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LONDON (Dow Jones)--Additional underground sampling of the gold mines in the Shenjiaya Gold Prospect continues to return high grade gold values from quartz veins.

Surface diamond drilling has commenced to drill test the depth and lateral extension to known mineralisation within the mines.

Additional mineralisation defined from 300 million of strike length east of Xianglu Mine based on four (4) holes drilled.

A preliminary inferred resource estimate of this additional mineralisation is 278,000 tonnes at 3.95 g/t Au for some 35,000 contained ounces

Mineralisation remains open at depth and along strike.

Continuing run of the mine (ROM) sampling confirm extraction of ore grade material from the operating mines of between 5 g/t and 10 g/t Au.

China Goldmines' CEO, Mr Frank Vanspeybroeck said: "We are very pleased to announce that since the commencement of our exploration activities in April of this year the results to date far exceed our expectations.

"The geological results continually indicate high grades demonstrating a profitable mining operation, as a grade of 2.5 - 3 (and above) g /t Au is profitable in China.

"Furthermore our initial drilling has indicated that the mineralisation continues beyond our 5 km strike length project."

He said this is a significant milestone for the Company as it will validate our Chinese JV Partner's resource calculation of one million plus ounces to a depth of 325 metres (using Chinese resource methodology and standards).

China Goldmines said it was pleased to announce the continued exploration on its Shenjiaya Gold Prospect the commencement of exploration activities on its Xiaotaoyuan Gold Project in the Hunan Province, South West China.

The programs included the commencement of surface diamond drilling, continued surveys and underground channel sampling of all accessible underground mine workings, monitor the grade of Run of Mine Ore, mill feed, from the current producing mines and continue reconnaissance surface geological mapping to validate portions of previous geological mapping.

Updated underground surveys of all the accessible underground mine workings in the Shenjiaya Gold Prospect, has been completed.

Their accurate surveyed positions will allow for accurate positioning of future surface drill hole interception points both lateral to and below these mine workings for ongoing resource definition, the company said.

Additional underground channel sampling of the quartz veins in the lower levels of the Shenjiaya, Zhengjiashan, Baomuyuan, Jinzhuwan and Xianglu have been taken.

All samples are now assayed by the acid digest AA finish methodology by the accredited Hunan Institute of Mineral Resources Laboratory located in Changsha.

These values continue to support and confirm previous high gold values from underground sampling conducted at Shenjiaya and Zhengjiashan by Brigade 407.

A second phase surface of mill feed sampling, Run of Mine Ore (ROM), for the current producing mines was completed. There was no change to the program methodology, the collection of a daily bulk composite sample obtained by the collection of two standard shovel loads of minus 5mm diameter sized material from each ore wagon.

The composite sample was then reduced by conventional cone and quarter method to produce a 2 kg sample for assay. Assays were done at the Woxi Mine laboratory, by the fire assay method. They show a wide range of values, the company said.

Examination of the sampled material shows that there is a dilution factor, i.e. the presence of wall rock material a function of blasting thus causing some of the lower grade values. Furthermore none of these mining operations practice grade control procedures.

Once China Goldmines assumes management of the mine it will address dilution issues.

Surface diamond drilling has commenced. To date eight (8) holes, totalling 3,223 metres have been completed. Four (4) holes are in progress and five (5) additional holes are planned.

This drilling has intersected gold mineralisation from 300 million of strike length east of Xianglu Mines based on four (4) holes drilled.

Two drill holes have intersected mineralisation below the Zhengjiashan Mine workings.

The area east of the Xianglu Mine intersected by current drill holes has been block modelled using MineMap Software.

3 bulk samples of run of mine ore have been collected from the Shenjiaya, Baomuyuan and Zhengjiashan mines. Portions of these bulk samples are to be sent to Ammtec Laboratories in Perth Australia for basic preliminary test work. Results are pending.

Preparations are being made for the planning of an underground development program with commensurate underground diamond drilling in the Shenjiaya Gold Project, the company said.

The Company has established its administrative head office in Changsha, Hunan's capital. Together with its site office in Guanzhuang, the Company increased its staffing level to 20.

The transfer of the Shenjiaya Gold Prospect and the Xiaotaoyuan Gold Project licences to the Joint Venture Company is being processed.

The company said Tony Hespe has accepted the position of Exploration Manager and commences duties in January next year.

Hespe is a geologist with 30 years experience in exploration, resource definition and mine geology. He recently completed a two year assignment in China evaluating exploration properties for a major Canadian mining company, it said.