AUSQUEST LIMITED — Interim / Quarterly Report 2012

Oct 24, 2012

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Quarterly Report – 30[th] September 2012

HIGHLIGHTS

WEST AFRICAN GOLD (Comoe Project, Burkina Faso)

• All gold assay results received from the 2012 RAB drilling program (27,000m), with high-grade intersections returned from five prospects and shallow gold intersections above 1g/t Au returned from numerous locations. Best results include:

• 12m @ 3.82g/t Au from surface – Phaco SE prospect

• 4m @ 8.66g/t Au from surface – Cisaillee prospect

• 4m @ 4.69g/t Au – Nandrefa prospect

• 1m @ 4.63g/t Au from bottom hole – Lagnin prospect

• 4m @ 1.9g/t Au – Diarabokoko prospect

• Extensive gold-soil anomalies outlined within newly acquired Exploration Permits (Kapogouan and Nomoussou) and at Logoniegue and Tondoura.

PERU – COPPER-GOLD (Joint Venture with Cliffs Natural Resources Exploration)

• Significant increase in field activity with reconnaissance mapping/sampling and geophysical surveys underway to identify targets for drilling.

• Pampa Colorado copper-gold prospect increased in size with location of further alteration and epithermal veins with anomalous copper and gold values.

AUSTRALIA – GOLD, BASE METALS

• New nickel targets identified at the Dundas Project (WA), ~80km south-west of the new Nova nickel-copper discovery , following a review of the Company’s database.

• Discrete conductors confirmed by follow-up large fixed-loop EM surveys at the Earoo Nickel Project (WA).

CORPORATE

• Agreement reached with Cliffs Australia Holdings Pty Ltd (Cliffs) for AusQuest to buy back and cancel their 29.91% shareholding in AusQuest in exchange for a 70% interest in the Stanley Manganese Project (WA) and a commitment by AusQuest to spend a further $1.0M on the project.

• Cash reserves of $4.0M at the end of the Quarter with the final payment of $750,000 for the sale of Rocklea due in January 2013.

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Figure 1: Project Locations – Australia and West Africa

OVERVIEW

AusQuest Limited (ASX: AQD) has a diversified portfolio of gold, base metal and bulk commodity projects in West Africa and Australia ( Figure 1 ) and, under a joint venture with Cliffs Natural Resources Exploration, in Peru, South America ( Figure 4 ).

During the Quarter, the Company negotiated a selective buy-back of Cliffs’ 29.91% shareholding in exchange for equity in the Stanley Manganese Project in WA and a commitment by AusQuest to fund further exploration on the project. The consequent reduction in the Company’s share capital to ~160 million shares will increase the percentage ownership of existing AusQuest shareholders, while maintaining a strong working relationship with Cliffs.

The Company’s exploration activities during the Quarter were mainly focused in Peru, where reconnaissance mapping and sampling commenced to provide a firstpass assessment of the prospectivity of targets identified by the Company’s regional aeromagnetic survey.

In Burkina Faso, West Africa, compilation and assessment of data collected before the onset of the wet season continued, with an emphasis on reviewing results received

from the extensive RAB drilling program (~27,000m) completed in June 2012 and new soil geochemical results received from the Company’s sampling programs.

In Western Australia, a review of the Company’s WA nickel projects was initiated following the new Nova nickelcopper discovery announced by Sirius Resources. This resulted in nickel target areas being defined at Dundas (south of Nova) and additional geophysical surveys being commissioned at Earoo.

GOLD – WEST AFRICA

Comoe Project (AQD 100%)

The Comoe Project is located near the town of Banfora in south-west Burkina Faso, West Africa, within an extensive greenstone belt. The area is relatively unexplored except for extensive historical surface sampling programs and scattered artisanal gold workings along the belt. Burkina Faso is emerging as a significant new West African gold province.

During the Quarter, the Company received final gold assays from its regional RAB drilling programme (~27,000m), which provided an initial test of 24 gold-soil anomalies spread across five of the seven tenements.

The first-pass RAB coverage was achieved using wide-spaced drill sections with drillholes either 25 or 50m apart. All RAB holes were drilled to refusal and were sampled on a 4m composite basis. Shallow

gold intersections of more than 1g/t Au were returned at numerous locations, with the more significant intersections occurring in at least five areas:

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Figure 2: Phaco Hill Gold-Silver Prospect

Phaco SE prospect : a high-grade gold intersection (12m grading 3.82g/t Au from surface) reported ~200m south-east of Phaco Hill is thought to represent the onset of a new gold zone(s) associated with the Phaco Hill gold-silver mineralisation identified in 2011( Figure 2 );

Cisaillee prospect : an intersection of 4m at 8.66g/t Au on the northern-most drill section and several thicker intersections to the south including 24m at 0.62g/t Au were located in pyritic and siliceous rocks where continuations of the Phaco Hill volcanic sequence are thought to intersect the Siniko Shear zone;

Nandrefa prospect : intersections of 4 metres @ 4.69g/t Au and 8 metres @ 0.68g/t Au remain open in all directions. The gold occurs within deformed and altered granodiorite on the western side of a major NNE trending shear zone ( Figure 3 );

Lagnin prospect : several highly anomalous intersections occur within altered granodiorite, including a 1 metre interval @ 4.63g/t Au from an end-of-hole sample of sheared rock, suggesting that gold mineralisation may be present below the depth of drilling ( Figure 3 );

Diarabokoko East prospect : an intersection of 4m @ 1.9g/t Au which occurs 50 metres along strike from RC drilling results of 12m @ 1.5g/t Au and 4m @ 1.86g/t Au previously reported (2010) suggests continuity of mineralisation and the potential for additional strike extensions.

The Company believes that these results represent an excellent first step in assessing the gold potential of the Comoe Project; however, additional drilling will be required before the full potential of the area can be determined.

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Figure 3: RAB results for Nandrefa and Lagnin Prospects

Further assessment of the Phaco Hill goldsilver discovery was also undertaken during the Quarter by the Company’s in-house consultants to provide a guide for further exploration drilling at this prospect. This work confirmed the relatively high gold grades at Phaco South and Phaco North (average >5g/tA u) and the potential for further mineralisation below the current level of drilling.

Assay results from soil sampling at Tondoura (~1,350 samples) were received, outlining additional targets for follow-up. At Logoniegue, several significant gold anomalies were defined within stratigraphy considered to be along-strike equivalents to the Phaco Hill prospect.

At the new Kapogouan and Noumoussou exploration permits, processing of available soil geochemical data outlined several extensive gold soil anomalies within the mapped volcanic sequences along the north-east boundary of the Banfora Greenstone Belt, providing a focus for infill sampling.

Compilation of regional mapping within the Komoe tenement was completed during the Quarter, resulting in the identification of the Sommet prospect at the apex of a large

granodiorite body where prospective structures and significant magnetite alteration suggest the potential for gold mineralisation beneath extensive alluvial cover.

Historic soil sampling in this area, which is believed to have been largely ineffective, located two spot high values of 50ppb Au close to the granodiorite contact.

Planning for the recommencement of field work is in progress.

PERU PROJECTS (Joint Venture with CNRE)

Peru is highly prospective for large Iron Oxide Copper Gold (IOCG) and porphyry copper deposits but is relatively underexplored when compared to its neighbour Chile, which is the world’s largest copper producer. AusQuest has embarked on a new exploration venture in Peru in conjunction with Cliffs Natural Resources Exploration (CNRE), to explore the southern coastal region which is largely under cover. A regional aeromagnetic survey flown by the joint venture has been used to identify areas for follow-up. Questdor SAC, a wholly-owned subsidiary

of AusQuest, has been registered in Peru to facilitate exploration activities.

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Figure 4: Peru Joint Venture Projects

During the Quarter, field exploration activity ramped up significantly with reconnaissance exploration programs commencing following the grant of titles. To date, a total of 81 Mineral Claims (~710km²) out of 155 applications (~1,450 km²) have been granted with more expected during the December Quarter.

Reconnaissance mapping and sampling commenced in five areas to provide an initial assessment of their prospectivity. A total of 336 rock-chip samples, 212 stream sediment samples and 39 soil samples were collected. Final assays are awaited.

At the Pampa Colorado prospect, further propylitic alteration and vein-style copper and gold mineralisation was located away from the main area of workings, significantly expanding the search area for buried porphyry-style mineralisation.

Detailed geological mapping commenced over the main area of interest, where numerous occurrences of small epithermal

quartz veins containing anomalous copper (up to 1.68% Cu) and gold (up to 12g/t Au) values have been reported. The Company believes that alteration mapping will assist in identifying the epicentre of the system associated with these veins.

Results from trial soil sampling over the main workings at Pampa Colorado were ambiguous with some suggestion of weak copper anomalism within the overlying soil and caliche cover. Further assessment is required before larger scale surface geochemical surveys could be used to locate potential economic mineralisation within this type of terrain.

Trial gravity and ground magnetic surveys were also completed over the main mineralised trend. A discrete gravity high was located north of the main workings, reflecting a possible increase in iron content which may be associated with the epithermal vein mineralisation.

The gravity survey was expanded to include the full extent of the Pampa

Colorado prospect (40km²) to search for other targets ( Figure 5 ).

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Figure 5: Pampa Colorado Prospect Gravity Survey

Induced Polarisation (IP) surveys are currently in progress to locate buried sulphide mineralisation and/or intense silicification associated with the epithermal vein system.

GOLD AND BASE METALS – AUSTRALIA

Dundas Project (100% AQD)

Preliminary results suggest a chargeable source offset from the mineralised trend but its size and extent is not known at this stage. Further surveying is required before a possible drill target can be confirmed.

Gravity and ground magnetic surveys were also completed at the Lana and El Jaguay prospects. Results are currently being assessed but initial indications suggest further work is required to test anomalous results in at least one of the areas.

The Company is pleased that exploration is finally gathering pace in Peru and continues to be encouraged by the initial results, especially in the Pampa Colorado area.

The Dundas Project is located approximately 100km east-southeast of Norseman (WA), ~400km south-west of the Tropicana gold discovery and ~80km south-west of the new Nova nickel discovery made by Sirius Resources. The tenements cover an area of ~560km² within a structurally complex region bordering the south-west margin of the main Fraser Range Complex which hosts the Nova discovery.

During the Quarter, the Company commenced a review of its databases, including regional soil/calcrete assay data, RAB drilling data and detailed aeromagnetic data, to look for signs of

nickel mineralisation within the Dundas tenements.

A review of the regional sampling data identified at least four low-level (up to 110ppm Ni and 170ppm Cu) semicoincident nickel and copper anomalies that are considered to be of interest based on recent results from the Nova nickel-copper discovery and the poor surface sampling conditions known to exist in this area.

RAB drilling results confirmed that mafic and ultramafic lithologies, which are the

preferred host to nickel mineralisation, occur in the area and this was supported by the detailed aeromagnetic data, which shows extensive linear magnetic responses in the vicinity of the nickel-copper anomalies. Complex structures including domal-type features are also evident in this data.

Further EM surveys and surface sampling are being planned to test the Dundas area for its nickel potential. Survey timing will depend on access and the availability of a suitable geophysical crew.

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Figure 6: Dundas Project Ni-Cu Geochemistry and Magnetics

Earoo Nickel Project (AQD 100%)

The Earoo Project is located ~130km north-west of Southern Cross in the Yilgarn region of WA. Interpretation of regional aeromagnetic data identified a large mafic intrusion which is believed to form part of the Warakurna Large Igneous Province (WLIP), which may include intrusive rocks – some of which are known to host nickel sulphide occurrences.

A large fixed loop (800m x 800m) ground EM survey was commissioned in early October to provide a check on earlier results from a coincident loop (100m x 100m) EM survey used to follow-up VTEM targets along the south-eastern contact of the interpreted mafic intrusion.

Results from this survey identified two discrete conductors, one coincident with the original VTEM target and a second much stronger response, located ~400 metres to

the north-west, where no VTEM anomaly had previously been interpreted ( Figure 7 ).

The character of this second EM response is more typical of massive sulphide mineralisation and further exploration is now planned for this prospect.

Initial modelling of the fixed-loop EM data suggests a depth of approximately 100 metres to the source, which indicates that it

occurs within or near the base of the interpreted mafic sill. A review of the original VTEM suggests that very subtle responses may be of interest and further VTEM anomalies are now being identified for ground testing.

The Company plans to drill test both EM targets as soon as the appropriate clearances have been obtained and a suitable drill rig is available.

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Figure 7: Fixed Loop EM Results showing conductive targets

• Teriwa Copper Gold Project (100% AQD)

Stanley Project ( 100% AQD

The Teriwa Project is located ~350km southwest of Mt Isa and 100km northwest of the Diamantina Project in western Queensland. It represents an Olympic Dam-style geophysical target at depths of approximately 500 metres below the surface.

No exploration activity was undertaken on this project during the Quarter.

MANGANESE PROJECTS – AUSTRALIA

The Stanley Project is located 170km east of Wiluna in Western Australia within the Earaheedy Basin. The Project covers a total area of approximately 2,300km². Manganese mineralisation in the area occurs at several different stratigraphic locations around the basin and is often associated with carbonate units that are located stratigraphically above the iron formations which occur near the base of the Frere Formation.

Field reconnaissance of photo features identified as possible manganese sub-crop

confirmed the presence of an extensive manganese-rich horizon extending over at least 10km with possible correlations to the Dome prospect, some 60km to the west ( Figure 8 ).

The manganese horizon appears thin (1 metre) at surface, but is shallow dipping (<5°) and has an extensive strike length, providing good scope for thicker intervals

of manganese mineralisation to be found along its strike length.

Detailed mapping and geophysical surveys (EM, gravity) are being planned to identify targets for drilling along with targets already identified at the Niminga and Dome prospects.

Drilling is expected to commence around mid-2013.

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Figure 8: Manganese target areas at Windidda and Dome Prospects

BUSINESS DEVELOPMENT

AusQuest continues to evaluate opportunities both within Australia and offshore with the aim of adding value to the Company. Priority will be given to exploration properties with drill-ready targets, especially in areas of immediate interest to the Company.

CORPORATE

During the Quarter, AusQuest executed a legally binding agreement with its major shareholder, Cliffs Australia Holdings Pty Ltd (Cliffs), to undertake a selective buyback and cancellation of Cliff’s 29.91%

shareholding in AusQuest, subject to FIRB and shareholder approval.

Details of the agreement were reported to the ASX on October 23[rd] 2012 and will be provided to shareholders in a Notice of Meeting which will contain details of the transaction and a copy of the Independent Expert’s Report.

AusQuest shareholders will benefit from the transaction by increasing their percentage ownership of the Company, while at the same time maintaining significant exposure to exploration upside at the Stanley Project, where a new joint venture is expected to be negotiated by the

completion of AusQuest’s sole-funding obligation.

The Board is very pleased to have concluded this agreement with Cliffs, and the Company looks forward to maintaining its strong working relationship with Cliffs at a project rather than corporate level.

The Company is in a strong position with cash reserves of $4.0 million as at the 31[st] September 2012 and the final payment of $750,000 for the sale of its Rocklea Iron Ore Project due on the 19[th] January 2013.

• Stanley (manganese) – field mapping over new manganese prospects;

• Peru (IOCG) – continued mapping and sampling of IOCG and porphyry copper targets;

• Peru (IOCG) – magnetic, gravity and IP surveys over selected targets;

• Dundas (Ni) – EM surveys over selected targets; and

• Earoo (Ni) – further large-loop EM surveys and access preparation for drilling

KEY ACTIVITIES – DECEMBER 2012 QUARTER

The following activities are planned for the December 2012 Quarter:

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 Comoe (gold) – mapping and sampling at Kapogouan and Noumoussou;

Graeme Drew Managing Director

COMPETENT PERSON’S STATEMENT

The details contained in this report that pertain to exploration results are based upon information compiled by Mr Graeme Drew, a full-time employee of AusQuest Limited. Mr Drew is a Fellow of the Australasian Institute of Mining and Metallurgy (AUSIMM) and has sufficient experience in the activity which he is undertaking to qualify as a Competent Person as defined in the December 2004 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (JORC Code). Mr Drew consents to the inclusion in the report of the matters based upon his information in the form and context in which it appears.

FORWARD LOOKING STATEMENT

This report contains forward looking statements concerning the projects owned by AusQuest Limited. Statements concerning mining reserves and resources may also be deemed to be forward looking statements in that they involve estimates based on specific assumptions. Forward-looking statements are not statements of historical fact and actual events and results may differ materially from those described in the forward looking statements as a result of a variety of risks, uncertainties and other factors. Forward looking statements are based on management’s beliefs, opinions and estimates as of the dates the forward looking statements are made and no obligation is assumed to update forward looking statements if these beliefs, opinions and estimates should change or to reflect other future developments.

Rule 5.3

Appendix 5B

Mining exploration entity quarterly report

Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/2001.

Name of entity

	Name of entity
	AUSQUEST LIMITED
	ABN 35 091 542 451 Consolidated statement of cash flows
			30 September 2012
Cash flows related to operating activities 1.1 Receipts from product sales and related debtors 1.2 Payments for (a) exploration and evaluation (b) development (c) production (d) administration 1.3 Dividends received 1.4 Interest and other items of a similar nature received 1.5 Interest and other costs of finance paid 1.6 Income taxes paid 1.7 Other Net Operating Cash Flows		Current quarter $A ‘000		Year to date ( 3 months) $A ‘000
		- (728) - - (419) - 47 - - -		- (728) - - (419) - 47 - - -
		(1,100)		(1,100)
Cash flows related to investing activities 1.8 Payment for purchases of: (a)prospects (b)equity investments (c) other fixed assets 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 (provide details if material) Net investing cash flows 1.13 Total operating and investing cash flows (carried forward)		- - (1) - - - - - -		- - (1) - - - - -
		(1)		(1)
		(1,101)		(1,101)

1.13 Total operating and investing cash flows (brought forward)	(1,101)	(1,101)
Cash flows related to financing activities 1.14 Proceeds from issues of shares, options, etc. 1.15 Proceeds from unissued shares, options etc 1.16 Proceeds from borrowings 1.17 Repayment of borrowings 1.18 Dividends paid 1.19 Other (share issue costs) Net financing cash flows	- - - - - -	- - - - - -
	-	-
Net increase (decrease) in cash held 1.20 Cash at beginning of quarter/year to date 1.21 Exchange rate adjustments to item 1.20 1.22 Cash at end of quarter / year to date	(1,101) 5,077 -	(1,101) 5,077 -
	3,976	3,976

Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities

1.23 1.24	Aggregate amount of payments to the parties included in item 1.2 Aggregate amount of loans to the parties included in item 1.10	Current quarter $A ‘000
		134
		-
1.25	Explanation necessaryfor an understandingof the transactions
	Executive directors’ salaries and non-executive directors’ fees and superannuation, consulting fees and rental of office space.

Non-cash 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 None.

2.2	Details of outlays made by other entities to establish or increase their share in projects in which the reporting entityhas an interest
	None.

Financing facilities available

Add notes as necessary for an understanding of the position.

	3.1 Loan facilities 3.2 Credit standby arrangements	Amount available $A ‘000	Amount used $A ‘000
		-	-
		-	-

Estimated cash outflows for next quarter

4.1 Exploration and evaluation 4.2 Development 4.3 Production 4.4 Administration Total	$A’000
	500
	-
	-
	250
	750

Reconciliation of cash

Reconciliation of cash
Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows.	Current quarter $A ‘000	Previous quarter $A ‘000
5.1 Cash on hand and at bank 5.2 Deposits at call 5.3 Bank overdraft 5.4 Other (Money market/Term Deposit)	389	533
		-
		-
	3,587	4,544
Total: cash at end of quarter(item 1.22)	3,976	5,077

Changes in interests in mining tenements

6.1 Interests in mining tenements relinquished, reduced or lapsed 6.2 Interests in mining tenements acquired or increased	Tenement reference	Nature of interest (note(2))	Interest at beginning ofquarter	Interest at end of quarter
	EL4674 E38/2373 E77/1780		100% 100% 100%	Nil Nil Nil
	Tenements in Peru Azucar P,S,U (3) Azucar West C,D (2) Pampa Las Pulgas Q,R,T (3) Falle TorreQ (1)		Nil Nil Nil Nil	30% 30% 30% 30%

NB: Peru tenements are subject to a Joint Venture with Cliffs Natural Resources Exploration as per the announcements to the ASX on the 3[rd] June and 21[st] October 2011.

Issued and quoted securities at end of current quarter

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 quarter (a) Increases through issues (b) Decreases through returns of capital, buy- backs, redemptions
7.3 +Ordinary securities 7.4 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital,buy-backs	228,312,235	228,312,235
7.5 +Convertible debt securities (description) 7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted
7.7 Options (description and conversion factor) 7.8 Issued during quarter 7.9 Exercised during quarter 7.10 Expired during quarter	1,250,000 1,350,000 1,150,000 500,000 500,000 1,750,000	- - - - - -	Exercise price 35 cents 20 cents 40 cents 30 cents 40 cents 40 cents	Expiry date 31 Dec 2012 1 Dec 2013 1 Dec 2013 30 Nov 2013 30 Nov 2013 30 Nov 2013
7.11 Debentures (totals only)

7.12 Unsecured notes (totals only)

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 give a true and fair view of the matters disclosed.

Sign here: (Company secretary)

Date: 25 October 2012

Print name: Darren Crawte

Notes

• 1 The quarterly report provides a basis for informing the market how the entity’s activities have been financed for the past quarter 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 6.2.

• 3 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.

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