China Shen Zhou Updates on Industry Dynamics

BEIJING, Dec. 7, 2010 /PRNewswire-Asia-FirstCall/ -- China Shen Zhou Mining & Resources, Inc. ("China Shen Zhou", or the "Company")(NYSE Amex: SHZ), a company engaged in the exploration, development, mining and processing of fluorite, zinc, lead, copper, and other nonferrous metals in China, today announced that management is providing an update on the changing fluorite industry dynamics that should improve fluorite and hydrofluoric acid production and pricing.

Recently, the Chinese government issued the Industrial Admittance Conditions of Hydrogen Fluoride. The new policy seeks to protect the fluorite resource using incentives to upgrade the admittance threshold to the fluoride industry.

Similar to rare earth minerals, fluorite is rare and not recyclable, and it is becoming scarcer. It has important uses in a number of industries and the conservation of these strategic properties will help stabilize and develop these relevant industries. Fluoride is especially critical for making lithium batteries targeting the emerging electric car industry as the Chinese government has developed special incentives to encourage the purchase of electric vehicles. Fluoride is also a key ingredient in the pharmacy industry, chemical industry, optics industry and environmental protection industry, etc.

Considerable excess capacity among the producers of hydrofluoric acid led companies to adopt a low-price, low-margin strategy with low-end products to survive. This strategy resulted in low profitability, the overuse of fluorite and the emission of unnecessary environmental wastes.

The new industrial policy that the Government adopted now focuses on reducing the overuse of China's scarce fluorite assets and developing an improved pricing environment.

Capacity will be closely controlled through tougher licensing requirements to encourage mergers or acquisitions especially among many smaller, low-end hydrofluoric acid producers, to create greater efficiency.

Fluorite will be eliminated as a raw material to produce BHF hydrofluoric acid, which has a purity grade below 95%. Hydrofluoric acid producers will be prohibited from purchasing fluorite from unlicensed fluorite companies and the sale of fluorite to unlicensed hydrofluoric acid producers will be eliminated.

New environmental compliance for water and waste discharge will impose more stringent inspections, especially waste water monitoring in hydrofluoric acid production. Hydrofluoric acid production requires the direct application of water that if not properly treated, results in toxic contamination. Such actions will promote current facilities to move away from water reservoirs with new distance requirements from water sources. Dust collection, used fluoride collection systems, sewage and fluoride slag treatment systems will be necessary. The surplus production of hydrofluoric acid also requires a wasteful use of energy. Larger-scale operations may realize gains as some smaller, low-profitability companies could suspend their production rather than move their operations.  

New operating capacity will be limited to facilities with 50,000 tons or more per year. This policy encourages the existing fluoride companies to purchase fluorite mine resources, and limits new fluoride companies without their own fluorite mines from entering or further expanding into the fluoride industry.

The policy will improve the fluoride industry value chain. Fluorite benefits from the value added to the industry as it is the first and original chain.

These measures will help to improve integration of the industry and assist the larger, established companies. Value will be added with resources more efficiently used as production is rationalized and waste reduced. This is a replay whereby the government enacted a series of policies to closely control the total volume of fluorite production in the early half of 2010. From that time, the market price of major fluorite products has risen by over 100%.

Better quality products will result for the end users as smaller, unlicensed companies will be forced to merge or terminate operations.

Additionally, new higher-value products are likely to be developed to enhance product functionality and profitability as lower-margin production is restricted and these products have less impact on the market.

Larger companies such as China Shen Zhou should be the main beneficiaries of these new trends as they will capture the economies-of-scale and introduce higher-profit products earlier than smaller producers. The larger firms will have more research and environmental resources to quickly reach the new compliance standards and develop new higher-value products.    

Through these actions, supply and demand of fluorite should be brought into closer balance combined with better fluorite conservation, and improved pricing and profitability resulting.

"China Shen Zhou is positioned to benefit as it has the largest fluorite mine in mineral—rich northern China, which is also believed to be the largest privately owned fluorite asset in Asia. China Shen Zhou is the only public company operating a fluorite mine in China. Our Company supports these new initiatives to conserve valuable fluorite resources and create a more strict environmental policy to develop a healthy and sustainable future," said Ms. Yu Xiaojing, the CEO of the China Shen Zhou. "As these trends become more effective, better controlled fluorite supply should stimulate improved pricing."    

About China Shen Zhou Mining & Resources, Inc.

China Shen Zhou Mining & Resources, Inc., through its subsidiaries, is engaged in the exploration, development, mining, and processing of fluorite 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)zinc/copper/lead exploration, mining and processing in Wulatehouqi of Inner Mongolia; and (c) zinc/copper exploration, mining and processing in Xinjiang.

For more information, please visit http://www.chinaszmg.com/

Safe Harbor Statement

Certain of the statements made in the press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology. Such statements typically involve risks and uncertainties and may include financial projections or information regarding our future plans, objectives or performance. Actual results could differ materially from the expectations reflected in such forward-looking statements as a result of a variety of factors, including the risks associated with the effect of changing economic conditions in the People's Republic of China, variations in cash flow, fluctuation in mineral prices, risks associated with exploration and mining operations, and the potential of securing additional mineral resources, and other risk factors detailed in reports filed with the Securities and Exchange Commission from time to time.

SOURCE China Shen Zhou Mining & Resources, Inc.