Union Resources Ltd
QUARTERLY ACTIVITIES REPORT FOR PERIOD ENDED 31 DECEMBER 2006
Union Resources Limited ("Union") is focused on the Mehdiabad base metal
project (the "Project") located in Central Iran.
Union has to date invested in excess of US$15 million towards exploration and
feasibility activities relating to the Project in line with joint venture
arrangements between the Company, IMIDRO (the Iranian government partner) and a
private partner Itok GmbH. The joint venture operates through an Iranian
registered company, Mehdiabad Zinc Company ("MZC").
Exploration activities have outlined a world class zinc, lead and silver
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.
The subsequent feasibility study, supervised by Aker Kvaerner Australia
("AKAU"), has indicated that the "Optimum Case" development is a major open pit
mine, with a life of 20 - 40 years, and a large solvent extraction-
electrowinning (SX-EW) acid leach plant. The "Optimum Case" production is
300,000 tonnes per annum (tpa) zinc metal produced at site, with up to a
further 100,000 tpa of lead metal and 7 million ounces of silver contained in a
lead/silver concentrate, for sale to third parties to refine. The production
rate suggested would make Mehdiabad one of the world's largest zinc mines.
The "Optimum Case" is economically attractive, with an operating cost of only
US$290 per tonne of zinc metal, (after allowance for lead and silver credits),
at a zinc price of US$1,700 per tonne. However, the capital cost of the
development (capex) was estimated by AKAU to be US$1.6 billion. Union is of the
view that the financing of a development of this size, would be very difficult
at this particular time, for Iran.
Whilst full development may need to await more attractive investment
conditions, Union considers that a project with a lower capex, may be financed
at this time, as a First Stage of the full development.
In December 2006, IMIDRO delivered to Union a letter purporting to give notice
of termination of four of the five agreements relating to the joint venture.
Union remains firmly of the view, that the purported notice of termination is
invalid. A full update as to the status of Union's ongoing talks with IMIDRO is
set out below.
PURPORTED NOTICE OF TERMINATION
In the letter from IMIDRO received by the Company on 5 December 2006, IMIDRO
purported to notify the Company of the termination of four of the five
agreements that define the joint venture arrangements relating to the Project,
a. the Foundation Agreement;
b. the Basic Agreement;
c. the Management Agreement; and
d. the Engineering Agreement,
The basis of the letter of purported termination was, inter alia, an alleged
breach, by Union, of the conditions of Article 9.2.2 of the Basic Agreement.
Article 9.2.2 of the Basic Agreement provides that the joint venture company,
MZC, would deliver a feasibility study within the first two years of the joint
venture ("the Study").
As announced on 8 January 2007, Union has received a further letter from IMIDRO
in which IMIDRO confirmed that it considers that the terms of the Shareholders
Agreement are still binding.
Union advises that IMIDRO's subsidiary company, IMPASCO, which currently holds
the Exploitation Licence, has been called upon to transfer the Exploitation
Licence to MZC as required under the Foundation Agreement and Basic Agreement,
and to date has failed to do so. Union is of the view that, not only is it an
obligation of IMIDRO to ensure the transfer, it is absolutely necessary for MZC
to hold the Exploitation Licence in order for the Project development to be
After due consideration of Union's position, the Board has formed the view
a. The letter from IMIDRO purporting to terminate the Project Agreements is
invalid, and in fact there is no provision contained in any of the
Foundation Agreement, the Management Agreement or the Engineering Agreement
which confers on IMIDRO the right to terminate these agreements.
b. The Basic Agreement contains various grounds for termination. However, any
right for GIMCO (the original partner and signatory to the Basic Agreement)
to terminate the Basic Agreement, should MZC have failed to complete the
Study in a format acceptable to international financial institutions within
2 years, is subject to Article 5.2.4, which states that "if MZC has worked
continuously on the Project and for valid technical reasons needs more time
to complete the Study, then the parties will agree to a reasonable
(c) Because of the large and complex nature of the Project and the fact that
MZC has worked, and is still working, continuously on the Project, Union is of
the view that MZC has either been granted a further extension of time by all
parties to the Basic Agreement, or that circumstances clearly exist which would
make any request by MZC for such an extension of time to complete the Study not
Upon receiving the purported notice of termination from IMIDRO, Union
subsequently issued a Notice of Referral of Dispute in accordance with the
dispute provisions in the Basic Agreement.
Pursuant to the dispute provisions of the Basic Agreement, a meeting was held
in Tehran on 20 and 21 January 2007 between representatives of Union, IMIDRO
and Itok GmbH in an attempt to resolve the dispute which has arisen. However,
this meeting failed to resolve the disputes that have arisen and Union is now
considering its position as to the referral of the disputes to Arbitration
pursuant to the provisions of the Basic Agreement. The Basic Agreement provides
for the dispute to be brought before and settled by arbitrators in Tehran,
according to the rules of the International Chamber of Commerce.
Union is pleased to advise that the Company has received advice from the
Ministry of Economic Affairs and Finance in Iran, that Union's investment into
the project up until March 2006, (which to that date totalled US$14 million),
has been independently reviewed and approved by that Ministry. As a result this
investment is now protected in Iran from expropriation under the Foreign
Investment Promotion and Protection Act (FIPPA).
The IMIDRO controlled MZC board has to date only approved a total of US$7.3
million of the expenditure incurred to March 06, by Union. As a result of the
FIPPA approval, Union has advised MZC that it now expects all formalities
regarding MZC approval of the full US$14 million expenditure and associated
re-capitalization of MZC to be completed forthwith, in accordance with the
Whilst considering its position with respect to arbitration of the disputes,
Union is continuing to seek to have the purported letter of termination
withdrawn and the dispute resolved amicably so that the project can proceed
without undue delay.
NEW COPPER RESOURCE
Union has previously indicated that a copper resource occurs in material that
has been considered "waste", overlying the zinc resource, in the north-west
part of the proposed "Optimum Case" pit. During the quarter, evaluation of the
drilling results into this area was completed and a copper resource was
estimated by Hellman and Schofield and reported in accordance with the JORC
The copper mineralisation comprises of primary disseminated chalcopyrite.
Oxidisation of the upper portion has resulted in disseminated blebs and
veinlets of malachite, azurite and cuprite. The mineralisation partly coincides
stratigraphically with a large stratabound massive barite body and lies above
the main stratabound lead/zinc material. The thickness of the copper body can
reach up to 300 metres and has a relatively homogenous grade throughout.
The resource was calculated based on 0.3% cu cutoff.
Ore type Status Tonnage (Mt) Grade (%) Contained Cu. (T)
Oxide Indicated 29.1 0.61 179,169
Oxide Inferred 12.9 0.60 77,515
OXIDE TOTAL 42.1 0.60 256,684
Sulphide Indicated 13.1 0.51 67,411
Sulphide Inferred 17.2 0.40 68,169
SULPHIDE TOTAL 30.3 0.45 135,580
TOTAL 72.3 0.54 392,864
LOWER CAPEX DEVELOPMENT OPTION
The "Optimum Case" in the feasibility study shows that to ensure a profitable
operation required the coincident processing of oxide and sulphide ore in a
very large and expensive SX-EW acid leach plant. The capital cost of such a
plant is difficult to fund at this time in Iran.
As a result, Union, in anticipation of a satisfactory resolution of its ongoing
dispute with IMIDRO has begun to evaluate the possibility of heap leaching both
the zinc oxide ore and the recently discovered copper oxide mineralisation, as
a lower capital cost alternative to the large SX-EW plant for the oxide portion
of the resource.
HEAP LEACH METALLURGICAL TEST WORK
The variability tests indicate that the average zinc extraction in by the
conventional SX-EW plant considered in the Feasibility Study would be 70.9% and
hence we would expect that zinc extraction by heap leach to be lower. A column
leach test, with a head grade of only 1.97% Zn, has showed that at least 85% of
leach soluble zinc (or 65.6% of the total zinc) can be potentially extracted by
heap leach, considered an encouraging result.
The much lower capital cost of a heap leach operation makes this process option
for processing both the zinc and copper oxide worthy of serious consideration,
instead of initially developing the higher cost SX-EW plant, as considered in
the feasibility study.
CONCEPTUAL HEAP LEACH STUDY
During the quarter AKAU completed a conceptual heap leach study, based on
extensive zinc recovery variability testing carried out as part of the
feasibility study, and the column leach tests.
Whilst heap leaching has not been used commercially for zinc before, it has
been used successfully for gold and copper extraction for some years and more
recently for nickel extraction.
A flow sheet to recover the zinc from the leachate has been developed and
further evaluation of this option is in progress.
In anticipation of a satisfactory resolution of the dispute with IMIDRO, Union
continues to explore the technical and economic aspects of a low capital cost
approach to commencing production without affecting the possibilities to ensure
the "Optimum Case" scenario is developed as well, should economic conditions
The study shows that whilst awaiting better conditions for investment in Iran,
an economically attractive lower capex programme of development could
potentially be developed.
TERMINATION OF MANAGING DIRECTOR'S AGREEMENT
As announced to the Australian Securities Exchange on 30 January 2007,
Geophysical Research Pty Ltd, a company controlled by the Managing Director, Mr
Murdoch, and which provides certain services to the Company, including the
services of Mr Murdoch as Managing Director, has given three months notice of
the intention to terminate the agreement under which the services are provided,
such termination to take effect on 29 April 2007.
In May 2006, Union announced that it was seeking to make a number of
appointments to ensure that the Company would be successful in its aim of
developing the Project. The Company has identified individuals with the
required expertise to help it achieve its aim and to fulfil the functions
provided by Geophysical and anticipates that an announcement will be made once
the outstanding issues on the purported termination of the agreements and
potential dispute in Iran, are resolved.
The information contained in this report that relates to Exploration Results,
Mineral Resources and Ore Reserves is based on information complied by Mr Rob
Murdoch, Managing Director of Union Resources Limited. Mr Murdoch is a Member
of the Australasian Institute of Mining and Metallurgy and has the relevant
experience in relation to the mineralisation being reported upon to qualify as
a Competent Person as defined in the 2004 Edition of the Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr
Murdoch consents to the inclusion in the report of the matters based on his
information in the form and context in which it appears.
UNION RESOURCES LIMITED
For further information contact:
Australia: Union Resources Limited
Rob Murdoch - Managing Director
Phone: +61 07 3833 3833
London: Hanson Westhouse Limited
Bill Staple or Martin Davison
0207 7601 6100
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
40 002 118 872 31/12/06
Consolidated statement of cash flows
Cash flows related to operating activities Current Year to date
quarter (6 months)
1.1 Receipts from product sales and 0 0
1.2 Payments for (a) exploration and (865) (1,534)
1.3 Dividends received
1.4 Interest and other items of a 73 115
similar nature received
1.5 Interest and other costs of finance
1.6 Income taxes and GST paid/refunded 40 92
1.7 Other Bonds
Net Operating Cash Flows (1,155) (2,169)
Cash flows related to investing
1.8 Payment for purchases of: (a) (9) (14)
(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
Net investing cash flows (9) (14)
1.13 Total operating and investing cash (1,164) (2,183)
flows (carried forward)
1.13 Total operating and investing cash (1,164) (2,183)
flows (brought forward)
Cash flows related to financing
1.14 Proceeds from issues of shares,
1.15 Proceeds from sale of forfeited
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 (1,164) (2,183)
1.20 Cash at beginning of quarter/year 4,380 5,399
1.21 Exchange rate adjustments to item
1.22 Cash at end of quarter 3,216 3,216
Payments to directors of the entity and associates of the directors
Payments to related entities of the entity and associates of the related
1.23 Aggregate amount of payments to the parties 215
included 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
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
3.1 Loan facilities - -
3.2 Credit standby arrangements - -
Estimated cash outflows for next quarter
4.1 Exploration and evaluation 739
4.2 Development -
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 $A'000
items in the accounts is as follows.
5.1 Cash on hand and at bank 3,151 4,315
5.2 Deposits at call - -
5.3 Bank overdraft - -
5.4 Other Bank Guarantee 65 65
Total: cash at end of quarter 3,216 4,380
Changes in interests in mining tenements
Tenement Nature of interest Interest Interest
reference (note (2)) at at end of
6.1 Interests in mining - - - -
reduced or lapsed
6.2 Interests in mining - - - -
Issued and quoted securities at end of current quarter
Description includes rate of interest and any redemption or conversion rights
together with prices and dates.
Total number Number quoted Issue price Amount paid
per security up per
(see note 3) security
($) (see note 3)
7.1 Preference + - - - -
7.2 Changes during
7.3 +Ordinary 777, 171,727 777,171,727 fully paid fully paid
7.4 Changes during
7.5 +Convertible - - - -
7.6 Changes during - - - -
- - - -
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)
246,040,340 246,040,340 $0.0982 March 31, 2009
Listed UCLOA Listed UCLOA
264,430,711 264,430,711 $0.10 March 31, 2009
Listed UCLOB Listed UCLOB
90,000,000 $0.075 March 31, 2009
7.8 Issued during
7.10 Expired during
7.11 Debentures - -
7.12 Unsecured 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.