**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB/A**


**Amendment
      No. 4 to 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, 2006**





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. oYes xNo





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





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




oYes
xNo





The
      Issuer’s revenue for its most recent fiscal year was $22,433,000.





As
      of
      March 21, 2007, 21,296,794 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 $17,466,625
      based upon a closing bid price on March 21, 2007 of $4.25 per share of common
      stock on the OTC Bulletin Board.





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







**TABLE
      OF CONTENTS**


EXPLANATORY
                NOTE
              
              
              
              2ITEM
                  1.
              
              DESCRIPTION
                  OF BUSINESS
              
              2ITEM
                  2.
              
              DESCRIPTION
                  OF PROPERTY
              
              19ITEM
                  3.
              
              LEGAL
                  PROCEEDINGS
              
              32ITEM
                  4.
              
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              32ITEM
                  5.
              
              MARKET
                  FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
                  ISSUER
                  PURCHASES OF EQUITY SECURITIES.
              
              33ITEM
                  6.
              
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION .
              
              35ITEM
                  7.
              
              FINANCIAL
                  STATEMENTS
              
              46ITEM
                  8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND
                  FINANCIAL DISCLOSURE.
              
              46ITEM
                  8A.
              
              CONTROLS
                  AND PROCEDURES
              
              46ITEM
                  8B.
              
              OTHER
                  INFORMATION
              
              48ITEM
                  9.
              
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION
                  16(A) OF THE EXCHANGE ACT.
              
              48ITEM
                  10.
              
              EXECUTIVE
                  COMPENSATION
              
              51ITEM
                  11.
              
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS.
              
              51ITEM
                  12.
              
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS.
              
              52ITEM
                  13.
              
              EXHIBITS
              
              52ITEM
                  14.
              
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES.
              
              54SIGNATURES
              
              
              
              55




**EXPLANATORY
      NOTE**





This
      Amendment No. 4 to our
      Annual Report on Form 10-KSB for the year ended December 31, 2006
      initially filed with the Securities and Exchange Commission on April 17,
      2007 is being filed to i) provide revised description of property and ii)
      present clarification of some accounting issues




**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.




2




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 67% 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 33% of the
      registered capital of Xiangzhen Mining being held by AFMG, thus effectively
      making Xiangzhen Mining a wholly-owned subsidiary of AFMG.  Xiangzhen
      Mining also holds 99% of the registered capital of Xinjiang Wuqia Tianzhen
      Mining Co., Ltd. (“Tianzhen Mining”), and the remaining 1% of Tianzhen Mining is
      held by Yu Xiao-Jing, President of AFMG, in trust for Qianzhen Mining.
  Qianzhen Mining owns 60% of Wulatehouqi Qingshan Nonferrous Metal
      Development Co., Ltd. (“Qingshan Metal”). The other 40% of Qingshan Metal is
      owned by several individual shareholders. Xiangzhen Mining owns 80% of Xinjiang
      Buerjin County Xingzhen Mining Co., Ltd. (“Xingzhen Mining”). The other 20% is
      owned by Xinjiang Tianxiang New Technology Development Co., Ltd.




The
      table
      below illustrates the corporate structure of the Company:











We
      are a
      public company. Our securities are quoted on the OTC Bulletin Board under the
      symbol “CSZM.OB.”





Our
      executive offices are located at No. 166 Fushi Road, Zeyang Tower, Suite
      305 Shijingshan District, Beijing, China 100043. Our telephone number is
      86-010-68867292.




**Our
      Industry**




Our
      primary business activity is mining, processing and distributing of fluorite
      ore, copper, zinc, lead, and other mineral products. 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 the 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.




3




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
      increase significantly. China produced 2.6 million metric tons of
      fluorite ore in 2004, 2.9 million metric tons in 2005, and 3.0 million
      metric tons in 2006.  About
      76%
      of the annual output is for domestic consumption and 24% for export in 2006,
      according to the information published in the papers of the World Fluorite
      Conference of Shanghai  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.




As
      a
      result of rapid economic development, the demand for nonferrous metals in China
      has also significantly increased in recent years. According to the statistics
      of
      China’s Ministry of Land and Resources, China was only able to satisfy less than
      40% of its demand for copper with domestic resources in 2006, and in 2010 the
      demand is expected to increase from 5.8 million to
      6.5 million metric tons. In 2005, China’s domestic consumption of zinc
      was 3.2 million metric tons, which exceeded its production of
      2.78 million metric tons.




Due
      to
      limited natural resources, the prices for fluorite and nonferrous metals have
      increased in recent years. According to the data of the Shanghai Future
      Exchange, the price for fluorite ore increased approximately 30% per year from
      2004 to 2006. The price of zinc increased 27% from 2004 to 2005 and over 90%
      from 2005 to 2006. The price for copper increased 26% from 2004 to 2005 and
      over
      65% from 2005 to 2006.




We
      expect
      the price of zinc and lead will continue to increase and the price of copper
      will remain high though it may experience significant fluctuations.




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




**Current
      Business Operations**




Our
      primary business activity is mining, processing and distributing of fluorite
      ore, copper, zinc, 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 strategic cooperative alliances with several large-scale domestic
      steel or chemical enterprises after years of experience and relationships in
      the
      mineral markets.  Such alliances combined with the large resources
      available on hand provide the Company with a competitive advantage over others
      in the same industry.




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
                mainly in the extraction and processing of fluorite oreXingzhen
                Mining
            
            Engage
                mainly in exploration of zinc-copper mineTianzhen
                Mining
            
            Engage
                mainly in the exploration of copper, zinc and lead mineQingshan
                Metal
            
            Engage
                mainly in the extraction of copper-zinc ore, some
                processing





**Description
      of Products**





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





We
      produce fluorite ore and refined fluorite powder. Fluorite ore is mainly sold
      to
      steel companies such as Taiyuan Steel, Baotou Steel and Capital Steel. In 2006,
      we produced approximately 51,000 metric tons of fluorite ore and had 17,000
      metric tons of inventory. Total sales were approximately US$4,340,000,
      accounting for approximately 82% of the revenues from our fluorite business.
      Our
      refined fluorite is used mainly by fluorite chemical companies. In 2006, we
      produced 14,800 metric tons of refined fluorite powder of which 12,800
      metric tons was sold for approximately US$917,000, accounting for approximately
      18% of our revenues from fluorite.




4





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





We
      produce refined zinc powder, refined lead powder and refined copper powder.
      We
      extract zinc-lead-copper ore and process it into these powders which are sold
      to
      metallurgical companies which in turn produce zinc, lead and copper ingots.
      In
      2006, we produced approximately 15,000 metric tons of refined zinc powder,
      2,300
      metric tons of refined lead powder and 790 metric tons of refined copper powder,
      which accounts for approximately 82.9%, 12.7% and 4.4% of our revenues from
      our
      nonferrous business, respectively.





**Sales
      and Marketing**





Currently,
      we do not have any marketing staff. Our customers send their orders to us,
      usually with cash paid in dvance. Our in-house sales staff would then try to
      fill these orders based on our actual production level. These customers have
      a
      long term relationship with us, and we expect this to continue because we
      believe that the demand for mineral products will remain high for the
      foreseeable future.





**Major
      Supplier**





We
      have
      one major supplier. During the year 2006, Wulatehouqi Zijin Mining
      Co., Ltd. was
      the
      only supplier of Qianzhen Mining’s raw minerals. In
      2006,
      Qianzhen Mining purchased approximately 134,000 metric tons of zinc-lead
      ores at a price of RMB 63 per ton and processed them into 14,000 metric
      tons of refined zinc powder and 1,900 metric tons of refined lead powder.
      In the first six month ended 30 June 2007, Wulatehouqi Zijin supplied
      approximately 14,000 tons of zinc ore to Qianzhen Mining. According to the
      supply contract between Wulatehouqi Zijin and CSZM, Wulatehouqi Zijin is still
      committed to provide additional 52,000 tons of zinc ores, which we expect to
      be
      supplied to Qianzhen in 2007. Upon
      expiration of this supply contract, Qianzhen will have to enter into a new
      supply contract with Wulatehouqi Zijin for zinc ores at negotiated prices or
      secure ore supplies from other third parties at market price. Qianzhen may
      have
      difficulties in securing quality zinc ore for its processing demand, and this
      will have a significant negative impact on the company’s operations .





On
      1 st of July
      and 20 th of
      September 2007, Qianzhen Mining entered into two supplemental agreements with
      Wulatehouqi Zijin that Wulatehouqi Zijin will provide Qianzhen Mining an
      additional 15,000 tons of zinc ores at the market price of RMB 589 per ton
       and that the price of the remaining amount of zinc ores (52,000 tons in
      aggregate) will be changed from current RMB 63 per ton to RMB 368 per ton
      effective 1 st of July
      2007. This
      change in purchase price will increase the cost of zinc powder processed by
      approximately RMB 14 million for the second half of 2007 and 2008 in aggregate.





In
      2006,
      Qingshan Metal produced on its own 41,000 metric tons of copper ores
      (processed into 790 metric tons of refined copper powder) and 5,500
      metric tons of zinc-lead ores (supplied to Qianzhen Mining). In 2007,
      Qingshan has applied to local government to increase the licensed area of
      extraction and the permit for exploration in potential areas and the management
      believe Qingshan has the potential to supply Qianzhen Mining mineral ores for
      its processing demand in 2008.




**Major
      Customers**




In
      2006,
      our revenues from our fluorite business and nonferrous business were
      $5.3 million and $17.1 million, respectively.




5




The
      following table shows our major customers (5% or more) for our nonferrous
      business as of December 31, 2006:




**Number**
            
            
            **Customer**
            
            
            **Revenue**
              **($1,000)**
            
            
            **Percentage**
              **(%)**1
            
            
            Baiyin
                Nonferrous Metals Company
            
            
            7,907
            
            
            46
            %2
            
            
            Wulatehouqi
                Zijin Mining Co., Ltd.
            
            
            5,689
            
            
            33
            %3
            
            
            Beijing
                Henghua Wanji Trading Co., Ltd.
            
            
            1,388
            
            
            8
            %**TOTAL**
            
            
            
            
            
            
            
            
            **87**
            **%**





The
      following table shows our major customers (5% or more) for our fluorite business
      as of December 31, 2006:





**Number**
            
            **Customer**
            
            **Revenue**
              **($1,000)**
            
            **Percentage**
              **(%)**1
            
            
            Taiyuan
                Iron and Steel Co., Ltd.
            
            
            770
            
            
            15
            %2
            
            
            Jinhe
                Chemical Industry Co., Ltd.
            
            
            732
            
            
            14
            %3
            
            
            Inner
                Mongolia Huadesanli Trading Co.
            
            
            539
            
            
            10
            %4
            
            
            Capital
                Steel Qian An Steel Co., Ltd.
            
            
            476
            
            
            9
            %5
            
            
            Inner
                Mongolia Baotou Steel Co., Ltd.
            
            
            308
            
            
            6
            %**TOTAL**
            
            
            
            
            
            
            
            
            **54**
            **%**




**Competition**




In
      the
      current markets for nonferrous metals and fluorite, supply in general cannot
      meet demand. In the near term, we do not expect that we will have difficulty
      selling our products. At this point, our business strategy is not to devote
      large financial resources to sales and promotion. Our competitors mainly are
      similar companies in the same geographical region.





Our
      main
      competitors in the fluorite business are:




·
            Gansu
                Gaotai Hongyuan Mining Co., Ltd., which produced 60,000 metric tons
                of fluorite ore and 20,000 metric tons of refined fluorite in
                2006.




·
            Shandong
                Hongxing Fluorite Co., Ltd., which produced 110,000 metric tons of
                fluorite ore and 30,000 metric tons of refined fluorite in
                2006.




·
            Henan
                Tongbai Yinhe Mining Co., Ltd., which produced 40,000 metric tons of
                fluorite and 5,000 metric tons of refined fluorite in
                2006.




Our
      competitors in the refined zinc powder and refined lead powder markets are
      local
      mining enterprises such as Dongshengmiao Mining Industry Co, Ltd, (Dongshengmiao
      Mining) and Wancheng Trading & Mining Co., Ltd. (Wancheng Trading &
Mining).


**Competitor**
              
              **Capacity**Dongshengmiao
                  Mining
                
                Wancheng
                  Trading & Mining
              
              600,000
                  metric tons of extracting capacity
                
                400,000
                  metric tons of extracting
                  capacity




Compared
      to our competitors, we believe we enjoy superior experience, better management
      of projects and a good and stable management team.




**Business
      Strategy**




**Expansion
      of Production Capacity to Meet Demand**


**·** **Fluorite**




We
      extracted approximately 68,000 metric tons of fluorite ores in 2006. In 2007,
      we
      expect to extract 150,000 metric tons of fluorite ores. In early 2006, we
      started a 300,000 metric ton fluorite ore project at Xiangzhen Mining. In 2008,
      this project is expected to reach 70% of its designed annual capacity and by
      2009, our Company is expected to have the capacity to extract
      300,000 metric tons of fluorite ores per year.




6




We
      produced approximately 14,800 metric tons of refined fluorite powder in 2006.
      In
      early 2006, we started to build a 200,000 metric ton/year fluorite ore
      processing plant in Sumochaganaobao. The new plant is expected to go into full
      production by the fourth quarter of 2007. We expect to produce about 30,000
      metric tons of refined fluorite powder in 2007. In 2008, this project is
      expected to reach 70% of its designed annual capacity. After completion of
      the
      project in 2009, we project that we will produce approximately 100,000 metric
      tons of refined fluorite powder.


**·** **Copper,
          Lead and Zinc**


In
      2006,
      Qianzhen Mining purchased approximately 130,000 metric tons of zinc-lead
      ore and processed them into 14,000 metric tons of refined zinc powder and
      1,900 metric tons of refined lead powder. In 2006, Qingshan Metal produced
      41,000 metric tons of copper ores (processed into 790 metric tons of
      refined copper powder) and 5,500 metric tons of zinc-lead ore (supplied to
      Qianzhen Mining). In 2007, Qianzhen Mining is expected to continue to purchase
      raw materials from third parties. Qingshan Metal plans to produce
      65,000 metric tons of copper-zinc ores. Since its capacity is
      70,000 metric tons, it may have to purchase copper-zinc ores from third
      parties. Qingshan Metal is planning to expand its extracting capacity in June
      2007 and by April 2008, it is expected to be able to produce 100,000
      metric tons of copper ores per year which will supply Qianzhen Mining, and
      thereafter additional 50,000 metric tons of zinc ores per year which
      Qingshan Metal itself will process.




In
      July
      2006, we 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 initially
      go
      into production in early September of 2007 and is projected to produce 5,000
      metric tons zinc ore powder and 2,500 metric tons copper ore powder in 2007.
      In
      2008, we expect to produce 200,000 metric tons of zinc and/or copper powder
      which is expected to be processed into 14,000 metric tons zinc ore powder and
      7,100 metric tons copper ore powder.




**Increase
      Exploration Activities**




Tianzhen
      Mining has just finished exploration activities at the Yangye Copper Mine &
Huayuan Copper Mine and we expect to obtain a mining license from Xinjiang
      Bureau of Land and Resources in 2007.




The
      Huayuan, Yangye and Yangshugou copper mines owns three properties situated
      in
      the same district with one prospecting license. We expect that there is a
      possibility to find more and high category mineral resources in this area.
      Once
      the mining license is issued, a general exploration program will be launched
      to
      upgrade the resource category and define the extensions of mineralization by
      drilling and tunneling. The budget for this program is shown in table 1-1.
      This
      exploration program will be funded by the Company





**Table
      1-1:** **Exploration
      budget for Huayuan,** **Yangye
      and Yangshugou** **Properties**




Item
            
            Unit
            
            Quantity
            
            Budget
                (USD)
            
            Budget
                (RMB)1
            
            Drilling
            
            m
            
            200
            
            26,000$
            
            200,000Ұ2
            
            Tunnel
            
            m
            
            1783.2
            
            154,708$
            
            1,175,784Ұ




Currently,
      our company is conducting exploration activities in Wuzunagen Lead &
Zinc Mine and Jiangejier Lead & Zinc Mine owned by Tianzhen Mining. We
      plan to further increase exploration activities there to
      update resource category and extend mineralization layer. The exploration plan
      and budget is shown in table 1-2 .
      We
      signed a contract with Xinjiang Nonferrous Geology Prospecting Bureau to do
      the
      exploration work for us, and we expect to complete a reserve evaluation report
      which is a requirement for applying mining licenses for these two mines in
      2007 .




**Table
      1-2:** **Exploration
      budget for Jiangejier Property**




Item
            
            Unit
            
            Quantity
            
            Budget
                (USD)
            
            Budget
                (RMB)1
            
            Drilling
            
            m
            
            2700
            
            25,000$
            
            3,000,000Ұ2
            
            Tunnel
            
            m
            
            500
            
            130,000$
            
            1,000,000Ұ




7




Keyinbulake
      Cu-Zn Mine is another important property of our company. The development of
      this
      mine is planned with two steps. The first step is to obtain a mining license
      as
      soon as possible. The second step is to conduct an exploration program to define
      the mineral resources of the property, which provides basis for mine plan and
      engineering. The exploration details and budget are shown in table 1-3. This
      exploration program will be funded by the Company.




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




**Item**
            
            **Unit**
            
            **Quantity**
            
            **Budget
                (USD)×1000$**
            
            **Budget
                (RMB)×1000Ұ**1
            
            
            **Topographical
                survey**
            
            
            km
            2
            
            25
            
            
            17.1
            
            
            130.002
            
            
            **Geological
                survey**
            
            
            km
            2
            
            25
            
            
            29.6
            
            
            220.003
            
            
            **Geophysical
                prospecting**
            
            
            
            
            
            
            
            
            52.6
            
            
            400.004
            
            
            **Drilling**
            
            
            m
            
            
            8000
            
            
            842.00
            
            
            6400.005
            
            
            **Trenching**
            
            
            m
            3
            
            6500
            
            
            85.50
            
            
            650.006
            
            
            **Assaying**
            
            
            Pies
            
            
            2600
            
            
            40.60
            
            
            300.007
            
            
            **Other
                geology item**
            
            
            
            
            
            
            
            
            105.30
            
            
            800.008
            
            
            **Infrastructure**
            
            
            
            
            
            
            
            
            78.9
            
            
            600.00**Total**
            
            
            
            
            
            
            
            
            1,250.00
            
            
            9,500.00




A
      preliminary exploration schedule as follow:




·
            From
                January to February 2007: information collection, desk-top study,
                field
                work planning and arrangement;




·
            From
                May to October 2007: field work begins, including geological survey,
                geophysical prospecting, trenching and drilling.




·
            From
                November 2007 to March 2008: data analysis and geological report
                preparation.




**Acquire
      More Mineral Properties**




To
      increase our reserve and insure supply to our processing facilities, we plan
      to
      acquire domestic and foreign large-scale mines when the right opportunity
      arises. The Company is in the process of acquiring a gold-copper mine in
      Kyrgyzstan. We also expect to acquire additional nonferrous metal mines
      domestically which have good conditions and possess all necessary governmental
      licenses.




**Expand
      into Down Stream Chemical Business**




To
      increase the profit margin of our business, we may plan to expand into the
      fluorite chemical industry which enjoys a very high margin and a rapidly growing
      market through the acquisition of some fluorite chemical companies.




**Competitive
      Advantages**




We
      believe we have the following competitive advantages:




·
            One
                of the best fluorite mines in China which has high purity
                fluorite mineral and good extracting
                conditions.




·
            Experienced
                management team. Most of our officers have more than 20 years of
                experience in this industry.




·
            We
                have good relationships with local government agencies.




·
            Compared
                to our competitors, we believe we possess relatively more exploration
                rights which could provide potential upside to our existing reserves
                and
                resources.




8


·
            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.




All
      of
      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 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.




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




**Employees**




As
      of
      December 31, 2006, we employed 463 full-time employees, of whom approximately
      18% are with Qianzhen Mining, 56% are with Xiangzhen Mining, 8% are with
      Tianzhen Mining (nonferrous copper, zinc, lead and other metal ore mining and
      processing), 13% are with Qingshan Metal (copper and zinc ore mining) and 5%
      are
      with Xingzhen Mining (holding exploration rights of copper ore and zinc ore)
      Approximately 18% of our employees are management personnel, and 3% are sales
      and procurement staff. In terms of education level, 8.5% of our employees have
      a
      college degree or higher.




9




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 $29,335, for fiscal year 2006.




**Risk
      Factors**




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




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




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




10




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 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 as 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 revenues are 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 amount 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.





**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 complete an acquisition of a gold mine in
      Kyrgyzstan. 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.




11




**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;




·
            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.





12




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 available and we may be unable to meet the needs of
      our
      customers.





**We
      may not succeed in listing our common stock on a U.S. stock exchange, resulting
      in the payment of increased interest and liquidated damages to our primary
      lender.**





On
      December 27, 2006, we issued $28,000,000 original principal amount of
      convertible notes to Citadel Equity Fun Ltd. The convertible notes are further
      described in the Managements Discussion and Analysis section under “CONTRACTUAL
      OBLIGATIONS AND COMMERCIAL COMMITMENTS - Convertible Notes”. The indenture
      relating to the convertible notes contains a covenant that we will finalize
      the
      listing of our common stock on the New York Stock Exchange, the American Stock
      Exchange or NASDAQ by November 15, 2007. If we fail to obtain such listing
      by
      that time, the interest rate on the Notes will increase from 6.75% to 10.50%
      (dropping to 8.5% once we obtain the listing), and we will be required to pay
      liquidated damages to the holders of the convertible notes of $750,000. The
      convertible notes provide for additional liquidated damages if we fail to keep
      other covenants relating to (i) appointment of auditors, (ii) appointment of
      a
      chief financial officer with U.S. listed company experience, or (iii) honoring
      a
      right of the holder of the notes to nominate a director to our board of
      directors. Consequently, if we are unable to procure a listing on a U.S. stock
      exchange by November 15, 2007, or to honor our other covenants under the Notes,
      we will incur additional expenses and our profitability will
      suffer.




**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 metals 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 metals 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.




13





**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.




**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.




14




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.





**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.




15





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.





**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
      Related to the Market for Our Stock**





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





The
      trading market in our common stock is the Over the Counter Bulletin Board.
      The
      Bulletin Board is an unorganized, inter-dealer, over-the-counter market that
      provides significantly less liquidity than NASDAQ or Amex, and quotes for stocks
      included on the Bulletin Board are not listed in the financial sections of
      newspapers, as are those for the NASDAQ or Amex Stock Market.


Trading
      in our common stock has been sporadic and does not constitute an active market.
      From September 16, 2006 to March 21, 2007, our trading volume has been very
      low
      and inconsistent, ranging from no trading at all to a high of 56,600 shares.
      During the same period, the high sale price was $9.00 and the low sale price
      was
      $3.10. Prior to the acquisition of AFMG, we were a publicly traded shell and
      the
      transactions in our stock while we were a shell are not relevant. On March
      21,
      2007, the closing price was $4. 25.





We
      currently have approximately 675 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 difficulty 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.




16





**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:




·
            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 acquisitions 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.




17


In addition,
        future acquisitions by us may result in:




·
            potentially
                dilutive issuances of our equity securities;




·
            the
                incurrence of additional debt;




·
            restructuring
                charges; and




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




**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. Since our Common
      Stock is currently quoted on the OTCBB, it is not currently subject to a number
      of such 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 list its securities on either AMEX or NASDAQ
      markets in the event we ever attempt to do so.




**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 will 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.




18




**ITEM
      2**  **DESCRIPTION
      OF PROPERTY**




**Introduction**




China
      Shenzhou Mining & Resources Inc. (China
      Shenzhou) holds two mining licenses and four exploration permits at the end
      of
      2006, the mining licenses include:




**Table** **2-** **1** **:
      Summary of Properties for China Shenzhou**


**Type
                          of Licence**
                      
                      **Name**
                      
                      **Location**Sumochagan
                          Aobao Fluorite Mine(Xiangzhen Mining)
                      
                      Siziwangqi,
                          Inner MongoliaMining
                      
                      No
                          2 Mine of Qingxing Copper
                      
                      Wulatehouqi,
                          Inner MongoliaMine(Qingshan
                        Metal)Jiangejier
                          Pb-Zn property (Tianzhen Mining)
                      
                      Wuqia
                          County, XingjiangHuayuan
                          Copper Property (Tianzhen Mining)
                      
                      Wuqia
                          county, XingjiangExploration
                      
                      Wuzunagen
                          Pb-Zn Property (Tianzhen Mining)
                      
                      Wuqia
                          county, XingjiangKeyinbulake
                          Cu-polymetallic Property (Xingzhen Mining)
                      
                      Buerjin
                          county, Xingjiang


Figure
      2-1 shows the general location of some properties and Table 2-2 and Table 2-3
      present detailed information with respect to some properties.










19




**Table
      2-2: Mining Licenses Held by the Company**


**Property**
              
              **Sumochagan
                    Aobao Fluorite Mine****(between
                  exploration line 21-04)**
              
              **No
                  2 Mine of Qingxing Copper Mine,**License
                  Number
              
              1526000220071
                  (152000630047)
              
              1500000530858Inner
                  Mongolia Xiangzhen Mining
                Group
                  Ltd.
              
              Qingshan
                  Nonferrous MetalOwner
              
              
              
              Development
                  Co Ltd.Valid
                  period
              
              from
                  October 2006 to May 2007
              
              from
                  October 2005 to October 2008Area
                  (km2)
              
              0.909
              
              0.1211Mining
                  method
              
              Underground
                  Mining
              
              Underground
                  MiningMining
                  scale
              
              80,000t/a
              
              60,000t/aMining
                  ore types
              
              Fluorite
              
              Copper,
                  Zinc and SulfurMining
                  Level (m)
              
              700-1060
              
              1417-1320




**Table
      2-3: Exploration Licenses Held by the Company**


**Property**
              
              **Huayuan
                  Copper Property**
              
              **Jiangejier
                  Property**License
                  Number
              
              6500000731651
              
              6500000731651Owner
              
              Xinjiang
                  Wuqia Tianzhen Mining Co Ltd
              
              Xinjiang
                  Wuqia Tianzhen Mining Co LtdValid
                  period
              
              from
                  31 March 2004 to 31 March 2007
              
              from
                  26 April 2007 to 26 April 2008Area
                  (km2)
              
              31.71
              
              21.07Contractor
              
              No.2
                  Geological Brigade of Bureau of Geology
              
              Dadi
                  Mining Technique and Development Companyand
                  Mining, Xinjiang Uygur Autonomous Region
              
              Ltd,
                  Xinjian Uygur Autonomous
                  Region


The
      mineral rights in China are categories into two types as exploration right
      and
      mining right, separately, where:




·
            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 produce
                mineral products.





According
      to the Chinese law, an exploration license is generally valid for 3 years and
      can be extended not more than 2 times with each not exceeding two years. The
      mining license is usually valid in China for up to 10, 20 and 30 years
      corresponding to small scaled, medium scaled, and large scaled deposit or mine,
      respectively. The mining license can be renewed with the increased area and
      longer validation period subject to relevant regulations. Application for
      renewal needs to be submitted at least 30 days before the expiration date of
      the
      existing mining license.





**Description
      of Properties**





**Sumochagan
      Aobao Fluorite Mine**





**Location,
      Access, Climate and Physiography**





Sumochagan
      Aobao fluorite mine is located in Siziwang Qi of Wulanchabu City in Inner
      Mongolia, China which is defined by E111°15′35′′~111°16′30′′ and
      N43°07′10′′~43°07′49′′. Access to the area is convenient by an
      approximately 90km simple dirt road from the mine to Erlianhot and then
      about 250km freeway or national highway to Hohhot, the provincial capital city
      of Inner Mongolia. Climate in the area is characterized by a typical continental
      and windy with low precipitation and high evaporation, and large temperature
      difference between night and day. The topography is gently grassland with an
      elevation difference varying from 20 to 40m. Figure 2-2 shows the general
      location of Sumochagan Aobao Fluorite Mine.




20










**Mining
      License Description**





Inner
      Mongolia Xiangzhen Mining Group Co Ltd. (Xiangzhen) holds the mining license
      of
      the area between prospecting line 21 and line 04 of Sumochagan Aobao Fluorite
      Deposit. The mining license Number is 1526000220071 with a Temporary Extension
      No. 1526000630047 which was issued by Wulanchabu City Bureau of Land and
      Resources in Inner Mongolia and had expired on May 2007.  Xiangzhen has
      lodged an application to Inner Mongolia Bureau of Land and Resources for
      renewing the mining license and the new mining license is expected to be
      obtained soon.





**Previous
      Exploration and Development**





In
      1975,
      No.1 geological survey brigade of Inner Mongolia conducted a 1/200,000
      geological survey in this area and found Sumochagan Aobao Fluorite deposit.
      The
      subsequent resource estimated was completed and 1.716 million tonnes fluorite
      ore was defined at that time.





From
      1981
      to 1987, the No.102 geological brigade of Inner Mongolia conducted a exploration
      program in more detailed level and submitted a geological report entitled
“Geological Report of Sumochagan Aobao Fluorite Deposit of Siziwangqi, Inner
      Mongolia ” in 1987.





The
      deposit was extracted by a company which was owned by the local government
      in
      1978. The company was renamed as North Fluorite Group Corporation Ltd in 1997
      and then the mining right was purchased by Xiangzhen Mining Group
      Ltd.





**Mining
      Operation**





Before
      1997, the open pit mining was used and the pit was 58m deep with an elevation
      of
      1065-1007m.




21





Since
      2002, the underground mining had been conducted. Shrinkage method was used
      for
      the ore of high grade and the sublevel caving method proposed for ore of low
      grade. The designed mining capacity of the Sumochagan Aobao Fluorite Mine is
      80,000t/a. The power supply is diesel generator and water supply for production
      and living is obtained from ground water.





The
      major
      equipment in the mine are comprised of 4 sets of compressors (20m 3 ),
      10
      sets of z-20w rock loaders, 8 sets of electric locomotives (8 tonnes), 130
      sets
      of V-type mine cars (0.75m 3 ),
      ventilation fans, power transformers and so on.





**Ore
      Processing**





The
      fluorite ores are transported by trucks from the mine into the processing plant
      with an annual treatment capacity of 60,000 tonnes. The process includes a
      two-stage closed crushing with primary and secondary grindings, one stage of
      roughing flotation, one stage of scavenging, and six stages of cleaning, and
      is
      then followed by thickening, filtrating and drying, and finally packing for
      delivery. The major facilities consist of ball mill workshop, flotation
      workshop, press and filtration workshop, concentrate pools, tailings dams,
      laboratory, electronic scales, water supply wells, power supply lines and
      offices, etc. And the major equipments are jaw-type crushers (2 sets, 250x400mm
      and 150x750mm), ball mills (3 sets, 1.5mx3m and 1.5mx4m), 4m 3 flotation
      machines (29 sets), Φ 12m
      thickeners (1 set), classifiers (2 sets), 20m 2 filters,
      power transformers and power distribution panels and so on.





The
      concentrator is located at about 45km southeast of the mine area. The
      concentrate recovery is 83% and the grade of fluorite concentrate is over 95%.
      Since 2006, a new concentrator with the design capacity of 200,000 tonnes per
      year was built just next to the fluorite mine, within which new process and
      new
      equipment would be utilized.





The
      main
      component of fluorite ore is CaF 2 ,
      which
      is a useful and valuable in fluorine chemical, and for steel making as an
      impregnate, glass making and as additive, which has a wide market prospect
      and
      market demand.





**Property
      Geology**





Sumochagan
      Aobao fluorite deposit is located in the Suniteyou Banner Fold Zone in
      late-Varican, Inner Mongolia Fold Belt. The main strata in the property are
      comprised of late Paleozoic lower Permian System Xilimiao Formation
      (P 1 xl)
      which
      includes three sequences of P 1 xl 2-4 ,
      P 1 xl 3 ,
      and
      P1xl4 -1 ,
      Proterozoic Ailegemiao Formation and Jurassic Chagannoer group. The fluorite
      mineralized body and mineralized marble occurred in the lower of P 1 xl 3 and on
      the top of P 1 xl 2-4 .





The
      mineralized body strikes 40°-60°, dips to 310°-330° at an angle 21°-47°, with
      stable, continual bedded shape as well as it is 1100m long and 0.52-22.48m
      thick
      with the largest extension of 1540m. The economic mineral is fluorite only,
      which main composition is CaF 2 and the
      gangue minerals are comprised of quartz, chlorite and sericite. According to
      the
      level of grade, the mineralized body divided into high grade mineralized
      material (rich ore) which CaF 2  is
      more
      than 60%, and low grade mineralized material (lean ore) which CaF 2 is from
      20-60%.





**Resource**





In
      1987,
      No. 102102 Geological Brigade of the Inner Mongolia Autonomous Region submitted
      the “Geological Report of Sumochaganaobao Fluorite Deposit of Siziwangqi, Inner
      Mongolia ”.  The Inner Mongolia Geology Mining Bureau examined and approved
      the resource in the Sumochaganaobao Fluorite Deposit in the report by issuing
      the document No. Nei-Di(1987)No. 115 on October 23, 1987.  The bureau
      of land and resource of Wulanchabu City commissioned the Land-resources
      Institute of Inner Mongolia to verify the resources in the Mining License area.
       The Institute submitted “the Verification Report of Resources 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 resources
      statement in the report where the indicated resource (332) is 2.509 million
      tons
      of fluorite with the average grade of CaF 2 at
      63.24%.




22





The
      parameters used in resources estimate are set forth below:




·
            Low
                  grade mineralized materials: lowest cut-off grade(CaF2) ≥30%,
                  minimum minable thickness 1m, and maximal band
                  thicknessâ2m;


·
            High
                grade mineralized materials: grade (CaF2)≥65%,
                (S)ä1%,
                minimum minable thickness 0.7m, and band thickness
                2m;





The
      criterion of Barite, fluorite and Boron Exploration was implemented in the
      estimate of resources.





**Sampling,
      Analytical Procedures and Quality Control**





The
      samples were taken by splitting the core into half which one half is collected
      as the sample, and other half was stored in core box. Sample length was usually
      varying from, 0.5m to 1.5 m and core recovery is over 85%.





Trenching
      samples were collected along 10cm wide and 5cm deep channels in fresh rock
      in
      the wall of adits and each sample was 1-2m in length.





Samples
      are crushed by three jaw crushers step-by-step to 0.9mm in size and then are
      split. About 500 grams of each sample is sent for pulverization and the rest
      would be kept as coarse rejects. To the samples of this project, 100 grams
      of
      each pulp sample is sent to the lab for assaying and the rest is stored. Items
      of CaF 2 ,
      CaCO 3 ,
      SiO 2 ,
      Fe 2 O 3 and S
      are assayed in the lab.





Assaying
      of samples was completed in the laboratory of the No.102 geological brigade
      of
      Inner Mongolia and was checked by the Central Laboratory of Bureau of Geology
      Inner Mongolia. Internal and external check samples were assayed, 95% of samples
      were sent for internal check and 6.4% for external check. The eligible rate
      of
      the checking samples was above 95%. The criterion of Barite, Fluorite and Boron
      Exploration was also implemented in sample assaying.





**Potential
      for Further Exploration**





In
      China, Categories
      331 and 332 resources in the deposit may be based on for mine plan, and do
      not
      need further geological exploration. Category 333 need to be upgraded to
      Category 331 or 332 by the implementation of additional geological exploration
      which could be carried out by adits of mine tunnel. There is a low potential
      to
      find new mineralized body or extensions of existing mineralized body since
      the
      deposit is well defined and well understood by geologists.





**Categorization
      of Mineral Resources and Ore Reserves in China**





The
      system for the categorisation of mineral resources and ore reserves in China
      is
      in a period of transition which commenced in 1999. The traditional system uses
      five categories based on decreasing levels of geological confidence - Categories
      A, B, C, D and E. The new system promulgated by the Ministry of Land &
Resources (MLR) in 1999 uses three-dimensional matrices, based on economic,
      feasibility assessment and geological degrees of confidence. These are
      categorised by a three-digit code in the form of “123”. This new system is
      derived from the UN Framework Classification proposed for international use.
      All
      new projects in China must comply with the new system.





The
      resources in this description was estimated based on old system and was checked
      against the new one.





In
      China,
      the methods used to estimate the resources and reserves are generally prescribed
      by the criterion or standard which are approved by the relevant government
      authority, and are based on the level of knowledge for that particular
      geological style of deposit. The resource classification categories are assigned
      largely on the basis of the spacing of sampling, trenching, underground tunnels
      and drill holes. The parameters and computational methods are also prescribed
      by
      the criterion and standard including cut-off grades, minimum minable thickness,
      maximum thickness of band, and average minimum ‘industrial’ or ‘economic’ grades
      required.




23







**No.
      2 Mine of Qingxing Copper Mine**





**Location,
      Access and Physiography**





No
      2 Mine
      of the Qingxing is located at Sandaoqi Town, Wulatehou Banner, Inner Mongolia
      of
      China and is defined by E106°45′15′′~106°45′45′′ and N40°57′14′′~40°57′45′′. It is
      conveniently accessible by dirt road which is 30km southeast to Shanba Town,
      Hangjinghou Qi connected with a highway and 70km to Linhe Railway Station of
      Beijing-Lanzhou Railway Line. The topography character is described by middle
      and low mountains with deep incision valleys. The climate of this area is
      continental with maximum rainfall of 420mm/a and minimum of 140mm/a. Figure
      2-3
      shows the index map of the property.










**Figure
      2-3: Index Map of No 2 Mine of Qingxing Copper Mine**





**Mining
      License Description**





The
      mining license (No. 1500000530858) of Qingxing Copper Mine, No 2 Mine is held
      by
      Wulatehouqi Qingshan Nonferrous Metal Development Co. Ltd. (Qingshan) which
      covers 0.1211km 2 and is
      defined by the elevations of 1417m-1320m. Its valid period is from October
      2005
      to October 2008. Qingshan has submitted an application for a new mining license
      of 0.6495 km 2 to
      extend
      the mining area.




24





**Previous
      Exploration and Development**





In
      1957,
      the Wuyuan Langshan Geological Brigade of the Geology Ministry conducted a
      project of 1/500,000 geological survey and around the mine area.





In
      1960,
      the Exploration Company of Industry Bureau, Inner Mongolia conducted prospecting
      and detail exploration projects and submitted a geological report including
      resource estimate.





In
      October, 1993, the No.1 brigade of the Nonferrous Geological Bureau, Inner
      Mongolia compiled a geological report by summarizing the previous exploration
      information titled “the Geological Report of Deposits III &Vin Tanyaokou
      Poly-Metal field in Wulatehou Qi, Inner Mongolia.





**Mining
      Operation**





In
      2004,
      the deposit had been extracted by underground mining method with the designed
      capacity of 60,000t /a with mining levels varying from 1417 to
      1320m.





At
      the
      end of 2006, 173,800 tonnes of ore with an average copper grade of 0.76% had
      been mined out and the mining loss is 43,400 tonnes of ore. As a result, the
      consumption of the resources is 217,200 tonnes of ore containing 1661.10 tonnes
      of metal copper.





The
      major
      equipment in the mine includes 3 sets of compressors (20m 3 /6
      m 3 ),
      3 sets
      of z-20w rock loaders, 2 sets of diesel haulage vehicles, 40 V-type mine cars
      (0.75m 3 ),
      ventilation fans, power transformers and so on.





There
      is
      a 10 KV power supply line for mining production and water is supplied by special
      water wagon.





**Ore
      Processing Operation**





The
      mine
      possesses one concentrator with the processing capacity of 50,000t/a. The output
      copper concentrate is at grade of 15-20% (Zinc concentrate 40-46%) with
      concentrate recovery rate of 80%. The process of one-stage open-circuit crushing
      and two-stage ore grinding is adopted in the concentrator.





The
      major
      facilities of concentrator are ball mill workshop, flotation workshop, press
      and
      filtration workshop, concentrate pools, tailings houses, lab, electronic scales,
      water supply wells, power supply lines and offices etc.. The major equipments
      are 2 ball mills (1.83mx3.6m/130kw motor and 1.2mx4.5m/75kw motor), 15 sets
      of
      flotation machines (6A, 11kw), 2 sets of power transformers (315KVA), one
      classifier (1.2mx10m), 20m 2 filter,
      pumps and power distribution panels.





**Property
      Geology**





Geologically,
      Qingxing Copper Mine is located at west part of the Langshan-Baiyunebo
      geotectogene, north boundary of North China Platform. The main strata in the
      mine area are Zhaetaishan Formation member II (Pt2zh2) and member III (Pt2zh3).




The
      Zhaetaishan member II (Pt2zh21) bottom section: lower part consisted of
      carbonaceous phyllite; carbonaceous slate inter-bedded calcareous chlorite
      schist, chlorite quartz schist and lens of crystal carbonate; the upper part
      consisted of biotitic quartz schist, andalusite-mica schist and bearing-carbon
      mica quartz schist. (Pt2zh22) medium section: carbonaceous slate, carbonaceous
      phyllite, banded carbonaceous quartzite, bearing-carbon quartzite, dark
      quartzite and tremolite, diopsidite as well as other stone rocks. The
      mineralized body all occurred in this member. (Pt2zh23) top section: mica quartz
      shist, carbonaceous mica quartz shist, carbonaceous phyllitic quartz
      shist.




The
      Zhaetaishan member III (Pt2zh3) bottom section: quartz shist, sheet quartzite.
      (Pt2zh32) top section: middle-thick quartzite inter-bedded thin quartzite.




The
      strata occur in monocline with the striking in southwest 220-260, dip to
      northwest 300-320 with the dip angle 30-89. The all faults took place after
      the
      mineralized body formed, which destroyed the bodies.




25




The
      mineralized body is hidden deposit with gossans and strictly controlled by
      the
      stratum. There are two mineralization zones found, No.3 mineralization zone
      and
      No.5 mineralization zone. No.3 zone situated in north of the property, which
      length is 500m and width 10-30m.  in
      there
      the mineralized body 1-Cu-1 and 2-Zn-1, 3- Zn -2 were defined. No.5 zone
      situated in middle-south of the property with length 850m, width 10-40m, and
      mineralized body 4- Cu-2, 5 Zn-3 as well as 6 Zn-4 were defined.




The
      main
      minerals are chalcopyrite, galena, sphalerite and pyrite. The main gangue is
      quartz, calcite and chlorite.




**Resources**




No.
      511
      Brigade of Nonferrous Geological Exploration Bureau estimated and verified
      the
      resources of the property, and the estimate results are: the mined Cu ore
      217,200 tons, Cu metal 1661.10ton. The accumulated total mineral (Cu + Zn)
      resource is 2.46 million tons.




The
      parameters used in estimate are shown as follows, it is determined based on
      the
      criterion of Copper, Lead, Zinc, Silver, Nickel and Molybdenum Exploration
      of
      China (T0214-2002).




Cu
      mineralized body: cut-off grade: low Cu ≥0.4%, minimum minable ≥1m and maximum
      band ≥2m.




Useful
      component accompany: Pd ≥0.2%, Zn≥ 0.4% and S≥ 1%.




Zn
      mineralized body: cut-off grade: Zn ≥ 1%, minimum minable ≥1m and maximum band
≥2m.




Useful
      component accompany: Cu ≥0.06%, Ag≥ 2g/t and S≥ 4%.




In
      general, the majority of resources with category 332 or higher can be converted
      into probable reserve once a proper feasibility study has been conducted. In
      the
      current case, as the economic cut-off grade of ore in the feasibility study
      is
      the same as the geological cut-off grade while not based on economic evaluation
      and mine design, the conversion simply can not be performed. As such, the
      reserve has to be treated as zero unfortunately. The company is now considering
      carrying out a proper feasibility study that will be in compliance with the
      guide 7 of AMEX.





**Sampling,
      Analytical Procedures and Quality Control**





The
      samples were taken by splitting the core into half which one half is collected
      as the sample, and other half was stored in core box. Sample length was usually
      0.5m to 1.0 m and core recovery is over 75%.





Trenching
      samples were collected along 10cm wide and 5cm deep channels in fresh rock
      in
      the wall of adits and each sample was 1-2m in length.





Assaying
      of samples was completed in the laboratory of the No.511 Brigade of Nonferrous
      Geological Exploration Bureau and check by the Central Laboratory of Bureau
      of
      Geology Inner Mongolia. For copper and nickel assays, 9.5% of samples were
      sent
      for inner checking and 6.4% for external checking. The eligible rate of the
      checking samples was above 95%.





**Potential
      for Further Exploration**





In
      the
      mining process, two mining tunnels in 1390m and in 1350m level intercepted
      Cu-2
      mineralized body and increased the control degree. If further exploration will
      conduct in the future, more mineral resources could be defined, such as drilling
      will upgrade part of the resources to Category 332. Underground exploration
      (associated mining operation) should upgrade the resource level, and disclose
      the extension the mineralization in depth.




26





**Tianzhen
      Mining**





China
      Shenzhou Mining & Resources, Inc has two prospecting licenses of Huayuan
      Copper Mine which includes three occurrences (Huayuan Copper Mine, Yangshugou
      Occurrence and Yangye Occurrence) and Jiangejier Pb-Zn Mine, held by Xinjiang
      Wuqia Tianzhen Mining Co Ltd.




**Location,
      Access and Physiography**





Huyuan
      property is located at Wuqia County in Xinjiang Autonomous Region of China
      and
      is 4 kilometers southwest of Kangsu Town, 116 kilometers northwest of Kashi
      city.










**Figure
      2-4: Index Map of Huayuan Copper Project**





The
      property is defined by E74o56′23′′ ~ 87o9’30” and N39o41’38”~39°42′02′′, as well
      as the area
      covers 1.08km 2 as shown
      in Figure 2-4. Access
      to the area is convenient by a simple road to Kangsu Town which connected Wuqia
      County through a highway way, and then a national highway to Kashi City, a
      major
      city in the region. The climate over the area is typical continent with rare
      precipitation and high evaporation. The topography is characterized by
      middle-high mountains with the elevations of 1900-2200m above the sea level.





**Property
      Geology**





The
      property is located in Kushiweike syncline of the Nantianshan boundary
      geotectogene and strata spread over the area consist of Paleocene to Pliocene
      strata which includes purple-red mud stone, silt stone and grey-yellow
      calcareous sand stone as well as grey-green granule-middle calcareous sand
      stone. Copper mineralization occurs in light grey granule-middle grain
      calcareous sand stone of which strike, dip and thickness are extremely different
      in different place.





The
      No. 2
      Geological Brigade of the Bureau of Geology and Mining, Xinjiang Uygur
      Autonomous Region conducted a prospecting project during the period of
      April-June 2006. Mineralized body I -1, I -2
      and I -4,
      strike 75°-255° and dip to north at 17°-27° , were defined within a copper
      mineralization belt which numbered Mineralization I in
      Huayuan area.




Mineralized
      body I , II -1, II -2, II -3, II -4, II -5
      and II -6
      within
      two copper mineralization belt which numbered were defined in Yangshugou area.




27





In
      Yangye
      area, two copper mineralization belts were discovered which numbered
      Mineralization I and
      Mineralization II .
      Mineralized bodies I -1
      and I -2
      were
      defined in mineralization I and
      mineralized body II -1
      and II -2
      were
      defined in mineralization II ,
      respectively.





Four
      mineralized bodies were defined in the Jiangejier Pb-Zn property. Main minerals
      are galena, sphalerite, chalcopyrite, malachite, pyrite, limonite and hematite.
      The main gangues are quartz, feldspar, calcite and chlorite.





The
      metallic minerals consist of malachite, cuprite, chalcocite and little natural
      copper and main gangue is quartz. This mineralized
      bodycan be determined as sedimentary type according to the present
      research.




**Parameters
      for Resources Estimates**




The
      parameters used in estimate are based on the criterion of Copper, Lead, Zinc,
      Silver, Nickel and Molybdenum Exploration of China (T0214-2002) and associated
      with the property practical condition. Cut-off grade of Cu used for resource
      estimate is 0.5% and minimum minable thickness is 1m with maximum band of
      2m.





**Sampling,
      Analytical Procedures and Quality Control**





The
      samples were taken by splitting the core into half which one half is collected
      as the sample, and other half was stored in core box. Sample length was usually
      0.5m to 1.5 m and core recovery is over 80%.





Samples
      were crushed by three stages of crushing, and then 0.5kg of each sample was
      pulverized to -160mesh, then 50g of each pulp was sent for assaying.





The
      assaying of samples was completed in the laboratory of the No.2 Geological
      Brigade of the Geological Exploration Bureau of Xinjiang Autonomous region,
      and
      checked by the Central Laboratory of Bureau of Xinjiang Autonomous Region.
      9.5%
      of total samples were chosen for internal checking and 6.4% for external
      checking. The eligible rate of results of the checking samples is more than
      95%.





**Potential
      for Further Exploration**





The
      potential to find economic copper deposits in the exploration permit is good
      due
      to the fact that mineralization belts were defined and fill-in drilling will
      upgrade some of the resources to Category 332 or to Category 331. If the
      drilling distribution is favourable, the extension of the mineralization maybe
      possible and there is potential to define extensions of mineralization.




28





**Keyinbulake
      Cu-Zn Property**





**Location
      and Access**





Keyinbulake
      Multi-Metal Property is
      located in Buerjin County of Aletai District, Xinjiang Autonomous Region in
      China. The Permit is defined by E 87o17′30′′-87o9’30” and N 47o58′30” - 47o59′45”
and covers 3.59 km 2 . It is
      65km northwest of Aletai city, 20 km northeast of Buerjin County and is 26
      km
      northeast of Dulaiti town. The highway from Aletai city to Dulaiti Town crosses
      the property so as access is convenient. Figure 2-5 indicates the general
      location of the property.










**Figure
      2-5 Index Map of Keyinbulake Multi-Metal Property**





**Property
      Geology**





According
      to the previous exploration, some copper, znic and silver mineralization of
      medium to large size had been defined in Keyinbulake property. In the adjacent
      area of the permit, Ashele large copper deposit, Tiemuer Fe-Cu deposit and
      Keketale large Pb-Zn deposit had been defined in different time.





**Property
      Geology**




According
      to the previous exploration, there is a geological condition forming large
      or
      medium deposit of copper, zinc and silver in Keyinbulake property, based on
      the
      facts of ten mineralization zones prospected. Sulfured mineralized body
      intercepted by drilling in the deep and the chemical and physical abnormity
      existing. In the adjacent district, Ashele large copper deposit and Tiemuer
      Fe-Cu deposit as well as Keketale large Pb-Zn deposit was defined continually.




**Mineral
      Resources**




From
      previous exploration work, the mineral (copper-zinc) resources are 4.1435
      million tons.




**Qianzhen
      Mining**




Qianzhen
      Mining owns a concentrator with the annual treatment capacity 200,000 tons.
      The
      processes of concentrator include two-stage closed crushing with primary and
      secondary grindings, one step of roughing flotation, one step of scavenging,
      and
      three steps of cleaning, and then thickening, filtrating and drying. The major
      facilities of concentrator include a ball mill workshop, a flotation ore
      processing plant, filtration workshop, conce ntrate
      pools, dams, laboratory, electronic scales, water supply wells, power supply
      lines and offices, etc. The major equipments are ball mills (3 sets, 2.1mx3m
      and
      1.5mx3m), 4m3 flotation 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 for the technological modernization of the original
      processing production line to increase its yearly capacity to approximately
      200,000 tons. The current equipment is new.




29




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 for the products is by means of truck. Table 2-5 shows the
      annual output and the concentrate average price of Qianzhen Mining in last
      three
      year.




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




Year
              
              Product
              
              Ore
                  output(t)
              
              Concentrate(t)
              
              Average
                  price per year (USD $/t)2004
              
              Zn
                  concentrate
              
              56902.75
              
              8596.19
              
              474.232005
              
              Zn
                  concentrate
              
              87175.17
              
              12866.49
              
              751.602006
              
              Zn
                  concentrate
                Pb
                  concentrate
              
              129548.00
              
              13959.16
                1219.77
              
              2190.26
                1117.10





**ITEM
      3. LEGAL PROCEEDINGS**





None.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





On
      October 5, 2006, our board of directors adopted a resolution approving an
      amendment to our Articles of Incorporation.  The only change to the
      Articles of Incorporation was a change in the Company’s name to China Shen Zhou
      Mining & Resources, Inc.  The amendment was approved by written consent
      dated October 5, 2006 signed by two stockholders owning approximately 79% of
      the
      issued and outstanding voting securities of the Company, which constituted
      the
      requisite majority under our Articles of Incorporation and Nevada
      law.




**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 are currently traded on the OTC Bulletin Board under
      the trading symbol “CSZM.OB”. The Bulletin Board is an unorganized,
      inter-dealer, over-the-counter market that provides significantly less liquidity
      than NASDAQ, and quotes for stocks included on the Bulletin Board are not listed
      in the financial sections of newspapers, as are those for the NASDAQ Stock
      Market.




Trading
      in our common stock has been sporadic and does not constitute an active market.
      From September 15, 2006 to March 21, 2007, our trading volume has been very
      low
      and inconsistent, ranging from no trading at all to a high of 56,600 shares.
      During the same period, the high sale price was $9.00 and the low sale price
      was
      $1.50. Prior to the acquisition of AFMG, we were a publicly traded shell and
      the
      transactions in our stock while we were a shell are not relevant. On March
      21,
      2007, the closing price was $4.25.




30




***Holders*** ***.*** As of
      March 21, 2007, we had 675 holders of record of our common stock. Our common
      stock had a closing bid price of $4.25 per share on March 21, 2007.




The
      following table sets forth the quarterly average high and low bid prices per
      share for the common stock for the past two years:




**Common
                Stock****Fiscal
                Year Ended December 31, 2006**
            
            
            **High**
            
            
            **Low**First
                Quarter
            
            $
            2.00
            
            $
            0.06Second
                Quarter
            
            $
            2.00
            
            $
            1.05Third
                Quarter(1)
            
            $
            9.00
            
            $
            0.55Fourth
                Quarter
            
            $
            3.90
            
            $
            2.20




**Common
                Stock****Fiscal
                Year Ended December 31, 2005**
            
            
            **High**
            
            
            **Low**First
                Quarter
            
            $
            0.06
            
            $
            0.04Second
                Quarter
            
            $
            0.06
            
            $
            0.04Third
                Quarter
            
            $
            0.05
            
            $
            0.04Fourth
                Quarter
            
            $
            0.07
            
            $
            0.05




(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., American Federal Mining Group, Inc., an
      Illinois company (“AFMG”), and the shareholders of AFMG.




***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 and relative,
      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, UT 84020. Their telephone number is (801)
      571-8844.




***Securities
      Authorized for Issuance Under Equity Compensation Plans.*** As
      of the
      fiscal year ended December 31, 2006, 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.




31




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 calls 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 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.





On
      April
      28, 2006, we completed the acquisition of an 80% ownership interests in
      Xin jiang
      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. Yu Xiao Jing and Mr. Xu Xue Ming,
      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.    The terms of the Notes are described further
      under “ CONTRACTUAL
      OBLIGATIONS AND COMMERCIAL COMMITMENTS - Convertible Notes” .





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.




In
      connection with the transaction, on December 27, 2006, the Company issued a
      put
      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 .




32





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
            
            
            600,000Xiaoming
                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. (Hong Kong)*
            
            
            220,000Allied
                Merit International Investments, Inc. (BVI)*
            
            
            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**





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.





**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/A. 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.




33




**BUSINESS
      STRATEGY**





**Expansion
      of Production Capacity to Meet Demand**




· Fluorite




We
      extracted approximately 68,000 metric tons of fluorite ore in 2006. In 2007,
      we
      expect to extract 150,000 metric tons of fluorite ore. In early 2006, we started
      a 300,000 metric ton fluorite ore project at Xiangzhen Mining. In 2008, this
      project is expected to reach 70% of its designed annual capacity and by 2009,
      our Company is expected to have the capacity to extract 300,000 metric tons
      of fluorite ore per year.




We
      produced approximately 14,800 metric tons of refined fluorite powder in 2006.
      In
      early 2006, we started to build a 200,000 metric ton/year fluorite ore
      processing plant in Sumochaganaobao. The new plant is expected to go into full
      production by the fourth quarter of 2007. We expect to produce about 30,000
      metric tons of refined fluorite powder in 2007. In 2008, this project will
      reach
      70% of its designed annual capacity. After completion of the project in 2009,
      we
      project that we will produce approximately 100,000 metric tons of refined
      fluorite.




· Copper,
        Lead and Zinc


In
      2006,
      Qianzhen Mining purchased approximately 130,000 metric tons of zinc-lead
      ore and turned them into 14,000 metric tons of refined zinc powders and
      1,900 metric tons of refined lead powder. In 2006, Qingshan Metal produced
      41,000 metric tons of copper ore (to be turned into 790 metric tons of
      refined copper powder) and 5,500 metric tons of zinc-lead ore (supplied to
      Qianzhen Mining). In 2007, Qianzhen Mining will continue to purchase raw
      materials from third parties. Qingshan Metal plans to produce 65,000 metric
      tons of copper-zinc ore. Since its capacity is 70,000 metric tons, it may
      have to purchase copper-zinc ore from third parties. Qingshan Metal is planning
      to expand its extracting capacity in June 2007 and by April 2008, it is expected
      to be able to produce 100,000 metric tons of copper ore per year which will
      supply Qianzhen Mining, and thereafter additional 50,000 metric tons of
      zinc ore per year which Qingshan Metal itself will process.




In
      July
      2006, we 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 will initially go into
      production in early September of 2007 and will produce 5,000 metric tons zinc
      ore powder and 2,500 metric tons copper ore powder in 2007. In 2008, we expect
      to produce 200,000 metric tons of zinc and /or copper powder which will be
      processed into 14,000 metric tons zinc ore powder and 7,100 metric tons copper
      ore powder.




**Increase
      Exploration Activities**




Tianzhen
      Mining has just finished exploration activities at the Yangye Copper Mine &
Huayuan Copper Mine and we expect to obtain a mining license from Xinjiang
      Bureau of Land and Resources in 2007.




The
      Huayuan, Yangye and Yangshugou copper mines owns three properties situated
      in
      the same district with one prospecting license. It is possible to find more
      and high category mineral resources in this area. Once the mining license is
      issued, a general exploration program will be launched to upgrade the resource
      category and define the extensions of mineralization by drilling and tunneling.
      The budget for this program is shown in table 6-1.





**Table
      6-1:** **Exploration
      budget for Huayuan,** **Yangye
      and Yangshugou** **Properties**




Item
            
            Unit
            
            Quantity
            
            Budget
                (USD)
            
            Budget
                (RMB)1
            
            
            Drilling
            
            
            m
            
            
            200
            
            
            26,000$
            
            
            200,000Ұ2
            
            
            Tunnel
            
            
            m
            
            
            1783.2
            
            
            154,708$
            
            
            1,175,784Ұ




Currently,
      our company is conducting exploration activities in Wuzunagen Lead &
Zinc Mine and Jiangejier Lead & Zinc Mine owned by Tianzhen Mining. We
      plan to further increase exploration activities there to
      update resource category and extend mineralization layer. The exploration plan
      and budget is shown in table 6-2 .
      We
      signed a contract with Xinjiang Nonferrous Geology Prospecting Bureau to do
      the
      exploration work for us. We expect to complete a reserve evaluation report
      which
      is a requirement for applying mining licenses for these two mines in
      2007 .




34




**Table
      6-2:** **Exploration
      budget for Jiangejier Property**




Item
            
            Unit
            
            Quantity
            
            Budget
                (USD)
            
            Budget
                (RMB)1
            
            
            Drilling
            
            
            m
            
            
            2700
            
            
            25,000$
            
            
            3,000,000Ұ2
            
            
            Tunnel
            
            
            m
            
            
            500
            
            
            130,000$
            
            
            1,000,000Ұ




Keyinbulake
      Cu-Zn Mine is another important property of our company. The development of
      this
      mine is planned with two steps. The first step is to obtain a mining license
      as
      soon as possible. The second step is to conduct an exploration program to define
      the mineral resources of the property, which provides basis for mine plan and
      engineering. The exploration details and budget are shown in table 6-3. This
      exploration program is expected to be funded by the Company.




**Table
      6-3: Exploration Program and budget for Keyinbulake
      Property**




Item
            
            Unit
            
            Quantity
            
            Budget
                (USD)×1000$
            
            Budget
              (RMB)×1000Ұ1
            
            
            Topographical
                survey
            
            
            km2
            
            
            25
            
            
            17.1
            
            
            130.002
            
            
            Geological
                survey
            
            
            km2
            
            
            25
            
            
            29.6
            
            
            220.003
            
            
            Geophysical
                prospecting
            
            
            
            
            
            
            
            
            52.6
            
            
            400.004
            
            
            Drilling
            
            
            m
            
            
            8000
            
            
            842.00
            
            
            6400.005
            
            
            Trenching
            
            
            m3
            
            
            6500
            
            
            85.50
            
            
            650.006
            
            
            Assaying
            
            
            Pies
            
            
            2600
            
            
            40.60
            
            
            300.007
            
            
            Other
                geology item
            
            
            
            
            
            
            
            
            105.30
            
            
            800.008
            
            
            infrastructure
            
            
            
            
            
            
            
            
            78.9
            
            
            600.00Total
            
            
            
            
            
            
            
            
            1,250.00
            
            
            9,500.00




A
      preliminary exploration schedule is as following:





·
            From
                January to February 2007: information collection, desk-top study,
                field
                work planning and arrangement;


·
            From
                May to October 2007: field work, including geological survey, geophysical
                prospecting, trenching and drilling.


·
            From
                November 2007 to March 2008: data analysis and geological report
                preparation.





**Acquire
      More Mineral Properties**




To
      increase our reserve and ensure supply to our processing facilities, we plan
      to
      acquire domestic and foreign large-scale mines when the right opportunity
      arises. The Company is in the process of acquiring a gold-copper mine in
      Kyrgyzstan. We also expect to acquire additional nonferrous metal mines
      domestically which have good 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 fluorite
      chemical industry which enjoys a very high margin and a rapidly growing market
      through the acquisition of some fluorite chemical companies.




**RECAPITALIZATION
      AND REORGANIZATION**





On
      July
      14, 2006, American Federal Mining Group, Inc. (“AFMG”, the then holding company
      of China Shenzhou’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.




35





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.





**ACQUISITIONS
      IN 2006**





***Qingshan
      Metal***




On
      April
      27, 2006, we completed the acquisition of a 60% ownership interests in Qingshan
      Nonferrous Metal Development Co., Ltd. (“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.





We
      consider the stable and sufficient supply of raw zinc and copper minerals to
      be
      one of the critical success factors of Qianzhen Mining’s ore-dressing
      operations. Qingshan Metal is well established and owns considerable copper
      and
      zinc reserves. Moreover, its location is not far away from Qianzhen Mining.
      We
      believe that the acquisition of Qingshan Metal is to the benefit of the Company
      and the shareholders.





The
      total
      purchase consideration of the acquisition 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):





Net
                assets of Qingshan Metal as of April 12, 2006:Extraction
                rights(Value beyond proven and probable reserves)
            
            $
            1,149Inventories
            
            
            132Property,
                plant and mining assets, net
            
            
            457Other
                current assets
            
            
            90Net
                assets
            
            $
            1,828Minority
                interest
            
            
            (268
            )Net
                book value of assets acquired and liabilities assumed
            
            $
            1,560Total
                purchase consideration
            
            
            2,561Goodwill
            
            $
            1,001





***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.




36





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





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.





As
      of the
      date of this report, Xingzhen Mining is in the final process of applying for
      the
      extraction rights for the Kerbulaiker Copper-Zinc Mines. We believe that as
      soon
      as the extraction rights are issued by the PRC Government, it can commence
      extraction of copper and zinc ore.





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





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





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):





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




**PROPOSED
      ACQUISITION**





***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. However, pursuant to the legal opinion
      of the Company’s legal consultants in Kyrgyzstan law, the acquisition of Tun Lin
“is not deemed to be completed until the transfer has been approved by the
      Kyrgyz authority and Xiangzhen Mining has been issued a share registration
      certificate which confers the lawful ownership of Tun Lin to Xiangzhen Mining.”
Legal transfer is expected to be completed in the next two or three
      months.




37




**RESULTS
      OF OPERATIONS - YEAR ENDED DECEMBER 31, 2006 AS COMPARED TO YEAR ENDED DECEMBER
      31, 2005**





Selected
      information from the Consolidated Statements of Operations




**For
                the years ended December 31,****2006**
            
            
            **2005**(in
                thousands)
            
            
            (in
                thousands)Net
                revenue
            
            $
            22,433
            
            $
            7,047Gross
                profit
            
            
            13,429
            
            
            2,755-
                Gross profit margin
            
            
            59.9
            %
            
            39.1
            %General
                and administrative expenses
            
            
            7,109
            
            
            1,129Reverse
                takeover costs
            
            
            4,777
            
            
            -Interest
                expenses
            
            
            318
            
            
            320Net
                income
            
            $
            1,380
            
            $
            1,073





REVENUES.
      Revenues for the year ended December 31, 2006 were $22.4 million, representing
      a
      $15.4 million or 218.3% increase when compared to 2005. The increase in revenues
      is mainly attributable to the increase in the trading price of nonferrous metal
      during 2006. As of December 31, 2004, 2005 and 2006, the closing trading price
      of the Company’s zinc products was RMB3, 362.83/metric ton, RMB6,194.69/metric
      ton and RMB19,646.02/metric ton, representing a 84.2% increase in 2005 and
      317.1% increase in 2006 when compared with the preceding year.





For
      the
      newly acquired subsidiaries in 2006, Qingshan Metal had contributed revenue
      of
      approximately $776,000 since acquisition. Xingzhen Mining was still in
      exploration and research stage as of December 31, 2006, and had yet to generate
      revenues for the Company.





GROSS
      PROFIT AND GROSS PROFIT MARGIN. For the year ended December 31, 2006, gross
      profit was $13.4 million, representing an approximately $10.6 million increase
      as compared to $2.8 million of 2005. Gross profit margin significantly increased
      from 39.1% in 2005 to 59.9% in 2006.





The
      increase in gross profit and gross profit margin was mainly due to the benefits
      resulting from a supply agreement entered into between Qianzhen Mining and
      Wulatehouqi Zijin. Pursuant to the agreement, dated December 10, 2005,
      Wulatehouqi Zijin agreed to supply up to 200,000 metric tons of raw minerals
      at
      a fixed price of RMB65/metric ton to Qianzhen Mining in 30 months, at least8,000
      metric tons per month. Wulatehouqi Zijin will stop supplying raw minerals to
      Qianzhen Mining once the terms are completed. Pursuant to the agreement, both
      parties also agreed that the zinc products of Qianzhen Mining “should be sold to
      Bayannaoer Zijin at market price”.





Since
      the
      trading price of zinc products increased continuously in 2006, and the cost
      of
      raw minerals remained constant, gross profit and gross profit margin increased
      significantly in 2006.





GENERAL
      AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased
      $6.0
      million to $7.1 million of 2006. The significant increase in general and
      administrative expenses was primarily due to (i) common stock bonuses to
      management with a the fair value was $2.97 million; and (ii) the exploration
      expenses incurred by Xingzhen Mining of $0.7 million.





REVERSE
      TAKEOVER COSTS. Total chares related to the reverse takeover transaction
      completed in September amounted to $4,777,000. $4,577,000 of the charges were
      related to the granting of shares and option to financial advisors for
      consultation on the transaction and these charges are non-cash and non-recurring
      in nature. The remaining $200,000 of the charges were cash payments to other
      financial advisors for consultation on the transaction and they are
      non-recurring in nature.





INTEREST
      EXPENSES.  Interest expense included $ 44,560 of interest and amortization
      of debt issuance costs and discounts related to the convertible notes payable
      to
      Citadel Equity Fund Ltd..




38





NET
      INCOME. Net income for the year ended December 31, 2006 was $1.38 million,
      an
      increase of $0.31 million or 29% as compared to net income of $1.07 million
      for
      2005. Not taking into account the non-cash equity based payments (i.e. stock
      based bonuses and reverse takeover costs) of $7.55 million in 2006, the net
      income of 2006 would be $8.93 million, representing a $7.86 million or 734.6%
      increase as compared to 2005. The increase was mainly attributable to the
      contractual arrangement which enabled Qianzhen Mining to trade its zinc products
      at market price while the cost of raw minerals remained constant.





**SEGMENT
      PERFORMANCE ANALYSIS**





(amounts
                in thousand)
            
            Segment
                revenue
            
            Segment
                profit (loss)2006
            
            2005
            
            2006
            
            2005Fluorite
            
            $
            5,312
            
            $
            2,267
            
            $
            (860
            )
            $
            (135
            )Nonferrous
                metals
            
            $
            17,121
            
            $
            4,780
            
            $
            9,833
            
            $
            1,493





**Fluorite**




Fluorite
      segment revenue increased by 134% from $2.3 million for 2005 to $5.3 million
      for
      2006. The increase was primarily due to the increases in sales volume as well
      as
      selling prices.





However,
      due to the increased demand by customers for us to cover transportation costs
      in
      our selling prices and the increased selling and administrative expenses due
      to
      the establishment of our Beijing and Inner Mongolia representative offices,
      fluorite segment recorded a greater segment loss of $860,000 for 2006 as
      compared to $135,000 for 2005.





**Nonferrous
      metals**




Nonferrous
      metals segment revenue for 2006 amounted to $17.1 million, around 3.6 times
      the
      amount of $4.8 million for 2005. In addition, nonferrous metals segment has
      noted a significant increase in segment profit as its profit of $9.8 million
      for
      2006 was 6.5 times the amount of $1.5 million for 2005. The reasons for the
      increases are multiple.





During
      2006, there was expansion of production facilities and increases in market
      price
      of refined zinc-lead ore.





In
      addition, towards the end of 2005, our wholly-owned subsidiary, Qianzhen Mining
      entered into a supply agreement with Wulatehouqi Zijin. Pursuant to the
      agreement, Wulatehouqi Zijin agreed to supply up to 200,000 metric tons of
      raw
      minerals at a fixed price of RMB65/metric ton to Qianzhen Mining over 30 months,
      i.e. at least 8,000 metric tons per month, whilst on the other hand, Bayannaoer
      Zijin agreed to purchase the zinc products of Qianzhen Mining at market price.
      This supply agreement has enabled our nonferrous metals segment to record
      increasing gross profit on zinc products sales for 2006, as the market prices
      of
      zinc were on the increase in 2006.





**FINANCIAL
      CONDITION, LIQUIDITY AND CAPITAL RESOURCES**





Cash
      and
      cash equivalents were $18.9 million as of December 31, 2006, an increase of
      $18.6 million as compared to the balance at December 31, 2005 of $0.29 million.
      The significant improvement in cash position was mainly due to the issuance
      of
      $28 million convertible notes in December 2006, net of investment deposits
      of
      $11 million paid during 2006.





Net
      cash
      provided by operating activities for the year ended December 31, 2006 was $8.95
      million, as compared to $1.96 million for the year ended December 31, 2005.
      The
      increase in operating cash flows was mainly due to the increases in revenue
      and
      gross profits in 2006





Net
      cash
      used in investing activities of $17.9 million for the year ended December 31,
      2006 was mainly represented by: (i) the increase in investment deposits of
      $11
      million, $10 million of which was deposits for the acquisition of Kichi-Chaarat,
      and the remaining $1 million of which was a deposit in an abandoned investment,
      and (ii) purchase of fixed assets of $5.6 million during 2006.





Net
      cash
      provided by financing activities for the year ended December 31, 2006 was $27.1
      million, which was mainly due to the proceeds from the issuance of convertible
      notes.




39





**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,
      2006 and 2005, Natural Resource Compensation Charges of $115,810 and $30,543,
      respectively, were charged to operations and included in cost of sales. For
      more
      information, please see Note 22 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
      initially bear interest at 6.75% per annum, which is subject to upward
      adjustment, are payable semi-annually, and have a maturity of December 27,
      2012.
      Pursuant to the Notes Purchase Agreement, the interest rate may be adjusted
      upward depending on whether and when we become listed on a national stock
      exchange in the United States as
      follows:





(i)
      If
      the listing
      of the Company on any a national stock exchange has occurred on or prior to
      November 15, 2007 and if the Company maintains such listing, the Notes will
      bear
      interest at the rate of 6.75% per annum of the original principal amount of
      the
      Notes (i.e., US$28,000,000), from and including November 15, 2007;





(ii)
      If
      the listing occurs after November 15, 2007 and if the Company maintains such
      listing, the Notes will bear interest at the rate of 8.5% per annum of the
      original principal amount of the Notes, from and including the date of
      re-listing;





(iii)
      If
      the listing has not occurred on or before November 15, 2007 or if the Company
      is
      not at that time currently maintaining such listing, the Notes will bear
      interest at the rate of 10.50% per annum of the original principal amount of
      the
      Notes, from and including November 15, 2007, provided that thief the re-listing
      is achieved, provision (ii) will apply.





The
      Notes
      are convertible at the option of the holders, at any time on or prior to
      maturity, into common shares of the Company. The pre-determined conversion
      price
      is $3.20 per share. However, if at any time during the period from August 15,
      2007 to September 15, 2007, the 30-day historical weighted average price (each,
      a “Reference Price”) of the Company’s common stock is less than $2.90 per share,
      then the conversion price will be adjusted to the lowest Reference Price, but
      not 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.





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.





***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,
      2006, the fair value of the put warrant is $1,030,000.




40





***Voting
      Agreement***





In
      connection with the issuance of the Notes, the Company and its 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.





***Liquidated
      damages for failure to list***





In
      addition to the increase in interest rate of the Notes, the Company is subject
      to an additional liquidated damages penalty of $750,000 if it does not complete
      a listing of its common stock on a U.S. stock exchange (NYSE, AMEX or NASDAQ)
      by
      November 15, 2007.





The
      Notes
      provide for additional liquidated damages, the conditions of which have so
      far
      been met by the Company, relating to (i) appointment of auditors, (ii) hiring
      of
      a chief financial officer with experience with U.S publicly listed companies,
      and (iii) honoring the Note holders’ rights to nominate directors to the board
      of directors pursuant to the Voting Agreement.




**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 adverse effects on its earnings as a result of
      inflation.





**CRITICAL
      ACCOUNTING POLICIES**





Our
      discussion and analysis of our financial condition and results of operations
      is
      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 reasonable
      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 as incurred. When extraction rights are obtained
      from the government in accordance with mining industry practice in the
      PRC, 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 tons
      of mineralized material through 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.




41




Major
      development costs incurred after the commencement of production are amortized
      using the UOP method based on estimated recoverable tons of mineralized material
      through the end of the period over which the Company has extraction rights.
      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.




*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.




42





***Recent
      accounting pronouncements***





On
      January 1, 2006, we adopted Statement of Financial Accounting Standards
      (SFAS) No. 123(R), “Share-Based Payment- Revised 2004,” using the modified
      prospective transition method.





In
      June
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes — an
      interpretation of FASB Statement No. 109” (FIN 48). This
      interpretation prescribes a minimum recognition threshold and measurement
      attribute for the 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 recognition, measurement, classification, interest and
      penalties, accounting in interim periods, disclosure and transition. The
      interpretation is effective for fiscal years beginning after December 15,
      2006 (i.e., the beginning of our fiscal year 2007). We do not expect that the
      adoption of FIN 48 will have a material impact on our consolidated
      financial statements.





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
      September 2006, the SEC issued Staff Accounting Bulletin No. 108,
      Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements (SAB 108), to address
      diversity in practice in quantifying financial statement misstatements.
      SAB 108 requires that we quantify misstatements based on their impact on
      each of our financial statements and related disclosures. On December 30,
      2006, we adopted SAB 108. Our adoption of SAB 108 did not impact our
      financial statements.




**CONCENTRATION
      OF CUSTOMERS AND SUPPLIERS**





During
      the year 2006, Wulatehouqi Zijin was the only supplier of Qianzhen Mining’s raw
      minerals. 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 $5,690,000 or 25.4% of the Company’s
      consolidated net turnover. In addition to the aforementioned, our nonferrous
      metal product business had another significant customer which accounted for
      approximately $7,907,000 or 35.3% of our consolidated net turnover in
      2006.




43




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




Refer
      to
      page 56 for the Consolidated Financial Statements of the Company.





**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 audit work 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.




44




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 “significant deficiency or combination of significant deficiencies
      that results in more than a remote likelihood that a material misstatement
      of
      the annual or interim financial statements will not be prevented or
      detected.”





We
      identified significant deficiencies in our internal controls and disclosure
      controls related to the application of U.S. GAAP in adopting
      an inappropriate period to depreciate and amortize property, plant and
      equipment, including extraction and exploration rights; failure to provide
      for
      an allowance for doubtful accounts in accordance with the Company’s policy;
      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.





Because
      of the identification of the misapplication of U.S. GAAP, our management has
      concluded that, as of December 31, 2006, our internal controls over financial
      reporting were not effective.





*Remediation
      of Material Weaknesses*





We
      have
      started to formulate a program which we believe will remedy the material
      weaknesses described above.





We
      have
      appointed a new Chief Financial Officer who is more experienced in U.S. GAAP.
      We
      are reviewing and revising our internal accounting policies and procedures,
      increasing the training of our accounting personnel in the application of U.S.
      GAAP, and, as appropriate, expanding the resources allocated to our accounting
      department, including hiring new personnel experienced in the financial
      reporting and the financial control function.





We
      also
      expect to review and, as appropriate, revise our accounting and management
      information systems software. We also expect to increase the areas to be
      reviewed and discussed with the board of directors.





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
      several months.





*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, 2006 that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial
      reporting.




**ITEM
      8B. OTHER INFORMATION**




***Entry
      into Material Agreement.***




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.  Mr. Li and Mr. Huang jointly
      owned Tun Lin Limited Liability Company (“Tun Lin”), 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 for the acquisitions was fully
      settled in 2006.  However, pursuant to the legal opinion of the Company’s
      legal consultants in Kyrgyzstan law, the acquisition of Tun Lin “is not deemed
      to have completed until the transfer has been approved by the Kyrgyz authority
      and Xiangzhen Mining has been issued a share registration certificate which
      confers the lawful ownership of Tun Lin to Xiangzhen Mining. The Company expects
      that completion of the legal transfer will take two or three months. A copy
      of
      the Stock Purchase Agreement was filed as an exhibit to the original version
      of
      this Form 10-KSB filed on April 27, 2007.




45




**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 April 13, 2007. None of our directors or executive
      officers holds directorships in other public companies as of March 29, 2007.
      The
      directors listed below will serve until the Company’s next annual meeting of the
      stockholders:





**Name**
            
            **Age**
            
            **Position
                Held**Xiao-Jing
                Yu
            
            50
            
            Director,
                CEO and Chairman of the BoardXueming
                Xu
            
            46
            
            Director,
                President and Chief Operating OfficerHeling
                Cui
            
            51
            
            DirectorSteven
                Jiao
            
            45
            
            Chief
                Financial OfficerYouming
                Yang
            
            52
            
            DirectorJian
                Zhang
            
            65
            
            DirectorFeng
                Bai
            
            36
            
            DirectorQijiu
                Song
            
            44
            
            Vice
                President and Chief Technology OfficerLigang
                Wang
            
            46
            
            Vice
                President, President of Qianzhen
                Mining




**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 programme jointly run by
      Qinghua University and Preceton University and obtained an EMBA degree from
      Preceton 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
      Mongolian 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 Mongolian Dongshengmiao Mining Co., Ltd. Mr. Xu graduated
      from Lianyungang College of Chemical Mining and attended an advanced management
      programme jointly run by Qinghua University and Preceton University and obtained
      an EMBA degree from Preceton 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 Mongolian 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.




46





**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 Xian 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 setup 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, 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 and at Beijing Eagle Investment Company Ltd from July
      2005 to May 2006. He graduated from Shanghai foreign Studies University with
      bachelor’s degrees in English and International Journalism and from Beijing
      University of International Economics and Traded with an MBA degree in
      accounting and finance.




**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 general manager 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;





47




(2)
            Was
                convicted in a criminal proceeding or named subject to a pending
                criminal
                proceeding (excluding traffic violations and other minor
                offenses);





(3)
            Was
                subject to any order, judgment or decree, not subsequently reversed,
                suspended or vacated, of any court of competent jurisdiction, permanently
                or temporarily enjoining, barring, suspending or otherwise limiting
                his
                involvement in any type of business, securities or banking activities;
                or





(4)
            Was
                found by a court of competent jurisdiction (in a civil action), theSEC
                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, 2006, 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 2006, 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.**Xiaojing
                Yu
            
            -
            
            1
            
            2Xueming
                Xu
            
            -
            
            1
            
            2Helin
                Cui
            
            -
            
            1
            
            2Tranng
                Chong Hung
            
            -
            
            2
            
            2





**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’s Secretary. Requests should be addressed in writing to: Dang Yu,
      Secretary 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
      of Directors is currently composed of six members: Xiaojing Yu, Xueming Xu,
      Helin Cui, Youming Yang, Jian Zhang, and Feng Bai. All board actions require
      the
      approval of a majority of the directors in attendance at a meeting at which
      a
      quorum is present.





We
      currently do not have an audit committee. We intend, however, to establish
      an
      audit committee of the board of directors as soon as practicable. We envision
      that the audit committee will be primarily responsible for reviewing the
      services performed by our independent auditors, evaluating our accounting
      policies and our system of internal controls.




48




The
      Board
      has determined that Feng Bai qualifies as a “financial expert” as defined by SEC
      rules implementing Section 407 of the Sarbanes-Oxley Act. Mr. Bai meets the
      definition of an “independent” director set forth in Section 121of the Amex
      Company Guide, which is the independence standard that we have chosen to report
      under.





**ITEM
      10. EXECUTIVE COMPENSATION**





The
      Company had no officers or directors whose total annual salary and bonus during
      2006 exceeded $100,000. Ms. Yu, our Chief Executive Officer and Principal
      Financial Officer, earned a salary of $56,000 during the fiscal year ended
      December 31, 2006.





**Summary
      Compensation Table**




**Name
                and Principal Underlying Positions**
            
            **Year**
            
            **Salary**
            
            **Bonus**
            
            **Option
                Awards**
            
            **Stock
                Awards**
            
            **All
                Other Compensation**
            
            **Total**Xiaojing
                Yu, CEO
            
            
            2006
            
            $
            51,667
            
            $
            0
            
            
            —
            
            
            —
            
            
            —
            
            $
            51,667Xueming
                Xu, President
            
            
            2006
            
            $
            15,769
            
            $
            0
            
            
            —
            
            
            —
            
            
            —
            
            $
            15,769Helin
                Cui, Director and Vice President of Xiangzhen Mining
            
            
            2006
            
            $
            23,718
            
            $
            0
            
            
            —
            
            
            —
            
            
            —
            
            $
            23,718John
                W. Peters (1)
            
            
            2006
            
            $
            0
            
            $
            0
            
            
            —
            
            
            —
            
            
            —
            
            $
            0




(1)
            John
                W. Peters was president from January 1 to September 15 during 2006.





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




As
      of
      December 31, 2006, there were no outstanding equity awards to the named
      executive officers requiring tabular disclosure under this Item 10.





The
      Company currently does not have any equity compensation plans in place.





**Director
      Compensation**





We
      did
      not pay any directors in 2006. We currently do not have a director compensation
      program in place. We plan to set up such a program in the near
      future.





**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 21, 2007 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 21, 2007, and (iv) all of our executive
      officers and directors as a group.





Amount
                and Nature of Beneficial Ownership(1)Name
                of Beneficial Owner
            
            Number
                of
              Shares(2)
            
            Percent
                of
              Voting
                Stock(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)
            
            
            2,280,000
            
            
            10
            %Directors
                and executive officers as a group (5 persons)
            
            
            17,187,000
            
            
            75.39
            %







*
      Less
      than 1%





(1)
            As
                of March 21, 2007, there were 21,296,794 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.




49




(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, 2006, 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.,
                American Investment, LLC, Luminus Capital Management Ltd. (Hong Kong),
                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** **.**




None.





**ITEM
      13. EXHIBITS**




**Statements
      filed as part of this Report:**




50




**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 (Incorporate 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**3.2
            
            Bylaws
                of the Company adopted on November 27, 200610.1
            
            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 Xue 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**10.5
            
            Stock
                Option Agreement by and between the Company and American Eastern
                Group,
                Inc., dated December 3, 2005**10.6
            
            Stock
                Option Agreement by and between the Company and Shenzhen DRB Investment
                Consultant, Limited, dated December 3, 2005**10.7
            
            Letter
                Agreement by and between the Company and American Eastern Securities,
                Inc., dated November 1, 2006, as amended on December 27,
                2006**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**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**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**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**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**10.13
            
            Contract
                by and between Wulatehouqi Qianzhen Ore Processing Co., Ltd. and
                Wulatehouqi Zijin Mining Co., Ltd., dated as of December 10,
                2006**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**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**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**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**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*14.1
            
            Code
                of Ethics, dated as of April 16, 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
                with the Company’s Form 10-KSB filed on April 17,
                2007.




**
            Filed
                with the Company’s Form 10-KSB/A filed on April 24,
                2007




***
            Filed
                with the Company’s Form 10-KSB/A filed on May 8,
                2007




51




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





Grobstein,
      Horwath & Company, LLP (“Horwath”), has audited our financial statements
      annually since the 2004 fiscal year. In addition e-Fang
      Accountancy Corp. (“e-Fang”), which audited
      the financials 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 of the Company’s financial statements for the fiscal year ended December
      31, 2005 was $90,000. The aggregate fees billed by e-Fang for auditing services
      in 2005 were $46,000. The fees billed by Horwath for the fiscal year ended
      December 31, 2006 was $180,000. The aggregate fees billed by e-Fang for services
      related to the review of our quarterly report on Form 10-QSB for the quarter
      ended September 30, 2006 was $16,000.





**Audit-Related
      Fees** .
      There
      were no fees for assurance and related services by, Horwath for the fiscal
      years
      ended December 31, 2005 and December 31, 2006.





**Tax
      Fees** .
      There
      were no fees for tax compliance, tax advice or tax planning services by Horwath
      for the fiscal years ended December 31, 2005 and December 31, 2006.





**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, 2005 and December 31,
      2006.





52


**SIGNATURES**





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


**CHINA
                SHEN ZHOU MINING & RESOURCES, INC.**By:
            */s/
              Xiaojing Yu*Xiaojing
              Yu
              Director,
                Chief Executive Officer, and
              Chairman
                of the Board




Date:
      April 2 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
                  2, 2008Xiaojing
                  Yu
              
              (Principal
                  Executive Officer)/*s/
                  Steven Jiao*
              
              Chief
                  Financial Officer
              
              April
                  2, 20078Steven
                  Jiao
              
              (Principal
                  Financial and Accounting Officer)/*s/
                  Helin Cui*
              
              Director,
              
              April
                  2, 2008Helin
                  Cui/*s/
                  Feng Bai*
              
              Director
              
              April
                  2, 2008Feng
                  Bai/*s/
                  Xueming Xu*
              
              Director
              
              April
                  2, 2008Xueming
                  Xu


53




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





**Index
      to Consolidated Financial Statements**





PageReport
                of Independent Registered Public Accounting Firm
            
            
            57Consolidated
                Balance Sheets
            
            
            58Consolidated
                Statements of Operations
            
            
            60Consolidated
                Statements of Cash Flows
            
            
            61Consolidated
                Statements of Changes in Stockholders’ Equity
            
            
            63Notes
                to Consolidated Financial Statements
            
            
            64-88





54


**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, 2006
      and 2005 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, 2006. 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
      also 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, 2006 and 2005,
      the consolidated results of their operations and their cash flows for each
      of
      the two years in the period ended December 31, 2006 in conformity with U.S.
      generally accepted accounting principles.








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





Sherman
      Oaks, California


April
      15,
      2007, except for Note 33, as to which the date is October 10, 2007




55


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


**CONSO
      LIDATED BALANCE SHEETS**


(Amounts
      in thousands, except share data)


**December
                    31,**
                
                **December
                    31,****2006**
                
                **2005****(as
                    restated)****ASSETS**Current
                    assets:Cash
                    and cash equivalents
                
                $
                18,932
                
                $
                294Available
                    for sales securities - Margin Deposit
                
                
                412
                
                
                -Accounts
                    receivable, net
                
                
                945
                
                
                640Refundable
                    investment deposit
                
                
                1,025
                
                
                -Other
                    deposits and prepayments, net
                
                
                4,115
                
                
                153Inventories
                
                
                1,373
                
                
                2,428Due
                    from related parties
                
                
                71
                
                
                -Total
                    current assets
                
                
                26,873
                
                
                3,515Investment
                    deposit
                
                
                10,000
                
                
                -Property,
                    machinery and mining assets, net
                
                
                16,359
                
                
                9,723Deferred
                    debt issuance costs
                
                
                2,518
                
                
                -Deferred
                    income tax assets
                
                
                431
                
                
                201Goodwill
                
                
                1,001
                
                
                -Total
                    assets
                
                
                57,182
                
                
                13,439**LIABILITIES
                    AND STOCKHOLDERS’ EQUITY**Current
                    liabilities:Accounts
                    payable
                
                $
                625
                
                $
                798Warrants
                    liability
                
                
                1,030
                
                
                -Short
                    term bank loans
                
                
                2,668
                
                
                3,348Other
                    payables and accruals
                
                
                7,366
                
                
                886Taxes
                    payable
                
                
                572
                
                
                422Due
                    to a director
                
                
                212
                
                
                9Current
                    liabilities
                
                
                12,473
                
                
                5,463Convertible
                    notes payable
                
                
                26,989
                
                
                -Total
                    liabilities
                
                
                39,462
                
                
                -Minority
                    interests
                
                
                258
                
                
                -




56


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


**CONSOLIDATED
      BALANCE SHEETS (Continued)**


(Amounts
      in thousands, except share data)


**December
                  31,**
              
              **December
                  31,****2006**
              
              **2005****(**as
                  restated**)**Commitments
              
              
              -
              
              
              -**STOCKHOLDERS’
                  EQUITY:**Common
                  Stock, $0.001 par value:Authorized
                  - 50,000,000 shares (2005: 50,000,000 shares)Issued
                  and outstanding 21,297,700 shares (2005:17,687,000 shares)
              
              $
              21
              
              $
              18Additional
                  paid-in capital
              
              
              13,865
              
              
              6,319PRC
                  Statutory reserves
              
              
              1,111
              
              
              498Accumulated
                  comprehensive income
              
              
              600
              
              
              43Retained
                  earnings
              
              
              1,865
              
              
              1,098Total
                  stockholders’ equity
              
              
              17,462
              
              
              7,976Total
                  liabilities and stockholders’ equity
              
              $
              57,182
              
              $
              13,439




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





57


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


**CONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME**


(Amounts
      in thousands, except per share data)




**For
                the years ended****December
                31,****2006**
            
            **2005****(as
                restated)**Net
                revenue
            
            $
            22,433
            
            $
            7,047Cost
                of sales
            
            
            (9,004
            )
            
            (4,292
            )Gross
                profit
            
            
            13,429
            
            
            2,755Operating
                expenses:Selling
                and distribution expenses
            
            
            (185
            )
            
            (104
            )General
                and administrative expenses
            
            
            (7,109
            )
            
            (1,129
            )Income
                from operations
            
            
            6,135
            
            
            1,522Other
                income (expense):Reverse
                takeover costs
            
            
            (4,777
            )
            
            -Other
                expenses
            
            
            (175
            )
            
            (37
            )Interest
                expense
            
            
            (318
            )
            
            (320
            )Other
                income
            
            
            298
            
            
            193Income
                before income taxes and minority interests
            
            
            1,163
            
            
            1,358Provision
                for income taxes
            
            
            185
            
            
            (285
            )Income
                before minority interests
            
            
            1,348
            
            
            1,073Minority
                interests
            
            
            32
            
            
            -Net
                income
            
            
            1,380
            
            
            1,073Other
                comprehensive income:Foreign
                currency translation adjustments
            
            
            557
            
            
            75Comprehensive
                income
            
            $
            1,937
            
            $
            1,148Earnings
                per common shareBasic
            
            $
            0.07
            
            $
            0.06Diluted
            
            $
            0.05
            
            $
            0.06Weighted
                average number of common shares outstandingBasic
            
            
            18,735
            
            
            17,687Diluted
            
            
            27,485
            
            
            17,687




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




58


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


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(Amounts
      in thousands)





**For
                the years ended****December
                31,****2006**
            
            **2005****(as
                restated)****Cash
                flows from operating activities:**Net
                income
            
            $
            1,380
            
            $
            1,073Adjustments
                to reconcile net income to net cash provided by operating activities:Allowance
                for doubtful accounts
            
            
            2
            
            
            12Depreciation
                and amortization
            
            
            2,432
            
            
            1,263Fair
                value of shares issued to management as management bonus
            
            
            2,972
            
            
            -Fair
                value of shares and option issued to financial advisors for advisory
                services
            
            
            4,577
            
            
            -Impairment
                of fixed assets
            
            
            455
            
            
            -Investment
                income
            
            
            (90
            )
            
            -Deferred
                income tax benefits
            
            
            (216
            )
            
            (60
            )Gain
                on disposal of fixed assets
            
            
            (142
            )
            
            -Minority
                interests
            
            
            (32
            )
            
            -Changes
                in operating assets and liabilities:
            
            
            -
            
            
            -Accounts
                receivable
            
            
            (308
            )
            
            -Deposits
                and prepayments
            
            
            (3,823
            )
            
            (58
            )Inventories
            
            
            1,187
            
            
            (710
            )Due
                from related companies
            
            
            (71
            )
            
            -Accounts
                payable
            
            
            (173
            )
            
            (8
            )Other
                payables and accruals
            
            
            451
            
            
            77Taxes
                payable
            
            
            150
            
            
            386Due
                to related parties
            
            
            203
            
            
            (13
            )Net
                cash provided by operating activities
            
            
            8,954
            
            
            1,962**Cash
                flows from investing activities:**Proceeds
                from sale of property, machinery and mining assets
            
            
            1,570
            
            
            -Purchases
                of property, machinery and equipment
            
            
            (5,573
            )
            
            (1,787
            )Increase
                in investment deposits
            
            
            (11,025
            )
            
            -Acquisition
                of subsidiaries, net of cash and cash equivalents acquired
            
            
            (2,312
            )
            
            -Increase
                in available-for-sale securities - margin deposit
            
            
            (322
            )
            
            -Net
                cash (used in) investing activities
            
            
            (17,662
            )
            
            (1,787
            )





59


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


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (Continued)**


(Amounts
      in thousands)





**For
                the years ended****December
                31,****2006**
            
            **2005****(as
                restated)****Cash
                flows from financing activities:**Proceeds
                from issuance of convertible bond
            
            $
            27,772
            
            $
            -Repayments
                of short-term borrowings
            
            
            (680
            )
            
            (396
            )Net
                cash provided by (used in) financing activities
            
            
            27,092
            
            
            (396
            )Foreign
                currency translation adjustment
            
            
            254
            
            
            (8
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            18,638
            
            
            (229
            )Cash
                and cash equivalents at the beginning of the period
            
            
            294
            
            
            523Cash
                and cash equivalents at the end of the period
            
            $
            18,932
            
            $
            294**Non-cash
                investing and financing activities**Shares
                issued to management bonus
            
            
            2,972
            
            
            -Shares
                issued to financial advisors for advisory services
            
            
            3,813
            
            
            -Shares
                option granted to financial advisors
            
            
            764
            
            
            -7,549
            
            
            -


The
        accompanying notes are an integral part of these consolidated financial
        statements.
  60


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


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE
      INCOME**


(Amounts
      in thousands)




**Common
                  Stock**
              
              **Additional**
              
              **PRC**
              
              
              
              **Accumulated**
                **other**
              
              **Total****Number
                  of Shares**
              
              **Amount**
              
              **paid-in
                  capital**
              
              **Statutory**
                **reserves**
              
              **Retained**
                **earnings**
              
              **comprehensive**
                **income**
              
              **stockholders'**
                **equity**(as
                  restated)
              
              (as
                  restated)
              
              (as
                  restated)
              
              (as
                  restated)
              
              (as
                  restated)
              
              (as
                  restated)**Balance
                  at January 1, 2005 as restated**
              
              $
              17,687
              
              $
              18
              
              $
              6,319
              
              $
              223
              
              $
              300
              
              $
              (32
              )
              $
              6,828Net
                  income for the year ended December 31, 2005
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,073
              
              
              -
              
              
              1,073Appropriation
                  of PRC statutory reserves
              
              
              
              
              
              
              
              
              
              
              
              275
              
              
              (275
              )
              
              -
              
              
              -Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              75
              
              
              75**Balance
                  at December 31, 2005 as restated**
              
              
              17,687
              
              
              18
              
              
              6,319
              
              
              498
              
              
              1,098
              
              
              43
              
              
              7,976Original
                  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 as restated**
              
              $
              21,298
              
              $
              21
              
              $
              13,865
              
              $
              1,111
              
              $
              1,865
              
              $
              600
              
              $
              17,462




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


61




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





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      1**  **DESCRIPTION
      OF BUSINESSS AND ORGANIZATION**





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





At
      December 31, 2006, details of the Company’s subsidiaries 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
                50,000,000
            
            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
                2,333,332
            
            100%
            
            Sale
                and refinery of nonferrous metals, ore dressing, and sale of chemical
                productsXinjiang
                Wuqia Tianzhen Mining Co., Ltd. (“Tianzhen Mining”)
            
            The
                PRC
              April
                13, 2004
            
            RMB
                1,612,000
            
            100%
              (a)
            
            Extraction
                of nonferrous metals, ore dressing and refinery, and sale of construction
                materialsWulatehouqi
                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
            
            80%
            
            Exploration
                of solid metals, refinery and sale of mining
                products.





(a)
      This
      company has a *de
      minimis number* of 1%
      equity interest owned by its executive officer, Xiao Jing Yu, as required by
      PRC’s Business Enterprise law.





62




**NOTE
      2**  **RECAPITALIZATION
      AND REORGANIZATION**





On
      July
      14, 2006, Earth Products & Technologies, Inc. (“EPTI”) completed the terms
      of a stock exchange agreement with AFMG. Pursuant to the stock exchange
      agreement, 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.





EPTI
      was
      incorporated in Nevada in 1986 under the name of Mainstay Investments, Inc.
      From
      1997 to 1998 EPTI attempted to develop technologies to remove or reduce
      pollutants. In January 1999, EPTI divested all of the operations and became
      inactive.





The
      above
      stock exchange transaction resulted in the 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.





AFMG
      is
      the continuing operating entity for financial reporting purposes, and the
      financial statements prior to September 15, 2006 represent AFMG’s financial
      position and results of operations. As of the date of reverse takeover, the
      only
      asset of EPTI was cash amounting to $531, with 1,297,700 shares of common stock
      outstanding. 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**  **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 that are the basis for future cash flow estimates
      utilized in impairment calculations and 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 and
      entities over which control is achieved through means other than voting rights
      (see Note 2). All significant intercompany balances and transactions have been
      eliminated. The functional currency for the majority of the Company’s operations
      is the Renminbi (“RMB”).





***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.




63




***Available-for-sale
      investments***




The
      Company accounts for its investments in auction rate securities in accordance
      with FAS 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 allowance for doubtful accounts. The
      Company provides for an allowance for doubtful accounts for those third party
      trade accounts that are not collected within one year.





***Inventories***




Inventories
      are stated at the lower of cost, determined on a weighted average basis, or
      net
      realizable value. Costs of work-in-progress and 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 Company
      has provided an inventory reserve.





***Property,
      plant 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 through the end of the period over which the Company has extraction
      right.




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
      right are obtained from the government in accordance with 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 in mineralized
      material through the end of the period over which the Company has extraction
      right. 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 through the end of the period over which the Company has extraction
      right. 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 mineral
      blocks or areas that only provide benefit over the life of that area are
      amortized over the estimated life of that specific mineral
      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.





To
      summarize, the Company’s depreciation and amortization policies on fixed assets
      are as follows:





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




64




***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.




***Asset
      Impairment***




*(a)
      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 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.





***Revenue
      Recognition***




Revenue
      is recognized, net of PRC business taxes, and treatment and refining charges,
      from a sale when the price is determinable, the product has been delivered,
      the
      title has been transferred to the customer and collection of the sales price
      is
      probable. Revenues from by-product sales are credited to costs applicable to
      sales as a by-product credit.





***Income
      and Mining Taxes***




The
      Company accounts for income taxes using the liability method, recognizing
      certain temporary differences between the financial reporting basis of the
      Company’s liabilities and assets and the related income tax basis for such
      liabilities and assets. This method generates either a net deferred income
      tax
      liability or asset for the Company, as measured by the statutory tax rates
      in
      effect. The Company derives its deferred income tax charge or benefit by
      recording the change in either the net deferred income tax liability or asset
      balance for the year. Mining taxes represent PRC taxes levied on mining
      operations and are classified as cost of sales, as such taxes are based on
      a
      percentage of mining output.





65




The
      Company’s deferred income tax assets include certain future tax benefits. The
      Company records a valuation allowance against any portion of those deferred
      income tax assets when it believes, based on the weight of available evidence,
      it is more likely than not that some portion or all of the deferred income
      tax
      asset will not be realized.





***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***




On
      July
      21, 2005, the People’s Bank of China announced an upward adjustment in the
      Renminbi (“RMB”) exchange rate against the U.S. dollar of 2%. Subsequently, the
      exchange rate of the Renminbi will be valued against a number of currencies,
      rather than just exclusively to the United States dollar.





The
      functional currency of the Company is the Chinese Renminbi. However, the Company
      reports in U.S. dollars. 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.





At
      December 31, 2006, the revenues and expenses of the Company were translated
      to
      U.S. dollars at US$1.00 = RMB7.958 and the assets and liabilities of the Company
      maintained in Renminbi translated to U.S. dollars at US$1.00 = RMB7.808. At
      December 31, 2005, the revenues and expenses of the Company were translated
      to
      U.S. dollars at US$1.00 = RMB8.2402 and the assets and liabilities of the
      Company maintained in Renminbi translated to U.S. dollars at US$1.00 =
      RMB8.1807. For the years ended December 31, 2006 and 2005, a foreign currency
      translation adjustment of approximately $75,000 and $557,000, respectively,
      has
      been reported as comprehensive income in the consolidated statement of
      stockholders’ equity and comprehensive income.





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





The
      value
      of RMB against U.S. dollars and other currencies may fluctuate and is affected
      by, among other things, changes in China’s political and economic conditions.
      Any significant revaluation of RMB may materially affect our 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 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.





66





***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.





***Fair
      value of financial instruments***




The
      carrying amount of cash and cash equivalents, cash, available-for-sale
      securities, accounts receivable, accounts payable, accrued liabilities, bank
      loan payable, notes payable, current portion of long term debt, long term debt
      approximate fair value.





***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 (loss) includes
      foreign currency translation adjustments. Total comprehensive income for the
      years ended December 31, 2006 and 2005 was $1,321,000 and $75,000,
      respectively.





***Recent
      accounting pronouncements***




On
      January 1, 2006, we adopted Statement of Financial Accounting Standards
      (SFAS) No. 123(R), “Share-Based Payment- Revised 2004,” using the modified
      prospective transition method.





In
      June
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes — an
      interpretation of FASB Statement No. 109” (FIN 48). This
      interpretation prescribes a minimum recognition threshold and measurement
      attribute for the 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 recognition, measurement, classification, interest and
      penalties, accounting in interim periods, disclosure and transition. The
      interpretation is effective for fiscal years beginning after December 15,
      2006 (i.e., the beginning of our fiscal year 2007). We do not expect that the
      adoption of FIN 48 will have a material impact on our consolidated
      financial statements.





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
      September 2006, the SEC issued Staff Accounting Bulletin No. 108,
      Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements (SAB 108), to address
      diversity in practice in quantifying financial statement misstatements.
      SAB 108 requires that we quantify misstatements based on their impact on
      each of our financial statements and related disclosures. On December 30,
      2006, we adopted SAB 108. Our adoption of SAB 108 did not impact our
      financial statements.




67





**NOTE
      4**  **RESTATEMENT
      OF 2005 FINANCIAL STATEMENTS**





The
      Company has restated its previously issued financial statements as of December
      31, 2005 and for the year then ended included in its Form 8-K filed September
      18, 2006. The Company’s determination to restate these previously issued
      financial statements arose from the following items:





i.
            The
                Company has re-assessed the impairment of certain plant and machinery
                and
                written down their values accordingly. In addition, the Company had
                incorrectly calculated the depreciation and amortization on property,
                plant and mining assets.


ii.
            The
                Company had incorrectly calculated the unit costs of certain inventory
                items in applying the weighted average costing method.


iii.
            The
                Company had not accounted for deferred tax.


iv.
            The
                Company had under-accrued current income tax.


v.
            The
                Company had incorrectly calculated accrued interest
                expense.


vi.
            The
                Company has also identified other misstatements, which were not
                individually material.


vii.
            The
                above misstatements also resulted in misstatement of income tax
                expenses.


viii.
            The
                Company has also reclassified various amounts to conform to the current
                year presentation.





The
      following tables show the impact of the adjustments to correct the above
      mentioned items on the Company’s consolidated financial statements for fiscal
      2005:




**CONSOLIDATED BALANCE SHEET**
              **AS
                  OF DECEMBER 31, 2005**
            
            
            
            Adjustments(Amounts
                expressed in thousands)
            
            As
                previously reported
            
            Amount
            
            No.
            
            As
                restated**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            298
            
            $
            (4
            )
            
            (vi)
            
            $
            294Accounts
                receivable, net
            
            
            865
            
            
            (225
            )
            
            (vi)(viii)
            
            
            640Other
                deposits and prepayment, net
            
            
            503
            
            
            (350
            )
            
            (vi)(viii)
            
            
            153Inventories
            
            
            2,117
            
            
            311
            
            
            (ii)
            
            
            2,428Total
                current assets
            
            
            3,783
            
            
            (268
            )
            
            
            
            
            3,515Property,
                machinery and mining assets, net
            
            
            10,641
            
            
            (918
            )
            
            (i)
            
            
            9,723Deferred
                income tax assets
            
            
            -
            
            
            201
            
            
            (iii)
            
            
            201Total
                assets
            
            $
            14,424
            
            $
            (985
            )
            
            
            
            $
            13,439**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilitiesAccounts
                payable
            
            $
            1,157
            
            
            (359
            )
            
            (viii)
            
            $
            798Short
                term bank loans
            
            
            3,393
            
            
            (45
            )
            
            (vi)
            
            
            3,348Other
                payable and accruals
            
            
            610
            
            
            276
            
            
            (v)(vi)(viii)
            
            
            886Taxes
                payable
            
            
            98
            
            
            324
            
            
            (iv)(vii)
            
            
            422Due
                to a director
            
            
            -
            
            
            9
            
            
            (viii)
            
            
            9Total
                current liabilities
            
            
            5,258
            
            
            205
            
            
            
            
            
            5,463Stockholders’
                equityCommon
                stock
            
            
            6,515
            
            
            (6,497
            )
            
            (viii)
            
            
            18Additional
                paid-in capital
            
            
            -
            
            
            6,319
            
            
            (viii)
            
            
            6,319PRC
                Statutory reserves
            
            
            446
            
            
            52
            
            
            (viii)
            
            
            498Accumulated
                comprehensive income
            
            
            9
            
            
            34
            
            
            (vi)
            
            
            43Retained
                earnings
            
            
            2,196
            
            
            (1,098
            )
            
            
            
            
            1,098Total
                stockholders’ equity
            
            
            9,166
            
            
            (1,190
            )
            
            
            
            
            7,976Total
                liabilities and stockholders’ equity
            
            $
            14,424
            
            $
            (985
            )
            
            
            
            $
            13,439




68




**CONSOLIDATED STATEMENT
                  OF INCOME AND**
                **COMPREHENSIVE
                  INCOME**
              
              
              
              Adjustments(Amounts
                  expressed in thousands)
              
              As
                  previously reported
              
              Amount
              
              No.
              
              As
                  restatedNet
                  revenue
              
              $
              7,078
              
              $
              (31
              )
              
              (vi)
              
              $
              7,047Cost
                  of sales
              
              
              (3,958
              )
              
              (334
              )
              
              (ii)(viii)
              
              
              (4,292
              )Gross
                  profit
              
              
              3,120
              
              
              (365
              )
              
              
              
              
              2,755Selling
                  and distributive expenses
              
              
              (429
              )
              
              325
              
              
              (vi)(viii)
              
              
              (104
              )General
                  and administrative expenses
              
              
              (1,002
              )
              
              (127
              )
              
              (vi)
              
              
              (1,129
              )Income
                  from operations
              
              
              1,689
              
              
              (167
              )
              
              
              
              
              1,522Other
                  expenses
              
              
              -
              
              
              (37
              )
              
              (vi)
              
              
              (37
              )Interest
                  expense
              
              
              (357
              )
              
              37
              
              
              (v)
              
              
              (320
              )Other
                  income
              
              
              148
              
              
              45
              
              
              (vi)
              
              
              193Income
                  before income taxes and minority interests
              
              
              1,480
              
              
              (122
              )
              
              
              
              
              1,358Provision
                  for income taxes
              
              
              (55
              )
              
              (230
              )
              
              (iii)(iv)(vii)
              
              
              (285
              )Net
                  income
              
              
              1,425
              
              
              (352
              )
              
              
              
              
              1,073Other
                  comprehensive incomeForeign
                  currency translation adjustment
              
              
              9
              
              
              66
              
              
              (vi)
              
              
              75Comprehensive
                  income
              
              $
              1,434
              
              $
              (286
              )
              
              
              
              $
              1,148




**CONSOLIDATED
                STATEMENT OF**
              **CASH
                  FLOWS**
            
            
            
            Adjustments(Amounts
                expressed in thousands)
            
            As
                previously reported
            
            Amount
            
            No.
            
            As
                restatedNet
                cash provided by operating activities
            
            $
            3,185
            
            $
            (1,223
            )
            
            (viii)
            
            $
            1,962Net
                cash used in investing activities
            
            
            (3,076
            )
            
            1,289
            
            
            (viii)
            
            
            (1,787
            )Net
                cash used in financing activities
            
            
            (342
            )
            
            (54
            )
            
            (viii)
            
            
            (396
            )Foreign
                currency translation adjustment
            
            
            9
            
            
            (17
            )
            
            (viii)
            
            
            (8
            )Net
                decrease in cash and cash equivalents
            
            $
            (224
            )
            $
            (5
            )
            
            
            
            $
            (229
            )




**NOTE
      5**  **WRITE-DOWN
      OF LONG-LIVED ASSETS**





During
      2006, 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 then ended was approximately $454,918.





**NOTE
      6**  **OTHER
      INCOME**




Years
                ended December 31,2006
            
            2005(In
                thousands)
            
            (In
                thousands)Gain
                on disposal of fixed assets
            
            $
            142
            
            $
            -Investment
                income
            
            
            90
            
            
            -Tax
                refund
            
            
            28
            
            
            131Others
            
            
            38
            
            
            62$
            298
            
            $
            193




69




**NOTE
      7**  **INCOME
      TAXES**





The
      PRC
      subsidiaries within the Company are subject to PRC 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 (expense)/benefit consisted of:




Years
                ended December 31,2006
            
            2005(In
                thousands)
            
            (In
                thousands)Current:-
                PRC
            
            $
            (31
            )
            $
            (345
            )Deferred:-
                PRC
            
            
            216
            
            
            60$
            185
            
            $
            (285
            )





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:





2006
            
            2005Pre-tax
                income before minority interests
            
            $
            1,163
            
            $
            1,358United
                States statutory corporate income tax rate
            
            
            35
            %
            
            35
            %Income
                tax (expense) computed at United States statutory corporate income
                tax
                rate
            
            $
            (407
            )
            $
            (475
            )Reconciling
                itemsRate
                differential for PRC earnings
            
            
            180
            
            
            27Impact
                of tax holiday of PRC subsidiaries
            
            
            3,839
            
            
            467Loss
                not recognized as deferred income tax assets
            
            
            (694
            )
            
            (210
            )Non-deductible
                expenses
            
            
            (2,733
            )
            
            (94
            )Effective
                tax benefit/(expense)
            
            $
            185
            
            $
            (285
            )





As
      of
      December 31, 2006, the Company’s deferred income tax assets mainly arose from
      the temporary difference in depreciation and amortization under PRC GAAP and
      U.S. GAAP.




**NOTE
      8**  **EARNINGS
      PER SHARE**





Basic
      earnings per common share is computed by dividing income available to common
      shareholders by the weighted average number of common shares outstanding for
      the
      period. Diluted income per common share is computed similarly to basic income
      per common share except that the denominator is increased to include the number
      of additional common shares that would have been outstanding if the potentially
      dilutive common shares had been issued.





70


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





Years
                ended December 31,2006
            
            2005Income
                available to common shareholders:-
                Basic
            
            $
            1,380
            
            $
            1,073-
                Increase for interest expense on convertible notes
            
            
            37
            
            
            --
                Diluted
            
            $
            1,417
            
            $
            1,073Weighted
                average number of shares:-
                Basic
            
            
            18,735
            
            
            17,687-
                Increase in number of shares if the convertible notes were converted
                into
                common shares
            
            
            8,750
            
            
            --
                Diluted
            
            
            27,485
            
            
            17,687Earnings
                per share-
                Basic
            
            $
            0.07
            
            $
            0.06-
                Diluted
            
            $
            0.05
            
            $
            0.06





Given
      that the closing price of the Company’s shares as at December 31, 2006 was
      $2.95, the conversion price of $3.20 of the options and warrants would be
      considered as not in the money and anti-dilutive, and therefore excluded from
      the calculation of diluted earnings per share.




**NOTE 9**  **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 that 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 well established and owns
      considerable copper and zinc reserves. Moreover, its location is not far away
      from Qianzhen Mining. 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.





71




The
      Company has allocated a portion of the purchase price amounting to $1,149,000
      to
      extraction rights. The Company allocated purchase price to the extraction rights
      as value beyond proven and probable reserves by the use of probability-weighted,
      discounted cash flows based on the expected future production of mineralized
      material over the life of the mine.




Allocation
      of initial purchase consideration (in thousands):




Book
                value
            
            Fair
                valueNet
                assets of Qingshan Metal as of April 12, 2006:Extraction
                rights(Value beyond proven and probable reserves
            
            $
            -
            
            $
            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




Goodwill
      in the amount of $1,001,000 was fully assigned to the Qingshan reporting unit,
      which is a component of the nonferrous metals operating segment, and which
      has
      one operating mine. Management has determined that there is sufficient fair
      value in the reporting unit above proven and probable reserves and accordingly,
      no impairment of the goodwill has been recognized.




***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-Zinc
      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.





As
      of the
      date of this report, Xingzhen Mining is in the final process of applying for
      the
      extraction right of the above-mentioned mine, and believes that as soon as
      the
      extraction rights are issued by the PRC Government, they can commence extraction
      of the proven minerals.





The
      Company has allocated a portion of the purchase price amounting to $3,475,000
      to
      extraction rights. The Company allocated purchase price to the extraction rights
      as value beyond proven and probable reserves by the use of probability-weighted,
      discounted cash flows based on the expected future production of mineralized
      material over the life of the mine.




72




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.


73


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 reserves)
            
            $
            -
            
            $
            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$
            -




The
      above
      two acquisitions were significant to the Company **.** The
      significance tests indicate that Qingshan Metal does not meet the 20% threshold
      of significance and hence financial statements are not required. Xingzhen
      Mining’s income test exceeds 40%, so pursuant to Item 310(c)(3) of Regulation
      S-B, financial statements shall be furnished for the most recent fiscal year
      and
      any interim periods. However, Xingzhen was established in April 10,2006 so
      it
      does not have prior-year financial statements.




**NOTE
      10**  **AVAILABLE-FOR-SALE
      INVESTMENTS - MARGIN DEPOSITS**





Amount
      represents margin deposits paid to a dealing agent. During the year ended
      December 31, 2006, the Company had participated in trading of metal futures.
      As
      of December 31, 2006, the agent account was not in open position, and the entire
      amount has been withdrawn from the agent’s account subsequent to the balance
      sheet date. For the year ended December 31, 2006, investment income associated
      with available-for-sale investments of approximately $90,000 was credited to
      the
      Company’s other revenue.




**NOTE
      11**  **ACCOUNTS
      RECEIVABLE**





Accounts
      receivable consisted of the following:





December
                31,
              2006
            
            December
                31,
              2005(In
                thousands)
            
            (In
                thousands)Accounts
                receivable
            
            $
            959
            
            $
            652Less:
                Allowance for doubtful accounts
            
            
            (14
            )
            
            (12
            )$
            945
            
            $
            640





74




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





December
                31,
              2006
            
            December
                31,
              2005(In
                thousands)
            
            (In
                thousands)Balance
                at the beginning of the year
            
            $
            12
            
            $
            -Add:
                provision during the year
            
            
            2
            
            
            12Balance
                at the end of the year
            
            $
            14
            
            $
            12





**NOTE
      12**  **INVESTMENT
      DEPOSITS**





December
                31,
              2006
            
            December
                31,
              2005(In
                thousands)
            
            (In
                thousands)In
                connection with the acquisition of Tun Lin Limited Liability
                Company
            
            
            (a)
            
            $
            10,000
            
            $
            -Refundable
                deposits in connection with an abandoned acquisition
            
            
            (b)
            
            
            1,025
            
            
            -11,025
            
            
            -Less:
                Current portion
            
            
            
            
            
            (1,025
            )
            
            -Non-current
                portion
            
            
            
            
            $
            10,000
            
            $
            -





(a)
      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”)
      at a 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 (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. However, pursuant to the legal opinion
      of the Company’s legal consultants in Kyrgyzstan law, the acquisition of Tun Lin
“is not deemed to have been completed until the transfer has been approved by
      the Kyrgyz authority and Xiangzhen Mining has been issued a share registration
      certificate which confers the lawful ownership of Tun Lin to Xiangzhen
      Mining.”





(b)
      On
      June 6 2006, the Company entered into an agreement with Mr. Xu Zhong Guo to
      acquire 70% ownership in exploration rights of Qinghai Menyuan Xian Yikeshu
      hard
      coal mine. Under the terms of the acquisition agreement, Mr. Xu was required
      to
      transfer the exploration rights to one of our subsidiaries by not later than
      July 2006. In return, Mr. Xu would be entitled to receive an aggregate
      consideration of approximately $1.025 million in cash and $1.537 million worth
      of our common stock, totaling approximately $2.562 million upon the completion
      of the transaction. As required by the agreement, the Company had partially
      deposited $1.025 million cash to Mr. Xu in September 2006.


Since
      Mr.
      Xu cannot honor the agreement to transfer the exploration rights to one of
      our
      subsidiaries before the deadline, both parties agreed to terminate the
      agreement. Pursuant to the cancellation agreement entered into between the
      Company and Mr. Xu on March 25, 2007, the acquisition was abandoned and Mr.
      Xu
      returned the $1.025 million deposit to us on April 11, 2007.





**NOTE
      13**  **DEPOSITS
      AND PREPAYMENTS**





Deposits
      and prepayments consist of the following:





December
                31,
              2006
            
            December
                31,
              2005(In
                thousands)
            
            (In
                thousands)Prepayments
                and advances
            
            
            (a)
            
            $
            2,976
            
            $
            1Refundable
                advances
            
            
            (b)
            
            
            702
            
            
            -Tax
                recoverable
            
            
            
            
            
            75
            
            
            96Other
                receivables
            
            
            
            
            
            362
            
            
            56$
            4,115
            
            $
            153





(a)  Included
      in prepayments and advances is a paid-in-advance to Wulatehouqi Zijin Mining
      Co., Ltd. (“Wulatehouqi Zijin”) of approximately $2,755,125 for purchase of raw
      materials. (See also Note 28).




75





(b)  Amount
      represents advances in connection with the abandoned acquisition of exploration
      rights of Qinghai Menyuan Xian Yikeshu hard coal mine. The balance is refundable
      from the seller of the transaction.





**NOTE
      14**  **INVENTORIES**





Inventories
      consisted of the following:





December
                31,
              2006
            
            December
                31,
              2005(In
                thousands)
            
            (In
                thousands)Raw
                materials
            
            $
            237
            
            $
            78Consumables
            
            
            489
            
            
            365Finished
                goods
            
            
            647
            
            
            1,985$
            1,373
            
            $
            2,428





**NOTE
      15**  **DUE
      FROM RELATED PARTIES**





Due
      from
      related parties consisted of the following:





December
                31,
              2006
            
            December
                31,
              2005(In
                thousands)
            
            (In
                thousands)Due
                from related parties:-
                Due from a directorMr.
                He Lin Cui
            
            
            (a)
            
            $
            45
            
            $
            --
                Due from a joint venture partner:Xinjiang
                Tianxiang New Technology Development Company Limited
            
            
            (b)
            
            
            26
            
            
            -$
            71
            
            $
            -





(a)
      Balance represents miscellaneous advances to Mr.
      Cui.





(b)
      Xinjiang Tianxiang New Technology Development Company Limited is the minority
      shareholder of Xingzhen Mining. The balance as of December 31, 2006 represents
      miscellaneous advances to the minority shareholders.





**NOTE
      16**  **PROPERTY,
      MACHINERY AND MINING ASSETS, NET**





Property,
      machinery and mining assets consisted of the following:





December
                31,
              2006
            
            December
                31,
              2005(In
                thousands)
            
            (In
                thousands)Land
                use rights
            
            $
            1,485
            
            $
            1,644Buildings
            
            
            2,209
            
            
            1,870Machinery
            
            
            4,972
            
            
            5,129Mining
                assets
            
            
            1,614
            
            
            1,275Motor
                vehicles
            
            
            844
            
            
            681Equipment
            
            
            174
            
            
            56Extraction
                rights
            
            
            1,149
            
            
            -Exploration
                rights
            
            
            5,451
            
            
            1,886Construction
                in progress
            
            
            3,514
            
            
            68721,412
            
            
            13,228Less:-
                Accumulated depreciation and amortization
            
            
            (5,053
            )
            
            (3,505
            )$
            16,359
            
            $
            9,723





76




***Depreciation
      and amortization***




Depreciation
      and amortization expense in aggregate for the year ended December 31, 2006
      and
      2005 was approximately $2,432,000 and $1,263,000, respectively.





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




As
      of the
      year-end date, buildings of $2,078,062 and machinery of $2,086,501 have been
      pledged as collateral for the bank borrowings. (See Note 18 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.





**NOTE
      17**  **GOODWILL**





The
      carrying amount as of December 31, 2006 represents goodwill arising from
      the acquisition of Qingshan Metal during the year. (See note 8)




**NOTE
      18**  **WARRANTS
      LIABILITY**





In
      connection with the issuance of the Notes, 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
      on or before 3 years from the date of grant. As of December 31, 2006, the fair
      value of the put warrant is approximately $1,030,000.




77





**NOTE
      19**  **SHORT-TERM
      BANK LOANS**





Short-term
      bank loans consisted of the following:




December
                31,
              2006
            
            December
                31,
              2005(in
                thousands)
            
            (in
                thousands)8.37%
                note payable to Baiyin Credit Union (“Baiyin Credit Union”, located at
                Baiyin City, Gansu province, the PRC), matured on December 28, 2006,
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by mineral reserve
            
            $
            -
            
            $
            2635.4%
                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
            
            
            108
            
            
            1227.812%
                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
            
            
            191
            
            
            1828.37%
                note payable to Baiyin Credit Union, matured on December 28, 2006,
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by building of $2,078,062 and other assets of
                $1,589,106
            
            
            -
            
            
            1,5288.928%
                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
            
            
            1,281
            
            
            -8.37%
                note payable to Baiyin Credit Union matured on February 22, 2006,
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by mineral reserve
            
            
            -
            
            
            1838.37%
                note payable to Baiyin Credit Union matured on February 22, 2006,
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by mineral reserve
            
            
            -
            
            
            1228.37%
                note payable to Baiyin Credit Union matured on February 22, 2006,
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by mineral reserve
            
            
            -
            
            
            318.37%
                note payable to Baiyin Credit Union matured on March 6, 2006, with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by mineral reserve
            
            
            -
            
            
            988.37%
                note payable to Baiyin Credit Union matured on March 13, 2006, with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by mineral of reserve
            
            
            -
            
            
            1228.37%
                note payable to Baiyin Credit Union matured on March 26, 2006, with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by mineral of reserve
            
            
            -
            
            
            1228.37%
                note payable to Baiyin Credit Union matured on September 20, 2006,
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by mineral reserve
            
            
            -
            
            
            2448.37%
                note payable to Baiyin Credit Union matured on December 28, 2006,
                with
                interest due on the 20th day of each quarter and principal due at
                date of
                maturity, secured by mineral reserve
            
            
            -
            
            
            331




78




7.056%
                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
            
            
            77
            
            
            -7.056%
                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
            
            
            102
            
            
            -7.056%
                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
            
            
            51
            
            
            -8.928%
                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
            
            
            256
            
            
            -8.928%
                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
            
            
            192
            
            
            -9.36%
                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
            
            
            102
            
            
            -8.928%
                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
            
            
            90
            
            
            -8.928%
                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
            
            
            90
            
            
            -9.36%
                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
            
            
            128
            
            
            -Total
            
            
            2,668
            
            
            3,348




**NOTE
      20**  **OTHER
      PAYABLES AND ACCRUAL** S





Other
      payables and accruals consisted of the following:





December
                31,
              2006
            
            December
                31,
              2005(In
                thousands)
            
            (In
                thousands)Outstanding
                purchase consideration payable for acquisition of
                subsidiaries
            
            
            (a)
            
            $
            3,713
            
            $
            -Accrued
                debt issuance costs
            
            
            (b)
            
            
            2,271
            
            
            -Receipts
                in advance
            
            
            
            
            
            671
            
            
            492Accruals
                for payroll, bonus and other expenses
            
            
            
            
            
            297
            
            
            98Others
                payables
            
            
            
            
            
            414
            
            
            296$
            7,366
            
            $
            886





(a)
      The
      amount represents outstanding purchase consideration payable for acquisition
      of
      Qingshan Metal and Xingzhen Mining, and was subsequently settled by means of
      issuing the Company’s shares to the sellers.




79





(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 during 2006.





**NOTE
      21**  **DUE
      TO A DIRECTOR**





The
      balance represents advances from the CEO of the Company and is due on
      demand.





**NOTE
      22**  **CONVERTIBLE
      NOTES PAYABLE**





***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
      initially bear interest at 6.75% per annum, which is subject to upward
      adjustment, are payable semi-annually, and have a maturity of December 27,
      2012.
      Pursuant to the Notes Purchase Agreement, the interest rate may be adjusted
      upward depending on whether and when we become listed on a national stock
      exchange in the United States as follows:





(i)
      If
      the listing of the Company on any a national stock exchange has occurred on
      or
      prior to November 15, 2007 and if the Company maintains such listing, the Notes
      will bear interest at the rate of 6.75% per annum of the original principal
      amount of the Notes (i.e., US$28,000,000) , from and including November 15,
      2007;





(ii)
      If
      the listing occurs after November 15, 2007 and if the Company maintains such
      listing, the Notes will bear interest at the rate of 8.5% per annum of the
      original principal amount of the Notes, from and including the date of
      re-listing;





(iii)
      If
      the listing has not occurred on or before November 15, 2007 or if the Company
      is
      not at that time currently maintaining such listing, the Notes will bear
      interest at the rate of 10.50% per annum of the original principal amount of
      the
      Notes, from and including November 15, 2007, provided that thief the re-listing
      is achieved, provision (ii) will apply.





The
      Notes
      are convertible at the option of the holders, at any time on or prior to
      maturity, into common shares of the Company. The pre-determined conversion
      price
      is $3.20 per share. However, if at any time during the period from August
      15, 2007 to September 15, 2007, the 30-day historical weighted average price
      (each, a “Reference Price”) of the Company’s common stock is less than $2.90 per
      share, then the conversion price will be adjusted to the lowest Reference Price,
      but not 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.





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.




80





***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,
      2006, the fair value of the put warrant is $1,030,000.





***Debt
      issuance costs***




The
      issuance costs directly associated with the Notes and the put warrant were
      $2,517,938 in aggregate. The amount is capitalized as deferred debt issuance
      costs, and is being amortized on the straight-line 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.




**NOTE
      23**  **MINORITY
      INTERESTS**





The
      activities of the minority interests’ equity during the year ended December 31,
      2005 and 2006 are summarized as follows (dollars in thousands):


Beginning
                balance (January 1, 2005 and 2006)
            
            $
            -Arising
                from acquisitions
            
            
            294Minority
                interests in income
            
            
            (32
            )Exchange
                realignment
            
            
            (4
            )Balance,
                December 31, 2006
            
            $
            258




**NOTE
      24**  **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
      25**  **EQUITY
      BASED TRANSACTIONS**





The
      Company had the following equity based transactions during the years ended
      December 31, 2006:




December
                31,
              2006
            
            December
                31,
              2005(In
                thousands)
            
            (In
                thousands)Shares
                issued and option granted tofinancial
                advisors for reverse takeover costs:-
                1,300,000 shares issued
            
            
            (a)
            
            $
            3,813
            
            $
            --
                Shares option granted
            
            
            (b)
            
            
            764
            
            
            -4,577
            
            
            -1,013,000
                shares issued to management of the Company as bonuses
            
            
            (a)
            
            $
            2,970
            
            $
            -





(a)
      On
      September 15, 2006, EPTI was instructed by AFMG to issue (i ) 1,300,000 shares
      of its common stock to the financial advisors of AFMG for services relating
      to
      the reverse takeover (“Financial Advisors”), and (ii) 1,013,000 shares of its
      common stock to management of AFMG and its subsidiaries as a bonus payment.
      The
      fair market price of the Company’s stock on that date, based on the valuation
      report issued by a professional valuation firm, was $2.9335 per share.
      Accordingly, the fair value of reverse takeover costs of $2,971,636 was charged
      as reverse takeover costs, and the fair value of the bonus payment to management
      of $3,813,550 were charged to general and administration expenses for the year
      ended December 31, 2006.




81





(b)
      On
      March 12, 2005, Xiangzhen Mining granted a three-year option, effective from
      the
      completion of the reverse takeover transaction, to the Financial Advisors to
      invest up to $2,000,000 (limited to no more than 10% of the Company’s issued
      equity) to China Shen Zhou. The fair value of the option was determined to
      be
      $763,750 using the Black-Scholes Model and was charged as reverse takeover
      expense. Valuations derived from this model are subject to ongoing internal
      and
      external review. The model uses market-sourced inputs such as interest rates,
      and option volatilities. Selection of these inputs involves management's
      judgment and may impact net income. The Company has obtained a valuation report
      from a professional valuation firm to support its estimates. The principal
      assumption used to value these complex freestanding financial instruments was
      as
      follows:





Embedded
                Conversion FeatureExpected
                life (in years)
            
            
            3
                yearsExpected
                volatility
            
            
            60.12
            %Risk-free
                interest rate
            
            
            4.63
            %Dividend
                yield
            
            
            Nil





Note:
      Of
      the $4,777,000 reverse takeover costs, $200,000 were cash payments to financial
      advisers in the transaction.





**NOTE
      26**  **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:
      Of
      the $4,777,000 reverse takeover costs, $200,000 were cash payment paid to
      financial advisors in the transaction .





**NOTE
      2** **7**  **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
      Companies’ property, machinery and mining assets related to those two mining
      sites at December 31, 2005 and 2006 were not subject to an asset retirement
      obligation.




82





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
      28**  **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. Tianzhen
      Mining was granted exemptions for 5 years, effective from 2004. Xiangzhen Mining
      and Qingshan Metal were charged at net turnover * 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 2006. As such, they are
      not
      subject to the charge. Xingzhen Mining has not commenced its
      business.





For
      the
      years ended December 31, 2006 and 2005, Natural Resource Compensation
      Charges of $115,810 and $30,543, respectively, were charged to operations and
      included in cost of sales.





**NOTE
      29**  **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***




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





***Environmental
      matters***




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




83





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.





***Registration
      Payment Arrangements***




Pursuant
      to the Notes Purchase Agreement, which is more fully described in note 22,
      the
      Company is obligated to pay the Notes holder an additional liquidated damages
      penalty of $750,000 if it does not complete a listing of its common stock on
      a
      U.S. stock exchange (NYSE, AMEX or NASDAQ) by November 15, 2007. The Company
      has
      determined that it qualifies for listing on AMEX and is submitting an
      application to AMEX shortly.





In
      addition, the Notes provide for additional liquidated damages, the conditions
      of
      which have so far been met by the Company, relating to (i) appointment of
      auditors, (ii) hiring of a chief financial officer with experience with U.S
      publicly listed companies, and (iii) honoring the Note holders’ rights to
      nominate directors to the board of directors pursuant to the Voting
      Agreement.





Therefore,
      the Company has concluded that it is not probable that it will be required
      to
      make any payments to the Notes holder for non-fulfillment of the conditions
      provided for in the Notes
      Purchase Agreement and has
      not accrued for any contingent liability under the Notes Purchase
      Agreement.





**NOTE
      30**  **CONCENTRATION
      OF CUSTOMERS AND SUPPLIERS**





During
      the year 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 $5,690,000 or 25.4% of the
      Company’s consolidated net turnover.





On
      December 10, 2005, Qianzhen Mining entered into an agreement with Wulatehouqi
      Zijin. Pursuant to the agreement, Wulatehouqi Zijin agreed to supply up to
      200,000 metric tons of raw minerals at a fixed price of RMB63/metric ton to
      Qianzhen Mining in 30 months of time, and each month the quantity supplied
      cannot be lower than 8,000 metric tons. Wulatehouqi Zijin will stop supplying
      raw minerals to Qianzhen Mining once the terms are completed. Pursuant to the
      agreement, both parties also agreed that the zinc products of Qianzhen Mining
      “should be sold to Bayannaoer Zijin at market price”.





In
      addition to the aforementioned, our nonferrous metal product business had
      another significant customer which accounted for approximately $7,907,000 or
      35.3% of our consolidated net turnover in 2006.




**NOTE
      31**  **RELATED
      PARTY TRANSACTION**





As
      of
      December 31, 2006, certain of the Company’s bank loans were secured by personal
      assets of the CEO of the Company:








December
                31,
              2006(In
                thousands)7.056%
                note payable to Baiyin Credit Union mature on December 26, 2007
            
            $
            777.056%
                note payable to Baiyin Credit Union mature on August 18,
                2007
            
            
            1027.056%
                note payable to Baiyin Credit Union mature on February 8,
                2007
            
            
            51230





84





**NOTE
      32**  **SEGMENT
      INFOMATION**





We
      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. We have two operating segments identified by product,
“fluorite” and “nonferrous metals”. The fluorite segment consists of our
      fluorite extraction and processing operations conducted through our wholly-owned
      subsidiary, Xiangzhen Mining. The nonferrous metals segment consists of our
      copper, zinc, lead and other nonferrous metal exploration, extraction and
      processing activities conducted through our wholly-owned subsidiaries, Qianzhen
      Mining, Xingzhen Mining, Tianzhen Mining and Qingshan Mining.





We
      primarily evaluate performance based on income before income taxes and excluding
      non-recurrent items.





During
      fiscal 2005 and 2006, as we operated in one single geographic region, China,
      no
      geographic information is presented.




85





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




**Year
                ended December 31, 2006**
            
            **Fluorite**
            
            **Nonferrous**
              **metals**
            
            **Consolidated**Segment
                revenue
            
            $
            5,312
            
            $
            17,121
            
            $
            22,433Inter-segment
                revenue
            
            
            -
            
            
            -
            
            
            -Revenue
                from external customers
            
            $
            5,312
            
            $
            17,121
            
            $
            22,433Segment
                (loss) profit
            
            $
            (860
            )
            $
            9,833
            
            $
            8,973Reverse
                takeover costs
            
            
            
            
            
            
            
            
            (4,777
            )Unallocated
                corporate expenses
            
            
            
            
            
            
            
            
            (3,033
            )Income
                before income taxes and minority interests
            
            
            
            
            
            
            
            $
            1,163Total
                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
            
            $
            1,350
            
            $
            2,432Impairment
                of fixed assets
            
            $
            455
            
            $
            -
            
            $
            455Expenditure
                for segment assets
            
            $
            3,211
            
            $
            2,362
            
            $
            5,573





**Year
                ended December 31, 2005**
            
            **Fluorite**
            
            **Nonferrous**
              **metals**
            
            **Consolidated**Total
                segment revenue
            
            $
            2,267
            
            $
            4,780
            
            $
            7,047Inter-segment
                revenue
            
            
            -
            
            
            -
            
            
            -Revenue
                from external customers
            
            $
            2,267
            
            $
            4,780
            
            $
            7,047Segment
                (loss) profit
            
            $
            (135
            )
            $
            1,493
            
            $
            1,358Income
                before income taxes and minority interests
            
            
            
            
            
            
            
            $
            1,358Total
                segment assets
            
            $
            8,857
            
            $
            6,229
            
            $
            15,086Inter-segment
                receivables
            
            
            (25
            )
            
            (1,622
            )
            
            (1,647
            )$
            8,832
            
            $
            4,607
            
            
            13,439Other
                segment information:Depreciation
                and amortization
            
            $
            603
            
            $
            660
            
            $
            1,263Expenditure
                for segment assets
            
            $
            464
            
            $
            1,323
            
            $
            1,787




**NOTE
      33**  **SUBSEQUENT
      EVENT**





On
      August
      8, 2007, the Company submitted an application to the American Stock Exchange
      (“AMEX”) for a listing of its shares on the AMEX.




86





The
      Company has re-negotiated the terms and conditions of the Notes Purchase
      Agreement as described on note 22 with Citadel, the Notes holder, and has
      entered into a Second Supplemental Indenture on September 28, 2007, whereby
      the
      following amendments, including certain covenants waivers, among others, were
      made to the terms and conditions of the Notes:





***1.***  ***Deadline
      for listing***





The
      deadline for the Company to complete a listing of its common stock on the
      NASDAQ, AMEX or NYSE (“ **Public
      Listing** ”)
      to
      avoid an additional liquidated damages penalty of $750,000 (see further
      description in “Registration Payment Arrangements” paragraph in note 29) has
      been extended from November 15, 2007 to December 31, 2007.





***2.***  ***Interest
      rate***





The
      interest rate (see original terms as further described in note 22) 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)
      (i)
      if the Public Listing occurs on or prior to December 31, 2007 and if the Company
      maintains such listing, at the rate of 0.00% per annum of the Original Principal
      Amount of the Notes, from and including December 31, 2007 to but excluding
      the
      Maturity Date; (ii) if the Public Listing occurs after December 31, 2007 and
      if
      the Company maintains such listing, at the rate of 1.75% per annum of the
      Original Principal Amount of the Notes, from and including the date of the
      listing to but excluding the Maturity
      Date; and (iii) if the Public Listing does not occur on or before December
      31,
      2007 or if after December 31, 2007 the Company is not at that time currently
      maintaining such listing, at the rate of 3.75% per annum of the Original
      Principal Amount of the Notes, from and including December 31, 2007 or the
      date
      on which such listing ceased to be maintained, as the case may be, to but
      excluding the Maturity Date, provided that at any such time as such listing
      is
      achieved and maintained, the provisions of clause (ii) shall
      apply.”





***3.***  ***Conversion
      price***





The
      initial conversion price at which the Notes are convertible at the option of
      the
      holders has been revised from $3.20 to $2.25 per share that is subject to
      adjustment in certain circumstances but shall in no event fall below $2.00
      per
      share.





87