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Union Resources Ltd (URL)

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Friday 28 July, 2006

Union Resources Ltd

Quarterly Report

Union Resources Limited
28 July 2006

28 July 2006

                              Union Resources Ltd



Union Resources Limited ('Union') is focused on the Medhiabad Base Metal project
('the Project') located in Central Iran. The Project is currently progressing
from the exploration and feasibility stage to the financing and development

Over 50,000 metres of diamond drilling has been completed on the Project and has
outlined a resource estimated by independent geologists Hellman & Schofield to
total 394 million tonnes at 4.2% Zn, 1.6% Pb and 36 g/t Ag. The resource is now
sufficiently well known for over 90% of the resource to be classified under the
JORC code as either 'Measured' or 'Indicated'.

The probable open cut mining reserve determined by Australian Mine Design and
Development Company is 239 million tonnes at 3.7% Zn, 1.1% Pb and 28 g/t Ag.
About 25% of the ore is oxide and 75% is sulphide. Access to the deeper
resource, located below this reserve, will depend upon geotechnical studies
during the life of the mine.

A Bankable Feasibility Development Study (BFDS) programme was commenced in
November 2004 by Aker Kvaerner Australia (AKAU). The report on Phase I and II of
the programme was completed in March 2005, following an initial US$3 million
study programme. This report reviewed the information available to that time and
recommended a more comprehensive programme of work for Phase III that has cost
US$8 million and has taken 12 months to complete.

The 'Bankable Feasibility Development Project Phase III Report', also entitled
'Mehdiabad Feasibility Study' (FS) was received by Union on 2 May 2006.
Following an initial review by Union, the FS was presented to the Company's
Iranian partners in the Mehdiabad Zinc Company (MZC) on 26 June 2006. The FS is
now being reviewed in Iran, in advance of a series of meetings of MZC
shareholders, designed to plan the future financing and development of the

The FS proposes development of an integrated process plant that will treat both
the oxide and sulphide ore. The plant will be located some 25 km from the mine,
outside the wildlife reserve that surrounds the Mehdiabad deposit.

An economic study prepared by CPK Consulting based on the FS results has
concluded that the optimum plant capacity is 300,000 tonnes per annum of zinc
metal to be produced on site, with a further 100,000 tonnes per annum of zinc
metal in concentrates to be sold to other parties. (400,000 tonnes per annum of
zinc metal in total). The plant would also produce an additional 100,000 tonnes
of lead/silver concentrates.

The capital cost of the full development has been estimated by AKAU to be in the
order of US$1.6 billion. The operating cost is around US$600 per tonne of zinc
metal, reducing to around US$290 per tonne of zinc metal after allowing for the
lead and silver credits.

At a zinc price of US$1,700 per tonne, lead at US$950 per tonne and silver at
US$8 per ounce, the NPV of the optimum plant has been calculated by CPK
Consulting at 8% discount to be US$1,477 million and the IRR is 15%.

The FS clearly demonstrates the viability of a long life mining and processing
operation at Mehdiabad. After finalising future contributions by the various
parties within MZC, the next step will be to determine whether the Project is


The FS report comprises three volumes and well in excess of 1000 pages of new
information on the Project.

AKAU advise that the main advancement of the study during Phase III of the BFDS
were as follows.

  • 'Metallurgical evaluation of the oxide deposit through the Technicas
    Reundas Pilot Plant and variability testwork that has characterised the
    oxide deposit in terms of zinc extraction and acid consumption.'

  • 'Sulphide metallurgical testwork to test the variability of the
    flotation performance and to determine preliminary parameters for the
    concentrator design.'

  • 'Development of environmental studies for the assessment reports.'

  • 'Location of a plant site outside the restricted area to comply with the
    implicit requirements of Iranian law and the requirements of the Equator
    Principals for World Bank acceptability.'

  • 'Development of the integrated plant to treat oxide and sulphide feed in
    an efficient and cost effective way.'

  • 'Completion of Metsim models for all the cases being run for the
    financial analysis of the Project.'

  • 'Plant design for 200,000 tonne per annum zinc metal plant, with capital
    and operating costs.'

  • 'Consideration of other options in order to improve the financial
    returns for the Project.'

The Phase III programme has also included the following data acquisition and
metallurgical programmes, conducted by other consultants.

   • Completion of in fill drilling;

   • Collection of geotechnical and metallurgical drill core;

   • Metallurgical recovery variability testwork;

   • Bulk sampling for pilot plant testing;

   • Oxide and sulphide ore metallurgical testwork;

   • Resource modelling using Hellman & Schofield;

   • Pit Optimisation by AMDAD; and

   • Project financial analysis by CPK Consulting.


During the quarter 957 metres of drilling was completed, which has completed the
in fill drilling program required for the FS study. Work is continuing on site
to complete outstanding geological logging of the drill core and the hence to
finalise the data base. The last of the assays are expected shortly.


A potential low grade copper/zinc resource, has been identified within waste
material from the western side of the optimized open pit at Mehdiabad. Sampling
is underway of some of the early holes within this area that were never assayed
for copper. Once the sampling and subsequent assaying is completed, the resource
will be estimated and reported upon.


(a)            Oxide variability

The results of the oxide variability tests have indicated where further testwork
can be undertaken to define more clearly the overall extractions and acid
consumptions. The variability test work has been conducted by HRL Laboratories.
The tests completed have measured the acid consumption and the zinc extracted
for a total of 258 composite samples, taken from different parts of the oxide
resource. The zinc head grade of the samples ranged from less than 0.5% to 21.8%
zinc, with an average of 4.91%. The calculated zinc extractions range from 9.1%
to near complete extraction (100%), with an average of 67.5%. When a 2% minimum
zinc cut-off was applied, the average zinc level rose to 5.29%, and the
extraction remained almost the same at 66.7%. Whilst the accuracy of these
simplified tests is considered limited, the results can be used to select areas
from where samples can be taken for more accurate leach tank tests.

(b)            Sulphide variability

The variability of the sulphide ore has been examined in a series of simplified
flotation tests on about 30 samples by Metcon Laboratories. The test comprises a
lead rougher float and a zinc rougher float, with a second zinc cut to determine
the ultimate flotation recovery. The test programme focussed on rapidly
screening a wide range of samples to give indicative recoveries for lead and
zinc. The results showed wide variation, and gave indicative recoveries ranging
from 60.8% and 72.8%, with an average of 67.3% for lead, and a range of 54.8% to
over 95%, with an average of 80.1% for zinc. Whilst an average 80% zinc recovery
is better than the 72% used in the FS, it is felt that given the limited
accuracy of the variability testwork, a recovery of 72% is the more prudent
figure to use as the average zinc recovery from the sulphide ore.

(c)            Evaluation of areas with poor recoveries

A programme of work is underway by Hellman & Schofield to examine the mineralogy
of the ore in areas with the poorer recovery, to identify the minerals in the
oxide material that are resistant to acid leaching, and minerals in the sulphide
ore that are difficult to recover by flotation. Once this work is completed,
additional testwork can be directed at finding methods of improving the zinc
recovery in those areas.


Leaching testing is being carried out by HRL Laboratories on a bulk sample of
zinc sulphide flotation concentrate that was specifically prepared for the
purpose by Lakefield Oretest. The leach tests are aimed at establishing the
design criteria and the optimum operating conditions, in order to maximise the
zinc extraction and minimise the oxygen consumption in the leach. The last stage
of the tests will be settling and filtration tests carried out on fresh leach
pulp in September.

Preliminary testwork has been carried out on sulphide flotation tailings to see
if the residual zinc (much of it oxide zinc) can be recovered economically. With
many samples, the acid demand was so high that zinc recovery would prove
uneconomic, but in certain areas of the deposit, careful selection of the
operating conditions could make some of the zinc economically recoverable. This
work is on-going.


The oxide leach tests that were carried out to study the effect of an addition
of zinc sulphide concentrate to act as a reducing agent have been completed. A
very brief flotation test was carried out to determine whether unreacted zinc
sulphide could be recovered by flotation. With some of the cases the results are
encouraging and further testwork is recommended to examine the process in more

Heap leaching of low-grade ore (1.6% Zn) is also being examined, and the results
to date are encouraging. The ore was carefully prepared to prevent excessive
evolution of carbon dioxide in the test heap leach equipment, and after 80 days,
the zinc extraction has risen to 55% and the acid consumption is acceptable.

The examination of the treatment of the copper-bearing materials has started.
Leach tests are being carried out on oxide ore with high copper levels, and the
copper is leachable, but shows the same variable extraction that is
characteristic of the zinc.


The Project is operated through an Iranian joint venture company, Mehdiabad Zinc
company (MZC). The founding shareholders of MZC at the formation of the company
in 2003 were Union (25%), Itok GmbH (25%) and the Government of Iran 50%). Under
the joint venture agreements the Government was given a US$10 million credit as
a loan convertible to equity in the accounts of MZC. Union and Itok were
required to spend a matching US$10 million on the Project (called the 'Earn

The commencement of the Finance Phase has been delayed awaiting the acceptance
by the other shareholders of at least US$10 million of the expenditure incurred
by Union and Itok as 'loans converting to equity'.

Once the review of the FS is completed in Iran, then Union expects MZC to hold a
series of meetings designed to solve a number of outstanding issues between the
parties that are now delaying the project. The outstanding issues are:

  • Formalise the completion of the Earn in, by converting past expenditure
    into shares in accordance with the agreements between the parties.

  • Determine the financial contributions each shareholder will commit to,
    and hence the final ownership structure, going forward.

  • The future board representation and management control of MZC.

  • The issue of the Exploitation Licence and other licences required by MZC
    to operate the project.

  • The forward development work programme and timetable.

Upon the conversion of the past expenditure into shares, Union would expect its
shareholding in MZC will increase to a percentage in excess of 40%.


A preliminary review of the AKAU Phase III report has been undertaken by Union's
financial advisors Societe Generale who advise that;

'The Mehdiabad Project is at a crucial stage in its development. Enough work has
been completed to give a reasonable clear picture of the optimum project. The
work that remains to be completed to take it to full Bankable Feasibility Study
(BFS) standard is unlikely to change the broad outline or result in the Project
being considered uneconomic. The question has, therefore to be addressed as to
whether it is financeable and whether it is sufficiently certain to justify the
remaining expenditure on the BFS.'

Once the MZC issues have been resolved, then the Finance Phase can commence. The
aim of the Finance Phase will be to prepare all the necessary documentation
required to attract the appropriate level of equity and debt finance for the

The Finance Phase is expected to include a Funding Document to be prepared by
AKAU and a Finance Plan to be prepared by Societe Generale. It will cost in the
order of US$10 million and take around 12 months to complete this phase.


In response to requests from shareholders for more information directly from the
Feasibility Study, a shareholders update prepared by Union, to provide up to
date information on the project is available on the website -

Also on the website is an edited version of Aker Kvaerner's BFDS Phase III
Executive Summary and the ore reserve statement.

For further information contact:

Australia:     Union Resources Limited
               Rob Murdoch - Managing Director
               Phone: +61 7 38333833
               Email: [email protected]

London:        Westhouse Securities LLP
               Bill Staple or Richard Morrison
               0207 7601 6100

Union Resources Limited

Rob Murdoch

Managing Director


Acid leaching: The leaching of finely ground oxide ore or sulphide concentrate
using hydrochloric acid in a series of agitated tanks. In the leaching process
the acid removes certain metals including zinc from the solids and takes them
into a solution in a format suitable for further processing.

Acid Consumption: The amount of hydrochloric acid that will be consumed in
leaching the zinc and other metals. This will vary across the resource,
dependent upon variations in the mineralogy.'

Ag: Silver.

Bankable Feasibility Development Programme: A programme of data gathering, test
work, studies, engineering drawings and report preparation that will lead
through a number of phases ultimately to a document that the consulting engineer
will sign off as being considered suitable to use in the financing of the

Flotation testing: The testing of sulphide ore from various parts of the
resource to determine its characteristics to conventional flotation techniques.

Geotechnical studies: Site investigations and test work that provide the basis
for the recommendations made by a geotechnical engineer into how to design the
pit to maximise the stability of the pit walls and also waste dumps.

g/t: grams per tonne.

Measured and Indicated: Are two of the three classifications used to describe
the confidence level of a resource, under the JORC Code. Measured is the highest
level, then Indicated, the third and lowest level is Inferred.

Metsim Models: Computer based models that can be used to help design process
plants based on the metallurgy and other inputs.

Pb: Lead.

Reserve: Is that part of the resource that is considered capable of being mined.
This assessment is based on mining engineering, pit optimisation, geotechnical
studies and economic considerations, under accepted industry standards such as
the JORC Code.

Resource: Is a mineral deposit that has been sufficiently well drilled to meet
the accepted industry standards, such as the JORC Code. The resource is measured
in tonnes and grade in each of three classifications,

Sulphide flotation tailings: Is the solid residue from the flotation of the
sulphide ore.

Varaibility Testwork: Is the testing of hundreds of samples from all over the
resource to obtain an indication as to the recovery of zinc and the acid
consumption from each part of the resource.

Zn: Zinc.

                                  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                 30/06/06
-------------------            ------------------

Consolidated statement of cash flows
                                                      -----------  ------------
Cash flows related to operating activities            Current      Year to date
                                                      quarter      (12 months)
                                                      $A'000       $A'000
                                                       ----------- ------------
  1.1   Receipts from product sales and related                0             0

  1.2   Payments for (a) exploration and evaluation        (1448)       (9,774)
        (b) development                                        0             0
        (c) production                                         0             0
        (d) administration                                  (371)       (1,603)

  1.3   Dividends received                                     0             0

  1.4   Interest and other items of a similar nature          
        received                                              83           187

  1.5   Interest and other costs of finance paid               0             0

  1.6   Income taxes and GST paid/refunded                   149           611

  1.7   Other Bonds
                                                       -----------  ------------
        Net Operating Cash Flows                          (1,587)      (10,579)
                                                       -----------  ------------

        Cash flows related to investing activities

  1.8   Payment for purchases of: (a) prospects                0             0
        (b) equity investments                               (15)          (15)
        (c) other fixed assets                               (12)          (42)

  1.9   Proceeds from sale of: (a) prospects                   0             0
        (b) equity investments                                 0         5,630
        (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                             (27)        5,573
                                                       -----------  ------------
 1.13   Total operating and investing cash flows          (1,614)       (5,006)
        (carried forward)                              -----------  ------------

 1.13   Total operating and investing cash flows          (1,614)       (5,006)
        (brought forward)                             ------------  ------------

        Cash flows related to financing activities

 1.14   Proceeds from issues of shares, options,               0         8,889

 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                              0          (140)

 1.19   Issue costs                                           (5)         (142)
                                                      ------------  ------------
        Net financing cash flows                              (5)        8,607
                                                      ------------  ------------
        Net increase (decrease) in cash held              (1,619)        3,601

 1.20   Cash at beginning of quarter/year to date          7,018         1,798

 1.21   Exchange rate adjustments to item 1.20
                                                      ------------  ------------
 1.22   Cash at end of quarter                             5,399         5,399
                                                      ------------  ------------

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 included in             99
        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

 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

 4.1   Exploration and evaluation                                        1,600
 4.2   Development                                                           -

Reconciliation of cash

Reconciliation of cash at the end of the quarter        Current       Previous
(as shown in the consolidated statement of cash         quarter       quarter
flows) to the related items in the accounts is as       $A'000        $A'000
                                                     ------------  -------------
 5.1   Cash on hand and at bank                           5,334          6,953
                                                     ------------  -------------
 5.2   Deposits at call                                       -              -
                                                     ------------  -------------
 5.3   Bank overdraft                                         -              -
                                                     ------------  -------------
 5.4   Other Bank Guarantee                                  65             65
                                                     ------------  -------------
       Total: cash at end of quarter (item 1.22)          5,399          7,018
                                                     ------------  -------------

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

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         up per
                                                         security    security
                                                         (see note   (see note
                                                          3) ($)      3) ($)
                              -----------    -----------    ----------  --------
  7.1   Preference                    -              -           -           -
        +securities           -----------    -----------  ----------  ----------

  7.2   Changes during
        (a) Increases
        through issues
        (b) Decreases
        through returns of    -----------    -----------  ----------  ----------

  7.3   +Ordinary          777, 171,727    777,171,727   (refer      (refer
        securities         -----------       ----------- appendix A  appendix A
                                                         attached)   attached)
                                                         ----------  ----------
  7.4   Changes during          160,000        160,000      $0.063      $0.063

        (a) Increases
        through issues       -----------    -----------  ----------  -----------

  7.5   +Convertible debt             -              -           -           -
        securities           -----------    -----------  ----------  -----------

  7.6   Changes during                -              -           -           -
        (a) Increases                 -              -           -           -
            through issues
        (b) Decreases
            through securities    
            matured, converted -----------    -----------  ----------  ----------

  7.7   Options            One ordinary   One ordinary   Exercise    Expiry date
        (description and   share for each share for each price
        conversion factor) option held    option held

                            246,040,340    246,040,340     $0.0982   March 31,
                           Listed UCLOA   Listed UCLOA               2009
                            254,430,711    254,430,711       $0.10   March 31,
                           Listed UCLOB   Listed UCLOB               2009
                           -----------    -----------     ----------  ----------
  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.

July 28, 2006

Robert Murdoch


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 01/01/06                    777,011,727

Placement                                       160,000                $0.063

                            Total           777,171,727

                      This information is provided by RNS
            The company news service from the London Stock Exchange

a d v e r t i s e m e n t