Response to ASX Query

RNS Number:0831L
Aztec Resources Limited
26 October 2006

Aztec Resources Limited ("Aztec" or "the Company")

26 October 2006

Response to ASX query

Aztec sent the following letter to the ASX today in response to a letter sent to
the Company by the ASX, which can be viewed at www.asx.com.au


26 October 2006

Narissa Taylor
Advisor, Issuers
Australian Stock Exchange Limited
Level 8, Exchange Plaza
2 The Esplanade
PERTH WA 6000

By Facsimile: +61 8 9221 2020

Dear Narissa

Aztec Resources Limited (the Company)

We refer to your letter dated 25 October 2006, which raised several questions in
relation to the announcement made by the Company on 19 October 2006
(Announcement), and your subsequent telephone conversations with Geoff Clifford
of the Company.

The Announcement advised, among other things, that Australian Royalties
Corporation Pty Ltd (ARC) had lodged caveats over the Company's Koolan Island
mining tenements for the purpose of securing its royalty interest.

We respond to your questions as follows:

1. Did the Company become aware of the lodgement of a caveat over the Koolan
Island mining tenements by ARC prior to its announcement on 19 October 2006?

Yes. The Company first became aware of the lodgement of caveats over its Koolan
Island mining tenements on 5 October 2006.

The caveats related to ARC's rights under the royalty arrangements between the
Company and ARC (Royalty Arrangements). The rights under the Royalty
Arrangements were not new - they had previously been the subject of disclosure
to the market (for example, in the prospectus dated 8 December 2005 and in the
Company's target's statement dated 12 September 2006).

Since the caveats were simply a means of protecting a pre-existing interest
which itself had already been disclosed, the Company did not consider it
necessary to make any market announcement on becoming aware of the caveats.

Following notification of the lodgement of the caveats, the Company liaised with
the syndicate of banks with which it had been negotiating (Banking Syndicate)
with respect to the tripartite arrangements that would be required between ARC,
the security trustee (acting on behalf of the Banking Syndicate), the Company
and Koolan Iron Ore Pty Ltd. A tripartite agreement is typically required in
transactions of this nature. Counterparties to all the material project
documents have been requested to enter into such an agreement.

To this end, the legal adviser acting for the Banking Syndicate prepared a draft
tripartite agreement which was the subject of negotiation. Ultimately a further
draft was presented to ARC that preserved ARC's existing rights under the
Royalty Arrangements in a manner that was acceptable to the Banking Syndicate.
This document was one of a suite of financing documents that was being prepared
and negotiated between the relevant parties.

Aztec believed that the tripartite agreement would be acceptable to ARC and in
consequence, the Royalty Arrangements would not adversely affect credit approval
from the Banking Syndicate.

On 17 October 2006, ARC indicated a strong preference for an outright purchase
of the royalty. During the course of that day, negotiations continued on the
best way forward for all parties. At this stage it remained a possibility that
the tripartite agreement would be executed.

During the course of 18 October 2006, it became clear to the Company that ARC
was focussed solely on a sale of the royalty which was a course of action likely
to be favoured by the Banking Syndicate given that it would result in a complete
extinguishment of the Royalty Arrangements.

Accordingly, in light of that position and the Company's desire to finalise the
credit approval process without further delay, the Company requested a trading
halt to give it time to deal with ARC's interest. The Company also made the
Announcement to keep the market fully informed. The trading halt came into
effect prior to commencement of trading on 19 October 2006.

The result of the further negotiations was announced to the market when they
were concluded on 24 October 2006.

2. Does the Company consider that the Contract is material to the Company?
Please provide the reasons for your response.

No. We understand from you that the reference to the "Contract" is intended to
be a reference to the caveats. For the reasons set out above, the lodgement of
the caveats was not considered to be material (and thus require separate
disclosure to the market) given that they were simply a means of protecting a
pre-existing interest which itself had already been disclosed.

3. If the answer to question 1 is "yes" please advise the following.

3.1 Why did the Company not make an announcement to ASX immediately upon
becoming aware of the ARC caveat?

Not applicable for the reasons set out above.

3.2 If the Company was not in a position to make an announcement immediately it
became aware of the ARC caveat, why did it not request a trading halt?

Not applicable for the reasons set out above.

4. Please confirm that the Company is in compliance with listing rule 3.1

We confirm that the Company is in compliance with its obligations under listing
rule 3.1.


For further information please contact:
Aztec Shareholder Information Line         Media Enquiries
Australian Callers 1800 602 244            Purple Communications
International Callers: +61 8 6218 4220     Warrick Hazeldine
                                           Tel: +61 8 9485 1254
UK                                         Mob: +61 (0) 417 944 616
Fiona Owen, Grant Thornton                 E:whazeldine@purplecom.com.au
+44 (0) 870 991 2318 











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