China Gold Mining, Gold Exploration Company, China Gold Resource, Gold Production China, Gold Investment Mining, Hunan Resources, Australia

1. Project Overview

1.1 Guanzhuang Gold Project

The Guanzhuang Gold Project is located in the Guanzhuang mineral field of Hunan Province, China (Fig 1). The project currently covers approximately 38.5km2 centred some 9km to the east of the operating Woxi Gold Mine that has attributed gold resource of almost 50t (1.61 Moz) along with antimony and tungsten credits. Exploration is currently focussed on the Shenjiaya and Xiaotaoyuan Prospects.

Mining within the southern CGM project area is currently confined to the Shenjiaya Prospect, which is a significant mineralised structure held under fragmented ownership by artisanal miners. The Xiaotaoyuan Prospect is located 5km north of Shenjiaya within the northern portion of the project area.



The Guanzhuang Project is serviced by the sealed Highway 319 that traverses the project tenements. Grid power parallels Highway 319 and water is readily available from numerous large streams and rivers within the immediate area. The topography is characterised by low mountain ranges, typically between 200m and 800m above sea-level, the highest elevation is 850m. The climate is a temperate maritime to continental regime, with an average winter temperature maximum of 4.6°C and an average summer temperature maximum of 28°C. The region is relatively sparsely populated, principally comprising numerous subsistence farming communities.

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1.2 Tenure

The Guanzhuang Project comprises two Exploration Licences with EL4300000730183 (Shenjiaya) in the process of being increased in size and 8 Mining Licences. The licences collectively cover an area of approximately 38.5km˛ as shown in Table 1

Tenement Number	Tenement Holder	Expiry Date	Area (km2)
EL 4300000730183	Brigade 407 (Transfer Agreement to HWM approved)	Sep 2009	20.74
EL 4300000730078	Sinochem (Transfer Agreement to HWM approved)	Apr 2008	14.14
ML 4300000720389	HWM Co., Ltd.	Dec 2008	0.44
ML 4300000720393	HWM Co., Ltd.	Dec 2008	0.19
ML 4300000720385	HWM Co., Ltd.	Dec 2008	0.32
ML 4300000720387	HWM Co., Ltd.	Dec 2008	0.28
ML 4300000720386	HWM Co., Ltd.	Dec 2008	0.12
ML 4300000720388	HWM Co., Ltd.	Dec 2008	0.24
ML 4300000720392	HWM Co., Ltd.	Dec 2008	0.95
L 4300000720391	HWM Co., Ltd.	Dec 2009	1.12

2. Corporate Review

Following initial exploration the board of Hunan Westralian Mining Co., Ltd (the Joint Venture Company) decided to develop the project as described in the Joint Venture contract and on 23 July 2006 Brigade 407 and China Chemical agreed to transfer the Exploration Licences to the Joint Venture Company. When the Joint Venture Company decides to mine inside the Exploration Licences, Brigade 407 and China Chemical can contribute expenditure on a pro-rata basis to retain their 20% interest, elect not to contribute towards expenditure and thereby dilute to a minimum 10% interest or sell their 20% ownership to the Joint Venture Company with CGM retaining the first right of refusal, subject to agreement on price.

When the Joint Venture Company decided to proceed and mine the 8 mining licence areas an agreement was entered into with the People's Government of the Yuanling County on the 10 April 2007 to acquire a 100% interest in the 8 mining licences. Any mining by the Joint Venture Company in the area covered by this agreement is for the benefit of Westralian Resources Pty Ltd directly rather than the Joint Venture Company. On the 26 June 2007, the Company finalised and executed all 8 transfer agreements with each individual miner owner and subsequently took possession of the 8 gold mines on 1 November 2007.

2.1 Management/Administrative Upgrade

The Company has placed all key operational management positions; geological, engineering, mine processing, development and administration with western mining specialists (contracted for services rendered in China).

The Company has secured new corporate leased premises to cater for the growth in corporate staff in our Changsha office located now at the South Jiasheng-Aomeicheng Building, 262 West Laodong Road, Changsha (city centre).

The Company has secured a new operation site office to cater for future growth in Guanzhuang by leasing an office block which will house all geological, mining engineers, mine operators and administration staff. The office site is strategically positioned whereby it is in Guanzhuang Township and only minutes away from the mine sites.

The Company has negotiated the lease on the two hotels adjoining the office block which will accommodate all mine operation staff. The hotel serves as a practical and economical solution that logistically improves operation efficiency.

In the coming year it is planned to:-

• Upgrade IT hardware and bandwidth to cater with growth and meet western standards;
• Install specialised western mining software applications;
• Adopt western style mine communication systems;
• Improve the co-ordination of all data and information between the 8 gold mines to our site office and Changsha office.

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3. Exploration Review

During the period China Goldmines plc continued its exploration program including the commencement of surface diamond drilling, survey and underground channel sampling of all accessible underground mine workings, monitoring the grade of " Run of Mine " mill feed from the current production mines and reconnaissance surface geological mapping to validate portions of previous geological mapping.

Drilling

During the period 1 July 2006 to 30 June 2007, the Company completed over 6800 metres with 18 drill holes, mineralisation/alteration was intersected in 15 of the drill holes. The drill holes with significant results are recorded in the following table:

Hole ID	Dip	Azi	Total  Depth (m)	From (m)	To (m)	Length (m)	Au (g/t)
ZK03	-75˚	170˚˚	386.000	273.71	275.33	2.02	3.63
				275.73	276.86	1.13	3.37
				276.86	278.86	2.00	0.32
				278.86	280.61	1.75	8.25
				280.61	282.31	1.70	2.94
				282.31	283.83	1.52	2.31
				283.83	285.51	1.68	1.38
				285.51	286.89	1.38	12.07
				286.89	287.96	1.07	3.63
				287.96	289.51	1.55	1.06
				289.51	291.01	1.50	68.75
				291.01	292.61	1.60	0.50
				292.61	293.71	1.10	0.80
				293.71	294.71	1.00	7.75
				294.71	296.36	1.65	3.38
				296.36	297.67	1.31	5.50
				297.67	299.30	1.63	3.18
				299.30	300.78	1.48	1.38
				300.78	302.81	2.03	1.00
				302.81	304.81	2.00	1.00
				304.81	305.96	1.15	48.45
				305.96	307.59	1.63	2.17
				307.59	309.35	1.76	1.80
				309.35	310.85	1.50	2.00
				310.85	312.32	1.47	6.70
				312.32	313.74	1.42	2.00
				315.46	317.06	1.60	1.63
				318.86	320.76	1.90	1.00
				320.26	322.55	1.79	1.87
				324.22	325.89	1.67	1.00
				327.45	329.02	1.57	1.87
ZK601	-75˚	170˚	386.000	250.25	252.24	1.99	3.62
				252.24	253.32	1.08	2.20
				253.77	255.73	1.96	2.04
				258.35	260.37	2.02	3.03
				260.37	261.24	0.87	1.36
				261.24	262.40	1.16	1.06
				262.40	263.53	1.13	2.73
				263.53	265.33	1.80	1.97
				265.33	266.43	1.10	1.67
				282.25	284.10	1.85	2.73
				284.10	286.40	2.30	15.45
				313.67	314.76	1.09	3.62
				326.11	327.70	1.59	1.38
				328.66	330.00	1.34	2.76
				330.00	331.16	1.16	1.04
ZK4501	-75˚	170˚	413.000	229.15	230.30	1.15	3.24
				230.80	232.20	1.40	3.09
				232.20	234.31	2.11	2.94
				279.27	279.97	0.70	9.64
				279.97	282.01	2.04	1.07
ZK1001	-75˚	170˚	464.000	158.83	160.28	1.45	17.86
				337.40	338.51	1.11	16.60
				338.51	339.51	1.00	3.50
				357.01	358.23	1.22	1.38
				358.23	359.13	0.90	1.50
				360.93	362.33	1.40	46.90
				362.33	363.58	1.25	6.60
				363.58	364.83	1.25	2.00
				367.38	368.58	1.20	9.10

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Trenching

Completed 25 costeans from 1 July 2006 to 30 June 2007, intersected alteration in all the trenches with the alteration zones being wide and continuous. The results will be used to assist in the follow up drilling programme in the coming year.

Surface Mapping

Total surface mapping of the Shenjiaya prospect to date is 22km2 usually at a large scale 1000 or 5000. The surface rock chip samples assay demonstrate prospective nature of the project area. A number of surface chip samples have indicated a possible new mineralised zone a kilometre to the south of the Shenjiaya mineralisation to be tested in the coming year.

Underground Sampling

The 8 gold mines have continued to be mapped by Brigade 407, resulting in a total of 1100 metres of mapped underground workings with 12200 metres of completed surveys. The mapping has generally been carried on large scale (1:500, 1:1000 and occasionally 1:100 ) which will be supplemented in the future with smaller scale mapping (1:50), more suited for understanding the structural complexity of the geology.

Additional underground channel sampling of the quartz veins in the lower levels of the Shenjiaya, Zhengjiashan, Baomuyuan, Jinzhuwan and Xianglu has been undertaken. All samples are now assayed by the acid digest AA finish methodology, by the accredited Hunan Institute of Mineral Resources Laboratory located in Changsha. These values continue to support and confirm previous high gold values from underground sampling conducted at Shenjiaya and Zhengjiashan by Brigade 407. Significant assay values for Shenjiaya, Baomuyuan, Xiaochongzi, Zhengjiashan and Xianglu are tabulated below.

Shenjiaya Baomuyuan Xiaochongzi Underground Assays at 355m below Surface

Grade (g/t Au)	Sample Width ( m )
10.8	2.16
11.8	2.35
40.8	1.9

Zhengjiashan Underground Assays at 355m below Surface

Assay (g/t Au)	Sample Width ( m )
13.1	1.7

Xianglu Underground Assays at 355m below Surface

Assay (g/t Au)	Sample Width ( m )
29.3	1.37
20.7	1.33

Jinzhuwan Underground Assays at 355m below Surface

Assay (g/t Au)	Sample Width ( m )
62.0	1.6
28.3	0.90
38.8	0.75
108.0	0.80
130.0	0.70
70.0	0.60

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ROM Sampling

A second phase surface of mill feed sampling, Run of Mine Ore (ROM), for the current producing mines were also completed. There was no change to the program methodology, the collection of a daily bulk composite sample obtained by the collection of two standard shovel loads of minus 5mm diameter sized material from each ore wagon. The composite sample was then reduced by conventional cone and quarter method to produce a 2 kg sample for assay. Assays were done at the Woxi Mine laboratory, by the fire assay method. They show a wide range of values. Examination of the sampled material shows that there is a dilution factor, i.e. the presence of wall rock material is a function of blasting, thus causing some of the lower grade values. Furthermore none of these mining operations practice grade control procedures.

The results of this second phase of sampling are below.

Mine	Sample Period	No. of Samples	Dates Sampled	Sample Range g/t Au	Ave Grade
Shenjiaya	Stage 2 (29 days)	29	16/4/06 to 31/04/06	0.5-29.8	5.02
Baomuyuan	Stage 2 (23 days)	23	17/4/06 to 8/05/06	0.5-77.0	10.11
Zhengjiashan	Stage 2 (28 days)	28	20/4/06 to 8/05/06	0.5-20.5	8.77

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