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September 2011 Quarterly Report

Alcyone Resources Ltd ABN 53 056 776 160 www.alcyone.com.au

Silver Production Ramps Up as Alcyone

Commences Mining

HIGHLIGHTS

 Successful wet commissioning of the upgraded Twin Hills processing facility.

 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 10% with crushing circuit already nearing nameplate .

 Mining commenced ahead of schedule to support ramp-up of production to 1.5-2Moz 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 7-10 year mine life.

Figure 1 – Aerial view of the crushing circuit, Twin Hills Operations

Alcyone Resources Ltd

Directors:

Charles Morgan – Non Exec Chairman Andrew King – Managing Director Andrew Richards – Non Exec Director

Contact Details: Level 1, 50 Kings Park Rd West Perth WA 6005 Telephone +61 8 9476 3000 Facsimile: +61 8 9322 8912 Email: [email protected] Website: www.alcyone.com.au Capital Structure: 1,321,066,488 shares 67,750,000 options Top 10 Shareholders: JP Morgan 22.56%

Lyandji Super Fund 2.70% 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 10 35.95%

ASX Code: AYN

September 2011 Quarterly Report

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September 2011 Quarterly Report

OVERVIEW

Alcyone continued to make strong progress during the September Quarter, achieving key commissioning and production milestones at its flagship 100% owned Texas Silver & Polymetallic Project in south-east Queensland and cementing its position as a new Australian silver producer.

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 100%-owned Texas Silver and Polymetallic Project in south-east 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 re-irrigation of the existing silver-rich 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 commercial-scale 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 ramp-up in silver production to the initial targeted annualised rate of 1.5 - 2.0 million ounces per annum by the end of calendar 2011.

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

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.

OPERATIONS

1.1 Twin Hills

Silver production at the Texas Project is on target to reach an annualised rate of 1.5 – 2.0 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 commercial-scale 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 re-irrigating the existing silver-rich heaps,

Figure 2 – Mining underway in the Twin Hills open pit

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September 2011 Quarterly Report

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 low-to-medium grade material from the 200,000 tonnes of Run-of-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 scale-up 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.

1.1.2 Mt Gunyan

Work has commenced on scoping studies for the Mt Gunyan Project, located approximately 5km north-west of Twin Hills. Pit design profiles will be run at varying silver prices with additional metallurgical work to be undertaken.

In parallel with this work, preparation of all the required documents and land clearance requirements will commence

to enable the granting of the necessary approvals and licences for mining to start.

2.0 EXPLORATION

With the ramp-up of silver production, Alcyone embarked on a renewed exploration program during the September Quarter. This was based on a detailed review and re-modelling 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 Company-owned Rotary Air Blast (RAB) drilling rig will continue to undertake regional exploration, providing a low-cost 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.

The intention of this drilling campaign is to extend the Twin Hills mine life towards 7-10 years for heap leach silver production, while also targeting the discovery and delineation of sufficient base metal resources to justify a future mining operation.

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September 2011 Quarterly Report

Figure 3 – Regional silver heap leach and base metal targets

3.0 CORPORATE

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 2011.

4.0 OUTLOOK

With production ramping up to the targeted annualised rate of 1.5 – 2.0 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 south-east Queensland, and is ramping up to an initial targeted production level of 1.5-2.0Moz per annum by the end of 2011.

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 re-assessment and feasibility and into production.

Alcyone has embarked on an exciting new growth phase with aggressive exploration programs underway aiming to establish a 7-10 year mine life and targeting new silver and base metal discoveries within its 275 sq km tenement holding.

Forward-Looking Statement

Certain statements made during or in connection with this communication, including, without limitation, those concerning exploration targets, contain or comprise certain forward-looking statements regarding Alcyone’s exploration operations, economic performance and financial condition. Although Alcyone believes that the expectations reflected in such forward-looking 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 forward-looking 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 forward-looking statements to reflect events or circumstances after today's date or to reflect the occurrence of unanticipated events.

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September 2011 Quarterly Report

APPENDIX 1: MINERAL RESOURCE ESTIMATION

Table 1: Twin Hills Ore Reserve Estimate

Silver Price _{Classification}Reserve Tonnes (Mt) Silver Grade (g/t) Recovered Silver (Moz) Strip Ratio Waste : Ore A$19.85/oz Proven and Probable 2.325 81 4.125 2.17 : 1 A$25.00/oz Proven and Probable 4.016 64 5.637 1.65 : 1

Table 2: Mt Gunyan In Situ Mineral Resource

Category Tonnes Ag g/t Au g/t Measured 242,000 69 0.16 Indicated 1,777,000 69 0.08 Sub-total 2,018,000 69 0.09 Inferred 329,000 69 0.05 Total 2,347,000 69 0.08

Tonnes and grade have been rounded to the nearest 1000 for tonnes and whole units for Ag. Cut-off 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 geo-statistical 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.

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Appendix 5B

Mining exploration entity quarterly report

+ See chapter 19 for defined terms.

30/9/2001 Appendix 5B Page 1

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, 01/06/10.

Name of entity

Alcyone Resources Ltd

ABN Quarter ended (“current quarter”)

53 056 776 160 September 2011

Consolidated statement of cash flows

Cash flows related to operating activities

Current quarter $A’000

Year to date (3months) $A’000

1.1 Receipts from product sales and related

debtors

7,434 7,434

1.2 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 58 58

1.5 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)

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Appendix 5B

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. 50 50

1.15 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 ₄₉ ₄₉

Net increase (decrease) in cash held (1,426) (1,426)

1.20 Cash at beginning of quarter/year to date 3,036 3,036

1.21 Exchange rate adjustments to item 1.20 -

1.22 Cash at end of quarter 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 quarter $A'000

1.23 Aggregate amount of payments to the parties included in item 1.2 137

1.24 Aggregate amount of loans to the parties included in item 1.10 -

1.25 Explanation necessary for an understanding of the transactions

Directors Fees and remuneration of Directors

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

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

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Appendix 5B

Financing facilities available

Add notes as necessary for an understanding of the position.

Amount available $A’000

Amount used $A’000

3.1 Loan facilities - -

3.2 Credit standby arrangements - -

Estimated cash outflows for next quarter

$A’000

4.1 Exploration and evaluation

700 4.2 Development 2,470 4.3 Production(i) (6,144) 4.4 Administration 1,124 Total (1,850)

(i) Note production represents forecast net proceeds from sales

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 1,610 1,036

5.2 Deposits at call

- 2,000

5.3 Bank overdraft _- _-

5.4 Other (provide details) _- _-

Total: cash at end of quarter (item 1.22) _1,610 _3,036

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Appendix 5B

Changes in interests in mining tenements

Tenement reference Nature of interest (note (2)) Interest at beginning of quarter Interest at end of quarter 6.1 Interests in mining tenements relinquished, reduced or lapsed ML4727 ML4770 EPM15168 EPM15775 MDL272 EPM15854 Sold Sold Sold Sold Sold Sold 100% 100% 100% 100% 100% 100% 0% 0% 0% 0% 0% 0% 6.2 Interests in mining tenements acquired or increased No changes

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 1,321,066,488 1,321,066,488 Fully paid

7.4 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy-backs 5,000,000 5,000,000 7.5 +Convertible debt securities (description)

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Appendix 5B

30/9/2001 Appendix 5B Page 5 7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted 7.7 Options (description and conversion factor) 65,500,000 250,000 1,000,000 - - - Exercise price 1 cent each $9.60 each 11 cents each Expiry date 30 Sep 2012 09 Nov 2012 31 Mar 2015 7.8 Issued during quarter

- 12 Aug 1,000,000 - 15 cents each 31 Aug 2015

7.9 Exercised during

quarter

- 30 Sep 5,000,000 - 1 cent each 30 Sep 2012

7.10 Expired during quarter 423,750 667,902 - 667,902 $9.00 each $1.60 each 14 Aug 2011 30 Sep 2011 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 Actor 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...

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Appendix 5B

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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