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Tuesday 31 January, 2006

Union Resources Ltd

Quarterly Report

Union Resources Limited
31 January 2006


news release

For immediate release: 31 January 2006

                            UNION RESOURCES LIMITED
               QUARTERLY REPORT FOR PERIOD ENDED 31 DECEMBER 2005

OVERVIEW:

The main focus of Union Resources Limited ('Union') is the Mehdiabad Base Metal
Project ('The Project') located in Central Iran. This project comprises one of
the largest undeveloped zinc deposits in the world.

The Project moved from the exploration phase to the feasibility phase in 2004,
following a successful drilling campaign that outlined a world class zinc, lead
and silver resource, comprising both oxide and sulphide ore.

The Project is owned and operated by the Mehdiabad Zinc Company ('MZC') an
Iranian joint venture company set up between Union, private Iranian partner Itok
GmbH ('Itok') and the Iranian Government. Union has signed an agreement to
acquire Itok's interest in the project, which is awaiting settlement.

The Feasibility Study is being conducted by Aker Kvaerner Australia ('AKAU').
The study commenced in November 2004 and has been divided into three stages with
a major report deliverable at the end of each stage.

The first report was issued in March 2005 following a full review of the project
information to that stage by AKAU. This report set out a program of work that
AKAU considered was necessary before the project could be considered bankable.
This program of work was completed by the end of 2005, with the exception of the
bulk sulphide metallurgical testing, which is expected to be completed in the
next few months.

AKAU is now preparing a report entitled 'Feasibility Study' (FS) which will be a
comprehensive summary of the geology, resource, mining, geotechnical,
metallurgical and pilot plant studies completed to date, along with preliminary
process plant design and engineering, infrastructure and environmental studies.
The FS will provide updated information on the capital and operating cost of the
project. The FS is due in mid-February.

The FS will recommend the optimum method for advancing the project and
completing the final Bankable Feasibility Study ('BFS') report. The final BFS
report is anticipated to be ready by the third quarter of 2006.

In preparation for taking the project beyond the Feasibility Stage, Union has
appointed Mr Leif Engstrom as Project Executive for the Mehdiabad Project. An
electrical engineer by profession, Mr Engstrom has 30 years project management
experience, including four years experience with mine development in Iran. Mr
Engstrom is based in Tehran.


The details of the progress made during the quarter are as follows:

Drilling
Drilling is still continuing at Mehdiabad, for input into the final BFS report.
In the last quarter, 1,163 metres of drilling had been carried out focusing on
geotechnical site investigation of the plant site and waste dump, sterilisation
drilling around the mining pit and the infilling some gaps in resource area.

Resource Estimate
The resource estimation work is being performed by Dr Phillip Hellman, a
director of Hellman & Schofield Pty Ltd. Dr Hellman qualifies as a Competent
Person according to the 2004 JORC Code. The following update on the resource
estimates has been released with his permission.

A resource block model has been constructed and is being used for the purpose of
the FS. From the model, an interim resource estimate has been made. However,
this estimate is yet to be classified into Measured, Indicated and Inferred
categories, as significant new data, including outstanding assays from several
holes and revised topographic surveys have been recently received that will
affect these estimates. The new estimates will be released as soon as they can
be reported according to the JORC Code and Guidelines.

The proportion of the total resource that can be considered Measured and
Indicated is expected to be in excess of 50%. Preliminary pit optimisation
studies suggest that a high proportion of the resource occurs within a pit
shell. Hence there is expected to be a much greater degree of confidence in the
new resource estimate compared to the estimate previously reported.

The previously reported resource estimate (See Appendix A) was based on drilling
completed up until the end of the exploration phase. However, since that
estimate, more than 16,000 metres of in-fill drilling have been completed. It is
expected that the new estimate will have a zinc grade around 15% lower than
previously reported, (using the same cut off grade of 4% zinc). The tonnages are
expected to be approximately 20% lower. The grade variation at lower cut off
grades may be less pronounced.

The lower grade expected at 4% zinc cut off, is predominantly the result of
using the 'kriging method' for the new estimate, whereas the earlier estimate
was made using the 'nearest neighbour method'. 'Kriging' is considered to be a
more appropriate method to use at the feasibility stage of a project and also
for the quotation of Measured and Indicated resource estimates, as have now been
achieved by the additional drilling at Mehdiabad.

The lower tonnages are predominantly the result of a reduction in the search
distance out from each hole of 50%, to that used earlier. Hence, some of the
previous Inferred resource will not be included in the new estimate. The
reduction particularly affects the northern part of the deposit, where the
resource remains open over a width of 1500 metres and to thicknesses of 40
metres, leaving substantial exploration potential to increase the resource
again, subject to future drill testing.

The mining studies are suggesting that a cut off grade of around 2% zinc will be
more appropriate than 4% zinc for the quotation of the future resource
estimates.

MINE PLANNING
Australian Mine Design and Development (AMDAD) has carried out considerable work
in Whittle Pit Optimisation and mine production scheduling, based on a new block
model incorporating resource, geotechnical and zinc recovery data. The
particular focus has been on accessing the more profitable but deeper sulphide
ore as early as possible in the life of mine. These studies are now reaching
their conclusion, with detailed mine planning and production scheduling in
progress. The results of the studies will be included in the FS report and they
will be further updated in the final BFS.

GEOTECHNICAL STUDIES
Coffey's International has completed an extensive geotechnical study of the site
including pit wall stability and waste dump sterilisation drilling. A study of
the proposed plant site is now in progress. The geotechnical study raised some
concerns as to pit wall stability as the pit deepens. This has resulted in
changes in the mine design in flattening pit slopes and limiting the depth of
the pit at the northern end, which will be taken into account in the FS.

ZINC RECOVERY VARIABILITY TESTING
To optimise the design and future performance of the zinc plant over 1,000
separate samples have been selected for determination of zinc and manganese
extraction and acid consumption for the oxide deposit. A similar exercise is
currently in progress to determine the flotation response of sulphide ore and to
ascertain zinc and lead recovery variability. A large number of both the oxide
and sulphide tests have been completed and the information incorporated into the
block model for the pit optimisation used in the FS.

The oxide samples are being tested at HRL laboratories (HRL) and the sulphide
samples at Metcon. The results to date indicate an average oxide zinc recovery
of 65% and an average sulphide recovery of 69%. The variability testwork has
shown that some zinc is associated with carbonates and is more difficult to
recover, especially in the transition zone between the oxide and sulphide
sections. Further work is in progress to enhance the recoveries before the BFS.

METALLURGICAL TESTING
The oxide metallurgical testing program culminated in a successful pilot plant
campaign completed in September 2005 in Spain. Testwork on sulphide ore
continues, with a bulk sulphide concentrate being prepared for leach testwork,
in order to ascertain zinc recoveries from the acid leaching of the
concentrates. Results to date are encouraging and will be included in the FS,
with the final results incorporated in the BFS.

COMMINUTION TESTS
Comminution tests on all ore types shows that the ore is amenable to crushing
and grinding with low work indices and a low abrasivity.

PLANT DIMENSIONING
The AKAU FS report is being prepared on a base production of 200,000 tonnes per
annum (TPA) of zinc metal to be produced at the site, with a further 50,000 TPA
of metal in concentrates for sale to zinc smelters in Iran or overseas. Other
scenarios involving phased plant construction and/or expansion are also being
considered within the economic projections. The optimum scenario will then be
chosen for study in the BFS.

PLANT DESIGN
It is proposed to construct an 'Integrated Oxide/Sulphide Processing Plant' at
Mehdiabad. The combined treatment of oxide and sulphide ore streams results in a
number of synergies and cost savings in comparison with treating either ore type
by itself. AKAU in association with Tecnicas Reuindas (TR) is well advanced in
the design of this plant.

PLANT SITE
For the purpose of the FS, an alternate plant site (Plant Site 2) is being
studied to the plant site located adjacent to the mine site (Plant Site 1).
Plant Site 2 is located 24 kms north of the mine site and outside the wildlife
protection area that surrounds Mehdiabad. Plant Site 2 complies with Iranian
environmental restrictions currently applying to establishing operations within
or near wildlife protection zones.

INFRASTRUCTURE
Plant Site 2 is located adjacent to a 400 kv transmission line currently under
construction. It is with 18 kms from a siding on the main Tehran to Bandas Abbas
rail line. The site is around 60 kms from the provisional city of Yazd from
where the bulk of the workforce required for the project will be drawn.

WATER SUPPLY
Preliminary arrangements have been made to acquire the process water required
from treated effluent from the City of Yazd. The authority expects to be able to
supply all the process plant requirements, with potable water coming from fresh
water and ground water sources.

ENVIRONMENTAL
The Environmental Impact baseline work has been completed at the mine site and
the reports are currently being assessed. An Iranian Environmental Impact
Assessment is being prepared, along with an International Environmental and
Socioeconomic Impact Assessment prepared to World Bank standards.

EXPENDITURE
Project expenditure to the end of December 2005 was US$12.3 million and hence
Union believes it has now completed the full US$10 million 'Earn in' as required
of Union and Itok under the Joint Venture Agreement, prior to the Government
party having to start to contribute to the project to maintain its 50% share. An
amount of US$5.7 million of the 'Earn in' contributed by Union and Itok up until
March 2005, has already been approved by MZC shareholders and is now recorded in
the accounts of MZC as loans convertible to equity. An audit of the remaining
expenditure, incurred since March 2005, is currently in progress and following
its completion, a meeting of MZC shareholders can be held with the intention of
approving the conversion of the total 'Earn in' of US$10 million to equity in
MZC. The distribution of the final 'Earn in' equity will depend upon the
auditors' findings as to how much each party has contributed towards the 'Earn
in' and subsequent shareholders approval.

EXPLOITATION LICENCE
The Ministry of Mines and Industry issued the Exploitation Licence (EL: 60/
101711) in November 2005. The EL is in the name of the Government partner, and
in accordance with agreements made, it is to be transferred to MZC upon
completion and review of the FS report.

INVESTMENT LICENCE
Foreign Investment Licence 39470 was issued to Union by the Minister of Economic
Affairs and Finance on 21 December 2005. The licence permits Union, under the
full protection of Iran's Foreign Investment Promotion and Protection Act to
invest up to a total of US$682 million into the project, and includes the amount
spent by Union on the project to date.

Once the project is developed, the licence will allow MZC to export a minimum
75% of the output from the fifth year of operation. The licence allows
dividends, repayments of the principal and payment of interest to Union from the
export revenues and, if that amount is insufficient, then these payments can be
made from domestic surpluses.

As a result of the issue of the Foreign Investment Licence, Union now has been
able to add expropriation, to its existing war damage and forced abandonment to
its political risk insurance held in Australia. However, Union continues to be
extremely encouraged by the response of the Iranian authorities and our Iranian
joint venture partners towards the development of the project.

SELLING THE TELECOMMUNICATION ASSETS
The completion of an agreement to dispose of Union's indirect interest in
Philippines telecommunication company ('ETPI') is subject to the completion of
the registration of the shares in ETPI into the name of AGN Philippines. Advice
from AGN Philippines lawyers is that they expect completion of this process
shortly. The completion of the sale can then follow, and when finished is
expected to provide around A$5 million to Union. These funds will be used for
the third stage of the feasibility study and for working capital.

The mineral resources information in this Report is based on, and accurately
reflects, information compiled by Mr Rob Murdoch who is a Corporate Member of
the Australasian Institute of Mining and Metallurgy. Mr Murdoch has the relevant
experience in relation to the mineralisation being reported upon to qualify as a
Competent Person as defined in the Australasian Code for Reporting of Identified
Mineral Resources and Ore Reserves.

Appendix A
At a 4% zinc cut off grade the 2001 Resource estimate was:

Resource    Million Tonnes    Zinc Grade         Lead       Silver Grade
Category                                         Grade
Indicated              75.2   7.4 %              2.4%       62 g/t
Inferred              142.7   7.1 %              2.3 %      46 g/t
Total                 217.9   7.2%               2.3 %      51 g/t



ENDS:

For further information:

Union Resources Limited (Tel: 00 61 7 3833 3833)
Rob Murdoch - Managing Director

www.unionresources.com.au

Westhouse Securities LLP (Tel: 020 7601 6100)
Bill Staple
Richard Morrison

Bankside Consultants (Tel: 020 7367 8888)
Keith Irons
Simon Rothschild


Appendix 5B

                   Mining exploration entity quarterly report

Consolidated statement of cash flows
                                                      -----------   ------------
Cash flows related to operating activities                Current      Year to
                                                          quarter         date
                                                           $A'000   (6 months)
                                                                        $A'000
                                                        ----------- ------------
 1.1   Receipts from product sales and related                  0            0
       debtors

 1.2   Payments for (a) exploration and evaluation         (2,771)      (5,291)
                    (b) development                             0            0
                    (c) production                              0            0
                    (d) administration                       (445)        (816)
 1.3   Dividends received                                       0            0
 1.4   Interest and other items of a similar nature            52           77
       received
 1.5   Interest and other costs of finance paid                 0            0
 1.6   Income taxes and GST paid/refunded                     135          257
 1.7   Other Bonds
                                                        ----------- ------------
       Net Operating Cash Flows                            (3,029)      (5,773)
------ ------------------------                         ----------- ------------
       Cash flows related to investing activities
 1.8   Payment for purchases of: (a) prospects                  0            0
                                 (b) equity investments         0            0
                                 (c) other fixed assets       (14)         (14)
 1.9   Proceeds from sale of:    (a) prospects                  0            0
                                 (b) equity investments         0            0
                                 (c) other fixed assets         0            0

1.10   Loans to other entities                                  0            0
1.11   Loans repaid by other entities                           0            0
1.12   Other                                                    0            0
                                                        ----------- ------------
       Net investing cash flows                               (14)         (14)
                                                        ----------- ------------
1.13   Total operating and investing cash flows            (3,043)      (5,787)
       (carried forward)                               
------ ------------------------                         ----------- ------------

1.13   Total operating and investing cash flows            (3,043)      (5,787)
       (brought forward)                              
------ ------------------------                         ----------- ------------

       Cash flows related to financing activities
1.14   Proceeds from issues of shares, options, etc.        2,248        7,782
1.15   Proceeds from sale of forfeited shares                   0            0
1.16   Proceeds from borrowings                                 0            0
1.17   Repayment of borrowings                                  0            0
1.18   Other - AIM Listing costs                             (140)        (140)
1.19   Issue costs                                            (61)         (89)
                                                       ------------ ------------
       Net financing cash flows                             2,047        7,553
------ ----------------------                          ------------ ------------
       Net increase (decrease) in cash held                  (996)       1,766
1.20   Cash at beginning of quarter/year to date            4,560        1,798
1.21   Exchange rate adjustments to item 1.20
                                                       ------------ ------------
1.22   Cash at end of quarter                               3,564        3,564
------ ----------------------                          ------------ ------------


Payments to directors of the entity and associates of the directors

Payments to related entities of the entity and associates of the related
entities
                                                                   -------------
                                                                       Current
                                                                       quarter
                                                                        $A'000
                                                                   -------------
1.23   Aggregate amount of payments to the parties included in             160
       item 1.2                                                    -------------
1.24   Aggregate amount of loans to the parties included in item             -
       1.10                                                        
------ --------------------------------                            -------------

1.25   Explanation necessary for an understanding of the transactions
       -------------------------------------------
       Consultancy Fees, Directors Fees, Salaries and Reimbursement of
       Expenses
       -------------------------------------------

Non-cash financing and investing activities

2.1   Details of financing and investing transactions which have had a material
      effect on consolidated assets and liabilities but did not involve cash
      flows
      --------------------------------------------


      --------------------------------------------

2.2   Details of outlays made by other entities to establish or increase their
      share in projects in which the reporting entity has an interest
      --------------------------------------------


      --------------------------------------------



Financing facilities available

Add notes as necessary for an understanding of the position.
                                                -------------      -------------
                                           Amount available        Amount used
                                                     $A'000             $A'000
                                                -------------      -------------
3.1   Loan facilities                                     -                  -
                                                -------------      -------------
3.2   Credit standby arrangements                         -                  -
----- -----------------------                   -------------      -------------


Estimated cash outflows for next quarter
                                                                        $A'000
                                                              ------------------
4.1   Exploration and evaluation                                         3,500
                                                              ------------------
4.2   Development                                                            -
----- -----------------------------                           ------------------
      Total
----- -----------------------------                           ------------------


Reconciliation of cash
                                                      ------------ -------------
Reconciliation of cash at the end of the quarter (as     Current      Previous
shown in the consolidated statement of cash flows) to    quarter       quarter
the related items in the accounts is as follows.
                                                          $A'000        $A'000
-------------------------                             ------------ -------------
5.1   Cash on hand and at bank                             3,499         4,515
                                                      ------------ -------------
5.2   Deposits at call                                         -             -
                                                      ------------ -------------
5.3   Bank overdraft                                           -             -
                                                      ------------ -------------
5.4   Other Bank Guarantee                                    65            45
----- ----------------------                          ------------ -------------
      Total: cash at end of quarter (item 1.22)            3,564         4,560
----- ----------------------                          ------------ -------------


Changes in interests in mining tenements

                                -------- ---------------     --------   --------
                              Tenement       Nature of  Interest at   Interest
                             reference        interest beginning of  at end of
                                                            quarter    quarter
                                            (note (2))
                                -------- ---------------     --------   --------
6.1   Interests in mining            -               -            -          -
      tenements                 -------- ---------------     --------   --------
      relinquished, reduced
      or lapsed
6.2   Interests in mining            -               -            -          -
      tenements acquired or     -------- ---------------     --------   --------
      increased



Issued and quoted securities at end of current quarter

Description includes rate of interest and any redemption or conversion rights
together with prices and dates.

                                    Total        Number      Issue     Amount
                                   number        quoted  price per    paid up
                                                          security        per
                                                         (see note   security
                                                            3) ($)  (see note
                                                                       3) ($)
------ -----------              -----------   ----------- ---------- ----------
 7.1   Preference +securities           -             -          -          -
       (description)            
                                -----------   ----------- ---------- ----------
 7.2   Changes during
       quarter
       (a) Increases through
       issues
       (b) Decreases through
       returns of capital,    
       buy-backs,
       redemptions
------ -----------              -----------   ----------- ---------- ----------
 7.3   +Ordinary securities   759,594,266   759,594,266   (refer     (refer
                                                          appendix A appendix A
                                                          attached)  attached)
                                -----------   ----------- ---------- ----------
 7.4   Changes during          75,000,000    75,000,000      $0.03      $0.03
       quarter
       (a) Increases through
       issues              
------ -----------              -----------   ----------- ---------- ----------
 7.5   +Convertible debt                -             -          -          -
       securities               -----------   ----------- ---------- ----------
       (description)
 7.6   Changes during                   -             -          -          -
       quarter
       (a) Increases through            -             -          -          -
       issues
       (b) Decreases through
       securities matured,  
       converted
------ -----------              -----------   ----------- ---------- ----------
 7.7   Options (description  One ordinary  One ordinary   Exercise     Expiry
       and conversion factor)   share for     share for      price       date
                              each option   each option
                                     held          held
                                4,000,000     4,000,000      $0.10  March 31,
                                                                         2006
                                 Unlisted      Unlisted    $0.0982  March 31,
                                    UCL03         UCL03                  2009
                              246,050,340   246,050,340      $0.10  March 31,
                                                                         2009
                                   Listed        Listed
                                    UCLOA         UCLOA
                              252,430,711   252,430,711
                                   Listed        Listed
                                    UCLOB         UCLOB        
                                -----------   ----------- ---------- ----------
 7.8   Issued during          151,000,000   151,000,000      $0.10  March 31,
       quarter                                                           2009
                                   Listed        Listed
                                    UCLOB         UCLOB      
                                -----------   ----------- ---------- ----------
 7.9   Exercised during
       quarter                  -----------   ----------- ---------- ----------

7.10   Expired during
       quarter                  -----------   ----------- ---------- ----------
                                                  
7.11   Debentures                                                -          -
       (totals only)
                                -----------   ----------- ---------- ----------
7.12   Unsecured notes                                           -          -
       (totals only)                       
                                -----------   ----------- ---------- ----------


Compliance statement

1 This statement has been prepared under accounting policies, which comply with
accounting standards as defined in the Corporations Act or other standards
acceptable to ASX (see note 4).
2 This statement does give a true and fair view of the matters disclosed.


Notes

1 The quarterly report provides a basis for informing the market how the
entity's activities have been financed for the past quarter and the effect on
its cash position. An entity wanting to disclose additional information is
encouraged to do so, in a note or notes attached to this report.

2 The 'Nature of interest' (items 6.1 and 6.2) includes options in respect of
interests in mining tenements acquired, exercised or lapsed during the reporting
period. If the entity is involved in a joint venture agreement and there are
conditions precedent which will change its percentage interest in a mining
tenement, it should disclose the change of percentage interest and conditions
precedent in the list required for items 6.1 and 6.2.

3 Issued and quoted securities The issue price and amount paid up is not
required in items 7.1 and 7.3 for fully paid securities.

4 The definitions in, and provisions of, AASB 1022: Accounting for Extractive
Industries and AASB 1026: Statement of Cash Flows apply to this report.

5 Accounting Standards ASX will accept, for example, the use of International
Accounting Standards for foreign entities. If the standards used do not address
a topic, the Australian standard on that topic (if any) must be complied with.

Appendix A - Ordinary Shares

Description                                      Number          Issue Price $
Opening Balance 01/09/05                    684,594,266
Placement - Lundin Mining AB                 75,000,000                  $0.03
Total                                       759,594,266




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