Quarterly Update

6th May 2009 09:12



China Goldmines plc

("China Goldmines" (CGM) or the "Company")

(AIM: CGM)

CHINA GOLDMINES GUANZHUANG GOLD PROJECT QUARTERLY UPDATE

For the three months ended March 2009 

Highlights

* Cash position at the end of the Quarter: USD7.3m, total cash reserves USD9.3m including cash equivalents

* A total of 560 ounces of gold was sold during the period at an average price of USD915/oz with CGM in receipt of USD474,000. Gold sales included 157 (DMT) tonnes of gold concentrate at 75 g/t and 5.5 kg of doré bars from gravity concentration.

* Ore containing 2,399oz gold was mined, and ore containing 1,417 oz gold was milled during the period.

* High grade ore body discovered in Xiang Lu mine. Development of the 25 degree decline almost perpendicularly entered into an ore body 5m thick with an average grade of 160.8 g/t

* Six of the eight gold mines are in operation while the two are in development

* Highway -40 on target to link four mines 350 meters below surface within the next quarter

* The Company has paid 2m RMB (USD0.3m) compensation via the Yuanling County Government to the villagers for land rights of our immediate operations 

* Yuanling County Government presents safety award for no deaths or injuries during 2008

* Processing capacity already at 2010 target of 11,900tpm. Further capacity will be brought on line to meet the Company's gold production target of 150,000oz per annum by the end of 2011. Gekko system bought and available for shipment and planned commissioning in conjunction with further investment in processing plants. 

* Operational and strategic review being undertaken in order to maximise mining and security efficiencies in the short term and deliver the longer term mine development strategy. 

Commenting today Frank Vanspeybroeck (CEO), of China Goldmines said: "At the end of last year we announced an optimisation programme which included scaling back exploration drilling to only underground work which would directly benefit near-term extraction. 

In line with this approach our focus in the current quarter has been to optimise mining operations including the acquisition of surface rights and the prioritisation of high grade gold mineralisations for extraction in H2. We have been very pleased to identify a completely new significant mineralisation which can be mined over the coming year. With our existing gold targets, new high grade gold mineralisations and permanent surface rights from the villagers to us over all the projects we should be ideally placed to pursue significant gold production over the coming year. Our prime concern at this moment is enhancing the security of mined ore ahead of a ramp-up in operations. We are beginning to experience instances of gold theft and are looking at a series of measures and options in order to deal with this matter in order to return maximum shareholder value from gold production through 2009. These measures may include arrangements with third parties to improve the security of mined ore."

Quarterly update for the three months ended March 2009

Financial and production (Full table below)

A total of 560 ounces of gold was sold during the period at an average price of USD915/oz with CGM in receipt of USD474,000. Gold sales included 157 (DMT) tonnes of gold concentrate at 75 g/t and 5.5 kg of doré bars from gravity concentration.

Ore containing 2,399oz gold was mined, and ore containing 1,417 oz gold was milled during the period.

As expected survey work undertaken in partnership with the regional Yuanling County Government and Guanzhuang town government delayed operations as did celebrations surrounding the Chinese New Year during the quarter. While the mine only ran at 70% of current capacity the delay did result in the successful negotiation of land compensation with the villagers. 

With the project delivering high grade production and being able to progress synergies between all the projects now full surface rights have been granted, CGM is in a prime position to start significantly expanding production. With this in mind the senior directors of CGM are undertaking a full operational review due to current issues regarding the security of the Company's gold assets. 

Security

China Goldmines has already taken steps to address this matter and Q2 2009 will see the Company assume far greater control of its mining operations from current local contractors. CGM has taken the opportunity to review the most efficient way of generating funds and value for shareholders from the current gold price. With this in mind China Goldmines is in discussion with local government agencies/business and also with Companies/Partners who have experience in operating mines in China. All guards have also been subject to reviews and China Goldmines senior managers are directly supervising all high sensitivity areas. Key Western Managers reside on-site during mining shifts as added security. As part of the operational review China Goldmines is also assessing the cost-benefit of installing close security cameras at key areas within the mine.

Progress of Land Acquisition

Previously the Company leased the land from the local villagers, having paid the villagers for the right to use the land for tailing dams and our future central decline site (entrance portal). In this quarter the Company paid compensation of 2m RMB (USD 0.3m) to the villagers to acquire the land rights to all the land previously leased from the villagers (this is a compulsory process under the provincial government law for permanent use). The Company is now undertaking a study to prepare "land use plan" for the provincial government in order to proceed with the title transfer associated to the land required under current operations.

The provincial government will, upon completion of the "land use plan", calculate the capital cost that CGM will need to pay in order to obtain good title.

High grade mineralization identified - Xiang Lu (XL) Mine, Decline 3

As part of an exercise to cut expenditure during the year only underground drilling directly connected with identifying zones for immediate mining will be conducted. Underground development carried out during the quarter to the extension of XL decline 3 has recently discovered a high grade ore body. A 25 degree decline almost perpendicularly entered into an ore body of 5m thick, at an average grade of 160.8 g/t

Channel sampling along the grade line of the decline (1m above the floor, across the thickness of the ore body) gave the following grades:

Channel sample length across the ore body thickness (m)	Grade (g/t)	Accumulated thickness (m)	Grade for the accumulated thickness (g/t)
0.6	916.74	First 0.6m	916.74
1.3	123.68	First 1.9m	374.1
0.5	46.06	First 2.4m	305.8
1.2	4.28	First 3.6m	205.3
1	0.57	First 4.6m	160.8

Additional Mine Summary Update

In addition to identifying important new high grade zones within the primary six gold mines, work on Highway -40 progressed at great speed. Originally all eight mines were operated from their individual entrances at surface with each project having its own individual mine portal. The Company's strategy is to progress a subsurface, central "Highway" 350 meters below surface. Highway -40 will bring significant synergies in terms of large scale, modern gold extraction. During the quarter 3 mines were linked and a cross cut between the SJY and DS mines confirming the continuity of the ore body between them. During the next quarter it is expected that four mines shall be linked and it is expected that increased extraction benefits shall be seen.

The Mining Department along with Geology, Survey, Maintenance and Safety-Environment Departments relocated their office to Zhen Jia Shan mine on 24th February 2009. All work forces are also required to reside permanently on site during shifts for security reasons and in order to conduct comprehensive safety training.

Shen Jia Ya (SJY) Mine. Development of Highway -40 from SJY to DS mine is progressing well and breakthrough is expected in two months. An extension of ore body between SJY and DS mines was identified by a cross cut from Highway -40. Assay results gave a grade of 10.7g/t for a thickness of 0.6m. Active stopes at level 3 with 13,[email protected]/t and level 4 with 10,[email protected]/t. Decline 5 development is advancing well with a winch installed ahead of schedule.

Bao Mu Yuan (BMY) Mine

Stoping activities have progressed well this quarter with a 24 hour production peak of 180t achieved. Two stopes remain active to extract 6,[email protected]/t. A plan to link BMY level 1 with SJY level 1 is proposed in preparation for sending ore to the BMY processing plant from areas between SJY and DS.

Xia Chong Zi (XCZ) Mine

Two stopes are active at level 1 to extract 18,[email protected]/t.

De Sheng (DS) Mine

Development of Highway -40 from DS to SJY started during this quarter. Four areas with easily accessible ore that can be stoped have been identified. On level 1, a high grade patch ore with 5,400t@27g/t requires further geotechnical assessment. On level 1A and 2, 7,300t and 10,950t@12g/t, respectively, are ready to be mined. The low grade stope above level 1 with 9,[email protected]/t has been put on hold.

Zhen Jia Shan (ZJS) Mine

New ROM pad was established in ZJS. Three active stoping areas are 21,[email protected]/t, 6,[email protected]/t and 25,[email protected]/t on level 1, 1A and level 2, respectively. A new decline below level 2 to prepare for extracting ore below level 2 is designed and scheduled to be developed shortly.

Jiu Fa (JF) Mine

Refurbishment of Decline 4 was completed. Extension of this decline to Highway -40 is progressing well. Weak ground condition was encountered at the current decline face, which will delay the breakthrough to JZW for 1 to 2 months.

Jin Zhu Wan (JZW) Mine

Survey pick-up of the decline 2 to decline 5 was completed. The bottom section of the decline (4 & 5) is deliberately flooded to restrict illegal access to the mine.

March Quarter Mining Summary

A	BMY	XCZ	SJY	DS	ZJS	XL	Total	Total	Grade	Gram	Au (Oz)
							Wagons	Ore (t)	(g/t)	Au (g)
Jan-09	1290	1170	700	269	1989	14	5432	4074	6	24444	786
Feb-09	1718	223	36	147	1422	0	3546	2659	6	15954	513
Mar-09	4193	2095	795	137	1907	0	9127	6845	5	34225	1100
							Total:	13578	5.5	74623	2399

March Quarter Milling Activity Results:-

BMY  PLANT	Tonnes	Grade (g/t)	Tails (g/t)	Recovery %	Concentrate			Gravity
					Grade (g/t)	Tonnes	Au (g)	Au (g)
Jan-09	987.35	5.22	0.25	95.21	113.07	35.01	3958.48	948.65
Feb-09	1041.72	5.91	0.26	95.60	100.84	48.34	4874.30	1011.43
Mar-09	2566	5.83	0.35	94.29	115.8	102.25	11841	2220

XCZ  PLANT	Tonnes	Grade (g/t)	Tails (g/t)	Recovery %	Concentrate			Gravity
					Grade (g/t)	Tonnes	Au (g)	Au (g)
Jan-09	825.30	8.04	0.40	95.03	125.56	37.21	4671.83	1633.47
Feb-09	176.76	4.96	0.44	91.12	122.11	4.45	543.42	255.55
Mar-09	2515.83	4.02	0.32	92.33	132	53.35	7057	2251

DS PLANT	Tonnes	Grade (g/t)	Tails (g/t)	Recovery %	Concentrate			Gravity
					Grade (g/t)	Tonnes	Au (g)	Au (g)
Jan-09	370.58	4.09	0.22	94.58	58.55	16.94	991.75	442.40
Feb-09	71.60	2.74	0.16	94.15	57.04	1.94	110.64	74.09
Mar-09	357	3.67	0.33	91.13	86	9.88	789.51	403

Total March Quarter Milling Results:-

	Production Total for three plants
	Tonnes	Grade (g/t)	Concentrate Au (g)	Gravity Au (g)	Total Oz
Jan-09	2183	6.10	9622.06	3024.52	406
Feb-09	1290	5.91	5528.36	1341.07	220
Mar-09	5438	4.86	19748	4874	791
				Total:	1417

Human Resources and Safety

CGM has an excellent safety record for underground mining/processing in China, and the Company is proud that no time has been lost through injury during the March quarter. This has been achieved through extensive training and safety development programs. The Yuanling County Government awarded the company with the 2008 Safe Mining Award for its excellent mining safety record.

Outlook

With new high grade mineralisation identified from this quarter's underground development it is expected that a higher average grade of gold will be extracted over the second quarter of the year.  Land rights issues have been resolved which allow full access across the whole surface above the eight CGM mines and the Company can now aggressively pursue operational synergies across the projects. Optimisation work with regards to milling, for example, the Gekko system and operational procedures will continue but of most benefit to production for the rest of 2009 will be the establishment of Highway 40. Four of the eight mines are on target to be linked during the second quarter by Highway 40.

Q1 2009 saw a number of key objectives met with regards to the successful expansion of the projects. The second quarter is about capitalising on the work done and enhancing recovery and grade. 

Whilst China Goldmines is in process of expanding production and has demonstrated increasing geological endowment from its projects, it is experiencing increasing operational disturbances resulting from the cultural issues associated with managing the mines and interaction with the local population. In addition, security of its mine sites, ore transport operation and processing facilities has become increasingly difficult to manage since high-grade ore has been encountered. As stated above, the Board is undertaking a review of its mining operations and mine security and is considering alternatives for enhancing the operational management of its mining activities. The options under consideration include arrangements with third parties to improve the security of mined ore. The review is also examining alternative strategies for expediting the Company's capital investment programme in order to deliver maximum value to shareholders. In particular the Company is assessing the business case to accelerate the construction of a centralised processing plant linked to the minesites by Highway -40.

-ENDS-

For further information contact:

China Goldmines plc
Frank Vanspeybroeck (CEO)	+86 731 489 0755
Alex Worrall (Director/Company Secretary)	+44 207 788 7621
Marinko Vidovich (CFO)	+61 8 6216 5200
Brewin Dolphin Ltd (Nomad)
Alex Dewar	+44 (0)131 529 0276
(Nominated Adviser)
Threadneedle Communications	+44 (0)20 7653 9855
Laurence Read/ Beth Harris

Notes to Editors

China Goldmines plc is a UK mining company listed on AIM on 7 February 2006 as a gold resources company focussed on the discovery and development of gold projects in Hunan Province, China.

CGM's Gold Project is known as the Guanzhuang Gold Project. Based on an Independent Geological Report, the project has an estimated inferred resource of 1.8m ounces within the top 325m from the surface and over a strike distance of 1.5km. The resources have been identified from CGM's 100% owned/controlled Shen Jia Ya Prospect, which is within the Guanzhuang Gold Project. 

The Shen Jia Ya Prospect consists of eight gold mines that have now been converted into a single mining licence. The Company plans to consolidate all eight individual mines. That consolidation may result in a mining operation with a long life producing 150,000 oz Au/pa, beginning in the near future. At the same time as mining the existing eight mines, China Goldmines will continue to investigate the potential of the project area that remains under-explored.

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