      concentrates and zinc concentrates. The major equipment is as
      follows:


-32-




**No.**
              
              **Equipment**
              
              **Type**
              
              **Unit**
              
              **Qty**1
              
              Vibrating
                  feeder
              
              ZSW380X95I
              
              Set
              
              12
              
              Jaw-type
                  crusher,
              
              PE-500X750
              
              set
              
              13
              
              Belt
                  conveyor No.1
              
              8063
                  a=15ov=1.60m/s Lh=53.393m
              
              set
              
              14
              
              Cone
                  crusher
              
              H-36AFJ1-3
              
              set
              
              15
              
              Belt
                  conveyor No.2
              
              8063
                  a=15.96ov=1.60m/s
                  Lh=47.393m
              
              set
              
              16
              
              Electric
                  drive rolling drum
              
              JWD2220-160-8063
              
              set
              
              17
              
              Heavy
                  magnetic vibration- actuated feeder
              
              DZ-C-80160
              
              set
              
              18
              
              Circular
                  vibrating screen
              
              2YA1542(
                  Over screen 40mm,Below screen 15mm)
              
              set
              
              349
              
              Belt
                  conveyor No.3
              
              B=650
                  Lh=36.85m a=16o
              
              set
              
              110
              
              Belt
                  conveyor No.4
              
              B=650
                  Lh=20.713m a=15o
              
              set
              
              111
              
              Wet
                  grate discharge ball mill
              
              MQG2700×3600
              
              set
              
              112
              
              Sinking
                  win-spiral classifiers
              
              2FC-20
              
              set
              
              113
              
              Flotation
                  machines
              
              SF-4
                  scraper YIOOL-6 P=1.5KW
              
              set
              
              1614
              
              Flotation
                  machines
              
              SF-2.8
                  scraper YIOOL-6 P=1.5KW
              
              set
              
              715
              
              Flotation
                  machines
              
              SF-1.2
                  scraper Y90S-4 P=1.1KW
              
              set
              
              716
              
              Horizontal
                  slurry pump
              
              ZBG(P)-458B(P)
                  P=75kw n=1480r/min H=74m
              
              set
              
              217
              
              Upright
                  slurry pump
              
              65Q-LPR
              
              set
              
              218
              
              Center
                  drive thickeners
              
              NZ-9
              
              set
              
              119
              
              Center
                  drive thickeners
              
              NZ-12
              
              set
              
              120
              
              Ceramic
                  filter
              
              TT-6
                  P=13kw
              
              set
              
              121
              
              Ceramic
                  filter
              
              TT-8
                  P=13kw
              
              set
              
              1





All
      equipment is brand new and their lives of service are 20 years.




**Investment
      of Mine under development:**




As
      of
      December 31, 2007, the investments in US Dollar of this mine in development
      stage are as follows:




Item
            
            Mine
            
            Concentrator
            
            TotalProperty
            
            
            $2,783,210
            
            
            $5,584,368
            
            
            $8,367,578




**Power
      and Water Supply**




There
      is
      a 35Kv high voltage power line from the Buerjin Power Station to the mining
      area. The Company has built the power line itself.




3
      wells
      4km away from the mining area provide production and drinking
      water.




**Resources**




Earth-Physics
      Exploration Brigade of Xinjiang Non-ferrous Geological Exploration Bureau
      completed the Geological Evaluation between May 2002 and July 2006, and the
      survey was 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 China Metallurgical
      Geological Bureau conducted a supplementary survey on the Keyinbulake property.
      In December 2007, it presented the final supplementary prospecting report
      confirming relevant mineral resources within the mining property. In this
      report, the total indicated resources included 0.6035 million metric tons an
      average grade of copper at 0.68%, zinc 4.19%.




**Qianzhen
      Mining**




Qianzhen
      Mining owns a concentrator with an annual treatment capacity of 200,000 metric
      tons. The process of concentrator 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
      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, 2.1mx3m and 1.5mx3m), 4m3 fl otation
      machines (24 sets), 2m3flotation machines (12 sets),Φ12m thickeners(1 set),
      classifiers (2 sets, 1.5mx10m), 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 is new.




-33-




Qianzhen
      Mining conducts the operation by purchasing zinc, copper and/or lead ore from
      Qingshan Nonferrous Metal or other suppliers. The final products are in bulk.
      The transportation means for the products is truck. Table 2-4 shows the annual
      output and the concentrate’s average price of Qianzhen Mining in past three
      year.




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




Year
            
            Product
            
            Treatment
              (t)
            
            Concentrate
              (t)
            
            Average Metal Price
              per Year (USD $/t)2005
            
            
            Zn
                concentrate
            
            
            87,175.17
            
            
            12,866.49
            
            
            751.602006
            
            
            Zn
                concentrate
            
            
            129,548
            
            
            13,959.16
            
            
            2,363.65Pb
                concentrate
            
            
            
            
            
            12,19.77
            
            
            1,205.542007
            
            
            Zn
                concentrate
            
            
            66,270
            
            
            5,582.5
            
            
            2,628.55Pb
                concentrate
            
            
            
            
            
            777.21
            
            
            2,231.13Cu
                concentrate
            
            
            29,512
            
            
            402.27
            
            
            7,130.13




**ITEM
                  3.**
              **LEGAL
                  PROCEEDINGS**
  None.
  **ITEM
                  4.**
              **SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS**


None




**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 ha ve
      been
      traded on the American Stock Exchange under the trading symbol “SHZ” since
      January 31, 2008. Before the listing on the American Stock Exchange, 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, 2007**
            
            **High**
            
            **Low**First
                Quarter
            
            
            $4.75
            
            
            $3.11Second
                Quarter
            
            
            $4.75
            
            
            $2.25Third
                Quarter
            
            
            $3.70
            
            
            $2.25Fourth
                Quarter
            
            
            $3.50
            
            
            $2.40**Year
                ending December 31, 2006**
            
            
            **High**
            
            
            **Low**First
                Quarter
            
            
            $2.00
            
            
            $0.06Second
                Quarter
            
            
            $2.00
            
            
            $1.05Third
                Quarter (1)
            
            
            $9.00
            
            
            $0.55Forrth
                Quarter
            
            
            $3.90
            
            
            $2.20


-34-


(1)
      On
      September 15, 2006, the Company consummated a reverse takeover pursuant the
      terms of a Stock Exchange Agreement (the “Exchange Agreement”) among Earth
      Products & Technology, Inc.(“EPTI”) , American Federal Mining Group, Inc.,
      an Illinois company (“AFMG”), and the shareholders of AFMG.




***Holders.*** As of
      March 20, 2008, we had 660 holders of record of our common stock. Our common
      stock had a closing bid price of $4.42 per share on March 20, 2008.




***Outstanding
      Options, Conversions, and Planned Issuance of Common
      Stock*** **.** Except
      as
      hereinafter set forth, there are no options outstanding to acquire any
      additional shares of common stock. On March 12, 2005, we granted a three-year
      option, effective from the completion of the reverse takeover transaction,
      to
      American Eastern Securities, Inc., our financial advisor, to invest up to
      $2,000,000 (limited to no more than 10% of the Company’s issued equity) in the
      Company, at the first fund raising event price, which is $3.20.




***Preferred
      Stock.*** We
      may
      issue shares of preferred stock from time to time in one or more series with
      such designations, voting powers, if any, preferences, participating, optional
      or other special rights, and such qualifications, limitations and restrictions,
      as are determined by resolution of our Board of Directors. The issuance of
      preferred stock may have the effect of delaying, deferring or preventing a
      change in control of our Company without further action by stockholders and
      could adversely affect the rights and powers, including voting rights, of
      holders of common stock, with us acting in accordance with our corporate charter
      and by-laws. In certain circumstances, the issuance of preferred stock could
      depress the market price of the common stock. There are no shares of preferred
      stock outstanding.




***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.*** As
      of the
      fiscal year ended December 31, 2007, we have no shares of our common stock
      or
      preferred stock that are issuable under compensation plans approved by our
      security holders.




***Recent
      Sales of Unregistered Securities*** .
      Each
      issuance set forth below was made in reliance upon the exemptions from
      registration requirements of the Securities Act of 1933, as amended, contained
      in Section 4(2)
      on
      the basis that such transactions did not involve a public offering. When
      appropriate, we determined that the purchasers of securities described below
      were sophisticated investors who had the financial ability to assume the risk
      of
      their investment in our securities and acquired such securities for their own
      account and not with a view to any distribution thereof to the public. Where
      required by applicable law, the certificates evidencing the securities bear
      legends stating that the securities are not to be offered, sold or transferred
      other than pursuant to an effective registration statement under the Securities
      Act or an exemption from such registration requirements.




On
      September 15, 2006, the Company consummated a reverse takeover pursuant to
      which
      it issued a total of 20,000,000 shares of restricted common stock to the
      shareholders of American Federal Mining Group, Inc. (“AFMG”), an Illinois
      corporation, resulting in the acquisition of AFMG as a wholly-owned subsidiary
      and a change in management of the Company.





In
      addition to the reverse takeover, we entered into two purchase transactions
      pertaining to mining properties, each of which called for the issuance of
      restricted shares of the Company’s common stock as partial
      payment of the consideration.  On April 27, 2006, we completed the
      acquisition of 60% ownership interests in Qingshan Metal. Under the terms of
      the
      acquisition agreement, Qingshan Metal shareholders received an aggregate
      consideration of approximately $2.561 million. The amount of approximately
      $1.409 million was paid as a down payment in April 2006. The remaining portion
      of $1.152 million was subsequently settled on March 15, 2007 by issuing 284,810
      shares of the Company’s common stock to the Qingshan Metal shareholders when the
      market price was $4.00 per share.


-35-


On
      April
      28, 2006, we completed the acquisition of an 80% ownership interests in Xinjiang
      Buerjin County Xingzhen Mining Co., Ltd. from Mr. Li Leyi. Under the terms
      of the acquisition agreement, Mr. Li received an aggregate consideration of
      approximately $3.587 million. The amount of approximately $1.025 million was
      paid in cash as of September 30, 2006.  The remaining portion of $2.561
      million was subsequently settled on March 15, 2007 by issuing 632,910 shares
      of
      common stock when the market price was $4 per share.





On
      December 21, 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 $28 million in convertible senior notes (“Notes”). The closing
      occurred, and payment for the Notes was made, on December 27, 2006.





The
      Notes
      were issued pursuant to an Indenture, dated as of December 27, 2006, with the
      Bank of New York, as trustee. The Notes bear interest at 6.75% per annum
      (subject to increase in certain circumstances), payable semiannually, and has
      a
      maturity date of December 27, 2012.   At maturity, the Company will be
      required to repay the original principal amount of the Notes plus additional
      principal that accretes 5% per year (for a total of 30% additional principal
      at
      maturity).  The Notes are convertible at the option of the holders, at any
      time on or prior to maturity, into common shares of the Company at $3.20 per
      share (subject to adjustment in certain circumstances). The obligations under
      the Notes are secured by the common shares of the Company pledged under a Share
      Pledge Agreement among Citadel, Ms. Xiaojing Yu and Mr. Xueming  Xu ,
      respectively, major shareholders of the Company, and the Bank of New York,
      as
      collateral agent. Pursuant to the Share Pledge Agreement, Ms. Yu and Mr. Xu
      have pledged 14,917,000 common shares and 1,870,000 common shares, respectively,
      owned by them, or approximately 79% of the issued and outstanding common shares
      of the Company.





In
      connection with the transaction, the Company and the major shareholders entered
      into a Voting Agreement, dated as of December 27, 2006, with Citadel.
 Pursuant to the Voting Agreement, Citadel will have the right to designate
      a director on the Company’s board of directors and, in certain circumstances, a
      second independent director. Under the Indenture the Company is subject to
      liquidated damages of up to $200,000 if it does not fulfill these rights.
      Citadel later waived these rights.




In
      connection with the transaction, on December 27, 2006, the Company issued a
      warrant to American Eastern Securities, Inc., a financial advisor, and related
      parties for the purchase of 875,000 shares of the Company’s
      common stock at an exercise price of $3.20 per share, exercisable on or before
      3
      years from the date of grant.





The
      offer
      and sale of the securities was made to an institutional accredited investor
      in
      reliance upon exemptions from the registration requirements pursuant to Section
      4(2) under the Securities Act of 1933, as amended, and Regulation D promulgated
      thereunder.  There was no general solicitation or advertising with respect
      to the private placement and each of the purchasers provided written
      representations of an intent to acquire the securities for investment only
      and
      not with a view to or for sale in connection with any distribution of the
      securities.


-36-







Each
      of
      the following individuals received their shares pursuant to the consummation
      of
      our share exchange/reverse takeover transaction with AFMG on September 15,
      2006.




**NAME**
            
            **COMMON
                SHARES**Xiaojing
                Yu
            
            14,917,000Xueming
                Xu
            
            1,870,000Helin
                Cui
            
            200,000Yu
                Dang
            
            213,000Xiaoming
                Yu
            
            600,000Xiaoyang
                Xu
            
            100,000Lun
                Xu
            
            200,000Long
                Yu
            
            400,000Qijiu
                Song
            
            100,000Ligang
                Wang
            
            100,000Trang
                Chong Hung
            
            120,000American
                Eastern Group, Inc.*
            
            260,000American
                Eastern Securities, Inc.*
            
            90,000EIC
                Investments, LLC*
            
            90,000Luminus
                Capital Management, Ltd. (HongKong)
                *
              Allied
                Merit International Investments, Inc.(BVI)*
            
            220,000
              520,000


*The
      entities and individuals acted as the financial advisors of the Company in
      the
      reverse takeover and the ensuing financing transaction.





**Equity
      Compensation Plan Information**





As
      of
      December 31, 2007, the Company has no equity compensation plan nor any shares
      reserved for the issuance of compensation options or other stock awards to
      its
      employees or directors.






-37-


**ITEM
                    6.**
                **MANAGEMENT'S
                    DISCUSSION AND ANALYSIS OR PLAN OF
                    OPERATION.**
 
 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 harbour” 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-KSB. 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”) 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
        STRATEGY**
 
 **Expansion
        of Production Capacity to Meet Demand**
  **▼
        Fluorite**
  We
        extracted approximately 109,000 metric tons of fluorite ores in 2007. In
        early
        2006, we started a 300,000 metric ton fluorite ore project at Xiangzhen Mining,
        which was completed in November 2007. In 2008, we expect to extract 210,000
        metric tons of fluorite ores. In 2008, this project is expected to reach
        70% of
        its designed annual capacity and from 2009 onward, we expect to increase
        our
        extraction capacity to 300,000 metric tons of fluorite ores per
        year.
  We
        produced approximately 22,400 metric tons of refined fluorite powder in 2007.
        In
        early 2006, we started to build a 200,000 metric ton/year fluorite ore
        processing plant at the mine site. The new processing plant was completed
        and
        went into trial production in November 2007. In 2008, this project is expected
        to reach 70% of its designed annual capacity and produce 70,000 metric tons
        of
        fluorite powder. After reaching its full capacity in 2009, we expect to produce
        approximately 100,000 metric tons of refined fluorite powder per
        year.
  **▼Zinc,
        Copper and Lead**
  In
        2007,
        Qianzhen Mining purchased approximately 42,000 metric tons of zinc-lead ore
        and processed 66,630 metric tons into zinc concentrate equivalent to 2,567
        metric tons of zinc metal and 310 metric tons of lead metal. Due to its
        dependence on a third party supplier of ores for processing, Qianzhen Mining’s
        operation was materially impacted by an insufficient amount of ore supply
        and
        increased purchase cost from Zijin.
  -38-
  In
        2007,
        Qingshan Metal extracted 59,000 metric tons of copper ores and processed
        copper concentrate equivalent to 71 metric tons of copper metal and supplied
        an
        additional 35,000 metric tons of copper ore to Qianzhen Mining. In the third
        quarter of 2007, Qingshan Metal stopped its processing operation and began
        to
        supply Qianzhen copper ore for its processing operation. In 2008, Qingshan
        Metal
        plans to expand its extracting capacity by increasing its investment in mine
        development and, after completion, expects to extract approximately
        70,000-100,000 metric tons of copper and zinc ore per year, which will be
        supplied to Qianzhen Mining for processing.
  In
        July
        2006, Xingzhen Mining started to build a 200,000 metric ton/year zinc-copper
        ore
        mining and processing project at Keyinbulake Multi-Metal Mine in Buerjin
        County,
        Aletal Zone, Xinjiang Uygur Autonomous Region. This project is expected to
        go
        into production in first half of 2008 and is expected to produce approximately
        100,000 metric tons of zinc and copper ores and process them into concentrates
        equivalent to 4,000 metric tons of zinc metal and 400 metric tons of
        copper metal in 2008.
  In
        November 2007, We completed the acquisition of Tun-Lin Co. Ltd, 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) mining for gold, copper and other metals within the Kuru-Tegerek
        licensed area; and (ii) exploration for gold, copper and other metals within
        the
        Kuru-Tegerek licensed area. The purpose of the acquisition was to enable
        the
        Company to explore, develop and mine the potential reserves of the Kuru-Tegerek
        licensed area. In 2008, the Company will complete a development plan for
        the
        Kichi Chaarat deposit and start construction of a mining facility. The company
        will also engage in more explorations of the licensed areas and conduct further
        feasibility studies that will broaden our base of reserves at the Kichi Chaarat
        deposit.
 
 **Increased
        Exploration Activities**
  **ü** **Keyinbulake
        Cu-Zn Mine**
  Following
        the exploration in 2007, further exploration activities are planned in 2008
        in
        the southern and northern parts of Keyinbulake Cu-Zn Mine. The exploration
        details are scheduled as follows:
  **Table1-3:
        Exploration Program for Keyinbulake Property**
  **Item**
              **Method**
              **Unit**
              **Quantity****Geology**
              Mapping
                  and comprehensive study
              -
              -**Geophysical
                  prospecting**
              Surface
                  scanning
              km2
              15Depth
                  measuring by induced polarization method
              point
              50“Mise—a—la—masse”
                  method
              km2
              1TEM
              km2
              1**Drilling**
              Inclined
                  hole
              m
              5000**Trenching**
              -
              m3
              6000**Assaying**
              Sampling
                  and test
              -
              -
 
  The
        above
        mentioned exploration activities shall be completed by Geophysical Prospecting
        Team of the Xinjiang Nonferrous Geophysical Prospecting Bureau at the end
        of
        August 2008 with a total budget of approximately $1.2 million, which will
        be
        funded by the Company.
  **ü** **Kichi
        Chaarat Copper and Gold Mine**
  -39-
  We
        have
        the program to conduct the exploration by the local geological service company
        in the region of Kuru-Tegerek in Kyrgyz. The exploration details are scheduled
        as follows:
  **Item**
              **Unit**
              **Quantity**
              **Remark****Geology**
              Km
              20
              mapping**Trenching**
              m3
              400**Drilling**
              M
              400**Assaying**
              Piece
              800
 
  The
        total
        budget for the above exploration activities will amount to approximately
        $82,000, which will be funded by the company.
  **ü** **Qingshan
        Metal**
  ü We
        may
        have exploration activities in the licensed areas of Qingshan copper
        mine.
  **Acquire
        More Mineral Resources**
  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 domestically that have good extracting and operating
        conditions and possess all necessary governmental licenses.
  **Expand
        into Down Stream Fluorine Chemical Business**
  To
        increase the profit margin of our business, we may plan to expand into the
        fluorochemical industry which enjoys a very high margin and a rapidly growing
        market through the strategic cooperation with the major participants in the
        fluorochemical industry.
 
 **RECAPITALIZATION
        AND REORGANIZATION**
 
 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.
  -40-
  **ACQUISITIONS
        IN 2007**
 
 ***Kichi-Chaarat
        Closed Joint Stock Company (“Kichi-Chaarat”)***
 
 On
        November 6, 2006, Xiangzhen Mining entered into contractual arrangements
        with
        Mr. Li Jiaxing and Mr. Huang Guan to appoint Mr. Li and Mr. Huang to acquire
        the
        entire ownership of Kichi Chaarat Closed Joint Stock Company (“Kichi Chaarat”)
        for cash consideration of $10,000,000 in aggregate. Mr. Li and Mr. Huang
        jointly
        owned Tun-Lin Limited Liability Company (“Tun-Lin”), which is a Kyrgyz Republic
        registered company. Pursuant to the arrangements, Tun-Lin will acquire the
        entire ownership in Kichi Chaarat from Altyn Minerals (BVI) Ltd. Subsequently,
        Xiangzhen Mining will acquire the entire ownership in Tun-Lin. The major
        asset
        of Kichi Chaarat is the subsoil use right for the purpose of (i) mining for
        gold
        and other metals within the Kuru-Tegerek licensed area, and (ii) exploration
        for
        gold and other metals within the Kuru-Tegerek licensed area. The purchase
        consideration was fully settled in 2006.
 
 The
        acquisition was officially completed on December 26, 2007, when the Ministry
        of
        Justice of Kyrgyzstan officially approved the share transfer. The management
        believe with the completion of the acquisition, the company will be able
        explore, develop and mine the potential reserves at Kichi Chaarat deposit
        and
        potentially increase our reserve base in the nonferrous segment and enhance
        our
        earnings prospect in future.
 
 **ACQUISITION
        OF ADDITIONAL 10% EQUITY IN XINGHZEN MINING**
 
 In
        August
        2007, the Company completed an acquisition of additional equity in Xingzhen
        Mining from Xinjiang Tianxiang New Technology Development Company Ltd and
        thus
        increased the company’s ownership of equity in Xingzhen Mining from 80% to
        90%.
 
 
 **RESULTS
        OF OPERATIONS - YEAR ENDED DECEMBER 31, 2007 AS COMPARED TO YEAR ENDED DECEMBER
        31, 2006**
 
 Selected
        information from the Consolidated Statements of Operations
 
 **For
                  the years ended December 31,****2007**
              
              **2006**(in
                  thousands)
              
              (in
                  thousands)Net
                  revenue
              
              $
              14,351
              
              $
              22,205Gross
                  profit
              
              
              6,507
              
              
              13,411-
                  Gross profit margin
              
              
              45
              %
              
              60
              %General
                  and administrative expenses
              
              
              6,741
              
              
              5,707Reverse
                  takeover costs
              
              
              -
              
              
              4,777Interest
                  expenses
              
              
              3,962
              
              
              318Net
                  income (loss)
              
              $
              (2,646
              )
              $
              1,380
  REVENUES.
        Net revenues for the year ended December 31, 2007 were $14.4 million,
        representing a $7.9 million or 35% decrease as compared to 2006. The decrease
        in
        net revenues is mainly attributable to Qianzhen Mining, whose zinc processing
        operations were materially impacted by an insufficient supply of zinc ores
        from
        a major third party supplier, which resulted in a reduction of revenue of
        54% or
        approximately $8.4 million as compared to 2006. Net revenue from Xiangzhen
        Mining’s fluorite products increased 24.% to $6.6 million as compared to 2006
        due to increased sales of processed fluorite powder and a favorable pricing
        environment driven by strong market demand. Xiangzhen Mining sold a total
        of
        23,367 metric tons of
        processed fluorite powder, representing an increase of 82% compared to 2006
        and
        the average selling price for fluorite powder increased 23.2% to $144 per metric ton.
        However, the high growth in our fluorite segment was insufficient to offset
        the
        production decline in Qianzhen Mining’s zinc processing operations.
  -41-
  Qingshan
        Metal, which was acquired in 2006, contributed net revenue of approximately
        $0.7
        million for the year ended December 31, 2007, representing a decrease of
        13%
        compared to 2006. Xingzhen Mining was still in development stage as of December
        31, 2007 and had not contributed any revenue yet.
  GROSS
        PROFIT AND GROSS PROFIT MARGIN. For the year ended December 31, 2007, gross
        profit was $6.5 million, representing a decrease of approximately 51% as
        compared to $13.4 million of 2006. Gross profit margin significantly dropped
        from 60% in 2006 to 45% in 2007. The decrease in gross profit margin is mainly
        due to the purchase price Qianzhen Mining paid to an independent third party
        supplier in order to obtain zinc ore as a raw material for its processing
        operation. The average cost of zinc ores purchased increased from $7.9 per metric ton in
        2006 to $34.4 per metric ton in
        2007, and the average selling price of zinc concentrates increased by 11%
        compared to 2006.
 
 GENERAL
        AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased
        by
        approximately $1 million to $6.7 million in 2007 from $5.7 million in 2006.
        If
        not taking into account the common stock bonuses paid to management with
        a fair
        value of $2.97 million in 2006, the general and administrative expenses
        increased by approximately by $4 million in 2007. The significant increase
        in
        general and administrative expenses was primarily due to (i) increased
        compliance costs of $1.3 million pertaining to professional,legal and auditing
        services and implementation of a SOX404 project as a listed company (ii)
        increased staff salary of $0.6 million for newly recruited management and
        technical staff and (iii) increased administrative expense of $1.32 million
        by
        Xingzhen Mining mainly due to amortization of exploration right and an increase
        in exploration expenses. (iv) increased administrative expense of $0.38 million
        for Xiangzhen Mining’s Beijing Office and the newly acquired Tun-Lin in
        Kyrgyzstan.
 
 INTEREST
        EXPENSE.  The total interest expense of $3.96 million is mainly due to the
        related cash and non cash interest expense and costs associated with the
        convertible bonds and related issuance cost in the fourth quarter of 2006.
        This
        includes: i) cash interest payment of $1.42 million for the three quarters
        ended
        September 30, 2007;ii) non cash principal accretion of approximately $1.42
        million for the year ended December 31, 2007; iii) $70,000 of revaluation
        of the
        detachable warrant liability associated with the issuance; and iv) $0.84
        million
        of amortization of deferred debt issuance costs and deferred financing cost
        for
        the year ended December 31, 2007. The total non cash interest expenditure
        is
        approximately $2.33 million.
 
 NONRECURRING
        GAIN FROM DISPOSITION. The company disposed of one of its subsidiaries Tianzhen
        Mining, an exploration stage company located in Wuqia County, Xinjiang Uygur
        Autonomous Region in December 2007 and realized a gain of approximately $1.5
        million. The following table presents the revenue, net loss from discontinued
        operations and net gain on disposal of Tianzhen Mining for the periods
        presented:
 
 Year
                  ended December 31,2007
              
              2006(in
                  thousands)
              
              (in
                  thousands)Revenue
              
              $
              367
              
              $
              228Net
                  loss from discontinued operations, net of income tax of
                  nil
              
              $
              (197
              )
              $
              (1,324
              )Net
                  gain on disposal of subsidiary, net of income tax of nil
              
              $
              1,504
              
              $
              -
 
 
 NET
        INCOME. Net loss for the year ended December 31, 2007 was $2.6 million, a
        decrease of $4 million compared to net income of $1.4 million for 2006. Basic
        earnings per share were $(0.12) or $(0.12) fully diluted for the year ended
        December 31, 2007.
 
 -42-
 
 **SEGMENT
        PERFORMANCE ANALYSIS**
 
 (amounts
                  in thousand)
              
              Segment
                  revenue
              
              Segment
                  profit (loss)2007
              
              2006
              
              2007
              
              2006Fluorite
              
              $
              6,605
              
              $
              5,312
              
              $
              418
              
              $
              (860
              )Nonferrous
                  metals
              
              $
              7,746
              
              $
              16,893
              
              $
              422
              
              $
              11,157
 
 **Fluorite**
 
 Fluorite
        segment revenue increased by 24.3% from $5.3 million for 2006 to $6.6 million
        for 2007. The increase was primarily due to the increases in sales volume
        in
        fluorite powder as well as an increase in selling prices for both fluorite
        powder and high grade ores. Xiangzhen Mining sold a total of 23,367 metric tons of
        processed fluorite powder, representing an increase of 82% compared to 2006
        and
        the average sales price for fluorite powder increased 23.2% to $144
        per metric ton. The
        sale of high grade fluorite ores decreased by 26% from 65,000 metric tons in
        2006 to 48,000 metric tons in
        2007 as a result of the Company’s initiative to produce more fluorite powder
        which enjoyed a good pricing environment and a robust market demand. Due
        to
        strengthening of cost control management, the unit cost of high grade fluorite
        ores and processed fluorite powder dropped $4.4 and $16 per ton respectively,
        resulting in an increase in the gross profit margin of 41% as compared to
        15% in
        2006.
 
 Due
        to
        the high growth in our fluorite segment, revenue contributed from our fluorite
        segment accounted for 46% of the Company’s total revenue for the year ended
        December 31, 2007 as compared to 24% in 2006.
 
 Our
        fluorite segment reported a segment profit of $418,000 for the year ended
        December 31, 2007 compared to a segment loss of $860,000 in 2006.
 
 Xiangzhen
        Mining just completed a new fluorite processing plant with an annual processing
        capacity of 200,000 tons of ores in November 2007 and expects to utilize
        its new
        fluorite processing plant to produce 70,000 tons of fluorite powder in 2008,
        which would be an increase of 214% as compared to 2007.
  **Nonferrous
        metals**
 
 Nonferrous
        metals segment revenue for 2007 amounted to $7.7 million, representing a
        decrease of approximate $9 million or 52% compared to 2006. In addition,
        the
        nonferrous metals segment has reported a significant decrease in segment
        profit
        by 95% to $422,000 in 2007 from $11.2 million in 2006. The performance of
        the
        nonferrous metals segment was materially impacted by the decline of zinc
        processing operations of Qianzhen Mining, which experienced both a shortage
        of
        supply of zinc ores as a raw material and increased purchase costs of zinc
        ores
        from a major supplier of Qianzhen’s zinc ores.
 
 Since
        October 2007 the Company has been actively seeking new suppliers of zinc
        ore in
        the Inner Mongolia region to diversify supplies and at the same time has
        planned
        additional capital investment at Qingshan Metal to increase its extraction
        capacity of copper and zinc ores in 2008 to satisfy the needs of Qianzhen
        Mining
        for raw material supply.
 
 During
        2007, the selling price for zinc concentrates slightly increased by
        approximately 11% with an average of $2,629 per ton of zinc metal compared
        to $2,364 per ton of zinc metal  in 2006.
  -43-
  **FINANCIAL
        CONDITION, LIQUIDITY AND CAPITAL RESOURCES**
 
 Cash
        and
        cash equivalents were $2.95 million as of December 31, 2007, a decrease of
        $16
        million as compared to the balance at December 31, 2006 of $18.9 million.
        The
        significant decrease in cash position was mainly due to the capital expenditures
        into mine development, construction,purchase of processing plants and mining
        equipments at Xiangzhen Mining and Xingzhen Mining, which amounted to
        approximately $20 million in 2007.
 
 Net
        cash
        provided by operating activities for the year ended December 31, 2007 was
        $3.5
        million, as compared to $9.1 million for the year ended December 31, 2006.
        The
        decrease in operating cash flows was mainly due to the decreases in revenue
        and
        gross profits in 2007 as explained above.
 
 Net
        cash
        used in investing activities of $17 million for the year ended December 31,
        2007
        was mainly represented by: (i) capital expenditure for mining development
        and
        capacity expansion projects at Xiangzhen Mining and Xingzhen Mining, which
        amounted to approximately $20 million (ii) cash in flow from disposition
        of one
        of our subsidiaries Tianzhen Mining, which amounted to $2.8 million
 
 Net
        cash
        outflows from financing activities for the year ended December 31, 2007 was
        $3.5
        million, which was mainly due to the repayment of short term bank loans of
        $1.3
        million and $2.2 million paid to financing consultants in connection with
        issuance of convertible notes.
 
 **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,
        2007 and 2006 Natural Resource Compensation Charges of $156,784 and $115,804,
        respectively, were charged to operations and included in cost of sales. For
        more
        information, please see Note 23 to the Consolidated Financial
        Statements.
 
 **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$28,000,000 in convertible senor notes (“Notes”). The Notes have a
        maturity of December 27, 2012.
 
 ***Conversion
        feature***
 The
        Notes
        are convertible at the option of the holders, at any time on or prior to
        maturity, into common shares of the Company. Pursuant to a Second Supplemental
        Indenture entered into between the Company and Citadel on September 28, 2007,
        the conversion price has been revised from $3.20 to $2.25 per share and is
        subject to adjustment in certain circumstances but shall in no event fall
        below
        $2.00 per share.  In addition, in no event shall the number of conversion
        shares issuable upon conversion of all the outstanding Notes exceed 49.90%
        of
        all outstanding shares upon the conversion of all of the outstanding
        Notes.
 
 Consistent
        with EITF 98-05, Accounting for Convertible Securities with Beneficial
        Conversion Features or Contingently Adjustable Conversion Ratios, the intrinsic
        value of the beneficial conversion feature (“BCF”) on the commitment date, i.e.
        the Second Supplementary Indenture Date of September 28, 2007, has been
        recalculated: The change of conversion price in the Second Supplemental
        Indenture resulted in a BCF. The BCF was recognized on the effective date
        of
        September 28, 2007, as a discount and will be amortized using the effected
        interest rate method from September 28, 2007 to maturity date.
  -44-
  ***Redemption***
 The
        Notes
        contain a principal accretion feature that increases the redemptions or
        repurchase price of the Notes.  The principal is accreted 5% per annum, on
        semi-annual basis, such that if the Notes are held to maturity the total
        accreted principal amount is equal to 130% of the original principal amount.
         The Company can redeem all of the Notes on or after December 27, 2009, at
        110% of the then accreted principal amount, plus accrued and unpaid interest
        to
        but excluding the redemption date. In addition, Note holders have rights
        to
        request the Company to repurchase the Notes at a price in cash equal to 104%
        of
        the then accreted principal amount plus accrued and unpaid interest to the
        redemption rate if there is a change of control of the Company.  In
        addition, from and after December 27, 2009, Note holders have the right to
        require the Company to repurchase the Notes for 100% of the then accreted
        principal amount plus accrued and unpaid interest to the redemption
        date.
 
 ***Interest
        rate***
 The
        Notes
        initially bore interest at 6.75% per annum, which were subject to upward
        adjustments and were payable semi-annually. However, pursuant to the Second
        Supplemental Indenture entered into between the Company and Citadel on September
        28, 2007, the interest rate has been revised as follows:
 
 (a)
              at
                  the rate of 6.75% per annum of the Original Principal Amount of
                  the Notes,
                  from and including the Issue Date to and including September 30,
                  2007;
 
 (b)
              at
                  the rate of 0.00% per annum of the Original Principal Amount of
                  the Notes,
                  from and including October 1, 2007 to and excluding December 31,
                  2007;
                  and
 
 (c)
              at
                  the rate of 1.75% per annum of the Original Principal Amount of
                  the Notes,
                  from and including the date of the listing of the Company’s common stock
                  on AMEX (i.e. January 31, 2008, as further discussed in Note 31)
                  to but
                  excluding the Maturity Date.
 
 
 ***Detachable
        warrants***
 Together
        with the issuance of the Notes, the Company issued a put warrant to one of
        the
        Company’s financial advisors in the transaction for the purchase of 875,000
        shares of the Company’s common stock at an exercise price of $3.20 per share,
        exercisable on or before 3 years from the date of grant.  As of December
        31, 2007, the fair value of the put warrant was $1,100,277. Further details
        of
        the warrants are disclosed in Note 14.
 
 ***Debt
        issuance costs***
 The
        issuance costs directly associated with the Notes and the put warrant aggregated
        $2,522,497.  The amount was capitalized as deferred debt issuance costs,
        and is being amortized using the effective interest rate method over the
        term of
        the convertible loan, with the amounts amortized being recognized as interest
        expense. Any unamortized debt issuance costs remaining at the date of conversion
        of the loan will be recognized as interest expense in the period the conversion
        takes place. Amortization in aggregate for the years ended December 31, 2007
        and
        2006 were approximately $  2,170,000
        and $2,518,000 respectively.
 
 **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.
 
 -45-
 
 **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.
 
 Management
        believes that the following reflect the more critical accounting policies
        that
        currently affect our financial condition and results of operations.
 
 ***Property,
        Plant and Mine Development***
 
 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.
  **Asset
        Impairment**
 
 *Long-lived
        Assets*
  The
        Company reviews and evaluates its long-lived 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 gold or other commodities 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, gold and other commodity prices, production levels
        and
        operating costs of production and capital are each subject to significant
        risks
        and uncertainties.
  -46-
  *Goodwill*
 
 The
        Company evaluates, on at least an annual basis, the carrying amount of goodwill
        to determine whether current events and circumstances indicate that such
        carrying amount may no longer be recoverable. To accomplish this, the Company
        compares the estimated fair value of its reporting units to their carrying
        amounts. If the carrying value of a reporting unit exceeds its estimated
        fair
        value, the Company compares the implied fair value of the reporting unit’s
        goodwill to its carrying amount, and any excess of the carrying value over
        the
        fair value is charged to earnings. The Company’s fair value estimates are based
        on numerous assumptions and it is possible that actual fair value will be
        significantly different than the estimates, as actual future quantities of
        recoverable minerals, gold and other commodity prices, production levels
        and
        operating costs of production and capital are each subject to significant
        risks
        and uncertainties.
 
 ***Stock
        Based Compensation***
 
 On
        December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based
        Payment”, which replaces SFAS No. 123, “Accounting for Stock-Based
        Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock
        Issued to Employees.” SFAS No. 123R requires all share-based payments to
        employees, including grants of employee stock options, to be recognized in
        the
        financial statements based on the grant date fair value of the award. SFAS
        No.
        123R was to be effective for interim or annual reporting periods beginning
        on or
        after June 15, 2005, but in April 2005 the SEC issued a rule that will permit
        most registrants to implement SFAS No. 123R at the beginning of their next
        fiscal year, instead of the next reporting period as required by SFAS No.
        123R.
        The pro forma disclosures previously permitted under SFAS No. 123 no longer
        will
        be an alternative to financial statement recognition. Under SFAS No. 123R,
        the
        Company must determine the appropriate fair value model to be used for valuing
        share-based payments, the amortization method for compensation cost and the
        transition method to be used at date of adoption. The transition methods
        include
        prospective and retroactive adoption options. Under the retroactive option,
        prior periods may be restated either as of the beginning of the year of adoption
        or for all periods presented. The prospective method requires that compensation
        expense be recorded for all unvested stock options and restricted stock at
        the
        beginning of the first quarter of adoption of SFAS No. 123R, while the
        retroactive methods would record compensation expense for all unvested stock
        options and restricted stock beginning with the first period restated. The
        Company has adopted the requirements of SFAS No. 123R for the fiscal year
        beginning on January 1, 2006, and recorded the compensation expense for all
        unvested stock options existing prior to the adoption during the
        period.
 
 ***Recent
        accounting pronouncements***
 
 
 In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines
        fair value, establishes a framework for measuring fair value, and expands
        disclosures about fair value instruments. SFAS 157 does not require any new
        fair value measurements, but applies under other accounting pronouncements
        that
        require or permit fair value measurements. SFAS 157 is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007 (our fiscal 2008). We believe that implementation of SFAS 157 will
        have little or no impact on our Consolidated Financial Statements.
  -47-
  In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
        Postretirement Plans — an amendment of FASB Statements No. 87, 88,
        106, and 132(R)” (SFAS 158). SFAS 158 requires plan sponsors of
        defined benefit pension and other postretirement benefit plans (collectively,
        “postretirement benefit plans”) to fully recognize the funded status of their
        postretirement benefit plans in the statement of financial position, measure
        the
        fair value of plan assets and benefit obligations as of the date of the fiscal
        year-end statement of financial position and provide additional disclosures.
        We
        believe that implementation of SFAS 158 will have little or no impact on
        our Consolidated Financial Statements since we have no applicable plans.
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities—Including an Amendment of FASB
        Statement No. 115.” This statement permits, but does not require, entities to
        measure many financial instruments at fair value. The objective is to provide
        entities with an opportunity to mitigate volatility in reported earnings
        caused
        by measuring related assets and liabilities differently without having to
        apply
        complex hedge accounting provisions. The Company does not believe that this
        standard will significantly affect the Company’s financial position or results
        of operations.
 
 In
        December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
        Combinations,” (“SFAS No. 141(R)”). This standard will significantly change the
        accounting for business combinations. Under SFAS No. 141(R), an acquiring
        entity
        will be required to recognize all the assets acquired and liabilities assumed
        in
        a transaction at the acquisition-date fair value with limited exceptions.
        SFAS
        No. 141(R) also includes a substantial number of new disclosure requirements.
        SFAS No. 141(R) applies prospectively to business combinations for which
        the
        acquisition date is on or after the beginning of the first annual reporting
        period beginning on or after December 15, 2008.
 
 In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements - An Amendment of ARB No. 51” (“SFAS No.
        160”), which establishes new accounting and reporting standards for the
        noncontrolling interest in a subsidiary and for the deconsolidation of a
        subsidiary. Specifically, this statement requires the recognition of a
        noncontrolling interest (minority interest) as equity in the consolidated
        financial statements and separate from the parent’s equity. SFAS No. 160 is
        effective for fiscal years, and interim periods within those fiscal years,
        beginning on or after December 15, 2008. This standard does not currently
        affect
        the Company.
 
 In
        March
        2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
        and Hedging Activities - An Amendment of FASB Statement No. 133” (“SFAS No.
        161”), which changes the disclosure requirements for derivative instruments and
        hedging activities. Entities are required to provide enhanced disclosures
        about
        (a) how and why an entity uses derivative instruments, (b) how derivative
        instruments and related hedged items are accounted for under Statement 133
        and
        its related interpretations, and (c) how derivative instruments and related
        hedged items affect an entity’s financial position, financial performance, and
        cash flows. This statement will be effective for financial statements issued
        for
        fiscal years and interim periods beginning after November 15, 2008.
 
 
 **CONCENTRATION
        OF CUSTOMERS AND SUPPLIERS**
 
 During
        the year 2007 Wulatehouqi Zijin was the major supplier of Qianzhen Mining’s raw
        minerals and it provided 42,000 metric tons of zinc-lead ore for Qianzhen’s
        processing operations. Bayannaoer Zijin Nonferrous Metal Co., Ltd. (“Bayannaoer
        Zijin”, a related company of Wulatehouqi Zijin) was one of the major customers
        of Qianzhen Mining which contributed approximately $3.5
        million or 24% of the Company’s consolidated net revenue. In addition to
        the aforementioned, our nonferrous metal product business had another
        significant customer, Baiyin Nonferrous Metals Co. Ltd, which accounted for
        approximately $3.2 million or 22% of our consolidated net revenue in 2007.
        Ningxia Jinhe Co. Ltd was one of the major customers for our fluorite business
        which contributed $2.6 million, accounting for 18% of consolidated net revenue
        for 2007.




**ITEM
                7.**
              **FINANCIAL
                  STATEMENTS****.******




Please
      see the “Consolidated Financial Statements of the Company”.





-48-





**ITEM
                  8.**
                **CHANGES
                    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON****ACCOUNTING
                    AND FINANCIAL****DISCLOSURE****.**





On
      February 27, 2007, the services of Chisholm, Bierwolf & Nilson,
      LLC (“Chisholm”), the firm that audited the financial statements of Earth
      Products & Technologies, Inc. (as the Company’s name before it was changed
      to China Shen Zhou Mining & Resources, Inc). for the year ended December 31,
      2005, and e-Fang Accountancy Corp. (“e-Fang”), which had previously been engaged
      as the independent accounting firm for the Company’s subsidiary, American
      Federal Mining Group, Inc. (“AFMG”), an Illinois corporation, and its
      subsidiaries (which were acquired in a reverse acquisition in 2006), were
      dismissed by the Company, due to the engagement of the new auditors, as
      described below.





Effective
      February 27, 2007, the Company engaged Grobstein, Horwath & Company,
      LLP (“Horwath”), as its independent registered accounting firm to audit the
      financial statements of the Company and its subsidiaries for the fiscal year
      ended December 31, 2006.





Chisholm
      performed audits of the Company’s financial statements for each of the years
      ended December 31, 2005 and 2004.  Their audit reports did not contain
      an adverse opinion or disclaimer of opinion, nor were they qualified or modified
      as to uncertainty, audit scope, or accounting principles.   e-Fang has
      performed audit work for the Company’s subsidiary, AFMG and its subsidiaries.
 e-Fang also provided review service in connection with the Company’s
      quarterly report on Form 10-QSB for the quarter ended September 30,
      2006.





During
      the two-year period ended December 31, 2005, and from that date through the
      date of this Report, there have been no disagreements between the Company and
      Chisholm on any matter of accounting principles or practices, financial
      statement disclosure, or auditing scope or procedure, which would have caused
      Chisholm to make reference to the subject matter of such disagreements in
      connection with their reports for each of the years ended December 31, 2005
      and
      2004.  Similarly, during the two-year period ended December 31, 2005, and
      from that date through the date of this Report, there have been no disagreements
      between the Company or its subsidiaries, as applicable, and e-Fang on any matter
      of accounting principles or practices, financial statement disclosure, or
      auditing scope or procedure, which would have caused e-Fang to make reference
      to
      the subject matter of such disagreements in connection with their reports for
      each of the years ended December 31, 2005 and 2004.  In connection with its
      audits for each of the fiscal years ended December 31, 2005 and 2004, and
      through the date of this Report, there were no reportable events (as defined
      in
      Regulation S-B Item 304(a)(1)(iv)(B)).





During
      the two most recent fiscal years and through the date hereof, neither the
      Company nor any one on behalf of the Company has consulted with Horwath
      regarding the application of accounting principles to a specified transaction,
      either completed or proposed, or the type of audit opinion that might be
      rendered on the Company’s financial statements, or any other matters required to
      be disclosed under Item 304(a) (1)(iv) of Regulation S-B.




**ITEM
      8A. CONTROLS AND PROCEDURES** .





Management
      of the Company is responsible for establishing and maintaining adequate internal
      control over financial reporting and for the assessment of the effectiveness
      of
      internal controls over financial reporting. The Company's internal control
      system over financial reporting is a process designed under the supervision
      of
      the Company's chief executive officer and chief financial officer to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of the consolidated financial statements in accordance with United
      States generally accepted accounting principles (“U.S. GAAP”).





All
      internal control systems, no matter how well designed, have inherent
      limitations. Therefore, even those systems determined to be effective can only
      provide reasonable assurances with respect to financial statement
      preparation and presentation. In addition, any evaluation of effectiveness
      for
      future periods are subject to the risk that controls may become inadequate
      because of changes in conditions in the future.





-49-





As
      of the
      end of the period covered by this report, we carried out an evaluation of the
      effectiveness of the design and operation of our disclosure controls and
      procedures pursuant to Rule 13a-15(e) of the Exchange Act. This evaluation
      was
      done under the supervision and with the participation of our principal executive
      officer and principal financial officer. To make this assessment, we used the
      criteria for effective internal control over financial reporting described
      in
      Internal Control - Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treasury Commission. Based on their evaluation of our
      disclosure controls and procedures, our principal executive officer and
      principal financial officer have concluded that during the period covered by
      this report, such disclosure controls and procedures were not effective to
      detect the inappropriate application of U.S. GAAP as more fully described below.
      This was due to deficiencies that existed in the design or operation of our
      internal control over financial reporting that adversely affected our disclosure
      controls and that may be considered “material weaknesses”. The Public Company
      Accounting Oversight Board has defined a material
      weakness as a “deficiency,
      or combination of deficiencies, in internal control over financial reporting
      (ICFR) such that there is a reasonable possibility that a material misstatement
      of the company’s annual or interim financial statements will not be prevented or
      detected on a timely basis by the company’s ICFR.”





The
      significant deficiencies we identified in the prior year in our internal
      controls and disclosure controls related to the application of U.S. GAAP were
      in adopting
      an inappropriate period to depreciate and amortize property, plant and
      equipment, including extraction and exploration rights; inappropriate
      capitalization of exploration expenses; and inappropriate classification of
      balance sheet and income statement balances. These
      deficiencies, when taken together, resulted in a conclusion that the Company’s
      controls suffered from a material weakness as of December 31, 2006. In 2007,
      we
      have remedied all these significant deficiencies except the failure
      to provide for an allowance for doubtful accounts in accordance with the
      Company’s policy by means of implementation of the remediation program we planed
      in the prior year. This deficiency still resulted in a conclusion that the
      company’s controls suffered from a material weakness as of December 31,
      2007.





Because
      of the identification of the misapplication of U.S. GAAP, our management has
      concluded that, as of December 31, 2007, our internal controls over financial
      reporting were not effective.





*Remediation
      of Material Weaknesses*





In
      light
      of the conclusion that our Company’s internal control over financial reporting
      was not effective, our management has developed a plan intended to remediate
      such ineffectiveness and to strengthen our internal controls over financial
      reporting through the implementation of certain remedial measures, which
      include:





1)
      Continue enhancing our U.S. GAAP training program for our existing personnel
      and
      recruiting additional professional personnel ;





2) Improving
      the collection from our head office and our subsidiaries of financial data
      required to produce U.S. GAAP statements, standardizing the data collection
      procedures and assigning data collection responsibilities to designated
      personnel;





3)
      Implementing the appropriate procedures to provide for an allowance for doubtful
      accounts in accordance with the Company’s policy.





We
      will
      continue these efforts until we are satisfied that all “material weaknesses”
have been eliminated. We expect that resolution of all of these issues will
      take
      place before the end of 2008.





*Changes
      in Internal Control over Financial Reporting*





Except
      as
      set forth above, there have been no changes in our internal control over
      financial reporting that occurred during the  three
      months ended December 31, 2007 that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial
      reporting.





-50-





**ITEM
              8B.**
            **OTHER
                INFORMATION****.******


O n
      November 26, 2007, China Shen Zhou Mining & Resources, Inc. completed the
      acquisition of 100% ownership interests in Tun-Lin for a cash consideration
      of
      $10 million. Tun-Lin was incorporated on June 1, 2005 under the laws of the
      Kyrgyz Republic. Mr. Li and Mr. Huang jointly owned Tun-Lin Limited Liability
      Company (“Tun-Lin”), a Kyrgyz Republic registered company. On November 6, 2006,
      Inner Mongolia Xiangzhen Mining Group, Ltd. (“Xingzhen”) entered into a Stock
      Purchase Agreement with Mr. Li Jiaxing and Mr. Huang Guan.  Pursuant to the
      Stock Purchase Agreement, Xiangzhen appointed Mr. Li and Mr. Huang to acquire
      the entire ownership of Kichi-Chaarat Closed Joint Stock Company, a Kyrgyz
      Republic registered company (“Kichi-Chaarat”) at a cash consideration of
      $10,000,000 in aggregate.   Pursuant to the arrangements, Tun-Lin will
      acquire the entire ownership in Kichi-Chaarat from Altyn Minerals (BVI)
      Ltd.  Subsequently, Xiangzhen Mining will acquire the entire ownership in
      Tun-Lin.  The purchase consideration for the acquisitions was fully settled
      in 2006.





Tun-Lin’s
      principal asset consists of a 100% ownership interest in Kichi Chaarat, which
      was incorporated in Bishkek, Kyrgyzstan. Kichi Chaarat’s major asset is the
      subsoil use right for (i) mining for gold, copper and other metals within the
      Kuru-Tegerek licensed area; and (ii) exploration for gold, copper and other
      metals within the Kuru-Tegerek licensed area. The purpose of the acquisition
      was
      to enable the Company to explore, develop and mine the potential reserves of
      the
      Kuru-Tegerek licensed area.




On December
      10, 2007, the Company completed the sale of all its ownership interests in
      Xinjiang Wuqia Tianzhen Mining Co., Ltd. (“Tianzhen Mining”), a subsidiary of
      the Company within the nonferrous metals segment. The Company received cash
      proceeds of HK$22 million (equivalent to approximately $2,759,000) and assumed
      all debts incurred by Tianzhen Mining before the date of sale which amounted
      to
      $168,556. The terms of the transaction also provide for additional compensation
      of HK$10 million (equivalent to approximately $1,253,690) payable by the buyer
      to the Company if a qualified geological exploration and exploitation authority
      issues an official report to certify a reserve of over 200,000 tons copper,
      lead
      or zinc minerals in the Jiangejier Lead-Zinc Deposit covered by Tianzhen’s
      exploration right.




**PART
      III** ****




**ITEM
                  9.**
                **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 20, 2008. None of our directors or executive
      officers holds directorships in other public companies as of March 20, 2008
      except Gene
      Michael Bennett who is
      also an independent director for China
      Fire & Security Group, Inc (NasdaqCM:CFSG ) and  Kunming
      Shenghuo Pharmaceutical (AMEX: KUN) and
      Feng
      Bai who is also an independent director for Fushi Copperweld Inc. (NasdaqGM:
      FSIN) and Harbin Electric Inc. (NasdaqGM: HRBN). The
      directors listed below will serve until the Company’s next annual meeting of the
      stockholders:


**Name**
              
              **Age**
              
              **Position**Xiao-Jing
                  Yu
              
              51
              
              Director,
                  CEO and Chairman of the BoardXueming
                  Xu
              
              47
              
              Director,
                  President and Chief Operating OfficerHelin
                  Cui
              
              52
              
              DirectorSteven
                  Jiao
              
              46
              
              Chief
                  Financial OfficerYouming
                  Yang
              
              53
              
              DirectorJian
                  Zhang
              
              66
              
              Director,
                  Chairman of Corporate Governance and Nominating
                  CommitteeFeng
                  Bai
              
              37
              
              Director,
                  Chairman of Compensation CommitteeQijiu
                  Song
              
              45
              
              Vice
                  President and Chief Technology OfficerLigang
                  Wang
              
              47
              
              Vice
                  President and President of Qianzhen MiningGene
                  Michael Bennett
              
              60
              
              Director
                  and Chairman of Audit
                  Committee





-51-





**Ms.
      Xiaojing Yu** has
      served as Director, Chief Executive Officer and Chairman of the Board of
      Directors of the Company since September 15, 2006. She has over 20 years’
experience in the mining industry. She currently also serves as director and
      chairwoman of Inner Mongolia Gulatehou 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, she was the general manager of Dalian
      Zhikun Metal Materials Co. Ltd and finance manager of Gansu Baiyin Nonferrous
      Industrial Corporation. Ms. Yu also serves as the Executive Vice President
      of
      China Fluorite Industry Association. She attended an advanced Management Program
      run by Tsing Hua University.





**Mr. Xueming
      Xu** has
      serves as **** Director,
      President and Chief Operating Officer. He has more than 20 years’ experience in
      the mining industry.  He is currently director and President of Inner
      Mongolia Gulatehou 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, Mr. Xu served as technician, vice-superintendent and
      superintendent at Inner Mongolia’s Huiyaokou Iron Ore Plant and deputy general
      manager of Inner Mongolia Dongshengmiao Mining Co., Ltd. Mr. Xu graduated
      from Lianyungang College of Chemical Mining and attended an advanced Management
      Programme run by Tsing Hua University.





**Mr. Helin
      Cui serves as** Director.
      He has more than 20 years’ experience in the mining industry. He is currently a
      director and deputy chairman of Inner Mongolia Gulatehou Banner Qianzhen Mining
      and Processing Co., Ltd and of Inner Mongolia Xiangzhen Mining Co., Ltd. He
      has
      serves in that capacity since May 2002. Prior to that, Mr. Cui worked at Gansu
      Province’s No. 3 Geological Team as a technician, engineer and team leader and
      deputy general manager at Baiyin Trading Company in Gansu Province. He graduated
      from the Xi'an Geology College.





**Mr. Youming
      Yang serves as** Director.
      He has 25 years’ experience in nonferrous geological prospecting field and was
      responsible for the prospecting of a number of large sized nonferrous mining
      projects in China. He has served as Chief of the Nonferrous Geological
      Prospecting Bureau of Xinjiang Uygur Autonomous Region since May 2000. Prior
      to
      that, Mr. Yang worked as a Chief Engineer at the Nonferrous Geological
      Prospecting Bureau of Xinjiang Uygur Autonomous Region from October 19 to April
      2000. Mr. Yang studied geology and graduated from Central South China
      Mining and Metallurgy College.





**Mr. Jian
      Zhang** serves
      as Director. He has over 30 years’ experience in nonferrous mining, project
      construction and management and is currently 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 April
      2002
      to September 2003. Mr. Zhang graduated from the environmental engineering
      department of Xi’an Mining
      Architecture College in 1968.





**Mr. Feng
      Bai** serves
      as Director. He has served as managing director of Lighthouse Consulting Ltd.
      in
      Hong Kong since February 2003.  Mr. Bai has been active in advising
      foreign corporations to invest and set up joint ventures in China.  
Since 1999, Mr. Bai has been doing business in China mainly in consulting,
      investment and brand name agency services.  Prior to that, Mr. Bai
      worked at the investment banking division of Banco Santander assisting clients
      and completing deals in Asia from 1997 to 1999.  Mr. Bai received his
      MBA degree from Harvard Business School in 1997 and graduated from Babson
      College in 1993 with a BS in Financial Investment and International Business
      Administration.  Mr. Bai sits on the board of Harbin Electric Inc., a
      U.S.-listed company that designs, develops and manufactures lineal motors and
      special electric motors.





**Mr. Steven
      Ying Jiao** serves
      as Chief Financial Officer. He has over 15 years’ experiences in corporate
      finance and accounting, operations and domestic and international capital
      markets. From 1992 to 2002, He served as corporate planning director and
      financial controller at China World Trade Center Company Ltd. From January
      2002
      to June 2005, Mr. Jiao Ying served as CFO and later as COO at Zoom
      Technologies Inc., a venture capital investment by Newbridge Capital Ltd.
      Mr. Jiao served as Assistant President at Tianjin Tiens Group before he
      joined this Company. He graduated from Shanghai foreign Studies University
      with
      bachelor’s degrees in English and International Journalism and from Beijing
      University of International Economics and Trade with an MBA degree in corporate
      finance.





-52-





**Mr.
      Gene Michael Bennett** is
      Director and Chairman of the Audit Committee. He has over 25 years’ experience
      as CFO,   Professor and Consultant. His abundant working
      experience in China has assisted Chinese firms to develop "Good Corporate
      Governance" and transparent infrastructures.   He is a CPA
      (inactive), and has experience working for one of the top auditors in the world,
      Grant Thornton. He  graduated from Michigan State University. Currently,
      he also holds positions for other two US-listed Chinese
      companies: China Fire & Security Group, Inc (NasdaqCM:CFSG ) (Independent 
      Director & Chairman of Audit Committee)  and Kunming Shenghuo
      Pharmaceutical (AMEX: KUN) (Independent
      Director)





**Mr. Qijiu
      Song** serves
      as Vice President. He has more than 15 years’ experience in mine exploration.
      Since October 2005, he has been vice general manager of Xiangzhen Mining,
      responsible for production. From June 2004 to September 2005, he was general
      manager of Xinjiang Silver Mine Development Co. Ltd.
      From
      September 1987 to May 2004, Mr. Song worked at Xiao Tie Shan Pb-Zn Mine of
      Gansu Silver Company, as technician, team leader, production and technology
      engineer, vice superintendent and chief engineer. Mr. Song received his BA
      degree from Kunming Science and Technology University in 1987.





**Mr. Ligang
      Wang** serves
      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 participate 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 the officers or directors is acting
      on
      behalf of, or will act at the direction of, any other person.





**Involvement
      in Certain Legal Proceedings**





During
      the past five 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





-53-





(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.





During
      the fiscal year ended December 31, 200 7,
      our
      executive officers, directors or beneficial owners of more than ten percent
      (10%) of our capital shares were required to file reports on Form 3 or Form
      4.
      During 2007, the following directors and executive officers failed to timely
      report stock grants on Form 3 or Form 4:











Reporting
                Person
            
            Number
                of Late
              Reports
            
            Number
                of Unreported
              Transactions
            
            Known
                Failures to
              Supply
                reports.Steven
                Jiao
              Feng
                Bai
              Youming
                Yang
              Qijiu
                Song
              Ligang
                Wang
              Jian
                Zhang
            
            -1
              -1
              -1
              -1
              -1
              -1





-54-




**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., No.
      166
      Fushi Road, Zeyang Tower, Suite 305, 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 seven (7) members, of which four (4) are independent directors. The
      independent directors are Gene Michael Bennett, Jian Zhang, Feng Bai and Youming
      Yang. 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, Feng Bai 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.





*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 Feng Bai, Jian Zhang and Youming
      Yang,
      with Feng Bai as the chairman, all of whom are “independent” directors.





*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, Feng Bai, and Youming Yang with Jian Zhang as the chairman.




**ITEM
                10.**
              **EXECUTIVE
                  COMPENSATION****.**




The
      Company had no officers or directors whose total annual salary and bonus during
      2006 exceeded $100,000.





-55-





**Summary
      Compensation Table**




Name
                and Principal Underlying Positions (a)
            
            Year
              (b)
            
            Salary
              (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
            
            
            2007
            
            $
            83,528
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            83,5282006
            
            $
            51,667
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            51,667Xueming
                Xu, President and COO
            
            
            2007
            
            $
            25,941
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            25,9412006
            
            $
            15,769
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            15,769Steven
                Jiao, CFO*
            
            
            2007
            
            $
            49,569
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            49,569Ligang
                Wang, Vice President, Prsident of Qianzhen Mining*
            
            
            2007
            
            $
            10,017
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            10,017Qijiu
                Song, Vice President and CTO*
            
            
            2007
            
            $
            9,621
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            9,621John
                W. Petes **
            
            
            2006
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0





*
      Steven
      Jiao, Ligang Wang and Qijiu Song were appointed on April 11, 2007.


**
      John
      W. Peters was president from January 1 2006 to September 15, 2006.




**Outstanding
      Equity Awards at Fiscal Year-End**




As
      of
      December 31, 2007, the Company currently does not have any equity compensation
      plans in place.


-56-
  **Director
        Compensation** ****





We
      paid
      all directors in 2007 as follows:





Name
                (a)
            
            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)Helin
                Cui
            
            $
            25,959
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            234,009
            
            $
            259,968Yonming
                Yang*
            
            $
            15,800
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            15,800Jian
                Zhang*
            
            $
            15,800
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            15,800Feng
                Bai*
            
            $
            11,897
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            11,897Gene
                MichaelBennett*
            
            $
            3,667
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            3,667




*Independent
      director


We
      currently pay an independent director the compensation of $15,800 per year
      from
      the date of their appointment, excluding the Chairman of Audit Committee who
      is
      paid annual compensation of $22,000 per year.





**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
                  11.**
                **SECURITY
                    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT****AND****RELATED
                    STOCKHOLDER MATTERS.**




The
      following table sets forth certain information as of March 20, 2008 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 20, 2008, and (iv) all of our executive
      officers and directors as a group.





-57-




**Amount and Nature of Beneficial Ownership****(1)****Name
                and Address**
            
            **Number of Shares** **(2)**
            
            **Percentage Owned (3)**Xiaojing
                Yu
            
            
            14,917.000
            
            
            65.43
            %Xueming
                Xu
            
            
            1,870,000
            
            
            8.20
            %Helin
                Cui
            
            
            200,000
            
            
            *Qijiu
                Song
            
            
            100,000
            
            
            *Ligang
                Wang
            
            
            100,000
            
            
            *American
                Eastern Securities, Inc. (4)
            
            
            2,060,000
            
            
            9.04
            %Directors
                and executive officers as a group (5 persons)
            
            
            17,187,000
            
            
            75.39
            %





*
      Less
      than 1%




(1)
            As
                of March 20, 2008, there were 22,214,514 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****December
                31, 2007, 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.





(4)
            Held
                by American Eastern Group, Inc., American Eastern Securities, Inc.,
                EIC
                Investments, LLC, and Trang Chong Hung individually. The shares so
                held
                are directly or indirectly owned by Trang Chong Hung and his family
                members.




**ITEM
              12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS**.





On
      June
      25, 2007, the Company entered into a share transfer agreement with Xinjiang
      Tianxiang New Technology Development Co. Ltd, the minority shareholder of
      Xiangzhen Mining to acquire an additional 10% ownership interest in Xingzhen
      Mining for a cash consideration of $479,150. On August 10, 2007, the share
      transfer agreement was approved by the China local government authorities.
      As a
      result, the Company’s shareholding in Xingzhen Mining has increased from 80% to
      90%.





Xinjiang
      Tianxiang New Technology Development Co., Ltd, the minority shareholder of
      Xingzhen Mining, provided exploration services to Xingzhen Mining for a related
      service fee paid by the Company of $974,621.





-58-





**ITEM
              13.**
            **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 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)




-59-





**Exhibit**
              **Number**
            
            **Description
                of Exhibit**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)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 tothe
                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 8-k filed with SEC on December
                12, 2007.*10.20
            
            Stock
                Purchase Agreement by and betweenInner-Mongolian
                Xiangzhen Mining Group Ltd. Co and Xinjiang Tianxiang Development
                Co. of
                New Technology, dated June 25, 2007.14.1
            
            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
            
            Subsidiaries
                of the Company.*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.*32.1
            
            Statement
                of Chief Executive Officer Furnished Pursuant To Section 906 Of The
                Sarbanes-Oxley Act Of 2002, 18 U.S.C. Section 1350.*32.2
            
            Statement
                of Chief Financial Officer Furnished Pursuant To Section 906 Of The
                Sarbanes-Oxley Act Of 2002, 18 U.S.C. Section
                1350.




*
      Filed
      here with..





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





Grobstein,
      Horwath & Company, LLP (“Horwath”), has audited our financial statements
      annually since the 2006 fiscal year. In addition e-Fang
      Accountancy Corp. (“e-Fang”), which audited
      the financial statements of American
      Fed eral
      Mining Group, Inc. before our reverse takeover, also performed audited services
      for us in 2005 and reviewed our quarterly
      report on Form 10-QSB for the quarter ended September 30, 2006. All of
      the services described below were approved by our Board of Directors prior
      to
      rendering of services by our independent accountant. The Board of Directors
      has
      determined that the payments made to our independent accountant for these
      services are compatible with maintaining such auditor's
      independence.





**Audit
      Fees** .
      The
      aggregate fees billed by Horwath for professional services rendered for the
      audit and review services of the Company’s financial statements for the fiscal
      year ended December 31, 2007 were $389,800.





**Audit-Related
      Fees** .
      The
      fees for related services by Horwath for the fiscal years ended December 31,
      2007 were $60,500, including $ 50,000 for the 2006 8-K/A filings and $ 10,500
      for the SEC comment letter response in October 2007.





**Tax
      Fees** .
      There
      were no fees for tax compliance, tax advice or tax planning services by Horwath
      for the fiscal years ended December 31, 2006 and December 31, 2007.





**All
      Other Fees** .
      There
      were no other fees for either audit-related or non-audit services billed by
      Horwath for the fiscal years ended December 31, 2006 and December 31,
      2007.





-60-





**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.**By:
            */s/
                Xiaojing Yu*Xiaojing
                YuDirector,
                Chief Executive Officer, and Chairman of the
                Board





Date:April
      11, 2008




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*
            
            Chief
                Executive Officer
            
            April
                11 2008Xiaojing
                Yu
            
            (Principal
                Executive Officer)*/s/
                Steven Jiao*
            
            Chief
                Financial Officer
            
            April
                1, 2008Steven
                Jiao
            
            (Principal
                Financial and Accounting Officer)*/s/
                Helin Cui*
            
            Director,
            
            April
                11, 2008Helin
                Cui*/s/
                Feng Bai*
            
            Director
            
            April
                11, 2008Feng
                Bai*/s/
                Xueming Xu*
            
            Director
            
            April
                11, 2008Xueming
                Xu*/s/
                Gene Michael Bennett*
            
            Director
            
            April
                11, 2008Gene
                Michael Bennett*/s/
                Jian Zhang*
            
            Director
            
            April
                11, 2008Jian
                Zhang*/s/
                Yang Youming*
            
            Director
            
            April
                11, 2008Yang
                Youming




-61-











**China
      Shen Zhou Mining & Resources, Inc. and Subsidiaries**







**Index
      to Consolidated Financial Statements**





PageReport
                of Independent Registered Public Accounting Firm
            
            63Consolidated
                Balance Sheets
            
            64Consolidated
                Statements of Operations
            
            66Consolidated
                Statements of Cash Flows
            
            67Consolidated
                Statements of Changes in Stockholders’ Equity
            
            69Notes
                to Consolidated Financial Statements
            
            70-92





-62-





**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Stockholders and Board of Directors of 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, 2007
      and 2006 and the related consolidated statements of operations, stockholders’
equity and comprehensive income and cash flows for each of the two years in
      the
      period ended December 31, 2007. These consolidated financial statements are
      the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these consolidated 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 audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. The
      Company is not required to have, nor were we engaged to perform, an audit of
      its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s 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 consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall consolidated 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 consolidated financial position of China Shen
      Zhou
      Mining & Resources, Inc. and Subsidiaries as of December 31, 2007 and 2006,
      the consolidated results of their operations and their cash flows for each
      of
      the two years in the period ended December 31, 2007 in conformity with
      accounting principles generally accepted in the United States of
      America.








**/s/
      GROBSTEIN, HORWATH & COMPANY LLP**





Sherman
      Oaks, California


April
      9,
      2008





-63-





**CHINA
                SHEN ZHOU MINING & RESOURCES, INC AND
                SUBSIDIARIES****CONSOLIDATED
                BALANCE SHEETS**(Amounts
                in thousands, except share data)




**December
                  31,**
              
              **December
                  31,****2007**
              
              **2006****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              2,949
              
              $
              18,900Available
                  for sale securities - margin deposit
              
              
              -
              
              
              412Accounts
                  receivable, net
              
              
              2,481
              
              
              945Refundable
                  investment deposit
              
              
              -
              
              
              1,025Other
                  deposits and prepayments, net
              
              
              1,254
              
              
              4,029Inventories
              
              
              1,639
              
              
              1,285Due
                  from related parties
              
              
              -
              
              
              71Current
                  assets of discontinued operations
              
              
              -
              
              
              206Total
                  current assets
              
              
              8,323
              
              
              26,873Investment
                  deposit
              
              
              -
              
              
              10,000Available
                  for sale investment
              
              
              137
              
              
              -Property,
                  machinery and mining assets, net
              
              
              47,094
              
              
              15,498Deferred
                  debt issuance costs
              
              
              2,170
              
              
              2,518Deferred
                  income tax assets
              
              
              507
              
              
              431Goodwill
              
              
              1,070
              
              
              1,001Plant,
                  equipment and mining assets of discontinued operations
              
              
              -
              
              
              861Total
                  assets
              
              $
              59,301
              
              $
              57,182**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**Current
                  liabilities:Accounts
                  payable
              
              $
              718
              
              $
              623Fair
                  value of detachable warrants liability
              
              
              1,100
              
              
              1,030Short
                  term bank loans
              
              
              1,314
              
              
              2,668Other
                  payables and accruals
              
              
              3,469
              
              
              7,226Taxes
                  payable
              
              
              257
              
              
              567Due
                  to related parties
              
              
              2,062
              
              
              212Current
                  liabilities of discontinued operations
              
              
              -
              
              
              147Total
                  current liabilities
              
              
              8,920
              
              
              12,473Convertible
                  notes payable
              
              
              21,186
              
              
              26,989Deferred
                  tax liabilities
              
              
              1,201
              
              
              -Total
                  liabilities
              
              
              31,307
              
              
              39,462Minority
                  interests
              
              
              144
              
              
              258




-64-






**CHINA
                  SHEN ZHOU MINING & RESOURCES, INC AND
                  SUBSIDIARIES****CONSOLIDATED
                  BALANCE SHEETS (Continued)**(Amounts
                  in thousands, except share data)
  **December
                    31,**
                
                **December
                    31,****2007**
                
                **2006**Commitment
                    and contingencies (Note 24)**STOCKHOLDERS’
                    EQUITY:**Common
                    Stock, $0.001 par value:Authorized
                    - 50,000,000 shares (2006: 50,000,000 shares)Issued
                    and outstanding 22,214,514shares
                  (2006:
                    21,297,700 shares)
                
                $
                22
                
                $
                21Additional
                    paid-in capital
                
                
                25,251
                
                
                13,865PRC
                    statutory reserves
                
                
                1,672
                
                
                1,111Accumulated
                    other comprehensive income
                
                
                2,112
                
                
                600Retained
                    earnings (deficit)
                
                
                (1,207
                )
                
                1,865Total
                    stockholders’ equity
                
                
                27,850
                
                
                17,462Total
                    liabilities and stockholders’ equity
                
                $
                59,301
                
                $
                57,182


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





-65-







**CHINA
                SHEN ZHOU MINING & RESOURCES, INC AND
                SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF OPERATIONS AND COMPREHENSIVE
                INCOME**(Amounts
                in thousands, except per share
                data)




**For
                the Years Ended****December
                31,****2007**
            
            **2006**Net
                revenue
            
            $
            14,351
            
            $
            22,205Cost
                of sales
            
            
            (7,844
            )
            
            (8,794
            )Gross
                profit
            
            
            6,507
            
            
            13,411Operating
                expenses:Selling
                and distribution expenses
            
            
            (223
            )
            
            (185
            )General
                and administrative expenses
            
            
            (6,741
            )
            
            (5,707
            )Income
                (loss) from operations
            
            
            (457
            )
            
            7,519Other
                income (expense):Reverse
                takeover costs
            
            
            -
            
            
            (4,777
            )Interest
                expense
            
            
            (3,962
            )
            
            (318
            )Other,
                net
            
            
            397
            
            
            63Income
                (loss) from continuing operations before income taxes and minority
                interests
            
            
            (4,022
            )
            
            2,487Income
                tax (expenses) benefits
            
            
            (45
            )
            
            185Income
                (loss) from continuing operations before minority
                interests
            
            
            (4,067
            )
            
            2,672Minority
                interests
            
            
            114
            
            
            32Income
                (loss) from continuing operations
            
            
            (3,953
            )
            
            2,704Discontinued
                operation (Note 4)Loss
                from operations of discontinued component, net of taxes
            
            
            (197
            )
            
            (1,324
            )Gain
                on disposal of discontinued subsidiary, net of taxes
            
            
            1,504
            
            
            -Income(loss)
                from discontinued operations
            
            
            1,307
            
            
            (1,324
            )Net
                income (loss)
            
            
            (2,646
            )
            
            1,380Other
                comprehensive income (loss):Foreign
                currency translation adjustments
            
            
            1,512
            
            
            557Comprehensive
                income (loss)
            
            $
            (1,134
            )
            $
            1,937Income
                (loss) per common share - basicFrom
                continuing operations
            
            
            (0.18
            )
            
            0.14From
                discontinued operations
            
            
            0.06
            
            
            (0.07
            )Net
                income (loss)
            
            $
            (0.12
            )
            $
            0.07Income
                (loss) per common share - dilutedFrom
                continuing operations
            
            
            (0.18
            )
            
            0.10From
                discontinued operations
            
            
            0.06
            
            
            (0.05
            )Net
                income (loss)
            
            $
            (0.12
            )
            $
            0.05Weighted
                average common shares outstandingBasic
            
            
            21,959
            
            
            18,735Diluted
            
            
            21,959
            
            
            27,485




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





-66-








**CHINA
                SHEN ZHOU MINING & RESOURCES, INC AND
                SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS**(Amounts
                in thousands)




**For
                the Years Ended****December
                31,****2007**
            
            **2006****Cash
                flows from operating activities:**Net
                income (loss)
            
            $
            (2,646
            )
            $
            1,380Adjustments
                to reconcile net income (loss) to net cash provided by operating
                activities:Loss
                from operations of discontinued component, net of income tax
                benefits
            
            
            197
            
            
            1,324Gain
                on sale of discontinued operations, net of income taxes
            
            
            (1,504
            )
            
            -Provision
                for doubtful accounts
            
            
            39
            
            
            2Impairment
                provision for fixed assets
            
            
            60
            
            
            -Depreciation
                and amortization
            
            
            2,415
            
            
            1,379Fair
                value of shares issued to management as management bonus
            
            
            -
            
            
            2,972Fair
                value of shares and option issued to financial advisors for advisory
                services
            
            
            -
            
            
            4,577Losses
                on write down of long-lived assets
            
            
            -
            
            
            455(Income)
                loss from investments
            
            
            86
            
            
            (90
            )Income
                tax (expenses) benefits
            
            
            (43
            )
            
            (216
            )Fair
                value adjustment of warrants
            
            
            70
            
            
            -(Gain)
                Loss on disposal of fixed assets
            
            
            109
            
            
            (50
            )Interest
                expenses
            
            
            1,417
            
            
            -Amortization
                of deferred financing costs
            
            
            496
            
            
            -Amortization
                of debt issuance costs
            
            
            348
            
            
            -Minority
                interests
            
            
            (100
            )
            
            (32
            )Changes
                in operating assets and liabilities:(Increase)
                decrease in -Accounts
                receivable
            
            
            (1,575
            )
            
            (308
            )Deposits
                and prepayments
            
            
            2,930
            
            
            (3,754
            )Inventories
            
            
            (354
            )
            
            1,199Due
                from related companies
            
            
            71
            
            
            (71
            )Increase
                (decrease) in -Accounts
                payable
            
            
            95
            
            
            (154
            )Other
                payables and accruals
            
            
            1,007
            
            
            357Taxes
                payable
            
            
            (328
            )
            
            146Due
                to related parties
            
            
            805
            
            
            228Net
                cash provided by operating activities from continuing
                operations
            
            
            3,595
            
            
            9,344Net
                cash used in operating activities from discontinued
                operations
            
            
            (45
            )
            
            (249
            )Net
                cash provided by operating activities
            
            
            3,550
            
            
            9,095**Cash
                flows from investing activities:**Proceeds
                from sale of property, machinery and mining assets
            
            
            -
            
            
            1,342Purchases
                of property, machinery and mining assets
            
            
            (19,632
            )
            
            (5,393
            )(Increase)
                decrease in investment deposits
            
            
            888
            
            
            (11,025
            )Acquisition
                of subsidiaries, net of cash and cash equivalents acquired
            
            
            (403
            )
            
            (2,312
            )Decrease
                (increase) in available-for-sale securities - margin
                deposit
            
            
            326
            
            
            (322
            )Net
                cash used in investing activities of continuing operations
            
            
            (18,821
            )
            
            (17,710
            )Net
                cash provided by disposal of discontinued operations
            
            
            2,759
            
            
            -Purchases
                of property, machinery and mining assets of discontinued
                operations
            
            
            (544
            )
            
            (180
            )Net
                cash used in investing activities
            
            
            (16,606
            )
            
            (17,890
            )







-67-







**CHINA
                SHEN ZHOU MINING & RESOURCES, INC AND
                SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS (Continued)**(Amounts
                in thousands)




**For
                the years ended****December
                31,****2007**
            
            **2006****Cash
                flows from financing activities:**Proceeds
                from issuance of convertible bond
            
            $
            -
            
            $
            27,772Issuance
                costs of convertible note
            
            
            (2,156
            )
            
            -Repayments
                of short-term borrowings
            
            
            (1,354
            )
            
            (680
            )Net
                cash (used in) provided by financing activities
            
            
            (3,510
            )
            
            27,092Foreign
                currency translation adjustment
            
            
            615
            
            
            330Net
                (decrease) increase in cash and cash equivalents
            
            
            (15,951
            )
            
            18,627Cash
                and cash equivalents at the beginning of the period
            
            
            18,900
            
            
            273Cash
                and cash equivalents at the end of the period
            
            $
            2,949
            
            $
            18,900**Non-cash
                investing and financing activities**Shares
                issued to management bonus
            
            $
            -
            
            $
            2,972Shares
                issued to financial advisors for advisory services
            
            $
            -
            
            $
            3,813Stock
                options granted to financial advisors
            
            $
            -
            
            $
            764Issuance
                of shares for acquisition
            
            $
            3,670
            
            $
            -Additional
                capital caused by the reduction of conversion price from $3.2 to
                $2.25
            
            $
            7,716
            
            $
            -**Supplemental
                disclosures of cash flow information**Cash
                paid for interest expenses
            
            $
            1,631
            
            $
            318Cash
                paid for income tax
            
            $
            45
            
            $
            32




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






-68-







**CHINA
                SHEN ZHOU MINING & RESOURCES, INC AND
                SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE
                INCOME**(Amounts
                in thousands)




**Common
                  Stock**
              
              **Additional**
              
              **Retained**
              
              
              
              **Accumulated**
                  **other**
              
              **Total****Number
                  of**
              
              
              
              **paid-in**
              
              **PRC
                  Statutory**
              
              **Earnings**
              
              **comprehensive**
              
              **stockholders'****Shares**
              
              **Amount**
              
              **capital**
              
              **reserves**
              
              **(deficit)**
              
              **income**
              
              **equity****Balance
                  at January 1, 2006**
              
              
              17,687
              
              
              18
              
              $
              6319
              
              $
              498
              
              $
              1
                  ,098
              
              $
              43
              
              $
              7976Original
                  EPTI shareholders
              
              
              1,298
              
              
              1
              
              
              (1
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Shares
                  issued to financial advisors for
                advisory
                  services  at $2.9335 per share on
                September
                  15, 2006
              
              
              1,300
              
              
              1
              
              
              3,813
              
              
              -
              
              
              -
              
              
              -
              
              
              3,814Shares
                  issued to management at $2.9335
                per
                  share on September 15, 2006
              
              
              1,013
              
              
              1
              
              
              2,970
              
              
              -
              
              
              -
              
              
              -
              
              
              2,971Issue
                  of shares option to financial
                advisors
              
              
              -
              
              
              -
              
              
              764
              
              
              -
              
              
              -
              
              
              -
              
              
              764Net
                  income for the year ended December
                31,
                  2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,380
              
              
              -
              
              
              1,380Appropriation
                  of PRC statutory reserves
              
              
              -
              
              
              -
              
              
              -
              
              
              613
              
              
              (613
              )
              
              -
              
              
              -Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              557
              
              
              557**Balance
                  at December 31, 2006**
              
              
              21,298
              
              
              21
              
              
              13,865
              
              
              1,111
              
              
              1,865
              
              
              600
              
              
              17,462Issuance
                  of shares for acquisitions
              
              
              917
              
              
              1
              
              
              3,670
              
              
              -
              
              
              -
              
              
              -
              
              
              3,671Discount
                  of issuing the convertible notes
              
              
              -
              
              
              -
              
              
              7,716
              
              
              -
              
              
              -
              
              
              -
              
              
              7,716Net
                  loss for the year ended December 31,
                2007
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,646
              )
              
              -
              
              
              (2,646
              )Appropriation
                  of PRC statutory reserves
              
              
              -
              
              
              -
              
              
              -
              
              
              426
              
              
              (426
              )
              
              -
              
              
              -Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              135
              
              
              -
              
              
              1,512
              
              
              1,647**Balance
                  at December 31, 2007**
              
              
              22,215
              
              $
              22
              
              $
              25,251
              
              $
              1,672
              
              $
              (1,207
              )
              $
              2,112
              
              $
              27,850






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





-69-





**CHINA
      SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
      1**  **DESCRIPTION
      OF BUSINESSS 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, 2007, 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
            
            $10
            
            100%
            
            Investments
                holdingsInner
                Mongolia Xiangzhen Mining Industry Group Co. Ltd. (“Xiangzhen
                Mining”)
            
            The
                PRC
              July
                3, 2002
            
            RMB
                88,860,699
            
            100%
            
            Acquisition,
                exploration and extraction, and development of natural resource
                propertiesInner
                Mongolia Wulatehouqi Qianzhen Ore Processing Co.,  Ltd. (“Qianzhen
                Mining”)
            
            The
                PRC
              June
                22, 2002
            
            RMB
                37,221,250
            
            100%
            
            Sale
                and refinery of nonferrous metals, ore dressing, and sale of chemical
                productsWulatehouqi
                Qingshan Non-Ferrous Metal Developing Company Ltd. (“Qingshan
                Metal”)
            
            The
                PRC
              April
                23, 1995
              (Acquired
                on April 12, 2006)
            
            RMB
                4,100,000
            
            60%
            
            Nonferrous
                ore dressings, copper, zinc, lead etcXinjiang
                Buerjin County Xingzhen Mining Company (“Xingzhen Mining”)
            
            The
                PRC
              April
                10, 2006
              (Acquired
                on April 28, 2006)
            
            RMB
                1,000,000
            
            90%
            
            Exploration
                of solid metals, refinery and sale of mining products.Tun-Lin
                Limited Liability Company (“Tun-Lin”)
            
            Kyrgyz
                Republic
              June
                1, 2005
              (Acquired
                  on November 26, 2007)
            
            KGS
                5,000
            
            100%(a)
            
            Exploration,
                development, mining, and processing of gold-copper, petroleum, natural
                gas
                and other mineral products.Kichi-Chaarat
                Closed Joint Stock Company (“Kichi-Chaarat”)
            
            Kyrgyz
                Republic September 17,1998 (Acquired on November 26, 2007)
            
            KGS
                10,000
            
            100%(b)
            
            Engage
                in the mining, processing and distributing of mineral
                products.





(a) 100%
        ownership of Tun-Lin was acquired by Xiangzhen Mining on November 26, 2007
        (see
        Note 3).


(b) 100%
        ownership of Kichi Chaarat was acquired through the acquisition of Tun-Lin
        on
        November 26, 2007.





-70-








**NOTE
      2 RECAPITALIZATION AND REORGANIZATION**





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.





**NOTE
      3 ACQUISITIONS**





**Qingshan
      Metal**





On
      April
      27, 2006, we completed the acquisition of a 60% ownership interest in Qingshan
      Metal. Under the terms of the acquisition agreement, Qingshan Metal shareholders
      received an aggregate consideration of approximately $2.561 million. Qingshan
      Metal has been granted the mining right certificate for a copper-zinc-lead
      mine
      in Wulatehouqi by the Ministry of Land and Resources of the PRC with a current
      term from October 2005 to October 2008.





Management
      of the Company considered a stable and sufficient supply of raw zinc and copper
      minerals as one of the critical success factors of Qianzhen Mining’s
      ore-dressing operations. Qingshan Metal is located near Qianzhen Mining and
      is
      well established and owns considerable copper and zinc reserves. We believe
      that
      the acquisition of Qingshan Metal is to the benefit of the Company and the
      shareholders.





The
      total
      purchase consideration of the merger is as follows: (in thousands)





Cash
            
            $
            1,409Value
                of stock payable to the original shareholders of Qingshan
                Metal*
            
            
            1,152Total
                purchase consideration
            
            $
            2,561





*The
      amount of approximately $1.409 million was paid as a down payment in April
      2006.
      The remaining portion of $1.152 was subsequently settled on March 15, 2007
      by
      issuing 284,810 shares of China Shen Zhou’s common shares at a market price of
      $4 per share.





Allocation
      of initial purchase consideration (in thousands):





**Book
                value**
            
            **Fair
                value**Net
                assets of Qingshan Metal as of April 12,2006:Extraction
                rights(value beyond proven and probable)
            
            $
            -
            
            $
            1,149Inventories
            
            
            132
            
            
            132Property,
                plant and mining assets, net
            
            
            448
            
            
            457Other
                current assets
            
            
            90
            
            
            90Net
                assets
            
            $
            670
            
            $
            1,828Minority
                interest’s share of book value of net assets
            
            
            (268
            )
            
            (268
            )Net
                assets acquired
            
            $
            402
            
            $
            1,560Total
                purchase consideration
            
            
            
            
            
            2,561Goodwill
            
            
            
            
            $
            1,001




-71-





**Xingzhen
      Mining**


On
      April
      28, 2006, we completed the acquisition of an 80% ownership interest in Xingzhen
      Mining from Mr. Li Leyi. Under the terms of the acquisition agreement, Mr.
      Li
      received an aggregate consideration of approximately $3.587 million.





Xingzhen
      Mining holds the exploration right to the Xinjiang Buejin Kerbulaiker
      Copper-Zinc Mines, which expired on July 14, 2006. The Kerbulaiker Copper-Xinc
      Mines is considered to have very considerable quality copper and zinc reserves
      by experts.





Given
      the
      persistent increase in the trading price of nonferrous metals, we believe that
      the acquisition of Xingzhen Mining will enable the Company to capture golden
      business opportunities in the future.





At
      the
      time of the acquisition,Xingzhen Mining was in the final process of applying
      for
      the extraction right of the above-mentioned mine, which was granted in August
      2007.





The
      total
      purchase price and the allocation of the purchase price discussed below. The
      total purchase price of the merger is as follows: (in thousands)





Cash
            
            $
            1,025Value
                of stock payable to Mr. Li
            
            
            2,561Total
                purchase consideration
            
            $
            3,586





The
      amount of approximately $1.025 million was paid in cash as of September 30,
      2006.  The remaining portion of $2.561 million was subsequently settled on
      March 15, 2007 by issuing 632,910 shares of China Shen Zhou’s common shares at a
      market price of $4 per share.





Allocation
      of initial purchase consideration (in thousands):





**Book
                value**
            
            **Fair
                value**Net
                assets of Xingzhen Mining as of April 28, 2006:Extraction
                rights(value beyond proven and probable)
            
            $
            -
            
            $
            3,475Property,
                plant and mining assets, net
            
            
            -
            
            
            10Bank
                balances and cash
            
            
            122
            
            
            122Other
                receivables, deposits and prepayments
            
            
            50
            
            
            50Other
                payables
            
            
            (45
            )
            
            (45
            )Net
                assets
            
            
            127
            
            
            3,612Minority
                interest’s share of book value of net assets
            
            
            (26
            )
            
            (26
            )Net
                assets acquired
            
            $
            101
            
            
            3,586Total
                purchase consideration
            
            
            
            
            
            3,586$
            -





**Tun-Lin**


On
      November 26, 2007, China Shen Zhou Mining & Resources, Inc. completed the
      acquisition of a 100% ownership interest in Tun-Lin for cash consideration
      of
      $10 million. The Company financed the acquisition through internal resources.
      The results of operations of Tun-Lin are included in the Company’s consolidated
      statement of operations from the date of acquisition.




-72-







Tun-Lin
        was incorporated on June 1, 2005 under the laws of the Kyrgyz Republic.
        Tun-Lin’s principal asset consists of a 100% ownership interest in Kichi
        Chaarat, which was incorporated in Bishkek, Kyrgyzstan. Kichi Chaarat’s major
        asset is the subsoil use right for (i) mining for gold, copper and other
        metals
        within the Kuru-Tegerek licensed area; and (ii) exploration for gold, copper
        and
        other metals within the Kuru-Tegerek licensed area. The purpose of the
        acquisition was to enable the Company to explore, develop and mine the potential
        reserves of the Kuru-Tegerek licensed area. As of December 31, 2007, Kichi
        Chaarat has not commenced any production.




This
      acquisition has been accounted for using the purchase method of accounting.
      The
      allocation of the purchase price for this acquisition, based on fair values
      of
      identifiable tangible and intangible assets as of the acquisition date, is
      as
      follows:





**Book
                value**
            
            **Fair
                value**Net
                assets of Tun-Lin as of November 26, 2007 (in thousands):Tangible
                Fixed Assets (Mineral Property) (a)
            
            $
            10
            
            $
            11,981Tangible
                Fixed Assets (Real Estate)
            
            
            10
            
            
            45Other
                assets
            
            
            287
            
            
            287Total
                assets acquired
            
            
            307
            
            
            12,313Accrued
                expenses and other liabilities
            
            
            1,112
            
            
            1,112Deferred
                tax liability
            
            
            -
            
            
            1,201Total
                liabilities assumed
            
            
            1,112
            
            
            2,313Net
                assets (liabilities) acquired
            
            $
            (805
            )
            $
            10,000





(a)  Mineral
      property represents the future extraction rights. Under Kyrgyz laws, in order
      to
      develop the Kuru-Tegerek deposit, Kichi Chaarat needs to obtain a temporary
      land
      use right to the licensed area. Pursuant to a development license agreement,
      which is an integral part of the development license, Kichi Chaarat shall by
      July 1, 2008 obtain such a land use right from the competent Kyrgyz government
      authorities.





An
      independent professional appraiser was engaged to estimate the fair value of
      the
      tangible fixed assets, current assets and identifiable intangible assets of
      Kichi-Chaarat as of November 26, 2007 for the purpose of applying the purchase
      price allocation using the income approach. Significant assumptions used in
      the
      estimation included the following:





Risk-free
                rate
            13.4%Beta
                coefficient
            0.98Market
                risk premium
            5.5%Size
                premium
            6.42%Industry
                risk premium
            -3.5%





Since
      Tun-Lin had insignificant operation since its incorporation, no pro forma
      information is presented.





**Additional
      equity interest in Xingzhen Mining**


On
      June
      25, 2007, the Company entered into a share transfer agreement to acquire an
      additional 10% ownership interest in Xingzhen Mining for a cash consideration
      of
      $479,150. On August 10, 2007, the share transfer agreement was approved by
      the
      China local government authorities. As a result, the Company’s shareholding in
      Xingzhen Mining has increased from 80% to 90%. We have accounted for the
      acquisition of additional interest in Xingzhen Mining as a purchase business
      combination for accounting purposes. The total amount paid for shares acquired
      has been allocated to the assets acquired and liabilities assumed based on
      their
      estimated fair values as of the date of acquisition. No goodwill has arisen
      from
      this acquisition. The acquisition of additional interest in Xingzhen Mining
      was
      not material to our consolidated results of operations or financial
      position.




-73-









**NOTE
      4 DISCONTINUED OPERATIONS**





On
      December 10, 2007, the Company completed the sale of all its ownership interest
      in Xinjiang Wuqia Tianzhen Mining Co., Ltd. (“Tianzhen Mining”), a subsidiary of
      the Company within the nonferrous metals segment. The Company received cash
      proceeds of HK$22 million (equivalent to approximately $2,759,000) and assumed
      all debts incurred by Tianzhen Mining before the date of sale which amounted
      to
      $150,867. The terms of the transaction also provides for an additional
      compensation of HK$10 million (equivalent to approximately $1,253,690) payable
      by the buyer to the Company if a qualified geological exploration and
      exploitation authority issues an official report to certify a reserve of over
      200,000 metric tons copper, lead or zinc minerals in the Jiangejier Lead-Zinc
      deposit covered by Tianzhen’s exploration right. However, the Company has not
      recognized any gain arising from this contingent consideration. The Company
      has
      recorded a net gain on disposal of approximately $1,504,000, net of income
      tax
      of nil. In accordance with FAS 144, Accounting for Impairment or Disposal of
      Long-Lived Assets, the Company has reflected Tinazhen Mining’s results of
      operations in the consolidated statement of operations through the date of
      the
      sale as discontinued operations for all periods presented. The assets and
      liabilities of Tianzhen Mining in the Company’s consolidated balance sheet as of
      December 31, 2006 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
      net gain on disposal of subsidiary for Tianzhen Mining for the periods
      presented:




Years
                Ended December 31,2007
            
            2006(In
                thousands)
            
            (In
                thousands)Revenue
            
            $
            367
            
            $
            228Net
                (loss) from discontinued operations, net of income tax of
                nil
            
            $
            (197
            )
            $
            (1,324
            )Net
                gain on disposal of subsidiary, net of nil income tax of
                nil
            
            $
            1,504
            
            $
            -





**NOTE
      5**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





***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.





***Principles
      of Consolidation***


The
      consolidated financial statements include the accounts of China Shen Zhou Mining
      & Resources, Inc. and more-than-50%-owned subsidiaries that it controls.
      Inter-company balances and transactions have been eliminated. The functional
      currency for the majority of the Company’s operations is the Renminbi
      (“RMB”).





***Basis
      of preparation***


These
      consolidated financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States of America.





***Cash
      and Cash Equivalents***


Cash
      and
      cash equivalents consist of all cash balances and highly liquid investments
      with
      an original maturity of three months or less. Because of the short maturity
      of
      these investments, the carrying amounts approximate their fair value. Restricted
      cash is excluded from cash and cash equivalents and is included in other current
      and long-term assets.




-74-







***Available-for-sale
      securities***


The
      Company accounts for its investments in auction rate securities in accordance
      with SFAS No. 115. 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.





***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.





***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.




-75-


***Property,
      plant and mining assets (continued)***


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





Useful
                Life(In
                years)Land
                use rights
            25Buildings
            25Machinery
            12Mining
                assets
            License
                termMotor
                vehicle
            6Equipment
            5Extraction
                rights
            License
                termExploration
                rights
            License
                termConstruction
                in progress
            Nil





***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.





***(b)
      Goodwill***


The
      Company evaluates, on at least an annual basis, the carrying amount of goodwill
      to determine whether current events and circumstances indicate that such
      carrying amount may no longer be recoverable. To accomplish this, the Company
      compares the estimated fair value of its reporting units to their carrying
      amounts. If the carrying value of a reporting unit exceeds its estimated fair
      value, the Company compares the implied fair value of the reporting unit’s
      goodwill to its carrying amount, and any excess of the carrying value over
      the
      fair value is charged to earnings. The Company’s fair value estimates are based
      on numerous assumptions and it is possible that actual fair value will be
      significantly different than the estimates, as actual future quantities of
      recoverable minerals, gold and other commodity prices, production levels and
      operating costs of production and capital are each subject to significant risks
      and uncertainties.




-76-







***Financial
      instruments***


The
      Company values its financial instruments as required by SFAS No. 157,
“Disclosures about Fair Value of Financial Instruments”. 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, other current assets; accounts payable, accrued expenses,
      short-term bank loans, other current liabilities, and due to a
      director.




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.





***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.





***Income
      taxes***


The
      Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
      for Income Taxes". SFAS No. 109 requires an asset and liability approach for
      financial accounting and reporting for income taxes and allows recognition
      and
      measurement of deferred tax assets based upon the likelihood of realization
      of
      tax benefits in future years. Under the asset and liability approach, deferred
      taxes are provided for the net tax effects of temporary differences between
      the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes. A valuation allowance is provided
      for
      deferred tax assets if it is more likely than not these items will either expire
      before the Group is able to realize their benefits, or that future deductibility
      is uncertain.





On
      January 1, 2007, the Company adopted the provisions of FASB Interpretation
      No.
      48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”). FIN 48 prescribes a more-likely-than-not threshold for financial statement
      recognition and measurement of a tax position taken (or expected to be taken)
      in
      a tax return. This Interpretation also provides guidance on derecognition of
      income tax assets and liabilities, classification of current and deferred income
      tax assets and liabilities, accounting for interest and penalties associated
      with tax positions, accounting for income taxes in interim periods and income
      tax disclosures. The adoption of FIN 48 has not resulted in any material impact
      on the Company’s financial position or results.





***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





***Foreign
      Currency***


The
      Company uses the United States dollar (“US Dollar” or “US$” or “$”) for
      financial reporting purposes. The functional currency for the majority of the
      Company’s operations is the Renminbi (“RMB”). The functional currency for
      Tun-Lin and Kichi-Chaarat, the Company’s foreign subsidiaries in Kyrgyz
      Republic, is the Kyrgyz Som (“KGS”). The financial statements of the Company’s
      foreign subsidiaries have been translated into U.S. dollars in accordance with
      SFAS No. 52, “Foreign Currency Translation”. All asset and liability accounts
      have been translated using the exchange rate in effect at the balance sheet
      date. Equity accounts have been translated at their historical exchange rates
      when the capital transaction occurred. Statements of operations amounts have
      been translated using the average exchange rate for the year.  Adjustments
      resulting from the translation of the Company’s financial statements are
      recorded as accumulated other comprehensive income.




-77-










December
                31, 2006
            December
                31, 2007Balance
                sheet items, except for the registered and paid-up capital and retained
                earnings, as of year end
            US$1=RMB7.808
              US$1=KGS38.1238
            US$1=RMB7.3046
              US$1=KGS35.4988Amounts
                included in the statements of operations, statements of changes in
                stockholders’ equity and statements of cash flows for the
                year
            US$1=RMB7.958
              US$1=KGS40.1100
            US$1=RMB7.5652
              US$1=KGS35.0079





For
      the
      years ended December 31, 2007 and 2006, foreign currency translation adjustment
      of approximately $1,512,000and $557,000, 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 and KGS for current
      account transactions, significant restrictions still remain.  Hence, such
      translations should not be construed as representations that RMB or KGS could
      be
      converted into U.S. dollars at that rate or any other rate.





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





***Stock
      Based Compensation***


On
      December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based
      Payment”, which requires all share-based payments to employees, including grants
      of employee stock options, to be recognized in the financial statements based
      on
      the grant date fair value of the award. Under SFAS No. 123R, the Company must
      determine the appropriate fair value model to be used for valuing share-based
      payments, the amortization method for compensation cost and the transition
      method to be used at date of adoption. The transition methods include
      prospective and retroactive adoption options. Under the retroactive option,
      prior periods may be restated either as of the beginning of the year of adoption
      or for all periods presented. The prospective method requires that compensation
      expense be recorded for all unvested stock options and restricted stock at
      the
      beginning of the first quarter of adoption of SFAS No. 123R, while the
      retroactive methods would record compensation expense for all unvested stock
      options and restricted stock beginning with the first period restated. The
      Company has adopted the requirements of SFAS No. 123R for the fiscal year
      beginning on January 1, 2006, and recorded the compensation expense for all
      unvested stock options existing prior to the adoption during the
      period.





***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.





-78-





***Comprehensive
      Income***




SFAS
      No.130, “Reporting Comprehensive Income,” establishes standards for reporting
      and displaying comprehensive income and its components in the consolidated
      financial statements. Accumulated other comprehensive income includes foreign
      currency translation adjustments. Total comprehensive income for the years
      ended
      December 31, 2007 and 2006 was $1,512,000 and $557,000,
      respectively.





***Recent
      accounting pronouncements***


.


In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines
      fair value, establishes a framework for measuring fair value, and expands
      disclosures about fair value instruments.  SFAS 157 does not require
      any new fair value measurements, but applies under other accounting
      pronouncements that require or permit fair value measurements. SFAS 157 is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007 (our fiscal 2008). We believe that implementation of
      SFAS 157 will have little or no impact on our consolidated financial
      statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
      Postretirement Plans — an amendment of FASB Statements No. 87, 88,
      106, and 132(R)” (SFAS 158). SFAS 158 requires plan sponsors of
      defined benefit pension and other postretirement benefit plans (collectively,
      “postretirement benefit plans”) to fully recognize the funded status of their
      postretirement benefit plans in the statement of financial position, measure
      the
      fair value of plan assets and benefit obligations as of the date of the fiscal
      year-end statement of financial position and provide additional disclosures.
       We believe that implementation of SFAS 157 will have little or no
      impact on our consolidated financial statements since we have no applicable
      plans.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities—Including an Amendment of FASB
      Statement No. 115.” This statement permits, but does not require, entities to
      measure many financial instruments at fair value. The objective is to provide
      entities with an opportunity to mitigate volatility in reported earnings caused
      by measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions. The Company does not believe that this
      standard will significantly affect the Company’s financial position or results
      of operations.





In
      December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
      Combinations,” (“SFAS No. 141(R)”). This standard will significantly change the
      accounting for business combinations. Under SFAS No. 141(R), an acquiring entity
      will be required to recognize all the assets acquired and liabilities assumed
      in
      a transaction at the acquisition-date fair value with limited exceptions.
      Acquisition-related costs, which are the costs an acquirer incurs to effect
      a
      business combination, will be accounted for as expenses in the periods in which
      the costs are incurred and the services are received, except that costs to
      issue
      debt or equity securities will be recognized in accordance with other applicable
      GAAP. SFAS No. 141(R) also includes a substantial number of new disclosure
      requirements. SFAS No. 141(R) applies prospectively to business combinations
      for
      which the acquisition date is on or after the beginning of the first annual
      reporting period beginning on or after December 15, 2008.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements - An Amendment of ARB No. 51” (“SFAS No.
      160”), which establishes new accounting and reporting standards for the
      noncontrolling interest in a subsidiary and for the deconsolidation of a
      subsidiary. Specifically, this statement requires the recognition of a
      noncontrolling interest (minority interest) as equity in the consolidated
      financial statements and separate from the parent’s equity. SFAS No. 160 is
      effective for fiscal years, and interim periods within those fiscal years,
      beginning on or after December 15, 2008. This standard does not currently affect
      the Company.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities - An Amendment of FASB Statement No. 133” (“SFAS No.
      161”), which changes the disclosure requirements for derivative instruments and
      hedging activities. Entities are required to provide enhanced disclosures about
      (a) how and why an entity uses derivative instruments, (b) how derivative
      instruments and related hedged items are accounted for under Statement 133
      and
      its related interpretations, and (c) how derivative instruments and related
      hedged items affect an entity’s financial position, financial performance, and
      cash flows. This statement will be effective for financial statements issued for
      fiscal years and interim periods beginning after November 15, 2008.





-79-











**NOTE
      6**  **AVAILABLE-FOR-SALE
      SECURITIES - MARGIN DEPOSITS**





Amount
      represents margin deposits paid to a dealing agent. During the year ended
      December 31, 2006, the Company had participated in the trading of metal futures.
      As of December 31, 2006, the agent account was not in open position, and the
      entire amount was withdrawn from the agent’s account in 2007.  For the
      years ended December 31, 2007 and 2006, investment income (loss) associated
      with
      available-for-sale investments of approximately $90,000 and ø $86,000 ÷ ,
      respectively, was recorded as other income (expenses).





**NOTE
      7 ACCOUNTS RECEIVABLE**





Accounts
      receivable consisted of the following:


December
                  31, 2007
              
              December
                  31, 2006(In
                  thousands)
              
              (In
                  thousands)Accounts
                  receivable
              
              $
              2,534
              
              $
              959Less:
                  Allowance for doubtful accounts
              
              
              (53
              )
              
              (14
              )$
              2,481
              
              $
              945





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





December
                31,
              2007
            
            December
                31,
              2006(In
                thousands)
            
            (In
                thousands)Balance
                at the beginning of the year
            
            $
            14
            
            $
            12Add:
                provision during the year
            
            
            39
            
            
            2Balance
                at the end of the year
            
            $
            53
            
            $
            14





**NOTE
      8**  **INVESTMENT
      DEPOSITS**




December
                31,
              2007
            
            December
                31,
              2006(In
                thousands)
            
            (In
                thousands)Deposit
                paid for the acquisition of Tun-Lin (Note 3)
            
            $
            -
            
            $
            10,000Refundable
                deposits in connection with an abandoned acquisition (a)
            
            
            -
            
            
            1,025-
            
            
            11,025Less:
                Current portion
            
            
            -
            
            
            (1,025
            )Non-current
                portion
            
            $
            -
            
            $
            10,000





(a)  On
      June 6
      2006, the Company entered into an agreement to acquire 70% ownership interest
      in
      the exploration rights of Qinghai Menyuan Xian Yikeshu hard coal mine. Under
      the
      terms of the agreement, the seller was required to transfer the exploration
      rights to one of the Company’s subsidiaries by not later than July 2006 in
      return of an aggregate consideration of approximately $2.562 comprising $1.025
      million in cash and $1.537 million worth of the Company’s common stock.
      According to the terms of the agreement, the Company had paid a partial deposit
      of $1.025 million cash to the seller in September 2006.





The
      seller could not honor his obligations under the agreement to transfer the
      exploration rights to one of the Company’s subsidiaries within the agreed period
      of time. Pursuant to the cancellation agreement entered into between the Company
      and the seller on March 25, 2007, both parties agreed to terminate the agreement
      and the seller returned the $1.025 million deposit to the Company on April
      11,
      2007.





-80-




**NOTE
      9** **DEPOSITS AND PREPAYMENTS**





Deposits
      and prepayments consist of the following:




December
                31,
              2007
            
            December
                31,
              2006(In
                thousands)
            
            (In
                thousands)Prepayments
                and advances
            
            
            (a
            )
            $
            840
            
            $
            2,974Refundable
                advances
            
            
            (b
            )
            
            -
            
            
            702Tax
                recoverable
            
            
            
            
            
            62
            
            
            75Other
                receivables
            
            
            
            
            
            352
            
            
            278$
            1,254
            
            $
            4,029





(a)
            Prepayments
                and advances as of December 31, 2007 and 2006 included a deposit
                paid to
                Wulatehouqi Zijin Mining Co., Ltd., the Company’s largest supplier and
                significant customer, of $330,469 and $2,755,125 respectively, for
                purchases of raw materials.





(b)
            Refundable
                advances represented advances in connection with the abandoned acquisition
                of exploration rights of Qinghai Menyuan Xian Yikeshu hard coal mine,
                as
                described in Note 7(a). The balance was refunded from the seller
                of the
                transaction in 2007.





**NOTE
      10**  **INVENTORIES**





Inventories
      consisted of the following:




December
                31,
              2007
            
            December
                31,
              2006(In
                thousands)
            
            (In
                thousands)Raw
                materials - Unprocessed ore
            
            $
            34
            
            $
            235Consumables
            
            
            564
            
            
            456Finished
                goods
            
            
            1,041
            
            
            594$
            1,639
            
            $
            1,285





**NOTE
      11**  **DUE
      FROM RELATED PARTIES**





Due
      from
      related parties consisted of the following:




December
                31, 2007
            
            December
                31, 2006(In
                thousands)
            
            (In
                thousands)Due
                from a directors:-
                Mr. He Lin Cui, director of the Company
            
            $
            -
            
            $
            45Due
                from a joint venture partner:-
                Xinjiang Tianxiang New Technology Development Company Limited, the
                minority shareholder of Xingzhen Mining
            
            
            -
            
            
            26$
            -
            
            $
            71





All
      of
      the balances due from the director and the joint venture partner were repaid
      in
      2007.




-81-
 
 
 **NOTE
        12**  **PROPERTY,
        MACHINERY AND MINING ASSETS, NET**





Property,
      machinery and mining assets consisted of the following:




December
                31,
              2007
            
            December
                31,
              2006(In
                thousands)
            
            (In
                thousands)Land
                use rights
            
            $
            1,591
            
            $
            1,485Buildings
            
            
            4,218
            
            
            2,005Machinery
            
            
            5,543
            
            
            4,776Mining
                assets
            
            
            3,962
            
            
            1,309Motor
                vehicles
            
            
            1,155
            
            
            814Equipment
            
            
            249
            
            
            159Extraction
                rights
            
            
            19,675
            
            
            1,149Exploration
                rights
            
            
            1,574
            
            
            3,475Construction
                in progress
            
            
            15,020
            
            
            3,46752,987
            
            
            18,639Less:Accumulated
                depreciation and amortization
            
            
            (5,833
            )
            
            (3,141
            )Impairment
                provision
            
            
            (60
            )
            
            -$
            47,094
            
            $
            15,498





***Depreciation
      and amortization***


Depreciation
      and amortization expense in aggregate for the year ended December 31, 2007
      and
      2006 was approximately $2,415,000 and $1,478,000 respectively.





***Impairment
      provision***


An
      impairment provision of $60,000 for the year ended December 31, 2007 was
      recorded for the equipment of Qingshan Metal, a subsidiary of the Company within
      the nonferrous metals segment.





***Write-down
      of abandoned long-lived assets***


The
      Company has abandoned various low-yield assets to reallocate its cash flows
      for
      better opportunities. The carrying value of abandoned mining assets and
      respective land use rights being written-down and charged to cost of sales
      for
      the year ended December 31, 2007 and 2006 was $108,928 and $454,918,
      respectively.





***Security
      of fixed assets to bank loans***


As
      of
      December 31, 2007, no property, machinery and mining assets have been pledged
      as
      collateral for the bank borrowings. As of December 31, 2006, buildings of
      $2,078,062 and machinery of $2,086,501 were pledged as collateral for the bank
      borrowings. (see Note 15 below)





***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.




-82-
 
 
 **NOTE
        13**  **GOODWILL**




(In
                thousands)Arising
                from acquisition of Qingshan Metal, a subsidiary within the nonferrous
                metals segment, in 2006
            
            $
            1,001Balance
                as of December 31, 2006
            
            
            1,001Exchange
                realignment
            
            
            69Balance
                as of December 31, 2007
            
            $
            1,070





Goodwill
      of $1,001,000 arose from the Company’s acquisition of Qingshan Metal within its
      nonferrous metals segment on April 27, 2006. Impairment of goodwill is tested
      at
      least annually at the reporting unit. The test consists of two steps. First,
      we
      identify potential impairment by comparing the fair value of the reporting
      unit
      to its carrying amount, including goodwill. If the fair value of the reporting
      unit is greater than its carrying amount, goodwill is not considered impaired.
      Second, if there is impairment identified in the first step, an impairment
      loss
      is recognized for any excess of the carrying amount of the reporting unit’s
      goodwill over the implied fair value of goodwill. The implied fair value of
      goodwill is determined by allocating the fair value of the reporting unit in
      a
      manner similar to a purchase price allocation, in accordance with SFAS No 141, “ *Business
      Combinations* *”* .
      The
      Company’s financial valuation performed as of February 25, 2008 indicated no
      impairment on the goodwill.





**NOTE
      14**  **WARRANTS
      LIABILITY**





In
      connection with the issuance of the,convertible notes (as further described
      in
      Note 18), 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, exercisable at any time, or from time to
      time, during the period commencing from January 1, 2007 through January 1,
      2010
      (the “Termination Date”). The Company engaged a professional valuation firm to
      value the fair value of the put warrant by using the Black Scholes model. As
      of
      December 31, 2007, the fair value of the put warrant is approximately $1,100,000
      with the following significant assumptions used in the Black Scholes
      model:





2007
            
            2006Risk-free
                interest rate
            4.05%
            
            4.625%Expected
                volatility
            57.22%
            
            60.12%Term
            2
                years
            
            3
                years





In
      the
      event that the warrant holder elects not to exercise the warrant on or before
      the Termination Date, the Company shall repurchase this warrant for cash at
      an
      aggregate purchase price of $50,000.





-83-





**NOTE
      15**  **SHORT-TERM
      BANK LOANS**





Short-term
      bank loans consisted of the following:




December
                31,
              2007
            
            December
                31,
              2006(in
                thousands)
            
            (in
                thousands)5.4%
                note payable to Ministry of Finance of Siziwangqi, (located at Wulanchabu
                City, Inner-Mongolia province of the PRC) repayable on demand, with
                interest due on the 20th day of each quarter
            
            $
            -
            
            $
            1087.812%
                note payable to Industrial and Commercial Bank of China, Siziwangqi
                Branch
                matures on November 29, 2007, with interest due on the 20th day of
                each
                quarter and principal due at date of maturity, secured by machinery
                and of
                $2,086,501
            
            
            -
            
            
            1918.928%
                note payable to Baiyin Credit Union matures on November 24, 2007,
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by assets of $1,600,922
            
            
            -
            
            
            1,2817.056%
                note payable to Baiyin Credit Union matures on December 26, 2007,
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by personal assets of the Company’s CEO
            
            
            -
            
            
            777.056%
                note payable to Baiyin Credit Union matures on August 18, 2007, with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by personal assets of the Company’s CEO
            
            
            -
            
            
            1027.056%
                note payable to Baiyin Credit Union matures on February 28, 2007,
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by personal assets of the Company’s CEO
            
            
            -
            
            
            518.928%
                note payable to Baiyin Credit Union matures on February 28, 2007
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured and mineral reserve and guaranteed by Qianzhen
                Mining
            
            
            -
            
            
            2568.928%
                note payable to Baiyin Credit Union matures on February 22, 2007
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, guaranteed by Qianzhen Mining
            
            
            -
            
            
            1929.36%
                note payable to Credit Union of Silver City matures on March 6, 2007,
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, guaranteed by Qianzhen Mining
            
            
            -
            
            
            1028.928%
                note payable to Baiyin Credit Union matures on February 28, 2007
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, guaranteed by Qianzhen Mining
            
            
            -
            
            
            908.928%
                note payable to Baiyin Credit Union matures on February 22, 2007
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, guaranteed by Qianzhen Mining
            
            
            -
            
            
            909.36%
                note payable to Credit Union of Silver City matures on March 13,
                2007,
                with interest due on the 20th day of each quarter and principal due
                at
                date of maturity, guaranteed by Qianzhen Mining
            
            
            -
            
            
            12810.37%
                note payable to Baiyin Credit Union matures on February 16, 2008
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, guaranteed by Qianzhen Mining
            
            
            96
            
            
            -10.37%
                note payable to Baiyin Credit Union matures on February 16, 2008
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, guaranteed by Qianzhen Mining
            
            
            205
            
            
            -7.52%
                note payable to Baiyin Credit Union matures on August 17, 2008 with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, guaranteed by Qianzhen Mining
            
            
            110
            
            
            -10.21%
                note payable to Baiyin Credit Union matures on November 22, 2008
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, guaranteed by Xiangzhen Mining
            
            
            821
            
            
            -8.22%
                note payable to Baiyin Credit Union matures on November December
                26, 2008
                with interest due on the 20th day of each quarter and principal due
                at
                date of maturity, secured by the time deposit of Mr. Helin Cui, a
                director
                of the Company
            
            
            82
            
            
            -$
            1,314
            
            $
            2,668




-84-
 
 
 **NOTE
        16**  **OTHER
        PAYABLES AND ACCRUALS**





Other
      payables and accruals consisted of the following:




December
                31,
              2007
            
            December
                31,
              2006(In
                thousands)
            
            (In
                thousands)Outstanding
                purchase consideration payable for acquisition of
                subsidiaries
            
            
            (a
            )
            $
            -
            
            $
            3,714Accrued
                debt issuance costs
            
            
            (b
            )
            
            116
            
            
            2,271Receipts
                in advance
            
            
            
            
            
            408
            
            
            587Accruals
                for payroll, bonus and other operating expenses
            
            
            
            
            
            892
            
            
            293Payables
                for construction in progress
            
            
            
            
            
            481
            
            
            103Payable
                for extraction rights
            
            
            
            
            
            1,014
            
            
            -Others
                payables
            
            
            
            
            
            558
            
            
            258$
            3,469
            
            $
            7,226




(a)  The
      balance as of December 31, 2006 represents outstanding purchase consideration
      payable for the acquisition of Qingshan Metal and Xingzhen Mining, and was
      settled by way of issuance of the Company’s shares to the sellers in
      2007.





(b)  The
      balance mainly represents outstanding financing commission payable to financial
      advisors, legal service fees, and other related costs incurred at the issuance
      of convertible note.





**NOTE
      17**  **DUE
      TO RELATED PARTIES**





Due
      to
      related parties consisted of the following:




December
                31,
              2007
            
            December
                31,
              2006(In
                thousands)
            
            (In
                thousands)Due
                to directors of the Company:Ms.
                Xiao Jing Yu, CEO of the Company
            
            
            a
            
            $
            166
            
            $
            212Mr.
                Xue Ming Xu
            
            
            
            
            
            1
            
            
            -Due
                to Wulatehouqi Mengxin Co., Ltd, the minority shareholder of Xingzhen
                Mining
            
            
            b
            
            
            1,369
            
            
            -Due
                to Xinjiang Tianxiang New Technology Development Co., Ltd, the minority
                shareholder of Xingzhen Mining
            
            
            c
            
            
            526
            
            
            -$
            2,062
            
            $
            212





Amounts
      due to related parties are interest-free, unsecured and have no fixed terms
      of
      repayment.




(a)
      Ms.Yu
      is the CEO of the Company.




(b)
      Wulatehouqi Mengxin Co., Ltd is the minority shareholder of Xingzhen
      Mining.





(c) Xinjiang
        Tianxiang New Technology Development Co., Ltd is the minority shareholder
        of
        Xingzhen Mining.








**NOTE
      18**  **CONVERTIBLE
      NOTES PAYABLE**





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$28,000,000 in convertible senor notes (“Notes”). The Notes have a
      maturity of December 27, 2012.





***Conversion
      feature***


The
      Notes
      are convertible at the option of the holders, at any time on or prior to
      maturity, into common shares of the Company. Pursuant to a Second Supplemental
      Indenture entered into between the Company and Citadel on September 28, 2007,
      the conversion price has been revised from $3.20 to $2.25 per share and is
      subject to adjustment in certain circumstances but shall in no event fall below
      $2.00 per share.  In addition, in no event shall the number of conversion
      shares issuable upon conversion of all the outstanding Notes exceed 49.90%
      of
      all outstanding shares upon the conversion of all of the outstanding
      Notes.




-85-





Consistent
      with EITF 98-05, Accounting for Convertible Securities with Beneficial
      Conversion Features or Contingently Adjustable Conversion Ratios, the intrinsic
      value of the beneficial conversion feature (“BCF”) on the commitment date, i.e.
      the Second Supplementary Indenture Date of September 28, 2007, has been
      recalculated: The change of conversion price in the Second Supplemental
      Indenture resulted in a BCF. The BCF was recognized on the effective date of
      September 28, 2007, as a discount and will be amortized using the effected
      interest rate method from September 28, 2007 to maturity date.





***Redemption***


The
      Notes
      contain a principal accretion feature that increases the redemptions or
      repurchase price of the Notes.  The principal is accreted 5% per annum, on
      semi-annual basis, such that if the Notes are held to maturity the total
      accreted principal amount is equal to 130% of the original principal amount.
       The Company can redeem all of the Notes on or after December 27, 2009, at
      110% of the then accreted principal amount, plus accrued and unpaid interest
      to
      but excluding the redemption date. In addition, Note holders have rights to
      request the Company to repurchase the Notes at a price in cash equal to 104%
      of
      the then accreted principal amount plus accrued and unpaid interest to the
      redemption rate if there is a change of control of the Company.  In
      addition, from and after December 27, 2009, Note holders have the right to
      require the Company to repurchase the Notes for 100% of the then accreted
      principal amount plus accrued and unpaid interest to the redemption
      date.





***Interest
      rate***


The
      Notes
      initially bore interest at 6.75% per annum, which were subject to upward
      adjustments and were payable semi-annually. However, pursuant to the Second
      Supplemental Indenture entered into between the Company and Citadel on September
      28, 2007, the interest rate has been revised as follows:





(a)  at
      the
      rate of 6.75% per annum of the Original Principal Amount of the Notes, from
      and
      including the Issue Date to and including September 30, 2007;





(b)  at
      the
      rate of 0.00% per annum of the Original Principal Amount of the Notes, from
      and
      including October 1, 2007 to and excluding December 31, 2007; and





(c)  at
      the
      rate of 1.75% per annum of the Original Principal Amount of the Notes, from
      and
      including the date of the listing of the Company’s common stock on AMEX (i.e.
      January 31, 2008, as further discussed in Note 30) to but excluding the Maturity
      Date.








***Detachable
      warrants***


Together
      with the issuance of the Notes, the Company issued a put warrant to one of
      the
      Company’s financial advisors in the transaction for the purchase of 875,000
      shares of the Company’s common stock at an exercise price of $3.20 per share,
      exercisable on or before 3 years from the date of grant.  As of December
      31, 2007, the fair value of the put warrant was $1,100,277. Further details
      of
      the warrants are disclosed in Note 13.





***Debt
      issuance costs***


The
      issuance costs directly associated with the Notes and the put warrant aggregated
      $2,522,497.  The amount was capitalized as deferred debt issuance costs,
      and is being amortized using the effective interest rate method over the term
      of
      the convertible loan, with the amounts amortized being recognized as interest
      expense. Any unamortized debt issuance costs remaining at the date of conversion
      of the loan will be recognized as interest expense in the period the conversion
      takes place. Amortization in aggregate for the years ended December 31, 2007
      and
      2006 were approximately $  2,170,000
      and $2,518,000 respectively.




-86-
 
 
 **NOTE
        19**  **MINORITY
        INTERESTS**





The
      activities of the equity of the minority interests during the year ended
      December 31, 2006 and 2007 are summarized as follows:




Years
                Ended December 31,2007
            
            2006(In
                thousands)
            
            (In
                thousands)Balance
                at beginning of year
            
            $
            258
            
            $
            -Arising
                from acquisitions
            
            
            (14
            )
            
            294Minority
                interests in loss
            
            
            (100
            )
            
            (32
            )Exchange
                realignment
            
            
            -
            
            
            (4
            )Balance
                at end of year
            
            $
            144
            
            $
            258





**NOTE
      20**  **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
      21**  **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.





**NOTE
      22**  **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, 2007 and 2006 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
      23**  **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 Qingshan Metal were charged at net revenue * 2%*
      a special index solely determined by the local government.  Qianzhen Mining
      was engaged in refinery of metals and no involved in any mining activities
      in
      2007. As such, they are not subject to the charge. Xingzhen Mining has not
      commenced its business.





For
      the
      years ended December 31, 2007 and 2006, Natural Resource Compensation
      Charges of $156,784 and $115,804 respectively, were charged to operations and
      included in cost of sales.




-87-
 
 
 **NOTE
        24**  **COMMITMENTS
        AND CONTINGENCIES**





***General***


The
      Company follows FAS No. 5, “Accounting for Contingencies,” in determining
      its accruals and disclosures with respect to loss contingencies. 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 be 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 and Kyrgyz***


The
      Company's mining operations are and will be subject to extensive national and
      local governmental regulations in China or Kyrgyz, 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.





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***





**Contracted
                but not provided for at December 31, 2007:**Purchase
                of machinery - within one year
            
            $
            606Acquisition
                or construction of buildings-within one year
            
            
            4,133$
            4,739





**NOTE
      25**  **CONCENTRATION
      OF CUSTOMERS AND SUPPLIERS**





During
      the year 2007 and 2006, Wulatehouqi Zijin was the only supplier of Qianzhen
      Mining’s raw minerals, whereas Bayannaoer Zijin Nonferrous Metal Co., Ltd.
      (“Bayannaoer Zijin”, a related company of Wulatehouqi Zijin) was one of the
      major customers of Qianzhen Mining which contributed approximately $3,465,000
      (or 24.15%) and $5,690,000 (or 39.65%) of the Company’s consolidated net revenue
      respectively.





In
      addition to the aforementioned, the Company’s nonferrous metal product business
      had another significant customer which accounted for approximately $3,180,798
      or
      22.16% of our consolidated net revenue in 2007.





-88-








**NOTE
      26**  **RELATED
      PARTY TRANSACTION**





In
      2007,
      Xinjiang Tianxiang New Technology Development Co., Ltd, the minority shareholder
      of Xingzhen Mining, provided exploration services to Xingzhen Mining for a
      related service fee paid by the Company of $974,621





**NOTE
      27**  **SEGMENT
      INFORMATION**





The
      Company follow SFAS No. 131, “Disclosures about Segments of an Enterprise and
      Related Information”, 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.





During
      fiscal 2007 and 2006, the Company operated in one single geographic
      region.





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





**Year
                Ended December 31, 2007**
            
            **Fluorite**
            
            **Nonferrous**
              **metals**
            
            **Consolidated**Segment
                revenue
            
            $
            6,605
            
            $
            7,746
            
            $
            14,351Inter-segment
                revenue
            
            
            -
            
            
            -
            
            
            -Revenue
                from external customers
            
            $
            6,605
            
            $
            7,746
            
            $
            14,351Segment
                profit
            
            $
            418
            
            $
            422
            
            $
            840Unallocated
                corporate expenses
            
            
            
            
            
            
            
            $
            (4,862
            )Income
                from continuing operations before income taxes and minority
                interests
            
            
            
            
            
            
            
            $
            (4,022
            )Total
                segment assets
            
            $
            45,673
            
            $
            52,503
            
            $
            98,176Inter-segment
                receivables
            
            
            (24,111
            )
            
            (18,711
            )
            
            (42,822
            )$
            21,562
            
            $
            33,792
            
            $
            55,354Deferred
                debt issuance costs
            
            
            
            
            
            
            
            $
            2,170Other
                unallocated corporate assets
            
            
            
            
            
            
            
            
            1,777$
            59,301Other
                segment information:Depreciation
                and amortization
            
            $
            1,175
            
            $
            1,240
            
            $
            2,415Impairment
                of fixed assets
            
            $
            -
            
            $
            109
            
            $
            109Expenditure
                for segment assets
            
            $
            8,870
            
            $
            10,762
            
            $
            19,632




-89-





**Year
                Ended December 31, 2006**
            
            **Fluorite**
            
            **Nonferrous**
              **metals**
            
            **Consolidated**Segment
                revenue
            
            $
            5,312
            
            $
            16,893
            
            $
            22,205Inter-segment
                revenue
            
            
            -
            
            
            -
            
            
            -Revenue
                from external customers
            
            $
            5,312
            
            
            16,893
            
            $
            22,205Segment
                profit (loss)
            
            $
            (860
            )
            $
            11,157
            
            $
            10,297Reverse
                takeover costs
            
            
            
            
            
            
            
            
            (4,777
            )Unallocated
                corporate expenses
            
            
            
            
            
            
            
            
            (3,033
            )Income
                from continuing operations before income taxes and minority
                interests
            
            
            
            
            
            
            
            $
            2,487Total
                segment assets
            
            $
            11,798
            
            $
            24,808
            
            $
            36,606Inter-segment
                receivables
            
            
            -
            
            
            (9,687
            )
            
            (9,687
            )$
            11,798
            
            $
            15,121
            
            
            26,919Investment
                deposit
            
            
            
            
            
            
            
            
            10,000Deferred
                debt issuance costs
            
            
            
            
            
            
            
            
            2,518Other
                unallocated corporate assets
            
            
            
            
            
            
            
            
            17,745$
            57,182Other
                segment information:Depreciation
                and amortization
            
            $
            1,082
            
            
            297
            
            $
            1,379Impairment
                of fixed assets
            
            $
            455
            
            
            -
            
            $
            455Expenditure
                for segment assets
            
            $
            3,211
            
            
            2,182
            
            $
            5,393





**NOTE
      28**  **OTHER
      INCOME, NET**




Years
                ended December 31,2007
            
            2006(In
                thousands)
            
            (In
                thousands)Exchange
                gain
            
            $
            495
            
            $
            -Gain
                (loss) on disposal of fixed assets
            
            
            (109
            )
            
            50Investment
                income (loss)
            
            
            (86
            )
            
            90Tax
                refund
            
            
            -
            
            
            (49
            )Donation
            
            
            (27
            )
            
            (89
            )Impairment
                of assets
            
            
            (60
            )
            
            -Others
            
            
            184
            
            
            61$
            397
            
            $
            63





**NOTE
      29 INCOME TAXES**





The
      PRC
      and Kyrgyz subsidiaries within the Company are subject to PRC or Kyrgyz income
      taxes on an entity basis on income arising in or derived from the tax
      jurisdiction in which they operate.





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




Years
                ended December 31,2007
            
            2006(In
                thousands)
            
            (In
                thousands)Current:-
                PRC
            
            $
            (96
            )
            $
            (31
            )Deferred:-
                PRC
            
            
            51
            
            
            216$
            (45
            )
            $
            185




-90-
 
 
 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:




Years
                ended December 31,2007
            
            2006(In
                thousands)
            
            (In
                thousands)Pre-tax
                income (loss) before minority interests
            
            $
            (4,022
            )
            $
            2,487United
                States statutory corporate income tax rate
            
            
            35
            %
            
            35
            %Income
                tax benefit (expense) computed at United States statutory corporate
                income
                tax rate
            
            $
            1,408
            
            $
            (870
            )Reconciling
                itemsRate
                differential for PRC or Kyrgyz earnings
            
            
            (12
            )
            
            206Impact
                of tax holiday of PRC subsidiaries
            
            
            1,186
            
            
            3,839Adjustment
                of deferred tax asset valuation allowance for loss
                carryovers
            
            
            (873
            )
            
            (257
            )Non-deductible
                expense and non-reportable income
            
            
            (1,677
            )
            
            (2,733
            )Under
                provision in prior year
            
            
            (77
            )
            
            -Effective
                tax (expense) benefit
            
            $
            (45
            )
            $
            185





The
      aggregate amount and per share effect of the tax holidays are as
      follows:




Years
                ended December 31,2007
            
            2006(In
                thousands, except per share data)The
                aggregate dollar effect
            
            $
            1,186
            
            $
            3,839Per
                share effect — basic
            
            
            0.05
            
            
            0.20Per
                share effect — diluted
            
            
            0.05
            
            
            0.14





As
      of
      December 31, 2007, 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.




-91-




**NOTE
      30**  **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 31,2007
              
              2006(In
                    thousands, except per share data)
              
              (In
                    thousands, except per share data)Income
                  (loss) from continuing operations available to common
                  shareholders:Basic
              
              $
              (3,953
              )
              $
              2,704Interest
                  expense on dilutive convertible notes, net of tax effect
              
              
              -
              
              
              37Diluted
              
              $
              (3,953
              )
              $
              2,741Income
                  (loss) from discontinued operations available to common
                  shareholders:Basic
              
              $
              1,307
              
              $
              (1,324
              )Diluted
              
              
              1,307
              
              
              (1,324
              )Weighted
                  average number of shares:Basic
              
              
              21,959
              
              
              18,735Add
                  shares issuable upon conversion of dilutive convertible
                  notes
              
              
              -
              
              
              8,750Diluted
              
              $
              21,959
              
              
              27,485Earnings
                  (loss) per share from continuing operations-
                  Basic
              
              $
              (0.18
              )
              $
              0.14-
                  Diluted
              
              $
              (0.18
              )
              $
              0.10Earnings
                  (loss) per share from discontinued operations-
                  Basic
              
              $
              0.06
              
              $
              (0.07
              )-
                  Diluted
              
              $
              0.06
              
              $
              (0.05
              )


As
      the
      convertible notes, warrants and options have anti-dilutive effect on the
      earnings per share for 2007, they were not included in the calculations of
      diluted earnings per share for 2007.





**NOTE
      31**  **SUBSEQUENT
      EVENT**





On
      January 31, 2008, the Company’s common stock was listed on the American Stock
      Exchange (“AMEX”).





-92-