CHINA SHEN ZHOU MINING & RESOURCES, INC. - FORM 10-Q

Attached files

file	filename
EX-32 - CHINA SHEN ZHOU MINING & RESOURCES, INC.	v165647_ex32.htm
EX-31.2 - CHINA SHEN ZHOU MINING & RESOURCES, INC.	v165647_ex31-2.htm
EX-31.1 - CHINA SHEN ZHOU MINING & RESOURCES, INC.	v165647_ex31-1.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the Quarterly Period Ended September 30, 2009

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 ¨

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

Yes ¨ No ¨

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

Large accelerated filer 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 x

As of November 12, 2009, the Registrant had 22,214,514 shares of common stock outstanding.

China Shen Zhou Mining & Resources, Inc.

Table of Contents

		Page
PART I -	FINANCIAL INFORMATION
Item 1.	Financial Statements:	3
	Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008	3
	Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three and Nine months ended September 30, 2009 and 2008	5
	Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 2009 and 2008	6

	Notes to Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	45

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	48

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48

Item 3.	Defaults Upon Senior Securities	48

Item 4.	Submission of Matters to a Vote of Security Holders	48

Item 5.	Other Information	48

Item 6.	Exhibits	48

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

	September 30		December 31,
	2009		2008
	(Unaudited)		(Audited)
ASSETS

Current assets:
Cash and cash equivalents	$	1,121	$	205
Accounts receivable, net		622		561
Other deposits and prepayments, net		1,320		1,167
Inventories		3,582		2,958
Total current assets		6,645		4,891

Prepayment for office rent		353		505
Available for sale investment		148		146
Property, machinery and mining assets, net		46,602		47,716
Deferred debt issuance costs		1,437		1,755
Total assets	$	55,185	$	55,013

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	4,723	$	3,471
Fair value of detachable warrants liability		50		33
Short term bank loans		3,602		1,756
Other payables and accruals		6,189		4,794
Taxes payable		314		411
Due to related parties		2,046		2,666
Convertible notes payable		26,627		–
Total current liabilities		43,551		13,131

Convertible notes payable		–		24,251
Total liabilities	$	43,551	$	37,382

Minority interests		–		22

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

(Amounts in thousands, except share data)

	September 30			December 31,
	2009			2008
	(Unaudited)			(Audited)

STOCKHOLDERS’ EQUITY:
Common Stock, $0.001 par value:
Authorized – 50,000,000 shares (2008: 50,000,000 shares)
Issued and outstanding 22,214,514shares	$	22		$	22
Additional paid-in capital		25,251			25,251
PRC statutory reserves		1,672			1,672
Accumulated other comprehensive income		4,236			4,020
Accumulated deficit		(19,547	)		(13,356	)
Total stockholders’ equity		11,634			17,609
Total liabilities and stockholders’ equity	$	55,185		$	55,013

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						For the Nine Months Ended
	September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net revenue	$	1,715		$	2,924		$	3,060		$	4,845
Cost of sales		1,469			2,429			2,593			4,206
Gross profit		246			495			467			639

Operating expenses:
Selling and distribution expenses		52			36			70			72
General and administrative expenses		1,379			2,550			3,650			6,942
Total operating expenses		1,431			2,586			3,720			7,014

Net loss from operations		(1,185	)		(2,091	)		(3,253	)		(6,375	)

Other income (expense):
Interest expense		(936	)		(87	)		(2,893	)		(1,932	)
Other, net		(25	)		48			(67	)		590
Total other expense		(961	)		(39	)		(2,960	)		(1,342	)

Loss from operations before income taxes and minority interests		(2,146	)		(2,130	)		(6,213	)		(7,717	)

Income tax benefit		-			85			-			129

Loss from operations before minority interests		(2,146	)		(2,045	)		(6,213	)		(7,588	)

Minority interests		-			20			22			65

Net loss		(2,146	)		(2,025	)		(6,191	)		(7,523	)

Other comprehensive income:
Foreign currency translation adjustments		25			301			216			1,857
Comprehensive loss	$	(2,121	)	$	(1,724	)	$	(5,975	)	$	(5,666	)

Net loss per common share
– basic and diluted	$	(0.10	)	$	(0.09	)	$	(0.28	)	$	(0.34	)

Weighted average common shares outstanding
- Basic and Diluted		22,215			22,215			22,215			22,215

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	For the Nine Months Ended
	September 30
	2009			2008
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Loss from operations	$	(6,191	)	$	(7,523	)
Adjustments to reconcile net loss to net cash provided by (used in)
Depreciation and amortization		1,868			3,288
Deferred income tax benefits		-			(179	)
Fair value adjustment of warrants		17			(984	)
Accrual of coupon interests and accreted principal		1,169			1,112
Amortization of deferred financing costs		1,207			1,179
Amortization of debt issuance costs		318			311
Minority interests		(22	)		(65	)
Changes in operating assets and liabilities:
(Increase) decrease in -
Accounts receivable		(61	)		1,999
Deposits and prepayments		(153	)		(443	)
Prepayment for office rent		152			(540	)
Inventories		(624	)		(2,871	)
Increase (decrease) in -
Accounts payable		1,252			494
Other payables and accruals		1,382			2,804
Taxes payable		(97	)		57
Due to related parties		(620	)		1,032
Net cash used in operating activities		(403	)		(329	)

CHINA SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

	For the Nine Months Ended
	September 30
	2009			2008
	(Unaudited)			(Unaudited)
Cash flows from investing activities:
Purchases of property, machinery and mining assets	$	(963	)	$	(1,975	)
Sales of property, machinery and mining assets		241			-
Net cash used in investing activities		(722	)		(1,975	)

Cash flows from financing activities:
Proceeds from short-term borrowings	$	1,846		$	446
Net cash provided by financing activities		1,846			446

Foreign currency translation adjustment		195			(629	)

Net increase (decrease) in cash and cash equivalents		916			(2,487	)

Cash and cash equivalents at the beginning of the period		205			2,949
Cash and cash equivalents at the end of the period	$	1,121		$	462

Non-cash investing and financing activities
(None)

Supplemental disclosures of cash flow information
Cash paid for interest expenses	$	166		$	254
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 BUSINESSS AND ORGANIZATION

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

On January 31, 2008, the Company’s common stock was listed on the American Stock Exchange, now called “NYSE Amex”.

At September 30, 2009, 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	1,000,000		90	%	Exploration of solid metals, processing and sales of mining products.

Tun-Lin Limited Liability Company (“Tun-Lin”)	Kyrgyz Republic September 1,2005 (Acquired on November 26, 2007)	KGS	5,000		100	% (a)	Investments holdings

Kichi-Chaarat Closed Joint Stock Company (“Kichi-Chaarat”)	Kyrgyz Republic September 17,1998 (Acquired on November 26, 2007)	KGS	10,000		100	%(b)	Exploration, development, mining, and processing of gold, copper and other mineral products.

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

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

NOTE 2 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, 2008, filed on April 15, 2009.

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

The Company has incurred operating losses and negative cash flows from its operating activities for nine months ended September 30, 2009 and the year ended December 31, 2008, as well as an accumulated deficit of approximately $19,547,000 and $13,356,000 and a working capital deficit of approximately $36,906,000 and $8,240,000 separately as of September 30, 2009 and December 31, 2008.

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

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

Principles of Consolidation

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

Cash and Cash Equivalents

Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of three months or less. Because of the short maturity of these investments, the carrying amounts approximate their fair value.

Accounts Receivable

Accounts receivable are 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 when there is doubt as to the collectability of individual balances. In evaluating the collectability 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. Management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.

Available-for-Sale Investments

The Company accounts for its investments in auction rate securities in accordance with FASB ASC 320-10-25-6. Specifically, when the underlying security of an auction rate 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 the license granted to the Company. Extraction rights are stated at the lower of cost or 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 expose the mineralized body. At the Company’s underground mines, these costs include the costs 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.

The Company’s estimated useful lives of fixed assets are summarized as follows:

	Useful Life
	(In years)

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

Stripping Costs

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

Debt Issuance Costs

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

Asset Impairment

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 stage metal interests at exploration stage 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 minerals, gold and other commodity prices, production levels and operating costs of production and capital are each subject to significant risks and uncertainties.

Financial Instruments

The Company values its financial instruments 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, other deposits and prepayments, accounts payable, detachable warrants, short-term bank loans, other payables and accruals, taxes payable and due to related parties.

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.

Revenue Recognition

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

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

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740- Income Taxes which requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Group is able to realize their benefits, or their future deductibility is uncertain.

Transportation Charges

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

Foreign Currency

The Company uses the United States dollar (“U.S. dollar” or “US$” or “$”) for financial reporting purposes. The functional currency for the majority of the Company’s operations is the Renminbi (“RMB”). The functional currency for Tun-Lin and Kichi-Chaarat, the Company’s foreign subsidiaries in Kyrgyz Republic, is the Kyrgyz Som (“KGS”). All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transaction occurred. Statements of operations amounts have been translated using the average exchange rate for the period. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income.

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

		September 30, 2009		December 31, 2008
Balance sheet items, except for the registered and paid-up capital and retained earnings, as of period end		US$1=RMB6.8288 US$1=KGS43.6293		US$1=RMB6.8346 US$1=KGS39.4181

		For the Nine months ended September 30, 2009		For the Nine months ended September 30, 2008
Amounts included in the statements of operations, statements of changes in stockholders’ equity and statements of cash flows for the period		US$1=RMB6.8329 US$1=KGS42.7090		US$1=RMB6.9920 US$1=KGS35.9253

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

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

Stock Based Compensation

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

Accumulated other comprehensive income includes foreign currency translation adjustments. Total foreign currency translation adjustments for the nine months ended September 30, 2009 and 2008 were $216,000 and $1,857,000 respectively.

Recent Accounting Pronouncements

In June 2009, the FASB approved its Accounting Standards Codification (“Codification”) as the single source of authoritative United States accounting and reporting standards applicable for all non-governmental entities, with the exception of the SEC and its staff. The Codification which changes the referencing of financial standards is effective for interim or annual periods ending after September 15, 2009. Therefore in the third quarter of fiscal year 2009, all references made to US GAAP will use the new Codification numbering system prescribed by the FASB. As the codification is not intended to change or alter existing US GAAP, it is not expected to have any impact on the Company’s financial position or results of operations, upon adoption.

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 4 ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

	September 30,			December 31,
	2009			2008
	(In thousands)			(In thousands)
Accounts receivable	$	673		$	612
Less: Allowance for doubtful accounts		(51	)		(51	)
	$	622		$	561

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

	September 30,		December 31,
	2009		2008
	(In thousands)		(In thousands)

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

NOTE 5 DEPOSITS AND PREPAYMENTS

Deposits and prepayments consist of the following:

	September 30, 2009		December 31, 2008
	(In thousands)		(In thousands)
Prepayments and advances (a)	$	874	$	963
Other receivables		446		204
	$	1,320	$	1,167

(a)	Prepayments and advances as of September 30, 2009 and December 31, 2008 include payments of $708,510 and $936,237 to four mining service providers, respectively.

NOTE 6 INVENTORIES

Inventories consist of the following:

	September 30,		December 31,
	2009		2008
	(In thousands)		(In thousands)
Raw materials	$	625	$	737
Unprocessed ore		1,198		1,276
Consumables		101		41
Finished goods and semi-manufactured goods		1,658		904
	$	3,582	$	2,958

NOTE 7 PROPERTY, MACHINERY AND MINING ASSETS, NET

Property, machinery and mining assets consist of the following:

	September 30,			December 31,
	2009			2008
	(In thousands)			(In thousands)

Land use rights	$	1,837		$	1,700
Buildings		13,005			12,995
Machinery		10,902			10,140
Mining assets		8,212			8,205
Motor vehicles		1,357			1,401
Equipment		350			350
Extraction rights		19,011			19,004
Exploration rights		-			1,683
Construction in progress		1,980			2,115
		56,654			57,593
Less:
Accumulated depreciation and amortization		(9,947	)		(9,772	)
Impairment provision		(105	)		(105	)
	$	46,602		$	47,716

Depreciation and Amortization

Depreciation and amortization expense in aggregate for the nine months ended September 30, 2009 and 2008 was approximately $1.87 million and $3.29 million, respectively. Depreciation and amortization expense in aggregate for the three months ended September 30, 2009 and 2008 was approximately $0.51 million and $1.04 million, respectively.

Impairment Provision

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

Exploration and Extraction Rights

As in most jurisdictions, mineral rights in China are divided into two types: extraction rights and exploration rights. Extraction rights refer to the rights obtained in accordance with the law for exploitation of mineral resources and market control of mineral products. In nearly every jurisdiction in the world, mineral rights are absolutely exclusive. In China, however, there are no clear stipulations regarding the exclusivity of mineral rights. The Amendment of China Mining Regulation stressed the security of mineral rights and its Article 6 stated that “upon discovery of mineral resources, the exploration licensees have the privileged priority to obtain mining rights to the mineral resources within the exploration area.” According to the Ministry of Land and Resources, this privileged priority will be guaranteed under further amendments to be made in the near future. Exploration rights refer to the right obtained in accordance with the law for exploring for mineral resources within the areas authorized by the exploration license. The Company has been granted mineral exploration permits. These exploration rights enable the Company to explore selected prospective mines for possible economic value to mine and develop. Under Chinese mining laws and regulations, generally an exploration license is valid for no more than three years and extension of the exploration license shall not exceed two years and two extensions.

NOTE 8 DEBT ISSUANCE COSTS

The issuance costs directly associated with the Notes and the put warrant aggregated $2,522,497. The amount was capitalized as deferred debt issuance costs, and is being amortized using the effective interest rate method over the term of the convertible loan, with the amounts amortized being recognized as interest expense. Any unamortized debt issuance costs remaining at the date of conversion of the loan will be recognized as interest expense in the period the conversion takes place. As of September 30, 2009 and December 31, 2008, the deferred debt issuance costs were approximately $1,437,000 and $1,755,000, respectively.

NOTE 9 WARRANTS LIABILITY

In connection with the issuance of the convertible notes (as further described in Note 13), the Company issued a put warrant to one of the Company’s financial advisors for the purchase of 875,000 shares of the Company’s common stock at an exercise price of $3.20 per share, exercisable at any time, or from time to time, during the period commencing from January 1, 2007 through January 1, 2010 (the “Termination Date”). The Company has had the fair value of the put warrant computed by using the Black Scholes model. As of September 30, 2009, the fair value of the put warrant is approximately $40,381 with the following significant assumptions used in the Black-Scholes model:

	As of September 30, 2009				As of December 31, 2008

Risk-free interest rate			0.070	%			0.343	%
Expected volatility			107.91	%			159.23	%
Term		0.25 years				1 years

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

NOTE 10 SHORT-TERM BANK LOANS

Short-term bank loans consist of the following:

	September 30,		December 31,
	2009		2008
	(in thousands)		(in thousands)
10.85% note payable to Baiyin Credit Union matures on February 14, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining				220
10.85% note payable to Baiyin Credit Union matures on February 14, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining				102
8.50% note payable to Baiyin Credit Union matures on March 26, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity,which is in the name of a related party				351
9.99% note payable to Baiyin Credit Union matures on May 21, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Xiangzhen Mining				878
8.22% note payable to Baiyin Credit Union matures on August 15, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining and secured by the time deposit of Ms. Xiaojing Yu , a director of the Company				117
6.37% note payable to Baiyin Credit Union matures on December 26, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining and secured by the time deposit of Ms. Helin Cui , a director of the Company		88		88
6.37% note payable to Baiyin Credit Union matures on August 18, 2010 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining and secured by the time deposit of Ms. Xiaojing Yu , a director of the Company		117
9.99% note payable to Baiyin Credit Union matures on November 21, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Xiangzhen Mining		878
8.26% note payable to Baiyin Credit Union matures on November 13, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining		220
8.26%% note payable to Baiyin Credit Union matures on Novermber 13, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, guaranteed by Qianzhen Mining		103
8.50% note payable to Baiyin Credit Union matures on December 23, 2009 with interest due on the 20th day of each quarter and principal due at date of maturity, which is in the name of a related party and guaranteed by Xiangzhen Mining		322
7.65% note payable to China Citic Bank matures on May 21, 2010,guaranteed by Xiangzhen Mining (a)		1,464
12.21% note payable to Wulatehouqi Credit Union matures on March 11, 2010 , which is in the name of a related party and guaranteed by Qianzhen Mining		410
	$	3,602	$	1,756

(a)	This loan is collateralized with Xiangzhen’s extraction right.

NOTE 11 OTHER PAYABLES AND ACCRUALS

Other payables and accruals consist of the following:

	September 30,		December 31,
	2009		2008
	(In thousands)		(In thousands)
Accrued debt issuance costs（a）	$	46	$	53
Receipts in advance		1,486		1,142
Accruals for payroll, bonus and other operating expenses		617		343
Payables for construction service vender		837		1,047
Others payables		3,203		2,209
	$	6,189	$	4,794

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

NOTE 12 DUE TO RELATED PARTIES

Due to related parties consist of the following:

	September 30,		December 31,
	2009		2008
	(In thousands)		(In thousands)
Due to directors of the Company:
Ms. Xiao Jing Yu, CEO of the Company (a)	$	201	$	270
Mr. Xue Ming Xu, COO of the Company (b)		111		239
Mr. Cui He Lin , Director of the Company(c)		1		73
Due to Wulatehouqi Mengxin Co., Ltd, the minority Shareholder of Xingzhen Mining (d)		1,538		1,463
Due to Mr. Xiao Ming Yu, General Manager of Xiangzhen (e)		195		621
	$	2,046	$	2,666

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

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

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

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

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

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

NOTE 13 CONVERTIBLE NOTES PAYABLE

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

Conversion Feature

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

The intrinsic value of the beneficial conversion feature (“BCF”) on the commitment date, i.e. the Second Supplementary Indenture Date of September 28, 2007, has been recalculated: the change of conversion price in the Second Supplemental Indenture resulted in a BCF. The BCF was recognized on the effective date of September 28, 2007 as a discount and will be amortized using the effective interest rate method from September 28, 2007 to the maturity date.

Redemption

The Notes contain a feature reflected in the Accreted Principal Amount based on which the redemption or repurchase price of the Notes is determined. The Accreted Principal Amount is determined as follows: the Accreted Principal Amount on December 27, 2009 shall be 116.0% of the Original Principal Amount, and the Accreted Principal Amount at the Maturity Date shall be 134.5% of the Original Principal Amount. The Company can redeem all of the Notes on or after December 27, 2009 at 110% of the then Accreted Principal Amount, plus accrued and unpaid interest to, but excluding, the redemption date. The Notes holders have the right to require the Company to repurchase the Notes at a price in cash equal to 104% of the then Accreted Principal Amount plus accrued and unpaid interest to the repurchase date if there is a change of control of the Company. From and after December 27, 2009, the Notes holders have the right to require the Company to repurchase the Notes for 100% of the then Accreted Principal Amount plus accrued and unpaid interest to the repurchase date.

Interest Rate

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

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

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

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

Repurchase

On September 22, 2009, the Company entered into a Notes Repurchase Agreement with Mountview Path Limited (“Mountview”), a corporation incorporated under the laws of the British Virgin Islands, pursuant to which the Company repurchased the entire 6.75% Senior Convertible Notes due 2012 of US $28,000,000 principal amount ( “Notes”), originally issued to Citadel Equity Fund Ltd (“Citadel”). Mountview is the current legal and beneficial owner of the entire amount of the Notes.

In connection with the Notes Repurchase Agreement, Mountview agreed to waive all defaults for the Company’s failure to duly observe and perform covenants set forth in the indenture entered into between the Company and Bank of New York as trustee and forebear to take any action against the Company for the defaults. The Company and Mountview also agreed to take all actions necessary in order for the Bank of New York, to cancel the entire Notes and promptly release the pledged security interest created pursuant to the share pledge agreement dated December 27, 2006 and entered into by and among Ms. Xiao Jing Yu and Mr. Xue Ming Xu, the Bank of New York, as collateral agent and Citadel.

Mountview is not an affiliate of the Company or any of the Company’s directors or officers. The consideration payable in the transaction consists of US $8,000,000 in cash and 5 million shares of the Company’s common stock. Mountview shall not be entitled to any accrued and unpaid interest on the Notes. The closing of this transaction is scheduled to occur on November 30, 2009.

For more information, please see Company’s Current Reports on Form 8-K filed with the Securities and Exchange Commission on April 22, May 13 and September 25, 2009, which are incorporated by reference herein in their entireties.

Detachable Warrants

Together with the issuance of the Notes, the Company issued a put warrant to one of the Company’s financial advisors in the transaction for the purchase of 875,000 shares of the Company’s common stock at an exercise price of $3.20 per share, exercisable on or before three years from the date of grant. As of September 30, 2009, the fair value of the put warrant was $50,000.

Debt Issuance Costs

The issuance costs directly associated with the Notes and the put warrant aggregated $2,522,497. The amount was capitalized as deferred debt issuance costs, and is being amortized using the effective interest rate method over the term of the convertible loan, with the amounts amortized being recognized as interest expense. Any unamortized debt issuance costs remaining at the date of conversion of the loan will be recognized as interest expense in the period the conversion takes place. As of September 30, 2009, the deferred debt issuance costs were approximately $1,437,000.

NOTE 14 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 15 PRC STATUTORY RESERVES

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

NOTE 16 ASSET RETIREMENT OBLIGATIONS

According to the “Rules on Mineral Resources Administration” and “Rules on Land Rehabilitation” of the PRC, mining companies causing damages to cultivated land, grassland or forest are required to restore the land to a state approved by the local governments. The local governments administering the “Rules on Mineral Resources Administration” and “Rules on Land Rehabilitation” on the Company’s two mines, “Sumochaganaobao Fluorite Mine” and “Mining site No. 2”, have confirmed that the Company is not required to restore or rehabilitate the two mining sites because those two mining sites are located at distant areas and the Company’s mining and extraction activities have not affected the surrounding environment. The Company’ property, machinery and mining assets related to those two mining sites at December 31, 2008 and September 30, 2009 were not subject to an asset retirement obligation.

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

NOTE 17 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 18 COMMITMENTS AND CONTINGENCIES

General

The Company accounts for contingencies, using FASB issued guidance, 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 and Kyrgyz

The Company's mining operations are and will be subject to extensive national and local governmental regulations in China or Kyrgyz, 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

	September 30, 2009		December 31, 2008
	(In thousands)		(In thousands)
Purchase of machinery - within one year	$	266	$	456
Acquisition or construction of buildings-within one year		8		9
	$	274	$	465

NOTE 19 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 “fluorite” and “nonferrous metals” products. The fluorite segment consists of our fluorite extraction and processing operations through the Company’s wholly-owned subsidiary, Xiangzhen Mining. The nonferrous metals segment consists of the Company’s copper, zinc, lead and other nonferrous metal exploration, extraction and processing activities through the Company’s wholly-owned subsidiaries, Qianzhen Mining, Xingzhen Mining and Qingshan Mining.

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

Nine months ended September 30, 2009	Fluorite			Nonferrous metals			Consolidated

Segment revenue	$	2,783		$	277		$	3,060
Inter-segment revenue
Revenue from external customers	$	2,783		$	277		$	3,060

Segment loss	$	(1,342	)	$	(1,860	)	$	(3,202	)

Unallocated corporate expenses							$	(3,011	)
Income before income taxes and minority interests							$	(6,213	)

Total segment assets	$	39,042		$	27,664		$	66,706
Inter-segment receivables		(15,736	)		2,558			(13,178	)
	$	23,306		$	30,222		$	53,528
Deferred debt issuance costs								1,437
Other unallocated corporate assets								220
							$	55,185
Other segment information:
Depreciation and amortization	$	1,110		$	758		$	1,868
Expenditure for segment assets	$	673		$	290		$	963

				Nonferrous
Nine months ended September 30, 2008	Fluorite			metals			Consolidated

Segment revenue	$	2,178		$	2,667		$	4,845
Inter-segment revenue
Revenue from external customers	$	2,178		$	2,667		$	4,845

Segment loss	$	(2,829	)	$	(2,221	)	$	(5,050	)

Unallocated corporate expenses							$	(2,667	)
Income before income taxes and minority interests							$	(7,717	)

Total segment assets	$	51,200		$	58,028		$	109,228
Inter-segment receivables		(25,596	)		(23,967	)		(49,563	)
	$	25,604		$	34,061		$	59,665
Deferred debt issuance costs								1,859
Other unallocated corporate assets								5
							$	61,529
Other segment information:
Depreciation and amortization	$	1,951		$	1,337		$	3,288
Expenditure for segment assets	$	1,072		$	903		$	1,975

The following summarizes identifiable assets by geographic area:

	September 30 2009		December 31, 2008
	(In thousands)		(In thousands)
China	$	42,403	$	42,343
Kyrgyzstan		11,125		10,914
Unallocated corporate assets		1,657		1,756
	$	55,185	$	55,013

The following summarizes operating losses before provision for income tax:

	Nine months ended September 30,
	2009			2008
	(In thousands)			(In thousands)
China	$	(2,542	)	$	(4,011	)
Kyrgyzstan		(660	)		(1,039	)
Unallocated corporate operating losses		(3,011	)		(2,667	)
	$	(6,213	)	$	(7,717	)

NOTE 20 OTHER INCOME, NET

	Nine months ended September 30,
	2009			2008
	(In thousands)			(In thousands)
Exchange (loss) gain	$	(70	)	$	646
Subsidies		23			-
Donation		(1	)		(43	)
Others		(19	)		(13	)
	$	(67	)	$	590

NOTE 21 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):

	Nine months ended September 30,
	2009			2008
	(In thousands, except per share data)			(In thousands, except per share data)

Income (loss) from operations available to common shareholders:
Basic and Diluted	$	(6,191	)	$	(7,523	)

Weighted average number of shares:
Basic and Diluted		22,215			22,215

Earnings (loss) per share from operations
- Basic and Diluted	$	(0.28	)	$	(0.34	)

As the convertible notes, warrants and options have an anti-dilutive effect on the earnings per share for the nine months ended September 30, 2009 and 2008, they were not included in the calculations of diluted earnings per share.

NOTE 22 CONCENTRATIONS OF CUSTOMERS AND SUPPLIERS

The Company had five main customers who contributed approximately $2.41 million or 79% of the Company’s consolidated net revenue for the nine months ended September 30, 2009. For the same period of 2008, the Company had four main customers who contributed approximately $3.50 million or 72% of the Company’s consolidated net revenue.

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

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

The following table shows the Company’s major customers (10% or more of consolidated net revenue) for the nine months ended September 30, 2008:

Number	Customer	Revenue (In thousands)		Percentage (%)
1	RuiPeng Mining Ltd	$	1,493		31	%
2	Inner Mongolia Huadesanli Trading Ltd		775		16	%
3	Laiwu Steel Ltd		656		13	%
4	Handang Hongzhi Ltd		574		12	%
TOTAL		$	3,498		72	%

As of September 30, 2009, accounts receivable total $0.67 million which consists of receivables from 18 customers.

The following table shows the receivable distribution of the Company’s major customers (10% or more of consolidated accounts receivable) as of September 30, 2009:

Number	Customer	Revenue (In thousands)		Percentage (%)
1	Ningxia Jinhe Ltd	$	292		43	%
2	Zibo Bofeng Ltd		146		22	%
TOTAL		$	438		65	%

In the first nine months of 2009, the Company had no concentrated suppliers.

NOTE 23 SUBSEQUENT EVENTS

On September 21, 2009, the Company through its indirect wholly-owned subsidiary, Inner Mongolia Xiangzhen Mining Group Co., Ltd., a company organized under the laws of People’s Republic of China, entered into a Share Purchase Agreement with Fortune Pegasus International Limited (“ Fortune” ), a company organized under the laws of British Virgin Islands, pursuant to which the Company transferred to Fortune the entire equity of Tun Lin Limited Liability Company in the Kyrgyz Republic, an exempt company organized under the laws of Kyrgyz Republic (“ Tun Lin” ). In addition, the Company is assigning Fortune a loan in the amount of US $1,761,784.78 for which Tun Lin is indebted to the Company.

Tun Lin owns the entire equity of Kichi-Chaarat Closed Joint Stock Company, a company organized under the laws of Kyrgyz Republic, which assets include Kuru-Tegerek Copper-gold Mine located at Chartcarl, Jalalabad, Southwest of Kyrgyz Republic. Fortune is not an affiliate of the Company or any of the Company’s directors or officers. The consideration payable in the transaction consists of US $8,200,000. The Company will use the proceeds to pay for the Senior Convertible Notes repurchase described below.

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 April 15, 2009. 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 and Kyrgyzstan in Central Asia.

BUSINESS STRATEGY

Expansion of Production Capacity to Meet Demand

▼ Fluorite

In early 2006, we began a project at Xiangzhen Mining to produce 300,000 metric tons of fluorite ore, and the project was completed in November 2007. We extracted approximately 122,000 metric tons of fluorite ore in 2008. Due to the economic crisis and the water supply problem we ceased extracting fluorite ore in Oct 2008. After the water supply problems were solved in May 2009, we restarted the mining plant. We had extracted approximately 32,000 metric tons of fluorite ore since May 2009.

We produced approximately 6,750 metric tons of fluorite powder in 2008. In early 2006, at our Xiangzhen mine site, we started to build a plant with an annual processing capacity of 200,000 metric tons of fluorite ore. The new plant remained in trial production in 2008 and we have been engaged in solving certain technological problems related to the plant’s water supply. Xiangzhen had resumed production in May 2009. We had solved the plant’s water supply problems and started to produce refined fluorite powders in the second quarter of 2009. We had produced approximately 15,000 metric tons of fluorite powder since May 2009. The production and marketing have shown some improvement in the third quarter of 2009, but have not met our expectations.

▼ Zinc, Copper and Lead

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

In July 2006, Xingzhen Mining began a project at Keyinbulake Multi-Metal Mine in Buerjin County, Aletai Zone, Xinjiang Uygur Autonomous Region. The project has a mining and processing capacity of 200,000 metric tons of mineralized zinc-copper material per year. It went into trial production at the end of the second quarter of 2008 and produced 1,850 metric tons of zinc concentrates and 108 metric tons of copper concentrates in 2008. From the forth quarter of 2008 to the first half of 2009, Xingzhen Mining had ceased production due to the low price of zinc and copper and atrocious weather in Xinjiang Uygur Autonomous Region. Xingzhen just restarted in June 2009. The processing plant was in trial production during the third quarter of 2009, and the Company has been dealing with technological difficulties. We expect to solve the problems in the first half of 2010.

In November 2007, we completed the acquisition of Tun-Lin Co. Ltd, a company organized under the laws of the Republic of Kyrgyzstan, which owns 100% of the equity in Kichi Chaarat, whose major asset is the subsoil use right for (i) mining for gold, copper and other metals within the Kuru-Tegerek licensed area; and (ii) exploration for gold, copper and other metals within the Kuru-Tegerek licensed area. The purpose of the acquisition was to enable the Company to explore, develop and mine the potential reserves of the Kuru-Tegerek licensed area. In July 2008, the development plan for the Kichi Chaarat deposit was approved by local authority. On September 21, 2009, we entered into an agreement with Fortune Pegasus International Limited, a company organized under the laws of British Virgin Islands to dispose Tun-Lin Co. Ltd. as reported in our Current Report on Form 8-K filed with the SEC on September 25, 2009.

Increased Exploration Activities

· Keyinbulake Copper-Zinc Mine

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

Table 1-3: Exploration Program for Keyinbulake Property

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

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

Acquiring More Mineral Resources

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

RECAPITALIZATION AND REORGANIZATION

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

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

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

On January 31, 2008, the Company’s common stock was listed on the American Stock Exchange, now called “NYSE Amex”.

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2009 AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2008

Selected information from the Consolidated Statements of Operations

	For the Three Months Ended September 30,
	2009			2008
	(in thousands)			(in thousands)

Net revenue	$	1,715		$	2,924
Gross profit (loss)		246			495
- Gross profit margin		14	%		17	%
General and administrative expenses		1,379			2,550
Interest expenses		936			87
Net income (loss)	$	(2,146	)	$	(2,025	)

REVENUES. Net revenues for the three months ended September 30, 2009 were $1.72 million, representing a $1.21 million or 41% decrease as compared to the same period of 2008. The decrease in net revenues is mainly because (i) Qianzhen Mining ceased its zinc processing operation as a result of a shortage of ore supplies, and (ii) Xingzhen’s processing plant was in trial production during the third quarter of 2009, and had a limited number of qualified products for the three months ended September 30, 2009.

GROSS PROFIT AND GROSS PROFIT MARGIN. For the three months ended September 30, 2009, gross profit was $246,000, which decreased by approximately 50% from $495,000 in gross profit for the same period of 2008. Gross profit margin dropped from approximately 17% for the three months ended September 30, 2008 to approximately 14% for the same period of 2009. The decrease was mainly due to the significant decrease in the price of fluorite products.

GENERAL AND ADMINISTRATIVE EXPENSES. For the three months ended September 30, 2009, general and administrative expenses decreased by approximately $1.17 million to $1.38 million as compared to $2.55 million for the three months ended September 30, 2008. The decrease in general and administrative expenses was primarily due to the Company’s tightening of its control of expenses in the current economic crisis.

INTEREST EXPENSE. Interest expenses increased approximately $0.85 million for the three months ended September 30, 2009 as compared to the same period of 2008. The increase in interest expenses was mainly due to the difference in revaluation of the warrant liability.

NET LOSS. Net loss for the three months ended September 30, 2009 was $2.15 million, a difference of $0.12 million compared to net loss of $2.03 million for the same period of 2008. Basic losses per share were $0.10 and $ 0.09 for the three months ended September 30, 2009 and 2008, respectively.

SEGMENT PERFORMANCE ANALYSIS

	Segment revenue				Segment profit (loss)
(amounts in thousand)	For the Three Months Ended Sep 30,				For the Three Months Ended Sep 30,
	2009		2008		2009			2008

Fluorite	$	1,526	$	1,122	$	(551	)	$	(1,214	)

Nonferrous metals	$	189	$	1,802	$	(1,232	)	$	(613	)

Fluorite

For the third quarter of 2009, fluorite segment revenue increased by 36% to $1.53 million, as compared to $1.12 million for the same period of 2008. The increase was primarily due to the water supply problems solved in the second quarter of 2009 at Xiangzhen Mining.

Our fluorite segment reported a segment loss of $0.55 million for the three months ended September 30, 2009, compared to a segment loss of $1.21 million in the same period of 2008. The decrease in segment loss was mainly due to the significant decrease in the new mineral processing plant preparation costs, depreciation and amortization expenses by Xiangzhen Mining.

Nonferrous Metals

Nonferrous metals segment revenue for the three months ended September 30, 2009 amounted to $0.19 million representing a decrease of approximately $1.61 million or 90% as compared to the same period of 2008. The performance of the nonferrous metals segment was negatively affected because (i) Qianzhen Mining ceased its zinc processing operation as a result of the shortage of ore supplies, and (ii) Xingzhen’s processing plant was in trial production during the third quarter of 2009, and had a limited number of qualified products for the three months ended September 30, 2009.

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2009 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2008

Selected information from the Consolidated Statements of Operations

	For the Nine months ended September 30,
	2009			2008
	(in thousands)			(in thousands)

Net revenue	$	3,060		$	4,845
Gross profit		467			639
- Gross profit margin		15	%		13	%
General and administrative expenses		3,650			6,942
Interest expenses		2,893			1,932
Net income (loss)	$	(6,191	)	$	(7,523	)

REVENUES. Net revenues for the nine months ended September 30, 2009 were $3.06 million, representing a $1.79 million or 37% decrease as compared to the same period of 2008. The decrease in net revenues is mainly because (i) Qianzhen Mining ceased its zinc processing operation as a result of the shortage of ore supplies, and (ii) Xingzhen’s processing plant was in trial production, and had a limited number of qualified products for the nine months ended September 30, 2009.

GROSS PROFIT AND GROSS PROFIT MARGIN. For the nine months ended September 30, 2009, gross profit was $467,000 which decreased by approximately 27% from $639,000 gross profit for the same period of 2008. Gross profit margin rose from 13% for the nine months ended September 30 2008 to 15% for the same period of 2009. The increase was mainly because of the significant decrease in mining costs by Xiangzhen Mining.

GENERAL AND ADMINISTRATIVE EXPENSES. For the nine months ended September 30, 2009, general and administrative expenses decreased by approximately $3.29 million to $3.65 million in 2009 as compared to $6.94 million for the same period of 2008. The decrease in general and administrative expenses was primarily due to the Company’s tightening its control of expenses in the current economic crisis.

INTEREST EXPENSE. Interest expenses increased approximately $0.96 million for the nine months ended September 30, 2009 as compared to the same period of 2008. The increase in interest expenses is mainly due to the difference in revaluation of the warrant liability.

NET LOSS. Net loss for the nine months ended September 30, 2009 was $6.19 million, a decrease of $1.33 million compared to net loss of $7.52 million for the same period of 2008. Basic losses per share were $0.28 and $ 0.34 for the nine months ended September 30, 2009 and 2008, respectively.

SEGMENT PERFORMANCE ANALYSIS

	Segment revenue				Segment profit (loss)
(amounts in thousand)	For the nine months ended Sep 30,				For the nine months ended Sep 30,
	2009		2008		2009			2008

Fluorite	$	2,783	$	2,178	$	(1,342	)	$	(2,829	)

Nonferrous metals	$	277	$	2,667	$	(1,860	)	$	(2,221	)

Fluorite

Fluorite segment revenue increased by 28% from $2.18 million for the nine months ended September 30, 2008 to $2.78 million for the same period of 2009. The increase was primarily due to the water supply problems solved at Xiangzhen Mining.

Our fluorite segment reported a segment loss of $1.34 million for the nine months ended September 30, 2009, compared to a segment loss of $2.83 million in the same period of 2008. The decrease in segment loss was mainly due to the significant decrease in the new mineral processing plant preparation costs, depreciation and amortization expenses by Xiangzhen Mining.

Nonferrous Metals

Nonferrous metals segment revenue for the nine months ended September 30, 2009 amounted to $0.28 million, representing a decrease of approximately $2.39 million or 90% as compared to the same period of 2008. The performance of the nonferrous metals segment was negatively affected because (i) Qianzhen Mining ceased its zinc processing operation as a result of the shortage of ore supplies, and (ii) Xingzhen’s processing plant was in trial production, and had a limited number of qualified products for the nine months ended September 30, 2009.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $1.12 million as of September 30, 2009, an increase of $0.91 million as compared to the balance at December 31, 2008 of $0.21 million.

Net cash used in operating activities for the nine months ended September 30, 2009 was $0.40 million as compared to $0.33million used in the same period in 2008. The increase in operating cash flows was mainly due to the increase in accounts receivable as compared to the same period of 2008.

Net cash used in investing activities for the nine months ended September 30, 2009 were $0.77 million, which was mainly for capital expenditures for mining development and capacity expansion projects at Xiangzhen Mining.

Net cash inflows from financing activities for the nine months ended September 30, 2009 were $1.85 million, which was mainly due to proceeds from short-term borrowings.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

CONVERTIBLE NOTES

Conversion Feature

Redemption

Interest Rate

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

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

Repurchase

Detachable Warrants

Debt Issuance Costs

The issuance costs directly associated with the Notes and the put warrant aggregated $2,522,497. The amount was capitalized as deferred debt issuance costs, and is being amortized using the effective interest rate method over the term of the convertible loan, with the amounts amortized being recognized as interest expense. Any unamortized debt issuance costs remaining at the date of conversion of the loan will be recognized as interest expense in the period the conversion takes place. As of September 30, 2009, the deferred debt issuance costs were approximately $1,437,000.

OFF-BALANCE SHEET ARRANGEMENTS

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

INFLATION

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

CRITICAL ACCOUNTING POLICIES

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

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

We believe 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

Adoption of New Accounting Pronouncements

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4. Controls and Procedures.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal controls over financial reporting. The Company's internal control system over financial reporting is a process designed under the supervision of the Company's chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with United States generally accepted accounting principles (“U.S. GAAP”).

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can only provide reasonable assurances with respect to financial statement preparation and presentation. In addition, any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions in the future.

As of the end of the period covered by this quarterly report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) of the Exchange Act. This evaluation was done under the supervision and with the participation of our principal executive officer and principal financial officer. To make this assessment, we used the criteria for effective internal control over financial reporting described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treasury Commission. Based on their evaluation of our disclosure controls and procedures, our principal executive officer and principal financial officer have concluded that during the period covered by this report, such disclosure controls and procedures were not effective to detect the inappropriate application of U.S. GAAP as more fully described below. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered “material weaknesses”. The Public Company Accounting Oversight Board has defined a material weakness as a “deficiency, or combination of deficiencies, in internal control over financial reporting (ICFR) such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s ICFR” .

The significant deficiencies we identified in the prior year in our internal controls and disclosure controls related to the application of U.S. GAAP were in adopting an inappropriate period to depreciate and amortize property, plant and equipment, including extraction and exploration rights; inappropriate capitalization of exploration expenses; and inappropriate classification of balance sheet and income statement balances. These deficiencies, when taken together, resulted in a conclusion that the Company’s controls suffered from a material weakness as of December 31, 2006. In 2007, we have remedied all these significant deficiencies except the failure to provide for an allowance for doubtful accounts in accordance with the Company’s policy by means of implementation of the remediation program we planned in the prior year. This deficiency still resulted in a conclusion that the Company’s disclosure controls and procedures suffered from a material weakness as of September 30, 2009.

Because of the identification of the misapplication of U.S. GAAP, our management has concluded that, as of September 30, 2009, our disclosure controls and procedures were not effective.

Remediation of Material Weaknesses

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

1) Continuing to enhance our U.S. GAAP training program for our existing personnel and recruiting additional professional personnel;

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

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

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

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2009, 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 Factor

Not required

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

Our Current Report on Form 8-K filed with the Securities and Exchange Commission on September 28, 2009, is incorporated by reference herein in its entirety.

Item 5. Other Information

None

Item 6. Exhibits

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

Exhibit Number		Description

31.1		Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Accounting Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

SIGNATURES

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

	CHINA SHEN ZHOU MINING & RESOURCES, INC.

Date: November 12, 2009	By:	/s/ Xiaojing Yu
		Xiaojing Yu, Chief Executive Officer
		(Principal Executive Officer)

Date: November 12, 2009	By:	/s/ Jiusheng Zhang
		Jiusheng Zhang, Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

Attached files

CHINA SHEN ZHOU MINING & RESOURCES, INC. Reports

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