BRIGHTSTAR RESOURCES LIMITED - AGM Information 2020

Notice of Annual General Meeting and Explanatory Memorandum

Stone Resources Australia Limited

ABN 44 100 727 491

Date of Meeting: 16 November 2020

Time of Meeting: 10am (Perth Time)

Place of Meeting: Virtual

Independent Expert’s Report: Shareholders of the Company should carefully consider the Independent Expert’s report prepared for the purpose of the Shareholder approvals under Listing Rule 10.1 (refer to Resolutions 11 to 12) .The Independent Expert has determined the Buy-Back and disposal of Debt is fair and reasonable to the non-associated Shareholders.

Shareholders should note that Resolutions 10 to 14 are conditional upon each other and as such should be considered collectively as well as individually. If any one of the Conditional Resolutions are not passed then the Proposed Transaction will not proceed.

This is an important document. Please read it carefully. If Shareholders are in doubt as to how to vote in respect of any or all of the resolutions contained within this document, they are advised to seek advice from their accountant, solicitor, or other relevant professional adviser prior to voting.

Shareholders are encouraged to please complete the Proxy Form enclosed and return it in accordance with the instructions set out in the Proxy Form.

Notice of Annual General Meeting

Dear Shareholder

Enclosed is a notice for the annual general meeting ( Meeting ) of Shareholders of Stone Resources Australia Limited ( Company ) to be held on 16 November 2020 via a virtual meeting facility.

In addition to considering Resolutions commonly proposed at the Company’s annual general meetings, the Meeting will consider Resolutions to approve a buy-back of 433,452,944 ordinary shares in the Company from two of the Company’s largest Shareholders, being Stone Resources Limited ( SRL ) and Stone Resources (HK) Limited ( SRHK ) ( Buy-Back ), and to approve the disposal of a debt of A$53,217,595 owed by the Company to SRHK ( Debt ), in exchange for the granting of a 3% net smelter return royalty over gold to SRHK over the Tenements listed in Schedule 1 and Schedule 2 of this Notice of Meeting ( Royalty ), assignment of the Regis Royalty, and payment of a total of A$11,400,000.

The Resolutions form part of the Proposed Transaction pursuant to the Debt Equity Compromise Agreement signed between the Company, SRL, and SRHK on 10 August 2020. To finance the costs associated with the Buy-Back and to provide capital to take the Company forward, the Company has entered into, and completed, a sale and purchase agreement with Regis Resources Limited ( Regis ) for the sale of its Ben Hur Tenements.

Resolutions 8 and 9 are Ordinary Resolutions seeking Shareholder approval to issue Shares in the Company to Mr Joshua Hunt and Mr William Hobba as Related Parties of the Company, being an incoming Director, and an incumbent Director of the Company respectively.

Resolution 10 is an Ordinary Resolution and seeks Shareholder approval for the disposal of the Debt owing to SRHK in exchange for the granting of the Royalty and the assignment of the Regis Royalty.

Resolutions 11 and 12 are Ordinary Resolutions and seek Shareholder approval for the Buy-Back pursuant to ASX Listing Rule 10.1, while Resolutions 13 and 14 are Special Resolutions and seek Shareholder approval for the Buy-Back pursuant to the Corporations Act. Resolutions 15 and 16 are also Special Resolutions and seek Shareholder approval for the Company to receive an additional 10% placement capacity and change its name to Brightstar Resources Limited respectively.

On behalf of the Board, I encourage you to consider all Meeting materials carefully and participate in the Meeting by lodging the proxy form accompanying the Notice of Meeting. I would also encourage Shareholders to participate in the Meeting via the Lumi AGM App, further details of which are provided below at section 1 of the Explanatory Memorandum.

The Directors, with the exception of myself (as I have a personal interest in the Conditional Resolutions) unanimously recommend that you vote FOR the Conditional Resolutions. I decline from making any recommendation on the Conditional Resolutions on the basis I am a Director of SRL and SRHK.

The Directors, with the exception of Mr William Hobba who has a personal interest in Resolution 9, recommend that you vote FOR Resolution9. Mr William Hobba declines from making any recommendation on Resolution 6 on the basis he has a material interest in Resolution 9.

The Directors recommend that you vote FOR the balance of the Resolutions.

Yours faithfully

Yongji Duan Chairman

Notice of Annual General Meeting

Notice is given that the Annual General Meeting of Shareholders of Stone Resources Australia Limited (ABN 44 100 727 491) ( Stone Resources or Company ) will be held virtually on 16 November 2020 commencing at 10am (Perth time).

Agenda

Ordinary Business

Financial Report

To receive and consider the Company’s Annual Report comprising the Directors’ Report and Auditors’ Report, Directors’ Declaration, Statement of Financial Performance, Balance Sheet, Statement of Cashflows and notes to and forming part of the accounts of the Company and its controlled entities for the financial year ended 30 June 2020.

1. Resolution 1 – Remuneration Report

To consider and, if thought fit, pass the following resolution as an advisory Resolution:

“That, the Remuneration Report for the year ended 30 June 2020 (as set out in the Directors’ Report) is adopted.”

Voting: The vote on this Resolution 1 is advisory only and does not bind the Directors of the Company.

Voting Restriction pursuant to Section 250R(4) of the Corporations Act: A vote on Resolution 1 must not be cast (in any capacity) by or on behalf of either of the following persons:

(a) a member of the Key Management Personnel details of whose remuneration are included in the Remuneration Report;
(b) a Closely Related Party of such a member.

However, the above persons may cast a vote on Resolution 1 if:

(a) the person does so as a proxy; and
(b) the vote is not cast on behalf of a member of the Key Management Personnel details of whose remuneration are included in the Remuneration Report or a Closely Related Party of such a member; and
(c) either:
(1) the voter is appointed as a proxy by writing that specifies the way the proxy is to vote on the resolution; or
(2) the voter is the chair of the meeting and the appointment of the chair as proxy:
- i. does not specify the way the proxy is to vote on the resolution; and
- ii. expressly authorises the chair to exercise the proxy even if the resolution is connected directly or indirectly with the remuneration of the Key Management Personnel for the Company or, if the Company is part of a consolidated entity, for the entity.

2. Resolution 2 – Re-election of Mr Yongji Duan as a Director

To consider and, if thought fit, pass with or without amendment, the following resolution as an Ordinary Resolution:

“That, for the purposes of clause 14.2 of the Constitution, Listing Rule 14.4 and for all other purposes, Mr Yongji Duan, a Director, retires by rotation, and being eligible, is re-elected as a Director.”

3. Resolution 3 – Election of Mr Joshua Hunt as a Director

To consider and, if thought fit, pass with or without amendment, the following resolution as an Ordinary Resolution:

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“That, subject to and conditional on the DECA Completion, for the purposes of clause 14.3 of the Constitution, Listing Rule 14.3 and for all other purposes, Mr Joshua Hunt, having nominated as a Director of the Company, and being eligible, is elected as a Director.”

4. Resolution 4 – Approval of Issue of Options to PCF Capital Group

To consider and, if thought fit, pass with or without amendment, the following resolution as an Ordinary Resolution:

“That, for the purposes of ASX Listing Rule 7.1 and for all other purposes, approval is given for the Company to issue a maximum of 5,000,000 unlisted Options to PCF Capital Group on the terms set out in the Explanatory Memorandum.”

Voting Exclusion: The Company will disregard any votes cast in favour of Resolution 4 by or on behalf of any person who is expected to participate in, or who will obtain a material benefit as a result of, the proposed issue (except a benefit solely by reason of being the holder of ordinary securities in the Company), and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 4 by:

(a) a person as proxy or attorney for another person who is entitled to vote on the Resolution, in accordance with directions given to the proxy or attorney to vote on the Resolution in that way;
(b) the chair of the meeting as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with a direction given to the chair to vote on the Resolution as the chair decides; or
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(1) the beneficiary provides written confirmation to the holder that they are not excluded from voting, and is not an associate of a person excluded from voting, on the Resolution; and
(2) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

5. Resolution 5 – Ratification of prior issue of Options to PCF Capital Group

To consider and, if thought fit, to pass with or without amendment, the following resolution as an Ordinary Resolution:

“That, for the purposes of ASX Listing Rule 7.4 and for all other purposes, the Shareholders approve and ratify the prior issue on 16 March 2020 of 15,000,000 Options to PCF Capital Group on the terms and conditions set out in the Explanatory Memorandum which accompanies and forms part of this Notice of Meeting.”

Voting Exclusion: The Company will disregard any votes cast in favour of Resolution 5 by or on behalf of any person who participated in the issue, and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 5 by:

(a) a person as proxy or attorney for another person who is entitled to vote on the Resolution, in accordance with directions given to the proxy or attorney to vote on the Resolution in that way;
(b) the chair of the meeting as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with a direction given to the chair to vote on the Resolution as the chair decides; or
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(1) the beneficiary provides written confirmation to the holder that they are not excluded from voting, and is not an associate of a person excluded from voting, on the Resolution; and
(2) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

6. Resolution 6 – Ratification of prior issue of Shares to PCF Capital Group

To consider and, if thought fit, to pass with or without amendment, the following resolution as an Ordinary Resolution:

“That, for the purposes of ASX Listing Rule 7.4 and for all other purposes, the Shareholders approve and ratify the prior issue on 7 November 2019 of 15,000,000 Shares to PCF Capital Group on the

Notice of Annual General Meeting

terms and conditions set out in the Explanatory Memorandum which accompanies and forms part of this Notice of Meeting.”

Voting Exclusion: The Company will disregard any votes cast in favour of Resolution 6 by or on behalf of any person who participated in the issue, and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 6 by:

(a) a person as proxy or attorney for another person who is entitled to vote on the Resolution, in accordance with directions given to the proxy or attorney to vote on the Resolution in that way;
(b) the chair of the meeting as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with a direction given to the chair to vote on the Resolution as the chair decides; or
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(1) the beneficiary provides written confirmation to the holder that they are not excluded from voting, and is not an associate of a person excluded from voting, on the Resolution; and
(2) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

7. Resolution 7 – Ratification of prior issue of Shares to the Company Secretary

To consider and, if thought fit, to pass with or without amendment, the following resolution as an Ordinary Resolution:

“That, for the purposes of ASX Listing Rule 7.4 and for all other purposes, the Shareholders approve and ratify the prior issue on 7 November 2019 of 5,864,306 Shares to the Company Secretary on the terms and conditions set out in the Explanatory Memorandum which accompanies and forms part of this Notice of Meeting”

Voting Exclusion: The Company will disregard any votes cast in favour of Resolution 7 by or on behalf of any person who participated in the issue, and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 7 by:

(a) a person as proxy or attorney for another person who is entitled to vote on the Resolution, in accordance with directions given to the proxy or attorney to vote on the Resolution in that way;
(b) the chair of the meeting as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with a direction given to the chair to vote on the Resolution as the chair decides; or
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(1) the beneficiary provides written confirmation to the holder that they are not excluded from voting, and is not an associate of a person excluded from voting, on the Resolution; and
(2) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

8. Resolution 8 – Approval for Issue of Shares to a Related Party – Joshua Hunt

To consider and, if thought fit, to pass with or without amendment, the following resolution as an Ordinary Resolution:

“That, subject to and conditional on the DECA Completion, for the purposes of Listing Rule 10.11 and for all other purposes, approval is given for the Company to allot and issue 3,150,000 Shares to Joshua Hunt (or his nominee) on the terms set out in the Explanatory Memorandum accompanying this Notice of Meeting.”

Voting Exclusion: The Company will disregard any votes cast in favour of Resolution 8 by or on behalf of Joshua Hunt (or his nominee) and any other person who will obtain a material benefit as a result of the transaction (except a benefit solely by reason of being the holder of ordinary securities in the Company), and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 8 by:

(a) a person as proxy or attorney for another person who is entitled to vote on the Resolution, in accordance with directions given to the proxy or attorney to vote on the Resolution in that way;
(b) the chair of the meeting as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with a direction given to the chair to vote on the Resolution as the chair decides; or
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Notice of Annual General Meeting

(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(1) the beneficiary provides written confirmation to the holder that they are not excluded from voting, and is not an associate of a person excluded from voting, on the Resolution; and
(2) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

Proxy Appointment Restriction: In accordance with section 250BD of the Corporations Act, a person appointed as a proxy must not vote, on the basis of that appointment, on this Resolution if the proxy is either a member of the Key Management Personnel of the Company or a Closely Related Party of such a member and the appointment does not specify the way the proxy is to vote on this Resolution. However, the above prohibition does not apply if the proxy is the chair and the appointment expressly authorises the chair to exercise the proxy even though this Resolution is connected directly or indirectly with remuneration of a member of the Key Management Personnel.

9. Resolution 9 – Approval for Issue of Shares to a Related Party – William Hobba

To consider and, if thought fit, to pass with or without amendment, the following resolution as an Ordinary Resolution:

“That, for the purposes of Listing Rule 10.11 and for all other purposes, approval is given for the Company to allot and issue 30,000,000 Shares to William Hobba (or his nominee) on the terms set out in the Explanatory Memorandum accompanying this Notice of Meeting.”

Voting Exclusion: The Company will disregard any votes cast in favour of Resolution 9 by or on behalf of William Hobba (or his nominee) and any other person who will obtain a material benefit as a result of the transaction (except a benefit solely by reason of being the holder of ordinary securities in the Company), and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 9 by:

(a) a person as proxy or attorney for another person who is entitled to vote on the Resolution, in accordance with directions given to the proxy or attorney to vote on the Resolution in that way;
(b) the chair of the meeting as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with a direction given to the chair to vote on the Resolution as the chair decides; or
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(1) the beneficiary provides written confirmation to the holder that they are not excluded from voting, and is not an associate of a person excluded from voting, on the Resolution; and
(2) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

10. Resolution 10 – Approval of disposal by Company

To consider and, if thought fit, to pass with or without amendment, the following resolution as an Ordinary Resolution:

“That, subject to and conditional upon the passing of the Conditional Resolutions, for the purposes of Listing Rule 10.1 and for all other purposes, the Shareholders approve the disposal of a debt of A$53,217,595 owing to Stone Resources (HK) Limited ( SRHK ) by the Company, in consideration for the Regis Royalty and grant of a 3% net smelter return royalty over gold to SRHK over the Tenements, on the terms set out in the Explanatory Memorandum accompanying this Notice of Meeting.”

Independent Expert’s Report: Shareholders should consider carefully the Independent Expert’s Report prepared by BDO and attached at Schedule 4 to this Notice for the purposes of member approvals required under Listing Rule 10.1. The Independent Expert’s Report opines on the fairness and reasonableness of the disposal of the Debt.

The Independent Expert has determined that the disposal of the Debt is fair and reasonable to the non-associated Shareholders.

Notice of Annual General Meeting

Voting Exclusion: The Company will disregard any votes cast in favour of Resolution 10 by or on behalf of SRHK and any other person who will obtain a material benefit as a result of the transaction (except a benefit solely by reason of being the holder of ordinary securities in the Company), and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 10 by:

(a) a person as proxy or attorney for another person who is entitled to vote on the Resolution, in accordance with directions given to the proxy or attorney to vote on the Resolution in that way;
(b) the chair of the meeting as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with a direction given to the chair to vote on the Resolution as the chair decides; or
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(1) the beneficiary provides written confirmation to the holder that they are not excluded from voting, and is not an associate of a person excluded from voting, on the Resolution; and
(2) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

11. Resolution 11 – Approval of selective Buy-Back from SRL under Listing Rules

To consider and, if thought fit, to pass with or without amendment, the following resolution as an Ordinary Resolution:

“That, subject to and conditional upon the passing of all Conditional Resolutions, for the purposes of Listing Rule 10.1 and for all other purposes, the Shareholders approve the selective buy-back by the Company of 418,301,429 Shares held in the Company by Stone Resources Limited ( SRL ), a related party of the Company, for a total price of A$11,001,000, on the terms set out in the Explanatory Memorandum accompanying this Notice of Meeting.”

The Independent Expert has determined that the Buy-Back is fair and reasonable to the nonassociated Shareholders.

Voting Exclusion: The Company will disregard any votes cast in favour of Resolution 11 by or on behalf of SRL and any other person who will obtain a material benefit as a result of the transaction (except a benefit solely by reason of being the holder of ordinary securities in the Company), and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 11 by:

(a) a person as proxy or attorney for another person who is entitled to vote on the Resolution, in accordance with directions given to the proxy or attorney to vote on the Resolution in that way;
(b) the chair of the meeting as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with a direction given to the chair to vote on the Resolution as the chair decides; or
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(1) the beneficiary provides written confirmation to the holder that they are not excluded from voting, and is not an associate of a person excluded from voting, on the Resolution; and
(2) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

12. Resolution 12 – Approval of selective Buy-Back from SRHK under Listing Rules

To consider and, if thought fit, to pass with or without amendment, the following resolution as an Ordinary Resolution:

“That, subject to and conditional upon the passing of the Conditional Resolutions, for the purposes of Listing Rule 10.1 and for all other purposes, the Shareholders approve the selective buy-back by the Company of 15,151,515 Shares held in the Company by Stone Resources (HK) Limited, a related party of the Company, for a total price of A$399,000, on the terms set out in the Explanatory Memorandum accompanying this Notice of Meeting.”

Notice of Annual General Meeting

The Independent Expert has determined that the Buy-Back is fair and reasonable to the nonassociated Shareholders.

Voting Exclusion: The Company will disregard any votes cast in favour of Resolution 12 by or on behalf of Stone Resources (HK) Limited and any other person who will obtain a material benefit as a result of the transaction (except a benefit solely by reason of being the holder of ordinary securities in the Company), and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 12 by:

(a) a person as proxy or attorney for another person who is entitled to vote on the Resolution, in accordance with directions given to the proxy or attorney to vote on the Resolution in that way;
(b) the chair of the meeting as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with a direction given to the chair to vote on the Resolution as the chair decides; or
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(1) the beneficiary provides written confirmation to the holder that they are not excluded from voting, and is not an associate of a person excluded from voting, on the Resolution; and
(2) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

Special Business

13. Resolution 13 – Approval of selective Buy-Back from SRL under Corporations Act

To consider and, if thought fit, to pass with or without amendment, the following resolution as a Special Resolution:

“That, subject to and conditional upon the passing of all Conditional Resolutions, for the purposes of section 257D(1) of the Corporations Act and for all other purposes, Shareholders approve the selective buy-back by the Company of 418,301,429 Shares held in the Company by Stone Resources Limited for a total price of A$11,001,000, on the terms set out in the Explanatory Memorandum accompanying this Notice of Meeting.”

Voting Exclusion: The Company will disregard any votes cast on Resolution 13 by Stone Resources Limited, and any associates of this SRL. However, the Company need not disregard a vote if:

(a) it is cast by a person as a proxy appointed by writing that specifies how the proxy is to vote on the proposed resolution; and
(b) it is not cast on behalf of a related party or associate of a kind referred to above.

14. Resolution 14 – Approval of selective Buy-Back from SRHK under Corporations Act

To consider and, if thought fit, to pass with or without amendment, the following resolution as a Special Resolution:

“That, subject to and conditional upon the passing of all Conditional Resolutions, for the purposes of section 257D(1) of the Corporations Act and for all other purposes, the Shareholders approve the selective buy-back by the Company of 15,151,515 Shares held in the Company by SRHK for a total price of A$399,000, on the terms set out in the Explanatory Memorandum accompanying this Notice of Meeting.”

Voting Exclusion: The Company will disregard any votes cast on Resolution 14 by Stone Resources (HK) Limited, and any associates of Stone Resources (HK) Limited. However, the Company need not disregard a vote if:

(a) it is cast by a person as a proxy appointed by writing that specifies how the proxy is to vote on the proposed resolution; and
(b) it is not cast on behalf of a related party or associate of a kind referred to above.
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15. Resolution 15 – Approval of 10% Placement Capacity

To consider and, if thought fit, to pass with or without amendment, the following resolution as a Special Resolution:

“That, for the purpose of Listing Rule 7.1A and for all other purposes, shareholders approve the Company to have the additional capacity to issue Shares totalling up to 10% of the issued capital of the Company at the time of issue, calculated in accordance with the formula prescribed in Listing Rule 7.1A.2 and on the terms and conditions set out in the Explanatory Memorandum.”

Voting Exclusion: The Company will disregard any votes cast in favour of Resolution 15 by or on behalf of any person who is expected to participate in, or who will obtain a material benefit as a result of, the proposed issue (except a benefit solely by reason of being the holder of ordinary securities in the Company), and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 15 by:

(a) a person as proxy or attorney for another person who is entitled to vote on the Resolution, in accordance with directions given to the proxy or attorney to vote on the Resolution in that way;
(b) the chair of the meeting as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with a direction given to the chair to vote on the Resolution as the chair decides; or
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(1) the beneficiary provides written confirmation to the holder that they are not excluded from voting, and is not an associate of a person excluded from voting, on the Resolution; and
(2) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

16. Resolution 16 – Change of Name to Brightstar Resources Limited

To consider and, if thought fit, to pass with or without amendment, the following resolution as a Special Resolution:

“That, subject to and conditional upon the passing of the Conditional Resolutions, for the purposes of section 157(1)(a) of the Corporations Act and for all other purposes, Shareholders approve a change of name of the Company from “Stone Resources Australia Limited” to “Brightstar Resources Limited”.”

Other Business

To consider any other business that may be brought before the Meeting in accordance with the Company’s Constitution.

Explanatory Memorandum

Shareholders are referred to the Explanatory Memorandum accompanying and forming part of this Notice of Annual General Meeting.

Snapshot Time

Regulation 7.11.37 of the Corporations Regulations 2001 permits the Company to specify a time, not more than 48 hours before the Meeting, at which a “snapshot” of Shareholders will be taken for the purposes of determining Shareholders' entitlements to vote at the Meeting.

The Directors have determined that all Shares of the Company on the register as at 5.00 pm (Perth time) on 14 November 2020 shall, for the purposes of determining voting entitlements at the Meeting, be taken to be held by the persons registered as holding the Shares at that time.

Impacts of COVID-19 on the Meeting

The health and safety of all members and personnel, and other stakeholders, is the Company’s highest priority and the Company is acutely aware of the current circumstances resulting from COVID-19. While the COVID-19 situation remains volatile and uncertain, based on the best information available to the Board at the time of the Notice, the Company intends to conduct a poll on the Resolutions of the Notice using the proxies filed prior to the Meeting and for Shareholders to be able to attend and participate in

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the Meeting virtually via the Lumi AGM App. Shareholders who wish to participate in the Meeting online may do so:

(a) from their computer, by entering the URL, https://lumiagm.com/317062114 , into their browser: and entering the Meeting ID 317-062-114 when prompted; or
(b) from their mobile device by either entering the URL, https://web.lumiagm.com/317062114, in their browser: and entering the Meeting ID 317 062 114 when prompted or by using the Lumi AGM app which is available for download from the Apple App Store or Google Play Store.

Attending the Meeting online enables Shareholders to view the Meeting live and to cast votes on Resolutions at the appropriate times whilst the Meeting is in progress.

Shareholders are strongly encouraged to submit their proxies as early as possible and in any event, prior to the cut off for proxy voting as set out in the Notice. To lodge your proxy, please follow the directions on your personalised proxy form which will be enclosed with a copy of the Notice, delivered to you by email or post (depending on your communication preferences).

In addition to questions asked at the virtual Meeting, the Company is happy to accept and answer questions submitted prior to the Meeting by email to Tony Lau, joint Company Secretary at [email protected]. Where a written question is raised in respect of the Key Management Personnel (KMP) of the Company or the Resolutions to be considered at the Meeting, the Company will address the relevant question during the course of the Meeting by written response after the Meeting (subject to the discretion of the Company not to respond to unreasonable and/or offensive questions).

If the situation in relation to COVID-19 changes in a way that affects the position above, the Company will provide a further update ahead of the Meeting by releasing an announcement to ASX.

Poll

All Resolutions shall be conducted by poll.

Proxies

Please note that:

(a) a member of the Company entitled to attend and vote at the Meeting is entitled to appoint a proxy;
(b) a proxy need not be a member of the Company; and
(c) a member of the Company entitled to cast two or more votes may appoint two proxies and may specify the proportion or number of votes each proxy is appointed to exercise, but where the proportion or number is not specified, each proxy may exercise half of the votes.

Completed Proxy Forms may be sent via:

Online: www.investorvote.com.au

By mail: Share Registry – Computershare Investor Services Pty Limited, GPO Box 242, Melbourne, Victoria 3001, Australia By fax: 1800 783 447 (within Australia) +61 3 9473 2555 (outside Australia)

By mobile: Scan the QR Code on your proxy form and follow the prompts

Custodian voting for Intermediary Online subscribers only (custodians).

The enclosed proxy form for the Meeting provides further details on appointing proxies and lodging the proxy form. Proxies must be returned by 10 am (Perth time) on 14 November 2020.

Voting by Proxy

A Shareholder can direct its proxy to vote for, against or abstain from voting on each Resolution by marking the appropriate box in the voting directions section of the proxy form. If a proxy holder votes,

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they must cast all votes as directed. Any directed proxies that are not voted will automatically default to the Chairman, who must vote the proxies as directed.

If the Chairman is to act as your proxy in relation to the Meeting (whether by appointment or by default) and you have not given directions on how to vote by marking the appropriate box in the voting directions section of the proxy form, the Chairman intends to vote all valid undirected proxies in respect of each of the Resolutions in favour of the relevant resolution.

If you are in any doubt as to how to vote, you should consult your professional adviser.

Corporate Representative

If a representative of a Shareholder corporation is to attend the Meeting, a “Corporate Representative Certificate” should be completed and produced prior to the Meeting. Please contact the Company’s share registry for a pro forma certificate if required.

By Order of the Board Stone Resources Australia Limited

Tony Lau

Company Secretary

15 October 2020

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Explanatory Memorandum

1. Introduction

This Explanatory Memorandum is provided to Shareholders of Stone Resources Australia Limited ( Stone Resources or Company ) to explain the Resolutions to be put to Shareholders at the Annual General Meeting to be held virtually on 16 November 2020 commencing at 10am(Perth time).

The Notice of Meeting sets out details of proposals concerning the Resolutions to be put to Shareholders.

The Directors recommend Shareholders read the accompanying Notice of Meeting and this Explanatory Memorandum in full before making any decision in relation to the Resolutions.

Resolution 1 relating to the Remuneration Report is an advisory Resolution and does not bind the Directors or the Company. Resolutions 2 to 12 are Ordinary Resolutions, which require that a simple majority of votes cast by Shareholders present and entitled to vote on the Resolution must be in favour of the Resolution. Resolution 13 to 16 are Special Resolutions, which require at least 75% of the total votes cast by Shareholders present and entitled to vote on the Resolution must be in favour of those Resolutions.

Unless otherwise defined, the Terms used in this Explanatory Memorandum are defined in section 16.

2. Consider the Company’s Financial Report

The Company’s Annual Report comprising the Directors’ Report and Auditors’ Report, Directors’ Declaration, Statement of Financial Performance, Balance Sheet, Statement of Cashflows and notes to and forming part of the accounts for the Company and its controlled entitles for the financial year ended 30 June 2020 were released to the ASX on 23 September 2020.

The Company’s Annual Report is placed to the Shareholders for discussion.

No voting is required for this item.

3. Resolution 1 – Remuneration Report

3.1 Remuneration Report

In accordance with Section 250R of the Corporations Act, the Board has submitted its Remuneration Report to Shareholders for consideration and adoption by way of a non-binding advisory Resolution.

The Remuneration Report is set out in the Directors’ Report section of the Annual Report for the period ending 30 June 2020.

The Remuneration Report:

(a) explains the Board’s policy for determining the nature and amount of remuneration of executive Directors and senior executives of the Company;
(b) explains the relationship between the Board’s remuneration policy and the Company’s performance;
(c) sets out remuneration details for each Director and the most highly remunerated senior executives of the Company; and
(d) details and explains any performance conditions applicable to the remuneration of executive Directors and senior executives of the Company.
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A reasonable opportunity will be provided for the Shareholders to ask questions about, or make comments, on, the Remuneration Report at the Meeting.

3.2 Recommendation

The Board unanimously recommends that Shareholders vote in favour of adopting the Remuneration Report.

A vote on this Resolution is advisory only and does not bind the Directors or the Company.

3.3 Voting restrictions on Key Management Personnel and their Closely Related Parties and their proxies

Members of the Key Management Personnel and their Closely Related Parties ( Restricted Voters ) and proxies of Restricted Voters are restricted from voting on a Resolution which is connected directly or indirectly with the remuneration of a member of the Key Management Personnel ( Voting Restriction ).

Key Management Personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. The Company will disregard any votes cast in favour of the Resolution by any Restricted Voters.

The Voting Restriction applies to Resolution 1. However, it does not apply where:

(a) the member of the Key Management Personnel is appointed in writing (by a Shareholder who is not a Restricted Voter) as a proxy where the appointment specifies the way the proxy is to vote on the Resolution; or
(b) the Chair is appointed in writing (by a Shareholder who is not a Restricted Voter) as a proxy where the appointment does not specify the way the proxy is to vote on the Resolution and expressly authorises the Chair to exercise the proxy even if the Resolution is connected directly or indirectly with the remuneration of a member of the Key Management Personnel for the Company or, if the Company is part of a consolidated entity, for the entity.

Shareholders should be aware that any undirected proxies given to the Chair will be cast by the Chair and counted in favour of the Resolutions the subject of this Meeting, including Resolution 1, subject to compliance with the Corporations Act. In exceptional circumstances, the Chair may change their voting intention on any Resolution, in which case an ASX announcement will be made.

The Proxy Form attached to this Notice has been prepared on this basis.

4. Resolution 2 – Re-election of Mr Yongji Duan as a Director

4.1 General

ASX Listing Rule 14.4 provides that, other than a managing director, a director of an entity must not hold office (without re-election) past the third annual general meeting following the director’s appointment or three years, whichever is the longer. However, if there is more than one

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managing director, only one is entitled not to be subject to re-election. This rule also does not apply to an externally managed trust.

The Constitution sets out the requirements for determining which Directors are to retire by rotation at an annual general meeting.

Mr Yongji Duan, who has served as a Director since 4 November 2011 and was last re-elected on 27 November 2015, retires by rotation and seeks re-election.

4.2 Qualifications and other material directorships

Mr Duan joined Stone Group in 1985 and has served as Vice President and President prior to his promotion to Chairman of the Board in 1999. He was appointed President and Chief Executive Officer of Stone Group Holdings Limited and its subsidiaries in 2002. As a well-known entrepreneur and business leader in China, Mr Duan has achieved outstanding performances.

From 1999 to 2007, Mr Duan held the positions of Director of Beijing Centergate Technologies (Holding) Co Ltd, a company listed on the Shenzhen Stock Exchange. From 2003 to 2008, he also served as Director of SINA Corporation (NASDA: SINA). Mr Duan graduated from Tsinghua University and was a researcher at Beijing University of Aeronautics and Astronautics. He also acted as Vice Director of 621 Laboratory at China National Space Administration from 1982 to 1984.

Mr Duan holds no directorships in other listed companies in Australia.

4.3 Independence

If elected the Board does not consider that Mr Duan will be an independent director.

4.4 Board recommendation

The Directors recommend that Shareholders vote in favour of Resolution 2 (Mr Yongji Duan declines to make a recommendation based on his material personal interest in Resolution 2). Any undirected proxies held by the Chairman will be voted in favour of Resolution 2.

5. Resolution 3 – Election of Mr Joshua Hunt as a Director

5.1 General

Clause 14.3 of the Constitution provides that, subject to its provisions, the Company may elect a person as a Director by resolution passed in general meeting. A Director elected at a general meeting is taken to have been elected with effect immediately after the end of that general meeting unless the resolution by which the Director was appointed or elected specifies a different time. Pursuant to the terms of Resolution 3, Mr Hunt will become a Director of the Company upon DECA Completion, and not upon the conclusion of the Meeting. It is estimated that DECA Completion is expected to occur on or about 2 Business Days following Shareholder approval of the Conditional Resolutions.

The Constitution also provides that, pursuant to clause 14.3, no person other than a Director seeking re-election shall be eligible for election to the office of Director at any general meeting unless the person or some Shareholder intending to propose his or her nomination has, at least 30 Business Days before the meeting, left at the registered office of the Company a notice in writing duly signed by the nominee giving his or her consent to the nomination and signifying his or her candidature for the office or the intention of the Shareholder to propose the person. Notice

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of every candidate for election as a Director shall be given to each Shareholder with or as part of the notice of the meeting at which the election is to take place.

The Company confirms that Mr Hunt provided his notice giving his consent to the nomination of a Director of the Company on 10 September 2020 to the registered office of the Company.

Mr Hunt’s election as a Director of the Company pursuant to Resolution 3 is conditional on the occurrence of DECA Completion. If Resolution 3 is passed but DECA Completion fails to occur, then Mr Hunt’s consent to act will be deemed to have been withdrawn and Mr Hunt will not become a Director of the Company.

5.2 Qualifications and other material directorships

The Company has completed several background and screening checks in relation to Mr Hunt’s character, experience, and qualifications, criminal history, and bankruptcy, with no adverse findings.

Mr Hunt is a lawyer and partner of national law firm HopgoodGanim Lawyers, with experience in providing advice to listed public and private companies and in all aspects of project acquisitions and disposals. Mr Hunt has practised corporate and commercial law for over 17 years and has been intimately involved in the formation, acquisition and development of numerous ASX companies over this time.

Mr Hunt’s experience extends internationally, where he has acted for a number of companies with operations in Africa, South East Asia, Mongolia, the United States, Canada, the United Kingdom and throughout South America.

Prior to submitting himself for election, Mr Hunt has confirmed that he would have sufficient time to properly fulfil his duties and responsibilities to the Company.

5.3 Independence

The Board also considered whether Mr Hunt had any interest, position, or relationship that may interfere with his independence as a Director, having regard to the relevant factors as set out in the ASX Corporate Governance Council Principles & Recommendations (4[th] edition). The Board considers that Mr Hunt (if elected), will be an independent Director of the Company.

5.4 Board recommendation

The Board supports the election of Mr Hunt as he will contribute to the Board significant experience in the areas of corporate governance and regulatory compliance.

The Directors recommend that Shareholders vote in favour of Resolution 3. Any undirected proxies held by the Chairman will be voted in favour of Resolution 3.

6. Resolution 4 – Approval of Issue of Options to PCF Capital Group

6.1 Options

The Company has entered into a corporate advisory mandate agreement with PCF.

Resolution 4 is an Ordinary Resolution and seeks Shareholder approval for the issue of 5,000,000 Options to purchase ordinary Shares with an exercise price of $0.045 each with an expiry date of 3 years from the date of issue.

6.2 Listing Rule 7.1

Broadly speaking, and subject to a number of exceptions, Listing Rule 7.1 limits the amount of equity securities that a listed company can issue without the approval of its shareholders over

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any 12 month period to 15% of the fully paid ordinary shares it had on issue at the start of that period ( 15% Capacity ).

Resolution 4 seeks shareholder approval to the issue of the Options for the purposes of Listing Rule 7.1, so that the issue of those options does not count towards the Company’s 15% Capacity.

If Resolution 4 is passed, the Options will be excluded from the calculation of the number of equity securities that the Company can issue without Shareholder approval under Listing Rule 7.1.

If Resolution 4 is not passed, the Company will not proceed with the issue of the PCF Options and will need to examine alternative payment possibilities to compensate PCF.

6.3 Technical information required by Listing Rule 7.3

Pursuant to and in accordance with Listing Rule 7.3, the following information is provided in relation to the issue of the Options:

(a) the Options will be issued in satisfaction of the provision of services by PCF pursuant to a corporate advisory agreement between the Company and PCF dated 8 September 2020 ( 2020 PCF Mandate );
(b) 5,000,000 Options will be issued under this Resolution;
(c) the terms of the Options are set out in Schedule 5 of this Explanatory Memorandum;
(d) the Options are anticipated to be issued following completion of the DECA and, in any event, no later than 3 months after the date of the General Meeting;
(e) the Options will be issued for nil consideration but will have an exercise price of $0.045 each;
(f) the Options are being issued pursuant to the 2020 PCF Mandate, the material terms of which are set out in Schedule 6; and
(g) a voting exclusion statement is included in the Notice of Meeting.

6.4 Directors’ Recommendation

The Directors recommend that Shareholders vote in favour of Resolution 4. Any undirected proxies held by the Chairman will be voted in favour of Resolution 4. Any undirected proxies held by the Chairman will be voted in favour of Resolution 4.

7. Resolution 5 – Ratification of prior Issue of Options to PCF Capital Group

7.1 Background

On 16 March 2020, the Company issued 15,000,000 unlisted Options exercisable at $0.01 per Option, expiring on 16 March 2023 to PCF. The Options were issued using the Company’s existing placement capacity under Listing Rule 7.1.

Resolution 5 seeks Shareholder approval to ratify the issue of the Options pursuant to Listing Rule 7.4.

Resolution 5 is an Ordinary Resolution. The Chair intends to exercise all available proxies in favour of Resolution 5.

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7.2 Listing Rules 7.1 and 7.4

Broadly speaking, and subject to a number of exceptions, Listing Rule 7.1 limits the amount of equity securities that a listed company can issue without the approval of its shareholders over any 12 month period to 15% of the fully paid ordinary securities it had on issue at the start of that period.

The issue of the Options does not fit within any of these exceptions and, as it has not yet been approved by Shareholders, it effectively uses up part of the 15% limit in Listing Rule 7.1, reducing the Company's capacity to issue further securities without Shareholder approval under Listing Rule 7.1 for the 12 month period following the issue date.

Listing Rule 7.4 allows the Shareholders of a listed company to approve an issue of equity securities after it has been made or agreed to be made. If they do, the issue is taken to have been approved under Listing Rule 7.1, and so does not reduce the company's capacity to issue further equity securities without shareholder approval under that rule.

The Company wishes to retain as much flexibility as possible to issue additional Securities into the future without having to obtain Shareholder approval for such issues under Listing Rule 7.1.

To this end, Resolution 5 seeks Shareholder approval to issue the Options under and for the purposes of Listing Rule 7.4.

If Resolution 5 is passed, the issue of the Options will be excluded in calculating the Company's 15% limit in Listing Rule 7.1, effectively increasing the number of Securities it can issue without Shareholder approval over the 12 month period following the issue date.

If Resolution 5 is not passed, the issue of the Options will be included in calculating the Company's 15% limit in Listing Rule 7.1, effectively decreasing the number of securities it can issue without Shareholder approval over the 12 month period following the issue date.

7.3 Technical information required by Listing Rule 7.5

Pursuant to and in accordance with Listing Rule 7.5, the following information is provided in relation to Resolution 5:

(a) the Options were issued to PCF in consideration for corporate advisory services provided to the Company pursuant to the Company’s corporate advisory agreement with PCF dated 23 October 2019 ( 2019 PCF Mandate );
(b) a total of 15,000,000 Options were issued pursuant to the Company’s placement capacity under Listing Rule 7.1;
(c) the terms of the Options are set out at Schedule 5;
(d) the Options were issued on 16 March 2020 and have an exercise price of $0.01;
(e) upon exercise, the Options will convert into fully paid ordinary shares in the capital of the Company which are on the same terms and conditions as the Company’s existing Shares;
(f) no funds were raised as the Options were issued as consideration for services provided to the Company;
(g) the Options were issued to PCF pursuant to the 2019 PCF Mandate, the material terms of which are summarised in Schedule 6; and
(h) a voting exclusion statement is included in the Notice of Meeting.
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7.4 Directors’ Recommendation

The Directors recommend that Shareholders vote in favour of Resolution 5.

8. Resolution 6 – Ratification of prior Issue of Shares to PCF Capital Group

8.1 Background

On or about 7 November 2019, the Company issued 15,000,000 Shares to PCF in consideration for corporate advisory services provided to the Company. Resolution 6 seeks the approval of Shareholders in accordance with Listing Rule 7.4 to ratify the issue of 15,000,000 Shares to PCF. The Shares rank equally with all other existing Shares on issue.

8.2 Listing Rules 7.1 and 7.4

A summary of Listing Rules 7.1 and 7.4 is provided above at paragraph 7.2 of this Explanatory Memorandum.

The Company wishes to retain as much flexibility as possible to issue additional equity securities into the future without having to obtain Shareholder approval for such issues under Listing Rule 7.1.

Ratification by the Shareholders of the Company of the Shares is now sought pursuant to Listing Rule 7.4 in order to reinstate the Company’s capacity to issue up to 15% of its issued capital under Listing Rule 7.1, if required, in the next 12 months without Shareholder approval, to the extent of the Shares.

The effect of this Resolution 6 Error! Reference source not found. is that the Company, for the purposes of Listing Rule 7.1 will be able to refresh its 15% placement capacity with effect from the date of the Meeting, to the extent of the Shares that have been issued to PCF.

If Resolution 6 is passed, the Shares will be excluded in calculating the Company’s 15% limit in Listing Rule 7.1, effectively increasing the number of equity securities it can issue without Shareholder approval over the 12 month period following the issue date.

If Resolution 6 is not passed, the Shares will be included in calculating the Company’s 15% limit in Listing Rule 7.1, effectively decreasing the number of equity securities it can issue without Shareholder approval over the 12 month period following the issue date.

8.3 Technical information required by Listing Rule 7.5

Pursuant to and in accordance with Listing Rule 7.5, the following information is provided in relation to Resolution 6:

(a) the Company issued Shares to PCF in consideration for corporate advisory services provided to the Company pursuant to the 2019 PCF Mandate;
(b) a total of 15 million Shares were issued to PCF pursuant to the Company’s placement capacity under Listing Rule 7.1;
(c) the Shares are fully paid ordinary Shares and rank equally with all other existing Shares on issue;
(d) the Shares were issued on 7 November 2019;
(e) no funds were raised as the Shares were issued for nil consideration in consideration for services provided to the Company;
(f) the Shares were issued to PCF pursuant to the 2019 PCF Mandate, the material terms of which are summarised in Schedule 6; and
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Explanatory Memorandum

(g) a voting exclusion statement is included in the Notice of Meeting.

8.4 Director’s Recommendation

The Directors recommend that Shareholders vote in favour of Resolution 6.

9. Resolution 7 – Ratification of prior issue of Shares to Company Secretary

9.1 General

On or about 7 November 2019, the Company issued 5,864,306 Shares to the Company Secretary in consideration for corporate advisory services provided by the Company Secretary to the Company. Resolution 7 seeks the approval of Shareholders in accordance with Listing Rule 7.4 to ratify the issue of 5,864,306 Shares to the Company Secretary. The Shares rank equally with all other existing Shares on issue.

9.2 Listing Rules 7.1 and 7.4

A summary of Listing Rules 7.1 and 7.4 is provided above at paragraph 7.2 of this Explanatory Memorandum.

The effect of this Resolution 7 Error! Reference source not found. is that the Company, for the purposes of Listing Rule 7.1 will be able to refresh its 15% placement capacity with effect from the date of the Meeting, to the extent of the Shares that have been issued to the Company Secretary.

If Resolution 7 is passed, the Shares will be excluded in calculating the Company’s 15% limit in Listing Rule 7.1, effectively increasing the number of equity securities it can issue without shareholder approval over the 12 month period following the issue date.

If Resolution 7 is not passed, the Shares will be included in calculating the Company’s 15% limit in Listing Rule 7.1, effectively decreasing the number of equity securities it can issue without shareholder approval over the 12 month period following the issue date.

9.3 Technical information required by Listing Rule 7.5

Pursuant to and in accordance with Listing Rule 7.5, the following information is provided in relation to Resolution 7:

(a) the Company issued Shares to the Company Secretary in consideration for corporate advisory services provided to the Company;
(b) a total of 5,864,306 Shares were issued to the Company Secretary pursuant to the Company’s placement capacity under Listing Rule 7.1;
(c) the Shares are fully paid ordinary Shares and rank equally with all other existing Shares on issue;
(d) the Shares were issued on 7 November 2019;
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Explanatory Memorandum

(e) no funds were raised as the Shares were issued for nil consideration in consideration for services provided to the Company;
(f) the Shares were not issued pursuant to any written agreement between the Company Secretary and the Company; and
(g) a voting exclusion statement is included in the Notice of Meeting.

9.4 Director’s Recommendation

The Directors recommend that Shareholders vote in favour of Resolution 7.

10. Resolutions 8 and 9 – Approval for Issue of Shares to Related Parties

10.1 General

Resolutions 8 and 9 seek Shareholder approval in accordance with Listing Rule 10.11 and Chapter 2E of the Corporations Act for the issue of Shares to Mr Joshua Hunt, a Related Party of the Company by virtue of being an incoming Director of the Company, and to Mr William Hobba, a Related Party of the Company by virtue of being an incumbent Director of the Company.

The Hunt Share Issue is provided as remuneration as a result of Mr Hunt carrying out his duties as a Director of the Company. As set out below Mr Hunt has agreed to take reduced cash Director fees for his services and instead is willing to accept Shares, if approved.

The Hobba Share Issue is provided as remuneration and reimbursement for costs incurred as a result of Mr Hobba carrying out his duties as a Director of the Company. Further details are set out below. The majority of these costs have been incurred by Mr Hobba in travel and site visitation and services involved in the set up of the Brightstar Plant. Mr Hobba has incurred these costs since 2013 and is now seeking reimbursement via the issue of Shares.

Further information with regard to the Hunt Share Issue and Hobba Share Issue is provided below at section 10.6.

10.2 Listing Rule 10.11

Mr Joshua Hunt, being an incoming Director of the Company, is to be issued 3,150,000 Shares. Mr William Hobba, being an incumbent Director of the Company, is to be issued 30,000,000 Shares. Further details in relation to the issue of Shares to Mr Hunt and to Mr Hobba are set out in section 10.4 below.

Listing Rule 10.11 provides that unless one of the exceptions in Listing Rule 10.12 applies, a listed company must not issue or agree to issue equity securities to, inter alia, a Related Party of the Company, unless it obtains the approval of its shareholders. Mr Hunt is a Related Party of the Company as he is an incoming Director of the Company, subject to the passage of Resolution 3 and the occurrence of DECA Completion. As such, Mr Hunt believes or has reasonable grounds to believe that he is likely to become a Director at any time in the future, pursuant to the definition of ‘related party’ provided in Chapter 19 of the Listing Rules. Mr Hobba is a Related Party of the Company as he is an incumbent Director of the Company and, accordingly, approval under Listing Rule 10.11 is required in order to issue Shares to him.

If Resolutions 8 and 9 are passed, the Company will be able to proceed with the Hunt Share Issue and the Hobba Share Issue, and the Shares issued pursuant to Resolutions 8 and 9 will not be included in the calculation of the Company’s 15% annual placement capacity pursuant to Listing Rule 7.1.

If Resolutions 8 and 9 are not passed, the Company will not be able to proceed with the Hunt Share Issue and the Hobba Share Issue and the Shares will not be issued to Mr Hunt and Mr Hobba.

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10.3 Chapter 2E of the Corporations Act

Chapter 2E of the Corporations Act prohibits a public company from giving a financial benefit to a Related Party of the public company unless providing the benefit falls within a prescribed exception to the general prohibition. Relevantly, there is an exception if the company first obtains the approval of its shareholders in a general meeting in circumstances where certain requirements specified in Chapter 2E in relation to the convening of that meeting have been met.).

A related party is defined widely in section 228 of the Corporations Act and includes, relevantly, a director (or proposed director) of a public company, any entity that controls (or is reasonably likely to control) a public company, and any entity that is controlled by a person or entity which is otherwise a Related Party, or there are reasonable grounds to believe that a person/entity is likely to become a Related Party of the public company.

A financial benefit for the purposes of the Corporations Act has a very wide meaning. It includes the public company paying money or issuing securities to the related party. In determining whether or not a financial benefit is being given, it is necessary to look to the economic and commercial substance and effect of what the public company is doing (rather than just the legal form). Any consideration which is given for the financial benefit is to be disregarded, even if it is full or adequate.

The Company is seeking separate Shareholder approval under Chapter 2E of the Corporations Act for Mr Hunt and Mr Hobba being issued Shares.

Chapter 2E of the Corporations Act prohibits the Company from giving a financial benefit to related parties of the Company unless either:

(a) the giving of the financial benefit falls within one of the nominated exceptions to the relevant provisions of the Corporations Act; or
(b) prior Shareholder approval has been obtained for the giving of the financial benefit.

Any Shares issued to Mr Hunt and to Mr Hobba will constitute a financial benefit for the purposes of Chapter 2E of the Corporations Act, by virtue of Mr Hunt being an incoming Director of the Company, and by virtue of Mr Hobba being an incumbent Director of the Company. The Board believes that the issue of these Shares constitutes reasonable remuneration. However, in the interests of good governance the Board believes it is appropriate to give Shareholders the right to vote on these Resolutions and as such has decided to seek Shareholder approval under Chapter 2E of the Corporations Act.

It is the view of the Company that the exceptions set out in section 210 to 216 of the Corporations Act may not apply in the current circumstances. Resolutions 8 and 9 therefore require the approval of the Company’s Shareholders under section 208 of the Corporations Act. In any event the Board has determined that Shareholders should have the opportunity to vote on the giving of the financial benefit under Resolutions 8 and 9, and that the Proposed Transaction is not dependent upon the passing of Resolutions 8 and 9.

10.4 Technical information required by Chapter 2E, section 219 of the Corporations Act and Listing Rule 10.13

Pursuant to and in accordance with section 219 of the Corporations Act and Listing Rule 10.13, the following information is provided in relation to the Hunt Share Issue and the Hobba Share Issue:

(a) the Shares will be issued to Mr Joshua Hunt and Mr William Hobba (or their respective nominees);
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Explanatory Memorandum

(b) each Mr Hobba and Mr Hunt are Related Parties of the Company due to their incoming directorship (in the case of Mr Hunt), or due to their incumbent directorship (in the case of Mr Hobba) pursuant to Listing Rule 10.11.1;
(c) the Shares will be issued for nil consideration and no funds will be raised from the issue; (d) the maximum number of Shares to be issued pursuant to Resolutions 8 and 9 is 33,150,000 comprising:
(1) 3,150,000 Shares to Mr Joshua Hunt; and
(2) 30,000,000 Shares to Mr William Hobba;
(e) each of Mr Hunt and Mr Hobba have a material personal interest in Resolutions 8 and 9;
(f) the Shares will be issued on the same terms as, and will rank equally with, all fully paid ordinary Shares in the Company on issue;
(g) the Shares are anticipated to be issued on completion of the Proposed Transaction and, in any event, no later than 1 month after the date of the Meeting;
(h) as the Hunt Share Issue is being proposed as remuneration as a result of Mr Hunt carrying out his duties as a Director of the Company for a total of $72,000 (made up of $12,000 cash per annum and $60,000 in Shares), no funds are to be raised from the issue of these Shares, and the Shares will be issued at a deemed issue price calculated by reference to a 3 month volume weighted average price per Share for the 3 months prior to the date of his consent to act as a Director of the Company, being 10 September 2020;
(i) the applicable VWAP for the Hunt Share Issue is $0.019 which equates to an entitlement of 3,157,894 Shares however as set out in this Notice Mr Hunt has agreed to be issued a lesser amount of 3,150,000 Shares as remuneration;
(j) as the Hobba Share Issue is being proposed as reimbursement for fulfilling duties and in lieu of remuneration as a Director of the Company to a total of $300,000, which has accrued to Mr Hobba over the past 7 years, no funds are to be raised from the issue of these Shares, and the Shares will be issued at a deemed issue price calculated by reference to a 3 month volume weighted average price per Share for the 3 months prior to and including 12 August 2020. This date was selected as a reasonable date given the announcement of the sale of assets to Regis occurred on this date and the fact that Mr Hobba has incurred and accrued these costs over a 7 year time period;
(k) the 3 month VWAP for the purposes of the Hobba Share issue is $0.0098 per Share which would entitle Mr Hobba to 30,612,244 Shares however as set out in this Notice Mr Hobba has agreed to take a lesser amount of 30,000,000 Shares in satisfaction of his incurred costs and expenses;
(l) a voting exclusion statement is included in the Notice of Meeting; and
(m) the current total remuneration package for:
(1) Mr Hunt is nil; and
(2) Mr Hobba is $120,000 per annum, plus superannuation.
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Explanatory Memorandum

10.5 Effect on Related Party Shareholding

On the basis that the Shares are issued to Mr Hunt and Mr Hobba, their shareholding will be increased as follows:

Related Party	Present Company Shareholding and $value	Shares Issued and $value	Total Company Shareholding and ($value)	Percentage increase
Joshua Hunt	Nil	3.150.000 ($78,750)	3.150.000 ($78,750)	N/A
William Hobba	38,727,775 ($968,194)	30,000,000 ($750,000)	68,727,775 ($1,718,194)	77.4%

* Above values are calculated using a share price of $0.025** being the last traded price on 1 October 2020.

10.6 Additional Information and effect on Shareholders

The Hunt Share Issue is proposed as part remuneration to Mr Hunt for Directors’ fees to be incurred as a result of Mr Hunt carrying out his duties as a Director of the Company. Mr Hunt has agreed to a total director fee of $72,000 per year of which the Hunt Share Issue accounts for $60,000. In addition to the Hunt Share Issue, Mr Hunt will receive $1,000 cash payment per month for his services as a Director of the Company.

Mr Hunt has not been paid any amounts by the Company up to the date of this Notice of Meeting.

The Hobba Share Issue is proposed as part remuneration and reimbursement to Mr Hobba for costs (to a value of $300,000) incurred as a result of Mr Hobba carrying out his duties as a Director of the Company. This amount is in addition to a cash payment for remuneration and reimbursement owing under engagement arrangements of $320,000, agreed to be payable to Mr Hobba under the terms of the DECA.

During the financial year ended 30 June 2020 Mr Hobba was:

(a) issued with 960,000 Shares;
(b) paid $44,400 for services.

Mr Hobba has not been issued with any further Shares or paid any further amounts since 30 June 2020.

The Board believes the Shareholders should have the right to approve or not approve the Hunt Share Issue for Mr Hunt and the Hobba Share Issue for Mr Hobba, and as such Resolutions 8 and 9 are not conditions of the Proposed Transaction.

If Resolution 8 and 9 are not approved, then the Proposed Transaction will still proceed.

Shareholders should further have regard to the fact that upon completion of the Proposed Transaction Mr Hobba will remain as a Director of the Company. Mr Hunt will also become a

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Director of the Company, however this is subject to Resolution 3 passing and DECA Completion proceeding.

The Hunt Share Issue pursuant to Resolution 8 is conditional on the occurrence of DECA Completion. If Resolution 8 is passed but DECA Completion fails to occur, then the Hunt Share Issue will not occur and Mr Hunt will not receive the Shares he would have otherwise received pursuant to Resolution 8.

The effect of the Hunt Share Issue and the Hobba Share Issue on the capital structure of the Company both before and after the completion of the Proposed Transaction are shown below:

Nature of Change	Shares
Total Shares on issue after Buy-Back	402,600,764
Hunt Share Issue	3,150,000
Hobba Share Issue	30,000,000
Total Shares on issue after Proposed Transaction (including after Share issues pursuant to Resolutions 8 and 9)	435,750,764

Sections 11 to 13 provide details of the Buy-Back being conducted by the Company.

10.7 Directors recommendations

The Directors recommend that Shareholders vote in favour of Resolution 8. Any undirected proxies held by the Chairman will be voted in favour of Resolution 8.

The Directors recommend that Shareholders vote in favour of Resolution 9 (William Hobba declines to make a recommendation based on his material personal interest in Resolution 9). Any undirected proxies held by the Chairman will be voted in favour of Resolution 9.

11. Background to the Conditional Resolutions

11.1 Share Purchase Agreement

SRL and SRHK are collectively the registered holders of 418,301,429 and 15,151,515 fully paid ordinary shares in the Company respectively, collectively being 433,452,944 fully paid ordinary shares representing approximately 52% of the total shares on issue ( Buy-Back Shares ). The Company owes SRHK A$53,217,595 ( Debt ), which has arisen under loans advanced to the Company to assist it in developing and progressing its gold assets and the construction of its 300,000 tpa Brightstar Plant located in South Laverton, Western Australia as part of the Company’s South Project.

The Company entered into a sale and purchase agreement with Regis Resources Limited ACN 009 174 761 ( Regis ) on or about 11 August 2020 to dispose of certain assets to Regis ( SPA ), being nine tenements which are part of the North Project, including tenements which cover the Ben Hur deposit ( Ben Hur Tenements ). The consideration given by Regis for the Ben Hur Tenements under the SPA and associated agreements is A$10,000,000 and the grant of the NSR royalty detailed below ( Purchase Price ). The Purchase Price is payable to the Company in fully paid ordinary shares in Regis, equal to the cash amount of the Purchase Price.

The tenements which comprise the South Project have been defined in Schedule 1, and the tenements which comprise the North Project are provided in Schedule 2 accompanying this Notice. The nine tenements making up the Ben Hur Tenements to be sold under the SPA have been further noted in Schedule 2 accompanying this Notice. For the avoidance of doubt, the

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Explanatory Memorandum

Ben Hur Tenements are to be sold to Regis pursuant to the SPA but the remaining North Project tenements and all South Project Tenements are proposed to be retained by the Company.

As part of the Purchase Price, Regis has agreed to pay a royalty to the Company ( Regis Royalty ). The Regis Royalty will be a 1% net smelter royalty which converts to a 0.0025% net smelter royalty for four years after A$5,000,000 has been paid. The Regis Royalty is payable from the production of gold, silver or other platinum group metals produced from M38/339 (being one of the Ben Hur Tenements). The Regis Royalty will begin being paid once 100,000 ounces of gold or gold equivalent have been produced from M38/339. Regis and the Company have entered into a royalty deed in relation to the Regis Royalty on standard commercial terms ( Regis Royalty Deed ).

11.2 Debt and Equity Compromise Agreement

SRL and SRHK have agreed to allow the Company to buy-back the Buy-Back Shares for the Buy-Back Price ( Buy-Back ), and to extinguish the Debt in return for the grant of a 3% net smelter return royalty over gold to SRHK over the Tenements ( SRHK Royalty ).

On 25 March 2020, the Company announced that it had entered into a Debt and Equity Compromise Agreement with SRL and SRHK on 16 March 2020. This Debt and Equity Compromise Agreement was subsequently terminated and replaced with a revised Debt and Equity Compromise Agreement, which was executed on 10 August 2020 ( DECA ) to:

(a) conduct the Buy-Back; and
(b) extinguish the Debt in exchange for the grant of the SRHK Royalty and assignment of the Regis Royalty pursuant to the Royalty Agreement.

The Buy-Back Price is A$11,400,000, which is comprised of the following:

(a) A$6,000,000 ( Regis Payment ); and
(b) A$5,400,000, payable in cash or Shares in the Company, at the Company’s election ( Post-Completion Payment ).

The funds used to make the Regis Payment by the Company have been sourced as a result of receipt of the Purchase Price under the SPA. As noted above, the Purchase Price is payable to the Company in fully paid ordinary shares in Regis. Under the DECA, the Regis Payment is to be paid to certain creditors who are owed money by the Company on completion. The balance of the Regis Payment is to be paid to SRHK and SRL on completion of the DECA after satisfying the debts owed to those creditors. The balance of the Purchase Price obtained pursuant to the SPA will be retained by the Company.

The Post-Completion Payment is required to be paid by the Company to SRHK on or prior to 36 months from the date of completion of the DECA.

The DECA also provides that the Company, SRL, and SRHK agree to execute a deed of assignment and assumption of the Regis Royalty Deed from the Company in favour of SRHK such that the benefits of the Regis Royalty Deed (including the payment of the Regis Royalty) are conferred on SRHK.

11.3 Proposed Transaction

The Proposed Transaction includes the following material terms:

(a) the Company executing a deed of assignment and assumption with SRL and SRHK to transfer the Regis Royalty Deed and the benefit of the Regis Royalty to SRHK;
(b) extinguishing the Debt in return for granting the SRHK Royalty pursuant to the Royalty Agreement under the DECA;
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Explanatory Memorandum

(c) the Company using part of the Purchase Price (being the Regis Payment) to fund the Buy-Back Price (in addition to the Post-Completion Payment);
(d) completing the Buy-Back under the DECA, including obtaining Shareholder approval of the Buy-Back; and
(e) the Company obtaining approvals required from ASX to implement the Proposed Transaction, including the Shareholder approvals the subject of this Notice of Meeting,

hereafter called the Proposed Transaction .

The Company has engaged PCF Capital Group to manage the sale process and act as an adviser to the Company.

The Company will not otherwise change its activities as a result of the Proposed Transaction and will continue to pursue its current objective of gold exploration and production.

A copy of the DECA has been lodged with ASIC in accordance with section 257E of the Corporations Act. ASX has been advised of the Buy-Back in accordance with Listing Rule 3.8A. Section 257H(3) of the Corporations Act provides that immediately after the registration of the transfer to a company of shares bought back, the shares are cancelled.

The Buy-Back Shares will be cancelled by the Company immediately upon completion of the Buy-Back. The Company’s share capital on issue will decrease from 836,053,708 Shares to 402,600,764 Shares and no further Shares will be issued as part of the Proposed Transaction. Pursuant to Resolutions 8 and 9 however:

(a) 3,150,000 Shares are proposed to be issued to Mr Joshua Hunt, an incoming Director of the Company. See section 10 of this Explanatory Memorandum for further information; and
(b) 30,000,000 Shares are proposed to be issued to Mr William Hobba, an incumbent Director of the Company. See section 10 of this Explanatory Memorandum for further information.
11.4 Valuation of consideration

Shareholders should refer to the Independent Experts Report forming part of this Notice of Meeting for details on the valuation.

11.5 Reasons for the Buy-Back, Effect of the Proposed Transaction on Control and Issued Capital of the Company

The Buy-Back is being conducted to assist in extinguishing the Debt, as well as other debts owed to creditors, as part of the Proposed Transaction.

The Directors have determined that the Buy-Back is the most appropriate way of implementing the Proposed Transaction as it results in a near debt free entity with a tighter and more diverse capital structure. The selective buy-buck mechanism also results in a capital structure free of any controlling Shareholder which generally results in a more attractive investment proposition.

If the Shareholders approve the Conditional Resolutions, part of the Regis Payment constituting consideration of the Buy-Back will be used to pay creditors of the Company, and the balance will be paid to SRHK and SRL on completion of the DECA after satisfying the debts owed to those creditors. The Post-Completion Payment is required to be paid by the Company to SRHK on or prior to 36 months from the date of completion of the SPA.

The Company’s share capital on issue will decrease from 836,053,708 Shares to 402,600,764 Shares and no further Shares will be issued as part of the Proposed Transaction (aside from the Shares proposed to be issued pursuant to Resolutions 8 and 9). The total number of Buy-Back Shares to be bought back pursuant to the Buy Back is 433,452,944, representing 51.85% of the Company’s total current issued capital. This will reduce the number of securities as follows:

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Explanatory Memorandum

Total Shares pre Buy- Back	Total Buy-Back Shares	% of Company’s total issued capital	Total Shares Post Buy-Back
836,053,708	433,452,944	51.85%	402,600,764

If Resolutions 8 and 9 are successful, a maximum of 33,150,000 Shares will be issued by the Company. This will have the result of the total Shares of the Company increasing from 402,600,764 (on a post Buy-Back basis) to 435,750,764 Shares.

The following table details the effect of the Buy-Back on the shareholdings of the substantial Shareholders:

==> picture [421 x 174] intentionally omitted <==

----- Start of picture text -----

Substantial Shareholder Number of SHK Shares Number of SHK Shares
before Buy -Back post Buy-Back
Stone Resources Limited 418,301,429 -
Ms Sandra Wheeler 38,727,775 38,727,775
Mr Yongji Duan 31,449,497 31,449,497
Chen Yingliu 30,303,030 30,303,030
Mr Liven Bert Frans 22,096,402 22,096,402
Bouckaert + Mrs Priscilla Lee
Bouckaert
Stone Resources (H.K.) 15,151,515 -
Limited
----- End of picture text -----

11.6 Financial Effect of the Buy-Back on the Company

As at the date of this Notice of Meeting, the Company owes approximately A$53,217,595 to SRHK. The financial effect of the Buy-Back on the Company is to extinguish this debt in exchange for paying the Buy-Back Price of A$11,400,000, comprising the Regis Payment and the Post-Completion Payment. Under the DECA, the Regis Payment is to be paid to certain creditors who are owed money by the Company on completion. The balance of the Regis Payment is to be paid to SRHK and SRL on completion of the DECA after satisfying the debts owed to those creditors.

A proforma statement of the financial position of the Company, that has been prepared to enable Shareholders to make an assessment of the likely effect of the Proposed Transaction on the financial position of the Company is detailed in Schedule 3 to this Notice of Meeting.

11.7 Director Participation in the Buy-Back

As set out in this Explanatory Memorandum Mr Yongii Duan is a related party of SRHK and SRL and as such is participating in the Buy-Back. No other Director will participate in the Buy-Back. Please also refer to the Independent Experts Report included with this Notice of Meeting.

11.8 Advantages and Disadvantages of the Buy-Back

The Directors believe the advantages and disadvantages of the Buy-Back are:

Advantages

(a) the Buy-Back will only result in the cancellation of Shares issued to SRL and SRHK;
(b) the Buy-Back may increase the Company’s capacity to raise capital on ASX, including through placements with institutional investors and/or rights issue(s), on the basis that Shareholders other than SRL and SRHK will no longer be in a minority;
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Explanatory Memorandum

(c) the removal of a significant Shareholder removes a barrier to a control transaction;
(d) the Buy-Back will not materially prejudice the Company’s ability to pay its creditors. In fact, as stated above at section 11.2, some of the funds used to pay for the Buy-Back will be directed to pay some of the Company’s creditors;
(e) the Buy-Back forms a crucial component of being able to extinguish the Debt. If the BuyBack is approved, the Company will, in conjunction with other components of the Proposed Transaction, become a debt-free entity;
(f) the percentage ownership of Shareholders not subject to the Buy-Back will increase;
(g) the value of each remaining Share will increase by virtue of the Company’s net asset value being divided by a lesser number of Shares;
(h) the potential dividends payable in the future to remaining Shareholders will increase per Shareholder.

Disadvantages

(a) the Company’s cash reserves will be nominally reduced by the Buy-Back, in addition to the funds received as a result of the sale of the Ben Hur Tenements pursuant to the SPA, however the Directors believe this will not prejudice the Company’s ability to pay its creditors and is reasonable given the circumstances; and
(b) the Company is granting future royalty interests as a result of the Buy-Back and the Company will not retain the benefit of the Regis Royalty. The grant and assignment of these royalties may be viewed negatively by investors in the future as the payment of the royalties will impact upon the revenue earned by the Company.

The Company does not consider there are any other material disadvantages to the Company undertaking the Buy-Back.

11.9 Indicative Timetable

The anticipated timetable for completion of the Proposed Transaction is as follows:

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----- Start of picture text -----

Event Date
Notice of Meeting despatch 15 October 2020
Record Date 14 November 2020
Meeting 16 November 2020
Satisfaction of DECA conditions Expected to be on 18 November 2020
Completion of DECA Expected to be on 18 November 2020
Completion of the Buy-Back Expected to be on 18 November 2020
----- End of picture text -----

12. Resolution 10 - Approval of disposal of Debt

12.1 Background

Resolution 10 is an Ordinary Resolution and seeks Shareholder approval for the disposal of the Debt, pursuant to the Proposed Transaction and for the purposes of Listing Rule 10.1. Further details in relation to the Proposed Transaction are set out in Section 11 above.

Resolution 10 is conditional upon the Conditional Resolutions being passed.

12.2 Listing Rule 10.1

The Company is proposing to effect the Buy-Back pursuant to the Proposed Transaction.

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Explanatory Memorandum

Listing Rule 10.1 provides that a listed company must not acquire or agree to acquire a substantial asset from, or dispose of a substantial asset to:

(a) a related party (Listing Rule 10.1.1);
(b) a child entity (Listing Rule 10.1.2);
(c) a person who is, or was at any time in the 6 months before the transaction, a substantial (10%+) holder in the company (Listing Rule 10.1.3);
(d) an associate of a person referred to in Listing Rules 10.1.1 to 10.1.3 (Listing Rule 10.1.4); or
(e) a person whose relationship with the company or a person referred to in Listing Rules 10.1.1 to 10.1.4 is such that, in ASX’s opinion, the issue or agreement should be approved by shareholders (Listing Rule 10.1.5),

unless it obtains the approval of its shareholders.

The disposal of the Debt falls within Listing Rule 10.1.1 and involves the disposal of a substantial asset by the Company in respect of two Related Parties, being SRL and SRHK, as a result of disposing of the Debt. It therefore requires the approval of Stone Resources Australia Limited’s shareholders under Listing Rule 10.1.

Resolution 10 seeks the required shareholder approval to dispose of the Debt under and for the purposes of Listing Rule 10.1.

If Resolution 10 is passed, the Company will be able to proceed with disposing of the Debt and progress the its projects and continue to take the Company forward with reduced debt and positive prospects.

If Resolution 10 is not passed, the Company will not be able to proceed with disposing of the Debt and the Proposed Transaction will also not be able to proceed.

12.3 Technical information required by Listing Rule 10.5

Pursuant to and in accordance with Listing Rule 10.5, the following information is provided in relation to Resolution 10:

(a) the Company is disposing of the Debt owed to SRHK, which is being extinguished in exchange for the granting of the Royalty to SRHK;
(b) SRL and SRHK together constitute major shareholders of the Company, and currently hold approximately 52% of the current issued capital in the Company. SRL and SRHK are therefore related parties of the Company pursuant to Listing Rule 10.1.1, and substantial holders in the Company with Voting Power that exceeds 10%, pursuant to Listing Rule 10.1.3;
(c) the Company is disposing of a debt of A$53,217,595 owed by the Company to SRHK, which arises under loans advanced by SRHK to the Company and payments made by
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Explanatory Memorandum

SRHK on behalf of the Company from time to time and which is the total amount of the Company’s indebtedness to SRHK;

(d) the consideration for the disposal and extinguishment of the Debt is the entry by the Company into the Royalty Agreement to give effect to the SRHK Royalty;
(e) the Company will not be receiving any funds for the extinguishment and disposal of the Debt;
(f) under the DECA, completion of the extinguishment of the Debt will occur, and SRL and SRHK jointly and severally, unconditionally and irrevocably release and discharge the Company from any and all claims, including potential claims, in connection with the Debt. An indicative timetable for the Proposed Transaction is provided at section 11.9;
(g) other material terms of the DECA are set out in sections 11.2 above and 13.4 below;
(h) a voting exclusion statement for Resolution 10 is set out in the Notice of Meeting;
(i) an Independent Expert’s Report is provided as Schedule 4 to this Notice of Meeting and Explanatory Memorandum, and is summarised at section 12.4 below.

12.4 Independent Expert’s Report

Listing Rule 10.5.10 requires a notice of meeting containing a resolution under Listing Rule 10.1 to include a report on the transaction from an independent expert.

The Independent Expert’s Report accompanying this Notice and Explanatory Memorandum sets out a detailed independent examination of the Proposed Transaction, including the Debt, to enable non-associated Shareholders to assess the merits of and decide whether to approve Resolution 10. The Independent Expert has concluded that disposing of the Debt is fair and reasonable to the non-associated Shareholders.

Shareholders are urged to carefully read and consider the Independent Expert’s Report to understand its scope, methodology of the valuation, and the sources of information and assumptions made.

The Independent Expert’s Report is also available on the Company’s website www.stoneral.com.au. If requested by a Shareholder, the Company will send to the Shareholder a hard copy of the Independent Expert’s Report at no cost.

12.5 Directors Recommendation

The Directors recommend that Shareholders vote in favour of Resolution 10. Any undirected proxies held by the Chairman will be voted in favour of Resolution 10.

Mr Yongii Duan is associated with SRL and SRHK and as such noted his interest in the relevant Board meetings in relation to Resolution 10 and did not vote at those meetings. Given that the disposal of the Debt is sufficiently connected with the balance of the Proposed Transaction, Mr Yongii Duan does not deem it appropriate to make a recommendation on Resolution 10.

13. Resolutions 11 to 14 – Approval of selective Buy-Back

13.1 Background and section 257D of the Corporations Act

Resolutions 11 and 12 are Ordinary Resolutions and propose to approve the Buy-Back pursuant to the Proposed Transaction for the purposes of Listing Rule 10.1. Resolutions 13 and 14 are

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Explanatory Memorandum

Special Resolutions, and propose to approve the Buy-Back pursuant to the Proposed Transaction for the purposes of section 257D(1) of the Corporations Act.

Resolutions 11 to 14 concern the Buy-Back. These Resolutions have been separated as ASX considers the requirement to include a voting exclusion statement for a resolution under the Listing Rules generally makes it inappropriate to combine that resolution with any other resolution required in relation to an act or transaction under the Corporations Act, pursuant to Guidance Note 35 ( Security Holder Resolutions ).

Section 257D of the Corporations Act

The Corporations Act provides that the rules relating to share buy-backs are designed to protect the interests of shareholders and creditors by:

(a) addressing the risk of the transaction leading to the company’s solvency;
(b) seeking to ensure fairness between the shareholders of the company; and
(c) requiring the company to disclose all material information.
In particular, section 257A of the Corporations Act provides that a company may buy back its own shares if:
(a) the buy-back does not materially prejudice the company’s ability to pay its creditors; and
(b) the company follows the procedures laid down in Division 2 of Part 2J.1 of the Corporations Act.

The procedures required differ for each type of buy-back. The Buy-back is classified as a selective buy-back.

Pursuant to section 257D(1) of the Corporations Act, a selective buy back must be approved by either:

(a) a special resolution passed at a general meeting of the company, with no votes being cast in favour of the resolution by any person whose shares are to be brought back or by their associates; or
(b) a resolution agreed to, at a general meeting by all ordinary shareholders.

As required by section 257D(2) of the Corporations Act, material details in relation to the BuyBack and the Proposed Transaction are set out in Section 11 above and in conjunction with further information required pursuant to Listing Rule 10.5 in section 13.4 below.

13.2 ASX Listing Rule 10.1

The Company is proposing to effect the Buy-Back pursuant to the Proposed Transaction.

A summary of Listing Rule 10.1 is set out in section 12.2 above.

The Buy-Back falls within Listing Rule 10.1.1 and involves the acquisition of a substantial asset by the Company from two Related Parties as a result of the Buy-Back. It therefore requires the approval of Stone Resources Australia Limited’s shareholders under Listing Rule 10.1.

Resolutions 11 and 12 seek the required Shareholder approval to the Buy-Back under and for the purposes of Listing Rule 10.1.

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Explanatory Memorandum

If Resolutions 11 and 12 are passed, and all Conditional Resolutions are passed, the Company will be able to proceed with the Buy-Back and progress its projects and continue to take the Company forward with a tighter capital structure and an appropriate cash balance to fund this progression.

If Resolutions 11 and 12 are not passed, the Company will not be able to proceed with the BuyBack and will need to seek alternatives to dealing with the Debt so as to find a way forward which preserves Shareholder value.

13.3 Chapter 2E of the Corporations Act

The Company is seeking separate Shareholder approval under Chapter 2E of the Corporations Act for each of SRL’s and SRHK’s Shares under the Buy-Back.

Any cash given to SRL and SRHK as Related Parties of the Company will constitute a financial benefit for the purposes of Chapter 2E of the Corporations Act. SRL’s and SRHK’s Shares are being bought back at prices that will represent:

(a) with respect to SRL’s Shares under the Buy-Back, an approximate price of $0.0263 per share, a price representing 105% of the value of the Company’s Shares compared to the Company’s closing price of $0.025 at 1 October 2020; and
(b) with respect to SRHK’s Shares under the Buy-Back, an approximate price of $0.0263 per share, a price representing 105% of the value of the Company’s Shares compared to the Company’s closing price of $0.025 at 1 October 2020;

For a public company, or an entity that the public company controls, to give a financial benefit to a related company of the public company, the public company or entity must:

(a) obtain the approval of the public company’s members in the manner set out in section 217 to 227 of the Corporations Act; and
(b) give the benefit within 15 months following such approval,

unless the giving of the financial benefit falls within an exception set out in sections 210 to 216 of the Corporations Act.

The Buy-Back for a total consideration of A$11,400,000 to SRL and SRHK constitutes giving of a financial benefit and SRL and SRHK are Related Parties by virtue of the fact that they together hold approximately 52% of the Company and are entities which control a public company, being Stone Resources Australia Limited. Further SRHK is an entity controlled by SRL pursuant to subsection 228(4) of the Corporations Act.

It is the view of the Company that the exceptions set out in section 210 to 216 of the Corporations Act may not apply in the current circumstances. Resolutions 13 to 14 therefore require the approval of the Company’s Shareholders under section 208 of the Corporations Act. In any event the Board has determined that Shareholders should have the opportunity to vote on the giving of the financial benefit under Resolutions 13 to 14.

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Explanatory Memorandum

13.4 Technical Information required by Chapter 2E, section 219 of the Corporations Act and Listing Rule 10.5

Pursuant to and in accordance with Listing Rule 10.5, the following information is provided in relation to Resolutions 11 to 14, in addition to the information provided above at sections 11.4 to 11.8:

(a) the Company is acquiring the Buy-Back Shares from SRL and SRHK pursuant to the Buy-Back;
(b) each of SRL and SRHK are Related Parties of the Company as SRL is an entity that controls the Company (being a public company), currently holding approximately 52% of its current issued capital, being a public company, and SRHK is an entity controlled by SRL pursuant to subsection 228(4) of the Corporations Act. SRL and SRHK are therefore Related Parties of the Company pursuant to Listing Rule 10.1.1, and substantial holders in the Company with Voting Power that exceeds 10%, pursuant to Listing Rule 10.1.3;
(c) SRL and SRHK together constitute major Shareholders of the Company, and currently hold approximately 52% of the current issued capital in the Company. SRL and SRHK are therefore Related Parties of the Company pursuant to Listing Rule 10.1.1, and substantial holders in the Company with Voting Power that exceeds 10%, pursuant to Listing Rule 10.1.3;
(d) pursuant to the Buy-Back, the Company is acquiring:
(1) 418,301,429 Shares held in the Company by Stone Resources Limited ( SRL Shares ); and
(2) 15,151,515 Shares held in the Company by Stone Resources (HK) Limited ( SRHK Shares ).

The Buy-Back Shares will be cancelled by the Company immediately upon completion of the Buy-Back;

(e) the consideration, and therefore financial benefits, for the acquisition is:
(1) A$11,001,000 for all of the SRL Shares; and
(2) A$399,000 for all of the SRHK Shares,

with the aggregate consideration for acquiring both the SRL Shares and the SRHK Shares pursuant to the Buy-Back being A$11,400,000 ( Buy-Back Price );

(f) the intended source of funds to pay for the Buy-Back are from proceeds to be obtained as a result of the sale of the Ben Hur Tenements pursuant to the SPA, as well as from existing capital reserves;
(g) under the DECA, the Company agrees to pay SRL and SRHK the Buy-Back Price in two instalments following completion of the DECA with A$6,000,000 payable within 2 business days of completion and A$5,400,000, payable in cash or Shares in the
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Explanatory Memorandum

Company, at the election of the Company within 36 months of completion of the DECA. A timetable of this is provided above at section 11.9;

(h) other material terms of the DECA are set out in sections 11.2 and 12.3 above;
(i) details with respect to any Director participation in the Buy-Back is provided in section 11.7 above;
(j) Mr Yongii Duan will be indirectly participating in the Buy-Back as SRL and SRHK are entities associated with Mr Yongii Duan, and they are participating. SRL and SRHK are the only Buy-Back participants;
(k) the directors’ beliefs as to the advantages and disadvantages are provided in section 11.8 above;
(l) details with respect to the Directors’ recommendations are provided below in section 13.6;
(m) a voting exclusion statement for Resolutions 11 and 12 are set out in the Notice of Meeting; and
(n) an Independent Expert’s Report is provided as Schedule 4 to this Notice of Meeting and Explanatory Memorandum, and is summarised at section 13.5 below.

13.5 Additional Information and Independent Expert’s Report

Listing Rule 10.5.10 requires a notice of meeting containing a resolution under Listing Rule 10.1 to include a report on the transaction from an independent expert.

The Independent Expert’s Report accompanying this Notice and Explanatory Memorandum sets out a detailed independent examination of the Proposed Transaction, including the Buy-Back, to enable non-associated Shareholders to assess the merits of and decide whether to approve Resolutions 11 and 12. The Independent Expert has concluded that the Buy-Back is fair and reasonable to the non-associated Shareholders.

Shareholders are urged to carefully read and consider the Independent Expert’s Report to understand its scope, methodology of the valuation, and the sources of information and assumptions made.

The Independent Expert’s Report is also available on the Company’s website www.stoneral.com.au . If requested by a Shareholder, the Company will send to the Shareholder a hard copy of the Independent Expert’s Report at no cost.

13.6 Directors Recommendation

Except as set out below regarding Mr Yongii Duan, based on the information available, including that set out in this Explanatory Memorandum, the Directors recommend that Shareholders vote in favour of Resolutions 11 to 14 as they consider the proposed Buy-Back to be in the best interests of Shareholders as, after assessment of the advantages and disadvantages referred to in section 11.8, the Directors are of the view that the advantages outweigh the disadvantages. The Directors, except for Mr Yongii Duan, confirm that they intend to vote in favour of Resolutions 11 to 14 in relation to all votes that they control which are not excluded from voting

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Explanatory Memorandum

on this resolution. Any undirected proxies held by the Chairman will be voted in favour of Resolutions 11 to 14.

Mr Yongii Duan and his related entities decline to make recommendations in relation to Resolutions 11 to 14 due to their material interest in the outcome of these Resolutions.

14. Resolution 15 - Approval of 10% Placement Capacity

14.1 Background

ASX Listing Rule 7.1A provides that an Eligible Entity (defined below) may seek Shareholder approval by special resolution passed at an annual general meeting to have the capacity to issue up to that number of Equity Securities (as defined below) equal to 10% of its issued capital ( 10% Placement Capacity ) without using that company’s existing 15% annual placement capacity granted under ASX Listing Rule 7.1.

If Shareholders approve Resolution 15, the number of Equity Securities the Eligible Entity may issue under the 10% Placement Capacity will be determined in accordance with the formula prescribed in ASX Listing Rule 7.1A.2 (as set out below).

The effect of Resolution 15 will be to allow the Directors to issue Shares up to 10% of the Company’s fully paid ordinary securities on issue under the 10% Placement Capacity during the period up to 12 months after the Meeting, without subsequent Shareholder approval and without using the Company’s 15% annual placement capacity granted under Listing Rule 7.1.

Resolution 15 is a Special Resolution. Accordingly, at least 75% of votes cast by Shareholders present and eligible to vote at the Meeting must be in favour of Resolution 15 for it to be passed.

The Chair intends to exercise all available proxies in favour of Resolution 15.

14.2 Applicable Listing Rules

ASX Listing Rule 7.1A came into effect on 1 August 2012 and enables an Eligible Entity to seek shareholder approval at its annual general meeting to issue Equity Securities in addition to those under the Eligible Entity’s 15% annual placement capacity.

An Eligible Entity is one that, as at the date of the relevant annual general meeting:

(a) is not included in the S&P/ASX 300 Index; and
(b) has a maximum market capitalisation (excluding restricted securities and securities quoted on a deferred settlement basis) of $300,000,000,

( Eligible Entity ).

The Company is an Eligible Entity.

14.3 Information on Additional Placement Capacity

As at the date of this Notice, the Company currently has on issue 836,053,708 Shares and the last recorded closing price of the Shares on 1 October 2020 was $0.025. The Company is an Eligible Entity as it is not included in the S&P/ASX 300 Index and has a current market capitalisation of approximately $20,901,342.

An Equity Security is a share, a unit in a trust, a right to a share or unit in a trust or option, an option over an issued or unissued security, a convertible security, or, any security that ASX decides to classify as an equity security

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Explanatory Memorandum

Any Equity Securities issued must be in the same class as an existing class of quoted Equity Securities. The Company currently has one class of quoted Equity Securities on issue, being Shares (ASX: SHK).

The exact number of Equity Securities that the Company may issue under an approval under Listing Rule 7.1A will be calculated according to the following formula:

Additional Placement Capacity = (A x D) – E

where:

A = the number of fully paid ordinary securities on issue 12 months before the issue date or date of agreement to issue:

plus the number of fully paid ordinary securities issued in the 12 months under an exception in Listing Rule 7.2;
plus the number of partly paid ordinary securities that became fully paid in the 12 months;
plus the number of fully paid ordinary securities issued in the 12 months with approval of holders of ordinary securities under Listing Rule 7.1 or Listing Rule 7.4;
less the number of fully paid ordinary securities cancelled in the 12 months.

D = 10%

E = the number of Equity Securities issued or agreed to be issued under Listing Rule 7.1A.2 in the 12 months before the date of issue or agreement to issue that are not issued with the approval of Shareholders under Listing Rule 7.1 or 7.4.

14.4 Technical information required by ASX Listing Rule 7.3A

Pursuant to and in accordance with Listing Rule 7.3A, the following information is provided in relation to Resolution 15:

(a) Period of approval validity

Shareholder approval of the 10% Additional Placement Capacity under Listing Rule 7.1A is valid from the date of the annual general meeting at which the approval is obtained and expires on the earlier of:

(1) the date that is 12 months after the date of the annual general meeting at which the approval is obtained; or
(2) the date of the approval by shareholders of a transaction under Listing Rules 11.1.2 (a significant change to the nature or scale or activities) or 11.2 (disposal of main undertaking) ( 10% Placement Period ). .
(b)
Minimum issue price

The issue price of any Equity Security under the Additional Placement Capacity will not be less than 75% of the VWAP for securities in the same class, calculated over the 15 trading days on which trades in that class were recorded immediately before:

(1) the date on which the price at which the securities are to be issued is agreed; or
(2) if the securities are not issued within 5 trading days of the date above, the date on which the securities are issued.
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Explanatory Memorandum

Any funds raised from an issue of Shares under Listing Rule 7.1A would be used to advance the projects of the Company, including the operation of the Brightstar Plant.

(d) Risk of Economic and Voting Dilution

If Resolution 15 is passed and the Company issues securities under the Additional Placement Capacity, then there is a risk to existing Shareholders of economic and voting dilution, including the risk that:

(1) the market price for Shares in the same class may be significantly lower on the issue date of the new Shares than on the date of this Meeting; and
(2) the new Shares may be issued at a price that is at a discount to the market price for Equity Securities in the same class on the issue date or the new Shares may be issued in consideration for the acquisition of a new asset, which may have an effect on the amount of funds raised by the issue of the Shares.

The table below identifies the potential dilution to existing Shareholders following the issue of Equity Securities under the Additional Placement Capacity (based on the formula set out above) using different variables for the number of issued Shares and the market price of Shares.

The numbers are calculated on the basis of the latest available market price of Shares before the date of this Notice and the current number of Shares on issue.

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----- Start of picture text -----

Variable A in Nominal issue price
Listing Rule 50% decrease Issue price 100%
7.1A 0.014 0.028 increase in
issue price
0.056
Current issued Shares issued 43,575,076 43,575,076 43,575,076
capital A under LR7.1A
435,750,764 Voting dilution 10% 10% 10%
Funds raised $610,051 $1,220,102 $2,440,204
50% increase Shares issued 65,362,615 65,362,615 65,362,615
in issued under LR7.1A
capital A Voting dilution 10% 10% 10%
653,626,146 Funds raised $915,076 $1,830,153 $3,660,306
100% increase Shares issued 87,150,153 87,150,153 87,150,153
in issued under LR7.1A
capital A Voting dilution 10% 10% 10%
871,501,528 Funds raised 1,220,102 2,440,204 4,880,409
----- End of picture text -----

(e) Allocation Policy

The Company’s allocation policy is dependent on the prevailing market conditions at the time of any proposed issue under the Additional Placement Capacity. the identity of the recipients of Shares will be determined on a case-by-case basis having regard to factors including but not limited to:

(1) the methods of raising funds that are available to the Company, including but not limited to, rights issues or other issues in which existing Shareholders can participate;
(2) the effect of the issue of the Shares on the control of the Company;
(3) the financial situation and solvency of the company; and
36 -

Explanatory Memorandum

(4) advice from corporate, financial and broking advisors (if applicable).

The recipients under the 10% Placement Capacity have not been determined as at the date of this Notice but may include existing substantial Shareholders and/or new Shareholders who are not related parties or associates of a related party of the Company.

If Resolution 15 is approved by Shareholders, the Company may issue Equity Securities under the 10% Additional Placement Capacity during the 10% Placement Period, as and when the circumstances of the Company require.

(f) Past Equity Security Issues

During the 12 months prior to the proposed Meeting date of 16 November 2020, the Company has made no issues of Shares under Listing Rule 7.1A.

(g) Voting Exclusion Statement

A voting exclusion statement is provided above in the body of the notice in accordance with ASX Listing Rules.

14.5 Directors’ recommendation

The Board unanimously recommends that Shareholders vote in favour of Resolution 15 as it will provide the Company with the flexibility to raise additional capital.

15. Resolution 16 – Change of Name

15.1 General

Resolution 16 is a Special Resolution which means a Resolution of a General Meeting passed by at least 75% of votes cast by Shareholders who (being entitled to do so) vote in person or by proxy at that General Meeting.

The Company seeks Shareholder approval by Special Resolution to change the Company’s name from “Stone Resources Australia Limited” to “Brightstar Resources Limited”. The Company also proposes to change its ASX ticker code from “SHK” to “BTR” to reflect this change, subject to confirmation by ASX.

Pursuant to section 157(1)(a) of the Corporations Act, the Company may change its name by passing a Special Resolution to that effect. The Special Resolution must be lodged with ASIC within 14 days after it is passed.

The change in name will not, in itself, affect the legal status of the Company or any of its assets or liabilities.

The Directors believe that the new name more accurately reflects the proposed commercial undertaking of the Company (being its focus on the Brightstar Project).

Shareholder approval of Resolution 16 is subject to receipt of Shareholder approval for each of the other Conditional Resolutions.

The Directors unanimously recommend that Shareholders vote in favour of Resolution 16.

37 -

Explanatory Memorandum

16. Interpretation

2019 PCF Mandate means the corporate advisory agreement between the Company and PCF dated 23 October 2019, the material terms of which are set out in Schedule 6.

2020 PCF Mandate means corporate advisory agreement between the Company and PCF dated 8 September 2020, the material terms of which are set out in Schedule 6.

Annual Report means the Annual Report of the Company.

Associate has the meaning given to that term in the Listing Rules.

ASX means ASX Limited ACN 008 624 691 or the Australian Securities Exchange.

A$ means Australian Dollar as the currency of the Commonwealth of Australia.

Ben Hur Tenements has the meaning given to that term in section 11.1 of the Explanatory Memorandum.

Board means the Board of Directors of the Company.

Brightstar Plant means the 300,000 tpa plant and associated camp and equipment located in South Laverton, Western Australia owned by the Company.

Buy-Back has the meaning given to that term in section 11.2 of the Explanatory Memorandum.

Buy-Back Shares has the meaning given to that term in section 11.1 of the Explanatory Memorandum.

Chairman means the person appointed chairman of the Company convened by the Notice.

Closely Related Party has the meaning given to that term in the Corporations Act.

Company means Stone Resources Australia Limited.

Company Secretary means Tony Lau, the joint company secretary of the Company.

Conditional Resolutions means Resolutions 10 - 14 inclusive.

Constitution means the constitution of the Company from time to time.

Corporations Act means the Corporations Act 2001 (Cth) as amended, varied or replaced from time to time.

Debt has the meaning given to that term in section 11.1 of the Explanatory Memorandum.

Debt and Equity Compromise Agreement or DECA has the meaning given to that term in section 11.2 of the Explanatory Memorandum.

DECA Completion means completion of the extinguishment of the Debt and the sale and purchase of the Buy-Back Shares in accordance with the terms of the DECA.

Director means a director of the Company.

Explanatory Memorandum means this explanatory memorandum accompanying the Notice of Meeting.

Hobba Share Issue means the issue of Shares to Mr William Hobba pursuant to Resolution 9 as set out in this Notice.

Hunt Share Issue means the issue of Shares to Mr Joshua Hunt pursuant to Resolution 8 as set out in this Notice.

Independent Expert or BDO means BDO Corporate Finance (WA) Pty Ltd.

38 -

Explanatory Memorandum

Independent Expert’s Report means the report prepared by the Independent Expert which accompanies this Notice in Schedule 4.

Key Management Personnel has the meaning given to that term in the Corporations Act.

Listing Rule means the official listing rules of the ASX as amended from time to time.

Meeting or Annual General Meeting means the annual general meeting to be held on 16 November 2020.

North Project means the tenements owned by the Company in north Laverton, Western Australia, and comprising the tenements listed in Schedule 2 accompanying this Notice.

Notice of Meeting or Notice means the notice of meeting giving notice to shareholders of the Meeting, accompanying this Explanatory Memorandum.

Option means an option to acquire a Share.

Ordinary Resolution means a resolution passed by more than 50% of the votes cast at a general meeting of shareholders.

PCF Capital Group or PCF means PCF Capital Group Pty Ltd ACN 089 188 063.

Post-Completion Payment has the meaning given to that term in section 11.2 of the Explanatory Memorandum.

Proposed Transaction means the transaction described in section 11.3 of the Explanatory Memorandum.

Proxy Form means the proxy form to the Notice.

Purchase Price has the meaning given to that term in section 11.1 of the Explanatory Memorandum.

Regis means Regis Resources ACN 009 174 761.

Regis Royalty has the meaning given to that term in section 11.1 of the Explanatory Memorandum.

Regis Royalty Deed has the meaning given to that term in section 11.1 of the Explanatory Memorandum.

Regis Payment has the meaning given to that term in section 11.2 of the Explanatory Memorandum.

Related Party has the meaning given to that term in the Corporations Act.

Remuneration Report means the section of the Directors’ Report in the 2020 Annual Report dealing with the remuneration of the Company’s Directors, Company Secretary, and senior executives described as ‘Remuneration Report’.

Resolution means a resolution proposed at the Meeting.

Royalty Agreement means the agreement entered into or proposed to be entered into between the Company, SRL, and SRHK to give effect to the Royalty.

Share means an ordinary fully paid share in the issued capital of the Company.

Shareholder means a holder of Shares in the Company.

South Project means the 300,000 tpa Brightstar Plant, the Brightstar mining camp, and associated tenements located in south Laverton, Western Australia, being the tenements listed in Schedule 1 accompanying this Notice.

SPA has the meaning given to that term in section 11.1 of the Explanatory Memorandum.

39 -

Explanatory Memorandum

Special Resolution means a resolution passed by more than 75% of the votes cast at a general meeting of shareholders.

SRHK means Stone Resources (HK) Limited.

SHRK Royalty has the meaning given to that term in section 11.2 of the Explanatory Memorandum.

SRL means Stone Resources Limited.

Tenements means the mining tenements listed in Schedule 1 and Schedule 2 accompanying this Notice.

Voting Power has the meaning given in the Corporations Act.

Any inquiries in relation to the Resolutions or the Explanatory Memorandum should be directed to Tony Lau (Company Secretary):

Suite 3, 25 Belgravia Street Belmont WA 6104 Telephone Phone : +61 8 9277 6008

Email: [email protected]

40 -

Explanatory Memorandum

Schedule 1 – South Project Tenements

LEASE	PROJECT	HOLDER
M38/968	Alpha	Desert Exploration Pty Ltd
M38/1056	Alpha	Company
M38/1057	Alpha	Company
M38/1058	Alpha	Company
M38/9	Beta	Company
E38/2316	Gamma	Company
E38/2364	Gamma	Company
E38/2365	Gamma	Company
E38/2411	Gamma	Company
E38/3034	Gamma	Company
E38/3108	Gamma	Company
E38/3293	Gamma	Company
M38/241	Gamma	Company
M38/549	Gamma	Company
M38/984	Gamma	Company
P38/4377	Gamma	Company
P38/4385	Gamma	Company
P38/4431	Gamma	Company
P38/4432	Gamma	Company
P38/4433	Gamma	Company
P38/4444	Gamma	Company
P38/4445	Gamma	Company
P38/4446	Gamma	Company
P38/4447	Gamma	Company
P38/4448	Gamma	Company
P38/4449	Gamma	Company
P38/4450	Gamma	Company

41 -

Explanatory Memorandum

Schedule 2 – North Project Tenements

LEASE	PROJECT	HOLDER
E38/2452	Delta	Company
E38/2894	Delta	Company
M38/346	Delta	Company
M38/917	Delta	Company
M38/918	Delta	Company
P38/4108	Delta	Company
E38/3198	Eta	Company
M38/94	Hawkes Nest	Company
M38/95	Hawkes Nest	Company
M38/314	Hawkes Nest	Company
M38/381	Hawkes Nest	Company

Ben Hur Tenements

LEASE	PROJECT	HOLDER
L38/206	Ben Hur	Regis
P38/4114	Ben Hur	Regis
P38/4115	Ben Hur	Regis
M38/160	Ben Hur	Regis
M38/339	Ben Hur	Regis
M38/1241	Eta	Regis
P38/4364	Eta	Regis
E38/3199	Eta	Regis
E38/3234	Eta	Regis

42 -

Explanatory Memorandum

Schedule 3 - Unaudited Statement of Financial Position of the Company

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----- Start of picture text -----

Stone Resources Australia Limited
ABN 44 100 727 491
Unaudited Pro-forma Consolidated Statement
of Financial Position
Unaudited
Consolidated Consolidated
30-Jun-20 30-Jun-20
before buy-
back Divestment Share buy-back after buy-back
Note $
Current assets
Cash and cash equivalents 50,032 50,032
Trade and other receivables 35,617 35,617
Other financial assets 25,000 10,000,000 [1] (6,000,000) [2] 4,025,000
Assets held for sale 11,172,169 (5,385,516) [3] 5,786,653
Other current assets 16,358 16,358
Total Current Assets 11,299,176 9,913,660
Non current assets
Property, plant and equipment 720,969 720,969
Right-of-use assets 32,018 32,018
Deferred exploration and evaluation expenditure 2,686,636 2,686,636
Total Non Current Assets 3,439,623 3,439,623
TOTAL ASSETS 14,738,799 13,353,283
Current liabilities
Trade and other payables 21,134,121 (20,088,679) [4] 1,045,442
Lease liabilities 17,618 17,618
Borrowings 36,066,134 (35,436,134) [5] 630,000
Provisions 111,249 111,249
Liabilities held for sale 3,733,200 (1,237,800) [6] 2,495,400
Total Current Liabilities 61,062,322 4,299,709
Non current liabilities
Lease liabilities 15,756 15,756
Provisions 3,583,061 3,583,061
Total Non Current Liabilities 3,598,817 3,598,817
TOTAL LIABILITIES 64,661,139 7,898,526
NET ASSETS (49,922,340) 5,454,757
Equity
Issued Capital 51,541,309 (1,733,812) [7] 49,807,497
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43 -

Explanatory Memorandum

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----- Start of picture text -----

Accumulated losses (101,472,495) 57,110,908 (44,361,587)
Reserve 8,846 8,846
TOTAL EQUITY (49,922,340) 5,454,757
----- End of picture text -----

NOTES

Regis shares.
Includes payments to various creditors listed in schedule 2 of the DECA.
Expenditure reimbursement by Regis.
Loan interest.
Loan principle.
Related rehab liabilities.
0.04 cents per share, as at 30 June 2020.
44 -

Explanatory Memorandum

Schedule 4 - Independent Expert’s Report

45 -

STONE RESOURCES AUSTRALIA LIMITED Independent Expert’s Report

OPINION: FAIR AND REASONABLE

29 September 2020

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Financial Services Guide

29 September 2020

BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 (‘ we ’ or ‘ us ’ or ‘ ours ’ as appropriate) has been engaged by Stone Resources Australia Limited (‘ SRAL ’) to provide an independent expert’s report on the proposal to dispose of approximately $53 million of debt owed to Stone Resources Limited (‘ SRL ’) via SRL’s subsidiary Stone Resources (HK) Limited (‘ SRHK ’). In return, SRAL will pay SRHK $11.4 million and also grant SRHK a 3% Net Smelter Return royalty over SRAL’s tenements, a 1% Net Smelter Return royalty over the Ben Hur deposit (Mining Lease 38/339) which commences after the first 100koz of gold has been produced (reverting to 0.0025% NSR for four years thereafter) and SRAL will also undergo a selective capital reduction of shares held by SRHK and SRL. You are being provided with a copy of our report because you are a shareholder of SRAL and this Financial Services Guide (‘ FSG ’) is included in the event you are also classified under the Corporations Act 2001 (‘ the Act ’) as a retail client.

Our report and this FSG accompanies the Notice of Meeting required to be provided to you by SRAL to assist you in deciding on whether or not to approve the proposal.

Financial Services Guide

This FSG is designed to help retail clients make a decision as to their use of our general financial product advice and to ensure that we comply with our obligations as a financial services licensee.

This FSG includes information about:

Who we are and how we can be contacted;
The services we are authorised to provide under our Australian Financial Services Licence No. 316158;
Remuneration that we and/or our staff and any associates receive in connection with the general financial product advice;
Any relevant associations or relationships we have; and
Our internal and external complaints handling procedures and how you may access them.

Information about us

We are a member firm of the BDO network in Australia, a national association of separate entities (each of which has appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO International). The financial product advice in our report is provided by BDO Corporate Finance (WA) Pty Ltd and not by BDO or its related entities. BDO and its related entities provide professional services primarily in the areas of audit, tax, consulting, mergers and acquisition, and financial advisory services.

We and BDO (and its related entities) might from time to time provide professional services to financial product issuers in the ordinary course of business and the directors of BDO Corporate Finance (WA) Pty Ltd may receive a share in the profits of related entities that provide these services.

Financial services we are licensed to provide

We hold an Australian Financial Services Licence that authorises us to provide general financial product advice for securities to retail and wholesale clients, and deal in securities for wholesale clients. The authorisation relevant to this report is general financial product advice.

When we provide this financial service we are engaged to provide an expert report in connection with the financial product of another person. Our reports explain who has engaged us and the nature of the report we have been engaged to provide. When we provide the authorised services we are not acting for you.

General Financial Product Advice

We only provide general financial product advice, not personal financial product advice. Our report does not take into account your personal objectives, financial situation or needs. You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on the advice. If you have any questions, or don’t fully understand our report you should seek professional financial advice.

BDO CORPORATE FINANCE (WA) PTY LTD

Financial Services Guide

Page 2

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Fees, commissions and other benefits that we may receive

We charge fees for providing reports, including this report. These fees are negotiated and agreed with the person who engages us to provide the report. Fees are agreed on an hourly basis or as a fixed amount depending on the terms of the agreement. The fee payable to BDO Corporate Finance (WA) Pty Ltd for this engagement is approximately $30,000.

Except for the fees referred to above, neither BDO, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the report and our directors do not hold any shares in SRAL.

Remuneration or other benefits received by our employees

All our employees receive a salary. Our employees are eligible for bonuses based on overall productivity but not directly in connection with any engagement for the provision of a report. We have received a fee from SRAL for our professional services in providing this report. That fee is not linked in any way with our opinion as expressed in this report.

Referrals

We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide.

Complaints resolution

Internal complaints resolution process

As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing addressed to The Complaints Officer, BDO Corporate Finance (WA) Pty Ltd, PO Box 700 West Perth WA 6872.

When we receive a written complaint we will record the complaint, acknowledge receipt of the complaint within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination.

Referral to External Dispute Resolution Scheme

A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Australian Financial Complaints Authority (‘ AFCA ’).

AFCA is an external dispute resolution scheme that deals with complaints from consumers in the financial system. It is a not-for-profit company limited by guarantee and authorised by the responsible federal minister. AFCA was established on 1 November 2018 to allow for the amalgamation of all Financial Ombudsman Service (‘ FOS ’) schemes into one. AFCA will deal with complaints from consumers in the financial system by providing free, fair and independent financial services complaint resolution. If an issue has not been resolved to your satisfaction you can lodge a complaint with AFCA at any time.

Our AFCA Membership Number is 12561. Further details about AFCA are available on its website www.afca.org.au or by contacting it directly via the details set out below.

Australian Financial Complaints Authority GPO Box 3 Melbourne VIC 3001 AFCA Free call: 1800 931 678 Website: www.afca.org.au Email: [email protected]

You may contact us using the details set out on page 1 of the accompanying report .

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1.	Introduction	1
2.	Summary and Opinion	2
3.	Scope of the Report	5
4.	Outline of the Proposed Transaction	7
5.	Profile of Stone Resources Australia Limited	8
6.	Profile of Stone Resources Limited	17
7.	Economic analysis	18
8.	Industry analysis	20
9.	Valuation approach adopted	24
10.	Valuation of SRAL prior to the Proposed Transaction	26
11.	Valuation of SRAL following the Proposed Transaction	37
12.	Is the Proposed Transaction fair?	39
13.	Is the Proposed Transaction reasonable?	40
14.	Conclusion	42
15.	Sources of information	43
16.	Independence	43
17.	Qualifications	44
18.	Disclaimers and consents	44

Appendix 1 – Glossary and copyright notice Appendix 2 – Valuation Methodologies Appendix 3 – Minority discount assessment

Appendix 4 - Independent Technical Assessment and Valuation Report by VRM

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29 September 2020

The Directors Stone Resources Australia Limited L3, 25 Belgravia Street BELMONT WA 6104

Dear Directors

INDEPENDENT EXPERT’S REPORT

1. Introduction

On 25 March 2020 Stone Resources Australia Limited (‘ SRAL ’ or ‘ the Company ’) announced it had on 16 March 2020, entered into a Debt and Equity Compromise Agreement (‘ DECA ’) with its major debt provider and major shareholder, Stone Resources Limited (‘ SRL ’) and SRL’s subsidiary, Stone Resources (HK) Limited (‘ SRHK ’), to dispose of approximately $53.2 million of debt and to buy back (and subsequently cancel) 433,452,944 shares held by SRL and SRHK (‘ the Buyback Shares ’), representing approximately 52% of the Company’s issued capital. As set out in the Notice of Meeting, the debt to be disposed of, which, as at 31 December 2019 totalled $53,217,595 (comprising $34,657,147 in principal and $18,560,448 in interest), is owed to SRHK and had arisen under loans advanced to the Company to fund the development of its gold assets (the ‘ Debt ’).

In order to fund the repurchase of the Buyback Shares, SRAL announced on 12 August 2020 that it had executed a sale purchase agreement (‘ SPA ’) with Regis Resources Ltd (‘ Regis ’) for the sale by SRAL of its Ben Hur gold project in exchange for $10 million in Regis shares and a 1% Net Smelter Return (‘ NSR ’) royalty on Mining Lease 38/339 (‘ the Ben Hur Royalty ’). The Ben Hur Royalty is a 1% NSR royalty on Mining Lease 38/339 commencing after the first 100,000 oz of gold or gold equivalent is produced at Ben Hur. The royalty is capped at $5 million, after which it will revert to a 0.0025% NSR for four years. This asset sale was completed on 2 September 2020 and provides the required financing to facilitate the repurchase of the Buyback Shares.

On 12 August 2020, SRAL also announced it had executed a deed amending the DECA (‘ Amendment Deed ’) such that it will:

transfer the Ben Hur Royalty to SRHK within 20 months from 11 August 2020;
grant a 3% NSR royalty over all of the Company’s remaining tenements to SRHK (‘ SRHK Royalty ’) within 20 months from 11 August 2020;
pay SRHK $6 million cash from the proceeds of the Ben Hur sale under the SPA; and
pay SRHK a further $5.4 million in SRAL shares or cash, at SRAL’s election, within 36 months from 11 August 2020.

The Amendment Deed also extended the term of the DECA to 30 November 2020. The repurchase of the Buyback Shares, the disposal of the Debt and the transactions under the Amendment Deed form the

BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 AFS Licence No 316158 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Corporate Finance (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation.

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proposed transaction (‘ Proposed Transaction ’) which requires the approval of the non-associated shareholders of SRAL (‘ Shareholders ’).

This Independent Expert’s Report (‘ our Report ’) details our opinion on whether the above Proposed Transaction is fair and reasonable to Shareholders.

2. Summary and Opinion

2.1 Requirement for our Report

The independent directors of SRAL have requested that BDO Corporate Finance (WA) Pty Ltd (‘ BDO ’) prepare our Report to express an opinion as to whether or not the Proposed Transaction is fair and reasonable to Shareholders.

Our Report is prepared pursuant to ASX Listing Rule 10.1 and 10.5, and Chapter 2E of the Corporations Act 2001 (‘ Corporations Act ’ or ‘ the Act ’) and is to be included in the Notice of Meeting for SRAL in order to assist the Shareholders in their decision whether to approve the Proposed Transaction.

2.2 Approach

Our Report has been prepared having regard to Australian Securities and Investments Commission (‘ ASIC ’), Regulatory Guide 76 ‘Related party transactions’ (‘ RG 76 ’), Regulatory Guide 111 ‘Content of Expert’s Reports’ (‘ RG 111 ’) and Regulatory Guide 112 ‘Independence of Experts’ (‘ RG 112 ’).

The shares to be bought back by SRAL will be cancelled in accordance with the Corporations Act. This will result in a proportional increase in the shareholding interests of all other minority holders. Following the Proposed Transaction, none of the minority holders’ shareholding interest will increase above 20% as a consequence of the shares being cancelled. Therefore, the Proposed Transaction is not considered a control transaction as there is no acquisition of, or increase in, a controlling stake in the Company.

In arriving at our opinion, we have assessed the terms of the Proposed Transaction as outlined in the body of this report. We have considered:

Whether the value of an SRAL share is higher or lower following the implementation of the Proposed Transaction (on a minority basis);
The likelihood of an alternative offer being made to SRAL;
Other factors which we consider to be relevant to the Shareholders in their assessment of the Proposed Transaction; and
The position of Shareholders should the Proposed Transaction not proceed.

2.3 Opinion

We have considered the terms of the Proposed Transaction as outlined in the body of our Report and have concluded that, in the absence of an alternative offer, the Proposed Transaction is fair and reasonable to Shareholders.

2.4 Fairness

In Section 12 we compare the value of an SRAL share prior to and following the Proposed Transaction (both on a minority interest basis), as detailed below.

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		Low	High
	Ref
		$	$
Value of an SRAL share prior to the Proposed Transaction	10.3	Nil	Nil
Value of an SRAL share following the Proposed Transaction	11.1	0.013	0.030

Source: BDO analysis

The above valuation ranges are graphically presented below:

Valuation Summary 0.000 0.005 0.010 0.015 0.020 0.025 0.030 0.035 Value ($/share)

Value of an SRAL share prior to the Proposed Transaction Value of an SRAL share following the Proposed Transaction

The above pricing indicates that, in the absence of any other relevant information, and an alternative offer, the Proposed Transaction is fair for Shareholders.

2.5 Reasonableness

We have considered the analysis in Section 13 of this report, in terms of both

advantages and disadvantages of the Proposed Transaction; and
other considerations, including the position of Shareholders if the Proposed Transaction does not proceed and the consequences of not approving the Transaction.

In our opinion, the position of Shareholders if the Proposed Transaction is approved is more advantageous than the position if the Proposed Transaction is not approved. Accordingly, in the absence of any other relevant information and/or an alternative proposal we believe that the Proposed Transaction is reasonable for Shareholders.

The respective advantages and disadvantages considered are summarised below:

ADVANTAGES AND DISADVANTAGES

Section	Advantages	Section	Disadvantages
13.3	The Proposed Transaction is fair	13.4	The SRHK Royalty will apply to the Company’s
			tenements following the Proposed Transaction
13.3	May assist the Company in accessing the	13.4	The Company will not retain the benefit of
	capital markets for funding to progress its		the Ben Hur Royalty
	mineral assets in the future

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ADVANTAGES AND DISADVANTAGES	ADVANTAGES AND DISADVANTAGES
Section	Advantages Section	Disadvantages
13.3	Significant reduction in SRAL’s debt levels 13.4	The majority of the value received from the sale of SRAL’s Ben Hur project will not be available for use to develop the Company’s remaining tenements
13.3	Helps to resolve the material uncertainty surrounding the going concern issues faced by the Company
13.3	Shareholders’ interest in the Company will increase proportionally
13.3	Removal of a significant shareholder improves the likelihood of a takeover of the Company in the future

Other key matters we have considered include:

Section	Description
13.1	Alternative proposals
13.2	Other considerations – post announcement pricing

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3. Scope of the Report

3.1 Purpose of the Report

ASX Listing Rule 10.1 requires that a listed entity must obtain shareholders’ approval before it acquires or disposes of, or agrees to acquire or dispose of, a substantial asset when the consideration to be paid for the asset or the value of the asset being disposed of constitutes more than 5% of the equity interest of that entity as set out in the latest accounts given to the ASX under its Listing Rules. Listing Rule 10.1 applies where the vendor or acquirer of the relevant assets is a related party or person of influence of the listed entity as defined under the ASX Listing Rules.

Both SRL and SRHK are related parties to SRAL. SRL is the largest shareholder in SRAL, with a combined interest of 433,452,944 shares held directly (418,301,429 shares) and via SRHK (15,151,515 shares). Based on the audited accounts as at 30 June 2020, the Buyback Shares represent approximately 52% of the issued capital of SRAL at the time.

Listing Rule 10.5.10 requires the Notice of Meeting for shareholders’ approval to be accompanied by a report by an independent expert expressing their opinion as to whether the transaction is fair and reasonable to the shareholders whose votes are not to be disregarded.

Chapter 2E of the Corporations Act 2001 (‘ Chapter 2E ’) requires a public company to obtain shareholder approval when giving a financial benefit to any party defined as a related party. What constitutes a financial benefit and who falls under the definition of a related party is set out under Chapter 2E.2. Exceptions apply to this requirement, including the arm’s length exception, however SRAL has determined to seek shareholder approval under Chapter 2E.

If shareholder approval is sought, the company must lodge with ASIC the material that will be put to members. RG 76 sets out the information expected to be in the explanatory statements to the resolution being put to shareholders and requires, when necessary, an independent valuation of the financial benefit, particularly if the financial benefit is an issue of securities or involves the sale or purchase of an asset.

Accordingly, an independent expert’s report is required for the Proposed Transaction. Under RG 111 the report should provide an opinion by the expert stating whether or not the terms and conditions in relation thereto are fair and reasonable to non-associated shareholders of SRAL.

In addition to the above, the independent directors of SRAL have commissioned our Report to satisfy the information requirements of fairness under s257G of the Act where there is a selective buy back of shares.

3.2 Regulatory guidance

Neither the Listing Rules nor the Corporations Act defines the meaning of ‘fair and reasonable’. In determining whether the Proposed Transaction is fair and reasonable, we have had regard to the views expressed by ASIC in RG 111. RG 111 provides guidance as to what matters an independent expert should consider to assist security holders to make informed decisions about transactions.

RG 111 suggests that, where an expert assesses whether a related party transaction is ‘fair and reasonable’ for the purposes of ASX Listing Rule 10.1/and Chapter 2E, this should not be applied as a composite test—that is, there should be a separate assessment of whether the transaction is ‘fair’ and

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‘reasonable’, as in a control transaction. An expert should not assess whether the transaction is ‘fair and reasonable’ based simply on a consideration of the advantages and disadvantages of the proposal.

We do not consider the Proposed Transaction to be a control transaction. As such, we have used RG 111 as a guide for our analysis but have considered the Proposed Transaction if it were not a control transaction.

3.3 Adopted basis of evaluation

RG 111 states that a transaction is fair if the value of the offer price or consideration is equal to or greater than the value of the securities which are the subject of the offer. This comparison should be made assuming a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at arm’s length. RG 111 states that when considering the value of the securities which are subject of the offer in a control transaction, the expert should consider this value inclusive of a control premium. However, as stated in Section 3.2 we do not consider that the Proposed Transaction is a control transaction. As such, we have not included a premium for control when considering the value of an SRAL share.

RG 111 states that a comparison should be made between the value of the securities being offered (allowing for a minority discount) and the value of the target entity’s securities, assuming 100% of the securities are available for sale.

Further to this, RG 111 states that a transaction is reasonable if it is fair. It might also be reasonable if despite being ‘not fair’ the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any alternative options.

The repurchase of the Buyback Shares and the disposal of the Debt are linked transactions under the DECA and as such, it is not appropriate to consider either component in isolation.

Having regard to the above, BDO has completed this comparison in two parts:

A comparison between the value of an SRAL share prior to the Proposed Transaction and the value of an SRAL share following the Proposed Transaction (fairness – see Section 12 ‘Is the Proposed Transaction Fair?’); and
An investigation into other significant factors to which Shareholders might give consideration, prior to approving the resolution, after reference to the value derived above (reasonableness – see Section 13 ‘Is the Proposed Transaction Reasonable?’).

This assignment is a Valuation Engagement as defined by Accounting Professional & Ethical Standards Board professional standard APES 225 ‘Valuation Services’ (‘ APES 225 ’).

A Valuation Engagement is defined by APES 225 as follows:

‘an Engagement or Assignment to perform a Valuation and provide a Valuation Report where the Valuer is free to employ the Valuation Approaches, Valuation Methods, and Valuation Procedures that a reasonable and informed third party would perform taking into consideration all the specific facts and circumstances of the Engagement or Assignment available to the Valuer at that time.’

This Valuation Engagement has been undertaken in accordance with the requirements set out in APES 225.

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4. Outline of the Proposed Transaction

As at 31 December 2019, SRHK had advanced loans totalling $53,217,595 (comprising $34,657,147 in principal and $18,560,448 in interest) to the Company. The Debt has arisen under loans advanced to SRAL to assist the Company in developing and progressing its gold assets and the construction of the 300,000 tpa Brightstar Gold Processing Plant (‘ Brightstar Plant ’).

In the 30 June 2020 audited financial report, the Company noted that all of the Company’s debt, except a $630,000 loan from a related entity and its associated interest, is expected to be cancelled following completion of the DECA. In the event that the DECA does not complete, or there is any portion of the debt which is not cancelled after the DECA, the related parties have agreed to defer repayment amounts, including the $630,000 and its related interest, owing by SRAL at 30 June 2020 for at least 12 months from the date of approval of the financial report or until such time that the Group is financially independent.

Under the Proposed Transaction, SRAL will dispose of the Debt owed to SRHK, and in exchange will buy back the Buyback Shares owned by SRL and SRHK. SRL and SRHK are registered owners of 418,301,429 and 15,151,515 fully paid ordinary shares in the Company respectively (totalling 433,452,944 shares). Under the Amendment Deed, SRAL will also:

Transfer the Ben Hur Royalty to SRHK within 20 months from 11 August 2020;
Grant the SRHK Royalty on SRAL’s retained tenements to SRHK within 20 months from 11 August 2020;
Pay $6 million cash to SRHK from the proceeds of the Ben Hur sale under the SPA with Regis; and
Pay $5.4 million in SRAL shares or cash, at SRAL’s election, to SRHK within 36 months from 11 August 2020.

We also note that SRAL continues to accrue interest on the Debt since 30 June 2020 and that, based on the Company’s August 2020 Cashflow Report announced on 7 September 2020, SRHK has extended further funds (approximately $264,000) to SRAL for working capital purposes. These funds have been extended from SRHK via the Debt and as such, will also be disposed of as part of the Proposed Transaction.

In parallel, SRAL has executed an SPA with Regis to sell its Ben Hur project in exchange for $10 million in Regis shares and the Ben Hur Royalty, which will then be transferred to SRHK under the Proposed Transaction. The Ben Hur Royalty is a 1% NSR royalty on Mining Lease 38/339 commencing after the first 100,000 oz of gold or gold equivalent is produced at Ben Hur. The royalty is capped at $5 million, after which it will revert to a 0.0025% NSR for four years. This asset sale, which was a condition precedent to the Proposed Transaction, completed on 2 September 2020 and provides the required financing to facilitate the Proposed Transaction.

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5. Profile of Stone Resources Australia Limited

5.1 History

Stone Resources is an ASX-listed gold exploration and production company, with operations in Laverton, Western Australia (‘ WA ’). The Company, formerly known as A1 Minerals Limited, was formed in 2002 and listed in 2003. The Company is a subsidiary of Stone Resources Limited based in Hamilton, Bermuda.

The Company’s current board of directors and senior management are:

Yongji Duan, Non-Executive Chairman;
Yong Han, Executive Director;
Fang Lu, Non-Executive Director;
Kaiye Shuai, Non-Executive Director;
William Hobba, Non-Executive Director;
Sheng Hui Lu, Deputy Executive Officer, Joint Company Secretary; and
Tony Lau, Joint Company Secretary.

Following the Proposed Transaction, it is expected that Yong Han, Fang Lu and Kaiye Shuai will resign. Josh Hunt will be appointed as an Independent Non-Executive Director, while William Hobba will assume additional responsibility as Executive Director.

SRAL holds tenements covering 295 square kilometres ( ‘km[2] ’ ) located in both south and north Laverton, WA, which collectively form the Brightstar Gold Project (‘ Brightstar ’). Brightstar is located 350 kilometres (‘ km ’) north-northeast of Kalgoorlie, WA. The project comprises a mixture of open pit developments, a mill on care and maintenance and a combination of brownfield and greenfield exploration targets. The Company’s current gold projects and deposits are divided between North Brightstar (‘ North Project’ ) and South Brightstar (‘ South Project’ ).

North Project

North Project comprises an approximately 440 km[2] land package and is located in close proximately to road infrastructure and major regional processing hubs. North Project includes the Cork Tree Well deposit (‘ Cork Tree’, also known as ‘ Delta ’), and until it was recently sold to Regis, the Ben Hur deposit (‘ Ben Hur’ , also known as ‘ Epsilon ’). During the financial year ended 30 June 2018, the Company conducted an airborne magnetic survey program across the majority of the North Project area, covering a total 50 km[2] . A 5km drilling program was also completed at North Project in December 2018.

Cork Tree includes tenements around the old Cork Tree Well Mine, which produced approximately 740,000 tonnes of oxide ore from shallow pits between 1987 and 1988. Based on drilling results from 2012, the Mineral Resources estimate of Cork Tree was a total resource of 3.86 million tonnes at an average grade of 1.91 grams per tonne (‘ g/t ’) based on a 0.5 g/t gold cut-off grade.

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South Project

South Project comprises the Brightstar Plant, the Alpha deposit (‘ Alpha ’) and the Beta deposit (‘ Beta ’).

The Brightstar Plant is located 33km south-east of Laverton and was recommissioned by SRAL in 2014. It is a production facility that is currently non-operational as it is under care and maintenance. The plant has a 300,000 tonnes per annum capacity.

Alpha is located 40km East South-East of Laverton, WA. From drilling conducted in 2013, the Mineral Resources estimate of Alpha was a total resource of 2.28 million tonnes at an average grade of 2.27 g/t, based on a 0.5 g/t gold cut-off grade. Drilling also resulted in a Mineral Resources estimate for Beta’s total resources of 2.28 million tonnes at an average grade of 1.5 g/t, based on a 0.3 g/t gold cut-off grade. Evaluation is currently underway to determine the future viability of Alpha and Beta.

A summary of the Company’s Mineral Resources estimate per a recent review conducted by Auralia Mining Consulting Pty Ltd as announced on 10 September 2020, is outlined below (reported above a gold cut-off grade of 0.5g/t).

Deposit	Location	Category	Tonnes Grade (g/t) Ounces
Alpha	South Project	Measured	623,000 1.6 33,000
		Indicated	374,000 2.1 25,000
		Inferred	455,000 3.3 48,000
		Total	1,452,000 2.3 106,000
Beta	South Project	Measured Indicated Inferred Total	345,000 1.7 19,000 576,000 1.6 29,000 961,000 1.7 54,000
			1,882,000 1.7 102,000
Delta	North Project	Measured	1,220,000 1.9 76,000
		Indicated	944,000 1.9 57,000
		Inferred	1696,000 1.9 104,000
		Total	3,860,000 1.9 237,000
Total Brightstar Project		Measured	2,188,000 1.8 128,000
		Indicated	1,894,000 1.8 111,000
		Inferred	3,112,000 2.1 206,000
		Total	7,194,000 1.9 445,000

Source : SRAL 10 September 2020 ASX announcement, BDO analysis

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Recent Corporate Events

On 7 November 2019, the Company issued 20,864,306 ordinary shares as consideration for corporate advisory and consultancy services. 15,000,000 shares were issued to the Company’s Corporate Advisor and 5,864,306 shares were issued to the Company Secretary. On 29 November 2019, the Company issued a further 3,543,276 ordinary shares as part of remuneration agreements with directors.

On 24 December 2019, the Company and Mr.Van Blitterswyk entered into a settlement deed that contained a confidentiality clause. The Company informed the market that the terms of the settlement would not have any negative impact on the financial position of the Company, but will enable the Company to clear any liabilities, including contingent, relating to the action from the financials of the Company. During the December quarter, SRAL received $0.20 million in funding from SRL for exploration and working capital requirements.

On 6 March 2020, the Company and Ms. Priscilla Bouckaert entered into a settlement deed. The deed contained a confidentiality clause, however the Company stated that the terms of the settlement do not have any negative impact on the financial position of the Company, but will enable the Company to clear any liabilities, including contingent, relating to the action from the financials of the Company. During the March quarter, SRAL received $0.37 million in continuous funding from SRL for exploration and working capital requirements.

On 25 March 2020 SRAL announced details pursuant to the DECA.

On 29 June 2020, SRAL announced it had executed a deed of variation that extends the term of the DECA from 30 June 2020 to 30 September 2020. The extension was granted with a timeframe that allowed SRAL to explore new opportunities for recapitalisation in accordance with the recapitalisation strategy. During the June quarter, SRAL received $0.09 million in funding from SRL for exploration and working capital requirements.

On 24 July 2020, SRAL announced that it would be placed in a trading halt at the request of the Company, pending the release of an announcement. On 28 July 2020, SRAL announced that it would be suspended from trading pending the release of an announcement regarding its recapitalisation process.

As stated elsewhere in this Report, on 12 August 2020, the Company announced it had executed the SPA with Regis for the sale of its Ben Hur project. As part of the agreement, the consideration to SRAL included $10 million in shares of Regis, and the Ben Hur Royalty. The Company also announced the execution of the Amendment Deed.

On 2 September 2020, SRAL announced that the SPA with Regis had completed.

On 10 September 2020, SRAL announced it had planned for changes to its board as outlined above and that it had executed a 12-month retainer with PCF Capital Group as the Company’s corporate advisors. Contemporaneously, the Company also announced the completion of a review of its Mineral Resource Estimate conducted by Auralia Mining Consulting Pty Ltd.

In its audited financial report for the year ended 30 June 2020, the Company disclosed that it had received various applications for forfeitures on several tenements, alleging that the minimum expenditure requirements on these tenements have not been met to date. The Company has since entered into confidential settlement agreements with several applicants, and is confident that all outstanding matters will be resolved.

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5.2 Historical Balance Sheet

Statement of Financial Position	Audited as at Audited as at Audited as at 30-Jun-20 30-Jun-19 30-Jun-18 $ $ $ 50,032 100,708 527,595 35,617 57,889 77,644 25,000 25,000 25,000 11,172,169 - - 16,358 19,426 - - - 33,000 11,299,176 203,023 663,239 720,969 1,083,300 1,505,084 32,018 - - 2,686,636 14,966,010 14,377,233 3,439,623 16,049,310 15,882,317 14,738,799 16,252,333 16,545,556 21,134,121 17,786,108 14,891,532 17,618 - - 36,066,134 34,792,434 33,572,192 111,249 85,410 90,959 3,733,200 - - 61,062,322 52,663,952 48,554,683 15,756 - - 3,583,061 6,974,990 7,322,429 3,598,817 6,974,990 7,322,429 64,661,139 59,638,942 55,877,112 (49,922,340) (43,386,609) (39,331,556) 51,541,309 51,467,992 51,382,186 (101,472,495) (94,854,601) (90,713,742) 8,846 - - (49,922,340) (43,386,609) (39,331,556)
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Other financial assets
Assets held for sale
Other current assets
Inventories
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
Right of use assets
Deferred exploration and evaluation expenditure
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS

CURRENT LIABILITIES
Trade and other payables
Lease liabilities
Borrowings
Provisions
Liabilities held for sale
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Lease liabilities
Provisions
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS / (LIABILITIES)

EQUITY
Issued capital
Accumulated losses
Share based payment reserves
TOTAL EQUITY

Source: SRAL’s audited financial statements for the years ended 30 June 2020, 30 June 2019 and 30 June 2018.

We note that the Company’s auditor issued an unmodified audit report for the years ended 30 June 2018, 30 June 2019 and 30 June 2020, but highlighted the existence of material uncertainty relating to the ability of the Company to continue as a going concern. The financial report for the year ended 30 June 2020 noted the Company’s ability to continue as a going concern was dependent on several factors including the approval of the Proposed Transaction and the continued deferral of loans and accrued interest to SRL and other related party loans.

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Commentary on Historical Statements of Financial Position

Assets held for sale of $11.17 million as at 30 June 2020 reflects SRAL’s North Project. Ben Hur, which formed part of this balance, was subsequently sold to Regis, with completion announced on 2 September 2020.
Deferred evaluation and exploration expenditure decreased from $14.97 million at 30 June 2019 to $2.69 million at 30 June 2020. This decrease was primarily due to the transfer of the Company’s North Project as an asset held for sale as shown below.

Exploration and evaluation expenditure	$
Balance at 30 June 2019	14,966,010
Expenditure incurred	735,739
Expenditure written off	(767,132)
Impairment of Alpha and Beta	(19,810)
Impairment of relinquished tenements	(1,056,002)
Tenements held-for-sale	(11,172,169)
Balance at 30 June 2020	2,686,636

As set out below, current trade and other payables of $21.13 million at 30 June 2020 comprised interest accruals of relating to the Debt, other payables and trade payables.

Trade and other payables	$
Trade payables	206,390
Other payables	839,052
Interest accrued on the Debt	20,088,679
Total	21,134,121

The other payables component includes $491,697 in interest accrued on a related entity loan from Great Cortex International Ltd (‘ Great Cortex ’), which SRAL’s Chairman is a director of.

Borrowings of $36.07 million at 30 June 2020 comprised loans from SRHK, convertible loans from SRHK (together, these form the principal portion of the Debt) and a loan from Great Cortex as shown below.

Borrowings	$
Loans from SRHK	34,936,134
Convertible loans from SRHK	500,000
Loan from related entity (Great Cortex)	630,000
Total	36,066,134

The loans from SRHK are interest bearing at 8.53% per annum and are held at call. Convertible loans from SRHK are interest bearing at 8.53% per annum. The conversion feature on these loans lapsed on 7 November 2013, and it is now held at call with interest remaining unchanged. The $0.63 million loan from Great Cortex will not be disposed of as part of the Proposed Transaction. This loan bears interest at 9.31% per annum and has a grace period of repayment until 30 September 2021.

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Current liabilities held for sale of $3.73 million at 30 June 2020 relate to the provisions for rehabilitation associated with SRAL’s North Project which was classified as an asset held for sale at the time.
Current provisions relate to consolidated employee benefits whereas non-current provisions relate to provisions for rehabilitation. The reduction in the non-current provision balance from $6.97 million as at 30 June 2019 to $3.58 million as at 30 June 2020 is driven by the reclassification of the Company’s North Project as an asset held for sale.

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5.3 Historical Statement of Comprehensive Income

Statement of Comprehensive Income	Audited for the Audited for the Audited for the
	year ended year ended year ended
	30-Jun-20 30-Jun-19 30-Jun-18
	$ $ $
Operations
Other income	364,749 206,276 153,516
Mine site expenses	(554,457) (236,172) (292,704)
Depreciation and amortisation expense	(379,836) (421,784) (498,513)
Impairment expenses	(1,075,812) (17,491) (19,075)
Finance costs	(3,035,368) (2,922,696) (2,831,523)
Other expenses	(1,937,170) (748,992) (1,668,315)
Profit/(Loss) before income tax	(6,617,894) (4,140,859) (5,156,614)
Income tax expense	- - -
Profit/(Loss) attributable to shareholders	(6,617,894) (4,140,859) (5,156,614)
Other comprehensive income	- - -
Total comprehensive loss for the year	(6,617,894) (4,140,859) (5,156,614)

Source: SRAL’s audited financial statements for the years ended 30 June 2020, 30 June 2019 and 30 June 2018

As stated above, we note that the Company’s auditor issued an unmodified audit report for the years ended 30 June 2018, 30 June 2019 and 30 June 2020, but highlighted the existence of material uncertainty relating to the ability of the Company to continue as a going concern. The financial report for the year ended 30 June 2020 noted the Company’s ability to continue as a going concern was dependent on several factors including the approval of the Proposed Transaction and the continued deferral of loans and accrued interest to SRL and other related party loans.

Commentary on Historical Statements of Profit or Loss and Other Comprehensive Income

Other income of $0.36 million for the year ended 30 June 2020 primarily relates to the sale of sundry products and shared service income as set out below.

Other income	$
Sale of sundry product on mine plant	127,610
Shared service income	183,916
Bank interest	590
Gain / (loss) from sale of non-current assets	2,000
Gain on movement in exchange rates on cash held	281
Government grant	50,000
Other	352
Total	364,749

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Mine site expenses of $0.55 million for the year ended 30 June 2020 primarily comprise employee expenses, other site operational expenditure and rehabilitation expenditure as shown below.

Mine site expenses	$
Employee expenses	127,175
Fuel, power and water	5,854
Other site operational expenditure	22,617
Rehabilitation expenditure	398,811
Total	554,457

Impairment expenses totalling $1.08 million for the year ended 30 June 2020 primarily relate to various tenements surrendered over the period.
Finance costs primarily relate to interest accrued on the Debt.
Other expenses of $1.94 million for the year ended 30 June 2020 comprise employee expenses, exploration costs expensed and other administrative costs as set out below.

Other expenses	$
Employee expenses	418,703
Less: allocated to exploration	(84,363)
	334,340
Exploration costs expensed	1,079,134
Auditors’ remuneration	76,164
Share registry and compliance costs	41,397
Legal fees	139,487
General and other administrative costs	266,648
Total	1,937,170

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5.4 Capital Structure

The share structure of SRAL as at 21 September 2020 is outlined below:

	Number
Total ordinary shares on issue	836,053,708
Top 20 shareholders	671,169,080
Top 20 shareholders - % of shares on issue	80.28%

Source: SRAL shareholder registry data as at 21 September 2020

The range of shares held in SRAL as at 21 September 2020 is outlined below:

Range of Shares Held	Number of Ordinary Shareholders	Number of Ordinary Shares	Percentage of Issued Shares (%)
1 - 1,000	152	17,133	0.00%
1,001 - 5,000	238	740,576	0.09%
5,001 - 10,000	238	1,955,181	0.23%
10,001 - 100,000	685	26,381,451	3.16%
100,001 and over	260	806,959,367	96.52%
TOTAL	1,573	836,053,708	100.00%

Source: SRAL shareholder registry data as at 21 September 2020

The ordinary shares held by the most significant shareholders as at 21 September 2020 are outlined below:

Name	Number of Ordinary Shares Held	Percentage of Issued Shares (%)
Stone Resources Limited	418,301,429	50.03%
Ms Sandra Wheeler	38,727,775	4.63%
Mr Yongji Duan	31,449,497	3.76%
Chen Yingliu	30,303,030	3.62%
Subtotal	518,781,731	62.05%
Others	317,271,977	37.95%
Total ordinary shares on Issue	836,053,708	100.00%

Source: SRAL shareholder registry data as at 21 September 2020

The unlisted options on issue as at 21 September 2020 are outlined below:

Current Options on Issue	Number
Options exercisable at $0.01, expiring on 9 April 2023	15,000,000
TOTAL	15,000,000

Source: SRAL Management data as at 21 September 2020

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6. Profile of Stone Resources Limited

6.1 History

SRL engages in the exploration and development of mineral properties, with a focus on gold. SRL was incorporated in 1995, and the company’s head office is located in Hamilton, Bermuda. SRL formerly traded on the TSX Venture Exchange (‘ TSX-V ’) but was delisted in 2014.

SRL’s investment in SRAL first occurred in November 2011 when it acquired a majority interest in SRAL. SRL entered into a subscription agreement to acquire majority control of SRAL, then known as A1 Minerals Limited. SRL subscribed for 89,730,000 shares of A1 Minerals Limited at an issue price of A$0.025 per share, and was issued a convertible note with a face value of A$12 million, convertible into shares at A$0.035 per share.

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7. Economic analysis

As SRAL is based in Australia, we present a brief analysis of the current economic environment in Australia below.

Australia

The Australian economy grew at 2% over 2019. The Reserve Bank of Australia ( ‘RBA’ ) had predicted growth of approximately 2.75% for 2020, based on low interest rates, lower exchange rates, a rise in mining investment, high levels of spending on infrastructure and an expected recovery in residential construction. However, as a result of the COVID-19 outbreak and the Australian bushfires, this momentum has been significantly disrupted.

The COVID-19 pandemic has led to the largest contraction in global economic activity in decades. Labour markets have been severely disrupted, and inflation has declined. However, since May, global economic conditions have begun to recover as containment measures have been relaxed, supported by substantial fiscal and monetary policy easing.

COVID-19 has had a significant impact on the Australian economy and financial system, along with creating considerable volatility in financial markets. Equity prices experienced sharp declines and the yield on government bonds reached historic lows in March 2020. Measures taken by the Australian Government and the RBA have improved stability in equity and bond markets over recent months.

Following the June 2020 quarter, the Australian Bureau of Statistics (‘ ABS ’) announced that Australian GDP fell by 7.0% throughout the quarter, officially placing Australia in recession after a 0.3% fall in GDP throughout the March 2020 quarter. The fall in the rate of economic growth throughout the June 2020 quarter represents the largest fall in quarterly GDP since records began in 1959.

Government Policies

The Government has introduced stimulus measures totalling $320 billion, the first of which was announced on 12 March 2020, when the Federal Government introduced a $17.6 billion stimulus package to provide short-term support to the economy. On 19 March 2020, the RBA announced it would implement further measures including focusing on lowering the cash rate and reducing the 3-year Government bond yield to 0.25%. At its September 2020 meeting, the RBA resolved to maintain the target cash rate at 0.25%.

Further stimulus measures including the $130 billion JobKeeper Payment Scheme and $680 million Homebuilder Program were announced on 30 March and 4 June 2020 respectively.

On 21 July 2020, the Government announced that it would extend the JobKeeper payment until 28 March 2021 and is targeting support to those businesses and not-for-profits that continue to be significantly impacted by COVID-19.

Since the targets were introduced, the RBA has purchased approximately $61 billion worth of Government bonds in the secondary market. The RBA has now scaled back the size and frequency of purchases, as its target yield of 0.25% on the 3-year Government bond has been achieved. However it will continue to monitor the situation and use this as a mechanism to maintain the yield target, which will remain in place until progress is being made towards the goals of full employment and medium-term inflation between 2% and 3%.

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Outlook

There is considerable uncertainty on the near term outlook for the Australian economy, with the outcome depending on the success of efforts to contain COVID-19, as well as the time frame for social distancing measures currently in place. Further outbreaks of the virus and associated restrictions on activity are the key risks to the outlook. For example, the recent second wave of the virus in Victoria and the associated introduction of restrictions on activity are likely to reduce national GDP growth in the September quarter by at least 2 percentage points, relative to the situation if the outbreak had no occurred.

The RBA’s baseline scenario assumes the unemployment rate to rise to almost 10% over the next six months and gradually decline to around 7% after that, and underlying inflation is expected to remain below 2% over the next two years.

While uncertainty exists, the RBA is predicting that the downturn will be less than earlier predicted, with the rate of infections declining, and some restrictions being eased earlier than previously suggested, resulting in the RBA amending its -8% GDP growth to -6% for the year ended 30 June 2020. There has been an increase in retail spending in response to the easing of restrictions, however the second wave in Victoria has placed further uncertainty on the economy’s recovery.

Economic Indicators

At its August 2020 board meeting, the RBA considered a range of scenarios due to the current economic uncertainty. In its baseline scenario it forecast that output would fall by 6% in the first half of 2020 and by 6% over the year as a whole. Once COVID-19 is contained, the RBA expects the Australian economy to recover and return to an improving trend, with output growth of 5% and 4% expected for 2021 and 2022 respectively.

Consumer Price Index ( ‘CPI’ ) inflation declined by 2.0% in the June 2020 quarter and 0.3% over the year. This is below the RBA’s mid-term target of 2% to 3%. As anticipated, the fall in CPI was due to unusually large temporary declines in a few price series. As a result, the June quarter saw the first decline in yearended CPI inflation since the early 1960s and the largest quarterly decline since 1931. A number of government policies announced in response to COVID-19 affected consumer prices significantly in the June quarter, most notably the introduction of free child care services. The government subsidy, which also covered before and after school services, led to a 95% decline in child care prices in the June quarter. In addition, pre-school fees were waived for term two in New South Wales, Victoria and Queensland. Together, these policies subtracted 1.2 percentage points from headline inflation in the June quarter. Consequently, inflation will rebound in the second half of 2020 as these subsidies are progressively removed.

The COVID-19 outbreak has severely affected the labour market. The unemployment rate increased to 7.4% in August 2020, up from 6.2% in late June 2020 and 5.3% in January 2020. Employment fell by around 870,000 people over April and May. Some of these job losses have since been recovered as restrictions have been lifted and activity has picked up, but employment remains around 5% lower than in mid-March. The Australian Government’s JobKeeper program introduced in March is currently subsidising 3.5 million jobs. In the absence of this program, employment would have declined much further.

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After depreciating significantly during the height of the market turmoil in March, the Australian dollar has since appreciated to trade marginally above its level at the start of the year. This appreciation is in line with the currencies of a range of other advanced economies against the backdrop of a broad-based depreciation of the Unites States dollar over recent months.

Source: www.rba.gov.au Statement by Phillip Lowe, Governor: Monetary Policy Decision 1 September 2020 , www.abs.gov.au Economic Activity, Consumer Price Index March August 2020.

8. Industry analysis

SRAL operates primarily in the gold industry through its flagship Brightstar project. As such, we have presented an industry analysis on the gold and gold ore mining industry below.

8.1 Gold

Gold is a soft malleable metal which is highly desirable due to its rarity, permanence, and unique mineral properties. Gold has been used in jewellery and as a form of currency for thousands of years, however in more recent history there has been increasing demand for its use in the manufacture of electronics, dentistry, medicine and aerospace technology.

In addition to its practical applications, gold also serves as an international store of monetary value. Gold is widely regarded as a monetary asset as it is considered less volatile than world currencies and therefore provides a safe haven investment during periods of economic uncertainty.

Once mined, gold continues to exist indefinitely and is often melted down and recycled to produce alternative or replacement products. Consequently, demand for gold is supported by both gold ore mining and gold recycling. A summary of the recent historical supply of gold is provided in the table below:

Gold supply (tonnes)	2012	2013	2014	2015	2016	2017	2018	2019	H1'20
Mine production	2,940	3,128	3,242	3,336	3,460	3,494	3,556	3,531	1,604
Net producer hedging	(45)	(28)	105	13	38	(26)	(12)	(1)	18
Recycled gold	1,659	1,231	1,170	1,103	1,264	1,140	1,160	1,296	570
Total supply	4,553	4,331	4,517	4,453	4,761	4,608	4,703	4,826	2,192

Source : World Gold Council Quarter 2 2020 Statistics, 30 July 2020

Historically, the price of gold is negatively correlated to the prices of other asset classes during times of uncertainty and financial crises. Due to the recent coronavirus outbreak sparking uncertainty, the price of gold has rallied as investors demand the high liquidity that gold provides. The recent increase in the price of gold has positively impacted the gold industry, and will continue to do so if economic uncertainty prevails.

The World Gold Council expects that the interplay between financial uncertainty, lower interest rates, weakening in global economic growth and gold price volatility will continue to drive gold demand in 2020.

The gold ore mining industry has performed steadily in recent years, with growth driven by price increases and slow economic growth. However, gold mine production was 1.3% lower than in 2018, the first annual decline in production since 2008. This decline can be mainly attributed to China’s fall in mine output by 6% due to strict environmental restrictions that have come into force in recent years.

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Key external drivers

Global gold prices have a significant impact on the revenue generated by industry operators. When gold prices are low, gold miners are less likely to commit to projects with lower gold grades and higher production costs. Ultimately, a decline in gold prices reduces the viability of new and existing projects, which hinders industry growth.

The global gold price is denominated in US dollars and therefore, the exchange rate directly affects the returns received by local industry operators. A weaker Australian Dollar benefits the domestic industry by reducing prices in export markets and pushing up domestic prices, likely resulting in higher volumes.

Global demand for gold is also inversely related to global economic performance. As gold is regarded as a store of value and is particularly sought after during periods of economic uncertainty, demand follows a counter cyclical pattern. Strong global GDP growth can therefore have a negative impact on gold demand and the industry. The recent rally in gold prices, which saw it reach a historical high during early August 2020, is a reflection of ongoing easing of global monetary policies, continued geopolitical uncertainty, and more recently the outbreak of COVID-19.

Gold ore mining trends

Gold ore mining is a capital intensive and high cost process, which is becoming increasingly difficult and more expensive as the quality of ore reserves diminishes. The industry also incurs many indirect costs related to exploration, royalties, overheads, marketing and native title law. Typically, many of these costs are fixed in the short term as a result of industry operators’ inability to significantly alter cost structures once a mine commences production.

Until the late 1980s, South Africa produced approximately half of the total gold ore mined globally. More recently however, the industry has diversified geographically and China and Australia now dominate global gold production. According to the United States Geological Survey, total estimated global gold ore mined for 2019 was approximately 3,287 metric tonnes. The chart below illustrates the estimated global gold production by country for 2019.

Global Production by Country (2019)

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3% [3%] [2%]
2%
3%
24%
3%
3%
4%
4%
5%
13%
5%
6%
9%
10%
----- End of picture text -----

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----- Start of picture text -----

Rest of World
China
Australia
Russia
United States
Canada
Indonesia
Peru
Ghana
----- End of picture text -----

Source: 2020 United States Geological Survey and BDO analysis

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Despite China leading global gold production in 2019, Australia, South Africa and Russia hold the largest known gold reserves globally. As depicted below, the United States Geological Survey estimates that collectively these three countries account for approximately 37% of global gold reserves.

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----- Start of picture text -----

2% Global Reserves by Country (2019)
3% [2%] [2%]
Rest of World
3% 20%
4% Australia
4% South Africa
4% Russia
United States
5%
Peru
5% 20% Indonesia
4% Brazil
6% Canada
6%
11% China
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Source : 2020 United States Geological Survey and BDO analysis.

According to the 2020 United States Geological Survey, Australia’s gold reserves amount to 10,000 tonnes, representing 20% of global reserves and the largest percentage held by any one country. IBIS World estimates domestic industry revenue to grow by an annualised 0.8% over the five year period through to 2022-23, reaching approximately $18.8 billion. However, rising production costs due to lower ore quality and higher transportation costs are anticipated to reduce industry profitability over the period.

Gold prices

The price of gold peaked at US$1,900 on 5 September 2011, due largely to the debt market crisis in Europe and the Standard and Poor’s downgrade of the US credit rating. Global stock markets subsequently went into turmoil, which saw investors opt for the stability offered by gold.

The price of gold fluctuated around US$1,700 during 2012 before entering a steep decline in 2013. The downturn represented the beginning of a correction in the price of gold, which had almost tripled in the two-year period prior to the European crisis in 2011. Improved market sentiment and increased risk appetite from investors saw gold prices continue to decline throughout 2014 and 2015 to US$1,051 in December 2015.

During 2016, gold prices strengthened, likely as a result of heightened uncertainty surrounding the US Presidential election and the United Kingdom’s exit from the European Union. The price of gold reached US$1,363 in late 2016 before stabilising around US$1,200 to US$1,300 throughout 2017.

The gold price fluctuated throughout 2018. In January 2018, the gold price strengthened, rising to approximately US$1,360, spurred on by a weak US dollar. From April 2018 through to August 2018, the price of gold trended downwards. Prices remained flat through August and September of 2018, before increasing in October and November of 2018.

The price of gold declined to US$1,270 in May 2019, before rallying past US$1,500 to reach a six year high. Demand for gold was primarily driven by investors looking to avoid US-China trade war uncertainties,

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while civil unrest in Hong Kong further spurred investors to abandon riskier asset classes for safe haven assets. The gold price continued to remain around US$1,500 throughout October 2019, although it dipped slightly to US$1,465 in mid-November 2019.

Gold prices have fluctuated significantly throughout 2020 to date. Demand for gold increased in response to the uncertainty created by the global spread of COVID-19, as investors prioritised safe haven assets. In late March 2020, the increasing demand for gold was interrupted by a panic selloff as investors began to realise their profits amidst the growing uncertainty caused by the crisis. Gold spot prices fell to a yearly low of US$1,471, before rallying. Throughout May and June 2020, prices remained elevated around US$1,700.

Through early July 2020, gold prices steadily increased to above the US$1,800 level, before spiking in late July and early August to exceed US$2,000. The COVID-19 crisis remains the primary driver of the gold price, as central banks continue to inject trillions of dollars into financial markets, and investors further prioritise safe haven assets. Additionally, the availability of cheap money through low global interest rates is further spurring investment. Gold prices reached a record high of approximately US$2,064 on 6 August 2020, before declining slightly below the US$2,000 mark.

According to Consensus Economics forecasts, the price of gold will continue to remain elevated in the medium term, albeit not at its current record high levels due to the uncertainty created by the spread of COVID-19 sustaining the demand for gold. Future price movements are expected to depend on the duration and severity of the crisis, and its impact on government policies globally.

The gold spot price since 2010 and forecast prices through to 2029 are depicted in the graph below.

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Gold Spot and Forecast Price
2,500
2,000
1,500
1,000
500
0
Historicals Forecast
US$/oz
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Source : Bloomberg and Consensus Economics

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9. Valuation approach adopted

There are a number of methodologies which can be used to value a business or the shares in a company. The principal methodologies which can be used are as follows:

Capitalisation of future maintainable earnings (‘ FME ’)
Discounted cash flow (‘ DCF ’)
Quoted market price basis (‘ QMP ’)
Net asset value (‘ NAV ’)
Market based assessment

A summary of each of these methodologies is outlined in Appendix 2.

Valuation of SRAL prior to the Proposed Transaction

Different methodologies are appropriate in valuing particular companies, based on the individual circumstances of that company and available information. In our valuation of an SRAL share prior to the Proposed Transaction, we have chosen to employ:

NAV on a going concern basis as our primary valuation methodology. The value derived from this methodology reflects a control value, and as such we have applied a minority interest discount to this value; and
QMP as our secondary methodology as this represents the value that a Shareholder can receive for a share if sold on the market. The value derived from this methodology reflects a minority interest.

We have chosen these methodologies for the following reasons:

SRAL’s mineral assets do not currently generate any income nor are there any historical profits that could be used to represent future earnings. Therefore the FME approach is not appropriate;
SRAL currently has no foreseeable future net cash inflows, so the application of the DCF valuation approach is not appropriate;
Consequently, we have adopted the NAV approach as our primary valuation method. SRAL’s mineral assets are currently not producing and do not generate revenues or cash flows in their current state. Therefore, we consider that the NAV approach is best suited for the valuation;
The core value of SRAL lies in its mineral assets. We have commissioned Value and Resource Management Pty Ltd (‘ VRM ’) to provide an independent market valuation of SRAL’s mineral assets which we have incorporated into our NAV approach; and
We have adopted QMP as our secondary approach. The QMP basis is a relevant methodology to consider because SRAL’s shares are listed on the ASX. This means there is a regulated and observable market where SRAL’s shares can be traded. However, in order for the QMP methodology to be considered appropriate, the listed shares should be liquid and the market should be fully informed of the Company’s activities.

Valuation of SRAL following the Proposed Transaction

In our valuation of a SRAL share following the Proposed Transaction, we have used the NAV methodology for the reasons set out above. We use our valuation prior to the Proposed Transaction as a starting point and outline the various components of the Proposed Transaction and their impact on SRAL’s net assets. Then, we apply a minority interest discount to the assessed NAV value following the Proposed Transaction.

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Technical Expert

In performing our valuation of SRAL, we have relied on VRM’s valuation of the Company’s mineral assets and exploration properties, as well as VRM’s valuation of the Ben Hur Royalty and the SRHK Royalty on SRAL’s retained tenements. Details on VRM’s valuation are included in its Independent Technical Assessment and Valuation Report, contained in Appendix 4.

VRM’s Independent Technical Assessment and Valuation Report has been prepared in accordance with the Australasian Code for Public Reporting of Technical Assessments and Valuation of Mineral Assets (2015 Edition) (‘the Valmin Code’ ) and the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (2012 Edition) ( ‘JORC Code’ ). We are satisfied with the valuation methodologies adopted by VRM, which we believe are in accordance with industry practices and compliant with the requirements of the Valmin Code. The specific valuation methodologies used by VRM are referred to in the respective sections of Our Report and in further detail in the Independent Technical Assessment and Valuation Report contained in Appendix 4.

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10. Valuation of SRAL prior to the Proposed Transaction

We have assessed the value of SRAL prior to the Proposed Transaction using the NAV and QMP methodology as our primary and secondary valuation methodology respectively. Our analysis is set out below, followed by our conclusion on the value of SRAL prior to the Proposed Transaction.

10.1 Net Asset Valuation of SRAL

The value of SRAL’s assets on a going concern basis is reflected in our valuation below:

Net Asset Valuation prior to the Proposed Transaction Note	Audited as at Low High
	30-Jun-20 value value
	$ $ $
CURRENT ASSETS
Cash and cash equivalents a	50,032 76,641 76,641
Trade and other receivables	35,617 35,617 35,617
Other financial assets b	25,000 10,125,000 10,325,000
Assets held for sale c	11,172,169 - -
Other current assets	16,358 16,358 16,358
TOTAL CURRENT ASSETS	11,299,176 10,253,616 10,453,616
NON-CURRENT ASSETS
Property, plant and equipment	720,969 720,969 720,969
Right of use assets	32,018 32,018 32,018
Deferred exploration and evaluation expenditure d	2,686,636 12,500,000 18,800,000
TOTAL NON-CURRENT ASSETS	3,439,623 13,252,987 19,552,987
TOTAL ASSETS	14,738,799 23,506,603 30,006,603

CURRENT LIABILITIES
Trade and other payables e	21,134,121 21,577,736 21,577,736
Lease liabilities	17,618 17,618 17,618
Borrowings f	36,066,134 36,329,509 36,329,509
Provisions	111,249 111,249 111,249
Liabilities held for sale c	3,733,200 - -
TOTAL CURRENT LIABILITIES	61,062,322 58,036,112 58,036,112
NON-CURRENT LIABILITIES
Lease liabilities	15,756 15,756 15,756
Provisions g	3,583,061 - -
TOTAL NON-CURRENT LIABILITIES	3,598,817 15,756 15,756
TOTAL LIABILITIES	64,661,139 58,051,868 58,051,868
NET ASSETS / (LIABILITIES)	(49,922,340) (34,545,265) (28,045,265)
Shares on issue (number)	836,053,708
Value per share ($) (control basis)	($0.041) ($0.034)

Source: BDO analysis

We have been advised that, other than as set out below, there has not been a significant change in the net assets of SRAL since 30 June 2020. The table above indicates that, based on the 836,053,708 shares on issue as at 21 September 2020, the net asset value of an SRAL share is between negative $0.041 and negative $0.034 per share, which represents an effective value of $nil.

We note that this NAV value implies control. The value of an SRAL share prior to the Proposed Transaction on a minority interest basis is calculated at the end of this section.

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The following adjustments were made to the net assets of SRAL as at 30 June 2020 in arriving at our valuation.

Note a) Cash and cash equivalents

We have adjusted the cash and cash equivalents balance at 30 June 2020 to the balance at 31 August 2020, which we have verified by obtaining the Company’s bank statements.

Note b) Other financial assets

The balance of other financial assets has been adjusted to reflect the $10 million in Regis shares and the Ben Hur Royalty received from the sale of Ben Hur under the SPA with Regis. We have assumed that the Regis shares received from the SPA with Regis do not materially change in value from when they are received. The Ben Hur Royalty has been valued by VRM with further details of its valuation detailed in VRM’s report (attached as Appendix 4).

Other financial assets	Low $	High $
Closing balance as at 30 June 2020	25,000	25,000
Add: Regis shares from SPA with Regis	10,000,000	10,000,000
Add: Ben Hur Royalty	100,000	300,000
Total	10,125,000	10,325,000

Note c) Assets held for sale and its associated liabilities

The assets held for sale balance of $11,172,169 per the Company’s audited accounts as at 30 June 2020 relates to the North Project. The rehabilitation provision associated with the North Project tenements amounted to $3,733,200 as at 30 June 2020.

Ben Hur, which formed part of the assets held for sale balance (and associated liabilities), was sold to Regis subsequent to 30 June 2020 with completion announced on 2 September 2020. The remaining tenements held by SRAL following this sale are valued separately by VRM below, hence we have adjusted the assets held for sale balance to nil. We have also adjusted the rehabilitation provisions associated with the retained tenements to nil as VRM’s valuation already incorporates these provisions.

Note d) Valuation of SRAL’s mineral assets (excluding SRHK Royalty)

We instructed VRM to provide an independent market valuation of the exploration assets held by SRAL. VRM considered a number of different valuation methods when valuing the exploration assets of SRAL. VRM valued SRAL’s retained tenements following the SPA with Regis using a comparable transaction method, the geoscientific or Kilburn method and a yardstick valuation based on the remaining resources.

VRM’s valuation accounts for the value of the rehabilitation liability associated with these mineral assets. Further details of VRM’s valuation assumptions and methodologies are set out in its report attached as Appendix 4.

The range of values for SRAL’s retained mineral assets (excluding the impact of the SRHK Royalty) as calculated by VRM is summarised below:

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SRAL’s retained tenements (excluding SRHK	Low Value	Preferred Value	High Value
Royalty)	$	$	$
Total assessed valuation	12,500,000	15,700,000	18,800,000

Source: Independent Technical Assessment and Valuation Report by VRM

Note e) Trade and other payables

We have adjusted the trade and other payables balance to reflect the balance per the management accounts as at 31 August 2020. The increase primarily results from additional interest accrued on the Debt.

	Balance as at	Balance as at
Trade and other payables	30-Jun-20	31-Aug-20
	$	$
Trade payables	206,390	346,193
Other payables	839,051	616,168
Interest accrued on the Debt	20,088,679	20,615,374
Total	21,134,121	21,577,736

Note f) Borrowings

We also adjusted the borrowings balance to reflect the balance per the management accounts as at 31 August 2020. The increase is a result of additional funds extended to the Company via the Debt facility.

	Balance as at	Balance as at
Trade and other payables	30-Jun-20	31-Aug-20
	$	$
Loan from SRHK	34,936,134	35,199,509
Convertible loan from SRHK	500,000	500,000
Loan from related entity (Great Cortex)	630,000	630,000
Total	36,066,134	36,329,509

Note g) Non-current provisions

Non-current provisions relate to rehabilitation provisions for SRAL’s mineral assets, the value of which is already accounted for in VRM’s valuation of its mineral assets above.

NAV including minority discount

A minority interest is an interest in a company that is not significant enough for the holder to have an individual influence in the operations and value of that company. The NAV price per share reflects the value of a controlling interest in the Company. In order to value an SRAL share on a minority interest basis, we have applied a minority discount based on the analysis set out in Appendix 3. Our analysis identified an appropriate discount for minority interest to be in the range from 23% to 29%.

However, given that the assessed value per share is negative as indicated in the table above, the value of an SRAL share prior to the Proposed Transaction and on a minority interest basis is effectively $nil.

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10.2 Quoted Market Prices for SRAL’s Securities

To provide a comparison to the NAV-based valuation of SRAL in Section 10.1, we have also assessed the quoted market price for an SRAL share.

The quoted market value of a company’s shares is reflective of a minority interest.

Our analysis of the quoted market price of an SRAL share is based on the pricing prior to the announcement of the Proposed Transaction. This is because the value of an SRAL share after the announcement may include the effects of any change in value as a result of the Proposed Transaction.

As the below graph shows, the DECA was first announced to the market on 25 March 2020, however it was then later revised via the Amendment Deed as announced on 12 August 2020.

SRAL share price and trading volume history

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0.040 30.0
0.035
25.0
0.030
Announcement of the Amendment Deed 20.0
0.025
0.020 15.0
Announcement of the initial DECA
0.015
10.0
0.010
5.0
0.005
0.000 -
Volume Closing share price
Share Price ($) Volume (millions)
----- End of picture text -----

Source : Bloomberg

Therefore, we have performed our analysis of the quoted market price:

Over the 12 months to 24 March 2020 (being the last trading day prior to the initial DECA announcement); and
For the period from the initial DECA announcement up to the announcement of the Amendment Deed (being 24 July 2020, the last trading day prior to the announcement of the Amendment Deed).

QMP analysis for the 12 months to 24 March 2020

The following chart provides a summary of the share price movement over the 12 months to 24 March 2020 which was the last trading day prior to the initial announcement of the DECA.

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SRAL share price and trading volume history
0.0035 2.5
0.0030
2.0
0.0025
1.5
0.0020
0.0015
1.0
0.0010
0.5
0.0005
0.0000 -
Volume Closing share price
Share Price ($) Volume (millions)
----- End of picture text -----

Source: Bloomberg

The daily price of SRAL shares from 25 March 2019 to 24 March 2020 has ranged from a low of $0.001, the closing price for 53% of the trading days analysed, to a high of $0.003 achieved between 28 March 2019 and 3 April 2019. The daily volume of shares traded fluctuated largely over the year. The highest single day of trading over the assessed period was 5 December 2019, when 2.0 million shares were traded. Over the assessed period SRAL shares were highly illiquid, as demonstrated by trades occurring on only 24% of the trading days analysed.

During this period a number of announcements were made to the market. The key announcements are set out below:

Date	Announcement	Closing Share Price Following Announcement Closing Share Price Three Days After Announcement $ (movement) $ (movement)	Closing Share Price Following Announcement Closing Share Price Three Days After Announcement $ (movement) $ (movement)
19/03/2020	Suspension from Official Quotation	0.001  0.0% 0.001 	0.0%
16/03/2020	Trading Halt	0.001  0.0% 0.001 	0.0%
6/03/2020	February 2020 Cashflow Report	0.001  0.0% 0.001 	0.0%
14/02/2020	Response to ASX Appendix 5B Query Letter	0.001  0.0% 0.002 	100.0%
7/02/2020	January 2020 Cashflow Report	0.001  0.0% 0.001 	0.0%
31/01/2020	Quarterly Cashflow Report	0.001  0.0% 0.001 	0.0%
31/01/2020	Quarterly Activities Report	0.001  0.0% 0.001 	0.0%
7/01/2020	December 2019 Cashflow Report	0.002  0.0% 0.001 	50.0%
6/12/2019	November 2019 Cashflow Report	0.001  0.0% 0.001 	0.0%
3/12/2019	Response to ASX Appendix 5B Query	0.001  0.0% 0.001 	0.0%
7/11/2019	October 2019 Cashflow Report	0.002  0.0% 0.002 	0.0%
23/10/2019	Quarterly Cashflow Report	0.001  0.0% 0.001 	0.0%

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Date	Announcement	Closing Share Price Following Announcement Closing Share Price Three Days After Announcement	Closing Share Price Following Announcement Closing Share Price Three Days After Announcement	Closing Share Price Following Announcement Closing Share Price Three Days After Announcement	Closing Share Price Following Announcement Closing Share Price Three Days After Announcement
		$ (movement) $ (movement)
23/10/2019	Quarterly Activities Report	0.001  0.0%	0.001		0.0%
4/10/2019	September 2019 Cashflow Report	0.001  0.0%	0.001		0.0%
6/09/2019	August 2019 Cashflow Report	0.001  0.0%	0.001		0.0%
7/08/2019	July 2019 Cashflow Report	0.001  0.0%	0.001		0.0%
5/08/2019	Response to ASX Appendix 5B Query	0.001  0.0%	0.001		0.0%
31/07/2019	Quarterly Cashflow Report	0.001  50.0%	0.001		0.0%
31/07/2019	Quarterly Activities Report	0.001  50.0%	0.001		0.0%
5/07/2019	June 2019 Cashflow Report	0.002  0.0%	0.001		50.0%
6/06/2019	May 2019 Cashflow Report	0.002  0.0%	0.002		0.0%
7/05/2019	April 2019 Cashflow Report	0.002  0.0%	0.002		0.0%
30/04/2019	Quarterly Cashflow Report	0.002  0.0%	0.002		0.0%
30/04/2019	Quarterly Activities Report	0.002  0.0%	0.002		0.0%
4/04/2019	March 2019 Cashflow Report	0.002  33.0%	0.002		0.0%
27/03/2019	Due-Diligence Drilling Proves Positive at Ben Hur	0.002  0.0%	0.003		50.0%

Source : Bloomberg, BDO analysis

On 27 March 2019, SRAL released results from its due diligence drilling at Ben Hur, indicating significant high-grade intersections. On the date of the announcement, SRAL’s share price remained unchanged at $0.002, before increasing by 50% over the subsequent three day trading period to close at $0.003.

On 4 April 2019, SRAL released its March 2019 monthly cash flow report, displaying a closing cash balance of $91,000, with cash flows increasing by $9,000 as a result of net financing cash inflows. On the date of the announcement, SRAL’s share price decreased by 33%, to close at $0.002, and remained unchanged over the subsequent three day trading period.

On 5 July 2019, SRAL released its June 2019 monthly cash flow report, displaying a closing cash balance of $132,000, with cash flows decreasing by $4,000 due to net operating cash outflows. On the date of the announcement, SRAL’s share price remained unchanged at $0.002, before halving over the subsequent three day trading period to close at $0.001.

On 31 July 2019, SRAL released its June 2019 quarterly cash flow and activities reports, which detailed the engagement of Southern Geoscience Consultants Pty Ltd to carry out a comprehensive interpretation of magnetic and radiometric data. The Company also stated that they were in the process of defending themselves against applications for forfeiture and objections to applications for exemption. On the date of the announcement, SRAL’s share price decreased by 50% to close at $0.001, and remained unchanged over the subsequent three day trading period.

On 7 January 2020, SRAL released its December 2020 monthly cash flow report, displaying a closing cash balance of $76,000, with cash flows decreasing by $17,000 due to net operating cash outflows. On the date of the announcement, SRAL’s share price remained unchanged at $0.002, before decreasing by 50% over the subsequent three day trading period to close at $0.001.

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On 14 February 2020, SRAL released a response to an ASX Appendix 5B query, outlining the reduction in costs to meet business objectives. Additionally, the Company announced it expected to suffer negative operating cash flows in the future, but anticipates that SRL will provide adequate financial support. On the date of the announcement, SRAL’s share price remained unchanged at $0.001, before doubling over the subsequent three day trading period to close at $0.002.

To provide further analysis of the market prices for an SRAL share, we have also considered the weighted average market price for 10, 30, 60 and 90 day periods to 24 March 2020.

	24-Mar-20	10 Days	30 Days	60 Days	90 Days
Closing price	$0.001
Volume weighted average price (VWAP)		$0.001	$0.001	$0.002	$0.001

Source: Bloomberg, BDO analysis

The above weighted average prices are prior to the date of the announcement of the Proposed Transaction, to avoid the influence of any increase in price of SRAL shares that has occurred since the Proposed Transaction was announced.

An analysis of the volume of trading in SRAL shares for the twelve months to 24 March 2020 is set out below:

Trading days	Share price	Share price	Cumulative volume	As a % of
	low	high	traded	Issued capital
1 Day	$0.001	$0.001	-	-
10 Days	$0.001	$0.001	17,000	0.00%
30 Days	$0.001	$0.002	1,539,793	0.18%
60 Days	$0.001	$0.002	2,849,956	0.34%
90 Days	$0.001	$0.002	5,955,403	0.71%
180 Days	$0.001	$0.002	8,682,826	1.04%
1 Year	$0.001	$0.003	15,402,824	1.84%

Source: Bloomberg, BDO analysis

This table indicates that SRAL shares display a low level of liquidity, with 0.18% of the Company’s issued capital traded over the 30 day trading period prior to the announcement of the Proposed Transaction. RG 111.69 states that for the quoted market price methodology to be an appropriate methodology there needs to be a ‘liquid and active’ market in the shares and allowing for the fact that the quoted price may not reflect their value should 100% of the securities not be available for sale. We consider the following characteristics to be representative of a liquid and active market:

Regular trading in a company’s securities;
Approximately 1% of a company’s securities are traded on a weekly basis;
The spread of a company’s shares must not be so great that a single minority trade can significantly affect the market capitalisation of a company; and
There are no significant but unexplained movements in share price.

A company’s shares should meet all of the above criteria to be considered ‘liquid and active’, however, failure of a company’s securities to exhibit all of the above characteristics does not necessarily mean that the value of its shares cannot be considered relevant.

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In the case of SRAL, we consider the shares to display a very low level of liquidity. On average, less than 1% of SRAL’s issued capital was traded per week, with only 1.04% of the Company’s issued capital prior to the announcement, being traded in the 180 days prior. Over the assessed period, the Company’s shares were not traded on a regular basis with 76% of trading days seeing no trades occur.

Our assessment is that a range of values for SRAL shares based on market pricing up to 24 March 2020, is in a range from $0.001 and $0.002 per share.

Our usual approach is to exclude post-announcement pricing in order to remove the effects of the Proposed Transaction on the share price, however in this case we have also considered the post-announcement pricing in our assessment of the quoted market price value of an SRAL share as a considerable amount of time has elapsed since information about the Proposed Transaction was announced, therefore the impact of the Proposed Transaction on the share price is significantly diminished.

QMP analysis for the 4 months to 23 July 2020

We have analysed movements in SRAL’s share price since information regarding the Proposed Transaction was first announced on 24 March 2020, up to 23 July 2020. This date was the last trading day prior to the announcement of the Amendment Deed and the announcement of the SPA with Regis. A graph of the Company’s share price and trade volume over this period is set out below.

SRAL share price and trading volume history

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----- Start of picture text -----

0.008 6.0
0.007
Announcement of the Proposed 5.0
0.006 Transaction
4.0
0.005
0.004 3.0
0.003
2.0
0.002
1.0
0.001
0.000 -
Volume Closing share price
Volume (millions)
Share Price ($)
----- End of picture text -----

Source: Bloomberg

Over the period following the announcement of the Proposed Transaction, the Company has made several announcements, as outlined below.

On 7 April 2020, SRAL released its March 2020 monthly cash flow report, displaying a closing cash balance of $161,000, with cash flows decreasing by $15,000 as a result of net operating cash outflows. On the date of the announcement SRAL’s share price remained unchanged at $0.003, before increasing by 33% over the subsequent three day trading period to close at $0.004.

On 9 April 2020, SRAL released an Appendix 3G regarding the issue of 15,000,000 options to the corporate advisor of the Company as consideration for services rendered. The options have an exercise price of $0.01 and expire three years from the date of issue. On the date of the announcement, SRAL’s share price

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increased by 33% to close at $0.004, before increasing a further 25% over the subsequent three day trading period to close at $0.005.

On 17 April 2020, SRAL released its March 2020 quarterly activities and cash flow reports, which detailed the DECA that was entered into during the period. On the date of the announcements, SRAL’s share price increased by 20% to close at $0.006, and remained unchanged over the subsequent three day trading period to close at $0.006.

On 5 June 2020, SRAL released its May 2020 monthly cash flow report, displaying a closing cash balance of $126,000, with cash flows decreasing by $97,000 as a result of net operating cash outflows. On the date of the announcement, SRAL’s share price remained unchanged at $0.004, before increasing by 25% over the subsequent three day trading period to close at $0.005.

On 29 June 2020, SRAL released a deed of variation that extended the term of the DECA, allowing the Company a timeframe to explore new opportunities for its recapitalisation strategy. On the date of the announcement, SRAL’s share price decreased by 25% to close at $0.003, and remained unchanged over the subsequent three day trading period to close at $0.003.

To provide further analysis of the market prices for a SRAL share following the announcement of the Proposed Transaction, we have also considered the weighted average market price for 10, 30, and 60 day periods to 23 July 2020.

	23-Jul-20	10 Days	30 Days	60 Days
Closing price	$0.004
Volume weighted average price (VWAP)		$0.004	$0.004	$0.004

Source: Bloomberg, BDO analysis

An analysis of the volume of trading in SRAL shares for this post-announcement period up to 23 July 2020 is also set out below:

Trading days	Share price	Share price	Cumulative volume	As a % of
	low	high	traded	Issued capital
1 Day	$0.004	$0.004	-	0.00%
10 Days	$0.004	$0.004	137,500	0.02%
30 Days	$0.003	$0.005	6,928,140	0.83%
60 Days	$0.003	$0.007	20,856,815	2.49%

Source: Bloomberg, BDO analysis

Consistent with the period prior to the announcement of the Proposed Transaction, the above table shows that SRAL shares continued to display a low level of liquidity over the post-announcement period as well. Our assessment for the market value of SRAL shares based on the post-announcement market pricing up to 23 July 2020, is in a range from $0.003 and $0.005 per share.

The table below shows the quoted market prices based on pre and post announcement pricing. On the basis of this analysis we have assessed the quoted market price valuation of an SRAL share to be between $0.002 and $0.004 per share.

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	Low	High
	$	$
Quoted market price value (prior to initial DECA announcement)	$0.001	$0.002
Quoted market price value (following initial DECA announcement but prior to the announcement of the Amendment Deed)	$0.003	$0.005
Assessed quoted market price	$0.002	$0.004

Source: BDO analysis

We note that following 23 July 2020, the Company’s shares entered into a trading halt followed by a voluntary suspension before resuming trade on 12 August 2020 when it announced it had executed the SPA with Regis. SRAL’s share price materially increased following the 12 August 2020 announcement, rising to $0.012 on the day and reaching a high of $0.038 on 25 August 2020 before moderating to trade between the $0.020 and $0.030 level. Trading in SRAL’s shares, as measured by daily volume, also increased significantly during this period. This could indicate investor’s anticipation of a successful asset sale, as well as the market’s increased appetite for gold mining companies which was being driven by the uncertainty caused by COVID-19.

Following the completion of the asset sale to Regis as announced on 3 September 2020, SRAL’s shares have continued to trade between $0.020 and $0.030. We have elected not to include the period following 23 July 2020 in our assessment of SRAL’s value prior to the Proposed Transaction, as it includes the impact of the asset sale to Regis, and as a result, incorporates investors’ expectations that the Proposed Transaction would complete.

We have further addressed the movement in SRAL’s share price subsequent to 23 July 2020 in our assessment of reasonableness in Section 13.

10.3 Assessment of SRAL’s Value prior to the Proposed Transaction

The results of the valuations performed are summarised in the table below. These values are on a minority interest basis:

	Low	High
	$	$
Net assets value including a minority discount (Section 10.1)	Nil	Nil
ASX market prices (Section 10.2)	0.002	0.004

Source: BDO analysis

We have chosen to rely solely on the NAV for the purposes of determining our range for the following reasons:

The core value of SRAL lies in the mineral assets that it holds and we have commissioned VRM, an independent technical specialist to value these assets;
As detailed in Section 10.2, based on the pre-announcement and the post-announcement trading data, SRAL shares were thinly traded up to the announcement of the Proposed Transaction. We do not consider there to be a liquid and active market for SRAL’s shares and have therefore concluded that it would not be appropriate to rely on the QMP in forming our valuation range.

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The value of an SRAL share under the QMP approach could be greater than the NAV-derived valuation for the following reasons:

Our QMP assessment was performed over a period when SRAL shares were illiquid, therefore the Company’s share price may not reflect the underlying value of the Company; and
The market may have ascribed a higher value to SRAL’s mineral assets compared to the valuation attributed by VRM. This could be due to more optimistic assumptions such as assigning greater exploration potential to SRAL’s mineral assets. Furthermore, as a result of the uncertainty created by COVID-19, investors may also be attracted to investments in the gold mining industry as a whole.

Based on the analysis above we consider the value of an SRAL share prior to the Proposed Transaction to be $nil.

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11. Valuation of SRAL following the Proposed Transaction

We have assessed the value of SRAL following the Proposed Transaction using the NAV methodology. Our analysis is set out in below.

11.1 Net Asset Valuation of SRAL following the Proposed Transaction

Starting from our NAV valuation of SRAL prior to the Proposed Transaction, we then reflect the impact of the Proposed Transaction on the Company’s net assets. This is shown in the table and accompanying notes below.

NAV valuation following the Proposed Transaction Note	Low High
	value value
	$ $
SRAL's NAV valuation prior to the Proposed Transaction 10.1	(34,545,265) (28,045,265)
Impact on net assets from the Proposed Transaction:
Reduction in other financial assets a	(6,100,000) (6,300,000)
Reduction in trade and other payables b	20,615,374 20,615,374
Reduction in borrowings c	35,699,509 35,699,509
Increase in non-current provisions d	(8,200,000) (6,200,000)
Total impact on net assets	42,014,883 43,814,883

SRAL's valuation following the Proposed Transaction	7,469,619 15,769,619
Shares on issue(number) e	402,600,764
Value per share ($) (control basis)	$0.019 $0.039

Source: BDO analysis

The table above indicates that, based on the 402,600,764 shares expected to be on issue following the Proposed Transaction, the net asset value of an SRAL share is between $0.019 and $0.039 per share. Note that this NAV value implies control. The value of an SRAL share following the Proposed Transaction on a minority interest basis is calculated at the end of this section.

In arriving at our valuation, the following adjustments were made to show the impact of the Proposed Transaction on the net assets of SRAL.

Note a) Reduction in other financial assets

Following the Proposed Transaction, the other financial assets balance will be reduced by $6 million, reflecting a portion of the Regis shares being sold to fund the payment to SRL and SRHK on completion of the Proposed Transaction. We have assumed that the Regis shares do not materially change in value from their receipt to their sale.

The Ben Hur Royalty will also be transferred to SRHK and SRAL.

Reduction in other financial assets	Low $	High $
Reduced by transfer of Ben Hur Royalty	100,000	300,000
Reduced by$6 millionpayment to SRL and SRHK	6,000,000	6,000,000
Increase/(decrease) in net assets	(6,100,000)	(6,300,000)

Note b) Reduction in trade and other payables

The trade and other payables balance will be reduced by the $20,615,374 in interest accrued on the Debt (as at 31 August 2020) following its disposal of as part of the Proposed Transaction.

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Note c) Reduction in borrowings

Following the Proposed Transaction, borrowings will be reduced reflecting the disposal of the Debt.

Reduction in borrowings	$
Reduced by principal on the SRL loan to be disposed of	35,199,509
Reduced by principal on the SRL convertible loan to be disposed of 500,000
Increase/(decrease) in net assets	35,699,509

Note d) Increase in non-current provisions

Following the Proposed Transaction non-current provisions would increase reflecting:

The impact of the SRHK Royalty being granted to SRHK as part of the Proposed Transaction. The SRHK Royalty has been valued by VRM between $800,000 and $2,800,000 with a preferred valuation of $1,800,000, further details of which are set out in its report attached as Appendix 4; and
The $5.40 million payable to SRHK following the Proposed Transaction. Per the revised DECA, this amount is payable within 36 months from 11 August 2020, in SRAL shares or cash, at SRAL’s election.

Increase in non-current provisions	Low $ High $
Increased by provision for SRHK Royalty	2,800,000 800,000
Increased by $5.40 million future payment to SRL and SRHK 5,400,000 5,400,000
Increase/(decrease) in net assets	(8,200,000) (6,200,000)

Note e) Number of shares on issue following the Proposed Transaction

Following the Proposed Transaction the number of shares on issue will be reduced by the number of Buyback Shares. Our calculation is set out below.

Number of shares on issue		No.
Number of shares on issue prior to the Proposed	Transaction	836,053,708
Less: SRL shares bought back under the Proposed Transaction		(418,301,429)
Less: SRHK shares bought back under the Proposed Transaction		(15,151,515)
Number of shares on issue following the Proposed Transaction		402,600,764

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NAV including minority discount

We have applied a minority discount to the NAV of SRAL following the Proposed Transaction, consistent with our treatment of the NAV of SRAL prior to the Proposed Transaction. Our assessment of the minority discount is set out in Appendix 3. Our analysis identified an appropriate discount for minority interest to be in the range from 23% to 29%.

Our NAV-derived valuation of an SRAL share following the Proposed Transaction and including a minority discount is shown below.

NAV including minority discount	Ref	Low	High
Value per share (control basis)	11.1	$0.019	$0.039
Minority discount	App. 3	29%	23%
Value per share (minority interest basis)		$0.013	$0.030

As indicated in the table above, the assessed value of an SRAL share following the Proposed Transaction and on a minority interest basis is in the range from $0.013 to $0.030.

12. Is the Proposed Transaction fair?

The value of an SRAL share prior to the Proposed Transaction is compared to the value of an SRAL share following the Proposed Transaction below (both on a minority interest basis):

		Low	High
	Ref
		$	$
Value of an SRAL share prior to the Proposed Transaction	10.3	Nil	Nil
Value of an SRAL share following the Proposed Transaction	11.1	0.013	0.030

We note from the table above that the value of an SRAL share following the Proposed Transaction is greater than the value of an SRAL share prior to the Proposed Transaction (both assessed on a minority interest basis). Therefore, we consider that the Proposed Transaction is fair.

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13. Is the Proposed Transaction reasonable?

13.1 Alternative Proposal

We are unaware of any alternative proposal that might offer the Shareholders of SRAL a premium over the value resulting from the Proposed Transaction.

13.2 Consequences of not approving the Proposed Transaction

Consequences

Should the Proposed Transaction not proceed, the Company’s liabilities will continue to exceed its assets. This will leave the Company reliant on support from SRAL and SRHK for continued funding going forward in order to develop its mineral assets, as obtaining external funding would be difficult with the current debt levels.

Potential decline in share price

We have analysed movements in SRAL’s share price since the Proposed Transaction was announced. A graph of SRAL’s share price since the announcement is set out below.

SRAL share price and trading volume history

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----- Start of picture text -----

0.040 30.0
0.035
25.0
0.030
Announcement of the Amendment Deed 20.0
0.025
0.020 15.0
Announcement of the initial DECA
0.015
10.0
0.010
5.0
0.005
0.000 -
Volume Closing share price
Volume (millions)
Share Price ($)
----- End of picture text -----

Source: Bloomberg

The closing share price of a SRAL share from 10 January 2020 to 22 September 2020 has ranged from a low of $0.001 on several days throughout January, February and March 2020, to a high of $0.038 on 25 August 2020. On 12 August 2020, being the date the Amendment Deed was announced, 26,491,874 shares were traded, representing approximately 3.17% of the Company’s current issued share capital.

On the day the Amendment Deed was announced, SRAL’s share price increased from a VWAP of $0.004 over the 30 days prior to the announcement of the Amendment Deed, to close at $0.012 on 12 August 2020. We note that following the announcement of the Amendment Deed, the share price has increased

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further, reaching a high of $0.038 on 25 August 2020, before falling back to around the $0.030 level. As at 22 September 2020, the 30 day VWAP of an SRAL share was $0.021.

Based on the above analysis, if the Proposed Transaction is not approved, it is likely that the share price of SRAL will decline.

13.3 Advantages of Approving the Proposed Transaction

We have considered the following advantages when assessing whether the Proposed Transaction is reasonable.

Advantage	Description
The Proposed Transaction is fair	As set out in Section 12, the Proposed Transaction is fair. RG 111
	states that an offer is reasonable if it is fair.
May assist the Company in accessing the	Following the Proposed Transaction, the Company will have
capital markets for funding to progress its	minimal borrowings as the Debt is disposed of. This will leave the
mineral assets in the future	Company in a more favourable position to obtain both debt and
	equity funding to develop its remaining mineral assets:
	 Debt funding – SRAL’s net assets position is expected to
	be positive, allowing the Company to potentially assume
	additional debt; and
	 Equity funding - a lower level of gearing could make the
	Company more attractive for equity investors as well,
	given there is a lower chance of the permanent loss of
	their capital with the improved level of gearing.
Significant reduction in SRAL’s debt levels	If approved, the Proposed Transaction will result in a substantial
	decrease to SRAL’s debt levels. A lower level of debt reduces the
	risk of default and in turn, reduces the risk to Shareholders.
Helps to resolve the material uncertainty	In the Company’s audited financial statements for the year ended
surrounding the going concern issues faced by	30 June 2020, one of the factors contributing to the ability of
the Company	SRAL to continue as a going concern was that it was dependent on
	the continued deferral of loans and accrued interest. The
	Proposed Transaction eliminates a significant portion of these
	loans and accrued interest and removes this as a contributing
	factor.
Shareholders’ interest in the Company will	As a result of the Proposed Transaction, SRL and SRHK’s shares in
increase proportionally	the Company will be bought back and cancelled. This would result
	in a proportional increase of each Shareholders’ interest in SRAL.
Removal of a significant shareholder improves	With SRL and SRHK removed from the shareholding of SRAL, the
the likelihood of a takeover of the Company in	Company would be a more attractive target for a potential
the future	takeover in the future as it would no longer have a large,
	controlling shareholder.

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13.4 Disadvantages of Approving the Proposed Transaction

If the Proposed Transaction is approved, in our opinion, the potential disadvantages to Shareholders include those listed in the table below:

Disadvantage	Description
The SRHK Royalty will apply to the Company’s	The grant of a 3% NSR royalty over SRAL’s remaining tenements to
tenements following the Proposed	SRHK reduces the Company’s upside on the value of its mineral
Transaction	assets.
The Company will not retain the benefit of	Under the Proposed Transaction, the Ben Hur Royalty will be
the Ben Hur Royalty	transferred from SRAL to SRHK. SRAL will no longer be able to
	receive future royalties from the properties subject to the Ben Hur
	Royalty.
The majority of the value received from the	Following completion of the SPA with Regis, SRAL is expected to
sale of SRAL’s Ben Hur project will not be	monetise the Regis shares received to fund part of its payments
available for use to develop the Company’s	under the Proposed Transaction. Of the $10 million in Regis shares
remaining tenements	expected to be received from sale of the Company’s Ben Hur
	project, $6 million will be used to fund the Proposed Transaction.
	A further $5.4 million is payable to SRHK in approximately 3 years’
	time, although we note this may be settled in SRAL shares instead
	of cash, at SRAL’s election. Were it not for the Proposed
	Transaction, proceeds from a sale of Regis shares could have
	instead be used to develop SRAL’s retained tenements.

14. Conclusion

We have considered the terms of the Proposed Transaction as outlined in the body of this report and have concluded that the Proposed Transaction is fair and reasonable to the Shareholders of SRAL.

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15. Sources of information

This report has been based on the following information:

Draft Notice of Annual General Meeting and Explanatory Statement on or about the date of this report;
Audited financial statements of SRAL for the years ended 30 June 2020, 2019 and 2018 and reviewed financial statements of SRAL for the half-year ended 31 December 2019;
Initial Debt Equity Compromise Agreement between SRAL, SRL and SRHK;
Revised Debt Equity Compromise Agreement between SRAL, SRL and SRHK;
Sale and Purchase Agreement with Regis for the sale of SRAL’s Ben Hur project;
Unaudited management accounts of SRAL for the period ended 31 August 2020;
SRAL’s bank statements as at 31 August 2020;
SRAL’s share registry data as at 21 September 2020;
Independent Valuation Report of SRAL’s mineral assets dated 18 September 2020 performed by VRM;
Bloomberg;
S&P Capital IQ;
Share registry information;
Information in the public domain; and
Discussions with the SRAL’s management and its financial advisers.

16. Independence

BDO Corporate Finance (WA) Pty Ltd is entitled to receive a fee of $30,000 (excluding GST and reimbursement of out of pocket expenses). The fee is not contingent on the conclusion, content or future use of this Report. Except for this fee, BDO Corporate Finance (WA) Pty Ltd has not received and will not receive any pecuniary or other benefit whether direct or indirect in connection with the preparation of this report.

BDO Corporate Finance (WA) Pty Ltd has been indemnified by SRAL in respect of any claim arising from BDO Corporate Finance (WA) Pty Ltd's reliance on information provided by the Company, including the non provision of material information, in relation to the preparation of this report.

Prior to accepting this engagement BDO Corporate Finance (WA) Pty Ltd has considered its independence with respect to SRAL and SRL and any of their respective associates with reference to ASIC Regulatory Guide 112 ‘Independence of Experts’. In BDO Corporate Finance (WA) Pty Ltd’s opinion it is independent of SRAL and SRL and their respective associates.

Neither the two signatories to this report nor BDO Corporate Finance (WA) Pty Ltd, have had within the past two years any professional relationship with SRAL, or their associates, other than in connection with the preparation of this report.

A draft of this report was provided to SRAL and its advisors for confirmation of the factual accuracy of its contents. No significant changes were made to this report as a result of this review.

BDO is the brand name for the BDO International network and for each of the BDO Member firms.

BDO (Australia) Ltd, an Australian company limited by guarantee, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of

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Independent Member Firms. BDO in Australia, is a national association of separate entities (each of which has appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO International).

17. Qualifications

BDO Corporate Finance (WA) Pty Ltd has extensive experience in the provision of corporate finance advice, particularly in respect of takeovers, mergers and acquisitions.

BDO Corporate Finance (WA) Pty Ltd holds an Australian Financial Services Licence issued by the Australian Securities and Investments Commission for giving expert reports pursuant to the Listing rules of the ASX and the Corporations Act.

The persons specifically involved in preparing and reviewing this report were Adam Myers and Sherif Andrawes of BDO Corporate Finance (WA) Pty Ltd. They have significant experience in the preparation of independent expert reports, valuations and mergers and acquisitions advice across a wide range of industries in Australia and were supported by other BDO staff.

Adam Myers is a member of the Australian Institute of Chartered Accountants. Adam’s career spans 20 years in the Audit and Assurance and Corporate Finance areas. Adam is a CA BV Specialist and has considerable experience in the preparation of independent expert reports and valuations in general for companies in a wide number of industry sectors.

Sherif Andrawes is a Fellow of the Institute of Chartered Accountants in England & Wales and a Fellow of Chartered Accountants Australia & New Zealand. He has over 30 years’ experience working in the audit and corporate finance fields with BDO and its predecessor firms in London and Perth. He has been responsible for over 300 public company independent expert’s reports under the Corporations Act or ASX Listing Rules and is a CA BV Specialist. These experts’ reports cover a wide range of industries in Australia with a focus on companies in the natural resources sector. Sherif Andrawes is the Corporate Finance Practice Group Leader of BDO in Western Australia, the Global Natural Resources Leader for BDO and a former Chairman of BDO in Western Australia.

18. Disclaimers and consents

This report has been prepared at the request of SRAL for inclusion in the Notice of Meeting which will be sent to all SRAL Shareholders. SRAL engaged BDO Corporate Finance (WA) Pty Ltd to prepare an independent expert's report to consider the proposal to dispose of approximately $53 million of debt owed to SRHK. In return, SRAL will pay SRHK $11.4 million and also grant SRHK a 3% Net Smelter Return royalty over SRAL’s tenements, a 1% Net Smelter Return royalty over a deposit and undergo a selective capital reduction of shares held by SRHK and SRL.

BDO Corporate Finance (WA) Pty Ltd hereby consents to this report accompanying the above Notice of Meeting. Apart from such use, neither the whole nor any part of this report, nor any reference thereto may be included in or with, or attached to any document, circular resolution, statement or letter without the prior written consent of BDO Corporate Finance (WA) Pty Ltd.

BDO Corporate Finance (WA) Pty Ltd takes no responsibility for the contents of the Notice of Meeting other than this report.

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We have no reason to believe that any of the information or explanations supplied to us are false or that material information has been withheld. It is not the role of BDO Corporate Finance (WA) Pty Ltd acting as an independent expert to perform any due diligence procedures on behalf of the Company. The Directors of the Company are responsible for conducting appropriate due diligence in relation to SRL or SRHK. BDO Corporate Finance (WA) Pty Ltd provides no warranty as to the adequacy, effectiveness or completeness of the due diligence process.

The opinion of BDO Corporate Finance (WA) Pty Ltd is based on the market, economic and other conditions prevailing at the date of this report. Such conditions can change significantly over short periods of time.

With respect to taxation implications it is recommended that individual Shareholders obtain their own taxation advice, in respect of the Proposed Transaction, tailored to their own particular circumstances. Furthermore, the advice provided in this report does not constitute legal or taxation advice to the Shareholders of SRAL, or any other party.

BDO Corporate Finance (WA) Pty Ltd has also considered and relied upon independent valuations for mineral assets held by SRAL.

The valuer engaged for the mineral asset valuation, VRM, possess the appropriate qualifications and experience in the industry to make such assessments. The approaches adopted and assumptions made in arriving at their valuation is appropriate for this report. We have received consent from the valuer for the use of their valuation report in the preparation of this report and to append a copy of their report to this report.

The statements and opinions included in this report are given in good faith and in the belief that they are not false, misleading or incomplete.

The terms of this engagement are such that BDO Corporate Finance (WA) Pty Ltd is required to provide a supplementary report if we become aware of a significant change affecting the information in this report arising between the date of this report and prior to the date of the meeting or during the offer period.

Yours faithfully

BDO CORPORATE FINANCE (WA) PTY LTD

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Adam Myers Director

Sherif Andrawes Director

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A endix 1 – Glossar of Terms pp y

Reference	Definition
ABS	The Australian Bureau of Statistics
The Act	The Corporations Act 2001 Cth
AFCA	Australian Financial Complaints Authority
Alpha	The Alpha tenement at the South Project
Amendment Deed	Deed executed by SRAL on 12 August, amending the terms of the DECA
APES 225	Accounting Professional & Ethical Standards Board professional standard APES 225
	‘Valuation Services’
ASIC	Australian Securities and Investments Commission
ASX	Australian Securities Exchange
BDO	BDO Corporate Finance (WA) Pty Ltd
Ben Hur	The Ben Hur deposit
The Ben Hur Royalty	1% Net Smelter Return royalty on Mining Lease 38/339 commencing after the first
	100,000 oz of gold or gold equivalent is produced at Ben Hur. The royalty is capped
	at $5 million, after which it will revert to a 0.0025% NSR for four years.
Beta	The Beta tenement at the South Project
Brightstar	Brightstar Gold Project
Brightstar Plant	Brightstar Gold Processing Plant
The Buyback Shares	433,452,944 SRAL shares to be bought back as part of the DECA
Chapter 2E	Chapter 2E of the Corporations Act 2001 requiring a public company to obtain
	shareholder approval when giving financial benefit to a related party
The Company	Stone Resources Australia Limited
Cork Tree	Cork Tree Well deposit
Corporations Act	The Corporations Act 2001 Cth
CPI	Consumer Price Index

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Reference	Definition
DCF	Discounted Future Cash Flows
The Debt	The loans advanced to SRAL by SRHK totalling $53,217,595 as at 31 December 2019
	which are to be disposed of as part of the Proposed Transaction
DECA	Debt and Equity Compromise Agreement
Delta	Cork Tree Well deposit
EBIT	Earnings before interest and tax
EBITDA	Earnings before interest, tax, depreciation and amortisation
Epsilon	The Ben Hur deposit
FME	Future Maintainable Earnings
FOS	Financial Ombudsman Service
FSG	Financial Services Guide
g/t	Grams per tonne
Great Cortex	Great Cortex International Ltd
JORC Code	The Australasian Code for Reporting of Exploration Results, Mineral Resources and
	Ore Reserves (2012 Edition)
km	Kilometres
km2	Square Kilometres
NAV	Net Asset Value
North Project	North Brightstar located deposits
NSR	Net Smelter Return
The Proposed Transaction	The repurchase of the Buyback Shares, the disposal of the Debt and the transactions
	under the Amendment Deed
QMP	Quoted Market Price
RBA	Reserve Bank of Australia
Regis	Regis Resources Limited
Our Report	This Independent Expert’s Report prepared by BDO

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Reference Definition	Reference Definition

RG 76 Related Party Transactions (March 2011)

RG 111 Content of expert reports (March 2011)

RG 112 Independence of experts (March 2011)

Shareholders	Shareholders of SRAL not associated with SRL or SRHK

South Project	South Brightstar located deposits

SPA	Sale Purchase Agreement

SRAL	Stone Resources Australia Limited

SRHK	Stone Resources (HK) Limited

SRHK Royalty	The 3% NSR royalty to be granted over all of SRAL’s remaining tenements to SRHK

SRL	Stone Resources Limited

TSX-V	Toronto Stock Exchange Venture Exchange

Valmin Code Australasian Code for Public Reporting of Technical Assessments and Valuations of Mineral Assets (2015 Edition)

Valuation Engagement An Engagement or Assignment to perform a Valuation and provide a Valuation Report where the Valuer is free to employ the Valuation Approaches, Valuation Methods, and Valuation Procedures that a reasonable and informed third party would perform taking into consideration all the specific facts and circumstances of the Engagement or Assignment available to the Valuer at that time.

VRM Value and Resource Management Pty Ltd

VWAP Volume Weighted Average Price

WA Western Australia

All rights reserved. No part of this publication may be reproduced, published, distributed, displayed, copied or stored for public or private use in any information retrieval system, or transmitted in any form by any mechanical, photographic or electronic process, including electronically or digitally on the Internet or World Wide Web, or over any network, or local area network, without written permission of the author. No part of this publication may be modified, changed or exploited in any way used for derivative work or offered for sale without the express written permission of the author.

For permission requests, write to BDO Corporate Finance (WA) Pty Ltd, at the address below:

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The Directors

BDO Corporate Finance (WA) Pty Ltd

38 Station Street SUBIACO, WA 6008 Australia

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A endix 2 – Valuation Methodolo ies pp g

Methodologies commonly used for valuing assets and businesses are as follows:

1 Net asset value (‘NAV’) Asset based methods estimate the market value of an entity’s securities based on the realisable value of its identifiable net assets. Asset based methods include:

Orderly realisation of assets method
Liquidation of assets method
Net assets on a going concern method

The orderly realisation of assets method estimates fair market value by determining the amount that would be distributed to entity holders, after payment of all liabilities including realisation costs and taxation charges that arise, assuming the entity is wound up in an orderly manner.

The liquidation method is similar to the orderly realisation of assets method except the liquidation method assumes the assets are sold in a shorter time frame. Since wind up or liquidation of the entity may not be contemplated, these methods in their strictest form may not be appropriate. The net assets on a going concern method estimates the market values of the net assets of an entity but does not take into account any realisation costs.

Net assets on a going concern basis are usually appropriate where the majority of assets consist of cash, passive investments or projects with a limited life. All assets and liabilities of the entity are valued at market value under this alternative and this combined market value forms the basis for the entity’s valuation.

Often the FME and DCF methodologies are used in valuing assets forming part of the overall Net assets on a going concern basis. This is particularly so for exploration and mining companies where investments are in finite life producing assets or prospective exploration areas.

These asset based methods ignore the possibility that the entity’s value could exceed the realisable value of its assets as they do not recognise the value of intangible assets such as management, intellectual property and goodwill. Asset based methods are appropriate when an entity is not making an adequate return on its assets, a significant proportion of the entity’s assets are liquid or for asset holding companies.

2 Quoted Market Price Basis (‘QMP’)

A valuation approach that can be used in conjunction with (or as a replacement for) other valuation methods is the quoted market price of listed securities. Where there is a ready market for securities such as the ASX, through which shares are traded, recent prices at which shares are bought and sold can be taken as the market value per share. Such market value includes all factors and influences that impact upon the ASX. The use of ASX pricing is more relevant where a security displays regular high volume trading, creating a liquid and active market in that security.

3 Capitalisation of future maintainable earnings (‘FME’) This method places a value on the business by estimating the likely FME, capitalised at an appropriate rate which reflects business outlook, business risk, investor expectations, future growth prospects and other entity specific factors. This approach relies on the availability and analysis of comparable market data.

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The FME approach is the most commonly applied valuation technique and is particularly applicable to profitable businesses with relatively steady growth histories and forecasts, regular capital expenditure requirements and non-finite lives.

The FME used in the valuation can be based on net profit after tax or alternatives to this such as earnings before interest and tax (‘ EBIT ’) or earnings before interest, tax, depreciation and amortisation (‘ EBITDA ’). The capitalisation rate or ‘earnings multiple’ is adjusted to reflect which base is being used for FME.

4 Discounted future cash flows (‘DCF’) The DCF methodology is based on the generally accepted theory that the value of an asset or business depends on its future net cash flows, discounted to their present value at an appropriate discount rate (often called the weighted average cost of capital). This discount rate represents an opportunity cost of capital reflecting the expected rate of return which investors can obtain from investments having equivalent risks.

Considerable judgement is required to estimate the future cash flows which must be able to be reliably estimated for a sufficiently long period to make this valuation methodology appropriate.

A terminal value for the asset or business is calculated at the end of the future cash flow period and this is also discounted to its present value using the appropriate discount rate.

DCF valuations are particularly applicable to businesses with limited lives, experiencing growth, that are in a start up phase, or experience irregular cash flows.

5 Market Based Assessment The market based approach seeks to arrive at a value for a business by reference to comparable transactions involving the sale of similar businesses. This is based on the premise that companies with similar characteristics, such as operating in similar industries, command similar values. In performing this analysis it is important to acknowledge the differences between the comparable companies being analysed and the company that is being valued and then to reflect these differences in the valuation.

The resource multiple is a market based approach which seeks to arrive at a value for a company by reference to its total reported resources and to the enterprise value per tonne/lb of the reported resources of comparable listed companies. The resource multiple represents the value placed on the resources of comparable companies by a liquid market.

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Appendix 3 – Minority discount assessment

Minority discount

The minority discount is the inverse of the control premium. In arriving at an appropriate minority discount we have assessed the control premium on completed transactions of ASX-listed companies. Our analysis is set out below.

We have reviewed control premiums on completed transactions, paid by acquirers of gold companies, general mining companies and all ASX-listed companies. In assessing the appropriate sample of transactions from which to determine an appropriate control premium, we have excluded transactions where an acquirer obtained a controlling interest (20% and above) at a discount (i.e. less than a 0% premium). We have summarised our findings below. Note that as at 14 August 2020, to-date there were no completed acquisitions of ASX-listed gold companies that met our criteria:

Gold companies

Year	Number of Transactions	Average Deal Value (AU$m)	Average Control Premium (%)
2020	0	0.00	0.00
2019	1	219.99	56.41
2018	3	29.41	52.18
2017	2	13.74	41.04
2016	5	19.15	51.38
2015	4	56.22	53.80
2014	9	109.87	46.61
2013	5	194.82	46.52
2012	7	121.13	51.61
2011	6	865.39	40.32
2010	4	2,477.80	67.46

Source: Bloomberg, BDO Analysis

General mining companies

Year	Number of Transactions	Average Deal Value (AU$m)	Average Control Premium (%)
2020	2	54.83	45.74
2019	12	143.74	42.83
2018	11	87.76	53.40
2017	5	13.91	35.21
2016	13	59.54	74.92
2015	9	340.82	57.86
2014	16	111.11	47.28
2013	17	117.99	63.99
2012	17	219.10	54.03
2011	21	811.55	37.42

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Year	Number of Transactions	Average Deal Value (AU$m)	Average Control Premium (%)
2010	10	1,087.25	62.43

Source: Bloomberg, BDO Analysis

All ASX listed companies

Year	Number of Transactions	Average Deal Value (AU$m)	Average Control Premium (%)
2020	12	205.08	51.87
2019	45	3,026.62	38.82
2018	45	1,101.19	41.23
2017	29	973.72	43.33
2016	42	718.51	49.58
2015	34	828.14	34.10
2014	46	507.34	39.97
2013	41	128.21	50.99
2012	51	481.33	52.19
2011	68	891.85	44.43
2010	30	891.69	51.60

Source: Bloomberg, BDO Analysis

The mean and median of the entire data sets comprising control transactions since 2010 for gold companies, mining companies and all ASX listed companies, respectively, are set out below.

	Gold	Gold	General Mining	General Mining	All ASX listed companies	All ASX listed companies
Entire Data	Deal Value	Control	Deal Value	Control	Deal Value	Control
Set Metrics	(AU$m)	Premium (%)	(AU$m)	Premium (%)	(AU$m)	Premium (%)
Mean	412.38	49.83	319.09	52.91	938.91	44.88
Median	31.68	42.55	43.54	43.94	120.65	35.28

In arriving at an appropriate control premium to apply we note that observed control premiums can vary due to the:

Nature and magnitude of non-operating assets;
Nature and magnitude of discretionary expenses;
Perceived quality of existing management;
Nature and magnitude of business opportunities not currently being exploited;
Ability to integrate the acquiree into the acquirer’s business;
Level of pre-announcement speculation of the transaction; and
Level of liquidity in the trade of the acquiree’s securities.

When performing our control premium analysis, we considered completed transactions where the acquirer held a controlling interest, defined at 20% or above, pre transaction or proceeded to hold a controlling interest post transaction in the target company.

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The table above indicates that the long-term average control premium paid by acquires of gold, general mining companies and all ASX listed companies is approximately 49.83%, 52.91% and 44.88% respectively. However, in assessing the transactions included in the table, we noted transactions that appear to be extreme outliers. These outliers included 3 gold company transactions, 14 general mining company transactions and 31 ASX listed company transactions, for which the announced premium was in excess of 100%. We consider these transactions as outliers, as it is likely that the acquirer in these transactions would be paying for special value and/or synergies in excess of the standard premium for control. Whereas, the purpose of this analysis is to assess the premium that is likely to be paid for control, not specific strategic value to the acquirer.

In a population where there are extreme outliers, the median often represents a superior measure of central tendency compared to the mean. We note that the median announced control premium over the assessed period was approximately 42.55% for gold companies, 43.94% for general mining companies and 35.28% for all ASX listed companies.

We consider an appropriate control premium to be on the lower end of historical averages, given the uncertainty around the ability to continue as a going concern as noted by the Company’s auditor in the most recent audit report, as well as the small size of the Company.

Based on the above analysis, we consider an appropriate premium for control to be between 30% and 40%.

The minority discount is calculated from the control premium identified, using the formula [1 – (1/(1+Control Premium))]. Therefore, the minority discount (rounded to the nearest percentile) is in the range from 23% to 29%.

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Appendix 4 – Independent Technical Assessment and Valuation Report by VRM

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INDEPENDENT TECHNICAL ASSESSMENT REPORT & VALUATION

Presented To:

Stone Resources Limited

Date Issued:

18 September 2020

Document Reference	Stone Resources Valuation Report Sept 2020 Final
Distribution	BDO Corporate Finance (W.A.) Pty Ltd
	Stone Resources Ltd
	Valuation and Resource Management Pty Ltd
Principal Author	Paul Dunbar
	BSc Hons (Geology)
	MSc (MINEX)
	M AusIMM
	M AIG
	Date: 18 September 2020
Contributors	Deborah Lord F AusIMM, M AIG, G AICD
Valuation Date	12 August 2020

Contents	Contents
Executive Summary........................................................................................................................................................................... i
Brightstar Gold Project – Western Australia ............................................................................................................................................................................. ii
Conclusions ........................................................................................................................................................................................................................................... ii
1.	Introduction ...............................................................................................................................................................................1
1.1.	Compliance with the JORC and VALMIN Codes and ASIC Regulatory Guides .................................................................................................1
1.2.	Scope of Work ...........................................................................................................................................................................................................................1
1.3.	Statement of Independence ................................................................................................................................................................................................ 2
1.4.	Competent Persons Declaration and Qualifications ................................................................................................................................................... 2
1.5.	Reliance on Experts ................................................................................................................................................................................................................. 3
1.6.	Sources of Information .......................................................................................................................................................................................................... 4
1.7.	Site Visit ....................................................................................................................................................................................................................................... 4
2.	Mineral Assets .......................................................................................................................................................................... 5
2.1.	Brightstar Gold Project ........................................................................................................................................................... 5
2.1.1.	Tenure .......................................................................................................................................................................................................................................... 6
2.1.2.	Access .......................................................................................................................................................................................................................................... 6
2.1.3. Regional Geology .......................................................................................................................................................... 9
2.1.4. Local Geology ............................................................................................................................................................... 10
Alpha..................................................................................................................................................................................................................................................... 10
Beta	...................................................................................................................................................................................................................................................... 10
Delta	...................................................................................................................................................................................................................................................... 10
Exploration and Drilling................................................................................................................................................................................................................ 10
2.1.5. Mineral Resource Estimates ....................................................................................................................................... 11
Informing Data................................................................................................................................................................................................................................... 12
Sampling and Analysis.................................................................................................................................................................................................................. 12
Resource Estimation...................................................................................................................................................................................................................... 13
2.1.5.1. VR M Comment .......................................................................................................................................................................................................... 14
2.1.6.	Technical Studies and Ore Reserves ............................................................................................................................................................................... 17
2.1.7.	Recent Exploration ................................................................................................................................................................................................................ 18
3.	Valuation Methodology ....................................................................................................................................................... 18
3.1.	Previous Valuations ............................................................................................................................................................................................................... 18
3.2.	Valuation Subject to Change............................................................................................................................................................................................. 19
3.3.	General assumptions ............................................................................................................................................................................................................ 19
3.4.	Market Based Valuations ................................................................................................................................................................................................... 20
3.4.1.	Gold Market ............................................................................................................................................................................................................................ 20
3.5.	Valuation of Advanced Properties ................................................................................................................................................................................. 22
3.5.1.	Comparable Market Based Transactions – Resource Based ................................................................................................................................. 22
3.5.2.	Yardstick Valuation– Resource Projects ....................................................................................................................................................................... 23
3.6.	Exploration Asset Valuation .............................................................................................................................................................................................. 24
3.6.1.	Geoscientific (Kilburn) Valuation ..................................................................................................................................................................................... 25

4.	Valuation of Stone Resources Mineral Assets ...............................................................................................................27
4.1.	Brightstar Gold Project Valuation .....................................................................................................................................27
4.1.1.	Comparable Transactions – Gold Resource Multiples ............................................................................................................................................ 27
4.1.2.	Yardstick Valuation............................................................................................................................................................................................................... 29
4.1.3.	Geoscientific Valuation ....................................................................................................................................................................................................... 29
5.	Royalty Valuation ................................................................................................................................................................... 31
6.	Risks and Opportunities...................................................................................................................................................... 32
7.	Preferred Valuations ............................................................................................................................................................ 33
8.	Conclusion .............................................................................................................................................................................. 34
9.	References .............................................................................................................................................................................. 34
10.	Glossary ................................................................................................................................................................................... 35
Appendix A - Stone Resources Tenement Schedule .......................................................................................................... 40
Appendix B - Comparable Gold Transactions - Western Australia................................................................................. 42
Appendix C - Brightstar Gold Project Geoscientific (Kilburn) Valuation ........................................................................ 44

List of Figures

Figure 1 Location of the Brightstar Gold Project tenements. ........................................................................................... 5 Figure 2 Brightstar Gold Project Tenements excluding miscellaneous licences. ........................................................ 7 Note not all tenements are labelled due to the tenement size and map scale ......................................................... 7 Figure 3 Location and access within the Brightstar Gold Project .................................................................................... 8 Figure 4 Heritage sites in the Laverton Region (light brown) and the outline of the Brightstar Gold Project Tenements ......................................................................................................................................................................................... 8 Figure 5: Regional geology (based on GSWA Regional mapping) ................................................................................. 9 Figure 5 Plan of drill collars at the Alpha Deposit as at 2014. (source Stone MRE ASX release 5 June 2014) 15 Figure 6 Cross Section through the Alpha Deposit. (source Stone MRE ASX release 5 June 2014) .................. 15 Figure 7 Drill Hole Collar Plan of the Delta Gold Deposit. (source Stone MRE ASX release 5 June 2014) ....... 16 Figure 8 Cross Section through the Alpha Deposit. (source Stone MRE ASX release 5 June 2014) .................. 16 Figure 9 Drill Hole traces and Extent of mineralisation within the Beta Gold Deposit (source CSA Global Beta Resource Report 12 October 2015) .................................................................................................................................17 Figure 10 50095mN Cross Section through the Beta Gold Deposit (source CSA Global Beta Resource Report 12 October 2015) ..............................................................................................................................................................17 Figure 11 Five year US$ Gold Price graph (source kitco.com) ......................................................................................... 20 Figure 12 Five year AUS$ Gold Price graph (source kitco.com) ..................................................................................... 21 Figure 13 One year US$ Gold Price graph (source kitco.com) ....................................................................................... 21 Figure 14 One year AUS$ Gold Price graph (source kitco.com) .................................................................................... 21 Figure 15 Project Valuation Summary .................................................................................................................................... 34

List of Tables

Table 1 Brightstar Gold Project Mineral Resource Estimates ........................................................................................... 11 Table 2 VALMIN Code 2015 valuation approaches suitable for mineral Properties .............................................. 18

Table 3 Yardstick Multiples used for Gold Projects............................................................................................................ 24 Table 4 Ranking criteria are used to determine the geoscientific technical valuation.......................................... 26 Table 5 Comparable transaction valuation summary for Resources within the Brightstar Gold Project ........ 28 Table 6 Yardstick Multiples used for the Brightstar Gold Project .................................................................................. 29 Table 7 Yardstick Valuation of the Brightstar Gold Project ............................................................................................. 29 Table 8 Technical Valuation of the Brightstar Gold Project ........................................................................................... 30 Table 9 Market Valuation of the Brightstar Gold Project ................................................................................................ 30 Table 10 Summary of the Project Valuations. ..................................................................................................................... 33 Table 11 VRM’s Preferred Valuation of the Mineral Assets of Stone Metals Limited ............................................. 33

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Executive Summary

BDO Corporate Finance (WA) Pty Ltd (BDO) engaged Valuation and Resource Management Pty Ltd (VRM) to prepare an Independent Technical Assessment and Valuation report (ITAR or the Report) on the mineral assets of Stone Resources Limited (Stone or the Company) (ASX: SHK). BDO was engaged by Stone to prepare an Independent Expert’s Report (IER) for inclusion in a Notice of Meeting to assist the shareholders of Stone in relation to the proposed transaction.

This Report is a public document, in the format of an ITAR and is prepared in accordance with the guidelines of the Australasian Code for Public Reporting of Technical Assessments and Valuations of Mineral Assets – The VALMIN Code (2015 edition) (VALMIN). As the authors of this report are members of the Australasian Institute of Mining and Metallurgy (AusIMM) and the Australian Institute of Geoscientists (AIG) they are required to ensure that all public reports comply with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC). VRM understands that BDO will include the Report within its IER relating to the proposed transaction.

This Report is a technical review and valuation opinion of the Brightstar Gold Project which includes the Alpha, Beta and Delta gold deposits, located in the Goldfields of Western Australia. This report and valuation exclude the processing facility and associated infrastructure which is on care and maintenance located adjacent to the Beta gold deposit. It also excludes with recently sold Ben Hur Deposit and associated tenements (Stone ASX release dated 12 August 2020) it does however include the associated royalty. Applying the principles of the VALMIN code VRM has used several valuation methods to determine the market value for the mineral assets. Importantly, as neither the principal author nor VRM hold an Australian Financial Securities Licence, this valuation is not a valuation of Stone but rather an asset valuation of the components of the Brightstar gold project.

This valuation is current as of 12 August 2020, being the date that Stone announced an update on the recapitalisation and the sale of the Ben Hur Gold Deposit. BDO engaged VRM to undertake the Report. As commodity prices, exchange rates and cost inputs fluctuate this valuation is subject to change over time. The valuation derived by VRM is based on information provided by Stone along with publicly available data including ASX releases and published technical information. VRM has made reasonable endeavours to confirm the accuracy, validity and completeness of the technical data which forms the basis of this Report. The opinions and statements in this Report are given in good faith and under the belief that they are accurate and not false nor misleading. The default currency is Australian dollars (unless otherwise stated). As with all technical valuations the valuation included in this Report is the likely value of the mineral projects and not an absolute value. A range of likely values for the various mineral assets is provided with that range indicating the accuracy of the valuation.

www.varm.com.au PO Box 1506, West Perth WA 6872

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Brightstar Gold Project – Western Australia

The Brightstar Gold Project consists of three separate tenement areas, all located within 70km of Laverton in the eastern Goldfields of Western Australia. The project consists of three separate tenement areas each contain Mineral Resource Estimates within three separate deposits, being the Alpha, Beta and Delta deposits.

They are all considered by VRM to each be advanced exploration projects.

This report documents the technical aspects of the Brightstar Project including the three gold deposits along with determining a valuation, in accordance with the 2015 VALMIN Code. Three valuation methods have been used in determining VRM’s valuation range and the preferred valuation for the Brightstar Gold Project.

Conclusions

The Brightstar Gold Project contains three separate Mineral Resources however no Feasibility (or prefeasibility) studies have been reported. The exploration potential within the tenement holding is considered high. Several prospects and anomalies warrant additional exploration. Stone has not undertaken any significant exploration activities since 2014 therefore there is minimal additional value for that exploration potential.

In VRM’s opinion, as at 12 August 2020, the Market Value of the Brightstar Gold Project is between $12.5 million and $18.8 million with a preferred value of $15.7 million.

www.varm.com.au PO Box 1506, West Perth WA 6872

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1. Introduction

Valuation and Resource Management Pty Ltd (VRM), was engaged by BDO Corporate Finance (WA) Pty Ltd (BDO) to undertake an Independent Technical Assessment and Valuation Report (Report or ITAR) on the retained mineral assets of Stone Resources Limited (Stone or the Company) (ASX: SHK). BDO was engaged by Stone to prepare an Independent Expert’s Report (IER) for inclusion in a Notice of Meeting to assist the shareholders of Stone in relation to either approving or rejecting the proposed transaction.

VRM understands that this ITAR will be included in the Independent Experts Report (IER) being prepared by BDO. BDO will refer to, and rely on, the VRM report and mineral asset valuation which will be attached to its IER to inform the Stone shareholders as to the fairness and reasonableness of the proposed transaction.

Paul Dunbar and Deborah Lord of VRM were contacted to undertake a valuation of the Brightstar Gold Project located in the Laverton region of Western Australia. Adam Myers of BDO engaged VRM for the purposes of the ITAR and all correspondence was directed through BDO.

1.1. Compliance with the JORC and VALMIN Codes and ASIC Regulatory Guides

The ITAR is prepared applying the guidelines and principles of the 2015 VALMIN Code and the 2012 JORC Code. Both industry codes are mandatory for all members of the Australasian Institute of Mining and Metallurgy (AusIMM) and the Australian Institute of Geoscientists (AIG). These codes are also requirements under Australian Securities and Investments Commission (ASIC) rules and guidelines and the listing rules of the Australian Securities Exchange (ASX).

This ITAR is a Public Report as described in the VALMIN Code (Clause 5) and the JORC Code (Clause 9). It is based on, and fairly reflects, the information and supporting documentation provided by Stone and previous owners and associated Competent Persons as referenced in this ITAR and additional publicly available information.

1.2. Scope of Work

VRM’s primary obligation in preparing mineral asset reports is to independently describe mineral projects applying the guidelines of the JORC and VALMIN Codes. These require that the Report contains all the relevant information at the date of disclosure, which investors and their professional advisors would reasonably require in making a reasoned and balanced judgement regarding the project.

VRM has compiled the valuation based upon the principle of reviewing and interrogating the documentation of Stone and previous exploration within the area. This Report is a summary of the work conducted, completed and reported by the various explorers to 12 August 2020 based on information supplied to VRM by Stone and other information sourced from the public domain, to the extent required by the VALMIN and JORC Codes.

www.varm.com.au PO Box 1506, West Perth WA 6872

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VRM was initially engaged and understands that the objectives of this study were to provide:

A summary of the regional and local geology, the security of the tenure, a summary of the recent and previous exploration,
An independent valuation on the Brightstar gold project and the individual gold deposits, being the Alpha, Beta and Delta as at 12 August 2020. VRM has broken the valuation into the individual project areas adjacent to and including each of the deposits to determine the value of each of the groups of tenements within the greater Brightstar project.
An estimate of the market value for the 3% NSR royalty on gold production within the Brightstar Gold Project and the 1% NSR royalty on the Ben Hur gold deposit.

Specifically excluded from this report and valuation is any assessment as to the value or the gold processing facility and associated infrastructure, which is on care and maintenance, located adjacent to the Beta Gold Deposit.

As there are no Ore Reserves estimated for any of the deposits VRM notified BDO that, in VRM’s opinion, undertaking a valuation using an income based valuation method (for example a discounted cash flow (DCF) model) is not considered reasonable.

VRM then has prepared an Independent Valuation of the Alpha, Beta and Delta deposits and the associated and adjacent tenements within the Brightstar Gold Project. VRM understands that its review and valuations will be relied upon and appended to an IER prepared by BDO for inclusion in a Notice of Meeting, to assist Stone shareholders in their decision regarding the approval of the proposed transaction. As such, it is understood that VRM’s review and valuation will be a public document.

1.3. Statement of Independence

VRM was engaged to undertake an ITAR of the Mineral Assets of Stone, in particular the Alpha, Beta and Delta deposits within the Brightstar Gold Project. This work was conducted applying the principles of the JORC and VALMIN Codes, which in turn reference ASIC Regulatory guide 111 Content of expert reports (RG111) and ASIC Regulatory guide 112 Independence of experts (RG112).

Ms Deborah Lord and Mr Paul Dunbar of VRM have not had in the past two years any association with Stone, its individual employees, or any interest in the securities of Stone which could be regarded as affecting their ability to give an independent, objective and unbiased opinion. Neither VRM, Ms Lord nor Mr Dunbar hold an Australian Financial Services Licence (AFSL) and the valuation contained within this Report is limited to a valuation of the mineral assets being reviewed. VRM will be paid a fee for this work based on standard commercial rates for professional services. The fee is not contingent on the results of this review and is estimated at $29,000.

1.4. Competent Persons Declaration and Qualifications

This Report was prepared by Mr Paul Dunbar as the primary author and peer reviewed by Ms Deborah Lord.

The Report and information that relates geology, exploration and the mineral asset valuation is based on information compiled by Mr Paul Dunbar, BSc (Hons), MSc (Minex), a Competent Person who is a member

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of the AusIMM and the AIG. Mr Dunbar is a Director of VRM and has sufficient experience, which is relevant to the style of mineralisation, geology and type of deposit under consideration and to the activity being undertaken to qualify as a competent person under the 2012 JORC Code and a specialist under the 2015 VALMIN Code. Mr Dunbar consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

The Report and information that relates to geology, exploration and the mineral asset valuation is based on information reviewed by Ms Deborah Lord, BSc (Hons), a Competent Person who is a fellow of the AusIMM and a member of the AIG. Ms Lord is a Director of VRM and has sufficient experience, which is relevant to the style of mineralisation, geology and type of deposit under consideration and to the activity being undertaken to qualify as a competent person under the 2012 JORC Code and a specialist under the 2015 VALMIN Code.

Between 12 August 2020 and the date of this Report, nothing has come to the attention of VRM that would cause any material change to the conclusions.

1.5. Reliance on Experts

All the Mineral Resource Estimates subject of this valuation have been reported in accordance with JORC 2012. VRM has relied upon the previous Competent Persons for the projects. The Alpha, Delta and Ben Hur Mineral Resource Estimates were initially reported under the 2004 JORC Code with these re-reported by CSA Global Pty Ltd in conjunction with Stone on 5 June 2014. The Ben Hur deposit and some adjacent tenements were divested by Stone on 12 August 2020. The Mineral Resource estimates for the Beta Gold deposit was prepared by CSA Global Pty Ltd in accordance with JORC 2012. It has been reported in the past five Stone Annual Reports (Stone Annual Reports dated 30 October 2015, 25 October 2016, 23 October 2017, 29 October 2018 and 28 October 2019) however VRM has been unable to locate the public report where it was first with the required JORC Table 1 appended to the report. VRM has however reviewed the full Mineral Resource estimate report for the Delta deposit and has therefore included the Delta Mineral Resource estimates in this report.

Mr Dunbar and Ms Lord, the authors of this report are not qualified to provide extensive commentary on the legal aspects of the mineral properties or the compliance with the legislative environment and permitting in Western Australia. In relation to the tenement status, VRM has relied on the documentation provided by Stone including the company’s Quarterly Activities Reports, with the latest being June 2020, released on 9 July 2020 (Stone ASX release dated 9 July 2020). In addition to relying on the company for the status of the Western Australian tenements, VRM also undertook an independent review of the Department of Mines, Industry Regulation and Safety (DMIRS) online tenement database, Mineral Titles online. As required by the VALMIN Code the status of the tenements is detailed within this Report. All tenements that constitute the Brightstar Project are subject to forfeiture notices which VRM has been informed are in the process of being withdrawn. VRM does not consider the tenements to be in good standing due to the poor exploration expenditure history on most of the tenements.

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For the Brightstar Gold Project including the Alpha, Beta, Delta and Ben Hur deposits VRM has relied upon the following:

The Stone 2019 Annual Report (ASX release of 28 October 2019) and associated Competent Persons Signoff by Dr Bielin Shi of CSA Global on the Mineral Resources of the Brightstar Gold Project.
The Stone ASX release of 5 June 2014 where the JORC 2012 Mineral Resource Estimates for the Alpha, Ben Hur and Delta Gold Deposits when first reported, Dr Bielin Shi of CSA Global was the Competent Person,
The JORC 2012 Mineral Resource Estimate Report for the Delta Gold Deposit, prepared by Dr Bielin Shi of CSA Global (12 October 2015)
Stone ASX Releases, Quarterly Activities Reports and Annual Reports from 2014 to 2020
Geological Survey of Western Australia (GSWA) and DMIRS public reports and datasets
DMIRS Mineral Titles Online database

1.6. Sources of Information

All information and conclusions within this report are based on information made available to VRM to assist with this report by Stone and other relevant publicly available data to 12 August 2020. Reference has been made to other sources of information, published and unpublished, including government reports and reports prepared by previous interested parties and Joint Venturers to the areas, where it has been considered necessary. VRM has, as far as possible and making all reasonable enquiries, attempted to confirm the authenticity and completeness of the technical data used in the preparation of this Report and to ensure that it had access to all relevant technical information. VRM has relied on the information contained within the reports, articles and databases provided by Stone as detailed in the reference list. A draft of this Report was provided to Stone via BDO to identify and address any factual errors or omissions prior to finalisation of the Report. The valuation sections of the Report were not provided to the company until the technical aspects were validated and the Report was declared final.

1.7. Site Visit

No specific site visit has occurred as a part of this Report or valuation. VRM has relied on the site visit of the Competent Person for the Mineral Resource estimates as described in the body of this Report.

VRM is satisfied that a site visit would not provide any additional material information that would modify the opinion or valuation of the assets.

Neither the Alpha, Beta or Delta gold deposits nor the entire Brightstar Project were visited as a part of the ITAR however the area has previously been visited by both Mr Paul Dunbar and Ms Deborah Lord on several occasions between in the past 20 years when Mr Dunbar and Ms Lord were working in and evaluating exploration potential in the general Laverton area. Due to Mr Dunbar’s knowledge and experience, exploring and evaluating gold projects within the Eastern Goldfields, and specifically within a 50km radius of Laverton a site visit was not considered necessary for this ITAR.

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2. Mineral Assets

The mineral asset included in this review is the Brightstar Gold Project, located near Laverton in Western Australia’s Eastern Goldfields. The location of the project in relation to major infrastructure are shown in Figure 1.

2.1. Brightstar Gold Project

The Brightstar Gold Project, (Figure 1) is a group of three distinct tenement groups located within an 70km radius Laverton, Western Australia, All the tenements are owned 100% by Stone Resources Australia Limited other than one tenement where the registered holder is Desert Exploration Pty Ltd. Desert Exploration Pty Ltd is a 100% owned subsidiary of Stone. The project has previously been exploited for gold with approximately 46,000oz of gold produced between 1987 and 1988 from the Cork Tree Well open pits (Stone ASX release 1 December 2011) and 21,116oz of gold and 13,863oz of silver from the Alpha and Beta deposits between April 2010 to November 2011 (Stone ASX releases - Quarterly Reports 2010 and 2011). There is a significant Mineral Resource reported for the project with several completed studies that are at or close to a pre-feasibility study level however no feasibility (Pre-Feasibility or Feasibility) studies have been completed. Away from the resource areas there has been minimal modern exploration. Located adjacent to the Beta Gold Deposit there is a 300,000t/a gold processing facility and associated infrastructure which is on care and maintenance. The value of the mill and associated infrastructure have been excluded from this report. Also associated with the project are the environmental liabilities from the previous exploration, mining and processing programs.

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Figure 1 Location of the Brightstar Gold Project tenements.

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2.1.1.Tenure

The Brightstar project comprises of 41 tenements with 15 Mining Leases, 12 Exploration Licences, 13 Prospecting Licences and one Prospecting Licence application (Figure 2) all of which permit exploration and potentially exploitation of the underlying minerals. In addition to these 41 tenements there are a total of nine Miscellaneous Licences which do not allow exploration or exploitation of the minerals however these can allow mining related infrastructure and access between other tenements. These Miscellaneous Licences have been excluded from the valuation. Appendix A includes a table of the tenement details. It is based on the tenement schedule from the Stone June 2020 Quarterly Report but excludes the tenements that have been recently divested or surrendered.

All the tenements are owned by 100% by Stone.

VRM has reviewed all the tenements on the DMIRS Mineral Titles Online database, 32 of the tenements have been subject to forfeiture applications. VRM has either reviewed agreements or been informed of agreements under which these tenement forfeiture applications will be withdrawn. One of the tenements has a forfeiture notice lodged by DMIRS regarding the under-expenditure which, in VRM’s opinion will likely result in a small fine being imposed for the under-expenditure. VRM considers the remaining DMIRS application is proceeding in line with the expected process.

Due to the considerable number of tenements VRM considers it unnecessary to include a full list of the individual claims within the body of this report however, they are appended in Appendix A.

2.1.2.Access

The Project is located in an established gold mining region, within a 70 km radius of Laverton in the eastern Goldfields of Western Australia (Figure 3). The project is accessed via a sealed road from Kalgoorlie via Menzies and Leonora to Laverton then by unsealed gravel roads with most being gazetted roads that are maintained by the Laverton Shire. Access within the project is limited to station and exploration tracks. Most of the unsealed roads are well maintained and are however closed after high rainfall events.

Figure 4 below outlines the current tenement outline of the Brightstar Gold Project and the registered heritage sites. There are a small number of heritage sites within the Southern Brightstar Gold Project that would impact exploration activities, the main site in the southern group of tenements is dominantly within the less prospective granite. Large parts of the northern group of tenements including the Ben Hur and Delta deposits are close to or within identified heritage sites. These sites would likely place restrictions on the exploration and potential exploitation of the known mineralisation.

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Figure 2 Brightstar Gold Project Tenements excluding miscellaneous licences. Note not all tenements are labelled due to the tenement size and map scale

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Figure 3 Location and access within the Brightstar Gold Project

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Figure 4 Heritage sites in the Laverton Region (light brown) and the outline of the Brightstar Gold Project Tenements

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2.1.3. Regional Geology

The Brightstar Gold Project is located in the Eastern Goldfields Superterrane of the Yilgarn Craton. The southern tenements are located immediately to the east of the Terrane boundary between the Burtville Terrane and the Kurnalpi Terrane to the east of the Hootanui fault system as defined by Cassidy et.al (2006). More recent geological mapping by the Western Australian Geological Survey has slightly adjusted the terrain boundary, especially in the western portion of the Duketon Greenstone Belt. This re-interpretation is based on more recent geological mapping and stratigraphic correlation. Within the Burtville Terrain there is an additional subdivision to separate Domains with the Brightstar Gold Project being located within the eastern portion of the Laverton Domain of the Kurnalpi Terrain and the western zone of the Duketon Domain of the Burtville Terrain.

The Duketon Domain includes intermediate and felsic volcanic rocks and associated mafic to ultramafic rocks in the central and eastern parts of the Duketon greenstone belt as well as greenstone assemblages dominated by mafic and ultramafic volcanic and fine-grained sedimentary rocks (Barley et al., 2003). The Laverton Domain includes mafic and ultramafic volcanic rocks, banded iron-formation, fine grained volcanogenic sedimentary rocks.

Within the Eastern Goldfields Superterrane the Kalgoorlie region has the largest gold endowment with the Laverton region being having the second largest endowment. Significant deposits in the Laverton area include Sunrise Dam, Granny Smith, Wallaby, Red October, Lancefield, Keringal and Red October while in the Duketon Greenstone belt significant deposits include Rosemont, Garden Well and Moolart Well.

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Figure 5: Regional geology (based on GSWA Regional mapping)

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2.1.4. Local Geology

Within this section VRM has summarised the local geology of the four main project areas, being the local geology of the areas associated with the Alpha, Beta and Delta Mineral Resource estimates and the and the retained tenements around the Ben Hur deposit.

Alpha

The geology of the Alpha Project is dominated by weathered foliated basalt and mafic schist. The upper portion of the weathering profile can be up to 10m thick and includes soil or hardpan up to 4m above a soft saprolite which is machine-‐rippable and indurated in places. Basement rock within the area is comprised of mafic volcanic rocks with interleaved narrow units of ultramafic rocks, some dolerite and interflow volcanogenic sediments.

Beta

The Beta Project is centred on the Burtville Shear that trends from near Sunrise Dam to Burtville. In the area of Beta this shear is known as the Mikado Shear. The deposit occurs along the Eastern Margin of the Laverton Tectonic zone, which hosts the major gold occurrences (> 1Moz) of Granny Smith, Sunrise Dam, Keringal, and Red October (all owned by other companies). The dominant rock types include a sequence of a metamorphosed ultramafic, high magnesian basalt, tholeitic basalts, dolerite, gabbro, plus minor greywacke and siltstone. Lithological contacts are generally intensely sheared and altered.

Delta

The Delta Project occurs within the Duketon Greenstone Belt, formerly known as Cork Tree Well, and lies along the western limb of the Erlistoun syncline. The sequence includes mafic volcanic lavas, tuffs, and tuffaceous sediments with minor interflow graphitic shales and banded iron formation. Mineralisation at the Cork Tree Well Mine was hosted within interflow cherts and sediments which contained pervasive pyrite, pyrrhotite and magnetite mineralisation. The sediments which host the gold mineralisation have been intruded by concordant porphyry sills which extend the length of the mineralised zone.

Exploration and Drilling

The Brightstar Project area has a long exploration history. The exploration methods include geological mapping, geophysical surveying, geochemical sampling, auger sampling, rock chip sampling and drilling. A variety of drilling methods have been undertaken including Auger, rotary air blast (RAB) and aircore (AC) drilling being the main methods. Reverse circulation (RC) drilling was carried out on the more advanced prospects and deposits with a small number of diamond drill holes within the deposits for metallurgical, geotechnical and validation of the RC drilling along with deeper exploration below the shallow mineralisation.

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The GSWA open file drilling database indicates that a total of 4,552 drill holes have been completed in the Brightstar project area for a combined 203,857.2 meters of drilling. This drilling consists of 1082 Aircore holes (38,073.4 meters), 1582 RAB holes (76,015.2 meters), 407 Auger holes (435.4 meters), 375 Vacuum holes (1,845 meters), 956 RC holes (79,049.7 meters) and 31 diamond holes (4,798 meters). For 82 holes, totalling 3317.5 meters, the drilling method has not been recorded. The other types of drilling total 37 holes. This drilling database consists of all drilling that are available to the public and have been reported to DMIRS since digital reporting of exploration data was required, including exploration conducted within granted tenements up and including 2013.

2.1.5. Mineral Resource Estimates

There are three Mineral Resource estimates within the Brightstar Gold Project. These are estimates for the Alpha, Beta and Delta gold deposits. The Mineral Resource estimates were all undertaken by CSA Global Pty Ltd in accordance with the JORC 2012 guidelines and reported unchanged by Stone in its past five Annual Reports (2015-2019). VRM has based this report and valuation on the Mineral Resource estimates that were in the public domain as at the valuation date. VRM does however note that Stone released a Mineral Resource estimate review including all the required JORC tables on 10 September 2020. While the Mineral Resource estimate review resulted in a slightly lower global contained gold (6,000oz less than the previous estimate) it is considered by VRM to be within the range and margin of error for an estimate of this type.

Table 1 below details the Mineral Resource estimates within the Brightstar Gold Project with the Alpha and Delta estimates reported at a 0.5g/t gold cut-off while the Beta estimate is reported at a 0.3g/t gold cut-off. These variable cut-off grades are reasonable for open pit mining with the lower cut-off for Beta being, in VRM’s opinion, due to the proximity of the resource to the likely processing facility.

Table 1 Brightstar Gold Project Mineral Resource Estimates

	Brightstar Gold Project Mineral	Brightstar Gold Project Mineral	Resource Estimates
Deposit	Category	Tonnes (t)	Grade(g/t)	Ounces (koz)
	Measured	623,000	1.6	33,000
Alpha	Indicated	374,000	2.1	25,000
0.5g/t cut-off	Inferred	455,000	3.3	48,000
	Total	1,452,000	2.3	106,000
	Measured	408,000	1.5	20,000
Beta	Indicated	692,000	1.4	31,000
0.3g/t cut-off	Inferred	1,181,000	1.5	57,000
	Total	2,281,000	1.5	107,000
	Measured	1,220,000	1.9	76,000
Delta 0.5g/t	Indicated	944,000	1.9	57,000
cut-off	Inferred	1,696,000	1.9	104,000
	Total	3,860,000	1.9	237,000
Total		7,593,000	1.9	451,000

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Note appropriate rounding has been applied and totals may not add due to rounding errors

The Resource Estimates for the Alpha, Delta and Ben Hur Gold deposits were updated by Stone in the 5 June 2014 ASX release (note the Ben Hur Deposit was sold to Regis Resources as announced on 12 August 2020 and is therefore excluded from the Mineral Resource Estimate table above). In addition to these resources an additional Mineral Resource Estimate for the Beta gold deposit was undertaken in 2015 (Mineral Resource Estimate for the Beta Gold Deposit, CSA Global, 12 October 2015, CSA Report R258.2015) however this has not been fully officially announced by Stone other than in its annual reports. VRM has received a copy of the full Mineral Resource Estimate Report from Stone and has reviewed that estimate. It has been undertaken and reported by CSA Global, a large independent mining consultancy, as being compliant with the 2012 JORC Code. The Competent Person for all of the Stone Mineral Resource Estimates is Dr Bielin Shi, an employee and consultant at CSA Global. Dr Shi is a Member of the AusIMM. Dr Shi is considered by VRM to be Independent of Stone.

Informing Data

Each of the resource areas has been drilled at a nominal spacing of 20m x 20m with some areas drilled at 20x 40m spacing. Within the Mineral Resources only RC and diamond drill holes have been used in the estimation of the resource grades however it is expected that some Aircore and RAB drilling may have been used in some areas for geological interpretation.

The recent RC samples were all collected on a single meter interval down hole with the samples for analysis obtained from a rig mounted cone splitter after the drilling rig cyclone. The cyclone was reported as being cleaned regularly and flushed at rod changes. This was to minimise contamination or down hole smearing of individual samples. Initial assay samples were collected as a four meter composite from spear or riffle splitting individual one meter samples. Where an anomalous assay results were received (>0.3g/t gold four meter composite assay) these were re-sampled on an individual one meter sample. These one meter samples were used in the Resource Estimates.

All drill collars were surveyed using a differential GPS to allow accuracy of approximately +/- 10mm.

All holes were geologically logged using Stone’s geological logging codes.

Sampling and Analysis

Samples were submitted with pre-set numbering allowing for submission of duplicates at regular 25 sample intervals. Duplicate assays were unknown to the laboratories. Sample standards or blanks were submitted in the field by Stone and repeatability was reviewed and determined by CSA as being high.

Fire assaying with a 40g charge was completed initially. Screen Fire Assaying was conducted on some drill core samples at Kalgoorlie Assay Laboratories and independently in Perth for intervals where high grade, interpreted ‘nuggetty’ gold previously had been reported in fire assay results. Screen fire results

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were generally similar or higher than the fire assay results. The presence of visible gold in diamond drill core was the reason for undertaking Screen Fire Assays.

QAQC processes were checked by CSA for sampling and assaying. The results for Standards, Blanks and duplicates analysis are within the accuracy limits for these analytical techniques and, on the whole, show the quality of the analytical work to be satisfactory.

Resource Estimation

A total of 1,395 RC and 3 diamond drill holes in Alpha area, 1,133 RC and 15 diamond drill holes in Beta area and 908 RC drill holes in Delta area were used in the resource modelling. The exploration for the deposits primarily was on a nominal 20m by 20m drilling pattern with this drill density reducing to a 25m by 60m at depth. The database was reviewed and validated for obvious errors prior to commencing the resource estimation.

The mineralisation was wireframed based on sectional interpretations on approximate 20m sections and is based on a 0.3g/t gold nominal lower cut-off grade for the Alpha and Delta deposits and 0.25g/t gold wireframes for the Beta deposit.

The Resource cut-off grade of 0.5g/t for the Alpha and Delta deposits and 0.3g/t for the Beta deposit was selected as it represented a natural ‘geological’ cut-off and as being suitable for open cut mining. The lower cut-off for Beta is likely due to the location of the possible processing facility and the lower costs to transport the ore to the mill. This appears reasonable.

All samples were flagged according to the mineralised domains they fall into based on the constructed wireframes. The majority of samples are 1m length. Top Cuts were used to treat the high gold grades based on a review of the assay results in each domain applying an individual histogram, log probability plot.

Variography and evaluation of suitable estimation parameters based on the final variogram models were undertaken based on 1m composites. The variography indicates that moderate levels of short range variability exist, which is typical for the mineralisation in the region.

The block model was initially created as separate geological block models with varying sub-block sizes for mineralisation and weathering whilst maintaining a parent cell size of 5.0mE × 10.0mN × 5.0mRL. Sub-blocks were generated down to 0.5mE × 2.0mN × 0.5mRL as appropriate to honour the wireframes and weathering interpretations.

Ordinary Kriging (OK) was used to estimate 3D blocks for gold grade. Quantitative Kriging Neighbourhood Analysis was used to optimise parameters for the Kriging search strategies.

The Alpha and Delta Mineral Resources have been classified and reported in accordance with The JORC Code 2012 Version. Resource classification is based on confidence in the geological domaining, drill spacing and geostatistical measures.

There are historic open pits at the Alpha and Delta deposits with the mined volume removed from the Resource estimate.

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2.1.5.1. VRM Comment

VRM considers that the block model, estimation technique, compositing block sizes, and search parameters are all reasonable and done using standard industry practice.

The method that the bulk densities have been determined are in-line with industry standard however the number of the bulk density measurements in each deposit and each domain within each deposit has not been reported. Additionally, the actual density used in the Mineral Resource Estimate has not been included or disclosed in the public report or release. In VRM’s opinion additional disclosure on the number of Bulk Density measurements in each deposit, each domain and the actual density used in each domain (and deposit) should be publicly reported.

Within the Beta Mineral Resource Estimate Report, it is documented that a total of 93 samples have been used in determining the Bulk Density. That report also documents the density used in the oxide to be 2.4g/cm[3] , 2.5g/cm[3] for transitional material and 2.65 g/cm[3] of fresh rock. These Bulk Density measurements appear, in VRM’s opinion, to be slightly higher than would usually be expected for the oxide material while the transitional and fresh rock densities appear reasonable. VRM however considers that significantly more density measurements should be done in all deposits and within all mineralised domains.

Overall, the Mineral Resource estimate was conducted using standard industry practice and are considered by VRM to comply with the 2012 JORC Code.

Overall, in VRM’s opinion, the data presented in the JORC Table 1 for the Alpha and Delta Mineral Resource Estimates is adequate however the Beta Resource has not been reported in a public report in accordance with the 2012 JORC Code due to the resource not being released with the required information or JORC Table 1 included in the public release. The Mineral Resource Estimation report provided to VRM by Stone and undertaken by CSA does have the required JORC Table 1 included in the report. In VRM’s opinion, aside from this aspect the Beta Mineral Resource Estimate has been undertaken in accordance with JORC Code.

Below are several figures all extracted from the Alpha and Delta Mineral Resource Estimate ASX release (5 June 2014) showing a plan of drill collars and a cross section from each deposit. In addition to the figures from the Alpha and Delta deposits additional drill collar plans and cross sections for the Beta deposit have been sourced from the Mineral Resource Estimation report on the Delta deposit.

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Figure 5 Plan of drill collars at the Alpha Deposit as at 2014. (source Stone MRE ASX release 5 June 2014)

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Figure 6 Cross Section through the Alpha Deposit. (source Stone MRE ASX release 5 June 2014)

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Figure 7 Drill Hole Collar Plan of the Delta Gold Deposit. (source Stone MRE ASX release 5 June 2014)

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Figure 8 Cross Section through the Alpha Deposit. (source Stone MRE ASX release 5 June 2014)

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Figure 9 Drill Hole traces and Extent of mineralisation within the Beta Gold Deposit (source CSA Global Beta Resource Report 12 October 2015)

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Figure 10 50095mN Cross Section through the Beta Gold Deposit (source CSA Global Beta Resource Report 12 October 2015)

2.1.6. Technical Studies and Ore Reserves

While Stone has produced gold from the Alpha and Beta deposits from early 2010 to late 2011 and technical studies and tests were undertaken as a part of the decision to commence those mining activities, those studies are all no longer considered valid, viable or current.

There are no JORC 2012 Ore Reserve estimates for the project.

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2.1.7. Recent Exploration

There has been minimal recent exploration.

Exploration since 2013 within the retained tenements has been dominated by geochemical sampling approximately 3,950 soil samples (mainly mobile metal ion (MMI) samples), geological mapping and geophysical surveys including sub-audio magnetics (SAM), electromagnetic (EM) and Aeromagnetic surveys. A total of 590m of drilling has been undertaken however the number, location, hole details and assay results have not been reported.

3. Valuation Methodology

The VALMIN Code outlines various valuation approaches that are applicable for Properties at various stages of the development pipeline. These include valuations based on market-based transactions, income or costs as shown in Table 2 and provides a guide as to the most applicable valuation techniques for different assets.

Table 2 VALMIN Code 2015 valuation approaches suitable for mineral Properties

Valuation Approach Exploration Projects	Pre-development Projects Development Projects	Production Projects
Market Yes	Yes Yes	Yes
Income No	In some cases Yes	Yes
Cost Yes	In some cases No	No

The Brightstar Gold project is best described as an advanced exploration project that is on care and maintenance. There has not been a feasibility study completed, there are no Ore Reserves estimated on the project. There are Mineral Resource estimates within the project (as detailed above) which have been reported under the JORC Code (2012).

VRM does not consider an income valuation methodology is appropriate for the project, therefore, the valuation of the project is based on a comparable transaction (market - based approach) with supporting valuation methods used including yardstick and a geoscientific (Kilburn) valuation approach.

3.1. Previous Valuations

VRM has not been provided any previous valuations. A review of the publicly available information, including ASX releases has been undertaken and has not identified recent or relevant any previous valuations on the project.

VRM does note that the recently announced transaction by Stone on the Ben Hur deposit consisted of issuing full ordinary shares in Regis Resources Limited to a value of $10 million and a 1% NSR royalty on gold production after the first 100,000oz of gold has been produced. The 1% NSR royalty is capped at $5 million

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after which it will revert to 0.0025% for four years. VRM would usually significantly discount any potential royalty associated with a potential transaction therefore this transaction would fall within the expected range of values based on the Mineral Resource at Ben Hur and the resource multiples used in the valuation below.

3.2. Valuation Subject to Change

The valuation of any mineral Property is subject to several critical inputs most of these change over time and this valuation is using information available as of 12 August 2020 being the valuation date of this Report. This valuation is subject to change due to updates in the geological understanding, variable assumptions and mining conditions, climatic variability that may impact on the development assumptions, the ability and timing of available funding to advance the Property, the current and future gold prices, exchange rates, political, social, environmental aspects of a possible development, a multitude of input costs including but not limited to fuel and energy prices, steel prices, labour rates and supply and demand dynamics for critical aspects of the potential development like mining equipment. While VRM has undertaken a review of several key technical aspects that could impact the valuation there are numerous factors that are beyond the control of VRM.

As at the date of this Report in VRM’s opinion there have been no significant changes in the underlying inputs or circumstances that would make a material impact on the outcomes or findings of this Report. VRM does however note that there has been a significant improvement in the gold price in US dollars over the past three months however due to exchange rate variations this improvement has not translated to as significant an improvement in the Australian Dollar gold price.

3.3. General assumptions

The Mineral Assets of Stone are valued using appropriate methodologies as described Table 2 and in the following sections. The valuation is based on several specific assumptions detailed above, including the following general assumptions.

That all information provided to VRM is accurate and can be relied upon,
The valuations only relate to the Brightstar Gold project and not Stone or the shares of Stone or Stone’s market value,
VRM has based the valuation and this report on the Mineral Resource Estimates as at the valuation date but does note that there was a review of the estimates announced by Stone on 10 September 2020 which resulted in a 6,000oz reduction in the global estimate.
That the mineral rights, tenement security and statutory obligations were fairly stated to VRM and that the mineral licences will remain active (Tenement Schedule in Appendix A),
That all other regulatory approvals for exploration and mining are either active or will be obtained in the required and expected timeframe,
Environmental liabilities associated with the project are typical for projects of this development stage and exploration, mining and processing history.

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That the owners of the mineral assets can obtain the required funding to continue exploration activities,
The gold price assumed (where it is used / considered in the valuation) is as at 12 August 2020 , being USD$1, 931.90 www.kitco.com. The average of the monthly averages for the three months prior to the valuation date (1 May 2020 to 31 July 2020) was USD$1,763.97 while the six month average from 1 February 2020 to 31 July 2020 was USD$1,693.98.
The US$ - AUS$ exchange rate on 12 August 2020 was 0.716624 (www.xe.com)
All currency in this report are Australian Dollars (or AUD), unless otherwise noted, if a particular value is in United States Dollars, it is prefixed with USD.

3.4. Market Based Valuations

As the projects being valued in this Report are dominantly prospective for gold it is important to note the current status of the gold market prior to completing the valuation

3.4.1. Gold Market

The gold price is fundamentally different to many of the other commodities as the gold price is frequently seen as a pseudo currency and is considered by many as a safe haven investment option, especially in the current monetary policies of many of the major countries reserve banks. Figure 11 to Figure 14 below shows the gold price over the last one and five in both US dollars and Australian dollars. Due to the significant variations in the price over such a short period it is considered critical to ensure that any transactions that are used in a market or transactional based valuation are normalised to the current gold price. This allows a more accurate representation of the value of the mineral asset under the current market environment.

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Figure 11 Five year US$ Gold Price graph (source kitco.com)

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Figure 12 Five year AUS$ Gold Price graph (source kitco.com)

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Figure 13 One year US$ Gold Price graph (source kitco.com)

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Figure 14 One year AUS$ Gold Price graph (source kitco.com)

While the gold price is high in Australian dollars there is also a strong bias toward advanced projects obtaining funding and the earlier stage projects being difficult to attract investment money.

VRM’s considers that while the gold price is at or near an all-time high in both Australian and US dollars, the overall market, especially for projects without a completed feasibility study is considered to be slightly depressed. Of particular concern is the uncertainty due to the ongoing Covid-19 pandemic.

When normalising the transaction valuation to the gold price VRM has elected to use the gold price as at the valuation date to normalise the resource multiples.

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3.5. Valuation of Advanced Properties

There are several valuation methods that are suitable for advanced Properties these include;

Financial modelling including discounted cash flow (DCF) valuations (generally limited to Properties with published Ore Reserves),
Comparable Market Based transactions including Resource and Reserve Multiples
Joint Venture Transactions
Yardstick valuations

As there are no current Ore Reserves estimated for the Brightstar Gold project VRM does not consider an income - based valuation approach is suitable as a primary valuation method. There are significant modifying factors that impact the viability and economic returns of a mining operation. Until the modifying factors are updated to account for the current market conditions and identified and quantified by additional studies, typically completed as a part of an Ore Reserve Estimation, it is VRM’s opinion that any assumptions in critical modifying factors could, and often would, have a material impact on a valuation using an income approach. Even if an income approach were used the uncertainty of these variables without the support of further studies would create a very wide range in valuations therefore limiting the usefulness in assessing a market valuation.

3.5.1. Comparable Market Based Transactions – Resource Based

A comparable transactional valuation is a simple and easily understood valuation method which is broadly based on the real estate approach to valuation. It can be applied to a transaction based on the contained metal for projects with Mineral Resource Estimates reported. Advantages of this type of valuation method include that it is easily understood and applied, especially where the resources or tenement area is comparable, and the resource or exploration work is reported according to an industry standard (like the JORC Code or NI43-101).

However, is not as robust for projects where the resources are either historic in nature, reported according to a more relaxed standard, or are using a cut-off grade that reflects a commodity price that is not justified by the current market fundamentals. If the projects being valued are in the same or a comparable jurisdiction, then it removes the requirement for a geopolitical adjustment. Finally, if the transaction being used is recent then it should reflect the current market conditions.

Difficulties arise when there are a limited number of transactions, where the projects have subtle but identifiable differences that impact the economic viability of one of the projects. For example, the requirement for a very fine grind required to liberate gold from a sulphide rich ore or where the ore is refractory in nature and requires a non-standard processing method. For Iron Ore projects the differences would occur with different mineralogy including hematite mineralisation compared to magnetite mineralisation.

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The information for the comparable transactions has been derived from various sources including the ASX and other securities exchange releases associated with these transactions, a database compiled by VRM for exploration stage projects (with resources estimated) and development ready projects.

This valuation method is the primary valuation method for exploration or advanced (pre-development) projects where Mineral Resources have been estimated but no current Ore Reserves have been declared. More advanced projects would typically be valued using an income approach due to the modifying factors for a mining operation being better defined.

The preference is to limit the transactions and resource multiples to completed transactions from the past two to three years in either the same geopolitical region or same geological terrain however due to the limited number of recent completed gold transactions VRM has used all transactions that could be considered comparable.

The comparable transactions have been compiled where Resources have been estimated and where there are typical environmental liabilities associated with the projects including previous exploration, mining and processing from the project. Appendix A details the Resource Multiples for a series of transactions that are considered at least broadly comparable with the Brightstar Gold Project.

3.5.2. Yardstick Valuation– Resource Projects

A yardstick valuation was undertaken as a check of the comparable transactions. This yardstick valuation is based on a rule of thumb as supported by a large global database of transactions where the contained metal in resources and reserves at various degrees of confidence are multiplied by a percentage of the spot price. The database is an in-house compilation of historical publicly announced transactions (dominantly from ASX releases) from 2010 to 2018 with various resources classifications. The yardstick valuation factors used in this report are in line with other yardstick valuation factors commonly used in other VALMIN reports such as Naidoo et.al. (2016).

Table 3 details the yardstick multiples used for gold resources. Typically, base metal and other commodities which are sold as concentrates use significantly lower yardstick multiples to reflect the proportion of the value of the metal in concentrate that is paid to the producer. Gold is typically sold directly to a refinery or mint as gold Dore (an alloy of gold and silver) and a very high proportion of the metal value is paid to the producer, often >97% while concentrates result in a much lower proportion of the metal value being paid to a producer (often as low as 50-60% of the metal value).

The spot gold price as of 12 August 2020 of US$1,931.90/oz. and an exchange rate of 0.716624 which results in a gold price in Australian dollars of AUD$2,695.84 is used in this report to determine the yardstick valuation.

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VRM notes that the gold price and exchange rates have been quite volatile since the transaction was announced however the increase in the US dollar gold price has been offset by the changes in the USAustralian exchange rate.

Table 3 Yardstick Multiples used for Gold Projects

Resource or Reserve Classification	Lower Yardstick Multiple Upper Yardstick Multiple
	(% of Spot price) (% of Spot price)
Ore Reserves	5% 10%
Measured Resources (less Proved Reserves)	2% 5%
Indicated Resources (less Probable Reserves)	1% 2%
Inferred Resources	0.5% 1%
JORC 2004 Inferred Resources	0.25% 0.5%

In using the Yardstick valuation VRM considers it prudent to downgrade any JORC 2004 resources to the next lowest classification however in this case there are no Pre JORC 2012 Mineral Resource Estimates reported by the company.

3.6. Exploration Asset Valuation

To generate a value of an early stage exploration Property or the exploration potential away from a mineral deposit it is important to value all the separate parts of the mineral assets under consideration. In the case of the advanced Properties the most significant value drivers for the overall Property are the declared Mineral Resources or Ore Reserves, while for earlier stage Properties a significant contributor to the Property’s value is the exploration potential. There are several ways to determine the potential of pre-resource Properties, these being;

A Geoscientific (Kilburn) Valuation
Comparable transactions (purchase) based on the Properties’ area
Joint Venture terms based on the Properties’ area
A prospectivity enhancement multiplier (PEM)
A Yardstick valuation approach

The methodology to determine the Comparable transactions based on a projects area is undertaken using the same methodology as that described for the Comparable transactions’ valuation for advanced projects section; however transactional value is applied to the project’s area rather than the resources. The Joint Venture terms valuation is similar to the comparable transactions based on the project area, other than a discount to the Joint Venture terms is applied to account for the time value of money (an appropriate discount rate is applied) and a discount to the earn-in expenditure to account for the chance that the Joint Venture earn-in expenditure is not completed in the agreed timeframe.

VRM considers the comparable transaction multiples as detailed above to be a robust valuation technique especially where there are similar geological, geopolitical and geographical projects. A Geoscientific or

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Kilburn valuation method is also considered a robust valuation method. It is the view of VRM that the least transparent and most variable valuation method is a PEM valuation as this depends on an assessment of the effectiveness of the expenditure.

3.6.1. Geoscientific (Kilburn) Valuation

One valuation technique that is widely used to determine the value of a project that is at an early exploration stage without any mineral resources or reserve estimates was developed and is described in an article published in the CIM bulletin by Kilburn (1990). This method is widely termed the geoscientific method where a series of factors within a project are assessed for their potential.

While this technique is somewhat subjective and open to interpretation it is a method that when applied correctly by a suitably experienced specialist enables an accurate estimate of the value of the project. There are five critical aspects that need to be considered when using a Kilburn or Geoscientific valuation, these are the base acquisition cost, which put simply is the cost to acquire and continue to retain the tenements being valued. The other aspects are the proximity to both adjacent to and along strike of a major deposit (Off Property Factors), the occurrence of a mineral system on the tenement (On Property Factors), the success of previous exploration within the tenement (Anomaly Factors) and the geological prospectivity of the geological terrain covered by the mineral claims or tenements (Geological Factors). In early stage projects often the anomaly factors and geological factors have limited information.

While this valuation method is robust and transparent it can generate a very wide range in valuations, especially when the ranking criteria are assigned to a large tenement. This method was initially developed in Canada where the mineral claims are generally small therefore reducing the potential errors associated with spreading both favourable and unfavourable ranking criteria to be spread over a large tenement. Therefore, VRM either values each tenement or breaks down a larger tenement into areas of higher and lower prospectivity.

Table 4 documents the ranking criteria while the inputs and assumptions that were used to derive the base acquisition cost (BAC) for each tenement are detailed in the valuation section below.

VRM determines the BAC based on the holding cost of maintaining the tenement for the next year. That cost is determined by minimum exploration commitment required to maintain the tenement for the next year. In Western Australia as the tenements are granted the tenement rents and shire rates are allowed expenditure toward that exploration commitment therefore only the exploration commitment is used in determining the BAC. The BAC is derived from the DMIRS (previously the Department of Mines and Petroleum) mineral titles database.

The technical valuation derived from the Kilburn ranking factors are frequently adjusted to reflect the geopolitical risks associated with the location of the project and the current market conditions toward a

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specific commodity or geological terrain. These adjustments can either increase or decrease the technical value to derive the market valuation.

Using the ranking criteria from Table 4 along with the base acquisition costs tabulated in the appendices an overall technical valuation is determined.

Table 4 Ranking criteria are used to determine the geoscientific technical valuation

		Geoscientific Ranking Criteria	Geoscientific Ranking Criteria

Rating	Off-propertyfactor	On-propertyfactor	Anomalyfactor	Geological factor
0.1				Generally unfavourable geological setting
0.5			Extensive previous exploration with poor results	Poor geological setting
0.9			Poor results to date	Generally unfavourable geological setting, under cover
1.0	No known mineralisation in district	No known mineralisation within	No targets defined	Generally favourable geological setting
1.5	Mineralisation identified	Mineralisation identified	Target identified; initial indications positive
2.0	Resource targets identified	Exploration targets identified		Favourable geological setting
2.5			Significant intersections – not correlated on section
3.0	Along strike or adjacent to known mineralisation	Mine or abundant workings with significant previous production		Mineralised zones exposed in prospective host rocks
3.5			Several significant ore grade intersections that can be correlated
4.0	Along strike from a major mine(s)	Major mine with significant historical production
5.0	Along strike from world class mine

The technical valuation can either be discounted or have a premium applied to derive a market valuation. A market factor was determined based on the gold market and any impediments to progressing the projects. VRM considers that due to the gold price being at or close to historic highs a small premium should be applied. On that basis a 10% premium was applied to the technical valuation. If it weren’t for the uncertainty caused by Covid-19 VRM considers that a larger premium may have been applied. There has been no discount for any regulatory or geopolitical issues associated with the project.

For early stage Projects (where there are no Mineral Resources estimated), VRM considers the Geoscientific (Kilburn) Valuation method to be the most robust and is commonly the primary valuation method used. The

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Geoscientific (Kilburn) Valuation method is checked using the other valuation methods with a preference toward Joint Venture terms and comparable transactions. The reason VRM usually prefers the geoscientific valuation method over comparable transaction valuations is that it is very rare to identify two truly comparable Properties. Therefore, care is required in selecting comparable transactions. Where completed transactions for broadly comparable Properties have been identified a discount or premium can be assigned to a comparable transaction multiple based on observed differences between the various comparable transactions.

A Geoscientific or Kilburn valuation method can be applied to projects with Mineral Resources with the ranking criteria usually assigned to each tenement individually. Where a resource is contained within one tenement then the ranking criteria for that tenement would be elevated due to the successful exploration while tenements along strike would also get a higher ranking due to the higher off tenement ranking. Large tenements that cover different areas with highly different geological prospectivity, for example post mineralising granite intrusions compared to prospective greenstone stratigraphy would be divided into an estimate of the area of the prospective portion of the tenement with that being ranked separately from the less prospective portion of the tenement.

4. Valuation of Stone Resources Mineral Assets

Within the Brightstar Gold project at Laverton, Western Australia there are several groups of tenements that have been valued separately. The Northern Brightstar Gold Project tenements which contain the Delta deposit has been valued separately to the Alpha and Beta deposits within the Southern Bright Star Project.

4.1. Brightstar Gold Project Valuation

There are no Ore Reserves declared within the Brightstar Gold Project, therefore, in VRM’s opinion an income valuation approach is not considered a suitable valuation method. VRM has undertaken a valuation based on three separate techniques, these being a comparable transaction (resource multiplier) method and a yardstick method and a Geoscientific or Kilburn method.

4.1.1. Comparable Transactions – Gold Resource Multiples

The Brightstar Gold project has been valued as an advanced exploration project. If the company had completed pre-feasibility study, declared Ore Reserves and were advancing the project toward development then it would be valued as a Development project which would result in significantly higher resource multiples than an advanced exploration project.

As detailed in Appendix B, VRM has reviewed a series of transactions involving gold resources in Western Australia. An analysis of these projects has identified, when excluding projects that have a significantly larger resource base or operating large scale processing facilities, 24 potentially comparable projects. The

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comparable projects were limited to a maximum global resource base of 2.5Moz, which is significantly higher than the 0.451Moz global resource within the greater Brightstar Gold Project.

VRM has used a lower resource multiple of AUS$23.17, an upper resource multiple of AUS$60.80 and a preferred multiple of AUS$34.74 being the median, average and 75[th] percentile of the transactions that are considered comparable.

The resource multiples detailed above and supported by the information in Appendix B have been used along with the Brightstar Gold Project JORC 2012 Mineral Resources detailed above to determine the valuations shown in Table 5. This valuation has taken into account the likely environmental liabilities associated with the project, including rehabilitation, due to the resource multiples being obtained from project based transactions with similar and typical environmental liabilities.

Table 5 Comparable transaction valuation summary for Resources within the Brightstar Gold Project

Comparable Gold	Transactions Valuation Summary	Transactions Valuation Summary
	Lower	Preferred	Upper
Gold Resource (Moz)	0.451	0.451	0.451
Resource Multiple (A$/oz)	23.17	34.74	60.80
Valuation (AUD$ million)	10.46	15.68	27.45

Note appropriate rounding has been applied to the Resource estimate and the valuation.

Therefore, VRM considers the Brightstar Gold Project to be valued, based on comparable transactions, at between $10.5 million and $27.4 million with a preferred valuation of $15.7 million.

The overall preferred valuation and preferred valuation range of the Brightstar Gold Project, after considering the comparable transaction resource multiple method (primary valuation method) and the secondary valuation methods detailed below, has been based on the average resource multiple for comparable transactions with the range being determined based on a ± 20% of the preferred valuation. This has resulted in VRM considering the preferred valuation of the project as being $15.7 million within a range from $12.5 million to $18.8 million.

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4.1.2. Yardstick Valuation

Table 6 details the yardstick multiples were used to determine the value of the Resources within the Brightstar Gold Project while Table 7 tabulates the valuation for the project based on the currently Resource estimates.

Table 6 Yardstick Multiples used for the Brightstar Gold Project

JORC 2012 Resource	Lower Yardstick Multiple	Upper Yardstick Multiple
Classification	(% of Spot price)	(% of Spot price)
Measured Resources	2%	5%
Indicated Resources	1%	2%
Inferred Resources	0.5%	1%

Table 7 Yardstick Valuation of the Brightstar Gold Project

Deposit	Classification	Resource (Oz Gold)	Valuation (AUS$ Low Preferred	Valuation (AUS$ Low Preferred	million) High
	Measured	33,000	$1.78	$3.11	$4.45
Alpha	Indicated	25,000	$0.67	$1.01	$1.35
	Inferred	48,000	$0.65	$0.97	$1.29
	Measured	20,000	$1.08	$1.89	$2.70
Beta	Indicated	31,000	$0.84	$1.25	$1.67
	Inferred	57,000	$0.77	$1.15	$1.54
	Measured	76,000	$4.10	$7.17	$10.24
Delta	Indicated	57,000	$1.54	$2.30	$3.07
	Inferred	104,000	$1.40	$2.10	$2.80
Brightstar Project Valuation AUS$			$12.82	$20.97	$29.12

Note: The yardstick valuation of uses the gold price as at 12 August 2020 US$1,931.90 and an exchange rate of 0.71662 resulting in an A$2,695.84/oz. Appropriate rounding has been applied to the resource and the valuation.

The yardstick valuation range for the entire Brightstar Gold Project of $12.8 million to $29.1 million with a preferred valuation (average of the upper and lower) is $21.0 million.

This is broadly in line with the comparable transaction valuation range of $10.5 million to $27.4 million with a preferred valuation of $15.7 million. However, a yardstick valuation is considered by VRM to be a useful guide of a possible valuation and should not be used as a primary valuation method.

4.1.3. Geoscientific Valuation

There are several specific inputs that are critical in determining a valid geoscientific or Kilburn valuation, these are ensuring that the specialist undertaking the valuation has a good understanding of the mineralisation styles within the overall region, the tenements and has access to all the exploration and

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geological information to ensure that the rankings are based on a thorough knowledge of the project. In addition to ensuring the rankings are correct deriving the base acquisition costs (BAC) is critical as that is the primary driver of the final value. In this case the BAC is derived by the exploration commitment to maintain the tenement in good standing and annual tenement rents while the costs of the tenement applications and targeting have not been included. Therefore, in VRM’s opinion the Kilburn valuation of the tenement associated with the Brightstar Gold Project is considered to be a reasonable fair market valuation.

In VRM’s opinion the value of the exploration potential within the tenements of the Brightstar Gold Project has been captured by this Geoscientific or Kilburn valuation.

The Geoscientific rankings were derived for each of the Kilburn ranking criteria with the off property criteria considered to be between 1.0 and 3.5, the on Property criteria between 1.0 and 3.0, the anomaly factor between 0.9 and 4 while the geology criteria are considered to be between 0.1 and 2.5. When these ranking criteria are combined with the base acquisition cost as detailed in Appendix C this has determined the technical value as shown in Table 8 which has summarised the valuations into the Northern and Southern tenement groups of the Brightstar gold project. This valuation includes the Mineral Resource Estimates within the tenements.

Table 8 details the technical value of the exploration potential within the Brightstar Project while the Fair Market Value of the project is based on a location and market discount. A premium of 10% from the technical valuation has been applied due to the current extremely high gold price (close to or at historic high gold prices). A larger premium may have been applied however there is uncertainty due to the impact and uncertainty associated with Covid-19 which has limited the premium. Overall, the fair market valuation is detailed in Table 9. The base acquisition cost used in this valuation is based on the tenement rents and exploration commitments in Western Australia.

Table 8 Technical Valuation of the Brightstar Gold Project

Project		Technical Valuation
	Lower (A$)	Preferred (A$)	Upper (A$)
Brightstar Southern Tenements	$2,440,000	$4,130,000	$5,820,000
Brightstar Northern Tenements	$4,810,000	$7,820,000	$10,820,000
Total Brightstar Project	$7,250,000	$11,950,000	$16,640,000

Notes

1) the table above is the technical valuation which is the base acquisition cost multiplied by the ranking factors outlined in Appendix C

2) Valuations are rounded to account for the accuracy of the valuation method.
3) Totals may not add due to rounding errors

Table 9 Market Valuation of the Brightstar Gold Project

Project	Market Valuation (A$ million)	Market Valuation (A$ million)	Market Valuation (A$ million)
	Lower	Preferred	Upper
Brightstar Southern Tenements	$5.29	$8.60	$11.91

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Brightstar Northern Tenements	$2.69	$4.55	$6.41
Total Brightstar Project	$7.98	$13.15	$18.32

Note appropriate rounding to the total valuation has been undertaken.

The market valuation as determined by the Geoscientific or Kilburn valuation method has determined a value of the Brightstar Gold Project to be between $8.0 million and $18.3 million with a preferred valuation of $13.2 million.

5. Royalty Valuation

VRM has reviewed several recent royalty transactions to determine a likely current value of the two royalties that are associated with the proposed transaction. The proposed transaction royalties are a 3% Net Smelter Return (NSR) royalty over the tenements that are retained by Stone and the 1% NSR capped at $5 million but only coming into effect after the production of 100,000oz from the Ben Hur gold deposit with the capped royalty reverting to a 0.0025% NSR royalty for four years.

As these royalties are based on a potential future production with the likelihood of that production being, at present highly uncertain, VRM has undertaken a probabilistic and statistical approach to the likely future value of the royalty. In VRM’s opinion it is reasonable to undertake a significant discount to the current Measured and Indicated Mineral Resource Estimates, and a higher discount to the Inferred Mineral Resource Estimates to determine a potential mining inventory which is further discounted to account for the likely metallurgical recovery. After these discounts are applied and combined with the current gold price this generates a potential total future value of the Royalty, with this potential value not having any discounts applied for the technical risks of the project, the risk of the project going into production nor the discounts for the potential future cashflows.

From two recent transactions in Western Australia VRM has estimated that a royalty for potential future gold production currently transacts at between 5% and 15% of the potential total future value of the royalty.

Undertaking a similar approach to determine this range in Royalty transactions VRM has estimated that based on the market approach for the recent royalty transactions the 1% capped royalty for the Ben Hur deposit is within the range of $0.07 million and $0.25 million, this is primarily due to the small potential mining inventory especially as the royalty is only applicable after the first 100,000oz of gold production from Ben Hur. The value of the 3% royalty which is over the tenements retained by Stone is significantly higher due to the lack of the initial royalty hurdle, the significantly larger resource, and the higher royalty rate. Overall VRM estimates that the current value of the 3% royalty over the Brightstar Gold Project is within the range of $0.8 million and $2.8 million.

In addition to the market transaction valuation VRM also undertook an assessment of the likely risks associated with the potential future development and therefore potential future cashflow from the royalties. In this analysis the risks were varied for each royalty due to the Ben Hur deposit being a new development

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opportunity while the Alpha, Beta and Delta resources are all situated below existing open pits. The discounts that VRM has applied are to take into account the possible modifying factors for potential future production for example undertaking cutbacks of an existing open pit has significant additional risks, the recent gold production from the Alpha and Beta deposits was significantly under what was expected again resulting in a higher discount to the risk of the potential of future cashflow associated with the royalties on those deposits. In addition to the technical aspects there is also a risk that the projects will never be commercially viable. VRM has also applied a discount to the value to account for the time delay in the potential future cashflows with the timeframe again variable from each of the deposits. VRM considers that a discount rate of 10% is appropriate to ultimately determine the present value of the royalties based on the possible eventual exploitation of the current resources. This probabilistic approach to the current value of the royalties has generated a royalty value for the 1% capped royalty over the Ben Hur deposit to be $0.25 million. The current value of the 3% royalty on the tenements retained by Stone is $1.88 million.

6. Risks and Opportunities

As with all mineral assets there are several risks and opportunities associated with the Brightstar Gold Project and therefore the valuation of those assets.

Some of the non-geological or mining related technical risks and opportunities that are common to most projects include the risks associated with the security of tenure, native title claims, environmental approvals, social, geopolitical, and regulatory approval risks. A significant risk is the current status of the tenements with most subject to forfeiture applications, while in VRM’s opinion most of the forfeiture applications that remain ongoing will result in, at worst for Stone, a small fine the security of the tenure is a significant risk.

A significant risk to the Alpha, Beta and Delta deposits is the resource grade. Based on the recent mining the material processed in the Brightstar mill was significantly lower grade than the expected grades, it is unclear if the lower grades are due to the underlying resource grade being over-estimated or if it is due to higher than expected mining dilution. Both of these aspects require investigation and are a significant risk to the project’s economic viability.

One risk, and potential opportunity, to the project valuation is the environmental liabilities associated with the previous exploration, mining, and processing on the project. If the environmental liabilities are significantly higher or previous activities have not been remediated in a systematic and ongoing manner the environmental liabilities may be higher than for the comparable transactions utilised and therefore the valuation may be overstated. However, the reverse may also be true. The environmental liabilities require ongoing monitoring. Based on the information from the DMIRS tenement search there have been no breaches of the tenement conditions associated with remediation or rehabilitation. On that basis it is considered, by VRM to be reasonable to assume the environmental liabilities are typical of the comparable transactions used in the valuation.

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For the exploration potential outside the currently delineated resources as is all exploration projects, a key technical risk is that further exploration will not result in identifying a body of mineralisation, greater than those already identified that is sufficient size and grade to justify development..

The largest opportunity within the projects is the significant exploration potential that has yet to be determined. There has been minimal deep exploration as is shown by the shallow average depth for the RC and Diamond drill holes. While the average depth of the RC holes is 85.8m as most of these holes are within the current deposits there is minimal exploration outside or below the current resources.

7. Preferred Valuations

Based on the valuation methodology detailed above Table 10 provides a summary of the valuations for each valuation method for the Brightstar Gold Project. Figure 15 shows the various valuations and VRM’s preferred valuation (and range) for the project. VRM’s preferred valuation is based on the preferred comparable transaction valuation with the range in the likely valuation has been determined based on a ± 20% from the preferred valuation. The valuation range is, in VRM’s opinion, supported by the three valuation methods. The preferred valuation and range in likely valuations for the Brightstar Gold Project is documented in Table 11.

Table 10 Summary of the Project Valuations.

Valuation Technique Report Section Lower Valuation (AUD$ M)	Preferred Valuation (AUD$ M) Upper Valuation (AUD$ M)
Brightstar Gold Project
Comparable Transactions Resource Multiples 4.1.1 10.5	15.7 27.4
Yardstick Valuation 4.1.2 12.8	21.0 29.1
Geoscientific / Kilburn Valuation 4.1.3 8.0	13.2 18.3
Royalty Valuations
3% NSR Royalty – on Retained Tenements 5.0 0.8 Royaltyon Ben Hur Project 5.0 0.1	1.8 2.8 0.2 0.3

Note Appropriate rounding has been applied.

Table 11 VRM’s Preferred Valuation of the Mineral Assets of Stone Metals Limited

Lower Valuation (AUD$ million) Preferred Valuation (AUD$ million)	Upper Valuation (AUD$ million)
Brightstar Gold Project 12.5 15.7 Ben Hur Royalty 0.1 0.2 Brightstar Royalty (retained tenements) 0.8 1.8	18.8 0.3 2.8

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Figure 15 Project Valuation Summary

8. Conclusion

VRM considers the Mineral Assets of Stone Resources, including the Northern and Southern Brightstar Gold Projects to have a market value within a range of $12.5 million to $18.8 million with a preferred Project value, being the $15.7 million.

9. References

The references below document the main documents referred to in this report however the various ASX releases for the various companies including Stone have not been included in the reference list

Cassidy, K. F., Champion, D. C., Krapež, B., Barley, M. E., Brown, S. J. A., Blewett, R. S., Groenewald, P. B., And Tyler, I. M., 2006, A revised geological framework for the Yilgarn Craton, Western Australia: Western Australia Geological Survey, Record 2006/8, 8p.

JORC, 2012. Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code). Available from: http://www.jorc.org

Shi, B., 2015, CSA Global Mineral Resource Estimate for the Beta Gold Deposit, Brightstar Gold Project, Western Australia, 12 October 2015, CSA Global Report Number R258.2015, unpublished report, 68p

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VALMIN, 2015. Australasian Code for Public Reporting of Technical Assessments and Valuations of Mineral Assets (The VALMIN Code). Available from http://valmin.org/

10.Glossary

Below are brief descriptions of some terms used in this report. For further information or for terms that are not described here, please refer to internet sources such as Webmineral www.webmineral.com or Wikipedia www.wikipedia.org,

The following terms are taken from the 2015 VALMIN Code

Annual Report means a document published by public corporations on a yearly basis to provide shareholders, the public and the government with financial data, a summary of ownership and the accounting practices used to prepare the report.

Australasian means Australia, New Zealand, Papua New Guinea and their off-shore territories.

Code of Ethics means the Code of Ethics of the relevant Professional Organisation or Recognised Professional Organisations.

Corporations Act means the Australian Corporations Act 2001 (Cth).

Experts are persons defined in the Corporations Act whose profession or reputation gives authority to a statement made by him or her in relation to a matter. A Practitioner may be an Expert. Also see Clause 2.1.

Exploration Results is defined in the current version of the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code). Refer to http://www.jorc.org for further information.

Feasibility Study means a comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of applicable Modifying Factors together with any other relevant operational factors and detailed financial analysis that are necessary to demonstrate at the time of reporting that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a Pre-feasibility Study.

Financial Reporting Standards means Australian statements of generally accepted accounting practice in the relevant jurisdiction in accordance with the Australian Accounting Standards Board (AASB) and the Corporations Act.

Independent Expert Report means a Public Report as may be required by the Corporations Act, the Listing Rules of the ASX or other security exchanges prepared by a Practitioner who is acknowledged as being independent of the Commissioning Entity. Also see ASIC Regulatory Guides RG 111 and RG 112 as well as Clause 5.5 of the VALMIN Code for guidance on Independent Expert Reports.

Information Memoranda means documents used in financing of projects detailing the project and financing arrangements.

Investment Value means the benefit of an asset to the owner or prospective owner for individual investment or operational objectives.

Life-of-Mine Plan means a design and costing study of an existing or proposed mining operation where all Modifying Factors have been considered in sufficient detail to demonstrate at the time of reporting

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that extraction is reasonably justified. Such a study should be inclusive of all development and mining activities proposed through to the effective closure of the existing or proposed mining operation.

Market Value means the estimated amount of money (or the cash equivalent of some other consideration) for which the Mineral Asset should exchange on the date of Valuation between a willing buyer and a willing seller in an arm’s length transaction after appropriate marketing wherein the parties each acted knowledgeably, prudently and without compulsion. Also see Clause 8.1 for guidance on Market Value.

Materiality or being Material requires that a Public Report contains all the relevant information that investors and their professional advisors would reasonably require, and reasonably expect to find in the report, for the purpose of making a reasoned and balanced judgement regarding the Technical Assessment or Mineral Asset Valuation being reported. Where relevant information is not supplied, an explanation must be provided to justify its exclusion. Also see Clause 3.2 for guidance on what is Material. Member means a person who has been accepted and entitled to the post-nominals associated with the AIG or the AusIMM or both. Alternatively, it may be a person who is a member of a Recognised Professional Organisation included in a list promulgated from time to time.

Mineable means those parts of the mineralised body, both economic and uneconomic, that are extracted or to be extracted during the normal course of mining.

Mineral Asset means all property including (but not limited to) tangible property, intellectual property, mining and exploration Tenure and other rights held or acquired in connection with the exploration, development of and production from those Tenures. This may include the plant, equipment and infrastructure owned or acquired for the development, extraction and processing of Minerals in connection with that Tenure.

Most Mineral Assets can be classified as either:

(a) Early-stage Exploration Projects – Tenure holdings where mineralisation may or may not have been identified, but where Mineral Resources have not been identified;

(b) Advanced Exploration Projects – Tenure holdings where considerable exploration has been undertaken and specific targets identified that warrant further detailed evaluation, usually by drill testing, trenching or some other form of detailed geological sampling. A Mineral Resource estimate may or may not have been made, but sufficient work will have been undertaken on at least one prospect to provide both a good understanding of the type of mineralisation present and encouragement that further work will elevate one or more of the prospects to the Mineral Resources category;

(c) Pre-Development Projects – Tenure holdings where Mineral Resources have been identified and their extent estimated (possibly incompletely), but where a decision to proceed with development has not been made. Properties at the early assessment stage, properties for which a decision has been made not to proceed with development, properties on care and maintenance and properties held on retention titles are included in this category if Mineral Resources have been identified, even if no further work is being undertaken;

(d) Development Projects – Tenure holdings for which a decision has been made to proceed with construction or production or both, but which are not yet commissioned or operating at design levels. Economic viability of Development Projects will be proven by at least a Pre-Feasibility Study;

(e) Production Projects – Tenure holdings – particularly mines, wellfields and processing plants – that have been commissioned and are in production.

Mine Design means a framework of mining components and processes taking into account mining methods, access to the Mineralisation, personnel, material handling, ventilation, water, power and other technical requirements spanning commissioning, operation and closure so that mine planning can be undertaken.

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Mine Planning includes production planning, scheduling and economic studies within the Mine Design taking into account geological structures and mineralisation, associated infrastructure and constraints, and other relevant aspects that span commissioning, operation and closure.

Mineral means any naturally occurring material found in or on the Earth’s crust that is either useful to or has a value placed on it by humankind, or both. This excludes hydrocarbons, which are classified as Petroleum.

Mineralisation means any single mineral or combination of minerals occurring in a mass, or deposit, of economic interest. The term is intended to cover all forms in which mineralisation might occur, whether by class of deposit, mode of occurrence, genesis or composition.

Mineral Project means any exploration, development or production activity, including a royalty or similar interest in these activities, in respect of Minerals.

Mineral Securities means those Securities issued by a body corporate or an unincorporated body whose business includes exploration, development or extraction and processing of Minerals.

Mineral Resources is defined in the current version of the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code). Refer to http://www.jorc.org for further information.

Mining means all activities related to extraction of Minerals by any method (e.g. quarries, open cast, open cut, solution mining, dredging etc).

Mining Industry means the business of exploring for, extracting, processing and marketing Minerals. Modifying Factors is defined in the current version of the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code). Refer to http://www.jorc.org for further information.

Ore Reserves is defined in the current version of the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code). Refer to http://www.jorc.org for further information.

Petroleum means any naturally occurring hydrocarbon in a gaseous or liquid state, including coal-based methane, tar sands and oil-shale.

Petroleum Resource and Petroleum Reserve are defined in the current version of the Petroleum Resources Management System (PRMS) published by the Society of Petroleum Engineers, the American Association of Petroleum Geologists, the World Petroleum Council and the Society of Petroleum Evaluation Engineers. Refer to http://www.spe.org for further information.

Practitioner is an Expert as defined in the Corporations Act, who prepares a Public Report on a Technical Assessment or Valuation Report for Mineral Assets. This collective term includes Specialists and Securities Experts.

Preliminary Feasibility Study (Pre-Feasibility Study) means a comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, is established and an effective method of mineral processing is determined. It includes a financial analysis based on reasonable assumptions on the Modifying Factors and the evaluation of any other relevant factors that are sufficient for a Competent Person, acting reasonably, to determine if all or part of the Mineral Resources may be converted to an Ore Reserve at the time of reporting. A Pre-Feasibility Study is at a lower confidence level than a Feasibility Study.

Professional Organisation means a self-regulating body, such as one of engineers or geoscientists or of

both, that:

(a) admits members primarily on the basis of their academic qualifications and professional experience; (b) requires compliance with professional standards of expertise and behaviour according to a Code of Ethics established by the organisation; and

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(c) has enforceable disciplinary powers, including that of suspension or expulsion of a member, should its Code of Ethics be breached.

Public Presentation means the process of presenting a topic or project to a public audience. It may include, but not be limited to, a demonstration, lecture or speech meant to inform, persuade or build good will.

Public Report means a report prepared for the purpose of informing investors or potential investors and their advisers when making investment decisions, or to satisfy regulatory requirements. It includes, but is not limited to, Annual Reports, Quarterly Reports, press releases, Information Memoranda, Technical Assessment Reports, Valuation Reports, Independent Expert Reports, website postings and Public Presentations. Also see Clause 5 for guidance on Public Reports.

Quarterly Report means a document published by public corporations on a quarterly basis to provide shareholders, the public and the government with financial data, a summary of ownership and the accounting practices used to prepare the report.

Reasonableness implies that an assessment which is impartial, rational, realistic and logical in its treatment of the inputs to a Valuation or Technical Assessment has been used, to the extent that another Practitioner with the same information would make a similar Technical Assessment or Valuation.

Royalty or Royalty Interest means the amount of benefit accruing to the royalty owner from the royalty share of production.

Securities has the meaning as defined in the Corporations Act.

Securities Expert are persons whose profession, reputation or experience provides them with the authority to assess or value Securities in compliance with the requirements of the Corporations Act, ASIC Regulatory Guides and ASX Listing Rules.

Scoping Study means an order of magnitude technical and economic study of the potential viability of Mineral Resources. It includes appropriate assessments of realistically assumed Modifying Factors together with any other relevant operational factors that are necessary to demonstrate at the time of reporting that progress to a Pre-Feasibility Study can be reasonably justified.

Specialist are persons whose profession, reputation or relevant industry experience in a technical discipline (such as geology, mine engineering or metallurgy) provides them with the authority to assess or value Mineral Assets.

Status in relation to Tenure means an assessment of the security of title to the Tenure.

Technical Assessment is an evaluation prepared by a Specialist of the technical aspects of a Mineral Asset. Depending on the development status of the Mineral Asset, a Technical Assessment may include the review of geology, mining methods, metallurgical processes and recoveries, provision of infrastructure and environmental aspects.

Technical Assessment Report involves the Technical Assessment of elements that may affect the economic benefit of a Mineral Asset.

Technical Value is an assessment of a Mineral Asset’s future net economic benefit at the Valuation Date under a set of assumptions deemed most appropriate by a Practitioner, excluding any premium or discount to account for market considerations.

Tenure is any form of title, right, licence, permit or lease granted by the responsible government in accordance with its mining legislation that confers on the holder certain rights to explore for and/or extract agreed minerals that may be (or is known to be) contained. Tenure can include third-party ownership of the Minerals (for example, a royalty stream). Tenure and Title have the same connotation as Tenement.

Transparency or being Transparent requires that the reader of a Public Report is provided with sufficient information, the presentation of which is clear and unambiguous, to understand the report and not be misled by this information or by omission of Material information that is known to the Practitioner.

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Valuation is the process of determining the monetary Value of a Mineral Asset at a set Valuation Date. Valuation Approach means a grouping of valuation methods for which there is a common underlying rationale or basis.

Valuation Date means the reference date on which the monetary amount of a Valuation in real (dollars of the day) terms is current. This date could be different from the dates of finalisation of the Public Report or the cut-off date of available data. The Valuation Date and date of finalisation of the Public Report must not be more than 12 months apart.

Valuation Methods means a subset of Valuation Approaches and may represent variations on a common rationale or basis.

Valuation Report expresses an opinion as to monetary Value of a Mineral Asset but specifically excludes commentary on the value of any related Securities.

Value means the Market Value of a Mineral Asset.

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Appendix A - Stone Resources Tenement Schedule

Tenement	Type	Status	Holder	Start Date	Grant Date	End Date	Area	Area Unit
E 38/2233*	Exploration Licence	Live	Stone	28-01-2009	24-11-2009	23-11-2019	1	BL.
E 38/2316*	Exploration Licence	Live	Stone	24-06-2009	11-05-2010	10-05-2020	1	BL.
E 38/2364*	Exploration Licence	Live	Stone	12-10-2009	15-06-2010	14-06-2020	1	BL.
E 38/2365*	Exploration Licence	Live	Stone	12-10-2009	15-06-2010	14-06-2020	1	BL.
E 38/2411	Exploration Licence	Live	Stone	01-02-2010	30-11-2010	29-11-2020	2	BL.
E 38/2452	Exploration Licence	Live	Stone	18-06-2010	29-03-2011	28-03-2021	1	BL.
E 38/2894	Exploration Licence	Live	Stone	06-11-2013	30-05-2014	29-05-2024	2	BL.
E 38/3108	Exploration Licence	Live	Stone	23-02-2016	16-03-2017	15-03-2022	22	BL.
E 38/3198	Exploration Licence	Live	Stone	16-11-2016	11-07-2017	10-07-2022	3	BL.
E 38/3293	Exploration Licence	Live	Stone	18-12-2017	06-07-2018	05-07-2023	5	BL.
E 38/3331	Exploration Licence	Live	Stone	23-05-2018	23-01-2019	22-01-2024	6	BL.
E 38/3034	Exploration Licence	Live	Stone	19-12-2014	09-07-2015	08-07-2020	2	BL.
M 38/968	Mining Lease	Live	Desert	19-06-2003	09-08-2004	09-08-2025	300.55	HA.
M 38/1056	Mining Lease	Live	Stone	07-03-2005	08-10-2009	07-10-2030	301	HA.
M 38/1057	Mining Lease	Live	Stone	07-03-2005	08-10-2009	07-10-2030	301	HA.
M 38/1058	Mining Lease	Live	Stone	07-03-2005	14-05-2008	19-05-2029	300	HA.
M 38/241	Mining Lease	Live	Stone	21-03-1989	05-07-1989	09-07-2031	5.0325	HA.
M 38/314	Mining Lease	Live	Stone	05-04-1991	26-07-1991	01-08-2033	205.35	HA.
M 38/346	Mining Lease	Live	Stone	02-04-1992	29-09-1992	29-09-2034	725	HA.
M 38/381	Mining Lease	Live	Stone	18-12-1993	26-04-1994	26-04-2036	9.697	HA.
M 38/549	Mining Lease	Live	Stone	11-03-1997	28-04-2009	27-04-2030	6.199	HA.
M 38/9	Mining Lease	Live	Stone	29-09-1982	09-05-1983	24-05-2025	87.35	HA.
M 38/917	Mining Lease	Live	Stone	11-04-2002	18-07-2008	23-07-2029	7.873	HA.
M 38/918	Mining Lease	Live	Stone	11-04-2002	18-07-2008	23-07-2029	6.0485	HA.
M 38/94	Mining Lease	Live	Stone	21-04-1987	13-09-1987	20-09-2029	19.015	HA.
M 38/95	Mining Lease	Live	Stone	21-04-1987	13-09-1987	20-09-2029	87.835	HA.
M 38/984	Mining Lease	Live	Stone	12-10-2003	18-07-2008	23-07-2029	4.854	HA.
P 38/4108	Prospecting Licence	Live	Stone	12-11-2013	01-07-2014	30-06-2022	70.6681	HA.
L 38/100	Miscellaneous Licence	Live	Stone	02-10-2003	05-02-2004	04-02-2025	37	HA.
L 38/123	Miscellaneous Licence	Live	Stone	15-05-2007	02-04-2008	01-04-2029	60	HA.
L 38/154	Miscellaneous Licence	Live	Stone	19-11-2008	05-07-2011	04-07-2032	5.52	HA.
L 38/168	Miscellaneous Licence	Live	Stone	13-10-2009	25-02-2011	24-02-2032	364.1	HA.
L 38/169	Miscellaneous Licence	Live	Stone	13-10-2009	25-02-2011	24-02-2032	497.17	HA.

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Tenement	Type	Status	Holder	Start Date	Grant Date	End Date	Area	Area Unit
L 38/171	Miscellaneous Licence	Live	Stone	21-11-2009	12-05-2010	11-05-2031	164.6	HA.
L 38/185	Miscellaneous Licence	Live	Stone	31-01-2011	11-11-2011	10-11-2032	2.2172	HA.
L 38/188	Miscellaneous Licence	Live	Stone	18-02-2011	16-03-2012	15-03-2033	19.3	HA.
L 38/205	Miscellaneous Licence	Live	Stone	06-08-2011	22-02-2012	21-02-2033	10.5	HA.
P 38/4377	Prospecting Licence	Live	Stone	19-12-2016	26-07-2017	25-07-2021	58	HA.
P 38/4385	Prospecting Licence	Live	Stone	22-12-2016	26-07-2017	25-07-2021	2.5	HA.
P 38/4431	Prospecting Licence	Live	Stone	26-10-2017	14-06-2018	13-06-2022	11.24	HA.
P 38/4432	Prospecting Licence	Live	Stone	26-10-2017	14-06-2018	13-06-2022	92.72	HA.
P 38/4433	Prospecting Licence	Live	Stone	26-10-2017	14-06-2018	13-06-2022	193.92	HA.
P 38/4444	Prospecting Licence	Live	Stone	02-05-2018	13-12-2018	12-12-2022	168	HA.
P 38/4445	Prospecting Licence	Live	Stone	02-05-2018	13-12-2018	12-12-2022	141	HA.
P 38/4446	Prospecting Licence	Live	Stone	03-05-2018	13-12-2018	12-12-2022	191	HA.
P 38/4447	Prospecting Licence	Live	Stone	03-05-2018	13-12-2018	12-12-2022	75	HA.
P 38/4448	Prospecting Licence	Live	Stone	02-05-2018	13-12-2018	12-12-2022	144	HA.
P 38/4449	Prospecting Licence	Live	Stone	02-05-2018	13-12-2018	12-12-2022	144	HA.
P 38/4450	Prospecting Licence	Live	Stone	02-05-2018	13-12-2018	12-12-2022	124	HA.
P 38/4508	Prospecting Licence	Pending	Stone	10-03-2020	N/A	N/A	102	HA.

Desert – Desert Exploration Pty Ltd, a 100% subsidiary of Stone

BL – Blocks

Ha Hectares

tenements have had documents lodged to allow a two year extension of term with these applications being reviewed by DMIRS

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Appendix B - Comparable Gold Transactions - Western Australia

Project	Date	Vendor	Purchaser	Consideration (AUS$ M) (100% basis)	Equity Acquired	Resource (MT)	Grade (g/t Au)	Contained Gold (Moz Au)	Resource Multiple (AUS$/oz)	Normalised Resource Multiple (AUS$/oz)
DeepSouth,	18/04/2019	Hawthorn	Saracen	13.50	100%	4.06	1.58	0.21	67.46	$101.90
Murrin	14/07/2016	Zeta	GME	3.00	50%	0.55	3.12	0.05	54.67	$84.99
Eureka	4/12/2017	Central	Tyranna	3.05	100%	0.45	4.40	0.06	47.88	$77.01
Dalgaranga	22/12/2016	Private	Gascoyne	45.05	20%	25.50	1.36	1.12	40.31	$69.30
Kingof the	3/08/2017	Saracen	Red 5	16.00	100%	2.71	4.63	0.40	39.68	$67.02
Menzies,	9/07/2019	Horizon	Kingwest	8.00	100%	2.42	2.20	0.17	46.75	$62.73
Polar Bear	1/02/2018	S2	Westgold	9.10	100%	4.22	2.00	0.26	34.09	$55.00
Great Western	3/04/2020	Terrain	Red 5	2.5	100%	0.7	2.7	0.062	40.32	$40.45
Cue	18/07/2017	Silver Lake	Musgrave	7.50	20%	3.55	3.09	0.35	21.27	$36.61
Moyagee	31/07/2017	Silver Lake	Musgrave	7.50	20%	3.55	3.09	0.35	21.29	$36.16
Red October	26/09/2017	Saracen	Matsa	2.00	100%	0.45	6.9	0.10	20.20	$33.00
Western	3/10/2017	Tanami	Northern	4.00	100%	1.71	5.09	0.28	14.32	$23.77
K2 Mine	17/01/2017	Vango	Dampier	6.00	50%	4.63	2.98	0.44	13.50	$22.56
Gnaweeda	11/04/2016	Chalice	Doray	2.99	12%	4.60	1.80	0.27	11.24	$18.34
Penny’s Find	4/03/2019	Empire	Orminex	0.60	100%	0.25	7.05	0.06	10.68	$15.86
MaydayNorth	9/09/2019	Strategic	Bardoc Gold	1.38	100%	2.13	1.64	0.11	12.32	$15.13
Cables and	2/12/2019	Leopard	Red 5	2.0	100%			0.185	10.81	$13.60
Trojan	6/12/2016	Westgold	Overland	0.95	100%	2.79	1.61	0.14	6.57	$11.26
Klondyke	12/09/2016	Arcadia	Keras	2.52	100%	5.60	2.08	0.37	6.73	$10.31
Plutonic	13/05/2016	Dampier	Vango	5.50	40%	8.28	3.20	0.85	6.47	$10.02
Quinns and	6/07/2016	MGK	Latitude	0.64	100%	1.23	2.46	0.10	6.60	$9.78
Lake Carey	27/07/2016	Fortitude	Matsa	1.75	100%	6.29	1.90	0.38	4.56	$6.90
Mt Holland	4/03/2016	Convergent	Kidman	3.50	100%	15.33	1.65	0.81	4.30	$6.74
Millrose	1/02/2016	Riedel	Bowlane	0.95	100%	4.00	2.40	0.31	3.08	$5.22
PennyWest	10/02/2020	Spectrum	Ramelius	228	100%	0.799	13.8	0.3555	641.35
Coolgardie	21/10/2019	Focus	Horizon	52.00	100%	27.31	2.42	2.12	24.53

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Project	Date	Vendor	Purchaser	Consideration (AUS$ M) (100% basis)	Equity Acquired	Resource (MT)	Grade (g/t Au)	Contained Gold (Moz Au)	Resource Multiple (AUS$/oz)
Higginsville	27/03/2019	Westgold	RNC	50.00	100%	29.42	2.01	1.90	26.27
Zelica	14/11/2018	Anova	Matsa	0.15	100%	0.57	1.62	0.03	5.00
Cue	28/06/2018	West Gold	Musgrave	22.40				0.35	63.51
Darlot	3/08/2017	Gold Fields	Red 5	18.50	100%	1.20	6.00	0.23	79.92
Tuckabiana	26/06/2017	Silver Lake	BigBell Gold	7.56	100%	7.97	2.03	0.52	14.54
Cue	8/02/2017	Silver Lake	Musgrave	9.00	20%	3.55	3.09	0.35	70.92
Gruyere	7/11/2016	Gold Road	Gold Fields	700.00	50%	153.64	1.34	6.60	106.02
Yandal	17/09/2016	Echo	Metalico	38.90	100%	8.91	1.98	0.52	74.58
Plutonic	15/08/2016	Northern	Ontario	66.20	100%	13.65	3.89	1.71	38.73
Sandstone	4/05/2016	Black	Middle	2.50	100%	10.78	1.39	0.48	5.20
Quinns and	2/03/2016	Wild Acre	MGK	0.15	100%	1.23	2.46	0.10	1.55
Twin Hills	26/12/2015	Golden	Melrose	0.05	100%	0.02	20.86	0.01	4.25

Note the transactions where there is no normalised gold price have been excluded as they are not considered comparable due to either being in production, more advanced, larger resource base, included a mill or associated infrastructure or considered to be an outlier.

Below are the statistics associated with the comparable transactions. VRM considers that the lower resource multiple for a gold project in the current market is the median of the comparable transactions, the 75th percentile is the upper resource multiple with the average the preferred resource multiple

	Resource Multiple as at the Transaction Date (AUS$/oz)	Resource Multiple Normalised to the Gold Price as at the Valuation Date (AUS$/oz)
Average	$44.78	$34.74
Median	$20.74	$23.17
25th percentile	$6.59	$10.55
75thpercentile	$47.03	$60.80
60thpercentile	$29.40	$36.16
40thpercentile	$13.03	$15.86

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Appendix C - Brightstar Gold Project Geoscientific (Kilburn) Valuation

Kilburn Ranking Criteria and BAC

Tenements	BAC (AUS$)	Equity	Off Property	Off Property	On Property	On Property	Anomaly Factor	Anomaly Factor	Geology Factor	Geology Factor
			Low	High	Low	High	Low	High	Low	High
Northern Tenements
E 38/2452	20,000	100%	1	1.2	1	1.1	1	1.1	0.1	0.5
E 38/2894	30,000	100%	1.5	1.8	1	1.1	1	1.1	0.5	0.9
M 38/346	72,500	100%	3	3.5	2.5	3.5	3.5	4	2.5	3
M 38/917	10,000	100%	1	1.2	1	1.1	1	1.1	0.1	0.5
M 38/918	10,000	100%	1.5	2.5	1	1.1	1	1.1	0.5	0.9
P 38/4108	2,840	100%	1	1.2	1	1.1	1	1.1	0.5	0.9
E 38/3198 - 30%	15,000	30%	3	3.5	1	1.2	1	1.2	1	1.5
E 38/3198 - 70%	15,000	70%	1.5	1.8	1	1.1	1	1.1	0.5	0.9
Southern Tenements
M 38/1056	30,100	100%	1	1.2	1	1.2	1	1.2	1	1.2
M 38/1057	30,100	100%	1	1.2	1	1.2	1	1.2	1	1.2
M 38/1058	30,000	100%	1	1.2	2.5	3	3.5	4	2	2.5
M 38/968	30,100	100%	1	1.2	2.5	3	3.5	4	2	2.5
M 38/9	10,000	100%	2.5	3	2.5	3	3.5	4	2	2.5
E 38/2316	20,000	100%	3	3.5	1	1.2	1	1.2	1	1.2
E 38/2364	20,000	100%	1.5	2	1	1.5	0.9	1	1	1.5
E 38/2365	20,000	100%	1.5	2	1	1.5	0.9	1	1	1.5
E 38/2411	50,000	100%	2.5	3	1	1.2	1	1.2	1	1.5
E 38/3034	20,000	100%	2.5	3	1	1.2	1	1.2	1	1.5
E 38/3108	33,000	100%	1	1.5	1	1	0.9	1	0.1	0.5
E 38/3293 60%	15,000	60%	3	3.5	1.5	1.7	1	1.5	1	1.5
E 38/3293 40%	15,000	40%	1	1.2	1	1.2	1	1.2	0.5	0.7
E 38/3331	20,000	100%	2.5	3	2	2.5	1.5	2	1	1.5
M 38/241	10,000	100%	2	2.5	2	2.5	1.5	2	1	1.5

www.varm.com.au

PO Box 1506, West Perth WA 6872

==> picture [111 x 44] intentionally omitted <==

Tenements	BAC (AUS$)	BAC (AUS$)	Equity	Off Property	Off Property	On Property	On Property	Anomaly Factor	Anomaly Factor	Anomaly Factor	Geology Factor	Geology Factor	Geology Factor
				Low	High	Low	High	Low	High		Low		High
M 38/549	10,000		100%	2	2.5	2	2.5	1.5	2		1		1.5
M 38/984	5,000		100%	3	3.5	1	1.2	1	1.2		1		1.2
P 38/4377	2,320		100%	3	3.5	1	1.2	1	1.2		1		1.2
P 38/4385	2,000		100%	3	3.5	1	1.2	1	1.2		1		1.2
P 38/4431	2,000		100%	1.5	2	1	1.5	1	1.2		1		1.2
P 38/4432	3,720		100%	2.5	3	1	1.2	1	1.2		1		1.5
P 38/4433	7,760		100%	2.5	3	2	2.5	1.5	2		1		1.5
P 38/4444	6,720		100%	2.5	3	1	1.2	1	1.2		1		1.5
P 38/4445	5,640		100%	2.5	3	1	1.2	1	1.2		1		1.5
P 38/4446	7,640		100%	2.5	3	1	1.2	1	1.2		1		1.5
P 38/4447	3,000		100%	2.5	3	1	1.2	1	1.2		1		1.5
P 38/4448	5,760		100%	2.5	3	1	1.2	1	1.2		1		1.5
P 38/4449	5,760		100%	2.5	3	1	1.2	1	1.2		1		1.5
P 38/4450	4,960		100%	2.5	3	1	1.2	1	1.2		1		1.5
M 38/314	20,600		100%	1	1.5	1	1.5	1	1.5		1		1.5
M 38/381	10,000		100%	1	1.5	1	1.5	1	1.5		1		1.5
M 38/94	10,000		100%	1	1.5	1	1.2	0.9	1		0.5		1
M 38/95	10,000		100%	1	1.5	1	1.2	0.9	1		1		1.2
E 38/2233	20,000		100%	1.5	2	1.5	2	1	1.5		1		1.5
P 38/4508	4,080		50%	1.5	2	1	1.5	1	1.2		1		1.2
Technical and Market Valuation
Tenements				Technical Valuation				Fair Market Valuation(AUS$ M)
		Lower(AUS$)		Preferred(AUS$)		Upper(AUS$)		Lower		Preferred		Upper
Northern Tenements
E 38/2452		$2,000		$8,250		$14,500		$-		$0.01		$0.01
E 38/2894		$22,500		$40,650		$58,800		$0.02		$0.04		$0.05
M 38/346		$4,757,800		$7,707,650		$10,657,500		$4.28		$6.94		$9.59

www.varm.com.au PO Box 1506, West Perth WA 6872

==> picture [111 x 44] intentionally omitted <==

Tenements		Technical Valuation		Fair Market Valuation(AUS$ M)	Fair Market Valuation(AUS$ M)	Fair Market Valuation(AUS$ M)
	Lower(AUS$)	Preferred(AUS$)	Upper(AUS$)	Lower	Preferred	Upper
M 38/917	$1,000	$4,150	$7,300	$-	$-	$0.01
M 38/918	$7,500	$17,350	$27,200	$0.01	$0.02	$0.02
P 38/4108	$1,400	$2,550	$3,700	$-	$-	$-
E 38/3198 - 30%	$13,500	$23,750	$34,000	$0.01	$0.02	$0.03
E 38/3198 - 70%	$7,900	$14,250	$20,600	$0.01	$0.01	$0.02
Total Northern Tenements	$4,813,600	$7,818,600	$10,823,600	$4.33	$7.04	$9.74
Southern Tenements
M 38/1056	$30,100	$46,250	$62,400	$0.03	$0.04	$0.06
M 38/1057	$30,100	$46,250	$62,400	$0.03	$0.04	$0.06
M 38/1058	$525,000	$802,500	$1,080,000	$0.47	$0.72	$0.97
M 38/968	$526,800	$805,200	$1,083,600	$0.47	$0.72	$0.98
M 38/9	$437,500	$668,750	$900,000	$0.39	$0.60	$0.81
E 38/2316	$60,000	$90,500	$121,000	$0.05	$0.08	$0.11
E 38/2364	$27,000	$58,500	$90,000	$0.02	$0.05	$0.08
E 38/2365	$27,000	$58,500	$90,000	$0.02	$0.05	$0.08
E 38/2411	$125,000	$224,500	$324,000	$0.11	$0.20	$0.29
E 38/3034	$50,000	$89,800	$129,600	$0.05	$0.08	$0.12
E 38/3108	$3,000	$13,900	$24,800	$-	$0.01	$0.02
E 38/3293 60%	$40,500	$80,500	$120,500	$0.04	$0.07	$0.11
E 38/3293 40%	$3,000	$5,150	$7,300	$-	$-	$0.01
E 38/3331	$150,000	$300,000	$450,000	$0.14	$0.27	$0.41
M 38/241	$60,000	$123,750	$187,500	$0.05	$0.11	$0.17
M 38/549	$60,000	$123,750	$187,500	$0.05	$0.11	$0.17
M 38/984	$15,000	$22,600	$30,200	$0.01	$0.02	$0.03
P 38/4377	$7,000	$10,500	$14,000	$0.01	$0.01	$0.01
P 38/4385	$6,000	$9,050	$12,100	$0.01	$0.01	$0.01
P 38/4431	$3,000	$5,800	$8,600	$-	$0.01	$0.01
P 38/4432	$9,300	$16,700	$24,100	$0.01	$0.02	$0.02

www.varm.com.au PO Box 1506, West Perth WA 6872

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Tenements		Technical Valuation		Fair Market Valuation(AUS$ M)	Fair Market Valuation(AUS$ M)	Fair Market Valuation(AUS$ M)
	Lower(AUS$)	Preferred(AUS$)	Upper(AUS$)	Lower	Preferred	Upper
P 38/4433	$58,200	$116,400	$174,600	$0.05	$0.10	$0.16
P 38/4444	$16,800	$30,150	$43,500	$0.02	$0.03	$0.04
P 38/4445	$14,100	$25,300	$36,500	$0.01	$0.02	$0.03
P 38/4446	$19,100	$34,300	$49,500	$0.02	$0.03	$0.04
P 38/4447	$7,500	$13,450	$19,400	$0.01	$0.01	$0.02
P 38/4448	$14,400	$25,850	$37,300	$0.01	$0.02	$0.03
P 38/4449	$14,400	$25,850	$37,300	$0.01	$0.02	$0.03
P 38/4450	$12,400	$22,250	$32,100	$0.01	$0.02	$0.03
M 38/314	$20,600	$62,450	$104,300	$0.02	$0.06	$0.09
M 38/381	$10,000	$30,300	$50,600	$0.01	$0.03	$0.05
M 38/94	$4,500	$11,250	$18,000	$-	$0.01	$0.02
M 38/95	$9,000	$15,300	$21,600	$0.01	$0.01	$0.02
E 38/2233	$45,000	$112,500	$180,000	$0.04	$0.10	$0.16
P 38/4508	$3,100	$5,950	$8,800	$-	$0.01	$0.01
Total Southern Tenements	$2,444,400	$4,133,750	$5,823,100	$2.20	$3.72	$5.24
Total	$7,258,000	$11,952,350	$16,646,700	$6.5	$10.8	$15.0

www.varm.com.au PO Box 1506, West Perth WA 6872

Explanatory Memorandum

Schedule 5 - Option Terms

1. Entitlement

Each Option entitles the holder to subscribe for one Share upon exercise of the Option.

2. Exercise Price

Options	Exercise Price
Resolution 4 Options	$0.045 per Option
Resolution 5 Options	$0.01 per Option

3. Vesting

Each Option will vest immediately ( Vesting Date ).

4. Expiry Date

Options	Expiry Date
Resolution 4 Options	Expire (3) three years from the issue date.
Resolution 5 Options	Expire at 5.00pm (WST) on 16 March 2023

5. Exercise Period

Subject to paragraph 6, an Option may only be exercised after the Option has vested. The Options are exercisable at any time after the Vesting Date and on or prior to the Expiry Date (“Exercise Period”).

6. Exercise of Options

Notwithstanding paragraph 5, Options may be exercised:

i) during a Takeover Period;
ii) at any time after a Change of Control Event has occurred;
iii) at any time after the announcement of a proposed capital reconstruction referred to in paragraph 12;
iv) in the Board’s absolute discretion, following the occurrence and announcement by the Company of an event that in the opinion of the Board is likely to lead to the Company being removed from the official list of ASX; or
v) in the Board’s absolute discretion, within 12 months, in the event of the death or permanent disablement of an eligible participant, in respect of Options held by or on behalf of that Eligible Participant.
46 -

Explanatory Memorandum

7. Notice of Exercise

Options may only be exercised by notice in writing to the Company which is signed by the Holder and delivered to the registered office of the Company. The notice must specify the number of Options being exercised and must be accompanied by:

i) the Exercise Price for the number of Options specified in the notice; and
ii) the certificate or holding statement for those Options, for cancellation by the Company.

A notice of exercise only becomes effective when the Company has received the full amount of the Exercise Price for the number of Options specified in the notice in cleared funds.

Timing of issue of Shares on exercise

Within 10 Business Days of the notice referred to in paragraph 7 above becoming effective, the Board must:

i) acquire or allot and issue the number of Shares specified in the notice to the Holder;
ii) cancel the certificate or holding statement for the Options being exercised; and
iii) if applicable, issue a new certificate or holding statement for any remaining unexercised Options covered by the certificate or holding statement accompanying the notice.

9. Allotment of Shares

All Shares allotted upon the exercise of Options will be credited as fully paid and will be of the same class and rank equally in all respects with other Shares.

10. Quotation on ASX

If existing Shares are officially quoted by ASX, the Company must apply for official quotation by ASX of all Shares allotted pursuant to the exercise of Options not later than 10 Business Days after the date of allotment.

11. New issues

There are no participation rights or entitlements inherent in the Options and holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Options.

12. Reorganisation of capital

In the event of a reorganisation (including a consolidation, subdivision, reduction or return) of the issued capital of the Company, the number of Options to which each Holder is entitled or the Exercise Price (if any) or both will be changed in the manner required by the Listing Rules and, in any case, in a manner which will not result in any benefits being conferred on holders of Options which are not conferred on Shareholders.

13. Transferability

Options can only be transferred with the prior written consent of the Company, which consent may be withheld in the Company’s sole discretion.

47 -

Explanatory Memorandum

Schedule 6 – PCF Mandate Terms

2019 PCF Mandate
(a) Engagement : PCF is engaged as exclusive corporate adviser to Stone Resources Australia Limited ( Company ).
(b) Background : The Company has a market capitalisation of ~$1.6M and loans outstanding of ~$50M to its major shareholder Stone Resources Limited and Stone Resources (HK) Limited. PCF holds the view that an agreement must be made with respect to a debt compromise on the ~$50M and the removal of the 58% controlling share interest ( Debt and Equity Compromise Agreement , or DECA ). PCF believes it will be possible to raise funds through new equity, debt, project divestment or a corporate transaction to meet the terms of the DECA.
(c) Services : PCF will assist director Mr Bill Hobba with the negotiation of the key terms of the DECA as required. Following this, PCF will assist the Company Board on a best endeavours basis in its considerations of various alternatives for capital raising initiatives to restructure the Company’s capital structure, which may include:
- (1) an equity raise;
- (2) a refinance or debt facility;
- (3) a partial project divestment; or
- (4) a corporate merger opportunity,

to maximise value for shareholders.

(d) Fees :
(1) On execution of the 2019 PCF Mandate, PCF (or its nominee(s)) will be granted 15,000,000 fully paid ordinary shares in the Company.
(2) On execution of the DECA, PCF (or its nominee(s)) will be granted 15,000,000 unlisted options over the ordinary equity in the Company, which shall have a term of 3 years from their issue date and an exercise price of $0.01. There are no vesting conditions.
(3) PCF will receive a flat transaction fee of 4.0% of transaction value where a transaction is completed with any party.
(e) Termination: PCF’s appointment to act for the Company under the 2019 PCF Mandate will continue until terminated by either party giving 10 days written notice to the other at any time. Existing rights and entitlements to fees, expenses, indemnification and confidentiality will be unaffected by the termination of the 2019 PCF Mandate.

2. 2020 PCF Mandate

(a) Engagement : PCF is to be engaged as corporate adviser to Stone Resources Australia Limited ( Company ) to provide corporate advisory services.
(b) Background : The 2020 PCF Mandate is to be read in addition and in conjunction with the 2019 PCF Mandate. The 2019 PCF Mandate is not replaced, amended or terminated by the 202 PCF Mandate.

PCF has provided corporate advisory services to the Company to facilitate:

48 -

Explanatory Memorandum

(1) the successful divestment of the Ben Hur deposit to Regis Resources Limited;
(2) finalisation of the DECA; and
(3) general commercial and corporate advice.
The Company requires further assistance:
(1) implementing the DECA;
(2) implementing a broader recapitalisation strategy;
(3) providing general corporate and commercial advice; and
(4) planning and implementing an interim exploration and development programme in respect of the Company’s Brightstar project.
(c) Services : PCF will continue to provide its services as a corporate advisor to address the matters set out in the Background above and to finalise implementation of the recapitalisation strategy.
(d) Term and Termination : The term of the 2020 PCF Mandate is 12 months from 1 September 2020 ( Term ). The 2020 PCF Mandate may be terminated by either party at one month’s written notice.
(e) Fees :
(1) PCF will be paid a $15,000 per month retainer fee by the Company for the duration of the Term.
(2) PCF will also receive an up-front option fee comprising 5,000,000 unlisted options in respect of ordinary shares in the Company to be issued within 30 days from 1 September 2020, with a term of 3 years from the issue date and an exercise price of $0.045 per option.
(3) PCF will receive a flat transaction fee of 4.0% of transaction value where a transaction is completed with any party during the Term.
49 -

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AI assistant

BRIGHTSTAR RESOURCES LIMITED — AGM Information 2020

64581_rns_2020-10-14_3a39cf5d-6900-47e1-b6d5-395eabfebf25.pdf

Notice of Annual General Meeting and Explanatory Memorandum

Stone Resources Australia Limited

ABN 44 100 727 491

Place of Meeting: Virtual

Notice of Annual General Meeting

Dear Shareholder

Notice of Annual General Meeting

Agenda

Ordinary Business

Financial Report

1. Resolution 1 – Remuneration Report

2. Resolution 2 – Re-election of Mr Yongji Duan as a Director

3. Resolution 3 – Election of Mr Joshua Hunt as a Director

Notice of Annual General Meeting

4. Resolution 4 – Approval of Issue of Options to PCF Capital Group

5. Resolution 5 – Ratification of prior issue of Options to PCF Capital Group

6. Resolution 6 – Ratification of prior issue of Shares to PCF Capital Group

Notice of Annual General Meeting

7. Resolution 7 – Ratification of prior issue of Shares to the Company Secretary

8. Resolution 8 – Approval for Issue of Shares to a Related Party – Joshua Hunt

Notice of Annual General Meeting

9. Resolution 9 – Approval for Issue of Shares to a Related Party – William Hobba

10. Resolution 10 – Approval of disposal by Company

Notice of Annual General Meeting

11. Resolution 11 – Approval of selective Buy-Back from SRL under Listing Rules

12. Resolution 12 – Approval of selective Buy-Back from SRHK under Listing Rules

Notice of Annual General Meeting

Special Business

13. Resolution 13 – Approval of selective Buy-Back from SRL under Corporations Act

14. Resolution 14 – Approval of selective Buy-Back from SRHK under Corporations Act

Notice of Annual General Meeting

15. Resolution 15 – Approval of 10% Placement Capacity

16. Resolution 16 – Change of Name to Brightstar Resources Limited

Other Business

Explanatory Memorandum

Snapshot Time

Impacts of COVID-19 on the Meeting

Notice of Annual General Meeting

Poll

Proxies

Voting by Proxy

Notice of Annual General Meeting

Corporate Representative

Tony Lau

Explanatory Memorandum

1. Introduction

2. Consider the Company’s Financial Report

3. Resolution 1 – Remuneration Report

3.1 Remuneration Report

Explanatory Memorandum

3.2

Recommendation

3.3 Voting restrictions on Key Management Personnel and their Closely Related Parties and their proxies

4. Resolution 2 – Re-election of Mr Yongji Duan as a Director

4.1 General

Explanatory Memorandum

4.2 Qualifications and other material directorships

4.3

Independence

4.4 Board recommendation

5. Resolution 3 – Election of Mr Joshua Hunt as a Director

5.1 General

Explanatory Memorandum

5.2

Qualifications and other material directorships

5.3 Independence

5.4

Board recommendation

6. Resolution 4 – Approval of Issue of Options to PCF Capital Group

6.1 Options

6.2

Listing Rule 7.1

Explanatory Memorandum

6.3

Technical information required by Listing Rule 7.3

6.4

Directors’ Recommendation

BRIGHTSTAR RESOURCES LIMITED AGM Information 2020