China Shen Zhou Mining & Resources (SHZ) 10-Q 2010 Q3 Quarterly report

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2010

or

¨ Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 000-50491

China Shen Zhou Mining & Resources, Inc.

(Name of small business issuer in its charter)

Nevada	87-0430816
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

No. 166 Fushi Road, Zeyang Tower, Suite 1211 Shijingshan District, Beijing, China 100043 People’s Republic of China	100043
(Address of principal executive offices)	(Zip Code)

Issuer's telephone number:   86-010-88906927

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x   No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ¨   No ¨

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

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer  ¨ (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 Exchange Act) Yes ¨ No x

As of November 12, 2010, the Registrant had 27,974,514 shares of common stock outstanding.

China Shen Zhou Mining & Resources, Inc.

Table of Contents

		Page
PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements:	3
	Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and December 31, 2009 (Audited)	3
	Consolidated Statements of Operations and Comprehensive Income (Unaudited) Nine and Three months ended September 30, 2010 and 2009	4
	Consolidated Statements of Cash Flows (Unaudited) Nine Months ended September 30, 2010 and 2009	5
	Notes to Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II	OTHER INFORMATION	28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	(Removed and Reserved)	28
Item 5.	Other Information	28
Item 6.	Exhibits	28

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements 

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

	September 30, 2010			December 31, 2009
	(Unaudited)			(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,497		$	333
Accounts receivable, net		266			302
Other deposits and prepayments, net		1,189			855
Inventories		7,950			3,721
Restricted assets		8			740
Total current assets		10,910			5,951
Prepayment for office rent		133			280
Available for sale investment		149			146
Property, machinery and mining assets, net		34,699			34,902
Total assets	$	45,891		$	41,279
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,885		$	4,694
Short term loans		10,792			3,603
Other payables and accruals		5,283			6,667
Taxes payable		655			333
Total current liabilities		19,615			15,297
Due to related parties		2,322			2,297
Total liabilities		21,937			17,594
STOCKHOLDERS’ EQUITY:
Common stock ($0.001 par value; 50,000,000 shares authorized;
27,974,514 shares and 27,214,514 shares issued and outstanding
as of September 30, 2010 and December 31, 2009 respectively)		28			27
Additional paid-in capital		29,270			28,518
Statutory reserves		1,672			1,672
Accumulated other comprehensive income		4,180			3,839
Accumulated deficit		(11,144	)		(10,342	)
Stockholders' equity - China Shen Zhou Mining & Resources, Inc. and Subsidiaries		24,006			23,714
Noncontrolling interest		(52	)		(29	)
Total stockholders’ equity		23,954			23,685
Total liabilities and stockholders’ equity	$	45,891		$	41,279

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

3

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share data)

	For the Three Months Ended						For the Nine Months Ended
	September 30， 2010			September 30， 2009			September 30， 2010			September 30， 2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net revenue	$	3,619		$	1,715		$	6,722		$	3,060
Cost of sales		1,878			1,469			4,455			2,593
Gross profit		1,741			246			2,267			467
Operating expenses:
Selling and distribution expenses		16			52			67			70
General and administrative expenses		1,131			982			3,043			3,166
Total operating expenses		1,147			1,034			3,110			3,236
Net income (loss) from operations		594			(788	)		(843	)		(2,769	)
Other income (expense):
Interest expense		(193	)		(936	)		(387	)		(2,893	)
Other, net		106			(8	)		406			109
Total other income (loss)		(87	)		(944	)		19			(2,784	)
Income (loss) from continuing operations before income taxes		507			(1,732	)		(824	)		(5,553	)
Income tax expenses		-			-			-			-
Income (loss) from continuing operations		507			(1,732	)		(824	)		(5,553	)
Discontinued operations :
Loss from operations of discontinued component, net of taxes		-			(414	)		-			(660	)
Loss from discontinued operations		-			(414	)		-			(660	)
Net income (loss)		507			(2,146	)		(824	)		(6,213	)
Less: Noncontrolling interests attributable to the noncontrolling interests		8			-			22			22
Net income (loss) - attributable to China Shen Zhou Mining & Resources, Inc. and Subsidiaries		515			(2,146	)		(802	)		(6,191	)
Other comprehensive income:
Foreign currency translation adjustments		295			25			341			216
Comprehensive  income (loss)	$	810		$	(2,121	)	$	(461	)	$	(5,975	)
Net income (loss) per common share – basic and diluted
From continuing operations		0.02			(0.08	)		(0.02	)		(0.25	)
From discontinued operations		-			(0.02	)		-			(0.03	)
	$	0.02		$	(0.10	)	$	(0.02	)	$	(0.28	)
Weighted average common shares outstanding
- Basic and Diluted		27,975			22,215			27,878			22,215

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

4

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands, except share data)

	For the Nine Months Ended September 30,
	2010			2009
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net loss	$	(802	)	$	(6,191	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss from operations of discontinued component, net of income tax benefits		-			660
Depreciation and amortization		2,226			1,865
Fair value adjustment of warrants		-			17
Accrual of coupon interests and accreted principal		-			1,169
Amortization of deferred financing costs		-			1,207
Amortization of debt issuance costs		-			318
Noncontrolling interests		(22	)		(22	)
Forgiveness of payroll payables		(300	)		-
Changes in operating assets and liabilities:
(Increase) decrease in -
Accounts receivable		41			(61	)
Other deposits and prepayments		(317	)		(174	)
Prepayment for office rent		147			152
Inventories		(4,157	)		(615	)
Restricted assets		746			(733	)
Increase (decrease) in -
Accounts payable		(1,900	)		973
Other payables and accruals		(460	)		1,001
Taxes payable		316			(94	)
Net cash provided by (used in) operating activities from continuing operations		(4,482	)		(528	)
Net cash provided by (used in) operating activities from discontinued operations		-			1
Net cash used in operating activities		(4,482	)		(527	)
Cash flows from investing activities:
Purchases of property, machinery and mining assets		(1,374	)		(752	)
Sales of property, machinery and mining assets		28			-
Net cash used in investing activities from continuing operations		(1,346	)		(752	)
Net cash provided by disposal of discontinued operations		-			-
Net cash used in investing activities		(1,346	)		(752	)
Cash flows from financing activities:
Due to related parties		(20	)		(620	)
Repayment at short-term loans		(3,464	)		-
Proceeds from short-term loans		10,583			1,846
Net cash provided by financing activities		7,099			1,226
Foreign currency translation adjustment		(107	)		(5	)
Net increase in cash and cash equivalents		1,164			(58
Cash and cash equivalents at the beginning of the period		333			205
Cash and cash equivalents at the end of the period	$	1,497		$	147
Non-cash investing and financing activities
Shares issued to employees as share based compensation	$	752		$	-
Supplemental disclosures of cash flow information:
Cash paid for interest expenses	$	285		$	166
Cash paid for income tax	$	-		$	-

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

5

China Shen Zhou Mining & Resources, Inc. and Subsidiaries

Notes to Consolidated Financial Statements 

(Unaudited)

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 September 30, 2010, the subsidiaries of China Shen Zhou Mining & Resources, Inc. are as follows:

Name	Domicile and Date of Incorporation	Paid-in Capital		Percentage  of Effective Ownership		Principal Activities
American Federal Mining Group, Inc. (“AFMG”)	Illinois November 15, 2005	USD	10	100	%	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 processing of nonferrous metals and 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	60	%	Exploration, extraction and processing of copper, zinc, lead etc
Xinjiang Buerjin County Xingzhen Mining Company (“Xingzhen Mining”)	The PRC April 10,2006 (Acquired on April 28, 2006)	RMB	50,000,000	90	%	Exploration of solid metals, processing and sales of mining products.

NOTE 2- BASIS OF PRESENTATION AND GOING CONCERN

These consolidated financial statements for interim periods are unaudited. In the opinion of management, all adjustments, consisting of normal, recurring adjustments, and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these consolidated financial statements are not necessarily indicative of the results that may be reported for the entire year. The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States of America.  These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed on March 31, 2010.

The accompanying consolidated financial statements have been prepared on a going concern basis. The Company has incurred net operating income (loss) of approximately ($0.82) million and ($5.53) million for the nine months ended September 30, 2010 and 2009, respectively. The Company has incurred net operating income (loss) of approximately $0.51 million and ($1.73) million for the three months ended September 30, 2010 and 2009, respectively. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, to fund possible future acquisitions, and to generate profitable operations in the future.

The Company is addressing its liquidity needs and has taken positive steps by accomplishing the following:

· Has obtained approximately $5.84 million from China Citic bank by XiangZhen Mining in April 2010.

· Has obtained approximately $2.92 million from Mrs. Ding on July 27, 2010.

· Has cured some technological problems in Xingzhen processing plant. The Mining and processing production of Xingzhen Mining has been operating as expected since late May 2010.

6

· The plant of Xiangzhen Mining has begun recommenced production since March 2010. The new processing plant of Xiangzhen Mining with an annual processing capacity of 200,000 metric tons of fluorite ore has begun processing in mid-August 2010.

· Our net income from operations for the third quarter ended September 30, 2010 was approximately $507,000. Our revenue for the third quarter ended September 30, 2010 has increased by approximately 111% as compared to the same period in 2009.

In addition, if needed management plans to issue additional equity securities and or debt to meets its obligations on a timely basis. The outcome of these matters cannot be predicted at this time and there are no assurances that if achieved, the Company will have sufficient funds to execute its business plan or generate positive operating results. These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

NOTE 3 - DISCONTINUED OPERATIONS

On November 20, 2009, the Company completed the sale of all its ownership interest in Tun-Lin Limited Liability Company (“Tun-Lin”), a subsidiary of the Company within the nonferrous metals segment. The Company received cash proceeds of $8.2 million. In accordance with Accounting Standard Codification (“ASC”) 360 (Formerly FAS 144) of Financial Accounting Standards Board (“FASB”), Accounting for Impairment or Disposal of Long-Lived Assets, the Company has reflected Tun-Lin’s results of operations in the consolidated statements of operations through the date of the sale as discontinued operations for the nine Months ended September 30, 2009. The cash flows of discontinued operations have also been reclassified.

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

	For the nine months ended September 30,
	2010	2009
	(In thousands)	(In thousands)
Revenue	Not Applicable		$	-
Loss from discontinued operations	Not Applicable		$	(660	)

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

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

Principles of Consolidation

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

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

Basis of preparation

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

7

Cash and Cash Equivalents

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

Accounts receivable

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

Inventories

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

Available-for-sale securities

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

Property, machinery and mining assets

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

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

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

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

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

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

8

Foreign Currency

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

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

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

	September 30, 2010	December 31, 2009
Balance sheet items, except for the registered and paid-up capital and retained earnings, as of year end	US$1=RMB6.6981	US$1=RMB6.8282

	For the Nine Months Ended September 30, 2010	For the Nine Months Ended September 30, 2009
Amounts included in the statements of operations and statements of cash flows for the period	US$1=RMB6.8164	US$1=RMB6.8329

For the nine months ended September 30, 2010 and 2009, foreign currency translation adjustment is approximately $341,000 and $216,000 respectively, have been reported as comprehensive income in the consolidated statement of comprehensive income.

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

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

Noncontrolling Interest

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

Revenue Recognition

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

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

Stripping Costs

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

9

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.

Financial instruments

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

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

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

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

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

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

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

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

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

Taxation

(a)   Enterprise Income Tax

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

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

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

10

Based on all known facts and circumstances and current tax law, the Company believes that the total amount of unrecognized tax benefits as of September 30, 2010, is not material to its results of operations, financial condition or cash flows. The Company also believes that the total amount of unrecognized tax benefits as of September 30, 2010, if recognized, would not have a material effect on its effective tax rate. The Company further believes that there are no tax positions for which it is reasonably possible, based on current Chinese tax law and policy, that the unrecognized tax benefits will significantly increase or decrease over the next 12 months producing, individually or in the aggregate, a material effect on the Company’s results of operations, financial condition or cash flows.

(b) Value Added Tax

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

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

Transportation charges

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

Stock Based Compensation

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

Net income per common share

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

Comprehensive Income (loss)

Acc. notes in $000's. Accumulated other comprehensive income includes foreign currency translation adjustments. Total comprehensive income (loss) for the third quarter ended September 30, 2010 and 2009 was approximately $810 and ($2,121), respectively. And total comprehensive income (loss) for the nine months ended September 30, 2010 and 2009 was approximately ($461) and ($5,975), respectively.

Reclassifications

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

Recently Adopted Accounting Standards:

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3 of the fair value measurement hierarchy. This guidance became effective for the Company beginning March 1, 2010, except for disclosures relating to purchases, sales, issuances and settlements of Level 3 assets and liabilities, which will be effective for the Company beginning June 1, 2011. As this guidance only requires expanded disclosures, the adoption did not and will not impact the Company’s consolidated financial position or results of operations

In February 2010, the FASB issued amended guidance on subsequent events. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and the Company adopted these new requirements since the third quarter of fiscal 2010.

11

In June 2009, the FASB established the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative U.S. GAAP for all non-governmental entities. The Codification, which launched July 1, 2009, changes the referencing and organization of accounting guidance. The Codification became effective for the Company beginning September 1, 2009. The issuance of the FASB Codification did not change GAAP and therefore the adoption has only affected how specific references to GAAP literature are disclosed in the notes to the Company’s consolidated financial statements.

Recently Issued Accounting Standards:

In October 2009, the FASB issued new standards that revised the guidance for revenue recognition with multiple deliverables. These new standards impact the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, these new standards modify the manner in which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. These new standards are effective for the Company beginning June 1, 2011. The Company does not expect the adoption will have a material impact on its consolidated financial positions or results of operations.

In June 2009, the FASB issued a new accounting standard that revised the guidance for the consolidation of variable interest entities (“VIE”). This new guidance requires a qualitative approach to identifying a controlling financial interest in a VIE, and requires an ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. This guidance is effective for the Company beginning June 1, 2010. The Company is currently evaluating the impact of the provisions of this new standard.

NOTE 5 – ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

	September 30, 2010			December 31, 2009
	(In thousands)			(In thousands)
Accounts receivable	$	327		$	368
Less: Allowance for doubtful accounts		(61	)		(66	)
	$	266		$	302

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

	September 30, 2010			December 31, 2009
	(In thousands)			(In thousands)
Balance at the beginning of the year	$	66		$	51
Add: provision during the period		-			15
Less: written-off provision during the period		(5	)		-
Balance at the end of the period	$	61		$	66

NOTE 6 - DEPOSITS AND PREPAYMENTS

Deposits and prepayments consist of the following:

	September 30, 2010		December 31, 2009
	(In thousands)		(In thousands)
Prepayments and advances	$	768	$	628
Other receivables		421		227
	$	1,189	$	855

NOTE 7 - INVENTORIES

Inventories consist of the following:

	September 30, 2010		December 31, 2009
	(In thousands)		(In thousands)
Raw materials	$	940	$	586
Unprocessed ore		4,832		1,391
Consumables		202		103
Finished goods and semi-manufactured goods		1,976		1,641
	$	7,950	$	3,721

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NOTE 8 - RESTRICTED ASSETS

Restricted assets are the deposits saved in China Citic bank account of Xiangzhen Mining as collateral for the Company to issue bank drafts. As of September 30, 2010 and December 31, 2009, the Company has restricted assets of approximately $8,000 and $740,000, respectively.

NOTE 9 - PROPERTY, MACHINERY AND MINING ASSETS, NET

Property, machinery and mining assets consist of the following:

	September 30, 2010			December 31, 2009
	(In thousands)			(In thousands)
Land use rights	$	1,735		$	1,702
Buildings		13,308			12,986
Machinery		11,828			10,838
Mining assets		10,256			9,890
Motor vehicles		1,455			1,318
Equipment		351			332
Extraction rights		8,402			8,242
Construction in progress		461			269
		47,796			45,577
Less:
Accumulated depreciation and amortization		(12,992	)		(10,570	)
Impairment provision		(105	)		(105	)
	$	34,699		$	34,902

Depreciation and Amortization

Depreciation and amortization expense in aggregate for the nine months ended September 30, 2010 and 2009 was approximately $2,226,000 and $1,865,000, respectively.

Impairment Provision

An impairment provision was a balance recorded for the equipment of Qingshan Metal, a subsidiary of the Company within the nonferrous metals segment.

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 three years and extension of the exploration license shall not exceed two years and two extensions.

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NOTE 10 - SHORT-TERM LOANS

Short-term loans consist of the following:

	September 30, 2010		December 31, 2009
	(in thousands)		(in thousands)
12.21% note payable to Wulatehouqi Credit Union matures on March 11, 2010 , which is in the name of a related party and guaranteed by Qianzhen Mining	$	-	$	410
8.50% note payable to Baiyin Credit Union matures on March 23, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, which is in the name of a related party and guaranteed by Xiangzhen Mining		-		322
8.50% note payable to Baiyin Credit Union matures on February 13, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining		-		220
8.50% note payable to Baiyin Credit Union matures on February 13, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining		-		103
7.65% note payable to China Citic Bank matures on May 21, 2010,guaranteed by Xiangzhen Mining		-		1,465
6.37% note payable to Baiyin Credit Union matures on December 28, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining and secured by the time deposit of Ms. Helin Cui , a director of the Company		90		88
6.37% note payable to Baiyin Credit Union matures on August 18, 2011 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining and secured by the time deposit of  Ms. Xiaojing Yu , a director of the Company		119		117
8.50% note payable to Baiyin Credit Union matures on December 29, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Xiangzhen Mining		896		878
9.56% note payable to Baiyin Credit Union matures on December 21, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, which is in the name of a related party and guaranteed by Xiangzhen Mining		254		-
9.03% note payable to Baiyin Credit Union matures on November 5, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining		194		-
9.03%% note payable to Baiyin Credit Union matures on November 5, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining		75		-
13.28% note payable to Wulatehouqi Credit Union matures on Apirl 11, 2011 , which is in the name of a related party and guaranteed by Qianzhen Mining		418		-
7.01% note payable to China Citic Bank matures on February 15, 2011,collateralized with Xiangzhen’s extraction right, land use right and some machineries		746		-
7.01% note payable to China Citic Bank matures on February 12, 2011,collateralized with Xiangzhen’s extraction right, land use right and some machineries		2,239		-
7.01% note payable to China Citic Bank matures on February 14, 2011,collateralized with Xiangzhen’s extraction right, land use right and some machineries		2,986		-
8.60% note payable to Ms. Yanling Ding matures on July 26, 2011,collateralized with Xingzhen’s extraction right and the ore processing plant		2,775
	$	10,792	$	3,603

NOTE 11 - OTHER PAYABLES AND ACCRUALS

Other payables and accruals consist of the following:

	September 30, 2010		December 31, 2009
	(In thousands)		(In thousands)
Accrued debt issuance costs  (a)	$	46	$	46
Receipts in advance		1,914		1,788
Accruals for payroll, bonus and other operating expenses		621		1,380
Payables for construction service vender		1,215		882
Others payables		1,487		2,571
	$	5,283	$	6,667

(a) The balance mainly represents outstanding legal service fees payable in connection with the issuance of the convertible notes which had been repurchased on December 23, 2009.

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NOTE 12 - DUE TO RELATED PARTIES

Due to related parties consist of the following:

	September 30, 2010		December 31, 2009
	(In thousands)		(In thousands)
Due to directors of the Company:
Ms. Xiaojing Yu, CEO of the Company (a)	$	129	$	145
Mr. Xueming Xu, Director of the Company (b)		12		27
Mr. Helin Cui , COO of the Company(c)		-		1
Due to Mr. Xiao Ming Yu, General Manager of Xiangzhen (d)		311		305
Due to Wulatehouqi Mengxin Co., Ltd, the former minority shareholder of Xingzhen Mining (e)		-		479
Mr. Mao Huang the minority shareholder of Xingzhen Mining (f)		1,870		1,340
	$	2,322	$	2,297

Amounts due to related parties are interest-free, unsecured and due on December 8, 2012.

(a) Ms. Yu is the CEO of the Company.

(b) Mr. Xu is a director of the Company.

(c) Mr. Cui is the COO of the Company.

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

(e) Wulatehouqi Mengxin Co., Ltd was the former minority shareholder of Xingzhen Mining, and transferred all the shareholder’s rights and loan of Xingzhen Mining to Mr. Huang (f).

(f) Mr. Huang is the minority shareholder of Xingzhen Mining

NOTE 13 - 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 January 1, 2002, the Company is 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 14 - 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 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 15 - 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 September 30, 2010 and December 31, 2009 were not subject to an asset retirement obligation.

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

15

NOTE 16 - 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 17 - COMMITMENTS AND CONTINGENCIES

General

The Company follows ASC 450, Accounting for Contingencies , in determining its accruals and disclosures with respect to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be been incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.

Mining Industry in PRC

The Company's mining operations are and will be subject to extensive national and local governmental regulations in China, which may be revised or expanded at any time. A broad number of matters are subject to regulations.  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 terms and conditions.  The Company cannot predict whether it will be able to obtain or renew such permits or whether material changes in permit terms and conditions will be imposed. The inability to obtain or renew permits or the imposition of additional terms and 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.

16

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

	September 30, 2010		December 31, 2009
	(In thousands)		(In thousands)
Purchase of machinery - within one year	$	236	$	75
Acquisition or construction of buildings-within one year		36		-
	$	272	$	75

NOTE 18 - SEGMENT INFORMATION

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

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

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

Nine months ended September 30, 2010	Fluorite			Nonferrous metals			Consolidated
	(In thousands)			(In thousands)			(In thousands)
Segment revenue	$	3,089		$	3,633		$	6,722
Inter-segment revenue		-			-			-
Revenue from external customers	$	3,089		$	3,633		$	6,722
Segment loss	$	(1,219	)	$	386		$	(833	)
Unallocated corporate income							$	9
Loss from continuing operations before income taxes and minority interests							$	(824	)
Total segment assets	$	38,135		$	28,098		$	66,233
Inter-segment receivables		(12,018	)		(8,408	)		(20,426	)
	$	26,117		$	19,690		$	45,807
Other unallocated corporate assets								84
							$	45,891
Other segment information:
Depreciation and amortization	$	1,298		$	928		$	2,226
Expenditure for segment assets	$	1,067		$	307		$	1,374

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Nine months ended September 30, 2009	Fluorite			Nonferrous metals			Consolidated
	(In thousands)			(In thousands)			(In thousands)
Segment revenue	$	2,783		$	277		$	3,060
Inter-segment revenue		-			-			-
Revenue from external customers	$	2,783		$	277		$	3,060
Segment loss	$	(1,342	)	$	(1,200	)	$	(2,542	)
Unallocated corporate expenses								(3,011	)
Loss from continuing operations before income taxes and minority interests							$	(5,553	)
Total segment assets	$	39,042		$	27,664		$	66,706
Inter-segment receivables		(15,736	)		2,558			(13,178	)
	$	23,306		$	30,222		$	53,528
Deferred debt issuance costs								1,437
Other unallocated corporate assets								220
							$	55,185
Other segment information:
Depreciation and amortization	$	1,110		$	755		$	1,865
Expenditure for segment assets	$	673		$	290		$	963

The following summarizes identifiable assets by geographic area:

	September 30, 2010		December 31, 2009
	(In thousands)		(In thousands)
China	$	45,807	$	41,260
Unallocated corporate assets		84		19
	$	45,891	$	41,279

The following summarizes operating losses before provision for income tax:

	Nine months ended September 30,
	2010			2009
	(In thousands)			(In thousands)
China	$	(833	)	$	(2,542	)
Discontinued operation - Kyrgyzstan		-			(660	)
Unallocated corporate operating income (loss)		9			(3,011	)
	$	(824	)	$	(6,213	)

NOTE 19 - OTHER INCOME, NET

	September 30,   2010			December 31, 2009
	(In thousands)			(In thousands)
Liabilities exemption  (a)	$	300		$	-
Exchange gain		140			107
Subsidies		-			23
Donation		(9	)		(1	)
others		(25	)		(20	)
	$	406		$	109

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

NOTE 20 - 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):

	For Three Months Ended September 30,					For Nine Months Ended September 30,
	2010		2009			2010			2009
	(In thousands, except per share data)		(In thousands, except per share data)			(In thousands, except per share data)			(In thousands, except per share data)
Income (loss) from continuing operations available to common shareholders:
-Basic and Diluted	$	507	$	(1,732	)	$	(824	)	$	(5,553	)
Income (loss) from discontinued operations available to common shareholders:
-Basic and Diluted	$	-	$	(414	)	$	-		$	(660	)
Weighted average number of shares:
-Basic and Diluted		27,975		22,215			27,878			22,215
Earnings (loss) per share from continuing operations
-Basic and Diluted	$	0.02	$	(0.08	)	$	(0.02	)	$	(0.25	)
Earnings (loss) per share from discontinued operations
- Basic and Diluted	$	-	$	(0.02	)	$	-		$	(0.03	)

The Company did not have outstanding warrants and options as of September 30, 2010. There is no difference between basic and diluted EPS.

NOTE 21 - CONCENTRATION OF CUSTOMERS AND SUPPLIERS

The Company had two main customers who contributed approximately $4,283,000 or 64% of the Company’s consolidated net revenue for the nine months ended September 30, 2010. For the same period of 2009, the Company had five main customers who contributed approximately $2,406,000 or 79% of the Company’s consolidated net revenue.

The following table shows the Company’s major customers (10% or more of consolidated net revenue) for the Nine months ended September 30, 2010:

	Revenue		Percentage
Customer	(In thousands)		(%)
RuiPeng Mining Ltd	$	3,633		54	%
Handan Hongzhi Ltd		650		10	%
	$	4,283		64	%

The following table shows the Company’s major customers (10% or more of consolidated net revenue) for the Nine months ended September 30, 2009:

	Revenue		Percentage
Customer	(In thousands)		(%)
Laiwu Steel Ltd	$	449		15	%
Handan Hongzhi Ltd		538		18	%
Ningxia Jinhe Ltd		774		25	%
Inner Mongolia Huadesanli Trading Ltd		330		11	%
Zibo Bofeng Ltd		315		10	%
	$	2,406		79	%

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The Company had no concentrated suppliers for the  nine months ended September 30, 2010 and 2009.

NOTE 22 - SUBSEQUENT EVENT

In accordance with ASC 855, “Subsequent Events” the Company evaluated subsequent events after the balance sheet date. The Company has reported all required subsequent events.

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ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 quarterly report. In addition to historical information, the following discussion contains certain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as “may”, “will”, “could”, “expect”, “anticipate”, “intend”, “believe”, “estimate”, “plan”, “predict”, and similar terms or terminology, or the negative of such terms or other comparable terminology. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bound of our knowledge of our business, our actual results could differ materially from those discussed in these statements. Factors that could contribute to such differences include, but are not limited to, those discussed in the “Risk Factors” section of the Annual Report on Form 10-K filed on March 31, 2010. 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 generally accepted accounting principles in the United States of America. See “Exchange Rates” below for information concerning the exchange rates at which Renminbi (“RMB”) were translated into U.S. Dollars (“USD”) at various pertinent dates and for pertinent periods.

OVERVIEW

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

BUSINESS STRATEGY

Prospect in 2010

In light of China’s overall economic condition, China’s economic output will be expected to increase gradually in 2010. The non-ferrous metals and fluorite industry is believed to have new development opportunities. The non-metallic mineral industry is expected to experience growth.

Resumption of Production Capacity to Meet Demand

▼ Fluorite

In early 2006, we began a mining project at Xiangzhen Mining to produce 300,000 metric tons of fluorite ore, and the project was completed in November 2007. At the same, at our mine site, we also started to build a plant with an annual processing capacity of 200,000 metric tons of fluorite ore, and the project was also completed in November 2007. We continued mining operations but the new plant remained in trial production in 2009.

We extracted approximately 47,900 metric tons of fluorite ore in 2009. We expect to extract 130,000 metric tons of fluorite ore in 2010.

We produced and sold approximately 12,000 metric tons of fluorite powder and 28,100 metric tons of fluorite lumps in 2009. We started the normal production on March 23, 2010 and we planned to process 45,000 tons of fluorite ore and produce 19,000 metric tons of fluorite powder in 2010. In addition, we plan to sell 55,000 metric tons of fluorite lumps and 19,000 tons of fluorite powder.

Xiangzhen Mining has the largest fluorite ore reserves in Northern China. Xiangzhen is a vice-president member in the China Fluorite Association. The new national policy of tighter restriction for new entrants into the fluorite production will have positive effect on Xiangzhen Mining. We expect the trend will continue for the business to concentrate in large enterprises through the acquisition of smaller enterprises.

▼ Zinc, Copper and Lead

No production was planned at Qianzhen Mining in 2009 due to the low grade of the ore supplied by Qingshan Metal and low copper price. Because the price of sulfur concentrate decreased greatly in 2009, Qianzhen Mining did not produce any sulfur products. We do not plan to produce at Qianzhen Mining and Qingshan Metal in 2010 due to the potential asset reorganization activity.

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 ore per year. On April 28, 2008, Xingzhen Mining completed a successful testing at its first trial, and then went into production. In parallel with processing, Xingzhen did exploration in the area. Xingzhen stopped operations due to price decrease of non-ferrous metals for the most time of 2009.

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In 2009, Xingzhen Mining produced and sold zinc concentrates and copper concentrates equivalent to 178 metric tons of zinc and 10 metric tons of copper, and sold 3,041 metric tons of oxide zinc-copper ore. We continued excavating and mining operations, and have been carrying out the operations until present time. Subject to purchase orders and weather conditions, we started processing in late May 2010. We plan to extract 70,000 metric tons ore, excavate 2,500 meters tunnels, process 80,000 metric tons ores equivalent to 4,410 metric tons of zinc and 241 metric tons of copper. We plan to sell all these products. In addition, we plan to sell 10,000 metric tons of oxide copper-zinc ore.

Exploration Activities

· Keyinbulake Copper-Zinc Mine

In 2009, Xingzhen Mining made a great breakthrough in prospecting, though it did not finish its processing plan. Based on previous exploration, especially according to the results of the IP sounding work in geological prospecting carried out in 2009, the mineral formation conditions and the genesis of ore bodies shows that Keyinbulake Copper-Zinc Mine belongs to the submarine volcanogenic sediments. The analysis on the data of exploration shows that within the mineralized belt the ore bodies continue along with the strike and distribute in parallel and en echelon arrangement. The method of sounding indicates that the inclined deepening of the ore-bodies in this area is longer than the length of their strike prolongation. There are five high-polarization abnormal zones found through IP sounding methods and they coincide in space and positions with the known copper-zinc ore bodies controlled under current underground extraction, which confirms that Keyinbulake Copper-Zinc Mine exists with high potential of ore prospecting and the previous work greatly assists the Company to delimit the accurate target area for further verification.

In the nine months ended September 30, 2010, Xingzhen Mining still focused on geophysical research, IP sounding prospecting, verification drilling design, and carrying out construction in strict accordance with design, as well as conducting the necessary geophysical investigations in the mining area. Xingzhen Mining is striving to explore further for more reserves as a public company before the end of 2010, and achieving breakthroughs in further identifying mineral resources in 2011.

Following the exploration in 2009, further exploration activities are planned in 2010 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	2.5
Drilling	four medium/deep holes	m	3000
Trenching	-	m 3	500
Geophysical prospecting	IP sounding	points	1108

The exploration activities listed above will be completed by a Geophysical Prospecting Team of Xinjiang Nonferrous Geophysical Prospecting Bureau with a total budget of approximately $0.88 million.

Acquiring 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.    

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2010 AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2009

Selected information from the Consolidated Statements of Operations

	For the three months ended September 30,
	2010			2009
	(in thousands)			(in thousands)
Net revenue	$	3,619		$	1,715
Gross profit	$	1,741		$	246
- Gross profit margin		48	%		14	%
General and administrative expenses	$	1,131		$	982
Interest expenses	$	193		$	936
Net income (loss)	$	515		$	(2,146	)

REVENUES. Net revenues for the three months ended September 30, 2010 were approximately $3,619,000, representing an approximately $1,904,000 or 111% increase as compared to the same period of 2009. The improved performance was mainly due to the increased revenues from the non-ferrous metal segments as described below.

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GROSS PROFIT AND GROSS PROFIT MARGIN. For the three months ended September 30, 2010, gross profit was approximately $1,741,000, which increased by approximately 608% from $246,000 in gross profit for the same period of 2009. The gross profit from our fluorite segment was approximately $209,000 and $177,000 for the three months ended September 30, 2010 and 2009, respectively. The gross profit from our non-ferrous metal segment was approximately $1,532,000 and $69,000 for the three months ended September 30, 2010 and 2009, respectively. Gross profit margin was approximately 48% for the three months ended September 30, 2010, which was increased significantly as compared to gross profit margin of 14% for the same period of 2009.

GENERAL AND ADMINISTRATIVE EXPENSES. For the three months ended September 30, 2010, general and administrative expenses increased by approximately $149,000 to $1,131,000 in 2010 as compared to $982,000 in 2009.  The increase in general and administrative expenses was primarily due to an increase in the depreciation and amortization of mining assets of Xingzhen Mining in the three months ended September 30, 2010.

INTEREST EXPENSE.  Interest expense decreased by approximately $743,000 as compared to the same period of 2009. The difference in interest expense is mainly due to the non-cash interest expense and costs associated with our convertible bonds, which were repurchased in December 2009.

NET INCOME (LOSS). Net income for the three months ended September 30, 2010 was approximately $515,000, which improved significantly as compared to net loss of approximately $2,146,000 for the same period of 2009.  Basic net income (loss) per share were $0.02 and ($0.08) for the three months ended September 30, 2010 and 2009, respectively.

SEGMENT PERFORMANCE ANALYSIS

	Segment revenue				Segment profit (loss)
	For the three months ended September 30,				For the three months ended September 30,
	2010		2009		2010			2009
	(In thousands)		(In thousands)		(In thousands)			(In thousands)
Fluorite	$	757	$	1,526	$	(345	)	$	(330	)
Nonferrous metals	$	2,862	$	189	$	982		$	(430	)

Fluorite

For the third quarter of 2010, fluorite segment revenue decreased by 50% from approximately $1,526,000 for the three months ended September 30, 2009 to approximately $757,000 for the three months ended September 30, 2010. The decrease was primarily due to the decreases in sales volume for fluorite products. 5,992 and 8,335 tons of fluorite lumps and 1,192 and 6,512 tons of fluorite powder were sold for the three months ended September 30, 2010 and 2009, respectively.

Our fluorite segment loss was approximately $345,000 for the three months ended September 30, 2010, compared to a segment loss of $330,000 in the same period of 2009.

Nonferrous Metals

Nonferrous metals segment revenue for the three months ended September 30, 2010 amounted to approximately $2,862,000, representing an increase of approximately $2,673,000 or 1,414% as compared to the same period of 2009. The performance of the nonferrous metals segment improved because Xingzhen Mining has restarted in late May 2010 and operated normally in the third quarter of 2010. Xingzhen Mining processed 36,294 metric tons of ores, and sold 2,536 metric tons of zinc concentrate powder and 143 metric tons of copper concentrate powder in the third quarter of 2010. For the same period of 2009, Xingzhen Mining was in trial production and produced very few products because of technological difficulties.

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2010 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2009

Selected information from the Consolidated Statements of Operations

	For the nine months ended September 30,
	2010			2009
	(in thousands)			(in thousands)
Net revenue	$	6,722		$	3,060
Gross profit	$	2,267		$	467
- Gross profit margin		34	%		15	%
General and administrative expenses	$	3,043		$	3,166
Interest expenses	$	387		$	2,893
Net loss	$	(802	)	$	(6,191	)

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REVENUES. Net revenues for the nine months ended September 30, 2010 were approximately $6,722,000, representing an approximately $3,662,000 or 120% increase as compared to the same period of 2009. The improved performance was mainly due to the increased revenues from the fluorite and non-ferrous metal segments as described below.

GROSS PROFIT AND GROSS PROFIT MARGIN. For the nine months ended September 30, 2010, gross profit was approximately $2,267,000 which increased by approximately 385% from $467,000 gross profit for the same period of 2009. The gross profit from our fluorite segment was approximately $464,000 and $370,000 for the nine months ended September 30, 2010 and 2009, respectively. The gross profit from our non-ferrous metal segment was approximately $1,803,000 and $97,000 for the nine months ended September 30, 2010 and 2009, respectively. Gross profit margin was approximately 34% for the nine months ended September 30, 2010, which increased significantly as compared to gross profit margin of 15% for the same period of 2009.

GENERAL AND ADMINISTRATIVE EXPENSES. For the nine months ended September 30, 2010, general and administrative expenses decreased by approximately $123,000 to $3,043,000, as compared to $3,166,000 in the same period of 2009. The decrease in general and administrative expenses was primarily due to the overall decrease in the depreciation of mining assets in the nine months ended September 30, 2010.

INTEREST EXPENSE.  Interest expense decreased by approximately $2,506,000 as compared to the same period of 2009. The difference in interest expense is mainly due to the non-cash interest expense and costs associated with our convertible bonds, which were repurchased in December 2009.

NET LOSS. Net loss for the nine months ended September 30, 2010 was approximately $802,000, a decrease of approximately $5,380,000 compared to net loss of $6,191,000 for the same period of 2009. Basic net losses per share were $0.02 and $0.25 for the nine months ended September 30, 2010 and 2009, respectively.

SEGMENT PERFORMANCE ANALYSIS

	Segment revenue						Segment profit (loss)
	For the Nine months ended September 30,						For the Nine months ended September 30,
	2010			2009			2010				2009
	(In thousands)			(In thousands)			(In thousands)				(In thousands)
Fluorite		$	3,089		$	2,783		$	(1,219	)		$	(1,342	)
Nonferrous metals		$	3,633		$	277		$	386			$	(1,200	)

Fluorite

For the nine months ended September 30, 2010, fluorite segment revenue increased by 11% from $2,783,000 for the nine months ended September 30, 2009 to $3,089,000 for the nine months ended September 30, 2010. The increase was primarily due to the increases in sales volume for fluorite lumps. 20,356 and 17,629 tons of fluorite lumps were sold for the nine months ended September 30, 2010 and 2009, respectively.

Our fluorite segment loss was approximately $1,219,000 for the nine months ended September 30, 2010, compared to a segment loss of $1,342,000 in the same period of 2009.

Nonferrous Metals

Nonferrous metals segment revenue for the nine months ended September 30, 2010 amounted to $3,633,000, representing an increase of approximately $3,356,000 or 1,212% as compared to the same period of 2009. The performance of the nonferrous metals segment significantly improved because Xingzhen restarted in May 2010 and operated normally for the nine months ended September 30, 2010. Xingzhen Mining processed 47,547 tons of ores, and sold 2,536 metric tons of zinc concentrate powder and 144 metric tons of copper concentrate powder for the nine months ended September 30, 2010. While for the same period of 2009, Xingzhen Mining was in trial production and produced very few products because of the technological difficulties.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $1.50 million as of September 30, 2010, an increase of $1.17 million as compared to the balance at December 31, 2009 of $0.33 million.

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Net cash used in operating activities for the nine months ended September 30, 2010 was $4.48 million, representing $3.95 million increase as compared to $0.53 million used for the same period in 2009. The cash used in operating activities for the nine months ended September 30, 2010 was mainly due to (i) the purchase of unprocessed ore of $3.44 million increased for restore production in 2010 and (ii) the repayment amount to $0.72 million for the bank drafts expired as described in Note 8 to our financial statements.

Net cash used in investing activities for the nine months ended September 30, 2010 was $1.35 million, as compared to $0.75 million used for the same period of 2009. The cash was mainly used in the purchasing of property, machinery and mining assets for the nine months ended September 30, 2010 and 2009, respectively.

Net cash provided by financing activities for the nine months ended September 30, 2010 was $7.10 million, as compared to $1.23 million provided for the same period of 2009, which was mainly due to the loans from China Citic Bank and Ms. Yanling Ding as described in the Note 10 to our financial statements.

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 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 the 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 the end of the period over which the Company has extraction rights. At the Company’s open pits, 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.

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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.

Stock Based Compensation

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

Recent Accounting Pronouncements

Recent accounting pronouncements applicable to the Company are summarized below.

- In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3 of the fair value measurement hierarchy. This guidance became effective for the Company beginning March 1, 2010, except for disclosures relating to purchases, sales, issuances and settlements of Level 3 assets and liabilities, which will be effective for the Company beginning June 1, 2011. As this guidance only requires expanded disclosures, the adoption did not and will not impact the Company’s consolidated financial position or results of operations

- In February 2010, the FASB issued amended guidance on subsequent events. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and the Company adopted these new requirements since the third quarter of fiscal 2010.

- In June 2009, the FASB established the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative U.S. GAAP for all non-governmental entities. The Codification, which launched July 1, 2009, changes the referencing and organization of accounting guidance. The Codification became effective for the Company beginning September 1, 2009. The issuance of the FASB Codification did not change GAAP and therefore the adoption has only affected how specific references to GAAP literature are disclosed in the notes to the Company’s consolidated financial statements.  

- In October 2009, the FASB issued new standards that revised the guidance for revenue recognition with multiple deliverables. These new standards impact the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, these new standards modify the manner in which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. These new standards are effective for the Company beginning June 1, 2011. The Company does not expect the adoption will have a material impact on its consolidated financial positions or results of operations.

- In June 2009, the FASB issued a new accounting standard that revised the guidance for the consolidation of variable interest entities (“VIE”). This new guidance requires a qualitative approach to identifying a controlling financial interest in a VIE, and requires an ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. This guidance is effective for the Company beginning June 1, 2010. The Company is currently evaluating the impact of the provisions of this new standard.

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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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a – 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act”) are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. This information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

Not required

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. (Removed and Reserved)

Item 5. Other Information

None

Item 6.  Exhibits

The following exhibits are hereby filed as part of this Quarterly Report on Form 10-Q.

Exhibit Number	Description
31.1	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Accounting Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant certifies that it has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, in Beijing.

	CHINA SHEN ZHOU MINING & RESOURCES, INC.
Date: November 12, 2010	By:	/s/ Xiaojing Yu
		Xiaojing Yu, Chief Executive Officer
		(Principal Executive Officer)

Date: November 12, 2010	By:	/s/ Steven Wang
		Steven Wang, Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

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