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Union Resources LTD (URL)

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Wednesday 31 January, 2007

Union Resources LTD

Quarterly Activities Report


                              Union Resources Ltd                              

         QUARTERLY ACTIVITIES REPORT FOR PERIOD ENDED 31 DECEMBER 2006

OVERVIEW

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,
namely:

 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
financed.

After due consideration of Union's position, the Board has formed the view
that;

 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
    extension."
   
(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
unreasonable.

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
agreements.

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
Code.

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
allow.

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

Rob Murdoch
Managing Director

For further information contact:

Australia: Union Resources Limited
Rob Murdoch - Managing Director
Phone: +61 07 3833 3833
Email: rob@unionresources.com.au

London: Hanson Westhouse Limited
Bill Staple or Martin Davison
0207 7601 6100

         
                                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                                31/12/06                   

Consolidated statement of cash flows

Cash flows related to operating activities            Current      Year to date      
                                                      quarter        (6 months)                 
                                                        $A'000         $A'000                         
                                                                
                                                        
                                                                           
1.1    Receipts from product sales and                 0                  0
       related debtors                                                     
                                                                           
1.2    Payments for (a) exploration and              (865)            (1,534)
       evaluation                                                          
                                                     (403)              (842)
       (b) development                                                     
                                                                           
       (c) production                                                      
                                                                           
       (d) administration                                                  
                                                                           
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                                 
       paid                                                                
                                                                           
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                                     
       activities                                                          
                                                                           
1.8    Payment for purchases of: (a)                 (9)               (14)
       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                      (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                                         
      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               (1,164)            (2,183)
      held                                                                    
                                                                              
1.20  Cash at beginning of quarter/year               4,380              5,399
      to date                                                                 
                                                                              
1.21  Exchange rate adjustments to item                                       
      1.20                                                                    
                                                                              
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
entities

                                                               Current quarter   
                                                                        $A'000                 
                                                                 
                                                                             
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       
       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                                            739
                                                                               
4.2   Development                                                             -
                                                                               
      Total                                                                 739

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
      (item 1.22)                                                            

Changes in interests in mining tenements

                              Tenement          Nature of interest    Interest  Interest 
                              reference        (note (2))             at        at end of
                                                                      beginning of                   
                                                                      quarter   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       fully paid       fully paid 
      securities                                                               
                                                                               
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)                                               


                         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 
                            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)                                                           

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.