Sparton Resources research Sparton Resources research and analysisNovember 8, 2011, TuesdayContributed by eResearchBy Bob Weir Sparton Resources Inc. (“Sparton Resources”, “Sparton”, or the “Company”) is a mineral exploration and energy royalty company with diverse projects located in North America, Mexico, and China. INVESTMENT HIGHLIGHTSSparton Resources strives to bring its projects into feasibility or production stages, or sell them to create shareholder value. The Company has sold two gold projects in 2011;One of Sparton’s key projects, the Huajun germanium– coal mine, is producing. So far, the mine is loss-making, and the Company intends to improve its profitability by moving to higher value-add products;The Huajun germanium–coal mine received an off-take partner, Voltaix LLC, in September 2011. The total value of the agreement is US$4.2 million;The Company’s Marmion gold project is located next to Osisko’s 6.7 Moz gold project, with mineralization features similar to Marmion’s. Sparton and Osisko have created a JV to operate the project. Osisko is required to spend $12 million on the project to get a 70% interest in the project from Sparton. OVERVIEW OF PROJECTSSparton Resources’ strategy is to bring mineral exploration projects to feasibility or commercial production stages.The Company creates subsidiary companies which can be spun out into new vehicles with an aim to create additional shareholder value. Refer to the table below for the summary of Sparton Resources’ projects. PROJECTSIn the first half of 2011, other than the sale of the SBD Project and the Sierra Rosario Project, Sparton Resources concentrated mainly on developing the Huajun germanium–coal operation, the vanadium and secondary uranium programs, and the Marmiun gold project. See the description, current activities and plans for these projects below.1. The Huajun Germanium–Coal OperationThe facility (see the picture below) is the fourth largest germanium producer in China and sixth largest producer in the world. At full capacity, the mine employs approximately 400 people. Production of germanium flue dust concentrate from stockpiled coal at the mine commenced in Q1/2011 and continued until late May 2011. A small sale of germanium concentrate was made in March 2011, representing production from stockpiles. All remaining concentrate inventory was sold during 1H/2011. The Company’s revenues from the facility’s operations in 1H/2011 amounted to $156,000.Sparton Resources’ current objective is to complete the acquisition of the full 85% interest in the project, finalize the new mining licence, and then resume underground development of the mine. As of late September 2011, the mine was in the final stages of getting a new mining licence, having completed all necessary safety and security upgrades to meet new Chinese regulatory requirements. Reactivation of the operations was supposed to begin immediately after the new mining licence is received.In late September 2011, the project saw a breakthrough in terms of its sales potential. Sparton executed a Memorandum of Understanding about an off-take arrangement with Voltaix LLC, a leading U.S. specialty materials producer. According to the Memorandum, Voltaix will buy germanium production from the Huajun Mine with the monetary value of approximately US$4.2 million. Voltaix will make payments in a series of advances related to milestones in the development of the mine.The Company’s goal is to enhance profitability of the mine’s operations by increasing output and possibly upgrading the current production of germanium concentrate to other germanium products through a new small refinery.2. Guojiaping and Xiushui Area Vanadium ProjectsThe Guojiaping Exploration Licence in the Xiushui County, China, contains a large shale-hosted vanadium mineralization, with associated uranium mineralization covering an area of 9.02 sq.km (see the map below). The Licence has been explored by China’s Exploration Bureau of the Jiangxi Nuclear Industry since May, 2007 including, in total, 7,760 meters of core drilling (in 131 holes), 3,528 cubic metres of trenching, several shallow shafts, and related geological mapping, sampling, and analyses. Based on the results of 42 drill holes, covering a 5.5 sq.km. area within the Licence, Exploration Bureau of the Jiangxi Nuclear Industry reported the deposit containing approximately 100,000 tonnes of vanadium pentoxide (V2O5) classified as “Chinese 333, inferred, intrinsically-economic resources” at an average grade 0.91% V2O5. According to Canadian NI 43-101, this resource is classed a “Potential Target”. The mineralized horizon is 3 - 25 metres thick and shallow dipping. According to the agreement with Exploration Bureau of the Jiangxi Nuclear Industry, SNET (a Chinese JV 66% owned by Sparton, see below) may acquire a 65% interest in the JV to own and develop the Licence for approximately $7 million. The rights to this agreement have been transferred to Spartan subsidiary, VanSpar, which will hold all Sparton’s vanadium projects.The evaluation of the Guojiaping and other nearby vanadium opportunities in the Jiangxi province continued in 2011. Several new vanadium opportunities became available in the Xiushui County in early 2011, including the Rentian, Dong Du, Da Chun, and Quankeng projects. All of these projects have modest Chinese standard resources with the exception of Quankeng. VanSpar completed eleven diamond drill holes, totalling approximately 1,000 metres, on the Quankeng property in Q2/2011 with results meeting expectations. In Q2/2011, VanSpar was mandated as the exclusive consolidator of vanadium projects in the Xiushui area by the local government. On March 8, 2011 Sparton sold an 18.89% interest in VanSpar to the private investment company, Alpha Prime Investments Ltd., for US$1.514 million.In Q2/ 2011, the Company signed a memorandum of understanding with the owners of the Rentian Mining Company which owns a vanadium processing plant in Xiushui County, which operated for a few months only and was shut down in early 2010. The agreement allowed Sparton to review the technical operation and provide recommendations for reactivating the operations. The plant has the capacity to produce 800-1,000 tonnes of V2O5 per year and could be a major asset to Sparton. In early 2011, after initial due diligence studies proved positive, an exclusive option agreement was signed with Rentian for a 90-day period. As of late August 2011, negotiations were continuing. According to Sparton, all the vanadium deposits in the area appear to be amenable to simple open pit mining with a low strip ratio. Additional drilling can expand the “resources” in all of these mineralizations and bring them to a higher level of reliability. At current vanadium pentoxide (V2O5) prices of about US$7.00 per pound, this project represents a significant opportunity for the Company.3. Secondary Uranium Recovery ProgramSparton’s uranium cleanup program is located in the Lincang Area, China. The Company’s partner, the CNNC Remote Sensing subsidiary, ARCN, directly invested its 30% interest in the Chinese JV (66% owned by Sparton), Yunnan Sparton New Environ-Tech Consulting Co. Ltd. (SNET) which operates the program. In Q3/2011, SNET entered into an agreement with Yunnan Geological Nuclear Exploration Team 209 to acquire the ARCN 30% interest in SNET. As a local partner in the Lincang area, Team 209 is well established and will be able to assist with local and provincial issues, as well as allow SNET to maintain its close relationship with CNNC. A revised budget for a bulk test facility for Lincang waste was prepared in early 2011. All CNNC radioactive materials programs came under security scrutiny after the Fukushima disaster and these activities have generally produced positive evaluations. According to the Company, SNET’s test programs are not considered to be significantly affected by these security review, but some permitting delays are likely to occur. In 1H/2011, a new financing initiative was undertaken for the program’s bulk test and a submission was made to the Yunnan Technology Development Fund to support the proposed test. The submission was favourably received and negotiations were ongoing as of late August 2011.4. Marmion Gold ProjectThe Marmion Project covers 6,800 hectares of mineral claims in several claim groups near the town of Atikokan, Ontario (see the map on the next page). In early 2011, Sparton signed an Option and Joint Venture Agreement with Osisko Mining Corporation under which Osisko will spend an initial $8 million over a four-year period to earn a 60% interest in the claims, and an additional $4 million to earn an additional 10%. Osisko will subscribe to purchase Sparton shares with a total value of $1,000,000 during the first year of the option, and Osisko must expend a minimum of $1 million on exploration prior to November 11, 2011.The Project straddles Osisko’s Hammond Reef Project property, which hosts a NI 43-101 compliant inferred resource of 6.7 Moz of gold (259.4 million tonnes at 0.8 g/tonne, 0.3 g/tonne cut-off), of which 97% lies within 300 metres of the surface. In 1H/2011, up to 21 drills operated at Hammond Reef which was one of the largest development programs in North America. The mineralization on the Project is similar to the Hammond Reef gold deposit. The 2011 exploration program on the Sparton claims is budgeted at $1.2 million and began in Q2/2011. The program is managed jointly by Osisko and Sparton. The initial prospecting and drilling by the Company on these claims produced encouraging results. A new gold discovery was made on the western claim group. Some of the assays and soil results are still pending but, accordin g to the Company, visually the mineralized trend is more or less continuous along the grid baseline and has been tracedover a distance of 2.8 kilometres. Anomalous gold values in soils were observed for a strike length of about 2.2 kilometres. The data display several anomalous trends within the area and a significant number of anomalous values occur beyond the northwestern limit of the area where detailed work was done, and these sample values indicated up to 1.71 and 1.92 g/t gold. Highlights of the first part of the initial Sparton drill program include 0.4 g/t gold over 39.4 metres in hole WHC 2010-12 on the new South Silicified Zone (SSZ). Individual assays from holes drilled in the SSZ included 0.80 g/t over 7.5 metres, 3.49 g/t over 1.3 metres, 4.4 g/t over 1.0 metres, and 8.5 g/t over 0.8 metres. Future drilling under the Osisko program will involve deeper testing of the SSZ.A 27.5 line km soil sampling program is currently underway on the property where grab samples returned values ranging from 0.105 to 6.86 g/t Au. The mineralization is hosted in quartz veins at the contact between sheared altered volcanic and Marmion Batholith granitic rocks similar to mineralization found further southwest and on Osisko's Hammond Reef Property. Similar mineralization has recently been located approximately 3 kilometres northeast of the SSZ. This zone is at least 300 metres long and extends from Osisko's property southwest onto Sparton claims. It is several meters wide and sampling assay results are pending. A spectral induced polarization survey is scheduled to begin shortly to trace this zone as well as locate others. Stripping and trenching are also being planned on some of these new occurrences. FINANCIAL POSITIONSparton’s cash position as of end of June 2011 was around $250,000, down from more than $1.1 million six months before.Since then, the Company closed the deal with Purple Gold Corporation for the SBD gold project in Nevada and received the initial US$125,000 cash payment. In total, Sparton should receive US$1 million (minimum US$500,000 in cash) for the project before December 15, 2012.In 2H/2011, Sparton also closed the deal for the acquisition of 50% of its 51% interest in the Sierra Rosario Property in the state of Sinaloa, Mexico for $500,000 and 500,000 common shares of American Consolidated Minerals Corp. (“ACM”). It is believed that the Company has already received a cash payment of $300,000 and 250,000 shares of ACM.The off-take agreement with Voltaix, which is worth US$4.2 million, should help Sparton further improve its liquidity. The Company has ambitious development plans. In particular, it intends to build a new refinery at the Huajun germanium–coal mine to enhance the mine’s profitability. To accomplish thisevelopment, Sparton will require additional funds. eResearch Analysts on this report:Yuri Belinsky, B.A., M.A.Bob Weir, B.Sc., B.Comm., CFA