BRIGHTSTAR RESOURCES LIMITED

Notice of General Meeting and Explanatory Memorandum

ABN 44 100 727 491

Date of Meeting: 17 October 2022

Time of Meeting: 10.00 am Perth time

Place of Meeting: Brightstar Resources Limited 3/25 Belgravia Street Belmont WA 6104

THE COMPANY IS TAKING PRECAUTIONS TO FACILITATE AN IN-PERSON MEETING IN ACCORDANCE WITH COVID-19 RESTRICTIONS. IF THE SITUATION IN RELATION TO COVID-19 CHANGES IN ANY WAY THAT AFFECTS THE ABILITY OF THE COMPANY TO HOLD AN IN-PERSON MEETING THE COMPANY WILL PROVIDE AN IMMEDIATE UPDATE AHEAD OF THE MEETING BY WAY OF AN ASX ANNOUNCEMENT.

Independent Expert’s Report: Shareholders should carefully consider the Independent Expert’s Report prepared for the purposes of the Shareholder approval under Chapter 10 of the Listing Rules. The Independent Expert’s Report comments on the fairness and reasonableness of the transactions the subject of the Resolutions to the Non-associated Shareholders. The Independent Expert has determined that:

1. the grant of Call Option and associated transactions under Resolutions 1 and 2 are NOT FAIR BUT REASONABLE to the Non-associated Shareholders; and

2. the grant of the New Royalty under Resolution 3 is FAIR AND RESONABLE to the Non-associated Shareholders.

This is an important document and affects your shareholding. 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 attend or complete the Proxy Form enclosed and return it in accordance with the instructions set out in the Proxy Form.

Notice of General Meeting

Notice is given that the General Meeting of Shareholders of Brightstar Resources Limited (ABN 44 100 727 491) ( Company ) will be held at Brightstar Resources Limited, 3/25 Belgravia Street, Belmont WA 6104 on Monday, 17 October 2022 commencing at 10am (Perth time).

The Board monitors the rapidly changing COVID-19 pandemic and regards the health of its shareholders, employees and stakeholders as being of paramount importance.

While the Board would like to host all Shareholders in person, in order to minimise risk to Shareholders and the Company’s operations, the Board strongly encourage Shareholders to lodge Proxy Forms prior to the Meeting.

The Board will continue to monitor Australian Government restrictions on public gatherings and if the situation in relation to COVID-19 changes in a way that affects the holding of an in-person meeting, the Company will provide a further update ahead of the Meeting by releasing an announcement to ASX.

To vote in person, attend the Meeting on the date and at the place set out above. If you wish to attend the Meeting, please arrive 20 minutes prior to the start of the Meeting to facilitate the registration process.

At the Meeting, the Company will comply with any social distancing Government COVID-19 requirements that may apply at the time. This may include limiting the number of attendees at the General Meeting or refusing entry to visitors. We ask that you do not attend the Meeting if you feel unwell or have been in contact with someone who may have been affected by COVID-19.

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 10.00 am (Perth time) on 15 October 2022 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.

Agenda and Business of the Meeting

1. Resolution 1 – Call Option Deed

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

“That, conditional on the passing of Resolution 2, for the purposes of ASX Listing Rules 10.1 and 10.4, section 208 of the Corporations Act 2001 and for all other purposes, the Shareholders approve the grant of the Call Option under the Call Option Deed, the exercise of the Call Option under the Call Option Deed and the payment of the Option Fee 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 1 by or on behalf of SRHK, and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 1 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
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Notice of General Meeting

(2) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

2. Resolution 2 – Issue of Shares to SRHK – Option Fee

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

“That, conditional on the passing of Resolution 1, for the purposes of Listing Rule 10.11, 208 of the Corporations Act 2001 and for all other purposes, approval is given for the Company to issue 10,545,818 Shares to SRHK (or nominee) at deemed issue price of $0.02845 in full and final satisfaction of the Option Fee.”

Voting Exclusion: The Company will disregard any votes cast in favour of Resolution 2 by or on behalf of SRHK, or any nominee and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 2 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.

3. Resolution 3 – Grant of New Royalty

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 Rules 10.1, section 208 of the Corporations Act 2001 and for all other purposes, the Shareholders approve the grant of the New Royalty as consideration for the extinguishment of the DECA Debt and otherwise 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 3 by or on behalf of SRHK or any nominee and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 3 by:

(d) 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;
(e) 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
(f) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(3) 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
(4) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

4. Resolution 4 – Issue of Shares to SRHK

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

Notice of General Meeting

“That, for the purposes of Listing Rule 10.11 and for all other purposes, approval is given for the Company to issue 19,090,909 Shares to SRHK (or nominee) at deemed issue price of $0.033 in full and final satisfaction of the Cortex Debt”

Voting Exclusion: The Company will disregard any votes cast in favour of Resolution 4 by or on behalf of SRHK, or any nominee and any Associates of those persons. However, this does not apply to a vote cast in favour of Resolution 4 by:

(d) 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;
(e) 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
(f) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(3) 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
(4) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

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 General Meeting.

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 15 October 2022.

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, 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.

Notice of General Meeting

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 Brightstar Resources Limited

Luke Wang

Company Secretary

15 September 2022

Explanatory Memorandum

1. Introduction and Background

This Explanatory Memorandum is provided to Shareholders of Brightstar Resources Limited ( Brightstar or Company ) to explain the Resolutions to be put to Shareholders at the General Meeting.

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.

The approvals sought at this Meeting relate to the granting of the Call Option over the SRHK Royalty on the terms of the Call Option Deed, the granting of the New Royalty and the issue of Shares to SRHK.

Resolutions 1 and 2 are conditional upon each other however Resolutions 3 and 4 are not conditional upon the passing of any other Resolution.

Unless otherwise defined, the Terms used in this Explanatory Memorandum are defined in section 6.

2. Resolution 1 – Approval of Call Option and Option Fee

2.1 General

On or about 27 September 2021 the Company entered into a deed with SRHK, and Desert Exploration granting a call option ( Call Option ) to the Company to purchase the SRHK Royalty ( Call Option Deed ). A summary of the material terms of the Call Option Deed is set out at Schedule 1. The Directors are of the view that the Call Option Deed is in the best interests of the Company as it effectively provides a cap on the amount payable under the SRHK Royalty if the Company returns the Brightstar Plant to production.

In summary the Call Option provides for the following:

(a) The payment of the Option Fee via the issue of $300,000 worth of Shares to SRHK;
(b) The grant of a 5 year Call Option to the Company to acquire the SRHK Royalty from SRHK for a total consideration of USD$25,000,000;
(c) The Company may exercise the Call Option at any time within 5 years of the date of issue of the Option Fee.

The Call Option Deed may result in the acquisition of a substantial asset from a related party of the Company. The Company is therefore required to seek shareholder approval under ASX Listing Rule 10.1.

ASX Listing Rule 10.5.10 requires a notice of meeting containing a resolution under ASX Listing Rule 10.1 to include a report on the transaction from an independent expert. Shareholders are encouraged to carefully read the Independent Expert's Report included in this Notice.

The Independent Expert has determined that granting of the Call Option is not fair but reasonable. The Company notes that the assessed preferred value of the transaction under this Resolution 1 is AUD$15,143,698 with a value of AUD$2,203,660 being ascribed as the preferred value of the SRHK Royalty. This is significantly less that the exercise price of the Call Option.

Explanatory Memorandum

2.2 Listing Rule 10.1

Listing Rule 10.1 provides that a listed entity must ensure that neither it, nor any of its child entities, acquires or agrees to acquire a substantial asset from, or disposes of a substantial asset to, amongst other persons:

(a) a related party of the entity;
(b) a child entity of the entity;
(c) a person who is, or was at any time in the 6 months before the issue or agreement, a substantial (10%+) holder in the company and who has nominated a director to the board of the company pursuant to a relevant agreement which gives them a right or expectation to do so;
(d) an associate of a person referred to in Listing Rules 10.1.1 to 10.1.3; 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 its shareholders,

unless it obtains the approval of its shareholders.

Substantial asset

For the purposes of Listing Rule 10.1, an asset is substantial if its value, or the value of consideration for it is, or in ASX's opinion is, 5% or more of the equity interests of the entity as set out in the latest accounts given to ASX under the ASX Listing Rule.

Based on the Company's financial position and asset base, ASX has advised the Company that the Call Option and the transactions contemplated under the Call Option Deed constitute the proposed acquisition of a substantial asset from a related party.

SRHK is a related party of the Company by virtue of Mr Yongji Duan being a director of both the Company and SRHK.

2.4 Independent Experts Report

Accompanying this Notice is a copy of the Independent Expert's Report commissioned by the Independent Directors which gives the Independent Expert's view as to whether the Call Option Deed and grant of the Call Option is fair and reasonable to the Non-Associated Shareholders.

The Independent Expert has formed the view that the Call Option and Call Deed are not fair but reasonable to the Non-Associated Shareholders. The Independent Expert concluded that the value of the SRHK Royalty may be less than the exercise price under the Call Option Deed.

All Shareholders are encouraged to read the Independent Experts Report in full and in particular in relation to their assessments of the fairness and the advantages and disadvantages of the Call Option and Call Option Deed.

The Independent Expert has given, and has not before the date of the Notice withdrawn, its consent to the inclusion of the Independent Expert’s Report with the Notice and to the references to the Independent Expert’s Report in this Notice being made in the form and context in which each such reference is included.

2.5 Listing Rule 10.4

Listing Rule 10.4 provides that in the case of an acquisition or disposal of an asset by the grant or exercise of an option, the consideration for entering into the option is aggregated with the

Explanatory Memorandum

exercise price to determine the consideration payable for the asset the subject of the option upon grant of the option. The aggregate exercise price payable for the Call Option is at least USD$25 million. Accordingly, any exercise of the Call Option is considered to involve the acquisition of a “substantial asset” and requires shareholder approval under Listing Rule 10.1.

The Company is therefore seeking approval for both the grant of the Call Option and the exercise of the Call Option on the terms of the Call Option Deed.

2.6 Chapter 2E of the Corporations Act

For a public company, or an entity that the public company controls, to give a financial benefit to a related party 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 sections 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.

Section 210 of the Corporations Act provides that member approval is not needed to give a financial benefit on terms that would be reasonable given the circumstances and that the terms are consistent with terms that would be agreed if the Company was dealing with an unrelated third party.

Financial benefit is defined broadly and includes buying an asset from a related party. It is necessary to look at the economic and commercial substance and the effect of the transaction in determining the financial benefit. The Corporations Act requires that any consideration that is given is disregarded, even if the consideration is adequate.

The Directors (other than Mr Yongji Duan who excused himself from consideration at a board level due to his material personal interest) consider that Shareholder approval pursuant to Chapter 2E of the Corporations Act is required in respect of the Call Option Deed even though it may fall under an available exception under Chapter 2E of the Corporations Act, on the basis that the Call Option Deed would be reasonable in the circumstances if the Company and SRHK were dealing at arm’s length. The Company is seeking Shareholder approval pursuant to Chapter 2E in respect of Resolution 1.

Accordingly, Shareholder approval for the grant and exercise of the Call Option under the Call Option Deed is sought in accordance with Chapter 2E of the Corporations Act.

2.7 Technical Information required by Listing Rule 10.5 and ASIC Regulatory Guide 76

Pursuant to and in accordance with Listing Rule 10.1, the following information is provided in relation to Resolution 1:

(a) in the event the Call Option is exercised the Company will acquire the SRHK Royalty from SRHK;
(b) SRHK falls within the category set out in Listing Rule 10.1.1 as SRHK is a related party of the Company by virtue of Mr Yongji Duan being a director of both SRHK and the Company;
(c) the Call Option relates to the SRHK Royalty being a 3% net smelter royalty over the Stone Royalty Tenements;
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Explanatory Memorandum

(d) in the event the Call Option is exercised the consideration will be a maximum of USD$25,000,000 (plus the value of the Option Fee), if the Company elects to partially acquire the SRHK Royalty then the consideration payable will be pro-rated by reducing the percentage amount payable, for example a USD$12.5m exercise will reduce the SRHK Royalty to 1.5%;
(e) given there is a 5 year Option Period the Company can not state with any certainty how any exercise of the Call Option would be funded, however it would likely be through a combination of equity or debt raising and revenues produced by the Company (as any such exercise would only occur if the Company is in production);
(f) the Option Period is 5 years from the date of Shareholder approval, there is not otherwise any timetable for the exercise of the Call Option;
(g)
the terms of the Call Option Deed are summarised at Schedule 1;
(h)
- SRHK currently holds no Shares however Mr Yongji Duan holds 31,449,497 Shares;
(i) the approval proposed under Resolution 1 will not in of itself have any dilutionary effect on Shareholders;
(j) a voting exclusion and prohibition statement is included in Resolution 1 of this Notice; and
(k) the Independent Experts Report is provided as Schedule 5 to the Notice.
2.8 Technical information required by Listing Rule 14.1A

If Resolution 1 is passed, the Company will be able to proceed with the issue of the Option Fee and will also be able to exercise the Call Option on the terms of the Call Option Deed at any time within the 5 year Option Period. Upon full exercise the Company will no longer have any obligation to SRHK under the SRHK Royalty.

If Resolution 1 is not passed, then the Company will not be able to exercise the Call Option and may seek to negotiate a further transaction with SRHK in relation to the SRHK Royalty. The Company will then not have the ability to cap the amount payable under the SRHK Royalty.

2.9 Board recommendation, Reasons and Interests

The Directors recommend that Shareholders vote in favour of Resolution 1 (Mr Yongji Duan declines to make a recommendation based on his material personal interest in Resolution 1).

The Company commenced investigating ways in which it could seek to cap the SRHK Royalty as in the Directors opinion a 3% royalty on production can often be a deterrent to either equity or debt financing. The Company is a development company that is seeking to return to production of gold and is aware that returning to production will require significant amounts of new capital, including capital to return the Brightstar Plant to full working capacity.

The Company is not seeking to dispose of any assets and is focussed upon bringing the Company back into production of gold. The Company formed the view that obtaining an option over the SRHK Royalty is a prudent step to take, will ultimately make the Company more attractive and give the Company further options with respect to financing its future projects and production.

The Company is pursuing resource and grade upgrades through further drilling of its existing projects and holds the view that by the time production resumes the resources of the Company may have increased. This may result in an increase in the valuation of the SRHK Royalty. By entering into the Call Option Deed the Company is seeking to ensure that its interests are protected against such an uncapped royalty liability.

Explanatory Memorandum

The Directors are of the view that other than taking no action in relation to the SRHK Royalty there are no viable alternatives to deal with the SRHK Royalty at this point in time.

Mr Hobba and Mr Hunt, recommend voting in favour of Resolution 1 as the grant of the Call Option will:

provide a cap on the SRHK Royalty;
increase the attractiveness of the projects of the Company to potential investors and funders;
give the Company flexibility to deal with its royalty obligations in the future;
no result in the Company missing out on any opportunity; and
provide certainty and allow the Company to plan out is mine and production processes.

Other than as Shareholders of the Company neither Mr Hobba or Mr Hunt have an interest in the outcome of the Resolution. Mr Duan excused himself from voting at a board level in relation to the matters contained in this Resolution but was involved in making the decision to accept or not accept the final terms agreed between the 3[rd] party and the Company in accordance with SRHK’s decision making procedures.

Any undirected proxies held by the Chairman will be voted in favour of Resolution 1.

3. Resolution 2 – Issue of Shares to SRHK – Option Fee

3.1 Background

A summary of the Call Option Deed and Call Option is set out in the section above at 2.1.

The Option Fee payable to SRHK under the Call Option Deed is $300,000 and the Company is electing pay this via the issue of Shares, being 10,545,818 Shares at a deemed issue price of $0.02845 per Share ( Option Fee Shares ). The issue price was agreed in the Call Option Deed to be calculated by reference to a 10 day VWAP for the 10 days preceding the execution of the Call Option Deed (27 September 2021).

SRHK is a related party of the Company due to Mr Yongji Duan being a director of both SRHK and the Company.

Resolution 2 seeks Shareholder approval to approve the issue of Shares pursuant to Listing Rule 10.11.

Resolution 2 is an Ordinary Resolution. The Chair intends to exercise all available proxies in favour of Resolution 2.

3.2 Chapter 2E of the Corporations Act

For a public company, or an entity that the public company controls, to give a financial benefit to a related party 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 sections 217 to 227 of the Corporations Act; and
(b) give the benefit within 15 months following such approval,
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Explanatory Memorandum

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

The issue of the SRHK Shares to SRHK (a related party by virtue of Mr Yongji Duan being a director of both SRHK and the Company) constitutes giving a financial benefit to a related party.

The Directors (other than Mr Yongji Duan who excused himself from consideration at a board level due to his material personal interest) consider that Shareholder approval pursuant to Chapter 2E of the Corporations Act is required in respect of the payment of the Option Fee even though it may fall under an available exception under Chapter 2E of the Corporations Act, on the basis that the Option Fee would be reasonable in the circumstances if the Company and SRHK were dealing at arm’s length.

Accordingly, Shareholder approval for the issue of the Option Fee Shares under the Call Option Deed is sought in accordance with Chapter 2E of the Corporations Act.

3.3 Listing Rule 10.11

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:

(a) a related party;
(b) a person who is, or was at any time in the 6 months before the issue or agreement, a substantial (30%+) holder in the company;
(c) a person who is, or was at any time in the 6 months before the issue or agreement, a substantial (10%+) holder in the company and who has nominated a director to the board of the company pursuant to a relevant agreement which gives them a right or expectation to do so;
(d) an associate of a person referred to in Listing Rules 10.11.1 to 10.11.3; or
(e) a person whose relationship with the company or a person referred to in Listing Rules 10.11.1 to 10.11.4 is such that, in ASX’s opinion, the issue or agreement should be approved by its shareholders,
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Explanatory Memorandum

unless it obtains the approval of its shareholders.

The issue of the Option Fee Shares the subject of Resolution 2 falls within Listing Rule 10.11.1 on the basis that the Option Fee Shares are being issued to SRHK who is a related party of the Company by virtue of Mr Yongji Duan being a director of both SRHK and the Company.

3.4 Technical Information required by Listing Rule 10.13 and ASIC Regulatory Guide 76

Pursuant to and in accordance with Listing Rule 10.13, the following information is provided in relation to Resolution 2:

(a) the Option Fee Shares will be issued to SRHK (or its nominee), who falls within the category set out in Listing Rule 10.11.1 as SRHK is a related party of the Company by virtue of Mr Yongji Duan being a director of both SRHK and the Company;
(b) the maximum number of Option Fee Shares to be issued to SRHK is 10,545,818 Shares:
(c) the Option Fee Shares are ordinary fully paid Shares on the same terms as existing Shares in the Company;
(d) the Shares issued will be fully paid ordinary shares in the capital of the Company issued on the same terms and conditions as the Company’s existing Shares;
(e) the Option Fee Shares are expected to be issued prior to 25 October 2022 but in any event will be issued no later than 1 month after the date of the Meeting (or such later date to the extent permitted by any ASX waiver or modification of the Listing Rules);
(f) the issue price of the Option Fee Shares is $0.02845 per Share. The issue price was agreed in the Call Option Deed to be calculated by reference to a 10 day VWAP for the 10 days preceding the execution of the Call Option Deed (27 September 2021). The consideration for the issue of the Option Fee Shares is the grant of the Call Option under the Call Option Deed. The Company has not and will not receive any other consideration for the issue of the Option Fee Shares and no funds are raised from the issue of the Option Fee Shares;
(g) the Option Fee Shares are being issued to satisfy the Company’s obligations under the terms of the Call Option Deed;
(h) the Option Fee Shares are not being issued as remuneration or as an incentive to a Director;
(i) SRHK currently holds no Shares however Mr Yongji Duan holds 31,449,497 Shares;
(j) the approval proposed under Resolution 2 will increase the total amount of Shares on issue by 10,545,818 to 657,406,687 Shares equating to an increase of 1.63% of the issued capital therefore resulting in the equivalent dilution to Shareholders; and
(k) a voting exclusion and prohibition statement is included in Resolution 2 of this Notice.

3.5 Technical information required by Listing Rule 14.1A

If Resolution 2 is passed, the Company will be able to proceed with the issue of the Option Fee Shares to SRHK within 1 month after the date of the Meeting (or such later date as permitted by any ASX waiver or modification of the Listing Rules) and will then be able to exercise the Call Option at any time within the next 5 years and the Call Option Deed becomes binding on the parties.

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Explanatory Memorandum

If Resolution 2 is not passed, the Company will not be able to proceed with the issue of the Option Fee Shares to SRHK and the Call Option Deed will not proceed. The Company will not be able to exercise the Call Option unless it renegotiates with SRHK.

3.6 Directors’ Recommendation, Reasons and Interests

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).

The Directors considered whether or not it would be feasible to pay cash for the Option Fee and determined that it was more advantageous for the Company to maintain cash to spend on its projects.

The quantum of the Option Fee was deemed reasonable by the Directors given the length of the option granted under the Call Option Deed and the fact that only the Company can exercise the option. The Directors also considered that it is advantageous to have the ability to partially exercise the option and thereby reduce the overriding 3% SRHK Royalty. It was determined that the issue of the Option Fee Shares is a reasonable price to pay for the ability of the Company to have such a long-term call option over the SRHK Royalty.

Mr Hobba and Mr Hunt, recommend voting in favour of Resolution 2 as the issue of the Option Fee Shares will:

relieve the Company from the obligation to pay cash to pay the Option Fee;
allow the Company to use its existing cash to fund its projects and further progress exploration programs;
have no significant opportunity cost; and
avoid the need to raise funds via equity to fund the Option Fee would likely have to be conducted at a price less than the price at which the Option Fee Shares are proposed to be issued given the current market price of the Shares.

Any undirected proxies held by the Chairman will be voted in favour of Resolution 2.

4. Resolution 3 – Grant of New Royalty

4.1 General

On or about 28 June 2022 the Company entered into a deed of variation of the DECA ( Variation Deed ) with SRHK and Stone Resources Limited in relation to the DECA debt and how the DECA Debt will be paid. The Directors are of the view that the Variation Deed is in the best interests of the Company as it provides a cash free settlement of an existing liability of the Company, allowing the Company to be practically debt free and in a strong position to progress its projects.

In summary the Variation Deed provides for the following:

(a) The grant of the New Royalty to SRHK;
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Explanatory Memorandum

(b) The extinguishment of the DECA Debt; and
(c) Release of the Company from any ongoing liability to SRHK under the DECA.

The Variation Deed is summarised at Schedule 3 and is otherwise on standard terms and includes an obligation to enter into a royalty deed in relation to the New Royalty once Shareholder approval is obtained in accordance with this Resolution 3.

The Variation Deed may result in the grant of a substantial asset to a related party of the Company. The Company is therefore required to seek shareholder approval under Listing Rule 10.1.

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.

Shareholders are encouraged to carefully read the Independent Expert's Report included in this Notice.

The Independent Expert has determined that granting of the New Royalty is fair and reasonable. The Company notes that the assessed value of the New Royalty is AUD$1,600,000. This is significantly less that the DECA Debt amount of AUD$5,400,000.

4.2 Listing Rule 10.1

(a) a related party of the entity;
(b) a child entity of the entity;
(c) a person who is, or was at any time in the 6 months before the issue or agreement, a substantial (10%+) holder in the company and who has nominated a director to the board of the company pursuant to a relevant agreement which gives them a right or expectation to do so;
(d) an associate of a person referred to in Listing Rules 10.1.1 to 10.1.3; 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 its shareholders,

unless it obtains the approval of its shareholders.

4.3 Substantial asset

Based on the Company's financial position and asset base, ASX has advised the Company that the grant of the New Royalty and the transactions contemplated under the Variation Deed

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Explanatory Memorandum

constitute a transaction in relation to a substantial asset from a related party and as such Listing Rule 10.1 applies.

SRHK is a related party of the Company by virtue of Mr Yongji Duan being a director of both the Company and SRHK.

4.4 Independent Experts Report

Accompanying this Notice is a copy of the Independent Expert's Report commissioned by the Independent Directors which gives the Independent Expert's view as to whether the Variation Deed and grant of the New Royalty is fair and reasonable to the Non-Associated Shareholders.

The Independent Expert has formed the view that the New Royalty and Variation Deed are fair and reasonable to the Non-Associated Shareholders. The Independent Expert concluded that the value of the DECA Debt is greater than the value of the New Royalty.

4.5 Chapter 2E of the Corporations Act

For a public company, or an entity that the public company controls, to give a financial benefit to a related party 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 sections 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.

Notwithstanding the above, the Directors (other than Mr Yongji Duan) consider that Shareholder approval pursuant to Chapter 2E of the Corporations Act is not required in respect of the Variation Deed and New Royalty as it falls under an available exception under Chapter 2E of the Corporations Act, including on the basis that the New Royalty would be reasonable in the circumstances if the Company and SRHK were dealing at arm’s length given the DECA Debt. For the avoidance of doubt and for the sake of transparency, the Directors (other than Mr Yongji Duan) are seeking Shareholder approval pursuant to Chapter 2E in respect of Resolution 3.

Accordingly, Shareholder approval for the grant of the New Royalty under the Variation Deed is sought in accordance with Chapter 2E of the Corporations Act.

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Explanatory Memorandum

4.6 Technical Information required by Listing Rule 10.5

Pursuant to and in accordance with Listing Rule 10.1, the following information is provided in relation to Resolution 3:

(a) the Company is proposing to grant the New Royalty to SRHK;
(b) SRHK falls within the category set out in Listing Rule 10.1.1 as SRHK is a related party of the Company by virtue of Mr Yongji Duan being a director of both SRHK and the Company;
(c) the Variation Deed relates to the extinguishment of the DECA Debt in exchange for the grant of the New Royalty being a 1.5% net smelter royalty over the Tenements, capped at 3 times the current debt owed to SRHK (being a total of $16,200,000);
(d) there is no cash or equity consideration for the grant of the New Royalty, the consideration is the extinguishment of the DECA Debt;
(e) the Company intends to complete the grant of the New Royalty and extinguishment of the DECA Debt within 5 days of the approval of Resolution 3 and in any event prior to 25 October 2022;
(f) no funds are being raised by the Company under the Deed of Variation or New Royalty however it will have the effect of extinguishing a long-term liability of the Company (in the amount of $5,400,000);
(g) the terms of the Variation Deed are summarised at section 4.1 and Schedule 3, the New Royalty is on standard terms consistent with the existing royalty agreements of the Company;
(h) a voting exclusion and prohibition statement is included in Resolution 3 of this Notice; and
(i) the Independent Experts Report is provided as Schedule 5 to the Notice.

4.7 Technical information required by Listing Rule 14.1A

If Resolution 3 is passed, the Company will be able to proceed with completion of the Deed of Variation, will grant the New Royalty to SRHK and the DECA Debt will be extinguished.

If Resolution 3 is not passed, then the Company will not be able to extinguish the DECA Debt and will remain under the obligation to repay the DECA Debt in accordance with its terms.

4.8 Board recommendation, Reasons and Interests

The Directors recommend that Shareholders vote in favour of Resolution 3 (Mr Yongji Duan declines to make a recommendation based on his material personal interest in Resolution 3).

The Company had regard to the future liability of the DECA Debt and the fact that it may soon become a current liability of the Company. The Company is a development company that is seeking to return to production of gold and is aware that returning to production will require significant amounts of new capital, including capital to return the Brightstar Plant to full working capacity.

The DECA Debt constitutes a significant financial obligation and liability of the Company and serves to make the Company inherently unattractive to both debt and equity financiers. The Directors formed the view that extinguishing the DECA Debt via the issue of the New Royalty is in the best interests of the Company and will enable the Company to obtain more favourable financing terms than it otherwise would have been able to.

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Explanatory Memorandum

The Company is not seeking to dispose of any assets and is focussed upon bringing the Company back into production of gold.

The Directors considered alternatives to extinguishing the DECA Debt but these alternatives would either result in further debt being incurred by the Company or in dilution to Shareholders. The Directors determined that the grant of the New Royalty was the most attractive option and will enable the Company to pursue its projects without having such a significant liability on its account.

Mr Hobba and Mr Hunt, recommend voting in favour of Resolution 3 as the extinguishment of the DECA Debt will:

relieve the Company from the obligation to pay cash to SRHK to satisfy the DECA Debt;
avoid the substantial dilution to existing Shareholders that would occur if the Company had to issue equity to raise the funds to pay the DECA Debt; and
the Company is highly unlikely to be able to obtain debt financing on acceptable terms to pay the DECA Debt.

Any undirected proxies held by the Chairman will be voted in favour of Resolution 3.

5. Resolution 4 – Issue of Shares to SRHK – Cortex Debt

5.1 Background

On or about 28 June 2022 the Company entered into a deed with SRHK, Great Cortex and Company Director, Yongji Duan to vary the existing settlement deed dated 27 September 2021 between those parties to effect the following:

(a) confirm the assignment of the Cortex Debt to SRHK;
(b) agree to extinguish all liabilities owed to Great Cortex; and
(c) agree to repay the Cortex Debt via the issue of Shares in the Company to SRHK.

( Cortex Settlement Deed )

Under the terms of the Cortex Settlement Deed Great Cortex agreed to assign all of its right to repayment of the Cortex Debt to SRHK.

The Cortex Debt is $630,000 and is not accruing interest and the total amount of Shares that are agreed to be issued to repay the Cortex Debt is 19,090,909 Shares representing a deemed issue price of $0.033 per Share ( SRHK Shares ).

SRHK is a related party of the Company due to Mr Yongji Duan being a director of both SRHK and the Company.

Resolution 4 seeks Shareholder approval to approve the issue of Shares pursuant to Listing Rule 10.11.

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Explanatory Memorandum

Resolution 4 is an Ordinary Resolution. The Chair intends to exercise all available proxies in favour of Resolution 4.

5.2 Chapter 2E of the Corporations Act

For a public company, or an entity that the public company controls, to give a financial benefit to a related party 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 sections 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 issue of the SRHK Shares to SRHK (a related party by virtue of Mr Yongji Duan being a director of both SRHK and the Company) constitutes giving a financial benefit to a related party.

The Directors have had regard to ASIC Regulatory Guide 76 and the circumstances in which section 210 of the Corporations Act applies. As the SRHK Shares are proposed to be issued at $0.033, a significant premium to the recent trading price of Shares, being $0.016 as at 9 September 2022 and the 30-day VWAP of Shares being $0.018, the non-related Directors (being Mr Hobba and Mr Hunt) have determined that the issue of the SRHK Shares are reasonable in the circumstances and the exception applies.

In addition to the premium stated above the Company conducted the negotiations through the use of a 3[rd] party representing SRHK and Great Cortex and Mr Hobba representing the Company. The Directors considered that the price arrived at was fair in the circumstances and that the agreement was reached on an arms length basis. The alternative of having to pay cash to pay out the Cortex Debt was deemed unattractive and not in the best interests of Shareholders given the cash could be better spent in progressing the projects of the Company.

Accordingly, Shareholder approval for the issue of the SRHK Shares to SRHK is not sought in accordance with Chapter 2E of the Corporations Act.

5.3 Listing Rule 10.11

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:

(a) a related party;
(b) a person who is, or was at any time in the 6 months before the issue or agreement, a substantial (30%+) holder in the company;
(c) a person who is, or was at any time in the 6 months before the issue or agreement, a substantial (10%+) holder in the company and who has nominated a director to the board of the company pursuant to a relevant agreement which gives them a right or expectation to do so;
(d) an associate of a person referred to in Listing Rules 10.11.1 to 10.11.3; or
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Explanatory Memorandum

(e) a person whose relationship with the company or a person referred to in Listing Rules 10.11.1 to 10.11.4 is such that, in ASX’s opinion, the issue or agreement should be approved by its shareholders,

unless it obtains the approval of its shareholders.

The issue of the SRHK Shares the subject of Resolution 4 falls within Listing Rule 10.11.1 on the basis that the SRHK Shares are being issued to SRHK who is a related party of the Company by virtue of Mr Yongji Duan being a director of both SRHK and the Company.

5.4 Technical Information required by Listing Rule 10.13 and ASIC Regulatory Guide 76

Pursuant to and in accordance with Listing Rule 10.13, the following information is provided in relation to Resolution 4:

(a) the SRHK Shares will be issued to SRHK (or its nominee), who falls within the category set out in Listing Rule 10.11.1 as SRHK is a related party of the Company by virtue of Mr Yongji Duan being a director of both SRHK and the Company;
(b) the maximum number of SRHK Shares to be issued to SRHK is 19,090,909:
(c) the SRHK Shares are ordinary fully paid Shares on the same terms as existing Shares in the Company;
(d) the Shares issued will be fully paid ordinary shares in the capital of the Company issued on the same terms and conditions as the Company’s existing Shares;
(e) the SRHK Shares are expected to be issued prior to 25 October 2022 but in any event will be issued no later than 1 month after the date of the Meeting (or such later date to the extent permitted by any ASX waiver or modification of the Listing Rules);
(f) the deemed issue price of the SRHK Shares is $0.033 per Share. The consideration for the issue of the SRHK Shares is the repayment and extinguishment of the Cortex Debt, an amount of $630,000. The Company has not and will not receive any other consideration for the issue of the SRHK Shares and no funds are raised from the issue of the SRHK Shares;
(g) the SRHK are being issued to satisfy the Company’s obligations under the terms of the Cortex Settlement Deed;
(h) SRHK currently holds no Shares however Mr Yongji Duan holds 31,449,497 Shares;
(i) the approval proposed under Resolution 4 will increase the total amount of Shares on issue by 19,090,909 to 665,951,778 Shares equating to an increase of 2.95% of the issued capital therefore resulting in the equivalent dilution to Shareholders; and
(j) a voting exclusion and prohibition statement is included in Resolution 4 of this Notice.

5.5 Technical information required by Listing Rule 14.1A

If Resolution 4 is passed, the Company will be able to proceed with the issue of the SRHK Shares to SRHK within 1 month after the date of the Meeting (or such later date as permitted by any ASX waiver or modification of the Listing Rules) and extinguish and repay the Cortex Debt on the terms of the Cortex Settlement Deed.

If Resolution 4 is not passed, the Company will not be able to proceed with the issue of the SRHK Shares to SRHK and the Company will need to make alternative arrangements to repay the Cortex Debt on or before 18 November 2023.

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Explanatory Memorandum

5.6 Directors’ Recommendation, Reasons and Interests

The Directors recommend that Shareholders vote in favour of Resolution 4 (Mr Yongji Duan declines to make a recommendation based on his material personal interest in Resolution 4).

Mr Hobba and Mr Hunt, recommend voting in favour of Resolution 4 as the extinguishment of the Cortex Debt via the issue of Shares will:

relieve the Company from the obligation to pay cash to satisfy the Cortex Debt;
allow the Company to use its existing cash to fund its projects and further progress exploration programs; and
avoid having to obtain debt finance as the Company is highly unlikely to be able to obtain debt financing on acceptable terms to pay the Cortex Debt.

Any undirected proxies held by the Chairman will be voted in favour of Resolution 4.

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6. Interpretation

Explanatory Memorandum

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.

Board means the Board of Directors of the Company.

Brightstar means the Company.

Brightstar Plant means the 485,000 tpa plant and associated camp and equipment located in South Laverton, Western Australia owned by the Company.

Call Option means the option to purchase the SRHK Royalty granted to the Company or its nominee under the Call Option Deed.

Call Option Deed has the meaning given at Schedule 1 to this Notice.

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 Brightstar Resources Limited.

Company Secretary means Luke Wang.

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.

Cortex Debt means $630,000 owed by the Company to Great Cortex, the debt having subsequently been assigned to SRHK.

DECA means Revised Debt Equity Compromise Agreement dated 11 August 2020 between the Company, SRL and SRHK, as varied.

DECA Debt means a total of $5,400,000 payable by the Company to SRHK pursuant to the terms of the DECA.

Desert Exploration means Desert Exploration Pty Ltd (ACN 065 110 698) a wholly owned subsidiary of the Company.

Director means a director of the Company.

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

Great Cortex means Great Cortex International Limited, a company incorporated in the British Virgin Islands.

Independent Expert means Moore Australia Corporate Finance (WA) Pty Ltd – AFSL No. 240773.

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 General Meeting means the general meeting to be held on 17 October 2022.

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Explanatory Memorandum

New Royalty means a 1.5% net smelter royalty on the Tenements with the total amount payable under the royalty, capped at a 3 times multiple of AUD$5,400,000 (AUD$16,200,000) granted under the New Royalty Deed.

New Royalty Deed is the deed summarised at Schedule 4.

Non-Associated Shareholders means all Shareholders other than SRHK or any Associate of SRHK.

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.

Option Fee means a value of $300,000 to be satisfied via the issue of 10,545,818 Shares at an issue price of $0.02845 per Share.

Option Fee Shares means 10,545,818 Shares at an issue price of $0.02845 per Share

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

Proxy Form means the proxy form to the Notice.

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

Resolution means a resolution proposed at the Meeting.

Royalty Deed means the deed forming part of the DECA whereby the Company and Desert Exploration granted the SRHK Royalty to SRHK over the Stone Royalty Tenements.

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

Shareholder means a holder of Shares in the Company.

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

SRHK Royalty means the 3% NSR payable to SRHK on the terms of the Royalty Deed.

Stone Royalty Tenements are set out at Schedule 2 of this Notice.

Tenements means:

E38/3279 E38/3434 E38/3438 E38/3500 E38/3504 P38/4508

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Explanatory Memorandum

Variation Deed is summarised at Section 4.1 and Schedule 3.

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 Luke Wang (Company Secretary):

Suite 3, 25 Belgravia Street

Belmont WA 6104 Telephone Phone : +61 8 9277 6008 Email: [email protected]

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Explanatory Memorandum

Schedule 1 –– Material Terms of Call Option Deed

The parties to the Call Option Deed are:

i. The Company;
ii. Desert Exploration Pty Ltd ACN 065 110 698 ( Desert Exploration ), a subsidiary of Brightstar; and
iii. Stone Resources (HK) Limited a company incorporated in Hong Kong ( SRHK ), a related entity of Director Mr Yongji Duan.

SRHK is the payee of the SRHK Royalty over the Stone Royalty Tenements, which was granted as part of the consideration given to SRHK under the DECA). Details of the DECA were previously announced on ASX on 25 March 2020 along with subsequent amendments and variations.

Under the Call Option Deed, SRHK has agreed to grant Brightstar or its nominee an option to purchase the SRHK Royalty.

An option fee, in cash and/or shares at Brightstar’s discretion, equal to AUD$300,000 is payable to SRHK on the settlement date and is subject to shareholder approval if required, including under Chapter 10 of the ASX Listing Rules, any share based payments are calculated by reference to a 10 day VWAP for the days preceding the execution date of the deed.

The option period commences when the Call Option Deed is settled (being the payment of the option fee), which is expected to occur seven days after the date of Brightstar’s 2021 AGM, however this may be as late as 31 March 2022 depending upon the nature of the shareholder approvals required. This date has been extended to 25 October 2022.

The option period expires 5 calendar years after the settlement date ( Option Period ).

The exercise price of this Call Option is US$25,000,000. If exercised, Brightstar can elect to pay the exercise price in cash and/or shares. The exercise is subject to any required shareholder approvals at the time of exercise.

SRHK has no rights to compel or demand exercise of the Call Option granted under the Call Option Deed.

The Call Option may be exercised for the purchase of part of the SRHK Royalty and the purchase price will be adjusted pro-rata. If the Call Option is exercised for the purchase of part of the SRHK Royalty, within the Option Period, Brightstar may exercise the Call Option one further time for the purchase of part or all of the remainder of the SRHK Royalty.

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Explanatory Memorandum

Schedule 2 – Stone Royalty Tenements

Tenement	Registered Holder
E38/2411	Brightstar ResourcesLimited
E38/2452	Brightstar ResourcesLimited
E38/2894	Brightstar ResourcesLimited
E38/3034	Brightstar ResourcesLimited
E38/3108	Brightstar ResourcesLimited
E38/3198	Brightstar ResourcesLimited
E38/3293	Brightstar ResourcesLimited
E38/3331	Brightstar ResourcesLimited
L38/100	Brightstar ResourcesLimited
L38/123	Brightstar ResourcesLimited
L38/154	Brightstar ResourcesLimited
L38/168	Brightstar ResourcesLimited
L38/169	Brightstar ResourcesLimited
L38/171	Brightstar ResourcesLimited
L38/185	Brightstar ResourcesLimited
L38/188	Brightstar ResourcesLimited
L38/205	Brightstar ResourcesLimited
M38/1056	Brightstar ResourcesLimited
M38/1057	Brightstar ResourcesLimited
M38/1058	Brightstar ResourcesLimited
M38/241	Brightstar ResourcesLimited
M38/314	Brightstar ResourcesLimited
M38/346	Brightstar ResourcesLimited
M38/381	Brightstar ResourcesLimited
M38/549	Brightstar ResourcesLimited
M38/9	Brightstar ResourcesLimited
M38/917	Brightstar ResourcesLimited
M38/918	Brightstar ResourcesLimited
M38/94	Brightstar ResourcesLimited
M38/95	Brightstar ResourcesLimited
M38/968	Desert Exploration Pty Ltd (wholly owned subsidiary of Brightstar ResourcesLimited)
M38/984	Brightstar ResourcesLimited
P38/4377	Brightstar ResourcesLimited
P38/4385	Brightstar ResourcesLimited
P38/4431	Brightstar ResourcesLimited
P38/4432	Brightstar ResourcesLimited
P38/4433	Brightstar ResourcesLimited
P38/4444	Brightstar ResourcesLimited
P38/4445	Brightstar ResourcesLimited
P38/4446	Brightstar ResourcesLimited

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Explanatory Memorandum

P38/4447	Brightstar ResourcesLimited
P38/4448	Brightstar ResourcesLimited
P38/4449	Brightstar ResourcesLimited
P38/4450	Brightstar ResourcesLimited

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Explanatory Memorandum

Schedule 3 –– Material Terms of Variation Deed

The parties to the Variation Deed are:

i. Brightstar Resources Limited ( Brightstar );
ii. Stone Resources Limited (a company incorporated in Bermuda) ( SRL ); and
iii. Stone Resources (HK) Limited a company incorporated in Hong Kong ( SRHK ), a related entity of Director Mr Yongji Duan.

( Parties )

Brightstar, SRHK and SRL are parties to the DECA and by the Variation Deed have agreed to vary the terms and conditions of the DECA pursuant to the variation provisions of the DECA.

Under the Variation Deed, the Parties have agreed to alter the method by which the DECA Debt is to be repaid to SRHK.

The following variations are made under the Variation Deed are as follows:

The definition of the DECA Debt is changed to “the grant of the New Royalty to SRHK”;
- The New Royalty definition is inserted to mean “a 1.5% net smelter royalty on the Tenements with the total amount payable under the royalty, capped at a 3 times multiple of AUD$5,400,000 (AUD$16,200,000).”; and
New tenements are introduced which are covered by the New Royalty, those tenements being the Tenements as defined in this Notice.

The grant of the New Royalty and the variations under the Variation becoming effective is subject to the approval of Brightstar shareholders under Chapter 10 of the ASX Listing Rules.

Brightstar undertakes to use all reasonable endeavours to obtain the required shareholder approvals prior to 25 October 2022, including obtaining an independent experts report as to the fairness and reasonableness of the proposed variations in the Variation Deed.

Brightstar further promises to procure that each director (where able to do so) recommends that shareholders vote in favour of the resolutions related to the approval of the grant of the New Royalty.

The Variation Deed states that upon the Variation Deed becoming effective (ie. on shareholder approval) all liability under the DECA to SRHK is extinguished.

In the event Brightstar is unable to obtain shareholder approval to the grant of the New Royalty prior to 25 October 2022 then the obligation to pay the DECA Debt remains unchanged.

Once the Variation Deed becomes effective then Brightstar and SRHK will enter into the New Royalty Deed in relation to the New Royalty as summarised at Schedule 4.

The Variation Deed is otherwise on standard terms.

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Explanatory Memorandum

Schedule 4 –– Material Terms of New Royalty Deed

The parties to the New Royalty Deed are:

i. The Company; and
ii. Stone Resources (HK) Limited a company incorporated in Hong Kong ( SRHK

( Parties )

The New Royalty Deed will be executed on the day on which shareholder approval is obtained in accordance with the Variation Deed.

Under the New Royalty Deed the Company is the Payer and SRHK is the Payee. The New Royalty Deed applies to gold on a net smelter return basis.

The New Royalty Deed applies to the following tenements held by the Company, including any tenements applied for in substitution or renewal of these tenements:

E38/3279 E38/3434 E38/3438 E38/3500 E38/3504 P38/4508

The New Royalty is calculated by multiplying the royalty percentage (1.5%) by the net smelter return. The net smelter return is calculated as the gross revenue from sales of gold minus all allowable deductions, such deductions include all costs actually paid or incurred by the Company in the production of gold from the Tenements to which the New Royalty Deed applies.

The New Royalty is payable within 30 days of the end of each quarter of production and accrues as and when revenue is received by the Company from sales of gold. The total amount payable under the New Royalty is capped at an amount of AUD$16,200,000.

The New Royalty Deed obliges the Company to maintain the Tenements in good standing, conduct mining operations in accordance with industry standards and account to SRHK for payments due. The Company is further obliged to keep proper and accurate records in accordance with accounting standards and provide copies of those records to SRHK. SRHK has standard rights of audit and can request a 3[rd] party audit no more than once every 6 months.

The New Royalty Deed contains revival rights in relation to any Tenement relinquished by the Company where that Tenement is subsequently picked up or acquired by the Company.

The New Royalty Deed gives SRHK the right to lodge a consent caveat under s. 122A(2) of the Mining Act and the Company agrees not to seek to remove any caveat.

The Company may deal with its interest in the Tenements provided that any purchaser or assignee agrees to the terms of the New Royalty Deed via an assumption deed. SRHK may sell or assign its interest only if it first offers the Company the ability to purchase SRHK’s interest on the same terms and conditions as any 3[rd] party offer.

The New Royalty Deed contains terms and conditions in relation to confidentiality and dispute resolution considered standard for such a deed.

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Explanatory Memorandum

Schedule 5 –– Independent Expert’s Report

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Brightstar Resources Limited

Independent Expert’s Report and Financial Services Guide

8 September 2022

The Call Option Proposed Transaction is not fair but reasonable to the Non-Associated Shareholders of Brightstar Resources Limited The New Royalty Proposed Transaction is fair and reasonable to the Non-Associated Shareholders of Brightstar Resources Limited

Prepared by Moore Australia Corporate Finance (WA) Pty Ltd Australian Financial Services License No. 240773

www.moore-australia.com.au

==> picture [109 x 29] intentionally omitted <==

MOORE AUSTRALIA CORPORATE FINANCE (WA) PTY LTD

Australian Financial Services License No. 240773

FINANCIAL SERVICES GUIDE

This Financial Services Guide provides financial information about the supply of financial services to the shareholders of Brightstar Resources Limited (“Brightstar”). We have been engaged by Brightstar to prepare an Independent Expert’s Report in connection with the entering into the Call Option Deed and the payment of the Call Option Fee of A$300,000 for the option to buy back the 3% Royalty for the Exercise Price of US$25m over the Option Period (the “Call Option Proposed Transaction”) and the extinguishing of the Post Completion Payment liability of A$5.4m payable to SRHK via the issue of a 1.5% New Royalty to SRHK, capped at A$16.2m (the “New Royalty Proposed Transaction”). Our report has been prepared at the request of the Directors of Brightstar for inclusion in the Notice of Meeting to be dated on or around 17 October 2022.

Moore Australia Corporate Finance (WA) Pty Ltd

Moore Australia Corporate Finance (WA) Pty Ltd (“MACF”) has been engaged by the directors of Brightstar to prepare an independent expert’s report expressing our opinion as to whether or not the Proposed Transaction is “fair and reasonable” to the shareholders of Brightstar.

MACF holds an Australian Financial Services Licence – Licence No 240773.

Financial Services Guide

As a result of our report being provided to you we are required to issue to you, as a retail client, a Financial Services Guide (“FSG”). The FSG includes information on the use of general financial product advice and is issued so as to comply with our obligations as holder of an Australian Financial Services Licence.

Financial Services we are licensed to provide

We hold an Australian Financial Services Licence which authorises us to provide reports for the purposes of acting for and on behalf of clients in relation to proposed or actual mergers, acquisitions, takeovers, corporate restructures or share issues, and to carry on a financial services business to provide general financial product advice for securities to retail and wholesale clients.

We provide financial product advice by virtue of an engagement to issue a report in connection with the issue of securities of a company or other entities.

Our report includes a description of the circumstances of our engagement and identifies the party who has engaged us. You have not engaged us directly but will be provided with a copy of our report as a retail client because of your connection with the matters on which our report has been issued. We do not accept instructions from retail clients and do not receive remuneration from retail clients for financial services.

Our report is provided on our own behalf as an Australian Financial Services Licensee authorised to provide the financial product advice contained in this report.

General Financial Product Advice

Our report provides general financial product advice only, and does not provide personal financial product advice, because it has been prepared without taking into account your particular personal circumstances or objectives either financial or otherwise, your financial position or your needs.

Some individuals may place a different emphasis on various aspects of potential investments.

An individual’s decision in relation to the proposed transaction may be influenced by their particular circumstances and, therefore, individuals should seek independent advice.

Benefits that we may receive

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Remuneration or other benefits received by our employees

All our employees receive a salary. Employees may be eligible for bonuses based on overall productivity and contribution to the operation of MACF or related entities but any bonuses are not directly in connection with any assignment and in particular are not directly related to the engagement for which our report was provided.

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Associations and relationships

MACF is the licensed corporate advisory arm of Moore Australia Perth, Chartered Accountants. The directors of MACF may also be partners in Moore Australia Perth Chartered, Accountants.

Moore Australia Perth, Chartered Accountants is comprised of a number of related entities that provide audit, accounting, tax, and financial advisory services to a wide range of clients.

MACF’s contact details are set out on our letterhead.

Neither MACF nor its related entities have previously provided any professional services to Brightstar.

Complaints resolution

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, Moore Australia Corporate Finance (WA) Pty Ltd, PO Box 5785, St George’s Terrace, Perth WA 6831.

On receipt of a written complaint we will record the complaint, acknowledge receipt of the complaint and seek to resolve the complaint as soon as practical.

If we cannot reach a satisfactory resolution, you can raise your concerns with the Australian Financial Complaints Authority Limited (“AFCA”). AFCA is an independent body established to provide advice and assistance in helping resolve complaints relating to the financial services industry. MACF is a member of AFCA. AFCA may be contacted directly via the details set out below.

Australian Financial Complaints Authority Limited

GPO Box 3 Melbourne VIC 3001 Toll free: 1800 931 678 Facsimile: 03 9613 6399 Email: [email protected]

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1.	Introduction .................................................................................................................. 4
2.	Summary and Opinion ................................................................................................. 4
3.	Summary of Transactions .......................................................................................... 10
4.	Scope of the Report ................................................................................................... 12
5.	Profile of Brightstar .................................................................................................... 13
6.	Industry Analysis ........................................................................................................ 20
7.	Valuation Approach ................................................................................................... 21
8.	Call Option Proposed Transaction: Valuation of 3% Royalty Stream .......................... 23
9.	Call Option Proposed Transaction: Valuation of the Call Option Fee and Exercise
	Price ......................................................................................................................... 27
10.	New Royalty Proposed Transaction: Valuation of the 1.5% New Royalty Stream ...... 28
11.	New Royalty Proposed Transaction: Valuation of the Post Completion Payment ....... 29
12.	Are the Proposed Transactions Fair to Brightstar Shareholders? ............................... 30
13.	Are the Proposed Transactions Reasonable? ............................................................ 31
14.	Independence ............................................................................................................ 35
15.	Qualifications ............................................................................................................. 35
16.	Disclaimers and Consents ......................................................................................... 35
Appendix A – Source of Information ..................................................................................... 37
Appendix B – Valuation Methodologies ................................................................................ 38
Appendix C – Tenements Covered by the 3% Royalty Under the DECA .............................. 40
Appendix D – Comparable Net Smelter Royalty Buybacks ................................................... 41
Appendix E – Discount Rate ................................................................................................. 42
Appendix F - Glossary .......................................................................................................... 46

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Moore Australia

Level 15, Exchange Tower, 2 The Esplanade, Perth, WA 6000 PO Box 5785, St Georges Terrace, WA 6831 T +61 8 9225 5355 F +61 8 9225 6181 www.moore-australia.com.au

8 September 2022

The Directors Brightstar Resources Limited 3/25 Belgravia Street BELMONT WA 6104

Dear Directors

Independent Expert’s Report

1. Introduction

1.1 This Independent Expert’s Report (“IER”) has been prepared to accompany the Notice of General Meeting and Explanatory Statement (“Notice”) to be provided to shareholders for a General Meeting of Brightstar Resources Limited (“Brightstar” or “the Company”) at which shareholder approval will be sought for:
the Call Option Deed (the “Deed”) dated 27 September 2021 (as amended by variation dated 28 June 2022) whereby Brightstar proposes to pay a Call Option Fee of A$300,000 in return for the option, to be exercised at its discretion, any time over five years from settlement date (in full or part) to buy back the 3% Net Smelter Royalty granted to Stone Resources HK Limited (“SRHK”) under the Revised Debt Equity Compromise Agreement (“DECA”) dated 12 August 2020, for the Exercise Price of US$25m (the “Call Option Proposed Transaction”). Brightstar proposes to pay the Call Option Fee in shares as noted in Resolution 2 of the Notice of Meeting (the “Notice”).
the issue of a 1.5% Net Smelter Royalty (“New Royalty”) over relevant mining interests to Stone Resources HK Limited (“SRHK”) as consideration for the cancellation of the deferred Post Completion Payment of A$5.4m payable under the DECA (the “New Royalty Proposed Transaction”), as noted in Resolution 3 of the Notice.

(Collectively, the “Proposed Transactions”).

Further details of the Proposed Transactions are set out in Section 3.

2. Summary and Opinion

Purpose of the Report

2.1 Listing Rule 10.1 requires the approval of the Company’s shareholders where it has proposed to acquire or dispose of a “substantial asset” from/to:
A related party, or an associate of a related party of the Company; or
A subsidiary, or an associate of a subsidiary of the Company; or
A substantial shareholder, or an associate of a substantial shareholder of the Company. A substantial shareholder is defined under ASX listing rules as a shareholder with a relevant interest at any time in the previous six months prior to the transaction, in at least 10% of the total votes attaches to the voting securities in the entity.
2.2 A substantial asset includes those with a value greater than 5% of the total equity interests of the entity at the date of the last set of financial statements provided to the ASX.
2.3 Mr Yongji Duan is the chairman and 4.86% shareholder of Brightstar. Mr Duan is also a director of SRHK.

Moore Australia Corporate Finance (WA) Pty Ltd as trustee – ABN 41 421 048 107. An independent member of Moore Global Network Limited - members in principal cities throughout the world. Liability limited by a scheme approved under Professional Standards Legislation.

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2.4 If the Call Option Proposed Transaction completes, Brightstar will have the option to buy back the 3% Royalty for the Exercise Price. The Exercise Price exceeds 5% of the value of the total equity of Brightstar as at 31 December 2021 (the date of the latest set of consolidated financial information prepared by Brightstar). As such, shareholder approval is required, and an Experts Report is to be included in a Notice of Meeting, stating whether the Call Option Proposed Transaction is fair and reasonable to the Non-Associated Shareholders of Brightstar.
2.5 If the New Royalty Proposed Transaction completes, the Post Completion Payment payable to SRHK will be cancelled. The value of the Post Completion Payment exceeds 5% of the value of the total equity of Brightstar as at 31 December 2021 (the date of the latest set of consolidated financial information prepared by Brightstar). As such, shareholder approval is required, and an Experts Report is to be included in a Notice of Meeting, stating whether the New Royalty Proposed Transaction is fair and reasonable to the Non-Associated Shareholders of Brightstar.
2.6 The directors of Brightstar have engaged Moore Australia Corporate Finance (WA) Pty Ltd (“MACF”) being independent and qualified for the purpose, to prepare an Independent Expert’s Report to express an opinion as to whether or not the Proposed Transactions are fair and reasonable to the shareholders of Brightstar not associated with the Proposed Transactions (the “Non-Associated Shareholders”).
2.7 Our assessments of the Proposed Transactions rely on financial information and instructions provided by the Company and the Directors. We have critically analysed the information provided to us, but we have not completed any audit or due diligence of the information which has been provided for the entities which have been valued. This report does not contain any accounting or taxation advice.

Approach

2.8 Our report has been prepared having regard to Australian Securities & Investments Commission (“ASIC”) Regulatory Guide 111 Content of Expert’s Reports (“RG 111”) and Regulatory Guide 112 Independence of Expert’s (“RG 112”)
2.9 In arriving at our opinion, we have assessed the terms of the Proposed Transactions, as outlined in the body of our report, by considering the following;
How the value of the 3% Royalty compares to the value of the Call Option Fee and Exercise Price for the Call Option Proposed Transaction;
How the value of the 1.5% New Royalty compares to the value of Post Completion Payment for the New Royalty Proposed Transaction;
Advantages and disadvantages of approving the Proposed Transaction/s;
The likelihood of a superior alternative Proposed Transaction/s being available to Brightstar;
Other factors which we consider to be relevant to the shareholders of Brightstar in their assessment of the Proposed Transaction/s; and
The position of the shareholders of Brightstar should the Proposed Transaction/s not be successful.

Further information on the approach we have employed in assessing whether the Proposed Transactions are “fair and reasonable” are set out at Section 4 of this Report.

Opinion

2.10 We have considered the terms of the Proposed Transactions as outlined in the body of our report and have concluded the following as set out in Sections 8 to 13 of this Report:

Proposed Transactions:		Opinion
Call Option Proposed Transaction	Not Fair	Reasonable
New Royalty Proposed Transaction	Fair	Reasonable

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Fairness

Call Option Proposed Transaction

2.11 In Sections 8 and 9, we compared the value of the 3% Royalty stream to the value of the Call Option Fee and the Exercise Price.
2.12 Our assessed values are summarised in the table below.

Assessed values of the Call Option Proposed Transaction

	Section	Low Value A$	Mid Value A$	High Value A$
Assessed Fair Value of the 3% Royalty Stream	8	-	2,203,660	4,407,319
Assessed Fair Value of the Call Option Fee and Exercise Price	9	17,094,112	15,143,698	13,193,285

Source: MACF analysis

2.13 In the absence of any other relevant information, in our opinion, this indicates that the Call Option Proposed Transaction is not fair to the Non-Associated Shareholders of Brightstar as the valuations do not demonstrate overlap.

New Royalty Proposed Transaction

2.14 In Sections 10 and 11, we compared the value of the 1.5% New Royalty Stream to the value of the Post Completion Payment.
2.15 Our assessed values are summarised in the table below.

Assessed values for New Royalty Proposed Transaction

	Section	Low Value A$	Preferred Value A$	High Value A$
Assessed Fair Value of the Post Completion Payment	11	4,364,854	4,427,999	4,491,143
Assessed Fair Value of the 1.5% New Royalty Stream	10	-	-	1,600,000

Source: MACF analysis

2.16 In the absence of any other relevant information, in our opinion, this indicates that the New Royalty Proposed Transaction is fair to the Non-Associated Shareholders of Brightstar as the value of the Post Completion Payment exceeds the value of the 1.5% New Royalty Stream.

Reasonableness

2.17 RG 111 establishes that an offer is reasonable if it is fair. It may also be reasonable if, despite not being fair, there are sufficient reasons for security holders to accept the Proposed Transaction in the absence of a higher bid before the Proposed Transaction closes. We have considered the analysis in Section 13 of this report, in terms of both:
Advantages and disadvantages of the Proposed Transaction;
Alternative Offers; and
Other considerations if the Proposed Transaction is successful and the position of shareholders of Brightstar if the Proposed Transaction is not successful.

Call Option Proposed Transaction

2.18 The advantages and disadvantages considered are summarised below:

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Advantages of approving the Call Option Proposed Transaction

Advantage 1 – Cash flow

Only the Call Option Fee of A$300,000 requires immediate payment. Brightstar has no obligation to pay the Royalty Exercise Price of US$25 million unless it elects to buy back the 3% Royalty during the Option Period. The Call Option Fee is proposed to be paid by way of an issue of shares, therefore preserving cash, albeit that it is slightly dilutive to the Non-Associated Shareholders as illustrated in the table at Section 3.12. The payment of a fee of this magnitude to have the option to buy back the royalty stream, given the Company’s plans to undertake further exploration with the aim of upgrading mineral resources and ultimately to recommence mining, could provide a significant financial benefit to shareholders, but only in the event that proven resources can be significantly increased beyond current levels.

Advantage 2 – Option Period

The Option Period is five years, which should give Brightstar sufficient time to advance the project, to potentially upgrade resources, to assess the viability of mining and to recommence mining if considered viable, thereby enabling them to better assess the fair value of the 3% Royalty at a later date. The Company’s plans include programs to undertake further exploration and evaluation activities and to commence mining studies with the aim of developing and extending the existing proven resource estimates as well as targeting new discoveries which, if they do eventuate and meet internal reserve targets, would justify exercising the option.

Advantage 3 – Future Economic Benefit

If the project is sufficiently successful so as to exceed the value of the Exercise Price of US$25 million, Brightstar has the option to buy back the 3% Royalty and can therefore retain the excess future economic benefit of the royalty stream which would otherwise have been payable to SRHK. If the Company does not buyback the royalty, its shareholders will not fully benefit from the potential upside of resource upgrades or new discoveries. We note that the option to buyback the 3% Royalty also provides financial certainty as to the maximum amount payable should the project be successful.

Advantage 4 – More Attractive Project

If Brightstar exercises the option to buyback the 3% Royalty, then the associated projects will be more attractive to potential investors and acquirers.

Disadvantages of approving the Call Option Proposed Transaction

Disadvantage 1 – the Call Option Proposed Transaction is not fair

The Call Option Proposed Transaction is not considered to be fair, with a significant difference noted between the values assessed as at this date.

In assessing fairness, we have assessed the Call Option Fee and the related exercise price as one transaction. The payment of A$300,000, albeit to be satisfied by an issue of shares, for the option to buyback the 3% royalty could be considered, in terms of fairness, in its own right, although it was not appropriate for us to make this assessment.

Disadvantage 2 – Potential Dilutionary Effect of Share Issues

If the Call Option Fee and Exercise Price are settled in Brightstar shares, then this will have a dilutionary effect on the Non-Associated Shareholders as illustrated in the table at Section 3.12. Potentially the more significant impact would be if both the Call Option Fee and Exercise Price were settled by Brightstar shares although, as noted in Section 3.13(ii), it is not likely that the dilutionary effect illustrated in the table at Section 3.12 would eventuate because of the factors explained in that section. Nevertheless, it is an issue for the Non-Associated Shareholders to consider.

Disadvantage 3 – Stamp duty

Any stamp duty or other taxes of a similar nature related to the Call Option Proposed Transaction will be payable by Brightstar.

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Disadvantage 4 – No guarantee

The payment of the Call Option Fee does not guarantee that Brightstar will opt to acquire the 3% Royalty, and in the situation where the Call Option is not exercised, there will have been no direct or immediate benefit to the Company for the payment of the Call Option Fee. In order to justify the cost of exercising the Call Option there would need to be a significant increase in resource estimates associated with the Project tenements. Given the nature of exploration there are considerable risks whether this will be achieved.

Disadvantage 5 – Cash Outflow

Should Brightstar elect to exercise the Option to buyback the 3% Royalty and pay the Exercise Price in full in cash, then Brightstar will be required to pay US$25m at the time of exercise, which would reduce the Company’s available cash reserves and likely require additional funding to facilitate.

Future prospects of Brightstar if the Call Option Proposed Transaction does not proceed

2.19 If the Call Option Proposed Transaction does not proceed, then the Company will not have the option to buyback the 3% Royalty and the Royalty Agreement will remain in force, meaning that Brightstar will be liable to pay the 3% Royalty to SRHK for the life of the related projects should they recommence mining.
2.20 Our assessment of the likelihood of the Call Option being exercised is low, at this time. However, given the Company’s plans to undertake further exploration with the aim to upgrade resources and to recommence mining, shareholders could potentially miss out on any resulting financial benefits, to the extent of the 3% Royalty, should the Company not have the option to buy it back, but only in the event that proven resources can be significantly increased.

Conclusion on Reasonableness

2.21 In our opinion, based on the analysis set out above and after considering the key factors set out below, the position of the Non-Associated Shareholders if the Call Option Proposed Transaction is approved is more advantageous than their position if it is not approved.
2.22 In our view the key factors when considering the reasonableness of the Call Option Proposed Transaction are;
There are no immediate benefits to Non-Associated Shareholders of paying the Call Option Fee of $300,000. Rather any benefits would only be realised if mining recommences and only if returns from mining are projected to exceed the cost of exercising the Option. There are no guarantees that this will happen.
If the Call Option Fee is paid the option to buy back the 3% Royalty will only be exercised in the future if the project is sufficiently successful, so as to justify the payment of the Exercise Price of US$25 million. If the project does not prove to be successful during the Option Period, then Brightstar has no obligation to exercise the Option and pay the exercise price of US$25 million
The payment of the Call Option Fee of A$300,000, to be settled by Brightstar shares, to have the option to buyback the 3% Royalty Stream, given the Company’s plans to undertake further exploration with the aim of substantially upgrading resources and to recommence mining, could provide a significant financial benefit to shareholders, notwithstanding the risks previously noted, and is considered a reasonable cost to pay for the potential upside should the Company’s plans be successful. In particular we note recent announcements by the Company of positive drilling results and the potential to support underground mining studies at two of the Company’s three existing deposits which could significantly increase the scale of these two projects. In our view an upgrade of current resource estimates to a reserve estimate of circa 500,000 ounces, based on current grades and gold prices, and studies supporting the viability of mining would be needed in order to justify exercising the Call Option.
2.23 As noted above, the Call Option Fee of A$300,000 is substantial for an early-stage project where the project is still a number of years from commercial production.

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2.24 Therefore, in the absence of any other relevant information, we consider that the Call Option Proposed Transaction is reasonable for the Non-Associated Shareholders of Brightstar.
2.25 An individual shareholder’s decision in relation to the Call Option Proposed Transaction may be influenced by his or her view of the key factors noted above and/or their individual circumstances. If in doubt, shareholders should consult an independent advisor.

Alternative Proposal

2.26 We are not aware of any alternative proposals.
2.27 Given that the 3% Royalty is currently owned by SRHK, the likelihood of an alternative proposal regarding its buyback becoming available is considered to be low. Either the royalty will remain in place (and be payable should mining recommence) or the Company can take up the option to buy it back as per the Call Option Proposed Transaction.

New Royalty Proposed Transaction

Advantages of approving the New Royalty Proposed Transaction

Advantage 1 – the New Royalty Proposed Transaction is fair

The New Royalty Proposed Transaction is considered to be fair to the Non-Associated Shareholders of Brightstar.

Advantage 2 – No immediate cash outflow

The New Royalty Proposed Transaction replaces the Post Completion Payment liability due by 10 August 2023 with the 1.5% New Royalty. The New Royalty means that Brightstar does not need to obtain funding in the short to medium term in order to repay the liability in cash.

Advantage 3 – No immediate shareholder dilution

The New Royalty Proposed Transaction replaces the Post Completion Payment liability due by 10 August 2023 with the 1.5% New Royalty. The 1.5% New Royalty means that Brightstar does not need to dilute shareholders’ interests in order to repay the liability i.e. by way of a share issue.

Advantage 4 – Royalty is capped

The 1.5% New Royalty is capped at A$16.2m.

Disadvantages of approving the New Royalty Proposed Transaction

Disadvantage 1 – Loss of future revenue

The Company will have to pay a 1.5% NSR on the future revenue arising from the New Tenements for the life of the New Tenements. Brightstar will therefore not retain 100% of the future economic benefit of the revenue earned on the New Tenements.

Disadvantage 2 – The New Royalty is not tied to shareholder returns

The New Royalty is payable from revenue and so will be payable regardless of whether the earnings from the New Tenements are cashflow positive.

Disadvantage 3 – Less attractive

The project tenements will include a 1.5% New Royalty over them, which makes them less attractive to potential investors and acquirers.

Future prospects of Brightstar if the New Royalty Proposed Transaction does not proceed

2.28 If the New Royalty Proposed Transaction does not proceed, then the Company will be obligated to repay the Post Completion Payment of A$5.4 million by 10 August 2023 in either cash and/or shares.

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Conclusion on Reasonableness

2.29 In our opinion, based on the analysis set out above, the position of the Non-Associated Shareholders if the New Royalty Proposed Transaction is approved is more advantageous than the position if it is not approved.
2.30 The key factor when considering the reasonableness of the New Royalty Proposed Transaction was the extinguishing of the Post Completion Payment due by 10 August 2023, which means that Brightstar will not need to obtain financing to repay in cash, or dilute existing shareholders to repay.
2.31 Therefore, in the absence of any other relevant information, we consider that the New Royalty Proposed Transaction is reasonable for the Non-Associated Shareholders of Brightstar.
2.32 An individual shareholder’s decision in relation to the New Royalty Proposed Transaction may be influenced by his or her individual circumstances. If in doubt, shareholders should consult an independent advisor.

Alternative Proposal

2.33 We are not aware of any alternative proposals.
2.34 Given that the Post Completion Payment is due for payment in August 2023, the likelihood of Brightstar being able to raise third party debt funding or receive an alternative offer for the extinguishing of the debt is considered to be low.

3. Summary of Transactions

Call Option Proposed Transaction

3.1 On 16 March 2020 the Company entered into the Revised Debt Equity Compromise Agreement (the “DECA”) between SRL and SRHK. Under the DECA Brightstar agreed to buyback 433,452,944 shares owned by SRL and SRHK in exchange for debt of A$11.4m (comprising A$6m and the Post Completion Payment of A$5.4m).
3.2 On 27 September 2021, the Company entered into a Call Option Deed (the “Call Option Deed”) with SRHK.
3.3 Under the DECA, SRHK is entitled to a 3% Net Smelter Royalty (“3% Royalty”) over the Alpha, Beta and Cork Tree Well projects (the “3% Royalty Projects”). Under the Call Option Deed, SRHK has agreed to grant Brightstar the option to buy back the 3% Royalty during the Option Period. There is no cap on the 3% Royalty payable under the DECA.
3.4 The consideration payable to SRHK for the Call Option is a A$300,000 Call Option Fee, payable in cash and/or shares. Brightstar proposes to pay the Call Option Fee in shares as noted in Resolution 2 of the Notice of Meeting (the “Notice”).
3.5 The Option Period is five years, with an Exercise Price of US$25 million (payable in cash and/or shares at Brightstar’s discretion). Brightstar has the option to buy back a portion of the 3% Royalty Stream at an exercise price in direct proportion to the proportion acquired.
3.6 SRHK has no right to compel or demand the exercise of the Call Option granted under the Call Option Deed.
3.7 The tenements associated with the 3% Royalty Projects include those disclosed in Appendix C.
3.8 If Brightstar intends to relinquish or surrender any part of the 3% Royalty Project tenements, then SRHK has the right to take control of the related tenement holdings, free of encumbrances and at no consideration.

Key conditions of the Call Option Proposed Transaction

3.9 The Call Option Proposed Transaction is conditional upon Brightstar obtaining all necessary shareholder, regulatory and ASX approvals.

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Rationale for the Call Option Proposed Transaction

3.10 The Call Option Proposed Transaction will give Brightstar the option to buy back the existing 3% Royalty Stream if the expected economics of the project during the Option Period justify the purchase price.

Impact of the Call Option Proposed Transaction on Brightstar’s Capital Structure

3.11 The Call Option Proposed Transaction will only have an impact on Brightstar’s capital structure if Brightstar opts to pay the Call Option Fee and Exercise Price in Brightstar shares. Brightstar can elect to pay the Call Option Fee and Exercise price in either cash and/or shares, at Brightstar’s discretion. Brightstar proposes to pay the Call Option Fee in shares as noted in Resolution 2 of the Notice.
3.12 The table below illustrates the impact on the capital structure of Brightstar if Brightstar opts to pay 100% of the Call Option Fee and Exercise Price in full in Brightstar shares.

	Pre-Call Option Proposed Transaction Payment of Call Option Fee Payment of Call Option Fee and Exercise Price	Pre-Call Option Proposed Transaction Payment of Call Option Fee Payment of Call Option Fee and Exercise Price	Pre-Call Option Proposed Transaction Payment of Call Option Fee Payment of Call Option Fee and Exercise Price
Indicative share capital	No % No % No %
Non-associated shareholders Associated shareholders	600,411,372 95.0 31,449,497 5.0	600,411,372 93.5 41,995,315 6.5	600,411,372 23.6 1,947,889,866 76.4
Number of shares on issue	631,860,869 100.0	642,205,697 100.0	2,548,301,238 100.0

3.13 The above analysis has been prepared on the following assumptions:
i. The Call Option Fee can be converted into shares at the VWAP for the 10 trading days prior to the date of the Call Option Deed dated 27 September 2021. This has been calculated as A$0.02845. The Call Option Deed is therefore convertible into 10,545,818 ordinary Brightstar shares in accordance with Resolution 2 of the Notice.
ii. The Exercise Price is convertible into shares at the VWAP for the 10 trading days prior to the date of exercise of the Option. We have used the 10-day VWAP as at 26 July 2022 to estimate the number of shares that the Exercise Price would be converted into. We note that in the event that Brightstar elects to exercise the option and buy back the 3% Royalty under the Option Deed, it is likely that the projects will be successful and as such the VWAP of Brightstar shares may be higher than they are at the date of this report. We do not know what the VWAP of Brightstar shares will be at this point and so our illustration above is based on a best estimate based on the current VWAP. It is likely that the scenario illustrated above is a worst-case scenario given the option is unlikely to be exercised if the value of future cash flows does not justify the exercise price and, if the value of the future cash flows does justify the purchase price, it is reasonable to expect to the share price of Brightstar to be higher than its current price.
iii. The Exercise Price is payable in American Dollars. We have translated this to Australian Dollars using the forecast exchange rate at the end of the Option Period in 2027 of US$1: A$1.2960.
3.14 The aggregated shareholding of the Non-Associated Shareholders in Brightstar will decline from 95.0% prior to the Call Option Proposed Transaction to 93.5% if the Call Option Fee is converted in full into Brightstar shares. The actual VWAP, should the option be exercised, is expected to be higher than it is today and as such, the number of shares to be issued, and the resulting dilution of Non-Associated Shareholders would be lower than indicated in the table at Section 3.12. Given the potential substantial variation in the Brightstar share price between the date of this report and the end of the Option Period, the true impact of the potential dilution is not able to be reliably estimated.

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New Royalty Proposed Transaction

3.15 On 28 June 2022, the Company entered into a Revised Debt Equity Compromise Agreement (the “Revised DECA”) between SRL and SRHK. Under the Revised DECA, the parties have agreed to vary the method of payment for the Post Completion Payment under the DECA from a repayment of A$5.4m in either via cash or the issue of shares, at the Company’s discretion, to the grant of a 1.5% New Royalty. The granting of the 1.5% New Royalty would extinguish the Post Completion Payment liability.
3.16 The New Royalty is a 1.5% Net Smelter Royalty over the New Tenements, payable to SRHK. The maximum amount of the 1.5% New Royalty payable is capped at A$16.2 million.
3.17 The New Tenements covered by the New Royalty include:

	Tenement	Project
1	E38/3279	Ophir Bore
2	E38/3434	Delta 2
3	E38/3438	Edinboro Castle
4	E38/3500	Comet Well
5	E38/3504	Comet Well
6	P38/4508	Burtville

3.18 The New Tenements comprise 148km[2] and have not yet undergone any significant exploration. There are no JORC 2012 compliant mineral resources noted on these tenements.
3.19 If Brightstar intends to relinquish or surrender any part of the New Tenements, then SRHK has the right to take control of the New Tenements, free of encumbrances and at no consideration.

Key conditions of the New Royalty Proposed Transaction

3.20 The New Royalty Proposed Transaction is conditional upon Brightstar obtaining all necessary shareholder, regulatory and ASX approvals.

Rationale for the New Royalty Proposed Transaction

3.21 The New Royalty Proposed Transaction will lead to the cancellation of the A$5.4m Post Completion Payment under the DECA (payable in either cash or shares at the Company’s discretion by 10 August 2023).

Impact of the New Royalty Proposed Transaction on Brightstar’s Capital Structure

3.22 The New Royalty Proposed Transaction does not have an impact on the Capital Structure of Brightstar.

4. Scope of the Report

Regulatory guidance

4.1 The Listing Rules do not define 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. This regulatory guide provides guidance as to what matters an independent expert should consider to assist security holders to make informed decisions about transactions.

Adopted basis of evaluation

4.2 RG 111 states that a transaction is fair if the value of the offer price or consideration is greater than the value of the value of the asset being acquired. 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.

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4.3 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 NonAssociated Shareholders to accept the Proposed Transaction in the absence of any higher bid.
4.4 Having regard to the above, MACF has completed this comparison in two parts (considering the Proposed Transaction/s separately):
A comparison between the value of the 3% Royalty Stream and the value of the Call Option Fee and Exercise Price (fairness – see Section 12 – Assessment of Fairness);
A comparison between the value of the 1.5% New Royalty Stream and the value of the Post Completion Payment (fairness – see Section 12 – Assessment of Fairness); and
An investigation into other significant factors to which Non-Associated Shareholders might give consideration, prior to accepting the Proposed Transaction/s, after reference to the value derived above (reasonableness – see Section 13 - Assessment of Reasonableness).

5. Profile of Brightstar

Background

5.1 Brightstar (ASX: BTR) was incorporated in 2002 and is registered in Western Australia. The Company, which listed on the ASX in December 2003, has gold exploration operations in the Laverton region of Western Australia. The Company was formerly known as Stone Resources Australia Limited and changed its name to Brightstar Resources Limited in December 2020.
5.2
The main activity of Brightstar is gold exploration and development.
5.3 As at 27 July 2022, Brightstar’s share price was A$0.020, giving a market capitalisation of approximately A$12.9m at that date.

Projects

5.4 Brightstar’s main projects are noted below. The projects are all located within 60km of Brightstar’s processing plant (the “Brightstar Plant”) which includes a 60-person camp and has a capacity of 485ktpa+. The Brightstar Plant is located adjacent to the Beta project and is currently on care and maintenance.
5.5 The Cork Tree Well, Alpha and Beta projects make up the tenements associated with the 3% Royalty referred to in the Call Option Proposed Transaction.
5.6 The Comet Well project makes up the majority of the land area associated with the 1.5% New Royalty referred to in the New Royalty Proposed Transaction.

Cork Tree Well

5.7 The Cork Tree Well project is located 35km north of Laverton, within the narrow greenstone belt linking the Laverton and Duketon greenstone belts, and 60km from the Brightstar Plant. Cork Tree Well was formerly an operating mine site that produced 46koz of gold, with previous operations closed in 1988. In August 2022, the JORC 2012 compliant Mineral Resource Estimate for Cork Tree Well was upgraded to 252koz.

Beta

5.8 The Beta project is located 30km south of Laverton, and immediately adjacent to the Brightstar Plant. The mineral resource is centred on the Burtville Shear that trends from near Sunrise Dam to Burtville. It hosts a combined JORC 2012 compliant mineral resource of 1,882kt at 1.7g/t AU for 102koz of gold.

Alpha

5.9 The Alpha project is located 35km west of Laverton and 15km from the Brightstar Plant. It hosts a combined JORC 2012 compliant mineral resource of 1,452kt at 2.3g/t AU for 106koz of gold.

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Comet Well

5.10 The Comet Well project is a large area covering approximately 120km[2] located close to the Alpha and Beta project areas. The tenements have not undergone any significant recent exploration and the project does not have any JORC 2012 compliant mineral resources.

Business Strategy

5.11 Brightstar is looking to restore the Brightstar Plant to commercial production and expand on its existing gold resources at each of its project sites. If Brightstar is successful in upgrading its gold resources, then Brightstar management may also upgrade the production capacity at the Brightstar Plant to accommodate the additional resources.

DECA

5.12 On 16 March 2020 the Company entered into the Revised Debt Equity Compromise Agreement (the “DECA”) between SRL and SRHK. Under the DECA Brightstar agreed to buyback 433,452,944 shares owned by SRL and SRHK in exchange for debt of A$11.4m (comprising A$6m and the Post Completion Payment of A$5.4m).
5.13 In addition, under the DECA, Brightstar entered into a Royalty Deed with SRHK which gave rise to a 3% Royalty on gold produced from tenements detailed in Appendix C.
5.14 On 28 June 2022, the Company revised the DECA whereby all parties have agreed to vary the method of payment for the Post Completion Payment from a repayment of A$5.4m (either via cash or the issue of shares, at the Company’s discretion) in August 2023, to the grant of a 1.5% New Royalty over the New Tenements.

Board of Directors

5.15 The current Board of Directors are:

Name	Title	Experience
Mr Yongji Duan	Non-Executive	Mr Duan is the President and Chief Executive Officer of Stone
	Chairman	Group Holdings Limited and its subsidiaries. Mr Duan
		graduated from Tsinghua University and was a researcher at
		Beijing University of Aeronautics & Astronautics.
Mr Bill Hobba	Managing	Mr Hobba has been a director of Brightstar for seven years,
	Director	having previously served as a non-executive director and technical advisor. Mr Hobba has over 40 years’ experience in
		gold and nickel mines including 10 years as a consultant in a
		mine management consultancy and 5 years supplying
		resources to mill operations. He supervised CPC
		Engineering’s renovation and assembly of the Brightstar gold
		plant. .
Mr Josh Hunt	Non-Executive	Mr Hunt is an experienced capital markets and M&A lawyer
	Director	and has experience in mining and energy project acquisitions
		and disposals and general mining legislation compliance
		throughout Australia. He has advised on a number of IPOs,
		fundraisings, and acquisitions by both public and private
		companies on the ASX and internationally.

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The Historical Consolidated Financial Information

5.16 The information below provides a summary of the financial information of Brightstar for the years ended 30 June 2020 and 2021 and for the six months ended 31 December 2021. The financial information for the years ended 30 June 2020 and 2021 has been extracted from the audited consolidated financial statements of the Company. The financial information for the half year ended 31 December 2021 has been extracted from the reviewed financial statements for the period then ended.
5.17 The current auditor of Brightstar, Pitcher Partners, issued an unqualified opinion on the financial statements for the year ended 30 June 2021 and no adverse findings for the half year ended 31 December 2021. The predecessor auditor of Brightstar, Deloitte, issued an unqualified opinion on the financial statements for the year ended 30 June 2020.
5.18 Both Pitcher Partners and Deloitte included an emphasis of matter paragraph in their reports regarding the going concern position of the Company for all periods presented.

Statement of Financial Position

5.19 The table below sets out the Consolidated Statement of Financial Position of Brightstar as at 30 June 2020 and 2021, and as at 31 December 2021.

Consolidated Statement of Financial Position	30-Jun-20 30-Jun-21 31-Dec-21
*Ref*	A$'000 A$'000 A$'000
ASSETS CURRENT ASSETS Cash and cash equivalents i Trade and other receivables Other financial assets ii Other current assets Assets held for sale iii TOTAL CURRENT ASSETS NON-CURRENT ASSETS Right of use assets Property, plant and equipment iv Exploration and evaluation assets v TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables vi Borrowings vii Employee leave provisions Lease liabilities for right of use assets Liabilities held for sale iii TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings vii Provisions viii Lease liabilities for right of use assets Other financial liabilities ix TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS	50 985 1,732 36 - 4 25 25 25 16 23 72 11,172 - -
	11,299 1,033 1,833
	32 14 5 721 455 275 2,687 9,313 12,500
	3,440 9,782 12,780
	14,739 10,815 14,613
	21,134 963 2,679 36,066 630 - 111 113 137 18 16 6 3,733 - -
	61,062 1,722 2,822
	- - 529 3,583 3,045 3,045 16 - - - 3,715 4,062
	3,599 6,760 7,636
	64,661 8,482 10,458
	(49,922) 2,333 4,155

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EQUITY Issued capital x Accumulated losses Share based payment reserve xi Share buy back and cancellation reserve x TOTAL EQUITY	51,541 37,858 40,904 (101,472) (40,922) (43,016) 9 486 1,356 - 4,911 4,911
	(49,922) 2,333 4,155

Source: Audited Brightstar financial statements f or the years ended 30 June 2020 and 2021 and reviewed financial statements for the six months ended 31 December 2021.

Commentary on financial position

5.20 We note the following in relation to the financial position of Brightstar:
i. Cash and cash equivalents increased during the half year ended 31 December 2021 due to proceeds received of A$2.2m on the issue of shares.
ii. Other financial assets relate to a deposit for credit cards.
iii. On 25 March 2020, Brightstar announced the proposed sale of some of its tenements. The associated assets and liabilities were subsequently classified as held for sale. Divestment of the Ben Hur project was completed during FY21 with the related assets and liabilities being disposed of. The balance of the unsold assets and liabilities classified as held for sale were reclassified to their respective classification.
iv. Property, plant and equipment largely relates to mine property and plant.
v. Exploration and evaluation expenditure increased during the six months ended 31 December 2021 due to the acquisition of the Comet Well prospective exploration licences adjacent to Brightstar’s Alpha and Beta projects for A$1.5m. The Company also incurred exploration and evaluation expenditure during the period of A$1.8m.
vi. Trade and other payables as at 30 June 2020 included an accrual for interest owing on debt owed to the Company’s previous shareholder, Stone Resources Limited (“SRL”) and Stone Resources (HK) Limited (“SRHK”) which was cancelled upon completion of the Debt and Equity Compromise Agreement (“DECA”) on 18 November 2020. The balance as at 31 December 2021 includes accrued interest on loans owed to Cortex and the Call Option Fee payable to SRHK.
vii. As at 30 June 2020, Brightstar had loans payable to SRL and SRHK which were cancelled on completion of the DECA. The borrowings as at 30 June 2021 relates to the Cortex Settlement Deed payment of A$0.63m, which has been reclassified as non-current as at 31 December 2021.
viii. Provisions largely relate to rehabilitation provisions in relation to exploration and development areas.
ix. Other financial liabilities relate to the buyback consideration of A$5.4m payable under the DECA. The amount is payable in either cash or shares (at the Company’s election) by 10 August 2023 and is measured at fair value.
x. On completion of the DECA, the Company bought back (and subsequently cancelled) 443,452,944 shares. The share buyback resulted in the creation of a Share buyback and cancellation reserve within equity. During the half year ended 31 December 2021, the Company issued 107,110,105 shares.
xi. The share-based payment reserve relates to the issue of options.

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Statement of Financial Performance

5.21 The table below sets out the Consolidated Statement of Financial Performance of Brightstar for the years ended 30 June 2020 and 2021 and for the six months ended 31 December 2021.

Consolidated Statement of Financial Performance	FY20 FY21 HY22
*Ref*	A$'000 A$'000 A$'000
Other income Other income Gain on sale of exploration assets i Debt forgiven ii Loss on sale of other financial assets iii Remeasurement of rehab provision iv Expenses Mine site expenses v Exploration expenses Depreciation and amortisation vi Impairment expenses vii Finance expense viii Administration expenses Consulting expenses Employee expenses (incl directors fees) ix Other expenses Net profit/(loss) before tax Income tax benefit/(expense) Net profit/(loss) after tax	365 297 150 - 5,872 - - 57,253 - - (1,361) - - 3,034 - (554) (332) (173) (1,079) (223) (266) (380) (382) (197) (1,076) (32) (47) (3,035) (1,623) (389) (84) (209) (90) (52) (648) (30) (465) (854) (616) (257) (239) (437)
	(6,617) 60,553 (2,095) - - -
	(6,617) 60,553 (2,095)

Source: Audited Brightstar financial statements for the years ended 30 June 2020 and 2021 and reviewed financial statements for the six months ended 31 December 2021.

Commentary on financial performance

5.22 We note the following in relation to the Company’s financial performance:
i. The gain on the sale of exploration assets relates to the divestment of the Ben Hur project during FY21 and has been calculated as the proceeds from sale less the fair value of the assets and liabilities sold.
ii. The debt forgiven relates to debt owed to the Company’s previous shareholder, Stone Resources Limited (“SRL”) and Stone Resources (HK) Limited (“SRHK”) which was cancelled upon completion of the Debt and Equity Compromise Agreement (“DECA”) on 18 November 2020.
iii. The loss on the sale of financial assets relates to the loss realised on the sale of shares received as consideration for the divestment of the Ben Hur project.
iv. The remeasurement of the rehabilitation provision during FY21 relates to the reduction to the measurement of the provision as a result of some costs no longer being required, or being incurred in prior periods, and the prices and domain sizes used in previous calculations being overestimated.
v. Mine site expenses relate to costs associated with mine sites under care and maintenance.
vi.
Depreciation largely relates to mining property and plant.
vii. Impairment expenses during FY20 largely relate to the impairment of relinquished tenements.

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viii. Finance expenses in FY20 and FY21 include interest expense related to the loan payable to the Company’s previous shareholders SRL and SRHK, which was cancelled upon completion of the DECA during FY21. The expense during the half year ended 31 December 2021 largely relates to the cost of the unwinding of the discount on financial liabilities carried at fair value.

ix. Employee expenses include directors’ fees.

Group Structure

5.23 The Brightstar Group includes the following subsidiaries:

Name	Country of incorporation	Ownership %
Desertex Exploration Pty Ltd	Australia	100

Capital Structure

5.24 As at 5 July 2022 Brightstar had 631,860,869 ordinary shares on issue. Details of the top 10 shareholders as at 5 July 2022 are as follows:

	Shareholder	No of Ordinary Shares	% of total
1	Ms Sandra Wheeler	68,727,775	10.62
2	Tyson Resources Pty Ltd	39,979,978	6.18
3	Mr Yongji Duan	31,449,497	4.86
4	Chen Yingliu	30,303,030	4.68
5	Mr Lieven Bert Frans Bouckaert & Mrs Priscilla Lee Bouckaert	24,790,118	3.83
6	Chetan Enterprises Pty Ltd	16,000,000	2.47
7	HSBC Custody Nominees (Australia) Limited	15,429,281	2.39
8	Ms Christabel Jayne Brand	14,100,000	2.18
9	Estate Late Yong Han	13,908,219	2.15
10	Scorpius Holdings Pty Ltd	12,736,014	1.97

Source: Brightstar’s share register

Options

5.25 As at 5 July 2022 Brightstar had the following options on issue over unissued shares:

Code	shares under option	Grant date	Expiry date	Exercise price A$
OP1	15,000,000	9/04/2020	8/04/2023	0.010
OP2	4,000,000	31/12/2020	31/12/2023	0.060
OP3	4,000,000	31/12/2020	31/12/2023	0.080
OP4	4,000,000	31/12/2020	31/12/2023	0.100
OP5	1,000,000	12/02/2021	12/02/2024	0.100
OP6	5,000,000	22/06/2021	22/06/2024	0.045
OP7	20,000,000	25/10/2021	31/12/2024	0.050
OP8	2,200,000	29/11/2021	1/12/2024	0.050

Source: Brightstar’s option register

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Share Price Performance

5.26 The figure below sets out a summary of Brightstar’s closing share price and volume of Brightstar shares traded for the twelve months to 29 June 2022.
5.27 The New Royalty Proposed Transaction was announced on 27 September 2021. Subsequent to the announcement, the volume of shares significantly increased. This increase in volume traded coincided with the announcement of an oversubscribed placement to fund gold exploration and the drilling at the Cork Tree Well proceeding ahead of budget. The share price proceeded to increase significantly following positive drilling updates around the Cork Tree Well and the acquisition of the Comet Well tenement adjacent to the Alpha and Beta projects. The increase in share price and volumes traded in late September 2021 are not able to be solely attributable to the announcement of the New Royalty Proposed Transaction. Trading volumes prior to 27 September 2021 were low and infrequent.
5.28 Brightstar announced the Call Option Proposed Transaction on 29 June 2022. We note that the announcement did not have a material effect on the Brightstar share price.
5.29 On 31 January 2022 the Company announced drilling results for the Cork Tree Well project, which saw the highest amount of volume traded for a number of years, with over 50 million shares traded. The announcement related to multi element assays which indicated nickel re-assays significantly below expectations and infill nickel assay results not showing significant mineralisation values. The announcement led to a decline in the share price from A$0.05 to A$0.03 per share.
5.30 The share price peaked at A$0.072 on 21 January 2022, prior to the announcement of the Cork Tree Well assay results on 31 January 2022, before a significant drop in the share price to a low of A$0.016 in June 2022.

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

0.07 50.00mm
0.06
40.00mm
0.05
30.00mm
0.04
20.00mm
0.03
10.00mm
0.02
0.01 0
Jun-2021 Aug-2021 Sep-2021 Nov-2021 Dec-2021 Jan-2022 Mar-2022 Apr-2022 Jun-2022
Brightstar Resources Limited (ASX:BTR) - Volume Brightstar Resources Limited (ASX:BTR) - Share Pricing
Source: S&P Capital IQ
Share Price ($) Share Volume
----- End of picture text -----

Other Information

5.31 Brightstar is a listed disclosing entity for the purposes of the Corporations Act and therefore is subject to continuous disclosure obligations and listing rules. A substantial amount of information about Brightstar, including its ASX announcements, can be obtained from its website www.brightstarresources.com.au.

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6. Industry Analysis

6.1 Despite global economic uncertainty over the last few years, demand for gold has risen sharply, leading to an increase in gold prices with an annualised growth in revenue between 2017 and 2022 of 5% to A$22.9bn[1] . This increase in the gold price has led to an increase in exploration activity in Australia.
6.2 Gold is both a commodity and a global store of monetary value. In times of economic uncertainty and political instability, people turn to gold as a commodity to preserve wealth. Historically jewelry and investment in gold bars and coins have accounted for 90% of total gold demand.[2]
6.3 Industry revenue is projected to decrease at anannualised rate of 1.3% over the five years through to 2026-27, to reach A$21.4bn per annum[1] . Despite this decline, gold prices are at a historical high.
6.4 Profitability is projected to decrease over the next five years to 2027 due to higher costs associated with contractors and other operating expenses[1] . Cost pressures and technological advancements are expected to limit employment growth going forward.
6.5 In Australia, gold ore has become more difficult to mine as the ore quality diminishes[1] , the production costs for gold ore mining are generally high. Gold ore mining is a highly capitalintensive industry, with firms incurring substantial indirect costs for exploration, royalties, overheads, marketing, legal services, and research and development.
6.6 Operators will face several operating risks going forward, including higher costs, lower ore grades, more complex geological formations, and higher royalty rates. Decreasing gold prices and rising costs are anticipated to cause some operators to exit the industry. Most new operators entering the industry are likely to be small in scale, operating in narrow geographic regions and producing low volumes of gold ore.
6.7 Increasingly, gold produced in Australia is expected to come from larger mines as smaller shortlife mines become inefficient. Australia’s gold ore output is expected to decrease by an annualized 0.1% over the next five years from 362 tonnes in 2021/22 to 360 tonnes in 2026-27[1] .
6.8 The figure below shows the expected trend in industry revenue over the period 2020 to 2027:

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

Revenue ($ million)
28,000
26,000
24,000
22,000
20,000
2020 2021 2022 2023 2024 2025 2026 2027
----- End of picture text -----

Source: IBISWorld, Gold Ore Mining in Australia, April 2022

6.9 Following the global financial crisis, gold prices declined significantly, however remained above A$1,000/oz with political and economic uncertainty in conjunction with low interest rates driving gold demand and leading to gold prices surging in recent years (exceeding A$2,600/oz).[3]
6.10 The first quarter of 2022 saw an 8% increase in the gold price with demand increasing by 34% year on year to 1,234 tonnes, the highest since Q4 2018[4] . The invasion of the Ukraine in early 2022 and rising inflation were key factors in driving the gold price and gold demand during that period.

1 IBISWorld Gold Ore Mining in Australia, Industry Report B0804, April 2022 2 Metals Focus, Refinitiv GFMS, World Gold Council, June 2022 3 S&P Capital IQ

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6.11 There is some uncertainty regarding forecast gold prices due to the possible worsening of global economic conditions and the continuation of the Ukraine war. Demand is likely to be influenced by rising inflation and widespread economic slowdown, with a predicted continuation of gold buying as a store of wealth and to hedge against currency risk.[4]

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Gold (^GC) (COMEX)
2,100
2,000
1,900
1,800
1,700
1,600
1,500
1,400
Gold (COMEX) Historical Pricing Gold (COMEX) Future Contracts
Gold Price (AUD$)
Dec-19 Apr-20 Sep-20 Feb-21 Jul-21 Dec-21 May-22 Oct-22 Mar-23 Aug-23 Jan-24 Jun-24 Nov-24
----- End of picture text -----

Source: S&P Capital, Gold (COMEX) Commodity Detail

7. Valuation Approach

Definition of Value

7.1 RG 111 states that a transaction is fair if the value of the consideration is greater than the value of the net assets being disposed of. 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. 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 higher bid.

Valuation Approach Adopted

7.2 There are a number of methodologies which can be used to value 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 approach method (Comparable market transactions)
7.3 A summary of each of these methodologies is outlined in Appendix B.

Call Option Proposed Transaction

Valuation of the 3% Royalty Stream

7.4 In assessing the value of the 3% Royalty Stream, we have utilised the DCF approach as our primary methodology.

4 World Gold Council, April 2022

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7.5 Our valuation methodology for the 3% Royalty Stream was selected on the following basis:
We considered using a DCF approach to value the 3% Royalty Stream, using a number of potential scenarios for the expected production profile and capacity at the Brightstar Plant and the estimated project ore reserves on the related tenements, which have been estimated in accordance with the JORC Code;
We have considered but not utilised the market approach method in assessing the value of the 3% Royalty Stream as our secondary methodology. Within the context of comparable transactions, it is not uncommon for royalties on producing assets to transact and attributable value to be assigned. Royalties on exploration assets are less common to transact as a stand-alone item and are often received as part of the consideration given to a vendor upon the sale of the asset. Our assessment did not utilise this method because the DCF approach is more precise, and a preliminary view is that this method would not in any event likely result in a higher value.
Brightstar contains other assets in addition to the tenements to which the 3% Royalty Stream relates and as such, Brightstar’s share price is not solely reflective of the value of the related projects, or a net smelter royalty arising from the projects;
The 3% Royalty Stream is not traded on any form of exchange and as such, there is no observable market for it; and
The 3% Royalty Stream does not relate to producing mining assets and as such do not generate any revenue. Therefore, there is no meaningful historical revenue or earningsbased approach that could represent the future earnings attributable to the 3% Royalty Stream.
In utilising the DCF approach it should be noted that;
- our report does not provide a valuation of the mining tenements of Brightstar, but rather it values a royalty payment arrangement based on net smelter returns;
- where the royalty arrangement relates to tenements that remain in the exploration stage without any technical or economic studies having been completed, the assessment of potential royalty payments is mostly hypothetical;
- for the above reason, we considered that a technical assessment report for the mining tenements themselves would not provide us or shareholders with greater certainty as to what valuation assumptions should be used; and
- shareholders should note that the net present value of the royalty payments is not indicative of the value of the mining tenements themselves.

Valuation of the Call Option Fee and Royalty Exercise Price

7.6 As consideration for the buyback of the 3% Royalty Stream, Brightstar must pay the Call Option Fee and Exercise Price, which is payable in either cash, and/or shares. The Call Option Fee is payable immediately and the Exercise Price is payable on exercise during the Option Period, at Brightstar’s election. The fair value of the liability is readily determined, subject to discounting.

New Royalty Proposed Transaction

Valuation of the 1.5% New Royalty Stream

7.7 In assessing the value of the 1.5% New Royalty Stream, we have utilised the market approach method as our primary approach.
7.8 Our primary valuation methodology for the 1.5% New Royalty was selected on the following basis:
Within the context of comparable transactions, it is not uncommon for royalties on producing assets to transact and attributable value to be assigned. Royalties on exploration assets are less common to transact as a stand-alone item and are often received as part of the consideration given to a vendor upon the sale of the asset. Our assessment has considered the stand alone buy back value of net smelter royalties in the context of such transactions.

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We have considered using a DCF approach to value the 1.5% New Royalty Stream, however, due to the very early stage of exploration of the New Tenements, the underlying data is not JORC 2012 compliant and as such there are no reliable cash flows available;
Brightstar contains other assets in addition to the New Tenements and as such, Brightstar’s share price is not solely reflective of the value of the New Tenements, or the 1.5% New Royalty Stream arising from the New Tenements;
The 1.5% New Royalty is not traded on any form of exchange and as such, there is no observable market for it; and
The New Tenements are not producing mining assets and as such do not generate any revenue. Therefore, there is no meaningful historical revenue or earnings-based approach that could represent the future earnings attributable to the 1.5% New Royalty Stream.

Valuation of Post Completion Payment

7.9 As consideration for the 1.5% New Royalty Stream, the Post Completion Payment liability under the DECA will be extinguished. Under the DECA, the Post Completion Payment liability is payable in either cash, or shares, at the Company’s election by 10 August 2023. The fair value of the liability is readily determined, subject to discounting.

8. Call Option Proposed Transaction: Valuation of 3% Royalty Stream

8.1 As stated at Section 7 we have assessed the value of the 3% Royalty using the DCF approach. This approach estimates the fair market value of the 3% Royalty Stream using a net present value (“NPV”) of the estimated future cash flows arising from the 3% Royalty Projects.

Assessed value of the 3% Royalty Stream

		*Ref*	Low A$	Mid A$	High A$
Value of the	3% Royalty Stream	8.8	nil	2,203,660	4,407,319

Source: MACF analysis

8.2 Our assessed value of the 3% Royalty Stream, as calculated using the DCF approach noted above, is between A$nil and A$4.4m, with a mid-value of A$2.2m. The high value is based solely on Scenario 1 below as Scenarios 2 and 3 as illustrated below are dependent upon significant resource upgrades, the probabilities of which we are unable to assess at this time.
8.3 In order to accurately assess the value of the 3% Royalty Stream we have calculated the NPV of three scenarios of the cash flow projections for the estimated resources in the 3% Royalty Projects, and the Brightstar Plant production capacity for the life of the 3% Royalty Projects, with estimated revenue cash flows based on expected depletion rates.
8.4 The cash flow projections allow for a two-year period for mining to commence and for the Brightstar Plant to undergo refurbishment. We have assumed a target refurbishment commencement date on entering the Call Option Deed. Therefore, for the purposes of this calculation we have estimated production commencing prior to or in 2025.
8.5 The Brightstar Plant, which is currently on care and maintenance and is within 70km of the 3% Royalty Projects with 459koz JORC compliant mineral resource. The Brightstar Plant has an existing production capacity of 485ktpa and is expected to undergo a refurbishment and upgrade to obtain a production capacity of 650ktpa.
8.6 We note that any prospective information is dependent on the outcome of a number of assumptions, some of which are outside of the control of Brightstar and may be influenced by a number of external factors and events. The projections used in this valuation may change materially over time and accordingly the resulting NPV workings noted below may change materiality with those assumptions.

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8.7 When valuing the 3% Royalty Stream we have created three different scenarios with different inputs to measure the range of values attributable to the 3% Royalty Stream. The three scenarios are as follows:

Scenario 1 : Assumes no change to the existing measured and inferred JORC 2012 compliant resource estimate and production capacity of the Brightstar Plant of 600ktpa
Scenario 2 : Assumes resource upgrades from existing resources of 459koz to reserves of 1,000koz and production capacity of the Brightstar Plant of 600ktpa
Scenario 3 : Assumes resource upgrades from 445koz to 1,000koz and an increase in the production capacity of the Brightstar Plant to 1.2m ktpa
8.8 We note that Scenario 1 is based on an existing measured and inferred resources and, using conservative inputs, we consider has a reasonable probability of being achieved. Scenarios 2 and 3 require significant resource upgrades, the probabilities of which we are unable to assess at this time. Accordingly, the values derived from Scenario 2 and 3 have been largely disregarded in our analysis of current fair value and should be considered as more an illustration of the magnitude of resource upgrades required in order to warrant the Company exercising the call option.
8.9 The table below shows the range of values applicable under the three scenarios:

*Ref*	Scenario 1 Scenario 2 Scenario 3
3% Royalty Stream 3.3 Gold Price (A$/oz) 8.14 Estimated Mineral Resource – Ounces 8.18 Estimated Mineral Resource – Grade (g/t) Estimated Resource to Reserve conversion rate 8.25 Estimated Ore Reserve – Ounces Estimated Ore Reserve – Tonnes Plant Throughput (tpa) 8.21 Annual Production (ozpa) Recoveries 8.25 Discount Rate 8.24 NPV of 3% Royalty Stream	3% 3% 3% 2,049 2,049 2,049 459,000 1,000,000 1,000,000 1.90 1.90 1.90 50% 50% 50% 222,500 500,000 500,000 3,642,384 8,185,132 8,185,132 600,000 600,000 1,200,000 36,652 36,652 73,304 90% 90% 90% 22.0% 22.0% 22.0%
	A$4.4m A$4.7m A$7.5m

Source: MACF analysis

Assumptions

8.10 The Royalty Stream to be valued is a 3% royalty payment levied upon gross revenue from the tenements. Based on the above scenarios, the 3% Royalty Stream would have a value of between A$4.4m and A$7.5m. We note that Scenario 1 is based on existing JORC 2012 compliant resources, whilst Scenarios 2 and 3 assume a significant upgrade to these resources. Whilst Brightstar management are confident in their ability to upgrade Brightstar’s existing resources, the success of any upgrade, coupled with the ability of the Company to fund the Brightstar Plant refurbishment and recommence mining is subject to uncertainty and as such, Scenarios 2 and 3 are included above for illustration purposes only.
8.11 Under the terms of the Royalty Deed, the 3% Royalty is calculated as a net smelter royalty, calculated as gross revenue generated from the sale of the commodity less any allowable deductions. Allowable deductions include costs incurred in relation to the sale of the commodity, extracted and recovered from the related tenements, typically including incidental transportation, refining and smelting costs, which may be up to 2% of the gross revenue generated. We are not able to reliably estimate the cash flows from allowable deductions associated with the net smelter royalty. As such, our NPV calculations for all three scenarios are based on the assumption that the gross revenue generated from the sale of the ounces of gold produced from the stated mineral resource is not materially different from the value upon which the net smelter royalty would be

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calculated. We have therefore assumed that the net smelter royalty has a comparable value to a gross revenue royalty, which is a reasonable assumption when taken in conjunction with the low resource to reserve conversion rate adopted. Our NPV calculations are therefore unlikely to be on the high side. We note that even if we included an additional estimate for allowable deductions in our analysis above, our opinion on the fairness of the Call Option Proposed Transaction would remain unchanged.

8.12 The key assumptions adopted in the preparation of the net present value workings are noted below:

Commodity Price

8.13 The tenements covered by the 3% Royalty are projected to produce predominantly gold over the five-year period. 100% of the revenue forecast in the cash flow projections are derived from the production of gold.
8.14 In assessing the commodity price assumption, we have reviewed publicly available industry estimates and related research. We have applied the gold price of A$2,049/oz, which is equal to forecast gold price over the years 2025 to 2027 (when Brightstar is estimated to be producing gold, on recommencement of production at the Brightstar Plant) converted to Australian Dollars using an appropriate forecast exchange rate.
8.15 The table below summarises the forecast commodity price for gold:

(Price/Tonne) 2022 2023 2024 2025 2026	2027+
Gold Price (US$) 1,776 1,735 1,702 1,674 1,666 Gold Price (A$) 2,312 2,243 2,164 2,123 2,134 Average (A$) Median (A$)**	1,458 1,889
	2,049
	2,123

Source: Consensus Economics, CAPIQ, Moore analysis

*Average for 2025-2027+

8.16 We have used forecast A$/US$ exchange rates for each of the years specified above to calculate the relevant forecast gold price in Australian Dollars, which has been sourced from CAPIQ.

Resources

8.17 Based on our analysis above we have adopted a three-year average forecast gold price for the period 2024-2027 of A$2,049/oz. As the Brightstar Plant is not forecast to recommence commercial production for at least another two years, we consider that a longer-term forecast commodity price is most appropriate.
8.18 The 3% Royalty Projects include the following existing resource deposits:

Project	JORC Resources (koz)	Measured & indicated (koz)	Inferred (koz)
Cork Tree Well	252	94	158
Alpha	106	58	48
Beta	101	48	53
Total	459	200	259

Source: Company estimates

8.19 The Cork Tee Well resources are based on recently upgraded JORC 2012 compliant Mineral Resource Estimate by an independent competent person, as announced on 10 August 2022 (refer to ASX website announcement titled “Cork Tree Well Mineral Resource increased to 252,000oz”), after successful drilling undertaken in Q4 2021. The Alpha and Beta Project JORC resources have been derived from its JORC 2012 compliant Mineral Resource Estimate by an independent competent person, as announced by Brightstar on 10 September 2020 (refer to ASX website announcement titled “Stone Resources Australia Completes Review of JORC 2012 Mineral Resources Estimate”).

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8.20 The NPV workings for Scenario 1 are based on the extraction of the existing measured and inferred resources at the Royalty Projects. The cash flow projections factor in the estimated twoyear mining commencement period to get the Brightstar Plant back into commercial production.
8.21 Scenarios 2 and 3 factor in an estimated upgrade to the available reserves from resources of 459koz to reserves of 1,000koz following a period of additional drilling and exploration work. The ability to achieve this resource upgrade is subject to significant uncertainty and will require substantial additional resources to achieve. We have included this range in Scenarios 2 and 3 to illustrate the potential outcome if the resource upgrades anticipated by management are successful.

Processing Capacity

8.22 Scenarios 1 and 2 assume processing capacity of the Brightstar Plant of 600ktpa (the existing capacity of the Brightstar Plant is 485ktpa), increasing to 1.2m ktpa in Scenario 3 assuming an upgrade to capacity following an upgrade to the measured and inferred resources. The ability to increase the processing capacity of the Brightstar Plant will require additional resources to achieve. Given the uncertainty associated with obtaining this additional funding, Scenario 3 has only been included to illustrate the potential outcome if the processing capacity upgrade and resource upgrades anticipated by management are successful.

Inflation

8.23 We have not applied any inflation to the future cash flows to calculate the NPV of the 3% Royalty Stream. The forecast gold prices referred to in Section 8.15 are stated on a real basis.

Currency

8.24 All of the cashflows included in the NPV workings are denominated in Australian Dollars. The forecast gold price used in the cashflow workings has been translated to Australian Dollars using the forecast exchange rate for the years identified.

Discount rate

8.25 The discount rate has been calculated with reference to the time value of money and the risks associated with the projected cashflows. We have used the Weighted Average Cost of Capital (“WACC”) as the appropriate discount rate, which has been assessed as between 20.2% and 23.7%, with a midrange of 22.0%. Refer to Appendix E for details of the calculation. We note that the discount rate used is comparable with the discount rate used in the audited financial statements for Brightstar for the year ended 30 June 2021.

Other inputs and assumptions

8.26 Throughout all three scenarios we have applied a 50% resource to reserve conversion rate, which is considered to be conservative given that the measured and inferred resources are shallow and accessible, with typical conversion rates in the range of 50% to 70%. Based on informal discussions with an industry expert, we consider that at this stage of the project a conservative conversion rate is appropriate.
8.27 The recovery rate has been estimated at 90%, which is considered standard for the industry and is the average recovery rate of gold companies listed on the ASX per GoldNerds analysis in their July 2022 publication.
8.28 In order to meet the estimated resource upgrades included in Scenarios 2 and 3, and the refurbishment of the Brightstar Plant in all three scenarios, as well as the potential Brightstar Plan upgrade to capacity in Scenario 3, Brightstar will require substantial funding and additional resources. Management of Brightstar are not yet able to reliably determine the exact funding requirements to recommence mining and how they will be financed. We have not factored in Brightstar’s ability to obtain this additional funding to be able to achieve the circumstances included in each of the scenarios above.
8.29 In addition, the additional exploration and development expenditure (including capital expenditure) required to achieve the assumptions included in Scenarios 1 to 3 have not been factored into the NPV workings as they do not form part of the calculation of the Royalty itself.
8.30 We do however note that if Brightstar is not able to obtain funding in order to refurbish the Brightstar Plant and recommence mining, then the Royalty itself will have no value. Whilst we consider that given the measured and inferred resources in existence, we consider it possible that

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mining will recommence, given the historical cessation of mining and delays to the Brightstar Plant refurbishment, there is a possibility that this may not occur and as such, for the purposes of our valuation, we have included a nil value in our low valuation of the 3% Royalty.

9. Call Option Proposed Transaction: Valuation of the Call Option Fee and Exercise Price

9.1 As stated at Section 7 we have assessed the value of the Call Option Fee and Exercise Price using the discounted NPV approach.

Call Option Fee

9.2 Under the Call Option Deed, a Call Option Fee of A$300,000 is payable immediately on entering into the Call Option Deed. The Call Option Fee is payable in cash and/or shares at the discretion of Brightstar.
9.3
We have assessed the fair value of the Call Option Fee as follows:

	*Ref*	Low value	High Value
		A$	A$
Call Option Fee	9.2	300,000	300,000

Source: MACF analysis

9.4 Under the Call Option Deed, the Exercise Price to buyback the 3% Royalty is US$25m and is payable on exercising of the option over the Option Period. The Exercise Price is payable in cash and/or shares at the discretion of Brightstar.
9.5 We have assessed the fair value of the Exercise Price as follows:

	*Ref*	Low value	High Value
		A$	A$
Exercise Price	9.6	16,794,112	12,893,285

Source: MACF analysis

9.6 Given that the Option Period expires five years from the settlement date, estimated to be 30 September 2027, we have discounted the payment as follows:


*Ref*	Low value High Value

Face value of the Exercise Price 9.4 Forecast A$:US$ exchange rate 9.9 Term to maturity 9.8 Discount rate applied to cash flows 9.12 Net Present Value of Exercise Price	US$25m US$25m 0.7862 0.7716 2 Years 5 Years 23.7% 20.2%
	A$16,794,112 A$12,893,285

Source: MACF analysis

9.7 In the fair value calculation above, we have assessed the NPV of the Exercise Price using a fiveyear Option Period, and a discount rate of between 20.2% and 23.7%.

9.8 For the purposes of our calculation of the Low value, we have assumed that the Exercise Price is paid at the start of commercial mining, to be in line with the cashflows being generated from the NPV calculations in section 8 of this report. For our high valuation we have assumed that the Exercise Price is paid at the end of the Option Period.
9.9 The cash flow has been translated to Australian Dollars using the appropriate forecast exchange rate depending on the assumed timing of the cash flow as noted in section 9.8 above.

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Discount rate

9.10 In order to ascertain the appropriate discount rate to apply to the Exercise Price we have considered the cost of debt and equity to Brightstar. There is limited information available on the appropriate interest rate that Brightstar could borrow at for a similar loan with a comparable risk profile. All of Brightstar’s borrowings currently, and historically, have been from related parties.
9.11 In addition, for an exploration company such as Brightstar, equity funding is usually the most viable source of funding due to the high risk and speculative nature of their operations. Exploration companies rely heavily on capital raising to fund these exploration activities and they are often unable to rely on external debt funding. Given the low likelihood of being able to raise third party debt funding to progress their exploration and development activities, we do not think that it is relevant to use the existing cost of debt data in the discount rate calculation for Brightstar. In the absence of any reliable third-party debt data, we have assumed that Brightstar has no external debt for the purposes of our calculation of the appropriate discount rate.
9.12 The discount rate we have used has been calculated with reference to the time value of money and the risks associated with the projected cashflows. We have used the Weighted Average Cost of Capital (“WACC”) as the appropriate discount rate, which has been assessed as between 20.2% and 23.7%. Refer to Appendix E for details of the calculation. We note that the discount rate used is comparable with the discount rate used in the audited financial statements for Brightstar for the year ended 30 June 2021.
9.13 We have assessed the NPV of the Call Option Fee and Exercise Price as follows:


*Ref*	Low value High Value


	$A $A

Net Present Value of Call Option Fee 9.3 Net Present Value of Exercise Price 9.6 Net Present Value of Call Option Fee and Exercise Price	300,000 300,000 16,794,112 12,893,285
	17,094,112 13,193,285

Source: MACF analysis

10. New Royalty Proposed Transaction: Valuation of the 1.5% New Royalty Stream

10.1 As stated at Section 7 we have assessed the value of the 1.5% New Royalty Stream using the market approach.
10.2 The value of the 1.5% New Royalty Stream on a comparable transaction basis is reflected in our valuation below:

Assessed value of the 1.5% New Royalty Stream

		*Ref*	Low A$	High A$
Value of the	1.5% New Royalty Stream	Appendix D	Nil	1.6m

Source: MACF analysis

10.3 Our assessed value of the 1.5% New Royalty Stream, as calculated using the market approach noted above, is between A$nil and A$1.6m, with a preferred value of A$nil.
10.4 Typically, net smelter royalties within exploration projects transact within the terms of larger transactions, with no value attributable to the royalty itself. However, there is often an option for the vendor to repurchase the royalty either wholly or in part for a previously agreed upon sum. While there is optionality contained within the value of the royalty buyback, the high value of this option will be the cost to buyback the royalty, upon the option being exercised.

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10.5 As such we consider this value an appropriate measure of the high value of the net smelter royalty. Appendix D sets out comparable transactions to the 1.5% Royalty, normalised to a 1.5% net smelter royalty.
10.6 For our low side valuation, we consider a A$nil value to be appropriate. Net smelter royalties are commonplace inclusions within resources transactions, especially exploration-based projects. A number of these net smelter royalties are never utilised, as some projects never reach an operational stage.
10.7 The New Tenements upon which the 1.5% New Royalty Stream is based are at a very early stage of exploration, with no JORC 2012 compliance Mineral Resource Estimate and as such it is too early in the project life cycle to determine whether the project would be technically or commercially feasible. As such, a nil valuation on the low end is considered to be reasonable.

11. New Royalty Proposed Transaction: Valuation of the Post Completion Payment

11.1 As stated at Section 7 we have assessed the value of the Post Completion Payment using the discounted NPV approach.

Post Completion Payment

11.2 Under the DECA, Brightstar owes SRL and SRHK a Post Completion Payment of A$5.4m, payable in cash and/or shares by 10 August 2023.
11.3 We have assessed the fair value of the Post Completion Payment as follows:

	Low value A$ High Value A$ 4,364,854 4,491,143
*Ref*

NPV of Post Completion Payment 11.4 Source: MACF analysis We have discounted the Post Completion Payment as follows:

*Ref*	Low value High Value

Face value of Post Completion Payment 3.15 Term to maturity 11.5 Discount rate applied to cash flows 11.9 Net Present Value of Post Completion Payment	A$5,400,000 A$5,400,000 12 months 12 months 23.7% 20.2%
	A$4,364,854 A$4,491,143

11.4 We have discounted the Post Completion Payment as follows:

Source: MACF analysis

11.5 In the fair value calculation above, we have assessed the Net Present Value of the Post Completion Payment using a 12-month maturity term as per the DECA, and a discount rate of between 20.2% and 23.7%.
11.6 The Post Completion Payment is due on 10 August 2023.

Discount rate

11.7 In order to ascertain the appropriate discount rate to apply to the Post Completion Payment we have considered the cost of debt and equity to Brightstar. There is limited information available on the appropriate interest rate that Brightstar could borrow at for a similar loan with a comparable risk profile. All of Brightstar’s borrowings currently, and historically, have been from related parties.
11.8 In addition, for an exploration company such as Brightstar, equity funding is usually the most viable source of funding due to the high risk and speculative nature of their operations. Exploration

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companies rely heavily on capital raising to fund these exploration activities and they are often unable to rely on external debt funding. Given the low likelihood of being able to raise third party debt funding to progress their exploration and development activities, we do not think that it is relevant to use the existing cost of debt data in the discount rate calculation for Brightstar. In the absence of any reliable third-party debt data, we have assumed that Brightstar has no external debt for the purposes of our calculation of the appropriate discount rate.

11.9 The discount rate we have used has been calculated with reference to the time value of money and the risks associated with the projected cashflows. We have used the Weighted Average Cost of Capital (“WACC”) as the appropriate discount rate, which has been assessed as between 20.2% and 23.7%. Refer to Appendix E for details of the calculation. We note that the discount rate used is comparable with the discount rate used in the audited financial statements for Brightstar for the year ended 30 June 2021.

12. Are the Proposed Transactions Fair to Brightstar Shareholders?

Call Option Proposed Transaction

12.1 In Sections 8 and 9, we compared the value of the 3% Royalty stream to the value of the Call Option Fee and the Exercise Price.
12.2 Our assessed values are summarised in the table below.

Assessed values of the Call Option Proposed Transaction

	Section	Low Value A$	Mid Value A$	High Value A$
Assessed Fair Value of the 3% Royalty Stream	8	-	2,203,660	4,407,319
Assessed Fair Value of the Call Option Fee and Exercise Price	9	17,094,112	15,143,698	13,193,285

Source: MACF analysis

12.3 In the absence of any other relevant information, in our opinion, this indicates that the Call Option Proposed Transaction is not fair to the Non-Associated Shareholders of Brightstar as the valuations do not demonstrate overlap.

The New Royalty Proposed Transaction

12.4 In Sections 10 and 11, we compared the value of the 1.5% New Royalty Stream to the value of the Post Completion Payment.
12.5 Our assessed values are summarised in the table below.

Assessed values for the New Royalty Proposed Transaction

	Section	Low Value A$	Preferred Value A$	High Value A$
Assessed Fair Value of the Post Completion Payment	11	4,364,854	4,427,999	4,491,143
Assessed Fair Value of the 1.5% New Royalty Stream	10	-	-	1,600,000

Source: MACF analysis

12.6 In the absence of any other relevant information, in our opinion, this indicates that the New Royalty Proposed Transaction is fair to the Non-Associated Shareholders of Brightstar as the value of the Post Completion Payment cancelled exceeds the value of the 1.5% New Royalty Stream.

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13. Are the Proposed Transactions Reasonable?

13.1 RG111 establishes that a Proposed Transaction is reasonable if it is fair. If a Proposed Transaction is not fair it may still be reasonable after considering the specific circumstances applicable to it. In our assessment of the reasonableness of the Proposed Transaction, we have given consideration to:
The future prospects of Brightstar if the Proposed Transaction/s do not proceed; and
Other commercial advantages and disadvantages to the Non-Associated Shareholders as a consequence of the Proposed Transaction/s proceeding.

Call Option Proposed Transaction

Advantages and Disadvantages

13.2 In assessing whether the Non-Associated Shareholders are likely to be better off if the Proposed Transaction proceeds than if it does not, we have also considered various advantages and disadvantages that are likely to accrue to the Non-Associated Shareholders.
13.3 The advantages and disadvantages considered are summarised below:

Advantages of approving the Call Option Proposed Transaction

Advantage 1 – Cash flow

Advantage 2 – Option Period

The Option Period is five years, which should give Brightstar sufficient time to advance the project, to potentially upgrade resources, to assess the viability of mining and to recommence mining if considered viable, thereby enabling them to better assess the fair value of the 3% Royalty at a later date. The Company’s plans include programs to undertake further exploration and evaluation activities with the aim of developing and extending the existing proven resource estimates as well as targeting new discoveries which, if they do eventuate and meet internal reserve targets, would potentially justify exercising the option.

Advantage 3 – Future Economic Benefit

If the project is sufficiently successful so as to exceed the value of the option exercise price of US$25 million, Brightstar has the option to buy back the 3% Royalty and can therefore retain the excess future economic benefit of the royalty stream which would otherwise have been payable to SRHK. If the Company does not buy back the royalty, its shareholders will not fully benefit from the potential upside of resource upgrades or new discoveries. We note that the option to buyback the 3% Royalty also provides financial certainty as to the maximum amount payable should the project be successful.

Advantage 4 – More Attractive Project

If Brightstar exercises the option to buyback the 3% Royalty, then the associated projects will be more attractive to potential investors and acquirers.

Disadvantages of approving the Call Option Proposed Transaction

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Disadvantage 1 – the Call Option Proposed Transaction is not fair

The Call Option Proposed Transaction is not considered to be fair, with a significant difference noted between the values assessed as at this date.

In assessing fairness, we have assessed the Call Option Fee and the related exercise price as one transaction. The payment of A$300,000, albeit to be satisfied by an issue of shares, for the option to buyback the 3% Royalty could be considered, in terms of fairness, in its own right, although it is not appropriate for us to make this assessment.

Disadvantage 2 – Potential Dilutionary Effect of Share Issues

Disadvantage 3 – Stamp duty

Any stamp duty or other taxes of a similar nature related to the Call Option Proposed Transaction will be payable by Brightstar.

Disadvantage 4 – No guarantee

The payment of the Call Option Fee does not guarantee that Brightstar will opt to acquire the 3% Royalty, and in the situation where the Call Option is not exercised, there will have been no direct or immediate benefit to the Company for the payment of the Call Option Fee. In order to justify the cost of exercising the Call Option there would need to be a significant increase in resources estimates associated with the Project tenements. Given the nature of exploration there are considerable risks whether this will be achieved.

Disadvantage 5 – Cash Outflow

Future prospects of Brightstar if the Call Option Proposed Transaction does not proceed

13.1 If the Call Option Proposed Transaction does not proceed, then the Company will not have the option to buyback the 3% Royalty and the Royalty Agreement will remain in force, meaning that Brightstar will be liable to pay the 3% Royalty to SRHK for the life of the related projects should they recommence mining.
13.2 Our assessment of the likelihood of the Call Option being exercised is low, at this time. However, given the Company’s plans to undertake further exploration with the aim to upgrade resources and to recommence mining, shareholders could potentially miss out on any resulting financial benefits, to the extent of the 3% Royalty, should the Company not have the option to buy it back, but only in the event that proven resources can be significantly increased.

Conclusion on Reasonableness

13.3 In our opinion, based on the analysis set out above and after considering the key factors set out belwo, the position of the Non-Associated Shareholders if the Call Option Proposed Transaction is approved is more advantageous than the position if it is not approved.
13.4 In our view the key factors when considering the reasonableness of the Call Option Proposed Transaction are;
There are no immediate benefits to Non-Associated Shareholders of paying the Call Option Fee of $300,000. Rather any benefits would only be realised if mining recommences and

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only if returns from mining are projected to exceed the cost of exercising the Option. There are no guarantees that this will happen.

If the Call option Fee is paid the option to buy back the 3% Royalty will only be exercised in the future if the project is sufficiently successful, so as to justify the payment of the Exercise Price of US$25 million. If the project does not prove to be successful during the Option Period, then Brightstar has no obligation to exercise the Option and pay the exercise price of $US25 million.
The payment of the Call Option Fee of A$300,000, to be settled by Brightstar shares, to have the option to buyback the 3% Royalty Stream, given the Company’s plans to undertake further exploration with the aim of substantially upgrading resources and to recommence mining, could provide a significant financial benefit to shareholders, notwithstanding the risks previously noted, and is considered a reasonable cost to pay for the potential upside should the Company’s plans be successful. In particular we note recent announcements by the Company of positive drilling results and the potential to support underground mining studies at two of the Company’s three existing deposits which could significantly increase the scale of these two projects. In our view an uograde of current resource estimates to a reserve estimate of circa 500,000 ounces, based on current grades and gold prices, and studies supporting the viability of mining would be needed in order to justify exercising the Call Option.
13.5 As noted above, the Call Option Fee of A$300,000 is substantial for an early-stage project where the project is still a number of years from commercial production.
13.6 Therefore, in the absence of any other relevant information, we consider that the Call Option Proposed Transaction is reasonable for the Non-Associated Shareholders of Brightstar.
13.7 An individual shareholder’s decision in relation to the Call Option Proposed Transaction may be influenced by his or her view of the key factors noted above and/or their individual circumstances. If in doubt, shareholders should consult an independent advisor.

Alternative Proposal

13.8 We are not aware of any alternative proposals.
13.9 Given that the 3% Royalty is currently owned by SRHK, the likelihood of an alternative proposal regarding its buyback becoming available is considered to be low. Either the royalty will remain in place (and be payable should mining recommence) or the Company can take up the option to buy it back as per the Call Option Proposed Transaction.

New Royalty Proposed Transaction

Advantages and Disadvantages

13.10 In assessing whether the Non-Associated Shareholders are likely to be better off if the Proposed Transaction proceeds than if it does not, we have also considered various advantages and disadvantages that are likely to accrue to the Non-Associated Shareholders.
13.11 The advantages and disadvantages considered are summarised below:

Advantages of approving the New Royalty Proposed Transaction

Advantage 1 – the New Royalty Proposed Transaction is fair

The New Royalty Proposed Transaction is considered to be fair to the Non-Associated Shareholders of Brightstar.

Advantage 2 – No immediate cash outflow

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Advantage 3 – No immediate shareholder dilution

The Call Option Proposed Transaction replaces the Post Completion Payment liability due by 10 August 2023 with the 1.5% New Royalty. The 1.5% New Royalty means that Brightstar does not need to dilute shareholders’ interests in order to repay the liability i.e. by way of a share issue.

Advantage 4 – Royalty is capped

The 1.5% New Royalty is capped at A$16.2m.

Disadvantages of approving the New Royalty Proposed Transaction

Disadvantage 1 – Loss of future revenue

Disadvantage 2 – The New Royalty is not tied to shareholder returns

The New Royalty is payable from revenue and so will be payable regardless of whether the earnings from the New Tenements are cashflow positive.

Disadvantage 3 – Less attractive

The project tenements will include a 1.5% New Royalty over them, which makes them less attractive to potential investors and acquirers.

Future prospects of Brightstar if the New Royalty Proposed Transaction does not

proceed

13.12 If the New Royalty Proposed Transaction does not proceed, then the Company will be obligated to repay the Post Completion Payment of A$5.4 million by 10 August 2023 in either cash and/or shares.

Conclusion on Reasonableness

13.13 In our opinion, based on the analysis set out above, the position of the Non-Associated Shareholders if the New Royalty Proposed Transaction is approved is more advantageous than the position if it is not approved.
13.14 The key factor when considering the reasonableness of the New Royalty Proposed Transaction was the extinguishing of the Post Completion Payment due by 10 August 2023, which means that Brightstar will not need to obtain financing to repay in cash, or dilute existing shareholders to repay.
13.15 Therefore, in the absence of any other relevant information, we consider that the New Royalty Proposed Transaction is reasonable for the Non-Associated Shareholders of Brightstar.
13.16 An individual shareholder’s decision in relation to the New Royalty Proposed Transaction may be influenced by his or her individual circumstances. If in doubt, shareholders should consult an independent advisor.

Alternative Proposal

13.17 We are not aware of any alternative proposals.

13.18 Given that the Post Completion Payment is due for payment in November 2022, the likelihood of Brightstar being able to raise third party debt funding or receive an alternative offer for the extinguishing of the debt is considered to be low.

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14. Independence

Moore Australia Corporate Finance (WA) Pty Ltd is entitled to receive a fee of approximately $25,000, excluding GST and reimbursement of out-of-pocket expenses. Except for this fee Moore Australia 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.

Prior to accepting this engagement Moore Australia Corporate Finance (WA) Pty Ltd has considered its independence with respect to Brightstar and the associated shareholders of Brightstar, and their respective associates with reference to RG 112, Independence of Expert’s Reports. It is the opinion of Moore Australia Corporate Finance (WA) Pty Ltd that it is independent of Brightstar and the associated shareholders of Brightstar, and their respective associates.

Moore Australia Corporate Finance (WA) Pty Ltd and Moore Australia Perth have not had at the date of this report any relationship which may impair their independence.

We have held discussions with management of Brightstar regarding the information contained in this report. We did not change the methodology used in our assessment as a result of discussions and our independence has not been impaired in any way.

15. Qualifications

Moore Australia Corporate Finance (WA) Pty Ltd is a professional practice company, wholly owned by the Perth practice of Moore Australia, Chartered Accountants. The firm is part of the National and International network of Moore Australia independent firms and provides a wide range of professional accounting and business advisory services.

Moore Australia Corporate Finance (WA) Pty Ltd holds an Australian Financial Services License to provide financial product advice on securities to retail clients (by way of experts reports pursuant to the listing rules of the ASX and the Corporations Act) and its principals and owners are suitably professionally qualified, with substantial experience in professional practice.

The director responsible for the preparation and signing of this report is Mr Neil Pace who is a director of Moore Australia Corporate Finance (WA) Pty Ltd. Mr Pace has approximately 35 years’ experience as a Chartered Accountant and has significant experience in the preparation of independent expert’s reports, valuations and related advice.

At the date of this report neither Mr Pace nor any member or Director of Moore Australia Corporate Finance (WA) Pty Ltd has any interest in the outcome of the Offer.

16. Disclaimers and Consents

Moore Australia Corporate Finance (WA) Pty Ltd has been requested to prepare this report, to be included in the Notice of Meeting which will be sent to Brightstar’s shareholders.

Moore Australia Corporate Finance (WA) Pty Ltd consents to this report being included in the Notice of Meeting to be sent to shareholders of Brightstar. This report or any reference thereto is not to be included in or attached to any other document, statement or letter without prior consent from Moore Australia Corporate Finance (WA) Pty Ltd.

Moore Australia Corporate Finance (WA) Pty Ltd has not conducted any form of audit or any verification of information provided to us and which we have relied upon in regard to Brightstar, however we have no reason to believe that any of the information provided, is false or materially incorrect.

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

Neither Moore Australia Corporate Finance (WA) Pty Ltd nor Mr Pace take any responsibility for nor have they authorised or caused the issue of any part of this report for any third party other than the shareholders of Brightstar in the context of the scope and purpose defined in section 3 of this report.

With respect to taxation implications, it is recommended that individual shareholders obtain their own taxation advice, in respect of the Offer, tailored to their own specific circumstances. The advice provided in this report does not constitute legal or taxation advice to shareholders of Brightstar or any other party.

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The statements and opinions expressed in this report are given in good faith and with reliance upon information generated both independently and internally and with regard to all of the circumstances pertaining to the Offer.

In regard to any projected financial information noted in this report, no member or director of Moore Australia Corporate Finance (WA) Pty Ltd has had any involvement in the preparation of the projected financial information.

Furthermore, we do not provide any opinion whatsoever as to any projected financial or other results prepared for Brightstar and in particular do not provide any opinion as to whether or not any projected financial results referred to in the report will or will not be achieved.

Yours faithfully

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Neil Pace Director

Moore Australia Corporate Finance (WA) Pty Ltd

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Appendix A – Source of Information

In preparing this report we have had access to the following principal sources of information:

Indicative Term Sheet between Brightstar, SRL, SRHK and Cortex dated 27 June 2022;
Debt Equity Compromise Agreement between Brightstar, SRL and SRHK dated 25 March 2020;
• Deed of Variation for the Revised Debt Equity Compromise Agreement between Brightstar, SRL and SRHK dated 28 June 2022;
Deed of Variation for the Settlement Deed between Brightstar, SRHK, Cortex and Mr Yongji Duan dated 28 June 2022;
Call Option Deed between Brightstar, Desert Exploration and SRHK dated 27 September 2021;
• Call Option Deed Variation Letter dated 28 June 2022 between Brightstar, Desert Exploration and SRHK;
Draft Notice of Meeting;
Audited financial statements for Brightstar for the years ended 30 June 2019, 2020 and 2021;
Reviewed interim financial statements for Brightstar for the half year ended 31 December 2021;
Unaudited management accounts of Brightstar for the year ended 30 June 2022;
Publicly available information in relation to Brightstar, including ASX announcements;
Information in the public domain;
Share registry information for Brightstar;
IBISWorld;
Mergermarket;
GoldNerds;
S&P Capital IQ database; and
Discussions with directors and management of Brightstar.

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Appendix B – Valuation Methodologies

We have considered which valuation methodology is the most appropriate in light of all the circumstances and information available. We have considered the following valuation methodologies and approaches:

Discounted cash flow methodology (‘DCF’);
Capitalisation of future maintainable earnings methodology (‘FME’);
Net assets value method (‘NAV’);
Quoted market price methodology (‘QMP’); and
Market approach method (Comparable market transactions)

Valuation Methodologies and Approaches

Discounted Cash Flow Method

Discounted cash flow methods estimate fair market value by discounting a company’s future cash flows to their net present value. These methods are appropriate where a forecast of future cash flows can be made with a reasonable degree of confidence. Discounted cash flow methods are commonly used to value early stage companies or projects with a finite life.

Capitalisation of Maintainable Earnings Method

The capitalisation of maintainable earnings method estimates “fair market value” or “enterprise value”, by estimating a company’s future maintainable earnings and dividing this by a market capitalisation rate. The capitalisation rate represents the return an investor would expect to earn from investing in the company which is commensurate with the individual risks associated with the business.

It is appropriate to apply the capitalisation of maintainable earnings method where there is an established and relatively stable level of earnings which is likely to be sustained into the foreseeable future.

The measure of earnings will need to be assessed and can include, net profit after taxes (NPAT), earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation and amortisation (EBITDA).

The capitalisation of maintainable earnings method can also be considered a market based methodology as the appropriate capitalisation rate or ‘earnings multiple’ is based on evidence of market transactions involving comparable companies.

An extension of the capitalisation of maintainable earnings method involves the calculation of share value of an entity. This process involves the calculation of the enterprise value, which is then adjusted for the net tangible assets of the entity.

Net Assets Value Method (Orderly Realisation of Assets)

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

Liquidation of assets - The Liquidation method is similar to the orderly realisation of asset method except the liquidation method assumes the assets are sold in a shorter time frame.

Net assets – The net assets method is based on the value of the assets of a business less certain liabilities at book values, adjusted to a market value.

The asset based approach, as a general rule, ignores the possibility that a company’s value could exceed the realisable value of its assets as they ignore the value of intangible assets such as customer lists, management, supply arrangements, and goodwill.

The asset based approach is most appropriate when companies are not profitable, a significant proportion of assets are liquid, or for asset holding companies.

Cost Based Approach - The cost based approach involves determining the fair market value of an asset by deducting the accumulated depreciation from the asset’s replacement cost at current prices.

Like the asset based approach, the cost based approach has a number of disadvantages, primarily that the cost of an asset does not necessarily reflect the assets ability to generate income. Accordingly, this approach is only useful in limited circumstances, usually associated with intangible asset valuation.

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Valuation Methodologies and Approaches

Quoted Market Price Methodology

The method relies on the pricing benchmarks set by sale and purchase transactions in a fully informed market the ASX which is subject to continuous disclosure rules aimed at providing that market with the necessary information to make informed decisions to buy or to sell.

Consequently, this approach provides a “fair price”, independently determined by a real market. However, the question of a fair price for a particular transaction requires an assessment in the context of that transaction taken as a whole.

In taking a quoted market price based assessment of the consideration to both parties to the proposed transaction, the overall reasonableness and benefits to the non-participating shareholders must be carefully evaluated.

Market Approach Method

The market based approach estimates a company’s fair market value by considering the market prices of transactions in its shares or the market value of comparable assets.

This includes, consideration of any recent genuine offers received by the target for an entire entity’s business, or any business units or asset as a basis for the valuation of those business units or assets, or prices for recent sales of similar assets

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Appendix C – Tenements Covered by the 3% Royalty Under the DECA

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Appendix D – Comparable Net Smelter Royalty Buybacks

The table below sets out the implied maximum value to buyback net smelter royalties from vendors, focusing on gold exploration and development assets. In the table below, we have adjusted the royalty buyback price to covert to Australian dollars (“A$”), based on an exchange rate of A$1=US$0.6912 and A$1=CAD$0.8895. The royalty prices have been normalised to represent a 1.5% net smelter royalty.

					Implied value
Announcement			Buy Back	Buy Back	of 1.5% royalty
Date	Acquirer	Asset	Option (%)	Value (A$)	(A$)
4/07/2022	Benz Mining Corp (TSXV:BZ)	Eastmain Gold Project	1.00%	1,686,341	2,529,511
30/06/2022	Red Pine Exploration Inc (TSXV:RPX)	Algomoa-Talisman Property	1.50%	562,114	562,114
30/06/2022	Red Pine Exploration Inc (TSXV:RPX)	Wawa Gold Project	1.50%	1,967,397	1,967,397
3/06/2022	Meridian Mining UK Societas (MNO)	Espigao Project	3.00%	2,893,519	1,446,759
31/05/2022	Ximen Mining Corp (TSXV:XIM)	Gold Drop Property	1.00%	1,124,227	1,686,341
31/05/2022	Kapa Gold Inc. (TSXV:KAPA)	Blackhawk Mineral Property Option Agreement	1.00%	843,170	1,264,755
25/05/2022	Capitan Mining Inc (TSXV:CAPT)	Penoles Project	3.25%	1,446,759	667,735
29/04/2022	Sierra Nevada Gold Inc. (ASX:SNX)	EN, MA, D Claims	1.50%	750,000	750,000
31/03/2022	Moneta Gold Inc. (TSX:ME)	Golden Bear Claims	2.00%	1,686,341	1,264,755
18/03/2022	New Age Metals Inc (TSXV:NAM)	Alaska Genesis Project	0.50%	562,114	1,686,341
16/03/2022	Nighthawk Gold Corp (TSX:NHK)	Indin Lake Gold Property	2.50%	2,810,568	1,686,341
7/03/2022	Manitou Gold Inc (TSXV:MTU)	Dryden Properties	0.50%	1,124,227	3,372,681
25/02/2022	Probe Metals Inc (TSXV:PRB)	Detour Quebec Project	0.50%	562,114	1,686,341
29/11/2021	Aurwest Resources Corporation (CNSX:AWR)	Stellar Copper-Gold Project	1.00%	1,124,227	1,686,341
	Min				562,114
	Average				1,589,815
	Max				3,372,681
	Median				1,686,341

Source: S&P’s Capital IQ, MACF analysis

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Appendix E – Discount Rate

When assessing an appropriate discount rate to use in a discounted cash flow valuation, we have considered the rates of return available in the marketplace, the degree of risk attached to the associated cash flows and the required rate of return.

Brightstar is funded by a mix of debt and equity. The Weighted Average Cost of Capital (“WACC”) is a widely accepted basis to calculate the “representative” rate of returns required by debt and equity investors. We have applied the WACC methodology to determine an appropriate discount rate to be used in assessing the fair value of the 3% Royalty Stream.

The Capital Asset Pricing Model (“CAPM”) is the most frequently used model in determining the cost of equity and the required rate of return for debt funding is determined having regard to current borrowing costs and prevailing credit ratings. The cost of equity and cost of debt are weighted by the respective proportions of equity and debt funding to arrive at the WACC.

WACC

The generally accepted WACC formula is the post-tax WACC as shown below:

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Where:

Re = expected equity investment return or cost of equity

Rd = interest rate on debt (pre-tax)

t = corporate tax rate

E = market value of equity

D = market value of debt

V = market value of debt plus equity

CAPM

The CAPM is based on the theory that the prudent investor will price investments so that the expected return is equal to the risk-free rate of return plus a premium for risk. CAPM assumes that there is a positive relationship between risk and return; that is, investors are risk averse and therefore demand higher returns for accepting higher levels of risk.

The CAPM calculates the cost of equity through the following formula:

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Where:

Re = required return on equity

Rf = risk free rate of return

E(Rm) = Expected return on the market

E(Rm) - Rf = Market risk premium

β = Beta

α = Specific company risk premium

We have considered each component of the CAPM below.

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Risk free rate - Rf

The risk-free rate compensates investors for the time value of money. We have assumed a risk-free rate of 4.07%, being the average yield on the 10-Year Australian Government Bond. We have used the 10year bond rate as this is a reasonable proxy for the long-term risk-free rate. The 10-year Australian Government Bond yield rates have been sourced from the Reserve Bank of Australia.

Market Risk Premium – E(Rm) - Rf

Market risk premium represents the level of return investors require over and above the risk-free rate in order to compensate them for the non-diversifiable risks associated with an investment in a market portfolio. Strictly speaking, the market risk premium is equal to the expected return from holding shares over and above the return from holding risk-free government securities. Various empirical studies undertaken show that historical market risk premiums vary across markets; the Australian market is generally in line with the overall range of other developed countries but is slightly higher than the world average. Having regard to this information, we have assumed a market risk premium of 6.2% in our determination of the discount rate. We have sourced the market risk premium from various research papers and

Beta - β

The beta coefficient measures the systematic risk of the company compared to the market as a whole. A beta of 1 indicates that the company’s risk is comparable to that of the market. The choice of a beta requires judgement and necessarily involves subjective assessment as observations of beta in comparable companies may be subject measurement issues and other variations. Accordingly, depending upon circumstance, a sector average, or a basket of comparable companies may present a more reliable beta, rather than relying on a single comparable company.

Beta can be expressed as an equity beta (which includes the effect of gearing on equity returns) or as an asset beta (where the impact of gearing is removed). The asset beta will be lower than the equity beta for any given investments, with the difference dependent upon the level of gearing in the capital structure.

The selection of an appropriate beta involves a degree of professional judgement, particularly where the performance drivers of the company being valued are not directly aligned with the most comparable listed companies. The comparable company data included in the table below illustrates the observed beta coefficients for public listed companies we consider most comparable to Brightstar.

In assessing companies comparable to Brightstar, we have considered listed companies with a focus on the exploration and production of Gold in Australia. In our analysis of comparable companies, we selected gold exploration and production companies on the ASX.

Ticker	Name	Total Debt (A$m)	Mkt. Val. Equity (A$m)	Debt/ Equity %	Unlevered 5 Year Beta
ASX:SAU	Southern Gold Limited	0.1	7.0	1.2%	0.84
ASX:OMX	Orange Minerals NL	0.0	7.1	0.0%	NA
ASX:VKA	Viking Mines Limited	0.2	7.2	2.3%	1.87
ASX:TRM	Truscott Mining Corporation Limited	0.2	7.4	2.2%	1.02
ASX:FRS	Forrestania Resources Limited	0.0	7.9	0.0%	NA
ASX:AGC	Australian Gold and Copper Limited	0.0	7.2	0.0%	NA
ASX:AWJ	Auric Mining Limited	0.1	7.4	1.8%	NA
ASX:FAU	First Au Limited	0.0	7.5	0.0%	0.30
ASX:E79	E79 Gold Mines Limited	0.0	8.1	0.0%	NA
ASX:WGR	Western Gold Resources Limited	0.0	9.0	0.0%	NA
ASX:NME	Nex Metals Explorations Limited	0.5	9.3	5.1%	0.02

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		Total	Mkt. Val.	Debt/
		Debt	Equity	Equity	Unlevered 5
Ticker	Name	(A$m)	(A$m)	%	Year Beta
ASX:BEZ	Besra Gold Inc.	0.4	11.8	3.3%	NA
ASX:MEG	Megado Minerals Limited	0.0	10.7	0.0%	NA
ASX:KNB	Koonenberry Gold Limited	0.0	9.6	0.0%	NA
ASX:ZAG	Zuleika Gold Limited	0.0	12.0	0.3%	-0.39
ASX:A1G	African Gold Limited	0.0	11.9	0.0%	2.32
ASX:POL	Polymetals Resources Ltd	0.0	11.5	0.0%	NA
ASX:G50	Gold 50 Limited	0.0	12.9	0.0%	NA
ASX:BMG	BMG Resources Limited	0.0	12.0	0.0%	1.84
ASX:HMG	Hamelin Gold Limited	0.0	15.7	0.0%	NA
ASX:WC8	Wildcat Resources Limited	0.0	14.8	0.3%	1.05
ASX:MXR	Maximus Resources Limited	0.0	16.2	0.0%	1.70
ASX:OZM	OzAurum Resources Limited	0.1	15.9	0.5%	NA
ASX:TOR	Torque Metals Limited	0.1	16.3	0.4%	NA
ASX:FXG	Felix Gold Limited	0.0	25.8	0.0%	NA
ASX:YRL	Yandal Resources Limited	0.0	18.0	0.0%	0.35
ASX:ICL	Iceni Gold Limited	2.0	18.8	10.5%	NA
ASX:NSM	North Stawell Minerals Limited	0.0	20.4	0.0%	NA
ASX:MRZ	Mont Royal Resources Limited	0.0	20.1	0.0%	0.62
ASX:SNX	Sierra Nevada Gold Inc.	2.5	22.4	10.9%	NA
Average		0.2	12.7	0.01%	0.96

The ungeared equity betas for the comparable companies selected ranged from a low of (0.39) to a high of 2.32, with an average of 0.96. We have therefore determined an unlevered beta range of between 0.96, being the average five-year beta for the selection of comparable companies and 1.52, being the actual five-year beta for Brightstar.

Alpha

On review of the beta comparable companies above, we believe that the average beta coefficient does not capture the risk associated with the Brightstar project appropriately and as such, we have included an alpha risk premium of 10% in each of our high and low valuations.

Tax Rate

We have adopted an average effective tax rate of 25% for Brightstar based upon the projected tax payable from future cashflows in Australia.

Cost of debt

Brightstar has historically had borrowings from related parties with interest rates ranging from 8.53% per annum (this debt was forgiven and replaced by the DECA during FY21) and 9.31% (the Cortex debt repayable on 18 November 2023). In addition, Brightstar has a financial liability owed to a third party under the DECA that does not attract any interest. This financial liability is the Post Completion Payment that is the subject of the New Royalty Proposed Transaction. Brightstar does not have any borrowings from third parties.

In addition, for an exploration company such as Brightstar, equity funding is usually the most viable source of funding due to the high risk and speculative nature of their operations. Exploration companies rely heavily on capital raising to fund these exploration activities and they are often unable to rely on external debt funding. Given the low likelihood of being able to raise third party debt funding to progress their exploration and development activities, we do not think that it is relevant to use the existing cost of

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debt data in Brightstar. In the absence of any reliable third-party debt data, we have assumed that Brightstar has no external debt for the purposes of this calculation. The very low debt to equity percentages in the comparable companies noted in the table above, supports our assessment of Brightstar’s likely future capital structure.

WACC summary

We set out the detailed calculation of the WACC in the table below.

	Low	High
Unlevered Beta	0.96	1.52
Tax rate	25%	25%
Debt/Equity	Nil	Nil
Risk free rate	4.3%	4.3%
Market Risk Premium	6.2%	6.2%
Alpha Risk (incl small cap premium)	10%	10%
Cost of Equity	20.2%	23.7%
Cost of debt	NA	NA
Calculated WACC	20.2%	23.7%

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Appendix F - Glossary

In this report, unless the context requires otherwise:

Term	Meaning
A$	Australian Dollar
US$	American Dollar
CAD$	Canadian Dollar
Act	Corporations Act 2001
ASIC	Australian Securities and Investments Commission
Associated Shareholders	Shareholders associated with the Proposed Transactions
ASX	Australian Securities Exchange or ASX Limited ACN 008 624 691
Board	The Board of Directors of Brightstar
Business Day	has the meaning given in the Listing Rules
Brightstar	Brightstar Resources Limited and its controlled entities
Call Option Proposed Transaction	The payment of a Call Option Fee to SRHK for the option to buy back the 3% Royalty for an Exercise Price of US$25m during the five year Option Period
Company	Brightstar Resources Limited
Control basis	Assuming the shareholder/s have control of the entity in which equity is held
Cortex	Great Cortex International Limited, a company incorporated in the British Virgin Islands
DECA	Debt Equity Compromise Agreement between Brightstar, SRL and SRHK dated 25 March 2020 (as varied on 11 August 2020 and 28 June 2022)
Directors	The Directors of Brightstar
Explanatory Statement	The explanatory statement accompanying the Notice
FME	Future Maintainable Earnings
FY	Financial Year
HY	Half Year
IER	This Independent Experts Report
Income Tax Assessment Act	the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997
Ktpa	Thousand tonnes per annum
Koz	Thousand ounces
Listing Rules	the official listing rules of ASX and includes the business rules of ASX
LTM	Last Twelve Months
Moore Australia or MACF	Moore Australia Corporate Finance (WA) Pty Ltd
New Royalty	1.5% Net Smelter Royalty under the Revised DECA
New Royalty Proposed Transaction	The extinguishing of the Post Completion Payment liability payable to SRHK with the issue of a 1.5% New Royalty
Non-Associated Shareholders	Shareholders who are not a party to, or associated with a party to, the Proposed Transaction
Notice	The notice of meeting

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Term	Meaning
NTM	Next Twelve Months
Post Completion Payment	$5.4m payable to SRL and SRHK in accordance with the DECA
Proposed Transactions	The Call Option and New Royalty Proposed Transactions
Register	the register of members of Brightstar shareholders or option holders, as the case requires
Revised DECA	DECA as varied on 28 June 2022
RG111	ASIC Regulatory Guide 111_Content of Experts Reports_
S&P Capital IQ	Third party provider of company and other financial information
SRHK	Stone Resources (HK) Limited, a company incorporated in Hong Kong
SRL	Stone Resources Limited, a company incorporated in Bermuda

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CONTACT US

Level 15, 2 The Esplanade, Perth WA 6000

T +61 8 9225 5355 F +61 8 9225 6181

E [email protected]

www.moore-australia.com.au

HELPING YOU THRIVE IN A CHANGING WORLD

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Need assistance?

Phone:

1300 850 505 (within Australia) +61 3 9415 4000 (outside Australia)

Online:

www.investorcentre.com/contact

YOUR VOTE IS IMPORTANT

For your proxy appointment to be effective it must be received by 10:00am (AWST) on Saturday, 15 October 2022

Proxy Form

How to Vote on Items of Business

Lodge your Proxy Form:

XX

All your securities will be voted in accordance with your directions.

Online:

APPOINTMENT OF PROXY

Voting 100% of your holding: Direct your proxy how to vote by marking one of the boxes opposite each item of business. If you do not mark a box your proxy may vote or abstain as they choose (to the extent permitted by law). If you mark more than one box on an item your vote will be invalid on that item.

Voting a portion of your holding: Indicate a portion of your voting rights by inserting the percentage or number of securities you wish to vote in the For, Against or Abstain box or boxes. The sum of the votes cast must not exceed your voting entitlement or 100%.

Appointing a second proxy: You are entitled to appoint up to two proxies to attend the meeting and vote on a poll. If you appoint two proxies you must specify the percentage of votes or number of securities for each proxy, otherwise each proxy may exercise half of the votes. When appointing a second proxy write both names and the percentage of votes or number of securities for each in Step 1 overleaf.

Lodge your vote online at www.investorvote.com.au using your secure access information or use your mobile device to scan the personalised QR code.

Your secure access information is

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Control Number: 181413

For Intermediary Online subscribers (custodians) go to www.intermediaryonline.com

A proxy need not be a securityholder of the Company.

SIGNING INSTRUCTIONS FOR POSTAL FORMS

Individual: Where the holding is in one name, the securityholder must sign.

Joint Holding: Where the holding is in more than one name, all of the securityholders should sign.

Power of Attorney: If you have not already lodged the Power of Attorney with the registry, please attach a certified photocopy of the Power of Attorney to this form when you return it.

Companies: Where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the company (pursuant to section 204A of the Corporations Act 2001) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please sign in the appropriate place to indicate the office held. Delete titles as applicable.

By Mail:

Computershare Investor Services Pty Limited GPO Box 242 Melbourne VIC 3001 Australia

By Fax:

1800 783 447 within Australia or +61 3 9473 2555 outside Australia

PARTICIPATING IN THE MEETING

Corporate Representative

If a representative of a corporate securityholder or proxy is to participate in the meeting you will need to provide the appropriate “Appointment of Corporate Representative”. A form may be obtained from Computershare or online at www.investorcentre.com/au and select "Printable Forms".

PLEASE NOTE: For security reasons it is important that you keep your SRN/HIN confidential.

You may elect to receive meeting-related documents, or request a particular one, in electronic or physical form and may elect not to receive annual reports. To do so, contact Computershare.

Samples/000001/000001

Change of address. If incorrect, mark this box and make the correction in the space to the left. Securityholders sponsored by a broker (reference number commences with ‘ X ’) should advise your broker of any changes.

Proxy Form

Step 1 Appoint a Proxy to Vote on Your Behalf

Please mark to indicate your directions

XX

I/We being a member/s of Brightstar Resources Limited hereby appoint

the Chairman OR of the Meeting

PLEASE NOTE: Leave this box blank if you have selected the Chairman of the Meeting. Do not insert your own name(s).

or failing the individual or body corporate named, or if no individual or body corporate is named, the Chairman of the Meeting, as my/our proxy to act generally at the meeting on my/our behalf and to vote in accordance with the following directions (or if no directions have been given, and to the extent permitted by law, as the proxy sees fit) at the General Meeting of Brightstar Resources Limited to be held at Brightstar Resources Limited, 3/25 Belgravia Street, Belmont WA 6104 on Monday, 17 October 2022 at 10:00am (AWST) and at any adjournment or postponement of that meeting.

Step 2 Items of Business

PLEASE NOTE: If you mark the Abstain box for an item, you are directing your proxy not to vote on your behalf on a show of hands or a poll and your votes will not be counted in computing the required majority.

For Against Abstain

Resolution 1 Call Option Deed

Resolution 2 Issue of Shares to SRHK – Option Fee Resolution 3 Grant of New Royalty

Resolution 4 Issue of Shares to SRHK

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The Chairman of the Meeting intends to vote undirected proxies in favour of each item of business. In exceptional circumstances, the Chairman of the Meeting may change his/her voting intention on any resolution, in which case an ASX announcement will be made.

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Step 3 Signature of Securityholder(s) This section must be completed.
Individual or Securityholder 1 Securityholder 2 Securityholder 3
/ /
Sole Director & Sole Company Secretary Director Director/Company Secretary Date
Update your communication details (Optional) By providing your email address, you consent to receive future Notice
Mobile Number Email Address of Meeting & Proxy communications electronically
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2 9 2 6 9 8 A

B T R

AI assistant

BRIGHTSTAR RESOURCES LIMITED — Proxy Solicitation & Information Statement 2022

64581_rns_2022-09-14_d2ff1bef-de9b-432d-81cc-dfffe742a97f.pdf

Notice of General Meeting and Explanatory Memorandum

Brightstar Resources Limited

ABN 44 100 727 491

Notice of General Meeting

Snapshot Time

Agenda and Business of the Meeting

1. Resolution 1 – Call Option Deed

Notice of General Meeting

2. Resolution 2 – Issue of Shares to SRHK – Option Fee

3. Resolution 3 – Grant of New Royalty

4. Resolution 4 – Issue of Shares to SRHK

Notice of General Meeting

Explanatory Memorandum

Poll

Proxies

Voting by Proxy

Notice of General Meeting

Corporate Representative

Luke Wang

Explanatory Memorandum

1. Introduction and Background

2. Resolution 1 – Approval of Call Option and Option Fee

2.1 General

Explanatory Memorandum

2.2 Listing Rule 10.1

Substantial asset

2.4

Independent Experts Report

2.5

Listing Rule 10.4

Explanatory Memorandum

2.6 Chapter 2E of the Corporations Act

2.7 Technical Information required by Listing Rule 10.5 and ASIC Regulatory Guide 76

Explanatory Memorandum

2.9 Board recommendation, Reasons and Interests

Explanatory Memorandum

3. Resolution 2 – Issue of Shares to SRHK – Option Fee

3.1 Background

3.2 Chapter 2E of the Corporations Act

Explanatory Memorandum

Explanatory Memorandum

3.4 Technical Information required by Listing Rule 10.13 and ASIC Regulatory Guide 76

3.5 Technical information required by Listing Rule 14.1A

Explanatory Memorandum

3.6 Directors’ Recommendation, Reasons and Interests

4. Resolution 3 – Grant of New Royalty

4.1 General

Explanatory Memorandum

4.2 Listing Rule 10.1

4.3

Substantial asset

Explanatory Memorandum

4.4 Independent Experts Report

4.5

Chapter 2E of the Corporations Act

Explanatory Memorandum

4.6 Technical Information required by Listing Rule 10.5

4.7 Technical information required by Listing Rule 14.1A

4.8 Board recommendation, Reasons and Interests

Explanatory Memorandum

5. Resolution 4 – Issue of Shares to SRHK – Cortex Debt

5.1 Background

( Cortex Settlement Deed )

Explanatory Memorandum

5.2 Chapter 2E of the Corporations Act

5.3 Listing Rule 10.11

Explanatory Memorandum

5.4 Technical Information required by Listing Rule 10.13 and ASIC Regulatory Guide 76

5.5 Technical information required by Listing Rule 14.1A

Explanatory Memorandum

5.6 Directors’ Recommendation, Reasons and Interests

Explanatory Memorandum

Explanatory Memorandum

Tenements means:

Explanatory Memorandum

Explanatory Memorandum

Schedule 1 –– Material Terms of Call Option Deed

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