STELLAR RESOURCES LIMITED — Annual Report 2008

Oct 16, 2008

BUSINESS REVIEW 2008

BUSINESS REVIEW 2008

CONTENTS

Chairman's Report	02
Review of Activities	03
Iron Ore Project	04
Tin Project	06
Copper/Gold Exploration	09
Nickel / Tin Exploration	11
Uranium Exploration	11
Zinc Exploration	12
Directors and Executives	14
Corporate Directory	16

The past year was one of transition from greenfield exploration to brownfield projects.

Forward Looking Statements

This Business Review contains certain forward looking statements with respect to the company that involve known and unknown risks that are beyond the company's control. In light of these risks, actual results could be materially different from any future results express or implied by these forward looking statements which speak only as at the date of this Business Review.

Chairman's Report

Strategy

The past year was one of transition for the company. Activities at traditional greenfield exploration sites matured in the case of some projects and new activities focused on advanced projects that could yield mineral resources within one to two years. The shift in strategy was driven in part by the stronger share price performance of companies with resources and recognition that Stellar's iron ore mineralisation at Tarcoola in South Australia could deliver a resource given the unprecedented increase in iron ore prices during the year.

Stellar received interest in its iron ore assets from a number of Chinese companies following a visit to Beijing by management in February 2008. The company subsequently raised $1.0 million by a placement of 5 million shares to Chinese interests. Discussions continue in an effort to secure a partner to take the project through to completion of a feasibility study.

Adding to the focus on resources was a successful bid for a large, high grade undeveloped tin resource at Zeehan by Stellar's wholly owned subsidiary Columbus Metals. The Heemskirk Tin Project, has significantly increased the quality of assets within Columbus. Stellar has prepared Columbus for an IPO but will only proceed once a sustainable improvement in equity market conditions has occurred.

Exploration Spending

Stellar spent $2.0 million on exploration during the year compared with $3.4 million in the previous year. Joint venture partners provided leverage to this effort by spending a further $2.0 million mostly on uranium exploration. Stellar continues to look for opportunities to joint venture properties that do not meet the company's strategic goals or are best advanced by companies that have skills specific to the project.

Key Personnel

Mr Peter Blight joined the company in October 2007 as General Manager Business Development and was promoted to the position of Chief Executive Officer in March 2008. Mr Blight's technical background in geology and long involvement with the finance industry broadens management skills and improves corporate governance by separating the role of Chairman and CEO. In addition, the Chairman's role has now become non-executive further improving corporate governance.

Dr David Isles relinquished his executive duties during the year and will continue in the role of Nonexecutive Director. On behalf of shareholders the board would like to thank Mr Burrowes and Dr Isles for their valuable contributions to the development of Stellar's exploration portfolio and look forward to their on-going counsel as non-executive board members.

Outlook

Stellar's main focus in 2009 will be the Tarcoola Iron Ore Project Project. Further drilling to define resources and the search for an appropriate joint venture partner are the main aims.

Review of Activities

South Australia & New South Wales Tenement Map

Iron Ore Project

TARCOOLA IRON ORE PROJECT (Stellar 100%)

Highlights for 2008

• • Record annual contract prices for iron ore were set with Chinese Steel Mills by Rio Tinto in May 2008 – contract prices have increased four fold since 2004.
• • $2 million was raised during the year to further exploration of the Coolybring deposit.
• • Drilling in May 2008 extended the width of the magnetite mineralisation at Coolybring from 200m to 260m. The deposit remains open in crosssection to the west and at depth.
• • Drilling also identified the presence of primary hematite within the magnetite zone greatly increasing the potential for high grade hematite.
• • Discussions were held with potential partners during the year with several companies continuing to monitor the progress of exploration.

Project Setting

Rapid growth in China's steel production over the last five years has driven the demand for iron ore and the depletion of domestic magnetite resources. The search for alternative sources of magnetite has focused the attention of China's steel industry on Australia.

Magnetite mineralisation was first identified on exploration license 4167 in the 1960s and first drill tested by Stellar in 2005. In 2008, Stellar re-launched the Tarcoola Iron Ore Project following the strong rise in prices and a review of the project's key attributes – summarised as follows:

• • The Tarcoola Iron Ore Project is located 10km from the township of Tarcoola and the TransAustralian railway in central South Australia.

• • It is the closest of the iron ore deposits in central SA to rail and port infrastructure and lies outside the Woomera Prohibited Zone.

• • The railway is open access and has the capacity to carry iron ore trains

• • The railway links the project to the iron ore port of Whyalla, 480km to the southeast.

• • Metallurgical results, on a limited sample to date, are favourable and comparable to those of more advanced Australian projects.

• • Deposit geometry, defined by geophysics and limited drilling, implies large resource potential.

Stellar commenced definition drilling in May. Cross-section 6609770N in figure 1 summarises the geological results of the drilling program. The eastern limit of the magnetite mineralisation was located 60m further east than expected (the western limit was not tested). The drilling program also located a zone of primary hematite mineralisation, near the eastern boundary of the magnetite deposit, greatly enhancing the prospect of locating high grade hematite in the area.

Assay results from the May drilling campaign show that iron grade is slightly lower to the east than the west but at an average of 33% still of ore grade (see Table 1). The two western most holes, DD004 and RC006 have average iron grades that exceed 39%, the high end of the range for magnetite deposits.

Ground geophysics and correlation of drill core with the iron ore sequence in OneSteel's Middleback Ranges mines have identified hematite targets along the western edge of the magnetite zone. The peak in the residual gravity response is 150m to the west of the magnetic gradient peak (which appears to be identifying a topographic ridge in the magnetite mineralisation) suggesting that density and possibly iron grade increases to the west of DD004 (see Figure 2).

In September 2008, Stellar issued new shares to an institutional investor to raise $1.0 million to be applied to drilling hematite targets within the Tarcoola Iron Ore Project area.

Targets for 2009

• • Complete definition drilling to test for the presence of high grade hematite mineralisation and determine the boundaries of the magnetite zone.
• • Commence a scoping study to determine the size of the resource and the inputs required for economic development.
• • Identify a suitable partner to carry the project forward.

Figure 1: Interpretative Geological Cross-Section 6609770N

Hole	Eastingm	Northingm	Lengthm	Fromm	Tom	Fe%	SiO2%
DD004	2230	9770	114	108	222	39.2	43.4
RC006	2200	9770	34	116	150	39.3	38.3
RC001	2408	9770	57	77	134	34.8	na
PD007	2347	9770	133	86	219	33.5	na

Table 1: Assay Results from Drill Section 6609770N

Figure 2: Coolybring Residual Ground Gravity Overlain on Ground Vertical Magnetic Gradient Image

Tin Project

HEEMSKIRK TIN PROJECT (Stellar 60%)

Highlights 2008

• • March 2008, Stellar's wholly owned subsidiary, Columbus Metals, acquired a 60% interest in the Heemskirk Tin joint venture from Western Metals for $1.178 million.
• • July 2008, Columbus Metals negotiated the acquisition of Gippsland Limited's 40% interest in the Heemskirk joint venture in exchange for Columbus shares and subject to ASX listing of Columbus.
• • August 2008, tin projects in Stellar's Granville and Rayne ELs transferred to Columbus Metals on condition that Columbus is listed on the ASX.

Project Setting

Tin prices are in recovery and have been since 2002 thanks to a run down of industry stocks and strong demand growth for tin solder. Growth in the consumer electronics sector has resulted in solder representing 50% of tin consumption – a rise from 15% twenty years ago. In addition, can sheet demand is also driving tin use as urbanisation in China and other developing countries increases the requirement for canned food.

Growth in the supply of tin is constrained due to rising production costs, competing land use in the case of some alluvial production, declining grade and a lack of exploration spending to locate new deposits. Reactivation of old mines is providing some additional supply. However, new mines need to be developed to sustain growth.

The Heemskirk Tin Project was last active in the mid 1980s when Aberfoyle owned the 60% interest acquired by Columbus Metals. Aberfoyle drill tested three deposits, Queen Hill, Montana and Severn to a depth of 400m and reported a pre-JORC resource of 3.61 million tonnes grading 1.21% tin or 43,700 tonnes of contained tin.

As Figure 3 shows Heemskirk is the fourth largest tin resource in Australia and the highest grade major resource after Renison Bell. Stellar's St Dizier resource (5,600 tonnes of contained tin) is also shown in Figure 3 for comparison.

The potential to expand the Heemskirk tin resource is illustrated in the schematic long-section shown in Figure 4. All deposits drilled to date are open at depth and may follow the Renison Bell model in which mineralisation is continuous down to the granite source rocks – a depth of 1,000m. Magnetic imaging suggests that the same geological environment is present at Heemskirk.

Conventional tin metallurgy can be applied at Heemskirk as the main tin mineral is cassiterite. Importantly, grain size increases with depth suggesting that recovery should also rise with depth. Severn, the largest of the three deposits located to date, contains coarser grained cassiterite than the other two and should ensure that recovery is above 70%.

The Heemskirk Project is located adjacent to the town of Zeehan within the highly mineralised northwest coast of Tasmania. The Mt Lyell, Rosebery, Renison Bell and Avebury mines are all within 30 km of Zeehan resulting in a high level of mining and engineering services within the town. Competitively priced power, good roads and a train line connecting the Heemskirk project to the port of Burnie on Tasmanian's north coast highlight the infrastructure advantages of operating in this area.

Targets for 2009

• • Float of Columbus Metals to raise $10 to $15 million.
• • Confirmation and expansion of resources for the Heemskirk Tin project.
• • Commencement of scoping study.
• • At least one near-surface ore grade tin intersection from regional exploration.

Figure 3: Australian Tin Deposits Ranked by Size

Figure 4: Heemskirk Tin Project, Schematic Long-Section Showing Resource Potential

Tasmania Tenement Map

Copper / Gold Exploration

Alpine (Stellar 100%) Tasmania

The Alpine prospect is located in the Heemskirk exploration licence 46/2003, 26km northwest of the town of Zeehan. Copper mineralisation in a road cutting on the Heemskirk road and an associated magnetic anomaly 700m in strike by 300m in width attracted exploration programs firstly from CRA Exploration with two diamond holes and subsequently from Stellar with a further 19 holes.

Copper mineralisation intersected in several drill holes graded 0.2% to 0.5%. It appears to be stratabound and occurs as veinlets of chalcopyrite associated with late stage carbonate veining in highly sheared magnetite and pyrite rich metasediments.

Stellar is now looking for a joint venture partner to develop the project further.

Pernatty (Stellar 100%) South Australia

The Pernatty exploration licence 3583 lies 40km to the southwest of the Carrapateena copper discovery and borders the historic Gunson copper mining area. The Stuart highway cuts diagonally across the southern boundary of the licence

Two iron ore copper gold (IOCG) style magnetic and gravity anomalies, typical of those associated with Carrapateena were identified along a northwest trending lineament within the licence area. The first of these was tested with a drill hole to 1,072m and intersected a 195m zone of hematitcally altered Gawler Range Volcanic from 877m. The alteration zone contained anomalous copper and silver mineralisation with the best result being 5m of 0.21% copper and 25ppm silver from 1,042m. The second target remains untested.

Stellar's preferred approach is to invite a joint venture partner to test the second target and develop other IOCG targets on the licence area.

Figure 5: Pernatty drill targets

Copper / Gold Exploration (continued)

Cowell (Stellar 100%) South Australia

Exploration licence 3978 is located to the northeast and west of the township of Cowell on South Australia's Eyre Peninsula. The licence covers the southern extension of the highly prospective Proterozoic "copper corridor".

Previous diamond drilling targeted magnetic highs interpreted to represent alteration zones in crystalline basement rocks surrounding Hiltaba aged granites lying approximately 100m below the surface. The presence of anomalous copper mineralisation over narrow intervals in basement rocks and uranium associated with gravity lows in the same rock sequence prompted a follow-up program of four diamond drill holes. The results of the PACE subsidised February 2008 drilling program were no better than those from previous drilling, diminishing the prospect of a third drilling round directed at the crystalline basement.

Stellar also drilled a single diamond drill hole into a linear magnetic anomaly in the southwest of exploration licences 3978 in an effort to locate a magnetite rich banded iron equivalent of Centrex Metal Limited's (ASX: CXM) Bungalow deposit, immediately north of the target anomaly. Drilling intersected a magnetite bearing biotite-chlorite schist that was deemed unlikely to yield economic grades of iron.

Stellar is currently finalising an exploration joint venture with UraniumSA Limited (ASX: USA) to explore the Tertiary cover sequence above the crystalline basement for uranium.

Robins Rise (Stellar 100%, Red Metal Alliance to earn 60%) South Australia

Red Metal Limited (ASX: RDM) in alliance with Phelps Dodge Australasia Inc., has a right to earn a 60% stake in the Robins Rise exploration licence 3336 which is located 100km northwest of the Prominent Hill copper-gold deposit.

The Alliance drilled 10 RC holes into IOCG magnetic targets in crystalline basement during the year. The Alliance is now considering its options for further work given that none of the holes produced economic intersections.

Sunshine (Stellar 100%) South Australia

The Sunshine prospect is represented by a cluster of gold in calcrete anomalies on Carnding, exploration licence 3369, located 20km to the northwest of the township of Tarcoola. 1,350m of RC drilling was completed over the calcrete anomalies during the year with only one significant intersection recorded of 0.3g/t Au over a 3m interval. Exploration of the Sunshine prospect is incomplete and further drilling is planned.

Panama (Stellar 100%, Carpentaria Exploration to earn 51%) New South Wales

Carpentaria Exploration Limited (ASX: CAP) has completed a program of detailed surface sampling and geophysical surveying over the extensive zones of historic gold pits within exploration licence 6556. Carpentaria was encouraged by the results and has notified Stellar of its intentions to conduct a drilling program on its target areas.

Nickel / Tin Exploration Uranium Exploration

Heemskirk (Stellar 100%) Tasmania

A VTEM survey has highlighted three moderate strength conductors in the northwest part of exploration licence 46/2003. One of these is along strike, in a similar setting to the copper mineralisation drilled at Alpine. The other two are located under shallow laterite cover and are considered prospective for base metal mineralisation thus requiring ground follow up and drilling.

Ramsay (Stellar 100%) Tasmania

Access to three EM/Magnetic anomalies on the eastern side of exploration licence 1/2004 was checked during the year. Further site checking and drill access preparation is planned ahead of a drilling program

Kingoonya Palaeochannel (Stellar 100%, UraniumSA Limited to earn 70%) South Australia

UraniumSA (ASX: USA) has continued its drilling program across the Kingoonya palaeochannel project near Tarcoola during the year and is currently reviewing results. Agreements to allow rig access to prospective regions of the palaeochannel south of the Trans-Continental Railway are now in place and drilling is planned for the region.

Warrior (Stellar 100%, Toro Energy Limited to earn 70%) South Australia

Toro Energy (ASX: TOE) has expended over $800,000 on exploration licence 3372 ($1.5 million required to earn 51% interest) and has confirmed zones of low level, continuous U mineralisation associated with carbonaceous material at shallow depth, in two main areas (A and B in Figure 6). The company is now developing a work program for exploration licence 3369W to the south of the Warrior project area, where geophysical data indicate a continuation of the prospective channel (Figure 6).

Figure 6: Warrior palaeochannels shown in green

Zinc Exploration

Goldfinger (Stellar 80%) New South Wales

The project is located on exploration licence 4632 which lies 20km to the south of the township of Broken Hill. During the year, Stellar drilled a traverse of four diamond holes through the centre of a strong induced polarisation zone and intersected anomalous copper values within 50m of the surface. Stellar has now earned an 80% interest in the project and plans to further drill test the induced polarisation anomaly.

Magnet Mine (Stellar 100%)

The Magnet mine is located in the Ramsay exploration licence 1/2004. Historic drilling data from previous exploration at Magnet was assessed and site visits completed during the year. Discussions with neighbouring tenement holder, Bass Metals Limited (ASX: BSM), on optimising the ownership structure across the deposit are on-going. Stellar Resources – adding value through mineral development.

Directors and Executives

Chairman

Thomas J Burrowes B.Ec (Hons), MBA (Melb) Mr Burrowes has extensive experience in all facets of Australian exploration and mining over the past sixteen years. After an initial career in funds management, he has held numerous directorships in ASX listed exploration and mining companies.

Directors

Barrie E Laws B.Com, FS Fin, ASA, ACIS Mr Laws has experience in management with particular emphasis on funds management. He joined the Norwich Union Group in October 1991 and was appointed to the Board of Norwich Union Life Australia Limited in March 1993 and as its Chief Executive Officer in February 1997. He retired from full time employment with the Norwich Group in March 1998.

Christopher G Anderson B.Sc (Hons), Fellow AusIMM

Mr Anderson is an exploration consultant with 30 years of experience in mineral exploration programs both in Australia and overseas. He is a graduate of Adelaide University, with an Honours degree in geophysics and geology. He has managed a contract geological and geophysical consultancy service company with particular expertise in the cost effective application of geophysics.

David J Isles B.Sc (Hons), PhD, SEG, ASEG, AIG, MAusIMM

Dr Isles is a geophysicist and recognised expert in aeromagnetic interpretation. He has worked in operational exploration with BHP Minerals and in the area of exploration technology development with World Geoscience Corporation.

Chief Executive Officer

Peter G Blight BSc (Hons) (Adelaide), MSc (USA)

Mr Blight has been involved in the exploration, mining and finance industries for the past twenty eight years. Prior to joining Stellar Resources, he was Director of Research at Russian aluminium giant UC Rusal where he was responsible for market analysis and business development in China and India. He also had a 14 year career with investment bank, UBS, as Executive Director of commodity analysis in London and prior to that as a mining company analyst in Melbourne. Mr Blight's wide range of experience from exploration to business development places him in a strong position to guide the commercialisation of Stellar's advanced projects.

Company Secretary

Melvyn J Drummond BA, B.Com, FCIS

Mr Drummond worked and resided in four countries prior to permanently relocating to Australia in 1985. He has held senior finance and administrative positions (including directorships) in both private and public companies in various business sectors, including resources.

Corporate Directory

DIRECTORS

Thomas J Burrowes (Non-executive Chairman) Barrie E Laws (Non-executive) David J Isles (Non-executive) Christopher G Anderson (Executive)

COMPANY SECRETARY

Melvyn J Drummond

CHIEF EXECUTIVE OFFICER

Peter G Blight

REGISTERED OFFICE

Level 7, Exchange Tower 530 Little Collins Street Melbourne VIC 3000

Telephone: (03) 9909 7618 Facsimile: (03) 9909 7621 E-Mail: srzinfo@stellarresources.com.au Website: www.stellarresources.com.au

Registers of unlisted employee and other options held at this address

ADELAIDE OFFICE

63 King William Street Kent Town SA 5067 Telephone: (08) 8363 1589

LEGAL ADVISOR

Bryan Cumming Level 7, Exchange Tower 530 Little Collins Street Melbourne VIC 3000

AUDITOR

Deloitte Touche Tohmatsu QV Building 180 Lonsdale Street Melbourne VIC 3000

BANKERS

National Australia Bank Limited Level 2, 330 Collins Street Melbourne VIC 3000

HOME STOCK EXCHANGE

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SHARE REGISTRY

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Register of listed ordinary shares held at this address

Stellar Resources Limited ABN 96 108 758 961 Level 7 Exchange Tower, 530 Lt. Collins Street, Melbourne Victoria 3000 T/ +61 3 9909 7618 F/ +61 3 9909 7621