The Mehdiabad Project is being developed by UCL Resources Limited (“UCL”), Iranian Mines and Mining Industries Development and Renovation Organization ("IMIDRO") and the company Itok GmbH ("Itok") through an incorporated Iranian joint venture company, Mehdiabad Zinc Company ("MZC").  

IMIDRO purported to terminate several agreements governing the Project in December 2006.  As a consequence of the purported termination and having fully funded its contribution to MZC, UCL has ceased all exploration and development funding to the project but still maintains a representative office, at minimal cost, in Tehran to assist in ongoing deliberations.  UCL has filed insurance claims and is currently considering all of its alternative options including commencement of arbitration proceedings.

In December 2009 the Company’s Directors, following discussion with the Company’s auditors on the interpretation of relevant accounting standards, and taking note of the recent perceived deteriorating economic and political situation in Iran, decided to impair the carrying value of the Company’s expenditure on exploration associated with the Mehdiabad Project.  This means that the exploration expenditure to date, which has previously been treated as an asset in the Company’s balance sheet, will be shown as a loss item in the Company’s consolidated statement of comprehensive income for the year ended 30 June 2010. The Directors’ decision to do this is in accordance with applicable accounting standards to reflect the perceived uncertainty surrounding the Mehdiabad Project and thereby the Company’s ability to recoup all exploration expenditure associated with the Project. It is important to note, however, that this accounting treatment does not constitute the writing off of the Mehdiabad Project expenditure and that the impairment does not change the strategy of the Company in its continued efforts to achieve a positive outcome in relation to the Project.

UCL has continued to explore the possibility of resolving the matter through arbitration and has made initial preparations for instituting arbitration proceedings should that become necessary.

In the event the dispute is resolved, and given the poor prospects of significant foreign funding becoming available, UCL has continued to explore the possibility of a staged development of the Project. 

The exploration status of the Project remains unchanged from 2008 and is summarised below.

The exploration activities at Mehdiabad have included over 52,000 metres of diamond drilling which has outlined a zinc (Zn), lead (Pb) and silver (Ag) resource totalling 394 million tonnes. 

Details of the resource are:

NB: this resource was calculated utilising a 2% Zn cut-off grade.

UCL remains committed to the development of the world class Mehdiabad zinc-lead-silver resource.  However, pending the outcome of the current negotiations and given the current political environment in Iran, it may be some time before the development of the Mehdiabad Project can proceed and add value to the Company.  Nevertheless, given the quality of the resource, the Company’s commitment to the Project and the possibility of an improving political situation in Iran, UCL management is of the view that it is worth maintaining an interest in the Project at this stage.

The information in this report that relates to Mineral Resources for the Mehdiabad Project, including metallurgical recoveries and the appropriateness of the use of a 2% lower Zn cut-off grade (the appropriate lower economic cut-off for zinc resources) and 0.3% Cu cut-off grade (the appropriate lower economic cut-off for copper resources) for reporting of Resources, is based on information compiled by Patrick Scott, consultant to UCL Resources Limited in 2007.  Mr Scott is a Director of PS Associates Pty Ltd and a Fellow of the AusIMM. Mr Scott 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.” Mr Scott consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.