QUARTERLY ACTIVITIES REPORT

FOR PERIOD ENDED 31 DECEMBER 2014

The Board of Mexican-focused copper explorer  Azure Minerals Limited  (“Azure” or “the Company”) is pleased to provide its Quarterly Activities Report for the period ended 31 December 2014.

HIGHLIGHTS:

• Formal execution of the Promontorio Earn-In and Joint Venture Agreement between Azure and Kennecott Mexico SA de  CV (“Kennecott”), a subsidiary of the Rio Tinto Group
  • Kennecott has remitted US$250,000 to Azure
  • First stage exploration planning is complete and airborne geophysical surveying will commence shortly
  • Kennecott has committed to spend US$2 million during 2015
• Post period end, Azure secured the right to acquire 100% ownership of the Alacrán Copper Project from Minera Teck S.A. de C.V (“Teck”), a subsidiary of Teck Resources Limited, Canada’s largest diversified resource company, subject to an underlying back-in right retained by Teck
  • Rock chip and mine dump sampling of the old Palo Seco and El Alacrán mines returned high grade assays up to:

14.9% Zinc      1.4% Lead      309g/t Silver      0.5% Copper      1.5g/t Gold

• Channel sampling of breccia zone at Palo Seco returned 12m @ 118g/t Silver

• Cascada mineral resource estimate delayed – expected in March Quarter

PROMONTORIO PROJECT

(Azure 100%; Kennecott may earn up to an 80% interest)

Promontorio contains several different styles of precious and base metal mineralisation, including high sulphidation epithermal and porphyry copper, with potential for large, bulk- tonnage resources and smaller, high grade deposits. Azure’s strong belief in Promontorio’s potential was validated when Kennecott entered into a substantial Earn-In and Joint Venture Agreement to search for a very large copper deposit.

The overall Promontorio project area covers approximately 10,520ha. Modern exploration has focused solely on the central 200ha containing the historical high grade Promontorio Copper Mine, however there is excellent potential elsewhere in the property to identify large mineral deposits hidden under the cover of younger volcanic rocks.

With formal execution of the agreement completed, planning of the first phase of exploration was undertaken. This comprises an airborne geophysical survey consisting of magnetics, radiometrics and electromagnetics covering the entire 10,520ha Promontorio project area, to be carried out in the March Quarter. Follow-up work will include Induced Polarisation (IP) surveys over areas of interest, with identified targets to be tested by diamond drilling.

Azure will release exploration results from these activities to shareholders as they become available.

Key Terms of the Earn-In & Joint Venture Agreement

The key highlight for the quarter was Azure and Kennecott  executing the legal documentation covering the Promontorio Earn-In and Joint Venture Agreement.

Not only will the Agreement with Kennecott significantly accelerate exploration at Promontorio and its surrounds, it will also bring  the high level technical expertise  and experience of the Rio Tinto Group to the project.

Stage 1

Kennecott will sole-fund a minimum expenditure of US$2 million during CY2015 (“Minimum Commitment”). In addition, upon the signing of the Agreement in December 2014, Kennecott paid a non-refundable fee of US$250,000 to Azure.

Azure will be Project Operator during the early stages of the Agreement, with Kennecott providing their technical expertise in exploration planning and evaluation of results.

Kennecott will earn no interest in the project during Stage 1 and may withdraw from the Agreement at any time, after satisfying the Minimum Commitment.

Stage 3

Upon earning its 51% interest Kennecott may elect to earn an additional 29% interest (for a total interest in the JV of 80%) by spending a further US$25 million within a further 6 year period, taking total earn-in expenditures to US$45 million.

Cascada Resource Calculation

Due to the focus necessary to complete the Promontorio Joint Venture Agreement with Kennecott and factors outside the company’s control, estimation of a resource for Cascada has been significantly delayed. This is now expected to be delivered in the March Quarter.

ALACRÁN COPPER PROJECT

(Azure to earn 100% ownership from Teck)

Post-quarter end, Azure announced it had signed an agreement with Teck, whereby Azure can acquire 100% ownership of the Alacrán Copper Project, subject to an underlying back-in right retained by Teck (full details of acquisition terms listed below).

Alacrán is located in the northern Mexican state of Sonora, approximately 50km south of the USA border. The property covers 54km2 of highly prospective exploration ground in the middle of one of North America’s most prolific copper-producing district that extends from northern Mexico into Arizona. The property lies close to several large copper mines, including being adjacent to the giant Cananea Copper Mine where annual copper production capacity is expected to reach 510,000 tonnes in 2015.

However, despite being located in a major copper-producing district, having large operating copper mines in its immediate surrounds, and containing historical mining operations, due to its ownership history very little exploration has been undertaken on Alacrán.

The property has excellent potential for hosting significant economic copper mineralisation, including large porphyry-style copper deposits and smaller, higher grade, epithermal, skarn and breccia deposits.

To date, the only drilling identified on the property occurred at the Cerro Alacrán prospect (see Figure 1), which identified a large body of  near-surface, supergene copper mineralisation. The potential here remains largely unquantified, as:

• the drilling (32 diaond core holes) tested a relatively small area of approximately 1,000m x 500m, with all holes intersecting supergene copper mineralisation;
• the overall size, grade and the extent of the Cerro Alacrán copper oxide and chalcocite mineralisation is yet to be defined, remaining open and untested along strike and at depth;
• most of the Cerro Alacrán drilling was relatively shallow and has not yet tested the potential for primary, porphyry-hosted copper sulphide mineralisation;
• most of the drill core was assayed for copper only, and not for gold or molybdenum;
• a small scale IP survey carried out to the east of the Cerro Alacrán drillin in 2001 identified a strong anomaly which was not drill tested.

Figure 1: Alacrán Geology plan showing locations of historical mines and drilling

Additionally, based upon the historical production of high grade, silver-rich, polymetallic ore from epithermal and breccia deposits at the Palo Seco and El Alacrán mines (see Figure 1), there is good potential for identifying more and larger occurrences of this style of mineralisation.

These old mines were historically substantial underground mining operations, owned and operated by American companies in the early 20th Century. Production from these mines ceased in 1913 when mining was still in full production, due to turmoil during the Mexican Revolution. Operations did not recommence and no modern exploration has taken place in this area.

Three small-scale Induced Polarisation (IP) surveys have previously been undertaken on Alacrán. Two were completed in 1981 by the Mexican Geological Survey, covering the La Morita and Palo Seco-El Alacrán prospects. Both of these identified strong IP anomalies beneath and along strike from the old mine workings. A third survey in 2001 covered an area immediately east of the Cerro Alacrán mineralised body, and identified strong IP anomalism at depth. None of these IP anomalies or prospects have ever been drill-tested.

The discovery of the Cerro Alacrán body of copper mineralisation from limited exploration in a district where there are many large copper mines and deposits, supports the Company’s belief that this property is significantly underexplored and that further exploration using modern techniques will identify more deposits.

Exploration

Azure is planning surface and underground mine sampling and IP surveys, to be followed up by drilling of identified targets. Exploration commenced with a first pass sampling program of outcrop and mine dumps undertaken at the historical mine workings of El Alacrán and Palo Seco (see ASX relase dated 19 January 2015.)

Several high grade assays were received, and assay results (see Table 1) support historical accounts of high grade, silver-rich polymetallic ore being produced from El Alacrán and Palo Seco. The 12m channel sample grading 118g/t silver comprised a composite of three continuous, four metre long samples collected across the surface exposure of the breccia zone exposed within the Palo Seco open cut adjacent to the mine shaft.

Table 1: Assay results from sampling of old mine workings at Palo Seco and El Alacrán

Key terms of the Option and Shareholders Agreement

1. Azure can acquire 100% ownership of Alacrán by: 
   a) Spending US$5 million on the project within 4 years (“Required Expenditure”); 
   b)  Issuing 100,000 Azure shares to Teck on signing the formal documentation; and 
   c)  Issuing 400,000 Azure shares to Teck on completing the Required Expenditure.
2. Azure must spend US$2 million within the first 2 years before it can withdraw from the project (“Minimum Expenditure”).
3. Teck retains a back-in right to re-acquire a 51% interest by sole funding US$10 million of expenditure, including a US$0.5 million cash reimbursement to Azure.
4. Additionally, Teck may increase its interest to 65% by sole funding a further US$5 million of expenditure, including a US$1.5 million cash reimbursement to Azure.
5. Grupo Mexico, owner of the adjoining Cananea Copper Mine, retains a 2% Net Smelter Royalty over future mineral production from Alacrán.

-ENDS-

For further information, please contact:

or visit www.azureminerals.com.au

Competent Person Statement

Information in this report that relates to previously reported Exploration Results has been crossed-referenced in this report to the date that it was reported to ASX. Azure Minerals Limited confirms that it is not aware of any new information or data that materially affects information included in the relevant market announcement.

Original Article: http://www.azureminerals.com.au/azs//assets/2015/01/December-2014-Quarterly-Activities-and-Cash-Flow-Report-2.pdf