Central China Goldfields

Central China Goldfield's have two projects which are located in some of the most prolific belts in China. Nimu Copper Project is an advanced copper - molybdenum project. Our other project Dong Mao Huo is an oxide gold mine with underlying high grade hydrothermal gold-silver-copper-zinc sulphides.

Company Statement

China lies in a very prospective geological region. The collision of four continental fragments has created a series of belts conducive for mineralisation.

The Company currently has four projects which are located in some of the most prolific belts in China. Two of these projects (Nimu and Snow Mountain) have Flagship status.

Nimu Copper Project is an advanced copper – molybdenum project. Our partner, the SBMGE, has defined +1.3 billion pounds* of contained copper in oxide form. Central China has identified eight areas where copper may be concentrated and exploration work is continuing.

Dong Mao Huo- oxide gold mine with underlying high grade hydrothermal gold-silver-copper-zinc sulphides.

Current Operations

Nimu Copper Project

In May 2006 Central China Goldfields plc signed an agreement to enter into a cooperative joint venture contract (“Joint Venture”) with the Sichuan Bureau of Metallurgy and Geological Exploration (“SBMGE”) over the Nimu Copper-Molybdenum Project in Xizang.

Geological Details:

The Nimu Copper-Molybdenum Project is located about 170 km northwest (3 hours’ drive) of Lhasa, the capital of Xizang. The area is served by paved and dirt roads and there is a new railway connecting Lhasa to Golmud and the rest of China. Infrastructure in Xizang is developing very quickly assisted by massive input from central Government.

The project consists of five contiguous exploration licences (Bairong, Gangjiang, Ruigangmeng, Xiaqing and Dubuqu) and two (Zongxun and Tinggong) separate licences, which are within 2 to 6 kilometres of the other licence areas. The total area of the project is about 134 km2.

Geologically these licences are part of the Gangdese plutono-volcanic arc. In the past few years this arc has been shown to host large copper deposits such as the Qu Long deposit which has 5 million tonnes of contained copper and the Xietongmen deposit which has measured resources of 106 Mt. @ 0.49% Cu and 0.7 grammes per tonne (“g/t”) Au for 1.1 billion lbs of contained copper and 2.4 Moz. of contained gold.

The Nimu Project area includes a cluster of porphyry Cu-Mo mineral occurrences with enriched supergene oxide copper blankets. Three of the mineral occurrences, Tinggong, Bairong and Gangjiang show higher grades. The SBMGE reported a total inferred resources, which were not reported according to JORC and CIM NI-43-101 estimation standards, of approximately 600,000 tonnes (over 1.3 billion pounds) of supergene oxide copper at average grades of 1.1% Cu and at least 212,000 tonnes (over 467 million pounds) of hypogene sulphide copper at average grades of 0.29% Cu at Bairong. The molybdenum grades vary from 0.02-0.08%. The Bairong property was also reported to have 10,700 tonnes of contained molybdenum.

All of the mineral occurrences are open along strike and at depth. Further exploration is needed to confirm reported resources, delineate the size of the deposits and to identify additional targets within the tenements.

The table below shows the current size and average grade of the various deposits reported to Chinese 333 and 334 standards. The 333 standard is defined as Inferred Intrinsic Economic Standard whereas the 334 standard is defined as Reconnaissance Standard.

The resources quoted here have not been verified by the Company or CSA Australia (being the Company’s consultant) and further work will be required to assess the economic potential of the project.

Table of Resources and Average Grades (Original data from SBMGE, mostly as 334 standard):

Name Tonnage
Mt Cu grade Oxide Cu (Tonnes) Sulphide Cu (Tonnes) Total Cu
(Tonnes)

Bairong (23.89km2) Oxide 5.7 1.07% 60,700   272,200
Sulphide 72 0.29%   212,000
Tinggong (14.93km2) Oxide 2.6 1.1% 28,400   52,100
Sulphide 6.6 0.34%   23,700
Gangjiang (29.87km2) Oxide 47 1.1% 516,500   516,500
Zongxun (28.96km2) Undifferentiated   n/a     79,500
Xiaqing (6.47km2) Undifferentiated   n/a     18,800
Ronggangmeng (14.93km2) No resources yet
Dubuqu (14.94km2) Undifferentiated   n/a     7,200
TOTAL       605,600 235,700 946,800

The Company contracted CSA Australia to perform an initial field assessment of the Nimu Project. CSA concluded that the area is “prospective for large to very large tonnage porphyry copper and copper-molybdenum deposits” and the exploration target is 300-500 million tonnes at grades of 0.3-0.7% Cu.

Since signing the Agreement, GGG geologists have confirmed the presence of porphyry style mineralisation in all seven licence areas. Our geologistsalso identified eight areas which are prospective for supergene oxide copper mineralisation, including one in Tinggong which is located next to an operational mine exploiting supergene oxide copper.

Geophysical work carried out in 2006 identified 10 drill targets in three of the eight areas and the Company is planning to commence drilling in April 2007.

Supergene Oxide Copper and SX/EW:

When ground water and meteoric water (rain), oxygen and carbon interacts with iron and copper sulphide in the original unweathered rocks, they oxidised the sulphide present and created acid as part of this process. The acid in turn may leach any copper present in the system and deposits it in a so called “supergene” (enriched) layer, composed of an upper supergene copper oxide zone and a lower supergene copper sulphide zone. The rough boundary of the supergene oxide and sulphide zone is the palaeo-water table (old water table) interface.

This process occurred in Nimu and the Company is targeting such enriched copper layers in its exploration.

We target these layers because:

The layers are richer in copper (higher grade)
Oxide copper can be processed by Solvent Extraction / Electrowinning (SX/EW) which is lower in capital costs and operational costs.
The SX/EW plants are modular and allow scaling up of production.
The end product is London Metal Exchange (LME) Grade A copper cathodes.

The Agreement:

Central China Goldfields plc has the right to earn a 75% interest in the Joint Venture Company by spending RMB 216 million (~US$27 million) over six years. The initial 30% will be vested upon property payment of RMB 32 million (~US$4.0 million) within nine months anniversary of the transfer of title.

Property payment schedule is:

Upon signing of the Agreement RMB 3.2 million (~US$ 400,000)
Upon transfer of title RMB 12.8 million (~US$ 1.6 million)
Within 6 months of transfer of title RMB 8 million (~US$ 1 million)
Within 9 months of transfer of title RMB 8 million (~US$ 1 million).
The next 15% will be vested upon GGG contributing RMB 68 million (~US$8.5 million) for exploration and development within four years of the formation of the Joint Venture company. The final 30% will be vested upon GGG contributing the remainder RMB 116 million (~US$14.5 million) within six years of the formation of the Joint Venture company.

There is minimum annual contribution of:

Year 1 – RMB 4,000,000 (~US$ 0.5 million)
Year 2 – RMB 16,000,000 (~US$ 2 million)
Year 3 – RMB 20,000,000 (~US$ 2.5 million)
Year 4 – RMB 28,000,000 (~US$ 3.5million)
Year 5 – RMB 36,000,000 (~US$ 4.5 million)
Year 6 – RMB 80,000,000 (~US$ 10 million)
Upon Central China Goldfields plc earning its 75% interest, further exploration costs will be funded according to the participants’ percentage interest in the Joint Venture Company, although SBMGE cannot be diluted below 16%. Should the project go into production, the costs of exploration and development incurred will be returned to each of the participants prior to the distribution of profit.

These resources are not defined in accordance with internationally recognised standards such as JORC, NI 43-101 or CMMI and should not be relied upon. Nevertheless, management has received these figures and consider them to be relevant.

The following Chinese Resource Classification can be obtained from the consultants Micromine China (www.microminechina.com):

Inferred Intrinsic Economic Rs(333): The portion at the Prospecting stage. Only geology study done, showing economic and submarginal economics at the time of calculation.
Reconnaissance Rs(334): Mineralisation potential area defined by regional geology research results, anomalies of aero, remote sensing, geophysics and geochemistry or very minor engineering. Belongs to undiscovered Mineral Resources by comparison with similar known deposits. Economics uncertain.

Dong Mao Huo Gold Project

In April 2005 Central China Goldfields plc signed a Memorandum of Understanding (“MOU”) to enter into a Cooperative Joint Venture Contract (“Joint Venture”) with the Shandong Zhengyuan Geology & Resource Co. Ltd. (“Zhengyuan”) over the Dong Mao Huo (“DMH”) gold mine and two exploration properties in the Nei Menggu (Inner Mongolia) Province of China.

The Joint Venture includes one Mining Licence covering a 0.26km2 area and two Exploration Licences, covering an area of 9.26km2 with a small scale operational gold mine within the Mining Licence area

Geology:

The DMH gold mine is located about 210 km west (3 hours’ drive) of Hohhot, the capital of Nei Menggu, China. The area is served by paved and dirt roads.

The mine exploited 70,000 tonnes of oxide resources in 2005 hosted by 100 metres wde by 800 metres long quartz rhyolite porphyry dyke. Oxidation is down to 40 metres deep. The ore was crushed and treated by heap leach on site. Loaded carbon is sold to local refineries for further processing and extraction of gold.

Zhengyuan reported that the mining area has total inferred resources of 4.2 tonnes of gold (135,000 oz) in the Chinese 332, 333 and 334 categories. Within this is a reported resource of 800,000 tonnes @ 3.27 g/t Au (circa 2.6 tonnes or approximately 84,000 oz. of gold), 11.8 tonnes of silver (380,000 oz.) @ 14.27 g/t Ag and 527 tonnes of copper @ 1.04% Cu in the Chinese 332 and 333 categories. The resources calculated comprise undifferentiated oxide and sulphide ore. These are contained in four steeply dipping lenses with widths of 1.5-4.75 metres and tested only to a depth of 70-150 metres. Copper oxides (malachite and azurite) were observed in the waste pile.

The DMH mine lies at the intersection of three major structural trends: the Bayan Obo (SE trending), the Zhartai Mountain (EW trending) and the Yinshan Duanlong (NS trending) faults. Other mineralisation in the area consists of iron (magnetite) and a Rare Earth Metals mine (Bayan Obo), reported to be the largest Rare Earths mine in the world, located approximately 90 km from DMH.

The Exploration Licences cover the area surrounding the mine and include the Nadoa Bugai area, approximately 1.8 km to the west of the DMH mine. An abandoned pit dug by local miners exploited oxide gold at Nadoa Bugai.

The area between DMH mine and Nadoa Bugai is covered by desert sands. There is a mine shaft about 0.6 kilometres west of the DMH mine which is exploiting magnetite. The magnetite is hosted by gneissic biotite diorite cut by stringers of red orange potassium feldspar, haematite and epidote.

In 2006 the Company contracted CSA Australia to conduct an independent geological evaluation of the mining and exploration potential of DMH. CSA concluded that the structural, geological and geochemical characteristics of the deposits suggest that mineralisation at Dong Mao Huo can be compared to the mesothermal lode-gold deposits of the Archaean in Western Australia. The resource reported does not conform with JORC or other international reporting standards and therefore CSA has recommended a drilling programme using diamond and reverse circulation drilling to test the open-pit potential of the Dong Mao Huo Mine. CSA surmised that there is a reasonable, although unquantifiable, potential for further resources within the supergene zone in the licence area.

Joint Venture Deal:

Central China Goldfields plc, through its 95% controlled BVI-registered company CCG Mining Ltd., has the right to earn an 80% interest in the Joint Venture Company by spending RMB 25 million (approximately US$ 3.125 million) in exploration and development over 3 years and RMB 7 million (approximately US$ 875,000) as property payments. Upon GGG earning the 80%, should Zhengyuan choose not to contribute further, GGG can increase its interest to 90%. On dilution to 10% Zhengyuan would be free-carried. The total costs of investment would be returned to the participants prior to distribution of profits.

The property payment is scheduled such that RMB 3.5 million (approximately US$ 437,500) is due upon the issuance of the Business Licence. RMB 2.1 million (approximately US$ 262,500) is due upon the transfer of all Mining and Exploration Licences and geological data to the Joint Venture company. The remaining RMB 1.4 million (approximately US$ 175,000) is due 1 year after the transfer of all Licences.

Central China Goldfields plc has the right at anytime to purchase the remaining 5% of the BVI-registered company, which is held by Goalfirst International Limited, valued by an independent third party, using cash and/or shares at the average mid-price of the prevailing previous 20 days of trade.

In December 2006, GGG signed a definitive Joint Venture agreement with the Shandong Zhengyuan Geology & Resource Co. Ltd. (“Zhengyuan”) to explore and develop the Dong Mao Huo Mine and surrounding areas.

The Company and Zhengyuan are working together to form the joint venture company to be named Central China Zhengyuan Minerals Inc.

The following Chinese Resource Classification can be obtained from the consultants Micromine China (www.microminechina.com):

Probable Intrinsic EconomicRs(332): The portion at the Detailed Exploration stage. Only geological study done, showing economic -- submarginal economic at the time of calculation.
Inferred Intrinsic Economic Rs(333): The portion at the Prospecting stage. Only geology study done, showing economic and submarginal economics at the time of calculation.
Reconnaissance Rs(334): Mineralisation potential area defined by regional geology research results, anomalies of aero, remote sensing, geophysics and geochemistry or very minor engineering. Belongs to undiscovered Mineral Resources by comparison with similar known deposits. Economics uncertain.

Regional Geological Map of DMH. Note the rectangular area under JV in the middle of the map.