MINING RESEARCH

:
Cailey Barker +44(0)20 7601 6132
cailey.barker@hansonwesthouse.com

Robyn Storer +44(0)20 7601 6131
robyn.storer@hansonwesthouse.com

UK Smaller Companies Sector: Metals & Mining

Phil Swinfen +44(0)20 7601 6140
phil.swinfen@hansonwesthouse.com

Central China Goldfields plc
Focusing on the frontline
21 February 2007
Over the last year, Central China Goldfields has made solid progress in progressing its two principal projects, despite turbulent corporate activity. The Company is progressively building its gold resource base and providing a strong case for a potential copper jackpot. • At the Nimu project in Tibet, Central China Goldfields has confirmed the presence of porphyry-style mineralisation and identified eight outcropping copper-molybdenum targets. Since June 2006, the Company has assayed a total of 646 rock chip/float samples. Results returned values up to 5.6% Cu and 0.31% Mo, with some containing elevated amounts of gold, silver, lead and zinc. In February 2007, Central China Goldfields announced assay results from a trenching programme at Gangjiang, which included 60m at 1.31% Cu, 0.012% Mo, 38m at 0.42% Cu and 50m at 0.35% Cu. The Company has signed a drilling contract and intends to commence a drilling programme in April 2007 or as soon as weather permits. At the Snow Mountain project, the Company completed a preliminary JORC standard resource calculation for Songpanguo (“SPG”) of 2Mt at 3.22 g/t for 210,000oz Au, 3.5 times previous estimates. Also, management reports that in-house resource calculations show larger tonnages at SPG, which may be converted to additional resources with closer spaced drilling. Underground adit sampling at SPG discovered extensions to existing mineralised zones and may increase the resource base further. Results included 4m at 9.02g/t Au, 3m at 3.87g/t Au and 17m at 1.22g/t Au. Preliminary metallurgical testwork indicates that the operating cost is approximately US$17/t, giving a breakeven grade of 1.2g/t Au (excluding capex). This indicates that, as current grades are in the order of 3g/t, the economics should be fairly attractive for a small operation. The Company now plans to conduct a scoping study to assess the economics for the Baima area and apply for additional licences in the surrounding areas. In December 2006, Central China Goldfields raised £3.75m at 12p/share from UK institutions and other investors. In November 2006, Central China Goldfields signed an option agreement with TSXVlisted Majestic Gold Corp, to earn a 50% interest in its projects for C$12.25m. An initial investment of C$1.5m (~£0.7m) was paid, which later converted to shares in Majestic. However, In January 2007 the agreement was terminated as a revised schedule of payments was unable to be agreed. While this is a disappointment, the funds raised put the Company in a strong position to advance its main projects. Comparative analysis of gold exploration companies in China shows that Central China Goldfields has a market cap/resource of US$26.7/oz (excluding Nimu), relative to the market average of US$44.8/oz. Using the market average, a nominal value of US$15m for Nimu, cash-in-hand (£4.1m) and the Company’s shareholding in Majestic (£0.7m), we would value Central China Goldfields at £29.5m (26p/share).
HansonWesthouse acts as nomad and broker to Central China Goldfields plc and is paid fees for these services Please read the important information at the end of this report 1

SALES:
Sanjiv Pandya +44(0)20 7601 6130
sanjiv.pandya@hansonwesthouse.com

Neil Hobson +44(0)20 7601 6134
neil.hobson@hansonwesthouse.com

Simon Hodges +44(0)20 7601 6136
simon.hodges@hansonwesthouse.com

SALES TRADING:
Martin Dobson +44(0)20 7601 6135
martin.dobson@hansonwesthouse.com

Price
Ticker Market cap (£m) Shares in issue (m) Index 12m high (p) 12m low (p) Cash in hand (£m) Major Shareholders JP Morgan Genesis DS & Co Sheepfarming P McGroary & Family Directors

10.0p
GGG 11.43 114.30 AIM 18.9 5.8


~ 4.1 % Holding 8.8 6.6 5.8 3.0 3.0

• •

www.hansonwesthouse.com
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Nimu : Potential jackpot
75% interest (increasable to 88%) for US$27m over 6 years

The Nimu project is located about 120km west of Lhasa, the capital of Tibet. In May 2006, Central China Goldfields signed an agreement to enter into a JV with the Sichuan Bureau of Metallurgy and Geological Exploration (“SBMGE”) over the Nimu project. The Company can earn up to 75% by spending RMB216m (US$27m) over 6 years. The initial 30% will be vested upon nine months of transfer of title and RMB32m (US$4m) in property payments. Upon earning the 75%, should SBMGE choose not to contribute further, Central China Goldfields can increase its interest to 84% at which point SBMGE would be free-carried. The project consists of five contiguous exploration licences (Baorong, Gangjiang, Ronggangmen, Xiaqing and Dubuqu) and two separate licences (Zongxun and Tinggong). It lies within the Gandese arc, which hosts a number of substantial copper deposits including the Qu Long copper deposit (5Mt Cu) and the Xietongmen project (1.4Bn lbs Cu, 3.0Moz Au), owned by TSX-listed Continental Minerals. Figure 1: Location of licences Figure 2: View over Nimu

Source: Central China Goldfields

1.8Bn lbs Cu contained with an in-situ value of US$4.6bn

Source: Central China Goldfields

The Nimu project has total inferred resources, reported to various Chinese standards, of 1.3Bn lbs of contained copper oxide at an average grade of 1.1% Cu. There is also 467Mlbs of contained copper sulphide at grades of 0.29% Cu with molybdenum grades between 0.02-0.08%. This represents an insitu value of US$4.6bn, at current prices of US$2.60/lb Cu. The Chinese standard resource has been defined by soil and rock sampling, trenching and drilling over the licences by SBMGE. However, this is not to JORC standard and a significant amount of drilling will have to be undertaken by the Company to substantiate the resource. The deposits are still open on all sides and further exploration is needed to delineate the size of the deposits and to identify additional targets within the tenements. The Company has interpreted that most of the previous work undertaken by SBMGE focused on the leached zone and potentially missed the supergene enriched zones, which is often the most prospective area of the secondary copper mineralisation model (see below). This interpretative ability is one of the key strengths of Central China Goldfields’ technical team.

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Figure 3: Secondary copper mineralisation model

Source: Central China Goldfields

Recent developments
Eight Cu-Mo targets delineated

In August 2006, Central China Goldfields confirmed the presence of porphyry-style mineralisation with geological mapping and grab sampling. In October, it was announced that ASTER (Advanced Spaceborne Thermal Emission and Reflection Radiometry)-aided geological and alteration mapping had identified eight outcropping porphyry-related copper-molybdenum targets. In November 2006, Induced polarisation and ground magnetic surveys over Tinggong and Gangjiang delineated 10 geophysical anomalies, which could potentially point to copper oxide/sulphide ore bodies, some with possible supergene enriched layers. Since June 2006, Central China Goldfields has assayed a total of 646 rock chip/float samples. Results returned values up to 5.6% Cu and 0.31% Mo, with some samples also containing elevated amounts of gold, silver, lead and zinc. In February 2007, the Company announced assay results from a trenching programme at Gangjiang, which included 60m at 1.31% Cu, 0.012% Mo, 38m at 0.42% Cu and 50m at 0.35% Cu. In January 2007, Central China Goldfields signed a drilling contract with Sichuan Huafeng Drilling Co to provide two drill rigs. The Company intends to commence a drilling programme in April 2007 or as soon as weather permits. Central China Goldfields has been building up a strong case for a potential jackpot at Nimu and we wait with eager anticipation for the results of the drilling.

60m at 1.31% Cu from trenching

Drills ready to roll!

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Snow Mountain : Building ounces
Business licence issued to JV

The Snow Mountain project is located approximately 370km northwest of Chengdu in a mountainous area of the Sichuan Province. Central China Goldfields will earn 75% interest (increasable to 85%) in the project from its Chinese JV partners, SBMGE, by spending US$6.8m over 6 years. The business licence was issued in December 2004, with all exploration licences held under the JV. The project lies in the Qinling Fold Belt, a major regional structural trend which hosts a number of multi-million ounce deposits, similar to the 200Moz Carlin-trend in Nevada, USA. It occurs in close proximity to a number of multi-million ounce gold deposits, with typically refractory gold mineralisation. Figure 1: Location of licences Figure 2: View over QQS deposit

Source: HansonWesthouse Source: AIM admission document, Company presentation

1Moz in resources (Chinese standard)

The Snow Mountain project consists of six licences with total Chinese-defined resources of 962,800oz Au (375,500oz to international standards). The Qiaoqiaoshan (“QQS”) licence, in the western portion of the project contains a Chinese defined resource of 610,000oz gold, of which 147,000oz (2.1Mt at 2.21g/t Au) has been defined to international standards. It has a strike length of 1.5km with stratabound gold mineralisation. The Baima area in the eastern portion tends to show gold associated with structurally controlled quartz veining and graphitic shears. The Songpanguo (“SPG”) deposit (HJG licence) contains a JORC standard resource of 210,000oz gold (2Mt at 3.22g/t Au). The Shuiniujia (“SNJ”) deposit contains a Chinese defined resource of 142,800oz gold (0.2Mt at 4.9g/t for 18,500oz to international standards). Previous work undertaken by SBMGE from 1985 to 1997 included mapping, soil sampling, trenching and underground development. At the QQS prospect 41 holes were drilled, along with underground development, and a programme of heap leaching was conducted from 1990-1991. Since April 2005, Central China Goldfields has undertaken extensive confirmatory exploration including underground adit sampling and 1,200m of drilling. The Company has carried out fire assay on samples, which has produced more reliable results than the previous wet assay technique. Initial metallurgical testwork has also been undertaken and shown that the ore is refractory and will require roasting or biooxidation.

Results provide confidence for Chinese defined resources

A high resolution Induced Polarisation (IP) survey identified potential lateral extensions of known resources at the QQS prospect. Soil and adit sampling has extended areas of gold mineralisation and identified new gold zones at QQS, SNJ and SPG. Although confirmatory trench and adit sampling by Central China Goldfields have been mixed, generally results has confirmed work previously reported by SBMGE and identified a number of additional zones, particularly at SPG.

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Recent developments In September 2006, Central China Goldfields announced that it had dropped one of its licences, reducing it from seven to six, as it was located close to a nature reserve and major tourist road. In October 2006, the Company announced that a new ‘zone 6’ had been discovered at SPG. While of lower grade, the zone has potential to add more to the deposit if it is proven to extend laterally and at depth. Results included 1m at 1.37g/t Au, 15m at 0.59g/t Au and 42m at 0.46g/t Au. Also in October 2006, Central China Goldfields reported results from its drilling programme at SNJ, which increased the apparent width of mineralised zones and encountered new zones. Results included 30m at 1.05g/t Au, 6m at 1.42g/t Au and 9.5m at 1.38g/t Au.
JORC standard resource of 210,000oz Au with potential to grow

In February 2007, based on its drilling programme, the Company completed a preliminary JORC standard resource calculation for SPG of 210,000oz Au. This is 3.5 times previous estimates. Also, management reports that in-house resource calculations show larger tonnages at SPG, which may be converted to additional resources with closer spaced drilling. Underground adit sampling at SPG returned encouraging results, discovered extensions to existing mineralised zones and may increase the resource base further. Results included 4m at 9.02g/t Au, 3m at 3.87g/t Au and 17m at 1.22g/t Au.

Breakeven grade of 1.2g/t Au, well below the current 3.3g/t Au

Using a gold price of US$500/oz and a recovery of 88%, preliminary metallurgical testwork indicates that the operating cost is approximately US$17/t, giving a breakeven grade of 1.2g/t Au (excluding capex). While this is not a definitive costing, it does indicate that, as current grades are in the order of 3g/t and capital costs likely to be low, the economics should be fairly attractive for a small operation. The Company now plans to conduct a scoping study to assess the economics for the Baima area and apply for additional licences in the surrounding areas. Figure 4: SPG mineralisation showing new gold zones

Source: Central China Goldfields

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Dong Mao Huo : Developing production
80% interest earn-in for US$4m

The Dong Mao Huo (“DMH”) gold mine is located about 210km west of Hohhot, the capital of Inner Mongolia, China. The project includes a small-scale gold mine and two exploration licences. In December 2006, Central China Goldfields entered into a JV with the Shandong Zhengyuan Geology & Resource Co. Ltd. to earn an 80% interest by spending RMB25m (US$3.125m) over 3 years and RMB7m (US$0.875m) as property payment. The area is underlain by a series of copper-gold deposits with enriched supergene oxide gold. Zhengyuan reported that the mining area has a total inferred gold resource of 135,000oz at 3.3g/t Au to various Chinese standards. While this resource estimate will need to be proven to international standards, it is only tested to a depth of 70-150m and provides a good indication of the potential of the orebody. The small-scale mine is exploiting oxide gold resources hosted by a 60m wide quartz porphyry dyke. Oxidation extends to a depth of 40m. The ore is crushed and treated by heap leach on site and the loaded carbon is sold to local refineries. Figure 5 : Dong Mao Huo gold mine

Chinese standard resource of135,000oz Au

Source: Company presentation

Similar characteristics to WA

In December 2006, CSA Australia completed an independent geological evaluation of the mining and exploration potential of the DMH mine. The study concluded that mineralisation demonstrates similar characteristics to shear-hosted gold deposits of Western Australia. CSA was unable to provide a resource estimate but highlighted potential for additional resources and recommended a drilling programme to test the open pit potential.

De Ming Ding : Porphyry potential in Tibet
First right of refusal for JV agreement

The De Ming Ding licence is located about 60km east of Lhasa, the capital of Tibet. The area of interest extends over 1,789km². In April 2006, Central China Goldfields signed an agreement to explore and apply for exploration licences with a subsidiary of the Hubei North East Geological Team (“HNEGT”). Central China Goldfields has the first right of refusal to negotiate a JV over any new licences in the area of interest and the right to match any other offer for a JV over new licences within the area, should a JV not be reached. In February 2007, this agreement was extended until 30 June 2007, and may be extended further if required. The area of interest is part of the copper-gold-moly belt in Tibet, surrounding the Qu Long porphyry deposit. The Qu Long deposit (which is not part of the agreement) is reported to host a large porphyry copper deposit containing 5Mt Cu, 35,000t Mo and 3,200t Ag. HNEGT is currently conducting a grass root mineral exploration survey in the area, including stream sediment sampling and geological reconnaissance. Central China Goldfields has the right to evaluate available data and, together with HNEGT, will identify targets and apply for exploration licences within the area.

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Corporate Developments
Placing
Cashed up and ready to roll!

In December 2006, Central China Goldfields raised £3.75m at 12p/share from UK institutions and other investors. The Company currently has no debt, £4.1m cash-in-hand and 7m warrants outstanding at a 10p strike price, exercisable up to 30 April 2007, that could potentially raise up to £0.7m. Majestic agreement In November 2006, Central China Goldfields signed an option agreement with TSXV-listed Majestic Gold Corp, to earn a 50% interest in its projects for C$12.25m. The Company also had the right to purchase the remaining 50% for not less than C$20m for cash/shares. An initial investment of C$1.5m (~£0.7m) was paid, which later converted to 3m shares in Majestic. In January 2007, it was announced that Central China Goldfields were unable to agree a mutually agreeable revised schedule of payments with Majestic. Subsequently, the agreement was terminated and the proceeds from the recent placing were diverted to the Company’s other projects. We believe this is a disappointment as it would have advanced Central China Goldfields towards production. However, funds raised may have stretched the Company’s finances beyond its means and given revised payment terms were unable to be agreed, management of the joint venture may have presented difficulties. Hubei In December 2006, Central China Goldfields announced that it will not proceed with the development of the Xiang Shui Tan project in Hubei. This was part of the Company’s project rationalisation as it wanted to focus on projects which may provide greater shareholder return. We believe this is a sensible use of funds, demonstrating the Company’s ability to maintain a detached, unemotional view of its projects and drop them if necessary.

Moving on and refocusing on the main projects

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Valuation
Comparative analysis of junior gold exploration companies in China shows that Central China Goldfields has a market cap/resource of US$26.7/oz, relative to the market average of US$44.8/oz. This includes all of the Company’s gold resources to Chinese reporting standard, as significant confirmatory work has been undertaken, but excludes the copper resource at Nimu. Using the market average would give Central China Goldfields a valuation of around US$31.9m. The copper resource at Nimu is difficult to value as it is to unconfirmed Chinese reporting standards, split between a number of deposits and will need verification. We have valued Nimu at a nominal US$15m, equivalent to approximately 1% of the potential in-situ value (attributable; at a long term copper price of US$1.25/lb). Therefore, including cash-in-hand (£4.1m) and the Company’s shareholding in Majestic (£0.7m), we would value Central China Goldfields at £29.5m (26p/share).
Market: Ticker TSX:MUN TSXV:MJS AIM:TGF TSXV:DYG TSX:MMM, AMEX:MMK AIM:GGG TSXV:KMK AIM:CGM TSXV:ICI TSXV:JIN AIM/ASX:LRL Market Resource Attributable cap Au Eq Resource US$m (Moz) (Moz) 58.3 18.8 55.6 17.9 73.5 21.7 173.7 36.6 97.5 266.9 115.3 91.4 9.2 1.9 2.8 0.9 6.4 1.1 9.3 1.2 1.5 3.4 1.2 3.8 7.3 1.6 2.6 0.7 2.9 0.8 5.6 1.0 1.4 3.3 0.9 In situ value US$m 6,164 1,282 1,905 611 4,265 727 6,235 804 1,030 2,265 817 2,538 Market cap / Att. resource (US$/oz) 8.0 11.8 21.7 24.5 25.1 26.7 31.1 38.2 70.5 81.8 135.1 44.8

CCG valued at £29.5m (26p/share)

Company

Province

Project Maoling Sawayaerdun, Song Jiu Gou Gold Mountain Hatu Changkeng, Fuwan, Anba Snow Mountain Xietongmen Guanzhuang Dachang CSH (217) Zheng Guang

Mundoro Mining Majestic Gold Corp Tianshan Goldfields Dynasty Gold Corp Minco Mining & Metals Central China Goldfields Continental Minerals China Gold Mines Inter-Citic Minerals Jinshan Gold Mines Leyshon Resources Average

Liaoning Shandong, Xinjiang Xinjiang Xinjiang Gansu, Guangdong Sichuan Tibet Hunan Qinghai Inner Mongolia Heilongjiang

Source: Fidessa, company websites. Prices as of 19 February 2007. Gold price of US$670/oz, Copper of US$2.60/lb, Silver of US$12/oz. Exchange rates of US$1.90 to £1 and C$1.05 to US$1. Average excludes Central China Goldfields.

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Financials
Profit and Loss Account Group Turnover Administrative expenses Operating Loss Interest receivable and similar income Loss on Ordinary activities before taxation Tax on loss on ordinary activities Loss for the financial period Balance Sheet Fixed assets Intangible assets Tangible assets Current assets Debtors Cash at Bank Creditors: Amounts falling due within one year Net current assets Total assets less current liabilities Capital and reserves Called-up equity share capital Share premium account Profit and loss account Shareholders' funds Cash Flow Net cash outflow from operating activities Returns on investments & servicing of finance Interest received Capital expenditure Payments to acquire intangible fixed assets Payments to acquire tangible fixed assets Net cash outflow from capital expenditure Cash outflow before financing Financing Issue of equity share capital Share premium on issue of equity share capital Share issue costs Net cash inflow from financing Increase in cash (£) (£) (£) 6 months ended 30-Jun-06 -289,480 -289,480 30,597 -258,883 -258,883 30-Jun-06 1,143,921 537 1,144,458 74,689 2,816,718 2,891,407 -23,595 2,867,812 4,012,270 799,549 3,942,115 -729,394 4,012,270 6 months ended 30-Jun-06 -320,827 6 months ended 30-Jun-05 -337,458 -337,458 26,803 -310,655 -310,655 30-Jun-05 638,255 727 638,982 14,245 1,399,611 1,413,856 -25,285 1,388,571 2,027,553 522,450 1,975,614 -470,511 2,027,553 6 months ended 30-Jun-05 -269,017 Period from 3 Nov 2004 to 31 Dec 05 -532,127 -532,127 61,616 -470,511 -470,511 31-Dec-05 638,255 727 638,982 14,245 1,399,611 1,413,856 25,285 1,388,571 2,027,553 522,450 1,975,614 -470,511 2,027,553 Period from 3 Nov 2004 to 31 Dec 05 -517,992 61,616 -505,666 -505,666 -826,493 2,243,600 -240,547 -240,547 -509,564 1,881,750 -640,938 -1,139 -642,077 -1,098,453 522,450 2,226,996 -251,382 2,498,064 1,399,611

2,243,600 1,417,107

1,881,750 1,372,186

Reconciliation of operating loss to net cash outflow from operating activities Operating loss Amortisation of goodwill Depreciation (Increase) in debtors Increase in creditors Net cash outflow from operating activities

-532,127 2,683 412 -14,245 25,285 -517,992

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