China Shen Zhou Mining & Resources 10K 2008 Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2008

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

For the transition period from __________ to __________

COMMISSION FILE NUMBER: 001-33929

CHINA SHEN ZHOU MINING & RESOURCES, INC.

(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,

Shijingshan District, Beijing, China 100043

(Address of principal executive offices) (Zip Code)

86-010-8890 6927

(Issuer’s telephone number, including area code)

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

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

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

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

Yes o No þ

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

Yes o No þ

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

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

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller

reporting company)

Smaller reporting company x

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

Yes o No þ

The aggregate market value of the 4,970,914 shares of voting and non-voting common equity stock held by non-affiliates of the registrant was $ 15,161,288 as of June 30, 2008, the last business day of the registrant’s most recently completed second fiscal quarter, based on the last sale price of the registrant’s common stock on such date of $3.05 per share, as reported by NYSE Amex Market (formerly American Stock Exchange).

As of April 14, 2009, there were 22,214,514 shares of common stock of China Shen Zhou Mining & Resources, Inc. outstanding.

TABLE OF CONTENTS

PART I
	ITEM 1.	BUSINESS	4
	Corporate History		4
	Our Industry		5
	Current Business Operations		6
	Description of Products		6
	Sales and Marketing		7
	Our Major Customers		7
	Competition		8
	Business Strategies		8
	Expansion of Production Capacity to Meet Demand		8
	Exploration Activities		9
	Acquire More Mineral Resources		10
	Competitive Advantages		10
	Government Regulation		10
	Employees		11
	ITEM 1A.	RISK FACTORS
	ITEM 1B.	UNRESOLVED STAFF COMMENTS
	ITEM 2.	PROPERTIES	24
	General		24
	Sumochaganaobao Fluorite Mine (Production Stage)		27
	The Kuru-Tegerek Cu-Au Mine (Under Development)		31
	Mining Site No. 2 of Qingxing Copper Mine, in production Stage (Qingshan Metal)		34
	Keyinbulake Cu-Zn Property in development stage (Xingzhen Mining)		37
	Qianzhen Mining		39
	ITEM 3.	LEGAL PROCEEDINGS	40
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	40
PART II
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	41
	Equity Compensation Plan Information		41

	ITEM 6.	SELECTED FINANCIAL DATA	42
	ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	42
	Expansion of Production Capacity to Meet Demand		38
	Acquire More Mineral Resources		40

	ITEM 8.	FINANCIAL STATEMENTS	54
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	54
	ITEM 9A.	CONTROLS AND PROCEDURES	54
	ITEM 9B.	OTHER INFORMATION	55
PART III
	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	55
	Involvement in Certain Legal Proceedings		57
	Compliance with Section 16(a) of the Securities Exchange Act of 1934		58
	Code of Ethics		58
	Director Nominees Recommended by Stockholders		58
	Board Composition; Audit Committee and Financial Expert		58
	ITEM 11.	EXECUTIVE COMPENSATION	59
	Outstanding Equity Awards at Fiscal Year-End		59
	Director Compensation		59
	Retirement, Post-Termination and Change in Control		60
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.	60
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	61

	ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	62
PART IV
	ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	62

PART I

ITEM 1.

BUSINESS

Corporate History

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

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

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

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

AFMG owns all of the registered capital of Inner Mongolia Wulatehouqi Qianzhen Ore Processing Co., Ltd. (“Qianzhen Mining”), a limited liability company organized in the PRC. Qianzhen Mining holds 68% of the registered capital of Inner Mongolia Xiangzhen Mining Group Co., Ltd., a limited liability company organized in the PRC (“Xiangzhen Mining”), with the remaining 32% of the registered capital of Xiangzhen Mining being held by AFMG, thus effectively making Xiangzhen Mining a wholly-owned subsidiary of AFMG. The percentage of ownership interest in Xiangzhen Mining by AFMG and Qianzhen Mining changed from 67% and 33% in 2006 to 68% and 32% in 2007, respectively, due to additional investment into Xiangzhen Mining by AFMG and Qianzhen Mining. Xiangzhen Mining also holds 100% of the registered capital of Tun-Lin Limited Liability Company (“Tun-Lin”), which is a Kyrgyz Republic registered company, which in turn owns 100% of Kichi Chaarat Closed Stock Company . Qianzhen Mining owns 60% of Wulatehouqi Qingshan Nonferrous Metal Development Co., Ltd. (“Qingshan Metal”). The other 40% of Qingshan Metal is owned by several individual shareholders. Xiangzhen Mining owns 90% of Xinjiang Buerjin County Xingzhen Mining Co., Ltd. (“Xingzhen Mining”). The other 10% is owned by Xinjiang Tianxiang New Technology Development Co., Ltd.

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

The table below illustrates the corporate structure of the Company:

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

Our executive offices are located at No. 166 Fushi Road, Zeyang Tower, Suite 1210 Shijingshan District, Beijing, China 100043. Our telephone number is 86-010-88906927.

Our Industry

Our primary business activity is mining, processing and distributing fluorite ores and processed fluorite powder, copper, zinc, lead, and other mineral concentrates. Along with China’s modernization drive, its economy has witnessed significant growth in the past three decades, which brought about a rapid growth in its manufacturing capacity. Moreover, due to its investment environment and cheap labor, China has attracted many manufacturers from developed countries.

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. China produced 3.0 million metric tons of fluorite ore in 2006, 3.85 million metric tons in 2007 and 4.416 million metric tons in 2008. In 2008, about 87.5% of the annual output was consumed within China and 12.5% was exported, according to the publication of the China Fluorite Conference at Kunming and based on the estimates by China’s Fluorite Industry Association.. 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.

Since 2007, the annual production capacity of steel has increased by 5% in China. Due to the increase of steel production, a capacity to produce aluminum fluoride at 500,000 metric tons had been built up by the end of 2008, which requires 0.75 million metric tons of fluorite powders. As of October 2008, the production capacity of hydrofluoric acid has increased to 1.0 million metric tons per year and 345,000 metric tons are under construction, which requires 2.5 million metric tons and 0.86 million metric tons of fluorite powders respectively. Due to the global financial crisis, however, the actual production is estimated at 60% of its capacity, according to the publication of China’s Inorganic Fluoride Industry Association.

In 2008, 1.75 million metric tons of fluorite powders were consumed by the producers of hydrofluoric acid, 3.44 million metric tons by the producers of aluminum, 1.0 million metric tons by the producers of steel, 0.516 million metric tons by the producers of aluminum fluoride and 0.6 million metric tons by the producers of construction materials in China, according to the publication of China’s Inorganic Fluoride Industry Association

Current Business Operations

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

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 ore
Xiangzhen Mining		Engage in the extraction and processing of fluorite ore
Xingzhen Mining		Engage mainly in exploration and development of zinc-copper mine
Qingshan Metal		Engage mainly in the extraction of copper-zinc ore, some processing
Tun-Lin Kichi Chaarat		Holding company of Kichi Chaarat Engage in the development of Kichi Chaarat gold and copper deposit

Description of Products

Fluorite :

We extract and process fluorite ores or fluorspar in northern Inner Mongolia. In 2008, we extracted a total amount of 122,000 metric tons of fluorite ores. There are two final products from extraction and processing of fluorites: high grade fluorite ores with a purity of above 75% CaF2 and fluorite powder with a purity of greater than 97% CaF2 The high grade fluorite ores, selected directly from the mined ores, are sold to steel making companies to be used as a melting agent in steel making. The fluorite powder is a key upstream material for the manufacture of fluorine compounds by the fluorine chemical industry.

In 2008, we produced approximately 61,000 metric tons of high grade fluorite ores and sold 24,135 metric tons with total sales of approximately US$2.6 million, accounting for approximately 69% of the revenues of our fluorite business.. We also processed 32,087 metric tons of fluorite ores, produced 17,664 metric tons of fluorite powder and sold 15,243 metric tons for approximately US$ 1.1million, which accounts for approximately 31% of the revenues of our fluorite business.

Nonferrous :

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

In 2008, we produced zinc concentrate, copper concentrates and concentrate sulfur equivalent to 1,850 metric tons of zinc metal, 120 metric tons of copper metal and 20,342 tons of concentrate sulfur and sold zinc and copper concentrates equivalent to 1,850 metric tons of zinc metal, 145 metric tons of copper metal and 18,147 metric tons of concentrate sulfur, accounting for approximately 43%, 29% and 28%, respectively, of the total revenues of our nonferrous business of approximately $7.1 million.

-Sales and Marketing

We do not have any marketing staff. We have maintained long term and good relationships with our customers, who send their orders directly to us. Our in-house sales staff fill these orders based on our actual production ability and deliver the products to our customers through railways or trucks. We expect these relationships with our customer to continue.

Major Suppliers

During the year 2008, We have no concentrated suppliers. We extract and process zinc, copper and fluorite ores from our mines and purchase fuel and very few raw materials.

Our Major Customers

In 2008, our revenues from our fluorite business and nonferrous metals business were $3.7 million and $3.4 million, respectively.

The following table shows our major customers (5% or more) for our nonferrous business as of December 31, 2008:

Number	Customer	Revenue* ($1,000)		Percentage (%)
1	RuiPeng Mining Ltd		2,185		64	%
2	Jinliyuan Trading Ltd		345		10	%
3	Hubei Huawei Trading Ltd		217		6	%
4	Feishang Nonferrous Metals Ltd		174		5	%
5	Shuangli Trading Ltd		173		5	%
TOTAL			3,094		90	%

*The total revenue from our nonferrous segment is $3.4 million

The following table shows our major customers (5% or more) for our fluorite business as of December 31, 2008:

Number	Customer	Revenue* ($1,000)		Percentage (%)
1	Laiwu Steel Ltd		925		25	%
2	Inner Mongolia Huadesanli Trading Ltd		781		21	%
3	Handan Hongzhi Substance Ltd		754		20	%
4	Ningxia Jinhe Chemistry Ltd		685		19	%
5	Zibo Bofeng Fertilizer Ltd		355		10	%
TOTAL			3,500		95	%

* Total revenue from our fluorite segment is $3.7 million.

Competition

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

Our competitors mainly are similar companies in China.

Our main competitors in the fluorite business are:

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

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

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

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

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

Competitor		Capacity

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

Business Strategy

Expansion of Production Capacity to Meet Demand

▼ Fluorite

We extracted approximately 122,000 metric tons of fluorite ore in 2008. In early 2006, we began a project at Xiangzhen Mining to produce 300,000 metric tons of fluorite ore, and the project was completed in November 2007. Initially at the newly expanded mine, we expect to extract 80,000 metric tons of fluorite ore and process them into 40,000 metric tons of fluorite lump and 40,000 metric tons of fluorite powder in 2009. From 2010 onwards, we expect to expand our extraction capacity to full capacity of 300,000 metric tons of fluorite ore per year.

We produced approximately 6,750 metric tons of fluorite powder in 2008. In early 2006, at our mine site, we started to build a plant with an annual processing capacity of 200,000 metric tons of fluorite ore. The new plant remained in trial production in 2008 and we have been engaged in solving certain technological problems related to the plant’s water supply. We expect to solve the plant’s technological problems and produce 40,000 metric tons of fluorite powder in 2009. After reaching its full capacity, we expect to produce approximately 100,000 metric tons of refined fluorite powder per year.

▼ Zinc, Copper and Lead

Due to supply issues in non-ferrous ores, Qianzhen did not produce any non-ferrous concentrates during the first six months of 2008. Taking advantage of the rapidly increasing price of concentrate sulphur, the Company changed to produce concentrate sulphur by utilizing accumulated sulphur-bearing tailings, in order to mitigate the impact of the supply issues on the Company’s production. The Company treated 77,463 metric tons of sulphur-bearing tailings and produced 18,000 metric tons of concentrate sulphur in 2008. No production is planned at Qianzhen Mining in 2009 due to the low grade of the ores supplied by Qingshan Metal and low price of copper. During this shutdown period, Qianzhen will look actively for partners with the help of the local governments and for opportunities to re-start production.

In July 2006, Xingzhen Mining began a project at Keyinbulake Multi-Metal Mine in Buerjin County, Aletai Zone, Xinjiang Uygur Autonomous Region. The project has a mining and processing capacity of 200,000 metric tons of mineralized zinc-copper material per year. It went into trial production at the end of the second quarter of 2008 and produced 1,850 metric tons of zinc concentrates and 108 metric tons of copper concentrates in 2008. In 2009, with the lower price of zinc and copper, the Company will produce 30,000 metric tons of zinc oxide ore and sell directly without further processing, and process 70,000 metric tons of ore to produce 8,700 metric tons of zinc concentrate, and 1,900 metric tons of copper concentrate if we have satifactory test results for high grade ore dressing or the prices of copper and zinc do not continue to fall.

In November 2007, we completed the acquisition of Tun-Lin Co. Ltd, a company that exists under the law of the Republic of Kyrgyzstan, which owns 100% of the equity in Kichi Chaarat, whose major asset is the subsoil use right for (i) mining for gold, copper and other metals within the Kuru-Tegerek licensed area; and (ii) exploration for gold, copper and other metals within the Kuru-Tegerek licensed area. The purpose of the acquisition was to enable the Company to explore, develop and mine the potential reserves of the Kuru-Tegerek licensed area. On July 2008, the development plan for the Kichi Chaarat deposit was approved by local authority and we plan to complete the construction of a mining facility in three years.

Exploration Activities

ü Keyinbulake Cu-Zn Mine

Following the exploration in 2008, further exploration activities are planned in 2009 in the southern and northern parts of Keyinbulake Cu-Zn Mine. The exploration details are scheduled as follows:

Table 1-3: Exploration Program for Keyinbulake Property

Item	Method	Unit	Quantity
Geophysical	Surface scanning	km 2		2
Drilling	four medium/deep holes	m		3500
Trenching	-	m 3		5000
Assaying	Sampling and test	-		-

The exploration activities listed above will be completed by a Geophysical Prospecting Team of Xinjiang Nonferrous Geophysical Prospecting Bureau at the end of August 2009 with a total budget of approximately $0.58 million, which will be funded by a shareholder (natural person) of Xingzhen Mining.

Acquire More Mineral Resources

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

Competitive Advantages

We believe we have the following competitive advantages:

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

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

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

We have good relationships with local government agencies.

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

Government Regulation

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

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

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

China Mineral Resources Law, which requires a mining business to have exploration and mining licenses from provincial or local land and resources agencies.

China Mine Safety Law, which requires a mining business to have a safe production license and provides for random safety inspections of mining facilities.

China Environmental Law, which requires a mining project to obtain an environmental feasibility study of the project.

Foreign Exchange Controls. The principal regulations governing foreign exchange in the PRC are the Foreign Exchange Control Regulations (1996) and the Administration of Settlement, Sale and Payment of Foreign Exchange Regulations (1996), (“the Foreign Exchange Regulations”). Under the Foreign Exchange Regulations, Renminbi (“RMB”) is freely convertible into foreign currency for current account items, including the distribution of dividends. Conversion of RMB for capital account items, such as direct investment, loans and security investment, however, is still subject to the approval of the State Administration of Foreign Exchange (“SAFE”). Under the Foreign Exchange Regulations, foreign-invested enterprises are required to open and maintain separate foreign exchange accounts for capital account items. In addition, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from SAFE.

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

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

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

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

Employees

As of December 31, 2008, we employed 351 full-time employees, of whom approximately 2.6% are with our Beijing Representative Office, 20.8% are with Qianzhen Mining, 60.7% are with Xiangzhen Mining, 5.1% are with Tun-Lin Co. (gold and copper project in Kyrgyz), 2.3% are with Qingshan Metal (copper and zinc ore mining) and 8.5% are with Xingzhen Mining (holding exploration rights of copper ore and zinc ore). Approximately 26.5% of our employees are management personnel, and 6% are sales and procurement staff. In terms of education level, approximately 20% of our employees have a college degree or higher.

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

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

Our employees in China participate in a state pension arrangement organized by Chinese municipal and provincial governments. We are required to contribute to the arrangement at the rate of 20% of the average monthly salary. In addition, we are required by Chinese law to cover employees in China with other types of social insurance. Our total contribution may amount to 30% of the average monthly salary. We have purchased social insurance for all of our employees. Expense related to social insurance was approximately $107,523 for fiscal year 2008.

Risk Factors

CAUTIONARY STATEMENT REGARDING FORWARD - LOOKING INFORMATION AND CERTAIN IMPORTANT FACTORS

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

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

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

Risks Related to Our Business

We risk defaults under our convertible debt.

We entered into the Second Supplemental Indenture dated September 28, 2007 with the Bank of New York (the “Trustee”), which amended an Indenture dated December 27, 2006 under which our 6.75% Senior Convertible Notes Due 2012 initially purchased by Citadel Equity Fund Ltd were issued. Under the Second Supplemental Indenture, the Company covenants to achieve certain quarterly EBITDA targets for 2008 and 2009. If the Company fails to achieve such quarterly targets and does not cure it within fourteen days after it receives a written notice of default from the Trustee or the Convertible Notes Holders, such failure will constitute a default. The Company did not achieve the targets for the four fiscal quarters of 2008. So far, neither the Trustee nor the Convertible Note Holders have sent a written notice of default to the Company. However, the Trustee or the Convertible Note Holders could send a written notice of default any time in the future when the Company misses its quarterly target. The Company believes that it is very likely to miss its EBITDA target again and will unlikely be able to cure it within fourteen days.

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

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

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

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

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

A significant amount of our revenue is derived from only a small number of customers mainly in the iron and steel and fluorite chemical industries. Dependence on a few customers could expose us to the risk of substantial losses if a single dominant customer stops purchasing our products. If we lose any customers and are unable to replace them with other customers that purchase a similar number of our products and services, our revenues and net income would decline considerably.

We may not have sufficient supply of nonferrous ore.

Qianzhen Mining, one of our subsidiaries, has a 200,000 metric ton/year processing capacity for zinc-lead ore. However, it does not produce any ore it processes. Currently, it obtains its supply of ore from third parties. Its contracts with third parties will expire in June 2008. We may not be able to renew contracts or secure new contracts with third party suppliers. Although we plan to increase the quantity of nonferrous metal ore at Qingshan Metal to replace third party suppliers, we may not be able to produce a sufficient quantity to ensure the supply of ore for Qianzhen Mining. As a result, our revenues may be reduced and our business would suffer.

Inclement weather may affect our fluorite business.

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

Our administrative costs could affect our ability to be profitable.

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

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

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

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

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

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

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

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

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

the accuracy of our mineralization and reserves estimates;

the accuracy of assumptions regarding ore grades and recovery rates;

ground conditions and physical characteristics of the mineralization, such as hardness and the presence or absence of particular metallurgical characteristics;

the accuracy of estimated rates and costs of mining and processing; and

our ability to obtain and keep effective all permits for our mines and facilities.

Our actual production may vary from our estimates if any of our assumptions prove to be incorrect.

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

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

the continued demand of our products by the iron and steel, and fluorite chemical industries;

our ability to successfully and rapidly expand our operations in response to potentially increasing demand;

the costs associated with such growth, which are difficult to quantify, but could be significant;

rapid technological change; and

the highly cyclical nature of the mining industry.

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

There is certain risk for the company to maintain listing on NYSE Amex.

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

Risks Related to Our Industry

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

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

cause suspension of our development and, ultimately our mining operations, if such operations become uneconomic at the then-prevailing prices, thus further reducing revenues;

prevent us from fulfilling our obligations under our agreements or under our permits and licenses which could cause us to lose our interests in, or be forced to sell, our properties; and

reduce financing available to us.

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

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

Mining involves various types of risks and hazards, including: environmental hazards, industrial accidents, metallurgical and other processing problems, unusual or unexpected rock formations, structure cave-in or slides, flooding, fires and interruption due to inclement or hazardous weather conditions.

These risks could result in damage to, or destruction of, mineral properties, production facilities or other properties, personal injury or death, environmental damage, delays in mining, increased production costs, monetary losses and possible legal liability. We may not be able to obtain insurance to cover these risks at economically feasible premiums and some types of insurance may be unavailable or too expensive to maintain. We may suffer a material adverse effect on our business and the value of our securities may decline if we incur losses related to any significant events that are not covered by our insurance policies.

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

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

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

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

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

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

Costs estimates and timing of new projects are uncertain

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

§	availability of labor, power, transportation, commodities and infrastructure;

§	increases in input commodity prices and labor costs;

§	fluctuations in exchange rates;

§	availability of financing;

§	difficulty of estimating construction costs over a period of years; and

§	delays in obtaining environmental or other government permits.

Risks Relate to Doing Business in China

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

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

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

The economy of the PRC has been transitioning from a planned economy to market oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reforms, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in the PRC are still owned by the Chinese government. For example, all lands are state owned and are leased to business entities or individuals through governmental granting of state-owned land use rights or mining and exploration rights. The granting process is typically based on government policies at the time of granting and it could be lengthy and complex. This process may adversely affect our future business expansion. The Chinese government also exercises significant control over the PRC’s economic growth through the allocation of resources, controlling payment of foreign currency and providing preferential treatment to particular industries or companies. Uncertainties may arise with changing of governmental policies and measures. At present, our mining and exploration activities are subject to approvals from the relevant government authorities in China. Such governmental approval processes are typically lengthy and complex, and never certain to be obtained.

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 us.

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

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

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

A new Chinese law may impact our ability to make acquisitions of Chinese businesses.

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

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

Foreign Investment Policy Change

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

Risks Relate to Doing Business in Kyrgyzstan

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

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

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

There are risks inherent in doing business in Kyrgyzstan.

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

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

Through controls on foreign exchange, taxation and restrictions on foreign participation in the domestic market of various industries, the Kyrgyzstan government exerts considerable direct and indirect influence on the economy. Many of the economic reforms carried out by the Kyrgyzstan government are unprecedented or experimental, and are expected to be refined and improved. Other political, economic and social factors can also lead to further readjustment of such reforms. This refining and readjustment process may not necessarily have a positive effect on our operations or future business development. Our operating results may be adversely affected by changes in the Kyrgyzstan’s economic and social conditions as well as by changes in the policies of the Kyrgyzstan government, such as changes in laws and regulations (or the official interpretation thereof), measures which may be introduced to control inflation, changes in the interest rate or method of taxation, and the imposition of additional restrictions on currency conversion.

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

The Kyrgyzstan legal system is different from that of United States. Progress has been made in the promulgation of laws and regulations dealing with economic matters such as corporate organization and governance, foreign investment, employment, commerce, taxation and trade. However, the promulgation of new laws, changes of existing laws and the abrogation of local regulations by national laws could have a negative impact on our business and business prospects. In addition, as these laws, regulations and legal requirements are relatively recent, their interpretation and enforcement involve significant uncertainty.

Risks Related to the Market for Our Stock

The market for our Common Stock is limited.

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

We currently have approximately 642 shareholders. But the trading volume has been low. A viable public trading market may not develop for our shares or may take a period of time to develop. Such a market, if it does develop, could be subject to extreme price and volume fluctuations. In the absence of an active trading market:

	·	Shareholders may have difficulty buying and selling or obtaining market quotations;

	·	market visibility for our Common Stock may be limited; and

a lack of visibility for our Common Stock may have a depressive effect on the market price for our Common Stock.

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

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

The trading prices of many companies that have business operations only in China have been volatile which may result in large fluctuations in the price of our Common Stock and losses for shareholders.

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

	·	actual or anticipated variations in our quarterly operating results;

	·	announcements of technological innovations or new products or services by us or our competitors;

	·	announcements relating to strategic relationships or acquisitions;

	·	additions or terminations of coverage of our Common Stock by securities analysts;

	·	statements by securities analysts regarding us or our industry;

	·	conditions or trends in the our industry; and

changes in the economic performance and/or market valuations of other industrial fire safety companies.

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

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

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

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

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

	·	the diversion of our management’s attention from our everyday business activities;

	·	the contingent and latent risks associated with the past operations of, and other unanticipated problems arising in, the acquired business; and

the need to expand management, administration, and operational systems.

If we make such acquisitions we cannot predict whether:

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

	·	we will realize any anticipated benefits of completed acquisitions; or

there will be substantial unanticipated costs associated with acquisitions, including potential costs associated with environmental liabilities undiscovered at the time of acquisition.

In addition, future acquisitions by us may result in:

	·	potentially dilutive issuances of our equity securities;

the incurrence of additional debt;

	·	restructuring charges; and

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

We do not intend to pay any dividends on our Common Stock in the foreseeable future.

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

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

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

We will incur increased costs relating to corporate governance matters.

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

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

Our officers, directors and principal stockholders (greater than 5% stockholders) together currently own an aggregate of approximately 79.33% 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.

ITEM 2. DESCRIPTION OF PROPERTY

General

As of December 31, 2008, China Shen Zhou Mining & Resources Inc. owns two properties in the production in the Inner Mongolia Autonomous Region, the Peoples’ Republic of China (“PRC”), and two properties under development, one in Xinjiang Uygur Autonomous Region in the PRC and the other in Kyrgyz Republic.

The two properties in production are:

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

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

The two properties under development are:

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

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

No.	Name of property	Type	Ownership			Status	Location/Country
1	Sumochaganaobao Fluorite Mine	Non-metal Fluorite		100	%	Production	Inner Mongolia, PRC
2	Qingxing Copper Mine	Copper and zinc		60	%		Inner Mongolia, PRC
3	Keyinbulake Multi-metal Mine	Copper and zinc		90	%	Development	Inner Mongolia, PRC
4	Kuru-Tegerek Cu-Au Mine	Copper and gold		100	%		Kyrgyz Republic

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

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

China Shen Zhou Mining & Resources Inc. holds four mining licenses and three exploration licenses at December 31 of 2008. The licenses are:

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

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

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

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

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

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

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

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

Table 2-1: 4 Mining Licenses Held by the Company

Property	Sumochaganaobao fluorite deposit (between prospecting line 21-04)	Mining Site No. 2 of Qingxing Copper Mine (Tanyaokou Multi- metal Mine )
License Number	1500000820156	1500000820421
Owner	Inner Mongolia Xiangzhen Minin g Group Ltd.	Qingshan Nonferrous Metal Development Co Ltd.
Validated period	April 2008 to March 2011	September 2008 to September 2011
Area	0.9088 km2	0.6495km2
Mining mode	Underground mining	Underground mining
Mining scale	150,000 metric tons/annum	100,000 metric tons/ annum
Ore types	Fluorite	Copper, Zinc and sulfur
Mining Level	1075m-497m	1455m-855m

Property	Keyinbulake Cu-Zn Multi-metal Mine	Kuru-Tegerek deposit (Tun Lin)
License Number	6500000712980	8063-3300- AO( ИУ ) 21984940
Owner	Buerjin County Xingzhen Mining.	Kichi Chaarat CJSC
Validated period	August 2007.to August 2013	July 22, 2008 to December 31, 2021
Area	1.955km2	105 hectares (h)
Mining mode	Underground mining	-
Mining scale	21,000 metric tons/ annum	-
Ore types	Copper and zinc	Gold, silver and copper
Mining Level	1420m-1516m	-

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

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

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

Sumochaganaobao Fluorite Mine in Production Stage (Xiangzhen Mining)

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

Location, Access and Traffic

Sumozaganaobao fluorite mine is located in Siziwangqi, Wulanchabu City, Inner Mongolia, PRC. The coordinates are: E111°15′35″~111°16′30″; N43°07′10″~43°07′49″. This area is easily accessible, with a mud road of approximate 90km from the mine to Erlianhot and then a freeway or national highway of about 250km to Hohhot, the capital city of Inner Mongolia, China. It has a typical continental climate characterized mainly by low precipitation and high evaporation, a big temperature difference between day and night, and windy conditions. The topography is gentle grassland with an elevation difference of only 20-40m. Figure 2-3 is the index map of Sumochaganaobao Fluorite Mine.

Figure 2-3: Sumochaganaobao Fluorite Mine

Mining Licenses

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

Previous exploration and development

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

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

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

Previous Mining Operation and Expansion

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

Since 2002, the underground mining has been conducted by Xiangzhen Mining. Initially, the mining capacity was 80, 000 metric tons per year with a concentrator (about 45km southeast of the mine) with an annual processing capacity of 60,000 metric tons. In April 2006, the Company started an expansion. The new mining capacity designed is 300,000 metric tons per year and the treatment capacity is 200,000 metric tons per year from a concentrator located near the fluorite mine .. At the end of 2007 when the expanding construction had basically been completed and commissioning started. The Company invested USD$2,895,380 in underground expansion and USD$7,760,300 in the new concentrator.

Water and Power Supply

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

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

Current Mining Operation

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

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

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

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

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

Major equipment in the mine is as follows:

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

Ore Processing :

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

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

The processing recovery is 83%. Fluorite concentrate grade is over 96%. The main component of fluorite is CaF2, an important chemical that is used in steel making as a flux and in glass making as an additive. The concentrates are in high demand and demand is expected to increase in the future.

Geology of the Property

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

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

Mineralized Materials

In March 2007, the Bureau of Land and Resource of Wulanchabu City commissioned the Land-resources Institute of Inner Mongolia to verify the mineralized material in the Mining License area . The Institute submitted “the Verification Report of Resources/Reserve between Prospecting line 21 and 04, of Sumochaganaobao Fluorite Deposit in Siziwangqi, Inner Mongolia.” The “Consulting Center of the China Mining Association” had reviewed and assessed the verification report and recognized the mineralized material statement in the report, and the indicated mineralized materials were confirmed as 5.051 million metric tons of fluorite with the average grade of 57.58%. In 2008, we exacted a total amount of 122,000 metric tons of fluorite ore, which consumed 163,000 metric tons of the indicated mineralized materials. As of December 31, 2008, there are 4.888 million metric tons of retained mineralized materials.

Sampling, Analytical Procedures and Quality Control

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

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

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

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

Products and Output:

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

Table 2-3: The Output and Price of Products of 2006-2008, Xiangzhen Mining, Ltd .

Year	Product	Output (t)		Average Price per Year (USD$/t)
2006	Fluorite lump		50,839.44		71.50
	Fluorite concentrate		14,791.02		111.16
2007	Fluorite lump		52,523.96		84.62
	Fluorite concentrate		22,447.23		144.13
2008	Fluorite lump		24,135.33		106.54
	Fluorite concentrate		6,747.16		167.91

Potential for Further Exploration

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

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

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

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

Location, Accessibility, Geography and Climate

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

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

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

Figure 2-4: The Kuru-Tegerek Region

Mining and Exploration Licenses

Kichi Chaarat CJS Company currently holds two licenses: one mining license No. 8063-3300- AO( ИУ ) 21984940 covering 105 hectares (h) over the Kuru-Tegerek area, which was issued by the Ministry of Land and Mine of Kyrgyzstan and expired in December 31, 2021, and an exploration license No. 8063-3300- AO( ИУ ) 21984940 covering 39,500 hectares (h) of the area of the eastern slope of the Sandal mountain range including the Kuru-Tegerek mountain, which was issued by the Ministry of Land and Mine of Kyrgyzstan and will expire in December 31, 2009.

History of Exploration

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

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

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

3.	Pitting: 19,037 meters

4.	Topographic survey, assaying and ore dressing test:

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

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

Geology of the Property

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

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

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

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

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

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

Mineralized Materials/Reserves

In 2006, Ken-Too conducted a feasibility study for the Kuru-Tegerek deposit and a reserve estimate of the upper part of the deposit (layers of the oxide ore for open pit mining). With a gold price $400 USD/oz, copper $2,400 USD/t, copper recovery rate of dressing 62% and gold recovery 80%, production cost of copper $1,914 USD/t, production cost of gold $9USD/t and economic cutoff grade 2g/t, the proven reserves was confirmed as 3.66 million metric tons (excluding mining losses) with an average copper grade 0.78% and gold 2.95g/t.

In July 2008, based on this feasibility study for the Kuru-Tegerek deposit of the upper part of the deposit (layers of the oxide ore for open pit mining), the mining program designed was completed by Ken-Too Design Institute. With a gold price $550 USD/oz, copper $5,000 USD/t, and economic cutoff grade 2g/t, the proven recoverable reserves was confirmed as 4.5022 million metric tons (excluding mining losses) with an average copper grade 1.00% and gold 2.79g/t.

It is obvious that this reserve is only a small portion (which can be extracted by open pit mining) of the whole deposit where the total mineralized materials is 172.66 million metric tons with the average grade of copper at 0.60% and gold at 0.56g/t.

Sampling, Analytical Procedures and Quality Control

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

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

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

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

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

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

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

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

Location

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

The coordinates are E 106º45′15″-106º45’45”, N 47º57′14” - 40º57′45” 。

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

Figure 2-5: Mining Site No. 2 of Qingxing Copper Mine

History of Operation

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

Geology of the Property

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

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

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

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

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

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

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

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

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

Mining and Extraction technical conditions:

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

The Current Situation of the Mine

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

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

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

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

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

Major equipment in the mine is as follows:

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

Power and Water Supply

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

Mineralized Materials

In January 2007, Wulatehouqi Qingshan Non-ferrous Metals entrusted No.3 Geological Exploration Institute of China Metallurgy Geological Bureau to conduct the supplementary geological survey on the “Tanyaokou Multi-Metal Zinc-copper Mine”, between prospecting line 42-58. The final supplementary geological survey was reported in May 2007, which confirmed the mineralized materials and category within the mining area. As of April 30, 2007, the total retained indicated mineralized materials is 1.81 million metric tons with the average grade at 0.6%. Our plan for 2008 was to carry out exploration and prepare for mining in the first half of the year, and start mining in the second half of the year and then supply ores to Qianzhen. Due to the decrease in the price of copper, Qingshan did not move on to mining in 2008.

Potential for Further Exploration

In the mining process, two mining tunnels in 1 ,390m level and in 1,350m level intercepted Cu-2 mineralized body which improves the control degree and has increased the resources of Cu-2 mineralized body from 0.0286 million metric tons to 1.3778 million metric tons. Our geological consultant believes that if further exploration is conducted in the future, more minerals could be defined. Drilling will upgrade some of the mineralized materials to Category C (332). Underground exploration (associated with mining operation) should upgrade the mineralized material categories, and explore the extension deeply. In 2008, 865 meters of exploration was completed.

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

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

Location and Traffic

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

Figure 2-6: Keyinbulake Multi-Metal Property

Previous Geological work:

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

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

Ore Processing :

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

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

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

Power and Water Supply

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

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

Mineralized Materials

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

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

Qianzhen Mining

Qianzhen Mining owns a concentrator with an annual treatment capacity of 200,000 metric tons. The process of concentrator includes two-stage closed crushing with primary and secondary grindings, roughing flotation, scavenging, three steps of cleaning, thickening, filtrating and drying. The major facilities of concentrator include a ball mill workshop, a flotation ore processing plant, a filtration workshop, concentrate pools, dams, a laboratory, electronic scales, water supply wells, power supply lines and offices, etc. The major equipment consists of ball mills (3 sets, 2.1mx3m and 1.5mx3m), 4m³ fl otation machines (24 sets), 2m³flotation machines (12 sets),Φ12m thickeners(1 set), classifiers (2 sets, 1.5mx10m), 20m² filters, pumps, power transformers and power distribution panels and so on. In 2005, Qianzhen Mining invested approximately $750,000 to modernize the processing production line to increase its yearly capacity to approximately 200,000 metric tons. The current equipment is new.

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

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

Year	Product	Treatment (t)		Concentrate (t)		Average Metal Price per Year (USD $/t)
2006	Zn concentrate		129,548		13,959.16		2,363.65
	Pb concentrate				12,19.77		1,205.54
	Zn concentrate		66,270		5,582.5		2,628.55
2007	Pb concentrate				777.21		2,231.13
	Cu concentrate		29,512		402.27		7,130.13
2008	Cu concentrate		5,420		36.83		7,006.98
	Concentrate sulphur		77,463		18,146.70		54.53
						(Average price of concentrate)

ITEM 3.

LEGAL PROCEEDINGS

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5.

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

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

Year ending December 31, 2009	High		Low
First Quarter	$	0.54	$	0.25
Second Quarter (until April 13)	$	0.59	$	0.44
Third Quarter	$		$
Fourth Quarter	$		$

Year ending December 31, 2008	High		Low
First Quarter	$	9.85	$	2.5
Second Quarter	$	6.47	$	3.05
Third Quarter	$	3.00	$	0.90
Fourth Quarter	$	1.00	$	0.30

Year ending December 31, 2007	High		Low
First Quarter	$	4.75	$	3.11
Second Quarter	$	4.75	$	2.25
Third Quarter	$	3.70	$	2.25
Fourth Quarter	$	3.50	$	2.40

Holders. As of March 30, 2009, we had 642 holders of record of our common stock. Our common stock had a closing bid price of $0.59 per share on April 13, 2009.

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

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

Securities Authorized for Issuance Under Equity Compensation Plans. As of the fiscal year ended December 31, 2008, 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. None.

Equity Compensation Plan Information

As of December 31, 2008, 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.

SELECTED FINANCIAL DATA.

Not required.

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.

The following management’s discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this item. In addition to historical information, the following discussion contains certain forward-looking statements within the “safe 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-K. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future.

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

OVERVIEW

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

BUSINESS

▼ Fluorite

In early 2006, we started a 300,000 metric ton fluorite ore project at Xiangzhen Mining, which was completed in November 2007. We extracted approximately 109,000 metric tons of fluorite ores in 2007.

In early 2006, we started to build a 200,000 metric ton/year fluorite ore processing plant at the mine site. The new processing plant was constructed and went into trial production in November 2007. We produced approximately 22,400 metric tons of refined fluorite powder in 2007.

2008 is the first year of operation and production after the mining capacity of 300,000 tons per year and the processing capacity of 200,000 tons per year were built up. During 2008, mining continued, but processing did not operate as planned. We are planning to start full-scaled production at an appropriate time in 2009.

In 2008, 122,000 tons of fluorite ore were extracted, and a tunnel of 2,802 meters was excavated. 6,700 tons of refined powder were produced, and 6,746 tons of refined powder were sold.

We did not reach our projected targets for 2008 for the following reasons. First, the quality of water supply failed to meet processing requirements. Impurity contents over technological specifications in the water supply were not identified at the experimental stage and have caused problems to production. Second, as a new system was put into production, time for personnel, procedures and technological specifications to adapt or readjust in order to run stably is required.

Due to the difficulties in processing, mining stopped in August 2008 in order to mitigate undue accumulation of fluorite ores.

As a result of further trials and technological readjustment, production was improved. We have identified a new water source for processing. The new water source, which was previously our drinking water source, possesses the water quality needs of production. We have appointed Beijing Research Institute of Mining & Metallurgy, a reputed and influential organization in mining and processing experiments and testing, to conduct experiments, which have produced good results. Construction of the new water source is expected to be completed in May 2009.

We are planning to sell the large inventory of fluorite ore and earn cash flow in order to maintain the fluorite operation and prepare for full-scaled production.

Subject to purchase orders and weather conditions, we plan to start processing in April 2009, and begin mining in the tunnel after June 2009. We plan to produce refined fluorite powder of 40,000 tons, extract fluorite ore of 80,000 tons, and process fluorite ore of 85,000 tons. In addition, we plan to sell fluorite lump rock of 40,000 tons and refined powder of 40,000 tons.

▼Zinc, Copper and Lead

Qianzhen Mining

Before 2008, Qianzhen Mining processed ores supplied by local mining companies. By the end of 2007, the supplier contracts expired. It was planned that Qianzhen Mining processed and produced sulfur concentrate in the first half of the year, and processed copper ore to be supplied by Qingshan Metal in the second half of the year. Production of sulfur concentrate continued until July when the price of sulfur concentrate dropped to RMB150 per ton from RMB400 per ton, and Qianzhen ceased production due to the lowered margin. In 2008, Qianzhen Mining sold sulfur concentrate of 18,000 tons.

No production is planned at Qianzhen Mining in 2009 due to the low grade of the ores supplied by Qingshan Metal and low copper price. During this shutdown period, Qianzhen will look actively for partners with the help of the local governments and for opportunities of re-starting production.

Qingshan Metal

In 2007, Qingshan Metal extracted 59,000 metric tons of copper ores and processed copper concentrate equivalent to 71 metric tons of copper metal and supplied an additional 35,000 metric tons of copper ore to Qianzhen Mining. In the third quarter of 2007, Qingshan Metal stopped its processing operation and began to supply Qianzhen copper ore for its processing operation.

The plan for 2008 was to carry out exploration and prepare for mining in the first half of the year, begin mining in the second half of the year and supply ores to Qianzhen. Due to the decrease in the price of copper, however, Qingshan completed exploration only and did not begin mining. In 2008, 865 meters of drilling in exploration was completed.

No production is planned in 2009 at Qingshan due to market conditions and the low grade of copper ore supplied. We will consider re-starting its operation when we see fit to do so and copper prices change more favorably.

Xingzhen Mining

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

On April 28, 2008, Xingzhen completed a successful testing at its first trial, then went into production. In parallel with processing, Xingzhen did exploration in the area. In September 2008, Xingzhen stopped operations due to a price decrease of non-ferrous metals. In 2009, we plan to start processing and complete more exploration.

In 2008, Xingzhen extracted ores of 86,000 tons, excavated tunnels of 2,196 meters, processed ores of 51,400 tons, and produced refined zinc of 1,850 tons and refined copper of 108.5 tons. Xingzhen sold refined zinc of 1,850 tons and refined copper of 108.5 tons.

Xingzhen did not reach projected targets in 2008 for the following reasons. First, Xingzhen’s location experienced power shortages from May 2008 through August 2008. During this time, production was intermittent, with one or two shift at work at one time within a day. In September 2008, the local power supplier increased its capability of supply, and Xingzhen was able to undergo normal production. Second, Xingzhen stopped operation on October 15, 2008 due to inclement weather, large price decreases of non-ferrous metals and the low grade of ores available to Xingzhen (copper grade: 0.33%; zinc grade: 4.33%).

In 2009,Xingzhen plans to begin full production of mining, processing and prospecting, The main products will be zinc concentrate, copper concentrate, and zinc oxide ore (in the mining area there is a part of high-grade zinc oxide ores, which can be sold with no processing). As weather conditions permit, we plan to start production in May 2009. In 2009, because of the grades of ores for processing are different with those in 2008 (zinc and copper grades are higher), it is necessary to carry out the ore dressing tests in March and April before we start the concentrator to confirm the key technical process and targets of production. In 2009, we plan to produce 30,000 metric tons of zinc oxide ore and to process 70,000 metric tons of ore to produce 8,700 metric tons of zinc concentrate, 1,900 metric tons of copper concentrate.

We may adjust production plans if we have unsatisfactory test results, or the prices of non-ferrous metals of copper and zinc continue to fall.

In 2009, we will continue the prospecting work in the mining area, and the details are as follows:

Methods of work: our major work is to carry out the drilling work (including underground drilling in the tunnel), geophysical exploration, trenches and other geological work.

Work area: our work will focus on revealing the four favorable regional parts at the sites in the northern zone of lines 2-11, the southern zone of lines 5-19, the Southeast zone of lines 25-39 and other related geophysical, trenching, drilling work.

Workload: Drilling: 3500 meters (including four medium/deep holes: 400 meters per hole; excluding underground drilling work); Trenching: 5000 cubic meters; Geophysical Surface scanning:2 square kilometers; and work to be timely adjusted according to the changes of the actual situations.

Estimated cost: $0.58 million to be invested by a shareholder (natural person) of Xingzhen Mining.

Kichi Chaarat Copper and Gold Mine

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

In 2008, we planned exploration and mining construction, but did not carry out the plan because it was not approved by the Kyrgyz government. The plan was approved officially by the end of July 2008, and the mining license was renewed to be valid until the end of December 2021. Exploration was subcontracted to a local geological organization, which terminated the contract in the middle and made it impossible for the budget work to be completed.

The development will be in two stages. During the first stage, we plan to extract the upper oxide ore by means of open pit mining, of which the developing plan has been approved by the local government and its designed capacity is 0.5million metric tons per year with the recoverable reserves of 4.5022 million metric tons, an average copper grade of 1.00% and gold of 2.79g/t.

We plan to begin a full-scaled operation in 2009 and within 3 years, to complete construction.

Kichi Chaarat Copper and Gold Mine is a mine of relatively large size. We believe that it has significant potential values and requires investments. To speed up development, we have been looking for strategic opportunities and partners.

Exploration Activities

Keyinbulake Cu-Zn Mine

Following the exploration in 2008, further exploration activities are planned in 2009 in the southern and northern parts of Keyinbulake Cu-Zn Mine. The exploration details are scheduled as follows:

Table1-3: Exploration Program for Keyinbulake Property

Item	Method	Unit	Quantity
Geophysical	Surface scanning	km 2	2
Drilling	four medium/deep holes	m	3500
Trenching	-	m 3	5000
Assaying	Sampling and test	-	-

The abovementioned exploration activities shall be completed by a Geophysical Prospecting Team of Xinjiang Nonferrous Geophysical Prospecting Bureau at the end of August 2009 with a total budget of approximately $0.58 million, which will be funded by a shareholder (natural person) of Xingzhen Mining.

RECAPITALIZATION AND REORGANIZATION

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

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

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

ACQUISITIONS IN 2007

Kichi-Chaarat Closed Joint Stock Company (“Kichi-Chaarat”)

On November 6, 2006, Xiangzhen Mining entered into contractual arrangements with Mr. Li Jiaxing and Mr. Huang Guan to appoint Mr. Li and Mr. Huang to acquire the entire ownership of Kichi Chaarat Closed Joint Stock Company (“Kichi Chaarat”) for cash consideration of $10,000,000 in aggregate. Mr. Li and Mr. Huang jointly owned Tun-Lin Limited Liability Company (“Tun-Lin”), which is a Kyrgyz Republic registered company. Pursuant to the arrangements, Tun-Lin will acquire the entire ownership in Kichi Chaarat from Altyn Minerals (BVI) Ltd. Subsequently, Xiangzhen Mining will acquire the entire ownership in Tun-Lin. The major asset of Kichi Chaarat is the subsoil use right for the purpose of (i) mining for gold and other metals within the Kuru-Tegerek licensed area, and (ii) exploration for gold and other metals within the Kuru-Tegerek licensed area. The purchase consideration was fully settled in 2006.

The acquisition was officially completed on December 26, 2007, when the Ministry of Justice of Kyrgyzstan officially approved the share transfer. The management believe with the completion of the acquisition, the company will be able explore, develop and mine the potential reserves at Kichi Chaarat deposit and potentially increase our reserve base in the nonferrous segment and enhance our earnings prospect in future.

ACQUISITION OF ADDITIONAL 10% EQUITY IN XINGHZEN MINING

In August 2007, the Company completed an acquisition of additional equity in Xingzhen Mining from Xinjiang Tianxiang New Technology Development Company Ltd and thus increased the company’s ownership of equity in Xingzhen Mining from 80% to 90%.

RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2008 AS COMPARED TO YEAR ENDED DECEMBER 31, 2007

Selected information from the Consolidated Statements of Operations

	For the years ended December 31,
	2008				2007
	(in thousands)				(in thousands)

Net revenue		$	7,137			$	14,351
Gross profit			1,307				6,507
- Gross profit margin			18	%			45	%
General and administrative expenses			9,252				6,741
Interest expenses			2,744				3,962
Net income (loss)		$	(12,149	)		$	(2,646	)

REVENUES. Net revenues for the year ended December 31, 2008 were $7.14 million, representing a $7.21 million or 50% decrease as compared to 2007. The decrease in net revenues is mainly attributable to Qianzhen Mining, whose zinc processing operations were materially impacted by a shortage of ore supplies and sharp decrease of the price of metals, which resulted in a reduction of revenue of 83% or approximately $5.83 million as compared to 2007. Net revenue from Xiangzhen Mining’s fluorite products decreased 44% to $3.7 million as compared to 2007 due to the trial operation of the newly completed fluorite processing plant of Xiangzhen.

Due to the fluctuating price of sulphur concentrate, the Company produced sulphur concentrate in Qianzhen Mining by utilizing accumulated sulphur-bearing tailings, in order to mitigate the impact of the supply issues on the Company’s production in the third quarter.

Net revenue from Xingzhen Mining’s zinc & copper products is $2.2 million. Xingzhen Mining was in developmental stages in 2007 and its trial production began at the end of the second quarter of 2008.

Qingshan Metal, which was acquired in 2006, had not yet contributed any revenue. The plan for 2008 was to carry out exploration and prepare for mining in the first half of the year, begin mining in the second half of the year and supply ores to Qianzhen. Due to the decrease in the price of copper, however, Qingshan completed exploration only and did not begin mining.

GROSS PROFIT AND GROSS PROFIT MARGIN. For the year ended December 31, 2008, gross profit was $1.3 million, representing a decrease of approximately 80% as compared to $6.5 million of 2007. Gross profit margin significantly dropped from 45% in 2007 to 18% in 2008. The fixed amortization of mining assets and rights over the terms of the extraction license (three years or six years) that is included in the costs of sales caused the movement of the costs of sales to be disproportionate to actual production and sales, resulting in a lower gross profit margin. The low zinc price also created downside pressure on the gross profit margin of the nonferrous segment.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased by approximately $2.6 million to $9.3 million in 2008 from $6.7 million in 2007. The significant increase in general and administrative expenses was primarily due to (i) trial operating expenses of $1.7 million by Xiangzhen and (ii) increased administrative expense of $0.9 million for the newly acquired Tun-Lin in Kyrgyzstan.

INTEREST EXPENSE. Total interest expense of $2.74 million is mainly due to the related cash and non cash interest expense and costs associated with the convertible bonds and related issuance cost in the fourth quarter of 2006. This includes: i) cash interest payment of $0.30 million for the year ended December 30, 2008; ii) non cash principal accretion of approximately $0.03 million for the year ended December 31, 2008; iii) $0.51 million of revaluation of the detachable warrant liability associated with the issuance; and iv) $1.90 million of amortization of deferred debt issuance costs and deferred financing cost for the year ended December 31, 2008. The total non-cash interest expenditure is approximately $2.44 million.

NONRECURRING GAIN FROM DISPOSITION. The company disposed of one of its subsidiaries, Tianzhen Mining, an exploration stage company located in Wuqia County, Xinjiang Uygur Autonomous Region, in December 2007 and realized a gain of approximately $1.5 million. The following table presents the revenue, net loss from discontinued operations and net gain on disposal of Tianzhen Mining for the periods presented:

	Year ended December 31,

	2008		2007

	(in thousands)		(in thousands)

Revenue	$	-	$	367

Net loss from discontinued operations, net of income tax of nil	$	-	$	(197	)

Net gain on disposal of subsidiary, net of income tax of nil	$	-	$	1,504

NET INCOME. Net loss for the year ended December 31, 2008 was $12.1 million, an increase of $9.5 million compared to net loss of $2.6 million for 2007. Basic earnings per share were $0.55 or $0.55 fully diluted for the year ended December 31, 2008.

SEGMENT PERFORMANCE ANALYSIS

(amounts in thousand)	Segment revenue				Segment profit (loss)

	2008		2007		2008			2007

Fluorite	$	3,704	$	6,605	$	(3,898	)	$	418

Nonferrous metals	$	3,433	$	7,746	$	(4,251	)	$	422

Fluorite

Fluorite segment revenue decreased by 43.9% from $6.6 million for 2007 to $3.7 million for 2008. The decrease was primarily due to the decreases in sales volume in both fluorite powder and lumps. Our old plant did not operate at full capacity as a result of relocation of certain resources to our new plant. The new plant has made little contribution to revenue because of technological difficulties involving its water supply.

Xiangzhen Mining sold a total of 6,746 metric tons of fluorite powder, representing an decrease of 71% compared to 2007 due to the trial operation of the newly completed fluorite processing plant of Xiangzhen . During this period, the average sales price for fluorite powder increased by 20.7% to $168 per metric ton. The sales of fluorite lumps decreased by 50% from 48,406 metric tons in 2007 to 24,135 metric tons in 2008 as a result of the Company’s initiative to produce more fluorite powder which enjoyed a good pricing environment and a robust market demand.

Revenue contributed from our fluorite segment accounted for 52% of the Company’s total revenue for the year ended December 31, 2008 as compared to 46% in 2007.

Our fluorite segment reported a segment loss of $3,9million for the year ended December 31, 2008 compared to a segment profit of $0.4 million in 2007.

Nonferrous metals

Nonferrous metals segment revenue for 2008 amounted to $3.4 million, representing a decrease of approximate $4.3 million or 56% compared to 2007. In addition, the nonferrous metals segment has reported a significant decrease in segment loss to $4.3 million in 2008 from segment profit of $0.42million in 2007. The performance of the nonferrous metals segment was materially impacted by (i) the decline of zinc processing operations of Qianzhen Mining, which experienced both a shortage of supply of zinc ores as a raw material and (ii) the increased purchase costs of zinc ores from a major supplier of Qianzhen’s zinc ores and (ⅲ) the performance of the nonferrous metals segment was materially impacted by the decline of the price of zinc.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $0.21 million as of December 31, 2008, a decrease of $2.74 million as compared to the balance at December 31, 2007 of $2.95 million. The significant decrease in cash position was mainly due to (i) the capital expenditures for mine development, construction, and purchase of processing plants and mining equipment at Xiangzhen Mining and Xingzhen Mining and (ii) net cash used in operating activities.

Net cash used by operating activities for the year ended December 31, 2008 was $1.3 million, as compared to $3.55 million provided for the year ended December 31, 2007. The decrease in operating cash flows was mainly due to the decreases in revenue and gross profits in 2008 as explained above.

Net cash used in investing activities of $2.4 million for the year ended December 31, 2008 which was mainly due to capital expenditures for mining development and capacity expansion projects at Xiangzhen Mining and Xingzhen mining.

Net cash outflows from financing activities for the year ended December 31, 2008 was $0.44 million, which was mainly due to proceeds from short-term borrowings. For the same period in 2007, net cash outflows from financing activities were $3.51 million, which was mainly due to $1.36 million of net repayments on short-term borrowings and $2.15 million of issuance costs related to the convertible note.

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, 2008 and 2007 Natural Resource Compensation Charges of $87,648 and $156,784, respectively, were charged to operations and included in cost of sales. For more information, please see Note 23 to the Consolidated Financial Statements.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

CONVERTIBLE NOTES

Conversion feature

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

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

Redemption

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

Interest rate

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

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

(b)	at the rate of 0.00% per annum of the Original Principal Amount of the Notes, from and including October 1, 2007 to and excluding January 31, 2008; and

(c)	at the rate of 0.00% per annum of the Original Principal Amount of the Notes, from and including January 31, 2008 to but excluding the Maturity Date, if the Public Listing has occurred on or prior to January 31, 2008 and if the Company maintains such listing.

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, 2008, the fair value of the put warrant was $33,126. Further details of the warrants are disclosed in Note 14.

Debt issuance costs

The issuance costs directly associated with the Notes and the put warrant aggregated $2,522,497. The amount was capitalized as deferred debt issuance costs, and is being amortized using the effective interest rate method over the term of the convertible loan, with the amounts amortized being recognized as interest expense. Any unamortized debt issuance costs remaining at the date of conversion of the loan will be recognized as interest expense in the period the conversion takes place. As of December 31, 2008, the deferred debt issuance costs were approximately $1,755,000.

OFF-BALANCE SHEET ARRANGEMENTS

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

INFLATION

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

CRITICAL ACCOUNTING POLICIES

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

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

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

Property, Plant and Mine Development

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

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

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

Asset Impairment

Long-lived Assets

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

Goodwill

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

Stock Based Compensation

On December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based Payment”, which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award. SFAS No. 123R was to be effective for interim or annual reporting periods beginning on or after June 15, 2005, but in April 2005 the SEC issued a rule that will permit most registrants to implement SFAS No. 123R at the beginning of their next fiscal year, instead of the next reporting period as required by SFAS No. 123R. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. Under SFAS No. 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS No. 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The Company has adopted the requirements of SFAS No. 123R for the fiscal year beginning on January 1, 2006, and recorded the compensation expense for all unvested stock options existing prior to the adoption during the period.

Recent accounting pronouncements

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

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

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

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations,” (“SFAS No. 141(R)”). This standard will significantly change the accounting for business combinations. Under SFAS No. 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141(R) also includes a substantial number of new disclosure requirements. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

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

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

CONCENTRATION OF CUSTOMERS AND SUPPLIERS

The Company had five main customers who contributed approximately $5,300,000 or 75% of the Company’s consolidated net revenue for the year ended December 31, 2008. For the same period of 2007, the Company had five main customers who contributed approximately $10,936,000 or 75% of the Company’s consolidated net revenue.

Our main materials were from our mines, and we purchased few raw materials, so we had no concentrated suppliers in 2008.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required.

ITEM 8.

FINANCIAL STATEMENTS.

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

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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

ITEM 9A.

CONTROLS AND PROCEDURES.

(a) Management’s annual report on disclosure controls and procedures.

Management of the Company is responsible for establishing and maintaining adequate disclosure controls and procedures and for the assessment of the effectiveness of disclosure controls and procedures. The Company's disclosure controls and procedures 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”).

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. 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 due to deficiencies described below.

(b) Management’s annual report on internal control over financial reporting.

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.

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 internal control over financial reporting pursuant to Rule 13a-15(f) 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 internal control over financial reporting, our principal executive officer and principal financial officer have concluded that during the period covered by this report, such internal control over financial reporting were not effective to detect the inappropriate application of U.S. GAAP as more fully described below. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered “material weaknesses”. The Public Company Accounting Oversight Board has defined a material weakness as a “deficiency, or combination of deficiencies, in internal control over financial reporting (ICFR) such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s ICFR.”

The significant deficiencies we identified in the prior year in our internal controls and disclosure controls related to the application of U.S. GAAP were in adopting an inappropriate period to depreciate and amortize property, plant and equipment, including extraction and exploration rights; inappropriate capitalization of exploration expenses; and inappropriate classification of balance sheet and income statement balances. These deficiencies, when taken together, resulted in a conclusion that the Company’s controls suffered from a material weakness as of December 31, 2006. In 2007, we have remedied all these significant deficiencies except the failure to provide for an allowance for doubtful accounts in accordance with the Company’s policy by means of implementation of the remediation program we planed in the prior year. This deficiency still resulted in a conclusion that the company’s controls suffered from a material weakness as of December 31, 2008.

Because of the identification of the misapplication of U.S. GAAP, our management has concluded that, as of December 31, 2008, our internal controls over financial reporting were not effective.

Remediation of Material Weaknesses

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

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

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

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

We will continue these efforts until we are satisfied that all “material weaknesses” have been eliminated. We expect that resolution of all of these issues will take place before the end of 2009.

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

There have been no changes in our internal control over financial reporting that occurred during the fourth quarter within the fiscal year ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION.

None

PART III

ITEM 10.

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

Set forth below is certain information concerning each of the directors and executive officers of the Company as of April 13, 2009. None of our directors or executive officers holds directorships in other public companies as of April 13, 2009 except Gene Michael Bennett who is also an independent director for Kunming Shenghuo Pharmaceutical (NYSE Amex: KUN) and Feng Bai who is also an independent director for Fushi Copperweld Inc. (NasdaqGM: FSIN) and Harbin Electric Inc. (NasdaqGM: HRBN). The directors listed below will serve until the Company’s next annual meeting of the stockholders:

Name	Age	Position
Xiao-Jing Yu	52	Director, CEO and Chairman of the Board
Xueming Xu	48	Director, President and Chief Operating Officer
Helin Cui	53	Director
Jiusheng Zhang	45	Interim Chief Financial Officer (since March 2009)
Youming Yang	54	Director
Jian Zhang	67	Director, Chairman of Corporate Governance and Nominating Committee
Feng Bai	38	Director, Chairman of Compensation Committee
Ligang Wang	48	Vice President and President of Qianzhen Mining
Gene Michael Bennett	61	Director and Chairman of Audit Committee

Ms. Xiaojing Yu has served as Director, Chief Executive Officer and Chairman of the Board of Directors of the Company since September 15, 2006. She has over 20 years’ experience in the mining industry. She currently also serves as director and chairwoman of Inner Mongolia Gulatehou Banner Qianzhen Mining and Processing Co., Ltd and Inner Mongolia Xiangzhen Mining Co., Ltd. She has served in that capacity since May 2002. Prior to that, she was the general manager of Dalian Zhikun Metal Materials Co. Ltd and finance manager of Gansu Baiyin Nonferrous Industrial Corporation. Ms. Yu also serves as the Executive Vice President of China Fluorite Industry Association. She attended an advanced Management Program run by Tsing Hua University.

Mr. Xueming Xu serves as Director, President and Chief Operating Officer. He has more than 20 years’ experience in the mining industry. He is currently director and President of Inner Mongolia Gulatehou Banner Qianzhen Mining and Processing Co., Ltd and of Inner Mongolia Xiangzhen Mining Co., Ltd. He has served in that capacity since May 2002. Prior to that, Mr. Xu served as technician, vice-superintendent and superintendent at Inner Mongolia’s Huiyaokou Iron Ore Plant and deputy general manager of Inner Mongolia Dongshengmiao Mining Co., Ltd. Mr. Xu graduated from Lianyungang College of Chemical Mining and attended an advanced Management Programme run by Tsing Hua University.

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

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

Mr. Jian Zhang serves as Director. He has over 30 years’ experience in nonferrous mining, project construction and management and is currently an external director of China Construction Materials Company Ltd. Prior to that, Mr. Zhang was President of China Nonferrous Mining Construction Group from September 2003 to August 2005. He served as President of China Nonferrous Mining Construction Group from April 2002 to September 2003. Mr. Zhang graduated from the environmental engineering department of Xi ’ an Mining Architecture College in 1968.

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

Mr. Jiusheng Zhang serves as the Interim Chief Financial Officer of the Company. Mr. Zhang is a senior economist and has over 15-year experience in financing and investment. From August 2004 to December 2008, he served as Chief Financial Officer and Vice General Manager of Zhong Xing Company. From January 2001 to August 2004, he served as Chief Financial Officer of Tianjin Olympic Garden Investment Limited of China Sport Industry Group Co. LTD. Mr. Zhang has a Master of Arts in economics from the Xi’an Finance and Economics College in China.

Mr. Gene Michael Bennett serves as Director and Chairman of the Audit Committee. He has over 25 years’ experience as CFO, Professor and Consultant. His abundant working experience in China has assisted Chinese firms to develop "Good Corporate Governance" and transparent infrastructures. He is a CPA (inactive), and has experience working for one of the top auditors in the world, Grant Thornton. He graduated from Michigan State University. Currently, he also holds positions for other two US-listed Chinese companies: China AgriTech Group, Inc (CAGC, Amex) (Audit Chair - Audit Committee BOD) and China Pharma Holding, Inc. (CPHI, OTC-BB) (Audit Chair-Audit Committee BOD).

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

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

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

Involvement in Certain Legal Proceedings

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

(1)	Was a general partner or executive officer of any business against which any bankruptcy petition was filed, either at the time of the bankruptcy or two years prior to that time;

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

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

(4)	Was found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

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

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

During the fiscal year ended December 31, 2008, Ms. Xiaojing Yu was late in filing Form 4 transactions.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics (the “Code”) that is applicable to all employees, consultants and members of the Board of Directors, including the Chief Executive Officer, Chief Financial Officer and Secretary. This Code embodies our commitment to conduct business in accordance with the highest ethical standards and applicable laws, rules and regulations. We will provide any person a copy of the Code, without charge, upon written request to the Company. Requests should be addressed in writing to: Fulun Song, office of t h e Board of Directors, China Shen Zhou Mining & Resources, Inc., No. 166 Fushi Road, Zeyang Tower, Suite 1210, Shijingshan District, Beijing, China 100043.

Director Nominees Recommended by Stockholders

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

Board Composition; Audit Committee and Financial Expert

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

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

Audit Committee has held 2 meetings in 2008 and the attendance rates for all committee members are 100%.

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

Compensation Committee has not held any meeting in 2008.

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

Nominating and Corporate Governance Committee has not held any meeting in 2008.

ITEM 11.

EXECUTIVE COMPENSATION .

During 2008, Only Xiaojing Yu and Xueming Xu’s total annual salary and bonus exceeded $100,000. The other executive officers’ salary did not exceed $100,000 during 2008.

Summary Compensation Table

Name and Principal Underlying Positions (a)	Year (b)	Salary (c)		Bonus (d)		Option Awards (e)		Stock Awards (f)		Non-equity Incentive Plan Compensation (g)		Nonqualified Deferred Compensation Earnings (h)		All Other Compensation (i)		Total (j)
Xiaojing Yu, CEO	2008		278,292	$	0	$	0	$	0	$	0	$	0	$	0		278,292
	2007	$	83,528	$	0	$	0	$	0	$	0	$	0	$	0		83,528
Xueming Xu,	2008		131,359	$	0	$	0	$	0	$	0	$	0	$	0		131,359
President and COO	2007	$	25,941	$	0	$	0	$	0	$	0	$	0	$	0		25,941
Steven Jiao, CFO**	2008		20,653	$	0	$	0	$	0	$	0	$	0	$	0		20,653
	2007	$	49,569	$	0	$	0	$	0	$	0	$	0	$	0		49,569
Hu Ye, CFO**	2008	$	42,029	$	0	$	0	$	0	$	0	$	0	$	0		42,029
Ligang Wang, Vice President, Prsident	2008		26,764	$	0	$	0	$	0	$	0	$	0	$	0		26,764
of Qianzhen Mining***	2007	$	10,017	$	0	$	0	$	0	$	0	$	0	$	0		10,017

* The salary of 2008 amounting to $153,495 has not been paid by April 15, 2009, including Xiaojing Yu’s salary amounting to $98,307, Xueming Xu’s salary amounting to $48,865 and Ligang Wang’s salary amounting to $3,000.

**Steven Jiao was CFO from April 2007 to May 2008. Hu Ye was appointed CFO in May 2008.

*** Ligang Wang was appointed on April 11, 2007 and his 2008 salary amounting to $3,000 has not been paid by April 15, 2009

Outstanding Equity Awards at Fiscal Year-End

As of December 31, 2008, the Company currently does not have any equity compensation plans in place.

Director Compensation

We paid all directors in 2008 as follows:

Name (a)	Fees Paid in Cash (b)		Stock Awards (c)		Option Awards (d)		Non-Equity Incentive Plan Compensation (e)		Nonqualified Deferred Compensation Earnings (f)		All Other Compensation (g)		Total (h)
Helin Cui*	$	30,317		—		—		—		—			$	30,317
Yonming Yang**	$	17,391		—		—		—		—		—	$	17,391
Jian Zhang**	$	17,391		—		—		—		—		—	$	17,391
Feng Bai**	$	17,391		—		—		—		—		—	$	17,391
Gene Michael Bennett**	$	19,800		—		—		—		—		—	$	19,800

* Helin Cui’s 2008 salary amounting to $3,323 has not been paid by April 15, 2009.

**Independent director

We currently pay an independent director the compensation of $17,391 in 2008, except the Chairman of Audit Committee, Gene Michael Bennett whose 2008 compensation was $19,800.

Retirement, Post-Termination and Change in Control

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

ITEM 12.

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

The following table sets forth certain information as of April 14, 2009 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 April 14, 2009, and (iv) all of our executive officers and directors as a group.

	Amount and Nature of Beneficial Ownership (1)
Name and Address	Number of Shares (2)		Percentage Owned (3)
Xiaojing Yu		14,973,600		67.40	%
Xueming Xu		1,870,000		8.42	%
Helin Cui		200,000		*
Qijiu Song **		100,000		*
Ligang Wang		100,000		*
American Eastern Securities, Inc. (4)		2,060,000		9.27	%
Directors and executive officers as a group (5 persons)		17,243,600		77.62	%

* Less than 1%

**	Mr. Qijiu Song resigned on December 22, 2008. A Form 4 on Mr. Song’s resignation was filed with the SEC on January 15, 2009. His shares are planned to be transfered to Ms. Xiaojing Yu (CEO).

(1)	As of April 14, 2009, there were 22,214,514 shares of common stock outstanding. Each person named above has sole investment and voting power with respect to all shares of the common stock shown as beneficially owned by the person, except as otherwise indicated below.

(2)

Under applicable rules promulgated by the SEC pursuant to the Exchange Act, a person is deemed the “beneficial owner” of a security with regard to which the person, directly or indirectly, has or shares (a) the voting power, which includes the power to vote or direct the voting of the security, or (b) the investment power, which includes the power to dispose or direct the disposition of the security, in each case irrespective of the person’s economic interest in the security. Under these SEC rules, a person is deemed to beneficially own securities which the person has the right to acquire within 60 days through (x) the exercise of any option or warrant or (y) the conversion of another security.

(3)

In determining the percent of common stock owned by a person (a) the numerator is the number of shares of common stock beneficially owned by the person, including shares the beneficial ownership of which may be acquired within 60 days upon the exercise of options or warrants or conversion of convertible securities, and (b) the denominator is the total of (i) the shares of common stock outstanding as of April 14, 2009, and (ii) any shares of common stock which the person has the right to acquire within 60 days upon the exercise of options or w8arrants or conversion of convertible securities. Neither the numerator nor the denominator includes shares which may be issued upon the exercise of any other options or warrants or the conversion of any other convertible securities.

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

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .

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

Xinjiang Tianxiang New Technology Development Co., Ltd, the minority shareholder of Xingzhen Mining, provided exploration services to Xingzhen Mining for service fees of $52,073 in 2008 and $974,621 in 2007 respectively.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Sherb & Co. LLP has audited our financial statements for the 2008 fiscal year. Grobstein, Horwath & Company, LLP (“Horwath”), has audited our financial statements since 2006. All of the services described below were approved by our board prior to performance. Our board has determined that the payments made to its independent accountant for these services are compatible with maintaining such auditor's independence.

Audit Fees. The aggregate fees billed by Sherb & Co., for professional services rendered for the audit of the Company’s financial statements for the fiscal year ended December 31, 2008 are $130,000. The aggregate fees billed by Horwath for professional services rendered for the audit and review services of the Company’s financial statements for the fiscal year ended December 31, 2008 and December 31, 2007 were $ 117,000 and $369,800 respectively.

Audit-Related Fees. There were no fees for assurance and related services by Sherb & Co., for the fiscal year ended December 31, 2008. The fees for related services by Horwath for the fiscal years ended December 31, 2007 were $60,500, including $ 50,000 for the 2006 8-K/A filings and $ 10,500 for the SEC comment letter response in October 2007.

Tax Fees. We engage e-Fang Accountancy Corp., & CPA to provide service for the income tax returns in the U.S. for the fiscal year ended December 31, 2008, which are estimated to be $ 5,000 . There were no fees for tax compliance, tax advice or tax planning services by Horwath for the fiscal year ended December 31, 2007.

All Other Fees. There were no other fees for either audit-related or non-audit services billed by Sherb & Co. for the fiscal year ended December 31, 2008. There were no other fees for either audit-related or non-audit services billed by Horwath for the fiscal year ended December 31, 2007.

ITEM 15.

EXHIBITS

Statements filed as part of this Report

Exhibits

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

Exhibit Number		Description of Exhibit
2		Stock Exchange Agreement by and among Earth Products & Technologies, Inc., American Federal Mining Group, Inc. and shareholders of American Federal Mining Group, Inc., dated July 14, 2006 (Incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed on July 20, 2006)
3.1		Amended and Restated Articles of Incorporation of the Company, effective December 13, 2006 (Incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)

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

Exhibit Number		Description of Exhibit
10.14		Fluorite Purchase Agreement by and between Inner Mongolia Xiangzhen Fluorite Industrial Co., Ltd. and Langfang Xinda Iron Alloy Co., Ltd., dated as of April 23, 2006 (Incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)
10.15		Contract by and between American Federal Mining Group, Inc., Xiaojing Yu and Inner Mongolia Wulatehouqi Qianzhen Ore Processing Co., Ltd., dated as of February 16, 2006 (Incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)
10.16		Industrial Product Sales Contract by and between Inner Mongolia Xiangzhen Mining Co., Ltd. and Beijing Capital Steel Company Limited by Shares, dated as of March 31, 2005 (Incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)
10.17		Fluorite Powder Supply Agreement by and between Ningxia Jinhe Chemical Co., Ltd. and Inner Mongolia Xiangzhen Mining Group Co., Ltd. dated as of April 3, 2006 (Incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)
10.18		Working Capital Loan Agreement by and between Inner Mongolia Xiangzhen Mining Group Co., Ltd. and China Industrial and Commerce Bank, dated as of November 30, 2006 (Incorporated by reference to the Company’s Form 10-KSB/A filed on April 24, 2007)
10.19		Equity Transfer Agreement, dated as of December 10, 2007, by and among Inner Mongolia Xiangzhen Mining Group Co Ltd., Xiaojing Yu, and Dechang Wang, incorporated by reference to the Company’s 8-k filed with SEC on December 12, 2007.
10.20		Stock Purchase Agreement by and between Inner-Mongolian Xiangzhen Mining Group Ltd. Co and Xinjiang Tianxiang Development Co. of New Technology, dated June 25, 2007 incorporated by reference to 10-KSB filed on April 14, 2008.
14.1		Code of Ethics, dated as of April 16, 2007 (Incorporated by reference to the Company’s Form 10-KSB filed on April 17, 2007.)
21		Subsidiaries of the Company incorporated by reference to Form 10-KSB filed on April 14, 2008.
* 31.1		Statement of Chief Executive Officer Furnished Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002, 18 U.S.C. Section 1350.
* 31.2		Statement of Chief Financial Officer Furnished Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002, 18 U.S.C. Section 1350.
* 32		Statement of Chief Executive Officer and Chief Financial Officer Furnished Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002, 18 U.S.C. Section 1350.

* Filed here with.

SIGNATURES

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

			CHINA SHEN ZHOU MINING & RESOURCES, INC.

	Dated: April 15, 2009		/s/ Xiaojing Yu
			Xiaojing Yu

			Director, Chief Executive Officer, and Chairman of the Board

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 15, 2009
Xiaojing Yu	(Principal Executive Officer)

/s/ Jiusheng Zhang	Interim Chief Financial Officer	April 15, 2009
Jiusheng Zhang	(Principal Financial and Accounting Officer)

/s/ Helin Cui	Director,	April 15, 2009
Helin Cui

/s/ Xueming Xu	Director	April 15, 2009
Xueming Xu

/s/ Gene Michael Bennett	Director	April 15, 2009
Gene Michael Bennett

/s/ Jian Zhang	Director	April 15, 2009
Jian Zhang

/s/ Yang Youming	Director	April 15, 2009
Yang Youming

China Shen Zhou Mining & Resources, Inc. and Subsidiaries

Index to Consolidated Financial Statements

		Page

Report of Successor Independent Registered Public Accounting Firm		67

Report of Predecessor Independent Registered Public Accounting Firm		68

Consolidated Balance Sheets		69

Consolidated Statements of Operations		71

Consolidated Statements of Cash Flows		72

Consolidated Statements of Changes in Stockholders’ Equity		74

Notes to Consolidated Financial Statements		75-101

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

China Shen Zhou Mining & Resources, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of China Shen Zhou Mining & Resources, Inc. and Subsidiaries (the “Company”) as of December 31, 2008 and the related consolidated statement of operations and comprehensive income, stockholders' equity and cash flows for the year ended December 31, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit 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 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 as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and the results of their operations and their cash flows for the year ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

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

/s/Sherb & Co., LLP

Certified Public Accountants

New York, New York

April 15, 2009

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of China Shen Zhou Mining & Resources, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of China Shen Zhou Mining & Resources, Inc. and Subsidiaries (the “Company”) as of December 31, 2007 and the related consolidated statements of operations, stockholders’ equity and comprehensive income and cash flows for year then ended. 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 audit.

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

In our opinion, the 2007 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Shen Zhou Mining & Resources, Inc. and Subsidiaries as of December 31, 2007, the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ GROBSTEIN, HORWATH & COMPANY LLP

Sherman Oaks, California

April 10, 2008

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

	December 31,		December 31,
	2008		2007
	Audited		Audited
ASSETS

Current assets:
Cash and cash equivalents	$	205	$	2,949
Accounts receivable, net		561		2,481
Other deposits and prepayments, net		1,167		1,254
Inventories		2,958		1,639
Total current assets		4,891		8,323

Prepayment for office rent		505		-
Available for sale investment		146		137
Property, machinery and mining assets, net		47,716		47,094
Deferred debt issuance costs		1,755		2,170
Deferred income tax assets		-		507
Goodwill		-		1,070
Total assets	$	55,013	$	59,301

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	3,471	$	718
Fair value of detachable warrants liability		33		1,100
Short term bank loans		1,756		1,314
Other payables and accruals		4,794		3,469
Taxes payable		411		257
Due to related parties		2,666		2,062
Total current liabilities		13,131		8,920

Convertible notes payable,net		24,251		21,186
Deferred tax liabilities		-		1,201
Total liabilities		37,382		31,307

Minority interests		22		144

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

(Amounts in thousands, except share data)

	December 31,			December 31,
	2008			2007
	Audited			Audited

Commitment and contingencies (Note 22)

STOCKHOLDERS’ EQUITY:
Common Stock, $0.001 par value:
Authorized – 50,000,000 shares (72006: 50,000,000 shares)
Issued and outstanding 22,214,514shares 72214514(2006: 21,297, shares)		22			22
Additional paid-in capital		25,251			25,251
PRC statutory reserves		1,672			1,672
Accumulated other comprehensive income		4,020			2,112
Accumulated deficit		(13,356	)		(1,207	)
Total stockholders’ equity		17,609			27,850
Total liabilities and stockholders’ equity	$	55,013		$	59,301

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

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share data)

	For the Years Ended December 31,
	2008			2007

Net revenue	$	7,137		$	14,351
Cost of sales		(5,830	)		(7,844	)

Gross profit		1,307			6,507

Operating expenses:
Selling and distribution expenses		146			223
General and administrative expenses		9,252			6,741
Total operating expenses		9,398			6,964

Net loss from operations		(8,091	)		(457	)

Other income (expense):
Interest expense		(2,744	)		(3,962	)
Impairment of goodwill		(1,127	)		-
Other, net		227			397
Total other income (expense)		(3,644	)		(3,565	)

Loss from continuing operations before income taxes and minority interests		(11,735	)		(4,022	)

Income tax expenses		(544	)		(45	)

Loss from continuing operations before minority interests		(12,279	)		(4,067	)

Minority interests		130			114

Loss from continuing operations		(12,149	)		(3,953	)

Discontinued operation (Note 4):
Loss from operations of discontinued component, net of taxes		-			(197	)
Gain on disposal of discontinued subsidiary, net of taxes		-			1,504
Income from discontinued operations		(12,149	)		1,307

Net loss		(12,149	)		(2,646	)

Other comprehensive income:
Foreign currency translation adjustments		1,908			1,512
Comprehensive income (loss)	$	(10,241	)	$	(1,134	)

Net loss per common share – basic and diluted
From continuing operations	$	(0.55	)	$	(0.18	)
From discontinued operations		-			0.06
Net loss	$	(0.55	)	$	(0.12	)
Weighted average common shares outstanding
- Basic and Diluted		22,215			21,959

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

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	For the Years Ended
	December 31,
	2008			2007
	Audited			Audited
Cash flows from operating activities:
(Loss)income from continuing operations	$	(12,149	)	$	(3,953	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for doubtful accounts		(2	)		39
Provision for deferred tax asset		685			-
Impairment provision for fixed assets		-			60
Impairment of goodwill		1,127			-
Depreciation and amortization		4,367			2,415
Write off of deferred tax abilities		(1,201	)		-
Loss from investments		-			86
Deferred income tax benefits		(178	)		(43	)
Fair value adjustment of warrants		(1,067	)		70
(Gain）/ Loss on disposal of fixed assets		-			109
Accrual of coupon interests and accreted principal		1,489			1,417
Amortization of deferred financing costs		1,576			496
Amortization of debt issuance costs		415			348
Minority interests		(122	)		(100	)
Changes in operating assets and liabilities:		-			-
(Increase) decrease in -		-			-
Accounts receivable		1,922			(1,575	)
Deposits and prepayments		87			2,930
Inventories		(1,319	)		(354	)
Due from related companies		-			71
Increase (decrease) in -		-			-
Accounts payable		990			95
Other payables and accruals		1,325			1,007
Taxes payable		154			(328	)
Due to related parties		604			805
Net cash provided by (used in) operating activities from continuing operations		(1,297	)		3,595
Net cash (used in) operating activities from discontinued operations		-			(45	)
Net cash provided by (used in) operating activities		(1,297	)		3,550

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	For the Years Ended
	December 31,
	2008			2007
	Audited			Audited
Cash flows from investing activities:
Purchases of property, machinery and mining assets		(1,894	)		(19,632	)
Prepayment for office rent		(505	)		-
Decrease in investment deposits		-			888
Acquisition of subsidiaries, net of cash and cash equivalents acquired		-			(403	)
Decrease in available-for-sale securities – margin deposit		-			326
Net cash used in investing activities of continuing operations		(2,399	)		(18,821	)
Net cash provided by disposal of discontinued operations		-			2,759
Purchases of property, machinery and mining assets of discontinued operations		-			(544	)
Net cash used in investing activities		(2,399	)		(16,606	)

Cash flows from financing activities:
Issuance costs of convertible note		-			(2,156	)
Proceeds from short-term borrowings		442
Repayments of short-term borrowings	-				(1,354	)
Net cash provided by (used in) financing activities		442			(3,510	)

Foreign currency translation adjustment		510			615

Net decrease in cash and cash equivalents		(2,744	)		(15,951	)

Cash and cash equivalents at the beginning of the year		2,949			18,900
Cash and cash equivalents at the end of the year	$	205		$	2,949

Non-cash investing and financing activities
Issuance of shares for acquisition	$	-		$	3,670
Additional capital caused by the reduction of conversion price from $3.2 to $2.25	$	-		$	7,716

Supplemental disclosures of cash flow information
Cash paid for interest expenses	$	298		$	1,631
Cash paid for income tax	$	1		$	45

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

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Amounts in thousands)

												Accumulated
	Common Stock				Additional		PRC					Other		Total
	Number of				paid-In		Statutory		Accumulated			Comprehensive		Stockholders'
	Shares		Amount		Capital		Reserves		Deficit			Income		Equity

Balance at January 1, 2007		21,298	$	21	$	13,865	$	1,111	$	1,865		$	600	$	17,462
Issuance of shares for acquisitions		917		1		3,670		-		-			-		3,671
Discount of issuing the convertible notes		-		-		7,716		-		-			-		7,716
Net loss for the year ended December 31, 2007		-		-		-		-		(2,646	)		-		(2,646	)
Appropriation of PRC statutory reserves		-		-		-		426		(426	)		-		-
Foreign currency translation adjustment		-		-		-		135		-			1,512		1,647

Balance at December 31, 2007		22,215		22		25,251		1,672		(1,207	)		2,112		27,850
Net loss		-		-		-		-		(12,149	)		-		(12,149	)
Foreign currency translation adjustment		-		-		-		-		-			1,908		1,908

Balance at December 31 , 2008		22,215	$	22	$	25,251	$	1,672	$	(13,356	)	$	4,020	$	17,609

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

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 DESCRIPTION OF BUSINESSS AND ORGANIZATION

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

At December 31, 2008, the subsidiaries of China Shen Zhou Mining & Resources, Inc. are as follows:

Name

Domicile and Date

of Incorporation

Paid-in Capital

Percentage

of Effective

Ownership

Principal Activities

American Federal Mining Group, Inc. (“AFMG”)

Illinois

November 15, 2005

USD

100

Investments holdings

Inner Mongolia Xiangzhen Mining Industry Group Co. Ltd. (“Xiangzhen Mining”)

The PRC

July 3,2002

RMB

88,860,699

100

Acquisition, exploration and extraction, and development of natural resource properties

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

The PRC

September 22, 2002

RMB

37,221,250

100

Sales and refinery of nonferrous metals, ore dressing, and sales of chemical products

Wulatehouqi Qingshan Non-Ferrous Metal Developing Company Ltd. (“Qingshan Metal”)

The PRC

April 23, 1995

(Acquired on April 12, 2006)

RMB

4,100,000

Nonferrous ore dressings, copper, zinc, lead etc

Xinjiang Buerjin County Xingzhen Mining Company (“Xingzhen Mining”)

The PRC

April 10,2006

(Acquired on April 28, 2006)

RMB

1,000,000

Exploration of solid metals, refinery and sales of mining products.

Tun-Lin Limited Liability Company (“Tun-Lin”)

Kyrgyz Republic

September 1,2005

(Acquired on November 26, 2007)

KGS

5,000

100

%(a)

Investments holdings

Kichi-Chaarat Closed Joint Stock Company (“Kichi-Chaarat”)

Kyrgyz Republic September 17,1998 (Acquired on November 26, 2007)

KGS

10,000

100

%(b)

Exploration, development, mining, and processing of gold, copper and other mineral products.

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

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

NOTE 2 RECAPITALIZATION, REORGANIZATION AND GOING CONCERN

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

Going Concern - These consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States on a “going concern” basis, which presumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.

The Company has incurred operating losses and negative cash flows from its operating activities for the years ended December 31, 2008 and 2007, as well as an accumulated deficit of approximately $13,356,000 and a working capital deficit of approximately $8,240,000 as of December 31, 2008

The Company’s ability to continue as a going concern is dependent upon continued production and the discovery of economically recoverable mining aseets as well as upon obtaining additional financing to develop the properties, the ultimate realization of profits through future production or sale of properties, and the success of the Company’s business plan. The outcome of these matters cannot be predicted at this time. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue its business.

NOTE 3 ACQUISITIONS

Tun-Lin

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

Tun-Lin was incorporated on June 1, 2005 under the laws of the Kyrgyz Republic. Tun-Lin’s principal asset consists of a 100% ownership interest in Kichi Chaarat, which was incorporated in Bishkek, Kyrgyzstan. Kichi Chaarat’s major asset is the subsoil use right for (i) mining for gold, copper and other metals within the Kuru-Tegerek licensed area; and (ii) exploration for gold, copper and other metals within the Kuru-Tegerek licensed area. The purpose of the acquisition was to enable the Company to explore, develop and mine the potential reserves of the Kuru-Tegerek licensed area. As of December 31, 82007, Kichi Chaarat has not commenced any production.

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


	Book value			Fair value
Net assets of Tun-Lin as of November 26, 2007 (in thousands):
Tangible Fixed Assets (Mineral Property) (a)	$	10		$	11,981
Tangible Fixed Assets (Real Estate)		10			45
Other assets		287			287
Total assets acquired		307			12,313

Accrued expenses and other liabilities		1,112			1,112
Deferred tax liability		-			1,201
Total liabilities assumed		1,112			2,313

Net assets (liabilities) acquired	$	(805	)	$	10,000

(a)

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

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

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

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

Additional equity interest in Xingzhen Mining

On June 25, 2007, the Company entered into a share transfer agreement to acquire an additional 10% ownership interest in Xingzhen Mining for a cash consideration of $479,150. On August 10, 2007, the share transfer agreement was approved by the China local government authorities. As a result, the Company’s shareholding in Xingzhen Mining has increased from 80% to 90%. We have accounted for the acquisition of additional interest in Xingzhen Mining as a purchase business combination for accounting purposes. The total amount paid for shares acquired has been allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition. No goodwill has arisen from this acquisition.

NOTE 4 DISCONTINUED OPERATIONS

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

The following table presents the revenue, net loss from discontinued operations and net gain on disposal of subsidiary for Tianzhen Mining for the periods presented:

	Years Ended December 31,

	2008	2007

	(In thousands)	(In thousands)

Revenue	Not Applicable	$	367

Net (loss) from discontinued operations, net of income tax of nil	Not Applicable	$	(197	)

Net gain on disposal of subsidiary, net of nil income tax of nil	Not Applicable	$	1,504

NOTE 5 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

Principles of Consolidation

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

Basis of preparation

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

Cash and Cash Equivalents

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

Accounts receivable

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

Inventories

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

Available-for-sale securities

The Company accounts for its investments in auction rate securities in accordance with SFAS No. 115. Specifically, when the underlying security of an auction rate security has a stated or contractual maturity date in excess of 90 days, regardless of the frequency of the interest rate reset date, the security is classified as an available-for-sale marketable debt security.

Property, machinery and mining assets

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

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.

Property, plant and mining assets (continued)

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

	Useful Life
	(In years)

Land use rights		25
Buildings		25
Machinery		12
Mining assets	License term
Motor vehicle		6
Equipment		5
Extraction rights	License term
Exploration rights	License term

Stripping Costs

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

Debt Issuance Costs

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

Asset Impairment

(a) Long-lived Assets

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

(b) Goodwill

Financial instruments

The Company values its financial instruments as required by SFAS No. 157, “Disclosures about Fair Value of Financial Instruments”. The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.

The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, other current assets; accounts payable, warrant liability,accrued expenses, short-term bank loans, other current liabilities, and due to a director.

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

Revenue Recognition

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

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

Income taxes

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

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

Transportation charges

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

Foreign Currency

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

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

	December 31, 2007	December 31, 2008
Balance sheet items, except for the registered and paid-up capital and retained earnings, as of year end	US$1=RMB7.3046 US$1=KGS35.4988	US$1=RMB6.8346 US$1=KGS39.4181

Amounts included in the statements of operations, statements of changes in stockholders’ equity and statements of cash flows for the year	US$1=RMB7.5652 US$1=KGS35.0079	US$1=RMB6.9351 US$1=KGS36.6184

For the years ended December 31, 2008 and 2007, foreign currency translation adjustment of approximately $1,908,000 and $1,512,000, respectively, have been reported as comprehensive income in the consolidated statement of stockholders’ equity and comprehensive income.

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

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

Stock Based Compensation

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

Net income per common share

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

Comprehensive Income

SFAS No.130, “Reporting Comprehensive Income,” establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. Accumulated other comprehensive income includes foreign currency translation adjustments. Total comprehensive loss for the years ended December 31, 2008 and 2007 was $10,241,0000 and $1,134,000, respectively.

Adoption of New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Disclosures about Fair Value Instruments (“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). SFAS 157 establishes a fair value hierarchy as follows that prioritizes the inputs to valuation techniques used to measure fair value:

Level 1

— quoted prices (unadjusted) in active markets for identical asset or liabilities that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives.


Level 2	— inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges.

Level 3

— unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded,non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.

The Company’s detachable warrants liability (as further described in Note 12) is measured and recorded at fair value on a recurring basis on the Company’s Consolidated Balance Sheets and their levels within the fair value hierarchy during the year ended December 31, 2008 are presented in the following tabular form:

(In thousands)	Fair Value
As of December 31, 2008	Level 1		Level 2		Level 3		Total
Warrants liability	$	—	$	33	$	—	$	33

The following is the reconciliation of the fair value of the warrants liability between December 31, 2007 and December 31, 2008:

Balance of warrants liability at December 31, 2007	$	1,100
Gain on fair value adjustments to warrants liability		(1,067	)
Balance at December 31, 2008	$	33

The fair value of the warrants liability can be obtained by using generally accepted models such as the Black Scholes Model. See Note 11 for more information on the valuation methods used.

Recent accounting pronouncements

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

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

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

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51 (“SFAS 160”), which establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company is evaluating the impact that this statement will have on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities - An Amendment of FASB Statement No. 133 (“SFAS 161”), which changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement will be effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. This standard does not currently affect the Company. The Company will adopt this standard when it purchases derivative instruments and is engaged in hedging activities.

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

NOTE 6 ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

	December 31, 2008				December 31, 2007

	(In thousands)				(In thousands)

Accounts receivable		$	612			$	2,534
Less: Allowance for doubtful accounts			(51	)			(53	)
		$	561			$	2,481

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

	December 31, 2008				December 31, 2007

	(In thousands)				(In thousands)

Balance at the beginning of the year		$	53			$	14
Add: provision during the year			(2	)			39
Balance at the end of the year		$	51			$	53

NOTE 7 DEPOSITS AND PREPAYMENTS

Deposits and prepayments consist of the following:

		December 31, 2008		December 31, 2007

		(In thousands)		(In thousands)
Prepayments and advances	(a )	$	963	$	840
Tax recoverable			-		62
Other receivables			204		352
		$	1,167	$	1,254

(a)

Prepayments and advances as of December 31, 2008 include payments of $936,237 to two mining service providers.Prepayments and advances as of December 31, 2007 included a deposit of $330,469 paid to Wulatehouqi Zijin Mining Co., Ltd., the Company’s largest supplier, for purchases of raw materials. The deposit was repaid in 2008.

NOTE 8 INVENTORIES

Inventories consisted of the following:

	December 31, 2008		December 31, 2007

	(In thousands)		(In thousands)
Raw materials - Unprocessed ore	$	2,013	$	34
Consumables		41		564
Finished goods and semi-manufactured goods		904		1,041
	$	2,958	$	1,639

NOTE 9 PROPERTY, MACHINERY AND MINING ASSETS, NET

Property, machinery and mining assets consisted of the following:

	December 31, 2008			December 31, 2007

	(In thousands)			(In thousands)

Land use rights	$	1,700		$	1,591
Buildings		12,995			4,218
Machinery		10,140			5,543
Mining assets		8,205			3,962
Motor vehicles		1,401			1,155
Equipment		350			249
Extraction rights		19,004			19,675
Exploration rights		1,683			1,574
Construction in progress		2,115			15,020
		57,593			52,987
Less:
Accumulated depreciation and amortization		(9,772	)		(5,833	)
Impairment provision		(105	)		(60	)
	$	47,716		$	47,094

Depreciation and amortization

Depreciation and amortization expense in aggregate for the year ended December 31, 2008 and 2007 was approximately $4,367,000 and $2,415,000 respectively.

Impairment provision

An impairment provision of $105,000 for the year ended December 31,2008 was recorded for the equipment of Qingshan Metal, a subsidiary of the Company within the nonferrous metals segment.

Write-down of abandoned long-lived assets

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

Exploration and extraction rights

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

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

NOTE 10 DEBT ISSUANCE COSTS

The issuance costs directly associated with the convertible notes. The amount was capitalized as deferred debt issuance costs, and is being amortized using the effective interest rate method over the term of the convertible loan, with the amounts amortized being recognized as interest expense. Any unamortized debt issuance costs remaining at the date of conversion of the loan will be recognized as interest expense in the period the conversion takes place. As of December 31, 2008 and December 31, 2007, the deferred debt issuance costs were approximately $1,755,000 and $2,170,000, respectively.

NOTE 11 GOODWILL

	(In thousands)

Arising from acquisition of Qingshan Metal, a subsidiary within the nonferrous metals segment, in 2006

Balance as of December 31, 2006	$	1,001
Exchange realignment		69
Balance as of December 31, 2007		1,070
Impairment of goodwill	$	(1,127)
Exchange realignment		57
Balance as of December 31, 2008	$	-

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

NOTE 12 WARRANTS LIABILITY

In connection with the issuance of the convertible notes (as further described in Note 16), the Company issued a put warrant to one of the Company’s financial advisors for the purchase of 875,000 shares of the Company’s common stock at an exercise price of $3.20 per share, exercisable at any time, or from time to time, during the period commencing from January 1, 2007 through January 1, 2010 (the “Termination Date”). The Company has had the fair value of the put warrant computed by using the Black Scholes model. As of December 31, 2008, the fair value of the put warrant is approximately $33,126 with the following significant assumptions used in the Black-Scholes model:

	2008			2007

Risk-free interest rate		0.343	%		4.05	%
Expected volatility		159.23	%		57.22	%
Term	1 years			2 years

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

NOTE 13 SHORT-TERM BANK LOANS

Short-term bank loans consisted of the following:

	December 31, 2008		December 31, 2007
	(in thousands)		(in thousands)
10.37% note payable to Baiyin Credit Union matures on February 16, 2008 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining	$	-	$	96
10.37% note payable to Baiyin Credit Union matures on February 16, 2008 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining		-		205
8.22% note payable to Baiyin Credit Union matures on August 15, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining and secured by the time deposit of Ms. Xiaojing Yu , a director of the Company		117		110
9.99% note payable to Baiyin Credit Union matures on May 21, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Xiangzhen Mining		878		821
6.37% note payable to Baiyin Credit Union matures on December 26, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining and secured by the time deposit of Mr. Helin Cui , a director of the Company		88		82
10.85% note payable to Baiyin Credit Union matures on February 14, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining(1)		220		-
10.85% note payable to Baiyin Credit Union matures on February 14, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining(2)		102		-
8.50% note payable to Baiyin Credit Union matures on March 26, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, which is in the name of a related party(3)		351		-
	$	1,756	$	1,314

(1)The loan was extended starting from February 14, 2009 to February 14, 2010

(2)The loan was extended starting from February 14, 2009 to February 14, 2010

(3)The loan was extended starting from March 26, 2009 to March 26, 2010

NOTE 14

OTHER PAYABLES AND ACCRUALS

Other payables and accruals consisted of the following:

	December 31, 2008		December 31, 2007
	(In thousands)		(In thousands)
Accrued debt issuance costs（a）	$	53	$	116
Receipts in advance		1,142		408
Accruals for payroll, bonus and other operating expenses		343		892
Payables for construction service vender		1,047		481
Payable for extraction rights		-		1,014
Others payables		2,209		558
	$	4,794	$	3,469

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

NOTE 15

DUE TO RELATED PARTIES

Due to related parties consisted of the following:

	December 31, 2008		December 31, 2007
	(In thousands)		(In thousands)
Due to directors of the Company:
Ms. Xiao Jing Yu, CEO of the Company (a)	$	270	$	166
Mr. Xue Ming Xu, COO of the Company (b)		239		1
Mr. Cui He Lin , Director of the Company(c)		73		-
Due to Wulatehouqi Mengxin Co., Ltd, the minority shareholder of Xingzhen Mining (d)		1,463		1,369
Due to Mr. Xiao Ming Yu, General Manager of Xiangzhen (e)		621		-
Due to Xinjiang Tianxiang New Technology Development Co., Ltd, the minority shareholder of Xingzhen Mining (f)		-		526
	$	2,666	$	2,062

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

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

(b)	Mr.Xu is the COO of the Company.

(c)	Mr.Cui is a director of the Compay.

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

(e)	Mr.Yu is the General Manager of Xiangzhen Mining.

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

NOTE 16

CONVERTIBLE NOTES PAYABLE

On December 27, 2006, the Company entered into a Notes Purchase Agreement with Citadel Equity Fund Ltd. (“Citadel”), under the terms of which Citadel purchased a total of US$28,000,000 (“Original Principal Amount”) in convertible senior notes (“Notes”). The Notes have a Maturity Date of December 27, 2012. The Bank of New York is the trustee (“Trustee”), between whom and the Company there is a indenture (“Indenture”) for the Notes dated December 27, 2006.

Conversion Feature

The Notes are convertible at the option of the holders, at any time on or prior to maturity, into common shares of the Company. Pursuant to Second Supplemental Indenture entered into between the Company and the Trustee on September 28, 2007, the conversion price has been revised from $3.20 to $2.25 per share and is subject to adjustment in certain circumstances but shall in no event fall below $2.00 per share. In no event shall the number of conversion shares issuable upon conversion of all the outstanding Notes exceed 49.9% of all outstanding shares upon the conversion of all of the outstanding Notes.

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

Redemption

The Notes contain a feature reflected in the Accreted Principal Amount based on which the redemption or repurchase price of the Notes is determined. The Accreted Principal Amount is determined as follows: the Accreted Principal Amount on December 27, 2009 shall be 116.0% of the Original Principal Amount, and the Accreted Principal Amount at the Maturity Date shall be 134.5% 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. The Notes holders have the right to require 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 repurchase date if there is a change of control of the Company. From and after December 27, 2009, the Notes 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 repurchase date.

Interest Rate

The Notes initially bore interest at 6.75% per annum, which were subject to upward adjustments and were payable semi-annually. Pursuant to Second Supplemental Indenture entered into between the Company and the Trustee on September 28, 2007 and Third Supplemental Indenture entered into between the Company and the Trustee on December 21, 2007, the interest rate has been revised as follows:

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

(b) at the rate of 0.00% per annum of the Original Principal Amount of the Notes, from and including October 1, 2007 to and excluding January 31, 2008; and

(c) at the rate of 0.00% per annum of the Original Principal Amount of the Notes, from and including January 31, 2008 to but excluding the Maturity Date, if the Public Listing has occurred on or prior to January 31, 2008 and if the Company maintains such listing.

Default Risk

The company entered into the Second Supplemental Indenture dated September 28, 2007 with the Bank of New York (the “Trustee”), which amended an Indenture dated December 27, 2006 under which our 6.75% Senior Convertible Notes Due 2012 initially purchased by Citadel Equity Fund Ltd were issued. Under the Second Supplemental Indenture the Company covenants to achieve certain quarterly EBITDA targets for 2008 and 2009. If the Company fails to achieve such quarterly targets and does not cure it within fourteen days after it receives a written notice of default from the Trustee or the Convertible Notes Holders, such failure will constitute a default. The Company did not achieve the targets for the first three fiscal quarter of 2008. So far, neither the Trustee nor the Convertible Note Holders have sent a written notice of default to the Company. However, the Trustee or the Convertible Note Holders could send a written notice of default any time in the future when the Company misses its quarterly target. The Company believes that it is very likely to miss its EBITDA target again and will unlikely be able to cure it within fourteen days.

Detachable warrants

Debt issuance costs

The issuance costs directly associated with the Notes and the put warrant aggregated $2,522,497. The amount was capitalized as deferred debt issuance costs, and is being amortized using the effective interest rate method over the term of the convertible loan, with the amounts amortized being recognized as interest expense. Any unamortized debt issuance costs remaining at the date of conversion of the loan will be recognized as interest expense in the period the conversion takes place. As of December 31, 2008 and December 31, 2007 the deferred debt issuance costs were approximately $1,755,000 and $2,170,000 respectively.

NOTE 17

MINORITY INTERESTS

The activities of the equity of the minority interests during the year ended December 31, 2007 and 2008 are summarized as follows:

	Years Ended December 31,
	2008			2007
	(In thousands)			(In thousands)
Balance at beginning of year	$	144		$	258
Arising from acquisitions		-			(14	)
Minority interests in loss		(122	)		(100	)
Balance at end of year	$	22		$	144

NOTE 18

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 19

PRC STATUTORY RESERVES

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

NOTE 20

ASSET RETIREMENT OBLIGATIONS

According to the “Rules on Mineral Resources Administration” and “Rules on Land Rehabilitation” of the PRC, mining companies causing damages to cultivated land, grassland or forest are required to restore the land to a state approved by the local governments. The local governments administering the “Rules on Mineral Resources Administration” and “Rules on Land Rehabilitation” on the Company’s two mines, “Sumochaganaobao Fluorite Mine” and “Mining site No. 2”, have confirmed that the Company is not required to restore or rehabilitate the two mining sites because those two mining sites are located at distant areas and the Company’s mining and extraction activities have not affected the surrounding environment. The Company’ property, machinery and mining assets related to those two mining sites at December 31, 2008 and 2007 were not subject to an asset retirement obligation.

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

NOTE 21

ENVIRONMENTAL CHARGES

The Company’s mining operations are subject to “Natural Resource Compensation Charges”, but the charging rate varies in different cities in the PRC. Xiangzhen Mining was charged at net revenue * 2%* a special index solely determined by the local government. Xingzhen Mining was charged at $0.73 per ton a special index solely determined by the local government. Qingshan Metal and Qianzhen Mining was engaged in refinery of metals and no involved in any mining activities in 2008. As such, they are not subject to the charge.

For the years ended December 31, 2008 and 2007, Natural Resource Compensation Charges of $108,180 and $156,784 respectively, were charged to operations and included in cost of sales.

NOTE 22

OPERATING RISK

Country risk

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

Products risk

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

Exchange risk

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

Political risk

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

Key personnel risk

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

Non-compliance with financing requirements

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

NOTE 23

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 have been incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.

Mining industry in PRC and Kyrgyz

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

Environmental matters

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

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

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

Capital commitment

The following table shows the Company Contracted but not provided:

	December 31, 2008			December 31, 2007
	(In thousands)		��	(In thousands)
Purchase of machinery - within one year	$	456		$	606
Acquisition or construction of buildings-within one year		9			4,133
	$	465		$	4,739

NOTE 24

CONCENTRATION OF CUSTOMERS AND SUPPLIERS

The following table shows the Company’s major customers (10% or more of consolidated net revenue) for the year ended December 31, 2008:

		Revenue		Percentage
Number	Customer	(In thousands)		(%)
1	RuiPeng Mining Ltd	$	2,185		31	%
2	Laiwu Steel Ltd		925		13	%
3	Inner Mongolia Huadesanli Trading Ltd		781		11	%
	Handan Hongzhi Ltd		754		11	%
4	Ningxia Jinhe Chemistry Ltd		685		10	%
TOTAL		$	5,330		76	%

The following table shows the Company’s major customers (10% or more of consolidated net revenue) for the year ended December 31, 2007:

		Revenue		Percentage
Number	Customer	(In thousands)		(%)
1	Bayannaoer Zijin Nonferrous Metals Ltd	$	3,465		24	%
2	Baiyin Nonferrous Metals Ltd		2,555		17	%
3	Ningxia Jinhe Chemistry Ltd		2,607		18	%
4	Taiyuan Steel Ltd		1,357		9	%
5	Laiwu Steel Ltd		952		7	%
TOTAL		$	10,936		75	%

As of December 31, 2008, accounts receivable total $612,000 which consists of receivables from 19 customers.

The following table shows the receivable distribution of the Company’s major customers (10% or more of consolidated accounts receivable) as of December 31, 2008:

		Receivables		Percentage
Number	Customer	(In thousands)		(%)
1	Laiwu Steel, Ltd	$	219		36	%
2	Handan Hongzhi Ltd		152		25	%
3	Ningxia Jinhe Chemistry Ltd		69		11	%
TOTAL		$	440		72	%

In the year of 2008, the Company had no concentrated suppliers.

NOTE 25

RELATED PARTY TRANSACTION

Xinjiang Tianxiang New Technology Development Co., Ltd, the minority shareholder of Xingzhen Mining, provided exploration services to Xingzhen Mining for a related service fee paid by the Company of $52,073 in 2008 and $974,621 in 2007.

NOTE 26

SEGMENT INFORMATION

The Company follows SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, which requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating their performance. The Company has two operating segments identified by product, “fluorite” and “nonferrous metals”. The fluorite segment consists of our fluorite extraction and processing operations conducted through the Company’s wholly-owned subsidiary, Xiangzhen Mining. The nonferrous metals segment consists of the Company’s copper, zinc, lead and other nonferrous metal exploration, extraction and processing activities conducted through the Company’s wholly-owned subsidiaries, Qianzhen Mining, Xingzhen Mining and Qingshan Mining.

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

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

Year Ended December 31, 2008	Fluorite			Nonferrous metals			Consolidated

Segment revenue	$	3,704		$	3,433		$	7,137
Inter-segment revenue		-			-			-
Revenue from external customers	$	3,704		$	3,433		$	7,137

Segment profit	$	(3,898	)	$	(4,250	)	$	(8,148	)


Unallocated corporate expenses							$	(3,587	)
Income from continuing operations before income taxes and minority interests							$	(11,735	)

Total segment assets	$	50,273		$	88,034		$	138,307
Inter-segment receivables		(25,647	)		(59,403	)		(85,050	)
	$	24,626		$	28,631		$	53,257

Deferred debt issuance costs							$	1,755
Other unallocated corporate assets								1
							$	55,013
Other segment information:
Depreciation and amortization	$	2,499		$	1,868		$	4,367
Expenditure for segment assets	$	1,605		$	1,490		$	3,095

Year Ended December 31, 2007	Fluorite			Nonferrous metals			Consolidated

Segment revenue	$	6,605		$	7,746		$	14,351
Inter-segment revenue		-			-			-
Revenue from external customers	$	6,605		$	7,746		$	14,351

Segment profit (loss)	$	418		$	422		$	840


Unallocated corporate expenses								(4,862	)
Income from continuing operations before income taxes and minority interests							$	(4,022	)

Total segment assets	$	45,673		$	52,503		$	98,176
Inter-segment receivables		(24,111	)		(18,711	)		(42,822	)
	$	21,562		$	33,792			55,354
Investment deposit
Deferred debt issuance costs								2,170
Other unallocated corporate assets								1,777
							$	59,301
Other segment information:
Depreciation and amortization	$	1,175			1,240		$	2,415
Impairment of fixed assets				$	109		$	109
Expenditure for segment assets	$	8,870			10,762		$	19,632

The following summarizes identifiable assets by geographic area:

	December 31, 2008		December 31, 2007
	(In thousands)		(In thousands)
China	$	44,098	$	45,199
Kyrgyzstan		10,914		12,395
Unallocated corporate assets		1		1,707
	$	55,013	$	59,301

The following summarizes operating losses before provision for income tax:

	Year Ended December 31,
	2008		2007
	(In thousands)		(In thousands)
China	$	6,955	$	(967	)
Kyrgyzstan		1,192		125
Unallocated corporate operating losses		3,588		4,864
	$	11,735	$	4,022

NOTE 27

OTHER INCOME, NET

	Years ended December 31,
	2008			2007
	(In thousands)			(In thousands)
Exchange gain	$	383		$	495
Gain (loss) on disposal of fixed assets		-			(109	)
Investment income (loss)		-			(86	)
Tax imposition		(54	)		-
Penalty and late fee		(52	)		-
Donation		(44	)		(27	)
Impairment of assets		(6	)		(60	)
Others		-			184
	$	227		$	397

NOTE 28

INCOME TAXES

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

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

	Years ended December 31,
	2008			2007
	(In thousands)			(In thousands)

Current:
- PRC	$	(544	)	$	(96	)

Deferred:
- PRC		-			51
	$	(544	)	$	(45	)

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

	Years ended December 31,
	2008			2007
	(In thousands)			(In thousands)
Pre-tax income (loss) before minority interests	$	(11,735	)	$	(4,022	)
United States statutory corporate income tax rate		35	%		35	%
Income tax benefit (expense) computed at United States statutory corporate income tax rate	$	4,107		$	1,408
Reconciling items		-			-
Rate differential for PRC or Kyrgyz earnings		(993	)		(12	)
Impact of tax holiday of PRC subsidiaries		-			1,186
Adjustment of deferred tax asset valuation allowance for loss carryovers		(1,938	)		(873	)
Non-deductible expense and non-reportable income		(1,720	)		(1,677	)
Under provision in prior year		-			(77	)
Effective tax expense	$	(544	)	$	(45	)

In March 2007, the Chinese government enacted new tax law which took effect beginning January 1, 2008. Under the new tax law of China, all domestic and foreign invested enterprises are generally subject to a unified tax rate of 25%. The new tax law provide for a five-year transition period from its effective date for those enterprises which were established before the promulgation date of the new tax law and which were entitled to preferential tax treatments under the previous tax laws and regulations. Therefore, Xiangzhen Mining and Qianzhen Mining will enjoy the 50% tax exemption benefit from 2008.

During the year ended December 31, 2007, the Company recorded a deferred tax liability of $1,201,000 pursuant to certain extraction rights acquired during the year. At December 31, 2008, the Company wrote off the deferred tax liability against the extraction rights asset. This write off occurred due to substantial doubt of the Company ever realizing the actual tax benefit estimated during 2007.

100

NOTE 29

EARNINGS PER SHARE

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

	Years ended December 31,
	2008			2007
	(In thousands, except per share data)			(In thousands, except per share data)
Income (loss) from continuing operations available to common shareholders:
-Basic and Diluted	$	(12,149	)	$	(3,953	)

Income (loss) from discontinued operations available to common shareholders:					1,307
-Basic and Diluted	$			$
Weighted average number of shares:
-Basic and Diluted		22,215			21,959

Earnings (loss) per share from continuing operations
-Basic and Diluted	$	(0.55	)	$	(0.18	)

Earnings (loss) per share from discontinued operations
-Basic and Diluted	$	-		$	0.06

As the convertible notes, warrants and options have anti-dilutive effect on the earnings per share for 2008 and 2007.

NOTE 30

SUBSEQUENT EVENT

On March 7, 2009, Mr. Hu Ye resigned from the position of Chief Financial Officer of China Shen Zhou Mining & Resources, Inc. (the “Company”). Mr. Ye did not have any disagreements with the Company prior to his resignation. On March 7, 2009, Mr. Jiusheng Zhang was appointed Interim Chief Financial Officer (“Interim CFO”) of the Company.

101

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Avg

China Shen Zhou Mining & Resources (SHZ) Inactive 10-K2008 FY Annual report

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