AZR Aztec Res.

RNS Number:2989L
Aztec Resources Limited
31 October 2006

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

31 October 2006

                 September 2006 Quarterly Report on Activities

Highlights

The September 2006 Quarter has been a very positive period for Aztec
shareholders and the Company's plans to be Australia's next iron ore miner.
Importantly, Aztec is now well positioned to complete construction of the Koolan
Island Iron Ore Project on schedule and first iron ore shipment in early 2007.

Key achievements for the September 2006 Quarter and in the period subsequent
include:

   * Aztec directors continue to recommend that Aztec shareholders reject the
     inadequate offer from Mount Gibson
   * A$100 million debt finance facility approved
   * Finance facility for mobile mining fleet established with the first
     drawdown completed
   * Exercise of July 2006 listed options raised A$42.3 million
   * Termination of royalty and repurchase rights held by Australian
     Royalties Corporation for consideration of 77.8 million Aztec shares
   * Long term sales contracts for 2.5 million tonnes of iron ore per annum
     successfully concluded
   * Project construction and mine development on track for commencement of
     mining in December 2006 and first ore shipment in early 2007
   * Positive exploration results with potential to extend the mine life

Corporate

Mount Gibson Takeover Offer

On 26 October 2006, Mount Gibson Iron Limited ("MGX") declared its Takeover
Offer ("Offer") for Aztec unconditional. The Offer, which remains unchanged from
the original offer of one MGX share for every three Aztec shares, is now
scheduled to close on Friday 3 November 2006.

Aztec directors continue to recommend that Aztec shareholders REJECT the
inadequate offer from MGX.

Having received credit approval for the A$100 million bank finance facility and
in light of other recent significant achievements outlined above, the Company is
now positioned to complete the development of the Koolan Island Project and
commence operations on schedule. Therefore, Aztec directors believe that the
Company is better placed to achieve its initial objective of developing and
operating the Koolan Project than at any time in its history and is certainly
better placed than it was when MGX launched its unsolicited takeover bid for
Aztec on 24 July 2006.

MGX's offer on 24 July 2006 was opportunistic and inadequate in the opinion of
Aztec directors and now that the project is fully funded and well advanced, the
now unconditional but unchanged offer of one MGX share for every three Aztec
shares continues to remain inadequate.

Project Funding

* A$100 million Debt Finance Facility

On 26 October 2006, Aztec announced that credit approval had been received from
its banking syndicate in respect to a A$100 million debt facility established to
meet the balance of development expenditure commitments and ongoing working
capital requirements for the Koolan Island Iron Ore Project.

The banking syndicate comprises the following three banks:

* Westpac Banking Corporation;

* Bank of Scotland International (Australia) Ltd; and

* Bank of Tokyo - Mitsubishi UFJ Ltd

The A$100 million debt facility consists of:

* a senior debt facility of A$54 million (to be drawn down in US
  dollars);

* a cost overrun facility of A$10 million (to be drawn down in US
  dollars);

* a working capital facility of A$30 million; and

* an environmental bond facility of A$6 million.

Drawdown of the first tranche of the senior debt facility (approximately A$20
million) is expected to occur today with the remaining facilities made available
for drawdown when a condition subsequent relating to the final environmental
approval has been met. This approval is expected to be obtained within the next
two weeks.

* Mobile Mining Fleet Finance Lease Facility

On 29 September 2006, Aztec announced the signing of a A$65 million finance
lease facility with Komatsu Australia Corporate Finance Pty Limited to provide
funding for the Komatsu mobile mining fleet.

Drawdowns under this lease facility are in two tranches. The drawdown of the
first tranche of A$13 million has been completed. The second tranche of the
lease facility for A$52 million for the haul trucks and PC3000 excavators is
conditional on the drawdown of the first tranche of the bank finance facility
which will occur today. Delivery of the haul trucks and excavators is scheduled
to commence in November 2006.

* 31 July 2006 Listed Options Raised A$42.3 million

On 8 August 2006, the directors were pleased to announce that 99.4% of
optionholders exercised their listed 31 July 2006 options leaving only a
shortfall of approximately 1.5 million shares to be taken up by the underwriter.

The A$42.3 million raised by the exercising of these 17 cent options was the
second and final tranche of equity capital raised for the construction and
development of the Koolan Island Iron Ore Project. Total equity capital (net of
costs) raised for this project equates to A$80 million.

Termination of Royalty and Repurchase Rights

On 24 October 2006 Aztec announced the signing of a Deed of Settlement and
Release ("Agreement") terminating all royalty and repurchase rights held by
Australian Royalties Corporation Pty Limited ("ARC"), the original vendor of 30%
of the Koolan Island iron ore tenements.

Under the Agreement:

   * ARC and Aztec have terminated the royalty and repurchase arrangements.
     As a result, ARC is no longer entitled to amongst other things:

   * The royalty of A$1 per tonne for every tonne of iron ore sold
     from the Project (that would have been previously payable to ARC);

   * The option for ARC to repurchase its original 30% interest in
     the Koolan Island tenements for a nominal sum if production has not commenced
     from those tenements by 15 June 2007;

   * Aztec has issued 77,777,778 fully paid ordinary shares in Aztec to ARC
     at a price of A$0.225 per share (equivalent to Aztec's one month Volume
     Weighted Average Price to 18 October 2006).

The issue of shares to ARC represents total consideration of A$17.5 million for
the royalty and associated rights. This represents a substantial saving to the
undiscounted value of the royalty which would have been A$29.1 million over the
life of the mine based on the planned mining schedule of 29.1 million tonnes.
Aztec no longer has to make any additional payments to ARC arising from any
upside potential from Aztec's exploration activities.

In the opinion of the Directors, this Agreement was an excellent outcome for
Aztec shareholders.

Marketing

During the quarter, Aztec concluded long term sales contracts with CITIC
Australia for 1.5 million tonnes of iron ore per annum and with Marubeni
Corporation for 1.0 million tonnes per annum. The Company is now well positioned
to conclude additional sales contracts in the near future to cover the balance
of the planned annual production of four million tonnes.


Environment & Project Approvals

During the quarter a number of key project approvals were obtained from relevant
Government agencies allowing land clearing, construction of the village,
construction of project infrastructure and mining above the water table to
commence. Further approvals for the construction of the seawall, dewatering of
the main pit and mining below the water table are still required and good
progress has been made in drafting these submissions.

Assessment by the Department of the Environment and Heritage (DEH) under the
Environment Protection and Biodiversity Conservation Act 1999 with respect to
management of the Northern Quoll is well advanced. Approval by the DEH is
expected within the next two weeks.

Native Title

Following the execution of the Co-Existence Deed in April 2006, the parties to
the agreement (Aztec, the traditional owners (the Dambimangari) and the
Kimberley Land Council (KLC)) are now well advanced in the development of a
series of training programs with the objective of maximising the employment
opportunities for the indigenous people in the Derby region. The centre piece of
this funding commitment by Aztec is the development of a 'job ready program' by
the Kimberley College of TAFE that will provide local indigenous people with the
skills required for them to seek employment in the local industries, with
particular reference to the mining sector. The first program will be completed
in early 2007, with the aim of enabling successful students to seek employment
on Koolan Island during the build-up to full-scale operations.

A Cultural Awareness course to be presented to all employees working on Koolan
Island is also being developed.

The appointment of two Rangers for the island is well advanced and these
individuals should take up their roles within the next month.

Project Development

Construction

Construction activities are progressing well with the following completion
status at the end of the quarter:

   * Piling of the jetty is more than 75% complete. Pile cutting and deck
     structure installation has commenced.
   * The access road to the jetty is 95% complete. The first of three lifts
     of the rock causeway (connecting the jetty to the island) is also complete.
   * Erection of the crushing station structure and mechanical installation
     of feeder, primary and secondary crushers is well advanced. Steelwork for
     the screen house is progressing well and major items of equipment, including
     the banana screen, have been delivered to site. Construction of the plant
     remains on schedule at 45% complete.
   * Construction of the crusher pad and associated stockpile areas is
     complete.
   * Road widening on the major access routes across the island is underway.
   * Erection of the laboratory structures is complete and equipment is
     currently being placed and commissioned in the building.
   * 80% of the accommodation units are now in place in the new village with
     some of these units already being inhabited. The core facility buildings
     (kitchen, etc) are due to be installed in November.
   * Water bores have been drilled for the new village and infrastructure
     areas.

Commissioning of the process plant is still on schedule to commence at the end
of 2006 and commissioning of the shiploader and the first ore shipment are
planned for early 2007.

Mine Development

Development of access roads commenced during the quarter. Delivery of temporary
mining equipment has been completed and the first of the larger (permanent)
hydraulic excavators and trucks is scheduled for delivery to the island in
November 2006.

Mining and stockpiling of ore from Eastern and Mullet pits is on track to
commence in December 2006.

Exploration

In early July, the current exploration and infill drilling programme commenced.
To date 7,247m of RC drilling has been completed in 78 holes.

The main objective of Aztec's current exploration programme is to extend the
mine life of the Koolan Island Project by targeting new iron ore resources in
addition to extending and further defining known resources. The programme
includes:

   * Evaluating the extent and potential of the Mangrove prospect;
   * Exploring for extensions to the hematite mineralisation adjacent to the
     current planned pits at Eastern, Main and Mullet deposits; and
   * Evaluating the outcropping and undercover extensions to the previously
     mined Barramundi and Acacia deposits.

In addition, some definition drilling has been completed within the Eastern
deposit to enhance selective mining opportunities.

The deposit and prospect locations are displayed on Figure 1 in the full version of
this announcement, available on the Company's website www.aztecresources.com.au

Work during the quarter has focussed on six areas: Mangrove, Eastern -
Barramundi, Barramundi South, Barramundi West, Mullet - Acacia and Main West.

Mangrove Prospect

Twenty four new RC drill holes have been completed within an 850m long section
of the Mangrove Prospect during this programme. Drilling to date has intersected
hematite mineralisation over a 750m strike length in the northwest section of
the 2km long, sub-vertical, partially outcropping hematite bearing Mangrove
structure.

Drill results and plan/section maps were released by Aztec on 8 September 2006.

These holes have confirmed the potential of the prospect and further drilling is
continuing to define the mineralisation for resource and reserve estimation.

Eastern - Barramundi Deposit

A total of 12 infill drilling and peripheral exploration drill holes were
completed at the deposit. Highlights of the drilling included the two holes
summarised in Table 1 and described below:

   * An exploration hole outside of the northwest limit of the planned
     Eastern - Barramundi pit contained hematite mineralisation close to surface
     in hole RC340.
   * Within the planned pit, hole RC229 was drilled to infill an area of
     widely spaced drill holes. This hole confirmed the grade and extent of the
     ore reserve estimation within the pit and indicates consistent
     mineralisation extending below the pit. The hole was terminated in high
     grade hematite mineralisation due to drilling difficulties.

Table 1: Mineralised intercepts from the two highlighted drill holes completed
in the recent drilling at Eastern - Barramundi.
 HoleID       Dip       From (m)   To (m)    Width (m)    Fe%    SiO2%    Al2O3%     P%
--------     -----     ---------  --------  ----------  ------  -------  --------  ------
RC340      -60degrees         4        22          18    62.3      6.4       2.5    0.04
RC229      -60degrees       138       153          15    62.1      9.1       1.2    0.05
                            160       171          11    62.8      9.6       0.3    0.02
                            173       227          54    63.7      6.2       1.7    0.03

Intercepts are calculated at >4m of >55% Fe cut-off.

The drilling both supports the integrity of the existing ore reserves and
indicates potential for the planned pit to be expanded.

Barramundi West

The Barramundi West deposit is the north-western extension to the hematite ore
previously mined in the Barramundi pit. At the western end of the mined pit,
outcropping hematite mineralisation occurs and dips moderately to the south
beneath waste dumps and sandstone. Recently eight holes were completed at
Barramundi West. These holes, in addition to the previously drilled Aztec and
BHP holes are being used to complete a geological model and resource estimation.
Assays for the recently completed drilling are awaited.

Barramundi South

This area has been targeted to determine the viability of mining the moderately
dipping southern extension of the previously mined Barramundi Deposit. A total
of 5 new holes have been drilled along the south side of the pit. These holes,
in addition to those previously drilled by Aztec and BHP, are currently being
used to complete a geological model. The two better holes from the recent
drilling are outlined in Table 2.

Table 2: Mineralised intercepts from the two better drill holes completed in the
recent drilling at Barramundi South.
 HoleID       Dip       From (m)   To (m)   Width (m)    Fe%    SiO2%    Al2O3%      P%
--------     -----     ---------  --------  ---------  ------  -------  --------  -------
RC325      -60degrees        28        33          5    62.6      9.1       0.8     0.02
RC226      -60degrees        27        34          7    61.9      7.0       2.3     0.03

Intercepts are calculated at >4m of >55% Fe cut-off.

Mullet - Acacia Deposit

The drilling at this deposit is aimed at extending the mineral resource to the
south and west of the current open pit plan. Drill holes have been completed
along the shallow, south-westerly dipping, southern limb of the Mullet - Acacia
anticline where potential for locating additional resources exists. To the west
of the exposed mineralisation, the shallow, westerly dipping nose of the
hematite bearing fold structure was tested beneath cover. In total 20 holes have
been drilled within the Mullet - Acacia area. Assay results are awaited.

Main West

A total of nine holes have been drilled in the western end of the Main Deposit
to gain a greater understanding of the near surface extensions. Zones of
hematite-rich mineralisation were intersected. Assay results are awaited. Plans
are underway to test the substantial hematite-rich outcrop in this area.

Down-hole density and survey measurements are planned to commence in October on
several of the areas. Geological modelling has commenced for the drilled areas
to enable mineral resource estimation upon receipt of all assays.

Attribution

The information in this report that relates to exploration results is based on
information compiled by Alexander Moyle who is a full time employee of the
Company. Alexander Moyle is a Member of the Australian Institute of
Geoscientists and a Member of the Australasian Institute of Mining and
Metallurgy and has sufficient experience which is relevant to the style of
mineralisation and type of deposit under consideration and to the activity which
he is undertaking 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". Alexander Moyle consents to the inclusion in the
report of the matters based on his information in the form and context in which
it appears.

Takeover Update

Directors will keep shareholders informed of developments related to Mount
Gibson's opportunistic takeover offer as they arise and encourage shareholders,
should they have any questions, to call the Aztec Shareholder Information Line
on 1800 602 244 (Australian callers) or +61 8 6218 4220 (International callers).

For further information contact:

Australia
Peter Bilbe, Managing Director: +61 8 9423 0800
Ian Gregory, Company Secretary: +61 8 9423 0800

UK
Fiona Owen, Grant Thornton: +44 (0) 870 991 2318

Media Enquiries:
Warrick Hazeldine
Purple Communications
Tel: +61 8 9485 1254
Mob: +61 (0) 417 944 616

                           www.aztecresources.com.au



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

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