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Tuesday 31 October, 2006

Union Resources LTD

Quarterly Report


31 October 2006

                              Union Resources Ltd                              

    QUARTERLY ACTIVITIES REPORT FOR THE PERIOD ENDED 30 SEPTEMBER 2006

OVERVIEW

Union Resources Limited (Union) is focused on the Mehdiabad Base Metal project
(Project) located in central Iran.

Extensive diamond drilling has outlined a resource totalling 394 million tonnes
at 4.2% Zn, 1.6% Pb and 36 g/t Ag, of which over 90% is either Measured or
Indicated under the JORC Code. This is one of the largest undeveloped zinc
resources in the world.

The resource includes an open cut mining reserve of 239 million tonnes at 3.7%
Zn, 1.1% Pb and 28 g/t Ag classified as probable ore under the JORC Code.

Assay results from one of the last holes from the drilling programme, (DH
8433), were received during the quarter. This hole intersected 77 metres at
7.05% Zn, 4.1% Pb and 76 g/t Ag. The intersection is at the northern end of the
resource and may reflect a richer feeder zone, continuing northwards, beyond
the current drilling extremities.

Aker Kvaerner Australia (AKAU) completed a 14 volume Feasibility Study Report
on the Project development in May 2006, as the third phase of a Bankable
Feasibility Development Programme (BFDS). The "Optimum Case" development,
identified in the AKAU report, involves the development of a major world class
open pit mine, and an SX-EW Plant designed to produce 300,000 tonnes per annum
(tpa) zinc metal at site, with up to a further 100,000 tpa zinc metal in
concentrates to be sold to others for refining, and a further 100,000 tpa of
lead and 7 million ounces of silver in a lead /silver concentrate.

The economic studies associated with the Feasibility Study Report show that the
"Optimum Case" development is attractive at a zinc price of US$1,700 per tonne,
producing zinc at an operating cost of US$290 per tonne of zinc metal, after
allowance of lead/silver credits. However, the "Optimum Case" development would
involve a capital investment estimated by AKAU to total US$1.6 billion.

During the quarter, Union and its financial advisors Societe Generale studied
the potential to "finance" a US$1.6 billion project at this time in Iran.
Whilst, there are indications that financing of a US$1.6 billion project may be
ultimately achieved, Union and its Iranian partners feel that a financing of
this size, would be very difficult at this particular time.

However, it is considered that a development with a more modest initial capital
requirement could be financed. Therefore Union is considering staging the
Project, to allow some development of the Project to occur as soon as possible,
so that Union and its partners can benefit from the current high base metal
prices ("First Stage").

Union is fast tracking a scoping study into a number of lower cost capital
development options. The objective of the study is to determine the most viable
low capital cost option as the First Stage, and also to ensure that the First
Stage fits into the long term plans set out in the "Optimum Case", without
compromising the long term potential and integrity of the Project.

During the quarter, the partners in the Project continued to work through the
outstanding issues associated with the Project. Most of the issues are expected
to be resolved quickly once the First Stage development plans are finalised, as
all parties involved are focused on achieving the earliest possible development
of the Project.

DRILLING ASSAY RESULTS:

During the quarter the logging, sampling of the core from the recently
completed in-fill drilling programme and a programme of detailed geological
mapping of faults, was also completed and the last of the samples have been
shipped to the laboratory for assay.

During the quarter the following assays were completed.

DDH 8433: 9801 N 10693 E

Zinc Mineralisation:
77 metres at 7.05% Zn, 4.10% Pb and 76 g/t Ag from 276 to 353 metres
17 metres at 5.03% Zn, 1.52% Pb and 33 g/t Ag from 358 to 375 metres

Lead Mineralisation:
7 metres at 4.23% Pb, 0.41 % Zn and 65 g/t Ag from 219 to 226 metres
4 metres at 5.46% Pb, 0.30% Zn and 70 g/t Ag from 228 to 232 metres
9 metres at 5.02% Pb, 1.70% Zn and 70 g/t Ag from 251 to 259 metres
10 metres at 3.58% Pb, 1.87% Zn and 58 g/t Ag from 266 to 276 metres

Copper Mineralisation:
5 metres at 0.34% Cu, 1.71% Zn, 0.71% Pb and 20 g/t Ag from 353 to 358 metres

The extensive and better grade mineralisation encountered in this hole, is
considered to be predominantly feeder style mineralisation along near vertical
veins indicating a possible centre of mineralisation close to this hole.

MINERALOGY:

A programme of metallurgical testwork completed earlier, to evaluate variations
in zinc recovery and acid use from all parts of the resource, gave an average
recovery of 70% Zn.

During the quarter, the mineralogy of those samples with poor recoveries were
examined in more detail using the Qemscan Scanning Electron Microscope Method.
The studies indicated that the recovery depended significantly on the ratio of
ZnO, ZnSiO3 and Zn.Mn.O. Areas of better recoveries have more ZnO, and poor
recovery more Zn.Mn.O.

Mineralogical studies are in progress to fine tune the identification of
relevant mineral species, using electron probes.

RESOURCES BLOCK MODEL:

During the quarter the resource block model was further refined with new
geological interpretation and additional core logging and assays. The block
model is expected to be finalised upon completion of final assaying.

In addition to the zinc mineralisation, a substantial zone of potentially
economic copper mineralisation has been identified, and the resource estimation
is awaiting the assay of samples from the last 10 holes samples within this
zone.

SULPHIDE METALLURGICAL TESTING:

During the quarter, Albion Process leach testing on a bulk sample of zinc
sulphide floatation concentrate has been completed by HRL Laboratories. The
Albion Process is a combination of ultra-fine grinding and oxidative leaching
at atmospheric pressure. The concentrate tested averaged 32% zinc, 19% sulphur
and 10% iron. A recovery of 98.1% of the Zn contained in the concentrate was
achieved over 24 hours of leaching, after grinding the concentrate to 6.66
microns. The acid consumption was 908 kg/t concentrate. Preliminary filtration
tests were carried out on the residue from the test, but the results are not
yet available.

Preliminary testwork on the sulphide flotation tailings continued. A short
series of test has been carried out to measure the potential to extraction more
zinc from the tailings. The amount of extra zinc extracted however, was found
to be low, although useful data was generated for future programme of work on
the fine tuning of the zinc recoveries.

STAGED DEVELOPMENT SCOPING STUDY:

Given the obvious difficulty in financing a major development at this time,
Union has decided to commence a scoping study into the staging of the
development of the Project, with the First Stage to be the best available
option at a significantly lower capital cost than the "Optimum Development".

Amongst the options being considered for the First Stage are:

 a. Building only the oxide section of the Optimum SX-EW plant to produce
    75,000 tonne per annum (tpa) of zinc metal.
   
 b. Heap leaching the oxide ore, as an alternative to the oxide SX-EW plant.
   
 c. Developing an underground mine to the north of the main open pit to target
    high grade sulphide ore, from which a concentrate could be produced.
   
HEAP LEACH TESTWORK:

Whilst heap leaching has not been used to recover zinc before on a commercial
scale, it is now commonly used for recovery of gold, copper and more recently
nickel. Heap leaching as an alternative to the SX-EW oxide plant, could
substantially reduce capital costs for the First Stage development.

Heap leaching is easily scaleable and successful test work, could allow the
Project to commence to be developed at a time when zinc prices are at an all
time high.

The way to determine if heap leaching may be successful is with column leach
metallurgical tests. During the quarter, an initial column leach test was
completed at HRL Laboratories. The test extracted 60% Zn from a 1.8% Zn head
grade sample agglomerated and then tested over 125 days. This compares
favourably with the 70% average zinc extraction for the oxide ore in a normal
leach operation and hence heap leaching may offer a viable lower capital cost
alterative. The optimum way to recovery of zinc from the heap leach solution
requires further investigation, which is in progress.

UNDERGROUND STUDY

During the quarter Union's geologists have examined the potential of accessing
high grade zones of mineralisation that occur to the north of the proposed pit.

Three high grade drill intersections have been identified in close proximity to
each other

on lines 9800N and 9900N are at the very northern end of the deposit.

Line 9800 N DH 8433: 30 metres at 13.90 % Zn + Pb
Line 9900 N DH 7002: 38 metres at 8.10% Zn +Pb
            DH 5311: 26 metres at 10.60% Zn +Pb

The important holes are 8433 and 7002 which suggest that the high grade
mineralisation is open to the north.

The geological interpretation from the core logging is that DH 8433 drilled
recently may be part of a feeder zone and close to the central part of the ore
deposit, and hence the deposit and the high grade may well extend further
north. Whilst open pitting in the area of these intersections is not viable,
this area and the area further north should be drill tested as part of a study
into the potential for underground mining in that direction, away from the
planned open pit.

The geologists are also working on a known smaller zinc deposit located at
higher elevations above the Mehdiabad Deposit. High grades ore was previously
mined from this area, known as the Calamine Deposit by way of stopes. This area
adds to the underground mining potential of the Project.

JOINT VENTURE ISSUES:

The Project is a joint venture between Union and both private and government
Iranian interests. Under the joint venture agreement Union and its private
partner were required to spend the first US $10 million on the Project (the
"Earn in"), after which all the parties had to contribute pro rata or dilute
their interests.

The `Earn in" expenditure commitment has now been completed by Union and its
partner. However, at this time only US$7.7 million of that expenditure has been
approved by the board of the joint venture company Mehdiabad Zinc Company (MZC)
and recorded appropriately in the accounts of the Company as "loans converting
into equity". A further US$7.6 million associated with Phase III of the BFDS
programme, is awaiting the MZC board's further consideration.

Union holds 25% of the initial founding shares in MZC. In accordance with the
agreements a capital increase in MZC should occur, now that the "Earn in", is
completed, whereby Union's interest in the Project will then be at least 40%.

During the quarter, negotiations have continued between the MZC shareholders in
order to determine each party's commitment to the capital costs going forward.
However, the finalisation of the negotiations has been slowed somewhat by the
need to plan and consider the staging of the Project.

However, when a decision on the "First Stage" has been made, then Union expects
the outstanding issues to be resolved quickly, as all the parties are keen to
see development without further delay.



The mineral resources information in this Report is based on, and accurately
reflects, information compiled by competent consultants and verified 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.


UNION RESOURCES LIMITED

Rob Murdoch
Managing Director

                                  


                                  Appendix 5B                                  

                  Mining exploration entity quarterly report                   

Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/2001.

Name of entity                                                              
                                                                            
Union Resources Limited                                                     

ABN                                             Quarter ended ("current     
                                                quarter")                   
                                                                            
40 002 118 872                                  30/09/06                    

Consolidated statement of cash flows

Cash flows related to operating activities          Current quarter    Year to date      
                                                                               
                                                         $A'000          (3 months)        
                                                                               
                                                                          $A'000            
                                                                               
1.1    Receipts from product sales and                     0                  0
       related debtors                                                         
                                                                               
1.2    Payments for (a) exploration and                 (669)              (669)
       evaluation                                                              
                                                        (439)              (439)
       (b) development                                                         
                                                                             
       (c) production                                                          
                                                                               
       (d) administration                                                      
                                                                               
1.3    Dividends received                                                      
                                                                               
1.4    Interest and other items of a similar              42                 42
       nature received                                                         
                                                                               
1.5    Interest and other costs of finance                                     
       paid                                                                    
                                                                               
1.6    Income taxes and GST paid/refunded                 52                 52
                                                                               
1.7    Other Bonds                                                             
                                                                               
       Net Operating Cash Flows                      (1,014)            (1,014)
                                                                               
       Cash flows related to investing                                         
       activities                                                              
                                                                               
1.8    Payment for purchases of: (a)                     (5)                (5)
       prospects                                                               
                                                                               
       (b) equity investments                                                  
                                                                               
       (c) other fixed assets                                                  
                                                                               
1.9    Proceeds from sale of: (a) prospects                                    
                                                                               
       (b) equity investments                                                  
                                                                               
       (c) other fixed assets                                                  
                                                                               
1.10   Loans to other entities                                                 
                                                                               
1.11   Loans repaid by other entities                                          
                                                                               
1.12   Other                                                                   
                                                                               
       Net investing cash flows                          (5)                (5)
                                                                               
1.13   Total operating and investing cash            (1,019)            (1,019)
       flows (carried forward)                                                 

1.13  Total operating and investing cash             (1,019)            (1,019)
      flows (brought forward)                                                  
                                                                               
      Cash flows related to financing                                          
      activities                                                               
                                                                               
1.14  Proceeds from issues of shares,                                          
      options, etc.                                                            
                                                                               
1.15  Proceeds from sale of forfeited                                          
      shares                                                                   
                                                                               
1.16  Proceeds from borrowings                                                 
                                                                               
1.17  Repayment of borrowings                                                  
                                                                               
1.18  Other - AIM Listing costs                                                
                                                                               
1.19  Issue costs                                                              
                                                                               
      Net financing cash flows                                                 
                                                                               
      Net increase (decrease) in cash                (1,019)            (1,019)
      held                                                                     
                                                                               
1.20  Cash at beginning of quarter/year                5,399              5,399
      to date                                                                  
                                                                               
1.21  Exchange rate adjustments to item                                        
      1.20                                                                     
                                                                               
1.22  Cash at end of quarter                           4,380              4,380



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                  65
       in 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                                            920
                                                                               
4.2   Development                                                             -
                                                                               
      Total                                                                    

Reconciliation of cash

Reconciliation of cash at the end of the           Current quarter   Previous quarter   
quarter (as shown in the consolidated                                          
statement of cash flows) to the related               $A'000             $A'000             
items in the accounts is as follows.                                           
                                                                               
5.1   Cash on hand and at bank                        4,315               5,334
                                                                               
5.2   Deposits at call                                    -                   -
                                                                               
5.3   Bank overdraft                                      -                   -
                                                                               
5.4   Other Bank Guarantee                               65                  65
                                                                               
      Total: cash at end of quarter (item             4,380               5,399
      1.22)                                                                    

Changes in interests in mining tenements

                                  Tenement   Nature of interest     Interest     Interest 
                                  reference                         at           at end of
                                             (note (2))             beginning    quarter  
                                                                    of               
                                                                    quarter            
                                                                               
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      Number quoted      Issue price     Amount paid 
                                                                    per security    up per      
                                                                    (see note 3)    security    
                                                                    ($)            (see note 3)
                                                                                    ($)         
                                                                               
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                777, 171,727    777,171,727          (refer          (refer   
       securities                                                    appendix A    appendix A 
                                                                     attached)     attached)  
                                                                               
7.4    Changes during                                                          
       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                    One ordinary    One ordinary        Exercise  Expiry date
       (description               share for each  share for each         price             
       and conversion             option held     option held                    
       factor)                                                         $0.0982    March 31
                               246,040,340     246,040,340                           2009 
                                                                         $0.10    March 31,
                              Listed UCLOA    Listed UCLOA                           2009
                                                                       
                               264,430,711     264,430,711              $0.075    March 31,
                                                                                     2009
                              Listed UCLOB    Listed UCLOB                          
                                                                               
                               90,000,000                                          
                                Unlisted                                                
                                                                      
                                                                               
7.8    Issued during                                                           
       quarter                                                                 
                                                                               
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.

Date: 20 September 2006

Robert Murdoch

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 01/07/06                 777,171,727           
                                                               
Total                                    777,171,727           



For further information:

Union Resources Limited                 (Tel: 00 61 7 3833 3833)
Rob Murdoch - Managing Director
www.unionresources.com.au

Hanson Westhouse LLP                    (Tel: 020 7601 6100)
Bill Staple
Martin Davison

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