The following management's discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this quarterly report. In addition to historical information, the following discussion contains certain forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as "may", "will", "could", "expect", "anticipate", "intend", "believe", "estimate", "plan", "predict", and similar terms or terminology, or the negative of such terms or other comparable terminology. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bound of our knowledge of our business, our actual results could differ materially from those discussed in these statements. Factors that could contribute to such differences include, but are not limited to, those discussed in the "Risk Factors" section of the Annual Report on Form 10-K filed on March 29, 2011. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

Our financial statements are prepared in U.S. Dollars and in accordance with generally accepted accounting principles in the United States of America. See "Exchange Rates" below for information concerning the exchange rates at which Renminbi ("RMB") were translated into U.S. Dollars ("USD") at various pertinent dates and for pertinent periods.

OVERVIEW

The Company through its subsidiaries, is engaged in the exploration, development, mining, and processing of fluorite, barite and nonferrous metals such as zinc, lead and copper in China. The Company has the following principal areas of interest in China: (a) fluorite extraction and processing in the Sumochaganaobao region of Inner Mongolia; (b) fluorite and barite extraction and processing in the Wuchuan County of Guizhou province; (c) fluorite and barite extraction and processing in the Yanhe County of Guizhou province; (d) fluorite extraction and processing in Jingde County, Anhui Province; (e) zinc/copper/lead processing in Wulatehouqi of Inner Mongolia; and (f) zinc/copper exploration, mining and processing in Xinjiang.

BUSINESS STRATEGY

Resumption of Production Capacity to Meet Demand

? Fluorite

Xiangzhen Mining

In November 2007, Xiangzhen Mining finished construction of a mining project with a capacity of 300,000 metric tons and a processing plant with a capacity of 200,000 metric tons. Xiangzhen Mining owns 100% of the fluorite mining rights of Inner Mongolia Sumochaganaobao.

In 2011, Xiangzhen Mining extracted approximately 190,000 metric tons of fluorite ore, produced 41,000 metric tons of fluorite lumps and sold 49,000 metric tons of fluorite lumps with total sales of approximately US$ 6.38 million, accounting for approximately 25% of the revenues of our fluorite business. Xiangzhen Mining also produced 56,000 metric tons of fluorite powder and sold 49,000 metric tons of fluorite powder for approximately US$ 16.03 million, which accounted for approximately 63% of the revenues of our fluorite business.

Xinyi Fluorite

On January 13, 2011, the Company through its subsidiary Xingzhen Mining acquired 55% of the equity interests of Xinyi Fluorite. Xinyi Fluorite owns 100% of one processing plant with a processing capacity of 60,000 metric tons of fluorite ore per year and the mining rights of the Guangrong Mine and the Qingzhen Fluorite Xinyi Mine No. 1.

After the acquisition, the Company performed certain renovations and Xinyi Mine No. 1 resumed production on February 10, 2011. The processing plant resumed its production on March 26, 2011.

In 2011, Xinyi Fluorite extracted approximately 14,000 metric tons of fluorite ore, produced 9,000 metric tons of fluorite powder and sold 9,000 metric tons of fluorite powder for approximately US$3.16 million, which accounted for approximately 12% of the revenues of our fluorite business.

On November 18, 2011, Xinyi Fluorite engaged geological evaluation institution SRK Consulting China Ltd. (SRK) to evaluate the current situation and potential extraction volume at Xinyi Mine No. 1. SRK completed additional drilling and collected more technical datasets on Xinyi Fluorite's reserves in May 2012. Subsequently, SRK commissioned Hefei Mineral Resources Supervision and Inspection Center, an affiliate of the Ministry of Land and Resources of the PRC, to inspect the fluorite samples. It is expected that SRK will provide a complete and JORC-compliant technical report on Xinyi's reserves by the end of 2012.

Plans for extraction and processing fluorite in 2012

In 2012, Xiangzhen Mining plans to be in normal production. We plan to extract 150,000 metric tons of fluorite ore, produce 40,000 metric tons of fluorite powder, and produce 60,000 metric tons of fluorite lumps. We plan to sell 40,000 metric tons of fluorite powder and 60,000 metric tons of fluorite lumps.

In 2012, Xinyi Fluorite plans to be in normal production. We plan to extract 60,000 metric tons of fluorite ore produce 25,000 metric tons of fluorite powder, and produce 10,000 metric tons of fluorite lumps. We plan to sell 25,000 metric tons of fluorite powder and 60,000 metric tons of fluorite lumps.

We also plan to do the following work in 2012:

Ensure and stabilized our current production, extract and process to capacity and carry-out our current plans.

According to changes in the prices of fluorite powder and fluorite lumps, adjust the proportion of fluorite powder and fluorite lumps in our product structure to ensure the highest profit.

We will still strive to leverage our position as one of the leaders in the industry to acquire additional appropriate fluorite reserves.

Acquire advanced fluorine chemical technology and develop and construct down stream products using fluorite as a raw material.

Dongsheng Mining

On January 16, 2012, the Company through its subsidiary Xiangzhen Mining, entered into an equity transfer and capital increase agreement to acquire 60% of the equity interests of Dongsheng Mining. Dongsheng Mining is a limited liability company legally incorporated on December 13, 1999 and validly existing in Wuchuan Yilao & Miao Autonomous County, Zunyi City, Guizhou Province in the PRC. Dongsheng Mining has a registered capital of RMB 2,000,000 with its business mainly in extraction and processing of fluorite ore and barite ore. Currently, it owns 100% of the mining rights of Shuanghe Fluorite Mine, Fenshui Qingshuzi Barite and Fluorite Mine, Baicun Fluorite Mine, Luping Fluorite Mine and Shibuya Barite and Fluorite Mine, and it also owns Douru Town Fluorite Flotation Plant and the Fenshui Town Fluorite and Barite Flotation Plant, and a 30% equity interest in Wuchuan Chenhe Dongsheng Fluoride Industry Co., Ltd. in Wuchuan Yilao & Miao Autonomous County, Zunyi City, Guizhou Province in the PRC.

Meilan Mining

On February 7, 2012, the Company through its subsidiary Xiangzhen Mining purchased a 60% equity interest in Meilan Mining. Meilan Mining is a PRC limited liability company legally incorporated on November 20, 2007 and validly existing in Yanhe Tujiazu Autonomous County, Tongren City, Guizhou Province in the PRC. Meilan Mining has a registered capital of RMB 1,334,000 and its primary business is the extraction of fluorite ore and barite ore. Currently, Meilan Mining owns 100% of the mining rights to the fluorite ores in Fengshuiling, Banchang Town, Yanhe Tujiazu Autonomous County, Tongren City, Guizhou Province in the PRC.

Qianshi Resources

On February 7, 2012, the Company through its subsidiary Xiangzhen Mining purchased a 60% equity interest in Qianshi Resources. Qianshi Resources is a PRC limited liability company legally incorporated on April 30, 2005 and validly existing in Yanhe Tujiazu Autonomous County, Tongren City, Guizhou Province in the PRC. Qianshi Resources has a registered capital of RMB 1,000,000 and its primary business is the extraction and processing of fluorite ore and barite ore. Currently, Qianshi Resources owns 100% of the mining rights of Jingliang Fluorite Mine, and the Fluorite Flotation Plant in the Huangtu Town, Yanhe Tujiazu Autonomous County, Tongren City, Guizhou Province in the PRC.

? Non-ferrous Metals

Xingzhen Mining

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

On April 28, 2008, Xingzhen Mining completed a successful test of its facilities and subsequently started production. In parallel with processing, Xingzhen Mining continued exploration in the area.

In 2011, Xingzhen produced zinc concentrates and copper concentrates equivalent to 2,639 metric tons of zinc metal and 214 metric tons of copper metal as compared to 3,129 and 155 metric tons in 2010, respectively, and sold zinc concentrates and copper concentrates equivalent to 2,761 metric tons of zinc metal and 254 metric tons of copper metal, as compared to 2,538 and 115 metal tons in 2010, respectively, accounting for approximately 63% and 37%, respectively, of the total revenues of our nonferrous business of approximately $4.98 million as compared to 79%, 21% and $3.60 million in 2010, respectively.

We started production at the end of April 2012. We did not stop excavating in 2011. We plan to extract ores of 130,000 metric tons, process ores of 130,000 metric tons, and produce approximately 5,000 metal tons of zinc concentrate and approximately 470 metal tons of copper concentrate.

Qianzhen Mining

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

No production occurred at Qianzhen Mining in 2011 due to a lack of ore supply.

Due to a potential asset reorganization, we do not plan to produce at Qianzhen Mining in 2012.

Exploration Activities

Keyinbulake Copper-Zinc Mine

In 2011, Xingzhen Mining continued exploration as planned, with a focus on:
ground drilling, surveying, geophysical prospecting, geological surveying, documenting, rock-mineral experimenting, etc. A summary of the work completed is as follows:

Ground drilling: drilled 23 holes, total project amount was 8,335.29 meters.

Surveying: tunnel survey was 2,000 meters, 1:1000 survey was 1.485 square kilometers.

Geophysical prospecting: powerful induced polarization sounding (VIP method) a hundred points, advanced magnetic survey (network 50X20 meters) was 3.92 square kilometers.

Documenting: tunneling 138.54 meters, trenching 1,629.91 square meters, drilling 8,335.29 meters.

Rock-mineral experimenting: sampling 687 items, rock-mineral determined 37 items.

In 2012, we plan to channel 1,000 cubic meters, drill underground 2,500 meters, and ground drill 1,000 meters.

Qingzheng Fluorite Xinyi Mine No. 1

In 2011, we renovated our mines and increased capacity to 60,000 metric tons per year. We expanded our work based in two areas: underground mining projects and geophysical exploration.

Underground mining project: the plan was started during 2011 and we will finish the project in July 2012. The project's main focus is 216, 256 middle section reclamation works and development, venting system rehabilitation and implementation of the six security systems and production safety standards required by the State Council. We successfully implemented the six security systems required by State Council and passed inspection of safety standard V required by the local government. We also developed 1,500 meters of drift tunnels; performed ground drilling of 300 meters, and underground drilling of 250 meters.

In 2012, in order to continue underground exploration, we plan to drill 6 holes and develop 2,000 meters of drift tunnels.

Xinglong Town Guangrong Fluorite Mine

No exploration work was done in 2011.

Considering the self development, we plan to increase the mining depth to below
+60 meter level, therefore we need to drill and control below +60 meters elevation minerals. In 2012, we plan to drill 3 holes, and develop 1,000 meters of drift tunnels.

Acquiring More Mineral Reserves

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

RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2012 AS COMPARED TO THREE
MONTHS ENDED JUNE 30, 2011



Selected information from the Consolidated Statements of Operations



                                                               For the three months ended June 30,
                                                                  2012                      2011
                                                             (in thousands)            (in thousands)
Net revenue                                                $            7,550         $          9,117
Gross profit                                               $            1,386         $          4,344
Gross profit margin                                                        18 %                     48 %
General and administrative expenses                        $            2,862         $          3,313
Interest expenses                                          $              431         $            201
Net (loss) income attributable to the Company              $           (1,966 )       $            128

REVENUES. Net revenues for the three months ended June 30, 2012 were approximately $7,550,000, representing an approximate $1,567,000 or 17% decrease as compared to the same period of 2011. The decrease was primarily due to the decrease in sales volume for fluorite powder and zinc concentrate powder. The fluorite powder sales volume for the three months ended June 30, 2012 was approximate 13,100 tons, representing an approximate 3,450 ton or 21% decrease as compared to the same period of 2011. Zinc concentrate powder sales volume for the three months ended June 30, 2012 was 585 metal tons, representing an approximate 942 metal ton or 62% decrease as compared to the same period of 2011.

GROSS PROFIT AND GROSS PROFIT MARGIN. For the three months ended June 30, 2012, gross profit was approximately $1,386,000, which decreased by approximately 68% from $4,344,000 in gross profit for the same period of 2011. The gross profits from the fluorite segment were approximately $1,503,000 and $3,735,000 for the three months ended June 30, 2012 and 2011, respectively. The gross profits
(loss) from the non-ferrous metal segment were approximately ($117,000) and $609,000 for the three months ended June 30, 2012 and 2011, respectively. The fluorite segment's gross profits decrease was mainly due to the decrease in sales volume and sale price for fluorite powder. The fluorite powder sales volume for the three months ended June 30, 2012 was approximate 13,100 tons, representing an approximate 3,450 ton or 21% decrease as compared to the same period of 2011. The fluorite powder average sales price for the three months ended June 30, 2012 was $291 per ton, representing an approximate $58 per ton or 17% decrease as compared to the same period of 2011. Gross profit margin was approximately 18% for the three months ended June 30, 2012, a decrease from the gross profit margin of 48% for the same period of 2011.

GENERAL AND ADMINISTRATIVE EXPENSES. For the three months ended June 30, 2012, general and administrative expenses decreased by approximately $451,000 to $2,862,000 in 2012 as compared to $3,313,000 in 2011.

INTEREST EXPENSE. Interest expense increased by approximately $230,000 from the same period of 2011. The increase was mainly due to the increase in the principal and the interest ratio of the short term loans.

NET (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY. Net (loss) income attributable to the Company for the three months ended June 30, 2012 was approximately ($1,966,000), as compared to $128,000 for the same period of 2011. Basic net
(loss) income per share were ($0.05) and $0.01 for the three months ended June 30, 2012 and 2011, respectively.

SEGMENT PERFORMANCE ANALYSIS



                                                      Segment revenue                                Segment income (loss)
                                            For the three months ended June 30,               For the three months ended June 30,
                                               2012                      2011                   2012                         2011
                                          (In thousands)            (In thousands)         (In thousands)               (In thousands)
Fluorite                                $            6,089         $          6,714     $             (2,894 )         $          2,133

Nonferrous metals                       $            1,461         $          2,403     $             (1,403 )         $           (164 )

Fluorite

For the second quarter of 2012, the fluorite segment revenue decreased by 9% from approximately $6,714,000 for the three months ended June 30, 2011 to approximately $6,089,000 for the three months ended June 30, 2012. The decrease was primarily due to the decrease in sales volume and sale price for fluorite powder. The fluorite powder sales volume for the three months ended June 30, 2012 was approximately 13,100 tons, representing an approximate 3,450 ton or 21% decrease as compared to the same period of 2011. The fluorite powder average sales price for the three months ended June 30, 2012 was $291 per ton, representing an approximate $58 per ton or 17% decrease as compared to the same period of 2011.

Our fluorite segment loss was approximately $2,894,000 for the three months ended June 30, 2012, compared to a segment income of approximately $2,133,000 in the same period of 2011.

Nonferrous Metals

Nonferrous metals segment revenue for the three months ended June 30, 2012 amounted to $1,461,000, representing a decrease of approximately $942,000 or 39% as compared to the same period of 2011. The decrease was primarily due to the decrease in sales volume for zinc concentrate powder. Zinc concentrate powder sales volume for the three months ended June 30, 2012 was 585 metal tons, representing an approximate 942 metal ton or 62% decrease as compared to the same period of 2011.

Our nonferrous metals segment loss was approximately $1,403,000 for the three months ended June 30, 2012, compared to a segment loss of $164,000 in the same period of 2011.

RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2012 AS COMPARED TO SIX MONTHS
ENDED JUNE 30, 2011



Selected information from the Consolidated Statements of Operations



                                            For the six months ended June 30,
                                             2012                      2011
                                        (in thousands)            (in thousands)
Net revenue                            $           9,056         $          11,013
Gross profit                           $           2,030         $           5,008
Gross profit margin                                   22 %                      45 %
General and administrative expenses    $           5,724         $           5,503
Interest expenses                      $             893         $             346
Net loss attributable to the Company   $          (5,143 )       $          (1,481 )

REVENUES. Net revenues for the six months ended June 30, 2012 were approximately $9,056,000, representing an approximate $1,957,000 or 18% decrease as compared to the same period of 2011. The decrease was primarily due to the decrease in sales volume for fluorite powder and zinc concentrate powder. The fluorite powder sales volume for the six months ended June 30, 2012 was approximate 14,200 tons, representing an approximate 8,400 ton or 37% decrease as compared to the same period of 2011. Zinc concentrate powder sales volume for the six months ended June 30, 2012 was 585 metal tons, representing an approximate 942 metal ton or 62% decrease as compared to the same period of 2011.

GROSS PROFIT AND GROSS PROFIT MARGIN. For the six months ended June 30, 2012, gross profit was approximately $2,030,000, which decreased by approximately 59% from $5,008,000 in gross profit for the same period of 2011. The gross profits from the fluorite segment were approximately $2,147,000 and $4,399,000 for the six months ended June 30, 2012 and 2011, respectively. The gross profits from the non-ferrous metal segment were approximately ($117,000) and $609,000 for the six months ended June 30, 2012 and 2011, respectively. The fluorite segment's gross profits decrease was mainly due to the decrease in sales volume and sale price for fluorite powder. The fluorite powder sales volume for the six months ended June 30, 2012 was approximately 14,200 tons, representing an approximate 8,400 ton or 37% decrease as compared to the same period of 2011. The fluorite powder average sales price for the six months ended June 30, 2012 was $294 per ton, representing an approximate $28 per ton or 9% decrease as compared to the same period of 2011. Gross profit margin was approximately 22% for the six months ended June 30, 2012, a decrease from the gross profit margin of 45% for the same period of 2011.

GENERAL AND ADMINISTRATIVE EXPENSES. For the six months ended June 30, 2012, general and administrative expenses increased by approximately $221,000 to $5,724,000 in 2012 as compared to $5,503,000 in 2011. The increase was mainly due to the increased administrative expense associated with the newly acquired Dongsheng Mining, Meilan Mining, and Qianshi Resources entities.

INTEREST EXPENSE. Interest expense increased by approximately $547,000 from the same period of 2011. The increase was mainly due to the increase in the principal and the interest ratio of the short term loans.

NET LOSS ATTRIBUTABLE TO THE COMPANY. Net loss attributable to the Company for the six months ended June 30, 2012 was approximately $5,143,000, as compared to $1,481,000 for the same period of 2011. Basic net losses per share were $0.15 and $0.05 for the six months ended June 30, 2012 and 2011, respectively.

SEGMENT PERFORMANCE ANALYSIS



                                                   Segment revenue                                 Segment loss
                                          For the six months ended June 30,              For the six months ended June 30,
                                            2012                     2011                 2012                      2011
                                       (In thousands)           (In thousands)       (In thousands)            (In thousands)
Fluorite                              $           7,595         $         8,610     $          (4,601 )       $           1,820

Nonferrous metals                     $           1,461         $         2,403     $          (1,975 )       $          (1,139 )

Fluorite

For the six months ended June 30, 2012, fluorite segment revenue decreased by 12% from $8,610,000 for 2011 to $7,595,000 for 2012. The decrease was primarily due to the decrease in sales volume and sale price for fluorite powder. The fluorite powder sales volume for the six months ended June 30, 2012 was approximately 14,200 tons, representing an approximate 8,400 ton or 37% decrease as compared to the same period of 2011. The fluorite powder average sales price for the six months ended June 30, 2012 was $294 per ton, representing an approximate $28 per ton or 9% decrease as compared to the same period of 2011.

Our fluorite segment loss was approximately $4,601,000 for the six months ended June 30, 2012, compared to a segment income of approximately $1,820,000 in the same period of 2011.

Nonferrous Metals

Nonferrous metals segment revenue for the six months ended June 30, 2012 amounted to amounted to $1,461,000, representing a decrease of approximately $942,000 or 39% as compared to the same period of 2011. The decrease was primarily due to the decrease in sales volume for zinc concentrate powder. Zinc concentrate powder sales volume for the six months ended June 30, 2012 was 585 metal tons, representing an approximate 942 metal ton or 62% decrease as compared to the same period of 2011.

Our nonferrous metals segment loss was approximately $1,975,000 for the six months ended June 30, 2012, compared to a segment loss of $1,139,000 in the same period of 2011.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $1.25 million as of June 30, 2012, a decrease of $4.32 million as compared to the balance at December 31, 2011 of $5.57 million.

Net cash used in operating activities for the six months ended June 30, 2012 was $9.19 million, representing a $5.23 million increase as compared to $3.96 million in cash used for the same period in 2011.

Net cash used in investing activities for the six months ended June 30, 2012 was $1.59 million, as compared to $5.78 million used for the same period of 2011.

Net cash provided by financing activities for the six months ended June 30, 2012 was $6.45 million, as compared to $16.89 million provided for the same period of 2011.

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.

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

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 . . .