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1 Alcyone Resources Ltd Directors: Charles Morgan Non Exec Chairman Andrew King Managing Director Andrew Richards Non Exec Director Silver Production Ramps Up as Alcyone Commences Mining HIGHLIGHTS Successful wet commissioning of the upgraded Twin Hills processing facility. Contact Details: Level 1, 50 Kings Park Rd West Perth WA 6005 Telephone Facsimile: info@alcyone.com.au Website: Capital Structure: 1,321,066,488 shares 67,750,000 options Top 10 Shareholders: JP Morgan 22.56% Lyandji Super Fund 2.7 Seaspin Pty Ltd 2.22% HSBC Custody Nominees (Aus) Ltd 1.86% Golden Matrix Holdings Pty Ltd 1.51% Mahsor Holdings Pty Ltd 1.36% Citicorp Nominees Pty Limited 1.02% ABN Amro Clearing Sydney Nominees 1.01% Mr Richard Milne Harris 0.95% Zero Nominees Pty Ltd 0.76% Total for Top % Silver production exceeding expectations with more than 270,000oz of silver extracted to date from existing leach pads, and production of 220,000oz of silver bullion. New Merrill Crowe silver extraction circuit operating above design capacity, by over 1 with crushing circuit already nearing nameplate. Mining commenced ahead of schedule to support rampup of production to 1.52Moz per annum. Mine scoping studies underway at Mt Gunyan. Aggressive exploration program commenced with two drill rigs operating at key silver and base metal targets. Commencement of production and cash flow at Texas opens up new growth opportunities for Alcyone, with an immediate focus on establishing a 710 year mine life. ASX Code: AYN Figure 1 Aerial view of the crushing circuit, Twin Hills Operations Alcyone Resources Ltd ABN

2 OVERVIEW Alcyone continued to make strong progress during the September Quarter, achieving key commissioning and production milestones at its flagship 10 owned Texas Silver & Polymetallic Project in southeast Queensland and cementing its position as a new Australian silver producer. discoveries within the Company s broader 275 sq km tenement holding at Texas. Scoping studies also continued on the Mt Gunyan deposit, which is expected to provide the next source of ore feed to the Twin Hills plant. As a result, the Company has entered the new financial year in a very strong position, despite the return of volatility to global financial and commodity markets during the Quarter following the European debt crisis and concerns about the speed of the US economic recovery. The Company successfully completed wet commissioning of the upgraded Twin Hills processing facility at its 10 owned Texas Silver and Polymetallic Project in southeast Queensland towards the end of the Quarter, paving the way for a significant uplift in production during the December Quarter. Since commissioning, the upgraded crushing circuit and heap leach processing facility have performed exceptionally well, achieving close to overall design capacity by the end of the Quarter. Since the start of trial production, Alcyone has achieved production of more than 220,000oz of silver bullion at an average received sales price of A$37/ounce, generating valuable early cash flow to enable the start of an aggressive exploration programme. To date, production has come predominantly from reirrigation of the existing silverrich heaps at Twin Hills, which are continuing to leach silver at a steady rate. Production has been further enhanced by the excellent performance of the new commercialscale Merrill Crowe circuit. By the end of the Quarter, it had exceeded its nameplate capacity of 200 cubic metres per hour by more than 10 per cent. Mining in the Twin Hills open pit commenced ahead of schedule on 30 September. Mining rates are now being accelerated to establish a sizeable stockpile of primary ore to underpin the rampup in silver production to the initial targeted annualised rate of million ounces per annum by the end of calendar With the achievement of these production milestones during the Quarter, the Company has now accelerated its exploration program with two drilling rigs currently operational on site. The renewed exploration focus is aimed at establishing a 7 10 year mine life for the Twin Hills heap leach silver operation, as well as targeting new silver and base metal Figure 2 Mining underway in the Twin Hills open pit OPERATIONS 1.1 Twin Hills Silver production at the Texas Project is on target to reach an annualised rate of million ounces following excellent progress in the first four weeks of wet commissioning of the upgraded Twin Hills processing facility. Wet commissioning of the upgraded crushing circuit and heap leach processing facility commenced on 12 August 2011 and the plant is now close to operating at its nameplate capacity of 150 tonnes per hour. The crushing facility has also been performing well with 100 per cent of its product passing 4mm one of the key parameters to achieving design leach rates. Testwork on the crusher product, which has subsequently been confirmed by production results, has shown that the silver extraction rate is achieving the design expectations at this early stage in the leach cycle. Ultimate extraction rates will be reported after the project has been running at steady state for three months. The Company s commercialscale Merrill Crowe circuit replaced the pilot scale plant on 24 August. It is currently running over nameplate capacity and delivering silver extraction rates from solution of over 95 per cent, which exceeds the design criteria. Silver production to the end of the Quarter has been primarily based on reirrigating the existing silverrich heaps, Alcyone Resources Ltd ABN

3 which Alcyone had previously estimated to contain approximately 250,000oz of recoverable silver. This steady rate of heap leaching has enabled Alcyone to extract over 270,000oz of silver to solution and produce over 210,000oz of silver bullion since trial processing commenced in April 2011, with the second 100,000oz of silver produced in just five weeks. The historical heaps continue to leach well with the Company now targeting over 290,000oz from this source. The Quad Rolls Crusher (QRC) was also installed during the Quarter and is now ramping up to throughput rates of over 140tph, delivering a product size of 100 per cent passing 3.8mm. It is anticipated that this product, which exceeds design specifications, will assist with leaching rates, however longer term production testing will be required to confirm that expectation. The QRC is now treating primary ore from the pit and peak throughput rates of 160tph have been recorded. The next phase of work will be to achieve full scale commercial production rates of 1 million tonnes throughput and 1.5 to 2.0 million ounces of silver per annum. This is the target for the December Quarter. For initial commissioning, the Company utilised lowtomedium grade material from the 200,000 tonnes of Runof Mine stockpile. Having confirmed that the new processing circuit will deliver the design outcomes, Alcyone is now targeting delivery of the 180,000 tonnes of higher grade ore already exposed within the open cut, ready for extraction. The success of plant commissioning during the Quarter resulted in a decision to commence mining earlier than scheduled in the Twin Hills open pit. The achievement of this milestone clears the way for a scaleup in production during the December 2011 Quarter. Currently, Alcyone is free digging previously blasted material with the required production rates being achieved by working on day shift only. Drilling and blasting is expected to commence in late October which will see the addition of a third truck to the fleet and commencement of waste mining in November. to enable the granting of the necessary approvals and licences for mining to start. 2.0 EXPLORATION With the rampup of silver production, Alcyone embarked on a renewed exploration program during the September Quarter. This was based on a detailed review and remodelling of all exploration data for the Texas Project that was undertaken over the previous six months. This review has enabled the exploration team to firm up priority heap leach silver targets, including Mt Gunyan satellites, Hawker and Hornet, as well as potential extensions of the Twin Hills deposit on the southern and eastern flanks and at depth. Reviews of the Silver Spur base metals target, coupled with the introduction of newly sourced historical geophysical information, have also highlighted the possibility for deeper target opportunities. With two drill rigs currently on site, Alcyone is actively revitalizing its exploration efforts as it moves into the December Quarter. The Companyowned Rotary Air Blast (RAB) drilling rig will continue to undertake regional exploration, providing a lowcost method of scout drilling to scope out potential new zones of mineralisation. A Reverse Circulation (RC) drilling rig has also been in operation. It has just completed a phase of grade control drilling at the Twin Hills deposit, with the aim of firming up ore deliveries from the Twin Hills mine over the next 12 months. The full suite of assay results will be received during the December Quarter. They will then be modelled to provide additional control on mining and to allow comparison to the original mineral resource/ore reserve expectations. The RC rig is currently being moved to drill out targets highlighted by the RAB drilling, as well as by ongoing programs of geophysics and the recently completed data review Mt Gunyan Work has commenced on scoping studies for the Mt Gunyan Project, located approximately 5km northwest of Twin Hills. Pit design profiles will be run at varying silver prices with additional metallurgical work to be undertaken. The intention of this drilling campaign is to extend the Twin Hills mine life towards 710 years for heap leach silver production, while also targeting the discovery and delineation of sufficient base metal resources to justify a future mining operation. In parallel with this work, preparation of all the required documents and land clearance requirements will commence Alcyone Resources Ltd ABN

4 3.0 CORPORATE Figure 3 Regional silver heap leach and base metal targets Silver production for the Quarter was 196,634 oz and average received price was A$37.02 per ounce. Alcyone s Annual General Meeting will be held on 29th November OUTLOOK With production ramping up to the targeted annualised rate of million ounces per annum and exploration activities gathering momentum, Alcyone is moving into an exciting new phase of development and growth. Key activities during the current Quarter will include: the continued ramp up of mining and silver production commencement of an expansion of the heap leach pads for future production, and start of construction of the grid power system to further reduce operating costs. Andrew King Managing Director 25th October 2011 About Alcyone Alcyone Resources (ASX Ticker: AYN) commenced silver production earlier this year at its Texas Silver & Polymetallic Project in southeast Queensland, and is ramping up to an initial targeted production level of Moz per annum by the end of The Texas Silver & Polymetallic Project includes the Twin Hills Silver Mine and a portfolio of advanced silver and polymetallic base metal exploration targets. Alcyone has moved rapidly from acquisition of the Project in November 2009, through reassessment and feasibility and into production. Alcyone has embarked on an exciting new growth phase with aggressive exploration programs underway aiming to establish a 710 year mine life and targeting new silver and base metal discoveries within its 275 sq km tenement holding. ForwardLooking Statement Certain statements made during or in connection with this communication, including, without limitation, those concerning exploration targets, contain or comprise certain forwardlooking statements regarding Alcyone s exploration operations, economic performance and financial condition. Although Alcyone believes that the expectations reflected in such forwardlooking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forwardlooking statements as a result of, among other factors, changes in economic and market conditions, success of business and operating initiatives, changes in the regulatory environment and other government actions, fluctuations in metals prices and exchange rates and business and operational risk management. Alcyone undertakes no obligation to update publicly or release any revisions to these forwardlooking statements to reflect events or circumstances after today's date or to reflect the occurrence of unanticipated events. Alcyone Resources Ltd ABN

5 APPENDIX 1: MINERAL RESOURCE ESTIMATION Table 1: Twin Hills Ore Reserve Estimate Silver Price Reserve Classification Tonnes (Mt) Silver Grade (g/t) Recovered Silver (Moz) Strip Ratio Waste : Ore A$19.85/oz Proven and Probable : 1 A$25.00/oz Proven and Probable : 1 Table 2: Mt Gunyan In Situ Mineral Resource Category Tonnes Ag g/t Au g/t Measured 242, Indicated 1,777, Subtota l 2,018, Inferred 329, Total 2,347, Tonnes and grade have been rounded to the nearest 1000 for tonnes and whole units for Ag. Cutoff grade of 40g/t Ag. The mineral resource has been estimated based on: Mineralisation determined by a combination of geology, structure and a nominal Ag boundary of 40g/t. The mineralisation occurs in two separate geographic Domains Validated drill hole data set composited within the mineralisation interpretation to 2m down hole Grade continuity statistics and geostatistical assessment utilised to determine search orientation and distance by Domain Ag and Au grade estimated separately by inverse distance methods with restrictions on higher grades applied Competent Person Statements The information in this report that relates to data used for and the resultant Mineral Resources for the Texas Silver project is based on information compiled by Mr Peter Ball who is a Member of the Australasian Institute of Mining and Metallurgy and Director of DataGeo a mining and exploration consultancy. Mr Ball has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are 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 Ball consents to the inclusion in this Report of the information compiled in the form and context in which they appear. The information in this Report that relates to Exploration is based on information also compiled by Mr Ball. The information in this report that relates to data used for and the resultant Ore Reserve for the Texas Silver project is based on information compiled by Mr Bill Frazer who is a Member of the Australasian Institute of Mining and Metallurgy and Director of Mining One Pty Ltd a mining and geotechnical consultancy. Mr Frazer is a mining engineer with over 30 years experience in underground and open pit environments and has sufficient experience which is relevant to this type of mineral deposit and mining methodology 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 Frazer consents to the inclusion in this Report of the information compiled in the form and context in which they appear. Alcyone Resources Ltd ABN

6 Mining exploration entity ly report Rule 5.3 Mining exploration entity ly report Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/2001, 01/06/10. Name of entity Alcyone Resources Ltd ABN Quarter ended ( current ) September 2011 Consolidated statement of cash flows Cash flows related to operating activities 1.1 Receipts from product sales and related debtors Current Year to date (3months) 7,434 7, Payments for (a) exploration & evaluation (b) development (c) production (d) administration (524) (7,759) (562) (524) (7,759) (562) 1.3 Dividends received 1.4 Interest and other items of a similar nature received Interest and other costs of finance paid (2) (2) 1.6 Income taxes paid 1.7 Other Purchase of Put Options Net Operating Cash Flows (1,355) (1,355) Cash flows related to investing activities 1.8 Payment for purchases of: (a) prospects (b) equity investments (c) other fixed assets (120) (120) 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 Environmental & security deposits Net investing cash flows (120) (120) 1.13 Total operating and investing cash flows (carried forward) (1,475) (1,475) 30/9/2001 Page 1

7 Mining exploration entity ly report 1.13 Total operating and investing cash flows (brought forward) (1,475) (1,475) Cash flows related to financing activities 1.14 Proceeds from issues of shares, options, etc Proceeds from sale of forfeited shares 1.16 Proceeds from borrowings 1.17 Repayment of borrowings (1) (1) 1.18 Dividends paid 1.19 Other (provide details if material) Net financing cash flows Net increase (decrease) in cash held (1,426) (1,426) 1.20 Cash at beginning of /year to date 3,036 3, Exchange rate adjustments to item Cash at end of 1,610 1,610 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 $A' Aggregate amount of payments to the parties included in item Aggregate amount of loans to the parties included in item Explanation necessary for an understanding of the transactions Directors Fees and remuneration of Directors Noncash 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 30/9/2001 Page 2

8 Mining exploration entity ly report Financing facilities available Add notes as necessary for an understanding of the position. Amount available Amount used 3.1 Loan facilities 3.2 Credit standby arrangements Estimated cash outflows for next 4.1 Exploration and evaluation 4.2 Development 700 2, Production (i) (6,144) 4.4 Administration Total 1,124 (1,850) (i) Note production represents forecast net proceeds from sales Reconciliation of cash Reconciliation of cash at the end of the (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows. Current Previous 5.1 Cash on hand and at bank 1,610 1, Deposits at call 5.3 Bank overdraft 5.4 Other (provide details) Total: cash at end of (item 1.22) 2,000 1,610 3,036 30/9/2001 Page 3

9 Mining exploration entity ly report Changes in interests in mining tenements 6.1 Interests in mining tenements relinquished, reduced or lapsed Tenement reference ML4727 ML4770 EPM15168 EPM15775 MDL272 EPM15854 Nature of interest (note (2)) Interest at beginning of Interest at end of 6.2 Interests in mining tenements acquired or increased No changes Issued and quoted securities at end of current Description includes rate of interest and any redemption or conversion rights together with prices and dates. Total number Number quoted Issue price per security (see note 3) (cents) Amount paid up per security (see note 3) (cents) 7.1 Preference + securities (description) 7.2 Changes during (a) Increases through issues (b) Decreases through returns of capital, buybacks, redemptions Ordinary securities 1,321,066,488 1,321,066,488 Fully paid 7.4 Changes during (a) Increases through issues 5,000,000 5,000,000 (b) Decreases through returns of capital, buybacks Convertible debt securities (description) 30/9/2001 Page 4

10 Mining exploration entity ly report 7.6 Changes during (a) Increases through issues (b) Decreases through securities matured, converted 7.7 Options (description and conversion factor) ,500, ,000 1,000,000 Exercise price 1 cent each $9.60 each 11 cents each Expiry date 30 Sep Nov Mar 2015 Issued during 12 Aug 1,000, cents each 31 Aug Exercised during 30 Sep 5,000,000 1 cent each 30 Sep Expired during 7.11 Debentures (totals only) 7.12 Unsecured notes (totals only) 423, , ,902 $9.00 each $1.60 each 14 Aug Sep 2011 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 /does not* (delete one) give a true and fair view of the matters disclosed. Sign here:... Date: 19 October 2011 (Director/Company secretary) Print name: Kevin Hart... 30/9/2001 Page 5

11 Mining exploration entity ly report Notes 1 The ly report provides a basis for informing the market how the entity s activities have been financed for the past 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 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. == == == == == 30/9/2001 Page 6