- Quarterly Report (10-Q)

Share Name	Share Symbol	Market	Type
China Shen Zhou Mining & Resources, Inc.	AMEX:SHZ	AMEX	Ordinary Share

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 March 31, 2011

o	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 o

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 (Sec.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 o No o

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes  No 

As of May 12, 2011, the Registrant had 30,811,397 shares of common stock outstanding.

Except as otherwise indicated by the context, references in this Form 10-Q to:

“SHZ,” the “Company,” “we,” “our,” or “us” are references to China Shen Zhou Mining & Resources, Inc and its subsidiaries, unless the context indicates otherwise.

“U.S. Dollar,” “$” and “US$” mean the legal currency of the United States of America.

“RMB” means Renminbi, the legal currency of China.

“China” or the “PRC” are references to the People’s Republic of China.

“U.S.” is a reference to the United States of America.

“SEC” is a reference to the Securities & Exchange Commission of the United States of America.

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 March 31, 2011 (Unaudited) and December 31, 2010 (Audited)	3
	Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three Months Ended March 31, 2011 and 2010	4
	Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2011 and 2010	5

	Notes to Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

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

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)

	March 31, 2011			December 31, 2010
	(Unaudited)			(Audited)
ASSETS

Current assets:
Cash and cash equivalents	$	7,726		$	1,546
Accounts receivable, net		73			162
Prepayment for office rent		31			82
Other deposits and prepayments, net		2,683			851
Due from related parties		1,140			-
Inventories		8,790			7,243
Restricted assets		215			115
Total current assets		20,658			9,999

Property, machinery and mining assets, net		47,613			34,193
Total assets	$	68,271		$	44,192

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	1,365		$	2,482
Short term loans		10,580			8,061
Acquisition payable		9,467			-
Other payables and accruals		5,209			6,163
Due to related parties		911			-
Taxes payable		297			644
Total current liabilities		27,829			17,350

Long term loans		-			2,630
Due to related parties		1,694			2,439
Total liabilities		29,523			22,419

STOCKHOLDERS’ EQUITY:
Common stock ($0.001 par value; 50,000,000 shares authorized;
30,811,397 shares and 27,974,514 shares issued and outstanding
as of March 31, 2011 and December 31, 2010 respectively)		31			28
Additional paid-in capital		47,989			29,508
Statutory reserves		1,672			1,672
Accumulated other comprehensive income		4,514			4,357
Accumulated deficit		(15,238	)		(13,630	)
Stockholders' equity - China Shen Zhou Mining & Resources, Inc. and Subsidiaries		38,968			21,935
Noncontrolling interest		(220	)		(162	)
Total stockholders’ equity		38,748			21,773
Total liabilities and stockholders’ equity	$	68,271		$	44,192

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

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share data)

	For the Three Months Ended
	March 31, 2011			March 31, 2010
	(Unaudited)			(Unaudited)
Net revenue	$	1,896		$	921
Cost of sales		1,232			848
Gross profit		664			73

Operating expenses:
Selling and distribution expenses		36			13
General and administrative expenses		2,107			1,078
Total operating expenses		2,143			1,091

Net loss from operations		(1,479	)		(1,018	)

Other income (expense):
Interest expense		(145	)		(86	)
Other, net		(42	)		288
Total other (loss) income		(187	)		202

Loss before income taxes		(1,666	)		(816	)

Income tax expenses		-			-

Net loss		(1,666	)		(816	)
Less: Noncontrolling interests attributable to the noncontrolling interests		58			5
Net loss - attributable to China Shen Zhou Mining & Resources, Inc. and Subsidiaries		(1,608	)		(811	)

Other comprehensive income:
Foreign currency translation adjustments		157			(20	)
Comprehensive income (loss)	$	(1,451	)	$	(831	)

Net loss per common share – basic and diluted
- Basic and Diluted	$	(0.06	)	$	(0.03	)

Weighted average common shares outstanding
- Basic and Diluted		30,055			27,762

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

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands, except share data)

	For the Three Months Ended March 31,
	2011			2010
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net loss	$	(1,608	)	$	(811	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Provision for doubtful accounts		(90	)		-
Depreciation and amortization		746			695
Noncontrolling interests		(58	)		(5	)
Forgiveness of payroll payables		-			(300	)
Changes in operating assets and liabilities:
(Increase) decrease in -
Accounts receivable		145			30
Other deposits and prepayments		(1,788	)		(226	)
Prepayment for office rent		51			50
Inventories		(1,479	)		(1,717	)
Restricted assets		(100	)		7
Increase (decrease) in -
Accounts payable		(1,140	)		(142	)
Other payables and accruals		(765	)		3,574
Taxes payable		(353	)		18
Net cash (used in) provided by operating activities		(6,439	)		1,173
Cash flows from investing activities:
Purchases of property, machinery and mining assets		(367	)		(208	)
Acquisition of subsidiaries, net of cash and cash equivalents acquired		(3,250	)		-
Net cash used in investing activities		(3,617	)		(208	)
Cash flows from financing activities:
Due to related parties		(1,908	)		(14	)
Proceeds from issuance of common shares		20,000			-
Issuance costs of common shares		(1,516	)		-
Repayment at short-term bank loans		(6,611	)		(731	)
Proceeds from short-term bank loans		6,366			293
Net cash provided by (used in) financing activities		16,331			(452	)

Foreign currency translation adjustment		(95	)		23

Net increase in cash and cash equivalents		6,180			536

Cash and cash equivalents at the beginning of the period		1,546			333
Cash and cash equivalents at the end of the period	$	7,726		$	869

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	$	96		$	74
Cash paid for income tax	$	-		$	-

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

China Shen Zhou Mining & Resources, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS 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 March 31, 2011, 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

Jinde Xinyi Fluorite Company (“Xinyi Fluorite”)	The PRC September 18, 2003 (Acquired on January 13, 2011)	RMB	3,200,000	55	%	Extraction, processing and sales of fluorite 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, 2010, filed on March 29, 2011.

The accompanying consolidated financial statements have been prepared on a going concern basis. The Company has incurred net operating loss of approximately $1.48 million and $1.02 million for the Three Months Ended March 31, 2011 and 2010, 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:

It obtained approximately $20 million from issuance of common shares in January 2011.

Xiangzhen Mining, Xingzhen Mining and Xinyi Fluorite were all under normal operation at the end of March 2011, and are expected to remain in normal operation for the foreseeable future.

During 2010 and the first quarter of 2011, the average sale price of fluorite powder steadily increased. The average sale price of fluorite powder for the three months ended March 31, 2011 was approximately $248 per ton, which increased by approximately 103% from approximately $122 per ton for the same period of 2010.

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 – ACQUISITION

On January 13, 2011, the “Company, through its subsidiary Xingzhen Mining, entered into an equity transfer agreement to acquire 55% of the equity interests of Xinyi Fluorite.

Pursuant to the Agreement, the Company acquired the Equity from the three original shareholders (Jia Xiangfu, a Chinese citizen, Yu Wuqiang, a Chinese citizen, and Chen Qiaolin, a Chinese citizen) of Xinyi Fluorite for total consideration in the amount of RMB 65 million (approximately US$ 9.85 million) (the “Purchase Price”). P ursuant to the terms of the agreement, the consideration was agreed to be RMB 50 million (approximately US$ 7.58 million) of the Company’s common stock and RMB 15 million (approximately US$ 2.27 million) in cash. Also, two additional investors (Min Yong, a Chinese citizen, and Wang Changman, a Chinese citizen) agreed to acquire 15% of the equity interests of Xinyi Fluorite under the terms of the Agreement. Pursuant to the Agreement, Xingzhen Mining and the Other Investors also agreed to pay an additional RMB 28 million (approximately US$ 4.24 million) to Xinyi Fluorite, an amount which includes RMB 20 million (US$ 3.03 million) for the renovation of Xinyi Fluorite’s mining facilities.

During January 13, 2011 to March 31, 2011, the Company had paid cash total amount to RMB 21.29 million (approximately US$ 3.23 million) to the original shareholders of Xinyi Fluorite . Approximately RMB 2.98 million (approximately US$ 0.45 million) and 1,074,576 shares of the Company’s common stock will be issued to the original shareholders of Xinyi Fluorite . The fair value of the Company’s common stock at the date of the transaction was $8.81. As a result, we recorded a total of $13,148,165 of transaction expenses in connection with the acquisition of Xinyi Fluorite .

The Company is still in the process of determining the fair value of assets acquired and liabilities assumed. Once determined, the Company will record the acquisition at fair value.

The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of Xinyi Fluorite had occurred as of January 1, 2010 through March 31, 2010:

Net revenue	$	921
Cost of sales		848
Gross profit		73

Operating expenses:
Selling and distribution expenses		13
General and administrative expenses		1,126
Total operating expenses		1,139

Net loss from operations		(1,066	)

Other income (expense):
Interest expense		(93	)
Other, net		288
Total other income		195

Loss from before income taxes		(871	)

Income tax expenses		-

Net loss		(871	)
Less: Noncontrolling interests attributable to the noncontrolling interests		30
Net loss - attributable to China Shen Zhou Mining & Resources, Inc. and Subsidiaries		(841	)

Other comprehensive income:
Foreign currency translation adjustments		(20	)
Comprehensive income (loss)	$	(861	)

Net loss per common share – basic and diluted
- Basic and Diluted	$	(0.03	)

Weighted average common shares outstanding
- Basic and Diluted		27,762

The unaudited pro forma information does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the period presented and is not intended to be indicative of future results.

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, Xingzhen Mining and Xinyi Fluorite). 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

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

Xiangzhen’s extraction right license has been expired in March 2011, and there will be some fees for the renew of the license.

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:

		March 31, 2011		December 31, 2010
Balance sheet items, except for the registered and paid-up capital and retained earnings, as of year end		US$1=RMB6.5501		US$1=RMB6.6118

		For the Three Months Ended March 31, 2011		For the Three Months Ended March 31, 2010
Amounts included in the statements of operations and statements of cash flows for the period		US$1=RMB6.5713		US$1=RMB6.8360

For the Three Months Ended March 31, 2011 and 2010, foreign currency translation adjustment is approximately $157,000 and ($20,000) 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.

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.

Based on all known facts and circumstances and current tax law, the Company believes that the total amount of unrecognized tax benefits as of March 31, 2011, 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 March 31, 2011, 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.

All units and individuals engaged in the exploitation of mineral products as prescribed in the Regulations within the territory of the PRC are taxpayers of Resource Tax and shall pay Resource Tax. The specific tax amount applicable to taxpayers shall be determined within a prescribed tax amount range, by the Ministry of Finance in consultation with the relevant departments of the State Council in accordance with the resource situation of the taxable products exploited or produced by taxpayers. Exploiting or producing taxable products under different taxable items. The tax payable for Resource Tax shall be computed in accordance with the assessable volume of the taxable products and the prescribed unit tax amount.

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)

Accumulated other comprehensive income includes foreign currency translation adjustments. Total comprehensive losses for the first quarter ended March 31, 2011 and 2010 was approximately ($1,451,000) and ($831,000), 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 Issued Accounting Standards:

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

NOTE 5 – ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

	March 31, 2011			December 31, 2010
	(In thousands)			(In thousands)
Accounts receivable	$	186		$	328
Less: Allowance for doubtful accounts		(113	)		(166	)
	$	73		$	162

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

	March 31, 2011			December 31, 2010
	(In thousands)			(In thousands)
Balance at the beginning of the year	$	166		$	66
Add: provision during the period		-			100
Less: write off the provision during the period		(53	)		-
Balance at the end of the period	$	113		$	166

NOTE 6 - DEPOSITS AND PREPAYMENTS

Deposits and prepayments consist of the following:

	March 31, 2011		December 31, 2010
	(In thousands)		(In thousands)
Prepayments and advances	$	1,611	$	257
Other receivables		1,072		594
	$	2,683	$	851

(a)	Prepayments and advances as of March 31, 2011 include payments of $1,592,260 to two mining service providers.

NOTE 7 - DUE FROM RELATED PARTIES

Due from related parties classified as short term assets consist of the following:

	March 31, 2011		December 31, 2010
	(In thousands)		(In thousands)
Due from Mr. Xiaoming Yu, General Manager of Xiangzhen	$	1,140	$	-

The Company lent to Mr. Xiaoming Yu approximately $1.53 million at the end of March 2011, and received the repayment amount to approximately $1.53 million from Mr. Xiaoming Yu On April 1, 2011.

NOTE 8 - INVENTORIES

Inventories consist of the following:

	March 31, 2011		December 31, 2010
	(In thousands)		(In thousands)
Raw materials	$	818	$	708
Unprocessed ore		5,249		4,818
Consumables		250		227
Finished goods and semi-manufactured goods		2,473		1,490
	$	8,790	$	7,243

NOTE 9 - RESTRICTED ASSETS

Restricted assets are the deposits saved in the bank account as the guarantee money for the environment protection, the safety in mining production and the issuing bank drafts. As of March 31, 2011 and December 31, 2010, the Company has restricted assets of approximately $215,000 and $115,000, respectively.

NOTE 10 - PROPERTY, MACHINERY AND MINING ASSETS, NET

Property, machinery and mining assets consist of the following:

	March 31, 2011			December 31, 2010
	(In thousands)			(In thousands)
Land use rights	$	1,774		$	1,758
Buildings		13,815			13,586
Machinery		12,850			12,168
Mining assets		11,254			10,808
Motor vehicles		1,881			1,405
Equipment		477			459
Extraction rights		21,497			8,512
Construction in progress		303			388
		63,851			49,084
Less:
Accumulated depreciation and amortization		(14,745	)		(13,398	)
Impairment provision		(1,493	)		(1,493	)
	$	47,613		$	34,193

Depreciation and Amortization

Depreciation and amortization expense in aggregate for the Three Months Ended March 31, 2011 and 2010 was approximately $746,000 and $695,000, respectively.

Impairment Provision

The accumulated impairment provision was recorded for the mining assets of Qingshan Metal and Qianzhen Mining, two subsidiaries 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.

NOTE 11 - SHORT-TERM LOANS

Short-term loans consist of the following:

	March 31, 2011		December 31, 2010
	(in thousands)		(in thousands)
10.01% note payable to Baiyin Credit Union matures on February 4, 2011 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining	$	-	$	189
10.01% note payable to Baiyin Credit Union matures on February 4, 2011 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining		-		68
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		-		756
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		-		2,269
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		-		3,025
9.45% note payable to Baiyin Credit Union matures on March 21, 2011 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		-		242
6.97% note payable to Baiyin Credit Union matures on December 28, 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 certificate of deposit of Ms. Helin Cui, a director of the Company		92		91
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 certificate of deposit of Ms. Xiaojing Yu, a director of the Company		122		121
9.45% note payable to Baiyin Credit Union matures on December 21, 2011 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Xiangzhen Mining		885		877
13.28% note payable to Wulatehouqi Credit Union matures on April 11, 2011 , which is in the name of a related party and guaranteed by Qianzhen Mining		427		423
10.01% note payable to Baiyin Credit Union matures on April 20, 2011 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining		69		-
10.01% note payable to Baiyin Credit Union matures on April 20, 2011 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining		191		-
7.01% note payable to China Citic Bank matures on March 31, 2012, collateralized with Xiangzhen’s extraction right, land use right and some machineries		3,053		-
7.01% note payable to China Citic Bank matures on March 31, 2012, collateralized with Xiangzhen’s extraction right, land use right and some machineries		3,053		-
5.15% note payable to Ms. Yanling Ding matures on January 26, 2012, collateralized with Xingzhen’s extraction right and the ore processing plant		2,688		-

	$	10,580	$	8,061

NOTE 12 - LONG-TERM LOANS

Long-term loans consisted of the following:

	March 31,		December 31,
	2011		2010
	(in thousands)		(in thousands)
5.15% note payable to Ms. Yanling Ding matures on January 26, 2012, collateralized with Xingzhen’s extraction right and the ore processing plant	$	-	$	2,630

NOTE 13 – ACQUISITION PAYABLE

The acquisition payable amount to approximately $9.47 million mainly represents the fair value of 1,074,576 shares of the Company’s common stock payable to acquire 55% of the equity interests of Xinyi Fluorite on January 13, 2011. The fair value per share was $8.81 on January 13, 2011.

NOTE 14 – OTHER PAYABLES AND ACCRUALS

Other payables and accruals consist of the following:

		March 31, 2011		December 31, 2010
		(In thousands)		(In thousands)
Receipts in advance	(a)	$	3,270	$	2,058
Accruals for payroll, bonus and other operating expenses			656		690
Payables for construction service vender			301		1,635
Others payables			982		1,780
		$	5,209	$	6,163

(a) As of March 31, 2011, Receipts in advance total approximately $3,270,000, which consists of receivables from 10 customers.

The following table shows the receipts in advance of the Company’s major customers (10% or more of consolidated receipts in advance) as of March 31, 2011:

	Receipts in advance		Percentage
Customer	(In thousands)		(%)
RuiPeng Mining Ltd	$	1,987		61	%
Handan Hongzhi Ltd		354		11	%
		2,341		72	%

As of December 31, 2010, Receipts in advance total approximately $2,058,000, which consists of receivables from 10 customers.

The following table shows the receipts in advance of the Company’s major customers (10% or more of consolidated receipts in advance) as of December 31, 2010:

	Receipts in advance		Percentage
Customer	(In thousands)		(%)
RuiPeng Mining Ltd	$	1,514		74	%

NOTE 15 - DUE TO RELATED PARTIES

Due to related parties classified as short term liabilities consist of the following:

	March 31, 2011		December 31, 2010
	(In thousands)		(In thousands)
Due to Mr. Xiangfu Jia, the minority shareholder of Xinyi Fluorite		911		-

Due to related parties classified as long term liabilities consist of the following:

	March 31, 2011		December 31, 2010
	(In thousands)		(In thousands)
Due to directors of the Company:
Ms. Xiaojing Yu, CEO of the Company	$	74	$	102
Mr. Xueming Xu, Director of the Company		12		12
Due to Mr. Xiaoming Yu, General Manager of Xiangzhen Mining		-		431
Due to Mr. Mao Huang, the minority shareholder of Xingzhen Mining		1,608		1,894
	$	1,694	$	2,439

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

NOTE 16 – WARRANTS

On January 19, 2011, the Company agreed to sell to certain institutional investors 2,836,883 shares of the Company’s common stock and warrants to purchase up to 851,066 shares of the Company’s common stock in a registered direct public offering (the “Offering”). The Offering was effected as a takedown from the Company’s shelf registration statement on Form S-3 (File No. 333-171243), which became effective on January 7, 2011, pursuant to a prospectus supplement to be filed with the U.S. Securities and Exchange Commission.

The common stock and warrants were sold in fixed combinations, with each combination consisting of one share of common stock and a warrant to purchase 0.30 shares of common stock. The purchase price is $7.05 per fixed combination. The warrants are exercisable immediately following the closing date of the Offering and will remain exercisable for three years thereafter at an exercise price of $8.46 per share. The exercise price of the warrants is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and in the event the Company issues or is deemed to issue shares of common stock for less than the exercise price then in effect. A form of the warrants is attached hereto as Exhibit 4.1 and incorporated by reference herein.

The exercisability of the warrants may be limited if, upon exercise, the holder or any of its affiliates would beneficially own more than 4.99% of the Company’s common stock.

The Company has also agreed to grant to the placement agent at the closing of the Offering warrants (the “Placement Agent’s Warrants”) to purchase that number of shares of our common stock equal to 8% of the aggregate number of shares underlying the warrants placed in the Offering. The Placement Agent’s Warrants shall have the same terms as the warrants offered in the Offering, except that the exercise price will be 120% of the exercise price in the warrants offered in the Offering. The Placement Agent’s Warrants, and shares underlying the Placement Agent’s Warrants, are each included in the prospectus supplement to be filed with the U.S. Securities and Exchange Commission.

During the three months ended March 31, 2011, no warrants were exercised.

	Warrants to purchase The Company’s common stock		Average exercise price
	(Shares)		(In US dollars)
Outstanding warrants at January 19, 2011		851,066	$	8.46
Warrants granted to the placement agent		68,085		10.15
Exercised		-		-
Expired		-		-
Outstanding warrants at March 31, 2011		919,151	$	8.59

NOTE 17 - 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 18 - 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. There was no statutory reserve transferred for the three months ended March 31, 2011 and 2010.

NOTE 19 - 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 March 31, 2011 and December 31, 2010 were not subject to an asset retirement obligation.

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

NOTE 20 - 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 21 - 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.

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

	March 31, 2011		December 31, 2010
	(In thousands)		(In thousands)
Purchase of machinery - within one year	$	16	$	27
Acquisition or construction of buildings-within one year		-		36
	$	16	$	63

Contingent assets and liabilities

On January 13, 2011, the Company and two additional investors (the “transferee”) entered into an equity transfer agreement (the “Agreement”) to acquire total 70% of the equity interests of Xinyi Fluorite from the three original shareholders (the “transferor”). The Company acquired 55% of the equity interests of Xinyi Fluorite.

Pursuant to the Agreement, the transferor warrants that a total amount of five hundred thousand (500,000) metric tons of ore can be extracted from within the mining permit area of the Qingzheng Mine. If five hundred thousand (500,000) metric tons are not extracted, Party A shall undertake such loss and compensate Party B for each ton of shortage with RMB two hundred Yuan (RMB 200).

Pursuant to the Agreement, the transferee warrants that if income tax incurred from the first payment of RMB five million Yuan (5,000,000.00) and the second payment of RMB fifteen million Yuan (15,000,000.00), Xinyi shall bear such cost.

NOTE 22 - 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 subsidiary, Xiangzhen Mining and Xinyi Fluorite. 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 subsidiaries, Qianzhen Mining, Xingzhen Mining and Qingshan Metal.

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.

Three Months Ended March 31, 2011	Fluorite			Nonferrous metals			Consolidated
	(In thousands)			(In thousands)			(In thousands)
Segment revenue	$	1,896		$	-		$	1,896
Inter-segment revenue		-			-			-
Revenue from external customers	$	1,896		$	-		$	1,896

Segment loss	$	(313	)	$	(983	)	$	(1,296	)

Unallocated corporate income								(370	)
Loss from continuing operations before income taxes and minority interests							$	(1,666	)

Total segment assets	$	46,034		$	41,346		$	87,380
Inter-segment receivables		(12,290	)		(8,619	)		(20,909	)
	$	33,744		$	32,727		$	66,471
Other unallocated corporate assets								1,800
							$	68,271
Other segment information:
Depreciation and amortization	$	483		$	264		$	746
Expenditure for segment assets	$	277		$	90		$	367

Three Months Ended March 31, 2010	Fluorite			Nonferrous metals			Consolidated
	(In thousands)			(In thousands)			(In thousands)
Segment revenue	$	921		$	-		$	921
Inter-segment revenue		-			-			-
Revenue from external customers	$	921		$	-		$	921

Segment loss	$	(560	)	$	(437	)	$	(997	)

Unallocated corporate expenses								181
Loss from continuing operations before income taxes and minority interests							$	(816	)

Total segment assets	$	35,933		$	27,102		$	63,035
Inter-segment receivables		(11,776	)		(8,155	)		(19,931	)
	$	24,157		$	18,947		$	43,104
Other unallocated corporate assets								17
							$	43,121

Other segment information:
Depreciation and amortization	$	430		$	265		$	695
Expenditure for segment assets	$	82		$	126		$	208

The following summarizes identifiable assets by geographic area:

	March 31, 2011		December 31, 2010
	(In thousands)		(In thousands)
China	$	66,471	$	44,112
Unallocated corporate assets		1,800		80
	$	68,271	$	44,192

The following summarizes operating losses before provision for income tax:

	Three Months Ended March 31,
	2011			2010
	(In thousands)			(In thousands)
China	$	(1,292	)	$	(997	)
Unallocated corporate operating income (loss)		(374	)		181
	$	(1,666	)	$	(816	)

NOTE 23 - OTHER INCOME, NET

	Three Months Ended March 31,
	2011			2010
	(In thousands)			(In thousands)
Liabilities exemption	$	-		$	300
Exchange gain		(31	)		(10	)
Others		(11	)		(2	)
	$	(42	)	$	288

NOTE 24 - 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 March 31,
	2011			2010
	(In thousands, except per share data)			(In thousands, except per share data)
Income (loss) available to common shareholders:
-Basic and Diluted	$	(1,666	)	$	(816	)

Weighted average number of shares:
-Basic and Diluted		30,055			27,762

Earnings (loss) per share
-Basic and Diluted	$	(0.06	)	$	(0.03	)

NOTE 25 - CONCENTRATION OF CUSTOMERS AND SUPPLIERS

The Company had two main customers who contributed approximately $1,491,000 or 79% of the Company’s consolidated net revenue for the Three Months Ended March 31, 2011. For the same period of 2010, the Company had four main customers who contributed approximately $763,000 or 82% 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 Three Months Ended March 31, 2011:

	Revenue		Percentage
Customer	(In thousands)		(%)
Henan Zhongse Ltd	$	1,080		57	%
Ningxia Jinhe Ltd		411		22	%
	$	1,491		79	%

The following table shows the Company’s major customers (10% or more of consolidated net revenue) for the Three Months Ended March 31, 2010:

	Revenue		Percentage
Customer	(In thousands)		(%)
Zibo Bofeng Ltd	$	268		29	%
Handan Hongzhi Ltd		214		23	%
Inner Mongolia Huadesanli Trading Ltd		157		17	%
Laiwu Steel Ltd		124		13	%
	$	763		82	%

The Company had no concentrated suppliers for the three months ended March 31, 2011 and 2010.

NOTE 26 - SUBSEQUENT EVENT

On April 12, 2011, the Company through Qianzhen Mining entered into an equity transfer agreement to sell its 60% equity interest in Qingshan Metal to a Chinese citizen Mr. Mao Huang, a related party of the Company.

On April 28, 2011, the Company entered into an equity distribution agreement with Knight Capital Americas, L.P. Under the Distribution Agreement, the Company may issue and sell from time to time through the Agent, shares of its common stock, $0.001 par value per share, up to an aggregate gross sales price of approximately $30.00 million.

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 29, 2011. 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

Prospects in 2011

With respect to China’s overall economic situation, we believe that China’s economy will gradually turn for better in 2011. We feel the non-ferrous metal and fluorite industry will produce new development opportunities. We also believe that the non-metallic mineral industry is an industry with a bright future.

Resumption of Production Capacity to Meet Demand

▼ Fluorite

Xingzhen Mining

In early 2006, we started a designed 300,000 metric tons/year fluorite ore project at Xiangzhen Mining, which was completed in November 2007. We extracted approximately 131,000 metric tons of fluorite ores in 2010.

Also in early 2006, we started to build a designed 200,000 metric tons/year fluorite ore processing plant at the Xiangzhen Mining facility. The new processing plant was constructed and went into trial production in November 2007 (the “New Processing Plant”). We produced approximately 24,300 metric tons (“metric tons” hereinafter) of fluorite powder in 2010.

In 2010, 131,000 metric tons of fluorite ore were extracted; 36,100 metric tons of fluorite lumps were produced and 32,800 metric tons of fluorite lump were sold. Also in 2010, 64,800 metric tons of fluorite ore were processed and subsequently produced 24,300 metric tons of fluorite powder. In total, in 2010, 29,000 metric tons of fluorite powder were produced and sold.

In 2010, we made the following advances in our operations:



The Company added a water treatment system at the New Processing Plant. After repeated adjustments, we successfully resolved the water quality problem and achieved the necessary level of water quality for production. The New Processing Plant started normal production in August 2010.



The Company examined several potential fluorite mine acquisitions in 2010, and, as a result, we successfully acquired Xinyi Fluorite on January 13, 2011.



In 2010, We commissioned SRK Consulting China Ltd. (Beijing office) to update the resources, compile underground mining designs and estimate workable resources for the authorized Siziwangqi Sumochaganaobao fluorite deposit (“Aobao fluorite deposit” or the “Mine”) in Wulanchabu, Inner Mongolian Autonomous Region, as per the requirements of AMEX regarding resources estimation The estimation report was successfully finished and issued in March 2011.

In 2011, the Company will continue focusing its efforts in the following areas in order to achieve its goals:

First, based on our current production and in light of the economic conditions that have kept price of fluorite ore increasing, we will continue the expansion of our production of fluorite products in order to achieve our designed production capacity.

Second, we will still strive to leverage our position as one of the leaders in the industry in order to acquire additional appropriate fluorite resources.

In 2011, we plan to be in normal production. We plan to extract 150,000 metric tons of fluorite ore, and we have more than 100,000 metric tons of deposited ores. Also, we plan to process 160,000 metric tons of fluorite ore. For 2011, we expect production to reach approximately 60,000 metric tons of fluorite powder and approximately 40,000 metric tons of fluorite lumps. In addition, in 2011 we plan to sell 40,000 metric tons of fluorite lumps and 60,000 metric tons of fluorite powder.

We believe that the new national policy of tightening restrictions for new entrants into the fluorite production industry will have a positive effect on the results of operations of Xiangzhen Mining and Xinyi Fluorite. We also expect that the trend in the industry of acquisition of smaller enterprises by larger enterprises will continue into the near future.

Xinyi Fluorite

In January 2011, we completed the acquisition of Xinyi Fluorite, which is based in Jingde County, Anhui Province, China. Xinyi Fluorite’s three primary assets are interests in fluorite mines in Anhui Province as follows: (i) the mining permit to the Xinyi Qingzheng Fluorite Mine No. 1, (ii) the mining permit for the Guangrong Fluorite Mine, and (iii) the mining rights and assets of the Sanxi Old Town flotation plant. As of the end of March 2011, the Sanxi Old Town flotation plant has formally started processing production.

▼ Zinc and Copper

Xingzhen Mining

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

On April 28, 2008, Xingzhen Mining completed a successful trial of the facility and then went into production. In parallel with processing, Xingzhen conducted exploration in the area. Due to the drop in price of non-ferrous metal caused by the economic crisis in 2008, Xingzhen stopped ore processing production. However, it resumed production in May of 2010.

In 2010, Xingzhen extracted ores of 82,500 metric tons, processed ores of 77,200 metric tons, and produced zinc ore powder of 3,129 metal tons and copper ore powder of 155 metal tons. Xingzhen sold zinc ore powder of 2,538 metal tons, copper ore powder of 115 metal tons.

Subject to purchase orders and weather conditions, we started processing production in early April 2011. In addition, since last year we have not ceased excavating operations. In 2011, we plan to produce extracted ores of 120,000 metric tons, process ores of 120,000 metric tons, and produce approximately 7,000 metal tons of zinc concentrate and nearly 280 metal tons of copper concentrate.

Qianzhen Mining

Before the end of 2007, Qianzhen Mining processed ores supplied by local mining companies. Since 2008, the supplier contracts expired.

No production occurred at Qianzhen Mining in 2010 due to a lack of ore supply.

Due to a potential asset reorganization activity, we do not plan to produce at Qianzhen Mining in 2011.

Qingshan Metal

Due to the decrease in the price of copper in 2008, Qingshan completed exploration only and did not begin mining in 2009.

We did not plan to produce nor did we produce in 2010 at Qingshan due to the low grade copper-zinc ore.

On April 12, 2011, the Company through its subsidiary Qianzhen Mining entered into an equity transfer agreement (the “Agreement”) to sell its 60% equity interest Qingshan Metal to a Chinese citizen Mr. Mao Huang (the “Investor”), a related party of the Company.

Pursuant to the Agreement, Qianzhen Mining will sell all of its Equity in Qingshan Metal to the Investor for total consideration in the amount of RMB 8.5 million (approximately US$ 1.3 million) (the “Transfer Price”). The payment of the Transfer Price will offset the debt owed by Qianzhen Mining to the Investor. After the transfer, Qianzhen Mining will no longer hold any equity interests in Qingshan Metal.

Exploration Activities

Keyinbulake Copper-Zinc Mine

In the first half of 2010, Xingzhen focused on conducting geophysical research and an electric logging project, making drilling plans, carrying out construction in strict accordance with results given by our prospecting team, and conducting necessary geophysical investigations in the mining area.

In 2010, Xingzhen mining drilled 12 holes totalling 3,356 meters, and trenched 3,060 cubic meters, and completed 771 IP sounding points. In the middle, northern and southern areas, we found two new mineralized bodies through drilling verification. We are now drilling and exploring these mining sites.

The exploration conducted in 2010 has helped to ensure our continued production. Based on these results, we will accelerate our work and try to submit a thorough examination report of the mining areas. Our work in 2011 will include:



Conducting a comprehensive geological survey and revising integrated maps of the mining areas on a 1:2,000 scale and producing a geophysical exploration model;



Conducting supplementary TEM and high-accuracy magnetic surveys in important areas of abnormality, and conducting 10 -4 high-accuracy magnetic surveys around those areas; and



Utilizing the results of the above to design a drilling construction plan as well as a 3,000 meter drilling plan.

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 opportunities arise. 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 MARCH 31, 2011 AS COMPARED TO THREE MONTHS ENDED MARCH 31, 2010

Selected information from the Consolidated Statements of Operations

	For the three months ended March 31,
	2011			2010
	(in thousands)			(in thousands)
Net revenue	$	1,896		$	921
Gross profit	$	664		$	73
- Gross profit margin		35	%		8	%
General and administrative expenses	$	2,107		$	1,078
Interest expenses	$	145		$	86
Net loss attributable to the Company	$	(1,608	)	$	(811	)

REVENUES. Net revenues for the three months ended March 31, 2011 were approximately $1,896,000, representing an approximately $975,000 or 106% increase as compared to the same period of 2010. The improved performance was mainly due to the increased revenues from the fluorite segments as described below.

GROSS PROFIT AND GROSS PROFIT MARGIN. For the three months ended March 31, 2011, gross profit was approximately $664,000, which increased by approximately 810% from $73,000 in gross profit for the same period of 2010. Gross profit margin was approximately 35% for the three months ended March 31, 2011, which increased significantly from the gross profit margin of 8% for the same period of 2010.

GENERAL AND ADMINISTRATIVE EXPENSES. For the three months ended March 31, 2011, general and administrative expenses increased by approximately $1,029,000 to $2,107,000 in 2011 as compared to $1,078,000 in 2010. The increase was mainly due to (i) increased administrative expense of $137,000 associated with newly acquired Xinyi Fluorite; (ii) the amortization of mineral resources exploring expense amounting to approximately $466,000 and (iii) increased professional fees amounting to approximately $288,000.

INTEREST EXPENSE. Interest expense increased by approximately $59,000 as compared to the same period of 2010. The increase in interest expense was mainly due to the short term loan amount of approximately $10.58 million for the three months ended March 31, 2011 as compared to $3.16 million for the three months ended March 31, 2010.

NET LOSS ATTRIBUTABLE TO THE COMPANY. Net loss attributable to the Company for the three months ended March 31, 2011 was approximately $1,608,000, which increased by approximately $797,000 from $811,000 of net loss for the same period of 2010. Basic net income (loss) per share was ($0.06) and ($0.03) for the three months ended March 31, 2011 and 2010, respectively.

SEGMENT PERFORMANCE ANALYSIS

	Segment revenue				Segment profit (loss)
	For the three months ended March 31,				For the three months ended March 31,
	2011		2010		2011			2010
	(In thousands)		(In thousands)		(In thousands)			(In thousands)
Fluorite	$	1,896	$	921	$	(313)	)	$	(560	)

Nonferrous metals	$	-	$	-	$	(983)		$	(437	)

Fluorite

For the first quarter of 2011, fluorite segment revenue increased by 106% from approximately $921,000 for the three months ended March 31, 2010 to approximately $1,896,000 for the three months ended March 31, 2011. The increase was primarily due to the increases in sales volume and sale price for fluorite powder. The sales volume of fluorite powder for the three months ended March 31, 2011 was approximately 6,000 tons, which increased by approximately 150% from approximately 2,400 tons for the same period of 2010; the average sale price of fluorite powder for the three months ended March 31, 2011 was approximately $248 per ton, which increased by approximately 103% from approximately $122 per ton for the same period of 2010.

Our fluorite segment loss was approximately $313,000 for the three months ended March 31, 2011, compared to a segment loss of $560,000 in the same period of 2010.

Nonferrous Metals

Due to the inclement weather in the first quarter of 2011 and 2010, the Company ceased procession of non-ferrous metal and had no sales in the first quarters of 2011 and 2010, respectively. The nonferrous metals segment loss was mainly due to depreciation and amortization, and employees’ wages in the first quarters of 2011 and 2010, respectively.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $7.73 million as of March 31, 2011, an increase of $6.18 million as compared to the balance at December 31, 2010 of $1.55 million.

Net cash used in operating activities for the three months ended March 31, 2011 was $6.44 million, representing a $7.61 million difference as compared to $1.17 million in cash provided for the same period in 2010.

Net cash used in investing activities for the three months ended March 31, 2011 was $3.62 million, as compared to $0.21 million used for the same period of 2010. For the three months ended March 31, 2011, the cash was mainly used in the acquisition of Xinyi Fluorite.

Net cash provided by financing activities for the three months ended March 31, 2011 was $16.33 million, as compared to $0.45 million used for the same period of 2010. The increase was primarily the result of the issuance and sale of approximately $20 million of common shares less certain expenses associated therewith.

The accompanying consolidated financial statements have been prepared on a going concern basis. The Company has incurred net operating losses of approximately $1.48 million and $1.02 million for the three months ended March 31, 2011 and 2010, 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:

It obtained approximately $20 million from issuance of common shares in January 2011.

Xiangzhen Mining, Xingzhen Mining and Xinyi Fluorite were all under normal operation at the end of March 2011, and are expected to remain in normal operation for the foreseeable future.

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.

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

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.

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

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.

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

4.1		Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on January 19, 2011)

10.1		Equity Transfer Agreement, dated January 13, 2011 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on January 13, 2011)

10.2		Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on January 19, 2011)

10.3		Equity Distribution Agreement, dated April 28, 2011 (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on April 29, 2011)

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

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: May 16, 2011	By:	/s/ Xiaojing Yu
		Xiaojing Yu, Chief Executive Officer
		(Principal Executive Officer)

Date: May 16, 2011	By:	/s/ Jiayin Zhu
		Jiayin Zhu, Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

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